if, 0°, (LIMITED DISTRIBUTION) IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG No. 91 of 1985 ) } GENERAL DIVISION Between: LABERTOUCHE SANDS PTY. LTD. (Applicant) And: MOOWINNYBAH PASTORAL COQ. Pry. LTD. (Pirst-named Respondent) EDWARD COOPER E fe] A (Second-named Respondent) E REG LATIMER (Third-named Respondent) hed a] jan MOOWINNYBAH PASTORAL CO. PTY. LTD. and EDWARD COOPER (Cross Claimants) E [an REG LATIMER (Cross Respondent) Coram: Ryan J. Date: 16 December 1986 REASONS FOR JUDGMENT By notice of motion dated 14 August 1986, the first and second respondents have sought orders that the applicant give security in the sum of $660,000 for their costs of the application, and that further proceedings on the applicant's claim be stayed until security is provided. The application for security for costs was made under both s.533{1) of Companies (Victoria) Code ("the Code") and 5.56 of Federal Court of Australia Act 1976. Section 533(1) of 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 he given for those costs and stay all proceedings until the security is given." Section 56 of the Federal Court of Australia Act is in following terms: "(1) The Court or a Judge may order a plaintiff in a proceeding in the Court or an appellant in an appeal to the Court to give security for the payment of costs that may be awarded against him. (2) The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs. (3) The Court or a dudge may reduce or increase the amount of security ordered to be given and may vary the time at which, or Manner or form in which, the security is to be given. (4) If security, or further security, 1s not given in accordance with an order under this section, the Court or a dudge may order that the proceeding or appeal be dismissed. the the the the (5) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security." The applicant went into voluntary liquidation on 29 April 1986. A report as to its affairs as at that date has heen prepared by its directors, Thomas Whitelaw and Albert Baxter, and submitted to the liquidator in accordance with s.375(1) of the Code. That report discloses that, as at 29 April 1986, the applicant had assets with a total estimated yealisable value of $114,492. The principal assets were sundry debtors valued at $11,092, and plant and equipment the yealisable value of which was estimated at $100,000. Claims by employees in respect of wages and holiday pay allegedly due to Mr. Baxter and Mr. Whitelaw, and Mr. Baxter's wife, were estimated at $10,400. $2,000 was said to be due to the Australian Taxation Office for unpaid group tax. Unsecured creditors were indicated to amount to $432,149.84, of which $262,195 was owing to Mr. Whitelaw, $54,000 to Mr. Baxter, $10,800 to Mrs. Raxter and $95,815 to Baxters May Road Investments Pty. Ltd. The remaining unsecured creditors amounted to $9,339.84 of which $7,423.84 was due toa firm, Williams Fuel, of Warragul. Accordingly, the estimated deficiency of assets available to meet the claims of unsecured creditors, subject to costs of the liquidation, was $330,057.94. By its statement of claim, the applicant has pleaded that it entered into an agreement by which it was licensed to extract sand from part of certain land at Labertouche ("Binalong")} owned by the first respondent. It is alleged that it was induced to enter into that agreement by certain representations or warranties made by the second and third respondents as agents for the first respondent going to the slime/clay content of some sub-surface strata of the land, the extent of proven reserves of sand, and the ease with which the sand could be extracted and treated. It is further alleged that those representations were false, and that the making of them was misleading or deceptive conduct in contravention of s.52 of the Trade Practices Act 1974 ("the Act") or constituted false or misleading statements in contravention of s.53A of the Act. Further or alternatively, it is alleged that the representations were made fraudulently or negligently. The applicant has accordingly claimed damages, and other relief under s.87 of the Act, including variation of the licence agreement by reducing the fees and royalties payable thereunder. By notice of motion dated 14 August 1986 the first and second respondents have sought orders that the applicant give security in the amount of $60,000 for their costs of the application, and that further proceedings on the applicant's claim be stayed until security is provided. In support of that motion, Mr. Tribe of counsel for the first and second uw respondent relied on the report as to the applicant's affairs furnished to the liquidator as establishing the prima facie inability of the applicant to pay the respondent's costs should the application ultimately fail. The solicitor for the first and second respondents has deposed that they have already incurred costs of approximately $18,000, and that a further $8,000 or so will be incurred up to the time when the application is ready to be heard. The same deponent has further sworn that the first and second respondents' costs of the trial of the application will exceed $35,000, on the assumptions that Senior and Junior counsel will be retained, and the hearing will occupy ten sitting days. The further assumption has been made, in preparing that estimate, that liability will be incurred for fees to consultants and expert witnesses. The applicant lodged caveats in the office of the Registrar of Titles against the registration of any dealing in respect of "Binalong", involving its interest in that land by virtue of the sand mining licence. The mortgagee of "Binalong", First National Finance Limited ("First National") instituted proceedings in the Supreme Court of Victoria seeking orders for removal of those caveats. Tadgell Jd. declined to accede to an application for a summary order for the removal of the caveats, and those Supreme Court proceedings are still pending. ek nee The sale of ""Binalong" by the first respondent or by First National as mortgagee has also been restricted by an injunction granted herein by Smithers J. on 30 May 1985, subject to the usual undertaking as to damages, restraining the first respondent from selling "Binalong" whereby:- "The firstnamed respondent whether by itself, its servants or agents or otherwise howsoever be and hereby is restrained from selling the land referred to in paragraph 3 of the Statement of Claim, whether by public auction or by private treaty, otherwise than subject to the following express condition of sale: 'The purchaser acknowledges and agrees that the property is purchased subject to the rights of Labertouche Sands Pty. Ltd. (if any) under the terms of an agreement dated Ist March 1984 entered into by and between Moowinnybah Pastoral Co. Pty. Ltd. and Labertouche Sands Pty. Ltd. and any alteration or variation of the terms thereof as may hereafter be ordered by the Federal Court of Australia in Proceeding No. VG91 of 1985 wherein Labertouche Sands Pty. Ltd. is the applicant and Moowinnybah Pastoral Co. Pty. Limited, Edward Cooper and Reg Latimer are respondents.' " An earlier interlocutory injunction granted by Woodward J. on 16 April 1985, which appears to be still in force, also restrained the first respondent from preventing "the Applicant or its servants or agents or any other persons invited on to the land by the Applicant from having full and free access to" that part of "Binalong" described as "Zone one" in the statement of claim. Mr. Tribe in support of the application for an order for security for costs contended that insolvency of one party to litigation should attract the making of such an order, unless the insolvent party can show "other circumstances which, when put in the balance should lead the Court to the conclusion that the overall interests of justice would be served by refusing the application". (National Bank of New Zealand Ltd. v. Donald Export Trading Ltd. £19801 1 NZLR 97 at 102). Mr. Perkins, for the applicant, did not seek, as [I understood him, to suggest that the approach indicated in the passage just quoted was not appropriate to the exercise of the discretion which the Court clearly has on an application for security for costs. However, he urged that the application should be adjourned +0 await the outcome of certain events which could have a material effect on the ability of the applicant to pay the respondent's costs if the application should ultimately fail. In essence, the events relied on were those contemplated by an agreement "in principle" to which Mr. Joseph, the solicitor for the applicant, deposed. That agreement provided for a compromise of the Supreme Court proceedings, whereby First National "would realize its security and pay $200,000 from the proceeds thereof to the applicant in return for a withdrawal of its caveats over 'Binalong', vacant possession of the sand mine thereat, and an assignment of the right, title and interest of the applicant in the plant and equipment at 'Binalong'." Although he acknowledged that no enforceable agreement between the applicant and First National had been concluded by the date thereof, Mr. Joseph's affidavit concluded with the following paragraphs: "6. TI believe that the terms of settlement with Pirst National will be negotiated and executed and that the applicant will, in due course, receive $200,000 from the proceeds of sale of "Binalong" by First National. 7. This affidavit is filed with the consent of First National whose solicitor has expressly approved of its contents." It was accepted by counsel, in the course of argument, that if the "in principle" agreement were concluded in the course of this month, it would probably be May 1987 at the earliest before First National could receive the balance of the price on a mortgagee's sale, properly advertised, of "Binalong". Furthermore, even if the applicant received $200,000 out of that balance, it would still have a net deficiency of assets available to meet the claims of unsecured creditors, before taking account of the costs of the liquidation, of about $230,000. It is true that costs incurred by, or awarded against, a liquidator in proceedings continued by him are part of the costs and expenses of the winding up and, accordingly, would have first priority for payment out of the assets of the applicant by virtue of 5.441(1) of the Code: (see e.g. Madrid Bank v. Pelly (1869) 7 Eq.442 and In Re Dominion of Canada Plumbago Co. (1884) 27 Ch.D.33) However, the cases which establish that a company in liquidation is presumed to be insolvent for the purposes of determining whether it should provide security for casts, do not disclose any examination by the courts of whether the company's assets would be sufficient to defray all the costs and expenses of the winding up, including the costs of the subject litigation should the company fail in that litigation. See e.g. Northampton Coal, Tron and Waggon Co. v. Midland Waggon Co. (1878) 7 Ch.D. 500 and Pure Spirit Company v. Fowler (1890) 25 OBD 235. I therefore consider that the proper approach is that suggested by Beaumont J. in Fat-sel Pty. Ltd. v. Brambles Holdings Ltd. (1985) 3 ACLC 312. In that case, the applicant company was not in liquidation, and the respondent had, under a deed, been granted a first charge over certain of its assets to secure repayment of an advance of $300,000 together with all other moneys owing on any other account. Nevertheless his Honour concluded that security for the respondent's costs should be provided, observing at 314:- "Taking the most favourable view from the applicant's standpoint of this aspect of the matter, I am not satisfied that, after discharge of the liability in respect of the principal sum 10. of $300,000, a sufficient margin will remain to satisfy entirely the significant costs likely to be awarded to a successful respondent in an action of this size and complexity,. For one thing, a change in market conditions could bring about a depreciation in the value of the plant and equipment. For another, it is not reasonable that the rspondent should be forced to accept as security for its costs anything that is not liquid or virtually liquid and it camnot be suggested that the assets charged have this character." Accordingly, I decline to accede to the applicant's request to adjourn this application for security for costs, in order to see whether the applicant derives $200,000 from the "in principle" agreement with First National. To grant such an adjournment would allow steps to be taken in the meantime in the litigation in this Court, thereby increasing the applicant's liability for costs which might ultimately prove irrecoverable by the respondents. On the other hand, if, and when, the $200,000 is received by the applicant, a fund would be available from which any security which might be ordered by this Court could be provided if the liquidator and the creditors of the applicant desire to pursue the application. To stay further proceedings on the applicant's claim until that happens, or until the creditors of the applicant provide security from some other source, would not, as it appears to me from what I have heard so far, work any injustice in the circumstances of this case. An adjournment of the application for security for costs is therefore refused. I shall hear counsel on any fe ll. circumstances which are said, on balance, to weigh the exercise of the discretion to order security. I certify that this and the preceding ten (10) pages are a true copy of the Reasons for Judgment herein of the Honourable Mr. Justice Ryan. Associate Dated: 76 Seca Sar, "FE against