Oswal v Carson (No 4)
[2011] VSC 434
•2 September 2011
sun
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2011 785
| RADHIKA PANJAK OSWAL | Plaintiff |
| v | |
| IAN MENZIES CARSON DAVID LAURENCE MCEVOY SIMON GUY THEOBALD and BURRUP FERTILISERS PTY LTD (ACN 095 441 151) | Defendants |
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JUDGE: | FERGUSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 30 August 2011 | |
DATE OF RULING: | 2 September 2011 | |
CASE MAY BE CITED AS: | Oswal v Carson and ors (No 4) | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 434 | |
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PRACTICE AND PROCEDURE – Security for costs – Whether plaintiff is attacker – Discretionary factors – Novel claim – Defendants’ opportunity to narrow scope of dispute - Whether delay in making application – Rule 62.02(1)(a) Supreme Court (General Civil Procedure) Rules 2005.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Durack SC | Jones Day |
| For the Defendants | Mr JWS Peters SC with Mr DR Luxton | Freehills |
HER HONOUR:
The first three defendants, Ian Menzies Carson, David Laurence McEvoy and Simon Guy Theobald, have been appointed receivers and managers under a charge registered over the assets of the fourth defendant, Burrup Fertilisers Pty Ltd (“BFPL”).[1] In this application, the defendants seek an order against the plaintiff for security for costs in the sum of $346,362.83. For the reasons which follow, I have determined that the application should be dismissed.
[1]The validity of the appointment of the first three defendants as receivers and managers of the charged property is disputed by Ms Oswal and is the subject of separate proceedings in this Court.
The plaintiff, Radhika Oswal, is the wife of the former managing director of BFPL. Ms Oswal sent and received emails using an email server operated by BFPL. She claims that those emails are her property, are not part of the assets subject to the charge, and that the defendants are not entitled to access or otherwise deal with the emails. She seeks a declaration that the emails are her property and that the defendants be required to deliver them up to her.[2] Alternatively, Ms Oswal alleges that if the emails are property subject to the charge, it would be an invasion of privacy or breach of confidence for the receivers to access or otherwise deal with certain of them. In that regard, Ms Oswal seeks an injunction restraining the defendants from accessing or dealing with those emails except for the purposes of this proceeding or with the prior written consent of Jones Day, who are her solicitors.
[2]Ms Oswal also seeks alternative relief effectively to achieve the same ends.
On 9 March 2011, Almond J granted an interlocutory injunction restraining the defendants from accessing, viewing, copying, forwarding or in any other way dealing with the emails except with the prior written consent of Ms Oswal’s solicitors. That order was varied on 26 May 2011 so that the defendants were permitted to access and deal with the emails for the purposes of this proceeding.
By agreement between the parties, Ms Oswal has previously provided the sum of $25,000 by way of security for costs. The defendants application for further security is made pursuant to Rule 62.02(1)(a) of the Supreme Court (General Civil Procedure) Rules 2005. That rule states that security for costs may be ordered where the plaintiff is ordinarily resident out of Victoria. Ms Oswal accepts that the Court’s jurisdiction is enlivened because she does not reside in Victoria.
However, Ms Oswal says that an order for security for costs should not be made as she is not the “attacker” in this proceeding. Her contention is that she was forced to commence the proceedings to protect her alleged interests in the emails because of the position adopted by the receivers. Ms Oswal contends that in those circumstances, no order for security for costs should be made against her and the application should be dismissed. Ms Oswal relies on a line of authorities beginning in England where it has been held that security for costs will not be ordered against a person out of the jurisdiction if that person is protecting their property and they are only within the jurisdiction effectively defending themselves against attack. In Maatschappij Voor Fondsenbezit v Shell Transport and Trading Company,[3] Scrutton LJ stated:
The Court always, as I understand, endeavours to be guided by the substance and not the form of the matter, and orders security for costs against the foreign attacker, not against the foreigner defending himself or his property from attack.[4]
[3][1923] 2 KB 166.
[4]Ibid at 177.
Ms Oswal also relied on Selby v Cruchley[5]. That case concerned a foreign landlord who had used the self help remedy of distraining for rent by taking possession of goods. The tenant sued the landlord for recovery of the goods. The court ordered the landlord to give security, seemingly on the basis that although a defendant by name, the landlord was in reality the same as a plaintiff.
[5](1820) 1 Brod & B 505; 129 ER 817.
Both cases were considered by the High Court in Willey v Synan.[6] That case concerned a crewman who had found coins on the ship. When the ship arrived at Melbourne, the Customs Department took possession of the coins. The crewman made a claim for the coins and the Collector of Customs sent a notice under the Customs Act 1901-1934 requiring the crewman to sue for recovery of the coins. If he failed to do that, then after four months, the coins would be automatically forfeited to the Crown. The crewman began proceedings, claiming the return to him of the coins and damages for unlawful detention. Once the notice had been served by the Collector of Customs under the Customs Act, the crewman was really in the position of a defendant and had been forced to bring the proceedings to prevent his claim to the coins from being extinguished. Dixon J (as his Honour then was) stated:
The provisions of the Customs Act, in effect, enable the officers of the Crown to take the preliminary steps by simple notices out of Court so that it is the claimant who must issue process. But when he does issue a writ, he does so to protect his supposed ownership. In substance he is not the attacker, actor or person seeking redress.[7]
[6](1935) 54 CLR 175.
[7]Ibid at 186.
Latham CJ distinguished the position which prevailed once the notice was served from the position that would have prevailed had no notice been served:
If the Collector had not acted under [the Customs Act], it would not have been necessary for the plaintiff, in order to prevent the extinction of his right, to take any proceedings. If, no notice having been given, he took proceedings in conversion or detinue, he would be in the same position as any plaintiff who comes into the jurisdiction to complain of an act which he alleges to be wrongful.[8]
[8]Ibid at 180.
In Interwest Ltd v Tricontinental Corporation Ltd,[9] Ormiston J considered a security for costs application in circumstances where there was a counterclaim. His Honour stated:
The authorities on the effect of counterclaims and cross-claims are by no means satisfactory. In my experience counterclaimants are rarely required to provide security and the existence of a counterclaim frequently dissuades defendants from pursuing an application for security, but there is no doubt that the jurisdiction exists to grant security and is “unfettered” in the sense described. Perhaps it may be said that the authorities support the proposition that security will only ordinarily be ordered against a party who is in substance the plaintiff, and that an order ought not to be made against parties who are defending themselves and thus forced to litigate: cf Accidental and Marine Insurance Co v Mercati (1866) 3 Eq 200. That would appear to be an overstatement, but the fact that a plaintiff, or counterclaimant, has instituted essentially defensive proceedings, must be a significant factor in the exercise of the court’s discretion.[10]
[9](1991) 5 ACSR 621.
[10]Ibid p 626.
It seems that his Honour did not have referred to him the authorities that I have referred to earlier. Further on in his judgment, Ormiston J stated:
Principally it would appear necessary to characterise the proceedings in respect of which security is sought. If they are “defensive” proceedings, either directly resisting proceedings already brought or seeking to “halt self-help procedures”, it would seem that to require security would be oppressive or at least would provide serious grounds for refusing to make an order. At the least, it is a factor to be considered in the exercise of the discretion. In particular, it is a basis for reducing the amount of security ordered to a sum related to the costs of those claims which cannot be characterised as defensive.[11]
[11]Ibid p 627.
In Aquatown Pty Ltd v Holder Stroud Pty Ltd,[12] Sundberg J had occasion to consider these authorities. The fact situation there was that the applicant had applied to set aside a statutory demand under s 459G of the Corporations Law. The defendant made an application for security for costs. In the course of determining that the applicant ought not to be required to give security, his Honour stated:
Although the applicant is a ‘plaintiff’ in the ordinary sense of the word, a long line of authority establishes that security is not ordered where the plaintiff/applicant is the party attacked and is really in the position of a defendant/respondent. The court is guided by the substance and not the form of the matter. … To use the words of Wilcox J [in Amalgamated Mining Services Pty Ltd v Warman International Limited[13]], ‘in a practical sense’ the applicant was forced by the respondent to take legal action.[14]
[12](1995) 18 ACSR 622.
[13](1988) 19 FCR 324.
[14](1991) 18 ACSR 622 at pp 623 - 625.
Having considered Scrutton LJ’s reasoning in Mattschappij and the subsequent authorities (including Willey v Synan and Interwest Ltd v Tricontinental Corporation Ltd), his Honour stated:
… I am of the view that the principle to apply in the present case is that espoused in Willey v Synan, and that the fact that a plaintiff/applicant has been forced into litigation so as to be a true defendant is more than a matter to be taken into consideration in the exercise of the discretion whether to require security. … However, if contrary to my view the matter is to be approached along the lines favoured by Ormiston J in Interwest, I would, after taking that “reality” into account, have declined in the exercise of my discretion to order security in the present case.[15]
[15]Ibid at 626.
In CV Joint Pty Ltd v Drivetex Pty Ltd,[16] the Court dismissed an application for security for costs. In that case, the defendant terminated a franchise agreement it had with the plaintiff. In the course of dismissing an appeal against the refusal to order security, Beach J commented that:
Whilst [the termination] is not sufficient in my opinion to constitute the plaintiff’s claim, a defensive claim, within the meaning of Interwest Limited v Tricontinental Corporation Ltd & Anor[17] or a party forced to litigate a claim, as was the case in Willey v Synan[18] and Aquatown Pty Ltd v Holder Stroud Pty Ltd,[19] nevertheless it does tend to establish that the defendant was the aggressor insofar as the present dispute is concerned. In such a situation I would exercise my discretion in the plaintiff’s favour and refuse the application.
[16]5 February 1997, Supreme Court of Victoria, Beach J, unreported.
[17]5 ACSR 621.
[18](1935) 54 CLR 175.
[19](1995) 13 ACLC 1847.
Ms Oswal submits that she is in a similar position and has been forced to take action by the conduct of the receivers. In her view, she is defending herself against self help measures taken by the receivers that began when they were appointed with powers to collect and take possession of the assets of BFPL. It was submitted that the receivers then moved to potentially examine what Ms Oswal maintains are her private documents. In those circumstances, it was submitted that although her rights would not be extinguished there would be a very serious adverse impact on her rights (if she is correct in her claim). Ms Oswal says that she is in a similar position to the plaintiff in Selby v Cruchley. Here, she says that she has prevented the negative impact on her rights by bringing the claim and obtaining the interlocutory injunction.
Ms Oswal contends that either on the basis favoured by Sundberg J in Aquatown, (that security is not to be ordered in any circumstances against a party who is in truth the attacked person), or on the approach of Ormiston J (that such matters are factors to be taken into account in the exercise of the discretion), no order should be made against her.
The receivers contend that it is Ms Oswal who is the aggressor, not them. The receivers contend that they have been forced into a proceeding based on a claim in property which Ms Oswal accepts is novel and a claim in what Ms Oswal describes as an emerging tort. They say that the merits of her claim are not strong. They also say that the claim by her is a blocking exercise to prevent the receivers from looking at the emails for the legitimate purposes of the receivership. In their submission, they offered a sensible, practical, commercial arrangement for the identification of confidential and privileged emails which meant that Ms Oswal did not have to commence proceedings. They rely upon correspondence between the parties before the proceeding was initiated.
The correspondence begins on 21 December 2010 when Ms Oswal’s solicitors, Jones Day, wrote to Freehills, the solicitors for the receivers, asserting rights in relation to the emails based on ownership, legal professional privilege and confidentiality. They suggested that arrangements be agreed for the safekeeping of the emails by an independent third party and sought confirmation that the receivers would not access the emails pending agreement on a mutually acceptable process for determining any disputes regarding access.
Freehills wrote to Jones Day the next day to state that the receivers were considering the issues raised by Ms Oswal and that they would not inspect the emails until they were in a position to respond in more detail to the proposal made by Jones Day.
On 14 January 2011, Freehills again wrote to Jones Day seeking information as to the basis for Ms Oswal’s confidential information claim and also proposing a regime for the review of emails to ensure that communications subject to a personal claim by Ms Oswal of legal professional privilege were not reviewed as part of the business records of the company. Freehills stated that they were instructed that the receivers had refrained from reviewing Ms Oswal’s email accounts and would not do so until a regime was agreed for the protection of Ms Oswal’s privileged communications or until they gave further notice to Jones Day.
By letter of 25 January 2011, Jones Day wrote to Freehills, again contending that Ms Oswal owned the emails irrespective of their content and seeking confirmation from the receivers that they would not access any of the documents without Ms Oswal’s prior consent or an order of the Court. In addition, in this correspondence, Jones Day outlined their client’s alternative claims based on privacy.
Freehills responded by a letter dated 11 February 2011. They stated that the question of ownership of the emails was not particularly helpful to the question of the receivers’ right of access to them and contended that the only basis upon which access might be restrained was by reference to some obligation of confidence or a claim of legal professional privilege. Freehills observed that the receivers’ interest in the documents was simply to discharge properly their obligations as receivers and managers. They reserved to themselves the right to review all emails to identify content which may be relevant to the discharge of their role. They also stated that BFPL was no longer prepared to delay its review of the emails, save for emails between Ms Oswal and her legal advisers. In this regard, Freehills attached an amended form of a protocol that the parties had been developing for dealing with documents subject to a claim by Ms Oswal for legal professional privilege. Freehills confirmed that they had instructions to accept service of any proceedings which Ms Oswal may commence.
Jones Day responded on 18 February 2011 foreshadowing the commencement of this proceeding and the application for interlocutory relief restraining the receivers. The proceedings were commenced by writ filed on 22 February 2011 and the application for the interlocutory injunction was heard on 24 February 2011.
Ms Oswal submitted that there is further support for her proposition that she is not the attacker. She contends that the receivers could have made an application for directions under s 424 of the Corporations Act2001 (Cth) and/or sought declaratory relief to resolve the question as to whether the receivers were entitled to review the emails. In those circumstances, she says that she would have been joined either as a contradictor to the application for directions or as a defendant to the application for declaratory relief. Had that occurred, the receivers would not have been entitled to an order for security for costs. Further, in Ms Oswal’s view, it may have been an appropriate exercise of the Court’s discretion to order at the conclusion of those proceedings that the receivers’ costs be paid out of the assets of the company because they are the agents of the company and the questions determined in the proceedings involve complex novel legal issues which need to be resolved for the purpose of the receivership. She contends that the receivers should not be in a more favourable position in relation to security for costs than they would have been if they had made an application for directions or sought declaratory relief.
The receivers submitted that the contention by Ms Oswal that I should take into account that the receivers could have brought an application for directions is weak for two reasons; first, because of the limitations associated with applications for directions, particularly the fact that directions that are made do not bind third parties;[20] and second, because even if the receivers had sought directions, the Court might be persuaded to order Ms Oswal to pay the costs of the application.[21]
[20]White v Huxtable (2006) 57 ACSR 435 at 439.
[21]Farrow Finance Co Ltd (In liq) v ANZ Executors & Trustee Co Ltd (1997) 23 ACSR 521 at 526-527.
In my opinion, whether the receivers could have begun proceedings themselves is not influential in determining whether they or Ms Oswal are in a practical sense “the plaintiff” in this proceeding. That a defendant might have brought a claim instead of the named plaintiff will often be the case. Rather, it seems to me, the real test is whether there was little practical alternative to the plaintiff taking action through court proceedings. If that is the position, then the plaintiff is properly characterised as the party attacked. Here, the proceedings that have been brought by Ms Oswal are defensive in nature. It is true that they rest upon an allegation that property in the emails belongs to Ms Oswal and that this is a live issue in the proceeding and is novel. However, if Ms Oswal is correct in her view, then in light of the correspondence sent by Freehills on behalf of the receivers in February 2011, she had little practical alternative but to commence legal proceedings to protect what she says are her rights in respect of the emails. The receivers have never accepted Ms Oswal’s property claim and have consistently maintained a right to view the emails (other than those subject to legal professional privilege). Although they suggested a method for dealing with issues of privilege and confidentiality, there was no mechanism proposed by them that would accommodate Ms Oswal’s position in respect of the property claim for which she contends. After unsuccessfully attempting to negotiate a resolution, the receivers effectively threatened to access and review the emails (other than those that were privileged) and Ms Oswal was left with little room to move. There was nothing (other than a court order or agreed standstill) that would have prevented the receivers from acting in the manner they had foreshadowed.
The receivers contend that even if Ms Oswal is not the attacker in the proceeding, that is not determinative of the application itself but is only one discretionary factor to be taken into account. This adopts the approach taken by Ormiston J in the Interwest case. Whether that approach or the approach of Sundberg J in Aquatown, is followed, my view is that no order for security for costs should be made.
Following the Ormiston J approach, as a matter of discretion, Ms Oswal’s position in practical terms as the party forced to litigate her claim should be taken into account. Another discretionary factor that Ms Oswal submitted should be taken into account was that the receivers could have narrowed the scope of the dispute by examining the emails at an earlier time and abandoning the defence of the claim in respect of emails that were irrelevant to the receivers’ duties. In my view, whether this be the true position or not, it is not a factor relevant to whether security should be ordered, although it may have been relevant to the amount of security to be ordered had that been the decision I reached. Similarly, Ms Oswal made a related submission that the size of the uplift in security sought from $25,000 to over $340,000 so close to trial[22] is a matter that ought to be taken into account in exercising the discretion. Again, it seems that that is relevant not to the issue of whether security should be ordered, but may be relevant to take into account as to amount if an order were to be made.
[22]The matter is set down for trial commencing 26 September 2011.
Another discretionary factor relied on by Ms Oswal was an allegation that the application is made late. The receivers say that there has been no delay and, even if there had been, delay by itself is not enough. They contend that Ms Oswal would have to show that she is prejudiced by a late application and there is no evidence of that.
The chronology in relation to the application began when the receivers through Freehills requested security for costs on 22 February 2011 (that being the day that the proceeding was commenced). This was followed by a further letter from Freehills to Jones Day of 16 March 2011 seeking a proposal for an appropriate amount to be paid by Ms Oswal by way of security. Subsequently, an amount of $25,000 was agreed. The receivers reserved their rights to seek further security should circumstances change. In mid June the $25,000 was paid and the receivers requested an unspecified increase in the amount of security given. Freehills requested that Ms Oswal nominate an appropriate amount. Jones Day responded to say that they disagreed that the amount of security was inadequate, but said that they would raise the matter with Ms Oswal. Freehills followed up Jones Day on 28 June and 5 July 2011. On 11 July 2011, Jones Day responded to say that they were unpersuaded that further security should be provided. Freehills then instructed a costs consultant to prepare an estimate of the defendants’ costs of the proceeding on a party/party basis. They sent the report of the costs consultant to Jones Day on 29 July 2011. No agreement was reached as to the provision of further security and the application was made by summons dated 16 August 2011.
It is clear that the timeliness of the application for security is a discretionary factor to be taken into account.[23] However, in my view, there has been no delay by the receivers or their lawyers. They diligently pursued the issue of security for costs immediately after the proceeding was commenced. They sought the increased amount close to when discovery was ordered and it appeared that the costs of the proceeding were likely to increase. The fact that there was no reference in the early correspondence to the amount of additional security sought does not tell against the defendants as they were asking Ms Oswal to nominate an appropriate amount. Once the receivers knew that no agreement could be reached for an increased amount of security to be given, they promptly took steps to bring the application. The receivers should not be criticised or penalised for trying to resolve the dispute as to security before making application to the Court.
[23]Smail v Burton (1975) VR 776 at 777 per Gillard J, with whom Newton and Norris JJ agreed.
The receivers contend that a powerful matter in determining how the discretion is to be exercised is the fact that the jurisdiction to make an order for security is enlivened because Ms Oswal is outside the jurisdiction. This is a relevant factor but one which must be weighed with other factors. Weighing all of the factors together, it seems to me that it would be unfair and oppressive to require Ms Oswal to provide security in circumstances where she has come in to the jurisdiction effectively to defend her alleged rights even in a situation where the claims she brings are novel and in an emerging area of the law.
The application should be dismissed.
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