Security for costs an increasing trend in defendants’ tactics

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This is a class action on behalf of passengers of a ‘Southern Australia Cruise’ operated by the respondent in December 2016. The applicant alleges that there was an outbreak of norovirus onboard the cruise, which caused significant disruption to the cruise. The applicant alleges that the respondent breached the consumer guarantees in the Australian Consumer Law and seeks compensation on her own behalf and on behalf of class members. 

This decision concerned an application by the respondent for production of any retainers and costs agreements between the applicant and her solicitors, Shine Lawyers (Shine). The application arose against the background of a foreshadowed application by the respondent for security for costs. In response to a letter from the respondent’s solicitors, Shine stated that they were acting on a “no-win, no-fee” basis, and that there was no third-party standing behind the applicant who will benefit from the litigation if it is successful, that is, providing any funding, backing, or indemnity such as to enliven ordinary security for costs principles against those parties. The respondent sought production of Shine’s costs agreement on the basis that it was ambiguous as to whether Shine was covered by that statement and/or whether some other party may have agreed to protect the applicant in the event of an adverse costs order. 

Justice Jackman made the orders sought by the respondent. In doing so, his Honour first rejected the applicant’s submission that the Court did not have power to order the production of Shine’s costs agreement, finding that s 23 of the Federal Court of Australia Act 1976 (Cth) provided such power. Second, his Honour rejected the applicant’s submission that the documents sought had no relevance to any security for costs application. His Honour acknowledged that, in Madgwick v Kelly (2013) 212 FCR 1; [2013] FCAFC 61 (Madgwick), the Full Court held that a law firm acting in circumstances where it would only recover its professional fees and disbursements if the litigation were successful has no relevant commercial interest in the litigation such as to expose it to the need to provide security for costs, in contrast to the position of a litigation funder. His Honour observed (at [10]) that “[t]he reasoning of the Full Court in Madgwick appears to me to make an application for security for costs in the present proceedings difficult, but not necessarily hopeless”. Indeed, his Honour said that the documents sought may expose differences between the terms of Shine’s costs agreement in this case with the agreement in issue in Madgwick. On the other hand, his Honour said that production of the agreement “may confirm the applicability of the reasoning in Madgwick …, and thus obviate the need for the Court to deal further with any application for security for costs” (at [10]). Finally, his Honour agreed with the respondent’s submission that the correspondence between the parties did not unequivocally rule out the possibility of the existence of some agreement with another party to protect the applicant against any adverse costs order. 

McLean-Phillips v Carnival plc t/as P&O Cruises Australia (No 2) [2023] FCA 627 

Federal Court of Australia, Jackman J,
14 June 2023 

Applicant’s Solicitors: Shine Lawyers
Respondent’s Solicitors: Clyde & Co
Applicant’s Funder: N/A 

Austlii link

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