Berry v Innovia Security Pty Ltd

REASONS FOR JUDGMENT 1 The applicants are a natural person and a United Kingdom company. Neither is resident or based in Australia. The respondent is an Australian company. The present application is for security for costs to be provided by the applicants before the matter proceeds further. 2 The proceedings were commenced by application and a statement of claim filed on 23 December 2013. They are directed to allegations by the applicants arising from an agency agreement allegedly made between the applicants and the respondent on 2 February 2006. 3 The agreement between the applicants and the respondent is said to have entitled the applicants to commission in certain circumstances if bank note printing paper was sold by the respondent to buyers procured by the applicants. It is not necessary for the purpose of the present judgment to explore the conditions which needed to be satisfied before commission became actually payable. 4 The applicants allege that they were induced to consent to an early termination of the agreement (effective from 31 December 2007) because representations were made to them that they would be offered a replacement agreement. No replacement agreement was offered. 5 As the respondent's case is at present pleaded it contends that the agreement came to an end with the acceptance of the applicants. 6 The respondent has embarked upon the process of identifying documents to satisfy orders for discovery made by consent on 7 February 2014. Those orders require discovery to be made by all parties on 9 May 2014. The respondent's task is complicated by the fact that many of its records were seized by the Australian Federal Police. I have been told that the records are voluminous. It appears that the respondent is incurring not insignificant legal costs as a result. 7 The respondent made its application for security for costs on 28 February 2014. The foundation of the application is that the applicants are not resident in Australia and have no assets in Australia. The respondent's solicitor has estimated that the costs of preparing the respondent's case, including all aspects of discovery, up to a contemplated mediation would be $248,295. The respondent has sought security for costs in the sum of $175,000. 8 In response, the applicants offered the information (with supporting documentation) that the first applicant was the registered proprietor (title holder) of a legally unencumbered property (a cottage) in the United Kingdom purchased for £1.1 million. The applicants offered an undertaking not to sell or otherwise encumber the property without 21 days' notice to the respondent. The respondent rejected the offer of that undertaking as insufficient to protect its position. 9 The applicants also contended that it was unnecessary to do more than protect the respondent against the cost of registering any judgment in its favour as a foreign judgment, in view particularly of the assets held by the first applicant. Against an estimated cost of less than $4,000 to follow those procedures, the applicants offered security of $20,000. The respondent rejected this offer also. 10 They were the circumstances when the matter came before me to deal with the respondent's interlocutory application for security for costs. However, as the hearing progressed, there were further developments. 11 Amongst the concerns of the respondent about the quality and efficacy of the undertaking offered was the fact that nothing had been said by the applicants concerning the second applicant, whether the first applicant was the beneficial (as well as the legal) owner of the cottage, whether there were unregistered charges against the cottage and how the undertaking could provide the respondent with practical avenues of redress if notice was given pursuant to it. 12 During the course of the hearing the applicants offered an amended undertaking. It was to the following effect: The First Applicant undertakes to the Court that: 1. He is the sole legal and beneficial owner of the property identified as [cottage], [address], London [code], title number [number] ("the Cottage"). 2. The Cottage is unencumbered and there are no registered or unregistered charges over the Cottage. 3. He will not without providing 60 days notice in writing to the Respondent's lawyers, sell or otherwise encumber the Cottage. 4. If the Cottage is to be sold or otherwise encumbered, the First Applicant will pay such sum as is ordered by the Court by way of security into such account as the Court may order. 13 Counsel for the respondent was afforded an opportunity to take instructions. After an adjournment of some hours counsel for the respondent informed me that it opposed the undertaking being accepted as sufficient. 14 The hearing continued. The respondent argued that there was no evidence that enforcement of the judgment in the United Kingdom would be effective. I am not prepared to accept any speculative suggestion to the contrary. It is well established that the reciprocal arrangements for the enforcement of judgments in other jurisdictions are entitled to weight. The United Kingdom is no exception. 15 By contrast, the applicants' primary position was that it was strictly unnecessary for it to offer any comfort at all to the respondent as it was sufficient to protect the respondent's interests that Australia and the United Kingdom are party to a reciprocal arrangement whereby the judgments of this Court may be readily enforced in the courts of the United Kingdom. The existence of such a facility was said to provide the foundation for an "ordinary rule" that security need not be offered or ordered in such a circumstance. In my view, that states the position too broadly. I will return to that issue shortly. 16 The second applicant, I was informed, is a dormant company which is in existence for the purpose of recovering such compensation as may be possible in the present proceedings. The first applicant is its sole director. Both applicants are outside Australia. Neither has any assets in Australia. That is a circumstance which would normally be given "great weight" unless there were other factors which when weighed in the balance prevailed over it (see PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 ("PS Chellaram") at 323). The mere fact that Australia has a reciprocal arrangement for the enforcement of judgments is not sufficient to displace the circumstance that an applicant is not resident in Australia and has no assets in Australia (see Logue v Hansen Technologies Ltd (2003) 125 FCR 590 ("Logue") at [40]). 17 However, those basic principles do not, in my view, have the consequence that there is a rule or practice that foreign litigants with no assets in Australia should automatically provide security for the costs of the proceedings, or that the arrangements for enforcement of Australian judgments elsewhere are irrelevant, unimportant or of little weight. 18 It is true that, in Logue, Weinberg J did refer to a "practice". So did Marshall J in Ogawa v The University of Melbourne [2004] FCA 491 at [23], but that reference was only to Logue. 19 The passage in Logue was as follows: 38 The practice is that a party who is not ordinarily resident in this country, and has no assets within the jurisdiction, is normally ordered in the exercise of the Court's discretion within O 28, r 3 to give security for costs. At the very least these factors are regarded as circumstances of "great weight" in determining whether such an order should be made. 39 In P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 McHugh J observed at 323 that: ". . . for many years the practice has been to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction." 40 In this case, the applicant cannot point to any such circumstances. He did, however, refer to the fact that judgment for costs against him, were such a judgment made, could be registered in Hong Kong. I note that a litigant ordinarily resident outside Australia cannot resist an application under O 28, r 3 merely by showing, without more, that he is ordinarily resident in one of the countries specified in regulations made under the Foreign Judgments Act 1991 (Cth): Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336. 20 It is important to note that in Logue (and in other cases) the "practice" is supported by a reference to the observations of McHugh J in PS Chellaram. McHugh J did not refer to a rule of practice as such. His Honour referred to an outcome which was the consequence of failing to show circumstances to outweigh the fact that a litigant is outside the jurisdiction. 21 One such factor is that facilities are available to enforce a judgment against a litigant in his own jurisdiction. It would, of course, be relevant to the weight to be given to such a circumstance to have some idea if using the facility might produce a worthwhile result, just as in Australia it is relevant to know if a litigant is impecunious or otherwise unable to meet a costs order. 22 Prior to McHugh J's judgment in PS Chellaram, Morling J had said in this Court in Barton v Minister for Foreign Affairs (1984) 2 FCR 463: 23 at 465: Counsel for the respondent submitted that once it was shown that the applicant ordinarily resided outside Australia the court was obliged to make an order for security for costs. 24 and at 467: On general principle, I would not be disposed to accept this argument unless constrained by authority so to do. It is plain that s. 56 of the Federal Court of Australia Act 1976 (Cth) is intended to, and does, give a wide discretion to the court or a judge to make an order for the giving of security for the payment of costs. It seems to me inherently unlikely that it was intended that once a case was brought within O. 28, r. 3(1) the court would have no discretion to refuse to make an order. 25 and at 469: I must now consider whether, in the exercise of the discretion which I believe I have, I should make an order. I am of the opinion that the fact that the applicant is ordinarily resident outside Australia does warrant the making of an order. But I do not think the case calls for the making of an order for substantial security. There is no evidence before the court as to the likely costs of the action. However, I accept that they could be substantial. Counsel for the respondent stated, without objection, that the respondent's present estimate of his costs of the proceedings is about $15,000. I would have thought that this estimate is rather generous unless it be assumed that the respondent will find it necessary to bring witnesses to Australia from overseas or to take evidence overseas. Having regard to the nature of the issues which could arise in the proceedings, it may well be the case that the respondent will incur substantial additional costs in bringing witnesses to Australia, or in taking evidence overseas. But even if that proves to be the case, I do not think that the order which I propose to make should be in such an amount as to protect the respondent against the whole costs of the action. 26 and at 469: The historical basis for requiring a foreign plaintiff to give security for costs was that to enforce a judgment a defendant had to sue on the judgment in the foreign country where the plaintiff resided, and having got his judgment, then to enforce it. But that will not be the position of the respondent should he succeed in these proceedings. In that event he will be able to enforce any judgment for costs in the United Kingdom by virtue of the provisions of the Foreign Judgments (Reciprocal Enforcement) Act 1933 (U.K.), s. 2. The provisions of that Act apply to Australia - see Order in Council No. 1073 of 10 November 1933. Thus, if the respondent goes to the expense of registering in the United Kingdom any judgment for costs he may obtain in this court, he will be in no worse position than if the applicant had been resident in Australia. 27 and at 470: There is no evidence before me as to the costs of registering and enforcing a judgment of this court in the United Kingdom. But the most generous estimate would not, I think, exceed the sum of $2,000, and the applicant should be ordered to give security for payment of the respondent's costs of the proceedings in that amount. 28 In the result, therefore, Morling J thought it appropriate to order security for costs because a litigant was outside Australia, but only in the amount required to enforce a judgment overseas. 29 The applicant in that case was an undischarged bankrupt. There was no occasion to consider the extent of assets available to satisfy a judgment. 30 On the other hand, the mere existence of a facility to enforce a judgment overseas does not mean that security should necessarily be limited to the cost of such enforcement. It depends on all the circumstances. In Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336 (a case referred to in Logue) Heerey J said (at 342): I would respectfully agree with the conclusion of Morling J in Barton that the court retains a discretion to order security and is not obliged to make such an order once one of the matters referred to in O 28 r 3(1)(a), (b), (c) or (d) is established. However, Farmitalia cannot in my opinion point to any circumstances which would weigh against the making of the order. It is not suggested that Farmitalia has any assets in Australia which would be available to meet an order for costs in favour of Delta West. Nor for that matter is there any evidence that Farmitalia has available assets in Italy or anywhere else. … While there is no suggestion that Farmitalia is insolvent, this is a case where security for costs has been at issue between the parties for some time and Farmitalia has chosen not to put forward any evidence as to what its assets are and where they are located. I do not see any good reason for not exercising the power conditioned by the rule. The practical consequence of accepting Farmitalia's argument would be that a litigant ordinarily resident outside Australia would be able to resist any application under O 28 r 3(1)(a) merely by showing, that he, she or it was ordinarily resident in one of the countries specified in the Foreign Judgments Regulations. I do not think the Foreign Judgments Act or the Regulations should be treated in this way as an amendment, sub silentio, of O 28 r 3(1)(a). 31 More recently, in Maxim's Caterers Limited v Magnona Pty Ltd (No 1) [2010] FCA 450 ("Maxim's Caterers"), Jagot J dealt with an application that a Hong Kong based applicant provide security for costs ($145,950) significantly in excess of the estimated cost of enforcing an order for costs in Hong Kong ($15,000). Jagot J said (at [3]): 3 Despite some debate in the evidence it is apparent that Maxim's has substantial assets in Hong Kong. It follows that the real issue between the parties is whether any order for security should be made where a costs order against Maxim's would be enforceable in the foreign jurisdiction and, if so, whether the order should be limited to a reasonable estimate of the costs of enforcement. 32 Her Honour said (at [6]), referring to a judgment of Gummow J (when a judge of this Court, in Energy Drilling Inc v Petroz NL (1989) ATPR 40-954 at 50-422 and Lindgren J in Austin, Nichols & Co Inc v Lodestar Anstalt [2009] FCA 1228 at [23]-[24]): 6 … the real issue in a case of foreign residence is whether for that reason a respondent would be subject to any "unacceptable disadvantage". On this basis the principal purpose of the power is protective; to ensure that there is no "unacceptable disadvantage" to the respondent by reason of the applicant's foreign residence. and at [12]: 12 In the present case there is ample evidence that Maxim's has substantial assets in Hong Kong. Many of those assets could not be described as anything other than fixed and available for enforcement of a costs order if necessary. … and at [13]: 13 In other words, this is a case where, on the available evidence and other than to the extent of the costs of enforcement of a costs order in Hong Kong, the fact that Maxim's is ordinarily resident outside Australia does not place Magnona at any greater risk in terms of its capacity to enforce a costs order than would be the case if Maxim's were ordinarily resident inside Australia. In this case, accordingly, the weight which foreign residency and lack of assets within Australia would ordinarily attract is largely, if not wholly, offset by the evidence that enforcement of any costs order in favour of Magnona will be able to be enforced in Hong Kong against Maxim's substantial assets in that jurisdiction with relative ease pursuant to procedures which are well defined and known. Using the words of McHugh J this is a case where, on the evidence, Maxim's "can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction" (P S Chellaram & Co at 323). 33 There was one further matter which Jagot J took into account. It was an undertaking by the foreign party not to seek security for costs in any enforcement proceedings in Hong Kong. In the present case the first applicant has offered a similar undertaking. 34 The position adopted, in this Court at least, therefore seems to be as follows. A foreign applicant with no assets in Australia should normally expect to provide some security for costs if requested to do so. The amount of the security which is appropriate will depend on all the circumstances. A foreign applicant bears a practical onus of showing that the party seeking security will not be unreasonably disadvantaged if a costs order is made against the foreign applicant. It will be relevant, in that regard, that there are arrangements for the enforcement of Australian judgments in the jurisdiction of the foreign applicant and that, in that jurisdiction, the foreign applicant has adequate assets to satisfy a costs order in the proceedings. It may be relevant that the foreign applicant has given an undertaking not to seek security for costs in its own jurisdiction if enforcement of an Australian costs order is sought. 35 In the present case there are reciprocal arrangements for the enforcement of judgments. The first applicant has undertaken not to seek security for costs, if a costs order against him is sought to be enforced in the United Kingdom. 36 The substantial remaining question is whether the first applicant has shown that he has sufficient assets in the United Kingdom to satisfy a costs order in the present proceedings. 37 At first, the first applicant provided evidence of legal title to real property purchased for £1.1 million, with an estimated market value of £980,100 to £1,451,600, that estimate being supported by internet based material. Although the respondent queried the precision of the estimate it did not seriously suggest that the value of the property was inadequate. 38 The respondent did, however, query whether the first applicant was the beneficial (as well as the legal) owner and whether there were no unregistered (as well as no registered) encumbrances. 39 Those matters have been addressed in the most recent undertaking offered. 40 I see no reason to doubt, on the evidence before the Court at the moment, and having regard to the undertakings offered to the Court by the first applicant, that there are adequate, realisable assets held by the first applicant in the United Kingdom to satisfy a costs order against him. 41 I propose, therefore, to limit the security for costs to be ordered to $20,000. The parties should discuss, and attempt to agree, how those funds will be held. The orders made by Jagot J in Maxim's Caterers appear to me to provide a useful model to consider. 42 Those arrangements are subject to the two undertakings offered by the first applicant being duly and promptly executed by him and the originals filed with the Registry. The applicants should draft appropriate orders to attend to those matters and provide them to the respondent. 43 I will settle the orders at the next directions hearing (at present listed for 15 April 2014). The undertakings should be filed by that time. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan.