U.S. Manufacturing Company Pty Ltd v ABB Australia Pty Ltd

[2007] NSWSC 1115

CITATION:	U.S. Manufacturing Company Pty Ltd v ABB Service Pty Ltd [2007] NSWSC 1115 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	8/10/07
JUDGMENT DATE :	10 October 2007
JUDGMENT OF:	Bell J at 1
DECISION:	1. Allow the appeal and set aside the decision of Harrison AsJ given 18 July 2007 and, in lieu thereof, order; (i) the plaintiff, US Manufacturing Co Pty Ltd, provide security for the defendants ABB Service Pty Ltd future costs of the proceedings in the sum of $50,000.00 in a form suitable to the Court within 14 days; (ii) the proceedings by stayed until such time as security is given; (iii) the plaintiff is to pay the defendant’s costs of its motion for security
CATCHWORDS:	Appeal - security for costs - corporate appellant - financial position of persons standing behind the company
LEGISLATION CITED:	Corporations Act 2001 Local Courts Act 1982 Uniform Civil Procedure Rules 2005
CASES CITED:	Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FRC 1 Harpur v Ariadne [1984] 2 Qd R 523 KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 Melville v Craig Nowlan and Associates Pty Ltd [2002] NSWCA 32; 54 NSLWR 82 Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247 Procorp Civil Pty Ltd v Napoli Excavations and Contracting Pty Ltd (No. 2) [2006] NSWCA 147 Transglobal Capital Pty Ltd v Yolarno Pty Limited [2004] NSWCA 136; 60 NSWLR 143 Winnote Pty Ltd (In liq) v Page [2005] NSWCA 362
PARTIES:	U.S. Manufacturing Company Pty Ltd (Plaintiff/Respondent) ABB Service Pty Ltd (Defendant/Appellant)
FILE NUMBER(S):	SC 15221/05
COUNSEL:	R. Hanrahan (Plaintiff/Respondent) J. Stevenson SC / J. Emmett (Defendant/Appellant)
SOLICITORS:	Thomas Booler & Co Lawyers (Plaintiff/Respondent) Corrs Chambers Westgarth (Defendant/Appellant)
LOWER COURT JURISDICTION:	Supreme Court (Associate Judge)
LOWER COURT JUDICIAL OFFICER :	Harrison AsJ

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

BELL J

Wednesday 10 October 2007

15221/05 U.S. Manufacturing Co Pty Ltd (ACN 935 231 553) v ABB Service Pty Ltd (ABN 68 003 337 611)

JUDGMENT

1 BELL J: This is an appeal from the decision of Harrison AsJ made on 18 July 2007 declining to order the plaintiff, U.S. Manufacturing Co Pty Ltd (USM) to provide security for costs.

2 USM is a company which at material times was trading in lubricants, welding rods, gearboxes and other specialised equipment. It brought proceedings in the Local Court at Parramatta against ABB Service Pty Ltd (ABB) claiming payment for goods sold and delivered in the sum of $23,593.80 and interest. The goods were particularised in USM’s amended statement of liquidated claim as six new custom made gearboxes and two reconditioned gearboxes, which were delivered to ABB on 17 January 2003.

3 The matter was referred for arbitration. USM sought a re-hearing before the Local Court following the arbitration. The hearing proceeded before Magistrate Johnson on 22 April, 30 June, 1 July and 7 September 2005. His Honour reserved his decision and on 17 October 2005 gave judgment for ABB.

4 On 9 November 2005 USM commenced proceedings by summons in this Court appealing against the Magistrate’s judgment as being erroneous in point of law.

5 On 20 December 2006 ABB filed a notice of motion claiming orders that USM provide security for its future costs of the proceedings in the sum of $50,000.00 within seven days and that the proceedings be stayed until such time as the security is given.

6 The evidence before Harrison AsJ on the hearing of the motion comprised the affidavit of Francis Reginald Lawson, the solicitor acting for ABB and, in USM’s case, the affidavit of Eddy Dogramaci who had been one of its two directors at the time of these events and who was responsible for the delivery of a number of gearboxes to ABB.

7 Before turning to the grounds of challenge it is convenient to refer to the history of the proceedings and to the Magistrate’s reasons for decision.

8 There was a substantial factual issue before the Magistrate concerning delivery of the gearboxes, the subject of the claim. It was common ground that ABB, a service company employed by Sydney Water at its Winmalee Sewerage Treatment plant, contracted with USM for the supply of a number of gearboxes and that a number of gearboxes were delivered by Eddy Dogramaci on behalf of USM to ABB at the Winmalee site in December 2003. It was also common ground that a number of gearboxes were delivered by Eddy Dogramaci to ABB at the Winmalee site in January 2003 and that this delivery included two reconditioned gearboxes which were supplied without charge. It was USM’s case that eight gearboxes were delivered in December 2002 and that a further six gearboxes and the two reconditioned gearboxes were delivered in January 2003. USM pleaded that the two reconditioned gearboxes were delivered without charge on the condition that within one day of delivery ABB would furnish USM with an order number for the accompanying six gearboxes and certain other equipment. It was ABB’s case that it had placed an order for a total of eight new gearboxes with USM and that only four had been delivered in December and that the balance of the order was delivered in January together with the two reconditioned gearboxes which were gifts designed to encourage it to place further orders with USM.

9 Relevant to the Magistrate’s reasons for decision was the evidence that there were four treatment tanks at the Winmalee site and that each tank had two reduction gearboxes which drove the machinery. In all, the plant employed eight active reduction gearboxes and maintained two new gear boxes at the site as “critical spares”. In November 2002 Sydney Water had decided to replace the eight reduction gearboxes that were in use but not the two unused critical spares.

10 The Magistrate found that USM had not proved the delivery of the six new gearboxes, which were the subject of the claim. Mr Dogramaci conceded in evidence that the two reconditioned gearboxes were delivered as an unconditional gift in the hope of attracting more business (J at [32(b)].

11 The Magistrate took into account the following matters in concluding that USM had not established its case:

(i) Mr Dogramaci’s evidence was, “not without problems” (J [32(b)]). His account was contradictory, including with respect to the basis on which the two reconditioned gearboxes had been delivered to ABB;
(ii) USM tendered a delivery docket dated 3 December 2002, which included the words “8 units” on it. A carbon copy of the docket tendered in ABB’s case did not contain these words. Mr Dogramaci asserted that he had written the words “8 units” on the docket before handing it to Mr Heydon, who received the gearboxes on behalf of ABB. Subsequently in oral evidence he said that he had written the words “8 units” on the docket at a later time (J at [14]);
(iii) There was no reason for ABB to order a further eight gearboxes (assuming eight gearboxes to have been delivered in December) unless those earlier delivered had been stolen or lost. There was no evidence that any gearboxes had been stolen or were missing from the ABB site. Regular stock takes had been carried out and nothing in ABB’s documents, or documents maintained by Sydney Water, indicated that equipment was missing;
(iv) No order number was issued for the supply of gearboxes by USM in January 2003 and USM had not shown any instance in which goods had been supplied without an order number having been provided;
(iv) ABB paid for eight gearboxes on 24 December 2002. This was relied upon as establishing that ABB had received eight gearboxes before that date. His Honour considered there were other possible explanations which were consistent with acceptance of ABB’s evidence that only four of the eight gearboxes had been delivered by the end of December. These included that payment for the full order may have been made on partial delivery because of the history of dealings between the parties or that the accounts department may have prematurely authorised payment;
(v) The evidence of the witnesses called in ABB’s case was generally credible.

12 On 22 March 2006 USM filed a notice of motion seeking to adduce new evidence on the hearing of its appeal. The application related to the evidence of Mr O’Brien, that eight new gearboxes were delivered and installed at the ABB site before the end of December 2002. On 26 April 2006 Brett Heydon, who was employed by ABB at the time of these events and who had given evidence before the Local Court, affirmed an affidavit asserting that he did not recall Mr O’Brien being present when the gearboxes were delivered in December 2002. On 3 July 2006 Malpass AsJ dismissed USM’s application to adduce the evidence of Mr O’Brien on the hearing of the appeal.

13 On 3 August 2006 USM brought a further motion to adduce new evidence. This motion is yet to be determined and relates to the evidence of Brett Heydon. In an affidavit sworn on 8 August 2006 Mr Heydon contradicts the evidence that he gave before the Local Court and states that eight gearboxes were delivered to the ABB site before the end of 2002. He says that he signed his earlier affidavits without reading them.

14 USM was required to provide $20,000.00 by way of security for costs in the Local Court. The Magistrate made an order that USM pay ABB’s costs of the proceedings. These were assessed in the sum of $56,908.69. ABB registered the cost assessors’ determination in the registry of the Local Court and this took effect as a judgment in the sum of $36,908.69 ($20,000.00 which had been paid into court pursuant to the order for security having been received by ABB).

15 On 15 September 2006 ABB served a statutory demand for payment in the amount of the judgment debt on USM. USM did not satisfy the statutory demand and on 11 October 2006 ABB commenced proceedings seeking an order for the winding up of USM.

16 USM was incorporated in March 1983. It operated from the residential premises of Esme Celik and Eddy Dogramaci. At the date of the winding up proceedings Mr Dogramaci had ceased being a director of USM. The company’s sole director and shareholder was Ms Celik.

17 On 3 November 2006 Ian Purchas and Nicholas Malanos of Star Dean-Willcocks were appointed voluntary administrators to USM pursuant to a resolution signed by Ms Celik in her capacity as sole director and company secretary. The administrators issued a notice to creditors, dated 22 November 2006, reporting that USM had assets with an estimated realisable value of $10,032.00 and unsecured creditors of $521,284.00. They recommended that the creditors adopt a deed of company arrangement in the terms that were outlined in the notice. USM’s report as to its affairs lists its unsecured creditors. Its liability to ABB amounts to approximately seven per cent of its reported liability to unsecured creditors.

18 On 7 December 2006 the solicitors acting for ABB wrote to those acting for USM requesting the provision of information to demonstrate USM’s capacity to satisfy any adverse costs. There was no response to this letter.

19 In his affidavit Mr Lawson, a partner of Corrs Chambers Westgarth with lengthy experience in commercial litigation, deposed to the estimated costs of the proceedings (paragraph [23]). He estimates the costs of the hearing of the pending motion filed by USM and the appeal to be $71,690.00 and ABB’s recoverable costs to be of the order of $50,000.00.

20 The power to make an order for security for costs is provided by r 42.21 of the Uniform Civil Procedure Rules 2005 (the UCPR) which, relevantly, provides:

(1) If, in any proceedings, it appears to the court on the application of a defendant:
…
(d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so;
(e) that a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay that costs of the defendant if ordered to do so,
the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant’s costs of the proceedings and that the proceedings be stayed until the security is given.
…
(4) This rule does not affect the provisions of the Act under which the court may require security for costs to be given.

21 Power to make an order for security in a case in which the plaintiff is a corporation is also provided in s 1335(1) of the Corporations Act 2001:

(1) Where a corporation is a plaintiff and any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.

22 Provision is made with respect to orders for security in the case of appeals in r 50.8 of the UCPR:

Security for costs
(1) In special circumstances, the court may order that such security as the court thinks fit be given of the costs of an appeal to the court.
(2) Subject to sub rule (1), no security for costs of an appeal to the court is to be required.
(3) Sub rules (1) and (2) do not affect the powers of the court under rule 42.21 (which relates to security for costs).

23 It is to be noted that the reference to a “plaintiff” in s 1335(1) of the Corporations Act applies to corporate appellants: Winnote Pty Ltd (In liq) v Page [2005] NSWCA 362 per Mason P at 19; J and M O’Brien Enterprises v Shell Co (1983) 7 ACLR 790.

24 This is an appeal against a decision of an Associate Justice involving the exercise of a discretion and is instituted pursuant to Division 3 of Part 49 of the UCPR by notice of motion in the proceedings. ABB must affirmatively satisfy the Court that her Honour’s discretion miscarried because she acted on an incorrect principle of law, or failed to take into account relevant considerations, or made some relevant error of fact or because the result arrived at is plainly unreasonable and unjust: House v R (1936) 55 CLR 499 at 504-5.

25 I turn now to the judgment. Her Honour outlined the history of the litigation and the evidence concerning USM’s financial position. In this respect her Honour noted (at [8]):

US Manufacturing does not own any real property. Ms Celik, the Director of US Manufacturing, has not undertaken to pay ABB Service’s legal costs. Mr Dogramaci says that, if necessary in the event that US Manufacturing loses this appeal and is ordered to pay further costs, it may be able to call upon other assets held by the company’s director, but those assets are not used to finance the company’s ordinary business or pay its lawyers.

26 Her Honour noted USM’s submission that it had suffered losses that made it financially difficult to proceed with its appeal and that ABB was a company that was easily able to afford to litigate. She noted that it was USM’s submission that the motion for security was designed to force USM to expend its remaining resources, thereby defeating its legitimate right to appeal (at [9]).

27 Her Honour considered the prospects of success of the pending motion and of the appeal. She concluded that it was most unlikely that USM’s motion to adduce the evidence of Mr Heydon would be successful. She noted that USM was seeking to challenge the Magistrate’s decision upon the ground that his Honour had failed to deal properly with the objective evidence. Her Honour considered that the case turned on the findings of fact and that it was unlikely that the appeal would succeed. The judgment continued:

[25] If I take into account that US Manufacturing is impecunious, that it is unlikely to succeed on the outstanding motion and appeal, and that there are already costs outstanding from the Local Court proceedings, it may amount to “special circumstances”?
[26] To be “special” the circumstances must be out of the ordinary, or unusual, “although the specialness must be adjudged in the particular circumstances under consideration” – see Transglobal at [20]. While this is a borderline case, I do not, at this stage, think that these circumstances are “special”. Hence, I decline to order that US Manufacturing provide security for costs.

28 Her Honour had earlier made reference to Transglobal Capital Pty Ltd v Yolarno Pty Limited [2004] NSWCA 136; 60 NSWLR 143, observing (at [12]):

In Transglobal , the New South Wales Court of Appeal held that Part 51, r 16 of the Supreme Court Rules 1970 (NSW) (now Rule 50.8 of the UCPR) wholly governs the ordering of security for costs on an appeal and that generally impecuniosity alone will not be sufficient to amount to “special circumstances” under that rule. It is common ground that US Manufacturing is impecunious.

29 In written submissions, Mr Stevenson SC, who with Mr Emmett appeared on ABB’s behalf, contended that her Honour erred in approaching the application on the basis that the sole power to make the order was that provided by r 50.8 of the UCPR and in failing to have regard to the power to order security that is conferred by s 1335(1) of the Corporations Act. ABB submitted that the provisions of r 50.8 with the requirement of “special circumstances” cannot circumscribe the power that is conferred under the Commonwealth provision.

30 Mr Stevenson acknowledged that the question of how r 50.8 of the UCPR affects the discretion to order security for costs against a corporation is not settled. In Transglobal the Court said at 147, [15]:

It follows that because of this Court’s power to order security for costs of the appeal is governed by r 16, care must be taken when considering cases from other jurisdictions. Unless those jurisdictions have rules or orders to the same effect, such authorities are unlikely to be of relevance and may be misleading.

Mr Stevenson noted that the Court did not address the power conferred by the Corporations Act .

31 In Procorp Civil Pty Ltd v Napoli Excavations and Contracting Pty Ltd (No. 2) [2006] NSWCA 147 reference was made to the predecessor of s 1335(1) but there was no discussion of the relationship between it and the provisions of the SCR with respect to corporate appellants. Hodgson JA said at [3]:

Although Registrar Jupp held in Strata Consolidated (Australia) Pty Limited v Bradshaw [2000] NSWCA 114 that the Court of Appeal could also order security for costs on the basis of Pt 53 r 2 of the Supreme Court Rules and (in the case of a corporation appellant) s 1135 of the Corporations Law , the decision of the Court of Appeal in Transglobal Pty Ltd v Yolarno Pty Limited , proceeds on the basis that Pt 51 r 16 wholly governs the order in the security for costs in an appeal. I will accordingly proceed on that basis. Transglobal also states that generally impecuniosity alone will not be sufficient to amount to “special circumstances” under that rule.

32 Mr Stevenson drew attention to the observations made by Mason P in Winnote. In that case his Honour considered that special circumstances justifying the making of an order for security were established. He said at (at 249 [24]):

It is therefore unnecessary to consider the application of s 109 of the Constitution to resolve any apparent conflict between the Corporations Act and the Uniform Civil Procedure Rules , r 42.3. I say no more than that I am troubled by the opponents’ submission that the discretion under the federal enactment should be exercised having particular regard to the specific rules of court that derive their operation from a State enactment.

33 In Mr Stevenson’s submission, correctly understood, r 50.8 of the UCPR is not inconsistent with the provisions of s 1335(1) of the Corporations Act. He contended that the general rule (prior to the introduction of the predecessors to r 50.8) was that a litigant would not be ordered to pay security merely because he or she was impecunious but that appeals constituted an exception to the rule. Mr Stevenson noted the history is discussed in Melville v Craig Nowlan and Associates Pty Ltd [2002] NSWCA 32; 54 NSLWR 82 by Heydon JA at 108 and 109. Relevantly, his Honour cited the judgment of Bowen LJ in Cowell v Taylor (1885) 31 Ch D 34:

In the case of appeals … the appellant has had the benefit of a decision by one of her Majesty’s Courts, and so an insolvent party is not excluded from the Courts, but only prevented, if he cannot find security, from dragging his opponents from one court to another.

34 Mr Stevenson drew attention to the observation of Mason P in Winnote at 248, [21], that the requirement of the rules to establish “special circumstances” appears to be designed to negate the common law by which appeals are exceptions to the general rule that impecuniosity is not a bar in itself. In Mr Stevenson’s submission the requirement of “special circumstances” does not import more persuasive reasons for ordering security in respect of the costs of an appeal than might be required at first instance. This is said to be consonant with the approach of the Court of Appeal in Transglobal at 151 [33] – [35]. The Court in that case considered the primary judge to have erred in having regard to a “general practice” of the court, particularly in commercial cases, “to protect a respondent from the financial consequences of an unsuccessful appeal, so far as that can properly be done, by an order for security for costs of the appeal” (at 147 [16]).

35 In Mr Stevenson’s submission, her Honour erred in approaching the application on the basis that r 50.8 of the UCPR required her to exercise the discretion in a more confined way than had the application not been brought in respect of the costs of an appeal. Her Honour’s approach to the requirement for “special circumstances” in r 50.8 is as set out in paragraphs [12], [25] and [26] of her reasons, which I have extracted above. She approached the matter upon the footing that generally impecuniosity alone was an insufficient basis for an order for security in accordance with the judgment of the Court in Transglobal. It is not entirely clear from the discussion at paragraphs [12], [25] and [26] of the judgment what her Honour considered to be the content of the requirement for special circumstances under the rule.

36 In the view to which I have come it is not necessary to decide whether her Honour’s claimed failure to take into account the power conferred by

s 1335(1) of the Corporations Act or whether, correctly understood, the requirement that for “special circumstances” under r 50.8 of the UCPR does not import consideration of matters in addition to those that are embraced by the power conferred by s 1335(1) or r 42.21 of the UCPR. It was common ground that USM was impecunious and would not be in a position to meet an adverse costs order. USM is a company having a sole director and shareholder. No evidence was adduced from Ms Celik concerning her financial position. The only evidence touching on the topic came from Mr Dogramaci and is that to which her Honour referred in the passage that I have set out at paragraph [25] above.

37 In Harpur v Ariadne [1984] 2 Qd R 523 at 532, Connolly J said:

An individual who conducts his business affairs by medium of a corporation without assets would … be in a position to expose his opponent to a massive bill of costs without hazarding his own assets. The purpose of an order for security is to require him, if not to come out from behind the skirts of the company, at least to bring his own assets into play.

38 In Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FRC 1 the Full Court of the Federal Court (Sheppard, Morling and Neaves JJ) said 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 parties 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.

39 In Winnote at 249, [23] Mason P observed:

There is a very long history of requiring those promoting litigation by insolvent companies to come out from behind the corporate shirt-tails to the extent of providing security if sought ( see Project 28 at [100]-[109]). I am satisfied that “special circumstances" exist.

40 The principal matter urged on USM’s behalf before Harrison AsJ, and on the hearing of the appeal, was that an order for security may frustrate its ability to prosecute its appeal. There was no evidence that the person standing behind the company did not have the means to fund the litigation. The evidence was that Ms Celik had assets but that for reasons that were not explained she was unwilling to make her funds available to “finance the company’s ordinary business or pay its lawyers”.

41 Her Honour’s omission to explain how she took into account the absence of evidence from Ms Celik as to her financial position and the significance of the evidence of Mr Dogramaci to which she referred, suggests that she overlooked this consideration. I accept ABB’s submission that it was a critical consideration and the omission is such as to vitiate the exercise of her Honour’s discretion.

42 ABB claims orders setting aside the decision made by Harrison AsJ and in lieu thereof directing that USM provide security for its future costs in the amount of $50,000.00. Mr Hanrahan, who appeared for USM, submitted that her Honour had taken into account all relevant considerations and that her determination should stand. In the event that the Court found that the determination had been attended by error, he submitted that the Court would in the exercise of its own discretion decline to make an order for security. Mr Hanrahan relied on a number of matters in support of the latter submission.

43 The first matter concerns USM’s prospects of succeeding on its appeal. Contrary to the assessment made by Harrison AsJ, Mr Hanrahan submitted that USM had good prospects of success. This submission was dependent on the Magistrate’s failure to explain the significance of a document titled “Decanter gearbox program” which appears to have been tendered in the course of the evidence of Robert Mayerhaufer, an employee of Sydney Water (annexure “G” to the submissions filed on USM’s behalf before Harrison AsJ). In Mr Hanrahan’s submission the document provides independent support for a finding that eight gearboxes had been installed at the Winmalee site as at 27 December 2002. The appeal is brought pursuant to s 73 of the Local Courts Act 1982. It is confined to error of law. The Magistrate’s decision was one that depended in part on an assessment of the credibility of witnesses. His Honour reviewed a number of features of the evidence which did not depend upon an assessment of the credibility of witnesses and which supported his conclusion that USM had not discharged its onus. For the purposes of determining ABB’s application for an order for security, I accept that it is unlikely that USM’s appeal will succeed.

44 Next, Mr Hanrahan submitted that ABB, which was described as being “a well-funded company”, was applying financial pressure to it at a crucial stage of the proceedings in order to shutdown the appeal. In oral submissions Mr Hanrahan contended that the application was to be assessed in a context, which included that ABB was responsible for USM’s financial difficulties: KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 197 – 198. In light of the evidence of USM’s financial position, including the summary of its report as to its affairs to which I have referred, I reject this submission.

45 Mr Hanrahan dealt with the issue of the absence of evidence that those standing behind USM were without means to support the litigation in this way in his written submissions:

It was not necessary for the plaintiff to “have the veil lifted” on its Director in order for it to demonstrate its bona fides. Security was provided at the original hearing, when it could more readily afford (sic). To place further obstacles in the path of the plaintiff’s pursuit of a just outcome was not necessary or appropriate.

46 This submission does not address the principle enunciated in Harpur; Bell Wholesale Co Ltd and Winnote to which I have referred. Mr Hanrahan placed considerable emphasis on a passage in the judgment of Basten JA in Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247 at [18] in which his Honour said that “where a bona fide and reasonably arguable appeal would be stifled by an order for security, such an order should usually not be made”. This decision does not address the issue raised by the present application since the plaintiff in Preston was not a corporation.

47 In my opinion, special circumstances have been established by ABB, such that an order for security should be made. In coming to this conclusion I have taken into account the history of the litigation, including that USM has lost contested hearings before an arbitrator and the Magistrate and failed in its motion before Malpass AsJ to adduce new evidence and my view that it is unlikely to succeed on the appeal. USM has unsecured creditors to whom it owes more than $500,000 and it is unlikely to pay ABB’s costs of the proceedings if it is ordered to do so. I do not consider that its impecuniosity can be fairly characterised as being the product of ABB’s conduct. Significant to my conclusion is the evidence that Ms Celik has assets and that she has not been willing to support USM’s appeal by bringing them into play.

48 The evidence of Mr Lawson, as to the estimated costs of the proceedings, was not the subject of challenge. In the circumstances I consider that it is appropriate to make an order for security in the amount of $50,000.00. I consider that USM should be given 14 days in which to provide security in this sum.

49 For these reasons I make the following orders:

ORDERS

1. Allow the appeal and set aside the decision of Harrison AsJ given 18 July 2007 and, in lieu thereof, order:

(i) the plaintiff, US Manufacturing Co Pty Ltd, provide security for the defendants ABB Service Pty Ltd future costs of the proceedings in the sum of $50,000.00 in a form suitable to the Court within 14 days;
(ii) the proceedings by stayed until such time as security is given;
(iii) the plaintiff is to pay the defendant’s costs of its motion for security.
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12/10/2007 - Correction to name on coversheet - Paragraph(s) [0]