FEDERAL COURT OF AUSTRALIA Goldus Pty Ltd (Subject to a Deed of Company Arrangement) v Cummins (No 2) [2020] FCA 971 File number: NSD 461 of 2020 Judge: COLVIN J Date of judgment: 9 July 2020 Catchwords: COSTS - application for security for costs - where security sought for costs of proceedings - whether reason to believe plaintiff will be unable to meet costs order - application allowed Legislation: Corporations Act 2001 (Cth) s 1335 Federal Court of Australia Act 1976 (Cth) s 56 Cases cited: All Class Insurance Brokers Pty Ltd (in liq) v Chubb Insurance Australia Limited [2020] FCA 840 Madgwick v Kelly [2013] FCAFC 61; (2013) 212 FCR 1 PS Chellaram & Co Ltd v China Ocean Shipping Company [1991] HCA 36 Date of hearing: Determined on the papers Date of last submissions: 1 July 2020 (Plaintiff) 2 July 2020 (Third and Fifth Defendants) Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 11 Counsel for the Plaintiff: Mr S Docker Solicitor for the Plaintiff: Thomson Geer Lawyers Counsel for the First and Second Defendants: The First and Second Defendants filed submitting notices save as to costs Counsel for the Third and Fifth Defendants: Mr AM Mathas Solicitor for the Third and Fifth Defendants: MathasLaw Counsel for the Fourth Defendant: The Fourth Defendant did not appear ORDERS NSD 461 of 2020 BETWEEN: GOLDUS PTY LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT (ACN 076 662 149) Plaintiff AND: ANDREW JOHN CUMMINS First Defendant PETER PAUL KREJCI Second Defendant JOE NAKAT ALSO KNOWN AS JOSEPH NAKAT Third Defendant AUSTRALIAN MINING PTY LTD (ACN 000 184 985) Fourth Defendant RND FUNDING PTY LIMITED (ACN 612 200 183) Fifth Defendant JUDGE: COLVIN J DATE OF ORDER: 9 july 2020 THE COURT ORDERS THAT: 1. On or before 20 July 2020, the plaintiff provide security for the defendants' costs of the proceedings of $20,000 by payment into Court, provision of bank guarantee or such other means as the parties may agree. 2. In default of compliance with order 1, the proceedings be stayed until further order. 3. The plaintiff do pay the defendants' costs of the application for security for costs in any event. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT COLVIN J: 1 Goldus Pty Ltd is the holder of certain mining tenements in South Australia. It seeks declaratory relief against each of five defendants to the effect that security interests alleged by the defendants do not exist in respect of the mining tenements. 2 Goldus is subject to a deed of company arrangement although it appears that under the terms of the deed, management of the activities of the company is in the hands of its sole director, Mr John Hillam. 3 The defendants seek security for costs of the proceedings in the total amount of $20,000. Two of the defendants have filed submitting appearances. The Court has been informed that another is not expected to take an active part in the proceedings. Submissions in support of the application have been filed by the third and fifth defendants. They accept that they must establish that there is a reason to believe that the plaintiff will be unable to pay the costs of the defendants. That requirement is expressly stated in s 1335 of the Corporations Act 2001 (Cth) and is usually recognised as a matter that must be established where the application seeks to invoke the jurisdiction conferred by s 56 of the Federal Court of Australia Act 1976 (Cth). The present application relies upon both provisions. 4 Under those provisions, the Court has a broad discretion which must be exercised judicially, that is to say fairly having regard to all the circumstances. It requires a just balancing of the considerations that bear upon two competing risks of injustice that arise with or without an order for security in the particular circumstances of each case. One the one hand there is a risk that the order will stifle proceedings or prejudice their conduct and may do so in circumstances where the proceedings themselves complain about conduct that has brought about or contributed to the parlous financial circumstances of a plaintiff. On the other hand, there is a risk that a defendant will be exposed to the burden of proceedings and will successfully defend those proceedings only to be left without recourse as to costs. As to these matters, see the recent summary in All Class Insurance Brokers Pty Ltd (in liq) v Chubb Insurance Australia Limited [2020] FCA 840 at [42] (Allsop CJ). 5 Lists of matters that might be considered have been expressed: see, for example, Madgwick v Kelly [2013] FCAFC 61; (2013) 212 FCR 1 at [7]. Whether a consideration has significance and, if so, the weight that it should be afforded will depend upon the particular circumstances of each case: PS Chellaram & Co Ltd v China Ocean Shipping Company [1991] HCA 36. 6 In the present case, Goldus simply submits that on the evidence there is no real chance that it will be unable to pay a costs order. It submits that the tenements are valuable (capable of earning in excess of $1 million per month from proposed gold mining activities) and on any view Goldus is entitled to a 33.7% interest in the tenements because the security interest claimed relates to its joint venture partner Australian Mining Pty Ltd 7 No other factor is raised in submissions for Goldus as bearing upon the exercise of discretion. In particular, there is no claim that the security cannot be provided or that its provision would hamper the conduct of proceedings. 8 As to the financial position of Goldus, the question of security was raised with the solicitors for Goldus by letter dated 15 June 2020. In that letter, concerns were raised that Goldus had failed to pay amounts due to the South Australian Department of Energy and Mining and had failed to provide required evidence of insurance in respect of the tenements. Also, the letter described the circumstances in which funds had been secured by Goldus to make the payments due under the terms of the deed of company arrangement. It said that those payments had been sourced from other companies under the control of Mr Hillam in circumstances where those companies were in default of their obligations to the fifth defendant as financier to those companies and, as to one company, there was no authority to deal with proceeds of its bank account. Reference was also made to concerns about assets being moved between companies controlled by Mr Hillam. 9 Each of the above matters provide a real basis for concern as to whether Goldus will be in a financial position to meet any costs order that may be made in these proceedings. Significantly, there was no written response by the solicitors for Goldus as to those matters. Further, in the submissions filed for Goldus on the application those matters were not addressed. Those matters, together with the absence of any affidavit evidence from Goldus as to its current financial position in response to the application mean that the Court can more readily infer from the available evidence that Goldus is not able to answer the concerns raised by the defendants as to whether it will be able to meet a costs order. 10 In that regard, Goldus did not dispute the fact that it was in arrears as to payment of the $80,000 to the South Australian Department of Energy and Mining in respect of the tenements. Despite being subject to a deed of administration it did not put on any evidence of its current financial position other than to rely upon its interest in the mining tenements and budgets that were not current (prepared for activities in the 2017/2018 financial year) that showed that income in excess of $1 million per month might be earned from mining activities on the tenements. However, on the evidence, mining on the tenements has not commenced and it appears that it cannot be commenced until certain regulatory requirements have been met. 11 In those circumstances, I am satisfied that it is appropriate for orders to be made for the provision of security for costs. No issue was taken as to the amount of security sought and no submissions were advanced for Goldus as to the time that might be required to provide security. Given the current stage of the proceedings there should be orders for security to be provided by 20 July 2020 and the proceedings should be stayed if that security is not provided. The defendants having succeeded on the application there should be an order for costs in their favour. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Colvin. Associate: Dated: 9 July 2020