Frederick W Nielsen (Canberra) Pty Limited v White Industries (ACT) Pty Limited and the Commonwealth of Australia [1994] ACTSC 53 (6 June 1994)

SUPREME COURT OF THE ACT

FREDERICK W NIELSEN (CANBERRA) PTY LIMITED v. WHITE INDUSTRIES (ACT) PTY
LIMITED and THE COMMONWEALTH OF AUSTRALIA
No. SC1652 of 1983
Number of pages - 6
Practice and Procedure - Directions

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
MASTER A HOGAN

CATCHWORDS

Practice and Procedure - Security for Costs - Long and complex litigation - Plaintiff company ceasing to trade - Whether reason to believe company would be unable to pay costs - Multiple costs orders made against both parties - Some already paid by plaintiff - Some not paid by defendant - No issue of principle.

Directions - Fixed hearing date - Preparations for hearing.

HEARING

CANBERRA, 27 May 1994
6:6:1994

Counsel for the Plaintiff: Mr B Meagher

Instructing Solicitors: Gillespie-Jones and Co

Counsel for the Defendant: Mr R Williams QC

Instructing Solicitors: Minter Ellison Morris Fletcher

ORDER

The Court orders that:<:

1. The application be dismissed.
2. The Defendant pay the Plaintiff's costs of the application.

The Court further directs that:

1. The parties forthwith approach the Deputy Registrar to fix a
listing conference, without the necessity to sign a certificate
of readiness.
2. Each of the parties file and serve a list of all the
interlocutory steps necessary or desirable to prepare the matter
for hearing, so that a fixed hearing date may be set, together
with a timetable for all steps to be taken.
3. The parties consider consent orders in accordance with the
Usual Order for Hearing set out in Practice Note No. 58,
relating to the Construction List in the Supreme Court of New
South Wales (Ritchie Vol.2, 12,059, p.8062).
4. Liberty is granted to restore for further directions on two
days notice.

DECISION

MASTER A HOGAN The defendant in this action applies for an order that the plaintiff company give security for costs.

2. The action was commenced by Writ of Summons on 12 October 1983, now well over ten years ago.

3. The amount claimed in the Writ was $538,514. By the third Amended Statement of Claim it had been increased to $605,448. Interest is claimed. Interest on the amount claimed in the Writ to date, calculated according to the practice direction from the date of the Writ to date, is $924,474. Whether that amount or anything like it would be awarded if the plaintiff succeeds, will be for the trial Judge to determine. I anticipate that the history of the litigation may have some bearing on that issue. I do not propose even to outline that history, but its sorry tale is clear enough from what follows.

4. The action arises out of a contract between the plaintiff and the first defendant, dated 14 November 1977, whereby the plaintiff agreed to provide mechanical services for the first defendant, which was the principal contractor engaged by the second defendant to construct the building for the High Court of Australia in Canberra.

5. The skirmishing over the pleadings began with a Notice of Motion to strike out part of the Statement of Claim, dated 1 February 1984. Orders were made. Appeals were heard. By 10 August 1987, on the 17th occasion that the case was before the Court, and nearly 4 years after the action commenced, leave was granted to further amend the Statement of Claim.

6. By 10 November 1988, on the 30th occasion, the plaintiff was ordered to discontinue the action against the second defendant. The first defendant was shortly afterwards given leave to join the former second defendant as a Third Party. The Commonwealth of Australia has since been substituted for the National Capital Development Commission.

7. The plaintiff was, by consent, granted leave to file and serve its proposed Third Amended Statement of Claim on 24 July 1989, on the 41st listing of the case before the Court.

8. On 1 February 1991 the defendant applied by Notice of Motion for an order that the plaintiff provide security for costs. That application was eventually not proceeded with, after the plaintiff filed an affidavit disclosing that it was not without assets.

9. Over the course of the interlocutory proceedings various orders for costs have been made, in favour of one party or the other. It has even been necessary for the Chief Justice to decide on an appeal in November 1988 just what is meant by the term "costs reserved". That was, however, by no means the only appeal relating to costs.

10. Although I have an impression, after looking at more than 80 associate's Records of Proceedings, that the plaintiff has been ordered to pay the defendant's costs more often than the defendant has been ordered to pay the plaintiff's, and there are many orders reserving costs still outstanding, it is not possible even to guess at which party is, on balance, presently indebted to the other for costs.

11. The defendant claims to have incurred costs and disbursements totalling $203,000 to date. It has recovered costs and disbursements pursuant to various costs orders in its favour in the sum of $21,483. The solicitor for the defendant estimates that if the defendant was successful at trial it could tax its party and party costs to date at about $110,000. An estimate of the costs recoverable after two weeks of hearing is of the order of $246,000.

12. The present Notice of Motion was dated 4 March 1994. During the second half of 1993 there had been meetings and discussions between the parties to explore the prospect of settlement. Although the defendant had copies of the annual returns and balance sheets of the plaintiff for the 1990, 1991 and 1992 years from July 1993, it was proper that further interlocutory proceedings should be held in abeyance while discussions continued.

13. The plaintiff's annual returns and a number of other documents relating to its financial affairs were submitted to Mr Taylor, a chartered accountant who specialises in personal and corporate insolvency. He swore an affidavit on 14 March 1994. The most recent information available to him was the annual return in respect of the financial year ended 30 June 1992. It showed that the Company had the following assets and liabilities,

Current assets $129,185
Non current tangible assets $482,560
Total assets $611,745
Current liabilities $321,342
Shareholders' Equity $290,403
$611,745
Operating profit after tax was $ 24,195

14. The plaintiff company had ceased trading during the year ended 30 June 1990.

15. Included in the non current tangible assets in 1991 and 1992 was an amount attributable to land at Queanbeyan valued at $450,000.

16. A search revealed that the land had been transferred to a company called Walbert Pty Limited for $512,500, subject to a mortgage in favour of the plaintiff.

17. Mr Taylor was not provided with any information about the disposal of the land to Walbert Pty Limited, or of the financial relationship if any between that company and the plaintiff. He had no information about the manner in which the consideration receivable was being applied by the plaintiff after the disposal of the land. He did not have sufficient current information in relation to the debtors and creditors of the company to enable him to form an opinion about the current financial position of the plaintiff.

18. Without that further information and explanations it was his view that the defendant might be at risk as to recovery of any costs that might be awarded in its favour in the proceedings.

19. An affidavit by the defendant's solicitor detailed the costs orders made in favour of the plaintiff, and the proceedings in which costs had been reserved. They had not been taxed. He also pointed out that some allowance should be made for the element of costs that would be incurred by the defendant in pursuing the third party proceedings.

20. After various calculations, he arrived at an estimate of $80,000 for the defendant's party and party costs, recoverable against the plaintiff if the defendant were to succeed.

21. I have not analysed those calculations in any detail, nor attempted to reconcile them with the estimates made by the solicitor for the defendant. On a broad view, if the defendant is entitled to an order, security would need to be in the order of $100,000 in litigation of this type and complexity.

22. Affidavits were sworn on 10 May 1994, 17 May 1994 and 19 May 1994 by Mr P J Toscan, a chartered accountant, and a partner in the firm of Ernst and Young, who has the supervision of the accounts of the plaintiff company. He annexed financial statements for the year ended 30 June 1993. They showed that shareholders funds in the company at 30 June 1993 were $344,170, which comprised total assets of $529,401 and liabilities of $185,231.

23. The assets included the loan to Walbert Pty Limited, secured by first mortgage, shown at $447,848 at 30 June 1993.

24. That company was trustee of the Venables Family Trust, and Mr Toscan was responsible for the preparation also of its accounts. That company is not related to the plaintiff company.

25. Discounting the asset shown as $68,000 for trade debtors, which are dependant on the outcome of this litigation, he estimated the net assets of the plaintiff to be $461,401. There was no explanation of the vast discrepancy between the figure of $68,000 and the amount claimed in this action.

26. His further affidavit showed that Walbert Pty Limited had paid instalments of interest, together with reductions of the capital debt, pursuant to the mortgage. The principal and interest had then been paid from the plaintiff company through to associated companies, and then remitted to Mr and Mrs Nelson, the controlling shareholders of the plaintiff. Those payments had the effect of reducing the current liabilities owed to the associated companies to $185,231 at 30 June 1993.

27. That process of repayment was continuing, reducing both the principal outstanding and the current liabilities. His best estimate of the present position was that the receivables were now $386,548 and the current liabilities $101,000.

28. Mr Toscan was cross-examined, but nothing came to light to cast any doubt in my mind on his calculations or explanations.

29. No evidence was called in reply from Mr Taylor.

30. In considering the circumstances relevant to this application, I have no information at all about the plaintiff's, or the defendant's, prospects of success. It is not suggested that the claim is not made bona fide.

31. If an order for security were made, it is clear that the plaintiff would be able to provide it, and still pursue its action.

32. This case does not seem to me to turn on any question of onus of proof, or of predisposition in favour of a defendant. It follows from my acceptance of Mr Toscan's evidence that there is no reason, in my view, to believe that the plaintiff will be unable to pay the costs of the action if it is unsuccessful.

33. Even though the plaintiff did not cease trading until the year ended 30 June 1990, the considerable delay up to mid 1993, and the multitude of interlocutory applications which have taken place over about 10 years, also affect the exercise of discretion. So does the fact that there are some orders for costs in the plaintiff's favour, even though they have not been quantified.

34. In summary, I am not persuaded that the interests of justice require an order for security for costs in this case.

35. The application is dismissed.

36. I order the defendant to pay the plaintiff's costs of the application.

37. As I mentioned to Counsel on the hearing of the application, I regard the action as now being before me for directions, pursuant to Order 33 Rule 1(2).

38. I direct the parties forthwith to approach the Deputy Registrar to fix a listing conference, without the necessity to sign a certificate of readiness.

39. I direct each of the parties to file and serve a list of all the interlocutory steps necessary or desirable to prepare the matter for hearing, so that a fixed hearing date may be set, together with a timetable for all steps to be taken. It is the intention of these directions that the hearing date will be a fixed hearing date, not to be vacated on the ground of any default in the taking of any interlocutory steps leading up to it.

40. The parties are directed to consider consent orders in accordance with the Usual Order for Hearing set out in Practice Note No. 58, relating to the Construction List in the Supreme Court of New South Wales (Ritchie Vol.2, 12,059, p.8062).

41. If there is any dispute about any of these directions, the case may be listed before me for further directions on 2 days notice.