Strazdins v ANZ Banking Group Ltd

Case [2017] SASC 3

SUPREME COURT OF SOUTH AUSTRALIA

(Appeal from a Master: Civil)

STRAZDINS v ANZ BANKING GROUP LTD

[2017] SASC 3

Judgment of The Honourable Justice Hinton

25 January 2017

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - APPEAL OR REVIEW

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - PLAINTIFF OR APPLICANT - LEGALLY ASSISTED PARTY OR WHERE LITIGATION OTHERWISE FUNDED

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS - FACTORS RELEVANT TO EXERCISE OF DISCRETION - PLANTIFF'S OR APPLICANT'S IMPECUNIOSITY

Appeal against judgment of a Master of this Court.

The appellant, Mr Strazdins, was ordered to provide security for costs to the respondent, the ANZ Bank.

Mr Strazdins and Mr Cooper were directors of the firm BRI Ferrier. They were appointed as a joint and several voluntary administrators of a company DNPW Pty Ltd. Messrs Strazdins and Cooper seek orders facilitating the recovery of a portion of the costs, fees and expenses they incurred in their capacity as administrators from the ANZ Bank which is said to have received the proceeds of sale of particular assets falling within the administration to which it was not entitled.

The ANZ Bank became aware that Mr Cooper had left BRI Ferrier but would not be disjoined from the proceedings, and that a litigation funder stood behind Mr Strazdins. The ANZ Bank requested copies of the agreement between Mr Cooper and his former firm regarding his involvement in the proceedings, and the litigation funding agreement.

Upon Mr Strazdins’ solicitors refusing to provide the agreement, the ANZ Bank made an application for security for costs.  The application was granted by a Master against Mr Strazdins and Mr Cooper. Mr Cooper was subsequently disjoined from the proceedings.

Mr Strazdins now appeals against the Master’s decision on the grounds that the mere presence of a litigation funder did not provide a sufficient basis upon which to order security for costs pursuant to Supreme Court Civil Rules 2006 (SA) r 194 and that there was not sufficient evidence to suggest that Mr Strazdins could not meet any adverse costs order if unsuccessful at trial.

Held, dismissing the appeal:

1.       No error in the exercise of the Master’s discretion has been established.

Supreme Court Civil Rules 2006 (SA) r 194; Supreme Court Act 1935 (SA) s 17, s 40, s 72, referred to.
House v The King (1936) 55 CLR 499; Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance (2008) 67 ACSR 105, applied.
Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386; Proude v Visic (No 3) (2012) 118 SASR 444, discussed.
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241; J.H. Billington Ltd v Billington [1907] 2 KB 106; O’Callaghan v Duhst [1931] SASR 369; August Investments Pty Ltd v Poseidon No Liability (1971) 2 SASR 65; Jeffery & Katauskas Pty…

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Strazdins v ANZ Banking Group Ltd [2017] SASC 3
Case
[2017] SASC 3
Decision Date

CaseChat Overview and Summary

In the case of Strazdins v ANZ Banking Group Ltd, the appellants, Mr Strazdins and Mr Cooper, contested the ANZ’s application for security for costs made pursuant to rule 194(1)(e) of the Supreme Court Civil Rules 2006 (SA). The primary concern of the ANZ was that the funding for Mr Strazdins' litigation was sourced from a litigation funder, and they sought assurance that Mr Cooper, who had left the firm representing Mr Strazdins, no longer held any interest in the proceedings. The Master of the Supreme Court granted the ANZ’s application, and Mr Strazdins and Mr Cooper appealed this decision.

The legal issues before the court centred on the discretionary power of the Master to order security for costs and whether the Master had erred in exercising that discretion. The appellants contended that the Master did not appropriately consider the factors relevant to the decision-making process. Specifically, they argued that the Master failed to acknowledge that Mr Strazdins’ litigation funding arrangement did not expose ANZ to any undue risk, given that the funder was bound to indemnify against adverse costs orders.

The court examined the principles governing the exercise of discretion in ordering security for costs, affirming that the Master’s decision should not be overturned unless there was a demonstrated error. The court held that the Master had correctly identified and considered the relevant factors, including the appellants’ financial circumstances and the nature of the litigation funding. The court concluded that the Master's decision was sound and did not constitute an error of law or fact.

The appeal was dismissed, and the original order for security for costs was upheld. The court also noted that further consideration would be given to the matter of costs and the appropriate amount to be paid in security.

Orders

Orders of the court

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Background

Background to the litigation

As will be seen, the power to order that a party provide security for costs is discretionary. Consequently, the principles settled in House v The King apply.[2] In my view, applying those principles, no error in the exercise of the discretion vested in the Master has been demonstrated. For the reasons that follow, I would dismiss the appeal. [2] (1936) 55 CLR 499.Background and decision at first instance The ANZ sought security for costs in the exercise of the power contained in rule 194(1)(e) of the Supreme Court Civil Rules 2006 (SA) (SCR) on three grounds – that Mr Cooper had divested himself of all rights and interests in the proceedings, that Mr Strazdins had limited means to satisfy any adverse costs order, and that funding to pursue the action had been obtained by Mr Strazdins from a litigation funder. The affidavit material before the Master revealed that the substantive action in this Court was first commenced in June 2011.[3] Delay in prosecuting the matter occurred as a consequence of the need to await the outcome of related proceedings in the Federal Court and the Supreme Court of the Northern Territory.[4] The resolution of these matters necessitated amendment to the statement of claim first filed in this Court. Whilst the parties were in the process of preparing an amended statement of claim and objections thereto, the solicitors for the ANZ became aware of Mr Cooper having left BRI Ferrier and, in the course of doing so, having divested himself of all interest in these proceedings. Under the cover of a letter dated 15 December 2015, the ANZ’s solicitors wrote to Mr Strazdins’ solicitors seeking clarification as to the interest Mr Cooper retained in the proceedings. In that letter the solicitors for the ANZ advised:If Mr Cooper no longer has an interest in the subject matter of the proceedings, this should be addressed as part of the application to further amend the Third Statement of Claim, and any failure to do so may render the pleading defective. Our client reserves its rights to object to the proposed form of the Third Statement of Claim on this ground, notwithstanding that it was not referred to in the Notice of Objections served on your office on 20 November 2015.We also anticipate that if Mr Cooper’s interest in the subject matter of the proceedings has been assigned or transferred, we may be instructed to pursue an application for security for costs, subject to clarification of certain matters, namely:1. Your clients advised our client directly that litigation funding had been obtained. It is customary, although not inevitable, that a funder will grant indemnity for any adverse costs orders made against a plaintiff and, subject to the matters referred to below, this may alleviate the need for any security for costs application.2. If there is an indemnity in respect of adverse costs orders, given the absence of privity of contract, that would stand only for the benefit of your clients or client, and not ours, except to the extent it would provide a basis for a non-party costs order at the conclusion of the proceedings (see Gore v Justice Corp Pty Ltd (2002) 119 FCR 429; Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2005] 4 All ER 195 (PC)).3. If there is no such indemnity, that has the consequence that the funder is the real party to the litigation but it is not directly exposed to the implications of an adverse costs order.Having regard to the above, as an interim measure, we seek access to the funding agreement and will liaise with you as to the steps that can be taken to avoid the need for an application for security for costs and to address the issue of privity of contract.[3] That material comprised the Fourth Affidavit of Lisa Anna Calabrese, sworn 11 February 2016, and the affidavit of John Brendan Golden, sworn 10 February 2016.[4] Determination and approval of Mr Strazdins’ and Mr Cooper’s remuneration had to be obtained from the Federal Court; see Strazdins v DNPW Pty Ltd [2013] FCA 1368 and Strazdins v DNPW Pty Ltd (No 2) [2014] FCA 199. In the Supreme Court of the Northern Territory proceedings seeking the winding up of DNPW Pty Ltd were commenced in September 2010: see NT Pubco Pty Ltd & Anor v DNPW Pty Ltd (Subject to a Deed of Company Arrangement) & Ors [2011] NTSC 51.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

I make plain, if I am wrong and the exercise of the discretion by the Master miscarried, I nonetheless am satisfied for the reasons I have given that it is necessary that in the interests of justice that security for costs be ordered, and, in the light thereof, and for the same reasons, would make such order in the exercise of the discretion.Conclusion and orders None of the grounds of appeal have been made out. The appeal is dismissed. I will hear the parties as to costs and as to the amount that should be paid in security.

Ratio Decidendi

Legal Principle Established

The High Court returned to the issue of whether the involvement of a litigation funder resulted in litigation constituting an abuse of process in Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd.[36] It is not necessary for present purposes to discuss this case at length. It is enough to observe that the Court approached the matter in the same way that it did in Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd.[37] The mere fact that a litigation funder was involved did not constitute an abuse. Significantly, both in the joint reasons of French CJ, Gummow, Hayne and Crennan JJ and in the reasons of Heydon J, reference is made to the judgment of Hodgson JA in Green. The joint reasons refer to paragraph [51] of Hodgson JA’s judgment (reproduced above) without criticism and as stating a principle that was not contrary to what was held in Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd.[38] Heydon J referred to what fell from Hodgson JA with approval.[39] Thus, bearing in mind that the litigation funder, who stands to profit by maintaining litigation, has no direct interest in the vindication of rights, entitlements or interests, a court should be readier to order security for costs so that a defendant, who is directly interested in the vindication of the rights, entitlements or interests in issue, is not impeded by the contractual relationship between funder and funded in securing satisfaction for any costs order made if the defendant succeeds and so that a funder may not avoid responsibility for costs of the litigation that it maintains, or did maintain, in the hope of profit.[36] (2009) 239 CLR 75.[37] (2006) 229 CLR 386.[38] Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75 at [35].[39] Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75 at [61]-[64].Consideration There is no doubt that the power vested in the Court by s 40 SCA extends to the making of an order for costs against a non-party.[40] In Knight v F P Special Assets Ltd, Mason CJ and Deane J said:[41]For our part, we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.[40] Vestris v Cashman (1998) 72 SASR 449; Knight v F P Special Assets Ltd (1992) 174 CLR 178.[41] (1992) 174 CLR 178 at 192-3. I have reproduced paragraph [16] of the Master’s reasons above.[42] In my view the four factors identified were relevant to both the question of whether the jurisdictional fact was satisfied and to the exercise of the discretion enlivened thereupon. Each of the enumerated factors has a bearing on the effective exercise of the power contained in s 40 SCA.[42] At [19].