Roach & Ors v Page & Ors (No.1)

His Honour : The following are my reasons for having dismissed the defendants’ application for security for costs on 5 August 2003.

The plaintiffs, Mr W E Roach, Sydtech Pty Limited (in liquidation) and Winnote Pty Limited (in liquidation) sue the partners at an earlier relevant time of the firm Freehill Hollingdale & Page, Sydney, and the partners of the firm by the same name, Melbourne. The claim is for damages in relation to legal advice provided by the defendants to the plaintiffs in relation to certain proposed peat mining operations. The incorporated plaintiffs were not then in liquidation but now are.

The defendants had filed an earlier notice of motion claiming an order that the incorporated plaintiffs provide security for the defendants’ costs. On 13 March 2000, consent orders were made for the provision of security for pre-trial costs, with leave to apply for a further order in relation to the costs of the trial.

On 7 July 2003, the defendants filed a further notice of motion claiming orders that the incorporated plaintiffs provide security for the defendants’ costs of the trial, and that the proceedings be stayed upon failure to do so. On the hearing of the motion, the application, in the latter respect, was limited to a stay of the proceedings as against the two incorporated plaintiffs.

On the hearing of the application, Mr Kidd of counsel appeared for the applicant defendants and Mr Rares of Senior Counsel appeared for the plaintiff respondents.

The evidence established that the liabilities of the incorporated plaintiffs far exceed their assets. The major creditors of the companies were other companies directly or indirectly owned and controlled by Mr Roach and his wife. There was no evidence of the financial condition of those other companies or of Mr and Mrs Roach. The incorporated plaintiffs had entered into a litigation funding agreement with Lending Service Partnership and Justice Corporation Pty Limited. It was admitted on behalf of the plaintiffs that the agreement provides for funding of the incorporated plaintiffs and includes the assignment of a proportion of any judgment recovered by them, described initially as a “significant” and then as a “not insignificant” proportion (if there be a difference).

No offer of further security was made, nor was any undertaking offered to cover the defendants’ costs.

Whilst the discretion to order security for costs is unfettered, settled approaches have developed in relation to particular classes of case, sometimes expressed in terms of an initial or shifting evidentiary burden of proof, sometimes in terms of a general rule (all other things being equal). This is a useful development in order to obtain consistent and predictable decisions, thus avoiding inconsistent results on materially identical facts and reducing the incidence of litigation.

The present application came within the class of case where a natural person is joined as a co-plaintiff with an impecunious incorporated plaintiff and where the claims of the plaintiffs overlap in the sense that they call for substantially the same legal work in defence.

In such a case, the conflicting interests and considerations are as follows. In favour of making an order there is the consideration that those who stand to benefit from a judgment in favour of the incorporated plaintiff are not exposed to the prospect of having such assets as they own being available to satisfy an order for costs in favour of the defendant. On the other hand, militating against an order, there is the consideration that, irrespective of whether proceedings by the incorporated plaintiff are stayed, the defendant will incur the same costs by reason of the natural person continuing the proceedings as a plaintiff. An order for costs in favour of the defendant would then be worthless if the co-plaintiff is without means. But that is seen to be immaterial because, in an application for a stay of proceedings, it is not a relevant consideration that a plaintiff who is a natural person would be incapable of satisfying an order for costs.

How such interests are to be balanced out in such a case was decided in Harpur v Ariadne Australia Limited [1984] 2 Qd R 523, a decision of the Full Court of the Supreme Court of Queensland. It was held that, in such a case, an order for security for costs should not be made (impliedly, all other things being equal).

In Maples v Hughes [2002] NSWSC 617, Studdert J refused an application for security for costs in another such case.

In Interwest Ltd v Tricontinental Corporation Ltd (1999) 5 ASCR 621, a decision at first instance of the Supreme Court of Victoria (Ormiston J), an order for security for costs was made notwithstanding that natural persons were joined as co-plaintiffs with impecunious corporations. There were, however, procedural complications in that case which gave rise to considerations absent from the present case. (It may also be noted that security was ordered for only $50,000 whereas the defendants’ costs were estimated at over $1m.)

I was required to apply the decision in Harpur as a matter of precedent, relating as it does to uniform national legislation (namely, s1335 of the Corporations Act 2001); Australian Securities Commission v Marlborough Gold Mines Limited (1992-3) 177 CLR 485; and comity required me to follow the decision in Maples .

There was no special reason why the approach in Harpur and in Maples should not be adopted in the present case.

For these reasons, the application was dismissed.

A second ground on which the order was opposed is the lateness of the application. It was unnecessary to decide whether, in the circumstances of the present case, that was also a sufficient reason for dismissing the application. -oOo-