Case: Crypta Fuels Pty Ltd and Anor v Svelte Corporation Pty Ltd and Ors (1995) 19 ACSR 68
Outcome: referred to
26 May 2006 the Court delivered judgment in respect of a security for costs application made by the second respondent ('GCB'): see Wyong-Gosford Progressive Community Radio Inc v Australian Communications and Media Authority [2006] FCA 625 ('the May decision'). Pursuant to that judgment the Court ordered that the applicant ('PCR') pay security for the GCB's costs in the amount of $10,000. The first respondent ('ACMA') made no application for security for costs at this time. At the time of the May decision, the application before this Court was an application for leave to extend the time in which to file an application under the Administrative Decisions (Judicial Review) Act 1977 (Cth) ('ADJR Act'). However, on 1 August 2006 the Court, at the request of PCR, granted leave to file an amended application in these proceedings. The amended application included not only an application under the ADJR Act, but also an application under s 39B of the Judiciary Act 1903 (Cth) (' Judiciary Act ') alleging the same errors of law as are contained in the draft ADJR Act application. There is no time limit for the filing of an appeal under s 39B of the Judiciary Act , and so no leave was required to bring those proceedings. Accordingly, even if leave were not granted to file the ADJR Act application out of time, PCR would have been entitled to proceed to hearing on the Judiciary Act application. For this reason, the Court decided to vacate the dates set down for hearing the leave application, and to reserve the question of leave arising under the ADJR Act to be determined simultaneously with the hearing of the amended application. As a result of the orders of 1 August 2006, the future course of the proceedings has been substantially altered, and both respondents now face a final hearing on the amended application. Immediately after the orders of 1 August 2006 were made, ACMA indicated that it would seek security for costs. Additionally, GCB indicated it wished to seek further security, pursuant to leave granted in the orders arising from the May decision. At that time PCR indicated it could unconditionally offer an additional $10,000 security to the second respondent, which has now also been paid. The first respondent now seeks security in the sum of $36,148. The second respondent seeks further security in the sum of approximately $60,000. I consider that the cost estimates provided by the first and second respondents are realistic. FACTS The relevant background is contained in the May decision. The applications in the present case are made under s 56 of the Federal Court of Australia Act 1976 (Cth). The power to order security for costs under s 1335 of the Corporations Act 2001 (Cth) has no application in the present case because PCR is an incorporated association and not a company. The considerations to be taken into account on a security for costs application are set out in the May decision at [11], and I will proceed to consider the relevant considerations below. THE RISK THAT A COSTS ORDER COULD NOT BE SATISFIED It has now been conceded by PCR that it is impecunious and I accept that is extremely unlikely that PCR would be able to meet a costs order made against it in these proceedings. The affidavit of Sylvia Higgins, President and Ethnic Liaison Officer of PCR, establishes that her attempts to solicit donations for the purpose of security for costs have been completely unsuccessful. Donors to PCR have indicated they have no desire to contribute funds which might assist ACMA or GCB. The money which has already been paid by way of security has been supplied wholly from the personal assets of Ms Higgins, and her evidence was that she could not afford to provide any further assistance to PCR. THE MERITS OF APPLICATION Since the May decision, further information has been provided which casts light upon the merits of the application. The affidavit of Ms Higgins attaches two advices received from counsel in relation to the prospects of success of the application. The first of these advices sets out at length the law relating to the administrative appeals, and states that the criticisms made of ACMA's decision ' do not point to any error capable of leading to relief being granted upon judicial review '. The advice concludes: 'As presently instructed, I do not think that there is any basis upon which a successful judicial review application could be mounted. ' PCR subsequently sought advice from another counsel. The advice from the second counsel is brief. Its final two paragraphs state: 'In our view, the grounds upon which to have the decision set aside are not particularly strong. In relation to a number of the errors, a court may ultimately hold that these reasonably fall within the proper exercise of the discretion vested in the ABA [ACMA] and do not constitute errors of law. Notwithstanding these concerns, there are nevertheless reasonable prospects of showing that the ABA fell into reviewable error and having the decision set aside.' It appears to me that the conclusion in the final paragraph is not entirely consistent with the advice in the preceding paragraph. Ms Higgins gave evidence that she considered the second advice to have been better, as it considered all of the particular facts of the case. Irrespective, it appears that on the basis of the advice given to PCR, the prospects of success of this application are, at best, weak. Nonetheless, these proceedings were commenced on the basis of the second advice. Counsel for PCR made reference to a third advice, which apparently preceded both of the advices set out above, and suggested it was optimistic. However, the Court has no evidence of such advice. Counsel for PCR indicated that the strongest point to be raised in PCR's claim was the fact that of 2,080 letters which had been submitted to ACMA in support of GCB's application for the broadcasting licence, only 300 to 400 were relevant to ACMA's decision and therefore only those letters should have been relied upon by ACMA. The greater portion of the letters had been prepared before the incorporation of GCB, and, PCR submits, should have been given no weight by ACMA. Instead, PCR submits, ACMA relied upon all of the letters and on a plain reading of ACMA's decision they were a critical factor in its decision to award the licence to GCB. The letters which pre-dated GCB's incorporation were written in support of an associated entity, namely a Christian broadcasting station operating in Newcastle. It was the Newcastle entity which was the original applicant for the licence under dispute until an application by GCB was substituted. PCR submits that ACMA found that the programmes offered by the Newcastle entity and GCB were different. However, GCB relies upon the statement by Wilcox J at [47] in the previous judicial review application relating to this licence: see Wyong-Gosford Progressive Community Radio Inc v Australian Broadcasting Authority and Anor [2003] FCA 33 ; (2003) 125 FCR 560. In that paragraph, Wilcox J states: 'The letter of the ABA [ACMA] dated 23 December 2002 indicates the ABA did take into account material originally filed by Newcastle. The letter specifically refers to "letters of support" and these were all originally provided by Newcastle. However, I do not think this made the material irrelevant. The letters of support mainly addressed the matter of program content; they were supportive of "Christian programs". That was a theme common to the applications of both Newcastle and Gosford. It was open to Gosford to adopt this material, as support for its own application. It was for the ABA to determine the extent (if any) to which it should be discounted because of its provenance.' Since this is an interlocutory application, I have not yet had an opportunity to fully consider the evidence. However, prima facie, the above passage from Wilcox J answers the claim now being raised by PCR. PCR has also raised an allegation of fraud in its amended application, stating that the date upon many of the letters of support were deliberately removed when the letters were submitted to ACMA in order to conceal the fact that the letters were written at a time when GCB had not yet been incorporated. GCB, however, says that although the date was missing from some letters, there were over 800 other letters which pre-dated GCB's incorporation from which the date was not removed. I agree that this fact appears to be inconsistent with the allegations of fraud made by PCR. Prima facie, if this is the sole foundation upon which PCR's fraud claim rests, it would seem to be made on a tenuous basis, particularly since it is not clear that it was an error for ACMA to take the older letters into consideration in any event. Given the above circumstances, the Court considers that, as presently formulated, PCR's claim has little chance of success. This can only be a preliminary opinion, given that I am yet to see and consider the entirety of the evidence, but nonetheless it is relevant to the consideration of the security for costs application. WHETHER THE LITIGATION WILL BE STIFLED BY AN ORDER PCR has submitted, and I accept, that there is a risk that the litigation may be stifled if an order for security for costs is made, and certainly if an order is made in any significant amount. This is one factor which must weigh into the consideration whether the Court should order security. WHETHER THERE ARE THIRD PARTIES STANDING BEHIND PCR PCR is a not-for-profit association which is staffed by volunteers. There are no shareholders or creditors who have a pecuniary interest in the outcome of this litigation. Rather, this litigation is being brought in the interests of a sector of the community whose needs were met by the radio broadcasts of PCR. In Friends of Hinchinbrook Society Inc v Minister for Environment and Ors (No 1) (1996) 69 FCR 1, Branson J stated at 21: 'The applicant is an incorporated association of persons concerned with the environment. In one sense, every association is a front for its members: they stand behind it and may be assumed themselves to support the objectives of the association and, generally speaking, the association's actions in intended advancement of those objectives. There is, however, in my view, a very real difference between the relationship of a member of a non-profit association formed to advance a public interest to the association of which he or she is a member and the relationship of a shareholder to the company in which he or she holds shares. The benefit which a shareholder might expect to obtain from litigation conducted by a company will ordinarily be, whether directly or indirectly, financial. Members of a non-profit association will not ordinarily benefit financially from litigation initiated by the association. The benefit which they might obtain from such litigation is likely to be constituted by intellectual or emotional satisfaction. ' I accept that the volunteer managers of PCR in these proceedings cannot be equated with shareholders ' standing behind ' a company. In this sense I consider the case is distinguishable from Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4. However, this does not absolve the volunteer managers from their duty to act responsibly in the conduct of litigation: see the further discussion at [28]-[31 ] below. DELAY PCR submits that the application by ACMA has been made too late and that accordingly, it should not be entitled to an order for security. In Crypta Fuels Pty Ltd and Anor v Svelte Corporation Pty Ltd and Ors (1995) 19 ACSR 68 at 71, Lehane J, having been referred to numerous authorities, noted that: 'Without referring in any greater detail to those authorities, my conclusion from a consideration of them is that there is first and foremost a proposition accepted in every one of the cases which is that if an application for security for costs is to be made it must be made promptly.' The application for security by ACMA was first raised when leave was granted to rely upon the amended application on 1 August 2006. ACMA has suggested that, because of the change in the future course of the proceedings engendered by the filing of the amended application, it was entitled to change its position on security for costs. It says that when the proceedings were commenced ACMA faced only a leave application, whereas now it faces a full hearing. However, there was always a possibility that leave would be granted to the ADJR Act application, in which case ACMA would also have faced a full hearing. I do not consider that, if the leave application had been heard and allowed, ACMA would then have been entitled to ask for security for costs, at least not unless that application had been specifically foreshadowed at an early stage of proceedings. By the time the leave application had been finalised, PCR would have spent a substantial sum in legal costs. A security for costs application at that point may have stifled the litigation and made all of the costs incurred up until that time redundant. ACMA further submits that it is required to behave as a model litigant, which requires, among other things, that it not take advantage of a claimant who lacks the resources to litigate a legitimate claim. To the extent that ACMA relies upon the model litigant principles, I do not consider that these principles would have precluded an application for security being brought at an earlier stage of the proceedings. Those principles, in my opinion, aim to prevent ACMA bringing a security for costs application which is oppressive. However an application brought on legitimate grounds earlier in these proceedings would not have been oppressive. At the very least, and particularly in circumstances where GCB brought an application for security, it was incumbent upon ACMA to indicate at an early stage that it would apply for security if leave were granted. ACMA has relied upon Gartner v Ernst &amp; Young (No 3) [2003] FCA 1437 at [34] , in which case an application made 10 months after the institution of proceedings was held not to be too late. At [34] Mansfield J stated that: 'The proceedings were instituted in August 2002. The proceedings were complex. There have been a number of versions of the statement of claim. The bank is, in terms of the substantive allegations made in the proceedings, but a small player. It foreshadowed bringing an application for security for costs at an early point. It made such an application in May 2003. At that time the proceedings had not much progressed. They were delayed by the accountants' challenge to the entitlement of the corporate applicants to have instituted the proceedings in the circumstances, and then the appeal of the accountants against that decision. In practical terms, the application has been unable to much progress until resolution of those issues. I do not therefore consider that the bank has engaged in delay in instituting the present application or in maintaining it. There is also nothing to persuade me that the elapse of time before this application has in any way caused unfairness to the applicants. There is no evidence to suggest that.' I consider that the present case can be distinguished from Gartner in two respects. Firstly, the application for security for costs was not foreshadowed at any early time, despite the fact that GCB was bringing an application for security. Secondly, PCR has clearly already incurred considerable expense in the preparation of these proceedings. An order for security, to the extent that it may stifle the proceedings, would result in the waste of this expenditure. If the application had been brought, or at least foreshadowed, at an earlier stage, PCR may have reconsidered its position and this expenditure may not have been incurred. Accordingly, I consider PCR would be prejudiced by an order at this stage of proceedings. OTHER MATTERS RELEVANT TO THE DISCRETION There are several further matters which I consider to be relevant to the discretion to be exercised in this case. There is a duty upon an impecunious applicant to act responsibly in pursuing litigation. As Wilcox J said in Tobacco Control Coalition Inc v Philip Morris (Australia) Ltd [2000] FCA 1004 at [125] : 'Those who litigate in the public interest need to be dedicated to their cause and enthusiastic in its pursuit. But dedication and enthusiasm are not enough; public interest claims also require strict professionalism, with rigorous attention to any legal problems inherent in the proposed claim. ' PCR is funded by donors. The evidence of Ms Higgins is that donors are unwilling to contribute funds which might be recovered in costs by the respondents. It is clear that the volunteer managers of PCR are proceeding with the knowledge that PCR will not have funds to pay any adverse order for costs made against them. Further, PCR received two sets of legal advice which did not rate its chances of success highly. One advice explicitly stated there was no reasonable prospect of success on this application. As a result of these two factors, the respondents are exposed to a significant financial risk. For PCR to proceed in these circumstances is to demonstrate a lack of consideration for the detriment which may be suffered by the respondents. The fact that an organisation is a not-for-profit organisation does not give it free rein to bring proceedings, no matter how tenuous the basis on which they are brought, without any regard to the detriment which those proceedings may cause to the respondents. There is a duty upon an applicant to be responsible in their conduct of litigation and to ensure that proceedings are not brought without regard to the prospects of success. This duty must be strictly observed by an impecunious applicant who may bring proceedings in which irrecoverable costs may be incurred. If PCR wishes to bring the proceedings despite advice that it does not have particularly strong grounds, it is entitled to do so. However, it cannot expect that the respondents bear the risk of its choice, by incurring costs which PCR knows cannot be recovered. As noted by Branson J in The Airtourer Co-operative Ltd v Millicer Aircraft Industries Pty Ltd [2004] FCA 1400 at [33] : '... the amount [of security] should be sufficient to ensure that the directors of the applicant appreciate that the risk that the applicant might be ordered to pay the respondents' costs has more than notional significance. ' There is a second factor which I consider to be significant in the circumstances of this case. This is not a matter in which the applicant is the only impecunious party. GCB is also a not-for-profit organisation and there is evidence to suggest that GCB may be unable to afford to defend these proceedings. GCB's net operating profit for the last financial year was $6,968.74 and its balance sheet shows that it has a total equity of $27,399.10. To date it has expended in excess of $42,000 in this litigation, and its estimates suggest it will spend another $50,000. PCR says this is an unfortunate consequence of litigation which is not properly a consideration in ordering security for costs. I disagree. I consider that it is a relevant discretionary consideration that proceedings, even if successfully defended, may bankrupt a respondent, especially in circumstances where there are grounds for doubting the merits of the application. GCB has submitted that it would be of comfort in determining their future course to know that costs could be recovered if their defence was successful. I accept that this is a valid consideration. CONCLUSION Weighing all of the above factors, I consider that further security should be provided to GCB, but that no order should be made in favour of ACMA. Bearing in mind my preliminary conclusions on the merits of this application, the fact that GCB is itself a not-for-profit organisation and the quantum of costs which are likely to be incurred, I consider that GCB should be provided with further security in the sum of $30,000. In determining this amount, I am aware that there is a possibility that an order for security will force the applicant to withdraw from this litigation. However this is only one factor to be taken into consideration. There are many other factors weighing in favour of an order, as outlined above. In the circumstances I consider that the interests of justice require that GCB be given some further assurance of its costs if the application is unsuccessful, although I have awarded a lesser amount than that sought by GCB in order to reduce the risk that the litigation will be stifled. Because of the delay, because ACMA is not a not-for-profit organisation, and because an additional award of security would further increase the likelihood that the litigation may be stifled, I decline to grant security for costs to ACMA. I propose to stage the payment of security, in order to minimise the burden upon PCR, so that security is paid in three equal monthly instalments before the commencement of the hearing. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cowdroy. Associate: Dated: 11 August 2006 Counsel for the Applicant: Mr A Leopold with Mr R McPherson Solicitor for the Applicant: Tzovaras Legal Counsel for the First Respondent: Ms S Phillips Solicitor for the First Respondent: Australian Government Solicitor Counsel for the Second Respondent: Mr I Davidson Solicitor for the Second Respondent: Emil Ford &amp; Co Date of Hearing: 9 August 2006 Date of Judgment: 11 August 2006 AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback URL: http://www.austlii.edu.au/au/cases/cth/FCA/2006/1043.html