W.T. Exporters Pty Ltd v Western Sands Ltd

[1995] FCA 736

IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )   No. 826 of 1994
GENERAL DIVISION                )

Between:     W.T. EXPORTERS PTY LTD
  Applicant

And:     WESTERN SANDS LIMITED
  Respondent

REASONS FOR JUDGMENT

EINFELD J                 SYDNEY                5 MAY 1995

The respondent to an application for damages and other relief under the Trade Practices Act, amongst others, seeks security for the costs of an action brought against it by a company engaged in the minerals and mineral sands industries with particular interests in contracts in Vietnam.  The costs sought are $17,250, the details of which are outlined in an affidavit by the solicitor for the respondent.  The amount is not in fact challenged by the applicant's director who has sworn an affidavit seeking to oppose the order for security.

The question arising in this security application is whether the applicant company has offered sufficient security when its principal director and managing director offers to stand back as the major creditor of the company should the litigation be successful and an order for costs be made in favour of the respondent.

In brief the material before the Court shows that the company's major liabilities, virtually its entire liabilities, amounting to just a little under $1½ million, are owed to the directors and shareholders of the company who are husband and wife.  Because of their offer to stand back in favour of the respondent, the applicant correctly argues that the balance sheet and other accounts of the company should be looked at, as it were, as if those liabilities were not there.  In that circumstance it is argued that the company shows a perfectly stable capacity to meet any order for costs, especially one in the sum of $17,250.  In other words, if the liabilities to the directors are deleted, the company shows current assets by way of stock on hand of a little in excess of $62,000, and other non-current assets such as plant and equipment and other items in a sum considerably in excess of that.  It is also pointed out that the company although with accumulated losses of the order of $1½ million, all of which appear to have been funded by the loans which have created the liabilities to the directors, made a profit of almost $95,000 for the year ended 30 June 1994.

The affidavit of the applicant company's managing director is significantly lacking in detail about what these assets represent.  The balance sheet shows that the stock asset of $62,000 odd represents raw materials, but there is no way of knowing what these raw materials are.  There is certainly no independent valuation of these materials.  The balance sheet and profit and loss statement annexed to the affidavit is not shown to have been audited, but if in fact the assets were properly valued at that sum, it would seemingly have been possible to charge them to a lending institution so as to raise the $17,250 sought by way of security for costs.

There is also no description in the affidavit of what happened to the profit of almost $95,000 earned in the year to 30 June 1994.  That date is itself almost 11 months ago and there is no indication in the affidavit as to whether that profitable trading has continued in the current financial year and what is expected to be the profit position in a month and a half's time when it will be necessary to supply new accounts.

It is put on behalf of the applicant that the onus is on the respondent in these regards and that it has no obligation in the circumstances to make any such revelations of the kind to which I have been referring.  I disagree.  A party seeking security for costs has to raise by credible evidence either a certainty or at least a significant doubt that if an order for costs is made against it, the amount will not be or has a reasonable chance of not being recovered.

In my opinion this task has been achieved here by showing that in the records that were available prior to the affidavit filed in the proceedings the applicant company had made and was making significant losses in circumstances which provided no information as to how any order for costs would be met, and raising at least a significant doubt that an order for costs could be met.
On the other hand, the records of the company did not show that the company was unable to fund an order for security.  The accounts show, in fact, that the company is trading.  The affidavit now filed on behalf of the company shows that it is continuing to trade.  If the directors of the company can fund its losses to the tune of $1½ million, they should have little difficulty in funding either through the company or by themselves an order for security in the sum of $17,250.  That fact also immediately puts to rest any suggestion that the company or the people who stand behind it are unable to fund an order.  In fact no claim is made here that the company is impecunious or that those who stand behind it are unable to meet an order for security for costs so that such an order would bring this litigation to an immediate end.

In fact, they rest upon some supposed principle that they really have to say nothing and can just deny the respondent access to information, thereby making the suggested onus of proof impossible to discharge.  That is simply not the law with regard to security for costs, and the Court would never be a party to obstructive and unco-operative responses of that kind.  Otherwise people could always be frustrated in attempting to obtain an order for security because companies against whom such orders were sought could sit pat, supply no information, answer no questions, be less than frank both with the other litigant and with the Court, and cause a worthy and meritorious applicant for security to fail on some technical, ambush-type basis.  This
Court has always set its face against any such tactic and will do so again today.

I make an order that the applicant provide security for the costs of the respondent in the sum of $17,250 in such form as may be agreed between the parties or in the absence of agreement determined by the Registrar.  I do not think that there is a need for an additional stay order in view of the fact that the applicant company does not argue an inability to supply such a security if ordered, but liberty to apply will be reserved in case that should be necessary.

The applicant on the motion will pay the respondent's costs on the motion.