Industrial Court of New South Wales CITATION: Matiukevitch v AG&S Building Systems Pty Ltd [2007] NSWIRComm 174 Applicant: Andrew Matiukevitch PARTIES: Respondent: AG&S Building Systems Pty Ltd FILE NUMBER(S): IRC 1715 of 2006 CORAM: Backman J CATCHWORDS: Application under s 106 of the Industrial Relations Act 1996 - security for costs application made by the respondent - principles to be applied - discretionary factors - whether applicant has arguable case in s 106 application - whether applicant impecunious - whether memorandum of understanding between applicant and third party constitutes a champertous agreement in breach of public policy - significance of applicant's interstate residence - whether any delay on respondent's part in bringing its application - whether applicant would suffer prejudice if respondent's application granted - respondent's application for security for costs dismissed - costs reserved. Industrial Relations Act 1996 LEGISLATION CITED: Maintenance, Champerty and Barratry Abolition Act 1993 Service and Execution of Process Act 1992 (Cth) Great Scott International Pty Ltd v Cosmetic Suppliers Pty Ltd and Another [2005] NSWIRComm 133 Kenoss Contractors Pty Limited v Allied Constructions Pty Limited (No 2) (2001) 104 IR 218 CASES CITED: Knott v Signature Security Group Pty Limited (2001) 104 IR 84 Meribee Pastoral Industries Pty Limited and Others v Australian and New Zealand Banking Group Limited (1998) 193 CLR 502 Trendtex Trading Corporation and Another v Credit Suisse [1982] AC 679 Williamson v Service Corporation International (Australia) Pty Limited (2003) 130 IR 247 HEARING DATES: 19 March 2007 DATE OF JUDGMENT: 10 July 2007 Applicant: Mr E White of counsel Solicitors: Mills Oakley Lawyers LEGAL REPRESENTATIVES: Respondent: Mr J Keesing of counsel Solicitors: Gells Solicitors JUDGMENT: - 14 - INDUSTRIAL COURT OF NEW SOUTH WALES CORAM: Backman J Tuesday, 10 July 2007 Matter No IRC 1715 of 2006 ANDREW MATIUKEVITCH v AG&S BUILDING SYSTEMS PTY LTD Application under s 106 of the Industrial Relations Act 1996 JUDGMENT [2007] NSWIRComm 174 1 This is an application by way of notice of motion filed by AG&S Building Systems Pty Limited (the respondent) seeking an order that the applicant (Andrew Matiukevitch) give security for the respondent's costs. A second order sought, conditional upon the first order being granted, seeks that "the proceedings" be stayed until such security is given. The proceedings concern an application by way of amended summons for relief filed on 28 September 2006 brought under s 106 of the Industrial Relations Act 1996 (the Act). The evidence 2 The respondent relied on two affidavits of Michael Gerard Coffey filed on 13 December 2006 and 13 March 2007 in support of its application. The earlier affidavit annexes property searches conducted on behalf of the respondent. The first annexure which is headed "NSW Department of Lands - Owner Enquiry Search Results" records, "no records found" in the applicant's name. The second annexure which purports to record the results of land title searches in Tasmania reveals that land described as Vol 136603 Fol 1 Lot 1 on sealed plan 135603 was transferred to the applicant's wife on 12 July 2001. According to Mr Coffey this document records a title search for property at 220 Bicheno St, Clifton Beach, Tasmania, which is where the applicant and his wife currently reside. A third annexure is a letter from the respondent's solicitors to the applicant's solicitors notifying them of their intention to make the present application on behalf of the respondent. The letter is dated 30 November 2006. It informs that an application for security for costs will be made in the sum of $79,520. (This amount was later reduced by mutual agreement between the parties to an amount for $57,520 following a concession by the respondent that the original amount was incorrect). The affidavit also contains a hearsay account of a conversation purportedly had between the applicant and a director of the respondent, Dennis McFadden, during which the applicant, according to Mr McFadden, said, " All my assets are in my wife's name". 3 The second affidavit of Mr Coffey annexes a document headed "Memorandum of Understanding" between Carter Consulting Group Pty Ltd ("Wide Span") and the applicant dated 10 March 2006. The respondent seeks to rely on the memorandum as providing some evidence of a champertous agreement between the applicant and a third party in relation to the application under s 106. Wide Span, it emerged in oral evidence given on the present application by the applicant, is a business competitor of the respondent as well as the applicant's present employer. 4 The applicant also relied on two affidavits on the present application. Both affidavits deal with the applicant's current financial position. According to the first affidavit filed on 19 February 2007 the applicant has the following assets in his name: (a) Joint cheque account with his wife Barbara with approximately $50,000 in it; (b) A 2005 Harley Davidson 1200 Sportster Motorcycle worth approximately $14,000; (c) A 1989 Volvo station wagon worth approximately $3,000; (d) A 2000 Mercedes Benz Vito van worth approximately $17,000. 5 The applicant in his second affidavit says that on about 1 March 2006 he commenced working for Wide Span at an agreed salary of $200,000 per annum, paid at $4,000 per week over 50 weeks. The affidavit also annexes a bank statement in the name of "Black Consultants" which is apparently a joint cheque account that the applicant holds with his wife. The document covers the period 1 February 2007 to 23 February 2007 and records a credit balance in the amount of $52,345.15. 6 The applicant was cross-examined by the respondent in relation to the Memorandum of Understanding between himself and Wide Span. He said that Wide Span had agreed to pay a penalty imposed upon him by the Commercial and Consumer Tribunal in Queensland in the sum of $7,500 as well as associated legal costs in an amount of $25,492.09. He said he understood that Wide Span under the memorandum had agreed to pay the costs of the present litigation although not if he loses the litigation. In re-examination the applicant characterised the memorandum as a loan from Wide Span. This characterisation would seems to accord with the terms of the memorandum in particular clauses 9 and 10 extracted below: Wide Span, without any admission or acceptance of fault or liability, other than the liability accepted under this Memorandum, agree with Andrew as follows: 9. Wide Span will meet the following costs, expenses and liabilities: a. The penalty imposed on Andrew by the Commercial and Consumer Tribunal of $7,500. b. The legal costs of the Board of Professional Engineers of Queensland in an amount of $25,492.09. c. Andrew's legal costs incurred in terminating the arrangement with AG&S and Andrews (sic) legal costs in recovering all amounts due and payable to Andrew by AG&S provided that such legal fees are approved by Wide Span and are legal costs invoiced by John Burton & Associates Solicitors, including disbursements provided that the approval for any disbursement is obtained prior to its being incurred. 10. Wide Span will meet the costs, expenses and liabilities as outlined in Clause 9 provided that Andrew, takes all reasonable steps to recover the amounts from AG&S including the taking of legal action against AG&S and McFadden and that such amounts received by Andrew in part or full settlement of any claims against AG&S or McFadden will be paid to Wide Span in full. 7 The applicant also gave some oral evidence in relation to his personal assets. In addition to the two motor cars and one motorbike listed in his affidavit as assets currently in his name, the applicant said he also owned drumkits and telescopes some of which he is in the process of selling. The applicant estimated the value of three telescopes advertised for sale by reference to the original price he paid for them, and, their age in a total amount of $7,250. In addition one of the drum kits (the cheapest one) is currently for sale at a reserve price of $1,000. Parties' submissions 8 Mr Keesing of counsel, appearing for the respondent, relies on several factors in support of the respondent's application for a security for costs order. The respondent contends first that the applicant's substantive application under s 106 has little prospects of success. In particular, the respondent relies upon an aspect of the applicant's case which concerns the working relationship, the subject of the substantive application. This relationship consisted of a partnership between the applicant and his wife and the respondent company. This suggests, according to the respondent, that the relationship was not one of employment, so that various entitlements sought in the amended summons by way of long service leave, annual leave and superannuation are not maintainable. Secondly, the respondent contends that the applicant has limited assets. Apart from some motor vehicles, drum kits and telescopes which are of insignificant value, the only other evidence of an asset is the joint bank account the applicant holds with his wife in the sum of approximately $50,000. The applicant has admitted in cross-examination that his wife could access that account and remove the money at any time. The applicant has no assets within the jurisdiction of New South Wales. Thirdly, the memorandum is a champertous agreement as it clearly indicates an arrangement between the applicant and a third party to fund him in the substantive proceedings. The agreement is with a direct competitor of the respondent which sees itself gaining a benefit in maintaining the action. Because the applicant's litigation is being funded by a third party, settlement is unlikely. These considerations give rise to exceptional circumstances which warrant the application being granted. Fourthly, the applicant is ordinarily resident outside the jurisdiction in Tasmania, which is a further step adding, "costs to the recovery of costs". Fifthly, the respondent contended that if its application was granted there would be no prejudice to the applicant. The applicant is not impecunious and an order for security for costs would not impede the applicant's ability to litigate his case. Indeed it is a condition of the memorandum of understanding between the applicant and Wide Span that the applicant proceed with his application under s 106. Finally the respondent emphasised as a matter of some significance to its application that the applicant had not offered the Court an undertaking that he would not dissipate the moneys deposited into the joint account with his wife until the proceedings have been determined. 9 The applicant responded by offering to give the Court an undertaking in relation to the joint bank account. The offer was withdrawn some minutes later after the respondent refused to make any concessions in relation to it unless the applicant agreed to undertake that he had access to the whole of the amount in the joint bank account, and, he was prepared to give a further undertaking that he would send the respondent monthly bank statements in relation to the account. The applicant also contends that he has a strong case. In the amended summons the applicant relies upon the failure of the respondent to provide for reasonable remuneration as one of the indicia of unfairness in the terms of the contract. After his employment was terminated the applicant commenced employment at Wide Span at twice the remuneration he was paid by the respondent which itself suggests that he was under-remunerated while working for the respondent. There is also, according to the applicant, credible evidence that the applicant has the ability to pay a costs order, although he does not "have a surfeit of assets". He does, in addition, earn $200,000 annual salary. In relation to the memorandum between the applicant and Wide Span, the applicant contends that it can have no relevance to the respondent's application. There is nothing unique about a former employee going to work for a competitor of the employee's former employer. The document does not reveal some ulterior motive, it is simply evidence of a loan. The applicant has been resident in Tasmania for some seven years. During a substantial part of that period he worked for the respondent. There is therefore no suggestion that the applicant left the jurisdiction for an inappropriate purpose such as to avoid a costs order. Nor do enforcements of judgments interstate pose an additional difficulty that might be encountered in New South Wales. Another factor against the granting of the respondent's application according to the applicant is the delay on the part of the respondent in bringing its application. In contending to the contrary on this issue the respondent pointed out to the Court that the amended summons had not been filed until 28 September 2006 and that further amendments to the summons are now sought by the applicant by way of notice of motion which seeks to add Mr McFadden as a second respondent to the application. Consideration 10 In Kenoss Contractors Pty Limited v Allied Constructions Pty Limited (No 2) (2001) 104 IR 218 at 221, 222 Wright J, President, set out the principles to be applied in applications for security for costs in this jurisdiction. In the judgment his Honour adopts the reasoning of Sir Robert Megarry VC in Pearson v Naydler [1977] 1 WLR 899 at 906-907 where his Lordship identified the issues commonly underlying such applications: It seems plain enough that the inability of the plaintiff company to pay the defendants' costs is a matter which not only opens the jurisdiction but also provides a substantial factor in the decision whether to exercise it. It is inherent in the whole concept of the section that the court is to have power to order the company to do what it is likely to find difficulty in doing, namely, to provide security for costs which ex hypothesi it is likely to be unable to pay. At the same time, the court must not allow the section to be used as an instrument of oppression, as by shutting out a small company from making a genuine claim against a large company. For this reason, Mars-Jones J. was not prepared in the Parkinson case to make an order for security for costs for more than the £1,500 that the master had ordered: see [1973] Q.B. 609, 617. As against that, the court must not show such a reluctance to order security for costs that this becomes a weapon whereby the impecunious company can use its inability to pay costs as a means of putting unfair pressure on a more prosperous company. Litigation in which the defendant will be seriously out-of-pocket even if the action fails is not to be encouraged. While I fully accept that there is no burden of proof one way or the other, I think that the court ought not to be unduly reluctant to exercise its power to order security for costs in cases that fall squarely within the section. 11 In summary, some of the significant issues falling for consideration in applications for security for costs will include as a foundational issue the inability of an applicant to pay a respondent's costs. At the same time a Court must take into account on the application whether the granting of the application might impede an applicant from making a genuine claim. Against that consideration a court must weigh the prospect of an impecunious applicant using his, her, or its poor state of finances as a means of putting pressure on the other party where that other party may be seriously out of pocket even if the application in the substantive proceedings fails. 12 In Knott v Signature Security Group Pty Limited (2001) 104 IR 84, Wright J, President made a number of further observations in relation to applications for security for costs. First his Honour observed (at [24]), that a court will order an applicant who is a natural person to pay security for costs only in exceptional circumstances. Secondly, that the making or enforcing of such orders involves the exercise of a discretionary judgment and that an important consideration in this regard is whether an applicant resides out of the jurisdiction and has no assets within the jurisdiction. A further related consideration is whether an order for security for costs may have the effect that the substantive proceedings may not be able to be pursued (at [28]). 13 In Williamson v Service Corporation International (Australia) Pty Limited (2003) 130 IR 247 the Full Bench of the Industrial Relations Commission in Court Session (at [32]) recognised that delay in seeking an order for security for costs may be a factor in deciding whether or not to grant the order. 14 In the present application the following issues have been raised by the parties: (i) whether the applicant's substantive application has "reasonable prospects of success"; (ii) whether the applicant has limited assets; (iii) whether the memorandum of understanding constitutes a champertous agreement which, by reason of public policy considerations should operate against the applicant and in favour of the respondent; (iv) the significance of the applicant's interstate residence in Tasmania; (v) whether there has been any delay in the bringing of the application by the respondent; (vi) whether the applicant would suffer any prejudice should the respondent's application for security for costs be granted. 15 These issues will be considered separately by reference to the principles and relevant considerations extracted from the authorities mentioned above. Whether applicant's application has "reasonable prospects" 16 There is little material on the application which enables the Court to make a reasonable assessment of the applicant's case in the substantive proceedings. At this preliminary stage however the Court can take the applicant's case at its highest. In this respect the applicant relies on the amended summons in particular to advance his contention that his case has strong prospects of success. 17 According to the amended summons the applicant worked for the respondent as its engineer between about 13 November 1993 and 26 February 2006 when his employment was terminated. During that period his income fluctuated considerably. In the financial year ending 1995 the applicant's salary was $11,000. For the year ending 2004 his salary was $110,226. During his employment, the applicant says that he was not paid any statutory entitlements such as long service leave, annual leave or superannuation. In addition, the applicant, who obtained employment with Wide Span shortly after his employment was terminated, now receives a salary of $200,000 a year which is almost double the highest income earned by the applicant in any one financial year while working for the respondent. These matters in my opinion tend to provide some substance, at least at this preliminary stage, to the applicant's claims that his contract with the respondent was unfair because it failed to provide for his reasonable remuneration and failed to pay his accrued statutory entitlements. 18 The proper approach to the issue concerning the applicant's prospects of success is to assess whether the applicant has an arguable case in the proceedings to which the application for security for costs relates: see Great Scott International Pty Ltd v Cosmetic Suppliers Pty Ltd and Another [2005] NSWIRComm 133 at [40]-[45]; Williamson at [49]. In the present proceedings the material in the amended summons for the reasons expressed above (and taking the applicant's case at its highest) suggests that the applicant has at least an arguable case in relation to his application under s 106. Whether the applicant has limited assets 19 Although the applicant does not own any assets in New South Wales and does not own any real property in Tasmania it does not necessarily follow that the applicant is unable to pay a costs order. The respondent contended that the applicant's wife had access to the joint account and could withdraw the moneys at any time. The same contention could apply equally to the applicant. The account is in both names and is operated jointly and the money is available to either party at any time for use. The applicant does own some personal assets notably three motor vehicles with an estimated worth of $34,000 and drum kits and telescopes. The amount sought by the respondent by way of security for costs is $57,520. 20 The Court has a wide discretion, should it choose to grant the application, to decide on the quantum of costs. The Court is not bound for example to accept the respondent's estimate of the costs likely to be incurred. In Knott, Wright J observed (at [28]) that applications for security for costs, generally speaking, would not be ordered on a full party and party basis, and, that although regard should be had to estimates of future costs, other factors must also be considered (such as whether the proceedings may not continue, whether they may be settled and the merit's of the applicant's case). 21 Here the applicant presently earns about $200,000 a year or $4,000 per week. This factor alone would dispel any notion that the applicant has limited assets such that he would be unlikely or unable to meet a costs order. Whether the memorandum of understanding is a champertous arrangement 22 The respondent contends that Wide Span is funding the applicant's litigation because it sees itself as a competitor of the respondent and stands to gain a benefit in maintaining the action. The respondent did not identify any particular benefit which Wide Span might gain. 23 It does not appear to me however on the face of the document that Wide Span stands to benefit financially if the applicant is ultimately successful in his application. Nor does the memorandum suggest an agreement entered into to divide the proceeds of the litigation. The terms of clause 10 of the memorandum for example indicate that the financial arrangement between the applicant and Wide Span conforms to the description of a loan. The memorandum in its terms does not suggest trafficking or speculating in a cause of action which in turn might suggest champerty: see generally Trendtex Trading Corporation and Another v Credit Suisse [1982] AC 679. The significance of the applicant's interstate residence 24 According to the applicant he has resided in Tasmania for the last 7 years. For a substantial part of that time he was working for the respondent. There is certainly no evidence that the applicant left the jurisdiction of New South Wales in order to avoid paying a costs order. Significantly, the respondent conceded that a judgment made in New South Wales may be enforced or registered in Tasmania (as to which see Service and Execution of Process Act 1992, s 105 (Cth)). The respondent instead placed reliance on the applicant's interstate residence as somehow adding to its costs, if in the event the applicant was unsuccessful in his s 106 application. 25 An applicant resident out of the jurisdiction may assume significance on an application for security for costs if for example he or she has left the jurisdiction in a deliberate attempt to avoid a costs order, or, where the place of residence outside the jurisdiction may pose difficulties for a successful party seeking to enforce a judgment order. None of these considerations apply to the present applicant. The factor therefore falls to be accorded little, if any, weight in favour of the respondent's application. Whether there has been any delay on the respondent's part 26 As to the issue of delay I do not agree with the applicant's submissions that the respondent's application should be declined be reason of its delay in bringing its application for security for costs. The respondent quite reasonably points to the amended summons filed 28 September 2006 and to the applicant's notice of motion, yet to be heard seeking orders for the joinder of Mr McFadden as the second respondent. In addition the affidavit of Mr Coffey filed 13 December 2006 annexes a letter written by the respondent's solicitor to the applicant's solicitor dated 30 November 2006, informing the applicant of various inquiries it has completed revealing that the applicant owns no assets within New South Wales and that on that basis the respondent intends to make an application for security for costs. This letter in my view suggests prompt notification on the part of the respondent of its intention to make the application following the revelation that the applicant owns no assets within New South Wales. Whether the applicant would suffer any prejudice 27 The respondent in support of its application for security for costs contends that if its application was granted, the applicant's ability to litigate his case would not be impeded. The memorandum of understanding between the applicant and Wide Span in fact imposes a condition that the applicant pursue his application. In addition under the terms of the memorandum his application is being funded by a third party. Furthermore the applicant is not impecunious. 28 I have earlier dealt with the significance of the memorandum of understanding to the present application. I agree that the applicant has access to his own funds, in particular his income of $200,000 per annum. Based on this evidence I find that if the applicant was ordered to pay security for costs he would not be "shut out" or impeded from pursuing his application by reason of impecuniosity: see Meribee Pastoral Industries Pty Limited and Others v Australian and New Zealand Banking Group Limited (1998) 193 CLR 502 at [26]; Knott at [28]. 29 The success of the respondent's application, being brought against a natural person, is dependant upon the respondent establishing exceptional circumstances: Knott at [24]. The factors in favour of granting the respondent's application include first, that the applicant would not be "shut out" or impeded from pursuing his application if a security for costs order was made. The evidence adduced on the respondent's application suggests that the applicant has access to his own funds (independently of the terms of the memorandum of understanding). Secondly, I find that there has been no appreciable delay on the part of the respondent in bringing its application for reasons earlier addressed in this judgment. Thirdly the applicant declined to give the Court an undertaking that he would not dissipate his moneys in the joint bank account until the substantive proceedings were determined. Against these factors, and against the granting of the respondent's application the evidence reveals first that the applicant has an arguable case in relation to his application under s 106. Secondly, the memorandum of understanding between the applicant and Wide Span, as I have found, does not "smack" of champerty, rather it suggests that the funds to be made available to the applicant are in the nature of a loan. I note in this regard that the common law offence of champerty was abolished in New South Wales by the Maintenance, Champerty and Barratry Abolition Act 1993. In addition in the absence of a finding that the memorandum constitutes a champertous agreement, no relevant public policy considerations concerning such agreements fall to be applied. Thirdly, the applicant has access to his own funds in order to pursue his application and/or to pay a costs order. Fourthly, the fact that he resides in Tasmania can be accorded little or no weight in circumstances where the applicant has been resident there for several years during which he worked for the respondent, and, where there would be no impediment to the respondent, if the circumstances arose, enforcing any judgment order against the applicant in that State. In relation to the undertaking, I note that the applicant was in fact prepared to give an undertaking. The offer was withdrawn soon after when the respondent sought to bind the applicant to a second additional undertaking that he send the respondent monthly bank statements in relation to the joint account. 30 In weighing up these various factors the balance falls against the respondent's application being granted. The application should therefore be refused. Orders 31 According the Court makes the following orders: (1) The respondent's notice of motion seeking an order for security for costs is dismissed. (2) Costs are reserved. _____________________________ DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.