FEDERAL COURT OF AUSTRALIA

Cosdean Investments Pty Ltd v Football Federation Australia Limited (No 5)

[2007] FCA 1792

PRACTICE AND PROCEDURE – motion to set aside order dismissing application where security for costs not paid

PRACTICE AND PROCEDURE – motion to extend time in which to appeal from security for costs order – where no explanation as to delay in appealing – whether purported change in circumstances would support appeal – where insufficient evidence to support purported change in circumstances

HELD – motion to set aside order dismissing application for failure to pay security for costs refused

Federal Court Rules 1976 (Cth)

Munn v Queensland(2001) 115 FCR 109 cited

RD Werner & Co Inc v Bailey Aluminium Products Pty Ltd (1988) 18 FCR 389 cited

Wati v Minister for Immigration and Multicultural Affairs (1997) 78 FCR 543 cited

Metwally v University of Wollongong (1985) 60 ALR 68 cited

Wentworth v Woollahra Municipal Council (1982) 149 CLR 672 cited

Council of the City of Greater Wollongong v Cowan (1955) 93 CLR 435 cited

House v The King (1936) 55 CLR 499 cited

COSDEAN INVESTMENTS PTY LTD v FOOTBALL FEDERATION AUSTRALIA LTD AND SOCCER NSW LIMITED

SAD 114 OF 2006

MANSFIELD J

23 NOVEMBER 2007

ADELAIDE

THE COURT ORDERS THAT:

1.                  The orders sought by the applicant in its notice of motion of 23 July 2007 are refused.

2.                  The applicant pay to the respondents their costs of and incidental to the applicant’s notice of motion.

3.                  The time by which the applicant do pay the further sums for security for costs ordered to be paid on 14 February 2007, as extended from time to time, be further extended to 30 November 2007.

4.                  In the event that such further sums for such security for costs are not paid by 30 November 2007, the proceeding be dismissed with costs.

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

REASONS FOR JUDGMENT

1                     The applicant has applied by motion for two sets of orders.  The first is to set aside the orders dismissing the proceedings on 17 August 2007 if the security for costs orders made on 14 February 2007 were not met by that date, and the consequential costs orders (Orders 1 and 4 made on 17 May 2007).  The motion refers to those orders as being “the security for costs orders”, but the submissions confirmed that it refers to the “sunset orders” dismissing the proceedings in certain events.  In the light of the motion, the time for payment of the security for costs has been further extended until judgment is delivered on the motion.  The second set of orders seeks to further extend the time for the applicant to appeal against the security for costs orders (Orders 3 and 4 made on 14 February 2007 and Order 4 made on 19 February 2007).

THE BACKGROUND

2                     The applicant’s claim in the proceedings is as owner of the registered business name International Sports Management Australia (ISMA).  Its claim against the respondents arises out of matters leading up to the Federation Internationale de Football Association (FIFA) World Cup 2006 conducted in Germany in mid 2006.  The World Cup provided FIFA with the opportunity to market FIFA endorsed products.  In Australia, as a result of negotiations, ISMA was appointed the agent of Deumer Asia Ltd to market and sell FIFA endorsed key rings.  The agreement between Deumer Asia and ISMA granted exclusivity to ISMA to promote and sell FIFA endorsed key rings in Australia in that period, on the basis that ISMA took a minimum order of 500,000 key rings with a wholesale value of about $3.75 million.  The claim arises because (the applicant alleged) an officer of the first respondent on 25 May 2006 informed clubs affiliated with it that the merchandise being promoted by the applicant was not endorsed by it or by FIFA, and that the applicant was not licensed to distribute and sell FIFA endorsed key rings.  The second respondent, on one version of subsequent events, adopted and promoted that view.  The applicant claims that conduct caused it significant loss and damage.

3                     As a result of information provided by the parties, it was anticipated that the hearing would take about five days.  The hearing commenced on 29 January 2007.  Prior to that date, on the application of each of the respondents, an order had been made that the applicant provide security for the costs of the first respondent in the sum of $40,000, and for the costs of the second respondent in the sum of $25,000, those amounts being quantified by reference to the anticipated costs to the first day of the hearing.

4                     The applicant ordered 50,000 key rings on 27 February 2006 and, after paying for them, received them at the start of April 2006.  I will call that the first tranche.  The balance of 450,000 key rings (the second tranche) also had to be bought by the applicant under its contract with Deumer Asia.  In fact, it ordered a further 300,000 key rings on 12 April 2006 and was notified on 22 May 2006 that they were ready for shipment.  They were invoiced at $1,281,443.  The applicant did not pay for those key rings and they were never delivered.  It did not have the funds to do so, other than perhaps by borrowing them.  Nor did it on 22 May 2006 have the funds in hand to meet the shipping customs and storage costs of those key rings.  The balance of 150,000 key rings were never ordered or delivered or paid for.  By the time of the allegedly wrongful conduct on the part of the respondents or one of them on 25 May 2006, less than half of the first tranche of key rings had been sold.

5                     Both respondents, at the commencement of the hearing on 29 January 2007, applied for further security for costs.  At that time, it had become apparent that the hearing was likely to take more than the five days set aside for it, having regard to the number of affidavits filed as proposed evidence on behalf of all parties and the evolving clarification of the issues.  The course of evidence during the first week of the hearing confirmed that to be the case.  The principal witness for, and a director of the applicant, Suzanne Watson, gave evidence over a period of almost four of those five days, and three of the other proposed witnesses gave evidence (one incomplete) in the time allowed.  The adjournment, necessary because further time had not initially been set aside for the hearing, also enabled the applicant to indicate that it proposed to call further witnesses beyond those upon which it had opened its case, including Dean Cosenza who was also closely involved in the transactions giving rise to the claim, and whose evidence is likely to take several days.  There was in addition, of course, the evidence then to be adduced by the respondents.

6                     The respondents’ application for further security for costs was deferred from time to time during the first week of the hearing whilst the applicant’s principal witness gave evidence.  That was because her instructions were necessary for the applicant to address the proposed further claim for security for costs, and it was inappropriate to interrupt the course of her evidence, particularly during cross-examination, for her to do so.

7                     On 14 February 2007, I made orders, inter alia, that the applicant provide to the first respondent security for costs in the further sum of $60,000 and to the second respondent further security for costs in the sum of $40,000 (Orders 3 and 4).  I adjourned for further hearing the issue as to how those amounts should be paid.  On 19 February 2007, I gave the applicant leave to appeal from those orders.  The reasons for the further security for costs orders are contained in Cosdean Investments Pty Ltd v Football Federation Australia Limited (No 2) [2007] FCA 163.  I also ordered on 19 February 2007 that the proceeding itself be stayed until 5 April 2007, that being the date by which the further security for costs was to be paid, and that if the amounts ordered to be paid by way of security for costs were not by then paid, that the proceedings be permanently stayed (Order 4 of 19 February 2007).  There was no application for leave to appeal from that order.  No appeal was brought from the security for costs orders (Orders 3 and 4 made on 14 February 2007) within the time permitted by O 52 r 15 of the Federal Court Rules 1976 (Cth).

8                     The further security for costs as ordered was not paid.  The respondents then applied, as they had been given leave to do on 19 February 2007, for the proceeding itself to be dismissed once it had become permanently stayed, as it had pursuant to Order 4 of the orders made on that date.  On 17 May 2007, I ordered that, if the further security for costs to be paid had not been paid by 17 August 2007, the proceeding be dismissed.  That in effect gave the applicant a further three months to pay the further security for costs.  It is Order 1 of the orders made that day.  I also ordered that the applicant pay the respondents’ costs of and incidental to their notices of motion of 17 and 26 April 2007 respectively (the motions by which Order 1 of the orders made on 17 May 2007 came to be made).  The costs order is Order 4 of 17 May 2007.  The reasons for the orders made on 17 May 2007 are contained in:  Cosdean Investments Pty Ltd v Football Federation Australia Limited (No 3) [2007] FCA 766.

9                     For reasons which are there set out, I gave the applicant liberty to apply for Orders 1 and 4 (and others) to be varied or discharged, provided such application was filed and served with supporting affidavits by 23 July 2007.  The present motion was instituted on that date.  As noted above, I have extended the time by which the security for costs should have been paid from time to time, thereafter pending the hearing and determination of the present motion.

THE APPLICANT’S EVIDENCE ON THE MOTION

10                  The only evidence relied upon by the applicant at the time the motion was lodged was an affidavit of Ms Watson of that date.  After referring to the original orders for security for costs, she refers to having paid a substantial sum in part payment of the fees of the solicitors of the applicant to date and says that there is a very substantial sum for those fees still outstanding, which is “secured by way of mortgage over my home and investment properties”.  She then says that, following the further orders made on 14 February 2007, Dean Cosenza made inquiries of Deumer Asia about that company’s willingness to assist the applicant in these proceedings by way of costs contribution or an indemnity for its costs.  The reason for her reference to Deumer Asia was because I had taken into account that, if the applicant’s claim succeeded, at best it would recover about $3 million damages and it would have to pay Deumer Asia in excess of $1.8 million of that sum for the key rings which it had contracted to acquire from Deumer Asia and which it had not received. 

11                  Mrs Watson then exhibits a letter from Deumer Asia of 15 July 2007 in the following terms:

1.                  Cosdean Investments requested Deumer to assist it with its proceedings in the Federal Court of Australia against FFAL and Soccer New South Wales, including by way of contribution or indemnity with respect to costs of the proceedings.

2.                  The basis for the request by Cosdean Investments was that Deumer would be entitled to recover amounts owing by Cosdean Investment to Deumer in the vicinity of A$1.3M if the proceedings were successful, but would otherwise be unlikely to recover any such debt.

3.                  In giving the matter full consideration, Deumer cannot accede to the request by Cosdean Investments but will be forced to write off the debts.  The losses Deumer suffered due to the outcome of the FFAL and Soccer New South Wales project have endangered the financial situation of Deumer to the greatest extent.

12                  Ms Watson also says that, as a result of the costs issues and the applicant’s former solicitors ceasing to act for the applicant, she suffered significant anxiety and depression for which she sought and obtained medical and psychological treatment, particularly in the period February to June 2007.  Its extent, or any medical verification of its effect upon her, is not shown or offered.  She then consulted on 3 June 2007 a fresh firm of solicitors which, on 11 July 2007, agreed to act for her to “request confirmation of its position from Deumer Asia Ltd”.  The letter quoted above was received as a consequence.

13                  Ms Watson asserts further that the applicant is unable to satisfy the further security for costs orders made on 14 February 2007 and has no other means of providing security for the costs so ordered to be paid.  She adds that the applicant accepts that the consequence of the letter from Deumer Asia, which she described as a “waiver of its debt”, is that the applicant’s claim for damages against the respondents is substantially less than previously claimed.

14                  On 2 August 2007, at a directions hearing for the motion, the applicant was given a further opportunity to adduce additional affidavit material at the hearing.  The opportunity was not taken up.  Also, at the hearing, assertions were made on behalf of the applicant as to Ms Watson’s lack of awareness of the orders made on 17 May 2007.  I noted at the time that there is no evidence either way as to whether Ms Watson was personally aware of the motions of the respondents of 17 and 26 April 2007, or of the hearing of 17 May 2007, so I do not infer that she was aware of those things before 17 May 2007. On the other hand, there is nothing to indicate that the applicant itself was not aware of those motions or of that hearing.  Indeed, it is clear enough that the motions, including the return date for the motions as issued, were properly served upon the applicant, even if Ms Watson did not then personally become aware of them.  The applicant was also given a further opportunity to make such written submissions on the motion as it considered appropriate in addition to what it had put through senior counsel on 6 September 2007.  It took up that opportunity and the respondents have also replied in writing.

CONSIDERATION

15                  The applicant’s written submissions provided pursuant to that opportunity, so far as I can determine, makes three points, only one of which is based upon Ms Watson’s affidavit.  That is that the position of Deumer Asia according to its letter represents a substantial change in circumstances directly relevant to the security for costs orders made on 14 February 2007.

16                  The second point is to assert that in any event the applicant’s entitlement to damages in respect of the first tranche of key rings imported should be assessed in the vicinity of $330,000, and in respect of the subsequent tranches which it was obliged to import that its potential profit should be assessed in excess of $1 million.  The consequence is said to be that the applicant has a good prospect of recovering quite substantial damages against one or both of the respondents, so that it should be permitted to maintain its claim without being obliged to pay further security for costs.  The third of the points raised in written argument concerns the availability of funds to purchase the additional 450,000 key rings which the applicant was obliged to acquire from Deumer Asia.  It is argued, based in part upon contested evidence in the case upon which there has been no adjudication and in part upon proposed evidence as expressed in witness statements (including of a director of Unique Finance Pty Ltd), that funds would have been made available upon certain terms (including interest at the rate of 60 per cent per annum) to meet the shipment of the balance of key rings so that it could have acquired the additional 450,000 key rings and (as asserted in its second point) would have onsold them at a large profit.  Hence, it is said, the interests of justice direct that the relief sought should be granted.

17                  There is no doubt that, the “sunset” order made on 17 May 2007 not yet having led to the proceeding being dismissed, the Court has power under O 35 r 7(2) or under O 28 r 5 to set aside that order:  see RD Werner & Co Inc v Bailey Aluminium Products Pty Ltd (1988) 18 FCR 389 or to extend the time to appeal from the further orders for security for costs made on 14 February 2007.  Although generally the power to set aside a judgment or order should be sparingly exercised (see Wati v Minister for Immigration and Multicultural Affairs (1997) 78 FCR 543 at 550-552), I think the power is more readily exercised in the case of an interlocutory order where the public interest in the finality of litigation does not weigh so heavily in the scales.

18                  However, this is not a case where the applicant can assert that it has not had a proper opportunity either to address the applications for further security for costs or, those orders having been made, to address the applications that the proceeding be dismissed for it having failed to pay the further security for costs ordered.  That it did not participate in the hearing on 17 May 2007 was a matter for it.  Even in respect of that hearing, it does not profess inadvertence or ignorance (although Ms Watson herself may not have known of that hearing):  see e.g. Metwally v University of Wollongong (1985) 60 ALR 68 at 71; Wentworth v Woollahra Municipal Council (1982) 149 CLR 672 at 684.

19                  The applicant has not sought to explain its non-participation in the hearing on 17 May 2007.  It has not sought to explain why it did not appeal within the time permitted from the further security for costs orders made on 14 February 2007.  Such an appeal would then have been instituted before the respondents applied by motion for the proceedings to have been dismissed for failure to pay the further security for costs.  The respondents may not then have made those applications and incurred the costs of so doing.  Yet the applicant proffers no explanation for its tardiness, nor makes (or, on its evidence, could make) any compensatory gesture to the respondents for that loss caused by its delay if its current motion is successful.  Nor has the applicant sought to explain why, apparently, it took some four months to contact Deumer Asia notwithstanding that the position of Deumer Asia as its principal, if not its only creditor and so the potential primary beneficiary of any success of the applicant in the proceeding, was one substantial reason for the further security for costs orders.

20                  What then of the three points now raised by the applicant?

21                  There is presently no application to set aside the two orders for further security for costs made on 14 February 2007.  Rather, there is an application for an extension of time within which to appeal from those orders.  There is no evidence explaining why the applicant did not appeal within the time allowed, having been granted leave to appeal on 19 February 2007.  The applicant was represented at the time those orders were made.  As I have said, there is no explanation for the very lengthy delay.  Nor is there any suggestion in the submissions as to why the orders made were wrong, or even why there is any real prospect of them being set aside on appeal.

22                  In my view, in addition to the unsatisfactory and unexplained delay in securing any response from Deumer Asia, the letter from Deumer Asia does not have the effect for which the applicant argued.

23                  In that context, it is appropriate to refer to the letter from Deumer Asia of 15 July 2007.  One of the reasons why the further security for costs orders were made on 14 February 2007 was that the applicant had not indicated that it could or could not get the support of Deumer Asia to maintain the proceedings, even though Deumer Asia would be likely to be the principal, if not the only, beneficiary of any award for damages if the applicant succeeded in its claim.  At some unspecified time, but I infer in the weeks preceding 15 July 2007, the applicant apparently requested Deumer Asia to support the applicant by contribution or indemnity with respect to costs.  There is no indication that the support sought was limited only to meet the orders for further security for costs, that is an additional $100,000.  There is no indication that Deumer Asia was given any information as to the prospect of success or as to the likely award of damages.  All that is apparent is that Deumer Asia was told that it would recover amounts owing by the applicant to Deumer Asia in the sum of $1.3 million if the proceeding was successful, but would otherwise be unlikely to recover any such debt.  The applicant has not chosen to expose what it conveyed to, or sought from Deumer Asia other than that it “assist” with the proceeding.  I am not prepared to infer that Deumer Asia was asked only to provide $100,000 to cover the amounts of the further security for costs orders of 14 February 2007.  Nor am I prepared to infer that Deumer Asia was given such appropriate information upon which it could make an informed commercial decision. 

24                  Moreover, Deumer Asia simply responded that it cannot accede to the request but will be forced to write off “the debts”.  In other words, if the proceedings do not proceed, it acknowledges that it will be unable to recover its debt from the applicant.  It does not say that if the proceedings continue and the applicant is successful it will waive the debt.  I reject the contention that there is a substantial change in circumstances revealed by the letter from Deumer Asia to the effect that the applicant could proceed to recover damages based on potential sales of the 450,000 key rings without having now to account to Deumer Asia, or in any other way.

25                  In my view, apart from it becoming clearer that Deumer Asia would not generally fund proceedings, the applicant has not shown that it has made a cogent and sensible approach to Deumer Asia for it to support the proceedings by presenting a limited claim for financial support (sufficient to meet the requested security for costs only), and by explaining anything about the nature of the action or its prospect of success.

26                  Importantly, for the purposes of the application for a further extension of time within which to appeal, I do not think that a letter of such generality without more is sufficient to indicate that Deumer Asia has received a detailed and properly constructed request for financial assistance and has declined it so that the principal creditor who will mainly benefit from the proceeding, if it is successful, has declined to support the proceedings and as a result the proceedings will be stultified.  Its letter is far too general for that.  Moreover, even if such a request had been made and declined, the position would be that Deumer Asia (which stands to gain principally, if not exclusively, from the proceeding depending upon the amount of damages recovered if the applicant succeeded) would not be prepared to support the further prosecution of the claim even to the relatively modest amount of the further security for costs orders in relation to the quantum of the claim.  That reinforces one of my reasons for making the further security for costs orders on 14 February 2007.

27                  Accordingly, subject to considering the applicant’s second and third contentions, I am not persuaded that it should be granted a further extension of time within which to appeal from the further security for costs orders made on 14 February 2007.  In brief, it has not explained the delay satisfactorily at all.  It has not demonstrated any relevant significant change in circumstances, even if the Deumer Asia letter of 15 July 2007 were to be permitted to be adduced in evidence on the appeal (as to which see e.g. Council of the City of Greater Wollongong v Cowan (1955) 93 CLR 435 at 444).  It has not explained, in any event, why that letter could not have been procured much earlier.  It has not sought to have the security for costs orders discharged.  It is clearly, and admittedly, unable to pay the further security for costs orders and will be unable to meet any costs of the respondents if the matter proceeds to hearing and the applicant is unsuccessful.

28                  Nor has any reason been identified of any substance as to why the orders of 14 February 2007 for further security for costs might be set aside on appeal.  There is no draft notice of appeal, nor anything identifying error.

29                  The second matter argued by the applicant relates to matters taken into account when the further security for costs orders were made.  It is not a new argument.  It is discussed in Cosdean (No 2) [2007] FCA 163 at [12] – [14].

30                  Both the second and third matters argued by the applicant go beyond the evidence on the motion and rely upon certain evidence at the hearing and certain proposed evidence.  It is fundamental to those contentions that the applicant, in the period 1 April 2006 to about 30 July 2006, would have been able to pay for the second tranche of key rings from sales of the first tranche of 50,000 key rings, and/or from other resources, and would have been able to sell by retail or wholesale most of the key rings.  It is not at all clear that either of those premises is correct.  The evidence showed that the applicant had sold under half of the first tranche of 50,000 key rings in the period 1 April 2006 to the commencement of the conduct complained of on 25 May 2006, despite its very extensive efforts to do so.  The sales to that date had not generated anywhere near sufficient funds to pay for the second tranche (or some of it).  It had no other funds, other than borrowed funds, to do so.  The fact that its sales had been so low, and that there was a significant period between payment and delivery was likely to mean that the further key rings would have been available for sale only in about mid-June 2006, even if the applicant could have paid for the 350,000 key rings which had been ordered and which, by about 21 May 2006, were ready for dispatch.  Having regard to the sales to 25 May 2006, even allowing for increasing public interest as the World Cup became closer and occurred, the prospect of a very dramatic upturn in sales in that period is not immediately attractive.  That is the more so having regard to the evidence about the efforts to market the key rings through member or associated clubs of the respondents prior to 25 May 2006, and that the interest of such clubs was neither consistently positive nor likely to generate large sales of key rings, at any one particular club.  On the evidence, the sales strategy of the applicant through member or allied clubs of the respondents was close to its last ditch plan after several other plans had been tried and had not resulted in significant sales.

31                  Moreover, the contention asserts that sales of the first tranche would in part have funded the balance of the key rings.  As the sales of almost half of the first tranche to 25 May 2006 had not put the applicant in a position to do so, it must be referring to the balance of the first 50,000 key rings.  On its best case, those sales would have taken place in June 2006.  The surplus funds generated may, therefore, not have been available to fund the second tranche or the part of it comprising 350,000 key rings at a point in time which was early enough to ensure the availability of that second tranche or part of it at the critical time prior to and during the World Cup.  The balance of the second tranche, namely 100,000 key rings had not been ordered and, as the evidence showed, with a considerable period between order and availability of the first tranche and of that part of the second tranche comprising 350,000 key rings, it may be doubted that they would be available at or before the World Cup.

32                  The alternative asserted funding source of finance is supported only by a statement of a proposed witness.  It is a conditional rather than an absolute offer of finance.  It is not clear that the requirements of the potential financier would have been satisfied.  It was at a usurious rate of interest.  The applicant also asserts the willingness of Deumer Asia to provide the applicant with “as much assistance as was reasonably possible”, based upon the witness statement of Johan Conze of Deumer Asia.  The nature of that assistance is not identified.  The decision of Deumer Asia regarding the provision of assistance in relation to this proceeding, so far as it is apparent on the material on the motion, is discussed above.

33                  In my view, the second and third matters raised by the applicant may be seen as errors asserted by the applicant in the making of the further security for costs orders on 14 February 2007.  Otherwise, they are simply an attempt to re-argue matters which have already been argued.  I shall also therefore consider whether those matters might demonstrate some arguable prospect of success if an extension of time to appeal from those orders were granted.  I do not think these matters demonstrate a relevant mistake of fact in considering the potential award of damages, in considering the capacity of the applicant to fund the second tranche of key rings as discussed in Cosdean (No 2) [2007] FCA 163at [12] – [14].  Nor do I think that they otherwise provide an arguable basis for error from the discretionary judgment to impose the further security for costs orders upon the applicant:  See House v The King (1936) 55 CLR 499 at 504 – 505.

34                  For those reasons, I do not consider that the applicant should be granted a further extension of time within which to appeal from the further security for costs orders made on 14 February 2007, or from the order presently staying the proceeding until the further security for costs was paid, made on 19 February 2007.

35                  I am further of the view, having regard to the conclusion I have reached that there should be no extension of time within which to appeal from the further security for costs orders, and having regard to the accepted inability of the applicant to comply with those orders by providing further security for costs, that the orders made on 17 May 2007 should not be discharged.  The applicant is faced with further orders for security for costs.  It cannot satisfy them.  It acknowledges that.  The proceedings have been permanently stayed.  In those circumstances, nothing has been shown to indicate that the orders dismissing the proceedings against each of the respondents were inappropriate in the first place, or should now be discharged.

36                  For those reasons, the orders sought on the applicant’s notice of motion of 23 July 2007 are refused.  The applicant should pay to each of the respondents their costs of that motion.  I also now discharge the order which I made further extending the time to a date to be fixed by which the further security for costs should be paid, pending the hearing and determination of the applicant’s motion.  Out of an abundance of caution I will further extend the time by which the applicant should pay the security for costs specified in Order 1 of the order of 17 May 2007 to 30 November 2007.  The intent of that order is that, if the further security for costs is not then paid by that date, the proceedings against each respondent will be dismissed.

Associate:

Dated:         21 November 2007