Re Benlist Pty Limited v Olivetti Australia Pty Limited and Chesterton International (Nsw) Pty Limited [1990] FCA 499 (12 December 1990)

FEDERAL COURT OF AUSTRALIA

Re: BENLIST PTY LIMITED
And: OLIVETTI AUSTRALIA PTY. LIMITED and CHESTERTON INTERNATIONAL (NSW) PTY.
LIMITED
No. N G842 of 1989
FED No. 724
Practice and Procedure

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Burchett J.(1)

CATCHWORDS

Practice and Procedure - additional security for costs - effect of determination of preliminary question in part in favour of the applicant - effect of cross-claim in connection with which a Mareva injunction had been obtained - whether the applicant was in truth a defendant is a question of substance, not form.

Federal Court of Australia Act 1976, s. 56

Companies (NSW) Code, s. 533

HEARING

SYDNEY
12:12:1990

Counsel for the applicant: Mr D.M.J. Bennett QC with

Mr B.A. Coles

Solicitors for the applicant: Messrs Swaab and Associates

Counsel for the First respondent: Mr R.F. Margo

Solicitors for the respondent: Messrs Sly and Weigall

Counsel for Second respondent: Mr M. Holmes

Solicitors for Second Respondent: Messrs Murray, Stewart and Fogarty

ORDER

The motions of the first and second respondents seeking orders for further security for costs be each dismissed.

The motion of the applicant seeking discharge of the orders for security for costs previously made in favour of each respondent be also dismissed.

There be no order for costs in respect of the motion for further security and the motion for discharge as between the applicant and the second respondent.

The applicant's costs of the first respondent's motion for further security for costs be the applicant's costs in the action.

The first respondent's costs of the applicant's motion for discharge of the existing order for security for costs (to the extent that the first respondent incurred any additional costs by reason of this motion) be the first respondent's costs in the action.

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

DECISION

In this action, each respondent has sought an order that the applicant provide further security for costs, while the applicant has responded with a motion that the orders for security previously made be discharged. During the hearing of the motions, however, it was conceded by Mr Bennett QC, who appeared for the applicant, that he could not obtain a discharge of the order for security for costs made in favour of the second respondent, his inability to do so being a result of the terms of a still extant arrangement made some considerable time ago between the applicant and the second respondent.

2. It is necessary to make some reference to earlier events before the remaining issues can be elucidated, but I shall not repeat in detail matters which have already been set out in the reasons for judgment I delivered in respect of a preliminary issue on 13 August 1990. On 19 January 1990, Sheppard J. handed down reasons for judgment, and made orders, in respect of an application for the provision of security by the applicant for the costs of the first respondent. He ordered that the sum of $35,000 security be provided on or before 27 January 1990. His Honour's reasons indicate that the application was made pursuant to s. 533(1) of the Companies Code on the ground that there was reason to believe the applicant company would be unable to pay the costs of the first respondent, if successful in its defence. His Honour noted that an order in the nature of a Mareva injunction had been granted by Lockhart J., late in the previous year, in respect of the sum of $975,000 to which the applicant was entitled by way of refund of stamp duty. This order had been made at the suit of the first respondent, but the applicant claimed its entitlement to receive the refund was property covered by a mortgage it had granted to a bank. Consequently, his Honour felt unable to take the sum of $975,000 into account "as an asset of the applicant which will necessarily be available to meet any order for costs which the applicant may suffer if it should be unsuccessful in the proceedings." On that basis, he regarded the applicant as "virtually without assets". His Honour took into account the fact that there were both an action and a cross action arising out of the same contract, so that the applicant was in reality as much a defendant as a plaintiff (a consideration he described as having "substantial force"); and also the applicant's argument that it would be unfair to compel the provision of security when the first respondent had procured the tying up of the applicant's asset of $975,000 under the Mareva injunction. But although Sheppard J. made it clear he thought there was considerable strength in the view taken in Sydmar Pty Limited v. Statewise Developments Pty Limited (1987) 11 ACLR 616, where a defendant's cross claim was in the particular circumstances treated as decisive against the making of an order for security for costs, notwithstanding the authority of Demag-Lauchhammer Maschinenbau und Stahlbau G.m.b.H. v. John Holland (Constructions) Pty Ltd (1966) 2 NSWR 3 and Winterfield v. Bradnum (1878) 3 QBD 324, the factor which tipped the scales in favour of the making of an order for security, in his judgment, was the failure of the applicant to demonstrate any inability of those behind the company to provide security. Accordingly, he made the order I have indicated.

3. The parties having agreed upon determination of a preliminary issue in respect of liability under ss. 52 and 53A of the Trade Practices Act 1974, the case went on before me, and I delivered the judgment of 13 August 1990 mentioned earlier. I held that the respondents had in trade or commerce, and in relation to a contract for the sale of a city building for $18 million, engaged in conduct that was misleading or likely to mislead within the meaning of s. 52, and that they had also contravened s. 53A. I noted that the sums involved in the contraventions, which I found, had not been explored in the evidence, in view of the agreement of the parties to defer any question of damages. I said of a comparison significant for the measure of damages: "The difference may have been quite small, having regard to the building's other potentialities and the possibility of overcoming the problem of strata subdivision; or it may have been substantial." Apart from this question, it now appears a contention will be raised, on the further hearing of the matter, that even on the view I took, which involved a narrower appreciation of the facts than that put forward for the applicant, the applicant had become entitled to rescind the contract. There thus remain at least two significant issues which will be raised at the further hearing of the matter.

4. The respondents pursue their applications for further security on the footing that the security provided to the first respondent by Sheppard J's order, and also the security provided to the second respondent, are now inadequate having regard to the length of the hearing which has already been had (the costs of which I reserved), while the further hearing is expected to take an additional three days. They rely on s. 56 of the Federal Court of Australia Act 1976 and s. 533 of the Companies Code. They emphasize the applicant's lack of assets, and refer to Chester and Fein Property Developments Pty Ltd v. Candam Investments Pty Ltd (1985) 9 FCR 419; Bell Wholesale Co Ltd v. Gates Export Corporation [1984] FCA 34; (1984) 2 FCR 1; Cameron's Unit Services Pty Ltd R. v. Kevin R Whelpton and Associates (Australia) Pty Ltd (1986) 13 FCR 46; and Sent v. Jet Corporation of Australia Pty Ltd [1984] FCA 178; (1984) 2 FCR 201 at 212 et seq.

5. I did not understand there to be any dispute that s. 56 of the Federal Court of Australia Act confers on the court a wide discretion to determine what is appropriate in the interests of justice. It was not suggested that s. 533 of the Companies Code conferred any greater claim to an order for security upon either of the respondents. The breadth of the discretion in question is well illustrated by Hair Shack Pty Limited v. Fairfield Chase Pty Limited (full court, Lockhart, Wilcox and Burchett JJ., unreported, 12 April 1990) where Lockhart J. said: "Whether or not an order should be made for security for costs is a matter that is essentially within the discretion of the judge who hears the motion for security."

6. So far as the claim to further security, which has been made by the second respondent, is concerned, it seems to me to be decisive that the only issue between the applicant and that respondent remaining to be determined is the quantum of damages. Counsel pointed out that it is possible a finding might ultimately be made that no damages were sustained; however, the evidence set out in my earlier reasons for judgment establishes, at least prima facie, that some damage has been sustained, and I think the application for further security for costs must be determined on the basis of that prima facie position. The second respondent, having, in a preliminary hearing to which it agreed, been held to have contravened two sections of the Trade Practices Act, is not entitled to ask me to disregard the prima facie position established by that preliminary hearing. If it were not for the agreement between the applicant and the second respondent, to which reference has been made, there would be much to be said for the applicant's application to be released from the existing obligation to provide security for this respondent. In the exercise of my discretion, I refuse the application for further security for the second respondent's costs.

7. The first respondent's application raises greater difficulties. It also has been held to have contravened ss. 52 and 53A of the Trade Practices Act, but the applicant continues to allege against it, in addition to a claim for damages, a claim for rescission which cannot be said to have been established, even on a prima facie basis. If the claim for rescission stood alone, despite the contraventions which have been made out, an order for further security for costs might be justified. But it does not stand alone. There is also the first respondent's cross claim, in support of which it obtained, and still retains, the Mareva injunction. To the extent that the first respondent may be regarded as the real claimant in the proceeding, it is not entitled to security for its costs, and how the matter should be seen in that respect is a question of substance, not form: Willey v. Synan [1935] HCA 76; (1935) 54 CLR 175 at 184-185, per Dixon J. There is also, of course, the question of its liability to pay damages, in respect of which its situation is the same as that of the second respondent. The five days hearing, already completed, was much occupied with questions on which the applicant has succeeded, although it failed on one aspect of reliance that may prove important for the extent of any relief ultimately granted.

8. I think the competing arguments are quite finely balanced. Indeed, the reasons delivered by Sheppard J., very early in the litigation, show that he regarded the matter as finely balanced even then. The scales at that stage tilted in favour of the first respondent. But an additional factor has now to be placed in them - the first respondent has been held to have contravened two sections of the Trade Practices Act and, at least prima facie, to have caused the applicant to suffer some loss. In those circumstances, senior counsel for the applicant asks for the order for security to be discharged, while counsel for the first respondent claims to be entitled to further security. Not without some hesitation, I have come to the conclusion that each should fail. The situation has not been so decisively clarified in favour of the applicant as to lead me to discharge the order which has been made; but I think it would be inconsistent with the findings I have already reached to require the applicant, in all the circumstances of this case, to provide further security for costs in respect of a hearing which, to the extent that it is not necessitated by a claim made against the applicant, is at least substantially necessitated by the first respondent's contraventions of the Trade Practices Act.

9. For these reasons, each of the motions before the court will be dismissed. There will be no order for costs as between the applicant and the second respondent, but I think the applicant's costs of the first respondent's motion for further security for costs should be the applicant's costs in the action, and any additional costs incurred by the first respondent as a result of the applicant's motion for discharge of the existing order for security for costs should be the first respondent's costs in the action.