East Grace Corporation v Xing (No 1) [2005] FCA 219

FEDERAL COURT OF AUSTRALIA

East Grace Corporation v Xing (No 1) [2005] FCA 219

PRACTICE AND PROCEDURE – security for costs – additional security – application for pre-action discovery – application by off-shore company – no assets in Australia – company based in Peoples Republic of China – application involving some legal and factual complexity – assessment of amount of additional security – risk management exercise – additional security ordered

Federal Court of Australia Act 1976 (Cth) s 56

EAST GRACE CORPORATION v MIN WEI XING

WAD 266 OF 2004

FRENCH J

1 JULY 2005

PERTH

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY W266 OF 2004

BETWEEN: EAST GRACE CORPORATION

APPLICANT

AND: MIN WEI XING

RESPONDENT

JUDGE: FRENCH J

DATE OF ORDER: 1 JULY 2005

WHERE MADE: PERTH

THE COURT ORDERS THAT: 1. The applicant do on or before 8 July 2005 provide further security for the respondent's costs by paying $A35,000 into an interest bearing account held by the Court and not into the litigation fund. 2. The action to be stayed in the event that the security is not paid by the date specified. 3. Costs of the motion reserved. 4. Liberty to apply. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY W266 OF 2004

BETWEEN: EAST GRACE CORPORATION

APPLICANT

AND: MIN WEI XING

RESPONDENT

JUDGE: FRENCH J

DATE: 1 JULY 2005

PLACE: PERTH

REASONS FOR JUDGMENT FOR ADDITIONAL SECURITY FOR COSTS 1 This is a motion for security for costs under s 56 of the Federal Court of Australia Act 1976 (Cth). The sum of $20,000 by way of security was provided pursuant to a consent order made on 18 January 2005. The respondent now seeks the sum of $74,913 by way of additional security. 2 The essential criteria for the grant of security under s 56 are established. The applicant in this case is an off-shore company. There is no evidence that it has any assets in Australia and I proceed on the assumption that it has none. 3 I am satisfied with the following matters. The application is in the nature of an application for pre-action discovery and its nature must be borne in mind when assessing any additional security for costs that should be awarded. The case has some complexity, even at this stage, in both factual and legal issues. There is no prejudice shown to the applicant by way of its inability to meet the order which is sought and no suggestion that the application for pre-action discovery would be stultified if such an order were made. 4 Although there are a number of legal issues raised including a threshold question of standing in relation to the applicant, there is no suggestion that the application is not brought bona fide. I make no assessment of the prospects of its success beyond accepting that I should treat it as brought in good faith and on that basis, that it is reasonably arguable. There is a risk that if successful the respondent will be unable to recover its full costs, absent the presence of any applicant assets within Australia. In the event that the applicant failed to comply with a costs order, the respondent would have to proceed by way of recovery in the Peoples Republic of China. I have no material before me about what that would involve but I don't infer that it would be a simple or cost free exercise. 5 The quantification by the respondent's expert of the likely costs to be incurred on a party-party basis by the completion of this case rests upon a significant degree of expertise which was outlined by counsel in his submissions, albeit it also rests upon the premise that the amount of work done represents a reasonable amount that would be accepted as such by a taxing officer in a party-party taxation. This is recognised to some extent by a 30% discount which was mentioned in submissions, albeit that is, as I have observed in the course of argument, something of a statistical proposition based on an average discount on taxing. Of course, that is not to criticise the evidence because it would be uneconomical to probably do anything beyond that kind of discount for, as it were, adverse findings by the taxing officer. 6 The question in determining whether security should be awarded and, if so, what the quantum is, is essentially one of risk management between the parties having regard to their legitimate interests both as applicant and respondent. There is the question of the risk to the respondent of non-recovery. There is the question of any prejudice to the applicant which, in this case, is not shown. There is also the established principle that the award of security for the costs is generally not granted at the level of full indemnity. This has regard to the uncertainties of litigation including, of course, although I accept in this case it is unlikely, the possibility that litigation can be settled. 7 The quantification of an appropriate amount by way of security is certainly not an exact science. I have to assess what additional security should be awarded and in this case I am satisfied that having regard to the evidence additional security should be awarded. The additional security that should be awarded together with the security that has been provided should represent a reasonable proportion of the likely total costs which might be at risk in the event that the respondent were successful having regard to the factors I have mentioned. In the circumstances, against a claim for an additional $74,913, I propose to award additional security in the sum of $35,000. This will bring the total security in respect of this application for pre-action discovery up to $55,000. 8 The orders I propose to make are: 1. The applicant do on or before 8 July 2005 provide further security for the respondent's cost by paying $A35,000 into an interest bearing account held by the court and not into the litigation fund. 2. The action to be stayed in the event that the security is not paid by the date specified. 3. Costs of the motion reserved. 4. Liberty to apply.