Harpur v Ariadne Australia Limited

REASONS FOR JUDGMENT This is an application for further security for costs. On 12 May 1993 Whitlam J ordered Colin Uebergang, Colin Robert Uebergang, Christopher Lewin Uebergang and Susan Pearle Sorelle Uebergang (a director of Australian Tea Tree Estates Pty Ltd, the second applicant) to provide security by way of a joint and several personal guarantee in respect of any order for costs made against the first, second or third applicant. That guarantee was supplied on 15 June 1993. As appears from the affidavit of Mr Richard Gaven, solicitor for the respondents in the principal action, Mr Colin Uebergang has been canvassing farmers seeking financial support for the conduct of this litigation. In his written circular Mr Uebergang states :- "We have spent more than $1m in the last two years and we are now sure we have a valid case against Westpac Bank and their receivers." Accompanying the circular was a copy letter from Nicol Robinson & Kidd dated 29 November 1996 to Mr Uebergang detailing the costs, including outstanding fees, necessary to see the action through to completion. Those costs total $375,000. On 22 January 1997 Mr Gaven wrote to Messrs Nicol Robinson & Kidd contending that as Mr Uebergang was canvassing for public donations and as there were outstanding fees to that firm in excess of $20,000, the personal guarantees provided as security were apparently worthless. In those circumstances alternative security in the sum of $335,000, Messrs Nicol Robinson and Kidd's estimate of the future costs to complete the trial, was sought. On 29 January 1997 Messrs Nicol Robinson & Kidd declined to provide any further security for costs on the basis that nothing had changed since the order of Whitlam J. Searches undertaken by Mr Gaven have failed to disclose any real property or motor vehicles registered in the names of the applicants or any of the grantees of security pursuant to the order of Whitlam J. On 31 January 1997 Mr Uebergang sought to have criminal charges pending against him stayed on the basis that legal aid had been denied to him. The following exchange took place before Shanahan DCJ :- "HIS HONOUR: You say completely without assets, Mr - - - DEFENDANT: Completely. MR FULLER: If I could indicate, Your Honour, there's been several Federal Court actions as well. Mr Uebergang, in fact, sued the Westpac Bank, I understand, in the Federal Court. That matter has come to an end. There are other - there are other proceedings still pending in the Federal Court. HIS HONOUR: How are you financing them? DEFENDANT: The source that's mentioned in that letter is prepared to finance the commercial case as I mentioned in that written material, but he's not prepared to finance this particular case further. He's put $200,000 in there already. HIS HONOUR: What does the Legal Aid Office say about this if this man has no assets? Have you looked into this question? MR FULLER: Well, Your Honour, he can apply, and the matter can be given assessment. HIS HONOUR: Have you applied for legal aid? DEFENDANT: Yes. HIS HONOUR: In Brisbane here? DEFENDANT: Yes. HIS HONOUR: And rejected, was it? DEFENDANT: And that's the letter rejecting it. HIS HONOUR: Let's have a look at that. .... HIS HONOUR: Yes. When would you be ready to argue this Dietrich aspect? See, you've been getting substantial sums of money from the Swiss organisation. DEFENDANT: That's right. Will that cost - - - HIS HONOUR: Are they quite prepared to finance these actions you're bringing in this Federal Court - - - DEFENDANT: Well - - - HIS HONOUR: - - - and support your lifestyle, pay the instalments on your Landcruiser and all that? DEFENDANT: Yes, Your Honour. That - the Federal one probably won't come up for six to eight months so we've got time there to put that together anyway. HIS HONOUR: But you're not broke. DEFENDANT: I am broke, absolutely broke. HIS HONOUR: You get what - how much a week rent do these people pay or - - - DEFENDANT: I own no vehicle; I own nothing - no home, only the clothes I stand in. HIS HONOUR: I see. Just give us a look at that letter again, will you, please? DEFENDANT: It is not my vehicle, Your Honour, that - - - HIS HONOUR: Pardon? DEFENDANT: It is not my vehicle that is being paid there. That Landcruiser is not my vehicle. HIS HONOUR: It says : 'On the information you have supplied to the Legal Aid Office a Swiss company, Lontano [sic] Societe SA, have provided you with Australian $223,600 for your criminal law case to date and upwards of 1.5 million interest free to run both your civil and criminal case at this point in time. I note your advice that the company ceased assisting you financially with your legal matters in July 1996 but continues to assist you financially in other ways. Pays the $500 on your Southbank apartment' - DEFENDANT: Yes. HIS HONOUR: 500 bucks a week. DEFENDANT: Yes. HIS HONOUR: And you're broke? Righto. 'Makes the repayments on your Landcruisers'. DEFENDANT: It's not my Landcruiser. HIS HONOUR: You say it's not your Landcruiser. Well whose is it? DEFENDANT: It's my wife's Landcruiser. HIS HONOUR: Your wife's. 'And pays all your living expenses.' DEFENDANT: Except for what my wife brings in from her clinic. HIS HONOUR: That's right. And you say all you own is the clothes you stand up in. DEFENDANT: That's all, except a few odds and ends like a briefcase and a camera." There is no evidence to suggest that Lontana Société SA the alleged Swiss corporation is either registered in Australia or holds identifiable assets in this country. Indeed, all searches indicate to the contrary. The applicants for further security submit that the changed circumstance since the making of the order of Whitlam J is that Mr Uebergang has access, or has had access to, substantial sums of money offshore to fund his lifestyle and litigation and uses those funds whilst maintaining that he is impecunious. Those funds have been made available to the applicants in the principal proceedings to fund the litigation to date. However, the basis upon which those funds have been advanced has not been disclosed, nor the interest of the Swiss corporation in the litigation. No material was filed by the respondents to the notice of motion. In particular, no explanation was forthcoming as to the relationship between Mr Uebergang, his co-guarantors and the applicants in the principal proceedings with the Swiss corporation and the basis upon which substantial funds have been made available to the Uebergangs. Nor was any material filed to demonstrate that the making of an order for security for costs would at this stage frustrate the applicants' claims. On behalf of the respondents to the notice of motion it was submitted that :- (a) Whitlam J found that the natural persons and the corporate applicants were impecunious; (b) Impecuniosity was no bar to litigating in this court; (c) the natural persons standing to benefit from the litigation have exposed themselves and their property to an order for costs and therefore the statutory purpose of making corporations provide security has been met: Harpur v Ariadne Australia Limited [1984] 2 QdR 523; Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405; (d) The present security is sufficient and security for costs is never a pre-estimate of the actual amount of party and party costs: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1; (e) As a bank, Westpac Corporation ought to treat non-recovery of legal costs as part of the bank's commercial lending risk of carrying on business; (f) Provision of additional security may leave the applicants to the principal proceedings without funds to finance the litigation whereby their claims would be frustrated; (g) It would be a denial of natural justice to deny the applicants the right to litigate claims if the matters complained of were the reason the applicants had insufficient funds. In my opinion there has been a material change in circumstances since the making of the original order for security for costs. Whether or not the Uebergangs and the applicants were impecunious at that time, there is credible evidence that they now have access to substantial sources of money through an overseas entity. Whether or not that source is the property of any of the Uebergangs, or is controlled by them or whether it acts in accordance with their wishes or the wishes of Mr Colin Uebergang, is unexplained. I do not accept that provision of funds in excess of $1,000,000 is merely a generous gift of a friendly corporation to help out an old acquaintance. In the absence of any explanation as to the basis of the funding and the inability to cross-examine Mr Uebergang on this issue because he has not sworn any explanatory affidavit, it is open to infer that the Swiss corporation has a financial interest in the outcome of the litigation but maintains a position where it cannot be made directly liable for an order for costs in the event that the proceedings fail. In these circumstances it is no answer to say that no further order for security will be made by the court because the natural persons interested in the corporate applicants have made themselves liable for the costs of the litigation. That they have done so is not decisive of the issue; it is but one factor to be taken into account in the exercise of the discretion whether or not to order security for costs: Gentry Bros at 415; K P Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 204; Jalpalm Pty Ltd v Hamilton Island Enterprises Pty Ltd (Cooper J, Federal Court of Australia, QG 198 of 1994, 9 June 1995 at 7 - 8). Once the applicants on the notice of motion establish the changed circumstances, it is for the respondents on the motion to satisfy the onus that to now make an order would frustrate the litigation. The observation of the Full Court in Bell Wholesale (at 4) bears repeating :- "In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here 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, as in this case, 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 security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts." (See also Cherry v Read (Black CJ, Sackville and Finn JJ, Federal Court of Australia, QG 68 of 1996, 21 November 1996 at 8)). The impecuniosity rule so-called is not absolute in favour of impecunious natural persons and it admits of exceptions: Hession v Century 21 South Pacific Ltd (in liq) (1992) 28 NSWLR 120 at 123; Impex Pty Ltd v Crowner Products Ltd (1994) 13 ACSR 440 at 446. It is the fact that a natural person's worth is available to meet an adverse order for costs which weighs against the making of an order for security against that person not the fact alone that the person appears impecunious (Cherry at 8). In the instant case the material now relied upon puts in issue whether the natural persons are in fact impecunious or rather have organised their affairs so as to put their wealth beyond the vicissitudes of commercial life and litigation: Shannon v Australian and New Zealand Banking Group Ltd (No 2) [1994] 2 QdR 563; Cherry at 7 - 8. It also raises the issue of the interest of the Swiss corporation in the litigation and its failure to come forward and offer security: Sent v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201. The respondents on the notice of motion have failed to discharge the onus upon them and cannot in some abstract or hypothetical way suggest by way of submission that to now order security may frustrate the litigation and that the applicants' present position is solely as a result of the conduct complained of. Nor can they now contend that the existing guarantees provide an adequate security for costs notwithstanding the changed circumstances. There is no substance in the submission that the bank should bear the risks of non-recovery of its legal costs of defending unsuccessful litigation by a borrower as part of the risks of lending. In my opinion the circumstances now revealed and unanswered by the applicants in the principal action or the natural persons providing the guarantee as security for costs justify the making of an order for further security for costs. There are reasonable grounds to believe that the respondents, if they succeed upon trial, will not be able to recover the costs of the proceedings from the applicants or from the co-guarantors. The respondents to the notice of motion have not shown, nor attempted to show, that if further security is now ordered their claims will be frustrated. The applicants on the notice of motion seek security in the sum of $335,000 being the estimate of Messrs Nicol Robinson and Kidd of the costs of litigating the proceedings to a conclusion. That sum is calculated from the letter to Mr Uebergang of 29 November 1996. As expressed the costs are solicitor and client costs. Mr Gaven estimates his costs of preparing for trial and of a five week trial would exceed $200,000. In making an order for security for costs the court does not set out to give a complete and certain indemnity to a respondent and nor is it to be assumed that the applicant will fail in the proceedings: Brundza v Robbie & Co [No 2] (1953) 88 CLR 171 at 175; Caruso Australia Pty Ltd v Portec (Australia) Pty Ltd (1984) 1 FCR 311 at 314. In my view the interests of justice are best served by making an order that the first, second and third applicants provide security in the sum of $150,000 in a form satisfactory to the District Registrar, to meet any award of costs made in favour of the first to sixth respondents in the principal proceedings and that the proceedings by the first, second, third, fourth, fifth and sixth applicants be stayed until such security is provided. There is no reason why costs ought not follow the event.

I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Cooper

Solicitor for the Applicants (Respondents M P Purcell of Nicol Robinson & Kidd to the notice of motion):

Counsel for the Respondents R N Chesterman QC with J K Bond (Applicants to the notice of motion): Solicitor for the Respondents Allen Allen & Hemsley

Date of Hearing: 4 March 1997 Date of Judgment: 29 August 1997