Go Exports Pty Ltd v Livestock Shipping Services Pty Ltd - [2004] WASC 182

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: GO EXPORTS PTY LTD & ORS -v- LIVESTOCK SHIPPING SERVICES PTY LTD & ANOR [2004] WASC 182

CORAM: EM HEENAN J

HEARD: 2 APRIL 2004

DELIVERED : 18 AUGUST 2004

FILE NO/S: CIV 1572 of 2002

BETWEEN: GO EXPORTS PTY LTD (ACN 098 628 221)
First Plaintiff
OURIMBAH HOLDINGS PTY LTD (ACN 066 249 367)
Second Plaintiff
PJ AND CM CARPENTER (A FIRM) (ABN 53 802 747 587)
Third Plaintiff
AND
LIVESTOCK SHIPPING SERVICES PTY LTD (ACN 084 806 404)
First Defendant
ITN PTY LTD (ACN 081 627 483)
Second Defendant
(BY ORIGINAL ACTION)
LIVESTOCK SHIPPING SERVICES PTY LTD (ACN 804 806 404)
First Plaintiff
HIJAZI & GHOSHEH CO (JORDAN)
Second Plaintiff
AND
GO EXPORTS PTY LTD (ACN 098 628 221)
First Defendant
PETER CARPENTER
Second Defendant
OURIMBAH HOLDINGS PTY LTD (ACN 066 249 367)
Third Defendant
(BY COUNTERCLAIM)

Catchwords:

Practice and procedure - Security for costs - Claim and counterclaim - New parties - New plaintiff in counterclaim - Common factual issues - Whether counterclaim in substance a defence to the claim in the principal action - Set off against some but not all parties - Security ordered - Discovery - Specific discovery

Legislation:

Nil

Result:

Security ordered
Discovery ordered
Partial stay of counterclaims
Ordered in default of giving security

Category: B

Representation:

Original Action

Counsel:

First Plaintiff                :     Mr T O Coyle
Second Plaintiff            :     Mr T O Coyle
Third Plaintiff               :     Mr T O Coyle
First Defendant             :     Mr P A Hopwood
Second Defendant         :     Mr P A Hopwood

Solicitors:

First Plaintiff                :     Phillips Fox
Second Plaintiff            :     Phillips Fox
Third Plaintiff               :     Phillips Fox
First Defendant             :     Cocks Macnish
Second Defendant         :     Cocks Macnish

Counterclaim

Counsel:

First Plaintiff                :     Mr P A Hopwood
Second Plaintiff            :     Mr P A Hopwood
First Defendant             :     Mr T O Coyle
Second Defendant         :     Mr T O Coyle
Third Defendant           :     Mr T O Coyle

Solicitors:

First Plaintiff                :     Cocks Macnish
Second Plaintiff            :     Cocks Macnish
First Defendant             :     Phillips Fox
Second Defendant         :     Phillips Fox
Third Defendant           :     Phillips Fox

Case(s) referred to in judgment(s):

Anutech Pty Ltd v Latent Energy Systems Pty Ltd, unreported; SCt of ACT; No SC 401 of 1992
Brundza v Robbie & Co (No 2) (1952) 88 CLR 171
Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 15 FCR 497
Classic Ceramic Importers Pty Ltd v Ceramica Antigua SA (1994) 13 ACSR 263
Concrete Constructions Pty Ltd v Dalma Formwork Pty Ltd [1999] NSWCA 16
Crestland Investments Pty Ltd v Parisi Holdings Pty Ltd [2003] WASC 181
Go Exports Pty Ltd & Ors v Livestock Shipping Services Pty Ltd & Anor [2003] WASC 218
Interwest Ltd v Tri Continental Corporation Ltd (1991) 9 ACLC 1218
Neck v Taylor [1893] 1 QB 560
Project Leaders Pty Ltd (t/as Project Leaders Australia) v Mt Isa Irish Association Friendly Society Ltd, unreported; SCt of Qld; SW 1257 of 2003; 20 March 2003
Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289
Sykes v Sacredoti (1885) 15 QBD 423

Case(s) also cited:

Bell Wholesale Co Pty Ltd v Gates Export Corp (No 2) (1984) 2 FCR 1
Black & Anor v Brockley Investments Ltd, unreported; FCt SCt of WA; Library No 930039; 16 December 1992
British Anzani (Felixtowe) Ltd v International Marine Management (UK) Ltd [1908] QB 137
Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301
Chan & Anor v Brooktide Holdings & Ors [2003] WASC 33
Demag-lauchhammer v John Holland (Constructions) Pty Ltd [1966] 2 NSWLR 3
Ex parte Stephens (1805) 32 ER 996
Foss Export Agency Ltd v Trotman (1949) 57 WN (NSW) 1
Hill v Ziymack (1908) 7 CLR 352
Intercraft Cabinets Pty Ltd v Sampas Pty Ltd (1997) 25 ACSR 623
John Allan Ltd v Keegan [1968] WAR 125
Kauri Developments Ltd v Nicholson, unreported; High Court of New Zealand (Hillier J); CP 355-86; 18 July 1986
Marand Holdings Pty Ltd v Cateus International Pty Ltd & Ors [2003] WASC 238
MA Productions Pty Ltd v Austarama Television Pty Ltd (1982) 7 ACLR 97
McLaughlin v Daily Telegraph Newspaper Co Ltd & Anor (1904) 1 CLR 143
Mulley & Anor v Manifold (1959) 103 CLR 341
PDM Australia Pty Ltd v Kellog Overseas Corp, unreported; SCt of WA; Library No 6646; 26 March 1987
Piggot v Williams (1821) 56 ER 1027
Prudential-Bache Securities (Aust) Ltd v Greatlands Gen Ins Co Ltd, unreported; SCt of Qld; 17 June 1999
Ravi Nominees Pty Ltd v Phillips Fox (1992) 10 ACLC 1313
Rawson v Samuel (1841) 41 ER 451
Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 3 NSWLR 114
Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542

EM HEENAN J: By a chamber summons dated 17 December 2003 Go Exports Pty Ltd ("Go Exports"), Peter Carpenter and Ourimbah Holdings Pty Ltd ("Ourimbah") have applied for orders requiring Livestock Shipping Services Pty Ltd ("LSS") and Hijazi & Gosheh Co (Jordan) (referred to hereafter as "Hijazi") to provide security for the costs of the counterclaims which the latter parties are pursing and to provide discovery of oath on certain documents, so far not discovered, which the applicants contend are in their possession, custody or power relating to a matter or matters in question in this litigation.
Both of these applications relate to the counterclaims which have been brought by LSS and Hijazi against Go Exports, Mr Peter Carpenter and Ourimbah. Consequently, the relationship and significance of the counterclaims to the claims brought in the principal proceedings must be identified and examined in order to determine whether, indeed, they relate to separate or distinct claims or whether they are, in substance, defences to the principal action. In the latter case, security for costs would not generally be ordered unless the counterclaims go beyond the subject matter of the plaintiffs' claims: Sykes v Sacredoti (1885) 15 QBD 423 and Neck v Taylor [1893] 1 QB 560.
The application for security for costs of the counterclaims also raises additional issues. First, the respondents to the application contend that it has been brought unduly late in the proceedings and, for this reason alone, should not be granted because of the effect which such an order might produce on the respondent's who have expended considerable time, effort and resources not only in bringing the counterclaims but in defending the principal action. They point to a decision of Newnes M made in this same litigation in November 2003: Go Exports Pty Ltd & Ors v Livestock Shipping Services Pty Ltd & Anor [2003] WASC 218 in which LSS, and ITN Pty Ltd (both defendants in the principal action) in part failed to obtain orders for security against the plaintiffs in the principal proceeding, in certain respects, because of the delay which had occurred before the institution of that application. I gratefully adopt, with respect, the careful examination of the authorities relating to the doctrine that an application for security for costs must be made promptly, and the examination of the authorities relating to the interaction between a claim and counterclaim when security for costs is being sought, which are set out in the learned Master's reasons for decision.

However, I do not consider that there has been any delay by the applicants in seeking security on this occasion which should prevent them from obtaining an order. This application for security for costs from LSS and Hijazi was forecast first by a letter from the solicitors for the applicants dated 7 August 2003 as soon as they learned that it was proposed to join Hijazi as a party in the proceedings for the first time as a second counterclaiming plaintiff. Hijazi was in fact joined as a second plaintiff to the counterclaim on 12 September 2003 and the defence and counterclaim was then largely reamended on 26 September 2003 so that, so far as Hijazi is concerned, the application was foreshadowed and then brought shortly after it had initiated its counterclaim.
The position of LSS, however, is different. It was a defendant in the original action and initiated its counterclaim on 9 May 2002 when it first filed a defence and counterclaim. Accepting that a long time has passed since the institution of the counterclaim by LSS without any of the present applicants for security for costs seeking such relief against it, the applicants nevertheless contend that a substantial change in the circumstances of LSS occurred in or about December 2003 when LSS began realizing most of its principal assets located in Western Australia by progressively converting them to liquid funds which could be removed from the jurisdiction at short notice. This apprehension also prompted Go Exports, Ourimbah and the firm, PJ and CM Carpenter, as plaintiffs in the principal action, to apply for an injunction restraining the defendants in that action from liquidating, charging or disposing of assets within the jurisdiction. An interim injunction was granted by Barker J in this regard on 11 December 2003 but was discharged, apparently by consent, on 17 December 2003 again by Barker J.
For reasons which will appear later it is unnecessary to examine the circumstances which led to that outcome and it is enough simply to note that the application for the injunction was, essentially, brought in order to ensure that any judgment which the plaintiffs in the principal action might eventually recover could be effectively enforced. As will emerge the focus of that application was an attempt to secure the preservation within the jurisdiction of sufficient of the assets of the defendants in the principal action as might be needed to satisfy the amount of the liability which the plaintiffs were attempting to establish in the principal proceedings. The amounts in issue in the counterclaims are of quite a different order.

Go Exports, Ourimbah and the firm PJ and CM Carpenter (the plaintiffs in the original action) are respectively incorporated companies carrying on business in Western Australia and the partners of a firm, associated with the companies, carrying on the business of livestock consultants, especially with regard to the export livestock market. LSS is also incorporated in Australia pursuant to the Corporations Act 2001 and conducts the business of export of livestock from Australia to various international markets and, in particular, countries in the Middle East. Hijazi (the second plaintiff by counterclaim) is a company registered in the Kingdom of Jordan which carries on the business of the purchase, transport and sale of livestock in Jordan and elsewhere, in particular, the Middle East.
Since about February 1998 Hijazi caused ITN to be registered pursuant to the Corporations Act to carry on business in Western Australia and, in particular, to carry out all necessary steps to effect the purchase, trade, management and administration of livestock for supply to Hijazi. Similarly, in or about October 1998, Hijazi caused LSS to be registered pursuant to the Corporations Act and, from then on LSS undertook the purchase, trading and management activities in this State associated with the purchase, growth and raising of livestock for export to, or for the benefit of, Hijazi.
It is not, at present, necessary to identify exactly the relationship which developed between Go Exports Pty Ltd, Ourimbah or PJ and CM Carpenter on the one hand, and LSS or ITN on the other for it is sufficient to say that the three plaintiffs in the original action, all associated with and represented by Mr Peter Carpenter to a large extent, were involved in the acquisition, raising, purchase, sale and eventual export of livestock from Western Australia for LSS and/or ITN. This is enough to set the stage for the rather complicated claims which are the subject of the original action and the other claims which are the subject of the counterclaims.

Original Action

The details of the claim in this action have been described in the reasons for decision of Newnes M of 10 November 2003 and therefore do not need to be fully repeated. The aggregate amount claimed by the plaintiffs in the original action is $588,248.13 plus interest. The plaintiffs in this action acknowledge that they have a liability to the defendants on the counterclaim in an amount of $44,633.41 which can, and should, be set‑off against their claims, leaving a net claim of $543,614.72 plus interest.
Claiming interest pursuant to s 32 of the Supreme Court Act to March 2004 the plaintiffs contend that the defendants in the principal action, are indebted to them, after allowing for the admitted set‑off and adding interest, in the aggregate sum of $623,614.72. However, this aggregate is the total of all claims. Not all claims are made by each plaintiff, nor are they made against each defendant. A summary of claims shows that:
(a)Ourimbah claims against LSS for $320,190.75 (statement of claim (SC) 18);
(b)Ourimbah claims against ITN Pty Ltd for:
• $491.70 SC 10.2.1
• $57,059.94 SC 10.2.2
• $41,044.77 SC 11.1
• $4,125.00 SC 11.2
• $2,420.00 SC 21
$105,141.41
(c)The partnership of PJ and CM Carpenter (also known as "North Farming") claims against LSS for:
• $16,630.39 SC 24
• $14,452.74 SC 28
• $83,017.48 SC 31
• $48,762.36 SC 34
$162,915.97
The total claimed by Ourimbah against LSS and ITN Pty Ltd is therefore $425,332.16 ($320,190.75 plus $105,141.41). The total claimed by the firm PJ and CM Carpenter against LSS is $162,915.97, making the combined claims against LSS $483,106.72 ($320,190.75 plus $162,915.97). This accounts for the aggregate of the plaintiffs' claims totalling $588,248.13 which, after the admitted set‑off of $44,633.41 produces the balance of all the plaintiffs' claims (before interest) of $543,614.72.
These calculations indicate, and indeed the statement of claim confirms, that the original action relates to a series of separate transactions which, in combination, produce the total amounts claimed. Indeed, in this respect, in one of the affidavits filed for the defendants in the principal action in the course of interlocutory proceedings it was stated, on behalf of those defendants:
"3.I verily believe based on the perusal of the defendants' Amended Defence and Counterclaim that the factual bases of the defence, set‑off and counterclaim is complex, as the pleadings raise approximately 13 separate transactions over a number of years during Peter Carpenter's service as director of the First Defendant including;
...
4.Additionally, the Plaintiffs' claim arises from the following additional transactions:
[four distinct transactions are then particularised]
...
5.From my perusal of the Pleadings and from my familiarity with the instructions from the Defendants I verily believe that, apart from the common elements of the scope of statutory, fiduciary and common law duties owed by Peter Carpenter to the defendants, there is little factual overlap between any of these transactions, and each requires substantial evidence in its own right."
See affidavit of Mr P A Hopwood sworn 29 March 2004. I am satisfied that this is an accurate, if brief, summary of the main constituents of the claims, defence and counterclaims as set out in the pleadings. Indeed, there was no submission or suggestion to the contrary.

Counterclaims

Of the two counterclaiming plaintiffs, LSS and Hijazi, only LSS is a defendant in the principal action. ITN Pty Ltd, the second defendant in the principal action, is not a plaintiff in the counterclaim. Further, the firm PJ and CM Carpenter, the third plaintiff in the principal action, is not a defendant in the counterclaim, although Mr Peter Carpenter is. So much is enough to reveal that not all the claims in the counterclaims can be set‑off, or fully set‑off, against the claims in the principal action, nor can all claims, or the full extent of the claims made in the principal action be set‑off against the claims made in the counterclaim.
In particular, if the claims in the principal action against ITN totalling $105,141.41 are established, there is no counterclaim or set‑off by ITN in response. Similarly, any claims established by any of the plaintiffs in the original action cannot be set‑off by any claim which Hijazi might establish against Go Exports, Mr Peter Carpenter or Ourimbah on its counterclaim because of the separate and distinct identities of the parties and of the transactions in respect of which the various claims and counterclaims are being made.
This distinct identity of each of the various claims and counterclaims which are being advanced by the different parties becomes even more obvious when the dimensions of the counterclaims are examined. In the amended defence and counterclaim the counterclaiming plaintiffs, LSS and Hijazi, seek to recover an aggregate amount of $3,360,847.70 plus interest. This amount is the aggregate of 12 separate claims contained in the defence and counterclaim, each of which is summarised in the document "A" Schedule of Loss annexed to and forming part of the defence and counterclaim. It is not easy to identify whether all the 12 claims are being made by both the counterclaiming plaintiffs, or whether each such claim is against each of the three defendants to the counterclaim but it is clear that not all the claims are made by both plaintiffs. The task of determining whether the several claims by the both counterclaiming plaintiffs are made against all three defendants to the counterclaims is even more obscure and while that will certainly need to be clarified eventually, it is unnecessary to attempt to do so on this occasion.
It is, however, possible to make the following synopsis identifying which claims are made by which counterclaiming plaintiffs. The position, in summary is as follows:

Claim by LSS	Claim by Hijazi	No in Schedule "A"
$ 23,200.00	1
$1,120,000.00	2
$ 393,433.20 -	$ 393,433.20	3
$ 102,430.00	4
$ 307,100.00	5
$ 71,511.97	6
$ 292,885.00	7
$ 67,000.00	8
$ 588,129.00	9
$ 197,200.00	10
$ 184,958.50	11
$ 13,000.00	12
$2,240,847.67	$1,513,433.20

Adjusting for claim No 3 of $393,433.20 made by both counterclaiming plaintiffs, the aggregate of the counterclaims is $3,360,847.

Comparison of Claims and Counterclaims

The first and most obvious conclusion which follows from the comparison of the claims and counterclaims is that each aggregate claim by the two counterclaiming plaintiffs greatly exceeds the amounts claimed in the principal action by the defendant to counterclaim, Ourimbah, against LSS ($320,190.75).
For reasons already given, Ourimbah's principal claim against ITN of $105,141.41 cannot be taken into account in any set‑off. Similarly, the counterclaims by each of LSS and Hijazi against Mr Peter Carpenter may not perhaps be capable of set‑off, or full set‑off, against the claims made by the plaintiff firm PJ and CM Carpenter although for present purposes I will make the assumption, without in any way deciding that they could be so set‑off.
The claims by the firm PJ and CM Carpenter in the principal action amount to $162,915. Even allowing for interest accruing on the full extent of all the claims by the plaintiffs in the principal action to the end of any likely date of trial it is still clear that the dimension of the two counterclaims will vastly exceed the claims by the plaintiffs in the principal action either individually or in aggregate. As already noted, the plaintiffs in the original action make no claim against Hijazi, and, consequently, Hijazi's counterclaim for $1,513.433.20 cannot be said to be in answer to, or reduction of, any of the claims made in the principal action.

Obviously, therefore, the counterclaims go far beyond the claims raised in the principal action in amount and are separate and distinct in nature as well. Accordingly, even if one assumes (without deciding) that a claim and counterclaim made by the same parties against each other can give rise to a legal or equitable set‑off in the circumstances of this action, then any one or more set‑offs resulting will not dispose of all the claims or counterclaims. In some cases no set‑off will be possible because of the lack of identity between the claimant and cross‑claimant in the respective claims. Even where set‑offs may be possible, the counterclaiming plaintiffs have claims which will far exceed the claims of some of the plaintiffs in the principal action.
The chamber summons by which the application for security for costs was brought shows that the application for security was made generally so that the court may exercise all or any of the powers which it has in respect to the grant of security for costs, that is its inherent powers, the powers conferred by RSC O 25 and those conferred under s 1335 of the Corporations Act. In the written submissions and at the hearing of the application the applicants relied principally on s 1335 of the Corporations Act but did not disclaim resort to other available sources of power. To my mind nothing turns on this because the criteria for the making of an order for security are satisfied on any approach.
The evidence establishes that Hijazi is a foreign corporation, has no significant assets within the jurisdiction and conducts its businesses from the Kingdom of Jordan. LSS, while incorporated in Australia, appears from the evidence to have little in the way of unencumbered assets available to satisfy any liability for costs which may result from these proceedings. The evidence, in this regard, is that the assets of LSS have been charged by registered bills of sale, the first dated November 2002 for $3 million and the second dated 14 August 2002 for $5 million. While this information has either been known by, or available to, the applicants for a substantial period, the evidence of Mr Carpenter is that he had no reason to entertain any apprehensions about the ability of LSS to meet any liabilities for costs of these proceedings until he learned, in or about December 2003, that it was in the process of selling its major livestock holdings in this State. This meant that its assets within the jurisdiction available to meet both its secured and unsecured liabilities would quickly be converted to liquid form and, to the extent which they exceeded secured liabilities, could be removed from the jurisdiction very readily.
There has been no evidence adduced by LSS or Hijazi to show that either has sufficient assets available within the jurisdiction to meet any potential liability for costs arising from the counterclaims, nor have any open offers of security or undertakings in this regard been proffered.
LSS and Hijazi oppose the application for security on the grounds that it has been made late and also because they submit that the counterclaims are, essentially, defences to claims in the principal action and will constitute an equitable set‑off against the claims by the plaintiffs in that action.
I am satisfied that there is credible testimony from Mr Peter Carpenter that there is reason to believe that LSS and Hijazi will each be unable to pay the costs of the defendants to their counterclaims if the former are successful in its defences and that, therefore, the power to grant security under s 1335 of the Corporations Act has been established. Similarly, I am satisfied that, in the case of Hijazi, it is a corporation ordinarily resident out of the jurisdiction notwithstanding that it may temporarily be within the jurisdiction - RSC O 25 r 2(a) - Classic Ceramic Importers Pty Ltd v Ceramica Antigua SA (1994) 13 ACSR 263.
In this litigation I do not consider that it is possible, or appropriate, at this stage to attempt to estimate the relative strengths or bona fides of the various claims and counterclaims. I note that in the earlier application for security by the defendants in the principal action, Master Newnes also concluded that it was not possible at that stage to form any reliable view of the merits. The learned Master proceeded on the basis that the plaintiffs' claims and the defendants' claims, both in the principal action and in the counterclaims, were reasonably arguable. I agree, with respect, with that approach and consider that it remains appropriate at this later stage of the proceedings. Accordingly, I do not consider that these are factors which weigh for or against the application for security - compare Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 15 FCR 497.
Neither LSS or Hijazi has submitted that it would be unable to give security in this case whether in the amount claimed or at all. There is no evidence to suggest that either of the counterclaiming plaintiffs, which each have its financial resources outside Australia, is impecunious and, having regard, to the scale of the livestock transactions which they have financed, as emerges from pleadings and the affidavits, there is no reason to assume that that is the case.
Great emphasis was placed by counsel for LSS and Hijazi on the submission that, substantially, the same facts are likely to be canvassed in determining the action and counterclaims so that the counterclaiming plaintiffs should not be required to give security for advancing claims which, in essence, require little more by way of evidence and consideration than the facts and circumstances which must inevitably arise from the court hearing and determining the principal action - Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289; Concrete Constructions Pty Ltd v Dalma Formwork Pty Ltd [1999] NSWCA 16 and Crestland Investments Pty Ltd v Parisi Holdings Pty Ltd [2003] WASC 181. Counsel enlarged on this contention by further submissions to the effect that the counterclaims were effectively defensive and that requiring security for the costs of opposing the principal claim in such circumstances would be oppressive; Interwest Ltd v Tri Continental Corporation Ltd (1991) 9 ACLC 1218 at 1219. It was also submitted that because the principal action would cover a large area of the facts in dispute, the court should be slow to allow a situation where a counterclaim would be stayed because of the inability to provide security but the original claim could proceed: Sydmar Pty Ltd v Statewise Developers Pty Ltd (supra) and Concrete Constructions v Dalma Formwork (supra).
It is perhaps sufficient to cite passages from two judgments in this regard. In Anutech Pty Ltd v Latent Energy Systems Pty Ltd, unreported; SCt of ACT; No SC 401 of 1992; Gallop J said, when giving judgment setting aside an order for security for costs made by a Master against a counterclaiming defendant:
"It appears to me that the Master overlooked that the issues arising under the defendant's counter‑claim are substantially defensive in character and the bulk of the time and resources required to litigate those issues would be devoted to establishing that in truth the defendant has a defence to the plaintiff's claim even if, in the end result, success for the defendant in this result could eventuate in a substantial verdict for the defendant against the plaintiff ...
The relevant principles were summarised by Sundberg J in Aquatown Pty Ltd v Holder Stroud Pty Ltd (1995) 18 ACSR 622. Sundberg J cited the following passage in Interwest Ltd v Tri Continental Corporation Ltd (1991) 5 ACSR 621 where Ormiston J said:
'Perhaps it may be said that the authorities support the proposition that security will only ordinarily be ordered against a party who is in substance the plaintiff, and that an order ought not to be made against parties who are defending themselves and thus forced to litigate; cfAccidental and Marine Insurance Co v Mercati (1866) LR 3 Eq 200. That would appear to be an overstatement, but the fact that a plaintiff ... has instituted essentially defensive proceedings, must be a significant factor in the exercise of the court's discretion.' "
And in Project Leaders Pty Ltd (t/as Project Leaders Australia) v Mt Isa Irish Association Friendly Society Ltd, unreported; SCt of Qld; SW 1257 of 2003; 20 March 2003, Mullins J said, in the course of refusing an application for security against a counterclaiming defendant:
"The counterclaiming party can be ordered to provide security for costs to the other party: see r 6.77 of the UCPR. Security will ordinarily only be ordered against a counterclaiming party who is in substance a plaintiff and will not be ordered against a party who brings a counterclaim as a defensive proceeding or who has been forced to litigate: Buckley v Bennell Design & Constructions Pty Ltd (1994) 1 ACLR 301, 306 ‑ 7 per Street CJ; Interwest Ltd (Receivers and Managers Appointed) v Tri Continental Corp Ltd (1991) 9 ACLC 1218 at 1228 ‑ 9 and KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 198.
The respondent contends that the principle to be applied is that the order for security will not be made unless the counterclaim extends to a new subject and the claim and counterclaim will be treated as concerning the same subject where they arise out of the one matter or transaction. There are statements such as that of Lord Esher MR in Neck v Taylor [1893] 1 QB 560 at 562 that suggest that the test is whether a counterclaim is in respect of a wholly distinct matter, rather than arising in respect of the same matter or transaction upon which the claim is founded. That is one aspect of the test of looking at the substance of the counterclaim to determine whether it is defensive or amounts to a claim which is being prosecuted separately from the defence. In many cases, the fact that the counterclaim arises out of the same transaction as the claim will support a conclusion that the counterclaim is a defensive proceeding, but it does not necessarily follow: T Sloyan & Sons (Builders) Ltd v Brothers of Christian Instruction [1974] 3 All ER 715 at 721."
In this case it is true that the claims in the principal action, and the claims in the counterclaims arise out of the general relationship which existed between Mr Carpenter, Go Exports and Ourimbah with LSS and ITN over the years in which they were associated in business in the livestock export trade from this State. But in the course of that business there were many discrete commercial transactions which give rise to the separate claims advanced in the original proceedings. Those claims are met with specific defences by LSS and ITN in the principal proceedings and each area of dispute will need to be considered and decided separately when that action is determined.
The counterclaims raised by LSS, in my view, go well beyond answering the claims which are made against LSS in the principal action and extend to a significant number of additional transactions, admittedly within the general relationship, raising separate and distinct issues. It may be the case that, to a relatively small extent, the counterclaim by LSS, insofar as it gives rise to an alleged set‑off which would match the original plaintiffs' claims is defensive but both in nature and in quantum the LSS counterclaim goes far beyond that.
As already noted, the counterclaim by Hijazi has no counterpart in the original action and is a new claim by a new litigant. There is nothing defensive in the counterclaim by Hijazi which, on any approach, is a new claim separate and distinct from any claim made in the principal proceedings. For that reason, therefore, I consider that the applicants have made out a case for an order for security for costs and that security should be ordered.

Extent of Security for costs

Earlier in these reasons I have identified the component parts of the claims and of the counterclaims of the several parties and examined the extent to which some, but not all, of these might perhaps (depending upon the outcome of the litigation) be set‑off against counterclaims by LSS. Of the aggregate of $588,248.13 of all the plaintiffs' claims in the principal proceeding (before interest or deduction for the admitted set‑off) the total claims made against LSS are for $483,106.72 plus interest. Against this, the total claims by LSS in the counterclaims amount to $2,240,847.67 leaving out of account the additional counterclaim for $1,513,433.20 being made by Hijazi which cannot be the subject of any set‑off.
Making precise calculations in these circumstances would, I consider, be likely to lead to error because of the uncertainties which surround different aspects of the different claims. Nevertheless, adopting a conservative approach in favour of LSS I consider that it is fair to conclude that the counterclaim by LSS, raising as it does many other issues besides those arising from the principal proceedings, amounts to at least $1.5 million more than the claims being made against it in the principal action on the assumption that the plaintiffs' claims in that action are completely successful but can be fully set‑off against the counterclaim.
In my view, a proper characterisation of what has arisen in this case is that the plaintiffs have commenced proceedings in the original action but have been met, not only by a defence, but by counterclaims by one of the original defendants and by a new party raising distinctly new causes of action, both in fact and in law, which go far beyond answering or defending the principal claim and, in reality, amount to substantial cross‑claims of a different nature.
In the case of Hijazi no difficulties arise in treating its entire counterclaim as a new claim in respect of which security for costs can and should be ordered. In the case of LSS I consider that the proper course is to regard a portion of its counterclaims as being an answer to the original claims by the plaintiffs but that the balance of the claims so far exceeds this, both in quantum and in nature, as to amount to a fresh claim. In this regard I do not think that it is either possible or proper to treat a counterclaim which is combined with a set‑off as being only defensive to the extent of the set‑off and representing a new non‑defensive claim in respect to the surplus. Any such conclusion would seem to me to be inconsistent with the analysis undertaken in Anutech Pty Ltd v Latent Energy Systems Pty Ltd (supra) and Project Leaders Pty Ltd (T/as Project Leaders Australia) v Mt Isa Irish Association Friendly Association Pty Ltd (supra). In this case, however, the distinguishing feature is that the substantial portion of the excess in the LSS counterclaims relates to different transactions from those which are the subject of the original claim.
Go Exports, Mr Carpenter and Ourimbah seek security for costs against LSS and Hijazi each in the amount of $175,000. An affidavit of Mr S D Majteles sworn 17 December 2003 annexes a draft estimated bill of costs for the action on the assumption that it proceeds to trial for 17 days putting the anticipated costs for the defendants to the counterclaim at $222,980. No estimate of the likely costs of the action has been put in by LSS or Hijazi nor was the estimate of the likely cost made by the applicants seriously challenged in the course of submissions on behalf of LSS or Hijazi.
Bearing in mind the principle that an order for security is not intended to give a complete and certain indemnity to the party secured the amount of security ordered should be conservative - Brundza v Robbie & Co (No 2) (1952) 88 CLR 171 of 175. This approach also acknowledges that there may be opportunities in the future for the applicants to seek further or supplementary security for costs if the extent of the issues and the probable duration of the trial seem likely to expand. Having regard to the evidence I consider that an order for security for $175,000 against Hijazi in this case is warranted.
The position of LSS is different in that it has been forced to litigate to the extent necessary to defend the original claims of Go Exports, Ourimbah and the firm PJ and CM Carpenter. While I have concluded that its counterclaim goes well beyond an answer to the principal claims in raising different issues, I nevertheless consider that the order for security against LSS should recognise its different role. Accordingly, I consider that the security which LSS must give should be $125,000.
Consequently, the order will be that LSS should give security in the amount of $125,000 for the costs of its counterclaims and that Hijazi should give security in the amount of $175,000 for its counterclaims. These amounts are not additional or cumulative and security may be given by the payment into court of $175,000 in respect of which both LSS and Hijazi are each liable to the extent of $125,000 and Hijazi is additionally liable for the further $50,000. In other words, the obligation under the security arrangements will be joint and several for both counterclaiming plaintiffs to the extent of $125,000 and several to the extent of the surplus by Hijazi. Accordingly, if orders for costs at the end of these proceedings are made against either or both of LSS and Hijazi, the plaintiff or plaintiffs in respect of which such orders for costs have been made can have resort to the security given to the extent of $125,000 against LSS and to the extent of $175,000 against Hijazi, subject to any further order of security which may be made later in these proceedings and, of course, to any special order for costs which may be made at the determination of the trial.
If, rather than make a payment of $175,000 into court, LSS and Hijazi are prepared to offer security in some other method, such as by a bank guarantee, or the deposit of funds in some investment account and on terms acceptable to the applicants, then the same principles with regard to the extent of the joint and several liabilities of those two counterclaiming plaintiffs should apply. Having regard to the imminence of this trial I consider that such security should be given within 14 days.

Application for Specific Discovery

By their chambers summons of 17 December 2003, Go Exports, Mr Peter Carpenter and Ourimbah also seek an order for specific discovery within seven days of certain documents listed in the schedule to the summons. These relate to financial statements, monthly and other summaries of cash book and journal entries, balance sheets, profit and loss statements, cash flow, depreciation schedules and tax returns, invoices, bank statements, shipping documents, feedlot reports and other documents relating to the shipments of livestock and documents relating to funds remitted by Hijazi to LSS to cover costs of business operations in Australia including letter of credit, bank statements of LSS and correspondence between LSS and financiers. Discovery of the further category of documents relating to breeding programmes for stock including weigh bills for transport of sheep, invoices for sheep and summary sheets of sheep in the programme is also sought.
There is an affidavit of Mr P J Carpenter sworn 16 December 2003 by which he deposes to his knowledge, as a former director of LSS, to the existence of such records as part of the business operations of LSS and of his belief, following inspection of documents which have been discovered in these proceedings, that LSS and Hijazi have failed to discover documents within those categories in the proceedings. It was submitted on behalf of the applicants at the hearing of this summons that such documents, if they exist, would plainly be relevant to the quantum of damages sought by the counterclaiming defendants.
Reference has already been made to item 2 of the counterclaim by Hijazi which seeks damages in the amount of $1,120,000 for alleged losses said to have been suffered to the business of Hijazi in the Middle East export market due to the supply of alleged inferior quality livestock. This claim is based on two shipments per year to Saudi Arabia during the Haj period, representing profits of approximately $140,000 each, having been lost for each year from 1998 to 2002 inclusive. As all the business records relating to the cost of the operations leading to those shipments, including the costs of the acquisition and production of stock in Australia, and the cost of feed, maintenance and transport of the sheep to the point of export, and from there to the ports of delivery in Saudi Arabia would be relevant to this claim, I accept the submission on behalf of the applicants that documents of the category described by Mr Carpenter are relevant and material to this counterclaim.

The position of LSS and Hijazi in this respect is not to deny the existence of all or any of the documents within the categories described by Mr Carpenter but, rather, to contend that the applicants have failed to demonstrate the relevance of particular documents to particular causes of action in the counterclaims or otherwise in the proceedings. So much was conceded by the written submissions for LSS and Hijazi and by their counsel at this hearing. In this regard the position of LSS and Hijazi was put as follows:
" ... the plaintiffs have not demonstrated how the documents described in paragraph 1 are in any way related to or relevant to the question of lost profits or lost business opportunities.
The documents sought by the plaintiff will not reveal the extent of profits that were not made and business opportunities that were not taken by reason of the plaintiffs' conduct. The documents sought by the plaintiffs in paragraph 1 simply cannot be relevant to matters in issue between the parties."
These submissions must be rejected. The documents, whose existence is conceded, relate to the trading operations in this export market by LSS and Hijazi during the period when shipping operations from Australia were conducted. It is to be inferred that they include reference to historical costs, operating expenses, overheads and profit levels. All are arguably relevant to the amount of the profits that might have been derived had the operation generated greater revenues as Hijazi and LSS claim it should have done but for the alleged misconduct of Go Exports, Ourimbah and Mr Peter Carpenter. In any claim for damages for loss of profitable trading opportunities such historical costs appear to be plainly relevant and I am satisfied that, subject to one further consideration, they should be discovered.
The further consideration is the submission by LSS and Hijazi that a similar application for discovery of these documents made by the applicants was earlier dismissed by Master Sanderson and that this dismissal precludes the present application.
On 12 September 2003 Master Sanderson dealt with a series of interlocutory applications. There was an application by the plaintiffs in the original application for leave to amend their Reply, for further particulars of the pleadings, for specific discovery of documents and, by LSS, to join Hijazi as the second counterclaiming plaintiff. The application for specific discovery appears to have related to the documents which are the subject of the present application. The transcript of the application shows that most of the attention of the court at that hearing was directed to the adequacy or otherwise of the particulars of the pleadings. In the end, no order for particulars was made by the learned Master who took the view that, at that stage of the proceedings, the issues in the case would emerge with more clarity after the witness statements, which had been ordered to be delivered, became available and that, on this basis, it may be unnecessary, inefficient or counter productive to order further particulars at that stage.
The outcome of the application for discovery seems to have been disposed of on a similar basis. It is to be remembered, that at this stage before Hijazi was joined, the counterclaim did not include the component for alleged loss of profits of $1,120,000 being advanced by Hijazi which has already been noted. That the Master dealt with the application for discovery on this provisional basis is apparent from the transcript (at 148) where the learned Master plainly recognised that the potential significance of the documents of which discovery was being sought might emerge later in the case and could then be the subject of a further application. At 149 of the transcript the learned Master pointed out to counsel for the counterclaiming plaintiffs her client's obligation for continuing discovery and received an acknowledgement of that obligation in return.
When the learned Master dismissed the application (at 155 and 156) it was done plainly on the basis that the difficulties with the adequacy of existing particulars and discovery were likely to be resolved by the exchange of the witness statements which had been ordered and/or by the delivery of expert evidence which might follow. There is nothing to suggest there was any determination by the learned Master that the documents in question were not discoverable or that further developments in the litigation could not demonstrate their importance and the need for discovery. In these circumstances, I am satisfied that there is nothing in the disposition of that interlocutory application to preclude an order for discovery as sought being made on this occasion.
Counsel for Go Exports, Mr Peter Carpenter and Ourimbah seeks a springing order on the application for specific discovery the effect of which would be to dismiss the counterclaims if discovery is not given within 14 days. With respect, I consider that such relief would go too far. I propose to order that specific discovery of the documents listed in the schedule to the application be given by both counterclaiming plaintiffs on oath within 14 days but, in addition, to provide that if discovery is not given as ordered there shall be a stay of proceedings on the counterclaims by both LSS and Hijazi and that this stay of proceedings shall extend to the set‑offs pleaded by LSS in its defence to the principal action, to the extent that that set‑off relies upon any part of the counterclaims. The stay of proceedings in relation to the counterclaims shall be until further order and shall be without prejudice to the right of Go Exports, Mr Peter Carpenter or Ourimbah to apply on notice at or before the trial to dismiss the counterclaims for want of compliance with this order.
Similarly, with regard to the orders for LSS and Hijazi to give security for the costs of the counterclaims, it will also be ordered that if security is not given within the time prescribed by this order, or within such further time as the applicants may in writing agree, there shall be a stay of all proceedings on the counterclaims by Hijazi and of items 1, 7, 8, 9, 10 and 12 of the Schedule of Loss marked "A" annexed to the counterclaims of LSS and Hijazi. The reason for specifying those particular aspects of the counterclaims as being subject to this stay is that, so far as it is possible to tell from the pleadings, they are dissociated in nature and character from the transactions upon which the original action is based and, furthermore, that those parts of the counterclaims of LSS which are not the subject of this stay represent the claims which, in aggregate, substantially exceed in value the claims made by the original plaintiffs against LSS and therefore are sufficient to support the set‑off pleaded by LSS in its defence to the extent necessary to answer (if possible) the claims of the plaintiffs in the original action.