Federal Court of Australia

McMahon Services Australia Pty Ltd v Pinkenba Quarrying & Recycling Pty Limited [2023] FCA 360

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) and r 19.01 of the Federal Court Rules 2011 (Cth), the cross-claimants are to give further security for the cross-respondents’ costs up to the first day of trial in the amount of $85,000.00.

2.    The security ordered pursuant to Order 1:

(a)    is to be paid by the cross-claimants into Court pursuant to r 2.42 of the Federal Court Rules 2011 (Cth) by 22 May 2023; or

(b)    in the alternative is to be given by way of an irrevocable bank guarantee issued by 22 May 2023 by an Australian authorised deposit-taking institution (as defined in s 5 of the Banking Act 1959 (Cth)) in a form acceptable to the first cross-respondent.

3.    Subject to Order 4, pursuant to r 19.01(1)(b) of the Federal Court Rules 2011 (Cth), the proceeding be stayed until security is given pursuant to Order 1.

4.    If the cross-claimants fail to comply with Orders 1 and 2 above, an application may be made, returnable on 26 May 2023 for an order that the proceeding be dismissed pursuant to s 56(4) of the Federal Court of Australia Act 1976 (Cth) and/or r 19.01(1)(c) of the Federal Court Rules 2011 (Cth).

5.    The costs of and incidental to the amended application dated 23 February 2023 to be costs in the cause.

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

REASONS FOR JUDGMENT

SARAH C DERRINGTON J:

1    By an amended interlocutory application dated 23 February 2023, the first cross-respondent in the proceeding, Cardno (Qld) Pty Ltd, applies for an order pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) and r 19.01 of the Federal Court Rules 2011 (Cth), and s 1335 of the Corporations Act 2001 (Cth) that the cross-claimants, Pinkenba Quarrying & Recycling Pty Ltd and GLB Quarrying & Logistics Pty Ltd, provide a further tranche of security for Cardno’s costs of the proceedings up to and including the trial in the amount of $1,081,059.40. Cardno also seeks an order pursuant to r 19.01(1)(b) of the Rules that the proceedings be stayed until such time as security is given, as well as liberty to apply to increase the amount of security in relation to the costs of the trial.

2    Pinkenba and GLB have, by agreements reached on 31 March 2021 and 5 November 2021 respectively, previously provided security for costs in the amount of $255,000 in the form of two bank guarantees, one dated 6 May 2021 for $150,000, and the second dated 11 February 2022 for $105,000.

3    The further tranche now sought is said to be occasioned by events which have arisen since the provision of the original security, events which were unforeseen at those times.

4    Cardno relies on four affidavits of Shannon Carl Schwarz dated 22 December 2022 (First Schwarz Affidavit), 1 February 2023 (Second Schwarz Affidavit), 22 February 2023 (Third Schwarz Affidavit), 30 March 2023 (Fourth Schwarz Affidavit), and an affidavit of Adam David Bloom dated 16 December 2022 (Bloom Report).

5    Pinkenba and GLB rely on an Affidavit of Anthony Angeli dated 2 February 2023 (Aff-AA), two Affidavits of James Nicholas Conomos dated 2 March 2023 (First Conomos Affidavit) and 4 April 2023, and an affidavit of Glenn Robert Walter dated 6 February 2023 (Walter Report).

The proceeding to date

6    The history of the proceeding requires recounting in some detail. It commenced on 22 October 2019 between McMahon Services Australia Pty Ltd as applicant, and Pinkenba and GLB as first and second respondents respectively. An amended statement of claim was filed on 22 April 2020 between the same parties.

7    The claim arose out of the supply by Pinkenba and GLB to McMahon of allegedly contaminated topsoil at a former Energex Depot in Banyo, where McMahon had been engaged to undertake demolition and remediation works pursuant to what was termed the “Head Contract”. McMahon claimed damages against Pinkenba and GLB under the Australian Consumer Law (ACL), the Sale of Goods Act 1896 (Qld) (SGA), and under the general law of contract and tort. It also sought declarations for breach of s 18 of the ACL and s 319(1) of the Environment Protection Act 1994 (Qld) (EPA).

8    The amended statement of claim pleads that Cardno was Energex’s environmental consultant and that, on its instructions, Cardno prepared a report dated 19 January 2018 after a formal remediation notice had been issued to McMahon.

9    In their second further amended defence dated 3 December 2021, Pinkenba and GLB alleged, inter alia, that McMahon was required to comply with the Project Specification prepared by Cardno and the Remediation Action Plan, and that all remediation of contaminated soils was to be completed to the satisfaction of the Suitably Qualified Person (SQP) and Site Auditor. Relevantly, Mr Cameron Kay was the SQP and Mr James Soltau was the Site Auditor.

10    By a statement of cross-claim dated 21 October 2020, Pinkenba and GLB named Cardno as the first cross-respondent, Mr James Soltau as the second cross-respondent, and McMahon as the third cross-respondent.

11    The proceeding was listed for a ten-day trial commencing on 6 December 2021 (First Trial Dates). On 12 November 2021, the First Trial Dates were vacated on the basis that the then docket judge was not persuaded the matter could be finished in ten days.

12    Subsequent to the adjournment, Pinkenba and GLB sought leave to file an amended statement of cross-claim and, as a consequence of leave being granted, the 15-day trial that had been scheduled to commence on 11 July 2022 (Second Trial Dates) was adjourned.

13    The amended statement of cross-claim was filed on 22 July 2022. Cardno filed its fifth further amended defence in response on 8 September 2022.

14    On 24 November 2022, a mediation was held between McMahon and Pinkenba and GLB, as a result of which those parties settled the proceeding amongst themselves. By a Deed of Settlement, pursuant to which Pinkenba and GLB settled McMahon’s claim against them for the sum of $1,275,000, McMahon assigned to them any and all further claims it has for the loss and damage it claimed in the proceedings against Mr Cameron Kay, any other SQP involved in the remediation of the Energex Depot, Mr James Soltau and/or Cardno, directly or vicariously.

15    On 1 December 2022, McMahon discontinued its claim against Pinkenba and GLB.

16    On 8 December 2022, the court vacated the dates for the third attempt at trial, which had been schedule for 15 days commencing on 6 March 2023 (Third Trial Dates). Subsequent to the vacation of the Third Trial Dates, the following steps have been taken by the parties:

    On 23 December 2022, Pinkenba and GLB served a proposed further amended statement of cross-claim;

    Pinkenba and GLB served further versions of a proposed further amended statement of cross-claim on 18 January, 13 and 17 February 2023;

    On 21 February 2023, Pinkenba and GLB served an additional experts report and a reply report.

17    The proceeding is currently listed for a ten-day trial commencing on 24 July 2023.

Relevant principles

18    The power to order security for costs as provided by s 56 of the FCA Act confers a broad and unfettered discretion on the Court. It 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.

(3)     The Court or a Judge may reduce or increase the amount of security ordered to be given and may vary the time at which, or manner or form in which, the security is to be given.

19    The factors to which an applicant for security is expected to depose in the affidavit in support of the application include whether there is reason to believe that the party against whom the order is sought will be unable to pay the respondent’s costs if so ordered: Rules r 19.01(3). This factor is however, just one, albeit important, consideration in the exercise of the discretion: All Class Insurance Brokers Pty Ltd (in liq) v Chubb Insurance Australia Ltd [2020] FCA 840 at [41] per Allsop CJ. In Madgwick v Kelly [2013] FCAFC 61; 212 FCR 1 at [6], Allsop CJ and Middleton J endorsed the comments of the primary judge, who explained that the discretion to award security for costs is broad and unfettered. The only limitation is that it must be exercised judicially according to the merits of each case and without any particular predisposition.

20    Section 1335 of the Corporations Act is directed specifically at circumstances in which a corporation is the plaintiff in a proceeding. It 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.

(1A)    Subsection (1) does not apply to a corporation that is an Aboriginal and Torres Strait Islander corporation.

(2)    The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs.

    (Emphasis added.)

21    Neither party submitted that relying on one discretionary power over the other would produce any different result in this case. Both s 56 of the FCA Act and s 1335(1) of the Corporations Act have been regarded as conferring a discretion that is broad and essentially unfettered, albeit that it must be exercised judicially: Chopsonion Pty Ltd (Controllers Appointed) v Watts Meat Machinery Pty Ltd [2022] FCA 1309 at [22].

22    Section 1335(1) differs from s 56, however, in establishing a threshold of “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 …”. The substantive onus is on the party seeking security for costs to satisfy the threshold. However, once that threshold has been satisfied, whether security for costs will be ordered is determined on discretionary grounds. In Beach Petroleum NL v Johnson (1992) 7 ACSR 203 at 205, von Doussa J explained:

In my opinion the power of the court under s 1335 arises if credible evidence establishes that there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on service of the allocatur, if judgment goes against it. This will be so even if in other events which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs. The degree of likelihood of the plaintiff corporation being unable to pay the costs along with all the circumstances, actual and possible, about its financial position, would be then taken into account in the exercise of discretion, and in framing the orders of the court if the decision is to order security.

23    There is, at this point, an evidentiary burden on the party resisting the order for security for costs to establish a reason why security should not be granted. As Edelman J said in Concrete Mining Structures Pty Ltd v Cellcrete Australia Pty Ltd (No 2) [2016] FCA 360 at [12], relying on the observations of Gleeson J in Austcorp Project Number 20 Pty Ltd v LM Investment Management Ltd (in liq) [2014] FCA 1371 at [25]-[28] relying on Cornelius v Global Medical Solutions Australia Pty Ltd (2014) 98 ACSR 301; [2014] NSWCA 65 at [18] to [20]:

That requires only that [Pinkenba and GLB] raise (with some basis to do so) the matters that it wishes to be taken into account in determining whether the order for security for costs should be made.

24    The evidence adduced in support of the threshold issue to enliven s 1335(1) of the Corporations Act is contained in the First Schwarz Affidavit. Mr Schwarz deposes, at [23], that ASIC searches conducted on 20 December 2022 in respect of Pinkenba and GLB (Annexure SCS-34) revealed that:

(a)    Pinkenba has $1200 in issued share capital; and

(b)    GLB has $121 in issued share capital.

25    Further, real property searches conducted on 20 December 2022 confirmed that, as at 6 December 2022, neither Pinkenba nor GLB held any real property: First Schwarz Affidavit at [24], Annexure SCS-35.

26    In addition to information as to the issued share capital of Pinkenba and GLB respectively, Annexure SCS-34 also provides information as to each corporation’s credit risk. As to Pinkenba, it has a credit rating of D3, which is defined as “High: Entity is currently highly vulnerable. COD trading highly recommended.” It is recorded as having a 25% chance of failure within the next 12 months.

27    The situation for GLB is worse. It was in fact pleaded by Pinkenba and GLB that GLB ceased its operations 31 July 2018, save for one contract that was to expire by effluxion of time in December 2019. Nevertheless, it remains registered and is recorded as having a credit rating of E, which is defined as “Impaired: Entity is currently highly vulnerable to non-payment and default. Trading eligibility must be considered”. GLB is recorded as having a 50% chance of failure within the next 12 months. The same record reveals that default judgments were entered against it on 22 October 2019 and 3 March 2021 for amounts of $61,514 and $31,860 respectively. A payment due on 15 December 2021 of $1,327 is also recorded as being unmet.

28    Neither party made any submission on the contents of these documents, nor as to whether any or what weight should be given to them. Nevertheless, as they were in evidence, and no objection was taken to them, they are at least some credible evidence of the current risk profile for each of Pinkenba and GLB that is publicly available through ASIC.

29    Mr Schwarz also deposes to having written to the solicitors for Pinkenba and GLB on 17 March 2021 inviting them to provide evidence of the capacity of Pinkenba and GLB to honour any future costs order (First Schwarz Affidavit at [4], Annexure SCS-31). No evidence was forthcoming. However, shortly after that letter, the first tranche of security in the sum of $150,000 was agreed between the parties. It does not appear from the material that Cardno ever reiterated its invitation of 17 March 2021.

30    As is made plain by the authorities, a corporation’s limited paid-up capital will ordinarily be of little significance in an application for security for costs: Mannix Electrical Pty Ltd v Belport Pty Ltd [2019] SASC 159; 134 SASR 438 at [48]. Equally, the onus being on the party seeking security, “the courts must be astute not to use a plaintiff’s failure to proffer information or evidence as a make-weight or to fill gaps in the defendant’s evidence”: Mannix at [55]. Nevertheless, the authorities leave open the relevance of a corporation’s failure to respond to reasonable requests for further information in circumstances where there is other evidence giving rise to concerns or doubts about the plaintiff’s financial capacity: Re Beechworth Land Estates Pty Ltd (Administrators Appointed) (No 3) [2015] NSWSC 733; 298 FLR 233 at [113]-[115]; FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; 22 WAR 241 at [11], [25]; Treloar Constructions Pty Ltd v McMillan [2016] NSWCA 302 at [26]-[27], [30]; Mannix at [56].

31    In the present circumstances, I place little weight on Pinkenba and GLB’s failure to provide any evidence of their capacity to honour a costs order in circumstances where subsequent to the invitation of 17 March 2021 to do so, two bank guarantees were provided as security and further, where subsequent to the ASIC searches of 20 December 2022, no further invitation to provide such evidence was issued by Cardno.

32    Nevertheless, I am satisfied that there is sufficient credible evidence to believe there is a real chance that it is reasonably possible that Pinkenba and GLB will be unable to pay Cardno’s costs should Cardno succeed in its defence.

Discretionary considerations

33    The question remains as to whether I should exercise the discretion to order Pinkenba and GLB to provide further security. Pinkenba and GLB resist an order for further security on the following grounds:

(1)    The parties have already compromised the question of security;

(2)    Cardno has delayed its application for security;

(3)    Cardno’s past costs have not been reasonably or properly incurred;

(4)    The cross-claim is not “obviously hopeless” or “doomed to fail”.

Previous Security Agreements

34    Pinkenba and Cardno contend they have previously compromised two separate demands by Cardno for security for costs by the agreements reached on 31 March 2021 (First Security Agreement) and 5 November 2021 (Second Security Agreement) respectively. By the First Security Agreement, Cardno accepted a $150,000 bank guarantee “to resolve its claim for security up to the first day of trial”: Aff-AA at [18]-[19], AA-2 pages 127-128). By the Second Security Agreement, Cardno accepted a further bank guarantee of $105,000 “for the period of the trial” (Aff-AA at [24]-[25], AA-2 pages 141-142), which at that stage was listed for ten days.

35    Pinkenba and GLB contend it is important to construe those agreements in the context of being a compromise as to security, rather than as to the proper quantum of security, observing that by 30 October 2021, Cardno’s pre-trial costs were $476,182.60 (excluding GST). They referred to the decision of Nicholas J in Brass Homes Pty Ltd v Macasa Homes Pty Ltd [2021] FCA 746 where, at [33]-[34], his Honour said:

…It is significant that the respondents accepted the amount of $100,000 as security in circumstances where they had already incurred costs in the order of $160,000. In those circumstances, the compromise that was reached cannot be explained by reference to any mutually shared assumption as to the likely quantum of the respondents’ costs going forward.

The fact that the parties agreed on an amount of $100,000 reflects a broad approach to the matter of security and one which is consistent with the view that, for whatever reason, the respondents understood that their costs through to the completion of the affidavit evidence would greatly exceed the agreed amount. Nor do I overlook the fact that the applicant was opposing the interlocutory application for security on the basis that there was no reason to believe that it would be unable to meet a costs order. That may explain why the respondents were so willing to compromise on the amount of security that they were seeking.

36    I am satisfied that, at the date of those agreements, the parties’ compromise did not reflect a shared understanding as to the steps required going forward, or as to the actual costs likely to be incurred. I infer from the agreements that Cardno was content to accept the quantum of security agreed despite the very significant discrepancy between the quantum of that security and its actual expenses incurred to that date. I am also satisfied that Cardno continued to incur expenses up until the adjournment of the trial on 6 July 2022, security for which had already been obtained pursuant to the First Security Agreement.

37    In Brass Homes, Nicholas J had observed at [32]:

The Court encourages parties to resolve their differences in relation to interlocutory issues of this kind, but there would be little purpose in doing so if the Court was too ready to permit a party to depart from such an agreement. In the absence of some material change of circumstance which would justify reconsideration of the quantum of the security ordered, it is not appropriate in the circumstances of this case to order the applicant to provide additional security at this time.

38    Cardno contends there has been a material change in circumstance such that it is appropriate for the Court to order further security. Pinkenba and GLB do not really challenge that contention. It was accepted in oral argument that there was “to some degree and in some respects a material change of circumstances” from July 2022. That was the point at which trial dates were abandoned because of amendments made to Pinkenba and GLB’s pleading that did materially change the case. Counsel for Pinkenba and GLB submitted that if further security were to be ordered, to the extent that the costs would not have arisen in any event, it might be appropriate to order further security for those costs that arose out of the material change in circumstances after July 2022. Those costs encompass work that was or is required to be done, or redone, in relation to preparation for trial between 6 July 2022 and the first day of trial, work that would likely include amending pleadings, and making or responding to interlocutory applications.

39    I accept that the costs of a ten day trial have already been secured by the Second Security Agreement.

Delay

40    As to the issue of delay, Pinkenba and GLB contend Cardno has delayed its application for security for costs for over two years, in circumstances that are not adequately explained by the two compromises reached in 2021.

41    Following the vacation of the First Trial Dates, Cardno wrote to Pinkenba and GLB requesting further security for an additional five days of trial in the sum of $52,500. That request was refused on 9 February 2022. Cardno reiterated its request by letter dated 22 April 2022: First Conomos Affidavit at [12], Annexure JNC-4. Cardno objected both to the contents of that paragraph, on the basis that it reveals the content of “without prejudice communications”, and to the admission of the “without prejudice” letter. Pinkenba and GLB pressed the tender on the basis of the exception to s 131(1)(a) of the Evidence Act 1995 (Cth) provided for in s 131(2)(g), namely that it has been adduced to contradict or qualify evidence that is likely to mislead the Court.

42    The evidence that is said to require contradiction or qualification is an exchange between counsel for Cardno and Thomas J on the vacation of the Second Trial Dates (Third Schwarz Affidavit at [6], Annexure SCS-32):

MR STUMER: There has been correspondence about increasing the amount of that security for costs. It may be that that will need to be brought before your Honour again at some point.

HIS HOUNOUR: Yes

MR STUMER: I just wanted to say that so that everyone’s clear that that may be another step that needs to happen between now and March, but probably sooner rather than later.

43    To the extent that Pinkenba and GLB contended that the Court was being asked to infer from that passage that the security that was then foreshadowed was in the magnitude of the approximate $1million now sought, I do not accept that any such inference was sought to be drawn or could have been drawn, particularly given that the Bloom Report was not completed until some six months after that exchange.

44    Cardno’s objection to the admission of paragraph [12] and Annexure JNC-4 to the First Conomos Affidavit is upheld to the extent that it refers to the amount of security that was the subject of the “without prejudice” correspondence. The evidence is however admitted on the basis that it is evidence of the fact that the need for additional security was raised at that time, being 22 April 2022. It was then raised again before Thomas J on 6 July 2022.

45    Subsequent to 6 July 2022, the following steps were taken by the parties:

    22 July 2022 - Pinkenba and GLB filed an Amended Statement of Cross-Claim

    12 August 2022 - Pinkenba and GLB filed a Third Further Amended Defence

    2 September 2022 – McMahon filed a Reply to the Third Amended Defence

    2 September 2022 – Cardno filed its Fifth Further Amended Defence to the Amended Statement of Cross-Claim

    2 September 2022 – McMahon (in its capacity as the third cross-respondent) filed its Defence to the Amended Statement of Cross-Claim

    On 18 October 2022 – Pinkenba and GLB filed a Reply to Cardno’s Fifth Further Amended Defence

    On 24 November 2022, the parties attended a mediation

    On 25 November 2022, McMahon, Pinkenba and GLB executed a Deed of Settlement

    On 30 November 2022, McMahon discontinued the proceeding against Pinkenba and GLB; orders were made requiring Cardno to file and serve any application seeking additional security for costs from Pinkenba and GLB by 22 December 2022.

46    Consequently, the operable period of delay about which Pinkenba and GLB might have cause for complaint is one of approximately seven months, not two years. However, as from 25 November 2022 when the Deed of Settlement was executed and McMahon’s causes of action were purportedly assigned to Pinkenba and GLB, the character of the case as between Pinkenba and GLB and Cardno was materially different. McMahon had not ever made any claim against Cardno. Subsequent to the Deed of Settlement, the case against Cardno depends not only on the success of the grounds pleaded against it in the amended statement of cross-claim, but also on the efficacy of the purported assignment of McMahon’s claims for loss and damage to Pinkenba and GLB. Against that background, I am not satisfied that the time Cardno subsequently took to bring its application for further security can be characterised as “keeping a card up its sleeve to play at its convenience”, to paraphrase Newnes JA in Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176 at [20].

47    Had this application for further security been brought now, and in the absence of the change in circumstances brought about by the Deed of Settlement, I would likely have been persuaded that Cardno had unreasonably delayed in making its application. In the circumstances that have transpired, I do not consider there has been any unreasonable delay such as would justify refusal of security on that ground alone.

Unreasonableness of past costs

48    Pinkenba and GLB contend that the Court cannot accept on the evidence available that Cardno’s past costs were reasonably or properly incurred. This is said to be for four reasons: first, ambiguity as to which entity has been billed for legal costs; secondly, manifest disproportionality between the value of the claim and the costs incurred; thirdly, the absence of itemised invoices; and fourthly, considerations of relative inequality between Cardno as “a large corporate defendant” and Pinkenba and GLB, about whom “there is no evidence of [their] financial capacity”.

49    Pinkenba and GLB disavowed any suggestion that they were seeking a finding that further security would stultify the proceedings. For that reason, it is unnecessary to make any comment on the fourth reason posited.

50    As to the first reason, I accept the evidence of the solicitors for Cardno as to the billing arrangements between them and their client: Fourth Schwarz Affidavit at [4]-[8]. There is no basis for the asserted ambiguity.

51    As to the second and third reasons, there was evidence before the Court in the form of two reports of costs experts, the Bloom Report and the Walter Report. Mr Bloom was cross-examined on his report. There is no doubt that Cardno has incurred legal costs which approach the value of the claim against it. Of course, neither party suggested that security would or should be ordered on the basis of Cardno’s actual costs incurred to date.

52    However, given the conclusion I have already reached that the period for which any additional security might be warranted is limited to that from the date of the Deed of Settlement and that the nature of that work is limited to the costs for work that was or is required to be done, or redone, in relation to the preparation for trial, it is unnecessary for me to do more than consider the appropriateness of the exercise of the discretion in relation to what the parties and the experts have referred to as “future costs”.

The prospects of success

53    Pinkenba and GLB accept that the merits of a claim can be a relevant factor in the exercise of the Court’s discretion whether or not to order security for costs. As French J said in Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 514, “Where there is a claim prima facie regular and disclosing a cause of action, I see no reason why the court would, in the absence of evidence, proceed on the basis that the claim was other than bona fide with a reasonable prospect of success”.

54    Cardno contends there are significant hurdles to the claims for relief pursued against it. Those claims include one in negligence, which presupposes the existence of a duty of care owed by a SQP under the EPA. The alleged duty is said to be novel and its existence is said to be made more difficult by the circumstance that it is said to be owed by a person to a third party, with whom that person has no pre-existing relationship. The duty is said to be one to take reasonable care to avoid imposing pure economic loss, a proposition that might be thought somewhat ambitious in light of Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; 216 CLR 515 at [21] per Gleeson CJ, Gummow, Hayne and Heydon JJ:

Claims for damages for pure economic loss present peculiar difficulty. Competition is the hallmark of most forms of commercial activity in Australia. As Brennan J said in Bryan v Maloney:

“If liability were to be imposed for the doing of anything which caused pure economic loss that was foreseeable, the tort of negligence would destroy commercial competition, sterilise many contracts and, in the well-known dictum of Chief Judge Cardozo, expose defendants to potential liability ‘in an indeterminate amount for an indeterminate time to an indeterminate class’.”

That is why damages for pure economic loss are not recoverable if all that is shown is that the defendant’s negligence was a cause of the loss and the loss was reasonably foreseeable.

(Citations omitted.)

55    Further, Pinkenba and GLB rely on the assignment of a cause of action for misleading or deceptive conduct under s 18 of the ACL in the face of authority that statutory causes of action of this kind cannot be assigned, because the assignee has not suffered the loss or damage that is the prerequisite for recovery: Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd [2006] FCA 1352; 236 ALR 720; Paula Susan Chappell as Executor of the Estate of Robert Hastings Hitchcock v Goldspan Investments Pty Ltd [2021] WASCA 205. They seek to advance a novel argument that these authorities have failed to have regard to s 131C (1) of the Competition and Consumer Act 2010 (Cth) (CCA), which provides that Part XI of the CCA “is not intended to limit or exclude the operation of any law, whether written or unwritten, of a State or Territory”. Thus, it is said, s 131C(1) of the CCA preserves the effect of s 199 of the Property Law Act 1974 (Qld), which permits such an assignment.

56    Pinkenba and GLB also advance a case for equitable contribution in respect of their payment of the settlement sum to McMahon, relying on what they assert are the analogous principles to be drawn from insurance law. Cardno contends that as Pinkenba and GLB do not accept that they had any liability to McMahon, it is impossible to assess whether their liability is co-ordinate with that of Cardno such as to ground a claim for equitable contribution.

57    The fourth claim pleaded against Cardno is that it is directly liable to Pinkenba and GLB for the alleged misleading or deceptive conduct of Mr Kay. Cardno contends that, in order to succeed, this claim depends, inter alia, on a finding that representations of Mr Kay that were made only to McMahon nonetheless caused loss to Pinkenba and GLB and so necessitates the establishment of a “complex causal pathway”.

58    At first blush, some of these claims may seem “courageous”. The development of the common law depends, however, on incremental changes. And as was observed by Lord Dyson in his Bentham Lecture in 2013, some of those increments have been rather bigger than others: “Are the Judges Too Powerful?” in Lord Dyson, Justice - Continuity and Change (Hart, 2018) 43. Donoghue v Stevenson [1932] AC 562, Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 and Mabo v Queensland (No 2) (1992) 175 CLR 1 are but some notable examples.

59    I am not, at this stage of the proceeding and in the absence of hearing the evidence to be adduced, prepared to find that the claims brought by Pinkenba and GLB have such poor prospects of success that this factor should necessarily weigh in favour of an order for further security. Equally however, I am satisfied that Cardno has reasonable prospects of defending the claims brought against it.

60    Taking into account all of these matters discussed above, I am persuaded that an order for the provision of further security for costs should be made, limited however to securing such costs as have been, or will be incurred, subsequent to the discontinuance of the proceedings by McMahon against Pinkenba and GLB, consequent upon the Deed of Settlement, up to the commencement of the trial.

Quantum

61    As to quantum, Cardno claims $358,000 (rounded-down by Mr Bloom in evidence) for future costs as from 1 December 2022 to trial comprising $204,915.40 for pre-trial steps (which includes $119,388.90 for “hearing preparation” and “Etrial Management”), and $153,644 for the costs of the trial (Bloom Report at [29(b)] as corrected by Mr Bloom’s oral testimony).

62    As indicated, I consider that the costs of trial have already been secured by the Second Security Agreement.

63    Pinkenba and GLB contend that at least the costs of $119,388.90 have also already been secured by the First Security Agreement. I accept that some of those costs fall into that category but, having regard to the material change in circumstances consequent on the Deed of Settlement, there is trial preparation that necessarily falls outside the scope of work secured by the First Security Agreement. Some of the work that might need to be duplicated in preparation for trial will already have been accounted for in the bill of costs for the adjourned hearing in the sum of $222,668.52: Bloom Report at [25]. Mr Bloom factored that into his assessment of past costs but, in cross-examination, agreed that he had not been able to account with any precision as to what work had already been done in respect of trial preparation in estimating how long it would take to prepare for the trial.

64    The Walter Report does not criticise the methodology used by Mr Bloom in respect of the estimate of future costs: Walker Report, Annexure GRW-1 at [7.1]. Nevertheless, Mr Walter arrives at a lower figure of $78,230 as the estimate of “the party and party costs of the Cross-respondents in defending the Cross-claim (including disbursements) from December 2022 but excluding the first day of Trial”: Walter Report, Annexure GRW-1 at [10.1]. In arriving at this estimate, Mr Walter took into account the trial preparation work that has been claimed in the bill of costs for the adjourned hearing.

65    Relying on the “feel” of the case as best I can after considering all the relevant factors (Bryan E Fencott at 515), including the complexity of the causes of action as now pleaded against Cardno, and adopting the accepted “broad brush approach” (Broadway Plaza Investments v Broadway Plaza Pty Ltd; In the matter of Combined Projects (Arncliffe) Pty Ltd [2019] NSWSC 1082 at [206]; Pathway Investments Pty Ltd v National Australia Bank Ltd [2012] VSC 97 at [55]), I am satisfied that it is appropriate to make an order that Pinkenba and GLB give further security for costs in the amount of $85,000.

Disposition

66    There will be an order that Pinkenba and GLB give Cardno security for its costs in the sum of $85,000 to be paid into Court or by the provision of a bank guarantee by 22 May 2023.

67    Although Cardno has been successful in its application, its success is for a significantly smaller sum than had been sought. To that extent, both sides have had some success. In the circumstances, it is appropriate to order that the costs of Cardno’s amended interlocutory application be costs in the cause.

Associate:

Dated:    20 April 2023