Marketlodge P/L v St. Andrews War Memorial Hospital

[1993] FCA 804

IN THE FEDERAL COURT OF AUSTRALIA )	NO. QG 79 of 1993
QUEENSLAND DISTRICT REGISTRY	)
GENERAL DIVISION	1

BETWEEN: MARKETLODGE PTY. LTD.

Applicant

AND :  ST. ANDREW'S WAR MEMORIAL HOSPITAL

First Respondent

AND :  S

Second Respondent

AND :  ISOBEL MARY ANNAT

Third Respondent

AND :  WILLIAM CRAWFORD

Fourth Respondent

1.' '- . -

MINUTES OF ORDERS

R	-	:	Drummond J
DATE OF ORDER:	9 ~ovember, 1993
WHERE MADE:	Brisbane

(b)	additional security in a form acceptable to the
District Registrar to the extent of $10,000.00.

1.        The applicant provide as security for the respondents' costs of defending the action up to the end of the first day of trial:

(a) guarantees in a form acceptable to the District Registrar by Mr. Little and Mr. Griffin, the directors of the applicant, to pay any amount that the respondents may be held entitled to recover from the applicant in respect of their costs of defending the action from today, 9

November, 199 3 ;

2.        If all such security is not provided by 30 November, 1993, the action is to be thereafter stayed until further order.

3.        The applicant pay the respondents' costs of and incidental to the application for security for costs to be taxed.

THE COURT DIRECTS THAT:

1.        The respondents have liberty to apply to the trial judge for security for their costs of the second and each subsequent day of the trial.

2.        The respondents' notice of motion filed 10 September, 1993 is otherwise adjourned.

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

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IN THE FEDERAL COURT OF AUSTRALIA )	No. QG 79 of 1993
QUEENSLAND DISTRICT REGISTRY	1
GENERAL DIVISION	)

BETWEEN: MARKETLODGE PTY. LTD.

Applicant

AND :  ST. ANDREW'S WAR MEMORIAL HOSPITAL

First Respondent

AND :  ST. ANDREW'S PLACE LIMITED

Second Respondent

AND :  ISOBEL MARY ANNAT

Third Respondent

AND:  WILLIAM CRAWFORD

Fourth Respondent

W:	Drummond J
Date:	9 November, 1993

Place: Brisbane

EX TEMPORE REASONS FOR JUDGMENT

This is an application by the respondents in the respondents' costs in defending the proceedings. It is common	action for an order that the applicant give security for the
ground that the applicant is not in a position to be able to pay any substantial part of the respondents' costs if it fails in the action. Mr. Little, a director of the applicant company, says:

"The effect of an order for security for costs as sought by the respondents would have the effect of stifling the applicant's just claims."

The two directors of the applicant, who are also its sole shareholders and who will benefit if the applicant's claims for damages, and its foreshadowed restitutionary claims in respect of the time spent on the project by these directors, succeed, have offered unconditional personal guarantees in respect of what the applicant might otherwise be ordered to provide by way of security. However, it is common ground that there will still be a substantial shortfall between the amount of any costs order the respondents may obtain against the applicant and that which respondents are likely to recover in respect of their costs under these directors' guarantees. Mr. Little says:

"I am unable personally to make any contribution

towards such costs."

Mr. Griffin's position is much the same.

The applicant has had difficulty in formulating the

case it wishes to run against the respondents, a matter I

applicant an adjournment on terms to make certain amendments	dealt with in the reasons I gave yesterday when I granted the
to its claim. As I then said, it is possible that the applicant may have a claim in restitution in respect of the $350,000 or so it incurred by way of consultant's fees with respect to the project. (Although I think the question of whether the applicant has grounds for recovery in respect of the time and effort which the directors expended on the project is even less clear on the evidence before me.) The
applicant has not yet paid these consultant fees although it accepts liability for them. Plainly the evidence before me shows that the consultants prospects of recovering their fees from the applicant will depend on whether the applicant's action, in respect of its claims for damages, in restitution or otherwise, succeeds. Mr. Little says:

"The substantial asset which the applicant ... has is the value of its contractual and other rights and claims as against the respondents in these proceedings. The company has a small amount of office machinery. ... Presently the company does not trade."

In a decision of the Full Court of this Court,

Wholesale Co. Ltd. v Gates Exvort Cor~oration (1984) 2 F.C.R.
1, the Court said at page 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.

the matter; it is an essential part of the case of a	It is not for the party seeking security to raise
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."

In a decision of the New South Wales Court of Appeal, Hessian v centurv 21 South Pacific Ltd. ( in liquidation1 (1992) 28 N.S.W.L.R. 120, Meagher JA giving the leading judgment said at 123:

"Further, a company in liquidation against whom an order for security for costs is sought cannot successful resist such an order merely by proving that it cannot fund the litigation from its own resources if an order for security is made; it must prove that it cannot do so even if it relies on the other resources available to it, (the company's shareholders or creditors): Bell Wholesale Co. Ptv. Ltd. v Gates ExDOrt Cor~oration ... Finally, whilst it is both true and important that poverty must be no bar to litigation, what that means is that the courts must be astute to see that no person pursuing a claim which is not frivolous is precluded from doing so by the erection of obstacles which poverty is unable to surmount; it does not mean that proof of insolvency automatically confers an immunity from statutory provisions which deal with insolvent plaintiffs."

I have already referred to the difficulties the applicant is having in formulating its case. While I do not say that the applicant's case, so far as it can presently be identified, is frivolous, the applicant is in a weaker position than an impecunious company which has before the court a claim so formulated that it can be seen to have a prospect of success if the company has the evidence to prove the allegations made. The applicant's position here is further weakened by the fact that it has had a great deal of

time after being put on notice of this application for	security to formulate its claims, but has not taken advantage
of that period of notice to attend to how it may be able to define the whole of the case it wishes to pursue.
The attitude of the consultants as creditors of the applicant is, in my view, a relevant mAtter to take into account in deciding whether to allow this impecunious applicant to pursue the action free of any order for security of costs in favour of the respondents other than an order that the applicant's impecunious directors provide the personal guarantees they have offered in that regard. The applicant has the onus, in resisting 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 that those who will benefit lack the means to contribute to the security the respondents seek.
The position of the consultants for whose fees Mr. Little says the applicant accepts responsibility is different from that of a general body of creditors of an impecunious applicant company, given that the applicant here proposes to claim for the reimbursement of those fees from the respondents on .the ground that it is unjust for the respondents to take the benefit of the consultants' work while leaving it to the applicant to meet those fees. The applicant's intention to so claim against the respondents is not affected, in my view, by Mr. Little's expression of opinion that the first respondent
project went ahead, although that respondent has not paid the agreed, back in November 1990, to pay those fees if the fees in question, the project now being complete.
Even if the statement in Bell Wholesale to which I have referred cannot be read as indicating that it is in all circumstances relevant for an applicant who seeks to resist an order for security to show that none of its creditors has the

means to assist the applicant in providing protection for the respondents' costs, I think that the consultants here are creditors who are likely to so directly benefit from the action if the applicant has success on any basis as to require the applicant to put evidence before the court as to their attitude to assisting the applicant with the provision of security for the respondents' costs. After the luncheon adjournment yesterday, I was informed by counsel for the applicant, without objection by counsel for the respondents, that each of the consultants referred to in paragraph 8 of Mr. Little's affidavit had been contacted by the applicant's solicitor, apparently over the luncheon adjournment, and none was prepared to offer any contribution towards any security that the respondents might be held to be entitled to for their costs of the action. I do not, however, accept that such a cursory polling of the consultants establishes that they are inflexibly opposed to providing any assistance to the applicant in meeting an order for security that the respondents might obtain. There is no suggestion that the

consultants lack the means to do so. The court's discretion with respect to the ordering	of security for costs is a very wide one: see Bell Wholesale
at 3. It is not to be fettered by rules, including a rule that if a respondent has the personal guarantee of the members of an impecunious applicant company that is all the protection the respondent is entitled to for its costs, irrespective of the worth of that guarantee; although such a matter is, of course, an important consideration to be taken into account by the court in deciding what security to order.
I do not consider that the fact that the provision of guarantees by the directors which, on the evidence, are likely to be of little worth to the respondents if they succeed in the action, i s sufficient without more to meet respondents' legitimate demand for protection with respect to its costs. For the reasons given, the position of the consultants as creditors of the applicant must also be taken into account. Given the difficulties the applicant has had, and may still have, in formulating its claim, the admitted impecuniosity of the applicant and the very limited protection offered to the respondents by the guarantees offered by the applicant's two directors, and given also the unsatisfactory nature of the explanation for the lack of assistance to the applicant from the consultants who stand to benefit from any recovery by the applicant in the action with respect to security for the respondents' costs, I think this is a case in which security should be ordered in addition to security by
way of the guarantees offered by Mr. Little and Mr. Griffin.
The solicitor for the respondents swore in his affidavit of 10 September, 1993 as follows:

"According to my own appreciation of what the preparation for trial and trial of this matter will likely involve and as I am informed by costs assessors retained by me and verily believe, the applicant respondents party and party costs of an incidental to their preparing for the defence of and defending the application will likely be not less than $100,000."

The respondents read an affidavit sworn by a legal costs assessor, Mr. Ryan, which estimates the respondents' entire costs of defending the action from 15 June to the end of the trial, assuming the trial will go for five days, at approximately $50,000.00. Mr. Ryan provides a full break-up of his estimate.

On the evidence before me, the question of security was first raised at the end of August, the action having been commenced in May last. I do not think it appropriate to order security in respect of the respondents' costs incurred prior to then when this impecunious applicant was allowed to incur costs on his own behalf in getting to the stage the action then reached. On the basis of Mr. Ryan's affidavit, I think, leaving aside the offer of the guarantees, security in an amount of $20,000.00 would be appropriate, such figure being made up as follows: to the costs of both solicitor and

counsel in relation to the application for security -	$3,000.00; in respect of discovery and inspection - $5,000.00;
in respect of interviewing witnesses - $2,500.00; in respect of solicitor and counsel's work involved in advising on evidence - $2,000.00; pre-trial conferences for both solicitor and counsel - $1,732.00; solicitor instructing on the first day of the trial and counsel's fee on brief on trial - $3,614.00; solicitor's care and consideration - say $2,000.00. A total of approximately $20,000.00.
~lthough the directors' guarantees are, on the evidence, likely to be of little worth to the respondents, the directors are exposing all the assets they may have to the respondents, if the respondents end up with a claim for costs against the applicant. Although they must be worth something to the respondents, the applicant has not put in evidence any estimate of what these guarantees are likely to be worth. I think that in addition to such guarantees the applicant should provide one half of the amount which, in my view, the respondents would be entitled to by way of security.
The orders will therefore be that the applicant provide as security for the respondents' costs of defending the action up to the end of the first day of trial:

(1) Guarantees in a form acceptable to the District Registrar by Mr. Little and Mr. Griffin, the directors of the applicant, to pay any amount that the respondents may be held entitled to recover from the applicant in respect of their costs of defending

the action from today, 9 November, 1993.

(2) Additional security in a form acceptable to the

District Registrar to the extent of $10,000.00.

If all such security is not provided by 30 November, 1993 the action is to be thereafter stayed until further order.

I will give the respondents liberty to apply to the trial judge for security for their costs of the second and each subsequent day of the trial.

I certify that this and the preceding
9 pages are a true copy of the

reasons for judgment herein of the

Honourable Mr. Justice Drummond.

Associate:

Date:  9 November, 1993