P. M. Sulcs and Associates Pty Ltd v Detroit Diesel-Allison Australia Pty Ltd

[2000] FCA 921

FEDERAL COURT OF AUSTRALIA

P. M. Sulcs & Associates Pty Ltd v Detroit Diesel‑Allison Australia Pty Ltd

[2000] FCA 921

P. M. SULCS & ASSOCIATES PTY LTD v DETROIT DIESEL‑ALLISON AUSTRALIA PTY LTD

NG 295 OF 1997

LEHANE J
14 JUNE 2000
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 295 OF 1997

BETWEEN:

P. M. SULCS & ASSOCIATES PTY LIMITED

APPLICANT

AND:

DETROIT DIESEL‑ALLISON AUSTRALIA PTY LIMITED

FIRST RESPONDENT

TBI PTY LTD
SECOND RESPONDENT

LEO EDWARD TUTT
THIRD RESPONDENT

ROBERT CLEMENT STEVENSON
FOURTH RESPONDENT

P. M. SULCS & ASSOCIATES LTD
FIFTH RESPONDENT

DETROIT DIESEL‑ALLISON AUSTRALIA PTY LTD
CROSS‑CLAIMANT

P. M. SULCS & ASSOCIATES PTY LTD
FIRST CROSS‑RESPONDENT

JOHN WADLEY HOOPER
SECOND CROSS‑RESPONDENT

LIANNE SARAH HOOPER
THIRD CROSS‑RESPONDENT

JUDGE:

LEHANE J

DATE OF ORDER:

14 JUNE 2000

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The relief sought in Orders 1 and 2 of the first to fourth respondents’ notice of motion filed on 24 November 1999 be refused.

2.The relief sought in Order 3 be granted, on the footing that paragraphs 3 and 4 of the Schedule of Relevant Documents to the notice of motion are not included in the documents to be discovered.

3.The relief sought in Order 5 be granted.

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 295 OF 1997

BETWEEN:

P. M. SULCS & ASSOCIATES PTY LIMITED

APPLICANT

AND:

DETROIT DIESEL‑ALLISON AUSTRALIA PTY LIMITED

FIRST RESPONDENT

TBI PTY LTD
SECOND RESPONDENT

LEO EDWARD TUTT
THIRD RESPONDENT

ROBERT CLEMENT STEVENSON
FOURTH RESPONDENT

P. M. SULCS & ASSOCIATES LTD
FIFTH RESPONDENT

DETROIT DIESEL‑ALLISON AUSTRALIA PTY LTD
CROSS‑CLAIMANT

P. M. SULCS & ASSOCIATES PTY LTD
FIRST CROSS‑RESPONDENT

JOHN WADLEY HOOPER
SECOND CROSS‑RESPONDENT

LIANNE SARAH HOOPER
THIRD CROSS‑RESPONDENT

JUDGE:	LEHANE J
DATE:	14 JUNE 2000
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. The first to fourth respondents (to whom, for simplicity, I shall refer as the respondents) seek, by notice of motion filed on 24 November 1999, among other things an order that the applicant provide security for costs incurred by the respondents by way of a bank guarantee in the amount of $75,000. That order is sought under section 1335 of the Corporations Law and also under O 28 r 2 of the Federal Court Rules. There is no doubt that the Court has power to make an order of the kind which the respondents seek (though there may be room for doubt as to whether the Court has power to do so under s 1335), nor is there any room for doubt, or indeed any controversy, about the principles to be applied by the Court in exercising its discretion. The parties accepted that for present purposes a convenient statement of the applicable principles is to be found in the judgment of Waddell J in Southern Cross Exploration NL v Fire and All Risks Insurance Co Limited (1985) 1 NSWLR 114.

2. It is common ground that the applicant is impecunious.  It is common ground also that the second cross-respondent, Mr Hooper, beneficially owns all the shares in the applicant and that he, and he alone, stands to benefit if the applicant is successful in this proceeding.  It is common ground, thirdly, that, if in its discretion the Court were to make an order for security for costs, the amount and nature of the security sought are reasonable.

3. There are two principal issues to which evidence and argument have been directed.  First, should an order be refused because of the respondents’ delay in seeking it?  Secondly, should an order be refused because Mr Hooper’s financial position is such that an order for security would have the effect of stifling the litigation by effectively preventing the applicant from pursuing it?

4. Before returning to those principal issues, there are at least two subsidiary issues which I shall deal with very briefly. First, there was a suggestion that an order should be refused on the footing that the applicant’s impecuniosity was the result of the conduct of the respondents which is the foundation of the applicant’s claims against them in the proceeding. That submission, it may fairly be said, was only faintly pressed. It is sufficient to say that, in my view, it was not made out. Secondly, there was a suggestion that an order should not be made because the respondents were, in the terminology used in some of the cases, the real aggressors in the proceeding. That submission was made, I think, largely by reference to a cross-claim by which the respondents seek damages against the applicant, Mr Hooper, and his wife, Mrs Hooper, on the basis of alleged conduct infringing s 52 of the Trade Practices Act 1974 (Cth). It is fair to say that in the end that submission was only faintly pressed as well. There is, I think, no reason to characterise the cross‑claim in any other way than the respondents’ counsel submitted that it should be characterised: that is, as defensive.

5. I turn then to the question of delay.  The question of the applicant’s possible impecuniosity was first raised quite early in the proceeding by a letter dated 1 May 1997 to the solicitors then acting for the applicant.  The respondents’ solicitors said that their inquiries suggested that the applicant was not in a position to satisfy the costs which the respondents expected to be awarded should they be successful.  The respondents’ solicitors accordingly requested either evidence demonstrating the applicant’s ability to pay any costs which might be awarded against it or the applicant’s agreement to provide security.

6. That elicited from the applicant’s solicitors the following response, the next day:

   You state in your letter that your inquiries suggest that the applicant is not in a position to satisfy costs.  This is totally contrary to our understanding and we therefore request that you advise what enquiries you have made and the results thereof which lead you to that suggestion.

7. The respondents’ solicitors dealt with that request somewhat tersely in a letter of 5 May 1997.  They sought a copy of the applicant’s most recent balance sheet and profit and loss account.  In a letter dated 24 April 1997 (apparently incorrectly, because it referred to the letters dated 5 and 7 May 1997 from the respondents’ solicitors and was received by the respondents’ solicitors on 9 May 1997), the applicant’s solicitors asked what was the basis of the respondents’ concerns but provided no further information.  The respondents’ solicitors again requested further information by a letter dated 11 May 1997, and there matters appear to have rested for more than two years.

8. Correspondence on the topic resumed in October 1999.  The respondents had, about two months previously, discovered that the applicant had not filed tax returns for the previous five years.  In a letter dated 14 October 1999, they recited earlier dealings between the parties and foreshadowed a motion for security.  The applicant’s solicitors responded on 15 October 1999 that they had previously advised the respondents’ solicitors that the applicant was in sufficient funds to prosecute the matter and to meet any costs orders that might be made against it.  They reiterated that if, as they asserted was unlikely to be the case, the applicant was unsuccessful in the proceeding, the applicant was in a position to meet an order for costs.

9. That did not satisfy the respondents’ solicitors.  They reiterated the request for security.  The applicant’s solicitors declined, on behalf of their client, to provide security.  They stated, in a letter dated 18 October 1999, that:

   “[T]he writer has contacted one of the Applicant’s banks and confirms that in cleared funds in one account alone, the Applicant has well in excess of the funds you seek by way of Bank Guarantee and is clearly in a position to pay any costs orders that might be made against them.”

10. The respondents’ solicitors retorted that that response was inadequate and indicated that they anticipated that they would be instructed to file a notice of motion seeking an order for security for costs if the applicant did not provide, by 22 October 1999, either the security which they sought or evidence establishing its ability to meet an order for costs.  The applicant’s solicitors, in reply, pleaded various causes for their delay in dealing with the matter.  Then, on 4 November 1999, the respondents’ solicitors informed the applicant’s solicitors that they had received the instructions which they had foreshadowed.  Shortly thereafter, the present motion was filed and served.

11. There are aspects of the correspondence (which I have recited at some length) and of later dealings between the parties which seem to me by no means entirely satisfactory.  After the motion had been filed – that is to say, well after all the correspondence which I have recited – it came to the notice of the respondents and their solicitors that the applicant was engaged not only in this proceeding but also in an action which it had commenced as plaintiff in 1993 in the Common Law Division of the Supreme Court of New South Wales against a defendant unrelated to any party to this proceeding.  The existence of that proceeding was well known to the applicant and its solicitors at the time when the “one account alone” was brought to the notice of the respondents’ solicitors and statements were made to the effect that the applicant was in a position to meet any costs order which might be made against it, and it must have been apparent to them that a very substantial liability for costs on the part of the applicant was accruing not only in this proceeding but in the other proceeding as well.  Certainly, it could not be said, I think, that the applicant was under any obligation to make a voluntary disclosure of the existence of the other proceeding.  On the other hand, the circumstances known to the applicant and its solicitors must have, had they thought about it, given grounds for doubt as to whether what they told the respondents’ solicitors about the applicant’s ability to meet an order for costs against it could really be justified.  In a sense, that hardly matters in relation to the question of delay, though it may perhaps be a matter which ought more generally to be taken into account in the exercise of the Court’s discretion.

12. The reason that it hardly matters in relation to the question of delay is that it arose only shortly before the notice of motion was filed and served.  In the earlier correspondence in May 1997, it is true that the applicant’s then solicitors had stated that a suggestion that the applicant was not in a position to satisfy costs was contrary to their understanding.  But there is no evidence to suggest that that statement of their understanding was incorrect and, in any event, the evidence is that the respondents, having sought further information and not having obtained it, took a deliberate decision – the respondents’ solicitor frankly reveals that in his affidavit evidence – at that time to proceed no further, but instead to see what emerged, as to the applicant’s financial position, in the course of discovery.  It was only after the proceeding had been on foot for a very considerable time and discovery had revealed nothing of any consequence as to the applicant’s financial position that the respondents once again put the question of security for costs on the agenda.

13. There was, in summary, a considerable delay extending over a period of approximately two and a half years, during which a great deal happened by way of further interlocutory steps in the proceeding.  There was a motion, in which the respondents were unsuccessful, for summary dismissal or, in the alternative, for orders striking out the statement of claim or particular paragraphs of it.  There was, as I have mentioned, extensive discovery, a process which, it may be said, is not yet complete.  Evidence was filed, in the form of affidavits in chief of the applicant and affidavits in response on the part of the respondents.  Barring unforeseen circumstances, that left only the applicant’s affidavits in reply to complete the evidence.  It is, I think, fair to observe that it is likely that significant costs have been incurred on both sides in the course of those interlocutory steps.  It is fair also to observe that, having succeeded in resisting the respondents’ motion for summary dismissal, the applicant is entitled to its costs of that motion.  I have made an order to that effect, but not an order that those costs be taxed and paid forthwith.

14. Of course, the delay to which I have referred would almost certainly lead to a refusal of an order for security for costs incurred earlier than the date on which the notice of motion was filed.  The respondents, however, make it clear that the costs for which they seek security are only those incurred in the period commencing on the date on which the motion was filed and extending to the date of commencement of the trial.  In relation to those costs, the question of delay is perhaps somewhat less significant.  In rather different circumstances, Waddell J drew such a distinction in Southern Cross.  But the delay is still, in my view, a matter which weighs in the discretionary balance against the respondents in circumstances where, during the period of the delay, the case has advanced as far and, one might add, as apparently expensively as this case has done.  I shall leave the question of delay at that, while I consider the other principal issue, the question of Mr Hooper’s financial position and whether it is such that the making of an order would have the effect of stifling this proceeding.

15. There is, I think, no significant dispute as to the present position.  There may be areas of some doubt as to whether every particular of Mr Hooper’s position is revealed with precision in his affidavit evidence: counsel for the respondents pointed to an application made to a bank by Mr Hooper in 1995, in which he valued assets which he owned jointly with Mrs Hooper at an amount considerably greater than the amount of his assets as disclosed in an affidavit dated 17 February 2000, filed in the proceeding in the Common Law Division and relied upon in this proceeding.  But the differences, apart from an increase in the value of a jointly owned house, perhaps are to be explained in part by the use in the affidavit of the general expression, “personal effects”, which effects Mr Hooper does not separately value (I refer particularly to furniture given a value of $178,000 in the bank application); by the unsurprising fact that motor vehicles appear to be worth less now than they were in 1995; and by the probability that other current assets have, in the intervening period, been spent.  There is, in the upshot, no firm basis for a conclusion that Mr Hooper’s assets at present are substantially greater or more valuable than as he discloses: that is, an interest as joint tenant with his wife in their house valued at $600,000.00, a motor vehicle valued at $8,000.00, about $7,000.00 held in the Commonwealth Bank and shares beneficially owned in the applicant. 

16. It is also clear on the evidence that two mortgages have been given over the house owned by the applicant and his wife: one of $100,000 supporting a guarantee, the guarantee being given by a bank apparently by way of security for costs in the Common Law Division proceeding; and the other for an amount of $400,000.00 in favour of the Commonwealth Bank.  Mr Hooper’s evidence is that none of that sum of $400,000.00 has yet been drawn but it is allocated, he says, for the payment of legal fees, and I understand that the legal fees concerned are those incurred and to be incurred in this proceeding and in the Common Law Division proceeding.  It may, I think, be inferred that a property worth $600,000.00 could not be mortgaged by way of security for a total sum greater than $500,000.00.  It was not in fact suggested that more than $500,000.00 could be squeezed from the jointly owned property. The suggestion was, $400,000.00 being undrawn and available under the mortgage in favour of the Commonwealth Bank, that that sum might be used in part to provide the security for costs sought by the respondents by their present motion.

17. There are, once again, aspects of the evidence that are unsatisfactory, in the sense that they are less complete than might be ideal. For example, the valuation of $600,000.00 is simply a matter of assertion; and it must be borne in mind that the principle usually applied in these cases is that, where it is said by an applicant that persons standing behind it are not in a position to provide security, the burden rests upon the applicant to make that proposition good.

18. In the end, I think the task is to balance against the suggestive and not entirely satisfactory evidence as to Mr Hooper’s financial position the effect of the respondents’ delay in seeking an order for security.  In other words, I think I am justified, in circumstances where there has been significant delay in seeking an order, in taking that delay into account not merely as a separate factor going to the exercise of the discretion but also in considering whether I should regard the evidence as to Mr Hooper’s financial situation as sufficiently justifying the proposition that, if security were ordered, the litigation would be stifled.  I take that view principally because of the circumstance that much has happened in this proceeding since the time when the question of security was first raised and the likelihood that, if I were to deal with the present motion in a way which would probably merely defer the question of security, more time would be taken and more money would be spent to very little avail.

19. I think it is reasonable and proper in the circumstances to infer on the basis of the evidence which I do have, from my knowledge of this proceeding and from the evidence and what I have been told from the bar table about the Common Law Division proceeding, that it is highly improbable that Mr Hooper would be in a position both to pay his own legal costs in that proceeding and to pay the respondents’ taxed costs in this proceeding.

20. In all those circumstances, I think the appropriate course is that the motion, so far as it seeks security, should fail.  I will so order.

21. By consent, I make order number 3 as sought in the notice of motion but on the footing that paragraphs 3 and 4 of the Schedule of Relevant Documents are not included in the documents to be discovered.  I make an order in terms of order 5 as sought in the notice of motion, also by consent.

I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lehane.

Associate:

Dated:             7 July 2000

Counsel for the Applicant:	T J Hancock
Solicitor for the Applicant:	Oliveri Attorneys
Counsel for the Respondents:	J R Baird
Solicitor for the Respondents:	Richard Pryor and Associates
Date of Hearing:	14 June 2000
Date of Judgment:	14 June 2000