Acohs Pty Ltd v Merck Ltd - [1997] FCA 573

FEDERAL COURT OF AUSTRALIA

PRACTICE AND PROCEDURE - security for costs - where applicant company has limited assets - shareholders of applicant company are likely to fund the litigation and will be the true beneficiaries of the company’s business and of the litigation - whether a factor in favour of exercising discretion to order security - whether factors weighing against an order for security are relevant to discretion to discount amount of security ordered.

Corporations Law, s1335
Federal Court of Australia Act 1976 (Cth), s 56

Pasdale Pty Ltd v Concrete Constructions (1995) 131 ALR 268
Petite Pty Ltd v Byrd Smith and Associates (Supreme Court of Victoria, Beach J, 23 April 1996, unreported)
Robust Software v Mann Judd Reis Pty Ltd (Federal Court of Australia, Merkel J, 11 February 1997, unreported).

Deltrend Pty Ltd v AST Australia Pty Ltd (1995) 16 ACSR 762

ACOHS PTY LTD V MERCK PTY LTD AND ORS
VG 75 OF 1997

MERKEL J
MELBOURNE
20 JUNE 1997

IN THE FEDERAL COURT OF AUSTRALIA )

)

VICTORIAN DISTRICT REGISTRY ) VG 75 of 1997

)

GENERAL DIVISION )

BETWEEN:
ACOHS PTY LTD (ACN 009 572 187)
Applicant

AND:
MERCK PTY LTD (ACN 005 064 791)
First Respondent

MERCK LTD
Second Respondent

MERCK KGaA
Third Respondent

MICHAEL CULVER
Fourth Respondent

RICK BIEZEN
Fifth Respondent

JUDGE(s): MERKEL J

PLACE: MELBOURNE

DATE: 20 JUNE 1997

MINUTES OF ORDER

THE COURT ORDERS THAT:

Within 21 days, the applicant, ACOHS Pty Ltd, give security for costs of the respondents, Merck Pty Ltd; Michael Culver and Rick Biezen in the sum of $50,000 in the form of bank guarantee, cash or such other form of which the Registrar approves.

Liberty to apply is reserved generally but in particular for a variation of these orders in accordance with reasons for judgment delivered on 20 June 1997.

Reserve costs.

IN THE FEDERAL COURT OF AUSTRALIA )

)

VICTORIAN DISTRICT REGISTRY ) VG 75 of 1997

)

GENERAL DIVISION )

BETWEEN:
ACOHS PTY LTD (ACN 009 572 187)
Applicant

AND:
MERCK PTY LTD (ACN 005 064 791)
First Respondent

MERCK LTD
Second Respondent

MERCK KGaA
Third Respondent

MICHAEL CULVER
Fourth Respondent

RICK BIEZEN
Fifth Respondent

JUDGE(s): MERKEL J

PLACE: MELBOURNE

DATE: 20 JUNE 1997

EX TEMPORE REASONS FOR JUDGMENT

In this matter the applicant has issued proceedings against the respondents for infringement of copyright, misuse of confidential information and breach of the terms of a licence in relation to certain software programs. The respondents have denied all liability in respect of the claims. The first, fourth and fifth respondents have applied for security for costs. The application for security for costs was made in reliance on s 1335 of the Corporations Law and s 56 of the Federal Court of Australia Act 1976 (Cth), and incidentally on O 28, r 3(1) of the Federal Court Rules.

The parties are in dispute as to whether the threshold required under the Corporations Law and for the exercise of my discretion has been met. In substance,…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [1997] FCA 573
Decision Date: 20 JUNE 1997

CaseChat Overview and Summary

Acohs Pty Ltd sought relief against Merck Pty Ltd, Merck Ltd, Michael Culver, and Rick Biezen for claims of copyright infringement, misuse of confidential information, and breach of a software licence agreement. The respondents, represented by their counsel, applied for security for costs under section 1335 of the Corporations Law and section 56 of the Federal Court of Australia Act 1976 (Cth). The court had to determine whether the threshold for requiring security for costs was met and, if so, whether the amount should be ordered, taking into account factors that might mitigate the need for such security.

The threshold for requiring security for costs was met based on the likelihood that Acohs Pty Ltd would incur significant costs in contesting the proceedings, which would increase its indebtedness. However, the evidence did not demonstrate that the shareholders, Linset Pty Ltd and Mr Ian Cowie, would be able to meet any order for security for costs. The respondents argued that the shareholders, being the real beneficiaries of the litigation, should bear the risk of costs if the litigation fails. The court acknowledged the strength of this argument, referencing precedents where courts ordered security for costs in similar circumstances.

In determining the appropriate amount of security, the court considered factors that might otherwise weigh against ordering security. Given the lack of evidence regarding the shareholders' financial capacity to meet the security requirement, the court decided to discount the amount of security ordered. The court also reserved the liberty for either party to apply for the release or additional security based on evidence that might emerge during the proceedings. In conclusion, the court ordered Acohs Pty Ltd to provide security for costs in the sum of $50,000, reserving the costs of the application.

Orders