Massey Trading Pty Ltd v Intoto Pty Ltd

[2001] FCA 1242

FEDERAL COURT OF AUSTRALIA

Massey Trading Pty Ltd v Intoto Pty Ltd [2001] FCA 1242

PRACTICE AND PROCEDURE – security for costs – security previously granted in proceedings – no material change in financial circumstances of first applicant since then – second applicants using superannuation funds to cover costs of litigation for both applicants – whether circumstances are such that the second applicants who stand behind the first applicant will benefit if the litigation is successful when they are also without financial means – whether prima facie unfairness to first to fifth respondents can be relieved by an order for security – order for security granted.

Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 followed
Massey Trading Pty Ltd v Intoto Pty Ltd [2000] FCA 1380 referred to

MASSEY TRADING PTY LIMITED, STANLEY VICTOR DOWSE AND SUSAN MARGARET DOWSE v INTOTO PYT LIMITED, CAPECAST PTY LIMITED, KEIRAN BRIAN O’CONNOR, BRETT DOUGLAS KENYON, BRENDON LUNNEY MERELYN AKED, PETER KLIMT AND KERRY SIDAWAY

INTOTO PTY LIMITED v GARY LINDSAY STANMORE AND RORY FRANCIS O’BRIEN t/as BAYSIDE BUSINESS BROKERS

CAPECAST PTY LIMITED v STANLEY VICTOR DOWSE AND SUSAN MARGARET DOWSE

NG 1057 OF 1998

CONTI J
4 SEPTEMBER 2001
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 1057 OF 1998

BETWEEN:

MASSEY TRADING PTY LIMITED
FIRST APPLICANT

STANLEY VICTOR DOWSE AND SUSAN MARGARET DOWSE
SECOND APPLICANT

AND:

INTOTO PTY LIMITED
FIRST RESPONDENT

CAPECAST PTY LIMITED
SECOND RESPONDENT

KEIRAN BRIAN O'CONNOR
THIRD RESPONDENT

BRETT DOUGLAS KENYON
FOURTH RESPONDENT

BRENDON LUNNEY
FIFTH RESPONDENT

MERELYN AKED
SIXTH RESPONDENT

PETER KLIMT
SEVENTH RESPONDENT

KERRY SIDAWAY
EIGHTH RESPONDENT

AND BETWEEN:

AND

INTOTO PTY LIMITED
FIRST CROSS-CLAIMANT

GARY LINDSAY STANMORE AND RORY FRANCIS O’BRIEN t/as BAYSIDE BUSINESS BROKERS
FIRST CROSS-DEFENDANT

AND BETWEEN:

AND

CAPECASE PTY LIMITED
SECOND CROSS-CLAIMANT

STANLEY VICTOR DOWSE AND SUSAN MARGARET DOWSE
SECOND CROSS-DEFENDANTS

JUDGE:

CONTI J

DATE OF ORDER:

4 SEPTEMBER 2001

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.Unless on or before 11 September 2001, the First Applicant provides further security for the costs of the First to Fifth Respondents in the further sum of Twenty-five thousand dollars ($25,000.00), in a form satisfactory to the Registrar, the principal proceedings be stayed.

2.I reserve liberty to apply to the Applicants and to the First to Fifth Respondents on one day’s notice.

3.I make no order as to the costs of the present application for security for costs made by the First to the Fifth Respondents.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 1057 OF 1998

BETWEEN:

MASSEY TRADING PTY LIMITED
FIRST APPLICANT

STANLEY VICTOR DOWSE AND SUSAN MARGARET DOWSE
SECOND APPLICANT

AND:

INTOTO PTY LIMITED
FIRST RESPONDENT

CAPECAST PTY LIMITED
SECOND RESPONDENT

KEIRAN BRIAN O'CONNOR
THIRD RESPONDENT

BRETT DOUGLAS KENYON
FOURTH RESPONDENT

BRENDON LUNNEY
FIFTH RESPONDENT

MERELYN AKED
SIXTH RESPONDENT

PETER KLIMT
SEVENTH RESPONDENT

KERRY SIDAWAY
EIGHTH RESPONDENT

AND BETWEEN:

AND

INTOTO PTY LIMITED
FIRST CROSS-CLAIMANT

GARY LINDSAY STANMORE AND RORY FRANCIS O’BRIEN t/as BAYSIDE BUSINESS BROKERS
FIRST CROSS-DEFENDANT

AND BETWEEN:

AND

CAPECASE PTY LIMITED
SECOND CROSS-CLAIMANT

STANLEY VICTOR DOWSE AND SUSAN MARGARET DOWSE
SECOND CROSS-DEFENDANTS

JUDGE:	CONTI J
DATE:	4 SEPTEMBER 2001
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. This is a further application for security for costs brought by the First to Fifth Respondents (“Intoto Respondents”) against the Applicants (“Massey” and “Mr and Mrs Dowse” respectively). A previous order for security made in the proceedings on 6 September 2000 by Beaumont J was in the following terms.

   “1.Unless on or before 6 October 2000 the applicants provide security for the costs of the respondents incurred to date in the following amounts, in a form satisfactory to a Registrar, order that the principal proceedings be stayed. The amounts of security are as follows:

   (a)as to the first to fifth respondents inclusive, the sum of $5000;

   (b)as to the sixth and eighth respondents, the sum of $5000;

   (c)as to the seventh respondent, the sum of $5000.

   2.Reserve liberty to any respondent to apply for security for the costs incurred after today, 6 September 2000.

   3.The applicants in the principal proceedings pay the respondents’ costs of the motion for security.

   4.On the application for security for costs against the first respondent, order that the proceedings on the cross-claim be stayed unless on or before 6 October 2000 the first respondent provides to the first cross-defendant security in the sum of $50,000 in a form satisfactory to a Registrar.

   5.The first respondent pay the costs of the first cross-defendant of that application for security, to be taxed forthwith if not agreed.”

2. Such orders were made in the context of extensive reasoning undertaken by his Honour, based upon the reports of two Registrars of the Court prepared at his request, one of whom found that although Massey appeared to be technically solvent by reason of the capitalisation of a substantial indebtedness on its part in favour of its directors Mr and Mrs Dowse, nevertheless its assets were so limited in value as not to be able to satisfy any adverse order as to costs above the sum of $18,000.00.

3. The evidence placed before me discloses no material change in the financial situation of Massey, in that it would still not be able to meet out of its own resources an adverse order for the costs of the proceedings which might be awarded in favour of the Intoto Respondents. However the financial circumstances of Mr and Mrs Dowse since the hearing before Beaumont J, have materially changed, in that they apparently now have access to reasonably substantial superannuation funds, and have been applying the same in payment of the costs of representation of Massey as well as themselves. Such superannuation funds are not susceptible to recourse by creditors, as is normally the case, and thus by any successful respondents to the present causes of action being pursued by the Applicants, but Mr and Mrs Dowse have access thereto at least for funding the litigation both on behalf of themselves and Massey as Applicants, in circumstances not explained in any detail by affidavit.

4. The Intoto Respondents therefore find themselves potentially in the dilemma of not being able to potentially benefit financially from any order for costs which might hereafter be made in their favour, if their defence to the actions of Massey and Mr and Mrs Dowse brought against them are found to be supportable. Mr and Mrs Dowse are thus placed by the circumstances to which I have referred in a situation analogous to that of insolvent natural persons, against whom security for costs cannot normally be ordered according to established principle.

5. I am unable to accept that the prima facie unfairness to the Intoto Respondents of this situation cannot be relieved by the making of an order for security against Massey, whose cause of action is plainly at least the principal one which such Respondents are obliged to meet. In that regard, I refer to the following dicta of a Full Court (Sheppard, Morling and Neaves JJ) in Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 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 provide the necessary facts.”

   Put shortly, Mr and Mrs Dowse for their part are not placed personally in any situation of impecuniosity, in the light of their apparent access to superannuation funds of not insignificant size. Moreover, the respective causes of action of Massey on the one hand and of Mr and Mrs Dowse on the other are not joint, in the sense that dismissal of Massey from the proceedings for non-fulfilment of an order for security would render the cause of action of Mr and Mrs Dowse per se improperly constituted and demurrable.

6. The reasons for judgment of Beaumont J of 6 September 2000 disclose implicitly that his Honour had in mind that his award thereby made was susceptible to subsequent increase in scope: see Massey Trading Pty Ltd v Intoto Pty Ltd [2000] FCA 1380 at [47] thereof, where liberty to apply for further security was reserved.

7. For the guidance of Beaumont J, Deputy Registrar Tesoriero provided an assessment of the costs of the Intoto Respondents inter alia in the sum of $73,000.00 upon the footing of a completed fifteen day hearing. The Intoto Respondents have submitted that the same is substantially inadequate, for variety of reasons including disallowance of fees for Senior Counsel. However I do not regard myself as qualified to express any different view from that of Mr Tesoriero, particularly since his assessment was implicitly adopted by Beaumont J. I have therefore reached the conclusion in principle that I should make a further order for the provision of security by Massey, though not by Mr and Mrs Dowse.

8. There has been tendered to the Court on behalf of Massey affidavit evidence of Mr David Elliott of Counsel to the effect that the Applicants have a strong prima facie case, and thus, so it is contended before me by Massey’s Solicitor, no order for security should be made at all. However the affidavit was in merely conclusionary form, and provided no basis in reasoning. There was also produced to me two computer sheets of paper, but I gained no assistance from such material in isolation from their context. I do not think that it was appropriate in any event for Mr Elliott to have been required to provide such affidavit evidence on his part, given that he will apparently be appearing as counsel at the hearing.

9. With assistance from the passage in Beaumont J’s judgment at [43] and the concern there expressed, and notwithstanding the warning of the solicitor for Massey and Mr and Mrs Dowse to the Court that they might not proceed if a further order for security be made by the Court, I find that an order for security should be made in favour of the Intoto Respondents for a relatively modest sum which would reflect the period of ten hearing days of Court time presently set aside. My judgment is that in the light of what Massey’s solicitor has informed the Court as to the amount of superannuation funds to which Massey has indirect access through its decision-makers Mr and Mrs Dowse, a further sum should be awarded by way of “some measure of security” for the Intoto Respondents, to adopt his Honour’s expression at [43]. I should add that having briefly read the Court papers relating to the issues for trial, the ten hearing days is ample for the disposition of all issues raised by all parties, and I propose to make further directions in that regard.

10. I assess further security in the sum of $25,000.00 to be provided by Massey in favour of the Intoto Respondents, the same to be provided within seven days. I further grant liberty to apply. In the circumstances of neither of the parties to the application having succeeded in their submissions on the issue of security, there should be no order as to the costs of the present application.

I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.

Associate:

Dated:             4 September 2001

Solicitor for the Applicant:	Mr A Cohen
Counsel for the First to Fifth Respondents:	Mr DPF Officer QC and Mr SF Hughes
Solicitor for the First to Fifth Respondents:	Heidtman & Co
Date of Hearing:	22 August 2001
Date of Judgment:	4 September 2001