Callaghan Australia Pty Ltd v BTR Engineering (Australia) Ltd - [1997] FCA 111

IN THE FEDERAL COURT OF AUSTRALIA  )
NEW SOUTH WALES DISTRICT REGISTRY  )
GENERAL DIVISION  )           No. NG 406 of 1994

BETWEEN:CALLAGHAN AUSTRALIA PTY LIMITED

Applicant

AND:BTR ENGINEERING (AUSTRALIA) LIMITED
Respondent

CORAM:Lehane J
PLACE:Sydney
DATE:13 February 1997

EXTEMPORE REASONS FOR JUDGMENT

LEHANE J: This is a respondent's motion for the provision by the applicant of security for costs. It is unnecessary to describe the proceedings in detail. The immediately relevant circumstances are that the applicant, which claims against the respondent damages amounting to approximately $1,750,000, is in liquidation.

The winding up of the applicant was preceded by the appointment of administrators under the Corporations Law. The appointment of the administrators occurred on 26 August 1996 and the winding up followed shortly thereafter. It is evident that there will be a substantial deficiency and, unless substantial recoveries result from these proceedings, unsecured creditors are likely to obtain little, if any, return from the liquidation.

Consequently, it is plain for the purposes of the motion that the applicant is to be regarded as impecunious. So much is common ground. It is also evident, and it is
conceded, that there are serious triable issues, raised by the applicant's claims against the respondent.

In circumstances such as these it is usual to consider, in relation to the question whether the effect of ordering the provision of security is oppressive in the sense that it operates to stifle litigation, whether there are standing behind the applicant persons who will benefit from the proceedings (if they are successful) and are themselves in a position to provide security for costs. Persons in that position may be creditors of the applicant, they may be shareholders, they may be beneficiaries of a trust. No doubt there may be persons standing to benefit from litigation instituted by a corporate applicant who stand in some different relationship to the applicant.

The relevant principle is clearly established. It is laid down, for example, in the decision of the Full Court in Bell Wholesale Co Pty Limited v The Gates Export Corporation (1984) 52 ALR 176 and by the Court of Appeal of the Supreme Court of Queensland in Impex Pty Limited v Crowner Products Limited (1994) 13 ACSR 440. A recent example of the application of the principle, in relation to creditors of a company in liquidation, is to be found in the decision of Finn J in Pasdale Pty Limited v Concrete Constructions (1995) 131 ALR 286. The principle is uncontroversial and reported cases provide numerous examples of their application.

The basis of the principle is, of course, that ordinarily it is not unjust to order the provision of security in circumstances where those who will benefit from the successful
prosecution of a litigation are in a position to provide it, but because of the interposition of an impecunious corporation will not otherwise be liable to meet an order for costs that may be made against the applicant if the litigation which it has instituted is unsuccessful. Because that…

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 111
Decision Date: 13 Feb 1997

CaseChat Overview and Summary

Callaghan Australia Pty Ltd, an insolvent company in liquidation, brought proceedings against BTR Engineering (Australia) Ltd seeking damages of approximately $1,750,000. The respondent moved for the applicant to provide security for costs, arguing that the applicant was impecunious and that there were likely to be significant costs if the litigation was unsuccessful. The Federal Court of Australia was required to decide whether to order the applicant to provide security for costs and, if so, the appropriate amount of that security.

The Court considered the principles established in various cases that where a corporate applicant is impecunious, it is generally not oppressive to order the provision of security if there are persons standing behind the applicant who are in a position to provide it. The Court noted that the applicant's claim was substantial and that unsecured creditors would likely benefit if the litigation was successful. However, the Court found no evidence of the ability of creditors to provide security. The Court rejected the applicant's arguments regarding oppression, delay, and the imminence of the trial, finding that the respondent had acted promptly in raising the issue of security and that there was ample time for the creditors to provide security without disrupting the trial.

The Court then determined the appropriate amount of security, considering the evidence of both parties' costs consultants. The Court discounted some of the respondent's estimates but found that a conservative estimate of the respondent's costs was approximately $55,000. The Court ordered the applicant to provide security in that amount and stayed the proceedings until such security was given. The Court also ordered the respondent's costs of the motion and gave the parties liberty to approach a registrar to settle the form in which the security should be provided.

In summary, the Federal Court of Australia ordered Callaghan Australia Pty Ltd to provide security for costs in the amount of $55,000 and stayed the proceedings until such security was given. The Court rejected the applicant's arguments regarding oppression, delay, and the imminence of the trial and found that the appropriate amount of security was a conservative estimate of the respondent's costs.

Orders