Mitchell v Transport for NSW

Principles governing grant of leave

1. A grant of leave to appeal generally requires the identification of an issue of principle, a question of public importance or a reasonably clear injustice going beyond something that is merely arguable: see, for example, The Age Company Ltd v Liu (2013) 82 NSWLR 268; [2013] NSWCA 26 at [13]; Secretary, Department of Family and Community Services v Smith (2017) 95 NSWLR 597; [2017] NSWCA 206 at [28].
2. Additionally, where the orders sought to be appealed involve matters of practice and procedure and the exercise of a discretion, such as that engaged by the power to order security for costs, the fairly recent observations of this Court in PPK Willoughby Pty Ltd v Baird [2019] NSWCA 48 at [5] (Bell P and Simpson AJA) and Mohareb v Harbour Radio Pty Ltd [2020] NSWCA 231 at [37]-[38] (Bell P, Leeming JA, Simpson AJA) (Mohareb) are pertinent. In the former, the Court noted: [5] Discretionary decisions, whether in the context of substantive or procedural relief, also engage the strictures against over-ready appellate interference and the correlative need for "added restraint" associated with House v R (1936) 55 CLR 499 with the consequence that a "heavy burden" lies on an applicant seeking leave to appeal from a discretionary judgment on a question of practice or procedure: see, for example, Oswal v Burrup Fertilisers Pty Ltd (recs and mgrs apptd) [2011] FCAFC 117 at [8] and [11]; see also Warragamba Winery Pty Ltd v State of New South Wales [2010] NSWCA 174 at [6] where the task of an applicant seeking leave to challenge such a decision was described as a "difficult" one; see also Cicek v The Estate of the Late Mark Solomon [2014] NSWCA 278 at [69]-[70]; Dank v Cronulla Sutherland District Rugby League Football Club Ltd [2014] NSWCA 288 at [73]-[75]; Treadtel International Pty Ltd v Cocco [2016] NSWCA 360; 117 ACSR 176 at [29]; Mei Zhang v Ye Cheng [2018] NSWCA 299 at [12].

Sources of power to order security for costs

1. There are two principal sources of the Court's power to order security for costs. They are r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and the Court's inherent power to make orders for security in circumstances outside those to which the UCPR applies: Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443 at 447-8; Rajski v Computer Manufacture & Design Pty Ltd [1983] 2 NSWLR 122; Philips Electronics Australia Pty Ltd v Matthews (2002) 54 NSWLR 598; [2002] NSWCA 157 at [52] (Philips Electronics); Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105 at [33] (Green); Mohareb at [11].
2. Although the respondent's motion sought security pursuant to r 42.21 "and/or the inherent jurisdiction of the Court", as the application was finally argued the respondent's claim rested on the Court's inherent power and s 67 of the Civil Procedure Act 2005 (NSW) (CPA). The latter provision does not in terms empower the Court to make an order directing that security for costs be provided, as distinct from an order staying proceedings unless and until security is given: Philips Electronics at [47].

The primary judge's reasons

1. It was not controversial that none of the six circumstances in which the power under r 42.21 is engaged (paras. (a) to (f) of r 42.21(1)) could be satisfied in relation to the respondent's application. Para. (e) enlivens the discretionary power if it appears to the Court that "a plaintiff is suing not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so". The applicants sue for their own benefit as well as for the benefit of the other group members, and the funder who has agreed on commercial terms to fund the representative proceeding. Accordingly, the first limb of para. (e) was not satisfied.
2. Nor having regard to the terms of the litigation funding agreement was the second limb of para. (e) satisfied. That agreement provided that the funder indemnify the applicants from any order for costs made against them. In the absence of any suggestion that the funder, a corporation, lacked financial substance, there was no reason to believe that the applicants would be unable to pay the respondent's costs if ordered to do so (see further [25] below).
3. The primary judge's reasons for making the order for security are commendably short. His Honour first addressed the question of power as follows: [10] … None of the threshold requirements set out in UCPR r 42.21(1) applies to an order for a stay under s 67 or the Court's inherent power. In many cases, it will not be appropriate to circumvent the limitations on the power to award security under rule 42.21 of the UCPR by relying on s 67 of the CPA and the Court's inherent power. To do so would make the rule otiose and undermine the purposes behind the limitations contained in it. But representative proceedings are a special case. They are brought for the benefit of persons other than the plaintiff. Often, a litigation funder is involved. The costs of the proceedings are often large. Whether the actual plaintiff is an individual or a corporation may be a matter of chance. As the cases demonstrate, the Court is often willing in those circumstances to rely on its inherent power and s 67 of the CPA in considering the question of security, with the result that the real question is whether the Court should in the exercise of its discretion make an order for security and an order staying the proceedings if security is not provided.
4. His Honour then made the following findings in relation to the funding arrangement (at J[11]): [11] … It is apparent that the proceedings have been brought in part for the benefit of a litigation funder. The litigation funding agreement is in evidence. However, it has been redacted. The redactions include the name of the funder. It is apparent from the terms of the agreement that the funder will be entitled to retain a percentage of any amount recovered.
5. Having extracted the clauses of the funding agreement containing the indemnity for costs (cl 7.1) and the provision of security for costs (cl 7.3) his Honour continued: [12] Accordingly, three things are apparent. First, the proceedings have been brought in part for the benefit of a litigation funder. Second, the litigation funder has agreed to indemnify the plaintiffs against any order for costs and to provide security for costs. Third, the litigation funder has not been named, so that there are no means by which TfNSW can determine whether the indemnity in respect of costs is likely to be honoured. [13] In circumstances where the proceedings are being brought partly for the benefit of a litigation funder, but it is not possible to determine how easy or difficult it will be to enforce any costs order against the litigation funder, it is appropriate that the funder should provide security, which will be the effect of an order for security in this case.
6. The amount of the security ordered was $415,000. That was based on an estimate of the respondent's total costs of the proceedings including an amount of $78,686 already billed. That estimate assumed a hearing occupying 5 days and dealing with all liability and quantum issues. The estimated costs included a breakdown of the respective fees of solicitors, counsel and experts with respect to the preparation and conduct of the hearing.

Disposition of application for leave

1. In the course of oral argument the solicitor for the applicants, Mr Hall, abandoned all but 4 of the 13 grounds in the draft notice of appeal.
2. Proposed grounds 8 and 9 are directed to the availability and exercise of the inherent power in the circumstances summarised by the primary judge at J[12] (extracted at [12] above). Neither of those grounds clearly identifies any error in the decision-making process of the kind described in House v The King (1936) 55 CLR 499 at 505; [1936] HCA 40. In oral argument the applicants confirmed that it was not suggested the primary judge had taken any extraneous or irrelevant matter into account or failed to take into account some material consideration. Rather, as we understood the argument it was that there was some "binding rule" which required that there be some form of "injustice" to the party seeking security before the power could be exercised: cf Norbis v Norbis (1986) 161 CLR 513 at 517-518; [1986] HCA 17.
3. The two arguments foreshadowed by those grounds were as follows. The inherent power could not be exercised (1) to require that security be provided by a natural person "when there was no injustice" (ground 8); or (2) in circumstances where a plaintiff brought a representative proceeding funded by an entity which runs a commercial business involving the funding of litigation for profit "without there being any injustice caused by the plaintiff having funding" (ground 9). There was said to be no "injustice" to the respondent because it was not shown that the applicants were impecunious or unable to satisfy any costs order.
4. Proposed ground 11 focuses on the exercise of the inherent power in circumstances where the litigation funder has agreed to provide any security that the applicants may be ordered to provide. The ground alleges that his Honour erred in treating as justifying the order for security that in circumstances where the respondent "could enforce the plaintiff's litigation funding agreement" it was unable to assess how "easy or difficult" it would be to do so because it had no knowledge as to the identity of the litigation funder. The argument to be made turns in part on the way in which the language in J[12] is to be understood.
5. Proposed ground 13 is that in determining the amount of security the primary judge did so on the basis that the applicants did not take issue with the respondent's estimates of costs, when in fact they did "take issue with those estimates in their submissions".
6. None of these proposed grounds identifies any reasonably arguable error in the primary judge's interlocutory discretionary judgment. And none raises any question of principle or of general importance.
7. It is not controversial that the Court has an inherent power to order security for costs against a natural person, at least in circumstances falling outside those expressly provided for in UCPR r 42.21. There are no absolute rules which control the exercise of the discretion. Nevertheless, the exercise of the power is not at large. The power is to be exercised judicially, which means that what should be done in each case depends on the circumstances of the case, the governing consideration being what is required in the interests of justice: see Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Ltd (1998) 193 CLR 502; [1998] HCA 41 at [26] (Kirby J), cited in Green at [37]. In making that assessment the Court may have regard to principles developed in earlier decisions concerning the provision of security, as well as the matters in r 42.21(1A) which, as this Court observed in Mohareb at [14], are "generally reflective" of those principles.
8. Accordingly, it is one answer to proposed grounds 8 and 9 that the primary judge's exercise of discretion was not subject to any governing or determinative rule or rules in the terms contended for.
9. More fundamentally, his Honour's assessment that the interests of justice were best served by an order for security was a reasonable and available one. The analysis which follows underlies the primary judge's reasoning at J[12]-[13].
10. The applicants brought the representative proceedings with the benefit of a litigation funder who had agreed to pay their costs and indemnify them against any order that they pay the respondent's costs. The funder had also agreed to provide any security for costs that they were ordered to provide.
11. The funding agreement was produced to the Court in circumstances where the respondent had been directed to advise whether it proposed to seek security for costs. On receipt of the redacted agreement, the respondent's solicitors sought details of the name and financial position of the funder. That information was not provided (J[3], [5]).
12. The applicants resisted the provision of security, including on the basis that they had the benefit of the funder's indemnity. At the same time they refused to disclose the identity of the funder. That made it difficult for the respondent to contend that there was reason to believe that the applicants would be unable to pay its costs. Ordinarily that would be a significant factor to be weighed against the making of an order for security.
13. Two further matters were to be considered. First, the proceedings were brought partly for the benefit of the funder, and the funder had agreed to provide security if ordered. Secondly, the applicants were not suggesting that there was some risk that the funder could or would not provide security if ordered. Indeed they were relying on the existence of the funder's indemnity as a reason why there should be no order for security.
14. In these circumstances the primary judge considered the interests of justice were best served by the ordering of security which would, in accordance with the terms of the funding agreement, be provided by the funder (J[13]). That outcome was consistent with the funding arrangements made by the applicants, which anticipated that an order for security might be made notwithstanding that the applicants had the benefit of the indemnity. It also protected the position of the respondent in circumstances where it could not otherwise be satisfied that the indemnity was "likely to be honoured" or that any costs order made either against the applicants, or against the litigation funder, could be enforced for the benefit of the respondent, it not being a party to the funding agreement.
15. As is apparent, the primary judge dealt with the question of security for costs on the basis that the funding agreement was enforceable and would be performed by the funder. In the course of oral argument in this Court, a question was raised as to what the position might be in the absence of performance, leaving the applicants to provide the security from their own resources. That was not the basis on which the application proceeded before the primary judge. Should there be any change in that position, the applicants would not necessarily be left without a possible remedy. A material change of circumstances provides a sound foundation for an application to set aside or vary an interlocutory order: see Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46-7 per McLelland J.
16. Turning then to proposed ground 11, the primary judge's reasoning at J[13] is not to be understood as saying that the respondent could enforce the funding agreement. Rather, his Honour was addressing the circumstance that in the absence of knowledge as to the funder's identity, the respondent could not assess its financial ability to honour the indemnity or whether there might be difficulties in enforcing any costs order made in the respondent's favour. Whilst the applicants claimed the benefit of the indemnity as a reason why there should be no order for security, that outcome could leave the respondent at risk of not recovering all of its costs in circumstances where there was a funder who had an interest in the proceedings and who had agreed to provide security for costs. Ground 11 does not arise.
17. Finally, the premise of proposed ground 13 could not be made out.
18. No evidence was tendered challenging the respondent's solicitor's estimates as to quantum. Nor was that deponent, Mr McGowan, cross-examined as to those estimates. The applicants' written submissions to the primary judge suggested that the liability issues in the proceedings may be dealt with separately with the result that, depending on the outcome, the amount of security sought may not be justified. However, the estimate of the respondent's solicitor took into account that the applicants might seek orders for the determination of one or more separate questions and the removal of proceedings to this Court, noting that any such application would be contested. The estimate thereafter assumed that the first instance hearing would proceed on all issues. Nothing was said in oral argument in elaboration of this point, and as the matter presented itself to the primary judge there had been no order for separate determination of issues or indeed any application for that outcome.
19. For these reasons we ordered that the application for leave be dismissed with costs.

Amendments 12 August 2022 - [25], first line - omit "thus" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 August 2022