IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) No VG 119 of 1995 ) GENERAL DIVISION ) BETWEEN: NORTHGAS PTY LTD (ACN 006 176 610) Applicant AND: GAS AND FUEL CORPORATION OF VICTORIA First Respondent GASCOR Second Respondent ELGAS LIMITED (ACN 002 749 260) Third Respondent CORAM: RYAN J PLACE: MELBOURNE DATE: 19 MAY 1995 MINUTE OF ORDERS THE COURT ORDERS: 1. That the applicant by 5.00pm on 29 May 1995 provide security in the sum of $150,000 in a form acceptable to the Registrar for both its undertaking as to damages which may be incurred by any or all of the respondents and for the costs of all respondents up to the determination of the trial fixed to commence on 5 June 1995. 2. That if security be not provided in accordance with paragraph 1 of this order the proceedings herein be stayed and the order of Heerey J of 2 March 1995 as varied by the order of Ryan J of 30 March 1995 be discharged. 3. That liberty be reserved to any party to apply on not less than 48 hours notice in writing to the other parties. 4. That the costs of all parties of and incidental to the motion on notice dated 7 April 1995 and the motion on notice dated 10 April 1995 be costs in the cause. NOTE: Settlement and entry of orders is dealt with in O 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) No VG 119 of 1995 ) GENERAL DIVISION ) BETWEEN: NORTHGAS PTY LTD (ACN 006 176 610) Applicant AND: GAS AND FUEL CORPORATION OF VICTORIA First Respondent GASCOR Second Respondent ELGAS LIMITED (ACN 002 749 260) Third Respondent CORAM: RYAN J PLACE: MELBOURNE DATE: 19 MAY 1995 REASONS FOR JUDGMENT RYAN J: By its application filed on 24 February 1995, the applicant ("Northgas") sought an injunction restraining the first respondent ("Gas & Fuel") from contravening s 46(1)(a) or (c) of the Trade Practices Act by limiting or refusing the supply of liquefied petroleum gas ("LPG") to Northgas. Mandatory orders were also sought compelling Gas & Fuel to meet the full requirements of Northgas for the supply to it of LPG. As well, damages and other relief were sought against Gas & Fuel. Similar claims for relief were made against the third respondent, Elgas Limited, ("Elgas") which apparently succeeded on about 1 July 1993 to the business of Gas & Fuel in the supply, distribution and marketing of LPG by wholesale. The second respondent ("Gascor") has been joined as a respondent as the successor in law to the contractual obligations and liabilities of Gas & Fuel pursuant to the Gas Industry Act 1994 (Vic). By its amended statement of claim, Northgas alleges a supply agreement between it and Gas & Fuel which, as varied, provided for the supply of LPG at a variable price adjusted in accordance with movements in a one month formula issued by the Prices Surveillance Authority. It is further alleged that, from early July 1993, Elgas became the agent of Gas & Fuel for the purposes of performing its obligation under the supply agreement. The statement of claim goes on to plead that since succeeding to Gas & Fuel's business, Northgas, in breach of the supply agreement, and in contravention of the Trade Practices Act, has limited the supply of LPG to Northgas to specific tonnages. On 2 March 1995, Heerey J made, amongst others, the following orders upon Northgas giving the usual undertaking as to damages: "1. Pending determination at trial or further order, the respondents and each of them, by their servants and agents and howsoever, supply to the applicant such quantities as it may require of: (a) class `A' LPG (as defined in the supply agreement (as amended by the 1993 variations) which is referred to in exhibits "IT-8" and "IT-9" to the affidavit of Ian Tayles sworn on 24 February 1995 - hereinafter called "the supply agreement") for the price of $419.97 per tonne; (b) class `B' propane or class `B' butane or mixtures thereof (as defined in the supply agreement) for the price of $389.55 per tonne. 2. Pending determination at trial or further order, the respondents and each of them, by their servants and agents and howsoever, supply to the applicant such quantities as it may require of LPG storage vessels for the hire charges and upon the terms provided for in the supply agreement." On 30 March 1995, I made a further order, again upon Northgas giving the usual undertaking as to damages. That order, in effect, continued the orders of Heerey J until trial or further order but varied the prices at which LPG should be supplied to Northgas. I also gave directions with a view to enabling the separate trial of certain identified issues between the parties to commence on 5 June 1995. By the same order, I gave the respondents leave to apply for an order that Northgas give security for its undertaking as to damages and for the costs of its application. That leave has been exercised by Elgas by motion on notice dated 7 April 1995 and by Gas & Fuel and Gascor by motion on notice dated 10 April 1995. It would be inappropriate, even if the present state of the evidence made it possible, for me to attempt at this stage of the proceedings to evaluate the prospects of success of Northgas in the proceeding. However, there is nothing in the material to negative the assumption, which I make, that the bringing of the action is bona fide. Nor, on the other hand, is there anything to suggest that the respondents' applications for security have been made for the ulterior purpose of prematurely circumventing legitimate causes of action which Northgas should be allowed to pursue. An annual return for Northgas lodged with the Australian Securities Commission on 1 March 1995 discloses current assets of $1,051,392, non-current tangible assets of $55,039 and non-current intangible assets of $130,000. Current liabilities are shown as $172,215, non-current liabilities as $999,999 and shareholders' equity as $64,217. The operating profit after income tax for the year ended 30 June 1994 is shown as $30,533. That accounting material has been supplemented by figures to the end of December 1994 which disclose an operating profit for that half year of $43,463 and net assets of $545,927 in which the intangible asset described as goodwill at cost continues to be shown at $130,000. Other assets include loans to shareholders and associated entities, fixed assets being plant, equipment and motor vehicles at written down values, cattle and stock on hand and work in progress on a tanker. The principal liabilities are $1m in bank bills and over $200,000 in sundry creditors. In evidence adduced on behalf of Elgas from a specialist costs consultant, and confirmed by the solicitor for Elgas having the conduct of this ligation on its behalf, an estimate has been made that the party and party costs of Elgas which have been incurred to date, together with those which will be incurred in the ten day trial fixed to commence on 5 June 1995, will amount to approximately $222,000. The solicitor for Gas & Fuel and Gascor has sworn that the costs which have been, and will be, incurred by his clients, will not differ significantly from the estimate furnished to Elgas. It is clear that a court has a wide discretion whether or not to order security for either an undertaking as to damages or for the respondent's costs of an action. Discretion to order the latter form of security arises from two sources, s 1335 of the Corporations Law or s 56 of the Federal Court of Australia Act. The latter provides: "56(1) The Court or a Judge may order an applicant 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 given at such time and in such manner and form, as the Court or Judge directs. (3) The Court or a Judge 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 is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed. (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." A Full Court of this Court has held in Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1 that the discretion thereby conferred is not limited by the provisions of O 28 r 3 of the Rules of this Court. It was observed: "The discretion to make orders under s 56 must be exercised judicially, but that is the only relevant limitation. Moreover, it is plain from the terms of O 28 itself that r 3 is not intended to be an exhaustive statement of the cases in which an order for security for costs can be made. Rule 6 is quite inconsistent with such a proposition." Authorities providing guidance for the exercise of that very wide discretion have been collected in a number of places, among which one of the most recent is the judgment of Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 13 ACLC 437. However, only some of the considerations to which those guidelines have been directed are relevant to the present case. The discretion to order security for the giving of an undertaking as to damages in support of an interlocutory injunction is similarly wide. The existence of the discretion has been recognized by courts of equity as necessary, in appropriate cases, to ensure that the undertaking usually exacted as the price of an interlocutory injunction, does not ultimately prove worthless to a successful defendant; see eg Spry, Equitable Remedies 4th Edn p 476. In the present case, the considerations which militate in favour of a security do not lent themselves to apportioning an amount to security in support of the undertaking as to damages and a different amount to security for costs. I shall therefore content myself with indicating in a summary way what has weighed with me in concluding that I should require a global provision of security as a condition of continuing the interlocutory order until the determination of the trial of the issues identified by my order of 30 March 1995 and for the respondents' costs of that trial. I reject the invitation of Counsel for the respondents to regard as fanciful or unfounded the inclusion in the balance sheet of Northgas of an asset worth $130,000 in the form of goodwill. However, it remains true that Northgas, although clearly far from insolvent, does not have a surplus of readily realizable assets over liabilities sufficient to provide a comfortable assurance that any damages flowing to the respondents from the undertaking and their costs will be entirely recouped to them. I accept that there is a significant chance that those damages might be substantial, although it is impossible to quantify them on the present state of the evidence. The possibility also remains distinctly open, on the evidence, that the damages contemplated by the undertaking will prove to have been inflated by Northgas' taking advantage of the interlocutory orders to resell large quantities of LPG at discounted prices which it would not have been able to offer but for those orders. I also accept the uncontradicted evidence of Mr Douglas, the costs consultant to Elgas, that the party and party costs of each set of respondents of a trial, even one limited to the issues which I have ordered, will probably exceed $220,000. However, there is some force in the submission of Mr Winneke QC, who appeared with Mr T Walker for Northgas, that much of those costs may prove to be attributable to a contest between Gas & Fuel and Gascor on the one hand, and Elgas on the other, in seeking to sheet home to each other liability to Northgas. I have also been influenced to some extent by the fact that standing behind Northgas are Mr and Mrs Tayles and entities which they control or which are related to them. The evidence suggests that Mr Tayles could have been a party to the original supply contract or a novation thereof to substitute Elgas for Gas & Fuel as the supplier. His apparently deliberate election not to assume that personal liability and the absence of any personal undertaking by him to support the undertaking of Northgas as to damages, or to assume responsibility for its potential liability for the costs have weighed with me in exercising the court's discretion in the way which I have indicated. In this context, reference can be made to the principle outlined by Burchett J in Cameron's Units Services Pty Ltd v Kevin R Whelpton & Associates (Aust) Pty Ltd (1986) 13 FCR 46 at 53. I add parenthetically that there is nothing in the evidence to suggest that Mr and Mrs Tayles and their other companies do not have the means to give a meaningful undertaking of the requisite type. As already indicated, these reflections have led me to regard it as appropriate to order the provision of security in a global way for both the undertaking as to damages and for costs. That, I consider, should be done without apportioning the security so provided between Gas & Fuel and Gascor on the one hand and Elgas on the other. I accept, with respect, as Beaumont J did in Fat-sel Pty Ltd v Brambles Holdings Ltd (1985) 3 ACLC 312, 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: "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 SJ 644." For reasons similar to those which weighed with Waddell J in Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd [1985] 1 NSW LR 114 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. In my view, a similar broad approach should be taken in ordering security for an undertaking as to damages, especially where the quantification of those damages is attended by the complexity and uncertainty which bedevils that exercise in the present case. In the result, I shall order that Northgas provide security in the sum of $150,000 in a form acceptable to the Registrar for both the undertaking as to damages which may be incurred by all respondents and the costs of all respondents up to the determination of the trial fixed to commence on 5 June 1995. The costs of the applications for security should be costs in the cause. I certify that this and the preceding eight (8) pages are a true copy of the reasons for judgment of his Honour Justice Ryan Associate: Date: Counsel for the applicant: Mr J Winneke QC with Mr T Walker Solicitors for the applicant: Stynes Grant Counsel for the first and second Dr Buchanan QC respondent: with Mr D Collins Solicitors for the first and Mallesons Stephen Jaques second respondent: Counsel for the third Mr P Murdoch QC respondent: with Mr R M Garratt Solicitor for the third respondent: Anderson Rice Date of hearing: 13 April 1995