Scale v Professional Investment Services Pty Ltd
[2013] FCCA 1343
•4 June 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SCALE v PROFESSIONAL INVESTMENT SERVICES PTY LTD | [2013] FCCA 1343 |
| Catchwords: COSTS – Security for costs – claim by employee for entitlement to a bonus on a quantum merit basis – grounds favouring security for costs – “unreasonable act or omission” – “merely arguable” case – whether the matter would warrant summary dismissal – whether costs could be met – consideration of quantum of security sought – application dismissed. |
| Legislation: Federal Circuit Court of Australia Act 1999 (Cth), s.80 Federal Circuit Court Rules 2001 (Cth), r.21.01 |
| Australian and International Pilots Association v Qantas Airways Ltd (No. 3) (2007) 162 FCR 392 Stephen Colbran, Security for Costs (Longman Professional, 1993) |
| Applicant: | BRADLEY SCALE |
| Respondent: | PROFESSIONAL INVESTMENT SERVICES PTY LTD |
| File Number: | BRG 920 of 2011 |
| Judgment of: | Judge Burnett |
| Hearing date: | 22 May 2013 |
| Date of Last Submission: | 22 May 2013 |
| Delivered at: | Brisbane |
| Delivered on: | 4 June 2013 |
REPRESENTATION
| Counsel for the Applicant: | Mr M. Stunden |
| Solicitors for the Applicant: | AVA Solicitors |
| Counsel for the Respondent: | Mr D. Katter |
| Solicitors for the Respondent: | McCullough Robertson |
ORDERS
That all outstanding applications be dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRG 920 of 2011
| BRADLEY SCALE |
Applicant
And
| PROFESSIONAL INVESTMENT SERVICES PTY LTD |
Respondent
REASONS FOR JUDGMENT
(Revised from Transcript)
The respondent, Professional Investment Services Pty Ltd (PIS), makes application for an order for security for costs against the applicant, Bradley Scale. Section 80 of the Federal Circuit Court of Australia Act 1999 (Cth) governs security for costs; subsection (2) provides:
“(2) The Federal Circuit Court of Australia or a Judge may order an applicant in a proceeding in the Federal Circuit Court of Australia to give security for the payment of costs that may be awarded against him or her.”
Subsection (3) continues:
“(3) The security is to be of such amount, and given at such time and in such manner and form, as the Federal Circuit Court of Australia or Judge directs.”
And subsection (5) provides:
“(5) If security, or further security, is not given in accordance with an order under this section, the Federal Circuit Court of Australia or a Judge may order that the proceeding be:
(a) dismissed; or
(b) stayed until security or further security is given in accordance with the first‑mentioned order.”
The Federal Circuit Court Rules 2001 (Cth) at Rule 21.01 give effect to s.80. This rule relevantly provides at subsection (1), security for costs:
“21.01 Security for costs
(1) On application by a respondent, the Court may order the applicant to give the security that the Court considers appropriate for the respondent’s costs of the proceeding.”
Largely, there is no disagreement between the parties concerning the principles to be applied to an application of this kind. As I stated in the decision of Manning v Arafura Pearls Holdings Ltd (No. 2) [2010] FMCA 830, the principles governing applications for security for costs are well settled and there was no disagreement between the parties as to the appropriate principles to be applied. Ultimately, the matter is one which calls for the exercise of discretion.
Subject to the Court exercising its discretion judicially, its discretion is largely unfettered. An examination of the approach that is considered appropriate in an application of this kind can be seen by reference to the decisions of Equity Access Limited v Westpac Banking Corporation & Ors[1] and KP Cable Investments Pty Ltd v Meltglow Pty Ltd.[2] Further assistance as to the general approach can be gleaned by reference to the text Security for Costs by Stephen Colbran.[3]
[1] (1989) ATPR 40-972.
[2] (1995) 56 FCR 189.
[3] Stephen Colbran, Security for Costs (Longman Professional, 1993).
In its application PIS identifies five discretionary grounds which it contends favour the granting of relief. They are:
a)Merits;
b)Risk that a costs order will not be met;
c)Oppression;
d)Delay; and
e)The quantum of security.
For Mr Scale, other matters admitted to be of moment in the evaluation of the appropriateness of the relief contended for include:
a)That Mr Scale is an individual litigant suing in person; and
b)That the proceedings arise under the Fair Work Act2009 (Cth) (FW Act). I note this point as being really a subset of the merits argument.
Looking then to each of the matters that have been submitted, first dealing with the merits. The applicant’s claim against the respondent is for relief under the FW Act for contraventions of s.323(1) associated with alleged failures by PIS to pay sums that were contended to be payable by reference to the conduct of employment, and in particular an allegedly agreed bonus and/or damages for contract of employment and/or a claim on quantum merit. In submissions for PIS it was contended that the cause of action had poor prospects. In the Statement of Claim it is noted that the applicant worked with the respondent entity as its Chief Legal Officer and that the applicant pleads that by way of consideration for additional duties he would be paid a “minimum 7 figure bonus.”
The additional duties pleaded to in the following terms:
“… in addition to his existing day to day duties to manage the Respondent’s exposure to the Scheme and attend to all tasks and duties to examine alternatives to the Scheme being placed into administration without compensation to the Investors and to avoid litigation being commenced against the Respondent …”
The ‘Scheme’ was a reference to a managed investment scheme and the ‘Investors’ relate to 900 retail investors. The bonus is said to have arisen in the course of a disputed conversation between Mr Scale and the then CEO of PIS, Mr Bennetts.
The alleged offer is not one that has been reduced to writing and is not further particularised. The best that can be said is that further and better particulars will be provided after the issue of subpoenas and notices to produce and/or interrogatories. As I have noted, the application itself pleads a cause of action in contract based upon the alleged contract therein as well as the alternative plea in respect of alleged contraventions of the FW Act.
In the submissions made on behalf of PIS it is largely contended that the cause of action lacks particularity and that it may give rise to issues which of themselves may not support a claim of action. For instance, an argument arises as to whether there is sufficient certainty surrounding the reference to the claims in respect of the bonus, and the claim in respect of quantum merit certainly can be described as novel.
In response to the employer’s contention that the claim’s prospects were weak, the employee contends that there is, in fact, a prima facie meritorious claim. He contends that the material demonstrates that there is no factual dispute about the fact that the employer, represented through its CEO, would pay a minimum seven figure bonus – whatever that might mean. The factual dispute for trial will concern the conditions upon which the seven figure bonus agreement was to be paid. There is a further issue in relation to the context in which the bonus agreement was negotiated. It is contended that there will be some factual dispute in respect of those matters.
Although there might be a genuine dispute about the evidence, the real question, in my view, is whether that dispute would itself be productive. As matters stand, I am not certain that it would. The applicant has some potential difficulties as I touched upon earlier, namely that:
a)There is no certainty of contract by a mere reference to a ‘seven figure sum’ as the bonus sum, even if there were to be findings in favour of the facts; and
b)Whether a quantum merit claim arises.
In effect, here a salaried employee claims an entitlement to a bonus on a quantum merit basis and I will not speculate on whether this can be done. It does however appear to be counter-intuitive to me. A salaried employee is exactly that. If his labours produce a significant windfall to his employers so be it. If a bonus scheme was intended it should have been agreed to and, like any other agreement, been capable of ready determination.
It is, in my view, difficult to imagine how a quantum merit assessment can be undertaken in respect of a windfall to an employer in respect of duties undertaken by a salaried employee. However, the matter has not been fully debated and I reach no concluded view without the benefit of full argument. It does however, in my view, lend some support to the suggestion that the action as it presently stands is not strong. Finally, the s.232(1) Fair Work application also suffers a similar difficulty. That section can only have real bearing if the employee has an entitlement to payment. For reasons I have earlier outlined there may be a basis to believe that there is no such entitlement in this case.
I think further consideration must also be given to the context of the application. These are proceedings under the FW Act. Ordinarily, pursuant to s.570, a costs order is not made unless certain circumstances are made out. Section 570(1) of the FW Act is in these terms:
“(1) A party to proceedings (including an appeal) in a court (including a court of a State or Territory) in relation to a matter arising under this Act may be ordered by the court to pay costs incurred by another party to the proceedings only in accordance with subsection(2) or section 569 or 569A.”
And subsection (2):
“(2)The party may be ordered to pay the costs only if:
(a) the court is satisfied that the party instituted the proceedings vexatiously or without reasonable cause; or
(b) the court is satisfied that the party’s unreasonable act or omission caused the other party to incur the costs; or
(c) the court is satisfied of both of the following:
(i) the party unreasonably refused to participate in a matter before the FWC;
(ii) the matter arose from the same facts as the proceedings.”
This is a material factor, because if the employee has no reasonable prospects of a costs order at the conclusion of the proceedings then, logically, it seems difficult to imagine why the employee ought to have the benefit of an order for security for costs to cover such an eventuality. It seems to me that the issue is whether a weak case ought to involve a costs order. Here the merits of a case arising in these circumstances may bring into question the discretion to award costs pursuant to s.570.
In considering the general approach in circumstances where a claim is alleged to be pursued vexatiously or without reasonable cause in the context of industrial applications, the principles applicable to the court’s exercise of powers of summary dismissal have been determined to be applicable.[4] Although that decision is based on an earlier legislative iteration of s.570, the differences in expression are not material to the application of that principle.
[4] See Heidt v Chrysler Australia Ltd (1976) 26 FLR 257 at page 272 per Northrop J.
Likewise, in Australian and International Pilots Association v Qantas Airways Ltd (No. 3),[5] Tracey J, in the context of a similar application, made like statements. Commencing at [36], his Honour proceeded:
“In dealing with an application for costs under s.347(1) of the Act, in Standish v University of Tasmania (1989) 28 IR 129, Lockhart J was called on to decide whether the proceeding had been instituted “without reasonable cause.” His Honour drew a distinction between the pursuit of an argument which does not succeed and the institution of a proceeding which is misconceived in the sense of being incompetent: see at 138-9. This distinction may, in my view, assist in determining whether conduct is unreasonable for the purposes of s.824(2). The prosecution of any incompetent or hopeless case can be regarded as “an unreasonable act” within the meaning of s.824(2). Conversely, in my opinion, the pursuit of a contentious, and ultimately unsuccessful, argument is not an unreasonable act …”
[5] (2007) 162 FCR 392.
Tracey J’s observations were endorsed by the Full Court in CFMEU v Clarke (2008) 170 FCR 574 at page 582 where there the Full Court explained the matter further commencing at [28].
“We turn now to s.824(2) of the [Workplace Relations Act 1996 (Cth)]. This provision carves out another exception to the usual rule in s.824(1) that costs orders are not to be made in respect of proceedings in a matter arising under the WR Act. The exception applies when two criteria are satisfied. The first criterion is that one party must have engaged in “an unreasonable act or omission.” As the reasoning of Tracey J in Australian and International Pilots Association v Qantas Airways Ltd (No 3) (2007) 162 FCR 392 and Siopis J in McAleer v University of Western Australia (No 2) 161 IR 151 demonstrates, whether a party has conducted itself or its litigation in such a way as to cross this threshold will depend upon the particular circumstances of the case. The second criterion is that the act or omission of one party must have “caused another party to the proceeding to incur costs in connection with the proceeding.” Once both criteria are satisfied, then the Court “may” in its discretion order of the party which has engaged in the unreasonable act or omission to pay some or all of the costs of the other party.
In our view, the respondent has not engaged in “an unreasonable act or omission.” As the authorities indicate, there is a distinction between a party who pursues arguments which are ultimately abandoned or rejected by the Court and a party who commences a proceeding which is misconceived in the sense of being incompetent or unsupportable: Australia and International Pilots Association 162 FCR at 402; Standish v University of Tasmania (1989) 28 IR 129 at 138-139. Simply because a party does not conduct its litigation in the most efficient way does not mean that the Court should exercise its discretion in s.824(2) of the WR Act to make a costs order …”
The Court continued:
“… Indeed, while courts should use the discretion in s.824(2) to ensure that parties to litigation arising from the WR Act do not engage in unreasonable acts and omissions which put the other party to undue expense, they should also be careful not to exercise the discretion with too much haste, given that such haste may discourage parties, for fear of an adverse costs order, from pursuing litigation under the WR Act in the manner in which they deem best.”
Although the Court there was considering the operation of the predecessor section to s.570, that fact is not of the moment. In his submissions, counsel for PIS submitted that the merits were not strong. However, he did concede that despite the fact that the case was “not a strong case” it was, at its highest, “merely arguable.” Being “merely arguable” would not warrant summary dismissal. Further, in the context of the authorities it would appear that a merely arguable case could not be characterised as one which is unreasonable or vexatious.
Prima facie it follows that the claim, at least on its face, appears to be one which would not be dismissed summarily and also would not be characterised as unreasonable or vexatious in the ordinary course. Accordingly, in all likelihood it would not be subject to the award of costs by operation of s.570. In reaching this conclusion I am mindful that there have been instances where courts have ordered security on Fair Work applications. One such instance was the decision of Manning v Arafura Pearls Holdings Ltd (supra) to which I have earlier referred.
In the ex tempore reasons for judgment, the underlying vexatious and/or unreasonable conduct of the employee was perhaps not sufficiently expanded upon. However, in that case the employee had failed and/or refused to turn up for inspection the alleged original of a letter of engagement, which was contended by the employer to be a fraud. The employer denied the letter and alleged that the letter was one which had been doctored. It based that assertion on some data detailed in the letter which post-dated the purported time of its creation. In summary, it seems that this particular matter is one that falls against the grant of the relief.
The second matter raised is the risk of costs and the prospect that they may not be met. The employer submits that the employee has been twice been declared personally insolvent. It is contended that a search of the Queensland Titles registry on 7 September 2012 indicated that the employee held a fee simple interest in real property in the State of Queensland. However, a search conducted on 16 May indicated that he no longer held that interest in property.
Dealing first with the bankruptcy, it seems from a review of the National Personal Insolvency Index that the entry, although there is a dual entry, appears to be in respect of one insolvency event. That event does not, I think, appear to be seriously in contention. The employee accepts that he committed an act of bankruptcy and that there was appropriately one entry in the index in respect of that event. However, since that time he has taken up employment as a corporate lawyer for Villa World Limited, an ASX listed company.
He is paid $250,000.00 a year and it is necessary for him to maintain a practising certificate to maintain that role. Additionally, he cannot hold a practising certificate whilst he is in a state of bankruptcy. Furthermore, a review of his history demonstrates that for most of his professional life, save for one short period which I will address in a moment, he appears to have been employed as a lawyer, generally at a very high level. At one stage he was a partner in a significant law firm on the Gold Coast. Realistically, that is the only real skill he has to peddle and the only way in which he can hope to achieve a reasonable source of income.
When one looks at the timing of his event of bankruptcy and the circumstances that surrounded those events, it appears that the bankruptcy was associated with his conduct with a business which was not a legal practice. I am inclined to infer from those circumstances that, on balance, given that he no longer seems to conduct any other business or earn income except from the practice of law, the likelihood of future insolvency events is minimal. I am therefore of the view that he will have a capacity to pay any costs sought: particularly in respect of the sum sought by way of security, and more likely costs sought if he is unsuccessful, and if a costs order was to be awarded against him in respect of the larger sum of about $130,000.00 which has been estimated by the solicitors for the employer.
In passing I note also that in respect of these matters there is generally reluctance on the part of courts to award security for costs against individuals. This is generally consistent with the approach adopted in respect of those who stand behind corporations. For instance, in Harpur v Ariadne Australia Ltd,[6] Connolly J noted that the seeking of security against individuals was designed to bring out from behind the corporate veil those who would ultimately be the beneficiaries of litigation and thus put their assets at risk when they were supporting litigation by third parties.
[6] [1984] 2 Qd R 523.
This matter is no such case. Here, the employee has put himself at risk and it follows that if costs are awarded against him he will be liable. He has, as I have noted, a capacity to pay those costs, at least as long as his current employment continues.
The third matter raised by PIS is the matter of oppression. In Manning v Arafura (supra) I dealt with the matter of oppression at [23], where I stated:
“… Unquestionably, courts ought to be cautious to ensure that they are not permitted to be used as instruments to unreasonably oppress the rights of litigants, to prosecute their legitimate claims. Courts have long sought to achieve a balance between preventing security for costs for being used as a means of shutting out or stifling a claim of a small, as against a large, well resourced litigant, and not being overly reluctant to make an order for security for costs against an impecunious plaintiff, who can use the inability to pay costs, as a means of putting unfair pressure on a more prosperous defendant; they being the two principal competing interests.
Courts are keen to strike a balance in the context of all the circumstances of the case, including the motives of those behind litigation …”
Here the quantum is not oppressive; however this case is unlike Manning. There the employee pursued a claim based upon a contract which was alleged to be fraudulent. He refused to produce the original document for examination and assessment. This case is arguably a straight credit contest between two principal witnesses as to the arrangement that was concluded. In a case such as this, the prospect of the order acting oppressively is much greater than that which arose in Manning, however, I do take this matter into consideration.
The next matter is that of delay. As was noted in the correspondence between solicitors, there has been an eight to nine month delay in the bringing of the application. That matter however is in my view not overly persuasive, particularly in light of the fact that the applicant appropriately only seeks a lesser quantum by way of security, nevertheless I have taken that fact into consideration.
The final factor advanced is the quantum of the security which is sought. As I have noted it is a modest sum and that factor too has weighed in the consideration. On balance, having considered each of the matters individually and collectively, I consider that the balance falls against the claim for the relief sought and the application is dismissed.
I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of Judge Burnett
Date: 13 September 2013
Key Legal Topics
Areas of Law
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Commercial Law
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Contract Law
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Negligence & Tort
Legal Concepts
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Breach
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Duty of Care
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Fiduciary Duty
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Negligence
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Reliance
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Remedies
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