Thomson v STX Pan Ocean Co Ltd

REASONS FOR JUDGMENT 1 By a notice of motion filed on 15 February 2011 the respondent to an appeal, STX Pan Ocean Co Ltd (STX Pan), seeks an order that the appellant, David John Thomson (Mr Thomson), pay security for costs of the appeal in the sum of $120,000, failing which the appeal be stayed or dismissed. 2 The background facts to the motion for security are within a narrow compass. 3 On 26 November 2010 the primary judge ordered Mr Thomson to pay to STX Pan the sum of USD$509,771.10 and 80% of STX Pan's costs of the proceeding (STX Pan Ocean Co Ltd v Bowen Basin Coal Group Pty Ltd (No 3) [2010] FCA 1374). The primary judge made these orders consequent on his earlier finding that Mr Thomson made or caused others to make false post-contractual representations in respect of a charter contract between STX Pan and Bowen Basin Coal Group Pty Ltd, as a result of which STX Pan did not terminate the charter contract on 6 May 2010 as it otherwise would have done (waiting instead until 17 May 2010 to do so) and suffered loss or damage thereby (STX Pan Ocean Co Ltd v Bowen Basin Coal Group Pty Ltd (No 2) [2010] FCA 1240 (STX Pan (No 2)) at [99]). The primary judge, however, rejected STX Pan's additional claims that Mr Thomson engaged in any unlawful pre-contractual conduct (STX Pan (No 2) at [71])), specifically rejecting STX Pan's claim that Mr Thomson made the misleading representation that Bowen Basin Coal Group Pty Ltd was ready, willing and able to perform the charter contract (the ready, willing and able representation) (STX Pan (No 2) at [86]). 4 On 16 December 2010 Mr Thomson filed a notice of appeal. This notice appeals against the whole of the primary judge's judgment. It contains nine grounds alleging error in a number of respects in the primary judge's conclusions about the post-contractual representations, STX Pan's reliance on those representations, the existence and quantum of the loss and damage caused by such reliance, and the award of costs. By this appeal Mr Thomson seeks orders setting aside the orders made by the primary judge on 26 November 2010 and, in lieu thereof, orders that STX Pan's claim be dismissed and that STX Pan pay Mr Thomson's costs of the appeal and the proceeding before the primary judge. 5 On 23 December 2010 STX Pan filed a notice of cross-appeal. This notice appeals against a part of the primary judge's judgment. It contains 15 grounds alleging error by the primary judge in respect of his conclusions about the making of, and STX Pan's reliance upon, the ready, willing and able representation; the implication of the substance of this representation into the contract; the calculation of damages; and the award of costs. By its cross-appeal STX Pan seeks that the primary judge's order of 26 November 2010 be varied so as to provide that Mr Thomson pay to it the sum of USD$2,761,107.55 with interest, as well as the costs of the proceedings before the Full Court and the primary judge. 6 On 15 February 2011 STX Pan filed its notice of motion seeking the order for security for costs of the appeal. 7 The principles to be applied are well known. I had cause to summarise these principles in Clack v Collins (No 1) [2010] FCA 513 (Clack v Collins). This summary included the following propositions: (1) "The court has a wide power under s 56 of the Federal Court of Australia Act 1976 (Cth) to order security for costs. The discretion to order security to be provided, as noted in Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1, is broad and unfettered but must be exercised judicially" (at [5]). (2) "O 52 r 20 of the Federal Court Rules provides that no security for costs is required unless a Court or a Judge so directs. In Paton v Campbell Capital Limited [1993] FCA 449 this was described as placing "something of an onus" on the party seeking the order to satisfy the court that such an order should properly be made" (at [6]). (3) Appeals attract different considerations from trials at first instance. As stated at [8]-[9] in Clack v Collins: [8] In Moore v Macks [2007] FCA 509 at [20] Mansfield J referred with approval to the decision in Cowell v Taylor (1885) 31 Ch D 34 at 38. In that case, Bowen LJ said: The general rule is that poverty is no bar to a litigant, that, from time immemorial, has been the rule at common law, and also, I believe, in equity. There is an exception in the case of appeals, but there 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. [9] Mansfield J also referred to the decision of Spender J in Skyring v Sweeney [1999] FCA 61 at [6] to the effect that: Impecuniosity is a factor which can be taken into account as justifying the grant of security. Impecuniosity ought not to be a bar to a person prosecuting at first instance a claim, but the position on appeal seems to me to be fundamentally different. In effect, in the absence of an order for security for costs in the circumstances of this case, Mr Skyring, in effect, is given a free hit, and that seems to me to be intrinsically unfair. (4) A wide range of general discretionary facts may be relevant. As stated at [13] in Clack v Collins: In Soh v Commonwealth of Australia [2008] FCA 1524, at [10], Moore J identified six factors relevant to the decision whether or not security for costs should be awarded, namely (i) the prospects of success, (ii) the quantum of risk that a costs order will not be satisfied, (iii) whether the making of a costs order would be oppressive in that it would stifle a reasonably arguable claim, (iv) whether any impecuniosity of the party from whom security is sought arises out of the conduct complained of, (v) whether there are aspects of public interest which weigh in the balance against such an order, and (vi) whether there are any particular discretionary matters peculiar to the circumstances of the case. 8 In addition to these considerations, I accept that it is relevant in this case that Mr Thomson was the defendant to the proceeding below and is the respondent to STX Pan's cross-appeal (see, eg, John Caines Management Pty Ltd v Adrenaline International Powersports Pty Ltd [2004] FCA 747 (John Caines Management), Gray J at [22]). 9 Against this background, my findings and conclusions are as follows. First, I am satisfied that Mr Thomson is impecunious in the sense that, if his appeal fails, he will not be able to meet STX Pan's costs of the appeal. It was submitted on Mr Thomson's behalf that the evidence did not enable an inference of impecuniosity to be drawn, primarily because STX Pan relied on information in the context of an asset-freezing order made on 21 May 2010 against Mr Thomson. This material, it was submitted, was insufficiently contemporaneous to support a finding of present impecuniosity. I disagree. By paragraph 8 of the asset freezing order Mr Thomson was required to disclose his financial position on affidavit. In response to this order Mr Thomson identified personal assets of some $99,000 (only about $6,000 of which was in the form of "cash at bank"), and some $6,000 debt. He provided an affidavit of 31 May 2010 annexing bank statements showing small amounts of available cash, the most significant being a statement showing a balance of some $17,000 and wages payments, with the total cash at bank pool available being $39,841.49. 10 In a later affidavit of 21 June 1010 Mr Thomson said he had paid $15,000 in legal costs from his available funds and expected to be billed for other amounts including $14,600 in unbilled solicitors' costs, $20,000 in future solicitors' costs, $24,000 for junior counsel's fees, $20,000 for senior counsel's fees and $3,760.64 in travel expenses. 11 On 24 June 2010 the asset-freezing order was varied to enable Mr Thomson to "pay an additional $39,841.49 for his reasonable legal expenses, being $54,841.49 in total". In other words, according to his own evidence, Mr Thomson proposed to spend all of his then-available money to fund the proceeding before the primary judge. 12 After the primary judge made the orders of 26 November 2010, the solicitors for STX Pan wrote to Mr Thomson's solicitor requesting payment of the judgment sum (USD$509,771.10, inclusive of interest). Mr Thomson, apparently, did not respond to this request and has not paid any part of the judgment sum or of the costs of STX Pan pursuant to the costs order made by the primary judge. 13 On 1 February 2011, the solicitors for STX Pan wrote to Mr Thomson's solicitor requesting the payment of $75,000 as security for the costs of the appeal. When no response was received, STX Pan's solicitors filed the present notice of motion. 14 Mr Thomson filed no evidence in response to the notice of motion. As reflected in the affidavit of Timothy Lam, a solicitor employed by STX Pan's solicitors, Mr Thomson had not as at 16 February 2011 produced any material suggesting that his financial position had changed since 31 May 2010. Mr Lam's affidavit further indicates that, based on Mr Lam's experience of commercial legal practice, Mr Thomson would have incurred legal costs of about $150,000 between May 2010 and the date of the affidavit. On the basis of Mr Lam's evidence in this regard, which I accept, the inference is available that, in the conduct of this matter thus far, Mr Thomson would have more than exhausted his available funds as disclosed to the Court in May and June 2010. In circumstances where Mr Thomson has chosen not to adduce evidence that his financial position has altered, this inference should be drawn. 15 For these reasons I am satisfied that Mr Thomson is impecunious in the sense that his available funds would be insufficient to meet a costs order on appeal. 16 The question, then, is whether security for costs should be ordered. Adopting the order of considerations identified in Soh v Commonwealth of Australia [2008] FCA 1524, my conclusions are as follows: (1) The appeal and cross-appeal involve detailed questions of fact. For present purposes all that can or should be said is that I accept that the appeal is brought in good faith. (2) I infer, for the reasons given at [14] above, that there is a high risk that a costs order in favour of STX Pan would not be satisfied by Mr Thomson. (3) It is not clear that the making of the order for security would stifle the appeal. Mr Thomson adduced no evidence to this effect. Mr Thomson managed to defend the proceeding below at all times being represented by solicitors and counsel (despite the fact that, on the evidence of his available resources, his funds would have been exhausted well before the hearing before the primary judge). A similar inference (that the making of the order for security is unlikely to stifle the appeal) draws some support from the fact that, according to the submissions on his behalf, Mr Thomson has senior counsel retained for the hearing of the appeal. (4) Mr Thomson's impecuniosity did not result from any conduct of STX Pan. (5) There are no public interest considerations in play or, at the least, Mr Thomson's submissions did not suggest as much. (6) There are discretionary matters peculiar to the circumstances of the case. Mr Thomson is an individual and was the defendant to the proceeding below. He is the respondent to the cross-appeal. If he wholly succeeds in his appeal, the effect will be to remove his liability to STX Pan. If he fails in his appeal, he will remain liable for the judgment sum of USD$509,771.10, interest and costs. If STX Pan wholly succeeds in its cross-appeal, Mr Thomson's liability will increase to USD$2,761,107.55 plus interest and costs. Further, the appeal and cross-appeal are not unconnected. As to liability, they involve the same evidentiary foundation and course of conduct. As to damages and costs, the overlap is even more substantial. Finally, it is also possible to speculate that if Mr Thomson does not pay any security ordered, his appeal may be stayed or dismissed and the cross-appeal against him may proceed or may be withdrawn. 17 Weighing the evidence and competing considerations, I do not consider that this application for security may be characterised as any form of tactical manoeuvre on the part of the respondent to retain a favourable judgment (a matter which weighed on the mind of Gray J in John Caines Management). STX Pan partly succeeded in a substantial claim against Mr Thomson. Mr Thomson is apparently impecunious. Despite this, Mr Thomson wishes the opportunity to challenge the whole of the judgment below in circumstances where if he succeeds he stands to gain a substantial benefit, but if he fails it appears very likely that any order for costs against him will remain unsatisfied. This would be unjust. 18 It is true that the existence of the cross-appeal adds a layer of potential complication. However, I do not agree that I should give material weight to the prospect that Mr Thomson may not be able or may choose not to pay any security ordered, with the consequence that the appeal may be dismissed but the cross-appeal proceed. As noted, this prospect is speculative. I have no real basis for concluding that the ordering of security would stifle the appeal: Mr Thomson is impecunious, but he may have access to the funds of other persons so as to enable his appeal to proceed. Further, I do not know whether STX Pan will proceed with its cross-appeal if the appeal is dismissed. As such, speculation is all that is possible at this stage and is unhelpful. 19 Further, I do not agree that the overlap between the appeal and cross-appeal makes it impossible to determine any appropriate quantum of security. In Smith v Madden (1946) 73 CLR 129 (on which Mr Thomson relied) the difficulty of apportionment between a claim and counter-claim was recognised, but it was not suggested that it was thereby impossible for costs to be taxed. Properly analysed, in the circumstances of this case, that difficulty goes to the quantum of security and not the making of the order. 20 For these reasons I am satisfied that it is appropriate that Mr Thomson provide security for costs of his appeal. 21 Quantum was in dispute. Derek Luxford, the solicitor responsible for the matter on behalf of STX Pan, estimated the costs likely to be incurred in the appeal and cross-appeal at $126,325. He agreed that this estimate was a "ball-park" figure which was not based on party-party or indemnity costs but a blend of the two. He also agreed that the estimate was in error insofar as the overall addition was wrong and two items (preparation time of five days for senior and junior counsel) should be reduced (to four days' preparation). Despite these matters, Mr Luxford considered the estimate to be conservative given the nature and complexity of the appeal. Mr Luxford also acknowledged that an allowance of 25% should be made for the costs of the cross-appeal. 22 Mr Thomson noted that the estimate exceeded the $75,000 initially requested as security for costs in Mr Luxford's email of 1 February 2011. Mr Thomson also challenged the allowances for two solicitors and other allowances for preparation time. For its part, STX Pan noted that when estimating Mr Thomson's own costs of a one-day trial his solicitors nominated the sum of $90,000. 23 Under s 56(2) of the Federal Court of Australia Act 1976 (Cth) "[t]he security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs". It is accepted principle that an order for security is not intended to grant an indemnity in respect of costs. I have considered the basis of Mr Luxford's estimate, Mr Luxford's evidence (and that of Mr Lam as relevant), and Mr Thomson's written and oral submissions about the components of that estimate said to be excessive. My conclusions are as follows: (1) The estimates at items 8.1 to 8.6 of the table in Mr Luxford's affidavit are reasonable. The fact that they involve two solicitors is not unreasonable given their differing charge-out rates and the inference I draw that Mr Luxford's involvement is primarily in a supervisory capacity. (2) The estimates at items 8.7 and 8.8 appear reasonable on the same basis. (3) I accept Mr Thomson's submission that the attendance of two solicitors for the hearing of the appeal (at item 8.9) should not be part of the estimate. Such a cost should not be to Mr Thomson's account on this application for security. I disallow the lesser amount associated with Mr Lam's attendance. (4) The disbursements at item 8.10 appear reasonable despite the reference to a transcript of the appeal, which may be unnecessary. (5) I agree that one day of the preparation time allocated for each of senior and junior counsel (items 8.11-8.12 and 8.15-8.16) should be excluded. (6) I consider the allowance of four days for interlocutory matters at item 8.14 excessive, particularly given that the estimate includes (after removing one day from the preparation time) three full days' preparation time for each of senior and junior counsel. This estimate should be reduced by one day. 24 Having regard to these matters, the total amount of the estimate would be $97,245. I also consider the allowance of 25% for the cross-appeal to be too low. I consider an allowance of 40% to be more realistic, having regard to the grounds of the appeal and cross-appeal. This reduces the estimate to $58,347. A further reduction is necessary to take into account the fact that Mr Luxford's estimate was a blend of party-party and indemnity costs. However, I do not consider a further substantial reduction on this ground warranted given that the deductions already made largely reflect the difference between party-party and indemnity costs in any event. Rounding down (which is appropriate in that uncertainty in this regard should be resolved in Mr Thomson's favour), I am satisfied that security should be ordered in the sum of $55,000. In so holding, I note that the debate between the parties reflected in correspondence after the hearing regarding the calculations made in Mr Luxford's affidavit are immaterial to my conclusions above. Costs of the motion for security should be costs in the cause. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.