Federal Court of Australia

Firexpress Australia Pty Ltd v Imago Exchange Pty Limited [2022] FCA 129

ORDERS

THE COURT ORDERS THAT:

1.    Within seven days of the date of publication of these reasons the applicant and the second, fourth, fifth, sixth and seventh respondents are to provide the Associate to Markovic J with a form of proposed orders giving effect to these reasons or, if they cannot agree on a form of proposed orders, with their competing forms of proposed orders.

2.    In the event that the parties referred to in Order 1 cannot agree on a form of proposed orders or, on the question of costs of the security for costs applications filed by each of the second, fifth and sixth respondents, the fourth respondent and the seventh respondent, those parties are to approach my Associate to have the proceeding listed for case management hearing.

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

REASONS FOR JUDGMENT

MARKOVIC J:

1    There are three applications for security for costs made by various respondents to this proceeding before the Court:

(1)    by interlocutory application filed on 15 September 2021 the second, fifth and sixth respondents, BSY Pty Ltd, Brodie Simon Youd and Emmie Louise Youd, seek an order that the applicant, Firexpress Australia Pty Ltd , provide security for their costs of and incidental to the proceeding in the amount of $99,407 within 14 days;

(2)    by interlocutory application filed on 9 September 2021 the fourth respondent, Simon Youd, seeks an order pursuant to r 19.01 of the Federal Court Rules 2011 (Cth) and s 1335(1) of the Corporations Act 2001 (Cth) that Firexpress provide security for his costs of the proceeding in the sum of $96,000; and

(3)    by interlocutory application filed on 6 September 2021 the seventh respondent, Andrew Graham, seeks an order that Firexpress provide security for his costs pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) (FCA Act), r 19.01 of the Rules or s 1335 of the Corporations Act in the sum of $118,718.60 (including GST) within 14 days,

(collectively Applications for Security).

2    In addition, in the event that Firexpress fails to provide security in accordance with any orders made by the Court, BSY, Brodie Youd and Emmie Youd, on the one hand, and Simon Youd, on the other, seek an order that the proceeding be dismissed and Mr Graham seeks an order that the proceeding be stayed.

3    Since the filing of the Applications for Security the issues between Firexpress and BSY, Brodie Youd and Emmie Youd, Simon Youd and Mr Graham (who I will refer to collectively as respondents) have narrowed. Firexpress does not dispute that orders for security for costs should be made in favour of the respondents. That is, it accepts that if orders for payment of the costs of the proceeding were made in their favour, it would be unable to satisfy those orders. Nor does Firexpress dispute the estimates of likely costs provided by the respondents and thus the amount of security they seek in each case. The only dispute that arises and thus the question to be resolved concerns the form that the security to be provided by Firexpress should take.

background

4    This proceeding was commenced by Firexpress on 2 July 2021. In its originating application, among other things, Firexpress seeks: declarations that the sum of US$300,000 advanced by it to the first respondent, Imago Exchange Pty Ltd, was held on constructive trust for it and that each of Imago, BSY, the third respondent, Ronald Caines, and Simon Youd are liable to account to it for that amount as a constructive trustee; and, as against each of Ronald Caines, Simon Youd, Brodie Youd, Emmie Youd and Mr Graham, damages under s 236 of the Australian Consumer Law (ACL) being Schedule 2 to the Competition and Consumer Act 2010 (Cth).

5    The proceeding arises out of a deed of agreement entered into by Firexpress and Imago in February 2020. In its statement of claim filed on 2 July 2021 Firexpress alleges that:

(1)    the effect of the deed was to provide for an investment by which Firexpress would pay Imago US$300,000 and Imago would pay that amount to the “supplier contact” to be used in relation to a “fuel transaction”, being a tank hire fee;

(2)    in return for the payment of US$300,000 Imago agreed to pay Firexpress US$300,000 within 30 days of receipt by it of its fees from the “supplier contact” or receipt of cleared funds from the “supplier contact”, whichever occurred sooner and a further $300,000 within 60 days of receipt by it from the “supplier contact” or receipt of the cleared funds from the “supplier contact”, whichever occurred sooner;

(3)    Imago was in breach of the deed because at no time was there a relevant “supplier contact” and/or a relevant investment opportunity in a “fuel transaction” and/or were the funds ever transferred to the “supplier contact” and/or has Firexpress received any of the payments due to it under the deed;

(4)    BSY was aware of an alleged dishonest or fraudulent design in relation to its payment of US$300,000 and is liable to account to it for that amount as a constructive trustee; and

(5)    Brodie Youd and Emmie Youd made misleading or deceptive representations and/or were knowingly involved in contraventions of the ACL.

Each of the respondents has filed its or their defence.

6    Mark Dooley is the sole director and secretary of Firexpress and Corporate Development Group Pty Ltd is its sole shareholder. Mr Dooley is the sole director, secretary and shareholder of Corporate Development.

7    Prior to and after the filing of the Applications for Security correspondence was exchanged between the various respondents and Firexpress, including the correspondence referred to below.

8    By letter dated 4 August 2021 the solicitors for Mr Graham, Weinberg Lawyers, sought from Firexpress an amount of $2,288 as security for the initial steps to be taken by their client in the proceeding but reserved their client’s right to request and, if necessary, make an application for further security.

9    In response on 11 August 2021 Firexpress’ solicitors, B & G Law, provided a copy of Firexpress’ financial reports for the period ending 30 June 2020 to Weinberg Lawyers and informed those lawyers that Firexpress’ accountants had been instructed to prepare its financial reports for the period ending 30 June 2021 and that they would be “provided in due course”.

10    On 16 August 2021 Weinberg Lawyers, in response to B & G Law’s letter dated 11 August 2021, commented on the financial reports that had been provided and renewed Mr Graham’s request for payment of $2,288 as security for the costs of the initial steps to be taken by him in the proceeding.

11    On 17 August 2021 B & G Law informed Weinberg Lawyers that they were holding the sum of $2,288 on behalf of Firexpress in their trust account as security for Mr Graham’s costs.

12    By letter dated 18 August 2021 Weinberg Lawyers informed B & G Law that Mr Graham sought further security for the next stage of costs he would incur in defending the proceeding and sought further security of $2,728.

13    By letter dated 6 September 2021 B & G Law informed Weinberg Lawyers that:

We have been instructed that the sole director of the Applicant, Mr Mark Dooley, is prepared to provide a guarantee or undertaking in respect to the payment of any costs ordered against the Applicant in favour of the Seventh Respondent.

Could you please forward for our consideration a form of guarantee or undertaking which will allay your client’s concerns.

14    By email of the same date Weinberg Lawyers sought information about Mr Dooley’s assets and liabilities so that they could assess whether a guarantee/undertaking would allay Mr Graham’s concerns and take instructions.

15    By letter dated 2 September 2021, the solicitors for Simon Youd, McLean McKenzie & Topfer, sought evidence from Firexpress demonstrating its ability to meet an adverse costs order and otherwise sought confirmation of Firexpress’ willingness to provide security for their client’s costs.

16    On 9 September 2021 further emails were exchanged between Weinberg Lawyers and B & G Law. Weinberg Lawyers sent a further email to Jeff Guy at B & G Law noting that they had not yet received Mr Dooley’s proposed statement of assets and liabilities. In response Mr Guy of B & G Law said that they were preparing a statement of assets and liabilities to be provided shortly.

17    Mr Dooley’s statement of assets and liabilities was never provided to Weinberg Lawyers or to any of the other respondents who now seek security for their costs of the proceeding. Rather, by letter dated 9 September 2021 B & G Law informed Weinberg Lawyers, among other things, that Kylie Dooley, Mr Dooley’s spouse, was prepared to provide a guarantee or undertaking in respect of any costs awarded by the Court to Mr Graham. A statement of Mrs Dooley’s financial position and title searches for the real property referred to in that statement were enclosed with the letter. B & G Law also informed Weinberg Lawyers that they were instructed that, despite mortgages being registered on the title of those properties, no money was owing to the mortgagee, the Bank of Queensland. B & G Law requested Weinberg Lawyers provide a form of guarantee or undertaking for their consideration.

18    Mrs Dooley’s statement of financial position disclosed that Mrs Dooley has net assets of $4.377 million including cash at bank of $287,000 and chattels and real property valued at approximately $3.33 million. No current or non-current liabilities were recorded. The real properties comprise a property situated at Black River (Black River Property), a property situated at North Ward (North Ward Property) and a property situated at Taringa (Taringa Property).

19    Subsequently, B & G Law instructed Dean Dank of Explore Property to provide an appraisal of the price which might be obtained by a willing vendor from a willing purchaser for each of the three properties included in Mrs Dooley’s statement of financial position. Mr Dank undertook an appraisal and provided a range of estimates for each property based on a comparative market analysis. The low range estimate for each was as follows:

    Black River Property - $1.85 million;

    North Ward Property - $220,000; and

    Taringa Property - $880,000.

20    On 26 October 2021 B & G Law provided a draft deed of guarantee to Weinberg Lawyers between Mrs Dooley as “Guarantor” and Mr Graham as “Beneficiary” in a form which Mrs Dooley was prepared to execute for review by their client.

21    Deeds of guarantee in identical form, save for the identity of the Beneficiary and the maximum sum the subject of the deed, were also provided to BSY, Brodie Youd, Emmie Youd and Simon Youd.

22    In each case the deed of guarantee (Guarantee) is between Mrs Dooley as Guarantor and the relevant respondent(s) as Beneficiary and operates in relation to the “Maximum Obligation” which is, in each case, the sum sought by each of the respondents or sets of respondents as security for his or their costs (although I note that in the case of BSY, Brodie Youd and Emmie Youd the draft deed includes the higher amount of costs originally sought in their interlocutory application but which amount has been reduced in line with the evidence in support of that application).

23    The draft Guarantees relevantly include:

(1)    clause 2.1 which provides that subject to the conditions included in cl 2.2 and cl 3.1 the Guarantor guarantees to the Beneficiary the payment by Firexpress of moneys due and payable from time to time by Firexpress pursuant to a “Costs Order”. The term Costs Order is defined to mean an order in this proceeding that Firexpress pay costs to the relevant Beneficiary;

(2)    clause 2.2 which provides that the Guarantee operates so that the total sum payable by Mrs Dooley to the relevant Beneficiary is not to exceed, in aggregate, the Maximum Obligation;

(3)    clause 3 which is titled “Guarantor’s obligations and their enforcement” and provides:

3.1    Obligations are Conditional

The Guarantor’s obligations are conditional on the occurrence of each of the following:

(a)    the making of a Costs Order;

(b)    the quantum of the Costs Order being determined:

(i)    in accordance with Part 40 of the Rules; or

(ii)    by consent order or by the written agreement of Firexpress and the Beneficiary; and

(c)    the default of Firexpress in the payment of a Costs Order, or any part thereof, for a period of fourteen (14) days following the determination of the quantum of the Costs Order pursuant to sub-clause 3.1(b) above.

3.2    Payments avoided or recouped

This Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time the whole or any part of any payment or satisfaction of the whole or any part of the obligation of Firexpress to satisfy a Costs Order:

(a)    is avoided by the operation of any law: or

(b)    must be repaid or restored by the Beneficiary to Firexpress by reason of preference or for any other reason whatever.

3.3    Collateral security

This Guarantee will not prejudicially affect or be prejudicially affected by any other security or guarantee held now or in the future by the Beneficiary in respect of the obligations of Firexpress to satisfy any Costs Order, with the other security or guarantee to be collateral herewith.

(4)    a requirement in cl 4.1 that Mrs Dooley pay interest on amounts due and payable but unpaid under the Guarantee at the rate payable pursuant to r 39.06 of the Rules;

(5)    clause 5 which concerns payment and costs and provides:

5.1    Demand

Subject to the requirements of clauses 2.2 and 3.1 above the Guarantor shall upon demand pay to the Beneficiary the outstanding quantum of a Costs Order unsatisfied by Firexpress.

5.2    Manner of payment

All payments to be made by the Guarantor under this Guarantee shall be made in immediately available funds. Payments shall be made in full, free and clear of any deductions or withholdings, and without any set off or counterclaim whatever, as and where the Beneficiary may from time to time direct.

(6)    that the Guarantee will be discharged upon either the payment by Firexpress of all Costs Orders following the final resolution of the proceeding, the payment of the Maximum Obligation by Mrs Dooley to the relevant Beneficiary under the terms of the Guarantee, the final resolution of the proceeding without any Costs Order having been made or by written agreement between the Guarantor and Beneficiary.

24    Firexpress relied on an affidavit sworn by Mrs Dooley on 25 January 2022 in which she:

(1)    undertakes not to dispose of or encumber any of the three properties of which she is the registered proprietor which are included in the statement of her financial position without providing 28 days’ notice to the respondents of her intention to do so (Undertaking);

(2)    refers to her affidavit sworn on 30 November 2021 to which she annexed title searches undertaken on 22 November 2021 for each of the Black River Property, North Ward Property and Taringa Property which show that those properties are unencumbered;

(3)    annexes a list of the chattels and vehicles referred to in the statement of her financial position which describes each of the vehicles, gives an estimated value and provides the vehicle identification number (VIN) for each vehicle; and

(4)    deposes to the fact that she has obtained independent legal advice from Shane Boyle of McDonald Leong Lawyers in relation to each of the Guarantees and annexes a copy of three letters she has received from Mr Boyle in which he summarises the nature of the advice provided to her about the terms of the Guarantees and some of their terms and conditions.

legislative framEwork and relevant principles

25    Section 56 of the FCA Act relevantly provides that the Court or a Judge may order an applicant in a proceeding in the Court to give security for the payment of costs that may be awarded against him or her. Rule 19.01 of the Rules provides that a respondent may apply to the Court for an order that an applicant give security for costs and for the manner, time and terms for the giving of security, that the applicant’s proceeding be stayed until security is given and 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.

26    Section 1335 of the Corporations Act relevantly provides:

(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.

27    As is plain from the terms of s 1335 of the Corporations Act if it appears by credible testimony that there is reason to believe that a corporation will be unable to pay a respondent’s costs, the Court is empowered to order security. While s 56 of the FCA Act does not expressly impose any such threshold to be met before the Court considers whether, in the exercise of its discretion, security should be ordered, an applicant’s inability to pay a respondent’s costs remains an important consideration in the exercise of the Court’s discretion: see All Class Insurance Brokers Pty td (in liq) v Chubb Insurance Australia Limited [2020] FCA 840 at [41].

28    Here, it was not in dispute that Firexpress would be unable to pay the respondents’ costs of the proceeding. Firexpress, in effect, conceded that was so and accepted that the Court’s discretion to order security for the respondents’ costs had been enlivened.

29    The factors guiding the exercise of the Court’s discretion were not in dispute. The Court’s discretion is broad and should be exercised having regard to all of the circumstances of the case. While the factors to which the Court can have regard are not exhaustive they typically include: whether the application has been 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; and 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: see All Class Insurance Brokers at [42]-[43].

30    Given Firexpress’ concession and its acceptance that this was an appropriate case in which the Court would exercise its discretion it is not necessary for me to consider those factors or, more broadly whether, having regard to all of the circumstances of the case, I would make the orders sought by the respondents for security.

31    The only question that arises on the Applications for Security is the form of security to be provided. That question was considered in DIF III Global Co-Investment Fund, LP v BBLP LLC [2016] VSC 401. In that case an application was made for the plaintiffs to provide security for costs. Relevantly the form of security proposed by the plaintiffs was:

(1)    a deed of indemnity to be given by a United Kingdom (UK) insurance company, AmTrust Europe Ltd, to the defendants (AmTrust indemnity);

(2)    payment into court or, a bank guarantee for, $20,000 per defendant group to cover the costs of registration of a foreign judgment in the UK in the event that enforcement of the AmTrust indemnity was required, notwithstanding a judgment of the Supreme Court of Victoria (SC Victoria) for costs against the plaintiff (UK registration costs); and

(3)    an undertaking by the plaintiffs to ensure that the AmTrust indemnity included a term to the effect that AmTrust would not seek security for costs in any enforcement proceedings against it in the UK,

see: DIF III at [4].

32    At first instance, while an order was made for the plaintiffs to provide an amount of security, the associate justice rejected the plaintiffs’ proposed form of security and required that security be provided in the form of a cash deposit or bank guarantee. The plaintiffs appealed against the decision insofar as it concerned the form of security.

33    Commencing at [12] Hargrave JA set out the applicable law. His Honour referred to the decision in Yara Australia Pty Ltd v Oswal (2013) 41 VR 245 in which the Victorian Court of Appeal considered whether to award security for costs against two plaintiffs resident in the United Arab Emirates and, in particular, to the reasons of Redlich JA at [10] who said:

The form of a fund or asset will be immaterial so long as it is adequate to achieve its object as a security. The court has an unfettered discretion under r 62.03(1) as to what form of security may be acceptable. The degree of likelihood of the respondent being unable to pay the costs, along with all the circumstances, actual and possible, may be taken into account in the exercise of discretion.

34    At [13] Hargrave JA observed that:

In considering the adequacy of a proposed security, Redlich JA stated that the fact the security may not be ‘immediately available and accessible’ when a costs order is made against a plaintiff is not a decisive factor which requires the security to be rejected.

35    His Honour set out a summary of the principles relating to the provision of an undertaking to pay costs as a form of security in circumstances where the party providing that undertaking was resident outside the jurisdiction, the latter not being a factor which is present in this case.

36    Commencing at [29] Hargrave JA considered recent authorities, including from England, which addressed the form in which acceptable security for costs may be given. At [29]-[30] and [32]-[33] his Honour said:

[29]    In Aoun v Bahri Tuckey LJ observed as follows:

Traditionally, security was provided by payment into court or solicitors’ undertakings. Nowadays bank guarantees are the norm, provided they are from first class banks. Other forms of security are not ruled out, but they must be copper bottomed — in the sense that they can be enforced in a simple and straight forward way — otherwise the purpose of ordering security is defeated.

[30]    In Versloot Dredging BV v HDI Gerling Industrie Vesicherung AG, an order was made that security for costs be provided by way of ‘first class’ London bank guarantee. The plaintiffs applied to vary the order, so as to allow them to provide a deed of indemnity from an insurer in substitution for a bank guarantee. Clarke J (as he then was) varied the order. His Honour stated:

There is no magic in the provision of security from a first-class London bank. The essential question for the court in deciding on what form of security is acceptable is whether what is proposed does indeed provide real security. This it may do if it amounts to a promise which would in all likelihood be honoured, given by an entity with the wherewithal to pay and against whom enforcement can readily be obtained; in short, if given by a truly creditworthy entity.

…

[32]    Parker LJ in Rosengrens Limited v Safe Deposit Centres Limited stated:

So long as the opposite party can be adequately protected, it is right and proper that the security should be given in a way, which is the least disadvantageous to the party giving that security.

It may take many forms. Bank guarantee and payment into court are but two of them. Frequently security is considered wholly adequate when it is provided merely by a London solicitor’s undertaking. So long as it is adequate, then the form of it is a matter which is immaterial … as long as it is adequate to protect the opposite party, it is not his concern whether it should be in one form rather than another.

[33]    In Blue Oil Energy Pty Ltd v Tan, the New South Wales Court of Appeal (Beazley P and Tobias AJA) approved the above-quoted statement of Parker LJ but stated that security for costs need not always be ordered in a form ‘least disadvantageous’ to the party giving security:

As the respondents submitted, his Lordship was not laying down some general proposition to the effect that security can only be ordered in favour of a defendant in a manner which is the least disadvantageous to a plaintiff. The true issue was whether the form of security ordered was adequate to protect the party seeking it.

37    At [36]-[40] Hargrave JA summarised the effect of the exercise of the court’s discretion as to the form in which security for costs may be provided by a foreign plaintiff with no assets in the jurisdiction, being the relevant circumstances in the case before his Honour, as follows:

[36]    First, the first principle stated by Priest JA in Yara v Oswal does not require that, in every case involving the relevant security circumstances, the form of the security must comprise a fund or asset in Victoria. There may be countervailing circumstances which point to the justice of the case not requiring security in the form of a fund or asset in Victoria.

[37]    Second, countervailing circumstances may include that the plaintiff has substantial assets in a foreign jurisdiction, judgments of this Court can readily be registered in that jurisdiction at a cost which is secured by an asset or fund in Victoria, and execution of the judgment in the foreign jurisdiction does not pose undue difficulties or obstacles. An undertaking by the plaintiff not to seek security for costs in the event that proceedings to enforce a costs judgment are brought in the foreign jurisdiction may also be relevant.

[38]    Third, a plaintiff is entitled to put forward security in a form least disadvantageous to it. Where a plaintiff puts forward security in a form other than payment into court or a bank guarantee from an Australian bank, the central inquiry is whether the proposed form of security is adequate to achieve its object as security; namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff. The fact that some delay may be involved in accessing that security is, while relevant, not decisive.

[39]    Fourth, a plaintiff proposing security bears a ‘practical onus’ of satisfying the Court that the proposed security will not impose an ‘unacceptable disadvantage’ on the defendant. Where that onus is satisfied, the Court should ordinarily order security in that form.

[40]    Drawing these threads together, in exercising its broad discretion as to the form of security for costs in the relevant security circumstances, the Court will usually apply the following principles:

(1)    the plaintiff is entitled to propose security in a form least disadvantageous to it;

(2)    the plaintiff bears a ‘practical onus’ of establishing that the proposed security is adequate and does not impose an ‘unacceptable disadvantage’ on the defendant;

(3)    in order to be adequate, the proposed security must satisfy the protective object of a security for costs order, namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff; and

(4)    based on these and any other relevant considerations, the Court will determine how justice is best served in the particular circumstances of the case.

38    The parties took me to a number of decisions where the provision of security by way of a guarantee has been considered which I address below.

the respondents’ submissions

39    Each of BSY, Brodie Youd and Emmie Youd, Simon Youd and Mr Graham relied on written submissions in support of their respective Applications for Security and supplemented their written submissions with oral submissions. Not surprisingly, given the single question to be determined, there was a commonality to their respective submissions and they each adopted each other’s submissions. I set out below a summary of them.

40    First, the respondents submitted that typically security is provided by payment into Court or the provision of a bank guarantee and that the authorities provide that a deed of guarantee will only be an acceptable form of security in exceptional circumstances. They contended that Firexpress has not identified any such exceptional circumstances. The respondents said that those cases which give limited support for security to be provided by way of a deed of indemnity are inapposite as they involved a surety who was a corporation of good financial standing whereas here the proposed surety is an individual whose ability to satisfy a call on the guarantee is unclear.

41    Secondly, the respondents submitted that Mrs Dooley is a stranger to the proceeding and as such her proposed personal guarantee is not adequate security. They contended that she does not stand to benefit from the litigation and thus there is no incentive for her to maintain a sufficient level of capital.

42    Thirdly, the respondents submitted that the proposed form of security, the Guarantee, would put them at an unacceptable disadvantage and that Firexpress had not discharged its “practical onus” of establishing that this is not so. The disadvantage was said to arise because the Guarantee is not supported by the provision of security such as a charge and is only supported by the Undertaking. By way of example the respondents raised a circumstance where six months into the litigation Mrs Dooley could give notice of an intention to encumber or dispose of one or all of her properties, leaving the respondents to take steps to relist the proceeding to seek substituted security or, alternatively, make an application for new security. The respondents submitted that in those circumstances they would not know where the substitute or fresh security would come from given that Firexpress’ assets are, at best, modest. Further, by that time, on their hypothetical scenario, the respondents would have incurred six months of costs which they may not be able to recover from any source. The respondents contended that was a significant disadvantage and one which would mean that the Guarantee does not satisfy the practical onus test referred to in DIF III.

43    Fourthly, the respondents submitted that there was no guarantee that they would not face a long and costly enforcement process should they have to call on the Guarantee.

44    Finally, the respondents submitted that Firexpress has not provided an explanation as to why Mrs Dooley is not able to procure a bank guarantee or provide some other form of security such as payment into court or the provision of a charge. They contended that was relevant because, if the Court was minded to make an order requiring the provision by Firexpress of a traditional form of security, namely payment into Court or provision of a bank guarantee, there was no evidence from Mrs Dooley that she would not be in a position to do so and thus no suggestion that such an order would stifle the litigation. In those circumstances, the respondents said that there would be no disadvantage to Firexpress in making such an order.

consideration

45    In my opinion the Guarantees proffered by Mrs Dooley together with the Undertaking is an adequate form of security for the respondents’ costs. My reasons for reaching this conclusion follow.

46    As set out above s 56 of the FCA Act empowers the Court to make an order that an applicant give security for costs that may be awarded against it. That section also provides that the security shall be given in such form as the Court or Judge directs. That is, the form of security is at the Court’s or Judge’s discretion. In DIF III at [40] Hargrave JA set out the principles which the Court would usually apply in exercising the broad discretion as to the form of security (see [37] above).

47    The respondents submitted that a guarantee will only be accepted as a form of security in exceptional circumstances. But that may be placing the bar too high. Rather the authorities to which I was taken demonstrate that each case will turn on its own facts.

48    In making that submission the respondents relied on the decision in Success Capital Pty Ltd v Hope Island Resort Holdings Pty Ltd [2007] FCA 1562 at [42]. That case concerned an application by the respondents for an order that the applicant pay security for their costs. When the application first came before the Court it was adjourned to allow the respondents an opportunity to consider the applicant’s offer to settle the claim for security by provision of a form of guarantee. That offer was not accepted and the application proceeded to hearing. Justice Collier formed the view that it was appropriate to make an order that the applicant provide security for the respondents’ costs. In coming to that view her Honour considered the deed of guarantee that had been proposed by the applicant. The proposed deed provided for assets of one unit trust to be committed as security for the applicant’s costs as trustee of another unit trust. However, in the absence of supporting evidence, Collier J was not prepared to accept that the relevant clause of the unit trust deed of the Success Development & Property Group Unit Trust empowered the applicant to assume an obligation or give a guarantee of a “substantial sum as security for the costs of the applicant in its capacity as trustee for another Unit Trust in litigation in which, prima facie, the beneficiaries of the Success Development & Property Group Unit Trust have no interest”.

49    At [42] her Honour then said:

In any event, in relation to this Deed of Guarantee, I am further disinclined to exercise my discretion in favour of the applicant where this Court has previously indicated that a personal guarantee given in satisfaction for security for costs is acceptable in only exceptional circumstances: Sunstate Orchards Pty Ltd v Citrus Queensland Pty Ltd [2006] FCAFC 93, cf Jianshe Southern Pty Ltd v Get Motor Cycles Pty Ltd (formerly Turnbull Cooktown Pty Ltd) (No 3) [2007] FCA 1078 at [30]-[31]. The applicant has demonstrated no circumstances in this case justifying the acceptance of a personal guarantee as distinct from a cash payment or a bank guarantee.

50    In Sunstate Orchards Pty Ltd v Citrus Queensland Pty Ltd [2006] FCAFC 93 a Full Court of this Court (Gray ACJ, Spender and Dowsett JJ) heard an appeal from a proceeding in which the second applicant, a natural person, and two other natural persons offered undertakings to the Court in response to an application for security for costs by Sunstate Orchards Pty Ltd and Andrew Colin Strahey. The primary judge dismissed the application for security for costs upon the provision of the undertakings. As described at [2] of their Honour’s reasons, the undertakings, which concerned a property of which the second applicant and one other of the persons offering an undertaking were the registered proprietors and the other natural person was a second mortgagee, involved:

…the making available of the sum of $100 000 from the proceeds of sale of that property, in priority to the second mortgage; undertakings not to further encumber or charge that property; and undertakings to execute a further security in relation to that property if a costs order were to be made.

51    Sunstate and Mr Strahey sought and were granted leave to appeal. On the hearing of the appeal, the respondents (who were the applicants before the primary judge) conceded that the appeal should be allowed. The Full Court determined that it was appropriate for it to exercise the discretion afresh. There was agreement that the amount of $150,000 would be appropriate security for the costs of Sunstate and Mr Strahey. The only question to be resolved was the manner in which the security should be provided. On that question the second applicant in the proceeding at first instance provided further evidence to the effect that he was prepared “to increase the strength of the undertakings” that he and the two other natural persons had offered. After describing the nature of that undertaking those persons were then prepared to give and noting that the second applicant also undertook to execute a personal guarantee in favour of the respondents, at [7]-[8] the Full Court said:

7    We have been informed by counsel for the respondents to the appeal that the undertaking would extend to $150 000 by way of personal guarantee. The Court has serious doubts whether, in the circumstances, a personal guarantee is an adequate form of security, even taking all of the other undertakings proffered into account. The difficulty is that there is no evidence as to the assets of the second applicant in the proceeding below. We can understand readily why there should be disquiet on the part of the appellants in relation to what has been offered.

8    It is our view that, if the offer is worth anything, then it ought not to be very difficult for the second applicant in the proceeding below to secure an unconditional bank guarantee, which would resolve the issue of the manner of provision of security easily.

52    In contrast, in Jianshe Southern Pty Ltd v Get Motor Cycles Pty Ltd (formerly Turnbull Cooktown Pty Ltd) (3) [2007] FCA 1078 Besanko J made an order for the provision of a personal guarantee by Nicholas Jules Stewart, one of the directors and a shareholder of the applicant, to the respondents guaranteeing “the payment of any costs the applicant is ordered to pay the respondents and incurred by the respondents on or after 5 July 2007 up to a sum of $200,000.00”.

53    In that case the respondents sought an order that the applicant pay security for their costs. There was no dispute that there was reason to believe that the applicant would be unable to pay the respondents’ costs if they were successful in their defence. His Honour considered whether in the exercise of his discretion he should make an order that the applicant provide security for the respondents’ costs. In doing so his Honour noted the considerable delay by the respondents in making their application and was satisfied that the applicant would suffer prejudice if an order for security was made. In that regard at [30] his Honour said:

It is plain from its financial statements that it cannot provide security by way of a cash deposit or bank guarantee and it has expended what are presumably substantial costs in preparing its case for trial. It is clear from Mr Stewart’s evidence that the applicant may not have proceeded this far had an application for security for costs been made earlier.

54    At [31] Besanko J continued:

In my opinion, it would cause prejudice to the applicant and be quite unfair to it to make an order for security for costs by way of a cash deposit or bank guarantee at this late stage. To my mind, that is a sufficient reason to refuse the application insofar as it seeks security of that nature. However, having regard to the matters outlined below, it does not stand in the way of an order that the party who will benefit from the proceeding if it is successful, Nicholas Jules Stewart, be required to provide a personal guarantee whereby he guarantees the payment of any costs the applicant is ordered to pay the respondents and incurred by the respondents on or after 5 July 2007. I realise that I have conducted no inquiry into Mr Stewart’s financial position and his ability to meet a costs order, but I do not think that that means that such a guarantee cannot constitute a form of security: Clyde Industries Ltd v Ryad Engineering Pty Ltd (1993) 11 ACLC 325 at 328 per Rowland J (see also the discussion in Dal Pont at 964-965 [29.28]-[29.29]). In any event, if such a guarantee is worthless, that would be a reason to refuse an order for security for costs because the proceedings would otherwise be stifled.

55    In Hillbrick Bicycles Pty Ltd v F45 Training Pty Ltd [2017] FCA 1089 Reeves J considered an application by the respondents for security for their costs of the proceeding. At [7]-[8] his Honour set out the evidence before him of Mr Smith’s and Mr Hillbrick’s assets. Mr Smith was the second applicant and Mr Hillbrick was a shareholder in the first applicant, Hillbrick Bicycles Pty Ltd. Based on that evidence Mr Hillbrick had net assets of approximately $1.5 million. Justice Reeves identified two issues for resolution: first, whether an order for security for costs should be made against Mr Smith, a natural person; and secondly, whether an order ought to be made against Mr Hillbrick, the person who stood behind the first applicant, Hillbrick Bicycles.

56    In relation to the second issue his Honour noted (at [17]) that Mr Hillbrick did not dispute that, because of his interest in Hillbrick Bicycles, he would benefit personally from the proceeding should the applicants be successful. For that reason he had offered a personal guarantee for the payment of any of Hillbrick Bicycles’ costs obligations. The respondent, F45 Training Pty Ltd, rejected that offer and sought security by way of a bank guarantee relying on the doubts it raised about Mr Hillbrick’s asset position. Justice Reeves rejected F45 Training’s contentions. At [17] his Honour said:

According to Mr Hillbrick’s affidavits as summarised above, he has net personal assets in excess of approximately $1,500,000. F45 Training did not seek to cross-examine Mr Hillbrick on those estimates and, in those circumstances, I see no reason to doubt them. Since he has more than sufficient net personal assets to meet any costs order that may be made against Hillbrick Bicycles Pty Ltd, I consider a suitably framed personal guarantee by Mr Hillbrick will provide F45 Training with an adequate security for any costs order it may obtain.

57    In Construction Kings Pty Ltd v Cashflow Finance Australia Pty Ltd [2020] FCA 1297 Derrington J refused the provision of a personal guarantee from Mr Tocki, the director and shareholder of the applicant, up to the amount of the proposed security together with an undertaking that he would not encumber or deal with his assets in lieu of provision of a bank guarantee. In doing so his Honour accepted as “having much force” a submission that Mr Tocki appeared to be of limited financial means and observed (at [8]) that:

In his affidavit of 4 September 2020, Mr Tocki deposed to owning a unit (jointly with his wife), and a portfolio of shares. However, it appears that the unit is subject to a substantial mortgage, and the nature, number and value of his shares are not disclosed. Consequently, the precise value of Mr Tocki’s assets is not clear.

58    After referring to a number of other factors, none of which were considered to be of significant weight, his Honour said (at [10]):

Although Mr Tocki has identified his willingness to offer an undertaking in relation to those costs to an amount of $72,000, from the material before the Court I apprehend it is not sufficient because its value is unknown. I accept the submission by Mr de Waard that, in the absence of any evidence of Mr Tocki’s worth, the undertaking affords the respondent no protection at all.

59    It follows from the authorities set out above that there is no reason in principle why a guarantee cannot be accepted as a form of security for costs in an appropriate case in lieu of the payment of an amount into Court or the provision of an unconditional bank guarantee. While the latter might be the ‘usual’ form of security provided, each case must be determined on its own facts.

60    Here Mrs Dooley’s evidence is that she has net assets of $4.377 million which include, on Mrs Dooley’s estimates, chattels and vehicles valued at $540,000 and real property valued at $2.79 million. The appraisals of the real property provided by Explore Property in fact value the three properties, at the lower end, at $2.95 million. Those properties are unencumbered and Mrs Dooley was not cross-examined about her estimate of the value of the chattels and vehicles, a description of which was provided together with the VINs, or more generally, in relation to the evidence she provided. That being so there is evidence before me that Mrs Dooley has more than sufficient assets to meet an order for payment of the respondents’ combined costs should they be successful in their defence of the proceeding.

61    In addition, by way of further comfort, Mrs Dooley is prepared to give an undertaking to the Court and the parties that she will not encumber or sell her most valuable assets, the Black River, North Ward and Taringa Properties, without first giving the respondents 28 days’ notice of an intention to do so.

62    Much was made of the fact that Mrs Dooley is a stranger to the proceeding. That is she is not a party nor a director, secretary or shareholder of Firexpress. Her connection is that she is Mr Dooley’s spouse. He is the director and secretary of Firexpress and the sole shareholder of Corporate Development which holds all of the shares in Firexpress. While ordinarily security either in the “usual” form or by way of a guarantee or undertaking will be provided by a party to the litigation or one that stands behind it, for example a director or shareholder of a corporate applicant or plaintiff, I can see no reason or principle precluding the provision thereof by a third party or stranger to the litigation. Indeed, in DIF III the deed of guarantee which was accepted by the court was provided by an insurer who was not a party to the proceeding and who had no apparent connection to the proceeding or the plaintiff.

63    In any event Mrs Dooley’s preparedness to provide the Guarantee and Undertaking is no doubt explained by her marital relationship. Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 10) [2009] FCA 498 concerned an application by the successful respondents for a costs order against a third party, namely Mrs Tracy, the wife of the second applicant. Among other things, Mrs Tracy had assisted in providing security which the applicants were ordered to pay. In considering the application Collier J observed at [32] that the provision of the security by Mrs Tracy was explained by “the natural inclination of a wife to support her husband in litigation to which he is a party”. The same could be said here.

64    Aligned to the contention that the Guarantee and Undertaking ought to be rejected because Mrs Dooley is a stranger to the proceeding was a suggestion that because of that fact there is less incentive for her to maintain a sufficient level of capital or, put another way, there is no guarantee that she will not deplete her assets. There is no basis on which I would infer that Mrs Dooley is likely to act in that way. All the steps she has taken to date point to the opposite conclusion: she is prepared to provide the Guarantee and the Undertaking; she has obtained legal advice on the effect of the Guarantee; and she has candidly provided details of the assets she holds.

65    Next I turn to the question of whether the Guarantee will put the respondents at a practical disadvantage or, to adopt the words of Hargrave JA in DIF III, impose an “unacceptable disadvantage” on the respondents. Firexpress bears a practical onus of establishing that the Guarantee will not do so which, in my opinion, it has discharged. The disadvantage which is said to flow to the respondents is that, in the event that Mrs Dooley gives notice of an intention to sell or encumber any of her real property, they will have to take steps to relist the proceeding to ventilate any issues that arise as a result or to seek alternate security. The respondents speculate that by that stage they may have already incurred significant costs and face the risk that the assets which underpin the Guarantee will be dissipated or reduced.

66    In my view, Firexpress has comfortably established the adequacy of the proposed security. The Guarantee, coupled with the Undertaking, provides a fund against which the respondents, if successful, can readily enforce a costs order. The fact that there may be some delay in accessing the security, because of the mechanics of the Guarantee, does not alter that view. Further that Mrs Dooley might notify an intention to deal with her real property assets does not impose an “unacceptable disadvantage” on the respondents. By the terms of the Undertaking Mrs Dooley must provide 28 days’ notice of such an intention thus permitting sufficient time: for consideration by the respondents of the effect of what Mrs Dooley intends; consideration of the impact of the proposed dealings on her assets and the Guarantee; for any necessary discussion or negotiation; and, if required, to list the proceeding before the Court for a variation of orders or to make any necessary application.

67    While the need to take these steps might cause some inconvenience, I do not think they impose an unacceptable disadvantage or impose the hypothetical risk described by the respondents. Firexpress has taken sufficient steps to secure an adequate fund which satisfies the protective object of a security for costs order: it has proffered the Guarantees; they are to be provided by Mrs Dooley who has personal ties to the director, secretary and ultimate shareholder of Firexpress; they are underpinned by substantial assets and an undertaking not to deal with the most significant of those assets; and Mrs Dooley has obtained legal advice in relation to the entry into and effect of the Guarantees.

68    Finally, I address the submission that no explanation has been provided by Firexpress as to why Mrs Dooley cannot provide security by way of payment into Court or provision of a bank guarantee. A similar submission was made in DIF III. At [71(6)] Hargrave JA said that in his opinion this was not a strong discretionary factor and that, of itself, it was incapable of providing a good reason for rejecting the security proffered by the plaintiffs in that case, particularly as his Honour had found the security there to be objectively adequate and readily enforceable. That view applies equally here. For the same reasons identified by Hargrave JA, in my opinion the failure by Firexpress to provide that evidence is not a strong discretionary factor. Contrary to the respondents’ submissions that the Guarantee is proffered by an individual as opposed to an insurer, as was the case in DIF III, this does not cause me to give this factor greater or decisive weight. The fact remains that the Guarantee is underpinned by assets which are more than adequate to meet the respondents’ presently combined estimated costs and thus a costs order, should they ultimately be successful.

conclusion

69    For those reasons I am of the opinion that Firexpress should provide security for the respondents’ costs in the amounts sought by each of BSY, Brodie Youd and Emmie Youd, Simon Youd and Mr Graham as set out at [1] above but that such security is to be provided by Mrs Dooley entering into the Guarantee with the respondents within 14 days of the making of orders. The latter order is to be made on the condition that Mrs Dooley provides the Undertaking to the Court and to the respondents.

70    Neither the second, fifth and sixth respondents nor the fourth respondent made any submissions in relation to the order sought that I would dismiss the proceeding in the event that Firexpress fails to comply with any order for security. But, given the limited issue before me for resolution and its outcome I would not be minded to make such an order. Rather, the proceeding should be stayed until such time as the Guarantees are executed by Mrs Dooley and provided to the respondents.

71    No submissions were made by Firexpress or the respondents in relation to the costs of the Security Applications. While costs would ordinarily follow the outcome, given the way in which the Security Applications developed and, in the absence of agreement between them, I will hear from the parties on the question of costs on the next occasion that the proceeding is listed before me for case management hearing.

72    I will make an order that within seven days of the date of publication of these reasons the parties are to provide my Associate with a draft form of orders giving effect to them or, in the absence of agreement, they are to provide their competing sets of draft orders. In the event that the parties cannot agree on the form of orders, the proceeding will be listed before me for case management hearing to resolve any differences between the parties and, if necessary, to hear from the parties on the question of costs of the Security Applications. I will make orders accordingly.

Associate:

Dated:    22 February 2022

SCHEDULE OF PARTIES