Designer Entertainment Pty Ltd v Adelaide City Entertainment Pty Ltd - [2003] FMCA 256

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DESIGNER ENTERTAINMENT PTY LTD v ADELAIDE CITY ENTERTAINMENT PTY LTD & ORS

[2003] FMCA 256

TRADE PRACTICES – PRACTICE & PROCEDURE – Costs – security for costs – application where applicant provides no information about its financial position – where respondent requests an excessive sum for security – where inferences may be drawn from applicant’s failure to provide information – where interim order is appropriate.

Corporations Act 2001, s.1335
Federal Magistrates Act 1999

Applicant:

DESIGNER ENTERTAINMENT PTY LTD (ACN 098 634 309)

First Respondent:

ADELAIDE CITY ENTERTAINMENT PTY LTD (ACN 100 696 222)

Second Respondent:

JOHN PIKE

Third Respondent:

WEST NORTH PTY LIMITED
(ACN 100 696 240)

Fourth Respondent:

ENTERTAINMENT CONSULTANTS AUSTRALIA PTY LIMITED

(ACN 099 366 762)

File No:

SZ 527 of 2003

Delivered on:

13 June 2003

Delivered at:

Sydney

Hearing date:

13 June 2003

Judgment of:

Raphael FM

REPRESENTATION

Counsel for the Applicant:

Mr T Hall

Solicitors for the Applicant:

Norman Waterhouse Lawyers

Counsel for the Respondents:

Mr J Hyde

Solicitors for the Respondents:

Griffins IT & IP Lawyers

ORDERS

Applicant to provide security for the Respondent’s costs in the sum of $5,000.00 upon undertakings given to the court by the applicant’s solicitors to hold the money in their trust account to abide by the decision of the court on further order.
In the event that the sum of $5,000.00 is not deposited with the applicant’s solicitors on or before 18 June 2003 the proceedings be stayed until the said sum is so deposited.
Respondent’s have leave to make further application for security as required.
Applicant to pay the Respondent’s costs of the motion.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SZ 527 of 2003

DESIGNER ENTERTAINMENT PTY LTD
(ACN 098 634 309)

Applicant

And

ADELAIDE CITY ENTERTAINMENT PTY LTD
(ACN 100 696 222)

First Respondent

JOHN PIKE

Second Respondent

WEST NORTH PTY LIMITED
(ACN 100 696 240)

Third Respondent

ENTERTAINMENT CONSULTANTS AUSTRALIA PTY LIMITED
(ACN 099 366 762)

Fourth Respondent

REASONS FOR JUDGMENT

This is an application for security for costs in relation to proceedings, which were commenced on 8 April 2003. The proceedings involve the use by the respondents other than the 4th respondent of the designation RNB in relation to events in entertainment venues in Adelaide. The applicant argues that it has a proprietary interest in that designation and the respondent that it does not because the designation is a common one used throughout the music industry.
When the case commenced the applicant, who was concerned that the respondents were putting on a dance party style attraction using the designation in respect to which it claims it has rights, considered the matter to be urgent. The applicant at first sought interim relief but when it was pressed to supply a large security for any undertaking as to damages that it might give, advised the respondents that it would be unable to responsibly undertake to meet a guarantee for the amount. It therefore did not press its application for interim relief and requested that the court deal with the matter and bring it on for hearing as soon as possible.
The court acceded to the applicant's request and on 11 April 2003 the matter came before me. I made detailed orders for directions and listed the matter for hearing for three and a half days commencing on

7 August 2003. I have been advised today that the matters required to be done under the timetable have generally been done and will assume that the timetable is proceeding with reasonable adhesion to the dates set out therein.
On 1 May 2003 the first to third respondents' solicitors wrote to the solicitors for the applicant expressing their concern about the strength of the applicant's case and the ability of the applicant to meet any order for costs that might be made against it in the event that the applicant was unsuccessful. The letter contains the following paragraphs:
"In the event that you say that your client is an applicant of substance we request that you provide us with copies of your client's tax returns, profit and loss statements and balance sheets for the financial years ended 30 June 1998, 30 June 1999, 30 June 2000, 30 June 2001 and 30 June 2002, as well as your client's financial accounts and trading figures to date for the financial year ending 30 June 2003. These documents are discoverable in any event in the proceedings.
We estimate that the costs of these proceedings, after allowing for the cost of preparation, and the cost of a four day trial, will be in the vicinity of $200,000. My instructions are to request that your client provide security for this amount, by way of cash lodged with the court, or cash deposited in a joint interest bearing account accessible by the signatures of both solicitors for your client and my clients, or provision of an unconditional bank guarantee.
If your client is unable or unwilling to provide such security for costs, then we require it to produce on oath, evidence that it has the capacity to pay $200,000 costs to my clients in the event that it is unsuccessful in its claim."
On 8 May 2003 the respondents' solicitors wrote again to the applicant noting that they had not received a response to that letter, although in that second letter they referred to a facsimile dated 29 April 2003 whereas the letter I've quoted from is dated 1 May. There was obviously no response to the letter of 8 May because on 20 May the respondent's solicitors wrote in the following form:
“We confirm that we have not received a response to our request that your client provide appropriate evidence of its financial capacity to meet any adverse costs order in these proceedings by Friday, 16 May 2003.
As result, we're instructed to note to file a notice of motion in the Federal Magistrates Court seeking the court grant an order that your client pays money into court by way of security for our clients costs of action, without further notice to you or your client.”
The letter of 20 May elicited a response in the following form:
“In our respectful view your client's application for security is deficient in two respects. Firstly, should your client seek security in the sum of $200,000 it is our view that an application for such a sum is simply unsustainable and not to be taken seriously. Secondly, it is our view that the jurisdiction to award security is only invoked when the defendant is able, on credible evidence, to point to the inability of a plaintiff to meet an actual costs order, that is an actual costs order not an extravagant costs order.
Should you choose to serve any application for security for costs on our offices, we are instructed to accept service.”
The respondents proceeded to prepare and file their application. This was done on 5 June and was accompanied by an affidavit. The affidavit included copies of the letters, which I have previously extracted, a company search of the applicant and a further copy of an affidavit filed on behalf of the applicant earlier in the proceedings. The respondent to the notice of motion being the applicant in the case, did not file any evidence in reply.
It is accepted by all that the application for security for costs is made pursuant to s.1335 of the Corporations Act 2001 and the Federal Magistrates Act 1999. It would also appear to be common ground that an applicant for security must provide credible evidence that the respondent to the motion is not in a financial position where by it would be able to meet any order for costs should one be made against it.
As Mr Hall, who appears on behalf of the applicant company reminded me, these applications are most commonly made when a company is in liquidation or otherwise under external administration. They are made at other times as well. The process through which a party seeking security usual goes is to advise the other party of their concerns and then to request information about the financial affairs of the applicant. This is what was done in this case.
Unless the applicant is a public company, which publishes its accounts for all to see, it is very difficult for a respondent to provide credible evidence of a company's financial position in the absence of accounts provided by that applicant. Obviously this is not the case where the company is under external administration or where events in the knowledge of the respondents have occurred that indicate impecuniosity.
In this case we have the statement of a director that he did not consider it financially prudent for the company to tie up a sum of up to $200,000 by way of security for an undertaking as to damages. We have a company search which reveals that the company has a paid up capital of $1 and we have the applicant's refusal to reply to the respondent's request for more detailed information.
I believe that I can draw an inference from the applicant's conduct that no financial information that it might have provided would have assisted it to respond to the respondent's assertion that it would be unable to meet these costs. I am mindful, however, that it was open to the respondents to subpoena certain financial information and to draw my attention in a more detailed way to the financial situation of the applicant. I have borne this in mind in making the orders that I propose to make.
The party requesting security for costs must not only show that the applicant is unlikely to be able to meet an order for costs but must also bring the application speedily and provide the court with some basis upon which any order for costs may be made. The court is also entitled to take into account the relative merits of the claim and defence and the conduct of the parties.
I am satisfied that the application has been made speedily. Indeed, such was accepted by the applicant. I make no comment about the prospect of success because I only have before me at the moment the affidavits which were filed for the initial proceedings for interim relief and some further pleading. Suffice to say, I would not go so far as the respondents do in suggesting that that the applicant’s claim is hopeless.
The respondents initially requested a sum of $200,000 by way of security. I believe that the response made by the applicant in its letter of 26 May was quite appropriate insofar as it commented upon that figure. In the affidavit supporting the notice of motion, some further figures were produced of a more detailed nature, which totalled between $95,663.40 and $120,663.40.
These figures may not be unreasonable so far as solicitor and client costs are concerned. As a former solicitor of some 30 years experience before coming to the bench, I would indicate that they appear a bit high. But in any event they are a long way from the amount of costs that are likely to be awarded under schedule 1 of the Rules of the Federal Magistrate's Court. I believe that the appropriate order to make at this stage of the proceedings is for a reasonable amount to be made available by way of security with liberty to the respondents to apply for further security on satisfying the court both that the applicant remains unable to pay any likely order for costs against it and that the amount requested is fair and reasonable in all the circumstances.
This would, to my mind, involve the respondents in subpoenaing information if the applicant remains unwilling to give it. The figure I propose to order is the sum of $5,000.00. I see no reason why this sum should have to be paid into court if the applicant's solicitors are prepared to give an undertaking to those of the respondents that it is holding that amount of money in its trust account to be applied only for costs and subject to any order of this court. In the event that the applicant's solicitors are reluctant to give that undertaking, the money is to be paid into court.
I will order that the sum of $5,000.00 be paid by way of security for costs be paid either to the applicant's solicitors on the undertaking I previously requested or into court on or before 18 June 2003 and that in the event that the money is not so paid the proceedings will be stayed. I order that the applicant pay the respondent's costs of the motion and I certify that the respondents were entitled to employ an advocate pursuant to Part 21 Rule 21.15 of the Federal Magistrates Court Rules.

I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: