Cartez Pty Ltd v Bakers Delight
[1998] FCA 539
•5 MAY 1998
FEDERAL COURT OF AUSTRALIA
PRACTICE AND PROCEDURE - interlocutory proceeding- application for security for costs under sub-s. 1335(1) Corporations Law - exercise of judicial discretion - impecuniosity - trustee company - no evidence as to means of beneficiaries - no detail of conduct of respondent complained of - amount of security.
Federal Court of Australia Act s 56
Federal Court Rules O28
Corporations Law s 1335
Trade Practices Act 1974 s 52
Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 511.
Equity Access Ltd v Westpac Banking Corp (1989) 11 ATPR 40-972
Bell Wholesale Co. Ltd v Gates Export Corporation (1984) 2 FCR 1
Avspares Pty Ltd v Skywest Aviation Pty Ltd (1997) 24 ACSR 272
Harpur v Ariadne Australia Ltd (1983) 8 ACLR 835
Aussie Protection Inc & Anor v Hyway Sunvisors (Sales) Pty Ltd (unreported, Federal Court No. 783 of 1987, Gummow J, 23 December 1987)
CARTEZ PTY LTD -v- BAKERS DELIGHT (WA) PTY LTD
WG 119 OF 1997
RD FARRELL JR 5 MAY 1998 PERTH
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WG 119 of 1997
BETWEEN:
CARTEZ PTY LTD
APPLICANTAND:
BAKERS DELIGHT (WA) PTY LTD
RESPONDENTCOURT:
RD FARRELL JR
DATE OF ORDER:
5 MAY 1998
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
Within 30 days the applicant provide security for the respondent’s costs up to trial in the sum of $30,000 in a form acceptable to the Registrar.
If the applicant fails to comply with Order 1 this proceeding be thereupon stayed until such security is provided.
The further hearing of the application for security be adjourned, to a date to be fixed, to enable the question of further security to be considered.
The applicant pay the respondent’s costs of this application for security.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WG 119 of 1997
BETWEEN:
CARTEZ PTY LTD
AND:
BAKERS DELIGHT (WA) PTY LTD
COURT:
RD FARRELL JR
DATE:
5 MAY 1998
PLACE:
PERTH
REASONS FOR JUDGMENT
This is an application by the respondent for security for costs.
On 24 October 1997, the applicant brought a claim against the respondent in this Court alleging, among other things, a breach of section 52 of the Trade Practices Act 1974 and seeking damages.
In summary, the applicant claims that:
it purchased a franchise business within a shopping centre from the respondent for $239,000.00 in late 1994;
it suffered a loss of profits of $124,379.00 and a loss in the value of the business of $103,922.00 in the years that followed which it attributes to:
disruption of trading during construction of a car park in the first half of 1995; and
the introduction of a new competitor within the shopping centre from July 1995; and that
the respondent knew about both those matters at the time of sale but did not disclose them to the applicant.
The respondent filed a Notice of Motion on 8 April 1998 seeking an order that the applicant provide security for the respondent’s costs. It has been referred to me for hearing and determination.
The Court has power to order security for costs in these circumstances by reference to both section 56 of the Federal Court of Australia Act and Section 1335 of the Corporations Law. The rules governing such applications are set out in Order 28 of the Federal Court Rules.
The Respondent was content to rely upon Section 1335 (1) of the Corporations Law, which provides:
“(1)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 security is given”.
The threshold issue under that provision is whether it appears by credible testimony that there is reason to believe that the applicant will be unable to pay the respondent’s costs if the respondent is successful in its defence.
The respondent adduced evidence on this point, establishing that:
the applicant is the trustee company of a discretionary trust;
the net assets of the applicant are negligible and are dependant upon the recovery of a right of indemnity from the trust;
the trust suffered a deficit of assets to liabilities; and
the estimated party-party costs of the respondent were about $50,000 to the commencement of the trial and about $96,000 to judgment.
The applicant did not seriously contend that the respondent had not met its evidentiary burden to adduce the necessary credible evidence and I am satisfied that there is reason to believe that the applicant will be unable to pay the respondent’s costs if the respondent is successful in its defence.
The discretion whether to make an order for security for costs is a wide and unfettered discretion to be exercised judicially according to how justice would best be served on the merits of each case without any particular predisposition: eg Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 511.
The applicant cited Equity Access Ltd v Westpac Banking Corp (1989) 11 ATPR 40-972 at 50,635, where Hill J listed some of the relevant factors as follows:
the chances of success of the applicant; whether the applicant’s claim is bona fide or a sham;
the quantum of risk that the applicant cannot satisfy a cost order;
whether use of the power would shut out a small company from making a genuine claim against a large company, ie is the power being used oppressively;
whether the impecuniosity arises out of the Act in respect of which relief is sought;
whether there are aspects of public interest which weigh in the balance against the making of an order;
whether there are any particular discretionary matters peculiar to the circumstances of the case.
The applicant relies upon the evidence of its director, Mr Andrew Williamson, that:
“If an order is made requiring the Applicant to pay security for costs in the vicinity of $96,156.00 or any significant sum it would effectively prevent the Applicant from continuing with the action, simply because the Applicant does not have liquid assets sufficient to raise any significant sum.”
and further that:
“The Applicant’s poor financial position is a direct result of the actions of the Respondent which are the subject of these court proceedings...”
In response, the respondent cites the Full Court decision in Bell Wholesale Co. Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4, where the Court stated:
“In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust), are without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts.”
Mr Williamson and his wife, Mrs Alice Williamson, stand to benefit from the litigation. They are the sole directors and shareholders of the applicant and, more importantly, they are the specified beneficiaries of the trust.
No evidence was provided by the applicant as to their means. Nor did the applicant submit that evidence of their means would have assisted the applicant.
It has been recognised that the provisions allowing for the requirement of security for costs are designed to cause those behind a corporation with an interest in its assets and who stand to benefit from the litigation to bring their own assets into play: Avspares Pty Ltd v Skywest Aviation Pty Ltd (1997) 24 ACSR 272 at 276; Harpur v Ariadne Australia Ltd (1983) 8 ACLR 835.
Mr and Mrs Williamson’s assets are not yet “in play” and their extent is unknown. In those circumstances, the impecuniosity of the applicant, their trustee company, is a factor of little weight.
Further, while the bona fides of the applicant’s claim are not challenged by the respondent, it is not possible for the Court to make a judgment of the merits of this case simply on the pleadings. Some affidavit evidence of an indirect nature was tendered by the respondent going to the merits. None at all was provided by the applicant.
In order to resist an order for security for costs on the grounds that the result of an order would, or would be likely to terminate the proceedings due to the applicant’s lack of means or that the impecuniosity of the applicants was a consequence of the conduct of the respondents complained of in the principal proceedings, some detail, rather than mere bare assertions of those matters, should have been given by the applicant: Aussie Protection Inc & Anor v Hy-way Sunvisors (Sales) Pty Ltd (unreported, Federal Court No. 783 of 1987, Gummow J, 23 December 1987).
With regard to other relevant factors, the quantum of risk that the applicant cannot satisfy a cost order would appear to be very high. The likelihood of that outcome sufficiently explains the respondent’s action in seeking security. Just as the applicant’s claim is accepted to be bona fide, there is nothing to suggest that the respondent’s defence lacks bone fides or that it is seeking to use the Court’s power to order security for costs oppressively. No issue of delay was raised, and the litigation is not of unusual public interest.
I will therefore make an order that the applicant provide security for costs to the respondent.
The only evidence as to the level of party-party costs likely to be incurred was provided by the respondent. A schedule of costs is exhibited to the affidavit of Philip Graham Coleman, a solicitor with care and conduct of the proceeding for the respondent who deposes to extensive experience in commercial litigation.
Mr Coleman estimates that party-party costs of $48,854 would be incurred up to trial and that additional costs of $47,302 would be incurred to take the matter to judgment - a total of $96,156.
These estimates are based upon the respondent’s having engaged Victorian solicitors, who have engaged Victorian Senior Counsel and Western Australian agents. It is contemplated that Junior Counsel will be engaged in due course.
This application was filed in the Western Australian Registry and deals with matters which at least primarily occurred within Western Australia. It is likely that all the Court’s hearings and conferences will take place in Western Australia.
I accept that it is for the respondent to decide how it wishes to conduct its case, particularly if it sees the claim as going to its propriety. However, to the extent that the costs of the respondent are inflated a desire that its Victorian solicitors play other than a supervisory role in the proceedings, I am reluctant to accept at this stage of the proceedings that the applicant should provide security for those additional costs.
That reluctance is intensified when I have regard to that part of Mr Coleman’s estimate of costs which deals with this application for security of costs, where $4,000 was estimated for Senior Counsel’s fee, and $2,444 was estimated for airfares and accommodation for Counsel and Instructing Solicitor, contributing to total estimated costs of $8,804 for the application.
I appreciate that at the time the estimate was made, Mr Coleman could not be aware of the nature of the applicant’s response to the application for security of costs, and therefore would not have been certain which matters would be in issue. I also realise that many a difficult issue can be made to appear simple when presented by able and experienced counsel.
Nevertheless, I think it fair to say that the respondent’s application was pursued at surprising length given the issues and evidence before the Court. It is not clear to me why the additional expense of interstate counsel was thought necessary in the circumstances.
The amount of security awarded is in the discretion of the Court, and it is not usual to order security on a full indemnity basis.
I propose to order security for costs up to trial, and to adjourn this application to permit the future consideration of whether further security should be ordered.
For the time being I will order that security of $30,000 be provided. The respondents will later be able to seek further security, but must be ready to show that its party-party costs will be such as to justify such further order.
I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of Judicial Registrar RD FARRELL
Associate:
Dated: 5 May 1998
Counsel for the Applicant: Mr Nolan Solicitor for the Applicant: Stark, Swann & Nolan Counsel for the Respondent: Mr Ritter, QC Solicitor for the Respondent: Jackson McDonald Date of Hearing: 4 May 1998 Date of Judgment: 5 May 1998
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