Cummings, J.B. v Lewis, M.T

[1991] FCA 772

Re: JAMES BARTHOLOMEW CUMMINGS
And: MICHAEL TERENCE LEWIS; DESMOND RUNDLE; JOHN BRADSHAW as representing all
members of the firm practising as KPMG Peat Marwick Hungerfords between 1
February 1989 and 28 March 1989; NOEL SIDNEY LECKIE and PAUL ISHERWOOD as
representing all members of the firm practising as Coopers and Lybrand between
1 May 1988 and 30 June 1989
No. G488 of 1991
FED No. 772
Practice

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Beaumont J.(1)

CATCHWORDS

Practice - security for costs of appeal - discretion under s.56(1) of the Federal Court of Australia Act 1976.

HEARING

SYDNEY

#DATE 4:12:1991

Counsel and Solicitors F.S. McAlary Q.C. with
for Appellant: V.R.W. Gray instructed by

Malcolm Johns and Co.

Counsel and Solicitors D. Ryan instructed by
for first, second and Freehill Hollingdale and Page
third respondents:

Counsel and Solicitors P. Jacobsen instructed by
for fourth and fifth Norton Smith and Co.
respondents:

ORDER

That, unless on or before 20 January 1992, security for costs (in the sum of $35,000 in the case of the first, second and third respondents and in the sum of $35,000 in the case of the fourth and fifth respondents) be provided in a form and manner satisfactory to the Registrar, the proceedings on the appeal in this matter be stayed.

That there be no order as to the costs of this application.

In the event that the appellant provides security as aforesaid, direct that, on or before 3 February 1992, the appellant's solicitors file and serve a draft index to the appeal book.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

The background to this application is stated in my reasons, given on 25 November 1991, determining the preliminary point. Having decided that the provisions of O.28 r.3(1)(b) are not available here, the question remains whether an order for security should be made pursuant to the provisions of s.56(1) of the Federal Court of Australia Act 1976 which provides, inter alia, that a judge may order an appellant in an appeal to give security for the payment of costs that may be awarded against him.

The scope of the discretion under s.56(1) of the Federal Court of Australia Act

1. It is common ground that s.56 confers a wide power. The discretion to make orders must be exercised judicially but that is the only relevant limitation (see CCH Federal Court Practice at 55,304 and the cases there cited). The nature of the discretion was described recently by McHugh J. in P.S. Chellaram and Co. v China Ocean Shipping Co. (1991) 65 ALJR 642 at 643:
   

"To make or refuse an order for security for costs involves the exercise of a discretionary judgment. That means that the court exercising the discretion must weigh all the circumstances of the case. The weight to be given to any circumstance depends not only upon its own intrinsic persuasiveness but upon the impact of the other circumstances which have to be weighed."

The evidence of the circumstances surrounding the present application

1. Some of the evidence is not contentious. For instance, it is common ground that (1) Mr Cummings is now impecunious; (2) his impecuniosity came about by reason of his entry into the transactions with the auctioneers; (3) the present appeal is brought bona fide in the sense that it is not vexatious or an abuse of process or brought for a collateral purpose. Yet the evidence tendered on behalf of Mr Cummings in the present application did not give the Court a complete picture of all the relevant circumstances. This deficiency in the evidence was notable in two particular respects. First, there was no direct evidence of Mr Cummings' present financial position. Secondly, there was no direct evidence of the present relationship between Mr Cummings and the auctioneers, except a letter between their solicitor, to which reference will be made later.

2. The deficiencies in the evidence arise because of the failure to call Mr Cummings, or any officer of the auctioneers, to testify. No reason was advanced to explain their absence notwithstanding the obvious relevance of their testimony, generally, and on the two particular points mentioned. Wigmore on Evidence, 3rd ed., 1940, vol. 2, s.285 p 162 states the general principles in this kind of situation as follows:
   

"The failure to bring before the tribunal some circumstance, document, or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so, and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavourable to the party. These inferences, to be sure, cannot fairly be made except upon certain conditions; and they are also open always to explanation by circumstances which make some other hypothesis a more natural one than the party's fear of exposure. But the propriety of such an inference in general is not doubted."

1. In Jones v Dunkel (1959) 101 CLR 298 at 321, Windeyer J., after citing this passage from Wigmore, added:
   

"This is plain common sense...As Wigmore points out (Evidence 3rd ed., 1940, vol. 2, ss.289, 290 pp 171-80), exactly the same principles apply when a party, who is capable of testifying, fails to give evidence as in a case where any other available witness is not called. Unless a party's failure to give evidence be explained, it may lead rationally to an inference that his evidence would not help his case."

1. It is not necessary to restate the earlier history of the litigation or to refer again to the provisions of the deed dated 1 December 1989. Reference should be made to the solicitors' letter already mentioned. By letter dated 14 November 1991 (the day before the return date of the present application) the solicitors for the auctioneers wrote to the solicitor for Mr Cummings as follows:
   

"We refer to your letter of 12 November 1991. Our auctioneer clients have held meetings in respect of this matter and have resolved that they will not be providing any further funding in respect of Mr Cummings' litigation. Mr Cummings is expected to provide the necessary funds to advance his Appeal.

We understand that Mr Cummings has been advised directly of our clients' decision."

1. On behalf of Mr Cummings, evidence was led in the form of an expert report by Donald Charles Orrock, chartered accountant. The report, which is dated 15 November 1991, offers "comment upon the financial position of Mr J.B. Cummings prior to the purchase of yearling horses prior to the purchase of yearling horses in early 1989." The report concluded that "at 30 June 1988 and prior to the purchase of yearling horses in early 1989, Mr J.B. Cummings had significant investments in property and bloodstock which were highly 'geared' by borrowings at historically high rates of interest." The report went on to say that the net loss of Mr Cummings' training and bloodstock trading activities for the six months period to 31 December 1989 was $9,231,437 (after loss on blood stock trading of $6,731,473; consultancy, legal and professional fees of $275,205; and interest of $2,607,739). The report noted that, in the six months period to 31 December 1989, the cost to Mr Cummings of the "failed" syndicate comprised (in addition to consultants' fees):
   

Loss on sale of bloodstock $6,611,587 Selling expenses $777,800 Interest $1,344,675

1. The report showed that as at 31 December 1989, Mr Cummings had assets valued at $12,039,459 and liabilities of $24,348,729, a deficiency of $12,309,270; and that Valjay Investments Pty. Ltd., a company controlled by Mr Cummings, had assets of $4,080,913 and liabilities of $4,339,144, a deficiency of $258,231.

2. Although it is common ground that, without financial assistance from a third party, Mr Cummings would be unable to pay the costs of the respondents to the appeal if ordered to do so, there was no direct evidence of Mr Cummings' present financial position. As has been said, Mr Cummings was not called and no officer of the auctioneers gave evidence.

3. In this connection, it will be recalled that, by cl.6(ii) of the deed, it is provided that if Mr Cummings appeals then, in the circumstances there specified, the auctioneers shall not file the terms of settlement until the appeal has been "finally resolved". There is no direct evidence on the question whether the conditions mentioned in cl.6(ii) have been satisfied, but the inference is open that the terms of settlement have not been filed. In my opinion, in all the circumstances, that inference should now be drawn.

4. As has been noted, on 14 November 1991, the solicitors for the auctioneers informed Mr Cummings' solicitors that the auctioneers did not propose to fund Mr Cummings' costs of prosecuting the appeal and that he was expected to do so. No mention was made in the letter of any proposal on the part of the auctioneers to file the terms of settlement. On the evidence before me, the following inferences are open: (1) that with the acquiescence of the auctioneers, Mr Cummings will prosecute his appeal; (2) that with the acquiescence of the auctioneers, Mr Cummings will make arrangements for the funding of his appeal; (3) that the auctioneers will not file the terms of settlement until the appeal is finally resolved. In my view, in all the circumstances, each of these inferences should now be drawn.
   How, in the circumstances, should the discretion under s.56 be exercised?

5. As has been said, the discretion to make, or to refuse to make, an order under s.56(1) is wide and, for this purpose, the Court must weigh all the circumstances of the case. In the China Ocean Shipping case, above (where the appellant was an insolvent foreign corporation) McHugh J. said (at 643):
   

"The appellant (P.S. Chellaram and Co.) tendered no evidence concerning the financial position of Mr Chellaram or Chellaram Investment Pty Ltd or how its own costs are being financed. In Bell Wholesale Co. Ltd. v Gates Export Corporation..., the Full Court of the Federal Court said that a court was not justified in declining to order security on the ground that to do so would frustrate the litigation unless the company established that those who stand behind it and would benefit from the litigation if successful are also without means. As I have indicated, there is no evidence before me that the two shareholders in the appellant are not in a position to put the appellant in sufficient funds to provide the security sought. Moreover, Mr Chellaram has proffered an undertaking that he will meet any costs ordered to be paid by the appellant up to the amount of $8,250. That undertaking is some evidence that Mr Chellaram either presently has or within a reasonable time will have sufficient funds to pay $8,250 towards the respondents' costs.

In these circumstances, I see no reason why security for the costs of the appeal should not be provided either by the appellant itself with funds provided by those who stand to profit by the appeal if it is successful or, as Mr Street contends, by accepting the undertaking proffered by Mr Chellaram."

1. On behalf of Mr Cummings, it is submitted that it is a well established rule that security for costs should not be ordered against an impecunious plaintiff where such security would be likely to prevent him from pursuing the litigation and where his lack of funds arose from the transaction the subject of the litigation. That there is such a general rule at common law applicable in proceedings at first instance may be accepted (see, e.g., Orr v Lusute Pty. Ltd. (1987) 72 ALR 617 per Sheppard J. at 620). But even at common law there is a well established exception to the rule in the case of an appeal. (Here we are concerned with a statutory provision.) The classic statement of principle in this area was made by Bowen L.J. in Cowell v Taylor (1885) 31 Ch D 34 at 38 as follows:
   

"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."

1. In J. and M. O'Brien Enterprises Pty. Ltd. v The Shell Co. of Australia Ltd. (No. 2) (1983) 70 FLR 261, Bowen C.J. said (at 264):
   

"One matter which is generally considered in relation to applications for security for costs in relation to proceedings at first instance is what prospects of success the plaintiff has in the proceedings. If the plaintiff has a strong and apparently meritorious case the court is reluctant to make an order which may have the effect of shutting the plaintiff out. In the case of an appeal the position is slightly different. For one thing the plaintiff has had his day in court. In the present case the questions of law raised on the appeal are, in my opinion, raised bona fide and are questions of substance."

1. In the present case, as has been noted, it is accepted by the respondents that the appeal is brought in good faith. However, no real attempt was made to demonstrate that the appeal will raise for consideration any legal point of substance. By way of contrast, in O'Brien's case, above, Bowen C.J., in declining to order security, went on to say (at 264):
   

"The Petrol Retail Marketing Franchise Act 1980 came into force on 19 September 1980. The Act operates to give greater security of tenure to persons marketing motor fuel by retail. At the time the Act came into operation O'Brien Enterprises had, in effect, a franchise agreement with Shell to which the Act in terms applied. However, the term of the lease held by O'Brien Enterprises was due to expire on 30 September 1980, that is eleven days after the Act came into force. Certain of the provisions of s.17 of the Act entitled a franchisor to give one month's notice prior to expiry of the lease and Fox J. was concerned that this provision was not able to be applied to the situation existing between O'Brien Enterprises and Shell. In the result, he held that O'Brien Enterprises were not entitled to the benefit of the Act. This decision is contested on the appeal and raises a substantial question concerning the construction of the Act. I do not consider it is necessary for me to express any view about the prospects of success in the appeal. It is sufficient to state my opinion that O'Brien Enterprises has a bona fide and genuine interest in having the question determined and the question of law involved is substantial."

1. The present case is not analogous. On the brief submissions now put on the point, it appears that the real issues on the appeal will turn on the findings of fact made by the trial judge with respect to the terms of discussions alleged by Mr Cummings to have taken place. In this respect, the present case appears to be closer to Ciappina v Ciappina (1883) 70 FLR 287 where (at 290-1), Neaves J. exercised his discretion to order security in the case of an impecunious appellant.

2. In Lucas v Yorke (1983) 50 ALR 228, Brennan J. said (at 228-9):
   

"The inability of an appellant to meet the costs of an unsuccessful appeal is a relevant factor in exercising the discretion conferred by O 70 r 10, of the Rules of this Court, but it is no more than a factor to be weighed in all the circumstances (DJE constructions Pty Ltd v Maddocks...). The discretion is not fettered by a rule, such as the rule adopted by the Court of Appeal in Hall v Snowdon, Hubbard and Co..., that security for costs is ordinarily ordered when a respondent shows that the appellant, if unsuccessful, will be unable through poverty to pay the costs of the appeal. The discretion under O 7O, r 10, is absolute...."

1. Brennan J. noted (at 229) that a factor which ought not to be left out of account is the course of litigation, particularly if the appellant has failed at first instance and again on appeal to an intermediate court. He went on to say (at 230):
   

"It is an important consideration that the making of an order for security for costs will effectively shut out an appeal designed to recover losses which have caused the appellants' impecuniosity: .... That factor has additional weight if the question on which the appeal turns is an important question of law appropriate for consideration by this court. I do not stress the importance of the question for determination lest the public interest in the resolution of that question override the interests of the parties.... However, justice would not be best served in the circumstances of the present case by shutting out the appeal and I decline to make an order for security."

1. However, in the present case, as has been noted, no important question of law appears to arise on the appeal itself.

2. Moreover, I am not persuaded that to order security would necessarily shut out the appeal. The evidence indicates that Mr Cummings' business is a substantial one and that, the auctioneers' claim apart, Mr Cummings would have no difficulty in both funding the appeal and providing security for the respondents' costs. In this connection, the attitude of the auctioneers is crucial. The inference is available and, in my opinion, should be drawn, that if security were ordered, the auctioneers would not move against Mr Cummings by now filing the terms of settlement, that is the auctioneers would not move against Mr Cummings immediately but would await the outcome of the appeal and would thus permit Mr Cummings to arrange funds for the prosecution of the appeal. On the other hand, I think that the inference should also be drawn that if security is not ordered and the appeal proceeds, and is dismissed, the auctioneers are then likely to move against Mr Cummings and file the terms of settlement with the consequence that any order for costs made in favour of the respondents on the dismissal of the appeal would be practically worthless. At the same time, if the appeal succeeds, the auctioneers will take the advantage of the benefit of the proceeds of the litigation in accordance with the provisions of the deed. In my view, to permit this would be an unsatisfactory result of a kind similar to that encountered in the China Ocean Shipping case. To avoid a potential injustice arising in this way. I think it is preferable, on the whole, to order security.

3. There remains for determination the amount of the security.
   Amount of the security

4. For the purposes of this application, the parties have agreed that the appeal will take approximately three days and that the amount of taxed costs on the appeal of each set of respondents would be $41,000.

5. It is well established that, in ordering security for costs, the court does not "set out to give a complete and certain indemnity to a respondent" (see Brundza v Robbie and Co. (No. 2) (1952) 88 CLR 171 per Fullagar J. at 175). As Burchett J. pointed out in Quad Consulting Pty. Limited v David R. Bleakley and Associates Pty. Limited (28 June 1991, unreported at 4-8) after a thorough analysis of the authorities, this aspect of the matter is to be determined by the exercise of a very broad judicial discretion. In the present case, bearing in mind that there are two sets of respondents, justice between the parties will, in my view, be achieved if security in the sum of $35,000 is ordered in the case of each set of respondents.
   Order proposed

1. I propose to order that, unless on or before 20 January 1992, security for costs (in the sum of $35,000 in the case of the first, second and third respondents and in the sum of $35,000 in the case of the fourth and fifth respondents) be provided in a form and manner satisfactory to the Registrar, the proceedings on the appeal in this matter be stayed.

2. If security is provided, there is no reason why the appeal cannot be heard early in the New Year. In this connection, I propose to direct that, if security is provided, the draft index to the appeal book should be filed and served by the appellant's solicitors on or before 3 February 1992.
   Costs

3. Since each side has been successful on one issue but unsuccessful on the other, there will be no order as to the costs of this application.