FEDERAL COURT OF AUSTRALIA COSTS - security for costs - whether impecunious corporation will be able to pay respondent's costs of defence depended on a contingency - jurisdiction to order security nevertheless established. PARTNERSHIP - debts of alleged fraudulent partner that caused loss complained of not acts done in ordinary course of partnership business but rather by way of personal involvement in applicant's business affairs - innocent partner not liable. Corporations Law, s 1335 Federal Court of Australia Act 1976 (Cth), s 56 Partnership Act 1892 (NSW), ss 10, 12 Warren Mitchell Pty Ltd v Australian Maritime Officers' Union (1993) 12 ACSR 1, applied Beech Petroleum v Johnson (1992) 10 ACLC 525, applied Appleglen Pty Ltd v Mainzeal Corporation Pty Ltd (1988) 79 ALR 634, referred to Polkinghorne v Holland (1934) 51 CLR 143, followed National Commercial Banking Corporation of Australia v Batty (1986) 160 CLR 251, followed Solicitors' Liability Committee v Gray (1997) 147 ALR 154, discussed Stack v Brisbane City Council (1996) 71 FCR 523, applied MEGAN JANE TUCKER & ORS v PAUL RICHARD HARGREAVES & ORS QG 132 OF 1996 DRUMMOND J BRISBANE 9 OCTOBER 1998 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG 132 of 1996 BETWEEN: MEGAN JANE TUCKER First Applicant REBECCA TUCKER Second Applicant BLACK GOLD MANAGEMENT PTY LTD (ACN 057 512 115) Third Applicant WARREN FREDERICK TUCKER Fourth Applicant AND: PAUL RICHARD HARGREAVES First Respondent ELIZABETH ELLEN HARGREAVES Second Respondent MOBELONG HOLDINGS PTY LTD (ACN 069 468 131) Third Respondent DAVID RONALD PICKERING Fourth Respondent JUDGE: DRUMMOND J DATE OF ORDER: 09/10/98 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The motion filed 16 April 1998 be dismissed. 2. The costs will be the third applicant's costs in the proceeding against the fourth respondent. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG 132 of 1996 BETWEEN: MEGAN JANE TUCKER First Applicant REBECCA TUCKER Second Applicant BLACK GOLD MANAGEMENT PTY LTD (ACN 057 512 115) Third Applicant WARREN FREDERICK TUCKER Fourth Applicant AND: PAUL RICHARD HARGREAVES First Respondent ELIZABETH ELLEN HARGREAVES Second Respondent MOBELONG HOLDINGS PTY LTD (ACN 069 468 131) Third Respondent DAVID RONALD PICKERING Fourth Respondent JUDGE: DRUMMOND J DATE: 09/10/98 PLACE: BRISBANE REASONS FOR JUDGMENT The fourth respondent seeks an order against the third applicant that it provide security for his costs of defending the action. Only s 1335 the Corporations Law is relied on, the fourth respondent submitting, incorrectly in my opinion, that this provision is conterminous with s 56 the Federal Court of Australia Act 1976 (Cth). The evidence before me is voluminous and extensive argument, including supplementary written submissions, has now been presented by both parties. Although at one stage the third applicant conceded its inability to pay the costs of the fourth respondent, if successful in his defence, its position now is that it has an asset in the form of certain cattle which is more than sufficient to provide it with the means to satisfy any such liability in costs. Undertakings to preserve the proceeds of sale, in the ordinary course of the third applicant's business, of any of the cattle, up to an amount sufficient to cover the fourth respondent's costs are offered. Apart from the cattle, the third applicant concedes its relevant impecuniosity. However, a question was raised as to whether the third applicant retains sufficient control of the cattle to enable it to rely on them as evidence of its capacity to meet any order for the fourth respondent's costs that may ultimately be made in the action. The cattle are subject to a charge granted by the third applicant to the third respondent. The fourth respondent further contends that the cattle are not subject to disposition by the third applicant because this charge is already fixed in relation to the cattle. The third applicant does not dispute that it is already in default under the charge, with the result that the third respondent is at present able to enforce its rights as a charge against those cattle, if it elects to do so. However, it attacks the validity of this charge in the action. It also disputes that the charge is now fixed, saying that, even if it is in default in terms of the charge, no notice of the kind referred to in cl F(1) of the charge has, in consequence, been given and the charge, so far as it concerns the cattle, therefore remains a floating security only. The third respondent has not yet taken any action to enforce its charge against the cattle, perhaps because of the pendency of this action and the nature of the claims made by the applicants in it. It is possible that the applicants may fail in their action against the fourth respondent, but may succeed against all other respondents and thus may succeed in invalidating the charge. It is not possible, on the material before me, at this stage of the proceedings to form a view on the likely outcome of the applicants' action against the first three respondents to have the charge set aside. However, the reality of the situation is that it is only if the applicants succeed in their action against the third respondent that the third applicant will be in a position to meet the liability it will be under to the fourth respondent, if it nevertheless fails against that particular respondent. It has long been in financial difficulty. It is probably insolvent at the present time. The position therefore is that the third applicant is now without the means to pay the fourth respondent's costs, if his defence succeeds. It is not disputed that it is impecunious, save that it owns certain cattle. These are subject to the charge in favour of the third respondent. It will only be able to look to the cattle to raise the moneys that will be needed to pay the fourth respondent's costs if it succeeds in its action against the other respondents in having the charge set aside: even if the charge has not become fixed, a sale of the cattle to meet a liability of the third applicant for the fourth respondent's costs would not be a disposal of the cattle permitted by the charge. Speculation as to the corporation's inability to pay the respondent's costs is not enough to enliven the jurisdiction under s 1335: see Warren Mitchell Pty Ltd v Australian Maritime Officers' Union (1993) 12 ACSR 1 at 5. The third applicant's capacity to pay the fourth respondent's costs, should it fail against that respondent, depends entirely upon the contingency I have referred to and it is not possible to evaluate the likelihood of that contingency occurring. In Beech Petroleum v Johnson (1992) 10 ACLC 525, von Doussa J analysed the deceptively simple wording of s 1335 the Corporations Law and concluded, at 527: In my opinion the power of the Court under s 1335 arises if credible evidence establishes that there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on service of the allocatur, if judgment goes against it. This will be so even if in other events which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs. That the third applicant may ultimately succeed in invalidating the charge can be accepted as a reasonable possibility. But that it may fail in its attack on the charge is something that must now also be regarded as reasonably possible, given the Court's limited capacity to evaluate the likely outcome of this part of the litigation. I would therefore hold that the evidence before me is such that the jurisdiction under the section to make an order for securing the fourth respondent's costs is enlivened. It is unnecessary, in my opinion, to resolve the question whether the charge has already become fixed in respect of the cattle: on the view of the evidence on the issue of the third applicant's ability to pay the fourth respondent's costs that is most favourable to that applicant, viz, acceptance of its argument that the charge has not yet become fixed, the threshold requirement of s 1335 is, for the reasons given, nevertheless still satisfied. It is not appropriate to attempt to assess the likelihood or otherwise of the third applicant succeeding in its action against the fourth respondent. Cf Appleglen Pty Ltd v Mainzeal Corporation Pty Ltd (1988) 79 ALR 634, 635. But the basis for the third applicant's claims against the fourth respondent is set out in very considerable detail in the applicants' statement of claim. There is, in my opinion, good reason for thinking that this claim does not disclose a cause of action against the fourth respondent in respect of which the applicant has any real prospect of success. There is no reason to think that this is something curable by amendment: the pleading has already been amended and is carefully drawn. While the applicants set up a case of serious misconduct on the part of the first respondent, the fourth respondent's partner in a solicitors' practice, they unequivocally disclaim any assertion of improper conduct on the part of the fourth respondent. In their written submissions, not resiled from in oral argument, they submit that the fourth respondent's liability is founded on ss 10 and 12 the Partnership Act 1892 (NSW): in order to succeed against the fourth respondent, the applicants must therefore show that the acts of the first respondent which caused the losses they complain of were done by him while "acting in the ordinary course of the business of the firm". The applicants' case as pleaded is a complex one. According to their amended statement of claim, the first and second applicants hold shares in the third applicant on trust for the Warren Tucker Family Trust, of which the fourth applicant is trustee. The evidence indicates that the beneficiaries of the Trust comprise the first and second applicants and the other two of the fourth applicant's daughters and his now-divorced wife. It is said that the first respondent was, at all material times since about 1982, the legal adviser to the fourth applicant, his family and entities associated with him, including the third applicant, and that at all material times from about 1993 or 1994 the first and fourth respondents carried on business in partnership as solicitors. There is a general allegation (para 11) that, by reason of the first respondent's role as legal adviser and the existence of this partnership, the first and fourth respondents owed the applicants a fiduciary duty: in acting in and about the affairs of the Applicants - (a) not to promote their interest in preference to the interests of the Applicants; (b) not to permit their interests to conflict with the interests of the Applicants; (c) not to permit their interests to conflict with their duty to the Applicants; (d) to make full disclosure of all material facts to each of the Applicants whenever there was potential for any such conflict; (e) not to continue to act for the Applicants in a situation of any such potential conflict without, in addition to such full disclosure, first ensuring that each of the Applicants had adequate opportunity to take independent legal advice … It is also alleged (para 12) that by reason of the partnership's retainer as solicitors for the applicants, the first and fourth respondents were also duty bound to use reasonable care, skill and diligence in acting in and about the affairs of the applicants. It is alleged that the fourth applicant controlled a company, Black Gold Genetics Limited ("BGG"), on trust for the Family Trust, that BGG owned certain land upon which the fourth applicant and his family lived and on which a cattle stud business was conducted for the Trust. It is then said that, in September 1992, on the advice of the first respondent, the first applicant and another acquired control of the third applicant upon trust for the Family Trust and to provide management services to BGG and to BGG's investor clients. The pleading alleges that in July 1994 BGG's bank appointed a receiver to BGG, that the receiver sued the third and fourth applicants for possession of the land and the stock and equipment thereon; that the partnership acted for the third and fourth applicants in this litigation and that it was compromised in about May 1995 on terms that the receiver would cause BGG to sell the land to the third applicant under an instalment contract. It is said that the general principles underlying this compromise were negotiated by the fourth applicant with the bank, while "the documentation and precise terms" were negotiated between the receiver and the partnership, as solicitors for the third and fourth applicants (para 25). In para 26 of the pleading it is said that the first respondent in about May 1995 gave legal advice in connection with this compromise to the fourth applicant to the effect that a shelf company, rather than the third applicant, should purchase the land from the receiver under the compromise, to facilitate the raising of finance necessary to purchase the land from the receiver. The proposed shelf company became the third respondent. There is no allegation that loss resulted to any of the applicants from acceptance of this particular advice: the case is pleaded quite differently. It is then alleged in para 27 that at the time of giving this advice, the first respondent "further advised" that he and his wife, the second respondent, should acquire the third respondent, which would then buy the land from the receiver with borrowings of $100,000 to pay the deposit, borrowings which the first respondent and his wife would themselves guarantee. But it is alleged (para 28) that the intention of the parties was that the beneficial interest in the land would be "ultimately held or controlled by the Fourth Applicant and his family … through the Trust". The third and fourth applicants were to raise the further finance necessary to complete this purchase or, if that could not be done promptly, the land was to be on-sold to ensure that the third respondent would have the funds to complete the instalment purchase of the land from the receiver. It is said that this advice included advice "that in return for assisting the Third and Fourth Applicants to effect and complete the compromise arrangements with the Receiver on behalf of the Third Applicant in the manner advised the First Respondent required a payment of $100,000". Although the applicants in their pleading characterised all this as "advice" given by the first respondent, it appears pretty plain that what the first respondent here did was put a proposal to the fourth applicant for himself and his wife (the second respondent) to assist the third applicant to acquire the land from the receiver. It would be highly unusual for a solicitors' practice to include the provision to clients of financial assistance by members of the firm from their own resources; there is no allegation that such activities formed part of this firm's business. It is not, I think, possible to accept that the first respondent, in making this proposal or in implementing it, as later occurred, did anything at all in the course of the partnership business. Moreover, nothing is said in the statement of claim and there is nothing in the evidence before me to suggest that the fourth respondent had any knowledge of what the first respondent here proposed that he and his wife would do to assist the third applicant's acquisition of the land, in return for a $100,000 payment. It is said (paras 29 to 31) that the fourth applicant, on behalf of himself and the third applicant, accepted all the advice I have referred to, and that that advice was given effect to by the first and second applicants acquiring control of the third respondent on about 25 May 1995 and by the third respondent entering into an instalment contract with the receiver to buy the land from BGG. It is also alleged (para 33) that in about May or June 1995, the applicants signed various documents on the advice of the first respondent, which he said would give effect to the compromise and the arrangements the subject of the earlier advice already referred to; at that same time the third respondent borrowed the moneys necessary to pay the deposit to the receiver of BGG in respect of the purchase of BGG's land. It is said that thereafter, until about September 1996, the fourth applicant and his family continued to reside on this land and to conduct through the third applicant the cattle stud business and other businesses; it is also said that the partnership and "in particular the First Respondent" provided certain legal services as solicitors for the applicants in connection with these businesses. It is then alleged (para 38) that in about November 1995 the first respondent "proposed to and advised" the fourth applicant, on behalf of the third applicant, that the land should not be sold to raise funds to complete the purchase from the receiver, but instead should be used to obtain finance to fund certain of the third applicant's overseas business projects, as well as to fund the balance purchase moneys payable to the receiver; further, that the first, second and third respondents would assist the applicants by arranging for the third respondent to procure such finance and by the first and second respondents providing certain security for these borrowings over their own property; further, that, in return and while his own assets were at risk, ie, until the proposed borrowings were repaid, the first respondent should be in financial control of the third applicant, the first and second respondents would replace the first and second applicants as directors of the third applicant and would take from those applicants signed share transfers which the first applicant (while controlled by the first and second respondents) could hold as security for repayment of the proposed borrowings. It is also alleged that, on this occasion, the first respondent "proposed to and advised the Fourth Applicant on behalf of the Third Applicant" that as the partnership was losing money, the first respondent would retire from that firm and should be employed as financial controller of the third applicant's business. It is then said (para 39) that the fourth applicant, in reliance on his trust and confidence in the first respondent as the applicants' solicitor and adviser, accepted "the proposal and advice". It is also said (paras 40 and 41) that the fourth applicant, in appreciation of the first respondent's "apparently generous assistance", proposed, and the first respondent agreed, that he should take an interest in the third applicant's offshore business and be paid a salary of $250,000 "as full time financial controller of the Third Applicant". In a statutory declaration executed by the fourth applicant on 16 July 1996, he said: Hargreaves said he wanted to retire from his firm. He said his firm was losing AUD5,000 a month. We agreed he would retire and that he would then be employed as financial controller of the business at an annual salary of AUD250,000 and with a right of private practice. He kept putting off that retirement for a variety of reasons and eventually retired from his firm at the end of May 1996. It is apparent from what it is alleged in the statement of claim took place in November 1995 (ie, in paras 38 and 39) that the essence of the applicants' case is that, on this occasion, the first respondent put a proposition to the fourth applicant which would involve the first and second respondents providing their own property as security for funds to be borrowed for the benefit of the applicants, that in return, until the borrowings in question were repaid, the first respondent (with his wife) would assume legal control of the third applicant and he would retire from the partnership and take employment with the third applicant. The essence of the case here is that the first respondent made a proposal to the fourth applicant, accepted by him on behalf of himself and the third applicant, which involved the first and second respondents taking action for the intended benefit of the third applicant, which was quite outside anything that could be regarded as done by the first respondent in the course of the partnership business. It was in all probability a private arrangement entirely outside the scope of the partnership business and involving only the first and second respondents and the applicants, under which the first and second respondents agreed to provide the applicants with financial and other assistance to further the third applicant's business. Again, there is nothing said in the pleading and nothing in the material before me to suggest that the fourth respondent had any knowledge of these activities of the first respondent. It is then alleged that all these arrangements were implemented, although it is said that by fabricating certain documents and dealing with others in a way not authorised by the agreed arrangements, the first respondent assumed both control and ownership at law of the third applicant. It is further alleged in the amended statement of claim that, in about May 1996 (para 62), "pursuant to the proposals, advices and agreement pleaded in paragraphs 38, 40 and 41 hereof", the third respondent obtained $850,000 finance from Queensland Industry Development Corporation ("QIDC"); this enabled repayment of the loan taken out to raise the $100,000 deposit paid by the third applicant on its purchase of the land from payment of the outstanding balance purchase price to the receiver. It also made available funding to further the third applicant's offshore business, as well as payment of "an amount of $75,000.00 to be paid to ANZ Bank to satisfy a liability of Hargreaves Pickering to that bank in exchange for Hargreaves Pickering releasing the Applicants from any liability to that firm in respect of legal services including the Third Applicant's legal costs of the" litigation with the receiver. In para 65, it is alleged that "[d]uring 1996 the First Respondent became increasingly involved in the affairs of the Third Applicant but did not take up the position of financial controller until on or about 1 June 1996 when the First Respondent represented that he had retired from the firm of Hargreaves Pickering and was taking up the said position". It is also alleged (para 66) that, notwithstanding this, the first respondent, at least until the commencement of the present action (August 1996), continued to represent himself as a member of the firm. In para 67, it is alleged that if (which is not admitted) the first respondent did take up a full time position with the third applicant in June 1996, he thereafter owed a fiduciary duty to the third applicant to advance its interests in preference to his own. The statement of claim then contains allegations (paras 68 to 73) of the progress of the third applicant's offshore business projects. In para 74, it is said that, in breach of the November 1995 arrangements, the third respondent failed to make any of the QIDC loan moneys available for the purposes of the third applicant's overseas business projects. In para 75, it is alleged that from about 10 June 1996, ie, a few days after it is alleged the first respondent represented he had retired from the partnership and was taking up full time employment as the third applicant's financial controller pursuant to the November 1995 arrangements, he made unjustified assertions that he and his wife owned the third applicant absolutely and that the third respondent, controlled by the first and second respondents, was entitled to sell the land for its own absolute benefit. In para 74, it is alleged that in breach "of their obligations under the agreement referred to in para 41", ie, the November 1995 arrangements between the first respondent and the fourth applicant, the third respondent has refused to apply certain of the QIDC loan moneys for the purposes of the third applicant, including its overseas projects, and the first respondent has failed to cause the third respondent to so apply that part of the QIDC loan moneys. In para 76, it is then alleged that, in breach of their fiduciary obligations pleaded in para 11, the first and fourth respondents "the latter by reason of the former's breaches and his partnership with the First Respondent": (a) promoted by reason of the facts aforesaid the First Respondent's interests and those of the Second and Third Respondents in priority to the interests of the Applicants; (b) permitted by reason of the facts aforesaid the First Respondent's interests and those of the Second and Third Respondent to conflict with the interests of the Applicants; (c) permitted by reason of the facts aforesaid the First Respondent's interests and those of the Second and Third Respondents to conflict with the First and Fourth Respondents' duty to the Applicants; (d) failed to give to the Applicants or any of them full and frank disclosure of the above conflicts or of the potential benefits to be obtained by the First, Second and Third Respondents at the expense and to the detriment of the Applicants; (e) failed to advise the Applicants or any of them that, in view of the potential conflicts and benefits to the First, Second and Third Respondents, the Applicants should obtain independent legal advice and retain other solicitors to act for the Applicants in and about - (i) the compromise of the Action; (ii) the negotiation preparation and execution of all documents relating to the said compromise; (iii) the Land Contract; (iv) any and all agreements to which any of the Applicants and any of the Respondents were parties (including a charge and option agreement alleged by the First Respondent to have been executed); (v) all negotiations and applications for finance including those relating to the ANZ Bank and QIDC herein before pleaded; (vi) the preparation and execution of documents purporting to be resignations as directors by the First and Second Applicants; (vii) the preparation and execution of documents purporting to be share transfers by the First and Second Applicants; (viii) the negotiation, preparations and execution of the agreements and memorandum referred to in paragraphs 64, 68, 69 and 71 hereof. This part of the pleading seeks to camouflage what seems to me to be the absence of any basis for thinking that the fourth respondent may be responsible for the conduct of the first respondent the subject of the applicants' complaints. The applicants disclaim any impropriety on the part of the fourth respondent; they base their case against him wholly on the Partnership Act. It is true that in para 26 of the pleading it is alleged that the first respondent, in his capacity of solicitor, gave certain advice to the third and fourth applicants in connection with the compromise. It can be accepted that this advice was given in the course of the partnership business and that, if it were given negligently or in breach of the fiduciary duties that the retainer imposed on the partnership, the fourth respondent would be liable, along with the first respondent, for detrimental consequences flowing to any of the applicants. However, a reading of the statement of claim shows that the applicants' complaint is not with the giving of that advice, but rather with the provision of certain supplementary advice by the first respondent on behalf of himself and his wife, the second respondent, and by the action taken by the first respondent which commenced with the implementation of that supplementary advice (see para 27). The applicants' complaint is that the first respondent, having advised on the desirability of the compromise being implemented by a particular mechanism, viz, the use of a shelf company (ultimately the third respondent), then made certain proposals for the involvement of himself and his wife in putting in place the financial and other arrangements necessary to give effect to that advice. It is also apparent, from para 38, that the applicants complete their case by relying upon the advice given and proposals made by the first respondent later again, ie, later in November 1995, to further involve himself and the second respondent in the financial and business affairs of the third applicant. It is unlikely in the extreme that the applicants will be able to prove at trial that the conduct upon which they rely to make out their claims for relief, being in essence the conduct alleged in paras 27 to 31 and in paras 38 to 61 and in paras 74 to 76, involves conduct engaged in by the first respondent in the course of the partnership business. Instead, it appears quite clearly from the pleading that it is all conduct engaged in by the first respondent in making private arrangements with the fourth and third applicants quite outside the scope of acting as a solicitor for them. For the applicants to assert, as they do in their pleading, that the fourth applicant acted on the various proposals and advices of the first respondent that I have referred to in reliance upon the trust he placed in the first respondent as his solicitor cannot give to the critical activities in which the first respondent engaged the character of conduct in the course of the partnership business when the rest of the pleading, clearly, in my opinion, reveals that those activities were engaged in by the first respondent in an entirely different capacity. Provided conduct of a partner is done in the ordinary course of the business of the firm, the other partners will be liable for that conduct even though it was engaged in by the guilty party fraudulently and for his own benefit and without their knowledge: Polkinghorne v Holland (1934) 51 CLR 143 at 156. "But, to make his co-partners answerable, it is not enough that a partner utilises information obtained in the course of his duties, or relies upon the personal confidence won or influence obtained in doing the firm's business. Something actually done in the course of his duties must be the occasion of the wrongful act." Ibid at 156 - 157. There, the partners of a solicitor escaped liability for losses caused to a client of the firm who acted on fraudulent advice of the solicitor to guarantee the overdraft of his company in which he persuaded her to take up shares, even though the solicitor had "abused the confidence which she reposed in him in that capacity [ie as a member of the firm] to obtain her suretyship" because "he did nothing which was part of his business [as a member of the firm] to do … She and he entered into a business engagement as contracting parties, not as solicitor and client … The wrongful act … was committed outside the course of his actual and apparent authority as a partner" (p 157). See also National Commercial Banking Corporation of Australia v Batty (1986) 160 CLR 251 at 261, 275 and 276, 298 and 299. It does not assist the applicants that the opportunity for the first respondent's alleged misconduct arose out of an activity engaged in by him in the ordinary course of the firm's business, ie, out of the advice given by him and accepted by the applicants as to how the compromise of May 1995 should be implemented and for which advice the fourth respondent would be liable. It is plain that it was not that advice that was the, or even a, cause of loss to the applicants: rather was the loss complained of caused, on the case the applicants have set up, by the actions of the first respondent in involving himself and his wife in the business activities of the applicants subsequent to them accepting the compromise advice he gave on behalf of the firm. The third applicant argues that there is a nexus between this advice which the first respondent gave and the applicants' losses: the advice was that the applicants should vest title in the land in a new entity set up to acquire it and it was said that the losses flowed from vesting title, in reliance of that advice, in the third respondent, of which the first respondent thereafter took control to the exclusion of the applicants. But that nexus between conduct engaged in by the first respondent on behalf of the firm and the loss complained of is no more sufficient to fix the fourth respondent with liability for the applicants' losses than was the nexus in Polkinghorne, constituted by the abuse by the fraudulent partner of the confidence the client reposed in him by reason of his being a member of the firm with the loss there in issue. The reason is that neither the loss-causing acts of the fourth respondent nor those of the fraudulent partner in Polkinghorne were done in the ordinary course of the respective partnership businesses. That is the test which s 10 the Partnership Act requires to be satisfied, not the broad one of whether there is a nexus between the applicants' losses and the first respondent's position as a member of the firm. The authority relied on by the applicants, Solicitors' Liability Committee v Gray (1997) 147 ALR 154, does not assist their argument. That case was concerned with whether, on its true construction, a policy of insurance indemnifying solicitors "against any civil liability in connection with the practice" covered them against liabilities incurred to disappointed investors in a tax avoidance scheme they had devised and promoted to them through their practice. Gray cannot therefore govern whether the conduct of the first respondent here in question can be characterised as conduct in the ordinary course of the firm's business. In any event, the Court held (at 195) the policy should be construed as covering "liability having some nexus with (ie 'in connection with') the professional functions of a solicitor (ie 'the practice')", but said that the cover did "not extend to liability for an entrepreneurial activity which has no real nexus with the practice". Even though a wide range of activities could give rise to liability having some nexus with the solicitors' practice that was sufficient to attract the policy indemnity, activities attracting indemnity still had to be activities engaged in as solicitors rather than as businessmen (196). The scope of the ordinary course of a particular solicitor's business is a question of fact: Batty at 299. But the provision of personal financial assistance by a solicitor to help a client in his business activities is so remote from what a solicitor's practice usually entails as to require the precise pleading of facts relied on to show that that is an activity in the ordinary course of a particular firm's practice. No attempt is made to set up such an unusual case. The effective cause of the applicants' loss, on their case as pleaded, was the implementation of the arrangements made in November 1995. It was an element of these arrangements that the first respondent would retire from the firm and be employed instead as the third applicant's financial controller. Nothing could be plainer: what was here arranged had nothing to do with carrying on the firm's business. It was a private arrangement between the first respondent and the applicants. For that reason, it does not assist the applicants to show that the firm provided and was paid for the conveyancing services necessary to implement the borrowing arrangements between the third respondent and QIDC in mid 1996 consequent upon the applicants' acceptance of the proposal put to them by the first respondent in November 1995. The other complaints made by the applicants are worthy of note. In paras 78 and 78A, it is alleged that the third respondent engaged in conduct in contravention of s 52 the Trade Practices Act 1974 (Cth) in which the first respondent was involved. The third respondent's conduct is not identified otherwise than by the catch-all reference to "in the premises of the facts aforesaid". But there is no suggestion that the fourth respondent was in any way involved in any of the conduct here complained of. In para 79, it is alleged that the interest held by the first and second respondents in the third applicant is held on implied or constructive trust for the first and second applicants and that the third respondent holds the land on an implied or constructive trust for the Family Trust. In paras 80 and 81, it is alleged that the securities executed by the applicants in favour of the first, second and third respondents are void and that the first, second and third applicants are entitled to correction of the third applicant's registers, ie, to have corrected the entries in those registers evidencing the first and second respondents' wrongful assumption of legal ownership and control of the third applicant. Again, no complaint is made in respect of the fourth respondent. Next, it is alleged in paras 83 to 91 that the first and third respondents defamed the third and fourth applicants to certain officials in the Solomon Islands and to QIDC, the financier to the third respondent, and that, as a result, QIDC enforced its securities against the land held by the third respondent, which it is said it holds in trust for the Family Trust, and, moreover, ejected the first, second and third applicants from the land (paras 91A to 91I). There is no suggestion the fourth respondent was in any way involved in any of this. While it is alleged (paras 91J to 91L) that the third respondent is liable to the applicants for certain losses suffered as a result of the actions of QIDC's receiver of the third respondent, it is also alleged optimistically, so far as the fourth respondent is concerned, that "the appointment [by QIDC] of Dennis as receiver of the land and the loss and damage" said to have resulted from his conduct "were the result, direct or indirect, of the wrongful conduct of the Respondents [ie, all four respondents] hereinbefore pleaded": the pleading contains no allegation of any wrongful conduct by the fourth respondent. He is only sued because he had the misfortune to be in partnership with the first respondent, against whom extensive allegations of wrongful conduct are made. It is possible that the applicants may be able to lay at the feet of the fourth respondent responsibility (in whole or in part) for the way the first respondent (and the second respondent) conducted themselves in the financial and business arrangements which the first respondent made with the fourth applicant subsequent to the advice he gave to the fourth applicant for the benefit of the third applicant in connection with the compromise of the litigation with the receiver. But, having regard to the amended statement of claim and the evidentiary material the third applicant has put before me, the likelihood of any of the applicants being able to do that appears so remote, given the care taken with the pleading and the failure of the pleader to identify any possible basis on which it may be able to do that, that I infer that the action against the fourth respondent has little prospect of success. There are numerous issues in which the fourth respondent is simply not involved at all. Not only will he be exposed to incurring costs of defending claims made against him which, in my opinion, have no apparent prospect of success, but he will also incur additional costs because the litigation in which he will have to participate is not confined to matters of concern to him, all this in circumstances where there is good reason to think that the third applicant will be unable to pay the fourth respondent's costs if he ultimately succeeds in defending the claims against him. But for one consideration, the case is therefore one in which it would, in my opinion, be entirely appropriate to make the order for security that is sought. By his notice of motion, the fourth respondent sought only an order for security for his costs against the third applicant and a further order that "the proceedings by the third applicant" against him be stayed until the security is given. However, at the hearing, the fourth respondent submitted that, if he obtained the order for security he sought against the third applicant, there should be an order staying not only that applicant's action against him, but the proceedings of all the other applicants also, unless and until the third applicant provided security. In written submissions delivered before the hearing, the third applicant contended that an order for security against the third applicant would frustrate the litigation by the other applicants because the third applicant was a necessary party: "in that it must succeed before relief in relation to the loss of the land will be available to the natural applicants". It was in reliance on this submission by the third applicant that the fourth respondent orally sought at the hearing a wider stay than that claimed in his notice of motion. The third applicant's response to this, in supplementary written submissions delivered after the close of argument, was to ignore the submission it had earlier made about the third applicant being a necessary party and to assert that any stay should be only of the third applicant's action against the fourth respondent, firstly, because the other applicants are natural persons against whom orders for security would not be made who "have their own claims against the Fourth Respondent which should not be stayed" and, secondly, because the other applicants are not respondents to the notice of motion and have not appeared on its hearing. Although the transcript indicates that at the commencement of the hearing on 28 August 1998, Mr Sullivan accepted my identification of him as counsel appearing for "[t]he applicants in the action", on the previous occasion the motion was before the Court, he unequivocally identified the party for whom he then appeared as "[t]he third applicant, who is the respondent to" the notice of motion. The notice of motion is directed only to the third applicant and seeks orders only against that applicant. I accept that no applicant, other than the third, appeared or was requested to appear on the hearing. This is an insuperable barrier to the fourth respondent obtaining any stay orders against any applicants other than the third applicant. In my opinion, the first and second applicants are entitled, in pursuing the relief they claim, to litigate pretty well all, if not all, of the issues against the fourth respondent which the third applicant seeks to litigate against that respondent. Since the fourth respondent is not entitled to any stay of the action as against the first and second applicants, this is a compelling reason for refusing to order the security sought from the third applicant. See Stack v Brisbane City Council (1996) 71 FCR 523 at 529 - 530. The motion will be dismissed. The motion was provoked by the third (and other applicants) bringing a claim against the fourth respondent that has little prospect of success. That is a good reason to deprive the third applicant of its costs of the motion, though it has succeeded in having it dismissed. But I accept that there remains a possibility, unlikely though it may be, that the third applicant may be able to sheet home liability to the fourth respondent. If this happens, but not otherwise, it should have its costs of this motion. Those costs will therefore be the third applicant's costs in the proceeding against the fourth respondent. I certify that this and the preceding sixteen (16) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Drummond. Associate: Dated: 09/10/98 Counsel for the Third Applicant: Mr J Sullivan Solicitor for the Third Applicant: John Katahanas & Co Counsel for the Fourth Respondent: Mr RM Derrington Solicitor for the Fourth Respondent: Minter Ellison Dates of Hearing: 5 June 1998, 13 July 1998 and 28 August 1998 Date of Judgment: 9 October 1998