Federal Court of Australia

General Trade Industries Pty Ltd (in liquidation) v AGL Energy Limited (No 2) [2023] FCA 556

ORDERS

THE COURT ORDERS THAT:

1.    The application is dismissed.

2.    The respondent pay the applicant’s costs of the application.

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

REASONS FOR JUDGMENT

DERRINGTON J:

1    By an application dated 2 December 2022, the respondent in this proceeding, AGL Energy Limited (AGL), applied for an order pursuant to s 1335(1) of the Corporations Act 2001 (Cth) (Corporations Act), s 56(1) and (2) 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) (Federal Court Rules) that the applicant, General Trade Industries Pty Ltd (in liquidation) (General Trade), provide a further tranche of security for AGL’s costs of the proceeding in the sum of $657,981.72. It also seeks an order pursuant to r 19.01(1)(b) of the Federal Court Rules that the proceeding be stayed until such time as security is given, as well as leave to apply to increase the amount of security pursuant to s 56(3) of the Federal Court Act upon the giving of three days’ prior notice.

2    This application follows AGL’s earlier application for security, which was granted in General Trade Industries Pty Ltd (in liquidation) v AGL Energy Limited [2020] FCA 1562 (General Trade (No 1)). There, General Trade was ordered to provide $70,000 in security for costs and it did so in about March 2021.

3    The further security now sought by AGL is in respect of its costs for the period 1 November 2022 to the commencement of the final hearing in the proceeding, which is anticipated to take place sometime in 2023. It is sought on the basis that the existing security is inadequate to cover AGL’s costs up to the commencement of trial, which are expected to be substantial and are unlikely to be recouped by way of any adverse costs orders ultimately made against General Trade.

Background

4    The factual background to this proceeding is set out in General Trade (No 1) and need not be repeated here at any great length. Since that decision, however, General Trade has filed an Amended Statement of Claim and a Further Amended Statement of Claim, which together have effected material changes to its case. AGL has, in turn, amended its Defence. It is appropriate, for the purposes of this application, to draw from these revised pleadings the key contentions now in issue.

Further Amended Statement of Claim

5    General Trade was engaged by AGL, pursuant to a contract dated 20 December 2013 (the Construction Agreement), to carry out civil, electrical and mechanical works for the construction of certain facilities at AGL’s Wallumbilla LPG Plant and Silver Springs Plant (the Project). The Construction Agreement included an amended version of the AS4000-1997 General Conditions of Contract. A dispute emerged between the parties in relation to, amongst other things, particular payment claims made by General Trade in the course of the Project, which were contended to have been prepared in accordance with the Construction Agreement and the security of payment legislation in force in Queensland at that time. That dispute was ultimately sought to be resolved by the parties’ entry into a “Deed of Release” on or about 13 August 2014.

6    General Trade advances essentially two overarching claims:

(a)    First, that AGL engaged in unconscionable conduct within the meaning of the unwritten law and in contravention of the Australian Consumer Law (ACL), being Schedule 2 to the Competition and Consumer Act 2010 (Cth), in connection with the negotiation and execution of the Deed of Release. This may be described as the “Unconscionable Conduct Claim”.

(b)    Secondly, that AGL (by the Superintendent on the Project) issued certain directions or requests to perform additional works, which were carried out and became the subject of a further payment claim by General Trade, but which were not thereafter paid for by AGL. This may be described as the “Additional Work Claim”.

7    Central to the Unconscionable Conduct Claim is an allegation that AGL was aware at the time of the execution of the Deed of Release that General Trade was experiencing severe financial distress. This financial distress, to which AGL is alleged to have contributed, is said to have put General Trade in a position of special disadvantage relative to AGL, which was further exacerbated by the parties’ inherently disparate bargaining powers. AGL is also alleged, inter alia, to have failed to give reasons for its reduction of General Trade’s payment claims and to have breached its obligations under applicable security of payment legislation. It is said to follow that, in procuring the execution of the Deed of Release, AGL took advantage of General Trade’s special disadvantage in order to secure a material gain for itself; specifically, to allow it to “short pay” General Trade for work performed on the Project.

8    General Trade seeks $4,314,481.64 in damages under s 236 of the ACL, or in compensation under s 237 of the ACL, or in equitable compensation, for loss allegedly suffered as a result of this conduct. That figure represents the difference between the full amount to which General Trade claims it was entitled under its Payment Claims 1 to 11 made on the Project prior to entry into the Deed of Release (being $31,814,483.93, exclusive of GST) and the total amount ultimately paid to it by AGL in response to those payment claims and under the Deed of Release (being $27,500,002.29, exclusive of GST).

9    The Additional Work Claim begins with certain directions issued by AGL on or about 14 July 2014 and 12 August 2014, which required General Trade to demobilise from the Project sites, subject to certain conditions and in a particular manner. It is alleged that those directions required additional work to be completed, beyond what was contemplated by the scope of works under the Construction Agreement at that time. After making those directions, between 17 September 2014 and 12 December 2014, AGL (by the Superintendent) notified General Trade that it considered certain work to not be compliant with the Construction Agreement, and also directed General Trade to correct certain work. Again, it is alleged that these directions and notices amounted to requests under the Construction Agreement to perform additional work that was not otherwise within the scope of works. General Trade also identifies further items of alleged additional work undertaken at about this time, including work performed after 31 July 2014 in relation to pre-commissioning activities, and work in relation to the preparation of a material data records (MDR) index for the Project, which was “completed up to and including 31 July 2014”.

10    General Trade carried out all of these works and issued a final Payment Claim 12 that sought, in respect of them, the sum of $1,195,562.13. AGL has since failed or refused to make any payment in respect of Payment Claim 12. General Trade now seeks the sum of $1,195,562.13 by four alternative claims: damages for breach of contract, restitution lying as upon a quantum meruit, damages under s 236 of the ACL, and compensation under s 237 of the ACL.

11    The claim for damages or compensation under the ACL is made on the basis that AGL’s failure or refusal to pay any amount in respect of the relevant works constituted unconscionable conduct, since it knew or ought to have known that:

(a)    it required or requested General Trade to perform those works;

(b)    General Trade carried out the works;

(c)    General Trade incurred costs and expenses in respect of the performance of the works;

(d)    General Trade was entitled to be paid for the works; and

(e)    the amount claimed by General Trade for the performance of the works was reasonable.

Amended Defence

12    In its Amended Defence, AGL contests a number of aspects of General Trade’s case. However, for the purposes of this application, its responses to the two overarching claims need only be summarised at a high level.

13    In respect of the Unconscionable Conduct Claim, AGL contends that it was not required to pay the payment claims made by General Trade, as they were not made in accordance with the Construction Agreement. For the same reason, it contends that the Superintendent was not required to issue any progress certificates in respect of those payment claims under the Construction Agreement, or any payment schedule under the applicable security of payment legislation. Further, and in any event, it says that General Trade was not at any special disadvantage; rather, it was apparent that it was an experienced industry participant capable of protecting and advancing its own commercial interests. Accordingly, it contends that it did not engage in any unconscionable conduct when entering into the Deed of Release with General Trade.

14    In respect of the Additional Work Claim, AGL contends on multiple grounds that the relevant work to which General Trade refers in its Further Amended Statement of Claim was not work for which it was entitled to be paid under the Construction Agreement. In the first place, certain clauses of the Deed of Release had the effect that General Trade had no entitlement to perform further work under or in accordance with the Construction Agreement, or any entitlement to receive payment for such work. In any event, it says that the work in question fell within the original scope of works to be performed by General Trade under the Construction Agreement, such that General Trade could not be entitled to any further payment. AGL contends further that it was not obliged to make any further payment because Payment Claim 12 was not issued in accordance with the Construction Agreement or the relevant security of payment legislation.

15    In relation to the quantum meruit claim, AGL contends that each category of work identified by General Trade fell within the original scope of works set out in the Construction Agreement, for which payment was already made pursuant to that contract or clause 1 of the Deed of Release. There is accordingly no basis to make restitution. Even if there was, it says that the fair value of the work should not exceed a fair value calculated by reference to the corresponding part of the agreed contract price.

16    Regarding the unconscionable conduct aspect of the Additional Work Claim, AGL makes an initial objection on the basis that the cause of action is deficiently pleaded. Subject to that, it contends that it did not have knowledge of the matters pleaded as the basis for General Trade’s allegation of unconscionable conduct. In any event, both parties were commercial entities capable of acting in their own best interests, such that General Trade could not be said to be at any special disadvantage of which AGL was aware. Finally, AGL contends that it was not required to pay General Trade in respect of the relevant works.

Other matters

17    General Trade’s Reply does not add any material allegations of fact to the case summarised above. In AGL’s submissions on this application, it identified that pleadings closed on 31 October 2022, and this was the point from which it proceeded to calculate its existing and anticipated costs of this litigation in the amount of $657,981.72.

18    Importantly, as General Trade does not dispute the quantum of security sought, it is unnecessary to consider the evidence adduced by AGL in support of the $657,981.72 figure. General Trade also did not dispute that it is presently impecunious, and will be unable to pay AGL’s costs if ordered to do so following the final hearing of the matter. Nor did it make any submission that the Court should, for the purpose of determining AGL’s application, conclude that AGL was the cause of its impecuniosity.

The relevant legislative provisions

19    The interlocutory application filed by AGL cited s 56(1) and (2) of the Federal Court Act and r 19.01(1)(a) of the Federal Court Rules as the jurisdictional basis for the primary order sought as to the provision of further security for costs. Section 56 of the Federal Court Act confers on the Court a discretionary power to make such orders, relevantly in the following terms:

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.

20    In its written submissions, however, AGL made reference also to the power to order security for costs conferred by s 1335(1) of the Corporations Act, which provides as follows:

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.

21    On the hearing of the application, Mr O’Shea KC for AGL preferred to advance his case by reference to this provision, rather than s 56 of the Federal Court Act. General Trade did not object to this course, and it is appropriate to proceed on that basis.

22    In any event, it is unlikely that AGL’s election to rely on one discretionary power over the other would produce any different result in this case. Both s 1335(1) and s 56 have been regarded as conferring a discretion that is broad and essentially unfettered, albeit that it must be exercised judicially: Hopkins v AECOM Australia Pty Ltd (No 5) [2015] FCA 1228 [44], [57] per Nicholas J; Chopsonion Pty Ltd (Controllers Appointed) v Watts Meat Machinery Pty Ltd [2022] FCA 1309 [22] per O’Sullivan J. It has also been acknowledged in several prior decisions of this Court that, where (as here) an application for security for costs is made on the basis that the applicant to the proceeding is impecunious and will be unable to satisfy a potential costs order, there may be no practical difference in the operation of the two provisions: see Soul Pattinson Telecommunications Pty Ltd v Subex Americas Inc [2009] FCA 651 [6] per Perram J; Health Information Pharmacy Franchising Pty Ltd v Khoo [2010] FCA 438 [5] per Yates J; Austcorp Project Number 20 Pty Ltd v LM Investment Management Ltd (in liq) [2014] FCA 1371 [20] – [21] per Gleeson J (Austcorp). An obvious point of divergence is the inclusion of an express threshold requirement in s 1335(1) that “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”, but here General Trade has conceded this point.

23    As a result, the focus under both provisions turns to the several matters that have been recognised as potentially informing the exercise of the Court’s discretion. In considering these matters, it is important to remain cognisant of the onus borne by each party, as explained by Gleeson J in Austcorp at paragraphs [25] – [26] by reference to prior authorities:

[25] Once it appears by credible testimony that there is reason to believe that a corporation will be unable to pay the costs of the defendant if successful in its defence, there is an evidentiary burden on the party resisting the order for security for costs to establish a reason why security should not be granted: Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [30] … Topcide Pty Ltd v Charter Financial Planning Ltd [2010] FCA 1151 at [12] and Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd [2010] FCA 1222 at [9].

[26] Even so, the burden rests on the defendants, from first to last, to persuade the court that the order for security should be made: Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377 at [21].

See also Mecrus Pty Ltd v Industrial Energy Pty Ltd (2015) 327 ALR 523, 528 [22] – [24] per Murphy J.

24    It follows that, in the present case, General Trade bears the evidentiary burden of establishing a reason why security should not be granted, though AGL retains the overall persuasive onus.

The competing contentions

25    A number of matters have been identified in previous decisions of this Court as being appropriate to consider as factors or guidelines in the exercise of the discretion to order security for costs: see, eg, Equity Access Ltd v Westpac Banking Corporation (1989) ATPR ¶40-972, 50,635 per Hill J; KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189, 197 per Beazley J (KP Cable); Acohs Pty Ltd v Ucorp Pty Ltd (2006) 155 FCR 181, 185 – 186 [12] per Jessup J. It is unnecessary to consider each of them in this case, and the parties’ submissions have confined the dispute to only a narrower set of specific issues.

26    In particular, General Trade, as the party bearing the evidentiary burden, made two substantive submissions as to why security should not be granted:

(a)    first, that the Court should find that the underlying litigation would be stifled if the security was ordered, and that this consideration ought be dispositive against granting the orders sought by AGL; and

(b)    secondly, if the Court was to be satisfied that the litigation would be stifled if the security was ordered, that the Court should not grant the security on the basis of an assessment that General Trade’s case has poor prospects of success.

27    AGL did not raise any additional points in its written submissions, other than to contend that it did not cause General Trade’s impecuniosity. As noted, this was conceded by General Trade and does not need to be addressed further.

28    The two remaining matters the subject of the parties’ submissions may be addressed in turn.

The stifling effect of an order for further security for costs

29    Consistent with the statement from Austcorp set out above, it has been recognised that the onus of establishing that the making of an order for security for costs would stifle (or, to use the language of some other authorities, stultify) the suit rests on the party resisting security: Madgwick v Kelly (2013) 212 FCR 1, 19 – 20 [81] per Allsop CJ and Middleton J (Madgwick v Kelly); General Trade (No 1) [48].

30    General Trade’s submission as to the alleged stifling effect of any order for security in this case is properly treated as raising three separate, though related, questions. In the first place, in accordance with authority, it must be determined whether those who stand behind the impecunious corporate applicant (that is, General Trade) and those who are liable to benefit from the underlying litigation might themselves meet an order to provide security for costs. Secondly, as submitted by AGL, it must also be determined whether General Trade is otherwise capable of funding the litigation to completion, notwithstanding the position that it has taken in opposition to the present application. Finally, it must be determined whether, as General Trade contended in this case, any proven stifling effect of the order is to be treated as dispositive of the application for security for costs.

31    Underlying each of these questions is a more general pair of propositions, which were relied upon by General Trade in its written submissions and at the hearing: that “access to justice trumps costs recovery”, and that this principle “do[es] not apply differently in any fundamental way to a corporate plaintiff (in liquidation or otherwise)”. Given their apparent relevance to the questions arising for determination on this point, it is useful to begin by considering these propositions.

“Access to justice” in the context of an impecunious corporate applicant

32    It has been well established that the impecuniosity of an individual plaintiff or applicant to litigation will not afford sufficient reason, in and of itself, to order security for costs. The basis for this position is to be found in the oft-cited statement of Bowen LJ in Cowell v Taylor (1885) 31 Ch D 34 at 38 that, both at law and in equity, “[t]he general rule is that poverty is no bar to a litigant”. In this Court, it has been said that this “general rule” is derived from the principle that “citizens have a right of access to the courts”; a right that is “immanent in the rule of law”: The Airtourer Co-operative Limited v Millicer Aircraft Industries Pty Limited [2004] FCA 1400 [20] per Branson J. This right takes precedence over the opposing party’s concern that, if successful, an order for costs in their favour will be fruitless: Shackles v The Broken Hill Proprietary Company Ltd [1996] 2 VR 427, 428 per Byrne J (Shackles). However, impecuniosity will remain a relevant consideration in the exercise of the discretion to order security for costs, and such an order might properly be made against an impecunious natural person where other factors favour that result: Chang v Comcare Australia [1999] FCA 1677 [25] per Moore J; Knight v Beyond Properties Pty Ltd [2005] FCA 764 [32] – [33] per Lindgren J.

33    For almost as long as there has been this attentiveness to the plight of the impecunious individual applicant, the impecunious corporate applicant, in the same position, has been seen as requiring different treatment. Provisions such as s 1335(1) of the Corporations Act are of considerable antiquity, and make the very basis of the jurisdiction to order security for costs against a company the fact that the company is impoverished, albeit that this does not predispose the court to an exercise of its discretion one way or the other: see Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497, 505 – 511 per French J (Bryan E Fencott). The general practice with regard to companies has been said to be “just the opposite” of that prevailing in respect of individuals, and the company’s impecuniosity may be a “most significant factor” in the exercise of the discretion: Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191, 195 [13], [16] per Winneke P and Phillips JA; Pearson v Naydler [1977] 1 WLR 899, 904 – 906 per Megarry V-C (Pearson). The policy objective served by s 1335(1) and its antecedents has been explained on a number of occasions as being, essentially, to ensure that the privilege of limited liability is not misused in such a way as to make the company a “stalking horse”, enabling those who stand behind it, and those who are liable to benefit from the proceedings that it has brought, to pursue their own interests in the action without facing any risk as to costs: see J & M O’Brien Enterprises Pty Ltd v Shell Co of Australia Ltd (No 2) (1983) 70 FLR 261, 263 per Bowen CJ; Harpur v Ariadne Australia Ltd [1984] 2 Qd R 523, 532 per Connolly J (with whom Campbell CJ and Demack J agreed); Cameron’s Unit Services Pty Ltd v Kevin R Whelpton & Associates (Australia) Pty Ltd (1986) 13 FCR 46, 53 per Burchett J; Cosdean Investments Pty Ltd v Football Federation Australia Limited (No 2) [2007] FCA 163 [25] per Mansfield J; All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Limited [2020] FCA 840 [49] per Allsop CJ.

34    The practical effect of this was explained by Sheppard, Morling and Neaves JJ in Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 (Bell Wholesale) at 4, 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.

35    In this way, a particularly clear case in which a court might order the provision of security for costs is where a secured creditor of the impecunious company instigates and financially supports the litigation: Sent v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201, 215 per Smithers J (with whom Sweeney J agreed); Nambour Valley Estates Pty Ltd v Henebery Holdings Investment Trust [2007] QSC 393 [29] per Daubney J. Likewise where the company is merely a “convenient financially bereft alter ego” for its shareholders: Tradestock Pty Ltd v TNT (Management) Pty Ltd (1977) 14 ALR 52, 59 per Smithers J. In such cases, the company is akin to an impecunious nominal applicant put forward to fight the case on behalf of the real applicant, who is not before the court, this being a long-recognised exception to the general rule that poverty is no bar to a litigant: Bryan E Fencott at 505, 511.

36    Against this background, the overall thrust of General Trade’s submission, that a corporate applicant’s right of access to justice ought to trump the respondent’s interest in costs recovery no less than would the same right of an individual applicant, might at first glance seem to impermissibly equate that which the law has consistently sought to distinguish. However, this is not what was contended. Mr Wood SC, who appeared for General Trade, did not deny that different policy considerations must attend the exercise of the power to order security for costs in respect of an impecunious corporation. He submitted that, this notwithstanding, the underlying concern of the court in access to justice ought to apply just the same.

37    So much might be accepted. The point to be made is that, while the impecuniosity of the corporate applicant introduces certain distinctive policy concerns, they do not exclude from consideration altogether the more fundamental interest in ensuring access to justice. The concerns must simply be addressed, in the manner suggested in Bell Wholesale and other cases, before that interest can be attributed the weight that it would ordinarily bear from the outset in the context of an impecunious individual applicant (other than, of course, a mere nominal applicant). That this interest in access to justice remains relevant in the case of an impecunious corporate applicant is made clear by statements to the effect that the court must be astute not to allow provisions like s 1335(1) of the Corporations Act to “be used as an instrument of oppression, as by shutting out a small company from making a genuine claim against a large company”: Pearson at 906; Health & Life Care Ltd (recs and mgrs apptd) v Price Waterhouse (1993) 11 ACSR 326, 330 – 331 per Olsson J; Ariss v Express Interiors Pty Ltd (in liq) [1996] 2 VR 507, 514 per Phillips JA (with whom Ormiston and Charles JJA agreed) (Ariss). Indeed, a dogmatic insistence on distinct treatment for the corporate applicant and the individual applicant is apt to produce arbitrary outcomes: a person’s ability to contest an application made against them for security for costs may become more or less difficult merely on account of their decision to adopt (or decline to adopt) a corporate structure for their business operations.

38    The focus therefore turns to the first question posed above, regarding the position of those who stand behind General Trade.

The position of those who stand behind General Trade

39    The parties’ written submissions and affidavit material dealt with the position of several persons and entities who might be alleged to be standing behind General Trade and standing to benefit from any success that it might have in this proceeding. They are:

(a)    the arm’s length unsecured trade creditors of General Trade, including in particular the four largest such creditors, being the Australian Taxation Office (ATO) (owed $818,622.15), the National Australia Bank (NAB) (owed $420,617.73), Titan Resources Camp Hire (owed $190,814.69) and Telstra (owed $107,317.85);

(b)    the solicitors acting for General Trade in this proceeding;

(c)    the liquidator of General Trade; and

(d)    the shareholders of General Trade, Mr Geoffrey Pike (as holder of 5000 shares) and Pike & Co Pty Ltd as trustee for the Pike Investment Trust (as holder of 1 share).

40    There was also some evidence and submissions dealing with the possibility that General Trade might seek litigation funding from a commercial litigation funder.

41    It ought to be noted that the position of some of these persons and entities was addressed in General Trade (No 1). There, it was found that General Trade had not established that those who stood behind it and who were liable to benefit from this litigation were without means to provide security. For the purposes of this application, however, General Trade has put on additional evidence.

42    Before considering in turn the positions of each of the persons and entities identified above, it is necessary to address a threshold issue that attracted substantial attention in the hearing. That is whether, in order for General Trade to demonstrate that those standing behind it are not available to meet an order for security for costs, it is sufficient for it to provide evidence that those persons or entities are unwilling to meet such an order, or whether it is necessary for it to provide evidence that they are unable to do so. Again, this was addressed in General Trade (No 1). However, in deference to the parties’ submissions on this application, it is appropriate to traverse the point again in greater detail.

Unwilling or unable to meet an order for security for costs?

43    In seeking to resolve this issue, a useful starting point is the passage from the judgment of the Full Court in Bell Wholesale set out above. There, their Honours referred to the need for the company to establish that “those who stand behind it and who will benefit from the litigation if it is successful … are also without means”, and subsequently to the “impecuniosity of those whom the litigation will benefit”. The reference to the “means” and the “impecuniosity” of those standing behind the company suggests the focus to be on the inability of the persons to meet an order for security, not their unwillingness. Numerous authorities published in the wake of Bell Wholesale cited this passage without objecting to the suggestion in its language that the relevant disposition of those standing behind the company must be inability, rather than unwillingness: see, eg, Yandil Holdings Pty Ltd v Insurance Company of North America (1985) 3 ACLC 542, 545 – 546 per Clarke J (Yandil); P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321, 323 – 324 per McHugh J; Rhema Ventures Pty Ltd v Stenders [1993] 2 Qd R 326, 333 per Lee J; Jalpalm Pty Ltd v Hamilton Island Enterprises Pty Ltd (1995) 16 ACSR 532, 534 – 535 per Kiefel J; Pasdale Pty Limited v Concrete Constructions (1995) 131 ALR 268, 273 – 274 per Finn J; Omega Data Furniture Pty Ltd v Email Furniture Ltd [1995] FCA 641.

44    However, after addressing a number of decisions including Bell Wholesale, in Jalpalm Pty Ltd v Hamilton Island Enterprises Pty Ltd [1995] FCA 381, Cooper J stated as follows:

Where an approach has been made to others including creditors who might reasonably be expected to furnish security and they refuse to do so and the basis of the refusal is unexplained and not shown to be as a result of an inability to provide it, that refusal and the inferences, if any, to be drawn from it, are to be taken into account and be weighed in the exercise of a proper discretion. If the refusal of creditors to assist with security is because they form the view that the claim is unmeritorious or frivolous it does not follow that an impecunious company with impecunious shareholders or beneficiaries under a trust is automatically or necessarily relieved from an order for security for costs.

45    This passage can, on one reading, be taken to suggest that the relevant inquiry actually centres not just on the means of the persons standing behind the company, but also on the reasons that they give for their refusal to furnish security. This is largely consistent with the approach explained by Anderson J (with whom Kennedy and Ipp JJ agreed) in the subsequent decision in BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 (BPM) at 344 – 345, as follows:

The mere fact that there are creditors with the means to assist the company to give adequate security will not always be a decisive factor. The wealthy creditors may be few and the debts owed to them relatively small. The question is not simply whether there is a person who will derive some benefit from the action should it be successful and who can put up security. It is also relevant to consider whether it is reasonable that he should do so: Ford's Principles of Corporation Law, 6th (1992) par [308].

… I think the master is to be understood as having decided the correct question, namely whether in practical commonsense terms it was reasonable to expect the creditors of this plaintiff company to put up a very substantial sum as security for costs. Their likely attitude, their likely unwillingness to do so, was merely something to be discussed in that context, that is, as to whether in all the circumstances it would be reasonable to require the creditors to provide the first defendant with security for its costs …

46    On this view, the critical issue is not the ability or willingness per se of the persons standing behind the company, but instead the reasonableness of expecting them to meet the order for security for costs. It is not difficult to appreciate that this point might be informed to different extents by both ability and willingness. For example, citing this passage in BPM, O’Loughlin J in Passenger Transport Systems Pty Ltd (in liq) v Darwin Radio Taxi Co-operative Ltd [2000] FCA 147 (Passenger Transport Systems), [30] described the “virtual disinterest” in the proceedings shown by certain unsecured creditors (that is, in effect, their unwillingness), some of whom were identified as “well known trading houses” (that is, in effect, entities of some means), as being “a matter to be weighed in the balance” in the exercise of the discretion to order security for costs.

47    Shortly prior to the decision in BPM, Phillips JA in Ariss explained the aforementioned passage from Bell Wholesale in the course of addressing a submission on appeal that the exercise of the discretion under s 1335 at first instance had miscarried because an order for security was refused on account of mere “unwillingness” on the part of the creditors of the plaintiff company to contribute to the costs of the litigation, which was submitted to be an irrelevant consideration. For its part, the plaintiff contended that the order for security was actually refused because of “commercial impracticability”, which it regarded as a relevant consideration. Preferring the plaintiff’s characterisation of the reasons for the decision at first instance, Phillips JA proceeded to state as follows at 515 – 516:

It is true that commercial impracticability is not the same as plain want of means; and it is true also that in Bell Wholesale a Full Court of the Federal Court held that, if in that case the plaintiff company sought to resist the order for security for costs on the ground that to make the order would frustrate the litigation, then it was up to the plaintiff, itself impecunious ex hypothesi, to establish “that those who stand behind the action and who will benefit from the litigation if it is successful … are also without means”. To my mind, there is much force in the contention, advanced before us, that what was said in Bell Wholesale has perhaps been extended beyond its context in later cases. … There can be no absolute rule that, in order to resist an order for security on the ground that the litigation will be altogether frustrated, there must be evidence that those who will benefit from the litigation are without means; it will depend upon how the case is being put.

… Bell Wholesale decided only that, if the plaintiff relies upon a want of means to establish that the order cannot be met, the plaintiff must demonstrate that fact by reference, not to its resources (which ex hypothesi must be inadequate if the discretion is called into play), but by reference to the resources of those who will benefit from the litigation and who might reasonably be expected to meet some of the costs … In this case, however, the plaintiff does not rely upon want of means but upon “commercial impracticability”, meaning thereby the practical difficulty facing the plaintiff in gaining any advantage from (by applying to the costs of the litigation) such means as may exist in others, and notably its creditors. I see no reason why, as a matter of principle, that should not be a relevant circumstance when the plaintiff seeks to demonstrate that any order for security cannot be met — even though it be different from the circumstance that those who must meet any order for security are themselves without means.

48    There is much to be said for the view that the Full Court’s reference in Bell Wholesale to the “means” and “impecuniosity” of the persons standing behind the company was not intended to define specifically and exhaustively the evidence that is relevant to determining the stultifying effect of an order for security.

49    It follows that, in attempting to demonstrate that its claim will be stultified by an order for security for costs, it may suffice for the corporate applicant to make out the commercial impracticability of having those who stand behind it meet such an order. The availability of this avenue, as an alternative to demonstrating a want of means on the part of potential contributors, is supported by the observations of Doyle CJ (with whom Prior and Nyland JJ agreed) in Jeffcott Holdings Ltd v Paior (1996) 15 ACLC 28 at 32. There the Chief Justice framed the relevant question in essentially the same terms as were used in BPM, albeit without citation of that case; namely: “whether a shareholder or creditor or other person standing behind the company could reasonably be expected to satisfy an order for security”.

50    Even in the wake of these decisions, however, some cases continued to go no further than consideration of the means of those standing behind the impecunious company: see, eg, Tirops Safety Technology Pty Ltd v Lazer Safe Pty Ltd [2005] WASC 164 [47] – [53] per Newnes M although there Newnes M observed that there were no submissions that it would otherwise be “unreasonable” for shareholders to fund costs; KDL Building Pty Ltd v Mount [2006] NSWSC 474 [24] per Brereton J; Specialised Explosives Blasting & Training Pty Ltd v Huddy’s Plant Hire Pty Ltd [2010] 2 Qd R 85, 97 [45] – [47] per Muir JA (with whom Holmes JA and Philippides J agreed); Unified Pty Ltd v Cancer Council Western Australia Inc (No 3) [2011] WASC 161 [13] – [25], [31] per Allanson J. These cases are perhaps best explained as involving circumstances where the stifling effect of the order for security, or lack thereof, was so apparent on the evidence that consideration of subtler concepts of reasonableness, unwillingness or commercial impracticability was not required. Other first-instance cases adopted language suggesting an openness to explanations based on matters other than ability alone: see, eg, Kavcor Pty Ltd (in liq) v Kavanagh [2005] NSWSC 1163 [10] per Palmer J; Mt Nathan Landowners Pty Ltd (in liq) v Morris [2006] QSC 225 [29] – [35] per Mullins J (Mt Nathan Landowners).

51    Notwithstanding the trace of some inconsistency in the authorities so far surveyed, the decisions can collectively be reconciled to a significant extent by the observation that “mere” unwillingness, in the sense of straightforward disinclination, without further reasons, will not in and of itself make it unreasonable to expect those standing to benefit from the litigation to provide security. In attempting to demonstrate the unreasonableness of such an expectation, a decisive factor will be an absence of means on the part of the persons concerned, but it may also be relevant to show “commercial impracticability” of the type considered in Ariss.

52    This reasoning is broadly consistent with that adopted by Austin J in Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 (Fiduciary v Morningstar). In that case, at 583 [79], his Honour stated as follows:

[I]t is not enough to identify a financially capable person who stands to benefit from the plaintiff’s success in the litigation. It is also relevant to consider whether it is reasonable to expect that person to put up security. If, for example, the plaintiff company is in liquidation and it would be in the interests of its creditors for the plaintiff to succeed, it would not be reasonable, in “practical commonsense terms” to expect a financially capable creditor of the company to give security if the debt is small: BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 at 344–5 per Anderson J.

53    At 583 [81], his Honour then stated that “the question for consideration is not whether those who stand to benefit from the plaintiff’s success in the litigation are obliged to willingly provide security, but whether they are able to do so”. His Honour went on to state at 583 – 584 [82] as follows, before finding that the corporate plaintiffs in that case had failed to establish that an order for security for costs would stifle the proceeding:

In the Jeffcott case at 32, Doyle CJ (with whom Prior and Niland JJ agreed) said that stultification may be shown not only in cases where those standing behind the company or standing to benefit from the litigation are unable to meet an order, but also when it would be “commercially impractical” to gain access to the resources of others. They gave as an example a case where an insolvent company sues for the benefit of its creditors, if there is no practical means of drawing upon the creditors’ resources. It seems to me that this principle is inapplicable in the present case, because there is nothing to suggest “commercial impractability” [sic] in drawing upon LLS to meet an order for security. The difficulty is only the unwillingness of LLS to come forward.

54    These statements tend to suggest that the ability of the persons standing behind the corporation will be a matter of foremost significance, alongside which it will be relevant to consider whether it is reasonable to expect those persons to provide security for costs. Commercial impracticability may inform this latter consideration, but mere unwillingness will not. So much can be accepted, except that it might perhaps be preferable to restructure the analysis such that the financial capacity of those standing behind the corporation is treated as a factor relevant to the reasonableness of the expectation that those persons might provide security, rather than a factor to be considered alongside that question of reasonableness.

55    All of this provides a convenient background against which to consider the statement of Hodgson JA (sitting alone) in Dae Boong International Co Pty Ltd v Gray [2009] NSWCA 11 [26] – [27] (Dae Boong). His Honour, after quoting the relevant passage from Bell Wholesale, noted:

[26] … Bell Wholesale does indicate that if a company wishes to have the benefit of a finding that litigation will be stultified, the company must prove that the persons who substantially stand to benefit are unable to provide the security. If that is not proved, it does not necessarily make the impecuniosity of the company and difficulties with providing security irrelevant; and if it can be shown that those persons are reasonably unwilling, even though possibly able, to provide the security, that may be a factor that would be taken into account.

[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.

56    The use of the word “unwilling” in this passage is perhaps unfortunate, in light of the above, but its appearance in the phrase “reasonably unwilling” in paragraph [26] can safely be understood as drawing its intended meaning closer to the standard indicated by the phrase “commercially impracticable”. By way of illustration, it may be “commercially impracticable” for the applicant to gain access to the resources of others because they are “reasonably unwilling” to expose their assets. “Mere” unwillingness, in the sense described above, is an altogether different and distinctly lesser standard.

57    Further support for this understanding is offered by the decision of Le Miere J in SAS Global Forrestdale Pty Ltd v Samsera Pty Ltd [2010] WASC 309, where, after canvassing a number of the above authorities, his Honour found on the facts of the case that 391 investors in a particular scheme were standing behind the plaintiff and were liable to benefit from its success in the proceeding. At paragraph [51], it was said that:

It may be inferred that it would be difficult to obtain the agreement of all 391 of the investors to equally fund any required security for costs or to obtain the agreement of some of the investors to fund the required security largely for the benefit of all of the investors. That is not merely a matter of the investors being unwilling to put up the security, it is a matter of commercial practicability.

58    Clearly, the final sentence of this passage is premised on the view that commercial impracticability is properly to be distinguished from “mere” unwillingness.

59    Next to be considered is the decision of Jacobson, Besanko and Perram JJ in Australian Equity Investors, An Arizona Limited Partnership v Colliers International (NSW) Pty Limited [2012] FCAFC 57 (Australian Equity Investors). There, at paragraphs [29] – [30], their Honours stated as follows:

[29] In this case, so Mr Lee SC submitted, the creditors were all at arms length and there was no evidence that they were involving themselves in the litigation. They could not, so viewed, be said to be “standing behind” AEI. They were not, for example, using AEI as a ‘stalking horse’. Further, the person who was standing behind AEI, Mr Moore, had offered his own personal undertaking.

[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 Ltd (No 2) [2007] FCA 163 at [15]–[29] per Mansfield J. Mr Lee SC invited us to regard Cosdean as wrongly decided because his Honour had misquoted Bell Wholesale by substituting an ‘or’ where there should have been an ‘and’. The relevant passage is at [25] and does not, so it seems to us, contain the suggested misquotation. Contrary to the submission put, we see nothing heterodox in Cosdean. Indeed, as Mansfield J there observed, security had on other occasions been ordered where it was reasonable that two major and arms length creditors be expected to contribute to the security ordered, citing Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 1 FCR 311 at 314 per Toohey 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.

60    Two points should be made in relation to this passage. First, and most straightforwardly, their Honours appear to accept in the final sentence of paragraph [30] that the focus of the inquiry is the concept of “reasonableness”. This is consistent with many of the cases discussed above, which place emphasis on whether or not it is “reasonable to expect” those standing behind the corporation to provide security. Secondly, it seems that their Honours considered that, within this broad inquiry, it is incorrect to treat as decisive whether those persons who stand to benefit from the litigation also “stand behind” the impecunious corporate applicant. In the context of the arm’s length creditors discussed in Australian Equity Investors, this idea of “standing behind” the applicant might be likened to readiness to provide funding and other support for the litigation, including security for costs. The scenario is in this respect closely analogous to that of the unsecured creditors showing “virtual disinterest” in the proceedings in Passenger Transport Systems. It should not be thought, however, that this concept of “standing behind” is altogether irrelevant, and nothing in the judgment of the Full Court suggests that their Honours intended to go so far. It remains an appropriate matter to take into account, albeit one that might seldom be determinative in and of itself. Accordingly, an arm’s length unsecured creditor is not, by reason only of this degree of detachment from the applicant, automatically to be deemed a person from whom it is unreasonable to expect the provision of security for costs.

61    The question of unwillingness versus inability was again considered by the Full Court in Madgwick v Kelly, albeit in the context of a class action where the discretion to be exercised was not that conferred by s 1335 of the Corporations Act. Despite this different context, the joint judgment of Allsop CJ and Middleton J offers statements of principle that are of sufficient generality to be applied equally in the s 1335 setting. Most relevantly, after discussing with apparent approval the judgment of Hodgson JA in Dae Boong, their Honours concluded at 20 [83], in the circumstances of that case, that:

[I]t was not wrong for the primary judge to take into account the subject of unwillingness of people to contribute as a relevant factor. This has support in a number of cases: BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 at 344-345; Ariss v Express Interiors Pty Ltd (in liq) [1996] 2 VR 507 at 515; and Jeffcott Holdings Ltd v Paior (1997) 15 ACLC 28 at 32. Of course, unwillingness in itself is not determinative, and the question of the reasonableness of any unwillingness to contribute must be considered in determining what is fair in all the circumstances. …

62    Considering a number of the authorities so far canvassed, Barrett JA (with whom McColl and Macfarlan JJA agreed) also regarded unwillingness to be a relevant consideration in LRSM Enterprise Pty Ltd v Zurich Australian Insurance Ltd [2014] NSWCA 88 (LRSM). In the context of arm’s length trade creditors, his Honour said at paragraphs [37] and [44] – [46]:

[37] … It is the ability of the plaintiff to meet an order for security that is in issue; and, just as the inability of persons standing behind it to give it financial support will be relevant to the inquiry, so too may be unwillingness of those persons (despite ability) and all other reasons for the unavailability of their support. A finding of stultifaction becomes available only to the extent that the reasons of relevant persons other than the plaintiff itself for not giving financial support truly reflect an inability, rather than unwillingness, of the plaintiff to marshall the relevant financial resources. It is for this reason that unwillingness of other persons is viewed differently from their inability.

…

[44] The creditors mentioned at [31] and [32] above are arm’s length trade creditors. They have no connection with the company or Mr Naboulsi akin to the connections that existed in the cases mentioned at [40] above – or, for that matter, the connection of the solicitors in Tyneside Property Management Pty Ltd v Hammersmith Management Pty Ltd [2013] NSWCA 404 who were willing to continue acting in the litigation on a deferred payment basis. There is therefore a question as to whether those arm’s length trade creditors should be regarded as “standing behind” the corporate plaintiff in the sense relevant to this area of discourse.

[45] The focus is, of necessity, on resources that may reasonably be expected to be available to the company. An arm’s length trade creditor could be expected to make resources available only if it suited its own selfish commercial purposes to do so; and even then, the matter would be entirely in the discretion of the creditor. A creditor for a relatively small amount might well be content to see the company’s action stayed because of non-provision of security for costs and take its chances on having to write off its relatively small debt rather than increase its financial exposure. A creditor for a larger amount might take the view that there was no commercial justification for increased financial exposure to the particular debtor. Credit policies might be compromised. And any creditor might take the attitude reflected by the reply by Service Finance that it was commercially unacceptable to commit funds to litigation where there was no way of assessing the possible outcome. Another rational attitude would be that, if there were to be any financial assistance, the company should, in return, concede some measure of control or influence over the conduct of the litigation.

[46] Because of the range of rational and sensible attitudes of mere arm’s length creditors, it is artificial to insist on evidence of their inability, as distinct from unwillingness, when a corporate plaintiff seeks to prove that a requirement for the provision of security will stultify its action. The real issue goes to the practical capacity of the company to marshall financial resources – a process in which persons involved in the company’s internal decision-making and its ultimate economic success or failure are subject to expectations of financial commitment that do not fall upon independent parties with whom ordinary business transactions are undertaken.

63    There is perhaps some question as to whether the remark regarding “standing behind” the corporate plaintiff in paragraph [44] of his Honour’s judgment is consistent with what was said by the Full Court in Australian Equity Investors in the passage extracted above. While that issue is not without difficulty, the cases may be reconcilable if, as explained above, the Full Court’s judgment is not to be taken as suggesting that the concept of “standing behind” is wholly irrelevant, but is instead unlikely to be determinative in and of itself, particularly where there is other evidence as to the relevant person’s means and the extent of the benefit that they might receive in the event of the applicant’s success in the proceeding.

64    What was said in LRSM is otherwise in apparent harmony with what has been said in a number of the other authorities, set out above, regarding the relevance of “reasonable unwillingness” and “commercial impracticability”, though the language used by Barrett JA in the paragraphs extracted above perhaps needs to be read carefully. In particular, there is a danger in understanding his Honour’s judgment to suggest that, while the inability of the impecunious plaintiff to marshal the necessary resources is in issue, this inability can be demonstrated by evidence of unwillingness (in the sense of “mere” unwillingness) on the part of those standing behind it, in particular arm’s length creditors. This would go beyond the limits set and maintained in the prior authorities, and there is no clear indication that his Honour intended such a result. Indeed, between discussing the judgment of Hodgson JA in Dae Boong and the judgment of Allsop CJ and Middleton J in Madgwick v Kelly, his Honour stated at paragraph [43] that:

… proof by a corporate plaintiff of what might be termed rationally and practically reasonable unwillingness of creditors to give financial support is something that may be taken into account in the exercise of the undoubtedly wide discretion with respect to security for costs. …

65    This is perfectly consistent with a rejection of “mere” unwillingness as a relevant consideration, even in the case of an arm’s length trade creditor. The basis for that rejection is straightforward: if mere unwillingness was to suffice, it would be the practice of every creditor to assert as much, baldly and at the earliest opportunity, so as to preclude any finding that it is reasonable to expect them to provide security for costs. It would be far from satisfactory if a defendant’s ability to recover its costs could be defeated on such an arbitrary and opaque basis.

66    The potential conflict between Australian Equity Investors and LRSM was noted by Parker J in Longjing Pty Ltd v Perpetual Nominees Ltd [2017] NSWSC 1690 (Longjing). After recognising that the focus will be on the means of those who stand behind the litigation, and that “there is … no rule that mere unwillingness of a creditor to fund the litigation will in all circumstances require that creditor’s interest to be ignored”, his Honour relied on LRSM to distinguish the concepts of “standing to benefit” and “standing behind”. At paragraph [66], Parker J said:

… The two concepts are not the same. A person can stand behind litigation, by funding it or otherwise exercising a degree of influence or control over its course, without necessarily standing to benefit from the outcome at all. On the other hand, a person may stand to benefit from litigation without having, or seeking to exercise, any degree of influence over whether that litigation is pursued and how it is conducted. It may not be reasonable for litigation to be stifled by an order for security simply because a person who stands to benefit, but no more, from the litigation is not willing to provide the security (although this may be open to argument: see [71]–[72] below). But where a person stands behind the litigation as well as standing to benefit from it, it may properly be thought unreasonable for the proceedings to be allowed to continue if that person is not willing to provide security.

67    At paragraphs [71] – [72], his Honour discussed the decision of the Full Court in Australian Equity Investors. After quoting the passage from that decision which is extracted above, he went on to say:

This statement of principle does suggest that there may be circumstances where the fact that a creditor, who stands to benefit from the litigation, is at arm’s length will not be sufficient to defeat the application for security. At the very least, in such a situation it may be necessary to consider the prospects of success more closely as a discretionary factor. For his part, counsel for Longjing submitted that what the Full Court said is inconsistent with LRSM. It is not necessary to go into this for present purposes. …

68    For the reasons set out previously, it is not necessary to regard Australian Equity Investors and LRSM as inconsistent. The Full Court in the former case found that “benefiting from” and “standing behind” litigation are “elements in the same concept”, and that the general principle to be applied was that “those who stand to share the benefits of litigation cannot shirk its burdens”. The extent to which a person stands to benefit is therefore a significant consideration to be taken into account in the overall assessment of reasonableness. On this basis, their Honours held that the presence of an arm’s length creditor with the necessary means, who does not stand behind the litigation, but does stand to benefit from it, may support a finding that the litigation will not be stifled by an order for security. But the extent to which a person stands behind the litigation is not irrelevant. As explained in LRSM, that factor may bear on whether it is unreasonable to expect an arm’s length creditor to provide security, given their professed unwillingness to do so. Earlier cases have approached this latter question in terms of the “reasonable unwillingness” on the part of the person or entity in the position of the creditor, or the “commercially impracticability” of the applicant gaining access to the resources of others. There is nothing to suggest that the Full Court in Australian Equity Investors was intending to depart or in any way detract from those authorities.

69    A somewhat similar understanding of the decision in Australian Equity Investors was expressed by Allanson J in Phoenix Eagle Co Pty Ltd v Tom McArthur Pty Ltd [2019] WASC 378 [58], as follows:

… In Australian Equity Investors v Colliers International (NSW) Pty Ltd [2012] FCAFC 57 [30], Jacobson, Besanko and Perram JJ said, ‘The principle at play is a simple one: those who stand to share the benefits of litigation cannot shirk its burdens’. I do not see that statement as excluding the need to consider reasonableness. But the position of the directors, shareholders and creditors of the plaintiff, as persons who will share in the benefits of a successful action, should be taken into account in considering the question of reasonableness, and in assessing the weight to be given to the risk of stultification in the exercise of discretion.

70    The overall question therefore remains whether it is reasonable to expect the persons who stand to benefit from the litigation to provide security for costs. The extent to which those persons stand to benefit is a matter to be taken into account, but regard can properly be had to other facets of their position: namely, their means and their reasonable unwillingness to provide security.

71    Finally, there has been a recent series of first-instance decisions in which it has been said that a proceeding cannot be regarded as stultified unless those who stand behind the impecunious plaintiff are “unable (not unwilling) to provide the requisite security for costs”: see Ollerenshaw v The Uniting Church in Australia Property Trust (NSW) [2017] NSWSC 1637 [49] per Walton J; Zenith Corp Australia Pty Ltd v Optus Mobile Pty Ltd [2020] NSWSC 1110 [64] per Henry J; Grocon Group Holdings Pty Ltd v Infrastructure NSW (2020) 149 ACSR 112, 128 [113] per Henry J; Equititrust Ltd v Tucker [2020] QSC 269 [73] per Bond J. The same language was used in the much earlier decisions of Einstein J in Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 [66] and Yes Home Loans Pty Ltd v AFIG Wholesale Pty Ltd [2008] NSWSC 1017 [127].

72    One might explain these statements on the basis that the “unwillingness” to which they refer is what has been described above as “mere” unwillingness, in the sense of disinclination; that is, something substantially less than the “reasonable unwillingness”, informed by commercial considerations, that has been accepted to be a relevant factor in numerous other cases, including at the appellate level. To the extent that the statements must be taken to be suggesting that unwillingness of any kind will be irrelevant to the inquiry, they are inconsistent with that other authority and, with respect, should not be considered good law.

73    For the sake of clarity, the position that emerges from this survey of the authorities can be summarised in the following series of propositions:

(a)    Where a corporate applicant is impecunious and it is alleged that an order for security for costs against it will stultify the litigation, it is necessary to consider the position of those who stand behind that applicant and those who will benefit from the litigation if it is successful.

(b)    The overarching question is whether it is reasonable to expect those persons or entities who stand behind the applicant and those who will benefit from the litigation to provide security.

(c)    In answering that overarching question of reasonableness, it will be relevant first to consider the means of the persons or entities concerned. That factor demands foremost attention because, if the persons or entities are demonstrably without means, then there may be no need to go further in order to demonstrate unreasonableness.

(d)    Where that initial factor does not lead clearly to the conclusion that it would be unreasonable to expect those persons or entities to provide security, it will be relevant to consider the reasonableness of any expression of unwillingness on their part to do so. Approaching the matter from the perspective of the applicant, it might also be asked whether it is “commercially impracticable” for it to gain any advantage from such means as may exist in others.

(e)    The determination as to whether or not the relevant persons’ or entities’ unwillingness is reasonable may be informed by the extent of the benefit that they stand to receive in the litigation, and the extent to which they “stand behind” the applicant, or the litigation more broadly, by funding it or otherwise exercising a degree of influence or control over its course. The former matter may be of particular significance, as a fundamental principle guiding the overall inquiry is that “those who stand to share the benefits of litigation cannot shirk its burdens”. For this reason, it is conceivable that, in certain circumstances, even arm’s length unsecured trade creditors who ostensibly do not “stand behind” the applicant, but do stand to benefit from the litigation, will reasonably be expected to provide security. On the other hand, if the persons or entities in question stand to receive only a very slight benefit that is wholly disproportionate to the security that they would be asked to provide, then that may assist the applicant in demonstrating that it would be commercially impracticable to have those external parties put up security for costs and/or that their unwillingness to do so is reasonable.

(f)    Not relevant at any level of the inquiry is the “mere” unwillingness of the persons or entities to provide security for costs, in the sense of their straightforward disinclination, unsupported by any further reasons.

74    As to the form of the evidence required on this issue, it has consistently been recognised that the discharge of the onus borne by the impecunious applicant will usually necessitate that it puts on a full and frank statement of the assets and liabilities of the persons or entities who stand to benefit from its success in the litigation, including shareholders and creditors: see Newtrend Pty Ltd v Oceanic Life Limited [1990] WAR 1, 3 per Staples M; Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [39] per Edelman J; Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 [90] per Bathurst CJ, Leeming JA and Barrett AJA (Live Board Holdings). Obviously, this will exclude arm’s length trade creditors, since they cannot reasonably be required to provide a detailed summary of their financial position to the applicant, nor can the applicant reasonably be required to go to the lengths of obtaining such details from them. Instead, where the party against whom security is sought is attempting to demonstrate that it would be commercial impracticable for its creditors to contribute to the costs of the litigation, that state of affairs will generally need to be established through evidence as to the approaches made to those creditors (particularly the larger ones) with requests for support: see Adelaide (SA Pools & Spa) Manufacturing and Installation Pty Ltd v Westcourt General Insurance Brokers Pty Ltd [2016] SASC 60 [53] per Doyle J.

The unsecured trade creditors

75    As set out above, General Trade has four major unsecured creditors to each of which it owes an amount in excess of $100,000. The affidavit of Mr David Stimpson, the liquidator of General Trade, dated 22 December 2022, identified a number of additional creditors to which the company is indebted in a range of smaller amounts. It also sets out the steps taken by the liquidator and his firm, SV Partners Insolvency (Qld) Pty Ltd (SV Partners), to contact those creditors and ascertain their willingness to fund the litigation, particularly in response to the first security for costs order in the amount of $70,000.

76    This evidence is supplemented by:

(a)    an affidavit of Ms Eva-Maria Mueller (a Senior Accountant at SV Partners) dated 10 February 2023, in which she deposed to further attempts to contact creditors;

(b)    an affidavit of Mr Brett Harron (a Manager of SV Partners) dated 10 February 2023, in which he identified the total amount owed by General Trade to unsecured creditors to be $1,816,699.94 as at 8 February 2023, and further deposed to additional attempts to contact the Deputy Commissioner of Taxation (as a representative of the largest unsecured creditor, the ATO) in relation to the possibility of it providing indemnity funding for the proceeding; and

(c)    further affidavits of Mr Harron dated 24 February 2023 and 7 March 2023, both deposing to further correspondence with the Deputy Commissioner of Taxation regarding the request for indemnity funding.

77    In its written submissions, AGL advanced the global contention that “it cannot be said that the unwillingness or commercial impracticability of all arm’s length trade creditors has been proved”. However, it focussed more specifically on the position of the four largest unsecured creditors, and devoted particular attention to alleged deficiencies in General Trade’s evidence regarding the ATO’s disposition to providing assistance.

78    These submissions were, to some extent, overtaken by the evidence in Mr Harron’s 24 February 2023 and 7 March 2023 affidavits, which went some way to resolving the uncertainty in respect of the ATO’s position. It is perhaps for this reason that Mr O’Shea KC for AGL, at the hearing, acknowledged that the ATO was now “out of the picture” for the purposes of the application for further security for costs. No submissions were made in relation to the other unsecured creditors. Mr Wood SC for General Trade similarly proceeded on the basis that the issue as to the position of these creditors was “off the table”.

79    Given the position taken by Counsel at the hearing, it is unnecessary to traverse the evidence in any great depth. The affidavits are listed above and sufficed to demonstrate that the relevant creditors were unable or reasonably unwilling to contribute funds to provide security for costs. In particular, the liquidator of General Trade had approached the company’s creditors by multiple means seeking funding for the litigation. For various reasons, which were recorded in the affidavits, many of those requests for funding were turned down. Some of the more common reasons given by the creditors were that:

(a)    the debts payable by General Trade had been written off;

(b)    the debts in some cases were minimal, such that there was perceived to be little commercial benefit in contributing funds to the litigation; and

(c)    certain creditors were not themselves in a financial position to provide funding.

80    In several instances, no response was received from the creditors to the requests made by the liquidator. It may fairly be asked, on that point, how far the impecunious applicant should be expected to go to make contact with its creditors in order to confirm their position in circumstances where earlier correspondence has been met with no response.

81    In answer, it might be supposed that the applicant must make at least a reasonable attempt to contact its creditors, with the reasonableness of the attempt to be assessed in all of the circumstances of the case. A “reasonable attempt” may require, in this context, a concerted effort on the part of the applicant, since it will presumably use the lack of a response from the creditor to argue that it was commercially impracticable for it to gain any advantage from such means as might have existed in that creditor, or that the creditor should be presumed to be reasonably unwilling or unable to provide security, and in turn argue that the litigation will be stifled by an order for security for costs. Those arguments can have serious implications, and the evidence grounding them should reflect this. The reasonableness of an attempt might also be influenced by such matters as the size of the debt in question, the difficulty of contacting the creditor (or the persons within the creditor company who are familiar with the debt and the litigation), and any prior indication of the creditor’s attitude towards the litigation.

82    It is unnecessary for the present purposes to consider in detail whether the liquidator’s further attempts to contact General Trade’s unresponsive creditors were reasonable in this sense. In the absence of any submissions from AGL to the contrary, there is certainly nothing on the face of the evidence to suggest that General Trade’s decision to make no further attempts to contact them was unreasonable. Many of the creditors in question were contacted by multiple means on multiple occasions, and none of them was owed a debt of such magnitude as to make it probable that they would seriously consider funding the proceeding. Most notably, numerous attempts were made to contact the largest unsecured creditor, the ATO, which finally provided its response on about 1 March 2023. There is no issue with the adequacy of ATO’s expression of unwillingness to provide indemnity funding on the basis that “the high risks associated with providing indemnity funding would significantly outweigh any potential benefits”: Cf Ryberg Telecommunications Pty Ltd (in liq) v Optus Mobile Pty Ltd [2011] NSWSC 1268 [15] per Black J.

83    It follows that General Trade has discharged its onus of demonstrating that its unsecured creditors cannot reasonably be expected to provide the further security for costs sought in this application.

The solicitors

84    A good deal of attention at the hearing of this application was devoted to the position of General Trade’s solicitors, Clifford Gouldson Lawyers (Clifford Gouldson). AGL alleged that they stood to benefit from the company’s success in this proceeding, as a creditor of the company, and that General Trade should therefore be required to prove that they are unable or unwilling to fund the litigation.

85    The position of Clifford Gouldson was established in evidence by three affidavits sworn by Mr Harrison Humphries, the Legal Practice Director of Clifford Gouldson, dated 23 December 2022, 10 February 2023 and 24 February 2023. Across those affidavits, he deposed, amongst other things, to the fact that Clifford Gouldson:

(a)    had written off the debt that was owing to it by General Trade, and was no longer a creditor of the company;

(b)    was retained by General Trade on a speculative basis, with payment of its fees being contingent upon its success in the proceeding;

(c)    had current work in progress on the matter of approximately $713,000 (including GST); and

(d)    was unwilling to fund the litigation further via the provision of cash for security for costs because:

(i)    the provision of cash was a far greater financial imposition on its business than the accumulation of work in progress; and

(ii)    the risk associated with recovery of that cash was not one that it was prepare to take, over and above the risk of not recovering its work in progress.

86    It was not entirely clear how the first of these points was to be reconciled with the third, though it seemed likely that the amount of over $700,000 in work in progress had not yet been billed. Mr Wood SC suggested that the phrase “written off” had perhaps been used somewhat loosely, but, in any event, there had been no attempt to challenge or contradict the ultimate evidence that Clifford Gouldson was not a creditor of General Trade.

87    Counsel for both parties addressed the authorities in relation to this issue in some detail, seeking to apply them by analogy to, or distinguish them from, the present circumstances. It is appropriate, in light of these submissions, to consider that case law.

88    At the outset it should be noted that not all of the authorities cited involved an application for security for costs brought specifically under s 1335 of the Corporations Act. Several involved applications brought pursuant to s 56 of the Federal Court Act. A number of New South Wales cases, relied on by AGL, considered motions brought pursuant to r 51.50(1) of the Uniform Civil Procedure Rules 2005 (NSW) (or its predecessor), which provides:

In special circumstances, the Court may order that such security as the Court thinks fit be given for costs of an appeal.

89    This provision has obvious differences on its face from the wording of both s 1335 of the Corporations Act and s 56 of the Federal Court Act. However, once it has been identified in a particular case that the applicant or plaintiff is impecunious, the case law concerning each of those provisions appears to regard it as relevant to ask whether an order for security for costs might stifle the litigation, and in appropriate cases to query whether the position of the applicant’s or plaintiff’s solicitors ought to have any bearing on the answer to that question. Therefore, subject to one possible caveat noted below, the issue presently under consideration is essentially the same no matter the jurisdictional basis for the application for security for costs.

90    A relatively early authority cited by General Trade in its written submissions was Shackles. There, Byrne J considered an application for security for costs against a large group of impecunious individual plaintiffs. The plaintiffs were represented by Slater and Gordon, who acted on a “no-win-no-fee” basis but stood to benefit substantially from the plaintiffs’ success in the proceeding. In response to a submission by the defendants that the solicitors should raise the security since the proceeding was effectively brought for their benefit, his Honour stated as follows at 430:

In my opinion it is not correct to say that the solicitors are the persons for whose benefit the litigation has been brought. In any litigation the solicitors acting for a plaintiff stand to benefit from its prosecution. This is no less true in the case where the fee agreement is such that the solicitors are entitled to be paid only in the event of success. It cannot be suggested in the former case that the solicitors stand to benefit from the litigation in the sense that a shareholder in a corporate plaintiff does. Solicitors who undertake to act for an impecunious client at risk to themselves are in principle in no different position. Indeed, it has been said that by so acting they are performing a commendable public service, consistent with the best traditions of the legal profession: Clyne v NSW Bar Association (1960) 104 CLR 186 at 203-4.

91    It is worth noting that nothing in this statement appears to confine its application specifically to cases where the plaintiffs are natural persons. So much is demonstrated by the fact that the passage from Shackles extracted above was subsequently applied in circumstances where the plaintiff was an incorporated association: Environmental Defendants Office (Tas) Inc v Chipman [2003] TASSC 72 [37] per Holt M.

92    The point surfaced again, in the context of a representative proceeding, in Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317 (Bray). There, Finkelstein J stated as follows at 375 [252]:

It is also appropriate to bear in mind that it is commonly the case in a class action that a person will stand behind (I mean fund) the applicant. Usually this will be the applicant’s solicitor, who will sometimes charge what is referred to as a “contingency fee” for the privilege. When a proceeding is brought by a “nominal plaintiff” that is a plaintiff who will not himself benefit from the action but is making the claim for the benefit of someone else, an order for security is usually made. A party who is being funded by his solicitor is not really a “nominal plaintiff”. Nevertheless, the solicitor does stand to benefit from the action (especially as regards the additional fee) if the action is ultimately successful, as the solicitor will then be able to recover his costs. That is a relevant, though not a decisive, consideration when deciding whether security should be ordered.

93    In apparent contrast to Shackles, this passage suggests that solicitors acting on a contingent basis will “stand behind” the applicant and will “stand to benefit” from the applicant’s success in the litigation, particularly by their charging of an additional fee. On this basis, the position of the solicitors may have some bearing on the outcome of an application for security for costs.

94    The same point appeared to be made by Hodgson JA in Porter v Gordian Runoff Ltd [2004] NSWCA 69 (Porter), sitting alone on three motions, including two as to security for costs of an appeal. His Honour ultimately ordered that security for costs be provided by the appellant, finding that a number of considerations favoured that outcome. Most relevantly for the present purposes, he found at paragraph [41]:

In my opinion it is also relevant to these applications that each of the respondents has already lost in the order of $1 million by reason of the proceedings, this being money which the respondents appear to have virtually no chance of recovering. The appellant, on the other hand, has not lost much money by reason of the proceedings. It appears that he owes over $1 million to barristers, and it may well be that he owes substantial amounts to his solicitor. This does not mean that his appeal can be considered as being brought on behalf of his legal advisers, but it does mean, I think, that his legal advisers have a large stake as a matter of fact in the success of the appeal.

95    While it was not wholly clear from his Honour’s judgment how much weight he placed on this consideration, it can potentially be inferred that the “large stake” of the appellant’s lawyers was a matter favouring an order for security for costs.

96    His Honour’s decision was upheld on appeal in Porter v Gordian Runoff Ltd [2004] NSWCA 171, where Bryson JA (with whom Sheller and Giles JJA agreed) noted at paragraph [32] that the appellant’s evidence was “to the effect that the persons who stand to benefit from success in the appeal are his lawyers”. Again, it was not wholly clear how much bearing this evidence had on the conclusion drawn by the Court of Appeal; however, it being mentioned tends to suggest that it was at least of some relevance to the making of the order for security for costs.

97    In Ballard v Brookfield Australia Investments Ltd [2012] NSWCA 434 (Ballard), Ward JA (as her Honour then was), again sitting alone on two applications for security for costs of an appeal, seemed to take into account similar considerations, although the factual setting was somewhat different. The appellant, against whom the applications were made, argued that an award of security would stifle the appeal, but there was evidence that he had entered into a “Funding and Priority Deed”, pursuant to which a litigation funder had agreed to pay certain costs and other amounts at first instance and on appeal. It also appeared from that Deed that the solicitors for the appellant had agreed not to charge him for any legal costs that they incurred in connection with the appeal, and agreed to pay all expenses and disbursements arising from the appeal. He would only be liable for those costs, expenses and disbursements to the extent that they could be met from a surplus remaining after the funder had been paid under the Deed.

98    Against this background, her Honour drew the following conclusion as to the stifling effect of an order for security for costs at paragraph [41]:

I am not satisfied that the making of an order for security for costs will necessarily stifle the appeal. I say that for the reason that Mr Ballard has been able not only to procure funding for the litigation below but, and more relevantly, has been able to secure an arrangement with his solicitor for the appeal to be carried out at the solicitor’s cost. There is nothing to suggest that Mr Ballard would be unable to secure additional funding if required to provide security for costs (or that his solicitor, who would appear from the Deed to have some personal interest in the maintenance of the appeal, would not be in a position to provide such security).

99    Again, it is not wholly clear from this passage to what extent her Honour’s conclusion was contingent on the fact that the solicitors had not only agreed to receive payment on a deferred and speculative basis, but had positively offered to advance funds to meet the appellant’s other expenses and disbursements as they arose. This unusual arrangement might be regarded as increasing the resemblance that the solicitors bore to a litigation funder.

100    Shortly after the decision of Ward JA in Ballard, the issue was addressed by Allsop CJ and Middleton J in their joint judgment in Madgwick v Kelly. In that case, the solicitors for the applicants in the class action, Macpherson and Kelley, were acting under a conditional costs agreement by reason of which, unless there was success, they would only receive a small proportion of their legal fees and disbursements. It was contended by the respondents that Macpherson and Kelley were receiving a benefit from supporting the litigation because they stood to receive the balance of their costs if it was successful. The primary judge, in Kelly v MIS Funding No 1 Pty Ltd (2012) 300 ALR 675, addressed this submission as follows at 697 [101] – [103] of his judgment:

[101] … I consider it a remarkable proposition that a lawyer acting under a conditional costs agreement is relevantly standing behind the litigation or is standing to benefit. I do not understand the position of a lawyer acting for an applicant in a class action to be any different from that of the lawyer for a plaintiff acting on a “no win-no fee” basis in the thousands of such individual cases conducted in many different Australian courts each year. Such arrangements are usually entered into because the plaintiff is unable to pay legal fees and disbursements as they are incurred. It would be remarkable if such claimants, already finding it difficult to meet the expense of litigation, were liable to pay security for costs because their barristers or solicitors were prepared to act on the basis that they are not paid unless the case is successful. This has never been the law in Australia.

[102] The preparedness of barristers and solicitors to provide legal services upon a “no-win-no fee” basis is an important aspect of access to justice, particularly in class actions. …

[103] One would be surprised if the barristers and solicitors that provide legal services in class actions upon a conditional fee basis would not prefer to be paid at the time the services are provided, rather than having payment for such complex legal work conditional on success. Put another way, I do not accept that it is proper to characterise as a benefit, a payment ultimately made to a lawyer who has agreed that he or she is only entitled to be paid upon winning the case, and is required to wait perhaps years for payment of both legal fees incurred and disbursements advanced. In a class action context the fee uplift involved is little compensation for the risk of non-payment and delay in any payment. It should not militate as a factor in favour of an order of security for costs. There is also nothing in the authorities which indicates that a person that retains a lawyer under a conditional costs agreement should be in a worse position in relation to security for costs than a person who can afford to do so.

101    On appeal, Allsop CJ and Middleton J quoted these paragraphs in full at 12 – 13 [43] before stating at 13 [44]: “We respectfully agree”. Their Honours went on to add the following remarks at 13 – 14 [47] – [48], dealing with the decision of Finkelstein J in Bray:

[47] … There are principled reasons to distinguish between a commercial litigation funder and solicitors such as Macpherson and Kelley under these agreements. The former take a percentage of the judgment; the latter earn professional fees. Here, the fees could not rise above costs as recovered. Solicitors are entitled to charge professional fees for undertaking the professional responsibilities of running the case, as officers of the court, with all the attendant responsibilities (including duties to the court) that that entails. No one, the solicitors included, should ever lose sight of those responsibilities. The expected or contingent receipt of proper professional fees (and there was not the slightest suggestion here that Macpherson and Kelley’s fees, including the “case management fee”, were other than proper) is not a basis for requiring an officer of the court to contribute to a fund for the costs of the other side of the litigation. Looking at the matter from the point of view of the solicitors, it could not be considered reasonable for them to be required to fund on an ongoing basis the litigation brought under Pt IVA.

[48] To the extent that what was said by Finkelstein J at 375 [252] can be seen as contrary to that, it was comment by way of obiter dicta and, in our respectful view, wrong. …

102    Although references to the immediate class action context are interspersed throughout these passages, there is no clear basis to treat their Honours’ reasons, or the reasons of the primary judge with which they agreed, as being confined to that specific setting. Most notably, the primary judge drew an analogy at [101] between “the position of a lawyer acting for an applicant in a class action” and “that of the lawyer for a plaintiff acting on a ‘no win-no fee’ basis”, suggesting that the latter was something different to the former, and was not specifically connected to the class action context. He then observed, apparently in respect of the latter, that “[s]uch arrangements are usually entered into because the plaintiff is unable to pay legal fees and disbursements as they are incurred” and that “[i]t would be remarkable if such claimants … were liable to pay security for costs because their barristers or solicitors were prepared to act on the basis that they are not paid unless the case is successful”. Again, Allsop CJ and Middleton J agreed with these remarks in their entirety.

103    In the hearing of the present case, Mr O’Shea KC submitted that the ratio of this part of Madgwick v Kelly was expressed in the final sentence of paragraph [47], in that way confining the precedential value of the case to the setting of litigation brought under Pt IVA of the Federal Court Act. Given what has been said already about the generality with which the principles were expressed in the first instance judgment, with which Allsop CJ and Middleton J agreed, that submission should not be accepted. It seems more likely that the ratio is captured in the preceding sentence of that paragraph, and the final sentence is merely a conclusion drawn by application of that principle. In any event, the penultimate sentence of the paragraph would at least constitute seriously considered dicta, which should not be overlooked. Mr O’Shea KC appropriately acknowledged, in this connection, that the case supported the proposition that, in general, practitioners who provide legal services on a speculative basis should not be required to meet orders for security for costs.

104    Shortly after the decision in Madgwick v Kelly, Sackville AJA (sitting alone) in Tyneside Property Management Pty Ltd v Hammersmith Management Pty Ltd [2013] NSWCA 404 (Tyneside) appeared to take into account, in assessing the possible stifling effect of an order for security for costs, the position of a solicitor acting on a deferred payment basis. The factual background on the point appears sufficiently in the relevant passage at paragraphs [27] – [28] of his Honour’s judgment, as follows:

[27] As I have indicated, the evidence shows that the appellants’ solicitors are owed at least $371,000 on account of costs and that they are prepared to defer their payment of costs and disbursements in relation to the appeal until judgment is delivered. Clearly the solicitors have a substantial interest in the outcome of the appeal: cf Ballard v Brookfield Australia Investments Ltd [2012] NSWCA 434, at [41], per Ward JA. Mr Smallbone asserted from the bar table that the solicitors would not be prepared to contribute towards an order for security, but there was no evidence to that effect.

[28] I am not satisfied on the evidence that the solicitors, given that they have such a large stake in the outcome of the proceedings, would not be prepared to advance further funds, if an order for security were made, to ensure that the appeal could go ahead.

105    An application for review of Sackville AJA’s decision was determined in Tyneside Property Management Pty Ltd v Hammersmith Management Pty Ltd (2014) 103 ACSR 201. By the time of that application, the solicitors in question, Moray & Agnew, had ceased to act. However, the members of the Court of Appeal made mention of the above paragraphs from the judgment of Sackville AJA without doubting the correctness of the conclusion. In particular, Emmett JA (with whom Meagher JA agreed), stated as follows at 219 [89] – [90]:

[89] Given that Moray & Agnew had such a large stake in the outcome of the proceedings, Sackville AJA was not satisfied, on the evidence, that Moray & Agnew would not be prepared to advance further funds, if an order for security were made, to ensure that the appeal could go ahead. His Honour came to that conclusion in the light of the observation that there was no evidence to the effect that the solicitors would not be prepared to contribute towards an order for security.

[90] Moray & Agnew are no longer acting for the appellants in the appeal. Thus, a significant change in circumstances has occurred since the orders made by Sackville AJA. While the change in circumstances has no bearing on the correctness of the decision of Sackville AJA, it will have a bearing on the manner in which the court should dispose of the motions.

106    The decision of Sackville AJA was subsequently cited in the judgment of Barrett JA in LRSM at paragraph [44]. There, as set out above, his Honour contrasted the position of arm’s length trade creditors with the position of the solicitors acting on a deferred payment basis in Tyneside, querying whether the former should be regarded as “standing behind” the corporate plaintiff in the relevant sense, and in this way suggesting that the latter did “stand behind” the company. His Honour regarded the solicitors in Tyneside as occupying that position on account of their “connection” with the company, arising out of their decision to “continue acting in litigation on a deferred payment basis”.

107    Taking stock, the authorities so far considered suggest that courts in New South Wales have adopted a different approach to that prevailing in other jurisdictions when addressing the position of the solicitors for the impecunious applicant in the security for costs context. In the New South Wales Court of Appeal, in particular, there has been a much greater readiness to take into account, as a matter favouring an order for security, the fact that the solicitors “stand behind” the applicant or “stand to benefit” from the litigation.

108    Further cementing this apparent disparity in approach, in Capic v Ford Motor Company (No 2) [2016] FCA 1178 (Capic), Perram J, without specifically addressing the New South Wales authorities, adopted a position consistent with Madgwick v Kelly, stating as follows at paragraph [21]:

It is true, I accept, that the lawyers for Ms Capic are acting on a no-win no-fee basis at this point, and that the costs recoverable by them if the class action succeeds may well exceed the fees which might be payable by Ford under an adverse costs order. To that extent, it is possible that some of the damages awarded may ultimately find their way into the lawyers’ hands. However, I do not think for the purposes of the issue of stultification that attorneys in that position are to be seen as standing behind the action. A similar conclusion was reached in Madgwick and in Bray.

109    This passage was quoted with approval by Lee J in the more recent case of Schofield v TFS Manufacturing [2020] FCA 1526 (Schofield), where his Honour addressed an application for security for costs in a representative proceeding brought pursuant to Pt IVA of the Federal Court Act. There, it was submitted by one of the respondents that, while the solicitors for the applicants had put on evidence to the effect that they were “not in a position” to provide the security, there was no detail as to what this meant, nor any evidence as to whether consideration had been given to whether another firm would conduct the proceedings and provide necessary security. In relation to this submission, Lee J stated as follows at paragraph [28], immediately before making reference to the judgment of Perram J in Capic:

Although those submissions do not say it in terms, if it is suggested that in order to prove stultification, a solicitor acting on a no-win no-fee basis is required to establish that they are not in a position to provide security, then this is a submission that ought be expressly rejected.

110    Again, this statement does not appear to be confined to the context of representative proceedings.

111    The approach taken in recent authorities of this Court stands in apparent contrast to that taken in New South Wales. The point was considered in some detail by Parker J in Longjing, it being expressly in issue in that case whether the plaintiff’s solicitors had an interest, as a creditor, in the outcome of the proceedings. The plaintiff submitted on multiple grounds that they did not. In the first place, it argued that an approach that put pressure on the solicitors to provide security would give rise to an undesirable conflict between the solicitors’ role as creditor and its professional duties to the client and to the Court. Having regard to the decisions in Ballard and Tyneside, Parker J rejected this submission, stating relevantly as follows at paragraphs [47] – [49]:

[47] The question posed by counsel’s submission comes down to whether, in a case such as the present, a solicitor creditor should be treated differently from other creditors having an interest in the outcome of the litigation. In my opinion, there is no reason in principle for any such exception to be recognised. I agree that for a solicitor to advance monies to his or her client may put the solicitor in a delicate position so far as his fiduciary duties to the client and his professional duties to the Court are concerned. It may also give rise to issues of undue influence. But these problems are not new and they are not confined to loans for the purposes of legal proceedings.

[48] Even if monies are not separately advanced, a solicitor who defers payment of his or her fees pending the outcome of the proceedings, where the client is unable to pay, is effectively speculating on the outcome of the litigation … That is not a criticism of the practice in general or of SR’s [the solicitor’s] conduct in these proceedings in particular. A retainer on such a basis is entirely legitimate and may be important in affording access to justice. But we should not pretend that such arrangements are not a source of profit for solicitors or that they do not create the potential for conflict. They clearly are and they clearly do.

[49] In a case such as this, the rationale for awarding security is to mitigate the unfairness of the defendant being exposed to the full risk of loss if the litigation succeeds, but having no recourse if it fails from those who stand to benefit from the litigation. I see no reason why the fact that the person who stands to benefit is a solicitor should make any difference. A solicitor in such a situation may need to be more careful in explaining the implications to the client, and may perhaps even need to ensure that the client obtains independent legal advice. But that is what the solicitor should do anyway and the difficulty and potential additional expense is no reason to make an exception which would disadvantage the defendant.