Pinanca Pty Ltd v Trinity Projects Pty Ltd

[1991] TASSC 90

80/1991
List "A"

COURT:                 SUPREME COURT OF TASMANIA

CITATION:            Pinanca Pty Ltd v Trinity Projects Pty Ltd [1991] TASSC 90; A80/1991

PARTIES:IN THE MATTER OF THE COMMERCIAL ARBITRATION ACT 1986 AND IN THE MATTER OF AN ARBITRATION BETWEEN TRINITY PROJECTS PTY LTD AS CLAIMANT AND PINANCA PTY LTD AS RESPONDENT PINANCA PTY LTD v TRINITY PROJECTS PTY LTD

FILE NO/S:  M482/1988
DELIVERED ON:  4 October 1991
JUDGMENT OF:  Cox J

Judgment Number:  A80/1991
Number of paragraphs:  7

Serial No 80/1991
List "A"
File No M482/1988

IN THE MATTER OF THE COMMERCIAL ARBITRATION ACT 1986 AND IN THE MATTER OF AN ARBITRATION BETWEEN TRINITY PROJECTS PTY LTD AS CLAIMANT AND PINANCA PTY LTD AS RESPONDENT PINANCA PTY LTD v TRINITY PROJECTS PTY LTD

REASONS FOR JUDGMENT  COX J

4 October 1991

1. The applicant Pinanca Pty Ltd, on 7 December 1988, commenced proceedings to set aside the arbitrator‘s award herein on the grounds of misconduct. The award he made was that the applicant paid to the respondent, Trinity Projects Pty Ltd, a sum of $58,786.74 which included an allowance of interest. Later he ordered the applicant to pay all his fees and expenses. The respondent, having paid $81,950. towards those fees and expenses, is entitled to reimbursement pursuant to the award of that sum as well from the applicant. The present proceedings are expected to be tried in the November sittings of the court.

1. The respondent has sought the making of two orders. In the first place it seeks an order that the applicant give security for the costs of the proceedings in this Court pursuant to s1335 of the Corporations Law, and in the second place an order that the applicant pay into court the money made payable by the award pursuant to s42(3) of the Commercial Arbitration Act 1986. In February 1989 Wright J made a "mareva" injunction against the applicant forbidding the further encumbrancing or disposition of certain realty which formed part of the property the construction of which gave rise to the original dispute. The property was in the name of the applicant and the title discloses that it was subject to a mortgage in favour of a bank. In August 1991 an advertisement appeared in the press advertising the sale of the property by public auction, and I infer it was this publication and the apprehension it engendered that the bank might be selling under the mortgage which prompted these applications by the respondent.

1. It is clear from credible testimony that there is reason to believe that the applicant corporation will be unable to pay the costs of the respondent if the latter is successful in its defence, and the court has a discretion to order the payment of security for these costs and stay all proceedings until the security is given. In this respect, the present case differs from the only case Mr. Holt for the respondent was able to discover upon s42(3) of the Commercial Arbitration Act 1986, namely Alexandria Cotton & Trading Company (Sudan) Ltd v Cotton Company of Ethopia Ltd (1965) 2 LR 477 where the company seeking to set aside the disputed award had the money ordered to be paid into court "and if they pay it, they can have their motion argued; and on being argued, if they are right, they will get [it] back" (per Lord Denning MR, at p448). I think in the present circumstances as the applicant clearly does not have the amount of the award readily available, and as the respondent throughout the course of the present proceedings has been content to rely on the protection of the "mareva" injunction on realty known to be subject to mortgage, it is inappropriate to have recourse to s42(3) merely because the mortgagee may be taking steps to realise its security. I think the relative lateness of the application and its proximity to the anticipated trial are factors which ought properly to be taken into account in addition to the fact that the respondent did seek and obtain the protection of its interests by way of the injunction. For these reasons I do not propose to make an order under s42(3).

1. As to the application for security for costs, I note that the applicant is a trustee company for a family trust, the beneficiaries of which are one of its directors, Mr. Peter Brewer, his wife and his children. If the proceedings instituted by the applicant are successful, it stands to gain, according to his affidavit, payments in the order of $1,000,000. There is no evidence before me of the financial situation of any of the beneficiaries who would gain from this litigation. I respectfully adopt what Sheppard, Morling and Neaves JJ of the Federal Court of Australia said in Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 52 ALR 176, at pp179–180:

"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."

I also adopt the words of Smithers J in Laundry Coin–Wash Nominees Pty Ltd v Dunlop Olympic Ltd 1985 ATPR 46,726, at p46,729:

"Where the only tangible assets of an applicant company are held in trust for another entity and its solvency depends on its right as trustee to indemnity against that entity it is necessary for the Court to have in mind the difficulties which a successful respondent would face in attempting to execute in respect of an order for costs. Indeed, unless some step is taken to alleviate those difficulties it is reasonable and just to treat the applicant company as if it were without assets to meet such a liability."

1. The main basis for resisting the order is that the applicant, it is said, has been prejudiced by the respondent’s delay in making this application in that the applicant would have made or attempted to make provision or application for funds at an earlier date should it have been ordered "but does not now have the opportunity to make such provision or application in the event of an order". Delay is certainly a factor which a judge should take into account in the exercise of his discretion to order security for costs (Buckley v Bennel Design and Constructions Pty Ltd (1974) 1 ACLR 301; Loreva Pty Ltd v CEFA Associated Agencies Pty Ltd (1982) 7 ACLR 164; Sydmar v Statewise Developments Pty Ltd (1987) 11 ACLR 616; and my own decision in Pacific Enterprise Corporation Pty Ltd v City of Hobart B271990). It is a factor which can, however, in some cases, be accommodated by not making an order in respect of past costs, but only in respect of prospective costs (Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd [1985] 1 NSWLR 114; Electrona Carbide Industries Pty Ltd v TGIO [1985] Tas R 68). In the present case, I am of the view that because of the delay, no order should be made in respect of past costs, but I do not regard the element of delay as a factor of great significance so far as concerns the future costs of the respondent which it wishes to secure. The order in respect of future costs which the respondent seeks is one for the security of $5,000. (which I regard as a reasonable estimate) to be paid by 18 November 1991, the first day of the sittings in which the case is set down for completion by Underwood J, who has already embarked upon it, having resolved some preliminary issues (see Pinanca Pty Ltd v Trinity Projects Pty Ltd No 48/1991).

1. I am not persuaded that the applicant will be severely prejudiced by such an order and could not by then comply with it. No reason has been advanced why the remainder of the litigation cannot be financed by the persons who might benefit from it. I find myself in the same position as the judge at first instance in Bell Wholesale Co Pty Ltd v Gates Export Corporation (supra) at p179, namely that there is no reason to conclude that if an order for security is made, the proceedings will be stifled, the applicant or those entitled to the benefit of the trust will be oppressed or any public interest in the litigation will be adversely affected.

1. I order that the applicant secure the sum of $5,000. on or before the 18 November 1991, failing which further proceedings will be stayed until the security is given. I reserve leave to speak to the minutes of the order.