The case of Laurus Group Pty Ltd (admin apptd) v Mitsui & Co. (Australia) Limited (No. 2) [2023] VSC 412
Facts
Mitsui and APT were parties to litigation. Mitsui made an application for security for costs against APT. The Court granted the application and ordered APT to pay $30,900 into Court on 29 June 2021 (First Security for Costs Deposit).
About a year later, after the parties attempted mediation, Mitsui and APT filed consent orders that APT pay a further $100,000 into Court (Second Security for Costs Deposit).
Following trial, APT’s claim was dismissed and judgment was granted in favour of Mitsui. Orders were made that APT pay Mitsui’s costs of the proceedings. Shortly after, APT was placed into voluntary administration.
The Administrator asserted that the beneficiary of a security for costs order acquired a security interest in any money that had been paid in satisfaction of that order for the purposes of the Personal Property Securities Act 2009 (Cth) (PPSA). In this case, Mitsui had not made a registration against APT on the PPSA before the date of the appointment of the Administrator. Accordingly, the Administrator contended that Mitsui had an unperfected security interest in these funds that had vested in APT on the Administrator’s appointment.
The Administrator sought to distinguish the First Security for Costs Deposit from the Second Security for Costs Deposit payment because the former was made by orders of the Court following a contested hearing, whilst the Second Security for Costs Deposit was paid with the consent of the parties.
Issues
The issues in this case are:
- Does the beneficiary of a security for costs order have a PPSA security interest in any monies paid into court in compliance with that order?
- Would there be any difference if the court order to pay security into court was sought by consent?
First Security for Costs Deposit
As to the first issue, the Court accepted the comments made by Santamaria JA in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd & Ors (2014) 49 VR 86, that a Court imposed condition for a party to unilaterally pay money into Court as security for costs is not a PPSA security interest as:
- the interest in the money paid into court is a form of charge arising by operation of general law; and
- section 12 of the PPSA notes that a security interest needs to be ‘provided for by a transaction’. Whilst a transaction is not specifically defined, it can be described as a conduct giving rise to rights, where the creation of those rights may be said to be consensual as between parties. Consent being an important feature. The Court in this case ordered APT to pay the First Security for Costs Deposit over APT’s objection. Accordingly, the security interest was not provided by a transaction APT consented to.
Second Security for Costs Deposit
The Administrators argued that the consensual transaction between the parties arose by reason of the consent orders filed to Court. However, this submission was rejected. The Court found that the parties intended and understood that the product of their consensus would be the making of orders by the Court rather than a private agreement between them. Further, payment of the Second Security for Costs Deposit out of Court will be subject to similar Court orders, rather than private agreement.
The Court also noted that its role towards consent orders was not one of a rubber stamp. Consent orders require careful considerations of the appropriateness of the orders before it is approved.
As properly understood, the ‘private agreement’ between the parties amounted only to an agreement to seek orders by consent from the Court in the form of the short minutes of order forwarded to the chambers. All obligations imposed by the ‘private agreement’ was fully discharged upon the consent orders reaching chambers.
Key takeaway
- Those who have the benefit of security for costs orders in litigation do not need to register a security interest against their opponents.
- Their interest in any money paid into Court will be protected by a charge arising in their favour as implied by law.
- Monies paid into Court for security for costs is there to pay the beneficiary of those orders. Such funds do not form part of the insolvent estate to be distributed amongst the general creditors.
- The beneficiaries of a security for costs order do not need to register a security interest against their opponents on the PPSR.