Canvas Graphics P/L v Heidelberg Graphics Equipment Ltd

[1994] FCA 594

s9't-J 99

JUDGMENT NO. .....nl.l .""wnn.

IN m FEDERAL COURT OF AUSTRALIA	)
1
SOUTH AUSTRALIAN DISTRICT REGISTRY )
1
GENERAL DIVISION	) No. SG 44 of 1994
BETWEEN :
CANVAS GRAPHICS PTY LTD

Appel lant

RECEIVED	- and -
HEIDELBERG GRAPHICS
FEDERU mum OF	EQUIPMENT LIMITED and

AUSTAKlA	MILES INC.
CIwaPu

Respondents

MINUTES OF ORDER

JUDGE MAKING ORDER	VON DOUSSA J.
WHERE MADE	ADELAIDE
DATE OF ORDER	20 JULY 1994
THE COURT ORDERS THAT:

1. The appellant provide security for the costs of the first respondent in the sum of $35,000, and for the second respondent in the further sum of $35,000, within six weeks of today, such security to be in the form of a payment into Court, a bank guarantee or such other form of security as may be approved by order of the Court.

of the Federal Court Rules.

1. The appellant to pay the respondents' costs of the notice of motion.

3.    Libertyto apply.

4.   The appeal be stayed until such time as the appellant

provides the security ordered by paragraph 1 hereof.

Note: Settlement and entry of orders is dealt with in Order 36

C) )

1

-	) No. SG 44 of 1994
BETWEEN:
CANVAS GRAPHICS PTY LTQ

Appellant

- and -

HEIDELBERG GRAPHICS

EPYI;eMENT and

INC.

Respondents

m TEMPORE REASONS FOR JUDGMENT

W: von Doussa J.

U Adelaide

r 20 July 1994

There are two applications, one by each of the respondents to this appeal, seeking security for costs of the appeal. The appeal is brought by Canvas Graphics Pty Ltd ("Canvas") against the judgment of O'Loughlin J, delivered on 13 May 1994 after a trial that had gone for in excess of 100 days. His Honour entered judgment in favour of Canvas against

Heidelberg Graphic Equipment Pty Ltd ("Heidelberg") for

$113,050. By reason of offers to settle that had been made by

Heidelberg in the course of the proceedings, his Honour held that it was appropriate that Canvas not recover its costs of the action and, on the contrary, that 25 per cent of the costs of Heidelberg should be paid to it by Canvas. His Honour made an order permitting the costs awarded to Heidelberg to be set off against the judgment awarded in favour of Canvas. At trial the claim by Canvas against the second respondent to the appeal, Miles Inc. ("Miles"), was dismissed.

By the notice of appeal Canvas seeks to have the assessment of damages against Heidelberg increased significantly, on account of both out of pocket losses, and loss of profits. In the event that that appeal succeeds against Heidelberg, Canvas seeks to have the order for costs made at trial set aside and an order for costs in its favour entered. Canvas also seeks to have the dismissal of the action against Miles set aside and judgment entered against Miles on the bases, first, that Miles was the principal for whom Heidelberg acted as agent, and secondly, that Miles was guilty of negligence.

There has been a cross-appeal filed by Heidelberg against Canvas. Heidelberg seeks to have the claim which it made at trial allowed at $109,500. It also seeks to have the award of damages that was entered in favour of Canvas (that is the award of $113,050) reduced by $75,000 and to have the order for costs varied in its favour. Upon the notice of motion for security by Heidelberg coming on for hearing today, counsel

proceed only in the event that the appeal against it	for Heidelberg informed the Court that the cross-appeal would
proceeded. If, for any reason, the appeal by Canvas against Heidelberg does not proceed the cross-appeal will not go ahead.
Information on the file leaves no doubt that Canvas is hopelessly insolvent and that neither Canvas nor associated companies nor shareholders and directors who stand behind it

have any prospect of paying anything by way of costs in the event that the appeal against Heidelberg fails. The net position as between Canvas and Heidelberg under the judgment and coat order entered at trial is about line ball. Whilst Canvas has a judgment of $113,050 in its favour, evidence, of a general nature admittedly, put forward in MS Johnston's affidavit is to the effect that the taxed costs of the trial of Heidelberg could be in the order of $440,000. When 25 per cent of that sum is set off against the judgment the result is a virtual nil balance.

So leaving aside for the moment the question of the cross-appeal by Heidelberg, if the appeal by Canvas fails against Heidelberg there is no net amount due under the trial judgment and order for costs by Heidelberg against which Heidelberg could set off its costs of the appeal. The information before the Court establishes not only a likelihood but a certainty that in the event that the appeal fails Heidelberg would not recover its costs.

This morning an application for security for costs was heard in the appeal of Canvas against Kodak (Australia) Pty Ltd ("Kodak"). The application by Kodak was refused. It was refused, however, primarily upon the ground that there was a net judgment in favour of Canvas against Kodak that in all likelihood would remain more than sufficient to pay the costs of Kodak in the event that the appeal against Kodak failed. That situation does not exist here. Moreover, in the Kodak appeal there had been a cross-appeal filed but there was no intimation that in the event that the appeal did not proceed the cross-appeal would not proceed. That too is another distinguishing feature.

The general rule is that whilst poverty is no bar to a litigant where security for costs is sought against a litigant at trial, there is an exception to that rule in the case of an appeal. At trial Canvas was the principal claimant against Heidelberg and Miles and the poverty rule would largely have applied even though Canvas is a corporation because there were individuals standing behind what was a relatively small family company. Notwithstanding that consideration security for costs was ordered in certain amounts and was provided. Different considerations however apply on an appeal. There has been a very long trial. There has been a judgment of the Court which has canvassed the issues, or virtually all the issues that Canvas sought to raise, and certainly all those which the trial judge perceived as having been raised. A

considered judgment has been passed. In the case of an appeal

the exception to the poverty rule is that security should be ordered if there is a likelihood established that the appellant would be unable to pay the costs of the respondent in the event that the respondent succeeded.

The power to award security is discretionary and whilst the general rule and the exception that I have mentioned have been developed through the case law, the overriding principle nevertheless remains that the remedy is discretionary. There are statements in the cases, including Bell Wholesaler Co. Pty Ltd v Gates E x p r t Corporation (1984) 52 ALR 176, to which reference has been made, which suggest that circumstances might arise even in the case of a corporate appellant that would justify not ordering security for costs if the effect of the order were to stifle the appeal.

That point is pursued by counsel for Canvas. It is argued that an order for security is likely to stifle the appeal (the financial evidence about the appellant leaves little doubt that is so) and moreover, that the impecuniosity of Canvas is due to the faulty equipment that was provided by Iieidelberg which in turn caused loss. But that last submission has a degree of circularity about it. The extent of the loss caused by the Heidelberg equipment is the very issue which has been already canvassed at trial and upon which the trial judge has passed judgment. The extent of the loss caused by the faulty equipment has been found to be $113,050.

for the costs of the appeal to pursue against the general	In my view it is not possible on an application for security
contention that impecuniosity (beyond that caused by the assessed damages) has been caused by the defendant. By the judgment the extent of loss caused by the respondent has been provisionally determined.
Further, where it is urged that the discretion to award security for costs should not be exercised, because of the likelihood that the order would stifle the appeal, the Court should consider who are the persons for whose benefit, in a practical sense, the appeal is being prosecuted and whether those persons have the ability to stand behind the appellant. If they have the ability to do so the Court can have regard to that fact. If the appeal is being prosecuted for their benefit they may be expected to put up security for the costs if they want the appeal to go ahead.
In the present case, putting aside debts that may exist to Heidelberg and Miles by virtue of the orders for costs of the trial, the appellant is still indebted to creditors for something in the order of $1,000,000 or more. Those are creditors that it had before the appeal commenced. On any practical view, this appeal is being pursued for the benefit of the creditors, if not wholly at least very substantially. It is urged by counsel for Canvas that if the appeal succeeded in every respect the damages might exceed that amount. That is a theoretical possibility; the practical reality is that
that is very unlikely.
So the appeal is not being pursued for the direct benefit of individuals who are shareholders in the company, it is being primarily pursued for the benefit of creditors. There are two very substantial creditors. The ANZ Bank is one, the firm of solicitors for Canvas in respect of the costs of the trial is another. In my view, even though these two creditors have expressed an unwillingness to put up security, the Court is entitled to have regard to the fact that the appeal is being brought substantially for their benefit, to make an order for security, and to leave the option open to those creditors, if they decide to reconsider their decision, to assist in making available the security that is necessary for the appeal to proceed.
Having regard to the findings made by the trial judge as to credit at the end of a very long trial, I consider the fact that there is no prospect of the costs of the respondent Heidelberg being paid by the appellant in the event that Heidelberg succeeds should be the predominant consideration. In my view the discretion should be exercised in the case of Heidelberg in favour of there being an order for security for costs of the appeal.
There is also the appeal against Miles. Miles has made several applications. One is for security for costs, and another is to have the appeal against it heard first. On the
appeal is a small one which could be heard simply and in latter application it is argued that the issue in the Miles'
advance of the major appeal against Heidelberg. I will deal with that argument first. In my view it would not be desirable to split the appeals. Miles contends that the only issue would be whether Heidelberg was the agent of Miles, an issue of law which could be dealt with on the construction of a few pieces of paper. That view of the case is not shared by counsel for Canvas who says that there is also the much wider issue of negligence. In my view nothing would be saved from the point of view of the Court, in particular, by endeavouring to divide the hearing. I think there is a high probability, if a Pull Court were constituted to hear the appeal by Canvas against Miles, that during or at the end of hearing argument the Court would decide that the matter should be stood over until the full appeal against Heidelberg had been argued before the Court. That would mean that counsel for Miles would inevitably have to be present for the balance of the appeal; and in any event I would expect that counsel for Heidelberg would feel it necessary to be present, at least on a watching brief, during the appeal against Miles. I also take into account that counsel for Canvas is opposed to the appeals being split, contending that by reason of the inter- relationship of all the issues the two appeals should be heard together. I decline the application to order separate hearings of the appeals. If the appeals proceed both should be heard at the same time.
On the question of security for costs, Miles was wholly successful at trial. It has a substantial order for costs in its favour already in respect of the trial. In my view a clear case for security in favour of Miles is made out and I think there should be an order in its favour also.
There has been discussion in the course of argument as to the amount in which security should be ordered. The preparation of what would be very extensive appeal books is a matter that falls to the appellant, but the costs of each of the respondents would also be very substantial. It would be necessary for the respondents to scan large parts of the evidence to ensure that the index is appropriate in the sense that it includes only those documents that should be included and omits none that should be included. It would be necessary for a lot of time to be spent in preparing written submissions and identifying evidence references on each of the issues of fact to be canvassed. The appeal is likely to run over several days even with the benefit of written submissions.
The estimates of costs that have been put in by each of the respondents are in the order of $60-70,000. My immediate reaction on looking at those estimates, which have some similarity about them, was that the scanning fees were over- estimated but counsel fees for drawing submissions and for the hearing were under-estimated. In the other matter of Kodak a differently developed estimate of respondent's costs was put forward. That estimate was for costs of some $37,000. I was
guide. After having heard argument, I briefly discussed the initially minded to think that that was perhaps a more useful likely costs with the Registrar, and reported to the parties
that he was minded to think that an order in the vicinity of $30,000 for each of the respondents would be appropriate. When I reported that to the parties, Mr Blue drew my attention to the fact that the trial in Heidelberg had run for nearly twice as long as the trial in Kodak and that there were many more issues. That persuades me to think that the appropriate order should be $35,000 in the case of each of the respondents. Admittedly that is a broad-axe estimate, but that is the best that can be done on the information before the Court.

I certify that this and the

9 preceding pages are a true copy of the Reasons for Judgment of Mr. Justice von ~oussa.

Bsociate:

M:  20 Ju

Counsel for the appellant	: Mr N Morecombe QC
Solicitor for the appellant	: White Berman
Counsel for the respondents	: Mr T Gray QC & MS S

Johnston

Solicitor for the respondents	: Johneon Winter Slattery
Date of hearing	: 20 July 1994