WENDY MARGARET BRIDE AS TRUSTEES OF THE PINWERNYING FAMILY TRUST

SOUTHERN ROLLED OATS PTY LTD (FORMERLY SOUTHERN FOODS (1986) PTY LTD)

Security for costs - Bankruptcy of plaintiffs - Effect of bankruptcy - Relevance of common law principles to Rules of Court O 25 r2(d) - Whether exercise of discretion should be interfered with - Turns on own facts

First Respondent (First Defendant) : Mr J C Vaughan & Ms C H Thompson

Second Respondent (Second Defendant) : No appearance

First Respondent (First Defendant) : Freehill Hollingdale & Page

Second Respondent (Second Defendant) : No appearance

Third Respondent (Third Defendant) : Freehill Hollingdale & Page

Bride & Anor v Hammond Fitzgerald & King, unreported; FCt SCt of WA; Library No 950054A; 15 February 1995

Bride & Anor v Peat Marwick Mitchell (1989) WAR 383

Bride as Trustees for the Pinwernying Family Trust v KMG Hungerfords (1991) 109 FLR 256

Bride v Australian Bank Ltd & Stewart, unreported; Fed C of A; WAG 191; 25 October 1989

Bride v Milne Feeds Pty Ltd & Anor, unreported; FCt SCt of WA; Library No 950622A; 21 November 1995

Bride v Milne Feeds Pty Ltd & Ors, unreported; FCt SCt of WA; Library No 970060A; 21 February 1997

Cowell v Taylor (19885) 31 Ch D 34

Lindsay Parkinson Ltd v Triplan Ltd [1973] 2 All ER 273

MA Productions Pty Ltd v Austrarama Television Pty Ltd & Anor [1982] 7 ACLR 97

Re Southern Rolled Oats Pty Ltd & Ors; Ex parte Bride, unreported; FCt SCt of WA; Library No 950723A; 20 December 1995

Riot Nominees Pty Ltd v Suzuki Australia Pty Ltd [1981] FCA 43; (1981) 34 ALR 653

Rondel v Worskley (1967) 1 QB 443

1 WALLWORK J: I agree with the reasons for judgment of Miller J and with the orders proposed by him.

2 WHEELER J: I am in agreement with the orders proposed by Miller J. I gratefully adopt Miller J's outline of the background to this matter and of the findings of the learned Master. I am in agreement with his Honour's reasons, to the extent that they involve the view that the long history of the action, extending over some nine years, and the fact that it is now apparently ready for trial, are factors that tell strongly against the exercise of a discretion to require security for costs. I agree that in the particular circumstances of this case, the addition of that factor to the factors considered by the learned Master has the result that it is inappropriate that an order for security be made.

3 I would add that, in my view, a further factor which points against the exercise of the discretion relates to the defendants' raising of the plaintiffs' capacity to sue. While that issue has been determined adversely to the plaintiffs, in other actions relating to certain property, it appears to me that both those decisions (Bride & Anor v KMG Hungerfords, unreported; SCt of WA (Murray J); Library No 8903; 10 June 1991; and Bride & Anor v Hammond Fitzgerald & King, unreported; SCt of WA (Scott J); Library No 930303; 6 May 1993) left open the question whether there was further property in respect of which the plaintiffs could sue as trustees. To this extent, the defendants' defence may not have been as strong as it appeared to the Master.

4 However, there are two aspects of Miller J's reasons with which I do not agree. First, in my view, the factors considered by the Master did fall strongly in favour of an order for security for costs and, but for the additional factors, to which I have already referred, I would have refused to interfere with the exercise of the Master's discretion. This is a matter of judgment upon which reasonable minds may differ, and I do not think it is necessary to explore this issue further.

5 Second, I share the Master's hesitation in accepting in its entirety, the reasoning of Steytler J in Coyne v WA Newspapers Ltd (No 1) (1996) 15 WAR 51. In particular, I would not wish to express a view on the question of whether bankruptcy "in itself" may be a sufficient reason for ordering a security for costs.

6 It is difficult to imagine a case in which the bankruptcy of a plaintiff is the only issue, and in which there are not other factors that will also bear on the exercise of the discretion to order security. However, at common law, bankruptcy of a plaintiff has long had a bearing on his or her ability to continue with litigation; the history is discussed in Fuller v Beech Petroleum NL [1993] FCA 453; (1993) 43 FCR 60 at 64-68, per Gummow and Whitlam JJ. In Australia, from a very early time, legislation restricted the ability of a bankrupt to pursue litigation; see, eg, Want v Moss [1889] 10 LR (NSW) 274. Section 60 of the present Bankruptcy Act 1966 (Cth) is the successor to those early provisions. Against that background, it appears to me arguable that bankruptcy may be to an extent an exception to the general rule that poverty should be no bar to a litigant, but it seems to me that the scope of the exception does not require exploration in this case.

7 MILLER J: This is an application for leave to appeal from an order of Master Sanderson made on 10 February 1998 whereby the Master ordered that the plaintiffs provide security for the first respondent's costs in the sum of $180,000 and the third respondent's costs in the sum of $20,000, the total sum of $200,000 to be paid into Court.

8 The applicant seeks leave to appeal from the order of the Master, contending on a number of grounds that the Master erred in the exercise of his discretion in ordering security for costs. In essence, the applicant contests each of the bases upon which the Master reached the conclusion that the order for security of cost would be appropriate. It is therefore appropriate to review the criteria upon which the Master determined the matter.

9 The Master pointed out that the action in question (together with some other actions) had been entered for hearing and was anticipated to be heard over a 30-day period in March 1998. Given the anticipated length of the trial and the issues involved the first and third defendants sought security for costs. The male plaintiff confirmed before the Master that neither he nor his wife were in a position to provide any security and were bankrupt. Not only were they unable to provide any security, but nor was the Trust of which they were trustees, nor any of the beneficiaries. As the Master recognised, an order for security for costs in any amount would effectively bring the action to an end, there being no realistic prospect of the plaintiffs being able to meet any order for security.10 The pivotal finding of the Master was that on 26 November 1997 sequestration orders were made in the Federal Court in respect of the plaintiffs' joint and several assets in proceedings which were founded on non-compliance with a bankruptcy notice which related to the plaintiffs' failure to pay taxed costs of a party in an unsuccessful action in this Court. The Master pointed out that under the provisions of O 25 r1 of the Rules the Court shall not make an order for security for costs merely on account of the poverty of the plaintiff or the likely inability of the plaintiff to pay any costs which may be awarded against him. However, the provisions of O 25 r2(d) provide that without limiting the generality of r1 the Court may order security for costs to be furnished where the plaintiff is an undischarged bankrupt. The Master appreciated that there was "an obvious inconsistency" between the provisions of r1 and r2(d) as it was readily apparent that a plaintiff who was bankrupt would not be able to pay any costs awarded against him "on account of (his) poverty". The rule therefore draws a distinction between a litigant who is bankrupt and one who is not. The only rationale for the inconsistency was said by the Master to be the possibility that the "altered legal status of a bankrupt is a significant factor in whether or not an order ought to be made".

11 The Master adopted the reasoning of Steytler J in Coyne v WA Newspapers Ltd (No 1) (1996) 15 WAR 51 (particularly at 71) and considered the following factors in exercising his discretion to order security for costs:

(a) The plaintiffs have commenced a multiplicity of actions, none of which have been successful and the male plaintiff in his submissions before the Court made it plain that he did not accept decisions made against him;

(b) The plaintiffs have sufficiently pleaded their action and have had no interlocutory judgment entered against them, suggesting that they have an "arguable case" but no more;

(c) The defendants have by their defences raised the question of the plaintiffs' capacity to sue, and this issue having been decided adversely to the plaintiffs in two actions previously before the Court, it had to be said that this line of defence was "strong and has a reasonable chance of success";

(d) Although the fact of an undischarged bankruptcy is enough to enliven the discretion provided for by O 25, it will not in itself ordinarily be sufficient in a case in which the plaintiff is not a nominal plaintiff and unable to provide the security requested of him, to result in an exercise of that discretion in favour of the defendants (Coyne (supra) per Steytler J at 73). [This reasoning was followed with "some hesitation" by the Master who thought the interpretation of Steytler J to "place a gloss upon the wording in the rules".]

(e) The plaintiffs, although suing as trustees of the Pinwernying Family Trust, could not be said to be suing as nominal plaintiffs in the sense of another being beneficially interested, and it was not a case in which an attempt was being made to use an individual against whom costs could not be recovered to shield individuals of worth.

(f) The plaintiffs owe various defendants just over $112,000 in costs awarded against them in various actions and there is no real prospect of those costs being paid. The provisions of O 25 r2(g) were therefore relevant, "the plaintiffs being in default in respect of costs ordered to be paid in proceedings previously brought by them ... in relation to substantially the same subject-matter". Although not a case in which proceedings have previously been brought against the same defendant for substantially the same cause of action, it was a case brought in relation to substantially the same subject-matter and thus the plaintiffs fell squarely within the provisions of r2(g).

(g) The plaintiffs did have in their favour the fact that there was some delay on the part of defendants in making application for security for costs, the plaintiffs being faced with that application only when the matter was entered for trial and a tentative date for a hearing fixed. Further, and most importantly, any order for security would effectively bring the proceedings to an end, thus making an order for security for costs one of "grave consequences".

12 The Master weighed all of these considerations and was satisfied that in the exercise of his discretion he ought to order that the plaintiffs provide security for costs. He added "the fact is that they have lost every action they have taken, save for one or two pyrrhic victories. It is clear that they will never accept a final determination by a court which runs counter to their claims. In the meantime, defendants are being put to frightening expense with no prospect of recovering any costs incurred".

13 There is no doubt that an application for security for costs involves the exercise by the Court of an unfettered discretion, to be exercised judicially having regard to all the circumstances of the case: John Arnolds Surf Shop Pty Ltd (In Liq) v Heller Factors Pty Ltd & Allert (1979) 22 SASR 20, in order to achieve justice between litigants: Lucas v Yorke [1985] HCA 65; (1985) 158 CLR 661. As the first respondent argues, the Court must strike a balance between the interests of the respondent in securing its position against the desirability of the applicants not being foreclosed from their action.

14 It can be accepted that "the whole of the circumstances" must be carefully considered in considering whether or not to grant an application for security for costs. As the first respondent submits, security may not be ordered where a plaintiff's impecuniosity is caused by a defendant's conduct. This may well result in a denial of justice: Farrer v Lacey [1885] Ch D 482. It is true that in the present case the applicants' impecuniosity was caused by their bankruptcy which could not be said to have been caused by the first respondent, but I would add that the bankruptcy is only a formal confirmation of the fact that the plaintiffs have been impecunious for a considerable number of years. It is recognised by the respondents that the fact that the practical effect of an order for security will bring the proceedings to an end is a factor relevant to the Court's determination: Drumdurn v Braham [1982] FCA 161; [1982] 42 ALR 563.

15 The first respondent in a Notice of Cross Contention submits that the Master's decision ought to be upheld on the grounds that the mere fact of the applicants bankruptcy is sufficient to enliven the Court's discretion under O 25 r2(d) to order security, and the discretion of the Court once enlivened is not to be exercised by reference to common law rules. In this respect the first respondent challenges the reasoning of Steytler J in Coyne (supra) to the extent that Steytler J considered it was well accepted for sound reasons of policy that as a general rule poverty should be not bar to a litigant, and therefore the fact of bankruptcy alone should not generally speaking cause the discretion to be exercised in favour of a defendant when coupled with the further circumstances that the plaintiff sues solely for his own benefit and is unable to provide the security which is requested of him. For my own part, I would not accept the proposition of the first respondent that Steytler J was in any way incorrect in concluding that the Court should consider not only the fact of bankruptcy but the question of the capacity in which the plaintiffs bring their action. Nor would I accept the proposition that the effect of O 25 r2(d) is such that the common law rule or rules are entirely inapplicable.

16 It is of course necessary to give full recognition to the fact that Master Sanderson carefully weighed various factors relevant to the exercise of the discretion to order security for costs in this case and in ordering security did so in the exercise of a judicial discretion. That exercise of discretion should not lightly be interfered with. However, in this case it seems to me that the Master overlooked one very important fact. That is the long history of the action, the commencement of which was in the year 1989. The Master did recognise the fact that the action was on the brink of determination at the time he ordered security for costs, but, in my view, failed to place sufficient importance upon the fact that the plaintiffs action had been in train for a period of nine years, and was in fact ready for trial.

17 As the Master rightly recognised, to order security for costs against the applicants in the circumstances in which he did was to "effectively to bring the proceedings to an end". The consequences of that were indeed grave. For my part, I cannot accept that the balance of factors present in the case weighed in favour of an order for security for costs. To the contrary, I am of the view that the long history of the action and its readiness for trial told against the factors which the Master considered justified the exercise of his discretion in favour of an order for security for costs. In my view, none of the factors considered by the Master, either alone or in combination with others, weighed strongly in favour of an order for security for costs, and like Steytler J in Coyne (supra at 71) I consider the comments of the Darley CJ in McSharry v Railway Commissioners (1897) 18 LR (NSW) 33 at 36-37 to be relevant to this case:

"Under English law a man is not precluded by reason of his poverty from bringing his action to enforce his legal rights. If it were so, many a man would find himself powerless in the face of a great wrong done to him. We know, moreover, that many persons are enabled to sue only through the assistance given to them by their friends, or by their attorneys...

It may be a great hardship on the defendants that they are subject to an action by a person who, if they succeed, cannot pay them their costs. I have known many cases where the same hardship existed, but if, on the other hand, we were to stop the proceedings on that account, still greater hardship and injustice might be done by depriving the plaintiff of his right."

Further, I adopt the reasoning of Steytler J in Coyne (supra at 72) that bankruptcy in itself is never a sufficient reason for ordering security for costs.

18 In my view the Master's order for security for costs, effectively terminating an action which had been on foot for some nine years, had the potential to cause great hardship and injustice. It deprived the applicants of possible rights at law, and was in all the circumstances an erroneous exercise of discretion. I would therefore grant leave to appeal and allow the appeal for the appellants and set aside the order of the Master.