Pioneer Park Pty Ltd (in liq) v Australia and New Zealand Banking Group Ltd

[2007] NSWCA 344

Reported Decision: (2007) 25 ACLC 1,707

New South Wales

Court of Appeal

CITATION:	PIONEER PARK PTY LTD (In liq) & ORS v AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED [2007] NSWCA 344
HEARING DATE(S):	11 October 2007
JUDGMENT DATE:	30 November 2007
JUDGMENT OF:	Tobias JA at 1; McColl JA at 10; Basten JA at 11
DECISION:	(1) Grant leave to appeal against the decision of the Registrar dismissing the motion seeking security for costs.(2) Allow the appeal and set aside the judgment of the Registrar delivered on 18 June 2007.(3) Order that the corporate Appellants furnish security for the costs of the Respondent of and incidental to the appeal in the amount of $150,000.(4) Stay the proceedings in this Court until such security is provided.(5) Order that the corporate Appellants pay the Respondent’s costs of the motion, both before the Registrar and of the appeal from his decision.(6) Grant the Appellants (being the respondents to the appeal on the motion) a certificate under the Suitors’ Fund Act 1951 (NSW) in relation to the costs of the appeal, unless disqualified pursuant to s 6(2) of that Act.
CATCHWORDS:	CORPORATIONS – security for costs of appeal – whether s 1335 of Corporations Act 2001 (Cth) subject to State law – whether inconsistency – previous operation of State law – Corporations Act, ss 5E and 5G - COSTS – security for costs – impecuniosity of party against which order sought – whether order for security would stifle or stultify proceedings – position of individual appellant – oppression - JURISDICTION – jurisdiction of Court with respect to security for costs of appeal – exercise of federal jurisdiction by State court – Corporations Act, s 1335 – Supreme Court Rules, Part 51, r 16 – exercise of discretionary power under Corporations Act s 1335 not constrained by requirement of special circumstances - PROCEDURE – powers of Court to review decision of registrar – requirement of effective control and supervision by judge or judges of Court
LEGISLATION CITED:	Companies (NSW) Code, s 533 Constitution (Cth), ss 71, 72, 77, 79 Corporations Act 2001 (Cth), ss 5D, 5E, 5F, 5G, 1335, Part 1.1A Family Law Act 1975 (Cth), s 37A Judiciary Act 1903 (Cth), ss 68, 79, 80 Supreme Court Act 1970 (NSW), ss 6, 46, 75A, 121 Supreme Court Rules 1970 (NSW), Part 51, rr 11, 16, 58, Part 53, r 5, Part 61, r 4 Uniform Civil Procedure Rules 2005, Part 49.19
CASES CITED:	Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 Arnold v Queensland (1987) 73 ALR 607 Austral Pacific Group Ltd (In liq) v Airservices Australia (2000) 203 CLR 136 Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 Business Insurance Australia Pty Ltd v District Court of New South Wales [2006] NSWCA 383 Chris Poulson Insurance Agencies Pty Ltd v National Mutual Life Association of Australasia Ltd [1998] TASSC 86 Commonwealth v Hospital Contribution Fund (1982) 150 CLR 49 Deepsilver Pty Ltd v Aquatherm Australia Pty Ltd [2007] WASCA 171 Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 Farah Constructions Pty Ltd v Say-dee Pty Ltd [2007] HCA 22; (2007) 81 ALJR 1107 Farrer v Lacy, Hartland & Co (1885) 28 Ch D 482 Federated Sawmill, Timberyard and General Woodworkers’ Employes’ Association v Alexander (1912) 15 CLR 308 Fencott v Muller (1983) 152 CLR 570 Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 FPM Constructions Pty Ltd v The Council of the City of Blue Mountains [2005] NSWCA 147 Harrington Services Pty Ltd (In liq) v Harrington [2003] NSWCA 89 Harris v Caladine (1991) 172 CLR 84 HIH Casualty & General Insurance Ltd v Building Insurers’ Guarantee Corporation [2003] NSWSC 1083; (2003) 202 ALR 610 House v The King (1936) 55 CLR 499 In Re the Will of F B Gilbert (dec) (1946) 46 SR(NSW) 318 Irwin Alsop Services v Mercantile Mutual Insurance Co Ltd [1986] VR 61 J&M O’Brien Enterprises Pty Ltd v The Shell Company of Australia Ltd (No. 2) (1983) 70 FLR 261 Jazabas Pty Ltd v Haddad [2007] NSWCA 291 Kardynal v Dodek [1978] VR 414 Kotsis v Kotsis (1970) 122 CLR 69 KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 Le Mesurier v Connor (1929) 42 CLR 481 Lucas v Yorke (1984) 58 ALJR 20 MA Productions Pty Ltd v Austarama Television Pty Ltd (1982) 7 ACLR 97 Pasdale Pty Ltd v Concrete Constructions (1995) 131 ALR 268 Patrick v Howorth [2002] NSWCA 285 Penrith Whitewater Stadium Ltd v Lesvos Enterprises Pty Ltd [2007] NSWCA 131 Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457 Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247 Prime Forme Cutting Pty Ltd v Baltica General Insurance Co (1989) 8 ACLC 29 Re Wakim; Ex parte McNally (1999) 198 CLR 511 Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180 Rourke v White Moss Colliery Company (1876) 1 CPD 566 Stack v Coast Securities (No. 9) Pty Ltd (1983) 154 CLR 261 Strata Consolidated (Australia) Pty Ltd v Bradshaw [2000] NSWCA 114 Strata Consolidated (Australia) Pty Ltd v Bradshaw [2000] NSWCA 225 Transglobal Capital Pty Ltd v Yolarno Pty Ltd (2004) 60 NSWLR 143 Uptown Sydney Development Corporation Pty Ltd v Bank of New Zealand (No. 1) (1993) 11 ACSR 300 Wentworth v Graham (2002) 55 NSWLR 638 Winnote Pty Ltd (In liq) v Page (2005) 64 NSWLR 244 Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 G E Dal Pont, Law of Costs (2003) Anne Twomey, The Constitution of New South Wales (Federation Press, 2004) p 186
PARTIES:	Pioneer Park Pty Ltd (In liq) – First Appellant Clifford John Carpenter – Second Appellant Merlo Australia Pty Ltd – Third Appellant Merlo Wholesale Pty Ltd – Fourth Appellant Domino Hire Pty Ltd – Fifth Appellant Australia and New Zealand Banking Group Limited – Respondent
FILE NUMBER(S):	CA 40795/06
COUNSEL:	J Garnsey QC/B Connell – Appellants J Gleeson SC/J E Thomson - Respondent
SOLICITORS:	Somerset Ryckmans – Appellants Minter Ellison Lawyers - Respondent
LOWER COURT JURISDICTION:	Court of Appeal
LOWER COURT FILE NUMBER(S):	CA 40795/06
LOWER COURT JUDICIAL OFFICER:	Registrar Schell
LOWER COURT DATE OF DECISION:	18 June 2007

CA 40795/06
SC 50156/04; 50163/04; 50096/05; 50118/05

TOBIAS JA
McCOLL JA
BASTEN JA

30 November 2007

PIONEER PARK PTY LIMITED (In liq) & ORS v AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

Headnote

The Respondent, Australia and New Zealand Banking Group Ltd (“the Bank”), sought an order for security in relation to its costs of the appeal. The Registrar declined to make such an order and the Bank seeks to challenge the decision of the Registrar.

The appeal raised issues with respect to:

(i) jurisdiction and power to order security for costs of an appeal;

(ii) nature of challenge to decision of Registrar; and

(iii) appropriate order on the merits.

The Court held,

In relation to (i)

(per Basten JA, Tobias and McColl JJA agreeing)

1. An application for security for costs made under the Corporations Act 2001 (Cth), s 1335, requires the exercise of federal jurisdiction: [16]. The applicable law is that provided by a law of the Commonwealth: [17].

Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457; Fencott v Muller (1983) 152 CLR 570; Stack v Coast Securities (No. 9) Pty Ltd (1983) 154 CLR 261; Re Wakim; Ex parte McNally (1999) 198 CLR 511; Austral Pacific Group Ltd (In liq) v Airservices Australia (2000) 203 CLR 136, referred to.

2. Section 1335 of the Corporations Act confers an unfettered discretion on the Court to award security for costs. The section applies in relation to an appeal: [20].

J&M O’Brien Enterprises Pty Ltd v The Shell Company of Australia Ltd (No. 2) (1983) 70 FLR 261; Winnote Pty Ltd (In liq) v Page (2005) 64 NSWLR 244; Deepsilver Pty Ltd v Aquatherm Australia Pty Ltd [2007] WASCA 171; Chris Poulson Insurance Agencies Pty Ltd v National Mutual Life Association of Australasia Ltd [1998] TASSC 86, applied.

Uptown Sydney Development Corporation Pty Ltd v Bank of New Zealand (No. 1) (1993) 11 ACSR 300, not followed.

3. Part 51, r 16 of the Supreme Court Rules requires that security in relation to an appeal only be ordered in “special circumstances”. There is an inconsistency between that provision and s 1335 of the Corporations Act, which must be resolved by reference to ss 5D-5G of the Corporations Act. The effect of those provisions is to give primacy to the State law if it had effect prior to the commencement of the Corporations Act: [19]. Part 51, r 16 did not operate “despite the provision of” the Corporations Law, being the predecessor of the Corporations Act. Accordingly, the power of this Court to order security for the costs of an appeal brought by a corporation is not constrained by the requirement of “special circumstances”: [22].

Transglobal Capital Pty Ltd v Yolarno Pty Ltd (2004) 60 NSWLR 143; Strata Consolidated (Australia) Pty Ltd v Bradshaw [2000] NSWCA 114; Strata Consolidated (Australia) Pty Ltd v Bradshaw [2000] NSWCA 225; Harrington Services Pty Ltd (In liq) v Harrington [2003] NSWCA 89; FPM Constructions Pty Ltd v The Council of the City of Blue Mountains [2005] NSWCA 147, considered.

In relation to (ii)

4. Uniform Civil Procedure Rules, r 49.19 provides a basis for review by this Court of a decision of the Registrar: [26]. To the extent that alternative powers of review are found in ss 46(4) and 121(3) of the Supreme Court Act, their language does not suggest that the scope of the review would be different: [28]

Wentworth v Graham (2002) 55 NSWLR 638, considered.

Penrith Whitewater Stadium Ltd v Lesvos Enterprises Pty Ltd [2007] NSWCA 131; Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247, referred to.

(per Basten JA, Tobias and McColl JJA not deciding)

5. The exercise of a power of review of a decision of the Registrar under State law is constrained by the principles set out in House v The King (1936) 55 CLR 499 and Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170. Whether those constraints apply in a federal court, where a full review or appeal from a decision of the Registrar on questions of law and fact is necessary, is not relevant, because that constitutional constraint does not apply in relation to State courts exercising federal jurisdiction. Where the Commonwealth vests federal jurisdiction in a State court, it takes the court as it finds it and the law applicable will be the relevant State law, unless a Commonwealth law otherwise provides. There is no Commonwealth law providing for a less constrained power of review of the decision of the Registrar: [38]-[39].

Federated Sawmill, Timberyard and General Woodworkers’ Employes’ Association v Alexander (1912) 15 CLR 308; Le Mesurier v Connor (1929)
42 CLR 481; Commonwealth v Hospital Contribution Fund (1982) 150 CLR 49, applied.

Harris v Caladine (1991) 172 CLR 84, referred to.

In relation to (iii)

(per Basten JA, Tobias and McColl JJA agreeing)

6. There was material error in the approach adopted by the Registrar and the discretion should be re-exercised by this Court: [46].

7. The applicant for the order for security must establish that the company is unlikely to be able to pay the costs of the applicant if it is unsuccessful in its claim. Once impecuniosity is established, the company may seek to avoid an order by establishing either that the applicant’s conduct was the cause of its impecuniosity, or that an order for security for costs would stifle the proceedings: [47].

KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189; Equity Access Ltd v Westpac Banking Corporation (1989) ATPR ¶40-972, referred to.

8. The likelihood that an order for security would stifle or stultify proceedings is not made out merely by reference to the company’s impecuniosity, but requires proof: [51].

Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1; Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564; Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542, applied.

9. The concept of oppression is most likely to operate as a constraint on the making of an order where an order is likely to stifle the appeal. While large corporate defendants do not stand outside the policy of the security for costs provision, they also stand in no special need of care and protection: [55]-[56].

KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189; Jazabas Pty Ltd v Haddad [2007] NSWCA 291; MA Productions Pty Ltd v Austarama Television Pty Ltd (1982) 7 ACLR 97; Prime Forme Cutting Pty Ltd v Baltica General Insurance Co (1989) 8 ACLC 29; Irwin Alsop Services v Mercantile Mutual Insurance Co Ltd [1986] VR 61; Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180, referred to.

10. In this case, the impecuniosity of the corporate Appellants has been established, providing an appropriate basis for making an order for security: [59]. The Appellants did not establish on the balance of probabilities that the appeal would not proceed if security for costs were required: [60].

11. In these proceedings, the impecuniosity of the individual Appellant, Mr Carpenter, is assumed. His presence as an appellant will not protect the corporate Appellants from an order for security for costs: [62].

Winnote Pty Ltd (In liq) v Page (2005) 64 NSWLR 244, distinguished.

12. There is no evidence to suggest that the Bank’s application involves some improper purpose. The Appellants’ submission that the Bank’s conduct is oppressive was not established: [63].

(per Tobias JA, McColl JA agreeing)

13. There was no suggestion that the amount for party/party costs nominated by the Bank’s solicitor are other than reasonable. Security for costs should be ordered in an amount of $150,000: [7]-[9].

(per Basten JA)

14. Party/party costs are likely to be at the bottom of the range of $150,000 to $180,000 specified in the Bank’s evidence. It is usual to fix an amount by way of security which is below the applicant’s estimation, so as not to impose an undue burden on the corporate appellant and so that the applicant will bear the risk of over-estimation. Security for costs should be ordered in an amount of $100,000: [66].

CA 40795/06
SC 50156/04; 50163/04; 50096/05; 50118/05

TOBIAS JA
McCOLL JA
BASTEN JA

30 November 2007

PIONEER PARK PTY LIMITED (In liq) & ORS v AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

Judgment

1 TOBIAS JA: I have had the benefit of reading in draft the judgment of Basten JA. His Honour identifies in [13] three questions for determination in the appeal.

2 The first concerns whether s 1335(1) of the Corporations Act 2001 confers a discretionary power on this Court in relation to an application for security for costs against corporate appellants which is not constrained by the requirement to establish “special circumstances” under Pt 51, r 16 of the Supreme Court Rules. His Honour (at [22]) answered this question in the negative. Such an answer, with which I respectfully agree, accords with a consistent line of authority of single judges of the Court of Appeal: FPM Constructions Pty Limited v The Council of City of Blue Mountains [2005] NSWCA 147 at [3]; Harrington Services Pty Limited (in liq) v Harrington [2003] NSWCA 89 at [31]; Strata Consolidated (Australia) Pty Ltd v Bradshaw [2000] NSWCA 225; see also, Winnote Pty Limited v Page (2005) 64 NSWLR 244 at 249 [24].

3 The second concerns the question as to whether this Court, when exercising its power to review a decision of the Registrar on an application for security for costs of an appeal under s 1335(1) of the Corporations Act, can only intervene where it is established that the Registrar’s discretion miscarried in accordance with the well established principles stated in House v The King. Basten JA (at [38]) has answered this question in the affirmative. As I agree with Basten JA (at [46]) that the Bank has demonstrated error in the approach adopted by the Registrar, I prefer not to express a concluded view on the second question.

4 As to the third question, I agree with Basten JA as to the factors required to be taken into consideration on an application for security for costs such as that of the Bank in the present case. I also agree with his Honour for the reasons he has given that the Bank is entitled to an order for security for costs.

5 In determining the appropriate amount of such security, Basten JA has noted (at [65]) that the Bank’s evidence estimated its party/party costs in resisting the appeal to be within the range of $150,000 to $180,000, noting that there was no challenge by the opponent to this estimate. The initial estimate by the Bank’s solicitor of its party/party costs was “at least $150,000”. In a subsequent affidavit the solicitor undertook a more detailed analysis and assessment of the Bank’s party/party costs which amounted to the sum of $188,050. Each estimate assumed a three day hearing, which was not disputed by the opponent.

6 Basten JA (at [66]) has considered, given the bases of calculation of solicitors’ and counsels’ fees, that a party/party assessment would be at the bottom of the estimated range, namely, $150,000. His Honour has further noted that it was usual to fix an amount by way of security which is below the applicant’s estimate so as to avoid placing an undue burden on the corporate appellant or plaintiff. He has therefore concluded that an appropriate amount to be provided as security for the Bank’s costs of the appeal should be $100,000.

7 Given that so-called party/party costs are now assessed on what is reasonable, in the circumstances I am by no means convinced that the amounts nominated by the Bank’s solicitor as the recoverable daily rate of senior and junior counsel and the hourly rate of the solicitors are other than reasonable. Certainly there was no suggestion to this effect by the opponent.

8 Further, although I accept that it is common practice in accordance with authority to make an appropriate reduction for uncertainties such as a trial concluding earlier than anticipated or for changes in the approach of one or other of the parties to the litigation (such as settlement), those factors are less likely to occur on an appeal of limited duration.

9 Accordingly, I see no reason to reduce the detailed costs of the Bank’s solicitors of $188,050 to less than $150,000. That is the amount which I consider to be an appropriate provision to be made to secure the Bank’s costs of the appeal. It follows that I would agree with the orders proposed by Basten JA in [67] of his judgment but substituting in Order (3) the amount of $150,000 for the amount of $100,000.

10 McCOLL JA: I agree with Tobias JA.

11 BASTEN JA: The Australia and New Zealand Banking Group Limited (“the Bank”), being the respondent to an appeal in this Court, sought an order for security in relation to its costs of the appeal. The application, pursuant to an amended notice of motion filed on 28 May 2007, was in the following terms:

“(1) Pursuant to Part 51, rule 16 of the Supreme Court Rules (in the case of all appellants) and section 1335(1) of the Corporations Act 2001 (in the case of the first appellant, third appellant, fourth appellant and fifth appellant), an Order that the appellants furnish security for the costs of the respondent of and incidental to the appeal proceedings in such amount as the Court deems appropriate.
(2) These proceedings be stayed until such security is furnished.”

There was a subsidiary claim for the costs of the motion and such other order as the Court deemed fit.

12 The motion was heard by the Registrar on 18 June 2007 and the application was dismissed. Each party was ordered to pay its own costs of the motion. The Bank seeks to challenge that decision.

13 The challenge raises questions as to the following matters:

(1) jurisdiction and power with respect to security for costs of an appeal;

(2) nature of challenge to decision of Registrar;

(3) appropriate order on the merits.

It is convenient to deal with these various matters in turn.

14 The first hurdle faced by the Bank was that it sought to challenge the failure to exercise a discretionary power at an interlocutory stage of the proceedings. If the challenge were by way of appeal, the Bank would need to establish an error of the kind required in challenging a discretionary judgment in accordance with the principles set out in House v The King (1936) 55 CLR 499. Further, there would be the principle of restraint in reviewing a decision pertaining to practice and procedure: see Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 177, approving the principles stated by Jordan CJ in In Re the Will of F B Gilbert (dec) (1946) 46 SR(NSW) 318 at 323. In the passage cited with approval, Jordan CJ had stated that “if a tight reign were not kept upon interference with the orders of judges of first instance, the result would be disastrous to the proper administration of justice”. His Honour continued:

“The disposal of cases could be delayed interminably, and costs heaped indefinitely, if a litigant with a long purse or a litigious disposition could, at will, in effect transfer all exercises of discretion in interlocutory applications from Judge in Chambers to a Court of Appeal.”

The appellants invoked the principle of constraint in no uncertain terms, pointing to the multiplicity of interlocutory applications and the number of proceedings in various courts. (Not all of these, it should be added, can be placed at the feet of the Bank, or indeed of any individual party.)

15 To the extent that the Bank had invoked jurisdiction to order security for costs under Part 51, r 16 of the Supreme Court Rules 1970 (NSW), it also faced the possible contention that such an order could only be made where “special circumstances” were established. The judgment of the Registrar did not in terms turn on that constraint, but the Bank was keen to emphasise that the application was brought under s 1335 of the Corporations Act 2001 (Cth), which not only allowed it to avoid the need to establish special circumstances, but arguably required a reconsideration of its application by this Court on the merits. The step which led to that result relied upon the invocation of the Corporations Act as bringing with it the exercise of federal jurisdiction. The investment of federal jurisdiction in this Court, as a State court, required, it was contended, a determination by judge or judges of the Court and, to the extent that jurisdiction could be exercised by a Registrar, that could validly occur only subject to the effective control of a judge or judges.

16 Once a claim was made for security for costs under a Commonwealth law, this Court was exercising federal jurisdiction (if not from an earlier time, which would depend upon whether Commonwealth law had been invoked in the substantive proceedings). Not only is this Court exercising federal jurisdiction, it is no longer exercising State jurisdiction, subject to the federal element being otherwise than trivial or insubstantial and there being no completely separate and distinct State claim, not sharing a common substratum of facts: see Austral Pacific Group Ltd (In liq) v Airservices Australia (2000) 203 CLR 136 at [50] (McHugh J); and see Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457 at 475 (Barwick CJ) and 521 (Murphy J); Fencott v Muller (1983) 152 CLR 570 at 593 (Gibbs CJ) and 609-610 (Mason, Murphy, Brennan and Deane JJ); Stack v Coast Securities (No. 9) Pty Ltd (1983) 154 CLR 261, at 290 (Mason, Brennan and Deane JJ); and Re Wakim; Ex parte McNally (1999) 198 CLR 511 at [71] (McHugh J) [136]-[140] (Gummow and Hayne JJ, Gleeson CJ and Gaudron JJ agreeing). Whether, if the federal jurisdiction sought to be invoked is in fact unavailable, the judicial officer retains jurisdiction under State law need not be considered: c.f. Business Insurance Australia Pty Ltd v District Court of New South Wales [2006] NSWCA 383 at [18] (Handley JA, Beazley and Ipp JJA agreeing).

17 In the exercise of federal jurisdiction, State laws will only apply to the extent that they are valid and operate pursuant to a law of the Commonwealth. That effect may be derived from s 79 of the Judiciary Act 1903 (Cth) but only in so far as a law of the Commonwealth has not “otherwise provided”. If s 1335 has operation in the present circumstances, there would seem to be no room for the operation of State law.

18 The operation of the Corporations Act requires reference to ss 5D-5G which provide for the interaction between corporations legislation and State and Territory laws: see heading, Part 1.1A. The operation of those provisions has been helpfully explained by Barrett J in HIH Casualty & General Insurance Ltd v Building Insurers’ Guarantee Corporation [2003] NSWSC 1083; (2003) 202 ALR 610. Where there is no direct inconsistency between a State law and the Corporations Act, the Corporations Act is not intended to exclude or limit the concurrent operation of State law: s 5E(1) and (4). Section 5F was not said to be relevant in the present case. Section 5G makes provision, in terms of its heading, to avoid direct inconsistency arising between the Corporations Act and State law. Section 5G(11) provides:

“(11) A provision of the Corporations legislation does not operate in a State or Territory to the extent necessary to ensure that no inconsistency arises between:
(a) a provision of the Corporations legislation; and
(b) a provision of a law of the State or Territory that would, but for this subsection, be inconsistent with the provision of the Corporations legislation.”

19 This operative provision only has effect, however, in the case of a State provision as defined by s5G(3). The relevant State provision in the present case is Part 51, r 16 of the Supreme Court Rules, which was, within the terms of the Table in sub-s 5G(3), “a pre-commencement (commenced) provision”: see item 1. The question raised by the condition specified in this item is that “the State provision operated, immediately before this Act commenced, despite the provision of” the Corporations Law of the State. The result is that s 1335 of the Corporations Act will not operate inconsistently with Part 51, r 16 if Part 51, r 16 had effect, before the commencement of the Corporations Act, to qualify the operation of the State Corporations Law. The Bank submitted it had no such effect and that s 1335 of the Corporations Act operated to confer an unfettered discretion on this Court to order security for costs in relation to an appeal involving a corporation.

20 There was a time when it was thought that the predecessors of s 1335 did not apply to appeals because it operated where a corporation is “plaintiff in any action or other legal proceeding”: see Uptown Sydney Development Corporation Pty Ltd v Bank of New Zealand (No. 1) (1993) 11 ACSR 300 at 302-303 (Kirby P). His Honour’s views which were expressed to be obiter, were inconsistent with a line of authority according a less specific meaning to the word “plaintiff”, as explained by Mason P in Winnote Pty Ltd (In liq) v Page (2005) 64 NSWLR 244 at [17]-[19]. The conclusion that “plaintiff” in s 533 of the Companies (NSW) Code included an appellant was expressly held by Bowen CJ in the Federal Court in J&M O’Brien Enterprises Pty Ltd v The Shell Company of Australia Ltd (No. 2) (1983) 70 FLR 261 at 263. That case was followed in Tasmania by Evans J in Chris Poulson Insurance Agencies Pty Ltd v National Mutual Life Association of Australasia Ltd [1998] TASSC 86 and, more recently in this Court in the authorities noted by Mason P in Winnote at [19]. This approach has been followed by a single judge in the Court of Appeal in Western Australia: see Deepsilver Pty Ltd v Aquatherm Australia Pty Ltd [2007] WASCA 171 at [7] (Buss JA). Buss JA not only considered the reasoning in Winnote persuasive, but said that it was in any event appropriate that a consistent approach be adopted in relation to uniform national legislation: see Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492, recently affirmed in Farah Constructions Pty Ltd v Say-dee Pty Ltd [2007] HCA 22; (2007) 81 ALJR 1107 at [135]. The importance of intermediate courts of appeal adopting a uniform approach to Commonwealth legislation can be stated more emphatically. The application of s 1335 on an appeal adopted in the authorities should be affirmed.

21 One consequence of that approach, as expressly noted by both Handley JA in FPM Constructions Pty Ltd v The Council of the City of Blue Mountains [2005] NSWCA 147 at [3] and by Hodgson JA in Harrington Services Pty Ltd (In liq) v Harrington [2003] NSWCA 89 at [31], is that the discretionary power conferred by s 1335 is not constrained by the requirement of “special circumstances” found in the State rule. (The contrary view appears to have been adopted without argument in Transglobal Capital Pty Ltd v Yolarno Pty Ltd (2004) 60 NSWLR 143 at [12].) However there was, prior to the commencement of the Corporations Act, no clear statement as to the inter-relationship of the provision under the Corporations Law (or its predecessor) and Part 51, r 16 which, when the Supreme Court Act 1970 (NSW) was enacted, was to be found in Part 51, r 11 in the Fourth Schedule to the Act. While the rules were intended to have effect despite anything in an existing Act (see s 6), Part 51, r 11 (and, later, Part 51, r 16) expressly state that each did and does “not affect the powers of the Court under Part 53, Division 1”. Part 53, Division 1, as in force immediately prior to the commencement of the Corporations Act, included r 5 stating that the Division “does not affect the provisions of any Act under which the Court may require security for costs to be given”. Although there does not appear to have been any express explication of the operation of these provisions prior to the commencement of the Corporations Act, Registrar Jupp held in Strata Consolidated (Australia) Pty Ltd v Bradshaw [2000] NSWCA 114 at [18], after preferring the authorities supporting the application of s 1335 to appeals:

“It follows that even if special circumstances did not exist in this case the Court of Appeal would have jurisdiction pursuant to section 1335 of the Corporations Law to make an order for security for costs based on the admitted impecuniosity of the corporate appellants.”

22 That statement of principle was not challenged, but appears to have formed the basis of the decision of the Court in Strata Consolidated (Australia) Pty Ltd v Bradshaw [2000] NSWCA 225 (Heydon JA, Sheller and Beazley JJA agreeing). It follows that, as was submitted by Mr Gleeson SC appearing for the Bank, Part 51, r 16 was not a State provision which, immediately prior to the commencement of the Corporations Act, affected the power conferred by the Corporations Law. For the purposes of the table in s 5G(3) of the Corporations Act, it did not operate “despite the provision of” the Corporations Law of the State. The result is that s 1335 of the Corporations Act confers a discretionary power on this Court in relation to applications for security for costs against corporate appellants which is not constrained by the requirement for “special circumstances” in the rules.

23 The Bank did not suggest that the decision of the Registrar in relation to its application for security for costs was invalid because he was not capable of exercising judicial power under Chapter III of the Constitution. Rather, it argued that it was a condition of validity that his decision be subject to effective control and supervision by a judge or judges of the Court, as required (so it was said) by the Commonwealth v Hospital Contribution Fund (1982) 150 CLR 49 (“the HCF Case”) and Harris v Caladine (1991) 172 CLR 84 at 94-95 (Mason CJ and Deane J), pp 124-127 (Dawson J), pp 151-154 (Gaudron J) and 164 (McHugh J). In the Bank’s submission, compliance with the principles explained in Harris v Caladine required this Court to reconsider the application for security afresh and, if it thought appropriate, make an order whether or not it was possible to identify some specific error on the part of the Registrar and certainly without the constraints imposed by House v The King and Adam P Brown Male Fashions v Philip Morris Inc in relation to review of the exercise of a discretionary power by a judge. In substance, the Bank adopted the position most clearly stated by McHugh J in Harris v Caladine that the delegation by a court of judicial power to an officer who was not a judge was constitutionally valid “provided that the exercise of the power is subject to review by way of a de novo hearing by a Justice or judge of that court who has been appointed in accordance with s 72 of the Constitution” (p 164). His Honour continued:

“Nor, in my opinion, will anything less than a hearing de novo to review the exercise of the power by the officer be sufficient. That is to say, appellate review is an insufficient condition of the delegation of the exercise of the power; there must be a complete rehearing of the facts and the law as they exist when the Justice or judge reviews the order made by the officer. Otherwise, the officer and not the Justices or judges of the court would be exercising the original jurisdiction of the court.”

24 The first step required identification of the power of review provided for by State law. Three sources of powers were identified by the Bank. The first derives from the conferral by s 46(2)(b) on a single judge of appeal of various powers to make orders not determinative of an appeal, which would include orders for security of costs. Part 51, r 58 of the Supreme Court Rules confers on the Registrar the powers of a judge of appeal under sub-s 46(1) and (2) of the Supreme Court Act. It follows, as it was submitted, that the power conferred on the Court of Appeal to “discharge or vary a judgment given by a judge of appeal, or an order made or direction given by a judge of appeal” extends to a judgment, order or direction given by the Registrar exercising such powers: s 46(4).

25 It has been necessary on occasion to consider whether a single judge of appeal can review a decision of the Registrar: see, eg, Penrith Whitewater Stadium Ltd v Lesvos Enterprises Pty Ltd [2007] NSWCA 131. That question does not arise in the present proceedings. However, in the course of that judgment, reference was made to the fact that Part 61, r 4 of the Supreme Court Rules provided that the powers of the Court “under this Part may in respect of the Registrar of the Court of Appeal be exercised by a judge of appeal”. One of the powers was a power to review an order of a Registrar. However, the power of review was repealed upon the commencement of the Uniform Civil Procedure Rules 2005. The equivalent provision is now found in Part 49, Div 4, which relevantly provides:

“49.19 If in any proceedings a registrar gives a direction or certificate, makes an order or decision or does any other act, the court may, on application by any party, review the direction, certificate, order, decision or other act and make such order, by way of confirmation, variation, discharge or otherwise, as the court thinks fit.”

26 Whether the result was to confer power on a single judge of appeal or whether it conferred a power to be exercised by the Court of Appeal is not a matter which is of present relevance: r 49.19 provides an available basis for this Court to review the decision of the Registrar. (I accept that that rule operates with respect to registrars of the Supreme Court: c.f. Penrith Whitewater at [7], but see also Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247 at [4]-[6].)

27 As noted by Santow JA in Wentworth v Graham (2002) 55 NSWLR 638, there is provision in s 121(3) of the Supreme Court Act permitting the Court to set aside or vary an order made by a Registrar in the exercise of powers conferred on that officer “by or under this or any other Act”: s 121(2). Power conferred by the Supreme Court Rules or the Uniform Civil Procedure Rules is power conferred “under” the respective Acts.

28 For present purposes the source of the power is of limited relevance. Although the language varies as between s 46(4) (“discharge or vary”), s 121(3) (“set aside or vary”) and UCPR r 49.19 (“review … and make such other order, by way of confirmation, variation, discharge or otherwise”) it was not suggested in the present case that the scope of the review was affected by those differences in language.

29 As was noted in Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247 at [4]-[5] the authorities in this Court affirm the view that an exercise of power under s 46(4), at least where the order under review is that of a judge of appeal, will be limited by the principles of constraint. In Wentworth v Graham, Santow JA referred to the potential differences in approach available referring at [7] to the principles of constraint and at [8] to the proposition that “[t]he power to review is not an appeal and is not subject to the limitations expressed in s 75A of the Act” and that “it is not necessary to demonstrate that there has been an error of principle in the order under review”. His Honour saw no inconsistency because of the “natural inhibition against the unrestrained substitution of the reviewing court’s views in a matter of practice and procedure”: at [9] and [10]. However, that approach is hard to reconcile with the approach adopted by this Court in reviewing a decision of the Registrar in Strata Consolidated which expressly sought error of the kind identified in House v The King.

30 So far as the scope of the review is concerned, the Bank sought to avoid entirely the restrictions generally accepted as appropriate in considering a discretionary decision with respect to a matter of procedure. It contended that the exercise of federal jurisdiction required that this Court undertake a review of a kind that would ensure effective control, by way of reconsideration, of the decision of a registrar.

31 It is therefore necessary to return to the statements of principles in Harris v Caladine, referred to at [23] above. It may be noted that not all members of the Court adopted the strict approach proposed by McHugh J. Thus, relevantly for present purposes, Mason CJ and Deane J expressed as a condition of the validity of the delegation of power to an officer of the Family Court the following requirement (at p 95):

“The second condition is that the delegation must not be inconsistent with the obligation of a court to act judicially and that the decisions of the officers of the court in the exercise of their delegated jurisdiction, powers and functions, must be subject to review or appeal by a judge or judges of the court. For present purposes it is sufficient for us to say that, if the exercise of delegated jurisdiction, powers and functions by a court officer is subject to review or appeal by a judge or judges of the court on questions of both fact and law, we consider that the delegation will be valid. Certainly, if the review is by way of hearing de novo, the delegation will be valid. The importance of insisting on the exercise of review by a judge or an appeal to a judge is that this procedure guarantees that a litigant may have recourse to a hearing and a determination by a judge. In other words, a litigant can avail him or herself of the judicial independence which is the hallmark of the class of court presently under consideration.”

32 Dawson J (at pp 124-125) noted that the decision of the Registrar was in fact subject to a review by way of de novo hearing. However, his Honour did not think that express provision of such a review was necessary. He stated (at p 125):

“But even if there had been no such provision the result would, in the absence of any provision to the contrary, have been much the same. For where the function of exercising a discretion is delegated by a court, as it may be delegated to a Registrar, the exercise of the delegated discretion cannot confine the exercise of the same discretion by the person in whom it is primarily reposed …. Upon a hearing by way of review of the decision of a Registrar the court is exercising its own discretion. There are not the same restrictions which exist when there is an appeal from a judge to whom a discretion is confided, rather than delegated, at first instance.”

33 The other member of the majority in Harris v Caladine, Gaudron J, accepted that the Family Court Act provided a review of the kind which required no identification of discernable error, but took the matter no further.

34 Two features of Harris v Caladine require express identification. The first is that all members of the Court identified the registrars in the Family Court as exercising “delegated” power, a description which followed aptly from the terms of s 37A of the Family Law Act 1975 (Cth) which expressly referred to a “power delegated by rules of Court”: s 37A(3), referring to the power under sub-s (1). The significance of that language may be discerned in the extract from the judgment of Dawson J set out above. The second point of significance is that the Court was dealing with officers of a federal court. The power of the Parliament to create federal courts may be found in s 71 of the Constitution, such courts having the number of judges prescribed under s 79, who will have the tenure and terms of appointment required by s 72. However, there is no equivalent power in the Parliament in relation to State courts and, as the HCF Case confirmed, when investing federal jurisdiction in a State court, the Commonwealth must take the court as it finds it: see, eg, 150 CLR at 64 (Mason J). That meant, in the context of the HCF Case, that the Court in which federal jurisdiction was invested, pursuant to s 77(iii) of the Constitution, included a master appointed under the Supreme Court Act and assigned to a Division of the Court. As explained by Gibbs CJ at p 59:

“He was the officer of the court by whom the jurisdiction and powers of the court in the matter in question were normally exercised, and an order made by him, if not set aside or varied by the court, would take effect as an order of the court.”

35 In the HCF Case, after referring to the dissenting judgment of Gibbs J in Kotsis v Kotsis (1970) 122 CLR 69, which was overruled in the HCF Case, Mason J continued (150 CLR at 61):

“His Honour there observed that the exercise of federal jurisdiction did not call for a curial organization different in kind from that established for the exercise of State jurisdiction [122 CLR at 110]. In this situation there is every reason for supposing that the framers of the Constitution intended to arm the Parliament of the Commonwealth with a power to invest federal jurisdiction in a State court as it happened to be organized under State law from time to time. Although the Commonwealth Parliament has no power to alter the structure or organization of State courts, its freedom of action is completely preserved. It has the choice of investing State courts with federal jurisdiction or of establishing appropriate federal courts.”

36 In this passage, Mason J reflected both the scope and limits of the powers conferred on the Parliament by Chapter III of the Constitution. This approach is consistent with a long line of authority in the High Court: see the cases referred to by Anne Twomey, The Constitution of New South Wales (Federation Press, 2004) p 186. As explained by Griffith CJ in Federated Sawmill, Timberyard and General Woodworkers’ Employes’ Association v Alexander (1912) 15 CLR 308 at 313, “when the Federal Parliament confers a new jurisdiction upon an existing State Court it takes the Court as it finds it, with all its limitations as to jurisdiction, unless otherwise expressly declared”. Further, in Le Mesurier v Connor (1929) 42 CLR 481 at 496, Knox CJ, Rich and Dixon JJ, after referring to ss 77 and 79 of the Constitution, stated:

“It is no less certain that these general powers cannot be interpreted as authorizing legislation dealing with the organization of State Courts. The power conferred by sec 77(iii) is expressed in terms which confine it to making laws investing State Courts with Federal jurisdiction. Like all other grants of legislative power this carries with it whatever is necessary to give effect to the power itself. But the power is to confer additional judicial authority upon a Court fully established by or under another legislature. Such a power is exercised and its purpose is achieved when the Parliament has chosen an existing Court and has bestowed upon it part of the judicial power belonging to the Commonwealth. To affect or alter the constitution of the Court itself or of the organization through which its jurisdiction and powers are exercised is to go outside the limits of the power conferred and to seek to achieve a further object, namely, the regulation or establishment of the instrument or organ of Government in which judicial power is invested, an object for which the Constitution provides another means, the creation of Federal Courts.”

37 The power to invest jurisdiction does not carry with it the power to alter the structure or organization of State courts. On the other hand, neither does the State have power to pass laws with respect to the exercise of federal jurisdiction. Rights, powers and procedure available in the exercise of federal jurisdiction are determined by laws passed by the Parliament. In the absence of Commonwealth laws which otherwise provide, State laws will operate, but only because of the federal mandate found in such provisions as ss 68, 79 and 80 of the Judiciary Act 1903 (Cth). In relation to criminal procedure, rights of appeal are expressly identified in s 68(1)(d). In relation to the civil jurisdiction generally, the broad statements of ss 79 and 80 are sufficient to pick up and apply rights of appeal or review conferred on parties under State law.

38 In the present case, it is not suggested that there is any Commonwealth law which otherwise provides, with the result, as acknowledged by the Bank, that rights of review are to be found in the State laws discussed above. However, again absent any Commonwealth law to the contrary, those laws will have the same operation in the exercise of federal jurisdiction as they have in the exercise of State jurisdiction. It follows that if the exercise of powers of review of a registrar with respect to an order for security for costs are constrained by principles stated in House v The King and in Adam P Brown Male Fashions, with respect to State jurisdiction, they will be similarly restrained in the exercise of federal jurisdiction. This is a matter of principle to which Harris v Caladine, dealing with officers in a federal court, has no direct application.

39 Business Insurance Australia Pty Ltd v District Court of New South Wales [2006] NSWCA 383 held that the judicial registrar in the District Court has jurisdiction under State law: at [18]. To the extent that the Court suggested, obiter, that the principles of effective control expressed in relation to the federal courts in Harris had application to State courts, I would respectfully disagree. Such dicta, to the extent that they are inconsistent with constitutional principle, should not be followed.

40 In seeking to rely upon the principles in Adam P Brown Male Fashions and House v The King, Pioneer Park appeared to accept, as did the Bank, that those principles were properly applicable pursuant to the reasoning in Strata Consolidated. Although the Bank invited the Court to not follow Strata Consolidated, that was, it appeared, on the basis that such authorities were inconsistent with the investiture of federal jurisdiction.

41 Finally, in Transglobal Capital Pty Ltd v Yolarno Pty Ltd (2004) 60 NSWLR 143 at [4] there was a suggestion that “special principles” may apply in relation to “a review of a decision of a lower judicial officer, for example, of a Registrar”: at [5]. That suggestion was not supported by authority, was expressly stated to be obiter and its operation was not elucidated. The general principles explained in Strata Consolidated (supra) and Patrick v Howorth [2002] NSWCA 285 at [10] (Heydon JA, Hodgson JA and Young CJ in Eq agreeing) should be applied.

Merits of application for review

42 The Registrar declined to order security for costs, noting that the arguments were delicately balanced: at [21]. In reaching that decision, it may be accepted that he applied wrong principles because he required the Bank to establish special circumstances in accordance with Part 51, r 16. As noted above, that constraint is inapplicable where an application is made under s 1335 of the Corporations Act. However, in one sense that error was immaterial because he was satisfied that special circumstances did exist. The particular matter relied upon being the fact that the second opponent, Mr Carpenter, had been given leave to bring the proceedings on behalf of Pioneer Park. Nevertheless, the fact that he thought it necessary to be so satisfied may have affected the manner in which he approached the exercise of his discretion. A factor which was treated as a necessary precondition to the engagement of the power might have been given greater weight in the exercise of a discretion which was not conditioned by the requirement of special circumstances.

43 Secondly, the Registrar appears to have accepted that the corporate parties were impecunious and would be unable to meet an order for costs, if unsuccessful. However, he said that the companies “conceded that” if security were ordered, the effect would be to stultify the appeal: at [13]. This should probably read “contended” rather than “conceded” as it was a primary plank in the companies’ argument against the application and it was a matter which the Bank, against which the complaint was directed, did not concede. What the companies had to establish was that, despite their impecuniosity, others would not provide the funds to allow the litigation to proceed. In failing to address the question in that way, the Bank contended that the Registrar had failed to apply the principle established in Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4 (Sheppard, Morling and Neaves JJ) in the following terms:

“In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means.”

44 Pioneer Park did not prove unwillingness of those standing behind the company to provide the relevant funds, nor that they lacked the relevant means to do so. Other than Mr Carpenter, against whom the Bank has current bankruptcy proceedings, there is incomplete information as to the individuals who will ultimately benefit from the company’s success, or as to their financial means and intentions. Security for costs was required at the trial and was provided for an amount of $675,000. That order, the Bank noted, did not prevent the trial going ahead. However, the Registrar appears to have dealt with the matter on the basis of a submission by the Appellants that such an order for security would prevent the prosecution of the appeal: at [17]. The factual basis for that submission was not made good.

45 The third matter which the Registrar took into account was the fact that the Bank had made an offer of settlement prior to the commencement of the trial. That, together with the concession that an appeal was likely to occupy three days, led to an inference that the appeal was not without prospects of success: [19]-[20]. The Bank complained that the Registrar failed properly to consider its complaint that the case being run by the Appellants was without merit. However, the assessment of merit in complex commercial litigation is often difficult to undertake on a useful basis in a preliminary way. The Registrar was entitled to proceed on the basis that the appeal was bona fide and had a reasonable prospect of success: see Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 514 (French J). On the other hand, little weight could be given to the estimated length of the appeal which was likely to have resulted from the nature of appeal, the number of issues raised and the complexities of the trial. Further, the offer of compromise, if it were appropriate to take it into account at all, suggested an additional obstacle for the Appellants, namely that to avoid an adverse costs order the company might need not only to establish an appropriate cause of action, but to demonstrate loss which would exceed the amount of the offer.

46 It follows, in my view, that the Bank has demonstrated error in the approach adopted by the Registrar. The Registrar himself acknowledged that the competing merits were “finely balanced”: at [18]. The “delicate balance” led him to direct that each party should pay its own costs of the motion: at [21]. These expressions indicate that the errors identified are likely to have been material and accordingly the discretion should be re-exercised by this Court by way review.

Relevant principles

47 A number of factors may be derived from the principles set out by Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 196-198 and the authorities to which her Honour referred. The first factor is whether the applicant for the order has established, in order to engage the power, that the company is unlikely to be able to pay the costs of the applicant if it is unsuccessful in its claim (impecuniosity).

48 Two further factors arise once impecuniosity is established by the applicant; the company may seek to avoid an order by establishing that:

(a) the applicant’s conduct was the cause of its impecuniosity, or

(b) an order for security for costs would stifle the proceedings.

49 In the case of a small company or one starting up a business, impecuniosity may be unrelated to the matter in dispute: see, eg, Equity Access Ltd v Westpac Banking Corporation (1989) ATPR ¶40-972 at 50,637 (Hill J). In many cases, however, companies assert that current financial problems have arisen as a result of the applicant’s conduct which is the subject of the litigation. An assessment of that contention would require some consideration of the merits of the appeal.

50 The third factor derives from the principle that to require security of a plaintiff reduced to poverty by the act of the defendant would involve a denial of justice. This principle is sometimes sourced to Farrer v Lacy, Hartland & Co (1885) 28 Ch D 482. However, the principle was not applied in that case, the Court distinguishing Rourke v White Moss Colliery Company (1876) 1 CPD 566, in which it was applied. Rourke involved a personal injury claim by an individual plaintiff. There was no dispute that the negligence of the defendant had reduced the plaintiff to poverty, the issue being a question of law as to the scope of the doctrine of common employment, the injury having resulted from the negligence of a fellow employee of the defendant. Understandably, the plaintiff was not deprived of his opportunity to argue the point of law. In relation to a corporate plaintiff, the principle has a somewhat different operation. Thus, it has been said that the existence of a genuine dispute cannot “of itself provide cause for disentitling the respondent to security if the circumstances otherwise are appropriate ones for the making of such an order”: see Pasdale Pty Ltd v Concrete Constructions (1995) 131 ALR 268 at 273 (35) (Finn J).

51 The likelihood that an order for security would stifle or stultify the proceedings, if established, is a factor which will tend against an order for security. However, that factor is not made out merely by reference to the company’s impecuniosity, but requires proof, as explained in the passage from Bell Wholesale at [43] above. As noted by Austin J in Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 at [74], referring to the judgment of Clarke J in Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 at 545, “the mere fact that the corporate plaintiff is financially unable to provide security does not lead inevitably to the conclusion that the making of an order for security will stultify the plaintiff’s claim. It may be that there is someone else who will satisfy the order on the plaintiff’s behalf”.

52 A fourth factor, providing a reason for not ordering security, may arise where all those who seek to benefit from the litigation are willing to step out from behind the corporate shield and offer undertakings in relation to an adverse costs order in the event of failure. There may be different views as to how such circumstances should affect the exercise of the power to order security, but the need for their resolution does not arise in the present case: see Jazabas Pty Ltd v Haddad [2007] NSWCA 291 at [2]-[3] (Mason P).

53 A fifth factor concerns the presence in the proceedings of an individual litigant. In Winnote Pty Ltd (In liq) v Page (2005) 64 NSWLR 244 Mason P, in declining to order security for costs against the corporate appellant, noted that “[t]he continuing presence of Mr Roach (apparently a man of substantial means) shows that it is not called for, so long as it remains highly likely that costs would be awarded against both appellants if the appeal fails”: at [43].

54 Two further factors are commonly identified as “oppression” and the public interest.

55 The concept of oppression is most likely to operate as a constraint on the making of an order where an order is likely to stifle the appeal. It may also invite some closer attention to the merits of the proceedings than would otherwise be necessary and appropriate. On the other hand, it is not entirely clear what is referred to by oppression. As noted by Beazley J in KP Cable Investments at 197, Needham J referred in MA Productions Pty Ltd v Austarama Television Pty Ltd (1982) 7 ACLR 97 at 100 to the need to consider whether “the defendants’ application for security is oppressive in the sense that it is being used merely to deny to an impecunious plaintiff a right to litigate”. There may be rare cases in which it can be established that an application for security is brought for improper purposes: such conduct could no doubt be described as “oppressive”. On the other hand, from the respondent’s point of view the question is not whether an impecunious corporate appellant has a “right to litigate” but rather who should be required to bear the costs of the litigation if the appellant is unsuccessful.

56 It may be that a court will be more sympathetic to an application from a respondent with limited funds than a respondent which is a major corporation: see Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180 at 186 (King CJ) and Irwin Alsop Services v Mercantile Mutual Insurance Co Ltd [1986] VR 61 at 65 (Ormiston J), referred to by McClellan CJ at CL in Jazabas Pty Ltd v Haddad [2007] NSWCA 291 at [76]. Nevertheless, as implied by Brooking J in Prime Forme Cutting Pty Ltd v Baltica General Insurance Co (1989) 8 ACLC 29 at 32-33, large corporate defendants should not be seen as standing “outside the policy of the security for costs provisions”. However, to accept that they do not, does not in turn require the Court to ignore the fact that they “stand in no special need of care and protection”, as Brooking J expressed the point. Thus, it might be seen as oppressive to allow a large corporate defendant to obtain an order for security for costs which would be likely to stifle the litigation in circumstances where it could be seen that the claim had potential merit and that the quantum of costs would in any event be a relatively insignificant amount for the corporate defendant, though beyond the capacity of the corporate plaintiff to pay. To order security in such circumstances may constitute a form of “oppression”.

57 Finally, there is the question of any “public interest” in the proceedings. The question of public interest may have greater weight with a claim which can be seen to have some merit on its face, rather than being merely arguable. Again the question is likely to arise only in circumstances where a prima facie case of stultification has been made out. G.E. Dal Pont, Law of Costs (2003) adopted the cautious view of Young CJ in Kardynal v Dodek [1978] VR 414 at 415-416, as to reliance on public interests, stating that to be “a sensible view because otherwise plaintiffs will seek to characterise their claim as novel or in the public interest confident in the knowledge that this will of itself immunise them from a security order”: at [29.113]. Such an approach places little faith in the perspicacity of the court, but there is a more principled basis for caution. Thus in Lucas v Yorke (1984) 58 ALJR 20, a case in which there had been a grant of special leave to appeal, Brennan J, in refusing an order for security stated (at p 21):

“I do not stress the importance of the question for determination lest the public interest in the resolution of that question override the interests of the parties (c.f. Kardynal v Dodek [1978] VR 414). However, justice would not be best served in the circumstances of the present case by shutting out the appeal and I decline to make an order for security.”

58 The nature of the public interest, the circumstances in which it arises in particular litigation and the basis on which an application for security is made would all be relevant in determining the role of a claim that litigation promotes the public interest: see, eg, Arnold v Queensland (1987) 73 ALR 607 at 613 (Wilcox J). It does not arise squarely in the present case and therefore need not be discussed further.

Application of principles

59 The first factor relied upon by the Bank in the present case is that the impecuniosity of the corporate Appellants has been established. That is not in dispute: accordingly there is an appropriate basis for making an order for security.

60 The second proposition put by the Bank is that the Appellants have failed to prove that an appropriate order for security would stifle the appeal. Subject to any consideration of what might be an appropriate amount, for reasons referred to above in considering the Registrar’s decision, the Bank is correct in contending that stultification was not established. In resisting this contention, the Appellants did no more than refer to the impecuniosity of the companies and the bankruptcy proceedings against Mr Carpenter, as establishing his impecuniosity. However, as already noted, that did not establish on the balance of probabilities that the appeal would not proceed if security for costs were required. It is of course possible that the lengthy trial exhausted the resources of those who were prepared to back the proceedings. Nevertheless, an appeal having been filed, it may be inferred that the companies have some resources at their disposal. It would be a matter of speculation to say that those resources extend only to the funding of a three day appeal, and not to an order for security.

61 Thirdly, the Bank places some weight upon the contention that the appeal has “very limited prospects” of success. However, in circumstances where it has not been demonstrated that the appeal is unlikely to proceed in the event that security is ordered, an assessment of its likely prospects, given the complexity of the issues involved, need not be undertaken. It is sufficient to assume for present purposes that it is brought bona fide (there being no suggestion to the contrary) and that it is reasonably arguable.

62 The fourth relevant factor concerns the position of the individual Appellant, Mr Carpenter. As he is by no means the only person likely to benefit from success, the relevance of his position is limited to that of Mr Roach in Winnote v Page. Unlike Mr Roach, his impecuniosity may be assumed. The result is that his presence as an appellant will not protect the corporate Appellants from an order for security for costs; if the appeal were unsuccessful, a costs order may be made against him, but there is no basis for thinking that he could meet such a costs order.

63 The Appellants seek to raise an element of oppression by contending that the Bank is endeavouring to avoid having the appeal heard. However, there is no evidence to suggest that the Bank’s position involves some improper purpose, as opposed to its concern that even a successful defence of the appeal will result in undue financial loss as it will not be able to recover such costs as the Appellants may be ordered to pay in the event of the appeal being dismissed.

64 In the circumstances, the factors to be considered militate in favour of an order for security, the remaining question being the appropriate amount.

65 The Registrar noted that the evidence led on behalf of the Bank estimated costs incurred in responding to the appeal would be within the range of $150,000 to $180,000: at [5]. In this Court the Bank merely noted that there was no challenge in relation to the estimated costs calculated on a party and party basis.

66 Although the affidavit accompanying the application provided a justification for assessing costs at the higher end of that range, and although the bases of calculation of solicitor’s and counsel’s fees reflect commercial expectations, it seems likely that a party and party assessment would be at the bottom, rather than the top of that range. Further, it is usual to fix an amount by way of security which is below the applicant’s estimation, so as not to impose an undue burden on the corporate appellant or plaintiff and so that the applicant will bear the risk of over-estimation. The interests of justice would be best served in this case by making an order for the provision of security for costs in an amount of $100,000.

67 I would propose the following orders:

(1) Grant leave to appeal against the decision of the Registrar dismissing the motion seeking security for costs.

(2) Allow the appeal and set aside the judgment of the Registrar delivered on 18 June 2007.

(3) Order that the corporate Appellants furnish security for the costs of the Respondent of and incidental to the appeal in the amount of $100,000.

(4) Stay the proceedings in this Court until such security is provided.

(5) Order that the corporate Appellants pay the Respondent’s costs of the motion, both before the Registrar and of the appeal from his decision.

(6) Grant the Appellants (being the respondents to the appeal on the motion) a certificate under the Suitors’ Fund Act 1951 (NSW) in relation to the costs of the appeal, unless disqualified pursuant to s 6(2) of that Act.

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