FEDERAL COURT OF AUSTRALIA Domino's Pizza Enterprises Limited v Precision Tracking Pty Ltd (No 2) [2017] FCA 211 File number: NSD 516 of 2016 Judge: ROBERTSON J Date of judgment: 9 March 2017 Catchwords: PRACTICE AND PROCEDURE – security for costs – applications for security for costs by cross-respondents to cross-claim – whether cross-claimant's claims for breach by cross-respondents of contractual and equitable obligations of confidence and copyright infringement merely responsive – whether disqualifying delay on the part of one cross-respondent in applying for security – where litigation funding of cross-claimant – where adverse costs insurance – whether proposed undertakings answer the applications for security – relevance of arrangement for first cross-respondent to reimburse, in the first instance, second cross-respondent for the costs the second cross-respondent pays to its solicitors Legislation: Corporations Act 2001 (Cth) s 1335(1) Copyright Act 1968 (Cth) s 115 Federal Court of Australia Act 1976 (Cth) s 56 Patents Act 1990 (Cth) s 122 Federal Court Rules 2011 (Cth) r 19.01 Cases cited: Austcorp Project Number 20 Pty Ltd v LM Investment Management Ltd (in liq) [2014] FCA 1371 Domino's Pizza Enterprises Limited v Precision Tracking Pty Ltd [2016] FCA 853 Green v CGU Insurance Ltd [2008] NSWCA 148; 67 ACSR 105 Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 Instyle Contract Textiles Pty Ltd v Good Environmental Choice Services Pty Ltd [2009] FCA 1422; 181 FCR 360 Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; 20 VR 377 Manhattan (Asia) Ltd v Dymocks Franchise Systems (China) Ltd [2014] FCA 1143; 225 FCR 508 Pioneer Park Pty Ltd (in liq) v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344; 65 ACSR 383; 25 ACLC 1707 The Australian Derivatives Exchange Ltd v Doubell [2008] NSWSC 1174 Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 563 Date of hearing: 20 February 2017 Registry: New South Wales Division: General Division National Practice Area: Intellectual Property Sub-area: Patents and associated Statutes Category: Catchwords Number of paragraphs: 90 Counsel for Domino's Pizza Enterprises Limited: Mr AP Coleman SC Solicitor for Domino's Pizza Enterprises Limited: DLA Piper Australia Counsel for Precision Tracking Pty Ltd: Mr PW Flynn with Dr A Hughes Solicitor for Precision Tracking Pty Ltd: Corrs Chambers Westgarth Counsel for Navman Wireless Australia Pty Ltd: Mr C Dimitriadis SC with Ms L Thomas Solicitor for Navman Wireless Australia Pty Ltd: DibbsBarker Table of Corrections 14 March 2017 In paragraph 60, "In the former case, Einstein J said:" has been replaced with "In that case, Einstein J said:". 27 March 2017 In paragraph 5, "Navman Wireless" has been replaced with "three directors of that company". ORDERS NSD 516 of 2016 BETWEEN: DOMINO'S PIZZA ENTERPRISES LIMITED (ACN 010 489 326) Applicant AND: PRECISION TRACKING PTY LTD (ACN 133 616 369) First Respondent VLADIMIR LASKY Second Respondent NATHAN PARROTT (and another named in the Schedule) Third Respondent AND BETWEEN: PRECISION TRACKING PTY LTD (ACN 133 616 369) Cross-Claimant AND: DOMINO'S PIZZA ENTERPRISES LIMITED (and another named in the Schedule) First Cross-Respondent AND BETWEEN: NAVMAN WIRELESS AUSTRALIA PTY LTD (ACN 123 981 457) Cross-Claimant AND: PRECISION TRACKING PTY LTD (ACN 133 616 369) Cross-Respondent JUDGE: ROBERTSON J DATE OF ORDER: 9 MARCH 2017 THE COURT ORDERS THAT: On the application for security by Domino's Pizza Enterprises Limited (Domino's): 1. Precision Tracking provide within 21 days security for the costs of Domino's, of and incidental to the proceeding, in the sum of $200,000. 2. The proceeding against Domino's be stayed if the security is not provided. 3. Domino's have liberty to make a further application for additional security for costs prior to the commencement of the trial. 4. Precision Tracking pay the costs of Domino's of its application for security. On Navman Wireless Australia Pty Ltd's application for security: 1. Precision Tracking provide within 21 days additional security for Navman Wireless' costs, of and incidental to the proceeding, in the sum of $300,000. 2. The proceeding against Navman Wireless be stayed if the additional security is not provided. 3. Navman Wireless have liberty to make a further application for additional security for costs prior to the commencement of the trial. 4. Precision Tracking pay Navman Wireless' costs of its application for security. In relation to both applications for security for costs: 5. In relation to the application for security for costs by each of Domino's and Navman Wireless, the parties are to endeavour to agree on the form of security on or before 16 March 2017. If no agreement is reached, the parties are to notify the associate to Robertson J by 9.00 am on 17 March 2017 and that issue will be listed for hearing and determination on the afternoon of 17 March 2017 or shortly thereafter. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT ROBERTSON J: Introduction 1 Before the Court are two interlocutory applications for security for costs. 2 As I said in an earlier interlocutory decision, Domino's Pizza Enterprises Limited v Precision Tracking Pty Ltd [2016] FCA 853, these proceedings concern pizza tracking systems performing various functions, including showing customers the progress of their pizza delivery. 3 It is common ground that Precision Tracking Pty Limited (Precision Tracking) supplied a system to Domino's Pizza Enterprises Limited (Domino's) subsequent to an initial trial in November 2012. Then, in September 2014, Domino's entered into an agreement with Navman Wireless Australia Pty Ltd (Navman Wireless) to provide a system. This had the functionality of a customer being able to see where their pizza was during delivery. 4 By cross-claim, in broad terms, Precision Tracking claims that in developing its pizza tracker system with Navman Wireless (the second cross-respondent), Domino's (the first cross-respondent) acted wrongfully. Part of the case brought by Precision Tracking is that Domino's and Navman Wireless have installed and maintained a system which substantially replicates the Precision Tracking system or systems. Precision Tracking also claims that this involved Domino's and Navman Wireless in unauthorised use and disclosure of confidential information of Precision Tracking, where duties of confidentiality were owed by them to Precision Tracking, and infringement of innovation patents and copyright in certain works owned by Precision Tracking. 5 The proceedings involve a claim by Domino's against Precision Tracking and three directors of that company, a cross-claim by Precision Tracking against Domino's and Navman Wireless and a cross-claim by Navman Wireless against Precision Tracking. The statutory provisions 6 Section 1335 of the Corporations Act 2001 (Cth) provides, so far as relevant: 1335 Costs (1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. … 7 Section 56 of the Federal Court of Australia Act 1976 (Cth) provides, so far as relevant: 56 Security (1) The Court or a Judge may order an applicant in a proceeding in the Court… to give security for the payment of costs that may be awarded against him or her. (2) The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs. (3) The Court or a Judge may reduce or increase the amount of security ordered to be given and may vary the time at which, or manner or form in which, the security is to be given. (4) If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed. (5) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security. See also r 19.01 of the Federal Court Rules 2011 (Cth). The present applications Domino's application 8 By interlocutory application dated 1 February 2017, Domino's seeks an order that Precision Tracking as cross-claimant provide security for Domino's costs in the amount of $221,635.00 or such amount as the Court thinks fit, within 14 days. That application is supported by an affidavit affirmed 1 February 2017 by Liam Thomas Prescott, solicitor for Domino's in the proceeding. 9 It appears from that affidavit, at [19], that on 17 June 2016 Precision Tracking filed a notice of cross-claim and a statement of claim against Domino's making claims for: breach of contractual obligations of confidence by Domino's; breach of equitable obligations of confidence by Domino's; pursuant to s 122 of the Patents Act 1990 (Cth), infringement of two Innovation Patents held by Precision Tracking; and, pursuant to s 115 of the Copyright Act 1968 (Cth), copyright infringement by Domino's. 10 Mr Prescott's evidence was that Precision Tracking's cross-claims for breach of confidence in contract and equity and copyright infringement form a significant part of Precision Tracking's cross-claim and are separate and distinct claims involving allegations of fact and law which Domino's will be required to meet at trial. In order to do so, Domino's has incurred, and will incur, costs in the proceeding between now and trial that are in addition to those costs it will incur in prosecuting its own claims and addressing Precision Tracking's patent infringement claims. Domino's accepted that Precision Tracking's patent infringement claims are responsive to Domino's unjustified threats and patent invalidity claims. 11 Mr Prescott went into some detail as to the additional costs he believed Domino's would incur in relation to Precision Tracking's breach of confidence and copyright infringement claims. He referred to additional witness evidence; conducting searches and giving discovery in respect of documents said to be relevant to Precision Tracking's allegations of confidentiality and copyright infringement; engaging a specific expert to conduct a comparison exercise to determine whether any alleged confidential and/or copyright information was used by Domino's and/or Navman Wireless in breach of alleged obligations; briefing counsel to prepare for and conduct the trial in respect of those claims; and preparing for the trial in respect of those claims, including preparing submissions. 12 Mr Prescott affirms that prior to December 2016 he was not aware that the respondents were receiving litigation funding, from LCM Litigation Fund Pty Ltd (LCM). 13 Mr Prescott deposes that Domino's holds concerns as follows: (a) Domino's will incur significant legal costs in meeting Precision Tracking's claims of breach of confidentiality and copyright without there being any real prospect of recovering those costs from Precision Tracking in the event that Domino's obtains a costs order in its favour in respect of same; (b) the mere assurance from the cross-claimant Precision Tracking that they are receiving litigation funding from a listed company of substance is not adequate security for Domino's future legal costs in defending Precision Tracking's cross-claim; (c) in the absence of security, Domino's will face difficulty enforcing a costs order against LCM and may be required to commence separate proceedings against LCM at significant additional and unnecessary costs; and (d) there is a possibility that if it is liable for Precision Tracking's costs pursuant to a term of the funding agreement, LCM may avoid liability for future costs, for example, by terminating the funding agreement at some future point in time in the proceeding. 14 Mr Prescott then provided an estimate of Domino's future costs up to the first day of trial. The total amount was $664,905.00 calculated at 65% of the total estimate of future solicitors' costs and 100% of the total estimate of future disbursements, being counsel's fees. He then stated, in a sentence I admitted over objection on this interlocutory application, that taking a conservative approach, it was reasonable to apportion one third of those costs as costs that will be incurred in respect of the claims made by Precision Tracking. On that basis, Domino's sought security up to the first day of trial in the amount of $221,635.00. 15 In resisting the application for security for costs, Precision Tracking relied on an affidavit sworn on 16 February 2017 by Odette Margaret Gourley, solicitor for Precision Tracking and a further affidavit by Ms Gourley sworn 20 February 2017. 16 In her first affidavit Ms Gourley deposed, at [10], that for six months after Precision Tracking's cross-claim was filed and served, Domino's gave no indication that it asserted any entitlement to security for costs or that Domino's would be seeking anything from Precision Tracking by way of securing Domino's position concerning costs, or that a formal application would be made. 17 Ms Gourley referred, at [13]-[15], to letters dated 27 January 2017 and 14 February 2017 to the solicitors for Domino's. 18 The earlier letter, pages 45-47 of Mr Prescott's affidavit, amongst other things contended for the present irrelevance of Domino's knowledge of Precision Tracking's litigation funding. The letter also pointed out that Navman Wireless applied for security very shortly after the cross-claim was served on it, but Domino's did not. 19 The letter of 14 February 2017 said, amongst other things, that there ought be no or very little additional costs arising for Domino's by reason of Precision Tracking's cross-claim, given the allegations by Domino's in its claim. Specifically, the letter said, Precision Tracking's cross-claim was wholly responsive to Domino's claim which, in addition to assertions of inventorship, entitlement and/or invalidity of the patents in suit, made a highly detailed claim of misleading and deceptive conduct and wrongful threats against Precision Tracking. A schedule was attached said to correlate the material allegations in Precision Tracking's cross-claim with those arising on Domino's amended statement of claim. It was contended in the letter that the fact that Precision Tracking had made arrangements for litigation funding on its cross-claim did not support Domino's claimed entitlement to security. 20 There was also reference to adverse costs insurance underwritten by AmTrust Europe Limited pursuant to a confidential policy issued 14 December 2016. 21 In her affidavit Ms Gourley says that she is instructed that Precision Tracking undertakes to provide written notice to Domino's and Navman Wireless, through their solicitors, in the event that the litigation funding is terminated or otherwise comes to an end or Precision Tracking becomes aware that notice of termination has been given. 22 Ms Gourley further says that she is instructed that LCM undertakes to provide written notice to Domino's and Navman Wireless, through their solicitors, in the event that the Adverse Costs Insurance is terminated or otherwise comes to an end, or LCM becomes aware that notice of termination has been given. 23 In her affidavit dated 20 February 2017, Ms Gourley dealt with the agreement or arrangements between Navman Wireless and Domino's and with the supply of confidential copies of the litigation funding agreement and the adverse costs insurance. 24 Domino's submitted, in its outline of submissions dated 17 February 2017, that it may be that the fate of the application would be determined by the Court's view as to whether the undertakings offered by Precision Tracking were appropriate or whether those put forward by Domino's were required to give the relevant level of security. 25 Domino's submitted that the issue of the promptness of an application was relevant where the security sought was for costs that had already been incurred but in this instance Domino's sought security for future costs. Domino's immediately reserved its rights to bring such an application upon becoming aware in December 2016 that Precision Tracking was receiving litigation funding. Precision Tracking had $1,200 in paid up capital and owned no real property in New South Wales. The submission referred to the consent order made by the Court on 12 August 2016 that Precision Tracking pay $75,000 in security for costs of Navman Wireless up to the close of pleadings. 26 The submissions contended that the details of the terms of the funding agreement between Precision Tracking and LCM were only divulged, in a heavily redacted form, in confidence, on 16 February 2017. The submission said that it had also been disclosed that there was in place adverse costs insurance in favour of the litigation funder. That policy was disclosed in heavily redacted form on 16 February 2017. The submissions stated that LCM was not a listed company but the subsidiary of Litigation Capital Management Ltd. 27 As previously proposed by Domino's, with reference to the letter dated 16 January 2017 at pages [29]-[31] of Mr Prescott's affidavit, in the absence of a monetary form of security provided by Precision Tracking, and subject to proof of the assets available to the litigation funder and its parent, Domino's would accept an undertaking from LCM to the Court to secure any order that might be made in respect of Domino's costs from the date of LCM's appointment as Precision Tracking's litigation funder and an undertaking from those entitled to indemnity under the adverse costs insurance to the effect that the person or persons or entity entitled to indemnity would comply with the terms of the policy and make a claim on it in the event of an adverse costs order against Precision Tracking. 28 Domino's accepted that Precision Tracking's cross-claim for patent infringement may be considered a defensive claim in response to Domino's claims for unjustified threats pursuant to s 128 of the Patents Act. Domino's submitted however that, as a matter of substance, the cross-claim for patent infringement was not defensive as it sought pecuniary relief against Domino's for breach of the patents, and the groundless threats case by Domino's would not have been commenced if Precision Tracking had not publicly threatened Domino's with infringement proceedings. In any event, it was submitted, the cross-claim also made claims against Domino's and Navman Wireless for breach of contractual and equitable obligations of confidence as well as copyright infringement. Although those cross-claims were borne of the same subject matter, those claims were separate and distinct from the claim for patent infringement and were not defensive to Domino's claims in form or substance. 29 Precision Tracking submitted, in its outline of submissions dated 17 February 2016, that the Court ought not in its discretion order that security be paid. There was no risk that any costs order obtained would turn out to be of no value: the combined effect of the litigation funding agreement and the adverse costs insurance, together with undertakings by Precision Tracking offering to notify Domino's and Navman Wireless of any relevant change of circumstances, meant that they faced no risk of any costs order going unsatisfied. 30 Specifically in relation to Domino's application, Precision Tracking submitted, first, that the cross-claim was in substance defensive and the vast majority of costs incurred by Domino's in defending Precision Tracking's cross-claim would have been incurred in any event in dealing with Precision Tracking's defensive case. The submissions referred to the schedule to the affidavit of Ms Gourley. On that basis, the Court would not treat Domino's analogously to a defendant. 31 Secondly, Precision Tracking submitted that Domino's evidence did not make any proper or admissible attempt to grapple with that point, such that there was no basis on which any amount for security could be awarded in relation to costs which would not arise in relation to Domino's own claim in any event. The submission criticised the assertion at [26] of Mr Prescott's affidavit. The assertion did not demonstrate the reasoning process by which it was arrived at, nor the assumed accepted facts upon which it was based. Even if admissible, the paragraph carried no weight and would be an unsound basis for action by the Court. 32 Thirdly, Precision Tracking submitted that Domino's was guilty of substantial delay. Precision Tracking submitted there was a long-standing principle that an application for security for costs should be brought promptly and that the failure to do so was a discretionary reason to refuse to order security. 33 In the alternative, Precision Tracking submitted that the amount of security as against Domino's should only reflect an amount which was referable to matters which arose solely on Precision Tracking's cross-claim and not matters which arose on Precision Tracking's defence to Domino's claim. 34 Precision Tracking also submitted it was usual to fix an amount by way of security which is below the applicant's estimation, and so as not to impose an undue burden on the party providing security and so that the applicant for security would bear the risk of over estimation. 35 As to the form of security, if any security were to be ordered, Precision Tracking asked that the parties be given an opportunity to agree as to its form. Given the existence of adverse costs insurance in this case, security may be provided by an appropriate instrument other than the traditional bank guarantee. Navman Wireless' application 36 By interlocutory application dated 7 February 2017, Navman Wireless applied for an order that Precision Tracking provide security for Navman Wireless' costs in the amount of $329,000 or such amount as the Court deemed fit. The application was supported by an affidavit sworn by Melissa Anne McGrath, the solicitor with conduct of the proceedings on behalf of Navman Wireless. 37 Navman Wireless also relied on two earlier affidavits of Ms McGrath, being affidavits sworn on 18 July 2016 (her second affidavit in the proceedings) and 5 August 2016 (her fourth affidavit in the proceedings). 38 In her 18 July 2016 affidavit, Ms McGrath first summarised her relevant commercial litigation experience. She then referred to the allegations against Navman Wireless in the statement of cross-claim filed by Precision Tracking on 17 June 2016, the claims being unauthorised use and disclosure of confidential information; patent infringement; and copyright infringement with claims for damages and additional damages. She then referred to the financial position of Precision Tracking and said that on the basis of the financial information available to her, and correspondence between her firm DibbsBarker and Corrs Chambers Westgarth, the solicitors for Precision Tracking, it did not appear to her that Precision Tracking had the financial resources available to meet an adverse costs order, in the event that such order was made. 39 An application for security for costs on the part of Navman Wireless was foreshadowed in correspondence on 24 June 2016. It was filed on 18 July 2016. 40 In her 5 August 2016 affidavit, amongst other things, Ms McGrath updated the solicitors' costs and counsel's fees incurred by Navman Wireless. 41 In her affidavit sworn 7 February 2017, Ms McGrath referred to the agreement reached between Navman Wireless and Precision Tracking as to the orders to be made regarding Navman Wireless' 18 July 2016 application for security for costs. On 12 August 2016, the Court made orders by consent requiring Precision Tracking to pay $75,000 in security for Navman Wireless' costs up to the close of pleadings, with Navman Wireless having liberty to make a further application for additional security following the close of pleadings. 42 Ms McGrath annexed to her most recent affidavit a bundle of correspondence between the solicitors for Navman Wireless and Precision Tracking on the issue of security for costs. The correspondence was up to mid-January 2017. 43 She referred to DibbsBarker being informed by Corrs in December 2016 that Precision Tracking had secured litigation funding from LCM and to correspondence requesting information regarding the involvement of LCM. 44 Ms McGrath deposed that: (a) Navman Wireless continued to hold a genuine and reasonable concern that Precision Tracking would be unable to satisfy any costs order that may be made against it in these proceedings. (b) In the absence of any information regarding LCM's obligation (if any) to pay any adverse costs order in the proceedings, or any information regarding the terms of the funding agreement between Precision Tracking and LCM, (including the circumstances in which it may be terminated) the fact that Precision Tracking has some funding (of entirely unknown scope) from LCM did not alleviate Navman Wireless' concern that it may not be able to recover costs ordered in its favour in the proceeding. (c) In the absence of any information regarding the costs insurance held in relation to Precision Tracking's costs (other than that it is held with an "A rated insurer"), the mere fact that some costs insurance (entirely unknown in scope) had been obtained did not alleviate Navman Wireless' concern that it may not be able to recover any costs ordered in its favour in the proceeding. (d) In the absence of relevant undertakings to call upon any costs insurance policy for the benefit of Navman Wireless, the mere fact that a policy existed was of little comfort. At present, Navman Wireless did not even know which entity held the costs insurance, and thus which entity would need to give the relevant undertaking. (e) Similarly, without knowing whether Precision Tracking's funding agreement with LCM contained any costs indemnity, Navman Wireless could not know whether it would be appropriate for undertakings with respect to costs to be given by LCM. (f) In light of the above matters, Navman Wireless remained concerned that it would face difficulty enforcing any costs order made against Precision Tracking in the proceedings in the absence of security, and that additional expensive proceedings might be necessary to do so. In particular, Precision Tracking's refusal to provide basic information regarding its funding and insurance arrangements had only served to increase Navman Wireless' concern in that regard. 45 Ms McGrath provided an overview and estimate of Navman Wireless' legal costs. She deposed, contentiously, that Navman Wireless had been and continued to be solely responsible for the payment of those costs as between Navman Wireless and DibbsBarker. I admitted that statement on the interlocutory application, leaving to submission whether or not its form led to less weight being given to it. 46 Ms McGrath deposed that Navman Wireless was content for the application to be decided on the assumption that it had been, and would continue to be, reimbursed by Domino's for the costs it paid to DibbsBarker in relation to the proceedings, subject to an obligation to reimburse Domino's in due course from any costs paid pursuant to costs orders made in its favour. 47 Ms McGrath deposed that Navman Wireless sought security for costs for work completed from the close of pleadings on 18 November 2016 up to the first day of trial. She referred to solicitors' costs incurred to date and said that approximately $73,948 in solicitors' costs and $21,000 in counsel's fees had been incurred since the close of pleadings. A substantial portion of that work had been directed to agreeing the scope of discovery to be given by each of the parties, and related issues. 48 Ms McGrath then estimated the future work required up to the first day of the trial. She annexed a schedule setting out her estimate of the time required and associated costs to complete those tasks. She estimated the total amount of future costs, up to the first day of the trial, to be $352,455 (including solicitors' and counsel's costs). In addition, she estimated that expert witness fees would be in the vicinity of $60,000. 49 The total legal costs and disbursements incurred to date and estimated future costs and disbursements totalled $507,403. Ms McGrath then referred to a typical percentage of costs recovered in proceedings of this kind being approximately 65% of actual legal costs when assessed on a party/party basis. This yielded a figure of approximately $329,000. 50 In the affidavit of Ms Gourley sworn 16 February 2017 there is reference to correspondence throughout January 2017. There had also been further correspondence following the filing on behalf of Navman Wireless of its application for security for costs. A letter dated 13 February 2017 by Ms Gourley stated that on the basis of Ms McGrath's affidavit of 7 February 2017, Navman Wireless was not in any risk of being out of pocket in relation to costs, even if Precision Tracking would be unable to meet a costs order made against it in Navman Wireless's favour. In a letter dated 14 February 2017 in response, Ms McGrath stated that the fact that a respondent would otherwise not be "out of pocket" had been held not to deprive it of its right to security for costs in an appropriate case. In further correspondence, dated 14 February 2017, Ms Gourley wrote that there ought to be no or very little additional cost that arose for Navman Wireless by reason of Precision Tracking's cross-claim. In the letter it was contended that Precision Tracking's cross-claim was wholly responsive to Navman Wireless' claim which, in addition to assertions of inventorship, entitlement and/or invalidity of the patents in suit, made a highly detailed claim of misleading and deceptive conduct and wrongful threats against Precision Tracking. A schedule was attached said to demonstrate the correlation between the material allegations in Precision Tracking's cross-claim with those arising on Navman Wireless' amended statement of claim. 51 Navman Wireless, in its written submissions dated 17 February 2017, submitted that the evidence as a whole established there was reason to believe that Precision Tracking would be unable to pay Navman Wireless' costs if ordered to do so. The submissions referred to Ms McGrath's affidavit sworn 18 July 2016 at [10]-[24] and to Mr Prescott's affidavit affirmed 1 February 2017 at [35]-[36]. Navman Wireless submitted that the fact that Precision Tracking had obtained litigation funding was a matter supporting an inference that it did not itself have assets sufficient to satisfy any order for costs that may be made against it in the present proceeding. 52 Navman Wireless submitted that litigation funding was a factor strongly favouring an order for security for costs. The submissions referred to correspondence in January 2017 and to further correspondence in mid-February 2017 concerning redacted copies of the litigation funding agreement and adverse costs insurance policy. It was submitted that Precision Tracking's cross-claim was now brought, in part, for LCM's commercial benefit. 53 Navman Wireless submitted that litigation funders often indemnify the funded party in respect of any order for costs that may be made against them in the funded proceeding. If the indemnity is unlimited and there is evidence of the funder's ability to satisfy the indemnity, it may be appropriate for the Court to deal with an application for security for costs by requiring appropriate undertakings from the funded party. Navman Wireless referred to the decision of Barrett J in The Australian Derivatives Exchange Ltd v Doubell [2008] NSWSC 1174 at [23]-[27]: [23] Counsel for the liquidator has indicated the liquidator's willingness to give to the court an undertaking to inform the defendants immediately if the funder terminates the agreement (which probably should be extended also to any communicated intention or threat of the funder so to do.) The defendants could then renew their application for security. [24] The defendants say that the funder's cl 6 undertakings are of little comfort to it even if an undertaking as just outlined is given. They point to difficulties described by Young CJ in Eq in Chartspipe Pty Ltd v Chahoud [2001] NSWSC 585 and referred to at para [52] of the judgment of Hodgson JA in the Arimco Mining case (above): In this case, the funder could perhaps be liable for costs, at the instance of the defendant; although Young CJ in Eq in Chartspike Pty Limited v Chahoud [2001] NSWSC 585 said there would be difficulty in enforcing this kind of indemnity, because the funder is not an insurer who could be sued pursuant to the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) s 6. If in such a case the funder did not willingly pay a costs order against the plaintiff, there is a question whether the defendant could bring proceedings in which the plaintiff and the funder were joined as defendants in order to enforce the indemnity against the funder; and even if this were possible, the proceedings would be cumbersome and could well be highly contentious. [25] Again, however, the matter could be dealt with by an undertaking given by the liquidator to the court to the effect that he would pursue the indemnity for the benefit of the defendants if he suffered an adverse costs order; also, perhaps, an undertaking to assign or hold on trust for the defendants the benefit of the indemnity and the proceeds of it. [26] In summary, I accept the liquidator's submission that cl 6 of the agreement, if bolstered and supplemented by appropriate undertakings given by the liquidator to the court, will allow the security for costs application to be disposed of on the footing that security should not at this point be ordered, this being without prejudice to any future application that the defendants may see fit to make. 54 Navman Wireless submitted that where the precise terms of the funding agreement and the funder's financial position were not disclosed, the mere fact that an indemnity had been given was of little weight in the Court's consideration of whether to order security for costs. 55 The submissions made reference to the letter dated 17 February 2017 proposing certain orders to resolve its application for security for costs. What was proposed was that LCM provide an undertaking to pay Navman Wireless the full amount of any costs order made against Precision Tracking in Navman Wireless' favour for the relevant period, subject to evidence of LCM's ability to satisfy the undertaking being provided. Absent such an undertaking, Navman Wireless submitted the Court should order security for costs. 56 As to the cost position as between Navman Wireless and Domino's, Navman Wireless submitted that the fact that a respondent's costs would be borne by another party that will ultimately have the benefit of an order for security for costs was not a factor weighing against the making of such an order. It was submitted that there was no relevant distinction between Navman Wireless' present position and the position of the insured respondents who successfully sought security for their costs in Instyle Contract Textiles Pty Ltd v Good Environmental Choice Services Pty Ltd [2009] FCA 1422; 181 FCR 360; Manhattan (Asia) Ltd v Dymocks Franchise Systems (China) Ltd [2014] FCA 1143; 225 FCR 508 and Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; 20 VR 377. 57 Navman Wireless submitted that its application was brought promptly, following the close of pleadings on 18 November 2016. The application was brought after the exchange of several letters in January 2017. The cross-claim was brought ultimately for the benefit of the shareholders of Precision Tracking's parent company. None of Precision Tracking's, nor its parent company's, directors or shareholders had offered undertakings to pay any order for costs made against Precision Tracking. 58 Precision Tracking submitted that there was no risk that any costs order obtained would turn out to be of no value. The combined effect of the litigation funding agreement and the adverse cost insurance, together with undertakings offered by Precision Tracking to notify Domino's and Navman Wireless of any relevant change of circumstances meant that Navman Wireless faced no risk of any costs order going unsatisfied. That matter alone, it was submitted, was sufficient to answer the application for security for costs and it should be dismissed with costs. 59 Precision Tracking made the following further submissions in relation to the application by Navman Wireless. 60 First, Navman Wireless was under no financial risk due to any non-recoverability pursuant to a costs order against Precision Tracking because Navman Wireless asked the Court to assume that it will be reimbursed by Domino's for the costs it pays to its solicitors in relation to the proceedings, subject to an obligation to reimburse Domino's in due course from any costs paid pursuant to a costs order made in its favour. It followed that at the time any costs order was made, Navman Wireless' costs would already have been paid by Domino's. The purpose of an order for security for costs was, therefore, not enlivened. Precision Tracking referred to Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [47] and [52]. In that case, Einstein J said: [47] It is clear that the discretion to award security for costs requires to take into account all of the relevant facts matters and circumstances and is a judicial discretion to be exercised following the adducing of all evidence by each party to an application seeking to have such an award made. As Giles J (as His Honour then was) made plain in Rosenfield Nominees Pty Ltd v Bain and Co (1988) 14 ACLR 467 at 470, in exercising the discretion as to whether or not to make an order for costs, the Court must have a concern to achieve a balance between ensuring that adequate and fair protection is provided to the defendant, and avoiding injustice to an impecunious plaintiff by unnecessarily shutting it out or prejudicing it in the conduct of the proceedings [cf Street CJ in Buckley v Bennell (1974) 1 ACLR 301 at 304]. Giles J referred to the debate over whether the discretion should be exercised with some predisposition in favour of the defendant and expressed the view with which I agree, that the debate is largely semantic. The principle which his Honour identified at 470 was that: "the discretion must be exercised having regard to all the circumstances of the case, but the inability of the plaintiff to meet the costs of the successful defendant, being the occasion for invoking the exercise of the discretion, is likely to play an important if not decisive role". … [52] The purpose of a security for costs order is therefore a protective jurisdiction to ensure that the primary purposes for having costs orders themselves, can be achieved. A defendant is protected against the risk that a costs order obtained at the end of the day may turn out to be of no value by reason of the impecuniosity of the plaintiff. The jurisdiction therefore assists both the compensation purpose as well as the public interest objective. 61 Precision Tracking also submitted that Navman Wireless was a necessary and proper party to Precision Tracking's claim for relief against Domino's. Navman Wireless was a third party involved in a dispute which was primarily a dispute between Domino's and Precision Tracking, which dispute was initiated by Domino's. This militated against an order for security. 62 Precision Tracking repeated the submissions made in relation to Domino's application so far as concerned quantum and the form of security, if the Court were minded to order that Precision Tracking provide any security. Consideration 63 In relation to each interlocutory application I find there is reason to believe that Precision Tracking will be unable to pay the costs of the respondent party if that party is successful in its defence. Counsel for Precision Tracking accepted in the course of the hearing that of itself, or by itself, Precision Tracking did not have the capacity to meet an adverse costs order. 64 The litigation funding agreement between LCM and Precision Tracking shows that subject to the terms of the agreement, LCM agrees to pay the action costs, as defined, and any adverse costs, as defined: see cl 4.1. "Action" is defined to include, as regards the "Claim", certain specified proceedings before a court, arbitrator or tribunal. "Claim" is defined in cl 1.9 to mean all causes of action described in Item 3 of Sch 1 to the agreement, which item specifies Precision Tracking's claims in connection with Domino's GPS Pizza Driver Tracker, including claims for infringement of the two Australian Innovation Patents; breach of confidence and/or duties relating to confidential information; and infringement of copyright in certain screen display artistic/literary works. 65 By cl 4.2, LCM's obligations to pay the action costs and any adverse costs are subject to, relevantly, cl 5.3 which provides that LCM does not indemnify Precision Tracking in respect of any liability for adverse costs, as defined, that relate to the Domino's action, as defined. Domino's action is defined to mean claims made in the proceedings commenced by Domino's in NSD 516/2016. 66 By cl 20.1, LCM may in its absolute discretion terminate the agreement wholly, or in respect of one or more proceedings, at any time upon giving Precision Tracking 15 days written notice. LCM's obligation to pay action costs, adverse costs, security for costs or any other sum ceases immediately on the date of termination: see cl 20.3.1. 67 Clause 6 of the funding agreement states that LCM in its absolute discretion may enter into an after-the-event insurance policy in relation to the agreement, the proceedings, the action costs and/or the adverse costs, which, in LCM's absolute discretion, is on terms satisfactory to it. By cl 20.3 of the litigation funding agreement, if the agreement is terminated by LCM in its absolute discretion, LCM shall be entitled to terminate any after-the-event insurance policy held in its name unless Precision Tracking has elected to take an assignment of that policy. 68 In evidence is a redacted version of an adverse costs insurance policy whereby LCM will be indemnified by AmTrust Europe Limited for the insured liability, defined to mean the obligation to pay incurred adverse costs in respect of NSD 516 of 2016 which LCM has agreed to indemnify pursuant to the litigation funding agreement up to a limit, redacted, specified in para 6 of sch 1. There is also in evidence a report and financial statements of AmTrust Europe Limited for the year ended 31 December 2015. 69 I note that there is no specific evidence before me of LCM's financial substance. I also note that LCM has not offered any undertaking to the Court. In relation to LCM's discretion to terminate the litigation funding agreement, I do not regard it as a sufficient answer to the applications for security for costs, which are before the Court for determination, that Precision Tracking may agree to give notice of LCM's decision to terminate. 70 I know turn to consider separately each application for security. Domino's application 71 Relevant to the exercise of the Court's discretion to order security for costs is whether the application was brought promptly. Domino's application was not brought promptly. It is to be recalled that Precision Tracking's cross-claim was filed on 17 June 2016 and the application for security for costs by Domino's was not foreshadowed until 13 December 2017. I am not persuaded by the explanation on behalf of Domino's that the reason the application was not brought sooner was because, prior to December 2016, the solicitors for Domino's were not aware that Precision Tracking was receiving litigation funding from LCM. I am not persuaded because Domino's must be taken to have known, in June or July 2016, Precision Tracking's financial position. 72 Nevertheless this is a matter going to the Court's discretion. In the circumstances of this case I find that the delay has not prejudiced Precision Tracking, in particular because it has not been shown that the cross-claim would not or might not have been brought or maintained but for the delay in Domino's applying for security and because Domino's seeks security only for future costs: see Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 563 at [41]. 73 I turn to consider the other matters relied on by Precision Tracking. 74 I do not accept the submission that there is no risk that any costs order obtained will turn out to be of no value. No undertaking to pay any unsatisfied costs order has been proffered to the Court by LCM or by those who stand behind Precision Tracking or its holding company. I do not regard as sufficient answer to the present application the combined effect of the litigation funding agreement and the insurance together with an undertaking proffered by Precision Tracking to notify Domino's and Navman Wireless of any relevant change of circumstances under the litigation funding agreement. 75 The undertakings seem to me potentially to defer the problem to another day when more time and expense of the parties and of the Court would be required. It is one thing for a party to be satisfied that an undertaking or undertakings meet its commercial needs but this application has been brought on for hearing and should be determined. I do not regard it is appropriate to proceed substantially by reference to undertakings conditionally proffered in correspondence between the solicitors for the parties. In the absence of extant undertakings I would regard the presence of a litigation funder as a factor in favour of the grant of security: see Austcorp Project Number 20 Pty Ltd v LM Investment Management Ltd (in liq) [2014] FCA 1371 at [34], citing Green v CGU Insurance Ltd [2008] NSWCA 148; 67 ACSR 105 at [51]-[53], [82]-[88]. 76 Neither do I accept that Precision Tracking's cross-claim is in substance defensive of the claims made against it by Domino's. I do not accept that it was necessary for Precision Tracking to bring a cross-claim to defend the proceedings brought against it by Domino's. I do not accept, for the purposes of a security for costs application, that the Court should adopt a fact by fact approach to the question of overlap. I accept the submission on behalf of Domino's that Precision Tracking, in order to defend the proceedings brought by Domino's, did not have to bring claims for infringement of the equitable and contractual obligations of confidence and infringement of copyright. Having regard to the pleadings, I accept Mr Prescott's estimation, broadbrush though it is, that taking a conservative approach it is reasonable to apportion one third of the costs as costs that will be incurred in respect of the separate and distinct claims brought by Precision Tracking. 77 While I do not accept the submission on behalf of Precision Tracking that it is the usual practice, in this Court, to fix an amount by way of security which is below the applicant's estimation, as much must depend on the cogency of the applicant's evidence, I proceed on the basis that estimation is necessarily involved and that caution is therefore appropriate: compare Pioneer Park Pty Ltd (in liq) v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344; 65 ACSR 383; 25 ACLC 1707 at [66]. 78 On Domino's application for security for costs I therefore order that Precision Tracking provide security within 21 days for the costs of Domino's in the amount of $200,000. 79 I will hear the parties on the form of security. Precision Tracking should pay Navman Wireless' costs of its application for security. Navman Wireless' application 80 The application brought by Navman Wireless for security in respect of Precision Tracking's cross-claim was brought promptly. 81 I reject Precision Tracking's submission that militating against an order for security as between Navman Wireless and Precision Tracking is that Navman Wireless is involved in a dispute which is primarily between Domino's and Precision Tracking or that Precision Tracking's claim against Navman Wireless is substantially responsive to Domino's claim. Precision Tracking's cross-claim against Navman Wireless cannot be said to be "responsive", in terms of the costs to be incurred in the legal work required to be done on behalf of Navman Wireless to meet the cross-claim. 82 I do not accept the submission on behalf of Precision Tracking that there is no risk that any costs order obtained will turn out to be of no value. I am not persuaded that the combined effect of the litigation funding agreement and the adverse cost insurance, absent undertakings, should result in the Court's refusal of the application. As to undertakings, see my consideration of this issue in relation to Domino's application at [75] above. 83 I am not persuaded that the assumption that Navman Wireless has been and will be reimbursed by Domino's for the costs Navman Wireless pays to its solicitors in relation to the proceeding, subject to an obligation to reimburse Domino's in due course from any costs paid pursuant to costs orders made in its favour, is an answer to the present application. I refer in this respect to Instyle Contract Textiles Pty Ltd v Good Environmental Choice Services Pty Ltd [2009] FCA 1422; 181 FCR 360; Manhattan (Asia) Ltd v Dymocks Franchise Systems (China) Ltd [2014] FCA 1143; 225 FCR 508 and Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; 20 VR 377. 84 In the first of these cases, Lindgren J referred to the respondents having indemnity insurance in respect of the claims that the applicant made against them. His Honour, at [31], referred to Livingspring where the Court of Appeal of Victoria, per Maxwell P and Buchanan JA, said, at [67]: "We can see no reason in principle why an insured defendant should be in any different position from an uninsured defendant for this purpose." Justice Lindgren was construing the words "the costs of the defendant" in s 1335(1) of the Corporations Act and had said, at [24], that he would have thought that if the defendant had a solicitor on the record who was charging someone fees and disbursements they were "costs of the defendant" even if that solicitor was in fact retained by an insurer to which the solicitor addressed his or her invoices. Having rejected the proposition that an insured defendant should be in a different position to an uninsured defendant, at [32] Lindgren J said that if the submission had been sustained, the respondents could have relied on s 56 of the Federal Court of Australia Act which was not subject to the same limitation. In Manhattan (Asia) Ltd, Farrell J, at [105], accepted the reasoning of Lindgren J in Instyle Contract Textiles. 85 I reject Precision Tracking's submission that there is no proper evidentiary basis for the calculation of Navman Wireless' future costs. The evidence was given by the senior solicitor involved in the litigation on behalf of Navman Wireless. Her reasoning was sufficiently exposed. 86 As with Domino's application, I proceed on the basis that estimation is necessarily involved and that caution is therefore appropriate: see [77] above. 87 In my opinion there should be an order for security for costs in Navman Wireless' favour in respect of Precision Tracking's cross-claim in the amount of $300,000. In broad terms, I accept the estimates and calculations in Ms McGrath's affidavit of 7 February 2017. 88 I will hear the parties on the form of security. Precision Tracking should pay Navman Wireless' costs of its application for security. Conclusion and orders 89 In the application for security by Domino's, Precision Tracking is to provide within 21 days security for the costs of Domino's, of and incidental to the proceeding, in the sum of $200,000. The proceeding against Domino's is to be stayed if the security is not provided. Domino's has liberty to make a further application for additional security for costs prior to the commencement of the trial. Precision Tracking is to pay the costs of Domino's of its application for security. If agreement cannot be reached between them, I will hear the parties on the form of security. 90 In Navman Wireless' application for security, Precision Tracking is to provide within 21 days additional security for Navman Wireless' costs of and incidental to the proceeding in the sum of $300,000. The proceeding against Navman Wireless is to be stayed if the additional security is not provided. Navman Wireless has liberty to make a further application for additional security for costs prior to the commencement of the trial. Precision Tracking is to pay Navman Wireless' costs of its application for security. If agreement cannot be reached between them, I will hear the parties on the form of security. I certify that the preceding ninety (90) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Robertson. Associate: Dated: 9 March 2017 SCHEDULE OF PARTIES NSD 516 of 2016 Respondents Fourth Respondent: ALEXANDER GREEN Cross-Respondents Second Cross-Respondent NAVMAN WIRELESS AUSTRALIA PTY LTD ACN 123 981 457