21st Century Promotions v Telstra Corporation Ltd (No 2) No. Scgrg-98-902 Judgment No. S48

[1999] SASC 48

21ST CENTURY PROMOTIONS v TELSTRA CORPORATION (No 2)
[1999] SASC 48

Civil

1. WICKS J         This is an application for an order pursuant to r100 of the Supreme Court Rules and s1335 of the Corporations Law that the plaintiff provide to the defendant security for the costs of this action.  The application was made on 5 January 1999 at a time when the action was part-heard.  It is clear, however, from the outline of argument prepared by the defendant’s counsel, the defendant only seeks security for those costs which are incurred subsequently to the date of the application. 

2. Section 1335 of the Corporations Law provides as follows:

   "1335 Costs

   (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, or her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.

   (2)... The costs of any proceedings before a court under this law shall be borne by such party to the proceeding as the court, in its discretion, directs."

1. Counsel for the plaintiff admits that his client is impecunious, in other words that there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if successful in its defence.  However, the matter does not end there.  The court has a wide discretion in the matter.

2. In John Arnold’s Surf Shop Pty Ltd (In Liquidation) v Heller Factors Pty Ltd and Allert (1979) 22 SASR 20 at p23, White J in the court of first instance, said:

   "Proof of impecuniosity of the plaintiff company is merely the ‘jurisdictional’ fact which gives rise to the occasion upon which the discretion is exercisable.  Once the section is attracted, the discretion is at large and the court must exercise it judicially, that is fairly, doing justice between the parties in all of the circumstances, bearing in mind the purpose for which the discretion exists."

1. On appeal, Mitchell J, who delivered the principal judgment of the Full Court, said at p34:

   " I am of the opinion that to approach s363 [the precursor of s1335 of the Corporations Law] with a pre-disposition to make an order for security for costs would be to fetter the discretion which the legislation has left unfettered.  It would be, as it seems to me, equally wrong to exercise the discretion in favour of making an order merely because the section enables such an order to be made as it would be to refuse an order merely because the company is impecunious."

2. I refer also to the observations of Bollen J in Spiel v Commodity Brokers Australia Pty Ltd (In liquidation) (1983) 35 SASR 294 at p300:

   "         The discretion is a wide one.  The judge or magistrate asked to order security for costs should not approach the application with any pre-disposition at all.  I think it follows that the circumstances in which the discretion should be exercised in favour of making an order cannot be stated exhaustively.  Nor should there be any attempt to do so.  The judge or magistrate must decide according to his view of the justice of the case.  There should be no complaint at the imprecision of that statement.  Beyond saying that the judge or magistrate must behave judicially one cannot define or delimit or categorise the circumstances in which security should be ordered to be given.  It is quite another thing to speak of some matters which are capable of assuming importance in application for security."

1. It would appear that in New South Wales an application for security is approached with a pre-disposition in favour of the defendant.  See generally Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301 and Southern Cross Exploration NL v Fire and All Risks Insurance Co Ltd (1985) 1 NWSLR 114 and Tradestock Pty Ltd v TNT (Management) Pty Ltd (No 1) (1977) 30 FLR 343. In this State, in the cases to which I have referred, the Full Court has made it clear that an application for security should proceed on the basis that there is no pre-disposition in favour of one party or the other.

2. In some cases it would be necessary to decide whether there is a serious question to be tried.  In the present action, as it is part-heard, I think it is inappropriate for me to make any findings on the merits of the plaintiff’s case at this stage.  To do so might disqualify me from continuing to hear the case and pass judgment in due course.  I point out that the hearing is due to resume next week. 

3. In some cases, security will be ordered where it is established that the plaintiff is a mere nominal plaintiff.  An example of such a case would be where a receiver brings an action in the name of the company for the benefit of a secured creditor or in circumstances where a trustee is entitled to look to his beneficiaries for indemnity for costs and expenses properly incurred.  A plaintiff does not become a nominal plaintiff merely because certain persons in their capacity as directors or shareholders are likely to indirectly benefit from the litigation.  See generally North Groongal Pty Ltd v ANZ McCaughan Limited (1993) 61 SASR 301 per Perry J at 303. The judgment of Perry J was affirmed on appeal: North Groongal Pty Ltd v ANZ McCaughan Limited (1993) 171 LSJS 284. The question of a nominal plaintiff does not arise in this case.

4. There has been some delay in making this application and that is a factor weighing against an order for security for costs.  The plaintiff has incurred considerable expense in bringing this case to a stage when it is part-heard.  If security had been sought and obtained promptly on the commencement of the action the plaintiff would have been able to assess its position at that time and decide whether or not to proceed with the action at a stage when costs incurred were comparatively minimal.

5. In the present case, I do not think there are other considerations which would require me to exercise my discretion in favour of the defendant.

6. In the circumstances, and for the reasons given, I would dismiss the defendant’s application for security for costs.