ANZ terminated a finance facility and mortgage, called up its debt, appointed administrators to Pioneer, and exercised its power of sale as mortgagee. The guarantor of the mortgage, Mr Carpenter (“Mr C”), disputed the power of ANZ to do any and all of the above acts.
ANZ made an application to the Court for Mr C to pay an amount as security in the event an order for costs was made against Mr C at the final hearing.
Justice Einstein applied the principles stated in Idoport Pty Ltd v National Australia Bank Limited  NSWSC 744 in relation to applications for security of costs. The source of the funds at Mr C’s disposal was not revealed. It was clear that Pioneer was in liquidation and had no assets. Mr C was ordered previously to indemnify Pioneer when granted leave to commence the proceedings on behalf of the company. Mr C did not provide any evidence of his liabilities. Mr C was the controller of the parent company of Pioneer.
His Honour considered whether Mr C’s impecuniosity was caused by Pioneer’s conduct which was the very subject of the claim (see M A Productions Pty Ltd v Austarama Television Pty Ltd) concluding that Mr C’s “reticence to make any disclosure on the subject should lead to inference that giving the evidence would not assist his case” and noting the beneficiaries of the action remained undisclosed. It was submitted that a security for costs order would stultify the proceedings. Justice Einstein stated in response to that submission:
The submission however completely fails to address the need for proper security for costs orders to be made when appropriate, to prevent those who will benefit from success in the proceedings from being able:
- to litigate and expose a defendant to the risk of irrecoverable costs;
- to so litigate whilst themselves shielded, by reason of the interposition of the impecunious plaintiff, from the burden of an adverse order for costs.
His Honour considered the strength of Pioneer’s case in the exercise of the discretion whether to order security of costs, as follows:
I proceed upon the assumption that the claim of Pioneer is genuine and arguable with a reasonable prospect of success. To so proceed is no more than is suggested by the authorities: cf Beazley JA, KP Cable Investments supra; Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621; Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 . This approach takes into account the evidence of advice obtained and placed before Barrett J in a fashion which is consistent with Australian Quarry Holdings Pty Ltd (in liq) v Dougherty (1992) 8 ACSR 569 where Ormiston J, also dealing with a security for costs motion, put the matter as follows:
In my opinion, where a liquidator has obtained advice that serious claims should be pursued and that they have reasonable prospects of success (as in the present case) then a court is entitled to have some regard to that opinion upon an application for security for costs, if the object of the liquidator in bringing the action is to provide funds to pay creditors. Cf John Arnold’s Surf Shop Pty Ltd (in liq) v Heller Factors Pty Ltd (1979) 4 ACLR 26 ; ACLC 32,094; Spiel v Commodity Brokers Australia Pty Ltd (in liq) (1983) 8 ACLR 410 (Full Court SA); and GAI Holdings (No 3) Pty Ltd v GAI Holdings (No 4) Pty Ltd (1986) 4 ACLC 90 .
His Honour concluded that there was nothing to prevent the exercise of the discretion to order security of costs and ordered security in the amount of $600,000d to be paid by Mr C to meet the possibility of a costs order against him at the final hearing.