FEDERAL COURT OF AUSTRALIA

Boost Digital Pty Ltd v Centrebet Pty Ltd [2013] FCA 298

THE COURT ORDERS THAT:

1.    The respondent’s interlocutory application dated 31 January 2013 be dismissed with costs as agreed or taxed.

2.    The respondent’s interlocutory application dated 22 March 2013 be dismissed with costs as agreed or taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Introduction

1    On Thursday 28 March 2013 two interlocutory applications filed by the respondent were listed for hearing. The first, dated 31 January 2013, sought an order that the first applicant (“Boost”) provide to the respondent (“Centrebet”) additional security for costs in the sum of $297,415 or alternatively, such other amount as the Court may order; the second, dated 22 March 2013, sought to set aside a notice to produce of Boost dated 12 March 2013 requiring the production of documents at the hearing of the first application being, inter alia, documents described in the affidavit of Maureen Linda Norberry sworn 31 January 2013 and filed in support of the first application.

2    I indicated to the parties that I proposed to hear the first application in two tranches: first, whether the Court was satisfied that Boost should provide additional security for Centrebet’s costs; and second, but only if the Court was so satisfied, the amount of that security. I further indicated that concurrently with hearing the second tranche, I would also hear Centrebet’s second application.

3    This had the advantage that if the Court was not satisfied that Boost should provide additional security for Centrebet’s costs, everything else would fall away.

Background Facts Relevant to the First Application

4    By 29 June 2012, Boost had paid $165,000 into Court as security for the costs of Centerbet in respect of the Originating Application up to the end of trial, without admission of any need to do so.

5    At that time, Boost’s claim was for, inter alia, lifetime commissions calculated by reference to bets placed by customers of Centrebet, which customers Boost had introduced to Centrebet by way of online advertising pursuant to a “Paid Search Agreement” with Centrebet. The lifetime commissions became payable after termination of the agreement on 5 February 2012. Boost also seeks unpaid commissions of about $485,703 from Centrebet that fell due prior to termination of the agreement.

6    At the time the security was paid, Centrebet’s cross-claim was for repayment of $2,165,006.24 in commissions paid to Boost in respect of a particular “high roller”.

7    During the course of the proceeding, Centrebet asserted that Boost’s claim could not be in respect of customers introduced by Boost or its predecessor, Mr Vo, pursuant to earlier Paid Search Agreements. As such, Boost sought and obtained leave to file and serve an amended Originating Application and Statement of Claim on 1 November 2012 to join Mr Vo and make claims for lifetime commissions in respect of all customers introduced to Centrebet by either Boost or Mr Vo under all previous agreements.

8    Centrebet also sought and obtained leave to file and serve an amended Notice of Cross-Claim and Statement of Cross-Claim, filed on 29 November 2012, to join Mr Vo as a cross-respondent and to allege that payments of lifetime commissions made by Centrebet to Boost or Mr Vo after the conclusion of each earlier agreement were made in error and ought be repaid.

The Evidence

9    In support of its application, Centrebet relied on the affidavit of Mr John Macnamara sworn 31 January 2013 (Ex 1), in particular, paras 3, 8 and 9. They relevantly read:

3.    … I seek leave to refer to my affidavits sworn 26 April 2012 and 19 June 2012 which have been filed in this proceeding, in support of Centrebet’s current Interlocutory Application for additional security for costs.

…

8.    Annexed and marked JM6 is a copy of an ASIC search of [Boost] dated 31 January 2012. This ASIC search shows that [Boost] has a paid-up capital of $200. It also reveals that the directors and shareholders of [Boost] are the Second Applicant (Mr Vo) and a Mr Wade Davidson.

9.    Annexed and marked JM7 is a copy of an Australian Property Ownership search for [Boost], and an IP Australia search of the trademark, patent and registered design registers in the name of [Boost]. Based on these searches I do not consider that [Boost] is the registered proprietor of any real property in Australia and is not the registered proprietor of any trademark, patent, or registered design in Australia.

10    Centrebet also relied on the affidavits of Mr Macnamara sworn 26 April 2012 (Ex 2) and 19 June 2012 (Ex 3). Paragraph 18 of Ex 2 was not pressed in the face of the fact that it expressed Mr Macnamara’s beliefs, as at 26 April 2012, as to whether Boost would be able to pay Centrebet’s costs if so ordered and as to Boost’s impecuniousity, beliefs that were conceded to be temporally irrelevant to the current application.

11    Thus, the only relevant evidence relied on by Centrebet in its current application were the matters deposed to in paras 8 and 9 of Ex 1. With respect, neither alone nor together could those matters provide any foundation for a belief that Boost would be unable to pay Centrebet’s costs if so ordered or that it is impecunious.

Consideration

12    Rule 19.02 of the Federal Court Rules 2011 sets out the matters to be addressed by Centrebet in an affidavit filed in support of the application. One such matter is “whether there is reason to believe that the applicant will be unable to pay the respondent’s costs if so ordered”: (a). Another is “whether the applicant is impecunious”: (d). While s 56 of the Federal Court of Australia Act 1976 (Cth) (“the Act”) gives the Court a broad discretion to order an applicant in a proceeding in the Court to give security for the payment of costs that may be awarded against the applicant, the discretion must be exercised judicially; and, in the case of a company such as Boost, by reference to the threshold or jurisdictional question that must first be answered, namely, whether it appears by credible testimony that there is reason to believe that the applicant corporation will be unable to pay a respondent’s costs of the proceeding if successfully defended. This is so whether the application is made pursuant to s 56 of the Act or, as here, in the alternative pursuant to s 1335 of the Corporations Act 2001 (Cth). The section imposes an evidentiary burden on the applicant for the order.

13    The correct position was summed up by Lee J in Warren Mitchell Pty Ltd v Australian Maritime Officers’ Union & Ors (1993) 12 ACSR 1 at 4, 5:

It is sufficient to dispose of these motions to restrict consideration to s 1335(1) of the Corporations Law. If the respondents are unable to succeed under that provision they will not obtain an order pursuant to any other power the court may have. A helpful review of the authorities on this topic is contained in the article, “Security for Costs Against Corporations – s 1335 of the Corporations Law”, Colbran, 1993 Companies and Securities Law Journal 273.

Subsection 1335(1) reads as follows:

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.

Section 1335 recognises the injustice that may result if a corporation is able to commence litigation against a respondent who has no choice whether to be involved in the litigation and finds at the conclusion of the proceeding that the corporation is worthless and that its shareholders are able to shelter behind a statutory limitation of their liability.

To avoid such a consequence courts have been given an unfettered discretion to make such orders as will be appropriate to balance the interests of parties to litigation commenced by an impecunious corporation.

However, the court’s discretion to order that security for costs be provided by a litigating corporation is exercisable only if the threshold question raised in s 1335 has been satisfied in favour of the applicant for the order, namely that on the whole of the evidence before the court, there is credible testimony providing reason to believe that if the corporation does not succeed in the proceeding it will be unable to pay the costs of a respondent.

The use of the word “credible” suggests a requirement that evidence to be relied upon has some characteristic of cogency. Qualification of the word “testimony” by the word “credible” suggests that an evidentiary burden is undertaken by the party seeking the order. It amounts to an obligation on an applicant for an order to show that the material before the court is sufficiently persuasive to permit a rational belief to be formed that, if ordered to do so, the corporation would be unable to pay the costs of that party upon disposal of the proceedings. To what extent the satisfaction of that standard may fall short of the demonstration of a likelihood that the corporation will be insolvent at the relevant time is unnecessary to decide. It is enough to say that speculation as to insolvency or financial difficulties likely to confront the corporation will be insufficient to ground the exercise of the discretion.

14    During the course of the hearing, senior counsel for Centrebet suggested that responsibility for the need for Centrebet to bring the first application lay with Boost’s refusal to provide Centrebet with sufficient financial information to allay Centrebet’s concern that Boost would be unable to meet a costs order against it; inferring that Boost bore some evidentiary burden to do so. However, there was no evidentiary basis put forward for Centrebet’s concern apart from the material at paras 8 and 9 of Ex 2 and Boost’s refusal to provide Centrebet with the information requested. Boost was certainly under no obligation to provide that information and no inference could be drawn against it for its refusal to do so.

15    Indeed, Ex 3 relied on by Centrebet contained financial data pertaining to Boost which, in my view, should have satisfied Centrebet, at least at that time, that Boost was not impecunious and would be able to meet a costs order against it. No evidence was forthcoming that Boost’s financial position has changed since that time. More importantly, that same material disclosed why Boost declined to provide Centrebet with the financial information it requested. It had nothing to do with Boost’s impecunious state and everything to do with the fact that Boost and Centrebet are competitors.

16    Finally, there is the further consideration that one of the two individuals standing behind Boost is, as a result of the amended pleadings and joinder (see [7] above), now an applicant in the proceedings. Indeed, an applicant pleaded to be a party to a number of agreements alleged to have been made with Centrebet in respect of which relief is sought. As the applicants’ case is now pleaded, any costs order made against them is likely to be joint and several, so that Centrebet would not be left to look to Boost alone for recovery of its costs. This further consideration, along with the fact that substantial security has already been provided before Mr Vo was joined, strongly tends against an order for additional security for costs in respect of Boost: Fiduciary Ltd v Morning Star Research Pty Ltd (2004) 208 ALR 564 at [69]; Min Kyu Kim v Byung Sun (Eric) Song [2012] NSWSC 103 at [13].

Conclusion

17    I am not satisfied that on the whole of the evidence before the Court there is credible testimony providing reason to believe that if Boost does not succeed in the proceeding it will be unable to pay the costs of Centrebet. Senior counsel for Centrebet sought leave to file a further affidavit by Mr Macnamara to update his beliefs as expressed in para 18 of Ex 2, but I refused on the ground that such evidence would not, in addition to the matters referred to in paras 8 and 9 of Ex 1, meet the threshold of credible testimony.

18    For that reason, and for the reasons referred to in [14] to [16] above, Centrebet’s motion must be dismissed with costs.

19    It follows that Centrebet’s second application must be dismissed with costs.

Associate:

Dated:    8 April 2013