SMITH v Certus Solutions Pty Limited
[2016] FCCA 2516
•30 September 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SMITH v CERTUS SOLUTIONS PTY LIMITED & ANOR | [2016] FCCA 2516 |
| Catchwords: PRACTICE & PROCEDURE – Application for security for costs – applicant resident overseas with no assets in Australia – few net assets in country of residence. |
| Legislation: Competition and Consumer Act 2010, sch.2 (Australian Consumer Law) |
| Cases cited: Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 Morris v Hanley & Ors [2001] NSWCA 374 Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 Cowell v Taylor (1885) 31 Ch D 34 Pearson v Naydler (1977) 1 WLR 899 Melville v Craig Nowlan & Associates Pty Ltd (2001) 54 NSWLR 82 PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 65 ALJR 642 Logue v Hansen TechnologiesLtd (2003) 125 FCR 590 NV Sumatra Tobacco Trading Company v British American Tobacco Australia Services Ltd (2008) 79 IPR 286 Barton v Minister for Foreign Affairs (1984) 2 FCR 463 Dense Medium Separation Powders Pty Ltd v Gondwana Chemicals Pty Ltd [2011] NSWCA 84 Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336 Berry v Innovia Security Pty Ltd [2014] FCA 357 Soh v Commonwealth (2006) 231 ALR 425 Berry v Innovia Security Pty Ltd (No 2) [2015] FCA 1156 Harpur v Ariadne Australia Ltd (1984) 2 Qd R 523 McSharry v Railway Commissioners (1897) 18 LR (NSW) 33 Abraham v Thompson (1997) 4 All ER 362 Sharples v Minister for Local Government (2008) 159 LGERA 391 |
| Applicant: | MATTHEW SMITH |
| First Respondent: | CERTUS SOLUTIONS PTY LIMITED ABN 45 133 940 379 |
| Second Respondent: | BRIAN JOHN ALLEN |
| File Number: | SYG 71 of 2016 |
| Judgment of: | Judge Cameron |
| Hearing dates: | 15 July and 16 August 2016 |
| Date of Last Submission: | 16 August 2016 |
| Delivered at: | Sydney |
| Delivered on: | 30 September 2016 |
REPRESENTATION
| Solicitors for the Applicant: | Mr B. Hemsworth of Somerville Legal |
| Counsel for the Respondents: | Mr J. Darams |
| Solicitors for the Respondents: | DLA Piper Australia |
ORDERS
The respondents’ application in a case filed on 11 May 2016 be dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 71 of 2016
| MATTHEW SMITH |
Applicant
And
| CERTUS SOLUTIONS PTY LIMITED ABN 45 133 940 379 |
First Respondent
| BRIAN JOHN ALLEN |
Second Respondent
REASONS FOR JUDGMENT
Introduction
The applicant is a citizen of the United States resident in New Jersey, who, for a time in 2015, worked in Australia for the first respondent. The second respondent was the first respondent’s Chief Executive Officer. The applicant has alleged that his employment with the first respondent was wrongfully terminated in November 2015 and that representations the first respondent had made to him which induced him to work for it in the first place were misleading and in contravention of the Australian Consumer Law (“ACL”).
The applicant has also alleged that the second respondent was an accessory to the first respondent’s breaches of the ACL and liable accordingly. A claim for travelling costs was also made.
The applicant seeks damages approaching $500,000.
The originating application was filed on 13 January 2016 and the respondents filed a defence on 4 March 2016. On 11 May 2016 the respondents also filed an application in a case under s.80 the Federal Circuit Court of Australia Act 1999 (“Act”) and rule 21.01 of the Federal Circuit Court Rules 2001 (“Rules”) seeking security for costs in the sum of $95,095. Section 80 relevantly provides:
80 Security for costs
…
(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.
(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.
…
(6)This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the giving of security.
Rule 21.01 provides that the Court may order an applicant to give such security for costs as the Court considers appropriate.
The basis of the application for security for costs is the applicant’s residence in the United States and the respondents’ belief that he has few if any significant assets in this country. The applicant did not contest either proposition. In fact, in his affidavit of 30 June 2016 he deposed to having no assets of significant realisable value at all, largely because of the fall in the value of his home because of the global financial crisis. He deposed that his net asset position is very poor and he has had to borrow from family to finance part of these proceedings.
The applicant also deposed in his affidavit of 21 April 2016 to a monthly income of approximately USD10,750 (presumably gross) and in his affidavit of 30 June 2016 to monthly home mortgage payments of USD2,107 and credit card debts totalling nearly USD40.000. I infer that the applicant’s net salary is, to all intents and purposes, fully committed to domestic expenses and to servicing existing debts.
In support of the application for security for costs, the respondents’ solicitor, Mr Catanzariti estimated in an affidavit sworn on 11 May 2016 that, on a party and party basis, future costs likely to be incurred by the respondents in defending these proceedings were $95,095.
The evidence demonstrated and the parties accepted that a judgment for the costs of these proceedings could be registered and enforced in New Jersey.
Consideration
The Court’s discretion to order security for costs is unfettered. The applicant’s written submissions referred to considerations prescribed by r.42.21 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”). However, State rules of procedure will only apply in a federal court in the absence of a relevant federal provision: s.79 Judiciary Act 1903. Section 80 of the Act and r.21.01 of the Rules are such provisions and so the application for security for costs must be considered by reference to the authorities relevant to those provisions rather than the UCPR.
Various considerations which may be taken into account when considering applications for security for costs have been discussed in the cases. In Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 Hill J identified the following to be among the matters appropriate for consideration when determining an application for security for costs:
· the chances of success of the applicant; whether the applicant’s claim is bona fide or a sham;
· the quantum of risk that the applicant cannot satisfy a cost order;
· whether use of the power would shut out a small company from making a genuine claim against a large company, i.e. is the power being used oppressively;
· whether the impecuniosity arises out of the Act [sic] in respect to which relief is sought;
· whether there are aspects of public interest which weigh in the balance against the making of an order;
· whether there are any particular discretionary matters peculiar to the circumstances of the case.
I consider the first, second and final points to be relevant in the present case.
A consideration in this case relevant to Hill J’s second and final points is that the applicant is close to impecunious, in that he has few net assets and his income appears to be almost fully-committed. Other considerations which fall within Hill J’s final point are that the applicant is resident overseas and that the respondents did not seek security for costs promptly: Morris v Hanley & Ors [2001] NSWCA 374.
Bona fide case
The nature of a bona fide case was discussed in Equity Access Ltd v Westpac Banking Corporation; Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 514 and KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 197. It was held in those cases that for the purposes of a security for costs application, a case that is prima facie regular and discloses a cause of action should, absent evidence to the contrary, be treated as bona fide with reasonable prospects of success. The terms of the application, briefly summarised earlier in these reasons, satisfy me that this is such a case.
The fact that the respondents may allege a counter-claim or set off should not affect that assessment and, in the particular circumstances of this case does not. Whether or not the respondents in this case have an enforceable counter-claim or set off against the applicant does not affect my conclusion that his claim is a bona fide one.
Risk that the applicant cannot satisfy a costs order
There seems little doubt that, as things stand, the applicant could not satisfy a costs order were the matter to proceed to judgment and he was unsuccessful. Importantly, no evidence suggests that the applicant has sought to reduce his apparent assets in order to reduce the effectiveness of an adverse costs order. Had such conduct been demonstrated, it would have strengthened the case for security for costs.
The rule is that, subject to particular exceptions, poverty is no bar to a natural person litigant bringing a proceeding. In Cowell v Taylor (1885) 31 Ch D 34 it was said:
The general rule is that poverty is no bar to a litigant, that, from time immemorial, has been the rule at common law, and also, I believe, in equity. There is an exception in the case of appeals, but there the appellant has had the benefit of a decision by one of Her Majesty's Courts, and so an insolvent party is not excluded from the Courts, but only prevented, if he cannot find security, from dragging his opponent from one Court to another. There is also an exception introduced in order to prevent abuse, that if an insolvent sues as nominal plaintiff for the benefit of somebody else, he must give security. (at 38 per Bowen LJ)
In Pearson v Naydler (1977) 1 WLR 899 Megarry V-C said:
The basic rule that a natural person who sues will not be ordered to give security for costs, however poor he is, is ancient and well-established. (at 902)
As Heydon JA put it in Melville v Craig Nowlan & Associates Pty Ltd (2001) 54 NSWLR 82:
By “basic rule” Sir Robert Megarry V-C meant, and by “general rule” Bowen LJ meant, that the rule is a strict one, though it is subject to specific exceptions (eg, in relation to appeals, and nominal plaintiffs). They did not mean that generally insolvent plaintiffs will not be ordered to provide security, unless in the specific circumstances of a particular case a court thinks it just to make the order. (at 109 [101])
The risk that the applicant would be unable to satisfy a costs order of a magnitude which would be likely to follow a full contest in this case appears high, even if party and party costs were to be contained and not exceed Mr Catanzariti’s estimate. However, the applicant is not a corporation and impecuniosity of a natural person litigant does not provide, at first instance, a basis for ordering security for costs.
Applicant’s overseas residence
The fact that an applicant is resident overseas with few if any assets in Australia is a matter to which, historically, great weight has attached: PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 65 ALJR 642; Logue v Hansen TechnologiesLtd (2003) 125 FCR 590; NV Sumatra Tobacco Trading Company v British American Tobacco Australia Services Ltd (2008) 79 IPR 286. However, Greenwood J said in NV Sumatra Tobacco:
In exercising the discretion under s 56, the practice in Australia for a very long time has been that a party who is not ordinarily resident in this country and has no assets within the jurisdiction, is normally ordered to give security for costs. These two factors are regarded as circumstances of “great weight” in determining whether such an order should be made: PS Chellaram and Company Ltd v China Ocean Shipping Co ... The qualification upon the weight to be attributed to these factors was put by McHugh J in PS Chellaram … in these terms, “unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction”. (at 289-290 [13]) (references omitted)
Courts’ historical concern regarding applicants located outside the jurisdiction arose out of the practical difficulties facing a successful party in having costs orders recognised or enforced by foreign courts, for instance by having to sue for taxed costs as a debt, not just in the additional expense involved in engaging overseas enforcement processes: Barton v Minister for Foreign Affairs (1984) 2 FCR 463 at 469. As was said in Dense Medium Separation Powders Pty Ltd v Gondwana Chemicals Pty Ltd [2011] NSWCA 84 per Young JA, Campbell and Whealy JJA agreeing:
… The reason for giving the Court power to make orders for security for costs is to make sure, as much as can be done, that an Australian citizen is not prejudiced because he or she is being sued by an overseas individual and there might be barriers put in the way of collecting the successful order for costs.
If one gets to the situation where one has to debate whether or not there are barriers and how significant the barriers are, it seems to me the Court does not decide that, but just says that the plaintiff is entitled, having been sued by a foreign person, to have some certainty that he or she will collect their costs. … (at [38]-[39]).
And in NV Sumatra Tobacco, Greenwood J also said:
The purpose of ordering security for costs against a party ordinarily resident outside the jurisdiction is to ensure that a successful party will have “a fund available within the jurisdiction of this court against which it can enforce the judgment for costs, so that the respondent does not bear the risk as to certainty of enforcement in the foreign country and as to the time and complexity of the action there which might be necessary to effect enforcement”: Energy Drilling Inc. v Petroz NL (1989) ATPR 40-954 at 50,422 per Gummow J). (at 290 [15])
Such concerns have been substantially addressed in relation to certain foreign jurisdictions by the Foreign Judgments Act 1991, which provides for a scheme of reciprocal enforcement of judgments by those countries specified in the regulation made under it. However, the United States and, in particular, the State of New Jersey, are not mentioned in that regulation. Addressing that fact, the applicant adduced evidence of the Foreign Country Money-Judgments Recognition Act and the Uniform Enforcement of Foreign Judgments Act of New Jersey. It is agreed by the parties that the Uniform Enforcement of Foreign Judgments Act of New Jersey provides a mechanism by which a costs order of this Court could be filed in the Superior Court of the State of New Jersey following which it “has the same effect … and may be enforced” as a New Jersey Superior Court judgment.
The respondents argued that:
a)the uncertainty concerning an overseas applicant’s ability to satisfy a costs order would favour the granting of security for costs reflective of the costs of the substantive proceedings (Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336); whereas
b)the fact that an overseas applicant had assets in the relevant overseas jurisdiction apparently sufficient to satisfy a costs order might merit security reflective only of the costs of enforcement additional to those which would be incurred if the unsuccessful applicant were resident in Australia and a costs order enforced here (Berry v Innovia Security Pty Ltd [2014] FCA 357).
I do not think that the principle for which the respondents contended has a sound basis in authority. For instance, in Farmitalia, although Heery J appeared to accept that a judgment of the Federal Court of Australia could be enforced in Italy, where Farmitalia was based, his Honour found that there was no evidence of Farmitalia’s assets in Italy or elsewhere, or whether an Australian judgment could be enforced in a country, other than Italy, in which Farmitalia might have had assets. Most importantly for present considerations, Farmitalia was a corporation, not a natural person. It should be noted in that connection that Heery J referred to the decision of Morling J in Barton v Minister for Foreign Affairs. In that case Morling J said, relevantly for the present case:
… [the Minister] will be able to enforce any judgment for costs in the United Kingdom by virtue of the provisions of the Foreign Judgments (Reciprocal Enforcement) Act 1933 (U.K.), s.2. The provisions of that Act apply to Australia - see Order in Council No. 1073 of 10 November 1933. Thus, if the respondent goes to the expense of registering in the United Kingdom any judgment for costs he may obtain in this court, he will be in no worse position than if the applicant had been resident in Australia. I have already referred to the fact that the applicant is an undischarged bankrupt. It may well be the fact that he has no significant assets. If this is so (and there appeared to be a tacit agreement at the bar table that it probably was the case) the reality of the situation is that the respondent would not be able to enforce any judgment for costs against the applicant even if he was ordinarily resident in Australia. Counsel for the applicant submitted, correctly in my view, that it would be an odd result if an impecunious plaintiff was ordered to give security merely because he was ordinarily resident outside Australia, although his absence from Australia had little, if any, prejudicial effect on the respondent's prospects of recovering his costs. (at 469)
In Barton’s case, Morling J ordered that security be given in an amount that reflected the probable costs of registering and enforcing an Australian judgment in the United Kingdom. Justice Madgwick followed Barton’s case in Soh v Commonwealth (2006) 231 ALR 425.
I think it is reading too much into the Farmitalia case to cite it as authority relevant to natural person applicants who are or may be impecunious. The positions of natural persons and corporations can be quite different when questions of security for costs arise. That is a matter which, with respect, it appears to me Heery J implicitly recognised by not commenting on or otherwise addressing the basis of the presently relevant part of the decision in Barton’s case, which is encapsulated in that part of Morling J’s reasons quoted above concerning how it would be anomalous to order an impecunious applicant to give security just because he or she was resident overseas and how the respondent’s costs risk was not substantively aggravated by the applicant’s overseas residence.
In Berry v Innovia, the other case the respondents relied on to support their argument concerning the circumstances in which an overseas applicant will be required to give security, the Britain-based first applicant owned unencumbered real property in London whose value much exceeded the amount which the respondent sought by way of security for the proceeding. The applicants had offered to undertake to not deal with that property without giving the respondent sixty days’ notice but the respondent rejected that offer. The respondent also rejected the applicants’ offer of $20,000 security for the costs of enforcing an Australian costs order in the United Kingdom, estimated at $4,000. After reviewing relevant authorities Buchanan J said:
The position adopted, in this Court at least, therefore seems to be as follows. A foreign applicant with no assets in Australia should normally expect to provide some security for costs if requested to do so. The amount of the security which is appropriate will depend on all the circumstances. A foreign applicant bears a practical onus of showing that the party seeking security will not be unreasonably disadvantaged if a costs order is made against the foreign applicant. It will be relevant, in that regard, that there are arrangements for the enforcement of Australian judgments in the jurisdiction of the foreign applicant and that, in that jurisdiction, the foreign applicant has adequate assets to satisfy a costs order in the proceedings. It may be relevant that the foreign applicant has given an undertaking not to seek security for costs in its own jurisdiction if enforcement of an Australian costs order is sought. (at [34])
In that case, because the first applicant had significant assets in the United Kingdom, his Honour did not consider it necessary to order security beyond overseas enforcement costs. For present purposes it is significant that the situation of impecunious applicants was not considered in Berry v Innovia and that case is not authority for the proposition that, in the exercise of discretion, the Court should order security if a person is poor but not if they are rich. However, Berry v Innovia does reinforce the practice that great weight is to be given to an applicant’s overseas residence and also that each case involves an exercise of discretion exercised judicially having regard to the facts of the particular case. As his Honour said :
A foreign applicant with no assets in Australia should normally expect to provide some security for costs if requested to do so. The amount of the security which is appropriate will depend on all the circumstances.
One of those may be that the applicant is impecunious.
It should also be noted that, subsequent to the orders recorded in Berry v Innovia, the first applicant in that case breached the terms of an undertaking he had given to the Federal Court to not deal with the relevant real property and as a result the applicants were ordered to give substantial security for the costs of the proceedings more generally: Berry v Innovia Security Pty Ltd (No 2) [2015] FCA 1156. Justice Buchanan said in that connection:
In light of what has happened, I can have no confidence that the undertakings to the Court will in future be observed, whether by decision of the first applicant or through some form of inadvertence. I therefore regard it as desirable that an appropriately full amount of security be now paid into Court.
(at [19])Logue v Hansen Technologies was a case where a natural person applicant who was resident overseas was ordered to give security for the proceedings, not just the cost of foreign enforcement, and one which might appear to be an authority supportive of the present application for security. However, in that case Weinberg J said:
I accept that the general rule is that a natural person who commences litigation will not be required to provide security for costs merely because that person is impecunious: Barton v Minister for Foreign Affairs and Fletcher v Commissioner of Taxation (Cth) … That principle has no application to this case. Far from demonstrating impecuniosity on the part of the applicant, the evidence suggests that he is well able to meet any order for security for costs in the amount sought, or some lesser figure. I am not persuaded that his ability to pursue this litigation would be prejudiced if such an order were made. I note, in particular, that he received an amount of US$860,000 (then worth close to AUD$2 million) approximately one year ago. That sum was paid to him in Hong Kong, a jurisdiction which is well known to impose low rates of income tax. (at 602 [50]) (references omitted)
Although his Honour was persuaded that the circumstances of that case, including the portability of the applicant’s assets and his slight connection with Australia, warranted an exercise of discretion in favour of the respondents, the general rule concerning impecunious applicants was not questioned.
Other cases cited by the respondents concerned corporate applicants and so were of only limited assistance.
Discussion
Whether security for costs should be ordered depends on the circumstances of the particular case and there is no disposition in favour of security even if a particular factual circumstance supportive of an order for security is to be given great weight: Harpur v Ariadne Australia Ltd (1984) 2 Qd R 523. Further, although the overseas residence of an applicant will be a matter of great weight when determining whether security for costs should be ordered, the amount of such security, if any, will depend on all the circumstances. The cases show that different facts have produced different outcomes. In Barton’s case the security ordered against the impecunious applicant reflected the extra costs of overseas enforcement of a costs order; in Berry v Innovia the security originally ordered against the financially strong first applicant who owned real property in his country of residence in respect of which he gave an undertaking reflected the extra costs of overseas enforcement of a costs order; in Berry v Innovia Security Pty Ltd (No 2) the original and limited security for costs order was displaced by a later order for substantial security when the Court became concerned that the first applicant’s undertaking was unreliable; in Logue v Hansen Technologies security for the proceedings generally was ordered against the financially strong applicant whose assets in the jurisdiction of his overseas residence were liquid and potentially mobile.
The evidence satisfies me that the present applicant is impecunious. Were he resident in Australia, the “basic rule” that a natural person who sues will not be ordered to give security for costs, however poor he or she is, would apply to him. The only issue his residence overseas relevantly raises is whether that circumstance would present a risk to the recovery of costs ordered in favour of the respondents which would not be present if the applicant resided in Australia. It is undesirable that, by reason of an applicant’s residence overseas, a respondent should be at greater risk of incomplete satisfaction of a costs order made in its favour than would be the case if the applicant were resident in Australia.
In this case, the effect of the Foreign Country Money-Judgments Recognition Act and the Uniform Enforcement of Foreign Judgments Act of New Jersey is that the respondents are not relevantly at greater risk of incomplete recovery of their costs of the proceedings in New Jersey than they would be if the applicant were resident in Australia.
The facts of this case resemble, in broad terms, those of Barton’s case. They are a far cry from the facts of Logue v Hansen Technologies. I am not persuaded, particularly given the applicant’s financial position, that his residence overseas would materially disadvantage the respondents in the enforcement of an order for the costs of the proceedings. Given the terms of the New Jersey legislation and the applicant’s financial position I see no reason to depart in this case from the “basic rule” concerning natural person applicants.
However, that is not an end to the matter. The costs of overseas enforcement of an Australian costs order can also be made the subject of an order for security for costs, as the cases cited earlier demonstrate. The “basic rule” exists to prevent impecunious applicants from being shut out of litigation because of their likely inability to satisfy an order for costs made against them: McSharry v Railway Commissioners (1897) 18 LR (NSW) 33; Abraham v Thompson (1997) 4 All ER 362; Sharples v Minister for Local Government (2008) 159 LGERA 391. However, it is most unlikely that applicants generally, and the present applicant in particular, would be shut out if the Court were to order security be provided for the costs of overseas enforcement of an Australian costs order.
By residing overseas the applicant exposes the respondents to a potential expense which they would not have to bear were the applicant resident in Australia: the cost of enforcement in New Jersey of a costs order made in the respondents’ favour. Were an order to provide security for such costs be likely to shut the applicant out of pursuing this case I would hesitate to make one but, as I have suggested, I am not persuaded that such would be the consequence of such an order. The parties have placed evidence before the Court which indicates that the expense involved in enforcing a costs order of this Court in New Jersey falls somewhere in the range of USD635 to USD10,000, the preponderance of evidence suggesting an amount of USD3,000 or less. That latter evidence is found in the annexures to the affidavit of Ryan Murphy sworn 28 July 2016.
I conclude that the expense associated with enforcement of a costs order in New Jersey would probably be in the order of USD3,000 or less (approximately AUD4,000 or less) and believe that it is an order which the applicant could satisfy. However, that amount is trivial in the context of the expenses likely to be incurred in this matter and no practical benefit would be gained by ordering that security for costs in that amount be provided. The expenses associated with providing and receiving such a sum would represent a not insignificant proportion of it and to make an order for that small amount would only involve the parties in wasteful effort and expense.
Consequently, although prima facie the respondents are entitled to an order for security for costs in the amount, I conclude, of $4,000, given the small sum involved, in the exercise of discretion I decline to make such an order.
Given that conclusion, it is not necessary to consider whether any lateness in making the application for security for costs militated against the making of such an order.
Conclusion
The application for security for costs will be dismissed.
I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of Judge Cameron
Date: 30 September 2016
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