Elitegold Pty Ltd v C.M. Holdings Pty Ltd

[1995] FCA 137

IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )    No. NG 800 of 1994
GENERAL DIVISION                 )

Between:     ELITEGOLD PTY LIMITED
  Applicant

And:C.M. HOLDINGS PTY LIMITED & ORS

Respondents

REASONS FOR JUDGMENT

EINFELD J                 SYDNEY          16 FEBRUARY 1995

This is a motion for security for costs by two respondents to an appeal, brought by an unsuccessful applicant at first instance, in a claim under section 52 of the Trade Practices Act heard by Justice Hill over a 10 day period in August 1994. It is amply established by the judgment of his Honour, delivered on 28 October 1994, that all matters were in issue in the proceedings including that of credit.  A substantial defence raised by the respondents at trial was that the representations relied upon by the appellant were not made and his Honour found that at least one of them was made.  The finding in favour of the respondents turned on the question of whether the appellant relied upon the representation or representations proved.

During the course of the first instance proceedings, at least two applications for security for costs were presented and $5000 was ordered to be paid, but as it turns out that sum of money was substantially less than the costs actually incurred by the successful respondents.  The respondents say that the appellant should now provide security for the costs of the appeal in the sum of $13,912 calculated as set out in a schedule attached to an affidavit in support of the motion by the solicitor having day to day conduct of the appeal.  I do not doubt that that schedule or something close to it provides a feasible, if perhaps a little excessive, account of the likely costs that will be incurred.

The question that first arises for determination is what chances the appellant has on the appeal.  It is obvious that if the appeal has no merit at all, or such little merit as to make it a comparatively futile exercise, a different attitude would be taken than if the appeal was likely to succeed.  The difficulty which the appellant faces on the appeal is that essentially the challenge is to a finding of fact by the trial judge, based not so much on credit or credibility as such, but upon an intuitive response to the evidence, which his Honour heard, that the principal director of the appellant relied not upon the relevant representation by the respondents' representative, but upon his own inquiries which followed the making of the representation.  Indeed, although I have not sighted a document to this effect, I am informed that the principal of the appellant company actually said as much.

It is clear that appellate courts are very reluctant to disturb factual findings by trial judges, especially where the judge sat for a long time and had an opportunity not only to observe the witnesses but to consider the cogency of their evidence and the way in which it fitted in with other evidence.  And, of course, Justice Hill gave much thought to the practical inferences that ought to be drawn as a matter of commonsense from the primary conclusions reached.  To that extent the appellant obviously faces quite an uphill battle in persuading a Full Court to re-examine the evidence on which his Honour's finding on reliance was made and possibly other evidence on which that finding might have depended.

The uncontested evidence is that the appellant company itself is completely without funds and has a substantial indebtedness.  However, I am informed, and it does not seem to be contested, that the major, virtually entire, indebtedness is to another company operated in the same interest as the appellant company.  There is nothing particularly strange about that except that it is submitted that it is a case of litigation being pursued in the interests of another party, a classic situation for the granting of security.  I do not think the evidence to which I have been referred makes that case out.

Any company is entitled to pursue litigation for the purpose of recovering moneys to pay its debts, the question to be asked in each case being "for whose purpose is the litigation being pursued"?  Only if there is something of a surrogate or questionable kind involved will this ground for security arise.  When an opportunity was presented for cross-examination on this a matter at a hearing on security at an earlier stage of the case, it was not put to the principal of the appellant company that the litigation was being pursued for some nefarious purpose, including a purpose of enriching himself by diverting funds recovered by the appellant to another company which he could access more readily. 

In fact there is no evidence before me that if the appellant had been successful at first instance, the principals of the company would have been any better able to access the funds obtained by way of damages via the associated company than they would have been able to do via the appellant company.  Thus I do not think that there is any case made out that this litigation is being conducted in the interests or for the benefit of someone else as usually understood.

That leaves the matter as the usual type of discretionary balancing exercise between an impecunious litigant on the one hand, and two respondents which will be out of pocket if they succeed in the litigation on the other.  The respondents are in a somewhat better position, of course, on an appeal than they would be at first instance because they have the benefit of the favourable first instance finding in a very comprehensive judgment after a lengthy trial.

On the other hand, the appeal must be examined on its own merits, and at the end of the argument on this motion it was conceded, as was proper, that the appeal is by no means hopeless.  I say no more than that, despite the difficulty of upsetting the factual findings of a trial judge, it seems to have arguable prospects.  There is something to be said for the argument that if conduct offending section 52 is found, it ought to follow or might follow by way of fairly powerful inference that the offending conduct was calculated to induce the victim of the conduct to enter into the subject contract or arrangement.

In order to set that type of reasoning to one side, the argument will presumably be that the trial judge not merely had an opportunity of considering the tendencies that might have arisen from the offending conduct, but of examining the particular facts in this case.  His Honour's conclusion that although the offending conduct was capable of misleading and inducing the entry into the contract, it did not do so on this occasion, would thus be said to be not only open but reasonable in the circumstances.  I have noted that the findings at first instance were that the appellant relied upon its own inquiries.  There may also be an argument on appeal that the inquiries were themselves generated by the offending representation and that a possible or available finding might have been that there was reliance both on the representation and on the individual personal inquiries.  Such a result would have entitled the appellant to succeed, and there seems no reason why it should not be able to advance that argument on appeal and every reason to believe that the argument would have some prospects of success.

The great gap in the evidence is that the people who stand behind the appellant, principally two of the directors of the company who live outside the jurisdiction in Yugoslavia -- if there is
such a country still -- and the United States of America, have not indicated to the Court why they are not in a position to back the appeal if they are committed to it.  This is a particularly stark omission when one considers that the two companies which appear to be impecunious are companies owned by the same people or in the same general interest.  These are the people who stand to benefit from the successful prosecution of the appeal and the litigation generally.  Yet they have given no evidence at all as to their means so as to enable the Court to determine in accordance with well established authority that those who stand behind the impecunious litigant could or could not assist to fund the litigation.

In those circumstances, it is necessary to then consider the argument of the appellant that the amount sought by the respondents by way of security is excessive, although there is little or no evidence to suggest that the calculated amount is seriously exaggerated or incorrect.  On this matter the evidence is substantially in favour of the respondents.  The appellant makes no effort to answer the respondents' case that it is without funds, and it appears that the associated company is also without funds.

It may be regrettable as a matter of social desirability that litigation in the Federal Court is expensive.  But it is the fact, and respondents who have succeeded at first instance and as to which the security already provided will be inadequate should be given some protection for their costs on the appeal.  I have said that this is a discretionary balancing exercise and I propose to exercise it, albeit in a relatively arbitrary fashion as all such matters have to be.

The appellant suggested in argument that the costs sought by the respondents are exaggerated by many thousands of dollars.  I am unable to find any significant exaggeration but I think that I should exercise my discretion in a balanced way and order that security be provided in the sum of $7000 in a manner approved by the Registrar.  Such security is to be provided by not later than 4 pm on Friday 31 March 1995.  In the event that it is not provided, I stand over to 9.30am on April 3 the application in the motion for the staying of the proceedings. 

It is in the parties' interests to proceed with the appeal books and the other initial preparation, all of which will obviously have to be at the cost of the appellant, so that between now and 31 March it seems to me that the costs of the respondents, so far as the appeal itself is concerned, ought to be minimal.  The appellant will pay the respondents' costs of and in relation to this motion.