Ozmen v Culture Map Pty Ltd

RARES J: 1 On 31 August 2020, Culture Map Pty Ltd and its principal, Eric Woo (compendiously Culture Map), applied for security for costs under s 56 of the Federal Court of Australia Act 1976 (Cth) and r 19.01 of the Federal Court Rules 2011, seeking that the first and second applicants, Mert Ozme, and his nephew, Kartal Altikulacoglu (collectively the Ozmen parties), provide $292,863 or such other sum that this Court fixed as security for costs of this proceeding.

Background 2 The proceeding commenced in December 2018, and had been listed for trial on 23 March 2020. However, in February 2020, the Ozmen parties ceased to retain solicitors and applied to have the hearing date vacated. As events turned out, the COVID-19 pandemic caused public health regulations to be made which, because Mr Ozmen and Mr Altikulacoglu were in Turkey, and the Chief Justice had vacated all cases fixed for hearing, resulted in the scheduled hearing not occurring. 3 The application for security is supported by a number of affidavits, including that of the principal solicitor for Culture Map, My-Linh Dang, made on 31 August 2020. Ms Dang made the point that, in the directions hearing on 6 December 2019 when the Ozmen parties were represented, they said they would pursue only their claim for breach of contract. That claim sought to recover in the order of $3 million by reason of non-payment for the shares that they transferred in two companies, Ozmen Entertainment Pty Limited and Kanki Sea Tourism Hospitality & Entertainment Pty Ltd, which respectively owned and operated a licenced hospitality vessel, Seadeck, the subject of my decision in Ozmen Entertainment Pty Ltd v Neptune Hospitality Pty Ltd (2019) 369 ALR 644 and affirmed in Neptune Hospitality Pty Ltd v Ozmen Entertainment Pty Ltd (2020) 375 ALR 489. 4 In effect, under the contract, Culture Map took a 51 per cent interest in Entertainment, being the ship owner, and Kanki, being the operator of the business conducted on the ship, at the time of the transaction complained of in mid-2018. In September 2018, Burley J appointed receivers to manage the business of the ship on the basis that there was a dispute between Entertaininment and Kanki on the one hand, and their former joint venture partner, Neptune Hospitality Pty Limited, on the other, which I came to decide in April 2019 in favour of Entertainment and Kanki: Ozmen 369 ALR 644. 5 Ms Dang noted that, on 13 February 2020, the solicitors for the Ozmen parties notified her firm that they had ceased to act, and had filed a notice of ceasing to act, leaving an address for Mr Ozmen in Melbourne but also noting he was in Turkey. In her affidavit, Ms Dang asserted that, as of 28 August 2019, all of the shares in Entertainment and Kanki were owned legally and beneficially by Culture Map Pty Ltd. However, the solicitors for the Ozmen parties in November 2020 pointed out that share registration of the 49 per cent interest in each Entertainment and Kanki that the Ozmen parties held immediately prior to 28 August 2019 had been, to use a neutral word, erroneously transferred by Culture Map. In the event, by 9 December 2020, Culture Map had restored to the share registers of each of the companies, the 49 per cent interest of the Ozmen parties. 6 On 26 August 2019, Ms Dang wrote to the solicitors for the Ozmen parties putting them on notice that their clients were not ordinarily resident in Australia and were not registered as owning any real property here. She provided an estimate of Culture Map's costs of the proceeding. She noted that Entertainment's sole asset was Seadeck, that it provided the sole source of income, that there were three ships' mortgages over her and that the value of the mortgage debts exceeded that of the vessel. 7 On 4 September 2019, the solicitor for the Ozmen parties, Mr Narayan, responded saying that his clients were ordinarily resident in Australia. He said that Mr Ozmen had a place of residence in Melbourne where he resided for over six months per annum, and had a temporary work skills visa, being a subclass 457 visa. However, Mr Narayan did not give any details in relation to Mr Altikulacoglu. Ms Dang sought a copy of the 457 visa. In the event, only partial details of the 457 visa are in evidence from a search of the Department of Immigration website that showed that Mr Ozmen obtained it on 7 September 2016. Ms Dang said that Mr Woo had told her that Neptune was the sponsor of the 457 visa. 8 Ms Dang said that on 27 July 2020, Culture Map Pty Ltd enforced its security interest by reason of a claimed default by the Ozmen parties under the loan agreements pursuant to which, she said, that they owed over $3.5 million to Culture Map Pty Ltd. She noted that, at the time she had made her affidavit, the Ozmen parties were still self-represented. However, they subsequently re-engaged their former lawyers, who have appeared today. 9 Ms Dang gave an estimate of the hearing taking four to five days because of the need for an interpreter and the self-representation of the Ozmen parties. The material before me suggests that the Ozmen parties' current solicitors have retained experienced commercial senior counsel to conduct their case at the trial. 10 Ms Dang gave no evidence of any expertise that she had in dealing with the ascertainment and assessment of costs in litigation, although she has considerable experience in commercial disputes. She broke up her estimates for security into seven stages. The initial (unnumbered) stage was for costs incurred up to the time of the application for security on 31 August 2020, amounting to about $155,000 (including GST) (the past costs). She then included the costs of the following: the unsuccessful recusal application that I dismissed on 11 December 2020 (stage 1: Ozmen v Culture Map Pty Ltd (No 1) [2020] FCA 1890); this application for security (stage 2); initial preparation for the hearing (stage 3); preparation for appearance at the hearing (stage 4); the hearing (stage 5); and post-trial work (stage 6). After applying a discount of 30% of the solicitors' costs component, the total of those seven stages came to the sum of $292,863 claimed in the interlocutory application.

Culture Map's submissions 11 Culture Map argued that Mr Ozmen and Mr Altikulacoglu are not ordinarily resident in Australia, that they obfuscated and failed to give assistance to its solicitors in the unpursued 2019 foreshadowed application for security, and that Mr Ozmen will have no possible basis to come to Australia because, they asserted, Mr Ozmen could not return here. Culture Map had tendered in the course of this hearing what they say are documents revealing that he may have misled the Department of Home Affair. I need say nothing more about that irrelevant allegation and make no finding about it. 12 They pointed to the fact that the, nominally, third applicant is Entertainment, but part of the relief sought in the originating application is for an order under s 237 of the Corporations Act 2001 (Cth) that the Ozmen parties be appointed to represent its interests as minority shareholders so as to be able to apply to set aside certain securities. Culture Map relied on the absence of any current grant of leave under s 237(1) and the fact that any application seeking such leave has yet to be made. They argue that there is no ability for them to seek reciprocal enforcement of a judgment in Turkey under the Foreign Judgments Act 1991 (Cth), and that there is no evidence that the Ozmen parties have property in Australia or in Turkey. For these reasons, Culture Map contends that there should be an order for security.

Consideration 13 In my opinion, only the costs which Ms Dang estimated for preparation for and conduct of the final hearing are relevant to the exercise of the present discretion. They are in the order of $50,000 for preparation and $41,000 for the hearing, including counsel's fees, together with other disbursements, being hearing fees and transcripts, in the order of $13,500. 14 If security were to be ordered, then it would be on the basis of the approximately $90,000 plus $13,500 disbursements for those stages. However, Ms Dang based her estimate on the hearing taking four to five days, whereas it was set down for two days before the vacation of the hearing fixed for 23 March 2020. That being so, I think it would be necessary to discount those estimates. Assuming that the total of the solicitor-client costs was $70,000 and was available to form a basis for the provision of security for the preparation and hearing stages, and allowing a recovery on taxation of about 70 per cent of those costs, in the order of about $49,000 would be recoverable on taxation plus $13,500 in disbursements, making a total of about $62,500. 15 I reject Culture Map's submission that they have explained the reasons for their delay, being the supposed failure of the Ozmen parties' solicitors to assist them in establishing whether or not Mr Ozmen was ordinarily resident in Australia or not in 2019, and that somehow s 37N of the Federal Court Act or otherwise would require the Ozmen parties to assist Culture Map in the pursuit of a security for costs application being formulated against them. That submission does not make any sense to me in an adversarial system. At the time, Culture Map appeared to have been fishing for a basis on which to bring an application for security, which they did not choose to make in the absence of the missing "assistance" of the Ozmen parties to facilitate that endeavour. In my opinion, the Ozmen parties did not have any duty to help Culture Map in its attempt to fish. 16 Culture Map has delayed excessively in bringing this application for security. Ordinarily, applications for security for costs should be made promptly (see Beazley J's judgment in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189). Culture Map also argued that it would have been impossible for them to succeed in any application unless they could establish that Mr Ozmen was not ordinarily a resident in Australia because of the provisions of r 19.01. However, r 19.01(3)(b), which I apprehend is the source of that assertion, merely provides that a respondent applying for security should file an affidavit that states "whether the applicant is ordinarily resident outside Australia". The rule does not say it is a condition or otherwise of the grant of security that such a person is resident. That submission is without a basis. 17 In Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 3, Sheppard, Morling and Neaves JJ said of the differently expressed Federal Court Rules 1979 (Cth): … But those rules cannot operate so as to limit the wide power conferred by s 56 itself. The discretion to make orders under s. 56 must be exercised judicially, but that is the only relevant limitation. 18 Moreover, in Jeffery & Katauskas Pty Limited v SST Consulting Pty Ltd (2009) 239 CLR 75 at 97 [39], French CJ, Gummow, Hayne and Crennan JJ said: Because security for costs will not always be ordered against an impecunious plaintiff, it cannot be said that a defendant, faced with proceedings by such a plaintiff, can always obtain the protection of security for costs. There are cases where successful defence of an action will come at a considerable cost to the defendant. But the extent to which that possibility exists and the extent to which there is a resultant "unfairness" to a defendant is a product of the provisions and principles that govern security for costs. Neither the existence of the possibility nor its scope suggest that there is some more general rule that to prosecute proceedings without reasonable prospects of being able to meet an adverse costs order is an abuse of process. (emphasis added) 19 Further, in Commission of Taxation (Cth) v Vasiliades (2016) 344 ALR 558 at 578-579 [71]-[72], Kenny and Edelman JJ said that the discretion under s 56, following what the Full Court had said in Bell Wholesale 2 FCR at 4, strongly indicates that the exercise of discretion is not determined by the Rules. They said (at 579 [72]): The purpose to be served by making an order for security for costs is to ensure that a successful respondent to a claim will have a fund available within the jurisdiction of the Court against which the respondent, if successful in defence, can enforce a judgment for costs in the respondent's favour. This purpose is, of course, relevant to an exercise of discretion. The factors that the courts have over time recognised as relevant to an exercise of discretion are relevant because they bear on the purpose for which an order for security for costs is made. Thus, if an applicant in a proceeding is ordinarily resident outside the jurisdiction, an award of security for costs means that a respondent "does not bear the risk as to the certainty of enforcement in the foreign country and as to the time and complexity of the action there which might be necessary to effect enforcement": Energy Drilling [Inc v Petroz NL (1989) ATPR 40-954] at 50,422 (Gummow J). See also: Logue [v Hansen Technologies Ltd 125 FCR 590] at [18] (Weinberg J); GAIN Capital UK Ltd v Citigroup Inc (2015) 113 IPR 307; [2015] FCA 1009 at [18] (Yates J); and Oswal [v Commissioner of Taxation (No 2) [2015] FCA 1143] at [57] (Nicholas J). (emphasis added) 20 In Morris v Hanley [2001] NSWCA 374 at [29], Heydon JA, with whom Foster and Rolfe AJJA agreed, said that: … It is never easy for defendants to succeed in an application for security for costs against a natural person where that application is in part based on the ground of that natural person's lack of funds. It becomes significantly harder for defendants to succeed where they permit the plaintiff to throw money away on the litigation which will never be recoverable in a costs order against the defendants by reason of the successful application for security. (emphasis added) 21 Here, the evidence relied on by Culture Map included emails sent prior to the Ozmen parties' entry into the contractual arrangements, the validity or enforceability of which is subject of this proceeding, that showed that while Culture Map was providing finance to Mr Ozmen, he had sought Culture Map's permission to sell Seadeck and offered her to Culture Map for $7 million. The email of 5 June 2018 from Mr Ozmen's nephew on his behalf, which Culture Map tendered, recounted that because of financial promises that Culture Map had made to Mr Ozmen, which the email asserted had not been fully kept, including provision of $1 million, Mr Ozmen had lost everything he had in Turkey, including his restaurants, expected to lose a nightclub in two weeks' time, and that in the previous year, Culture Map had: …stopped him from selling the boat for $12.5million which would have solved his problems and prevented this current mess. He cannot survive for the now estimated another year. What else can he do but sell his boat? 22 However, the conduct asserted in those emails suggests that there is a reasonable basis for thinking that the Ozmen parties' current impecuniosity is, in part, due to Culture Map's insistence, on whatever basis they had under the contractual arrangements to prevent or control the sale of Seadeck for what is now a figure well beyond the valuations relied on by Culture Map in this proceeding. 23 In Ninan v St George Bank Ltd (2012) 294 ALR 190 at 199 [35], Griffiths J noted, quoting McHugh J in PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 at 323 (albeit in the context where McHugh J was not dealing with a natural person): The fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made. 24 Culture Map has been on notice, since before the commencement of this proceeding, of Mr Ozmen's circumstances. That is because of their knowledge about Mr Ozmen's financial position, Culture Map's entry into various financial support arrangements for him and his business, as established in the evidence on this application and, in particular, the email of 5 June 2018 to which I referred. They have known that the only assets that the Ozmen parties have within the jurisdiction are their shares in Entertainment and Kanki. Yet it delayed, from December 2018 until August 2019, before even beginning to make enquiries as to whether they could seek to build a case against the Ozmen parties, and, especially, Mr Ozmen, for security. 25 As Greenwood J noted in Tyne (as trustee of Argot Trust) v UBS AG (2014) 102 ACSR 403 at 420-421 [140]: Some of the factors to be taken into account in the exercise of the discretion are whether the application has been brought promptly; the strength and bona fides of the applicant's case; whether the impecuniosity of the applicant was brought about by the respondent's conduct the subject of the proceeding; whether the respondent's application for security operates oppressively in the sense that a respondent brings the application merely to deny an impecunious applicant a right to litigate a controversy before the court; whether there are outstanding costs orders against an applicant which have not been discharged; whether there are persons standing behind the applicant who are likely to benefit from the litigation and who are willing to provide security; whether persons standing behind the applicant have sought to raise funds to support the proceeding; and whether persons standing behind the applicant have offered any personal undertaking to be liable for the costs and if so the form of any such undertaking. The last three considerations are generally considerations that operate in the context of a proceeding brought by a company although similar considerations apply where a proceeding is brought by a trustee of a trust in the proper performance of a trustee's duty to protect the assets of the trust for and on behalf of the beneficiaries. Again, it is not necessary to recite a sequence of authorities which support these propositions. These considerations are well recognised in the authorities. (emphasis added) 26 There is no suggestion that the Ozmen parties do not have a bona fide case consisting of, among others, an allegation that Culture Map is in breach of its contract to acquire the 51 per cent of the shares in each of Entertainment and Kanki that they have transferred to it already, by failing to pay consideration of about $3 million, the subject of their claims in this proceeding. Likewise, the failure to make that payment, which may be the subject matter of the litigation, is also suggestive of a cause of the Ozmen parties' current impecuniosity. 27 I am of opinion that the conduct of Culture Map, in bringing the present application, including the suggestion that it will now use the material it has tendered in evidence to suggest that Mr Ozmen misled the Department of Home Affairs so as to preclude him from coming back to Australia to give evidence or to fight this case, is designed to deny an apparently impecunious applicant a right to litigate a controversy before the Court. That conduct occurred in circumstances where there has been gross and unexplained delay by Culture Map in applying for an order for security for costs.

Conclusion 28 For these reasons, I refuse the application with costs. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

SCHEDULE OF PARTIES NSD 2423 of 2018 Respondents Fourth Respondent: GUNAY KOYUNOGLU