Raymag Securities Leisure P/L v All Seasons Hotels and Resorts P/L

[1994] FCA 453

9x3 99

JUWENT NO. L -

M & L 4 h u a

m. Up.

ACN 010 707 365 a Company duly incorporated
according to law and having its reg~stered
office at AGL Hour, 60 Edward Street, Brisbane
in the State of Queensland

ACN 008 963 415 a Company duly incorporated according to law and having its registered office at 20 Churchffl Avenue, Subiaco in the State of Western Ausaali

7

of 30 View Street, Peppermint Grove, in

the State of Western Australia

-
of 10 Farmer Court, Noranda in the State of

Western Australia

sccurity is provided.

:	-	Cooper J.
Hlmudhm	Brisbane
:	-	15 July, 1994

P:  U

1. The applicant Raymag Sccuritia Leisure Ply. Ltd. provide, within fourteen (14) days, security for the costs of the rupondtnts up to and including the first day of trial in the sum of I J i E I X l X ($30,000.00) and in a form satisfactory to the Disbict Registrar aud that in default of the provision of such sccurity the application be stayed until such

' l ,. ,- .<

The applicant Raymag Secunhes Leisure h y . Ltd. pay the respondents

their costs of and incldental to the~r	not~ce	of motion filed 3 March, 1994
to be taxed if not a g d .

The first respondent's notice of motion filed 24 March, 1994 be adjourned for hearing to the trial judge on the tnal of the principal proceedings.

The costs of the notice of motion filed on 24 March, 1994 be reserved to the trial judge.

The sum of $4,000.00 presently held in Commonwealth Bank Cash Management Account No. 4000 1016 7819 be paid out to the applicant

Raymag Securities Leisure Limited otherwix the balance of the account

r cmn in the account to be later paid out in accordance with the order of the trial judge on the deternunation of the first respondents notice of motion filed 24 March, 1994.

The applicant Raymag Securities Leisure Pty. Ltd. pay the fyst rrspondent's costs of and incidental to the first respondent's notice of motion filed 6 April, 1994 to be taxed if not agreed.

m: Settlement and entry of orden is dealt with in Order 36 of the F e d d Cwrt

Rules.

FTY. r;nz

ACN 010 707 365 a Company duly incorporated
according to law and having its registered
office at AGL Hour, 60 Edward Street, Brisbane
in the State of Queensland

ACN 008 %3 415 a Company duly ~ncorporated according to law and having its registered ofice at 20 Churchill Avenue, Subiaco in the State of

Western Australia

P

of 30 View Strea, Peppermint Grove, in

the State of Wutcrn Australia

luummBm
of 10 Farmer Court, Noranda in the State of

Western Australia

cooper J.

Brisbane

15 July, 1994

P

There are before the court three notices of motion. The first seeks security

for costr. The second seeks payment to the first respondent of the sum of $12,000.0.0

held in a cash management account pusuant to an order of Drummoad J. made on 3 June, 1993. The third s&Ls payment of additional moniu to secure intcmt payments

pursuant to an undertaking recorded in the order of Drummond J. referred to above.

1. -

The respondents have previously applied for security for costs. In

consequence of that applicahon Einfeld J., on 26 February, 1993, ordered that Raymag Securities Ltd., the parent company of the applicant Raymag Securities Leisure Pty. Ltd.,

provide copies of its accounts audited to 30 June, 1992 in order to show that the applicant was solvent and able to meet any order for costs. Before Einfeld J., questions as to the solvency of the parent company were raised. It was sought to demonstrate the solvency of the group by reference to the value of real proprty held by Hummock Hill Island Pty. Ltd., a subsidiary of Raymag Securities Ltd. It was contended that the real property was

worth $20,000,000.00. The audited accounts of the parent company for the yean ended

30 June, 1992 and 30 June, 1993 have recently been supplied to the respondents.

Since the order of Einfeld J., a ncciver has been appointed to the land

owned by Hummock Hill Island Pty. M.	by the Hong Kong Bank, a secured creditor of
the group.	Additionally, a member of the group Raymag Securities Australia Pty. Ltd.
has gone into liquidation with debts of 57,000,000.00.

The notu to the accounts of the parent company for the financial year

ended 30 June, 1993 recorded the liquidation and nccivership as after balance date events

and stated 'The financial effCCtS of the abow haw not been bmughr to account at 30

Jwu, 1993'.	The auditor's report accompanying the accounts stated :-
'As indicated in the accounts, the economic ern@ i&
M opemMnng loss of $1,650,102 during the year ended 3ah
June 1993. As at that date, current liabilities of the economic entity uceeded current asets by $10,191,524. lRese fwtors raised doubts that the company and the economic ennnnty will be able to continue as going concerns.
lRe accounts do not ineludc any adj1~1mnt.s relating to the
recowmbility and classificMMon of recordcd asset amounts or to the clarsijication of liabilities that mghr be necessary should the company and the economic entity be unable to continue as going concern'.
It was submitted by the applicant that negouations arc underway for the

sale of the real property of Hummock Hill Island Pty. Ltd. for a significant figure which will redam the financial position of the group. To date they are negotiations and nothing

The applicant, as a member of the group, has contingent liabiitiu to the
sccured creditor, the Hong Kong Bank. I am satisfied on the whole of the evidence that

there is a real risk that alone or as part of the Raymag Group, the applicant will be

'

unable to satisfy any order for costs made against it in the event that the respondents

succd in the proceedings.

Notwithstanding that I am satisfied that thm exists such a risL, the

decision to order security remains a discretionary one.	In coming to my decisioa I take
into account the following matten.
-

The causc of action pleaded from the statement of claim aad fidavit
material filed cannot be said to be frivolous or totally lacking of substance. If the

applicant s u d s , then it is likely that substantial damages would be awarded. Having regard to the nature of the claim it is not possible at this stage to make any further evaluation of the strength of the claim.

The applicant contends that its financial position is a direct consquencc of

the misrcprescntation by the respondents as to the profitability of the resort and the cash

flows it would generate and the mis-management of the resort. Although that may be

pPrtly comct. a major contributing factor to the applicant's dire financial position was the

lack of original capital, its debt level in borrowing to acquire the resort and its cross-

indemnitia of other debt within the group.

The applicant dou not say that the effect of any order would be to stultify

the proceedings. On the contrary, Mr. McGuinness who holds by far the major part of

the shareholding of the parent, said in evidence that any reasonable order could be

complied with.

The major beneficiary of a successful outcome to the litigation would

ultimately be Mr. McGui~ess.	through his shareholding in the parent Raymag Securitia
Limited. Mr. McGuinnu~	has not agreed to starad personally liable for any order for

costs made in favour of the rrspondents.

On balance I am of the opinion that an order for security for costs ought to

k made. I am sahsfied that the making of an order would not be oppressive and that the

application has not been brought oppressively by the rrspondents. T h m has been a amtinuing concern as to the solvency of the applicant and the group of which it is a member. The risk facing the rapondents as to any order for costs being unsatisfied is real and substantial. There is no suggestion that a reasonable order will frustrate the litigation.

Although an order may be made it does not have to provide a full

indemnity.	The matenal relied upon by the respondents assesses the likely p t y and
party costs at $45,000.00 with exputs costs at $20,000.00.	The total costs are assessed

at 565,000.00. Having regard to the estimate of cost assessor Momur Irgal Costs Pty.

Ltd. dated 25 November, 1992, I am satisfied that security in the sum of $30,000.00 up

to and including the fint day of trial is a sufficient sum. This amount includes some, but

not a full, provision for the cost of experts reports.

Therefore the court orden that the applicant Raymag Securities Leisure

Pty. M. provide, within fourteen (14) days, security for the costs of the respondents up

to and including the fint day of trial in the sum of

(530,000.00) and in a form satisfstory to the District Registrar and that in default of the

provision of such security the application be stayed until such security is provided. The

rpplicant has misted the relief sought and has failed.	Costs of the motion will follow the
event.

2.

The motion filed on 24 March, 1994 seelong payment out of the sum of 512,000.00 raises a disputed question of fact. The wsts the $12,000.00 was p d into the Pccount to secure amounted to $8,000.00. The fint respondent seeks payment of the 58,000.00. The applicant says that it has been paid. On the interlocutory application it is

not possible to finally determine this issue. Accordingly, the notice of motion will be rdjoumd to the trial judge on the hearing of the principal proceedings and the wsts of the notice of motion will be reserved to the bial judge. The $4,000.00 not in dispute will

be ordered to be paid out to the applicant.

3.

Finally, the notice of motion filed 6 April, 1994 was disposed of by the

making of orden on the return of the motion. The only outstanding issue on the motion

was the payment of costs. As it was naxsq for the first respondent to bring the notia of motion to obtain the benefit of an order which was not previously agreed to, it ought to have the costs of the notice of motion.

P: 

1. Thc applicant Raymag Securities Leisure Pty. Ltd. provide, within fourteen (14) days, security for the costs of the respondents up to and including the

   first day of trial in the sum of I H W Y T H V

   ($30,000.00) and in a form satisfactory to the District Registrar and that in

default of the provision of such security the application be stayed until such
security is provided.

The applicant Raymag Securities Leisure Pty. Ltd. pay the respondents their costs of and incidental to their notice of motion filed 3 March. 1994

to be taxed if not a g d .

The first respondent's notice of motion filed 24 March, 1994 be adjourned for hearing to the trial judge on the trial of the principal proceedings.

The costs of the notice of motion filed on 24 March, 1994 be reserved to the trial judge.

The sum of 54,000.00 presently held in Commonwealth Bank Cash Management Account No. 4000 1016 7819 be paid out to the applicant Raymag Securiha Leisure Limited otherwise the balance of the account remain in the account to be later paid out in accordance with the order of the trial judge on the determination of the first respondents notice of motion tiled 24 March. 1994.

The applicant Raymag Securitia Leisure Pty. M. pay the fint

respondent's costs of and incidental to the first respondent's notice of
motion filed 6 April, 1994 to be taxed if not agreed.

I certify that W and the preceding six (6) pages are a

true copy of the res~om for judgment hemh of hb
Honour Mr. Justice Cooper.

Doh 15 July, 19W

Counsel for the Applicantls

on the notices of motion:	Mr. D.J.S. Jackson Q.C.
Sdicitors for the Applicantls
on the notices of motion:	Freehill Hollingdalc & Page
Counsel for the Respondent
w the notices of motion:	Mr. I. Hanger Q.C.
SoUdton for the Respondent
w the 0 0 t h of motion:	John M. O'Connor & Co.
Date of Hesring:	23 May,  1994
Place of Ha*.	Bnsbanc
Date of Judgment:	14 July, 1994