Supreme Court New South Wales Medium Neutral Citation: Azmin Firoz Daya v CX Reinsurance Company Limited [2012] NSWSC 1213 Hearing dates: 30 August 2012 Decision date: 30 August 2012 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: The plaintiff give security for the defendants' costs; the defendants pay 90% of the plaintiff's costs of this hearing Catchwords: COSTS - Security for costs - factors to be considered in exercising the discretion - where plaintiff is resident outside the jurisdiction - whether plaintiff suing for his or her own interests - distinction between commercial litigation funder and third party funding litigation to put plaintiff in a position to meet a debt to it EVIDENCE - witnesses who are not compellable - taking evidence on commission Legislation Cited: (NSW) Uniform Civil Procedure Rules, r 42.21 (Cth) Corporations Act 2001, s 564 Cases Cited: Equity Access Limited v Westpac Banking Corporation (1989) ATPR 40-972 KDL Building Pty Limited v Mount [2006] NSWSC 474 Green v CGU Insurance Limited [2008] 67 ACSR 105 Nasser v The United Bank of Kuwait [2002] 1 All ER 401 at 65 Dense Medium Separation Powder Pty Ltd v Gondwana Chemicals Limited (In Liq) [2011] NSWCA 84 Knott v Signature Security Group Pty Ltd (2001) 104 IR 84 Jalfox Pty Ltd v Motel Association of New Zealand Inc (1984) 2 NZLR 647 Betz v Parker [2005] NSWSC 660 Category: Interlocutory applications Parties: Azmin Firoz Daya (plaintiff) CX Reinsurance Company Limited (first defendant) Eagle Star Reinsurance Company Limited (second defendant) Aviva Insurance Limited (third defendant) Certain Underwriters at Lloyds evidenced by Contract no. ENCDOPR98 (fourth defendant) PLC, Royal & Sun Alliance (fifth defendant) International Insurance Company of Hannover (sixth defendant) Representation: Mr J Sexton SC & Ms S Callan (applicant/defendants) Dr A Bell SC & Mr J Williams (respondent/plaintiff) HWL Ebsworth (applicants/defendants) Sparke Helmore (respondent/plaintiff) File Number(s): 2004/175282 Judgment (ex tempore) Evidence on commission 1HIS HONOUR: By amended interlocutory process filed in court, the defendant Insurers seek orders that attempt to overcome a difficulty that has arisen in respect of two key witnesses, Ms Naunton and Mr Kilpatrick, who, it appears, are not inclined to attend to give evidence at the hearing. Because they are out of the jurisdiction, their attendance cannot be compelled, either in November this year when the matter is listed for hearing, or at any later time. The Insurers propose, as alternatives: first, that their evidence by taken by video link; secondly, that the hearing dates in November 2012 be vacated and the matter re-listed in 2013 at a time when the witnesses have indicated some willingness to travel to Australia to give evidence; thirdly, that the matter be adjourned part heard in December 2012 so that their evidence can be taken viva voce at a later time; or, fourthly, that their evidence be taken on commission in London. 2Although the evidence of the unavailability of Ms Naunton and Mr Kilpatrick is sub-optimal - particularly given that the defendant's solicitors had been asked to ensure their availability when the matter was set down - it is clear that there are going to be difficulties in securing their attendance for a trial in Sydney in November and December of this year. They clearly do not want to come to Australia at that time, and they cannot be compelled to do so. They are no longer employees of the Insurers, so they cannot be required or influenced by them to cooperate. There appears to have been a misunderstanding concerning their availability when the defendants agreed to the November hearing date. It is also uncontroversial that their credit is going to be in issue, and that they are highly material witnesses, such that the Insurers would almost certainly be unable to prove a critical material fact if their evidence is not available. 3In respect to the suggestion of vacating the November 2012 dates, and adjourning the case for later hearing, although the witnesses have indicated some willingness to come to Australia in March or April of 2013, that time is inconvenient to counsel for the plaintiff Mr Daya, who has been engaged in the matter for a long time, and of whose services it would be most unjust to deprive Mr Daya. Accordingly, this would result, in all likelihood, in the case not being heard until about mid-2013. The availability of the witnesses at that time is unknown. Should they change their mind, even at a late stage, after indicating a willingness to attend, then their attendance would still not be compellable, and the hearing delayed, or the defendant's case would be jeopardised. Accordingly, this does not seem a very satisfactory solution. 4In circumstances where the attendance of a witness out of the jurisdiction cannot be compelled, the traditional and conventional technique is to take the evidence on commission, although nowadays the evidence is often taken by video-link. Unless the judge hearing the trial is also the commissioner, video usually has many advantages over taking evidence on commission, because at least the judge is able to see the witness and the examination, and form some impression of demeanour, as well as saving the costs associated with the commission. But the disadvantages of video in a case such as the present are substantial. First, it is sub-optimal as a device for assisting in the evaluation of credit as opposed to a viva voce witness. Secondly, while video-link evidence is often convenient for witnesses whose evidence is relatively short, the evidence of these witnesses is likely to extend over several days, and the cost of a lengthy video link is high. Thirdly, the time zone differences mean that the Court would be taking such evidence at times that were out of ordinary hours, both for the Court and for the witness, such as 1700 - 2200 in Sydney and 0600 - 1100 in the morning in London. Fourthly, particularly for lengthy video links, the equipment proves time and time again to be unreliable. Fifthly, in this case there is likely to be extensive cross-examination by reference to documents which would be shown to the witnesses. Over opposition, I would not require evidence in this case to be given by video. 5Although, as I have said, the reasons given for the witnesses' apparent reluctance to come to Australia in November is less then ideal (in that it contains no direct evidence from the witnesses themselves), the brutal fact is that they cannot be compelled to come and, however unsatisfactory their personal reasons may be, that does not meet the problem that the defendants need to call them, but cannot compel them to attend. The only way in which they can be compelled to attend is by taking evidence on commission in London. 6The attraction of that course is somewhat reinforced by the circumstance that most, if not all, of the other witnesses in the case are also from England, save that two are from North America, for whom London would probably still be more convenient than Sydney. Mr Peck is in London. Mr Daya is in Ontario, Canada. It is also a significant consideration that Mr Peck has been out-of-pocket for some time, and that Mr Daya is in great jeopardy, being exposed to a very large judgment against him in respect of which he claims indemnity in these proceedings. The case for disposing of this matter as soon as it can be is a strong one. 7Those considerations lead to the following conclusions. (1) Despite the shortcomings of the evidence about the relevant witnesses' positions, I will not force the case on in November in Sydney if that is going to deprive the Insurers of the availability of those witnesses, as I am reasonably satisfied it will. (2) The preferable option for addressing that is for the Court to take the evidence on commission in London, at or about the same time as the case is fixed for hearing (but bearing in mind the issues raised by Mr Gor as to the possible need to defer the commencement of the matter a few days). That could be extended to taking the evidence of other witnesses in the case in addition to Ms Naunton and Mr Kilpatrick. (3) The alternative to that course is to adjourn the case until the witnesses can be available. Were I to adopt that course, I would not, over opposition, list the case on dates on which the plaintiff's counsel are unavailable, given their long and central involvement in the matter. That would likely have the consequence that the matter would not be listed in Sydney until the middle of next year, and even then the availability of the relevant witnesses could not be assured. 8I would add that, as this application is triggered relatively late, after the matter had been set down for hearing in November, I incline to the view that the Insurers would have to meet the additional reasonable costs of all parties in connection with the taking of evidence in London. 9The foregoing should enable the parties - in particular Mr Daya and Mr Peck - to make a decision as to the way in which they wish to proceed, and I will adjourn the matter to 9.30 next Wednesday 5 September 2012 for mention. Security for costs 10By amended interlocutory process filed in the Daya proceedings, the defendant Insurers claim an order pursuant to (NSW) Uniform Civil Procedure Rules, r 42.21, that Mr Daya give security for the defendant's costs in the sum of $420,000. I have deferred consideration of any question of the quantum of any security to be ordered until the principles and basis upon which any security is to be ordered are clarified and decided. 11Two grounds referred to in r 42.21 were invoked: first, that in subrule 1(a), that the plaintiff is ordinarily resident outside New South Wales, and secondly, that in subrule 1(e), that the plaintiff is suing not for his or her own benefit but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendants if ordered to do so. 12It is plain - and uncontroversial - that the ground referred to in subrule 1(a) is established. Mr Daya is resident in Ontario, Canada, and not in New South Wales. The practice of the court now is that residence outside New South Wales, but in Australia, will not ordinarily justify an order for security, for reasons associated with ease of inter-state enforcement. While that practice does not extend in full to foreign jurisdictions, the facility of enforcement of a costs order in a foreign jurisdiction is a relevant consideration - to which I shall, in due course, come. 13As to the ground referred to in subrule 1(e), I am satisfied that it is not established. There is no doubt that the Ingot parties, who are judgment creditors of Mr Daya for some $37 million, have an interest in the outcome of his claim against the Insurers, and have - at least to this point - funded his claim. If the claim succeeds the Ingot parties will benefit, because any judgment in favour of Mr Daya would result in him being put in a position to indemnify his judgment debt to them. However, that does not, in my judgment, mean that it can be said that Mr Daya is suing "not for his or her own benefit." In this regard, it is relevant that the ground requires not merely that a plaintiff is suing for the benefit of some other person, but also that he or she is not suing for his or her own benefit. Mr Daya is plainly suing for his own benefit, to enable him to be indemnified against his liability to a third party - namely, the Ingot parties - or to replenish his pockets in respect of the liabilities he has incurred in respect of defence costs to his lawyers in the Ingot proceedings. In my view, this is very clearly a case in which the plaintiff is suing for his own benefit. The circumstance that someone else also benefits, directly or indirectly, does not deprive the case of the character of being one in which the plaintiff is suing for his own benefit. That this is so is particularly illustrated by the circumstance that the proceedings were commenced before there was an adverse judgment against Mr Daya, and where his only liabilities might have been defence costs, in circumstances where it would not have been at least self-evident he would be impecunious as a result. The fact he has become the subject of an enormous adverse judgment does not, in my view, have the consequence that the character of the proceedings so changes that it can be said to be no longer for his own benefit but for the benefit of someone else. Accordingly, I am not satisfied that the ground under subrule 1(e) is established. 14For the plaintiff, it was argued that the defendant Insurers were the true plaintiff, in the sense that they are the aggressor by reason of having purported to avoid the insurance policy. While these things can be viewed from different perspectives, with different outcomes, I do not think it is realistic to see, generally speaking, an insurer who avoids or declines to pay on a policy as being the true plaintiff in litigation. The situation is somewhat affected here by the circumstance that the defendants have brought a cross-claim which seeks to recover payments already made for the benefit of the plaintiff, and which depends on essentially the same facts, if not identical facts, to those on which the plaintiff relies. That circumstance weighs somewhat against making an order for security, but not to the extent that one sees the defendants as the true plaintiffs so as to exonerate the plaintiff from any liability for security. 15Once a ground is established, the court considers as a matter of discretion whether or not an order for security should be made. It does not commence with any particular presumption or inclination in favour of making an order for security or against doing so. The chief discretionary considerations in such an application were identified by Hill J in Equity Access Limited v Westpac Banking Corporation (1989) ATPR 40-972, 50, 635; see also KDL Building Pty Limited v Mount [2006] NSWSC 474. 16The first of them is the plaintiff's prospects of success. This does not involve any detailed review or assessment of the plaintiff's prospects, but only the formation of a view whether the claim is bona fide or a sham. The finding that a claim is a sham would normally lead to an order for security, but once it is established that the claim is bona fide, then it is appropriate to consider the other discretionary factors without too detailed a review of the strengths and weaknesses of the plaintiff's case. Similarly, the defendant's prospects, which are the other side of the coin, are also of relevance. If the defence appears to be, at first sight, plainly without merit, then that will be a strong indicator against making an order for security. But once it seems that the defence is bona fide, the court does not undertake too detailed a review of its merits on the security application. In this case, it is neither suggested that the claim is not bona fide, nor that the defence is not bona fide. There are apparently arguments - and substantial arguments - to be had on both sides. This discretionary consideration is more or less neutral. 17The second significant consideration is the magnitude of the risk that the plaintiff could not satisfy an adverse costs order in the event it fails. In other words, if it is thought there be only minimal risk that the plaintiff would be unable to satisfy an adverse costs order, then that tends against making an order for security, whereas if there is a very substantial risk that he, she or it would be unable to do so, that tells in favour of making an order for security. In this case, the fact of the very large judgment against the plaintiff points to a significant risk that the plaintiff would not be able to satisfy an adverse costs order in the event that he failed. 18The third consideration is whether the use of the power to order security would be oppressive, or would stultify the plaintiff's claim by preventing him from prosecuting a genuine claim. The defence of stultification is one available to an individual plaintiff, as much as it is to a corporate plaintiff, but if it is sought to be invoked there needs to be some evidence of it, and, as I understand the plaintiff's submissions, it is not contended that the claim would be stultified by an order for security. The plaintiff has not sought to establish that the claim would be stultified in the event that an order were made. 19The fourth is whether the plaintiff's impecuniosity arises out of the conduct of the defendant in respect of which relief was sought in the proceedings. If the defendant has caused the plaintiff's impecuniosity, that may tend against the making of a costs order. If all that has happened is that the defendant's conduct has exacerbated the condition of an already financially strapped plaintiff, then this ground may not be made out. The relevance in this case is that there is a clear connection between the plaintiff's impecuniosity and prospective inability to satisfy a costs order, and the withholding of the indemnity for which the plaintiff now sues under the insurance policy. In the context of this case, I do not consider this a particularly strong factor one way or the other, though it weighs slightly in favour of the plaintiff's position. 20The fifth consideration is whether there are public interests aspects that affect whether or not an order for security should be made. None have been urged in this case. 21The sixth is whether there are discretionary matters particular to the case that weigh one way or the other. The Insurers submitted that the plaintiff was in effect in the position of a party that was being funded by a litigation funder, namely, the Ingot parties. The evidence certainly supports a finding that, to this point, the plaintiff has been funded by the Ingot parties, and an inference that that is likely to continue to be the case. But it is important to bear in mind that the Ingot parties are creditors of the plaintiff. In this respect authority recognises a distinction between a litigation funder, who funds a plaintiff on a commercial basis for the purpose of profiting from its participation in litigation, and a person with an extant interest in the plaintiff's success in litigation, for example, a shareholder in, or creditor of, a corporation. Thus, in Green v CGU Insurance Limited [2008] 67 ACSR 105, Hodgson JA observed that: [50] In this regard, I note also that, in cases where both a liquidator and the company in liquidation are plaintiffs, security for costs will generally not be ordered against the company, assuming the claims coincide or overlap to an extent such that failure would attract an order for costs against the natural plaintiff. [51] However, in my opinion a court should be readier to order security for costs where the non-party who stands to benefit from the proceedings is not a person interested in having rights vindicated, as would be a shareholder or creditor of a plaintiff corporation, but rather is a person whose interest is solely to make a commercial profit from funding the litigation. 22In the present case, the Ingot parties are creditors of the plaintiff and have a direct interest in having the plaintiff's rights vindicated. 23In the same case, Campbell JA referred to the policy of courts usually not requiring liquidators to provide security for costs when suing in their own name, observing (at [83(e)]): Even when the liquidator is being funded by a creditor in circumstances where the creditor is entitled to a preferential dividend under s 564 of the Corporations Act, by reason of having funded the litigation, the most that the creditor can recover for its own benefit is a return of its outlay for costs and a 100 percent dividend on its proved debt. A creditor who funds the litigation in those circumstances is thus doing nothing more than protecting its own legal right to be paid its debt by the company. 24His Honour then proceeded to distinguish the situation where the liquidator was being funded by a creditor who was, in commercial substance, a funder who had taken an assignment of debts for a fraction of the face value. In the present case, the Ingot parties are in a position analogous to that of a creditor who is funding a liquidator to conduct the liquidation in order to recover its own debt. In my view, that is the appropriate analogy, not that of a litigation funder. I therefore do not accept that, by analogy with the principles that operate in litigation funding cases, there is a factor that tells in favour of making an order for security in this case. 25A further consideration is whether the application for security has been brought sufficiently promptly. Originally, the view was taken that unless brought very early in the course of a proceeding, an application for security would fail. Although the court takes a more flexible approach than it used to in this respect, the position remains that a defendant that is going to seek security is expected to do so at an early stage, so that a plaintiff does not expend what limited resources it might have in preparing a case for trial, and getting it almost to trial, only to be met at the last minute by a security for costs application. The defendants have provided some explanation as to why the application for security was not brought until the time that it was. That explanation is not without force. On the other hand, the timing of the application, after the case has been on foot for years, after it has been set down for trial, and after a substantial amount has already been incurred, no doubt, in preparing it and getting it this far, must tell as a discretionary matter in the balance against making an order for security at this late stage. 26That really leaves, as the sole matter telling significantly in favour of making an order for security, the plaintiff's residence outside the jurisdiction. The historical basis for ordering security in such a case is that, as a price of coming to the forum and invoking its jurisdiction, it was regarded as appropriate that a foreign litigant should not be able to resist enforcement of an adverse costs order should it fail. As a result, foreign litigants have, since about 1786, been required to provide security for costs when suing in the forum. 27In more recent times, that position has been modified. It is now well established that the ease and convenience of enforcement procedures in the plaintiff's country of residence is a primary consideration in deciding whether or not to order security, and the quantification of any security, where foreign residence is the ground invoked [Jalfox Pty Ltd v Motel Association of New Zealand Inc (1984) 2 NZLR 647, 649; Nasser v United Bank of Kuwait; Betz v Parker [2005] NSWSC 660]. Where a judgment in respect of costs would be simple to enforce in the foreign jurisdiction, that weighs powerfully against making an order on the ground of foreign residence [Knott v Signature Security Group]. Where a security order is made on that ground, the additional cost of enforcement in the foreign jurisdiction is an important guide to the appropriate measure of security. It has been recognised that, where there is relative ease of enforcement in the foreign jurisdiction, the purpose of requiring security in such a situation is served if that security covers the additional costs of enforcement in that jurisdictions. While that is particularly so in cases where there are reciprocal registration of judgment arrangements, it is not limited to such a case, as was recognised, for example, in Nasser v The United Bank of Kuwait [2002] 1 All ER 401, [65] (see also, Dense Medium Separation Powder Pty Ltd v Gondwana Chemicals Limited (In Liq) [2011] NSWCA 84, [32], and Knott v Signature Security Group Pty Ltd (2001) 104 IR 84, [33]]. 28The defendants' evidence establishes that a Canadian court will recognise and enforce an Australian costs judgment, and that the cost of doing so is in the order of up to about AUD $7,500. The defendants have also adduced evidence of the cost of bankruptcy proceedings in Ontario, but as bankruptcy proceedings would not be covered by security in the case of a local plaintiff, and as such proceedings would in any event have to be taken in the jurisdiction of the plaintiff's residence, they should not be included. Accordingly, although I will hear the parties on the question of quantum, but prima facie I would be inclined to make an order for security in the sum of $7,500. Costs of the motions 29The plaintiff applies for an order that its costs of today be paid by the defendant, the moving party on the interlocutory applications. There were essentially three major issues for consideration in this interlocutory hearing. It was common ground that the Daya proceedings and the Peck proceedings should be heard together, but it was very much in dispute as to whether there should be an order that evidence in one should be evidence in the other. Until the motion was called on for hearing, and as was reflected in the written submissions, the plaintiff opposed an order that evidence in one be evidence in the other; a position which the defendants maintained until the outset of the hearing but then abandoned. Accordingly, the plaintiff was successful on that issue. 30The second issue was the security for costs question. Ultimately, the defendants obtained an order for security, but it was so far removed in quantum from what had been sought, and on such a different scale, that it cannot be imagined that the contest would have been anything like it was had what was sought at the outset been what was ultimately ordered. I think it can fairly be said that the plaintiff, although suffering a small adversity, achieved substantial success, albeit not total success, on the security for costs application. 31So far as concerns the applications to take evidence by video or on commission, or for an adjournment, there is force in the defendant's argument that the plaintiff's position was largely one that sought to obtain the forensic advantage of placing the defendants in great evidentiary difficulty at the trial. On the other hand, it has to be acknowledged that essentially the defendants, having agreed to the November hearing dates which were fixed after having been asked to confirm their witnesses' availability, have come to court to seek an indulgence, and do so some two months after the dates had been fixed, and only two or three months out from that proposed hearing. Essentially, that application must be seen as one in which the defendants sought an indulgence, for which they must pay. 32I think that, allowing for the modicum of success achieved by the defendant on the security for costs application, the proper order is that the defendants pay 90 per cent of the plaintiff's costs of the motion. Orders 33I make the following orders: (1)Order that the plaintiff give security for the defendants' costs in the sum of $7,500 by cash paid to the credit of these proceedings in the Registry or such other form as may be acceptable to the defendant; (2)Order that unless the security is given by 13 September 2012 the proceedings be stayed; (3)Order that the defendants pay 90 per cent of the plaintiff's costs of the motion; (4)Adjourn the matter to 9.30am on Wednesday 5 September 2012 for directions in relation to the taking of evidence of the witnesses Naunton and Kilpatrick, and the hearing generally. ********** 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: 15 October 2012