JUDGMENT No. TO Qik CATCHWORDS Practice and Procedure- motion for security for costs - discretionary nature - applicant ordinarily resident outside Australia - principles applicable. Federal Court of Australia Act 1976 s. 56° sO D Judiciary Act 1903 s. 79, 80. an ~ "7% Companies (N.S.W.) Code 1981 s. 533(1) DATE: 23 December 1987 CORAM: GUMMOW J. PLACE: Sydney. Aussie Protection Inc. & Anor. V Hy-Way Sunvisors (sales) Pty. Ltd. IN THE FEDERAL COURT OF AUSTRALIA) NEW SOUTH WALES DISTRICT REGISTRY) GENERAL DIVISION ) NO. G.576 of 1987 BETWEEN: AUSSIE PROTECTION INCORPORATED First Applicant SIMON WESTBROOK SKEET Second Applicant AND: HY-WAY SUNVISORS (SALES) PTY. LIMITED First Respondent LARRY SHEIL Second Respondent CORAM: GUMMOW J. DATE: 23 DECEMBER 1987 PLACE: SYDNEY Se é 7 By mM A By K INUTES OF ORDER ON "s mn 4 Ca THE COURT ORDERS THAT: TT Ie (1) The Applicants provide security for costs in the amount of $12,500, such security to be in a form agreed between the solicitors for the parties and failing such agreement, in a form acceptable to the Registrar. (2) The proceedings be stayed until the Applicants have complied with Order (1). (3) The parties have liberty to apply on seven (7) days written notice. (4) Costs of the motion be costs in the substantive application. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA) NEW SOUTH WALES DISTRICT REGISTRY) GENERAL DIVISION ) NO. G.576 of 1987 BETWEEN: AUSSIE PROTECTION INCORPORATED First Applicant SIMON WESTBROOK SKEET Second Applicant AND: HY-WAY SUNVISORS (SALES) PTY. LIMITED First Respondent LARRY SHEIL Second Respondent CORAM: GUMMOW J. DATE: 23 DECEMBER 1987 PLACE: SYDNEY EX TEMPORE REASONS FOR JUDGMENT HIS HONOUR: These proceedings were commenced by Application and statement of claim filed 16 November 1987. The first respondent is a company incorporated in New South Wales, and the second respondent, Mr. Sheil, is a New South Wales resident. The first applicant is a corporation which is shown as incorporated under the laws of the State of Maryland in the United States of America. The second applicant, Mr. Skeet, is resident in Maryland and is the President and a shareholder of the first applicant. 2. The applicants plead their case as one of contravention of s.52 of the Trade Practices Act 1974 ("TP Act"). They claim damages of which broad particulars are given. They also seek injunctive relief. An injunction is sought restraining the respondents from appointing any person other than the second applicant to distribute the product ""Weathershield" in Northern and Central America. An injunction is also sought against the appointment of any person other than the second applicant to distribute the product "Threadrite" in all areas of the world, with the exception of Australia, New Zealand, the South Pacific Islands and South East Asia. By motion filed 4 December 1987, the respondents seek an order that the applicants provide security for costs in the proceedings. They also seek an order that until such security is provided, the proceedings be stayed. On 10 December 1987, the Court gave directions for the filing of affidavits, and stood the motion over for hearing on 18 December 1987. 0.28 r.3 (1) (a) of the Federal Court Rules provides that where, in any proceeding, it appears to the Court on the application of a respondent that an applicant is ordinarily resident outside Australia, the Court may order that applicant to give such security as the Court thinks fit for the costs of the respondent of and incidental to the proceeding. More generally, s.56 of the Federal Court of Australia Act 1976 provides that the Court may order a plaintiff in a proceeding in the Court to give security for the payment of costs that may be awarded against him and that the security shall be of such amount, and given at such time and in such manner and form, as the Court directs. 3. In this case, the Court is exercising jurisdiction within the State of New South Wales. Sub-s. 533 (1) of the Companies (N.S.W.) Code provides as follows: Where a corporation is a 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 be given for those costs and stay all proceedings until the security is given. In such a case as this, it has been held that by virtue of s.79 of the Judiciary Act 1903, this provision of the New South Wales law is made applicable in this Court: Cameron's Unit Services Pty. Ltd. v Kevin R. Whelpton & Associates (Australia) Pty. Ltd. (1986) 13 FCR 46 at 48-49. However, s.533 would, on the present motion, deal only with the position of the first applicant and the respondents put their case primarily on the footing that security should be provided by the applicants as persons ordinarily resident outside Australia. It is necessary first to outline the nature of the case as it presently appears from the materials that have been filed. The first respondent, Hy-way Sunvisors (Sales) Pty. Ltd., and the second applicant are parties to two agreements each dated 1 April 1987. The first agreement (the Weathershield Agreement) recites that EGR Plastics & Signs of Salisbury in the State of Queensland manufactures weathershields for use on trucks and vans. These weathershields are defined as "the Product". It is further 4. recited that EGR Plastics & Signs has granted to the first respondent the right to market and sell the Product in Australia and Northern and Central America, and that, with the consent of EGR Plastics & Signs, the first respondent has agreed to grant to the second applicant the exclusive right to market and sell the Product in Northern and Central America. This is defined as "the Territory". The exclusive right 1s then granted by clause 1, and in clause 2 it 1s provided as follows: Except as herein expressly provided, during the term of this Agreement Hy-way shall not market sell or distribute the Product for sale in the Territory. Skeet hereby agrees that during the term of this Agreement it [sic] will not market sell or distribute the Product other than in the Territory. Clause 3 provides for an indefinite term of the agreement, subject to, inter alia, termination by six months' notice in writing by either party served at any time upon the other. In the second agreement (the Threadrite Agreement) it is recited that the first respondent has granted to Mr. Skeet the exclusive right to market and sell Threadrite (which is defined as "the Product") "in all areas except Australia, New Zealand and the South Pacific Islands and SE Asia (/'The Territory' )". The exclusive right is then granted by clause 1, and clauses 2 and 3 are along the same lines as those clauses in the Weathershield Agreement. The applicants allege in their statement of claim that certain representations were made in the course of negotiations between Mr. Skeet and Mr. Sheil leading up to the entry into the two agreements of 1 April 1987. The applicants also allege that in reliance upon these representations, Mr. Skeet moved 5. from Australia to the United States, incurred expense, and caused the incorporation of the first applicant for the purpose of carrying on business as his subcontractor. It is alleged that, contrary to the representations said to have been made, the first respondent "was not capable of conferring any exclusive right to market and sell Weathershields or Threadrite and did not itself possess the exclusive right to market and sell those products" in respect of the Territories specified in the agreements. In addition to questions as to the interpretation of the agreements, it is apparent from affidavits that have been filed by deponents who include Mr. Skeet and Mr. Sheil that there will be areas of dispute as to the content of various conversations preceding entry into the agreements. The evidence also reveals that proceedings against Aussie Protection Inc. and Mr. Skeet have been instituted in the Circuit Court for Harford County in the State of Maryland by a Maryland corporation, DRS Enterprises Ltd. and a Mr. Sturgill who appears to be the President and sole shareholder of DRS Enterprises Ltd. A writ of summons in these proceedings was issued on 10 September 1987 and was accompanied by a Complaint, being a pleading of fourteen paragraphs. In the Complaint, it is alleged that contrary to the statements in an agreement dated 8 June 1987, between Mr. Skeet and Mr. Sturgill, Mr. Skeet did not have the exclusive rights to market in Northern and Central America the product known as a Weathershield or Weatherguard manufactured in Australia by EGR Plastics & Signs. It is alleged that since May 1985, Wade Automotive Products of Salt Lake City, Utah has been an authorised importer of the Weatherguards in question. 6. I approach the question of whether any, and if so what, security for costs should be ordered at this stage on the footing that the material to which I have referred indicates that the applicants have a serious case to be tried. I express no view as to the likely outcome in respect of the factual disputes indicated by the evidence as it now stands. There was, quite properly, no cross-examination at this stage of either Mr. Skeet, Mr. Sheil or the other deponents. Barton v Minister for Foreign Affairs (1984) 2 FCR 463, is authority as to the discretionary character of the power (pursuant to s.56 of the Federal Court of Australia Act 1976 and 0.28 r.3 (1) (a) of the Federal Court Rules) to order provision of security for costs where applicants are ordinarily resident outside Australia; and that discretion is to be exercised by enquiring how, on the whole, justice will best be served. The historical basis for requiring a plaintiff from outside the jurisdiction to give security, was that to enforce a judgment in his favour the defendant would have to take his chances under the procedures of the foreign country where the plaintiff resided. There is no evidence in the present case as to the procedures of the State of Maryland and I am invited to assume those procedures to follow the common law as understood in this country (see Standard Bank of Canada v Wildey (1919) 19 SR (NSW) 384 at 388, but compare the Judiciary Act 1903, s.80, which directs attention to the common law of England, although nothing in this case turns on the distinction: Adams v Eta Foods Ltd. (Federal Court, 6/11/87, unrep)). 7. I put to one side the position with equitable relief, as to which see R.W. White, "Enforcement of Foreign Judgments in Equity", (1982) 9 Syd. Law Rev. 630; Pound, "The Progress of the Law, 1918-1919: Equity", (1919-20) 33 Harv. L. Rev. 420 at 423-5. The respondents in the present case are seeking by their motion to protect their position as to costs under an anticipated judgment in their favour. At common law, where a judgment in debt or for a sum of damages is obtained in a foreign court, the cause of action on which the judgment was obtained does not merge in that judgment. Thereafter, the successful party can either relitigate in the local jurisdiction his original cause of action, or he can bring an action in the local jurisdiction upon the foreign judgment. Thus, in general, there are two avenues open in the local jurisdiction to the successful party. The second avenue, an action brought on the foreign judgment, has the character of an implied contract to pay on the part of the party against whom the judgment has been recovered; the action is in debt or assumpsit: In_re Flynn Dec'd (No. 2) [1969] 2 Ch 403 at 412-413, Delfino v Trevis (No. 2) [1963] NSWR 194. In the present case, it is not the first but the second avenue that would be pursued by the respondents. This is because they postulate an order in their favour, not upon an anterior cause of action, such as a cross-claim in contract or tort, but purely for their costs of resisting the proceedings brought against then. No doubt, it was to remedy these procedural complexities in the common law that the modern statutory systems of reciprocal foreign judgment registration were 8. devised. However, as I have said, there is no indication that such a system exists in Maryland in respect of judgments of this Court, and in respect of which the respondents in the present case might avail themselves. Accordingly, these procedural considerations indicate a significant factor in favour of the respondents in seeking provision of security. I must also consider whether the effect of an order for security will or will be likely to bring the proceedings to a premature end, because of lack of means of the applicants to comply with the order. This is of particular concern where, as here, jurisdiction is invoked in respect of alleged contraventions of Part v of the TP Act, bearing in mind the public interest in such matters: Drumdurno Pty. Ltd. v Braham (1982) 64 FLR 227 at 236, Cameron's Unit Services Pty. Ltd. v Kevin R. Whelpton & Associates Pty. Ltd. (1986) 13 FCR 46 at 52. The position of the applicants to resist the application for security for costs would also be strengthened if the applicants' financial difficulties were shown to stem from the very transactions, the subject of the proceedings: Cameron's Unit Services Pty. Ltd. v Kevin R. Whelpton & Associates Pty. Ltd. (supra) at 52. I should also add that this is not a case in which the second applicant (Mr. Skeet) has sheltered behind the corporate veil of the first applicant (if indeed there be such a veil under Maryland corporation law). However, as counsel for the respondents emphasised, this is a case where, given the identity of the parties to the alleged representations and to the contracts, it was perhaps inevitable that the second applicant be a party, not merely his company. 9. I should say something further concerning the question of the alleged impecuniosity. The direct evidence put before the Court by the applicants appears in para. 13 of Mr. Skeet's affidavit. This reads as follows: Neither Aussie Protection Inc. nor I have any significant assets. We have a combined debt of $15,000.00. Because of the action against us by Sturgill and the doubts which have arisen about our business reputation and viability consequent upon that action, we are not able to trade. We cannot furnish security for the respondent's [sic] costs. Para. 13 contains various assertions. I have already referred to the litigation in Maryland instituted by Mr. Sturgill and his company. Para. 13 falls far short of the detail required to give weight to the applicants' resistance to the motion on the ground both that the result of ordering security would be or be likely to terminate the proceedings, and that the impecuniosity of the applicants is the consequence of the conduct of the respondents of which the complaint is made. In my view, in the whole of the circumstances I have mentioned, justice would best be served by making an order for provision of security. Such order should provide for security in respect of the period up to the completion of interlocutory steps, reserving liberty to apply in relation to the position thereafter. I turn to consider the quantum of an order for security to be made at this stage. In their motion, the respondents seek an order for security in the sum of $20,000. The solicitor having carriage of the matter for the respondents gave evidence, which is not challenged, as to the steps 10. involved in preparing the matter for hearing. He indicates in his affidavit that the party/party costs recoverable by the respondents should they be successful at the hearing would, in his opinion, be not less than $20,000. In respect of the interlocutory steps in this matter, which are necessary to prepare the case so that it is ready to be set down for hearing, I propose to order that the applicants provide security for costs in the amount of $12,500. Such security is to be in a form agreed between the solicitors for the parties and, failing such agreement, it is to be in a form acceptable to the Registrar. I would grant liberty to apply to seek further security in respect of the prosecution of the case after it has been made ready to be set down for hearing. I will also order that the proceedings be stayed until such security has been provided. The costs of the present motion should be costs in the substantive application. I certify this and the preceding 9 pages to be a true copy of the Reasons for Judgment of his Honour Mr. Justice Gummow. Associate: Mah po, Date: 23 December 1987 as 11. Counsel for the Applicants on the Motion: Solicitors for the Applicants on the Motion: Counsel for the Respondents to the Motion: Solicitors for the Respondents to the Motion: Date of hearing: Date of judgment: Mr. K.E. Lindgren Norton Smith & Co. Mr. M.B. Smith Duncan Barron & Co. 18 December 1987 23 December 1987