Are indemnity deeds from foreign insurers enough to satisfy security for costs?
Shareholder class action – Security for costs – Whether deeds of indemnity from foreign insurers will provide adequate security – Whether applicant should be permitted to replace previous security provided by payment into Court with deeds of indemnity
This was an interlocutory decision in a shareholder class action concerning security for costs. Two issues were before the Court: firstly, whether security could be provided by deeds of indemnity issued by insurers and secondly, whether earlier security paid into Court could be replaced with a deed of indemnity. Some debate was also had regarding the indemnity to the lead applicant from the funder in the funding agreement and whether that should warrant security not being ordered, or the form of security varied. Augusta stepped in to fund the proceeding after the initial funder withdrew – funding agreements were thus novated.
The funder, Augusta Pool 1 UK Ltd, is a second tier subsidiary of Augusta Securities Ltd. A letter of comfort was written by the first tier subsidiary to the funder. Justice Perram was not satisfied that a letter of comfort was sufficient. His Honour noted (at ):
No doubt, the letter of comfort serves to satisfy the directors of the Funder that they may continue to incur debts as the letter provides them with a reasonable basis for thinking that the Funder can meet its debts as and when they fall due. But whether the special purpose vehicle will actually honour the letter of comfort when the pressing moment arises is a question which, like many matters, is hostage to an unknowable future. For example, if the Funder itself became insolvent it is not self-evident that it would be in the interests of the special purpose vehicle to throw good money after bad. In that circumstance, I am not disposed to think that the existence of the indemnity in the funding agreement provides a good reason not to order security or to vary the form of the security.
However, his Honour accepted in principle that a deed of indemnity was an acceptable form of security, but noted that it may not always be acceptable, and that it was necessary to consider the “solidity” and solvency of the insurer/reinsurer proffering the deed of indemnity (at ).
Earlier security of approximately $1.3 million was paid into court by the lead applicant in August 2019 in circumstances where the initial funder had refused to provide security, and the applicant now sought orders allowing that security to be replaced with a deed of indemnity. His Honour refused that application, stating (at ):
The question then is whether I should relieve the Applicant of the consequences of his decision by permitting a revocation of the order to which he formerly consented. I do not regard the fact that the Applicant’s circumstances have improved (in the sense that he now has the Funder in his corner) as constituting a sufficient change in circumstances to warrant a revisiting of the interlocutory consent order which has been made. Whilst there is always jurisdiction to recall an interlocutory order, generally some sufficient change of circumstances needs to be shown before that course can be taken: Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46-47 per McLelland J. If there was some suggestion that the consent order had involved some wrongful conduct on the part of the Respondent then the matter might be different. But here all that has happened is that the Respondent has vigorously pursued its entitlement to security for costs and the Applicant, to avoid the loss of the entire suit, has paid the security into Court. The bargain made by the Applicant, in light of my conclusions on issue (a), was not perhaps the best bargain viewed in the rear vision mirror. However, the jurisdiction to revisit interlocutory orders is not enlivened just because one party comes to the view that the bargain it reached was not a good one.
Bonham as trustee for the Aucham Super Fund v Iluka Resources Ltd  FCA 1693
- Federal Court of Australia, Perram J, 8 October 2019
- Applicant’s Solicitors: Shine Lawyers;
- Respondent’s Solicitors: Herbert Smith Freehills;
- Applicant’s Funder: Augusta Pool 1 UK Ltd
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