Powell, Larry v Glow Zone Products Pty Ltd

[1997] FCA 446

IN THE FEDERAL COURT OF AUSTRALIA			)
)
NEW SOUTH WALES DISTRICT REGISTRY			)     No. NG 1008 of 1996
)
GENERAL DIVISION			)
BETWEEN:		LARRY POWELL Appellant
AND:		GLOW ZONE PRODUCTS PTY LTD Respondent
CORAM:	EMMETT J
PLACE:	SYDNEY
DATED:	2 MAY 1997

EX TEMPORE REASONS FOR JUDGMENT

This is an application, made by notice of motion, for security for the costs of an appeal which is fixed for hearing on 22 and 23 May 1997.  The basis upon which the application was initially brought was that the appellant is, by his own concession, impecunious to the extent that he would not be in a position to meet an order for the costs of the appeal if made against him.  It was also contended by the applicant for security that the appeal is not a strong one, reference being made to a concession made by the solicitors for the appellant that senior counsel for the appellant had advised that the prospects were “fair”.

The appellant’s initial response to the application was that it was brought too late.  Security was not foreshadowed until 24 March 1997 in circumstances where the notice of appeal had been lodged in December 1996 and the appeal had, on 18 March 1997, been fixed for hearing on 22 and 23 May 1997. In general, security would not be ordered against an individual in proceedings at first instance. However, in the case of an appeal, where the appellant has had his day in court and had the benefit of trial and detailed reasons from a judge of the court, different considerations apply. 

There is some curiosity in the terms of the rules dealing with security.  Section 56 of the Federal Court Act 1976 (Cth) provides that the court or a judge may order an applicant in a proceeding in the court, or an appellant in an appeal to the court, to give security for the payment of costs that may be awarded against him or her. On the other hand, Order 28 of the Federal Court Rules, which deals with security for costs, refers to the provision of security by an applicant on the application of a respondent. Thus, section 56 appears to draw a distinction between initial proceedings and an appeal, whereas Order 28 does not. On reflection, I consider that the reference to an appeal to the court in section 56 is a reference to an appeal to the court in its original jurisdiction.

Order 28 Rule 3 provides for circumstances in which the court may order that an applicant give security. On the other hand Order 52, rule 20 provides that, unless the court or a judge otherwise directs, no security for costs of an appeal to the court shall be required.  It is by no means clear what the relationship between Order 28 rule 3 and Order 52 rule 20 may be. Generally, however, I consider that there is a discretion which is available to the court, on the hearing of an application for security for the costs of an appeal, to take into account all of the factors that would be relevant for an application for security for the costs of a hearing at first instance.

Nevertheless, it may be that the terms of Order 52 rule 20 indicate that, before security would be granted in respect of an appeal, some special circumstances must be made out.  In Webster v Lampard (1993) 67 AJLR 393, Toohey J made the observation that, where there is an appeal as of right, it is more appropriate to consider the merits of the appeal where security for costs is sought.  Where an appeal may appear to have little merit the court would be more disposed to order security. In this case I consider that, if there is a requirement for special circumstances to be made out, those circumstances have been made out by reason of evidence which emerged during the course of the hearing today. 

The appellant claims to be entitled to a trademark.  The effect of the decision below was to deny that claim and to order that the mark be expunged.  The evidence now before me on the hearing of the application for security includes a deed of company arrangement the parties to which are Mr Hugh Jenner Wylie, in his capacity as administrator of World Caps Games Co Pty Limited (“the Company”), the Company and the appellant. That deed recites the following circumstances:

(a)  On 31 May 1994 the appellant made application for the trademark;

(b) On 21 December 1994 the appellant commenced trademark proceedings, being those which are now under appeal.  The recital referred to the fact that when the deed was entered into on 24 September 1996 Sheppard J’s decision was still reserved;

(c) The appellant had a mere expectancy to an account of profits that would be payable by the respondent should the appellant be successful in the trademark proceedings;

(d) On 14 December 1994 the Powell Family Trust was established by way of deed of settlement between MBP Services Pty Limited as settler and the appellant as trustee;

(e) The appellant was the first trustee of the trust and remained as trustee until 3 July 1996 when the Company was appointed trustee of the trust.

(h) On 10 July 1996, Mr Wylie was appointed administrator of the Company; 

(i) The appellant has agreed to hold for the benefit of the trust the mere expectancy and benefits, if any, which flow from the trademark proceedings, in accordance with the deed.

The purpose of the deed was expressed to be to allow the administrator to realise the property of the Company and/or the property of the trust and to utilise the proceeds to provide for the payment of the liability of participating creditors and to provide for the payment of any surplus to the Company as trustee of the trust.  I have no evidence before me as to who are the beneficiaries under the trust or as to the terms of the trust.  However, the terms of the deed of company arrangement make clear that there are persons who stand to benefit from the successful outcome of the appeal.  Those persons are the beneficiaries of the trust and possibly the creditors of the Company.

It may be that the creditors of the Company are, in effect, creditors of the trust in the sense that the Company incurred its liabilities in its capacity as trustee.  Those matters are not clear one way or the other.  What is clear, however, is that those categories of persons, namely the beneficiaries and creditors, stand to gain from the successful outcome of the proceedings without being at risk as to the costs of the proceedings.  There is evidence that the administrator is providing the appellant's costs of the proceedings, no doubt because it is perceived that the outcome will benefit the Company.

In those circumstances it seems to me that fairness would require that those who stand to gain from the successful outcome of the appeal should also bear the risk of an unsuccessful outcome. I cannot, of course, make any order for the provision of security by the Company or the creditors or the beneficiaries of the trust.  However, in the circumstances it seems to me that it is open to me to require that the appellant provide security and to order a stay of the appeal unless that security is provided in fairly short time.

In the light of the matters to which I have just referred, it appears to me that the delay in foreshadowing an application for security is of no great consequence.  The delay may be explicable in the sense that there was evidence from the solicitor for the respondent that, until the bill of costs for the trial had been prepared, no question of solvency of the appellant had been discussed between the parties and the respondent was unaware of the appellant's financial status.  Be that as it may the respondent did take the trouble to carry out searches without any prompting other than the fact that the appeal had been lodged.  That is something which, it seems to me, could have been done considerably before March 1997.

Nevertheless, as I have said, I do not regard that matter as being sufficient to disentitle the present applicant in the light of the terms of the deed of company arrangement. As I understand it, the terms of that instrument only came to the attention of the present applicant when it was produced today during the course of the application.  There is evidence before me that the costs of the respondent to the appeal would be in the vicinity of $26,000, in round terms, on the assumption that there was an allowance for senior and junior counsel and for the attendance of solicitors from Melbourne.

There was also evidence before me, although not in the same terms, from the solicitor for the appellant estimating that the costs of the respondent to the appeal would be approximately 50 per cent of those expended by the appellant.  The rationale for that is not totally clear and, in addition, the estimate was based on only junior counsel and makes no allowance for the attendance of solicitors from Melbourne.  Bearing in mind that there has been no evidence at all as to the extent of the funds which might be available from the trust or from the administrator, I cannot conclude that making an order in the sum of $25,000 would preclude the continuation of the appeal. In the circumstances, I propose to direct that the appellants provide security in a form satisfactory to the registrar in the sum of $25,000 on or before 9 May 1997.

I propose to stand the application over to a date after that time in order to determine what should happen to the hearing of the appeal in the event that there were difficulties in complying with that order.  In the circumstances I propose that the costs of the application before me today be treated as costs of the appeal. 

The orders I make then are:

I order the appellant to provide security in the sum of $25,000 in a manner satisfactory to the registrar on or before 9 May 1997. I order that the costs of this notice of motion be the respondents costs of the appeal. I stand the notice of motion over for final disposition on 13 May 1997 at 9.30 am.

I certify that this and the preceding five pages are a true copy of the Reasons for Judgment of his Honour Justice Emmett.

Associate:

Date:   2 May 1997

Appearances:

Counsel for the appellant (respondent on the notice of motion): G. Laughton

Solicitor for the appellant (respondent on the notice of motion): McCrohon Bergseng

Counsel for the respondent (applicant on the notice of motion): Colin C. Golvin

Solicitor for the respondent (applicant on the notice of motion): Simpsons as city agents   for Aroni Colman

Heard:            2 May 1997

Place:              Sydney

Decision:         2 May 1997