Frank Gaichin Pty Ltd v Newsnet Telecommunications Pty Ltd
[1997] FCA 1026
•3 February 1997
FEDERAL COURT OF AUSTRALIA
SECURITY FOR COSTS
Corporations Law s 1335
Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 52 ALR 176
Gentry Bros Pty Ltd v Wilson Brown & Associates Pyt Ltd (1992) 8 ACSR 405
FRANK GIACHIN PTY LTD v NEWSNET TELECOMMUNICATIONS PTY LTD & ORS
No. NG 717 of 1994
MOORE J
SYDNEY
3 FEBRUARY 1997
IN THE FEDERAL COURT OF AUSTRALIA ) General Distribution
)
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 717 of 1994
)
GENERAL DIVISION )
BETWEEN: FRANK GIACHIN PTY LTD
Applicant
AND: NEWSNET TELECOMMUNICATIONS
PTY LTD & ORS
Respondent
JUDGE: Moore J
PLACE: Sydney
DATE: 5 February 1997
ORDER OF THE COURT
THE COURT ORDERS THAT:
Security be given by Frank Giachin and Glenys June Giachin, by a deed of guarantee executed by them in a form satisfactory to the Registrar for the joint and several payment by them of any order for costs made against the trustee company.
Security by deed of guarantee be provided within 21 days and the proceedings be stayed until such a deed is filed and served.
If the deed is not filed and served within the time specified, the application by the trustee company is dismissed and the cross-claim of the first respondent is stayed.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
IN THE FEDERAL COURT OF AUSTRALIA ) General Distribution
)
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 717 of 1994
)
GENERAL DIVISION )
BETWEEN: FRANK GIACHIN PTY LTD
Applicant
AND: NEWSNET TELECOMMUNICATIONS
PTY LTD & ORS
Respondent
JUDGE: Moore J
PLACE: Sydney
DATE: 5 February 1997
REASONS FOR JUDGMENT
(Delivered ex-tempore)
An interlocutory application has been made by the respondents to proceedings in this Court that Frank Giachin Pty Ltd ("the Trustee Company") provide security for costs in the sum of $25,000 and, if the security is not provided, the application by the Trustee Company which gave rise to the proceedings be dismissed. The matter is now ready for trial.
The proceedings brought by the Trustee Company ("the principal proceedings") arose from a joint venture agreement ("the first agreement") made in December 1993 between the Trustee Company and Newsnet Telecommunications Pty Ltd ("Newsnet"). The second and third respondents are, respectively, a director and the General Manager of Newsnet. The first agreement involved the sale by Newsnet to the Trustee Company of equipment called a node, to operate in Melbourne, designed to form part of a technological chain to transmit facsimiles at high speed. A node is described in the evidence as "an industrial strength personal computer". As pleaded, the first agreement also authorised the Trustee Company to procure customers to use facilities provided by Newsnet for the purpose of high speed facsimile transmission. The statement of claim in the principal proceedings alleges that Newsnet repudiated the first agreement, breached a fiduciary duty to the Trustee Company, breached a duty of care and engaged in conduct in contravention of s 52 of the Trade Practices Act 1974. Also alleged is that Newsnet breached another joint venture agreement ("the second agreement") to sell to the Trustee Company another node to operate in relation to, it appears, facsimile transmissions to or from Italy.
It is not in issue that $25,000 is an appropriate amount to be ordered as security if an order is made.
It is also not in issue that the financial position of the Trustee Company is such that it is unlikely to be able to pay its costs if it fails in its action, and it is not in issue that the provisions of s 1335 of the Corporations Law are enlivened. It is also appeared not to be in issue that Mr F & Mrs GJ Giachin, who are the directors of the Trustee Company which is trustee of a family trust, have no substantial assets. What assets they do have is not clear from the evidence. Also not in issue is that the nodes were never supplied by Newsnet to the Trustee Company. Their present value is contentious. There is evidence, namely clauses in the two agreements, from which it could be inferred that in December 1993 they were of substantial value and of a value exceeding by a considerable margin the $25,000 sought as security. Indeed there is evidence that the Trustee Company paid, in total, $120,000 for the nodes in late 1993 and early 1994. However there is also evidence that the nodes present value is, as a result of changes in the operation of the Newsnet facilities and technology generally, considerably less. It is said their present value is the value of the components, which is approximately $2,000. I accept that evidence.
While s 1335 of the Corporations Law deals with the question of security for costs in relation to a company unlikely to be able to pay its costs, it does not displace the Court’s discretion when deciding whether or not to order security.
The shares in the Trustee Company are owned by Mr & Mrs Giachin. They and their children are the beneficiaries of the family trust. The children are dependant students. The Trustee Company resists an order for security on several basis. The first is that the litigation will be frustrated if security in the sum of $25,000 is ordered. I accept this. While the evidence does not go so far as to establish Mr & Mrs Giachin have no assets, they say they do not have means of raising sufficient money to provide the security. This was not put in issue. The Trustee Company also says that those that stand behind it, the Giachins, are without means. Reference was made to Bell Wholesale Co. Pty Ltd v Gates Export Corporation (1984) 52 ALR 176 at 179. Again, I accept this, but with a qualification to which I later refer.
It is also said that the financial position of the Trustee Company flows from the conduct of the respondents. It is not, from the scant evidence, possible to conclude that this is even arguably so. It nonetheless may be accepted that the Trustee Company's financial position has been detrimentally affected by the business it embarked upon based on the first and second agreements. That is so because it paid $120,000 for equipment it never received. Who is responsible for that non-receipt is another matter about which there is insufficient evidence to express a view.
I have decided an order for security in the sum of $25,000 should not be made. The principal reason for so deciding is that such an order would, in effect, deny the Trustee Company the opportunity of prosecuting its claims. No attempt was made by the respondents to demonstrate that the Trustee Company's claims were of little substance or had limited prospects of success. The individuals behind the Trustee Company, the Giachins, lent it nearly $150,000 during the 1994/1995 financial year and sold their home to generate the funds. I accept that the evidence is insufficient to conclude that those funds were expended on the business based on the two agreements. However, it does reveal that the Giachins have been prepared to support the operations of the Trustee Company with their own funds.
It was earlier agreed by the Trustee Company that security for costs in the sum of $8,000 would be provided for the interlocutory steps to prepare the application for trial, and a consent order to that effect was made and complied with. However, I presently do not see the relevance of that fact in determining whether an order should now be made other than, perhaps, to meet any suggestion, which was not made, that the application for security was brought for the purpose of oppression or that the application was brought too late.
While an order for security for costs in the sum of $25,000 should not be ordered, it is appropriate, in my view, that the Giachins should provide guarantees which would render whatever assets they do have available to the respondents if the Trustee Company's claims fail. Accordingly, I order, as Cooper J did in Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405, that security be given by Frank Giachin and Glenys June Giachin, by a deed of guarantee executed by them in a form satisfactory to the Registrar for the joint and several payment by them of any order for costs made against the Trustee Company. I further order that security by deed of guarantee be provided within 21 days and the proceedings be stayed until such a deed is filed and served. I further order that if the deed is not filed and served within the time specified, the application by the Trustee Company is dismissed and the cross claim of the first respondent is stayed.
I certify that this and the preceding three (3) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Moore.
Associate:
Dated: 5 February 1997
Counsel for the Applicant: Mr D Robertson
Solicitor for the Applicant: Trumble Szanto Braham
Counsel for the Respondents: Mr R Cobden
Solicitor for the Respondents: Gilbert & Tobin
Date of Notice of Motion: 5 February 1997
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