Fitzroy Football Club Limited v Brisbane Bears - Fitzroy Football Club Limited [2010] VSC 180 - VSC 2010 case summary

Supreme Court of Victoria|2010-05-03|Before: MUKHTAR AsJ

COSTS ― Security for costs ― Plaintiff a not for profit sporting association ― Merger agreement with another sporting association ― Action to enforce term of merger ― Inability to meet order for security if made ― Stultification of claim ― Means and ability of members to meet order ―Applicable considerations

1 This is an application by the defendant for an order that the plaintiff give security for its costs to defend this proceeding. It seeks security in the sum of $177,500. That is the defendant's estimate of its party/party costs from 15 February 2010 (soon after it filed its defence) up to and including the first day of trial. If an order is made, it means the plaintiff's case is stayed until the security is given. The Court has, by assent of the parties, ordered a mediation of the dispute, and the defendant seeks any order for security to take effect after mediation.

2 The Court's power to make an order for security is discretionary. Foremost among discretionary considerations will be any contention by the plaintiff that an order for security would work an injustice, enough to outweigh the injustice to the defendant of being sued by a plaintiff that cannot afford to pay costs should the case fail. [1]

3 The plaintiff (who I may refer to as "Fitzroy") is a not-for-profit sporting association, as is the defendant. Although it does not appear to be impecunious as such, it does not have the money to pay the defendant's costs should it lose the case. If an order for security is made now, the most it could do is to try to obtain the money by solicitations to its members, supporters and the public. But it says it has an uncomplicated and meritorious case and the defendant is using the plaintiff's financial powerlessness to try and stifle the claim.

4 The Court has come to the conclusion that the application should be refused. Justice will be best served by allowing the plaintiff to continue with its case which for all practical purposes it will not be able to do if an order for security for costs is made. As will be explained below, there are three principal reasons.

5 First, there is no suggestion the plaintiff's claim is frivolous or dubious. The dispute concerns the construction of a clause in a merger agreement. There is enough to say, as a matter of impression, that the plaintiff's case is genuine and respectable. The plaintiff wants to hold the defendant to a term of an agreement, no matter how unbusinesslike or disadvantageous the term may now be regarded by the defendant. I equally have the impression that the defendant regards the plaintiff as "getting in the way" of its progress to update the defendant's commercial marketing of its sporting image. Equity holds people to their bargains. But even if the plaintiff turns out to be right, I venture to say I can see a question whether by reason of circumstances since the agreement was made, there would be disproportionate hardship to the defendant in being specifically held to the performance of the clause in the agreement.[2] But, whatever the eventual outcome may be on the merits, or as a matter of remedy, the plaintiff certainly has a triable case.

6 Secondly, there is no financial gain in this litigation for those who stand behind the plaintiff. This disassociates this case from those cases where the Courts have required those who stand behind the plaintiff, or who stand to gain from the litigation, to themselves provide the security or show themselves as also being without means. The plaintiff is active, albeit in a limited and amateur way, with the promotion of Australian football[3] and the retention of a football spirit attached to its historical identity as a league team. What it does have is the desire, which I think legitimate, to see if the law will hold the defendant to a specific term of the merger agreement.

7 Thirdly, the application is oppressive in the legal sense; that is, if granted it will deny or stultify, a person's right to litigate. The evidence is that the plaintiff will have to "rattle the collection tins" in a public appeal to raise funds to meet any order, or look to the benevolence of its members and supporters. I think justice will be best served by allowing the plaintiff to continue with its case which, for all practical purposes, it will not be able to do if an order for security for costs is made.

8 Any follower, adult at least, of Australian football in Victoria remembers the misfortune of the Fitzroy Football Club - the "Lions". The Club was established in 1883 and was, either by itself or by its predecessors, a member of the Australian Football League ("the AFL") and before then, the Victorian Football League ("the VFL"), as a foundation Club since the inception of the VFL in 1897. The Club went into administration under the Corporations Act on 28 June 1996 and then merged with the defendant, then known as the Brisbane Bears Football Club Limited, a Brisbane-based club.

9 As far as the Court was made aware, the merger was effected by three agreements. A Merger Agreement dated 17 July 1996 provided in essence that:

(a) at the end of the 1996 football season, Fitzroy would cease its football operations and surrender its AFL licence;

(b) Fitzroy would transfer to the Brisbane Bears all tangible and intangible assets associated with its Club operations and the merged Club would be renamed the Brisbane Bears-Fitzroy Football Club Limited;

(c) various payments would be made to enable Fitzroy to discharge liabilities including those incurred in business operations, player payments and to unsecured creditors; and

(d) the parties would undertake various measures and take action to ensure a successful merger.

10 Clause 7.2(c) of that agreement is singularly the term on which Fitzroy brings this case. That clause says "The logo of the Merged Club will be the Fitzroy lions logo in perpetuity." The agreement does not identify or define the logo, but the plaintiff alleges "the Fitzroy lions logo" at the time of the merger is depicted in various registered trademarks and is described as a "Lion Standing Paw on Ball". The lion appears on a side profile looking ahead of the ball; that is, not exposing its face. The logo is shown in paragraph 4(c) of the statement of claim.

11 The merger agreement contained a condition precedent that required Fitzroy to pass a resolution under s.439A of the Corporations Act to execute a deed of company arrangement in a form acceptable to the AFL and the Brisbane Bears. A deed of company arrangement was made on 4 August 1996 after a meeting of Fitzroy's creditors and the passing of a resolution. The deed records the merger arrangements in a way identical with the merger agreement, including the critical clause 7.2(c).

12 The deed also records that after the merger, Brisbane Bears would not have any input in the ongoing management of Fitzroy after the merger date, but it agreed to establish an appropriate body or entity to represent the interests of the Melbourne-based members of the merged club.

13 The third document was the Merger Support Deed between the AFL and the Brisbane Bears. Under that deed, the AFL agreed to pay $6 million to the Bears subject to the execution of the merger agreement and the deed of company arrangement, and a promise by the Brisbane Bears that "It will implement the Merger in accordance with the procedures set out in Schedule 1 and abide by and perform each and all of its obligations under the Merger Agreement to the fullest possible extent." Schedule 1 reproduced the essential merger obligations including "(c) the logo of the merged club will be the Fitzroy lion logo in perpetuity."

14 The plaintiff's case is that the defendant has used the Fitzroy lion logo since 1997. In November last year, the defendant announced to members there was "A New Logo For A New Era With The Brisbane Lions". The pre-existing logo has been replaced with a new logo described as having a "powerful logo face" and which has "evolved and been modernised to better suit today's competitive marketplace". The most conspicuous change is that the lion's face is now front-on with a "fierce, steely-eyed expression of pride, strength and determination". The announcement went on to say that the change was necessary because "A more modern and more menacing lion symbol is just one of the various changes that must be made to really connect with a much wider, younger and more image-savvy audience."

15 The announcement came with an acknowledgement that there were "quite emotional views on old and new logos", and some fan backlash. There was a consciousness of the merger agreement because the publicity materials said:

• The Club's view is that the merger arrangements ensure the Lion is used in perpetuity as opposed to the other obvious option at the time - a Brisbane Bear - or any other options that may be dreamed up over time.

• We say long may this continue. The club agrees the lion as opposed to the bear should be used in perpetuity.

• As shown above and below, the lion has been used in a variety of ways in a range of logos and badges over the years.

• The group proposing legal action has not (to our knowledge) objected to these various logos in the past but threatened to on this occasion. This seems inconsistent.

• Our view is that the lion will be the club's logo forever - just as the merger arrangements intended.

16 The previous logo was described as dated and complex and historically difficult to reproduce and one which "no longer fits with the fearless, determined and fresh outlook of our club that is constantly looking to improve and evolve forward." The message to members was "Your logo is who you are and what you do and we feel this logo best represents our modern club. When you look in the eyes of our new lion it says we shouldn't be messed with and that's the message we want to give our AFL competitors."

17 By letter dated 27 October 2009, the plaintiff's secretary complained about the new logo as being in direct contravention of clause 7.2(c) of the merger agreement. The letter, which overall is not expressed in minatory terms, said that Fitzroy may have no option but to apply for an injunction to maintain the original logo. The defendant responded that there were "serious commercial issues involving significant sums of money that rest on this issue" and warned that any injunction would require an undertaking as to damages which they estimated as exceeding a seven-figure sum. And the attitude of the AFL? Its view, in evidence, was that the merger agreement did not prevent the Brisbane Lions from updating the club's "lions" logo.

18 The plaintiff has not sought an interlocutory injunction to restrain the use of the new logo. Instead, it seeks a declaration that the defendant is obliged to use the Fitzroy lion logo, as identified by a registered trademark, in perpetuity, and a permanent injunction that the Brisbane Lions be restrained from using the new logo.

(a) the agreement does not define "Fitzroy lion logo" and those words do not have a single signification;

(b) as a matter of proper construction, the merger agreement conferred a right but not an obligation to use the "Fitzroy lion logo";

(c) the agreement does not compel the defendant to use the logo in any particular way, or at all; and does not prohibit the defendant from displaying on the team uniform or otherwise any words or images other than whatever is signified by the "Fitzroy lion logo"

(d) the AFL owns the Fitzroy lion trademark and its use was always governed by the terms of a licence agreement that Fitzroy had with the AFL; and Fitzroy's rights over the trademark ceased when it transferred all its assets to the defendant under the merger and surrendered its AFL licence;

(e) the plaintiff no longer has an adequate interest to protect the logo and a proper balancing of the parties' respective interests makes it inequitable for a Court to grant a declaration or a permanent injunction.

20 The advocacy of the case in this application portrayed the respective positions of the parties as follows. For the plaintiff, clause 7.2(c) is plain and simple and means what it says. It says the Brisbane Lions are flouting an obligation to use the logo which, as a matter of objective fact was the Fitzroy lion as it was signified before the merger. The plaintiff says the defendant is looking to complicate and protract the case, and from there, to complain (unfairly) that the plaintiff cannot pay its costs of an expensive case.

21 The defendant regards the case as necessitating an assessment of circumstances surrounding the agreements and of the parties' conduct since then. It says it has to examine documents in three boxes of files in its possession, and also has to obtain eight boxes of voluminous files held by the solicitors who were acting for the Brisbane Bears in the merger negotiations, as well as having to identify potential witnesses and obtain documents and information from third parties. Those labours aside, the defendant said there was much at stake. It was, counsel said, a case of an historical entity with a "shrinking supporter base" seeking to control the activities of an ongoing enterprise in a way that was going to cause it great loss and get in the way of a progressive marketing exercise commensurate with a strong and competitive football team. The Brisbane Lions go so far as to say that the plaintiff is engaging in "officious meddling" particularly as Fitzroy do not say that the outcome of the litigation will benefit Fitzroy's members in some tangible or financial way.

22 I cannot assess the merits on this application. But there are a number of remarks to be made. First, in any construction of a commercial agreement, it is necessary to look into the genesis of the transaction, the background, and the market: Pacific Carriers Ltd v BNP Paribas[4] and IATA v Ansett Australia Holdings Ltd[5]. The extent to which that is allowed to be done in Court depends on the clarity of the language of the agreement. Secondly, I regard as important the contextual fact that this case is about a merged club. It should not be portrayed as one club looking to impair the commercial interests of another. There is to my mind a dimension of mutuality of interest when it comes to dealing with a merger. Thirdly, in an allied way, the terms of the merger and the deed of company arrangement including clause 7.2(c), made it a wider compact than between these two litigants. The deed of arrangement is more than a contract: MYT Engineering Pty Ltd v Mulcon Pty Ltd[6]. And the merger required the blessing as well as the financial support of the AFL. Fourthly, I doubt whether this could be viewed as truly being public interest litigation, but I cannot say there is not some aspect of public interest. Although sport is not regarded as charitable in the eyes of the law because there is no altruistic dimension, sport is beneficial to the public.[7] Australian football has a substantial following and goodwill, and is a major contributor to the Australian economy and social structure.

23 My first conclusion is that the plaintiff has, as I have said, a respectable case based on nothing more legally imaginative than the words of clause 7.2(c) itself. That sort of case has its forensic advantages. For the defendant, it remains to be seen, depending on its investigations, on how the unexpressed background to the merger demonstrates a different meaning should be given to the words of the clause.

24 There is no dispute concerning the plaintiff's financial position. Fitzroy came out of administration on 19 December 1997 whereupon control was handed back to the directors and the members. Since then the relevant financial facts are as follows:

(a) Fitzroy is a company limited by guarantee and shares and is not for profit. It has 1,463 members including 733 shareholder members. Under its constitution, shareholders are not able to receive any dividend or share of profit, so the shares are of no value. Any profits or income have to be applied solely in promoting the club's objects.

(b) For the year ended 31 October 2008, Fitzroy made a gross profit of $24,290 which, after the provision of financial support payments to affiliate clubs, left a net annual profit of $798. It had net assets of $30,522 of which $1,242 consisted of cash at bank.

(c) It had accumulated losses of $552,448 which was explained to be an accounting entry when Fitzroy came out of administration to balance the same amount in share capital.

(d) In 2009, its revenues from donations were $12,832, an increase from $2,080 in 2008 because there was a one-off testamentary bequest of $10,000. Fundraising activities reaped $16,900. In 2009, its revenue from annual member subscriptions was $14,920. These revenues are applied to fund the football operations and yearly activities. The plaintiff's net profit for 2009 was $3,282.

(e) The plaintiff now fields teams in the Victorian Amateur Football Association which has attracted revenue from player subscription and sponsorship, but creating an increase of football operation expenses such as affiliation fees, player equipment, coaching and training fees.

25 An affidavit from William Lawrence Atherton, a director and the secretary of the plaintiff states that it would need to launch a public appeal for funds to satisfy an order for security for costs. He says this could only be done by using a mail out to members and supporters seeking special donations, or enlisting volunteers using collection tins at the games of Fitzroy teams in the VAFA, the Fitzroy Junior Football Club or AFL games played by the Brisbane Lions in Melbourne (the last of which would require the consent of the AFL and carry with it the risk of causing tension among supporters).

26 Thus, it is clear that the plaintiff is not insolvent as such as it can afford to fund its football operations, but would not be able to pay the defendant's costs should it lose the case. But that does not therefore mean this application should be granted. Nor does it mean the onus is now on the plaintiff to establish why it should not have to pay security for costs. Although applications for security for costs are common, it is desirable to recapitulate some of the essential legal principles as affect this application.

27 First, whether the application is brought under the rules of court or section 1335 of the Corporations Act, the threshold test or jurisdictional condition to be satisfied before the discretion is enlivened is posed by asking: is there reason to believe the corporation will be unable to pay the defendant's costs? If so, it means no more than the discretion is enlivened, and there cannot be a predisposition to order security. The burden rests on the defendant from beginning to end to persuade the Court that the order for security should be made.[8]

28 But (and this is where much of the debate took place) if the plaintiff asserts that an order for security would impose a financial burden that would stultify the litigation, then the plaintiff has the onus of demonstrating that assertion. That includes looking into the means of those who stand behind the plaintiff because:

The mischief at which the provision is aimed is obvious. An individual who conducts his business affairs by medium of a corporation without assets would otherwise be in a position to expose his opponent to a massive bill of costs without hazarding his own assets. The purpose of an order for security is to require him, if not to come out from behind the skirts of the company, at least to bring his own assets into play.[9]

29 If persons standing behind an impecunious plaintiff are likely to benefit from its success in the litigation, and are in a position to provide security, then an order for security will usually be made. The principle, as stated by the Full Federal Court in Bell Wholesale Co Pty Ltd v Gates Export Corporation[10] and adopted by the Court of Appeal in Livingspring v Kliger[11] is this:

. . . A court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company . . . establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or . . . beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of the security will frustrate the litigation to raise the issue of impecuniosity of those whom the litigation will benefit and to prove the necessary facts.

30 The imposition of this onus is really part of the exercise of seeing where the balance of justice lies. If those who stand behind an impecunious company stand to benefit from the fruits of the litigation should the plaintiff win, then it is not fair if the sued defendant is successful but cannot recover the costs of the impecunious plaintiff. In that situation, the law may regard it as fair to place the defendant in an equal position with the company by requiring those who stand to gain in the fruits of the litigation to themselves put up security, or at least, demonstrate that they are also without means.

31 A third applicable discretionary factor is that in a stultification case, the Court can look at the practical and commercial difficulties in providing any security. In Ariss v Express Interiors Pty Ltd,[12] decided before Livingspring, Phillips JA said:

There can be no absolute rule that, in order to resist an order for security on the ground that the litigation will be altogether frustrated, there must be evidence that those who will benefit from the litigation are without means; it will depend upon how the case is being put.

Obviously, such evidence will be needed in some cases - and Bell Wholesale was an example of that . . . The argument of stultification means no more than that if an order for security is made the order cannot be met, with the result that the litigation will be brought to a premature end. Bell Wholesale decided only that, if the plaintiff relies upon a want of means to establish that the order cannot be met, the plaintiff must demonstrate that fact by reference, not to its resources (which ex hypothesi must be inadequate if the discretion is called into play), but by reference to the resources of those who will benefit from the litigation and who might reasonably be expected to meet some of the costs . . . In this case, however, the plaintiff does not rely upon want of means but upon "commercial impracticability", meaning thereby the practical difficulty facing the plaintiff in gaining any advantage from (by applying to the costs of the litigation) such means as may exist in others, and notably its creditors. I see no reason why, as a matter of principle, that should not be a relevant circumstance when the plaintiff seeks to demonstrate that any order for security cannot be met - even though it might be different from the circumstance that those who must meet any order for security are themselves without means.

32 A fourth consideration is activated where a litigant is an unincorporated association involved in activities that could be regarded as advancing a public interest. The members, unlike shareholders, do not benefit from the fruits of any litigation. This was recognised by Branson J in Hinchinbrook Society v Minister for Environment[13] in this way:

In one sense, every association is a front for its members: they stand behind it and may be assumed themselves to support the objectives of the association and, generally speaking, the association's actions in intended advancement of those objectives. There is, however, in my view, a very real difference between the relationship of a member of a non-profit association formed to advance a public interest to the association of which he or she is a member, and a relationship of a shareholder to the company in which he or she holds shares. The benefit which a shareholder might expect to obtain from litigation conducted by a company will ordinarily be, whether directly or indirectly financial. Members of a non-profit association will not ordinarily benefit financially from litigation initiated by the association. The benefit which they might obtain from such litigation is likely to be constituted by intellectual or emotional satisfaction.

33 In the present case, the question that emerged was whether the plaintiff had discharged its onus by simply saying there "would" have to be a public appeal for funds. The defendant submitted there was no evidence about what steps had actually already been taken from the supporter base to obtain funding. There was no evidence, it was said, that the plaintiff had consulted its membership and supporter base or donors to canvas their financial support for the litigation. Therefore, the defendant asked, how can the plaintiff say those standing behind it could not meet any order for security?

34 Two other cases were considered in submissions. The first was a decision of Cowdroy J in Wyong-Gossford Progressive Community Radio Inc v Australian Communications & Media Authority.[14] In that case, the plaintiff was a not-for-profit local community organisation incorporated for the purpose of operating a radio station serving youth and minority groups in the Central Coast area of New South Wales. It was funded by grants, members' contributions and donations, fundraising and sponsorship. It brought proceedings in the Federal Court under the Administrative Decisions (Judicial Review) Act after being overlooked for a community broadcasting licence. The question was whether an order for costs would stifle the proceedings.

35 The Court ordered security for $10,000. There are two features of that case. First, His Honour was satisfied, as I would be, that volunteer members of a not-for-profit organisation should not be required to provide funds for litigation when the organisation is impecunious. To do so would mean that community organisations with a history of providing services to the public could be prevented from bringing legitimate proceedings in court merely on the ground of impecuniosity. Secondly, the applicant provided very little information concerning its financial status, members, objectives and any possible sources of funding and other relevant details. For that reason, the Court held that no conclusive finding could be made on the evidence as to the effect which an order for security for costs may have in a proceeding. In addition, there was no submission, let alone evidence, that the proceedings would be stifled if an order for security was made. It was for that reason that the Court in that case made an order for security for costs.

36 The defendant submitted Wyong is indistinguishable. I do not accept that. Wyong does not create any new or different principle, nor do I see it as capable of direct application to this case. In the present case Fitzroy has descended into details about its financial position and sources of revenue and donations. The evidence before the Court is that the plaintiff has no other sources of funding and would have to resort to a public fundraising in order to raise funds, without which it cannot proceed. This amounts in my view to a commercial and practical impractibilty to obtain the funds.

37 More pertinent, I think, is a decision of Spender J in Tigers AFC (Mayne) Inc v The AFL & Ors.[15] In that case, the football club had the object of being included as one of the clubs competing in the premier competition for Australian football teams in South-East Queensland in 2001. It alleged the AFL contravened the Trade Practices Act in having an exclusionary provision which limited the premier competition for Australian football in South-East Queensland to eight teams. His Honour concluded that the plaintiff's case could not be said to be frivolous or vexatious, and that there was some aspect of public interest in proceedings under the Trade Practices Act. The question in the case concerned Federal Court rules which empowered the Court to make an order for security if, amongst other things, a party was suing not for its own benefit "but for the benefit of some other person".

38 His Honour held that, as a crucial factor, the litigation was not being conducted "for the benefit of others". He concluded that whilst members may have a genuine emotional attachment to the club and an emotional interest in its fortunes, the litigation was not being conducted for the purpose or the benefit of persons other than the plaintiff. Accordingly, His Honour decided that it was undesirable to make an order for security for costs as it would stifle the litigation.

39 I think the general rule in Bell Wholesale means the Court looks to the extent to which it is reasonable to expect creditors or shareholders or others to make funds available to satisfy any order for security.[16] That is certainly so in the case where those who stand behind a plaintiff also stand to gain from the fruits of litigation. In that situation they should also carry the risks including the risks of losing. But, especially where the plaintiff is a not-for-profit organisation, the mere fact that someone other than the plaintiff may benefit from the success in the proceedings, in a non-financial way, does not therefore mean that litigation is being conducted for the benefit of others such as to attract the rule that those others should put up their own assets as security or at least there should be evidence about their means and ability to do so. I apply that consideration to decide the balance of justice in this case. In my view, an order for security would unfairly stultify Fitzroy's right to litigate.

40 Accordingly, I would order that the defendant's summons filed 15 February 2010 be dismissed.

[1] See Livingspring v Kliger (2008) VR 377 at [17].

[2] See generally Spry, Equitable Remedies (8th ed) at 196ff and Meagher Gummow and Lehane's, Equity Doctrines and Remedies (4th ed) at [20-095] ff.

[3] I use the term "Australian football" following Geoffrey Blainey, A Game of Our Own, The Origins of Ausralian Football.

[7] See Dal Pont, Charity Law in Australia and New Zealand at p 194.

[8] See Livingspring v Kliger [2008] VSCA 93; (2008) 20 VR 377 at 383, [21].

[9] Harpur v Ariadne Australia Ltd (1984) 2 Qd R 523 at 532. See also Epping Plaza v Bevendale [1999] VSCA 43; [1999] 2 VR 191 at 197, [21].

[13] (1996) 69 FCR 1 at 21A - 22A.

[16] Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289 at 300.

Fitzroy Football Club Limited v Brisbane Bears - Fitzroy Football Club Limited [2010] VSC 180

At a glance

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Judgment (79 paragraphs)

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Cases Cited (9)