Gispac Pty Ltd v Michael Hill Jeweller (Australia) Pty Ltd

By notice of motion filed on 13 March 2020, Michael Hill Jeweller (Australia) Pty Ltd (the defendant) sought security for costs from that date in an amount of $210,000 from Gispac Pty Ltd (the plaintiff).

On 13 May 2020, the day before the hearing of the motion, the plaintiff consented to provide security in an amount of $210,000 (having indicated its agreement to the amount by letter dated 4 May 2020). I was informed that the only issues between the parties were the form of the security and costs.

In summary, the defendant, for whom Ms Muir appeared, contended that the security should be in the form of “an unconditional and irrevocable bank guarantee from an Australian owned bank in a form acceptable to the defendant” and that the plaintiff should pay the defendant’s costs of the motion. The plaintiff, for whom Mr Sulan appeared, contended that security ought be provided “by way of unconditional bank guarantee from an Australian bank in favour of the defendant” and that the costs of the motion ought be costs in the cause.

In order to determine the question of costs it is necessary to summarise the procedural history of the matter.

The statement of claim was filed on 17 June 2019. A defence was filed on 15 July 2019. On 5 August 2019 the Registrar made orders by consent, including that the parties engage in a mediation by 15 November 2019. On 11 November 2019 the parties engaged in an unsuccessful mediation.

On 28 November 2019 the defendant’s solicitor, Mr Hinckfuss, wrote to the plaintiff’s solicitors to foreshadow an application for security for costs. He said, of present relevance:

The matter was listed for directions before the Registrar on 29 November 2019. On that day, directions were made for an amended statement of claim to be filed by 14 February 2020. The defendant foreshadowed that it would seek security for costs and was directed to file any notice of motion seeking security for costs by 13 March 2020. Directions were made for the filing and service of affidavits and submissions relating to security for costs.

No response was forthcoming to Mr Hinckfuss’s letter seeking documents from the plaintiff by 13 December 2019 (the date specified in the letter of 28 November 2019). On 16 December 2019, the defendant’s solicitors emailed the plaintiff’s solicitors and said, of present relevance:

By email sent on 18 December 2019, the plaintiff’s solicitors said that the plaintiff’s sole director was overseas and unable to provide instructions or documents. The email said:

The defendant’s solicitors responded by email dated 19 December 2019 as follows:

The plaintiff’s solicitors responded by email on 20 December 2019 as follows:

No substantive response to the defendant’s solicitor’s request for documents was forthcoming. On 10 February 2020 the defendant’s solicitors again wrote to the plaintiff’s solicitors. They said:

The due date for the filing of the amended statement of claim, 14 February 2020, came and went. No such document has yet been filed.

On 18 February 2020, the plaintiff’s solicitors wrote to the defendant’s solicitors and made various statements about the plaintiff’s financial position, which were preceded by the words, “we are instructed to advise as follows”. No supporting documents were provided. The letter further said:

On 13 March 2020 the defendant filed its motion for security for costs from that date together with two affidavits in support: the first sworn by Mr Hinckfuss and the second, sworn by John Bartos, a cost assessor. Mr Bartos expressed the opinion in his affidavit that he “would regard $210,000 as being [a] fair, reasonable and proportionate estimate of future legal costs on an ordinary party/party basis”.

On 16 March 2020 the defendant served a notice to produce on the plaintiff seeking financial documents, including bank statements and tax returns. The documents sought in the notice corresponded with those that had been sought in Mr Hinckfuss’s letter of 28 November 2019 referred to above. The return date on the notice to produce was 31 March 2020. I understood it to be common ground that the notice was not called on.

Notwithstanding the direction made on 29 November 2019, the plaintiff failed to file any evidence in opposition to the notice of motion by 27 March 2020 and failed to file its submissions by 10 April 2020.

In accordance with the directions made on 29 November 2019 the defendant filed written submissions in support of the motion on 3 April 2020, to which the notice to produce referred to above was annexed.

The matter came before the Registrar for directions on 14 April 2020. Ms Griffiths, who appeared for the plaintiff on that day, sought a date convenient to (unnamed) counsel who had been briefed. Ms Griffiths foreshadowed that the plaintiff might have to adduce evidence of the valuation of its business. On that date, the notice of motion was listed for hearing on 14 May 2020 with an estimate of three hours. The time within which the plaintiff was to file evidence in opposition to the notice of motion was extended to 28 April 2020. Consequential extensions were made to the directions regarding evidence in reply and the plaintiff’s written submissions.

The plaintiff failed to comply with the direction that it file evidence in opposition to the notice of motion by 28 April 2020 or its submissions by 7 May 2020. It remained in default of the direction made on 29 November 2019 that it file an amended statement of claim by 14 February 2020.

On 4 May 2020, the plaintiff’s solicitors wrote to the defendant’s solicitors and maintained that no response to their letter of 18 February 2020 had been received. They contended that, by reason of its client’s asset position, it “can clearly meet any adverse costs order made against it”. The letter continued:

On 6 May 2020, the defendant’s solicitors responded seeking details about the bank guarantee which had been offered. They also inquired about the costs of the notice of motion. The letter continued:

On 11 May 2020 the plaintiff’s solicitors responded and provided details of the bank guarantee proposed. It set out the orders it proposed as follows:

On 13 May 2020, the defendant’s solicitors provided an alternative set of orders (which correspond with the prayers in its notice of motion), which provided as follows:

By email sent by Mr Sulan to my Associate at 6.30pm on 13 May 2020, the plaintiff sent a further proposed set of orders as follows:

There are two issues: the form of the security and what order ought be made as to costs. I propose to address the form of the security first.

There was an issue between the parties as to the form of the bank guarantee. The conventional way of determining such an issue is to provide for payment into court or the provision of a bank guarantee in a form acceptable to the defendant. This is preferable to this Court engaging in a debate in the abstract about a bank guarantee when no such bank guarantee has actually been obtained and the plaintiff will be given time to obtain one in order to comply with the order for security. The plaintiff now accepts that the bank guarantee ought be unconditional and from an Australian bank. It seeks a notation on the order as set out in its draft orders above as to the circumstances in which the bank guarantee can be called upon.

I understood that the parties wished me to determine some issues about the bank guarantee in order to avoid further litigation. Ms Muir submitted that the bank guarantee ought either have no expiry date or have an expiry date not earlier than 14 May 2025. Mr Sulan submitted that a bank guarantee for a period of five years was more than was required to protect the defendant, that being the purpose of an order for security for costs. Ms Muir submitted that it could not be assumed the litigation would be over a period significantly shorter than five years. She referred to the progress, such as it has been, in the proceedings since the statement of claim was filed almost a year ago on 17 June 2019 and referred to the several occasions on which the plaintiff has failed to comply with directions made by the Court. I do not regard the period of five years as unreasonable. Indeed, having regard to the progress of the matter to date, the period would appear to be reasonable in the circumstances. A bank guarantee of insufficient duration would not protect the defendant since it cannot be assumed that the plaintiff would be able to obtain a bank guarantee at a future date.

Mr Sulan submitted that it was necessary to have a notation such as was set out in the plaintiff’s draft, to ensure that the bank guarantee was not called upon for any reason other than to meet a costs order. I am not persuaded that such a notation is necessary. The sole purpose of the provision of the bank guarantee is to secure the defendant’s right to have its costs paid if a costs order is made by the court in its favour. Commonly such orders are payable at the conclusion of the proceedings although the Court also has power to order costs to be paid forthwith. The defendant can be taken to be well aware of the basis on which the bank guarantee is to be provided and the purpose for which it may be used.

The orders proposed by the plaintiff make provision for liberty for the defendant to apply if it has an issue with the form of the bank guarantee provided by the plaintiff. I am not persuaded that this is either necessary or appropriate. The onus is on the plaintiff to provide a bank guarantee in a form acceptable to the defendant: see, for example, Anderson v Patersons Securities Ltd [2019] NSWSC 852 at [220] (Ward CJ in Eq). The defendant has already indicated what it would be prepared to accept, by way of amount, duration, institution and that it be both irrevocable and unconditional. Each requirement sought by the defendant is unremarkable and orthodox.

For these reasons I propose to make orders substantially in the form of the orders for which the defendant contended.

Mr Sulan contended that the costs of the motion ought be costs in the cause on the basis that the defendant had not specified an amount of security before filing the notice of motion. In the alternative, he submitted that the defendant ought have only its costs of the cause (such that the defendant would only be entitled to its costs of the notice of motion if it successfully defeated the plaintiff’s claim) or that the defendant ought only to have its costs up until 4 May 2020, being the date on which it offered to provide security in the sum sought.

Mr Sulan relied on the circumstance that the plaintiff’s solicitors had represented, in their letter of 18 February 2020, that the plaintiff had sufficient assets to meet an adverse costs order. He submitted that the offer on 4 May 2020 was made to “quell the security for costs issue” by offering the bank guarantee. He contended that the defendant had raised matters concerning the bank guarantee which “ought not be controversial”, such as its form. Mr Sulan argued that the defendant’s approach was not consistent with the efficient and cost effective disposition of the notice of motion.

Because the notice of motion was, in substance, resolved, which meant that it did not need to be determined, except as to matters of form, the principles outlined by the High Court in Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 at 624-625; [1997] HCA 6 (Lai Qin) apply. Generally speaking the general rule that costs follow the event in Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1 does not apply where there has, as in the present case, been no adjudication on the merits. There are two exceptions to this general principle: first, where one of the parties has behaved so unreasonably that it is appropriate that that party ought pay the costs of the other party; and, secondly, where the Court is confident that, although both parties have acted reasonably, one party was almost certain to have been successful had the matter been litigated. Ms Muir relied on both bases in support of her contention that the plaintiff ought pay the defendant’s costs of the notice of motion.

I have set out the procedural history of the matter and the correspondence between the parties at some length above because it is necessary in order to assess the conduct of the parties with respect to the application for security for costs. This, in turn, is relevant to costs because of the provisions of Part 6 of the Civil Procedure Act 2005 (NSW).

I am satisfied, on the basis of the chronology set out above, that the plaintiff would not have agreed to security in the sum of $210,000 but for the defendant filing the notice of motion. The defendant foreshadowed the motion at an early stage, on 28 November 2019, on the eve of the first directions hearing following the failed mediation. It was reasonable for the defendant to wait until the mediation before making the application.

In the letter of 28 November 2019, the defendant’s solicitor requested documents from the plaintiff to ascertain its financial position with a view to determining whether an application for security for costs ought be made. This is an entirely orthodox approach for a defendant to take in proceedings where the plaintiff is a limited liability company: see, for example, a similar letter in Central Queensland Development Corporation Pty Ltd (formerly Bluechip Development Corporation Gladstone) Pty Ltd v BMT & Assoc Pty Ltd [2017] NSWSC 992 at [4] (Harrison J). These documents were never provided, although they were subsequently sought by a notice to produce. Throughout, the plaintiff maintained that its asset position was sufficient to meet an adverse costs order. However, it failed to provide a single business record to corroborate the assertions made on its behalf by its solicitors (who were bound to act on its instructions) and failed to respond to the defendant’s request to produce the documents. These failures are highly significant in the context of such an application: see Re Beechworth Land Estates Pty Ltd (Admin Apt) and Griffith Estates Pty Ltd (Admin Apt) (No 3) [2015] NSWSC 733; (2015) 298 FLR 233 at [113]-[114] (Robb J) and Treloar Constructions Pty Limited v McMillan [2016] NSWCA 302 at [29] (Beazley ACJ). An unsubstantiated assertion of wealth provided no assurance to the defendant that the plaintiff would be able to meet an adverse costs order. When the matter came before the Court for directions on 14 April 2020, the plaintiff gave no hint that it was prepared to provide security or that it did not dispute the amount sought. To the contrary, it gave every indication that the matter would be fully contested and asked the Court to list the matter on the basis of the availability of the counsel whom it led the court to understand had been briefed.

At no stage prior to the letter of 4 May 2020 did the plaintiff offer to provide security for costs. Nor did the plaintiff’s solicitors engage with the defendant’s solicitors about an appropriate amount. The position of the plaintiff, until 4 May 2020, was that it was not obliged to provide security at all because of its strong financial position.

When the offer was made by the plaintiff on 4 May 2020, it was reasonable for the defendant to enquire as to the details of the bank guarantee. While bank guarantees are a commonly acceptable form of security for costs, the form of such guarantees is not unimportant. Further, the letter of 4 May 2020 proposed that the motion be dismissed with no order as to costs. The defendant’s solicitors were plainly concerned to keep the hearing date for the notice of motion in the event that agreement could not be reached on the form of security that would be provided or on the question of costs. I do not regard their approach as being other than consistent with the facilitation of “the just, quick and cheap resolution of the real issues in the proceedings”. While it was necessary for the parties to expend further costs to prepare the motion for hearing, this was required to ensure compliance with the Court’s directions and to ensure that, if the matter were not resolved, it could proceed on the date allocated. It was not unreasonable for the defendant to continue to prepare for the hearing after the letter of 4 May 2020 because of its terms, which were insufficient to protect the defendant’s interests as to the form of security, and because it made no provision for the plaintiff to pay the defendant’s costs of the notice of motion.

It is not necessary to determine whether the plaintiff has acted so unreasonably that it ought pay the defendant’s costs for the purposes of the first of the two exceptions to the general principle outlined in Lai Qin since I am satisfied that the present case falls within the second exception to the general rule. The plaintiff can be taken to have capitulated in the face of an overwhelming application for security for costs. The amount sought was supported by expert evidence as well as detailed evidence from Mr Hinckfuss about what he envisages will be required in the litigation. It is patently reasonable. The form of the security sought is entirely orthodox.

The defendant has succeeded on its application for security for costs in the amount sought. The plaintiff appears to have capitulated rather than have to provide its financial documents. The inference is compelling that the financial documents would not have assisted it to resist the defendant’s application for security. The defendant was required to incur costs to obtain this result and is entitled to be compensated by a costs order in its favour in respect of the notice of motion. I do not regard UCPR, r 42.7 as providing any impediment to the making of an order for costs since the present application was plainly a “separately identifiable matter”: Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432 at [11] (Barrett J).

An order that costs be costs in the cause is not appropriate since the merits of the application for security for costs bear no relation to the merits of the proceedings. For the same reason, an order that the costs be the defendant’s costs in the cause would be inappropriate. For the reasons given above I am not persuaded that there is any reason to deprive the defendant of its costs, including those incurred after 4 May 2020. The appropriate order is that the plaintiff pay the defendant’s costs of the notice of motion.

Mr Sulan did not want to be heard against an order that the defendant be granted leave to move to strike out the proceedings if security was not provided by the end of July 2020. Accordingly, I will make this order since it is preferable that proceedings which are not to be prosecuted are dismissed. I confirm that I do not have any expectation, one way or the other, as to whether the plaintiff will comply with the order to provide security.

For the reasons given above, I make the following orders: