Judge slugs plaintiff with extra security for costs in Colonial class action

Federal Court finds that on applications for security, the merits of a particular case should be treated as a neutral factor. In this particular case, using an overseas funder means that the provision of further security should not impede the proceedings.

This is a class action on behalf of beneficiaries of three superannuation funds against the trustees of those funds (and a related company), alleging that the trustees failed to negotiate the best available interest rates and terms for investments of many billions of dollars in cash and term deposits. It is alleged that they invested the funds with the second respondent (their parent company, Commonwealth Bank of Australia (CBA)) at interest rates lower than those available in the market for equivalent investments, and that the investments were made for the purpose of making profits for the trustees and CBA, through the sharing of the margin made by CBA on those investments.

At an early stage of the proceeding the Court ordered, by consent, that the applicants provide security for costs in the amount of $1.96 million. In this judgment, Beach J dealt with an application by the respondents, which was opposed by the applicants, for further security for costs to be provided in the amount of approximately $2.3 million. The applicants’ opposition was, in essence, based upon:

  • the applicants’ asserted strong prospects of success on their claims, and the consequent unlikelihood of the applicants ultimately being ordered to pay the respondents’ costs;
  • the nature of the proceeding, which involves claims made by beneficiaries against their trustees, in relation in essence to wages held on trust pursuant to the relevant statutory superannuation regime; and
  • the present undertaking given to the Court by the applicants’ funder to pay any adverse costs order which might be made against the applicants, it not being in doubt that the applicants personally could not meet any such order.

His Honour (at [11]ff) undertook an extensive analysis of the applicants’ claims by reference to both the pleadings and discovered documents, but ultimately concluded:

[77] In my view, the applicants’ submissions invite me to embark on a superficial assessment as to the merits, contrary to authority. And this is all done based only on the pleadings and a selective subset of the discovered documents.

[78] But in my view it is inappropriate for me to embark upon such an assessment of the merits in the present context and on the present material. In general, on applications for security for costs the merits should be treated as a neutral factor. I am not persuaded that that general position should not apply. I would decline the invitation extended to me by [counsel] for the applicants.

That view was particularly so in circumstances where discovery between the parties was still ongoing, and none of the parties had filed any of their evidence.

His Honour (at [95]ff) then considered the characteristics of the class members and the nature of their claims, and distinguished the decision of the Full Court in Augusta Ventures Ltd v Mt Arthur Coal Pty Ltd (2020) 384 ALR 340; [2020] FCAFC 194 (which had turned on s 570 of the Fair Work Act 2009 (Cth), and which has no relevance in this case).

His Honour also noted several other matters, including the fact that the applicants’ funder is based overseas, and that there was no suggestion that an order for the provision of further security for costs would stultify the proceeding. As such, his Honour considered that it was appropriate to order the applicants to provide further security for costs.

Finally, his Honour rejected (at [114]-[129]) the applicants’ arguments concerning the appropriate quantum of security, and therefore ordered that further security be provided in the amount sought by the respondents.

Case details

Kayler-Thomson v Colonial First State Investments Ltd [2020] FCA 1867

Federal Court of Australia, Beach J, 23 December 2020;
Applicant’s Solicitors: Slater & Gordon;
Respondent’s Solicitors: Herbert Smith Freehills;
Applicant’s Funder: Augusta Ventures LTD;
Austlii link: Accessible here.

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