James, K.F.D. & Ors v. Australia & New Zealand Banking Group Ltd & Ors [1985] FCA 539

Judiciary Act 1903 s.79 Companies (Western Australia) Code sub-s.533(1) Rules of the Supreme Court of Western Australia 0.25 r.1

KINGSLEY FREDERICK DAVID JAMES, JILL MAXINE JAMES, DAVID MAXWELL

JAMES, PETER NORMAN JAMES and YALLAMBER PTY. LTD. v. AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED and TAMAR MANAGEMENT PTY. LTD. and JOHN WELLS

OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION

KINGSLEY FREDERICK DAVID JAMES, JILL MAXINE JAMES, DAVID MAXWELL JAMES,

The motion filed by the second and third respondents

security for the second and third respondents' costs of these

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA

KINGSLEY FREDERICK DAVID JAMES, JILL MAXINE JAMES, DAVID MAXWELL JAMES, PETER NORMAN JAMES and YALLAMBEE PITY. LTD.

This matter has been listed for hearing on 4 November 1985. The hearing is expected to occupy some five weeks. The applicants claim a substantial sum of damages for misleading or deceptive conduct by reason of advice allegedly given to them by

the first respondent in connection with the purchase of a farm and

cee ate ate AES lM Rai ante te nea MITILE ate ot at eee =

the financing of that purchase and by reason of the conduct of the

other respondents in connection with that transaction.

The matter has been before the Court ona number of occasions when interlocutory relief has been sought by one or other of the parties and in particular when the first respondent on the one hand and the second and third respondents on the other have applied to strike out the statement of claim in whole or in part as far as it relates to them. From time to time the Court has made orders striking out various paragraphs of the statement of claim. See James v. Australia and New Zealand Banking Group Ltd. (1985) A.T.P.R. 40-504; (1985) A.T.P.R. 40-523; (1985)

A.T.P.R. 40-567. The last of these decisions, which involved a contention by the second and third respondents that any cause of action against them was statute barred, was the subject of an appeal to the Full Court of the Federait Court. Judgment, dismissing the appeal, was delivered on 20 September 1985.

The motion now before the Court is at the instance of the second and third respondents and is for an order that, within 7 days, the applicants give security for the second and third respondents' costs of the application in the sum of s40,260 and that pending the giving of security all proceedings, other than proceedings relating to the qiving of security, be stayed. The applicants resist the making of such an order. The first respondent is not directly concerned whether there should be an order for security for costs but it is concerned that there should

be no delay in the hearing of the application. It arqued that, if

an order for security were made, it should not be accompanied by a

stay of proceedings. The first respondent filed an affidavit sworn by its Manager, Domestic Lending deposing to the value of the security which it has by way of mortaage over the applicants' farm (which mortgage 1s the subject of a claim for relief in these proceedings) and the extent of the applicants' indebtedness under the mortgage. The tenor of the affidavit was that the applicants' continuing debt to the first respondent will shortly exceed the value of the bank's security so that the bank will be prejudiced if the application does not go ahead as planned.

In my view there should be no order for security for costs. I shall state, as shortly as I can, my reasons for

In support of their argument that there should be an order for security for costs, the second and third respondents invoked the provisions of s.56 of the Federal Court of Australia Act 1976, 0.28 r.3 of the Federal Court Rules, sub~-s.533(1) of the Companies (Western Australia) Code, 0.25 r.1 of the Rules of the

Supreme Court of Western Australia made in 1971 and the inherent jurisdiction of the Federal Court.

It is now well established that the existence of particular grounds in 0.28 r.3 does not limit the broad power vested in the Court by s.56 of the Federal Court Act to make an order for security. The decision of the Full Court of this Court to that effect in Bell Wholesale Co. Pty. Ltd. v. Gates Export Corporation (1984) 52 A.L.R. 176 has been followed on a number of

occasions. In several decisions, including Bell Wholesale Co.

Pty. Ltd. v. Gates Export Corporation and Sent v. Jet Corporation

of Australia Pty. Ltd. (1984) 2 F.C.R. 201, this Court has held

that sub-s.533(1) of the Companies (Western Australia) Code or its

counterpart in other States 1s a State law falling within the

operation of s.79 of the Judiciary Act 1903, hence a law binding on the Federal Court exercising jurisdiction in the relevant

Whether the Rules of the Supreme Court of Western Australia are part of the laws of that State relating to procedure for the purposes of s.79 of the Judiciary Act may be arquable; but it is unnecessary for me to reach a conclusion on that matter for 0.25 of the Supreme Court Rules does not assist the second and

Order 25 v.1 empowers the Supreme Court to order security for costs to be given by a plaintiff but continues with a recognition of the well established principle that "no order shall be made merely on account of the poverty of the plaintiff or the likely inability of the plaintiff to pay any costs which may be awarded against him". The respondents placed reliance on two of the specific grounds mentioned in 0.25 r.2. Paragraph (d) refers to the situation of a plaintiff who "is an undischarged bankrupt or a person who has suspended, or has given notice of suspension of, his debts". None of the applicants is an undischarged bankrupt. Nor, in my view, has any suspended or given notice of

suspension of debts. The language used in para.(d) is that of

para.40(1)(h) of the Bankruptcy Act 1966 where sucha notice

constitutes an act of bankruptcy. But the notice which the

Bankruptcy Act contemplates 15 one in which a debtor intends to deal with his creditors as a body and not merely with one or more individual creditors. No such notice has been qiven by any of the applicants; the most that has happened is that following judgments against them in other litigation not connected with the present application, one or more of them has, on the hearing of a judgment

summons in aid of execution, admitted the absence of means to meet

The first and second respondents also relied upon para.(g) which refers to a plaintiff who "is in default in respect of any costs ordered to be paid by him in any proceedings

previously brought by him against the same defendant or another

defendant for substantially the same cause of action or in relation to substantially the same subject matter". The paragraph is not concerned with the situation of costs ordered in connection with the litigation which has itself produced the application for security. It is a protection to a defendant where earlier

proceedings for substantially the same cause of action or in relation to substantially the same subject matter may have been discontinued or dismissed in circumstances which permit them to be brought again and where costs ordered to be paid by the plaintiff are outstanding. In the end counsel for the second and third

respondents conceded the inappropriateness of para.(g) in the

In support of their motion the second and third respondents filed a body of material aimed at establishing that

the applicants are in no position to meet an order for costs if

they fail in the present application. The material includes reference to various actions brought against one or more of the

applicants in the Supreme Court and District Court of Western

Australia and the extent to which those judgments remain unsatisfied. It also includes reference to a number of bills of sale over the applicants' assets in addition to the mortgage which is involved in these proceedings. The applicants have not filed any affidavit in opposition to the matters deposed to on behalf of the second and third respondents. I am satisfied that, if they fail in this application, the applicants will not be able to meet the costs of the second and third respondents which the latter have estimated as some $40,000 for a 25 day hearing. The third respondent is in an unhappy position. He is sued by reason of his conduct as managing director of the second respondent, a company which has no assets. He is in no position to meet the costs of a 25 day hearing if judgment goes against him, let alone any judgment for a substantial sum. He has been refused legal aid by the Legal Aid Commission of Western Australia. An application to the Attorney-General for legal and financial assistance pursuant to s.170 of the Trade Practices Act 1974 has not yet been dealt with. If he does not receive that assistance, it is likely that his solicitors will cease to act for him as he is in no position to secure their costs. The nature of the claim against the first respondent on the one hand and against the second and third respondents on the other is such that it is impossible to isolate

issues against the particular respondents and thereby perhaps

avoid such a lengthy hearing for the second and third respondents.

respondents with which the Court 1s directly concerned. Their

position 1s no doubt the catalyst for the present motion but the question is whether, in all the circumstances, the applicants should be required to give security for the second and third respondents' costs of the application. All the applicants other than Yallambee Pty. Ltd. are natural persons. So far as they are

"The basic rule that a natural person who sues will not be ordered to give security for costs, however poor he is, is ancient and well-established. As Bowen L.J. said in Cowell v. Taylor (1885) 31 Ch. D. 34 at 38, both at law and in equity, 'the general rule is that poverty is no bar to a litigant'." (Megarry V-C in Pearson v. Naydler £19771 3 All E.R. 531 at 533).

Putting to one side the existence of a corporation as one of the applicants, there is nothing in the situation of the other applicants to render the well established principle

inappropriate. So far as Yallambee Pty. Ltd. is concerned, there

is reason to believe that it will be unable to pay the costs of the second and third respondents if they are successful in their defence, so that the situation of the company falls literally within the language of sub-s.533(1) of the Companies Code. But that is only to say that an order for security may be made against

security for costs should not be made against Yallambee Pty. Ltd.,

a reason which 1s equally applicable to the other applicants if

for any reason the well established principle to which I have

rererred 1s inappropriate, is that the hearing is to begin on 4 November, a hearing date that was fixed in August this vear. The substantive application was lodged on 13 November 1984 vet this motion for security for costs was not filed until 2 October 1985. The second and third respondents have sought to justify this delay on the ground that they have concentrated on trying to have the case against them struck out and that it was not until the Full Court delivered judgment on 20 September 1985 that they knew they must go to trial. But the actions of the second and third respondents in seeking to have the claim against them struck out inno way precluded an application for security at a much earlier stage. The precarious financial position of the applicants has been known from the outset for it 1s at the very heart of the applicants' case that if the first respondent is allowed to exercise powers of default as mortgagee of the applicants' farm they will have no assets. It is well established that an application for security for costs should be made promptly Smail v. Burton £19751] V.R. 776. The matter is now so close toa hearing, so much time and costs have been expended, that it would work a grave injustice to the applicants if they were ordered to provide security for costs when it is apparent that they could not comply with such an order. Despite the submission of counsel for the first respondent, an order by way of security without a corresponding stay would be in reality no order at all for no sanction would attach to non

At least so far as an order is sought against Yallambee

Pty. Ltd., there are other relevant considerations; see Caruso

Australia Pty. Ltd. v. Portec (Australia) Pty. Ltd. (1984) 1

F.C.R. 311. There 1s the probability of success of the application itself and also the question whether the actions of the First and second respondents have been the cause of the company's financial position. The second question cannot really be answered until the hearing has been concluded; there is insufficient material before me on which to reach even a tentative conclusion. As to the probability of the applicants' success, the facts are complex, making it particularly difficulty for the Court to express a view at this stage. There is of course the question whether the claim against the second and third respondents is statute barred but the decision of the Full Court delivered on 20 September 1985 to which I have already referred, makes it clear that very arguable questions of law will arise. Furthermore the question whether the claim is statute barred depends very much upon findings of fact that can only be made when the hearing of the application has concluded. Certainly it was

not suggested that the applicants' claim was not bona fide.

If, contrary to the views I have expressed, I were minded to make an order for security against Yallambee Pty. Ltd. but not against the other applicants, I would consider it inappropriate todo so. If such an order were made and were accompanied by a stay of proceedings, the remaining applicants would be placed in a very difficult position. By definition, no order for security would have been made against them but they would be faced with the option of not proceeding to trial until

the order for security had been met (a most unlikely contingency)

or proceeding to trial with an action that was not properly

constituted for one of the parties would effectively be missing.

opinion that the motion should be dismissed. There was no submission on behalf of the second and third respondents that there was anything in the inherent jurisdiction of the Court to justify the making of an order for security for costs when such an

order had been refused under the other heads of power invoked by

I certify that this and the preceding nine pages are a true copy of the reasons for judgment herein of his Honour