Cavenham Pty Ltd & Ors v E & v Bob Pty Ltd (T/As Hound Dog Clothing)

[1997] FCA 444

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

GENERAL DIVISION

No QG 124 of 1996

BETWEEN:CAVENHAM PTY LIMITED (ACN 003 738 672) and KITTIWAKE PTY LIMITED (ACN 054 379 494)

First Applicants

AND:MICHAEL O’CONNOR and PETER ROSS HANSEN

Second Applicants

AND:E & V BOB PTY LIMITED (ACN 003 424 931) trading as HOUND DOG CLOTHING

First Respondent

AND:ELLI BOBROVIZKI

Second Respondent

AND:LAWRENCE BROWN

Third Respondent

No QG 130 of 1996

BETWEEN: SMYLIE’S HOLDINGS PTY LIMITED (ACN 061 720 198)

First Applicant

AND:COLIN STEWART SMYLIE and ROBYN MARY SMYLIE

Second Applicants

AND: E & V BOB PTY LIMITED (ACN 003 424 931) trading as HOUND DOG CLOTHING

First Respondent

AND:ELLI BOBROVIZKI

Second Respondent

AND:LAWRENCE BROWN

Third Respondent

CORAM:                   SPENDER J
PLACE:  BRISBANE
DATE:  17 APRIL 1997

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The motions be dismissed.

1. The applicants on the motions pay the respondents’ costs of the motions, including reserved costs, to be taxed if not agreed.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

GENERAL DIVISION

No      QG 124 of 1996

BETWEEN: CAVENHAM PTY LIMITED (ACN 003 738 672) and KITTIWAKE PTY LIMITED (ACN 054 379 494)

First Applicants

AND:MICHAEL O’CONNOR and PETER ROSS HANSEN

Second Applicants

AND: E & V BOB PTY LIMITED (ACN 003 424 931) trading as HOUND DOG CLOTHING

First Respondent

AND:ELLI BOBROVIZKI

Second Respondent

AND:LAWRENCE BROWN

Third Respondent

No QG 130 of 1996

BETWEEN: SMYLIE’S HOLDINGS PTY LIMITED (ACN 061 720 198)

First Applicant

AND:COLIN STEWART SMYLIE and ROBYN MARY SMYLIE

Second Applicants

AND: E & V BOB PTY LIMITED (ACN 003 424 931) trading as HOUND DOG CLOTHING

First Respondent

AND:ELLI BOBROVIZKI

Second Respondent

AND:LAWRENCE BROWN

Third Respondent

CORAM:                   SPENDER J
PLACE:  BRISBANE
DATE:  17 APRIL 1997

REASONS FOR JUDGMENT

I have before me two notices of motion in related proceedings, QG 124 of 1996 and QG 130 of 1996.  The respondents in those proceedings seek orders in each case for security for costs.  Each motion for security is resisted.  The evidence before me demonstrates that the threshold requirement for the jurisdiction of the Court to consider the making of an order for security for costs is met in that, on this material, if a costs order is to be made against any of the corporate applicants, there is a real chance that such an order would be empty. 

It was submitted by counsel on behalf of the respondents in the principal proceedings that in circumstances where the corporate applicants in the principal proceedings are impecunious, and there is no evidence to show that the natural persons who are co-applicants in the principal proceedings have means to meet any such costs orders, the court should order security for costs.  It seems to me that this submission involves a misunderstanding of the circumstances relating to security for costs where there are, in addition to what might be termed an impecunious corporate applicant, natural persons who are the persons who stand behind that corporation and who are exposed to a costs order if the companies are exposed to costs orders.

In these proceedings it seems to me that the natural persons who are co-applicants with the impecunious companies, and who are the shareholders and directors of those companies, are exposed to a costs order that is of the same kind as the costs order that would be made against the companies and in respect of which security for costs might be considered. 

This is not a case like Bell Wholesale Co Ltd v Gates Export Corporation, (1984) 2 FCR 1, where the applicant was impecunious. The Full Court of the Federal Court, (Sheppard, Morling and Neaves JJ), held that it was for the respondent to an application for the provision of security to establish that an order for security for costs against an impecunious client would frustrate the litigation.

Of the court’s attitude to preventing an impecunious client from depriving a successful litigant of the benefit of a costs order where there are persons behind the company who stand to benefit from it, the court said at p 4:

“  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 also 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.”

The court was there concerned with the position where a company was seeking to resist an order on the ground that the granting of security will frustrate the litigation; it is in those circumstances that the impecuniosity of those who stand behind the company has also to be demonstrated. 

Those circumstances are to be contrasted from those before the Full Court of the Supreme Court of Queensland in Harpur v Ariadne Australia Limited, [1984] 2 QdR 523. There, in addition to three corporate plaintiffs, there was a natural person as co-plaintiff, which is similar to the situation in each of the two matters with which I am concerned.

Connolly J, with whom Campbell CJ and Demack J agreed, said at 532 of the policy factors behind provisions requiring or permitting the provision of security for costs:

“  The mischief at which the provision is aimed is obvious.  An individual who conducts his business affairs by medium of a corporation without assets would otherwise be in a position to expose his opponent to a massive bill of costs without hazarding his own assets.  The purpose of an order for security is to require him, if not to come out from behind the skirts of the company, at least to bring his own assets into play.  If however he is already available for whatever he is worth, the object of the legislation is seen to be satisfied.”

His Honour continued:

“  It is not disputed in this case that Harpur is the real plaintiff.  The plaintiff companies are joined as a means to his establishing his own rights if he can.  There is no question of the companies having any claim independent of Harpur’s.  There is, to use Plowman J’s expression, a complete overlap of the interests put in suit.  The companies are joined because Harpur has chosen to conduct his business affairs in a fashion which requires the presence in this litigation of corporations of his creation which the law may regard as the appropriate plaintiffs but their interests are, as it is pleaded, beneficially his property.  Why then should he be asked to provide massive security for the defendant’s costs?  He is not seeking to shelter behind the companies.  On the contrary he is the prime plaintiff.  It does not seem to me that he should therefore be in any different position from any other plaintiff whose assets are within reach of the court's process.  The court cannot permit orders for security for costs to be used as a means of keeping a plaintiff out of court. Orders for security are in fact infrequently made except in the cases of companies to which s. 533(1) [of the Corporations Law], or similar provisions apply and where there is no circumstance to outweigh the obvious force of the company's insolvency.”

In this particular case, each of the persons who are shareholders and directors of the corporate applicants are available for whatever each of them is worth in the event of the respondent in the principal proceedings being successful.

The present cases are different from Harpur (supra) in that it might be said that the corporate plaintiffs are the prime plaintiffs and the natural persons are, in a sense, ancillary and their claims are secondary to the claims of the corporation.

Nonetheless, the same questions, in my opinion, seem to be raised and it is likely that if a costs order is made against the corporations (which is the circumstance which motivates an application for security for costs), then there will also be costs orders against the natural persons.  Each then of the shareholders of the corporations have hazarded their assets, for whatever they are in this litigation, and it seems to me that consistent with the observations in Harpur (supra), I ought not to order security in this case.

There is a further consideration which seems to me to be relevant.  Even if the proceedings by the corporate applicants were to be stayed until the corporations provided whatever security was ordered, the same issues, or almost the same issues, would arise for determination in the proceedings by the natural applicants.  They allege the same representations were made for the purpose, inter alia, of having them execute guarantees of the obligations of the corporate applicants and that the representations had that effect.  The consequence then, is that the litigation would proceed, but with natural persons, impecunious or no, against whom, (it is accepted), there would be no basis on which an order for security for costs would lie.

It seems to me in this case, that there can be no weighty criticism of any delay in bringing these proceedings.  By correspondence, on 15 October 1996, the question of security for costs was raised.  This was approximately two months after the initial application was filed, and I do not think, in the circumstances, that there is validity in any possible claim that standing by on the part of the respondents in the principal proceedings has lulled the applicants into a false position as to the question of security for costs. 

Similarly, it does not seem to me to be of particular weight, in the circumstances of this case, that it is said, albeit in an indirect and broad brush way, that the financial difficulties experienced by the corporate applicants is to be sheeted home to the conduct of the respondents.

This is a claim which is often made and it is not possible to make a prognostication as to its validity on the material presently available to me, and I do not, in those circumstances, attach significance to that aspect of the matter. 

However, for the reasons that I have given, each of the motions seeking security for costs is dismissed.  So far as costs are concerned, it seems to me that this is a case where I ought to make the ordinary order as to costs, and I order that the applicants on the motion pay the respondents' costs of the motion, including reserved costs, to be taxed if not agreed.  Those costs, of course, will not be able to be taxed until the conclusion of the litigation by virtue of Order 62 of the Federal Court Rules.

I will not make any order requiring or permitting those costs orders already made to be taxed forthwith.  The ordinary provisions of O 62 of the Federal Court Rules will take their course.

I certify that this and the preceding six (6) pages are a true copy of the reasons for judgment herein of the Honourable Justice Spender.

Associate

Date:   17 April 1997

Counsel for the applicants       :          Mr P E Hack

instructed by  :          Lees Marshall Warnick

Counsel for the first and

second respondents                 :          Mr D Baran

instructed by  :          Jacovou & Co

Date of hearing  :          17 April 1997