FEDERAL COURT OF AUSTRALIA

Riverside Nursing Care Pty Ltd v Honourable Bronwyn Bishop [2000] FCA 1054

Aged Care Act 1997 (Cth)

Administrative Decisions (Judicial Review) Act 1977 (Cth)  s 15(1)

Corporations Law (Cth) s 436A

ACHOS Pty Ltd v Merck Pty Ltd (Federal Court, 20 June 1997, unreported)

Morlea Professional Services Pty Ltd v Richard Walter Pty Ltd (31 May 1999, unreported); [1999] FCA 764

Brundza v Robbie and Co [No 2] (1952) 88 CLR 171

RIVERSIDE NURSING CARE PTY LTD

v THE HONOURABLE BRONWYN BISHOP (as the Commonwealth Minister of State for Aged Care) and ANDREW PODGER (as the Secretary of the Commonwealth Department of Health and Aged Care)

V147 of 2000

RYAN J

MELBOURNE

2 AUGUST 2000

THE COURT ORDERS THAT:

1.         The applicant by 11 August 2000 provide security in the sum of $15,000 in a form acceptable to the Registrar for the respondents' costs of the application for leave to appeal.

2.         In default of the provision of security in accordance with paragraph 1 of this Order, the applicant's application for leave to appeal be stayed until provision of security in accordance with that paragraph and the hearing fixed for 15 August 2000 be vacated.

3.         The costs of all parties of the motion for security, other than the costs of the hearing on 26 July 2000, be costs in the application        for leave to appeal.

4.         The respondents' costs of the hearing on 26 July 2000 be taxed and paid by the applicant.

Note:       Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     There is before the Court a motion by the respondents for security for their costs of an application by the applicant, Riverside Nursing Care Pty Ltd, ("Riverside"), for leave to appeal against a refusal by Sundberg J on 7 April of this year to grant a stay of a decision by the second respondent revoking the approval of Riverside as a provider of places under the Aged Care Act 1997 (Cth) (“the Act”) and the allocation of 60 places which had been made to Riverside also under the Act.  That stay was sought pursuant to s 15(1)(a) and (b) of the Administrative Decisions (Judicial Review) Act 1977 (“the ADJR Act”).

2                     Riverside's application for leave to appeal has been listed for hearing before a Full Court of this Court on 15 August 2000.  The application for leave was filed on 14 April this year.  Shortly before it instituted its application to this Court under the ADJR Act on 15 March 2000, Riverside was placed in voluntary administration on 3 March 2000, after its directors had resolved that it was insolvent or likely to become insolvent.  Mr David Lofthouse was appointed administrator of Riverside pursuant to s 436A of the Corporations Law.

3                     On 26 May 2000 a meeting of Riverside's creditors voted in favour of its entering into a deed of company arrangement.  The deed stipulated that Illawong Retirement Equity Pty Ltd (“Illawong”) and Riverside should advance to the administrator the sum of $300,000:

“to discharge the admitted claims or debts of participating creditors of Riverside, including the voluntary administrator.”

4                     There were further terms of the deed of company arrangement::

“6.4       The Administrator shall establish a distribution fund (the "Distribution Fund") for the benefit of Priority Creditors (including the Administrator) and Participating Creditors comprising any and all portions of the Settlement Sum received by the Administrator from the Company, which amounts are to be held on trust by the Administrator for Priority Creditors (including the Administrator) and Participating Creditors in accordance with the provisions of the Deed.

6.5          The payment in clause 6.1 shall be by way of good faith from the sale of land owned by the company known as Rulandra Pty Ltd.  Any shortfall of moneys owning to admitted Participating Creditors are to be met from the net proceeds (if any) from:

i.          the assets recovered and realised as a result of the proceedings in the Federal Administrative Appeals Tribunal or the Federal Court against the Department of Health and Aged Care, and/or;

ii.         to the proceedings issued by the company against Mr Vladimir Martyniuk.”

5                     Then follows a subheading:

“Operation of the Company. 

7.1       The Company agrees with and acknowledges to the Administrator that the Directors shall been [sic] in control of the operations of the Company under the supervision and direction of the Administrator from the date of execution of this Deed.

7.2          The Company and its Director(s) agree to report, at a minimum, quarterly to the Administrator on the actions instituted against Mr Vlad Martyniuk and the Department of Health and Aged Care and that the Administrator be given full access to records pertaining to these actions.

7.3          The Company and its Director(s) agree that should the actions outlined in Clause 7.2, in the opinion of the Administrator, fail to be adequately pursued, the Administrator will, at his discretion, call a meeting of creditors to consider the termination of the Deed and the liquidation of the company.

7.4          The Company and its Directors agree that the time provided to bring to finality the proceedings as outlined in Clause 7.2 is limited to eighteen (18) months from the date of execution of the Deed.

7.5          Subject to anything contained in this Deed to the contrary the Company as administered and controlled by the Director continues to be responsible for all and any of the obligations, liabilities, costs and risks of any description whatsoever of and incurred by the Company in relation to the operation of the Company from the Effective Date.”

6                     After reciting provisions related to the ascertainment of claims and the distribution of the settlement sum the deed continues at cl 9:

“Illawong undertakes to provide sufficient funds to the Company to allow it to adequately prosecute the actions instituted against Vladimir Martyniuk and the Department of Health and Aged Care.”

7                     The “Director” referred to in cl 7 has been defined as “Mr John Irving” in his capacity as director of the company “or such director as shall be appointed from time to time”.  Mr Irving is also the sole director of Illawong.  Illawong is the trustee of the Watts Castle Crown Unit Trust in which units are held by three separate unit holders, Illawong, Mr Martyniuk and Mr Cecil King.  Mr Martyniuk, it will be recalled, was one of the persons against whom the deed of company arrangement contemplated that Riverside would prosecute legal proceedings.

8                     In an affidavit sworn 31 July 2000, Mr Efron, the solicitor for Riverside, has deposed: in para 4:

“4.         There had been, and continues to be, ongoing disputes between the unit holders of IRE [Illawong] over several issues including the sale by Cecil King of his units to Vladimir Martyniuk and the lodging of taxation returns.

5.            In addition to the ongoing disputes and the deadlock between the unit holders, it is also the case that Mr Irving, the sole director of IRE [Illawong], wants to resign due to poor health.  However, again the unit holders are in dispute over this matter also and are unable to reach agreement as to a replacement trustee or a replacement director of the present trustee of the WCCUT [Watts Castle Crown Unit Trust].

6.            Hence, the application for the appointment of a Receiver and Manager was instituted in the Supreme Court.

7.            That application was heard by The Honourable Warren J last week.  The Honourable Warren J has reserved her decision to a date to be advised.

8.            Accordingly, I submit that given the present situation regarding the application for the appointment of a Receiver and Manager it would presently be inappropriate for Mr Irving to depose in detail to the financial and other relevant circumstances of IRE [Illawong].  Further, given those circumstances, Mr Irving is not in a position to provide security for costs for the Applicant, notwithstanding that the Applicant is wholly owned by IRE [Illawong] as trustee for the WCCUT [Watts Castle Crown Unit Trust].”

9                     It is common ground that the Court, as presently constituted, is required, in the exercise of the Court's appellate jurisdiction, to exercise a discretion whether or not to make an order for security.  I have been persuaded to exercise that discretion in favour of making an order for security.  In coming to that conclusion, I have been influenced by a number of factors, not all tending in favour of an order for security.

10                  In the first place, it seems indisputable that Riverside is presently unable to pay its current creditors and is dependent for the restoration of its solvency on a successful outcome to either or both its litigation against the present respondents, and its action against Mr Martyniuk.  It is also clear that the real beneficiaries of the restoration of Riverside's nursing home business, and of a successful outcome to the litigation to which I have referred, will be Illawong and other persons standing behind it, including unit holders in the Watts Castle Crown Unit Trust. 

11                  In those circumstances, the following observations of Merkel J in ACHOS Pty Ltd v Merck Pty Ltd, (Federal Court, unreported, 20 June 1997) are apposite:

“The main contention put forward by the respondents, which I regard as their strongest ground for the ordering of security, is that the shareholders of the applicant are the real beneficiaries of any litigation and of the applicant's business.  Further, the respondents contend that I ought to assume that for that reason those shareholders are likely to have a significant role in funding the litigation, and if they are able to fund the litigation, in the absence of evidence to the contrary, they will be able to meet any order for security for costs.

Consequently it is said that:

(a)       I cannot assume that an order for security for costs will stifle the litigation; and

(b)       those who seek to benefit from the litigation in a commercial sense, if not in a legal sense, ought not to be free of the burden of the costs of the litigation in the event that the litigation fails.

In my view there is considerable substance in the respondent's arguments on this point.  There is no evidence before me as to the financial circumstances of the two shareholders in question, being Linset Pty Ltd, which owns 99 of the 100 issued shares in the applicant, and Mr Ian Cowie who owns the other share and is a director of the applicant.”

12                  After referring to the facts of the case before him his Honour continued:

“I should say that there are other instances where this Court and other courts have held that where litigation is being conducted for the benefit, in a commercial sense, of interests behind an applicant, then that is a factor that weighs strongly in favour of exercising the discretion to order security for costs: see Pasdale Pty Ltd v Concrete Constructions (1995) 131 ALR 268; Petite Pty Ltd v Byrd Smith and Associates, (Supreme Court of Victoria, Beach J, 23 April 1996, unreported); Robust Software v Mann Judd Reis Pty Ltd (Federal Court of Australia, Merkel J, 11 February 1997, unreported).  In each of these cases the fact that there were persons behind the applicant company who were likely to benefit from the litigation and who appeared to be in a position to provide the necessary security weighed heavily in favour of the exercise of the discretion to grant security for costs.  No instance has been presented to me where, in similar circumstances, security for costs has been refused.”

13                  Similarly, there is no evidence of the financial circumstances of those who stand behind Riverside as presumptive beneficiaries of the present litigation.  I have not been unmindful of the fact that Riverside is pursuing in this Court a remedy of a public law kind and its application at first instance could reasonably be characterised as defensive.  Doubtless, considerations of that kind were reflected in the respondents’ having declined to apply for security for their costs of the application at first instance.

14                  However, different considerations apply after an applicant, like Riverside, has had its day in court and seeks leave to appeal.  As Tamberlin J pointed out in Morlea Professional Services Pty Ltd v Richard Walter Pty Ltd (31 May 1999, unreported);  [1999] FCA 764, at para 4:

In substance, it is said that the characterisation of the role of AT and Morlea, is really a continuation of their role as presenting a defensive case rather than being the initiating party.  The question has arisen in this court previously in Riv-Oland Marble Company Victoria Pty Limited v Setteff SpA (1988) AIPC ¶90-503, before Jenkinson J.  In the course of his judgment in that case, his Honour had to consider the effect of the decision in Willey v Synan in relation to an appeal.  In paragraph five of his reasons, Jenkinson J said this:

“I do not think that the principle expanded by Latham CJ (54 CLR at pp. 179 - 180) and by Dixon J (54 CLR at pp. 184 - 185) in Willey v Synan will ordinarily have any application in relation to a motion for security for the costs of an appeal. In Dence v Mason (1879) WN 31… an appellant urged as a consideration against ordering him to give security for the respondent's costs of the appeal the circumstance that he had been the defendant in the proceeding out of which the appeal had arisen.  The Court of Appeal ... said that ‘made no difference’".

15                  It would be particularly invidious for me, as a member of the Full Court constituted to hear Riverside's application for leave to appeal, to express even a tentative view about its prospects of success on that application.  I have accordingly assessed Riverside as an applicant with a respectably arguable case and as having certain significant, but not insuperable, discretionary obstacles to overcome if it is to succeed in demonstrating some error on the part of the Judge at first instance.  On this basis, the merits of the application have had a neutral effect on the exercise of discretion which I have been required to undertake.

16                  Mr Monotti of Counsel for Riverside argued strenuously that there has been undue delay in making the application for security and that the delay is sufficient to disentitle the respondents altogether from the order which they seek.  The respondents have sought to explain that delay by saying that it was not until 7 July that they received a copy of the deed of company arrangement in relation to Riverside and that on 10 July, a letter was written to Riverside's solicitors requesting security.  When that was refused, the present motion was issued on 18 July.  As Mr Monotti pointed out, Riverside had, in the meantime, sought an order for an expedited hearing of its application for leave to appeal and had expended time and costs on the preparation of the substantive application.  On the other hand, the index to the appeal book, it seems, had not been filed until 19 July, (after the motion for security had been filed) and was not settled until 21 July 2000.

17                  In my view, the considerations articulated by Mr Monotti do not militate conclusively against an order for security, but argue for confining any such order to costs incurred or to be incurred after the motion for security was taken out.  As to the quantum of security, an estimate has been made, which has not been challenged, that the respondents' costs of resisting the application for leave to appeal will be of the order of $33,000.  However, I have already pointed out that an order for security should not extend to costs incurred before the respondents applied for security.  Moreover, it is not incumbent on the Court, in ordering security, to provide a full and certain indemnity for the costs to be incurred by the party in whose favour the order is to be made (see Brundza v Robbie and Co [No 2] (1952) 88 CLR 171 at 175).

18                  In all the circumstances I consider it appropriate to fix security in the sum of $15,000.  I shall therefore order that:

1.         The applicant by 11 August 2000 provide security in the sum of $15,000 in a form acceptable to the Registrar for the respondents' costs of the application for leave to appeal.

2.         In default of the provision of security in accordance with paragraph 1 of this order, the applicant's application for leave to appeal be stayed until provision of security in accordance with that paragraph and the hearing fixed for 15 August 2000 be vacated.

3.         The costs of all parties of the motion for security, other than the costs of the hearing on 26 July 2000, be costs in the application for leave to appeal.

4.         The respondents' costs of the hearing on 26 July 2000 be taxed and paid by the applicant.

Associate:

Dated:              2 August 2000