FEDERAL COURT OF AUSTRALIA Kelly v Willmott Forests Ltd (in liquidation) [2012] FCA 1446 Citation: Kelly v Willmott Forests Ltd (in liquidation) [2012] FCA 1446 Parties: DAVID KELLY, MARGARET KELLY (NEE ILACQUA) and AARON GRANT v MIS FUNDING NO 1 PTY LTD (ACN 119 268 905), COMMONWEALTH BANK OF AUSTRALIA, WILLMOTT FORESTS LTD (IN LIQUIDATION) (ACN 063 263 650), JONATHAN DAVID MADGWICK, MARCUS DERHAM, JAMES WILLIAM ANTONY HIGGINS, HUGH THOMAS DAVIES, RAYMOND MAXWELL SMITH and BIOFOREST LIMITED (IN LIQUIDATION) (ACN 096 335 876) File numbers: VID 1483 of 2011 VID 1484 of 2011 VID 1485 of 2011 Judge: MURPHY J Date of judgment: 17 December 2012 Catchwords: PRACTICE AND PROCEDURE – Costs – Security for costs – Security for costs in representative proceedings under Pt IVA - Factors to be taken into account in relation to security for costs in representative proceedings – whether the applicant is relevantly impecunious – whether impecuniosity ought be a bar to litigation - the strength and bona fides of the claim – whether the representative party is a person of straw – whether the financial characteristics of the group members are relevant – whether an representative party's lawyer is relevantly "standing behind" the litigation or standing to "benefit" from the litigation – whether the action is defensive in nature - whether an order for security is likely to stifle the litigation – whether security would be ordered if individual proceedings had been brought. Legislation: Australian Securities and Investment Commission Act 2001 (Cth) Corporations Act 2001 (Cth) Federal Court of Australia Act 1976 (Cth) Legal Profession Act 2004 (Vic) Trade Practices Act 1974 (Cth) Cases cited: Amalgamated Mining Services Pty Ltd v Warman (1988) 88 ALR 63 Australian Equity Investors, An Arizona Limited Partnership v Colliers International (NSW) Pty Ltd [2012] FCAFC 57 Bagshaw v Jefferson (Trustee) [2002] FCA 1216 Barton v Minister for Foreign Affairs (1984) 2 FCR 463 Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1 Bray v F Hoffman-La Roche [2002] FCA 1405 Bray v F Hoffman-La Roche (2003) 130 FCR 317 Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 Cameron's Unit Services Pty Ltd v Kevin R Whelpton & Associates (Australia) Pty Ltd (1986) 13 FCR 46 Carriage v Stockland Development Pty Ltd (2004) 134 LGERA 266 Cauvin v Philip Morris Ltd [2003] NSWSC 1225 Chellaram v China Ocean Shipping (1991) 102 ALR 321 Cowell v Taylor (1885) 31 Ch D 34 Cultivaust Pty Ltd v Grain Pool Pty Ltd [2004] FCA 1366 Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 Famel Pty Ltd v Burswood Management Ltd (1989) ATPR 40-962 Fletcher v Commissioner of Taxation (1992) 37 FCR 288 Gartner v Ernst & Young (No 3) [2003] FCA 1437 Hall v Finance Direct Ltd [2005] VSC 306 James v Australia and New Zealand Banking Group Ltd (No 1) (1985) 9 FCR 442 at 445 Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2003) Aust Torts Reports 81-692 Knight v Beyond Properties Pty Ltd [2005] FCA 764 KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 Lawrance v Commonwealth [2008] FCA 417 Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1 Melville v Craig Nowlan & Associates Pty Ltd (2001) 54 NSWLR 82 Milfull v Terranora Lakes Country Club Ltd (in liq) (2005) 214 ALR 228 Mobil Oil Australia Pty Ltd v Victoria (2002) 211 CLR 1 Motorplex (Australia) Pty Ltd v Port Stephens Council (No 2) [2007] NSWLEC 770 Multiplex Funds Management Ltd v P Dawson Nominees Pty Ltd [2007] FCAFC 200 Octocane Pty Ltd v SRJ Property Development Pty Ltd (1999) 74 SASR 471 Orr v Lusute Pty Ltd (1987) 72 ALR 617 Pearson v Naydler [1977] 1 WLR 899 Qantas Airways Ltd v Cameron (No 3) (1996) 68 FCR 387 Randall v Deputy Commissioner of Taxation (2008) 174 FCR 441 Kingsheath Club of the Clubs Limited (In liq) [2003] FCA 1034 Ryan v Great Lakes Council (1998) 154 ALR 584 Ryan v Great Lakes Council (1998) 155 ALR 447 Smail v Burton [1975] VR 776 The Airtourer Co-operative Ltd v Millicer Aircraft Industries Pty Ltd [2004] FCA 1400 Tobacco Control Coalition Inc v Phillip Morris (Australia) Ltd [2000] FCA 1004 Weily's Quarries v Devine Shipping Pty Ltd (1994) 14 ACSR 186 Weston v Beaufils (1993) 43 FCR 292 Willey v Synan (1935) 54 CLR 175 Woodcroft-Brown v Timbercorp Securities Ltd [2011] VSC 427 Woodhouse v McPhee (1997) 80 FCR 529 Date of hearing: 1 and 7 June 2012 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 133 Counsel for the Applicants: Mr J Burnside QC with Mr R Moore and Mr N Evans Solicitor for the Applicants: Macpherson and Kelley In VID 1483 of 2011 and VID 1484 of 2011: Counsel for the Respondents: Mr B Quinn Solicitor for the Respondents: Freehills In VID 1485 of 2011: Counsel for the First and Seventh Respondents: Mr J D Elliot SC with Mr R G Craig Solicitor for the First and Seventh Respondents: Arnold Bloch Leibler Counsel for the Second, Third, Fourth, Fifth and Sixth Respondents: Mr J Delaney SC with Mr McLelland Solicitor for the Second, Third, Fourth, Fifth and Sixth Respondents: Brian Ward & Partners IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1483 of 2011 BETWEEN: DAVID KELLY First Applicant MARGARET KELLY (NEE ILACQUA) Second Applicant AND: MIS FUNDING NO 1 PTY LTD (ACN 119 268 905) Respondent IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1484 of 2011 BETWEEN: AARON GRANT Applicant AND: COMMONWEALTH BANK OF AUSTRALIA Respondent IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1485 of 2011 BETWEEN: DAVID KELLY First Applicant MARGARET KELLY (NEE ILACQUA) Second Applicant AND: WILLMOTT FORESTS LTD (IN LIQUIDATION) (ACN 063 263 650) First Respondent JONATHAN DAVID MADGWICK Second Respondent MARCUS DERHAM Third Respondent JAMES WILLIAM ANTONY HIGGINS Fourth Respondent HUGH THOMAS DAVIES Fifth Respondent RAYMOND MAXWELL SMITH Sixth Respondent BIOFOREST LIMITED (IN LIQUIDATION) (ACN 096 335 876) Seventh Respondent JUDGE: MURPHY J DATE OF ORDER: 17 DECEMBER 2012 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The applications for security for costs are dismissed. 2. The respondents pay the applicant's costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1483 of 2011 BETWEEN: DAVID KELLY First Applicant MARGARET KELLY (NEE ILACQUA) Second Applicant AND: MIS FUNDING NO 1 PTY LTD (ACN 119 268 905) Respondent IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1484 of 2011 BETWEEN: AARON GRANT Applicant AND: COMMONWEALTH BANK OF AUSTRALIA Respondent IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1485 of 2011 BETWEEN: DAVID KELLY First Applicant MARGARET KELLY (NEE ILACQUA) Second Applicant AND: WILLMOTT FORESTS LTD (IN LIQUIDATION) (ACN 063 263 650) First Respondent JONATHAN DAVID MADGWICK Second Respondent MARCUS DERHAM Third Respondent JAMES WILLIAM ANTONY HIGGINS Fourth Respondent HUGH THOMAS DAVIES Fifth Respondent RAYMOND MAXWELL SMITH Sixth Respondent BIOFOREST LIMITED (IN LIQUIDATION) (ACN 096 335 876) Seventh Respondent JUDGE: MURPHY J DATE: 17 DECEMBER 2012 PLACE: MELBOURNE REASONS FOR JUDGMENT introduction 1 Before the Court are applications for security for costs brought by the respondents in each of three related class actions. The claims by the applicants and group members in the three proceedings all arise out of investments in managed investment schemes based around long-term forestry plantations associated with Willmott Forests Ltd and Bioforest Ltd, now in liquidation ("the relevant schemes"). 2 The three related class actions are: (a) VID 1485 of 2011 brought by David and Margaret Kelly, and Aaron Grant, against five former directors ("the Directors") of Willmott Forests Ltd and Bioforest Ltd, and also against those two companies ("the Willmott Respondents"). This proceeding is brought by the applicants on their own behalf and on behalf of all persons who acquired an interest in the relevant schemes and who suffered loss and damage by reason of the conduct of the Directors or the Willmott Respondents ("the Willmott Proceeding"). (b) VID 1483 of 2011 brought by David and Margaret Kelly against MIS Funding No 1 Pty Ltd ("MIS") on their own behalf and on behalf of all persons who acquired an interest in the relevant schemes, who entered a loan agreement with MIS to finance the acquisition of the interest, and who suffered loss and damage by reason of the conduct of MIS ("the MIS Proceeding"). (c) VID 1484 of 2011 brought by Aaron Grant against the Commonwealth Bank of Australia Ltd ("CBA") on his own behalf and on behalf of all persons who acquired an interest in the relevant schemes, who entered a loan agreement with CBA to finance the acquisition of an interest, and who suffered loss and damage by reason of the conduct of CBA ("the CBA Proceeding"). 3 The Willmott Proceeding is brought against the companies that were the responsible entities of the relevant schemes, together with the Directors of those companies. The other two proceedings are brought against two lenders that provided loans to the applicants and group members to finance their acquisition of an interest in the relevant schemes, MIS and CBA ("the Lenders"). MIS is a wholly owned subsidiary of CBA. Each of the class actions were commenced at the same time, are factually inter-related, and are being case managed together. 4 For the reasons I set out below, I refuse the applications for security for costs and order the respondents to pay the applicants' costs. B. Relevant legislation 5 The Court's power to order security for costs derives from s 56 of the Federal Court of Australia Act 1976 (Cth) ("FCA") which relevantly provides: (1) The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal … to give security for the payment of costs that may be awarded against him or her. (2) The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs. (3) The Court or Judge may reduce or increase the amount of security ordered to be given and may vary the time at which, or manner or form in which, the security is to be given. (4) If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed. (5) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security. 6 As each of the applicants is a natural person there is no need to consider the power to order security for costs against a corporation set out in s 1335(1) of the Corporations Act 2001 (Cth) ("Corporations Act"). 7 Part IVA of the FCA sets out the regime for representative proceedings or "class actions". Section 33ZG(c)(v) in that Part provides: Except as otherwise provided by this Part, nothing in this Part affects: … (c) the operation of any law relating to: … (v) security for costs. Plainly, security for costs may be ordered in class actions. 8 Part IVA provides protection to group members in a class action from an order for adverse costs, except where they are pursuing individual issues or the issues of a sub-group which they represent: see ss 33Q and R of the FCA. Section 43(1A) relevantly provides: In a representative proceeding commenced under Part IVA … 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; … 9 Rules 19.01 and 19.02 of the Federal Court Rules 2011 ("the Rules") set out the procedure on an application for security. Rule 19.01 provides: (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. 10 Rule 19.02 sets out the matters that a respondent must address in the affidavit in support of the application. It provides: 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. C. Principles regarding security for costs 11 There is no question that in the circumstances of this case the Court has power to order security for costs under s 56 of the FCA. The only question is whether I should do so in the proper exercise of my discretion. 12 It is established that the discretion conferred by s 56 is broad and unfettered. Many attempts to set limitations upon the discretion have been rejected by the Courts, and the only limitation is that it must be exercised judicially: Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1 ("Bell Wholesale") at 3 per Sheppard, Morling and Neaves JJ. It is a discretion to be exercised according to the merits of each case and without any particular predisposition: Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 ("Fencott v Eretta") at 511 per French J. The discretion is to be exercised by reference to the particular circumstances arising in each case: Woodhouse v McPhee (1997) 80 FCR 529 ("Woodhouse v McPhee") at 533 per Merkel J. 13 The considerations relevant to the exercise of my discretion under s 56 in the context of a class action can be distilled from the various authorities I detail below. They were usefully summarised by Hollingworth J in Hall v Finance Direct Ltd [2005] VSC 306 ("Hall") at [107] and they include the following: (a) Whether there is reason to believe that the applicants will be unable to pay the respondents' costs if so ordered, that is, whether the applicants are impecunious? (b) Whether the applicants' insufficiency of means is caused by the conduct which is the foundation for the action? (c) The promptness of the application and the stage of the proceedings at which an application for security is brought. (d) Whether the proceeding has become bogged down with "interminable and expensive interlocutory applications" for which the applicants bear responsibility? (e) The strength and bona fides of the applicants' claim for relief from the respondents. (f) Whether the applicants have been deliberately selected as "persons of straw", in order to immunise from costs orders group members of substantial means? (g) Whether the proceeding is essentially defensive in nature? (h) Whether the applicants are suing for someone else's benefit? (i) The characteristics of the group members. For example do they include corporations or natural persons, and are they rich or poor? (j) Whether someone who stands to benefit from the litigation is funding the applicants? (k) Whether security would have been ordered if separate actions had been brought by the group members? (l) Whether an order for security would stifle the action and shut the applicants out from pursuing an arguable claim? The parties were in agreement as to most of the relevant principles, but sharply divided as to their application. 14 These factors must be weighed individually and together. As McHugh J held in PS Chellaram v China Ocean Shipping Co (1991) 102 ALR 321 at 323: To make or refuse to make an order for security for costs involves the exercise of a discretionary judgement. 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. D. Application of the relevant principles 15 I will turn now to apply the relevant principles to the facts of this case. Three of the factors can be speedily dealt with. The first is whether the applicants' impecuniousity could be said to result from the conduct which is the foundation of the action, as this would militate against an order for security for costs: Octocane Pty Ltd v SRJ Property Development Pty Ltd (1999) 74 SASR 471 at 479; Cultivaust Pty Ltd v Grain Pool Pty Ltd [2004] FCA 1366 at [21] per Finn J. The applicants do not so contend. The second is whether the application for security for costs was brought promptly and not delayed: see Smail v Burton [1975] VR 776; Milfull v Terranora Lakes Country Club Ltd (in liq) (2005) 214 ALR 228; Federal Court Practice Note CM 17, paragraph 5.1. It is clear that the application for security in the present proceedings was brought promptly. The third is whether the proceedings have become bogged down with "interminable and expensive interlocutory applications" for which the applicants bear responsibility: Bray v F Hoffman-La Roche (2003) 130 FCR 317 ("Bray") at [252] per Finkelstein J. It is not contended that these cases are not proceeding at a reasonable pace. Whether there is reason to believe that the applicants will be unable to pay the respondents' costs if so ordered? Whether the applicants are impecunious? 16 The respondents filed affidavits by lawyers and costs consultants who provided detailed estimates of the party-party legal costs which the respondents would expect to recover if successful in the proceedings. This evidence is not challenged. The uncontested evidence is that the amounts of party-party costs likely to be recoverable are: (a) approximately $4.8 million by the Lenders; (b) approximately $2 million by the Directors; and (c) in the range of $580,000 to $2.4 million by the Willmott Respondents. 17 The applicants are each natural persons who had sufficient wealth to invest in the relevant schemes. There is no evidence to indicate that the applicants are impoverished, and they are not impecunious in that sense. The Statement of Financial Circumstances provided by David and Margaret Kelly records that they own a home valued at $700,000, although subject to a mortgage of $450,000, two cars and some shares and interests in managed investment schemes. They have net assets of $392,225 and an annual after-tax income of $162,860. The Statement of Financial Circumstances provided by Aaron Grant records that he owns a home valued at $470,000 together with an investment property although with significant mortgages, together with a car, and about $100,000 in shares and other investments. He has net assets of $187,523 and after-tax income of approximately $110,450 per annum. 18 However, in the sense that they could not meet approximately $7.4 million to $9.2 million in adverse costs if their cases are unsuccessful the applicants are relevantly impecunious. This answers a threshold question in the application as the point of an order for security for costs is to protect the respondent to legal proceedings from the risk that the applicant cannot meet an adverse costs order. 19 After allowing a 20% discount in respect of future legal work, MIS and CBA seek security of about $3.85 million. The Directors seek security of about $2 million. The Willmott Respondents seek security in the range of $580,000 to $2.4 million, on the expressly stated basis that they may seek further security if the costs incurred prove higher than their estimate. The total sought is therefore up to $8.2 million. The applications for security are all based on similar grounds and it is appropriate to consider them having regard to the total amount sought. The effect of the applicants' impecuniousity in the application 20 The traditional rule is that natural persons such as the applicants will not, by reason of impecuniousity alone, be barred from continuing with proceedings by the granting of an order for security for costs. In an often quoted passage in Cowell v Taylor (1885) 31 Ch D 34 at 38, Bowen LJ said: The general rule is that poverty is no bar to a litigant, that, from time immemorial, has been the rule at common law, and also, I believe, in equity. There are two exceptions to this general rule referred to by Bowen LJ. The first exception relates to appeals. The second exception is to prevent abuse and it provides that if an impecunious party sues for the benefit of somebody else he or she should give security. 21 In Pearson v Naydler [1977] 1 WLR 899 at 902 Megarry VC noted: The basic rule that a natural person who sues will not be ordered to give security for costs, however poor he is, is ancient and well-established. As Bowen LJ said in Cowell v Taylor (1885) 31 Ch D 34, 38, both at law and in equity "The general rule is that poverty is no bar to a litigant…". The power to require security for costs ought not to be used so as to bar even the poorest man from the courts. (Emphasis added.) 22 The traditional rule has been followed on numerous occasions. In Barton v Minister for Foreign Affairs (1984) 2 FCR 463 ("Barton") at 469 Morling J cited Cowell v Taylor and Pearson v Naydler with approval and observed that: It has never been the case that impecuniousity on the part of a plaintiff is a ground for ordering him to give security for costs. In Orr v Lusute Pty Ltd (1987) 72 ALR 617 at 622 Sheppard J described the rule as "fundamental". See also: James v Australia and New Zealand Banking Group Ltd (No 1) (1985) 9 FCR 442 at 445 per Toohey J; Cameron's Unit Services Pty Ltd v Kevin R Whelpton & Associates (Australia) Pty Ltd (1986) 13 FCR 46 at 53 per Burchett J; Famel Pty Ltd v Burswood Management Ltd (1989) ATPR 40-962 at 50,514 per French J; Weston v Beaufils (1993) 43 FCR 292 at 298 per Burchett J, Fletcher v Commissioner of Taxation (1992) 37 FCR 288 at 292 per Hill J. 23 The respondents submit that there is doubt as to whether the principle that "poverty is no bar to a litigant" survived the enactment of s 56 of the FCA. In Melville v Craig Nowlan & Associates Pty Ltd (2001) 54 NSWLR 82 at 88-89 ("Melville v Craig Nowlan") Heydon JA (as he then was) doubted the continued operation of the traditional rule in this Court. It is unnecessary to decide whether this is so because even if s 56 does displace the traditional rule the principle that "poverty is no bar to litigation" is relevant to the exercise of my discretion: This has been confirmed in many decisions since Melville v Craig Nowlan: Bagshaw v Jefferson (Trustee) [2002] FCA 1216 at [24] per Jacobson J; The Airtourer Co-operative Ltd v Millicer Aircraft Industries Pty Ltd [2004] FCA 1400 ("Airtourer") at [16] to [22] per Branson J; Knight v Beyond [2005] FCA 764 at [32] per Lindgren J; Randall v Deputy Commissioner of Taxation (2008) 174 FCR 441 at [87] and [90] per Lander J; Lawrance v Commonwealth [2008] FCA 417 at [44] per Flick J. 24 I respectfully agree with the observations of Branson J in Airtourer at [16] to [22] where her Honour explained: [17] …as Gleeson CJ stated in Plaintiff S157/2002 v Commonwealth of Australia (2003) 211 CLR 476 at [30]: …courts do not impute to the legislature an intention to abrogate or curtail fundamental rights or freedoms unless such an intention is clearly manifested by unmistakable and unambiguous language. General words will rarely be sufficient for that purpose. [18] The common law has long regarded it as a fundamental right of a citizen, including an impecunious citizen, to have access to the courts. Indeed, this fundamental right might be thought to be immanent in the rule of law… It would be strongly arguable, in my view, that a legislative provision that purported to restrict access to this Court to litigants able to provide security for the payment of costs that might be awarded against them would offend Chapter III of the Constitution. However, in my view, nothing suggests that subs 56(1) of the Federal Court Act was intended to curtail that fundamental right. The authorities have not understood it to do so. Her Honour then referred to Barton, and other Federal Court authorities to the same effect, and noted: [19] …These authorities demonstrate that this Court has a long history of exercising the broad discretion vested in it by s 56 in a way that accords respect to the principle that it is a fundamental right of citizens, whether poor or wealthy, to be able to access the courts to protect the legitimate legal rights. … [22] … I consider that I am bound both by authority and principle to act on the basis that subs 56(1) of the Federal Court Act is not intended to empower the Court to act in disregard of the principle that poverty of itself is no ground for ordering a litigant to provide security for costs. The strength and bona fides of the applicants' claim for relief from the respondents? 25 The authorities indicate that regard should be had to the strength and bona fides of the applicants' claims: Bray at [252] per Finkelstein J; Melville v Craig Nowlan at 88-89; Woodhouse v McPhee at 534; Hall at [107]. The respondents did not question the bona fides of the applicants' claims, raising only their prospects of success. 26 Counsel for the Lenders and for the Directors argue that consideration of the strength of the applicants' claims mandates more than an analysis as to whether it discloses a cause of action. They point to the observation of Heydon JA in Melville v Craig Nowlan at 114 to 115 where his Honour said that "it does not follow from the fact that a claim discloses a cause of action that it has a reasonable prospect of success." The respondents also rely on the view expressed by Finkelstein J in Bray at [252] where his Honour said that "the court should not shy away from undertaking a preliminary evaluation of the merits. That task is not as difficult as it might seem." 27 However, the respondents do not speak with one voice on this issue. The Willmott Respondents point to the factual and legal complexity of the proceedings as indicating that an evaluation of the applicants' prospects of success is not feasible or appropriate. They submit that the proceedings raise legal and factual issues similar to those in Woodcroft-Brown v Timbercorp Securities Ltd [2011] VSC 427 in which the judgement itself spanned 244 pages. They argue that even if a failure to disclose material information by them is established, any issue of reliance by the applicants will need to be resolved by cross examination. 28 The applicants submit that it is enough to satisfy this factor if the pleadings are regularly pleaded and disclose an arguable cause of action. 29 There can be no doubt that the claims in the proceedings are legally and factually complex. Proceeding VID 1485 of 2011 centres around the duties and obligations owed by the Willmott Respondents to persons who acquired interests in the relevant schemes. It is not contentious that the Willmott Respondents prepared and issued product disclosure statements and supplementary product disclosure statements ("PDS's") between September 2006 and 30 June 2009. Members of the public were invited by the PDS's to acquire an interest in the relevant schemes and offered the opportunity to borrow the amount of the application fee from the Lenders. 30 The applicants allege that the structure of the relevant schemes was that once an investor paid an application fee there were no other fees payable until harvest of the timber plantations. This meant that the responsible entity was required to meet all of the significant costs associated with establishing, maintaining, and harvesting the forestry plantations over a number of years, and that not until it sold some forestry products would it receive a percentage fee from the proceeds of sale. The applicants allege that deferral of the fee income for a period of some years involved significant risks for the solvency and survival of the schemes, and for the Willmott Respondents. 31 Two main claims are made. First, an allegation of failure by the Willmott Respondents to disclose material information about, and significant risks associated with, the schemes in the PDS's. Secondly, an allegation of misleading or deceptive statements by the Willmott Respondents in the PDS's. 32 The alleged non-disclosures and misleading statements relate to detailed facts and issues concerning the operations of the relevant schemes and risks facing them. A significant part of the applicants' claims is the contention that the business model of the Willmott Respondents was inherently risky because it relied upon the sale of future schemes to fund the continuing maintenance costs of the existing schemes. This is alleged to have made the viability of the schemes, and the Willmott Respondents themselves, vulnerable if a decline in future sales occurred, as they may have had insufficient funds to maintain the existing forestry plantations. While these issues are particularised in detailed schedules to the Statement of Claim, assessing the applicants' prospects of success of establishing that such significant risks existed and whether any relevant material information in that regard was not disclosed, requires consideration of detailed documentary, lay and expert evidence. 33 By reason of the alleged non-disclosures and misleading statements, the PDS's are alleged to be defective within the meaning of s 1022A(1) of the Corporations Act. It is alleged that by operation of s 1016E(2) of the Corporations Act the Willmott Respondents were required to provide a Supplementary PDS and to allow the applicants and group members to withdraw their applications and be repaid the application fees. 34 It is also alleged that by making statements which they knew or ought reasonably to have known were misleading the Willmott Respondents induced the applicants and group members to apply to acquire interests in the schemes, in contravention of s 1041E of the Corporations Act. Assessing whether the statements were in fact misleading will require consideration of detailed documentary, lay and expert evidence. It is not feasible to assess the applicants' prospects of success of establishing that they relied on the PDS's in deciding to acquire an interest in the relevant schemes without hearing their evidence. 35 Contraventions of the Australian Securities and Investment Commission Act 2001 (Cth) ("ASIC Act") by Willmott Forests are also alleged. It is alleged that Willmott Forests was authorised by the Lenders to originate and procure loans on behalf of the Lenders so as to enable prospective investors to acquire an interest in a scheme. As a result of the alleged non-disclosures and the misleading statements in the PDS's it is alleged that in originating and procuring the loans Willmott Forests engaged in misleading conduct in contravention of ss 12DA and 12DF of the ASIC Act, and engaged in unconscionable conduct in contravention of s 12CC. The loans are alleged to have been taken out by the applicants in reliance on the PDS's. Again, an assessment of the applicants' prospects of success of establishing "reliance" requires evidence. 36 It is also alleged that the loan agreements were such an integral part of the contracts to acquire an interest in the relevant schemes that they cannot be severed from those contracts. As the contracts to acquire an interest in the relevant schemes are alleged to be void and/or unenforceable by operation of s 601MB of the Corporations Act, so too are the loan agreements alleged to be. 37 The claims against the Directors are plainly derivative from the claims made against the Willmott Respondents, in the sense that they also rely on establishing that the PDS's issued by the Willmott Respondents were defective and/or misleading. It is alleged that the Directors were involved in the preparation of the PDS's, both reviewing them and authorising them to be issued. Each of the Directors is alleged to have known of the significant risks associated with, and material information concerning, the schemes which it is alleged were not disclosed in the PDS's. They are each therefore said to have directly or indirectly caused or contributed to each PDS being defective and to be a "liable person" within the meaning of s 1022B(3)(b)(ii) of the Corporations Act. It is also claimed that the Directors were each obliged by s 601FD(1)(f) of the Corporations Act to take all necessary steps to ensure that the Willmott Respondents complied with s 1016E(2) of the Corporations Act and it is alleged that they failed to take the necessary steps. 38 The Directors argue, amongst other things, that the pleadings are embarrassing in that they make insufficiently particularised allegations that the Directors acted fraudulently. They contend that the case against the Directors is weak as there is no evidence that the Directors knew or believed that the statements made in the PDS's were misleading or intended for them to be misleading. They argue that it cannot be established that they were knowingly concerned in or "involved" in the contraventions by the Willmott Respondents. I do not accept this. After hearing this security application I heard and refused a strike-out application brought by the Directors. 39 The applicants do not contend that the Directors were involved in "fraud" in the ordinary meaning of that word. They contend that the Directors knew at the relevant time that the Willmott Respondents made the relevant statements, and knew of the essential matters that enable the representations to be characterised as misleading or deceptive. In Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1 at [15] Moore J (with whom Mansfield J agreed at [17]) said: …liability as an accessory (in circumstances where the contravening conduct of the principal was making false or misleading representations) does not depend on an affirmative answer to the question whether the alleged accessory knew the representations were false or misleading. All that would be necessary would be for the accessory to know of the matters that enabled the representations to be characterised in that way. It follows that if the applicants can make out their contention they have an arguable basis for a finding of "involvement". However, any reasonably accurate assessment of the applicants' prospects of establishing that the Directors were in fact "involved" in the contraventions cannot be made without hearing and considering the evidence. 40 In the proceedings numbered VID 1483 and 1484 of 2011 against the Lenders, the applicants repeat the claim that Willmott Forests was authorised by each of the Lenders to originate and/or procure loans on their behalf. The applicants point to the Origination and Management Deed dated 14 October 2008 ("O&M Deed") entered into between the CBA and Willmott Forests as obligating the CBA to enter loan agreements for all loans originated and/or procured by Willmott Forests in accordance with that deed. The applicants also point to the O&M Deed and other matters as showing that Willmott Forests originated and/or procured the loans as the agent of the Lenders. In effect they contend that the Lenders were engaged in a commercial enterprise, with Willmott Forests as their agent, to sell investments and loans for investments. In the alternative the applicants allege that the Lenders held out to prospective investors that Willmott Forests acted for and on behalf of the Lenders in originating and/or procuring loans in relation to the relevant schemes, and that Willmott Forests operated with the Lenders' apparent authority. The applicants' prospects of success of such claims of actual or apparent authority to act as an agent can only be determined on hearing the evidence. 41 These claims too are derivative in the sense that they turn on the applicants being able to establish that the PDS's did not disclose material information or significant risks. It is alleged that the Lenders knew or ought to have known that Willmott Forests would use the allegedly deficient and misleading PDS's to procure and originate the loans, that Willmott Forests' conduct in preparation of the PDS's was within the scope of the agency relationship, and that by reason of the agency the PDS's were prepared by Willmott Forests on behalf of the Lenders. As a result the Lenders are alleged to be "liable persons" within the meaning of s 1022B(3)(b)(i) of the Corporations Act, and the applicants and group members may recover loss and damage suffered pursuant to subs (2) of that provision. 42 A number of other claims are made against the Lenders which hang off the same factual substratum, but require consideration against different legal tests. They include claims that: (a) the Lenders are vicariously liable for Willmott Forests' contraventions of both the Corporations Act and the ASIC Act; (b) the applicants are entitled to damages based in breach of a duty owed by the Lenders to them, which included a duty to take all reasonable steps to ensure that the significant risks and material information were disclosed in the PDS's, and to make all reasonable enquiries in that regard before consenting to the inclusion of the Lenders' information in the PDS's; (c) by entering the loan agreements without disclosing the significant risks and material information, and/or without taking all reasonable steps to ensure that Willmott Forests did so, the Lenders engaged in unconscionable conduct in contravention of s 12CC of the ASIC Act; and (d) the loan agreements entered into were such an integral part of the offer made by Willmott Forests to participate in the scheme that they cannot be severed from the contract to acquire an interest in the schemes. As the contracts to acquire an interest in the relevant schemes are alleged to be void and/or unenforceable pursuant to s 601MB of the Corporations Act, so too are the loan agreements said to be. 43 Although I had the benefit of detailed submissions by Mr Quinn of counsel for the Lenders and Mr Delaney SC of counsel for the Directors, in which they set out the difficulties they foresaw with the applicants' cases, I was provided with only a small portion of the evidence which will be necessary to make any proper assessment of the prospects of success. For example, the applicants point to a detailed report by the administrators of the Willmott Group dated 14 March 2011 and argue that it sets out some of the significant risks and material information which ought to have been disclosed, but which were not. The Lenders point to disclaimers and other documentary evidence which they argue illustrates that the Lenders had an ordinary lending relationship with the applicants, that they did not cause or authorise the issue of the PDS's, that they did not volunteer financial advice, and that they did not take on any obligation to scrutinise the commercial wisdom of the investments entered into. While one can readily accept that the claims made by the applicants face hurdles any reasonably accurate assessment of their prospects of success is not feasible at this stage. 44 In support of the assessment offered of the Lenders' likely legal costs, Mr Cameron Hanson who is a partner of Freehills, the solicitors for the Lenders, deposes: [59] Each of the causes of action pleaded by the Applicants will require a number of complex factual and legal issues to be resolved. The factual issues will include: a) the likelihood, at the time the PDS's were issued, of a significant reduction in the number of applications for interests in managed investment schemes offered by WFL in future years; b) the rate at which applications for interests in managed investment schemes had been received by WFL in years prior to the year ending 30 June 2009 and the rate at which applications were being received in the year ending 30 June 2009; c) the magnitude of the risk that, if there was a significant reduction in the number of applications for interests in managed investment schemes offered by WFL in future years, WFL would be unable to meet its commitments in respect of the Schemes; d) the quantum of the cost of plantation management work; e) the cash-flow of WFL and whether that cash-flow would be sufficient to meet those plantation management costs; f) the way in which WFL quarantined or pooled application fees received in respect of different managed investment schemes; g) the likelihood of WFL becoming insolvent in the period from 6 September 2006 until 30 June 2009; h) the prospects of securing an alternative Responsible Entity of the Scheme in the event that WFL became insolvent or otherwise unable to discharge its responsibilities; i) the extent to which the matters referred to above were disclosed in the PDS's; j) the extent to which the matters referred to above would have influenced the decision of a reasonable retail client whether to invest in the Schemes; k) the extent to which the Applicants relied on the representations alleged to have been made by WFL; l) the extent of the Respondents' knowledge of the matters referred to above; m) the extent to which the Respondents were involved in the preparation of the PDS's for the Schemes; n) the arrangements between the Respondent and WFL in relation to the origination of, and entry into, loan agreements between the Respondents and investors in the Schemes. [60] Each of the matters referred to above will need to be specifically addressed in the Respondents' evidence. In doing so Mr Hanson pointed to the difficulties with an assessment of prospects of success at this preliminary stage. 45 These proceedings are a classic example of why the authorities suggest that where the claims in a proceeding are regular and disclose a cause of action the Court may assume that a case has reasonable prospects of success. In Fencott v Eretta at 514 French J explained that: Where there is a claim prima facie regular and disclosing a cause of action, I see no reason why the court would, in the absence of evidence, proceed on the basis that the claim was other than bona fide with a reasonable prospect of success. In this case as already indicated, I am not prepared to make a finding either that the applicant's claim is not brought bona fide or that it has no reasonable prospect of success. I am however satisfied that the respondent has a defence which is bona fide and has a reasonable prospect of success. See also Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 at 50,636 per Hill J; KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 ("KP Cable") at 197 per Beazley J; Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd [2010] FCA 1222 at [10] per Katzmann J. In Australian Equity Investors, An Arizona Limited Partnership v Colliers International (NSW) Pty Ltd [2012] FCAFC 57 at [15] per Jacobson, Besanko, and Perram JJ the Full Court indicated that the approach taken by Beazley J in KP Cable was the orthodox approach. 46 The difficulty with making an assessment of prospects of success is even more acute in class actions because of the representative nature of the proceedings. There have been instances where the applicant's claim has failed but one or more of the group members claims have succeeded: Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2003) Aust Torts Reports 81-692; Qantas Airways Ltd v Cameron (No 3) (1996) 68 FCR 387. An order for security for costs made at a preliminary stage, based on perceived weaknesses in an applicant's claim, may have the effect that a stronger claim by a group member cannot be pursued. That is not to say that security cannot be ordered in class actions, but rather that great care should be taken in reaching a view as to the prospects of success in such cases. 47 Notwithstanding the exhortation by Finkelstein J in Bray, except in extreme cases, I do not consider it feasible in large, complex, commercial, multi-party representative proceedings like these to reach any reasonably accurate preliminary view as to prospects of success at a preliminary stage. These proceedings are not an extreme case. 48 The claims in the proceedings are prima facie regular on the face of the pleadings and disclose various arguable causes of action. I will proceed on the basis that the proceedings have a reasonable prospect of success. This factor is therefore neutral in my decision. Whether the proceedings are essentially defensive in nature? 49 Where an applicant is in substance defending proceedings brought against him or her rather than "attacking" by way of the proceedings, the authorities provide that this is a factor against a grant of security: Willey v Synan (1935) 54 CLR 175 at 179 to 180 per Latham J and 184 to 185 per Dixon J; Amalgamated Mining Services Pty Ltd v Warman (1988) 88 ALR 63 per Wilcox J. While there is no rule of law that security should not be granted where proceedings are defensive in nature (see Weily's Quarries v Devine Shipping Pty Ltd (1994) 14 ACSR 186 at 189), it remains one of the relevant factors that requires to be weighed. 50 In a class action context, Hollingworth J said in Hall at [108]: One relevant discretionary consideration in applications for security for costs in non-group proceedings is whether the proceeding is essentially defensive in nature. Although apparently not the subject of any decision so far, there seems to be no reason in principle why this matter ought not be able to be taken into consideration in a group proceeding. I respectfully agree with her Honour. 51 The applicants contend that for the applicants and group members who borrowed from the Lenders to finance their investment in the relevant schemes and remain indebted to them, the MIS Proceeding and the CBA Proceeding are defensive in nature. The evidence is that between January 2011 and 23 April 2012 the Lenders commenced approximately 50 separate enforcement proceedings against persons who acquired interests in the relevant schemes and who were in default in repayment of their loans. Those proceedings were stayed pending resolution of the class actions, by agreement between Macpherson and Kelley (the solicitors for the applicants and some of the group members) and the solicitors for the Lenders. Since commencement of the class actions no recovery proceedings have been commenced against any group member client of Macpherson and Kelley. 52 Mr Quinn points out that the class actions do not seek orders only to set aside the loan agreements or relieve group members of their ongoing obligations under their loan agreements. He submits that the representative proceedings have been commenced not only against the Lenders but also against the Willmott Respondents and the Directors, which are not defensive proceedings. He submits, and I accept, that the total damages sought by the applicants and group members in the three proceedings significantly outweigh the total amount outstanding in respect of the loans. He argues that this illustrates that the proceedings against the Lenders are part of a suite of proceedings by which the applicants and group members seek damages offensively. 53 The Lenders submit that any suggestion that the applicants should be regarded as having commenced litigation defensively as a means of protecting themselves from litigation by the Lenders is implausible. Mr Quinn argues that while - prior to the class action - 50 separate enforcement proceedings were commenced by the Lenders against persons who defaulted on their loans, there were far more group members against whom no enforcement proceedings have or could have been commenced because they were not in default. 54 I do not accept the Lenders' submissions in this regard. I infer from the history set out above that if the class actions had not been commenced, when a group member seriously defaulted on his or her loan obligations the Lenders would commence recovery proceedings. Mr Quinn did not seek to argue otherwise. That is, he did not submit that, absent the class actions, the Lenders would not commence such recovery proceedings. In my view it is likely that, absent the class actions, the group members would expect recovery proceedings to be commenced against them if they failed to meet their loan repayments. For the group members who are or expect to be in default with their loans, participation in the class actions may operate as a forward defence against recovery proceedings, or as a stay against the recovery proceedings when already commenced. Mr Hanson's evidence is that there are in total 1,773 people who obtained loans from the Lenders to acquire an interest in the relevant schemes. I do not know how many are in default. 55 I consider that the two class actions brought against the Lenders are, in substance, to a significant degree defensive. To the extent that the two class actions against the Lenders are interwoven with the Willmott Proceeding, that proceeding too has some defensive elements for those group members with loans. This factor is required to be weighed with the others. 56 I note that in Hall at [122] Hollingworth J reached the same conclusion in similar factual circumstances. In that case a financier had issued debt collection proceedings against some of the group members. The applicants and group members then commenced a class action seeking greater damages than relief from their loan obligations. Her Honour found that the class action was largely defensive and refused to order security. Whether the applicants have been deliberately selected as "persons of straw" in order to immunise from costs orders group members of substantial means? 57 The respondents do not contend that the applicants are "persons of straw". It is clear from the Statements of Financial Circumstances provided by the applicants that they are not. By community standards they have significant assets and by taking on the role of representative party each has placed at risk assets which must be of substantial importance to them. Put another way, these are not proceedings in which applicants have been put forward who have nothing to lose. Mr Ronald Willemsen who is a partner in Macpherson and Kelley deposes, and I accept, that the applicants were not selected because of their financial position. Whether the applicants are bringing the proceedings for the benefit of others? What are the characteristics of the group members? For example do they include corporations or natural persons, and are they rich or poor? 58 It has long been established that where a nominal plaintiff sues for the benefit of another the impecuniousity of the plaintiff is no bar to an order for security. This exception was referred to by Bowen LJ in Cowell v Taylor as necessary to deal with the risk of abuse. This sensible approach has been applied in numerous non-representative proceedings. For example, in Bell Wholesale the Full Court held at 4: In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. See also KP Cable at 197 per Beazley J; Fencott v Eretta at 513 per French J. 59 The respondents do not contend that the applicants are nominal parties in the sense referred to in Cowell v Taylor. It is plain that the applicants advance their own claims, and also bring proceedings in a representative capacity as provided for by Part IVA. They do not bring the individual damages claims made by the group members, but bring the claims on their behalf by seeking findings on the common questions of fact or law: see s 33ZB. Once findings on the common questions are made, if a group member is to recover damages, he or she must then advance and succeed on the issues of fact and law relevant to their individual claim. The group member may do this either inside or outside the structure of the Part IVA proceeding (although commonly this is undertaken within the same proceeding). 60 Prior to the decision of the Full Court in Bray in 2003, the authorities indicated that the fact that an impecunious applicant brought a class action not only for his own benefit but also for the benefit of the group members was not a significant consideration in favour of an order for security: Woodhouse v McPhee at 533 per Merkel J; Ryan v Great Lakes Council (1998) 154 ALR 584 ("Ryan") at 589 per Wilcox J; Ryan v Great Lakes Council (1998) 155 ALR 447 ("Ryan No 2") at 456 per Lindgren J; Tobacco Control Coalition Inc v Phillip Morris (Australia) Ltd [2000] FCA 1004 at [29] per Wilcox J. It was significant to the reasoning of each of Merkel, Wilcox and Lindgren JJ that it would be "incongruous and anomalous" to construe the FCA as providing group members with immunity from adverse costs by s 43(1A) but then requiring them to contribute to security for costs. 61 Bray dealt with an application for security for costs in a class action brought by businesses and consumers in relation to cartel conduct in breach of the Trade Practices Act 1974 (Cth). The Full Court upheld an appeal against an interlocutory judgment by Merkel J in which he refused an application for security for costs. Bray establishes that where an impecunious applicant is bringing Part IVA proceedings, the fact that he or she is doing so for the benefit of represented persons may be a significant consideration in favour of granting security. It provides that the financial circumstances of the group members are relevant to the determination of an application for security. It also indicates that it is not necessary for the respondent to demonstrate the additional circumstance that the applicant has been deliberately selected in order to shield group members of substantial means for whose benefit the proceeding is also being brought. This may be seen from the separate reasons of Carr and Finkelstein J, with whom Branson J agreed. 62 At [141] Carr J construed the FCA as contemplating that a group member might be given the choice of contributing to a financial pool from which the applicant might provide security for costs. At [142] his Honour noted: Much would depend upon the number of group members involved, their financial circumstances and in particular whether an order for security for costs might stifle the proceedings. In that regard, in my opinion, it was for the applicant to adduce evidence about the likely effect of any order for security for costs. 63 At [252] Finkelstein J similarly found: Dependent upon the type of proceeding, the represented group may be quite diverse. The group may include corporations as well as natural persons. The members of the group, whether corporate or not, may be rich or poor. In my view, the characteristics of the group should be taken into account on an application for security. Accordingly, if there is still a rule that an order for security should not be made against an impecunious natural person (for a criticism of the absoluteness of this rule see Melville v Craig Nowlan & Associates Pty Ltd (2002) 54 NSWLR 82), the rule may have little application to many class actions. Consideration of the characteristics of the group members 64 Each of the class actions are "open" class actions comprising all persons affected by the alleged civil wrongs rather than a "closed" class action. By closed class action I mean a representative proceeding with a class limited to a subset of all persons affected by the alleged wrongs through use of a restricting criterion in the class definition: see for example Multiplex Funds Management Ltd v P Dawson Nominees Pty Ltd [2007] FCAFC 200 per French, Lindgren and Jacobson JJ. Because the classes are open the number of group members and their identity is unknown. 65 The total number of potential group members in the three class actions may be ascertained by reference to the members registers of the Willmott Respondents recording the names of those who acquired interests in the relevant schemes. The members' registers record a total of 3191 persons who acquired interests in the schemes. This is the outer limit of the size of the class. While it may be possible to infer from the fact that the relevant schemes have failed that many of these 3191 persons have suffered losses, it is unknown how many of them claim that any such loss was caused by from the alleged conduct of the respondents. No party submits that it is possible to make an accurate estimate of the number of group members in the proceedings, and in my view even an approximate estimate is fraught with difficulty. This illustrates an obvious problem with taking into account the financial characteristics of the group members. 66 There are though some sources of information as to the financial resources of some of the group members. The first source of information is those group members that have retained Macpherson and Kelley to act for them ("the known group members"). Mr Willemsen's evidence in this regard, which I accept, is that at the date of the hearing Macpherson and Kelley had been retained by 409 group members. 67 On Mr Willemsen's calculation, in acting for 409 group members his firm acts for only 12.8% of the total number of persons who acquired interests in the relevant schemes. But, until it is known which of the potential group members claim losses caused by the respondents' conduct, there can be no reasonably accurate estimation of the percentage of the class that Macpherson and Kelley acts for. I am though prepared to infer that the firm acts for well less than half of all group members. 68 The other source of information about the financial characteristics of group members is the Lenders, because the group members provided financial information to the Lenders when they made loan applications. Mr Hanson deposes that MIS made 1016 loans to investors in the relevant schemes, and that CBA made loans to 757 investors in the relevant schemes. 69 By reference to a client list supplied by Macpherson and Kelley Mr Hanson identifies 653 Macpherson and Kelley clients. Mr Hanson then identifies from that list 376 Macpherson and Kelley clients who borrowed from the Lenders to invest in one or more of the relevant schemes. He deposes that of these: (a) 370 are natural persons (counting joint borrowers as a single person); (b) 3 are companies; and (c) 3 are trusts or superannuation funds. 70 Having had the loan files of these 376 persons reviewed, Mr Hanson deposes that there were: (a) 158 persons with a loan from MIS and they had average net assets of $1.38 million, and average gross annual income of $234,562; and (b) 218 persons with a loan from CBA and they had average net assets of $187,523 and average gross annual income of $157,134. He also deposes that there are nine Macpherson and Kelley clients with loans from the Lenders in excess of $500,000, all of whom had net assets of over $1 million. 71 Mr Hanson did not provide any evidence as to the financial characteristics of the balance of the 1773 persons who obtained loans from the Lenders to finance their acquisition of an interest in the relevant schemes. That is, the Lenders only provide information as to about 21% of those persons who took loans from them in order to acquire an interest in the relevant schemes. 72 Mr Willemsen deposes that Mr Hanson is incorrect in identifying 653 Macpherson and Kelley clients. After setting out various corrections to his firm's client list he deposes that his firm has only 409 clients. I accept Mr Willemsen's evidence in this regard, as his firm has the primary client records. He deposes, and I accept, that 314 of the known group members have loans from one or other of the Lenders, being: (a) 142 persons with a loan from MIS; and (b) 172 persons with a loan from CBA. Mr Willemsen states that he does not have the loan applications of most of his clients, and he did not seek to calculate their average net assets or average gross annual income. 73 In reliance on the evidence of Mr Hanson the respondents contend that there are numerous known group members in each proceeding who stand to benefit in the proceedings, and who have sufficient assets and financial capacity to contribute to a pool of funds for security against adverse costs liabilities incurred. 74 There are a number of difficulties with the evidence. Most importantly, I have no information as to the financial characteristics of the vast bulk of the group members. I have such information only in relation to 314 out of the potential 3191 group members. I do not know the financial characteristics of about 90% of potential group members. I also cannot know whether the financial characteristics of the Macpherson and Kelley clients are representative of those of the majority of the class. For example, it may be that those group members who have chosen to instruct solicitors are those who have suffered the greatest losses. I do not know. 75 I also have some doubts about the accuracy of the calculations performed as I do not know which of the 376 persons upon which Mr Hanson's calculations were based are not clients of Macpherson and Kelley. I also note that the Lenders' evidence as to the average net assets of the known group members is out of date (having been provided when they applied for loans between 6 September 2006 and 30 June 2009). The effluxion of time and the global financial crisis may mean that their current positions are different. 76 Even so, it is likely that there are persons within the class capable of contributing to a pool of security for costs in the manner contemplated in Bray. This is at least true of the nine known group members who are identified as having large loans, and net assets of more than $1 million and true of some of the other known group members identified by Mr Hanson. My consideration of the application for security will proceed on that basis. The decision in Bray 77 While I am bound to follow the decision of the Full Court in Bray, I wish to note the difficulties that arise from the approach to security for costs taken in that decision. 78 The ALRC considered that security for costs should not be ordered by reference to the financial resources of group members. The ALRC Report contained a draft bill titled Federal Court (Grouped Proceedings) Bill 1988. Clause 31(2) provided that: …an order for security for costs may not be made against the principal applicant on the ground that the proceeding is for the benefit of the group member… In the Explanatory Memorandum to its draft Bill, the ALRC explained that this prevented an order for security being made on the sole basis that the class action provided benefits to the group members. However Part IVA departed from the ALRC Report in a number of respects, and this was one of them. 79 Part IVA came into operation in March 1992. Section 43(1A), which provides group members with protection against any award of costs (other than in two expressly limited circumstances), was not introduced to parliament until October 1992: Law and Justice Legislation Amendment Bill (No 4) 1992. The need for this section was explained in the parliamentary debate in the following terms: The Bill will amend the Federal Court of Australia Act 1976 to make it clear that a person represented in a representative proceeding under Part IVA of the Act… cannot be ordered to pay costs except in special circumstances. Parliamentary Debates, Senate (Cth) November 9, 1992, 2534 (Senator McMullan). 80 Of course, s 43(1A) deals with adverse costs liability and we are here dealing with security for costs. Section 33ZG(c)(v) provides expressly that "[e]xcept as otherwise provided by this Part, nothing in this Part affects…the operation of any law relating to…security for costs." 81 The question is whether s 43(1A) should be read as affecting the operation of the law relating to security for costs. Until Bray the Court gave the protection for group members in s 43(1A) an effect in relation to security for costs, on the basis that their immunity from costs exposure would in practical terms be removed if they were forced to provide security: see Woodhouse v McPhee at 533 per Merkel J; Ryan at 589 per Wilcox J; Ryan No 2 at 456 per Lindgren J; Tobacco Control Coalition at [29] per Wilcox J; Bray v F Hoffman-La Roche [2002] FCA 1405 at [73] per Merkel J. In my opinion the practical effect of the respondents' arguments in the present proceedings is that this important protection is removed, or at least substantially reduced. 82 In Ryan at 589 Wilcox J explained: …s 43(1A) ought generally to be regarded as a substantial impediment to the "financial pool" approach urged [on behalf of the defendants]. That approach would have the effect of exerting substantial pressure on group members to make a contribution to securing the respondents' costs, even though s 43(1A) expressly exempts them from liability to meet those costs. Moreover, it may do so after the termination of the opt-out period: see s 33J of the Act. The group members may have decided to remain in the representative proceeding, and not opt out or embark on a separate action, in reliance on the protection afforded by s 43(1A). … If an order [for security for costs] were made, it would have one of two consequences. Either it would stultify the continuance of the actions, at least as representative proceedings, leading to abandonment of what seem to be genuine and arguable group members' claims, or it would force on the parties a multitude of individual actions. Either result would be at odds with the purposes of Pt IVA outlined by the Attorney-General. 83 This is not to say that the characteristics of group members are to be treated as irrelevant, but rather that the consideration is properly narrowed to circumstances, such as where a person of straw has been chosen as applicant to shield the group members: Ryan No 2 at 456 per Lindgren J. 84 Group members are not parties to a class action, are not required to take active steps in the class action, and do not control the conduct of the proceeding: Mobil Oil Australia Pty Ltd v Victoria (2002) 211 CLR 1 at [6], [50] and [192]. An order for security for costs may be made against an applicant on the basis that group members of means should contribute to a pool, and yet such group members may opt out or otherwise choose not to contribute. In the result, an applicant may be confronted by a security order which he or she is unable to meet, made on the basis of the financial circumstances of group members over whom he or she has no influence or control. The applicant's claim may be stayed even though he or she cannot require the group member to contribute to a financial pool. 85 Another obvious difficulty is the fact (as in the present proceedings) that because there is no evidence as to the financial characteristics of unidentified group members, any decision to order security cannot be based upon their financial resources. While it might be suggested that the Court may order group members to identify themselves and advise whether they are able or willing to contribute to security for costs, the result is the same. The applicant's right to bring proceedings to vindicate his or her rights is at the mercy of unidentified group members. Similarly, the rights of group members to pursue their claims through the Part IVA mechanism are at the mercy of other group members, both known and unidentified. 86 Further, if only the characteristics of known group members are to be taken into account in an assessment of ability to contribute to a pool, there is an incentive for group members to remain unidentified until after the common issues have been determined. If this occurs it operates to increase the uncertainty of the parties as to the number of group members and the quantum of their claims. One of the main difficulties for the parties in settling an open class action is the unknown number and identity of group members, and the unknown quantum of their claims. Increasing these difficulties serves no interest. 87 As Professor Vincent Morabito, a leading academic in the field of class action law in Australia, has written: It is submitted that there are other problems with the principles enunciated by Finkelstein and Carr JJ. The expansion of the circumstances in which security may be ordered, beyond the deliberate selection of a person of straw as representative plaintiff; placing the onus on the representative plaintiff to adduce relevant evidence in relation to an order sought, not by the plaintiff but by the defendant; and the focus on the financial means of the class members and class counsel, all combine to render likely, a security for costs order, whenever the representative plaintiffs are impecunious. It is submitted that this scenario is inconsistent with: (a) one of the most important principles governing security for costs; (b) the views of the ALRC; (c) the need not to create significant obstacles to the availability of the Part IVA regime; and (d) the importance of not removing, in practice, the immunity from costs that is extended to class members by s 43(1A). Class Actions in the Federal Court of Australia - the Story so Far, Canterbury Law Review, Vol 10, 2004, 254-255. Whether Macpherson and Kelley and the group members are funding the litigation relevantly stand to "benefit" from the proceedings? 88 The authorities indicate that it is appropriate to consider whether there are other persons or entities funding or otherwise supporting the litigation, as the capacity of any such person or entity to satisfy any adverse costs order may also be relevant. In KP Cable at 197 Beazley J explained that one of the guidelines which the Court typically takes into account in determining an application for security is: [w]hether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security. 89 Over the applicants' objections I required redacted copies of the Conditional Costs Agreement between the applicants and Macpherson and Kelley, and the Retainer, Authority and Costs Agreement between known group members and Macpherson and Kelley ("the costs agreements"), to be provided to the respondents. The costs agreements were redacted to remove information as to the amounts payable by the applicants and group members to Macpherson and Kelley for the conduct of litigation. I ordered the redaction so that the respondents did not obtain information as to the applicants legal "war chest": Re Kingsheath Club of the Clubs Limited (In liq) [2003] FCA 1034 at [33] per Goldberg J. I accept the Directors' submission that these agreements are "conditional costs agreements" pursuant to the Legal Profession Act 2004 (Vic) ("LPA"). 90 The respondents argue that the costs agreements illustrate that Macpherson and Kelley and the group members are standing behind the litigation and stand to benefit from it in the relevant sense, and that their financial resources are therefore relevant in the application. Is a commercial litigation funder involved? 91 The evidence is that the applicants and group members have not contracted to receive litigation funding from a commercial or third party litigation funder. If they had my decision on the application is likely to have been different. One of the main reasons for litigation funding is to meet any adverse costs order and provide security for costs if ordered. 92 The costs agreements contemplate the possibility that a third party litigation funder may later agree to meet what are described as "Stage 3 Post-mediation stage" legal costs. This stage is expressed to be either the administrative processes to be followed to implement a settlement agreement, or the litigation of the proceeding to trial if no settlement is reached at pre-trial mediation. Whatever the applicants' hopes or plans in this regard, the evidence is that there are no litigation funding agreements presently on foot. 93 Ms Susan Phillips, who is a partner of Brian Ward and Partners the solicitor for the Directors, deposes in effect that commercial litigation funding may be available to the applicants and group members. The respondents also argue that the existence of the costs agreements does not mean that commercial litigation funding would not also be available to support the proceedings, if the applicants and group members are unwilling or unable to provide security. In my view this evidence and these submissions are of little relevance. The application for security must be determined on the basis of the arrangements which exist, rather than those which the respondents suggest might be available. If the applicants and group members later receive litigation funding an application for security may then be made. 94 I also note in passing that the evidence does not establish that commercial litigation funding is available to the applicants. One would be surprised if the applicants had not fully explored whether litigation funding was available, given that they stand to lose all of their assets if the proceedings are unsuccessful. It would also be surprising if Macpherson and Kelley had not done so, as if litigation funding was secured the firm might expect to be paid its costs and disbursements as incurred, rather than being paid conditional upon success. The costs agreements 95 The costs agreements are unremarkable as conditional costs agreements. They provide that, unless the class actions have a successful outcome as defined, Macpherson and Kelley shall only be paid a small proportion of the legal fees and disbursements incurred by the firm. The firm initially receives only a small fixed amount from each of the applicants and known group members. The balance of the fees and disbursements incurred by Macpherson and Kelley are not required to be paid unless there is a successful outcome. 96 If a successful outcome is achieved in the proceedings Macpherson and Kelley are entitled to receive 100% of the disbursements incurred, and the balance of their professional fees calculated in accordance with the costs agreement (with such further costs being capped at the amount recovered from the respondents). The LPA allows a lawyer acting under a conditional costs agreement to charge an "uplift" fee limited to 25% of the fees incurred: s 3.4.28(3). Although not described as such, the costs agreements provide for an uplift by way of a "case management fee". This is calculated on an aggregated basis by reference to: (a) 20% of the legal costs recovered from the respondents; and (b) any part of the remaining 80% of the legal costs recovered from the respondents which exceeds the small fixed amounts initially paid by group members. 97 The costs agreements also provide for payment of the further fees and disbursements which may later be incurred in relation to the individual issues of each group member. Such fees are, in the main, only be incurred if or when there is a successful outcome on the common issues. Such fees are to be charged on a time-cost basis following provision of a costs estimate to the group member. 98 Another feature of the costs agreements is a provision which enables the applicants to meet any adverse costs order from a fund agreed to by each group member. The agreements require Macpherson and Kelley to deposit into a separate interest-bearing account 25% of the initial small fixed amount paid by each group member. The monies in that account are then only available to be used to meet an adverse costs order and, if not required for that purpose at the conclusion of the proceeding, are payable to Macpherson and Kelley. Standing to benefit 99 The respondents argue that the group members are all willing and able to contribute to, and have in fact contributed to, a financial pool. They contend that Macpherson and Kelley and the known group members are both supporting the litigation. The known group members are said to have done so by agreeing to the setting aside of 25% of the initial fixed amount paid. Macpherson and Kelley are said to have done so because the firm agrees to set aside 25% of its initial fee to put towards adverse costs, and is only partially paid in its conduct of the litigation unless the litigation is successful. Macpherson and Kelley is said to be receiving a benefit from supporting the litigation because it will receive the balance of its costs, the case management fee (and any of its fee still remaining in the interest bearing account) if the litigation is successful. The group members are said to receive a benefit in that their claims advance without their having to pay all legal fees and disbursements unless successful. 100 Although I doubt this is what is intended in authorities such as KP Cable, it must be accepted that group members benefit by participation in Part IVA proceedings. I have taken into account the financial circumstances of the known group members in my decision. 101 However I consider it a remarkable proposition that a lawyer acting under a conditional costs agreement is relevantly standing behind the litigation or is standing to benefit. I do not understand the position of a lawyer acting for an applicant in a class action to be any different from that of the lawyer for a plaintiff acting on a "no win-no fee" basis in the thousands of such individual cases conducted in many different Australian courts each year. Such arrangements are usually entered into because the plaintiff is unable to pay legal fees and disbursements as they are incurred. It would be remarkable if such claimants, already finding it difficult to meet the expense of litigation, were liable to pay security for costs because their barristers or solicitors were prepared to act on the basis that they are not paid unless the case is successful. This has never been the law in Australia. 102 The preparedness of barristers and solicitors to provide legal services upon a "no-win-no fee" basis is an important aspect of access to justice, particularly in class actions. As the learned authors D. Graves, K. Adams and J. Betts explain in Class Actions in Australia (second edition, Lawbook Co, 2012, p 371): While it may be appropriate to take account of any conditional fee agreement, it ought not be forgotten that the ALRC considered that such agreements were an integral part of determining whether the representative proceeding procedure is economically viable. On this point, the New South Wales Law Reform Commission has recently noted: …conditional fee arrangements improve access to justice by making the payment of legal costs conditional upon a successful outcome for plaintiffs otherwise unable to meet their own legal costs up front but for whom legal aid is not available. Slater and Gordon asserted that: "to the extent that conditional fee arrangements are aimed at plaintiffs who are otherwise unable to meet their own legal costs up front, it is perverse for the court to regard this as a factor that speaks in favour of a plaintiff paying for the defendant's legal costs up front" (New South Wales Law Reform Commission, Security for Costs and Associated Orders, Consultation Paper 13 (May 2011) at 63). 103 One would be surprised if the barristers and solicitors that provide legal services in class actions upon a conditional fee basis would not prefer to be paid at the time the services are provided, rather than having payment for such complex legal work conditional on success. Put another way, I do not accept that it is proper to characterise as a benefit, a payment ultimately made to a lawyer who has agreed that he or she is only entitled to be paid upon winning the case, and is required to wait perhaps years for payment of both legal fees incurred and disbursements advanced. In a class action context the fee uplift involved is little compensation for the risk of non-payment and delay in any payment. It should not militate as a factor in favour of an order of security for costs. There is also nothing in the authorities which indicates that a person that retains a lawyer under a conditional costs agreement should be in a worse position in relation to security for costs than a person who can afford to do so. 104 In my view the ratio in Bray does not include the proposition that the financial resources of the applicants' lawyer are to be taken into account. The only remarks in that regard are those of Finkelstein J when his Honour said at [252]: It is also appropriate to bear in mind that it is commonly the case in a class action that a person will stand behind (I mean fund) the applicant. Usually this will be the applicant's solicitor, who will sometimes charge what is referred to as a "contingency fee" for the privilege… A party who is being funded by his solicitor is not really a "nominal plaintiff". Nevertheless, the solicitor does stand to benefit from the action (especially as regards the additional fee) if the action is ultimately successful, as the solicitor will then be able to recover his costs. That is a relevant, though not a decisive, consideration when deciding whether security should be ordered. 105 The reference to a "contingency fee" requires comment. It is illegal in Australia for a lawyer to charge such fees, based upon a percentage of the damages obtained. To my knowledge they have not been utilised in any Australian class action, and are the type of fees commonly charged by third party commercial litigation funders. A fee charged by a lawyer pursuant to a conditional costs agreement is quite different, and cannot be based upon a percentage of the damages obtained. 106 Importantly, the other members of the Full Court did not endorse the remarks of Finkelstein J. Carr J considered that the financial characteristics of group members was a relevant factor in a security for costs application, but he did not express the view that the resources of a lawyer acting under a conditional costs agreement were relevant. While Branson J expressed "substantial agreement" with what had been said by both Carr and Finkelstein JJ, this should be seen as an endorsement of the thrust of their reasons rather than this particular aspect. 107 I also do not attach any great significance to the setting up of an interest-bearing account for the purpose of meeting any adverse costs order. While I can say little without revealing the extent of the applicants' legal "war chest", the amount in the account is insignificant compared to the security for costs sought. In any event, Macpherson and Kelley are already contractually bound to pay the amount held in the account to the respondents should an adverse costs order be made. I expect the applicants to provide reasonable notice to the respondents should it be proposed to vary this aspect of the costs agreements. 108 In Hall Hollingworth J dealt with an application for security against a relevantly similar factual background. In that case the plaintiff's solicitors were conducting the proceeding on a "no win-no fee" basis. Group members had entered into the following arrangement with the solicitors her Honour said: Each group member who instructs Slater & Gordon to act on his or her behalf in the current proceeding has made, or will make, a financial contribution to Slater & Gordon to help fund the proceeding and pay the disbursements. $500 of the contribution of each group member is placed into the trust fund, which has been established to indemnify the lead plaintiff. Another person who had no financial interest in the litigation had also established a fund to provide an indemnity for the lead plaintiff in relation to any adverse costs order that exceeded the group members' fund. 109 Her Honour considered that both funds existed for the benefit of the plaintiff rather than the defendant, as there was no suggestion that the defendant would have any right of direct recourse to the funds: Hall at [121]. It is hard to see any relevant difference between the fund held by Slater & Gordon in Hall and the account held by Macpherson and Kelley in the present proceedings. 110 Her Honour did not follow the approach of Finkelstein J in Bray in seeing the plaintiff's lawyers as standing behind the class action. Although the plaintiff's lawyers in Hall stood to be paid the balance of their fee plus an uplift fee upon success, her Honour held at [116]: There is also no evidence that the proceeding is being funded by someone who stands to benefit from it in the relevant sense. I respectfully agree with her Honour's approach. I do not treat Macpherson and Kelley as standing behind the litigation or relevantly standing to benefit from it. Would security have been awarded if separate actions had been brought by the group members? 111 It is also relevant to consider whether security would be ordered if the applicants and group members brought separate actions: Hall at [107] per Hollingworth J; Ryan No 2 at 456 per Lindgren J. The evidence is that the overwhelming majority of the known group members are individuals, ordinarily resident in Australia and suing for their own benefit. Absent some other compelling factor the respondents could not realistically expect to obtain an order for security in an individual case brought by such claimants. 112 As Lindgren J observed in Ryan No 2 at 456, in a class action the Court should assess a security for costs application on the assumption that in the absence of the representative proceeding each of the group members would commence their own proceedings. If the respondents were facing individual claims from even half of the 3191 possible group members the costs incurred by the respondents would be likely to be well more than $8.2 million. The same would likely be the case even if only the 409 known group members brought individual claims. It is hard to see why the applicants should be in a worse position with regard to security because they utilise a mechanism provided to increase access to justice and judicial efficiency. Whether an order for security would stifle the action and shut the applicants out from pursuing an arguable claim? 113 The authorities establish that whether an order for security is likely to stifle the proceedings or be otherwise oppressive is a relevant factor: Woodhouse v McPhee at 534; Melville v Craig Nowlan at [37]; Bray per Carr J at [142]; Hall at [107] and [123]. The applicants bear the onus of establishing that this is the case. 114 It is plain that an order for security for costs of $8.2 million (or even $6.4 million which is the lower end of the range) will stifle the litigation if it is only the financial circumstances of the applicants which are to be taken into account. The applicants are unable to meet security in this amount, whether payable now or in stages. The question is whether the proceedings may be stifled if the burden of a security for costs order in this amount is spread across the group members through a pooling arrangement. 115 I cannot see how the security order may be made by reference to the financial characteristics of the unidentified group members as their identity, and even their number, is unknown. The thrust of the respondents' submissions are that I should consider the application by reference to the financial characteristics of the known group members. 116 If each of the 409 known group members were required to pay an equal share of $8.2 million into a pool for security for costs, they would be required to pay about $20,000 each. If some of these group members are unable to do so, or refuse to pay, the amount required would likely increase to $30,000 or more per person. The question is whether provision of security in these amounts may stifle the proceedings and shut out the applicants and group members from pursuing claims which are arguable. 117 In this regard Mr Willemsen deposes to calculations performed as to the mean, median and mode averages of the investments by Macpherson and Kelley clients in the relevant schemes. He refers to: (a) "mean" as a simple average of the relevant investments made by his clients; (b) "median" as the middle number of all investments taken out by his clients; and (c) "mode" as the investment amount that is the most frequently occurring amongst his clients; and sets out the following: Clients with MIS Loans Average Applied Amount ($) Mean $124,156.80 Median $84,480.00 Mode $42,240.00 Clients with CBA Loans Average Applied Amount ($) Mean $82,735.47 Median $62,500.00 Mode $50,000.00 All clients (with or without loans) Average Applied Amount ($) Mean $103,310.99 Median $77,000.00 Mode $42,240.00 118 Mr Willemsen also deposes to further investigations into the interest in the relevant schemes acquired by the known group members. He states that Macpherson and Kelley has: (a) 126 clients who invested $50,000 or less; (b) 190 clients who invested between $50,001 and $100,000 (inclusive); (c) 69 clients who invested between $100,001 and $200,000 (inclusive); (d) 20 clients who invested more than $200,001; and (e) 4 clients as to whom we are unsure what amount they invested. 119 The calculation of the "mode" amount which is the investment most frequently made by the known group members, is of assistance. It shows that the loss most frequently suffered by known group members is in the order of $42-$50,000. Of the known group members 77% invested up to $100,000, and 30 percent invested less than $50,000. The applicants contend that in these circumstances the cost of contributing $20-$30,000 for security for costs is likely to be seen by a large proportion of the known group members as disproportionate to the amount likely to be recovered by them upon success in the proceedings. There is some force to the submission that this is likely to stifle the litigation. 120 It is however unnecessary to determine this question by inference alone. The inability or unwillingness of group members to contribute $20-30,000 to a financial pool is confirmed by a random sample of 50 known group members conducted by Macpherson and Kelley. Importantly, the survey indicates that a high percentage of known group members are unable to pay security in such amounts. Mr Willemsen deposes that in the random sample about 80% of the known group members advised that they were unable to afford to pay either $20,000 or $30,000 by way of security, and also advised that they were unwilling to do so. About 65% of the known group members in the random sample indicated that they would not continue to participate in the class action if required to pay security in such amounts. The survey is of a limited sample and it has other limitations, but in my view it is of real assistance. 121 If even 60% of the known group members are unable, or refuse, to contribute to the pool then the contributing group members would total only 163. Pooling the $8.2 million security for costs between 163 known group members would require a contribution of about $50,000 per person. It is likely that an increase to this amount would operate to further reduce the number of contributing group members and further increase the quantum of security payable by those remaining. 122 Mr Willemsen also deposes that the applicants Mr David Kelly and Mrs Margaret Kelly state that they could not afford to pay either $20,000 or $30,000 in security for costs. Mr Kelly said that he would cease to participate in the class actions if required to pay such amounts, whereas Mrs Kelly said that she desired to continue to participate but needed to discuss that with her husband. I infer that they would not continue to act as representative parties. Mr Grant said that he could afford to pay either $20,000 or $30,000 in security but was unwilling to do so. He intended to continue to participate in the case if required to pay such an amount. 123 The Lenders argue that the survey has significant methodological and evaluative shortcomings. They argue that no questions were asked of the sample group on the basis that partial security of, say 50%, was provided, and they complain that no questions were asked on the basis that security might be provided in stages. However, payment in stages would not alter the ultimate amount due, and in any event the respondents did not seek orders for payment in stages or partial payment of security. I can see nothing wrong in the questions in the survey being asked as they were. 124 The Lenders also complain that the survey was random rather than targeted at those known group members with the largest investments or the most significant assets. However, if the survey was not random it would likely have been the subject of different criticisms. I note also that two known group members with net assets of over $1 million were approached to respond to the survey, and they apparently chose not to respond. 125 The Lenders argue that the survey should have been performed on the basis that security contributions were sought pro rata to the claim amount of each known group member. There is some merit to this criticism but I doubt that it would make a significant difference to the response of the majority of the known group members. 126 The survey is also argued to be deficient because questions were only asked of the known group members - that is, Macpherson and Kelley clients. It is not clear to me how the applicants can properly be criticised for failing to provide any information as to the capacity to meet security for costs of group members whose identity and financial characteristics are unknown. The Lenders may have been able to provide some evidence as to the financial characteristics of the non-Macpherson and Kelley group members who obtained loans from them, but they did not. 127 Although not significant to my decision, I would also be surprised if it was not very difficult for the applicants or their solicitors to persuade even the wealthier known group members to carry the burden of security for costs for the much larger group of group members, allowing them to "free-ride" on any contributions made to the pool. They are likely to be disinclined to do so, and disinclined to continue to participate in the class actions if such contributions are required. The respondents did not address this. 128 The question is whether the arguable claims of the applicants and group members are likely to be stifled by an order for security. The fact that in a random survey about 80% of known group members said that they could not afford to pay security, and about 65% said they would no longer participate in the actions, is good evidence of this. As against this there is no evidence that the known group members of more substantial means are prepared to shoulder the burden of security. This evidence is in contrast with the lack of such evidence in Bray where the applicants did not adduce any evidence about the ability or preparedness of the group members to contribute to security: Bray per Carr J at [139] and [142]. 129 The risk of stifling the proceedings requires careful consideration in the context of class actions. They are notoriously expensive both to conduct and defend. Most natural persons who bring a class action will be relevantly impecunious and there are very few Australian citizens that could afford to meet security for costs in the amounts involved. Care must be taken in these circumstances to ensure that this does not unfairly deprive people of their fundamental right of access to the courts through the Part IVA mechanism. Conclusion 130 There are many factors which militate against an order for security for costs in these proceedings. It is clear that the applicants cannot provide the security sought, whether paid in a lump now or over stages, and the survey indicates that a large proportion of the known group members are also unable or unwilling to contribute to a pooling arrangement to share the burden of such security. 131 The applicants in the three proceedings are ordinary Australian citizens of average means. The vast majority of known group members are also natural persons. These are not cases where the applicants have been chosen for their impecuniosity or so as to allow others to shelter behind them. The applicants are not people with nothing to lose. I do not consider that the applicants' impecuniosity alone justifies an order for security and respect should be given to their right of access to the Court. 132 The proceedings are brought bona fide, are regularly pleaded, disclose arguable causes of action and I assume that they have reasonable prospects of success. If the applicants and group members commenced individual proceedings it is unlikely that security for costs would be ordered against them. At least the proceedings against the Lenders are to a significant degree defensive. 133 I am satisfied that an order for security is likely to stifle the applicants and group members' pursuit of their claims. The respondents were unable to take me to any reported decision in which security for costs has been awarded in class action proceedings against a natural person applicant. That is not to say that such an order cannot be made, but it illustrates the care that should be taken in this context. An order for security for costs in these proceedings is not appropriate. I certify that the preceding one hundred and thirty-three (133) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Murphy. Associate: Dated: 17 December 2012