FEDERAL COURT OF AUSTRALIA

Cultivaust Pty Ltd v Grain Pool Pty Ltd [2004] FCA 1366

PRACTICE AND PROCEDURE – security for costs – impecunious corporate appellant – principles to be applied

Federal Court of Australia Act 1976 (Cth) s 56

Plant Breeder’s Rights Act 1994 (Cth)

Trade Practices Act 1974 (Cth) s 79

Corporations Act 2001 (Cth) s 1335

Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 applied

Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 referred to

Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 applied

KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 applied

Cowell v Taylor (1885) 31 Ch D 34 referred to

Chapman v Luminis Pty Ltd [2002] FCA 496 referred to

Octocane Pty Ltd v SRJ Property Development Pty Ltd (1999) 74 SASR 471 referred to

CULTIVAUST PTY LTD (ACN 009 400 202) v GRAIN POOL PTY LTD (ACN 089 394 883), STATE OF WESTERN AUSTRALIA, ATTORNEY-GENERAL FOR THE STATE OF SOUTH AUSTRALIA AND STATE OF TASMANIA

File No S 135 of 2004

FINN J

ADELAIDE

14 OCTOBER 2004

THE COURT ORDERS THAT:

1.          The appellant give security for the first respondent’s costs in a sum of $65,000 by way of bank guarantee in a form approved by the Registrar.

2.          Security be provided on or before Friday, 17 December 2004.

3.          Unless security be provided by that date, the appeal is to be stayed until further order.

4.          Costs be costs in the appeal.

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

REASONS FOR JUDGMENT

1                     Grain Pool Pty Ltd (the successor to Grain Pool of Western Australia) brings this motion for security for costs under s 56 of the Federal Court of Australia Act 1976 (Cth) in respect of an appeal against a judgment of Mansfield J which dismissed the application brought by the present appellant, Cultivaust Pty Ltd, and by the State of Tasmania which has been joined as a respondent to the appeal.  Tasmania is the holder of plant breeder’s rights in respect of a variety of barley (Franklin barley) under the Plant Breeder’s Rights Act 1994 (Cth) (“PBR Act”).  Cultivaust is an exclusive licensee of Tasmania in respect of that barley. 

2                     That application pleaded a number of causes of action, two of which are relevant to the appeal.  They are described by the trial judge in the following terms. 

“Tasmania and Cultivaust seek declaratory orders that the GPWA [Grain Pool of Western Australia] by its actions infringed (within the meaning of s 40 of the PVR [Plant Variety Rights Act 1987 (WA)]Act and s 53 of the PBR Act) their rights under s 12 of the PVR Act and s11 (as extended by ss 14 and 15) of the PBR Act.  As a consequential claim, because the GPWA was acting apparently in accordance with powers it had under provisions of the GM Act [Grain Marketing Act 1975 (WA)], Tasmania and Cultivaust further seek orders by declaration that ss 22A, 22B, 24, 25, 29 and 31 of the GM Act (until it was amended on 6 December 1997) were inconsistent with the PVR Act and the PBR Act to the extent of the rights conferred on Tasmania and Cultivaust (pursuant to licence) in respect of Franklin barley and to that extent were invalid by reason of s 109 of the Constitution.  The amendment of the GM Act effective on 6 December 1997 led to declarations being sought that ss 18BA, 22, 22A, 22B, 24, 25, 29 and 31 of the GM Act thereafter are inconsistent with the PVR Act and the PBR Act to the extent of the rights conferred on Tasmania and Cultivaust (pursuant to the licence) in respect of Franklin barley and to that extent invalid by reason of s 109 of the Constitution.

…

The fourth cause of action against the GPWA is based upon conduct of the GPWA in December 1992 allegedly interfering by unlawful means in the trade and business of Cultivaust in its endeavours to secure an arrangement with the Australian Barley Board (ABB) relating to the sale and supply of Franklin barley in Victoria and South Australia, so that Cultivaust had to enter into a contract for the sale and supply of Franklin barley to those states which was at a much lower price or was on less favourable terms than would otherwise have been the case.”

3                     The notice of appeal, put shortly, raises three general matters.  The first challenges the construction placed by Mansfield J on a number of provisions of the PBR Act, but most significantly on s 14 and s 18 in their respective settings in the Act.  As with many questions of statutory construction, it does raise a reasonably arguable ground of appeal as to the nature of the rights enjoyed by the holder of PBRs.  I do not consider it necessary to enlarge on this.  I merely note that, on this issue, I agree with Cultivaust’s contention. 

4                     The second, raises the issue of inconsistency, which is noted in the pleading.  This was a matter which the primary judge did not have to – and did not decide – given the construction His Honour placed on the PBR Act.  This ground hangs off the first I have mentioned and remains relevant on the appeal itself. 

5                     The third issue challenges the inference drawn by the primary judge that, whilst Grain Pool of Western Australia may have unlawfully attempted to interfere with Cultivaust's trade or business in breach of section 79 of the Trade Practices Act 1974 (Cth), that attempt did not influence the Australian Barley Board as to the level of production levy and end point royalty it would, as a statutory marketing authority, pay in respect of Franklin barley.  The appeal ground is that the proper inference to be drawn was to the contrary.  While this raises factual issues, I am satisfied that they are of a confined character.

6                     The trial of this matter in 2002 lasted 20 days.  The applicants at the trial were represented though not for all of this time, by five counsel.  I mention this for this reason.  Such financial information as is before me concerning the assets and profitability of the appellant relate to, or predate, the trial period.  Cultivaust was able to prosecute its application notwithstanding its fragile, if not seemingly, parlous financial situation at the time.  It seems to be the case that some level of that funding came from one of its two corporate shareholders.

7                     Turning to the motion itself. Grain Pool has sought, but not obtained, information from Cultivaust that might reveal its capacity to meet an adverse costs order should its appeal not succeed.  I would add that Cultivaust has put on no evidence on this matter for the purposes of this motion. 

8                     Such financial information as Grain Pool did have was acquired in the course of discovery for the trial or from search records from the Australian Securities and Investment Commission.  That information revealed that by June 2001, Cultivaust's liabilities exceeded its assets by $4030.  It recorded losses of over $30,000 in each of the financial years 2000 and 2001.  As at 5 October 2001, it was operating on annual revenues of less than $100,000.  It was then currently encumbered by a charge in favour of one of its two shareholders for $200,000.

9                     Cultivaust, as I have just indicated, is a “two-share” company, those shares being owned by Teague Australia Pty Ltd and Jill Cormack Holdings Pty Ltd.  Teague Australia, in turn has 100 shares, 50 each being owned by its two directors, Timothy Jon Teague and Jennifer Teague.  Mr Teague is a sole director of Cultivaust.  Grain Pool's searches reveal that (i) Teague Australia gave a fixed and floating charge over its assets in 1993 to the National Australia Bank and (ii) Cultivaust gave a fixed and floating charge over its assets to Teague Australia to secure a liability of $200,000 on 8 February 2002.

10                  Again, no information was put on by Cultivaust relating to the financial circumstances of the company shareholders of Cultivaust or, for that matter, of the Teagues themselves.  Nonetheless, counsel for Cultivaust has taken me to passages in Mansfield J's judgment in an attempt to throw some light on the matter.  All that this revealed was, in relation to Teague Australia, that it had given charges to the National Australia Bank, but its actual financial position was not disclosed on the evidence.  Cormack Holdings was under administration until 1996.  It gave a charge to the National Australia Bank in 1997 and it was common ground before Mansfield J that Cormack had not been in a position to directly provide shareholder finance to Cultivaust at any material time.

11                  It is well accepted that the discretion conferred by section 56 is unfettered and that each case must depend on its own circumstances: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4; and must be determined without any particular predisposition: Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 511.  A like approach, I would note in passing, is taken to the more specific power to award security conferred by section 1335 of the Corporations Act 2001 (Cth).

12                  The courts have over time identified considerations of which account will typically be taken in determining an application for security for costs.  One such general statement of principles is that of Hill J in Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 at [50,635].  It is on this decision that Grain Pool relies in this matter.  Another such statement is that of Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 197.

13                  Of the various considerations so identified, the following have some present salience:

(i)         Has the application for security for costs been promptly brought?

(ii)        What are the chances of success of the appellant and is the appellant's claim bona fide or a sham?

(iii)       Is there a risk that the appellant cannot satisfy a cost order?

(iv)       Is the appellant's impecuniosity caused by the respondent's conduct, the subject of the claim?

(v)        Is the application for security oppressive, in the sense that it is being used merely to deny an impecunious appellant the right to litigate?

(vi)       Are there persons standing behind the company who are likely to benefit from litigation; are they willing to provide the necessary security;  have they offered any personal undertaking to be liable for the costs?

(vii)      Will the making of an order stifle the appeal?

(viii)      Are there public interest considerations which weigh in the balance against the making of an order?

(ix)       Are there any particular discretionary matters distinctive to the circumstances of the case?

14                  There are three additional matters of principle to which it is appropriate to refer.  The first is that poverty ought not provide a bar to a litigant having access to the courts.  There is, though, a somewhat different attitude taken in this matter in relation to appeals and for the reason that an impecunious appellant, unlike an impecunious litigant at first instance, has had the benefit of a decision of a court.  To the extent that impecuniosity affects an appellant, it is not an exclusion from a court entirely, but only from taking the claim to another court: Cowell v Taylor (1885) 31 Ch D 34 at 38.

15                  The second matter relates to the issue of prospects.  Here I should indicate I agree with the view of Tamberlin J in Chapman v Luminis Pty Ltd [2002] FCA 496 at [17] that:

“It is neither possible nor appropriate on a security for costs application to reach any firm conclusions as to the prospects of an appeal being successful beyond a general consideration of the reasons for decision and the formation of a general overview.”

16                  The third matter is to reiterate the observations made by the Full Court in Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4 in relation to an impecunious corporate appellant: 

“In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means.  It is not for the party seeking security to raise the matter;  it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts.”

17                  When one considers the circumstances of this matter in light of the considerations I have referred to above, it is clear that some favour and some weigh against the award of security.

18                  First, there is no real issue as to delay in making the application for security for costs.  Rather, it has been the tardiness of Cultivaust that has been a cause of delay. 

19                  Secondly, as to the chances of success, I am satisfied that there is a reasonably arguable case on the issue of construction, as I have indicated already.  Cultivaust, I should add, complains that its submissions on construction have not been addressed in their entirety by his Honour and that the issues raised by the relevant provisions of the PBR Act are more complex than is revealed in Mansfield J's conclusions.  All I can say as to that matter is that the construction ground is, on its face, arguable. 

20                  Thirdly, in submissions, Cultivaust raised the risk that it may not be able to satisfy a costs order, but no categorical assertion to that effect has been made.  Equally, no such assertion has been made that the making of an order would stifle the appeal.  I will return to this matter below. 

21                  Fourthly, Cultivaust does place some emphasis on the claim that its impecuniosity has been caused by the conduct of Grain Pool's predecessor, that conduct being the subject of the infringement claim.  It clearly is the case that if that conduct is found on appeal to have been wrongful, Cultivaust's financial circumstances will have been adversely affected by that wrong, although in what degree I am not certain.  Nonetheless, it is likely to have been substantial.  This consideration would, in my view, have been of particular significance in an application for security at first instance: see Octocane Pty Ltd v SRJ Property Development Pty Ltd (1999) 74 SASR 471; as the making of an order at that level could constitute a denial of justice to a plaintiff.  However, on an appeal, I consider this to be a consideration of lesser significance, in that a judicial decision has already been given on the question of the unlawfulness or otherwise of the conduct of the person seeking the security, so that other considerations can assume greater importance.

22                  Fifthly, the application for security here is clearly not oppressive.  Grain Pool has been left in a position of having no idea at all as to whether Cultivaust could meet a costs order and Cultivaust has done nothing to dispel that doubt.  In my view, the application has been reasonably and properly made. 

23                  Sixthly, when one turns to the actual financial position of the company it is only to find that Cultivaust has maintained a formidable silence (see Bell Wholesale Corporation Ltd at 4) as it has also in relation to the persons who are standing behind it who are likely to benefit from the litigation and who could, or quite reasonably be expected, to provide security or personal undertakings.  Cultivaust has put on no evidence at all on these matters, notwithstanding that it is a two‑share company constituted for a specific purpose.  It would not be unreasonable to conclude, given that the market for Franklin barley has diminished significantly in Western Australia since 1999, that the shareholders are seeking to obtain the benefit of a litigation in respect of a past wrong without being prepared, apparently, to assume any of the burden of its prosecution.

24                  This, in my view, is a case in which I would have expected evidence dealing with the circumstances of the two shareholder companies.  I do not consider the references made to their financial situation in Mansfield J's judgment as in any way sufficient or illuminating for present purposes.  I equally would have expected to have had information from Mr Teague, who is the sole director of Cultivaust and a director and shareholder of Teague Australia.

25                  Seventhly, Cultivaust has argued that there are a number of public interest considerations which weigh in favour of refusing an order.  They are, variously, that the issue of construction of the PBR Act is a matter of some public importance and made the more so because Mansfield J's judgment is the only case on that statute for the moment.  They equally contend that at the relevant time Grain Pool's predecessor was a statutory corporation exercising public power and it is in the public interest that the alleged transgressions of such bodies be fully ventilated.  In this respect, it is referring to the allegation of unlawful interference by Grain Pool to Western Australia in its business.

26                  Grain Pool in contrast submits I should not be particularly influenced by the public interest considerations, particularly as they relate to the construction of the statute.  Their contention is that the holder of the PBRs, Tasmania, has not considered it appropriate, for whatever reason, to appeal against Mansfield J's decision and it is not impecunious.  For my own part I consider only the first of these matters to be of some, but not of great significance, in the circumstances.  The second has been the subject of a decision by Mansfield J.

27                  Eighthly, the one discretionary matter distinctive to this case on which Cultivaust relies the lapse of time between the hearing and the delivery of judgment.  For present purposes, I regard this matter as relating to the prospects of success which I have already indicated favour the making of no order.

28                  When I have regard to the competing tugs of all the above considerations, there are two to which I attribute particular significance.  One is that there is a substantial question of construction to be resolved and ordinarily impecuniosity ought not to stand in the way of that.  To be set against this though – and in my view it is of more significance in the present circumstances – is the lack of information about the company's present financial circumstances or about that of those standing to benefit from the litigation.  The stance taken by Cultivaust does not seem to rise much higher than that it has an important argument to make on its appeal which in its view has considerable prospects of success and that this virtually of itself should be enough to win the day.  I am not satisfied that in the particular circumstances of the matter, that this is so.  Indeed, I am not satisfied that the making of an order would actually stifle the appeal.

29                  As I have indicated, a 20 day trial was able to be conducted by Cultivaust when its financial circumstances were parlous.  I am not satisfied that arrangements cannot or will not be made to ensure this appeal proceeds, notwithstanding that an order for security has been made.  Equally, if I am mistaken in this, I do not consider Grain Pool should on the material before me be made to run the risk of not recovering its costs.  I intend to make an order for security.

30                  Turning to the amount of the security, Grain Pool boldly and baldly asserts that its party and party costs will be in the range of $150,000 to $200,000, the assumption that the hearing will require two full days, that senior and junior counsel will be retained for the purposes of the appeal and that the complexity of the matter will require a considerable period of preparation.  The solicitor for Cultivaust, in contrast, has sworn an affidavit in which he advances the estimate of party and party costs as being unlikely to constitute more than $85,000.  The assumption again is there will be a two day appeal with senior and junior counsel being retained and a preparation time of about a week.  This estimate at least insofar as it relates to counsel fees is based on the Federal Court's National Guide to Counsel Fees of 1 January 2004.

31                  For my own part, I am not satisfied that the complexity of the matter is such as to involve the lengthy preparation suggested by Grain Pool or that the cost estimate made by it is a reasonable or an appropriate one.  I consider security in the sum of $65,000 to be appropriately conservative in the circumstances.  Accordingly, I will order that the appellant give security for the first respondent's costs in the sum of $65,000 by way of bank guarantee in a form approved by the registrar.

32                  I was asked to provide Cultivaust with about eight weeks in which to provide such security as it was prepared to offer.  It is appropriate to give that time for the security I have ordered.  As there is little likelihood of this matter now being available for the February Full Court sittings.  I will order that security be provided on or before Friday, 17 December 2004.

33                  I will order as well that unless the security be provided by that date, the appeal is to be stayed until further order.  The costs of the present motion I would order be costs in the appeal.

Associate:

Dated:              14 October 2004