Lisa Joy Pty Ltd v Brothers Neilsen International Pty Ltd

[2003] FCA 986

FEDERAL COURT OF AUSTRALIA

Lisa Joy Pty Ltd v Brothers Neilsen International Pty Ltd [2003) FCA 986

Federal Court of Australia Act 1976 (Cth) s 56(1)
Corporations Act 2001 (Cth) s 1335(1)

Bell Wholesale v Gates Exports Corporation (1984) 2 FCR 1 - followed
Bio-Meal and Fuel (Bourke) Pty Ltd v Darling River Cotton Pty Ltd (unreported Foster J 9 May 1991) - cited

LISA JOY PTY LTD ACN 063 934 289 v BROTHERS NEILSEN INTERNATIONAL PTY LTD ACN 063 545 200 and PAUL GREGORY NEILSEN

W 133 of 2003

SPENDER J
BRISBANE
16 SEPTEMBER 2003

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W 133 OF 2003

BETWEEN:

AND:

LISA JOY PTY LTD ACN 063 934 289
APPLICANT

BROTHERS NEILSEN INTERNATIONAL PTY LTD ACN 063 545 200
FIRST RESPONDENT

AND:

AND BETWEEN:

AND:

AND:

PAUL GREGORY NEILSEN
SECOND RESPONDENT

BROTHERS NEILSEN INTERNATIONAL PTY LTD ACN 063 545 200
CROSS APPLICANT

LISA JOY PTY LTD ACN 063 934 289
FIRST CROSS RESPONDENT

LISA KIM WATTS
SECOND CROSS RESPONDENT

JUDGE:

SPENDER J

DATE OF ORDER:

16 SEPTEMBER 2003

WHERE MADE:

BRISBANE

THE COURT ORDERS THAT:

1.The proceedings be stayed unless and until the applicant provides security in the sum of $18,000 to the satisfaction of the Registrar.

2.The costs of the application for security for costs be the parties’ costs in the cause.

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	W 133 OF 2003

BETWEEN:

AND:

LISA JOY PTY LTD ACN 063 934 289
APPLICANT

BROTHERS NEILSEN INTERNATIONAL PTY LTD ACN 063 545 200
FIRST RESPONDENT

AND:

AND BETWEEN:

AND:

AND:

PAUL GREGORY NEILSEN
SECOND RESPONDENT

BROTHERS NEILSEN INTERNATIONAL PTY LTD ACN 063 545 200
CROSS APPLICANT

LISA JOY PTY LTD ACN 063 934 289
FIRST CROSS RESPONDENT

LISA KIM WATTS
SECOND CROSS RESPONDENT

JUDGE:	SPENDER J
DATE:	16 SEPTEMBER 2003
PLACE:	BRISBANE

REASONS FOR JUDGMENT

1. I propose to order security for costs, but for an amount less than the $19,500 referred to in the affidavit of Mr Winter. Security for costs is not meant to be an indemnity, and I think, on the material before me, an appropriate figure to order is security to the satisfaction of the Registrar in an amount of $18,000.  I will give my reasons now. 

2. This is a notice of motion seeking security for costs. It is not in dispute that the applicant company, Lisa Joy Pty Ltd, would not be able to meet an order for costs in the event it be unsuccessful in its claim against Brothers Neilsen International Pty Ltd and Paul Gregory Neilsen. The power to order security for costs is to be found in s 56(1) of the Federal Court of Australia Act 1976 (Cth), which provides:

   ‘The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal to the Court to give security for the payment of costs that may be awarded against him or her.’

3. This provides for a discretion which has to be exercised judicially, but that is the only relevant limitation, as the Full Court of the Federal Court noted in Bell Wholesale v Gates Exports Corporation (1984) 2 FCR 1 at 3 (“Bell Wholesale”). Further, s 1335(1) of the Corporations Act 2001 Cth) provides:

   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, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.

4. There is no dispute here that there is reason to believe that the corporation will be unable to pay the costs of the respondents if they are successful in their defence.  Of course, the ordering of security is a discretionary matter, and it is suggested that there are two particular factors which should incline against the grant of security, or the reduction in the amount ordered to be provided, namely, that the applicant’s claim is bona fide, and it is not manifestly lacking substance as to the connection between the applicant’s impecuniosity, and the respondent.  That is a factor which Foster J said militates against the making of an order for security, or would result in an order of reduced amount, in Bio-Meal and Fuel (Bourke) Pty Ltd v Darling River Cotton Pty Ltd, an unreported judgment of 9 May 1991. 

5. It is conceded by Ms Hindman, who appeared for the applicant in the principal proceedings, that it is not possible at this stage of the proceedings to form a final view as to the strength of the plaintiff’s case, but it is true, as was submitted on behalf of the applicant, that the claim is made bona fide, and there is no manifest lack of substance in the claim that the plaintiff is impecunious as a result of the respondent’s conduct.

6. Nonetheless, the fundamental principle to me is that expressed in Bell Wholesale, that an impecunious company ought not to be permitted to have a “free hit”, in the sense that it would be entitled to the benefit of a successful prosecution of its claim, but be at no risk in the event that the claim is unsuccessful.  The Full Court said in Bell Wholesale at 4:

   ‘In our opinion, a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means.  It is not for the party seeking security to raise the matter;  it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts.’

7. Now it should be said that counsel for the applicant in the present principal proceedings does not assert that the litigation will be frustrated if an order for security is made, and therefore, the question of frustration, and the need to prove impecuniosity of those who stand behind the company is not directly relevant, but the consideration that those who stand behind the company will benefit from the litigation if it is successful, and yet will not be exposed to making good the costs that the company is ordered to pay if the company is unsuccessful, is a compelling reason for the exercise of the discretion to order security.

8. In this case, I am of the view that security ought to be provided.  As to the amount, however, it has to be understood that it is not the practice to order security on a full indemnity basis.  It has been said that the more conventional approach is to fix the sum at about two-thirds of the estimated party and party costs up to the stage of the proceedings for which security is ordered, but there is no hard and fast rule.  It is useful, in trying to determine the amount, to be provided with a skeleton bill of costs, rather than a broad-brush estimation.

9. In this particular case, the applicant for security has submitted that an appropriate figure is slightly more than $40,000.  However, that very broad-brush estimate includes costs in respect of the cross-claim, for which security should not be provided, and there is some element in relation to a foreshadowed strike-out application which was not prosecuted, it is said, because amendments to the statement of claim no longer made that necessary.  Again, the items making up the total of $43,500 are really broad-brush estimates, and are not particularly helpful. 

10. The material for the respondent on the application for security for costs has provided an estimate that says an appropriate figure would be $19,500. 

11. Mr Winter’s affidavit material does refer to scale items, and his affidavit says:

    ‘11. On the basis of the items listed in paragraph 4 of exhibit 14 of the affidavit of Mr Michael Alan Owens filed on 28 August 2003, and applying the Federal Court Scale of Costs (including general care and conduct, and having regard to the circumstances of the case) my estimate of the costs potentially recoverable by the Respondent on a party and party basis is for those items $6000. 

    12. Given the above, my estimate of the costs potentially recoverable by the Respondent for all items listed in exhibit 14 of the affidavit of Mr Owens, is $22,500.’

    Having regard to changes brought about by the inclusion of an item for the foreshadowed strike-out application, that sum has been reduced to $19,500.

12. As I indicated, that estimate is not the subject of any reduction by two-thirds of the estimated party and party costs, or any such discount, and moreover, as I understand it, does include the material that may be generated in respect of the cross-claim.

13. In all the circumstances, being very broad-brush about the matter, I think that, for the period covered by the application for security for the costs, an amount in the sum of $18,000 is just and fair.  I direct that the proceedings be stayed unless and until the applicant provides security in the sum of $18,000 to the satisfaction of the Registrar.

14. I will order that the costs of the application for security for costs be the parties’ costs in the cause.

I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender.

Associate:

Dated:             25 September 2003

Counsel for the Applicant:	Ms Melanie Hindman
Solicitor for the Applicant:	Dibbs Barker Gosling
Counsel for the Respondent:	Mr Douglas Savage SC
Solicitor for the Respondent:	Gadens Lawyers
Date of Hearing:	16 September 2003
Date of Judgment:	16 September 2003