FEDERAL COURT OF AUSTRALIA

Turner v Tesa Mining (NSW) Pty Limited [2019] FCA 1644

ORDERS

THE COURT ORDERS THAT:

1.    The proceeding be listed for a case management hearing to determine the manner and form of the provision of security for costs by Augusta Ventures Limited and to resolve any issue in relation to the costs of the application for security.

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

ORDERS

THE COURT ORDERS THAT:

1.    The proceeding be listed for a case management hearing to determine the manner and form of the provision of security for costs by Augusta Ventures Limited and to resolve any issue in relation to the costs of the application for security.

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

REASONS FOR JUDGMENT

LEE J:

A    Introduction

1    In Perera v GetSwift Limited [2018] FCA 732; (2018) 263 FCR 1 at 13-14 [24], I referred to the fact that between 1992 and March 2018, only 3.4% of funded Part IVA representative proceedings commenced in this Court were claims by employees or workers. Compared to claims by shareholders in securities class actions (a genus which accounted for over half of Part IVA proceedings commenced in that period), what can be described as “industrial class actions” have been rare beasts. It appears this is now changing: there are apparently 11 Part IVA proceedings presently before the Court, all of which involve allegations of breach of the Fair Work Act 2008 (Cth) (FW Act).

2    These are two applications by which security is sought for the respondents’ costs. Each proceeding has a common applicant and are being case managed, and will be heard, together.

3    If these class actions were other than industrial class actions, it is unlikely that there would have been any applications for security (if, for example, the funder had substantial Australian assets) or, in the event applications were brought against the representative applicant, it is unlikely there would have been any disputation as to the principle that security, in some form, ought to be provided. Although I will deal at some length below with the law relating to funders and the provision of security, by way of introduction, I should note that the lack of cases involving contested applications for security in funded litigation is unsurprising; as I said of funded class actions in Perera v GetSwift at 53 [192], “funders are using the processes of the Court in order to procure a commercial benefit, [and] a sine qua non of this is the provision of adequate security”.

4    The reason for the present controversy is that both class actions are proceedings in relation to a matter arising under the FW Act. This is significant because s 570 of the FW Act relevantly provides that a party to such a proceeding may be ordered to pay the costs only if:

(a)     the court is satisfied that the party instituted the proceeding vexatiously or without reasonable cause; or

(b)     the court is satisfied that the party’s unreasonable act or omission caused the other party to incur the costs; or

  (c)    the court is satisfied of both of the following:

(i)    the party unreasonably refused to participate in a matter before the FWC;

(ii)    the matter arose from the same facts as the proceedings.

5    Augusta Ventures Limited (Funder) submits that notwithstanding the usual rules as to provision of security by a moving party, there is no power to award security against a non-party funder and, even if there was such a power, it should not be invoked in proceedings such as the present where a “no costs” regime applies.

6    In explaining why I have concluded it is both within power and appropriate to make an order for security for costs against the Funder directly, I will address the issues in the following order:

    B    A Brief Background and the Present Applications

    C    Funders and Security: the Law

C.1     Costs against Funders

C.2    Funders and Security

C.3    The Issue of Power

    D    Discretionary Matters

D.1    Discretion Generally

D.2    Nature of Jurisdiction Contention

D.3    Asymmetry Contention

D.4    Other Discretionary Matters

    E    Orders

B    A Brief Background AND The Present Applications

7    The first proceeding is ACD 46 of 2018, Turner v Tesa Mining (NSW) Pty Limited (TESA proceeding). Mr Turner commenced the TESA proceeding, on behalf of persons who: (a) worked at the Mount Arthur Coal Mine and who were employed by the first and/or second respondent, at any time during the period 7 December 2012 to 27 September 2014; (b) were covered by the TESA Group – Enterprise Agreement 2012 (TESA agreement); (c) worked in accordance with the “Mine Roster” as alleged in the pleadings; and (d) were treated as casual employees by the first and/or second respondent.

8    It is alleged that the group members were engaged as “other than casual” employees within the meaning of s 86 of the FW Act, with some being permanent full time employees, and others being permanent part time employees within the meaning of the TESA agreement. Mr Turner further alleges that on or about 22 June 2014, the second respondent succeeded the first respondent as the employer of the employees at the mine. It is then said that in September 2014, the employees’ employment was terminated on the grounds of redundancy, and the respondents failed to provide the employees with any entitlements provided for in the TESA agreement. Orders are sought that the respondents are liable to pay the employees compensation in respect of the loss suffered because the entitlements were not paid, and pecuniary penalties.

9    The second proceeding is ACD 47 of 2018, Turner v Ready Workforce (A Division of Chandler Macleod) Pty Ltd (Chandler Macleod proceeding). Mr Turner commenced the Chandler Macleod proceeding on behalf of persons who: (a) were employed by the first respondent to work at the Mount Arthur Coal Mine at any time in the six years prior to 19 December 2018; and (b) were either “coal mining employees” within the meaning of the Black Coal Mining Industry Award 2010 (Award) at any time in that period before 10 June 2015; and/or were a party to and bound by the Chandler Macleod Northern District of NSW Black Coal Mining Agreement 2015 (Chandler Macleod agreement) at any time during the period 11 June 2015 and 19 December 2018; and (c) during the course of such employment, worked in accordance with the “roster system” alleged in the pleadings; (d) and during the course of such employment the first respondent described and treated them for the purpose of the Chandler Macleod agreement as casual employees.

10    Mr Turner claims that the manner in which he was employed, including how he was allocated on the roster system, meant that he was a full time employee for the purposes of the Chandler Macleod agreement, and the Award. Mr Turner further claims that during the course of his employment, he was not provided with all of his entitlements, including accident pay entitlements. In addition, Mr Turner claims that the third respondent made representations that the employees were casual employees, and were not entitled to any entitlements, amounting to misleading representations about the workplace rights of the employees. Orders are sought for compensation, and pecuniary penalties.

11    The TESA proceeding and the Chandler Macleod proceeding have been case managed by Griffiths J, in the ACT list, and orders were made in December 2018 that the respondents file any applications for security for costs by February 2019, and that the applicant file any evidence in response to the security for costs applications by March 2019. Given it was thought that the applications might involve consideration of the substantive issues to be litigated, it was determined the applications should be heard by the docket Judge who, absent non-curial resolution, will in due course determine the substantive issues.

12    In accordance with the orders made by his Honour, applications for security in the “aggregated sum” of $1,000,000 were made in each proceeding by Mt Arthur Coal, being the third respondent in the TESA proceeding and the second respondent in the Chandler Macleod proceeding, represented by King & Wood Mallesons. A further application for security was made by two companies within the Chandler Macleod group of companies, being the first and third respondents in the Chandler Macleod proceeding, represented by Colin Biggers & Paisley, for security in the aggregate amount of $1,100,000.

13    Although there was a dispute about the form of the security if it was to be awarded, there was no dispute that the amounts proposed were reasonable in the event that the Court did order security.

14    Although Mt Arthur Coal originally proposed, in the alternative, that an award of security should be made against Mr Turner, this relief was abandoned. This was wise. The security applications were only pressed against the Funder directly. Given the “target” of the applications, it is necessary to tarry briefly to explain the basis upon which the proceedings are funded.

15    Initially, the Funder had secured confidentiality orders over very significant parts of the funding agreement signed by Mr Turner. Although it may have been necessary to secure confidentiality in relation to so-called “war chest” information, why broader confidentiality orders would ever have been appropriate to seek is difficult to fathom. After referring to the need for there to be transparency in relation to funding fees, I said in Liverpool City Council v McGraw-Hill Financial, Inc (now known as S&P Global Inc) [2018] FCA 1289 at [109]-[110]:

It should be unnecessary to remark that a confidentiality order is not necessary simply because it may be “convenient, reasonable or sensible”; nor is it sufficient that a confidentiality order may be viewed as serving “some notion of public interest”: see Hogan v Australian Crime Commission [2010] HCA 21; (2010) 240 CLR 651 at 664 [31]. Mere embarrassment is also not enough: see Australian Competition and Consumer Commission v Air New Zealand Limited (No 12) [2013] FCA 533 at [7]. The regime in Part VAA [of the Federal Court of Australia Act 1976 (Cth)] does not permit some “balancing exercise” pursuant to which the Court weighs competing considerations: see Hogan at 664 [31].

Before the Court makes the confidentiality order pursuant to s 37AF, there must be some material before the court upon which it can reasonably reach the conclusion that it is necessary to make an order prohibiting publication. Mere belief that the order is necessary is insufficient: see John Fairfax & Sons Limited v Police Tribunal (NSW) (1986) 5 NSWLR 465 at 477, applied in Rinehart v Welker [2011] NSWCA 403; (2011) 93 NSWLR 311 at 320 [29].

16    Here the relevant funding agreement provides that subject to an application for a common fund order (which has been foreshadowed by Mr Turner), as things presently stand, the Funder is entitled to receive in consideration for funding the proceedings, the greater of: (a) 25% of the claim proceeds; or (b) an amount equal to three times the “Claimant’s Share of the Project Costs to the extent those costs form part of the Deployed Credit”. It is unnecessary for me dwell in the detail of how the second of these alternatives is calculated, other than to note that part of the definition of “Project Costs” includes the “costs involved in the provision of any security for costs” and if “such costs are paid they form part of the Deployed Credit”. Further, also included in the definition of Project Costs (a concept very widely defined), are the costs incurred in obtaining “any Adverse Costs Insurance Premium”: see Augusta Funding Agreement at 9.

17    At the risk of divagation, before leaving the relevant background to the applications, I should expand upon a point raised by me when the proceedings were first listed before me: at present it is far from self-evident to me why two proceedings have been commenced by Shine Lawyers on behalf of Mr Turner. There is a common applicant and one common respondent. Relief in substantially the same form (albeit as an accessory) is sought in each proceeding by the same person against Mt Arthur Coal. Whatever may have been thought to be the position at an earlier time, at least since Cash Converters International Limited v Gray [2014] FCAFC 111; (2014) 223 FCR 139, it is now clear that it is unnecessary for each group member to have a claim against each respondent for a class action to be validly constituted and that it is similarly unnecessary for seven or more group members to have a claim against each respondent, so long as: (a) seven group members have a claim against one respondent; (b) the applicant has a claim against each respondent; and (c) the proceeding satisfies the other threshold requirements in s 33C of the Federal Court of Australia Act 1976 (Cth) (Act) (in relation to the circumstances in which the claims arise and the existence of a substantial common issue).

18    In Liverpool City Council at [72], I referred to the significant waste of costs caused by unnecessary duplication of representative proceedings. In that case a “very large number of affidavits were filed, repeating the same matters, but in different proceedings”. Further there was unnecessary duplication of interlocutory applications and “the whole process was made considerably more cumbrous because of the duplication”. In the present case, like in Liverpool City Council, “[n]o submission was put to me that it was necessary as a matter of law for there to be duplicate proceedings in relation to the claims … where, at least prima facie, it seems to me that at least some of the claims made in different proceedings were by persons whose claims arose out of similar circumstances and gave rise to at least one substantial common issue of law or fact”. Again like in Liverpool City Council, it may be that “[w]orse still, it appears some persons had the one “claim” (as that concept is properly understood) which may have spanned two proceedings”.

19    I will say no more for present purposes as I have not heard full argument, and insufficient material is presently before me to allow me to draw any definitive conclusions as to duplication and the extent of unnecessary costs occasioned by duplication.

C     FUNDERS AND SECURITY: THE LAW

C.1    Costs against Funders

20    At the heart of the applications the Funder provide security, is a submission made by Mt Arthur Coal, that a rule has developed which provides that funders are usually required to pay adverse costs in unsuccessful funded litigation. The supposed existence of such a rule is used as a springboard to the further submission that if the Funder may be required to pay adverse costs, then security for this potential obligation ought to be ordered against the Funder.

21    For reasons that hopefully will become obvious, it is worth starting an examination of the law relating funders, adverse costs and the provision of security by funders, by initially considering a somewhat different point: the relevance of the existence of a funder to the question as to whether security should be ordered against a party, including a party, which in unfunded litigation, is generally not required to put up security.

22    As Young CJ in Eq in Chartspike Pty Ltd v Chahoud [2001] NSWSC 585 observed at [5], where a plaintiff contracts to have the litigation funded by a third party, in return for the third party receiving a share of the verdict, “it is appropriate that the third party bear part of the risk”.

23    In Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105 at 120-121 [51] Hodgson JA observed that courts “should be readier to order security for costs where the non-party who stands to benefit from the proceeding is not a person interested in having rights vindicated” (as would be a shareholder or creditor), but “rather is a person whose interest is solely to make a commercial profit from funding the litigation”. His Honour went on to note that although litigation funding is not now contrary to public policy, the court system is primarily there to:

… enable rights to be vindicated rather than commercial profits to be made; and in my opinion, courts should be particularly concerned that persons whose involvement in litigation is purely for commercial profit should not avoid responsibility for costs if the litigation fails.

24    The comments were repeated at 122 [61] and Campbell JA agreed at 128-129 [85]-[88]. Although Basten JA observed at 127 [80] that:

The presence of litigation funding may justify a new approach to the basis on which orders for security are made with respect to individual plaintiffs, or to the way in which liquidators suing personally are to be treated. While the issue arises in respect of practice and procedure within the court, the approach proposed by the respondent involves departure from, rather than extrapolation of, existing authority. It raises an issue which calls for a uniform approach across jurisdictions and would better be addressed in the broader context of the regulation of commercial litigation lending. Such consideration will need, among other things, to define with some precision what is a “litigation funder”.

25    Rares J endorsed the sentiments of Hodgson JA in Canberra Residential Developments Pty Ltd v Brendas [2009] FCA 745 at [21]; so too did Ward JA in Ballard v Brookfield Australia Investments Ltd [2013] NSWCA 82 at [59]-[60]. To similar effect were the observations by Gleeson J in Austcorp Project Number 20 Pty Ltd v LM Investment Management Ltd (in liq) [2014] FCA 1371 at [34], where her Honour observed that the “presence of a litigation funder is a powerful factor in favour of the grant of security” against an applicant; and this point was also made in Domino’s Pizza Enterprises Limited v Precision Tracking Pty Ltd (No 2) [2017] FCA 211, where Robertson J at [75] noted that the presence of a litigation funder was a factor militating in favour of the grant of security against a moving party.

26    The focus on the funder as a person who will derive a benefit from the litigation and the relevance of this fact to the provision of security by an applicant can be seen as a particular reflection of a broader, well-known principle relevant to stultification. As the Full Court explained in Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4:

… 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 shareholder 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.

27    It is next useful to consider the circumstances where a funder will be liable to pay adverse costs if funded litigation is unsuccessful. The first and most obvious way liability arises is pursuant to an agreement with the funded party whereby the funder agrees to meet any adverse costs ordered against the funded party, where those costs were incurred during the term of the funding agreement. The second way, common in the case of common fund orders, is where the funders provide an undertaking to the Court (or sometimes directly to a respondent) to pay any adverse costs directly. In both these circumstances, funders also invariably agree to provide any security for costs ordered against the funded party.

28    It is the third circumstance which is of present importance: the discretionary power to award costs against non-parties to litigation, where it is in the interests of justice to do so. It is convenient to commence discussion of this circumstance by noting that it is commercial considerations that inform the provision by funders of protection against adverse costs; it is not necessary to provide an indemnity to prevent a finding of abuse of process. Despite an earlier indication to the contrary (Project 28 Pty Ltd (Formerly Narui Gold Coast Pty Ltd) v Barr [2005] NSWCA 240 at [121]), this is evident from the decision of the High Court in Jeffery & Katauskas Pty Limited v SST Consulting Pty Ltd [2009] HCA 3; (2009) 239 CLR 75.

29    The submission of the appellant in Jeffery & Katauskas was that it amounted to an abuse of process for a non-party with a commercial interest in the fruits of the litigation to fund proceedings by an insolvent plaintiff without indemnifying the plaintiff against an adverse costs order. This contention depended upon one of two arguments being accepted: (a) a general proposition condemning the funding for reward of another’s litigation (a proposition rejected in Campbells Cash and Carry Pty Limited v Fostif Pty Limited [2006] HCA 41; (2006) 229 CLR 386); or (b) a proposition that, despite the provisions and principles governing security for costs, and despite the then New South Wales Supreme Court rules’ general prohibition against ordering costs against non-parties, those who fund another’s litigation for reward must agree to put the party who is funded in a position to meet any adverse costs order: at 98 [42]. This second proposition was rejected (at 98 [43]) as being too broad as it would apply also to shareholders who support a company’s claim, relatives who support an individual plaintiff’s claim and banks who extend overdraft accommodation to a corporate plaintiff. Additionally, the majority (French CJ, Gummow, Hayne and Crennan JJ) considered that the proposition had no doctrinal root, and that it depended on circular reasoning because it sought at 98 [43]:

…to take general principles about abuse of process (and in particular the notion of “unfairness”), fasten upon a particular characteristic of the funding arrangement now in question, and describe the consequence of that arrangement as “unfair” to the defendant because provisions and principles about security for costs have been engaged in the case in a particular way and the rules will not permit the ordering of costs against the funder unless the principles of abuse of process are engaged.

(emphasis added)

30    The rules considered by the High Court in Jeffery & Katauskas do not reflect the current position of the rules in New South Wales nor in other superior courts, which confer the power to make non-party costs orders generally. In Knight v FP Special Assets Limited (1992) 174 CLR 178, the High Court rejected the argument that save for well-recognised exceptions, no such power existed. The High Court found that there are a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs, support an order for costs against a non-party; the necessity being that the discretion to make such non-party costs orders was to be exercised judicially and in accordance with general legal principles pertaining to the law of costs: at 192 (Mason CJ and Deane J). One general circumstance in which security for costs should be ordered was said to be where the applicant was insolvent or a “man of straw”, the non-party has played an active party in the conduct of the litigation and the non-party has an interest in the subject of the litigation: at 192.

31    A relevant application of this principle was in Gore v Justice Corporation [2002] FCAFC 83; (2002) 119 FCR 429, where the Full Court (O’Loughlin, Whitlam and Marshall JJ) ordered a funder to pay adverse costs incurred from the date on which the funder commenced funding the applicant’s case. The respondent was aware that the funder had initially agreed to pay the applicant’s costs of litigating the assessment of damages it was owed by the respondent (the applicant having succeeded on liability at trial) and to meet the respondent’s costs, if the applicant was unsuccessful. The applicant was subsequently ordered to pay the respondent’s costs on appeal and could not pay. Three days before the hearing on the appeal the funding agreement was “cancelled” and replaced with a “loan agreement” absent an obligation on the funder to pay adverse costs. The loan agreement was not disclosed until after the publication of the Full Court’s reasons for judgment, when the respondent sought its costs from the funder. The Court held the funder liable to pay that part of the respondent’s costs that related to the period of funding, and at 452 [64] observed that if the applicant:

…had been successful there was every likelihood that there would have been a costs order against [the respondent], thereby recouping to [the funder] much of what it had outlaid… It seems to us, as a logical consequence of these circumstances, that in return for the chance of obtaining eight per cent of the judgment debt and a recoupment of much of its outlay for costs, [the funder] should be expected to incur the risk of a costs order in the event of [the respondent] being the successful party. Reaching that conclusion is made easier because of the provision in the Litigation Agreement under which [the funder] agreed with [the applicant] that it would pay [the respondent]’s costs in the event of [the applicant] losing the case. That factor should not, however, be treated as being the catalyst for the Court arriving at its decision. It was a matter of great significance that the existence of this clause was made known to [the respondent] but it was still only one of the factors that has led this Court to its conclusion.

32    Similarly, and despite the restrictions in the then applicable rules of court relating to third party costs orders, in Fostif Pty Limited v Campbells Cash and Carry Pty Limited (2005) 63 NSWLR 203 at 230 [120] Mason P (with whom Sheller JA agreed and Hodgson JA relevantly agreed), observed that respondents “may obtain special costs orders against funders if proceedings fail”.

33    The position in the United Kingdom relating to cost orders against funders is developing but not substantively different. Since 2005, in Arkin v Borchard Lines Ltd (Nos 2 and 3) [2005] EWCA Civ 655; [2005] 1 WLR 3055, the Court of Appeal made it clear that a funder can be liable for adverse costs. However, in that case, the Court restricted the funder’s total liability to the overall funding it provided, a limitation on the application of the principle that came to be referred to as the “Arkin cap”. Most recently the Arkin Cap was considered in Davey v Money [2019] EWHC 997 (Ch).

34    Davey concerned the liability of a litigation funder against whom a non-party costs order was sought. The order was unopposed, but the funder contended its total liability should be limited in accordance with the Arkin cap. Mr Justice Snowden found that the Arkin cap was not “a rule to be applied automatically in all cases involving commercial funders” (at [89]); this was said to be consistent with the broader principle as established by the Privy Council in Dymocks Franchise System (NSW) Pty v Todd [2004] UKPC 39; [2004] 1 WLR 2807 at 2815-2816 [25], that a non-party costs order is ultimately a matter of discretion to be exercised on the basis of what is just in all the circumstances of any individual case.

35    The advice of the Privy Council in Dymocks, an appeal by leave from the New Zealand Court of Appeal, is of some importance. It was a case where the Judicial Committee held that a litigation funder, which was joined, should pay the costs of the appeals where the respondents were unable to do so. Lord Brown (speaking for the Judicial Committee) distinguished the position of, on the one hand, a “pure funder” who had no personal interest in the litigation and did not stand to benefit from it or seek to control it, which would not generally be the subject of an order for costs, and, on the other hand, a non-party that either substantially controlled or at least stood to benefit from the litigation and was promoting and funding litigation for its own financial benefit: at 2815-2816 [25]. Having been taken by counsel to various United Kingdom, New Zealand and Australian authorities (including Knight v FP Special Assets Limited), the principles that informed the exercise of the discretion were examined at 2814-2818 [23]-[29]. At [25], the following summary of the relevant principles from these cases was provided by their Lordships, which included:

(1)    Although costs orders against non-parties are to be regarded as “exceptional”, exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such “exceptional” case is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against.

(2)    Generally speaking the discretion will not be exercised against “pure funders”, described in paragraph 40 of Hamilton v Al Fayed as “those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course”. In their case the court’s usual approach is to give priority to the public interest in the funded party getting access to justice over that of the successful unfunded party recovering his costs and so not having to bear the expense of vindicating his rights.

(3)    Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party’s costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is “the real party” to the litigation, a concept repeatedly invoked throughout the jurisprudence – see, for example, the judgments of the High Court of Australia in the Knight case and Millett LJ’s judgment in Metalloy Supplies Ltd v MA (UK) Ltd. Consistently with this approach, Phillips LJ described the non-party underwriters in TGA Chapman Ltd v Christopher as “the defendants in all but name”. Nor, indeed, is it necessary that the non-party be “the only real party” to the litigation in the sense explained in the Knight case, provided that he is “a real party in ... very important and critical respects”. Some reflection of this concept of “the real party” is to be found in CPR 25.13(2)(f) which allows a security for costs order to be made where “the claimant is acting as a nominal claimant”.

(emphasis added, citations omitted)

36    From this, the submission made on behalf of Mt Arthur Coal before me was that a rule has developed which means that funders are usually required to pay any adverse costs of unsuccessful, funded litigation.

37    Care must be taken to avoid elevating specific decisions as to practice and procedure issues which may arise in one case as if they “were determinative of precepts and principles of general application”: see Regent Holdings Pty Ltd v State of Victoria [2012] VSCA 221; (2012) 36 VR 424 at 429 [19] (Nettle, Redlich and Osborn JJA). Hence one must be cautious about being definitive as the circumstances in which an adverse costs order will be made (including against a non-party). This caution against over-generalisation is consistent with s 43 of the Act giving the Court a very wide discretion as to costs tempered only by the requirement to act judicially and the mandatory requirements, contained in s 37M(3) that any practice and procedure power, including the power to award costs, must be exercised or carried out, in a way that best promotes the overarching purpose and the more specific requirement, in s 37N(4), that in exercising a discretion to award costs, the Court must take into account any failure of a party or their lawyer to comply with the overarching purpose.

38    That said, the arrangements pursuant to which litigation is funded often, but not invariably, have common characteristics. I posed and then answered the question of how these arrangements, pursuant to which funded proceedings are usually brought, should be characterised in Perera v GetSwift Limited at 11 [17] by noting:

…(t)he superficial answer was simply as a means by which a proceeding governed by Part IVA of the Act could be conducted to the benefit of group members, the funder and the solicitors. A more complex answer was provided by the Full Court in Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd [2009] FCAFC 147; (2009) 180 FCR 11, where the majority (Sundberg and Dowsett JJ) found that the bilateral (or, with the solicitors, trilateral) arrangements pursuant to which these funded class actions were conducted were unregistered managed investment schemes for the purposes of the Corporations Act 2001 (Cth). A majority of the Full Court held that the class action (or, more particularly, the scheme constituted by the agreements which allowed the class action to be funded and maintained) had the following characteristics: (a) the promises given by the group members and the funder were ‘money’s worth’ contributed for the purposes of the litigation funding arrangement made in return for their acquiring rights to share in any judgment sum, and the benefit of the funder’s promises to meet legal costs; (b) the opportunity to prosecute a claim, with virtually no exposure to any costs or outgoings in the event of failure, was a benefit accruing to group members produced as a result of all parties carrying out their obligations under the scheme and that a successful prosecution of those claims would yield financial benefits to group members, the funder and, indirectly, the solicitors; (c) the pooling of contributions, which was effected by the group members making their individual promises available for the purposes and benefit of the scheme and, ultimately, for the funder’s benefit; (d) the litigation funding arrangement was a common enterprise in that there was a shared purpose of pursuing group members’ claims successfully that would then benefit the group members, the funder and the solicitors.

39    If the arrangements are of this type, and the common enterprise founders, as a matter of principle, there is something to be said for the notion that justice should ordinarily require that the costs of a successful party occasioned by the litigation, should be borne by those who were seeking a reward from the success of the common enterprise. But any such principle cannot be right at this level of generality.

40    For a start, some participants in the common enterprise, group members, have a specific statutory protection contained in s 43(1A) of the Act, preventing them from being subject to an adverse costs order subject to identified exceptions. Moreover, in most cases, where there is a costs indemnity given to a party by a funder, this will mean it is unnecessary to make an order against both the party with the benefit of the indemnity and the funder. What makes this case unusual, is that in a “no costs” jurisdiction, the statutory protection against adverse costs usually only enjoyed by a group member extends (absent identified exceptions) to the funded party to the proceeding by reason of s 570 of the FW Act. As a matter of principle, however, there does not appear to me to be any reason why these specific statutory protections are of broader application or assume decisive importance. The issue here can be summed up as being whether the co-venturer who has provided the funds for the common enterprise in the hope of securing a reward upon success, should ordinarily be required to pay adverse costs, if the common enterprise fails?

41    Despite the caution I express above about being too definitive as to the likely exercise of a broad and fact dependent discretion, it seems to me that when: (a) there is funded litigation which can be characterised as a common enterprise; and (b) there is a statutory fetter on making an award of costs against the funded party (or an award of costs against the funded party will be inutile); and (c) according to usual costs principles an award of costs should otherwise be made in favour of a successful party, then there is no reason in principle why an adverse costs order should not be made directly against the funder of the unsuccessful funded litigation. This reflects the characterisation of the position by the Privy Council in Dymocks that the funder is not so much facilitating access to justice by the funded party as itself gaining access to justice for its own purposes.

C.2    Funders and Security

42    Where the position superficially differs as between the United Kingdom and Australia is at the next step: the source of power to order security for costs against a funder in an appropriate case.

43    The position in England and Wales is straightforward. Rule 25.14 of the Civil Procedure Rules 1998 (UK) provides that the court may make an order for security for costs against a person other than the claimant where that person has contributed or agreed to contribute to the claimant’s costs in return for a share of any money or property which the claimant may recover in the proceedings and that person is a person against whom a costs order may be made.

44    Although there is no question as to specific power in England and Wales (and before coming to why I conclude that there is power in this Court to award security against a funder), it is worth pausing to refer to some examples where security has been awarded. In Wall v Royal Bank of Scotland Plc [2016] EWHC 2460 (Comm) in circumstances where no funding arrangement had been disclosed, the defendant applied for an order that the claimant provide the details of any third party funder so that an application for security for costs could be made. The claimant argued that it was so clear that no order for security for costs would be made, due to the existence of an ATE (or “after the event”) insurance policy, that the Court should not be troubled by the defendant’s inability to pursue such an application. The Court did not accept this argument and found that there was a serious question as to whether the existence of ATE insurance would matter in an application against third party funders, and as to whether the ATE insurance policy in that case could be considered sufficient.

45    In Premier Motorauctions Ltd (in liq) v PricewaterhouseCoopers LLP [2017] EWCA Civ 1872; [2018] 1 WLR 2955, again despite ATE policies being in place, a security for costs application was made by the defendant. At first instance Snowden J held that an appropriately framed ATE insurance policy can be an answer to an application for security. The Court of Appeal disagreed because, in the circumstances of the case, there were no anti-avoidance provisions in the ATE policies and no deed of indemnity and it was possible that the policies could be avoided in the event the court disbelieved the evidence of the directors. Security for costs was ordered in the total sum of £4 million.

46    In Bailey v GlaxoSmithKline [2017] EWHC 3195 QB; [2018] 4 WLR 7, the defendant applied for security of £6.8 million from a funder which had solvency issues and relied upon its sole shareholder for liquidity. Again, the funder argued its liability should be capped to the extent of its obligations under the funding agreement. Foskett J, anticipating what later came to pass in Davey, decided that the Arkin cap did not apply to security applications and if the Arkin cap did apply in the circumstances of case, the difference could be refunded. Some security was ordered (£1.75m) supplemented by an ATE policy, which was already in place.

C.3    The Issue of Power

47    As noted above, in Australia, there is no equivalent of Rule 25.14. This is not because a cognate provision has not been suggested. In some extra-curial observations, McDougall J noted at 32:

I favour the introduction of a rule that, where a party is being funded by a litigation funder, the court may make such orders as it thinks just in the circumstances of the particular case for the provision of security for costs by the litigation funder, and for payment by the litigation funder of the costs, in whole or in part, or any party to the proceedings. Such a rule was considered by a committee of judges acting under the auspices of the Council of Chief Justices of Australia and New Zealand as part of a proposal that some minimalist rules of court relating to litigation funding should be made. However, the committee ultimately did not agree to the proposal, on the basis that the courts should not make rules in relation to litigation funding, in the absence of any legislation on the matter.

             (The Hon Justice R McDougall, Keynote Address to the NSW Young Lawyers’ Civil Litigation Seminar (13 March 2010))

             (citations omitted)

48    The absence of a specific rule is important because the Funder submitted that the applications for security must fail because there was no power outside those referred to in s 56 of the Act to award security for costs in this Court. This conclusion was said to be required to give effect to the decision of Olney J in Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd (1992) 36 FCR 297. Before coming to his Honours’ reasoning, it is worth setting out the specific sections of the Act and the rules of court which deal with security.

49    Section 56 of the Act relevantly provides as follows:

56    Security

(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.

50    Rule 19.01 of the Federal Court Rules 2011 (Cth) (FCR) provides:

19.01    Application for an order for security for costs

(1)  A respondent may apply to the Court for an order:

(a) that an applicant give security for costs and for the manner, time and terms for the giving of the security; and

(b) that the applicant’s proceeding be stayed until security is given; and

(c) that if the applicant fails to comply with the order to provide security within the time specified in the order, the proceeding be stayed or dismissed.

(2)  An application under subrule (1) must be accompanied by an affidavit stating the facts on which the order for security for costs is sought.

(3)  The respondent’s affidavit should state the following:

(a)  whether there is reason to believe that the applicant will be unable to pay the respondent’s costs if so ordered;

(b)  whether the applicant is ordinarily resident outside Australia;

(c)  whether the applicant is suing for someone else’s benefit;

(d)  whether the applicant is impecunious;

(e)  any other relevant matter.

Note:          Section 56 of the Act deals with security for costs.

(4)  In this rule:

applicant includes a cross-claimant.

respondent includes a cross-respondent.

51    In Thunderdome Racetiming, Olney J dismissed an application for security for costs and in the course of doing so held (at 308) that:

The [Act] appears to be unique in Australia in that having created a superior court of record (which presumably would enjoy the inherent jurisdiction to make orders for security for costs in the exercise of its power to regulate its own proceedings) s 56 [of the Act] makes specific provision for such a power both in proceedings at first instance and in its appellate jurisdiction …

Given the purpose and function of the [Act], namely, to create a new superior court, it would seem that the very specific provisions of s 56 were intended to provide a comprehensive statement of the court’s power to order security for costs. Had the intention been to merely preserve those powers which such a court in our legal system has traditionally enjoyed, there would have been no purpose enacting s 56, at least so far as proceedings at first instance are concerned. But Parliament has adopted the course of particularising the court’s power in a way that leaves no scope for any inherent power in this field …

(emphasis added)

52    His Honour considered support for this view to be found in sub-s (5) which provides that s 56 does not affect the operation of any other provision in relation to the furnishing of security. The point made being that although other statutes and rules of court were preserved, there was nothing said about what his Honour described as the “inherent power” to award security. Before moving on to the substance of the argument it is convenient to make two preliminary points.

53    The first is, as I explained in CPB Contractors Pty Limited v Celsus Pty Limited (formerly known as SA Health Partnership Nominees Pty Ltd) [2017] FCA 1620; (2017) 353 ALR 84 at 94 [52]-[53], it is well established that only superior courts of record with unlimited jurisdiction are said to possess “inherent” powers. This Court, together with the High Court and the Family Court, possess defined jurisdiction granted either by the Constitution or statute and the vesting of judicial power in specific matters permitted by the Constitution carries with it such implied power as is necessarily bound up with the nature of judicial power itself. Accordingly, I will refer to the power said to have no operation by Olney J as the implied power of the Court.

54    Secondly, with respect to his Honour and the argument of the Funder, it seems to me far too much can be made of sub-s (5). Although I was not taken to any extrinsic materials (and the point was not raised during argument), it seems to me the reason for sub-s (5) having been inserted in s 56 is tolerably plain. At the time of its enactment, each of the acts regulating companies were acts of State Parliaments and not laws of the Commonwealth. In order to ensure that no difficulty arose in “picking up” in federal jurisdiction (under s 79 of the Judiciary Act 1903 (Cth)) those state law provisions specifically relating to security in the various state companies acts, it is wholly unsurprising for a provision to be placed in s 56 to ensure that it could not be said s 56 was a law of the Commonwealth providing “otherwise” for the purposes of s 79 of the Judiciary Act. An additional operation of sub-s (5), as FCR 19.01 makes plain, is that security can be obtained against a cross-claimant, something absent from the text of s 56. Having made these points, the rationale behind sub-s (5) is not determinative of the argument.

55    The ratio in Thunderdome Racetiming is best seen as being that s 56 restricted the power of the Court to ordering security for costs against an applicant only (at 309) but, if it is seen as authority for the proposition that there is a want of power to award security in the Court other than pursuant to s 56 or another statutory provision or rule specifically referred to in sub-s (5), then this is a conclusion that I would respectfully regard as being plainly wrong.

56    This Court, like all superior courts, has a very broad power in relation to all aspects of costs. Leaving aside implied powers to which I will return below at [65], as s 5(2) of the Act provides, this Court is a court of law and equity. There was a long established jurisdiction in Chancery to deal with all issues as to costs on a discretionary basis based on principles of conscience: see Colbran, S E, Security for Costs (1st Edition, Longman Professional, 1993) at [3.1].

57    Although the discretion to award security for costs in equity might initially have simply depended upon broad notions of conscience, as was explained by Colbran at [3.3]-[3.6]:

At the close of the 19th century the discretion to order security for costs in equity had become fettered. What emerged were distinct categories of case in which security for costs would be ordered. The categories included where the plaintiff:

(a)    was resident abroad;

(b)    was a nominal plaintiff;

(c)    was the next friend of an infant or married women; or

(d)    misdescribed their residence.

Special rules also emerged in relation to privileged persons, actions in ejectment, certiorari, Joint Stock Companies, and as to the amount, form and timing of security for costs.

The period ending 1862 also involved numerous changes in the structure and operation of the Court of Chancery. The jurisdiction to order security for costs in the Court of Chancery was generally exercised by Masters in Ordinary who reported to the court, which at first comprised only the Lord Chancellor; and later from the eighteenth century, the Master of the Rolls; then from 1813, the Vice-Chancellor of England also; and from 1842, the three Vice-Chancellors. The office of Master in Ordinary was abolished in 1852.

In the preceding year the Chancery Act, 1851 (U.K.) [13 & 14 Vict., c. 15] practically terminated the sitting of the Lord Chancellor at first instance and the scheme of the Master in Chancery Abolition Act, 1852 (U.K.) (15 & 16 Vict., c. 80] was to place the chamber business of the Court of Chancery, formerly done by the Masters and the six clerks, directly in the hands of the Master of the Rolls and the Vice-Chancellors as the Chancery Judges of first instance, and of their respective chief and junior clerks. In 1877, the Chief Clerks obtained the title of ‘Masters of the Supreme Court’.

(citations omitted)

58    What seems to be the position is that immediately prior to procedural fusion in the United Kingdom, applications for security for costs were being dealt with both at common law and in equity by reference to a relatively rigid approach to fixed categories of cases and the first statutory category introduced by the Companies Act 1862 (UK): see Delaney, J, Security for Costs (LawBook Co, 1989) at 7. Hence the position at law and in equity was not substantively different.

59    The contention that the equitable jurisdiction to award security as ancillary to the equitable discretion to order that a successful party’s costs be paid (being Chancery’s response to the concern that a person should not suffer loss as a result of having to assert or defend his or her rights) has wholly withered on the vine or is no longer capable of development, is an intuitively unattractive one. But this largely academic question need not detain us, because any implied power at law to order security is not materially different and, in any event, Mt Arthur Coal relies upon the powers contained in ss 23 and 33ZF of the Act for the making of the orders for security for costs against the Funder.

60    Section 23 of the Act is in the following terms:

23    Making of orders and issue of writs

The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate.

61    As the Full Court observed in Caboolture Park Shopping Centre Pty Ltd (In Liq) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224 at 231, there is nothing in s 23 to “indicate an intention of the Parliament to circumscribe the power of the Federal Court”. The Court’s power extends to the making of orders that are “appropriate to the protection and enforcement of the right or subject-matter in issue” in the proceeding: Blairgowrie Trading Ltd v Allco Finance Group Ltd (in liq) [2015] FCA 811; (2015) 325 ALR 539 at 559 [105] citing Jackson v Sterling Industries Limited (1987) 162 CLR 612 at 621.

62    Section 33ZF(1) of the Act is in the following terms:

33ZF    General power of Court to make orders

(1)    In any proceeding (including an appeal) conducted under this Part, the Court may, of its own motion or on application by a party or a group member, make any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding.

63    Any suggestion ss 23 or 33ZF cannot be used to award security against a non-party because a specific provision (being s 56) provides for an award against a party is unpersuasive. The restriction on the affirmative grant of power by s 56 to a certain condition (that the order be made against a party), does not necessarily imply a negative, that is, that other powers cannot be called in aid to order security against a non-party. The logical consequence of this submission would be that the Court could never make any orders for security against a non-party even where it was thought appropriate to do so in the interests of justice or it was thought necessary for the proper function of the Court. This submission cannot be accepted for a number of reasons.

64    First, leaving aside any implied power dealt with below, given we are dealing with a class action, it is sufficient to deal with the issue of statutory power by reference to s 33ZF alone. The approach to security for costs urged by the Funder would be warranted only if 33ZF should be read down by reference to s 56 so it was “possible to say that the statute in question confers only one power to take the relevant action”: see Minister for Immigration and Multicultural and Indigenous Affairs v Nystrom [2006] HCA 50; (2006) 228 CLR 566 at 589 [59] (Gummow and Hayne JJ). As I have explained, given the existence of other statutory and Court rule bases for awarding security contemplated by s 56(5), it is difficult to see why security for costs should be seen as a “matter [which] is not to be done according to some other course”: see Nystrom at 588 [56] and R v Wallis (1949) 78 CLR 529 at 550.

65    Secondly, the whole point of s 33ZF was to vest the Court with broad powers, even with no objective criteria other than that the order be “just” or “appropriate”. The reason is obvious: Pt IVA introduced a form of litigation that was new; s 33ZF allows the Court to adapt orders and procedures to take account of, and respond to, unforeseen or developing circumstances (such as the procedural consequences and demands attendant upon the development of large scale funded litigation over the last generation). Consistently with its intended scope, “[t]he only express limitation or requirement in s 33ZF is that the Court thinks the order is appropriate or necessary to ensure that justice is done in the proceeding”, and “[n]o other limitation should be read into the section”: Blairgowrie Trading Ltd at 558 [98]. This is not to say that despite its breadth, s 33ZF should not, consistent with the principle explained in The Owners of the Ship “Shin Kobe Maru” v Empire Shipping Company Inc (1994) 181 CLR 404 at 421, be construed only as far as its text and context permit. But there is nothing about the text and context of s 33ZF which demands a conclusion that the Court cannot order security against a non-party when thought to be appropriate or necessary to ensure that justice is done in a class action. Indeed to proceed otherwise is to pay insufficient heed to the reality that Parliament intended to arm the Court with a wide and flexible armoury of power, capable of being adapted to the particular needs of representative proceedings. To attempt to confine the grant of such a statutory power (as is implicit in the Funder’s argument) is incompatible with the oft-repeated statements in the High Court concerning the construction of grants of such powers to superior courts: see Re JJT; Ex parte Victoria Legal Aid [1998] HCA 44; (1998) 195 CLR 184 at 201 [41] (Kirby J);  Knight v FP Special Assets Limited at 205 (Gaudron J); Gerlach v Clifton Bricks Pty Limited [2002] HCA 22; (2002) 209 CLR 478 at 505-506 [75]-[76]. Or as the Full Court (Allsop CJ, Middleton and Robertson JJ) recently put it in Westpac Banking Corporation v Lenthall [2019] FCAFC 34; (2019) 366 ALR 136 at 158 [86], s 33ZF:

… is the widest possible power that extends to all procedures appropriate or necessary to deal with the matter on a just basis … Having that wide character from its words, context and purpose, the injunction against reading down statutory powers given to courts, absent clear indication in terms or context … is of particular force.

(citations omitted)

66    Thirdly, leaving aside s 33ZF, there is nothing about the text or context of s 56 generally, which leads me to conclude that the implied power of the Court should be confined so as preclude an order for security against a non-party. This Court has all the powers expressly or by implication conferred by the Act and such powers are as incidental and necessary to the exercise of the power so conferred: see Jackson v Sterling Industries Ltd at 630. Although initially sourced differently, the implied powers conferred on this Court are no less than the inherent power of a court of unlimited or general jurisdiction and the implied power carries with it all that is necessary for the proper function of the Court: see Jackson v Sterling Industries Ltd at 619; see also VTAG v Minister for Immigration and Multicultural and Indigenous Affairs [2005] FCAFC 91; (2005) 141 FCR 291 at 296 [30]; Remington Products Australia Pty Ltd v Energizer Australia Pty Ltd [2008] FCAFC 47; (2008) 246 ALR 113 at 116 [20]. In this regard, as was made clear in Pelechowski v Registrar, Court of Appeal (NSW) [1999] HCA 19; (1999) 198 CLR 435 at 452 [51] (Gaudron, Gummow and Callinan JJ), the term “necessary” in this context is to be understood as identifying the power to make orders which are reasonably required or legally ancillary and does not have the meaning of “essential”. Although the Full Court (Dowsett, Kenny and Edelman JJ) in Commissioner of Taxation (Cth) v Vasiliades [2016] FCAFC 170, (2016) 344 ALR 558, did not definitively decide what other sources of power did exist for security for costs orders other than s 56, Kenny and Edelman JJ at 578 [70] referred to the fact that this Court enjoyed general judicature system powers: see also 577-578 [66]-[69]. I do not consider the implied power as to ordering security for costs in this Court to be different to that enjoyed by the High Court (see Merribee Pastoral Industries Pty Limited v Australia and New Zealand Banking Group Limited [1998] HCA 41; (1998) 193 CLR 502 at 510-511 [18] (Kirby J)) or any less than the inherent power to order security enjoyed by the Supreme Court of New South Wales (Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443 at 447-448 (Holland J)).

67    Fourthly, neither s 570, nor any other section of the FW Act, qualifies or confines any statutory or non-statutory power of the Court to order security for costs against a non-party. As a result, the FW Act leaves to the existing powers and procedures of the Court the question of whether security should be ordered.

68    Fifthly, I am conscious of the extra-curial comments of Justice McDougall about the desirability of a specific rule of court, and the reticence of a committee of judges advising that rules in relation to litigation funding should not be made, in the absence of any legislation (see [47] above), but desirability (a matter upon which minds might differ) is one thing; necessity is another. What is relevant is the question of power. As explained above, this Court has sufficient statutory and implied power to award security against a funder in a Pt IVA proceeding, and there is no necessity for some bespoke rule to confer such a power.

69    Having established that there is a prospect of an adverse costs order being made against the Funder if the litigation is unsuccessful, and that there is a power to award security for costs against a non-party, the issue now becomes whether, as a matter of discretion, such an award of security should be made in the circumstances of this case. This is the question to which I will now turn.

D    Discretionary Matters

D.1    Discretion Generally

70    Recently in Abbott v Zoetis Australia Pty Ltd (No 2) [2019] FCA 462; (2019) 369 ALR 512, I had cause to discuss the principles which inform the provision of security in the context of Pt IVA proceedings (an application for leave to appeal was dismissed Zoetis Australia Pty Ltd v Abbott [2019] FCAFC 153). At 517 [15], I referred to the broad discretion of the Court as to security and noted that the only limitation of the discretion is that it be exercised judicially, having regard to a consideration of the particular facts of the case: Merribee Pastoral Industries. If they are relevant, the factors that may be taken into account on an application are unrestricted, and the weight to be given to them depends upon the fact’s own intrinsic persuasiveness and its impact on other circumstances which have to be weighed: see Morris v Hanley [2000] NSWSC 957; Acohs Pty Ltd v Ucorp Pty Ltd [2006] FCA 1279; (2006) 155 FCR 181 at 185-186 [12].

71    In the context of class actions, in Abbott at 522-524 [31]-[38], I set out a series of considerations, which assume importance in applications for security for costs. I do not propose to repeat those considerations, but it is worth noting that if this had been an unfunded class action where group members were bearing the costs, or if the solicitors were working on a speculative basis, I do not consider that any proper exercise of discretion could have led to award security for costs against the applicant (even though non-parties, in the form of group members, were attempting to obtain a financial benefit out of the class action). For the reasons I discussed at length in Abbott, such a course would undermine the central purpose of Pt IVA proceedings of facilitating access to justice. Nor, in a class action seeking relief such as the present, could I conceive of circumstances where security would be awarded against an industrial organisation even if such an organisation provided assistance to its members in maintaining the litigation.

72    But the present funded class actions for financial reward tied to the fruits of the litigation are different. Before I come to the critical factors stressed by the parties as relevant to the exercise of the discretion to award security, it is appropriate to remark that other than it being accepted that the applicant has an arguable case and the Funder was located overseas, some factors which commonly receive consideration on security for costs applications (such as the applicant’s resources) do not assume any present importance.

73    I will briefly deal with the location of the Funder below, but what became evident during the course of argument was that there were two interrelated arguments going to discretion, which assumed prominence in opposition to the orders sought, being:

(1)    that it would be inappropriate to award security in a “no costs” jurisdiction such as proceedings in relation to a matter arising under the FW Act (Nature of Jurisdiction Contention); and

(2)    it would be inequitable to award security where the Funder, putting up security, is unlikely to be able to recover costs against the respondent should the litigation be successful (Asymmetry Contention).

D.2    Nature of Jurisdiction Contention

74    Central to the argument of Mr Turner in resisting security on discretionary grounds, was the alleged inappropriateness of ordering security for costs in a “no costs” jurisdiction.

75    In another industrial class action, Bywater v Appco Group Australia Pty Ltd [2019] FCA 799, I had occasion to consider how the Court’s ordinary discretion with respect to the making of a costs order pursuant to s 43(1) of the Act is subject to the terms of s 570 of the FW Act. At [5]-[7], I noted:

The predecessor provision of s 570 of the FW Act (s 824 of the Workplace Relations Act 1996 (Cth) (WR Act)) was considered by another Full Court (Tamberlin, Gyles and Gilmour JJ) in Construction, Forestry, Mining and Energy Unit v Clarke [2008] FCAFC 143 at [29]; (2008) 170 FCR 574 at 582 [29], where it was observed that:

Indeed, while courts should use the discretion in s 824(2) to ensure that parties to litigation arising from the WR Act do not engage in unreasonable acts and omissions which put the other party to undue expense, they should also be careful not to exercise a discretion with too much haste, given that such haste may discourage parties, for fear of an adverse costs order, from pursuing litigation under the WR Act in the manner which they deem best.

The caution was reflected by Bromberg J in Saxena v PPF Asset Management Ltd [2011] FCA 395 at [6], where his Honour observed that “this Court ought be very careful indeed to exercise the discretion provided by s 570(2) and should not do so other than in a clear case”. His Honour then went on to note that the “limited discretion conferred on the Court by that subsection ought not to become the basis for arguments about costs in relation to any and every transgression in the conduct of a case”.

His Honour’s remarks in Saxena, and those of the Full Court in Clarke, are based on the notion that there is a clear legislative intent that the Fair Work jurisdiction be primarily a “no costs” jurisdiction, unless a statutory threshold of unreasonable litigious conduct is demonstrated. The reason reflects a longstanding, underlying legislative intention to ensure access to justice in relation to Fair Work-type matters.

76    Section 570 of the FW Act is a provision which serves to ensure access to justice by allowing persons to bring claims in various courts exercising federal jurisdiction including claims which may be very modest: see Liu v Stephen Grubits and Associates [2019] FCAFC 24 (Reeves, Kerr and Lee JJ). But as I said in Bywater at [11]:

…the considerations which give rise to caution in awarding costs even where a pre-condition exists (evident from Saxena) and which incidentally serve to facilitate access to justice, seem to me to be signally important when it comes to usual inter partes litigation in this jurisdiction, including litigation maintained by industrial organisations. They also have real force when one is dealing with a Fair Work representative proceeding funded out of the resources of the applicant and group members, or one which is conducted on a speculative basis. These considerations seem to me to have less force, however, when one is dealing with a Fair Work representative proceeding, which is funded by a litigation funder seeking to use the processes of the Court in order to conduct an enterprise to derive a profit.

77    I have said enough to illustrate that this highly important policy consideration central to the operation of s 570 does not apply with equal force in the present circumstances. The legislature should be taken as having put in place a protection preventing the usual cost-shifting rules applying against a party. This legislative choice has had the effect of safeguarding the ability of an applicant, a person often with a modest claim facing the spectre of an intimidating inequality of arms, to bring an action freed from the vexation that an adverse costs order could mean financial ruination. There is no compelling textual or contextual argument which would suggest that this protection should be somehow extended to non-party funders who are using these claims to their perceived commercial advantage.

78    I do not consider the fact that this matter is within what is commonly described as a “no costs” jurisdiction from the perspective of the parties, is a powerful reason to decline an award of security against a funder if it was otherwise appropriate.

D.3    Asymmetry Contention

79    A more refined argument was that it would be inequitable to award security against the Funder in circumstances where the usual cost-shifting rules do not apply because the applicant, Mr Turner, is unlikely to be able to obtain an order for costs against the respondents if he was successful. Similarly, if the matter was to proceed to a secondary or tertiary round of hearings, given that the claims of the group members would also be matters arising under the FW Act, the group members, even if successful upon a determination of their individual claims, would not ordinarily be entitled to obtain a costs order. Hence, an asymmetry exists. If the proceedings are unsuccessful against the respondents then an order for costs may be made against the Funder, but the converse does not apply.

80    This seems to me to be the most powerful argument against ordering security against funders when the cost-shifting rules do not apply. On balance, however, I do not consider that it is decisive. The legislature has calibrated the scope of the general prohibition on the award of costs to parties, not to non-parties. Irrespective of whether the reality that a costs order may be made against the Funder was not fully appreciated in this case, this is not to the point. If funders are aware that they are liable for an adverse costs order and may be required to put up security, then no doubt this will be an integer factored by the market into the price of the provision of litigation funding services in matters of this type. If the Court was to proceed by way of making a common fund order, this would obviously be a highly relevant consideration in approving the terms of such an order and also in approving any settlement, which allowed amounts for commission to be deducted from a settlement at a particular rate. Accordingly, on close analysis, I do not think the unfairness suggested by the asymmetry is anything like as significant as might initially be thought to be the case.

D.4    Other Discretionary Matters

81    As noted above, the Funder is not located within the jurisdiction. The issue to be resolved in making or refusing an order for security is essentially one of risk management: East Grace Corporation v Xing (No 1) [2005] FCA 219 at [6] per French J. In PS Chellaram & Co v China Ocean Shipping Co (1991) 65 ALJR 642 at 643, McHugh J observed that “for over 200 years, the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made”. This consideration seems to me to apply, by way of parity of reasoning, if the non-party liable to pay an adverse costs order is outside the jurisdiction. I accept that the Funder is a very substantial litigation funder with an impressive funding history. These are not insignificant facts and although not an answer to an award for security, subject to further submissions, they may mean the Court has sufficient comfort in accepting an appropriate deed of indemnity (coupled with a minor amount of security referable to the costs of enforcing the indemnity in the United Kingdom) as being sufficient to address the relevant risk, but the mode of provision of security is a matter that I will determine separately.

82    I have also taken into account that if an order for security for costs is made, the cost of providing that security will ultimately be borne by the group members, like all funding costs. This is a factor which weighs in the balance against the making of an order, but seems to me to be an inevitable consequence of the way the litigation has been funded and is part of the bargain accepted by the group members in the funding agreement.

83    A further matter said by the Funder to be relevant to discretion was that Mr Turner’s impecuniosity has been brought about by the alleged conduct of the respondents which is, in part, the subject of the proceedings. In particular, Mr Turner’s employment came to an end after a serious workplace injury and as a result, Mr Turner is said to be totally unfit to work. Mr Turner thereafter sought an award-guaranteed accident-pay benefit or payment under his employment agreement, which has been denied to him. As a result of his inability to work, Mr Turner cannot afford to pay substantial legal costs. Even accepting this evidence as to Mr Turner’s predicament, and further accepting that it was allegedly brought about by the respondents, this is not to the point. If Mr Turner maintained his individual claim he would be entitled to the benefit of s 570. But he is acting in part in a representative capacity and his impecuniosity does not provide a shield behind which the Funder can shelter.

84    Finally, pursuant to the terms of the funding agreement, the Funder is charging a contractual commission (although the Funder has foreshadowed an application for common fund orders). The current commission arrangement detailed above is at a rate above the current market for other types of funded litigation (for example, securities class actions, in which rates have reduced significantly in recent times: see Lenthall at 139-140 [7]). But, in and of itself, this comparison means little and does not mean the rate here is other than commercial – one type of funded litigation is simply not the same as others. In any event, the commerciality of the contractual rate does not seem to me to be presently material; what is notable is that part of the consideration provided in exchange for the promises the Funder has received, includes an obligation to provide funds for security for costs if ordered.

85    Despite this, there was evidence from the Managing Director of the Funder that in making a decision to fund, the Funder took into account that industrial relations is traditionally a “no costs” jurisdiction, which was relevant to: (a) the Funder’s exposure to pay funds to prosecute claims and meet any adverse costs order; and (b) the fact that any resolution sum obtained (either by way of judgment or settlement) will not reflect any recovery of the legal costs incurred. It was also suggested in the evidence that if a respondent could recover costs against the Funder without unreasonable conduct having occurred, but there was no possibility for the applicant to recover its costs on the same basis despite succeeding in his claim, this disparity would negatively impact on “the appetite of [the Funder] to continue to fund representative proceedings in the industrial relations jurisdiction”. Of course, this evidence (which I accept) must be looked at in the context that if one has regard to the funding agreement objectively, the obligation to provide security if ordered, was an important part of the bargain struck. If it turns out the Funder has not adequately factored that risk into the price it has contracted to charge, this does not seem to me to be something which should be of particular concern to the Court unless I was affirmatively satisfied that: (a) funding would be withdrawn from Mr Turner and group members; and (b) there was going to be a stultification of the claims of the applicant and group members as a result. It suffices to note that I am not satisfied on the present state of the evidence that stultification will occur if security was granted.

86    As to the “macro” consideration referred to in the evidence, being the availability of funding of industrial class actions generally, for reasons already touched upon above, I do not consider that this is a compelling concern. One suspects that funders will act in an economically rational way and the price of funding, like the price of most financial products, is a function of risk. There a number of ways that industrial class actions may be able to be brought. One is with the assistance of industrial organisations. Another is by solicitors acting on a “no win, no fee” basis or, potentially at least, by a form of contingency payment common fund order of the type I discussed in Klemweb Nominees Pty Ltd v BHP Group Ltd [2019] FCAFC 107; (2019) 369 ALR 583 at 608-611 [121]-[130] (although security issues of the type presently discussed would potentially arise in this last circumstance). Even assuming that third party litigation funding is as desirable a method of facilitating industrial class actions as these other modes, there is nothing about the history of third party litigation funding in this country which would suggest that it would not be available if a reward commensurate with risk was available.

E    ORDERS

87    I indicated to the parties that I thought it was appropriate for me to determine initially the issue of principle as to whether or not security should be ordered. I am satisfied that the respondents have discharged their burden in establishing that adequate security for their costs in the amount that they seek from the Funder should be ordered. This approach reflects that taken in not dissimilar circumstances in the United Kingdom (see [44]-[46] above) and an order will reflect the amount claimed representing anticipated party/party costs of the respondents and not be subject to an antipodean version of the Arkin cap. The form of security to be provided can be the subject of further debate. This will include consideration as to whether a deed of indemnity – coupled with security limited to enforcement costs in the United Kingdom – would be sufficient.

88    The only orders that I propose to make at present is for both proceedings to be listed at a convenient date for the parties in the light of these reasons in order to determine the mode of provision of security.

Associate:

Dated:    8 October 2019