New South Wales Supreme Court CITATION : Martin John Green in his capacity as liquidator of Arimco Mining Pty Limited (in liquidation) v CGU Insurance Limited & Ors [2008] NSWSC 449 HEARING DATE(S) : 02/05/08 JUDGMENT DATE : 9 May 2008 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Application for security for costs incurred up to and including the making of the security for costs application rejected. Security for costs ordered in respect of anticipated future costs subject to reduction for exigencies. CATCHWORDS : Practice and procedure - Security for costs - General principles - Delay - Litigation funding - Plaintiff liquidator brings proceedings seeking to recover approximately $40,000,000 including interest - Whether liquidators should be required to provide security for costs where litigation is funded by external funder LEGISLATION CITED : Miscellaneous Provisions) Act 1946 (NSW) Supreme Court Act (1970) NSW CATEGORY : Procedural and other rulings Addstead Pty Ltd v Simionato Holdings Pty Ltd (unreported, Supreme Court of South Australia, Duggan J, S5691, 5 July 1996) Barton v Minister for Foreign Affairs (1984) 54 ALR 586 Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 52 ALR 176 Benzlaw & Assoc Pty Ltd v Medi-Aid Centre Foundation Ltd [2007] QSC 009 Bhattcharya v Freedman [2001] NSWSC 498 Buckley v Bennell Design and Construction Pty Ltd (1974) 1 ACLR 301 Byrnes v John Fairfax Publication Pty Ltd [2006] NSWSC 251 Chartspike Pty Ltd v Chahoud [2001] NSWSC 585 Commonwealth v Cable Water Skiing (Australia) Ltd (1994) 14 ACSR 760 Cory-Wright and Salmon Ltd v KPMG Peat Marwick [1993] 2 NZLR 701 Cowell v Taylor (1885) 31 Ch D 34 Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68 Eddy v Mac Audio & Acoustical Consultants Pty Ltd [2000] SASC 149 Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 Frankston Ambassador Pty Ltd v Cigna Insurance Australia Ltd (1991) 9 ACLC 790 Greener v E Kahn & Co Ltd [1906] 2 KB 374 Hession v Century 21 South Pacific Ltd (in liq) (1992) 28 NSWLR 120 Irwin Alsop Services v Mercantile Mutual Insurance Co Ltd [1986] VR 61 Jodast Pty Lrd v A & J Blattner Pty Ltd (1991) 104 ALR 248 Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 744 Liberty Grove (Concord) Pty Ltd v Mirvac Projects Pty Ltd [2008] NSWSC 48 Lucas v Yorke (1983) 50 ALR 228 CASES CITED : Maronis Holdings Ltd v Nippon Credit Australia Ltd [2000] NSWSC 994 Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Ltd (1998) 193 CLR 502 Morris v Hanley [2000] NSWSC 957 Northern Southern Western Supermarkets Pty Ltd v HIH Casualty and General Insurance Ltd (in liq) [2002] NSWSC 541 Pasdale v Concrete Constructions (1995) 131 ALR 268 Pavelic Investments Pty Ltd, In re (1983) 8 ACLR 417 Pearson v Naydler [1977] 1 WLR 899 Pioneer Park Pty Ltd (in liq) v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344 Plaza Print Pty Ltd v South British Insurance Co Limited (1984) 54 ACTR 3 Prime Forme Cutting Pty Ltd v Baltica General Insurance Co (1989) 8 ACLC 29 P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 ( Oshlack v Richmond River Council (1998) 193 CLR 72 Rajski v Computer Manufacture & Design Pty Ltd (1982) 2 NSWLR 443 Re W Powell and Sons [1896] 1 Ch 681 Re Strand Wood Co Ltd [1904] 2 Ch 1 Rhema Ventures Pty Ltd v Stenders [1993] 2 Qd R 326 Rickard Constructions Pty Ltd v Allianz Australia Insurance Ltd [2002] NSWSC 1162 Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 Silverstone Holdings Pty Ltd v American Home Assurance Co [2003] WASC 139 Tenth Anemot Pty Ltd v Colonial Mutual General Insurance Co Ltd [1993] 2 VR 48 Timbertown Community Enterprises Ltd v Holiday Coast Credit Union Ltd (1997) 15 ACLC 1679 Tulloch Ltd v Walker (unreported, Yeldham J, Supreme Court of New South Wales, 8 December 1976) Yandil Holdings Pty Ltd v Insurance Company of North America (1985) 3 ACLC 542 TEXTS CITED : Dal Pont, Law of Costs, Butterworths 2003 PARTIES : Martin John Green in his capacity as liquidator of Arimco Mining Pty Limited (in liquidation) (Plaintiff) CGU Insurance Limited (First Defendant) FILE NUMBER(S) : SC 50177/04 Mr D Davies SC, Mr MS White (Plaintiff) COUNSEL : Mr R Macfarlan QC, Mr S Goodman (First Defendant) Mr Kelly (solicitor for Litigation Management Pty Limited) Henry Davis York (Plaintiff) SOLICITORS : Kennedys (First Defendant) Kemp Strang (Litigation Management Pty Limited) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Friday 9 May 2008 50177/04 Martin John Green in his capacity as liquidator of Arimco Mining Pty Limited (in liquidation) v CGU Insurance Limited & Ors JUDGMENT The application 1 The first defendant, ("CGU") seeks an order that the plaintiff, Mr Green, provide security for costs in an amount of $2,592,330.72. The application throws up the question of whether or not a liquidator may or should be required to provide security for costs in a situation where the liquidator is funded by an external funder. 2 The application is pursued pursuant to the inherent power of the Court to order security for costs [cf: Rajski v Computer Manufacture & Design Pty Ltd (1982) 2 NSWLR 443 at 448-449 per Holland J, who made the point that the discretion to order for security costs is unfettered]. Background 3 These proceedings are brought by the liquidator of Arimco Mining Pty Ltd (in liquidation). 4 When the proceedings commenced, the defendants were the former directors and officers of Arimco, and CGU in its capacity as the insurer of those directors and officers. 5 It is alleged that the directors and officers, during the period 1 February 1999 to 14 March 1999, allowed Arimco to incur debts at a time when that company was insolvent or there were reasonable grounds for suspecting that it was insolvent, or would become insolvent by incurring those debts. 6 The liquidator seeks to recover approximately $22 million. Interest, if calculated from 1999, represents a further amount of $18 million. 7 On the occasion when Mr Green sought leave to join CGU to the proceedings in its capacity as the insurer of each of the third, fourth, fifth and sixth defendants, under section 6 (4) of the capital Reform (Miscellaneous Provisions) Act 1946 (NSW), an affidavit was made by Mr Green on 14 December 2004 and was served upon CGU. That affidavit put CGU on notice that, prior to commencing the proceedings, Mr Green had sought funding from a litigation funder and that a funding agreement was only entered into by him after extensive negotiations on 7 December 2004. 8 The plaintiff has settled with the directors and officers. CGU is the sole remaining defendant. CGU's defence includes that it is entitled to reduce its liability to nil on the basis of non-disclosure and misrepresentation by the directors and officers as to the financial position of Arimco at the time the proposal was submitted and the policy written. 9 On 27 November 2007, the proceedings were set down for a 4 week hearing commencing on 15 July 2008. The delay issue 10 CGU's motion seeking security for costs was only filed on 6 March 2008. 11 The liquidator puts forward delay as an important factor said to influence the discretion against the making of the security for costs order at this very late stage. The liquidator had expended in excess of $1,000,000 by the time the security for costs application is pursued. As the liquidator submits, CGU does not proffer any explanation at all as to why the security for costs application was not made over three years ago. The principles 12 I accept as correct the broad outline provided by CGU in terms of the principles which inform the making of orders for the provision of security for costs, many of which principles were identified in Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 744: 1. The Court has power to order the provision of security for costs against plaintiffs who are natural persons: s 23 Supreme Court Act, Rajski v Computer Manufacture and Design Pty Ltd [1982] 2 NSWLR 443 (Holland J) and [1983] 2 NSWLR 122 (Court of Appeal); Morris v Hanley [2000] NSWSC 957 at [10]ff (Young J); Bhattcharya v Freedman [2001] NSWSC 498 at [27] (Badgery-Parker AJ); Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 744 at [17] (Einstein J); Byrnes v John Fairfax Publication Pty Ltd [2006] NSWSC 251 at [17] (Simpson J). This is an inherent power necessary for the due administration of justice and to prevent abuse of the Court's processes: Rajski at [447]-[448]; Bhattcharya v Freedman at [27]. 2. The Court's discretion to require the provision of security for costs is broad and the factors informing the exercise of that discretion cannot be stated exhaustively: Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 744 at [48]; Dal Pont, Law of Costs , Butterworths 2003 at 29.2. The only limitation is that the discretion be exercised judicially: Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 52 ALR 176 at 178. Any attempt to limit the discretion by reference to rules or practices is wrong, as the exercise of a discretion judicially requires the court to consider the circumstances of the particular case with a view to determining the justice of the matter: Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Ltd (1998) 193 CLR 502 at 513 ([26]) (Kirby J), Dal Pont, Law of Costs at [29.2]; Lucas v Yorke (1983) 50 ALR 228 at 229 (Brennan J); Barton v Minister for Foreign Affairs (1984) 54 ALR 586 at 593-594 (Morling J); Jodast Pty Ltd v A & J Blattner Pty Ltd (1991) 104 ALR 248 at 251 (Hill J). 3. The purpose of a security for costs order is protective, so as to ensure that the primary purpose of an award of costs (that is, indemnification of the successful party: Oshlack v Richmond River Council (1998) 193 CLR 72 at 97 [67], per McHugh J and the cases therein cited) is achieved. As stated in Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 744 at [33]: "The jurisdiction to award security for costs should thus be seen as protecting the efficacy of the exercise of the jurisdiction to award costs. The discretion should be exercised with the same rationale in mind, namely that, to the extent it can be provided, the court should not permit a situation where a party's success is pyrrhic." 4. In exercising the discretion to make an order for the provision of security for costs, the court seeks 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 him out or prejudicing him in the proceedings: Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 at 470 (Giles J); Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 744 at [47]. 5. The inability of a plaintiff to meet the costs of a successful defendant weighs heavily in the exercise of the discretion: Rosenfield at 470; Idoport Pty Ltd v National Australia Bank Limited at [47]. 6. There is now no rule that the impecuniosity of a natural person plaintiff prevents the court ordering the provision of security for costs. The impecuniosity of the plaintiff is a factor to be weighed in the exercise of the discretion and is neither a sufficient condition for the ordering of security nor a sufficient condition for the Court to decline the order for security: Lucas v Yorke (1983) 50 ALR 228 at 228-9 (Brennan J); Morris v Hanley [2000] NSWSC 957 at [15]-[18] (reversed on appeal but not on this point [2001] NSWCA 374). This stands in contrast to the more rigid approach taken in Cowell v Taylor (1885) 31 Ch D 34 at 38 per Bowen L.J.: "The general rule is that poverty is no bar to a litigant, that, from time immemorial, has been the rule at common law, and also, I believe, in equity" and Greener v E Kahn & Co Ltd [1906] 2 KB 374 at 378. 7. The plaintiff's position as a liquidator does not of itself prevent the making of an order for the provision of security for costs. Whilst there were statements in some cases, starting with Re Strand Wood Co Ltd [1904] 2 Ch 1, to the effect that liquidators are not required to provide security, these were an application of the general approach then taken, and exemplified in Cowell v Taylor (1885) 31 Ch D 34, that proceedings brought by a trustee in bankruptcy ought not be stultified by reason of his impecuniosity. See also Greener v E Kahn & Co Ltd [1906] 2 KB 374 at 376; Cory-Wright and Salmon Ltd v KPMG Peat Marwick [1993] 2 NZLR 701 at 705 and Timbertown Community Enterprises Ltd v Holiday Coast Credit Union Ltd (1997) 15 ACLC 1679. 8. To the extent that a party asserts that an order that security be provided would stultify the proceedings, it must satisfy the Court that those who stand behind it or stand to benefit from its success in the proceedings are unable to provide security for costs: Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 744 at [66]; Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 52 ALR 176 at 179. A proceeding cannot be regarded as stultified unless those who stand behind the impecunious plaintiff are unable (not unwilling) to provide the requisite security for costs. 9 . An important factor informing the exercise of the discretion is the existence of persons who stand behind an impecunious plaintiff who seek to take the benefit of our system of justice (i.e. share of the proceeds of victory) without the corresponding burden (i.e. a potential adverse costs order): Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 at 472-3 (Giles J); Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68 at 70 (Lehane J); Maronis Holdings Ltd v Nippon Credit Australia Ltd [2000] NSWSC 994 (Bryson J); Chartspike Pty Ltd v Chahoud [2001] NSWSC 585 at [5] (Young CJ in Eq); Northern Southern Western Supermarkets Pty Ltd v HIH Casualty and General Insurance Ltd (in liq) [2002] NSWSC 541 (Einstein J); Rickard Constructions Pty Ltd v Allianz Australia Insurance Ltd [2002] NSWSC 1162 (McClellan J); Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 at 584 ([83]) (Austin J); Benzlaw & Assoc Pty Ltd v Medi-Aid Centre Foundation Ltd [2007] QSC 009 at [15]-[16] (Douglas J). As Austin J stated in Fiduciary v Morningstar Research Pty Ltd at [83]: "It would be unrealistic for the court to decline to order security on the ground that to do so would stultify the litigation, if it took into account only the financial ability of the plaintiff, and disregarded the financial ability of those who would benefit from the plaintiff's success and who would therefore have an economic incentive to bear the burden of a security order. More broadly, it is fair for the courts to proceed on a basis which reflects the proposition that those who seek to benefit from litigation should bear the risks and burdens that the process entails. That notion appealed to Young CJ in Eq in Chartspike Pty Ltd (in liq) v Chahoud [2001] NSWSC 585 at [5], where his Honour observed that where a plaintiff contracts to have the litigation funded by a third party, in return for the third party receiving a share of the verdict, "it is appropriate that the third party bear part of the risk" ." The case put by CGU for an exercise of the discretion in its favour 13 CGU puts the following factors forward in its claim for the security for costs order: i. it should be inferred, for the reasons following, that the liquidator will, or at least, may, be unable to satisfy an adverse costs order of the magnitude of the costs order likely to be made in favour of CGU. ii. CGU has incurred costs and disbursements to the end of February 2008 in an amount of $1,650,987.02. iii. CGU's solicitor, Mr Howie, a solicitor of this Court of some 37 years experience, has estimated that CGU's future costs and expenses of the proceedings at first instance will be in the order of $941,343.70, making a total of $2,592,330.72. iv. the Court should infer that the liquidator will, or may be, unable to meet an adverse order for costs in circumstances where: a) CGU has raised its concerns about recovery of its costs with the liquidator and has asked the liquidator to confirm that he has sufficient personal assets to satisfy such a costs order: see Ex AAH-1, p28, but the liquidator has refused to do so: see Ex AAH-1, p34; b) the liquidator has entered into a litigation funding agreement with a litigation funder known as Litigation Lending Services No.4 Partnership [the funder]: see Ex AAH-1, p19, and has relied upon the indemnification provision in that agreement in opposition to CGU's request for security; c) The funder has provided financial statements suggesting that it has net assets of approximately $2.5 million. However, in calculating those net assets, approximately $2 million has been added based on the fact that this is the funding expenditure made to date in relation to matters in hand, including the present proceedings. This appears to be based on an assumption (which is not backed up in evidence or justified by argument) that whatever has been paid out by way of funding is likely to be recovered; d) this situation is made even more unsatisfactory by the fact that it appears from the evidence [cf: T 15.36 – 16.10] that approximately $1 million of those assets are funds expended on the present case. This means that, should the plaintiff lose the present proceedings and have costs awarded against it, a substantial portion of the assets could potentially disappear; e) the name of the litigation funder suggests that it is a special purpose entity whose liabilities would be unlikely to be able to be enforced against other LSS entities with which it may be associated. v. the liquidator's inability to meet an adverse costs order exposes CGU to the situation where a costs order made in its favour may be pyrrhic. This is a result that the courts strive to avoid. vi. the fact that there is good reason to believe that the liquidator will be unable to pay the defendant's costs is a consideration of great weight in the exercise of the discretion: Rosenfield Nominees Pty Ltd v Bain & Co (supra) at 470. vii. there is no basis from which to infer that an order for the provision of security for costs would stultify the proceedings. Indeed, the funder has expressly agreed: a) to indemnify the liquidator from and against any "Order for Costs" (clause 5.1 of the funding agreement; Annexure B to the affidavit of Mr Howie sworn 13 March 2008), which expression is defined to include security for costs (clause 1.1 of the funding agreement; Annexure B to the affidavit of Mr Howie sworn 13 March 2008); and b) to provide a bank guarantee to support that indemnity (clause 5.2 of the funding agreement; Annexure B to the affidavit of Mr Howie sworn 13 March 2008). Whether liquidators may be ordered to provide security for costs 14 As CGU has contended, liquidators may be ordered to provide security for costs, because: i. the impecuniosity of the liquidator is one factor to be taken into account and is not determinative against an order for security to be provided; ii. the proposition that generally liquidators are not required to provide security for costs derived from a concern over stultification of proceedings and where stultification is relied upon by a liquidator, the liquidator must satisfy the court that an order that security for costs be provided would in fact stultify the proceedings. 15 The authority commonly encountered for the proposition that liquidators should not be required to provide security for costs is the decision in Re Strand Wood Co Ltd (supra) which followed the decision in Cowell v Taylor (supra) which was concerned with a trustee in bankruptcy. 16 As CGU has submitted, the fact that the decision in Re Strand Wood Co Ltd was based upon the court's reluctance, as derived from Cowell v Taylor, to allow an order for the provision of security for costs to stultify an action brought by a liquidator because of the liquidator's lack of means was recognised by Cozens Hardy LJ in Greener v E Kahn and Co [1906] 2 KB 374 at 376. See also Timbertown Community Enterprises Limited v Holiday Coast Credit Union Limited (supra). Similarly, in Cory-Wright and Salmon Ltd v KPMG Peat Marwick [1993] 2 NZLR 701, Graven J at 705, after referring to a submission that "the present practice depended upon the decision of Re Strand & Wood Co Ltd and that case itself depended upon the decision in Cowell v Taylor" and after considering Cowell v Taylor, said: "The basis for the practice at common law then would seem to have arisen from the reasonable concerns of the Courts to ensure that persons were not prevented from taking action by their impecuniosity." 17 I accept that the correct position is conveniently summarised by Lander J (Doyle CJ and Duggan J agreeing) in Eddy v Mac Audio & Acoustical Consultants Pty Ltd [2000] SASC 149 at 39: "The fact that the proceedings are brought by a liquidator, appointed by the Court, who is performing a public function to recover the corporation's losses for the benefit of the creditors and shareholders will usually be a relevant factor in the exercise of the discretion to make an order of this kind: In re Pavelic Investments Pty Ltd (1983) 8 ACLR 417. Moreover if a liquidator brings a claim bona fide against directors for breach of their duties ordinarily no order for security for costs would be made in favour of the directors where the liquidator alleges that the breaches of duty caused the plaintiff's impecuniosity; Addstead Pty Ltd v Simionato Holdings Pty Ltd (Supreme Court (SA) Duggan J, Judgment No S5691 5 July 1996, Unreported). But that is not a rule. It is no more than the result of the proper exercise of a discretion. Clearly there will be cases where in such a claim it would be appropriate to exercise the discretion in favour of the defendant. One circumstance which may make such an exercise appropriate is where there are persons with means who are financing the plaintiff's action and who will be the beneficiaries of the plaintiff's success. If any order made will mean that the plaintiff cannot proceed with the litigation that will also be a relevant factor. The proper exercise of the discretion requires the weighing of all relevant facts and circumstances. It cannot be said that as a rule any one matter should be given greater weight than any other matter. The weight given to any matter will depend upon the facts of the case ." (emphasis added) 18 Clearly also, if the liquidator wishes to rely upon stultification, he must satisfy the Court that the financial position of those who stand him, or stand to benefit from his success, is such that those persons could not provide security for costs. 19 In Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 52 ALR 176 the Full Court of the Federal Court held at 179-180: "In our opinion a Court is not justified in declining to order security on the ground that to do so will frustrate any litigation unless a company in the position of the appellant here establishes that those who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for a party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of the security will frustrate the litigation to raise the issue of impecuniosity of those whom the litigation will benefit and to prove the necessary facts." 20 As CGU has also contended, the approach of the Full Court of the Federal Court in Bell Wholesale Co was approved by McHugh J in P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 (High Court of Australia) at 323 and by the New South Wales Court of Appeal in Hession v Century 21 South Pacific Ltd (in liq) (1992) 28 NSWLR 120 at 123. See also Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACSR 467 at 472. 21 In Yandil Holdings Pty Ltd v Insurance Company of North America (1985) 3 ACLC 542 Clarke J said: "It must be observed however in this respect that the mere fact that the plaintiff is financially unable to provide security does not lead inevitably to the conclusion that the making of an order will stultify the plaintiff's claim. There is a line of authority, commencing with the unreported decision of Yeldham, J in Tulloch v Walker (8th December 1976), standing for the proposition that if the personnel behind the corporate plaintiff, or other parties who will benefit if the plaintiff success, are financially able to provide adequate security then it is, generally speaking, inappropriate to refuse an order." 22 In Idoport v National Australia Bank Limited [2001] NSWSC 744 I held at [66]: "As to [the assertion that the Court should infer that a grant of security for costs would stultify the litigation], the Plaintiffs bear the onus of proving the factual sub-stratum to make good the relevant assertion. Notwithstanding the fact that neither Idoport nor Market Holdings have themselves the capacity by reference to their own assets to provide security and to continue funding the litigation, the Plaintiffs appear to have recognised, and in any event the Court holds, that in failing to call the necessary evidence to establish what are the assets of shareholders or creditors of the Plaintiffs or of persons or companies with whom the Plaintiffs have funding arrangements or agreements , the relevant evidentiary onus was not discharged." (emphasis added) 23 Where a liquidator does not have a litigation funder behind him, the liquidator can more readily prove that an order for the provision of security for costs would stultify the proceedings: see e.g. Timbertown Community Enterprises Ltd v Holiday Coast Credit Union Ltd (1997) 15 ACLC 1679, where his Honour said: "However, that is not the end of the matter. The general rule is that the court does not require security for costs to be given by a plaintiff who sues as a trustee in bankruptcy even when the estate is in insolvent circumstances. This is the rule in Cowell v Taylor (1885) 31 Ch D 34. There is another aspect of that rule that the court does not deprive a person of the opportunity for litigating a matter solely because he or she is impecunious but that is not directly in point in the instant case. The basic rule in Cowell v Taylor has been considered to be applicable in Australia and its scope is noted in the leading book, Delany on Security for Costs, (LBC, Sydney 1989) at p34 and p43. The real question is whether that principle applies to an administrator. In my view, it does. The administrator is, almost by definition, dealing with a company whose solvency is questionable and the policy of the Corporations Law is that there shall be a complete freeze on people altering their positions whilst the administrator is assessing the situation. There would be a complete breakdown of this policy if as soon as the administrator tried to protect the assets of the company generally, he could be foiled by a stay because of failure to meet an order for security for costs. Indeed in most cases of administration, the administrator would be in no position to marshal sufficient resources to meet any security ordered. Counsel have cited to me a case where security for costs was ordered against a company in administration, namely, Pasdale v Concrete Constructions (1995) 131 ALR 268. It would not appear that Cowell v Taylor was referred to in that case either by counsel or the judge. Doubtless, there may be situations where it would be appropriate to order security for costs against an administrator, but I think that would rarely be the situation where the administrator is trying to protect the company generally against a person who, if the administrator is correct, may have acted contrary to the policy of Division 6 of Pt5.3A of the Corporations Law." (emphasis added) 24 The plaintiff highlights the fact that each of the above judgments dealt with a plaintiff who was an insolvent corporation, rather than, as in the present proceedings, a liquidator in person. In Hession, Meagher JA specifically emphasised this point, stating [at 120]: A distinction must be made between cases in which the liquidator personally is the plaintiff, and those when the company (albeit by its agent, the liquidator) is the plaintiff,… . In the former case — a prototype of which is the misfeasance summons— if the proceeding fails costs will be awarded against the liquidator personally ( Re W Powell and Sons [1896] 1 Ch 681), but no order for security for costs will be made against him ( Re Strand Wood ), apparently on the ground that he is exercising a statutory power vested in him personally. 25 These comments were clearly obiter, coming in the context of a general affirmation of the general principle in Bell Wholesale Co. Having come to their decision on the basis of the particular facts, the Court in Hession was not required to consider whether the principle expressed in Re Strand Wood could be applied in those instances where the imposition of an order for security for costs on a liquidator in person does not carry with it the risk of stultification of the proceedings. The different position which obtains where the liquidator has the backing of a litigation funder 26 Clearly a very important factor to be borne in mind on the present application concerns the circumstance that there is a funder who stands to benefit from the liquidator's success in these proceedings. The relevant discretion requires to take into account the disinclination of the Court to permit a win-win situation for an outside party: that is to say to permit a lender who stands behind the liquidator awaiting to benefit from a success in the proceedings to avoid having a fair responsibility for the costs of the liquidator in the event that the proceedings fail. 27 The proper inference is that the litigation funder entered into the funding agreement in the expectation of profit. This inference is readily drawn in circumstances where: i. The litigation funder has declined to provide a full copy of the funding agreement; ii. the redaction in the redacted copy provided included "the provisions concerning the distribution of the proceeds of the litigation" , despite CGU's solicitors having earlier highlighted the relevance of the "provisions dealing with...the reward to be gained by the funder in consideration of the funding it is providing" ; iii. it is apparent from the redacted copy of the funding agreement that clause 3 deals with "Repayment and Additional Sum" , where "Additional Sum" is defined in clause 1.1 as meaning "the sum payable to LLS on conclusion of the Proceedings in favour of the Insolvency Practitioner and/or company and as calculated in clause 3 of this Agreement" . 28 I accept as correct CGU's contention that the existence of the agreement with the litigation funder means that the liquidator bears the onus of proving that the funder is unable (not unwilling) to provide security. It is clear that the funder is contractually bound to indemnify the liquidator in relation to any order that he provide security for costs. Further, the liquidator has a contractual right to require the funder to provide a bank guarantee to support the indemnity. 29 Hence the finding is that an order requiring the provision of security for costs would not stultify the present proceedings in the instant circumstances where: i. there is no evidence from the liquidator suggesting that the proceedings would be stultified; ii. the liquidator has entered into a litigation funding agreement which includes an indemnity from the funder in relation to orders requiring the liquidator to provide security for costs; and iii. the liquidator has not adduced evidence as to the financial position of the funder. 30 CGU also contended and I accept that the reference in Re Strand Wood Company Limited (supra) [and some subsequent cases] to the performance of the liquidator's statutory functions relates to the issue of stultification. There is no basis from which to infer that the liquidator would not be able to carry out his statutory functions by continuing with these proceedings. 31 Whilst the liquidator is carrying out a public function he is also representing the interests of the funder which stands to gain from the proceeding. In those circumstances, it is appropriate that the funder bear the risk of the venture: Cory-Wright and Salmon Limited v KPMG Peat Marwick (1993) 2 NZLR 701 at 707; Chartspike v Chahoud [2001] NSWSC 585 at [5]. 32 To the extent that the liquidator has contended that CGU is not entitled to security for costs having regard to the fact that it is an insurer, in circumstances where it has denied indemnity on the policy, but the existence of the policy is not in dispute, the proposition is rejected. The foundation for the contention put by the liquidator is a decision of Ormiston J in Irwin Alsop Services v Mercantile Mutual Insurance Co Ltd [1986] VR 61. In that case Ormiston J at 65-66 reached the view that it is not ordinarily appropriate to grant security for costs in favour of an insurer defendant, particularly where the existence of a relevant policy is not in dispute. His Honour took the view that this approach was consistent with the observations of Megarry V C in Pearson v Naydler [1977] 1 WLR 899 at 906 that the Court must not allow security for costs to be used as an instrument of oppression by shutting a small company from making a claim against a large company. 33 As CGU has contended, Ormiston J's decision should not be followed, as it: i. was not followed by Brooking J in Prime Forme Cutting Pty Ltd v Baltica General Insurance Co (1989) 8 ACLC 29 at 32; by Beach J in Frankston Ambassador Pty Ltd v Cigna Insurance Australia Ltd (1991) 9 ACLC 790 at 793-4; by McDonald J in Tenth Anemot Pty Ltd v Colonial Mutual General Insurance Co Ltd [1993] 2 VR 48 at 53-54 or by Newnes M in Silverstone Holdings Pty Ltd v American Home Assurance Co [2003] WASC 139 at [46]; ii. is inconsistent with decisions in which security for costs has been ordered to the benefit of a defendant insurer: see e.g. Yandil Holdings Pty Limited v Insurance Co of North America (1985) 3 ACLC 542; Plaza Print Pty Ltd v South British Insurance Co Limited (1984) 54 ACTR 3 (Blackburn CJ); Prime Forme Cutting Pty Ltd (supra) and Silverstone Holdings Pty Ltd v American Home Assurance Co (supra) ; iii. is inconsistent with the decision of the New South Wales Court of Appeal (Basten JA, Tobias and McColl JA agreeing) in Pioneer Park Pty Ltd (in liq) v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344 at [55]-[56]. The Court of Appeal adopted the approach taken by Brooking J in Prime Forme Cutting Pty Ltd (supra) at 32 that large corporate defendants should not be seen as standing outside the policy of "the security for costs provisions" ; and iv. was made in a case, unlike the present, where the making of an order for security would have stultified the plaintiff's claim. Delay 34 In my view the crucial question called for decision on the present application relates to the tremendous delay in the making of the application. Plainly delay is a factor which informs the exercise of the Court's discretion. It is unnecessary to do any more than note that there are many authorities which make clear that an application for security for costs should be made promptly. The reason is of course quite obvious. Absent the making of such a prompt application for security, the plaintiff may be expected to expend considerable funds in complying with the routine interlocutory requirements of the Court concerning pleadings, discovery and similar. Sometimes, and the present is just such an example, a plaintiff may expend legal costs of over $1,000,000 by the time the security for costs application is pursued. 35 There are however many authorities which make clear that the presence of delay is not per se fatal. CGU instanced the following authorities in that regard: Liberty Grove (Concord) Pty Ltd v Mirvac Projects Pty Ltd [2008] NSWSC 48 (Einstein J); Idoport v National Australia Bank Limited [2001] NSWSC 744 at [70]; Commonwealth v Cable Water Skiing (Australia) Ltd (1994) 14 ACSR 760 at 762 per Bollen J (Mohr and Duggan JJ agreeing); Rhema Ventures Pty Ltd v Stenders [1993] 2 Qd R 326 at 331-32. 36 Nor is there any set time by which an application must be made: Buckley v Bennell Design and Construction Pty Ltd (1974) 1 ACLR 301 at 308 per Street CJ (Moffitt P and Hutley JA agreeing); Rhema Ventures Pty Ltd v Stenders [1993] 2 Qd R 326 at 332-333. The significance of an enquiry into prejudice to be suffered by the plaintiff 37 I accept as correct the proposition that delay may be a factor tending against an order for the provision of security where an order requiring the plaintiff to provide security for costs after a delay would cause prejudice to the plaintiff: Buckley v Bennell Design and Construction Pty Limited (supra) at 308 per Street CJ (Moffitt P and Hutley JA agreeing); Commonwealth v Cable Water Skiing (supra) (Bollen J; Mohr and Duggan JJ agreeing). For delay "to bar a security for costs application or to be a reason for refusing it then there must also be some prejudice to the plaintiff" (Dal Pont, Law of Costs at [29.129]). The prejudice position presently 38 No particular evidence whatever has been led by the liquidator in an attempt to prove that had the application for security been made in a timely fashion, the liquidator would not have pursued the proceedings in any event, nor even that the liquidator may not have pursued the proceedings. 39 Mr Davies SC appearing for the liquidator simply submitted that the court should find a 'presumptive prejudice', the suggested prejudice/hardship being the significant spending on the costs up to this point in time. Decision 40 It has to be remembered that the liquidator is able to call upon the funder to indemnify him in relation to any order that he provide security for costs and to require it to support the indemnity with a bank guarantee. 41 To my mind the principled exercise of the relevant discretion is to reject any claim for security for costs incurred by CGU up to and including the present time. CGU having elected not to pursue the application and to expend costs of in excess of $1,500,000 million dollars must presently live with that expenditure. Litigation at any, let alone this level requires a rigorous approach to pursing an early application for security for costs. 42 However the principled exercise of the relevant discretion is to make an order for security for costs which is to cover only so much of the anticipated costs of CGU [as seems reasonable to the court] up to and including the conclusion of the first instance trial. There is no reason why, even at this late stage, the liquidator [able to call upon the lender to indemnify it in fashion already referred to], should not be obliged to pay a portion of the future costs by way of an order for security. Turning to the quantum of costs area 43 The respective positions of the parties on the issue of quantum (ex GST) are summarised in the table below: Liquidator CGU Difference Future Costs $ 467,071 $852,017 $384,946 44 Of the total difference of $384,946, $312,000 (or more than 80%) relates to the preparation for, and appearance at the hearing, of Mr Macfarlan QC (items 10 and 14 in Annexure A). 45 CGU has retained Mr Macfarlan QC, Ms Needham SC and Mr Goodman of junior counsel. Ms Higginbotham, for the liquidator, opines in par.23 of her 20 March 2008 report that a second senior counsel would not be allowed on assessment, and has disallowed the estimated costs of Mr Macfarlan QC. She reiterates this view in her 4 April 2008 report (pars.16 to 18). Ms Vine Hall disagrees (pars.13 to 16 of her affidavit). In her experience it is not unusual for a party to employ three counsel in a large commercial matter. She does not agree that it is inevitable that the costs of Queens Counsel would be disallowed. 46 In my view the Court should proceed upon the probability that a costs assessor would allow recovery of the costs of one senior counsel only. Hence allowance should be made for the costs of Mr Macfarlan. The effect of such an adjustment to the amount estimated by Ms Higginbotham is to increase it by $107,260, from $467,071 to $574,331. 47 It is common for the costs estimates put forward by the party seeking the security for costs order, to be reduced to take exigencies into account. I proceed accordingly. 48 The order is that the plaintiff on or before 25 May 2008 pays $450,000 by way of security for costs by Bank Guarantee, failing which the proceedings will be stayed. 49 Costs of the motion will be reserved. **************** 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.