Hall v Australian Finance Direct Ltd
[2005] VSC 306
•9 August 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 2023 of 2004
F5677
| DANIEL HALL | Plaintiff |
| V | |
| AUSTRALIAN FINANCE DIRECT LIMITED (ACN 098 986 139) | Defendant |
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JUDGE: | Hollingworth J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 19 August 2004 | |
DATE OF JUDGMENT: | 9 August 2005 | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 306 | |
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Practice and procedure - application by defendant for group proceeding to be set aside or stayed pursuant to s.33C Supreme Court Act 1986 – whether the claims of the plaintiff and all group members "give rise to a substantial common question of law or fact".
Practice and procedure - application by defendant for an order that group proceeding not continue as a group proceeding pursuant to s.33N Supreme Court Act 1986 – whether “interests of justice” warrant making of such an order – whether application made prematurely.
Practice and procedure – cross-vesting - application by defendant to transfer proceeding to the Supreme Court of New South Wales – whether in the “interests of justice” that the proceeding be heard and determined by that Court.
Practice and procedure - application to stay plaintiff’s claim under rr. 23.01 or 23.02 Supreme Court Rules - whether claim an "abuse of process".
Practice and procedure – costs - security for costs – group proceeding – factors to be taken into account – whether security should be ordered against representative party in circumstances where another person is “standing behind” the lead plaintiff.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Collins S.C. | Slater & Gordon |
| Mr B F Quinn | ||
For the Defendant | Mr P J Jopling QC Mr D G Robertson | Dibbs Barker Gosling |
HER HONOUR:
Background
This proceeding is one of a number of proceedings arising out of the affairs of the group of companies associated with Henry Kaye. This proceeding concerns a real estate investment training program called the Investment Mastery Program (“the program”), which was offered to the public by one of Henry Kaye’s companies, National Investment Institute Pty Ltd (“NII”).
On 10 June 2004, the plaintiff commenced this proceeding as a group proceeding pursuant to Part 4A of the Supreme Court Act 1986 (“the Act”). Mr Hall, the sole plaintiff, seeks various forms of relief on his own behalf and on behalf of the group members, being all persons who:
(a) Between 1 February 2002 and 25 November 2003 entered into an agreement with NII, pursuant to which NII agreed to provide the program in return for a fee (“the course fee”);
(b) Obtained finance or credit in respect of the course fee by entering into a loan agreement with the defendant (“AFD”), pursuant to which they have borrowed all or part of the course fee; and
(c) Agreed to participate in the program and entered into the loan agreement with AFD in reliance upon and induced by one or more representations made by NII.
AFD’s applications
By a summons dated 2 July 2004, AFD seeks the following orders:
(a) An order that the writ be set aside or the proceeding stayed pursuant to s.33C of the Act;
(b) Alternatively, an order pursuant to s.33N of the Act that the proceeding not continue as a group proceeding under Part 4A of the Act;
(c) An order that the proceeding be transferred to the Supreme Court of New South Wales pursuant to s.5(2) of the Jurisdiction of Courts (Cross-vesting) Act (1987) (“the cross-vesting Act”);
(d) Alternatively, an order pursuant to Rule 23.01(1)(c) of the Supreme Court (General Civil Procedure) Rules 1996 (“the Rules”) that the plaintiff’s claim be stayed as an abuse of process;
(e) An order that the plaintiff provide security for AFD’s costs in the proceeding.
The plaintiff’s claim
For the purposes of these applications, the amended statement of claim dated 16 August 2004 (“the claim”) may be summarised as follows.
NII was a company involved in the promotion, organisation and delivery of investment education seminars and courses, including the program, throughout Australia.[1] Between 1 February 2002 and 25 November 2003, NII entered into agreements to provide the program to various individuals located throughout Australia, in return for the course fee ("the NII contracts").
[1]NII was placed in receivership on 25 November 2003 and in liquidation on 18 February 2004.
The plaintiff's NII contract, which was entered into in June 2003, was partly written, partly oral and partly implied. The plaintiff's course fee was $15,000.
Before the plaintiff executed his NII contract, a servant or agent of NII made the following express representations to him ("the NII representations"):
(a) The program was "government-approved" or had been approved by the government;
(b) The program was "ASIC-approved" or had been approved by the Australian Securities and Investments Commission;
(c) The plaintiff and each other group member could withdraw from the program at any time and would receive an unconditional and full refund of any money which they had paid in respect of the course fee.
The NII representations were made to the plaintiff orally, in or around Sydney, in June 2003. One or more of the NII representations was made to each group member before they executed their respective NII contract and was relevantly relied upon by them. Each of the NII representations was a misrepresentation. The plaintiff and each group member has thereby suffered loss and damage.
The plaintiff and other group members also entered into individual loan agreements with AFD, pursuant to which AFD agreed to lend them the amount of the NII course fee ("the AFD credit contracts"). The AFD credit contracts were in writing and in "substantially identical form" to the plaintiff’s AFD credit contract.
Each AFD credit contract was a “credit contract” within the meaning of, and was therefore governed by, the relevant Consumer Credit Code applicable to each group member (“the Code”). AFD was a “linked credit provider” of NII, within the meaning of s.117(1) of the Code and s.73(14) of the Trade Practices Act 1974 ("TPA"). Each AFD credit contract was a “tied loan contract” within the meaning of s.117(3) of the Code and s.73(14) of the TPA. Pursuant to s.119 of the Code and s.73(1) of the TPA, AFD is liable to the plaintiff and each group member for loss caused by the NII representations.
Further and alternatively, before the plaintiff and each group member executed their NII contract and AFD credit contract, a servant or agent of NII represented to them that they could withdraw from the program at any time and would receive a full refund of any money they had paid to AFD pursuant to the AFD credit contract, and would not be liable to pay AFD any more money (“the AFD credit contract representation”). NII engaged in misleading and deceptive conduct, contrary to s.52 of the TPA, in making the AFD credit contract representation. Pursuant to s.118 of the Code, the plaintiff and each group member has the same right to recover damages from AFD as they would from NII.
Further and alternatively, there was an agreement between AFD and NII that AFD would not advance to NII the entire amount of finance or credit borrowed by each group member (“the holdback agreement”). Instead, in the case of the plaintiff and all group members, AFD retained an amount referred to as an "interest-free holdback". In circumstances where the borrower did not meet AFD's lending guidelines, a further amount referred to as a "high-risk holdback" was also withheld. The existence and amount of the holdbacks were not disclosed to group members. The holdbacks constituted “interest” within the meaning of the Code and should have been disclosed to the borrowers. By entering into the holdback agreement with NII, and failing to disclose the interest and certain other information to borrowers, AFD has contravened ss.15(B), 15(C)(a), 15(D) and 15(E) of the Code.
Further and alternatively, at the time the plaintiff and each group member entered into their AFD credit contract, AFD failed to disclose the holdback agreement to them and represented that it would pay the whole of the course fee to NII (“the AFD holdback misrepresentation”). AFD engaged in misleading and deceptive conduct, contrary to s.52 of the TPA, in making the AFD holdback representation. The plaintiff and group members claim damages or seek to have their AFD credit contract set aside or varied, pursuant to s.87 of the TPA.
Further and alternatively, by reason of the holdback agreement, the amount advanced by AFD to the plaintiff and group members is less than the amount referred to in the AFD credit contracts. In the circumstances, AFD is only entitled to recover the amount paid by it on behalf of the plaintiff and group members to NII, plus interest.
Finally, each AFD credit contract was “unjust” and is liable to be re-opened pursuant to s.70 of the Code.
Section 33C
Section 33C(1) sets out the threshold requirements for a group proceeding under Part 4A of the Act.
"33C Commencement of Proceeding
(1) Subject to this Part, if-
(a) seven or more persons have claims against the same person; and
(b) the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances; and
(c) the claims of all those persons give rise to a substantial common question of law or fact -
a proceeding may be commenced by one or more of those persons as representing some or all of them."
It is common ground that the group presently consists of approximately 2,300 persons. That number may be reduced as a result of group members “opting out” later in the proceeding. Sub-section (a) is therefore satisfied.
In relation to sub-section (b), counsel for AFD did not contend that the present proceeding did not arise out of similar or related circumstances.
Therefore, the only question for determination is whether the claims of the plaintiff and all group members "give rise to a substantial common question of law or fact", as required by sub-section (c). It may be noted that only one substantial common question of fact or law need be pleaded in order to satisfy the sub-section.
The plaintiff is not required to demonstrate that the determination of any or all of the common questions will resolve wholly, or to any significant degree, the claims of all group members.[2] Nor is it necessary that the determination have common application to each group member.
[2]Wong v Silkfield Pty Ltd (1999) 199 CLR 255 at [30].
The meaning of the term "substantial" was considered in Wong v Silkfield in the context of the equivalent federal provision. The High Court said:
"The term 'substantial' may have various shades of meaning. Having regard to the context, it may mean 'large or weighty' or 'real or of substance as distinct from ephemeral or nominal'.…..
Clearly the purpose of the enactment of Pt IVA was not to narrow access to the new form of representative proceedings beyond that which applied under regimes considered in cases such as Carnie. This suggests that, when used to identify the threshold requirements of s.33C(1), 'substantial' does not indicate that which is 'large' or 'of special significance' or would 'have a major impact on the … litigation' but, rather, is directed to issues which are 'real or of substance'."[3]
[3]At [27] and [28].
The circumstance that proceedings which pass the threshold requirements of s.33C may later be terminated as representative proceedings, by order made under s.33N, confirms rather than denies such a broad construction being given to s.33C(1).[4]
[4]Wong v Silkfield at [29].
The question whether the group members’ claims "give rise to a substantial common question" is to be resolved by reference to the pleadings and at the time of commencement of the proceeding.[5] In the present case, paragraph 62 of the claim alleges the existence of ten "common questions", each of which the plaintiff says is "real or of substance". An additional “common question” was also suggested in oral submissions. AFD contended that each of the questions was either not common or not substantial. In the course of argument, it was conceded by counsel for the plaintiff that several of those questions are not in fact “common” or otherwise do not satisfy the requirements of s.33C.[6]
[5]Philip Morris (Australia) Ltd v Nixon (2000) 170 ALR 487; Wong v Silkfield at [26]; Bright v Femcare Ltd (2002) 195 ALR 574.
[6]Questions (d) and (h).
In my opinion, at least the following questions are substantial common questions of fact or law within the meaning of s.33C(1)(c).[7]
[7]Given my findings that s.33C has been satisfied at least in respect of the seven questions specified below, and that it is only necessary for there to be one such question, it is not necessary for me to resolve whether all of the remaining questions are common and substantial.
Questions (a)-(c) – application of certain Code provisions
The first three questions are in the following terms:
(a)Whether each group member's NII contract was a contract for the supply of services and therefore a sale contract within the meaning of s.115 of the Code;
(b) Whether, pursuant to s.16 of the Code, Part 7 of the Code applies to or in respect of each group member’s NII contract;
(c) Whether each group member's credit arrangement for payment of the course fee was a tied loan contract within the meaning of s.117(3) of the Code and s.73(14) of the TPA.
These questions clearly are “common” to the plaintiff and all group members. I find that they are also “substantial”, in the relevant sense. The real issue is whether they really are "questions" in this proceeding. AFD argued that these were not common questions, on the basis that AFD has not disputed, does not dispute and will not dispute the plaintiff's allegations in relation to these three questions.
In my view, whilst these questions may ultimately be resolved by the pleading process, or by other formal admissions, that process has not closed. It may be that the admissions will be readily made, and I note that AFD made similar concessions in the VCAT proceeding which will be discussed shortly.[8] However, questions (a) to (c) satisfied the threshold requirements of s.33C at the relevant time, namely the commencement of the proceeding.
[8]In the VCAT proceeding, it was common ground that the Code applied to AFD and that the credit contracts were contracts to which the Code applied. Further, AFD conceded that in respect of NII it was a linked credit provider within the meaning of Part 7 of the Code. The position remained the same in the subsequent appeal to this court, discussed below.
In the event that such admissions are in fact made, that may be relevant to any later application under s.33N.
Questions (f) and (g) – holdback agreements
The next common questions relate to the alleged holdback agreements:
(f) Whether AFD and NII had an agreement, arrangement or understanding that AFD would not advance to NII the whole of the amount borrowed by each group member pursuant to their respective AFD credit contracts in respect of their course fee, but would retain a percentage of that amount as follows:
(i) in respect of all AFD credit contracts, AFD would retain a percentage of the amount borrowed by each group member as an amount referred to by AFD as an "interest-free holdback"; and
(ii) in respect of some of the AFD credit contracts, AFD would also retain a percentage of the amount borrowed by those group members as an amount referred to by AFD as a "high-risk holdback".
(g)Whether by reason of the holdbacks AFD breached ss. 15(B), 15C(a), 15(D) or 15(E) of the Code in entering into the plaintiff's and each group member's AFD credit contract.
These questions are common and substantial. But are they in issue? AFD submitted that both of these questions have already been the subject of determination by VCAT and are therefore not in issue.
In the VCAT proceeding, AFD was the respondent to an application brought by the Director of Consumer Affairs Victoria.[9] The Director sought declarations of contravention of the Code and the imposition of civil penalties. The tribunal member found that the holdback agreement was entered into and that AFD had breached ss.15(B), 15(C)(a), 15(D) and 15(E) in retaining the holdback amounts. AFD obtained leave to appeal that decision to this court. On 17 December 2004, Kaye J upheld the tribunal member’s finding in relation to s.15B of the Code, but not the other alleged breaches.[10]
[9]Director of Consumer Affairs Victoria v Australian Finance Direct Limited 23 July 2004 [No M 115 of 2003].
[10]Australian Finance Direct Limited v Director of Consumer Affairs Victoria [2004] VSC 526.
AFD submitted that, upon final determination of the VCAT proceeding and all appeals therefrom, the successful party would be capable of registering the judgment throughout the Commonwealth, and that questions (f) and (g) would no longer require determination. This avenue is said to arise from the operation of s.108 of the Code. AFD argued that questions (f) and (g) are therefore not substantial questions in this proceeding. In my opinion, that submission is flawed for several reasons.
Section 108 of the Code is of far more limited scope than contended for by AFD. It permits the registration with a court in one jurisdiction of an order made in another jurisdiction under a provision corresponding to ss. 102 or 105 of the Code, both of which deal with civil penalties under the Code. It does not purport to deal with issues other than civil penalties nor to bind persons other than the parties to such proceedings.
Furthermore, s.108 allows for the registration of a decision on the application of AFD or the Director, not by the plaintiff or group members. AFD submits that it is likely that either AFD or the Director will register the final decision in that case once any appeal avenues have been completed. That may well be so. However, the group members are not parties to the VCAT proceeding or the appeal therefrom. Those proceedings are not binding on or enforceable by the group members.
Accordingly, questions (f) and (g) are in issue and otherwise satisfy the requirements of s.33C.
Question (i) – AFD holdback misrepresentation
The next question asks:
(i)Whether by entering into each AFD credit contract without disclosing the holdback agreement AFD contravened s.52 of the TPA.
Whether or not AFD's failure to disclose the existence of the holdback agreement constitutes a contravention of s.52 of the TPA is a question of substance. AFD says the failure to disclose the holdback agreement is in effect an alleged representation by silence.
In so far as AFD says that this issue will be resolved by the ultimate determination of the VCAT proceeding and appeals, I reject that submission for the reasons advanced in relation to questions (f) and (g).
In so far as AFD says that this issue is not “common” in the relevant sense, I make the following observation. Whilst it is true that a finding that there have been any breaches of s.52 of the TPA will ultimately involve a consideration of each group member’s individual circumstances, it cannot be said that there is no substantial common question in respect of the broader claim articulated in question (i). For example, it may be necessary to commonly determine whether debtors in the position of the group members were entitled to be told of the holdback agreement and, if so, whether failure to do so might constitute misleading or deceptive conduct.
Question (j) – recovery of holdback amounts
The final question in paragraph 62 is in the following terms:
(j) Whether AFD is entitled to recover from the plaintiff and group members amounts which were not paid to or on their behalf by reason of the holdback agreement or interests therein.
AFD says this must be a claim for recovery under s.107(1) of the Code, which is a claim within the exclusive jurisdiction of VCAT.
On the other hand, the plaintiff says that this is a basic contractual question, not a claim under the Code. Can a lender recover back from a borrower more than it has actually advanced to or on its behalf?
As presently pleaded in the claim, this is not a claim under the Code. This is a legal question which is common, substantial and within the jurisdiction of this court.
Section 33N
Even if a proceeding satisfies the threshold conditions in s.33C, the court has a discretion to order that the proceeding no longer continue as a group proceeding if it is satisfied that it is in the interests of justice to make such an order.
Section 33N(1) is in the following terms:
“The Court may, on application by the defendant, order that a proceeding no longer continue under this Part if it is satisfied that it is in the interests of justice to do so because –
(a) the costs that would be incurred if the proceeding were to continue as a group proceeding are likely to exceed the costs that would be incurred if each group member conducted a separate proceeding; or
(b) all the relief sought can be obtained by means of a proceeding other than a group proceeding; or
(c) the group proceeding will not provide an efficient and effective means of dealing with the claims of group members; or
(d) it is otherwise inappropriate that the claims be pursued by means of a group proceeding.”
AFD argues that the court should exercise its discretion under s.33N and order that the proceeding no longer continue as a group proceeding. It says the court should do so because the real controversy in this case will involve the separate examination of some 2,318 individual sale and loan transactions to ascertain which, if any, of the alleged oral representations were made by one or more of some 90 sales consultants, and to determine questions of individual reliance and damage. AFD says that group proceedings are not suitable for resolving claims which are fundamentally individual.
The plaintiff argues that the application pursuant to s.33N should be refused both because it is premature, and because there is no basis for an order under s.33N in any event.
Sub-sections (a) and (b) of s.33N(1) may be disposed of shortly. There is simply no evidence before me such as would entitle me to make any finding as to the likely costs of a group proceeding compared with the costs of a large number of separate proceedings by individual group members.[11] Nor has it been established that all the relief sought can be obtained by means of a proceeding other than a group proceeding.[12]
[11]Section 33N(1)(a).
[12]Section 33N(1)(b).
AFD’s argument apparently focussed on sub-sections (c) and (d), which raise issues of efficiency and effectiveness, and the appropriateness of the claims being pursued by means of a group proceeding.
The fact that a proceeding will at some stage involve an examination of numerous individual contracts or transactions has not prevented courts from allowing the common issues to be determined in the group proceeding. What is efficient, effective or appropriate will obviously vary from case to case, as the various authorities put forward by both sides illustrate.
I accept the plaintiff’s submission that it is “too early to make any of the decisions called for by [section 33N]”.[13] Even assuming that AFD files a defence which removes by its admissions some of the common questions referred to earlier, in my opinion, other substantial common questions will remain on the plaintiff’s current pleading. It also became apparent during the course of oral submissions that the plaintiff may seek to amend some parts of the claim[14], or to provide further and better particulars of existing allegations.
[13]Wong v Silkfield Pty Ltd at 268 per Gleeson CJ, McHugh, Gummow, Kirby and Callinan JJ approving a passage by Foster J in the Federal Court below; see also Finance Sector Union v Commonwealth of Australia and Bright v Femcare at 580 [18] per Lindgren J and 605 [149] per Finkelstein J.
[14]Paragraph 31 of the claim was identified as one such paragraph; there may be others.
In Bright v Femcare, the Full Federal Court warned against exercising the court’s power under s.33N before at least the utility of the group proceedings regime had been exhausted by resolution of the common issues.[15] The following general observations in that case are relevant and equally apposite here:
[15]Per Lindgren J at [18]; per Kiefel J at [129]; per Finkelstein J at [149].
"Whether or not it is in the interests of justice to make such an order has to be weighed against the public interest in the administration of justice that favours class actions. That requires one to consider the principal objects of the class action procedure. They are: (1) to promote the efficient use of court time and the parties' resources by eliminating the need to separately try the same issue; (2) to provide a remedy in favour of persons who may not have the funds to bring a separate action, or who may not bring an action because the cost of litigation is disproportionate to the value of the claim; and (3) to protect defendants from multiple suits and the risk of inconsistent findings."[16]
"The applications under s.33N were made at a procedurally early stage. Defences have not yet been filed. In substance, the applicant commenced a representative proceeding, which ex hypothesi, the legislature intended she be entitled to commence because of the presence of substantial common issues of law and fact, yet the court was immediately asked to accept that the proceeding would not provide an efficient and effective means of dealing with the claim of the group members. I do not mean to suggest that an application under s.33N at such an early stage of a properly commenced representative proceeding would always be premature: if there were an incompatibility or conflict between the representative party's case and the cases of the represented parties… or if the only substantial common issue were one of law on which a decision in the case of one group member would bind the others, it may be thought not efficient or effective for the representative proceeding to continue. But ordinarily one would expect that, in an attempt to give effect to the legislative intention, a means will be sought, by case management techniques, to enable a representative proceeding to continue to the stage of resolution of the substantial common issues on the basis that after that stage is completed, an order under s.33N or directions under s.33Q will be made…."[17]
[16]Per Finkelstein J at [152].
[17]Per Lindgren J at [18].
In the present case, once pleadings have closed, an assessment can then be made as to whether and how to deal with the common questions and the individual questions. One possibility is that declarations could be made in answer to the common questions and then, pursuant to s.33N(1), it be ordered that the proceeding no longer continue as a representative proceeding.
The cross-vesting application
AFD seeks to have this proceeding transferred to the Supreme Court of New South Wales (“the NSW court”) pursuant to s.5(2)(b)(ii) or (iii) of the cross-vesting Act.
Section 5(2)(b) of the Act relevantly provides:
“(2) Where –
(a)A proceeding (in this sub-section referred to as the ‘relevant proceeding’) is pending in the Supreme Court (in this sub-section referred to as the ‘first court’); and
(b)It appears to the first court that –
(i). . .
(ii) having regard to –
(A) whether, in the opinion of the first court, apart from this Act and any law of the Commonwealth or another State relating to cross-vesting of jurisdiction, the relevant proceeding or a substantial part of the relevant proceeding would have been incapable of being instituted in the first court and capable of being instituted in the Supreme Court of another State or Territory;
(B) the extent to which, in the opinion of the first court, the matters for determination in the relevant proceeding are matters arising under or involving questions as to the application, interpretation or validity of a law of the State or Territory referred to in sub-paragraph (A) and not within the jurisdiction of the first court apart from this Act and any law of the Commonwealth or another State relating to cross-vesting of jurisdiction; and
(C)the interests of justice –
it is more appropriate that the relevant proceeding be determined by that other Supreme Court; or
(iii) it is otherwise in the interests of justice that the relevant proceeding be determined by the Supreme Court of another State or of a Territory –
the first court shall transfer the relevant proceeding to that other Supreme Court.”
Although the plaintiff’s cause of action arose in NSW and involves inter alia the application of the NSW Code, the same cannot be said of all the group members, many of whom live in different States and Territories. Nor can it be said that this court’s only jurisdiction in relation to the plaintiff arises under the cross-vesting legislation. In so far as the plaintiff’s claim arises under NSW Code, that is in identical or relevantly similar terms to the various Consumer Credit Codes in Victoria and other Australian jurisdictions. Accordingly, the parties’ submissions quite rightly focussed on the “interests of justice” requirement.
The “interests of justice” – general principles
The question in the present case is whether it is in the “interests of justice“ that the proceeding be heard in this court or the NSW court. By virtue of the restrictions on appeals against decisions under the cross-vesting legislation, most of the cases under these provisions are decisions at first instance only.
After hearing the application, but before handing down my reasons, the High Court considered an appeal concerning the equivalent NSW cross-vesting legislation in BHP Billiton Limited v Schultz (“Shultz”).[18] Having read that case, I was concerned that it might represent a different approach or emphasis than had been applied in earlier cases. Accordingly, I determined that it was appropriate to invite the parties to make further submissions on the effect that Schultz might have on the application before me; the parties did so. I have also been assisted by the subsequent decision of Gillard J in this court in Ewins v BHP (“Ewins”)[19].
[18][2004] HCA 61.
[19][2005] VSC 4.
I gratefully adopt the following summary of the Schultz case, from the judgment in Ewins:
“Mr Schultz had instituted a proceeding in the Dust Diseases Tribunal of New South Wales. Application was made to the Supreme Court of New South Wales for an order that the application be removed from the Tribunal to that court and then transferred by that court to the Supreme Court of South Australia. It appears that Mr Schultz, between 1957 and 1964 and between 1968 and 1977, worked for BHP at Whyalla in South Australia. He commenced proceedings in the Tribunal claiming that he was suffering from an asbestos related illness caused by exposure to asbestos during his period of employment. Sully J refused BHP’s application. BHP appealed to the High Court.
All of the members of the High Court were of the view that Sully J was in error in giving weight to Mr Schultz's choice of forum. In the result, Gleeson CJ, McHugh and Heydon JJ were of the opinion that the application should be remitted back to the Supreme Court of New South Wales to decide the application in accordance with the reasons for judgment of the court. However, the other four judges were of the opinion that the High Court should decide the application to transfer. They held that the interests of justice required the transfer of the proceeding to the Supreme Court of South Australia. Gummow and Callinan JJ listed a number of factors which demonstrated the appropriate forum was South Australia. Kirby J and Hayne J agreed. The decision by the majority is one of fact. The judges' statements identifying relevant factors and the importance of the various factors are authoritative, but nevertheless it is trite to observe that each application must be considered on its own facts.”[20]
[20]At [13] and [14].
In the judgment of Gleeson CJ, McHugh and Heydon JJ in Schultz ("the joint judgment"), their Honours stated:
"Rather, the court is required by statute to ensure that cases are heard in the forum dictated by the interests of justice … If it appears to that court that it is in the interests of justice that the proceedings be determined by another designated court, then the first court shall transfer the proceedings to that other court. There is a statutory requirement to exercise the power of transfer whenever it appears that it is in the interests of justice that it should be exercised. It is not necessary that it should appear that the first court is a 'clearly inappropriate' forum. It is both necessary and sufficient that, in the interests of justice, the second court is more appropriate."[21]
[21]See [14] and also Gummow J at [77].
The “interests of justice” are not to be equated with the interests of one or other of the parties to the proceeding, although these may be relevant.[22] According to the joint judgment:
“…The interests of justice are not the same as the interests of one party, and there may be interests wider than those of either party to be considered. Even so, the interests of the respective parties, which might in some respects be common (as, for example cost and efficiency), and in other respects conflicting, will arise for consideration. The justice referred to in s.5 is not disembodied, or divorced from practical reality…
On the other hand, there may be conflicting interests of a kind that justice would not attribute greater weight to one rather than the other. The advantage which a plaintiff might obtain from proceeding in one court might be matched by a corresponding and commensurate disadvantage to a defendant. The reason why a plaintiff commenced proceedings in one court might be the same as the reason why the defendant seeks to have them transferred to another court. In such a case, justice may not dictate a preference for the interests of either party.”
[22]At [15] and [16].
The decision to be made is not a discretionary one.[23] Either the interests of justice demand that the proceeding be transferred or they do not.
[23]Schultz per Gummow J at [62]-[63].
The joint judgment also approved Street CJ’s statement in Bankinvest AG v Seabrook[24] that what is required is a “nuts and bolts management decision as to which court, in the pursuit of the interest of justice, is more appropriate to hear and determine the substantive dispute.”[25]
[24]Bankinvest AG v Seabrook (1988) 14 NSWLR 711 at 714 per Court of Appeal.
[25]Schultz at [13].
The question of whether a burden of proof applies to applications made under s.5 of the cross-vesting Act was analysed in some detail in Ewins. Gillard J referred to the following passage from Gummow J in Schultz:
“Section 5(7) indicates that it is inapt to speak of the applicant for an order for transfer as bearing a burden of persuasion analogous to an onus of proof."[26]
[26]Schultz at [71].
Gillard J then made the following comments in relation to Gummow J’s statement:
"… Although Hayne J agreed with His Honour, no other judge made reference to the burden of proof. What His Honour said does not represent the views of a majority of the High Court, and although persuasive, I am not prepared to accept that it represents the law. Many judges have referred in the past to the burden and the general view is that an applicant does carry a burden. However, as in most contested litigation where the burden of proof rarely plays a part, in the vast majority of cases seeking a transfer it will seldom be of any importance. Nevertheless, where the factors favouring a transfer and those against are equal, the burden of proof will have a part to play.”[27]
[27]Ewins at [23].
For the reasons that follow, I have not found it necessary to determine whether AFD did indeed bear an onus in seeking to have the proceeding transferred.
The “more appropriate court” for the purposes of s.5 is the “natural forum” which is identified by the “connecting factors” to that forum.[28] The weight to be given to each “connecting factor” will vary from case to case:
"Reference is sometimes made to one forum or another being the 'natural forum'. Such description is usually based upon a consideration of 'connecting factors' described by Lord Goff in Spiliada as including matters of convenience and expense, such as availability of witnesses, the places where the parties respectively reside or carry on business, and the law governing the relevant transaction. Lord Templeman describes such factors as 'legion', and said that it was difficult to find clear guidance as to how they are to be weighed in a particular case."
[28]Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460. See also the observations of Rogers, AJA at pp727-79 in Bankinvest and the joint judgment in Schultz at [18]-[19].
In the joint judgment in Schultz, their Honours state that:
"In many cases there will be such a preponderance of connecting factors with one forum, that it can readily be identified as the most appropriate, or natural, forum. In other cases, there might be significant connecting factors with each of two different forums. Some of the factors might cancel each other out. If the action is between two individuals, and the plaintiff resides in one law area and the defendant in another, there may be no reason to treat the residence of either party as determinative, although, as already noted, it would ordinarily be the residence of the defendant that is important to establish jurisdiction. Weighing considerations of costs, expense, and convenience, even when they conflict, is a familiar aspect of the kind of case management involved in many cross-vesting applications."[29]
[29]At [19].
Factors that were identified as being relevant in both Schultz and Ewins were:
(a)In a tort proceeding, the place where the wrong occurred;
(b)The residence of the parties and where there is an individual, the place where he or she resides, and in the case of a corporation where it carries on business. The latter is not necessarily its place of registration, although of course the latter is important to ensure jurisdiction;
(c)The convenience to the parties and witnesses. However in this day and age this factor may not carry substantial weight, because of the ability to move witnesses around Australia at small expense and little inconvenience, and also because of the provision of evidence by audio visual link;
(d)The law governing the proceeding;
(e)The experience of a particular court and its ability to provide an efficient and speedy trial, for example a court with particular evidentiary and procedural rules hearing particular types of cases.
Interests of justice – relevant facts
AFD submitted that the connecting factors in the present case all pointed to the NSW court as being the more appropriate forum. In particular, it identified the following:
(a) The individual claim of the plaintiff relates entirely to agreements made and performed and representations made in NSW;
(b) The plaintiff resides in NSW;
(c) AFD’s office and staff are located in NSW;
(d) The person alleged to have made the misrepresentations to the plaintiff did so in NSW and that person is not in the employ or otherwise under the control of AFD;
(e) AFD’s solicitors are in Sydney;
(f) The plaintiff has no assets in Victoria;
(g) The witnesses will probably all be from NSW;
(h) Proceedings are pending in NSW between the plaintiff and AFD in relation to the same subject matter as this proceeding (“the Local Court proceeding”); and
(i) The plaintiff’s solicitors, Slater & Gordon, have offices in Sydney.
There is no factual dispute as to the accuracy of the matters set out in paragraphs (a)-(g) and (i) above. However, witnesses who reside in NSW, but are not employed by or within the control of AFD, can be brought to this court under subpoena. Similarly, execution could be levied against the plaintiff’s assets in NSW in the event that he is unsuccessful in this proceeding and ordered to pay costs. Of course, there may be additional expense and inconvenience for AFD in doing so. However, it has not been established that any additional costs of doing so would be “grossly disproportionate”, to adopt the term used by Callinan J in Schultz.
As far as paragraph (h) is concerned, AFD conceded that not all of the issues which arise in this proceeding are raised in the Local Court proceeding. Nor has it been established that all issues in this proceeding would be capable of being dealt with by the Local Court.
This proceeding could only be cross-vested to the NSW court, not to the Local Court. However, counsel for AFD suggested that the Local Court proceeding could be uplifted to the NSW court.
AFD says that the only connecting factor to Victoria is that the plaintiff’s solicitors are conducting the matter from their Melbourne office. However, I agree with the comments of Gillard J in Ewins, that in the present day no “real weight” should be given to the location of either party’s lawyers.[30] That is especially so in the present case, where both parties are represented by substantial firms with Melbourne and Sydney offices. The distance between the two cities is, by Australian standards, not great.
[30]Ewins at [39(viii)].
Were this a proceeding involving only the plaintiff and AFD, I have no doubt that the above-mentioned factors could be persuasive in determining the cross-vesting application and requiring the proceeding to be transferred to the NSW court.
However, this is a group proceeding, not a simple claim by one plaintiff against one defendant. That raises important additional considerations. Neither party referred me to a case in which cross-vesting legislation has been considered in the context of a group proceeding. My researches have revealed only a handful of such cases, which will be discussed shortly.
It is not uncommon for group members to reside in more than one State or Territory. Some group proceedings involve several lead plaintiffs or subgroups of group members.[31] It may be fortuitous in a particular group proceeding that the lead plaintiff or plaintiffs happen to live in one State rather than another. In this case, the lead plaintiff happens to reside in NSW. This proceeding could have been commenced with one of the many group members who reside in Victoria as plaintiff.
[31]I accept that at present there is no suggestion that there may be sub-groups in this particular case.
One cannot in my view, divorce consideration of the connecting factors present in the plaintiff’s case from those existing in the group proceeding more generally. Not only would such an approach fail to give practical effect the reality of the litigation as presently constituted, but it would have the unfortunate effect of promoting “plaintiff shopping” to increase group members’ prospects of obtaining a favourable forum. Consideration of the “connecting factors” present in the case of group members is not unique. In McLean v Nicholson[32], Bongiorno J ordered the transfer of a group proceeding from this court to the Supreme Court of Queensland pursuant to s.5 of the cross-vesting Act. His Honour stated that:
“All of the acts of the defendant which are said to give rise to the plaintiff’s causes of action were allegedly committed in Queensland. The defendant resides in Queensland and six of the 10 persons named in the schedule to the endorsement on the writ as being potential group members in the proceeding reside in Queensland. … Finally, even if the matter were tried in Victoria it would be tried according to the law of Queensland.”
[32][2002] VSC 446 at [25].
Clearly, the residence of the group members in that case was a consideration relevant to Bongiorno J’s decision to transfer the proceeding to the Supreme Court of Queensland.
In the present case, at the time of the application, the plaintiff’s solicitors had been contacted by more than 600 group members, of whom more than one half resided and entered into relevant contracts outside NSW. Approximately 270 of those group members resided and entered into contracts in Victoria, which was more than in any other State.
The evidence shows that so far there are at least 95 other proceedings on foot in courts and tribunals around Australia between group members and AFD in relation to AFD credit contracts. Seventy-five of them are debt recovery proceedings which were instituted by AFD, and the balance were instituted by group members. Some of those proceedings have raised similar issues to those sought to be agitated here. There is no single court, including the NSW court, which has been identified as a more appropriate court for determining the issues between AFD and all group members than this court.
AFD also submits that there would be no injustice to group members if the matter were transferred to the NSW court, because that court has its own regime for representative actions which are applied flexibly to facilitate such proceedings. Counsel for the plaintiff argued that NSW does not have a group proceeding regime analogous to that established by Part 4A of the Act, and that as such there was no interstate vessel into which the proceeding could be cross-vested.
Part 8 Rule 13 of the NSW Rules ("the NSW representative rule") is in the following terms:
“Where numerous persons have the same interest in any proceedings the proceedings may be commenced and, unless the Court otherwise orders, continued by or against any one or more of them as representing all or as representing all except one or more of them.”
The NSW representative rule is the equivalent of Order 18 of this Court's Rules. It is not the equivalent of Part 4A or the predecessor Rule 18A. The NSW representative rule was considered by the High Court in Carnie v Esanda Finance Corporation.[33]
[33](1995) 182 CLR 398.
The plaintiff submits that Part 4A provides a sophisticated and detailed regime which offer procedural certainty to all parties and group members and the resulting prospect of the efficient and orderly resolution of multiple claims against AFD.
I agree with the plaintiff’s submission that the detailed regime established by Part 4A is a “far cry” from the simple provision in the NSW representative rule. Part 4A contains numerous procedural safeguards for the rights of group members which are simply absent from the NSW representative rule. I note also that in Wong v Silkfield, the court noted that the federal equivalent of Part 4A “attempts to resolve issues which bedevilled representative procedures as they had been developed, particularly by the courts of equity.”[34]
[34]Wong v Silkfield Pty Ltd (1999) 199 CLR 255 at 260-261.
Counsel for the plaintiff referred me to a previous decision of the High Court in Mobil Oil Aust Pty Ltd v Victoria[35], where Gleeson CJ recognised the significant procedural safeguards contained within Part 4A, for the protection of group members:[36]
“Certain of Mobil’s objections to Pt 4A proceedings would apply with equal, and perhaps even greater, force to representative proceedings of a more traditional kind. Limitation on the ability of group members to control the manner in which the proceedings are conducted, and potential lack of involvement in or even awareness of proceedings, were features of the procedural rules considered in Carnie, and the provisions of Pt 4A contain much stronger protections against the possibility of resulting unfairness than were available under those rules. Indeed, the capacity for members to opt out is a considerable advance upon rules of court of the kind considered by Fletcher Moulton LJ in Marktt & Co Ltd v Knight Steamship Co Ltd. It is not unknown for judicial decisions to determine the rights of people who were unaware of their existence, or even of people who were unborn at the time of the decision. “
[35](2002) 211 CLR 1.
[36]At 27.
The plaintiff argues that the significant procedural advantages afforded by part 4A to group members are not attended with any corresponding procedural disadvantage to defendants. Indeed, to the extent that informed “opting out” is facilitated by the provisions of Part 4A those provisions also advantage defendants by potentially reducing the number of claims against them. This, counsel for the plaintiff argues, distinguishes the present case from Schultz, where s 11A of the Dust Diseases Tribunal Act gave the plaintiffs an advantage which represented a corresponding disadvantage to defendants. AFD does not point to any provision of Part 4A which gives rise to substantial disadvantage to which it would not be exposed in a group proceeding in the NSW court.
AFD referred to the following statement of Kirby J in Schultz.[37]
“ [T]he foregoing constitutes a practical rule of thumb. The fact that applying it [the Cross-vesting Act] may deny a claimant substantive benefits available under the law of another Australian State or Territory is not a reason to withhold from the parties the neutral application of the policy to which the NSW Cross-vesting Act gives effect. It has been the history of federation in Australia that innovations in substantive rights and obligations (as well as in procedural arrangements) have been enacted in one State advantaging for a time only those of that State who could lawfully invoke them. Often, as experience is accumulated, other jurisdictions in the Commonwealth have copied the innovations…”
[37]At [171].
Reliance on that passage presupposes that Part 4A offers the plaintiff, as opposed to both parties, a substantive benefit available under Victorian procedural law. The joint judgment in Schultz highlights the importance of this distinction. First, it is evident from their Honours’ judgment that the “interests of justice” are not to be equated with the interests of one or other of the parties to the proceeding, although these may be relevant.[38]
[38]At [15] and [16].
However, procedural and other advantages provided to both parties by a particular forum will be relevant to a cross-vesting decision. Later in the joint judgment in Schultz, their Honours stated as follows:[39]
“In the context of the Cross-vesting Act, the treatment by the Court of Appeal of New South Wales, in James Hardie & Coy Pty Ltd v Barry, of the special procedural powers of the Tribunal is illuminating. The Court of Appeal pointed out that these were not merely forensic advantages to one party that represented a corresponding disadvantage to the other party, but were factors relevant to a decision under s. 5 because they have the capacity to assist both plaintiffs and defendants in the efficient and economical resolution of disputes, and therefore serve the public interest.”
[39]At paragraph [21].
It is evident from the nature of the arguments advanced by the plaintiff and AFD, that both parties conceded that Part 4A was procedural and not substantive in character.[40] It is evident from the passages quoted above, that if Part 4A offers a benefit to the plaintiff and a commensurate disadvantage to AFD, then “justice may not dictate a preference for either party”. Alternatively, if it is more properly characterised as offering an advantage to both parties, the availability of Part 4A is a relevant consideration.
[40]See generally, Schultz at [147] per Kirby J.
In my opinion, in so far as Part 4A confers an advantage over the NSW representative rule, it offers either procedural advantages to both parties or a benefit to the plaintiff without any corresponding disadvantage to AFD.
For all of these reasons, I conclude that the interests of justice do not require that the proceeding be transferred to the NSW court.
Abuse of process - concurrent proceedings
In the alternative, AFD seeks to have this proceeding stayed pursuant to r.23.01(1)(c), on the basis that it is an abuse of the process of the court. AFD argues that it should be stayed because NSW is the “natural and appropriate forum” for the resolution of the dispute between the plaintiff and AFD, and because the Local Court proceeding was commenced first and is likely to be able to be heard and determined first.
The plaintiff argues that his claim in this proceeding is not identical to the issues raised in the Local Court proceeding. He says that this is a group proceeding which could not be brought in New South Wales and includes causes of action and issues not raised in the Local Court proceeding.
The question of a stay of proceedings on the ground of appropriateness of forum should be determined in accordance with the test stated by Scott LJ in St Pierre v South American Stores (Gath & Chaves) Ltd.[41] That approach was endorsed by Brennan, Deane and Gaudron JJ in Oceanic Sun Line Special Shipping Co Inc v Fay.[42] In Oceanic Sun, the High Court said that a mere balance of convenience is not ground for a stay. To secure a stay, a defendant must show that continuance of the proceeding would work an injustice, because it would be vexatious or oppressive to the defendant or would be an abuse of the process of the court in some other way, and that a stay would not cause an injustice to the plaintiff.
[41][1936] 1 KB 382.
[42](1988) 165 CLR 197.
In Voth v Manildra Flour Mills Pty Ltd,[43] the High Court approved the principles as enunciated by Deane J in Oceanic Sun. It held that a plaintiff who has regularly invoked the jurisdiction of the court has a prima facie right to insist upon its exercise, and a stay will not be granted unless the court is clearly so inappropriate a forum for the determination of the dispute that it would be oppressive or vexatious for the proceeding to continue.
[43](1990) 171 CLR 538.
Following Voth, there was a degree of judicial uncertainty about whether the “clearly-inappropriate forum” test applied in circumstances where the contest as to which forum is appropriate is between two Australian courts rather than an Australian and foreign court.[44] That ambiguity appears to have been resolved by the decision in Schultz. In particular, Gleeson CJ, McHugh and Heydon JJ articulated the distinction between an application for a stay of proceedings and an application to transfer proceedings under section 5 of the cross-vesting Act:[45]
[44]Compare Schmidt v Won [1998] 3 VR 435 and Transport Workers’ Union of Australia v Bentley (2002) 112 FCR 580.
[45]See paragraphs [7] -]14].
“From the outset, it has been recognised by courts applying the cross-vesting Act that, although an application for transfer under s.5 will often involve evidence and debate about matters of the same kind as arise when a court is asked to grant a stay of proceedings on the ground of forum non conveniens, there are differences between the two kinds of application…
[I]n Voth …, this Court settled upon the ‘clearly inappropriate forum’ test as the basis of granting a stay of proceedings. The reason for adopting a test somewhat stricter than the English test emerges from the joint judgment of Mason CJ, Deane, Dawson and Gaudron JJ in Voth, which referred back to what Deane J had said in Oceanic, and stated that ‘[t]he selected forum’s conclusion that it is a clearly inappropriate forum is a persuasive justification for the court refraining from exercising its jurisdiction.’…
The national scheme of legislation, of which the cross-vesting Act is a part, was intended to operate, and to be applied, in a different juridical context…
In the context of the cross-vesting Act, one is not concerned with the problem of a court, with a prima facie duty to exercise a jurisdiction that has been regularly invoked, asking whether it is justified in refusing to perform that duty. Rather, the court is required by statute to ensure that cases are heard in the forum dictated by the interests of justice.”
In discussing the precise application of the “clearly inappropriate forum” test, their Honours drew no distinction between disputes between two Australian courts and disputes between an Australian and international court. Instead, the joint judgment confirmed that the proper question in an application for a stay of proceedings on inappropriate forum grounds is whether the court can justify its refusal to entertain the proceeding on the basis that it is clearly the inappropriate forum.
Here, the court must consider whether the continuation of the proceeding in this court would be vexatious (in the sense of productive of serious and unjustified trouble and harassment) and oppressive to AFD (in the sense of being seriously and unfairly burdensome) by reason of the inappropriateness of the forum chosen.[46]
[46]Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 at 558.
AFD commenced the Local Court proceeding on 17 February 2004, claiming a debt due under Mr Hall's AFD credit contract. Mr Hall filed a defence in that proceeding on 9 June 2004, the day before filing this proceeding. That defence, which is in the nature of a counterclaim, seeks damages under s.119, and the termination of his AFD credit contract under s.125, of the NSW Code. AFD has not established that either the delay of almost 4 months in issuing this proceeding, or the fact that the Local Court proceeding might be ready for trial before this proceeding, would amount to oppression or vexatiousness in the relevant sense.
As mentioned earlier, not all of the issues raised in this proceeding are raised in the Local Court proceeding. It is also not apparent that the Local Court would have jurisdiction to deal with the full range of issues between the plaintiff and AFD. More importantly, there is no suggestion that the Local Court has any jurisdiction at all to deal with a group or representative proceeding.
AFD has not discharged the onus of establishing that this court is clearly so inappropriate a forum for the determination of the dispute that it would be oppressive or vexatious for the proceeding to continue. Nor has it established that a stay would not cause an injustice to the plaintiff.
Security for costs
If AFD is successful in this proceeding, it will have no right to recover its costs in relation to any common question or any question relating to the plaintiff from any group member other than the plaintiff.[47]
[47]Section 33ZD(b) of the Act, which is subject to ss.33Q and 33R.
It is well established that the impecuniosity of a plaintiff who is a natural person is generally no bar to litigation. However, since the advent of the current group proceeding mechanisms in Victoria and federally, security for costs has been ordered against a number of individual plaintiffs. It is not disputed that in this case, security for costs could be ordered either under s.33ZF of the Act[48] or under the court’s inherent jurisdiction.
[48]Section 33ZF confers on the court the general power to make “any order the Court thinks appropriate or necessary to ensure that justice is done in the proceeding.”
The court’s discretion is a broad one and it is not appropriate to seek to limit the situations in which security might be ordered against a representative party.[49] Although the law in this area is still developing, the following matters have been considered as relevant in other cases:
[49]Ryan v Great Lakes Council (1998) 155 ALR 447 at 456; Woodhouse v McPhee (1997) 80 FCR 529 at 533.
(a) Do the plaintiff and group members have an arguable and bona fide claim for relief from the defendant?[50]
[50]Bray op cit at [252] per Finkelstein J; Melville v Craig Nowlan & Associates Pty Ltd (2001) 54 NSWLR 82 at 88-9, 118; Woodhouse v McPhee op cit at 534; Nendy Enterprises Pty Ltd v New Holland Australia Pty Ltd [2001] FCA 852 at [7].
(b) What are the characteristics of the group? For example, does it contain corporations or natural persons? Are the group members rich or poor?[51] Would security have been ordered if separate actions had been brought by the group members?[52]
[51]Bray v F Hoffman La Roche Ltd (2003) 200 ALR 207 at [252].
[52]Ryan v Great Lakes Council op cit at 455-6.
(c) Has the plaintiff been deliberately selected as a "person of straw", in order to immunise from costs orders group members of substantial means?[53]
[53]Ryan v Great Lakes Council op cit at 456; Nendy Enterprises Pty Ltd v New Holland Australia Pty Ltd op cit; Woodhouse v McPhee op cit at 534; Tobacco Control Coalition Inc v Philip Morris (Australia) Ltd (1997) 80 FCR 529; Bray op cit per Carr J.
(d) Is someone who stands to benefit from the litigation funding the plaintiff? This will often be the plaintiff’s solicitor, who is charging a “contingency fee” in return for funding the litigation.[54] In this context, “benefit” is not limited to financial benefit.[55]
(e) Would an order for security stifle the proceedings or be otherwise oppressive?[56]
(f) Has the proceeding become bogged down with “interminable and expensive interlocutory applications”, for which the plaintiff bears responsibility?[57]
[54]Bray op cit at [251-2] per Finkelstein J.
[55]Andrews v Caltex Oil (Aust) Pty Ltd (1982) 40 ALR 305; Upton v TVW Enterprises Ltd (1984) 57 ALR 361; Nord v Truitt (1987) AIPC 90-457.
[56]Woodhouse v McPhee op cit at 532; Nendy Enterprises Pty Ltd v New Holland Australia Pty Ltd op cit; at [8]; Melville v Craig Nowlan & Associates Pty Ltd op cit at 89, 116; Bray per Carr J at [142], per Branson J at [214].
[57]Finkelstein J in Bray at [252].
One relevant discretionary consideration in applications for security for costs in non-group proceedings is whether the proceeding is essentially defensive in nature. Although apparently not the subject of any decision so far, there seems to be no reason in principle why this matter ought not be able to be taken into consideration in a group proceeding.
AFD’s solicitor, Mr Ryan, deposed that AFD’s party-party costs from the date of this application until the completion of the hearing of all common issues and the plaintiff’s individual claim would be in the vicinity of $155,000 to $180,000. The plaintiff accepts that I may proceed on the basis of those figures for the purpose of determining whether or not security should be ordered.[58]
[58]The plaintiff has reserved the right to file and serve his own affidavit material on quantum, in the event that I determine to order the provision of security.
The plaintiff is employed as a policeman by the New South Wales Police Force. He has net assets of between $70,000 and $100,000, comprised of equity in his house, a car and assorted furniture. His income is in the vicinity of $700 net per week.[59]
[59]The only evidence before the court as to Mr Hall’s income was an application form dated 16 June 2003, which he provided to AFD in support of his loan application. There was no evidence before me that his income has changed substantially since then.
Although he is not impecunious, it is apparent from this evidence that the plaintiff would not have sufficient assets of his own to meet an adverse costs order in this proceeding. However, it is said that he could meet an adverse costs order from two sources, one being a fund set up by his solicitors and the other being a fund set up by Mr Neil Jenman and “the Jenman Group”; these funds will be discussed in more detail shortly.
I turn then to consider the application of the relevant principles to the facts in this case.
It was not suggested that the claims of the plaintiff and group members were other than arguable and bona fide.
The group members are all natural persons. They are all persons who borrowed money in order to participate in investment seminars. Counsel for the plaintiff submitted that I could infer that the group members were not wealthy individuals, as they had borrowed from AFD to pay their course fee. Whilst that may be the case in relation to some members, it does not necessarily follow that it is the case for all members; some individuals may have chosen to borrow their course fee in order to obtain a taxation benefit, rather than because they were unable to fund the fee otherwise. The evidence simply does not allow me to draw any conclusions as to the wealth of group members, either in absolute terms, or in relation to the plaintiff.
There is no evidence, and it was not suggested, that the plaintiff has been deliberately selected in order to defeat any costs order that might be made against him in the proceeding. Although a man of limited assets, he is not “a man of straw”. Furthermore, there is no evidence, and it was not suggested, that he has been chosen as the lead plaintiff to shield wealthy group members.
There is also no evidence that the proceeding is being funded by someone who stands to benefit from it in the relevant sense.
The plaintiff’s solicitors, Slater & Gordon, are conducting this proceeding on a “no win no fee” basis. The evidence before me reveals that they have entered into the following arrangement with group members:
"Each group member who instructs Slater & Gordon to act on his or her behalf in the current proceeding has made, or will make, a financial contribution to Slater & Gordon to help fund the proceeding and pay the disbursements. $500 of the contribution of each group member is placed into the trust fund, which has been established to indemnify the lead plaintiff."
Mr Jenman is a director of “the Jenman Group”, which is apparently a company “which designs business systems which focus upon ethics in real estate.” He has publicised that he is “working behind the scenes to help victims of Henry Kaye and his now defunct company [NII].” According to Mr Jenman, the Jenman Group has established a fund entitled “the Homesellers and Homebuyers Protection Fund" which is “supporting the current proceeding, by providing an indemnity for the lead plaintiff from any adverse costs order awarded against the lead plaintiff that exceeds the amount group members have contributed to a trust account established for this purpose."
Mr Jenman is not a group member. He has deposed that he has no financial interest in this proceeding other than those described above. It may be that there will be some indirect advantage to the Jenman Group’s business arising from its support of this proceeding, for example through publicity or contact with group members as prospective clients. However, I do not find that the action is being brought primarily for the benefit of the Jenman interests and I am certainly not satisfied that the action is not being brought for the plaintiff’s benefit.
I was informed by the plaintiff’s counsel that $59,500 is currently held on trust by Slater & Gordon to indemnify the plaintiff. According to one newspaper article, there is in the vicinity of $500,000 in the Jenman Group’s “legal war chest”. However, there is no evidence before me as to the assets and liabilities of either of the funds. Nor is there any material identifying the trustees of these two funds, or disclosing the terms of any trust deeds or the nature and limitations of any rights of indemnity.
It seems that both funds exist for the benefit of the plaintiff, not AFD. There is no suggestion that AFD would have any right of direct recourse to the funds.
I also agree with the plaintiff’s submission that the nature of the plaintiff’s claim in this proceeding is largely defensive. AFD has issued debt collection proceedings against the plaintiff and at least 75 group members, seeking recovery of amounts said to be owing under the AFD credit contracts.
Finally, there is no evidence that ordering security for costs would in fact stifle the litigation.
Counsel for AFD conceded that this is an unusual case, not covered by existing authority, but submitted that security should be ordered in the following situation:
“In the circumstances where a person of limited means is the plaintiff and a non-party, such as the Jenman Group and its senior executive, have expressed a commitment to ‘guarantee/indemnify’ the lead plaintiff against the prospect of a loss, it is appropriate to order that the plaintiff provide security. This is all the more so where the Jenman Group is not a party to the litigation.”[60]
[60]AFD’s outline of submissions at [39].
Counsel for the plaintiff argued that the fact that another person has indicated a willingness to indemnify the plaintiff for a costs order in the event that such an order should be made is not a basis for ordering security for costs in circumstances where that person does not stand to benefit from the proceeding.
AFD sought to rely by analogy on the decision in Lagarna Pty Ltd v Bridge Wholesale Acceptance Corporation (Australia) Ltd.[61] That was a case involving an application for security for costs against a trustee company. The trustee company did not have sufficient assets of its own to satisfy any costs order. However, it was argued that the company had a right of recourse as trustee by way of indemnity over unencumbered assets of the trust. Tadgell J, with whom Cummins J agreed, noted that the relevant trust deed was not in evidence before the court and the trustee had not produced it to the other side when requested. In those circumstances, he was prepared to assume that the trustee could at any time be required by the beneficiaries to transfer its legal interest to them or to encumber it. Given that assumption, the court held that the applicant for security had discharged the onus of establishing that the respondent would be unable to meet an order for costs.
[61][1995] 1 VR 150.
The court in Lagarna was considering whether the company was impecunious and therefore whether the jurisdiction to order security had been invoked. That case does not stand as authority for the proposition that the existence of a trust fund is a discretionary reason for ordering security.
AFD’s counsel properly conceded that to order security in the present case would involve going further than previous cases had done. However, he referred me to the following observation by Finkelstein J in Bray:
"While class actions provide many benefits to the community, they have their attendant dangers. They can be used as an instrument of oppression. It is not unknown for a class action to be brought in relation to an unmeritorious claim in the hope of compelling the defendant to agree to a settlement to avoid the enormous expense of fighting the case. Those types of actions can be discouraged by the appropriate order for security."[62]
[62]At 252.
I do not disagree with the sentiments expressed by Finkelstein J. However, I am not satisfied on the evidence before me that this is a case of the type identified by him in that paragraph.
Weighing up all of the considerations discussed above, I am not prepared to order the provision of security by the representative plaintiff.
Proposed orders
I propose to order that the defendant’s summons be dismissed with costs.
I will hear from the parties as to appropriate directions for the future conduct of this case.
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