Inghams Enterprises Pty Ltd v Bark Creek Pty Ltd t/as GRANDS Poultry Service & Anor [1997] FCA 463

CATCHWORDS Practice and Procedure - default in giving security for costs - power of Court to dismiss the proceedings Federal Court of Australia Act 1976 (Cth) s 56(4) Corporations Law s 1335 Trade Practices Act 1974 (Cth) La Grange v McAndrew (1879) 4 QBD 210 Speed Up Holdings Limited v Gough & Co. (Handly) Ltd [1986] FSR 330 Matter No. SG 39 of 1996 INGHAMS ENTERPRISES PTY LTD v BARK CREEK PTY LTD trading as G.R.A.N.D.S. POULTRY SERVICE and FRANCESCO BARBARO von Doussa J Adelaide 30 May 1997

IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA No. SG 39 of 1996 DISTRICT REGISTRY GENERAL DIVISION BETWEEN: INGHAMS ENTERPRISES PTY LTD Applicant AND: BARK CREEK PTY LTD trading as G.R.A.N.D.S. POULTRY SERVICE and FRANCESCO BARBARO Respondents AND: BARK CREEK PTY LTD trading as G.R.A.N.D.S. POULTRY SERVICE and FRANCESCO BARBARO Cross Claimants AND: INGHAMS ENTERPRISES PTY LTD Cross Respondent MINUTES OF ORDER JUDGE MAKING ORDER : VON DOUSSA J WHERE MADE : ADELAIDE DATE ORDER MADE : 30 MAY 1997 THE COURT ORDERS THAT: 1. The cross-claim be dismissed. 2. Bark Creek Pty Ltd pay Inghams Enterprises Pty Ltd's costs of the cross-claim. Note: Settlement and orders are dealt with by Order 36 of the Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA No. SG 39 of 1996 DISTRICT REGISTRY GENERAL DIVISION BETWEEN: INGHAMS ENTERPRISES PTY LTD Applicant AND: BARK CREEK PTY LTD trading as G.R.A.N.D.S. POULTRY SERVICE and FRANCESCO BARBARO Respondents AND: BARK CREEK PTY LTD trading as G.R.A.N.D.S. POULTRY SERVICE and FRANCESCO BARBARO Cross Claimants AND: INGHAMS ENTERPRISES PTY LTD Cross Respondent REASONS FOR JUDGMENT Coram : von Doussa J Place : Adelaide Date : 30 May 1997 Application under s.56(4) of the Federal Court of Australia Act 1976 for an order that the cross-claim be dismissed on the ground that the cross-claimant Bark Creek Pty Ltd ("Bark Creek") has not given security for costs. On 17 January 1997 an order was made on an application under s.1335 of the Corporations Law and the rules of court that Bark Creek pay into Court the amount of $70,000 or otherwise give security for costs in a manner satisfactory to the respondent to the cross-claim, Inghams Enterprises Pty Ltd ("Inghams"). The order has not been complied with. No security for costs has been given. Section 1335(1) of the Corporations Law provides: "1335(1). Where a corporation is 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, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given." Section 1335 does not empower a court to dismiss an action or legal proceedings if security is not given in accordance with an order made under that section. However there is express power in s.56 of the Federal Court of Australia Act 1976 to dismiss proceedings where security for costs is not provided in accordance with an order of the Court. Section 56(4) provides: "56(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." Even in the absence of the express power now contained in s.56(4) to dismiss a proceeding where security for costs is not given in accordance with an order, the Court would have an inherent power to do so: La Grange v McAndrew (1879) 4 QBD 210. That inherent power would enable the Court to dismiss an action where security for costs had been awarded against a corporation pursuant to s.1335: Speed Up Holdings Limited v Gough & Co. (Handly) Limited [1986] FSR 330. In my opinion the Court undoubtedly has power to make the order which is now sought by Inghams. When the order for security was made on 17 January 1997 Bark Creek was in the process of being reinstated, and the order was made on the footing that reinstatement would occur. That has now happened, but no further information has been placed before the Court by Bark Creek as to its financial position. On 17 January 1997 the evidence before the Court indicated that Bark Creek was hopelessly insolvent, and that approximately $600,000 was owed by the company to the Commonwealth Development Bank under a mortgage debenture registered over the assets and undertaking of the company. The only additional information now before the Court is, first, that the Commonwealth Development Bank will not advance any funds to Bark Creek to support the action which it seeks to bring by way of cross-claim in these proceedings. Although the Commonwealth Development Bank is a potential beneficiary of the proceeds of the cross-claim if it were to succeed, it is not prepared to provide the security which has been ordered. Secondly, the Court was informed by counsel appearing for Bark Creek that the company cannot meet the order for security, and that ithas no prospect that might enable it to do so in the future. Bark Creek opposes the order sought by Inghams on two grounds. First it is argued that Bark Creek is only one of two cross-claimants, the other cross-claimant being Mr Barbaro, a director and shareholder in Bark Creek. The order for security for costs on the cross-claim was not made against Mr Barbaro. It is argued that an order should not be made dismissing the cross-claim as Mr Barbaro should be permitted to continue to prosecute the cross-claim. A similar argument was advanced at the time when the application for security for costs was argued. It was then submitted that as Mr Barbaro was a party to the cross-claim and as security for costs was not being sought against him, the cross-claim should be allowed to proceed without there being any order against Bark Creek. That argument was rejected on the ground that Mr Barbaro was not a necessary party to the counter-claim. The counter-claim was for losses that had been suffered by Bark Creek, not by Mr Barbaro. In the principal proceedings Inghams sought to recover the purchase price of chickens from Bark Creek as the principal debtor and from Mr Barbaro as guarantor of Bark Creek. By way of defence to the proceedings contraventions of several provisions of the Trade Practices Act 1974 ("the TPA") were alleged which it was contended rendered Mr Barbaro's guarantee null and void or alternatively provided grounds upon which it should be set aside. The cross-claim raises issues between Inghams and Bark Creek. However Mr Barbaro has been joined as a cross-claimant, and seeks the following orders by way of remedy: 1. A declaration that Inghams contravened s.52 of the TPA and s.56 of the Fair Trading Act 1987. 2. A declaration that the guarantee is null and void. 3. Alternatively, an order that the guarantee be set aside. If facts were established at trial which would otherwise justify relief as sought by Mr Barbaro, that relief would be granted to him by way of his defence to the principal claim against him as guarantor. The dismissal of the claim against him would stand as a judgment vindicating his position. No further orders would be necessary. I adhere to the view previously expressed that he is not a necessary party to the cross-claim, and the mere fact that he has been unnecessarily named as a party to it provides no reason to refuse the order now sought by Inghams. Secondly, it is contended on behalf of Bark Creek that it would be palpably unjust to dismiss the counter-claim. This submission was not further elaborated, but was advanced as a self evident proposition. If it is assumed that there is some merit in the matters which Bark Creek seeks to raise by way of cross-claim, the dismissal of the cross-claim will have the effect of preventing Bark Creek from pursuing the remedies to which it would otherwise be entitled. On the other hand, if there is no merit in the cross-claim it would be palpably unjust to allow it to proceed in circumstances where, at the end of the day, Inghams would have no prospect of recovering an order for costs. Considerations of justice to each of the parties were central to the exercise of the discretion on the application for security for costs. It was recognised when that order was made that the order might well have the effect of shutting out Bark Creek from pursuing claims. In Speed Up Holdings Limited v Gough & Co. (Handly) Ltd three principal circumstances were identified in which the jurisdiction to dismiss the action for failure to comply with an order for security for costs might be exercised. These circumstances were not intended to be exhaustive. They were: a) where the Court became satisfied that an action was not being pursued with due diligence; b) where the Court became satisfied that, notwithstanding that the relevant limitation period had not expired, there was nevertheless no reasonable prospect that security was going to be paid; c) where the Court has prescribed a time limit within which security shall be paid and that time limit has been disregarded by non payment. In the present case a time limit was prescribed within which security was to be given. The time limit was 28 days. More than four months have now gone by. Moreover, it is plain that the company has no present or future prospect of meeting an order for security, and that the potential beneficiary of the cross-claim, the Commonwealth Development Bank, has also declined to provide funds to enable the security to be given. The principal action by Inghams has been much delayed, and in an effort to avoid further delays, the Court has fixed a trial date in October 1997. Although Bark Creek is nominally a defendant in those proceedings, the action is primarily one against Mr Barbaro as guarantor, as Inghams would have no prospect of making any recovery from the company. It was suggested in the course of argument that no action should be taken to dismiss the cross-claim until after the trial of the principal proceedings. However even if Inghams were to fail in the principal proceedings, that would not improve the financial position of the respondent. The order for security for costs would still have to be complied with before the cross-claim could proceed, and plainly that would not happen. In my opinion Inghams is entitled to the order which it seeks. The cross-claim will be dismissed. As Mr Barbaro is not properly a party to the proceedings, as he has never been treated as a party with an interest in the cross claim by Inghams, and as his nominal presence as a cross-claimant has not added to the costs of the cross-claim, I order that the costs of the cross-claim be borne by Bark Creek with no order as to costs against Mr Barbaro. I certify that this and the preceding pages are a true copy of the Reasons for Judgment of Justice von Doussa