FEDERAL COURT OF AUSTRALIA Massey Trading Pty Ltd v Intoto Pty Ltd [2000] FCA 1380 MASSEY TRADING PTY LIMITED, STANLEY VICTOR DOWSE AND SUSAN MARGARET DOWSE V INTOTO PTY LIMITED, CAPECAST PTY LIMITED, KEIRAN BRIAN O'CONNOR, BRETT DOUGLAS KENYON, BRENDON LUNNEY, MERELYN AKED, PETER KLIMT AND KERRY SIDAWAY INTOTO PTY LIMITED V GARY LINDSAY STANMORE AND RORY FRANCIS O'BRIEN t/as BAYSIDE BUSINESS BROKERS CAPECAST PTY LIMITED V STANLEY VICTOR DOWSE AND SUSAN MARGARET DOWSE NG 1057 OF 1998 JUDGE: BEAUMONT J DATE: 6 SEPTEMBER 2000 PLACE: SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 1057 OF 1998 BETWEEN: MASSEY TRADING PTY LIMITED FIRST APPLICANT STANLEY VICTOR DOWSE AND SUSAN MARGARET DOWSE SECOND APPLICANTS AND: INTOTO PTY LIMITED FIRST RESPONDENT CAPECAST PTY LIMITED SECOND RESPONDENT KEIRAN BRIAN O'CONNOR THIRD RESPONDENT BRETT DOUGLAS KENYON FOURTH RESPONDENT BRENDON LUNNEY FIFTH RESPONDENT MERELYN AKED SIXTH RESPONDENT PETER KLIMT SEVENTH RESPONDENT KERRY SIDAWAY EIGHTH RESPONDENT AND BETWEEN: INTOTO PTY LIMITED FIRST CROSS-CLAIMANT AND GARY LINDSAY STANMORE AND RORY FRANCIS O'BRIEN t/as BAYSIDE BUSINESS BROKERS FIRST CROSS-DEFENDANT AND BETWEEN: CAPECAST PTY LIMITED SECOND CROSS-CLAIMANT AND STANLEY VICTOR DOWSE AND SUSAN MARGARET DOWSE SECOND CROSS-DEFENDANTS JUDGE: BEAUMONT J DATE OF ORDER: 6 SEPTEMBER 2000 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Unless on or before 6 October 2000 the applicants provide security for the costs of the respondents incurred to date in the following amounts, in a form satisfactory to a Registrar, order that the principal proceedings be stayed. The amounts of security are as follows: (a) as to the first to fifth respondents inclusive, the sum of $5000; (b) as to the sixth and eighth respondents, the sum of $5000; (c) as to the seventh respondent, the sum of $5000. 2. Reserve liberty to any respondent to apply for security for the costs incurred after today, 6 September 2000. 3. The applicants in the principal proceedings pay the respondents' costs of the motion for security. 4. On the application for security for costs against the first respondent, order that the proceedings on the cross-claim be stayed unless on or before 6 October 2000 the first respondent provides to the first cross-defendant security in the sum of $50,000 in a form satisfactory to a Registrar. 5. The first respondent pay the costs of the first cross-defendant of that application for security, to be taxed forthwith if not agreed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 1057 OF 1998 BETWEEN: MASSEY TRADING PTY LIMITED FIRST APPLICANT STANLEY VICTOR DOWSE AND SUSAN MARGARET DOWSE SECOND APPLICANT AND: INTOTO PTY LIMITED FIRST RESPONDENT CAPECAST PTY LIMITED SECOND RESPONDENT KEIRAN BRIAN O'CONNOR THIRD RESPONDENT BRETT DOUGLAS KENYON FOURTH RESPONDENT BRENDON LUNNEY FIFTH RESPONDENT MERELYN AKED SIXTH RESPONDENT PETER KLIMT SEVENTH RESPONDENT KERRY SIDAWAY EIGHTH RESPONDENT AND BETWEEN: INTOTO PTY LIMITED FIRST CROSS-CLAIMANT AND GARY LINDSAY STANMORE AND RORY FRANCIS O'BRIEN t/as BAYSIDE BUSINESS BROKERS FIRST CROSS-DEFENDANT AND BETWEEN: CAPECAST PTY LIMITED SECOND CROSS-CLAIMANT AND STANLEY VICTOR DOWSE AND SUSAN MARGARET DOWSE SECOND CROSS-DEFENDANTS JUDGE: BEAUMONT J DATE: 6 SEPTEMBER 2000 PLACE: SYDNEY REASONS FOR JUDGMENT BEAUMONT J: 1 Before the Court are several motions for security for costs. In order to understand the issues that arise in the motion it will be necessary to explain the history of the litigation as follows. 2 By application dated 7 October 1998 and filed on 8 October 1998, Massey Trading Pty Limited ("Massey"), the first applicant, stated by way of preamble the following: "The Applicant claims against the First to Sixth Respondents for misleading and deceptive conduct in trade or commerce in breach of Sections 51A, 52 and 53A and 59 of the Trade Practices Act, breach of Sections 41, 42, 45 and 54 of the Fair Trading Act (NSW), deceit, negligent mis-statement and breach of contract in respect of the sale by the First Respondent of a business known as the Liberty Lunch Restaurant, at 104 Campbell Parade, Bondi, NSW and grant of a Lease to it by the Second Respondent as a condition to that purchase. Further, the Applicant claims against the Seventh Respondent as its solicitor engaged to protect its interests in respect of the sale in negligence and breach of retainer. The Applicant repeats its claim upon the Sixth Respondent as against the Eighth Respondent by reason of the Eighth Respondent being vicariously liable for the acts and omissions of the Sixth Respondent by reason of the Eighth Respondent's employment of the Sixth Respondent at all material times." 3 The grounds of the claim then specified in the accompanying statement of claim were as follows: "1. At all material times the First Respondent was duly incorporated and was the owner and operator with the Third, Fourth and Fifth Respondents of a licensed Restaurant known as 'Liberty Lunch Restaurant' occupying ground floor premises at 104 Campbell Parade, Bondi Beach, together with a first floor office/coolroom and staircase leading thereto. 2. In respect of such ground floor restaurant premises a Development Consent was granted by the Waverley Municipal Council pursuant to the Environmental Planning and Assessment Act, 1979 on 6 February, 1995 for use of the premises as a restaurant on terms and conditions." 4 The statement of claim previously mentioned was, broadly speaking, along the lines of what had been foreshadowed in the preamble, and for present purposes need not be detailed. The application was first listed for directions before O'Connor J, as the docket Judge, on 19 November 1998. On that day O'Connor J gave directions which included the adoption by her Honour of a timetable proposed by the parties for the usual steps to be taken in commercial litigation of this kind. 5 On that date, namely 19 November 1998, or perhaps at the end of the next directions hearing, on 8 March 1999, it is now agreed between the solicitors for the parties concerned that Mr Bellew or Mr Weinstein, as the case may be, then appearing for the first to fifth respondents, following O'Connor J adjourning the proceedings to the next date, stood up and said words to the effect "there is the matter of security for costs". It is further now agreed between the solicitors for the parties concerned that at this point her Honour responded with words to the effect "don't even think about it Mr [Bellew or Weinstein, as the case may have been]". However, at the directions hearing on 19 November 1998, her Honour raised the prospect of the matter being referred to mediation. 6 Also at this first directions hearing, her Honour granted leave to the first respondent, Intoto Pty Ltd ("Intoto"), to bring several cross-claims. Those cross-claims were in fact filed on 28 May 1999. In one cross-claim, Intoto claims against Mr Stanmore and Mr O'Brien, trading as Bayside Business Brokers, relief out of the alleged retainer by Intoto of the first cross-defendant as its agent for the purposes of the sale of the business. 7 The second cross-claim is brought by Capecast Pty Limited ("Capecast"), the second respondent, against Mr and Mrs Dowse who are directors of the first applicant. It is brought by Capecast as the lessor of the subject premises to Massey, and is a claim on a guarantee given by Mr and Mrs Dowse as directors of Massey in respect of the obligations of Massey under the lease of the subject business. At the directions hearing held on 9 April 1999 O'Connor J said: "I'm going to list this matter … for directions on 18 June. On that day I will, in light of all that has gone before, hopefully seamlessly, assess the question of whether this matter should go to mediation. So I'm directing it to be listed for that purpose and I will make no further directions in respect of the further conduct of the matter until that issue is determined. Prior to the 18th, could I ask the parties to obviously consult their clients to see whether that mediation conference could be done by consent. In other words, if you haven't all agreed that this would be a good idea, then I will very happily abandon the directions hearing on the 18th and give you the information to send you off to an officer of the Court to arrange a date for you to have this conference. The other alternative of course, is you may decide you want to have a private mediator and I will give you time to go and do that but there will be trained people here to assist you if that's what you want. If of course you are not volunteers, then on the 18th I shall order you to go to mediation and make a decision as to whether I will do that on that day." 8 On 18 June 1999, a directions hearing was held and the matter was stood over to 16 July 1999. On 16 July leave was granted to the applicants to amend the application and statement of claim. For present purposes, it is sufficient to note that one important amendment which was ultimately made pursuant to this leave, was the addition of Mr and Mrs Dowse as second applicants along with Massey as first applicant. On 16 July 1999, the matter was stood over for further directions before her Honour on 5 August 1999. 9 On 5 August 1999 further directions were made by her Honour and the matter was stood over until October. At the directions hearing on 29 October 1999, her Honour ordered mediation and stood the proceedings over until 4 February 2000. Mediation did in fact take place on 20 December 1999 in the form of alternative dispute resolution (ADR) by a Registrar of the Court. However, it was not, regrettably, successful. 10 In February 2000, O'Connor J returned to full time duties as President of the Administrative Appeals Tribunal and the matter was transferred to my docket. 11 In the interim, on 31 January 2000, a security for costs application was filed on behalf of the first to fifth respondents. A similar application was filed on behalf of the seventh respondent on 9 March 2000 and a further application for security was filed on behalf of the sixth and eighth respondents on 21 March 2000. Moreover, on 5 May 2000, the first cross-defendant filed an application seeking security for costs from the first respondent. The other motions, of course, were seeking security from the applicant at that stage and the motions now, of course, seek security from all the applicants. 12 Since the matter has been in my docket, that is to say, since February of this year, I have given directions in relation to the conduct of the principal proceedings. I have also, in connection with the applications for security for costs and with the consent of the parties, asked two of our Deputy Registrars to provide informal reports for the benefit of the parties with a view to reducing what appeared to be a very wide range of issues to some manageable proportions. Registrar Quinn has prepared a report dated 26 April pursuant to an order I made on 4 February 2000 and I should mention some features of that report. 13 Registrar Quinn there notes, by way of overview, that it is asserted on behalf of the applicants in the principal proceedings, that is, Massey and Mr and Mrs Dowse, that Massey is solvent. However, in this connection, Registrar Quinn noted the existence of a deed of postponement dated September 1999 and thereafter a capitalisation of the debt for equity, effected on 22 March 2000. As the Registrar noted, the effect of these two transactions taken together is that it effectively removed any liability Massey may previously have had to its creditors, who were the directors, that is, Mr and Mrs Dowse, in the sum of $743,147 and that following the capitalisation process, the company debts amounted to a nominal amount of only $499. The Registrar went on to note that that debt could be paid from an asset base of $18,000. 14 Again, by way of overview, Registrar Quinn noted that the respondents in the principal proceedings contended that Massey was insolvent, that it had no substantial assets, that it was not trading and that it had large debts owing to creditors and directors which could not be paid from its assets. In this connection, the Registrar noted, the deed of postponement should be viewed merely as an instrument which simply delays the time for payment of the company's previous debts. Deputy Registrar Quinn then referred specifically to the affidavit of Peter Rosenfeld, the applicant's accountant, sworn on 24 March 2000. I will come to that affidavit later. 15 Deputy Registrar Quinn expressed the opinion that on the affidavit evidence, filed on behalf of the applicants in the principal proceedings, it would appear that Massey is technically solvent and that this has been achieved through the capitalisation process whereby debts previously owed to directors were purportedly extinguished. 16 Registrar Quinn noted that the company had since 22 March 2000 a capitalisation of 742,648 shares listed at a nominal value of $1 each, but that prior to 22 March 2000 Massey had a paid up share capital consisting of only two $1 shares. Registrar Quinn noted that it was agreed that Massey was not actively engaged in the conduct of any business and that in its last balance sheet, dated 31 January 2000, it listed company assets to the value of approximately $18,000. 17 Deputy Registrar Quinn went on to provide the following summary: "On the documents filed and information provided it appears that Massey Trading would be unable to pay any costs order above $18,000 in the event that the respondents are successful. However, the documents indicate that the shareholders do not appear to be impecunious and they have offered to make available their assets. The availability of their assets, presently held in the superannuation fund, has not been tested. Subject to the Court's consideration of all the points to be put by the parties, on the issue of solvency alone, it would appear that an order for security for costs would not stifle the litigation." 18 There are annexed to the report a number of submissions made by the parties to the Deputy Registrar to which I have, with the consent of the parties, had regard. 19 The second report, again informal, was ordered by me on 5 May 2000. It is a report of Registrar Tesoriero dated 23 May 2000. Under the terms of my order, I asked Deputy Registrar Tesoriero to make an informal estimate of what costs are likely to be taxed out if the principal proceeding proceeded to a hearing and costs were ordered. 20 Deputy Registrar Tesoriero has made a number of assumptions in expressing that informal estimate, including an assumption that each of the claimants for security will be represented by counsel; the costs are to be considered on a party party basis; and that the trial will be fifteen days in duration. The report is a lengthy one and provides much detail which I need not summarise. The report contains a final conclusion suggesting a figure of $72,750, perhaps rounded to $73,000 on the assumptions mentioned. 21 The application for security itself was heard by me on 25 May 2000. It was a fully contested hearing, the applicants were represented by Senior Counsel, as were the first to fifth respondents. It will be necessary to describe the course of the proceedings and the evidence then given. 22 The first to fifth respondents are in the same interest and were represented by the same legal representatives. On their behalf there was read an affidavit of their solicitor, Alan McMurran, sworn 31 January 2000. In that affidavit Mr McMurran referred to an extract obtained from ASIC showing Mr and Mrs Dowse as the current directors of Massey and that the principal place of Massey's business had been changed from an address in Gladesville to an address at Ruse. Mr McMurran also noted that the telephone number previously shown under the name S V Dowse at the Gladesville premises was no longer connected. The Gladesville premises, that is to say, the premises at 16 Massey Street, Gladesville, were, according to a search conducted on behalf of Mr McMurran, shown to have been the subject of a sale by Mr and Mrs Dowse on 5 August 1998 for a sum of $605,000. Mr McMurran's affidavit went on to state that Mr and Mrs Dowse, according to his inquiries, apparently owned an apartment property situated at 3 Western Crescent, Gladesville, but that this property is rented out to another party. 23 Mr McMurran then gives evidence of a conversation with Mr Cohen, the solicitor for Massey, on 27 October 1999 in which Mr McMurran raised concerns about Massey's financial position and indicated that he had instructions to make an application for security for costs. According to Mr McMurran, Mr Cohen responded by saying that Massey had no money but that Mr and Mrs Dowse had provided Mr Cohen with funds which he was holding in his trust account. Mr McMurran then asked whether there was sufficient funds to meet the costs of all the proceedings. According to Mr McMurran's evidence Mr Cohen replied: "No, clearly not. However I am holding about $90,000 in my trust account which I will use for payment of costs and council fees." 24 Mr McMurran went on to give evidence that in his estimation, the total of his client's costs of the proceedings would be in the order of $224,000. He noted in this connection that the claim made by Massey exceeded $1.5 million. 25 On behalf of the sixth and eighth respondents, there was read an affidavit of their solicitor, George Patrinos, sworn on 20 March 2000. In that affidavit Mr Patrinos estimated that his clients' costs of defending the proceedings would not be less than $142,000. He gave details of how that amount was made up. 26 On behalf of the seventh respondent, an affidavit sworn by Damien Sturzaker on 10 March 2000 was relied upon. Mr Sturzaker is the solicitor having the conduct of the matter on behalf of the seventh respondent. In his affidavit he reiterated some of the material previously dealt with in the affidavit of Mr McMurran in terms of the premises in Gladesville and the property located at 3 Western Crescent, Gladesville. In his opinion, the costs of his client's defence of the principle proceedings, estimated over a fifteen day hearing as previously noted, was $178,450. 27 On behalf of the first cross-defendants, an affidavit sworn by their solicitor, Lynne Booth, on 4 May 2000 was read. In that affidavit she estimated that her client's costs of the principal proceedings would be not less than $152,315. There is also annexed to her affidavit a letter from the solicitors stating that Intoto was "solvent and able to meet its debts as and when they fell due". 28 On behalf of the applicants in the principal proceedings there was read an affidavit of their solicitor, Andrew Cohen, sworn 23 March 2000. He gave his version of the conversation with Mr McMurran on 27 October 1999. It was along similar lines but departed from Mr McMurran's version in some material respects and also provided more detail. He denied saying that he was holding about $90,000 in his trust account to be used for payment of costs and counsel fees. He could not recall saying that Massey had no money, but Mr Cohen said that he may well have said that. Mr Cohen said that Mr Dowse was then employed as a bus driver, but that employment was due to terminate at the end of April 2000 and that Mrs Dowse has been employed as a bank clerk. 29 There was exhibited to the affidavit correspondence between solicitors dealing with requests for particulars and the provision of answers to those requests; and the foreshadowed amendment to the statement of claim dealing, in particular, with the joinder of Mr and Mrs Dowse as additional applicants. The annexures to the affidavit are voluminous but I need not refer to them for present purposes. 30 On behalf of Massey and Mr and Mrs Dowse there was also read the affidavit of their accountant, Peter Rosenfeld, sworn 24 March 2000, to which reference has already been made. In that affidavit Mr Rosenfeld annexes a copy of the balance sheet of Massey together with its profit and loss account for the year ended 30 June 1999. The profit and loss account shows that for that year the company had accumulated losses of $974,524, including an operating loss of $863,450 for that year. The main proportion of that loss was attributable to an abnormal item ($746,683). The notes to the account show that this item was principally made up by the writing off of goodwill for Liberty Lunch Restaurant in the sum of $630,760. The balance sheet for Massey for the year ended June 1999 showed total current assets of $6,785. The non-current assets consisted of motor vehicles at cost, less accumulated depreciation, giving a net value of the non-current assets of $18,201. The shareholders' deficiency was shown as $701,322. The balance sheet showed current liabilities in the sum of $726,308. The bulk of that was a loan owed to shareholders in the sum of $722,424. The notes to the account in respect of this item were as follows: "13. Loan - shareholders. The amount owing to the Shareholders is not repayable until both of the following circumstances have occurred: · All Creditors, other than loans from Shareholders, of the company have been paid in full. · Proceedings in the Federal Court of Australia No. NG 1057 of 1998 have been completed." 31 As mentioned, there was also annexed to Mr Rosenfeld's affidavit the deed of postponement of debt dated 30 September 1999, made between Massey and Mr and Mrs Dowse. Under the provisions of that deed it was recited that Mr and Mrs Dowse and Massey wished to facilitate and continue with the activities of Massey; and that the lenders had no intention of winding up or causing the company otherwise to be under any other management or control other than by the Board of Directors, which the lenders, i.e. Mr and Mrs Dowse, collectively constitute. The operative provisions of the deed are contained in clause 1 which is to the effect of note 13 to the profit and loss account previously mentioned. In his affidavit, as Deputy Registrar Quinn had mentioned, Mr Rosenfeld explains how he went about "capitalizing" the loan accounts of Mr and Mrs Dowse into shareholdings by the issue of shares on 22 March 2000. 32 Mr Rosenfeld stated that he had been the accountant for Mr and Mrs Dowse and for Massey for at least the last decade and that the balance sheet for the period up to the end of March 1997 showed that Massey had net assets of $428,620.61. Mr Rosenfeld went on to say that Mr and Mrs Dowse owned a home at 16 Massey Street, Gladesville, which was not mortgaged at the time of its sale and was sold for $605,000. However, from the proceeds of sale, some moneys were applied to payment of a debt owed by Massey to the National Australia Bank; others to the payment of Massey's other creditors, including all trade creditors, employees and the like; an amount of $120,000 was set aside for the purpose of the present legal proceedings; and the loan accounts of Mr and Mrs Dowse with Massey increased accordingly. 33 Mr Rosenfeld said that during the period since the purchase of the Liberty Lunch Restaurant in April 1997, neither Mr nor Mrs Dowse had drawn any wages from Massey, trading as Liberty Lunch Restaurant, and that they had injected their own funds to ensure the solvency of Massey and that those funds were, to his belief, derived only from the sale proceeds of the Gladesville home. Mr Rosenfeld went on to say that in the financial year 1996/1997, due to losses made in the operation of the Liberty Lunch Restaurant in the period from 7 April to 30 June, Massey traded at a loss and therefore incurred no taxation liability. The loss was $72,857. 34 Mr Rosenfeld said that Mr and Mrs Dowse are the only members of the Massey Trading Pty Limited Superannuation Fund and that this fund has written down or book value net assets of $561,165. This amount is made up by a cash component of $447,442 and a written down value of a home unit known as 11/3 Western Crescent, Gladesville, valued at the figure of $123,925. Mr Rosenfeld was of the opinion that the actual market value of that unit may exceed that amount, but could not say by how much. Mr Rosenfeld said that in the event that Mr and Mrs Dowse were to withdraw funds from the Massey Trading Pty Limited Superannuation Fund they would incur taxation liability in a substantial amount. 35 An affidavit on behalf of Massey and Mr and Mrs Dowse was read, being an affidavit of Mr and Mrs Dowse sworn jointly on 12 May 2000. They refer to Mr Rosenfeld's affidavit and state that they have personal assets and joint liabilities as follows: "3. We also have personal assets as follows:- (i) Joint savings account at National Australia Bank BSB 082-212 a/c 03584 1782 (cheque account) $5,464.00. (ii) Jointly owned furniture and household goods to the value of approximately $30,000.00. (iii) As to jewellery and like personal adornments, Susan Margaret Dowse has such property to the value of approximately $10,000.00 and Stanley Victor Dowse has such property to the value of approximately $4,000.00. (iv) From his employment as a driver or like employment, Stanley Victor Dowse has further superannuation entitlements, deriving from compulsory employer contributions from three employers in recent times, Agserv Pty Limited, Daniel's Spares Pty Limited, and SBS Television Services, of approximately $2,400.00. (v) From her employment as a clerk, Susan Margaret Dowse has further superannuation entitlements, deriving from compulsory employer contribution in recent times, National Australia Bank, of approximately $1,800.00. (vi) Stanley Victor Dowse accrued annual leave entitlement to a value of $699.00 from SBS Television Services, his employer. 4. In summary of the previous paragraph, the combined total of our assets is $54,363.00, including stated further superannuation entitlement, or $50,163.00, excluded stated further superannuation entitlements. Such superannuation entitlements disclosed in this and the above paragraph 3 are not assets in the Massey Trading Pty Limited Superannuation Fund. 5. We have joint liabilities as follows:- (i) National Australia Bank Master Card approximately $1,200.00. (ii) American Express International approximately $300.00; to a total of approximately $1,500.00. We pay rent to an agent of the owner of our home, L J Hooker Gladesville, $270.00 per week." 36 Mr and Mrs Dowse go on to say that Mr Dowse's current employer is SBS Television Services, where he is employed as a driver/clerk, receiving a gross wage of $516 per week. They say that Mrs Dowse had been employed as a bank officer with a bank until 24 March 2000 but was due to commence work as a data entry operator on 22 May 2000 for a consulting group at a wage of $560 per week. 37 It should be mentioned at this stage that at the outset, Senior Counsel appearing for Massey and Mr and Mrs Dowse offered an undertaking on behalf of Mr and Mrs Dowse, in the form of an undertaking to the Court, that Mr and Mrs Dowse will be personally answerable, so far as their own assets extend, for any order for costs that may be made against Massey. Mr and Mrs Dowse further offered an undertaking with the Court that until the conclusion of the hearing or further order they would not alienate or otherwise dispose of any of their assets, except in the ordinary course of their ordinary business. I have taken, with the circumstances, the offer of this undertaking into account, but I have come to the view that given the lack of any real value in any of the assets of Mr and Mrs Dowse that might be available for the purpose of meeting the costs, I should discount it. As I mentioned in the course of argument, the only asset of any real worth is their contingent interest in the superannuation fund. That fund, of course, is only available for its own proper purposes and it cannot be accessed as of right by any creditor at this stage. I proceed upon the basis that the undertaking offered has no real practical benefit to the respondents in the principal proceeding. 38 I should also put to one side the application for security for costs made against Intoto. During the course of argument I was informed by Senior Counsel appearing for Intoto, as appears at p 18 of the transcript of 25 May, that notwithstanding the earlier indication of resistance to the claim for security for costs made against Intoto, Intoto would agree to provide security in favour of the first cross-defendant for an order for costs in such form and amount as is agreed or settled by the Registrar, and that a bank guarantee in the sum of $50,000 was envisaged. I need take that matter no further in those circumstances. 39 Reverting then to the application for security in the principal proceedings themselves, the following, in essence, is put on behalf of the respondent. On Deputy Registrar Tesoriero's estimates, which are not seriously challenged on any side of the record, there will be a shortfall in the order of at least $200,000. This is assuming credit is given, as I am prepared to give, for the sum of $18,545 as the amount presently available to be contributed on behalf of Mr and Mrs Dowse. I proceed on the basis, which is no longer contentious, that Massey is, as it clearly is, quite insolvent. 40 It is then said, on behalf of the respondents, that Massey is not trading and it is not likely to trade. It is further submitted that there is no evidence led on behalf of Massey and Mr and Mrs Dowse that the claim made by Massey is a strong one. That is to say, no Lucas v Yorke point has been raised against the ordering of security. 41 Next it is said, on behalf of the respondents, that the line of authority which has regard to the existence of a natural person as one or a number of plaintiffs, does not assist here once regard is had to all the circumstances. The line of authority which is found in cases such as Drake v Hunter Douglas Limited (1983) 8 ACLR 39 at 42 and Harper v Ariadne Australia Limited (1984) 2 ACLC 356 holds that the "two plaintiffs" cases demonstrate that if a director of a company without assets "comes out from behind the skirts of the company", there may be good discretionary reasons to order security for costs. However, it is submitted on behalf of the respondents that although Mr and Mrs Dowse have come out from behind the skirts of Massey, they have themselves emerged in a virtually impecunious condition. 42 Finally, as a matter of discretion, it was submitted on behalf of the respondents that the order for security should be refused because of the delay in bringing the application. I will deal with that submission at once. When the matter was first before me, that is to say, on 25 May 2000, the parties were unable to agree as to what had transpired before O'Connor J in the earlier directions hearings in this regard. It will be recalled that I mentioned the parties have now agreed that at either the November 1998 directions hearing or at the March 1999 directions hearing, an attempt was made to raise the matter but her Honour indicated that she would not entertain such an application at this stage. It is not entirely clear why her Honour took this approach, but of the several explanations that appear from the circumstances themselves, the most likely, I think, is that her Honour had in mind that mediation would be beneficial and that if the matter were to proceed to mediation, costs would be thrown away unnecessarily in a security application. That being so, I accept the contention that the matter of security was raised on behalf of the respondents as soon as was reasonably practicable. 43 I found the other aspects of the security application difficult. I accept all the submissions that were put on behalf of the respondents, that I have summarised above, and it seems to me that there is no answer to their claim to be provided with some measure of security. On the other hand, it is equally clear that if security in a substantial amount is ordered, the effect will be the termination of the litigation before it is even substantially commenced and before the applicants have had a real opportunity to endeavour to persuade the Court that the claim they make in the principal proceedings has merit. 44 The real difficulty lies, I think, in the unrealistic approach taken to the prosecution of litigation of this dimension by parties who, on any view, are short of funds. The estimate of a fifteen day trial has been given and looking at the apparent complexity of the issues tendered from the amended statement of claim and given, in particular, the multi-party dimensions of the litigation, I could not say that assuming, as I will for the moment, that the litigation were to be conducted along orthodox lines, it would conclude in less than fifteen days. 45 There are three sets of respondents and it was pointed out on their behalf that the amount of costs estimated by Registrar Tesoriero exceeds $200,000. If the applicants were to fail in the principal proceedings, they have no real prospect of paying any order for costs in favour of any of the three sets of respondents. That itself is a totally unsatisfactory and unrealistic situation. In my view, there is only one practical answer to it and that is that the parties, and in particular the applicants, will have to accept that the litigation cannot be conducted along orthodox common law lines, that is to say, conducted along the lines that we have come to accept as usual in the developed and sophisticated society in which we live. 46 It should not be overlooked, in this connection, that it is only in Australia, England or New Zealand that civil litigation is permitted to proceed along these lines. On the continent of Europe, let alone in other countries, civil litigation is truncated to a degree that we in this country cannot understand and do not accept. For example, in civil litigation in France the matter is dealt with on the papers and each party has one hour to address the court, no matter how complicated the litigation. Now, it is true that there is some measure of dissatisfaction with that process in France, but the present litigation shows that in some situations it may be the only way to proceed - it may be an exception of necessity. This case demonstrates, to my mind, why in some cases at least there must be a change. There has to be an exception to the rule and this case will provide that exception. The alternative is for all parties to suffer by being sacrificed on the alter of legal costs. 47 How does the Court handle this situation? I have come to the view that I should order that there be a stay, unless the applicants provide some reasonable measure for security for the costs incurred to date, and that I should then reserve liberty to the respondent to apply for further security for costs to be incurred hereafter. Those future costs can be assessed in the light of the comments that I have made. It is not for me to conduct the case of the applicants or of the respondent, but I do have a duty and I do have the authority to bring to the attention of the clients the parlous situation with which they are all confronted unless some measure of rationality is introduced. 48 In order to form some reasonable idea of the costs against which I should provide security on the footing of the costs incurred to date, I have taken the figure of $5,000 in the case of each set of the respondents. I appreciate, of course, that they assert, and indeed have provided some evidence, that their costs incurred to date exceed that amount, but on the evidence before me, to expect a larger amount of security to be provided at this stage is unrealistic and will have the inevitable effect of terminating the litigation. 49 For those reasons I make the following orders: 1. Unless on or before 6 October 2000 the applicants provide security for the costs of the respondents incurred to date in the following amounts, in a form satisfactory to a Registrar, order that the principal proceedings be stayed. The amounts of security as aforesaid are as follows: (d) as to the first to fifth respondents inclusive, the sum of $5000; (e) as to the sixth and eighth respondents, the sum of $5000; (f) as to the seventh respondent, the sum of $5000. 2. I reserve liberty to any respondent to apply for security for the costs incurred after today, 6 September 2000. 3. I order that the applicants in the principal proceedings pay the respondents costs of the motion for security. 4. On the application for security for costs against Intoto, I order that the proceedings on the cross-claim be stayed unless on or before 6 October 2000 Intoto provides to the first cross-defendant security in the sum of $50,000 in a form satisfactory to a Registrar. 5. I order that Intoto pay the costs of the first cross-defendant of that application for security to be taxed forthwith if not agreed. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont. Associate: Dated: October 2000 Counsel for the First and Second Applicants: P G Brereton SC Solicitor for the First and Second Applicants: Andrew Cohen, Solicitor Counsel for the First to Fifth Respondents: D P F Officer QC Solicitor for the First to Fifth Respondents: Heidtman & Co Solicitor for the Sixth and Eighth Respondents: Blake Dawson Waldron Solicitor for the Seventh Respondent: Corrs Chambers Westgarth Counsel for the First Cross Defendants J Wilson Solicitor for the First Cross Defendants Booth Mather Blackmore Date of Hearing: 25 May 2000 Date of Judgment: 6 September 2000