Maylord Equity Management Pty Ltd v Parazelsus Limited

Federal Court of Australia|2013-11-21|Before: Mr J, North J, Cowdroy J

REASONS FOR JUDGMENT 1 Before the Court are two applications brought by the respondent ('Parazelsus'). The first is an application for security for costs filed on 27 September 2012 pursuant to the provisions of s 1335 of the Corporations Act 2001 (Cth) and in the alternative, s 56 of the Federal Court of Australia Act 1976 (Cth) or r 19.01 of the Federal Court Rules 2011(Cth) ('the Rules'). 2 Such application was part heard, having first been before Justice North on 10 December 2012. On 4 February 2013, his Honour ordered inter alia that the applicant ('Maylord') provide security for costs in the amount of $20,000 by 4.00 pm on 4 March 2013, and that Parazelsus' application for security for costs be otherwise adjourned. The purpose of adjourning the application appears to be so as to defer the consideration of further security for costs until after the parties attended mediation. 3 On 28 February 2013, Maylord paid the sum of $20,000 for security for costs to the Court. The subsequent mediation, which took place in May 2013, was unsuccessful. Accordingly, the part heard security for costs application is now pressed by Parazelsus. It seeks a further $180,000 in security from Maylord. 4 The second application arises out of the filing of an amended statement of claim by the applicant ('Maylord') on 20 August 2013. Parazelsus seeks its costs thrown away in the preparation of its amended defence and associated legal advice as a lump sum pursuant to r 40.02 of the Rules.

Costs thrown away 19 As referred to above, Maylord filed an amended statement of claim on 20 August 2013. The amendments made to the original statement of claim were substantial. Parazelsus filed its defence to the amended statement of claim on 18 September 2013. 20 The solicitors for Parazelsus instructed Mr Michael Dudman, a costs assessor, to conduct an assessment of Parazelsus' legal costs and disbursements thrown away as a result of the amendments made to Maylord's statement of claim. Mr Dudman assessed the costs thrown away to be approximately $70,000 as set out in his affidavit sworn 28 October 2013. 21 At the hearing, Maylord sought to reserve its position with regard to Mr Dudman's assessment as counsel for Maylord had not had an opportunity to review Mr Dudman's affidavit.

Security for costs 22 Section 56 of the Federal Court of Australia Act 1976 (Cth) empowers the Court, in its discretion, to award security in such amount as the Court considers appropriate. The only relevant limitation on the Court's discretion is that the power must be exercised judicially: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 ('Bell Wholesale') at 3. The Court is mindful that the financial interests of Mr Batterham, Maylord, the Fund and the Trust appear to be closely tied, if not inextricable. As was stated by Lindgren J in Knight v Beyond Properties Pty Ltd [2005] FCA 764 at [32]: Many cases can be cited for the proposition that there is a disinclination to order an applicant who is a natural person to provide security, at least, in the absence of some factor in addition to impecuniosity. 23 In the present circumstances however, the party against whom security for costs is sought is a corporation, and the substantive proceeding has been brought in the name of Maylord. For this reason, the financial circumstances of Mr Batterham are strictly irrelevant for the purposes of considering whether security for costs should ordered. Nevertheless, the Court considers that the assets and financial position of Mr Batterham are matters relevant to the Court's discretion in determining the application as will become apparent. 24 The strength of Maylord's claim is a relevant consideration in deciding whether to grant security. It is significant that Parazelsus has admitted the making of an agreement with Maylord. Whether that agreement was supplemented with the additional terms alleged by Maylord remains for determination. However, the parties were engaged in a contractual relationship and that relationship has ended with the result that Maylord claims that it is entitled to damages. The amended defence filed to the amended statement of claim is unhelpful in that it does not outline the real nature of any defence; rather it relies upon strict denials to most paragraphs in the statement of claim. 25 On the facts outlined above, the Court is satisfied that Maylord is impecunious. It would be unable to meet any meaningful order for security for costs made against it, especially in the amount sought of $180,000. As already referred to, the company is not trading, has no assets and has a paid up capital of $3. It follows that allowing the application would in all probability stifle the litigation and deny Maylord of the opportunity of presenting its claims. 26 The usual position is that a court will not decline an application for security for costs against a company solely on the basis that it will frustrate the litigation unless it is also shown that those whom stand to benefit from the litigation are also impecunious. As was found by Sheppard, Morling and Neaves JJ in Bell Wholesale at 4: [I]t 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. 27 The evidence before the Court indicates that Mr Batterham would not be able to meet any meaningful order for security for costs against Maylord. It was accepted by Maylord that the possible beneficiaries of the Trust could extend to family members of Mr Batterham, but it submitted that Mr Batterham would be the only person to benefit from the litigation. In the absence of Mr Batterham being cross-examined by Parazelsus, there is insufficient evidence for the Court to conclude that any person other than Mr Batterham would benefit from the litigation. 28 Accordingly, the Court declines to make any further order for security for costs as to do so would be inimical to the interests of justice.

Costs thrown away 29 The Court accepts, and it is not challenged by Maylord, that costs have been thrown away by Parazelsus as a result of the amendments to the original statement of claim. Parazelsus referred the Court to the decision of Mansfield J in Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916. That case however concerned the costs of a proceeding that had been determined. The issue for his Honour to decide was whether the costs to be paid by the applicant should be fixed as a gross sum or taxed in the usual way. 30 The issue presently before the Court is whether an order for costs thrown away should be made at this preliminary stage of the proceeding or whether the costs should be reserved to the hearing. For the reasons set out with respect to the security for costs application, the making of an order for Parazelsus' costs thrown away against Maylord at this stage of the proceeding would stifle the litigation. Accordingly, the costs thrown away by virtue of the amendments to the original statement of claim will be reserved to the hearing.

ADDITIONAL MATTERS 31 The Court also considers that it is appropriate for the costs of the present applications be reserved to the hearing. 32 Upon reviewing the amended statement of claim, the Court observed certain deficiencies which were brought to the attention of counsel for Maylord. The deficiencies lie in the fact that whilst there is a reference to various statutory claims for misleading or deceptive conduct, there is no pleading setting out the alleged damage flowing from such conduct. Counsel for Maylord indicated that this was an oversight which would be corrected. 33 Accordingly, the Court will make orders granting leave to Maylord to file a further amended statement of claim, and establishing a timetable for the further conduct of the proceeding. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cowdroy.

Federal Court Rules 2011(Cth)rr 19.01, 40.02

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