Tropicana Limited v Australasia Corporate Services Pty Ltd

B. BACKGROUND 3 The respondents are Australasia Corporate Services Pt Ltd (ACN 101 295 532) (the First Respondent) and Mr Unal "Alan" Yildiz (the Second Respondent) (collectively, the Respondents). 4 Tropicana commenced this proceeding against the First Respondent on 24 February 2010, claiming that the First Respondent had: 1. engaged in misleading and deceptive conduct in breach of the Trade Practices Act 1974 (Cth) (TPA) (as it then was) in the form of oral and written representations made to Tropicana regarding an investment in a Fijian resort; 2. in relation to representations that related to projected cashflows and management accounts provided by the First Respondent to Tropicana, contravened s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act); and 3. breached its duty of care to Tropicana by failing to disclose certain information regarding the investment. Tropicana claimed that this conduct by the First Respondent caused it to suffer loss and damage. 5 In its defence filed on 12 April 2010, the First Respondent denied the allegations made by Tropicana. Between 12 April and 2 December 2010, the matter proceeded through the usual interlocutory steps. At a directions hearing on 20 April 2010, the matter was set down for trial on 13 December 2010 at 9:30 am. On 20 August 2010, the solicitors for the First Respondent made a Calderbank offer to Tropicana, which was rejected and is now produced to the Court on the question of costs. The matter went to mediation in October 2010, but did not settle. 6 In late October 2010, the First Respondent sought security for its costs against Tropicana. At that time, it was the only respondent. 7 On 4 November 2010, the Court made the following interlocutory orders: 1. Tropicana be granted leave to join Mr Yildiz as a respondent to the proceeding; 2. by 8 November 2010, Tropicana file and serve an Amended Statement of Claim; 3. by 10 November 2010, Tropicana file and serve certain additional affidavit material, including material in relation to the First Respondent's application for security for costs; 4. by 12 November 2010, the First Respondent file and serve any material in response to its application for security for costs; 5. by 15 November 2010, the First Respondent file and serve an Amended Defence and any additional affidavit material on which it would rely at trial; and 6. the parties have liberty to apply. 8 An Amended Statement of Claim (the ASC) was filed on 10 November 2010. It broadened the allegations against the First Respondent to include an alleged contravention of s 51A of the TPA and s 12BB of the ASIC Act. In the ASC, Tropicana also alleged that the Second Respondent: 1. aided, abetted or procured, induced or was directly or indirectly knowingly concerned in the First Respondent's contraventions of the TPA and ASIC Act; and/or 2. contravened ss 4 and 9 of the Fair Trading Act 1999 (Vic), and ss 12BB and 12DA of the ASIC Act; and/or 3. breached his duty of care to Tropicana by failing to disclose certain information regarding the investment. 9 The time allowed for compliance with several of the orders made on 4 November 2010 was extended by the Court. A defence to the ASC was filed by the Respondents on 16 November 2010. 10 Tropicana did not file any substantive material in opposition to the application for security for costs, as it was permitted to do under the orders of 4 November 2010. On 11 November 2010, the Respondents filed an outline of submissions and a further affidavit in support of the application for security for costs. The affidavit refers to the "respondent". The submissions refer to the "respondents". 11 On 15 November 2010, Tropicana's solicitors filed an affidavit in relation to the application stating that it had only been brought to Tropicana's attention on 1 November 2010 (being six weeks before trial) and that no requests for security for costs had been made of it prior to this date. The affidavit identified that there were two respondents. The substance of the affidavit however referred to "the respondent". The affidavit also stated that on 11 November 2010 Tropicana made a 'without prejudice' offer to the Respondent to "settle this issue expeditiously", to which no response was received. This affidavit also exhibited a letter to the Respondents' solicitors dated 15 November 2010, which stated: We refer to the affidavits of Robin Shute sworn 1 November and 11 November 2010 as well as your client's submissions regarding its application for Security for Costs (Application) dated 11 November 2010. We are instructed by our client that it will make no formal objection to the Application as it is keen to ensure that this proceeding advances to trial without delay, despite the Application. In response to the Application, our client is currently making arrangements to obtain a bank guarantee from Westpac, payable to your client to the value of $150,000. The guarantee will become payable upon demand from your client once the final determination in this proceeding has been handed down and upon receipt of evidence of the quantification of your client's costs. We note that the security figure mentioned in your proposed orders of 3 November 2010 was listed as $100,000 whereas your 11 November affidavit noted an increased security figure of $150,000. At not [sic] stage, before approaching the Court, did you indicate to us that a higher security figure was being sought by your client. Accordingly, our client's decision in choosing not to file an Affidavit in response to the Application should not be seen as opportunity for your client to again file additional material with the Court without prior notice to our firm. (Emphasis added.) 12 On 19 November 2010, Tropicana's solicitors filed another affidavit regarding the application for security for costs, bringing to the Court's attention a letter and proposed minute of order sent that day to the Respondents' solicitors, requesting that Tropicana have until 2 December 2010 to provide security for the Respondents' costs. Paragraphs 4, 5 and 7 of the letter stated: Notwithstanding that your clients greatly delayed bringing forth their application for security for costs (some six (6) weeks before trial), your clients are now seemingly attempting to gain an unfair advantage by using the application as a method to further delay these proceedings. In this regard, if your clients' application for security for costs was brought at the appropriate time, this issue would not have arisen. … We therefore invite your clients to reconsider their position. We note that no prejudice will be suffered by your clients by the time extension proposed. (Emphasis in Respondents' submissions.) The attached minute stated: 1. On or before 2 December 2010 the Applicant provide security for the costs of the Respondent to the conclusion of the trial in the proceeding by establishing an irrevocable bank guarantee in the sum of $150,000 drawn in favour of the Respondents and in a form acceptable to the Registrar of the Federal Court. 2. In the event the Applicant fails to comply with paragraph 1, the proceeding be stayed. 3. The Costs of the Respondents' application for security for costs be reserved. The Respondents' solicitor executed and filed the minute. 13 As a result, on 19 November 2010, the Court ordered by consent that on or before 2 December 2010, Tropicana provide security for costs of the "Respondent" up until the conclusion of the trial in the proceeding. This was to be done by establishing an irrevocable bank guarantee in the sum of $150,000, drawn in favour of the Respondents and in a form deemed to be acceptable by a Registrar of the Court. The costs of this application were reserved. It was ordered that in the event of Tropicana's non-compliance with these orders, the proceeding would be stayed.

C. ANALYSIS OF EFFECT OR ORDER MADE ON 19 NOVEMBER 2010 14 After the hearing of this application, the Court drew the parties' attention to the content of the orders made by the Court on 19 November 2010. The difficulty arises because the second line of the orders refers to the "respondent" and not the "respondents". The Respondents submit that it is a matter which can be rectified under the slip rule: O 35 r 7(3) of the Federal Court Rules. Tropicana submits that because the 19 November order was made by consent, it cannot be the subject of the slip rule and if the order was varied to substitute "respondents" for "respondent" in the second line, the order would no longer reflect the agreement reached by the parties. For the reasons that follow, I accept the Respondents' submissions that the 19 November order should be corrected by substituting "respondents" for "respondent" in the second line of the order. 15 Order 35 r 7(3) of the Federal Court Rules, commonly known as the "slip rule", provides: A clerical mistake in a judgment or order, or any error arising in a judgment order from an accidental slip or omission, may at any time be corrected by the Court. 16 The slip rule reflects the authority of superior courts at any time to correct an error in a decree or order arising from a slip or accidental omission and may be invoked irrespective of whether the order has been drawn up, passed and entered. It permits the correction of an error where it is either a unilateral or mutual error or inadvertence by the parties' representatives, or an error of the Court. Importantly, it operates nunc pro tunc to correct the earlier order, and speaks from the date of the earlier order, which then operates with full force as corrected: see Elyard Corporation Pty Ltd v DDB Needham Sydney Pty Ltd (1995) 61 FCR 385 at 389 to 391 and the authorities there cited. The rule is very wide in its scope but it is not available as a matter of course: Elyard at 390. As the High Court said in L Shaddock & Associates Pty Ltd v Parramatta City Council (No 2) (1982) 151 CLR 590 at 597, there is a discretion in the court to refuse an order if something has intervened which would render it inexpedient or inequitable that it be made. It is important to remember that the rule exists to avoid injustice: Elyard at 391-392. The rule does not apply where the amendment is a matter of controversy. It can apply where the proposed amendment is one upon which no real difference of opinion can exist: Elyard at 390-391. Finally, it is in the Court's discretion to exercise its powers under the slip rule to correct an accidental error or omission and the Court may do so on its own motion: Shaddock at 597. 17 What then is the position here? In my view, the order should be corrected. On any objective analysis, Tropicana understood and intended that the order for security would operate in respect of the Respondents. In a number of respects, the order itself reflected that fact (see, for example, the third line of paragraph 1 and the contents of paragraph 3). Moreover, the following facts and matters provide further support for that conclusion: 1. the correspondence from Tropicana's solicitor to the Respondents' solicitor which enclosed the draft minute: see [12] above. 2. the fact that after Tropicana failed to post security, the proceeding was stayed and the trial vacated without objection by Tropicana; 3. since the proceeding was stayed, Tropicana has taken no step in the proceeding against either respondent; and 4. despite correspondence from the Respondents' solicitors in March and April 2011 and the filing of the Notice of Motion on 12 April 2011, at no time has Tropicana suggested that the security for costs was to be provided in favour of only the First Respondent (until after the Court drew the parties' attention to the content of the orders made on 19 November 2010). 18 For those reasons, I accept the Respondents' submissions that pursuant to O 35 r 7(3) of the Federal Court Rules, the Order of the Court made 19 November 2010 in this proceeding should be corrected by substituting "Respondents" for "Respondent" in the second line of paragraph 1 of the orders made on 19 November 2010. The proposed amendment is one upon which no real difference of opinion can exist. It is an error brought about by the inadvertence of the parties and should be corrected to avoid injustice.

D. ANALYSIS OF CONDUCT AFTER 19 NOVEMBER 2010 19 Tropicana did not provide, and has still not provided, security for costs by 2 December 2010 as it was ordered to do, or indeed at all. In this context, I note that the hearing of this application was heard a week ago and security for the Respondents' costs has still not been paid. 20 By email dated 8 December 2010, the Court advised the parties that the proceeding was stayed, and the trial date was vacated. Subsequent correspondence directed by the Respondents' solicitors to Tropicana's solicitors about the issue of security for costs received no substantive response. After what is alleged by the Respondents to be nearly six months of inaction and silence by Tropicana on this issue, on 12 April 2011 the Respondents filed and served a Notice of Motion, seeking orders that in light of Tropicana's failure to comply with the Court's orders of 19 November 2010, the proceeding be dismissed with costs. The Respondents also submit that costs should be assessed on an indemnity basis from 20 August 2010 to date. Tropicana opposes the granting of such relief. I will deal with each issue in turn.

Relevant Principles 21 Rule 5(1) of Order 28 of the Federal Court Rules (the FCR) provides: Where the Court orders that the applicant provide security for costs, it may order: (a) that the proceeding on any claims by the applicant for relief be stayed until security is provided; or (b) that if the applicant fails to comply with the order to provide security within the time limited in the order, the proceeding be thereafter stayed or dismissed. 22 Section 56(4) of the Federal Court of Australia Act 1976 (Cth) (the FCA) provides: 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. 23 Before turning to consider the application under s 56(4) of the FCA, I note that Tropicana entered into liquidation on 24 May 2011 under the Companies Act 1993 (NZ). As a New Zealand registered entity, neither ss 471B nor 500(2) of the Corporations Act 2001 (Cth) (the Act) are applicable: see also s 5 of the Act. 24 It is apparent that Tropicana's failure to post the security ordered on 19 November 2010, within the time limited by the order, enlivens the Court's jurisdiction to dismiss the proceeding pursuant to s 56(4) of the FCA and O 28 r 5(1)(b) of the FCR: Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd (1992) 109 ALR 196 at 206 and Thirteenth Corp Pty Ltd v State (2006) 232 ALR 491 at [56]. 25 The Respondents submitted that there are three principal circumstances in which the Court may invoke its power to dismiss a proceeding for failure to comply with an order to provide security: 1. where the Court is satisfied that the action is not being pursued with due diligence; 2. where the Court is satisfied that, notwithstanding that the time granted to provide the security has not expired, there was no reasonable prospect that security would be posted; and 3. where the Court has prescribed a time limit for the provision of security, and that time limit has been disregarded by non-payment, see Speed Up Holdings Ltd v Gough & Co (Handly) Ltd (1986) FSR 300 at 334-335. 26 The Respondents rely on each ground. I will deal with each in turn.

Action not pursued with diligence 27 The order for security for costs was by consent. Tropicana failed to provide security by the date specified in the order. Tropicana has failed to take any step in the proceeding after 2 December 2010 and, in particular, any step in the proceeding after its failure to provide security for the Respondents' costs. That conclusion is fortified by the fact on 21 March 2011, the Respondents' solicitors wrote to Tropicana's solicitors and foreshadowed this application and enquired whether the orders sought could proceed by way of consent. No substantive response was received. 28 An application for dismissal by reason of a failure to provide security is analogous to dismissal for want of prosecution: Giddings v Giddings [1847] 50 ER 492. The relevant principles are well established: see, for example, Allen v Sir Alfred McAlpine & Sons Ltd [1968] 1 All ER 543 at 556; Newtronics Pty Ltd (recs & mgrs apptd) (in liq) v Gjergja [2010] VSC 594 at [2]; Bishopsgate Insurance Australia Ltd (In Liq) v Deloitte Haskins & Sells [1999] 3 VR 863 at [23] - [25]. 29 In the present circumstances, I consider that Tropicana has not pursued the action with diligence. Notwithstanding the assertion in the letter of 15 November (see [11] above), since 2 December Tropicana has not taken any step to advance the matter to trial without delay. Despite numerous opportunities to do so, it has not explained its failure to provide security or take any step in the proceeding. Further, it has not explained whether and if so why the person or persons who stand behind Tropicana have not provided the necessary security. It must be recalled that it was Tropicana that identified the form of the security to be provided and the date by which it would be provided: see [11] above. As Cockburn CJ said in La Grange v McAndrew (1879) 4 QBD 210 at 211, the Respondents ought not be subjected to the alternative of having the action hanging over their heads or of giving up the order for security in their favour. Given Tropicana's conduct (or lack of it), the proceeding should be dismissed for failure to provide security.

Failure to comply within the time prescribed 30 For the same reasons, I accept the Respondents' submission that the proceeding should be dismissed because the time limit it imposed on itself, by consent, to provide the security has been disregarded: see Speed Up Holdings at 335.

No reasonable prospect of security being paid 31 As noted in [29] above, despite numerous opportunities to do so, Tropicana has not explained its failure to provide security or take any step in the proceeding and it has not explained whether and if so why the person or persons who stand behind Tropicana have not provided the security Tropicana identified to be provided by the date it consented to: see [11] above. In those circumstances, it is appropriate that the proceeding be dismissed on this basis.

E. INDEMNITY COSTS? 32 There is no dispute that the Respondents should recover their costs of the proceeding. The question is on what basis their costs should be awarded. The Respondents seek the award on an indemnity basis from 21 August 2010. For the reasons that follow, Tropicana will be ordered to pay the Respondents' costs of the proceeding on a party and party basis, such costs to be taxed in default of agreement. 33 The Court's jurisdiction to award indemnity costs is s 43 of the FCA. Any award of costs is discretionary. The claim for indemnity costs arises as follows. 34 On 20 August 2010, the Respondents offered to settle the proceeding by Tropicana withdrawing its claim and bearing its own costs (the 20 August letter). The offer was expressed to be made on the basis of the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333. The offer expired on 3 September 2010. The 20 August letter pointed out the weaknesses in Tropicana's case. On 25 August 2010, Tropicana's solicitors wrote stating that the offer was rejected. 35 Against that background, two questions arise: (1) is the 20 August letter able to be taken into account in the exercise of the costs discretion and (2) are the Respondents entitled to costs on an indemnity basis after 20 August 2010? 36 Recently in Facton Ltd (formerly known as G-Star Raw Denim KFT) v Seo [2011] FCA 344 the applicable principles were summarised at [55]: 1. the Court's power to award costs is contained in s 43 of the Federal Court of Australia Act 1976 (Cth). The Court has a wide discretion in the award of costs. It is, of course, a discretion which must be exercised judicially and in accordance with well established principles: Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 at [8] - [10]; 2. the usual course is to order costs on a party and party basis: Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233 per Sheppard J; 3. indemnity costs can properly be awarded where the circumstances of the case warrant the Court departing from the usual course of ordering costs on a party and party basis. Those circumstances have been variously described as "some special or unusual feature" and include "an imprudent refusal of an offer to compromise": Alpine Hardwoods at [11] and the authorities cited; 4. Order 23 of the Rules headed "Offer of Compromise and Payment into Court" provides a structure which encourages parties to make and consider fair and reasonable offers to settle proceedings: Alpine Hardwoods at [12] and the authorities cited. It is not however a code: Alpine Hardwoods at [18] and [19]. Parties are also able to rely upon the common law principles in relation to Calderbank letters: Calderbank v Calderbank [1975] 3 All ER 333. A Calderbank letter can be considered by the Court in deciding whether to make an order displacing the usual costs order even if O 23 of the Rules has not been followed: Alpine Hardwoods at [18] and the authorities cited; 5. refusal of an offer which satisfies the requirements of a Calderbank letter does not itself warrant an order for indemnity costs: Alpine Hardwoods at [20], [21], [27] and [28]; Black v Lipovac (by his next friend Lipovac)(1998) 217 ALR 386 at [217]. The onus is on the offeror to show that the conduct of the offeree was unreasonable: Alpine Hardwoods at [21], [27] and [28]. The reasonableness of the conduct is viewed in light of the circumstances which existed at the time the offer was rejected; 6. if, however, the central requirements of a Calderbank letter (that it is clear, precise and certain: Perry v Comcare (2006) 150 FCR 319 at [55] - [57]) are not met, it does not mean that the offer cannot be considered by the Court in the exercise of its general costs discretion. Courts will be prepared to pay some regard to an offer of compromise which purports to be in accordance with the Rules but which for some reason is technically deficient if the terms of the offer are such as to leave the offeree in no reasonable doubt as to the nature and extent of what is being offered: Grbavac v Hart [1997] 1 VR 154 at 155. The offer must be certain: Duncan & Weller Pty Ltd v Mendelson [1989] VR 386 at 401 and Grbavac at 155 and 160. It must be capable of acceptance which, if accepted, would have brought the dispute between the parties to an end: Grbavac at 164; and 7. in determining whether an offer should have been rejected, a Court looks at the "reasonableness of the conduct of the offeree, [when] viewed in the light of the circumstances which existed when the offer was rejected": Black at [218]. It has also been described as whether the rejection of the offer was "imprudent" or "unreasonable" (Black at [52] and [216]) or "imprudent, reckless or unreasonable": United Salvage Pty Ltd v Louis Dreyfus Armateurs SNC [2006] FCA 1611 at [18]. 37 Against the background of those principles, I turn to consider the questions posed: see [35] above. In my view, the answer to the first question is yes. The 20 August letter was clear, precise and certain. It left Tropicana in no reasonable doubt as to the nature and extent of what was being offered and, if accepted, would have brought the dispute between the parties to an end. However, the answer to the second question - are the Respondents entitled to costs on an indemnity basis after 20 August 2010 - is no. The difficulty in the present case is that there has been no adjudication on the merits: see L & A Maglio Pty Ltd v Commissioner of Taxation [2007] FCA 1365 at [21] - [24]. In those circumstances, it is inappropriate for the Court to embark on any assessment of whether the Respondents were correct in the views that they expressed in their 20 August letter. The usual order for costs should follow. Moreover, there is no other aspect of the manner in which the Respondents have conducted or failed to conduct the proceeding which would constitute "some special or unusual feature" to justify the Court departing from the usual course of ordering costs on a party and party basis: see Facton at [55(3)]. 38 In those circumstances, I do not consider that the Respondents are entitled to indemnity costs from 21 August 2010.

F. ORDERS AND CONCLUSIONS 39 For those reasons, the proceedings will be dismissed. The applicant will be ordered to pay the Respondents' costs of the proceeding on a party and party basis, such costs to be taxed in default of agreement. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.