Gartner v Ernst & Young (No 3)

Case [2003] FCA 1437

FEDERAL COURT OF AUSTRALIA

Gartner v Ernst & Young (No 3) [2003] FCA 1437

COSTS – security for costs

Federal Court of Australia Act 1976 (Cth)

Gartner v Ernest & Young (No 2) [2003] FCA 1436 referred to
Pearson v Naydler [1977] 1 WLR 899 applied
Barton v Minister for Foreign Affairs (1984) 2 FCR 463 referred to
James v Australia and New Zealand Banking Group Ltd (No 1) (1985) 9 FCR 442 cited
Cameron’s Unit Services Pty Ltd v Kevin R Whelpton and Associates (Australia) Pty Ltd (1986) 13 FCR 46 cited
Orr v Lusute Pty Ltd (1987) 72 ALR 617 cited
Famel Pty Ltd v Burswood Management Limited (1989) 11 ATPR 40962 cited
Weston v Beaufils (1993) 43 FCR 292 cited
Melville v Craig Nowlan and Associates Pty Ltd [2002] NSWCA 32; (2001) 54 NSWLR 82 referred to
McHenry v Lewis (1883) 22 Ch D 397 cited
Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 8 ACLR 588 cited
Equity Access Limited v Westpac Banking Corporation (1989) ATPR 40-972 cited
Amalgamated Mining Services Pty Ltd v Warman International Ltd (1988) 19 FCR 324 cited
KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 cited
Beach Petroleum NL v Johnson (1992) 10 ACLC 527 cited
Tobacco Control Coalition Inc. v Philip Morris (Australia) Ltd [2000] FCA 1004; ATPR (Digest) 46-205 cited
Warren Mitchell Pty Ltd v Australian Maritime Officers’ Union (1993) 12 ACSR 1 referred to
Townsend Controls Pty Ltd v Gilead (1989) 14 IPR 441 referred to

The Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 cited

MICHAEL JOHN GARTNER, ALICE WINIFRED GARTNER, TYNSKI PTY LIMITED (ACN 008 162 123), NORSBAY PTY LIMITED (ACN 008 205 687), FRESREND PTY LIMITED (ACN 008 174 990), GARTNER FARMS PTY LIMITED (ACN 086 128 880) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT), AUSVINE VITICULTURAL MANAGEMENT PTY LIMITED (ACN 007 184 901) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT), GARTNERS’ VINICULTURE MANAGEMENT PTY LIMITED (ACN 080 534 989), SKYBAY PTY LIMITED (ACN 008 163 782); VAMTOWN PTY LIMITED (ACN 008 061 407) & M J GARTNER PTY LIMITED (ACN 077 644 181) v ERNST & YOUNG, ERNST & YOUNG CORPORATE FINANCE PTY LIMITED (ACN 003 599 844) & NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)

S 189 of 2002

MANSFIELD J
8 DECEMBER 2003
ADELAIDE


IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

S 189 OF 2002

BETWEEN:

MICHAEL JOHN GARTNER
FIRST APPLICANT

ALICE WINIFRED GARTNER
SECOND APPLICANT

TYNSKI PTY LIMITED (ACN 008 162 123)
THIRD APPLICANT

NORSBAY PTY LIMITED (ACN 008 205 687)
FOURTH APPLICANT

FRESREND PTY LIMITED (ACN 008 174 990)
FIFTH APPLICANT

GARTNER FARMS PTY LIMITED (ACN 086 128 880)
(SUBJECT TO A DEED OF COMPANY ARRANGEMENT)
SIXTH APPLICANT

AUSVINE VITICULTURAL MANAGEMENT PTY LIMITED (ACN 007 184 901)
(SUBJECT TO A DEED OF COMPANY ARRANGEMENT)
SEVENTH APPLICANT

GARTNERS' VINICULTURE MANAGEMENT PTY LIMITED (ACN 080 534 989)
EIGHTH APPLICANT

SKYBAY PTY LIMITED (ACN…

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AGLC
Gartner v Ernst & Young (No 3) [2003] FCA 1437
Case
[2003] FCA 1437
Decision Date

CaseChat Overview and Summary

The case of Gartner v Ernst & Young (No 3) involved the applicants seeking security for costs from the National Australia Bank Limited. The applicants were involved in a legal dispute over alleged misleading conduct and negligence by the bank in relation to financial arrangements. The applicants sought an order for security for costs, arguing that they were impecunious and unable to meet a potential order for costs if they were unsuccessful in their claim against the bank. The bank opposed the application, arguing that the applicants were not genuinely impecunious and that there was a real prospect that they would be able to meet any order for costs.

The court considered various factors in determining whether to make an order for security for costs. The court found that the personal applicants were not shown to be impecunious and that there was no information about their assets and liabilities outside the partnership assets that were the subject of the valuations. The court also considered the position of the personal applicants in relation to whether an order for security for costs should be made against the corporate applicants. Although the threshold for such an order had been met, the court found that there was a real prospect that the applicants generally would be able to meet any order for costs against them if they were unsuccessful in their claim against the bank. The court ultimately decided not to make an order for security for costs against the applicants.

The court also considered whether the applicants' case against the bank was so weak that it would weigh heavily in favour of making an order for security for costs. The court found that while there were obstacles confronting the applicants, their case was not so demonstrably weak as to make this factor weigh heavily in favour of making an award for security for costs. The court also considered whether the applicants were in reality defending their position against the bank and that the bank was, in reality, the aggressor in the proceedings. The court found that the applicants had chosen to impugn the integrity of the security instruments in this proceeding and that their action was not properly described as 'defensive' or where the real aggressor was the bank.

In light of the above considerations, the court refused the application by the National Australia Bank Limited for security for costs against the applicants.

Orders

Orders of the court

1. The application by the National Australia Bank Limited for security for costs against the applicants is refused.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

MANSFIELD J
I have mentioned in these reasons other matters which have attracted attention in applications for security for costs. I have considered them, but they do not seem to be of any real significance in this matter. There are no other factors which the parties identified, or which I have considered relevant, which require express consideration.CONCLUSION The personal applicants are not shown to be impecunious. There is no information about their assets and liabilities, outside the partnership assets which are described in the statement of claim and which are the subject of the valuations. Because I do not have that information, I do not propose to make an order for security for costs against them. I am not of the view, in the circumstances, that it is appropriate in the exercise of my discretion to make such an order. The interests of justice between the applicants and the bank do not call for it. I have considered the various matters to which I was referred in reaching that view. The position of the personal applicants is also, in my judgment, relevant to whether an order for security for costs should be made against the corporate applicants. Although the threshold imposed by s 1335(1) of the Corporations Act has been stepped over, and although the other factors to which my attention was drawn on balance would lead to the making of an order for security for costs, that additional factor weighs in the scales against making such an order. There is the real prospect (on the material) that an order for costs against the applicants generally will be able to be met despite the apparent impecuniosity of the corporate applicants. Subject to the peculiar position of the second applicant, because she has raised an ‘Amadio’ defence, (The Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447), any order for costs is likely to be made against all the applicants if they are unsuccessful. They will each be liable to meet those costs. Even if the corporate applicants will be unable to do so, the personal applicants and in particular the first applicant may well be able to do so. I have no reason to think he will not be able to do so. At the worst and from the point of view of the applicants collectively, it is merely speculative to think that he will be unable to do so. The present application was made on the basis of the ‘group’ position of the applicants. I consider it to be appropriate to address it on that basis, including the circumstances of the personal applicants. On that basis, I consider it no more than speculative on the material presently before me that the applicants, including the corporate applicants, will be unable to meet an order for costs against them and in favour of the bank if their application against the bank is unsuccessful. That factor weighs, in my judgment, quite heavily in the scales in determining overall whether to make an order for security for costs against the corporate applicants. I have come to the view, finally, that I should not do so.

Ratio Decidendi

Legal Principle Established

Established by: MANSFIELD J

In those circumstances, it is not necessary to determine whether there is a general disposition, whether strong or conclusive or at all, against making an order for security for costs against impecunious natural persons.OTHER CONSIDERATIONS It was next contended that the Court should have regard to the strength of the case of the applicants against the bank. It is at this point difficult to form any view on that issue. Plainly, if the allegations against the bank on behalf of the applicants are made out, they will demonstrate misleading conduct and negligence on the part of the bank and an entitlement to some relief. However, it is by no means clear that that cause of action will be made out. As the pleadings presently disclose, there was no direct communication between the first applicant (who in essence was the communicator or driver of the interests of the applicants) and any officers of the bank on the relevant topics. The communications were through officers of the accountants. Moreover, the defence of the accountants denies the content of the alleged communications. The bank through counsel points out also that there is an inconsistency in the allegations of causation on the part of the applicants in the proposed statement of claim (and its earlier versions) and in other proceedings in the Supreme Court of South Australia as to whether what has been called ‘the second Beston Proposal’ would have proceeded in December 2001 but for the bank’s representations and its alleged conduct. It was also pointed out that on 6 March 2003 the applicants executed a Deed of Acknowledgment following a restructuring of the finance arrangements between them and the bank, and that at the time there were no complaints by the applicants about any part of the conduct of the bank. By that time, it was apparent that the further funding sought by the applicants from the bank had been refused and it was necessary to restructure the financing arrangements to some degree. It was also pointed out that it was not until August 2002 that the issue as to the bank’s conduct was first raised by or on behalf of the applicants through their solicitors. I was also pointed to some material which indicated that the applicants were conscious in November 2001 of the shortfall in their financial requirements, but nevertheless were prepared to accept the bank’s offer of finance without pushing or requesting further finance from the bank at the time. Those obstacles confronting the applicants are not insignificant. It is not a case where the material firmly demonstrates strong prospects of success in the proceedings. However, I do not think that the applicant’s case against the bank is so demonstrably weak as to make this factor weigh heavily in favour of the making of an award for security for costs. It is next contended that the applicants are in reality defending their position against the bank and that the bank is, in reality, the aggressor in the proceedings. It is correct to assert, as counsel for the applicants contended, that the Court looks to the substantial position of the parties in the proceedings to determine whether in substance the applicants are in reality defending a claim by the bank: see e.g. the remarks of von Doussa J in Townsend Controls Pty Ltd v Gilead (1989) 14 IPR 441 at 446-447 and in the cases there referred to by his Honour. In this matter, the applicants assert that, by reason of the conduct of the bank, they have validly rescinded or are entitled to rescind certain security instruments and to recover damages from the bank. The bank has cross-claimed for recovery of amounts owing to it. The immediate circumstance apparently giving rise to the proceedings was the imminent appointment by the bank of receivers and managers to the corporate applicants. It is not otherwise apparent that the bank would have proceeded to the institution of proceedings at all. I accept that, if the bank had sued the applicants for recovery of the debt allegedly owing, the applicants would have cross-claimed to impugn the integrity of the security instruments in those proceedings. However, the fact is that it is the applicants who have chosen to impugn the integrity of those instruments in this proceeding. Putting aside that element of their claim, they do not dispute having received the funds advanced by the bank. Nor as I understand it, do they dispute having to repay that amount less any damages which they are able to recover from the bank. Essentially, therefore, in my judgment the action by the applicants to recover damages from the bank for misleading conduct and negligent mis-statements and to impugn or to have set aside the security instruments is not one properly described as ‘defensive’ or where the real aggressor is the bank.