NOT FOR DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSW No. G.29 of 1987 eS GENERAL DIVISION BETWEEN: W_WEHBE PTY LIMITED Appellant AND: CALTEX OIL (AUSTRALIA) PTY LIMITED Respondent CORAM: WILCOX J PLACE: SYDNEY DATE: 18 MARCH 1987 MINUTES OF ORDER THE COURT ORDERS THAT: i, The Notice of Motion be dismissed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. = 2 APR 1987 ERAL COURT OF FED AUSTRALIA PRINCIPAL REGISIAY NOT FOR DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSW No. G.29 of 1987 wer rw vw GENERAL DIVISION BETWEEN: W WEHBE PTY LIMITED Appellant AND: CALTEX OIL (AUSTRALIA) PTY LIMITED Respondent CORAM: WILCOX J PLACE: SYDNEY DATE: 18 MARCH 1987 EXTEMPORE REASONS FOR JUDGMENT There is before the Court a Notice of Motion whereby the respondent to a pending Full Court appeal seeks an order that the appellant provide security for costs of the appeal. The subject matter is one of two matters which were heard together by Sheppard J. In one case the applicant before his Honowr was a company, W Wehbe Pty Limited. In the other case the applicant was Mr Wehbe personally. Sheppard J described Mr Wehbe in his judgment as the "alter ego" of the company. It appears from documents before me that the only two directors of the company are Mr Wehbe and his wife. The company was the franchisee and lessee of a service station at 77 Hume Highway, Chullora. Mr Wehbe personally was the franchisee and lessee of a service station at Strathfield. In each case the lessor was the present applicant, Caltex Oil (Australia) Pty Limited. It appears that Caltex formed the view that Mr Wehbe had been guilty of dishonesty in the way in which the Chullora service station had been conducted. The particular form of dishonesty was said to be the stealing of distillate owned by Caltex. It was on the basis of the lessor's view that Mr Wehbe was an unsuitable person to be conducting a service station owned by it that notice of termination of the two franchises and notices of termination of the two leases was given. Proceedings were then commenced by each of the company and Mr Wehbe. At the trial before Sheppard J the significant issue, and I understand the only issue on which his Honour found against the then applicants, related to the alleged dishonesty of Mr Wehbe. Sheppard J found that issue against Mr Wehbe and taking the view, as he did, that Mr Wehbe's personal dishonesty tainted the fitness of the company to operate the Chullora site, he made orders favourable to Caltex in each case. It appears that the orders in the matter instituted by the company, that is G.357 of 1986, were pronounced on 30 December 1986. His Honour made certain declarations and he then made order 5: that the applicant give and deliver up to the respondent possession of the premises at Chullora. By order 6 his Honour granted leave to the respondent to issue forthwith a writ for possession of the Chullora premises; but he directed that any such writ lie in the court office until disposal of any application for a stay of operation and execution of the writ if made within a certain time. It appears that such an application was made and that it came before the Chief Judge on 11 February 1987. Apparently some agreement had been thrashed out between the parties in the meantime, because on that day the Chief Judge noted certain undertakings given on behalf of the company and on behalf of Mr and Mrs Wehbe personally, and also an agreement recorded in Minutes which were attached to the Eormal order. The only orders made on that day, in respect of the company's case, were that the costs be reserved and that the matter, that is the appeal from the decision of Sheppard J which had apparently been lodged in the meantime, be expedited. The agreement which is referred to in the Chief Judge's order does not in terms contain a provision permitting the company to remain in possession of the Chullora site pending the determination of the appeal. But this was clearly the envisagement of the parties. The various undertakings are consistent only with that view. Since that time Caltex has apparently permitted the company to remain in possession of the site and it is still conducting the service station. I assume that similar arrangements were made in respect of the Strathfield site, but I am not directly concerned with that matter. I have been informed by counsel that, as a result of the order for expedition, the hearing of the appeal has been fixed to commence on 29 April next, with an estimate of two days. The application before the Court is made pursuant to s.533 of the Companies (New South Wales) Code. That section empowers the Court in a case where a corporation is a plaintiff in a legal proceeding, 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 its defence, to require sufficient security to be given for those costs. The section also confers power to stay all proceedings until the security is given. The Notice of Motion filed by Caltex in this matter seeks, firstly, an order that the appellant provide security for the costs of the respondent in the appeal; and, secondly, that in the event that such security be not given in the manner and upon the terms directed by the Court that the appeal be stayed, that the stay of the operation of and execution upon the orders of Sheppard J be dissolved, and that the applicant be given leave to uplift and serve the writ for possession presently lying in the Court office in respect of the premises now known as "Caltex Service Station", 77 Hume Highway, Chullora. There are some difficulties about the relief as framed in the Notice of Motion. From the history which I have recited it appears that there is not any present stay, by order of the Court, imposed upon the operation and execution of the orders of Sheppard J. Caltex has stayed its hand pursuant to an agreement which it made, and which was the basis of the undertaking and agreement tendered to the Chief Judge on ll February. Consequently it seems to me that the second item in the default order which is sought is misconceived. In relation to the third item, I note that this would go beyond the express power given by s.533 of the Code. It may be, as Mr Ryan submits, that the Court has power to reconsider the whole matter of a stay in the event of a default in the provision of security and to make an order which, in effect, cuts across an agreement made between the parties. This perhaps could be justified upon the basis that that agreement presupposed that the appeal would proceed and that any failure to provide security casts doubt upon the accuracy of that supposition. However, it seems to me that I do not need to consider whether this is a course which is open to me. In that regard I note that I have not heard Mr Warren on the matter. As I see the situation this is not in any event a proper matter in which to order security For costs. I say at once that this is not because I doubt the proposition that there is reason to believe that the corporation will be unable to pay the costs of the respondent if it is successful on the hearing of the appeal. Evidence has been put before the Court in the form of an affidavit of the solicitor for the appellant revealing the contents of the most recently filed annual return of W Wehbe Pty Limited. This is an annual return made up as at 30 June 1985. It shows total shareholders' funds of $14,064, of which $7,000 is attributed to a premium on lease. It appears that this is the lease of the Chullora Service Station and, of course, if the appeal fails and the orders made by Sheppard J are retained, this will have no value. It will not be assignable. This would mean that, on the basis of these accounts, the total shareholders' funds are only $7,064. Although I think that the estimate put before the Court on behalf of the present applicant of costs of the range of $20,000 to $25,000 is excessive, considered as an estimate of taxable party and party costs, it is likely that a bill of costs for a two day hearing would come in at more than $7,064. The respondent has put before the Court an affidavit sworn by Mr Wehbe today which sets out certain items by way of assets and liabilities. I am not prepared to put any reliance at all on the figures in that affidavit. Mr Wehbe shows "client debtors" at $46,500. In the 1985 annual return there is an item "trade debtors" $9,364. According to Mr Wehbe's explanation in his oral evidence these refer to the same item. I would be very sceptical of the assertion that trade debtors had multiplied nearly four times during that period. In the affidavit reference is made to a Mercedes Benz motor vehicle said to be worth $30,000. It appears from Mr Wehbe's oral evidence that he has had this vehicle for about five years. I assume in his favour that it is in fact a vehicle to which the company has some rights -- rather than himself personally -- but it also appears from his evidence that it is encumbered. He was unable to say whether this was pursuant to a lease agreement or a hire purchase agreement but whichever it is there are payments being made to the Commonwealth Bank. I note that in the annual return of 30 June 1985 the only motor vehicle referred to is given a value of $2,500. I am not at all persuaded that the Mercedes Benz should be regarded as an asset of the company having anything like the claimed value. In regard to the liabilities it is really impossible to form a judgment as to whether they are correctly stated. For what it is worth I note that the disclosed overdraft account in the affidavit -- of $15,000 -- is about half that shown in the 1985 annual return, a figure which is much the same as in the 1984 annual return. It is, of course, possible that the overdraft has been reduced but I am not impressed with Mr Wehbe's evidence and I would place very little reliance upon it. I think that the safer course is to look at the filed returns, which were made up by the company's accountant, and on the basis of that evidence the only conclusion that one could draw would be that there is reason to believe that the corporation would be unable to pay the costs of the appeal. However, the reason why I decline the application is that it seems to me that no additional exposure to costs will be incurred by the present applicant whether or not the company's appeal proceeds. I have already indicated that there were two matters before Sheppard J. He found in favour of Caltex in respect of both of them. They related to two separate service stations, each of which no doubt has a value to a lessee. Notices of Appeal were filed in each matter. The evidence in regard to each matter is identical. It is true, as Mr Ryan points out, that the main "action", that is the events described in the evidence and which were the foundation of the complaint of dishonesty, took place at Chullora rather than at Strathfield but Caltex's whole point was that the acts of Mr Wehbe at the Chullora Service Station, a service station operated by the company, were such as to demonstrate his unfitness to be concerned in holding a franchise on any site; whether personally or through a company. It was for that reason -- and as I understand it that reason only ~-- that Caltex successfully submitted to Sheppard J that he ought to uphold the termination by Caltex of the Strathfield licence. As I suggested to counsel during argument, it matters not at all where the events occurred. The question for debate at the appeal will be whether his Honour was justified in coming to the conclusions, adverse to Mr Wehbe's dishonesty, at which he arrived. Irrespective of the company's appeal that issue will have to be considered in regard to the appeal by Mr Wehbe personally relating to the Strathfield site. Counsel frankly conceded that there would not be a single dollar of expenditure which would be incurred if the two appeals went ahead which would not also be incurred if Mr Wehbe's personal appeal was the only one which was litigated. Serious findings have been made against Mr Wehbe and I have reached an adverse view in regard to the evidence which he has put before the Court this morning. But the discretion to order security for costs is not one to be exercised in any punitive fashion. The discretion is given to the Court to enable it to protect a party against whom proceedings are taken from the necessity to outlay money in resisting those proceedings which it would not otherwise have to outlay and which it might not recover if the proceedings should fail. In the present case Caltex is going to have to spend money in resisting the one appeal, being the identical money which 1t would have to spend in resisting two appeals. Under those circumstances it seems to me that it would be incorrect to require the furnishing of security for costs. The fact of the matter is that, in terms of the risk which it will have to undertake, Caltex will be no worse off if this order is refused than if it is granted. I say that on the assumption that, if the order were granted, the security would not be furnished and the action would simply be stayed. Under these circumstances I do not propose to accede to the application and I dismiss the Notice of Motion. 10. I certify the nine (9) preceding pages to be a true copy of the Reasons for Judgment of his Honour Mr Justice Wilcox. nesoctate: =e Ce ~ Date: 1 April 1987 In the Notice of Motion: Counsel for the Applicant: Solicitors for the Applicant: Counsel for the Respondent: Solicitors for the Respondent: Date of hearing: Mr D E Ryan Moore & Bevins Mr D L Warren Karavias, Katralis, Vosnakis & Co 18 March 1987