Case: Harpur v Ariadne (1984) 2 Qd R 523
Outcome: cited
(For similar statements considering the purpose of an award of security for costs, see Lord Aldborough v Burton (1834) 2 My &amp; K 401, 39 ER 997; Harpur v Ariadne Australia Ltd (1984) 2 Qd R 523 at 530; Re Energy Drilling Inc (unreported, Federal Court of Australia, Gummow J, 3 May 1989) at [24]; Microcorp Pty Ltd v Terran Computers Pty Ltd (unreported, Federal Court of Australia, Northrop J, 26 June 1992) at 16; Phoenix Court Pty Ltd v Melbourne Central Pty Ltd [1998] 753 FCA (19 June 1998); Silveira v Australian Institute of Management [2001] FCA 1358 at [6] ; Rocter Tanks Pty Ltd v Adam [2001] SASC 196 at [25] ; Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564; Wollongong City Council v FPM Constructions Pty Limited [2004] NSWSC 523 at [19] ; La Rosa Constructions Pty Limited v PWR Developments Pty Limited [2004] NSWSC 235 at [7] ; Baygol Pty Ltd v Huntsman Chemical Co Australia Pty Ltd t/a RMAX [2004] FCA 1248 at [9] ; Interline Hydrocarbon Inc v Brenzil Pty Ltd [2005] QSC 109 at [34] .) 32 In Australia the substantial weight of authority has rejected any suggestion that a defendant is entitled to an order for security as of right where the impecuniosity of the company has been established: French J in Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 506. However the differing approaches are reflected by the broad terms of s 56 Federal Court Act, and the specific terms of s 1335 Corporations Act which apply where there is evidence that a corporate plaintiff is insolvent. A statutory predecessor of s 1335 was explained by the Full Court of the Supreme Court of Queensland in Harpur v Ariadne (1984) 2 Qd R 523 at 532 in the following terms: 'The mischief at which the provision is aimed is obvious. An individual who conducts his business affairs by medium of a corporation without assets would otherwise 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. If however he is already available for whatever he is worth, the object of the legislation is seen to be satisfied.' 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] .)