1st Call Video Rights Ltd v CBL Video P/L

[1993] FCA 600

, L JUDGMENT NO. ........ ..,......, 6 00 1 ........ 93 ,

IN TI-IE FEDERAL COURT OF AUSTRALIA

Q	O	_
GENERAL DIVISION

No. G181 of 1992

BETWEEN:

IS?' CALL VIDEO RIGHTS LTD.

(A.C.N. 010 875 34)

CBL VIDEO PTY. LTD.

(A.C.N. 01 1 024 721)

Respondent

JUDGE MAKING ORDER:	Cooper J.
WHERE MADE:	Brisbane
DATE OF ORDER:	9 August, 1993

MINUTES OF ORDER

THE COURT ORDERS:

1.                    The applicant provlde security for costs in an amount of THIRTY THOUSAND DOLLARS ($30,000.00) in a form satisfacto~y to the District Registrar of the Court.

2.                    The application is stayed until the security for costs is provided.

\	m e :	Settlement and entry of orders is dealt with in Order 36 of the Federal
Court Rules.

3.                    The applicant 1st Call Video Rights Ltd. pay the respondent's costs of and incidental to the motion to be taxed.

IN THE FEDERAL COURT OF AUSTRALIA
OUEENSLAN_DJISTRICT REGISTRY

GENERAL DIVISION

No. G181 of 1992

BETWEEN:

1ST CALL VIDEO RIGHTS LTD.

(A.C.N. 010 875 34)

CBL VIDEO PTY. LTD.

(A.C.N. 011 024 721)

Respondent

CORAM:	Cooper J.
PLACE:	Brisbane
DATE:	9 August, 1993
REASONS FOR JUDGIUIEN?'

This is an application for security for costs brought by the respondent.

The applicant, on the material before the court, is a foreign company registered in

New Zealand. In the latest financial accounts filed with the Australian Securities

Commission ("A.S.C.") for the year 3990 - 1991, the applicant made a trading loss of $28,674.71. The liabil~ties of the applicant exceeded its assets by $101,634.87. The principal liability is a non-current loan of $187,296.76 to C.J. & J.W. Curtis.	Shareholders funds are shown as $100.00.	The applicant owns no real estate so far as
the material discloses.

On 29 December, 1992 the respondent's solicitors wrote seeking any

ii~formation which would suggest that the applicant's fina~~cial position was other than

that disclosed 111 the accounts lodged with the A.S.C. In the absence of some indication that the applicant would be able to meet an order for costs if the

respondent succeeded in the proceedings, the respor~dent sought security for costs in the sum of $31,200.00. On 11 January, 1993 the respondent's solicitors obtained an assessment of likely party and party 'costs up to and including the first day of trial from James McLellan, Legal Costs Consultant and Assessor, in the amount of

The applicant's solicitor did not respond to the letter of 29 December,

1992 and on 5 February, 1993 a notice of motion was filed seeking security for costs.

In an affidavit of Carole June Curtis filed in opposition to the

application, Ms. Curtis deposes that the respondent has assets in the nature of plant and equipment valued at $29,750.00, a half share in a video blrsiness which is urivalued and claims a debt due from the respondent in the sum of $105,000.00, which debt is disputed and is in issue in these proceedings. Ms. Curtis deposes to a debt

owing to the respondent of $34,000.00 and monthly accounts of the order of

$10,000.00 together with the debts shown in the 1990 - 1991 accounts. She also	deposes as a director and shareholder of the applicant that she owns a house property
valued at $400,000.00 (subject to a mortgage of $100,000.00), a half interest in the respondent which was valued in April, 1991 at $116,061.00, and a car. She states that her mother, who is the other shareholder in the applicant, has an unencumbered
house property valued at about $350,000.00. The directors and shareholders of the applicarit have declined to accept personal liability for any costs which may be
awarded in favoul of tlle respondent or to provide securlty for costs. Ms. Curtis and her mother are the sole shareholders of the applicant and are the only persons who
will benefit materially if the applicant succeeds in the litigation.

I am satisfied that the financial situatioi~ of the applicant is such that

there are reasonable grounds to believe that it would not be able to satisfy an order for costs of the respondent in the event that it fails in the proceedings. There is no

evidence of profitable trading and 110 evidence that there are assets against which a costs order could be satisfied by execution. On the material before me, the company is insolvent and the only basis that it continues is that the debt of C.J. and J.W. Curtis

is not called in. The plant and stock in trade values are those of Ms. Curtis and I am

not satisfied that they would realise the values claimed on a court sale.

The material does not demonstrate that the impecuniosity of the

applicant was caused by the conduct of the respondent alleged in the proceedings. In~portantly Ms. Curtis does not depose that any order for security for costs would

stifle the litigation and if such were to be asserted, then it must be proved on credible

evidence by the applicant. As was said in Bell Wholesale Co. Ptv. Ltd. v. Gates

Exoort Coru. (1984) 2 F.C.R. 1 at 4 (F.C.) :-

'71t our opirriorr a c o l t ~ is ~ lo t jluti/ed irr declirrirlg to order secztrily on tire gror~rld tlzat to do so will fmtrate tlre litigaliort urrless a conlparly irr tile positiorr of tire appellar~t

Itere estnblisiies tilat iliose wii0 stnrrd bellind it nrrd ivlto will beriejir fiorn rile litigatbr ij it is succes.sful (lvltetlzer tlrey be si~areilolders or credifon or, as irr tiris cnse, be~zejiciaries

under a trust) are also n~iti~olit Ineans. It is not for tile paay seeking security to raise the matter; it is an es.reritia1 parr of tlle cnse of a conzparry seeking to resist nrt order for security on tire grolrrld tlrai tile gmrrtirrg of seczcrity will fnistrate tlre Irtrgatiorz to raise tlre ksrce of !Ire ir?rpeczcrriosify of tlrose tvlzonr tlze Iitigatiorz will be~rejir nrld to prove tlze ~recessnry

facts.

We pause to rnnke it clenr tllot tlze matters we Irave corlsidered are Ily rro nreatrs the orzty relel~nnt ones. We Izave

corzcerrirated our aneiztior~ OII tl~enz because tlzey were to tile

forefrror~t of tlze nppeIIn?ri's nrgunzerrt. But the court's

discretio~z is unfettered; each case mzcst deperrd or1 its own circrtnlstarrces; see gerzerally Patemon, liihie and For4

Ammlian Cnmpany Law (3rd ed.), par. 533-1 et seq."

In the instant case the persons standing behind the applicant and for

wliose benefit the proceedings are brought, have substantial assets.

Mr. English submitted on behalf of the applicant that the court had a

broad discretion and was not obliged in every case to order security. He referred to

the decisions in Newtons Travel Services Ptv. Ltd. v. Ansett Transport Industries /Ooerations) Ptv. Ltd. (1982) 64 F.L.R. 205; Interwest Limited v. Tricontinental Corooration Ltd. (1991) 5 A.C.S.R. 621; Sir Lindsav Parkinson and Co. Ltd. v.

Triplan Ltd. [l9731 Q.B. G09 at 626; Harpur v. Ariadne Australia Ltd. [l9841 2 Qd.R.

523.

I accept that the making of an order is a matter of judicial discretion to

be exercised having regard to whether the interests of justice will be served in any

particular use by the making or refusing of an order for security for costs (m

Bros. (1992) 8 A.C.S.R. 405 at 441).

Mr. English further relied on the following statement from the judgment

of King C.J. (with whom Bollen and Prior JJ. agreed) in Remm Constructions fS.A.J

Ptv. Ltd. v. Allco Newsteel Ptv. Ltd. (1992) 57 S.A.S.R. 180 at 185 :-

"h weig/ti~zg tI1e fnctom affectitzg tire provision of security for

costs, t l~e ability of tIte dejetzcintrt to absorb costs, g Ire is tctrable to recover tltern from tlre plairrtijl is a reZevatrt cotrsideratiorz'!

Although the statement was made in the context of a defendant who

was ilisured agalnst the claim and costs, his Honour's statement was clearly intended to be of general application. It is unclear whether the relevance of the matter is to be

determined from a positive or negative perspective. If a defendant had no ability to

absorb costs if he or she was unable to recover them from the plaintiff (the negative perspective), then in my view that would be a matter of some weight in favour of the making of an order for security for costs. On the other hand, if the defendant did have the abil~ty to absorb costs (the positive perspective), to regard that as a relevant

circumstance against making an order seems to me to ignore the mischief which section 1335 of the Corporations Law seeks to overcome and the purpose for ordering security for costs where the plaintiff is an impecunious company or corporation. The

mischief was stated by Connolly J. (with whom Campbell CI. and Demack J. agreed in Harnur v. Ariadne Australia Ltd. [l9841 2 Qd.R. 523 at 532 :-	"Tire rni~cItiej at ~vlticlr the provisiorl is aimed is obviotu.
An itrciividual rvlzo cotrdtccts Iris busitless affairs by ntenilrtn of a corporatiotr witltout assets wotcld otltenvise be irt a po.~itiorr to expose Itis opponenl to a nznssive bill of costs ~vitlzotcf ltazardittg ilk owtz assets. Tlre purpose of atr order for security is to require itinr, if trot to come out from belrirld the skifls of tIte cornpaty, at least to bring hi^ owrt assets into play. If itowever Ize is already available (or wltatever ite is worrlt, the object of the legklatiort is seen to be sarkJe8'.
In Cameron's Unit Services Ptv. Ltd. v. Kevin R. Whelpton & Assoc.

(Australia) Ptv. Ltd. (1986) 13 F.C.R. 46, Burchett J. said (at 53) :-

"lW~at ir relevat~t is tl~nt rlre corr~pnrry is trot n stnlkitrg lrome to erlable sonzeorre else to evade persorlnl resporrsibilify. f l Ire accepts resporrsibility, ntr in~pecuttio~cs rrntural p e m r ir errtitled to rely or1 tlre getrerrrl rule tlrnt p o v e y k 110 bar to n litigntrt: Barton v. Mhisterfor For* A f a h (1984) 2 FCR 463 at 469':

To weigh against making an order the fact that the defendant can

absorb the costs if an unsuccessful corporate plaintiff is unable to pay them, does not address the mischief sought to be overcome. The cases demonstrate that the courts will not allow an order for security for costs to be used as an instrument of oppression to render nugatory a plaintiffs action. But the focus of such protection is not the means or worth of the defendant; it is the financial circumstances of the plaintiff and the effect any order would have on the advancement of the litigation.

In all the circurnstar~ces I do not read the statement of King C.J. as

requiring any more than treating as a relevant circumstance that a defendant would not be able to absorb costs, if he or she was unable to recover them from an

unsuccessful plaintiff.

No submission has been addressed to me that the respondent in the

present case would be unable to absorb the costs. On the other hand, the financial

statements for the financial year ended 30 June, 1992 do not readlly suggest that it
could do so.

Mr. Engl~sh subnl~tted that the respondent's accounting documentation

disclosed the existence of a debt due to the appl~cant in the sum of $108,468.85 which

was entered in the accounts as a trade creditor. The entry appeared in the 1991 and 1992 accounts but was later reversed. Mr. English subn~its that these documents

demonstrate that the applicant's claim is one of substance and that any security

ordered should be by way of charge over that debt (Process Enpineerinp Ptv. Ltd. v.
perbv Meat Processinp Co. Ltd. [l9771 W.A.R. 145.

The figure of $108,468.85 is a contentious one. So far as I can see it ~ncludes some iterns claimed in these proceedings which are in dispute and in respect of which an application for summary judgment was abandoned. The balance is not sued for in these proceedings and there may well be some reason as to why the item was reversed in the accounts. At best, the material discloses in the financial statements for the year ended 30 June, 1992 prepared by E.N. Waters, accountant for the respondent, that the historical 1991 trade creditors included a debt due to the applicant in an amount of $108,468.85, which accords with the trial balance Exhibit

"A" to the affidavit of Harry Windle, an accountant retained by Ms. Curtis. However

as to the debt means that it is not appropriate that I ought to regard it as adequate	that figure does not appear in the 1992 accounts against trade creditors. The dispute
security to charge any costs of the proceedings against.

In the instant case the impecuniosity of the applicant, the absence of

any material to suggest that the litigation will be stifled by the making of an order, and the refusal of shareholders of worth who stand to benefit from the litigation to

come out from beh~nd the corporate ve~l and accept any liability for costs weigh heavily in favour of an order. That there may be a debt due by the respondent to the

applicant is a factor I weigh in the balance, but the conte~~tious nature of the debt is

such that I give it little weight. It cannot be said that the applicant's prospects are so

strong that they ought to be weighed against an order. I have treated the prospects as a neutral factor. There has been no delay in bringing the application. On balance, I am satisfied that security should be given.

The applicant did not contest the quantum assessed by the costs

assessor of the costs up to and including the first day of trial. I am satisfied that the figure is reasonable and that sufficient security would be provided by the applicant

giving security in the sum of $30,000.00.

The applicant has resisted the application and failed. The ordinary rule

ought to apply and costs should follow the event.

THE COURT ORDERS:

1.                   The applicant provide security for costs in an amount of THIRTY

THOUSAND DOLLARS ($30,000.00) in a form satisfactory to the

Dlstrict Registrar of the Court.

The application is stayed until the security for costs is provided.

The applicant 1st Call Video Rights Ltd. pay the respondent's costs of

and incidental to the motiori to be taxed.

I certify that this and the preceding eight (8) pages are a

true cow of the reasons for judgment herein of his . -

~ o n o u r ' ~ r . Justice Cooper.

Date: 9 August, 1993

Associate

Solicitors for the Applicant:	Mr. English of Engl~sh	and Co.
Counsel for the Respondent:	Mr. Perry

Solicitors for the Respondent:	McCullough & Robertson
Date of Hearing:	19 February 1993
Place of Hearing:	Brisbane
Date of Judgment:	9 August, 1993