Odyssey Financial Management Pty Ltd v QBE Insurance

Judgment 1McCOLL JA: This is an application for security for costs pursuant to s 1335 of the Corporations Act 2001 (Cth) brought by QBE Insurance (Australia) Ltd against Odyssey Financial Management Pty Ltd. QBE seeks orders that Odyssey provide security for the costs of the proceedings in an amount of $15,537.90 and that the proceedings be stayed until such security is provided. 2The substantive proceedings initially involved an application for leave to appeal from a judgment of Rolfe DCJ of 13 December 2011. His Honour heard QBE's application that the proceedings be struck out pursuant to Uniform Civil Procedure Rules 2005 ("UCPR") r 13.4(1) or r 14.2A on the basis that Odyssey's claim did not disclose a reasonable cause of action, was not reasonably arguable, had no reasonable prospects of success and was doomed to failure. 3The central issue in the proceedings is whether Odyssey is entitled to be subrogated to a policy of insurance to which a Mr Rosenberg, who is one of the directors of Odyssey, was indemnified by QBE. 4Odyssey asserted in its proceedings in the District Court that it was entitled to be so subrogated pursuant to s 6 of the Employees Liability Act 1991. The basis of QBE's application before Rolfe DCJ was that Odyssey would be unable to establish at trial that Mr Rosenberg was an "employee" within the meaning of that term in s 6. Rolfe DCJ acceded to the application on that basis. In the course of his ex tempore reasons he said: "The fact that Mr Rosenberg received a salary allegedly as at 30 June 2008 of $28,268 is neither here nor there, because we are looking at an entitlement to an indemnity in the 2006 financial year because Ms Prince's cause of action appears to have arisen towards the end of 2005." 5Ms Prince had been the applicant in Federal Court proceedings against both Odyssey and Mr Rosenberg and a company called WealthSure Pty Limited. The latter two had been the insured under the policy of insurance in respect of which Odyssey sought subrogation. 6Rolfe DCJ, having acceded to QBE's application, made order 1 in the notice of motion which although not in the papers before me, I assume was an order dismissing the proceedings. 7On 6 March 2012 Odyssey filed an application for leave to appeal from his Honour's decision. On 28 March 2012 QBE's solicitors wrote to Odyssey seeking security for the costs of the application for leave to appeal. 8On 5 April 2012 Neville and Hourn Legal, Odyssey's solicitors, wrote debating the point whether either UCPR r 51.50 or s 1335 of the Corporations Act applied to applications for leave to appeal as opposed to a substantive appeal, but further noted courts appeared to be reluctant to order security where to do so would have the effect of stultifying proceedings. The solicitors also sought particulars of the calculations of the amount then sought for security for costs which was in the order of some $30,000. The bottom line, however, was that the solicitors said that Odyssey was unable to give the security sought and asserted that to make any order for security would stultify the application. 9On 16 April the Court informed the parties that Basten JA had ordered that the application for leave to appeal and the appeal be heard concurrently. QBE's costs estimate of the proceedings was revised to take the concurrent hearing into account in the terms set out in Mr Thornley's affidavit of 18 April 2012. It is on the basis of the revised costs estimate that the amount now sought of approximately seventy-five per cent of the total anticipated costs has been calculated. 10There is no controversy between the parties that, as stated in the 5 April letter, Odyssey is unable to provide security for costs in the amount sought. Mr Eloss, a director of Odyssey, has sworn an affidavit so stating. He also asserts that he is unaware of any circumstance that would enable Odyssey to raise money to provide that security. He submits that if Odyssey was ordered to provide security as a condition of proceeding with the concurrent hearing, Odyssey would be unable to continue with the litigation. He also submits that had a successful application been made for security at first instance the primary proceedings would have been abandoned. 11The principal question which counsel have agitated is whether, given that Odyssey is unable itself to provide security for costs, the Court should make an order which on Odyssey's submission would stifle the proceedings. 12Mr J Sleight, who appears for Odyssey, also complains about the delay in QBE making the application, contending in support of the submission I have just read from Mr Eloss' affidavit that had it been made at the outset, the proceedings would not have advanced. He drew attention to material in Mr Thornley's possession demonstrating, Mr Sleight contends, Mr Thornley's knowledge of Odyssey's perilous financial position as at 13 October 2011, which was approximately two months before the strike-out application was heard by Rolfe DCJ. 13Mr Sleight also relied on the fact that in circumstances where the appeal books (the White Book) have been settled underlines the significance of the delay in making the application for security for costs. Mr Sleight also relied on a passage in Basten JA's reasons in Pioneer Park Pty Limited v ANZ Banking Group Limited [2007] NSWCA 344; (2007) 65 ACSR 383 (at [56]) concerning the greater sympathy the Court might extend to an application for security for costs from a respondent with limited funds than one from a respondent which is a major corporation. I am prepared to accept that QBE falls into the latter category. 14Basten JA noted that it might be seen as oppressive to allow a large corporate defendant to obtain an order for security for costs which would be likely to stifle the litigation in circumstances where it could be seen that the claim had potential merit and that the quantum of the costs would in any event be a relatively insignificant amount for the corporate defendant although beyond the capacity of the corporate plaintiff to pay so that to order security in such circumstances might constitute a form of oppression. 15I accept that that proposition has some bearing on the fate of the present application, however I am also conscious of what fell from the Full Federal Court in Bell Wholesale Co Ltd v Gates Export Corp (1984) 2 FCR 1 (at 4) where Shephard, Morling and Neaves JJ said: "In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means." 16There is no evidence before the Court as to the means of the three directors of Odyssey, Mr Rosenberg, Mr Denney and Mr Eloss, only the assertion that Odyssey itself is unable to provide the security sought either out of its own resources or by raising money elsewhere. 17I accept, as Mr Sleight submits, that there is room for debate as to whether Rolfe DCJ was correct in treating as irrelevant evidence apparently before his Honour that Mr Rosenberg had received a salary during a period which, again in Mr Sleight's submission, having regard to the QBE policy having been a claims made one, would be relevantly caught by s 6 of the Employees Liability Act. Nevertheless, in my view, in order to demonstrate the oppression of which Justice Basten spoke in Pioneer Park it would be necessary for those who stand behind Odyssey to demonstrate that they are also without the means to provide an order for security in the relatively modest amount QBE seeks. 18Accordingly in my view I should accede to the notice of motion. I note that to do so would not of course prevent Odyssey seeking to revisit that order in the event that those who stand behind it were able to produce evidence of the sort referred to Bell Wholesale Co Ltd v Gates Export Corp. 19I should say there has been no debate about the amount of security now sought.