Lynjan Pty Ltd v Loretu Pty Ltd

[1990] FCA 90

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I	IN THE FEDERAL COURT OF AUSTRALIA
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NEW SOUTH WaES DISTRICT REGISTRY 1 No. G877 of 1989

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GENERAL DIVISION 1

BETEEN:  LYNJAN PTY. LIMITED

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Applicant

AND:  LORETU PTY. LIMITED

First Respondent

MARC DENIS MANION

Second Respondent

ANTONY KEITH MANION

Third Respondent

2 March 1990

REASONS FOR JUDGMENT

LOCKHART J.: This is a motion for security for costs brought by the respondents to the proceeding. For reasons of convenience I shall refer to the applicant, Lynjan Pty Limited, in the principal proceeding as "Lynjan" and the respondents, of whom there are three, as "Loretu", Loretu Pty Limited being the first respondent.

REGISTRY

The proceeding was commenced by application filed on 21
December 1989 in the New South Wales District Registry of the

court accompanied statement claim. BY reading the

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FEDERAL COURT OF

AUSTRALIA PRINCIPAL

two documents together it would appear that the claim of Lynjan is that it entered into a contract on 10 October 1988 for the purchase of a restaurant business known as La Trattoria at 88 Queen Street, Woollahra in Sydney.

The case of Lyn jan is that there were misrepresentations made to it in and about the negotiations which led to the making of the agreement for purchase in October 1988. I need not refer to the details of those alleged misrepresentations; they are mentioned in the statement of claim. In the result Lynjan claims damages pursuant to section 82 of the Trade Practices Act 1974 and damages at general law for misrepresentation.

No defence has yet been filed so I am not aware of the

' case that will be made by Loretu, although one can glean something of it from the evidence that has been filed on behalf of Loretu in support of the motion for security for

costs.

The principles that apply in motions for security for
costs are well known and I do not see any necessity to refer
to them except to say that the basis on which the motion for
security is brought is S. 533 of the Comuanies (New South
Wales Code which is the relevant provision here by reason of
the operation of S. 79 of the Judiciarv Act 1903 (Cth) in

relation to this court.

The court's power to order security is therefore one which may be exercised if it appears to the court by credible testimony that there is reason to believe that Lynjan will be unable to pay the costs of Loretu if Loretu is successful in its defence. In those circumstances the Court is empowered to require Lynjan to give sufficient security for those costs and to stay all proceedings until the security is given.

As to the question whether Lynjan has a good cause of action, I need only say this. This is a very early stage of

this case. I have read the allegations in the statement of claim and I do not yet have the benefit of a defence. There is

stage the likely outcome of the proceeding. All I will say	in my view no basis upon which I can possibly assess at this
about it is that I am not persuaded at this stage that there is a probability that Lynjan's case will be successful; but I must also say I am not persuaded that the likely resulg is that its case will fail. I just do not know.
There is evidence before the Court of the financial position of Lynjan and I summarise it this way. Lynjan has a paid up capital of $2. Its principal asset consists of its business conducted at the Woollahra premises to .which reference has been made. It includes plant and equipment, a lease being the legal base of its right tb operate and other assets, but all related to the restaurant business and its conduct.
The company Lynjan showed a loss which Mr Jaim, a director and shareholder of Lynjan, estimated as being something in the order of $20,000 for the year ended 30 June 1989 which is the first year of the company's operations. It is also plain from his evidence that since that time further losses have been sustained. The losses are covered and the company's ordinary trading activities are met, apart from turnover from the business, by the input of moneys from the shareholders, not in the form of share capital but presumably in the form of loan accounts.
In short, I have the picture at the moment of a company continuing to rely on the good offices of its shareholders to fund it to meet its liabilities and I am satisfied on the evidence that they will continue to fund the company's liabilities and in particular, its trading liabilities in the reasonably foreseeable future.
I am satisfied, however, that if Lynjan should fail in this case and have to meet an order for costs in favour of

Loretu, it is more likely than not that it would not have funds available to meet that liability; and I am not persuaded that the shareholders or directors of Lynjan would in those circumstances voluntarily contribute the necessary funds to make good the liability for costs.

I am not satisfied that the making of an order for security for costs would have the consequence that Lynjan could not proceed with its prosecution of this case. The evidence to which I have already referred speaks sufficiently,

I think, as to that.

I am satisfied that there is reason to believe that Lynjan will be unable to pay the costs of Loretu if the latter is successful in resisting these proceedings. However, I must emphasise that orders for security for costs are not final. L They can be varied from time to time, either by way of increase, diminution or as to the form by which security is to

be provided.

I am not as yet persuaded that this is a proceeding which necessarily will remain in this court. I say no more about it than that because much will depend upon an order which I propose to make later as to the provision of particulars about damages to be provided by Lynjan.

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There is evidence from the former solicitor of Loretu as to the costs that it wlll probably incur in the conduct of	I .
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its defence in these proceedings and that estimate of about
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$16,000 takes one in effect to the end of the flnal hearing of
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the matter.	L
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The interests of justice are served by ordering security for costs against Lynjan in an amount which, of	: . . .
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necessity, must be to some extent arbitrary at this stage but	v - . , .
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sufficient to deal with the early stages of the interlocutory	I
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proceedings.	The matter can be reviewed again if need be at

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an appropriate later stage.	t ,
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I think the proper order for security is that Lynjan provide security in the sum of $5000 to meet possible	L :
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liabilities for costs of Loretu. Whether this is provided in 1	[ 1
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the form of cash, bank guarantee or some other appropriate	,,.
form, I need not say.	j

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I propose to order that Lynjan provide security in the sum of $5000 in such form as the Registrar may determine and	I I I.
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reserve liberty to apply.	I I
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It seems fairly clear from what I have been told from the Bar Table that the parties will reach an agreement as to	, .
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the form of security.	Failing agreement, the Registrar can	i ' ,
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determine it. As to the costs of the motion itself in my view the proper order for costs is that the costs of the motion should be Loretu's costs in the proceeding.

Accordingly the orders of the court are that Lynjan Pty Limited provide security for the costs of the respondents in this proceeding in the sum of $5000, the security to be provided in such form as the Registrar may determine. The costs of the motion are to be the costs of the respondents in the proceeding.

I direct the applicant, Lynjan Pty Limited, to file and serve on or before 16 March next a document setting out the nature and basis of its claim for damages against the respondents and giving detailed particulars of each ingredient

in that claim for damages. 3

In addition to the orders already made, the Court orders that the applicant furnish in writing on or before 16

March 1990 particulars to the respondents as requested in the letter of 27 February 1990 from Messrs Manion McCosker to Messrs Conway McCallum, saving all just exceptions; that a copy of those particulars be filed on or before 16 March 1990 and that the proceeding be stayed pendlng the provision of the security for costs previously mentioned but excluding from the

stay the orders previously given as to the provision of	F.
particulars of damages to the court and in response to the	L .
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letter of 27 February 1990

I certify that this and the preceding

seven (7) pages are a true copy of the reasons for judgment herein of the Honourable Mr. Justice Lockhart.

s s o c i t e 6 Ioc*.g

Dated: 2 March 1990