Industrial Relations Commission of New South Wales in Court Session CITATION: Australian Waste Recyclers 1 Pty Limited v Enviro Seen Pty Limited and ors [2005] NSWIRComm 190 APPLICANT: Australian Waste Recyclers 1 Pty Limited RESPONDENTS: Enviro Seen Pty Limited PARTIES: David Jonathan Catts Gerald Noordhof Stephen John Smith Roger Frederick Walker FILE NUMBER(S): IRC 2627 of 2004 CORAM: Staunton J CATCHWORDS: Practice and procedure - application for security for costs by respondents - relevant principles - doubt as to the corporate applicant's ability to meet any costs order that might arise - applicant's corporate history and contingent liabilities taken into consideration - application granted - security for costs orders made - proceedings stayed pending provision of that security. Corporations Law LEGISLATION CITED: Industrial Relations Act 1996 Beach Petroleum NL v Johnson (1992) 7 ACSR 203 Kenoss Contractors Pty Limited v Allied Constructions Pty Limited (No 2) (2001) 104 IR 218 KP Cable Investments Pty Limited v Meltglow Pty Limited and ors (1995) 56 FCR 189 CASES CITED: Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Limited (1998) 193 CLR 502 Tradestock Pty Ltd v TNT (Management) Pty Ltd (No 1) 1997 30 FLR 343 Yandil Holdings Pty Limited v Insurance Co of North America (1985) 3 ACLC 542 HEARING DATES: 06/03/2005 DATE OF JUDGMENT: 06/03/2005 APPLICANT: Mr M Quintiliani of counsel SOLICITORS: Kells the Lawyers FIRST, SECOND AND THIRD RESPONDENTS: Mr C Magee of counsel SOLICITORS: LEGAL REPRESENTATIVES: Summit Law FOURTH RESPONDENT Mr S J Smith SOLICITORS: Lenehan and Co JUDGMENT: - 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: Staunton J DATE: 3/6/2005 Matter No IRC 2627 of 2004 Australian Waste Recyclers 1 Pty Ltd v Enviro Seen Pty Ltd and ors Application for relief under section 106 of the Industrial Relations Act 1996 INTERLOCUTORY JUDGMENT [2005] NSWIRComm 190 1 This judgment deals with two notices of motion filed by the respondents seeking orders that the applicant provide security for costs in relation to the hearing of the substantive proceedings. Together, the first, second and third respondents seek security in the sum of $150,000. The fourth respondent seeks an amount of $66,000. The fifth respondent has made no such application. 2 The second, third, fourth and fifth respondents are all directors of the first respondent. The fourth and fifth respondents are separately represented from the first, second and third respondents. 3 The principal proceedings in this matter involve an application made by Australian Waste Recyclers 1 Pty Ltd (AWR 1) for relief pursuant to s 106 of the Industrial Relations Act 1996. That application is brought with respect to a contract that existed between and Enviro Seen Pty Ltd (Enviro), the first respondent, which provided, inter alia, for the removal of some 5,200 tonnes of waste by AWR 1 from a defunct steelworks of BHP Billiton Ltd (BHP) located at Mayfield in New South Wales. 4 AWR 1 and Enviro entered into the relevant contract in June 2002. The fourth respondent, Stephen John Smith, assisted in the negotiation of this contract. There is, however, considerable factual dispute as to what his exact role was in that process and whether he was acting for AWR 1 or Enviro during that period. Nevertheless, the contract was executed and AWR 1 commenced fulfilling its contractual obligation to remove the waste. 5 Following on from that, it is asserted, a number of factual circumstances arose that affected AWR 1's ability to perform its contractual obligations. The details of those circumstances do not need to be set out for the purposes of these particular proceedings. As a result of those factual circumstances, laid predominantly at the feet of Enviro and Mr Smith, AWR 1 subsequently became incapable of fulfilling the contract terms between it and Enviro. As a consequence, it has brought the relief proceedings under s 106, arguing that the contract between it and Enviro was unfair on its terms. 6 In two distinct applications, the first, second and third respondents as one group (R1 respondents) and the fourth respondent acting independently (R4 respondent) have now moved the Court for an order that the applicant provide security for costs. Those applications are made pursuant to the provisions of rule 89(5) of the Industrial Relations Commission Rules by reference to Part 53 Rule 2(1)(e) of the Supreme Court Rules. A similar power arises pursuant to s 1335(1) of the Corporations Law which provides as follows: Where a corporation is plaintiff in any action or other legal proceedings, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until security is given. 7 The relevant respondents made their application on the basis that there is doubt as to the applicant's ability to meet any potential costs order that might arise if the respondents are wholly or partially successful in their defence of the matter. 8 In support of their application, all respondents relied primarily upon the expert opinion evidence of John Horder, dated 19 May 2005. Mr Horder identified himself as a Business Interruption Consultant/Forensic Accountant. His qualifications underpinning such a title are in law and accountancy - primarily the latter. He is a director of MSM Loss Management. 9 Mr Horder has wide experience in forensic accounting, including a period as Chief Executive Officer of the New South Wales Parliament Public Accounts Committee. I accept he has the specialised knowledge to express the opinions that he does. Mr Horder has provided three reports relevant to these proceedings, as follows: (i) Report dated 19 May 2005 (ii) Report dated 20 May 2005 (iii) Report dated 25 May 2005 10 No objection was taken on behalf of the applicant to the receipt of Mr Horder's reports and he was not required for cross examination. In all the circumstances, I am satisfied I can properly rely on Mr Horder's expert opinion in relation to the matters before me for consideration. 11 In addition to Mr Horder's reports, the R1 respondents also relied on the affidavit of Ms Robyn Maitland. Ms Maitland is the solicitor on record for the R1 respondents. In that affidavit, Ms Maitland detailed the anticipated costs of $150,000 that have been, and are expected to be, incurred by the R1 respondents in defending the substantive proceedings. 12 The fourth respondent relied on his own affidavit as well as an affidavit of Norman Rutherford Lenehan, his solicitor on the record. 13 None of the respondents deponents were required for cross examination. 14 In resisting the applications by the respondents, the applicant relied on the affidavits of Alan Douglas Charles Pears. Mr Pears is a Chartered Accountant and a partner of Pears & Co. Mr Pears has been the accountant of AWR 1 since its incorporation in January 1999. 15 The affidavits of Mr Pears were as follows: (i) Sworn 29 April 2005 with annexures; (ii) Sworn 20 May 2005. 16 Mr Pears was required for cross examination. I will refer to aspects of his evidence in due course. Relevant principles 17 The power to order security for costs will only be enlivened if there is credible testimony establishing a reasonable belief that, in the circumstances, AWR 1 will be unable to pay the costs of the four respondents moving the Court for the order, should those respondents be successful in their defence of the substantive claim. In Beach Petroleum NL v Johnson (1992) 7 ACSR 203 at 204, von Doussa J of the Federal Court considered the circumstances in which such an order would be open to the court as follows: The power of the court to order security for costs under s 1335 is conditioned on the court being satisfied by credible testimony that there is reason to believe that the applicant corporations will be unable to pay the costs of the respondents if they are successful in their defence. Subject to that condition being fulfilled the section gives the court an unfettered discretion which is to be exercised having regard to all the circumstances of this case: see Sir Lindsay Parkinson & Co Ltd v Triplan Ltd [1973] 2 All ER 273 at 285; Bell Wholesale Co Ltd v Gates Export Corp (1984) 2 FCR 1 at 4; 8 ACLR 588; Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 511. 18 The circumstances in which there is a reason to believe that the applicant will be unable to meet an adverse costs order are not limited to those circumstances in which an inability to pay is a matter of probability. The unfettered discretion will be enlivened simply if there is reason to believe that the applicant will be unable to meet a costs order as circumstances exist at the time that costs order is or may be made. As stated by von Doussa J in Beach Petroleum at 204: Although s 1335 requires that there be reason to believe that the plaintiff corporation ' will be unable to pay the costs of the defendant if successful' - and I emphasise ' will be unable to pay ' - the section does not, in my opinion, require that the court be satisfied, as a matter of probability, that every eventuality which could lead to eventual payment of the costs be excluded. The section would be satisfied if it appeared by credible testimony that there is reason to believe that if the defendant is successful circumstances may then exist in which the plaintiff will be unable to pay the costs . (emphasis added) 19 His Honour ultimately stated at 205: In my opinion the power of the court under s 1335 arises if credible evidence establishes that there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on service of the allocatur, if judgment goes against it. This will be so even if in other events which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs. The degree of likelihood of the plaintiff corporation being unable to pay the costs along with all the circumstances, actual and possible, about its financial position, would be then taken into account in the exercise of discretion, and in framing the orders of the court if the decision is to order security. (emphasis added) 20 Once the provisions of s 1335 are enlivened, the decision to award security for costs is a matter for the discretion of the court. The manner in which that discretion is to be properly discharged was considered by Wright J, President in Kenoss Contractors Pty Limited v Allied Constructions Pty Limited (No 2) (2001) 104 IR 218 at [11] to [14]: As observed by Phillips JA, the judgment of Sir Robert Megarry VC in Pearson v Naydler [1977] 1 WLR 899 at 906 - 907 usefully identifies the issues commonly underlying an application for security of costs and affords useful guidance for their proper application. His Lordship said: It seems plain enough that the inability of the plaintiff company to pay the defendants' costs is a matter which not only opens the jurisdiction but also provides a substantial factor in the decision whether to exercise it. It is inherent in the whole concept of the section that the court is to have power to order the company to do what it is likely to find difficulty in doing, namely, to provide security for costs which ex hypothesi it is likely to be unable to pay. At the same time, the court must not allow the section to be used as an instrument of oppression, as by shutting out a small company from making a genuine claim against a large company. For this reason, Mars-Jones J. was not prepared in the Parkinson case to make an order for security for costs for more than the £1,500 that the master had ordered: see [1973] Q.B. 609, 617. As against that, the court must not show such a reluctance to order security for costs that this becomes a weapon whereby the impecunious company can use its inability to pay costs as a means of putting unfair pressure on a more prosperous company. Litigation in which the defendant will be seriously out-of-pocket even if the action fails is not to be encouraged. While I fully accept that there is no burden of proof one way or the other, I think that the court ought not to be unduly reluctant to exercise its power to order security for costs in cases that fall squarely within the section. ... Finally, reference should be made to the statements of principle of Meares J as to an application for security of costs in Lynnebry Pty Ltd v Farquhar Enterprises Pty Ltd (1977) 3 ACLR 133 at 135: There is no doubt that I have a discretion under the section but in exercising it, I am mindful of what Bowen LJ, said in Gardner v Jay (1885) 29 Ch D 50, at 58: "… when a tribunal is invested by Act of Parliament or by rules with a discretion, without any indication in the Act or rules of the grounds upon which the discretion is to be exercised, it is a mistake to lay down any rules with a view of indicating the particular grooves in which the discretion should run, for if the Act or the rules did not fetter the discretion of the judge why should the court do so?" And of the following extract from the judgment of Lawton LJ in Sir Lindsay Parkinson & Co Ltd v Triplan Ltd, supra at 629: "… the court has a discretion, and that discretion ought not to be hampered by any special rules or regulations, nor ought it to be put into a straitjacket by considerations of burden of proof. It is a discretion which the court will exercise having regard to all the circumstances of the case." In the relevant exercise of discretion, as with all discretions to be exercised judicially the task of the Court, to adopt the approach and words of Hungerford J in Van R o oy Machinery Pty Limited v WorkCover Authority of New South Wales (Inspector Wolf) (2000) 97 IR 436 at [33], "comes down to the proposition of doing justice between the parties and ensuring the proper administration of justice". 21 In exercising the absolute discretion provided by s 1335, there is no exhaustive list of matters that should be taken into account. On the contrary, the court must exercise its discretion only after considering 'all the circumstances of the case', and then should only make such an order when it would do justice between the parties and facilitate the proper administration of justice. In Tradestock Pty Ltd v TNT (Management) Pty Ltd (No 1) 1997 30 FLR 343 at 348 Smithers J of the Federal Court expressed that proposition as follows: No doubt the answer is to be found by ascertaining where, on considerations of what is just and reasonable, the balance rests between the risk of exposing an innocent defendant to the expense of defending his position and the risk of unnecessarily shutting out from relief a plaintiff whose case if litigated would result in his obtaining that relief. 22 In Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Limited (1998) 193 CLR 502 Kirby J at 513 to 515 generated a non-exhaustive list of considerations relevant to the exercise of the discretion, as follows: Without any pretence to having conducted an exhaustive analysis of the decisions in this court where orders for security for costs have been sought, in appeals, a number of propositions can be stated which it may be useful to collect: 1. There is no absolute rule to control the exercise of the discretion to order security for costs where that jurisdiction derives from the inherent power of the court. The jurisdiction, as one reposed in a court, is to be exercised judicially and for the purpose for which it exists. An analogous discretion has been described as "absolute". It would be wrong to attempt to hedge the jurisdiction about by rules or practices, even where derived from a number of instances. This is because what should be done in each case depends entirely on the circumstances of the case. The governing consideration is what is required by the justice of the matter. 2. There is therefore no absolute rule (applicable statute apart) that the impecuniosity of a party will entitle its opponent to an order for security for its costs. Where the power to so provide exists in uncontrolled terms, it would be to fetter the jurisdiction impermissibly to adopt such a rule or even a prima facie entitlement. By the same token, the inability of a party to meet the costs of an unsuccessful proceeding is not irrelevant to the exercise of the jurisdiction. Litigation is inevitably expensive and burdensome. To add to the burdens of a party successful in the outcome, those of paying its costs with little or no prospect of recovery under an order for costs may, in particular circumstances, be a reason for offering a measure of protection to that party by way of security for costs. 3. Another consideration that has sometimes been judged to be relevant is the strength of the case of the party resisting an order that it provide security for costs and an evaluation (necessarily tentative) of its prospects of success. Thus, the fact that a party has secured special leave to argue its case on appeal has been thought a relevant consideration in some circumstances. Similarly, if a proceeding appeared hopeless and such as was bound to fail, the lack of apparent merit in a party's case might be a reason for ordering it to provide security for the costs to which, it appears, it is needlessly putting its opponent. Such a consideration would need to be exercised with care, given that the real merits of a case might not emerge until the final hearing or might not sufficiently emerge in the necessarily brief proceedings typically involved in an application for security for costs. Furthermore, if a party asserts that its opponent's proceedings are manifestly lacking in legal merit, other remedies are available to it to protect it from needless vexation. In appeals there is the barrier of leave or special leave. 4. Further considerations which, in the particular circumstances of the case, have been held relevant to the grant or refusal of an order for security for costs in relation to a proceeding in the court have been: (a) That the hearing of the proceeding is close at hand or that the moving party has delayed its application for such an order. (b) That the parties or some of them are legally aided. (c) That the proceeding raises matters of general public importance quite apart from the interests of the parties. (d) That the nature of the proceeding is such that, even if unsuccessful, an order for costs in favour of the winning party might not be made or might be limited. (e) That the costs orders made earlier in the proceedings have followed an unusual course or have involved countervailing orders which must be weighed against those liable to be made in the proceedings in question. (f) That a party to the proceedings is, or will at judgment be, or be likely to be, absent from the jurisdiction and has no or few assets within the jurisdiction. (g) That if an order were made it would effectively shut a party out of relief according to law in circumstances where that party's impecuniosity is itself a matter which the litigation may help to cure. Doubtless there are as many further considerations as there are cases. The foregoing help to illustrate some of the matters which courts, including this court, have felt to be relevant to the exercise of the discretion to order security for costs, where that discretion is invoked. 23 On the identification of general guidelines which the Court typically takes into account in determining applications for security for costs see also KP Cable Investments Pty Limited v Meltglow Pty Limited and ors (1995) 56 FCR 189 at 197. Relevant considerations 24 The starting point in an application such as this is to determine whether, by way of credible evidence, the threshold requirement of s 1335 has been established, enlivening the absolute discretion of the court. That condition sine qua non to the making of an order is that there must be 'reason to believe there is a real chance that in events which can fairly be described as reasonably possible', if judgment goes against it, AWR 1 will be unable to pay the costs of the four relevant respondents. 25 I have had regard to the unchallenged evidence and opinion expressed by Mr Horder. The evidence led by the respondents seeking security on the question of the likely financial position of the applicants if ordered to pay costs is credible evidence. To adopt the reasoning of von Doussa J in Beach Petroleum at 206: ...it establishes reason to believe that events could occur before the conclusion of these proceedings which would render each of them unable to pay the costs of the respondents to the principal action in the manner contemplated by s 1335. It is also possible that the applicants might then be able to pay the costs, but the respondents are entitled to seek protection under the section for the adverse possibility. 26 I come to that conclusion predominantly on the evidence of Mr Horder. Before dealing with that, it is relevant to note that Mr Pears, the accountant for AWC, deposed that, based on his knowledge of and 'experience of the applicant's trading position, a review of the applicant's accounts and my discussions with senior management ... the applicant has the ability to pay a costs order of $211,000' - the full amount sought on behalf of the respondents. 27 I have to say I found the evidence of Mr Pears unsatisfactory in a number of respects. Firstly, it cannot be said that Mr Pears is simply the accountant for the applicant in a totally arms length capacity. Mr Pears is a director of Be My Guest Pty Limited (BMG), which holds a thirty per cent interest in the applicant. BMG does not do so beneficially, he said, but as a trustee for the Bob White Family Trust. That may be so but it is clear that as 'the accountant for various companies in the applicant's group for approximately 15 years', Mr Pears has facilitated a complicated series of corporate structures as corporate predecessors to the applicant. Without detailing the extensive history of those companies, I am referring to Pumping and Carting Specialists Pty Limited (PCS), Treatment and Recycling NSW Pty Limited (T&R) and Testing and Laboratory Specialists Pty Limited (TLS). In each of these companies, BMG held shares - some beneficially, some not. All three companies would appear to be part of the corporate structure involving Robar Holdings Pty Limited as trustee for the Robar Unit Trust. 28 In 2003, all three companies were wound up and each had significant unsecured creditors, particularly the Australian Taxation Office. As well, for example, Pumping and Carting Specialists Pty Limited listed Testing and Laboratory Specialists Pty Limited as an unsecured creditor in the sum of $285,831 in its winding up and Treatment and Recycling NSW Pty Limited listed Australian Waste Recyclers (not the current applicant) as an unsecured creditor in the sum of $106,441 in its winding up. 29 All in all, the winding up of the three companies (PCS), (T&R) and (TLS) in 2003 saw unsecured creditors of $1.2 million go unsatisfied. Certainly, none of the shareholders or directors of any of those three companies which were relevantly common and included, amongst others, BMG, made any contribution to meet the unsecured debts of those companies. 30 What is clear is that those companies have re-emerged as the applicant. The shareholding of the applicant includes BMG and Bushland River Cruises Sydney Pty Limited. 31 The compelling inference is that the current applicant has a related corporate history that has a propensity to wind up with significant unsecured creditors left unsatisfied and then re-emerge in a different corporate name to start business again in the same industry. 32 It is a corporate history that does not reflect well on the applicant as far as it suggests a tendency to slough off corporate structures and the attendant financial liabilities when financial circumstances make it difficult to meet its debts as and when they fall due. 33 That is not a matter I can ignore in relation to the applicant's current financial position. 34 Even if, as Mr Pears asserted, the applicant could pay into Court as security the amount of $211,000, there are considerable question marks as to the applicant's potential contingent liabilities in the short to medium term that, if realised, would make it difficult for the applicant to pay the costs of the respondents if judgement went against it. I say that mindful that judgment in the substantive proceedings is still some way of. 35 Turning now to Mr Horder's evidence. To start with, Mr Horder acknowledges that prima facie and prior to any analysis, the fact that current assets exceed current liabilities indicates that currently the applicant is able to pay its debts as and when they fall due. Indeed, on the face of its accounts, the applicant has a net asset position of $173,000. 36 That prima facie position is thereafter significantly qualified as follows: (a) a significant increase in trade debtors as at 31 December 2004 to $660,332 - up from $387,681 as at 30 June 2004 with no provision made for bad debts for the six months ended 31 December 2004. Mr Pears stated that the figure of $660,332 included the amount of $302,000, being monies allegedly owed by the first respondent to the applicant in the substantive proceedings. (b) the applicant's cash assets as at 31 December 2004 include a $273,750 bond lodged with the Environmental Protection Authority (EPA). The bond is a guarantee by the St George Bank to the EPA and does not allow the applicant to readily draw upon it and may not be fully recoverable. (c) the applicant recorded a trading position for the year ended 30 June 2004 which was a loss before abnormal items of $337,373. The abnormal profit item in the accounts for the year ended 30 June 2004 is an amount of $350,216 being revenue from previous years. It is a write back of bad debts. But for that, the applicant would have experienced a reduction in net assets of $337,370 from 30 June 2003 to 30 June 2004. (d) a number of contingent liabilities relating to the applicant not recorded in the applicant's balance sheet as at 31 December 2004. The contingent liabilities are identified as: (i) a prior employee of the applicant has claimed some $100,000 in unpaid superannuation and entitlements. That matter is the subject of legal proceedings before the Industrial Relations Commission of New South Wales (Matter No IRC 732 of 2004). (ii) three environmental offence proceedings in the Land and Environment Court against the applicant. The maximum penalty for each offence is $250,000. (iii) potential additional superannuation and payroll tax liabilities of some $55,000. 37 When added to the EPA bond monies of $273,750, the applicant's maximum potential exposure to its cash flow position is approximately $1,178,700.00. If the contingent liabilities were to crystallise into liabilities within the next twelve months or so, the applicant's ability to pay some or all of the respondent's costs would be significantly affected. 38 In addition to the above, the applicant's financial statements as at 31 December 2004 discloses a current loan from the Robar Unit Trust to the applicant of $297,616. In the applicant's financial statements as at 30 June 2004, only some six months prior, there was no loan from the Robar Unit Trust to the applicant. However, Note 5 (Receivables) to those statements discloses there was a current loan from the applicant to the Robar Unit Trust of $152,899. 39 As to those entries, Mr Horder expresses his opinion thus: [1.3] The change from a loan of $152,899 from the applicant at 30 June 2004 to a loan to the applicant of $297,616 at 31 December 2004 represents a change of $450,515, being either cash advanced to the applicant by the Robar Unit Trust or payments made by the Robar Unit Trust on the applicant's behalf. [1.4] I am not aware of the terms of the Robar Unit Trust loan as at 31 December 2004. I do not know whether the loan is secured or unsecured. The fact that the loan of $297,616 is disclosed as a current liability indicates to me that it could be repayable by the applicant within twelve months from 31 December 2004 as it is generally understood that current liabilities are liabilities that are payable within the next twelve months. [1.5] As noted in paragraph 5.6 of my report dated 19 May 2005 the applicant had total cash of $175,889.65 as at 3 May 2005. This would not be sufficient to pay the Robar Unit Trust loan in full. If the loan is called upon by the Robar Unit Trust, there would then be no cash available for the applicant to pay other creditors until it receives cash from its debtors. This would affect the ability of the applicant to pay costs. 40 Despite the evidence of Mr Pears that the Robar Unit Trust is unlikely to call back its loan in the foreseeable future, it still remains a significant financial liability for the applicant. 41 Further, it has to be noted that the National Australia Bank has a fixed and floating charge over the applicant. As a consequence, the Bank would rank in preference over current or future unsecured creditors in the event of a winding up of the applicant. 42 Also of concern as to the applicant's financial liabilities is the evidence of Mr Horder concerning the applicant's tax payments to the Australian Tax Office. As he stated: [3.12] I have reviewed the Tax Agent Portal statements for the applicant from 22 October 2002 to 16 May 2005 and note that the Australian Tax Office has been receiving payments for amounts due from the applicant during that time. I have sought to agree these payments to the Australian Tax Office to the bank statements of the applicant and have not been able to match any of these payments. I am therefore unsure as to who made the payments to the Australian Tax Office. Some or all of these tax payments could be a contingent liability of the applicant if the tax payments have been made by a third party and if that third party liability has not been recorded on the applicant's balance sheet at 31 December 2004. 43 The evidence of Mr Pears on behalf of the applicant is hardly reassuring or enlightening as to the source of funds or any liability that may arise as a consequence. He stated: ... I would imagine they have come from either intercompany bank accounts or from funds injected in other companies by the Directors/Shareholders. The fact is that all these payments have been made. 44 On the evidence of Mr Pears, somewhat elliptically, it would seem that Robar Holdings may well have made payments to the Tax Office on behalf of the applicant. 45 That the payments have been made is not the point. There is an inference they have been made by a third party which ultimately creates a further liability on the applicant's accounts. In any event, there is evidence to suggest the applicant has a significant tax liability. 46 Overall, Mr Horder summarised the applicant's financial position in the following terms: [5.3] From my examination of the information provided to me it is my opinion that there is considerable uncertainty as to whether the applicant has to ability to pay all or some of costs of $211,500 plus GST. Although the balance sheet of the applicant indicates that the company was prima facie solvent at 31 December 2004 there were current assets, most notably the EPA Bond of $273,750, which may not be recovered by the applicant in the next 12 months and may not be recovered in full. ... ... [5.6] If the applicant was ordered to pay costs of $211,500 plus GST (total $231,550) then, based on the balance sheet of the applicant as at 31 December 2004, it did not have the money in the bank to make this payment at that date. I note that the balance of the Westpac account (16-2722) at 3 May 2005 was $174,830.05, the balance of the Westpac account (17-9575) at 3 May 2005 was $504.68, and the balance of the National Australia Bank account (54-757) at 29 April 2005 was $554.92, a total of $175,889.65, which is $55,660.35 less than the costs of $231,550 (including GST). 47 The financial position as outlined by Mr Horder has to be balanced against a number of factors identified by Mr Pears on behalf of the applicant and generally. 48 As to the applicant's overall net asset position, Mr Pears stated: The net asset position is not necessarily a reflection of the company's ability to pay its debts as and when they fall due. The excess of current assets over current liabilities is not necessarily a true reflection either because it may be possible that payment of the creditors can be deferred for between 60 and 90 days depending on the relationship with the supplier and the current assets may be recoverable at a quicker rate giving increased cash flow. This does not also take into account any borrowing facilities that the company may have nor does it take into account the ability of the Directors/Shareholders to inject further capital as may be required. I do not believe it is required but if necessary there is also the ability to factor the debtors which would provide additional cash flow. 49 Such an assessment by Mr Pears is hardly a ringing endorsement of the applicant's ability to sustain any additional demands on it's current cash flow situation, now or in the mid term. Mr Horder's opinion as to the 'possibilities' raised by Mr Pears accurately expresses the applicant's position, summarised as follows: (i) Even if creditors are deferred and current assets recovered at a quicker rate, which is unlikely to happen for the EPA bond of $273,750, then the amount of current assets and the amount of current liabilities is not affected by the change in timing of cash flows. Current assets and current liabilities would not change in total. (ii) There is no evidence that AWR 1 has any borrowing facilities. It does not appear to have an overdraft facility. (iii) There is no evidence as to the ability of the Directors/Shareholders to inject further capital as required. (iv) Whilst the company's Tax Portal Statements show that tax payments have been made, it is still not known who or which company has made these payments and whether AWR 1 has already recorded a liability to these people or companies for tax payments made on its behalf. (v) Mr Pears stated that 'there could be situations where many of the employees were not entitled to superannuation'. It is not known which, if any, employees would not be entitled to superannuation and would suggest that most of the $50,058 superannuation arrears is correct. 50 Mr Pears does not acknowledge the extent of the applicant's contingent liabilities and, as he said in evidence, they have had no effect on the applicant's cash flow during the current financial year. That is not the issue, it seems to me. 51 The applicant's future financial position is unclear in the sense that it cannot be said that the contingent liabilities and other financial matters identified by Mr Horder are about to be activated in a way that would create an immediate cash flow crisis for the applicant. Equally, it must be said, they are not going to disappear and may well eventuate. 52 On the evidence before me, the applicant continues to operate it's business as a going concern. I accept that the cash flow difficulties potentially envisaged by Mr Horder are, on any view, presented very much as a worst case scenario rather than, as one might expect on behalf of the applicant, a more balanced and optimistic view of the applicant's overall financial position, currently or in the foreseeable future. 53 The applicant is not impecunious but it's financial position is certainly finely poised. If one was to express a non-accounting assessment to the applicant's financial position, it is juggling a significant number of financial balls in the air such that, if it was to drop one, its financial viability, from a cash flow perspective, would be significantly eroded. Despite what is submitted on behalf of the applicant, those financial balls it is juggling are not merely speculative. They are real and credible. 54 Overall, as the evidence has disclosed, there is a reasonable possibility that by the time a costs order is or may be made in the substantive proceedings, circumstances may well have arisen that would prevent the applicant from being able to meet a costs order at that time. 55 Having come to that conclusion, it must be said that, at this point, the applicant's claim is not without substance or lacking in legal merit. I do not accept the submission on behalf of the respondents that the applicant's claim is beyond the jurisdiction of the Court or has poor prospects of success. That the Commission's jurisdiction is invoked by the respondents as a defence to the applicant's claim is by no means as clear cut as the submission made would suggest. Ultimately, it can and will be determined by a proper consideration of the relevant contract and it's attendant factual circumstances. 56 There seems little doubt that the contractual issue in dispute has not assisted the applicant's financial position. That is, the applicant claims the respondents alleged contractual unfairness caused it to suffer considerable financial loss. Notwithstanding that, it has continued to operate in the waste disposal industry up to the present and continuing. 57 These proceedings still have some way to go before the substantive hearing is reached. It would not be overstating the situation to anticipate a period of at least twelve months before the matter is likely to be heard. 58 In exercising the discretion I have, I must be mindful that the respondent's application is not used as an instrument of oppression to shut out the applicant from making a genuine claim against the respondents: see Yandil Holdings Pty Limited v Insurance Co of North America (1985) 3 ACLC 542 at 545 where Clarke J stated: "[t]he fact that the ordering of security will frustrate the plaintiff's rights to litigate its claim because of its financial condition does not automatically lead to the refusal of an order. Nonetheless it will usually operate as a powerful factor in favour of exercising the court's discretion in the plaintiff's favour." 59 Notwithstanding that, in all the circumstances, and having regard to the relevant principles, I consider it is appropriate there be an order for security for costs. I do not propose to do so on a full party/party basis. 60 The affidavit evidence of Ms Maitland and Mr Lenehan as solicitors on the record for the R1 and R4 respondents respectively has not been challenged as to the estimate of what would be properly recoverable party/party costs plus GST if the respondents were successful. 61 Using those figures as a realistic and reasonable estimate of the likely costs in the substantive proceedings, I propose to order the applicant provide security for costs in the sum of $55,000 in relation to the R1 respondents and $22,000 in relation to the R4 respondent. 62 Accordingly, the Court orders: 1. The applicant provide security for costs with respect to the first, second and third respondents in the sum of $55,000. 2. The applicant provide security for costs with respect to the fourth respondent in the sum of $22,000. 3. The proceedings be stayed pending the provision of the security. 4. The applicant to pay the respondents costs of the application for security for costs. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.