bets NO! FOR DISTRIBUTION Qos IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION No. WA G 128 of 1987 BETWEEN: DILEUM PTY. LIMITED Applicant AND: GREENALL WHITLEY LIMITED Respondent MINUTE OF ORDER JUDGE MAKING ORDER =: Neaves J. DATE OF ORDER : 29 May 1987 WHERE MADE : Perth THE COURT ORDERS THAT: 1. The applicant within 28 days from the date of this order give security in the sum of $7,500 for the payment to the respondent of costs that may be awarded against the applicant in the proceeding. 2. The said security be given by the payment into Court of the sum of $7,500. 3. If the applicant fails to comply with this order for security within 28 days, the proceeding be thereupon stayed. 4. The respondent's motion for security for costs of which notice was filed on 18 May 1987 be adiourned qenerally with liberty to restore it to the list at any time on reasonable notice. 5. The applicant pay the respondent's costs-<\0f motion to and including the entry of this ogder.. on Note: Settlement and entry of orders is dealt with in order ¥887 of the Federal Court Rules. FEDERAL COURT OF AUSTRALIA PRINCIPAL REGISTRY \ ~ - anil ' et ae rv IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY No. WA G 128 of 1987 ~- eww GENERAL DIVISTON BETWEEN : DILEUM PTY. LIMITED Applicant AND: GREENALL WHITLEY LIMITED Respondent CORAM: Neaves J. DATE: 29 May 1987 REASONS FOR JUDGMENT Fending in the Court is an application by Dileum Pty. Limited « "the applicant") aqainst Greenall Whitley Limited «"the respondent") in which the applicant seeks an order for the delivery of certain undelivered wines or, alternatively, damaqes. The basis of the claim may be shortly stated. In October 1984 and December 1985 the applicant entered into two contracts with Premier Exports SARL, a company registered and carryinag on business in France, for the purchase of a total of 107 cases of French wines. The vendor company is alleged to be a subsidiary in the aqroup of companies of which the respondent (which carries on business in the United Kingdom but not in Australia) is the holding company though this association is denied by the respondent. The applicant alleaes that the total purchase price was paid but only 60 cases of wine were delivered. The applicant says that on or about 5 February 1986 Mr Stephenson, one of its directors, had a telephone conversation with a Mr Anderson who was acting on behalf of the respondent. Mr Anderson is alleqed to have said that the respondent would deliver. or procure the delivery of, the undelivered wines to the applicant in Perth within a reasonable time. A letter dated 11 February 1986 from the respondent is said to have been to the same effect. The wines were, in fact, never delivered. The respondent admits that a conversation took place between Mr Stephenson and Mr Anderson but denies that the substance of the conversation was as alleged and denies that Mr Anderson was actina on behalf of the respondent. The conduct of the respondent is alleqed to have been in contravention of s.52(1) of the Trade Practices Act 1974 (Cth) in that, at the time the statements were made, the respondent had no intention of qivinag effect to them and did not have the means of doing so. The applicant says it relied on the statements made and, as a result, it suffered loss and damage. There is an alternative claim for damages for breach of contract on the part of the respondent. By its defence, the respondent denies any liability to the applicant. The respondent has now applied to the Court for an order that the applicant give security for costs in the sum of $10,000 or such other amount as the Court may deem fit. A stay of proceedings is sought until security for costs is given. I Rg eee Oe eee Fe 8 I The evidence establishes that the applicant has an issued capital of $10. It is a trustee company, its sole tradina activity being the conduct of a business under the name "Liberty Laquors" as trustee for "The Carlton Unit Trust". The applicant owns no assets beneficially and does not trade on its own account. There is in evidence an unaudited balance sheet showing the assets and liabilities of the business of "Liberty Liquors" as at 30 June 1986 and a profit and loss statement for the business for the financial year ended on that date. Current assets are shown at $1,152,075 and current liabilities at $1,034,508. Included in the current assets are short term deposits totalling $417,863. The profit and loss statement shows an operating profit for the year at $324,613, an increase from $180,397 for the previous year. It is estimated by the applicant that the operating profit of the business for the current year will be of the order of $500,000. The notes to, and forming part of, the financial statements of the applicant as at 30 June 1985 contain the following statement: "The total liabilities incurred on behalf of The Carlton Unit Trust were not in any Csic] breach of any provision of the trust deed and therefore the company is entitled to be fully indemnified for liabilities incurred." ee oo eR ol a k RR COT RY ap Fe >. : | 4. There 1s. however, no information before the Court as to the terms of the trust deed of "The Carlton Unit Trust" nor any information as to its activities other than that relating to the business "Liberty Liquors". Apart from the estimated operating profit fiaqure, no details are given concerning the financial position in the current year of the liquor business. Nor are the terms of the idemnity to which the applicant is said to be entitled in evidence and there is in the material no assertion in relation to the year ended 30 June 1986 similar to that quoted above from the financial statements as at 30 June 1985. Mr Stephenson says in his affidavit sworn 27 May 1987 that he controls "The Carlton Unit Trust" through what 15s described as his "indirect control of units in the trust". No details are given. The case for the respondent is epitomised in what was said by Smithers J. in Laundry Coin-Wash Nominees Pty. Ltd. v. Dunlop Olympic Ltd. (1985) ATPR 40-584 at p.46,729: "Where the only tangible assets of an applicant company are held in trust for another entity and its solvency depends on its right as trustee to indemnity against that entity it is necessary for the Court to have in mind the difficulties which a successful respondent would have in attempting to execute in respect of an order for costs. Indeed, unless some step is taken to alleviate those difficulties it is reasonable - id fust to treat the applicant company as if it were without assets to meet such a liability." To 6 oe RE eR nye RRO, oe ___ " as ty The applicant. 1m opposing the application, points to its equitable right, as trustee, to indemnity by the beneficiaries of the trust aqainst costs and expenses properly incurred in execution of the trust and to its right. enforceable by lien over the assets under its control, to indemnity out of the trust assets. It is also said that the respondent, in the event of costs being awarded in its favour, would have a riaght, by subrogation, to require the exercise by the applicant of its riqht of indemnity out of the assets of the trust. It is submitted, un effect, that, having regard to those rights and the circumstance that the business conducted by the applicant in execution of the trust is in a healthy financial state, the Court should be satisfied that the respondent's interests are sufficiently protected and should, in the exercise of its discretion, decline to order that security for costs be provided. All this is said, however, in the absence of any evidence as to the terms of the trust and, in particular, the terms of any indemnity for which the trust deed provides. Apart from the rather bland statement that Mr Stephenson is entitled, indirectly, to control "The Carlton Unit Trust", there is no evidence as to the identity or the financial position of the beneficiaries. No undertaking is offered by or on behalf of the applicant that it will make provision. by the exercise of its lien, for the satisfaction of an order for payment of any costs awarded to the - ree LS gta: et Cs ree a os ee wre oan oy respondent. It cannot. of course, be predicted with certainty that the applicant will remain the trustee of "The Carlton Unit Trust" at the time of aiudgment in the proceeding. To this must be added that it is not entirely clear precisely how and 1n what circumstances the respondent could enforce a right of subrogation. In Laundry Coin-Wash Nominees Pty. Ltd. v. Dunlop Olympic Ltd. (supra), Smithers J. said at pp.46,730-1: "The method by which the parties concerned construct the entities by which their interests are pursued has, no doubt. positive benefits for them, and is a matter for decision by them. But the trust structure does involve that persons dealing with a company playing the part of trustee in the adopted business structure, necessarily deal with an entity, the beneficial ownership of all property in whose hands is in another entity to whom the legal estate therein may be passed at any time. The accountability of such a company for amounts for which it may be legally liable is inherently less stable and reliable than would be the case if it were in business on its own behalf. For reasons mentioned above a creditor with a judgment against the applicant should not normally be restricted to reliance on the applicant's indemnity under the trust deed. Accordingly, but for the giving of the undertaking referred to I would have ordered that the applicant give security for costs. I have concluded that an applicant being a trustee company which desires to resist an order for security for costs should establish that recourse to property held by or for it will be available to the party against whom it has brought its action and be adequate, at the appropriate time, to meet the possible liability for costs. In this case I considered the applicant might do this by giving an undertaking epee ET x. eenaned such as I have required. It ensures that the applicant will be in actual possession of property and have legal entitlements in respect thereof sufficient in value to provide for the applicant's liability and thus providing a sufficient measure of practical protection of the interests of the respondents." Reference might also be made to what was said by Jenkinson dg. in Chester & Fein Property Developments Pty. Ltd. v. Candam Investments Pty. Ltd. (1985) 61 A.L.R. 729. In my opinion, it would not be an appropriate exercise of the judicial discretion which is vested in the Court to decline to order security because of the mere existence of the equitable rights to which I have referred, with whatever difficulties may be attendant upon their enforcement. Such an approach should, I think, properly be regarded as insufficiently protecting the legitimate interests of the respondent. It follows that this is, in my view, an appropriate case in which to order that the applicant qive security. I would add that there is no suagestion that to order security will frustrate the litiqation. In relation to the amount of the security to be provided, the evidence is sparse. Apart from the somewhat eniamatic expression of opinion by the respondent 's solicitor that the party and party costs which the respondent would be entitled to recover from the applicant in the event of it being successful in defending the oo ermepe ey New a . 4 a ae SABRE es men ces es proceeding "is reflected 1n the amount claimed in the notice of motion", there 1s little material upon which to form an estimate of the amount of costs which would be recoverable. It is. however. of some significance that the respondent has no office in Australia. This will inevitably increase the difficulty and expense in obtaining instructions which must be sought from the United Kingdom where any relevant documents are situated and where all those to whom the respondent might look to speak of the events on which the applicant relies are to be found. Any witnesses which the respondent may wish to call as to those events will have to travel to this country from the United Kingdom. In my opinion, the appropriate course is to order that the applicant within 28 days of this order give security in the sum of $7,500 for the payment to the respondent of any costs that may be awarded against the applicant in the proceeding; that that security be given by the payment into Court of the sum of $7,500; and that, if the applicant fails to comply with the order for security within 28 days, the proceeding be thereupon stayed. I should make it clear that. in making those orders, I rely on the power conferred on the Court by s.56 of the Federal Court of Australia Act 1977 (Cth): see Bell Wholesale Co. Pty. Ltd. v. Gates Export Corporation (1984) 52 A.L.R. 176. It will be open to the respondent to make application for a larger sum to be provided by way of security at an appropriate time should it be so advised. The respondent's PE i ee a ee # Seth wa ct 9. motion for security for costs, of which notice was filed on 18 May 1987. is adjourned generally with liberty to restore it to the list at any time on reasonable notice. The applicant must pay the respondent's costs of the motion to and including the entry of this order. I certify that this Honourable Mr Justice Neaves. Associate Dated: 29 May 1987 Counsel for the applicant : Mr S. Paterniti Solicitors for the applicant : Parker & Parker Counsel for the respondent : Mr B.S. Dodd Solicitors for the respondent : Mallesons Stephen Jacques Date of hearing : 29 May 1987 and the preceding 8 pages are a true copy of the Reasons for Judgment herein of the re