The Airtourer Co‑operative Limited v Millicer Aircraft Industries Pty Limited

(a) that the applicant is willing to exhaust its available funds in meeting its own legal costs of this proceeding; (b) the applicant is willing, if necessary, to seek additional funds from its members to allow it to complete this litigation; (c) the applicant does not presently contemplate that its funds will be available to meet a costs order in favour of the respondents; and (d) the applicant does not presently contemplate seeking additional funds from its members to allow it to pay any costs order in favour of the respondents.

10 I draw the above inferences principally from a draft letter ('the draft letter'), apparently prepared by the applicant's directors for submission to the applicant's solicitor, and from the terms of the conversation between Mr Michael Humphris, one of the second respondents, and Mr Hugh Knox, a director of the applicant, referred to in the respondents' outline of submissions (see [4] above). The draft letter is referred to in the minutes of a meeting of the directors of the applicant held on 5 March 2003 and is attached to those minutes. The terms of the draft letter suggest that the directors envisaged that the letter, in final form, would be sent to the first respondent. The draft letter includes the following paragraphs: 'We originally had a financial kitty of $50,000.00 with [sic] which we were prepared to allocate to recover the Type Certificates. To date, we have consumed $17,000.00 in legal fees and our remaining funds are in the order of $33,000.00. We are prepared to use these funds to initiate legal proceedings. If and when required, we can seek additional funds from our members to complete the legal action we intend to initiate. … We see 3 possible outcomes … after we proceed with legal action and in each one of these outcomes, we see almost no opportunity for you to recover the costs that you have incurred to date. In the unlikely event that you win the court case, you still will not have received any funds for the Type Certificate and your expenses will have increased. You will also be subject to the possibility of paying our court costs. Our company has a limited liability.'

Co-operative Status 11 As mentioned above, the applicant contends that, being a co-operative, it must, for the purposes of the application for security for costs, be treated as if it were a natural person. In support of this contention it placed reliance on Co-operative Farmers' and Graziers' Direct Meat Supply Limited v Smart [1977] VR 386 ('Co-operative Farmers' and Graziers'').

12 In Co-operative Farmers' and Graziers' at 389 Kaye J noted that there was authority supporting the view that, in the absence of statutory provisions to the contrary, the general rule that poverty of a litigant is not a ground for ordering the litigant to provide security for the costs of an action initiated by him or her applies both to an artificial legal person as well as a natural person. At 392 his Honour concluded that nothing took the action before his Honour outside the general rule that poverty of a plaintiff is not a ground requiring the plaintiff to give security for costs.

13 I do not regard Co-operative Farmers' and Graziers' as authority for the proposition that a co-operative must be equated with a natural person for the purposes of an application for security for costs. The approach adopted by Kaye J was simply that, in the absence of a legislative direction to the contrary, the general rule to which his Honour referred applied equally to natural persons and artificial legal persons. I reject the submission that the applicant must, for the purposes of this application, be equated with a natural person.

14 A significant difference between a co‑operative and a natural person is that an order for costs made against a natural person, if not met, can found a bankruptcy petition. The making of a sequestration order against a person's estate has significant consequences for that person. By contrast, an order for costs made against a co‑operative, if not met, may have no adverse consequences of significance for any individual co‑operative member. In this case it seems fair to conclude that at least the directors of the applicant would not be greatly troubled were steps to be taken to wind up the applicant. That is not to say that the applicant is merely a nominal applicant. I do not conclude that the proceedings are being brought, not for the benefit of the applicant, but principally to benefit individuals unwilling to render themselves vulnerable to an order for costs. However, as indicated above, I do conclude that the directors of the applicant are willing to organise the financial affairs of the applicant in a way calculated to result in its being able to prosecute this proceeding but unable to meet any order requiring it to pay a significant sum to the respondents in respect of their legal costs.

The Usual Rule as to Impecuniosity 15 Rejection of the submission that the applicant is entitled to be equated with a natural person for the purposes of this application does not render the usual rule as to impecuniosity, should it have survived the enactment of subs 56(1) of the Federal Court Act, irrelevant to this application (Co-operative Farmers' and Graziers'). It is therefore necessary to give consideration to whether the usual rule as to impecuniosity has survived the enactment of subs 56(1) and, if it has, its relevance to this application. 16 The Full Court observed in Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1 ('Bell Wholesale') at 3: 'Section 56(1) is in general terms. … The discretion to make orders under s 56 must be exercised judicially, but that is the only relevant limitation.' Consideration must therefore be given to the content of the requirement that the discretion be exercised judicially. 17 Where a power conferred by legislation is to be exercised judicially, it is to be exercised 'not arbitrarily, capriciously or so as to frustrate the legislative intent' (Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 per Gaudron and Gummow JJ at [22]). Further, where a power of the nature of that conferred by legislation has a long history, the legislative power is to be exercised according to principle, not unguided discretion (Australian Broadcasting Corporation v Lenah Game Meats Pty Limited [2001] HCA 63; 208 CLR 199 per Gleeson CJ at [10]). Additionally, as Gleeson CJ stated in Plaintiff S157/2002 v Commonwealth of Australia [2003] HCA 2; 211 CLR 476 at [30]: '…courts do not impute to the legislature an intention to abrogate or curtail fundamental rights or freedoms unless such an intention is clearly manifested by unmistakable and unambiguous language. General words will rarely be sufficient for that purpose.' 18 The common law has long regarded it as a fundamental right of a citizen, including an impecunious citizen, to have access to the courts. Indeed, this fundamental right might be thought to be immanent in the rule of law. The rule of law, as Dixon J observed in Australian Communist Party v The Commonwealth (1951) 83 CLR 1 at 193, is assumed by the Australian Constitution. It would be strongly arguable, in my view, that a legislative provision that purported to restrict access to this Court to litigants able to provide security for the payment of costs that might be awarded against them would offend Chapter III of the Constitution. However, in my view, nothing suggests that subs 56(1) of the Federal Court Act was intended to curtail that fundamental right. The authorities have not understood it to do so. For example, Morling J, who only a month before had been a member of the Full Court that delivered judgment in Bell Wholesale, in Barton v Minister for Foreign Affairs (1984) 2 FCR 463 at 469 accorded recognition to the fundamental right of a citizen to have access to the courts when he observed that: 'It has never been the case that impecuniosity on the part of a plaintiff is a ground for ordering him to give security for costs. In Pearson v Naydler [1977] 1 WLR 899, Megarry V-C said: "The basic rule that a natural person who sues will not be ordered to give security for costs, however poor he is, is ancient and well-established. As Bowen LJ said in Cowell v Taylor (1885) 31 Ch D 34 at 38, both at law and in equity 'the general rule is that poverty is no bar to a litigant'. The power to require security for costs ought not to be used so as to bar even the poorest man from the courts."' 19 Other Federal Court authorities to the same effect are identified in Heydon JA's review of authorities concerning the proper construction of s 56 of the Federal Court Act in Melville v Craig Nowlan & Associates Pty Ltd [2002] NSWCA 32; 54 NSWLR 82 ('Melville v Craig Nowlan') at [82]-[94]. These authorities demonstrate that this Court has a long history of exercising the broad discretion vested in it by s 56 in a way that accords respect to the principle that it is a fundamental right of citizens, whether poor or wealthy, to be able to access the courts to protect their legitimate legal rights. 20 The answer to the question of how the general rule that poverty is no bar to a litigant survived the enactment of s 56(1) of the Federal Court Act (see Melville v Craig Nowlan at [84]‑[89]) is to be found, in my respectful view, in the fact that the rule derives from the principle that citizens have a right of access to the courts. That is, the provenance of the rule is such that the requirement that the discretion vested in the Court by the subsection be exercised judicially, in the sense identified in [17] and [18] above, mandates its survival. 21 Recognition by this Court of the general rule that poverty is no bar to a litigant has not meant that the Court has proceeded on the basis that an order for security for costs can never be made against an impecunious litigant. An order for security for costs is only rarely sought against a litigant who is not impecunious. An order for security for costs made against an impecunious litigant when justified by a factor other than mere impecuniosity does not offend the general rule that poverty is no bar to a litigant. Indeed in Morris v Handley [2000] NSWSC 957 at [12] Young J pointed out that what we call applications for security for costs have their origin in 'de-pauperisation' applications. Such applications, it seems, were intended to result in a pauper shown to have brought a vexatious or oppressive action losing his or her entitlement to sue in forma pauperis. 22 For the above reasons, I consider that I am bound both by authority and principle to act on the basis that subs 56(1) of the Federal Court Act is not intended to empower the Court to act in disregard of the principle that poverty of itself is no ground for ordering a litigant to provide security for costs.

Relevant Factors 23 As Moore J pointed out in Chang v Comcare Australia [1999] FCA 1677 at [25]: 'While impecuniosity is not, by itself, sufficient to warrant an order for security, it is generally a relevant consideration.' 24 The above analysis of the evidence concerning the applicant's financial position reveals that it is impecunious in the sense that it is unlikely, if unsuccessful in this proceeding, to be able to meet an order for costs in favour of the respondents. The evidence discloses factors additional to the applicant's impecuniosity, albeit related to it, that I regard as significant in the context of this application. Those factors are first, that the applicant has a limited pool of funds available to it, which it plans to utilise to meet its own legal costs but which it does not plan should be available to meet any costs order made in favour of the respondents. Second, the applicant has members to which its directors consider that they can turn should the applicant require additional funds. 25 Additional considerations generally regarded in this Court as relevant to the exercise of the discretion vested in the Court by subs 56(1), as Mansfield J recognised in Gartner v Ernst & Young (No 3) [2003] FCA 1437 at [10], include: '● the prospects of success in the proceedings, subject to the practical circumstance that the Court will generally not be required to investigate in considerable detail the likelihood or otherwise of success in the action; ● whether an order for security for costs would preclude the applicant from pursuing the claim; ● whether the impecuniosity of the applicant arises out of the breaches of conduct alleged against the respondent; ● the public interest; and ● the timing of the application, namely that it should be brought promptly.'

26 I am satisfied that the applicant's claim is made bona fide and see no reason to conclude that it does not have reasonable prospects of success. That is, I do not consider that this is a case in which an impecunious litigant is abusing the Court's process or otherwise acting vexatiously or oppressively.

27 I do not conclude that an order requiring the applicant to provide a relatively modest sum by way of security for costs would preclude the applicant from pursuing its application to the Court. It might require the directors of the applicant to request additional funds from members of the applicant but, as the proceeding is presumably being pursued by the applicant in the interests of its members, I see nothing inappropriate in such an outcome.

28 It has not been suggested that the impecuniosity of the applicant arises out of the conduct of the respondents that is the subject of this proceeding.

29 This is not a case of a kind such that, in my view, the public interest suggests either that an order under subs 56(1) should be made or that it should not be.

30 The applicant sought to persuade me that the respondents have delayed bringing the present motion and for that reason should be denied the order that they seek. Delay is an important factor where an order for security for costs is sought, principally for the reason identified by Moffit P in Buckley v Bennell Design and Construction Pty Ltd (1974) 1 ACLR 301 at 309 where the learned President observed: 'The primary reason why the application should be brought promptly and pressed to determination promptly is that the company, which by assumption has financial problems, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it is allowed to or commits substantial sums of money towards litigating its claim.' 31 I am not satisfied that this application for an order under subs 56(1) should fail on the ground that it was not brought promptly. The evidence discloses that the respondents wrote to the applicant's solicitors promptly after the conversation between Mr Humphris and Mr Knox referred to above. I am satisfied that it was that conversation that alerted the respondents to the apparent willingness of the directors of the applicant to allow the funds of the applicant to be exhausted in payment of the applicant's own legal costs and further to allow the applicant to be wound up should an order for costs in favour of the respondents be made against it. As indicated above, I regard these as important factors so far as this application is concerned. CONCLUSION 32 Having regard to all of the factors identified above, I have concluded that it is appropriate in the circumstances of this case to require the applicant to provide security for the costs of the respondents. I do not consider that the interests of justice require that the costs incurred by the respondents before the filing of the notice of motion seeking an order for security for costs should be disregarded in determining the amount for which security should be provided. It seems to me that the appropriate approach is that 'the security should be such as the court thinks in all the circumstances of the case is just' (Procon Ltd v Provincial Building Ltd [1984] 1 WLR 557 at 567). 33 I consider that the interests of justice will be best served by the amount being set at a relatively modest level. The amount should not be so large as to stifle the litigation. However, the amount should be sufficient to ensure that the directors of the applicant appreciate that the risk that the applicant might be ordered to pay the respondents' costs has more than notional significance. 34 It seems likely that the amount now held by the applicant as members' funds is well below $50 000.00 (see [6] above). The process of fixing on a sum in which the applicant must provide security necessarily has an arbitrary element but I have concluded that the appropriate sum in this case is $20 000.00. The applicant will be ordered to give security in that amount. It will further be ordered that, pending provision of security in that amount, this proceeding be stayed. I will hear the parties on the question of the costs of the motion. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson.

Associate: Dated: 1 November 2004 Counsel for the Applicant and First Cross Respondent: M Leeming with J Hewitt

Solicitor for the Applicant and First Cross Respondent: Norton White

Counsel for the First and Second Respondents, Second Cross Respondent and Cross Claimant: J White

Solicitor for the First and Second Respondent, Second Cross Respondent and Cross Claimant: Cowley Hearne Lawyers Pty Limited

Date of Hearing of Motion: 20 October 2004

Date of Judgment: 1 November 2004