Proctor : October 2016
41 PROCTOR | October 2016 Report by Sheryl Jackson. Her Honour described the affidavit evidence of Mr Mayes, which was filed for Allied concerning the financial prospects of Allied over the next couple of years, as “very thin”. She noted in particular that Mr Mayes, who was both a director of Allied and an accountant employed by Allied, as well as being the accountant for the relevant group of companies, did not go so far as to express a personal belief that Allied could meet an adverse costs order. Further, he did not express a view that the 2015 income tax figures provided a sound basis for a conclusion about Allied’s ability to meet an adverse costs order, and nor did he express any view about the likely profits of Allied for the financial year ended 30 June 2016. On the question of whether the court should decline to exercise its discretion to make an order on the basis that Allied’s impecuniosity was caused by the council, Gleeson J noted the distinction drawn in the decision in Australian Battery Distributors Pty Ltd v Robert Bosch (Australia) Pty Ltd  FCA 1164 at - between circumstances in which an applicant’s impecuniosity has arisen because the respondent has not acted to ensure that the applicant obtained assets, and one in which an applicant’s existing state of impecuniosity is caused by a respondent who has deprived the applicant of existing assets. Her Honour said that a more cautious approach was required in the former situation. Her Honour accepted that it was nevertheless arguable that Allied’s impecuniosity was caused or contributed to by the council’s alleged wrongdoing, since it appeared that Allied was reliant on a single contract to earn profits and it was required to find an alternate source of income when that contract was terminated. Gleeson J concluded, however, that it could not be said that an order for costs would stultify the action. In this regard her Honour noted that the deponent for Allied had not given evidence to the effect “though he was plainly in a position to do so”. Her Honour noted that Allied was a member of a group of companies as described in the evidence filed on its behalf, and stated that in such circumstances (at ): “I do not accept that the nominal paid up capital of the shareholders of Allied provides a sufficient evidentiary basis for a conclusion that an order for security for costs would have a stultifying effect.” As the shareholders of Allied were three individuals, including Mr Mayes, her Honour indicated that evidence should have been given about their respective financial positions. In the light of these findings, Gleeson J concluded that the court should exercise its discretion to order security for costs. Quantum The estimate of recoverable party and party costs provided on behalf of the council was for $107,134.30, covering the costs of the application for security for costs, discovery and evidence preparation and trial preparation, the costs of a two-day hearing on the separate questions, and accommodation, travel and miscellaneous expenses. In the absence of any criticism of this evidence on behalf of Allied, the court ordered Allied to provide security for costs in the round sum of $105,000. Comment The decision may fairly be regarded as quite favourable to a party seeking an order for security for costs. Such an application is commonly opposed on the basis that the applicant’s impecuniosity was caused by the respondent’s conduct the subject of the claim. The court’s approach in this case suggests that this ground will have limited persuasive value unless the applicant is able to show that the respondent’s conduct has deprived the applicant of pre-existing assets. The decision also suggests that a party will need to adduce strong evidence in relation to its ability to satisfy an adverse costs order, once the party seeking security has met its evidentiary burden in that regard, in order to persuade the court to exercise its discretion by refusing to make the order sought. This column is prepared by Sheryl Jackson of the Queensland Law Society Litigation Rules Committee. The committee welcomes contributions from members. Email details or a copy of decisions of general importance to email@example.com. The committee is interested in decisions from all jurisdictions, especially the District Court and Supreme Court. 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