De Jong v Carnival PLC

Supreme Court of NSW|2016-02-29|Before: Beech-Jones J

NSWLR 598 - Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443 - Ryan v Great Lakes Council (1998) 155 ALR 447 Category: Procedural and other rulings Parties: Lucretia De Jong - Plaintiff Carnival PLC, t/as Carnival Australia - Defendant Representation: Counsel: C. Barry QC, J.E. Rowe - Plaintiff J.A. Hogan-Doran - Defendant

Solicitors: Arnold Thomas & Becker (Melbourne) - Plaintiff Sparke Helmore - Defendant File Number(s): 2015/254964 Publication restriction: Nil

The pleadings

In its defence, Carnival admits that it operated a cruise ship, the Carnival Spirit, which departed Sydney on 10 March 2015 and returned on 18 March 2015. The published itinerary for the ship included visits to two locations in New Caledonia. However, late on the evening of 10 March 2015, after the Carnival Spirit left port, the passengers were advised that because of concerns about the path of Cyclone Pam the ship was to be diverted. According to Carnival's defence, on 11 March 2015 the passengers were advised that the new ports of call were the Port of Melbourne and the Port of Hobart.
The Statement of Claim identifies the group members as persons who booked and paid for the cruise and "suffered loss and damage" because of Carnival's conduct as pleaded in the balance of the Statement of Claim. It pleads that, before the Carnival Spirit left Sydney, Carnival knew or ought to have known that the ship would not travel to New Caledonia. It also pleads that the failure of Carnival to advise group members of this prior to the ship's departure constituted a breach of a guarantee that the services provided by Carnival would be rendered with due care and skill, be reasonably fit for their purpose and might be reasonably expected to achieve their intended result. These obligations are said to have been imposed on Carnival by the operation of ss 60, 61(1) and 61(2) of the Australian Consumer Law (Cth) respectively. The statement of claim alleges that the failure of Carnival to advise of the itinerary change in a timely manner meant that Ms De Jong and group members lost the opportunity to cancel and obtain a refund. It also pleads that they did not otherwise experience a cruise of the kind that Carnival offered.
Leaving aside the basal facts concerning the cruise which I have recounted, Carnival's defence denies all of the substantive allegations against it, relies on various terms of its contract with its passengers and otherwise notes that the on board account for each booking received a credit of $150.00. Carnival also pleads that the plaintiff and each group member received a credit of 50% towards the cost of booking any new cruise on the Carnival Spirit or another ship, the Carnival Legend, sailing to or from Australia and departing prior to 31 March 2016. Ms De Jong's written submissions dated 24 February 2016 contend that, in its defence, Carnival "admit[s] [it] knew the ship was not going to the ports advertised an hour before departure", but did not advise the passengers of the change until after the ship sailed. This is incorrect. Carnival admits that at 4.30pm on 10 March 2015 it became aware that there was a "change in the track of Cyclone Pam towards the south". However, on its face, that does not constitute an admission of a necessity to change the itinerary prior to the ship's departure.

Mr Castle's affidavit

The partner with carriage of the matter on behalf of Carnival, Mr Timothy Castle, affirmed an affidavit on 29 January 2016 estimating the costs likely to be incurred in defending the proceedings from that date until judgment by reference to the charge out rates of the relevant lawyers and his estimate of the time involved in each likely step of the litigation. Mr Castle concluded that Carnival's costs of defending the proceedings would be $937,348.66 with $829,223.66 being incurred up to the time of the hearing. He also estimated that 95% of the disbursements, including Counsel's fees and 70% of solicitor's costs, would be recovered on an assessment of party/party costs. The end result is that he estimates that, if it is successful following a hearing, Carnival would recover $782,803.47, including $686,890.97 of the costs incurred up to the hearing date.
There was no challenge to any aspect of Mr Castle's estimate. No point was taken that any calculation or security should not include costs already incurred. I accept Mr Castle's evidence.

The group and its means

Ms De Jong has sworn an affidavit stating that she has no assets and no funding or indemnity available to her to meet any costs order. Her most recent tax return states that she has minimal income. Her evidence was not challenged. I accept it.
The Court was advised that the number of passengers aboard the cruise was approximately 1,000 and that each booking cost approximately $5,000. According to Ms De Jong, approximately 580 passengers on the cruise have contacted her solicitors. The partner with carriage of Ms De Jong's case, Ms Goodwin, stated on affidavit that she approached two litigation funders in relation to the provision of security for costs, but they were unwilling to assist. The written submissions filed on behalf of Ms De Jong assert that 71 costs agreements have been signed representing 229 passengers. Ms Goodwin did not address whether she had made any inquiries of the willingness or capacity of those persons to contribute to a fund for security.
The only sensible conclusion from this material is that the solicitors for Ms De Jong are "funding" the litigation in the sense of not receiving immediate payment for their time and either paying for disbursements, including Counsel's fees, or entering into arrangements to make payments for disbursements contingent on the outcome. In these circumstances, I am satisfied that, absent any contribution from group members, an order for security or a stay pending security will "stultify" these proceedings.
Mr Castle caused real property searches to be conducted of persons with the same name as some of the group members who appeared to reside in New South Wales. Annexed to an affidavit he affirmed on 10 February 2016 is material that demonstrates that 20 persons with the same name as some of the passengers are the registered owners of property. In correspondence, Ms Goodwin denied having been contacted by any of those persons. Beyond these inquiries there is no evidence before the Court about the means of group members other than the fact they were able to pay for a cruise.

Correspondence

On 5 February 2016, Mr Castle wrote to Ms Goodwin on the topic of security. He made reference to the possibility of replacing Ms De Jong as "lead plaintiff" (i.e. representative party) with someone with assets. Otherwise, he contended that, as Ms De Jong was asserting that an order requiring the provision of security would "stifle" her claim, it was incumbent on her to demonstrate that "that there are no other members of the group who could act as the plaintiff and who hold sufficient assets to meet any costs order that may be made at the conclusion of the proceedings if the claim is successful". He proposed that the notice of motion seeking security be adjourned pending the implementation of a regime similar to that which was implemented in Kelly v Willmott Forests Ltd (in liquidation) (No 3) [2014] FCA 78 ("Kelly No 3") (as a consequence of Madgwick v Kelly). In particular, Mr Castle suggested that the circular accompanying the opt out notices sent to group members advise them that the "Court may order that security for costs be provided by members of the group" and requested that each group member indicate their willingness to contribute to a fund and, if not, provide reasons for their refusal.
Ms Goodwin responded on 16 February 2016 rejecting the proposal to replace Ms De Jong as the representative party and the proposed orders for the implementation of a regime for security for costs. Nevertheless, Ms Goodwin also requested details about the passengers on the ship, including the number who had taken advantage of the 50% credit noted in [10] above, so that she could "consider further your proposal to put in place a regime for security for costs".
On 25 February 2016, Carnival's solicitors responded stating that they would provide a list of the persons who booked and paid for the cruise, their addresses and email addresses, but not their dates of birth or other information. However, this offer does not appear to have been taken further. Instead, the parties' positions concerning the motion are outlined in [4] to [5].

The Federal Court's approach to ordering security for costs in representative proceedings

As noted, Carnival's suggested approach to security for costs was based on Madgwick v Kelly. That decision must be considered in the context of the relevant legislative provisions regulating the Federal Court's power to make an order for security for costs in representative proceedings commenced by an individual litigant.
Part IVA of the Federal Court of Australia Act 1976 (Cth) establishes a scheme for representative actions on an opt out basis. Part IVA was the model upon which Pt 10 of the CPA was based (see [55]).
Part IVA includes s 33ZG(c)(v), which provides, inter alia, that nothing in Pt IVA affects the "the operation of any law relating to … security for costs". Found within Pt VI of the Federal Court of Australia Act are ss 43(1A) and 56, which provide: "s 43 Costs … (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. …" "s 56 Security (1) The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, 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. (5) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security."
Rule 19.01 of the Federal Court Rules (Cth) enables a respondent to apply to the Court for orders that an applicant give security, that proceedings be stayed until security is given and that, if an applicant fails to comply with an order to provide security, the proceedings be stayed or dismissed. Nothing in the Federal Court Rules purports to limit the circumstances in which the provision of security can be ordered.
Leaving aside representative actions, s 56 of the Federal Court of Australia Act has been construed as consistent with the traditional rule that "poverty is no bar to a litigant" (Cowell v Taylor (1885) 31 Ch D 34 at 38) and thus security will not be ordered against a natural person solely on the grounds of their impecuniosity (see the cases discussed by Heydon JA in Melville v Craig Nowlan & Associates Pty Ltd & Anor [2002] NSWCA 32 at [83]; (2001) 54 NSWLR 82 at [83ff] and The Airtourer Co-operative Limited v Millicer Aircraft Industries Pty Limited [2004] FCA 1400 at [21] per Branson J). However, an exception to the general rule exists where an impecunious plaintiff sues for the benefit of others (Madgwick v Kelly at [12] per Allsop CJ and Middleton J).
With representative proceedings, prior to the decision in Bray, the position in the Federal Court was that it was inconsistent with the "spirit of s 43(1A)" that "individuals constituting the group members be compelled to contribute to a fund to enable their impecunious representative party to satisfy an award of costs against him" (Ryan v Great Lakes Council (1998) 155 ALR 447 at 454 to 455 per Lindgren J). However, this approach was rejected, or at least modified, in Bray. Instead, Carr J (with whom Branson and Finkelstein JJ agreed, or substantially agreed, at [214] and [250] respectively) stated (at [141] to [142]): "Depending upon the particular circumstances, I do not think that an order providing reasonable security for costs necessarily operates indirectly to remove the effect of the immunity provided by s 43(1A). It is one thing for a group member to be saddled with an order for what might be joint and several liability for a very substantial costs order at the end of the hearing of a representative proceeding, but it is another thing to have the choice of contributing what might be a modest amount to a pool by which the applicant might provide security for costs. It is a question of balancing the policy reflected in s 43(1A) against the risk of injustice to a respondent, in this case Aventis Australia, which, on the admitted facts, has no chance of recovering very substantial costs from the applicant if it is successful in defending the proceedings. Much would depend upon the number of group members involved, their financial circumstances and in particular whether an order for security for costs might stifle the proceedings. In that regard, in my opinion, it was for the applicant to adduce evidence about the likely effect of any order for security for costs. She chose not to do so and in my view, in those circumstances, the discretion having miscarried, it should be exercised again." (emphasis added)
Bray either is, or has come to be treated as, authority for at least the five following propositions. First, that an order for security against the representative party does not affect the immunity conferred by s 43(1A) (Bray at [141] per Carr J; Madgwick v Kelly at [81] and [87] per Allsop CJ and Middleton J and at [141] per Jessup J). Second, the fact that an impecunious plaintiff brings proceedings for the benefit of represented persons may be a significant factor in favour of an order for security (Madgwick v Kelly at [21] to [23] per Allsop CJ and Middleton J). Third, that to obtain an order for security it is not necessary to demonstrate that the representative party had been deliberately selected to shield group members with substantial means for whose benefit the proceedings were brought (Bray at [144] per Carr J; Madgwick v Kelly at [21] to [23] per Allsop CJ and Middleton J). Fourth, that the party resisting security on the basis that it will stultify the proceedings bears the onus of proof of that fact (Bray at [142], [144], [214] and [250]; Madgwick v Kelly at [80] and [87] per Allsop CJ and Middleton J and at [141] per Jessup J). Fifth, that the financial circumstances of group members are relevant to an application for security especially the contention that an order for security would stultify the proceedings (Bray at [142] per Carr J; Madgwick v Kelly at [80] to [88] per Allsop CJ and Middleton J and at [141] per Jessup J).
Further, Madgwick v Kelly held that solicitors conducting proceedings on the basis that they would only be paid in the event of a successful judgment or settlement were not to be equated with litigation funders; i.e. they were not to be treated as a person standing behind the plaintiff or as a person on whose behalf the proceedings were brought (at [44] to [48] per Allsop CJ and Middleton J and at [148ff] per Jessup J).
The group members in Madgwick v Kelly were investors in failed forestry plantation schemes. The action was brought against the promoting companies and their directors as well as the lenders and financiers of the schemes (at [3] per Allsop CJ and Middleton J). In total, 3,191 persons had acquired an interest in the schemes, but it was not known how many of them claimed their losses were suffered as a result of the respondents' actions so as to enable the size of the group to be ascertained (at [112 per Jessup J]). However, there were 409 known group members who had retained the applicant's solicitors. Of that group 77% invested up to $100,000.00 and 30% invested less than $50,000.00. The most frequently occurring level of loss amongst known group members was between $42,000.00 and $50,000.00 (at [59] per Allsop CJ and Middleton J). A random sampling of 50 known group members revealed that approximately 80% of known group members stated they could not "afford" to pay either $20,000.00 or $30,000.00 for security and 65% stated that they would not participate in the representative action if they were required to pay security in that amount (at [172] per Jessup J).
At first instance, the primary judge, Murphy J, declined to make an order for security (Kelly v Willmott Forests Ltd (in liquidation) [2012] FCA 1446) ("Kelly v Willmott"). His Honour listed the following factors as relevant to the determination of whether or not to order security (at [13]): "(a) Whether there is reason to believe that the applicants will be unable to pay the respondents' costs if so ordered, that is, whether the applicants are impecunious? (b) Whether the applicants' insufficiency of means is caused by the conduct which is the foundation for the action? (c) The promptness of the application and the stage of the proceedings at which an application for security is brought. (d) Whether the proceeding has become bogged down with 'interminable and expensive interlocutory applications' for which the applicants bear responsibility? (e) The strength and bona fides of the applicants' claim for relief from the respondents. (f) Whether the applicants have been deliberately selected as 'persons of straw', in order to immunise from costs orders group members of substantial means? (g) Whether the proceeding is essentially defensive in nature? (h) Whether the applicants are suing for someone else's benefit? (i) The characteristics of the group members. For example do they include corporations or natural persons, and are they rich or poor? (j) Whether someone who stands to benefit from the litigation is funding the applicants? (k) Whether security would have been ordered if separate actions had been brought by the group members? (l) Whether an order for security would stifle the action and shut the applicants out from pursuing an arguable claim?"
Critically, Murphy J found that an order for security was likely to stultify proceedings in that the inability of the bulk of the known group members to contribute to an order for security would leave a small remaining number to potentially shoulder a greater burden which in turn they would be either unable or unwilling to contribute towards (Kelly v Wilmott at [120] to [121] and [130] to [133]).
In the Full Court, Allsop CJ and Middleton J accepted that the factors listed above were "legitimate" to consider on an application for security (Madgwick v Kelly at [8]), but nevertheless found that Murphy J's refusal to make an order for security was affected by an erroneous failure to undertake the balancing exercise referred to in Bray (Madgwick v Kelly at [70] per Allsop CJ and Middleton J; contra Jessup J at [142] to [146]).
Further, the whole Court found that Murphy J's conclusion that an order for security would stultify the proceedings could not be sustained. It was held that a finding of stultification could not be made without evidence that litigation funding had unsuccessfully been sought (Madgwick v Kelly at [77] per Allsop CJ and Middleton J and at [150] and [183] per Jessup J). Allsop CJ and Middleton J also found that the applicant had not discharged the onus of proving "likely stultification by inability or reasonable unwillingness to contribute" in circumstances where there was evidence that a significant number of known group members had "significant net assets" and there was no evidence concerning the "ability or willingness of the group to approach the matter on a pro-rata basis" (Madgwick v Kelly at [86]). Jessup J found that the applicants had failed to establish the financial means of the known group members and the primary judge erred in relying on the results of the survey noted in [28] above to make a finding that an order for security was likely to stultify the proceedings (Madgwick v Kelly at [172] and [183]). His Honour found that the responses to the survey questions addressed to known group members which simply asked them whether they could "afford" to make a contribution were too subjective in that they did not "sufficiently [paint] an objective picture of the means of the people concerned" (Madgwick v Kelly at [173]). Jessup J held that evidence that group members were "merely unwilling to [contribute], in the absence of evidence of their means such as would permit the court to determine the matter objectively, would not be sufficient" (Madgwick v Kelly at [160]). Allsop CJ and Middleton J held that a subjective unwillingness to contribute was not irrelevant but that "the question of the reasonableness of any unwillingness to contribute must be considered in determining what is fair in all the circumstances" (Madgwick v Kelly at [83]).
The focus in Madgwick v Kelly on the ability and willingness of known group members to contribute reflected the circumstance that the applicant had the means to adduce evidence concerning their circumstances. Thus, while Jessup J accepted that Bray was authority for the proposition that the "financial circumstances of the group members are relevant to … an application [security for costs], and that the named plaintiff carries the onus of proof in that regard" (Madgwick v Kelly at [141]), his Honour did not accept that the applicant bore the "onus of bringing the financial circumstances" of the unknown group members before the Court (Madgwick v Kelly at [153]).
Having found error on the part of the primary judge, the question arose in Madgwick v Kelly as to what relief should be granted. Allsop CJ and Middleton J emphasised that the balancing exercise may warrant a conclusion that something less than full security should be ordered and also affected the timing and conditions attached to its grant (Madgwick v Kelly at [96]). Having regard to the commercial context in which the alleged losses arose, their Honours concluded that an order for security was appropriate and the "most obviously fair and appropriate approach would be rateable by reference to the [level of] investments ..." (Madgwick v Kelly at [99]). Their Honours remitted the application to the primary judge for the fixing of the amount and the terms and conditions attaching to its grant. (Jessup J agreed with those orders: Madgwick v Kelly at [185].)
Following the remittal by the Full Court, the primary judge, Murphy J, published two further judgments concerning the application for security: Kelly v Willmott Forests Ltd (in liquidation) (No 2) [2013] FCA 732 ("Kelly No 2") and Kelly No 3.
In Kelly No 2, Murphy J stated that the "starting point" was to make an "order for $6.58 million" in security being the anticipated costs of the trial (Kelly No 2 at [26]) and an amount that could be met if each known group member made a pro-rata contribution of between $5,101.00 and $12,430.00 (Kelly No 2 at [26] to [27]). However, before making any order requiring security his Honour directed the applicant's solicitors to write to all group members advising them of the quantum of security to be ordered, its staging, the likelihood that the proceedings would be stayed if security was not provided, and requesting a contribution from each group member or the reason for their refusal (Kelly No 2 at [39]).
The information was sought in detailed circulars that were sent to known and unknown group members. Copies of the pro forma circulars are annexed to the judgment in Kelly No 3. Approximately 89% of the unknown group members and 18% of the known group members failed to respond (Kelly No 3 at [40] to [42]). Those who did respond pledged to provide security in the amount of $1,798,582, comprised of $1,700,367 pledged by known group members and $98,214.00 from unknown group members (Kelly No 3 at [49]). However, the contributions fell short of the pledged amounts, such that only $1.73 million was available for security (Kelly No 3 at [50]).
In Kelly No 3, Murphy J found that "a significant majority of the known and unknown group members that refused to contribute to security did so because they were financially unable, or reasonably unwilling, to contribute" (Kelly No 3 at [68]). His Honour concluded that, if an amount of security of $6.58 million was ordered, then the proceedings were likely to be stultified and that if security in excess of $1.73 million was ordered, then it would occasion an injustice to those group members who were willing to pledge security or were financially unable or reasonably unwilling to do so (Kelly No 3 at [86] to [87]). Accordingly, his Honour ordered that security of $1.73 million be provided, failing which the proceedings would be stayed (Kelly No 3 at [100]).
In Kelly No 3, Murphy J considered and rejected a submission that the high proportion of group members who did not respond to the circular seeking information about contributions to an order for security meant that the Court could not be satisfied that an order for security would stultify the proceedings (Kelly No 3 at [81] to [84]). Instead, his Honour considered that non-responsive class members and class members who unreasonably refused to contribute to the order for security should ultimately be removed from the action via the opt out process, or ultimately by adopting the process of "class closure" (Kelly No 3 at [93] to [95]; see Matthews v SPI Electricity Pty Ltd [2013] VSC 17 at [23] per Forest J).
The procedure adopted in Kelly No 2 and Kelly No 3 involved a departure from the usual approach to opt out class actions which enables group members to take an "essentially passive role" until judgment on the common questions of fact or law is delivered or a settlement is approved (P Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (No 2) [2010] FCA 176 at [31] per Finkelstein J). Instead the procedure involved the solicitation of information from group members prior to the sending of opt out notices and made their continuing status as group members contingent upon whether they or not they unreasonably refused to contribute to a fund dedicated to satisfying an order for security for costs.
Departures from the usual approach are sometimes required in representative proceedings including, for example, when orders for class closure are made (Matthews v SPI Electricity Pty Ltd (Ruling No 13) [2013] VSC 17; Lam v Rolls Royce PLC (No 3) [2015] NSWSC 83). However, such departures should not occur without good cause. It follows that, at the very least, a reasonably strong case for ordering security should be made out before the Court embarks upon the process undertaken in Kelly No 2 and Kelly No 3 as a means of determining whether the circumstances of the group members are such that to order security is likely to stifle the proceedings and what amount, if any, should be provided by way of security.

Supreme Court's power to award security in representative proceedings

Leaving aside Pt 10 of the CPA, there are three potential sources of this Court's power to award security for costs or make an order relating to security for costs.
The first is Uniform Civil Procedure Rule ("UCPR") 42.21(1), which relevantly confers a power to make an order that a plaintiff provide security for costs and that the proceedings be stayed until it is provided if "it appears to the court on the application of a defendant ... (e) that a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so" (emphasis added).
Mr Hogan-Doran initially sought to invoke this rule. However, in his written submissions, he accepted that it was not apposite to the plaintiff in that she is suing for her own benefit, as well as for others (see Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148 ("Green") at [45] per Hodgson JA). Otherwise it should be noted that subrule 42.21(1A) lists a series of factors relevant to the exercise of that power that are similar to those set out in [29] and which include "whether an order for security for costs would stifle the proceedings" (UCPR 42.21(1A)(f)).
The second source is s 67 of the CPA, which confers on the Court a power, subject to the rules, to order a stay of any proceedings either permanently or until a specified date. In Philips Electronics Australia Pty Ltd v Matthews [2002] NSWCA 157; 54 NSWLR 598 at [47] ("Philips Electronics"), Hodgson JA held that the former s 156 of the District Court Act 1973 (NSW) conferred on the District Court a power to make an order staying proceedings unless and until security for costs was given. His Honour held that the power was not limited by the District Court Rules which specified circumstances in which it was appropriate to make such an order against an individual (at [50] to [52]). However, his Honour added (at [53]) that the existence of such rules meant that a "strong case" would need to be made out that it was necessary in the interests of justice to stay proceedings until security for costs was provided, although it was not necessary to demonstrate that the proceedings were an abuse of process (at [47]). Mason P agreed with Hodgson JA and stated that the circumstances in which the power to order a stay conditional upon the grant of security in categories falling outside those prescribed by the rule would be exercised were "exceptional" (at [13]).
Mr Barry QC submitted that, because the operation of s 67 of the CPA is expressed to be "subject to rules of Court", it does not confer a power to order a stay in lieu of security being provided in circumstances that do not fall within UCPR 42.41. Former s 156 of the District Court Act, which was the subject of the judgment in Philips Electronics, was not expressed to be "subject to rules of Court".
I reject this submission. In Liristis v Danic [2011] NSWCA 239 (at [15]) and Hassoun v Wesfarmers General Insurance Ltd t/a Lumley General [2015] NSWCA 33 at [38] to [45], the Court of Appeal proceeded on the basis that there was no relevant difference between s 67 of the CPA and former s 156 of the District Court Act. Simpson J proceeded on the same basis in Byrnes v John Fairfax Publications Pty Ltd [2006] NSWSC 251 at [18] ("Byrnes").
The third is the "inherent jurisdiction of the Supreme Court to make orders for security for costs" in circumstances other than those prescribed by the rules (Philips Electronics at [52] per Hodgson JA; Green at [33] per Hodgson JA, Campbell JA agreeing; Charara v Integrex Pty Ltd [2010] NSWCA 342 at [15] per McColl JA; Byrnes at [17] per Simpson J; Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443 at 447). In Green at [45] Hodgson JA specifically instanced a plaintiff "bring[ing] a case for the benefit of others (albeit not solely for their benefit as apparently required by UCPR 42.21(1)(e))" as a circumstance that would warrant this Court exercising its inherent power to award security for costs. Further, his Honour stated the following concerning the principles that govern the exercise of this power (Green at [46]): "In my opinion, it would be an oversimplification to say that underlying these guidelines is a broader principle that defendants should be protected against being unable to collect costs ordered against plaintiffs unless this would stultify the litigation. Certainly, these are relevant considerations; but in my opinion also relevant are the considerations that there should not be undue inhibitions on less wealthy persons from seeking vindication of their rights against more wealthy persons, and that there could be such inhibitions if it was in every case open to defendants to apply for security for costs on the basis of some evidence (or even on the basis of fishing notices to produce) suggesting inability to pay costs, and to claim that security should be given unless the plaintiff can prove it would stultify the litigation. In my opinion these considerations make it desirable that guidelines be adhered to, even though the question is ultimately for the court's discretion." (emphasis added)
Are these sources of power to order security or order a stay in lieu of it being provided limited in their application to proceedings under Pt 10 of the CPA? Each of the parties pointed to different provisions in Pt 10. Mr Barry QC contended that there was no power to order security. He referred to s 181 of the CPA which provides that: "Despite section 98, in any representative proceedings, the Court may not award costs against a person on whose behalf the proceedings have been commenced (other than a representative party) except as authorised by sections 168 and 169."
Section 98 of the CPA confers a power on the Court to award costs. Sections 168 and 169 are of no present relevance. They concern the determination of questions that are not common to all group members and the intervention in the proceedings by individual members of the group in relation to the determination of issues that relate to only that member.
Mr Barry QC submitted that an order for security for costs would violate s 181. He pointed to the absence in Pt 10 of the CPA of any equivalent to s 33ZG(c)(v) of the Federal Court of Australia Act. He contended that the effect of an order for security would be to award costs against a group member and would otherwise be inimical to the purpose of Pt 10 which is to facilitate access to justice.
To the extent that Mr Barry QC's submission contends that no order for security can be made against a group member, then I accept it. If, as s 181 provides, no order for costs can be made against a group member in favour of a defendant then there is nothing to be secured by an order for security. In Matthews v SPI Electricity Pty Ltd (No 9) [2013] VSC 671 ("Matthews v SPI (No 9)") Derham AsJ held that there is no power to award security against group members under the equivalent provisions of the Supreme Court Act 1986 (Vic) (at [54]).
However, to the extent that Mr Barry QC's submission contends that no order for security can be made against a representative party, then I do not accept it. It is not supported by any of the text of s 183, the structure of the CPA as a whole or relevant authority.
Contrary to Mr Barry QC's submission, neither as a matter of form nor substance does an order requiring a representative party to provide security involve the awarding of costs against a group member. The making of such an order does not impose any personal liability upon a group member. Even if security is ordered but not provided, that does not necessarily mean that group members would ultimately be bound by any stay that may be ordered. Instead, the result may be that the Court first orders that the proceedings no longer proceed under Pt 10 because the representative party is not able to adequately represent the interests of the group members (CPA s 166(1)(d)) and then stays the representative party's action. The result would be that group members are not then prevented from bringing an individual action (or even another representative action). It is one thing to prevent a representative action continuing because the representative party is unable to ameliorate the injustice that may be occasioned to a defendant from having to defend the proceedings and not recover costs. It is another thing to shut out group members from bringing an action in their own right because, without their knowledge or consent, the representative plaintiff commenced proceedings on their behalf but proved unable to properly prosecute them.
Further, Pt 10 needs to be read with the balance of the CPA. A number of provisions in Pt 10 expressly modify or limit the operation of the balance of the CPA. For example, s 183 modifies the operation of the power to award costs in s 98, but it does not purport to limit either s 67 or the Court's implied power to order security. Otherwise, I note that neither the Explanatory Memorandum or the Second Reading Speech accompanying the legislation that introduced Pt 10, namely the Courts and Crimes Legislation Further Amendment Act 2010 (NSW), suggest that there is no power to make an order for the provision of security in representative proceedings. If anything, the position is to the contrary. In the second reading speech the Attorney General referred to the "broad consistency between [Pt 10] and the existing Federal and Victorian regimes" (Hansard, Legislative Council, 24 November 2010 at 28067).
Finally on this point, I note that neither the judgment of Carr J in Bray at [141] to [142] (set out at [25] above) nor Madgwick v Kelly turned upon the presence of s 33ZG(c)(v) of the Federal Court of Australia Act as somehow limiting the operation of s 43(1A). Instead they proceeded upon the basis noted above, namely, that "an order providing reasonable security for costs [does not] necessarily operate ... indirectly to remove the effect of the immunity provided by s 43(1A)" (Bray at [141] per Carr J). The provisions of Pt 10 of the CPA are not relevantly different to Pt IVA of the Federal Court of Australia Act. Accordingly, I should follow Bray and Madgwick v Kelly unless I consider them to be clearly wrong, which I do not (Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; 177 CLR 485 at 492).
Mr Hogan-Doran contended that s 183 of the CPA is a separate source of power to award security for costs in representative proceedings. It provides: "In any proceedings (including an appeal) conducted under this Part, the Court may, of its own motion or on application by a party or a group member, make any order that the Court thinks appropriate or necessary to ensure that justice is done in the proceedings."
I do not accept that this provision enables an order for security to be made against a group member. Given the generality with which it is expressed, s 183 must be read subject to the specific prohibition contained in s 181. It follows that s 183 does not enable an order for security to be made against a group member in that, by the operation of s 181, there is no potential costs liability owed by a group member to a defendant to be secured. However, s 183 could be the source of a power to award security against the representative party. In Matthews v SPI (No 9) at [81], Derham AsJ held that the equivalent provision of the Supreme Court Act 1986 (Vic) enabled the making of such an order. However, in light of the other sources of power noted at [45] to [48], it is not necessary to finally determine whether s 183 could also support an order for security against the representative party.
Accordingly, I am satisfied that this Court has power to order security for costs against the representative party in representative proceedings, and stay the proceedings if the security is not provided.

Disposition

Notwithstanding the differences in the legislative regime governing representative actions in the Federal Court and this Court, I consider that the approach stated in Bray is apposite when this Court considers an application for security for costs in a representative action, namely, balancing the policy reflected in s 181 against the risk of injustice to a defendant. This approach is consistent with the approach outlined in the authorities referred to in [45] to [48] above.
I have set out in [29] a number of the factors identified by Murphy J in Kelly v Willmott and approved by the Full Court of the Federal Court in Madgwick v Kelly as bearing upon a determination of whether security should be ordered. As stated, similar criteria are to be found in UPCR 42.21(1A) which represent a distillation of the many factors referred to in the case law. Applying them to this matter, I am not in a position to assess the prospects of success of the proceedings (UCPR 42.21(1A)(a)). Ms De Jong's written submissions contend that her case has merit based on the alleged admission noted in [10], but that overstates the effect of the defence she seeks to rely on. However, there is no reason to doubt that Ms De Jong's claim is genuine (UCPR 42.21(1A)(b)). I have already accepted that Ms De Jong is impecunious, but that is not due to any conduct of Carnival (UCPR 42.21(1A)(c) and (d)). Ms De Jong is not "effectively in the position of a defendant", i.e. these proceedings cannot be characterised as defensive in nature (UCPR 42.21(1A)(e)). There has been no delay by Carnival in bringing the application (UCPR 42.21(1A)(l)). To the contrary, it has been brought at an early stage of the proceedings. It may be that the amount of security sought is disproportionate to the importance and complexity of the subject matter of the proceedings (UCPR 42.21(1A)(k)). However, in this case that may relate more to the level of security that might be ordered rather than whether any security would be ordered. Otherwise, there is nothing to suggest that Ms De Jong was deliberately chosen to shield other group members from a costs liability, or that someone who stands to benefit from the proceedings is funding the litigation (see [27]).
The potentially critical factors that weigh against an order for security concern the nature and number of the claims sought to be vindicated and the contention that an order for security would stultify the proceedings.
The nature and number of claims has already been outlined. Ms De Jong's written submissions dated 24 February 2016 contend that the individual claims ranged from $3,000 to $5,000, are made on behalf of individuals and involve an asserted failure to comply with consumer guarantees. Those submissions and her written submissions dated 9 March 2016 contrast these claims with those made by the group members in Madgwick v Kelly. As said, the claims in Madgwick v Kelly arose out of commercial transactions, the group members had lost substantial amounts and included some corporations.
These matters have substance but they do not detract from a conclusion that a sufficiently strong case for an order for at least some security has been made out to warrant ascertaining the ability and willingness of group members to contribute to a fund to meet such an order. The disappointment arising from a holiday that does not meet contractual expectations has been found to justify compensation in a number of cases (e.g. Baltic Shipping Company v Dillon [1993] HCA 4; (1993) 176 CLR 344; Jarvis v Swans Tours Ltd (1973) QB 23). However, it is not a type of loss that weighs much against an order for security compared with actions that allege a more serious interference with a person's rights or interests, such as actions seeking damages for personal injury, psychiatric harm or the loss of a person's significant asset such as their home or business.
I have already noted the undisputed evidence of Mr Castle as to the amount of costs that Carnival is likely to incur in defending the proceedings. If the claims of group members are as small as Ms De Jong's submissions contend, then Carnival's likely level of unpaid costs in the event that it succeeds appears to be significantly disproportionate to the total cost of the claims it faces. Why should Carnival face the prospect of such a significant loss even in the event that it succeeds, whereas group members face no prospect of any loss in the event that they are unsuccessful? It is unfair to expose one party to litigation to such a level of unrecoverable costs for that size of claim while the bulk of the persons who comprise the other side to litigation have no exposure, even though they might have the means to make some contribution to an order for security.
The written submissions lodged on behalf of Ms De Jong dated 24 February 2016 contend that an order for security for costs would "stifle this litigation". They point to the absence of litigation funding, the absence of evidence concerning group members' capacity to pay and assert that there is no onus on Ms De Jong to contact any potential members of the class unknown to her to establish their capacity to pay when their claims are so small. The submissions contend that any inquiry of group members which sought a contribution to security "would have the effect of causing many members of the class with meritorious claims to opt out and thus defeat the purpose of the legislation". These contentions were repeated in the written submissions filed on 9 March 2016, which also asserted, inter alia, that "the burden rests on [Carnival], from first to last, to persuade the Court that the order for security for costs should be made".
As the above discussion makes clear, the burden of proving that an order for security would stultify the proceedings rests on Ms De Jong. Although, I accept that, absent a consideration of the circumstances of group members that would be the result of an order for security, it follows from Bray and Madgwick v Kelly that they must be considered before a conclusion about stultification can be made. As noted, there is no evidence that any inquiries have been made about the ability and willingness of those group members who have entered into fee agreements with Ms De Jong's solicitors to make any contribution towards an order for security. As for the other group members, Carnival proposes to make inquiries via the opt out notice. The balance of Ms De Jong's contentions overlook the possibility that group members might only be asked to contribute an amount that is proportionate to the amount of their claim and that any order for security may be for an amount less than that sought by Carnival depending on group members' responses.
On this last point, in my view there is a necessity to limit the contribution request made of group members to something which is proportionate to their claim. It would be cumbersome to attempt to engage in an ongoing dialogue with group members about making a contribution to security by making an initial inquiry about their willingness and capacity to contribute a particular sum and then seeking a larger amount because other group members refuse to contribute. Further, the necessity to keep the contribution proportionate to the amount of their claims flows directly from the dictates of s 60 of the CPA that "the practice and procedure of the Court should be implemented with the object of resolving the issues between the parties in such a way that the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute". Only seeking a proportionate contribution facilitates the scheme of Pt 10 by not effectively compelling group members to opt out to avoid contributing a disproportionate sum to pursue a small claim. It would not be an appropriate means of addressing the potential unfairness identified in [65] to impose a disproportionate cost on group members as the price of remaining in the representative action.
In Madgwick v Kelly, group members were asked to contribute on a basis referable to their level of investment. In this case, the most obvious basis is to request a contribution that represents a proportion of the cost of each cruise paid for. As stated, the Court was advised that the cost of the cruise was approximately $5,000 and Ms De Jong estimates the value of each claim to be between $3,000 and $5,000. In my view, group members should be asked whether they are willing to contribute 15% of the cost of each cruise they purchased towards an order for security, and if not, or only some lesser sum, then why. Such a contribution would not amount to the imposition of "undue inhibitions" on group members (Green at [46]; see [48])
Finally, I note that Carnival's written submissions dated 18 March 2016 asserted that, notwithstanding the absence of information concerning the circumstances of group members, it nevertheless may be "beneficial to make an order now that the proceedings be stayed pending provision of security" and nominated the full amount sought as the appropriate amount to order. I will not take that step. It follows from the above that the question of whether security should be ordered and if so, what amount, cannot be determined until attempts have been made to ascertain the capacity and willingness of group members to contribute.

Further progress

At the hearing of the notice of motion, the Court was provided with Ms De Jong's draft of the circular to accompany the opt out notice. The form of the notice was generally acceptable to Carnival save for three matters, namely, Carnival sought to correct some typographical errors, include some more emphatic statements of its denials of liability, and proposed the inclusion of various statements concerning security for costs. The first two sets of amendments should be made.
In relation to the third, Carnival proposed the italicised portion of the following statement be included under the heading "what is a representative action": "… In representative actions, only the plaintiff is responsible for the costs. However, group members may be asked to contribute to a pool of funds which will be paid into Court for the purpose of providing security for costs. More information concerning security for costs is outlined in this notice under the heading 'Will you be liable for legal costs', below." [emphasis added]
A statement in this form is generally unobjectionable. In this case it should be modified to state that group members are being asked whether they are willing and able to contribute 15% of the cost of the cruise(s) they paid for towards a pool of funds to provide security for costs.
Carnival also proposes that the circular include the following statement under the heading "Will you be liable for legal costs": "The defendant has applied to the Supreme Court of New South Wales for security for its costs of the proceedings up to trial in the amount of $686,890.97. The Supreme Court of New South Wales may order that this security be provided by each group member contributing equally to a pool of funds. The Supreme Court may order that the proceedings be stayed for so long as any security for costs ordered to be provided is not give[n]. By way of example, should 1,000 group members contribute to security, each would be asked to contribute just $686.90. Alternatively, for example, if only 700 group members contributed to security, each would be asked to contribute $981.28. Accordingly, you are asked to: 1. Nominate whether you are willing to contribute an amount to a fund for security for costs. The amount to be contributed will be calculated to ensure each group member contributes the same amount; and 2. If you are unwilling to contribute an amount to a fund for security for costs, you should provide reasons for your unwillingness. If your unwillingness is based on a claimed inability to provide any contribution then you should provide documentary evidence to support your claimed inability. Nominations should be completed by all group members. This can be done by completing the 'Security Notice' in the form shown below and returning it to Allanah Goodwin of Arnold Thomas & Becker Lawyers at the address on the form." [emphasis added]
This proposed statement is intimidatory and I will not allow it to be included in the circular. For the reasons outlined, the statement that the Court may order each group member to provide security is wrong. Further, when that statement is combined with the suggestion that the amount required of any group member will vary depending on how many group members contribute, then the overall effect of the above is to use the spectre of a Court ordered requirement to pay an unspecified amount as a means of persuading group members to opt out. The position is made worse by the referred to "claimed inability" of group members to contribute to the pool for security. This phrase carries an air of disbelief and suggests that some form of scrutiny may follow.
Instead of the above, there should be included in this part of the circular a passage that contains the following seven matters. First, a statement that the Court is considering an application to order the representative party to provide security for costs in favour of Carnival, and the amount sought by Carnival Second, a statement that the Court may order all of the security sought be provided, part of the security sought be provided, or dismiss the application. Third, a simple explanation of what security for costs is and the effect of a stay if security is not provided. Fourth, a statement that the forms accompanying the notice seek to ascertain whether the group member is willing to contribute 15% of the cost of the cruise(s) they paid into a pool of funds for security and, if they are not, they should state why. Fifth, a statement confirming that group members will not be ordered to pay costs or provide security. Sixth, a statement that, if sufficient group members unreasonably refuse to contribute to a pool to meet the security ordered against the representative party, then the proceedings may be stayed. Seventh, a statement that individual group members who do not respond or unreasonably decline to contribute might be removed from the action even if they do not opt out.
The parties should confer in relation to revising the circular and drafting the form of notices that will be sent to group members seeking contribution. In default of agreement, the forms attached to the judgment in Kelly No 3 can be used as a starting guide.

Orders

It follows from the above that the notice of motion seeking security will be adjourned and the parties will be directed to confer in relation to the revision of the opt out notice. As the ultimate fate of the notice of motion is yet to be determined, I do not propose to make any costs order at this point.
Accordingly the Court orders that: 1. The Defendant's notice of motion filed 29 January 2016 be adjourned to 22 April 2015 at 9.30am before Beech-Jones J. 2. The parties confer in relation to the preparation of a revised opt out notice and circular. 3. On or before 5pm on 19 April 2016, the parties file and serve either an agreed draft opt out notice, accompanying circular and form of orders approving the draft notice and circular or, failing agreement, competing versions of those documents.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 April 2016

Courts and Crimes Legislation Further Amendment Act 2010(NSW)

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Judgment (13 paragraphs)

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Cases Cited (23)