FEDERAL COURT OF AUSTRALIA Advan Investments Pty Ltd v Watson [2005] FCA 627 ADVAN INVESTMENTS PTY LTD ACN 075 663 197 v HAMISH PHILLIP McCRAE WATSON, BLACKSHORT PTY LTD (IN LIQUIDATION) ACN 074 713 483, WATSON BENEFIT SERVICES PTY LTD (IN LIQUIDATION) ACN 059 712 131, AUSTRALIAN CAPITAL INVESTMENT LTD ACN 060 506 514, WESSEX FUND MANAGEMENT LTD ACN 002 273 341, ABERDEEN RESOURCES LTD ACN 095 832 072, FRASER COLLIN HICKOX, PFM LTD, SOMMERSBY INDUSTRIAL LTD AND CHRISTOPHER FRANCIS ROURKE SAD.243 of 2002 MANSFIELD J 29 APRIL 2005 ADELAIDE IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SAD.243 OF 2002 BETWEEN: ADVAN INVESTMENTS PTY LTD ACN 075 663 197 APPLICANT AND: HAMISH PHILLIP McCRAE WATSON FIRST RESPONDENT BLACKSHORT PTY LTD (IN LIQUIDATION) ACN 074 713 483 SECOND RESPONDENT WATSON BENEFIT SERVICES PTY LTD (IN LIQUIDATION) ACN 059 712 131 THIRD RESPONDENT AUSTRALIAN CAPITAL INVESTMENT LTD ACN 060 506 514 FOURTH RESPONDENT WESSEX FUND MANAGEMENT LTD ACN 002 273 341 FIFTH RESPONDENT ABERDEEN RESOURCES LTD ACN 095 832 072 SIXTH RESPONDENT FRASER COLLIN HICKOX SEVENTH RESPONDENT PFM LTD EIGHTH RESPONDENT SOMMERSBY INDUSTRIAL LTD NINTH RESPONDENT CHRISTOPHER FRANCIS ROURKE TENTH RESPONDENT JUDGE: MANSFIELD J DATE OF ORDER: 29 APRIL 2005 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. The orders sought on the seventh respondent's notice of motion of 31 January 2005 be refused. 2. The costs of the notice of motion be the applicant's 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 SOUTH AUSTRALIA DISTRICT REGISTRY SAD.243 OF 2002 BETWEEN: ADVAN INVESTMENTS PTY LTD ACN 075 663 197 APPLICANT AND: HAMISH PHILLIP McCRAE WATSON FIRST RESPONDENT BLACKSHORT PTY LTD (IN LIQUIDATION) ACN 074 713 483 SECOND RESPONDENT WATSON BENEFIT SERVICES PTY LTD (IN LIQUIDATION) ACN 059 712 131 THIRD RESPONDENT AUSTRALIAN CAPITAL INVESTMENT LTD ACN 060 506 514 FOURTH RESPONDENT WESSEX FUND MANAGEMENT LTD ACN 002 273 341 FIFTH RESPONDENT ABERDEEN RESOURCES LTD ACN 095 832 072 SIXTH RESPONDENT FRASER COLLIN HICKOX SEVENTH RESPONDENT PFM LTD EIGTH RESPONDENT SOMMERSBY INDUSTRIAL LTD NINTH RESPONDENT CHRISTOPHER FRANCIS ROURKE TENTH RESPONDENT JUDGE: MANSFIELD J DATE: 29 APRIL 2005 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 The seventh respondent by motion of 31 January 2005 sought an order for security for costs against the applicant. The matter was listed for hearing today. Senior counsel for the seventh respondent has indicated that the seventh respondent no longer seeks the order sought. In the light of the affidavit evidence filed by the applicant in opposition to the order sought, senior counsel for the seventh respondent indicated that the seventh respondent accepted that the Court in the exercise of its discretion ought not make such an order. In my view that was an appropriate attitude to take on the part of the seventh respondent. 2 There is nevertheless an issue as to costs. On the basis that there are now no orders sought on the motion the applicant seeks indemnity costs. The seventh respondent opposes any order for costs at all. I propose to make the following orders: 1. The orders sought on the seventh respondent's notice of motion of 31 January 2005 be refused. 2. The costs of the notice of motion be the applicant's costs in the cause. 3 It is apparent that I do not intend to make an order for indemnity costs. I will make a few observations as to why I have exercised my discretion on the issue of costs in that way. 4 I accept that the seventh respondent as applicant on the motion was required only to demonstrate by credible testimony that there was reason to believe that the applicant would be unable to pay costs ordered against it if the action was unsuccessful in order to enliven the Court's discretion to make or not to make an order for security for costs. 5 The seventh respondent relied upon commonly used evidence on such an application; namely the shareholding structure of the applicant, its financial returns as disclosed in publicly filed documents (there are none), and a search to ascertain whether it is the registered proprietor of any real estate. The result of those searches disclosed that the applicant is what is commonly called 'a $2 company' or, more accurately, a $4 company, with no property held in its own name in South Australia. 6 The seventh respondent had other pieces of information available to him. They included an assertion by Mr Van Dieman, a director of the applicant, in an affidavit of 5 November 2002 that the applicant's net assets were in excess of $2.6 million. There was no detail as to how that figure was arrived at. The seventh respondent also apparently had information upon which he made the allegation in the statement of claim that the applicant asserted to have advanced to the first respondent $4 million and it was submitted that the seventh respondent thereby should have perceived that the applicant had significant resources available to it to be able to do so. Thirdly, the seventh respondent had a certificate from a chartered accountant provided by the solicitors for the applicant by letter of 8 September 2004 certifying that the net worth of the applicant as at 30 June 2003 was $2.668 million. 7 It was in the face of that information that the seventh respondent pursued his motion or instituted his motion. Despite that information, in my view the seventh respondent, by the pieces of information to which I first referred, adduced credible testimony that there is reason to believe that the applicant may have been unable to pay the costs of the seventh respondent if the application were unsuccessful. 8 That fact however does not in my view disentitle the applicant to costs of the motion which is now no longer pursued. The seventh respondent got over the threshold as noted above, but ultimately his motion was not pursued. There are reasons why I do not make an order for indemnity costs but will make an order that the applicant have its costs of the motion against the seventh respondent. In the first place, the applicant had available to it the capacity to adduce in a more cogent form material in response to the seventh respondent's request for information to satisfy the seventh respondent that he was not at risk if the action was unsuccessful. The affidavit of the accountant of the applicant, Mr Spear, filed on 25 February 2005 in some detail indicates that the applicant is a substantive company and that financial statements of the applicant were prepared on an annual basis, including annual accounts available at 30 June 2003 and subsequently at 30 June 2004. It may be that, at the time of the exchange of communications relating to the motion, the 30 June 2004 figures were not available, but I infer that a set of financial statements at 30 June 2003 would have been available had the applicant been prepared to provide them. 9 The other factor which I have taken into account particularly is that the decision not to pursue the order sought on the motion was not made soon after the filing of the affidavit on 25 February 2005. It was only on the eve of the hearing that the seventh respondent apparently determined in the light of that information that the Court would be most unlikely to make the order sought. There is no suggestion that the seventh respondent in the light of that information took further action to investigate or to test in any way the information in the affidavit of Mr Spear. He may have done so, but there is no information to suggest that he did so. There is therefore a significant delay during which preparatory work, including engaging counsel, has apparently been undertaken in preparation for the hearing today and which might have been avoided. The balancing of those two factors leads me to the view that the applicant should have its costs of the motion for security for costs, but I do not think they are sufficient to tip the scales in favour of the costs order being an order for costs on an indemnity basis. Had the financial statements been provided prior to the motion my view may very well have been different. Had the seventh respondent indicated shortly after receipt of Mr Spear's affidavit that he did not propose to proceed with his motion, I may well have made no order for costs or possibly given the seventh respondent the same or all of his costs of the motion. 10 I also considered whether the costs should simply be the applicant's costs, or whether they should be the applicant's costs in the cause. I have determined that the costs of the motion should be the applicant's costs in the cause because it seems to me that ultimately if the applicant succeeds there will be no detriment to the applicant by the order which I have made and, if the applicant does not succeed and is liable for costs to the seventh respondent it would be unfair for the applicant nevertheless to be able to recover costs of an application which it could have, in my view, avoided by earlier disclosure of the financial records. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield. Associate: Dated: 18 May 2005 Counsel for the Applicant: S Palyga Solicitor for the Applicant: Lynch Meyer Counsel for the Seventh Respondent: PV Slattery QC Solicitor for the Seventh Respondent: Lancione Partners Date of Hearing: 29 April 2005 Date of Judgment: 29 April 2005