Dileum Pty Ltd v Greenall Whitley Ltd

[1987] FCA 263

IN THE FEDERAL COURT OF AUSTR

l

&STERN AUSTRAL-Id DISTRICT REGISTRY 1 No. hIA G 128 of 1987

1

GENERAL DIVISION l

BETWEEN: DILEUM PTY. LIMITED

Applicant

AND: GREENALL WHITLEY LIMITED

Respondent

M I I W E OF ORDER

J S E twiIIJG ORDEIi : Neaves J.

G B OF ORDER : 29 May 1987

!EEs kt t : Perth

THE COURT ORDERS THAT:

1. The applicant within 28 days from the date of this

order uive security in the SM of $7,500 for the

payment to the respondent of costs that may be

awarded auainst the applicant in the proceeding.

2. The said security be given by the payment into

Court of the sum of $7,500.

3 . If the applicant fails to comply with this order

for security within 28 days, the proceeding be

thereupon stayed.

4.     The respondent's motion for security for costs of which notice was filed on 18 May 1987 be adjourned uenerally with liberty to restore it to the list at any tlme on reasonable notice.

5. The applicant pay the respondent's

motlon to and includinu the entry of

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N o t e :

N o t e :	Settlement and entry of orders is dealt with in
Settlement and entry of orders is dealt with in 6r68Fi%

of the	of the	Federal	Federal	Court	Court	Rules.	Rules.	FECERAL COURT OF
FECERAL COURT OF

AUSTRALIA

AUSTRALIA

PRINCIPAL

PRINCIPAL

HEOISTRY

HEOISTRY

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B E T E E N : DILEUM PTY. LIMITED

Applicant

m:	GREENALL WHITLEY	LIMITED
Respondent

C m : Neaves 3 .

D=: 29 May 1987

REASONS FOR JUDGMENT

Fendlnu in the Court is an application by Dileum Pty.

Limited t"the applicant") auainst Greenall Whitley Limited

\"the respondent") In which the applicant seeks an order for

the delivery of certain undelivered wines or, alternatively,

damaae S.

The basis of the claim may be shortly stated. In

October 1984 and December 1985 the applicant entered into two

contracts with Premier Exports SARL, a company registered and

carryinu on business in France, for the purchase of a total of

107 cases of French wines. The vendor company is alleged to be

a subsidiary in the uroup of companies of which the respondent

(which carries on business in the United Kinqdom but not in

Australia) is the holdinu company thouqh this association is

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denied by the respondent. The applicant alleaes that the total

purchase price was paid but only 60 cases of wine were

delivered. The applicant says that on or about 5 February 1986

Mr Stephenson. one of Its directors. had telephone a

conversation wlth a Mr Anderson who was actlng on behalf of the

respondent. Mr Anderson is alleged to have said that the

respondent would deliver. or procure the delivery of, the

undelivered wines tu the applicant m Perth within a reasonable

time. A letter dated 11 February 1986 from the respondent is

sard to have been to the same effect. The wines were, in fact,

never dellvered. The respondent admits that a conversation

took place between Mr Stephenson and Mr Anderson but denies

that the substance of the conversation was as alleged and

denies that Mr Anderson was actinu on behalf of the respondent.

The conduct of the respondent is alleued to have been in

contravention of s.52(1) of the Trade Practices Act 1974 (Cth)

in that, at the time the statements were made. the respondent

had no intention of aivinu effect to them and did not have the

means of doinu so. The applicant says it relied on the statements made and. as a result, it suffered loss and damage. There is an alternative claim for damaues for breach of

contract on the part of the respondent. By its defence, the

respondent denies any liability to the applicant.

The respondent has now applied to the Court for an

order that the applicant give security for costs in the sum of

$10,000 or such other amount as the Court may deem fit. A stay

of proceedings is souuht until security for costs is given.

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The evldence establishes that the applicant has an

lssued capital of $10. It is a trustee company, its sole

tradina activity beina the conduct of a business under the name

"Librrtv Liquors" as trustee for "The Carlton Unit Trust". The

applicant owns no assets beneficially and does not trade on its

own account.

There is in evidence an unaudited balance sheet

showinu the assets and liabilities of the business of "Liberty

Liquors" as at 30 June 1986 and a profit and loss statement for

the business for the financial year ended on that date.

Current assets are shown at $1,152,075 and current liabilities at $1,034,508. Included in the current assets are short term deposits totalllna $417.863. The profit and loss statement

shows an operatinu profit for the year at $324,613, an increase

from $180,397 for the previous year. It is estimated by the

applicant that the operatinu profit of the business for the

current year will be of the order of $500,000.

The notes to, and forming part of, the financial

statements of the applicant as at	30	June 1985 contain the
following statement:

"The total liabilities incurred on behalf of The

Carlton Unit Trust were not in any Csic3 breach

of any provision of the trust deed and therefore

the company is entitled to be fully indemnified

for liabilities incurred."

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There is. however-. no information before the Court as to the

terms of the trust deed of "The Carlton Unit Trust" nor any

information as to its activities other than that relatinu to

the business "Liberty Liquors". Apart from the estimated

operatinu profit fiuure, no details are uiven concernins the

financial position in the current year of the liquor business.

Nor are the terms of the idemnity to which the applicant is

said to be entitled In evidence and there is in the material no

assertion in relatlon to the year ended 30 June 1986 similar to

that quoted above from the financial statements as at 30 June

1985. Mr Stephenson says in his affidavit sworn 27 May 1987

that he controls "The Carlton Unit Trust" through what 1 s

descrlbed as his "indirect control of units in the trust". No

detalls are uiven.

The case for the respondent is epitomised in what was

said by Smithers J. in Laundrv Coin-Wash Nominees Ptv. Ltd. v.

Dunlop Olvmpic Ltd. (1985) ATPR 40-584 at p.46.729:

"Where the only tangible assets of an applicant

company are held in trust for another entity and

its solvency depends on its right as trustee to indemnity auainst that entity it is necessary for the Court to have in mind the difficulties which

a successful respondent would have in attempting

to execute in respect of an order for costs.

Indeed. unless some step is taken to alleviate

those difficulties it is reasonable i td just to treat the applicant company as if it were without

assets to meet such a liability."

5.

The appllcant. in opposinu the appllcatlon, polnts

to lts equltable riuht, as trustee, to indemnity by the

beneficiarles of the trust auainst costs and expenses

properly incurred in execution of the trust and to its

riuht, enforceable by lien over the assets under its

control, to indemnity out of the trust assets. It is also

said that the respondent. in the event of costs being

awarded in its favour. would have a riuht, by subrogation, to require the exercise bp the applicant of its riuht of

irldemnitv out of the assets of the trust. It is submitted,

Ln effect, that, havlnu regard to those riqhts and the

clrcumstance that the business conducted by the applicant in

execution of the trust is in a healthy financial state, the

Court should be satisfied that the respondent's interests

are sufficiently protected and should, in the exercise of

its discretion, decline to order that security for costs be

provided.

All this is said, however, in the absence of any

evidence as to the terms of the trust and, in particular,

the terms of any indemnity for which the trust deed

provides. Apart from the rather bland statement that Hr

Stephenson is entitled, indirectly, to control "The Carlton

Unit Trust". there is no evidence as to the identity or the financial position of the beneficiaries. No undertaking is offered by or on behalf of the applicant that it will make provision. by the exercise of its lien, for the satisfaction

of an order for payment of any costs awarded to the

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respondent. It cannot. of course. be predicted with

certainty that the applicant will remain the trustee of "The

Carlton Unit Trust" at the time of !udgment In the

proceeding. To this must be added that it is not entirely

clear precisely how and in what circumstances the respondent

could enforce a right of subrogation.

In Laundrv Coin-Wash Nominees Ptv. Ltd. v. Dunlop

Olvmpic Ltd. (supra), Smithers J. said at pp-46,730-1:

"The method by which the parties concerned

construct the entities by whlch their interests

are pursued has, no doubt. positlve benefits for

them, and is a matter for decision by them. But

the trust structure does involve that persons

dealing with a company playing the part of

trustee in the adopted business structure,

necessarily deal with an entity, the beneficial ownership of all property in whose hands is in another entity to whom the legal estate therein

may be passed at any time. The accountability of such a company for amounts for which it may be legally liable is inherently less stable and

reliable than would be the case if it were in

business on its own behalf. For reasons

mentioned above a creditor with a judgment

against the applicant should not normally be

restricted to reliance on the applicant's

indemnity under the trust deed. Accordingly, but

for the giving of the undertaking referred to I

would have ordered that the applicant give

security for costs.

I have concluded that an applicant being a

trustee company which desires to resist an order

for security for costs should establish that

recourse to property held by or for it will be

available to the party against whom it has

brought its action and be adequate, at the

appropriate time. to meet the possible liability

for costs. In this case I considered the

applicant might do this by giving an undertaking

such as I have required. It ensures that the

appllcant will be in actual possesslon of

property and have leual entitlements in respect

thereof sufflcient in value to provide for the

appllcant's liability and thus providing a

sufflcient measure of practical protection of the

interests of the respondents."

Reference mluht also be made to what was said by Jenklnson

J. in Chester & Feln Propertv Developments Pty. Ltd. v.

&ndAm InvesLm>xts Ptv. Ltd. (1985) 61 A.L.R. 729.

In my oplnion. it would not be an appropriate

exerclse of the judicial discretion which is vested in the

Court to decline to order security because of the mere

existence of the equitable riuhts to which I have referred,

with whatever difficulties may be attendant upon their

enforcement. Such an approach should, I think, properly be

reqarded as insufficiently protecting the legitimate

interests of the respondent. It follows that this is, in my

view, an appropriate case in which to order that the

applicant uive security. I would add that there is no

suuuestion that to order security will frustrate the

litiuation.

In relation to the amount of the security to be

provided. the evidence is sparse. Apart from the somewhat

enlumatic expression of opinion by the respondent's

solicitor that the party and party costs which the

respondent would be entitled to recover from the applicant

in the event of it being successful in defending the

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proceedinu "is reflected In the amount claimed in the notice

of motion". there 1s little materlal upon which to form an

estlmate of the amount of costs which would be recoverable.

It is. however. of some significance that the respondent has

no offlce in Australia. Thls will inevitably lncrease the

difficulty and expense in obtaining instructions which must

be sought from the United Kingdom where any relevant

documents are situated and where all those to whom the

respondent might look to speak of the events on which the

applicant relies are to be found. Any witnesses which the

respondent may wish to call as to those events will have to

travel to this country from the United Kingdom.

In my opinion, the appropriate course is to order

that the applicant within 28 days of this order give

security in the sum of $7,500 for the payment to the

respondent of any costs that may be awarded against the

applicant in the proceeding; that that security be given by

the payment into Court of the sum of $7,500; and that, if

the applicant fails to comply with the order for security

within 2 8 days, the proceeding be thereupon stayed. I

should make it clear that. in making those orders. I rely on

the power conferred on the Court by s.56 of the Federal

Court of Australia Act 1977 (Cth): see Bell Wholesale Co.

Ptv. Ltd. v. Gates Export Corporation (1984) 5 2 A.L.R. 176.

It will be open to the respondent to make application for a

larger sum to be provided by way of security at an

appropriate time should it be so advised. The respondent's

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motion for security for costs. of which notice was filed on

18 May 1987. is ad?ourned generally with liberty to restore

it to the list at any time on reasonable notice. The

applicant must pay the respondent's costs	of the motion to
and irlcludina the entry of this order.

I certify that this and

the preceding 8 pages are

a true copy of the Reasons for Judqment herein of the

Honourable Justice Mr

Neave S .

Associate

Dated: 29 May 1987

Counsel for the applicant : Mr S. Paterniti

Solicitors for the applicant	: Parker h Parker
Counsel for the respondent	: Mr B . S . Dodd
Solicitors for the respondent	: Mallesons Stephen Jacques

Date of hearina : 29 1987 May