FEDERAL COURT OF AUSTRALIA National Mutual Life Association of Australasia Limited v Tolfield Pty Ltd (No 4) [2012] FCA 101 Citation: National Mutual Life Association of Australasia Limited v Tolfield Pty Ltd (No 4) [2012] FCA 101 Parties: THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED (ACN 004 020 437) v TOLFIELD PTY LTD (ACN 010 147 243), FRANCES MARY SHEAHAN and SUZANNE COX File number: VID 840 of 2010 Judge: COLLIER J Date of judgment: 16 February 2012 Catchwords: PRACTICE AND PROCEDURE – security for costs – s 56 Federal Court of Australia Act 1976 (Cth), O 28 r 2 Federal Court Rules and s 1335(1) Corporations Act 2001 (Cth) – applicant to substantive proceedings taking passive role – order sought by second respondent against first respondent – whether first respondent in substance "the applicant" – s 55(2) Superannuation Industry (Supervision) Act 1993 (Cth) – first respondent joined to proceeding by applicant – position of first respondent mirrors position taken by applicant Legislation: Corporations Act 2001 (Cth) s 1335 Federal Court of Australia Act 1976 (Cth) s 56(1) Life Insurance Act 1995 (Cth) s 215(1) Superannuation Industry (Supervision) Act 1993 (Cth) s 55(1), (2) Federal Court Rules O 28 r 2 Federal Court Rules 2011 rr 19.01, 19.02 Cases cited: Capital Webworks Pty Ltd v Adultshop.com.Ltd [2008] FCA 40 cited Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 5) [2006] FCA 1672 cited Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 cited KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 cited Date of hearing: 15 November 2011 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 20 Counsel for the Applicant: The Applicant did not appear (Leave granted by Court Order of 20 April 2011) Counsel for the First and Third Respondents: Mr PP McQuade and Mr PK O'Higgins Solicitor for the First and Third Respondents: McCullough Robertson Counsel for the Second Respondent: Mr D Cooper SC Solicitor for the Second Respondent: Macpherson+Kelley Lawyers IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION VID 840 of 2010 BETWEEN: THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED (ACN 004 020 437) Applicant AND: TOLFIELD PTY LTD (ACN 010 147 243) First Respondent FRANCES MARY SHEAHAN Second Respondent SUZANNE COX Third Respondent JUDGE: COLLIER J DATE OF ORDER: 16 FEBRUARY 2012 WHERE MADE: BRISBANE THE COURT ORDERS THAT: The notice of motion in respect of paragraphs 2, 4 and 5 filed 1 July 2011 be dismissed with costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION VID 840 of 2010 BETWEEN: THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LIMITED (ACN 004 020 437) Applicant AND: TOLFIELD PTY LTD (ACN 010 147 243) First Respondent FRANCES MARY SHEAHAN Second Respondent SUZANNE COX Third Respondent JUDGE: COLLIER J DATE: 16 FEBRUARY 2012 PLACE: BRISBANE REASONS FOR JUDGMENT 1 In this proceeding the applicant, The National Mutual Life Association of Australasia Ltd, takes a relatively passive role. The interpleader procedure has been invoked by the applicant pursuant to s 215(1) of the Life Insurance Act 1995 (Cth) because it was unable to obtain a sufficient discharge in respect of the proceeds of the life insurance policy over the life of Mr Peter Cox. The contentious parties are the first and second respondents, who are the claimants to the benefit of the Mr Cox's life insurance policy. That dispute has been summarised in previous judgments of this Court. 2 In a notice of motion filed on 1 July 2011 the second respondent has sought orders – so far as relevant for the purposes of this judgment – in the following terms: … 2. Pursuant to s 56(1) Federal Court of Australia Act (1976), Order 28 rule 2 Federal Court Rules, s 1335(1) Corporations Act (2001) and/or alternatively the inherent jurisdiction of this Honourable Court that: (a) Within 14 days of such order, the First Respondent provide the amount of $200,000 by way of security for costs of the Second Respondent in a form satisfactory to the Registrar. (b) The Second Respondent have liberty to apply as to such amount or form of such security upon the giving of 2 clear days notice to the First Respondent. … 4. The First Respondent pay the Second Respondent's costs of and incidental to this motion on a party and party basis (to be taxed unless otherwise agreed upon). 5. Pursuant to Order 62 rule 3 Federal Court Rules that the above costs ordered to be taxed be taxed and paid forthwith notwithstanding that this proceeding is not concluded. 3 Clearly, these aspects of the notice of motion are predicated on the principle that the first respondent occupies the role of applicant/plaintiff, and the second respondent occupies the role of respondent/defendant. That this is so is apparent from the terms of s 56(1) of the Federal Court of Australia Act 1976 (Cth) and s 1335 of the Corporations Act 2001 (Cth), which provide (inter alia) that the Court may order an applicant in a proceeding in the Court to give security for the payment of costs that may be awarded against him or her. It is also apparent from O 28 r 2 of the Federal Court Rules, which was in operation at the time the notice of motion was filed, and which provides: Application (1) An application that an applicant shall provide security for costs shall be made by motion upon notice. (2) The notice of motion shall be supported by an affidavit stating the material facts and the grounds upon which security for costs is sought. 4 Somewhat surprisingly, as this matter has been in issue since 1 July 2011, the second respondent also relies on r 19.01 and r 19.02 of the Federal Court Rules 2011. Surprisingly, because the proceeding was instituted pursuant to the former Federal Court Rules, and other than the hearing on 14 November 2011, no steps appear to have been taken in respect of this matter since 1 July 2011. Rule 19.01 and r 19.02 provide as follows: 19.01 Application for an order for security for costs (1) A respondent may apply to the Court for an order: (a) that an applicant give security for costs and for the manner, time and terms for the giving of the security; and (b) that the applicant's proceeding be stayed until security is given; and (c) that if the applicant fails to comply with the order to provide security within the time specified in the order, the proceeding be stayed or dismissed. (2) An application under subrule (1) must be accompanied by an affidavit stating the facts on which the order for security for costs is sought. 19.02 Matters to be addressed by the respondent The respondent's affidavit should state the following: (a) whether there is reason to believe that the applicant will be unable to pay the respondent's costs if so ordered; (b) whether the applicant is ordinarily resident outside Australia; (c) whether the applicant is suing for someone else's benefit; (d) whether the applicant is impecunious; (e) any other relevant matter. Note Section 56 of the Act deals with security for costs. 5 No matters have been brought to my attention to suggest that the outcome of these proceedings would be different if the Court were to apply r 19.01 and r 19.02 rather than O 28 r 2. In any event, in the circumstances I consider that I ought apply the provisions of O 28 r 2. The respective cases 6 In summary the second respondent submits as follows: On the evidence the second respondent is entitled to the policy proceeds established by the nomination document produced by the trustee in December 2009. The first respondent must now act as an applicant/plaintiff to attempt to negate that entitlement. The claim of the first respondent is not "defensive" in nature. In any event, the supposed "defensive" proceedings argument is not a total bar to security being granted, but is simply one factor to be evaluated in the circumstances. The first respondent has not refuted evidence presented by the second respondent that it does not have the capacity to meet any order for costs from its own resources. The first respondent has not presented current verified financials to demonstrate the current value of trust assets. At any time the third respondent has power to distribute the totality of all member's accumulated accounts and render the trust valueless. The case of the first respondent is weak because of the abandonment of the allegation of mental incapacity, the evidence of the authority of Mr Cox to act as he did, and the protective terms of s 55(2) of the Superannuation Industry (Supervision) Act 1993 (Cth) ("SIS Act"). 7 In response, the first respondent claims, in summary: The first respondent is not an applicant or a plaintiff for the purposes of the relevant legislation. Even if the first respondent were susceptible to such an order, there is no reason to believe that it will be unable to pay the costs of the second respondent should it be ordered to do so following the trial. The quantum of security sought by the second respondent does not reflect a proper or reasonable assessment of the likely costs of the second respondent from now until the first day of trial. Consideration 8 The purpose of an order for security for costs is well known. It is to protect the efficacy of the exercise of the Court's jurisdiction to award costs, and to ensure that a defendant is protected against the risk that a costs order be of no value because the order cannot be met by the applicant/plaintiff. The jurisdiction to award security for costs recognises the principle that injustice would result to a respondent/defendant by the impecuniosity of the applicant/plaintiff, being the moving party in the proceedings. (cf Capital Webworks Pty Ltd v Adultshop.com.Ltd [2008] FCA 40 at [13], Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [52], Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 5) [2006] FCA 1672 at [28]-[30]). 9 The legislation upon which the second respondent relies, and which is consistent with familiar principles articulated in the authorities, is clear – the Court may order payment security for costs by an applicant or plaintiff in respect of proceedings at the suit of a respondent or defendant. 10 In this proceeding it is not in dispute that the first and second respondents are, indeed, respondents to the principal application filed by The National Mutual Life Association of Australasia Ltd. The second respondent contends that the first respondent is in substance the applicant in the proceedings, so as to warrant consideration by the Court of an order for security for costs against it. 11 It is clear that the second respondent bears the onus of proof in establishing that the position of the first respondent should be characterised as such. 12 Notwithstanding the view expressed in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at [39] that security will only ordinarily be ordered against a party who is in substance a plaintiff, no authority has been cited by the second respondent for her contention that a person in the position of the first respondent in this proceeding can be the subject of a security for costs order. In my view, the legislation does not contemplate circumstances such as the present, where two parties have made a claim to an estate and are both respondents to one proceeding, and the very question whether one of them is in some way acting as an "applicant" is in dispute. 13 However in any event, I am not persuaded that the position of the first respondent can be characterised in substance as that of applicant or plaintiff as submitted by the second respondent. 14 First, the second respondent claims that s 55(2) of the SIS Act validates the act of Mr Cox in nominating the second respondent, and that the first respondent seeks to impugn that action. Sections 55(1) and (2) of the SIS Act provide: (1) A person must not contravene a covenant contained, or taken to be contained, in the governing rules of a superannuation entity. (2) A contravention of subsection (1) is not an offence and a contravention of that subsection does not result in the invalidity of a transaction. 15 Whether or not s 55(2) of the SIS Act provides a definitive answer to the competing claims of the first and second respondents remains to be seen in this proceeding. One of the contentions of the first respondent is that the absence of authority of Mr Cox to, on behalf of the first respondent, nominate the second respondent as the beneficiary of the proceeds of the policy insuring his life, is not answered by s 55(2). However it appears that the applicant similarly takes this view, because it is the applicant which: was required to obtain a sufficient discharge in respect of the proceeds of a life insurance policy over the life of Mr Cox; has determined that the purported nomination of the second respondent as beneficiary of the Mr Cox's life insurance policy on 16 December 2009 is invalid; considered that the prior nomination by the first respondent of Mrs Cox (the third respondent) remains the only valid nomination of beneficiary; and significantly, took the view that accordingly the "only appropriate action" was for the applicant to pay the relevant moneys into Court pursuant to s 215 of the Life Insurance Act. 16 This is clear from the affidavit of Ms Vicki Carter filed 1 October 2010 paragraphs 27, 38, 39 and 40. Indeed, as the first respondent submits (in my view correctly) – even if the first respondent were precluded from advancing its contentions, the Court would still be required to determine the same issues in adjudicating the second respondent's claims. 17 Second, it is not in dispute that the first respondent was joined to the proceeding by the applicant. In KP Cable Investments at [39] Beazley J observed that an order for security for costs ought not to be made against parties who are defending themselves and thus forced to litigate. Contentions of fact and law, as well as the form of declaratory relief the respondents contend ought be made by this Court, were filed by the respondents in this proceeding pursuant to the orders of Bromberg J of 20 October 2010. The second respondent contends that the first respondent is not in a defensive role in respect of any actions of the second respondent, and that the first respondent is acting of its own volition because without overturning the definitive declaration of validity imposed by the SIS Act it would have no entitlement to the proceeds of the life policy (TS 15 November 2011 p 12 ll 30-33). However, while it is clear that the first respondent takes the same position as the applicant as to the form the declaration should take, this does not mean that the first respondent is "the applicant" in the context of the second respondent's security for costs application, either in substance or otherwise. 18 Finally, the first respondent clearly has a position it wishes to assert. So does the second respondent. Both respondents are entitled to do so, and have done so. It is clear from the Amended Contentions of Fact and Law filed 4 February 2011 that the second respondent itself bears the onus of proof in respect of a number of matters before the Court. This is the case in particular in respect of paragraphs 26, 27, 28, 31, 32(g), (h) and (i), 34, 35, 36, 37 and 38 of the second respondent's Amended Contentions of Fact and Law. It is questionable whether these circumstances, in turn, mean that the second respondent is, in substance, an "applicant" for the purposes of the relevant legislation, any more than the contentions of the first respondent so characterise it as a moving party to this litigation. 19 In my opinion a security for costs order ought not be made against the first respondent on the motion of the second respondent. Accordingly, it is not necessary for me to consider whether the first respondent is in a position to satisfy any costs order it might incur in this proceeding. 20 The notice of motion in respect of paragraphs 2, 4 and 5 should be dismissed with costs. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier. Associate: Dated: 16 February 2012