FEDERAL COURT OF AUSTRALIA COSTS - application by respondent for security for costs - factors relevant to exercise of Court's discretion - joint corporate and natural applicants involved in other Court proceedings - order for security for costs ordered in other proceedings - whether order for costs would stultify the proceedings - whether applicants or shareholders able to provide security for costs. PHOENIX COURT PTY LTD & ANOR v MELBOURNE CENTRAL PTY LTD VG 234 of 1996 GOLDBERG J MELBOURNE 19 JUNE 1998 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 234 of 1996 BETWEEN: PHOENIX COURT PTY LTD (ACN 007 410 899) First Applicant DAVID ANTHONY ROGALSKY Second Applicant AND: MELBOURNE CENTRAL PTY LTD (ACN 006 470 560) Respondent and BETWEEN: MELBOURNE CENTRAL PTY LTD (ACN 006 470 560) Cross-Claimant AND: PHOENIX COURT PTY LTD (ACN 007 410 899) First Cross-Respondent DAVID ANTHONY ROGALSKY Second Cross-Respondent KNIGHT FRANK (VIC) PTY LTD (ACN 004 428 737) Third Cross-Respondent judge: goldberg j date of order: 19 june 1998 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. Unless by 4.00pm on 26 June 1998 the applicants file and serve further answers to paragraph 1 to 8 inclusive and paragraphs 10 to 14 inclusive to the respondent's request for further and better particulars filed 21 November 1997, the applicants' claim be dismissed. 2. Unless by 4.00pm on 26 June 1998 the applicants make discovery of all financial statements, records and primary source material relating to the financial position and trading results of the first applicant in respect of the business operations at all material times conducted by the first applicant at retail outlets at the Highpoint and Box Hill shopping centres the applicants' claim be dismissed. 3. Unless by 4.00pm on 26 June 1998 the applicants file and serve an affidavit stating whether any such document or documents of the classes described below is in the possession, custody or power and if it has been or is no longer in their possession, custody or power, when they parted with it and what has become of it namely (a) cash books, cash receipts and payments journals of the business operated by the first applicant at Melbourne Central Shopping Centre between in and about September 1991 and December 1994; (b) bank records, statements and deposit books of the business operated by the first applicant at Melbourne Central Shopping Centre between in and about January 1995 and March 1996, the applicants' claim be dismissed. 4. Paragraph 10 of the order made by Goldberg J on 20 May 1998 be varied to provide that on or before 4.00pm 17 July 1998 the respondent and the third cross‑respondent file and serve any affidavits upon which they intend to rely at trial. 5. Paragraph 11 of the orders of Goldberg J on 20 May 1998 be varied to provide that on or before 24 July 1998 the parties file and serve any notice of objection they have to any part of the affidavits filed by another party. 6. Paragraph 12 of the orders of Goldberg J on 20 May 1998 be varied to provide for on or before 31 July the parties file and serve any notice of answers or responses to objections to admissibility of evidence. 7. Paragraph 13 of the orders of Goldberg J on 20 May 1998 be varied to provide that on or before 24 July 1998 the applicants file and serve an outline of argument setting out contentions of fact and law. 8. Paragraph 14 of the orders of Goldberg J on 20 May 1998 be varied to provide that on or before 31 July 1998 the respondent and the third cross‑respondent file and serve an outline of argument setting out contentions of fact and law. 9. The first applicant provide security in the sum of $10,000 in the form acceptable by the Victorian District Registrar by 4.00pm on 10 July 1998 and in default of the provision of such security the application of the first applicant be stayed until further order. 10. The applicants pay the respondent's costs of and incidental to the orders sought in relation to particulars and further discovery, to be taxed as between solicitor and client but otherwise the respondent's costs of the motion for security for costs be paid by the applicants on a party to party basis. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 234 of 1996 BETWEEN: PHOENIX COURT PTY LTD (ACN 007 410 899) First Applicant DAVID ANTHONY ROGALSKY Second Applicant AND: MELBOURNE CENTRAL PTY LTD (ACN 006 470 560) Respondent and BETWEEN: MELBOURNE CENTRAL PTY LTD (ACN 006 470 560) Cross-Claimant AND: PHOENIX COURT PTY LTD (ACN 007 410 899) First Cross-Respondent DAVID ANTHONY ROGALSKY Second Cross-Respondent KNIGHT FRANK (VIC) PTY LTD (ACN 004 428 737) Third Cross-Respondent JUDGE: GOLDBERG J DATE: 19 JUNE 1998 PLACE: MELBOURNE EX TEMPORE REASONS FOR JUDGMENT Orders are sought today in relation to a number of matters and I deal firstly with the aspects of particulars and discovery before security for costs. There does not seem to be an issue between the parties that further and better particulars should be delivered and further discovery made. The issue between the parties is as to when the particulars should be filed and as to whether or not a self-executing order should be made. The history of this matter shows that the particulars were sought as far back as November 1997 and there have been a number of occasions where the particulars were supplied and were in fact inadequate. Indeed, on the last occasion a self‑executing order was made. The matter is set down for trial on 17 August 1998. Since November 1997, the particulars have been outstanding and having regard to the number of attempts that have been made to supply adequate and proper particulars, it is critical that this matter be dealt with on the basis that there be a finality to this aspect of the proceedings so the matter can be properly prepared for trial. Having regard to the defaults which existed prior to today I am satisfied, having read the particulars that were supplied which brought forth the further application today, that a self‑executing order is appropriate. I am also satisfied that the applicants have had more than adequate time within which to prepare their particulars and it is important that the timetable for the trial be kept, although in more than one respect at the moment it has been disturbed, but I can provide for that to be picked up. I therefore propose to order that: (1) Unless by 4.00pm on 26 June 1998 the applicants file and serve further answers to paragraphs 1 to 8 inclusive and paragraphs 10 to 14 inclusive to the respondent's request for further and better particulars filed 21 November 1997, the applicants' claim be dismissed. I propose to make similar orders in relation to the matters in respect of which discovery is sought. Again, discovery has been extant for some considerable time. Orders have been made for discovery that have either not been complied with or complied with inadequately and I am satisfied, having regard to the history of this matter, that again a self‑executing order is appropriate. I will therefore order that: (2) Unless by 4.00pm on 26 June 1998 the applicants make discovery of all financial statements, records and primary source material relating to the financial position and trading results of the first applicant in respect of the business operations at all material times conducted by the first applicant at the retail outlets at the Highpoint and Box Hill shopping centres, the applicants' claim be dismissed. (3) Unless by 4.00pm on 26 June 1998 the applicants file and serve an affidavit stating whether any such document or document of the classes described below is in their possession, custody or power, and if it has been and is no longer in their possession, custody or power, when they parted with it and what has become of it - namely: (a) cash books, cash receipts and payments journals of the shopping centre between in and about September 1991 and December 1994; (b) bank records, statements and deposit books of the business operated by the first applicant at Melbourne Central shopping centre between in and about January 1995 and March 1996 the applicants' claim be dismissed. (4) Vary paragraph 10 of my order of 20 May to order that the respondent and the third cross-respondent file and serve any affidavits by expert witnesses by 4.00pm on 17 July. That leaves extant the issue between the parties as to security for costs. A motion was filed by the respondent seeking an order that $50,000 security for costs be provided up to but not including trial. In the course of submissions before me Mr Walker, who appeared for the respondent, amended the application for security to $30,000 and indicated how that came about by reference to the affidavit of Miss Harris whereby he excised amounts in that affidavit relating to mediation and three items relating to trial costs. On 25 June 1997 I ordered for security for costs at that time, speaking generally, to cover the period approaching preparation for trial. In those reasons for judgment I set out the basis upon which security for costs is sought and a number of authorities that dealt with the exercise of discretion which can be made in these circumstances, having regard to relevant principles applicable under the Federal Court Rules and s 1335 of the Corporations Law. I do not propose to repeat those statements of principle or the authorities to which I have referred, but I incorporate them by reference in these reasons. In the events which occurred after that order was made, the costs which the respondent incurred thereafter, according to the evidence and the submissions of Mr Walker were much greater than the estimate in respect of which I made my order. However, I do not regard that as a relevant consideration as to whether or not I should order security for costs now or as to the extent of the security to be ordered having regard to the fact that one orders security for costs that will be incurred and does not provide security for costs which have been incurred in the past. It was submitted by Mr Walker that the interlocutory proceedings which had been conducted by the applicants had bordered on the oppressive and had caused extra costs to be incurred. But I approach this matter on the basis of a prospective consideration having regard to the evidence presently before me in relation to the means of the applicants and the anticipated expenses hereafter. In the exercise of my discretion to order security for costs, according to the authorities, there are a number of considerations which may be taken into account in the exercise of the discretion, although as the authorities make clear (in particular those authorities to which I referred in my earlier reasons) the discretion is at large in the sense of being unfettered although there must be credible evidence to enliven the jurisdiction. The relevant discretionary consideration that was agitated before me in respect of which most of the argument and indeed the evidence was addressed was that if security for costs was ordered the litigation would be stultified. That is a relevant discretionary consideration which I can and, the applicants through Mr Butcher who appeared for the applicants submitted, should take into account. This consideration is found in a number of authorities. I refer, for example, to Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1, a decision of a Full Court of this court where at page 4 their Honours said: "In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors, or as in this case, beneficiaries under a trust) are also without means. It is not for the parties seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts." It was this particular discretionary consideration which was emphasised by Mr Butcher. The principles which lie behind Bell and the statements in it have been followed in a number of subsequent cases: DJM Developments Pty Ltd v Northern Territory of Australia (1992) 110 FLR 269 at 271; Impex Pty Ltd v Crowner Products Ltd (1994) 13 ACSR 440 at 445 ‑ 446; and Ariss v Express Interiors Pty Ltd in liquidation [1996] 2 VR 508. Evidence was submitted before me from the parties involved with the applicant company. Louise Rogalsky was a director at one stage. She is no longer a director but is apparently still a shareholder. It is apparent from her evidence that she has no resources to contribute to the costs of the litigation. I also have before me an affidavit of David Anthony Rogalsky, the second applicant, which sets out the current position so far as the income and expenditure of the first applicant is concerned. He observes that the only income of the applicant company are consultancy fees of $8,707 gross per month which have been provided to the company by J & G Knowles and Associates Pty Ltd since March 1997 in relation to the provision of his services as a construction manager for that other company. It is anticipated that those services will be provided, and presumably that amount of money continued, until December 1998. Mr Rogalsky then sets out a number of amounts which are paid monthly in respect of debts due either by the applicant company or by Mr Rogalsky. It is not clear who owes the money because Mr Rogalsky refers to a number of loans in his name and the loans total some $8,685 per month. I will return to those matters shortly. He then deposes to the fact that the applicant company has no other assets other than some specialised plant and equipment which, although valued in 1996 at $13,600, has not been able to be realised and at the moment he says that only scrap value has been offered for the equipment. From that I infer that the scrap value is very little. Mr Rogalsky then deposes to the fact that his livelihood revolves around ensuring that he can service what he says are the debts caused by the respondent to the first applicant and to achieve his day in court whilst meeting other commitments. It is relevant to note that on 3 June 1998, some 16 days ago, in other proceedings in this court involving a different respondent and a different shopping centre, an order for security for costs was made by North J which required payments of $4,000 on 1 July 1998, $4,000 on 1 August 1998, $3,750 on 1 September 1998, $3,750 on 1 October 1998 and $1,500 on 2 November 1998 in respect of a trial fixed to proceed in November. I mention those matters because in the total figure of $8,685 per month there is taken out an item of $5,000 per month which is described in the following way: "Legal fees incurred by Phoenix Court Pty. Ltd. and David Anthony Rogalsky apportioned each month earlier, in the ongoing court litigation against Highpoint Shopping Centre (Leasing) Pty Ltd., Melbourne Central Pty. Ltd. in the Federal Court and to a lesser extent Lustig and Moar (Box Hill) Pty. Ltd. in Supreme Court. These legal fees, are now totally drained financially, since the 3 June 1998 by order of His Honour Justice North ..." [to which I have already referred]. I have some difficulty understanding the extent to which, or the period over which, that $5,000 has been paid and is continuing to be paid because it seems, as I read it, to cover expenses in the future and it may, although it is not clear, cover expenses in the past. Mr Rogalsky has not been explicit as to what fees have been incurred on a continuing basis in relation to the applicants' side of the proceeding. There was a reference in the course of submissions by Counsel for the applicants to the fact that the applicants are carrying on what he called colloquially "self‑help", which I undertook to be a reference to Mr Rogalsky doing work for the purpose of trying to save the incurring of legal costs. In my earlier reasons on 25 June 1997, I said that it was not clear to me that there may not be other resources available to the applicants, having regard to what occurred in the Highpoint case where the second applicant, Mr Rogalsky, said the money for the security was borrowed. I said in those earlier reasons that he had been somewhat guarded in what he said, and it was not clear to me that a similar situation might not apply in this proceeding, depending of course on the amount of the sum to be ordered. In his present affidavit, sworn 19 June 1998, he said: "I have no savings, or other assets, cannot borrow any further monies now from banks, friends, family or people of good intentions." It seems to me that I have a tension in the matter before me between competing issues and principles. On the one hand there is the discretionary consideration that if an order for security costs will stultify the litigation, that is a relevant matter to take into consideration. It is not a matter that is absolutely decisive of the matter but it is one which I must take into consideration in deciding how to exercise my discretion. On the other hand, I have a situation where there are other court proceedings in respect of which security for costs have been ordered. It was submitted in effect by Mr Walker that it was not a submission I should accept that because security was ordered in the Highpoint case that then becomes, because of the financial burden imposed upon the applicants, a bar to the ordering of security in this proceeding. In substance, what follows from that is a submission that one respondent in one current impending litigation should not be given a protection that another respondent has available to it. The purpose of security for costs is to protect a respondent, the jurisdiction having been enlivened - that is, it appears from credible testimony that the applicant company will be unable to pay the costs of the respondent if successful. It was submitted that the fact of having the order for costs in the other proceeding ought not be a bar to an order in these proceedings. The difficulty with which I am confronted in this case is the unusual situation of seeing a liability to be met periodically in relation to Highpoint as being put essentially as a barrier to the proceeding in this case. Were it not for the order for costs in that proceeding, the situation of the applicants in this case would probably be somewhat better. It seems to me that having regard to the observations I have made about the figure of $5,000 per month which it is said has been accruing for some time and is continuing to accrue in the future and which takes over half of the monthly gross income of the Company, it is not clear to me that there may not be the resources available to the applicants to fund a security for costs order. Having regard to the totality of the evidence in all the circumstances, I am not satisfied that an order for security for costs - leaving aside for one moment quantum - will stultify the litigation. Obviously an order for costs of some tens of thousands of dollars probably would stultify the litigation. On the other hand, at the other extreme end of the spectrum, an order for some hundreds or thousands of dollars would not stultify the litigation. At the end of the day I have to exercise my discretion in a way that recognises the protection which the respondent is entitled to have in the circumstances of the evidence, as against making an order which pays regard (to the extent to which regard can be paid) to the evidence before me. It is trite to say that an order for security for costs is not intended to be an indemnity. It is to provide an element of security, and in all the circumstances it seems to me that having regard to the evidence the issues before me, that the appropriate order to provide for security is to provide for security in the sum of $10,000. It seems to me that I ought to give the applicants the opportunity to provide that security and, subject to any submissions that Counsel may make, I propose to order that the first applicant provide security in the sum of $10,000 in a form acceptable to the Victorian District Registrar by 4.00pm on 10 July 1998, and that in default of the provision of such security the application of the first applicant be stayed until further order. It also seems to me, subject to what Counsel may say, that the hearing before me today has been brought about firstly, so far as the other orders are sought to be made, by the default of the applicants, and on the security for costs application where there has been a success by the respondent, albeit not for the amount sought, that the applicants should pay the respondent's costs of today's hearing. The applicants will be ordered to pay the respondent's costs of and incidental to the orders sought for particulars and further discovery, to be taxed as between solicitor and client but otherwise the respondent's costs of the motion for security for costs are to be paid by the applicants on a party to party basis. I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg Associate: Dated: 30 June 1998 Counsel for the Applicants: Mr G P Butcher Solicitor for the Applicants: Webb Korfiatis Counsel for the Respondent: Mr T J Walker Solicitor for the Respondent: Freehill Hollingdale & Page Counsel for the Third Cross Respondent: Mr D Leggatt Solicitors for the Third Cross Respondent: Phillips Fox Date of Hearing: 19 June 1998 Date of Judgment: 19 June 1998