District Court New South Wales Medium Neutral Citation: Now Electrical Projects Pty Ltd v Electro Plus Services Pty Ltd [2022] NSWDC 77 Hearing dates: 24 March 2022 Date of orders: 24 March 2022 Decision date: 24 March 2022 Jurisdiction: Civil Before: Abadee DCJ (List Judge) Decision: See paragraph 24 Catchwords: PRACTICE AND PROCEDURE – withdrawal of application for security for costs – costs of the motion Cases Cited: Buckley v Bennell Design & Constructions Pty Ltd [1974] 1 ACLR 301 Green v CGU Insurance (2018) 67 ACSR 105 Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Quin (1997) 186 CLR 622 Texts Cited: Nil Category: Costs Parties: Now Electrical Projects Pty Ltd (plaintiff/cross-defendant) Electro Plus Services (defendant/cross-claimant) Representation: Counsel: Mr T Bland for the plaintiff/cross-defendant Mr J Hyde for the defendant/cross-claimant Solicitors: Proctor Pair Lawyers for the plaintiff/cross-defendant Wilkinson Building & Construction Lawyers for the defendant/cross-claimant File Number(s): 2020/00324476 Publication restriction: Nil EX TEMPORE REASONS FOR Judgment 1. This matter, which concerns a dispute between a contractor and sub-contractor in connection with the supply of electrical goods and services, was set down (back on 20 September 2021) for hearing due to begin next Tuesday, 29 March 2022. The hearing followed an informal settlement conference, which was unsuccessful in resolving the dispute, occurring on 25 February 2022. The preceding day, the defendant/cross-claimant had served its affidavit evidence. 2. On 10 March 2022 the plaintiff/cross-defendant (the applicant) filed a notice of motion, by which it sought security for its costs as a cross-defendant on a cross-claim. In aid of that motion, it had earlier served a notice to produce upon the cross-claimant (the respondent), requiring production of documents. By a notice of motion dated 17 March 2022, the respondent brought its own application to set aside the notice to produce. 3. The proceeding came before me, as List Judge, on 21 March 2022, when a timetable was set down for the respondent to serve evidence and submissions. I directed that the applications be returnable for argument before me today. 4. Yesterday afternoon, after the respondent's evidence and submissions on the applications had been received, the applicant's solicitor sent to my Associate supplementary submissions prepared by the applicant's Counsel. 5. The upshot of the submissions is that the applicant now accepts that it cannot prove that the respondent would be unable to meet an adverse costs order on the cross-claim and, accordingly, it withdraws its application for security. It also withdraws its notice to produce and, in this way, argues also for the dismissal of the respondent's application. 6. Further, for reasons elaborated in its Counsel's supplementary written submissions, it argues that it should obtain an order for costs of its motion (presumably the application for security) in its favour on the usual basis. 7. The respondent opposes the application for costs and seeks to have its own costs. The applicant's arguments 1. Counsel's supplementary submissions partly are addressed to responding to evidentiary points raised by the solicitor for the respondent, Mr Wilkinson. 2. The points raised by Counsel may be summarised as follows: 1. Ms Phair, the applicant's solicitor, was advised by a 'credible' source that the respondent was impecunious in late February 2022; 2. there had been objective evidence pointing to impecuniosity (its share capital, its registered address and the absence of property identified on the PPSA register); 3. the respondent refused to provide categories of documents which, had they been revealed, would have put the question of 'solvency' to rest and had chosen, it is argued inappropriately, to question the applicant's apparent reliance upon statements made at the informal settlement conference as a partial explanation for why the applicant raised the application for security now. 4. the applicant was likely to have succeeded in obtaining documents produced in response to a notice to produce which would also have revealed the respondent's financial position; 5. the proffering of an undertaking in lieu of an order for security reflects recognition in the respondent that security may have been ordered; 6. if the application for security was refused, there was no likelihood that the Court would accede to the respondent's application for a lump sum costs order. Consideration 1. It is commonly said that where a contest – whether it be a final hearing or an interlocutory hearing – has been settled as between the parties, without a hearing on the merits, courts are loath to embark upon consideration of the merits of the parties' cases so as to form a view on what would have been the likely outcome for the purposes of adjudicating costs: see Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Quin (1997) 186 CLR 622 at 624-625 ("Quin") per McHugh J. His Honour identified two exceptions to this: the first being where the Court found that the moving party acted unreasonably; and the second being where the judge feels confident that although both parties acted reasonably, one party was almost certain to have succeeded if the 'matter' been fully tried. 2. The outcome now agitated by the applicant is not the result of any compromise. The applicant has not gained anything as a result of its application, other than, perhaps some additional confidence that any costs order it may get from successfully defending the cross-claim may be more enforceable than previously feared. But that is not a legitimate purpose for bringing an application of this kind and it does not represent a 'successful' outcome. The outcome for the applicant represents, rather, a retreat. Further, the applicant retreats in circumstances where the parties' have put evidence and submissions before the Court and, as would have been expected by the parties, the Court has considered the material before the hearing in preparation. I consider myself to be in a position to adjudicate whether the applicant acted unreasonably in bringing the security application and am confident to be in a position to determine whether one of the parties was almost certain to have succeeded if the hearing on the motion for security was fully tried. 3. I do not accept that the applicant acted 'unreasonably' in applying for security in the sense described by McHugh J. There were certain objective indicia to suggest a strong possibility that when the application for security was brought that the respondent may not be able to satisfy an adverse costs order. It is unnecessary, retrospectively, to opine on whether that rose to the level of probability. It suffices to say that the applicant had reasonable grounds for suspicion, but, in the circumstances (including an imminent hearing date), took the risk that it may not be able to prove the respondent's capacity to meet an adverse costs order. 4. The problem for the applicant is that I am confident that, as a matter of discretion, the application was almost certain to have failed irrespective of whether the 'jurisdictional' fact enlivening the power to order security – whether there was reason to believe that the cross-claimant would be unable to pay the cross-defendant's costs if it successfully defended the cross-claim - was satisfied. First, even though the application was directed only to the applicant's costs of the hearing, the delay in making the application occasioned prejudice in the respondent. As was pointed out by Moffitt P in Buckley v Bennell Design & Constructions Pty Ltd [1974] 1 ACLR 301 at 309, delay is a significant matter where a corporate plaintiff brings a claim, since the company is entitled to know its position before embarking, to any real extent, on the litigation of the claim. If this was not so, it would likely spend money that will be wasted if security was ordered and, pending the provision of such security, its claim was stayed: Green v CGU Insurance (2018) 67 ACSR 105 at [57]. Here, the respondent has been legally represented by Mr Wilkinson since December 2020, with the cross-claim filed on 15 March 2021. Although Mr Wilkinson did not quantify costs already incurred peculiarly in connection with the cross-claim per se (probably a difficult exercise in view of what I am about to say about its connection with the applicant's principal claim), I infer that those costs are not insubstantial. 5. Secondly, it is evident that the cross-claim had the effect, even if not expressly pleaded in so many words, as operating as a set-off (statutory and/or equitable), in extinction or limitation of the applicant's claim (see also s 90(2) of the Civil Procedure Act). Accordingly, it should be viewed as partly defensive in nature. 6. Thirdly, and following the earlier points, the Court has to consider the justice of acceding to the application. The motion made it clear that if security was to be awarded, the cross-claim was to be stayed until it was provided. In the circumstances that is only a very short time prior to the scheduled hearing of a cross-claim which, as indicated, is connected to the plaintiff's claim. 7. Fourthly, contrary to the applicant's submission, in circumstances where it had never sought to have the cross-claim summarily disposed of, the Court would not have found that the cross-claim was anything other than a bona fide claim raised with reasonably arguable prospects of success. 8. Fifthly, the applicant's explanation for bringing the claim when it did was unconvincing. Curiously, it asserted an entitlement to rely upon a 'credible source' without articulating who the source was or what the source said. In circumstances where it also asserted an entitlement to rely upon what was discussed at an informal settlement conference in February 2022, one obviously available inference is that the source was a person associated with the respondent and that what the source said was articulated during that conference. But without articulating the content (and proving one of the exceptions to the preclusion of evidence given during settlement negotiations), the applicant's asserted justification for bringing the application when it did on the basis of this 'source' cannot be accepted. That means that all that the applicant could fall back on when justifying its decision to bring the application when it did, subject to a qualification, was the objective information it had about the respondent's financial position which has at all material times been ascertainable. But the applicant never explained why that information had not been ascertained much earlier than a couple of weeks before the hearing. In the end, it could not be substantiate its Counsel's submission that there had been a material 'change' in the respondent's theoretical position which warranted the application being brought when it was. 9. The qualification is the applicant's contention that the respondent could and should have yielded to the applicant's demand that it divulge commercially sensitive information. It is not uncommon for defendants in commercial litigation who, suspicious of a plaintiff's financial position, to raise requisitions. But they have no right to receive answers to them; and especially where inquiry is made in close proximity to a hearing at a time when the plaintiff and its lawyers may be expected to be concentrating upon the hearing at hand, rather than becoming embroiled in satellite disputes. 10. It is incorrect to say, as the applicant submits, that the information regarding the respondent's financial position could have been fully ascertained following the Court's rejection of the respondent's application to set aside the notice to produce. To use an overworked cliché, that put the cart before the horse. I would have been inclined to reject the application for security on discretionary grounds without considering the application to set aside the notice to produce. The applicant's dependence on what might emerge from the service of its notice serves to reinforce my impression, that on the basis of the (affidavit) evidence that was going to be relied upon at the contested hearing of the motion, the applicant had no more than a suspicion that it could establish the respondent's future likely inability to meet a costs order. However, as I have explained, that would not provide sufficient answer to the discretionary reasons why the application was likely to have failed in any event. 11. The circumstance that a director of the cross-claimant offered an undertaking to be personally liable was not in itself indicative that security was likely to be awarded. More likely, it represented effective insurance for the respondent in the event that the Court signalled a disposition to award the security on other grounds. 12. It will be apparent from what I have said that I am very confident that I would have found that there was nothing in Mr Wilkinson's revelation of the respondent's recent financial position that would have made a material difference to the outcome: the applicant's problem was not so much an absence of proof that the Court did not have the power to order security on account of the respondent's apprehended financial position. Its problem was the circumstances affecting the Court's discretion I have described. 13. Ordinarily, or absent good cause, where a party brings an application that is discrete and severable from the proceeding, which causes its opponent to incur costs in opposition to the application, and then unilaterally withdraws the motion, it would be expected that it should pay its opponent's costs to compensate the opponent for those costs. 14. Noting that the cross-defendant has withdrawn its notice of motion dated 10 March 2022, it is appropriate to dismiss it and order that the cross-defendant pay the cross-claimant's costs of and occasioned by the motion. 15. Because of the view that I am confident I would have taken about the failure of the application for security, on discretionary grounds, the cross-claimant's application to set aside the notice to produce would have become inutile. The appropriate order is that the cross-claimant's notice of motion dated 17 March 2022 is dismissed with no order as to costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 March 2022