Re Warea Pty Ltd and Stripe Limited v Waterloo Industries Pty Ltd & Ors Trading As Deltrite Financial Services; William Leonard Armstrong; Lisa N Virba and Robert Wayne Collins [1986] FCA 59 (7 March 1986)

FEDERAL COURT OF AUSTRALIA

Re: WAREA PTY. LTD. and STRIPE LIMITED
And: WATERLOO INDUSTRIES PTY LTD & ORS trading as DELTRITE FINANCIAL SERVICES;
WILLIAM LEONARD ARMSTRONG; LISA N. VIRBA and ROBERT WAYNE COLLINS
No. QLD G6 of 1986
Practice - Injunction

COURT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Pincus J.

CATCHWORDS

Practice - security for costs - claim to recover moneys invested with respondent - ability to obtain costs from amount invested - security refused.

Injunction - Mareva - whether should be varied to enable payment of costs of proceedings.

HEARING

BRISBANE
7:3:1986

ORDER

The injunction granted by Pincus J. on 4 March, 1986 be varied by inserting at the end of paragraph 1 the words: "except that the fifth respondent may make payment to Messrs Clarke and Kann, solicitors of Brisbane, of sums up to a total of $10,000 to be paid into the trust account of such solicitors and applied towards, and only towards, payment of the costs and outlays of those solicitors in and about resistance to the claim of the application in this matter no. G6/1986 provided that such solicitors may, if they see fit, invest the balance of the funds from time to time in the name of their firm in interest bearing securities or deposits."

The taxed costs of the notice of motion be paid, as to one-half, by the 1st and 2nd respondents to the applicants, the taxation of such costs to be deferred until a general order for costs is made in the proceedings.

Application for an order for security for costs refused.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

This is an application in which a number of orders in the nature of Mareva injunctions have already been made. The principal application seeks damages in respect of alleged breaches of s. 52 of the Trade Practices Act and damages under the general law. The purpose of the proceedings is to recover substantial sums of money which, it seems to be common ground, were entrusted by the applicants to certain of the respondents. The material before me discloses that the respondent Mr. W.L. Armstrong has from time to time promised to return the money which I have just referred to, but that has not yet occurred.

2. The present application has two aspects. The first is that the applicants, who are two of the respondents in the principal application, seek an order for security for costs. The application is narrowed down to an attempt to obtain an order that Messrs Cameron McDonald Finlay and Michael John O'Brien make themselves personally liable for any order for costs which may be made in the principal proceedings against the applicants, by way of a guarantee. Messrs Finlay and O'Brien are, or seem to be assumed to be, those in control of the applicants.

3. Counsel for the applicants denied any obligation to give security, saying that the circumstances were somewhat special in that on the evidence of the respondent, Mr. W.L. Armstrong, there is a fund of about $240,000 available which is to come back to the applicants and which would enable the respondents to obtain payment by, for example, executing against the fund for any costs ordered in their favour.

4. Apart from the substantial dispute as to whether or not security should be ordered at all, there is a difference between the parties as to whether it is appropriate to have the directors I have mentioned undertake to guarantee the payment of the costs or actually execute a deed of guarantee. In general, courts appear to order security where the applicant or the plaintiff is a company of nominal paid-up capital and no demonstrated assets. I was inclined in the first instance to follow that tendency in this case. The reason I have decided not to is in part that put forward by counsel for the applicants and referred to above, namely that if Mr. Armstrong's evidence given before me is to be believed, there is a fund to come which would be ample to cover any costs ordered to be paid.

5. It was pointed out by counsel for the applicants, and I think reasonably enough, that insofar as Mr. Armstrong's evidence on that topic was rather vague, that vagueness should not work in his favour. In essence, what Mr. Armstrong says is that the money has been applied for and is expected to come, subject to obtaining a governmental approval.

6. A second reason for refusing to order security in this case is the unsatisfactory nature of the evidence of Mr. Armstrong, who appeared to me anxious to disclose as little information as possible about the fate of the applicants' money. He claimed not to know where it presently is, but said that he knew that some time ago it was in the custody of the Bank of America. He claimed not to have made any recent inquiry as to its whereabouts, despite the fact that the applicants have been pressing for recovery and he has made promises to pay them.

7. A third reason is that the Caribbean Bank of Credit Limited, a bank which was supposed to effect the transactions which were to be carried out with the money, seems to me to be a very shadowy institution indeed, on the evidence given by Mr. Armstrong, and that affects the view I take of the merits of the case. Therefore, there will be no order for security.

8. The second aspect of the application made by the respondents is to have some relief against the orders, currently in force, of a Mareva kind. One of those, made by me on 4 March 1986, was an order restraining one Joan Armstrong from withdrawing or disposing of assets held by her in her capacity as trustee of the Armstrong Trust. The interests in that trust are not clear. According to a document emanating from Messrs Cannan and Peterson, writing as Mrs. Armstrong's solicitors, the respondent, Mr. Armstrong, has only a potential interest in the fund. On the other hand, it is said on his side that he is beneficially interested in the fund, and that appears from an affidavit he has made which puts the amount of the trust fund at some $48,000.

9. The statements made by Mr. Gibson of counsel on behalf of the plaintiff Armstrong seem to me to imply that he has practical control of that fund and Mr. Gibson asks that the order I made be varied so as to permit the abstraction of part of the fund towards Mr. Armstrong's defence of the proceedings. I have found this problem difficult; it is of a sort which one tends, perhaps, to avoid. Some litigation is no doubt financed with ill-gotten gains; it may be, for example, that particular litigation is instituted for the very purpose of obtaining a refund of such gains, and the decision of the Court of Appeal in Wallensteiner v. Moir No. 2 (1975) 1 QB 373 appears to be such a case. There, the Court of Appeal was provoked to make an unusual order about costs. In a minority shareholders' action, it held that the court could and should require the company, which of course at that stage had not been found to have done anything wrong, to indemnify the plaintiff against the costs of the action.

10. The $48,000 which is the subject of the submissions made on behalf of the respondent, Mr. Armstrong, has no certain source. The file which has been tendered from B.A. Australia Limited identifies Mr. Armstrong as the "client" and shows that there have been substantial dealings in moneys standing to the credit of Joan Armstrong. There is no evidence whatever that the $48,000 has been derived from or in any sense represents part of the $240,000 which the applicants seek to obtain. Nevertheless, it may well be that the applicants, if successful in the proceedings, will seek to obtain satisfaction in part from that $48,000, for example, under the Bankruptcy Act. At present there is no evidence before me as to where it came from. The contention made is that a sum of up to $30,000 should be made available to Mr. Armstrong so as to enable him to resist the present proceedings. I eschew the opportunity to make a general pronouncement as to the circumstances in which a Mareva injunction should be relaxed to enable one of the parties to the proceedings to have access to funds for legal costs. However, I venture the opinion that it cannot be right that, in every case and without limit, prior to the final resolution of the proceedings funds which are frozen by the Mareva injunction must be released to the extent necessary to enable legal costs to be met, such costs being those incurred in the pursuit of the underlying proceedings.

11. Here the facts of the matter broadly are that the $240,000 seems to be of uncertain location; the evidence given as to what has happened to it is vague, in the extreme, and I think that only a very limited order may be made in favour of Mr. Armstrong. In determining that such an order should be made, I am influenced somewhat by the fact that counsel for the applicants said that he would not resist a limited order.

12. It is therefore proposed to vary the injunction granted by me on the 4th day of March 1986 by including at the end of paragraph 1 the words:

Except that the fifth respondent may make payments
to Messrs Clark and Kann, solicitors, of Brisbane,
of sums up to a total of $10,000 to be paid into
the trust account of such solicitors and applied
towards, and only towards, payment of the costs and
outlays of those solicitors in and about resistance
to the claim of the applicants in this matter G6 of
1986.

13. Counsel for the respondents also urged upon me the view that in the circumstances it is appropriate to vary in favour of Mr. Armstrong the Mareva injunction (granted by me on the 3rd day of February 1986, and since extended) so as to enable the respondent, Mr. Armstrong, to have access to the moneys held by Joan Armstrong, and referred to above, to meet ordinary living expenses.

14. If the affidavit made by Mr. Armstrong is accurate, then it may indeed be the case that the restriction placed upon his expenditure causes some difficulty. However, the order I made on 3 February, as since extended, permits the disposition of assets to which Mr. Armstrong is beneficially entitled, and according to his affidavit, he has a beneficial entitlement to the funds in question. I therefore do not propose to make any variation in that respect.

15. In summary, then, the application for security for costs will be refused. The order made by me on 4 March 1986 in respect of the fifth respondent will be varied in the fashion I have mentioned.