FEDERAL COURT OF AUSTRALIA Austcorp Project No. 20 Pty Limited v The Trust Co (PTAL) Limited, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (in liq) (No 4) [2015] FCA 850 Citation: Austcorp Project No. 20 Pty Limited v The Trust Co (PTAL) Limited, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (in liq) [2015] FCA 850 Parties: AUSTCORP PROJECT NO. 20 PTY LIMITED ACN 111 470 725, COMPROMISE CREDITORS MANAGEMENT PTY LIMITED ACN 122 143 220 and ALFRED CHI WAI WONG v THE TRUST CO (PTAL) LIMITED ACN 008 412 913, TREVOR POGROSKI AND GRAHAM KILLER IN THEIR CAPACITIES AS JOINT AND SEVERAL RECEIVERS AND MANAGERS OF BELLPAC PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017, TREVOR DAVID CHAPPELL, EDGAR KAI YAN HUNG File number(s): NSD 186 of 2013 Judge(s): GLEESON J Date of judgment: 14 August 2015 Catchwords: PRACTICE AND PROCEDURE – security for costs – application to vary security for costs orders – whether material change of circumstances – where plaintiffs' litigation funding agreement terminated – where material change does not go to terms of security for costs orders – discovery of new evidence said to improve plaintiffs' prospects of success irrelevant – orders not varied – application for summary dismissal – where no satisfactory explanation given for failure to comply with orders – where plaintiffs would be substantially prejudiced by summary dismissal – where defendants have been prejudiced by default – self-executing orders made Legislation: Federal Court of Australia Act 1976 (Cth), s 56 Federal Court Rules 2011 (Cth), rr 1.32, 5.21(a), 19.01(1)(c), 39.05 Cases cited: Austcorp Project Number 20 Pty Ltd v LM Investment Management Ltd (in liq) [2014] FCA 1371 Bakers Investment Group (Australia) Pty Ltd v Caason Investments Pty Ltd [2014] VSC 154 Billinudgel Pastoral Co Pty Ltd v Westpac Banking Corporation [1994] FCA 728 Capital Webworks Pty Ltd v Adultshop.com Ltd [2008] FCA 423 Cosdean Investments Pty Ltd v Football Federation Australia Ltd (No 3) [2007] FCA 766 Idoport Pty Ltd v National Australia Bank Ltd [2002] NSWCA 271 Idoport Pty Ltd v National Australia Bank Ltd [2002] NSWSC 18 Jalpalm Pty Ltd v Hamilton Island Enterprises Pty Ltd & Anor [1995] FCA 149 Microbio Resources Inc v Betaten Ltd (unreported, Black CJ, Sheppard and Einfeld JJ, 8 October 1993) Strategic Financial and Project Services Pty Ltd v Bank of China [2012] FCA 701 Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd [2001] FCA 1603 Date of hearing: 30 July 2015 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 31 Solicitor for the Plaintiffs: Mr TD Tzovaras of Tomaras Lawyers Counsel for the Second Defendant: MR RM Foreman Solicitor for the Second Defendant: Minter Ellison Counsel for the Third Defendant: Mr JA Gracie Solicitor for the Third Defendant: DLA Piper Counsel for the Eighth Defendant: The Eighth Defendant did not appear Counsel for the Ninth Defendant: The Ninth Defendant did not appear IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 186 of 2013 IN THE MATTER OF BELLPAC PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017 BETWEEN: AUSTCORP PROJECT NO. 20 PTY LIMITED ACN 111 470 725 First Plaintiff COMPROMISE CREDITORS MANAGEMENT PTY LIMITED ACN 122 143 220 Second Plaintiff ALFRED CHI WAI WONG Third Plaintiff AND: THE TRUST CO (PTAL) LIMITED ACN 008 412 913 Second Defendant TREVOR POGROSKI AND GRAHAM KILLER IN THEIR CAPACITIES AS JOINT AND SEVERAL RECEIVERS AND MANAGERS OF BELLPAC PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017 Third Defendant TREVOR DAVID CHAPPELL Eight Defendant EDGAR KAI YAN HUNG Ninth Defendant JUDGE: GLEESON J DATE OF ORDER: 14 August 2015 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The plaintiffs' interlocutory process dated 13 July 2015 be dismissed with costs. 2. Pursuant to s 56(4) of the Federal Court of Australia Act 1976 (Cth) and rr 5.21(a) and 19.01(1)(c) of the Federal Court Rules 2011 (Cth), if the plaintiffs do not, by 9.00 am on 15 September 2015, comply with order 3 of the orders made on 15 December 2014, the proceeding against the second defendant be dismissed, with the plaintiffs to pay the second defendant's costs. 3. Pursuant to s 56(4) of the Federal Court of Australia Act 1976 (Cth) and rr 5.21(a) and 19.01(1)(c) of the Federal Court Rules 2011 (Cth), if the plaintiffs do not, by 9.00 am on 15 September 2015, comply with order 5 of the orders made on 15 December 2014, the proceeding against the third defendants be dismissed, with the plaintiffs to pay the third defendants' costs. 4. The plaintiffs pay the costs of the second defendant's interlocutory process dated 24 June 2015. 5. The plaintiffs pay the costs of the third defendants' interlocutory application dated 25 June 2015. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 186 of 2013 IN THE MATTER OF BELLPAC PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017 BETWEEN: AUSTCORP PROJECT NO. 20 PTY LIMITED ACN 111 470 725 First Plaintiff COMPROMISE CREDITORS MANAGEMENT PTY LIMITED ACN 122 143 220 Second Plaintiff ALFRED CHI WAI WONG Third Plaintiff AND: THE TRUST CO (PTAL) LIMITED ACN 008 412 913 Second Defendant TREVOR POGROSKI AND GRAHAM KILLER IN THEIR CAPACITIES AS JOINT AND SEVERAL RECEIVERS AND MANAGERS OF BELLPAC PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017 Third Defendant TREVOR DAVID CHAPPELL Eight Defendant EDGAR KAI YAN HUNG Ninth Defendant JUDGE: GLEESON J DATE: 14 August 2015 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The plaintiffs seek orders varying orders made by me on 15 December 2014, requiring the plaintiffs to give security for costs to the defendants. 2 As a result of the plaintiffs' non-compliance with those orders, the proceedings have been stayed since 15 December 2014. 3 On 4 May 2015, the defendants foreshadowed an application for summary dismissal of the proceedings. That application was made by the second defendant ("PTAL") on 24 June 2015 and the third defendants ("receivers") on 25 June 2015. 4 On 13 July 2015, the plaintiffs discontinued the proceedings against the first defendant and on 14 July 2015 the plaintiffs discontinued the proceedings against the fifth to seventh defendants. The proceedings were discontinued against the fourth defendant on 7 May 2013. Application to vary security for costs orders December 2014 orders and reasons 5 The current orders relevantly require the plaintiffs to give security for the costs of PTAL and the receivers by provision to each of them of a bank guarantee in their favour in a form acceptable to a Registrar of the Court in the sum of $150,000. 6 At [82] of my reasons for those orders (Austcorp Project Number 20 Pty Ltd v LM Investment Management Ltd (in liq) [2014] FCA 1371), I concluded that the following circumstances warranted an order for security for costs: (1) The impecuniosity of the plaintiffs; (2) The uncertain value of the undertaking proffered by the plaintiffs; (3) The absence of credible evidence that the plaintiffs' impecuniosity was caused by the conduct of the relevant defendants (apart from the insurers); (4) The absence of factors that would weigh in the balance against the making of such orders; and (5) The presence of a litigation funder. Proposed orders 7 The orders now sought are to the effect that the current orders be vacated and, instead, the plaintiffs be required to give security for the costs of each of PTAL and the receivers by instalments as follows: (a) The sum of $20,000 within 7 days after the date of the order; (b) The sum of $30,000 within 14 days after the date by which the plaintiffs are required to file and serve their lay affidavit evidence in chief; (c) The sum of $50,000 within 14 days after the date by which the plaintiffs are required to file and serve their expert affidavit evidence in chief; (d) The sum of $50,000 within 28 days after the date on which the proceedings are set down for trial. 8 The grounds for the application are: (1) there has been a material change of circumstances since the security for costs application, being the termination of the plaintiffs' conditional litigation funding agreement; and (2) the discovery of new material which could not reasonably have been put before the Court on the hearing of the original application, comprising evidence said to strengthen the plaintiffs' case against the defendants. 9 In support of the application, the plaintiffs relied upon evidence to the following effect: (1) A written undertaking to the Court and PTAL and the receivers from Austcorp Group, Dover Investments Pty Limited, Mowbray Apartments Pty Limited, Trevor Chappell and Edgar Hung to give security for their costs by paying into Court by instalments the sum of $150,000 in respect of PTAL's costs, and a further sum of $150,000 by instalments in respect of the receivers' costs; (2) Affidavit evidence of Mr Hung (a director of the first and second plaintiffs) that, had he or his fellow director Mr Chappell been in any doubt about the litigation funder providing the requisite litigation funding at the time of the security for costs hearing, they would have proffered an undertaking similar to the undertaking now proffered; (3) Austcorp Group's cash resources have been insufficient to satisfy the current security for costs orders; and (4) Despite (3), Mr Hung and Mr Fisher believe that Austcorp Group will be able to comply with the terms of the proffered undertaking. 10 There is no evidence that the current orders would stifle the action. In particular, there is no evidence that any of the parties now proffering the undertaking are unable to procure bank guarantees of the kind required by the current orders. Mr Hung gave some oral evidence in which he referred to other obligations as a reason for failing to procure a bank guarantee, but did not go so far as to say that he had been unable to do so. Legal framework 11 There is no doubt that the Court has power to vary an order for security for costs in appropriate circumstances: Federal Court of Australia Act 1976 (Cth), s 56(3) and rules 1.32 and 39.05 of the Federal Court Rules 2011 (Cth). 12 In Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd [2001] FCA 1603 at [11], Hely J said: It is clear from the terms of [the predecessor provision to s 56(3) of the Federal Court of Australia Act 1976 (Cth)] that the Court has power to set aside or vary the original security for costs order. The Court retains jurisdiction, because of the very nature of an interlocutory order, to set aside, vary or discharge it up to the time of the final disposition of the proceedings. However, as McLelland J recognised in Brimaud v Honeysett Instant Print Pty Ltd (1988) 6 ACLC 942, it would be conducive to great injustice and enormous waste of judicial time and resources if there were no limit on the power of a party to have any interlocutory application or order relitigated at will. Hence the ordinary practice is that an application to set aside, vary or discharge an order of a substantive nature made after a contested hearing in contemplation that it would operate until a final disposition of the proceedings, must be founded on a material change of circumstances since the original application was heard, or the discovery of new material which could not reasonably have been put before the Court on the hearing of the original application. That principle was applied by a Full Court of this Court in Darling Harbourside (Sydney) Pty Ltd v Sanirise Pty Ltd (unreported, Beaumont, Carr, Sackville JJ, 17 May 1996) to an order for the provision of security for costs. The Full Court set aside an order varying an order for the provision of security upon the basis that there had been no material change in circumstances established so as to warrant a variation of the original order. 13 An example of a material change of circumstances might include a significant material improvement to the plaintiffs' financial situation arising from an agreement with a litigation funder: cf Bakers Investment Group (Australia) Pty Ltd v Caason Investments Pty Ltd [2014] VSC 154. Consideration 14 I accept that there has been a material change of circumstances, in that one of the factors that led to my conclusion that the order for security for costs should be made no longer applies to the plaintiffs. That is, they no longer have a litigation funder. However, that was a factor in my decision that security for costs should be ordered, rather than a matter going to the precise terms of the security to be given. The plaintiffs do not suggest that no security for costs should be given, and nor would I have concluded that the loss of the litigation funder meant that security for costs is no longer warranted. 15 The discovery of new evidence improving the plaintiffs' prospects of success is not a relevant matter. The security for costs application was made on the basis that the claim is bona fide with a reasonable prospect of success, and the particular strength of the plaintiffs' case was not a matter which affected the exercise of the discretion to order security for costs, let alone the question of the precise form of the orders. 16 The issue now before the Court is whether the evidence supports a conclusion that security should be provided by the proposed instalments rather than in a lump sum. I am not persuaded that the orders should be varied, principally because there is no evidence that the variation is required to avoid the security for costs orders stifling the litigation. Secondarily, in the absence of evidence about precisely how the proposed instalment payments will be made, in my view, there is a risk that the proposed orders would be less efficient than the current orders as a result of further interlocutory disputes in the event that a payment is not made, or not made on time. Applications for summary dismissal 17 PTAL and the receivers each seek an order that the proceeding be summarily dismissed with costs or, alternatively, an order to the effect that if the plaintiffs do not provide security for costs within a short time, the proceeding be summarily dismissed. 18 In Strategic Financial and Project Services Pty Ltd v Bank of China [2012] FCA 701 ("Strategic Financial"), at [11], Robertson J referred to the following passage from the decision of the Full Court in Microbio Resources Inc v Betaten Ltd (unreported, Black CJ, Sheppard and Einfeld JJ, 8 October 1993) ("Microbio Resources"): The Court is careful to see that orders for security for costs do not work injustice to parties against whom such orders are made, but if those parties do not comply with the orders and give no evidence or explanation as to why they have not complied with them, they cannot be heard to complain of injustice if, after a considerable length of time, and extensions of time, the ultimate sanction of dismissal is applied. It is incumbent upon parties in such circumstances to provide evidence of their position. 19 In Strategic Financial, Robertson J made self-executing orders of the kind that PTAL and the receivers now seek in the alternative. In that case, the applicants had not complied with security for costs orders made two months earlier. 20 In Capital Webworks Pty Ltd v Adultshop.com Ltd [2008] FCA 423, McKerracher J noted that Microbio Resources was followed in Jalpalm Pty Ltd v Hamilton Island Enterprises Pty Ltd & Anor [1995] FCA 1498 per Kiefel J and also in Billinudgel Pastoral Co Pty Ltd v Westpac Banking Corporation [1994] FCA 728 and Cosdean Investments Pty Ltd v Football Federation Australia Ltd (No 3) [2007] FCA 766. 21 At [14], McKerracher J referred to five factors, said by Einstein J in Idoport Pty Ltd v National Australia Bank Ltd [2002] NSWSC 18 at [24] to flow from remarks of the Full Court in Microbio Resources. Those are the factors relevant to the exercise of a discretion as to whether to dismiss a proceeding where there has been a failure to comply with an order for security for costs. McKerracher J noted that the decision of Einstein J was upheld by the Court of Appeal of New South Wales on that issue in Idoport Pty Ltd v National Australia Bank Ltd [2002] NSWCA 271. Those factors are: (1) The period that has elapsed since security was ordered; (2) The fact that the plaintiff has been on notice of the application for dismissal; (3) The seeming inability of the plaintiff to further fund the main proceedings; (4) The prejudice to the defendants; and (5) The position of the Court. 22 In this case, almost eight months have elapsed since the security for costs orders were made. The plaintiffs have been on notice of the summary dismissal applications since at least 4 May 2015. The plaintiffs do not dispute their inability to fund the proceeding. They say that they have been, and continue to be funded by their parent, Austcorp Group. The plaintiffs acknowledge that the defendants continue to be at risk of being unable to recover their costs if the proceedings are not dismissed, however, they say that the summary dismissal of the proceeding would be disastrous for the plaintiffs and Austcorp Group who have been prosecuting the action for two and a half, and have incurred significant legal costs. 23 The plaintiffs submit that, if the Court is minded to make a self-executing order, the plaintiffs should be given until 30 October 2015 to provide security. They suggest that case preparation should proceed during that time and that this would not significantly increase the risk to the defendants. I reject that proposal: I have previously found that the proceedings should be stayed pending the provision of security for costs. In my view, the written undertaking now proffered is not sufficient to warrant that the defendants should be put to further expense before security is given. 24 The plaintiffs have not given a satisfactory explanation for why the security for costs orders have not been complied with, even in part. The plaintiffs' ability to fund the proceedings is unclear. Based on the proffered undertaking, there is some ability to fund the proceeding. 25 I accept that the plaintiffs will be substantially prejudiced by summary dismissal of the proceedings. On the other hand, I also consider that the defendants have been prejudiced by the plaintiffs' failure to provide security (including by three court appearance this year, despite the proceeding being stayed) and that this prejudice will be exacerbated if the proceedings continue without the provision of security. 26 The Court's position is that it is continuing to case manage proceedings commenced in 2013, which are not progressing with due dispatch and thereby allocating scarce resources to the matter. 27 Taking all these factors into account, I have concluded that the plaintiffs should be given one further opportunity to comply with the security for costs orders concerning PTAL and the receivers. However, I do not think that the plaintiffs' suggestion that they be permitted until 30 October 2015 is reasonable, particularly in the absence of any evidence about how and when funds will be raised. 28 I propose to allow the plaintiffs a further month to comply with the orders for security. Conclusion 29 The plaintiffs' interlocutory process dated 13 July 2015 will be dismissed with costs. 30 I will make orders pursuant to s 56(4) of the Federal Court of Australia Act 1976 (Cth) and rr 5.21(a) and 19.01(1)(c) of the Federal Court Rules 2011 (Cth), that if the plaintiffs do not, by 9.00 am on 15 September 2015, comply with orders 3 and 5 of the orders made on 15 December 2014, the proceedings will be dismissed, with costs. 31 Costs will follow the event. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson. Associate: Dated: 14 August 2015