FEDERAL COURT OF AUSTRALIA

Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd [2006] FCA 661

PRACTICE AND PROCEDURE – appeals – leave to appeal from interlocutory orders – tests to be applied when granting leave from interlocutory decisions - discretion to grant leave – failure to provide adequate reasons – duty to give reasons

PRACTICE AND PROCEDURE – security for costs – exercise of discretion – misapplication of principle –  whether principles of impecuniosity of a plaintiff who is a natural person applies to corporations

Held: Leave be given to appeal the interlocutory orders of the primary judge

Corporations Act 2001 (Cth) s 1335

Federal Court of Australia Act 1976 (Cth) s 56

Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 applied

The Airtourer Co-operative Ltd v Millicer Aircraft Industries Pty Ltd [2004] FCA 1400 discussed

Staff Development & Training Centre Pty Ltd v The Commonwealth of Australia [2005] FCA 1643 distinguished

Crystal Dawn Pty Ltd v Redruth Pty Ltd [1998] QCA 373 considered

Frigo v Culhaci, unreported, New South Wales Court of Appeal, 17 July 1998 considered

Morris v Hanley [2001] NSWCA 374 considered

CITRUS QUEENSLAND PTY LTD & ORS v SUNSTATE ORCHARDS

 PTY LTD & ORS

QUD 400 OF 2005

SPENDER J

30 MAY 2006

BRISBANE

THE COURT ORDERS THAT:

1.      Leave be granted to the applicants on the Notice of Motion to appeal from the interlocutory judgment of Collier J given on 24 April 2006.

2.      The costs of and incidental to the Notice of Motion be the parties’ 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                     On 24 May, I granted leave to Sunstate Orchards Pty Ltd and Andrew Colin Strahley (‘the respondents’) to appeal from the interlocutory orders made by Collier J on 24 April 2006, where her Honour ordered that the respondents’ application for security for costs be dismissed, and the respondents pay the costs of the first and third applicants in the principal proceedings, the costs of the application for security for costs to be taxed.

2                     I then indicated I would give short reasons for granting leave.  These are those reasons. 

3                     In Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397, the Full Court (Sheppard, Burchett and Heerey JJ) indicated at p 398 that the tests normally to be applied in determining whether leave for interlocutory decisions should be granted are whether the decision at first instance was attended with sufficient doubt to warrant it being reconsidered, and whether substantial injustice would result if leave were refused, supposing the decision at first instance was wrong.

4                     The Full Court recognised that where the interlocutory decision was on a point of practice, the High Court in Adam P Brown Male Fashions Pty Ltd v Phillip Morris Inc (1981)  148 CLR 170 at 177 has given a strong warning that ‘a tight rein’ should be kept on appeals.

5                     The respondent contended that in this case the orders by the primary judge are attended by sufficient doubt to justify the granting of leave, particularly having regard to what might be gleaned from the sparse reasons of her Honour to be the basis for dismissing the application for security for costs.

6                     It was further submitted that the primary judge failed to apply the relevant principles of law, misdirected herself as to the application of those principles, and the primary judge failed to provide adequate reasons.  It was submitted that the inadequacy of reasons was itself sufficient to justify appellate review.  The respondents further contend that the proposed appeal involves a point of principle as to the proper construction of s 1335 of the Corporations Act 2001 (Cth) and s 56 of the Federal Court of Australia Act 1976 (Cth) and, in particular, in whether the common law rule that impecuniosity is no bar to litigation is applicable, given the enactment of s 1335 of the Corporations Act 2001 (Cth) or s 56 of the Federal Court of Australia Act 1976 (Cth), and, further, whether that rule is applicable to companies.  The respondents also dispute the contention that the purpose of s 1335 of the Corporations Act 2001 (Cth) or s 56 of the Federal Court of Australia Act 1976 (Cth) is to ensure that vexatious claims are not brought by companies having no assets.

7                     The respondents further contend that they are at risk of the first and third applicants being unable to meet an adverse costs order should the respondents be successful in defence.  This was so in circumstances where the applicants could not meet an adverse costs order, but there was no evidence that other persons who stood to benefit from the prosecution of the proceedings were themselves without means.  It is further contended that the undertaking accepted by the primary judge in fact provided no real security, either as a matter of form or quantum, and the primary judge was therefore in error in placing reliance on it in her decision of  refuse security for costs.

8                     There is, in my opinion, sufficient merit in these contentions to justify the grant of leave.

9                     In particular, many of those contentions have their basis in the paucity of reasons that were given in relation to the application for security for costs.  The hearing occurred in circumstances of some time pressure, which, on one view, was quite unnecessary.  The hearing commenced at 11.04am on Monday, 24 April, and, at the outset, her Honour said to the parties, ‘Are the parties aware that I will need to adjourn the court at 12.15?’   On a number of occasions during the submissions by counsel on behalf of the applicants for security, her Honour noted that she was conscious of the time, and of the need to give counsel for the respondents to the motion an opportunity to speak. 

10                  The submissions by counsel for the respondents referred to the judgment of Branson J in The Airtourer Co-operative Ltd v Millicer Aircraft Industries Pty Ltd [2004] FCA 1400, where her Honour there indicated that s 56 of the Federal Court of Australia Act 1976 (Cth) does not indicate any predisposition to or bias towards the granting of an order against an impecunious litigant.  Counsel for the respondents later said:

‘The discretion is completely unfettered and ought to be exercised without any predisposition.’ 

However, counsel for the respondents also submitted:

‘… The whole purpose of the Act, and, indeed, the underlying thesis behind section 1335 of the Corporations Law, is to ensure that vexatious claims are not brought by companies having no assets, so that a person in the position of a respondent to just such a claim ought not be penalised by the fact that it can be an empty shell of a company as the applicant …’.

11                  At the conclusion of those submissions, the primary judge said:

‘What I would like to do now is give the parties my preliminary thoughts on this matter.  My preliminary thoughts in this matter is that this is not …’

And counsel for the applicants for security said:

‘Your Honour, could I just reply on one point, please?’ 

He continued to make a submission, and the primary judge then said: 

‘What  I would like to do now, as I said, is to give the parties my preliminary views of where I think this is going.  My preliminary view is that – perhaps this is not a preliminary view.  This is a final view.  Impecuniosity is no bar to litigation.  There’s no question about that, and that has been made clear in cases such as Spender J’s decision very recently.  Further, I am of the view that this is not vexatious litigation.  In my opinion, there is a sound case here being argued by the applicants.

I would have been somewhat inclined not to make any order in relation to security for costs at all in relation to this matter.  I note, however, that the applicants – the respondents to this notice of motion – have made an offer of $100,000, and I would have thought that that would have been a reasonable offer in the circumstances of this case …’. 

Those observations seem to indicate two reasons why security was not ordered:  First, ‘Impecuniosity is no bar to litigation.’;    and secondly,  ‘ …this is not vexatious litigation  … there is a sound case here being argued by the applicants.’

12                  Section 1335 of the Corporations Act 2001 (Cth) provides:

‘1335 Costs

(1)       Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.

(2)       The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs.’

13                  The condition to the exercise of the discretion to order security was met by the evidence in this case. 

14                  As far as I can see from the evidence, there was no suggestion that the ordering of security in this case would stifle the litigation, a circumstance which distinguishes it from the factual position in Staff Development & Training Centre Pty Ltd v The Commonwealth of Australia [2005] FCA 1643, a case referred to in the course of submissions to the primary judge. 

15                  In Crystal Dawn Pty Ltd v Redruth Pty Ltd [1998] QCA 373, Muir J, with whom Pincus JA and Williams J agreed, said at par [14]:

‘The learned primary judge’s failure to give reasons will, if raised by the applicants in their notice of appeal, be a matter for consideration on the appeal but in my view, it is relevant to the question of whether there should be an extension of time within which to appeal.

 Muir J noted:

‘It is well established that there is a duty on the part of judicial tribunals to give reasons for their decisions and that failure to give reasons which ought to be given amounts to appellable error …’

His Honour continued:  

‘[16]  In Cypressvale Pty Ltd v Retail Shop Lease Tribunal [1966] 1 Qd R 462 at 483, McPherson and Davies JJA observed –

“The extent of the duty to give reasons is affected by the function that is served by the giving of reasons.  The requirement is considered an incident of the judicial process, the hallmark of which is, as McHugh JA stressed in Soulemezis (1987) 10 NSWLR 247, 278-279,’ the quality of rationality’, which is what serves to distinguish a judicial decision from an arbitrary decision.  The giving of reasons is thus an aspect of judicial accountability, which was identified by his Honour in Soulemezis as the second of the three purposes served by the judicial duty of giving of reasons.  The first, his Honour said, is that ‘it enables the parties to see the extent to which their arguments have been understood and accepted, as well as the basis of the judge’s decision’.  The third is that judicial reasoning provides a precedent for the decision of future cases.  See, to similar effect, what was said by Mahoney JA in the same case: Soulemezis, at 269, referred to with approval in Sun Alliance Insurance Ltd v Massoud [1988] VR 8, 19, in the Full Court of Victoria.”

[17]  The obligation to give reasons may be affected by the way in which proceedings are conducted.  For example, the primary judge may indicate that it is not proposed that reasons be given and there may be a tacit acceptance of this by counsel for the parties.  For a discussion of qualifications to the general duty to give reasons see the observations of Mahoney P in Kiama Constructions v Davey (1996) 40 NSWLR 639 at 640.  In this case there is no suggestion that there was anything in the way in which the matter was conducted which would lead to the conclusion that the normal principles or expectations in respect of the giving of reasons would not apply.  Without wishing to limit the general obligation to give reasons, even on interlocutory matters, I note that the decision under consideration had the potential to prevent the applicants from pursuing the action and was thus one in respect of which reasons should have been given.

[18]  In my view it is undesirable that there be a judicial determination adverse to a litigant which significantly affects the litigant’s rights without reasons being provided for that determination.  For that reasons alone I would grant the extension of time.

[19]  I do not consider the failure on the part of the applicants’ counsel at first instance to request reasons to be a matter which negates the concern I have just expressed.  The bearing of the absence of reasons on the outcome of the appeal will be a matter for the Court which hears the appeal.’

16                  In Frigo v Culhaci, an unreported judgment of the Court of Appeal of New South Wales, (Mason P, Sheller JA and Sheppard AJA) of 17 July 1998 set aside the grant of a Mareva injunction by a District Court judge, in part because of the failure to give adequate reasons.  The Court  said: 

‘The orders made below must be set aside for a number of reasons:

1  Absence of Reasons

It is the practice of the Supreme Court for reasons to be given, albeit sometimes in short form, after the hearing of a contested motion for an interlocutory injunction. S46(2)(c) of the District Court requires no less.  More importantly, the general duty to give reasons, and its rationale as including proper exercise of rights of appeal, is well established:  see Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247; Beale v Government Insurance Office (NSW) (1997) 25 MVR 373.’

17                  In Morris v Hanley [2001] NSWCA 374, Heydon JA (with whom Foster and Rolfe AJJA agreed) said, at par 22:   

‘[22]  The duty of judges is to give reasons for the directions and orders they make must be lower where interlocutory orders affecting matters of practice and procedure are involved than they are where orders are made after a trial.  That must be so if for no other reason than that litigation would clog up to the point of stagnation if full reasons had to be given for the tens or hundreds of interlocutory orders which many primary judges make in a week in busy trial courts.  However, though applications for security for costs are matters of practice and procedure, they can have a significant impact on the substantive rights of plaintiffs, because if the order is made, the plaintiff may not be able to provide security for costs where one of the grounds for the application is that plaintiff’s lack of funds.  If so, that will prevent the plaintiff being able to have a judicial examination of the complaints made on the merits.  Accordingly it would not be right to hold that there is no duty, or only a very exiguous duty, on a primary judge to give reasons for making an order as to security for costs.

[23]  The primary judge in giving his reasons for the orders under appeal in many respects went well beyond what was called for by the duty to give reasons.  The reasons for judgment he provided, particularly given that they were ex tempore, set out in considerable detail his approach.   However, there is force in the argument of the plaintiff that insufficient reasons were given in relation to the question of the defendants’ delay …

[24]  … Sometimes what might otherwise be said to be a deficiency in the reasons of a primary judge can be compensated for by a clear explanation in the course of argument by the primary judge for the outcome.  However, that cure cannot be resorted to here. This Court does not have before it any transcript of the oral argument before the primary judge, and it has before it no affidavit indicating anything he may have said in the course of argument which would explain how he took the defendants’ delay into account.

[25]  In those circumstances there is an error of principle in the primary judge’s approach.  

18                  It seems to me that what was held to be, in that case, a failure to give adequate reasons must be the ‘high water mark’ of a judge’s obligation to give reasons for interlocutory orders.  I think there is room for the view that there was a desired result on the appeal searching for a reason to make it.

19                  In my opinion, it is cases like Morris v Hanley [2001] NSWCA 374 that support the view of trial judges that appellate judges can be likened to those who come down out of the hills after the battle is over and shoot the wounded.

20                  Nevertheless it is clear that, even on interlocutory orders, there is a duty to give adequate reasons, which do not display error.

21                  It is sufficient in respect of other aspects of the application for leave to indicate that in my opinion it is arguable that the conclusion of the primary judge in dismissing the application for security was tainted by misapplication of principle, and an improper  interpretation of s 1335 of the Corporations Act 2001 (Cth) and s 56 of the Federal Court of Australia Act 1976 (Cth).  In particular, it is arguable that principles dealing with the  impecuniosity of a plaintiff who is a natural person, have no application in relation to corporations falling within s 1335.

22                  The primary judge in her assessment of the worth of the undertaking offered in relation to the provision of security for costs said that the applicants in the principalproceedings ‘had made an offer of $100,000 and I would have thought that would have been a reasonable offer in the circumstances of the case.’  The undertaking in fact did not make an offer of $100,000.  It provided that if a property was sold and there was a sufficient amount left after paying out the first mortgage, the sum of $100,000 would be paid into the trust account of the solicitors for the respondents.  Alternatively, it provided that if the property was not sold, a mortgage would be granted to the respondents in that amount should the respondents obtain a costs order against the applicants. 

23                  It is highly arguable that the persons providing the undertaking had made no offer of $100,000, and undertook no obligation to meet the costs up to $100,000.  The evidence was silent as to the amount owing on the property or the balance of the mortgage.  There was no provision in relation to maintenance and repayments under the loan, or any undertaking that the balance secured by the mortgage would not be increased, nor was there any undertaking offered that attempts would be made to sell the property. 

24                  This aspect of the matter gains added significance for the grant of leave from the nature of the reasons of the primary judge.   It is arguable that those reasons also failed to deal with the dispute between the rival claims as to the quantum of security, an important issue on the application.

25                  For the above reasons, I granted leave, being of the view that both of the tests set out in Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR had application in the circumstances of the present matter.  

Associate:

Dated:              30 May 2006