University of Canberra v Zierholz@UC Pty Ltd
[2020] ACTCA 45
•24 June 2020
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
COURT OF APPEAL
Case Title: | University of Canberra v Zierholz@UC Pty Ltd |
Citation: | [2020] ACTCA 45 |
Hearing Date: | 19 April 2020 |
DecisionDate: | 24 June 2020 |
ReasonsDate: | 9 September 2020 |
Before: | Loukas-Karlsson J |
Decision: | The appellant to provide to the Registrar security for costs in the amount of $50 000. |
Catchwords: | PRACTICE AND PROCEDURE – SECURITY OF COSTS – whether security for costs should be ordered – where appellant is impecunious – appropriate amount of security |
Legislation Cited: | Competition and Consumer Act 2010 (Cth) Corporations Act 2001 (Cth) s 1335 Uniform Civil Procedure Rules 2005 (NSW) r 50.8 |
Cases Cited: | Banks v Copas Newnham Pty Ltd [2001] QCA 526 Benjamin v GB Franchising Australia Pty Ltd [2008] ACTCA 11; 1 ACTLR 287 Twining v Curtis [2014] ACTCA 19 |
Parties: | University of Canberra (Applicant/First Respondent) UCU Ltd (Applicant/Second Respondent) Zierholz@UC (Respondent/Appellant) |
Representation: | Counsel T Lynch SC with M Hassall (Applicant/Respondents) P Greenwood SC (Respondent/Appellant) |
| Solicitors Griffin Legal (Applicant/Respondents) Kamy Saeedi Law (Respondent/Appellant) | |
File Number(s): | ACTCA 53 of 2019 |
Decision under appeal: | Court/Tribunal: ACT Supreme Court Before: Burns J Date of Decision: 8 November 2019 Case Title: Zierholz@UC Pty Ltd v University of Canberra Citation: [2019] ACTSC 310 |
LOUKAS-KARLSSON J:
Introduction
On 24 June 2020, I made an order that Zierholz@UC lodge $50,000 with the Registrar of the ACT Supreme Court as security for costs and indicated that my reasons would be published at a later date. My reasons follow.
This application concerns an appeal brought by Zierholz@UC (the appellant) against two respondents: University of Canberra (the first respondent) and University of Canberra Union (UCU) Ltd (the second respondent). The University of Canberra and the UCU Ltd are the applicants in the application for security for costs, and the respondents to the appeal itself. Zierholz@UC is the respondent in this application, and the appellant in the appeal. Hereafter, the university parties will be referred to as the respondents, and Zierholz@UC will be referred to as the appellant.
Pursuant to rr 1900 and 5302 of the Court Procedure Rules 2006 (ACT) (CPRs), and s 1335 of the Corporations Act 2001 (Cth) (Corporations Act), the respondents made an application seeking the following orders:
(a)The appellant give security by lodging with the Registrar of the Supreme Court $150,000 in cash or an irrevocable bank guarantee, unlimited as to time, within 28 days of this order;
(b)If the appellant fails to give security as required within 28 days of this order, the appeal be deemed to have been dismissed and the appellant pay the first and second respondents’ costs of the appeal to that date, on a party to party basis; and
(c)The appellant pay the first and second respondents’ costs of this application.
Background to the Appeal
In June 2011, the appellant executed a written agreement, described as a Microbrewery and Bar Licence, to occupy specified premises within the University of Canberra in order to conduct business as a bar. The licensor was the first respondent.
At the same time, the three parties to this application executed a deed, known as the Event Deed, which detailed the agreement between the parties in relation to ticketed and non-ticketed events to be held at the premises.
The business venture by the appellant was not successful, and it claimed damages against the two respondents based upon alleged breaches of the Licence Agreement, the Event Deed, fiduciary duties said to be owed to the appellant, and provisions of the Competition and Consumer Act 2010 (Cth). In essence, the appellant alleged that, in allowing and supporting the opening and operation of another bar (the Well) on the University of Canberra campus, the respondents had breached their obligations to the appellant, and had effectively made them insolvent.
On 8 November 2019, Burns J delivered judgment for the respondents. His Honour found that there had been no breach of fiduciary duty, no breach of contract, and no breach of the provisions of the Competition and Consumer Act 2010 (Cth).
On 5 December 2019, the appellant lodged its Notice of Appeal, and, on 20 December 2019, the respondent lodged the present application for security for costs. It was common ground on the application that the appellant was not in a position to pay any order for costs that might be made in the appeal proceedings (T 29/04/20, 3.29-31).
Relevant Rules & Legal Principles
Applications for security for costs are brought under r 1900 of the CPRs:
1900 Security for costs—application and order
(1) On application by a defendant, the court may order the plaintiff to give the security it considers appropriate for the defendant’s costs of the proceeding.
(2) An application must be supported by an affidavit setting out the facts relied on and the grounds on which the order is sought.
Rules 1901 and 1902 provide guidance on when a Court may make an order for security for costs, and the factors to be taken into account in deciding whether to make an order:
1901 Security for costs—when court may make order
The court may order a plaintiff to give security for costs under rule 1900 only if satisfied—
(a) the plaintiff is a corporation and there is reason to believe the plaintiff will not be able to pay the defendant’s costs if ordered to pay them; or
(b) the plaintiff is suing for the benefit of someone else, rather than for the plaintiff’s own benefit, and there is reason to believe the plaintiff will not be able to pay the defendant’s costs if ordered to pay them; or
(c) the plaintiff’s address is not stated, or is misstated, in the originating process, and there is reason to believe that the failure to state an address, or the misstatement of the address, was made with intention to deceive; or
(d) the plaintiff has changed address since the start of the proceeding and there is reason to believe this was done to avoid the consequences of the proceeding; or
(e) the plaintiff is ordinarily resident outside Australia; or
(f) the plaintiff is, or is about to depart Australia to become, ordinarily resident outside Australia and there is reason to believe the plaintiff has insufficient fixed and permanent property in Australia available for enforcement to pay the defendant’s costs if ordered to pay them; or
(g) a territory law authorises the order to be made; or
(h) the justice of the case requires the order to be made.
1902 Security for costs—discretionary factors
(1) In deciding whether to make an order for security for costs under rule 1900, the court may have regard to any of the following matters:
(a) the means of the people standing behind the proceeding;
(b) the prospects of success or merits of the proceeding;
(c) the genuineness of the proceeding;
(d) for rule 1901 (a)—the corporation’s lack of financial resources;
(e) whether the plaintiff’s lack of financial resources is attributable to the defendant’s conduct;
(f) whether the plaintiff is effectively in the position of a defendant;
(g) whether an order for security for costs would be oppressive;
(h) whether an order for security for costs would stop or limit the progress of the proceeding;
(i) whether the proceeding involves a matter of public importance;
(j) whether there has been an admission or payment into court;
(k) whether delay by the plaintiff in starting the proceeding has unfairly prejudiced the defendant;
(l) whether an order for costs made against the plaintiff would be enforceable within the jurisdiction;
(m) the estimated costs of the proceeding.
(2) This rule does not limit the matters to which the court may have regard.
The discretionary factors of r 1902 are to some extent a codification of the well-settled general law factors taken into account by the courts in exercising their discretion: Seminars Australia Pty Ltd v ABN Amro Morgans Ltd [2006] ATSC 101 at [6].
Nevertheless, as Davies JA stated in Natcraft Pty Ltd v Det Norske Veritas [2002] QCA 241 at [2] (Natcraft), “it is impossible to state comprehensively the factors that are relevant to assessment of an application [for security for costs]”: see also Davey v Herbst (No 2) [2012] ACTCA 19 at [18] (Davey).
Also of relevance to this application is rule 5302:
Appeals to Court of Appeal—security for costs
(1) Security for costs of an appeal is not required, unless the Court of Appeal otherwise orders.
(2) This rule does not limit division 2.17.18 (Security for costs).
There is not, in this jurisdiction, as in some others, a requirement that the applicant show special circumstances in an application for security for costs: see, for example, Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 64.24(2), Uniform Civil Procedure Rules 2005 (NSW) r 50.8, and Supreme Court Rules 2006 (SA) r 194(1). Decisions from such other jurisdictions must, therefore, be treated with some caution: see Davey at [17]. The default position in the ACT is that no security is payable: Benjamin v GB Franchising Australia [2008] ACTCA 11; 1 ACTLR 287 at [28]-[29] (Benjamin) and Hughes v Janrule [2011] ACTCA 15; 177 ACTR 1 at [70].
Further, s 1335 of the Corporations Act 2001 (Cth) applies:
(1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.
In relation to the purpose of applications for security for costs in an appeal, Twining v Curtis [2014] ACTCA 19 (Twining) is relevant. In Twining, Refshauge J stated at [13]: “the purpose of such applications is to protect a successful litigant from the injustice caused by being forced to contest a claim for a second time without a probability of obtaining the costs thus expended and thereby to provide a fund to defray such costs and to discourage frivolous and unmeritorious appeals”.
Grounds of Appeal
The Grounds of Appeal are as follows:
(a)The trial judge erred in holding that the respondents did not owe fiduciary duties to the appellant.
(b)The trial judge erred in finding that the Partnering Concept expressed in the Event Deed had a narrow application and only applied to the collaborative use of specific sub-areas rather than the entirety of the contractual and working relationship between the appellant and the respondents.
(c)The trial judge erred in holding that the contractual arrangements between the parties left no scope for the fiduciary duties claimed.
(d)The trial judge erred in holding that the Event Deed was premised on the proposition that the parties were each conducting their own separate and competing businesses or enterprises with the UC campus.
(e)The trial judge erred in holding that clause 3.11 of the Event Deed did not create enforceable obligations.
(f)The trial judge erred in finding that the appellant refused to accept event bookings from the second respondent in late 2014 and thereby repudiated the Event Deed.
(g)The trial judge erred in holding that the respondents were not in breach of contractual and fiduciary duties by directing bookings away from the premises conducted by the appellant.
(h)The trial judge erred in holding that the respondents were entitled to operate in competition with the appellant.
(i)The trial judge erred in holding that the appellant abandoned reliance on pre-contractual representations.
(j)The trial judge erred in failing to find the respondents beached their obligation of confidentiality to the appellant.
As to the appeal, there is no reason to believe that it is other than genuine (r 1902(1)(c). The appellant’s prospects of success (r 1902(1)(b)) cannot necessarily be dismissed as merely fanciful.
Additionally, I note that, were the appellant to persuade the Court of Appeal that the trial judge fell into error, that would not of itself be sufficient to conclude that the appellant would be successful in the appeal, as the trial judge found that it was “impossible to determine issues of causation”: at [172].
Affidavits
In support of the application, the respondents relied upon an affidavit of Mr Timothy Brian Dingwall, affirmed 20 December 2019, and an affidavit of Mr Kim Musgrave Chapman, a costs assessor, affirmed 23 January 2020.
The affidavit of Mr Dingwall set out a summary of the proceedings in the court below, and addressed the scope of the appeal, the likely costs of the appeal, and the appellant’s capacity to pay the costs of the respondent if ordered to do so.
Mr Chapman, in his affidavit affirmed 23 January 2020, estimated that the costs of the appeal for the respondents will be between $125,000 and $170,000.
The appellant relied upon two affidavits of Mr Christoph Zierholz, the sole director of the appellant, sworn 28 February 2020 and 14 April 2020. These affidavits set out the background to the appeal, the financial position of Zierholz@UC, and the assets and liabilities of Mr and Mrs Zierholz.
Appellant’s Assets & Amendment of Application
One of the issues that arose in the course of hearing this application was whether or not the personal assets of Mr and Mrs Zierholz’s could be accessed to provide security.
The respondents made an application to formally amend the application providing that, in the alternative, the security could be provided by way of a mortgage over the properties owned by Mr and Mrs Zierholz in Lyons and Palmerston. I granted leave for the application to be amended, and the matter was adjourned to permit the appellants to provide further evidence in this respect.
The matter returned to court on 24 June. On 10 June 2020, the appellant filed and served an affidavit of Mr Michael Mascitti, solicitor, that attached searches of the properties owned by Mr and Mrs Zierholz and relevant mortgage documentation. The affidavit, when read with the earlier affidavits of Mr Zierholz, reveals the following:
(a)Mr and Mrs Zierholz have financially supported the company (Zierholz@UC) and have incurred significant debts and have undergone financial hardship as a result.
(b)The liabilities of Mr and Mrs Zierholz exceed their assets by over $400,000.
(c)Mr and Mrs Zierholz have a family home in Lyons, registered in Mr Zierholz’s name. It is worth approximately $700,000 and is presently encumbered by three mortgages to the ANZ Bank. Those mortgages secure the current home loan debt of $118,000 and a business loan of $617,000. Mr Zierholz is not permitted to further mortgage the property without the consent of ANZ Bank and the bank has not given consent.
(d)Mr and Mrs Zierholz also own a townhouse in Palmerston, registered in Mrs Zierholz’s name. The townhouse is worth approximately $400,000 and is presently encumbered by a mortgage to the Westpac Bank. The mortgage secures a loan debt of $278,000. Mr and Mrs Zierholz are also indebted to Westpac Bank for $99,000. Mrs Zierholz is not permitted to further mortgage the property without the consent of Westpac Bank and the bank has not given consent.
(e)Mr and Mrs Zierholz have other unsecured debts owing to family and friends that total $315,000.
The respondents accepted that this affidavit made it apparent that the disclosed amount of debt secured on Mr and Mrs Zierholz’s properties exceeds Mr Zierholz’s estimated combined value of those properties by about $12,000. Noting that security could therefore not be provided by way of a mortgage, the respondents relied upon their original submissions.
In further written submissions, the appellants submitted that the Court should reject the amended application on two grounds. Firstly, it was submitted that the Court does not have the power under r 1900 of the CPRs or s 1335 of the Corporations Act 2001 (Cth) to order Mr and Mrs Zierholz to give a mortgage, or mortgages, to the respondent. This is because that would not be an order for security; rather, it would give the respondents an immediate interest in property held by Mr or Mrs Zierholz to which they are not entitled. Secondly, the appellant submitted that, on a discretionary basis, a court should not order security as the “the people standing behind the company are experiencing financial hardship and an order would be oppressive”: at [11]. In this respect, the appellant relied on earlier oral and written submissions.
Consideration
As stated in Haides v Canberra Drilling Rigs [2018] ACTCA 68 at [28] (Haides) by Murrell CJ, citing Refshauge J in Twining at [15], a trial judgment is presumed to be correct until such time as it is set aside.
Both the appellant and the respondent relied on detailed and comprehensive written and oral submissions which were of great assistance to the Court. In particular, the respondents submitted that the appellant’s premise in opposing this application was that the respondents are responsible for the impecuniosity of the appellant. The respondents stated that: “That premise is contrary to the findings in the Judgment and thus not one upon which the Application may be decided”.
In particular, the appellant submitted that: “The appellant’s evidence is to the effect that it has no assets now because of the conduct of the respondents and an order for security would prevent it from continuing the appeal and obtaining justice”.
Further, the appellant submitted that, as per r 5302, the starting point is that security for costs of an appeal in not required, unless the Court of Appeal otherwise orders. The appellant noted that this position is confirmed by Refshauge J in Benjamin at [29]. Additionally, the appellant submitted that this rule is consistent with the notion that parties who have litigated before the court should be able to appeal a matter without additional financial barriers.
The appellant in particular submitted that the following matters in rule 1902 “require” the dismissal of the application:
(a)the means of the people standing behind the proceeding;
(b)whether the plaintiff’s lack of financial resources is attributable to the defendant’s conduct; and
(c)whether an order for security for costs would stop or limit the progress of the proceeding.
There is a clear difference between applications for security for costs at trial and on appeal. In relation to an appeal, it is presumed that the first instance decision favouring the respondent is correct until it is set aside, as discussed above.
In Twining at [14]-[15], cited in Haides at [28], Refshauge J stated:
14. I noted, also, that there was a difference between applications for security for costs at trial and on appeal, a position that has been clear since as long ago as 1885: Cowell v Taylor (1885) 31 Ch D 34 at 39. See also Rainbow v Kittoe [1916] 1 Ch 313 at 318. As was pointed out in Riverside Nursing Care Pty Ltd v Minister for Aged Care (2000) 63 ALD 122 at 125; [14], the appellant “has had its day in court”. Thus, there is, in an appellate situation, a decision in the respondent’s favour, which must be taken to be correct until set aside: Kennedy v McGeechan [1978] 1 NSWLR 314 (note) at 315.
15. A particular difference is that in the case of an appeal, unlike the case of a trial, impecuniosity of an individual is a ground for the making of an order that an appellant provide security for costs. The prospects of success are also relevant, despite the difficulty in some cases of assessing them.
(Emphasis added).
Where an impecunious appellant has lost at first instance, that impecuniosity may be a relevant ground for ordering security for costs of an appeal. This is a matter discussed in Benjamin at [30]:
Although there is much similarity between security for costs at trial and security for costs on appeal, there are some important differences, at least one of which is relevant to these proceedings. The major difference is that while impecuniosity is not a ground for ordering security for costs at trial (Cowell v Taylor (1885) 31 Ch D 34 at 38), impecuniosity may be a ground for ordering security for costs on appeal: Rainbow v Kittoe [1916] 1 Ch 313 at 318. While important in this circumstance, however, it has been said not to be decisive: Lall v 53-55 Hall Street Pty Limited [1978] 1 NSWLR 310 at 313.
(Emphasis added).
Similarly, in Davey v Herbst (No 2) at [22] (Davey), Refshauge J referred to Natcraft:
… in Natcraft Pty Ltd v Det Norske Veritas at [9], Jerrard JA reviewed “decided cases” which had “established matters which are relevant on such applications”, including:
· The appellants’ prospects of success on the appeal (see Banks v Copas Newnham Pty Ltd [2001] QCA 526).
· The financial position of the appellants. Where an appellant is without funds or assets this factor is important, and provides what this court has described as a “persuasive” reason for ordering security for costs. This is because that appellant would be unable to satisfy any order for costs made against the appellant should the appeal be unsuccessful (see Banks (supra) and Ivory v Telstra Corp Ltd [2001] QCA 490).
· The fact an impecunious appellant, impecunious at trial, has already had a “day in court” and lost on the merits. That circumstance increases rather than reduces the likelihood of the exercise of a discretion in favour of an order for security for costs (see Ivory (supra)).
· The fact that the appellant blames impecuniosity on a respondent who asks for orders for security for costs. This matter has a diminished significance at appellant level, by contrast with its significance at trial level (see de Jersey CJ in Jackson v Coal Resources of Queensland Ltd [1999] QCA 265).
· That it is inappropriate to order an impecunious appellant to provide a greater security than is absolutely necessary (see Young CJ in Commonwealth Bank of Australia v Eise (1991) 6 ACSR 1 at 4).
· That the giving of a personal undertaking by one who stands behind a company does not preclude an order for security for costs (see Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306 at 316).
· Whether there has been any delay in bringing the application for security for costs.
(Emphasis added).
Undoubtedly, care must be taken in the assessment as to whether an order for security for costs of an appeal is appropriate. This is so where an appellant is impecunious and an action may be stifled, that should, in the interests of justice, be heard and determined on its merits: Benjamin at [31]. These matters are founded on the fundamental notion of access to justice: Porzelack KG v Porzelak (UK) Ltd [1987] 1 WLR 420 at 426.
Relevantly, McHugh J stated in PS Chellaram & Co v China Ocean Shipping Co (1991) 65 ALJR 642 at 643:
To make or refuse to make an order for security for costs involves the exercise of a discretionary judgment. That means that the court exercising the discretion must weigh all the circumstances of the case. The weight to be given to any circumstance depends not only upon its own intrinsic persuasiveness but upon the impact of the other circumstances which have to be weighed.
In my view, the respondent has established that an order for security for costs in appropriate in this case. The first instance decision of Burns J is presumed to be correct until set aside. Where an appellant is without funds, as here, that factor is important in determining the question of security for costs. The fact that the appellant blames the impecuniosity on the respondent, as in this case, is of diminished significance at the appellate level. At this juncture, it is relevant to note that it is inappropriate to order an impecunious appellant to provide greater security than absolutely necessary.
As set out above, in my view, an order for security for costs is appropriate in this case. The question, therefore, is in what amount security should be ordered.
Balancing all the matters that I must take into account in determining whether to order security for costs and, if so, in what amount, I have come to the conclusion that an amount of $50,000 is appropriate in this case. It is inappropriate, in my view, to order the appellant to provide greater security, in accordance with the relevant authorities.
Orders
On 24 June 2020, I made the following orders:
(a)The appellant is to give security to the satisfaction of the Registrar in a form acceptable to the Registrar in an amount of $50,000.
(b)A decision on costs is reserved.
(c)The Appeal Index listing on 2 July 2020 is vacated.
(d)The appeal is to be stayed pending the provision of security in accordance with the Order at (a).
(e)In default of the provision of that security, the matter is to be re-listed before me on three days’ notice.
(f)In the event that security is provided in accordance with the Order at (a), the Appellant is to approach the Registrar within seven days of the provision of that security in order to settle the index to the appeal.
| I certify that the preceding [43] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Justice Loukas-Karlsson. Associate: Date: |
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