FEDERAL COURT OF AUSTRALIA Deangrove Pty Ltd v Buckby [2002] FCA 1544 DEANGROVE PTY LTD (RECEIVERS AND MANAGERS APPOINTED) & ANOR v RICHARD WILLIAM BUCKBY N 501 of 2002 SACKVILLE J SYDNEY 11 DECEMBER 2002 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 501 OF 2002 BETWEEN: DEANGROVE PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) APPLICANT AND: RICHARD WILLIAM BUCKBY FIRST RESPONDENT JOHN DENNIS SECOND RESPONDENT JUDGE: SACKVILLE J DATE OF ORDER: 11 DECEMBER 2002 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The applicant provide security for costs to the respondents, in the form of a bank guarantee from an Australian trading bank in favour of the respondents or in such other form as may be approved by a registrar of the Court, in the sum of $35,000. 2. The bank guarantee referred to in order 1 be provided on or before 30 January 2003. 3. If the applicant fails to provide security for costs in accordance with orders 1 and 2, the proceedings be stayed. 4. The applicant pay the respondents' costs of the motion filed on 26 September 2002 to the extent that it seeks security for costs, provided that this order shall not extend to costs the subject of any existing orders in favour of the respondents. 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 N 1142 OF 2000 BETWEEN: DEANGROVE PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) APPLICANT AND: RICHARD WILLIAM BUCKBY FIRST RESPONDENT JOHN DENNIS SECOND RESPONDENT JUDGE: SACKVILLE J DATE: 11 DECEMBER 2002 PLACE: SYDNEY REASONS FOR JUDGMENT 1 By motion filed on 26 September 2002, the respondents seek an order for security for costs against the applicant. 2 The motion has been adjourned on two occasions at the request of the applicant. On the second occasion (1 November 2002), directions were made for the applicant to file and serve affidavits and written submissions in opposition to the motion. Those directions were not complied with. I declined to permit the applicant to read an affidavit that was produced at the hearing without prior notice to the respondents. 3 The respondents rely on s 1335(1) of the Corporations Act 2001 (Cth), which provides as follows: "Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, requires sufficient security to be given for those costs and stay all proceedings until the security is given". 4 The evidence of Mr Coves satisfies me that there is reason to believe that the applicant (which is in receivership) will be unable to pay the costs of the respondents if they are successful in their defence: see Beach Petroleum NL v Johnson (1992) 7 ACSR 203, at 205, per von Doussa J. 5 The matters to be taken into account in the exercise of the discretion conferred by s 1335(1) of the Corporations Act include (although they are not limited to) the six matters identified by Hill J in Equity Access Ltd v Westpac Banking Ltd [1989] ATPR 40-972, at 50,635, as follows: · the chances of success of the applicant; whether the applicant's claim is bona fide or a sham; · the quantum of risk that the applicant cannot satisfy a cost order; · whether the use of the power will shut out a small company from making a genuine claim against a large company, ie is the power being used oppressively; · whether the impecuniosity arises out of the [act] in respect to which relief is sought; · whether there are aspects of public interest which weigh in the balance of making an order; · whether there are any particular discretionary matters peculiar to the circumstances of the case. 6 I am prepared to accept that the applicant's claims are bona fide and that it has an arguable case against the respondents. I cannot be any more precise as to the applicant's chances of success in the proceedings. 7 Against this, there are a number of factors that suggest that the applicant should be required to provide security for costs. * I am satisfied on the evidence that the applicant is unlikely to be able to meet any costs order made against it in the proceedings, should the respondents ultimately succeed. * In the absence of any evidence on behalf of the applicant, I cannot be satisfied that those who stand behind it (in particular, the sole shareholder, Mr Jeans), lack the means to finance the litigation. Thus, I cannot be satisfied that the applicant will be shut out from making a genuine claim if an order for security for costs is made: see Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1, at 4, per curiam. * Nor, in the absence of evidence, can I be satisfied that the applicant's impecuniosity arose out of the actions of the respondents. The case as presently pleaded alleges that the respondents, as receivers and managers, breached their statutory and common law duties to the applicant. In the absence of evidence, it cannot be said that any such breaches, even if made out, were necessarily the cause of the applicant's financial difficulties. 8 In my opinion, there are no countervailing circumstances which suggest that an order for security for costs should not be made. Mr Smits, who appeared on behalf of the applicant, submitted that I should take into account that the application for security for costs was not filed until 26 September 2002, some four months after the proceedings were instituted. I do not regard this as a significant delay in making the application for security for costs. In any event, it is not such as to warrant withholding relief from the respondents. 9 Mr Speakman, who appeared on behalf of the respondents, invited me to quantify the amount of the security by reference to the expected costs of the proceedings up to and including a final hearing. I think that the appropriate course is to fix a figure that encompasses costs incurred by the respondents from the time the application for security for costs was filed until the completion of pleadings and evidence. Mr Coves' affidavit provided estimates of likely costs, but these are necessarily somewhat general and, to some extent, speculative. I think the appropriate course is to require the applicant to provide security in the sum of $35,000 to cover the period of the litigation to which I have referred. 10 The orders I propose to make are the following: 1. The applicant provide security for costs to the respondents, in the form of a bank guarantee from an Australian trading bank in favour of the respondents or in such other form as may be approved by a registrar of the Court, in the sum of $35,000. 2. The bank guarantee referred to in order 1 be provided on or before 30 January 2003. 3. If the applicant fails to provide security for costs in accordance with orders 1 and 2, the proceedings be stayed. 4. The applicant pay the respondents' costs of the motion filed on 26 September 2002 to the extent that it seeks security for costs, provided that this order shall not extend to costs the subject of any existing orders in favour of the respondents. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice SACKVILLE. Associate: Dated: 11 December 2002 Solicitor for the Applicant: Mr L Smits appeared on behalf of Smits Leslie Counsel for the Respondent: Mr M Speakman Solicitor for the Respondent: Clarke & Kann Date of Hearing: 11 December 2002 Date of Judgment: 11 December 2002