Gibb Australia Pty Limited; Kenneth Farish Scott; Anthony Derek Swift Mangnall; William Thomas Noel Reeve; John Richard Edward Kent; Geoffrey Hamilton Coates and Kevin John Cairns v Cremor Pty Limited; Peter Reeves and Helen Margaret Reeves [1991] ACTSC 102 (27 November 1991)

SUPREME COURT OF THE ACT

GIBB AUSTRALIA PTY LIMITED; KENNETH FARISH SCOTT; ANTHONY DEREK SWIFT
MANGNALL; WILLIAM THOMAS NOEL REEVE; JOHN RICHARD EDWARD KENT; GEOFFREY
HAMILTON COATES and KEVIN JOHN CAIRNS v. CREMOR PTY LIMITED; PETER REEVES and
HELEN MARGARET REEVES
S.C. Nos. 824 of 1990 and 266 of 1991
Security for Costs

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Higgins J.(1)

CATCHWORDS

Security for Costs - Application by defendant - Application refused - Corporations law - Second to Sixth personal plaintiffs resident out of jurisdiction - Plaintiff company within jurisdiction - No new issue of principle.

Rajski v Computer Manufacturer and Design Pty Ltd (1983) 2 NSWLR 122

Pacific Acceptance Corp. Ltd v Forsyth (No. 2) (1967) 85 WN (Pt 1(NSW) 715

HEARING

CANBERRA
27:11:1991

Counsel for the Plaintiff: Mr S. Gageler

Instructing solicitors: Messrs Blake Dawson Waldron

Counsel for the Defendant: Mr S. Finch

Instructing solicitors: Messrs Sly and Weigall

ORDER

The defendants' application be refused.

DECISION

This is an application by Notice of Motion dated 12 August 1991 that the plaintiffs (other than the seventh plaintiff) provide security for the defendants' costs.

2. The second to sixth named plaintiffs are each resident in the United Kingdom. The first plaintiff is, of course, a corporation. It is an Australian company. The seventh plaintiff is a resident of the Australian Capital Territory.

3. Various proceedings are on foot between the plaintiffs and the defendants. Not all these proceedings involve each of the parties.

4. This matter (SC 266 of 1991) was commenced on 26 April 1991. It is a claim by the plaintiffs as partners and subsequently directors of a company conducting a consulting engineering business (hereinafter referred to as "the business") against the second and third defendants, and the first defendant, (a company controlled by the second and third defendants). The second defendant was a partner and then a director of the company conducting the business.

5. Essentially the plaintiffs claim that the second defendant and a man, since deceased, named Royle, defrauded the business of vast sums. The first and third defendants are alleged to have unjustly benefited from those activities.

6. The property said to have been fraudulently acquired and the moneys fraudulently received cover numerous items and numerous occasions. The volume of documentary evidence will clearly be massive.

7. Matter SC 824 of 1990 (being a claim for further arrears of rental allegedly due from the first plaintiff to the first defendant) was consolidated with these proceedings on 24 May 1991.

8. An affidavit of John Bede Weber, a solicitor for the defendants, details other litigation between the plaintiffs (or some of them) and the defendants (or some of them).

9. It is unnecessary to detail all of these claims and cross-claims.

10. They include actions by the first defendant to recover rent from the first plaintiff. Judgment against the first plaintiff, (presently subject to appeal) was entered by leave of the Master in favour of the first defendant on 17 May 1991. Execution is presently stayed on terms that the first plaintiff provide security by way of bond. The judgment was for $74,835.00 plus interest and security has been provided.

11. Mr John de Plater, a Chartered Accountant, has deposed, in support of the defendants' application, that the recent accounting records of the first plaintiff demonstrate that the first plaintiff would not be able to offer adequate security for more than $40,000.00. He concluded that the first plaintiff was "in wind-down mode".

12. Mr Timothy John Woods Ballard, another director of the first plaintiff, responded to this affidavit. He did not dispute that conclusion. He says, however, that the legal costs and consequential time demands on executives of the first plaintiff flowing from this litigation have contributed to this less than healthy result. He cites costs paid to date as $216,502.41. Costs incurred but unpaid are put at $159,022.40. Estimated future costs are $120,000.00. I suspect the latter estimate could be conservative unless many potential issues are resolved without the need for them to be litigated.

13. There are also criminal charges against the second defendant. Co-operation with prosecution authorities will add to the pressures on the first plaintiff and its officers.

14. The first plaintiff is seeking to merge with a larger business concern. Should that happen, the first plaintiff will have been totally "wound down". However, the fruits, if any, of this litigation will accrue to the first plaintiff (and to the former partners, the other plaintiffs) not to the merged entity.

15. Conversely, it would seem that if the plaintiffs lose, the merged entity would not be liable to the defendants for the damages or costs awarded.

16. The seventh plaintiff has deposed to having a net worth of approximately $295,000.00. Allowing for joint interests, assuming equality of worth as to those interests, about $172,500.00 remains that would be available to meet an adverse costs order in this matter.

17. The power to order security for costs is to be exercised with a view to ensuring fairness. A plaintiff ought not to be deprived of a fair opportunity to litigate a bona fide claim. Conversely, a defendant is entitled to be protected against protracted litigation being waged by a party not really at risk as to costs (see, for example, Rajski v Computer Manufacturer and Design Pty Ltd (1983) 2 NSWLR 122).

18. There is ample power to order any of the plaintiffs or, indeed, any of the defendants to provide security.

19. The principles guiding the exercise of such a power are well settled. None of them is under challenge in this application.

20. It is clear that, as against the first plaintiff, the defendant has substantive claims for unpaid rental. The extent to which those claims will off-set or exceed the first plaintiff's claim is obviously bona fide in issue. The first plaintiff has provided security for one of those claims.

21. It seems to me therefore that viewing the litigation overall it is not an appropriate case to order the first plaintiff to provide security for the defendants' costs to be incurred.

22. As to the personal plaintiffs, those resident outside Australia are, for that reason, capable of being ordered to provide security. It seems likely that those plaintiffs are joined because they are necessary parties. They are unlikely to be real participants in the litigation. Nevertheless, even if it is accepted the first and seventh plaintiffs are the parties most directly concerned, there is no evidence that the litigation is for the benefit of a party not joined in the litigation and hence not at risk as to costs.

23. Even though the second to sixth plaintiffs have no assets in this Territory, there is no reason why a judgment for costs, even if for some reason it was not enforced against the seventh plaintiff, could not be enforced in the United Kingdom against the second to sixth plaintiffs. Of course, that would be a more difficult and expensive course than enforcement in the Territory. It is, however, a contingency only, the assets of the seventh plaintiff are immediately and proximately available. There is nothing to suggest that the difficulty and delay of that overseas enforcement would unduly prejudice the defendants or that the additional expense would be irrecoverable.

24. The presence of the seventh plaintiff with assets in this jurisdiction is particularly relevant. That plaintiff is not a mere formal plaintiff joined simply to avoid an order for security for costs against the first to sixth plaintiffs.

25. It is also relevant, at least in relation to the first plaintiff and perhaps, indirectly in relation to the others, that, if the plaintiffs' case is right, they have been deprived of assets that have enured to the benefit of the defendants. (See, for example, Pacific Acceptance Corp. Ltd v Forsyth (No. 2) (1967) 85 WN (Pt 1)(NSW) 715.)

26. There is certainly no suggestion that the defendants will be unable properly to litigate the issues between them and the plaintiffs unless given security. Even the Mareva injunction does not, and will not, prevent that. If further funds are required for them to properly conduct the litigation, they will no doubt be released.

27. The defendants' application is, accordingly, refused.

28. I will hear the parties as to the costs of this application.