New South Wales Supreme Court CITATION : DJZ Constructions Pty Ltd v Paul Pritchard trading as Pritchard Law Group [2009] NSWSC 359 HEARING DATE(S) : 4 May 2009 JUDGMENT DATE : 7 May 2009 JUDGMENT OF : Schmidt AJ 1. That the plaintiff provide further security for the defendant's costs, such security to be provided on the following terms: 1.1 In the amount of $50,000. DECISION : 1.2 By way of a bank guarantee issued by a bank incorporated in Australia. 1.3. Such guarantee to contain a provision, or a provision substantially to the effect, that the funds secured by the guarantee are to be released by order of the Court and as directed by the Court. 2. That these proceedings be stayed until such time as further security has been provided by the plaintiff in accordance with order 1 above. CATCHWORDS : PROCEDURE - costs - security for costs - defendant seeking further security for costs - security previously provided by consent - parties agreed that further costs should be ordered - whether further security should have regard to costs incurred since first security provided - further security ordered LEGISLATION CITED : Uniform Civil Procedure Rules 2005 CATEGORY : Procedural and other rulings Antonias Pty Ltd v Matthew Lepouris Pty Ltd [2004] NSWSC 654 Buckley v Bennell Design & Constructions (1974) 1 ACLR 301 Electrona v Carbide Industries Pty Ltd and Anor v The Tasmanian Government Insurance Board and Others (1985) TAS.R. 68 CASES CITED : ICETV Pty Ltd v Ross [2007] NSWSC 1232 K P Cable Investments Pty Ltd v Meltglow Pty Ltd & Ors (1995) 56 FCR 189 Rhema Ventures Pty Ltd v Stenders [1993] 2 Qd R 326 Southern Cross Exploration NL and Others v Fire & All Risks Insurance Co Ltd and Others (1985) 1 NSWLR 114 PARTIES : Plaintiff - DJZ Constructions Pty Ltd Defendant - Paul Pritchard t/as Pritchard Law Group FILE NUMBER(S) : SC 20209/05 COUNSEL : Plaintiff - Mr MP Cleary, counsel Defendant - Mr AJ McInerney, counsel SOLICITORS : Plaintiff - John Orford & Associates Defendant - Yeldham Price O'Brien Lusk - 6 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION PROFESSIONAL NEGLIGENCE LIST SCHMIDT AJ Thursday, 7 May 2009 20209/05 DJZ CONSTRUCTIONS PTY LTD v PAUL PRITCHARD TRADING AS PRITCHARD LAW GROUP JUDGMENT 1 HER HONOUR: By motion of 24 April 2009, the defendant sought orders requiring the plaintiff to provide further security for costs. By consent, in 2006 the plaintiff had already provided security in the amount of $135,000. The motion sought a further sum of $135,000, but at the hearing the defendant made an open offer that he would accept security in the amount of $70,000. The plaintiff offered that it would agree to $50,000. Despite discussion, the parties were unable to resolve the difference lying between them. 2 The contest revolved around what further costs might be incurred in the proceedings and whether the security provided should have regard to costs incurred since the first security was provided. 3 The motion was supported by an affidavit of the defendant's solicitor, Mr Price, sworn on 20 April 2007. The existing security of $135,000 was given in March 2006 and was supported by a guarantee due to expire on 30 June 2009. As at the date the affidavit was sworn, the defendant had incurred professional costs billed at $141,629, unbilled costs of $14,500 and disbursements including counsel's fees of $66,453. The existing security represented some 60.7% of costs and disbursements incurred to that date. 4 Mr Price estimated that further costs of $50,000 are likely to be incurred in the proceedings, with an estimate of a further 4-5 day hearing. If cross claims are pursued by the defendant, the costs are likely to be higher. 5 Mr McInerney explained for the defendant that the further $70,000 would result in security of some 80% of costs and disbursements of the whole proceedings. That was argued to be an appropriate amount to be ordered in the circumstances, given that it had been earlier agreed that the defendant was at liberty to make further application for security for costs, in the event that the agreed security was inadequate. While costs in excess of $135,000 had been incurred before the motion was filed, given the parties' agreement as to security, it was appropriate to have regard to the entirety of the costs likely to be incurred. 6 Mr Cleary argued for the plaintiff that only a further sum of $50,000 would be ordered, given Mr Price's evidence as to what was what was likely to be incurred in the balance of the case, on a solicitor/client basis. No account would be taken of what had been incurred before the motion was filed. The Court was urged to follow the approach of Cox J in Electrona v Carbide Industries Pty Ltd and Anor v The Tasmanian Government Insurance Board and Others (1985) TAS.R. 68, where his Honour refused to make an order for security in respect of past costs, concluding at p 73 that: 'no reason has been shown why the defendants should now be given the protection for past costs which they were prepared to incur notwithstanding their knowledge of the plaintiff company's straitened circumstances.' 7 In this case the defendant was certainly aware of the plaintiff's circumstances. Not only had security been given by consent in 2006, the case was part heard when the motion was brought. There is no question that the defendant was content to allow costs in excess of the security to be incurred, without exercising the right agreed to seek further security. No explanation for that course was given. 8 Mr McInerney relied, however, on the approach of Lee J in Rhema Ventures Pty Ltd v Stenders [1993] 2 Qd R 326. There his Honour concluded at 333 - 334: The above detailed recitation of the facts and submissions shows that the application is not a simple one. It is true that delay is a substantial factor which may defeat an application for security, but it must be remembered, particularly from the decision of the Full Court in New South Wales in Buckley v. Bennell Design and Constructions Pty Ltd that there is no set rule as to the time when an application for security can be brought. It seems to me that the submissions of counsel for the defendants in reliance upon Bel l Wholesale Co. Ltd v. Gates Export Corporation have substance. It seems to me that before there can be prejudice to the plaintiff if an order for security is made, it must appear that the plaintiff is unable to afford providing security of its own resources or that those who stand behind the litigation and who will benefit from it also are unable to fund and provide the security. There can be no prejudice to the plaintiff if the costs it has incurred are not thrown away as a result of security, if ordered, being provided by those behind the litigation and who will benefit from it. I was troubled by the final affidavit produced late in the hearing by Mr Coyne, which refers to what was said to be the attitude of Elders Finance Group from as far back as June last year. However, it seems to me that there is force in the submissions of counsel for the defendants that this hearsay affidavit is not on all fours with the evidence which emerged in cross-examination in relation to the situation as known to Elders as recently as the day before the hearing on 17 November 1992. No authority has been referred to me which decides this particular question. The exercise of discretion remains unfettered. It appears to be an overwhelming inference on the facts of this case that having regard to what Elders Finance Group has at stake in the matter, it will be unlikely not to fund any security for costs if ordered. I find on the balance of probabilities that notwithstanding the material advanced late in the hearing, Elders Finance Group will probably provide any security which might be ordered so that the litigation can proceed. I must, nevertheless, balance the various factors before me. Of particular importance is the fact that the question of security was first raised in June 1992 with the plaintiff and then, apparently, abandoned. Costs were incurred by both parties. There is some explanation for the delay although not an entirely satisfactory one. It was said that the application was only brought in November when the actual financial position of the plaintiff company finally became known to the defendants' solicitors. There is some merit in the submission that it was then known for the first time that Elders Finance Group were, in fact, standing behind the plaintiff. In all of the circumstances of the case, the discretion should be exercised in favour of making an order for security and I do so. Consideration 9 The discretion arising under Part 42, Rule 42.21 of the Uniform Civil Procedures Rules 2005 to order security is unfettered, but delay is a factor to be considered when an application for security is made (see K P Cable Investments Pty Ltd v Meltglow Pty Ltd & Ors (1995) 56 FCR 189). Waddell J considered delay in Southern Cross Exploration NL and Others v Fire & All Risks Insurance Co Ltd and Others (1985) 1 NSWLR 114, the application there not made until after 65 days of hearing. His Honour concluded at 125: "In the present case it seems to me that the circumstances mentioned are such as to make it quite impossible, without severe and unexpected prejudice to the plaintiffs, to make an order for security in respect of costs which have already been incurred by the defendants. The plaintiffs have incurred very substantial costs in relation to the proceedings to date and have been allowed to do so by the defendants in the absence of any intimation of any application for security for costs. It would clearly be highly unjust to make such an order in respect of costs already incurred." 10 The security ordered by Waddell J was fixed in an amount which would not prevent the hearing from being concluded. In Antonias Pty Ltd v Matthew Lepouris Pty Ltd [2004] NSWSC 654, Hamilton J took the view that '... in general terms security is given for costs only prospectively and not for costs already incurred ...' [at 7]. Brereton J took a somewhat different view in ICETV Pty Ltd v Ross [2007] NSWSC 1232 at [17], regarding delay as a matter to be considered, but there being 'no general rule that such costs are to be disregarded when making an order for security'. 11 In this case, there was no suggestion that the order sought by the defendant would put the plaintiff in the position where the hearing could not conclude. Nevertheless, that the defendant has allowed the plaintiff to incur substantial costs, without any intimation that a further application for security would be made in respect of costs already incurred until the motion was filed, is a factor to be taken into account in the exercise of the discretion. 12 In Buckley v Bennell Design & Constructions (1974) 1 ACLR 301, Moffitt P observed at 309: "The right to seek security for costs and to stay proceedings, with the possible result that a claim for damages is frustrated, is a powerful weapon. Therefore, the litigant who seeks to use it against his opponent is at risk of not having it available, unless the application is made and persevered with in circumstances involving the least oppression of his opponent. The primary reason why the application should be brought promptly and pressed to determination promptly is that the company, which by assumption has financial problems, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it is allowed to or commits substantial sums of money toward litigating its claim." 13 Also to be considered is that the further $50,000 that Mr Price estimated that the plaintiff will incur in costs, is on a solicitor/client basis. Even on Mr McInerney's submission, the defendant, if successful, would only expect to recover some 80% of these costs. It follows that even an order at the level of $50,000, as urged for the defendant, would involve some measure of security for past costs incurred. 14 Having weighed all of these factors, I have concluded in all of these circumstances, that further security in the sum of $50,000 should be ordered, as justly disposing of the issue currently lying between these parties. Order 15 The parties were agreed on the terms of the order to be made. For the reasons given, I order: 1. That the plaintiff provide further security for the defendant's costs, such security to be provided on the following terms: 1.1 In the amount of $50,000. 1.2 By way of a bank guarantee issued by a bank incorporated in Australia. 1.3. Such guarantee to contain a provision, or a provision substantially to the effect, that the funds secured by the guarantee are to be released by order of the Court and as directed by the Court. 2. That these proceedings be stayed until such time as further security has been provided by the plaintiff in accordance with order 1 above. ********** 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.