Robertson v Knott Investments Pty Ltd

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA BETWEEN: KARL VERNON ROBERTSON

REASONS FOR JUDGMENT 1 On 29 March 2010 a Notice of Appeal was filed in this Court appealing from a decision of a Federal Magistrate made on 8 March 2010: Robertson v Knott Investments Pty Ltd [2010] FMCA 142. 2 Thereafter, on 1 June 2010, the Appellant filed a Notice of Motion seeking a stay of the orders made by the Federal Magistrate. That Motion was heard on 10 June 2010 and reasons for decision dismissing that Motion were given on 17 June 2010: see Robertson v Knott Investments Pty Ltd [2010] FCA 619. 3 Now before the Court is a further Notice of Motion - this time filed by the Respondent on 12 July 2010 seeking orders that the Appellant provide security for costs in the sum of $30,000 and that that security be in a particular form. It is common ground between the parties that the only questions to be resolved are whether any security should be ordered and the amount of any security; there is agreement as to the form of the security, assuming security is in fact ordered. 4 On 21 April 2010 the appeal was set down for hearing in the August appeals sittings of this Court. The appeal has since been allocated a hearing date on 23 August 2010.

The Power to Order Security 5 The discretionary power conferred upon the Court to order that security for costs be provided is that conferred by s 56 of the Federal Court of Australia Act 1976 (Cth). That section provides as follows: Security (1) The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her. (2) The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs. (3) The Court or a Judge may reduce or increase the amount of security ordered to be given and may vary the time at which, or manner or form in which, the security is to be given. (4) If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed. (5) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security. The discretion conferred by s 56 must "be exercised upon rational grounds and any party applying for security carries the onus of establishing a case showing that security should be granted": CBS Records Australia Ltd v Telmak Teleproducts (Aust) Pty Ltd (1987) 72 ALR 270 at 285 per Bowen CJ. 6 Section 56, it has been said, confers a "broad power" upon the Court: James v Australia and New Zealand Banking Group Ltd (1985) 9 FCR 442 at 444 per Toohey J; Bell Wholesale Company Pty Limited v Gates Export Corporation (1984) 2 FCR 1 at 3. The question in determining whether security should be awarded and, if so, the quantum "is essentially one of risk management between the parties having regard to their legitimate interests": East Grace Corporation v Xing (No 1) [2005] FCA 219 at [6] per French J. The discretionary power conferred by s 56 is to be exercised judicially and, therefore, should not be exercised "arbitrarily, capriciously or so as to frustrate the legislative intent": The Airtourer Co-operative Ltd v Millicer Aircraft Industries Pty Ltd [2004] FCA 1400 at [17] per Branson J. 7 Some of the principles often applied by the Federal Court when considering security for costs in respect of an initial hearing were summarised as follows by Beazley J in K P Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 197 to 198: Notwithstanding the broad unfettered discretion with which the Court approaches an application for security for costs, there are a number of well established guidelines which the court typically takes into account in determining any such application. They are:

1. That such applications should be brought promptly. This is a principle of longstanding … 2. That regard is to be had to the strength and bona fides of the applicant's case are relevant considerations: … As a general rule, where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the court should proceed on the basis that the claim is bona fide with a reasonable prospect of success. … 3. Whether the applicant's impecuniosity was caused by the respondent's conduct subject of the claim: … 4. Whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate. … This factor is related to the next, namely: 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: … 6. An issue related to the last guideline is 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: … 7. Security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not to be made against parties who are defending themselves and thus forced to litigate: … (citations omitted) See also: Mijac Investments Pty Ltd v Graham [2008] FCA 1251 at [9] per Kenny J. The need for an application for security to be made promptly is a factor repeatedly referred to and endorsed: e.g., Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68 at 71 per Lehane J. See also: Lawrance v Commonwealth [2008] FCA 417 at [14]. Delay is an "important consideration": Acohs Pty Ltd v Ucorp Pty Ltd [2006] FCA 1279 at [56], 155 FCR 181 at 202 per Jessup J. 8 The practice and procedure of the Court when considering an application pursuant to s 56 is further addressed in Order 28 r 3 of the Federal Court Rules. Rule 3 provides as follows: Cases for security (1) When considering an application by a respondent for an order for security for costs under section 56 of the Act, the Court may take into account the following matters: (a) that an applicant is ordinarily resident outside Australia; (b) that an applicant is suing, not for the applicant's own benefit, but for the benefit of some other person and the Court has reason to believe that the applicant will be unable to pay the costs of the respondent if ordered to do so; (c) subject to subrule (2), that the address of the applicant is not stated or is incorrectly stated in the originating process; (d) that an applicant has changed address after the commencement of the proceeding in an attempt to avoid the consequences of the proceeding. (2) The Court shall not order an applicant to give security by reason only of paragraph (1)(c) if it appears to the Court that the failure to state his address or the mis-statement of his address was made without intention to deceive. 9 In setting forth matters that the Court "may take into account" when considering an application for security for costs, Rule 3 does not attempt either to provide an exhaustive statement of the factors that may be taken into account or to fetter the broad and unfettered discretionary power otherwise conferred by s 56: Tan Kah Hock v AWAP SGT 26 Investment Ltd [2008] FCA 540 at [3] to [4] per Gilmour J. 10 The expression in r 3(1)(a), namely that an applicant is "ordinarily resident outside Australia" has no technical or special meaning: Logue v Hansen Technologies Ltd [2003] FCA 81 at [38], 125 FCR 590 per Weinberg J. The purpose of ordering security in such circumstances has been summarised by Gummow J in Energy Drilling Inc v Petroz N.L. (1989) ATPR 40-954 as follows at 50,422: The purpose of ordering security for costs against an applicant ordinarily resident outside the jurisdiction is to ensure that a successful respondent will have a fund available within the jurisdiction of this Court against which it can enforce the judgment for costs, so that the respondent does not bear the risk as to the certainty of enforcement in the foreign country and as to the time and complexity of the action there which might be necessary to effect enforcement: … On the other hand, the mere circumstance that an applicant is resident outside the jurisdiction does not necessarily invite an exercise of discretion in favour of ordering security, the question being how justice will best be served in the particular case: … (citations omitted) See also: Austin, Nichols & Co Inc v Lodestar Anstalt [2009] FCA 1228 at [21] per Lindgren J. The fact that an applicant is ordinarily resident outside Australia is a factor, it has been said, which should be given "great weight": P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 at 323 per McHugh J. See also: B W Offshore Ltd v Anzon Australia Limited [2009] FCA 1133 at [30]. The "practice in Australia for a very long time has been that a party who is not ordinarily resident in this country and has no assets within the jurisdiction, is normally ordered to give security for costs": NV Sumatra Tobacco Trading Co v British American Tobacco Australia Services Ltd [2008] FCA 1542 at [13] per Greenwood J. But the fact that an applicant is ordinarily so resident may not be sufficient in itself to "induce the court to exercise its discretion to make an order": CBS Records Australia Ltd v Telmak Teleproducts (Aust) Pty Ltd, supra at 284 to 285 per Bowen CJ. 11 The practice and procedure in relation to ordering security for costs in respect of an appellate proceeding is separately addressed in O 52 of Federal Court Rules, being that part of the Rules expressly dealing with "Appeals".Rule 20 within that Order provides as follows: Security for costs Unless the Court or a Judge otherwise directs no security for costs of an appeal to the Court shall be required. It is plain from the language of O 52 r 20 that the Court retains a discretion to order security for costs of an appeal. 12 There is an important difference in principle when entertaining an application for security in respect to an appeal as opposed to an application made in respect to an initial hearing. In Tait v Bindal People [2002] FCA 322, Spender J expressed this difference as follows: [3] … there is a difference in principle in relation to the ordering of security for costs in a first instance matter and the ordering, or the consideration of the ordering, of security for costs where one is at the appellate level. The difference is that, at the appellant level, 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 the application for leave to appeal, or to an appeal, will be deprived of his costs, such an outcome would clearly be unjust. [4] In a sense, it would be giving to a person who has been on the receiving end so to speak of a determination by the courts a free hit at great cost to the other party in the appeal proceedings. … See also: Clack v Collins (No 1) [2010] FCA 513 at [11] to [12] per Jagot J. Subject to this difference, the factors outlined by Beazley J in K P Cable Investments and the factors set forth in O 28 r 3 nevertheless remain informative as to the manner of exercise of the discretionary power conferred by s 56 to order security for costs in the context of an appeal. 13 It is also clear that there is "something of an onus" to demonstrate that security should be provided: Paton v Campbell Capital Ltd [1993] (Unreported, Federal Court of Australia, Burchett J, 1 July 1993). In Carey-Hazell v Getz Bros & Co (Aust) Pty Ltd [2004] FCA 1334 French J (as His Honour then was) revisited O 52 r 20 and the observations of Burchett J and expressed his views as follows: [29] As a general rule impecuniosity and even insolvency does not mandate an order for security for costs - Cowell v Taylor [1885] 31 Ch D 34 at 38. However that case did recognise an exception in the case of appeals: '… the appellant has had the benefit of a decision by one of Her Majesty's courts, and so an insolvent party is not excluded from the courts, but only prevented, if he cannot find security, from dragging his opponent from one court to another.' See also Bethune v Porteous [1892] 18 VLR 493 at 494 referred to in Wiest, EA v Director of Public Prosecutions [1988] FCA 568 (Gummow J). [30] The tendency in Cowell in favour of security for costs in the case of appeals is not reflected in O 52 r 20. Burchett J said of that rule in Paton v Campbell Ltd [1993] FCA 449: 'It is plain from the manner in which that rule is expressed that there is a discretion, but that there is something of an onus resting upon one who says that an appellant must be required to provide security. A feature of an appeal, which marks it out from litigation at first instance from this point of view, is that there has already been a decision given by the judge who heard the matter at first instance, and that the appellant has, in other words, had a day in court, has had an opportunity to present his case and has had a ruling which may be presumed to be correct.' His Honour went on to observe that it is unreal to ignore the reality that a significant proportion of appeals succeed. He referred to decisions of the Court of Appeal of New South Wales illustrating the proposition that there is a discretion to require the giving of security where the Court is of the view either that the appeal is without real merit or substance or that the issues sought to be litigated in the appeal is not one of great importance to the appellant while the prospect of the respondent being left without remedy in respect of a costs order is significant. [31] Security may not be ordered when an appeal is brought in good faith and raises a substantial question of law - J & M O'Brien Enterprises Pty Ltd v The Shell Company of Australia Ltd (No 2) (1983) 70 FLR 261 at 264 (Bowen CJ); Lucas v Yorke (1983) 50 ALR 228 at 229 (Brennan J). But where the appeal turns largely on questions of fact and gives rise to no important question of law, the position may be different - Cummings, JB v Lewis, MT & Ors [1991] FCA 772. [32] There is no set of clear rules to resolve the question whether security should be ordered in a particular case. The Court is required to have regard to all the circumstances of the case in exercising what is undeniably a broad discretionary judgment. 14 It should finally be noted that an order for security for costs may be confined, in an appropriate case, to such future costs as may be incurred and may even be ordered during the course of a hearing: Equity Access Limited v Westpac Banking Corporation (1989) ATPR 40-972. An application was there brought at the conclusion of the first three days of a hearing and before the hearing resumed. Hill J was of the opinion that the case should have been completed within the allocated 3 days but ordered security for the forthcoming 2 ½ days of hearing. Reference was there also made to the following observations of Street CJ in Buckley v Bennell Design and Construction Pty Limited (1974) 1 ACLR 301 at 308: A significant matter to be weighed in determining whether or not an extension of time should now be allowed is that this arbitration has run on for some eight hearing days. The builder has expended money in respect of its own legal costs for those eight days. And, if security now be ordered, accompanied by the usual sanction that the arbitration as well as the proceedings in this court be stayed until such security be furnished, this would, in effect, place the company in the position of running a risk, if unable to provide security of having wasted the costs of these eight days. It is an accepted principle in the ordering of security for costs that such an application should be made promptly. There may of course, be cases where the impecuniosity of the company will only be discoverable or provable at a later stage of the proceedings. Similarly there may be cases in which the length of the proceedings was not foreseen when they commenced. Other situations could occur in which a late application could, without procedural prejudice, be brought forward during the currency of the disputed proceedings. But ordinarily, I reiterate, the application ought to be made promptly in order to avoid the very situation which has developed in this case. The primary Judge, Helsham J, had there refused to order security and the application for extension of time for seeking leave to appeal from that decision was refused. See also: Readymix Holdings International Pte Ltd v Wieland Process Equipment Pty Ltd [2008] FCA 373. 15 These are the principles to be applied to the present application for security.

The Facts of the Present Case 16 The context in which the present application for security for costs is made is a context defined by: · the fact that the present Appellant has had the opportunity to pursue his claims and has been unsuccessful for the reasons set forth by the Federal Magistrate who heard and resolved those claims; · the Grounds of Appeal as set forth in the Notice of Appeal as filed in this Court on 29 March 2010; · the affidavits relied upon by the Respondent, being the Applicant on the Motion, being an affidavit filed by the Respondent's solicitor and an affidavit previously filed by the Appellant; and · the affidavit relied upon by Mr Robertson, being the Respondent on the Motion,being an affidavit of his solicitor. In the present proceeding, the Court has the further advantage of both the Appellant and the Respondent having already filed their respective Outlines of Submissions. The Appellant's case on appeal, it would appear, will be that this Court is to conduct a "rehearing" and that many of the findings of fact as made by the Federal Magistrate are to be put in issue. The Respondent's position is that the Appellant's Outline of Submissions fails to contain "a concise statement of the issues that the appeal presents" but further contends that the findings made by the Federal Magistrate are supported by the evidence. When previously refusing the application for the stay, it was then observed that "the Appellant may only have questionable prospects of success on appeal" but that that "can remain a matter to be more fully explored on the hearing of the appeal": [2010] FCA 619 at [10]. Notwithstanding that observation and the detailed submissions which have been filed, it is not possible - nor is it appropriate - to attempt at this stage to form any more certain view as to the competing merits of the submissions advanced on behalf of the parties. No submission has been advanced suggesting that the appeal is not a bona fide appeal. 17 The facts upon which the Respondent relies in support of its application for security for costs as set forth in its affidavit are within a narrow compass. They are essentially as follows: · the Appellant resides in Victoria; · he owns a house in Detroit, Michigan, in the United States of America in which his wife and son reside; · he does not own any real estate in New South Wales, Victoria or Queensland; and · the Federal Magistrate ordered that he pay costs of the proceeding before that Court. Albeit disputed, those costs have been estimated in the sum of $53,605.72 and have not been paid. The costs of the appeal to this Court are estimated by Knott Investments Pty Ltd to be "in the order of $30,000". 18 Although it may be accepted that the Appellant resides in Australia, he also has unquestioned ties with the United States of America. Albeit understood to be the subject of dispute, the Federal Magistrate stated that he was a citizen by birth of the United States. The Federal Magistrate in his reasons for decision also extracts correspondence from the now Appellant in 2007 acknowledging that neither the Appellant nor his family had been resident in Australia "for almost 21 years". It would nevertheless now appear to be common ground that Mr Robertson has been a resident of Australia for approximately the last 2 ½ years and is presently in receipt of annual income of $95,000. 19 Even though the Appellant may presently be resident in Victoria, the Respondent submits that the Appellant is "ordinarily resident outside Australia" for the purposes of O 28r 3(1)(a). If this submission be accepted, reliance is thereafter placed by the Respondent upon the "great weight" to be given to this fact and to the desirability - to employ the language of Gummow J in Energy Drilling - of having a "fund available within the jurisdiction of this Court" against which it can enforce any judgment for costs. 20 This submission, however, is rejected. It is not considered that Mr Robertson can properly be characterised as a person "ordinarily resident outside Australia". He has lived in Australia for a period of approximately 2½ years and has been employed in Victoria, apparently, in the same position for some time. 21 After having considered each of the factors relevant to the exercise of the discretion, it is concluded that it is not appropriate to make an order that security be now provided by the Appellant in the sum of $30,000. 22 The primary reason for refusing the relief as claimed by the Respondent in its Notice of Motion is its delay in making the application. The Notice of Appeal was filed in March 2010 and yet the application for security was not filed until July 2010, being the month before the hearing of the appeal itself and almost three months after it was set down for hearing. The only explanation advanced orally in submissions to explain the delay was the Respondent's hope that "the case would go away". 23 It is, however, considered appropriate that some security should be provided by reason of (in particular): · the fact that Mr Robertson has had the benefit of pursuing his claims before the Federal Magistrates Court and has the benefit of a reasoned decision rejecting his claims; · the fact that the appeal seems to be largely directed to challenging factual conclusions reached by the Federal Magistrate, as opposed to a question or questions of law; and · the fact that there is no evidence that Mr Robertson has any available assets in Australia, notwithstanding his being in receipt of a not insubstantial annual income. No submission was advanced on behalf of Mr Robertson that an order for security would stifle the hearing of the appeal.

24 The estimate of $30,000 was explained as being an estimate as to the entirety of the costs that will be incurred in respect of the appeal. Such delay as there has been in bringing the application for security provides a sound discretionary reason for refusing to order security in the sum of $30,000 - but the delay to date does not provide a sufficient reason to deny the Respondent security for the costs that will be henceforth incurred. The work necessarily involved in preparing submissions has already been undertaken. Some costs will, however, necessarily have to be incurred in further preparing the appeal and costs will also be incurred on the day of the appeal itself. Albeit the quantification of an amount to be provided as security is not an exact science, it is considered appropriate that security in the sum of $10,000 should be provided.

25 Security is to be provided in the sum of $10,000. The Respondent's Notice of Motion as filed on 12 July 2010 is to be otherwise dismissed. Although the Respondent has not been totally successful in seeking security in the sum it sought, a lack of total success is no reason why costs should not follow the event. The Appellant is thus to pay the costs of the Respondent of and incidental to the hearing of the present Motion.

ORDERS 26 The Orders of the Court are: 1. The Appellant, Mr Karl Vernon Robertson, is to provide security for the costs of the Respondent, Knott Investments Pty Ltd, in the amount of $10,000 within 14 days of these orders. 2. The security be provided in the form of a bank cheque or clear funds paid into an interest bearing account in the name of Workplace Law in trust for Karl Vernon Robertson and Knott Investments Pty Limited of which the signatories of that account are to be Michael Atkinson and Athena Koelmeyer jointly and which funds are not to be released until judgment, settlement or with the written consent of both parties or their legal representatives. 3. In the event that the Appellant fails to pay the security in accordance with orders (1) and (2): (a) this appeal is stayed, and (b) the listing of the appeal for hearing on 23 August 2010 is vacated. 4. The Respondent's Notice of Motion as filed on 12 July 2010 is otherwise dismissed. 5. The Appellant, Mr Karl Vernon Robertson, is to pay the costs of the Respondent, Knott Investments Pty Ltd, of and incidental to the hearing of the Notice of Motion filed on 12 July 2010. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Flick.