Case: Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1
Outcome: cited
Although O 28 r 3 Federal Court Rules refers to matters the Court may take into account when considering an application for an order for security for costs under s 56 of the Act, it is clear that the rule is not intended to be an exhaustive statement of the factors the Court may consider, nor does the rule limit the power of the Court under s 56 ( Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1 at 2-3). 26 The first and third applicants in this case are corporations, one of which is currently subject to a Deed of Company Arrangement within the meaning of Pt 5.3A Corporations Act 2001 (Cth). Accordingly, s 1335 Corporations Act is also relevant. Section 1335 provides: '(1) Where a corporation is plaintiff in 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. (2) The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs.' 27 Although the respondents have sought an order for security for costs pursuant to either s 56 of the Federal Court Act or s 1335 Corporations Act , in the circumstances of this case the parties have not addressed the issue whether the content of the requirement to act judicially is different under s 56 to that under s 1335. Accordingly, it is not necessary for me to consider this issue separately. 34 It is well-settled that the court is vested with a discretion to award or not security for costs, and that the power is wide with the need to exercise the discretion judicially being the only relevant limitation ( Bell Wholesale at 3). However, useful guidelines which courts typically take into account in determining such applications were listed by Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 197-198 as follows: 1. That such applications should be brought promptly. 2. That regard is to be had to the strength and bona fides of the applicant's case. 3. Whether the applicant's impecuniosity was caused by the respondent's conduct subject of the claim. 4. Whether the respondent's application for security is oppressive. 5. Whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security. 6. Whether persons standing behind the company have offered any personal undertaking to be liable for the costs. 7. Is the party against whom security is sought in substance a plaintiff. 38 In my view an award of security in respect of future costs in this matter is appropriate. In forming this view I take into account the following factors: 1. The first and third applicants were ordered earlier this year to pay the first and second respondents security for costs up to the end of the first day of trial in the sum of $150 000: Sunstate Orchards Pty Ltd v Citrus Queensland Pty Ltd [2006] FCAFC 93. To paraphrase Emmett J in Checked-Out Pty Ltd v Eagle Eye Inspections Pty Ltd [2001] FCA 1475 at [26] , for reasons I detail below I do not see any reason at all to depart from the view of the Full Court in making an order that security for costs were payable, and note that the Full Court did not preclude a subsequent application at an appropriate time. 2. The first and third applicants have admitted that they are unable, from their own resources, to meet any costs order made against them in these proceedings. This admission of the applicants means that under both s 56 Federal Court Act and s 1335 Corporations Act the Court has a broad discretion, fettered only by the requirement that the Court act judicially, to order the applicant to give security for the payment of the respondent's costs (Branson J in Hopeshore Pty Limited v Melroad Equipment Pty Limited [2004] FCA 1445 at [3] ). 3. The application was filed and served on 22 November 2006 once it was clear that the trial would not finish on 24 November 2006, and the matter has been adjourned until May 2007. There is no issue of delay in respect of this application in respect of future costs. 4. Although the courts have shown reluctance to order security for future costs in respect of part-heard trial, on the basis that, if the applicant cannot provide security, it runs the risk of having wasted costs of the trial days already heard, the fact that the length of the proceedings was not foreseen is a factor which may influence the court to exercise its discretion in ordering security for those costs (see comments of Street CJ in Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301 at 308). 5. In my view it is not appropriate to form any views as to the strength of the applicants' case at this stage of the trial (cf comments of Hill J in Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 at 50,636). It is clear however that there are triable issues, and it has not been suggested to me that the case of the applicants is frivolous. 6. Insofar as this application is concerned, it is clear that the first and third applicants are unable to satisfy a costs order. I do not need to go to the evidence which has been heard to be so satisfied. Further, in my view the impropriety of reaching conclusions in this respect works both ways clearly the respondents strongly deny that their conduct has caused the impecuniosity of the first and third applicants (indeed it is a basis of the litigation), and in my view it is not proper at this stage when some, but not all, of the evidence has been heard, to make any findings as to this issue. I believe it is acceptable, however, to note evidence given in Court by Mr Hambleton, the administrator under the third applicant's deed of company arrangement, that in his opinion there was a strong prospect that the third applicant was insolvent from incorporation (TS 23 November p 572 ll 24-25). 7. Although the applicants contend that the reliance by the respondents on previous material filed in respect of security for costs is a tacit admission that nothing has occurred to justify this application for security for costs, I cannot accept that contention. Plainly, circumstances have altered. A trial which was listed for 10 days being the best estimate of Counsel as communicated to the Court is now manifestly running over that time. I shall consider this issue later in this judgment in relation to quantum. However I fail to see how the respondents, in relying on evidence of Mr McLellan that the costs for each day beyond 10 days would be $8166, is a tacit admission of the kind submitted by the applicants, notwithstanding that the affidavit of Mr McLellan was filed 27 March 2006. In my view the only 'admission' of the respondents in this respect is that their trial costs beyond 10 days would not exceed $8166 per day, and would not increase in the 2007 calendar year. 8. There is no evidence before me that the effect of an order awarding security for costs would be to stultify the litigation. Indeed as was clear during the hearing it would be the second applicant, Mr Tracy, who would be providing any security for costs ordered (TS 23 November 2006 p 585 ll 25-27). As pointed out by Jessup J in Acohs Pty Ltd v Ucorp Pty Ltd [2006] FCA 1279 at [49] , there is an intrinsic connection between the 'stultify factor' and the 'persons standing behind' factor as described by Beazley J in KB Cable . That the second applicant and his wife, Mrs Adrienne Tracy, are principal beneficiaries (and in the case of the second applicant, the principal architect), of the litigation before me is also clear from the evidence (for example TS 17 November 2006 p 194 ll 31; TS 17 November 2006 p 219 ll 41-43; TS 20 November 2006 p 233 ll 16-19, and exhibit R15). Further, that Mr and Mrs Tracy are of considerable means was made clear from evidence before the Court, including a balance sheet describing assets and liabilities of the second applicant, Mrs Tracy and their companies as at 12 November 2004 (exhibit R14). The first and third applicants appear to be impecunious, however there is no evidence before me that the second applicant or Mrs Tracy are at a similar financial disadvantage notwithstanding the events which have resulted in the litigation before me. No undertakings have been provided by the second applicant or any other person as to the costs to which the first and third applicants may become liable. Accordingly in such circumstances security for costs may be ordered to ensure that those who stand to benefit from the litigation undertake some of the risks. ( Rosenfield Nominees Pty Ltd v Bain &amp; Co (1988) 14 ACLR 467 at 472-473; Acohs Pty Ltd v Merck Ltd [1997] FCA 573 ; Costa Vraca v Bell Regal Pty Ltd [2003] FCA 65 at [77] ; Harpur v Ariadne at 532; Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4; Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 511; Interline Hydrocarbon at [35]; Acohs Pty Ltd v Ucorp Pty Ltd [2006] FCA 1279 at [49] - [51] .)