Business Sampler (WA) Pty Ltd v Morgan, Janette Lynn

[1996] FCA 178

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION  No VG 736 of 1995

BETWEEN:

BUSINESS SAMPLER (WA) PTY LTD

First Applicant

-and-

JANETTE LYNN MORGAN

Second Applicant

-and-

BROCORP PTY LTD

Respondent

Coram:    Olney J

Place:    Melbourne

Date:     18 March 1996

REASONS FOR JUDGMENT

The matter presently before the Court is an application by the respondent seeking an order that the applicants provide security for the respondent's costs.   The order is sought pursuant to Order 28 of the Federal Court Rules and s 1335 of the Corporations Law.

The background to the proceeding is as follows.   On 29 August 1995 the first applicant filed an application seeking relief against the respondent in respect of an alleged breach of copyright and for alleged contravention of ss 52, 53 and 55 of the Trade Practices Act.   On 5 September 1995 Jenkinson J declined to issue an interlocutory injunction restraining the respondent from infringing the alleged copyright upon the
respondent giving certain undertakings as to its future conduct pending trial of the proceeding.   On the same day Jenkinson J directed that the second applicant be added as a party and that the applicants have leave to file and serve an amended application and an amended statement of claim.   The first applicant was ordered to pay any costs thrown away by the joinder and amendment.   Other directions were given to facilitate the filing and service of a defence and cross application, a reply and defence to cross-application and discovery, the latter to be given by 7 November 1995.   The directions hearing was adjourned to 17 November 1995 when, by consent, the first applicant was directed to file and serve its list of documents on or before 27 November 1995 and the directions hearing was adjourned to 7 December 1995.   On 27 November 1995 the applicant filed notice of intention to move for orders, inter alia, that the respondent be punished for contempt for breach of the undertaking given to Jenkinson J on 5 September 1995.  The motion was returnable on 7 December 1995 as was the respondent's motion for security for costs which it filed on 30 November 1995.   The two motions (that is the contempt application and the application for security for costs) came before me on 7 December 1995.   Counsel for the respondent indicated that notice had been given requiring the deponent of one of the applicants' affidavits to be made available for cross-examination.   The witness was not then available.  After hearing argument I adjourned both motions to enable me to review the affidavit material before determining whether the matter should proceed in the absence of the absent deponent.   Further, I was of the view that the contempt
application should be dealt with before the application for security for costs.

As it happened, upon reviewing the available evidence, I formed the view that it would be appropriate for the contempt application to be dealt with upon the trial of the proceeding.  On 14 December 1995 I made an order to that effect and adjourned the respondent's application for security for costs to 8 February 1996.   On that day, by consent, the motion and directions hearing were further adjourned to 22 February 1996.   The matter was fully argued on 22 February 1996 and I reserved my decision.

Order 28 rule 3 of the Federal Court Rules provides:

3(1)  Where, in any proceeding, it appears to the Court on the application of a respondent -

(a)that an applicant is ordinarily resident outside Australia;

(b)that an applicant is suing, not for his own benefit, but for the benefit of some other person and there is reason to believe that the applicant will be unable to pay the costs of the respondent if ordered to do so;  or

(c)subject to sub-rule (2), that the address of an applicant is not stated or is mis-stated in his originating process;  or

(d)that an applicant has changed his address after the commencement of the proceeding with a view to avoiding the consequences of the proceeding,

the Court may order that applicant to give such security as the Court thinks fit for the costs of the respondent of and incidental to the proceeding.

(2)  The Court shall not order an applicant to give security by reason only of paragraph (1)(c) if it appears to the Court that the failure to state his address or the mis-statement of his address was made without intention to deceive.

None of the provisions of sub-rule 3(1) has any application to the second applicant and accordingly insofar as the motion seeks an order for security against the second applicant it must fail.

The respondent does however rely upon paragraph 3(1)(c) in support of its application for an order against the first respondent.   The basis of this aspect of the case will unfold hereafter.

Section 1335 of the Corporations Law provides that 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.

For the respondent to avail itself of this provision it is necessary that there be credible testimony upon which the Court can form the requisite belief.   In the absence of such testimony there will be no basis for an exercise of power under the section.

In support of the motion the respondent relies upon 3 affidavits sworn by John Hannebery, a solicitor employed by the respondent's solicitors on the record, sworn respectively on 5 December 1995, 6 February 1996 and 21 February 1996.   The applicants rely on affidavits sworn by the second applicant, both in her personal capacity as a party and in her capacity as a director of the first applicant, sworn respectively on 7 December 1995 and 21 February 1996.

Hannebery's first affidavit (sworn 5 December 1995) so far as
presently relevant discloses these facts.   Index searches of Titles Office records made on 8 November 1995 indicated that neither applicant was registered as the proprietor of any land in Victoria.   A search of the records of the Australian Securities Commission (ASC) made on 30 November 1995 revealed that the first applicant was incorporated in Western Australia on 31 May 1994 and its principal activity is shown as shelf company.   Its registered office is at 15th Floor, Hamersley House, 191 St George's Terrace Perth, W.A. and its principal business office is at 73 High Street Parramatta, N.S.W.   The directors of the company are the second applicant and Meredith Therese Dahl (Ms Dahl) both of Unit 3, 453 Glenferrie Road Kooyong, Victoria.   The second applicant is the secretary of the company.  A fixed and floating charge over the assets of the company in favour of the second applicant was created on 7 July 1995 and registered on 11 July 1995.   A notification of allotment of shares lodged on 14 June 1994 discloses that 100 ordinary shares of $1.00 each have been allotted and that the second applicant holds 99 shares and Ms Dahl holds 1.   The remainder of the affidavit deals with correspondence passing between the respective solicitors for the parties in the period from 9 November 1995 to 1 December 1995 in which the respondent sought first some form of security for costs and later information as to the applicants' assets and the applicants asserted that they had considerable assets to meet any adverse costs order and later agreed to provide financial information upon the execution by the solicitors and counsel for the respondent of an undertaking as to confidentiality.

Hannebery's second affidavit (sworn 6 February 1996) takes up the story where his previous affidavit left off.   He says that upon inspecting the applicants' documents on 13 December 1995 he noted a reference in one document to a company named Jan Morgan & Co Pty Ltd.   A company search of that company on 14 December 1995 revealed that the company was wound up by court order on 27 July 1990.   The liquidator's final account and statement was presented on 23 October 1991.   The second applicant was a director of the company.   A further enquiry of the ASC made on 5 February 1996 disclosed that the first applicant was in default in filing its annual return of the year 1995 which was due on 31 January 1996.   A search of the business name Business Sampler carried out on 14 December 1995 reveals that for a period "Jan Morgan" (presumably the second applicant) was the registered proprietor of that name but it was later used first by Chrismor Creative Consultants Pty Ltd and then by Chrismor Consultants Pty Ltd companies of which the second applicant was a shareholder but not a director.   Both companies were wound up pursuant to a creditors voluntary winding up commencing on 1 June 1995.   Since 31 March 1995 the first applicant has been the proprietor of the name Business Sampler.   The affidavit also refers to searches of a business name in N.S.W. (Blue & Green Design Agency) which was deregistered on 16 January 1993 and another in Victoria (Blue & Green Creative Design Agency) which ceased on 2 March 1993.   In both cases the person carrying on the business was Ms Dahl, the second applicant's co-director.

Hannebery's third affidavit (sworn 21 February 1996) deals with further correspondence between the two solicitors relating on the one hand to the respondent's request for financial information and on the other to the reluctance of the applicants to provide it without an undertaking as to confidentiality in a form demanded by the applicants.

I turn now to the second applicant's affidavits.

In her first affidavit (sworn 7 December 1995) the second applicant asserts that the first applicant has always been financially viable and able to meet its debts as and when they fall due and able to meet any costs order that may be made in favour of the respondent in this proceeding.  It is said that the company's profit and loss account for the year ending 30 June 1995 shows a substantial profit.   A confidential exhibit to the affidavit supports this assertion but as it is not accompanied by a balance sheet or other document revealing the net worth of the company it is of little weight in the present context.   The remainder of the affidavit deals with the first applicant's reluctance to provide financial information to the respondent which it says is a competitor which may obtain an unfair commercial advantage from the provision of such information.   On this basis the applicants seek to justify the very strict confidentiality undertakings which they have insisted on and which the respondent has not been prepared to agree to.

The second applicant's second affidavit (sworn 21 February 1996) is a response to the evidence put forward on the respondent's
behalf in relation to the companies Jan Morgan & Co Pty Ltd, Chrismor Creative Consultants Pty Ltd and Chrismor Consultants Pty Ltd, and also the two Blue & Green business names.   As to the latter the second applicant says she was merely an employee and as to the companies the material supplied in the affidavit answers any suggestion that the second applicant has a history of being involved in companies which have gone into liquidation leaving creditors unpaid.   The only evidence is that the contrary is so.

The evidence establishes that according to the records of the ASC the registered office of the first applicant at the time the proceeding was commenced (and indeed at the present time) is at 15th Floor, Hamersley House, 191 St George's Terrace, Perth.   Further, the same records show the principal place of business as 73 High Street, Parramatta.   In the originating process the address of the first applicant is shown as 6 Murphy Street, South Yarra.   It is on this evidence that the respondent seeks to rely on the provisions of Order 28 rule 3(1)(c) of the Federal Court Rules.

There is some evidence (apart from evidence given from the Bar table which I did not accept) to suggest that the first applicant has a place of business at 6 Murphy Street, South Yarra.   As recently as 21 February 1996 the first applicant's accountants wrote to the first respondent concerning its 1995 income tax records.   The letter was addressed:
     Mr (Sic) J.L. Morgan

Business Sampler (WA) Pty Ltd

Suite 7, 6 Murphy Street
     South Yarra Vic 3141.

The address 6 Murphy Street, South Yarra also appears in the evidence relating to the Chrismor Creative Consultants Pty Ltd and on the first applicant's 30 June 1995 profit and loss account (the confidential exhibit).

Whilst it may be that the address of the first applicant is mis-stated in the originating process (assuming that in the rule the term address means either the registered office of the company or the address shown on the ASC records as the company's principal place of business) I am satisfied that any such mis-statement was made without intention to deceive.   The first applicant has solicitors acting for it.   The names and address of its directors and secretary are known to the respondent as is its registered office.   In the circumstances the requirement to state the company's actual address in the originating process would seem to be a mere formality.   There is therefore no occasion for an exercise of power pursuant to Order 28 rule 3.

The respondent has adduced no evidence to support an inference that the first applicant would be unable to meet any adverse costs order. Furthermore, the person actually behind the company who is the one likely to benefit from the proceeding is herself a party to the proceeding and would be equally susceptible to any costs order the respondent may obtain. Despite the extraordinary efforts made by the respondent to find out something adverse about the applicants (even going to the length of obtaining a search of a defunct business name in which neither applicant had any proprietorial interest) no evidence has been forthcoming as to any financial difficulties experienced by either applicant. Nothing has been provided from any credit agency or trade protection organisation to show that either applicant has been the subject of other litigation. No case has been made to raise any question as to the credit worthiness of either applicant. There is no credible testimony before the Court capable of supporting a belief that the first applicant will be unable to pay the respondent's costs in the event that the respondent is successful in its defence. There is therefore no basis for an exercise of power under s 1335 of the Corporations Law.

By reason of the failure of the respondent to establish a factual basis for an order for security for costs it is unnecessary to address in detail other issues that were argued in relation to the exercise of the Court's discretion.   I am however of the opinion that the respondent did not unreasonably delay bringing the application for security given the other activity in which the parties were engaged prior to the initial correspondence between the parties on the issue of security.   On the question of whether the fact of the second applicant being a natural person resident within the jurisdiction is in any event determinative of the issue against the respondent, I am of the opinion that as the respective claims of the applicants coincide, as a matter of discretion, had it been shown that the first applicant may be unable to satisfy an adverse costs order, I would nevertheless have refrained from ordering security.

The application will be dismissed with costs.

I certify that this and the preceding 10 pages are a true copy of the Reasons for Judgment of the Honourable Justice Olney

Associate:

Dated:

Heard:    22 February 1996

Place:    Melbourne

Judgment: 18 March 1996

Appearances:

Mr A. Ryan (instructed by Davies Ryan De Boos) appeared for the respondent in support of the motion.

Mr M. Robins (instructed by Sam Holt & Thomas Nelson) appeared for the applicants opposing the motion.