Ramsey v Hartley [1998] FCA 646 | Case summary

REASONS FOR JUDGMENT INTRODUCTION The eighth respondent ("Sciacca") and the ninth respondent ("Tadeven") apply by notice of motion filed 1 May 1998 for leave to appeal from a judgement of Wilcox J delivered on 24 April 1998, dismissing their application for security for costs. Before his Honour, four respondents applied for security. They were Graham Barclay Oysters Pty Ltd and Graham Barclay Distributors Pty Ltd, which are respectively the second and twentieth respondents, and Sciacca and Tadeven. The first applicant, Mr Ryan, is suing the former two companies. The third applicant, Mr Gower, is suing Sciacca and Tadeven. Both applications were heard together. Only Sciacca and Tadeven seek leave to appeal. BACKGROUND AND PROVISIONS OF ACT AND RULES The substantive proceeding is a "representative proceeding" under Part IVA of the Federal Court of Australia Act 1976 ("the Act"). The claims arise out of the consumption by numerous individuals of allegedly contaminated oysters from the Wallis Lakes on the north coast of New South Wales which are said to have contained and imparted the hepatitis A virus. The individuals' claims are for damages for personal injury and its sequelae. The respondents are the Great Lakes Council, various growers and distributors of the oysters, and the State of New South Wales. Initially, Mr Ryan was the only applicant and representative party. But he did not claim against all respondents. In the result, a further six applicants were added, including Mr Gower. In addition to Mr Gower, ten group members make claims against Sciacca and thirty-nine group members make claims against Tadeven. But just as Mr Gower makes claims against both companies, so do two of the other group members. Mr Gower therefore represents himself and a further forty-seven group members in all. The proceeding has been fixed for a hearing on liability only, for four weeks commencing on 7 September 1998, not including 10 and 11 September. It has not been in issue that it will be reasonable for Sciacca and Tadeven to participate throughout the hearing on liability. The affidavit evidence before Wilcox J showed that Sciacca and Tadeven had incurred defence costs of approximately $110,000. For the eighteen days of hearing time, their estimated costs are a further $120,000. Senior counsel for Sciacca and Tadeven has referred to his clients' total costs on the issue of liability, including those between now and the hearing before Wilcox J commencing on 7 September next, as being of the order of $250,000. Sub-section 56 (1) of the Act gives the Court or a Judge a discretion to "order an applicant in a proceeding in the Court ... to give security for the payment of costs that may be awarded against him". Order 28 r3(1) of the Federal Court Rules provides: "3(1) Where, in any proceeding, it appears to the Court on the application of a respondent - (a) ... (b) that an applicant is suing, not for his own benefit but for the benefit of some other person and that there is reason to believe that the applicant will be unable to pay the costs of the respondent if ordered to do so; or (c) ... (d) ... the Court may order that applicant to give such security as the Court thinks fit for the costs of the respondent of and incidental to the proceeding." (emphasis supplied) This familiar provision may be referred to as the "impecunious nominal plaintiff" rule. Sciacca and Tadeven accept that Mr Gower is suing both for his own benefit and for the benefit of the other group members and that he does not come within the terms of the rule; cf Ramsey v Hartley [1977] 2 All ER 673 at 682. But r 6 provides that O 28: "does not affect the provisions of any Act of the Commonwealth or of a State or Territory under which the Court may require security for costs to be given." It is clear that the circumstances in which security for costs may be ordered in exercise of the jurisdiction given by subs 56(1) of the Act are not limited to those identified in O28 r3(1): Bell Wholesale Company Ltd v Gates Export Corporation (1994) 2 FCR 1 (FC). Section 33ZG, which occurs within Part IVA of the Act, provides as follows: "33ZG Except as otherwise provided by this Part, nothing in this Part affects: (a) ... (b) ... (c) the operation of any law relating to: … (v) security for costs."(emphasis supplied) Since no provision in Part IVA provides otherwise, nothing in that Part affects the operation of subs 56(1) or the impecunious nominal plaintiff rule, as they might operate in respect of representative proceedings under Part IVA. But subs 43 (1A) does not occur in Part IVA and has assumed particular importance in the present case. It provides: "43(1A) In a representative proceeding commenced under Part IVA or a proceeding of a representative character commenced under any other Act that authorises the commencement of a proceeding of that character, the Court or Judge may not award costs against a person on whose behalf the proceeding has been commenced (other than a party to the proceeding who is representing such a person) except as authorised by: (a) in the case of a representative proceeding commenced under Part IVA - section 33Q or 33R; or (b) in the case of a proceeding of a representative character commenced under another Act - any provision in that Act." I will discuss ss 33Q and 33R later. REASONING OF THE TRIAL JUDGE Before the trial Judge, it was not in dispute that Mr Gower would be unable to pay the costs of Sciacca and Tadeven of the hearing on liability if ordered to do so. Sciacca and Tadeven argued that the "representative" nature of the proceeding places it in a category similar to the impecunious nominal plaintiff class of case. Sciacca and Tadeven accepted before his Honour that the costs incurred or to be incurred by them on the issue of liability had not been increased by reason of the fact that other individuals were represented by Mr Gower, beyond those costs which they would have incurred in contesting liability in a proceeding brought by Mr Gower alone. Mr Gower conceded before his Honour that a proposal for provision of security for costs "out of a financial pool created by the group members" did not directly contravene subs 43(1A), but submitted that it conflicted with the spirit of that provision. He relied on Woodhouse v McPhee, an unreported judgement of Merkel J delivered on 24 December 1997. The trial Judge quoted, with approval, from Merkel J's reasons for judgment in that case at some length. The first passage quoted was as follows: "Section 56 confers a broad discretion on the Court which is to be exercised by reference to the particular circumstances arising in each case. Accordingly, the Court should be cautious about enunciating general rules that might fetter that discretion. However, in my view there is no reason why, in general, the fact that a proceeding is brought for the benefit of others under Part IVA ought not to be a consideration which together with other considerations can favour the ordering of security. Indeed, s 33ZG(c)(v) provides that, except as otherwise provided by Part IVA, nothing in the Part affects the operation of any law relating to security for costs. Consequently nothing in Part IVA is to affect the operation of s 56 and O 28 in relation to security for costs or is to impede orders being made for security for costs in Part IVA cases on the same basis as may be ordered in other cases. On the other hand it would be incongruous and anomalous for Parliament specially to confer a direct costs immunity under s 43(1A), inter alia to afford represented persons greater access to justice, and then for the courts indirectly to remove the effect of that immunity by making orders for security for costs on the basis that the applicant is bringing the proceedings for the benefit of others who ought to bear their share of the potential costs liability to other parties. In my view, in order to deal with that incongruity and anomaly the fact that an impecunious applicant is bringing a Part IVA proceeding for the benefit of represented person, whilst a relevant consideration in favour of granting security, ought not of itself be as significant a consideration as it might otherwise be in favour of the granting of security." (emphasis in original) Wilcox J said, in a passage which Sciacca and Tadeven submit reveals errors: "Like Merkel, J, I think s 43(1A) ought generally to be regarded as a substantial impediment to the 'financial pool' approach, urged by [senior counsel for the applicants for security]. That approach would have the effect of exerting substantial pressure on group members to make a contribution to securing the respondents' costs, even though s 43(1A) expressly exempts them from liability to meet those costs. Moreover, it may do so after the termination of the opt-out period (see s 33J of the Act)." (at 8) In a further passage which Sciacca and Tadeven would wish to attack on appeal, Wilcox J said: "If an order were made, it would have one of two consequences. Either it would stultify the continuance of the actions, at least as representative proceedings, leading to an abandonment of what seem to be genuine and arguable group members' claims, or it would force on the parties a multitude of individual actions. Either result would be at odds with the purposes of Part IVA outlined by the Attorney General" (at 8-9) The reference at the end of this passage is to the Attorney-General's Second Reading Speech on 14 November 1991 in support of the Bill that introduced Part IVA. The relevant passage from that Second Reading Speech was set out in Merkel J's reasons for judgement and was repeated by Wilcox J as follows: "Such a procedure is needed for two purposes. The first is to provide a real remedy where, although many people are affected and the total amount at issue is significant, each person's loss is small and not economically viable to recover in individual actions. It will thus give access to the courts to those in the community who have been effectively denied justice because of the high cost of taking action. The second purpose of the Bill is to deal efficiently with the situation where the damages sought by each claimant are large enough to justify individual actions and a large number of persons wish to sue the respondent. The new procedure will mean that groups of persons, whether they be shareholders or investors, or people pursuing consumer claims, will be able to obtain redress and do so more cheaply and efficiently than would be the case with individual actions." (Parl Debs, HR, 14 November 1991, at 3174-3175) REASONING It has not been disputed that in determining whether leave to appeal should be granted, I am to inquire whether his Honour's decision is attended with sufficient doubt to warrant its being reconsidered at appellate level and whether substantial injustice would result if leave were refused, supposing his Honour's decision to have been wrong. Authority for this approach is to be found in the Full Court judgement in Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397, in which Sheppard, Burchett and Heerey JJ described those two major considerations as: "an appropriate litmus test for the general run of cases in which leave to appeal from an interlocutory decision is sought." (at 399) Their Honours added: "... there will continue to be cases raising special considerations, and the court should not regard its hands as tied in any case beyond this; that by s 24(1A) the legislature has evinced a policy against the bringing of interlocutory appeals except where the court, acting judicially, finds reason to grant leave. When the court comes to exercise its discretion on a particular application, an important distinction to be observed is that between the common interlocutory decision on a point of practice - concerning which the High Court has given (see Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 177) a strong warning that 'a tight rein' should be kept on appeals - and an interlocutory decision determining a substantive right - where leave will more readily be granted. ..." (at 399-400) The approach so formulated has been followed many times; it was followed by a Full Court (Black CJ, Jenkins and Branson JJ) in Trade Practices Commission v Rank Commercial Ltd (1994) 53 FCR 303 at 313. The present case concerns an interlocutory decision on a point of practice, not one which determines substantive rights. Sciacca and Tadeven's proposed notice of appeal sets out four grounds of appeal as follows: "1. In the exercise of his discretion with respect to security for costs, his Honour erred in taking into account irrelevant considerations, namely: (a) that the appellants' costs of the proceedings incurred thus far and their costs likely to be incurred in future in connection with the determination of liability were not increased by virtue of the proceedings being representative rather than being a series of individual actions by the respondent and group members; (b) that s 43(1A), Federal Court Act 'ought generally to be regarded as a substantial impediment' to ordering security for costs where the satisfaction of such an order might require contributions from group members to a fund; (c) that the group members may have decided to remain in the representative proceedings rather than embark on separate actions, in reliance upon s 43(1A), and that the time for exercise of their right to opt out of the proceedings under s 33J may have expired. 2. In the exercise of the discretion, his Honour failed to take into account relevant considerations, namely: (a) that the appellants face the risk of being unable to recover costs from the respondent in circumstances where it is unlikely that any proceeding in respect of the subject matter would have been commenced but for the availability of the representative procedure (and hence the combination of the respondent and group members); (b) that the appellants face the risk of being unable to recover costs in circumstances where, if the proceeding had taken the form of a separate action by each of several of the group members, with a consolidated hearing of common issues, the appellants would have had recourse against several parties for recovery of costs. 3. His Honour erred in holding, in the absence of evidence, that the making of an order for security would either stultify the continuance of the actions, at least as a representative proceeding, or would force the group members to commence a multitude of individual actions. 4. His Honour erred in failing to find that in the event of security being ordered group members would more probably than not contribute to a fund for the security and would refrain from commencing separate actions by reason of the greater cost of so doing." It is desirable that I make some general observations at the outset. First, Wilcox J was exercising a judicial discretion under s 56 of the Act. Accordingly, the following well-known passage from House v The King (1936) 55 CLR 499 is applicable: "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 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. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred." (at 504 - 505) Second, it was not contested that, down to the end of the hearing on liability, Sciacca and Tadeven will incur no costs over and above those they would have incurred down to that point in meeting a claim made by Mr Gower alone. Third, it is not suggested that if Mr Gower had brought the proceeding for his own benefit alone, he would have been ordered to provide security. None of the grounds referred to in O28 r3(1) would have been present and his impecuniosity would not have been a ground for the making of an order: of the many cases that could be cited for the latter proposition, one often referred to is Barton v Minister for Foreign Affairs (1984) 2 FCR 463 (Morling J) at 469. Fourth, and further, it is not suggested that if the other group members had also sued in separate actions, any of them would have been ordered to provide security; they would have all been individuals ordinarily resident within the jurisdiction suing for their own benefit. In fact, in such a case each group member and Sciacca and Tadeven would have incurred costs additional to those being incurred by them respectively in the present proceeding, although an order for a hearing together of the issues of liability in all the separate cases would have substantially reduced the magnitude of those additional costs. Fifth, having regard to "Fourth" above, it would transpire if security were to be ordered on a ground analogous to the impecunious nominal plaintiff ground, that Sciacca and Tadeven would be better off on the issue of security for costs by having been sued in a representative proceeding under Part IVA than they would have been if sued by the group members in separate actions. Sixth, it is helpful, I think, not to assume that the group members lack means and that Sciacca and Tadeven have means. Their respective financial positions are simply not known. Seventh, in quoting and approving of the first passage from the judgment of Merkel J in Woodhouse v McPhee, his Honour accepted not only that the Court had jurisdiction under s 56 of the Act to order Mr Gower to provide security, but also that there was "no reason why, in general, the fact that a proceeding is brought for the benefit of others under Part IVA ought not to be a consideration which, together with other considerations, can favour the ordering of security"; cf Cunningham v Olliver, unreported, FCA/Burchett J, 21 November 1994. Against the above background, I turn to consider the proposed grounds of appeal. (1)(a) In my opinion, the fact that the costs of Sciacca and Tadeven incurred and to be incurred in connection with the determination of liability have not been and will not be increased by virtue of the proceeding being representative rather than individual actions was clearly a relevant consideration for his Honour to take into account in exercising his discretion. It is important to appreciate that subs 43(1A) is expressed to be subject to ss 33Q and 33R. Those sections address situations in which some issues may be common to only some group members, or even only to individual group members. Section 33Q provides that if it appears to the Court that determination of issues common to all group members will not finally determine the claims of all, the Court may give directions in relation to the determination of the remaining issues, including directions establishing a "sub-group" consisting of those group members, and appointing a person to be the "sub-group representative party" on their behalf. Sub-section 33Q(3) provides: "(3) Where the Court appoints a person other than the representative party to be a sub-group representative party, that person, and not the representative party, is liable for costs associated with the determination of the issue or issues common to the sub-group members." Similarly, s 33R provides that in giving directions under s 33Q, the Court may permit an individual group member to appear in the proceeding for the purpose of the determination of an issue that relates only to the claims of that group member, in which case that individual group member, rather than the representative party, is liable for costs associated with the determination of the issue. In sum, to the extent that differentiation between group members should prove to be necessary, Sciacca and Tadeven are able to be protected, even to the extent of being put in the position of defending individual claims with concomitant rights as regards orders for costs. Apparently, the quantification of damages in respect of the loss and damage suffered by the individual group members will give rise to the making of directions under s 33R. (1)(b) Both Merkel J in Woodhouse v McPhee and Wilcox J in the present case relied on subs 43(1A). Senior counsel for Sciacca and Tadeven emphasised that an order for security has an effect different from that of an award of costs against persons on whose behalf a proceeding is commenced under Part IVA. He submits that such an award of costs would make the persons jointly and severally liable for the whole of the costs, whereas an order that the representative party provide security would lead to the practical result that each group member would be required to make a contribution only. The order sought by Sciacca and Tadeven in their draft notice of appeal is that Mr Gower provide security for the costs of Sciacca and Tadeven in a sum of not less than $230,000 and that the proceeding be stayed as against Sciacca and Tadeven until that security has been provided. The first observation to be made is that subs 43(1A) is not limited to an order that the group members pay all of a respondent's costs; it also prohibits, for example, an order that each group member pay severally an equal share, that is, an order having the same practical result as the group's funding of Mr Gower to provide the amount of security ordered, by equal contributions to a pool. Further, it is difficult to be sure what the result of Mr Gower's attempt to recover a contribution from the group members would be. Perhaps they would all contribute equally; perhaps some would be unable to contribute and would be forced to opt out of the proceeding pursuant to a period for opting out extended under subs 33J(3); perhaps Mr Gower would need to seek additional contribution from those remaining in the proceeding with the result that some of them would wish to opt out; perhaps some group members, unable or unwilling to contribute, would attempt to insist upon remaining in the proceeding nonetheless; perhaps the group comprises some wealthy oyster-eaters who would volunteer the required security in the interests of the group as a whole. What emerges from the matters mentioned is that the contrast between the award of costs against which subs 43(1A) is directed and the provision of a fund by equal contributions by the group members, may well not be borne out. The proposition that it is contrary to the spirit of subs 43(1A) that the individuals constituting the group members be compelled to contribute to a fund to enable their impecunious representative party to satisfy an award of costs against him, is not attended by sufficient doubt to warrant reconsideration at appellate level. Wilcox J did not say that subs 43(1A) operated as an absolute impediment to the making of an order for security for costs against a representative party. On the contrary, his Honour expressly agreed with the view of Merkel J that such an order might be appropriate where a claim is "spurious, oppressive, or clearly disproportionate to the costs involved in pursuing it", or structured so as to immunise persons of substance. His Honour noted that it was not suggested that any such strictures applied to the present claims. Nor has this been suggested on the hearing of the present motion for leave to appeal. Merkel J in Woodhouse v McPhee, with whom Wilcox J in the present case agreed, accepted that the "substantially representative" capacity of an applicant may be "a consideration which together with other considerations, can favour the ordering of security" even though the express terms of the impecunious nominal plaintiff rule are not satisfied because the applicant is suing partly "for his own benefit". The researches of counsel who appeared before me have not revealed any such case in which an order for security has in fact been made, although in such circumstances and other special circumstances, Burchett J, in Cunningham v Olliver, unreported, 21 November 1994, said that he thought he would have considered it appropriate to order security if the application for security had not been unduly delayed. It seems, however, to be a fair summary of the approach taken by Merkel J and Wilcox J to say that the analogy between the circumstances of the cases before them and circumstances which come within the express terms of the impecunious nominal plaintiff rule "paled into insignificance" in the light of the policy underlying s 43 (1A). In my respectful opinion, this approach is not attended by significant doubt to warrant reconsideration at appellate level. Indeed, I should not be understood to accept that where all that appears is that there are several bona fide claims, and instead of a multiplicity of proceedings, one of the persons having a claim commences a proceeding both for his or her own benefit and also on behalf of the others, the "substantially representative" nature of the proceeding should tell in favour of an order for security, where none would have been ordered in separate proceedings. Although I am not called upon to express a final opinion on the matter, I incline to the view, as the words "not for his own benefit" in O 28 r 3(1)(b) suggest, that a principled approach would not support the making of an order in such a case. (1)(c) Wilcox J also said in relation to the effect of subs 43(1A): "The group members may have decided to remain in the representative proceeding, and not opt out or embark on a separate action, in reliance on the protection afforded by s 43(1A)." I think that this was clearly a relevant consideration for his Honour to take into account. Sciacca and Tadeven correctly point out that if an order for security were to be made, the Court, could, in conjunction with the making of the order, make an order under subs 33J(3) that the opt out period be extended. This would enable a group member who had not previously opted out in reliance upon not having to contribute to a fund for security for costs, to revise his or her decision in the light of the making of the order for security. Incidentally, the very necessity for this submission gives some support to the point made by Wilcox J that subs 43(1A) operates as a substantial impediment to the making of an order for security. While his Honour did not refer to the availability of subs 33J(3), I do not think that his reference to the assumption which may have been made by group members who had not opted out was an irrelevant consideration for him to take into account. Moreover, he took that consideration into account as an adjunct to the point that he was making in relation to subs 43(1A). I do not think that the present point signifies that his Honour's decision was attended with sufficient doubt to warrant reconsideration at appellate level. (2)(a) and (b) These grounds of appeal were not the subject of detailed submissions on the hearing and I will deal with them together. I do not think his Honour erred in not taking into account the fact that it was unlikely that any proceeding would have been brought had the representative procedure under Part IVA not been available, or the fact that Sciacca and Tadeven would have had recourse against several parties for recovery of costs if separate actions had been brought by the group members. Sciacca and Tadeven submit that it is unjust that in the absence of special circumstances in a proceeding under Part IVA where the representative party is an impecunious individual, a respondent can be called upon to defend a proceeding brought for the benefit of all group members, some of whom may be wealthy, without the protection of security for costs. Upon reflection, however, this can seem so only if one proceeds on an assumption which Parliament has rejected as unacceptable. That assumption is that respondents are to be treated as if entitled to the benefit of the improbability that the group members would have commenced separate proceedings. Parliament has in fact evinced an intention, which cannot be called into question, that respondents in the position of Sciacca and Tadeven are not to be treated as if entitled to the benefit of the commercial reality that individual group members would not have sued them. It is consistent with the legislative intention to treat the commercial reality mentioned as providing an unjust foundation for any submission based upon it. In my view, one must assess the positions of Sciacca and Tadeven against the assumption, even if unfounded in fact, that all the individuals constituting the group members would have brought separate proceedings against them. If they had done so, those individuals would not have been ordered to provide security. Moreover, given the fact that the costs of the present proceeding would, in such a case, have been incurred in any event in defending a proceeding brought by Mr Gower solely on his own behalf, Sciacca and Tadeven are actually better off, at least to some extent, in defending a proceeding under Part IVA than they would have been in the assumed circumstances, as they will not incur the expense of separately defending the additional proceedings. Even if a hearing together of issues common to the hypothesized separate proceedings were ordered, the costs of defending those proceedings would still exceed the costs of defending a single proceeding under Part IVA. The decisions of Merkel J and Wilcox J are not decisions that a representative party in a proceeding under Part IVA can not, in any circumstances, be ordered to provide security. It is not appropriate to seek to identify, and therefore to limit, the situations in which such an order might be made. It might, however, be found useful in some cases to inquire whether security would have been ordered if separate actions had been brought by the group members. If the group members or some of them were impecunious companies or persons ordinarily resident outside Australia and a "person of straw" had been deliberately chosen to be the representative party, it might be appropriate to order that the representative party provide security and that the proceeding be stayed until the security was provided. (3) and (4) No reference was made to these proposed grounds of appeal in Sciacca and Tadeven's submissions on the motion. They can be disposed of shortly. Although the last paragraph of his Honour's reasons for decision may, when read in isolation, suggest that his Honour thought that the consequence of an order for security for costs would be that the individual group members' claims would be abandoned or pursued as numerous individual actions, he in fact made no finding as to what the likely effect of an order for security for costs would be. Rather, the substance of his reasoning was, as outlined above, that the members would be forced either to contribute to a pool of funds, contrary to the spirit if not the letter of subs 43(1A), or to abandon their claims, or to continue them as separate proceedings, in each case, contrary to the intention of Part IVA.

Ramsey v Hartley

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Cases Cited (7)