In the recent decision of Lanai Unit Holdings Pty Limited as trustee for the Lanai Unit Trust v Mallesons Stephen Jacques (a firm)  QSC 2 the Supreme Court of Queensland considered a security of costs application.
In particular, the amount of security, and whether the security should include past or future costs of the proceeding. This was in circumstances where the defendant had delayed bringing the application.
The proceeding is a claim for damages for negligence or under s 82 of the Trade Practices Act 1974 (Cth) for contravention of s 52 of that Act. The plaintiff alleges the defendant, when acting for the previous trustee of the Lanai Unit Trust, breached its duty of care in drafting contracts for the previous trustee’s use. As a result the other parties to the contract were able to cancel, and did.
The defendant brought an application for security for costs under rules 670 and 671 of the Uniform Civil Procedure Rules 1999 (QLD) (UCPR) and section 1335 of the Corporations Act 2001 (Cth) (Corps Act).
The defendant provided evidence that until the first day of trial the standard costs and outlays would be $888,372.48.
Jackson J found, ‘by credible testimony‘, that there was reason to believe the plaintiff will be unable to pay the costs of the defendant, if the defendant is successful. As well, he noted the plaintiff is a trustee suing for the benefit of the beneficiaries of the Lanai Unit Trust.
The plaintiff did not dispute an order for security should be made. The disputed questions were:
- The amount of security that should be ordered; and
- The stage of the proceeding up to which security should be ordered.
The methodology of the defendant’s quantum evidence included an affidavit from a very experienced professional negligence litigator as to past and future work that would be done by the defendant due to the plaintiff’s claim. The defendant then had a costs assessor prepare a report as to the likely recoverable costs, based on the affidavit.
Decision as to the amount of security
Jackson J considered that the dispute as to the amount of security has two limbs:
- The extent to which security for past costs should be ordered having regard to the delay by the defendant in bringing the application; and
- The quantum of any security, whether for past costs and future costs.
In determining the outcome of the defendant’s delay Jackson J considered past cases but emphasised the discretionary power under UCPR rule 670 and section 1335 of the Corps Act. He commented on authority indicating a plaintiff is not usually required to prove that as a result of the defendant’s delay it has incurred costs and expended time that it would not have done otherwise.
Then after regarding the process of the proceeding to date, and recognising at times there was unjustifiable delay on part of the defendant, and at times there was not, Jackson J found it appropriate to reduce security for past costs that would otherwise be ordered to reflect the unjustified delay.
Jackson J stated that the pre-proceeding steps (i.e. steps taken by a prospective defendant to prepare for a notified claim) may be recoverable under section 15 of the Civil Proceedings Act 2011 (QLD) and UCPR rule 681. He considered there was no reason to exclude those costs from a security for costs made under rule 671 of the UCPR and section 1335 of the Corps Act. He commented that ordinarily delay up to the start of the proceeding is caused by the plaintiff.
Jackson J accepted the defendant’s quantum methodology of evidence finding it to be consistent with the methodology used in two Victorian Supreme Court Cases1. He considered the task was to set a sum that is ‘sufficient’ under section 1335 of the Corps Act and ‘appropriate’ under UCPR rule 670. He emphasised the process is, as its nature requires, a ‘broad brush’ assessment. Not an exercise of precision nor a full assessment of costs.
In determining what is ‘appropriate’ and ‘sufficient’ Jackson discussed the discernible trend in cases to discount the amount sought to guard against the risk of over-estimation and a possibility of proceedings ending early (noting a solution to which is to grant staged orders for security). He outlined other discretionary factors that may be regarded including whether a plaintiff would be prevented from proceeding and whether the plaintiff’s impecuniosity was caused by the defendant.
Jackson J accepted the strength or weakness of a claim is also a discretionary factor but said the court should not go into the merits unless an extreme likeliness of success or failure can be demonstrated. He did not consider the plaintiff demonstrated this and pointed out success in a professional negligence damages claim will not be established by a finding of negligence. Additional findings regarding causation and of quantification of loss, are required.
Jackson J ordered the amount of security for past costs should be $250,000.00 (factoring in the costs assessor’s assessment and a discount for the defendant’s unjustified delay). For future costs, Jackson J ordered the amount of $200,000.00 up to the mediation. He noted if the matter proceeds past mediation there will be very substantial additional amounts that may be the subject of future applications for security.
Lessons and implications
This case is a reminder of the court’s discretionary powers under UCPR rule 670 and section 1335 of the Corps Act.
The case demonstrates a defendant still may obtain security for past costs (including pre-proceeding costs), when its application is delayed. This is despite there being cases where the outcome of the defendant’s delay has been for orders for security for future costs only, or dismissal of such applications. This is because the outcome of a defendant’s delay is ultimately a matter of the court’s discretion.
The case emphasises parties should not devote extensive resources to questions of security of costs. They need only make a ‘broad brush’ assessment. ‘An order for security is not a final assessment of anything about the amount of costs that may be payable but a provision against a contingent amount that depends on a number of things that are not amenable to precise prediction‘.
Finally, this case shows that the court should not go into the merits of the litigation unless an extreme likeliness of success or failure can be demonstrated.
This article was written by Zoe Cunich, Solicitor and David Muir, Partner.
1DIF III Global Co-Investment Fund L P v BBLP LLC  VSC 484 and Pathway Investments Pty Ltd v National Australia Bank Limited  VSC 97