Hillbrick Bicycles Pty Ltd v F45 Training Pty Ltd

Introduction 1 By this application, F45 Training Pty Ltd and others, the respondents, have sought orders for security for costs against the applicants, Hillbrick Bicycles Pty Ltd and Mr Smith. They rely upon s 56 of the Federal Court of Australia Act 1976 (Cth) and r 19.01 of the Federal Court Rules 2011 (Cth). 2 The trial of this proceeding is due to commence on 27 November 2017 and proceed for five days. 3 The applicants are a partnership which trades under the business name "Body Bike Australia". Hillbrick Bicycles Pty Ltd has a 60% share in the partnership and Mr Smith has a 40% share. 4 Broadly stated, F45 Training has sought those orders for security because it contends that both of the applicants will be unable to meet an order for costs should they be unsuccessful in this proceeding.

The materials relied upon 5 In support of its application, F45 Training relied on a number of affidavits made and filed by Mr Marshall, its lawyer. In those affidavits, Mr Marshall stated that F45 Training has to date incurred costs totalling $112,059.00 (excluding GST) in connection with the proceeding. In addition, he estimated that F45 Training will incur further costs of $192,325.00 (excluding GST) so that, by the end of the trial, its total costs are estimated to be $304,384.00 (excluding GST). If F45 Training is successful, and assuming a recovery rate of 70%, Mr Marshall therefore opined it could expect to be awarded costs in the sum of $234,375.68 (including GST). F45 Training seeks to have the security for costs paid in four stages as follows: (a) Stage 1 - Costs to date - $86,285.43; (b) Stage 2 - Security for costs application; further preparation of respondents' evidence; preparation for and attendance at the initial dispute resolution; discovery - $44,294.25; (c) Stage 3 - preparation for and attendance at the mediation; preparation for and attendance at case management conference to be held on 12 October 2017; preparation for trial - $51,975.00; and (d) Stage 4 - attendance at trial - $51,975.00. 6 As to the applicants' asset position, F45 Training claimed that when Mr Smith's affidavit is properly analysed (see at [7] below), his true net worth is approximately $50,000. They also claimed that the materials annexed to Mr Marshall's affidavit show that the Body Bike Australia partnership has operated with negative net equity since 2010. They also queried the values Mr Hillbrick had placed on his assets. 7 For their part, the applicants relied upon a number of affidavits made and filed, variously, by Mr Hillbrick, Mr Smith and Mr Mytza, the partnership's lawyer. In Mr Smith's affidavits, he set out the details of his personal assets (excluding his equity in the Body Bike Australia partnership) as follows: (a) a house and land property situated at Javelin Lane, Floreat, owned as tenants in common with his partner (his share equalling 19%). Mr Smith estimates the current value to be $1,541,280 (with $477,472 owing); (b) household contents with an estimated value of $188,700 (jointly owned); (c) cash of $9,516 (jointly owned); and (d) a personal vehicle with an estimated value of $17,000. Mr Smith claimed that his current liabilities were as follows: (a) a credit card debt in the amount of $14,500; and (b) a car loan debt in the amount of $5,800. 8 In Mr Hillbrick's affidavit, he set out the details of his personal assets (excluding the value of his shareholding in Hillbrick Bicycles Pty Ltd and therefore that company's interest in the Body Bike Australia partnership) as follows: (a) a commercial property situated at Hartley Road, Smeaton Grange (the premises from which Hillbrick Bicycles Pty Ltd carries on its business), with an estimated value of $850,000; (b) a house and land property situated at Rotherwood Road, Razorback which is owned by Mr Hillbrick personally, with an estimated value of $900,000 (with $373,873.49 owing); (c) household contents with an estimated value of $150,000; (d) shares with an estimated value of $20,000; and (e) personal savings totalling $30,000. Mr Hillbrick claimed that his liabilities (apart from that set out in (b) above) were as follows: (a) a credit card debt of $30,000.

The prospects of success a neutral factor 9 One issue that arose in this application can be disposed of at the outset. Both parties sought to rely upon their prospects of success in the proceeding as a factor which I should take into account in their favour in determining whether a security for costs order should be made. For the following reasons, I reject both of these contentions. 10 Body Bike Australia's amended statement of claim in this proceeding is 55 pages in length, including six pages of annexures. It pleads claims for trade mark infringement, copyright infringement, contraventions of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)) and claims in passing off. All of these claims relate to a piece of gym equipment called "Body Bike". In its defence, F45 Training either denies, or does not admit, the vast majority of the allegations made against it. It also filed a cross-claim in which it seeks the cancellation of the trade mark held with respect to the Body Bike device. 11 Having regard to the breadth and complexity of the factual and legal disputes raised by the pleadings in the claim and cross-claim in this proceeding, I do not consider this is a matter where it is feasible, or desirable, to make any assessment of the prospects of success of the parties to this dispute. For the purposes of this security for costs application, I will therefore treat the prospects of success of both sides of the dispute as a neutral factor.

The issues 12 That leaves two issues to be determined in the application: (a) whether an order for security for costs ought be made against Mr Smith as a natural person; and (b) whether an order ought be made against Mr Hillbrick, the person who stands behind the company Hillbrick Bicycles Pty Ltd.

Should an order for security for costs be made against Mr Smith as a natural person? 13 F45 Training submitted that an order for security for costs should be made against Mr Smith, as a natural person, for two reasons. First, it submitted that, to a significant extent, the proceeding will benefit a third party, namely Mr Hillbrick, the individual who stands behind the company, Hillbrick Bicycles Pty Ltd. Secondly, it submitted that there is no evidence that making an order for security for costs against Mr Smith will stultify the proceeding. For their part, both Mr Hillbrick and Mr Smith claimed that they have sufficient assets to meet any costs order that may be made against them and, based on the usual principle, no order for security for costs should be made against Mr Smith. Further, with respect to Mr Hillbrick, recognising that he stood behind Hillbrick Bicycles Pty Ltd, he stated that he was willing to provide a personal guarantee to meet any costs order that may be made against that company. 14 Recently, in Commissioner of Taxation v Vasiliades [2016] FCAFC 170, a Full Court of this Court considered an application by the Commissioner of Taxation for an order for security for costs against a natural person who was a non-resident of Australia and who had no assets in this country. While the Court ordered the applicant to provide security for costs in those circumstances, it re-affirmed the usual principle that the applicant's status as a natural person would ordinarily militate against an order for security for costs: see at [107] per Kenny and Edelman JJ. Not surprisingly, this principle has been affirmed often. For example, in Knight v Beyond Properties Pty Ltd [2005] FCA 764 (Knight), Lindgren J observed at [32] that natural persons are not usually ordered to provide security in the absence of some factor in addition to impecuniosity and his Honour then cited a large number of judgments where an order for security for costs was not made in favour of allowing natural persons free access to the courts. To these judgments may be added the recent judgment of Nicholas J in Sheather v Staples Waste Removals Pty Ltd [2012] FCA 998 at [18], where his Honour observed that there is "a very strong disinclination" to an order for security for costs being made against a natural person where some additional factor justified such an order being made against a natural person. However, Lindgren J did cite (at [33]) a number of instances in Knight. They included: Barton v Minister for Foreign Affairs (1984) 2 FCR 463 (Morling J) at 594 (impecuniosity and residence outside Australia); Cunningham v Olliver (Federal Court of Australia, unreported, Burchett J, 21 November 1994) (but for delay, security would have been ordered on ground of impecuniosity and bringing of claim to a significant extent for benefit of others); Chang v Comcare Australia [1999] FCA 1677 (Moore J) at [32] (impecuniosity and lack of prospects of success); Logue v Hansen Technologies Ltd (2003) 125 FCR 590; [2003] FCA 81 (Weinberg J) (impecuniosity and residence outside Australia); Morris v Hanley [2000] NSWSC 957 (Young J) at [21], [38] and [39] (but for delay, Young J would have ordered security on grounds of impecuniosity and lack of prospects of success and large costs involved to defendants (this decision was reversed on appeal on the question of delay); and Melville v Craig Nowlan & Associates Pty Ltd (2002) 54 NSWLR 82; [2002] NSWCA 32 at [132] (per Heydon JA) (impecuniosity and applicant's failure to show that order would stultify proceeding and sum ordered by primary Judge not oppressive). 15 On this issue, the parties have made some curious competing contentions. On the one hand, Mr Smith contends that he will be able to meet an order for costs should the applicants fail in the proceeding, he claims he is not therefore impecunious and he states that an order for security for costs will not stifle the proceeding. On the other hand, F45 Training is content to rely upon the latter statement, but it then contends that, when the contents of Mr Smith's affidavits are properly analysed, he does not have the assets from which to meet an order for costs and therefore an order for security should be made against him. 16 In my view, F45 Training's contentions must be rejected. Even assuming that it is correct about Mr Smith's impecuniosity, it has not pointed to any additional factor that would justify a departure from the usual principle that an order for security for costs should not be made against Mr Smith as a natural person. I have already rejected its attempt to rely upon its prospects of success in this proceeding as such a factor. The only factor it has pointed to is the fact that this proceeding has been brought to a significant extent for the benefit of a third party, namely Mr Hillbrick. However, as will appear below, I propose to address that issue by ordering that Mr Hillbrick provide security for costs. That being so, I do not consider that factor can concurrently be taken into account to justify an order for security for costs being made against Mr Smith. Accordingly, I dismiss F45 Training's application insofar as it seeks such an order for security for costs against Mr Smith.

Should an order for security for costs be made against Mr Hillbrick? 17 Mr Hillbrick does not dispute that, because of his interests in Hillbrick Bicycles Pty Ltd, he will benefit personally from this proceeding should the applicants be successful. For that reason, he has offered to provide a personal guarantee for the payment of any costs obligation that Hillbrick Bicycles Pty Ltd may ultimately be required to meet. F45 Training has rejected this offer and instead contends that the security should be provided in the form of a bank guarantee. In doing so, it relies upon the doubts it claims to have raised about the net value of Mr Hillbrick's assets. For the following reasons, I reject these contentions. According to Mr Hillbrick's affidavits as summarised above, he has net personal assets in excess of approximately $1,500,000. F45 Training did not seek to cross-examine Mr Hillbrick on those estimates and, in those circumstances, I see no reason to doubt them. Since he has more than sufficient net personal assets to meet any costs order that may be made against Hillbrick Bicycles Pty Ltd, I consider a suitably framed personal guarantee by Mr Hillbrick will provide F45 Training with an adequate security for any costs order it may obtain. 18 The only question remaining is the amount of that personal guarantee. Mr Hillbrick has proposed that it should be in the amount of $100,000. F45 Training has sought a total security for costs order in the total sum of $230,000. As has already been noted above, this proceeding has been brought by the partnership between Mr Smith and the company Hillbrick Bicycles Pty Ltd. While the shares in that partnership are divided 40/60 respectively, if the applicants should fail in this proceeding, each partner would ordinarily be jointly and severally liable for any costs order that is made against the partnership. This would suggest that Hillbrick Bicycles Pty Ltd's several liability for any costs order would be in the order of $230,000, accepting for this purpose F45 Training's estimate of the costs. However, in the circumstances of this matter, I do not consider it would be fair and reasonable to require Mr Hillbrick to guarantee Hillbrick Bicycles Pty Ltd's obligations as if it were to be severally liable for any costs order that may be made against the partnership. Since it is the personal benefit that Mr Hillbrick stands to gain that founds the security for costs order against him, I consider that the amount of Mr Hillbrick's guarantee should be calculated by reference to the 60% share his company Hillbrick Bicycles Pty Ltd has in the partnership. Applying that 60% figure to the sum of $230,000 sought by F45 Training and having regard to the fact that an applicant for a security for costs order is generally not entitled to a complete indemnity against the recovery of its costs, I consider $130,000 to be a fair and reasonable amount for the personal guarantee Mr Hillbrick is to provide. I therefore consider that Mr Paul Hillbrick should execute a suitably framed personal guarantee limited to the sum of $130,000 to meet on demand any obligation that Hillbrick Bicycles Pty Ltd has under any order for costs that may be made against it in this proceeding.

Conclusion 19 I direct the parties to prepare and submit an appropriate set of orders to reflect these reasons. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Reeves.

Associate: Dated: 12 September 2017 SCHEDULE OF PARTIES QUD 8 of 2017 Respondents Fourth Respondent: LEE ALENADDAF