Citation : WILLOUGHBY -v- CLAYTON UTZ [2007] WASC 281

Procedure - Application for security for costs of appeal - Relevant considerations - Appellants impecunious - Substantial costs owing by appellants from previous action against respondent pleading substantially same causes of action as action from which appeal brought - Whether order for security would stifle appeal - Turns on own facts

Supreme Court (Court of Appeal) Rules 2005 (WA), r 3, r 44(1)

1 NEWNES AJA: The respondent has applied under the Supreme Court (Court of Appeal) Rules 2005 (WA) for an order that the appellants provide security for the respondent's costs of the appeal. On 18 April 2008, I ordered that the appellants provide security in the sum of $20,000. I said I would provide reasons for my decision. These are the reasons.

2 It is necessary, in order to put the respondent's application in context, to refer to some of the background to the current appeal. That involves going back to events almost 20 years ago.

3 Put shortly, in about 1990 the appellants commenced an action (Esanda proceedings) against Esanda Ltd and certain other parties alleging that the appellants had been induced to purchase a hotel in Perth by their misleading or deceptive conduct. On 18 September 1990, the appellants' claim was dismissed. On 10 December 1990, the appellants were declared bankrupt.

4 Subsequently, on 25 October 1991, the Full Court of the Federal Court allowed an appeal by the appellants against the dismissal of their claim against Esanda and found that the purchase of the hotel by the appellants had been induced by misleading conduct on the part of Esanda. The Full Court ordered that the Esanda proceedings be remitted to the trial judge to determine the relief to which the appellants were entitled under s 87 of the Trade Practices Act 1974 (Cth).

5 In December 1991, the appellants retained the respondent to advise and act for them in the Esanda proceedings. The appellants say that, acting on the respondent's advice, they compromised those proceedings. The compromise was effected on 23 November 1993. The appellants claim that the respondent was negligent in the advice it gave concerning the effect of the compromise and that as a result the appellants suffered substantial losses.

6 On 22 December 1998, the appellants commenced proceedings (first claim) against the respondent in the Federal Court alleging various causes of action under the Trade Practices Act 1974 (Cth), the Fair Trading Act 1987 (WA) and for negligence, breach of retainer and breach of fiduciary duty in respect of the settlement of the Esanda proceedings.

7 Shortly afterwards, on 14 April 1999, the Official Trustee in Bankruptcy assigned to LawCover Pty Ltd, the respondent's professional indemnity insurer, the appellants' causes of action against the respondent. The appellants sought a review of that decision in the Federal Court under s 178 of the Bankruptcy Act 1966 (Cth). On 10 December 1999, Nicholson J refused the appellants' application for review. The appellants appealed against that decision and, on 8 June 2000, the Full Court of the Federal Court allowed the appeal and remitted the application to Nicholson J. On 20 June 2001, Nicholson J ordered that the appellants' causes of action against the respondent be assigned by the Official Trustee in Bankruptcy to the appellants. That assignment was effected on 29 May 2002.

8 On 28 February 2003, Nicholson J ordered that the first claim be transferred to this court.

9 Once that transfer had been effected, the respondent applied for an order striking out the first claim, contending that the appellants had no arguable cause of action. On 7 April 2005, the first claim was struck out on the ground that at the time the proceedings were commenced the causes of action were vested in the Official Trustee in Bankruptcy and accordingly the appellants had no cause of action against the respondent.

10 The appellants subsequently applied to the Court of Appeal for leave to appeal against that decision, the time within which an appeal should have been brought having expired. That application was dismissed by the Court of Appeal. A subsequent application to the High Court for special leave to appeal was also dismissed.

11 In the meantime, in June 2005, the appellants had commenced fresh proceedings against the respondent in this court (second claim) alleging, in substance, the same causes of action as had been alleged in the first claim. On 12 July 2005, the respondent applied for an order dismissing the second claim. The second claim and the respondent's application were stayed by consent pending the determination of the appellants' application for leave to appeal in respect of the first claim.

12 The appellate process in respect of the first claim having been exhausted, the respondent's application to dismiss the second claim was heard by Acting Master Chapman on 26 September 2007. The acting master delivered his decision on 27 November 2007. The learned acting master concluded that, the first claim having been dismissed, the causes of action in the second claim were res judicata. The learned acting master also went on to express the view that the causes of action relied upon by the appellants in the second claim were statute-barred. He ordered that judgment be entered for the respondent. It is against that decision that the current appeal is brought.

13 On an application under r 44(1) of the Supreme Court (Court of Appeal) Rules 2005 (WA), read with r 3, the court has an unfettered discretion to order security for the respondent's costs of an appeal. The jurisdiction of a single judge to make such an order is to be found in r 43(2)(h).

14 It is, of course, impossible to state exhaustively the factors which are relevant to the exercise of the discretion but some of the relevant factors are:

(a) the appellant's prospects of success on the appeal;

(b) the appellant's capacity to pay any costs ordered against him or her, that being an important consideration but not a conclusive one; a court will not order security against an individual appellant solely on the grounds of impecuniosity;

(c) whether an order for security would frustrate a possibly genuine appeal;

(d) whether some other person stands to benefit from the appeal if the appellant is successful, where that person has not offered to provide security or to indemnify the appellant in respect of any costs for which the appellant may become liable to the respondent;

(e) any delay by the respondent in bringing the application for security.

15 In the present case it is also a relevant factor, in my view, that the appellants are in default of the payment of costs ordered to be paid by them in the first claim, which was for the same, or substantially the same, causes of action as the second claim which is the subject of this appeal.

16 Where security for costs is ordered, the amount of the security should be such as the court thinks just in all the circumstances. Where an appellant is impecunious, the security ordered should not be greater than is absolutely necessary: Commonwealth Bank of Australia v Eise (1991) 6 ACSR 1, 3 - 4; Natcraft Pty Ltd v Det Norske Veritas [2002] QCA 241 [9].

17 It was submitted by senior counsel for the respondent that the appeal has no reasonable prospects of success. There is no substantive difference between the causes of action in the first claim and the causes of action relied upon in the second claim. The order dismissing the first claim in April 2005 means that the causes of action are res judicata. There is no basis upon which the same causes of action can now be pursued in the second claim.

18 In any event, those causes of action are plainly statute-barred. On the appellants' case, their causes of action arose upon the compromise of the Esanda proceedings in November 1993. The (then) three-year limitation period for causes of action under the Trade Practices Act and the Fair Trading Act expired in November 1996. The causes of action in tort and for breach of fiduciary duty expired in November 1999. While the appellants contend that the respondent is estopped from asserting that the limitation period ran while the causes of action were the subject of the assignment to LawCover, even if that period is excluded the last relevant limitation period expired in or about January 2003. The second claim was not commenced until June 2005.

19 It was further submitted that it was an important consideration on this application that the costs at first instance of the first claim remain unpaid, in circumstances where the action the subject of this appeal, the second claim, is based on the same causes of action. The appellants have also been ordered to pay the respondent's costs of the applications to the Court of Appeal and to the High Court. Those costs have not yet been taxed.

20 It was also a relevant factor that the Official Trustee in Bankruptcy stands to benefit from the appeal as, pursuant to the deed by which the causes of action were assigned to the appellants, the Official Trustee will be entitled to up to one half of the proceeds of the second claim if the appellants are able to pursue the action and are successful in obtaining judgment in it.

21 It was submitted on behalf of the appellants that this application was simply a device to preclude the appellants, whom the respondent well knew to be impecunious, from pursuing the appeal. The respondent has already caused bankruptcy notices to be served on the appellants in respect of the outstanding costs of the first claim and, it was submitted, has no genuine concern for its ability to recover costs from the appellants if the appeal is unsuccessful.

22 It was also submitted that the Official Trustee in Bankruptcy has no significant interest in the outcome of the second claim. While, under the deed, the Official Trustee in Bankruptcy is entitled to receive up to 50% of any amount recovered by the appellants for the benefit of the creditors of their previous bankrupt estates, the amount of the appellants' indebtedness to those creditors is in the order of some $2,000. There was no evidence as to the amount of that indebtedness but counsel referred to the reasons for judgment of the Full Court of the Federal Court in Willoughby v Official Trustee in Bankruptcy (WA) [2000] FCA 757; (2000) 102 FCR 261, as mentioning it.

23 Counsel argued that the appellants were impecunious and that if security were ordered, it would frustrate the appellants' right to pursue the appeal. It was submitted that that is a powerful factor militating against an order for security. Counsel referred to Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542, 545.

24 It was submitted that the appellants' prospects on the appeal are good. The doctrine of res judicata does not apply to the second claim as the first claim was dismissed simply on the basis that the appellants had no standing to bring it, not following a hearing on the merits. While the limitation period has expired, the respondent by its conduct or the conduct of its insurers in putting the causes of action beyond the appellants' reach for the period that the causes of action were assigned to LawCover, is estopped from relying on the limitation period.

25 I am satisfied that the respondent is entitled to an order for security for costs.

26 It was not in issue that the second claim relied upon the same, or substantially the same, causes of action as the first claim, in respect of which the appellants owe a very substantial amount to the respondent by way of costs. The respondent's costs at first instance of the first claim were taxed in August 2005 and allowed at $126,355.02. Those costs remain unpaid.

27 It is the case that, on 15 November 2007, the respondent caused bankruptcy notices to be served on each of the appellants but I do not accept that it can be concluded that the present application 'is merely a tactical ploy designed to prevent the appellants from bringing their action'. It is significant that, as matters stand, the appellants are not bankrupt. The appellants, in turn, have applied to set aside the bankruptcy notices, substantially on the ground that they have a cross-claim or set-off against the debt to the respondent. The cross-claim or set-off is apparently, at least in substance, the claim made in the second claim.

28 Although the appellants contended that the effect of an order for security for costs would be to prevent them from pursuing the appeal, there was no evidence to that effect. In fact, there was no evidence at all as to the financial position of the appellants. I might add that, as senior counsel for the respondent observed, despite their impecunious state the appellants have solicitors acting for them in the bankruptcy proceedings to which I have just referred, as they had on the application to the Court of Appeal and the High Court in the first claim, on the latter two applications the appellants being represented by senior counsel. The appellants were also represented by a solicitor before the learned acting master and are represented on this appeal.

29 I do not think it is necessary to embark upon any detailed examination of the merits of the appeal. Assuming for the purposes of this application that the appellants have reasonable prospects of success on the appeal, in the circumstances it seems to me that this is nevertheless an appropriate case for security to be ordered.

30 The appellants are, and have for some time been, indebted to the respondent in respect of the costs of the first claim. It was not in dispute that the appellants would be unable to meet any order for costs if their appeal were unsuccessful. The appellants have not, however, put on any evidence which would support their contention that the effect of an order for security for costs would be to stifle the appeal. Nor have they made out their contention that this application is directed to that end. I should also say that there was no suggestion there had been any undue delay by the respondent in making the application for security.

31 The appellants' counsel accepted that if I were to reach the view that security should be ordered, a reasonable amount by way of security was the sum of $20,000 sought by the respondent.

32 It was for those reasons that, on 18 April 2008, I ordered that the appellants provide security for the respondent's costs of the appeal in the sum of $20,000. At that time I directed that the parties confer on how the security is to be provided. In particular, the parties are to confer on whether the security should be paid in stages which broadly reflect the stages at which the respondent's costs will be incurred and, if so, when each instalment should be made and in what amount. If agreement cannot be reached on those matters, I will decide any outstanding issues on the basis of written submissions unless either party considers that further oral submissions are necessary.