New South Wales Court of Appeal CITATION: Capital Finance Australia Ltd v Citadel Property Group Pty Ltd [2009] NSWCA 196 HEARING DATE(S): 07/07/2009 JUDGMENT DATE: 7 July 2009 JUDGMENT OF: Young JA at 8, 10; Handley AJA at 1; Sackville AJA at 9 EX TEMPORE JUDGMENT DATE: 7 July 2009 CATCHWORDS: COSTS - security for costs - review of discretionary decision - no question of principle. LEGISLATION CITED: Real Property Act, s 57(2)(b) PARTIES: Capital Finance Australia Limited - Appellant Citadel Property Group Pty Ltd - Respondent FILE NUMBER(S): CA 40031/09 COUNSEL: F Kunc SC - Appellant G Laughton SC and A R Vincent - Respondent SOLICITORS: Gadens, Sydney - Appellant Salim Rutherford, Sydney - Respondent LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): 50204/08 LOWER COURT JUDICIAL OFFICER: McDougall J LOWER COURT DATE OF DECISION: 12 November 2008 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40031/09 YOUNG JA HANDLEY AJA SACKVILLE AJA TUESDAY 7 JULY 2009 CAPITAL FINANCE AUSTRALIA LIMITED & ORS v CITADEL PROPERTY GROUP (ROCKDALE NO 1) PTY LIMITED & 2 ORS JUDGMENT 1 HANDLEY AJA: This is an application by the defendants for leave to appeal from a decision of McDougall J of 12 November 2008 in which his Honour refused to order security for the defendant's costs of the proceedings. The court has not been persuaded that the primary judge erred in the exercise of his discretion to refuse an order at that stage. 2 The principal proceedings involved claims by the borrower companies that they were not in breach of their loan facilities when the mortgagee purported to exercise rights under its mortgages to decline further funding, to call up the balance of the principal moneys, to appoint receivers and to issue notices under s 57(2)(b) of the Real Property Act. It is not in dispute that those claims could be viewed as defensive in substance so far as the principal debtor companies are concerned, and also defensive in substance in relation to the position of the guarantor, Mr Milo, who guaranteed the indebtedness of the principal debtors. 3 The claim that has been pressed on this court is that at this stage of the proceedings the defendants are entitled to an order for security for costs in respect of that part of the principal proceedings which involves a claim for damages. Under case management directions the plaintiffs must file their evidence on damages before the defendant is called upon to prepare or file its case in answer to the damages claim. Since the claim for security for costs has been limited to the proceedings insofar as they are offensive in substance, namely the claim for damages by the principal debtor companies, the applicant is not yet incurring costs in relation to that part of the proceedings for which they claim to be entitled to an order for security. 4 While it is well established that a defendant should apply for security for costs at an early stage and any claim for security will be prejudiced if the application is delayed, the court is not bound to make an order for security at an early stage in the proceedings. It may be a proper exercise of discretion to defer making such an order until the defendant commences to incur substantial costs or is about to incur substantial costs. 5 The primary judge declined to order a separate trial of the damages issues but said that it may be appropriate to make that order later once the nature of the plaintiffs' case on liability and damages had become clearer in the light of the evidence filed in support of it. 6 In my judgment, the appropriate time for the court to confront the issue of security for the defendant's costs of the claim for damages will be after the plaintiff has completed its paper case on damages before the defendant has started to incur substantial costs in preparing its case on the damages claim. At that stage the Judge could appropriately revisit the discretion to order a separate trial of the claims for damages. 7 In the circumstances, I have not been persuaded that the judge erred in characterising the proceedings as in substance defensive although they had an offensive element. In those circumstances I have not been persuaded that the judge's discretion miscarried and that this court should intervene. I therefore propose that the application for leave to appeal be dismissed with costs but without prejudice to a renewed application that the defendants might be advised to make at the close of the plaintiff's paper case on damages. 8 YOUNG JA: I agree. 9 SACKVILLE AJA: I also agree. 10 YOUNG JA: The order of the court is that we refuse leave to appeal with costs, without prejudice to another application being made at a more advanced stage in the proceedings. ********** 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.