Copson, M v DCM Coffee & Donuts Pty Ltd

[1996] FCA 489

IN THE FEDERAL COURT OF AUSTRALIA    )
QUEENSLAND DISTRICT REGISTRY        )    No. QG 175 of 1995
GENERAL DIVISION  )

BETWEEN:    MARK COPSON and ROSLYN CORAL COPSON

Applicants

AND:    DCM COFFEE AND DONUTS PTY LTD and IAN NORRISS

Respondents

CORAM:     Spender J
PLACE:     Brisbane
DATE: 4 June 1996

MINUTES OF ORDER

THE COURT ORDERS THAT:

(1)the cross-claim of DCM Coffee and Donuts Pty Ltd be stayed, unless within sixty days of today it provides security in the sum of $10,000.00 to the satisfaction of the Registrar for the prosecution of its cross-claim;

(2)the costs of the applicants on the application for security for costs should be their costs on the cross-claim.

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        )    No. QG 175 of 1995
GENERAL DIVISION  )

BETWEEN:    MARK COPSON and Roslyn Coral COPSON

Applicants

AND:    DCM COFFEE AND DONUTS PTY LTD and IAN NORRISS

Respondents

CORAM:     Spender J
PLACE:     Brisbane
DATE: 4 June 1996

REASONS FOR JUDGMENT

This is an application for security for costs filed on 17 May this year in which applicants, Mark William Copson and Roslyn Coral Copson, seek an order that the first respondent, DCM Coffee and Donuts Pty Ltd, provide security for costs in relation to its cross-claim against the applicants.  The principal proceedings involve allegations of misleading and deceptive conduct against the respondents in respect of profitability forecasts for a coffee and donut shop to be conducted at Capalaba.  The essence of the allegation is that there was no sufficient basis for those forecasts.

By a cross-claim the first respondent seeks to recover lost franchise fees, loss of the use of money, and damages from the entry into the Capalaba lease.  The circumstance is the usual one where the franchisor has a lease in respect of the premises and a sub-lease or licence was to be granted to the applicants for the conduct of the franchised business.

The test on an application for security for costs is not in dispute;  it is whether the court is satisfied that there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if the defendant is successful in its defence. 

On a preliminary question, it was argued on behalf of DCM Coffee and Donuts Pty Ltd ('DCM'), that DCM was a cross-claimant whose claim, in reality, was a defence as opposed to a distinct and separate claim, and therefore there was no basis for the granting an order for security for costs.  The observations of the Court of Appeal in Buckley v Bennell Design and Constructions Pty Limited (1974) 1 ACLR 301 were relied on. In that case, the Court concluded that where an impecunious company is a defendant in an action and seeks to put forward a cross-claim which amounts in reality to a defence of the action, there is no occasion under the applicable New South Wales legislation to order security for costs against it, but where the defendant puts on a cross-claim which is in reality a separate and distinct claim, it should be considered a plaintiff within the meaning of that New South Wales provision.

In this particular case, the nature of the cross-claim, it seems to me, is such that DCM should be regarded as a plaintiff within s 1335(1) of the Corporations Law.  In respect of that matter, I have been referred to (and I simply note the observations contained in) Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621 at 626-7 and Amalgamated Mining Services Pty Ltd v Warman International Ltd (1988) 19 FCR 324 at 328, to which might be contrasted the observations in Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd (1992) 109 ALR 196 at 209.

In my opinion, the first respondent's cross-claim is properly to be characterised as offensive in substance or as the Court of Appeal described it, it is in reality a separate and distinct claim, and accordingly, the question of whether the Court in its discretion should order security arises.  It is admitted in the affidavit of Mr Plant, one of the directors of DCM, that that company is presently unable to meet any order that the Court might make by way of security for costs, and has also said that neither of the directors of that company has any ability to satisfy any financial requirements of such an order.

In those circumstances and having regard to the other matters on which the applicants rely, namely, the absence of any land holdings and the past trading history as exemplified in the material before me, I am satisfied of the threshold test.  It really is a bit hopeful to say that presently there is no ability to meet an order in a party against whom an order for security is sought, but notwithstanding that position, should a costs order be made against it some time in the future, not too far away, there is no reason to believe that the DCM would then be unable to pay the costs of the applicants if they should be successful in defending the cross-claim.

There is, so far as discretionary matters are concerned, no difficulty by way of laches.  There is a bald statement that neither of the directors of DCM could afford to pay security for costs from his own funds.  The evidence is terse to the point of embarrassment in that respect.  It is a curious position that the directors of a company operating some 25 or more company and franchised shops should be wholly without any assets with which to meet any order for costs, however modest.  I note the claim that the impecuniosity of DCM presently is attributable to the defendant's conduct.  This is, of course, a challenged assertion but it is a factor to be considered in relation to the question of whether and to what extent security should be ordered.  There is a claim that an order for security for costs would stifle the litigation.  I doubt that this is the case, particularly having regard to the paucity of information to which the directors have descended in relation to the assets behind the operations of DCM, and their own assets.  As opposed to that, most of the matters which will be canvassed on the cross-claim, substantially overlap issues that are raised in the trial.

There is, it seems to me, some force in what was submitted by Mr Bland, on behalf of Mr and Mrs Copson, that there will be some further discovery concerning performance of the stores prior to the entry into the arrangements regarding the Capalaba store, and dealing with operations subsequent to that entry; that amount, it seems to me, will be quite small when compared with the other matters of which discovery will have to be required.  It seems to me that much of the claims referred to in the affidavit of Scott Robert Budd are drawn out of an abundance of caution, and with a very sanguine view of the extra work anticipated in respect of the cross-claim.

My own view is that much of that can be substantially discounted.  I think in all the circumstances, and acknowledging that security is not in any way meant to be a perfect indemnity for costs, the interests of justice would best be served by ordering that the cross-claim of DCM Coffee and Donuts Pty Ltd be stayed, unless within sixty days of today it provides security in the sum of $10,000.00 to the satisfaction of the Registrar for the prosecution of its cross-claim.  This is not meant to be a security up to the first day of trial, but is an estimate based on my assessment of what, in fact, would be the extra costs associated with the prosecution of the cross-claim.

Having regard to the likely quantum of that cross-claim, and to what I perceive to be the extra costs associated with its prosecution for the Copsons, it seems to me that $10,000.00 is a fair thing.

Having heard the parties on costs, it seems to me that the costs of the applicants on the application of the security for costs should be their costs on the cross-claim. 

Those are the orders that I make.

I certify that this and the  preceding five (5) pages are a true copy of the reasons for judgment herein of the Honourable Justice Spender.

Associate

Date:   4 June 1996

Counsel for the applicants     :         Mr M Bland
instructed by                  :         Nicholsons

Solicitors for the respondents: G P S Spencer Woodhead

Date of Hearing                :         4 June 1996