Jarraman Arts Aboriginal Corporation v Tourism Australia

REASONS FOR JUDGMENT 1 On 29 November 2004 I gave judgment in this matter on the application of the second respondent to strike out the statement of claim: Jarraman Arts Aboriginal Corporation v Tourism Australia [2004] FCA 1536 (the pleading judgment). Orders were made striking out the statement of claim, and giving the applicants leave to file and serve an amended statement of claim by 23 December 2004. In that judgment I gave a general description of the nature of the applicants' claims. I will not repeat it. 2 Each of the first and second respondents by notice of motion of 11 October 2004 seeks an order for security for costs. The first respondent's claim is against both applicants for $100,000 for security for costs. It estimates its recoverable party and party costs to date at about $30,000 and its party and party costs of preparing and conducting the hearing (allowing for a seven day hearing) at about $75,000. The second respondent seeks security for costs against the first applicant only of $60,000. It assesses its recoverable costs to date at about $20,000 and its party and party costs to hearing at about $61,500 and of the hearing (allowing for a ten day hearing) at about $35,000. The applicants did not contend that those estimates were unrealistic, although they thought the hearing would be unlikely to take more than seven days. 3 The power to make an order for security for costs is found in s 56(1) of the Federal Court of Australia Act 1976 (Cth) (the FCA Act) and, in the case of the first applicant, in s 1335(1) of the Corporations Act 2001 (Cth) (the Corporations Act). Section 47 of the Aboriginal Councils and Associations Act 1976 (Cth) (the ACA Act) provides that the first applicant is a corporation for the purposes of the Corporations Act. 4 Section 1335(1) of the Corporations Act requires that there is a reason to believe by credible testimony that the first applicant would be unable to pay the costs of the respondents if they successfully resist its claim before an order for security for costs can be made under that provision. The applicants acknowledged through counsel that neither of the applicants could meet the costs of the respondents if the respondents successfully resist the claim. In addition there is clear evidence that the first applicant would be unable to do so. At 30 June 2000, the first applicant's liabilities exceeded its assets by $168,093 and it was insolvent. Its solicitors acknowledge in open correspondence that its financial position has not improved since that time. It has not filed any financial statements or other reports with the Registrar of Aboriginal Corporations as required by s 59 of the ACA Act. Consequently, I am satisfied that the jurisdictional fact necessary for the exercise of the discretion under s 1335(1) of the Corporations Act exists. There is no prerequisite jurisdictional fact applicable under s 56(1) of the FCA Act. 5 The Court has a broad discretion to order security for costs, provided that the discretion is exercised judicially. Each case must depend upon its own circumstances: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4. The discretion is to be exercised without any particular predisposition: Gartner v Ernst & Young (No 3) [2003] FCA 1437 (Gartner) at [6] ff, and Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 511. 6 The factors which have generally been considered as relevant to the exercise of the discretion have been discussed, for example, in Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 at 50, 635; Cultivaust Pty Ltd v Grain Pool Pty Ltd [2004] FCA 1568; and Gartner at [10]. The discretion is broad and unfettered, even as against natural persons. The common law rule that security for costs will not be ordered against an applicant who is a natural person on the ground of that person's impecuniosity does not fetter the Court's discretion in the particular circumstances of any one case. However, it is noteworthy that in The Airtourer Co-operative Ltd v Millicer Aircraft Industries Pty Ltd [2004] FCA 1400 (Airtourer), Branson J concluded at [22] that, by reason of both authority and principle, s 56(1) of the FCA Act is not intended to empower the Court to act in disregard of the principle that poverty of itself is no ground for ordering a litigant to provide security for costs. Her Honour at [17] - [21] discussed the applicable principles and authorities. She recognised the fundamental right of a citizen, including an impecunious citizen, to have access to the courts. As her Honour said, that principle is recognised, for instance, by Heydon JA in Melville v Craig Nowlan and Associates Pty Ltd (2002) 54 NSWLR 82; [2002] NSWCA 32 at 102-106, [82] - [94]. Her Honour then continued in Airtourer at [21]: 'Recognition by this Court of the general rule that poverty is no bar to a litigant has not meant that the Court has proceeded on the basis that an order for security for costs can never be made against an impecunious litigant. An order for security for costs is only rarely sought against a litigant who is not impecunious. An order for security for costs made against an impecunious litigant when justified by a factor other than mere impecuniosity does not offend the general rule that poverty is no bar to a litigant. Indeed in Morris v Handley [2002] NSWSC 957 at [12] Young J pointed out that what we call applications for security for costs have their origin in "de-pauperisation" applications. Such applications, it seems, were intended to result in a pauper shown to have brought a vexatious or oppressive action losing his or her entitlement to sue in forma pauperis.' 7 In this matter there was no real issue between the parties as to the factors to which the Court should have regard in determining whether to exercise the discretion under the provisions identified to make an order for security for costs. I shall deal with those matters in sequence. 8 The application by each of the then respondents is a timely one. The proceeding was instituted only on 30 June 2004. The then respondents each sought further and better particulars of the claim, and each filed defences. They then promptly issued their respective notices of motion. As the statement of claim has been struck out, the pleadings have not yet been completed through no fault of the respondents. 9 As discussed in Gartner, it is often difficult at the point of determining an application for security for costs to assess with any confidence the prospects of the applicants succeeding in the claim. The second respondent through counsel submitted that the applicants' prospects are 'tenuous at best'. The original statement of claim gave no real guidance to the prospects of success. I found it was defective. I struck it out by order of 29 November 2004, and gave leave to the applicants to file an amended statement of claim by 23 December 2004. On 17 December 2004, the applicants were given leave to add two further respondents (the third and fourth respondents) and to file an amended application by 24 January 2005. The time to file the amended statement of claim was extended also to 24 January 2005. In the event, the amended application and amended statement of claim were filed on 28 January 2005. 10 The amended application joins Deloitte Touche Tohmatsu and Auslink Pty Ltd as the third and fourth respondents respectively. It abandons any claim for damages based upon unconscionable conduct for an alleged contravention of s 51AC of the Trade Practices Act 1974 (Cth) (the TP Act). The claim against each respondent is confined to damages for contraventions of ss 52 and 59 of the TP Act. It asserts each of the second, third and fourth respondents is liable as a principal contravener, and alternatively as a person who aided and abetted certain contraventions. The relief claimed includes orders relieving the applicants from their respective liability for the loan of 30 August 1999 of $160,000 made by the second respondent. It also seeks relief by having declared void or voidable the Deed of 6 February 2004, by reason of the contravention of ss 52 and 59 of the TP Act by the second, third and fourth respondents. The pleading of contraventions of the TP Act in relation to the Deed is clearly inadequate, but its inadequacy is not directly relevant to the present issues. Finally, it adds the further claim for a pecuniary penalty under s 76 of the TP Act for the contraventions. I note that the claim for a pecuniary penalty is not maintainable by the applicants under s 77 of the TP Act. 11 The amended statement of claim in general terms makes claims upon much the same basis as the statement of claim which has been struck out. They are described in [5] - [7], [9], [10] and [12] - [20] of the pleading judgment. The allegations now of course include allegations against the third and fourth respondents for their role in the provision of what the pleading judgment calls the project plan and the finance report. 12 It is now alleged that the first respondent represented to the applicants that the tour would provide the first applicant with a commercial component that would provide for a permanent cultural art exhibit and a secondary commercial exhibit, and would vastly expose the first respondent to a very big opportunity for sales of some $US 1 million by promotion during the tour. Apparently adequate particulars of the representations allegedly made by the first respondent have now been given in pars 18A and 18B of the amended statement of claim. 13 It is pleaded that those representations were not fulfilled between 23 September 1999 and 4 October 1999 when the applicants participated in the tour, and so they withdrew from the tour to mitigate their losses. The applicants also rely upon s 51A of the TP Act. 14 I find it difficult to form any real view as to the strength of the applicants' case against the first respondent. The amended statement of claim asserts a factual foundation for the first applicant undertaking the tour in the expectation that it would have the opportunity to sell Aboriginal artworks at a significant number of locations in the United States during the tour. It apparently borrowed $160,000 from the second respondent to finance its participation in the tour. It pulled out of the tour shortly after the tour had commenced. The amended statement of claim also asserts a factual foundation which arguably led to the first applicant pulling out of the tour by reason of misleading and deceptive conduct on the part of the first respondent, although of course that is ultimately an issue of fact. I do not feel able to assess the prospects of the applicants establishing the necessary facts with any confidence, but the amended statement of claim does not suggest a case with little or no prospects of success. 15 The first applicant also alleges that it withdrew from the tour due to the misleading and deceptive conduct of the second respondent (as well as the third and fourth respondents). More specific allegations, based upon the contents of the project plan and the finance report, are made, namely that the project plan represented that the first applicant 'could make a net profit of $336,789' by participation in the tour, and that each of the project plan and the finance report represented that participation in the tour appeared 'viable' or 'would be an economically viable venture'.'