FEDERAL COURT OF AUSTRALIA
ACOHS PTY LTD v UCORP PTY LTD & ORS [2006] FCA 1279
PRACTICE AND PROCEDURE – security for costs – review of Registrar’s decision – principles relevant to the exercise of discretion to order security for costs.
Corporations Act 2001 (Cth): s 1335
Acohs Pty Ltd v Merck Pty Ltd [1997] FCA 57
Ariss v Express Interiors Pty Ltd (in liq) [1996] 2 VR 507
Beach Petroleum NL v Johnson (1992) 7 ACSR 203
Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1
Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR at 497
Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301
Carey-Hazell v Getz Bros & Co (Aust) Pty Ltd [2004] FCA 1334
Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68
Equity Access Limited v Westpac Banking Corporation [1989] ATPR 40-972
Harpur v Ariadne Australia Ltd(No.2) [1984] 2 Qd R 523
Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744
January Force Pty Ltd v Tricon Restaurants Australia Pty Ltd [1999] FCA 1746
KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189
Lisa Joy Pty Ltd v Brothers Neilsen International Pty Ltd [2003] FCA 986
Memutu Pty Ltd v Lissenden (1983) 8 ACLR at 364
Meni’s Tailoring and Alterations Pty Ltd v Jeans West Corp Pty Ltd [2003] FCA 1108
Pacific Acceptance Corporation Ltd v Forsyth(No.2) [1967] NSWR 402
Pasdale Pty Ltd v Concrete Constructions (1995) 131 ALR 268
Petite Pty Ltd v Burdon-Smith & Assoc (Supreme Court of Victoria, Beach J, 23 April 1996)
Porzelack KG v Porzelack (UK) Ltd [1987] 1 All ER 1074
Re Brindle (1992) 35 FCR 506
Re Kwiatek (1989) 89 ALR 631, 638
Re Smail v Burton: Insurance Associates Pty Ltd [1975] VR 776
Robust Software v Mann Judd Reis Pty Ltd (1997) FCA 1595
Sandl Tading Pty Ltd v North American Oil Company [1998] VSC 8
Sir Lindsay Parkinson and Co Ltd v Triplan Ltd [1973] QB 609
Southern Cross Expiration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114ACOHS PTY LTD v UCORP PTY LTD, BERNARD BIALKOWER, WESFARMERS LIMITED AND J BLACKWOOD & SON LIMITED
VID873 OF 2004JESSUP J
27 SEPTEMBER 2006
MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VID873 OF 2004
BETWEEN:
ACOHS PTY LTD
ApplicantAND:
UCORP PTY LTD
First RespondentBERNARD BIALKOWER
Second RespondentAND BETWEEN:
UCORP PTY LTD
First Cross-ClaimantBERNARD BIALKOWER
Second Cross-ClaimantAND:
WESFARMERS LIMITED
First Cross-RespondentJ BLACKWOOD & SON LIMITED
Second Cross-Respondent
JUDGE:
JESSUP J
DATE OF ORDER:
27 SEPTEMBER 2006
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.The orders made by the Registrar on the respondents’ motion by notice dated 9 May 2006 be set aside.
2.The respondents pay the applicant’s costs of the said motion.
3.The respondents pay the applicant’s cost of applicant’s motion by notice dated 24 July 2006.
IN THE FEDERAL COURT…
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- Case
- [2006] FCA 1279
- Decision Date
CaseChat Overview and Summary
The legal issues in the case revolved around the interpretation and application of section 1335 of the Corporations Act. Specifically, the court had to determine the threshold for establishing a "reason to believe" that the plaintiff corporation would be unable to pay the defendant's costs if judgment were to go against it. The court also needed to assess the financial position of Acohs at the time of judgment and immediately thereafter, as well as the range of assets available to meet an adverse costs order. The principles were largely drawn from the case of Beach Petroleum NL v Johnson, where the court set out the elements required to establish the inability to pay costs.
The court found that the Registrar had applied the wrong legal test when considering the application for security for costs. The court held that the Registrar should have applied the test established in Beach Petroleum, which requires a "real chance" that the plaintiff corporation would be unable to pay costs, rather than a mere possibility. Additionally, the court emphasised that the inability to pay must be assessed at the time of judgment and immediately thereafter, considering both readily realisable and potentially realisable assets. The court concluded that the Registrar had not properly applied these principles, leading to an improper exercise of discretion.
The court set aside the Registrar's orders granting security for costs and directed that the respondent, Ucorp Pty Ltd, pay the applicant's costs of the motion for review and the original motion seeking security for costs. This decision underscores the importance of correctly applying statutory criteria when determining security for costs, particularly in cases involving corporate plaintiffs.
Orders
Orders of the court
1. The orders made by the Registrar on the respondents’ motion by notice dated 9 May 2006 be set aside.
2. The respondents pay the applicant’s costs of the said motion.
3. The respondents pay the applicant’s cost of applicant’s motion by notice dated 24 July 2006.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
Established by: JESSUP J
By Notice of Motion filed on 24 July 2006, the applicant seeks a review, pursuant to s 35A(5) and (6) of the Federal Court of Australia Act 1976 (‘Cth’) and O 46 r 7B of the Rules of Court, of the orders made by the Registrar. On a motion such as the present, the court must conduct a hearing de novo: Re Kwiatek (1989) 89 ALR 631, 638; Re Brindle (1992) 108 ALR 470, 476.SECTION 1335 OF THE CORPORATIONS ACT The power of a Registrar to deal with a question of security for costs (not being the costs of or in connection with an application to be heard by the Registrar) is confined to the power arising under s 1335(1) of the Corporations Act 2001 (‘Cth’), which provides as follows:“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.”The court itself has power to order security also under s 56 of the Federal Court Act, but the matter was argued before me as one to be resolved under s 1335(1) of the Corporations Act. As the authorities demonstrate, s 1335(1) has three elements, each of which requires a particular approach by the court. Those elements are:(a)the standard involved in the phrase ‘if it appears by credible testimony that there is reason to believe’;(b)the concept involved in the phrase ‘the corporation will be unable to pay’; and(c)the nature of the discretion given by the words ‘the court … may … require …’. The principal authority, upon which both parties in the present matter relied, is the judgment of von Doussa J in Beach Petroleum NL v Johnson (1992) 7 ACSR 203. As to the matter of ‘reason to believe’, his Honour said (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.”This has been described as setting up a ‘fairly modest threshold’: see Meni’s Tailoring and Alterations Pty Ltd v Jeans West Corp Pty Ltd [2003] FCA 1108, [4]. The second element, inability to pay, involves two considerations of its own. The first is the need to fix the time at which the applicant’s inability, or apprehended inability, is notionally to be assessed. Section 1335 uses the future tense, and clearly looks forward to circumstances which are yet to occur. In Beach Petroleum, von Doussa J said that the court was required to form an opinion about the financial position of the applicant ‘at the time of judgment and immediately thereafter’: 7 ASCR at 205. The second consideration is as to the range of assets to which the applicant is likely to have recourse for the purposes of meeting an adverse costs order. It seems that these are the assets which might be immediately realised, together with those which could be realised in sufficient time to enable the applicant to comply with a costs order in the usual terms. The matter was put by von Doussa J in Beach Petroleum as follows (7 ACSR at 205):“A corporation “will be unable to pay” the costs within the meaning of the section if it can only do so if given extended time to realise assets which might be difficult to realise, at least at a price sufficient to provide a surplus over other liabilities, sufficient to pay the costs: see Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114 at 121. The company will also be unable to pay the costs within the meaning of the section if the payment would be one that will amount to a preference of the defendant over other creditors such that the payment would be liable to be set aside either as a preference or as a fraudulent disposition (that is a payment made by the plaintiff corporation with the intention to defeat or delay one or more other creditors) in the event of the plaintiff corporation later going into liquidation.”