DAVIES J:
1 The Respondents applied for security for costs in the sum of $100,000 in respect of all three Respondents. The security for costs order is sought in an appeal that was filed by the Appellants in May 2016 from the reasons for decision of his Honour Justice Beach in Fazio Richards Pty Ltd v Ibis Way Pty Ltd [2016] FCA 308. His Honour dismissed the Appellants' claims as Applicants as against the Respondents, save with respect to one claim.
2 In that proceeding, the Appellants had sought relief against the Respondents for alleged breaches of fiduciary, contractual and statutory duties. The claims arose out of a joint venture agreement between the Appellants on the one hand and the First Respondent on the other hand to commercialise various bicycle seat patents through a joint venture vehicle, the Second Respondent. The Third Respondent was said to have controlled the First Respondent. The principal complaint of the Appellants concerned the settlement of patent infringement litigation that had been pursued by the Second Respondent in the United States as part of the joint venture to commercialise and protect the patents.
3 The Notice of Appeal that was filed raises two primary grounds. The first primary ground is that the trial judge erred in concluding that the "clause 5(iii) claim" was not pleaded and, therefore, precluded. It is also claimed that insofar as the trial judge dealt with the claim, his Honour erred in concluding that there was no adequate evidence demonstrating that the First Respondent had breached any obligation to pay out institutional creditors or that the First Appellant was entitled to any readjustment of rights. The second primary ground is that the trial judge erred in concluding that releases in a settlement agreement were not such that the First and Third Respondents had breached the joint venture heads of agreement or their fiduciary duties by entering into that settlement agreement.
4 Pursuant to leave granted by the Court on 17 June 2016, the Appellants filed a document headed Amended Notice of Appeal adding several further grounds. The grant of leave was to file and serve a proposed Amended Notice of Appeal, leave not yet having been granted to amend the Notice of Appeal to add the proposed further grounds.
5 The Respondents have submitted that none of the proposed grounds have any merit, including the proposed further amended grounds, which they contend are deficient and incoherent.
6 The principles upon which security for costs are ordered for an appeal are well settled. The court has jurisdiction to grant an order under s 56 of the Federal Court of Australia Act 1976 (Cth) ("the FCA Act") and also pursuant to r 36.09 of the Federal Court Rules 2011 (Cth). The relevant principles were summarised in Clack v Collins (No 1) [2010] FCA 513 by Jagot J and may be summarised as follows.
7 First, the Court has a wide power under s 56 of the FCA Act to order security for costs but the discretion must be exercised judicially.
8 Secondly, there is an onus on the party seeking the order to satisfy the Court that such an order should properly be made.
9 Thirdly, appeals attract different considerations from trials at first instance. As stated in Clack v Collins, referring to Moore v Macks [2007] FCA 509 (per Mansfield J) , approving the decision of Bowen LJ in Cowell v Taylor (1885) 31 Ch D 34 at 38:
The general rule is that poverty is no bar to a litigant, that, from time immemorial, has been the rule of common law, and also, I believe, in equity. There is an exception in the case of appeals but there the appellant has had the benefit of a decision by one of Her Majesty's courts, and so an insolvent party is not excluded from the courts, but only prevented, if he cannot find security, from dragging his opponent from one court to another.
Mansfield J also referred to the decision of Spender J in Skyring v Sweeney [1999] FCA 61 to the effect that:
Impecuniosity is a factor which can be taken into account as justifying the grant of a security. Impecuniosity ought not to be a bar to a person prosecuting at first instance a claim but the position on appeal seems to me to be fundamentally different. In effect, in the absence of an order for security for costs in the circumstances of this case, Mr Skyring, in effect, is given a free hit and that seems to me to be intrinsically unfair.
10 Fourthly, a wide range of general discretionary facts may be relevant. As stated in Clack v Collins:
In Soh v Commonwealth of Australia [2008] FCA 1524, at [10], Moore J identified six factors relevant to the decision whether or not security for costs should be awarded, namely (i) the prospects of success, (ii) the quantum of risk that a costs order will not be satisfied, (iii) whether the making of a costs order would be oppressive in that it would stifle a reasonably arguable claim, (iv) whether any impecuniosity of the party from whom security is sought arises out of the conduct complained of, (v) whether there are aspects of public interest which weigh in the balance against such an order, and (vi) whether there are any particular discretionary matters peculiar to the circumstances of the case.
11 In the present case there is material before the Court to indicate that the Appellants are experiencing financial difficulties. That material emerges from transcript in the Court below and the findings at paragraphs 43 to 45 of the reasons for decision. There was also evidence that neither Appellant has any real estate, the Second Appellant's only assets are shares in the First Appellant, and the First Appellant's only asset is a shareholding in the Second Respondent. No evidence has been adduced by the Appellants in response to this application to show that they have the capacity meet a costs order. I note also that the order for costs, as against the Appellants, that was made below remains unsatisfied. Based upon the available material, I infer that there is a high risk that an order for costs, if made in the appeal against the Appellants, would also not be satisfied. There is no evidence that the financial difficulties of the Appellant arises out of the conduct that has been complained of.
12 As to the prospects of success in the appeal, it would appear that there is some considerable substance in the submission that the Appellants have limited prospects of success, if any, on the clause 5(iii) claim, given that it appears from the transcript of the proceeding below that counsel acting for the Appellants expressly informed the court that no application to amend the statement of claim to add that claim was being made and that the Appellants were content to go to trial on the statement of claim as pleaded, which did not raise that claim.
13 As to what is termed the "scope of release claim", the Respondents submitted that this claim also has limited prospects of success, if any, given that the First and Third Respondents were not parties to the settlement agreement. I note that this is a different basis than that upon which his Honour dealt with that claim below, his Honour stating that:
During the running of the case, Nelson raised in my view a false issue as to the scope of the release. He asserted that it went well beyond what could have been legitimately sought by releasing non-Specialized entities in relation to infringement activities concerning non-Specialized products outside the US. But his assertion failed to have regard to the last sentence of clause 5.1 and the definitions in clauses 1.5 and 1.6. If the release operated beyond Specialized to other persons, then it only operated in relation to Specialized products. That was an obvious and necessary limitation.
14 It is not for this Court on an application for security of costs to do other than give consideration to whether the prospects of success are arguable. No argument was advanced supporting the primary judge's rejection of this claim and on the limited information presently available to me, it is unclear as to whether the fact that the First and Third Respondents were not parties to that settlement agreement would provide a complete answer to that claim, having regard to the way in which the case was conducted below. Accordingly, I express no view as to whether this ground of appeal is reasonably arguable or not.
15 Similarly, I express no view as to whether the other proposed grounds of appeal are reasonably arguable or not, other than to observe that there would also appear to be some substance to the claim that the proposed amendments are both incoherent and deficient. Giving the Appellants the benefit of the doubt that, properly drafted, it is possible that the grounds would raise intelligible and arguable additional grounds of appeal, I consider that, at least in terms of the prospects of success on the scope of release claim and the other claims, this factor is neutral in weighing up the question of whether security for costs should be granted.
16 As to the other factors to take into account, I accept that it is possible that making an order for security for costs may stifle the appeal, given the state of the material that is before the court which indicates that the Appellants are suffering some financial difficulty. However, the fact that it may stifle the appeal is not determinative against the granting of an order for security for costs. As Moore J stated in Soh v Commonwealth of Australia [2008] FCA 1524, referring to Spender J in Tait v Bindal People [2002] FCA 322 at [3] - [4] :
... [t]he difference is that, at the appellant 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 the application for leave to appeal, or to an appeal, will be deprived of his costs, such an outcome would clearly be unjust.
In a sense, it would be giving to a person who has been on the receiving end so to speak of a determination by the courts a free hit at great cost to the other party in the appeal proceedings.
17 Finally, I note that there are no public considerations that are apparent.
18 Weighing all the factors up, and the competing considerations, I am of the view that an order for security for costs is appropriate. Whilst I have not reached a view that the prospects of success in the appeal are wholly unmeritorious or, at least in relation to some of the grounds, not reasonably arguable, it seems to me that the fact that the Appellants are in financial difficulty and there is no indication that they would be able to meet a costs order if made against them is a weighty factor to take into consideration. In so concluding, I take into account that there already exists a costs order against the Appellants which remains unsatisfied. This is the kind of case which, it seems to me, falls into the category of where there is substantial risk that even if successful in the appeals, the Respondents would be deprived of their costs by reason of the impecuniosity of the Appellants and that such an outcome would be clearly unjust in circumstances where they have had a judgment in their favour already. Accordingly, an order for security for costs will be made.
19 The evidence that I have concerning the amount that should be awarded is sparse and unsatisfactory. I have not been given a breakdown as to how the sum of approximately $50,000 that the First and Third Respondents and the Second Respondent each respectively claim would be their estimated costs of the appeal other than that the quantification is based upon the experience of the solicitors concerned. It may be that their experience provides some support for what they estimate to be their reasonably likely costs in the appeal, but it is an insufficient basis upon which to accept, without greater scrutiny, what those costs would be. I also note that the costs are based upon an estimate of an appeal of two days hearing. On the face of it, it does not seem to me that the appeal is one that would be more than one day, even if the grounds were amended as foreshadowed by the Appellants.
20 It was submitted by counsel for the First and Third Respondents that if the Court was inclined to grant security for costs, but was not satisfied with the evidence before the Court as to quantum, that the matter could be referred to a Registrar for determination by the Registrar. I do not think that that is an appropriate course to take. It is incumbent upon an applicant for security for costs to put forward all the material upon which they seek to rely in making the application and I am not going to refer the matter to a Registrar in circumstances where it would involve the parties incurring yet further and, in my view, quite unnecessary costs to have an appropriate order for costs determined when such material should have been brought forward at the first instance.
21 It seems to me that costs should be predicated upon a one-day appeal and that an appropriate order would be an order for costs of $20,000 for the First and Third Respondents and $20,000 for the Second Respondent. It is not an exact mathematical calculation as to what amount should be ordered by way of security for costs, nor it is intended to be a complete indemnity for an order for costs if made against the Appellants. I will allow a period of five weeks to provide that security. I understand from the submission for the First and Third Respondents that there is some urgency in having this appeal prosecuted, but as the consequences for the Appellants are draconian if the security for costs is not provided, I should allow the time of five weeks to give the Appellants the ability to meet the order for security for costs.
I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies.