Idrawfast International v BELL and Associates - [2005] FMCA 970

FEDERAL MAGISTRATES COURT OF AUSTRALIA

IDRAWFAST INTERNATIONAL v BELL & ASSOCIATES & ANOR

[2005] FMCA 970

PRACTICE & PROCEDURE – Security for costs – where applicant is a company – where up to date accounts are made available – where applicant has cash in hand.

Trade Practices Act, s.52

Equity Access Limited v Westpac Banking Corporation (1989) ATPR 40-972 Charlwood Industries Pty Limited v Ian Raymond Cubitt, Anne Christian, Gregory Boggis, Robert Edwards and Roblyne Pty Limited (unreported 15 March [1995] FCA)
Chester & Fein Property Developments Pty Ltd v Candam Investments Pty Ltd (1985) 9 FCR 419

Applicant:

IDRAWFAST INTERNATIONAL PTY LIMITED

First Respondent:	STEVE BELL & ASSOCIATES PTY LIMITED & ANOR (ACN 088 759 264)
Second Respondent:	STEVE BELL

File Number:

SYG703 of 2005

Judgment of:

Raphael FM

Hearing date:

4 July 2005

Date of Last Submission:

4 July 2005

Delivered at:

Sydney

Delivered on:

4 July 2005

REPRESENTATION

Counsel for the Applicant:

Mr J Hyde

Solicitors for the Applicant:

Griffin Vincent IT & IP Lawyers

Solicitors for the Respondent:

Uther Webster & Evans

ORDERS

Application dismissed.
Respondent pay the applicant's costs to be assessed in accordance with Part 21, Rule 21.02(2)(b) and Schedule 1 of the Federal Magistrates Court Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG703 of 2005

IDRAWFAST INTERNATIONAL PTY LIMITED

Applicant

And

STEVE BELL & ASSOCIATES PTY LIMITED
(ACN 088 759 264)

First Respondent

STEVE BELL

Second Respondent

REASONS FOR JUDGMENT

I have before me an application by the respondents to these proceedings for security for costs. The amount requested is approximately $43,000 which is supported in an affidavit by Gail Maree Allison sworn on 17 June 2005. I have been assisted by some helpful written submissions prepared by Mr Pedersen, the solicitor for the respondents. The proceedings themselves involve a claim by the applicant that the respondents have made denigrating, false and misleading references to the applicant on its website. In addition, there is a claim that the respondents have used what is known as a meta-tag to draw users of the applicant's website or potential users of the applicant's website to the respondents.
The applicant has put on a series of affidavits which reasonably articulate its case, although to my mind better particulars might be required of the claim and some re-thinking as to the restriction of the matter to s.52 would probably be beneficial. On the other hand, the respondents have filed nothing by way of evidence and the case has had to be adjourned for six months, not totally because of the fault of the respondents.
As Mr Pedersen says in his submissions, the matters which should guide me in my decision as to whether or not to award security for costs are the six factors referred to in Equity Access Limited v Westpac Banking Corporation (1989) ATPR 40-972 which was applied by Gummow J in Charlwood Industries Pty Limited v Ian Raymond Cubitt, Anne Christian, Gregory Boggis, Robert Edwards and Roblyne Pty Limited (unreported 15 March [1995] FCA).
The respondents have sought information from the applicant concerning its financial position. There has been considerable correspondence between the solicitors of the parties. The applicant, not unnaturally and in view of the allegations it makes against the respondents, was reluctant to provide detailed financial information about itself but on the basis of a confidentiality agreement, it did do so. The information reveals that the company has few tangible assets in terms of stock in trade, buildings or equipment but it does have approximately $800,000 of work in progress and it also has at least $100,203.82 in the bank.
The company's management accounts indicate that it made a $400,000 net profit before tax between July 2004 and February 2005 and approximately $800,000 profit for the full year which has just ended. The company has offices in a number of places around the world and appears to undertake most of its work in computer control modelling in China. The deponent of one of the affidavits, Mr Coombe, the Managing Director of the applicant company, was asked on Friday to attend for cross-examination but he is not here today, which is unfortunate.
If he had been here he could have been asked questions by Mr Pedersen about some round number payments into the bank and what, in discussions between the bench and the bar table is described as "burn rate", being the reduction of working capital over a period of time. But I am not satisfied that there has been any significant reduction in working capital from the accounts which have been put before me. These indicate a profit which I have previously referred to and no extraordinary drain on resources. The Westpac bank account for the period 29 April to 31 May 2005 reveals an opening balance of 38,000 in credit, credits of 742,000 and debits of 598,000, leaving a closing balance of 182,000.
The balance sheet that has been produced is not complete but it does indicate no bank loans and loans to people who are probably directors of the company. I also have an aged work in progress and an aged payables which indicates that 31 percent of the payables are between

0 and 30 days and only 15.1 percent are 90 days plus. The total payables are only $37,724.
Mr Pedersen submits that the available material indicates a significant risk that the applicant will not be able to satisfy a costs order in the event that it loses and he refers me to the dicta in Chester & Fein Property Developments Pty Ltd v Candam Investments Pty Ltd (1985) 9 FCR 419. He makes reference to the applicant's overseas affiliates and presumably the unknown costs involved in them. He makes reference to the fact that the company only has a paid up capital of $200 and he refers to the round figure bank transfer deposits, which he believes may represent capital injections into the company to assist payment of operational expenses.
One of the matters I should take into account in considering this application is the chance of success of the applicant. At the moment the situation is all one way. The applicant has gone quite far to establish its case and the respondent has not provided me with any evidence at all.
The second matter I should consider is whether an order for security would shut the applicant out from pursuing its claim. The reason I say that it would not is because the applicant has sufficient funds in its bank account to pay the full amount required by Mr Pedersen and still have cash left over. However, if the ability to pay the money was a ground for asking for security for costs then there would be many more applications than there currently are.
I must also consider whether the impecuniosity arises out of the breaches alleged against the respondent.
Mr Hyde, who appears on behalf of the applicant, would argue that his client is not impecunious and the evidence does seem to indicate that it is not. I can see that the allegations if made out could have caused the applicants some serious harm. I do not think there is anything in this case which involves a public interest although there is a very interesting legal point concerning the meta-tags. Finally, I must consider the quantum of risk that the applicant cannot satisfy an order for costs. I can only do that on the basis of the evidence before me. I appreciate Mr Pedersen's difficulties in obtaining that information and in not having Mr Crombie to cross‑examine but it does seem that the company keeps accounts and it has been able, within a few days of the end of the financial year, to produce an incomplete but otherwise impressive profit and loss account.
I say impressive because the relationship between the end of year accounts and the fuller six monthly accounts is close. Expenses appear to have increased by the proportion that one would expect, as have the profits. It may well be that Mr Pedersen is right, that the directors have put money into the company in order to finance temporary cash flow problems but that does not indicate weakness. To my mind it would indicate that those behind the company are prepared to stand by it.
All in all, I am not inclined to accede to the respondent's application. I do not think that the evidence has satisfied me that there is a real risk at this stage that the company may not pay its debts at the end of the case if it loses. An application for security is not a once only thing. If the respondents have good reason to believe that the applicant has fallen into financial difficulties before the case is heard then it may make another application and that application will be considered on its merits. But this one must fail. I dismiss the application and order that the respondent to the substantive proceedings pay the applicant's costs to be assessed in accordance with Part 21, Rule 21.02(2)(b) and Schedule 1 of the Federal Magistrates Court Rules.
To the extent necessary, I certify that this application was one appropriate for an advocate.

I certify that the preceding fourteen (14) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: