Patdith Services Pty Ltd v Mitronics Corporation Pty Ltd

MARKOVIC J: 1 On 15 July 2016 the applicants, Patdith Services Pty Ltd (Patdith) and Victor Berger, filed an application for leave to appeal from the judgment of the Federal Circuit Court of Australia (Federal Circuit Court) delivered on 30 June 2016: Patdith Services Pty Ltd & Anor v Mitronics Corporation Pty Ltd & Anor [2016] FCCA 1611 (Patdith v Mitronics). The Federal Circuit Court made orders pursuant to r 13.10 of the Federal Circuit Court Rules 2001 (Cth) (FCC Rules) dismissing the proceeding filed in that court against the first respondent, Mitronics Corporation Pty Ltd (Mitronics), and against the second respondent, Capital Finance Australia Pty Ltd (Capital Finance), except insofar as the applicants claimed nominal damages for breaches of certain terms alleged to be implied by s 71 of the Trade Practices Act 1974 (Cth) (TPA) into an agreement between them and Capital Finance. 2 The respondents to the application for leave to appeal, Mitronics and Capital Finance, have each filed an application seeking orders that Patdith and Mr Berger provide security for their costs of the application for leave to appeal and, if leave is granted, for their costs of the appeal.

background 3 Patdith was a service company which provided services to a solicitors' practice, of which Mr Berger was a partner, known as Milne Berry and Berger (MBB) from 2009 to 2011. 4 In about May 2009 Patdith and Mr Berger entered into an agreement with Capital Finance pursuant to which Capital Finance agreed to make certain photocopiers and a printer (Office Machines) available to Patdith for 60 months in exchange for Patdith paying the amounts specified in the agreement to Capital Finance (the Capital Finance Agreement). Mr Berger guaranteed the obligations of Patdith under that agreement. At about the same time, Patdith entered into a second agreement with Mitronics pursuant to which Mitronics agreed to provide maintenance and other services in relation to the Office Machines. 5 Issues arose in relation to one of the Office Machines, a photocopier (the Photocopier). Mitronics offered to replace the Photocopier but that offer was not accepted and instead, Victor Berger and Harry Freedman, another partner of the legal practice, "ATF the MAHD and The MAHD Trust and The Berger Trust t/as Milne Berry Berger and Freedman" entered into an agreement with Ricoh Australia Pty Ltd (Ricoh) for it to supply replacement photocopiers (the Ricoh Agreement). As part of the Ricoh Agreement, Ricoh agreed to provide "a cheque back" to pay the remainder of "the existing finance contract with Mitronics up to the value of $84,000". The cheque was to be in favour of Milne Berry Berger and Freedman to allow negotiation with Mitronics. 6 Before signing the Ricoh Agreement, MBB's practice manager sought the payout figure for the Capital Finance Agreement from Mitronics. There was then an exchange of correspondence between Mitronics and MBB with Mitronics offering to change the machines over but MBB did not wish to continue its business relationship with Mitronics and asked that the Office Machines be removed. Mitronics indicated that it would collect the Office Machines after the Capital Finance Agreement was paid out. There was further correspondence between MBB and Mitronics with MBB maintaining that it would not pay out the Capital Finance Agreement. 7 In the meantime, MBB took possession of the equipment covered by the Ricoh Agreement and, on 16 May 2011, Ricoh transferred $84,000 into a bank account held at Macquarie Bank in the name of "Milne Berry Berger & Freedman ATF Ricoh Controlled Money Account". Patdith did not use those monies to payout the Capital Finance Agreement and refused to make payments under that agreement. As a result Capital Finance terminated its agreement with Patdith and commenced proceedings in the Local Court against Patdith and Mr Berger alleging that Patdith committed an event of default under the Capital Finance Agreement, that because of that event of default it terminated the agreement and as a consequence Patdith and Mr Berger were liable to pay Capital Finance $74,879.64 (the Local Court Proceeding). 8 The Local Court Proceeding was resolved by the making of consent orders on the date of the hearing which provided for the entry of judgment for $74,879.64 in favour of Capital Finance and the following matters being noted by the court: (1) an agreement by Capital Finance not to enforce the judgment in its favour provided Patdith and Mr Berger prosecuted Federal Court proceedings 1878/2013 (the Federal Court Proceeding) with due expedition; and (2) the judgment in the Local Court Proceeding was without prejudice to the rights of Patdith and Mr Berger to claim damages in the Federal Court Proceeding against either respondent having the effect of offsetting the judgment in full. 9 The Federal Court Proceeding was transferred to the Federal Circuit Court. It is the proceeding in which the orders were made which are the subject of Patdith's and Mr Berger's application for leave to appeal. In that proceeding Patdith and Mr Berger pleaded two causes of action against each of Mitronics and Capital Finance: (1) as against Mitronics they alleged: (a) a breach of s 52(1) of the TPA in that Mitronics made representations about the quality of the Photocopier and about the service it would provide; the representations were misleading or deceptive; and because of those representations Patdith was induced to enter into the Capital Finance Agreement, Mr Berger was induced to guarantee Patdith's obligations under that agreement and Patdith was induced to enter into the service agreement with Mitronics. Patdith and Mr Berger alleged that they suffered damage as a result of the conduct, particularised as the exposure to the claim in the Local Court Proceeding; and (b) breach of the implied warranty in s 74 of the TPA in that the services provided by Mitronics under its agreement were not provided with due care and skill and the materials it supplied were not reasonably fit for their purpose. (2) as against Capital Finance, they alleged that: (a) their agreement with Capital Finance was subject to the conditions implied by s 71 of the TPA and the Office Machines supplied were not reasonably fit for their purpose or of merchantable quality because they regularly broke down. As a result of the breaches Patdith and Mr Berger alleged they suffered loss and damage particularised as entry into of the agreements with Mitronics and Capital Finance and exposure to the claims in the Local Court Proceeding; and (b) pursuant to s 73(1) of the TPA, Capital Finance was jointly and severally liable with Mitronics for the loss and damage Patdith and Mr Berger suffered by reason of Mitronics' alleged breaches of ss 52(1) and 74 of the TPA. Capital Finance's liability arose because it was a "linked credit provider" within the meaning of s 73(14) of the TPA. 10 Mitronics and Capital Finance each applied under r 13.10 of the FCC Rules for an order that the court dismiss the proceedings on the basis that Patdith and Mr Berger had no reasonable prospect of successfully prosecuting the proceedings. Those applications were heard and resulted in the Federal Circuit Court making the orders set out at [1] above.

The applications for security for costs 11 By interlocutory application filed on 3 August 2016 and 9 September 2016 respectively Mitronics and Capital Finance each seek orders that: (1) Patdith and Mr Berger provide security for their costs of the application for leave to appeal in a quantified sum within 14 days of the date of any order; that the application for leave to appeal be stayed until the security is provided; that Patdith and Mr Berger pay the costs of the interlocutory applications; that in default of complying with the orders for payment of security, the application for leave to appeal be dismissed; and that if the application for leave to appeal is so dismissed, Patdith and Mr Berger are to pay their costs of that application; and (2) in the event leave to appeal is granted, that Patdith and Mr Berger provide security for their respective costs of the appeal in quantified amounts within 14 days of the date that any order is made; that the appeal be stayed until such time as the security is provided; that in default of providing security the appeal is dismissed; and that if the appeal is so dismissed, Patdith and Mr Berger pay their costs of the proceedings. 12 Mitronics relies on two affidavits affirmed by its solicitor, Karen McLean, on 3 August 2016 and 7 October 2016 respectively. The second affidavit goes only to quantum, taking issue with matters which are the subject of Mr Berger's evidence on that topic. In her first affidavit Ms McLean gives evidence that includes that: (1) the directors of Patdith are Mr Berger and his wife, Judith Berger, and that Mr Berger is the secretary of Patdith; (2) there are two issued shares in Patdith with fully paid capital of $4.00 and Mr and Mrs Berger each own one share; (3) Patdith is not trading, until 2011, it was the service company to MBB and its only material asset is cash of well under the approximately $80,000 it owes to Capital Finance; (4) Patdith has never been registered for GST and has only held an Australian Business Number since 1 July 2013; (5) Mr Berger was previously a partner of MBB. On 1 July 2013 the Council of the New South Wales Law Society resolved to suspend Mr Berger's practicing certificate; (6) a search undertaken of the records maintained by the New South Wales Land and Property Information (LPI) on 22 January 2015 disclosed that Mr Berger was the owner of 10 properties but a subsequent search of the same database undertaken on 26 July 2016 showed that Mr Berger owned no properties; (7) orders were made in the Local Court Proceeding requiring Patdith and Mr Berger to pay Capital Finance a judgment debt of $74,879.64, interest on the judgment debt of $12,464.38 as well as ongoing interest at a daily rate of 8.75% until the judgment debt is paid and Capital Finance's costs. Ms McLean calculates the amount of interest payable on the judgment debt as at 3 August 2016 to be $18,578 making a total owing as at that date of $105,922; (8) Patdith and Mr Berger have been ordered to pay Mitronic's costs of the Federal Circuit Court proceeding. Those costs have not yet been taxed but will exceed, on a solicitor/client basis, $63,000. Patdith and Mr Berger have also been ordered to pay Capital Finance's costs of the Federal Circuit Court proceeding, the quantum of which is unknown; and (9) her estimate of Mitronic's costs of the application for leave to appeal, including the costs of the application for security, is $28,514.60 and her estimate of its costs of the appeal is $24,085.00. On the basis that the rate of recovery of Ms McLean's firm's costs on a party/party basis is usually 80% to 85% of professional costs and 100% of disbursements, Mitronics seeks an order for security for costs of the application for leave to appeal of $24,511.68 and an order for security for costs of the appeal of $20,768.00. In both cases Ms McLean has applied an 80% discount to her estimate of the professional fees. 13 Capital Finance relies on an affidavit sworn by Matthew Pike, a partner of the firm Kemp Strang, its solicitors, on 8 September 2016. To the extent it is additional to Ms McLean's evidence set out above, Mr Pike's evidence includes that: (1) he has also undertaken searches of Patdith and Mr Berger which, among other things, show that various entities hold security over the assets of Patdith and Mr Berger; (2) the evidence filed by Patdith and Mr Berger shows that Patdith is not trading and that Patdith's only material asset is cash in an amount well under the debt of approximately $80,000 owed to Capital Finance; (3) Mr Berger was a partner of MBB which was dissolved in about June 2013; (4) on 23 September 2013 orders were entered in the Local Court Proceeding. No payments have been made to Capital Finance in satisfaction of those orders but Mitronic's costs have been paid; (5) in the Federal Circuit Court proceeding Patdith and Mr Berger were ordered to pay Capital Finance's costs. The total costs incurred by Capital Finance since it commenced the Local Court Proceeding are approximately $170,000.00; and (6) the estimate of Capital Finance's costs, including GST, of the application for leave to appeal and the application for security for costs is approximately $25,148.00 and of the appeal is approximately $24,502.00.

Patdith's and mr Berger's evidence 14 Mr Berger and Patdith rely on four affidavits sworn by Mr Berger on 14 July 2016 and on 6, 8 and 22 September 2016. Mr Berger's evidence is that: (1) Patdith is not trading and its only material asset is cash of well under the approximately $80,000 debt owed to Capital Finance. That debt was the subject of winding up and bankruptcy proceedings which did not proceed pending the determination of the Federal Circuit Court proceeding. Mr Berger expects that both the winding up and bankruptcy proceedings will recommence or fresh proceedings will be commenced if the judgment of the Federal Circuit Court stands and that the outcome of that may well be winding up and personal bankruptcy; (2) he has been suspended from legal practice and conducts an advisory business; (3) he denies dissipating his assets to avoid creditors. He has lost his assets over the past few years as a result of conflict with his former legal partners, the dissolution of his former firm, his suspension and business reversals; (4) Patdith has no access to any assets nor any ability to raise security. Its only asset is a bank account held with Macquarie Bank. Mr Berger cannot access the funds in that account without the signatures of his former partner, Mittu Gopalan, and the estate of his other former partner, Harry Freedman, neither of whom will cooperate; (5) he does not have any cash or equivalent liquid assets available to provide the security, nor an ability to raise the security. Mr Berger has personal debtors of about $500,000 from his former practice as a solicitor. He intends to collect these as best he can in the future and pay any debts he may have; (6) there has never been any hearing on the merits of the dispute between the parties concerning the performance of the goods the subject of the contract sued upon by Capital Finance; (7) the sum of $80,000 received from Ricoh was deposited into an account held with Macquarie Bank which was conducted by Mr Berger and his former partner, Harry Freedman (the Macquarie Bank Account). From that account $30,000 was paid to Mitronics' lawyers for Mitronics' costs "in the Local Court" on about 18 March 2014 and other small payments were made, including to counsel. Mr Berger believed that the sum of $30,000 had not been received by Mitronics and on about 16 February 2015 directed a further payment to it out of the Macquarie Bank Account of $32,113.10. That sum was withdrawn but never received by Mitronics. It was credited to a suspense account by Macquarie Bank where it remains. Mr Berger has been unable to retrieve those funds without the cooperation of Ms Gopalan and the estate of his late former partner, Mr Freedman. The balance of the Macquarie Bank Account, excluding the amount of $32,113.10, is approximately $13,000; (8) should costs be awarded against Mr Berger and Patdith in this Court and the Court decides security is appropriate, the funds from the Macquarie Bank Account could be made available to pay costs subject to any claim by the estate of Mr Berger's late partner, Mr Freedman, or Ms Gopalan neither of whom he thinks has any claim on the money superior to the claims of creditors of Patdith. Mr Berger is willing to undertake not to move those funds from their present location pending the outcome of the appeal. He says that account is the only current source of funds available to him or Patdith; (9) he and his wife have an account with the Commonwealth Bank to which their aged pension is paid. Various pages of statements for that account are annexed to Mr Berger's affidavit sworn 8 September 2016; (10) he does not have any other material assets from which to give security and is willing to be responsible for any costs orders made against Patdith; and (11) he takes issue with the quantum of costs sought by each of Mitronics and Captial Finance as security. The issues he raises are dealt with below. 15 Further evidence was provided about the Macquarie Bank Account: (1) on 27 June 2016 Mr Berger contacted Macquarie Bank to try to determine the destination of the two payments of $30,000 and $32,133.10 made on 18 March 2014 and 16 February 2015 respectively; (2) as at 13 July 2016 the bank cheque for $32,133.10 had not been presented by the payee and was in a general ledger account with Macquarie Bank (the Suspense Account). In order to have the funds credited back to the Macquarie Bank Account "indemnity documentation" had to be completed and returned to Macquarie Bank; (3) Mr Berger approached his former partner, Ms Gopalan, requesting that she sign the "indemnity documentation" as a "further signatory" on the account was required but Ms Gopalan refused to sign the documentation and informed Mr Berger that she was taking steps to have her name and that of another person removed as signatories; and (4) as at 27 July 2016 Macquarie Bank had received a request to amend the signatories to the Macquarie Bank Account which was being reviewed by its legal and administration areas. 16 At the hearing of the applications Mr Berger gave the following further evidence: (1) he has been married to his wife, Judith Martha Berger, since 1968 and remains married; (2) Mr Berger is familiar with his wife's assets: she does not own any real property but has personal effects such as jewellery and clothing; (3) Mr Berger and his wife currently live at a property in Randwick owned by his daughter. Their pensions are deposited into a bank account held with the Commonwealth Bank of Australia. Other than that account, Mr Berger is not aware of any other bank account held by his wife; (4) his wife does not have any way of raising money for the purposes of meeting any orders for security for costs other than by borrowing from friends; (5) he owned various properties over time. In 2014 and 2015 those properties were sold. The last time that Mr Berger owned a property jointly with his wife was in 1993. His wife first owned a property located in Bellevue Hill in her own name. Mr Berger was not aware of any property that she now owns; (6) upon being shown a New South Wales LPI search in the name of Judith Berger and being asked to agree with the proposition that the search showed that his wife owned three properties Mr Berger said: Well, I'm not aware of them. I - I hope she is. (7) he has never attempted to borrow money from friends for the purpose of seeking to provide security for costs in this proceeding or to borrow money to fund his legal costs of the proceeding. Nor is Mr Berger aware of his wife making any such attempts.

Relevant legal principles 17 Section 56 of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) empowers the Court or a Judge to order an applicant in a proceeding in the Court or an appellant to give security for the payment of costs that may be awarded against him or her of such amount, at such time and in such manner and form as the Court or Judge directs. Section 56 also enables the Court or a Judge to order that the proceeding or appeal be dismissed if the security is not given in accordance with an order made under the section. 18 Section 1335 of the Corporations Act 2001 (Cth) (the Corporations Act) provides that where a corporation is a plaintiff in any action the Court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the defendant's costs if successful in its defence, require sufficient security to be given for those costs and stay the proceeding until the security is given. 19 Rules 19.01 and 36.09 of the Federal Court Rules 2011 (Cth) (the Federal Court Rules) apply to applications for orders for security for costs. Rule 19.01 applies to an application for security for costs in a proceeding. More relevantly, r 36.09 applies to an application for security for costs in relation to an appeal. It provides that a party may apply to the Court for an order that an appellant gives security for the costs of an appeal and for the manner, time and terms for giving the security; that the appeal be stayed until security is given and that, if the appellant fails to comply with the order to provide security within the time specified in the order, the appeal be stayed or dismissed. 20 The terms "appeal" and "appellant" which appear in r 36.09 are defined in the Dictionary at Schedule 1 to the Federal Court Rules as follows: appeal means an appeal brought in the appellate jurisdiction of the Court under Division 2 of Part III of the Act, but does not include an appeal under Part 33 of these Rules. appellant means a person who has filed a notice of appeal, under Chapter 4 of these Rules. 21 While the applications that have been filed seek orders both in relation to the application for leave to appeal and the appeal, should leave be granted, at present there is no appeal that has been filed in the appellate jurisdiction of the Court under Pt 3 Div 2 of the Federal Court Act. The application for leave to appeal does not have that status. Contrary to the submissions of Mitronics and Capital Finance I do not agree that I can make orders in relation to a proceeding not yet commenced. In my view, applications for security in relation to the appeal are premature and the Court does not have power to make such an order in the circumstances of this case. The appropriate time for Mitronics and Capital Finance to seek an order in relation to security for costs of the appeal is once a notice of appeal is filed, should leave be granted. 22 I turn then to consider the principles to be applied in considering an application for security for costs of an application for leave to appeal. 23 The parties have approached the question of whether orders for security should be made relying on s 56 of the Federal Court Act, r 36.09 of the Federal Court Rules and s 1335(1) of the Corporations Act. At this stage I note that the principles to be applied in considering whether an order for security for costs should be made either under s 56 of the Federal Court Act or s 1335 of the Corporations Act are similar. 24 While the application for leave to appeal is not an appeal in the strict sense, reliance on those sections of the Federal Court Act and the Federal Court Rules is understandable as Patdith and Mr Berger have had the benefit of a hearing which resulted in the orders being made by the Federal Circuit Court which are now the subject of the application for leave to appeal and the draft notice of appeal. Leave to appeal is required because those orders were interlocutory. 25 The alternative approach would be to proceed on the basis of r 19.01 of the Federal Court Rules. But, in my opinion, an application for leave to appeal is closely connected to an appeal and Patdith and Mr Berger have "had their day in Court", a judgment has been handed down and orders have been made. Accordingly I propose to consider the applications for security for costs of the application for leave to appeal on the basis of r 36.09 of the Federal Court Rules and the authorities relating to the consideration of the question of security as it relates to an appeal. That approach has previously been adopted in connection with applications for security for costs of applications for leave to appeal: see for example Croker v Deputy Registrar of the High Court of Australia [2003] FCA 628 (Croker). 26 In KP Cable Investments Pty Ltd v Meltglow Pty Ltd & Ors (1995) 56 FCR 189 at 196-198 Beazley J (as her Honour then was) observed that the discretion to order security for costs is unfettered and should be exercised having regard to all the circumstances of the case without any predisposition in favour of an award of security but noted that, notwithstanding the unfettered discretion, there are a number of well established guidelines which the Court typically takes into account in determining any such application. Her Honour set out those guidelines which relevantly include: (1) that the application should be brought promptly; (2) that regard should be had to the strength and bona fide of the applicant's case; (3) whether the applicant's impecuniosity was caused by the respondent's conduct the subject of the claim; (4) whether the respondent's application for security is oppressive, in the sense that it is being used to deny an impecunious applicant a right to litigate; (5) whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security; and (6) related to the last issue, whether persons standing behind the company have offered any personal undertaking to be liable for the costs and, if so, the form of any such undertaking. 27 In Elston v Commonwealth of Australia [2014] FCA 704 (Elston) Katzmann J summarised the principles relating to the making of an order for security for costs of an appeal at [32] as follows: …Whether or not an order ought to be made is a matter for the discretion of the Court or judge as the case may be. The discretion is a broad one. But for the requirement to act judicially, the discretion is unlimited: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 3. There are, however, a number of considerations that bear upon the making of an order. They were summarised by Emmett J in Dye v Commonwealth Securities Limited [2012] FCA 992 at [26]: (a) the prospects of success of the appeal; (b) the risk that an order for costs will not be satisfied; (c) whether the making of an order for security would be oppressive in that it would stifle a reasonably arguable claim; (d) whether the appellant's impecuniosity arises out of the conduct that is the subject of complaint in the relevant proceeding; (e) whether there are any aspects of public interest that weigh against the grant of security; and (f) whether they are any other particular discretionary matters peculiar to the circumstances of the case. 28 In Dye v Commonwealth Securities Limited [2012] FCA 992 (Dye) at [27]-[28] Emmett J also said: 27 As a general rule, in relation to proceedings at first instance, impecuniosity, and even insolvency, does not mandate that an order for the provision of security for costs should be made. However, that principle does not necessarily apply in relation to an appeal, where the appellant has had the benefit of a decision of a court at first instance. An insolvent party will not be excluded from an appeal, but if he cannot find security, he may be prevented from taking his opponent from one court to another. The feature of an appeal that marks it out from a proceeding at first instance is that there has already been a decision given by the court that heard the matter at first instance. That is to say, the appellant has had his or her day in court and has had an opportunity to present his or her case, and has had a ruling that must be presumed to be correct. Security may not necessarily be ordered if an appeal is brought in good faith and raises substantial questions of law. However, the position will be different where the appeal turns largely on questions of fact and it does not give rise to any important question of law. 28 While impecuniosity ought not to be a bar to a person prosecuting a reasonable claim at first instance, the position on appeal is fundamentally different. At the appellate level, there has already been a determination adverse to the person against whom security for costs is sought. If there is a substantial risk that, if successful, the respondent will be deprived of costs, that outcome would clearly be unjust. In a sense, it is giving to a person who has been on the receiving end of an adverse determination by the courts, a free hit at great cost to the other party in the appeal proceeding. It is against those principles that I shall consider the matters addressed by the parties.

The ability of Patdith and Mr Berger to meet a costs order 29 Patdith has cash of approximately $45,000 held as to about one third in the Macquarie Bank Account and as to the balance in the Suspense Account. Patdith does not have unfettered access to those monies. The cash amount is well under the debt owed to Capital Finance by reason of the orders entered in the Local Court Proceeding including the costs order. There are also unsatisfied costs orders in favour of Capital Finance and Mitronics in the Federal Circuit Court proceeding for which Patdith and Mr Berger are liable. 30 Patdith does not trade and Mr and Mrs Berger receive the aged pension, they do not appear to have any assets beyond personal effects. Mr Berger says that he conducts an advisory business but the income from that business is unknown. 31 There was a suggestion that Mrs Berger, who is a director of Patdith, may be the registered proprietor of three properties. However, in my opinion the evidence on that issue is not conclusive. First, the LPI search discloses that a "Judith Berger" is the current registered proprietor of six properties but Mr Berger's wife is known as "Judith Martha Berger" and the historical search shows that a person with that name was the registered proprietor of properties in the past. Secondly, as counsel for Patdith and Mr Berger submitted, in the difficult financial circumstances that Mr Berger and Patdith find themselves in, it is hard to imagine that Mr Berger would not know whether his wife of some 48 years held any real property. His response to the question put about current ownership of property by Mrs Berger was inappropriately flippant in its tone but I accept Mr Berger's evidence that he was not aware of the ownership by his wife of any real property and infer that if Mrs Berger did own any real property Mr Berger would be aware of that fact. 32 Given the financial position of Patdith and Mr Berger disclosed by the evidence, in my opinion, there is a real risk that Patdith and Mr Berger will be unable to meet any costs orders made in favour of Mitronics or Capital Finance in the application for leave to appeal or the appeal should leave be granted. 33 I should add here that there is no suggestion in the evidence given by Patdith or Mr Berger that Patdith's and Mr Berger's impecuniosity arises out of the conduct that is the subject of the proposed appeal.

The prospects of success of the application for leave to appeal 34 In summary Patdith and Mr Berger's grounds of appeal, as set out in their draft notice of appeal, seek to challenge the findings of fact made by the primary judge in relation to the moneys paid by Ricoh to MBB and the legal characterisation of the payment made by Ricoh. They also allege failures by the primary judge to give reasons, or sufficient reasons, for various conclusions including that the available evidence was not reasonably capable of proving that the breakdowns in the Office Machines were due to work Mitronics undertook or failed to undertake or due to materials it provided in connection with its services. 35 In order to succeed in their application for leave to appeal Patdith and Mr Berger need to satisfy the Court that the decision of the primary judge is attended by sufficient doubt to warrant it being reconsidered on appeal and that substantial injustice would result if leave to appeal were refused, supposing the decision to be wrong: Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 398. 36 Mitronics and Capital Finance both submitted that Patdith's prospects of success on the application for leave to appeal are poor. They further submitted that, even if the grounds of appeal are made out, they do not challenge the critical and, in their view, correct finding by the primary judge at [55] and [65] of his judgment that the chain of causation was broken by Patdith and Mr Berger such that they cannot recover their alleged loss under s 82 of the TPA which they say is fatal. 37 Patdith and Mr Berger submitted that there is no argument that the appeal is hopeless and that it raises a serious question to be tried. They allege that the primary judge's finding that the money paid by Ricoh was held on trust for Capital Finance and had to be paid to Capital Finance was not open and that if they succeed to make out that ground of appeal the judgment of the primary judge falls away because his Honour's reasoning and subsequent findings all follow from that very finding. 38 The question of prospects of success is a relevant but not critical factor: see Jazabas Pty Limited and Others v Haddad and Others (2007) 65 ACSR 276 (Jazabas) at [83]. In Clack v Collins (No 1) [2010] FCA 513 (Clack v Collins) Jagot J said at [24] in relation to prospects of success as a factor to be taken into account in the exercise of the discretion as to whether to order security that: It seems to me that the authorities suggest that there is a relatively low threshold of arguability in relation to prospects of success … . I am not in a position to conclude that the appeal has such poor prospects of success that this should be a material factor weighing in favour of the respondent seeking an order for security. 39 Patdith and Mr Berger rely on J & M O'Brien Enterprises Pty Ltd v Shell Co. of Australia Ltd (No 2) (1983) 70 FLR 261 (J&M O'Brien) at 264 where Bowen CJ noted that one matter that is generally considered in applications for security at first instance is the prospects of success and that if an applicant has a strong or meritorious case a court would be reluctant to make an order which would have the effect of shutting the applicant out. But his Honour observed that for an appeal the position is slightly different because the appellant has had its day in court. In the case before him, Bowen CJ found that the questions of law raised on appeal were raised "bona fide" and that they were "questions of substance". 40 In contrast to the position in J&M O'Brien, the grounds of appeal raise questions of fact and do not, in my opinion, raise any important questions of law. Notwithstanding that, I am not persuaded at this stage that the application for leave to appeal (or the appeal) is hopeless. The application for leave to appeal is made bona fide and is the only avenue open to Patdith and Mr Berger, the proceeding before the primary judge having been dismissed summarily. I find myself in a similar position to Jagot J in Clack v Collins. That is I am not in a position to conclude that the application for leave to appeal has such poor prospects of success that this should be a material factor weighing in favour of Mitronics and Capital Finance.

Will the making of an order for security stultify the proceedings? 41 Patdith and Mr Berger submitted that if orders for security for costs are made the application for leave to appeal will be stultified. Mitronics and Capital Finance submit that there is insufficient evidence to support such a finding. 42 In Elston Katzmann J, referring to Tait v Bindal People [2002] FCA 322 at [3]-[4], recognised at [62] that in general poverty is no bar to a litigant but that there was an exception in the case of appeals because there has already been a determination adverse to the person against whom security for costs is sought and if it be shown that there is a substantial risk that, even if successful, the respondent to an application for leave to appeal or an appeal will be deprived of its costs that outcome would be clearly unjust. At [63] her Honour continued: To paraphrase what Jagot J said in Clack v Collins (No 1) [2010] FCA 513 at [31], in circumstances where Dr Elston has already had his day in court and been wholly unsuccessful, it is intrinsically unfair that he be permitted to pursue his appeal while placing the Commonwealth at risk that any costs order it may recover will not ultimately be paid. 43 On the issue of an allegation by a respondent to an application for security that an order for security might stultify an appeal in Bell Wholesale Co. Ltd v Gates Export Corporation (1984) 2 FCR 1 a Full Court of this Court (Sheppard, Morling and Neaves JJ) said at 4: 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. It is not for the party seeking security to raise the matter; it 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. 44 That is, it is for Patdith and Mr Berger to satisfy the Court that no one who will stand to benefit from the litigation can support the proceedings before it can be said that the proceedings will be stultified. 45 Before turning to that issue I note that in my opinion the applications for security are not oppressive in that they are not, in my view, being used to deny Patdith and Mr Berger their rights to pursue their applications for leave to appeal. Rather they are brought because Mitronics and Capital Finance wish to ensure that their costs will be covered in the event of such an order being made in their favour. 46 Patdith's and Mr Berger's evidence is that, beyond the funds held in the Macquarie Bank Account and the Suspense Account, which Patdith and Mr Berger cannot presently access without the cooperation of others, they do not have any cash or equivalent liquid assets available to provide any security nor the ability to raise funds to provide security. The evidence given by Mr Berger on behalf of Mrs Berger is that she does not have any means, beyond borrowing money from friends, which she has not sought to do, to fund any order for security for costs. However: (1) Mr Berger says that he conducts an advisory business but provides no evidence about whether he receives any income from that business; (2) there is evidence that Mr Berger divested himself of real property in 2014 and 2015. However, no evidence has been provided of how the proceeds of those sales were disbursed; (3) Mr Berger refers to the existence of creditors of Patdith but no evidence is provided about the identity of those creditors and, if they are parties other than Mitronics and Capital Finance, no evidence is given by those creditors who may stand to benefit from the litigation; (4) there is no evidence from Mr Berger as to whether he has any bank accounts beyond the account he holds jointly with Mrs Berger; (5) the bank statements for that joint account are incomplete, only the odd pages are provided and they do not go beyond 17 July 2016. Those bank statements do not provide a complete record of the joint bank account of Mr and Mrs Berger and are of limited assistance to the Court; (6) to the extent the statements for the joint account do provide information about the financial position of Mr and Mrs Berger there are a number of receipts into the account which are not explained, for example, receipt of $11,000 from "Kevin" on 1 December 2015 and various transfers from an account ending "2002"; and (7) there is no direct evidence from Mrs Berger of her asset position. While Mr Berger gave evidence on her behalf, that evidence was vague and lacking in detail. 47 On the available evidence it is not possible to conclude that those who will benefit from the litigation or who stand behind them cannot support the proceeding. Further there is a sum of money held in the Macquarie Bank Account and in the Suspense Account which Patdith may be able to access. On balance, I am not satisfied that the proceedings would be stultified by the making of orders for security. 48 Further, to the extent there is a risk of stultification that is not a conclusive consideration, it is but one consideration to be taken into account: see Dye at [94]-[97].

Mr Berger is a natural person 49 Mr Berger submitted that he is a party and a natural person, that he is not hiding behind "the skirts" of Patdith and that any costs order will apply to him. He also submitted that the "basic rule" is that poverty is not a bar to a litigant and that a natural person who commences litigation is not required to give security. 50 Section 56 of the Federal Court Act does not distinguish between natural persons and corporations and other entities in empowering the Court to make an order for security. There are ample examples in the authorities, particularly in the case of appeals, where orders have been made requiring appellants who are natural persons to pay security for costs: see for example, Elston, Dye and Clack v Collins. 51 Mr Berger relies on Barton v Minister for Foreign Affairs (1984) 2 FCR 463 (Barton) at 469 and James v ANZ Banking Group Ltd (No 1) (1985) 9 FCR 442 (James) at 445 to make good his proposition. Both those cases concerned consideration of applications for security in relation to proceedings at first instance and not appeals. As I have already observed and, as the authorities demonstrate, there is a distinction in principle between the ordering of security in a first instance proceeding and the ordering of security in an appeal. In the case of the latter the applicant on a leave application or the appellant has already had his, her or its "day in court" and orders have been made adverse to that person or entity. As set out at [39] above, if it is demonstrated that there is a substantial risk that, even if successful, the respondent to an application for leave to appeal or an appeal would be deprived of their costs such an outcome would be unjust. Thus an unsuccessful party who is also impecunious is not shut out from proceeding further with litigation because of that impecuniosity but is "only prevented, if he cannot find security, from dragging his opponent from one Court to another": see Croker at [5]. 52 For these reasons in my opinion, the fact that Mr Berger is a natural person does not preclude the Court from making an order for security against him. This factor does not weigh in his favour on the exercise of the discretion.

Public interest 53 Patdith and Mr Berger submitted that the dispute has never been determined on its merits and that there is a public interest in permitting parties to have their "day in court". But Patdith and Mr Berger have had their "day in court" albeit that their application was substantially dismissed summarily. The alleged entitlement to a day in court does not arise in the context of an appeal: see Elston at [63]. In my opinion, this is not a factor of public interest that weighs against the grant of security in the circumstances of this case.

The exercise of my discretion 54 Taking the above factors into account, Patdith and Mr Berger should, in my view, be ordered to pay security for Mitronics' and Capital Finance's costs of their application for leave to appeal. 55 Patdith and Mr Berger proffered an undertaking not to move the moneys in the Macquarie Bank Account and the Suspense Account in lieu of an order for security. I do not accept that undertaking. There is evidence that at present Mr Berger does not have sole control over those accounts which undermines the effectiveness of such an undertaking.

amount and form of SECURITY 56 It is necessary to determine the quantum of security that should be paid by Patdith and Mr Berger in relation to their application for leave to appeal. If security is to be ordered then it must be "sufficient" and the Court does not set out to give a complete indemnity to a party seeking indemnity: see Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 515. 57 Ms McLean on behalf of Mitronics and Mr Pike on behalf of Capital Finance have each estimated the likely costs to be incurred by their respective clients on the application for leave to appeal. I accept that each is an experienced solicitor who has provided such estimates and been involved in costs assessments and taxations on previous occasions. In making their estimates each of Ms McLean and Mr Pike has set out the assumptions adopted in making those assessments and has provided broad itemisation of the likely costs. Ms McLean estimates that Mitronics' total costs, comprising solicitor's fees, counsel's fees and other disbursements, will be $28,514.60 for the application for leave to appeal and the application for security for costs. She then applies a 20% discount to the professional fees component to account for the likely reduction on taxation and seeks an order for security of $24,511.68. Mr Pike estimates Capital Finance's total costs, including professional fees, counsel's fees and disbursements, at $25,148 for the application for leave to appeal and the application for security. He applies no reduction to that estimate and seeks an order for security in that amount. 58 Mr Berger takes issue with the assessments provided by each of Ms McLean and Mr Pike. He says that he practised as a solicitor for 44 years and that a considerable part of his work was commercial and other litigation giving him extensive experience in assessments and taxations. Mr Berger gives evidence that he has considered the estimate of costs made by each of Ms McLean and Mr Pike in relation to their respective clients' costs of the application for leave to appeal and the appeal. In summary: (1) he believes that an hourly rate for a solicitor of $400 per hour is reasonable; (2) he agrees with Ms McLean that professional costs would be reduced by about 20% on taxation; (3) he is of the view that, given there are two sets of lawyers arguing essentially the same thing, there could be some savings if they were to coordinate their preparation; (4) his expectation is that counsel would do most, if not all, of any legal research; (5) he is of the view that the leave application will consist of the relatively few "leave documents and any material filed by the respondents" and thus thinks the costs will be less for the leave application and will not involve as much preparation as a full appeal. In his opinion, on the leave application, Mitronics and Capital Finance will likely reargue the same matters as for the strike out and thus there will be little or no fresh preparation required; (6) he is of the view that there is some overlap in Ms McLean's itemisation; and (7) taking the above matters into account Mr Berger's view is that the likely costs of the leave application on a party/party basis would be $8,970 plus GST, being 11 hours of professional time and disbursements of $5,450 and allowing professional time at 80% of actual costs. 59 In her affidavit sworn on 7 October 2016, Ms McLean responded to Mr Berger's opinion on behalf of Mitronics. She denies any overlap in her itemisation of steps to be taken, denies that the appeal will re-argue the same issues argued in the strike out, says that the estimate takes into account the work already done for the strike out application, says the only person remaining at her firm with the requisite knowledge of the matter and availability is her and that her estimate of costs was already reduced. 60 In relation to the estimates provided: (1) I would expect that the costs of the application for leave to appeal would be less than the costs of the appeal; (2) I note that both Ms McLean and Mr Pike include in their estimate of the costs of the application for leave to appeal, the costs of the application for security. I would not allow those costs in the order for security which, in my view, should be limited to the costs of the application for leave to appeal. In the case of Mitronics the costs of the application for security are estimated at $6,220 plus a component for preparing and filing the application for security for costs and any associated disbursements. Accordingly, I would reduce Mitronics' estimate by $7,000 being the amount clearly attributable to the security for costs application plus an additional amount for the preparation and filing of that application. In the case of Capital Finance the component allocated to the preparation of the application for security for costs is not sufficiently itemised for me to ascertain what amount pertains to it but, having regard to the total estimate, including by comparison to that of Mitronics, I would reduce Mr Pike's estimate by $3,500 for that application; (3) in the case of both Mitronics and Capital Finance the amounts included for the preparation and filing of affidavits in response to the application for leave seem to be excessive comprising of approximately seven to eight hours of professional time in each case. I would reduce that amount by one third; and (4) Mr Pike has not applied any discount to his estimate to allow for party/party costs. I will reduce the estimate of professional fees by 20% to allow for that. 61 Taking all of those matters into account I am satisfied that security in the sum of $18,000 should be provided by Patdith and Mr Berger for their application for leave to appeal for each of Mitronics' and Capital Finance's costs of that application making a total of $36,000 to be provided by way of security. In each case I have arrived at those amounts by applying the reductions set out above and rounding off the resulting amount. 62 The security should either be provided by way of payment into Court of the amounts identified above or by provision of unconditional bank guarantees to be provided in a form acceptable to the New South Wales District Registrar and to be held by the District Registrar until further order. 63 The application for leave to appeal will be stayed until security is given and, in the event that it is not provided within 28 days, the application will be dismissed. I have allowed for a longer period for the provision of security given the issues identified by Mr Berger in relation to access to the Macquarie Bank Account and the Suspense Account. 64 Mitronics and Capital Finance have sought their costs of their applications for security. In my view, despite the fact that they have not been successful in obtaining all of the orders sought, they should have those costs. The submissions and arguments put by the parties in relation to the applications for security for both the application for leave to appeal and any appeal, if leave is granted, were the same. That is, in my view, there was no additional argument that went to the applications insofar as orders were sought for security of any appeal. 65 I will make orders accordingly. I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.