CATCHWORDS PRACTICE AND PROCEDURE - Security for costs - applicant in the substantive proceedings a corporate trustee - whether terms of sub-s. 533(1) of the Companies (Queensland) Code are applicable in respect of proceedings in the Federal Court - whether 0.28 r.3(1)(b) of the Federal Court Rules applicable - considerations relevant to the Court's discretion. Federal Court Rules, 0.28, r.3 Judiciary Act, 3.29 Companies (Queensland) Code, s.533(1) BELL WHOLESALE COMPANY PTY LTD v. GATES EXPORT CORPORATION AND ORS QLD G73 OF 1983 FITZGERALD J. BRISBANE 11 NOVEMBER 1983 IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) QLD G73 of 1983 GENERAL DIVISION ) BETWEEN : BELL WHOLESALE COMPANY PTY LTD Applicant AND: GATES EXPORT CORPORATION First Respondent AND: TRIDON PTY LTD Second Respondent AND: R.P. WALLIS WHOLESALE PTY LTD Third Respondent AND: ANGUS HILL HOLDINGS LTD Fourth Respondent ORDER JUDGE MAKING ORDER: FITZGERALD J. DATE OF ORDER: 11 NOVEMBER 1983 WHERE MADE: BRISBANE THE COURT ORDERS THAT: l. The applicant give security in the amount of $10,000 for the first respondent costs of and incidental to these proceedings including the costs of the present application ina form to be agreed and failing agreement to be determined by the Court. Ps t ' a soar ame ' Cre ryht Ms Mattias yee wt "ap : Pi on , ' | The applicant pay the first respondent's costs of and incidental to the application for security for costs. The first respondent's motion for security for costs is otherwise adjourned generally to be restored at any time on reasonable notice. Ws IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) QLD G73 of 1983 GENERAL DIVISION ) BETWEEN : BELL WHOLESALE COMPANY PTY LID Applicant AND: GATES EXPORT CORPORATION First Respondent AND: TRIDON PTY LID Second Respondent AND: R.P. WALLIS WHOLESALE Pry LTD Third Respondent AND: ANGUS HILL HOLDINGS LTD Fourth Respondent FITZGERALD J. 11 NOVEMBER 1983 EXTEMPORE REASONS FOR JUDGMENT The applicant claims in these proceedings against all respondents for damages for contravention of s.45 or in the alternative s.47 of the Trade Practices Act 1974 ("the Act"), against the first, second and fourth respondents for iS) . contravention of s.52 of the Act, against the first respondent for contravention of s.49 of the Act, and against the second respondent for passing-off. Injunctions are sought against the first, third and fourth respondents to restrain the contravention of s.45 or in the alternative s.47 of the Act, against the first and fourth respondents to restrain the contravention of 3.46 of the Act, and against the first respondent to restrain the contravention of s.49 of the Act. The proceedings relate to the distribution, supply and sale in Australia of automotive spare parts which are manufactured in the United States of America by a company which is related to the first respondent, which is itself incorporated and based in the United States. The application was filed on 12 September 1983 and the directions hearing presently stands adjourned to 7 December 1983 by which time the applicant is to file and serve an amended and particularized Statement of Claim. Bach of the respondents has made an application for security for costs. It is agreed that I should first rule upon the first respondent's application for security, and the applications for security by the other respondents have been accordingly adjourned to a date to be fixed. The first respondent's application at this point 1s that the Court should make an order for security for costs down to and including delivery of its defence and list of documents. The amount sought to that point is $15,000.00 including $2,000.00 for costs in relation to the present application. 3. The applicant's issued capital 1s two shares of $1.00 each and its assets consist only of $2.00 cash. It is the trustee of a family trust for Mr Jorgen Kempel, his wife and children. Presumably, although that is not clearly established, the trust is a discretionary trust. A copy of the trust deed was not provided. The applicant previously traded in its capacity as trustee of the trust but it no longer trades. One of the liabilities from the previous trading is a substantial judgment debt in favour of the first respondent, execution in respect of which has been stayed pending the outcome of these proceedings. The business is now carried on by another company which seems to be owned and controlled by the Kempel family which has taken advantage of the name "Bell" and which may itself be a trustee, under a similar trust. No real attempt was made to establish that a judgment for costs in favour of the first respondent could be enforced or would be voluntarily satisfied. The applicant asserts that it has a good cause of action and that the financial circumstances which I have described have been occasioned by the unlawful conduct of the respondents ineluding the first respondent. The first respondent disputes those contentions. There is no basis for even informed speculation about the likely outcome of the proceedings or the cause of the applicant's financial straits, I am not persuaded that there is a probability that the claim will succeed. mG simply do not know what the outcome is likely to be. Assuming that the applicant's claim is genuine, and not as the first respondent asserts in order to delay the enforcement of the judgment debt which it has obtained against the applicant, I do not consider that the litigation will be unable to or will not be financed if an order for security for costs is made. There is evidence that the company now trading is trading well but has insufficient liquid assets to provide security. However, there is no apparent reason why the beneficiaries under the trust, i.e. in general terms the Kempel family, could not finance the litigation if necessary. The applicant is a fiction behind which the beneficiaries under the trust are entitled to shelter in certain circumstances for certain purposes of the law. Those who deal with the corporate trustee voluntarily are obliged to accept the consequences which the law attaches to corporate personality and representative capacity. However, it of course does not follow that such disadvantage ought to be permitted to be imposed as a matter of course against the will of another party in proceedings in the court. It is true that the applicant's claim is not derivative from the beneficiaries but arose in its own right. However, that is not an end to the matter. The proceedings are really for the benefit of the beneficiaries under the trust of which the applicant is trustee. The trustee is insolvent in the sense that I have already indicated and there is nothing to indicate that the beneficiaries cannot or ought not be required to stand behind their claim and bear the ordinary risks of those who seek to take advantage of the court's processes. I hope that it 1s not unduly cynical to suspect that it is not the applicant in its own right or as trustee but some other person or entity which has accepted responsibility for the applicant's own costs of the proceedings. It seems to me no more than fair play to require that responsibility to be similarly accepted for the possible costs to which the first respondent may become entitled. There is no reason to conclude that if an order for security is made the proceedings will be stifled, the applicant or those entitled to benefit under the trust will be oppressed or any public interest 1n the litigation of alleged breaches of the Act will be adversely affected. The provisions of the Federal Court of Australia Act 1976 and the Rules of the Court relating to security for costs are traced by Northrop J. in an as yet unreported judgment in Jet Corporation of Australia Pty Ltd v. Petres Pty Ltd, delivered on 4 October 1983. His Honour concluded that the terms of sub-s. 533(1) of the Companies (Victorian) Code are applicable in respect of proceedings ain this Court. I agree with that conclusion, although, of course, in this case it 1s the Queensland not the Victorian Companies Code which is material. If the material provisions of the Federal Court Act and Rules are left out of account, such a result would be the consequence of s.79 of the Judiciary Act 1903: see John Robertson and Co Ltd v. Ferguson Transformers Pty Ltd (1973) 129 C.L.R. 65, 83, 88, 95; Maguire v. Simpson (1977) 139 C.L.R. 362, 376; Lamb v. Moss (Full Court, 12 October 1983, not yet reported). The applicant relied on Commissioner of Stamp Duties (N.S.W.) v. Owens (1953) 88 C.L.R. 168, but that case is plainly distinguishable. It was there held that the state legislation under consideration was c WT DT Pe ee SEI eR Or7 ee SSESOP snes Bt aa beyond the scope of 3.79 of the Judicfary Act. Sub-section 533(1) of the Companies Code is a state law relating to procedure and falls fairly and squarely within the operation of s.79 of the Judiciary Act. I can find no possible basis for holding that the effect of the Federal Court Act and Rules on their proper construction excludes that result and, on the contrary, Northrop J. in Jet Cororation, supra, arrived at the conclusion that the Federal Court Act and Rules provided the same result without need to resort to s.79 of the Judiciary Act. Sub-section 533(1) of the Companies Code provides: "Where a corporation is plaintiff in any action or other legal proceeding, the Court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the Corporation will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs and stay all proceedings until the security is given." I am satisfied that there 1s reason to believe that the applicant will be unable to pay the costs of the first respondent, if it is successful in its defence. The operation of that provision has been considered in a number of cases, including Drumdurno Pty Ltd v. Braham (1982) 42 A.L.R. 563; J.& M. O'Brien Enterprises Pty Ltd v. Shell Co. of Australia Ltd 7 A.C.L.R. 790; Newtown Travel Service v. Ansett Transport Industries (Operations) Pty Ltd (1982) 44 A.L.R. 163; Isiat Nominees v. Murra jong Nominees (1980) 48 F.L.R. 385 and Jet Corporation, supra. I would not have thought that there was the slightest doubt but that the Court's discretion ought on the present material to be exercised to protect the first respondent to the extent now sought. The decision in Riot Nominees Pty Ltd v. Suzuki Australia Pty Ltd (1981) 34 A.L.R 653 may be authority that 0.28 ¥.3(1)(b) of this Court's Rules (which was also considered in Jet Corporation, supra, and Andrews v. Caltex Oil (Australia) Pty Ltd (1982) 40 A.L.R. 305) 1s not applicable in proceedings such as the present and no reliance was placed upon that rule on behalf of the first respondent. I have an open mind on that question, or perhaps more accurately, my tentative view is that Riot Nominees, supra, was not correctly decided; but however that may be, the applicant's representative capacity, 1ts insolvency, and the absence of any explanation why the beneficiaries under the trust cannot, or should not, fund the litigation seem to me weighty factors in the exercise of my discretion. The conclusion at Which I have arrived makes it unnecessary to decide whether the Court has an inherent power to order security for costs in addition to its statutory power. Accordingly, I merely note in passing Commonwealth Trading Bank of Australia v. Inglis (1974) 48 A.L.J.R. 196, 199 and col. G; The Australian Building Construction Employees and Builders Labourers Federation v. Victoria (unreported Stephen J., 17 November 1981); and Rajski v. Computer Manufacturers and Design Pty Ltd (1982) 2 N.S.W.L.R. 443. AR 3 L . er ee Pe ems remem rer a I turn to the question of quantum. The principal place of business of the first respondent is Denver, Colorado. Its principal solicitors are in Melbourne and it is represented in chese proceedings by their Brisbane agents. Although the first respondent has a representative in Queensland, it is said the location of its principal office will increase the difficulty and expense of obtaining instructions. Three of the witnesses mentioned in the applicant's Statement of Claim who can give evidence for the respondent reside in Denver and other employees or ex-employees residing in Denver can also give evidence for the first respondent. The solicitor has sworn that in his opinion it is necessary to take statements from at least the three witnesses mentioned in the applicant's Statement of Claim prior to delivery of the first respondent's Defence and 1t would be most efficient and economical for a solicitor to travel from Australia to Denver to take those statements. He also swears that it is his opinion that 1t would be most economical and efficient for discoverable documents then to be selected because many at least of the first respondent's documents are also in Denver, It seems that the first respondent's costs of the litigation may be somewhat increased not only by the location of 1ts principal office in Denver, but by the fact that its principal solicitors are in Melbourne, and that the solicitors having the conduct of the litigation are agents only. The actual costs which will be recoverable if the first respondent succeeds will of course be a matter for taxation. ' Rae We Further, in ordering security for costs the court does not set out to give a complete and certain indemnity to the respondent - see Brendza v. Robbie and Company (1953) 88 C.L.R. 171. The appropriate course, as it seems to me, is to order that security should be given in the sum of $10,000 but that that sum should not be specifically related to any point in the litigation and more especially should not be related to the point at which the first respondent makes discovery. The first respondent can make application for a further amount by way of security at some appropriate point if it is so advised. There 13 no basis for assuming that the matter will stop after delivery of the first respondent's Defence and discovery by the first respondent, and there is little doubt that $10,000 will be exhausted before the litigation is at an end if it proceeds to its finality. Accordingly, for the reasons which I have given I propose to order that security for costs be given in favour of the first respondent in the sum of $10,000. The Court orders that - l. The applicant give security in the amount of $10,000 for the first respondent costs of and incidental to these proceedings including the costs of the present application ina form to be agreed and failing agreement to be determined by the Court. preceding 2. The applicant pay the first respondent's costs of and incidental to the application for security for costs. 3. The first. respondent's motion for security for costs is otherwise adjourned generally to be restored at any time on reasonable notice. pages are a true copy of the reasons for judgment herein of His Honour I certify that this andthe & Mr. Justice Fitzgerald Ze "LL Daestor, Associate Dated /F Atpereentisr (97 3 |