New South Wales Supreme Court CITATION : P M Sulcs & Assocs P/L v Daihatsu Aust P/L [No 2] [2000] NSWSC 826 CURRENT JURISDICTION: Common Law Division FILE NUMBER(S) : SC 11488/93 01/11/99 - 05/11/99 08/11/99 - 12/11/99 15/11/99 HEARING DATE(S) : 17/11/99 15/12/99 17/12/99 14/08/00 - 18/08/00 JUDGMENT DATE : 22 August 2000 PARTIES : P M Sulcs & Associates Pty Limited (Pl) Daihatsu Australia Pty Limited (Def) JUDGMENT OF : Kirby J COUNSEL : C Stevens QC/T Hancock (Pl) S Rares SC/D Studdy (Def) SOLICITORS : Oliverie Attorneys (Pl) Clayton Utz (Def) CATCHWORDS : Application for Security of Costs - Whether merits relevant - Delay in making application LEGISLATION CITED : Supreme Court Rules - Pt53 r2(1) The Corporations Law - s1335(1) Buckley v Bennell Design & Constructions P/L (1974) 1 ACLR 301 Sir Lindsay Parkinson & Co Ltd v Triplan Ltd (1973) 1 QB 609 M A Productions P/L v Austarama Television P/L (1982) 7 ACLR 97 Spiel v Commodity Brokers Australia P/L (In Liq) (1983) 135 SASR 294 Equity Access Ltd v Westpac Banking Corp & Ors (1989) ATPR 40-972 K P Cable Investments P/L v Meltglow P/L & Ors (1995) 56 FCR 189 Epping Plaza Fresh Fruit & Vegetables P/L v Bevendale P/L [1999] 2 VR 191 CASES CITED : Southern Cross Exploration NL v FAI (1985) 1 NSWLR 114 Tradestock P/L v TNT (Management) P/L (1977) 14 ALR 52 Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 Bryan E Fencott & Assocs P/L v Eratta P/L (1987) 16 FCR 497 Bell Wholesale Co Ltd v Gates Export Corp (1984) 2 FCR 1 Yandil Holdings P/L v Insurance Co of North America (1985) 3 ACLC 542 Hession v Century 21 South Pacific Ltd (In Liq) (1992) 28 NSWLR 120 Pacific Acceptance Corporation v Forsyth (1967) 2 NSWR 402 Intercraft Cabinets P/L v Sampas P/L (1997) 18 WAR 306 DECISION : Ref para 91 THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION KIRBY J Tuesday 22 August 2000 11488/93 - P M SULCS & ASSOCIATES PTY LIMITED v DAIHATSU AUSTRALIA PTY LIMITED JUDGMENT [No 2] - Application for Security for Costs 1 HIS HONOUR: This is an application by the defendant, Daihatsu Australia Pty Limited ("Daihatsu") for security for costs. The Plaintiff's Claim 2 The plaintiff, P M Sulcs & Associates Pty Limited ("P M Sulcs") commenced an action for damages against Daihatsu in 1993. An Amended Statement of Claim was filed in 1995. The cause of action is in contract, and alternatively, for work performed on a quantum meruit. 3 P M Sulcs was registered in New South Wales in 1984. It was established by its Canadian parent to promote the sale of computer software developed by the parent. One such pacakage was known as The Material and Customer Control System. 4 The software of P M Sulcs was written in the language used by Wang computers, known as V S Cobol. Between 1987 and 1989, P M Sulcs had discussions with Daihatsu. Ultimately, according to the plaintiff, an agreement was executed on 17 April 1989. The agreement contemplated the use of P M Sulcs' software on a Fujitsu computer at Daihatsu. That required the conversion of that software from the V S Cobol language to "C language", used by Fujitsu computers. In broad terms, a disagreement arose between the plaintiff and the defendant concerning the funding of the conversion process. 5 The document executed on 17 April 1989 (which the plaintiff asserts was a contract) contemplated a series of steps. Some were to be taken by P M Sulcs, and others by Daihatsu. P M Sulcs was required to consult with Daihatsu to determine its precise computer needs. P M Sulcs was then required to produce a specification. After 17 April 1989 there was consultation and a specification was produced. The plaintiff asserts that it had fulfilled its obligations. The matter was ready to progress to the next milestone (identified by the document of 17 April 1989). P M Sulcs therefore rendered an invoice ($45,000). The invoice was not paid. There were further discussions. The plaintiff says that since the time contemplated by the contract was tight, it continued working. A further invoice ($49,000) was rendered after a further month. Again, it was not paid. 6 Daihatsu denies that there was a contract. It says that it was the obligation of P M Sulcs to produce software which could be used on the computer hardware which Daihatsu intended to install, namely that of Fujitsu. P M Sulcs, therefore, was required to undertake the conversion process. It was required to fund that conversion, if it could be done. Daihatsu asserts, in this litigation, that it could not be done. 7 P M Sulcs alleges that, as a consequence of Daihatsu's breach of contract, it has suffered considerable loss. First, it lost the benefits which would have flowed under the contract. They included the cost of the software, license fees, and ongoing maintenance of the system. The particulars quantify that loss at approximately $5 million. 8 Secondly, P M Sulcs says that there was a further aspect to its agreement with Daihatsu. Daihatsu had agreed that, once the system had been successfully installed, that installation at Daihatsu could be used as a reference site. P M Sulcs would be able to direct prospective clients to Daihatsu. The Sulcs product, in C language, and compatible with all UNIX computers, could then be demonstrated. Such an arrangement would also benefit Daihatsu. It would receive a commission on sales. It would thereby recoup its outlay in the conversion of the software. 9 Affidavits have been filed by the plaintiff purporting to quantify the benefits which may have been earned by P M Sulcs, had it been in a position to demonstrate its product throughout the 1990s. The experts relied upon by the plaintiff calculated the benefits as being approximately $1 billion (pessimistically) or $3 billion (realistically). That evidence was not in admissible form. It has since been struck out. However, the plaintiff has been given leave to file further affidavits in admissible form, quantifying the benefits said to arise through the loss of Daihatsu as a reference site. Application for Security 10 The balance sheets of P M Sulcs for the years ended 30 June 1984 to 30 June 1989 reveal a series of losses, as follows: 11 The balance sheet for 30 June 1989 disclosed a deficiency of assets over liabilities of $382,370. The accumulated losses were recorded as $288,584. 12 However, monies were earned during these years. The balance sheets reveals that, at one point, a significant sum was held on deposit. The losses, in large measure, were monies owed to the Canadian parent. The New South Wales company survived only with the assistance of its parent. 13 However, in approximately 1990, and before the commencement of this action, the General Manager of P M Sulcs, Mr John Hooper, purchased the shareholding of the New South Wales company from the Canadian shareholders. The shares in P M Sulcs are now owned by Bedor Limited (as to 50%), and Mr J W Hooper (as to 50%) in trust for Bedor Limited. Bedor Limited is a Hong Kong company, which has not traded. Mr Hooper is the beneficial owner of all shares in Bedor Limited. 14 Against this background, Daihatsu sought $200,000 security for costs on 29 June 1995. The application came before Registrar Irwin on 22 August 1995. Orders were made by consent. The plaintiff was ordered to provide the following security by means of unconditional bank guarantees: · $30,000 before the proceedings continued · $40,000 upon completion of discovery · $30,000 after the plaintiffs had filed and served its affidavits 15 The parties were given liberty to apply. The order specifically contemplated the right of the defendant to seek additional security if the security provided were not adequate. 16 The first and second payments were duly made by the plaintiff. The third payment, however, was not made. The matter, in the meantime, had been set down for hearing on 1 November 1999, with an estimate of three weeks. On 6 October 1999, the plaintiff sought to have the order for security set aside. The Motion was heard on 13 October 1999 by Dowd J. It was dismissed. The plaintiff was ordered to pay the remaining amount ($30,000) by 19 November 1999, or the matter would be stayed. The Hearing in November 1999 17 The hearing began on 1 November 1999. Mr Hooper was cross examined on liability for approximately one week. He has yet to be cross examined on damages. The plaintiff's case on liability has been completed, apart from the tender of certain documents. 18 On 15 November 1999, a further affidavit was filed, sworn by Mr Hooper. The affidavit exhibited a number of records of the plaintiff. They were described as the primary financial records of P M Sulcs. The experts who were about to be called in the plaintiff's case on damages had not had access to that material. They had framed their assumptions upon a basis which was likely to be irrelevant. It was recognised, therefore, that it would be pointless to call them until they had examined the fresh material. 19 The matter was, therefore, adjourned. The plaintiff was ordered to pay the costs thrown away by reason of the adjournment. It should be said, however, that only four days remained in the three weeks which had been set aside for the hearing of the case. It was already apparent that the three week estimate provided by the parties was considerably astray. Application for Further Security 20 Before the matter was adjourned on 15 November 1999, the defendant foreshadowed a further application for security for costs. An affidavit by the solicitor for the defendant states that the solicitor and client costs of Daihatsu, as at 18 November 1999, were $438,000, including disbursements (not including GST). 21 On 15 December 1999, a Notice of Motion was filed seeking further security as follows: · $50,000 by 22 December 1999 · $100,000 by 31 January 2000 · $200,000 by 14 July 2000 22 It was not possible to deal with the matter in December 1999. A week was set aside on 28 February 2000 (to deal with the application for security, and other preliminary issues), and a block of four weeks beginning 14 August 2000 (which was thought to be sufficient to complete the evidence). Unfortunately, the hearing in late February 2000 could not take place because of another matter which I was then hearing. 23 The defendant, however, still wished to have the application for security dealt with as a preliminary issue. Attempts were made to find a suitable date. Two days were offered in mid June 2000. They were acceptable to the plaintiff. However, counsel for the defendant were not available. 24 The defendant, in the circumstances, filed a further Notice of Motion on 15 June 2000. The Motion sought $350,000 security before 23 June 2000. The Motion came before Bell J on 3 July 2000. The plaintiff submitted that it was more appropriate that the issue be dealt with by me, as the trial Judge. Her Honour acceded to that submission. No order for security was made. When the matter resumed before me on 14 August 2000, the defendant renewed its application for security. Jurisdiction to Make an Order 25 The Court, under Pt53 r2(1), has jurisdiction to order the plaintiff to give security for costs where: "r2(1)(e) … there is reason to believe that a plaintiff being a body corporate will be unable to pay the costs of the defendant if ordered to do so" 26 That power mirrors the power provided by s1335(1) of The Corporations Law, which is as follows: "s1335(1) Where a corporation is plaintiff in any action or other legal proceeding, 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 the security is given." 27 It is common ground that the plaintiff, P M Sulcs, is impecunious. There is jurisdiction, therefore, to make an order. The issue is whether an order should be made. 28 Before considering matters relevant to the exercise of that discretion, I should deal with a submission by the defendant. It was suggested that, impecuniosity having been demonstrated, I should approach my task with a predisposition in favour of making an order for security. 29 Support for that submission is to be found in the judgment of Street CJ (with which Moffitt P and Hutley JA agreed) in Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301. In that case, the Chief Justice drew attention to the following words of Lord Denning in Sir Lindsay Parkinson & Co Ltd v Triplan Ltd (1973) 1 QB 609 at 626, commenting upon the English equivalent of the New South Wales Companies Act: "Turning now to the words … the important word is 'may'. That gives the judge a discretion whether to order security or not. There is no burden one way or the other. It is a discretion to be exercised in all the circumstances of the case." 30 Lawton LJ agreed with Lord Denning. Cairns LJ, however, believed that once impecuniosity had been demonstrated, the plaintiff must establish special circumstances if it was to avoid an order for security. Cairns LJ said this: "… the section does not make it mandatory to order security for costs in every case where the plaintiff company appears to be unable to pay the costs of a successful defendant, but that there still remains a discretion in the court which may be exercised in special circumstances." 31 In Buckley v Bennell Design & Constructions Pty Limited (supra), Street CJ adopted a position between these two views. He identified the correct approach in these terms: (at 305) "I hesitate to embrace without qualification either of the conflicting views expressed in Sir Lindsay Parkinson & Co Ltd v Triplan Ltd . The provision is of long standing and some gloss has been put upon it. This has, perhaps, led to an undue readiness in some cases to regard an order for security as a matter of right in the absence of special circumstances. No doubt Lord Denning and Lawton LJ, were concerned to correct this restraint on the width of the discretion. But their correction, in the face of the long established approach, goes too far. It seems to me that the discretion could properly be regarded as ordinarily exercisable so as to protect a defendant sued by an impecunious company, but that, if the court in any case takes the view that this protection should not be afforded to the defendant, it has an unlimited and unrestricted discretion to give effect to such view without having to look for special circumstances. I prefer to regard the discretion conferred by the section as being one which should be exercised merely with a predisposition in favour of the defendant party." 32 That approach, however, has not met with universal approval. In New South Wales (Needham J in M A Productions Pty Ltd v Austarama Television Pty Ltd (1982) 7 ACLR 97 at 99,100), and in other states (Spiel v Commodity Brokers Australia Pty Ltd (In Liq) (1983) 135 SASR 294 at 300, per Bollen J), there have been decisions which favoured the approach of Lord Denning. The discretion was unfettered. The Court should have no predisposition one way or the other. In Equity Access Ltd v Westpac Banking Corporation & Ors (1989) ATPR 40-972 at 50,631, Hill J, commenting upon the judgment by Street CJ in Bennett, said this: "… subsequent decisions have cast doubt on that statement and the view now accepted as correct is that enunciated by Lord Denning MR and Lawton LJ." 33 Beazley J in K P Cable Investments Pty Ltd v Meltglow Pty Ltd & Ors (1995) 56 FCR 189 said: (at 196) "The law is now settled that the discretion to order security for costs is unfettered and should be exercised having regard to all the circumstances of the case without any predisposition in favour of the award of security." 34 See also Epping Plaza Fresh Fruit & Vegetables Pty Ltd. v Bevendale Pty Ltd [1999] 2 VR 191, per Winneke P and Phillips JA at 196. 35 I therefore reject the defendant's submission. The discretion is unfettered. Matters Relevant to the Discretion 36 There are a number of authorities which, helpfully, catalogue those matters which Courts habitually examine in the context of applications for security. Hill J in Equity Access (supra) said this: (at 50,635) "The cases indicate that among the matters appropriate for consideration are: · the chances of success of the applicant; whether the applicant's claim is bona fide or a sham; · the quantum of risk that the applicant cannot satisfy a cost order; · whether use of the power would shut out a small company from making a genuine claim against a large company, ie, is the power being used oppressively; · whether the impecuniosity arises out of the Act [sic] in respect to which relief is sought; · whether there are aspects of public interest which weigh in the balance against the making of an order; · whether there are any particular discretionary matters peculiar to the circumstances of the case." 37 Beazley J in K P Cable Investments Pty Ltd (supra) identified a number of matters ordinarily considered relevant. Omitting the references provided by her Honour, she said this: (at 197/198) "1. That such application should be brought promptly. This is a principle of longstanding … 2. That regard is to be had to the strength and bona fides of the applicant's case are relevant considerations … 3. Whether the applicant's impecuniosity was caused by the respondent's conduct subject of the claim. 4. Whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate … 5. Whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security … 6. An issue related to the last guideline is whether persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking … 7. Security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not to be made against parties who are defending themselves and thus forced to litigate…" Issues in the Present Application 38 Both parties provided lengthy and useful written submissions, which I have read. The plaintiff identified a number of matters which, it was suggested, would make it unjust to order security: · First, the plaintiff asserted that its impecuniosity was caused by the defendant. · Secondly, the plaintiff asserted that the application has been delayed. · Thirdly, the plaintiff further asserted that the merits of the claim are relevant, and favoured the plaintiff. · Fourthly, the plaintiff said that if security were ordered, it could not be provided. The plaintiff has exhausted its funds in providing security already lodged, and prosecuting the claim. The inevitable consequence of an order, therefore, would be that the proceedings would be stayed. · Fifthly, Mr Hooper, the person standing behind P M Sulcs, has offered to provide a personal guarantee. 39 It is convenient to deal with the submissions made by the defendant, as to why security should be ordered, in the context of these issues. Did the defendant cause the plaintiff's impecuniosity? 40 It is common in the computer industry for software companies to develop an association with a particular hardware supplier. There are advantages to both. Those attracted to the software are referred by the software company to the hardware supplier. Those attracted to a particular computer are made aware of the software. 41 The Canadian parent of the plaintiff developed an association with Wang. Mr Hooper, perhaps more clearly than the Canadian parent, recognised a shift in the market from Wang to UNIX computers. On his evidence, he therefore sought to build a relationship with a new hardware supplier, Fujitsu (in the context of his negotiations with Daihatsu). He recognised, nonetheless, that an association with Fujitsu may have an impact upon Wang. He said this: (T 127) "… basically our whole company was at stake if we didn't perform because we were dropping our relationship with Wang … they knew that I had everything at stake." 42 Upon this basis it is said that the plaintiff's lack of means can be attributed to the conduct of the defendant. Were it the fact that the plaintiff's impecuniosity was caused by the defendant, that would be a matter most relevant to the exercise of the discretion (Southern Cross Exploration NL v FAI (1985) 1 NSWLR 114 at 126; Sir Lindsay Parkinson v Triplan [1973] 2 QB 609 at 626). 43 The defendant denies that it caused the plaintiff's lack of means. First, it is plain that the plaintiff was already impoverished before the alleged agreement in 1989. Secondly, Mr Hooper swore an affidavit in Federal Court proceedings which relate to another aspect of the business of P M Sulcs. In that affidavit, he ascribed the breakdown in his relationship with Wang to a different cause. Thirdly, the defendant drew attention to the words of Smithers J in Tradestock Pty Limited v TNT (Management) Pty Limited (1977) 14 ALR 52 which are said to be apposite: (at 59) "… the court may well look with disfavour upon a defendant seeking security for costs if the acts of the defendant had disabled the plaintiff from complying with an order for such security. But this is not such a case. So far as appears the plaintiff company's impecunious condition has existed since the company came into being, and before it attempted to do business with the defendants or any of them. It may be that the defendants' conduct, was wrongful or otherwise, has created a situation in which the plaintiff has had less opportunity than it otherwise might have had to cure its original impecuniosity, but it did not cause it. …" 44 It is plain that P M Sulcs had significant losses over many years before its association with Daihatsu. I do not believe that the plaintiff's plight can be attributed to the defendant. The agreement with the defendant (if there was an agreement) represented an opportunity to reverse the problems of the past. The defendant did not, however, cause those problems. Was there Delay by the Defenant? 45 Delay in making the application is recognised as important. Waddell J in Southern Cross Exploration NL (supra) likened the issue to that which arises when considering the effect of laches. His Honour referred to the following passage in Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221: (at 240) "… Two circumstances, always important in such cases (that is where a defendant relies upon the doctrine of laches) are, the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy." 46 In that case, the trial had substantially exceeded the original estimate of three or four weeks. The overrun had been caused by lengthy cross examination by the plaintiff's counsel. After 65 days of hearing, and with a prospect of a further six to eight weeks before completion, the defendant sought security. 47 Counsel for the plaintiff was critical of the defendant in having delayed the application. The defendant's response to that submission was described by Waddell J as follows: (at 125) "As against this it is submitted for the defendants that they have delayed making the application in order not to interrupt the trial until a stage has been reached when it would be commercially irresponsible not to make it now. It is said that the financial position of the plaintiffs has been declining. The evidence indicates that this is so in the case of Southern Cross and, so far as it has gone, also in the case of each of the other plaintiffs. But there is no evidence that the defendants were aware of this." 48 His Honour then said this: (at 125) "In the present case it seems to me that the circumstances mentioned are such as to make it quite impossible, without severe and unexpected prejudice to the plaintiffs, to make an order for security in respect of costs which have already been incurred by the defendants. The plaintiffs have incurred very substantial costs in relation to the proceedings to date and have been allowed to do so by the defendants in the absence of any intimation of any application for security for costs. It would clearly be highly unjust to make such an order in respect of costs already incurred." 49 Security was ordered, but in an amount, and by a means which would not prevent the matter being completed (at 129). 50 The importance of delay in making an application was emphasised by Street CJ in Buckley v Bennell Design & Constructions (supra). A builder sought to recover damages for work performed on behalf of the owners of certain land at Coffs Harbour. The matter was referred to arbitration. Whilst awaiting hearing, the builder suffered a number of financial reverses. A provisional liquidator was appointed. An application was then made to Helsham J for security for costs. His Honour declined to order security. 51 An appeal was lodged against that order. Being an interlocutory ruling, leave was required. The appellant failed to recognise that the appeal was irregular. In the meantime the arbitration proceeded. Ultimately, the Registrar drew the parties' attention to the irregularity. Leave was then sought, and the matter came before the Court of Appeal. Street CJ said this: (at 308) "A significant matter to be weighed in determining whether or not an extension of time should now be allowed is that this arbitration has run on for some eight hearing days. The builder has expended money in respect of its own legal costs for those eight days. And, if security now be ordered, accompanied by the usual sanction that the arbitration as well as the proceedings in this court be stayed until such security be furnished, this would, in effect, place the company in the position of running a risk, if unable to provide security, of having wasted the costs of these eight days." 52 His Honour added: (at 308) "It is an accepted principle in the ordering of security for costs that such an application should be made promptly. There may, of course, be cases where the impecuniosity of the company may only be discoverable or provable at a later stage, of the proceedings. Similarly, there may be cases in which the length of the proceedings was not foreseen when they commenced. Other situations could occur in which a late application could, without procedural prejudice, be brought forward during the currency of the disputed proceedings. But ordinarily, I reiterate, the application ought to be made promptly in order to avoid the very situation which has developed in this case." 53 Moffitt P said this: (at 309) "The right to seek security for costs and to stay proceedings, with the possible result that a claim for damages is frustrated, is a powerful weapon. Therefore, the litigant who seeks to use it against his opponent is at risk of not having it available, unless the application is made and persevered with in circumstances involving the least oppression of his opponent. The primary reason why the application should be brought promptly and pressed to determination promptly is that the company, which by assumption has financial problems, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it is allowed to or commits substantial sums of money toward litigating its claim." 54 Here, the question of delay arises at three points: · First, was there delay in the original application for security? · Secondly, was there delay in making the application for increased security (foreshadowed for the first time on 11 November 1999)? · Thirdly, was there delay in prosecuting the application for increased security in the period November 1999 to August 2000? 55 Dealing with the first issue, there was no delay in making the initial application. The plaintiff filed an Amended Statement of Claim in 1995. The application was lodged on 29 June 1995. Orders were made for security by consent on 22 August 1995. 56 I believe, however, that the application for increased security was delayed. The parties were obliged to file affidavits. The affidavits, once filed, were voluminous. They gave rise to complex issues of fact and law, both on liability and on damages. 57 The inability to complete the matter within the three weeks set aside in November 1999 was, I believe, entirely predictable. In this respect the case is quite different from Southern Cross Exploration NL (supra). It ought to have been recognised, that the security ordered in 1995 was unlikely to be adequate. Had increased security been ordered before 1 November 1999, and had the plaintiff been unable to meet it, the plaintiff would have been spared the expense (which was no doubt considerable) of the preparation and presentation of the November 1999 hearing. 58 Moving to the third issue, I accept that the defendant has made every reasonable attempt to have the matter dealt with after 15 December 1999. The fact that it was not heard before 14 August 2000 is unfortunate. However, that occurred through no fault on the part of the defendant. Nonetheless, in doing justice between the plaintiff and the defendant, I cannot ignore that the plaintiff's position has altered further. Costs have been incurred in preparation, and anticipation of the present block of hearing dates. The Merits of the Claim 59 In circumstances where the matter is part heard, is it appropriate to take account of the plaintiff's prospects of success? In Southern Cross Exploration NL (supra) Waddell J said this: (at 130) "I have no endeavoured to make any estimate of the plaintiffs' prospects of success in the proceedings, a matter which some of the cases suggest may be taken into account in certain circumstances …" 60 In Equity Access (supra) Hill J, having referred to the authorities, made the following comment: (at 50,636) "It would I think be quite improper for me to embark upon a view of the evidence as it presently stands to determine whether the applicant does or does not have a good case. It suffices to say that the case is one where it must clearly be said that the applicant has an arguable or triable case. Certainly it was not suggested to me that the case of the applicant is merely frivolous. There are real issues to be tried …" 61 Beazley J in K P Cable Investments Pty Ltd (supra) identified as a relevant matter, the strength and bona fides of the plaintiff's case. Her Honour adopted the observations of French J in Bryan E Fencott & Associates Pty Ltd v Eratta Pty Ltd (1987) 16 FCR 497 at 514 when she said this: (at 197) "As a general rule, where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the court should proceed on the basis that the claim is bona fide with a reasonable prospect of success." 62 In Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd. (supra), Winneke P and Phillips JA made the following observations: (at 199) "Obviously enough, on the making of an interlocutory application for security it will not ordinarily be possible - or practicable - to reach any very clear view about the merits of the plaintiff's claim and on that account it is sometimes said that a detailed examination of the merits is scarcely warranted: see for example Porzelack KG v Porzelack (UK) Ltd [1987] 1 WLR 420 at 423; [1987] 1 All ER 1074 at 1077; Appleglen Pty Ltd v Mainzeal Corporation Pty Ltd (1988) 79 ALR 634 at 635; Lagarna Pty Ltd v Bridge Wholesale Acceptance Corporation (Aust) Ltd [1995] 1 VR 150 at 154; Ariss at 514. So much may be accepted but that is not to say that the merits are always irrelevant (unless totally lacking) or, as here, that the bona fides of the claim may be disregarded. On this application the judge was able to conclude, and properly so, that there were very real grounds for doubting the bona fides of the appellant's claim and that was plainly a relevant consideration to the respondent's application for security. No appealable error is shown in that regard." 63 I have yet to hear from the defendant's witnesses. I am in no position, therefore, to form a view on the merits. Having said that, I am, nonetheless, conscious of the two aspects of the plaintiff's claim. The plaintiff alleges breach of contract, and claims significant damages. Its other claim for quantum meruit may be regarded as a fall-back position. So far as the latter is concerned, the issues are significantly narrower. There is no issue that the work was performed. Mr Malloy, the defendant's expert, accepts that the rates charged are reasonable. 64 Statements have been made by counsel for the defendant from time to time (some of which are referred to in the plaintiff's submissions), concerning the quantum meruit claim. Some of these comments are perhaps capable of being regarded as concessions that the plaintiff may have a valid claim in quantum meruit, at least as to part of the amount claimed. Having said that, the defendants have not conceded the issue. There are aspects which are contested, which the plaintiff must prove. 65 The estimates in respect of the quantum meruit claim vary. They range from $45,000, plus interest (being the first invoice rendered by the plaintiff in approximately June 1989), to more than $500,000. 66 In respect of both aspects of the plaintiff's claim, I simply find that it is a bona fide claim which is certainly arguable. Would Security End the Proceedings? 67 Mr Hooper made the following assertion (affidavit 17 February 2000, para 16): "Neither the Plaintiff nor Bedor Limited or myself have any assets other than those disclosed in this affidavit, and are unable to provide any additional security for the Defendant's costs. If this honourable court were to order that the Plaintiff provide such additional security, and to stay the proceedings pending the provision of such security, then the Plaintiff would be unable to prosecute the proceedings further and its claim would be effectively stifled." 68 In Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1, the Court (Sheppard, Morling and Neaves JJ) made the following observation: (at 4) "In our opinion a Court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case for a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts." 69 Mr Hooper provided details of his financial position, and that of the companies with which he is associated. He said that his only substantial asset is his share in the house in which he lives in Chatswood. He estimated the value of that house to be $600,000. There are a number of mortgages. Citibank has a mortgage of $100,000 representing the security ordered in August 1995. The Commonwealth Bank made a loan to Mr Hooper's wife in November 1999, for $375,000. That sum has been used for legal expenses, or has been earmarked for that purpose. 70 Mr Hooper's evidence was supported by that of his wife. She said that, for some years, she has been the family bread-winner. She is employed by Lend Lease. She earns a substantial salary (in excess of $200,000 per annum). In broad terms, she affirmed her husband's description of their assets. 71 The accounts given by both Mr and Mrs Hooper were challenged by the defendant. Mr Hooper was cross examined as to whether he had earned monies which had not been disclosed, and not declared for taxation purposes. The defendant pointed to the sum of $125,000 which Mr Hooper acknowledged having received in 1996. No taxation return had been lodged for that year. Mr Hooper, however, said that that money was the subject of litigation. He did not regard it as "proper" to treat it as income in his hands, until the litigation had been resolved. The sum had since been dissipated in that litigation. It is no longer available. 72 Mr Hooper said that, since 1996, he has not earned money above the tax-free threshold. Hence, he had not filed tax returns. That assertion at first did appear surprising. Mr Hooper is an intelligent man. He has a number of qualifications. He is able bodied. You would have expected him to have had substantial earnings during that period. 73 He said, however, that he had relied upon his wife's income, which is substantial. He also said that they lived modestly. It appears that this case has become his preoccupation, and his occupation. There was no evidence to suggest that he lived other than as he described. 74 The defendant relied upon two matters to contradict Mr Hooper's claims. First, it tendered a fax sheet sent by Mr Hooper in 1987 (Exhibit E). Down one side of the sheet there were a number of computer logos. Mr Hooper said that he was authorised by the various companies to display each logo (including that of Kyocera, IBM and Microsoft). It was put to him that he had a relationship with each organisation, and derived income as a consequence. Mr Hooper denied any such suggestion. No evidence was called from any of these companies. As a matter of probability, I accept Mr Hooper's denial. I do not believe that he derived income from such sources. 75 Secondly, Mr Hooper, and indeed Mrs Hooper, were cross examined concerning loan applications to the Commonwealth Bank. The cross examination, in each case, was based upon internal bank documents (Exhibits F and G). These applications suggested that Mr Hooper had an income of $120,000 in 1996 (Exhibit F), and $200,000 in 1999 (Exhibit G). Mr Hooper denied any such suggestion, as did Mrs Hooper. 76 The documents relied upon by the defendant were not Mr Hooper's documents (nor indeed those of his wife). They were prepared by the bank as a consequence of having spoken, in 1996, to both Mr and Mrs Hooper, and in 1999, to Mrs Hooper. The bank officers responsible for the contents of each document were not called. I accept as probable Mr Hooper's denial that he had any such income. 77 The defendant further suggested that Mr and Mrs Hooper had understated their assets. Again the cross examination was based upon the applications for bank loans. The house at Chatswood, according to Mrs Hooper, was valued at $750,000 in November 1999, not $600,000 as stated by Mr Hooper. Other assets were identified in the loan application in November 1999 (Exhibit G), but were not included in the affidavits sworn by Mr and Mrs Hooper. 78 Again I am inclined to accept the account given by Mr and Mrs Hooper as probable. The estimate of Mrs Hooper in November 1999 was a statement of her belief. It is likely to be less reliable than the estimate provided by Ray White, Real Estate Agent, to Mr Hooper on 23 June 2000. Ray White estimated the house was worth between $575,000 and $600,000. 79 The assets identified by the defendant depend upon an acceptance of annotations made by bank officers in the loan application. There is, as I have remarked, no evidence as to the source of that information. Some entries appear to derive from the 1996 loan application (Exhibit F). Having not heard from the bank officers, the document does not significantly erode my confidence (as a matter of probability) in the account provided in sworn evidence by Mr and Mrs Hooper. The assets, in any event, are not substantial. 80 I, therefore, accept, as a matter of probability, that were I to order that Mr Hooper should provide cash security, that he would be unable to do so. 81 That is an important matter, in terms of my discretion. It clearly weighed heavily upon Waddell J in Southern Cross Exploration NL (supra) (at 125). The issue arises whether requiring a cash security or bank guarantee, at this stage of the proceedings, when the plaintiff's case on liability is all but complete, is oppressive. In Yandil Holdings Pty Limited v Insurance Co of North America (1985) 3 ACLC 542, Clarke J stated the following: (at 545) "The 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." 82 I cannot overlook the disparity in resources between the defendant, and the plaintiff. The defendant is the Australian subsidiary of a significant multinational corporation. The Personal Guarantee of Mr Hooper 83 A distinction is made between litigants who are natural persons, and companies. Meagher JA in Hession v Century 21 South Pacific Ltd (In liq) (1992) 28 NSWLR 120 said this: (at 123) "… a company in liquidation against whom an order for security for costs is sought cannot successfully resist such an order merely by proving that it cannot fund the litigation from its own resources if an order for security is made; it must prove that it cannot do so even if it relies on the other resources available to it (the company's shareholders or creditors) … Finally, whilst it is both true and important that poverty must be no bar to litigation, what that means is that the courts must be astute to see that no person pursuing a claim which is not frivolous is precluded from doing so by the erection of obstacles which poverty is unable to surmount; it does not mean that proof of insolvency automatically confers an immunity from statutory provisions which deal with insolvent plaintiffs." 84 The policy behind that distinction was explained by Moffitt P in Pacific Acceptance Corporation v Forsyth (1967) 2 NSWR 402: (at 407) "… the very basis of the exercise of jurisdiction to order security for costs against a company as distinct from an individual is that the company is impoverished. It recognises that if a company wins it will get the benefit of its verdict and an order for costs against the defendant to the advantage of those who have an interest in the assets of the company but that the defendant sued will, if successful, be at a disadvantage in being unable to recover his costs if the company is financially insecure, and that it is fair that he be placed in an equal position with the company by the company providing or having provided by those concerned in the fruits of the litigation a means of the defendant sued recovering his costs, if he wins. The court in considering whether it ought to make an order as between two parties to an action ought prima facie to leave to the plaintiff to determine how it can best overcome any problems arising from its impoverishment, internal structure and composition of its assets and liabilities and where it is under official management whether it overcomes these problems with or without leave of the court under Part IX, or with or without the assistance of individuals interested in the assets of the company and the outcome of the litigation." 85 Here, Mr Hooper has offered to provide a personal guarantee. He has offered to place his assets, such as they are, at stake. Such an offer is not determinative. In Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 18 WAR 306, Malcolm CJ (speaking for the Court) said this: (at 316) "… the availability of of an undertaking of personal liability by the persons who stand behind the company is no more than a factor, albeit an important factor, to be taken into account in the exercise of discretion" 86 In Epping Plaza Fresh Fruit & Vegetables Pty Ltd (supra), Winneke P and Phillips JA made the following comment upon the provision of an undertaking: (at 196) "… those who stand behind the impecunious corporate plaintiff are prepared to expose themselves to liability for the defendant's costs of the action, is but one relevant factor to be taken into account when a judge is exercising his discretion under s1335." 87 I do not regard Mr Hooper's undertaking as worthless. If, as the defendant asserts, Mr Hooper's home is more valuable than I think probable, the defendant has the comfort of that excess. Moreover, the combined values of the mortgages are less than the market value of that property, even though Mr Hooper would find it difficult to obtain further cash or bank guarantees using that property as security. More than that, Mr Hooper is, as I have said, a man of intelligence and qualifications. I believe that he is likely to re-enter the workforce, and earn a significant income, in the future. Conclusion 88 The plaintiff has a bona fide claim which is certainly arguable. Mr Hooper has devoted significant time to its preparation. He has also expended significant funds. The claim is now in its nineteenth day. The plaintiff's case on liability is complete, subject to the tender of documents. I am persuaded that if I were to order the provision of bank guarantees, neither the plaintiff (nor Mr Hooper, who stands behind the plaintiff) would be able to meet such a requirement. Inevitably, the action would be stayed. I believe, in the circumstances, that that would be unjust, and oppressive. I therefore decline to make such an order. 89 I nonetheless believe that it is appropriate that Mr Hooper provide an undertaking or guarantee that he will be personally responsible for the costs of the defendant. The parties may make submissions as to the form of that guarantee. 90 I do not believe, in all the circumstances, that it is appropriate that Mrs Hooper should provide the same undertaking. Mrs Hooper has never been a shareholder of the plaintiff. She became (I assume) a director of P M Sulcs when her husband purchased that company from the Canadian shareholders in 1990. She was not a director at a time material to the contractual liability (if any) of the defendant to the plaintiff. She resigned as a director in November 1999. There was no offer from Mrs Hooper to provide an undertaking. There is no reason to believe that she has any substantial assets (other than her ability to earn). Orders 91 1. I decline to order that the plaintiff provide one or more unconditional bank guarantees to the defendant. 2. I order that Mr John Wadley Hooper provide to the defendant a guarantee, or undertaking, that he will be responsible for the defendant's costs, such guarantee or undertaking to be in a form agreed between the parties, or, failing agreement, to be approved by me. 3. Costs reserved. ********** Last Modified: 09/27/2000 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.