may" Practice and Procedure - security for costs - availability of sub-s.533(1) of Companies (Western Australia) Code in Federal Court - relevant considerations in exercise of court's discretion - probability of success - whether respondent cause of applicant's impecuniosity - delay Federal Court Rules 0.28 Companies (Western Australia) Code s.533 CARUSO AUSTRALIA PTY. LTD. v. PORTEC (AUSTRALIA) PTY. LTD. No. WA G29 of 1983 TOOHEY J. PERTH 30 MARCH 1984 IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION No. WA G29 of 1983 BETWEEN: CARUSO AUSTRALIA PLY. LTD. Applicant and PORTEC (AUSTRALIA) PTY. LTD. Respondent PORTEC (AUSTRALIA) PTY. LTD. Cross-Applicant and CARUSO AUSTRALIA PTY. LTD. Cross-—Respondent Q RD E R JUDGE MAKING ORDER Toohey J. DATE OF ORDER 30 March 1984 WHERE MADE Perth THE COURT ORDERS THAT: 1. The applicant give security in the amount of $25,000 for the costs of the respondent of and incidental to these proceedings, in a form to be agreed by the parties and, in default of agreement, to be determined by the Court. Further proceedings on the applicant's against the respondent be stayed security is provided. Liberty be reserved to either party to generally, upon 7 days notice to the party. All questions of costs be reserved. claim until apply other IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION No. WA G29 of 1983 BETWEEN: CARUSO AUSTRALIA PTY. LTD. Applicant and PORTEC (AUSTRALIA) PITY. LTD. Respondent PORTEC (AUSTRALIA) PTY, LTD. Cross-Applicant and CARUSO AUSTRALIA PTY. LTD. Cross-Respondent CORAM: TOOHEY J. 30 March 1984 REASONS FOR JUDGMENT By this motion the respondent seeks an order that the applicant provide security for the respondent's costs of the application. The applicant ais an earcthmoving contractor. In November 1982 it entered into a contract with the Commissioner of Main Roads for the supply of large quantities of aggregate. To enable the applicant to perform the contract the respondent agreed to design and provide an integrated rock crushing plant. The applicant claims that the plant was unable to provide the quantities warranted and was otherwise unsuitable. Relying upon provisions of the Trade Practices Act 1974 and associated causes of action, the applicant claims damages of the order of $800,000. The application was filed on 12 July 1983. The respondent has filed a defence and a cross-claim for $114,862 for work done to repair damage caused to the plant in transit. The applicant has formulated particulars of its claim and awaits particulars of the respondent's cross-claim. Although not all interlocutory steps have been completed, the parties anticipate that the matter will be ready for trial in July or thereabouts and that 1t will occupy some 10 days. It is apparent that the hearing will involve complex questions of fact including evidence of a technical nature. The respondent anticipates that it will need to bring a number of witnesses from the United States, New Zealand and New South Wales. The present motion has been triggered off by the liquidation of the applicant. On 18 July 1983 receivers and managers of the applicant's property were appointed at the instance of Standard Chartered Finance Ihimited, the company which financed the applicant''s purchase of the plant. On 16 November 1983 an order was made by the Supreme Court of Western Australia for the winding up of the applicant and for the appointment of a Liquidator. In support of the motion the respondent relies in general upon the provisions of Order 28 of the Federal Court Rules and more particularly upon sub-s.533(1) of the Companies (Western Australia) Code. There is nothing in Order 28 expressly referable to the situation of the applicant. The respondent did not seriously contend that Order 28 Rule 3(1)(b) had any application to the present case. Sub-section 533(1) of the Companies Code reads: "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." If the respondent cannot rely upon sub~s.533(1), it will not succeed for it can find no particular support in the provisions of Order 28. And if it can invoke the Code, it does not need to look any further. The applicant tacitly accepted that sub-s.533(1) was available to a respondent to proceedings in the Federal Court. That was the approach taken by Northrop J. in Jet Corporation of Australia Pty. Limited v. Petres Pty. Limited (1983) 8 ACLR 334 and by Fitzgerald J. in Beli Wholesale Company Pty. Ltd. v. Gates Export Corporation (unreported decision delivered 11 November 1983). There being no challenge to the correctness of these decisions, I shali follow then. It is not in issue that, in the words of the sub-section, "there is reason to believe that the Capplicant] will be unable to pay the costs of the Crespondent] if successful in Lits] defence". From material furnished by the liquidator it seems that at 16 November 1983 there was a net deficiency in the assets of the applicant of $1,427,218. That amount may be greater now. But the matter is still one for the discretion of the court. There should be no predisposition to grant security because the section permits it any more than there should be a predisposition to refuse security because the company 1s impecunlous. See Spiel v. Commodity Brokers Australia Pty. Ltd. (1983) 8 ACLR 410 where the authorities emphasising the width of the discretion are collected. Although the aiscretion is a wide one, there are certain considerations that are patently relevant to the exercise of that discretion just as there are considerations that are patently irrelevant. A material consideration is the probability of success of the application itself. Where the facts are complex as they are here, it is particularly difficult for the court to express a view on this aspect. This matter is further complicated by the existence of a cross-claim though, following the applicant's liquidation, no application has been made by the respondent for leave to proceed with the cross-claim. See s.371 of the Code. The defence admits a number of allegations in the statement of claim but it is clear that there are substantial issues to be tried. I am satisfied that the claim is made bona fide and that is a relevant consideration. M.A. Productions Pty. Ltd. v. Austarama Television Pty. Ltd. (1982) 1 ACLC 404; Newtons Travel Services Pty. Ltd. v. Ansett Transport Industries (Operations) Pty. Ltd. (1982) 1 ACLC 521. It is also pertinent to ask whether the respondent has been the cause of the applicant's impecuniosity. William Robert Farrow, a solicitor and director of the respondent, deposed to his belief that "the applicant's lack of assets and impecuniosity has not arisen or been caused by, the default of the respondent". The applicant has not directly challenged this assertion. The liquidator's affidavit does attribute the applicant's default under its agreement with Standard Chartered Finance and the appointment of receivers and managers to the inability of the applicant to produce income from the plant to meet its outgoings, pay its creditors and earn the expected profit of $250,000. But while the affidavit relates the applicant's impecuniosity to the job for which the plant was provided, 1t does not attribute this state of affairs to the respondent's actions. The principal argument offered by the applicant to the granting of security was delay on the part of the respondent in seeking security. As part of this argument the applicant pointed to the expenditure it had incurred on the proceedings to date, all of which would be lost if security was ordered and could not be provided. In this connection see Smail v. Burton (1975) V.R. 776; Aspendale Pastoral Co. Pty. Ltd. v. W.d. Drever Pty. Ltd. (1983) 1 ACLC 941. While the application has been on foot since July 1983, I am not persuaded that there has been such a delay as to preclude the making of any order for security. In his affidavit Mr. Farrow deposed to the fact that the respondent learned of the appointment of a receiver and manager in or about August 1983 and of the appointment of a liquidator in or about late February 1984. But, the respondent says, it did not appreciate the extent of the applicant's financial difficulties until recently and it was only when the applicant furnished further and better particulars of its statement of claim in February this year that it became apparent the hearing would be a Long and costly one. i must say that even a cursory reading of the statement of claim would suggest that an earlier estimate of 4 days hearing was optimistic. But I accept that the full scope of the claim has only become apparent with the particulars. According to Mr. Farrow''s affidavit, the respondent's costs to date are estimated at $2,500. Its estimated costs for a 10 days hearing including expenses connected with witnesses from overseas and interstate are $72,500 though this was not offered in any way asa precise figure. The component of $40,000 for witnesses seems high but it is likely that the respondent's costs will not be less than $50,000 1f the hearing occupies 10 days. On the other hand the applicant has already incurred a great deal of expense in connection with the application. The liquidator's affidavit mentions $25,000 as already expended "in relation to solicitors costs and Counsels' fees". Much of this has been spent in collecting evidence and proofing witnesses. The applicant argues that if security for costs 15 ordered that expenditure will be wasted for the application will not proceed. The liquidator has deposed: "It is my belief that if security is ordered, funds will not be forthcoming". On the other hand there are two major creditors of the applicant. Standard Chartered Finance is presently owed $638,675 under an agreement for the lease ot the plant and there 1s a loan of $287,000 due to Caruso Partnership whose name suggests a connection with the applicant. The total of these amounts represents more than 60% of the applicant's deficiency. The respondent argues, with some force, that these creditors have a major interest in the outcome of the litigation and that, if the claim has a reasonable prospect of success, they might be expected to contribute to any security that may be ordered. See M.A. Productions Pty. Ltd. v. Austarama Television Pty. Ltd. supra; Newtons Travel Services Pty. Ltd. v. Ansett Transport Industries (Operations) Pty. Ltd. supra. The applicant does not contend that the motion was brought to oppress it. I accept that the respondent seeks security because of a realization of just what the hearing is likely to cost and of the applicant's inability to meet that cost. The applicant submitted that as it was, in its statement of claim, relying upon ss. 52 and 53 of the Trade Practices Act the claim had an element of public interest which should make the court hesitate before making an order which might put an end to the application. This aspect was adverted to by Northrop J. in Jet Corporation of Australia Pty. Limited v. Petres Pty. Limited. I do not overlook the submission but I think it has less impact when the conduct said to have contravened the Act took place in the course of pre-contract negotiations between the parties. The applicant doés not rély upon statements addressed to the public at large. In my view this is a proper case in which to order that there be security. But the amount of security should have regard to costs likely to be incurred by the respondent hereafter, not before, and should also have some regard to the expense already incurred by the applicant. And, as Fullagar J. commented in Brundza v. Robbie & Co. (No. 2) (1952) 88 CLR 171 at p.175: ",... the Court does not set out to give a complete and certain indemnity to a respondent". In my opinion an amount of $25,000 would be appropriate in the circumstances. I make the following orders: 1. The applicant give security in the amount of $25,000 for the costs of the respondent of and incidental to these proceedings, in a form to be agreed by the parties and, in default of agreement, to be determined by the Court. 2. Further proceedings on the applicant's claim against the respondent be stayed until security 1s provided. 10. Liberty be reserved to either party to apply generally, upon 7 days notice to the other party. All questions of costs be reserved. I certify that this and the nine preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Toohey Associate Dated: 30 March 1984