Seeking security
in uncertain times
If they do succeed, they will
generally be awarded a significant
proportion of their legal costs.

However, if the applicant is a foreign
resident, recovery of costs can be
difficult. Consequently, a respondent
will usually look to have a foreign
applicant provide security for costs
and do so early in the case.

The Federal Court has recently
handed down its decision in C.M.E.

Blasting & Mining Equipment v Rock
Tool Refurbishment Solutions 1 in
relation to security for costs in a
patent dispute, where the applicant
is a Canadian based mining
equipment company.

As far as the legal principles are
concerned, the Court confirmed
that it has an “effectively unlimited
or confined” discretion to order
security, which involves an exercise
in risk management. As regards
to quantum, the Court will usually
take a broad brush approach, which
“embodies to a considerable extent
reliance upon the ‘ feel of the case’
after considering relevant factors”.

At the time that the security for costs
application was heard, the case
had almost reached the end of the
pleadings stage. Rock Tool had, by
then, incurred some AU$197,000 in
legal fees and estimated that it would
likely incur another AU$350,000
to AU$450,000 in fees up to the
completion of evidence. They sought
security be provided to cover that
point in the proceedings in the
amount of US$250,000 (equivalent
to about AU$355,000), on the basis
that party/party costs are generally
about 65% of total costs.

CME resisted the security application,
on two bases. Firstly, it had provided
its Australian lawyers with US$180,000,
and given what it said were irrevocable
instructions to only release those funds
to meet a costs order. Secondly, CME
claimed it had product inventory in
Australia worth several hundreds of
thousands of dollars, which could be
called upon to satisfy a costs order.

The Court was not persuaded that
either basis was adequate protection
for Rock Tool. The Court accepted
their submission that so called
‘irrevocable’ instructions are not
necessarily watertight and that reliance
on such instructions can lead to its
own litigation, and in the process
incur further legal costs. The Court
also considered that CME’s inventory,
which consisted of equipment and
replacement parts, was too uncertain
a resource. In those circumstances the
Court indicated that it was appropriate
to order security be provided.

CME then submitted that the
amount of the security should be set
by reference to the cost of enforcing
a costs order in Canada, where
they were resident. This type of
approach had been taken in some
earlier cases by the Federal Court.

In considering whether this was the
correct approach the Court looked
at two factors. Firstly, whether
there was reciprocal enforcement
of judgements legislation in the
two jurisdictions – Australia and
Ontario, Canada. Secondly, whether
there was evidence that CME was
reputable and financially substantial.

There is no reciprocal enforcement
of judgments legislation in Australia
and Ontario. Although that was not
in itself fatal, as Rock Tool could
still sue at common law, it would
be an inconvenient and convoluted
process. In those circumstances
the Court needed to ensure Rock
Tool would not be subject to any
unacceptable disadvantage by
reason of CME’s foreign residence.

The Court took guidance from an
earlier decision in Maxim’s Caterers,
where the judge had ultimately
looked to the considerations of
justice underlying the discretion
to award security for costs. In so
doing, the judge looked at evidence
as to the existence and location of
assets, and the ease or otherwise
of enforcing a judgment in the place
where the assets were located.

In this case
there was no
evidence as to CME’s
assets and liabilities, the
location of its assets, and how
difficult or easy it may be to enforce
a judgment against them. The Court
accepted that CME was a sizeable
company with international trading
relationships, but the evidence
before the Court did not go
beyond that.

In those circumstances the Court
ordered CME to post security to the
tune of US$220,000. This represents
a slightly more conservative figure
than the US$250,000 sought by
Rock Tool, which represented 65%
of the lower range of its estimated
costs to the end of evidence.

The security was to be provided
by payment to the CME’s solicitors’
trust account, but in contrast to the
irrevocable authority sought to be
relied upon by CME, was subject
to an order of the Court.

Although security was ultimately
ordered along fairly conventional
lines, the case is perhaps most
interesting in its consideration
of potential alternatives to the
traditional approach of simply
providing security to the expected
costs of the proceeding, where
the applicant is a foreign entity.

Inspire June 2021
Parties being sued often do not have much
choice in the matter. Unless they are prepared to
surrender, they will defend themselves in the belief,
or hope, that they will ultimately be successful.

9 Malcolm Bell | Principal
BSc(Hons) LLB LLM FIPTA MRACI
malcolm.bell@pof.com.au C.M.E. Blasting & Mining Equipment Ltd
v Rock Tool Refurbishment Solutions Pty
Ltd [2021] FCA 160 (2 March 2021)
1