Carey v Freehills

REASONS FOR JUDGMENT 1 On 20 September 2013, Kenny J published reasons for judgment in which her Honour dismissed a cross-claim made by the present appellants. In the proceeding below, the appellants pursued claims against the Australian Securities and Investments Commission (ASIC) and against the law firm then known as Freehills. The claim against ASIC was resolved. The claim against Freehills resulted in a lengthy and comprehensive judgment of Kenny J in which she gave her reasons for dismissing that cross claim. 2 The proceeding below concerned what has come to be known as the Westpoint Group of companies and their key figure, Mr Carey, the first appellant. The appellants contended before her Honour that Freehills had caused them loss by reason of misleading and deceptive conduct and negligence. These contentions were rejected. Central to that rejection was her Honour's finding that Mr Carey was not a reliable witness. 3 On 26 November 2013, Kenny J made a costs order. It required the appellants to pay Freehills' costs of the cross claim on a party and party basis. 4 On 13 December 2013, Freehills applied for an order in the proceeding before Kenny J that the quantum of the costs be fixed in a lump sum. That application was accompanied by an affidavit of a costs lawyer, Ms Jennifer Young. Ms Young estimated that upon an assessment of Freehills' costs, it would be entitled to $1,368,830.25 by way of party and party costs. The application for a fixed costs order was rejected. 5 Also on 13 December 2013, the appellants filed their notice of appeal from her Honour's judgment and orders. The notice of appeal gives notice of the appellants' intention to seek leave to adduce fresh evidence from a person whose evidence, they contend, was not able to be adduced at the trial even with the exercise of reasonable diligence. 6 On 19 February 2014, Freehills filed an interlocutory application in the appeal proceeding. It sought an order that the appellants give security for Freehills' costs of the appeal and ancillary orders dealing with the consequences for the appeal if any security so ordered is not provided. 7 The interlocutory application is supported by an affidavit of Mr Tuohey, a partner of the firm Colin Biggers & Paisley, which acts for Freehills on the appeal. In that affidavit, Mr Tuohey claims that there are reasons to believe that the appellants may be unable to satisfy a costs order which may be made against them in the appeal. 8 Mr Tuohey refers to property searches which show that Mr Carey is not the registered proprietor of any real property in Australia. He also notes the status of most of the appellant companies as either being deregistered or under external administration. Mr Tuohey refers to evidence before Kenny J which supports the view that the appellants have "limited resources" and "limited financial capacity". Mr Tuohey refers to a decision by Kenny J to provide transcript to counsel for the appellants on account of the appellants' inability to pay for the entirety of the transcript. 9 On 17 December 2013 (within four days of the appeal being filed), Mr Tuohey raised with the solicitor for the appellants, Mr Metaxas, his concern about the appellants being unable to meet any costs order which may be made against them in the appeal. Mr Tuohey proposed that $100,000 be paid into Court by the appellants by way of security. 10 By email on 23 December 2013, Mr Tuohey also asked Mr Metaxas to provide details of the financial position of the appellants and their ability to meet a costs order in the range of $100,000 to $130,000. On 21 January 2014, Mr Tuohey emailed Mr Metaxas concerning when a response might be received to the matters he had raised on 17 and 23 December 2013. 11 By email on 21 January 2014, Mr Metaxas observed that the appellants included the ninth appellant, Earlmist Pty Ltd ("Earlmist"). He said that Earlmist is the first mortgagee of land in Warwick, Western Australia, which was valued at $6 million in 2010. He said he was instructed that Earlmist had no liabilities. He further observed that the appellants "have paid their costs of the trial which were substantial". 12 In Freehills' application for a fixed costs order, Mr Carey filed an affidavit. In that affidavit, Mr Carey refers to the position of Earlmist in a less optimistic way than is asserted in the 21 January 2014 email from Mr Metaxas. In the affidavit sworn on 28 January 2014, Mr Carey refers to Earlmist being the first mortgagee of certain property which gives it an entitlement to $2.2 million plus interest. That figure was revised to approximately $2.9 million in an affidavit filed on 31 March 2014. That affidavit also observes that Earlmist is involved in litigation in the Supreme Court of Western Australia concerning the same property in respect of which Mr Carey asserts that it can access funds. The issues addressed in the 28 January 2014 affidavit are repeated in an affidavit sworn by Mr Carey on 27 March 2014 in this application. In none of Mr Carey's evidence does he reveal the likelihood of Earlmist being able to realise any debt owed to it by a company called Silkchime Pty Ltd, which would allegedly place Earlmist in sufficient funds to meet any costs order in this appeal in a reasonable time. 13 Indeed, none of the appellants has been particularly forthcoming as to their financial position. Some are self-evidently not operating at all, being deregistered. Most critically, it is not clear that Earlmist has the capacity to meet any adverse costs order made against it in the proceeding. There is no evidence of the capacity of any other appellant, including Mr Carey, being able to satisfy any adverse costs order on the appeal. 14 Section 56 of the Federal Court of Australia Act 1976 (Cth) permits the Court to order an applicant in a proceeding or an appellant in an appeal to give security for the payment of costs awarded against that applicant or appellant. In Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 3, a Full Court observed that "(t)he discretion to make orders under s 56 must be exercised judicially, but that is the only relevant limitation." At 4, their Honours noted that the "discretion is unfettered; each case must depend on its own circumstances." See also Equity Access Ltd v Westpac Banking Corporation (1984) ATPR 40-972 at 50, 635 per Hill J. 15 In Dye v Commonwealth Securities Ltd [2012] FCA 992 at [26], Emmett J set out the relevant legal principles for the granting of an order under s 56, including the prospects of success for the appeal, the risk that an order for costs would not be satisfied, whether the making of an order would be oppressive so as to stifle an arguable claim, matters of public interest and the impecuniosity of an appellant. 16 In circumstances where the exercise of the discretion is sought to be invoked in appellate proceedings, the Court will more readily grant security against a litigant who is impecunious than may be the case at first instance; see Skyring v Sweeney [1999] FCA 61 at [6] per Spender J, Moore v Macks [2007] FCA 509 at [20] per Mansfield J, Clack v Collins (No 1) [2010] FCA 513 at [7]-[8] per Jagot J and Dye at [27]-[28] per Emmett J. 17 Further, in Clack v Collins (No 1) at [11], Jagot J referred to the observation of Spender J in Tait v Bindal People [2002] FCA 322 at [3] that: The difference is that, at the appellate level, there has already been a determination adverse to the person against whom security for costs is sought and, if it be shown that there is a substantial risk that even if successful the respondent… to an appeal, will be deprived of his costs, such an outcome would clearly be unjust. 18 Given the real doubts about the capacity of Earlmist to satisfy, in any reasonable time frame, any adverse costs order made against the appellants, this is an appropriate case for the making of an order for security for costs. The next question which arises is the quantum. Ms Young has estimated the party and party costs of the appeal of Freehills to be about $148,000. There is no material before the Court to contradict the appropriateness of that amount. The Court considers that sum to be a fair one in the circumstances and one which is unlikely to stifle the appeal if the appellants do have the capacity to meet an adverse costs order as they assert they do. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marshall.