Federal Court of Australia

Powell Navel Pty Ltd as trustee for the Irwin Superannuation Fund v Airline Services Pty Ltd [2023] FCA 279

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to Rule 19.01(1)(a) of the Federal Court Rules 2011 (Cth) the first, fifth, sixth, seventh, eighth, ninth and tenth applicants give security for the fourth respondent's costs in this proceeding up to the commencement of the trial in the amount of $80,000 by way of a bank guarantee in a form acceptable to a Registrar of the Court and/or cash within 30 days.

2.    Pursuant to Rule 19.01(1)(b) of the Rules this proceeding be stayed as against the fourth respondent unless security for the fourth respondent's costs in this proceeding is given by the first, fifth, sixth, seventh, eighth, ninth and tenth applicants in accordance with paragraph 1 hereof.

3.    Pursuant to Rule 19.01(1)(a) of the Rules the second applicant give security for the fourth respondent's costs in this proceeding up to the commencement of the trial in the amount of $80,000 by way of a bank guarantee in a form acceptable to a Registrar of the Court and/or cash within 30 days.

4.    Pursuant to Rule 19.01(1)(b) of the Rules this proceeding be stayed as against the fourth respondent unless security for the fourth respondent's costs in this proceeding is given by the second applicant in accordance with paragraph 3 hereof.

5.    The fourth respondent have liberty to apply for the balance of the security owing to be paid to him by the relevant applicants in the event that the proceeding against him is stayed by operation of paragraph 2 or paragraph 4 hereof.

6.    The first, fifth, sixth, seventh, eighth, ninth and tenth applicants pay 50 per cent of the fourth respondent's costs of this application as agreed or assessed.

7.    The second applicant pay 50 per cent of the fourth respondent’s costs of this application as agreed or assessed.

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

REASONS FOR JUDGMENT

MCEVOY J:

1    The present applications seek review of a decision of a Registrar of the Court granting the application of the fourth respondent, Mr Byron Ko, for security for costs. On 20 May 2022 the Registrar ordered that the first, second and fifth to tenth applicants provide Mr Ko with security for costs in the amount of $185,000. The second applicant (Talbert Pty Ltd) seeks review of that decision by an application dated 7 June 2022, and the first and fifth to tenth applicants (the other applicants) seek review of the Registrar’s decision by an application dated 10 June 2022. These review applications seek to have the orders of the Registrar set aside and Mr Ko’s application for security for costs dated 22 April 2022 dismissed. Talbert seeks, in the alternative, that there be an order requiring the obligation to pay security to be divided in equal shares between it and the other applicants.

2    As is well settled, an application for review of a Registrar’s orders under s 35A(5) of the Federal Court of Australia Act 1976 (Cth) proceeds as a hearing de novo: see Harris v Caladine (1991) 172 CLR 84; West International Pty Ltd v Ultradrilling Pty Ltd [2008] FCA 1443 at [6] (Gordon J). It is a complete rehearing at which the parties may adduce further evidence: West International at [6]. The court’s power under s 35A(5) of the Act extends to reviewing questions of fact and law: Guildford International Group Pty Ltd, in the matter of Aviation 3030 Pty Ltd v Aviation 3030 Pty Ltd [2018] FCA 600 at [1] (O’Callaghan J).

3    Mr Ko opposes these applications and seeks that security be ordered in the manner set out in his interlocutory application dated 22 April 2022 and the accompanying affidavit of Mr Stents sworn on 22 April 2022 (Mr Stents’ affidavit). Mr Ko seeks the provision of $374,543 by way of security.

4    For the reasons that follow I have determined that security should be ordered in the amount of $160,000. Talbert will be responsible for paying 50 per cent of that sum, and the other applicants will be responsible for paying the other 50 per cent. In the event the payments are not made the proceeding will be stayed as against Mr Ko. If the entire amount of the security is not provided, Mr Ko will have liberty to apply for the balance of the security owing to be paid.

Background and Procedural History

5    For reasons which it is unnecessary to explain on this application, there has been a division in the conduct of the proceeding between Talbert and the other applicants. Nonetheless, both Talbert and the other applicants opposed Mr Ko’s application before the Registrar principally on the basis of delay. They contended that the application for security for costs was an attempt to re-litigate, re-agitate or hear afresh an application for security that Mr Ko had made previously in September 2019, which was dismissed. A Registrar determined that delay in bringing the September 2019 security application was fatal to it.

6    Mr Ko submitted on the present application for security that circumstances had changed. He contended that after delays occasioned by uncertainties about aspects of the applicants’ pleadings, and delays in the provision of security by the applicants to the second respondent, the trial date had been vacated to enable the determination of a dispute between Talbert and the applicants’ solicitors. Because that dispute was yet to be resolved, and a new trial date would need to be set once it was resolved, Mr Ko submitted that the proceeding was at a turning point and that in this context he would suffer real prejudice if security was not ordered.

7    The Registrar accepted that a significant reason for whatever delay there had been could be attributed to the fact that the proceeding had been stayed against the second respondent for extended periods pursuant to security for costs orders which had been made and not satisfied. The Registrar’s reasons granting Mr Ko’s second application for security were essentially that there was no impediment to Mr Ko making a fresh application for security for costs, that the delay in bringing the application was not inordinate or substantial and was susceptible of explanation, that there was no evidence of any actual prejudice that the applicants would suffer if a security for costs order was made, and that there could be no reliance by the applicants on “presumed” prejudice.

8    Insofar as the quantum of the security was concerned, the Registrar disagreed with the calculations propounded by Mr Ko, and for reasons he explained ordered that an amount of $185,000 be provided to Mr Ko by the applicants by way of security in the form of a bank guarantee.

Review Application

9    For the purposes of its application for review, Talbert relies on an affidavit of Mr Vigors sworn 6 June 2022 and filed on 7 June 2022; and submissions dated 26 September 2022.

10    The other applicants rely on affidavits of Ms Lynch sworn 10 June, 20 May and 27 September 2022; and submissions dated 27 September 2022.

11    Mr Ko relies on the affidavit of Mr Stents sworn 22 April 2022; submissions dated 14 September 2022; and submissions dated 6 October 2022.

The applicants’ submissions

12    By reason of the fact that Talbert has severed its former relationship with the solicitors for the other applicants, Talbert advances separate submissions on this review application to those advanced by the other applicants.

Talbert’s submissions

13    Talbert submits that Mr Ko did not appeal the September 2019 decision refusing to order security, and that there is no power to alter this decision pursuant to s 56(3) of the Act. Talbert contends that s 56(3) requires an order for security for costs as a condition precedent. Although Talbert concedes that there is a discretionary power to alter a decision made in relation to security pursuant to rr 1.32 and 39.05(c) of the Federal Court Rules 2011 (Cth) if it is in the interests of justice to do so, it submits that it would be “conducive to great injustice” and an “enormous waste of judicial time and resources if there were no limit on the power of a party to have any interlocutory application or order relitigated at will”: Truth about Motorways Pty Limited v Macquarie Infrastructure Investment Management Limited [2001] FCA 1603 at [11] (Hely J). Talbert also contends, apparently, that the Court does not have jurisdiction to grant Mr Ko’s application for security on the basis that he is seeking to re-agitate matters and have the original discretionary decision made afresh on similar, if not the same, material.

14    On the substantive question of whether security should be ordered, Talbert submits that Mr Ko’s delay is such as to require the dismissal of his application. Talbert maintains that a material change in circumstances or new evidence would be required to vary a decision in relation to security, and that no such change of circumstances has been demonstrated by Mr Ko.

15    Talbert also made submissions as to the appropriateness of apportioning equally between all the applicants the obligation to make any payment of security for costs in the event that such an order were to be made. I will return to this issue in due course.

The other applicants’ submissions

16    The other applicants submit that the Registrar erred in granting Mr Ko’s application for security in the following ways:

(a)    by failing to refuse the application because it was brought too late (having been brought after the September 2019 application which was itself refused because it was brought too late);

(b)    by failing to refuse the application in the circumstances where the delay was inordinate and unexplained, with no material change in circumstances;

(c)    by failing to find that there was actual prejudice to the applicants caused by ordering security, namely, their continued prosecution of the claim absent any further application brought by Mr Ko for security or any announcement of an intention to bring such a claim until 15 March 2022;

(d)    by not applying established principles regarding the inherent prejudice to claimants if an application for security for costs is brought late in proceedings;

(e)    by failing to find that significant resources of the applicants were expended on advancing their claims in the proceeding before the security application was brought;

(f)    by finding that a significant portion of Mr Ko’s delay was attributable to the stay of the proceeding, whereas there was delay before the stay and there was no notification by Mr Ko during the period of the stay that he intended to make the security application once the stay was lifted; and

(g)    by failing to have any or any sufficient regard to principles governing a re-agitated second interlocutory application when the first had been refused (and absent a material change in circumstances).

17    The other applicants also submit that from September 2019 to 20 May 2022 they incurred nearly $700,000.00 in costs, and by 20 May 2022 they had incurred $2,149,962.57 in costs and disbursements. Thus they contend that they have suffered significant prejudice by preparing the matter for trial while Mr Ko delayed making the second security application.

18    In relation to apportionment, the other applicants contend that if security is ordered, Talbert should be required to make the relevant payment because it has not previously provided security whereas the other applicants have provided some $529,735.79 by way of security in favour of the second respondent.

Mr Ko’s submissions

19    In opposing the review application and pressing his application of 22 April 2022 for security for costs in the sum of $374,543, Mr Ko submits that:

(a)    the applicants’ position relies on an erroneous exercise of the relevant discretion, is at odds with Full Court authority, and pays insufficient regard to the current facts and circumstances of the proceeding;

(b)    the discretion to order security is broad, must be exercised judicially, and aims to achieve a balance that “adequate and fair protection is provided to the defendants, and avoiding injustice to an impecunious plaintiff by unnecessarily shutting it out or prejudicing it in the conduct of the proceedings”: Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 at 470 (Giles J); All Class Insurance Brokers Pty Ltd (in liq) v Chubb Insurance Australia Ltd [2020] FCA 840 at [42] – [44] (Allsop CJ);

(c)    whether or not there has been delay does not provide a conclusive answer to the way the discretion is to be exercised, but it is a factor to be taken into account in the balancing exercise;

(d)    the proper exercise of the discretion requires consideration of the full context, including the effect of delay: All Class at [42]-[44] (Allsop CJ); PPK Willoughby Pty Ltd v Baird [2019] NSWCA 48 at [11] (Bell P and Simpson AJA);

(e)    it cannot simply be presumed that delay is prejudicial: United Commercial Projects Pty Ltd v PHHH Investments No2 Pty Ltd [2019] VSCA 192 at [39] (Whelan JA); PPK at [11] (Bell P and Simpson AJA);

(f)    the prejudice for him, if security is not ordered, is the real prospect that he would never recover his trial costs if he succeeds against the applicants;

(g)    the only prejudice occasioned by delay is that he would be denied the benefit of security for past costs;

(h)    there is no evidence to establish that any delay has caused any corresponding offsetting prejudice to the applicants; and

(i)    there is no evidence that the applicants would be unable to meet any order for security or that such an order would stultify the proceedings or otherwise cause prejudice to the applicants.

20    Mr Ko also contends that the September 2019 security decision did not establish a res judicata and was determined at a different point in the proceeding, on different facts, and in different circumstances. He submits that the applicants’ position misconceives how the discretion should operate in the face of changed facts and circumstances.

The Relevant Law

Legislation

21    Plainly the Court has a broad discretion to order security for costs pursuant to s 56 of the Act, s 1335 of the Corporations Act 2001 (Cth) and r 19.01 of the Rules.

22    Section 56 of the Act provides:

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

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

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

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

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

23    Section 1335(1) of the Corporations Act provides:

(1)     Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.

24    Rule 19.01(1) of the Rules provides:

(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.

The authorities

25    The principles governing the determination of an application for security for costs are uncontroversial.

26    In All Class, Allsop CJ essayed the relevant principles at [40] – [43] as follows:

Where the applicant is a corporation, the Court is empowered to order security for costs pursuant to s 1335 of the Corporations Act if “it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant”. Once this threshold is met, the Court will turn to the matters relevant to the exercise of its discretion to order security for costs: Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65; 98 ACSR 301.

Section 56 of the Federal Court of Australia Act does not expressly impose any threshold to be met before the Court considers the various discretionary matters. However, the applicant’s inability to pay the costs of the respondent remains an important consideration in the exercise of the Court’s discretion.

The Court’s discretion to require the provision of security for costs is broad and the factors informing the exercise of that discretion cannot be stated exhaustively. The only limitation is that the discretion be exercised judicially: Bell Wholesale Co Ltd v Gates Export Corporation [1984] FCAFC 29; 2 FCR 1 at 3. The matter which lies at the heart of the discretion is one of fairness, both in terms of whether security should be granted, and if so, in what amount: Madgwick v Kelly [2013] FCAFC 61; 212 FCR 1 at 21 [92]. The Court aims to achieve a “balance between ensuring that adequate and fair protection is provided to the defendants, and avoiding injustice to an impecunious plaintiff by unnecessarily shutting it out or prejudicing it in the conduct of the proceedings”: Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 at 470 (Giles J).

The Court’s discretion should be exercised having regard to all of the circumstances of the case (see Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Ltd [1998] HCA 41; 193 CLR 502 at 513 [26] (Kirby J)). There are a number of well-established factors relevant to the Court’s exercise. These include (see KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; 56 FCR 189 at 197–198 per Beazley J): whether the application for security for costs has been brought promptly; the strength and bona fides of the applicant’s case; whether the applicant’s impecuniosity was caused by the respondent’s conduct subject of the claim; whether the respondent’s application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate; and whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security.

(Emphasis added)

27    Similar statements of principle are set out in Kayler-Thomson v Colonial First State Investments Ltd [2020] FCA 1867 at [8] (Beach J), Abbott v Zoetis Australia Pty Ltd (No 2) (2019) 369 ALR 512 at [15] (Lee J) and Concrete Mining Structures Pty Ltd v Cellcrete Australia Pty Ltd (No 2) [2016] FCA 360 at [13] (Edelman J).

28    Further, in relation to delay, in All Class the Chief Justice said as follows at [58]:

Applications for security for costs ought to be brought promptly. Precisely how any delay in applying for security for costs will impact on the exercise of the Court’s discretion will depend on the prejudice likely to be suffered by the respondent to the application and the reasons, if any, for the delay in applying for security: see Jianshe Southern Pty Ltd v Get Motor Cycles Pty Ltd (No 3) [2007] FCA 1078 at [30] (Besanko J).

29    In Jianshe Southern Pty Ltd v Get Motor Cycles Pty Ltd (No 3) [2007] FCA 1078 at [30] Besanko J observed:

There are other authorities which suggest that the weight to be attached to delay by an applicant for security will depend on whether there is any prejudice to the party against whom security is sought (see the authorities referred to in GE Dal Pont, Law of Costs (LexisNexis Butterworths) at [29.129]). For present purposes, I will assume that delay is only of significance if prejudice to the applicant is shown.

Consideration

Power

30    Insofar as Talbert asserts that there is no power to alter the September 2019 security decision pursuant to s 56(3) of the Act, this submission is misconceived. As has been indicated, there is nothing to prevent a further application for security for costs where circumstances have changed, even if an earlier application had been refused. I do not accept that Mr Ko’s present application is based on the same or similar material to his original application for security. Nor do I accept the extravagant submission that allowing Mr Ko’s present application for security would open the floodgates and enable any interlocutory application or order to be relitigated at will. It is open to Mr Ko to make his further application for security.

Delay and prejudice

31    Although the promptness of an application for security for costs is but one factor relevant to the exercise of the Court’s discretion, in the present circumstances the question of delay, and whether prejudice has been suffered by reason of that delay, is of central significance.

32    In the particular circumstances of Mr Ko’s application I do not consider that whatever delay there has been should sound against an order for security in his favour. I accept that, by reason of various uncertainties about the state of the applicants’ pleadings, the operation of past stays, and Talbert’s present application to restrain the solicitors and counsel for the other applicants from acting in the proceeding, circumstances have changed sufficiently to justify the bringing of a further application for security for costs by Mr Ko.

33    I accept also that the prejudice which Mr Ko says he will suffer if security is not ordered, namely that there is a real prospect that he will never recover his trial costs if he is successful in the proceeding, is significant. In this respect I accept that there is no evidence which establishes that whatever delay there has been has caused offsetting prejudice to the applicants, notwithstanding the considerable sums which have been spent by the applicants prosecuting the litigation. It is not apparent to me that the applicants have changed their position or relied on the fact that Mr Ko’s first application was unsuccessful in incurring further costs in the proceeding. In my assessment they would have incurred these costs whether or not Mr Ko had been successful in his first application. If anything the applicants have enjoyed the benefit of not having to put forward security, with no corresponding disadvantage.

The applicants’ ability to pay Mr Ko’s costs

34    Although it is of course the case that an applicant’s inability to meet an order for security for costs is an important consideration to be borne in mind when contemplating an order for security (see All Class at [41]), there is no evidence on the present application that the applicants would be unable to meet an order for the payment of security or that there would be any stultification. Indeed, counsel for the other applicants conceded at the hearing that no stultification argument was being put. The applicants’ ability to pay, therefore, does not stand in the way of an order that they pay security.

Conclusion

35    As will be apparent, I am satisfied that there has been a material change in the landscape of the litigation since the time that Mr Ko made his first application for security. In this context I do not consider that any delay on Mr Ko’s part in bringing the present application should disentitle him now to an order that an amount by way of security be paid. Bearing in mind that the matter which lies at the heart of the exercise of the discretion is fairness, in my assessment a fair balancing of the parties’ respective rights requires the applicants to pay security for Mr Ko’s costs. Were security not to be ordered, and were the applicants to be unsuccessful in the litigation, there is a real risk that Mr Ko would never receive the benefit of any costs order which may be made in his favour.

Quantum of security to be ordered

36    The Registrar’s assessment, after analysis of the figures in Mr Stents’ affidavit, was that an amount of $185,000 was appropriate by way of security. In coming to this figure the Registrar proceeded on the basis that the trial would take 10 days rather than 20 days, and he appears to have made certain other reductions as well.

37    The applicants’ position, however, is that if Mr Ko is to have security it should only be up until the first day of the trial. On this basis it is said that, applying the figures in Mr Stents’ affidavit, the figure should be $153,242.10 (although it may be observed that this amount did not include the costs of this review application). Counsel for Mr Ko did not contend that the figure would be other than $153,242.10 if the security was to be provided only up until the first day of the trial.

38    In all the circumstances, and having regard in particular to the fact that any trial of the proceeding will now not be until 2024, I accept that the security to be ordered should be up until the first day of the trial and that the appropriate figure, based on Mr Stents’ affidavit, is $153,242.10. Noting that Mr Stents’ figures did not include the costs of the present review application, I would round the figure to be paid up to $160,000.

39    I note that if the matter does not resolve prior to trial Mr Ko would be entitled to security for his costs of the trial. Should that be necessary the Court’s expectation is that the parties will be able to agree (and the applicants will provide) an appropriate amount, without the need for Mr Ko to make a formal application.

Apportionment

40    I turn finally to the issue of how the $160,000 security amount should be apportioned between the applicants. As has been mentioned, the other applicants contend that Talbert should be responsible for the whole amount, recognising that it did not contribute at all to the payment of security for the costs of the second respondent.

41    Talbert’s position is that any amount to be paid by way of security should be apportioned between the applicants based on the number of applicants. Talbert submits that there is insufficient information before the Court for an apportionment based on the fact that it did not contribute to the payment of security for the second respondent’s costs; although of course it could have filed material on this subject.

42    Notwithstanding the extensive material in paragraphs [14]-[24] of Ms Lynch’s 27 September 2022 affidavit on this issue, and accepting that Talbert has not provided any security in favour of the second respondent whereas the remaining applicants have provided security totalling some $529,735.79 in favour of the second respondent, I do not consider that this provides a proper basis for ordering on the present application that Talbert should be responsible for payment of the entire sum. It may be, for example, that the other applicants have rights against Talbert for equitable contribution (see, for example Alexander v Perpetual Trustees WA Ltd (2004) 216 CLR 109) or other rights.

43    In all the circumstances the obligation to pay the sum ordered by way of security for costs must be regarded as being owed to Mr Ko by both sets of applicants now that there is a division between them. As the obligation to pay must be apportioned between both groups, I take the view in the exercise of my discretion and doing the best I can that a 50/50 apportionment would be appropriate. There will therefore be orders that Talbert give security for Mr Ko’s costs in the proceeding in the amount of $80,000 within 30 days, failing which Talbert’s proceeding against Mr Ko will be stayed; and that the other applicants give security for Mr Ko’s costs in the proceeding in the amount of $80,000 within 30 days, failing which the other applicants’ proceeding against Mr Ko will be stayed.

44    If, by operation of these orders, either Talbert’s proceeding or the other applicants’ proceeding against Mr Ko is stayed, there will be liberty for Mr Ko to apply for the balance of the security owing to be paid to him by the remaining applicants. Mr Ko is entitled to be paid the entire $160,000 awarded to him by way of security for his costs of the proceeding.

Costs

45    The applicants have been unsuccessful on their review application. Mr Ko should have his costs of the application. The second applicant should pay 50 per cent of those costs, as agreed or assessed. The other applicants should pay the other 50 per cent of those costs, as agreed or assessed.

Associate:

Dated:    29 March 2023

SCHEDULE OF PARTIES