Flujo Sanguineo Holdings Pty Ltd v Universal Food Products Pty Ltd

Flujo Sanguineo Holdings Pty Ltd (the plaintiff) sought to bring proceedings against Universal Food Products Pty Ltd (the defendant). The defendant applied for an order that the plaintiff provide security for its costs, pursuant to section 1335 of the *Corporations Act 2001* (Cth). The application was heard by Baird J in the Federal Court of Australia.

The primary legal issue before the court was whether there was credible testimony suggesting a reason to believe that the plaintiff corporation would be unable to pay the defendant's costs if the defendant were successful in its defence. If this threshold condition was met, the court then had to consider, in its broad discretion, whether it was appropriate to order security for costs, having regard to all the circumstances and the interests of justice.

Baird J applied the principles established in *Livingspring Pty Ltd v Kliger Partners* [2008] VSCA 93, which clarified the application of section 1335. The court noted that the threshold condition requires a rational basis for the belief that the corporation will be unable to pay costs, demanding a practical, common-sense approach to the examination of the corporation's financial affairs. This threshold was described as relatively low. Once this threshold is met, the court must then exercise its discretion judicially, considering whether making an order for security would work an injustice and weighing all relevant circumstances. The burden rested on the defendant to persuade the court that the order should be made.