Jet Corporation of Australia Pty Ltd v Petres Pty Ltd

[1983] FCA 262

JET CORPORATION OF AUSTRALIA PTY. LTD. v. PETRES PTY. LTD. (1983) 74 FLR 1
Practice and Procedure
8 ACLR 334

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
Northrop J.(1)

CATCHWORDS

Practice and Procedure - Application for order for security for costs against company - Source of jurisdiction or power - Considerations in exercise of discretion - Federal Court of Australia Act 1976 (Cth), ss 56, 59 - Federal Court Rules, O.28 - Companies (Victoria) Code, s. 553.

HEADNOTE

The applicants (the first of which sued as trustee) commenced proceedings in the Federal Court against the eleven respondents under the Trade Practices Act 1974 (Cth).

The respondents, pursuant to O.28 of the Federal Court Rules, moved the court for orders that the applicants provides security for costs.

Held:(1) Section 56 of the Federal Court of Australia Act 1976 (Cth), invests in the court a general discretion to order an applicant to provide security.

(2) The effect of the provisions in s. 56(5) that the "section does not affect the operation of any provision made by or under any Act or by the Rules of Court for or in relation to the furnishing of security" is to enable the court to make Rules of Court relating to the provision of security for costs which may take effect irrespective of s. 56.

(3) Order 28, r. 3 of the Federal Court Rules is such a rule, providing that where an applicant is suing for the benefit of another and there is reason to believe that the applicant will be unable to pay the costs, the court may order security to be provided. The rule appears to impose limitations upon the discretion conferred by s. 56(1).

(4) However O.28 is, by r. 6, expressed not to affect the provisions of any Act of the Commonwealth or of a State or Territory under which the court may require security for costs to be given.

(5) Accordingly, the provisions of Companies (Victoria) Code, s. 533(1) confer upon the court, by reason of O.28,r. 6, a general discretion to order security where there is reason to believe that a corporate applicant would be unable to pay the costs of a successful respondent.

Drumdurno Pty. Ltd. v. Brabham (1982) 64 FLR 227; Newtons Travel Services Pty Ltd. v. Ansett Transport Industries (Operations) Pty. Ltd. (1982) 64 FLR 205, applied.

(6) On the material before it, the court was unable to form a view as to the prospects of Jet Corp. succeeding in its claim, but it appeared that if it could establish its claims, it may be established that Jet Corp.'s financial position had been worsened by the wrongful conduct of the respondents. It appears that Jet Corp. is making a genuine claim.

(7) Accordingly the motions seeking orders for security for costs would be dismissed.

Co-operative Farmers' and Graziers' Direct Meat Supply Ltd. v. Smart (1977) VR 386; Ferncroft Pty. Ltd. v. Kew and Ors (Supreme Court of Victoria, 22 November 1979, O'Bryan J., unreported), referred to.

HEARING

1983, August 1, 2, 3; October 4. #DATE 4:10:1983

D. Graham Q.C. and I. Sutherland, for the applicants.

J.D. Hedigan Q.C. and K.W. Hargrave, for the 1st-5th, 10th and 11th respondents.

A. Chernov Q.C. and T.J. Ginnane, for the 6th and 7th respondents.

E.W. Gillard Q.C. and T.A. Neesham, for the 8th and 9th respondents.

Cur. adv. vult.

(This case is reported on the question of security for costs only.)

Solicitors for the applicants: Madgwicks.

Solicitors for the 1st-5th, 10th-11th respondents: Cornwall, Stodart & Co.

Solicitors for the 6th and 7th respondents: F.R. Monotti & Co.

Solicitors for the 8th and 9th respondents: John Wilder & Darren Moses.

M.P.S.

JUDGE1

4 October 1983 NORTHROP J. On 27 June 1983, Jet Corporation of Australian Pty. Ltd. (in its capacity as trustee of the Jet Corporation Australia Trust, the Jet Corp.), Electrum Acceptance Pty. Ltd. (Electrum Acceptance), and Electrum Finance Pty. Ltd. (Electrum Finance), as applicants commenced proceedings in the Federal Court against the eleven respondents named in the application. By their amended application, the applicants seek declarations that the first, second and third-named respondents have contravened s. 52 of the Trade Practices Act 1974 (Cth) (the Act), and that the fourth to eleventh-named respondents were, in summary, persons involved in those contraventions. In addition, the applicants seek orders for the recovery of the amount of loss or damage suffered as a result of those contraventions, together with the rectification of certain agreements. Attached to those claims is a claim against the fourth to seventh named respondents based on alleged breaches of their statutory and fiduciary duties as directors of Jet Corp.

1. The material facts on which the applicants' claims rely are set out in a lengthy statement of claim, as amended on 28 July 1983. The statement of claim contains seventy-one paragraphs and the substance of the claims is set out in pars 57 to 71 inclusive thereof. The respondents, pursuant to O.20, r. 2 of the Federal Court Rules, have moved the court for orders that the proceedings be stayed or dismissed generally or in part. Pursuant to O.28, the respondents have moved the court for orders that the applicants provide security for costs. These motions have been heard together. Other motions on behalf of the respondents have been adjourned to a date to be fixed.

2. It is necessary to set out at some length the allegations which form the basis of the applicants' claims and to identify the parties.

3. Jet Corp. is a company incorporated in Victoria and the trustee of the Jet Corporation Australia Trust. Subsequent to the events set out below, Laurence Brian Hunter and Peter Bernard Allen were appointed receivers and managers by Citicorp Australia Pty. Ltd. (Citicorp) of Jet Corp., and the assets and undertakings of the Trust. At this stage it is noted that Citicorp has appointed receivers and managers of Electrum Acceptance and Electrum Finance respectively.

4. Petres Pty. Ltd. (Petres) is a trading corporation and the corporate trustee of the Schutt Unit Trust. By a sale of business agreement and a supplemental sales agreement, together called the Petres Sales Agreement, made in late October 1981, Petres sold and Jet Corp. purchased certain assets as set out in par. 33 of the statement of claim. Under the Petres Sales Agreement, Jet Corp. assumed certain liabilities as set out in that paragraph. It was a further term of the agreement that Jet Corp. assume the obligations of Petres under two agreements called the Scapela Agreement and the Rovoil Agreement respectively. The applicants allege that certain representations were made in the Petres Sales Agreement and in pre-settlement negotiations that the value of the assets and liabilities of Petres were as set out in sched. 1A of the supplemental sales agreement, that the value of the goodwill of the business was as set out therein and that the value of leasehold improvements was $2 million. The applicants then pleaded that those statements, the first two of which were contained also in a report from Messrs Simon Lidgett Collingwood & Co., were untrue and, hence, misleading or deceptive or likely to mislead or deceive. It is alleged that that report was given to the applicants by persons on behalf of some of the respondents.

5. Dipson Pty. Ltd. (Dipson) is a trading corporation and the trustee of the Dipson Settlement. Prior to 22 October 1981 it was the holder or had the right to control the disposition of all the shares in the issued capital of Electrum Finance and Electrum Acceptance respectively. In June 1981, Electrum Finance had purchased an aircraft from Westwind Jet Corp. Pty. Ltd. and had leased that aircraft to the Stohl Aviation Partnership, the members of which are not identified. Electrum Acceptance had purchased another aircraft from Westwind Jet Corp. Pty. Ltd. and had leased that aircraft to the Lazar Partnership, the members of which are not identified. In October 1981, pursuant to an agreement called the Dipson Sales Agreement, Dipson sold the shares in Electrum Acceptance and Electrum Finance respectively to Jet Corp. The applicants allege that in the Dipson Sales Agreement and in earlier pre-settlement negotiations, representations and warranties were made by Dipson that the Stohl lease and the Lazar lease were each valid and subsisting. The applicants then plead that this was untrue and constituted a contravention of s. 52 of the Act. They allege also that the aircraft purchased by Electrum Acceptance and Electrum Finance respectively were overvalued.

6. Westwind Jet Corp. Pty. Ltd. (Westwind) is a trading corporation which carried on the business of the sale of aircraft. In June 1981 it had sold the two aircraft to Electrum Finance and Electrum Acceptance respectively. The leases granted by those two companies are the subject of actions in the Federal Court of Austalia. In October 1981 pursuant to an agreement called the Westwind Sales Agreement, Westwind sold certain assets to Jet Corp. and Jet Corp. assumed certain liabilities. The applicants allege that pre-settlement representations were made and in addition are contained in the Westwind Sales Agreement itself, that the value of assets and liabilities transferred pursuant to the Westwind Sales Agreement were as set out in the schedule to the agreement. It is then pleaded that those representations were untrue and, hence, misleading or deceptive or likely to mislead or deceive.

7. Trevor Burton Huttley (Huttley) was at all material times a director of the applicants and of Petres, Westwind, and of Rovoil Pty. Ltd. (Rovoil). He is alleged also to be a person, together with Wilson, in effective control of the affairs of Electrum Acceptance and Electrum Finance, as well as of Petres and Westwind, presumably since 10 September 1981, prior to which date Sent and Forshaw had controlled those companies in association with Wilson. Huttley, together with Wilson and Collier, is alleged at all material times to have been in effective control of Jet Corp. prior to 25 November 1981 and thereafter in effective control with those persons together with Hogg. It is alleged against Huttley that he, together with Wilson, aided, abetted, counselled and procured the contraventions by Petres, Dipson and Westwind, and was directly and indirectly knowingly concerned in and party to those contraventions, that he was a person involved in those contraventions (see s. 75B of the Act), and that he breached his statutory and fiduciary duties as a director of Jet Corp.; see ss 123 and 124 of the Companies Act 1961 (Vic.).

8. Jon Dean Wilson (Wilson) was at all material times a director of the applicants, Petres, Dipson, Westwind and Scapela Ira Nominees Pty. Ltd. (Scapela). He is alleged also to have been, with Huttley, in effective control of Electrum Finance, Petres, Dipson and Westwind (although the allegations contained in par. 13 of the statement of claim appear inconsistent with that allegation), in effective control of Scapela, and together with Huttley and Collier, in effective control of Jet Corp. prior to 25 November 1981, and thereafter in effective control thereof with those persons together with Hogg. In May 1981, pursuant to an agreement called the First Wilson Agreement, Wilson purchased on terms from Messrs Sent and Forshaw all their right, title and interest in and to Petres, Electrum Finance, Electrum Acceptance, Westwind, Jet Charter Aust. Pty. Ltd. and the Schutt Unit Trust of which Petres was the trustee, said by counsel to be the interests under the Schutt aviation umbrella. Prior to 10 September 1981, being the date of an agreement called the Second Wilson Agreement, Wilson, together with Sent and Forshaw, controlled the affairs of Electrum Acceptance, Electrum Finance, Petres and Westwind, and was, together with those persons, entitled to the assets of those companies and to the Schutt Unit Trust. Under the Second Wilson Agreement, Petres had assumed certain liabilities to Sent and Forshaw, but apparently had received no proprietary interest for that liability. Dipson and Westwind were also parties to the Second Wilson Agreement. It is alleged against Wilson that he, together with Huttley, aided, abetted, counselled and procured the contraventions by Petres, Dipson and Westwind, and was directly and indirectly knowingly concerned in and party to those contraventions, that he was a person involved, together with Huttley, in those contraventions, and that he had breached his statutory and fiduciary duties as a director of Jet Corp. In addition, Huttley and Wilson are alleged to have aided and abetted Petres, Dipson and Westwind in that they caused the various sales agreements to be carried out and completed and caused two certificates from Messrs Touche Ross & Co., alleged to contain the pre-settlement representations to be prepared and made known to Jet Corp.

9. Barry John Collier (Collier) was at all times a director of Jet Corp. and prior to 28 November 1981, together with Huttley and Wilson, had effective control of Jet Corp. Thereafter, he was said to be in effective control of that company with those persons, together with Hogg, but due to an apparent discrepancy appearing in par. 15(b) of the statement of claim, Wilson's name is omitted and Collier's name inserted. No allegation is made that Collier is in any way associated with any of the respondent companies. Collier is alleged to have aided, abetted, counselled and procured the said contraventions by Petres, Dipson and Westwind, to have been directly and indirectly knowingly concerned in and party to the contraventions. He is also alleged to have been a person involved in the said contraventions by reason that, in his capacity as director of Jet Corp., he was aware that the various sales agreement representations were untrue, and notwithstanding that knowledge, caused or permitted Jet Corp. to enter into the Petres Sales Agreement, the Westwind Sales Agreement and the Dipson Sales Agreement, and being aware that the sales agreement representations and the pre-settlement representations were untrue and notwithstanding that knowledge caused or permitted Jet Corp. to complete the said sales agreement. Damages also are claimed for breach of Collier's statutory and fiduciary duties as a director of Jet Corp.

10. Lindsay Quentin Hogg (Hogg) became a director and, together with Huttley, and Wilson and Collier took effective control of Jet Corp. after 25 November 1981. The allegations made against him correspond with those made against Collier.

11. Edward Christiaan Sent (Sent) and Brian Forshaw (Forshaw) were, prior to 10 September 1981, the date of the Second Wilson Agreement, directors of Electrum Acceptance, Electrum Finance, Petres and Westwind and, together with Wilson, in effective control of those companies. They are alleged to have aided, abetted, counselled and procured the said contraventions, to have been directly and indirectly knowingly concerned in and party to those contraventions. They are also alleged to have been persons involved in those contraventions in that they caused Electrum Finance to purchase from Westwind the aircraft, the subject of the Stohl lease, and to enter into the Stohl lease, and caused Electrum Acceptance to purchase from Westwind the aircraft the subject of the Lazar lease and to enter into the Lazar lease.

12. Scapela Ira Nominees Pty. Ltd. (Scapela) and Rovoil Pty. Ltd. (Rovoil) were the companies of which Wilson and Huttley were respectively directors and in sole effective control. It is alleged that those companies were directly or indirectly knowingly concerned in and party to the contraventions by Petres, Dipson and Westwind in that they were entitled to and derived valuable benefits under the various agreements.

13. Before dealing with the substance of the motions to stay or dismiss the proceedings it is necessary to state the principles to be applied. In Dey v. Victorian Railways Commissioners (1949) 78 CLR 62 the defendant sought an interlocutory order that the action be dismissed or forever stayed on the grounds that it was frivolous, vexatious and an abuse of the process of the court. It was not clear whether the order was sought under O.XIVA, O.XIX, r.27, or O.XXV, r. 4 of the Supreme Court Rules. Those rules are similar to O.11, r. 16 and O.20, r. 2 of the Federal Court Rules. At 91 Dixon J. said:
    
    

"The application was not made under, nor could it be supported under, O.XXV, r. 4 or O.XIX, r. 27. The question does not arise on the statement of claim and it involves no matter of pleading. It is a substantive question chiefly of law relating to an alleged bar to the cause of action to be pleaded by way of confession and avoidance. But had it been a question capable of arising in such a way that either of those rules could be used, the application must have failed. For the power they confer is not to be used in cases of doubt or difficulty or where the pleading raises a debatable question of law: . . .

The application is really made to the inherent jurisdiction of the court to stop the abuse of its process when it is employed for groundless claims. The principles upon which that jurisdiction is exercisable are well settled. A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury. The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process."

1. In General Steel Industries Inc. v. Commissioner for Railways (N.S.W.) (1964) 112 CLR 125, Barwick C.J. discussed the principles to be applied in some detail. At 128-129 he said:
   
   

"The plaintiff rightly points out that the jurisdiction summarily to terminate an action is to be sparingly employed and is not to be used except in a clear case where the court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion. I have examined the case law on the subject, to some of which I was referred in argument and to which I append a list of references. There is no need for me to discuss in any detail the various decisions, some of which were given in cases in which the inherent jurisdiction of a court was invoked and others in cases in which counterpart rules to O.26, r. 18, were the suggested source of authority to deal summarily with the claim in question. It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'to stand would involve useless expense'."

1. Those principles should be applied in determining the motions before the court.

2. It is apparent that the facts forming the basis of the applicants' claim are of some complexity. At this stage the court does not have before it the Wilson agreements nor the Petres, Dipson and Westwind agreements. The questions of law raised in argument by counsel for the respondents are no less complex.

1. The first submission put by the various counsel for the respondents was to the effect that there could have been no misleading or deceptive conduct because the minds of the recipients of the conduct, namely the directors of the applicant companies, were to all intents the same as the minds of the companies whose conduct is said to have contravened the Act. With respect to this submission it should first be noted that the court is not satisfied that this allegation of fact is made out in the statement of claim as amended. In particular, on the face of that document the role of Collier appears to some extent to be one disassociated from the respondent companies. However, even were this contention to be accepted, in the context of this case as it stands, and applying the principles stated above, the court is not satisfied that the submission should succeed.

2. It is well accepted that in order to make out a contravention of s. 52 of the Act it is not necessary to show that some person has actually been misled or deceived by the conduct of the respondents. Rather, it is first necessary to identify the relevant group of persons by reference to whom the question of whether conduct is, or is likely to be, misleading or deceptive falls to be tested and thus to determine objectively whether the conduct complained of misleads or deceives or is likely to mislead or deceive persons within that group.

3. Here the conduct complained of consists not only of certain pre-settlement representations, including the reports, which may not be made known to persons other than those party to them, but also of representations made in the agreements themselves. Although, leaving aside for a moment the submission of the respondents, the applicants could fall amongst that relevant group of persons, the class might also contain any persons who relied upon the agreements or the reports, whether they be investors in the companies, would-be shareholders or unit-holders, or other persons interested in the assets of the trust. The extent to which any of those persons might have a remedy under s. 82 is not in issue here.

4. The submission of counsel for the respondents to some extent overlaps with the later submission that s. 52 could not apply to the present facts because the conduct complained of was essentially part of a private transaction with no public or "consumer" aspect. Reliance was placed on the recent decision of St John J. in Westham Dredging Company Pty. Ltd. v. Woodside Petroleum Development Pty. Ltd. (1983) 66 FLR 14. His Honour, at 288, summarised the facts which formed the basis of the applicant's claim in that case as follows:
   
   

"Broadly, the cause of action is based upon the supply by Woodside of a report prepared by the consulting engineers as to the geological structure of a harbour basin which later became the subject matter of a dredging contract entered into between Westham and Woodside. Westham alleges that some of the geological data specified in that report was inaccurate and this affords them a right of action because such inaccuracies were misleading or deceptive within the meaning of s. 52 of the Act."

After canvassing the authorities, his Honour concluded that s. 52 should be read down by reference to the heading "Pt V Consumer Protection" and "Div. 1 Unfair Practices".

1. With respect to the learned judge, on the present state of the authorities it may be doubted whether this conclusion is clearly correct; see for example the reasoning of Stephen J. in Hornsby Building Information Centre Pty. Ltd. v. Sydney Building Information Centre Pty. Ltd. (1978) 140 CLR 216 at 223 (which his Honour attempted to distinguish), the numerous cases in this Court concerning misleading conduct in connection with leasing transactions and the recent decision of the High Court in Fencott v. Muller (1983) 46 ALR 41, where, although the matter was not expressly raised, there was no suggestion that this Court did not have jurisdiction in respect of alleged contraventions of s. 52 occurring in connection with the sale of a wine bar and restaurant business.

2. Accordingly, the court is not satisfied that in interlocutory proceedings of this kind, the statement of claim should be struck out for these reasons. It may be noted, however, with respect to the first submission, that it may be appropriate to deal again with that argument if the question of damages falls to be decided.

3. Several subsidiary submissions were also made. Senior counsel for Messrs Collier and Hogg argued that no overt act constituting misleading or deceptive conduct had been pleaded. He also objected to the use of the word "caused" as ambiguous. The court is not satisfied that this submission is made out. The conduct complained of is constituted by the pre-settlement representations and representations contained in the agreements, which are specified. It is suggested that if a better description of the conduct is required, further particulars should instead be sought.

4. Turning now to the motions seeking dismissal of the proceedings in part, it is noted first that Mr Graham of counsel, during the hearing of the motions sought an order deleting Electrum Acceptance and Electrum Finance. Those companies had been joined originally to claim certain relief in connection with the proceedings concerning the Stohl and Lazar leases. This claim for relief was deleted in the amended application. It is appropriate in the circumstances that those two companies be struck out as applicants. Leave for that purpose should be granted. At the same time the respondents should have their costs which have been thrown away as a result of that order.

5. The basis of the claims against Collier and Hogg appears at pars 59 and 60 of the amended statement of claim. Complaint was made that there was no nexus between their awareness and belief, expressed, it was said in vague terms and such that they were insufficient to found a claim for "aiding and abetting" pursuant to s. 75B of the Act, their "causing" agreements to be prepared "as a Director of Jet Corp.", both concepts being ill-defined, and the allegations of "thereby" aiding and abetting. On the face of the statement of claim, and mindful of the principles referred to earlier, the court is not satisfied that the proceedings should be dismissed with respect to Collier and Hogg, although it is noted that it may be appropriate for the matters referred to earlier to be further particularised. The further complaint that Collier and Hogg acting as "Directors" of Jet Corp. could not have aided and abetted because they were, by application of the organic theory, the Company, is not one which on the present allegations can be determined.

6. The basis of the claim against Sent and Forshaw of which their counsel complains is set out at par. 61 of the statement of claim and concerns the two Electrum companies, no longer applicants in this action, and relates also to the foundation of the claim against Dipson. Sub-paragraphs (c) and (d) allege awareness of matters which constitute the conduct complained of, namely that representations were incorporated in the various sales agreements, those representations were untrue, the pre-settlement representations were untrue, and that settlement would proceed. The relevance of the First and Second Wilson Agreements is not on the face of it apparent, but it may be inferred that a valuation of assets, said to be an unreal valuation, was made after taking into account the terms of the Wilson agreements. Nor is the relevance of the date of settlement of the Wilson agreements immediately apparent. However, again it may be inferred that the act of completing and accepting payments pursuant to the Wilson agreements at the time of settlement of the Petres, Dipson and Westwind agreements, inter alia, established a nexus between Sent and Forshaw who received the moneys (albeit they were no longer directors or in effective control of Petres and Westwind), and the aiding and abetting. Again, this is a matter on which the court cannot be satisfied that the claim should be dismissed pursuant to O.20, r. 2, particularly as the Wilson agreements, crucial to the claim, are not before the court. It may be that particular portions of those agreements and the relevance thereof could be clarified by particulars.

7. In the event that claims against the fourth to seventh-named respondents pursuant to s. 75B of the Act, have not been dismissed under O.20, r. 2, it remains to be considered whether this Court has jurisdiction to hear the claims for relief against those respondents for breach of their statutory and fiduciary duties as directors of Jet Corp. The nature of the attached jurisdiction of the court has been shown by the High Court in Fencott v. Muller (supra), and been discussed by Northrop J. in Denpro Pty. Ltd. v. Centrepoint Freeholds Pty. Ltd. (1983) 72 FLR 146 at 148-149.

8. In the present case it is not suggested that the court does not have jurisdiction in respect of the claims made against Petres, Dipson and Westwind under s. 52 of the Act. Those claims constitute a genuine and substantial aspect of the controversy before the court. That controversy is apparent from the amended statement of claim and the application, and has been dealt with in these reasons. The claims under the Act made against the remaining respondents depend on and arise out of those claims. They appear to be genuine. The factual basis for the allegations forming the basis of the claim for breach of statutory and fiduciary duties corresponds to that supporting allegations alleging contraventions of the Act. As a matter of fact, the acts said to constitute breaches of duty are said to constitute the acts of aiding and abetting. Accordingly, the submissions by counsel that the court does not have jurisdiction over these claims are rejected.

9. The facts alleged in the statement of claim disclose that there are real questions to be determined between the parties and that the rights of the parties depend upon the answers to those questions. The respondents have failed to satisfy the court that Jet Corp.'s claims must fail. It is not appropriate that the questions to be determined should be determined on a pleadings motion but should be determined on facts found on a hearing of the application. It follows that the respondents' motions that the proceeding be stayed or dismissed are dismissed.

10. The court turns now to consider the motions for orders for security for costs. Under s. 56 Federal Court of Australia Act 1976 (Cth), the court or a judge has power to order an applicant to give security for the payment of costs that may be awarded against him and if security is not given in accordance with that order, the court or a judge may order that the proceeding be dismissed. Section 56(5) is set out:
    
    

"(5). This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security."

Under s. 59 of the Federal Court of Australia Act, the judges of the court have power to make Rules of Court not inconsistent with the Federal Court of Australia Act, including a particular power to make provision for or in relation to "the furnishing of security"; see s. 59(2)(n). Order 28 makes provision for security for costs. It is necessary to set out part of O.28, r. 3:

"3.(1) Where, in any proceeding, it appears to the court on the application of a respondent -

. . .

(b) that an applicant is suing, not for his own benefit, but for the benefit of some other person and there is reason to believe that the applicant will be unable to pay the costs of the respondent if ordered to do so;

. . .

the court may order that applicant to give such security as the court thinks fit for the costs of the respondent of and incidental to the proceeding."

That subrule specifies principles to be applied by the court in the exercise of the discretion to make an order for the giving of security for costs. That subrule appears to impose limitations or restrictions on the unfettered discretion conferred by s. 56(1) of the Federal Court of Australia Act.

1. The provisions of s. 56(5) are curious. In that subsection the word "Act" must mean any other Act made by the Commonwealth Parliament. Section 59(2)(n) of the Federal Court of Australia Act when read with that subsection appears to confer a power on the judges of the Federal Court to make rules relating to security for costs which are to take effect irrespective of s. 56. The provisions of O.28, r. 6 may bring about a curious result. That rule provides:
   
   

"6. This Order does not affect the provisions of any Act of the Commonwealth or of a State or Territory under which the court may require security for costs to be given."

It is necessary to consider these provisions of the Federal Court of Australia Act and the Federal Court Rules. Section 533(1) Companies (Victoria) Code, which corresponds to s. 363 Companies Act 1961 (Vic.), provides:

"533.(1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs and stay all proceedings until the security is given."

1. Counsel for Jet Corp. contended that having regard to the provisions of s. 56 Federal Court of Australia Act, and in particular s. 56(5), the provisions of a State Act, namely s. 533 Companies (Victoria) Code, could not confer jurisdiction or power on the court to exercise the discretion referred to in that section. The short answer to that contention appears from O.29, r. 6. In that rule the words "does not affect the provisions of any Act . . . of a State" appear to assume that the court has jurisdiction or power to exercise a discretion conferred by a State Act to make an order in relation to the furnishing of security for costs. Those words may be contrasted with the words used in s. 56(5) Federal Court of Australia Act. On their proper construction, the Federal Court Rules make applicable the provisions of s. 533 Companies (Victoria) Code, and to this end reference is made to the words "Rules of Court" in s. 56(5) Federal Court of Australia Act. That provision enables O. 29, r. 6 to have effect notwithstanding its apparent inconsistency with s. 56 Federal Court of Australia Act. Accordingly, the court proposes to exercise the discretion conferred by s. 533 Companies (Victoria) Code. In so doing, the court is following the practice adopted in other proceedings before the Federal Court in circumstances where the contention made in the present case had not been made. See for example Drumdurno Pty. Ltd. v. Braham (1982) 64 FLR 227 and Newtons Travel Services Pty. Ltd v. Ansett Transport Industries (Operations) Pty Ltd. (1982) 64 FLR 205.

2. The principles to be applied in exercising the discretion conferred by s. 533 Companies (Victoria) Code and the similar discretion conferred by s. 363 Companies Act 1961 (Vic.) are set out by C.A. Sweeney J. and Smithers J. in the two cases just mentioned and need not be repeated. They will be applied to the facts of these proceedings.

3. The discretion must be exercised having regard to all the circumstances of the case before the court. On the material before the court, including the fact of the appointment of receivers and managers of Jet Corp. and its assets and undertakings, the court is satisfied that Jet Corp., as applicant in these proceedings, is a corporation and there is reason to believe that Jet Corp. will be unable to pay the costs of the respondents if they are successful in their defences. As yet, no defences have been filed or delivered. On the material before it, the court is unable to form a view as to the prospects of Jet Corp. succeeding in its claim, but it appears that if it can establish its claims, it may be established that Jet Corp.'s financial position has been worsened by the wrongful conduct of the respondents. It appears that Jet Corp. is making a genuine claim. There is no suggestion that the motions have been brought by the respondents oppressively in an attempt to stifle a genuine claim, but at the same time it must be remembered that in the unusual circumstances of this case, most of the facts needed to be proved in order for Jet Corp. to establish its claim are within the knowledge of some or other of the respondents, and that many of the documents relevant to the claim by Jet Corp. are in the custody or control of some or other of the respondents. Further, the obligations placed upon the respondents by the Trade Practices Act are in the nature of public standards of conduct which are considered desirable and in the public interest. To some extent the existence of that public interest transcends the private interests of the parties to these proceedings and at this stage weighs in the balance against making the orders sought by the respondents. On the material before it, the court is not satisfied that an order for security for costs would mean that Jet Corp. would never proceed with its claim.

4. In all the circumstances of this case, and weighing the competing interests of the parties, the court is not prepared to exercise its discretion in favour of the making of an order for security for costs. In coming to this conclusion the court has received much assistance from the reasoning of O'Bryan J. in Ferncroft Pty. Ltd. v. Kew (Supreme Court of Victoria, 22 November 1979, unreported), where his Honour discussed the principles to be applied and their application to the facts of that case.

5. In addition to relying upon the provisions of the Companies (Victoria) Code, counsel for the respondents sought the making of an order for security of costs based on O.28, r. 3(b). The court is not satisfied that Jet Corp. is suing, not for its own benefit, but for the benefit of some other person, namely Citicorp Aust. Ltd, which appointed the receivers and managers. In this respect, the court adopts and applies the principles applied by Kaye J. in Co-operative Farmers' and Graziers' Direct Meat Supply Ltd. v. Smart (1977) VR 386.

6. In the result, the motions seeking orders for security for costs are dismissed.

ORDER

Orders accordingly.