Re Bell Wholesale Company Pty Limited v Gates Export Corporation [1984] FCA 34; 52 ALR 176 / 2 FCR 1 Practice and Procedure 8 Aclr 588 (1 March 1984)

FEDERAL COURT OF AUSTRALIA

Re: BELL WHOLESALE COMPANY PTY. LIMITED
And: GATES EXPORT CORPORATION
No. G113 of [1984] FCA 34; 1983
52 ALR 176 / [1984] FCA 34; 2 FCR 1
Practice and procedure
8 ACLR 588

COURT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Sheppard(1), Morling(1) and Neaves(1) JJ.

CATCHWORDS

Practice and procedure - security for costs - jurisdiction of court to make order against limited liability company which is an applicant in proceedings - matters relevant to exercise of judge's discretion.

Federal Court of Australia Act 1976, sub-sec. 56(1), s. 59, Order 28 of the Rules

Judiciary Act 1903, s.79

Companies Code 1981 (Q.)

Practice and Procedure - Security for costs - Bases of jurisdiction to make orders - Discretion - Federal Court of Australia Act 1976 (Cth), ss 56(1), 59 - Federal Court Rules 1979 (Cth), O. 28 - Companies Code 1981 (Qld), s. 553. Held: (1) The jurisdiction of the Federal Court to make orders for security for costs under the Federal Court of Australia Act 1976 (Cth), s. 56(1) was not limited to the circumstances envisaged by O. 28.

(2) In addition, the Companies Code 1981 (Qld), s. 533(1) is, by virtue of the Judiciary Act 1903 (Cth), s. 79 an additional source of jurisdiction of a Federal Court sitting in the State to make orders for the provision of security for costs.

(3) It is for the respondent to an application for the provision of security to establish that such an order would frustrate the litigation or that those who would stand to benefit from the litigation are without means.

HEARING

Sydney, 1984, February 16; March 1. 1:3:1984
APPEAL.

Appeal against judgment and orders of Fitzgerald J. The full terms of the statutory provisions appear in the judgment.

F. L. Harrison Q.C., for the appellant.

R. N. Chesterman Q.C., for the respondent.
Cur. adv. vult.

Solicitors for the appellant: Morris Fletcher Cross.

Solicitors for the respondent: Feez Ruthning & Co.
G.F.V.

ORDER

1. The appeal be dismissed.

2. The appellant pay the respondent's costs of the appeal.

Appeal dismissed with costs.

DECISION

On 16th February 1984 we dismissed an appeal from a decision of a judge of the Court ordering that the appellant provide security for the costs of proceedings brought by it against the respondent for damages for alleged contravention of ss. 45, 47, 49 and 52 of the Trade Practices Act 1974. Injunctive relief is also sought. We said we would give reasons for our decision in due course. What follows are those reasons.

The proceedings relate to the distribution, supply and sale in Australia of automotive spare parts which are manufactured in the United States of America by a company which is related to the respondent, which is itself incorporated and based in the United States.

The respondent sought an order that the Court should make an order for security for costs down to and including delivery of its defence and list of documents. The amount sought to that point was $15,000, including $2,000 for the costs of the application for security.

The issued capital of the appellant is two shares of $1 each and its only asset is $2 cash. It is the trustee of a family trust for Mr. Jorgen Kempel, his wife and children. The applicant previously traded in its capacity as trustee of the trust but it no longer trades. One of the liabilities from the previous trading is a substantial judgment debt in favour of the respondent. Execution in respect of this judgment has been stayed pending the outcome of the proceedings in this Court.

It was common ground before the learned primary judge that a judgment for costs in favour of the respondent could not be satisfied out of the appellant's assets. Before us, this was also common ground. The primary judge was of the opinion that there was no basis for even informed speculation about the likely outcome of the proceedings. We agree with his Honour that it is not possible to say at this stage of the proceedings what the outcome is likely to be.

The trial judge ordered the appellant to give security in the amount of $10,000 for the respondent's costs of and incidental to the proceedings, including the costs of the application for security. The further hearing of the application was adjourned generally, so as to enable the question of further security to be considered as necessary at some future time.

Counsel for the appellant relied upon two submissions. First he contended that the only circumstances in which the Court could make an order for security for costs were those referred to in Order 28 Rule 3 of the Rules. He argued that since the facts of the present case did not bring it within that rule, the Court had no jurisdiction to make the order against the appellant. Secondly, he contended that even if the primary judge had power to make the order for security for costs, he wrongly exercised his discretion.

We concluded that both submissions should be rejected. As to the question of jurisdiction, subsec. 56(1) of the Federal Court of Australia Act 1976 provides as follows:-

"56. (1) The Court or a Judge may order a plaintiff in a proceeding in the Court or an appellant in an appeal to the Court to give security for the payment of costs that may be awarded against him."

Sub-sec. 59(1) of the Act confers power on the Judges of the Court to make rules of court, not inconsistent with the Act, making provision for or in relation to the practice and procedure to be followed in the Court. Pursuant to that power Order 28 has been promulgated. Rules 3(1) and 6 of Order 28 provide as follows:-

"3. (1) Where, in any proceeding, it appears to the Court on the application of a respondent -

(a) that an applicant is ordinarily resident outside Australia;

(b) that an applicant is suing, not for his own benefit, but for the benefit of some other person and there is reason to believe that the applicant will be unable to pay the costs of the respondent if ordered to do so;

(c) subject to sub-rule (2), that the address of an applicant is not stated or is mis-stated in his originating process; or

(d) that an applicant has changed his address after the commencement of the proceeding with a view to avoiding the consequences of the proceeding,

the Court may order that applicant to give such security as the Court thinks fit for the costs of the respondent of and incidental to the proceeding.
. . . . . . . . . . . . . . . . . . . .
6. This Order does not affect the provisions of any Act of the Commonwealth or of a State or Territory under which the Court may require security for costs to be given."

Sub-sec. 56(1) is in general terms. Counsel for the appellant conceded that this was so, but argued that s.59 gave to the Judges of the Court power to limit, by making appropriate rules, the ambit of the discretion which would otherwise have been available under s.56. He contended that the promulgation of Order 28 Rule 3 therefore effectively prevented the making of orders for security for costs in circumstances other than those referred to in Rule 3 itself.

We were clearly of opinion that this proposition was unsound. No doubt s.59 is the source of the power to make rules of court in relation to matters of practice and procedure. But those rules cannot operate so as to limit the wide power conferred by s.56 itself. The discretion to make orders under s.56 must be exercised judicially, but that is the only relevant limitation. Moreover, it is plain from the terms of Order 28 itself that Rule 3 is not intended to be an exhaustive statement of the cases in which an order for security for costs can be made. Rule 6 is quite inconsistent with such a proposition.

The learned primary judge found a sufficient source of power for the making of the order in subsec. 533(1) of the Companies Code 1981 (Q.) as made applicable by s.79 of the Judiciary Act 1903. That section provides that the laws of each State or Territory, including the laws relating to procedure, shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory, in all cases to which they are applicable.

Sub-sec. 533(1) of the Companies Code provides as follows:-

"533 (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 defence, require sufficient security to be given for those costs and stay all proceedings until the security is given."

Having regard to what we have already said as to the effect of s.56 of the Court's Act it is unnecessary to find any alternative source of power for the making of the order in the instant case. However, we express our concurrence with the primary judge's view that the relevant provision of the Queensland Companies Code is a State law falling squarely within the operation of s.79 of the Judiciary Act. We refer generally to John Robertson and Company Limited v. Ferguson Transformers Pty. Limited [1973] HCA 21; (1973) 129 C.L.R. 65.

For these reasons we rejected the appellant's first submission.

As to the appellant's second submission, no basis has been shown for interfering with the exercise of the primary judge's discretion to make the order sought. His Honour found that there was no reason why the persons who might benefit from the proceedings could not finance the litigation if necessary. He said:-

"There is no reason to conclude that if an order for security is made the proceedings will be stifled, the applicant or those entitled to benefit under the trust will be oppressed or any public interest in the litigation of alleged breaches of the Act will be adversely affected."

The principal matter relied upon by counsel for the appellant in order to persuade us to a different conclusion was that the question of the ability of those behind the company to finance the litigation had not been the subject of evidence or argument before the primary judge. In his submission it was for the respondent to raise that matter in support of its application for security of costs. If it did not, it was not open to the judge to take into account any considerations other than the impecuniosity of the appellant and the question whether, if an order for security were made, the litigation would be stifled. We rejected this submission.

In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts.

We pause to make it clear that the matters we have considered are by no means the only relevant ones. We have concentrated our attention on them because they were to the forefront of the appellant's argument. But the Court's discretion is unfettered; each case must depend on its own circumstances; see generally Paterson, Ednie and Ford, Australian Company Law, 3rd edition, para. 533 - 1 et seq.

We feel bound to say that we remain mystified as to why this appeal was brought. That is not so much because of the considerations which we have so far mentioned but because of two further factors. The solicitors for the appellant stated in correspondence to the solicitors for the respondent that the trust was able sufficiently to indemnify the appellant so that it could pay the costs of the respondent if ordered to do so. Further, the Court was informed from the bar table that the order made by the primary judge had already been complied with and appropriate security given. How, in those circumstances, it could be suggested that the exercise of his Honour's discretion had miscarried, we fail to understand.

In summary, this appeal was brought from the exercise of the primary judge's discretion in relation to a matter of procedure. An appeal of this kind can only succeed if it is shown that the judgment has proceeded on a wrong principle or if there has been a wrong exercise of discretion. We are not persuaded that his Honour fell into any error. On the contrary, on the evidence before him, the order which he made was plainly justified.

It remains to say that we have not considered the ambit or possible application to this case of Order 28 Rule 3(1)(b) of the Rules because no reliance was placed upon it by counsel for the respondent. We refer, however, to Andrews v. Caltex Oil (Australia) Pty. Limited (1982) 40 A.L.R. 305.

For the foregoing reasons the appeal was dismissed with costs.