Technical Innovation Corp Pty Ltd v Australian Technological Innovation Corp Pty Ltd
[1999] FCA 1420
•15 OCTOBER 1999
FEDERAL COURT OF AUSTRALIA
Technical Innovation Corp Pty Ltd v Australian Technological Innovation Corp Pty Ltd [1999] FCA 1420
SECURITY FOR COSTS – the Court has a wide discretion to be exercised judicially in determining an application for security – factors include applicant’s prospects of success – stifling of meritorious litigation – whether applicant’s lack of resources contributed to conduct complained of – public interest in the outcome – looking behind corporate veil to financial substance of persons likely to benefit from the litigation – onus on person likely to benefit to show they are without means – assessment of amount of security on the evidence
Federal Court of Australia Act 1976 (Cth) s 56
Federal Court Rules O 28
Corporations Law s 1335
Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1, applied
Cameron’s Unit Services Pty Ltd v Kevin R Whelpton & Associates (Australia) Pty Ltd (1986) 13 FCR 46, cited
Pasdale Pty Ltd v Concrete Constructions (1995) 131 ALR 268, citedTECHNICAL INNOVATION CORPORATION PTY LTD & ORS v
AUSTRALIAN TECHNOLOGICAL INNOVATION CORPORATION PTY LTD & ORS
N 766 OF 1999TAMBERLIN J
SYDNEY
15 OCTOBER 1999
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 766 OF 1999
BETWEEN:
THE TECHNICAL INNOVATION CORPORATION
PTY LIMITED
ACN 075 322 486
First ApplicantTHE BIOACT CORPORATION PTY LIMITED
ACN 076 210 761
Second ApplicantBIOACT (PHILIPPINES) PTY LIMITED
ACN 076 830 870
Third ApplicantAND:
AUSTRALIAN TECHNOLOGICAL INNOVATION CORPORATION PTY LTD
First RespondentACN 003 527 642
Second RespondentJUDGE:
TAMBERLIN J
DATE OF ORDER:
15 OCTOBER 1999
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1. The application is allowed.
2. The applicants shall provide security for costs in the sum of $45,000.
3.The costs of the application are to be costs in the cause.
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
N 766 OF 1999
BETWEEN:
THE TECHNICAL INNOVATION CORPORATION
PTY LIMITED
ACN 075 322 486
First ApplicantTHE BIOACT CORPORATION PTY LIMITED
ACN 076 210 761
Second ApplicantBIOACT (PHILIPPINES) PTY LIMITED
ACN 076 830 870
Third ApplicantAND:
AUSTRALIAN TECHNOLOGICAL INNOVATION CORPORATION PTY LTD
ACN 003 527 642
First RespondentGRAEME MAXWELL PHILIP
Second Respondent
JUDGE:
TAMBERLIN J
DATE:
15 OCTOBER 1999
PLACE:
SYDNEY
REASONS FOR JUDGMENT
This is an application for security for costs relying on s 56 of the Federal Court of Australia Act 1976 (Cth); O 28 of the Federal Court Rules; or alternatively s 1335 of the Corporations Law. It is brought by the respondent on the basis that the three applicant companies lacked financial resources to meet any order as to costs which may be awarded against them if they are unsuccessful.
On 15 September 1999 I granted interlocutory relief on the basis that security was to be provided to back up the applicants’ undertaking as to damages in an amount of $50,000. This was because I then concluded that the applicants had not demonstrated an ability to satisfy the undertaking as to damages if called upon. On this application the respondents seek an order for the provision of between $160,000 and $260,000 by way of security for costs.
The applicants submit that they have sufficient resources to meet any likely costs if assessed on a realistic basis.
In the course of submissions discussion focussed on two particular items in the accounting records of the first applicant. The first matter was an amount listed as a non-current asset of $151,188 as shown in the balance sheet for 31 August 1999. The notes to the accounts indicate that this amount is due from “the Bioact Corporation Inc”. An affidavit of Graeme Phillip filed by the respondents indicates that the Bioact Corporation Inc carried a loss of about US$700,000 as at 31 December 1995 and that since that time it has not received any significant amount by way of cash or assets and that it has remained dormant since that time. Accordingly, it is said, the prospect of this non-current asset being available to meet any costs order is doubtful. There was also some discussion as to a non-current borrowing by the first applicant of $400,000. However, the notes to the accounts indicate that no interest is payable until 20 November 2000 and that instalments of $70,932 are then payable every six months until the year 2003. This is a substantial commitment and there is no indication as to likely sources from which this amount is to be repaid.
None of the applicant corporations appear, on the evidence, to have any substantial financial resources. The discretion vested in the Court on an application for security for costs is wide but it must be exercised judicially: see Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 2-3.
When considering whether security should be ordered the Court can have regard to matters such as the applicants’ prospects of success; whether meritorious litigation may be stifled; whether the applicants lack of resources was contributed to or caused by the conduct complained of; whether the directors, shareholders or controllers of the corporation who are likely to benefit from the litigation are persons or entities of financial substance and whether the public interests in the outcome of the litigation is an important consideration: see Cameron’s Unit Services Pty Ltd v Kevin R Whelpton & Associates (Australia) Pty Ltd (1986) 13 FCR 46; and Pasdale Pty Ltd v Concrete Constructions (1995) 131 ALR 268. Whilst due circumspection must be exercised to ensure that a requirement of security for costs is not being used oppressively, the requirement will often serve the salutary purpose of focussing the party’s attention more sharply on the question of settlement.
In some circumstances it may be unfair to subject a party to the risk of substantial non-recoverable costs should they be successful, in circumstances where those who stand to gain from the litigation take advantage of the corporate veil to avoid risk as to costs.
In Bell Wholesale the Full Court observed 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 prove the necessary facts.”
In the present case those persons or entities behind the corporations have not come forward to give any evidence as to their resources. There is no evidence to justify a conclusion that the security application is being used to stifle the litigation, which I assume on the material before me has a reasonable prospect of success. Nor does the current state of the evidence establish that the impecuniosity has been caused by the respondent’s conduct complained of. On the evidence that remains a matter of conjecture and inference for future decision on the evidence finally adduced. On the basis of these considerations I am satisfied that an order for security for costs should be made.
As to amount, the parties are a long way apart. The applicants rely on evidence of taxed party-party costs, on the basis of a four day hearing, of about $26,000. This evidence is furnished by an independent experienced legal costs consultant.
Against this evidence are affidavits of two solicitors retained by the respondent. One of these suggest that to date costs and disbursements including counsels’ fees are in the order of about $75,000. This seems a large amount having regard to the stage which the proceeding has reached. The other affidavit estimates a figure of about $257,000 on the basis of a ten day hearing.
On the limited material presently before me, on which there has been no cross-examination, it is not possible to be precise as to any figure. Nevertheless, in the circumstances, I am satisfied on the evidence as it stands, that the applicants’ figure is closer to the mark and that a figure of $45,000 is appropriate.
Accordingly, my conclusion is that the applicants should provide security for costs in the sum of $45,000 in a form to be agreed or in default of agreement determined by the Court, as a condition of the continuance with these proceedings. Costs on this application for security will be costs in the cause.
I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice . Associate:
Dated: 15 October 1999
Counsel for the Applicant: D Studdy Solicitor for the Applicant: Goldrick Farrell Millan Counsel for the Respondent: C Hodgekiss Solicitor for the Respondent: A R Conolly & Co Date of Hearing: 7 October 1999 Date of Judgment: 15 October 1999
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