Hunt Contracting Co Pty Ltd v Roebuck Resources Nl

[1995] FCA 521

CATCHWORDS

PROCEDURE - security for costs - appeal - whether security should be ordered - whether prospects of success - whether appellant impecunious - whether impecuniosity due to primary judgment - whether public interest in appeal

Federal Court of Australia Act, s56
Rules of the Federal Court of Australia, O28 r3(1)(b), O52 r20

Gentry Bros Pty Ltd v Wilson Brown and Associates Pty Ltd (1992) ATPR 41-184
Cowell v Taylor (1885) 31 Ch D 34
Wiest v Director of Public Prosecutions (Gummow J, 5 September 1988, unreported)
Bethune v Porteous (1892) 18 VLR 493
D J E Constructions Pty Ltd v Maddocks (1981) 38 ALR 185
Lucas v Yorke & Anor (1983) 50 ALR 228
Webster v Lampard (1993) 112 ALR 174
Dorin v Cottam (Carr J, 27 June 1995, unreported)

HUNT CONTRACTING CO PTY LTD v ROEBUCK RESOURCES NL and PETER DONALD ALLCHURCH and SAMUEL WARNE
NO WAG 43 of 1995

R D NICHOLSON J
PERTH
26 JULY 1995

IN THE FEDERAL COURT OF AUSTRALIA   )

WESTERN AUSTRALIA DISTRICT REGISTRY )

GENERAL DIVISION                   )     NO WAG 43 of 1995

B E T W E E N:                   HUNT CONTRACTING CO PTY LTD

Appellant

and

ROEBUCK RESOURCES NL

First Respondent

and

PETER DONALD ALLCHURCH

Second Respondent

and

SAMUEL WARNE

Third Respondent

MINUTE OF ORDER

JUDGE MAKING ORDER:     R D NICHOLSON J

DATE OF ORDER:         26 JULY 1995

WHERE MADE:            PERTH

THE COURT ORDERS THAT:

1. Within 28 days the appellant provide security for the respondents' costs of this action in the sum of $20,000, failing which the proceeding be stayed.

1. The appellant pay the respondents' costs of this application.

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

IN THE FEDERAL COURT OF AUSTRALIA   )

WESTERN AUSTRALIA DISTRICT REGISTRY )

GENERAL DIVISION                   )     NO WAG 43 of 1995

B E T W E E N:                   HUNT CONTRACTING CO PTY LTD

Appellant

and

ROEBUCK RESOURCES NL

First Respondent

and

PETER DONALD ALLCHURCH

Second Respondent

and

SAMUEL WARNE

Third Respondent

CORAM:R D NICHOLSON J

DATE:26 JULY 1995

PLACE:PERTH

REASONS FOR JUDGMENT

R D NICHOLSON J:

Application is made on behalf of the respondents for an order for security for costs of the appeal.  The application is brought in reliance on O28 r3(1)(b) of the Federal Court Rules ("FCR") and contested by the appellant in reliance on FCR O52 r20. These rules are supported by s56 of the Federal Court of Australia Act 1976. From the latter rule it is apparent that the onus of establishing the appropriateness of the exercise of the discretion in favour of the making of an order for security of costs on an appeal rests upon the party bringing the application for such an order.

The law which is applicable to a resolution of this application is not materially in dispute between the parties.  For the respondents, reliance is placed upon Cowell v Taylor (1885) 31 Ch D 34; Wiest v Director of Public Prosecutions (Gummow J, 5 September 1988, unreported) and Bethune v Porteous (1892) 18 VLR 493 at 494. For the appellant reliance is placed on D J E Constructions Pty Ltd v Maddocks (1981) 38 ALR 185; Lucas v Yorke & Anor (1983) 50 ALR 228 and Webster v Lampard (1993) 112 ALR 174. In Dorin v Cottam (Carr J, 27 June 1995, unreported) consideration was given to the factors relevant to the exercise of the discretion in respect of an application for security of costs in relation to a trial at first instance.  The factors there identified were: the chances of success; whether an order for security would shut out the claim proceeding; whether the impecuniosity arose out of breaches alleged; the public interest; discretionary matters peculiar to the case; and the quantum of risk that the party against whom the order is sought will be unable to satisfy an order for costs.  Carr J principally followed other decisions of this Court in delineating those factors, some of which were contended for on this application.  It is not in dispute that the discretion must be exercised judicially, that is, with regard to how, on the whole, justice will best be served.

Chances of success

The order is sought in respect of an appeal from a primary judgment which dismissed an application by the appellant in which it was alleged that, in connection with the sale of an alluvial gold mine ("the mining operation"), the respondents had engaged in misleading or deceptive conduct in relation to estimates of volume of resources and grades of gold and also had provided estimates negligently.  The sale was effected by an agreement dated 28 June 1990 whereby the appellant purchased the mine from the first respondent for the sum of $450,000.  The operation failed and a receiver was appointed over its assets.  Plant and equipment were auctioned on behalf of the receiver by February 1992.

The case occupied six weeks of hearing.  The trial judge (French J) described the evidence as "complex and detailed".  He said that the resolution of the case turned upon the proper characterisation of the statements made and materials provided to Mr W B Wreford ("Wreford"), a director of the appellant, prior to his entry, on behalf of the appellant, into the contract for purchase of the mining operation.

Having found that there was no misleading or deceptive conduct on the part of the respondents or any breach of duty of care by them, the trial Judge said:

"I should add that in my opinion what the applicant agreed to pay for the project was not less than its real value.  The financial fate of the applicants [sic] seem to have been sealed roughly from the day at which it began operating.  The plant modifications and associated non-productive time, the imposition of significant cost burdens, the reduction in plant throughput, the failure to shift the plant to the new site, the frequent absence of Wreford from the site and the absence of tight and well organised control of the operation by Wreford, conspired to ensure the failure of the venture".

In the course of his reasons French J also made certain findings in relation to the credibility of Wreford.  He found that there was "real cause for reservation about the credibility of Wreford's testimony on critical points" and also that "Wreford's credibility was also adversely affected by other matters going to his truthfulness under pressure".  Wreford was found to have given untruthful evidence and to have made misleading answers to interrogatories and to have told untruths to third parties.  Findings of the trial Judge resting on or influenced by credibility will not be disturbed on appeal. 

It is contended for the appellant that the critical issue is not his credibility but whether certain representations were made.  The two issues are intertwined, however, and the findings of fact concerning representations derive in part from the trial Judge's assessment of credit.

The grounds of appeal, as presently lodged, have been drafted without the benefit of legal advice.  It is common ground that they do not address questions of law.  It is also common ground that, even though the appellant now has the benefit of a solicitor acting for it, any amendments to the grounds which may be moved would not raise questions of law.

In the grounds of appeal as they presently appear there is no challenge to critical findings of fact without which the appeal could not succeed in any event.  These findings are that the mining operation was worth more than the appellant paid for it (a finding arrived at on unchallenged evidence) and that the losses the appellant incurred in running the operation were as a consequence of its own mismanagement decisions.

In my opinion, these considerations inevitably lead to the conclusion that it is more probable than not that the appeal will fail.

The risk that the appellant could not satisfy an order for costs

It is common ground that the appellant is not in a position to offer any form of security for costs.  It has no source of income due to the cessation of the mining operations conducted by it on the tenements the subject of the proceedings.  Not only does it have no assets but it has considerable liabilities.  No annual returns have been filed by it for the financial years ending 30 June 1991, 1993 or 1994.  The annual return to 30 June 1992 disclosed that the appellant had total assets of $372,018.00 and total liabilities of $1,099,894.00, giving a deficiency of assets to liabilities of $727,876.00.  In that return the appellant also reported an operating loss for the year of $584,622.00. 

It is the case that Wreford and his wife, as the directors and shareholders of the appellant, offer to provide to the respondents a personal guarantee and indemnity in respect of the respondents' costs of the appeal.  Their personal circumstances are that Wreford is retained by an engineering company as a Construction Manager in respect of a particular project and has no guarantee that his engagement will continue upon completion of the project.  His wife does not work and is fully engaged in caring for three young children.  In Gentry Bros Pty Ltd v Wilson Brown and Associates Pty Ltd (1992) ATPR 41-184 at 4511, Cooper J said:

"The offer by the shareholders of the applicant to accept personal liability for the applicant's costs is a factor weighing heavily against the making of an order against the applicant for provision of a cash or other security for costs notwithstanding that the worth of the shareholders may ultimately prove insufficient to satisfy any judgment in whole or in part."

At trial, Wreford was cross-examined as to the veracity of an affidavit sworn by him on 17 July 1992 (in opposition to an application for security of costs there made) in which he said that he and his wife had no assets.  He acknowledged that at the time he had sworn the affidavit he had owned a block of land ("the land") but he was indebted to a mortgagee bank in respect of an overdraft and personal overdraft.  In an affidavit sworn for the purpose of the present proceeding Wreford deposed that he did not believe that he had any assets when he swore the affidavit of 17 July 1992 because the land was fully secured against an overdraft to the bank so that he did not have equity in it and therefore honestly believed he had no assets.

It is unexplained how the appellant has secured legal representation to make this application.

It is apparent therefore that the offer to accept personal liability is an offer which is unsupported by assets in the hands of the proposed guarantors.

Whether appellant's impecuniosity arises from conduct of respondents

It is contended for the appellant that the respondents have contributed to the appellant's financial situation.  That contention, however, is answered by the judgment in favour of the respondents and, in particular, the findings of fact made by his Honour. 

Public interest

For the appellant it appeared initially to be contended that a question of public importance is involved in the appeal, namely, whether or not the Australasian code for reporting of identified mineral resources or ore reserves is a binding document in respect of information issued to the public.  That contention, however, cannot be sustained because in the course of his reasons the trial Judge found that the question of compliance with the Australasian code was academic and irrelevant to the outcome of the trial.  The contention was not pressed on behalf of the appellant.

Matters peculiar to the case

The appellant's major creditor, which is secured, makes no comment on the prospect of an appeal.  Four major unsecured creditors, including two financial institutions, are supportive of an appeal proceeding.  Their support is open to the inference that it is founded on an expectation of the appeal succeeding, an expectation which I do not consider is supported by a consideration of the reasons of the trial Judge or the grounds of appeal.

Conclusion

In my opinion the factors favouring the making of an order for security for costs outweigh the factors militating against such an order.  I therefore consider the application should be allowed.

It is not required that the Court order such security as will provide complete and effective indemnity for costs: Gentry Bros (supra) at 40512. The respondents' draft bill of costs, on the basis the appeal will last three days, is for $31,801.00. I consider security should be given in the sum of $20,000.

I certify that this and the preceding 6 pages are a true copy of the Reasons for Judgment of his Honour Justice R D Nicholson.

Associate:

Date:

APPEARANCES

Counsel for the Applicant:       Mr L E James

Solicitors for the Applicant:      Kott Gunning

Counsel for the Respondent:      Mr D M Stone

Solicitors for the Respondent:    Williams & Hughes

Date of Hearing:                 14 July 1995

Date of Judgment:                26 July 1995