Bell Wholesale Co Pty Ltd v Gates Export Corp

SECURITY FOR COSTS Section 56 confers power to make an order for security for costs against an applicant in any proceeding in the Court. It has been well established since Bell Wholesale Co. Ltd v Gates Export Corporation (1984) 2 FCR 1 at 3 that: · the Court may order security for costs under s 56 against an individual applicant on grounds other than those set out in Order 28 Rule 3; · other than the requirement that the power conferred under s 56 is to be exercised judicially there is no other limitation on its exercise. In the present case if an order for security is to be made it must be under s 56 as I am satisfied that O 28 r 3(b), which applies where an applicant is suing not for his own benefit but for the benefit of others, is not applicable to a representative proceeding under Part IVA where the applicant is suing for his own benefit and for the benefit of the represented persons. However, in exercising the discretion under s 56 the fact that a proceeding by an impecunious applicant is also brought for the benefit of others is a factor which, in general, weighs in favour of ordering security for costs unless it is established that the order will stifle or stultify the proceeding or will otherwise be oppressive: see Bell Wholesale at 4, Sent v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201 at 215-216, Pasdale Pty Ltd v Concrete Constructions (1995) 131 ALR 268 at 273-4 and Acohs Pty Ltd v Merck Pty Ltd (Federal Court of Australia, Merkel J, 20 June 1997, unreported) at 3. In such cases it is usually contended by the applicant for security that security should be ordered as, in reality, a particular impecunious applicant is bringing a claim for the benefit of others who are not "parties" to the proceeding and therefore are not, in the usual course, directly liable for costs orders. Although it is now recognised that the width of the court's jurisdiction to order payment of costs extends to orders against non-parties, including represented persons (see Burns Philp & Co Ltd v Bhagat [1993] 1 VR 203 at 221-224, Knight v F P Special Assets Limited (1992) 174 CLR 178 and Caboolture Park Shopping Centre Pty Ltd (in liq) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224), that consideration ought not to affect the discretion of the Court in relation to security for costs. Generally the courts are reluctant to order security for costs against impecunious persons as poverty is no bar to litigation. But, in that regard as Burchett J said in Cunningham v Olliver (Federal Court of Australia, 21 November 1994, unreported) at 4: "It is an important principle, which was stated in quite strong terms by Morling J in Barton v Minister for Foreign Affairs (1984) 2 FCR 463 at 469, and has been applied since in cases [such] as my own decisions in Camerons Units Services Proprietary Limited v Kevin R. Whelpton and Associates Australia Proprietary Limited (1986) 13 FCR 46 at 53 and Weston v Beaufils (1993) 43 FCR 292 of 298, that an impecunious natural person is entitled to rely on the general rule that poverty is no bar to a litigant. The applicant's impecuniosity should not close the door of the court against his claim. However, to the extent that the claim is put forward on behalf of others, it is appropriate to regard this principle as qualified." The issue arising is whether the qualification referred to by Burchett J applies to a proceeding under Part IVA. PART IVA Part IVA permits applicants to commence or participate in representative proceedings where, in accordance with s 33C: · there are seven or more persons with claims against the same person; · the claims are in respect of, or arise out of, the same, similar or related circumstances; and · the claims give rise to a substantial common issue of law or fact. Under Part IVA a person who has a claim that meets the requirements of s 33C (see ss 33C(1)(a) and 33D) may commence a proceeding. In certain circumstances the Court may order that the proceedings not continue as a proceeding under Part IVA (see ss 33L, 33M, 33N and 33P) and in other circumstances the Court may give special directions for the determination of specific issues (see ss 33Q and 33R). The origin of Part IVA, which was said in the Second Reading Speech (House of Representatives, 14 November 1991, at 3175) to be a significant part of the Government's "equity and access policies embodied in its social justice program", is to be found in the Australian Law Reform Commission Report No 46: "Grouped Proceedings in the Federal Court" (Canberra, 1988) in Chapter 8. The Report recommended "grouped proceedings" in which each group member was to be the equivalent of a party to the proceedings. It also made certain recommendations as to costs on that basis. When enacting Part IVA the Parliament did not adopt the Commission's "grouped proceedings" approach. As a consequence general costs issues were not dealt with in Part IVA. However the Parliament has accepted that, in general, represented persons were not to be liable for costs. That issue was dealt with, not in Part IVA, but by a subsequent amendment to s 43 of the Act which confers a broad jurisdiction on the Court in respect of costs including orders against non-parties. The amendment (now s 43(1A)), which was introduced in response to the decision of the Supreme Court of Victoria in Burns Philp & Co Ltd v Bhagat, provided: "43(1A) In a representative proceeding commenced under Part IVA or a proceeding of a representative character commenced under any other Act that authorises the commencement of a proceeding of that character, the Court or Judge may not award costs against a person on whose behalf the proceeding has been commenced (other than a party to the proceeding who is representing such a person) except as authorised by: (a) in the case of a representative proceeding commenced under Part IVA - section 33Q or 33R; or (b) in the case of a proceeding of a representative character commenced under another Act - any provision in that Act." The Explanatory Memorandum in respect of the amendment stated that it "will not affect the operation of the ordinary costs rules as regards the representative party or the Court's powers to order security for costs". The section confers a specific and unilateral immunity in respect of costs orders for a particular category of persons being represented persons. That immunity, which confers a special benefit on represented persons, is likely to be linked to the purposes of the procedure provided for in Part IVA which were expressed in the Attorney-General's Second Reading Speech (House of Representatives, 14 November 1991 at 3174-3175) as follows: "Such a procedure is needed for two purposes. The first is to provide a real remedy where, although many people are affected and the total amount at issue is significant, each person's loss is small and not economically viable to recover in individual actions. It will thus give access to the courts to those in the community who have been effectively denied justice because of the high cost of taking action. The second purpose of the Bill is to deal efficiently with the situation where the damages sought by each claimant are large enough to justify individual actions and a large number of persons wish to sue the respondent. The new procedure will mean that groups of persons, whether they be shareholders or investors, or people pursuing consumer claims, will be able to obtain redress and do so more cheaply and efficiently than would be the case with individual actions." Section 56 confers a broad discretion on the Court which is to be exercised by reference to the particular circumstances arising in each case. Accordingly, the Court should be cautious about enunciating general rules that might fetter that discretion. However, in my view there is no reason why, in general, the fact that a proceeding is brought for the benefit of others under Part IVA ought not to be a consideration which together with other considerations can favour the ordering of security. Indeed, s 33ZG(c)(v) provides that, except as otherwise provided by Part IVA, nothing in the Part affects the operation of any law relating to security for costs. Consequently nothing in Part IVA is to affect the operation of s 56 and O 28 in relation to security for costs or is to impede orders being made for security for costs in Part IVA cases on the same basis as may be ordered in other cases. On the other hand it would be incongruous and anomalous for Parliament specially to confer a direct costs immunity under s 43(1A), inter alia to afford represented persons greater access to justice, and then for the courts indirectly to remove the effect of that immunity by making orders for security for costs on the basis that the applicant is bringing the proceedings for the benefit of others who ought to bear their share of the potential costs liability to other parties. In my view, in order to deal with that incongruity and anomaly the fact that an impecunious applicant is bringing a Part IVA proceeding for the benefit of represented persons, whilst a relevant consideration in favour of granting security, ought not of itself be as significant a consideration as it might otherwise be in favour of the granting of security. My view · is based on the significance of s 43(1A) in relation to a Part IVA proceeding in which an application is made for security for costs and not upon any provision in Part IVA as such; · relates solely to the weight to be given to a particular consideration as a factor in relation to the exercise of the Court's discretion to order security for costs. For these reasons the conclusions I have drawn from s 43(1A) do not conflict with s 33ZG(c)(v), nor do they result in any limitation on the Court's general discretionary power to order security for costs.

THE DISCRETION UNDER s 56 In the present case a number of considerations operate against the making of an order for security for costs: · the individual applicant has a bona fide claim and has a reasonably arguable case for relief under Part IVA of the Act in a matter which raises important issues of principle in relation to the rights of former employees of a company in liquidation; · public policy considerations weigh strongly against any order for security that might impede a group claim for accrued employee entitlements brought against directors on the basis of their liability for insolvent trading by their company; · an order for security is likely to stultify proceedings unless the security is obtained from the represented parties. The respondents accept the difficulty in obtaining an order for security for costs against an impecunious but bona fide individual applicant but have put their claim on the basis of the benefits to be derived from the proceeding by the other employees. As pointed out above policy considerations derived from s 43(1A) will usually dilute the significance of, and the weight to be given to, that consideration in a properly brought Part IVA claim. Even if, contrary to that view, I were to disregard these policy considerations, in the circumstances of the present case the importance of the issues raised by the claim and the public policy considerations to which I have referred above are of such weight that I would nevertheless exercise my discretion against ordering security for costs. There may be circumstances which arise in a particular case under Part IVA that may warrant a different approach to that set out above. For example if the claim was spurious, oppressive or clearly disproportionate to the costs involved in pursuing it or if the proceedings were structured so as to immunise persons of substance from costs orders I would not consider the fact that the represented persons were entitled to the benefit of s 43(1A) to be a consideration which in any way operates against an order for security in such cases. Also my decision is not intended to deal with the situation of a corporate applicant where application is made under s 1335(1) of the Corporations Law. There may be many other situations where it would be unfair to deny security for costs. In my view none of these situations are applicable to the present case. Finally, in arriving at my conclusions I have not overlooked the position of the third respondent who contends that he was not a director and that consequently the claim against him is, at best, a weak one. Whilst there may be some force in that contention the applicant has led evidence and joined issue on that matter which ultimately will depend on the evidence at trial. At this stage I am not prepared to conclude that the claim against the third respondent does not raise a triable issue or is otherwise sufficiently distinguishable from the position of the first and second respondents for the purposes of the application for security for costs.

CONCLUSION For the foregoing reasons the motion for security for costs is to be dismissed with costs. I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel

Counsel for the Applicant: Mr B Hutchinson

Solicitor for the Applicant: Nevin Lenne & Gross

Counsel for the First and Second Respondents: Mr P Bingham

Solicitor for the First and Second Respondents: Kennedy Guy & Co

Counsel for the Third Respondent: Mr D Lennon

Solicitor for the Third Respondent: Trivett Keating

Date of Hearing: 12 December 1997

Date of Judgment: 24 December 1997