FEDERAL COURT OF AUSTRALIA

Lee v Professional Services Review Committee No 292 [2010] FCA 1346

THE COURT ORDERS THAT:

1.    The applicant pay the respondents’ costs of and incidental to their motion for security for costs filed 23 September 2010.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

THE COURT ORDERS THAT:

1.    The applicant provide additional security for the respondents’ costs of and incidental to the proceeding in the sum of $8,500 to be paid into Court or, in the alternative, deposited into his solicitors’ trust account, within 21 days.

2.    The proceeding is stayed until such time as security is provided.

3.    The applicant is to pay the respondents’ costs of and incidental to their motion for security for costs filed 24 September 2010.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1    Part VAA of the Health Insurance Act 1973 (Cth) (“the Act”) establishes a procedure for investigating and reviewing the conduct of medical practitioners providing services under the Medicare scheme. The Act provides for a range of potential sanctions if a practitioner is found to have engaged in “inappropriate practice” (the statutory phrase) as judged by his or her professional peers. The applicant, Dr Il-Song Lee, was separately investigated by two differently constituted Professional Services Review Committees (“PSRCs”) – PSRC No. 292 and PSRC No. 348 – and found to have engaged in inappropriate practice (shortly described as over-servicing) and a final determination has been made by the Determining Authority in one of the cases.

2    By applications filed on 5 August and 30 August 2010 respectively, Dr Lee seeks judicial review of the decisions of the PSRCs and applies for the determination of the Determining Authority to be set aside.

3    On 23 and 24 September 2010 the respondents filed a notice of motion seeking security for costs in each matter in the sum of $15,000 to be paid within 28 days, a stay of the proceedings until such security is given and, if not given within the time provided by the order, an order that the proceedings be stayed or dismissed. As the issues are similar, by consent, the proceedings have been consolidated and both motions were heard together. This judgment is concerned with the two motions.

Jurisdiction

4    The motions rely solely on O 28 of the Federal Court Rules. The jurisdiction, however, is conferred by s 56 of the Federal Court of Australia Act 1976 (Cth). Section 56 provides:

(1)    The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her.

(2)     The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs.

(3)     The Court or a Judge may reduce or increase the amount of security ordered to be given and may vary the time at which, or manner or form in which, the security is to be given.

(4)     If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed.

(5)     This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security.

5    Order 28 r 5 of the Federal Court Rules provides that, where security is ordered, the Court may order that the proceeding be stayed until such security is given or that the proceeding be stayed or dismissed if the security is not given within the time provided by the order.

The case for security

6    The respondent relies on two affidavits sworn by Mary Brennan, a partner in the firm of Sparke Helmore Lawyers, the solicitors for the respondents. The applicant has offered no evidence. The evidence discloses that on 27 May 2009 the applicant was declared bankrupt. As at July last year his liabilities exceeded his assets by over $2 million and possibly in excess of $2.3 million.

7    Ms Brennan states in her affidavit that if the applicant is unsuccessful in the proceeding and a costs order is made against him she does not consider he is likely to pay the respondents’ costs. She offers two reasons. One is the fact of bankruptcy. The second is that the applicant was previously unsuccessful in relation to a constitutional challenge to the Medicare scheme made as part of his applications for review and in April 2009 was ordered to pay costs but, as yet, has failed to pay them. Ms Brennan’s evidence was that she sought the sum of $2,300 with respect to that part of the two proceedings and it represented a compromise. She estimated that for a one day hearing the costs in each of the present proceedings (including counsel’s fees) would amount to $30,000.

8    The respondents rely on these matters in support of its motions. They also relied on the breach of an agreement between the parties that if, by 28 October 2010, $15,000 security was provided in each matter by payment into the trust account of the applicant’s solicitors, no further security would be required and the motions would not be pressed. No money was paid by 28 October. On 1 November the applicant lodged a sum of $5,000 with his solicitors, on 8 November an additional amount of $10,000, and yesterday he deposited a further $5,000, leaving a shortfall of $10,000. The first two sums were earmarked for proceeding number NSD 989 of 2010, the review of the decision of PSRC No. 292. In the circumstances the respondents do not press the motion in that matter, save as to costs. Mr Robinson had nothing to say against the application and in all the circumstances it is entirely appropriate that the respondents have their costs.

9    I turn, then, to the motion in the other matter, the review of the decision of PSRC No. 348.

10    As French J observed in Carey-Hazell v Getz Bros and Co (Aust) Pty Ltd [2004] FCA 1334 (“Carey-Hazell”) at [29], as a general rule impecuniosity and even insolvency does not mandate an order for security for costs, citing Cowell v Taylor [1885] 31 ChD 34 (“Cowell”). Cowell concerned a suit by a trustee in bankruptcy who was himself, insolvent. At 38 Bowen LJ stated that (except in the case of appeals),

The general rule is that poverty is no bar to a litigant; that, from time immemorial, has been the rule at common law, and also, I believe, in equity.

11    In James v ANZ Banking Group Ltd (No. 1) (1985) 9 FCR 442 (“James”) at 445, where the applicants were a number of individuals and a corporation, Toohey J refused to order that the individuals provide security, although one or more of them had not satisfied judgments in the State courts, there were bills of sale over their assets, none of them had filed an affidavit in opposition to the matters raised by the respondents, and his Honour was satisfied that they would not be able to meet the costs of the respondents if they were to fail in the proceeding .

12    His Honour cited, with approval, the following observation of Megarry V-C in Pearson v Naydler [1977] 1 WLR 899 at 902:

The basic rule that a natural person who sues will not be ordered to give security for costs, however poor he is, is ancient and well established.

13    In the passage his Honour cited, the Vice-Chancellor then went on to quote the first part of the above statement from Bowen LJ’s judgment in Cowell.

14    Einstein J in his decision in Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 also distinguished between the position of natural persons and corporations. At [53] he pointed out that the mere fact that a plaintiff who is a natural person is impecunious provides no gateway into security for costs (contrasting the position under the Corporations Act 2001 (Cth) and its predecessors). At [54] he referred to the rationale behind the exceptions to the general rule that the impecuniosity of a plaintiff should not be a ground for making an order for security for costs, citing Rugby Union Players Association Inc v Australian Rugby Union Ltd (NSW Supreme Court, 30 July 1997, unreported, per Giles J at 11). It is this:

[T]hose who will benefit from success in the proceedings, as shareholders in or creditors of a corporation or as third parties for whose benefit the plaintiff (whether a natural person or a corporation) sues, should not be able to litigate and expose the defendant to the risk of irrecoverable costs while themselves shielded, by reason of the interposition of the impecunious plaintiff, from the burden of an adverse order for costs.

15    This principle is an important one, otherwise thousands of individuals would be denied access to justice. It is true that the Court’s discretion under s 56, save for the requirement that it be exercised judicially, is unfettered: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 3 per curiam. In James Toohey J (at 444) referred to “the broad power vested in the Court under s 56”, but applied the principle, noting (at 446) that there was nothing in the situation of the non-corporate applicants to render the well-established principle inappropriate. The real question here is whether there is anything other than the applicant’s impecuniosity which justifies a departure from the general rule.

16    Despite the breadth of the discretion, attempts have been made to identify considerations that should inform its exercise. See, e.g. Equity Access Ltd v Westpac Banking Corp (1989) ATPR ¶40-972, KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 (“KP Cable”). Although these cases related to applications for security for costs against corporations, where the issues will not be identical, they have been widely applied, including by French J in Carey-Hazell, which concerned an application that a natural person provide security for the costs of an appeal. It is not necessary to recite the various factors in detail here. It is sufficient to note that the following considerations, derived from Beazley J’s list in KP Cable, appear to me to be relevant:

(a)    the timing of the application;

(b)    the strength and bona fides of the case; and

(c)    whether the respondent’s application for security is oppressive in the sense that it is being used merely to deny an impecunious applicant a right to litigate.

17    The applicant opposes the motions. No complaint is made that the application for security was not brought promptly.

18    The respondents submit that the application in the second matter does not have strong prospects of success. The question is not, however, whether the application is likely to succeed. The relevant question is whether the applicant’s case is bona fide and raises real issues to be tried. Unless obviously hopeless, the prospects of success are of little relevance. See Jazabas Pty Ltd v Haddad [2007] NSWCA 291 at [84] per McClellan CJ at CL, Mason P and Basten JA agreeing; Health Information Pharmacy Franchising Pty Ltd v Khoo [2010] FCA 438 at [52]-[56]. The respondents accepted the proceeding was bona fide. In KP Cable, despite the reference to “the strength of the case”, Beazley J noted (at 197C) that, “as a general rule, where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the courts should proceed on the basis that the claim is bona fide with a reasonable prospect of success”. Here, no evidence to the contrary was offered. In my view, the prospect of success of the application is a neutral factor in this case.

19    In his written submissions Mr Robinson, the applicant’s counsel, submitted that the Court’s discretion should be exercised to refuse security because the motions are oppressive in the sense that they are “being used as a tool or mechanism by the Commonwealth to deny the applicant the right to litigate”, citing Mead v Mead [2010] FCA 288. The reference is to a passage in a judgment of Jacobson J where the same issue arose, again in the case of a bankrupt litigant with a history of not satisfying an order for judgment against her or an order that she pay costs. As his Honour indicated (at [9]), while it is true that an order for security could stifle the litigation, the question is one of balance between the applicant’s rights and the respondents’ interest in securing themselves against the risk they will be unable to recover costs in the event they are successful: cf. Beames v Rigby [2002] FCA 1095 at [4]. The respondents relied on both these cases for the proposition that an order for security is appropriate in circumstances where the applicant is bankrupt and has failed to meet a previous costs order. These cases, however, concerned appeals, which Bowen LJ in Cowell observed, were an exception to the general rule, so they are of limited assistance.

20    In oral argument, Mr Robinson also submitted that his client fell into the last of the considerations to which Beazley J referred in KP Cable (at 198B-C):

Security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not to be made against parties who are defending themselves and thus forced to litigate: see Interwest at 626; Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (1979) ACLC 32,446; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 5 ACLC 480; Weily's Quarries v Devine Shipping where Zeeman J stated (at 189):

[t]he general proposition that security ought not to be ordered where the proceedings are defensive in the sense of directly resisting proceedings already brought or seeking to halt self-help procedures is no more than that, a general proposition. It ought not to be elevated to being a rule of law. In many cases of that nature it could be considered oppressive to require security and that in itself may be sufficient to refuse to make an order...[see] Sydmar Pty Ltd v Statewise Developments Pty Ltd and Interwest Ltd v Tricontinental Corporation Ltd.

21    Mr Robinson argued that the applicant’s situation might be described as defensive because the applicant was forced, in effect, to test the legality of a decision in a case he did not institute. Mr Robinson did not take me to the decisions to which Beazley J referred (or any other on point) and the argument was not fully developed. In my view, this case does not fall within the scope of the principle. I discussed some of the decisions in Topcide Pty Limited v Charter Financial Planning Ltd [2010] FCA 1151.

22    Mr Robinson also argued that this, in a sense, was “public interest litigation” because, although his client had a compelling private interest in the outcome, it was in the interests of the public that decision-makers act in accordance with law and the object of the applications was to see that the PSRCs did just that. I did not find the argument especially persuasive but I take it into account nonetheless.

23    Mr Robinson submitted that it was unfair and inappropriate for the respondents to rely on the applicant’s failure to pay the costs in earlier proceedings because, when the applicant became bankrupt, the debt was no longer the applicant’s but the trustee’s. I reject the submission. The applicant’s failure to pay costs in the past is plainly relevant. The decision that he do so was made on 16 April 2009. The sum involved was relatively small. The respondent wrote to the applicant on 24 April 2009 requesting that he pay the amount and followed it up with a further letter on 20 May 2009. The applicant was not made bankrupt for another seven days. It is true that he is not in breach of a court order. The order required him to pay costs as agreed or assessed and there is no evidence to suggest that there had been agreement or assessment. The evidence, however, does indicate that he ignored the correspondence requiring payment and Mr Robinson accepted that that was a factor that could be taken into account in the exercise of the Court’s discretion.

24    On balance, the respondent has established a case in favour of an order for security. There is good evidence to show that the respondents will not otherwise recover their costs should the applicant fail in the substantive proceeding. That, of itself, however, is not enough to justify an order for security. But this is not just a case of an impoverished applicant. If that is all there was, then I would not be inclined to grant security. Here, however, the applicant agreed, in good faith I assume, to pay security for the two matters in the sum of $30,000. It follows that he believed the money was available to him at the time he instructed his solicitors to enter into the agreement. Yet, without explanation, he failed to adhere to its terms. The fact that the applicant has been able to raise $20,000, despite his bankruptcy, indicates that it would not be oppressive to make the orders sought: cf. Clark v Official Trustee in Bankruptcy (Federal Court of Australia, 28 July 1998, unreported, per Heerey J). There is an evidentiary onus on the applicant to show that to order security would stultify the proceeding. Yet, the applicant adduced no evidence to indicate that he was unable to come up with the additional amount, and he also failed to explain his conduct with respect to the costs order in the previous proceeding.

The amount of security

25    Mr Robinson submitted that it became unreasonable for the respondents to maintain an application for security for costs in the original sum of $15,000 after 15 October 2010 when Jacobson J made an order listing the second matter for hearing at the same time as the first without adding to the two days already allotted. I reject the submission. Ms Brennan’s assessment of her costs related to a one-day hearing, although the first matter alone was listed for hearing for two days, and there appears to be no doubt that the hearing of both matters will take the best part of two days. Nevertheless, as Ms Henderson, who appeared for the respondents, conceded, inevitably some costs will be saved by having the two cases heard at the same time. What that savings would be is impossible to say. Ms Henderson declined to venture a suggestion. Mr Robinson submitted that there would be a saving of 50%, which I regard as excessive. Doing the best I can, and taking into account that the applicant has paid $5,000 already, I propose to order that he provide a further sum of $8,500 by way of security.

Orders

26    In proceeding number NSD 989 of 2010 I order that the applicant pay the respondents’ costs of and incidental to their motion for security for costs filed 23 September 2010.

27    In proceeding number NSD 1112 of 2010 I order:

1.    The applicant provide additional security for the respondents’ costs of and incidental to the proceeding in the sum of $8,500 to be paid into Court or, in the alternative, deposited into his solicitors’ trust account, within 21 days.

2.    The proceeding is stayed until such time as security is provided.

3.    The applicant is to pay the respondents’ costs of and incidental to their motion for security for costs filed 24 September 2010.

Associate:

Dated:    3 December 2010