Federal Court of Australia

General Trade Industries Pty Ltd (in liquidation) v AGL Energy Limited [2020] FCA 1562

File number:

QUD 255 of 2020

Judgment of:

DERRINGTON J

Date of judgment:

29 October 2020

Catchwords:

PRACTICE AND PROCEDURE – security for costs – applicant in proceedings being wound up – whether order for security would stifle action – whether those who stand behind the company and would benefit from the litigation are without means – whether respondent caused applicant’s impecuniosity – cause of applicant’s impecuniosity not relevant where order requiring provision of security would not stifle action – applicant failed to establish by clear evidence that its cause of action had substantial merit

Legislation:

Corporations Act 2001 (Cth) s 1335

Evidence Act 1995 (Cth) ss 78, 79

Federal Court of Australia Act 1976 (Cth) s 56

Federal Court Rules 2011 (Cth) r 19.01

Cases cited:

All Class Insurance Brokers Pty Ltd (in liq) v Chubb Insurance Australia Ltd [2020] FCA 840

Andrews v Zuccubarr Pty Ltd [2020] VSC 675

Ariss v Express Interiors Pty Ltd (in liq) [1996] 2 VR 507

Austcorp Project Number 20 Pty Ltd v LM Investment Management Ltd (in liq) [2014] FCA 1371

Australian Equity Investors, An Arizona Limited Partnership v Colliers International (NSW) Pty Limited [2012] FCAFC 322

Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1

BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339

Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497

Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 311

Coonwarra Pty Ltd v Cornonero Pty Ltd (No 2) [2019] VSC 702

Cosdean Investments Pty Ltd v Football Federation Australia Limited (No 2) [2007] FCA 163

Dae Boong International Company Pty Ltd v Gray [2009] NSWCA 11

Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588

General Trade Industries Pty Ltd v AGL Energy Limited [2014] QCA 283

Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd (2008) 67 ACSR 105

Health & Life Care Ltd v Price Waterhouse (1993) 11 ACSR 326

Hungerfords v Walker (1989) 171 CLR 125

Impex Pty Ltd v Crowner Products Ltd (1994) 13 ACSR 440

Jalpalm Pty Ltd v Hamilton Island Enterprises Pty Ltd (1995) 16 ACSR 532

Jasmin Solar Pty Ltd v Trina Solar Australia Pty Ltd [2020] FCA 1018

KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189

Lynx Engineering Consultants Pty Ltd v The ANI Corporation Ltd t/as ANI Bradken Rail Transportation Group (No 3) [2010] FCA 32

Madgwick v Kelly (2013) 212 FCR 1

Mecrus Pty Ltd v Industrial Energy Pty Ltd (2015) 327 ALR 523

Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Ltd (1998) 193 CLR 502

MHG Plastic Industries Pty Ltd v Quality Assurance Services Pty Limited [2002] FCA 821

Ninan v St George Bank Ltd (2012) 294 ALR 190

Norcast S.ár.L v Bradken Limited [2012] FCA 765

Pathway Investments Pty Ltd v National Australia Bank Ltd [2012] VSC 97

Sir Lindsay Parkinson & Co Ltd v Triplan Ltd [1973] QB 609

Sylverton Pty Ltd v Minter Ellison [2011] FCA 1072

Tradestock Pty Ltd v TNT (Management) Pty Ltd (No 1) (1977) 14 ALR 52

Division:

General Division

Registry:

Queensland

National Practice Area:

Commercial and Corporations

Sub-area:

Commercial Contracts, Banking, Finance and Insurance

Number of paragraphs:

105

Date of hearing:

19 October 2020

Solicitor for the Applicant:

Mr B Conrick of Clifford Gouldson Lawyers

Counsel for the Respondent:

Mr B O’Donnell QC with Ms M Barnes

Solicitor for the Respondent:

King & Wood Mallesons

ORDERS

QUD 255 of 2020

BETWEEN:

GENERAL TRADE INDUSTRIES PTY LTD (IN LIQUIDATION)

Applicant

AND:

AGL ENERGY LIMITED

Respondent

order made by:

DERRINGTON J

DATE OF ORDER:

29 October 2020

THE COURT ORDERS THAT:

1.    Pursuant to s 56(1) and (2) of the Federal Court of Australia Act 1976 (Cth) and r 19.01(1)(a) of the Federal Court Rules 2011 (Cth), the Applicant, within 14 days of the date of this order, is to provide security for the Respondent’s costs of the proceeding in the sum of $70,000 in a form approved by the Registrar.

2.    Pursuant to r 19.01(1)(b) of the Federal Court Rules 2011 (Cth), the proceeding be stayed until such time as security referred to in order 1 hereof is given.

3.    The Respondent is to file and serve written submissions on the question of costs within seven days from the date of this order.

4.    The Applicant is to file and serve written submissions on the question of costs within fourteen days from the date of this order.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    This was an application for security for costs brought by the respondent in the proceedings, AGL Energy Ltd (AGL), pursuant to s 1335 of the Corporations Act 2001 (Cth) (Corporations Act), s 56 of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) and r 19.01(1)(a) of the Federal Court Rules 2011 (Cth) (the Rules). AGL also sought to have the proceeding stayed or dismissed, pursuant to s 56(4) of the Federal Court Act and r 19.01(1)(c) of the Rules, if any security ordered is not provided within 14 days.

2    The applicant in the primary proceeding, General Trade Industries Pty Ltd (in liq) (General Trade) resisted the making of any order for security.

Background facts

3    On 20 December 2013, AGL entered into a building construction contract (the Construction Agreement) with General Trade for the latter to carry out civil, mechanical and electrical work at AGL’s Wullumbilla LPG Plant and Silver Springs Plant. In these reasons the construction project is referred to as “the Silver Springs Project”, Between the date of entering into the contract and 13 August 2014, substantial work was undertaken for which General Trade was paid $20,857,897 exclusive of GST.

4    In or around November 2014, a dispute emerged between AGL and General Trade in relation to the work carried out under the Construction Agreement. AGL claimed that certain work was defective, which General Trade rejected and countered with the assertion that it had not been fully paid in relation to certain payment claims (PC10 and PC11) which it had issued to AGL. A period of negotiation followed, during which General Trade issued a statutory demand. The dispute was seemingly resolved by the parties entering into what was called a “Deed of Release” (the Deed), pursuant to which the parties agreed to settle their respective claims. One of the recitals to the Deed provided:

8     Subject to the terms of this deed, the parties wish to release all conceivable claims against each other in respect of the Contract and the Dispute, whether or not all material facts are known to the party giving the release, and wish this deed to have effect in a manner that most effectively releases any claims of the parties against each other in relation to the Contract and the Dispute.

5    The “Dispute” was defined in the recitals in the following terms:

A dispute has arisen between the parties in connection with the WUC, including the amounts claimed in Progress Claim 10, Progress Claim 11 and the Contract Sum, and the Statutory Demand (the Dispute).

6    The effect of the payment terms in the Deed was that in settlement of the “Dispute”, AGL would pay to General Trade the amount of $6,642,103, such that the total amount paid by it under the Construction Agreement was $27,500,000.

7    By cl 1.5 of the Deed the parties covenanted as follows:

1.5    Contractor's full entitlement under or in connection with the Contract

(a)    The parties acknowledge and agree that the payments contemplated in this clause 1, together with the Sum Paid to Date, constitute the full amount that the Contractor is entitled to under or in connection with the Contract, including any and all variations to the Contract for the WUC performed up to and including 31 July 2014, and the Contractor shall have no entitlement to any further payment under or in connection with the Contract and the Company shall have no further liability to the Contractor other than as provided for in this clause 1.

(b)    For the avoidance of doubt, the parties agree that the payments to be made in accordance with this clause 1 constitute the full and final payment of any amount payable to the Contractor in respect of, among other things, the amounts claimed by the Contractor in Payment Claim 10 and Payment Claim 11.

8    By cl 5 of the Deed the parties agreed to mutual releases of liability in the following terms:

Mutual Release

(a)     Subject to clause 3 and clause 5(c), each party releases and discharges the other party and each of its related bodies corporate as defined in the Corporations Act 2001 (Cth) and the directors, servants and agents of each of them (Related Parties) severally from any claim, action, demand, suit or proceeding for damages, debt, restitution, equitable compensation, account, injunction, specific performance or any other remedy that each party has or may have against the other or any of its Related Parties in respect of:

     (1)    The Contract;

(2)    the subject matter of the Dispute or any part of the Dispute; and

(3)    any thing related to the Dispute including, without limitation, any damage, loss, cost or expense suffered as a result of the Dispute,

whether known or unknown at the date of this deed, and whether arising at common law, in equity, or under statute or otherwise (the Released Matters).

(b)    In support of the releases in clause 5(a) above each party covenants with the other party and each of its Related Parties severally not to claim, sue or take any action against the other party or any of its Related Parties in respect of the Released Matters.

(c)    Nothing in clause 5(a) releases, discharges or terminates, and clause 5(b) does not apply to the obligations contained in clauses 2A, 5, 29, 34.6 and 35 of the Contract which, for the avoidance of doubt, the parties agree continue to have effect.

9    AGL paid the amounts required of it under Deed and, as also required by the Deed, on 19 May 2015 it issued a Certificate of Practical Completion in accordance with cl 34.6 of the Construction Agreement within 5 days of making the last payment.

10    From around 17 September 2014, pursuant to cl 29 of the Construction Agreement, AGL’s superintendent under the construction agreement issued a number of notices to General Trade requiring the latter to rectify defective work. It appears that certain work undertaken was not to the satisfaction of the superintendent, such that the subsequently issued Certificate of Practical Completion attached a list of outstanding works and a reminder to General Trade of its obligation to rectify all defects and complete unfinished work. It also confirmed that the defects liability period commenced on 4.00pm on the date of the Certificate of Practical Completion.

11    Central to the present dispute between the parties is that on 19 August 2015, General Trade gave to AGL a document called “Progress Claim No. 12” (PC12). It was purportedly sent pursuant to the terms of the Construction Agreement and sought the payment of a further amount of $3,474,074.83. PC12 included an Excel spreadsheet of many pages in length and an electronic folder of what was said to be supporting documents.

12    AGL has denied that it is liable to pay any further amounts under the Construction Agreement. Firstly, it says that given the terms of the Deed and its payment of the settlement sum, no further amount can be payable under the agreement. Second, it alleges that PC12 includes amounts which do not relate to the Construction Agreement or any work on the project or, otherwise, relate to rectification work for which no remuneration is payable.

The pleadings

13    In support of its application for security, AGL asserts that General Trade’s substantive claims lack merit. In seeking to make good this ground it relies on the issues as they arise on the statement of claim and defence. Consideration of this ground necessitates some analysis of the case sought to be advanced and of the issues raised by the defence. Before embarking on that, however, it is necessary to observe that neither the statement of claim nor the defence are prime examples of the art of pleading. In different respects, each fails to comply with the rules relating to pleading in this Court and it is likely that if the matter proceeds further each document will require substantial recasting. Nevertheless, the essential issues can be sufficiently discerned for the purposes of this application.

The statement of claim

14    The initial parts of the statement of claim allege that at the time of the tender for the Construction Agreement the project was only partially designed and that the letting of the project was fast tracked such that many of the relevant drawings only became available after the agreement was entered into. It was also alleged that AGL’s subsequent superintendence and administration of the project was deficient in a number of respects. A further allegation was that AGL had made a number of changes of key staff during the course of the project. The relevance of these allegations to the relief claimed is far from clear.

15    The entry into the Deed is acknowledged, however, it seems to be suggested that General Trade was coerced into it as a consequence of its financial position. Again, the relevance of this allegation is unclear and does not appear to support any claim in the prayer for relief.

16    An allegation is made that on 13 August 2014, it was represented to Mr Pike of General Trade that AGL and its superintendent would review any submission of extra work completed after 31 July 2014 in accordance with the terms of the contract. That email read:

Further to our discussion in yesterday’s meeting in our Brisbane offices, I confirm that AGL & the Superintendent will review any submission of extra work completed after 31 July 14 in accordance with the terms and conditions of the Contract.

17    General Trade asserts that after the Deed was entered into it was directed to leave the project site and the work was taken out of its hands and given to a third party. It is alleged that this amounted to a breach of the agreement which caused General Trade a loss of profits in excess of $4 million. This claim is in addition to, and separate from, the claim for compensation for work it performed outside the scope of the Construction Agreement.

18    General Trade identified that it commenced proceedings in the Supreme Court of Queensland for the recovery of security deposits which it had provided under the Construction Agreement. General Trade claimed that it was entitled to their return on the basis that the Construction Agreement was at an end, and AGL opposed that on the basis that it remained on foot. AGL was successful in those proceedings. The import of this appears to be that AGL’s assertions in the Supreme Court about the continued operation of the Construction Agreement amounted, in General Trade’s view, to a representation contrary to the effect of the Deed that the agreement remained on foot.

19    It is alleged that after those proceedings, General Trade undertook work on the project site, including by providing work and materials as directed by AGL’s superintendent or his representative. It is alleged that General Trade complied with the directions because it feared that if it did not it would not recover its security deposits and that it understood, from the position adopted by AGL in the Supreme Court proceedings, that it was not barred from claiming for such work under the Construction Agreement.

20    General Trade claims that the work that it performed in the period between 7 November 2014 and 14 August 2015 is that referred to in PC12, which it submitted to AGL. In that claim General Trade sought payment of $3,474,074.83.

21    It is alleged that AGL refused to pay the amount sought by PC12 and relied upon the terms of the Deed to the effect that it had paid all that it was required to and that the release in the Deed prevented General Trade from making any further claim. In respect of AGL’s purported refusal, General Trade alleges that:

(a)    AGL is estopped from denying its obligation to pay pursuant to the terms of the Construction Agreement by reason of the submissions which it made in the Supreme Court proceedings, which were acted upon by General Trade;

(b)    It was motivated by malice for the purposes of causing General Trade to become insolvent; and

(c)    The consequence of the non-payment of PC12 was that General Trade lost its goodwill and reputation and the value of its business.

22    The claims made by General Trade are, apparently:

(a)    Damages for breach of contract in the sum of $3,474,074.83, being the amount owing under PC12.

(b)    In the alternative, the sum of $3,474,074.83 on the basis of “unjust enrichment” which, presumably is a claim for money had and received.

(c)    Losses of profit in the amount of $4 million which it claims it could have made had it not been prevented from performing the Construction Agreement.

(d)    An alleged claim that AGL failed to act in good faith in response to the receipt of PC12 by not paying the amount claimed.

(e)    The failure to pay the amount claimed in PC12 or any part of it is also said to be unconscionable conduct in breach of s 20 and 21 of the Australian Consumer Law.

(f)    It is also alleged that the failure to pay the amount claimed in PC12 was misleading or deceptive in breach of s 18 of the Australian Consumer Law, because the refusal to pay was contrary to the submissions made by AGL in the Supreme Court of Queensland.

(g)    A claim is made for aggravated damages on the basis that the failure to pay the amount sought by PC12 was intended to cause the insolvency of General Trade.

(h)    A further claim is made for what is commonly known as Hungerfords v Walker damages arising from the loss of use of the money which ought to have been paid (see Hungerfords v Walker (1989) 171 CLR 125), although there is a complete absence of particulars.

(i)    An additional claim for damages for breach of contract is made because General Trade was wrongly directed to demobilise from the site. It is not clear to what extent this is intended to be separate and distinct from the claim in paragraph (c) above.

The defence

23    In general terms, AGL admits the existence of the Construction Agreement entered into between the parties. It alleges that the total contract price was $12,005,579.46, but that over the course of the contract it had paid General Trade a total of $27,500,000 as a result of variations which occurred in the scope of works.

24    AGL relies upon the terms of the release contained in the Deed, which it alleges was entered into after a period of negotiation during which General Trade was represented by lawyers. In particular, it relies upon the acknowledgement that General Trade accepted that no further amount was owing pursuant to the terms of the Construction Agreement and that it had fully complied with the terms of the Deed.

25    In relation to PC12, AGL asserts that the scope of works under the Construction Agreement had been completed by that time, the payments made by AGL pursuant to the Deed represented full and final payment for any work completed under the Construction Agreement, and that any relevant work undertaken was to rectify defects.

26    In relation to the Supreme Court proceedings, AGL says that the matter there in issue concerned whether General Trade was entitled to recover security guarantees which it had lodged for the due performance of its obligations under the Construction Agreement and, in that regard, whether General Trades obligations remained in relation to the clauses expressly not released. Those matters related to defect rectification and the like.

27    AGL denies that it is liable to General Trade in any respect and further asserts that the work carried out by General Trade in the period from 7 November 2014 to 14 August 2015 was defect rectification on the project pursuant to obligations in the Construction Agreement which were not released by the Deed. On that basis it says in relation to PC12 that:

(a)    the work performed by General Trade included defect rectification work which it was obliged to perform under the Construction Agreement and at its own expense;

(b)    some of the other work claimed concerned the preparation of documents which General Trade was otherwise required to perform; and

(c)    it includes claims for amounts which do not relate to the Construction Agreement or the work to be performed in relation to it.

28    AGL denies liability in respect of the other claims made by General Trade and says that in respect of each claim General Trade’s pleadings fail to disclose a reasonable cause of action. AGL also alleges more generally, that by the terms of the Deed, General Trade has released it from every allegation contained in the statement of claim.

The law

29    Section 1335 of the Corporations Act relevantly provides:

1335 Costs

(1)    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.

30    Section 56 of the Federal Court Act relevantly provides:

56 Security

(1)     The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her.

(2)     The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs.

31    The process of applying for an order for security for costs is set out in r 19.01 of the Rules, which provides:

19.01 Application for an order for security for costs

(1)     A respondent may apply to the Court for an order:

(a)    that an applicant give security for costs and for the manner, time and terms for the giving of the security; and

   (b)    that the applicant’s proceeding be stayed until security is given; and

(c)    that if the applicant fails to comply with the order to provide security within the time specified in the order, the proceeding be stayed or dismissed.

(2)     An application under subrule (1) must be accompanied by an affidavit stating the facts on which the order for security for costs is sought.

 (3)     The respondent’s affidavit should state the following:

(a)     whether there is reason to believe that the applicant will be unable to pay the respondent’s costs if so ordered;

   (b)      whether the applicant is ordinarily resident outside Australia;

   (c)     whether the applicant is suing for someone else’s benefit;

   (d)     whether the applicant is impecunious;

   (e)     any other relevant matter.

32    It is uncontroversial that the purpose of an order for security for costs is to provide a successful defendant or respondent with protection for the costs it will incur in defending the proceedings. It is also not in doubt that the Court’s discretion to make an order for security for costs must be exercised judicially, but is otherwise unfettered: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1, (Bell Wholesale) 3; Health & Life Care Ltd v Price Waterhouse (1993) 11 ACSR 326, 329 – 330. The governing consideration is what is required by the justice of the matter, which depends entirely on the circumstances of the case: Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Ltd (1998) 193 CLR 502, 513 [26].

33    In exercising its discretion, the Court will weigh the objective of ensuring adequate and fair protection for the parties seeking security against avoiding injustice to the applicant: Pathway Investments Pty Ltd v National Australia Bank Ltd [2012] VSC 97 [55]. As explained by Smithers J in Tradestock Pty Ltd v TNT (Management) Pty Ltd (No 1) (1977) 14 ALR 52 at 56:

No doubt the answer is to be found by ascertaining where, on considerations of what is just and reasonable, the balance rests between the risk of exposing an innocent defendant to the expense of defending his position and the risk of unnecessarily shutting out from relief a plaintiff whose case if litigated would result in his obtaining that relief.

34    In performing this balancing exercise, there is no exhaustive list of matters that may be taken into account: Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497, 516; however there are a number of well-established factors relevant to the exercise of the Court’s discretion. Those matters include the applicant’s impecuniosity and the resources of any persons standing behind it; the cause of the applicant’s impecuniosity; the strength and bona fides of the applicant’s case; and the possibility an order for security for costs would unjustly stifle the action: see KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 (KP Cable Investments v Meltglow), 197 – 198.

Consideration

The applicant’s impecuniosity

35    The Court’s discretion under s 1335 of the Corporations Act is enlivened where it appears that there is reason to believe the applicant company is impecunious such that it will be unable to pay the costs of the respondent if successful. It is not an express requirement for the enlivening of the power under s 56 of the Federal Court Act and it has been said that it is also not an implied requirement. Nevertheless, where a corporate entity without means of its own pursues litigation, its lack of any ability to meet an order for costs will be a not insignificant factor weighing in favour of requiring the provision of security whether pursuant to s 1335 of the Corporations Act or s 56 of the Federal Court Act.

36    Here, General Trade does not dispute that it is insolvent and that it will be unable to meet an order for AGL’s costs if the latter successfully defends the action. It went into voluntary liquidation and external administrators were appointed on 20 October 2015. Its liquidation has been proceeding for five years. The most recent Annual Administration Return filed in its liquidation on 9 December 2019 shows that it has 34 unsecured creditors (total estimate liability of $1,816,699.94), and one secured creditor (estimated liability of $757,727.27). Its assets consist of cash at bank in an amount of $9,412.03 and, so it says, its chose-in-action being the present proceedings against AGL. In that latter respect, in his affidavit of 12 October 2020, Mr Stimpson, General Trade’s liquidator, opined that the applicant’s only remaining source of revenue is the amount it may receive if it is successful in the present proceedings, or if it settles on favourable terms. Otherwise, there will be no dividend to creditors at all.

37    It can safely be determined that General Trade will be unable to pay AGL’s costs if the latter is successful in its defence of the present claim. It has, in effect, no assets with which to meet any costs order. That being so, the power in s 1335 of the Corporations Act is enlivened. It also gives rise to the circumstance that General Trade is able to pursue the litigation and, if successful, may recover its claim and costs from AGL but, conversely, if it fails any order for costs in AGL’s favour would be worthless. In substance, it is litigating without any actual threat to its assets from a possible adverse costs order. The unfairness of that situation is patent and in the circumstances of this case, prima facie justifies correction by the making of an order for security for costs. However, whether such an order should ultimately be made, and to what extent, requires consideration of other factors.

The costs of defending the proceedings

38    Each party adduced opinion evidence as to the question of the costs which AGL might incur in the conduct of its defence of General Trade’s action. AGL relied upon an affidavit of Mr Macpherson, the solicitor with the carriage of the action on its behalf. Similarly, General Trade relied upon the evidence of Mr Gouldson, who is its solicitor on the record. In the preparation of their affidavits, neither sought to comply with the terms of the Federal Court Practice Note relating to Expert Evidence (GPN – EXPT) and neither stated that they had read that note including the Harmonised Expert Witness Code of Conduct. It is not irrelevant that Clause 2.2 of GPN – EXPT provides:

The purpose of the use of expert evidence in proceedings, often in relation to complex subject matter, is for the Court to receive the benefit of the objective and impartial assessment of an issue from a witness with specialised knowledge (based on training, study or experience - see generally s 79 of the Evidence Act).

39    It is recognised that, on applications of this kind, not infrequently parties seek to rely upon the purported expert evidence of their own solicitors as to the quantum of costs which might be incurred in the action. Mr O’Donnell QC for AGL submitted that such affidavits are “not prepared as expert reports, but they are summaries by experienced solicitors, intended to be a cost-effective method of estimating legal costs”. Whether the affidavits in question meet that characterisation is beside the point. They are advanced as opinion evidence which would otherwise be inadmissible unless given by a person who has specialised knowledge based on training, study or experience: s 78 of the Evidence Act 1995 (Cth) (Evidence Act). However, inconsistently with the nature of expert evidence upon which courts are usually required to act, the evidence in this instance is provided by persons who are not only involved in the litigation, but who are duty bound to act in their client’s best interests. Such affidavits can never be honestly advanced to the Court as fair and unbiased opinions. Moreover, despite what might be common usage, the evidence is fragile at best and, if one party seeks to rely on the evidence of an independent expert whose report has complied with GPN – EXPT and the Code of Conduct, the Court is likely to prefer that evidence: Jasmin Solar Pty Ltd v Trina Solar Australia Pty Ltd [2020] FCA 1018 [100] – [105], [109].

40    As it was, in the present matter, neither party took objection to the fact that the expert evidence relied upon by the other did not comply with GPN – EXPT, or that the deponent was not an independent witness in relation to the matters in respect of which they purported to give evidence. In those circumstances, it is possible to receive the evidence for what it is worth, although it should also be observed that neither Mr Macpherson nor Mr Gouldson were cross-examined on their affidavits.

41    In his affidavit of 28 September 2020, Mr Macpherson estimated the party and party costs which AGL would expend in defending the action were between approximately $480,000 and $632,000. His methodology was to estimate the steps which would be taken in the litigation by his client and assess the actual cost thereof on the basis of the amounts which would be charged by his firm, the counsel engaged by him, and third parties. Thereafter, he applied a benchmark discount for the solicitors’ fees of 40% so as to bring the figure to what he alleged would be recoverable costs.

42    Mr Gouldson adopted the amounts calculated by Mr Macpherson as the starting point for his calculations. He then made deductions to account for (as he alleged) the solicitors’ fees being too great, duplication of work, and the unnecessary use of senior legal practitioners where junior staff would be more appropriate. He then applied the same 40% reduction to that revised figure and some further unidentifiable reductions so as to produce a range for the costs of the action on a party and party basis of between approximately $393,000 and $509,000.

43    Mr Gouldson also indicated that in the event the Court hived off the issue of the construction of the Deed, the parties’ legal costs could be reduced further to between approximately $129,000 and $164,000. When pressed, Mr Conrick for General Trade was not able to identify why a construction summons in relation to the Deed might be pursued and, in the circumstances, there is no need to consider that issue at this time.

44    Given the similarity of approach between Mr Macpherson and Mr Gouldson, it was not surprising that neither party criticised the practice of assessing the notional actual cost of litigating the action and applying a benchmark discount. As was said by Gordon J in Norcast S.ár.L v Bradken Limited [2012] FCA 765 [23], that approach necessarily depends upon the basis upon which the solicitors and barristers charge their client and the more expensive the lawyers are, the greater should be the discount. As her Honour correctly identified, it is an approach which ought not to be utilised for the purposes of the present exercise.

45    As previously mentioned, on the present application AGL only sought security in the sum of $70,000, which is well below the lowest figure identified by Mr Gouldson. The Court was informed that this amount was sought as the initial stage of the provision of security, rather than the totality of the amount which might be ultimately claimed. Unfortunately, AGL did not identify the stage of the litigation to which the sum sought related. It may be to the end of the discovery stage, to the commencement of trial, or to some, as yet, undisclosed point in the proceedings. However, in the circumstances of this case it is not necessary to identify the nature of the work to which the security is referable. That question, however, will become acute if any further security is sought.

46    Ultimately, given the amount of security presently sought, there is no need to attempt to assay the differences, assumptions and calculations between the respective approaches of Mr Macpherson and Mr Gouldson. Whilst initially the approach of Mr Gouldson might have been preferred, during the course of the hearing it became apparent that the case which General Trade actually intends to advance is somewhat unclear and its parameters are ill-defined. This suggests that it may be more complex than might be suggested from the pleadings.

47    For present purposes it can be accepted that AGL’s costs of defending the action will be more than the lowest figure identified by Mr Gouldson of around $400,000, such that requiring the provision of security in the sum of $70,000 is well within the reasonable bounds of the discretion.

Will the litigation be stifled by the making of the order for security?

48    General Trade submitted that the making of an order for any amount of security will stifle the litigation. It must be kept in mind that the onus of establishing such an assertion rests upon the party resisting security: Madgwick v Kelly (2013) 212 FCR 1 (Madgwick v Kelly) [81]; Bell Wholesale, 4; Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd (2008) 67 ACSR 105 [45], [82].

49    In support of the claim that the litigation will be stifled if an order is made, General Trade relies on the content of the affidavit of its liquidator, Mr Stimpson. He deposed that in his opinion General Trade would be unable to meet any significant order to provide security for costs with the prospect that if the amount were not provided the action would be stayed and then dismissed. It is not entirely clear what is meant by “significant”. Here the amount sought is $70,000 and it is unclear whether that would be within what Mr Stimpson considers is significant. However, given the company’s financial standing as identified above, for present purposes I accept it would not, itself, be able to provide security in the amount of $70,000.

Those who stand behind the company are not willing to expose their assets to an order for costs or to provide security

However, even if it is assumed that the litigation will be stifled if an order for security is made, that consideration is only of significance if it is demonstrated that those who stand behind General Trade and who stand to benefit from the litigation are also without means. The leading authority on this point is Bell Wholesale which was recently cited with approval by Allsop CJ in All Class Insurance Brokers Pty Ltd (in liq) v Chubb Insurance Australia Ltd [2020] FCA 840 (All Class Insurance v Chubb), where his Honour said at [49]:

When considering whether the litigation would be stifled, one not only looks to the impecuniosity of the litigant, but those standing behind the litigant or those who stand to benefit from the litigation if it were to proceed. Informed by the notion that “those who stand to share the benefits of litigation cannot shirk its burdens” (see Australian Equity Investors, An Arizona Limited Partnership v Colliers International (NSW) Pty Ltd [2012] FCAFC 57 at [30]), Sheppard, Morling and Neaves JJ in Bell Wholesale 2 FCR at 4 expressed the point as follows:

[A] court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and 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 the 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 security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts.

50    This approach is consistent with the policy underlying s 1335 of the Corporations Act that “[t]he privilege of limited liability should not necessarily exclude those standing to benefit from proceedings by that company from having to provide support to it”: Cosdean Investments Pty Ltd v Football Federation Australia Limited (No 2) [2007] FCA 163 [25].

51    In his submissions, Mr O’Donnell QC identified that the benefit which may be derived from the litigation, if successful, is recovery of an amount of around $7.2 million. That amount is the sum of the two distinct claims made by General Trade in its pleading. The first is that AGL wrongly failed to pay General Trade in response to PC12, causing loss in the sum of $3.4 million. The second claim is one for an alleged loss of profits said to arise from General Trade being denied the opportunity to further perform the Construction Agreement. This was valued at $4 million. It was not easy to ascertain the veracity of that latter claim given the terms of the Deed of Release, but it was nevertheless advanced and the benefit of it would enure for those who stood behind the company were it to succeed. At the very least Mr Stimpson appears to believe that it has some merit as, in the latest Annual Administration Return filed by him, the causes of action against AGL as advanced in the present proceedings are valued, at their highest, at $7.2 million.

52    In the present matter, the entities who stand behind General Trade and who stand to benefit from the litigation if it is successful are its creditors and shareholders.

53    In his affidavit of 12 October 2020, Mr Stimpson deposed that the applicant remains indebted to 33 unsecured creditors, whom are all identified. Several of those unsecured debts are significant, namely those owed to:

    Australian Taxation Office (ATO) – $818,622.15

    National Australia Bank Limited (NAB) – $420,617.73

    Telstra Corporation (Telstra) – $107,317.85

    Titan Resources Camp Hire Pty Ltd – $190,814.69

    Origin Energy Electricity Ltd (Origin) – $68,970.00

54    The material also shows that a secured creditor of General Trade is owed $757,727. That creditor is presumably NAB, although little is known about the nature of the charge held by it.

55    General Trade’s shareholders are Mr Pike who holds 5,000 ordinary shares and Pike & Co Pty Ltd which is the holder of one A Class share. The evidence suggests that Mr Pike is presently a bankrupt, however, there is no evidence as to the identity of his trustee in bankruptcy or of the creditors who would stand to gain if a distribution were made to General Trade’s shareholders consequent upon success in the litigation. There is also no evidence of the rights inter se of the shareholders and, in particular, their entitlements on winding up.

56    To date, no creditor of General Trade has offered to fund the current proceedings against AGL, nor have they offered to provide security for AGL’s costs. Mr Stimpson deposed that neither the ATO nor NAB have been approached to determine their willingness to provide funding for the proceeding on the basis that the quantum of their respective claims is assumed to be insufficient to attract their interest to provide funding. There was, unfortunately, no evidence on which Mr Stimpson’s opinion in that regard was founded. He further opined that the remaining creditors, being small and medium size enterprises, would be unlikely to have sufficient resources to undertake the risk of funding the action. Again, there was no evidence to support that proposition.

57    Mr Stimpson may well be correct in his assumptions as to the attitude of General Trade’s major creditors, although it must involve speculation to some extent. If one were to engage in that process it might be thought that if the action which General Trade seeks to advance against AGL had some significant merit to it, the creditors generally or some of them would have supported it in return for priority in relation to the recovery of costs: Re Russell Parkston Ltd (in liq) (2000) 35 ACSR 114.

58    Mr Conrick for General Trade submitted that, on the evidence before the Court, there was no evidence that any creditor was willing to support the litigation, with the result that the court could conclude the litigation will be stifled by the requirement to provide security. However, the relevant question is not whether those who stand to benefit from the litigation are willing to provide funding for the action, but whether they have the means to do so: see Jalpalm Pty Ltd v Hamilton Island Enterprises Pty Ltd (1995) 16 ACSR 532. In Australian Equity Investors, An Arizona Limited Partnership v Colliers International (NSW) Pty Limited [2012] FCAFC 322, it had been submitted that it was not sufficient for the purposes of the principle in Bell Wholesale that there were creditors of an applicant who might ultimately benefit from the litigation, unless it was shown that they were prepared to “stand behind it” in the sense of supporting it financially. This submission was rejected by the Court which held at [30]:

We do not accept these arguments. The passage in Bell Wholesale is not to be read like a statute and the discretion thereby ossified. It does not require that the class of those benefited by the litigation be divided into two further sub-classes viz those standing behind the applicant and those standing, presumably, elsewhere. The principle at play is a simple one: those who stand to share the benefits of litigation cannot shirk its burdens. We do not think the Court in Bell Wholesale intended to say any more than that. Indeed this is clear from the last sentence of the passage quoted above which, in terms, talks only of those standing to benefit from the litigation. It follows that the concepts of ‘benefiting from’ and ‘standing behind’ are elements in the same concept. It is no surprise, therefore, that arms length creditors have been held to be persons to whom the principle applies: see, for example, Cosdean Investments Pty Ltd v Football Federation of Australia Limited (No 2) [2007] FCA 163 at [15]-[29] per Mansfield J. … This is not to say that in every case where stifling is said to be the result of an order for security that the position of those benefitted by the litigation needs to be proved by an applicant. Each case depends on its own facts and an assessment of what is reasonable in the circumstances: cf. Ariss v Express Interiors Pty Ltd (In Liq) [1996] 2 VR 507 at 515 per Phillips JA.

59    A not dissimilar view was expressed by Allsop CJ and Middleton J in Madgwick v Kelly. Their Honours identified that the requirement that before a court can conclude that an action would be stultified by an order for security it needs be shown that those who stand behind it were without means, was grounded in the fairness of the circumstances of the case. Their honours relied (at [82]) upon the following observations of Hodgson JA in Dae Boong International Company Pty Ltd v Gray [2009] NSWCA 11 at [27]:

Ultimately it seems to me the question to be determined by the court is whether it is fair that the person being sued by the company should be in the position of having to incur substantial costs, in this case perhaps tens of thousands of dollars of costs, and being at risk of liability for the company’s costs, and yet have no real chance of recovering costs even if the action is unsuccessful, when there are persons who would benefit from the proceedings, who face no risk of liability for costs themselves and are either unwilling or unable to provide security.

60    With that in mind, the mere fact that there are persons who stand behind the applicant who are not willing to provide security does not foreclose the issue of whether the action will be stultified in the sense relevant to the discretion to order security for costs. On the other hand, if the unwillingness is reasonable as a matter of commercial practicality in the circumstances of the particular litigation, that too will be a factor: Ariss v Express Interiors Pty Ltd (in liq) [1996] 2 VR 507, 515 and BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 (BPM v HPM), 344 – 345.

61    In the present case there are clearly persons and entities who stand behind General Trade and who stand to benefit from the litigation. They include a large number of creditors, some of whom are substantial entities as well as shareholders which include the trustee in bankruptcy of the estate of Mr Pike. Whilst none of them have come forward and offered to provide security for costs of this action there is no evidence as to the cause of their unwillingness, if in fact they are unwilling, and, that being the case, it is not possible to ascertain whether any reluctance is reasonable or otherwise.

62    It follows that the circumstances which present themselves are that those who stand behind General Trade and stand to benefit from the litigation are prepared to sit by in the expectation of recovering payment of their debts or a distribution from the company if the litigation is successful, but are not prepared to expose their assets to the risk of an adverse costs order. It may well be, as Mr Stimpson speculates, that the amount of the major creditors’ debts is too small for them to be interested in being involved in litigation for those sums. However, even if that were so, there is no suggestion that they have surrendered their claims against General Trade and so foregone the benefit of the action being successful. Their debts arose from the commercial arrangements which they apparently willingly entered into with General Trade and the risk of non-payment has crystallised. The consequence is that they are prepared to allow the proceedings against AGL to be a stalking horse for the recovery of their debt. The same can be said for the shareholders in General Trade.

63    There was no suggestion that creditors, and in particular those listed above, are without means. Indeed, as submitted by Mr O’Donnell QC, it is well known that the ATO, NAB, Telstra and Origin are large entities who can be assumed to be capable of funding litigation of the type under consideration. There is no evidence that any of the other creditors or the shareholders, including Mr Pike’s trustee in bankruptcy, are without means.

64    It follows that General Trade has not established that those who stand behind it and who will benefit from the litigation are without means to provide security. The consequence is that it cannot be concluded that the making of an order for the provision of security will stifle the proceedings.

The cause of the applicant’s impecuniosity

65    General Trade submitted that to require it to provide security for costs would be unjust because its present impecuniosity was caused by AGL. This was advanced in two different ways. Firstly, that AGL had failed to pay PC12 when it was obliged to do so. Second, that the nature of the Construction Agreement changed over time rendering it more difficult and more expensive for General Trade to perform and, further, that there was continuous delay by AGL in the payment of PC10 and PC11. Only the first of these alleged causes is the subject of a claim in the present action.

Evidence of the effect of non-payment of PC12

66    In relation to the first matter, the evidence relied upon by General Trade included the following statements by Mr Pike in his affidavit:

49.    In any case AGL, by Scicchitano, simply rejected Progress Claim 12 because AGL asserted that the Deed barred any GTI right to claim. Exhibit 10 is a true copy of that rejection advice.

50.     This resulted in GTI’s insolvency and liquidation since GTI had exhausted all its other resources in addressing the demands of this project. It also resulted in my personal bankruptcy because of the guarantees I had given to support GTls commitments as to the AGL project.

67    A similar statement as to the effect of the non-payment of PC12 was made by Mr Stimpson at paragraph 11 of his affidavit:

11. In my view, the insolvency of the Applicant was primarily brought about by the Respondents refusal to pay the final progress claim of $3.4 million.

68    It should be observed that, on one view, Mr Stimpson’s statement does not merely contain the assertion that the omission to pay the amount in PC12 was the cause of General Trade’s insolvency. It asserts that there was a refusal to pay the claim, suggesting that AGL had failed to comply with an obligation to do so. In other words, Mr Stimpson may be taken to have said in that compendious statement that the omission of AGL to pay PC12 had the consequence that it was no longer able to pay its debts from its own resources and that the omission by AGL was in breach of some obligation on it. That is, in effect, the substance of one of the claims advanced in the statement of claim.

69    AGL objected to the admissibility of Mr Stimpson’s statement on the basis that it was inadmissible opinion evidence. It submitted that the statement was no more than a mere assertion and was bereft of any sufficient facts on which the opinion could be based. In support of the admissibility of paragraph 11, Mr Conrick for General Trade referred to the general statements in paragraphs 7 to 10 of Mr Stimpson’s affidavit which depose that General Trade’s obligations generally only arose from delivering work and services to AGL and that its income was primarily derived from that source.

70    It is apparent that Mr Stimpson is a liquidator with substantial experience in relation to insolvency matters. His affidavit shows that he had been a liquidator for a number of years and had acted as a receiver, administrator or liquidator of over 1,000 companies. He has also produced some 30 insolvency reports. It did not appear to be in contention that Mr Stimpson was able, through his specialised skill, knowledge and training, to express an opinion as to General Trade’s insolvency and its causes. It is also probable that a person in his position would be able to express a view about the liability of debtors to the company or of the company to creditors. Whilst that necessarily involves some legal ability it is not beyond the skill, knowledge and training of an experienced liquidator. It follows that Mr Stimpson’s opinion as expressed in paragraph 11 of his affidavit is admissible because it is one which is wholly based on his training, study or experience: s 79 of the Evidence Act.

71    It is true that all of the facts on which Mr Stimpson based his opinion were not established by the evidence, however that is not a condition of admissibility. It is apparent that s 79 of the Evidence Act does not incorporate the “the basis rule” as it is so called: Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588 [41]: such that Mr Stimpson’s opinion is admissible without more. However, that is not to say that his opinions should be accepted.

72    The evidence of General Trade’s financial position before the Court, albeit somewhat slim, supports Mr Stimpson’s opinion that its lack of revenue caused its insolvency and that if PC12 had been paid by AGL that insolvency would not have occurred. To the extent that this is expressed in paragraph 11 of Mr Stimpson’s affidavit it might be accepted for present purposes. However, Mr Stimpson identifies no facts on which he based the inferred opinion that the non-payment of PC12 was a breach of AGL’s obligation to do so. In the circumstances where that liability is and has been disputed and the facts surrounding it are complex, the unsupported opinion is of little or no value in ascertaining whether any wrongful conduct of AGL was causative of General Trade’s insolvency.

73    In the result, the objection to paragraph 11 is overruled. It is admissible as Mr Stimpson’s opinion but it has little or no weight on what would appear to be the contentious issue in these proceedings.

Whether completing the Construction Agreement caused General Trade’s impecuniosity

74    The second ground advanced as to the cause of General Trade’s impecuniosity was the manner in which AGL allegedly performed its obligations under the Construction Agreement. The evidence about this topic was somewhat diffuse. In its written submissions General Trade advanced the argument that:

30.     Prior to its entanglement with AGL, the evidence is that GTI was thriving with a solid income of around AUD 12 million dollars for the 2013 year and a likely value in excess of AUD 3 million dollars.

31. AGL’s approach to its payment obligations to GTI finally resulted in GTI’s insolvency and the destruction of its corporate value.

75    This was supported to some extent by Mr Pike’s affidavit where he deposed that General Trade would not have taken on a project of the size of the Silver Springs Project had the true extent of it been made known to him from the beginning. He made some further vague allegations that he was not informed of the true scope of the work under the agreement at the time it was executed and that subsequently the nature and scope of the work substantially expanded. He made further complaints about the manner in which the agreement was administered by AGL’s superintendent and the lateness of payments made against PC10 and PC11.

76    The difficulty of relying on this alleged cause of General Trade’s impecuniosity is that it is not a matter in respect of which redress is sought in these proceedings. It may well be that the actions of which complaint is made did have a detrimental effect on General Trade’s finances, but no cause of action is alleged in the statement of claim in reliance on it. In KP Cable Investments v Meltglow, Beazley J set out seven considerations which were relevant to the exercise of the discretion of whether security should be ordered. The third (at 197) was, “[w]hether the applicant’s impecuniosity was caused by the respondent’s conduct subject of the claim: see M A Productions v Austarama Television at 100.” It is worthy of comment that the authority referenced by her Honour only identified the relevant consideration as being “whether the want of assets experienced by the plaintiff is caused by the default of the defendants” and it made no reference to whether the alleged default was the subject of redress in the proceedings in which security was sought. Nevertheless, the seven matters identified by Beazley J have been referred to or cited on a number of occasions: Austcorp Project Number 20 Pty Ltd v LM Investment Management Ltd (in liq) [2014] FCA 1371 (Austcorp v LM Investment) [30] amongst many others. In Coonwarra Pty Ltd v Cornonero Pty Ltd (No 2) [2019] VSC 702 Derham AsJ articulated at [52] the relevant consideration as being, “The conduct of the defendant needs to relate directly to the claim before the court”. For that his Honour cited KP Cable Investments v Meltglow as well as Lord Denning MR’s decision in Sir Lindsay Parkinson & Co Ltd v Triplan Ltd [1973] QB 609, 626. There was, however, nothing in the observations of his Lordship which suggested that it was a requirement that the conduct which may have caused the impecuniosity related directly to the claim before the Court. In a subsequent decision in Andrews v Zuccubarr Pty Ltd [2020] VSC 675, Derham AsJ restated the proposition that the conduct which is said to have caused the plaintiff’s impecuniosity must relate directly to the claim before the Court. His Honour relied upon the same authorities which he relied upon in Coonwarra Pty Ltd v Cornonero Pty Ltd (No 2) as well as his earlier decision in Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 311 [20](b).

77    Despite some hesitancy and concern that this factor may not be as circumscribed as the authorities suggest and that there is an absence of any reasoned basis for the identified limit, I am prepared to accept the above statements of principle as they have been made. If it was relevant to consider any conduct of the defendant which might have caused a diminution in the plaintiff’s financial standing regardless of whether it was the subject of the action, applications of the present nature may well turn in to substantial satellite litigation. That said, the discretion to require the provision of security is untrammelled and were it clearly established that a defendant’s conduct, other than that of which complaint is made in the proceedings before the Court, had caused the plaintiff’s impecuniosity that may be a factor to be taken into account.

78    Here the second ground on which it is alleged that AGL has caused General Trade’s insolvency was not the subject of complaint in the action and, for that reason, it is not relevant to the determination of whether security should be granted. I hasten to add that it would not matter if the consideration is wider than the authorities suggest. The evidence as to the manner in which AGL’s general performance of the Construction Agreement was said to be causative of General Trade’s impecuniosity was sparse and fell well short of establishing that fact.

Is the issue of the cause of General Trade’s impecuniosity relevant?

79    Although the question of the cause of General Trade’s impecuniosity took up some not inconsiderable time in the course of the hearing, it cannot be of great relevance given the above conclusion that the action will not be stultified by requiring the provision of security. If it had been concluded that stultification would or might occur, the cause of General Trade’s inability to provide security would be of some significance. If the wrongful action which underpins the suit being pursued deprived General Trade of the resources to provide security, it would be an injustice to allow AGL to rely upon its own wrongdoing to prevent the action against it being progressed. However, here the action will not be stifled by requiring the provision of security. That being so, even if AGL’s alleged wrongful conduct did cause General Trade’s impecuniosity, it cannot be said that it extends to preventing the action being pursued against it.

80    There are a number of authorities which support the above propositions. In BPM v HPM, Anderson J (with whom Kennedy and Ipp JJ agreed) said at 346 when speaking of the consideration that the defendant’s alleged wrongful conduct had been causative of the plaintiff’s impecuniosity:

Anyway I doubt this factor can be taken in isolation. It must be considered together with the assertion that the effect on the plaintiff of an order for security will be to stultify the action. If that will not be or is not shown to be the effect of the order, that is, if other parties who will benefit from the plaintiffs success are financially able to provide the security and it is reasonable that they do so, the fact that the defendant has caused the plaintiff’s own impecuniosity will hardly be good reason to decline security.

81    This passage was approved of and applied in MHG Plastic Industries Pty Ltd v Quality Assurance Services Pty Limited [2002] FCA 821 at [25]. It was also considered in All Class Insurance v Chubb. There the Chief Justice was faced with an application for security for costs by the insurer Chubb in respect of proceedings brought against it by All Class Insurance Brokers Pty Ltd which, although then in liquidation, had previously conducted an insurance brokering business. One of its directors had misappropriated funds and All Class had called upon a policy of insurance which it held with Chubb on the ground that the loss had been caused by the theft, fraud or dishonesty of an employee. Chubb denied liability for a number of reasons. Subsequently, All Class was ordered to be wound up. In defence of the application for security for costs it submitted that the Court ought to take into account that its insolvency had been caused by Chubb’s failure to pay its claim on the policy of insurance. The Chief Justice held (at [76]):

Where security for costs is resisted on the ground that it is the conduct of the respondent that has caused the applicant’s impecuniosity, the apparent strength of the applicant’s case should be assessed: Statewide Developments Realty Pty Ltd v Owners Corporation, SP 77457 [2013] NSWSC 1750 [20]. However, as observed by White J in Statewide at [23], the real reason for investigating the strength of the applicant’s case arises only where it was said that, on the particular facts of the case, the grant of security would stultify the proceedings. This approach was taken by the Full Court of the Supreme Court of Western Australia in BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 at 346 (per Anderson J, Kennedy and Ipp JJ agreeing), with Anderson J observing that the question of whether the respondent contributed to the applicant’s impecuniosity had to be considered in conjunction with the proposition that the effect of an order for security would be to stultify the action. This principle was also applied by Black J in Advance Innovative Solutions Pty Ltd (in liq) v X-Dem Group (Aust) Pty Ltd [2012] NSWSC 1112 at [19] (citing the passage in BPM 131 FLR at 346).

It followed that, as it had not been established that the action would be stultified by requiring the provision of security, there was no need to consider whether Chubb was the cause of All Class’s impecuniosity and there was no need to consider the strength of the claim against it.

82    In the present matter, General Trade has not established that the action will be stultified or stifled by an order that security be provided. It follows that, even assuming that AGL’s conduct was causative of General Trade’s impecuniosity and inability to provide security, it is not a matter of great, if any, weight in the circumstances.

Were AGL’s actions relatively causative of General Trade’s inability to provide security?

83    Although, given the foregoing, it is not strictly necessary to ascertain whether General Trade adduced sufficient evidence to establish that its claims had some merit, as the parties advanced substantial submissions with respect to this issue it is appropriate to consider it.

84    It is well established that on applications of the present kind the onus is upon the person from whom security is sought to establish that its inability to provide security was caused by the party seeking security with relatively straightforward and unambiguously evidence of a fairly compelling nature”. This statement is taken from the observations of Dal Pont GE in Law of Costs (LexisNexis Butterworths 2003) [29.96], cited with approval in Jazabas Pty Ltd v Haddad (2007) 65 ACSR 276 by McClellan CJ (with whom Mason P and Basten JA agreed) at [95]:

[T]he plaintiff must be able to support the allegation with relatively straightforward and unambiguous evidence of a fairly compelling nature, because otherwise the hearing of the issue of security might become a trial within a trial. For this reason, it is not enough that the defendant’s conduct is merely a contributing factor – it must be the material contributor to or cause of the plaintiff’s impecuniosity.

See also Mecrus Pty Ltd v Industrial Energy Pty Ltd (2015) 327 ALR 523 [75].

85    Mere assertion is insufficient: Ninan v St George Bank Ltd (2012) 294 ALR 190 [37]. In Austcorp v LM Investment Gleeson J observed (at [40]) that before a court could accept that the plaintiff’s impecuniosity was caused by the conduct of which complaint was made an assessment, albeit of a provisional nature, would need to be made of the plaintiff’s case: Sylverton Pty Ltd v Minter Ellison [2011] FCA 1072 [10]; Impex Pty Ltd v Crowner Products Ltd (1994) 13 ACSR 440, 441.

86    As has been mentioned previously, even if it were relevant to consider the second basis on which General Trade alleged AGL had caused its impecuniosity, the evidence surrounding that issue was vague at best and fell well short of the standard required by the above authorities. The more relevant issue is whether General Trade has established to the requisite degree that the alleged wrongful non-payment of the claim in PC12 was causative of its impecuniosity. It is that allegation which is the substance of the main claim advanced in the action.

87    Mr O’Donnell QC for AGL submitted that General Trade had failed to establish, to the requisite degree, any foundation on which the Court could conclude that the non-payment of PC12 caused its insolvency. He submitted that there was no evidence which could be characterised as being “relatively straightforward and unambiguously evidence of a fairly compelling nature”. There is some force in that submission.

88    It cannot be said that there is no evidence of the causative effect of the non-payment of PC12. I have accepted that Mr Stimpson’s opinion is admissible. That was supported by the evidence of Mr Pike in paragraphs 49 and 50 of his affidavit which are set out above and to which no objection was taken. However, it is not unfair to describe that evidence as being at a high level of generality, relatively weak, and absent any substantive supporting facts.

89    In effect, the allegation is that after the parties had entered into the Deed, in around November 2014, General Trade returned to the Silver Springs Project site and until August 2015 undertook further work for which it claims it was entitled to be paid. It says that after completing the work and submitting PC12, AGL wrongly refused to pay the amount due and that resulted in its insolvency. As Mr O’Donnell QC submitted, in order to establish the causative effect of the non-payment of PC12, the Court would have expected the production of evidence of General Trade’s financial position immediately prior to commencing work in November 2014, showing that it was then able to pay its debts and its position after August 2015, showing the opposite. No such evidence was adduced. Whilst that, of course, would not be the only method by which to establish the causative effect of non-payment, it is a method which might tend towards something which could be characterised as being straightforward, unambiguous and compelling. No doubt in a case of this kind, it may well be difficult to amass evidence of that nature in relation to the contentious issue of insolvency. Nevertheless, in order to appropriately raise as a relevant factor that AGL’s conduct caused General Trade’s insolvency, more needs to be produced than generalised statements based upon broad assertions.

90    It is not irrelevant in the consideration of this issue that some of General Trade’s evidence tended to contradict the claim that AGL’s non-payment of PC12 was causative of its parlous financial position. In his affidavit, Mr Pike deposed that the amount of money received by General Trade pursuant to the Deed was not sufficient to cover its own costs, a fact supported by the evidence of Mr Seond, who was General Trade’s General Manager at the time. He asserted that after receiving funds pursuant to the Deed, about $5 million remained unpaid on the company’s overall claims. This evidence suggests that as at the completion of the Deed, General Trade’s financial position was already somewhat perilous as a result of its participation in the Construction Agreement.

91    In these circumstances it can be said with some confidence that General Trade failed to establish with any degree of precision the factual basis of its allegation that AGL’s refusal to pay PC12 caused its impecuniosity.

92    Even if it were assumed that the non-payment of PC12 was somehow causative of General Trade’s financial position, there was a dearth of evidence to suggest that the non-payment was wrongful such that General Trade would ultimately succeed on its claim. In this respect, AGL’s obligation to pay the amounts claimed in PC12 has always been in dispute. In part, AGL asserts that the work for which payment was sought by PC12 was rectification work which General Trade was required to undertake pursuant to those terms of the Construction Agreement which were preserved by the Deed and for which no further contractual obligation to pay existed. Such issues were tangentially part of the previous litigation in the Supreme Court of Queensland where, although no final determination was made, the arguments advanced by AGL that General Trade’s obligations in relation to the rectification of defects continued were generally accepted. See the reasons for judgment of Muir JA in General Trade Industries Pty Ltd v AGL Energy Limited [2014] QCA 283. In the context of the debate before the Supreme Court his Honour’s comments sufficiently show that General Trade’s argument that its obligation to rectify defects had come to an end were not accepted. There is no need to descend into the minutiae of those arguments here.

93    At this point, it can be observed that the allegations in the statement of claim as to the nature and scope of the work allegedly done, for which payment was sought by PC12, are extremely vague. Only generalised allegations are made that work was done at the request of AGL. No particulars of the requests are provided and, similarly, no particulars are given of the work which was undertaken. Further, PC12 was delivered with a spreadsheet consisting of numerous pages, but those also fail to provide particulars of the nature of the work done, the identity of the person who allegedly requested it, the duration of the work, where it was done, and whether it was contractual work or additional work. Indeed, as Mr Macpherson’s affidavit of 6 October 2020 identifies, a large number of entries in PC12 assert that the work was performed from 12 July 2014. The Deed, however, has the effect that AGL has no liability to General Trade for any work done to 31 July 2014. This was accepted by Mr Conrick who acknowledged that any amounts claimed in PC12 for work carried out to 31 July 2014 were not recoverable. He similarly acknowledged that General Trade was not entitled to payment for rectification work, although he said that there was a dispute about whether certain of the work carried out was truly rectification work. Similarly, he agreed that his client was not entitled to be paid for work which was within the scope of the contractual works as General Trade’s rights under it had come to an end save to the extent to which any rights and obligations were expressly preserved.

94    In his affidavit of 6 October 2020, Mr Macpherson also identified that PC12 includes claims for reimbursement of legal costs which General Trade incurred in the proceedings in the Supreme Court of Queensland. On any view, such costs are not recoverable by General Trade against AGL in relation to the work allegedly carried out at the Silver Springs Project. He also identified that PC12 includes claims for demobilisation costs which, prima facie, are not recoverable by General Trade, being its costs of performing the contract. Mr Conrick accepted that this was the case to some extent. Mr Macpherson further identified items in PC12 relating to the cost of General Trade providing security for the works which also do not appear to be recoverable. Whilst there are a large number of other items in PC12 which do not fall into the above categories, the particularity of the entries are insufficient to raise a suggestion that they are amounts for which AGL is liable.

95    On the material before the Court, General Trade’s evidence of AGL’s liability rests at a high level of abstraction. It is relevant that although Mr Pike deposed that all of the work in PC12 was outside the scope of the Construction Agreement and the “Disputes resolved by the Deed, he was not able to, and did not, vouch for each item of work. To a large degree it was apparent that General Trade was not presently able to identify the extent to which the work performed after 31 July 2014 was rectification work or new work. Somewhat unusually, Mr Pike deposed that he was not able to undertake a proper analysis of whether the works were defect rectification until he had access to AGL’s data base, which had been used for the project. This tends to establish General Trade’s inability to articulate its claim with any precision, let alone demonstrate its strength. At best it might be concluded that, within the somewhat broad ambit of the claim, General Trade has an arguable cause of action for payment for some of the work which it performed. However, that is not sufficient for the purposes of this application where what is being considered is whether it should provide security for costs.

Balancing the considerations

96    From the foregoing it is apparent that the discretion should be exercised in favour of making an order for security for costs. General Trade is seeking to advance a significant claim in the defence of which AGL will incur substantial expense. On the material presently before the Court it can be estimated that a trial will be a matter of weeks not days. Prior to that, considerable expense will be incurred on both sides in preparing the matter for hearing. General Trade has no funds with which to meet any order for costs which might be made if it is unsuccessful. Significantly, it has not satisfied the Court that the making of an order for security will stifle the action. There are a large number of entities behind it who stand to benefit if the litigation is successful, and it has not been shown that they are without the means to provide security. Those entities are prepared to allow the litigation to be conducted as a stalking horse for their benefit, even if they are not actively involved in prosecuting it. Although General Trade asserted that AGL’s conduct has caused its impecuniosity, that allegation was not made out and, in any event, it is somewhat irrelevant in circumstances where it has not been shown that any order to provide security will stultify the action. Further, although General Trade has some arguable cause of action, the strength is difficult to discern given it is currently formulated in broad and unparticularised terms.

97    The effect of General Trade’s resistance to an order that it provide security is that it wishes to litigate its large and complex claims against AGL in the hope of recovering significant damages and its costs, whilst at the same time effectively denying AGL the opportunity to recover its costs if it successfully defends the action. In these circumstances it would be a matter of great unfairness to allow it to continue to litigate its claim against AGL without providing security.

The quantum of the security

98    Despite the quantum of the costs which AGL asserted it will expend in the proceedings, it only seeks security in the sum of $70,000. In paragraphs 60 and 61 of its written submissions the following matters were stated:

60.     In determining the appropriate amount of security, the Court takes a “broad brush” approach, and seeks to fix such amount as it thinks just in all the circumstances of the case. The Court does not seek to provide the respondent with a complete indemnity, but will endeavour to set an amount which is “neither illusory nor oppressive”.

61. AGL presently seeks security in the amount of $70,000. Even on the lowest assessment of AGL’s likely costs (between $128,771.04 and $163,904.80), that sum is much less than a complete indemnity. It is not unusual for this Court to order security for a sum reflecting only part of the anticipated costs of the litigation (for example, up to the first day of trial), in anticipation that the respondent may make a further application for security if that amount proves inadequate.

(Footnotes omitted).

99    The statements of law in paragraph 60 are undoubtedly correct: see Lynx Engineering Consultants Pty Ltd v The ANI Corporation Ltd t/as ANI Bradken Rail Transportation Group (No 3) [2010] FCA 32 [25]. It is also correct to say that, on occasion, Courts will order the provision of security in a staged manner. Here AGL submitted the amount of $70,000 was sought as the first tranche of security. In submitting that this was an appropriate approach it relied upon the following comments of Allsop CJ and Middleton J in Madgwick v Kelly (at 22 [96]):

Security for costs is not necessarily a once only question. It can be managed, supervised and staged as part of case management, particularly to avoid injustice. The essential place of fairness referred to by Hodgson JA in Dae Boong relates not only to whether security will be ordered, but also in what amount, and on what terms

100    Whilst those comments are correct, here AGL eschewed any attempt to identify the stage of the litigation for which the sum of $70,000 was sought. As previously canvassed, it was not said to be an amount which relates to the cost of proceeding to the close of pleadings or to the commencement of trial. For its part, General Trade did not agree or indicate that a staged approach was appropriate. It was merely faced with an application for security for costs in the identified amount. Whilst it is true that the interlocutory summons identified that the sum sought was an initial amount, that was the only indication that the sum of $70,000 was to be an instalment. The point to be made here is that whilst the amount of $70,000 is not an inappropriate amount of security, in the sense that it is well below any of the estimates of party and party costs of conducting the litigation, whether AGL is entitled to further security and, if so, in what amount and for what stage, will remain an open question when any further application is made. Although it was not attempted in this case, the preferable course is for an applicant for security for costs to identify the stage for which a specified sum is sought and to agitate for a specific amount of security for that stage. If that were not the case, there is a risk that applications of the present kind could be used oppressively by respondents to proceedings by the making of additional and unexpected subsequent applications.

101    Despite that, here an initial sum of $70,000 is appropriate and an order should be made requiring General Trade to provide security in that amount.

Further relief

102    AGL sought orders that the security be provided within 14 days and that the action be stayed pending its provision. No submission was made as to the proposed timeframe and it is not suggested that additional time would produce a different outcome. There is no reason not to adopt the usual course to stay the action pending the provision of security.

103    AGL also sought a self-executing order such that if security is not provided as ordered the action be dismissed. At this point in time it is not necessary to make such an order and AGL can make a further application to dismiss the proceedings if that becomes necessary.

104    Otherwise, AGL sought an order that it have leave to make an application to increase the amount of security upon giving notice. There is no need for such an order and AGL does not require leave to make a further application if it is minded to take that course.

Costs

105    The parties are to be heard on the question of costs.

I certify that the preceding one hundred and five (105) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington.

Associate:    

Dated:    29 October 2020