Virk Pty Ltd v Yum! Restaurants Australia Pty Ltd

1. The appellant give security for the respondent's costs of and incidental to this appeal in the amount of $225,000 by bank guarantee (in a form acceptable to the District Registrar) to be lodged with the District Registrar, with a copy served on the respondent, by 4.00pm, 31 January 2017.
2. The costs of the respondent's interlocutory application dated 28 November 2016 be costs in the appeal.
3. The appellant's interlocutory application dated 28 November 2016 be dismissed.
4. The appellant pay the respondent's costs of the appellant's interlocutory application dated 28 November 2016.
5. The appeal be stood over for directions to 9.30am on 3 February 2017. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

NICHOLAS J: 1 Before me is an interlocutory application by the respondent seeking an order that the appellant provide security for the respondent's costs of the appellant's appeal from orders made by Bennett J on 8 March 2016 in a representative proceeding dismissing the applicant's amended application (subject to a ruling which may be disregarded for present purposes). Her Honour's reasons for judgment were published on 5 February 2016 (see Diab Pty Ltd v YUM! Restaurants Australia Pty Ltd [2016] FCA 43). 2 The respondent seeks security by way of bank guarantee in the amount of $420,000. The appellant, which is in liquidation, does not oppose the making of an order for security for costs but says that it should not be required to provide more than $100,000 worth of security. 3 Also before me is an interlocutory application by the appellant seeking a "costs capping" order. The appellant contends that there should be an order limiting each party's recoverable costs in the appeal to $100,000. The appellant's application is opposed by the respondent. 4 The appeal is said to be brought by the appellant pursuant to s 33ZC(6) of the Federal Court of Australia Act 1976 (Cth) ("the Act") on behalf of the appellant and group members who: were franchisees under a franchise agreement with the respondent to operate a Pizza Hut outlet in Australia as at 1 July 2014; suffered loss and damage from the conduct of the respondent alleged in the Amended Statement of Claim filed in the proceeding; and did not opt out of the proceeding by written notice given before 28 October 2014, being the date fixed by the Court pursuant to s 33J of the Act. 5 The appellant was a group member in the representative proceeding brought by the applicant below. The applicant, which has not sought to appeal the primary judge's orders, was a different company. The evidence indicates that the costs order made against the applicant below has already been satisfied. 6 I was told by counsel for the respondent that the total value of the various claims asserted against his client in the proceeding was in excess of $86 million. This was not disputed by counsel for the appellant. This is, on any view, a substantial piece of commercial litigation. 7 The proceeding before Bennett J occupied approximately 18 hearing days. Both the applicant and the respondent were each represented at the hearing by three counsel. I mention this because one of the complaints made by the solicitor for the appellant in relation to the respondent's costs estimate is that it assumes that the respondent will be represented by three counsel at the hearing of the appeal in circumstances where the respondent could not expect to recover the costs of a third counsel upon taxation. 8 Various other complaints are made about the respondent's solicitor's estimate of costs. These are referred to in some detail in the appellant's solicitor's affidavit evidence. I have considered each of these complaints but I need not refer to all of them in any detail. In submissions counsel for the appellant emphasised that merely because the respondent chose to be represented by three counsel, including very experienced senior counsel, another second senior counsel and junior counsel, should not result in the appellant having to provide security in an amount that exceeds what the respondent is likely to recover on a party/party basis in the event the appeal is dismissed with costs. 9 One matter the appellant focused on in attacking the reliability of the respondent's costs estimate is the respondent's estimate of the time likely to be occupied in hearing the appeal. The respondent estimates that the appeal will require four days rather than the two days now estimated by the appellant. I say "now" because the solicitor for the appellant previously accepted that a four day estimate was appropriate and, moreover, that the amount of $420,000 in security sought by the respondent was reasonable. 10 The appellant now says that the issues on the appeal will be relatively confined and not particularly complex. At the same time, however, it has declined the respondent's invitation to formally narrow the issues by way of an amendment to its notice of appeal. In its existing form that document raises 14 grounds of appeal many of which challenge factual findings made by the primary judge and postulate other factual findings that the appellant says the primary judge should have made. 11 The appellant submitted that its notice of appeal must be read in light of the written submissions that have already been filed by it in accordance with orders previously made by Gleeson J. In this regard counsel informed me that the appellant would not seek to challenge any finding made by the primary judge in relation to any person's state of mind. This concession is significant given that the notice of appeal appears to challenge many such findings. For example, in para 3(a), it is alleged that the primary judge erred in finding that Mr Houston and Mr Sinha (witnesses called by the respondent) believed that the so-called "Yum Model" was valid and reliable. Similar challenges are made to other findings made by the primary judge with respect to various persons' states of mind. It is also asserted that these persons acted on the basis of beliefs for which there was no proper or reasonable basis. 12 The Court's discretion to award security for costs must be exercised judicially and for the purpose for which it is conferred, but it is otherwise unfettered: Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Limited (1998) 193 CLR 502 at 513. As Kirby J observed in that case, "[t]he governing consideration is what is required by the justice of the matter." The same point was made by Rich J in King v Commercial Bank of Australia Ltd (1920) 28 CLR 289 who, in the context of an application under s 36 of the High Court Procedure Act 1903 (Cth) to reduce the amount of security the appellant was required to provide, said at 292: The discretion must, of course, be exercised judicially, which means that in each case the Judge has to inquire how, on the whole, justice will be best served … 13 The question whether security should be awarded and, if so, in what amount, has been described as one of risk management between the parties having regard to their legitimate interests and recognising that the award of security for costs is generally not granted at the level of full indemnity: East Grace Corporation v Xing (No 1) [2005] FCA 219 at [6] per French J (as his Honour then was). It is important to recognise, as his Honour also pointed out at [6], that the quantification of security for costs is not an exact science. When quantifying security for costs the Court will usually exercise its discretion on the basis of its own broad estimate of the respondent's future party/party costs, recognising that these are often substantially less than the actual costs incurred. 14 I have considerable doubts as to the reliability of both parties' estimates of the likely costs of the appeal, though my strong impression is that the appellant's solicitor's assessment considerably underestimates the amount of the party/party costs that are likely to be awarded to the respondent in the event the appeal is dismissed with costs. 15 In particular, having regard to the notice of appeal and the challenges to factual findings that are explicitly raised in that document by the appellant, I have very little confidence in the appellant's estimate of one to two days. This view is reinforced by the apparent unwillingness of the appellant to amend its notice of appeal to bring it into line with what it says is now a one or two day appeal of relatively narrow compass. 16 I therefore propose to consider the application for security for costs on the basis that the hearing of the appeal is likely to take between three and four days. 17 Counsel for the respondent relied upon evidence from his instructing solicitor suggesting that up to 100% of counsels' fees may be recovered on taxation even on a party/party basis including a daily fee for senior counsel appearing at the hearing of the appeal in the amount of $17,000. I consider it most unlikely that a daily rate in that amount would be allowed upon taxation. I think it is also doubtful whether the costs of three counsel would be allowed on taxation although I would not rule this out . 18 On the assumption that the appeal occupies four hearing days, I think an appropriate sum to award by way of security for costs is $225,000 which I arrive at by a broad estimation allowing for four days of hearing and five days of preparation at $25,000 per day inclusive of all counsels' and solicitors' costs and disbursements incurred or to be incurred by the respondent in this appeal. 19 There was no evidence before me to establish that the appellant will not be able to meet an order for security in such an amount or that those who stand to benefit if the appeal succeeds would not arrange for security in that amount to be provided. If the respondent's party/party costs are lower than I have estimated, as the appellant's evidence suggests they will be, then there will be no occasion for the respondent to have recourse to the full amount of the security. 20 The appellant also submitted that it should be permitted by the terms of any order for security for costs that is made to provide security otherwise than by way of bank guarantee. The evidence as to the alternative form of security that was proposed by the appellant was scant. In the circumstances, I think it is appropriate that the security be provided in the customary form by way of a payment into Court or a bank guarantee. 21 As to the "costs capping" order sought by the appellant, no such order was sought in respect of the proceeding below, and I am not persuaded that there is any good reason why such an order should now be made in relation to the appeal. 22 I made a costs capping order pursuant to O 62A, r 1 of the former Federal Court Rules in Haraksin v Murrays Australia Limited (2010) 275 ALR 520. In my reasons in that matter I referred at [5]-[9] to the relevant principles and the following list of factors relevant to the exercise of the discretion under O 62A, r 1: the timing of the application; the complexity of the factual or legal issues raised in the proceeding; the amount of damages the applicant seeks to recover; whether the applicant's claims are arguable and not frivolous or vexatious; the undesirability of forcing the applicant to abandon the proceedings; whether there is a public interest element to the case; the costs likely to be incurred by the parties in the preparation for, and hearing of, the matter; whether the party opposing the making of the order has been uncooperative and/or has delayed the proceedings. I also observed that while these factors provide useful guidance they should not be treated as fixed criteria governing the exercise of a broad discretion. 23 In the present case counsel for the appellant submitted that a cost capping order should be made pursuant to either r 40.51 or alternatively r 1.32 of the Federal Court Rules 2011 (Cth) on the basis that the appeal had a "public interest" element. The sections of the public who were identified by counsel in support of this submission were the appellant's creditors (including the Australian Taxation Office) and the group members. No express reliance was placed on any other factor. 24 I do not accept the appellant's submission. The interests which the appellant seeks to vindicate in this appeal are essentially the private commercial interests of the appellant and the other group members. In any event, when regard is had to other relevant factors, including the nature and history of the proceeding below, the amount said to be at stake, and the complexity of the appeal, this is not an appropriate case in which to make a costs capping order. 25 Orders accordingly. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholas.