Patdith Services Pty Ltd v Mitronics Corporation Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Patdith Services Pty Ltd v Mitronics Corporation Pty Ltd [2016] FCA 1315

Appeal from: Patdith Services Pty Ltd & Anor v Mitronics Corporation Pty Ltd & Anor [2016] FCCA 1611
File number: NSD 1157 of 2016
Judge: MARKOVIC J
Date of judgment: 9 November 2016
Catchwords: PRACTICE AND PROCEDURE – applications for security for costs for an application for leave to appeal and the appeal, should leave be granted – whether security for costs may be ordered for an appeal prior to the granting of leave and the filing of a notice of appeal – approach to an application for security for costs of an application for leave to appeal
Legislation:

Corporations Act 2001 (Cth) ss 1335, 1335(1)

Federal Court of Australia Act 1976 (Cth) s 56

Federal Court Rules 2011(Cth) rr 19.01 and 36.09

Trade Practices Act 1974 (Cth) ss 52(1), 71, 73(1), 74, 82

Cases cited:

Barton v Minister for Foreign Affairs (1984) 2 FCR 463

Bell Wholesale Co. Ltd v Gates Export Corporation (1984) 2 FCR 1

Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497

Clack v Collins (No 1) [2010] FCA 513

Croker v Deputy Registrar of the High Court of Australia [2003] FCA 628

Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397

Dye v Commonwealth Securities Limited [2012] FCA 992

Elston v Commonwealth of Australia [2014] FCA 704

J & M O’Brien Enterprises Pty Ltd v Shell Co. of Australia Ltd (No 2) (1983) 70 FLR 261

James v ANZ Banking Group Ltd (No 1) (1985) 9 FCR 442

Jazabas Pty Limited and Others v Haddad and Others (2007) 65 ACSR 276

KP Cable Investments Pty Ltd v Meltglow Pty Ltd & Ors (1995) 56 FCR 189

Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd [2010] FCA 1222

Date of hearing: 14 September 2016
Registry: New South Wales
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Regulator and Consumer Protection
Category: Catchwords
Number of paragraphs: 65
Counsel for the Applicants: Mr R Brender
Counsel for the First Respondent: Ms E Peden
Solicitor for the First Respondent: Kemp Strang
Counsel for the Second Respondent: Mr L Livingston
Solicitor for the Second Respondent: McLean & Associates Solicitors

ORDERS

NSD 1157 of 2016
BETWEEN:

PATDITH SERVICES PTY LTD

First Applicant

VICTOR BERGER

Second Applicant
AND:

MITRONICS CORPORATION PTY LTD

First Respondent

CAPITAL FINANCE AUSTRALIA PTY LTD

Second Respondent

JUDGE:

MARKOVIC J

DATE OF ORDER:

9 NOVEMBER 2016

THE COURT ORDERS THAT:

1.Within 28 days of the date of these orders the applicants give security for:

(a)the first respondent’s costs of the application for leave to appeal in the sum of $18,000 by:

(i)paying the money into Court; or

(ii)providing to the New South Wales District Registrar of this Court (the Registrar) an unconditional bank guarantee from an Australian owned bank (as recognised by the Australian Prudential Regulation Authority) in a form acceptable to the Registrar;

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Details
Case
[2016] FCA 1315
Decision Date

CaseChat Overview and Summary

In Patdith Services Pty Ltd v Mitronics Corporation Pty Ltd, the respondents, Mitronics Corporation Pty Ltd and Capital Finance, sought orders that the applicants, Patdith Services Pty Ltd and Mr Berger, provide security for their costs of an application for leave to appeal and, if leave is granted, for their costs of the appeal. The dispute arose from a series of agreements between Patdith, Capital Finance, and Mitronics involving the provision and maintenance of office machines. Capital Finance claimed that Patdith defaulted on an agreement and terminated it, leading to litigation in the Local Court. Patdith and Mr Berger were subsequently sued in the Federal Circuit Court. The applicants were unsuccessful in their appeal against the Federal Circuit Court's decision and now seek leave to appeal to the High Court.

The court was required to decide whether it could order security for costs of an appeal before leave to appeal was granted and a notice of appeal was filed. Additionally, the court needed to determine the appropriate principles to apply in considering an application for security for costs of an application for leave to appeal.

The court held that it could not make orders for security in relation to the appeal since there was no appeal filed in the appellate jurisdiction of the court. The appropriate time for the respondents to seek an order for security for costs of the appeal would be once a notice of appeal is filed, should leave be granted. Regarding the application for security for costs of the application for leave to appeal, the court applied principles similar to those used for security for costs in other proceedings. The court ordered that the respondents provide security for the applicants' costs of the application for leave to appeal and that the application be stayed until security was provided. If security was not provided, the application would be dismissed, and the applicants would be ordered to pay the respondents' costs of that application.

The court made the following orders: the respondents must provide security for the applicants' costs of the application for leave to appeal in the sum of $18,000 each, either by paying the money into Court or by providing an unconditional bank guarantee from an Australian owned bank; the application for leave to appeal be stayed until the security is given; if security is not provided, the application for leave to appeal be dismissed, and the applicants be ordered to pay the respondents' costs of that application; the respondents pay the applicants' costs of their interlocutory applications; and the interlocutory applications be otherwise dismissed.

Orders

Orders of the court

1. Within 28 days of the date of these orders the applicants give security for:

(a) the first respondent’s costs of the application for leave to appeal in the sum of $18,000 by:

(i) paying the money into Court; or

(ii) providing to the New South Wales District Registrar of this Court (the Registrar) an unconditional bank guarantee from an Australian owned bank (as recognised by the Australian Prudential Regulation Authority) in a form acceptable to the Registrar;

(b) the second respondent's costs of the application for leave to appeal in the sum of $18,000 by:

(i) paying the money into Court; or

(ii) providing to the Registrar an unconditional bank guarantee from an Australian owned bank (as recognised by the Australian Prudential Regulation Authority) in a form acceptable to the Registrar.

2. The application for leave to appeal be stayed until the security is given in accordance with the terms of Order 1.

3. In the event that the security is not provided in accordance with the terms of Order 1, the application for leave to appeal be dismissed and the applicants be ordered to pay the first respondent’s and the second respondent’s costs of that application.

4. The applicants pay the first respondent’s costs of its interlocutory application filed 3 August 2016.

5. The applicants pay the second respondent’s costs of its interlocutory application filed 9 September 2016.

6. The first respondent’s interlocutory application filed 3 August 2016 and the second respondent’s interlocutory application filed 9 September 2016 be otherwise dismissed.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

The respondents to the application for leave to appeal, Mitronics and Capital Finance, have each filed an application seeking orders that Patdith and Mr Berger provide security for their costs of the application for leave to appeal and, if leave is granted, for their costs of the appeal.BACKGROUND Patdith was a service company which provided services to a solicitors’ practice, of which Mr Berger was a partner, known as Milne Berry and Berger (MBB) from 2009 to 2011. In about May 2009 Patdith and Mr Berger entered into an agreement with Capital Finance pursuant to which Capital Finance agreed to make certain photocopiers and a printer (Office Machines) available to Patdith for 60 months in exchange for Patdith paying the amounts specified in the agreement to Capital Finance (the Capital Finance Agreement). Mr Berger guaranteed the obligations of Patdith under that agreement. At about the same time, Patdith entered into a second agreement with Mitronics pursuant to which Mitronics agreed to provide maintenance and other services in relation to the Office Machines. Issues arose in relation to one of the Office Machines, a photocopier (the Photocopier). Mitronics offered to replace the Photocopier but that offer was not accepted and instead, Victor Berger and Harry Freedman, another partner of the legal practice, “ATF the MAHD and The MAHD Trust and The Berger Trust t/as Milne Berry Berger and Freedman” entered into an agreement with Ricoh Australia Pty Ltd (Ricoh) for it to supply replacement photocopiers (the Ricoh Agreement). As part of the Ricoh Agreement, Ricoh agreed to provide “a cheque back” to pay the remainder of “the existing finance contract with Mitronics up to the value of $84,000”. The cheque was to be in favour of Milne Berry Berger and Freedman to allow negotiation with Mitronics. Before signing the Ricoh Agreement, MBB’s practice manager sought the payout figure for the Capital Finance Agreement from Mitronics. There was then an exchange of correspondence between Mitronics and MBB with Mitronics offering to change the machines over but MBB did not wish to continue its business relationship with Mitronics and asked that the Office Machines be removed. Mitronics indicated that it would collect the Office Machines after the Capital Finance Agreement was paid out. There was further correspondence between MBB and Mitronics with MBB maintaining that it would not pay out the Capital Finance Agreement. In the meantime, MBB took possession of the equipment covered by the Ricoh Agreement and, on 16 May 2011, Ricoh transferred $84,000 into a bank account held at Macquarie Bank in the name of “Milne Berry Berger & Freedman ATF Ricoh Controlled Money Account”. Patdith did not use those monies to payout the Capital Finance Agreement and refused to make payments under that agreement. As a result Capital Finance terminated its agreement with Patdith and commenced proceedings in the Local Court against Patdith and Mr Berger alleging that Patdith committed an event of default under the Capital Finance Agreement, that because of that event of default it terminated the agreement and as a consequence Patdith and Mr Berger were liable to pay Capital Finance $74,879.64 (the Local Court Proceeding).

Evidence

Evidence Before The Court

Capital Finance relies on an affidavit sworn by Matthew Pike, a partner of the firm Kemp Strang, its solicitors, on 8 September 2016. To the extent it is additional to Ms McLean’s evidence set out above, Mr Pike’s evidence includes that:(1)he has also undertaken searches of Patdith and Mr Berger which, among other things, show that various entities hold security over the assets of Patdith and Mr Berger;(2)the evidence filed by Patdith and Mr Berger shows that Patdith is not trading and that Patdith’s only material asset is cash in an amount well under the debt of approximately $80,000 owed to Capital Finance;(3)Mr Berger was a partner of MBB which was dissolved in about June 2013;(4)on 23 September 2013 orders were entered in the Local Court Proceeding. No payments have been made to Capital Finance in satisfaction of those orders but Mitronic’s costs have been paid;(5)in the Federal Circuit Court proceeding Patdith and Mr Berger were ordered to pay Capital Finance’s costs. The total costs incurred by Capital Finance since it commenced the Local Court Proceeding are approximately $170,000.00; and(6)the estimate of Capital Finance’s costs, including GST, of the application for leave to appeal and the application for security for costs is approximately $25,148.00 and of the appeal is approximately $24,502.00.PATDITH’S AND MR BERGER’S EVIDENCE Mr Berger and Patdith rely on four affidavits sworn by Mr Berger on 14 July 2016 and on 6, 8 and 22 September 2016. Mr Berger’s evidence is that:(1)Patdith is not trading and its only material asset is cash of well under the approximately $80,000 debt owed to Capital Finance. That debt was the subject of winding up and bankruptcy proceedings which did not proceed pending the determination of the Federal Circuit Court proceeding. Mr Berger expects that both the winding up and bankruptcy proceedings will recommence or fresh proceedings will be commenced if the judgment of the Federal Circuit Court stands and that the outcome of that may well be winding up and personal bankruptcy;(2)he has been suspended from legal practice and conducts an advisory business;(3)he denies dissipating his assets to avoid creditors. He has lost his assets over the past few years as a result of conflict with his former legal partners, the dissolution of his former firm, his suspension and business reversals;(4)Patdith has no access to any assets nor any ability to raise security. Its only asset is a bank account held with Macquarie Bank. Mr Berger cannot access the funds in that account without the signatures of his former partner, Mittu Gopalan, and the estate of his other former partner, Harry Freedman, neither of whom will cooperate;(5)he does not have any cash or equivalent liquid assets available to provide the security, nor an ability to raise the security. Mr Berger has personal debtors of about $500,000 from his former practice as a solicitor. He intends to collect these as best he can in the future and pay any debts he may have;(6)there has never been any hearing on the merits of the dispute between the parties concerning the performance of the goods the subject of the contract sued upon by Capital Finance;(7)the sum of $80,000 received from Ricoh was deposited into an account held with Macquarie Bank which was conducted by Mr Berger and his former partner, Harry Freedman (the Macquarie Bank Account). From that account $30,000 was paid to Mitronics’ lawyers for Mitronics’ costs “in the Local Court” on about 18 March 2014 and other small payments were made, including to counsel. Mr Berger believed that the sum of $30,000 had not been received by Mitronics and on about 16 February 2015 directed a further payment to it out of the Macquarie Bank Account of $32,113.10. That sum was withdrawn but never received by Mitronics. It was credited to a suspense account by Macquarie Bank where it remains. Mr Berger has been unable to retrieve those funds without the cooperation of Ms Gopalan and the estate of his late former partner, Mr Freedman. The balance of the Macquarie Bank Account, excluding the amount of $32,113.10, is approximately $13,000;(8)should costs be awarded against Mr Berger and Patdith in this Court and the Court decides security is appropriate, the funds from the Macquarie Bank Account could be made available to pay costs subject to any claim by the estate of Mr Berger’s late partner, Mr Freedman, or Ms Gopalan neither of whom he thinks has any claim on the money superior to the claims of creditors of Patdith. Mr Berger is willing to undertake not to move those funds from their present location pending the outcome of the appeal. He says that account is the only current source of funds available to him or Patdith;(9)he and his wife have an account with the Commonwealth Bank to which their aged pension is paid. Various pages of statements for that account are annexed to Mr Berger’s affidavit sworn 8 September 2016;(10)he does not have any other material assets from which to give security and is willing to be responsible for any costs orders made against Patdith; and(11)he takes issue with the quantum of costs sought by each of Mitronics and Captial Finance as security. The issues he raises are dealt with below.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Section 1335 of the Corporations Act 2001 (Cth) (the Corporations Act) provides that where a corporation is a plaintiff in any action the Court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the defendant’s costs if successful in its defence, require sufficient security to be given for those costs and stay the proceeding until the security is given. Rules 19.01 and 36.09 of the Federal Court Rules 2011 (Cth) (the Federal Court Rules) apply to applications for orders for security for costs. Rule 19.01 applies to an application for security for costs in a proceeding. More relevantly, r 36.09 applies to an application for security for costs in relation to an appeal. It provides that a party may apply to the Court for an order that an appellant gives security for the costs of an appeal and for the manner, time and terms for giving the security; that the appeal be stayed until security is given and that, if the appellant fails to comply with the order to provide security within the time specified in the order, the appeal be stayed or dismissed. The terms “appeal” and “appellant” which appear in r 36.09 are defined in the Dictionary at Schedule 1 to the Federal Court Rules as follows:appeal means an appeal brought in the appellate jurisdiction of the Court under Division 2 of Part III of the Act, but does not include an appeal under Part 33 of these Rules.appellant means a person who has filed a notice of appeal, under Chapter 4 of these Rules. While the applications that have been filed seek orders both in relation to the application for leave to appeal and the appeal, should leave be granted, at present there is no appeal that has been filed in the appellate jurisdiction of the Court under Pt 3 Div 2 of the Federal Court Act. The application for leave to appeal does not have that status. Contrary to the submissions of Mitronics and Capital Finance I do not agree that I can make orders in relation to a proceeding not yet commenced. In my view, applications for security in relation to the appeal are premature and the Court does not have power to make such an order in the circumstances of this case. The appropriate time for Mitronics and Capital Finance to seek an order in relation to security for costs of the appeal is once a notice of appeal is filed, should leave be granted. I turn then to consider the principles to be applied in considering an application for security for costs of an application for leave to appeal. The parties have approached the question of whether orders for security should be made relying on s 56 of the Federal Court Act, r 36.09 of the Federal Court Rules and s 1335(1) of the Corporations Act. At this stage I note that the principles to be applied in considering whether an order for security for costs should be made either under s 56 of the Federal Court Act or s 1335 of the Corporations Act are similar. While the application for leave to appeal is not an appeal in the strict sense, reliance on those sections of the Federal Court Act and the Federal Court Rules is understandable as Patdith and Mr Berger have had the benefit of a hearing which resulted in the orders being made by the Federal Circuit Court which are now the subject of the application for leave to appeal and the draft notice of appeal. Leave to appeal is required because those orders were interlocutory.