Abigroup v Hardesty & Hanover

The decision of Judge Lunn, sitting as a Master of the Supreme Court of South Australia of 20 February 2009, is reported at [2009] SASC 39.  The issue arose out of Third Party proceedings brought against an engineering company previously known as Dare Sutton Clarke, but which changed its name to ACN 008 036 940.  The Third Party proceedings were brought by an American limited liability partnership, Hardesty & Hanover, and its subsidiary Hardesty & Hanover International.  Hardesty & Hanover is a long established and highly respected firm of engineers, but without any assets in Australia.  There is no reciprocal enforcement treaty between Australia and the United States.

Against that background, the Third Party applied for security for costs, and initially, Judge Lunn gave reasons [2008] SASC 337 why the defendants should provide security.  Before the matter could come before him again to decide upon the form and amount of security, it came to light that there were errors in the affidavit filed in support of the security application by its solicitor Mr Coyle; in particular, he failed to disclose the change of name.  On enquiry, he later acknowledged the change of name, and that it was associated with a sale by the Third Party of its business to the Snowy Mountain Engineering Company (SMEC).  In its second decision on this application, the Court declined to allow Mr Coyle to be cross-examined, on the basis that the Third Party was entitled to elect to provide no information about its financial position or future intentions or insurance arrangements, but in such a case the principle in Blatch v Archer (1774) 98 ER 769 would enable the Court to draw inferences from such refusal, and further indicated that the Court would be minded to re-open the question of whether any security should be ordered insofar as that issue was affected by the matters in the affidavit of Mr Coyle which have been shown to be incorrect.

In this third decision, Judge Lunn did indeed revisit the decision on principle, and decided that no security should be ordered after all.  It is notable that in his affidavit, Mr Coyle had said that it was the Third Party company itself that would be incurring the costs of the defence, in argument, the Third Party had steadfastly refused to confirm or deny that the reality was in fact rather different, that any costs would in fact be incurred by insurers.

The moral is perhaps straight forward: that a party who applies to the Court for a discretionary relief, such as security for costs, should be candid with the Court.

An interesting side issue arose in the first decision.  In England, the rule has long been that the Court might take into account, when considering security for costs applications, whether there is any substantial payment into Court (Sir Lindsay Parkinson v Triplan [1973] 2 ALL ER 273), or any Calderbank offers (Simaan v Pilkington [1987] 1 WLR 516).  The logic behind these decisions is obvious and attractive: a Calderbank offer is “without prejudice save as to costs” and a security for costs application is a costs matter.  Judge Lunn declined, however, to apply that principle in South Australia.

It certainly is the case that the without prejudice rule has now been codified in South Australia by section 67C of the Evidence Act 1929, which provides, subject to a list of exceptions, that evidence of any communication made in connection with an attempt to negotiate the settlement of a civil dispute is not admissible in proceedings.