Bie CATCHWORDS TRADE PRACTICES - 3.52 - allegations that statements about future misleading - bald allegation of falsity - application to strike out paragraphs. PRACTICE - change of venue "manifest preponderance of convenlence" must be shown. COSTS - security - applicant company - form of order providing choice - opportunity to provide directors' guarantee in liéu. Comparies Code, s.533(1) Judiciary act, s.79 Trade Practices Act, s.52 Federal Court Rules, 0.30 r.6 RIGHT HOME IMPROVEMENTS INTERNATIONAL PTY LTD Vv. IMPEFTAL ALAPM SCREENS (AUST.) PTY LTD (First Respondent) BOUGLAS WEST (Second Respondent) FREDERICh CAVANAGH (Third Respondent) Qld G75 of 1985 PINCUS J. BRISBANE 17 OCTOBER 1985 IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) QLD G75 of 1985 GENERAL DIVISTON ) BETWEEN : RIGHT HOME IMPROVEMENTS INTERNATIONAL PIY LTD Applicant AND: IMPERTAL ALARM SCREENS (AUST.) PTY LTD First Respondent AND: DOUGLAS WEST Second Respondent AND: FREDERICK CAVANAGH Third Respondent MINUTES OF ORDER JUDGE MAKING ORDER: PINCUS J. DATE OF ORDER: 17 OCTOBER 1985 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The proceedings be staved unless within 14 days - (a) the applicant Right Home Improvements International Pty Ltd gives security for the respondents' costs in the sum of $10,000 to the satisfaction of the Registrar, or (b) an affidavit is filed made by a solicitor on behalf of the said applicant exhibiting an executed copy of a deed by John Robert Parish and Robert Adrian Kingston Thomsen in favour of the respondents, jointly and severally undertaking to pay any costs ordered to be paid by the said applicant in these proceedings, limited to the sum of $10,000. 2. The respondents' motion be otherwise dismissed. 3. The costs of the motion be costs in the principal proceeding. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) QLD G75 of 1985 GENERAL DIVISTON ) BETWEEN : RIGHT HOME IMPROVEMENTS INTERNATIONAL PTY LTD Applicant AND: IMPERIAL ALARM SCREENS (AUST.) PTY LTD First Respondent AND: DOUGLAS WEST Second Respondent AND: FREDERICK CAVANAGH Third Respondent PINCUS J 17_ OCTOBER 1985 REASONS FOR JUDGMENT These are anterlocutory applications in proceedings brought under s.5Z2 of the Trade Practices Act 1974. The applicant in these proceedings says that it was induced to enter unto a contract by "false, misleading and deceptive" statements made by or on behalf of the respondents. The contract in question, dated 9 April 1984, 1s termed a "sub~licence agreement" and has been placed before me. Under it, in consideration of a payment of $37,000, one of the respondents granted the applicant "the right to assemble, manufacture and sell Imperial Alarm Screens in accordance with specifications and procedures used in conjunction with pattern No. 3051935". The applicant also obtained the right to sell burglar alarm screens under a certain trade mark and logo and a (rather more vaguely expressed) right to a supply of goods. The misrepresentations alleged in the statement of claim are principally as to the future. For example, it 1s said that the applicant was told that it would become a "leader in the security field". There are also misstatements alleged as to present facts. The defence is not of an informative kind but, on the whole, this does not seem to be an appropriate case in which to remedy that, for example, by reau1rring affidavits to be filed setting out the respondents' case. One reason 1s that the statement of claim is itself not especially precise; 1t does not explain in what way the statements alleaed were faise or inaccurate. The pleading 1s further analysed below. The respondents in the principal proceedings, who are called "the respondents" in these reasons, apply for three orders. 1. Change of venue The respondents assert, on evidence to that effect, that the balance of convenience favours a trial in Sydney. I propose to follow my own decision in Hodder v. Australian Workers' Union (2.4.85, unreported) and apply the test of "manifest preponderance of convenience". On that basis, it seems clear that the respondents should not be granted any relief under 0.30 r.6. While it is possible that more witnesses in the case will be called from Sydney than from this State, no firm conclusion on that subject can be arrived at. I hold that there is no manifest preponderance of convenience in favour of a trial in Sydney and that the venue should not be changed. 2. Security for costs The evidence 1s such as to make one very doubtful that the applicant company, 1f unsuccessful, could meet the costs of the litigation. The solicitor for the respondents has estimated costs on aeparty and party basis, assuming the hearing 15s concluded in two days, at over $14,000. In my opinion, it is unlikely that the hearing would conclude in two days and, although in some respects the solicitor's estimates seem to me excessive, on balance I think party and party costs are likely to be of the order stated. The applicant says that if an order for security is made it "may, depending on the amount of the security, stifle the applicant in,its proper prosecution of the action". Iam given no information which would enable the accuracy of that contention to be tested. However, there is evidence that the financial position of the applicant is not good. Recently, one of the two directors of the applicant telephoned an employee of the first respondent and told him "I am paying an astronomical amount of rent at the factory and the business cannot stand it... we are going down the Swanee rapidly". The director, Mr Thomsen, said that the rent being paid was $1,750 per month. In addition to that, counsel for the respondents relied upon evidence adduced that no company returns have been Tiled on behalf of the applicant, which was incorporated 1n Queensland, since shortly after the certificate of incorporation was assued un 1981. On the basis of such evidence, scanty though it be, I find that it is unlikely that the applicant could meet in full the costs likely to be awarded against 1t if 16 1s unsuccessful in this litigation. The only evidence to which Mr Newton, for the applicant, could point as suggesting otherwise is a statement to the effect that the applicant still has $13,000 worth of stock. But, even assuming the stock were able to be sold for that sum, 1t is improbable that there would be enough to meet the costs; presumably the costs of the applicant's solicitor have to be provided for from the same source, as well as the rent just mentioned. Mr Newton also argued for the applicant that I should treat the case as one in which the financial position of the applicant has been caused by the conduct complained of: Tradestock Pty. Ltd. v. F.N.T. (1977) 14 A.L.R. 52 at p.59, There are evident difficulties in applying the principle invoked to such a case as the present. It appears to involve making at least a provisional determination of the issue whether the statements complained of by the applicant caused loss. Even were I satisfied that they did, it is a far step to the conclusion that the respondents are legally liable for that loss. The set of facts, then, is of a kind which 1s no doubt common: the corporate applicant, with a small paid-up capital, seems unlixely to be able to meet an order for costs, aif it loses; there is no foundation for any estimate of its chances of success. It ais clear that, applying s.79 of the Judiciary Act 1903, there 1s a discretion to order security, under s.533(1) of the Companies Code 1981; that follows from the decisions of the Full Court in Bell Wholesale Co. Pty. Ltd. v. Gates Export Corporation (1984) 52 A.L.R. 176 and Sent v. Jet Corporation (1984) 54 A.L.R. 237. What is not quite so clear is the basis upon which that discretion should be exercised. In Sent's case Smithers J., with whom Sweeney J. agreed, said at p.255:- "If it is going too far to say ... that the discretion conferred by the section should he exercised merely with a predisposition in favour of the def endant party, nevertheless, the discretion is for the protection of the defendant from the unfair and possibly burdensome consequences of an unsuccessful claim against him by an impecunious company. In every case of such an action, where the result is in real doubt, risk of those consequences exists, and the need for protection exists." From this dictum the conclusion may follow that, in the ordinary case such as this. i.e. where there is an apparently impecunious applicant company with no sound foundation for a finding that its financial problems are the fault of the respondent, nor any means of predicting the result of the litigation, security will usually be ordered, On the other hand, a recurring theme is that the Court should try not to achieve the result that the litigation is stifled by an order for security; e.g., see M.A. Productions Pty. Ltd. v. Austarama Television Pty. Ltd. (1982) 1 A.C.L.C. 404 at p.407. Unfortunately for the applicant, it 15 not possible to find, on the material before me, that an order for security would put an end to its case. There 15 a statement, referred ta above, to that general effect, but no detail to support it. In considering the point it is necessary, as appears from the decision of the Full Court in the Bell Wholesale case, to determine whether those who stand behind the corporate applicant are without méans. The Court there said (p.179):- "It is not for the party seeking security to raise the matter; it 15 an essential part of the case of & company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts." The practice of the Courts with respect to the form of order made is somewhat variable. Sometimes, it appears an order intended to provide completely for party and party costs is made, but that is by no means always so; see Brundza v. Robbie & Co. (No. 2) 88 C.L.R. 171 at p.175. In Yandil Holdings Pty. Ltd. v. Insurance Co. of North America (1985) 3 A.C.L.C. 542, Clarke J. in the Supreme Court of New South Wales made a hybrid order, requiring that the managing director of the plaintiff company undertake to be personally responsible for the defendants' costs and that security ina sum of $10,000 (being much less than the likely party and party costs) be provided. His Honour, in explaining his reasons, said at p.546:- "In particular there 1s no reason why Lcpez should not ke exposed to the risk of paying the defendant's costs in the event that the plaintiff fails. It 1s to all intents and purposes his alter ego, and it seems tome that substantial justice between the parties would be effected if I placed him for all practical purposes in the position of an individual litigant. I am able to do this by requiring that he give an appropriate undertaking. If he does so then he will not be able to shelter behind the corporate facade and yet he will, subject to what appears later, be in no worse position than a plaintiff who 1s a natural person. Such persons, who are resident within the jurisdiction, are not normally liable to provide security as Connolly J. points out in Harour and Ors. v. Ariadne Australia Limited (Wo. 2) (1984) 2 A.C.L.C. 356 at p.358; (1984) & A.C.L.R. 835 at p.837." ' In Harpur's case, which 1s also reported in (1984) 2 Qd. R. 523, Connolly J., with whom the other members of the Full Court of the Supreme Court of Queensland agreed, set aside an order for security, on the ground that the plaintiff company had as co-plaintiff a natural person of substance. The High Court refused special leave on 28 June 1984. It was, apparently, thought by the Supreme Court to be enough that the defendant had a substantial natural plaintiff from whom costs might be obtained. See also M.A. Productions Ptv. Ltd. v. Austarama Television Ptv. Ltd. (supra) and Memutu Pty. Ltd. v. Lissendon (1984) 8 A.C,L.R. 364. I made an order for security analogous to those in the cases just mentioned, inH.A. Craig Pty. Ltd. v. Speedifix Butiding Components Pty. Ltd. (unreported, 17 July 1985). There the order gave the applicant the option of procuring 4 guarantee for the whole of the costs from its two shareholders, or, on the other hand, providing limited cash security. One advantage of orders of this sort is that they provide some reconciliation of the conflicting objectives of providing security while not stifling the litigation, 1n cases where the Court can form no clear view as to the likelihood of success. Here, I think I should make a similar order, but with the guarantee limited to the same sum as the amount of security. I have decided to make an order that the application be stayed unless the applicant either provides security to the satisfaction of the Registrar in the sum of $10,000 or provides a guarantee in that sum from the two directors and shareholders in respect of any costs ordered to be paid by the applicant. 3. Application to strike out The respondents, lastly, seek to strike out certain allegations of misrepresentation. This application raises the question whether and in what circumstances a statement about the future may be a basis of liability under s.52 of the Trade Practices Act. Such a statement may be false or misleading because 1t also conveys information about the present; a trite example is: "Tomorrow will be Friday". The tendency has been to assume that the law with respect to liability for statements as to the future, under s.52 of the Trade Practices Act, should be assimilated to that concerning misrepresentations under the general law. To hold otherwise might create a whole new, and statutory, branch of the law of contract. However, it 1s undesirable, in advance of determination of the factual issues, to attempt in this application to define the boundaries of liability in the area, so far as relevant to the case. The applicant's pleading baldly asserts that the statements made were false or misleading, but does not' say whether, as to those of them which are expressed as statements a, 10. about the future, the complaint 1s merely that promises made were unfulfilled or, on the other hand, that they were misleading because of what they implied about facts then existing. To illustrate this point, I set out two of the relevant allegations of misrepresentation:-— "(c) An Imperial Alarm Screen sub-licensee:- (1) would be trained by the First Respondent to be an expert in home security; (iv) would enjoy the benefits of National Public Relations advertising together with the services of a point of Security Agents." Plainly, existing circumstances might have rendered either of these statements "false, misleading or deceptive", to use the pleader's words. For example, as to the former, the case might be advanced that the first respondent did not itself have the means comprehensively to train anyone in home security, its training scheme being of a rudimentary kind; an analogous question might arise under par. (c){iv). Counsel for the respondents argued that I should assume nothing in favour of the ll. applicant and that the respondents should not be disadvantaged by the lack of any detail in the applicant's allegation of falsity, which simply is:- "The representations referred to in paragraph 7, 9, 10 and 12 hereof were false, misleading and deceptive. " However, no application for particulars was made. Were anything to be struck out, it would be the allegation just quoted and not the paragraphs which are attacked, setting out' the representations complained of. It 1s quite unclear, from the pleading, whether the representations 1n question are said to have been false because of what they implied about the present; it is therefore not possible to say whether the applicant's case falls within or without the proper scope of s.52 of the Trade Practices Act. It does not appear to be the practice to decide legal questions said to arise on pleadings if the facts giving rise to such questions are insufficiently clear. I have given consideration to the question whether I should, ex mero motu, order that the applicant give particulars of the allegation of falsity just quoted. Although it is plainly inadequate in its present form, that problem was agitated at the hearing and no application for particulars was made. I do not think I should order any further particulars. 12. Although it may well be that when the basis on which the applicant says the representations were "false, misleading and deceptive" is known, it will be seen that there is no legal basis of liability, the applicant could, under the present pleading, lead evidence which would make the respondents liable. I will not make an order that any part of the pleading be struck out. Although I have held in favour of the respondents in respect of one application only, I propose to order that the costs of the three applications be costs in the proceedings. * certify that this and the \} preceding pages are a true copy of the reasons for judgment herein of His Honour Mr, Justice Pincus Devcct 3) (Rey 1S foe Associate Dated