Chapman v Luminis Pty Ltd

deeds of assignment 5 Binalong went into liquidation by order of the Supreme Court of South Australia on 8 August 1994. The liquidator was appointed on 6 September 1994. By Deed dated 22 May 1997, the liquidator assigned causes of action against the first three respondents to Mr and Mrs Chapman. The consideration was $1 but there was provision that if the Chapmans receive any proceeds from the causes of action assigned they must pay twenty per cent of the net proceeds to the liquidator. By further Deed, dated 25 September 1997, the liquidator assigned to Mr and Mrs Chapman causes of action against Robert Tickner and the Commonwealth of Australia. (These were referred to as the "Commonwealth causes of action"). Again, the consideration was an amount of $1. This deed contained a provision that in the event that the Chapmans received any proceeds from the claims against the Commonwealth on the Commonwealth causes of action, they would pay fifty per cent of the net proceeds to the liquidator and they agreed to pay a further thirty per cent of the proceeds from any cause of action referred to in the Deed of 22 May which have previously been fixed at twenty per cent.

Legislation 6 The power of the Court to award security for costs, generally, including on appeal, is found in the following provisions of the Federal Court of Australia Act 1976 (Cth) ("the FCA") and the Federal Court Rules ("the FCR"). 7 Section 56 of the FCA provides: "56(1) The Court or a Judge may order an applicant in a proceeding in the Court or an appellant in an appeal to the Court to give security for the payment of costs that may be awarded against him or her. (2) The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs. (3) The Court or a Judge may reduce or increase the amount of security ordered to be given and may vary the time at which, or manner or form in which, the security is to be given. (4) If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed." 8 Order 28 of the FCR relevantly provides: "2(1) An application that an applicant shall provide security for costs shall be made by motion upon notice. (2) The notice of motion shall be supported by an affidavit stating the material facts and the grounds upon which security for costs is sought. 3(1) Where, in any proceeding, it appears to the Court on the application of a respondent - (a) … (b) that an applicant is suing, not for his own benefit, but for the benefit of some other person and there is reason to believe that the applicant will be unable to pay the costs of the respondent if ordered to do so; or … the Court may order that applicant to give such security as the Court thinks fit for the costs of the respondent of and incidental to the proceeding. … 5(1) Where the Court orders the applicant provide security for costs, it may order - (a) that the proceeding on any claims by the applicant for relief be stayed until security is provided; …" 9 Order 52, r 20 provides: "20 Unless the Court or a Judge otherwise directs no security for costs of an appeal to the Court shall be required." 10 As the appellants point out, s 56 is premised on the basis that, normally, security for costs of an appeal will not be ordered unless the Court is persuaded that the general rule should be displaced: see Bates v Omareef Pty Ltd [1998] 536 FCA; Fletcher v Federal Commissioner of Taxation (1992) 110 ALR 233 at 238. 11 In the present case two of the appellants are natural persons. The appellants claim that they are unable to provide security for costs of the appeal and that this is an important consideration to the exercise of the Court's discretion on the present application. As a general principle, impecuniosity of a plaintiff who is a natural person is not, of itself, sufficient to justify an order requiring security for costs on an appeal. Courts are reluctant to exercise their discretion in such a way that impecunious persons are thereby excluded or stifled from pursuing their right of appeal : see Fletcher at 238. 12 The discretion of the Court under s 56 is broad and unfettered and whilst it must be exercised judicially it is not delimited by O 28 r 3: see Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 3 - 4; King v Commercial Bank of Australia Ltd (1920) 28 CLR 289 at 292; Lucas v Yorke (1983) 50 ALR 228 at 229. 13 In Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972, at 50,635, the Court referred to six specific matters which the authorities indicate are relevant for consideration, along with others, when deciding whether security for costs ought be awarded. In my view, a consideration of these matters is of assistance to the present application. They are as follows: · The prospects of success; · The quantum of risk that a costs order will not be satisfied; · Whether the making of an order would be oppressive in that it would stifle a reasonable arguable claim; · Whether any impecuniosity of the appellants arises out of the conduct complained of; · Whether there are aspects of public interest which weigh in the balance against such an order; · Whether there are any particular discretionary matters peculiar to the circumstances of the case. 14 In the present case the proceedings are brought by the appellants in person after taking an assignment of the causes of action being their rights to bring the present proceedings from Binalong in return for paying fifty per cent of the net proceeds to the liquidator. 15 An application was made in 1998 in the period leading up to the trial to join Binalong as a party to the action. On 4 September 1998, the primary Judge determined that it was appropriate for Binalong to be joined, as the assignor in the proceedings, in order to provide for the contingency that a challenge to the assignment was meritorious with the consequence that the assignment would be merely equitable. In such circumstances the assignor was considered by his Honour to be an entity whose joinder was necessary to ensure that all matters in dispute might be effectively and completely adjudicated upon within the meaning of s 22 of the FCA and O 6 r 8 of the FCR: see Chapman v Luminis Pty Ltd (1998)86 FCR 513 at 519 where the circumstances as to the assignment and the earlier history of this lengthy matter is set out. That judgment sets out the history of the proceedings up to late 1998.

CHANCES OF SUCCESS 16 I have been taken in considerable detail through the reasons and findings of the primary Judge by counsel for the respondents in an attempt to demonstrate the weaknesses in the grounds of appeal. The submission made by the Commonwealth respondents is that the prospects of success are effectively non-existent and that this should be a central consideration in making an order for security of costs. When the matter came on for hearing the respondents sought leave to amend the Notice of Motion for security to include a strike out application. This was refused having regard to the lateness of the application. 17 It is neither possible nor appropriate on a security for costs application to reach any firm conclusions as to the prospects of an appeal being successful beyond a general consideration of the reasons for decision and the formation of a general overview. 18 Although the respondents submit that there is no arguable prospect of success on any of the grounds argued, except possibly in relation to the claim in respect of an acquisition of property on unjust terms by the Commonwealth, I am not satisfied that the grounds of appeal are without any substantial foundation whatsoever. It is agreed that the reasons for judgment deal with some novel issues regarding statutory duties, negligence, the Trade Practices Act 1974 (Cth) (the "TPA") and natural justice. I have formed the view from my consideration of the material that the grounds of appeal are on their face arguable but beyond that I cannot express any concluded view. 19 Counsel for the respondents emphasised the important advantage of the primary Judge over an appellate body in determining questions of credibility and demeanour in a case such as the present. Those considerations are of great importance, especially having regard to the evidence given in relation to Aboriginal traditions and cultural matters. Counsel for the respondents referred to the well-known decision in Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479. I note these observations but they are not conclusive. Demeanour is but one of a number of considerations which bear on the prospects of success in the present appeal. 20 In particular, I consider that there are reasonably arguable grounds as to a number of the issues raised in relation to negligence, misfeasance, statutory construction, breach of statutory duty and procedural fairness. 21 Counsel for the appellants in submissions has enumerated nine matters on which there is an important and agreeable controversy of principle on the appeal. These are expressed to be: · The existence of duties of care pursuant to s 10 of the Aboriginal and Torres Strait Islander Heritage Protection Act 1984 (Cth) ("the Protection Act"); · Whether the Protection Act is to be characterised as a law relating to the acquisition of property; · The meaning of "in trade or commerce" in the TPA and the Fair Trading Act 1987 (SA) ("the FTA); · The meaning of "Aboriginal tradition" as defined in the Protection Act; · The existence of duties of care on the first and second respondents to prevent economic loss to third parties; · Whether s 48 of the Limitations of Action Act 1936 (SA)("the Limitations Act") applies to extend time for a claim under the TPA; · The assignability of misleading conduct causes of action where assigned by a company in liquidation; · Whether or not a s 10 declaration amounted to an "acquisition of property" within the meaning of the Constitution; · Whether a reporter in making a report pursuant to s 10 of the Protection Act and a Minister making a declaration under that provision performs a legislative or administrative act. 22 In my view, it cannot be conclusively said that any of these issues are without any arguable foundation such that the appeal would fail. 23 Counsel for the respondents has submitted that there is one determinative issue on which the appeal must fail and that relates to the question of causation. It is said that findings in his Honour's decision that no loss arose as a consequence of any breach of legal or equitable duty or statutory obligation make it unnecessary to consider the other issues raised: see pars 200, 636 ff, 657, 689, and 690 of the judgment. At [200], his Honour said: "In section 10 of this judgment I consider the question of loss and the assessment of damages. I conclude that Binalong has not established that it suffered loss or damage because of the making of the s 10 declaration by Mr Tickner. The claims must also fail on that ground." 24 At [657] his Honour said: "Further, on the question of causation, the evidence fails to indicate any reason why the Minister's decision would have been any different had a few more days elapsed between the receipt of the Saunders Report and the making of a final decision by Mr Tickner." 25 The appellants contend that the issue of causation has been challenged in the grounds of appeal, specifically in ground 20. I agree that this ground is sufficiently broad to encompass submissions as to causation of loss. 26 Counsel for the appellants submits that his Honour did not deal with the causation argument which they, in fact, raised at trial; namely, that the failure by the Minister (Mr Tickner) to consider the representations was a failure to fulfil a condition precedent to the making of a s 10 declaration with the consequence that the declaration was made and that this caused Binalong both immediate, substantial and ongoing loss. Counsel for the appellants points to the finding of his Honour at [636] that the Minister failed to give the representations the consideration required by s 10 of the Protection Act and that this would have been a breach of his statutory duty of care under the Act if there has been such a duty to the appellants. The appellants have appealed the issue as to the existence of a duty of care which they allege was in their favour and they contend that the Minister negligently failed to consider the report and fulfil the precondition to the exercise of power under s 10 and that therefore he negligently made an invalid declaration which led to Binalong's loss. 27 In my view, the contention of the appellants on this point cannot be said to be without any substance whatsoever such that the findings of the primary Judge as to causation are unappealable and determinative of the proceeding. 28 Accordingly, for the above reasons, I am satisfied that there is arguably sufficient substance in the grounds of appeal.

CAUSE OF IMPECUNIOSITY 29 The evidence does not, in my opinion, support a conclusion that the impecuniosity of the appellants on this application was as a consequence of the conduct of the respondents. No such nexus has been made out.

QUANTUM OF RISK 30 The evidence before me clearly indicates that if there is no order as to security for costs the appellants will be unable to meet the costs of the respondents in the event that the appeal is not successful. I am satisfied that these costs will be substantial having regard to the nature, number and complexity of the questions raised on appeal as indicated above. There is therefore a real risk of non-recovery.

Would an order stifle the appeal? 31 It is not in dispute that the appellants are impecunious. However, that does not conclude the question because there is detailed evidence as to a complex network of what are essentially family trusts with very substantial assets under the trusteeship of Kebaro Pty Limited ("Kebaro") which in turn is under the control and direction of Mr Chapman. 32 The evidence indicates that, in the past, assets from these discretionary trusts have been used to finance the litigation to date. There is also evidence that the Galle Trust has substantial undistributed profits and substantial cash flow in the order of one million dollars per month over the past year arising from the development and sale of part of the Hindmarsh Island Development and that this cash flow is continuing. Kebaro is the trustee of that trust and Mrs and Mrs Chapman are beneficiaries along with their children. The appellants, however, contend that notwithstanding substantial earlier advances made, the Trust would not be entitled and nor would it be appropriate for it to advance funds on the present appeal consistently with the duties of the trustee. Other family trusts include the Hindmarsh Trust which operates the business of a Marina proprietor on Hindmarsh Island; the Neals Trust which holds certain parcels of land and the Tern Trust which owns a unit in North Adelaide. There is evidence that Mr and Mrs Chapman have received damages in the order of $550,000 as the fruits of defamation proceedings over the past few years. The evidence also indicates that the principal creditor of Binalong, which is in liquidation, is Westpac Bank through its subsidiary Partnership Pacific Limited, which was owed in excess of $23 million at one point. In the past the Galle Trust has advanced funds to finance the litigation and funds have also been forthcoming from another family trust, namely the Lincoln Trust. Counsel for the respondents submits that while the Chapman family members may strictly be impecunious, they have engineered that situation themselves by means of isolating assets and income in the Trusts and limiting their own personal income until such time as the discretion to make distribution from the Trusts is exercised. There is some force in this submission. 33 The respondents also submit that: "… the reality of the situation is that Mr Chapman is one of the two Trustees of the Lincoln Trust and he is also (as sole director) the directing mind of the corporate trustee Kebaro. The reality also is that the same persons are the beneficiaries of those three trusts." 34 The evidence of Mr Palyga, the solicitor for the appellants, was that assets of the Galle Trust have been used for the purpose of financing the litigation. 35 No evidence was provided as to the basis on which the beneficiaries of the Galle Trust authorised these payments or whether the trustee has been indemnified for possible breach of trust in respect of the transfer of Galle Trust funds to pay legal costs and disbursements incurred in the litigation to date. The reality is, as counsel for the respondents submits, that the proceedings are being conducted for and on behalf of Chapman family members who are beneficiaries of the family trusts. 36 On 5 September 2001, the Commonwealth requested particulars in relation to the funding of the proceedings brought by the appellants up to that date and on 2 October 2001 the following reply was received from the solicitors for the appellants: "…. 7.1 How have the Applicants funded the proceedings? Please provide full details of all arrangements. There are no arrangements with any other party relating to the funding of the proceedings. Tom and Wendy Chapman have funded the disbursements from their personal funds. The first source of these funds is proceeds received from defamation actions. Whilst the specific amount of some of the defamation payouts is subject to confidentiality arrangements, we can advise you that the Chapmans have received payments by way of settlements, or Court judgments actually received, which total in excess of $550,000.00, plus additional sums by way of payment of costs. Most of these sums received by Tom and Wendy Chapman (but not all) have been applied by them to fund payment of disbursements in this action, but they have also been applied to disbursements in various other matters for which Lynch Meyer have acted for them, and also $150,000.00 was applied as referred to below. In some defamation actions, Andrew Chapman was a party but has not been treated as entitled to any of the proceeds of those actions. No award was made in his favour by Judge Lowrie in the only one of those which has proceeded to judgment (Chapman v Draper). Further funds paid towards disbursements and totalling approximately $550,000.00 have been provided by Tom and Wendy Chapman out of personal funds received by them when loans were made to them by the Galle Trust on various dates going back to 1999. The total loan reached about $700,000.00, but at least, $140,000.00 of that sum has been applied to disbursements in various other matters for which Lynch Meyer have acted for them. On the 17th August, 2001 the Chapmans reduced the amount of this loan by repaying the Galle Trust $150,000.00 which they had received as a defamation payout. The loan carries interest on usual terms, currently 6.5%. As their Affidavit filed in respect to the security for costs application also confirms, at the outset of this matter Kebaro paid some disbursements, but Tom and Wendy Chapman reimbursed the same. Lynch Meyer's cost of the action are outstanding and unpaid. Some Counsel fees also remain outstanding. 7.2 What arrangements have been made (if any) and with whom for the sharing in the proceeds of the action? The only arrangement relating to the proceeds of the action is that contained in the Deeds of Assignment dated the 22nd May 1997 and the 25th September 1997(or, more correctly, the latter, which superseded the former in that respect). 7.3 What arrangements have been made (if any) and with whom for the payment of any orders for costs made, or to be made, against the Applicants? Please provide full details. There are no arrangements made with any other party for the payment of any orders for costs made against Tom and Wendy Chapman. There is no arrangement made of which the Chapmans are aware for payment of any order for costs made against Binalong (and the Chapmans believe there are none, but only the company can confirm that finally) except there is, as you are aware, the Deed of Indemnity dated the 2nd October 1998. 7.4 What control has been exercised, if any, over the conduct of the proceedings by any party other than the Applicants? Please provide full details. No control has been exercised over the conduct of the proceedings by anybody except Tom and Wendy Chapman The fact that the cause of action was assigned to Tom and Wendy Chapman as trustees for a family trust namely "The Lincoln Trust" was deposed to in their Affidavit filed in respect to the security for costs application. We also note that the Affidavit, by paragraph 28, confirms that there has been no arrangement with the Liquidator, Westpac, Partnership Pacific, any other creditor of Binalong, or any other party, in respect to funding the litigation. The Affidavit also confirms the fact that defamation payouts were being used to fund disbursements. You have also sought the constituent document for the Lincoln Trust and I enclose the original Trust Deed, and a relevant appointment of new trustee. I am instructed that the Lincoln Trust has not traded, and has no assets apart from the assigned cause of action." 37 This letter discloses that funds totalling in the order $550,000 were received by Mr and Mrs Chapman from loans made by the Galle Trust from 1999 and that the amounts advanced had reached $700,000 of which $140,000 had been applied to disbursements in other matters for which their solicitors, Lynch Meyer, had acted. This indicates that the Trustees of the Galle Trust were of the opinion that the proceedings were worthy of funding in the interests of the beneficiaries of that Trust. In addition, the solicitors for Mr and Mrs Chapman have refrained from recovering unpaid fees for acting in relation to the trial. Furthermore, the hearing of the application for security for costs extended over four days and there was clearly some funding arrangement in place to oppose the application by the Commonwealth respondents. 38 I am satisfied that there is force in these submissions and these circumstances are relevant to take into account on the present application. 39 Although the exact amount of moneys claimed by the appellants has not been quantified, it appears from the reasons for judgment of the trial Judge at [754] that the amount claimed exceeds several million dollars. If the case is considered to have any significant prospects of success it may not be too difficult to obtain a relatively small amount of financial assistance to meet the claim for security (when measured against the amount being claimed by the appellants), rather than to discontinue the proceedings. 40 The present case is not one where it has been shown that two impecunious natural persons without resources or access to funding are being shut out from pursuing an appeal where the chances of success and ultimate recovery can be said to be strong. They are beneficiaries under a number of discretionary family trusts with substantial cash flows extending into the millions of dollars and which are under the trusteeship of Kebaro, itself under the control of and subject to direction by Mr Chapman. The family trusts and companies are related entities. The appellants' solicitors have also provided extensive services and refrained from recovering costs within the past three years for this litigation. They have an interest in a successful appeal. No doubt this was done in the expectation of a favourable outcome. The appellants contend they have a substantial case on appeal. If this is in fact the expectation, then the beneficiaries, the liquidator and the creditors will be greatly benefited. 41 Having regard to the evidence which is before me I am not persuaded that if an order for security for costs is awarded in the amount which I propose, namely $200,000 the present appeal is unlikely to proceed. In particular I am not persuaded that the persons or entities who stand to benefit from a successful appeal and award of damages will not be able or willing to provide sufficient funds to provide the security ordered.

public interest 42 There are no public interest considerations which in my view have sufficient weight to warrant refusal of the application for security. In particular, I am not satisfied that the interests of the creditors of Binalong in receiving a possible benefit means that in the public interest the appeal should proceed without any requirement of security for costs. The liquidator has not submitted that he has investigated the matter or been advised as to the prospects of success. Nor, in my view, is there any sufficient public interest in the pursuit of the proceeding for misleading and deceptive conduct in order simply to qualify the operation of the law.

ADJR proceedings - set-off 43 The appellants have the benefit of a costs order in related proceedings under the Administrative Decisions (Judicial Review) Act 1977 (Cth)("the ADJR proceedings") in which they were awarded costs in the amount of $188,034. The appellants offer not to pursue this order until the appeal is resolved and they say that in practical terms, this amounts to a sufficient security for the costs of the appeal. In my view, this is not a sufficient provision for security. The respondents submit that they can reasonably be expected to obtain an order for costs in their favour on the trial for at least several million dollars which will greatly exceed the costs of the ADJR proceedings. Accordingly, they say the costs in the ADJR proceedings would not satisfactorily provide security by way of set-off.

RELATIVE POSITION OF THE PARTIES 44 The fact that the Commonwealth is a respondent does not, in my view, carry any particular weight in this application. There is no suggestion of any unfair advantage or oppression having being taken by the Commonwealth to stifle litigation. It is simply seeking to uphold judgment in which it was successful on all issues of significance.

additional PROCEEDINGS TO RECoVER COSTS of trial 45 On 1 March 2002, after the hearing and all written submissions on the security for costs application in respect of the appeal had been finalised, my attention was drawn by the appellants to the fact that a Notice of Motion had been filed by the respondents against Westpac Banking Corporation, Partnership Pacific Ltd and Kebaro in relation to the costs of the trial. I am informed that the issue as to the costs of the trial are now listed before von Doussa J for mention on 3 May 2002. While I note that this application has been made seeking costs against the above two companies in relation to the trial, I do not consider that it has any significant weight in relation to the application before me for security for costs on the appeal.

Undertakings 46 Having regard to the apparent financial position of the appellants any undertaking given by them as to the non-disposal of assets is not of any significant worth on the question of security for costs in relation to the appeal.

Quantum of security 47 The respondents claim an amount of $370,000 by way of security. They point to the wide ranging grounds of appeal in respect of the whole judgment. The indications are that all of these are fully pursued. They point to the complexity and to the numerous issues raised in the grounds. They refer to the size of the transcripts (9,666 pages) at trial and to the detail of the judgment (318 pages). They also refer to the nineteen folders of documents and the 146 sitting days of hearing to emphasise the complexity, length and difficulty of the appeal. They submit that there will necessarily be considerable pre-appeal preparation costs incurred and that the appeal will last over several weeks. They point to the fact that the Notice of Appeal raises over twenty grounds of appeal with an additional twenty-six sub-grounds or particulars of the itemised grounds of appeal. The indications are that each of these will be fully contested and therefore a substantial hearing can be anticipated in the course of which most of the material below will be canvassed. 48 The appellants submit that the legal representation will probably be the same on the appeal as at the trial, and that the need for preparation will be considerably less than that suggested. Further, they say that the hearing will be considerably shorter than that envisaged by the respondents and that the rates charged are excessive. 49 It is not feasible for me at this point in time to determine the duration of the appeal hearing or the likely preparation period with any precision but, on the basis of the material which I have seen, it is likely that the hearing on appeal could be expected to take in the order of at least two weeks, and involve a substantial period of time for preparation to consider the range of material referred to above. This would require several weeks of preparation. The costs will of course be subject to taxation if they are not agreed. 50 I have taken into account the commitment of the appellants to this litigation and their ability, demonstrated in the past, to arrange for the conduct of this complex and expensive litigation together with the litigation involving the application for security for costs and the ADJR hearing. I have also taken into account the substantial advances made by related entities in the past and also the lodgement of $50,000 as security for the costs of the trial. In addition, I have considered the extent of the success of the respondents on the trial and also the prospects of ultimate success of the appeal to the limited extent that can be evaluated. Balancing all these matters and making due allowance in a conservative manner for an appropriate sum by way of security I have come to the conclusion that an amount of $200,000 is appropriate. 51 In relation to the costs of this application for security I consider that the respondents have substantially succeeded. However, the amount of the security sought has been cut down and a number of arguments raised for the respondents have been rejected, particularly the argument as to the lack of any arguable issue on the appeal. Accordingly, I think that the appropriate order is that the appellants should pay seventy per cent of the Commonwealth respondents' costs on this application for security for costs. 52 In my view the following orders should be made: 1. Unless the appellants provide security for costs of the third, fourth and fifth respondents on the appeal in an amount of $200,000 on or before 30 May 2002 in a form satisfactory to the Registrar the appeal is to be stayed until further order. 2. The parties have liberty to apply on forty-eight (48) hours notice. 3. The appellants shall pay seventy per cent (70%) of the costs of this application for security for costs.

I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.

Associate: Dated: 24 April 2002 Counsel for the Appellants: Ms Shaw QC

Counsel for the Respondents: D Quick QC M Frayne

Solicitor for the Respondents: Australian Government Solicitor

Dates of Hearing: 22, 27 and 28 November 2001 19 and 20 December 2001 1 March 2002