Time 2000 Systems (Australia) Pty Limited v Rafferty [2010] FCA 1179 | Case summary

REASONS FOR DECISION 1 This appeal is listed for hearing in the February list of the Full Court. It is from a decision of Besanko J in Rafferty v Time 2000 West Pty Ltd (No 4) [2010] FCA 725. A separate appeal from that decision by the first three respondents against the fourth respondent has been listed for hearing at the same time. 2 The first to third respondents (the first respondents) are jointly represented at the trial and in opposition to this appeal. They have applied by motion for an order that the appellants provide security for costs of the appeal. The fourth respondent has applied separately by motion for a similar order. Each motion is opposed. 3 The principles upon which such a motion should be determined are straightforward and, with one minor qualification, uncontentious. The Court's power to order security for costs is found in s 56 of the Federal Court of Australia Act 1976 (Cth), and in relation to the corporate appellants, s 1335 of the Corporations Act 2001 (Cth). There has been no submission on either motion that the position of the corporate appellants and of the individual appellant should be treated differently in the particular circumstances. In particular, it is not argued that no security for costs order should be made against him on the appeals because he is a natural person. 4 The purpose of an order for security for costs is to protect the respondents against the risk that, through the appellants' inability to pay the costs of the appeal if it is unsuccessful, the respondents will be deprived of the benefit of any costs order on the appeal: Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 per Austin J at [35]. 5 It is accepted that the jurisdiction to make orders for security for costs under s 1335 of the Corporations Act 2001 Cth) is enlivened because the appellants, on the material before the Court, accept that there is evidence that they do not have the assets available to satisfy an order for costs in the event that the appeal is unsuccessful, because each of them is effectively impecunious. The evidence also shows they have no revenue stream of any significance. The first and second appellants are corporations under the control of the fourth appellant, and so far as the evidence goes are inactive and have no significant assets. The third appellant is a foreign corporation which, subject to an assertion by the fourth appellant in the course of the conduct of the matter at first instance that it has intellectual property rights of significant value, has no assets and certainly has no assets within the jurisdiction. At the trial there was evidence that those rights had little or no value. The fourth appellant is presently subject to a bankruptcy notice issue, compliance with which has been extended for the time being. His only significant asset is a shareholding in a proprietary company. There is no valuation of that shareholding, nor any basis to think it is reliable at the value he ascribes to it. Relative to the judgment, given the value he ascribes to that shareholding, is insignificant, even if were correct. 6 The principles are clearly expressed, for example, in Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 8 ACLR 588 at 590-591 per Sheppard, Morling and Neaves JJ. 7 The discretion of the Court to order security for costs is unfettered. It is appropriate to have regard to whether the prospects of success on the appeal in a general way, whether an order for security for costs would preclude the appellants from pursuing the appeal, the public interest, the timing of the application, and whether the impecuniosity of the appellants arises from the conduct of the respondents. Other considerations may be appropriate. 8 The judgment appealed from, apart from declaratory orders, directed each of the appellants to pay to the respondents (other than the fourth respondent) $1.7m. 9 The appellants oppose the applications. 10 It was first contended that the making of any order for security for costs would be likely to stifle the appeal. I do not accept that. The information about the assets of the appellants has been provided by the first respondents. That includes a copy of an affidavit of the fourth appellant of 31 August 2010, in response to an application that their assets be frozen following the judgment at first instance. The appellants have not produced on this application any evidence as to their assets or liabilities or as to their cash flow. There is no evidence as to how the appellants are funding the institution and conduct of this appeal. I infer that some one or more of the appellants either has a source of funds available to it at which the respondents are unaware or has a person or entity standing behind it who or which is prepared to fund the appeal on its behalf. If the appellants are in a position to fund the institution and conduct of this appeal, and they would not be insignificant, I am prepared to conclude that an order for security for costs would be unlikely to stifle the prosecution of the appeal if it is being genuinely pursued. 11 It is not possible to form any real view as to the prospects of the appeal against the decision in favour of the first appellants succeeding. However, there is reason to consider that the appeal will not be an easy one to succeed on. To large measure, it turned on the assessment of the reliability of the evidence of the first respondents. The person with whom he dealt was principally the fourth appellant. He did not give evidence. The appeal, inter alia, challenges findings of fact but in that context they will be hard to sustain. He is apparently the controller of the corporate appellants. They apparently have no assets to meet either the judgment or any costs order. The third appellant has, as I have noted, no assets within the jurisdiction. In the case of the fourth respondent, the grounds of appeal are narrow and, as appears from [339]-[345] of the reasons for judgment, findings have been made in relation to the issues in the pleadings, and the unchallenged evidence. Counsel for the appellants submitted that the trial judge had failed accurately to identify the case pleaded, but it is not immediately apparent from the reasons at [340] that that is so. 12 Counsel for the appellants pointed out that the grounds of appeal also raise matters of law, not dependent on credit. They concern the questions whether there was in fact a franchise agreement, and the legal status and significance of the agreement to enter into a franchise agreement. Those issues are, to a degree, fact specific to this case as their resolution depended on other arrangements between the parties about the ability of the appellants to impose a marketing strategy on the second and third respondents. However, that issue is upon which I have no view as to the prospects of success of the appeal, so overall I do not take into account in the exercise of my discretion on the first respondents' motion the prospects of success on the appeal. In the case of the fourth respondent's motion, for the reasons given, I take into account that in my provision view the prospects of success are not strong. 13 There is also evidence in the material before the Court that the fourth appellant had the capacity to transfer funds, when it was inappropriate to do so having regard to an agreement in writing between his solicitors and the solicitors for the first respondents, and where there is some evidence to suggest that the purpose of the transfer as proffered by the fourth appellant was incorrect. Of course, I am not in a position to make formal findings on those matters, but they indicate a propensity on the part of the fourth appellant to manipulate funds to his advantage.

14 There were no other significant topics raised by the parties said to be relevant to the exercise of my discretion. The submissions on the prospects of the appeal succeeding included reference to other issues, but I did not think they really advanced the picture on that topic as I have assessed it. 15 Having regard to all the circumstances to which my attention has been drawn, in my view it is appropriate to make an order for security for costs in this matter in favour of the first respondent (collectively) and in favour of the fourth respondent. 16 On balance, I have come to the firm view that the considerations in favour of making such an order in this matter are quite strong. It is apparent from the material presented previously to the respondents by the applicants that the applicants would not be able to recover the costs of the appeal if it is unsuccessful, but I have found by reason of the unexplained capacity of the appellants to institute and conduct this appeal that orders for security for costs would be unlikely to stifle a genuine appeal. The motions have been brought in a timely manner. The prospects of the appeal succeeding are not shown to be so apparently strong as to weigh against the orders, nor so apparently weak as to weigh in favour of the orders (except in the case of the fourth respondent). There is no suggestion that the respondents are in any way responsible for the appellants' financial position. Indeed, there is some basis for thinking that the fourth appellant might take steps to avoid having to meet any order for costs. There is no element of the public interest which suggests the discretion should not be exercised in that way. 17 The quantification of the appropriate order for security for costs is difficult. Quite different estimates have been provided of costs incurred and to be incurred in the conduct of the appeals by the first respondents and the fourth respondent on the one hand, and by the appellant on the other hand in this proceeding. 18 It is in my view appropriate to adopt a conservative approach, but bearing in mind the need for the Court to be fair and to give effect to the purpose of protecting the respondents against the risk of being deprived, through the appellants' inability to pay, of the benefit of a costs order made for that purpose should the appellants be unsuccessful on the appeal. 19 There is no particular calculation which I have made. My orders reflect a global conservative assessment of the costs of the first respondents and the fourth respondent on the appeal. It is conservative because, as the submissions indicated, it is even difficult to estimate the likely hearing time of the appeal. I have also adopted the contention of the appellants that, as the two appeals are to be heard together, it is appropriate to reduce the estimates because, for example, counsel fees on the two appeals may be taxed so that one counsel fee is allowed for the two appeals for a day of the hearing of the appeals. That approach has followed through to other particular items of the costs. 20 I order that the appellants pay into Court: (a) by way of security for costs of the first respondents' costs of the appeal the sum of $40,000; (b) by way of security for costs of the fourth respondent's costs of the appeal the sum of $25,000 pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) and Order 28 of the Federal Court Rules. The appeal will be stayed until the appellants have done so. 21 I will also provide for the appellants to provide to the respondents security for their costs in those amounts respectively in any other form which may be acceptable to the respondents. It is up to the appellants then to propose a form of security for costs acceptable to them. 22 As the appeal is presently listed for hearing in the February 2011 sittings of the Full Court, it is desirable that its status be resolved before then. I therefore direct that the order for payment of the security for costs be complied with within 28 days of these orders, that is by 29 November 2010. In the event that the order is not complied with by that date, the respondents may decide to exercise the liberty to apply for the appeal to be struck out. There will be liberty to any party to apply on three days' notice to the other parties for that purpose, and generally. That will accommodate a circumstance where the security for costs order is met in relation to one or more of the respondents only.

Time 2000 Systems (Australia) Pty Limited v Rafferty

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Judgment (7 paragraphs)

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