Pampered Paws Connection Pty Ltd (on its own behalf and in a representative... [2010] FCA 682 | Case summary

REASONS FOR JUDGMENT 1 This is an application by the respondents in the proceeding for leave to appeal from orders made by a trial judge during a trial which is not yet complete. The respondents also seek a stay of the orders complained of, pending the disposal of the appeal, if leave to appeal were granted. The applicants in these proceedings are, in the case of the first applicant, a franchisee of one or other of the first three respondents, and in the case of the second and third applicants, the directors of the first applicant. The proceedings have been brought pursuant to Part IVA of the Federal Court of Australia Act 1976 (Cth) (the FCA Act), which allows proceedings to be brought in relation to representative proceedings. 2 The first applicant has brought these proceedings as a representative of itself and 11 other nominated Pets Paradise franchisees, all of whom are franchisees of one or other of the first three respondents. The respondents, collectively, are said to be part of the Pets Paradise group, which franchises businesses around Australia for the conduct of a Pets Paradise business as a pet shop including the supply of pet products. The eighth respondent is the managing director of the group. 3 On 21 December 2009, in response to an application made by the respondents to the proceeding, the first applicant consented to orders which gave the respondents some security for their costs in the proceedings: On the Respondents' application for security for costs made by Notion of Motion filed on 26 May 2009, and on the undertaking of the Respondents by their counsel not to apply for further security for costs in this action provided that the Applicant does not file any schedules of particulars in relation to any group members for whom schedules of particulars have not been filed and save and except for any application made by the Respondents not before 30 days prior to trial that seeks security for costs in relation to costs to be incurred after the end of the first day of the trial THE COURT ORDERS BY CONSENT THAT: 1. The Applicant within 60 days provide or cause to be provided security for costs in the sum of $200,000.00 up to the end of the first day of trial, in the following form: 1.1 A bank guarantee to be provided by Lynda Campbell and Karl Donnelly for $100,000.00 in a form acceptable to the Registrar of this Court, or alternatively in any other form of security that is ordered by the Court. 1.2 A bank guarantee to be provided by Paul Whiley and Patricia Vardy for $75,000.00 in a form acceptable to the Registrar of this Court, or alternatively in any other form of security that is ordered by the Court. 1.3 A third registered mortgage in the sum of $25,000.00 in favour of the Respondents over the property of Rochelle Semmler situated at 20 Colonel Light Drive Lyndoch South Australia, comprised in Certificate of Title Register Book Volume 5069 Folio 628. 2. At least 7 days before the proposed bank guarantees are provided to the Registrar under Order 1, the Applicant's solicitors will provide a copy of the proposed bank guarantees to the Respondents' solicitors for their consideration. 3. Any application to be made by the Respondents in relation to the wording of the proposed bank guarantees is to be made within 72 hours of the provision of the proposed bank guarantees to the Respondents' solicitors. 4. Costs of an incidental to the Respondents' application for security for costs be reserved. 5. Liberty to apply generally upon short but reasonable notice. 4 Subsequent to the making of those orders, the second and third applicants were joined as applicants in relation to aspects of a claim for damages which could not be included in the first applicant's claim. Between the making of those orders and 13 May 2010, the trial judge made a number of directions in relation to the accumulation of evidence by the parties to the proceedings and the exchange of that evidence in order to allow the trial to commence on 11 May 2010. The parties were not able or did not comply with the directions made by the trial judge and, in particular, the respondents' evidence was not all filed and served in accordance with the directions, and some of their evidence was not served until the date upon which the trial was to commence. 5 As a result, the trial was adjourned for two days and commenced on 13 May, and continued through that day and halfway through 14 May when it was adjourned to the next Monday. The trial then continued through the whole of the week of 17 May and resumed again on 24 May, and completed on 27 May. Whilst the taking of evidence in the trial was completed on 27 May, the submissions of the parties have not yet been written or given and the trial has been adjourned until 30 July for one further day's hearing for the trial judge to hear those submissions. In fact, the trial has not so far addressed all of the issues between the parties because the parties preferred, and his Honour agreed, to address the question of liability in advance of some of the damages issues. 6 However, the determination of the issue of liability will affect not only the applicants to these proceedings, but those whom these proceedings represent. 7 The order which was made on 21 December 2009 for security of costs was, as I have said, made by consent, but after an exchange of a number of affidavits which disclosed the first applicant's assets and its income in the carrying out of its franchised business. It can be seen from the orders that the third applicant and one Karl Donnelly, who is the third applicant's husband, were to give a bank guarantee in a form acceptable to the Registrar in the sum of $100,000. Secondly, a bank guarantee was to be provided by Paul Whiley and Patricia Vardy in the sum of $75,000. Mr Whiley and Ms Vardy are directors of Whiley Investments (Qld) Pty Ltd, which is one of the group members specified in the amended statement for whom the representative proceedings have been brought. The third aspect of the security of costs was the giving of a registered mortgage in the sum of $25,000 over a property in South Australia owned by Rochelle Semmler, who is a director of Marshelle Pty Ltd, another one of the group members specified in the amended statement of claim. 8 Some time during the currency of the trial, the applicants applied for the variation of the orders made on 21 December 2009. In support of that application, the applicants relied upon an affidavit of William Arthur Morgan, a partner in the firm of solicitors who act for the applicants sworn on 21 May 2010. 9 In his affidavit, he deposed to the circumstances which pertained prior to the commencement of the trial and the lateness of the delivery of evidence. He said that prior to the trial commencing senior counsel for the applicants and junior counsel for the respondents indicated that the evidence could be completed by the end of the second week of trial, but that as a result of the matters which had occurred the trial would now go into a third week. In paragraph 8 of his affidavit, Mr Morgan deposes that as a consequence of the estimates made by senior counsel, the applicants paid into the solicitors' trust account sufficient to cover the fees for senior and junior counsel, witness fees, hearing fees, transcript fees, travel and accommodation costs and the solicitors' professional fees; but in respect of the solicitors' fees only so much as would pay all outstanding costs up to 30 April 2010. 10 Mr Morgan deposed that the applicants' costs of conducting the trial in Adelaide were in the order of $21,264, which included senior counsel's fees of $6050 a day; junior counsel's fees of $2500 a day; and a partner and solicitor in the sum of $7700 per day. He also deposed to the court fees which are associated with such a hearing. There seems to be no dispute that the cost of the applicants' counsel and solicitors would be in the order of $16,000 a day and the costs associated with the trial including court fees would be in the order of a further $5000 a day. 11 It follows that the applicants will face, if they are to be represented at the hearing on 30 July 2010, fees of in the order of $21,000, together with such fees as are incurred between 27 May 2010 and 30 July for counsel to prepare their written submissions which they will address. It can be readily inferred that the cost of that one day's hearing will be substantial. 12 Mr Morgan also deposed to the absence of any fees being paid to the solicitors after 30 April 2010 which would become payable by reason of the work that has been carried out since that time. Mr Morgan deposed in paragraph 19 that the applicants had budgeted for the completion of the trial in two weeks and have sufficient funds in the trust account to fund the trial to that point other than solicitors' costs: I'm informed by Linda Donnelly and truly believe that the applicants do not presently have the financial means to fully fund the trial beyond next Monday. There are insufficient funds in the applicants' trust account as of the time of swearing this affidavit to pay all of senior counsel's fees, junior counsel's fees and solicitors' fees for the third week of the trial. 13 The trial judge heard the applicants' application to vary the orders of 21 December 2009 during the trial and some time in the third week of the trial. At some time during that third week, his Honour indicated that he would vary the orders which had been previously agreed and indicated the orders which he would make. However, he formally reserved his decision in relation to the application and published reasons for his orders on 18 June 2010 and made the orders complained of on that date. 14 On that day, he ordered: Upon the undertaking of the applicants Lynda Campbell and Elizabeth Campbell given in their personal capacity and as directors of the applicant Pampered Paws Connection Pty Ltd that they will not sell, transfer or otherwise dispose of any interest in real property in their names or either of their names or in the name of Pampered Paws Connection Pty Ltd without giving 21 days' notice thereof to the respondents by notice in writing to be given to Donaldson Walsh Lawyers at Kings Chambers, 320 King William Street, Adelaide, other than by charging, or extending the charge on, any such property for the purpose of procuring funds to enable them to continue to conduct this proceeding or for the purpose of securing funds to enable the business of Pampered Paws Connection Pty Ltd to be conducted: 1. The order made on 21 December 2009 directing Pampered Paws Connection Pty Ltd to provide security for costs in the amount and in the manner expressed in that order be varied by substituting for the sum of $200,000.00 the sum of $100,000.00 and by discharging the requirement that Lynda Campbell and Karl Donnelly provide a bank guarantee in the sum of $100,000.00 and by renumbering paragraphs 1.2 and 1.3 as paragraphs 1.1 and 1.2 respectively. 2. In the event that the respondents are given any notice referred to in the undertaking hereby given, they have liberty to apply for any further order or orders they may seek in relation to security for costs. 3. The respondents be released from their undertaking recorded in the recital to the order made on 21 December 2009. 4. Direct that these orders not be sealed until after 4.30 pm on 23 June 2010. 15 It can be seen that the effect of his orders is to discharge paragraph 1.1 of the orders made on 21 December 2009 and to release to the parties in paragraph 1.1, namely the third applicant and her husband the sum of $100,000 which had been provided by way of security for costs. In fact, I am advised that paragraph 1.1 of the orders of 21 December 2009 had not been met by the third applicant and her husband but had been met by the second applicant, who is the mother of the third applicant, providing security for costs in the sum of $100,000. 16 The effect of his Honour's orders, if they are allowed to stand, will be to release the second applicant from the security for costs which she gave the Court consequent upon the orders of 21 December 2009. After his Honour announced the orders on 18 June, junior counsel for the respondents applied for an order staying the order pending the respondents considering applying for leave to appeal. His Honour made a further order that the orders made on 18 June not be sealed until after 4.30 pm on 23 June 2010, which was effectively a stay of his orders to allow the respondents to apply for leave to appeal and to obtain any further extension saying the orders made on 18 June 2010. 17 The respondents have now applied for leave to appeal. The orders for which leave to appeal is sought are interlocutory and are therefore governed by s 24(1A) of the FCA Act. That subsection provides: An appeal shall not be brought from a judgment referred to in subsection (1) that is an interlocutory judgment unless the Court or a Judge gives leave to appeal. 18 Leave to appeal can be sought from the trial judge, a single judge or the Full Court but if leave to appeal is sought from the trial judge or a single judge no further leave can be sought from the Full Court. Only one application for leave to appeal is permitted. 19 There is no dispute as to the principles upon which the court must act in determining an application for leave to appeal from an interlocutory judgment. Those principles were stated in Décor Corporation Proprietary Limited v Dart Industries Incorporated (1991) 33 FCR 397 to be that leave to appeal would only be given if the applicant for leave satisfies the court that in all of the circumstances the decision against which leave is sought is attended by sufficient doubt to warrant that decision being reconsidered and a substantial injustice would result if leave were refused supposing the decision to be wrong. 20 In other words, the applicant must satisfy both limbs of Décor 33 FCR 397 and must establish that there is sufficient doubt about the decision arrived at by the trial judge to warrant it being reconsidered and that, in the event the decision was not reconsidered, the applicant would suffer an injustice. Mr Lynch, who appeared on this application for the applicants in opposition to the application for leave to appeal, said that not only were the respondents obliged to satisfy both limbs of Décor 33 FCR 397, but they also had to satisfy the further test which had been laid down in a number of decisions, commencing from Adam P. Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170, which limits the circumstances in which leave will be granted when the orders complained of concern matters only of practice and procedure. 21 I accept Mr Lynch's proposition that the Court is less ready to grant leave to appeal in cases which concern a pure matter of practice and procedure. In Bright v Femcare (2002) 195 ALR 574 at 576, Lindgren J said of the exercise of discretion in matters of practice and procedure, "A tight rein must be kept upon appellate interference with an exercise of discretion of that kind". 22 There is also a reluctance on the Court to grant leave to appeal in relation to matters of practice and procedure when the trial is still proceeding. The respondents on this application not only face having to satisfy the two tests in Décor 33 FCR 397 and the further test that the orders are matters of practice and procedure but also face the fact that the orders complained of are purely discretionary orders. Therefore, the respondents have to satisfy the requirements resting upon a party seeking to set aside a discretionary judgment: House v R (1936) 55 CLR 499. In that case, the High Court said at 504-5: The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows an extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. 23 On this application the respondents eschewed any complaint of the judge acting upon a wrong principle. The respondents also did not submit that the judge mistook the facts upon which he was obliged to act. Rather, the respondents limited themselves to asserting that there was some evidence that the trial judge had had regard to irrelevant matters and failed to have regard to relevant matters. The difficulty in precisely identifying the case which was put in support of the complaint that the judge had had regard to irrelevant matters or failed to have regard to relevant matters was that this application was not accompanied by a draft notice of appeal as would be expected if the application was brought in accordance with the rules. 24 Rather, the application was accompanied by an affidavit in which the deponent, who is a solicitor in the employ of the respondents' solicitors, set out a number of complaints which she said would act as the grounds of an appeal. Some of those complaints are clearly not complaints which would be relevant, in my respectful opinion, to an appeal against a discretionary judgment. Some of the complaints are of a failure by the trial judge to give sufficient weight to various matters to which he had regard in his decision. It seems to me that the question of weight was one for the trial judge and would not be one for an appeal court. What the respondents needed to do was to identify the irrelevant facts to which the trial judge gave consideration or the relevant facts which the trial judge failed to have regard. In the end, in argument, Mr Munt, who appeared for the respondents, seemed to identify only matters that the trial judge had regard to which were irrelevant. 25 In [21] of his Honour's reasons, his Honour says that he has had regard to the financial position of the applicants and is satisfied that their resources were so stretched that without a variation of the security for costs orders the applicants would be unlikely to be able to continue to be represented in the proceeding. It was complained that his Honour relied upon a statement made by Mr Morgan in his affidavit that the applicants would not be able to fund the third week of the trial. In my opinion, it was relevant for his Honour to have regard to the financial capacity of the applicants to continue to fund the litigation and to continue to be represented. It was relevant for two reasons to know whether the applicants would be able to be represented at the time when the submissions were to be made or whether they would have to proceed unrepresented. First, because if the applicants were to become unrepresented that would materially affect their ability to present their case. Secondly, if they were to become unrepresented the trial judge would suffer the serious disadvantage of having an unrepresented party before him. 26 There is the further problem that if the first applicant became unrepresented it may not have been able to put any submissions to the Court. It would at least need the leave of the trial judge: O 4 r 14(2). In my opinion, the matters to which his Honour had regard were relevant. 27 Next it was said that in [23] of his Honour's reasons, his Honour was wrong to have had regard to the inference which he said arose on the evidence in relation to the equity in one of the properties owned by the second applicant. In my opinion, that was not an irrelevant matter. His Honour considered how he could craft an order which allowed the applicants to continue to be represented to the end of the trial but, at the same time, protect the respondents in case the respondents were successful and needed to recover their costs. In crafting that order, his Honour had to have regard to the assets which were available to protect the respondents in the event that the variation of the order which he made was made. 28 Next it was said that it was wrong for his Honour to have taken into account that the trial had taken longer than had been estimated. It was said that the trial was set down for three weeks and it was wrong to take into account the fact that senior counsel for the applicants had determined that the matter would finish within two weeks. In my opinion, it was not a question of whether or not the senior counsel for the applicants was right or wrong about his estimation of the time within which the trial would take to complete. The fact is that he gave the advice that it would take two weeks and the trial has taken now nearly three weeks. That is the change of the circumstance which his Honour was addressing and that change in circumstances was not an irrelevant fact for the purpose of determining the order which he made. In my opinion, I am not persuaded that his Honour took into account any irrelevant fact or failed to take into account any relevant fact. In my opinion, the respondents have not made out the first limb of Décor 33 FCR 397. 29 Even if I am wrong about the respondents not making out the first limb in Décor 33 FCR 397, in my opinion, the respondents have not made out the second limb of Décor 33 FCR 397. Décor 33 FCR 397 requires, as I have said, proof by the parties seeking leave that substantial injustice would be caused assuming the decision to be wrong. In my opinion, no substantial injustice would be suffered by the respondents even if the decision made by the trial judge were found to be wrong. That is because, in the end result, the respondents have a two-fold protection in relation to their costs which did not exist prior to the orders made on 21 December 2009. 30 First, they now have the second and third applicants as parties to the proceedings who would be liable to meet costs if they fail, at least to the extent of the costs incurred after they have been joined which would include the costs of trial. Secondly, they have the further protection of the undertaking which had been given by the applicants as recited in his Honour's orders of 18 June. 31 It follows that the application for leave to appeal must be dismissed. 32 There was, as I have said, the separate stay application which does not need to be addressed in view of the fact that I am refusing leave to appeal. There is no point in further staying his Honour's orders. However, even if I had granted leave to appeal, I would not have made the stay order which was sought. 33 The respondents contended that a stay order would have been appropriate to protect the respondents' position pending the disposal of the appeal. However, that is to look at it from only one side. If leave had been granted and a stay order had been made and no appeal heard prior to the completion of the trial, that would have meant that the orders made by the trial judge on 18 June 2010 would have been rendered nugatory. A stay order, therefore, would be inappropriate because one should assume, at least at this stage of the proceedings, that the orders made by the trial judge were appropriate. So it follows that even if I had granted leave, I would not have made a stay order pending the hearing of the appeal. In any event, for the reasons I have given, I refuse the application for leave to appeal. 34 The respondents must pay the applicants' costs of the application for leave to appeal. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.

Pampered Paws Connection Pty Ltd (on its own behalf and in a representative capacity) v Pets Paradise Franchising

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