QCA: Consideration must be given to the time taken to assess costs when determining security payments

In the recent matter of Monto Coal 2 Pty Ltd & Ors v Sanrus Pty Ltd & Ors [2018] QCA 309, the Queensland Court of Appeal provided a reminder that the time required to assess costs may be taken into account when determining whether a respondent is able to realise assets to pay security.

Background and the proceeding below

The proceeding related to a dispute over a joint venture to mine coal at Monto entered into in 2002.  The proceeding had a long history, having been commenced in October 2007.  The plaintiffs consented to provide security for the defendants’ costs of $250,000 in December 2007 and at the time of writing, the proceeding is listed for trial for 16 weeks in 2019.

In December 2017, the defendants applied to the Court to increase the security from $250,000 to $4,000,000.

At first instance, Crow J dismissed the application on the basis that the defendants failed to meet the essential threshold requirement in r671(a) of the Uniform Civil Procedure Rules 1999 that there is reason to believe that the plaintiff will not be able to pay the defendants’ costs if ordered to do so.

His Honour based his decision upon evidence provided on behalf of the plaintiffs that their interest in the joint venture (the evidence indicated that the total value of the joint venture was $100,000,000) significantly exceeded the estimate of the defendants’ likely costs of the proceeding ($4,000,000) and that the plaintiffs may sell that interest in order to satisfy any costs liability to the defendant should their action fail.

The defendants appealed his Honour’s decision on the basis that, relevantly, his Honour had failed to apply the correct threshold test under r671(a) and had erred in failing to find that there was “reason to believe” that the plaintiffs will not be able to pay the defendants’ costs if ordered to pay them[1].

The defendants needed to succeed on each of those points in order for the appeal to succeed.

The decision on appeal

Gotterson JA (with whom McMurdo JA and Boddice J agreed) held that the primary judge had applied too strict a threshold test under r671(a).  The primary judge had approached the test on the basis that the defendants were required to satisfy the Court that the plaintiff “will not” be able to pay the defendants’ costs if ordered to do so[2], whereas the defendants were merely required to satisfy the Court that there was “reason to believe” that the plaintiffs would not be able to pay costs if ordered to do so[3].

In reaching his decision with respect to whether the primary judge should have in fact found that there was reason to believe that the plaintiffs will not be able to pay the defendants’ costs if ordered to pay them, Gotterson JA preferred the view was that it was for an applicant for security to adduce evidence from which the Court may form a reason to believe that a plaintiff will not be able to pay the defendants’ costs if ordered to pay them[4].

His Honour then turned to consider the time period within which a plaintiff must pay a defendant’s costs, observing that:

The expression itself does not stipulate when, or by what means, the plaintiff company is to be able to pay the costs order. It does not require, for example, that in order to be able to pay a costs order, a company must have available liquid funds sufficient to meet the costs order on the date that the order is made. To put it another way, it does not state or imply that a company will be unable to pay unless it has on hand such liquid funds at that date.[5]

His Honour then cited an observation of von Doussa J in Beach Petroleum v Johnson[6] and stated that:

These observations imply, correctly in my view, that the period of time likely to be required for determination, by assessment or otherwise, and allowing for resolution of any disputes that arise in the determination process, is to be taken into account. So also is the opportunity that the plaintiff corporation will have within that period to realise non-liquid assets in order to pay the quantum of the ordered costs as and when they are ultimately determined.[7]

The appellants had contended that the Court should find that there was reason to believe that the plaintiffs would not be able to pay the defendants’ costs if ordered to pay them due to uncertainty surrounding when the plaintiff may be able to realise its interest in the joint-venture[8].

Gotterson JA ultimately found that on the evidence available, there was no reason to infer that the realisation of the plaintiffs’ interest in the joint venture in order to satisfy any costs order would take longer than the process of determining the costs payable.  His Honour also noted that the process of costs assessment may take a considerable time given that the proceeding had commenced some 11 years earlier in 2007 and was listed for 16 weeks’ trial[9].

In light of that, his Honour held that the threshold requirement that there be reason to believe that the plaintiffs would not be able to pay the defendants’ costs if ordered to do so had not been met[10] and accordingly, dismissed the appeal[11].

Conclusion

The decision is a timely reminder to practitioners that:

  1. the threshold contained in r671(a) necessary for security for costs to be awarded requires only a “reason to believe” that the relevant party cannot pay costs if ordered to do so, rather than a concluded opinion that the relevant party cannot pay costs if ordered to do so; and
  2. the relevant time at which the threshold is to be analysed is not at the time that the order for costs is made; but rather, at the time when the costs must be paid at the conclusion of the costs assessment process. This allows non-liquid assets to be taken into consideration as available to satisfy a costs order if a plaintiff can show that those assets could be sold prior to the conclusion of the costs assessment process.  Practically, this may be of assistance in resisting an application for security for costs noting the significant length of time that the costs assessment process can take.

 

Adrian Robins
Adrian Robins (Director)
About the Author

Adrian Robins is a Director at James Conomos Lawyers, where he practices in the areas of commercial litigation, insolvency, bankruptcy and legal costs disputes. Adrian is committed to achieving positive outcomes for his clients and is celebrated for his prompt and practical legal advice.

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[1] Monto Coal 2 Pty Ltd & Ors v Sanrus Pty Ltd & Ors [2018] QCA 309 (Monto Coal 2 Decision) at [35] & [36].

[2] Monto Coal 2 Decision at [45].

[3] Monto Coal 2 Decision at [43].

[4] Monto Coal 2 Decision at [49], citing Cornelius v Global Medical Solutions Australia Pty Ltd (2014) 98 ACSR 301 at [18]-[20] per Macfarlan J (Tobias AJA agreeing).

[5] Monto Coal 2 Decision at [50].

[6] (1992) 7 ACSR 203 at 205; cited at [51] of the Monto Coal 2 Decision.

[7] Monto Coal 2 Decision at [52].

[8] Monto Coal 2 Decision at [58].

[9] Monto Coal 2 Decision at [60].

[10] Monto Coal 2 Decision at [61].

[11] Monto Coal 2 Decision at [62].