FEDERAL COURT OF AUSTRALIA Milfull v Terranora Lakes Country Club Limited (In Liquidation) [2004] FCA 1637 PROCEDURE – security for costs – representative proceedings – whether fact that proceeding is brought for the benefit of others is a significant consideration in determining whether security should be ordered – operation of s 43(1A) and s 33ZG(c)(v) of the Federal Court of Australia Act 1976 (Cth) – where delay in bringing application for security for costs – whether would be inappropriate to order security for costs due to length of delay in bringing application for security Statutes Federal Court of Australia Act 1976 (Cth),ss 43(1A), 56(1), 33ZG(c)(v) Cases Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 Cited Bray v F Hoffman-La Roche Ltd (2003) ATPR 41-906 Cons Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317 Cons Ryan v Great Lakes Council (1998) 155 ALR 447 Refd to Ryan v Great Lakes Council (1998) 154 ALR 584 Refd to Smail v Burton [1975] VR 776 Cited Tobacco Control Coalition Inc v Philip Morris (Australia) Ltd [2000] FCA 1004 Refd to Woodhouse v McPhee (1997) 80 FCR 529 Cons TERENCE JOHN MILFULL v TERRANORA LAKES COUNTRY CLUB LIMITED (IN LIQUIDATION) ACN 000 467 354, ERNEST GEORGE HARRIS AND WILSON JOSEPH WILDE, ALAN JACK PANTLIN, IAN KELLETT COOK AND BARBARA ECKHARDT, THOMAS EVAN DOOKER, JAMES GEORGE EVANS, DAPHNE PEARL FOSTER, JAMES KEVIN LYNCH, JOHN WILLIAM HADDOW, JOHN FRANCIS MAKEPEACE, JOHN WILLIAM CHESHER, HARRY EDMUNDSON, PETER THOMAS JONES, STEPHEN AMOS, ALAN MCGREGOR, LEONARD JOHNSTON, JAMES RAILEY LAWRIE, CHARLES RONALD SWAIN, LAWRENCE JAMES KELLETT, PETER MARTIN MCDOWELL AND WILLIAM ARMITAGE COE, COOPERS & LYBRAND (A PARTNERSHIP) QG131 of 1995 KIEFEL J BRISBANE 14 DECEMBER 2004 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG131 OF 1995 BETWEEN: TERENCE JOHN MILFULL APPLICANT AND: TERRANORA LAKES COUNTRY CLUB LIMITED (IN LIQUIDATION) ACN 000 467 354 FIRST RESPONDENT ERNEST GEORGE HARRIS AND WILSON JOSEPH WILDE SECOND RESPONDENTS ALAN JACK PANTLIN, IAN KELLETT COOK AND BARBARA ECKHARDT THIRD RESPONDENTS THOMAS EVAN DOOKER, JAMES GEORGE EVANS, DAPHNE PEARL FOSTER, JAMES KEVIN LYNCH, JOHN WILLIAM HADDOW, JOHN FRANCIS MAKEPEACE, JOHN WILLIAM CHESHER, HARRY EDMUNDSON, PETER THOMAS JONES, STEPHEN AMOS, ALAN MCGREGOR, LEONARD JOHNSTON, JAMES RAILEY LAWRIE, CHARLES RONALD SWAIN, LAWRENCE JAMES KELLETT, PETER MARTIN MCDOWELL AND WILLIAM ARMITAGE COE FOURTH RESPONDENTS COOPERS & LYBRAND (A PARTNERSHIP) FIFTH RESPONDENTS JUDGE: KIEFEL J DATE OF ORDER: 14 DECEMBER 2004 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The application be dismissed. 2. The second and fifth respondents pay the applicant's costs of the application. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG131 OF 1995 BETWEEN: TERENCE JOHN MILFULL APPLICANT AND: TERRANORA LAKES COUNTRY CLUB LIMITED (IN LIQUIDATION) ACN 000 467 354 FIRST RESPONDENT ERNEST GEORGE HARRIS AND WILSON JOSEPH WILDE SECOND RESPONDENTS ALAN JACK PANTLIN, IAN KELLETT COOK AND BARBARA ECKHARDT THIRD RESPONDENTS THOMAS EVAN DOOKER, JAMES GEORGE EVANS, DAPHNE PEARL FOSTER, JAMES KEVIN LYNCH, JOHN WILLIAM HADDOW, JOHN FRANCIS MAKEPEACE, JOHN WILLIAM CHESHER, HARRY EDMUNDSON, PETER THOMAS JONES, STEPHEN AMOS, ALAN MCGREGOR, LEONARD JOHNSTON, JAMES RAILEY LAWRIE, CHARLES RONALD SWAIN, LAWRENCE JAMES KELLETT, PETER MARTIN MCDOWELL AND WILLIAM ARMITAGE COE FOURTH RESPONDENTS COOPERS & LYBRAND (A PARTNERSHIP) FIFTH RESPONDENTS JUDGE: KIEFEL J DATE: 14 DECEMBER 2004 PLACE: BRISBANE REASONS FOR JUDGMENT 1 This matter has a lengthy history. Proceedings were instituted on 25 August 1995. As is unfortunately common in representative proceedings, there followed a considerable number of interlocutory applications which principally concerned the applicant's pleading. Mediation which took place in December 2003 was however successful in part. Agreement was reached with the first respondent ('Club'), this applicant and four applicants in related representative proceedings and another company which led to the execution of a Deed of Compromise. It is the fruits of that settlement which are at the heart of this application by the second and fifth respondents for security for costs. 2 Notice of the Deed of Compromise was provided to group members pursuant to an Order made by me on 19 December 2003. On 3 March 2004 Dowsett J approved the Deed. The following orders were then made by consent: '3. The liquidator of the First Respondent make a distribution calculated in accordance with the amount of the proofs admitted pursuant to Clause 2 of the Deed. 4. The distribution by the liquidator to the parties represented by the Applicant shall be made in exchange for a bank guarantee in an amount equivalent to the amount of the distribution made to those parties (the Guarantee). 5. The Guarantee shall be in the form of the bank guarantee exhibited to the affidavit of Stephen Charles Russell filed herein on 3 March 2004 and marked "SCR-2". 6. The liquidator of the First Respondent shall deliver the Guarantee to the Second Respondents. 7. In the event that the Applicant succeeds in whole or in part against the Second Respondents, after the expiration of 21 days from the date of a judgment following the trial of these proceedings or, if a notice of appeal is filed by any party, after 21 days from the date of the determination of the appeal, the Second Respondents shall be at liberty to call upon the Bank to pay them pursuant to the Guarantee so much as may be sufficient to satisfy any judgment and costs recovered by the Second Respondents upon their cross claim against the First Respondent. 8. Except in accordance with the terms of this order, or any further order of this Court, no person or entity shall deal with or dispose of the money or any interest therein, to be distributed to the parties represented by the Applicant in accordance with Clause 2 of the Deed. 9. Each party bear its own costs of and incidental to the Notices of Motion filed herein on 21 January 2004, 23 January 2004 and 3 February 2004.' 3 I should add that insofar as the second and fifth respondents suggest, in their written submissions, that they were not a party to the consent that is not to be inferred from the terms of the order. If these respondents had not consented one would have expected the order to be expressed to refer only to the parties taking part in that process. Orders in the same terms were made in the other four actions which were brought because it was then considered necessary that each group member have a claim against each respondent. That position no longer prevails: Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317 at [122] to [130]. The actions have now been discontinued. 4 Consequent upon the making of the orders the liquidator of Club advised the solicitors for the second and fifth respondents, on 24 August 2004, that a dividend would be declared and that the timeshare representatives (which is to say the five applicants in each of the proceedings) would be paid in total $380 000.00 in exchange for a bank guarantee in a corresponding amount. That money was due to be distributed on 8 December 2004 and is to be held in a bank account and not dealt with, in accordance with paragraph 8 of Dowsett J's order. 5 On 31 August 2004 the solicitors for the second and fifth respondents wrote to the solicitor for the applicant requesting security over the monies to be paid by way of dividend. The motion before the court, which was filed on 15 October 2004, seeks orders in these terms: '1. The applicant provide security for the second and fifth respondents' costs of these proceedings in the amount of $380,000 or such other amount as the Court may determine. 2. The security be provided in the form of the bank guarantee referred to in paragraph 5 of the order of his Honour Justice Dowsett made 3 March 2004 ("the bank guarantee").' 6 Although the second and fifth respondents' written submissions at points refer to the security sought being 'over the amount of $380 000.00' no such order is sought in the motion and senior counsel for these respondents confirmed that no application was made for such an order. This disposes in large part of what was called the applicant's 'technical argument' which was to the effect that an order for security over the fund would have the effect of obliging the group members to provide costs contrary to s 43(1A) of the Federal Court of Australia Act 1976 (Cth) ('the Act'). That is not the effect of the orders sought. If the orders sought were made then a bank guarantee would have to be provided by the applicant. The terms of the bank guarantee sought are not expressed to attach to the fund. It would be a matter for the group members whether they provided funds in support of the guarantee and whether they were prepared to make available any interest they may have in the fund to that end. 7 There is no limitation on the exercise of the power contained in s 56(1) of the Act in relation to the making of an order for security for costs other than that it be exercised judicially: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 3. In some single judge decisions commencing with Woodhouse v McPhee (1997) 80 FCR 529 it was however suggested that special consideration might arise with respect to representative proceedings in connection with the question of whether security for costs should be ordered, in particular, because of provisions in the Act dealing with representative proceedings. 8 Section 43(1A) of the Act provides: 'In a representative proceeding commenced under Part IVA or a proceeding of a representative character commenced under any other Act that authorises the commencement of a proceeding of that character, the Court or Judge may not award costs against a person on whose behalf the proceeding has been commenced (other than a party to the proceeding who is representing such a person) except as authorised by: (a) in the case of a representative proceeding commenced under Part IVA - section 33Q or 33R; or (b) in the case of a proceeding of a representative character commenced under another Act – any provision in that Act.' 9 Section 33ZG(c)(v) of the Act however provides that, except as is otherwise provided by Part IVA, nothing in the Part affects the operation of any law relating to security for costs. 10 In Woodhouse v McPhee (at 533) Merkel J considered that the fact that a proceeding was brought for the benefit of others might be a consideration in favour of the ordering of security. On the other hand, his Honour considered it to be 'incongruous and anomalous' for the Parliament to confer a direct costs immunity under s 43(1A) and then indirectly to remove the effect of the immunity by making orders for security 'on the basis that the applicant is bringing the proceedings for the benefit of others who ought to bear their share of the potential costs liability to other parties.' His Honour went on (at [533]): 'In my view, in order to deal with that incongruity and anomaly the fact that an impecunious applicant is bringing a Pt IVA proceeding for the benefit of represented persons, whilst a relevant consideration in favour of granting security, ought not of itself be as significant a consideration as it might otherwise be in favour of the granting of security.' 11 This approach was approved in subsequent cases, notably by Wilcox J in Ryan v Great Lakes Council (1998) 154 ALR 584 and in Tobacco Control Coalition Inc v Philip Morris (Australia) Ltd [2000] FCA 1004. Lindgren J on the application for leave to appeal in Ryan v Great Lakes Council ((1998) 155 ALR 447) did not consider the approach to be attended with sufficient doubt to warrant consideration at an appellate level. 12 The first consideration given to the approach by a Full Court was in Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317 on appeal from a further decision of Merkel J in Bray v F Hoffman-La Roche Ltd ((2003) ATPR 41-906). In the primary decision his Honour had confirmed the approach he had taken in Woodhouse v McPhee, which was to the effect that the fact that proceedings were brought for the benefit of others should not be given great significance. His Honour added (at [68]): '… the cases establish that a representative party, including an individual, may be ordered to provide security for costs if the circumstances justify or warrant the making of such an order. Such circumstances might exist where, for example, a "person of straw" had been deliberately selected to be a representative party in order to immunise from costs orders particular group members who have substantial means and for whose particular benefit the proceeding is being brought.' 13 Amongst the facts which led his Honour to conclude that it was inappropriate to make an order for security for costs in the case were the following (at [75]) (referred to as the 'third and fourth factors' in the judgment of the Full Court): · public policy considerations weigh strongly against an order for security of costs that might impede or hinder the group members' claim for injunctive relief and for damages resulting from the cartel arrangement; · the kind of circumstances that might warrant an order for security for costs against an impecunious individual bringing a representative proceeding are absent in the present case. 14 The third factorreferred to is derived from his Honour's reasoning in Woodhouse v McPhee concerning the inconsistency between the two statutory provisions. In the Full Court, Carr J (at [141]) considered that an order for security for costs did not indirectly remove the effect of the immunity provided by s 43(1A). It was not that the group members were thereby saddled with an order for costs at the conclusion of the process. Rather they had a choice whether to contribute to a pool at an earlier point. Branson J agreed, as did Finkelstein J who added (at [250]) that there was no overlap between s 43(1A) and s 33ZG(c)(v). The two sections operated independently and there was no anomaly. 15 The decision by the Full Court in Bray v F Hoffman-La Roche Ltd, and the decisions which preceded it, are relevant to the question of the second and fifth respondents' delay in bringing this application. The solicitor for those respondents says that he became aware of the decision of the Full Court in March 2004. The catalyst for the decision to bring the application for security for costs he frankly acknowledges to be the advice by the liquidators of Club that they would be providing a dividend. A fund of monies which might be the source of security for costs, or at least might be utilised by group members to help the applicant to comply with any such order, was available for the first time. 16 It is not suggested by the second and fifth respondents that these proceedings are other than bona fide. They accept that the applicant has an arguable case. Of the discretionary matters which might be considered in connection with the grant of security for costs, in this case that of delay, and the explanation given for it, is of central importance. 17 It is a well established rule that applications for security for costs must be brought promptly. A respondent should not be permitted to delay and allow an applicant to expend monies toward the preparation of the matter for hearing: Smail v Burton [1975] VR 776. In the present case over $700,000.00 has been spent by the applicant from monies contributed to by group members in the nine years since the proceedings were commenced. 18 I accept that the decisions to which I have referred above would have provided some disincentive to the bringing of an application for security for costs. From the respondents' perspective it would have been necessary to persuade a judge not to follow these decisions and perhaps to bring an appeal, as was ultimately done in Bray v Hoffman-La Roche Ltd. It could not however have been thought that no argument could be mounted against the approach taken in Woodhouse v McPhee, particularly given the terms of s 33ZG(c)(v). I do not understand the respondents to contend to the contrary. 19 The respondents do not suggest that they thought an application to be without hope or that they were so advised. I infer that the question of security for costs was not of sufficient importance during this time for the respondents to risk some costs. 20 From April 2002 to May 2003 the respondents were engaged in attacks upon the statement of claim, and have had partial success. In this period an appeal was also brought and dismissed with respect to parts of the pleading which had not been struck out. Amended defences and cross-claims were filed in July 2003 and a reply in October 2003. The mediation referred to above took place in December 2003. 21 In my view the question of security for costs is likely not to have assumed importance to the respondents until it was apparent that the fund was to become available. The respondents could have brought an application at a much earlier point. It is true that they may have risked costs. But without notice of such an application the applicant and the group members continued to expend substantial monies without realising that more may be asked of them. If security for costs was to be sought against the applicant he was entitled to know at any early point. If an order was then made the group members could have considered their position. The application in my view has been brought too late and the explanation for the delay is not sufficient. 22 The applicant also submits that I should take account of the second and fifth respondents' inaction when the orders consequent upon the Deed of Compromise were made. The group members, it is submitted, have been led to believe that they would have available to them a fund in the event that they do not succeed against the second and fifth respondents. 23 The submission would have relevance if the orders sought were to attach to the fund, but they do not as I have previously explained. It therefore does not seem to me to be of much relevance whether the second and fifth respondents should have brought the application at the same time and put the applicant and other group members on notice of their claim. More to the point is the fact that the respondents should have brought the application much earlier in the proceedings. 24 Because of the length of the delay and the effect upon the applicant and the group members I do not consider an order for security for costs to be appropriate. I should add for completeness that I do not consider the applicant to have established that were such an order made, the litigation would be stifled. His evidence does not go that far. He says that he does not think that the committee responsible for the funding of the litigation could raise the monies, in particular because group members would be disheartened upon hearing of the order as they had thought there was a fund available to them. This is not to say that persons who have invested considerable sums in the litigation to date would not see it through to completion. There are after all about 1650 group members and it is not suggested that all are in dire financial circumstances. The question whether they would be prepared to fund to the extent of the order sought has not been put to them. 25 The application will be dismissed with costs. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel. Associate: Dated: 14 December 2004 Counsel for the Applicant: Mr J W Peden Solicitor for the Applicant: Russell & Company Counsel for the Second and Fifth Respondents: Mr B Oslington QC with Mr DA Kelly Solicitor for the Second and Fifth Respondents: Allens Arthur Robinson Date of Hearing: 8 December 2004 Date of Judgment: 14 December 2004