IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION BETWEEN: SCANNO PTY. LTD. and ~ SAAB-SCANIA AUST. PTY. LTD. ORDER JUDGE MAKING ORDER Woodward J. DATE OF ORDER 23 December 1983 WHERE MADE Melbourne THE COURT ORDERS THAT: _— No. VG 117 of 1983 Applicant Respondent 1. The applicant provide security for the costs of the respondent, in the sum of $5000, on or before 6 February 1984. 2. The application be set down for hearing on 14 May 1984. 3. The directions hearing herein be adjourned to 2 March 1984. - 4. Liberty be reserved to each party to apply generally, upon seven days notice to the other party. 5. The costs of this application be reserved. IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) No. VG 117 of 1983 ) ) ! GENERAL DIVISION ' BETWEEN: SCANNO PTY. LTD. Applicant and - SAAB-SCANIA AUST. PTY. LTD. Respondent CORAM: Woodward J. DATE: 23 December 1983 REASONS FOR JUDGMENT In this matter the Court was moved on 20 October 1983 by the respondent ('Saab') for an order for security for costs. The application was made pursuant to both s.56(1) of the Federal Court Act 1976 and s.533(1) of the Companies (Vactoria) Code. As to the inter-relation of these two acts see Jet Corporation of Australia Pty. Ltd. v Petres Pty. Ltd., an unreported judgment of this Court delivered by Northrop J. on 4 October 1983. The action involves claims, both under the Trade Practices Act 1974 and at common law, arising from a commercial arrangement between the parties. Counterclaims are also made. The arrangement concerned a fleet of trucks operated by the applicant which were maintained by the respondent. It is not necessary to describe the precise nature of claims and counterclaims; all that need be said for present purposes is that there is a genuine commercial dispute between the parties. In support of the motion for security for costs Saab produced evidence that the applicant ('Scanno') was a company with a paid-up capital of $2, it appeared to possess no real estate, and all its assets appeared to be mortgaged. It has granted to two companies 'jointly a debenture dated 10 February 1981 over all its assets. The amount secured by the debenture is $210,000 and is a floating charge over the company's undertaking. Even more significantly, Scanno has granted to Citicorp Australia Ltd. ('Citicorp') a debenture dated 20 March 1981 over a long list of specified assets in consideration of a loan of $4.75 million. It has also granted Citicorp a floating charge by way of debenture, dated 7 June 1983, securing a further unstated sum. Even the day-to-day profits of the company would not be immediately available to a creditor of Scanno because it is a trading trust, operating on behalf of others not named in its corporate returns. This material, which I find to be 'credible testaimony' within the meaning of the Companies (Victoria) Code s.533(1), was sufficient to show that Scanno was in what might be called a vulnerable financial position. It did not clearly establish that it could not pay its debts as they fall due. There was no evidence as to whether or not Scanno was in fact trading successfully. Indeed Scanno elected to put no evidence at all before the Court. Its counsel was content to argue that Saab had not established its case. As he pointed out, "if there were any question of this company not trading, one would have apprehended the Citicorp ...... with $1.7 million on the laine, that that would have clearly moved the debenture holders to put in a receiver and manager". ("$1.7 million" appears to be a transcript error for "$4.7 million") This was a persuasive argument, and I had reached a tentative conclusion that Saab had not made out its case when, on 28 October 1983, the solicitors -for Scanno very properly wrote to the Court in the following terms: "On 20th October His Honour heard an Application by the Respondent for security for costs. In the course of argument Mr. Loewenstein of Counsel made a comment, on the writer's prompting, regarding the non appointment of a Receiver by Citicorp. In the evening of 26th October, 1983 a meeting took place at Citicorp. In the course of that meeting comments were made regarding the prospect of the appointment of a Receiver by Citicorp at the invitation of Scanno. The writer was informed that all payments due to Citicorp under the Debenture had been met and we understand the next payment is not due until December, 1983. Nevertheless there is a possibility that Citicorp may appoint a Receiver to Scanno. We have informed the Respondent's Solicitor Mr. Cleeve of the above and Mr. Cleeve has indicated that he has no objection to us notifying the Judge of the position. We are most anxious to ensure that the contents of this letter are brought to His Honour''s attention, especially having regard to the submission. We are forwarding a copy of this letter to Mr. Cleeve." This letter was followed on 923 and 10 November respectively by two further communications as follows: 9 November, 1983 "We refer to our telephone discussion of 8 November and confirm that on that date Scanno Pty. Ltd. requested Citicorp to appoint a Receiver and Manager. We have conveyed- this information to Mr. Cleeve and we are sending Mr. Cleeve a copy of this letter. As previously indicated, we are seeking to notify of these matters in the light of the observations made on the hearing of the security application and in the light of His Honour's reservation of decision." 10 November, 1983 - "We refer to ovr telephone discussion of 9 November and confirm that on that day, and at the request of Scanno Pty. Ltd., Citicorp appointed Mr. Hodgson of Ferrier Hodgson & Co. as Receiver and Manager to Scanno Pty. Ltd. We also reiterate our apoligies for the unusual and informal mode of the recent communications. As indicated, we have been most anxious to seek to ensure that the Court is made aware of events while the decision is being considered notwithstanding that the possible consequences of such notification may bolster the Respondent's position. We nevertheless maintain all submissions. We are forwarding a copy of this letter to Mr. Cleeve. Would you please advise if any further information is required in relation to the matters raised in our letters." As a result of these letters I caused the solicitors for both parties to be asked whether they wished to have the case relisted for further submissions, but both declined the offer. I have no doubt that, taking the material as a whole, and in the absence of any evidence from Scanno, Saab has made out its case for security for costs. Because of the way in which the case was argued, no developed submissions have been put to the Court- as to why its discretion should not be exercised in favour of Saab. In particular, it has not been alleged that an order for security in the sum actually sought would embarrass Scanno in its conduct of this litigation. In reaching my conclusion I have had regard to Drumdurno Pty. Ltd. v Braham (1982) 42 ALR 563 and cases there cited as well as the Jet Corporation Case (above). I respectfully adopt the approach of Megarry V-C in Pearson v Waydler (1977) 1 WLR 899 at 407 where he said "while I fully accept that there is no burden of proof one way or the other, I think that the court ought not to be unduly reluctant to exercise its power to order security for costs in cases that fall squarely within the section" Saab asked that the order should be in the sum of $5000. Scanno submitted that $2000 would be sufficient to take the matter up to readiness for trial. However, as I indicated at the hearing, there need only be a short gap between the completion of interlocutory work and the hearing of the application. In my view $5000 is a reasonable sum in all the circumstances, and both parties will have liberty to apply if the amount should prove inappropriate. As I said at the hearing of this motion, I shall include in the order I will now make provision for a hearing date and for an adjourned directions date. I certify that this and the 5 - preceding pages are a true and accurate copy of the Reasons for Judgment herein of The Hon. Mr. Justice Woodward ee Wen f Sssderate Tf 23 December 1983