Seventy Fourth Wreath Pty Ltd v Wilbow Corporation Pty Ltd
[1998] FCA 1148
•15 SEPTEMBER 1998
FEDERAL COURT OF AUSTRALIA
PRACTICE AND PROCEDURE – application for security for costs by respondent – exercise of judicial discretion - significance of applicant’s status as a $2 trustee company where beneficiaries of the trust have not been identified and those who stand behind the applicant have made no undertaking to meet the respondents’ costs – receipt of written submissions after the hearing where no order for their filing.
Trade Practices Act 1974 (Cth) ss 52, 53A, 59(2), 82 and 87
Corporations Law (Cth) s 1335
Federal Court of Australia Act 1976 (Cth) s 56
Sun World International, Inc. v Registrar, Plant Breeder’s Rights and Murray Valley Table Grape Growers Council, 8 December 1997, Marshall J (unreported), applied
Merribee Pastoral Industries Pty Ltd and Ors v Australia and New Zealand Banking Group Ltd (1998) 155 ALR 1, followed
Rabel v Whitehorse City Council, 4 July 1997, North J, (unreported) referred to
Devenish v Jewel Food Stores Pty Ltd (1990) 64 ALJR 533, referred to
Reches Pty Limited v Tadiran Limited, 11 June 1998, Lehane J, (unreported) referred to
Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 52 ALR 176, followed
Letore Pty Limited v Associated International Finance Pty Limited, McDonald J, Supreme Court of Victoria, 28 May 1993, (unreported), referred to
Carr v Finance Corporation of Australia (1981) 147 CLR 246, followed
SEVENTY FOURTH WREATH PTY LTD (ACN 006 039 210) v WILBOW CORPORATION PTY LTD (ACN 005 867 596) & GARY BUSHBY
VG 242 of 1998
MARSHALL J
MELBOURNE
15 SEPTEMBER 1998
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VG 242 of 1998
BETWEEN:
SEVENTY FOURTH WREATH PTY LTD (ACN 006 039 210)
APPLICANTAND:
WILBOW CORPORATION PTY LTD (ACN 005 867 596)
FIRST RESPONDENTGARY BUSHBY
SECOND RESPONDENTJUDGE:
MARSHALL J
DATE OF ORDER:
15 SEPTEMBER 1998
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
On or before 6 October 1998 the applicant provide security for the costs of the respondents up to the commencement of the final hearing of the proceeding in the sum of $50,000 to the satisfaction of the District Registrar of the Court.
In the event of non-compliance by the applicant with paragraph 1 hereof the proceeding be stayed pending further order of the Court.
The applicant pay the respondents costs of and incidental to the respondents’ motion filed on 12 August 1998.
In the event of compliance with paragraph 1 hereof the directions hearing be adjourned to 10.15 am on 30 October 1998.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VG 242 of 1998
BETWEEN:
SEVENTY FOURTH WREATH PTY LTD (ACN 006 039 210)
APPLICANTAND:
WILBOW CORPORATION PTY LTD (ACN 005 867 596)
FIRST RESPONDENTGARY BUSHBY
SECOND RESPONDENT
JUDGE:
MARSHALL J
DATE:
15 SEPTEMBER 1998
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
There is before the Court a notice of motion in which the respondents have applied for an order requiring the applicant to provide security for the respondents’ costs. The motion also seeks that the proceeding be stayed until such security is given by the applicant.
BACKGROUND
On 12 June 1998 the applicant filed an application pursuant to ss 52, 53A, 59(2), 82 and 87 of the Trade Practices Act 1974 (Cth) (“the TP Act”). The application seeks damages and other ancillary relief arising out of the applicant’s position as a tenant in a suburban shopping centre pursuant to a lease from the first respondent as landlord. The second respondent is an officer of the first respondent. It is alleged, in the statement of claim filed with the application, that the applicant was induced to become a tenant in the shopping centre as a result of certain representations made by the respondents. It is further alleged that the applicant acted in reliance upon such representations and that the representations were false. The applicant contends that as a consequence of those representations not being fulfilled that the applicant is earning a profit as an operator of a chicken shop, at a rate which is much less than the profit it would have expected to have derived had the representations been fulfilled.
At the first directions hearing in the application, on 29 July 1998, orders were made by consent for the applicant to have leave to file and serve an amended statement of claim, and further and better particulars of its original statement of claim, pursuant to an earlier request made by the respondents. The directions hearing was adjourned to 25 August 1998.
On 12 August 1998 the respondents filed a notice of motion seeking security for costs. The motion was made returnable on 25 August 1998. The motion was supported by an affidavit sworn by Mr Peter Pryles, the respondents’ solicitor. Material exhibited to that affidavit shows that the applicant is a trustee company with paid up capital of $2. The applicant is the trustee of the C & E Makarios Family Trust. The directors of the applicant are Evdokia Makarios and Con Makarios, each of whom hold one beneficial share. There is a registered fixed and floating charge in respect of the applicant in favour of the National Australia Bank Limited (“the bank”).
On 27 July 1998 Mr Pryles wrote to the applicant’s solicitor, Mr Juan Martinez, concerning the proceeding. The letter read, in part, as follows:
“We have conducted a company search of the applicant company which establishes that it is a trustee company which has paid up capital of only $2. It would appear that the Applicant company owns no other assets other than its right of indemnity to trust assets. We also note that the assets are all covered by a fix (sic) and floating charge in favour of the National Australia Bank Ltd.”
The letter went on to request an undertaking that the applicant provide to the respondents security for their costs in the sum of $50,000. On 28 July 1998 Mr Martinez replied to Mr Pryles’ letter and advised that he would seek instructions about the security for costs issue. He also sought advice as to how the $50,000 “is calculated”.
A second affidavit filed in support of the notice of motion was sworn by Mr John White, a Legal Costs Consultant and expert in matters relating to costs. At Mr Pryles’ request, Mr White prepared an estimate of the professional charges and disbursements likely to be incurred by the respondents in defending this proceeding up to the date of commencement of trial. The total projected costs of the respondent up to the commencement of the trial were estimated at $52,575. The applicant relied upon an affidavit of Mr Martinez to resist a security for costs order. That affidavit was also filed in support of another notice of motion which was filed by the applicant. The applicant’s notice of motion was dealt with, in part, by the Court at the same time as the respondents’ motion but was ultimately dismissed, in part, by consent. The contents of Mr Martinez’s affidavit, as events have transpired, do not address any live issue in the security for costs application.
THE RESPONDENTS’ SUBMISSIONS
Mr North, counsel for the respondents, relied upon the fact that the security for costs application was promptly made and that the initial request for such security was made immediately after the service of the application. Mr North also referred to the applicant’s status as a $2 trustee company which has granted a fixed and floating debenture charge on all of its assets and liabilities in favour of the bank. In that context counsel noted that those who stand behind the applicant did not offer any undertaking to secure the respondents’ costs. Further submissions made by the respondents related to the following issues:
The order sought would not stultify the litigation as the amended statement of claim inferred that the applicant was making a profit from its business.
No assets or liabilities of the applicant were disclosed by it and the beneficiaries of the trust have not been identified.
The only asset revealed by the evidence is held in trust, that is, a right of indemnity.
The applicant has, according to Mr North, little prospect of success in the proceeding.
The lack of any evidentiary contest about the cost estimate provided by Mr White.
THE APPLICANT’S SUBMISSIONS
Counsel for the applicant, Mr Clarke, submitted that the Court’s discretion to make a security for costs order either under s56 of the Federal Court of Australia Act 1976 (Cth) or s1335 of the Corporations Law is unfettered. Mr Clarke submitted that the fact that the applicant was a $2 trustee company did not give the respondents’ a prima facie right to security for costs in circumstances where the applicant had continued to pay rent, and / or an amount equivalent thereto, into a trust account and had obtained a bank guarantee for the amount of $43,000. Mr Clarke also submitted that an order for security for costs was not appropriate as the current litigation had arisen out of a contractual relationship which disclosed a long course of financial dealings between the parties. Mr Clarke made the following additional points:
The application for security for costs was designed to stultify the litigation.
The applicant is claiming damages for loss it has suffered, such loss having been caused by the respondents’ conduct.
The amount of security if ordered should not exceed $20,000.
CONSIDERATIONS
(a)General approach
As was said in Sun World International, Inc. v Registrar, Plant Breeder’s Rights and Murray Valley Table Grape Growers Council, 8 December 1997, Marshall J (unreported) at 4:
“The discretion to make a security for costs order is wide and unfettered but must be exercised judicially. The duty of the Court when considering an application for security for costs is to weigh in balance the various factors which favour or count against the making of an order.”
See also Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Ltd (1998) 155 ALR 1 at 10 where Kirby J said, in the context of security for costs applications in the High Court of Australia:
“It would be wrong to attempt to hedge the jurisdiction about by rules or practices, even where derived from a number of instances. This is because what should be done in each case depends entirely on the circumstances of the case. The governing consideration is what is required by the justice of the matter.”
(b)The prospects of success of the application
The respondents have submitted that the application has a poor prospect of success. The applicant complained that it has suffered as a result of oppressive conduct by the respondents. I consider “the prospect of success” issue to be a neutral consideration in this matter. I have, in effect, been invited by Mr North to find that the application is bound to fail. Despite Mr North’s submissions on this issue I am not prepared to accept that invitation, at least at this stage of the proceeding. As Kirby J said in Merribee at 11:
“Such a consideration would need to be exercised with care, given that the real merits of a case might not emerge until the final hearing or might not sufficiently emerge in the necessarily brief proceedings typically involved in an application for security for costs. Furthermore, if a party asserts that its opponent’s proceedings are manifestly lacking in legal merit, other remedies are available to it to protect it from needless vexation.”
(c)The timeliness of the application
Since the service of the application the applicant has involved itself in the current litigation whilst being aware of the real prospect (as distinct from a faintly foreshadowed one) that it would be at risk of having to provide security for costs. See Sun World at 4-5.
The prompt action of the respondent on this issue is a factor which although not pointing strongly in favour of the grant of security for costs, at least defeats any submission that may have otherwise been made, to the effect that the application for security for costs was made in a dilatory way, in circumstances where costs have been incurred without notice that such an application would be made. See, for example, Rabel v Whitehorse City Council, 4 July 1998, North J, unreported at 2, Meribee at 10-11 and Devenish v Jewel Food Stores Pty Ltd (1990) 64 ALJR 533 at 534.
(d)The applicant’s status as a $2 trustee company
A factor which, in my opinion, militates strongly in favour of making an order for security for costs, is the applicant’s status as a $2 trustee company, in circumstances where those who stand behind the applicant have given no undertaking to meet the of the respondents’ costs. There is no reason to assume that the shareholders and directors of the applicant and / or the beneficiaries of the trust are not likely to benefit from the success of the applicant in the litigation. There is also no realistic basis upon which to consider that such people are not in a position to provide such security. It would have been a simple matter for them to refute such propositions, by way of affidavit, if the contrary was true. See Reches Pty Limited v Tadiran Limited, 11 June 1998, Lehane J, unreported.
As a Full Court of this Court said in Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 52 ALR 176 at 179-180:
“…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.”
The status of the applicant is a strong factor in support of a security for costs order. The respondents can have no confidence that any costs order in their favour will have any utility if they seek to enforce it against the applicant. Further, the right of indemnity held in the trust, in all practical likelihood, will be of little assistance to the respondents in such circumstances.
The fact that the applicant has continued to pay rent to the first respondent and / or into a trust account has arisen because those who control it have permitted it to do so. The applicant’s obtaining of a bank guarantee in the amount of $43,000 will be of no assistance to the respondents if they succeed in the litigation. The relevant amount pertains only to the lease and is, in effect, a form of insurance for the first respondent in the event of non-payment of rent by the applicant.
(e)The Letore submission
The applicant relied upon the judgment of McDonald J in Letore Pty Limited v Associated International Finance Pty Limited, Supreme Court of Victoria, 28 May 1993, unreported, in support of the proposition that a relevant factor against the grant of a security for costs order is the existence of a long term contractual relationship between the parties which is at the heart of the dispute between them. The full citation of the relevant passage from his Honour’s judgment illustrates that the existence of such a relationship is not a bar to the grant of the relevant relief. McDonald J said at 15:
“That is not to say that a person or company who has had a contractual relationship or which has been engaged in a commercial transaction with a plaintiff company will not be able to obtain an order for security of costs in an appropriate case or that such person or company would be able to obtain such order only if it was at arm’s length with the plaintiff company. However, in my view it is a relevant consideration in such a case as this that the defendant has been engaged in a voluntary contractual relationship with the plaintiff company and it is that contract which gives rise to the proceedings.”
In my view if the existence of a long standing contractual relationship between the applicant and the first respondent is considered to be a relevant factor in opposition to a security for costs order, the importance of this factor is substantially reduced when considered in light of the matters raised above, dealing with the status of the applicant as a $2 trustee company, the controllers of which have not given an undertaking as to the costs of the respondents.
CONCLUSION
Having regard to the foregoing matters, I am of the view that this case is an appropriate one for the exercise of the Court’s discretion in favour of the grant of a security for costs order.
THE QUANTUM OF ANY SECURITY FOR COSTS ORDER
Mr White’s evidence regarding “quantum” was not the subject of evidence in reply by the applicant. Mr Clarke submitted that Mr White’s estimate was too high. He contended that no claim should be allowed for interrogatories as the Court infrequently grants leave to interrogate. He also queried the need for the involvement of senior counsel. He contended that if a security for costs order was made it should be confined to $20,000.
I am prepared to discount the claim of the respondents by reducing amounts referrable to interrogatories, being $1,850. The resultant figure after the deduction of that amount from the amount claimed is $50,725. I am prepared to “round off” this figure to $50,000 which is the original sum sought by the respondents by way of security for costs upon the service of the application upon them.
ADDITIONAL WRITTEN SUBMISSIONS OF THE APPLICANT
On 26 August 1998 the applicant filed a document entitled Further Written Submissions of the Applicant. The respondents replied in writing to those submissions and raised no objection to the Court considering such submissions.
In Carr v Finance Corporation of Australia Ltd (1981) 147 CLR 246 Mason J said, at 258:
“The impression, unfortunately abroad, that parties may file supplementary written material after the conclusion of oral argument, without leave having been given beforehand, is quite misconceived. We have to say once again, firmly and clearly, that the hearing is the time and place to present argument, whether it be wholly oral or oral argument supplemented by written submissions.”
I have, somewhat reluctantly, considered those submissions, especially those parts which deal with the contention that certain factual circumstances upon which the applicant had intended to rely no longer persisted at the close of argument. I remain of the view that the Court must focus upon relevant facts in determining an issue before it and not upon facts which have no current bearing on the determination of an issue.
If the applicant had considered that circumstances had so materially changed by the end of argument on 25 August 1998 it was open to the applicant to seek an adjournment to reconsider its position on the question of security for costs. No such application was made. The fact that a strong case for a security for costs order is made stronger by changing factual circumstances, that is, the disappearance of what might have been considered to be a possible counterclaim, cannot form any cogent basis for the Court to decline to make such an order.
ORDER
The Court makes the following orders:
On or before 6 October 1998 the applicant provide security for the costs of the respondents up to the commencement of the final hearing of the proceeding in the sum of $50,000 to the satisfaction of the District Registrar of the Court.
In the event of non-compliance by the applicant with paragraph 1 hereof the proceeding be stayed pending further order of the Court.
The applicant pay the respondents costs of and incidental to the respondents’ motion filed on 12 August 1998.
In the event of compliance with paragraph 1 hereof the directions hearing be adjourned to 10.15 am on 30 October 1998.
I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Marshall
Associate:
Dated: 15 September 1998
Counsel for the Applicant: Mr D M Clarke Solicitor for the Applicant: Home Wilkinson & Lowry Counsel for the Respondent: Mr T J North Solicitor for the Respondent: Pryles & Defteros Date of Hearing: 25 August 1998 Date of Judgment: 15 September 1998
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