How does a Victorian court exercise its discretion to grant the defendant security for the costs under the Supreme Court (General Civil Procedure) Rules 2005 (Vic) (Supreme Court Rules)?  The Supreme Court illustrates how it may do so where the plaintiff is a corporate trustee in the case of Harmonious Blend Building Corporation v Keene & Anor [2014] VSC 649.

Facts

Harmonious Blend Building Corporation Pty Ltd (plaintiff) contracted with Patina Keene (defendant) for the construction of a house. The plaintiff brought an action against the defendant alleging that the defendant had made misrepresentations (including on a product review website) which injured the plaintiff's reputation and standing. The defendant sought security for its costs by way of summons under Order 62.02 of the Supreme Court Rules.

Decision

Dixon J ordered the plaintiff to provide security for the defendants' costs in the sum of $275,000.

His Honour held that the jurisdiction to grant security is enlivened by the inability of the plaintiff to pay the defendant costs if unsuccessful at trail. Once that is established, the court may then exercise its discretion as to whether to order security and, if so, in what amount.

The plaintiff owned limited assets and traded as a trustee for the Harmonious Blend Building Corporation Unit Trust. Without a copy of the trust deed, His Honour was not persuaded that the plaintiff had an incontestable right to enforce its right to indemnity against the trust assets. Without the indemnity, His Honour found that there was reason to believe the plaintiff would be unable to pay the costs of the defendants if successful in their defence.

His Honour then reiterated the guiding principles in the exercise of the discretion to require costs, namely, to achieve a balance between ensuring that the defendant is adequately and fairly protected from prejudice arising from the limited liability character of the plaintiff, and the risk of unnecessarily shutting out the plaintiff from relief.

His Honour considered

• the factors that may be taken into account in exercising the discretion, giving influential weight to the presence of the beneficiaries of the trust standing behind the plaintiff intending to take the benefit of the litigation and capable of delaying or even avoiding the payment by the plaintiff of any order for costs; and
• the relevance of the merits of the plaintiff's claim and whether the defendant had unreasonably delayed its application for costs. On both issues, Dixon J was, in the circumstances, not persuaded that security for costs should not be granted.

His Honour noted it was not necessary to consider other factors relevant to the exercise of the discretion including whether:

• the orders being sought would frustrate the claim; 
• the defendant was the cause of the plaintiff's impoverishment; and 
• the company is in substance the plaintiff to the proceedings.