Re Edward James Bride and Wendy Margaret Bride As Trustees of the Pinwernying Family Trust v Bryan Guthrie Stewart [1990] FCA 8 (19 January 1990)

FEDERAL COURT OF AUSTRALIA

Re: EDWARD JAMES BRIDE AND WENDY MARGARET BRIDE as Trustees of the
Pinwernying Family Trust
And: BRYAN GUTHRIE STEWART
No. WA G191 of 1988
FED No. 3
Practice and Procedure

COURT

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Practice and Procedure - security for costs - natural persons - trustees of family trust - whether suing for own benefit or that of another - unrepresented - unpaid costs from earlier proceedings - difficulties with pleading in present proceedings - further refinement and interlocutory processes to be undertaken - unusual interlocutory costs burden on respondent - partial security ordered.

Federal Court Act 1974 s.56

Federal Court Rules O.28

Bell Wholesale Co. Pty Ltd v Gates Export Corporation [1984] FCA 34; (1984) 52 ALR 176

Barton v Minister for Foreign Affairs (1984) 54 ALR 586

High Tower Pty Ltd v Island Motel Pty Ltd (unrep. Fed. Court of Australia; 12 April 1989; Von Doussa J.)

Ross v Jacques [1841] EngR 530; (1841) 8 M & W 135

Cowell v Taylor (1885) 31 CH D 34

Le Mesurier v Ferguson (1903) 20 TLR 32 (CA)

Re Emery (1923) p 184

Sir Lindsay Parkinson & Co. Pty Ltd v Triplan Ltd (1973) QB 609

Pearson v Naydler (1977) 1 WLR 899

Orr v Lusute Pty Ltd (1987) 72 ALR 617

Andrews v Caltex Oil (Australia) Ltd (1982) 40 ALR 305

Riot Nominees Pty Ltd v Suzuki Australia Pty Ltd (1981) 34 ALR 653

White v Butt (1909) 1 KB 50

Upton v TVW Enterprises Ltd [1984] FCA 385; (1984) 57 ALR 361

Riv-Oland Marble Company (Vic) Pty Ltd v Settef S.p.A. (unrep. Fed. Court of Australia; 2 May 1988; Jenkinson J.)

HEARING

PERTH
19:1:1990

Mr E.J. Bride appeared on behalf of the applicants

Counsel for the Respondent: Mr K.A. Dundo

Solicitors for the Respondent: Robinson Cox

ORDER

The applicants do on or before 15 March 1990 give security in the amount of $4,000 for the costs of the respondent of and incidental to these proceedings, the security to be given by way of bank guarantee or cash deposit to be lodged with the Registrar of the Court or otherwise in a form to be approved by the Registrar.

There be liberty to apply on the form of the security.

The costs of the motion be reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

REASONS FOR JUDGMENT ON MOTION FOR SECURITY FOR COSTS
This application, initially supported by affidavit, was instituted on 21 December 1988 by Mr and Mrs E.J. Bride, the Pinwernying Family Trust (sic) and two companies, Bride Foods Pty Ltd and Swan Stock Foods Pty Ltd. A lengthy statement of claim was filed on 1 March 1989 and a defence on 20 March, along with a motion to strike out the statement of claim. Following the return of the motion, judgment was reserved and on 25 October 1989 an order was made striking out the statement of claim with leave to file a replacement. An amended statement of claim, naming as applicants only Mr and Mrs Bride as trustees of the Pinwernying Family Trust, was filed on 15 November. An amended defence was filed on 11 December together with a further motion to strike out the amended statement of claim and for an order for security for costs. Argument on that motion in relation to the amended statement of claim was heard on 19 December and on the same day a motion for summary judgment filed by the applicants was dismissed. On 18 January the respondent's motion was dismissed so far as it related to the amended statement of claim and argument proceeded on the question of security for costs.

2. In the course of argument on the motion for security, counsel for the respondent referred to earlier cognate proceedings (No. 62 of 1987) instituted by the applicants and in respect of which costs orders were made which are still outstanding. Their brief history begins on 11 June 1987 when instituted by Mr and Mrs Bride in their personal capacities against the present respondent and the Australian Bank Limited. On 26 July 1988 that action was dismissed on the respondent's application. The dismissal was based on a finding that the applicants' complaints related directly to the dealings of the Bank and the present respondent with their business and property interests. The cause of action, if any, had vested in the Brides' trustee in bankruptcy, a vesting not affected by their subsequent discharge. An appeal against that decision was brought to the Full Court but the appeal was dismissed on 5 December 1988.

3. On 27 September 1989 the applicants moved the Court in No. 62 of 1987 for an order that the costs awarded to the respondent, under the judgment of 26 July 1988 and by the Full Court on 5 December 1988, be stayed until the determination of these proceedings and another related action, (No. 1570 of 1989), which they had commenced in the Supreme Court. The Supreme Court action is brought by the Brides as trustees of the Pinwernying Family Trust against the Australian Bank Limited. The relief sought in that case is said to be based upon fraud, conspiracy and "invalid foreclosure" by the Bank through its officers and Stewart.

4. In support of their motion for a stay of the costs orders, the applicants argued that they had instituted action No. 62 of 1987 in the mistaken belief that they owned the business and property in question in their personal capacities when in fact they held them as trustees of the Pinwernying Family Trust. For this mistaken belief they blamed in part the respondent's refusal to allow their trustee in bankruptcy access to books and records. They said their problem was compounded by false affidavits tendered by the respondent and the Bank's secretary. Their motion for a stay of the costs orders was dismissed on 25 October 1989 and they were ordered to pay the costs of the motion.

5. The respondent's motion for security for costs in these proceedings is supported by an affidavit sworn on 18 December. Exhibited to that affidavit were certificates of costs taxed on the dismissed application 62 of 1987 - $2,806 - and on the unsuccessful Full Court Appeal - $1,717. The certificates were served on the applicants on 4 December 1989 and letters requesting payment delivered on the same day. As at 18 December the costs had not been paid and nothing had been heard from the applicants. The respondent stated his belief that they had no regular source of income. That statement says nothing of course about their financial position and was unsupported by any stated grounds.

6. Counsel for the respondent in seeking security relies upon the considerable burden of litigation brought to bear on his client by the applicants, the costly and time consuming interlocutory processes as they have endeavoured to define their standing and causes of action, and the so far unpaid costs orders in the initial proceedings and the appeal. He submits that his client should not have to continue to bear that burden, pregnant with the promise of yet more interlocutory skirmishing over particulars, without some security from which he may be reimbursed for his costs if the applicants ultimately fail. The sum of $25,000 is sought on the motion. There is no evidence offered to show how that sum is arrived at, but I have little doubt that, having regard to the nature and likely length of the proceedings, it is a conservative estimate of the respondent's costs of the action including interlocutory proceedings and trial.

7. The applicants are unrepresented and have been in all the proceedings to which I have referred. Although they filed no affidavit, I have little doubt that they are of modest means and would probably have difficulty in meeting the respondent's costs if their action were unsuccessful. In the light of his statements made in Court in the course of argument, it is reasonably clear that Mr Bride intends to resist payment of the outstanding costs orders and says that if they are pursued he would seek a retrial of the original proceedings, 62 of 1987, on the basis that both he and the Court were misled. As to this allegation I have no comment save to say that the possibility of any retrial seems remote.

8. The material properly before the Court on the motion is, in substance, limited to the matters of record and evidence to which reference has been made. It is necessary now to consider the principles relevant to the Court's discretion to order that security be provided.
The Statutory Framework

9. The relevant statutory provision is s.56 of the Federal Court Act 1974 which provides:

"56(1) The Court or a Judge may order a plaintiff
in a proceeding in the Court or an appellant in an
appeal to the Court to give security for the
payment of costs that may be awarded against him.
(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 a 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."

The Federal Court Rules also make provision for security for costs in O.28, which, in the relevant parts, provides:

"3(1) Where, in any proceeding, it appears to the
Court on the application of a respondent -
(a) that an applicant is ordinarily resident
outside Australia;
(b) that an applicant is suing, not for his own
benefit, but for the benefit of some other
person and there is reason to believe that the
applicant will be unable to pay the costs of
the respondent if ordered to do so;
.
.
.
the Court may order that applicant to give such
security as the Court thinks fit for the costs of
the respondent of and incidental to the
proceeding."
4. Where the Court orders an applicant to give
security costs, the security shall be given in such
manner, at such times, and in such terms (if any)
as the Court may by order direct.
5(1) Where the Court orders that the applicant
provide security for costs, it may order -
(a) that the proceeding on any claims by the
applicant for relief be stayed until security
is provided; or
(b) that if the applicant fails to comply with the
order to provide security within the time
limited in the order, the proceeding be
thereafter stayed or dismissed.
.
.
.
6. This order does not affect the provisions of
any Act of the Commonwealth or of a State or
Territory under which the Court may require
security for costs to be given."

Order 28 is made pursuant to the rulemaking power of the Court which is found in s.59. It is not however intended to be an exhaustive statement of the cases in which an order for security for costs can be made and does not limit the wide power conferred on the Court by s.56 - Bell Wholesale Co. Pty Ltd v Gates Export Corporation [1984] FCA 34; (1984) 52 ALR 176 at 178. It is best regarded as setting out circumstances which may justify, though not require, the making of an order - Barton v Minister for Foreign Affairs (1984) 54 ALR 586 at 591-592. That is not to say that the discretion under s.56 is to be exercised at large uninfluenced by O.28 which reflects the long standing practice of the Courts - High Tower Pty Ltd v Island Motel Pty Ltd (unrep. Fed Court of Australia, 12 April 1989; Von Doussa J.).
The Application of the Discretion to the Present Case

10. It is a well established principle that the poverty or insolvency of an applicant is not sufficient cause for an order for security for costs conditioning the right to conduct legal proceedings - Ross v Jacques [1841] EngR 530; (1841) 8 M & W 135, 136; Cowell v Taylor (1885) 31 Ch D 34; Le Mesurier v Ferguson (1903) 20 TLR 32 (CA); Re Emery (1923) P 184, 189; Sir Lindsay Parkinson & Co. Pty Ltd v Triplan Ltd (1973) QB 609, 612-613; Pearson v Naydler (1977) 1 WLR 899, 902; Barton v Minister for Foreign Affairs (supra) at p 592.

11. It was however a common law exception to that rule that "if an insolvent sues as nominal plaintiff for the benefit of somebody else he must give security" - Cowell v Taylor (supra) at 38 per Bowen LJ, discussed in Orr v Lusute Pty Ltd (1987) 72 ALR 617 at 620-621 (Sheppard J.). That rule is reflected in O.28 r.3(1)(b). In the present case the respondent contends that the applicants sue for the benefit of others in bringing the action in their capacity as trustees of the Pinwernying Family Trust.

12. The "benefit" to which the rule refers is not readily amenable to exhaustive definition. In particular it is not to be limited to a direct financial gain - Andrews v Caltex Oil (Australia) Ltd (1982) 40 ALR 305. This broad approach has an impact on both limbs of the rule which is directed to the case in which an applicant is not only suing for the benefit of another person, but also does not sue for his own benefit. Where a trustee of a trust is also one of its beneficiaries, as I take to be the case here although there was no direct evidence of the fact, it may be the case that he does not, by reason of his status as a beneficiary, sue for his own benefit when he sues as trustee. But when he sues as trustee in the discharge of his duty to the beneficiaries the concept of "benefit" is, in my opinion, arguably wide enough to envisage the fulfilment of that duty. On that basis and simply as a matter of construction the rule would not apply to such a case.

13. Keely J. in Riot Nominees Pty Ltd v Suzuki Australia Pty Ltd (1981) 34 ALR 653, referred to White v Butt (1909) 1 KB 50 at 54 where Buckley LJ said that he was startled by the contention that a trustee could be called a nominal plaintiff. A trustee was, in an action brought under the trust, the only possible plaintiff. In his Honour's view, O.28 r.3(1)(b) does not show an intention to depart from the common law position and was not intended to apply to a proceeding instituted by a trustee whose duty it is to carry out the terms of the trust.

14. Toohey J. expressed some reservation about that statement as a general proposition in Upton v TVW Enterprises Ltd [1984] FCA 385; (1984) 57 ALR 361 at 363. His Honour observed that the use of the words "not for his own benefit" and a comparison of them with the expression "nominal plaintiff" may, in a particular case, require a reconsideration of the English authorities. And in Riv-Oland Marble Company (Vic) Pty Ltd v Settef S.p.A. (unrep. Fed. Court of Australia; 2 May 1988; Jenkinson J.), Jenkinson J. noting that White v Butt (supra) was concerned with the question whether the trustee of a deed making provision for maintenance of a separated wife should be treated as nominal plaintiffs, questioned whether Buckley LJ would have had the trustee of a trading trust in mind when he made his observation. In his Honour's view, the decision in Riot Nominees (supra) should be regarded as having effect only in relation to O.28 r.3(1)(b) which does not operate to limit the power conferred by s.56. And it is clear that whether or not O.28 r.3(1)(b) is applicable to trustees suing in that capacity, the wide discretion conferred by s.56 may require a consideration of whether or not the true beneficiaries of the action are standing behind what may be an empty indemnity against non-existent or insufficient trust assets.

15. The beneficiaries of the trust in this case include Mr and Mrs Bride, who are recently discharged bankrupts and I am satisfied that they are of limited means. At all times they have conducted the proceedings in person and without the benefit of legal representation. Nor, as appears from their various attempts at pleading their cases, have they had the benefit of legal advice. Their status as trustees is, in my opinion, not a matter to which great weight should be accorded in the exercise of the Court's discretion.

16. The more important consideration is that they instituted one unsuccessful action and an appeal in this Court, the costs of which remain unpaid. Further expenses have been incurred in connection with the striking out of the original statement of claim in these proceedings. While the difficulties that they face in attempting to define their complaints without legal advice excite sympathy, that sympathy must be even-handed. The respondent's motion cannot be decided on the basis that the Brides are people who have been wronged and are seeking their just redress. That may be the case. It may also be the case that they are unjustly pursuing someone who is innocent of the fraud, negligence and conspiracy they allege against him causing him to incur expense and suffer inconvenience to no useful purpose. The true position will not be ascertained unless and until there has been a trial of the action. In the meantime, without making any judgment on the merits of their case, the Court must act as fairly as it can to both parties.

17. In my opinion, the litigation which has already been undertaken by the applicants in this Court and their refusal to pay costs orders already made as well as the interlocutory processes undertaken in these proceedings, indicate that the respondent may be exposed to greater legal costs than would be the case if the applicants had been able to properly formulate their claims at the outset. I have already held the amended statement of claim raises an arguable cause of action. But there is a process of refinement yet to be undertaken requiring the provision of further particulars and the possible excision of some irrelevant material from that pleading. The circumstances of the case, which are somewhat unusual, call in my opinion for an order that security be given to provide a partial indemnity in respect of interlocutory costs incurred so far and which may yet be incurred.

18. The amount of security will therefore be fixed at $4,000. I do not propose to impose any immediate stay but will allow the applicants eight (8) weeks in which to make the appropriate arrangements in which time the normal interlocutory processes can continue. If the security has not been provided by that time, the action will be stayed until it is provided or until further order. The costs of the motion will be reserved.