FEDERAL COURT OF AUSTRALIA Artex Industries Pty Ltd (ACN 071 280 969) v Autofab (Australia) Pty Ltd (ACN 075 782 133) [2004] FCA 467 ARTEX INDUSTRIES PTY LTD (ACN 071 280 969) and JOHN VARAGIANNIS -v- AUTOFAB (AUSTRALIA) PTY LTD (ACN 075 782 133), TOYOTA TSUSHO (AUSTRALASIA) PTY LTD (ACN 056 847 315), TOYOTA TSUSHO CORPORATION and B.U.S. PTY LTD (ACN 075 311 705) V3158 of 2003 RYAN J 19 APRIL 2004 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V3158 of 2003 BETWEEN: ARTEX INDUSTRIES PTY LTD (ACN 071 280 969) First Applicant JOHN VARAGIANNIS Second Applicant AND: AUTOFAB (AUSTRALIA) PTY LTD (ACN 075 782 133) First Respondent TOYOTA TSUSHO (AUSTRALASIA) PTY LTD (ACN 056 847 315) Second Respondent TOYOTA TSUSHO CORPORATION Third Respondent B.U.S. PTY LTD (ACN 075 311 705) Fourth Respondent JUDGE: RYAN J DATE OF ORDER: 19 APRIL 2004 WHERE MADE: MELBOURNE THE COURT ORDERS: 1. THAT the action be stayed until the applicants provide security for the second and third respondents' costs up to and including the first day of the trial, such security to be provided in the sum of $45,000 in a form acceptable to a Registrar of the Court; 2. THAT liberty be reserved to any party to apply on not less than 48 hours notice in writing to the other parties; 3. THAT the costs of all parties of the motion on notice dated 19 December 2003 be those parties' costs in the cause. 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 V3158 of 2003 BETWEEN: ARTEX INDUSTRIES PTY LTD (ACN 071 280 969) First Applicant JOHN VARAGIANNIS Second Applicant AND: AUTOFAB (AUSTRALIA) PTY LTD (ACN 075 782 133) First Respondent TOYOTA TSUSHO (AUSTRALASIA) PTY LTD (ACN 056 847 315) Second Respondent TOYOTA TSUSHO CORPORATION Third Respondent B.U.S. PTY LTD (ACN 075 311 705) Fourth Respondent JUDGE: RYAN J DATE OF ORDER: 19 APRIL 2004 WHERE MADE: MELBOURNE REASONS FOR JUDGMENT 1 There is before the Court an application by way of motion on notice dated 19 December 2003 seeking an order for the provision of security for the costs of the action, which was instituted on 7 July 2003. The statement of claim raises a number of complex issues. However, the gist of the applicants' claim is that the first applicant, Artex Industries Pty Ltd ("Artex"), a company controlled by the second applicant, Mr Varagiannis, was a party, with the second and third respondents, in a joint venture to manufacture fabric to be used for automotive seats. The first respondent, Autofab (Australia) Pty Ltd ("Autofab"), was the joint venture vehicle. 2 The statement of claim discloses a number of causes of action, including one based on a claim that shares in Autofab had been wrongly issued in the first place, or that their reclassification at a meeting, which apparently occurred on 11 May 2000, was void. In the second place, and alternatively, it is asserted that Artex was indebted to the applicants in the sum of $674,045, which they were entitled to have applied in payment of calls on shares in Autofab which had been issued to Artex. There are also claims under the Trade Practices Act 1974 (Cth). Claims for oppression of Artex (apparently as minority shareholder in Autofab) and misuse by Autofab of confidential information comprise the balance of the causes of action disclosed by the statement of claim. 3 It is common ground that neither Artex nor Mr Varagiannis has sufficient resources to satisfy, even in part, an order for costs if one were made in favour of the respondents in the event of their successful defence of this action. There have been considerable references to alleged deficiencies in the applicants' case but it is inappropriate that I attempt, on the present state of the material, to assess the merits of the applicants' claim. I proceed on the basis that the applicants have an arguable case for the relief that they seek, without attempting otherwise to assess the strength or weakness of that case; see Appleglen Pty Ltd v Mainzeal Corporation Pty Ltd (1988) 79 ALR 634, applying Porzelack KG v Porzelack (UK) Ltd (1987) 1 WLR 420. 4 It was submitted on behalf of the applicants that their action is essentially defensive because they are seeking to defend their rights to the disputed shares against what has been called the compulsory acquisition of those shares by the respondents. Reference was made to Re Travelodge Australia Ltd (1978) 21 ACTR 17. However, the forfeiture of Artex's shares occurred a considerable time ago. What the applicants are seeking to do, in my view, is restore themselves to the financial position in which they would have been had the joint venture been implemented as they contend it should have been, or had the impugned forfeiture of Artex's shares not occurred. Those claims, I consider, are not essentially defensive. 5 Nor is it clear to me that the applicants conceded impecuniosity has been brought about by the respondents' conduct, for which relief is sought in this action. I have been told from the Bar table that Mr Varagiannis lost his house after executing a guarantee to raise funds to finance Artex's contribution to the joint venture. However, no attempt has been made to relate that loss to the $674,045 which it is contended the respondent should have applied to meeting the calls on Artex's shares in Autofab. It may be that Artex and Mr Varagiannis have become impecunious since they became involved in the joint venture which resulted in the incorporation of Autofab but it has not been demonstrated, even prima facie, that their impecuniosity has been brought about by the conduct of the respondents which they impugn. 6 Whether or not to order security for costs is to be decided in the exercise of a broad judicial discretion. That discretion, I consider, should be exercised in the present case by making an order requiring the provision of security. There is unchallenged evidence that the respondents' costs of the application up to the first day of the trial would be of the order of $100,000. However, the purpose of an order for security is not to provide a respondent with a complete indemnity against the costs of the action; see Brundza v Robbie and Co (1952) 88 CLR 171. In my view, a reasonable measure of protection will be afforded to the present respondents if security is provided in the sum of $45,000. 7 Accordingly, I shall order: 1. That the action be stayed until the applicants provide security for the second and third respondents' costs up to and including the first day of the trial, such security to be provided in the sum of $45,000 in a form acceptable to a Registrar of the Court. 2. That liberty be reserved to any party to apply on not less than 48 hours notice in writing to the other parties. 3. That the costs of all parties of the motion on notice dated 19 December 2003 be those parties' costs in the cause. I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan. Associate: Dated: 19 April 2004 Counsel for the Applicants: Mr M Strang Solicitor for the Applicants: Clark & Toop Counsel for the Second and Third Respondents: Mr P Cawthorn Solicitor for the Second and Third Respondents: Hunt & Hunt Date of Hearing: 19 April 2004 Date of Judgment: 19 April 2004