Woolworths Limited v About Life Pty Ltd (No 2)

1. [1]

   This is an application for security for costs by the cross-defendants to a cross-claim. The cross-defendants are current or former partners of Maddocks Lawyers, a partnership of solicitors with offices located around Australia including Sydney. I will refer to the cross-defendants collectively as “Maddocks” in this judgment. The cross-claimant is About Life Pty Ltd (“AL”), a former client of Maddocks.

2. [2]

   The application is made under Uniform Civil Procedure Rules 2005 (NSW) r 42.21(d) which is in substantially the same terms as Corporations Act 2001 (Cth), s 1335(1). That enactment can be traced back to companies legislation in the mid-nineteenth century, and it is common ground that decisions on the Court’s statutory power to order security apply equally to r 42.21(d).

3. [3]

   AL has conceded for the purposes of r 42.21(d) that, if its cross-claim fails, there is reason to believe it will be unable to pay Maddocks’ costs. AL also accepts that AL’s prospective inability to meet Maddocks’ costs not only opens the door to the Court making an order for security, but it is a factor in favour of doing so. Both parties have agreed on the figure of $250,000 as the quantum of security in the event security is awarded, although there is some dispute as to how and when the security is to be furnished. The dispute centres on various arguments which AL puts forward to dissuade the Court from exercising its power to grant security.

4. [4]

   The cross-claim forms part of proceedings which arise out of a commercial dispute concerning a lease of retail premises in a shopping centre at Double Bay in eastern Sydney. The premises were formerly occupied by AL which used them to operate a retail business. In April 2017, AL agreed to sell the business to a company in the Harris Farm Markets group (“HFM”), which involved an assignment of the underlying lease. Maddocks were retained to act for AL on the preparation and completion of the contract with HFM (there is disagreement between the parties as to whether the scope of Maddocks’ retainer extended beyond this). AL and HFM executed a formal contract (which I will refer to as the “Sale Contract”) later that month.

5. [5]

   Woolworths Limited operated a supermarket in other premises in the shopping centre. Previously, in December 2011, Woolworths and AL had entered into a Deed of Agreement concerning AL’s lease. When Woolworths found out about AL’s contract with HFM, Woolworths claimed that the contract contravened a provision of the Deed which gave Woolworths a right of first refusal in the event AL wished to assign, or otherwise to dispose of, its lease.

6. [6]

   In May 2017, Woolworths commenced these proceedings as plaintiff, naming AL and HFM as defendants. Woolworths sought an order restraining AL from assigning the lease to HFM, and further orders that AL assign the lease to Woolworths on the same terms as agreed in the Sale Contract or, alternatively, for AL to offer to assign the lease to Woolworths on those terms. HFM cross-claimed. In its cross-claim, HFM sought an order for specific performance of the Sale Contract on the basis that its equitable interest under the Sale Contract had priority over any interest that Woolworths might have had under the Deed. It also claimed damages against AL for breach of contract and for contravention of the Australian Consumer Law, s 18. AL retained Maddocks in the initial stages of the proceedings to file AL’s appearance and defence (AL alleges, but this is denied by Maddocks, that the scope of Maddocks’ retainer went further than filing initial documentation for AL and included representing AL at the initial stages of the hearing).

7. [7]

   Emmett AJA heard Woolworths’ claim and HFM’s cross-claim for specific performance at a preliminary hearing in July 2017 and determined those claims in a judgment delivered in August 2017: Woolworths Limited v About Life Pty Ltd (2017) 18 BPR 36,983; [2017] NSWSC 1117. In that judgment, his Honour concluded that AL had an obligation under the Deed to offer to sell the retail business, including the lease, to Woolworths on the same terms as the Sale Contract with HFM. His Honour also held that Woolworths had priority to the entitlement of the lease over HFM. His Honour ordered that AL be restrained from assigning or otherwise disposing of its interest in the lease to HFM before AL had first offered to assign the lease to Woolworths on terms equivalent to the Sale Contract and Woolworths had refused that offer. If no contract with Woolworths were concluded within a reasonable period, or Woolworths otherwise declined the offer, HFM would be entitled to an order for specific performance to complete the Sale Contract with AL. AL and HFM were subsequently ordered to pay Woolworths’ costs. The remaining issues in the proceedings, including HFM’s cross-claim for damages against AL, were held over for later determination.

8. [8]

   In or around September 2017, Woolworths exercised its right under the Deed and agreed to take an assignment of the lease, thereby preventing AL from completing the Sale Contract with HFM.

9. [9]

   In October 2017, HFM amended its cross-claim so as to reformulate its claim against AL. In its amended form, HFM’s cross-claim contends that AL breached certain terms in the Sale Contract promising that AL had the authority and capacity to assign its interest in the lease; that by assigning the lease to Woolworths in September 2017 AL repudiated the Sale Contract; and that AL engaged in misleading and deceptive conduct under s 18 of the Australian Consumer Law by making representations to HFM to the effect that AL was able to sell the Double Bay business to HFM.

10. [10]

    HFM’s amended cross-claim also made new claims against Tammie Phillips, Michael Green and Thomas Beecroft. Ms Phillips, Mr Green and Mr Beecroft were all directors of AL at the time of the events forming the subject matter of the proceedings. Mr Beecroft resigned as a director of AL in July 2017 but Ms Phillips and Mr Green remain directors. HFM claims that each director made misleading and deceptive representations concerning AL’s capacity and ability to complete the Sale Contract. HFM also alleges that each director was knowingly concerned in the misleading and deceptive conduct alleged against AL.

11. [11]

    HFM claims from AL damages for breach of contract including the loss of profits it would allegedly have earned had it operated a business at the premises. HFM also claims damages from AL and each director pursuant to s 236 of the Australian Consumer Law for the costs and expenses associated with the negotiation and execution of the Sale Contract and the costs of pursuing its specific performance claim before Emmett AJA.

12. [12]

    The cross-claim to which this security application relates, which is the second cross-claim in the proceedings, was filed by AL in November 2017. In its current (amended) form the cross-claim alleges that Maddocks breached their contractual obligation to exercise reasonable care and skill in acting on the Sale Contract. In particular, AL alleges that Maddocks failed to make, or recommend that AL make, enquiries which would have revealed the existence of the right of first refusal under the Deed. AL also alleges Maddocks breached its duty by failing to check the Asset Register attached to the Sale Contract which is said to have contained a reference to the Deed.

13. [13]

    AL claims that because of Maddocks’ breach of duty, it suffered damage and loss comprising the failure to receive the purchase price under the Sale Contract with HFM; incurring liability to HFM for damages for breach of the Sale Contract as well as incurring liability to pay the legal costs associated with HFM’s cross-claims against AL and Woolworths; incurring liability to pay Woolworths’ legal costs; and its own costs associated with defending HFM’s cross-claim.

14. [14]

    AL also alleges that Maddocks breached their contractual obligation to exercise reasonable care and skill when representing AL at the initial stages of the proceedings. AL alleges Maddocks were negligent in filing a defence instead of filing a submitting appearance to Woolworths’ claim, which contributed to Woolworths’ costs being awarded against AL.

15. [15]

    AL also claims Maddocks breached its fiduciary obligation to avoid any actual or perceived conflict of interest because it should not have acted for AL in circumstances where their advice concerning the Sale Contract was likely to be an issue in the proceedings. AL also claims that Maddocks acted contrary to the interests of AL by encouraging HFM to pursue an appeal against Emmett AJA’s decision which was said to be against AL’s interests.

16. [16]

    The loss flowing from these breaches has said to include the cost order awarded against AL in favour of Woolworths in the preliminary proceedings before Emmett AJA. AL also claims as loss the potential liability to HFM to pay damages representing the legal costs HFM incurred in the proceedings. AL also claims as loss the costs associated with bringing and running its cross-claim against Maddocks.

17. [17]

    In their defence to the cross-claim filed 15 March 2018, Maddocks deny that the scope of the retainer is as broad as is alleged by AL. They also deny that they breached any such retainer, relying in part on Civil Liability Act 2002 (NSW), s 5O as a complete defence. In the alternative, Maddocks claim that any such loss in breach of the retainer was not caused by Maddocks’ negligence. They also raise contributory negligence by AL in the event Maddocks are found liable for the loss.

18. [18]

    Maddocks also assert that the losses claimed by AL for which Maddocks may be liable are apportionable under Part 4 of the Civil Liability Act to AL’s directors. This is because, so it is alleged, the directors failed to advise Woolworths of their wish to assign the lease to HFM and also failed to offer Woolworths a right of first refusal to an assignment of the lease under the Deed.

19. [19]

    Maddocks’ defence under Part 4 picks up and repeats allegations made against the directors by HFM in its amended cross claim. It claims the directors failed to instruct or inform Maddocks as to the existence of the Deed and the directors otherwise made misleading statements to Maddocks as to their capacity to assign the lease to HFM.

20. [20]

    In May 2018, Ms Phillips, Mr Green and Mr Beecroft filed cross-claims against Maddocks, which are the third, fourth and fifth cross-claims in the proceedings. Each cross-claim raises materially identical allegations. Relevantly, each cross-claim alleges that Maddocks owed the director a duty of care as a director of AL. This duty of care is said to arise from the proximity of the relationship between Maddocks and the director, where the director relied upon Maddocks’ advice so as not to be personally exposed to any liability arising from the transactions which are the subject of the proceedings. Each director was said to be vulnerable from the reliance upon Maddocks’ advice and the risk that the director would be exposed to liability to HFM and incur legal costs.

21. [21]

    The directors’ claims against Maddocks for breach of duty rely on the same allegations as AL in its claim for breach of duty (see [12] above). That is, that Maddocks failed to conduct its due diligence by making relevant enquiries with the director which would have revealed the existence of the right of first refusal. As with AL’s claim, each director also alleges Maddocks breached its duty by failing to check the Asset Register attached to the Sale Contract which is said to have contained a reference to the Deed.

22. [22]

    The loss claimed is the liability (if any) of the director to HFM in relation to the Sale Contract, and the director’s costs of defending HFM’s cross-claim.

23. [23]

    The directors’ cross-claims also contain a claim under s 18 of the Australian Consumer Law for misleading and deceptive conduct. Their case is that Maddocks made several omissions, which are stated in the same terms as the claim for breach of duty described above at [21]. These omissions were said to be misleading or deceptive or likely to mislead or deceive. As a result, the directors have suffered the loss or damage as described above at [22].

Effect of cross-claims by directors

1. [24]

   The first argument by counsel for AL focussed on the cross-claims against Maddocks by the individual directors. Counsel argued that because Maddocks was now facing those cross-claims, which could not be the subject of a security for costs order, the claim by AL made no practical difference from Maddocks’ point of view. Counsel relied on the decision of the Full Court of the Supreme Court of Queensland in Harpur v Ariadne Australia Ltd [1984] 2 Qd R 523 (“Harpur”) and the first instance decisions of Studdert J in Maples v Hughes [2002] NSWSC 617 (“Maples”) and Brereton J (as his Honour then was) in Di Francesco v Pioneer Energy Pty Ltd (No 2) [2014] NSWSC 1923 (“Di Francesco”).

2. [25]

   In Harpur, the Full Court of the Supreme Court of Queensland had to consider an application for security for costs by the defendants in proceedings brought by an individual (Mr Harpur) and a number of his companies. The claims were effectively joint ones. The Chamber Judge ordered that the companies provide security. The plaintiffs’ appeal was allowed. In a frequently cited passage, Connolly J, speaking for the Full Court, said (at 532):

3. [26]

   Connolly J went on to say (at 533):

4. [27]

   Maples concerned allegedly negligent advice by the defendant, a solicitor, concerning the acquisition of a parcel of land for subdivision. The solicitor was consulted by the first plaintiff, an individual. The property was acquired by the second plaintiff, a company, in which the first plaintiff was one of the shareholders. The loss claimed by the second plaintiff was the acquisition of the land at an overvalue. The loss claimed by the first plaintiff was the diminution of value in his shares in the second plaintiff. Studdert J said (at [14]):

5. [28]

   A similar situation arose in Di Francesco where the second plaintiff was a natural person and the third and fourth plaintiffs were companies. Brereton J was not satisfied there was sufficient likelihood that the corporate plaintiffs would be unable, if unsuccessful, to meet the defendant’s costs. He also pointed to delay in bringing the application. Then he added (at [24]):

6. [29]

   Brereton J supported these observations by referring to Harpur and Maples, among other authorities.

7. [30]

   The initial argument by counsel for AL was that the individual directors were in effect co-cross-claimants with AL. Counsel submitted that the directors’ cross-claims covered the same ground as AL’s and that if AL’s cross-claim failed then the cross-claims by the directors would likewise fail. He submitted that, accordingly, if AL’s claim failed then Maddocks would have the benefit of costs orders against both AL and the individual directors.

8. [31]

   I am not sure that this is correct. Each of the directors’ cross-claims is based on the proposition that Maddocks owed a duty of care to the individual director. The existence and scope of any such duty of care depends on the particular dealings between the client or putative client on the one hand and Maddocks on the other. It is conceivable that the claim by AL could fail but at the same time the claim by one or more of the individual directors, because of that director’s individual circumstances, could still succeed. The considerations which apply to the defence of contributory negligence also differ between AL on the one hand and each individual director on the other.

9. [32]

   The losses which are the subject of the directors’ claims are losses which may be suffered by them should HFM’s cross-claim against them succeed. These include any liability the directors ultimately have for the costs of HFM’s cross-claim, and their own costs, if any, of defending that cross-claim. They also include HFM’s costs liabilities to Woolworths. But they do not include all of the losses which HFM is claiming from AL. HFM’s claims against AL include claims for loss of profits as a result of AL’s failure to complete the Sale Contract. The directors were not parties to the Sale Contract and only AL can be liable to HFM for such losses. Furthermore, AL claims from Maddocks losses it allegedly suffered from breach by Maddocks of its retainer. These include the losses as a result of entry into the Sale Contract. These losses were suffered by AL and fall outside the scope of any losses claimed by the directors from Maddocks. There is also AL’s claim to recover damages reflecting its liability for Woolworths’ costs.

10. [33]

    In supplementary written submissions, counsel forwarded the following undertaking from Ms Phillips:

11. [34]

    Counsel for Maddocks criticised the formulation of this undertaking and suggested that it did not go far enough to ensure that should AL’s cross-claim fail, Ms Phillips would be responsible for all of AL’s costs and in all circumstances. In response, counsel for AL forwarded the following letter purporting to clarify the scope of the previous undertaking:

12. [35]

    Maddocks criticised AL’s clarification on the basis that it was still ambiguous and did not resolve the issues it flagged earlier. I do not accept these residual criticisms. I think it is clear enough that if AL fails on its cross-claim and a costs order is made against it, Ms Phillips will be personally liable for the whole of the costs irrespective of the outcome of her own cross-claim.

13. [36]

    Although not referred to in Maples or Di Francesco, or in counsel’s submission, both of those decisions accord with the reasoning of Cooper J in Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405. Cooper J said (at 415):

14. [37]

    On the face of it, AL’s argument is directly supported by this approach. But doubt has been cast on the thinking behind the approach by subsequent decisions of intermediate appellate courts.

15. [38]

    In Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306 an application was made by the defendant in proceedings in the Commercial Tribunal of Western Australia for security for costs. Security was ordered in the form of a deed of guarantee by the individual shareholders of the company, over the opposition of the defendant, which argued that this was inadequate. The defendant unsuccessfully appealed to the Supreme Court and then appealed to the Full Court. Malcolm CJ (with whom Pidgeon and Steytler JJ agreed) said (at 316):

16. [39]

    The Full Court concluded that in holding that the provision of individual guarantees was, as a matter of law, sufficient security, the Tribunal had made an error of law. But having analysed the evidence concerning the financial position of the individual directors, and concluding that an order for security in the form of a cash deposit would frustrate an apparently meritorious claim, the Full Court declined to interfere with the Tribunal’s decision and the appeal was dismissed.

17. [40]

    In Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191; [1999] VSCA 43 directors and shareholders of an impecunious company, which was the corporate trustee of a unit trust, offered personal undertakings to the Court to meet any adverse cost order made against the company. Those directors and shareholders were themselves impecunious and unable to satisfy such an order. The beneficiaries of the trust did not provide similar undertakings or otherwise offer to expose their personal assets to meet a cost order against the company. The Master hearing the application ordered the company to provide security. The company’s appeal to a judge of the Supreme Court of Victoria was dismissed. The company appealed again to the Victorian Court of Appeal. The appeal was dismissed.

18. [41]

    Winneke P and Phillips JA said (at [13]-[14], citations omitted):

19. [42]

    Their Honours reviewed the authorities, including Intercraft and Harpur, concluding that an undertaking by those who stand behind an impecunious corporate plaintiff to expose themselves to a liability for the defendant’s costs was but one relevant factor to be taken into account in exercising the discretion. Their Honours continued (at [23]-[24]):

20. [43]

    The third member of the Court, Callaway JA, agreed with Winneke P and Phillips JA. He added (at [38]-[41]):

21. [44]

    Jazabas Pty Ltd v Haddad (2007) 65 ACSR 276; [2007] NSWCA 276 involved a group of impecunious companies that were controlled by four individuals who between them comprised all the shareholders and directors of the companies. In an application for the companies to provide security for costs, two of the individuals gave undertakings to meet the costs of the companies’ proceedings in the event it was unsuccessful. The primary judge ordered the companies to provide security. The company appealed to the Court of Appeal.

22. [45]

    Basten JA disagreed with the views expressed by Callaway JA. His Honour said (at [25], [27]):

23. [46]

    His Honour noted (at [20]-[21]) that in Epping Plaza not all the beneficiaries of the trust had provided an undertaking to pay the costs and that “to an extent” the discussion in Epping Plaza was obiter. Similarly, in Jazabas, not all the individuals standing behind the companies had offered undertakings. Basten JA therefore concluded (at [29]) that the Gentry proposition was not engaged, and the appeal should be dismissed.

24. [47]

    McClellan CJ at CL gave separate reasons for dismissing the appeal. His Honour emphasised the discretionary nature of the decision. He referred to Gentry but described the decision as one that had since been criticised, and quoted from the judgment of Winneke P and Phillips JA in Epping Plaza at [23]-[24], part of which has been quoted above. He dealt with the undertaking issue as one going to impecuniosity of those standing behind the plaintiffs and stultification of the proceedings. He concluded that the evidence did not establish that the making of an order for security would stultify the proceedings and accordingly that “a fundamental element relevant to the discretion in favour of the claimants has not been made out” (at [91]).

25. [48]

    Mason P said he had read the judgments of both Basten JA and McClellan CJ at CL and agreed with that of McClellan CJ at CL. He added (at [2]-[3]):

26. [49]

    Clearly there is an unresolved controversy about the Gentry proposition. That controversy goes beyond the question of whether adopting the Gentry proposition would inappropriately fetter the court’s discretion. There is a debate, represented by the views of Calloway JA in Epping Plaza on the one hand and of Basten JA in Jazabas on the other, about whether the Gentry proposition is sound at all. Neither protagonist’s view was expressly endorsed by the other members of the court. It seems to me that there is an issue of principle to be resolved. But I do not need to attempt to resolve it in this application.

27. [50]

    In this case, only Ms Phillips has offered an undertaking to meet Maddocks’ costs of the cross-claim. It is not suggested that Ms Phillips is the only person (creditor or shareholder) who stands to benefit if AL’s claim succeeds; indeed the evidence does not even identify who those persons are.

28. [51]

    This is clearly a point of distinction from Harpur where Mr Harpur was the only person standing behind the corporate plaintiffs. The issue was not raised in Maples or Di Francesco, and the observations in Di Francesco were obiter because Brereton J was not satisfied on the evidence that there was reason to believe that the corporate plaintiffs would be unable to meet the defendants’ costs.

29. [52]

    I respectfully agree with Basten JA that the Gentry proposition, if it is sound, would usually require all of those who may benefit from the litigation to offer their undertakings. Where a plaintiff seeks to resist an order for security on the grounds that it would stultify the litigation, that “defence” cannot even be considered unless all of those who stand behind the company lack the means to fund the litigation: Bell Wholesale Co Ltd v Gates Export Corp (1984) 2 FCR 1 at 4. If the Gentry proposition is to be adopted at all, it must involve the same requirement.

30. [53]

    There may (as Callaway JA foreshadowed) be scope for an exception to such a requirement where it would be unreasonable to expect all of the persons standing behind the company to provide security and to insist on that would result in the litigation being stultified. But no such exception was said to apply here. There is no evidence that Ms Phillips alone has sufficient means to meet Maddocks’ costs. It is not suggested that an order for security would stultify the litigation. And there has been no attempt to explain why the other persons who stand to benefit from the cross-claim have not offered their own personal undertakings. In my opinion, the undertaking offered by Ms Phillips is no answer to Maddocks’ application for security.

Cause of AL’s impecuniosity

1. [54]

   AL’s next argument is that an order for security should be refused because Maddocks is responsible for AL’s inability to meet the costs of the cross-claim. AL was said to have been experiencing cash flow problems in April 2017. It was said that if notice had been given to Woolworths under the 2011 Deed, Woolworths would have purchased AL’s lease and the purchase would have been completed in June. Instead, the sale did not complete until December with the proceeds of sale being eroded by breach of banking covenants (presumably resulting in higher interest charges) in the meantime. Counsel for AL argued that this was a sufficient nexus to refuse Maddocks’ application.

2. [55]

   Where the defendant is responsible for the plaintiff’s inability to meet an adverse costs order, this will be a relevant consideration militating against awarding the defendant security for their costs: see Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564; [2004] NSWSC 664 at [85]-[87] and the cases there cited. But the circumstances in which this “defence” is available are restricted.

3. [56]

   Both McClellan CJ at CL and Basten JA considered the causation “defence” in Jazabas. McClellan CJ at CL said (at [33]):

4. [57]

   Basten JA said (at [95]-[96]):

5. [58]

   The first difficulty with AL’s argument is that the loss which has allegedly made AL unable to meet Maddocks’ costs of the cross-claim does not flow directly (if it flows at all) from the alleged breach of duty by Maddocks. The loss alleged flows from a failure by AL to recognise that the obligation to Woolworths under the 2011 Deed meant that an offer should be made to Woolworths before any sale was made to any other party. The hypothesis is that Woolworths would have accepted the offer and no contract would ever have been entered into with HFM.

6. [59]

   But it is not alleged that Maddocks were retained to advise AL, in advance of the deal having been struck with HFM, as to what it should do. Rather, the allegation is that, having been instructed to act on a proposed sale to HFM, Maddocks failed to suggest inquiries which would have revealed the existence of the conflicting obligation in the 2011 Deed. It may be that had Maddocks suggested those inquiries, and had they resulted in the competing obligation to Woolworths coming to the attention of AL’s executives, that they would have altered their course accordingly; but the connection between the breach and the alleged loss resulting in inability to pay costs is remote and indirect at best.

7. [60]

   Furthermore, AL’s argument is clearly one where the alleged cause of impecuniosity was a loss of profit rather than the infliction of damage. On AL’s argument, the underlying cause of its financial difficulties lay in the cash flow problems it was experiencing in April 2017 which had nothing to do with Maddocks. In my view, there is insufficient nexus between the alleged breaches of duty by Maddocks and AL’s inability to meet Maddocks’ costs to refuse an otherwise justified application for security for costs.

Defensive proceedings

1. [61]

   AL’s final ground is that by bringing the proceedings against Maddocks, it is acting defensively in response to the claim brought by HFM under its amended cross-claim. In its submissions, AL states that it “responsively and defensively” brings the claim against Maddocks, principally seeking an indemnity against it from the claims brought by HFM.

2. [62]

   There is no dispute that if the plaintiff’s claims are in substance defensive, that will be a powerful factor in favour of refusing security: Re Felans Fisheries Pty Ltd [2016] NSWSC 1351 at [26]-[29] and the authorities cited. Ormiston J described the types of claims that might amount to a defensive proceeding in Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621. His Honour said:

3. [63]

   In my view, the bringing of the cross-claim against Maddocks is not properly classified as a defensive proceeding in the sense referred to in the authorities. Before the cross-claim was instituted against Maddocks by AL, Maddocks had not taken, or threatened to take, any step in the nature of a self-help remedy. So far as the evidence on this application shows, Maddocks did nothing whatever to invite AL’s cross-claim against it. Rather, the cross-claim appears to be nothing more than the usual case of a disappointed client making a claim against its former solicitor for compensation when the transaction in which the solicitor was involved goes wrong. AL’s argument that the application should be refused because the proceedings are defensive fails.

Conclusion and orders

1. [64]

   In the result I think that the risk of non-payment of Maddocks’ costs is sufficient reason to exercise the discretion in their favour and order security. I reject AL’s arguments to the contrary. Maddocks’ application succeeds.

2. [65]

   There was a dispute as to how AL would furnish the security in the event it was ordered to do so. In his written submissions, counsel for AL contended that the security should be provided in three tranches: the first payment within 42 days of the orders made, the second within 60 days of the commencement of the hearing, and the third within 30 days of the commencement of the hearing. At the hearing, counsel for Maddocks did not oppose the provision of security in three tranches, but argued that the timetable suggested by AL would be inadequate because the security would be furnished after Maddocks has prepared their evidence to defend the cross-claims. If AL proves unable to put up the second and third tranches, which are only due shortly before the trial, Maddocks would have already expended the costs associated with gathering and preparing their evidence for trial and would be left without adequate cover for those costs.

3. [66]

   I think Maddocks’ point is justified. On the evidence of Maddocks’ solicitors, the total legal costs incurred by Maddocks to defend the proceedings is estimated at $451,480, of which $114,195 is estimated to be incurred on the hearing itself (including preparation). This represents approximately 25% of the total cost estimate. The bulk of the expenses will have been incurred long before the hearing date. Therefore, if AL is unable to put up the second tranche in accordance with its proposed timetable, Maddocks would have incurred substantial costs without the possibility of recovery. I note that AL adduced no evidence to challenge Maddocks’ estimates.

4. [67]

   Therefore, I think the appropriate course is to stick with a staged approach but to modify the timetable. I think Maddocks’ point is adequately addressed if AL puts up the first instalment within 42 days of this judgment, the second instalment within 42 days of furnishing the first instalment, and the third instalment 42 days before the date fixed for the hearing. But I will grant liberty to apply to vary that timetable in case there is some compelling reason to adjust it.

5. [68]

   On the face of it, the costs of the application should follow the event. But I will provide an opportunity for the parties to seek some variation of the costs order should they wish to do so.

6. [69]

   The orders of the Court are: