FEDERAL COURT OF AUSTRALIA

Rusca Bros Services Pty Ltd v DLaw Pty Ltd, in the matter of Rusca Bros Services Pty Ltd [2019] FCA 562

ORDERS

THE COURT ORDERS THAT:

1.    Paragraphs 3 and 4 of the amended interlocutory process filed by the defendant on 6 November 2018 (Amended Interlocutory Process) are dismissed.

2.    Paragraph 6 of the Amended Interlocutory Process be stood over to the hearing of the plaintiff’s application to set aside the statutory demand for payment of debt dated 7 May 2018, together with any application in relation to the costs of discovery given pursuant to the orders made on 11 July 2018.

3.    The Amended Interlocutory Process is otherwise dismissed.

The Court notes that:

4.    The parties are to provide the Associate to Markovic J with their available dates in June and July 2019 for hearing of the matter as referred to in Order 2 above.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MARKOVIC J:

1    By originating application filed on 29 May 2018 the plaintiff (Rusca) seeks, among other things, to set aside a statutory demand issued by the defendant (DLaw) demanding payment of an amount alleged to be owing for legal costs (Demand). Rusca relies on s 459H or s 459J(1)(a) of the Corporations Act 2001 (Cth) (Act) and seeks to set aside or alternatively reduce the quantum of the Demand on the following bases:

(1)    DLaw did not provide it with an estimate of its total legal costs as required by s 174 of the Legal Profession Uniform Law (Uniform Law). In support of that ground Rusca relies on s 178(1)(c) of the Uniform Law which provides that where there has been non-compliance with disclosure obligations, such as those set out in s 174, a law practice must not commence or maintain proceedings for recovery of any or all of its legal costs until those costs have been assessed. Rusca asserts that the amount claimed in the Demand, which is based on costs that have not been assessed, is not relevantly due and payable and thus there is no basis for the issue of a statutory demand;

(2)    there is a genuine dispute in relation to the existence or the amount of the debt claimed in the Demand within the meaning of s 459H of the Act, evidenced by the application for assessment of costs filed in the Supreme Court of New South Wales;

(3)    there is an offsetting claim arising from DLaw’s failure to lodge an adjudication application on time; and

(4)    there is “some other reason” to set aside the Demand within the meaning of s 459J of the Act, including that the Demand is said to be an abuse of process.

DLaw’s AMENDED INTERLOcutory process

2    In August 2018 DLaw filed an interlocutory process and on 6 November 2018, with the Court’s leave, it filed an amended interlocutory process (Amended Interlocutory Process). In the Amended Interlocutory Process it seeks eight orders. Paragraphs 1 to 4 of the Amended Interlocutory Process were listed for hearing on 19 March 2019. In those paragraphs DLaw seeks:

1.    That the Plaintiff discover on affidavit and file with the Court and serve all documents that:

a.    The Court ordered to be discovered on 11 July 2018.

b.    All tender documents that the Plaintiff submitted to Commonwealth departments or agencies, during the period 1 June 2017 to 30 June 2018.

c.    All documents relevant to any loan agreement and loan account between the Plaintiff and either or both of the following:

i.    the “Alpha Fund”; and / or

ii.    “O’Connell Partners”.

d.    All written communications between the Plaintiff (including any of its officers); and

i.    “Alpha Fund” and / or Mr. Kirk Tsihlis (at the email address kirkt@alphafund.com.au); and / or

ii.    “O’Connell Partners” and / or Mr. Warwick Kerridge (at the email address warwickk@oconnellpartners.com.au).

2.    That if the Plaintiff fails to comply with the Order, the application be dismissed with indemnity costs.

3.    That the Plaintiff pay $383,573.66 into Court to secure the fees owed to the Defendant pursuant to section 1335 of the Corporations Act 2001.

4.    That the Plaintiff pay $25,000 into Court as security for the costs of proceedings pursuant to section 1335(1) of the Corporations Act 2001.

3    After hearing argument in relation to para 1 of the Amended Interlocutory Process, I declined to order that Rusca provide any further discovery of documents in categories (b), (c) and (d) as sought by DLaw. In light of that ruling DLaw did not press para 2 of the Amended Interlocutory Process. The parties informed the Court that they did not require reasons for my findings in relation to para 1 of the Amended Interlocutory Process.

4    Accordingly, these reasons address the relief sought by DLaw in paras 3 and 4 of the Amended Interlocutory Process.

DLaw’s application for a “fruits of the action” lien

5    DLaw seeks an order that Rusca pay $383,573.66 into Court to secure the fees owed to it in reliance on the principles in Ex parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 (Patience). It submitted that by reason of its legal work Rusca recovered funds which are equitably charged by operation of law with the payment of DLaw’s reasonable costs and which are to be held in a separate account pending the outcome of the assessment of its costs.

6    DLaw relies on:

(1)    a Rusca document titled “Claim for additional excavation in rock” dated 15 December 2017 which appears to have been provided to Lendlease Building Pty Ltd (Lendlease);

(2)    a letter dated 15 February 2018 from Lendlease to RBSA Pty Ltd in which Lendlease provided its response in relation to “the Latent Condition” identified by the “Subcontractor” which was the subject of the correspondence set out in that letter. The letter included:

The Contractor has determined that the sum due under clause 7.4 (b), which shall be added to the Subcontract Price and arising from this Latent Condition is $5,954,748.86 (exclusive of GST). The Contractor, in good faith, shall administer the payment of this sum as part of the payment claim which is due today under the Subcontract.

(3)    a deed of settlement between Lendlease and Rusca which provides, among other things, that within two business days of the date of execution of the deed Lendlease will pay the “Settlement Sum”, defined to mean $1.3 million, to Rusca. The deed in evidence was signed but undated and contained mark up.

7    DLaw also sought to reopen its case, over opposition from Rusca, to rely on the invoices at pp 73 to 132 of exhibit RJR1 to the affidavit of Robert James Rusca sworn on 28 May 2018 which it said set out the work it had undertaken on behalf of Rusca. A copy of exhibit RJR1 was not provided to me at or after the hearing.

8    In summary Rusca submitted that in the circumstances of this proceeding the law does not recognise the equitable assignment for which DLaw contends. It further submitted that the implicit invitation to extend the province of a solicitor’s retaining lien should be declined and that the contention that a lien exists in the present case is contrary to established principles.

Legal principles

9    Patience concerned an application by the solicitor of a plaintiff, who recovered a verdict for £250 in an action for compensation in which the solicitor acted for the plaintiff, for an order under s 39A of the Legal Practitioners Act 1898 declaring that the solicitor was entitled to a charge of £200 on the amount of the verdict for his taxed costs in the proceeding. At pp 100-101 Jordan CJ, delivering judgment for the Court, said:

A solicitor has no lien for his costs over any property which has not come into his possession. If, however, as the result of legal proceedings in which the solicitor has acted for the client, the client obtains a judgment or award or compromise for the payment of money, although the solicitor acquires no common law title to his client’s right to receive the money or to any part of that right, he acquires a right to have his costs paid out of the money, which is analogous to the right which would be created by an equitable assignment of a corresponding part of the money by the client to the solicitor. That is to say, the solicitor has an equitable right to be paid his costs out of the money; and if he gives notice of his right to the person who is liable to pay it, only the solicitor and not the client can give a good discharge to that person for an amount of the money equivalent to the solicitor’s costs: Welsh v. Hole. If the person liable to pay refuses, after notice, to pay the costs of the solicitor, the solicitor may obtain a rule of Court directing that the amount of his costs be paid to him and not to the client; and payment by the judgment debtor to the client after notice of the solicitor’s claim is no answer to an application for such a rule: Read v. Dupper; Ormerod v.Tate; Ross v. Buxton. Further, if the client and a judgment debtor make a collusive arrangement for the purpose of defeating the solicitor’s right, the Court will enforce that right against the judgment debtor notwithstanding the arrangement and notwithstanding that no notice of the solicitor’s claim had been given to the judgment debtor prior to the arrangement: Ross v. Buxton. These special rights have no resemblance to a solicitor’s general possessory lien, although they are sometimes miscalled liens: Bozon v. Holland. In Barker v. St. Quinton Parke B. said that “the lien which an attorney is said to have on a judgment (which is, perhaps, an incorrect expression) is merely a claim to the equitable interference of the Court to have that judgment held as security for his debt,” a remark which is reproduced in Chitty’s Archbold, and has been repeated in many later authorities: cf. also Smedley v. Philpot; North v. Stewart. In practice, however, the solicitor has always been treated as possessing equitable rights in the judgment independently of any declaration of those rights, and the Court’s assistance is invoked not to create the rights but to enforce them: Lord v. Colvin; Haymes v. Cooper. The rights are assignable: Briscoe v. Briscoe.

(Footnotes omitted.)

10    In Worrell v Power & Power (1993) 46 FCR 214 at 224 a Full Court of this Court referred to Patience and said of that judgment:

… It indicates that the lien involves more than a personal right of the solicitor to approach the Court to obtain a charging order, and that the lien arises when the judgment for costs is obtained, and before there has been a taxation of the costs. The assistance of the Court is invoked not to create rights but to enforce them. So also the right of “self-help”.

11    The nature of a solicitor’s “fruits of the action” lien, as it has been referred to in the authorities, was considered in Firth v Centrelink (2002) 55 NSWLR 451; [2002] NSWSC 564. At [33] Campbell J observed that “[a] solicitor whose efforts result in the recovery of money for his client has an equitable right to have his proper costs and disbursements paid from the money so recovered”. After referring to Patience, at [35] his Honour set out a number of propositions established by the authorities concerning the right of a solicitor in these circumstances including:

(a)    The solicitor’s right exists over money recovered through obtaining judgment in litigation, and also over money recovered through the settlement of litigation: Carew Counsel Pty Ltd v French (2002) 166 FLR 460 at 476 [33]; Roam Australia Pty Ltd v Telstra Corporation Ltd (trading as Telecom Australia) (Federal Court of Australia, Lehane J, 22 September 1997, unreported) at 4.

…

(c)    It exists over money which is in the possession of the solicitor, and also over money which is in court (Re Meter Cabs [1911] 2 Ch 557 at 562) and money which is owed to the client but not paid into court (In The Estate of Fuld, Decd (No 4); Re De Groot [2001] 2 Qd R 359 at 375).

(d)    The solicitor need not be still acting for the client at the time that the money was recovered: In The Estate of Fuld, Decd (No 4); Kelso v McCulloch (Young J, 24 October 1994, unreported); Twigg v Keady (at 289) per Kay J; Roam Australia Pty Ltd v Telstra Corporation Ltd (at 4).

(e)    For the right to arise it must be shown that there is a sufficient causal link between solicitor’s exertions and the recovery of the fund of money: Roam Australia Pty Ltd v Telstra Corporation Ltd (at 4–5); Carew Counsel Pty Ltd v French (at 476 [33]).

(f)    The quantum of money for which the solicitor has the equitable right is the amount which is properly owing to the solicitor by the client, whether that amount be ascertained by taxation of a bill of costs, or assessment, or pursuant to a costs agreement: Roam Australia Pty Ltd v Telstra Corporation Ltd (at 4). In relation to those situations where taxation is necessary to ascertain the quantum owing to the solicitor, the solicitor’s right exists in the fund prior to the occurrence of the taxation (Johns v Cassel (1993) 6 BPR 13,134 at 13,136, per Hodgson J; Twigg v Keady (at 289) per Kay J; In The Estate of Fuld, Decd (No 4) (at 740); Roam Australia Pty Ltd v Telstra Corporation Ltd (at 6).

(g)    The solicitor’s equitable right exists before the court is asked to intervene to protect it; it “arises immediately upon the recovery of monies through the exertions of the solicitor”: Carew Counsel Pty Ltd v French (at 476 [33]); if the lien is over the proceeds of an order for costs, it comes into existence at the time of making of that order for cost: Phillipa Power & Associates v Primrose Couper Cronin Rudkin [1997] 2 Qd R 266; Kison v Papasian (1994) 61 SASR 567. If the lien is over the proceeds of a settlement, it arises when the settlement agreement is entered into: Re De Groot (at 368). (These statements concern when the lien comes into existence as an item of present property – they are not concerned with the ability of the solicitor to deal with the rights under the lien as future property before the fund is in existence.)

(h)    The right of the solicitor is one which the solicitor can enforce against the client, entitling the solicitor to an injunction to prevent the payment of the fund to the client without notice to the solicitor until such time as the quantum of the solicitor’s entitlement to be paid from the fund is ascertained: In The Estate of Fuld, Decd (No 4). If the quantum of the solicitor’s entitlement has been ascertained, the solicitor is entitled to an order that the amount of his entitlement be paid to him from the fund, notwithstanding opposition from the client: Leamey v Heath [2001] NSWSC 1095 (Campbell J, 22 November 2001, unreported).

…

Consideration

12    The issue that arises for consideration is whether DLaw has an entitlement, as it asserts, to a lien over the fruits of the settlement with Lendlease. In my opinion it does not.

13    In summary, as the authorities establish, a solicitor’s entitlement to be paid out of a judgment in favour of a client or from the proceeds of the settlement of a proceeding is an equitable right to be paid his or her costs out of that money. That is a right that may be enforced by the Court giving a direction to the judgment debtor that it is to pay to the solicitor, and not to the client, the amount of the solicitor’s costs.

14    Two issues arise for DLaw which stand in the way of it obtaining the relief it seeks.

15    The authorities suggest that the right to the lien exists over money recovered through the settlement of litigation. Here, there are no proceedings involving Rusca and Lendlease, no judgment and no settlement of a proceeding. The only evidence available is a deed of settlement and a letter from Lendlease. Taken at their highest those documents establish, at least in the case of the deed, that an amount described as a “Settlement Sum” was to be paid to Rusca within two business days of the signing of the deed. Thus, even accepting that DLaw could establish that Rusca’s settlement with Lendlease came about as a result of its efforts, that would not be enough. The right that DLaw seeks to enforce is not one which is connected with the proceeds of settlement of litigation.

16    On the other hand, even if the lien extends to the proceeds of settlement of a dispute, without the precondition of a proceeding, there are other obstacles to DLaw establishing its asserted entitlements. In particular, there is no evidence that the “Settlement Sum” has been paid. However, even if it has, it is no longer in the possession of a third party, usually the judgment debtor (but in this case Lendlease), nor is it in the possession of the solicitors, that is, DLaw. If the “Settlement Sum” has been paid then it is with Rusca. The solicitor’s right exists over money owed to the client, paid into court or in the possession of the solicitor. None of these circumstances exist here.

17    In those circumstances, DLaw has not established its right to the asserted lien.

DLaw’s application for security for costs

18    DLaw seeks security for its costs of the proceeding, that is, the application to set aside the Demand, in the sum of $25,000 pursuant to s 1335(1) of the Act.

19    In support of its application DLaw relied on the following Rusca Bros Group consolidated accounts:

(1)    profit and loss statement for the period July 2017 to June 2018 which showed net profit after tax for the group of ($6,842,042); and

(2)    balance sheet as at 30 June 2018 which showed total equity for the group of ($8,505,787).

20    On that basis DLaw submitted that it had established by credible testimony, as required by s 1335 of the Act, that there was reason to believe that Rusca would be unable to pay its costs of the application to set aside the Demand if it was successful. It further submitted that Rusca had not called any evidence to show that its financial position had changed since 30 June 2018 and that without any evidence to the contrary the Court should be satisfied that security should be ordered.

21    In response, Rusca submitted that the test for whether the Court would order security for costs had two parts. First there must be reason to believe that the plaintiff will be unable to pay the defendant’s costs if ordered to do so. Under s 1335 of the Act the applicant for security must show there is credible evidence before the Court that the respondent on the application will be unable to do so. Secondly, the Court must exercise its discretion in favour of making an order for security.

22    Rusca submitted that there was no “credible testimony” that it would be unable to pay DLaw’s costs if it was unsuccessful and that, at best, there were vague assertions only going to insolvency. It further submitted that, in any event, the Court would not exercise its discretion to order security for costs because:

(1)    relying on Aquatown Pty Ltd v Holder Stroud Pty Ltd (1995) 18 ACSR 622 (Aquatown), Rusca is not, in substance, a plaintiff. Rather, the proceeding is defensive and Rusca has been forced to litigate;

(2)    the application for security has not been brought promptly;

(3)    Rusca has a strong prima facie case for relief as there is a statutory prohibition on the recovery of costs by DLaw and the costs the subject of the Demand are currently being assessed; and

(4)    no attempt has been made to demonstrate to the Court the likely costs to be incurred by DLaw in resisting the proceeding.

Legal principles

23    Section 1335(1) of the Act provides:

Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.

24    In considering an application under s 1335 the court must first consider the threshold question of whether there is “credible testimony” to establish that there is reason to believe that the corporation will be unable to pay the defendant’s costs if it is successful in its defence. If that question is answered in the affirmative then the next question that arises is whether “in the exercise of the Court’s discretion, the relief sought should be granted”: see Idoport Pty Limited v National Australia Bank Limited [2001] NSWSC 744 at [20].

25    The matters relevant to the court’s discretion to order security include the need for an application to be brought promptly; the strength and bona fides of the applicant’s case; whether the applicant’s impecuniosity was caused by the respondent’s conduct the subject of the claim; whether the application for security is oppressive in the sense that it is being used to deny an impecunious applicant a right to litigate; whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security and whether those persons have offered a personal undertaking to be liable for the costs; and security will only be ordered against a person who is in substance a plaintiff such that orders ought not to be made against parties who are defending themselves and thus forced to litigate: see KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 197-198.

26    In Aquatown Sundberg J considered an application for security for costs made pursuant to s 1335 of the Corporations Law in the context of an application to set aside a statutory demand. At p 623 his Honour noted that although the applicant was a plaintiff in the ordinary sense of the word a long line of authority established that security is not ordered where the applicant/plaintiff is the party attacked and is really in the position of a respondent/defendant. His Honour continued:

… The court is guided by the substance and not the form of the matter. In Willey v Synan (1935) 54 CLR 175 a member of the crew of a ship travelling from New Zealand to Melbourne claimed that he had found on board some valuable coins. When the ship arrived in Melbourne the Collector of Customs took possession of the coins. The crewman made a claim to them under s 207 of the Customs Act 1901. The collector gave notice to the crewman requiring him to commence an action for recovery of the coins, stating that in default of bringing such action the coins would be condemned without further proceedings. That was indeed the effect of s 207. The crewman, who was not ordinarily resident in Australia, thereupon commenced an action against the collector for the recovery of the coins. The Collector’s application for security for costs was rejected by the High Court. Dixon J, with whom Rich J agreed, said (at 184-5):

The principle is that a party to judicial proceedings, who resides beyond the jurisdiction, should not be required to give security for costs unless, however the parties are arranged upon the record, he is the person invoking or resorting to the jurisdiction for the purpose of establishing rights or obtaining relief. The principal was considered in Maatschappij voor Fondsenbezit v Shell Transport and Trading Co [1923] 2 KB 166, where ... Scrutton LJ ... said: “The position, I think, extends to every case where the person against whom security is sought is really defending himself against attack, even if he be nominally a plaintiff, but really defending himself against defendants’ previous action against him”.

His Honour then examined the relevant provisions of the Customs Act, and continued (at 185-6):

It appears to me that the Collector is the actor. The notice is a step taken by him directed at obtaining a condemnation. It is a statutory substitute for judicial proceedings by the Crown against the goods. Its effect is to cast the onus of taking proceedings upon the owner or supposed owner.

...

The provisions of the Customs Act, in effect, enable the officers of the crown to take the preliminary steps by simple notices out of the court so that it is the claimant who must issue process. But when he does issue a writ he does so to protect his supposed ownership. In substance he is not the attacker, actor or person seeking redress.

For these reasons I think he is not liable to give security for the costs of the action.

Latham CJ said that the plaintiff was really in the position of the defendant: “as the collector has given him a notice under s 207, he is, in effect, forced into legal proceedings, not merely to enforce his claim, but to prevent his claim from being extinguished” at 180. McTiernan J said that the action “was truly instituted by way of defence” to a claim by the collector for condemnation of the plaintiff’s goods, and that the rule that a plaintiff out of the jurisdiction should give security “should not be applied to the plaintiff in this action” at 187.

27    After considering a number of other cases that applied this principle, his Honour held that the principle applied to the case before him and said at pp 624-625:

… As the statutory demand pointed out, non-compliance would give rise to a ground upon which the applicant could be wound up. Unless it paid the respondent money it contends is not due, the only way the applicant could avoid that detriment was to apply under s 459G to have the demand set aside. To use the words of Wilcox J, “in a practical sense” the applicant was forced by the respondent to take legal action.

28    At p 625 Sundberg J considered a submission by the respondent’s counsel that the cases his Honour had considered which supported the principle were distinguishable because, in each of them, the applicant had to commence proceedings to protect a proprietary interest. Judge Sundberg found that this was not so in relation to all of the authorities relied on. His Honour then referred to the ground relied on by the applicant’s counsel, noting that:

… He referred to Heller Factors Pty Ltd v John Arnold’s Surf Shop Pty Ltd (in liq) (1979) 4 ACSR 492; [1979] ACLC 32,446 where Mitchell J, with whom King CJ and Legoe J agreed, said that the trial judge was entitled, in the exercise of his discretion, to take into account whether the plaintiff was a true plaintiff or had been forced into the position of a plaintiff because the defendant was empowered to take self help procedure. No reference was made to the Willey v Synan line of cases. These cases appear to establish that security is not to be ordered where a litigant, though technically a plaintiff, is in substance a defendant. None of them treats the “reality” as merely a matter to be taken into account together with others in the exercise of the court’s discretion. Heller Factors was considered by Ormiston J in Interwest Ltd v Tricontinental Corporation (1991) 5 ACSR 621; 9 ACLC 1,218. At ACSR 826; ACLC 1228 his Honour said:

Perhaps it may be said that the authorities support the proposition that security will only ordinarily be ordered against a party who is in substance the plaintiff, and that an order ought not to be made against parties who are defending themselves and thus forced to litigate: cf. Accidental & Marine Insurance Co v Mercati (1866) LR 3 Eq 200. That would appear to be an overstatement, but the fact that a plaintiff ... has instituted essentially defensive proceedings, must be a significant factor in the exercise of the court’s discretion.

After noting Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289 where, at 300, Smart J said that the factors relevant to the exercise of the discretion to order security include “whether the plaintiff’s proceedings are merely a defence against ‘self-help’ measures taken by the defendant”, Ormiston J said:

Principally it would appear necessary to characterise the proceedings in respect of which security is sought. If they are “defensive” proceedings, either directly resisting proceedings already brought or seeking to “halt self-help procedures”, it would seem that to require security would be oppressive, or at least would provide serious grounds for refusing to make an order. At the least it is a factor to be considered in the exercise of the discretion.

No reference was made to Willey v Synan or the other cases in which it has been followed. In my view these cases justify the proposition that Ormiston J rejected as an overstatement, namely that an order ought not to be made against parties who are defending themselves and thus forced to litigate. In the Accidental & Marine Case, to which his Honour referred, Sir William Page Wood VC said:

… in this case, as in Watteew v Billam, the company, though called a plaintiff, is really a defendant. The principle is not based on the narrow ground that the plaintiff in the original suit, having admitted the jurisdiction, is not at liberty to deny it: the true ground is, that a person who is in the position of the defendant (though nominally the plaintiff) is to be at liberty to defend himself.

...

Where a company is defending itself, it must be regarded as, in substance, a defendant, and, therefore, is not to be called upon to give security. In this instance the company must be considered as a defendant, and not as a “plaintiff or pursuer”, within the meaning of [s 69 of the Companies Act 1862].

The passage “a person who is in the position of a defendant (though nominally a plaintiff) is to be at liberty to defend himself” was the foundation of Scrutton LJ's judgment in Maatschappij which was applied in Willey v Synan. Watteew v Billam (1849) 3 De G &Sm 516; 64 E.R. 586, referred to by the Vice-Chancellor, was mentioned by Dixon J in Willey v Synan as an illustration of the principle he distilled and applied.

29    Judge Sundberg concluded that the principle to apply in the case before him was that set out in Willey v Synan and the fact that a plaintiff/applicant is forced to litigate so as to be in truth a defendant is more than a matter to be taken into account in the exercise of the discretion to order security. His Honour also noted that if, contrary to his view, the matter should be approached along the lines set out in Interwest Ltd v Tricontinental Corporation he would in any event, “after taking the ‘reality’ into account”, have declined to exercise his discretion to order security in the case before him.

30    In Aurora Networks Pty Ltd v Halbedl; In the matter of Aurora Networks Pty Ltd [2013] FCA 632 (Aurora Networks) Foster J also considered an application for security for costs made by the defendant in the context of an application to set aside a statutory demand. At [20] Foster J referred to Aquatown and concluded that he thought the reasoning in it was sound, that he proposed to follow it and that in his view it applied whether the application for security was made pursuant to s 1335 of the Act or s 56 of the Federal Court of Australia Act 1976 (Cth).

Consideration

31    I decline to make the order sought by DLaw for security for its costs. That is so for a number of reasons.

32    First, in my opinion, DLaw has failed to show by “credible testimony” that there is reason to believe that if it is successful in defending the application Rusca will be unable to pay its costs. That is so even having regard to the fact that the test is not a demanding one: see Beach Petroleum NL v Johnson (1992) 7 ACSR 203 at 204-205. DLaw relies on the consolidated accounts for the financial year ending 30 June 2018 and does not provide any evidence of Rusca’s current financial situation such as would satisfy the Court that it had discharged its onus. That being so, the question of whether the Court should exercise its discretion to award security does not arise.

33    Secondly, even if that were not so, I would decline to make the order sought.

34    As was the case in Aquatown and Aurora Networks, Rusca is not in substance a plaintiff. Its application to set aside the Demand is defensive. In those circumstances, accepting the authority of Aquatown, the Court would not make an order for security in the present situation.

35    Finally in the event that the question of whether the plaintiff is in substance a defendant and thus forced to litigate is not conclusive, but a factor going to the exercise of the discretion and, assuming that DLaw had established the precondition to the exercise of discretion in s 1335 of the Act, I would nonetheless decline to make an order that Rusca pay security.

36    As submitted by Rusca there are a number of factors weighing against the exercise of the discretion. Putting to one side the strength of the application, these factors are, first, the time taken for DLaw to bring this application, after steps had been taken in the proceeding, including an application for discovery by DLaw; secondly, the failure by DLaw to provide any evidence of the amount it claims for its costs (in regard to which I reject DLaw’s submission that the amount claimed is “self evident”); and critically, that in truth Rusca is not a plaintiff but is in the position of a defendant and was forced to commence the proceeding.

the balance of the amended interlocutory process

37    DLaw informed the Court that it did not press paras 5 and 7 of the Amended Interlocutory Process. That only leaves para 6 of the Amended Interlocutory Process which concerns the question of costs, an issue which the parties agreed could be determined on the next occasion that the matter is before the Court, as well as an issue raised by DLaw concerning its costs flowing from events following the discovery given by Rusca pursuant to orders made on 11 July 2018.

conclusion

38    In light of the matters set out above, paras 3 and 4 of the Amended Interlocutory Process should be dismissed; para 6 of the Amended Interlocutory Process should be stood over to the hearing of Rusca’s application to set aside the Demand, together with any application for costs to be made by DLaw in relation to the costs of the discovery given pursuant to the orders made on 11 July 2018; and the Amended Interlocutory Process should otherwise be dismissed.

39    The application to set aside the Demand should now proceed to hearing.

40    I will make orders accordingly.

Associate:

Dated:    24 April 2019