we _- eres oa alg lt kn BILS sp endows SOY IN THE FEDERAL COURT OF AUSTRALTA VICTORIA DISTRICT REGISTRY GENERAL DIVISION Between: dudge Making Order: Ryan J. Date of order: Where Made: 25 February 1987 Melbourne And: VG No. 91 of 1985 LABERTOUCHE SANDS PTY. LTD. (Applicant) MOOWINNYBAH PASTORAL CO. PIyY. LTD. (First-named Respondent) : EDWARD COOPER (Second-named Respondent) REG LATIMER (Third-named Respondent) MOOWINNYBAH PASTORAL CO. Pry. LTD. and EDWARD COOPER (Cross Claimants) And: REG LATIMER (Cross Respondent ) FEDERAL cou AUSTRALIA, OF bh MINUTE OF ORDER THE COURT GRDERS THAT: l. The applicant provide security for the costs of the first and second respondents in the sum of §14,000 to the satisfaction of the registrar. Proceedings on the application herein be stayed until security for the costs of the first and second respondents 15 provided by the applicant as aforesaid. The costs of the application for security be the first and second respondents' costs ain the substantive application. Settlement and Entry of Orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG No. 31 of 193985 GENERAL DIVISION Between: LABERTOUCHE SANDS PTY. LTD. (Applicant) hed i] [a MOOWINNYBAH PASTORAL CO. Pry. LTD. (First-named Respondent) And: EDWARD COOPER (Second-named Respondent ) nd: REG LATIMER (Third-named Respondent) And: MOOWINNYBAH PASTORAL CoQ. PTY. LTD. and EDWARD ' COUPER \Cross Claimants) ia a] iB. REG LATIMER \Cross Respondent) Coram: Ryan J. Date: 25 February 1987 REASONS FOR JUDGMENT The first and second respondents to this application have sought an order that the applicant give security in the ts sum of $60,000 for their costs of the application. They have also sought an order that further proceedings on the applicant's claim be stayed until security 15 provided. The factual background and relevant statutory provisions are set. out 1n my reasons given on 16 December 1986 for refusing, at the request of the applicant, to adjourn the application for security. When the application for security for costs came on for further argument on 19 December 1386, Mr. Tribe, for the first and second respondents in support of the application, urged that because the applicant was an voluntary liquidation, 1t had the evidentiary burden of showing special circumstances which would justify the refusal of an order for security. Reference was made to Celebrity Circuit Attractions Pty. Ltd. (in liquidation) v. Wren £19661 Z NSWR 282 where the Prothonotary of the Supreme Court of New South Wales referred to Pure Spirit Co. v. Fowler (1890) 25 OBD 235, and said at 283: "Accordingly, I think that where the plaintiff is in liquidation a strong case exists for the ordering of security unless special circumstances exist which would justify the refusal of such an order. The only evidence before me 15 an affidavit by the defendant s solicitor the substance of which is that the plaintiff is in liquidation and he believes it will not be able to pay the defendant's costs of these proceedings if 1t 1s unsuccessful. The fact of liquidation 1s in itself prima facie evidence that the plaintiff, if umsuccessful, will not be able to pay the defendant's costs and that fact casts upon the plaintiff company the burden of showing that its assets are surficient to pay the costs of the defendant. No such evidence 13 before me and the defendant has therefore made out a case for security which remains unanswered." Mr. Perkins, for the applicant, on the other hand, contended that it was erroneous to speak of a burden of proof on an application of this kind. He argued that in National Bank of New Zealand Ltd. v. Donald Export Trading Ltd. £1980] 1 NZLR 397 to which I referred in my reasons for judgment of 16 December 1986, the New Zealand Court of Appeal was at pains not to encumber the exercise of the discretion conferred by provisions such as s.533(1) of the Companies (Victoria) Code by considerations of burden of proof. Mr. Perkins referred also to a later judgment of the New Zealand Court of Appeal an Attorney-General v. Transport Control Systems (Na) Ltd. £13823 NZLR 15, at 20, where 1t¢ was observed: "Te us not in dispute that 1t appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendants 1f successful in their defence. Jurisdiction to make an order under the section accordingly exists. There then arises a dis- cretion to be exercised in all the circumstances of the case. There is no burden, nor is any predisposition appropriate, one way or the other: see National Bank of New Zealand Ltd. v. Donald Export Trading Ltd. £19801 1 NZLR 97, 101-102, per Richmond P. delivering the judgment of this Court." In my opinion, the fact that an applicant company is in Liquidation does mot create a presumption that the other o party 18 entitled to an order for security for costs. See Parkinson & Co. Ltd. v. Triplan Ltd. C1373] 0B 609 where Lord Denning M.R., with whom Cairns and Lawton L.JJ agreed, after reviewing some conflicting earlier authorities, including Fure Spirit Co. v. Fowler (supra) and Northampton Coal, Iron. - and Waggon Co. v. Midland Waggon Co. (1878) 7 Ch.D. 500, Said, at 626: "There seems to have been some misapprehension on the matter in the past. The sooner 1t 15 put right the better. If there 13 reason to believe that the company cannot pay the costs, then security may be ordered, but not must be ordered. The court has a discretion which 1t wiil exercise. The court has a discretion which it will exercise considering all the circumstances of the particular case." To similar effect, Lawton L.J. observed, at 628: "T agree with Lord Denning M.R. that the effect of section 447 is that once it is established by credible evidence that there 1s reason to believe that the plaintiff company will be unable to pay the costs of the defendants 1£ they are successful in their defence, the court has a discretion, and that discretion ought not to be hampered by any special ruies or regulations, nor ought 1t to be put into a straitjacket by considerations of burden of proof. It ais a discretion which the court will exercise having regard to all the circumstances of the case." Accordingly, I turn to examine the circumstances of this case, some of which have been sufficiently described in my reasons for judgment of 16 December 1986. Proceedings are pending in the Supreme Court of Victoria in which the first respondent ("Moowinnybah") is seeking the removal of caveats lodged by the present applicant, Labertouche Sands Pty. Ltd, uw against the registration of any dealing 1n respect of the property "Binalong". By another action in the same Court, First National Finance Limited, ("First National") as mortgagee of "Binalong" 1s also seeking the removal of the present applicant's caveats. In addition, First National has, on 17 duly 1985, obtained judgment against, amongst others, the second respondent, on a guarantee of performance by Moowinnybah of its obligations under the mortgage of "Binalong". On the strength of that judgment, First National has petitioned for a sequestration order against the estates of Mr. Edward Cooper and the other quarantors. Mr. Perkins Was somewhat critical of the fact that Mr. Cooper has not made full disclosure in the present application, that those bankruptcy proceedings are pending against him. However, I am not persuaded of the relevance of the pendency of those bankruptcy proceedings, (which it was not attempted to conceal), to the exercise of the court's discretion on an application for security for costs. On one view, the imminent threat of a sequestration order against him, may even give added point and urgency to Mr. Cooper's application for security for costs against the applicant. Another factor which Mr. Perkins suggested militated against any order for security for costs, was the need of the liquidator of the applicant, in the course of bringing the liquidation to an end, to obtain adjudication on questions of fact and law as to whether there had been any breach by the on respondent of ss.52 or 53A of the Trade Practices Act 1974, as a result of which the applicant had suffered damage. It was pub that the liquidator 15 an officer of the Supreme Court of Victoria who must be taken to be doing his public duty in pursuing the application in this Court under the Trade Practices Act. Reference was made to Re Pavelic Investments Pty. Ltd. 93 ACLR 417 where Blackburn C.d. yeferred at 417 to: "what appears to be a rule of practice so inveterate as to be almost a rule of law, namely that the liquidator of a company, appointed by the court, is not required to give security for costs save in very exceptional circumstances. I need not set out all the authorities to support this: the leading case is Re Strand Wood Co. Ltd. £19047 2 Chil. The rationale of the rule is partly that the liquidator is performing a public function on behalf of all the creditors and contributories of the company, and partly that it is within the competence of the court, i1n an appropriate case, to award costs against the liquidator personally. The question before me, therefore, 1s whether this 15 an exceptional case an which the power to order security for costs should properly be exercised." It may be that the rule to which the learned Chief Justice was there referring is confined to actions against directors for misfeasance. The proceedings in Re Pavelic Investments Pty. Ltd. (supra) and Re Strand Wood Co. Ltd. which was cited by his Honour were both of that kind, and references to the latter authority by various text writers confine it to applications for security for costs of misfeasance proceedings. (See e.g. Palmer's Company Law, 21st Edn. p.776; Wallace and Young, Australian Company Law and Practice pp.681 and 932, and The Supreme Court Practice 1985 p.388). At all events, I am not prepared to hold, in the face of a multitude of iunstances of an order for security being made against a liquidator in a voluntary winding up, that such a. liquidator, by reason of the duty owed to the court by which he 1s registered and to the public, is not generally amenable to an order for security. Examples of orders for security being made against companies in liquidation are provided by Northampton Coal Iron and Waggon Co, v. Midland Waggon vo. (supra), Pure Spirit Co. v. Fowler (supra), National Bank of Wales v. Collins (1894) 38 SJ 186; City of Moscow Gas Co. v. International Financial Society £18711 LR 7 Ch. 225, and Victorian Mortgage and Deposit Bank Ltd. v. Australian Financial Agency & Guarantee Co. Ltd. and Lucas (1892) 18 VLR 754. A cross-claim by the first respondent against the applicant alleges repudiation of the licence agreement and claims $10,000 due thereunder together with damages. Mr. Perkins also pointed to the fact that a cross-claim has been filed by the first and second respondents against the third respondent, Latimer. The cross-claimants there assert that if the representations and warranties pleaded by the applicant were false or untrue, as alleged, then that Falsity or untruth resulted from Mr. Latimer's failure to exercise reasonable care and skill as a consulting engineer in compiling a report for the cross-claimants on the sand content of part of "Binalong". Accordingly, 1t was argued, the respondents who are seeking security for costs are "just as much applicants as they are respondents". However, in my opinion the mere existence of the cross~claim against the applicant itself is not sufficient to warrant the court exercising its discretion by refusing an order that the applicant provide security for the costs of the application. In Washoe Mining Company _v. Ferguson £18661 2 Eq. 371 it was held that the principle of not making the plaintiff in a cross suit give security is that the cross bill is a mere defence to the original bill. For an example of the application of that principle, see Accidental and Marine Insurance Co. v. Mercati (18661 3 Eq. 200. In that case a company had, before 1t went into liquidation, filed a bill seeking a declaration that a marine policy on which it was being sued by the defendant, had been fraudulently obtained and was void. The Court refused to order it to provide security for the defendant's costs, observing at 203:- "Where a company is defending itself, it must be regarded as, in substance, a Defendant, and, therefore, is not to be called upon to give security. In this instance the company must be considered as a Defendant, and not as a 'plaintiff or pursuer' within the meaning of the Act, this being virtually a cross-su1t." By contrast, in the present case the cross-claim by the first respondent against the applicant, of its mature, raises something more than a mere defence to the application. I have taken account of the fact that the applicant's licence to extract sand from "Binalong" has been regarded, at least by some potential purchasers, as an asset of consider- able value. Undoubtedly the applicant has been inhibited in seeking to realize the value of the licence by the uncer- tainty surrounding the caveats lodged by it to protest its interest in "Binalong". The delays in completing the litigation necessary to resolve that uncertainty have not, on the evidence, been of the applicant's making. However, it remains the fact that, by the time when the substantive application for security came to be argued before me on 19 December 1986, no firm agreement had been concluded by the applicant to dispose of its sand mining operation to First National as mortgagee of "Binalong" or anybody else. I am also mindful that if the "in principle" agreement with First National were to come to fruition, 1t would be at least May 1987 before the applicant could receive the proposed amount of $200,000 from the proceeds of sale of "Binalong", and that even receipt of that amount would not be sufficient to enable the liquidator to pay in full the admitted debts of the applicant (excluding the sum of $60,000 for which the first respondent has lodged a proof of debt). It was also suggested that the first and second respondents had delayed unduly in making their application 10. for security for costs, and this was a matter which should weigh with the court in exercising its discretion to refuse the application. In making this suggestion, Mr. Perkins referred to Cohen v. Power £1971] 2 Ontario Rep. 742 where a Master of the Supreme Court of Ontario held that an unexplained delay in moving for security for costs was fatal to the success of the application. However, an examination of the Canadian authorities on which the Master relied reveals that they do not purport to take a different approach from that suggested an Re Smith, Bain v. Baim (1896) 75 LT 46. That was an action for an account and administration of a deceased estate, and the appointment of a receiver. The action was commenced in March 1892 and in June 1892 application was made by the defendant for security for costs, alleging that there was no residuary estate. Because difficulties were encountered in proving the will, a statement of claim was not delivered until 31 December 1895. A defence was delivered on 11 March 1896, and on 12 March 1896 the defendant took out a summons renewing the application for security for costs. Allowing an appeal from Kekewich J., the Court of Appeal held that the defendant was entitled to an order for security. Lindley L.d. observed at 48: "When I look, however, at Order CXV r.6 and the two cases which Mr. Butcher referred to of Martano v. Mann 14 Ch.D. 419 and The Lyndney and Wigpool Iron Ore Company Ltd. v. Bird 23 Ch.D. ll. 358 it seems to me that the court is not bound by any hard and fast line as to when an order for security for costs can be made. I am of the Opinion, therefore, that the appellant 1s entitled to the ordinary order for security for costs. ..." In the light of that passage and the authorities to which his Lordship there referred, I consider that an application for security such as the present should be examined in the exercise of the court's unfettered discretion without regarding delay, even i1f unexplained, as necessarily fatal. That is not to say that delay may not be a factor influencing a refusal of the application, or that it may not be relevant to the period in respect of which security for costs might be ordered. The application for security was made within four months of the applicant's go1ng into voluntary liquidation on 29 April 1986. It is a reasonable inference that the first and second respondents could not have obtained precise information about the applicant's financial position until at least two weeks after that date. In all the circumstances, I do not consider that the delay in bringing the application for security has been such that 1t should weigh with me in deciding to refuse the application. However, the fact that both the applicant and the respondents have incurred substantial costs in the application to date is a cogent reason for confining any order for security for costs which are to be incurred in the future. See e.g. Southern Cross Exploration NL v. Fire & All Risks Insurance Co. Ltd. £19851] 1 NSWLR 114 esp. at 123-126. Objection was taken on behalf of the applicant that some passages in an affidavit by the solicitor for the first and second respondents in support of the application for security, were not admissible. It will be apparent from the reasons for the judgment which I gave on 16 December 1986, that there are only a few matters of fact to which I have found 1t necessary to have regard. They are that the applicant went into voluntary liquidation on 29 April 1386, the details of ats financial position at that date as disclosed by a report to the liquidator by its directors, and certain assertions and estimates by their solicitor of the costs which the first and second respondents had incurred to date, and would incur if the application were to proceed to trial with senior and junior counsel retained. A copy of the report as to the applicant's affairs as at 29 April 1986 was exhibited to an affidavit sworn by Philip Maxwell Earle, the solicitor for the first and second respondent, on 27 August 1986. However, that copy was not certified by a person authorized by the Commissioner for Corporate Affairs for Victoria, as delegate of the National Companies and Securities Commission. Subsequently, on 19 December 1986, Mr. Tribe of counsel for the first and second respondents sought, over the objection of Mr. Perkins, to tender in evidence a certified copy of that report. As I understand the objection to the admissibility of the report, 16 was that 1t did not appear that Mr. Earle had himself carried out a search at the office of the Commissioner for Corporate Affairs, and that, therefore, his assertion that the copy exhibited to his affidavit was a true copy of the document lodged in that office, was hearsay. When Mr. Tribe, in the course of answering the applicant's submissions against the making of an order for security, sought to tender a copy which had been duly certified on 18 December 1986, Mr. Perkins contended that, in its discretion, the court should refuse that tender because the evidence had by then closed, and the first and second respondents had left it too late to remedy a defect which should have been apparent to their legal advisers since 27 August 1986. In my opinion, the certified copy of the report of the directors of the applicant is properly admissible and should be received in evidence. Section 31(5) of the Companies (Victoria) Code provides that: "A copy of or extract from any document lodged with the Commission or with the Commissioner for Corporate Affairs or the Registrar of Companies, and certified by the Commission, 1s, in any proceedings, admissible in evidence as of equal validity with the original document." I am disposed to receive into evidence the certified copy of the directors' report, notwithstanding the lateness of the 14. tender. I am reinforced in that view by the fact that the applicant allowed its application for an adjournment of the application for security for costs to be argued and resolved on the basis of the financial information contained in that report of two of its own directors, Messrs Whitelaw and Baxter. In the second place, since this application for security for costs 1s an interlocutory proceeding, documentary evidence of the financial position of the applicant might have been admitted under 0.33 f£.2 of the Federal Court Rules, notwithstanding that 1t was hearsay. Moreover, the fact that the document tends to prove matters apparently not bona fide in dispute, would argue strongly for receiving it in evidence under 0.33 r.3 of the Federal Court Rules. Mr. Perkins next attacked the estimate expressed by Mr. Earle in his affidavit that the total party costs of this application will be in excess of $60,000. It was not contested, as I understood the argument, that Mr. Earle as a duly admitted barrister and solicitor of the Supreme Court of Victoria was qualified to express an expert opinion about the costs likely to be incurred by a party to an application like the present. However, Mr. Perkins urged that Mr. Earle had not established any sufficient factual basis for the assumptions on which his estimate was based, such as the likely length of the final hearing and the number of counsel to be retained. Nor had he apportioned his estimate between the costs attributable to the application and to the Cross-application. In my view, those criticisms go to the weight to be attached to Mr. Earle's estimate rather than to ats admissibility. JI consider that it would be open to the court, even without his estimate, to take judicial notice of the likelihood that the first and second respondent's party and party costs of this application will be substantial. For reasons which will appear shortly, I do not attach any real weight to the precise amount of $60,000 at which Mr. Earle estimated those costs. Qne of the premises of Mr. Earle's estimate of the first and second respondent''s costs of the application was that costs incurred by them "to date amount to approximately $18,000" of which approximately $15,000 "is in respect to the first and second named respondents' former solicitors, Messrs Noel Waters and Robert Hession of 120 High Street, Cranbourne." As well as directing his general objections to that passage in common with others from Mr. Earle's affidavit, Mr. Perkins specifically criticised it as relying "entirely on what has been said to Mr. Earle by somebody else" from the first and second respondents' former solicitors. Had I been persuaded to make any order for security bearing a precise relation to the costs incurred by the first and second respondents to the date of this application, I would, on the present state of the evidence, have taken the course favoured by Beaumont J. in Fat-sel Pty. Ltd. v. Brambles Holdings Ltd. (1985) 3 ACLC 312 by first having the first and second respondents' costs to date taxed by the District Registrar. However, I accept, with respect, as Beaumont J. did in Fat-sel Pty. Ltd. v. Brambles Holdings Ltd. (supra), at 315 the correctness of the approach taken by Fullagar J. in Brundza v. Robbie & Co. (No. 2) (1952) 88 CLR 171 at 175 where his Honour observed that "in ordering security for costs, the Court does not set out to give a complete and certain indemnity to a respondent: see Aberdare & Plymouth Co. v. Hankey (1888) 32 S.d. 644." For reasons similar to those which weighed with Waddell J. in Southern Cross Exploration NL v. Fire & All Risks Insurance Co. Ltd. (supra) at 125, that approach commends itself the more strongly in respect of costs which have already been incurred by a respondent before the making of an application for security. Accordingly, I do not consider that in this case a taxation of the respondents' costs to date would afford enough assistance, in fixing the amount of any security, to justify imposing that additional expense on the parties. Mr. Perkins also argued that it was open to the court to infer that the applicant's financial difficulties have stemmed largely from the transaction in respect of which it seeks relief by the present application under the Trade Practices Act. That inference, he contended, permitted the court to take account of the considerations identified in Lynnebry Pty. Ltd. v. Farquhar Enterprises Pty. Ltd. (1977) 3 ACLR 133. In that case the plaintiff was seeking relief against the vendor of a parcel of land alleging that the vendor had induced the plaintiff by a fraudulent misrepresentation to purchase the land. The plaintiff also sought to recover damages from its former solicitors for negligence in falling to ascertain the true zoning of the land under town planning legislation. His Honour observed, at 136: "The Master, however, in exercising his discretion, also took into account the fact that, in his view, the present parlous financial position of the plaintiff and of its two shareholders had been brought about by the alleged fraudulent misrepresentation made by the vendor company and by the alleged negligence of the solicitors in the course of their alleged retainer. IT am unable to accept Mr. Einstein's submission that the plaintiff would have been in insolvent circumstances irrespective of the land transaction, the subject of the action. Mr. 8B. cd. Fehon stated before the Master that the company was in a healthy situation until the time when the subject land was bought and he had heen pouring money into the company from his other sources and those of his wife, ever since the purchase. On a consideration of this evidence and of the plaintiff's balance sheets, I am of the opinion that the plaintiff's present financial a@ifficulties are largely due to the transaction. This 1s, I think, a most relevant circumstance (Sir Lindsay Parkinson & Co. Ltd, v. Triplan Ltd., supra at 626-627) and one which warrants the application being refused." 18. Te 1s alleged in the statement of claim that the applicant paid $275,000 to the first respondent for sand Mining plant and equipment on ""Binalong" and expended $260,000 on new plant and equipment and improvements to the land. However, 16 appears from the report furnished by the directors of the applicant to the liquidator that as at 29 April 1986 the plant and equipment had an estimated realizable value of $100,000. Moreover, the "in principle" agreement to which Mr. Joseph has deposed suggests, that the plant and equipment together with the applicant's interest in "Binalong" has a current value of $200,000. Neither the evidence so far given, nor the pleadings indicate what income (if any) the applicant derived from sand mining activities on "Binalong", but the same directors' report to the liquidator indicates that the applicant has a paid up capital of $105,000. It may be an available inference that the applicant's present impecuniocsity is due, at least in part, to its being under-capitalized. At all events, I am not persuaded that there 1s such a causal connexion between that impecuniosity and the alleged breaches of the Trade Practices Act, (if they can be made out) that, on balance, I should exercise my discretion by refusing an order for security. Nor 1s there evidence one way or the other about the means or lack of them of the creditors and shareholders of the applicant who stand to benefit if the application is successful. In that context, I accept with respect what was 13. said by a Full Court of this Court (Sheppard, Morling and Neaves JJ.) ain Bell Wholesale Co. Ltd. v. Gates Export Corporation (1984) 2 FCR 1, at 4:- "In our opinion a court 1s not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it 15 an essential part of the case of a 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." Accordingly, in view of the factual circumstances set out in my reasons for judgment delivered on 16 December 1986, and having regard to the considerations canvassed above, I conclude that a balance of justice and reasonableness will be struck by making an order that the applicant provide security for the costs of the first and second respondents in the sum of $14,000. Subject to any submissions which counsel may desire to make on the form of the order, or the question of costs, I propose to order that proceedings on the application herein be stayed until security for the costs of the first and second respondents is provided by the applicant in the sum of $14,000 to the satisfaction of the registrar, and that the costs of the application for security be the first and second respondents' costs in the substantive application. I certify that the preceding nineteen (19) pages are a true copy of the Reasons for Judgment herein of the Honourable Mr. Justice Ryan. Dated: 25 February 1987 PerPa1es Associate