Proctor : October 2016
40 PROCTOR | October 2016 More certainty in seeking security for costs Allied Environmental Solutions Pty Ltd v North Burnett Regional Council  FCA 713 Security for costs – Federal Court Act 1976 s56 – Corporations Act 2001 s1335 – whether applicant able to satisfy adverse costs order – whether applicant’s impecuniosity caused by respondent – whether application for security for costs is oppressive In Allied Environmental Solutions Pty Ltd v North Burnett Regional Council  FCA 713 Gleeson J examined several issues arising on an application by the respondent (the council) for orders that the applicant (Allied) provide security for the council’s costs. Background Allied claimed damages in the proceeding for breach of contract and under s236 of the Competition and Consumer Act 2010 (Cth). The contract was entered into in July 2006 and was for the provision of waste management services. The dispute primarily concerned the duration of the contract and whether the council breached its contractual obligations by refusing to obtain services from Allied after about 30 June 2014. Central to the dispute was the meaning of a letter sent from the council to Allied in November 2012 (the extension letter). The parties submitted to a process of expert determination in relation to their dispute. In January 2016 the expert made a determination in the council’s favour. The proceeding made essentially the same claim as was the subject of the expert determination. On 19 May 2016 the council brought an application under r19.01(1) of the Federal Court Rules 2011, or in the alternative s1335(1) of the Corporations Act 2001 (Cth), for orders that the applicant provide security for the council’s costs. By consent, Gleeson J made an order on 30 May 2016 requiring that two questions about the extension letter and its effect be determined separately. Council’s application for security for costs was then confined to the costs of determination of the separate questions. Legislation Section 56 of the Federal Court Act 1976 (Cth) confers power on the court to make orders for security for costs. Rule 19.01(1) of the Federal Court Rules permits a respondent to make an application to the court for security for costs and associated orders. The application must be accompanied by an affidavit stating the facts on which the order for security for costs is sought: r19.01(2). Rule 19.01(3) sets out the matters that should be stated in the respondent’s affidavit. Those matters include: “(a) whether there is reason to believe that the applicant will be unable to pay the respondent’s costs if so ordered.” Section 1335(1) of the Corporations Act also confers power on the court to make orders for security for costs. Issues Gleeson J referred to KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 in relation to the established guidelines which the court typically takes into account in determining an application for security for costs. Of the principles set out in that case, her Honour regarded the following as being of particular relevance to the case at hand: a. When an application is based on a contention establishing that there is reason to believe that the other party to the litigation will be unable to pay the costs if unsuccessful, once the respondent has discharged the onus of proving reason to believe, the onus shifts to the party against whom the order is sought to establish why an order for security should not be made. b. Relevant considerations are: i. the prospects of success ii. the quantum of the risk that an adverse costs order would not be satisfied iii. whether the applicant’s impecuniosity was caused by the respondent’s conduct the subject of the claim iv. whether the claim for security for costs is oppressive, in the sense that it is being used to deny an impecunious applicant a right to litigate. It was accepted for Allied that the council had met the threshold test in relation to there being a reason to believe that Allied would be unable to pay the costs of the litigation if unsuccessful. Council did not dispute that Allied had reasonable prospects of success, although it noted that the expert determination went against Allied. Accordingly, Gleeson J defined the issues between the parties on the question of whether Allied should be ordered to provide security as: 1. whether Allied could satisfy an adverse costs order 2. whether the court should decline to exercise its discretion to make an order on the basis that Allied’s impecuniosity was caused by the council 3. whether the court should decline to exercise its discretion to make an order on the basis that it would stultify the proceeding. Analysis Referring to the decision in Health Information Pharmacy Franchising Pty Ltd v Khoo  FCA 438 at , Gleeson J said that in deciding the council’s application founded on Allied’s asserted impecuniosity, there was no practical difference in deciding whether to make an order either under s56 of the Federal Court Act or under 1335(1) of the Corporations Act. It was submitted for Allied that Allied would be in a position to meet a costs order from future profits, and that the figures in the 2015 tax return coupled with the ongoing viability of the business were sufficient to satisfy the court that an adverse costs order could be met. It was argued in that respect that, although the 2015 profit was only about $2000, the expenses included more than $108,000 in legal costs of the proceeding. A facility had been arranged from another company in the group of companies of which Allied was a member, so that the legal costs would not be a continuing expense. Gleeson J found, however, that the evidence for Allied was insufficient, and that its ability to meet an adverse costs order was uncertain.