FEDERAL COURT OF AUSTRALIA Compagnie Maritime Des Isles V Bureau Veritas-Registre International De Classification De Navires Et D'aeroneufs 'Societe Anonyme A Directoire Et Conseil De Surveillance' [2005] FCA 1063 Statutes Federal Court of Australia Act 1976 (Cth) s 56 Cases Barton v Minister for Foreign Affairs (1984) 2 FCR 463 Cons COMPAGNIE MARITIME DES ISLES AND MARIFRET v BUREAU VERITAS-REGISTRE INTERNATIONAL DE CLASSIFICATION DE NAVIRES ET D'AERONEUFS 'SOCIETE ANONYME A DIRECTOIRE ET CONSEIL DE SURVEILLANCE' Q170 OF 2003 KIEFEL J BRISBANE 3 AUGUST 2005 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q170 OF 2003 BETWEEN: COMPAGNIE MARITIME DES ISLES FIRST APPLICANT MARIFRET SECOND APPLICANT AND: BUREAU VERITAS-REGISTRE INTERNATIONAL DE CLASSIFICATION DE NAVIRES ET D'AERONEUFS 'SOCIETE ANONYME A DIRECTOIRE ET CONSEIL DE SURVEILLANCE' (ARBN 000 620 048) RESPONDENT JUDGE: KIEFEL J DATE OF ORDER: 3 AUGUST 2005 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The first applicant provide the further sum of $200 000 by way of security for costs in a manner acceptable to the District Registrar on or before 7 September 2005. 2. In the event that security is not provided by that date, the first applicant's action be stayed. 3. The costs of the application be the parties' costs in the proceedings. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q170 OF 2003 BETWEEN: COMPAGNIE MARITIME DES ISLES FIRST APPLICANT MARIFRET SECOND APPLICANT AND: BUREAU VERITAS-REGISTRE INTERNATIONAL DE CLASSIFICATION DE NAVIRES ET D'AERONEUFS 'SOCIETE ANONYME A DIRECTOIRE ET CONSEIL DE SURVEILLANCE' (ARBN 000 620 048) RESPONDENT JUDGE: KIEFEL J DATE: 3 AUGUST 2005 PLACE: BRISBANE REASONS FOR JUDGMENT 1 In July 2004 an order was made, by consent, requiring the applicants to provide security for costs in the sum of $165 000. Neither entity resides in Australia or carries on business here. They are based in New Caledonia and Guadelope, both territories of France. Since then the first applicant, Compagnie Maritime des Isles ('CMI'), has been registered as a foreign corporation in Australia. It is not however suggested that it now carries on business here. The amount of security provided was later increased to $250 000 by the agreement of the parties. 2 These proceedings arise out of the construction of a vessel which the second applicant, Marifret, now owns. It is alleged that it was intended to charter the vessel to CMI. The respondent operates as an international marine classification society and supervises the construction of ships according to its standards. The case against it is wide-ranging. It is alleged, in short summary, that it represented to CMI that it had competent surveyors at the initial place of construction; that it was in a position to carry out surveys during construction; had sound systems to ensure that the vessel was being constructed in accordance with the classification rules; and was able to identify and monitor rectification of any deficiencies. It is alleged that the respondent did not have reasonable grounds for making the representations. The hearing of this matter will be lengthy, if it proceeds. 3 The respondent's costs assessor, Mr Garrett, considers that the respondent's party and party costs up to and including the first day of trial should tax out in the order of $685 000. The respondent seeks an additional order for security so that it is protected in costs for the whole of that sum. It was submitted by the applicants that his estimate was not reliable because he had not had access to all of the respondent's files, because concerns were held about loss of legal professional privilege. Mr Garrett however obviously did not consider that this prevented him from estimating the costs and the applicants' costs assessor was eventually able to undertake his own estimate without these documents. It was also suggested that Mr Garrett's failure to identify, at the outset, that he had had regard to the actual fees charged by counsel somehow detracts from the reliability of his evidence. There is nothing in the point. He later said that he had done so and the amounts he used are clearly not assessments. 4 The applicants' costs assessor, Mr Matters, says that the maximum at which the respondent's costs would be taxed at, over the same period would be $527 000. He made no allowance in his estimate for the costs associated with junior counsel travelling overseas with the respondent's solicitor to take statements from witnesses. That accounts for some $50 000. There does not seem to me a strong basis for denying this as appropriate party and party costs. They are likely to be allowed in a case such as this. 5 Mr Matters then reduces his estimate to $395 000. He does not explain why he does so. Accepting that his initial estimate was only a maximum, it is not apparent to me why he considers the amount of party and party costs would be reduced or that his estimate may have been too generous. The difference between the cost assessors initial estimate, allowing for the $50 000 in the applicant's cost assessors estimate, is in the order of $120 000. It was not explained how I was to determine which estimate was more likely to be accurate. They are, after all, only estimates. In these circumstances I shall proceed on the basis that the respondent might tax its costs up to and including the first day of trial at about $600 000. That would not seem an excessive figure given the complexity and width of the issues. 6 Marifret is constituted as a general partnership in France. It is a syndicate of twenty-five members. Its purpose is to obtain tax concessions for its shareholders. It is not a profit-making enterprise. The shareholders are each personally responsible for Marifret's debts. Its sole assets are the vessel constructed, the Havannah, and the monies owed to it by CMI under the charter agreement. It has a liability to its bank for the monies advanced to purchase the vessel. There is no direct evidence of the vessel's value. Its insured value is some AUD 8m. Whilst the insured value might be assumed to be a maximum value, it and the cost of construction which Marifret borrowed, some $8.3m, offers some guide to its value. Mr Fosset, the auditor for CMI, says that Marifret's manager has advised him that its assets exceed its liabilities. He identifies the total figures for assets and liabilities in francs. The difference, converted, is in the order of AUD 1m. 7 Mr Dori, who gave evidence for the applicants, complains that no specific assets are identified, but Mr Fosset makes plain that there are only the two mentioned. The only liability is that to the bank. Mr Dori says that Marifret's equity was negative in 2003 and 2004, but it is not apparent how he comes to this view. Mr Dori also points out that Marifret had accumulated losses and trading losses in each of 2003 and 2004. It has a high level of debt. Mr Fosset does not appear to dispute the observations about losses or the debt. He simply comments that it is usual for a company of this kind to be largely financed by debt. 8 Marifret has granted CMI an option to purchase its shares. If CMI exercises it rights under it between 1 January 2006 and 30 April 2006 to acquire the shares in Marifret, Marifret must sell. The shares are however not required to be transferred for a period of five years and in this time Marifret cannot sell to anyone else. Mr Fosset says that if the option is exercised CMI in effect becomes the beneficial owner of the Havannah. Marifret is then 'very dependent upon the viability of CMI as Marifret's only source of revenue for repayment' (to Marifret's bank), he says. 9 CMI conducts a passenger and freight business in New Caledonia in a market which Mr Fosset describes as very competitive. He says that the company is one of substance but does not identify its assets and liabilities and its trading figures although he says he has identified the assets in a note. There is a reference to three vessels with a mortgage over two, but that is all. The untranslated financial statements of CMI for the year ended 31 December 2004 are not of assistance. Mr Fosset does however make plain in his first affidavit that CMI's liabilities exceed its assets. 10 Mr Dori says that CMI's level of indebtedness is high for a corporation of its size and it has a high proportion of accumulated losses which exceed its assets. He also makes the point that its liquid assets are not great and its short term debt is 3.3 times its liquid assets. 11 Mr Fosset, in response, disputes this latter figure. He also points out that in the books of account, which I take Mr Dori to rely upon, assets are depreciated beyond their true value. He says that the true value of the company's assets would equal or exceed its liabilities. Again, however, he does not identify the assets and liabilities. He goes on to now say that there has been an injection of a substantial amount of capital and owners or shareholders equity was no longer negative. What Mr Fosset does not appear to contest is that CMI has not had good trading figures, although he links some of the problems in the past to the delay in the Havannah being available for use. He does not appear to deny Mr Dori's observations concerning CMI's liquidity, but he says that it is now producing good cash flows. 12 When considering an application for security for costs under s 56 of the Federal Court of Australia Act 1976 (Cth) the Court may have regard to the fact that an applicant in the proceedings is not normally resident in Australia: O 28 r 3 Federal Court Rules. It does not necessarily follow from that fact however that an order will be made in the respondent's favour: Barton v Minister for Foreign Affairs (1984) 2 FCR 463. 13 The fact that CMI is now registered in Australia, for reasons not connected with these proceedings, would not weigh against the fact that it is a company resident outside of the jurisdiction. Nor would it seem to me to be relevant that CMI has vessels which are repaired in Australia from time to time. It is however of some importance, at least so far as concerns Marifret, that any judgment for costs of the Australian Court can be enforced in either France or New Caledonia according to the French law experts called by the applicants and the respondent. The costs of doing so are not great; but there may be a delay in the order of some nine months in having the judgment registered. 14 I am not satisfied that Marifret will be unable to pay its debts. Mr Dori makes general complaint about the level of information, but I consider sufficient has been disclosed about the only two assets and the one liability. There is no suggestion that Marifret is likely to dispose of its assets. Indeed the existence of the option agreement would prevent that at least until April 2006 and if CMI does not exercise its option. 15 The position concerning CMI is not the same. The evidence does not permit one to draw a conclusion of solvency with any confidence. Mr Dori's evidence raises real questions concerning the extent of its assets compared with its liabilities and this is not properly responded to by Mr Fossett, who initially expressed the same view. No reliance should be placed upon Mr Fosset's change of position in the absence of an explanation and of particulars. I am not satisfied by his late assertion that the true value of the assets are other than as reflected in the books of account and there is no way of testing his general unqualified assertion as to what that value might be. He has a position with CMI and would appear to be giving evidence in its favour. In addition CMI has not a strong cash flow position and has not traded well historically. 16 In the case of CMI I would therefore be inclined to order the payment of a further sum towards security for costs. Making allowance for the fact that the costs assessors only provide estimates, I fix that sum at $200 000. CMI should not however be required to pay that sum until after the mediation. 17 The respondents have succeeded against CMI but not against Marifret. Their response to the application was made jointly. In these circumstances it seems to me appropriate to order that the costs of the application be the parties' costs in the proceedings. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel. Associate: Dated: 3 August 2005 Counsel for the Applicants: Mr Street SC Solicitor for the Applicants: Bottoms English Lawyers Counsel for the Respondent: Mr G A Thompson SC with Mr AW Duffy Solicitor for the Respondent: Ebsworth & Ebsworth Date of Hearing: 28 July 2005 Date of Judgment: 3 August 2005