Decision Date: April 20, 2012
Link: Case Summary Document
Citation: [2012] TASSC 18 (Supreme Court of Tasmania, Holt AsJ)

Summary:

This was an action by the defendant (Gunns) requiring the plaintiff (the Trust) to give security for its costs. The main action, concerning a pulp mill to be built by the defendant, was to be stayed until security for costs was given. The defendant had been issued with a permit on 30 August 2007, to build a pulp mill in Tasmania. Various pieces of special legislation enabled this permit, with the permit expiring after four years from the date of issue (i.e. 30 August 2011).

The Trust, an association incorporated under the Associations Incorporation Act 1964 (Tas) (the Act), was established in 1975 with objects relating to environmental protection. It alleged that the pulp mill project had not been substantially commenced by 30 August 2011, and that the dam works specified in the permit were not substantially completed by the due date. Thus, its contention was that the permit granted on 30 August 2007 had expired.

The Supreme Court has an inherent power to provide for security for costs, and Rule 828(1)(b) of the Supreme Court Rules 2000 (Tas) (the Rules) allows this power to extend to ‘corporations’. The first question was whether the plaintiff association was a corporation for the purposes of Rule 828(1)(b).

‘Corporation’ is defined in the Rules as having the same meaning as in the Corporations Act 2001 (Cth). There was no dispute that the Trust was a corporation within the meaning ascribed to that word in the Corporations Act. However, the Trust contended that the definition in the Corporations Act did not apply to it by virtue of section 3 of the Act. Section 3 of the Act provides that an incorporated association is declared to be an excluded matter for the purposes of section 5F of the Corporations Act.

However, His Honour said that this exclusion had no impact on the meaning of the word ‘corporation’ because the Rules embraced the relevant meaning, regardless of whether the Corporations Act in other respects applied to incorporated associations. It followed that the inherent power to make an order for security for costs against an incorporated association had not been excluded.

His Honour also rejected the Trust’s contention that, as the defendant was not impecunious, there should be no order for security of costs. In this respect, His Honour said (at [12]):

It is clear…[that] the word ‘impecuniosity’, [is used] not in the sense of a person having little or no money, but to describe a corporation which will be unable to pay the defendant’s costs. To require as a pre-condition to the making of an order that a plaintiff has little or no money would be to impose an impermissible fetter on the inherent jurisdiction to do what is required by the justice of the matter.

The parties differed as to the probable cost of the trial. The defendant’s solicitors estimated taxed costs at between $300,000 and $400,000. Naturally, the Trust took a very different position. His Honour concluded (at [29]):

Although I cannot estimate the defendant’s likely party and party costs, I am persuaded that there is reason to believe that those costs will be in the order of $300,000 to $400,000. The case involves potentially highly complex factual and legal issues. At stake is whether or not a $2.3 billion project can proceed. The defendant has engaged senior counsel at a rate of $12,000 per day. The defendant contemplates calling many witnesses to present highly detailed evidence. This is sufficient to justify the existence of such a belief.

The Trust’s assets (about $43,000 as at 29 February 2012) and income are modest (it had a net loss of between $3000 and $4000 in the 2011 financial year, likely to increase in the 2012 financial year). It had engaged a special team of lawyers to conduct the main litigation at a cost capped at $15,000, and had pledges towards the litigation costs from donors of $107,000. It also had a donor fund of $75,800 which had been given some time ago and never used. His Honour’s calculations were that the most that would be available for payment of the defendant’s costs (perhaps $226,000) in the case would be far short of the estimated taxed costs referred to above.

His Honour took the view that the Trust’s case was not lacking merit or weak, but it was possible that there might be a costs order against it. The decision to make an order for security for costs was a balancing exercise. Some of the matters to be taken into account included:

·         Success in the litigation would not result in a financial benefit to the plaintiff or others.

·         The plaintiff was not litigating on behalf of others, but had brought the proceedings pursuant to the specific objects contained in its constitution.

·         The case was being pursued in furtherance of the public interest in having a binding determination made as to whether authority for the project in the form of the Pulp Mill Permit still existed.

·         The overall cost of the project was in the order of $2.3 billion. It had expended about $239,000,000 so far on the project. The defendant estimated its party and party costs to be between $300,000 and $400,000. Even assuming that the defendant was left with a shortfall of about $300,000 in respect of its party and party costs, this was a tiny proportion of the overall cost of the project. Proportionality was relevant.

His Honour said (at [46]–[50]):

Whether or not the power to provide for security for costs ought [to] be exercised depends upon the justice of the matter. There are no rigid rules or practices to be followed. I have found that there is reason to believe that the plaintiff will be unable to pay the defendant’s costs. The existence of this feature does not result in a predisposition to order security for costs…It is nonetheless a factor to be taken into account in considering whether an order ought [to] be made. Factors weighing against an order that the plaintiff provide security for the defendant’s costs include my findings that the plaintiff’s case has not been shown as lacking merit or weak; the plaintiff is pursuing the case in the public interest and not for financial benefit for itself or others; the plaintiff has made financial arrangements in respect of the defendant’s costs…and finally, the defendant’s costs represent only a tiny portion of the $2.3billion estimated cost of the project.

His Honour concluded that, using a balancing exercise, the justice of the case did not require that security for costs be provided by the Trust. Therefore, the defendant’s application for an order for security for costs was dismissed.

The case may be viewed at: http://www.austlii.edu.au/au/cases/tas/TASSC/2012/18.html

Implications of this case

Costs are a major issue in litigation pursued by incorporated associations and other nonprofits, even in ‘public interest’ litigation. While costs are at the discretion of the court, in most cases, costs follow the event, meaning that the party who wins also has their costs paid by the losing party. In this case, the size of the parties’ resources was very dissimilar. On the facts presented, if there was a costs order against the Trust after the main litigation concluded, all its resources (and more) would be drained, even though it had taken steps to restrict its own costs. However, this was a matter His Honour was prepared to leave to the trial process.