Drangold Pty Ltd v Woody Enterprises Pty Ltd

[1991] FCA 826

Q \

JUDGMENT NO. BZh../. .... -.-...

U THE F EDERAL COUR T OF AUSTRALIA 1

LAND D m R I C T REGISTRY 1 No. G106 OF 1991

GENERAL DIVISION 1

D

FIRST APPLICANT

LAWRENCE ERNEST EATON

SECOND APPLICANT

WOODY ENTERPRISES PTY. LTD.

RESPONDENT

m:	Drunnnond J
& & S 2	13 December, 1991

EhZe: Brisbane

19 D E C 1991
FCDERAL COURT OF

MINUTES OF ORDERS	AUSTRALIA
PRINCIPAL
REGISTRY

THE COURT ORDERS THAT:

this order.

1.        Drangold Pty. Ltd. is to provide security for one- third of the respondent's costs of the hearing as follows :

(a)	in respect of the first day's hearing - $3,719.00;
(b)	in respect of each of the three subsequent days

- $1,966.00 per day.

1. Such security be provided by a personal guarantee to be executed by Lawrence Ernest Eaton and Christine Maree Eaton in a form to the satisfaction of the Registrar in the sum of $3,206.00, such guarantee to be executed within fourteen (14) days of the date of

   The first applicant's claims in this proceeding be stayed if such security is not provided.

   Liberty to apply for further security if the hearing extends beyond four days.

   The costs of the parties of and incidental to this motion, insofar as it relates to security for the respondent's costs, be costs in the cause.

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

JN THE FEDERAL COURT OF AUSTRALIA	)
QUEENSLAND DISTRICT REGISTRY	) No. G106 OF 1 9 9 1
GENERAL DIVISION	)

BETWEEN:

DRANGOLD PTY. LTD.

FIRST APPLICANT

LAWRENCE ERNEST EATON

SECOND APPLICANT

WOODY ENTERPRISES PTY. LTD.

RESPONDENT

m:	Drummond J
Date:	13 December, 1 9 9 1

W: Brisbane

EX TEHPORE REASONS FOR JUDGMENT

The respondent in the action seeks an order that the

first applicant (Drangold Pty. Ltd.) provide security for its

costs of "the First Applicant's claims in this proceeding" in	the form of a bank guarantee or, alternatively, personal
guarantees from the second applicant, Mr. Eaton, and his wife (who ie not a party to the action).
Mr. and Mrs. Eaton are the sole directors and shareholders of Drangold Pty. Ltd..
At the hearing, the respondent sought only to proceed with the application for security in the form of personal guarantees.
The drafting of the application makes it necessary to outline in some detail the various claims sought by Dzangold Pty. Ltd. against the respondent.

Drangold Pty. Ltd.'s claims against the respondent

are as follows:

(a)	in about January 1989, Mr. Eaton "on behalf of Sunshine Marine" made an agreement with the respondent for the latter to manufacture water heaters exclusively for Sunshine Marine to plans and specifications provided by Sunshine Marine on a confidential basis and incorporating certain valves and other components to be supplied by Sunshine Marine;
(b)	the respondent breached this agreement by:
i) manufacturing and selling heaters to others; and

ii) manufacturing heaters not in accordance

with the plans and specifications;

(c)	further, in manufacturing and selling heaters to others, the respondent converted the components supplied by Drangold Pty. Ltd.;
(d)	further, in selling heaters to others which, although appearing identical to those sold by the first applicant were in fact manufactured in accordance with an inferior design, the respondent engaged in misleading and deceptive conduct and in passing off;
(e)	In August 1989, Drangold Pty. Ltd. purchased from Gainkit Pty. Ltd. (a company owned by Mr. and Mrs. Eaton which had traded as Sunshine Marine) its interest under the agreement with the respondent. The respondent consented to the change in ownership and Drangold Pty. Ltd. alleges that "the agreement has become an agreement between Drangold Pty. Ltd. and the
respondent";
(f)	Drangold Pty. Ltd. claims damages, together with injunctive relief where appropriate, for breach of contract (paragraph 13) for conversion (paragraph 15) and for deceptive and misleading conduct and passing off (paragraph

20).

Mr. Eaton claims against the respondent for injunctive relief and damages for infringement of his own copyright in the plans and specifications referred to. He incorporates in his claim all allegations relied upon by Drangold Pty. Ltd. (including those relating to the latter's conversion claim).

Although it is not expressly pleaded, it is fundamental to Mr. Eaton's claim in copyright that the respondent was confined to using the plans and specifications provided by Sunshine Marine for the sole purpose of manufacturing and selling water heaters to Drangold Pty. Ltd..

Central issues in the litigation are:

(a) the terms of the agreement of January 8, 1989;

(b)	what information was provided by Sunshine Marine and/or Mr. Eaton and the extent to which
making the heaters; and that information was used by the respondent in

(C) the actual conduct which the respondent engaged

in.

These issues are common to both Drangold Pty. Ltd.'s claim and to Mr. Eaton's claim. They will occupy a substantial part of the hearing.

5   !

While there is a significant overlap between the claims of the two applicants, the overlap is by no means complete. Issues raised solely by Drangold Pty. Ltd. include its entitlement to sue on the agreement and its claim in conversion.

Drangold Pty. Ltd. could lose its action completely by failing to prove its right to sue on the agreement; even if it establishes that right, it could still fail on its conversion claim. Even so, Mr. Eaton could still succeed on his claim. However, it is likely that if Drangold Pty. Ltd. can sue on the agreement, either both Drangold Pty. Ltd. and Mr. Eaton will substantially succeed in their respective claims or they will substantially fail: it is unlikely, in that event, that one will succeed and the other will fail.

If both applicants lose their actions, separate
costs orders will be made against each. The costs the

respondent will be entitled to recover against Mr. Eaton will

defending Drangold Pty. Ltd.'s claims. But most of the	not cover all of the costs it will incur in successfully
respondent's costs incurred in defending Drangold Pty. Ltd.'s claims will be covered by the order against Mr. Eaton.
If there is a complete overlap in a case in which both a company and a natural person are applicants, security
will not be ordered against the company, even if the
circumstances are such that security would have been ordered had the company been suing alone. The reason for this is explained in Har~ur v Ariadne Australia Ltd. (1984) 2 Qd.R. 523 at 531, where Connolly J , with whose judgment the other members of the Full Court agreed, said:

"Against this background, what is the rule where there is more than one plaintiff? In such a case, all plaintiffs suing in the same interest and by the same solicitors and counsel, there is but one set of costs. If the defendants have an opponent who is worth powder and shot they have as much as any litigant is fairly entitled to."

A natural applicant resident in the jurisdiction, is

traditionally regarded as "an opponent who is worth powder and shot", irrespective of the strength or weakness of his financial position. The principle that poverty on the part of a resident natural applicant will not attract a requirement that he give security for costs, is a "venerable principle": Brvan E. Fencott and Associates Ptv. Ltd. v Eretta Ptv. Ltd. &

(1987) 16 F.C.R. 497 at 505. The provision, first introduced by The Com~anies

Act 1862, empowering the court to

order security for costs where an insolvent company is suing,

"was enacted with full knowledge of the ancient rule that the

impecuniosity of the applicant (who is a natural person) should not deny him his day in court": HarDur v Ariadne, supra, at 527.

No claim was made for an order that Mr. Eaton provide security for the respondent's costs.

The respondent invokes s.1335 of The Corvorations hgw and s.56 of The Federal Court of Australia Act 1976 in seeking the order for security for costs against the corporate applicant.

The principles to be applied in deciding whether to grant such relief are well established. Relief, whether it is regarded as provided for by The Corvorations Law or by The Federal Court of Australia Act, is discretionary.

It follows that the discretion is not to be fettered by mechanical rules, such as a rule contended for by the respondent which would deny security where an insolvent company sues with a natural person, but only where they are suing in the same interest.

Where the circumstances are such that security would
be ordered against the company if suing alone, the critical
consideration is the degree of overlap as to both issues and

evidence between the respective applicant's claims. If there is very limited overlap, so that the respondent will incur

substantial costs in meeting the company's claims which it will have no entitlement to recover from the natural person should his action against that respondent also fail, then, in the absence of other relevant considerations, a proper exercise of discretion would generally require security to be provided by the company: cf. John Bisho~ (Caterers) Ltd. &. Anor. v National Union Bank Ltd. & Ors. (1973) 1 All ER 707. Where, however, there is a very substantial degree of overlap between the two claims, then because the respondent has a natural person as applicant to whom he can look for payment of substantially the whole of the costs he is likely to incur if he successfully defends both sets of claims, a proper exercise of the discretion would generally result in no order for security being made against the company. Cf. HarDur v Ariadne, supra, at 532.

Where there is some, but not complete overlap in a case in which security would be ordered if the corporate applicant were suing alone, the Court will not embark upon a nice assessment of the extent of the overlap before deciding on the proper order for security. The assessment of the extent of overlap should be made broadly. John Bishov Ltd. v National Union Bank Ltd., supra, at 710. Relief is sought as an interlocutory matter and such an application should not become an occasion for protracted litigation aimed at identifying with great precision the exact degree of overlap

in evidence and issues.

It is conceded that Drangold Pty. Ltd. here, will be unable to meet any order for costs that may be made against it, in the event that its action is unsuccessful. As there is

a substantial but far from complete overlap between Drangold

Pty. Ltd.'s claims and Mr. Eaton's claims against the respondent, unless there are other factors which would justify refusing to order security, I would order that security be

provided by Drangold Pty. Ltd., but for part only of the
respondent's costs.

Drangold Pty. Ltd. submits that, if security is ordered, that will have the effect of stifling its own action against the respondent. One of its shareholders and directors, Mr. Eaton, is unable to procure a bank guarantee because of his own poor financial circumstances. However, the respondent seeks only a personal guarantee from him, and from the other director and shareholder of the company, Mrs. Eaton. She has some assets, although they do not appear to be very great. She says that she is not prepared to provide even a personal guarantee. However, an order that security in that form be provided on behalf of Drangold Pty. Ltd. by her, as well as by Mr. Eaton, could not be said to stifle the action. If Mrs. Eaton maintains her refusal to provide such security, it will be her refusal to do that, when she is well able (although unwilling) to do so, that will stop Drangold Pty. Ltd.'s action. Such a case is quite different from one in

which security is ordered, but in a form such as cash or its equivalent which those standing behind the corporate applicant

lack the means to provide.

It is submitted that security should not be ordered because Drangold Pty. Ltd.'s impecuniosity is a consequence of the misconduct alleged against the respondent in the action. However, given the short trading history of Drangold Pty. Ltd. and the limited financial information concerning that history

which is available, it is not possible to draw any such
conclusion.

It is also submitted that, because Drangold Pty. Ltd. has a claim under s.52 of The Trade Practices Act against the respondent, the public element involved in such proceedings should tell against making an order for security. While it is alleged that the conduct by the respondent said to give rise to the 6.52 claim, involved making representations to a segment of the boating public (i.e., people who might be interested in purchasing heaters of the kind in question), the limited extent of the publication of the representations alleged is not such as to outweigh the other factors, that favour the making of a limited order for security.

Reliance is also placed by Drangold Pty. Ltd. on its prospects of success in the action. While its claims appear, from the limited materials available to me, to have some substance, the outcome will depend in part on questions of

credibility. Moreover, Drangold Pty. Ltd.'s claims are not free of difficulty, particularly so far as its standing to sue

on the agreement is concerned. No attempt was made to establish by detailed evidence that Drangold Pty. Ltd.'s prospects of success was high. Such an attempt would, in any event, generally be inappropriate on an application such as this. See A~~lealen Ptv. Ltd. v Mainzeal Cor~oration Ptv.

Ltd. & Anor. (1988) 79 A.L.R. 634 at 635.

The proceedings were commenced by application filed on 13 August, 1991, together with a statement of claim. Further and better particulars were sought and, in part at least, provided. There has been discovery and inspection. Although at an early stage, the respondent raised in correspondence with Drangold Pty. Ltd. the question of security, the application was not filed until 18 November, after all these steps had been completed.

I will therefore limit such security as I am prepared to order Drangold Pty. Ltd. to provide to security for an appropriate fraction of the respondent's costs of the four days which I estimate the hearing will take.

I will order that Drangold Pty. Ltd. is to provide

security for one-third of the respondent's costs of that
hearing as follows:

(a)	in respect of the first day's hearing - the
Legal Costs Pty. Ltd. to the respondent's costs listed at p. 3 of the letter from Monsour

solicitors dated 2 December, 1991 (Exhibit PRTl to the affidavit of Peter Robert Tredenick), being the items commencing with "Paid Counsel's fee for Brief on Trial - 1,800.00" and concluding with "Witness expenses claimed for first days Hearing - 172.00", but excluding the

care and consideration item of $650.00 - i.e.,

$3,719.00.

(b) in respect of each of the three subsequent days

- $1,966.00 per day.

I certify that this and the l1 preceding pages

are a true copy of the reasons for judgment

herein of the Honourable Mr. Justice Drummond.

Associate: PVdvw Date: 13 December, 1991