FEDERAL COURT OF AUSTRALIA

Mathews v All Options Pty Ltd [2019] FCA 1972

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) and r 36.09(1)(a) of the Federal Court Rules 2011, the appellants are to give security for the respondent’s costs of the appeal in the sum of $62,000 to be provided by payment into Court in this proceeding pursuant to r 2.42 of the Federal Court Rules 2011.

2.    Pursuant to r 36.09(1)(b) of the Federal Court Rules 2011, the appellants’ appeal be stayed until the security for costs has been provided by the appellants pursuant to Order 1.

3.    Pursuant to r 36.09(1)(c) of the Federal Court Rules 2011, the appellants’ appeal be dismissed if the security for costs has not been provided by the appellants pursuant to Order 1 by 4.00pm on the forty second (42nd) day after the date of these Orders.

4.    The costs of the respondent’s interlocutory application for security for costs are to be costs in the appeal.

5.    The remaining orders are to apply subject to Orders 1 to 3.

6.    The appeal be listed before a Full Court in Melbourne during May 2020 for hearing of the appeal.

7.    The hearing be listed for an estimate of one day.

8.    In accordance with Practice Note APP 2, the appellants file and serve Parts A and B of the Appeal Book by 28 February 2020.

9.    In accordance with Practice Note APP 2, not later than 4.00pm 20 business days before the hearing, the appellants file and serve on the respondent an outline of submissions and chronology of the relevant events.

10.    In accordance with Practice Note APP 2, not later than 4.00pm 15 business days before the hearing, the respondent file and serve on the appellants an outline of submissions, a chronology of the relevant events and a list of materials to be included in Part C of the Appeal Book.

11.    In accordance with Practice Note APP 2, not later than 4.00pm 10 business days before the hearing, the appellants file and serve on the respondent any submissions in reply.

12.    In accordance with Practice Note APP 2, not later than 4.00pm 5 business days before the hearing, the appellants file four copies and serve on the respondent an appropriate number of copies of Part C of the Appeal Book.

13.    Outlines of submissions are not to exceed 15 pages in length, including any annexures, and be easily legible using a font size of at least 12 points and one and a half line spacing throughout, including in any footnotes and annexures. Italics or underlining must be used for legislation and case citations and boldface or italics may be used for occasional emphasis.

14.    Each party file and serve a list of authorities and legislation in accordance with Practice Note APP 2.

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

REASONS FOR JUDGMENT

O’BRYAN J:

Introduction

1    By notice of appeal filed on 13 September 2019, the appellants, Mr Darren Mathews and Flightdeck Geelong Pty Ltd (Flightdeck), appeal from orders of this Court made on 23 August 2019 reflecting reasons that were published on 30 April 2019. Mr Mathews is the sole director and shareholder of Flightdeck.

2    The Court found that the appellants had engaged in misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law in connection with the sale of a trampoline business to the respondent, All Options Pty Ltd, by inflating the quantum of past and future sales as well as past and future profitability. On 23 August 2019, the Court made orders requiring the appellants to pay the respondent damages in the sum of $1,440,730, interest in the sum of $227,783.36 and costs in an amount that remains to be fixed.

3    On 14 October 2019, the respondent filed an application seeking security for its costs of the appeal.

4    On 15 November 2019, I conducted an interlocutory hearing of the respondent’s application for security for its costs of the appeal and the timetabling of the appeal.

5    In support of its application for security, the respondent read the affidavit of its solicitor, Mr Polat Siva of HWL Ebsworth, affirmed on 14 October 2019. In his affidavit, Mr Siva estimated the respondent’s costs of the appeal as $87,900.50 and sought security in the amount of $84,440.45.

6    In opposition, the appellants read the affidavit of their solicitor, Mr Liam O’Brien of Aughtersons, affirmed 13 November 2019. The appellants oppose the application in so far as it seeks security from Mr Mathews, but do not oppose it in so far as it seeks security from Flightdeck. The appellants also oppose the quantum of security sought.

7    For the reasons that follow, I will order the appellants to give security for the respondent’s costs of the appeal in the amount of $62,000.

Background

8    The respondent commenced the proceeding below in August 2016. For some time, the appellants were legally represented by their current solicitors, Aughtersons. However, Aughtersons ceased to act in March 2018 and the appellants were not legally represented at the trial in September 2018.

9    The obligations of the appellants under the orders made by the Court on 23 August 2019 are joint and several. Neither of the appellants has paid any amount to the respondent in respect of the orders, nor have they sought or obtained a stay in respect of the operation of the orders.

10    Unbeknownst to the respondent, Flightdeck was deregistered as a company by ASIC on 2 March 2018, following an application for voluntary deregistration. However, its registration was reinstated following an application made by the respondent in May 2019.

11    The respondent has issued a bankruptcy notice in respect of Mr Mathews’ failure to pay the amounts required by the orders made by the Court on 23 August 2019. Mr Mathews has filed an application to set aside that bankruptcy notice.

Principles governing the application

12    The application for security is made under s 56(1) of the Federal Court of Australia Act 1976 (Cth) and rule 36.09(1) of the Federal Court Rules 2011. Section 56(1) authorises the Court or a Judge to order an appellant to give security for the payment of costs that may be awarded against him or her. Rule 36.09(1) provides that a party may apply for an order that:

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

(b)    the appeal be stayed until security is given; and

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

13    The applicable principles were explained by Tamberlin J in Cooper v Universal Music Australia Pty Ltd [2006] FCA 642 at [11] and [12]:

[11] The Court has a wide discretion in relation to the grant of security for costs. There is no general rule because each case depends upon its own circumstances. In relation to an appeal, Courts have given weight to the injustice that might be caused to a successful litigant if the litigant is compelled to contest the matter for a second time without the probability of obtaining the costs if ultimately successful: Cowell v Taylor (1885) 31 Ch D 34 at 38. In Equity Access v Westpac Banking Corp (1989) ATPR 40-972, Hill J at 50,635 listed some of the relevant matters to be considered when deciding whether security for costs ought to be awarded:

•    the prospects of success;

•    the quantum of risk that a costs order will not be satisfied;

•    whether the making of an order would be oppressive in that it would stifle the reasonably arguable claim;

•    whether any impecuniosity of the appellants arises out of the conduct complained of;

•    whether there are aspects of public interest which weigh in the balance against such an order;

•    whether there are any particular discretionary matters peculiar to the circumstances of the case.

[12] Although Courts will be reluctant to make an order for security for costs against a natural person on account of his or her impecuniosity, there is no general principle that prevents the making of such an order.

14    In Cowell v Taylor (1885) 31 Ch D 34, Bowen LJ said (at 38):

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. There is an exception in the case of appeals, but there the appellant has had the benefit of a decision by one of Her Majesty's courts, and so an insolvent party is not excluded from the Courts, but only prevented, if he cannot find security, from dragging his opponent from one Court to another.

15    That principle, that the court will more readily grant security against a litigant who is impecunious in the case of appellate proceedings, has been followed and applied on many occasions: see for example Skyring v Sweeney [1999] FCA 61 at [6] per Spender J; Moore v Macks [2007] FCA 509 at [20] per Mansfield J; Clack v Collins (No 1) [2010] FCA 513 at [7]-[8] per Jagot J; Sheather v Staples Waste Removals Pty Limited [2012] FCA 998 at [18] per Nicholas J; Carey v Freehills [2014] FCA 325 at [16]-[17] per Marshall J.

Evidence concerning the financial position of Flightdeck and Mr Mathews

16    Evidence concerning the financial position of Flightdeck and Mr Mathews was given by both Mr Siva and Mr O'Brien.

17    In relation to Flightdeck, the application for voluntary deregistration was premised upon the company having no material assets. There is no evidence to suggest that Flightdeck has, in the period since its reinstatement in May 2019, acquired assets. Mr O'Brien deposed that Flightdeck "to his knowledge has no assets in its name". As noted above, Flightdeck did not oppose an order for security being made against it.

18    The evidence concerning Mr Mathews is inconclusive. Mr Siva deposed that, in the course of the original proceeding and particularly during August and September 2018, Mr Mathews made various statements to the effect that neither he nor Flightdeck had sufficient funds to retain lawyers in connection with the proceeding. Further, neither of the appellants have made any payment by way of satisfaction or reduction of their liability under the orders made against them, despite a demand for payment having been made in August 2019. Mr O'Brien deposed that he is instructed that:

(a)    Mr Mathews does not hold any real property in his personal name;

(b)    a property in Mansfield with certificate of title volume 11827 folio 857 (Mansfield property) is held by Mr Mathews and his wife as trustees for the DVTT Group Superannuation Fund;

(c)    Mr Mathews is not of an age where he can access assets held in the superannuation fund; and

(d)    Mr Mathews currently has $374.19 in a bank account in his name.

19    I regard the foregoing evidence as inconclusive about Mr Mathews' financial position for the following reasons.

20    First, the subject of the original proceeding was the sale of a trampoline business by Flightdeck to the respondent for a sale price of $1,525,000. There is no evidence as to what became of the sale proceeds.

21    Second, Mr O'Brien's affidavit exhibited a transfer of land by which the Mansfield property was transferred on 21 June 2017 by Mr Mathews to the DVTT Group Superannuation Fund. At the time of the transfer, the original proceeding was set down for trial in September 2017 (the trial date was subsequently vacated on the application of the appellants). The transfer records that the consideration for making the transfer was the "desire to make a gift". At the very least, the transfer raises an inference that Mr Mathews has access to sufficient financial support as would allow him to contribute the Mansfield property, owned by him, into a superannuation fund.

22    Third, Mr Siva's affidavit exhibited the results of a search of the Victorian Land Index as at 7 October 2019, which appears to indicate that Mr Mathews is the registered owner of two other properties in Mansfield with certificate of titles volume 10766 folios 030 and 031. Those properties were not referred to in Mr O'Brien's affidavit.

23    Fourth, Mr O'Brien's evidence was very limited. I note that he deposed that he was instructed that Mr Mathews does not hold any real property in his personal name, but he did not give evidence as to whether Mr Mathews has ownership interests held through other persons or entities. I also note that Mr O'Brien deposed that Mr Mathews currently has $374.19 in a bank account in his name, but he did not give evidence as to whether Mr Mathews held any other cash or financial investments. Significantly, Mr O'Brien did not depose that Mr Mathews was impecunious.

24    Fifth, the evidence indicates that Mr Mathews has retained Aughtersons to act on his behalf in this appeal, and has also retained counsel. Further, Mr Mathews has retained Aughtersons to act on his behalf in seeking to set aside the bankruptcy notice. It is apparent that Mr Mathews has been able to access funds in order to retain Aughtersons, whether those funds belong to Mr Mathews or to someone who is willing to provide funding to Mr Mathews.

Consideration

25    The respondent's primary submission is that there is a substantial risk that a costs order made against the appellants in respect of the appeal will not be satisfied. The submission is based on the facts that, first, the appellants have not satisfied the orders made against them on 23 August 2019 and, second, the evidence raises a material doubt as to the ability of the appellants to satisfy a costs order in the appeal and the ability of the respondent to recover costs against the appellants. The respondent notes that the appellants do not suggest that an order for security will stultify the appeal and that, even if that argument was advanced, it would be given less weight by the Court in the context of an appeal. The respondent accepts that, given the issues raised by the notice of appeal, it is difficult for the Court to assess the merits of the appeal; in those circumstances, the respondent argues that that factor is neutral in the assessment of security. The respondent submits that there are no other relevant factors on this application.

26    As noted earlier, Flightdeck does not oppose an order for security to be given by it. Mr Mathews opposes an order being made against him on the basis that he is impecunious and does not have the funds to satisfy a costs order. He does not submit, however, that an order for security would stultify his appeal.

27    In my view, an order for security against both appellants is justified in the present case, largely for the reasons advanced by the respondent. The evidence shows that, while the financial position of Mr Mathews is far from clear, there is a substantial risk that a costs order made against him in respect of the appeal will not be satisfied. His counsel, on instructions, submitted that he does not have the funds to satisfy a costs order, but expressly did not submit that the appeal would be stultified if an order for security were to be made. As Mr Mathews has been able to retain lawyers for the appeal, and to contest the bankruptcy application against him, it appears that he has access to a source of funds for the purposes of legal proceedings. Even if there were a risk that the appeal would be stultified by an order for security, that would not be conclusive on the question whether an order for security should be made in the context of an appeal.

28    I do not consider that any other discretionary factor weighs for or against the making of an order for security. In that regard, I note that:

(a)    it is not realistic to form any assessment of the merits of the appeal at this stage;

(b)    the asserted impecuniosity of Mr Mathews does not arise out of the conduct of the respondent;

(c)    there is no other aspect of public interest which weighs in the balance against the order; and

(d)    there are no particular discretionary matters peculiar to the circumstances of this case.

Quantum of security to be ordered

29    In Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd [2017] VSCA 293, the Victorian Court of Appeal recently considered the Court's task of assessing the appropriate amount of security (at [63]-[65], footnotes omitted):

In deciding what constitutes ‘sufficient security’ for the purposes of s 1335(1), the court does not seek to provide full protection for the estimated costs of the party seeking security. Rather, having regard to the fact that the order for security is usually made at an early stage of a proceeding and there are many contingencies that will affect the actual costs incurred by that party, the court fixes an amount that it considers adequate in all the circumstances of the case. Those circumstances include the nature of the proceeding, the nature and complexity of the steps that need to be undertaken by the party seeking security, the likely costs in undertaking those steps, the length of the trial, any security already provided, and the possibility that the proceeding may settle.

In determining a sufficient amount for security for costs, the court does not undertake precise mathematical calculations. Rather, it adopts a ‘broad brush’ approach involving ‘guesstimates as much as estimates’. However, the broad brush approach does not involve an abstract process. It must have an evidentiary basis. The court must have regard to the evidence adduced by the parties as to quantum — whether in the form of an affidavit by an experienced litigation lawyer or an expert report by a costs consultant - although it is not bound by the parties’ estimates. The court may scrutinise the individual items in the parties’ estimates, but not to the extent of minute examination akin to a taxation.

The amount ultimately fixed by the court must not be so low that it fails to provide any real protection to the party seeking security, or so high that it is oppressive to the party required to provide the security. The amount must be ‘just and reasonable’ in all the circumstances of the particular case.

30    It is common for a party's solicitor to estimate the likely costs to be incurred on a solicitor -client basis and for the Court to apply a discount to approximate reductions that would be made on a taxation: see for example Norcast S.ar.L v Bradken Limited & Ors [2012] FCA 765 at [17]-[19]; Voxson Pty Ltd v Telstra Corporation Ltd (No 8) [2017] FCA 1427 at [14]; Flujo Holdings Pty Ltd v Merisant Co [2019] FCA 594 at [23].

31    In his affidavit, Mr Siva estimated the costs likely to be incurred by the respondent in the appeal. The estimated costs, based on a one day hearing, were:

(a)    senior counsel (4 days) at $30,800;

(b)    junior counsel (6 days) at $22,500; and

(c)    solicitors at $34,600.50,

             totalling $87,900.50.

32    Mr Siva deposed that, based on his professional experience, he estimated that the respondent's taxed costs of the appeal should the matter proceed to hearing and assessed on a standard basis, were likely to be approximately $84,440.45, on the basis that counsel's fees are allowed in full ($53,300) and solicitors’ fees would be discounted by 10% ($31,140.45). Mr Siva deposed that his estimate took into account that the rates charged by HWL Ebsworth were less than the allowable rate set out in the Federal Court's "Costs Allowable for Work Done & Services Performed'' under Schedule 3 of the Federal Court Rules 2011.

33    The appellants submitted that the Court should not accept Mr Siva's estimate because he is not an expert on the costs of appellate litigation. I reject that submission. The Court adopts a broad brush approach. I accept Mr Siva's evidence that he is an experienced practitioner, and his affidavit adequately explains the basis of his costs estimate.

34    The appellants also sought an adjournment of the issue of quantum to enable them to obtain evidence from a costs consultant. Mr O'Brien gave the following evidence as to his efforts to obtain such evidence on behalf of the appellants:

On 12 November 2019 I had a discussion with Gavin of Grace Costs Consultants in respect of the estimate of costs contained with the Affidavit of Mr Siva. I enquired as to whether Grace Costs Consultants would be in a position to review the Affidavit of Mr Siva and provide an assessment of costs. I was informed by Gavin and verily believe that due to a heavy workload he would not be in a position to review the Affidavit of Mr Siva until 28 November 2019.

On 16 October 2019 I was served with the Respondent's Application for Security of Costs and the Affidavit of Mr Siva. Due to the Appellants' limited finances, and the fact that the Application filed by the Respondent did not include an itemised costing by a qualified costs consultant, I was instructed to direct my energy to engaging Counsel and preparing for hearing rather than engage a costs consultant to provide a costs assessment of the Respondent's estimate of costs. I was informed by Gavin on 12 November 2019 and verily believe that due to a heavy workload and multiple Court appearances throughout November and late October 2019, even if I had contacted Grace Costs Consultants in late October 2019, 28 November 2019 would have been the earliest date on which they could review the Affidavit of Mr Siva.

35    I do not consider that Mr O’Brien’s evidence provides a basis for an adjournment of the determination of the security application. In my view, the appellants had adequate time to obtain a report from a costs consultant for the purposes of the hearing. Mr O’Brien did not attempt to do so until a few days before the hearing of the application. Further, while Grace Costs Consultants may have been too busy to assist, the appellants could have obtained a report from another costs consultant.

36    Adopting a broad brush approach, I propose to order the appellants to give security in the amount of $62,000. In arriving at that figure, I have made two adjustments to the estimate made by Mr Siva. First, I have reduced the estimated counsel’s fees by 1 day for each of senior and junior counsel, reflecting what I believe to be a reasonable estimate of the work required for preparing and presenting the appeal. Second, I consider that a more significant discount should be made to the estimate of solicitor’s fees reflecting what would be allowed on taxation, which I will set at 40%. Applying those adjustments, the costs are estimated as:

(a)    senior counsel (3 days) at $23,100 (allowed in full);

(b)    junior counsel (5 days) at $18,750 (allowed in full); and

(c)    solicitors at $34,600.50 (allowed as to 60%, being $20,760.30).

37    As to the costs of this application, the appellants submitted that, if the Court were to allow security but in an amount significantly lower than that sought by the respondent, the costs of the application should be costs in the appeal. The respondent did not oppose such an order on the premise stated. Whilst the respondent has been successful on its application, I have nevertheless reduced the amount of security to be given. I consider that the appropriate order in the circumstances is for the costs of this application to be costs in the appeal.

Orders

38    In conclusion, I will make orders for the appellants to give security for the respondent’s costs in this appeal, that the appeal be stayed until security is given and that the appeal be dismissed if security is not given within 42 days. I will also set the appeal down for hearing in the May 2020 sittings of the Court on an estimate of one day and make the usual timetabling orders.

Associate:

Dated:    22 November 2019