James v McEvoy - [2011] FMCA 604

FEDERAL MAGISTRATES COURT OF AUSTRALIA

JAMES v MCEVOY & ANOR

[2011] FMCA 604

PRACTICE & PROCEDURE – Application for security for costs – applicant resident overseas with negligible assets in Australia.

Trade Practices Act 1974, s.52
Evidence Act 1995, s.174
Foreign Judgments Act 1991
Federal Magistrates Court Rules 2001, r.21.01
Federal Court Rules 1979, O.28
Uniform Civil Procedure Rules 2005 (NSW), pt.42
Foreign Judgments Regulations 1992

Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972
Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497
KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189
Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744
Cowell v Taylor (1885) 31 Ch D 34
Pearson v Naydler (1977) 1 WLR 899
Melville v Craig Nowlan & Associate Pty Ltd (2001) 54 NSWLR 82
Morris v Hanley [2000] NSWSC 957
PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 65 ALJR 642
NV Sumatra Tobacco Trading Company v British American Tobacco Australia Services Ltd [2008] FCA 1542
Dense Medium Separation Powders Pty Ltd v Gondwana Chemicals Pty Ltd (in liq) [2011] NSWCA 84
Barton v Minister for Foreign Affairs (1984) 2 FCR 463
Soh v Commonwealth of Australia [2006] FCA 575
Wu v Avin Operations (No 3) [2006] FCA 1321
Timbertown Community Enterprises Ltd v Holiday Coast Credit Union Ltd (1997) 15 ACLC 1679

Applicant:

JUSTIN GERMAINE JAMES

First Respondent:

LUCINDA JANE MCEVOY

Second Respondent:

MICHAEL BARAKAT

File Number:

SYG 455 of 2011

Judgment of:

Cameron FM

Hearing date:

15 June 2011

Date of Last Submission:

15 June 2011

Delivered at:

Sydney

Delivered on:

8 August 2011

REPRESENTATION

Counsel for the Applicant:

Mr J. King

Solicitors for the First Respondent:

Whites Lawyers

Counsel for the Second Respondent:

Mr M. Sahade

Solicitors for the Second Respondent:

Trinity Legal

ORDERS

The applicant provide security for the first respondent’s costs of the proceedings in the amount of $22,850 in a form acceptable to the Registrar of the Court.
Until such time as the security ordered in order 1 is provided, the proceedings as against the first respondent be stayed.
The applicant provide security for the second respondent’s costs of the proceedings in the amount of $22,000 in a form acceptable to the Registrar of the Court.
Until such time as the security ordered in order 3 is provided, the proceedings as against the second respondent be stayed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 455 of 2011

JUSTIN GERMAINE JAMES

Applicant

And

LUCINDA JANE MCEVOY

First Respondent

MICHAEL BARAKAT

Second Respondent

REASONS FOR JUDGMENT

Introduction

The applicant, Mr James, has brought these proceedings alleging that the first respondent, Ms McEvoy, engaged in misleading and deceptive conduct in breach of s.52 of the Trade Practices Act 1974, that the second respondent, Mr Barakat, breached a partnership agreement into which he, Ms McEvoy and Mr James had entered, that Ms McEvoy and Mr Barakat breached an agreement into which they had entered with Mr James concerning his provision of services to the partnership and that Ms McEvoy converted certain of Mr James’s possessions.
As Mr James is a resident of the United Kingdom, the respondents have sought security for the costs of the proceedings.

Background

Mr James alleges that Ms McEvoy represented to him that she had expertise and experience in marketing consumer products and developing profitable business concepts, that she had expertise and experience negotiating the introduction of new consumer products to retailers and that if he left his employment in London and invested time and capital in developing a wholesale business designing, marketing and selling twist-type bandeau bikinis under the name “Twistikini” in Australia:
a)the two of them would be equal partners in the business thereby created;
b)they would share the workload of common tasks;
c)Ms McEvoy could and would meet shortfalls in Mr James’s capital investment;
d)Mr James could meet his living expenses in Australia by drawing from the business’s sales revenue;
e)Ms McEvoy had experience and expertise developing and marketing profitable new consumer brands which she could and would apply to developing the business;
f)the business would meet certain identified targets;
g)Ms McEvoy had a network of professionals whose services she could draw upon for free or at discounted rates to assist the establishment of the business; and
h)Ms McEvoy could and would meet cash flow “restrictions” from her own personal financial resources.
Mr James alleges that on the strength of these representations he resigned his employment in London, came to Australia and spent time and money in the furtherance of the Twistikini business.
Mr James alleges that Ms McEvoy’s representations were misleading or deceptive because:
a)Ms McEvoy had not independently developed a profitable business concept;
b)Ms McEvoy had not developed another of her business concepts into a profitable business;
c)Ms McEvoy proposed changes in the tasks which she and Mr James were to perform;
d)Ms McEvoy decided that she was no longer prepared to invest her own financial resources into developing the business;
e)Ms McEvoy formed the intention to sell a one-third share in the business to Mr Barakat;
f)Ms McEvoy formed the view that she would no longer share the workload of common tasks with Mr James and would delegate her share of that workload to him;
g)Ms McEvoy negotiated a capital injection from Mr Barakat on the basis that Mr Barakat would control the business’s accounts thereby preventing Mr James from drawing funds for his living expenses, that Mr James would work for four months for nothing and that Mr Barakat would assume a one-third share in the business;
h)Ms McEvoy did not have expertise in independently developing and marketing profitable new consumer brands;
i)Ms McEvoy had lost confidence in the business’s ability to be profitable;
j)the business required substantial further capital investment;
k)Ms McEvoy formed the view that in order to limit her losses in the event that the concept was not successful she did not wish to invest further capital into the business;
l)the profit target set for the business was not achievable;
m)Ms McEvoy formed the view that she was no longer prepared to draw on her network of professional advisers to assist the business free of charge or at discounted rates;
n)Ms McEvoy formed the view that another partner with business and accounting experience was essential to the success of the business;
o)Ms McEvoy formed the view that she was no longer prepared to meet the business’s cash flow constrictions using her personal financial resources; and
p)Ms McEvoy spent the surplus of her salary from other employment on herself.
Mr James also alleges that on 21 October 2010 he and the respondents entered into a partnership to develop a wholesale business selling twist-style bikinis and that Mr Barakat was to contribute $30,000 for a one-third share of the partnership and provide, at his own cost, the services of his solicitor and his accountant, storage for the partnership’s stock and display stands, assistance in distributing stock to retailers, preparation and management of the partnership’s accounts and would also establish a partnership bank account but that instead he:
a)failed to pay the $30,000;
b)used partnership funds to pay his solicitor and accountant;
c)used partnership funds to pay himself for storage and distribution services provided to the partnership; and
d)failed to provide partnership bank statements, accounts or records to Mr James despite the latter’s request.
Mr James alleges that in November 2010 he travelled throughout Australia marketing the business’s products and that on 24 November 2010 Ms McEvoy and Mr Barakat agreed to pay him $1,000 per month for his services to the partnership. Mr James alleges that although the partnership was dissolved on 18 January 2010 [recte: 2011] he continued to perform work in connection with the sale of partnership stock. In this regard, he alleges that he sought but was denied remuneration for this work in breach of the agreement entered into on 24 November 2010.
Mr James also alleges that Ms McEvoy converted a jacket, a tie and audio equipment belonging to him in that she seized possession of them and refused to return them dispute Mr James’s requests that she do so.
Mr James claims damages.
Ms McEvoy and Mr Barakat deny Mr James’s allegations.

Evidence

Respondents – applicants on the applications in a case

Lucinda McEvoy – affidavit sworn 21 May 2011

In her affidavit sworn on 21 May 2011 Ms McEvoy disputed many of the matters alleged in Mr James’s statement of claim. In particular, she deposed that she did not make false or misleading representations which were intended to induce Mr James to come to Australia or to enter into the Twistikini business. She deposed that, before coming to Australia, Mr James was fully aware of the financial position of the business and his role in it.
Ms McEvoy deposed that, despite working continuously on the Twistikini project from May 2010 to March 2011, she never drew a salary from the business. She acknowledged that Mr James was also not paid a salary but deposed that most of his accommodation and travel expenses had been paid during the time that he was travelling and promoting the business.

Lucinda McEvoy – affidavit sworn 15 June 2011

Ms McEvoy swore a further affidavit on 15 June 2011 and again addressed several of the factual contentions in the statement of claim. She also deposed that she had not caused the lack of funds suffered by the applicant and, further, that to her knowledge the only asset held by Mr James in Australia was his share in the business.

Gary White

Ms McEvoy’s solicitor, Mr White, deposed in an affidavit sworn on 24 May 2011 that a final hearing in this matter would take approximately three days. He deposed that his counsel would need to be briefed and he estimated counsel’s fees to be $440 per hour and $3,500 per day, both inclusive of GST. He deposed that his fees were $385 per hour or $2,200 per day both GST inclusive and that, for a three day hearing, Ms McEvoy’s legal fees would amount to approximately $40,000. He deposed that Ms McEvoy would incur a further $5,700 for any additional hearing day.

Michael Barakat

In his affidavit sworn on 30 May 2011 Mr Barakat deposed to the assets and liabilities of the Twistikini business. In particular, he deposed that the $30,000 provided by him was a loan which the partnership had to repay. He said that the business’s only assets were a bank account with a balance of $9,876.48 and some left-over stock worth approximately $1,700.
Mr Barakat deposed that the business had ceased trading, was not capable of paying its debts and, in his view, was hopelessly insolvent. He annexed to his affidavit a profit and loss statement for the period July 2010 to May 2011 indicating that the business had sustained losses of $37,439.84. Also annexed to his affidavit was a balance sheet indicating that as at 30 May 2011 Twistikini had a net asset deficiency of $37,514.39. Interestingly, both the balance sheet and the profit and loss statement describe “Twistikini” as “A Division of Powertech Pty Ltd”, a company whose significance and role was not canvassed in submissions.
Mr Barakat deposed that the business stayed afloat because of the contributions made by him and Ms McEvoy. He deposed that he was not aware of any savings which Mr James had invested in the business and he had not been provided with any documents showing any contribution by Mr James.

Elizabeth Aliperti

In her affidavit sworn on 21 April 2011 Mr Barakat’s solicitor, Ms Aliperti, deposed that the matters pleaded in the statement of claim were complex and voluminous, that many were in dispute and that they would require cross-examination by all the parties. She estimated that a three to four day hearing was necessary with a similar amount of time required for preparation.
Ms Aliperti deposed that her counsel’s fees were $375 per hour and $3,300 per day inclusive of GST and that solicitors’ fees in this matter would be $2,220 per day inclusive of GST. She deposed that for a three to four day hearing Mr Barakat’s legal fees would be in the vicinity of $33,000 to $44,000.
Ms Aliperti deposed that Mr James is ordinarily a resident of London and outside the jurisdiction of the Court. She also deposed that he did not have any assets within the Court’s jurisdiction upon which execution could be levied to satisfy any adverse costs order against him.

Applicant – respondent on the applications in a case

Justin James – affidavit sworn 4 May 2011

Mr James swore an affidavit in the substantive proceedings on 4 May 2011 which was read in this interlocutory dispute. He deposed to the representations which he said Ms McEvoy had made concerning her skill and expertise, to her willingness to contribute further capital to the business, to the ability to draw funds from cash generated by sales to meet living expenses and to Ms McEvoy’s subsequent steps to introduce Mr Barakat into the business. He deposed that he had invested £13,714.87 in the Twistikini venture towards buying bikinis, display stands, developing a website, paying for shipping and duties and his own flight to Australia. He deposed that he suspended his employment in London and travelled to Australia between October 2010 and February 2011. He also deposed that it was agreed between Ms McEvoy, Mr Barakat and himself that he would be paid $1,000 a month to provide sales services to the partnership.
He deposed that the Twistikini website remained operational and Ms McEvoy and Mr Barakat continued to sell stock which he had purchased using display stands which he had purchased. He deposed that by March 2011 he was no longer able to afford to support himself in Australia without work and, because he was obligated to repay a loan to a family member obtained to fund his investment in Twistikini, he returned to London to resume his employment as a solicitor.
Mr James deposed that he was working for a firm of solicitors providing legal aid services to the local community and earned £40,000 per annum before tax. He also received overtime payments if he represented clients at police stations after hours, the size of which varied from month to month depending on the amount of work available. He deposed that he occasionally worked as a DJ for which he was paid approximately £50. He also received £649 per month in rent from a mortgaged property which he owns (“Gloucester property”) and he made a monthly mortgage payment of £624.58. In addition to the monthly mortgage payment he regularly paid expenses in relation to that property such as gas safety certificates, tenancy renewal fees and occasional repairs.
Mr James deposed that he had two bank accounts in the United Kingdom, with Barclays Bank and Natwest Bank, and one bank account in Australia, with the National Australia Bank. His Barclays Bank account as at 13 April 2011 was overdrawn by £431.30, the balance in his Natwest Bank account as at 7 March 2011 was £17.13 and the balance in his National Australia Bank account was $10.63. Mr James also deposed that he had three credit cards; the balance on the first one as at 24 March 2011 was £2,605.66, the balance on the second one as at 9 April 2011 was £621.14 and the balance on the last one was £0.00.
Mr James included in his affidavit a table setting out his monthly income and expenditure for April 2011. The table showed that he had income totalling £3,099.60 and expenditure totalling £3,170.75 leaving him with a monthly deficit of £71.15. However, those figures also include £1,100 for counsel’s fees whose significance to current considerations was not explored in detail.
Mr James deposed that in May 2009 he purchased a car for £12,850 which he sold for £8,500 in October 2010 to raise capital to invest in the Twistikini venture.
Mr James deposed that he owned two residential properties acquired in 2008 with interest-only loans secured by mortgages. He deposed that he resides in one of the properties (“Bromley property”) which he purchased for £174,000 and that the mortgage and associated fees for that property were £169,467. A local agent valued the property on 3 May 2011 as worth between £160,000 and £165,000.
Mr James deposed that he purchased the Gloucester property for £180,000 and borrowed £153,000 to finance that purchase.
Mr James deposed that he is unable to pay any amount as security for the respondents’ costs as he invested all of his savings in the Twistikini business. He deposed that he did not believe that he could borrow to provide security as he has insufficient equity in his properties to be able to secure a loan and that, in any event, he was unable to afford increased loan repayments on his then salary, particularly in light of the anticipated legal costs in these proceedings.
Mr James deposed that were the Court to order that he give security for the respondents’ costs, he would be forced to abandon the proceedings and his investment in Twistikini. He said that his existing income was being applied to paying debts accumulated whilst investing in Twistikini and paying his existing mortgages. Further, all his cash resources would be devoted to his legal costs in these proceedings, being counsel’s fees at $1,200 per day and $150 per hour, exclusive of GST. He deposed that his counsel had provided him with an estimate of fees of between $7,950 and $22,200 exclusive of GST to conduct his matter up to judgment.
Mr James disagreed with Ms Aliperti and Ms McEvoy’s evidence that he does not have assets in Australia. He deposed that he had invested in the Twistikini business and that should he ultimately lose the litigation against the respondents, his investment in that business, which Mr Barakat currently retains, could be used to satisfy any adverse costs order against him.
He also deposed to pre-litigation exchanges between the parties concerning the possible satisfaction of Mr James’s claims and the resolution of the parties’ differences.

Justin James – affidavit sworn 22 May 2011

Mr James swore a further affidavit on 22 May 2011. He deposed that on 10 May 2011 he attended a branch of the mortgagee of his Bromley property to inquire whether he could borrow additional funds under his existing mortgage to use for security for costs in these proceedings. He spoke to the branch manager who told him that he did not have sufficient equity in his Bromley property to secure a loan of any amount and who also provided him with a letter setting out the reasons for the refusal to extend him a further loan.
Mr James deposed that on 10 May 2011 a real estate agent valued the Bromley property as worth between £165,000 and £169,995.
Mr James deposed that on 12 May 2011 he telephoned the mortgagee of his Gloucester property to inquire whether he could borrow additional funds under his existing mortgage over that property to provide security for the costs for these proceedings. The operator informed him that he was not eligible to borrow additional funds because he had insufficient equity in his property. This was confirmed by a letter from the bank.
In May 2011 two real estate agents valued his Gloucester property. The value they determined ranged between £160,000 and £165,000.
Mr James deposed that on 13 May 2011 he accepted a new position as a solicitor at a salary of £30,000 per annum, plus overtime if he represents clients at police stations after hours, which will vary from month to month depending on the additional work available. He deposed that this new position would reduce his fixed salary from £40,000 to £30,000 but that he had accepted the reduction in salary to move the focus of his legal career from criminal defence to commercial litigation.

Submissions

First respondent

Ms McEvoy submitted that Mr James had already filed a considerable amount of evidence and had engaged in voluminous correspondence with the respondents. She submitted that his case was likely to fail and, due to his financial position and his geographical location, he would not be in a position to pay, or to have enforced upon him, an order for costs. In this regard, she submitted that an order for security for costs was more likely to be made against a foreign applicant where the applicant has no assets within the jurisdiction.
Ms McEvoy submitted that she had already incurred costs of approximately $14,000 while the applicant’s claim was only worth something in the order of $20,000.

Second respondent

Mr Barakat submitted that proof of an applicant’s unsatisfactory financial position triggered the Court’s discretion to order security for costs. He submitted that in this case the Court’s discretion was enlivened by Mr James trumpeting his impecuniosity with the result that an evidentiary onus fell on him to satisfy the Court that its discretion should be exercised by refusing to order security or ordering it in a lesser amount than sought by the respondents.
Mr Barakat also submitted that if an applicant is ordinarily resident outside Australia and has no assets in the jurisdiction, there must be weighty reasons why an order for security should not be made and that the difficulty in enforcing an order for costs overseas against a non-resident applicant would usually be sufficient to ground such an order. He submitted that there was no evidence of any right to enforce an Australian costs order in the United Kingdom.
Mr Barakat submitted that Mr James’s impecuniosity was not a factor which overcame the great weight to be attached to the fact that he is resident overseas. He pointed out that Mr James’s only real asset in Australia was the cause of action in these proceedings. Mr Barakat submitted that Mr James had produced no evidence to suggest that he could obtain funds from other sources, such as relatives or friends, which would allow him to put some money into a fund in Australia.
Mr Barakat made submissions on the strength of Mr James’s case, at least as far as it raised partnership issues.
Mr Barakat further submitted that the Court’s 6 May 2011 order that Mr James pay Mr Barakat’s costs of that day fixed in the amount of $240 had not yet been paid. It was submitted that Mr James had not argued that he was incapable of paying such a small amount and that, in such circumstances, his failure to pay it suggested, particularly in circumstances where he was paying his own representative a not inconsiderable amount, that he considered himself immune from the Court’s costs orders.

Applicant

Mr James made submissions touching on the nature and strength of his case.
Mr James submitted that his residence outside the jurisdiction was not, of itself, a circumstance requiring the exercise of the discretion to order security for costs, the question always remaining how justice would best be served. In this regard, he submitted that Mr White’s affidavit provided insufficient evidence for the Court to be able to assess the reasonableness of his assessment of costs and that a similar position obtained in relation to Ms Aliperti.
In relation to circumstances which might outweigh the fact that he was outside the jurisdiction, Mr James submitted that the respondents had contributed to his financial position and that an order for security for costs would inevitably stultify his claim by making him unable to prosecute it. He pointed to evidence of his straitened financial circumstances as deposed to in his affidavit sworn 4 May 2011.
Mr James also submitted that an important matter to be taken into account by the Court was the conduct of the respondents prior to the proceedings in relation to his attempts to exercise his rights or to obtain access to his share in the partnership other than by the commencement of proceedings. He pointed to evidence of his complaints about the respondents’ conduct towards him and their handling of his complaints with respect to the partnership and its dissolution, all of which were, he submitted, rejected out of hand or referred to the respondents’ solicitors. He submitted that the fact that the respondents now appeared to accept that there was a partnership was not consistent with a denial of his right to an accounting.
Mr James submitted that the partnership action in this proceeding was analogous to the winding up of a company and referred to the public policy consideration disfavouring the grant of an order for security for costs against a liquidator who was attempting to get in assets in order to perform the orderly winding up of a company. He submitted that a partner should be entitled to approach the Court for an orderly winding up of a partnership, a statutory purpose which would be subverted were other partners able to obtain an order for security for costs.
Mr James submitted that an order for security would not be appropriate and that there was too great a risk of injustice to him. He further submitted that there was no reason why an impecunious litigant who was outside the jurisdiction should be treated less favourably than an impecunious litigant in the jurisdiction. He submitted that were an order for security to be made it should be restricted to an amount reflecting the additional costs likely to be incurred in enforcing a costs order overseas. However, he also submitted that if the security which might be ordered was so small that although it would provide little real security to the respondents it would nevertheless shut an impecunious person out of the proceedings, it ought not be ordered. He also submitted that although I should take judicial notice of the reciprocal enforcement scheme which exists between Australia and the United Kingdom, there was no evidence of what enforcement of an Australian costs order in the United Kingdom would cost.

Consideration

The Court’s discretion to order security for costs is unfettered. Rule 21.01 of the Federal Magistrates Court Rules 2001 (“Rules”) relevantly provides, simply, that on application by a respondent, the Court may order an applicant to give the security that the Court considers appropriate for the respondent’s costs of the proceedings. Reference was made during submissions to provisions such as those found in Order 28 of the Federal Court Rules 1979 and pt.42 of the Uniform Civil Procedure Rules 2005 (NSW). Those rules can do no more than give a pointer to this Court to issues which might be relevant to the exercise of the discretion provided by r.21.01 of the Rules.
Various considerations which may be taken into account when considering applications for security for costs have been discussed in the cases. For instance, in Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 Hill J identified the following to be among the matters appropriate for consideration when determining an application for security for costs:
·    the chances of success of the applicant; whether the applicant’s claim is bona fide or a sham;
·    the quantum of risk that the applicant cannot satisfy a cost order;
·    whether use of the power would shut out a small company from making a genuine claim against a large company, i.e. is the power being used oppressively;
·    whether the impecuniosity arises out of the Act [sic] in respect to which relief is sought;
·    whether there are aspects of public interest which weigh in the balance against the making of an order;
·    whether there are any particular discretionary matters peculiar to the circumstances of the case.
I consider such matters to be relevant in the present case, in particular, the first, second, fourth and final points. In relation to the final point, a matter to be taken into account is the fact that Mr James is resident outside the jurisdiction.
I accept that Mr James’s claim is bona fide in the sense discussed in Equity Access Ltd v Westpac Banking Corporation; Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 514; KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 197 in that it is prima facie regular and discloses a cause of action. As I cannot determine the strength or the merits of the claim at this point the parties’ submissions on such issues were misplaced.
There is no doubt, based on Mr James’s own evidence, that he is impecunious and, if unsuccessful, would have considerable difficulty meeting a costs order, assuming it could be enforced in England where he lives. By reference to Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744, Mr Barakat argued that once there was credible evidence of Mr James’s impecuniosity, an evidentiary onus fell on him to satisfy the Court that its discretion should be exercised either by refusing security for costs or by ordering it in a sum less than that sought by the respondents. However, in Idoport, and particularly in the passage from [62] of that judgment relied upon by Mr Barakat, Einstein J was discussing the situation of an impecunious corporate plaintiff. At [53] his Honour made it clear that the situation of natural person plaintiffs was different in that the mere fact that such a plaintiff is impecunious does not provide a gateway into security for costs. Poverty is generally no bar to a natural person litigant although there are exceptions to the rule. In Cowell v Taylor (1885) 31 Ch D 34 it was said:
The general rule is that poverty is no bar to a litigant, that, from time immemorial, has been the rule at common law, and also, I believe, in equity. There is an exception in the case of appeals, but there the appellant has had the benefit of a decision by one of Her Majesty's Courts, and so an insolvent party is not excluded from the Courts, but only prevented, if he cannot find security, from dragging his opponent from one Court to another. There is also an exception introduced in order to prevent abuse, that if an insolvent sues as nominal plaintiff for the benefit of somebody else, he must give security. (at 38 per Bowen LJ)
In Pearson v Naydler (1977) 1 WLR 899 Sir Robert Megarry V-C said:
…the basic rule that a natural person who sues will not be ordered to give security for costs, however poor he is, is ancient and well-established. (at 902)
As Heydon JA put it in Melville v Craig Nowlan & Associate Pty Ltd (2001) 54 NSWLR 82:
By “basic rule” Sir Robert Megarry V-C meant, and by “general rule” Bowen LJ meant, that the rule is a strict one, though it is subject to specific exceptions (eg, in relation to appeals, and nominal plaintiffs). They did not mean that generally insolvent plaintiffs will not be ordered to provide security, unless in the specific circumstances of a particular case a court thinks it just to make the order. (at 109 [101])
However, in Morris v Hanley [2000] NSWSC 957 Young J said that:
… the so-called “poverty rule” is really just one of the factors that a Court looks at to consider the basic question of whether it would be vexatious to allow the proceedings to continue without security. It is seldom correct to limit the Court’s jurisdiction and discretion under such a general proposition by honing down too finely a sub-rule or guideline. (at [18])
In this case, it is apparent that although Mr James’s finances appear currently to sit on a knife edge, he is gainfully employed in the legal profession and is seeking to diversify his career into an area of the law which is likely, in the long term, to produce greater financial reward than the area in which he has been engaged hitherto. The evidence does not support a conclusion that he has sought to divest himself of assets or to impair his financial condition so as to make it likely that the respondents, if successful, would be unable to obtain their costs from him. Further, none of the recognised exceptions to the poverty rule is apparent and the considerations discussed by Young J in Morris v Hanley do not present in this case. As a result, I do not consider that Mr James’s current impecunious condition makes his pursuit of this litigation vexatious or otherwise supports a decision to order security for costs.
Nevertheless, the most significant point raised by the parties concerns Mr James’s residence in the United Kingdom, specifically England, and his lack of assets in Australia and whether these matters justify an order for security for costs. In this connection, in PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 65 ALJR 642 McHugh J held at 643 [7] that the fact that a party bringing proceedings resides out of the jurisdiction and has no assets within the jurisdiction is a circumstance of great weight in determining whether an order for security for costs should be made and that the practice has been to make such an order unless the applicant can point to circumstances which overcome the weight of the fact that he or she is overseas and without assets here. See also NV Sumatra Tobacco Trading Company v British American Tobacco Australia Services Ltd [2008] FCA 1542 per Greenwood J at [13].
As to Mr James’s assets, he has submitted that he does have assets in the jurisdiction, in the form of the assets of the partnership. However, they will be unavailable to him if he is unsuccessful in the proceedings and thus cannot be taken into account when considering what assets he has in Australia which might be available to satisfy a costs order. Other than the claim on the partnership assets it appears that his only asset in Australia is his account with the National Australia Bank which has only a small balance.
Presumably, the courts’ historical concern regarding plaintiffs located outside the jurisdiction arose out of the practical difficulties facing a successful party in having costs orders recognised or enforced by foreign courts, for instance by having to sue for taxed costs as a debt, not just in the additional expense involved in engaging overseas enforcement processes. As was said in Dense Medium Separation Powders Pty Ltd v Gondwana Chemicals Pty Ltd (in liq) [2011] NSWCA 84 per Young JA, Campbell and Whealy JJA agreeing:
… The reason for giving the Court power to make orders for security for costs is to make sure, as much as can be done, that an Australian citizen is not prejudiced because he or she is being sued by an overseas individual and there might be barriers put in the way of collecting the successful order for costs.
If one gets to the situation where one has to debate whether or not there are barriers and how significant the barriers are, it seems to me the Court does not decide that, but just says that the plaintiff is entitled, having been sued by a foreign person, to have some certainty that he or she will collect their costs. … (at [38]-[39]).
Such concerns have been substantially addressed in relation to certain foreign jurisdictions by the Foreign Judgments Act 1991 which provides for a scheme of reciprocal enforcement of judgments by those countries specified in the regulations made under it. Mr James submitted that the Court should take judicial notice of this reciprocity but the extent of British recognition of this particular Court’s judgments is not disclosed by the Foreign Judgments Regulations 1992 and the Court cannot take judicial notice of foreign laws, even if they provide for the recognition of its judgments. The terms of a foreign law must be proved: s.174 Evidence Act 1995 and Mr James adduced no evidence to show that the law of the United Kingdom provides for the judgments of this Court to enjoy reciprocal recognition and enforcement there. As a result, the situation obtains in this case that there is no basis to find that any costs order of this Court will be recognised in the United Kingdom by virtue of the reciprocal arrangement and enforced there.
That being the case, in circumstances where Mr James has negligible assets in Australia I have concluded that he should provide security. That conclusion then raises the question of the quantum of security which should be provided. That there is no basis to conclude that the United Kingdom will recognise and enforce the orders of this Court leads to the consequence that this matter can be distinguished from cases such as Barton v Minister for Foreign Affairs (1984) 2 FCR 463 and Soh v Commonwealth of Australia [2006] FCA 575 where the countries in which each of those applicants resided recognised orders of the Federal Court under international arrangements of reciprocity. In both those cases, it was held that the respondents had no valid claim to be put in a position better than if the applicant in question were present in Australia, making the relevant question in those cases what costs a successful respondent would incur in enforcing a costs order because it might have to be enforced overseas.
As there is no reason to conclude that an order of this Court will be enforceable in the United Kingdom because of reciprocal recognition there, the measure of the security to which the respondents are, in my view, entitled, is not any additional expense of enforcement as considered in Barton and Soh, but the costs of the proceedings from this point up to judgment. While I accept that Mr White and Ms Aliperti could have gone into somewhat greater detail in their assessment of the costs their clients are likely to incur, I consider their calculations to be sufficiently specific to accept them as adequate approximations of the respondents’ likely solicitor and client costs if this matter runs to hearing. This is not a case where security should be refused because the applicant for security has failed to identify the basis of the amount of security sought: cf Wu v Avin Operations (No.3) [2006] FCA 1321 at [35] and [36]. Mr White estimated that the hearing would run for three days, Ms Aliperti estimated that it would run from three to four days and Mr James estimated that it would run for five days. In the absence of any real information on which to calculate the length of hearing, I take the average figure and estimate that the matter will run for four days. Mr White’s figures imply an estimate of four days’ preparation and Ms Aliperti expressly stated that a four day hearing would include four days’ preparation.
On this basis, Ms McEvoy’s solicitor and client costs would be in the order of $45,700 and Mr Barakat’s solicitor and client costs would be in the order of $44,000. The similarity in the estimates provided by the respondents’ solicitors fortifies me in my conclusion on the reasonableness and accuracy of those solicitors’ estimates.
While I accept that an order for security for costs is likely to have the result of the proceedings being stayed for a long time, possibly permanently, this outcome arises out of Mr James’s residence overseas in a country which has not been proved will afford reciprocal recognition to an order of this Court. Further in this regard, although it may be that the respondents have denied Mr James access to the assets of the alleged partnership, it is not apparent that his share of those assets, as revealed by the profit and loss statement and balance sheet annexed to Mr Barakat’s affidavit, or Mr James’s claim to a monthly salary, would be so great as to make a material difference to his ability to provide the amount of security which will be ordered, accepting as I do the presently precarious state of his finances. Nor do I accept that a partnership dispute is relevantly analogous to the situation of a company in administration. The considerations discussed in Timbertown Community Enterprises Ltd v Holiday Coast Credit Union Ltd (1997) 15 ACLC 1679, cited by Mr James, are not relevant in this case.
As a final point I should also note that I do not infer from Mr James’s failure to pay a small interlocutory costs order that he considers himself immune from such orders. I do not think that too much should be made of this issue. On the limited evidence before me I expect his failure to pay that amount is more likely to arise out of Mr James’s impecunious condition than out of a disinclination to observe the orders of the Court.

I have concluded that Mr James should provide security for the respondents’ costs but, while they have estimated their solicitor and client costs, the respondents have not suggested party and party figures for those costs. As a result, it is left to the Court to approximate what those figures might be. I am of the view that a party and party figure would be no less than fifty percent of the respondents’ solicitor and client costs, namely, $22,850 in respect of Ms McEvoy and $22,000 in respect of Mr Barakat. These are the amounts in respect of which Mr James will be ordered to provide security.

I certify that the preceding sixty-seven (67) paragraphs are a true copy of the reasons for judgment of Cameron FM

Date: 8 August 2011