FEDERAL COURT OF AUSTRALIA
Its Eco Pty Ltd v BPS Financial Limited [2022] FCA 842
File number: QUD 395 of 2021 Judgment of: DERRINGTON J Date of judgment: 20 July 2022 Catchwords: PRACTICE AND PROCEDURE – application for security for costs – class action – relevance of security for costs in class actions – relevance of those who stand behind lead applicants and who stand to benefit from the litigation Legislation: Australian Securities and Investments Commission Act 2001 (Cth)
Corporations Act 2001 (Cth)
Federal Court of Australia Act 1976 (Cth)
Federal Court Rules 2011 (Cth)
Cases cited: Abbott v Zoetis Australia Pty Ltd (No 2) (2019) 369 ALR 512
Augusta Ventures Ltd v Mt Arthur Coal Pty Ltd (2020) 283 FCR 123
Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1
Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317
De Jong v Carnival PLC [2016] NSWSC 347
General Trade Industries Pty Ltd (in liq) v AGL Energy Ltd [2020] FCA 1562
Harpur v Ariadne Australia Ltd [1984] 2 Qd R 523
Jalpalm Pty Ltd v Hamilton Island Enterprises Pty Ltd (1995) 16 ACSR 532
Jasmin Solar Pty Ltd v Trina Solar Australia Pty Ltd [2020] FCA 1018
Kelly v Willmott Forests Ltd (in liq) [2012] FCA 1446
Madgwick v Kelly (2013) 212 FCR 1
Turner v Tesa Mining (NSW) Pty Ltd (2019) 290 IR 388
Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Number of paragraphs: 79 Date of hearing: 15 June 2022 Counsel for the Applicants: Mr N Ferrett QC and Mr H Clift Solicitor for the Applicants: Salerno Law Counsel for the First, Fourth and Fifth Respondents: Mr J Peden QC and Ms D Bampton Solicitor for the First, Fourth and Fifth Respondents: HWL Ebsworth Counsel for the Second Respondent: Mr M Williams Solicitor for the Second Respondent: Kennedys Counsel for the Third Respondent: Mr B Kidston Solicitor for the Third Respondent: Enyo Lawyers Counsel for the Sixth Respondent: The Sixth Respondent did not appear Counsel for the Seventh Respondent: The Seventh Respondent did not appear
Table of Corrections 21 July 2022 In paragraph 74, “Ms Cook of Kennedys asserted that the cost of discovery for BPS was $56,000” has been replaced with “Ms Cook of Kennedys asserted that the cost of discovery for Billzy Pty Ltd was $56,000”. ORDERS
QUD 395 of 2021 BETWEEN: ITS ECO PTY LTD ACN 634 737 643
First Applicant
BETHANY JOY MCMANUS
Second Applicant
AND: BPS FINANCIAL LIMITED ACN 604 899 381
First Respondent
BILLZY PTY LTD ACN 602 796 298
Second Respondent
PNI FINANCIAL SERVICES PTY LTD ACN 151 551 076 (and others named in the Schedule)
Third Respondent
ORDER MADE BY:
DERRINGTON J
DATE OF ORDER:
20 JULY 2022
THE COURT ORDERS THAT:
1.The applicants provide the first, fourth and fifth respondents with security for the costs of this action to the end of mediation in the amount of $350,000.
2.The security referred to in Order 1…
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- Case
- [2022] FCA 842
- Decision Date
CaseChat Overview and Summary
The Full Court reviewed the principles governing the grant of security for costs, particularly in the context of class actions. The court acknowledged the Full Court's decision in Augusta Ventures Ltd v Mt Arthur Coal Pty Ltd (2020) 283 FCR 123, but disagreed with the notion that such orders should not be made in unfunded class actions. The court emphasised the importance of fairness in litigation and the need to prevent one party from litigating without the risk of consequences should the litigation not result in their favour. This principle extends to those who stand behind the applicants and who may benefit from the successful outcome of the action.
After considering the financial circumstances of the lead applicants, the court determined that both Its Eco and Ms McManus were without the means to meet any adverse costs order if the action were unsuccessful. Based on the established principles, the court found that the inability of the applicants to meet an order for costs was a significant factor in favour of granting the application for security. The court made orders for security for costs in the amounts of $350,000, $200,000, and $200,000 against the first, second, and third respondents respectively, with the proceedings stayed until the security was provided. The court also directed the parties to be heard on the question of costs.
Orders
Orders of the court
1. The applicants provide the first, fourth and fifth respondents with security for the costs of this action to the end of mediation in the amount of $350,000.
2. The security referred to in Order 1 hereof is to be provided by either:
(a) payment into Court of the amount of $350,000; or
(b) a bank guarantee in a form acceptable to the Queensland District Registrar.
3. The security referred to in Order 1 hereof is to be provided by 4.00pm on 7 October 2022.
4. The proceedings against the first, fourth and fifth respondents is stayed until the security referred to in Order 1 is provided.
5. The applicants provide the second respondent with security for the costs of this action to the end of mediation in the amount of $200,000.
6. The security referred to in Order 5 hereof is to be provided by either:
(a) payment into Court of the amount of $200,000; or
(b) a bank guarantee in a form acceptable to the Queensland District Registrar.
7. The security referred to in Order 5 hereof is to be provided by 4.00pm on 7 October 2022.
8. The proceedings against the second respondent is stayed until the security referred to in Order 5 is provided.
9. The applicants provide the third respondent with security for the costs of this action to the end of mediation in the amount of $200,000.
10. The security referred to in Order 9 hereof is to be provided by either:
(a) payment into Court of the amount of $200,000; or
(b) a bank guarantee in a form acceptable to the Queensland District Registrar.
11. The security referred to in Order 9 hereof is to be provided by 4.00pm on 7 October 2022.
12. The proceedings against the second respondent is stayed until the security referred to in Order 9 is provided.
13. The parties are to be heard on the question of costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
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
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
The Full Court overturned that decision in Augusta Ventures Ltd v Mt Arthur Coal Pty Ltd (2020) 283 FCR 123, although it made no specific comment in relation to his Honour’s obiter comments. If the observations of Lee J are intended to be taken as a statement of general principle that an order for security for costs should not be made in class actions which are unfunded or where the solicitors are working on a speculative basis, I would respectfully disagree. Although s 56 of the Federal Court Act moved away from earlier iterations of powers to grant security for costs in not requiring as a precondition that it be shown that the plaintiff had an inability to meet an order for costs at the conclusion of the action, the underlying rationale for the making of such orders should not be forgotten. The litigious process must be fair and be seen to be so. One side of the record in litigation ought not to be granted the luxury of litigating without risk of the consequences of a costs order should the litigation not result in their favour. That extends to those who stand behind one of the litigants and who may benefit from the successful outcome of the action. Such persons should not be allowed to enable others, whether that be corporate entities, trustees or lead applicants, to act as “stalking horses” in the litigation which will enure for their benefit. The considerations relevant to the exercise of the discretionThe lead applicants are without means It was not in doubt on any of the applications that neither of the lead applicants will be in a position to pay the respondents’ costs if the action does not succeed. No submission to the contrary was advanced. The directors of Its Eco are Mr Maitra and Mr Nguyen. It has two shareholders, being Mr Nguyen and a company called Ventures Risk Enterprises Pty Ltd of which Mr Maitra is the sole director. Its shareholder is Kaas Family Holdings Pty Ltd, which is itself equally owned by Mr Maitra and Vu Guyen Maitra (although the ASIC company extract uses the spelling, “Vu Quyen Maitra”). It is established on the material that Its Eco has a deficiency of assets over liabilities and no retained profits such that, if the action were unsuccessful, it is clear that it would not be in a position to meet any of the respondents’ claims for costs. On the established principles, the inability of the corporate applicant to meet an order for costs must be a not insignificant factor weighing in favour of the making of an order for security whether pursuant to s 1335 of the Corporations Act or s 56 of the Federal Court Act: General Trade Industries Pty Ltd (in liq) v AGL Energy Ltd [2020] FCA 1562 [35] (General Trade Industries). Ms McManus has deposed to her financial standing which discloses that she would also be unable to meet any adverse costs order were the action to be unsuccessful. She has a 1/5th interest in a family home, modest income and a small amount of savings. It is not doubted that she is properly regarded as being impecunious for the purposes of this application.