Jarraman Arts Aboriginal Corporation v Tourism Australia (No 2) [2005] FCA 30 (2 February 2005)

Federal Court of Australia Act 1976 (Cth)
Trade Practices Act 1974 (Cth)
Aboriginal Councils and Associations Act 1976 (Cth)

Jarraman Arts Aboriginal Corporation v Tourism Australia [2004] FCA 1536
Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1
Gartner v Ernst & Young (No 3) [2003] FCA 1437
Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497
Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40 – 972
Cultivaust Pty Ltd v Grain Pool Pty Ltd [2004] FCA 1568
The Airtourer Co-operative Ltd v Millicer Aircraft Industries Pty Ltd [2004] FCA 1400
Melville v Craig Nowlan and Associates Pty Ltd (2002) 54 NSWLR 82; [2002] NSWCA 32
Bank of South Australia Ltd v Ferguson [1998] HCA 12; (1998) 192 CLR 248

JARRAMAN ARTS ABORIGINAL CORPORATION & SHIRLEY ANNE COLLINS v TOURISM AUSTRALIA (AS SUCCESSOR IN TITLE TO THE AUSTRALIAN TOURIST COMMISSION) & ABORIGINAL AND TORRES STRAIT ISLANDER COMMISSION & DELOITTE TOUCHE TOHMATSU & AUSLINK PTY LTD

NTD 11 of 2004

MANSFIELD J
2 FEBRUARY 2005
DARWIN

IN THE FEDERAL COURT OF AUSTRALIA
NORTHERN TERRITORY DISTRICT REGISTRY	NTD 11 OF 2004

BETWEEN:	JARRAMAN ARTS ABORIGINAL CORPORATION FIRST APPLICANT SHIRLEY ANNE COLLINS SECOND APPLICANT
AND:	TOURISM AUSTRALIA (AS SUCCESSOR IN TITLE TO THE AUSTRALIAN TOURIST COMMISSION) FIRST RESPONDENT ABORIGINAL AND TORRES STRAIT ISLANDER COMMISSION SECOND RESPONDENT DELOITTE TOUCHE TOHMATSU THIRD RESPONDENT AUSLINK PTY LTD FOURTH RESPONDENT

1 On 29 November 2004 I gave judgment in this matter on the application of the second respondent to strike out the statement of claim: Jarraman Arts Aboriginal Corporation v Tourism Australia [2004] FCA 1536 (the pleading judgment). Orders were made striking out the statement of claim, and giving the applicants leave to file and serve an amended statement of claim by 23 December 2004. In that judgment I gave a general description of the nature of the applicants’ claims. I will not repeat it.

2 Each of the first and second respondents by notice of motion of 11 October 2004 seeks an order for security for costs. The first respondent’s claim is against both applicants for $100,000 for security for costs. It estimates its recoverable party and party costs to date at about $30,000 and its party and party costs of preparing and conducting the hearing (allowing for a seven day hearing) at about $75,000. The second respondent seeks security for costs against the first applicant only of $60,000. It assesses its recoverable costs to date at about $20,000 and its party and party costs to hearing at about $61,500 and of the hearing (allowing for a ten day hearing) at about $35,000. The applicants did not contend that those estimates were unrealistic, although they thought the hearing would be unlikely to take more than seven days.

4 Section 1335(1) of the Corporations Act requires that there is a reason to believe by credible testimony that the first applicant would be unable to pay the costs of the respondents if they successfully resist its claim before an order for security for costs can be made under that provision. The applicants acknowledged through counsel that neither of the applicants could meet the costs of the respondents if the respondents successfully resist the claim. In addition there is clear evidence that the first applicant would be unable to do so. At 30 June 2000, the first applicant’s liabilities exceeded its assets by $168,093 and it was insolvent. Its solicitors acknowledge in open correspondence that its financial position has not improved since that time. It has not filed any financial statements or other reports with the Registrar of Aboriginal Corporations as required by s 59 of the ACA Act. Consequently, I am satisfied that the jurisdictional fact necessary for the exercise of the discretion under s 1335(1) of the Corporations Act exists. There is no prerequisite jurisdictional fact applicable under s 56(1) of the FCA Act.

5 The Court has a broad discretion to order security for costs, provided that the discretion is exercised judicially. Each case must depend upon its own circumstances: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4. The discretion is to be exercised without any particular predisposition: Gartner v Ernst & Young (No 3) [2003] FCA 1437 (Gartner) at [6] ff, and Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 511.

6 The factors which have generally been considered as relevant to the exercise of the discretion have been discussed, for example, in Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40–972 at 50, 635; Cultivaust Pty Ltd v Grain Pool Pty Ltd [2004] FCA 1568; and Gartner at [10]. The discretion is broad and unfettered, even as against natural persons. The common law rule that security for costs will not be ordered against an applicant who is a natural person on the ground of that person’s impecuniosity does not fetter the Court’s discretion in the particular circumstances of any one case. However, it is noteworthy that in The Airtourer Co-operative Ltd v Millicer Aircraft Industries Pty Ltd [2004] FCA 1400 (Airtourer), Branson J concluded at [22] that, by reason of both authority and principle, s 56(1) of the FCA 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. Her Honour at [17] – [21] discussed the applicable principles and authorities. She recognised the fundamental right of a citizen, including an impecunious citizen, to have access to the courts. As her Honour said, that principle is recognised, for instance, by Heydon JA in Melville v Craig Nowlan and Associates Pty Ltd (2002) 54 NSWLR 82; [2002] NSWCA 32 at 102-106, [82] – [94]. Her Honour then continued in Airtourer at [21]:

7 In this matter there was no real issue between the parties as to the factors to which the Court should have regard in determining whether to exercise the discretion under the provisions identified to make an order for security for costs. I shall deal with those matters in sequence.

8 The application by each of the then respondents is a timely one. The proceeding was instituted only on 30 June 2004. The then respondents each sought further and better particulars of the claim, and each filed defences. They then promptly issued their respective notices of motion. As the statement of claim has been struck out, the pleadings have not yet been completed through no fault of the respondents.

9 As discussed in Gartner, it is often difficult at the point of determining an application for security for costs to assess with any confidence the prospects of the applicants succeeding in the claim. The second respondent through counsel submitted that the applicants’ prospects are ‘tenuous at best’. The original statement of claim gave no real guidance to the prospects of success. I found it was defective. I struck it out by order of 29 November 2004, and gave leave to the applicants to file an amended statement of claim by 23 December 2004. On 17 December 2004, the applicants were given leave to add two further respondents (the third and fourth respondents) and to file an amended application by 24 January 2005. The time to file the amended statement of claim was extended also to 24 January 2005. In the event, the amended application and amended statement of claim were filed on 28 January 2005.

10 The amended application joins Deloitte Touche Tohmatsu and Auslink Pty Ltd as the third and fourth respondents respectively. It abandons any claim for damages based upon unconscionable conduct for an alleged contravention of s 51AC of the Trade Practices Act 1974 (Cth) (the TP Act). The claim against each respondent is confined to damages for contraventions of ss 52 and 59 of the TP Act. It asserts each of the second, third and fourth respondents is liable as a principal contravener, and alternatively as a person who aided and abetted certain contraventions. The relief claimed includes orders relieving the applicants from their respective liability for the loan of 30 August 1999 of $160,000 made by the second respondent. It also seeks relief by having declared void or voidable the Deed of 6 February 2004, by reason of the contravention of ss 52 and 59 of the TP Act by the second, third and fourth respondents. The pleading of contraventions of the TP Act in relation to the Deed is clearly inadequate, but its inadequacy is not directly relevant to the present issues. Finally, it adds the further claim for a pecuniary penalty under s 76 of the TP Act for the contraventions. I note that the claim for a pecuniary penalty is not maintainable by the applicants under s 77 of the TP Act.

11 The amended statement of claim in general terms makes claims upon much the same basis as the statement of claim which has been struck out. They are described in [5] – [7], [9], [10] and [12] – [20] of the pleading judgment. The allegations now of course include allegations against the third and fourth respondents for their role in the provision of what the pleading judgment calls the project plan and the finance report.

12 It is now alleged that the first respondent represented to the applicants that the tour would provide the first applicant with a commercial component that would provide for a permanent cultural art exhibit and a secondary commercial exhibit, and would vastly expose the first respondent to a very big opportunity for sales of some $US 1 million by promotion during the tour. Apparently adequate particulars of the representations allegedly made by the first respondent have now been given in pars 18A and 18B of the amended statement of claim.

13 It is pleaded that those representations were not fulfilled between 23 September 1999 and 4 October 1999 when the applicants participated in the tour, and so they withdrew from the tour to mitigate their losses. The applicants also rely upon s 51A of the TP Act.

14 I find it difficult to form any real view as to the strength of the applicants’ case against the first respondent. The amended statement of claim asserts a factual foundation for the first applicant undertaking the tour in the expectation that it would have the opportunity to sell Aboriginal artworks at a significant number of locations in the United States during the tour. It apparently borrowed $160,000 from the second respondent to finance its participation in the tour. It pulled out of the tour shortly after the tour had commenced. The amended statement of claim also asserts a factual foundation which arguably led to the first applicant pulling out of the tour by reason of misleading and deceptive conduct on the part of the first respondent, although of course that is ultimately an issue of fact. I do not feel able to assess the prospects of the applicants establishing the necessary facts with any confidence, but the amended statement of claim does not suggest a case with little or no prospects of success.

15 The first applicant also alleges that it withdrew from the tour due to the misleading and deceptive conduct of the second respondent (as well as the third and fourth respondents). More specific allegations, based upon the contents of the project plan and the finance report, are made, namely that the project plan represented that the first applicant ‘could make a net profit of $336,789’ by participation in the tour, and that each of the project plan and the finance report represented that participation in the tour appeared ‘viable’ or ‘would be an economically viable venture’.’

16 The amended statement of claim then alleges that the second respondent as principal made those representations in the project plan and the finance report, and that the second respondent approved a loan of $160,000 to the first applicant, secured in part by the second applicant, based on those two documents. The project plan is said to have been given ‘to all parties’ but there is no allegation that the finance report was given to the applicants before September 1999. That may simply be an oversight, because it is pleaded that the second, third and fourth respondents knew that the applicants would rely upon it.

17 The important point to note is how the alleged representations in the project plan and in the finance report are said to have been misleading and to have caused the applicants to withdraw from the tour. It is pleaded that:

It is elsewhere pleaded that the second respondent made its alleged representations ‘with reckless disregard as to the falsehood or truth’ of the representations allegedly made by the first respondent.

18 The amended statement of claim, therefore, indicates the claim against the second respondent is based upon its alleged conduct which is misleading by reason of the alleged misleading conduct of the first respondent. It is also premised upon the second respondent somehow having the obligation to know of, and verify the accuracy of or, more specifically, ascertain the inaccuracy of the representations alleged to have been made by the first respondent. I do not know whether that case can be made out.

19 Clearly the claim against the second respondent will be more difficult to prove than the claim against the first respondent. It is more complex, and the obstacles to success more numerous. I note also that the impetus for the claim against the second respondent (as alleged by the second respondent) was the statutory notice for payment of debt served upon the first applicant by the second respondent on about 28 June 2004. Finally, I observe that much of the $160,000 advanced by the second respondent to the first applicant has apparently not been repaid. I was told some $30,000 had been repaid by the first respondent. The balance, or much of the balance, was presumably applied to the expenses incurred by the first applicant to participate in the tour (at least for the brief period that the first applicant was doing so), and for the acquisition of works of art for sale during the tour. Ultimately, that sum may have to be accounted for: see Bank of South Australia Ltd v Ferguson [1998] HCA 12; (1998) 192 CLR 248, although the applicants dispute that. My tentative view is that the applicants’ prospects of success against the second respondent are not strong, but I am unable to go beyond any provisional view on the matter, as it will ultimately depend upon the whole of the evidence. I take that assessment into account in addressing the claim of the second respondent for security for costs.

20 All parties referred to the issue as to whether the conduct of the respondents has caused the applicants’ impecuniosity. The inquiry into that issue does not necessarily involve any assessment of the merits of the applicants’ case. The contentions focused upon the cause of the impecuniosity of the first applicant, and not upon whether that cause was due to delictual conduct by the respondents.

21 The simple picture which the material shows is that the first applicant was impecunious before its participation in the tour, and its borrowing of $160,000 from the second respondent to do so.

22 The first applicant, upon its incorporation, was granted an advance by the second respondent to acquire 30% of Jamara Pty Ltd (Jamara). The second applicant holds the other 70% of Jamara. Jamara is a trading entity, operating under the name Raintree Aboriginal Art Gallery. Jamara, according to an unaudited balance sheet at 30 June 1994, has total assets of $177,598 (including goodwill of $50,000) and total liabilities of $292,025. Its balance sheet shows only $9754 owed to it on the loan account with the first respondent. Its trade creditors and its overdraft exceed its total assets. Reflective of that position, the rough balance sheet of the first applicant shows the current and fixed assets as nil; that is its interest in Jamara has no value. Consequently, although the first applicant may have anticipated significant profits from the tour, its present financial inability to meet any liability for the costs of the proceedings pre-existed the conduct of the respondents of which it complains.

23 Of course, its financial position has apparently worsened because it has borrowed a further $160,000 from the second respondent which remains largely unpaid. Unless these proceedings are successful, the second respondent appears unlikely to recover its indebtedness except through its security from the second applicant. The second applicant, on the evidence, has now no relevant assets except for a deposit of $148,000 plus interest. That sum is held to secure (at least in part) the indebtedness of the second respondent in the event the present claim is unsuccessful. The only other possible asset of the first applicant which merits consideration is the ‘inventory’ of $174,468 at 30 June 2000 or the ‘stock at cost’ at 14 March 2000. The material suggests that some $39,000 worth of that inventory was identified by the accountants for the second respondent as being held for four creditors on consignment, and so accountable to them. The balance, it is suggested by the applicants, was taken by the second respondent under the bill of sale granted by the first applicant and sold or returned to the suppliers. There is no accounting for the receipts, nor any claim by the first applicant for such an accounting. There is no claim for conversion of its assets (if that is what is said to have happened) except obliquely by the first applicant against the second respondent. Such claims (if pursued) would probably also be part of the overall matter now before the Court. It may be that, ultimately, the first applicant accepts the propriety of what has occurred. There may be other facts of which the parties are aware, and which have not been brought to my attention.

24 However, on the present state of the information before me, I do not consider that the applicants’ impecuniosity is shown to have been caused by the conduct of the respondents or of either of them. Their impecuniosity preceded any dealings relating to the tour. The applicants have apparently chosen to make no complaint in these proceedings about the disposition of the inventory the first applicant held when it withdrew from the tour except that the second respondent did not mitigate its losses. The applicants may have been better off if the respondents had not engaged in the alleged delictual conduct, and they still may be if this action succeeds. But that does not take the applicants to the point of showing that the respondents are responsible, in whole or to any significant extent, for the applicants’ present financial position.

25 The respondents also submitted that those who are standing behind the first respondent appear to be funding its conduct of the proceedings, and that those funding the first applicant should also be required to put forward funds to protect the respondents from exposure to costs if the claims against them do not succeed: see e.g. Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405 at 410 – 412.

26 There was a sound foundation for the contention. The solicitor for the applicant indicated that they have incurred some $170,000 in legal and accounting fees to date in relation to this action and related proceedings. There are proceedings to set aside the statutory notice of demand, and proceedings to recover the debt claimed by the second respondent. The source of those funds, if paid, was not explained in the solicitor’s affidavit. A very general statement of assets and liabilities of the first respondent as at 15 October 2004, prepared by its accountant, showed a ‘current contingent liability reimbursable to Jamara for costs of Federal Court proceedings to date’ of $175,000 and for ‘costs to proceed to court’ of $84,000. The accountant also deposed that the ‘applicants’ cost exposure in this litigation and the associated litigations have (sic) been met by Jamara Pty Ltd by way of a loan to the First Applicant’. There was a further ‘amount owed’ to Jamara of $64,000 also disclosed. Those three amounts were deducted from the sum of $400,000 ‘believed realizable’ from this action, to leave a net anticipated equity of $84,000. I permitted evidence to be given to explain that material. It seemed to me better to form a judgment on the applications for security for costs on clear facts rather than on facts which might be inferred from a possibly ambiguous expression in an affidavit or in a financial statement.

27 The accountant gave evidence. He explained that Jamara had advanced as a loan some $60,000 (apparently $64,000) to the first applicant between 1999 and 2003 for various costs incurred by the first applicant. The sum of $175,000 represents the legal and accounting fees outstanding, principally to the applicants’ present solicitors and counsel and accountants. Those amounts have not been paid, but the accountant has by book entry charged them through the loan account of the first applicant with Jamara. That was reflective, he said, of Jamara being a trading entity whereas the first applicant does not trade. In fact, he said, only about $8000 of the monies actually advanced by Jamara has been paid to the applicants’ present legal and accounting representatives. On this application, I accept that evidence. Consequently, I do not find that Jamara is a real source of ongoing funding of the proceedings.

28 It is also clear that the members of the first applicant do not stand to benefit directly if it is successful in the present proceedings. Clause 19 of the Constitution of the first applicant makes it clear that its members may not derive any payments from its resources, including any dividends or bonuses, except in payment in good faith for services rendered. That provision responds to the requirement in s 44 of the ACA Act. Section 48 protects its members from personal liability towards its debts. I do not consider that it is therefore relevant to inquire into the assets of its members, in particular those on its governing committee, to determine whether those persons should be expected financially to support the ongoing conduct of this proceeding. They are not persons who stand to gain directly from its outcome.

29 I do not therefore propose to weigh in the scales in any significant way the claims that the applicants’ impecuniosity was caused by the respondents’ conduct or, on the other hand, the claim that there are those who stand behind the first applicant who stand to gain from the proceedings if successful, and who can and should be required to support the applicant by providing security for costs.

30 The material satisfies me that any order for costs will stultify the proceedings. Whilst there is a prospect of the applicants’ present legal and accounting advisers being prepared to continue to conduct the matter, I accept they will do so in the anticipation that the proceedings will be successful and without assurance that their costs will be met if the claims fail. I am satisfied that neither applicant has the resources to contribute to any order for security for costs, or indeed to contribute further towards the costs of their legal and accounting advisers. There is no person or entity who stands behind the applicants, and who could reasonably be expected to support them further in the conduct of the proceedings. Jamara as the potential funder of the proceedings, and other proceedings, to date does not apparently have any significant resources behind it, and in any event is already owed a large amount by the first applicant and is already indebted in a large amount to both the second applicant and the second respondent (according to its balance sheet).

31 I also take into account that the second applicant’s claims arise largely from her having guaranteed the indebtedness of the first applicant to the second respondent. She has been called upon to meet that guarantee, and to the apparent extent of her resources has done so. If the proceedings do not go ahead, she will be deprived of the security without any adjudication on the quality of the conduct of the respondents. She will be deprived of the opportunity to pursue the claim, in essence, merely because of her impecuniosity. On balance, and notwithstanding the cautious view about the prospects of success, I have reached the view that, in the circumstances, there should be no order for security for costs against her. The application of the first respondent for an order for security for costs against the second applicant is refused. The second respondent does not seek an order for security for costs against the second applicant.

32 The respondents each pointed out that the position of the first applicant is different from that of the second applicant. That is, strictly speaking, correct. However, the consequence of the decision I have made concerning the second applicant is that she will be free to pursue the claim. Her claim is more confined than that of the first applicant, but only as to the nature of the loss. She will still have to prove the elements of each of the causes of action alleged. The respondents will each have to respond to the evidence she addresses, to the extent they are advised and choose to do so. The Court will have to adjudicate upon these matters. If the second applicant succeeds against one or other or both respondents, she will be entitled to recover the damages she has personally suffered. She may be protected from the debt liability of the first applicant to the second respondent to the extent to which it arises from the advance of $160,000 for the first applicant’s participation in the tour. She will be relieved from liability under the guarantee she provided in support of that advance.

33 It is difficult to see that, if the second applicant succeeds in her claim against the first respondent, the findings then made would not – if the first applicant were still a party – lead also to judgment in favour of the first applicant. At present, to the point of assessing the respective damages of the first applicant and the second applicant, I think the evidence on all issues as against the first respondent would be much the same and the trial be of the same length. The quantification of the claim for damages of the first applicant would extend the evidence to some degree, but I do not think it would greatly do so. In the light of those considerations, I propose also to refuse the application for security for costs of the first applicant. The interests of justice, on balance, indicate in my view that its claims should be allowed to proceed. It would be most unsatisfactory to have made an order for security for costs which (as I have concluded would be the case) would prevent it from pursuing its claims, but then for there to be findings on the claims of the second applicant which would be likely clearly to indicate whether the first applicant’s claims would also have succeeded. The prospect of the first applicant, after the second applicant had succeeded in her claims (if she did) then being supported by the second applicant to pursue its claims in a further separate hearing of the same issues would be most unsatisfactory. If it emerged that the quantification of the first applicant’s claim was to extend the hearing to any real degree, or to increase the pre-trial costs of the first respondent to any real degree, an order could be made that the matter proceed on the issue of liability only. That is a matter which the first respondent may raise at a later directions hearing.

34 The costs of the notice of motion of the first respondent for security for costs should be costs in the cause.

35 However, I do not think the positions of the first respondent and of the second respondent are the same. I have assessed the prospects of success of the applicants against the second respondent as not strong. The amended statement of claim makes it clear that, primarily, it was the alleged conduct of the first respondent which led the applicants to withdraw from the tour. They would have been unable to participate in the tour without funding from the second applicant. But, as pleaded, the reason for the withdrawal from the tour was in essence the consequence of the first respondent not having had reasonable grounds for having made its alleged representations, and those representations not being fulfilled. The second respondent’s alleged assessment of the economic viability of the tour to the first applicant is attacked only because the second respondent was somehow required to attempt to establish the accuracy of the first respondents alleged representations. Moreover, the addition of the third and fourth respondents will lead to increased evidence, and a longer trial, than would otherwise be the case on the issues which are common to the claims against them.

36 Despite the considerations discussed in [32] – [33] above, I have come to the view on balance that an order for security for costs should be made against the first applicant in favour of the second respondent. I propose to order that the first applicant pay to the second respondent security for its costs of the proceedings in the sum of $30,000. I have selected that figure, being half of the secured costs sought, to give the second respondent some protection for its costs but also taking into account that the second applicant may nevertheless pursue her claim against the second respondent. I have made no real allowance for the alleged failure of the second respondent to have mitigated its loss (as pleaded in par 50 of the amended statement of claim) as the allegations are unparticularised. The applicants should from their own records at least be able to identify which works of art they or either of them held or owned and which were allegedly taken improperly by the second respondent, and their value.

37 I will hear the parties as to the terms of the orders which should be made, including the timing of the payment for security for costs, the consequences of the failure to pay the sum ordered to be paid, the costs of the motions, and the future course of the action.

I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

Counsel for the Applicants:	A Wrenn with M Conroy

Solicitor for the Applicants:	Conroy & Associates

Counsel for the First Respondent:	S Dawson with J Docherty

Solicitor for the First Respondent:	Minter Ellison

Counsel for the Second Respondent:	M Brady

Solicitor for the Second Respondent:	Australian Government Solicitors

Date of Hearing:	19 October 2004

Date of Last Written Submissions:	28 January 2005

Date of Judgment:	2 February 2005

JUDGE:	MANSFIELD J
DATE:	2 FEBRUARY 2005
PLACE:	ADELAIDE