Newtimber (Operations) Pty Ltd ACN 111 021 311 v Tarong Energy Corporation Limited ACN 078 848 736 [2011] FCA 123 (17 February 2011)

Last Updated: 18 February 2011

FEDERAL COURT OF AUSTRALIA

Newtimber (Operations) Pty Ltd ACN 111 021 311 v Tarong Energy Corporation Limited ACN 078 848 736 [2011] FCA 123

Citation:		Newtimber (Operations) Pty Ltd ACN 111 021 311 v Tarong Energy Corporation Limited ACN 078 848 736 [2011] FCA 123
Parties:		NEWTIMBER (OPERATIONS) PTY LTD ACN 111 021 311 v TARONG ENERGY CORPORATION LIMITED ACN 078 848 736
File number(s):		QUD 251 of 2010
Judge:		GREENWOOD J
Date of judgment:		17 February 2011
Catchwords:		PRACTICE AND PROCEDURE – consideration of an application for security for costs – consideration of the proffering of an undertaking on the part of a director to pay the costs of the respondent in the event an order for costs made against the applicant – consideration of aspects of Bell Wholesale Co Ltd v Gates Export Corporation and related authorities
Legislation:		Federal Court of Australia Act 1976, s 56 Corporations Act 2001 (Cth), s 1335 Trade Practices Act 1974 (Cth), s 51A, s 52, s 82
Cases cited:		North East Equity Pty Ltd v Proud Nominees Pty Ltd [2010] FCAFC 60; (2010) 269 ALR 262 Australian Competition and Consumer Commission v Universal Sports Challenge [2002] FCA 1276 Fubilian Catering Services Ltd v Compass Group (Australia) Pty Ltd [2007] FCA 1205 Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377 Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 Food Channel Network Pty Ltd v Television Food Network G.P. [2009] FCA 68 Harpur & Ors v Ariadne Australia Ltd & Ors (1984) 2 ACLC 356 at 362; [1984] 2 Qd R 523 Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd (1990) 8 ACLC 304 Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd & Ors (1992) 10 ACLC 1394 Togito Pty Ltd v Pioneer Investments (Aust) Pty Ltd & Anor [2009] QSC 68
Date of hearing:	16 February 2011
Place:	Brisbane
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	55
Counsel for the Applicant:	Mr P W Telford
Solicitor for the Applicant:	Mr I Bloemendal, Clayton Utz Lawyers
Counsel for the Respondent:	Mr D D Keane
Solicitor for the Respondent:	Mr R Lindwall, Walsh Halligan Douglas Lawyers

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION	QUD 251 of 2010

BETWEEN:	NEWTIMBER (OPERATIONS) PTY LTD ACN 111 021 311 Applicant
AND:	TARONG ENERGY CORPORATION LIMITED ACN 078 848 736 Respondent

JUDGE:	GREENWOOD J
DATE OF ORDER:	17 FEBRUARY 2011
WHERE MADE:	BRISBANE

THE COURT NOTES THE UNDERTAKING given to the Court by Peter Bruce Hanmer a director of the applicant to pay the costs of the proceeding incurred by the respondent up to an amount of $262,971.00 in respect of those matters described at paras 50 to 77 of the affidavit of Ian Robert Bloemendal sworn 22 December 2010 and filed on 23 December 2010 as if Peter Bruce Hanmer was an applicant in the proceedings, in the event that the applicant is unsuccessful in the proceedings and an order for costs of the proceedings is to be made in favour of the respondent.

THE COURT ORDERS THAT:

1. The applicant provide security for the respondent’s costs of the proceeding in an amount of $30,000.00 in a form that is satisfactory to the Registrar of the Court within 30 days.
   
2. In the event of the applicant failing to provide security in accordance with Order 1 within 30 days the proceeding be stayed.
   
3. The parties have liberty to apply on three days notice.
   
4. The costs of and incidental to the notice of motion filed 23 December 2010 are reserved.
   
5. The parties shall file written submissions on the question of costs within 14 days indicating whether the party seeks to be heard orally in relation to the disposition of the costs of and incidental to the notice of motion and failing any request for an oral hearing, the costs of the notice of motion shall be determined on the papers.
   

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION	QUD 251 of 2010

BETWEEN:	NEWTIMBER (OPERATIONS) PTY LTD ACN 111 021 311 Applicant
AND:	TARONG ENERGY CORPORATION LIMITED ACN 078 848 736 Respondent

JUDGE:	GREENWOOD J
DATE:	17 FEBRUARY 2011
PLACE:	BRISBANE

REASONS FOR JUDGMENT

1. In these proceedings by notice of motion the respondent in the principal proceeding, Tarong Energy Corporation Limited (“Tarong”) seeks an order that the applicant, Newtimber (Operations) Pty Ltd (“NOPL”) provide security for the respondent’s costs of the proceedings in an amount of $262,971.00 by way of cash deposit or bank guarantee in a form satisfactory to the Registrar of the Court within 28 days of the order. A consequential order is sought that the principal proceedings be stayed pending compliance with the order for security.
2. By its amended statement of claim in the principal proceeding NOPL makes these contentions.
3. NOPL is a wholly owned subsidiary of Newtimber Limited (“NL”).
4. At all material times, NOPL carried on business as manager, operator and lessee of “Paulownia Timber Plantations” in Queensland. NL was incorporated for the purpose of raising capital for the acquisition, development, operation and management of Paulownia plantations in the Kingaroy district of Queensland. NL advanced funds raised by a prospectus (and from other means – para 7, amended statement of claim) to NOPL for the purpose of its business undertaking. Amongst the properties acquired by lease to be managed and operated by NOPL was a property described, apart from its formal property title description, as “K3”. That form of pleading suggests that NOPL had or has a leasehold interest in other properties although it is not suggested by NOPL in response to the present application that it has an interest other than a leasehold interest in K3. The owners of the property are Lindsay Gay and Anne Gay. The lease is for three years from 1 July 2005 and contains an option to renew for a further three year term. The lease instrument also includes an option conferred upon the lessee to purchase the property. The lease has been extended until 30 June 2011. The option to purchase has not been exercised.
5. NOPL contends that it has suffered loss and damage for the purposes of s 82 of the Trade Practices Act 1974 (Cth) (“the Act”) by reason of Tarong’s contended contraventions of s 52 of that Act. NOPL pleads a number of representations as to future matters and relies upon s 51A of the Act. Section 51A(2) casts an evidential onus upon Tarong to adduce evidence that it had reasonable grounds for making the contended representations as to future matters in the absence of which evidence the deeming effect arises. Once the evidential onus is discharged, a dispositive onus (s 51A(1)) falls upon the applicant to demonstrate that Tarong did not have reasonable grounds for making the representations: North East Equity Pty Ltd v Proud Nominees Pty Ltd [2010] FCAFC 60; (2010) 269 ALR 262 at [33] and [36]; Australian Competition and Consumer Commission v Universal Sports Challenge [2002] FCA 1276; Fubilian Catering Services Ltd v Compass Group (Australia) Pty Ltd [2007] FCA 1205.
6. NOPL contends that between 1 July 2005 and December 2007 it incurred expenditure and invested capital in the acquisition, development and operation of its business conducted on K3. The content of that contention is set out at para 9 of the amended statement of claim. The expenses incurred by NOPL are said to be $763,732.88.
7. NOPL contends that on 10 September 2007, Tarong announced that it had acquired a resource described as the Kunioon Development Project (the “KDP”) in the South Burnett region of Queensland which would represent a long term fuel source for Tarong’s power stations. That resource was located in the district surrounding K3. NOPL contends, by para 38 of its amended pleading, that from 10 October 2007 Tarong made a series of representations (2007 and 2008) and engaged in conduct in 2009, relating to the steps Tarong would take in negotiations with NOPL concerning acquisition of NOPL’s interest in K3, the arrangements to be made with NOPL in relation to K3 and the compensation payable to NOPL consequent upon Tarong’s proposals in relation to K3.
8. NOPL also contends that by reason of the matters set out at para 39A of the amended statement of claim, Tarong engaged in unconscionable conduct within the meaning of s 51AA of the Act.
9. NOPL contends that from December 2007 it ceased maintaining 100 acres of Paulownia trees it had planted on the K3 lease in September 2005 and that from the date of Tarong’s announcement in September 2007, NOPL was unable to plant a further 200 acres of Paulownia trees on the K3 lease. NOPL contends that it would have harvested 100 acres of trees in September 2015 and the further 200 acres of trees would have been harvested in September 2017. NOPL also says that it would have continued to harvest the trees mentioned above on shorter rotations than the initial harvests and that contention would be made good by expert evidence to be obtained by the applicant on that question. Apart from the lost expenditure mentioned above, these losses to be identified by the expert seem to be the “reliance losses” claimed by NOPL as loss or damage suffered for the purposes of s 82 of the Act by reason of the contended contraventions of s 52.
10. In the context of those proceedings, Tarong seeks an order that NOPL provide security for the costs it will incur in resisting what is said to be unmeritorious claims. The application for security is made in reliance upon s 1335 of the Corporations Act 2001 (Cth), s 56 of the Federal Court of Australia Act 1976 and O 28, r 2 of the Federal Court Rules. Although s 1335 of the Corporations Act and s 56 of the Federal Court of Australia Act confer a broad discretion on the Court to make orders for security, s 1335 adopts a different formulation of the foundation for the power and provides that if a corporation is a plaintiff in the relevant proceedings and it appears by “credible testimony” that there is reason to believe that the corporation will be unable to pay the costs of the defendant should the defendant be successful, the Court may require sufficient security to be given for those costs and stay the proceedings until the security is given. Section 56 of the Federal Court of Australia Act is not expressly predicated upon a “reason to believe” that an applicant will be unable to make good a costs order made against it in the light of “credible testimony”. However, plainly enough, applications for security for costs in reliance upon s 56 of the Federal Court of Australia Act must be supported by material which suggests a proper basis for making an order for security and thus exercising the broad discretion conferred by the Act.
11. The vice that s 1335 of the Corporations Act is directed to curing is the risk a defendant (respondent) faces by reason of a plaintiff corporation’s impecuniosity. In Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377 the Victorian Court of Appeal (Maxwell P and Buchanan JA) observed of s 1335 that:
    16. It may be said, with justification, that this is a lower threshold. But the test simply reflects the policy of the provision, which is to protect a defendant against the risk of the plaintiff corporation’s impecuniosity. The provision equips the court with the means to require the defendant be secured against that risk.

[emphasis added]

12. Ultimately, of course, it is the expression of that risk which is the vice a costs security order is designed to meet in reliance upon the statutory jurisdiction conferred under s 1335 (by mitigating the risk of the plaintiff corporation’s impecuniosity) or, for that matter, s 56 of the Federal Court of Australia Act. As to s 56, the discretion must be exercised judicially but “that is the only relevant limitation”: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at p 3 per Sheppard, Morling and Neaves JJ.
13. The evidence relied upon by Tarong is contained in the affidavit of Mr Ian Bloemendal filed 23 December 2010 and the further affidavit of Mr Bloemendal sworn 15 February 2011 and filed by leave on 16 February 2011.
14. The relevant matters are these.
15. NOPL is an Australian proprietary company registered on 17 September 2004. It is a non-disclosing entity. There are 100 issued ordinary shares in NOPL. They are all held by NL. The directors of NOPL are Peter Hanmer, Anthony Richardson and Brian Bambach. The first two directors were appointed on 17 September 2004. Mr Bambach was appointed on 2 June 2006 replacing Keith Moon. Real property searches reveal that neither NOPL nor NL holds any property in New South Wales or Queensland (that is, neither entity is registered as owner of any real property). NOPL is a lessee until 30 June 2011 of K3. The option to purchase has not been exercised.
16. The searches of registers maintained by the Australian Securities and Investments Commission (“ASIC”) suggest that Peter Hanmer resides at 1/15 Chaiyapoom Road, SOI 1 T Sripoom, Chiang Mai in Thailand. The other directors reside at Guanaba in Queensland.
17. NL is an Australian public company incorporated in Queensland and registered on 26 July 2004. It is also a non-disclosing entity. Peter Hanmer, Anthony Richardson and Brian Bambach have been directors of NL since its registration. Keith Moon ceased to be a director and secretary of NL on 31 May 2006. On 31 March 2005, NL lodged a prospectus with ASIC by which it offered the addressees of the prospectus an opportunity to invest in NL’s fully paid ordinary shares. By that prospectus, NL offered eight million of its ordinary shares at 10c each fully paid so as to raise $800,000. The prospectus indicated that NL would accept over-subscription of up to two million shares at 10c. At p 30 of the prospectus, NL sets out a consolidated statement of financial position of the company (including NOPL) as at 20 February 2005. NL also set out the financial position of the company at that date on the assumption that the minimum, maximum and over-subscription of shares offered under the prospectus occurred. The consolidated position of NL, absent any subscription under the prospectus, was this. It had cash, receivables, inventories and pre-payments of $14,257.00. It had current liabilities of $59,969.00 and a net deficiency of liabilities over assets of $45,712.00. The anticipated position upon subscription for shares was thought to be either $154,288.00 or $729,288.00 or $929,288.00 depending upon the level of subscription taken up.
18. As things transpired, NL filed with ASIC a return on 26 August 2005 in which it said that on 29 July 2005, 2,350,000 shares were issued at 10c raising $235,000.00. By 29 July 2005, the total shares on issue in NL amounted to 20,350,001 shares which, having regard to earlier share issues resulted in a total amount paid on all issued shares of $236,801.00. That return also recited that Bralville Pty Ltd had taken up on 29 July 2005 one million shares in addition to shares issued earlier to that entity.
19. On 22 November 2004, Mr Moon on behalf of NL, filed a return with ASIC which set out the earlier shares issued to Bralville Pty Ltd namely 13 million shares (apparently partly paid at 0.001c). Eleven million of those shares were issued to Bralville Pty Ltd as trustee of the “Peter Hanmer Trust”. One million shares were issued to Bralville Pty Ltd as trustee of the “Robina August No. 1 Trust” and one million shares were issued to Bralville Pty Ltd as Trustee of the “Robina August No. 2 Trust”. These descriptions of the three trusts may not be entirely correct as they represent the description adopted by Mr Moon in his handwriting on Form 484 lodged with ASIC on 22 November 2004. I infer that the descriptions adopted by Mr Moon who was then a director and company secretary of NL is substantially correct.
20. It therefore emerges that Peter Hanmer is a director of NOPL and NL. He holds all of the issued shares in Bralville Pty Ltd and Bralville is a substantial shareholder in NL in its capacity as a trustee of the relevant trusts. Nothing is known of the trusts. Peter Hanmer is, according to the prospectus, the chairman of NL.
21. I am satisfied that there is a serious risk that should Tarong be successful in the proceedings, NOPL will not be in a position to make good an order for the costs of the proceedings incurred by Tarong should an order for those costs be made against NOPL. NOPL apparently has simply an interest in K3 as lessee. However, all of the expenditure incurred in relation to developing the Paulownia plantations has been lost and the business undertaking on that lease has been abandoned for some years. The very point of the claims in the proceeding are to seek recovery of the losses caused by reason of the contraventions and thus I infer that whatever interest NOPL has in K3 in whatever state K3 may be, is of little value. However, NOPL on this application contests that proposition.
22. The answer to an order for security is said by NOPL to be this.
23. First, it is not demonstrated that NOPL has no assets within the jurisdiction and nor is it demonstrated that NOPL is impecunious. On the material, NOPL plainly has an interest as lessee of K3 notwithstanding that the lease is to expire on 30 June 2011 and the option to purchase the property has not been exercised. Secondly, and more fundamentally, NOPL says that Peter Hanmer is willing to give an undertaking to the Court to pay Tarong’s costs should an order for costs be made. He would, consistent with the undertaking, be susceptible of an order made against him personally for payment of Tarong’s costs with the result that Tarong could enforce a costs order directly against him without first exhausting recovery proceedings against NOPL under any order made for costs against it.
24. NOPL says that Peter Hanmer has stepped out from behind the corporate structures of NOPL and NL and has rendered himself susceptible of an order for costs. Moreover, Mr Hanmer’s undertaking is offered by a person who has a substantial interest as director of NOPL and chairman of NL and is a director and sole shareholder of Bralville Pty Ltd which is a substantial shareholder in NL in a trustee capacity.
25. Although the nature of the trusts administered by Bralville is not clear, the documents suggest that at least as to 11 million shares in NL, Bralville is trustee of the Peter Hanmer Trust. Nothing is known of the field of beneficiaries under that trust or whether it is simply a discretionary trust. It may be that Peter Hanmer is simply one of a number of beneficiaries within classes of beneficiaries the subject of a discretionary trust which might mean that Peter Hanmer is simply in a position where, as to distributions of income and capital, he has a right to be considered in the exercise of the trustee’s powers and the trustee has a duty to consider his interests in the exercise of those powers.
26. Mr Hanmer, of course, controls the trustee Bralville Pty Ltd. Although the shares in NL are not held by Mr Hanmer personally, I am satisfied that, for the purposes of considering the merits of the undertaking and the extent to which the undertaking offered by Mr Hanmer ought to be weighed in the balance in exercising the discretion under s 1335 of the Corporations Act and s 56 of the Federal Court of Australia Act, the undertaking is offered by a person who has a significant interest in both companies as a director and a significant relevant interest in the financial performance of both entities; the protection of the interests of both corporations; and, Mr Hanmer is a person who is likely to benefit from the successful (or otherwise) prosecution of the business undertaking conducted by NL through its subsidiary NOPL.
27. No affidavit has been filed by any of the principal participants of the affairs of NOPL or NL and, in particular, no affidavit has been filed by Mr Hanmer. It is not clear why that is so and Tarong urges an inference to be drawn that Mr Hanmer and other officers of the entities chose not to file an affidavit on the footing that anything they might be required to say would ultimately be unhelpful in informing the exercise of the discretion under s 1335 or s 56 of the relevant legislation. Although Mr Hanmer has offered an undertaking to the Court in the terms described, no statement of affairs or financial information concerning Mr Hanmer’s assets and liabilities has been filed by NOPL.
28. An affidavit on behalf of NOPL has been filed by Mr Spencer Slasberg. Mr Slasberg is a solicitor within the firm of solicitors representing NOPL. Mr Slasberg says that he has conducted ASIC searches of NL and Bralville. The NL search reveals a residential address for Mr Hanmer of Chiang Mai in Thailand. The Bralville search shows that since 8 December 2010 Mr Hanmer has described his address as Unit 36, 7-9 Santa Cruz Boulevard, Clear Island Waters, Qld, 4226. Mr Slasberg says that he is informed by Mr Hanmer and verily believes that Mr Hanmer returned to Australia in December 2010 and since that date Mr Hanmer has taken up residence in Australia at the above address. Mr Hanmer has caused the residential details recorded with ASIC in relation to NL to be changed so as to reflect the correct residential address for him prevailing from 8 December 2010.
29. NOPL urges the position that the willingness of Mr Hanmer to give the undertaking described above is decisive of the present application for security.
30. In addition, NOPL contends that an order for security may well have the effect of foreclosing the litigation. However, no evidence has been put on by NOPL to make that contention good. It is not suggested by any evidence that Mr Hanmer or anyone else associated with NOPL or NL is financially impecunious such that an order for security would have the effect of preventing those charged with the governance of NOPL and NL from maintaining the proceedings.
31. It seems to me that the proposition that an undertaking offered by a person substantially interested (either directly or in a relevant structural sense) in the corporation bringing the proceedings to expose themselves to an order for the costs of the proceedings (or those costs identified in the affidavit up to the stage to which security is sought) is determinative of the exercise of the discretion, overstates the effect of the authorities. It is, however, clear that the unconditional willingness of such a party (or parties) to accept personal liability for the costs is a factor which must necessarily weigh heavily in the exercise of the discretion in a given case and might be decisive in a particular case: Food Channel Network Pty Ltd v Television Food Network G.P. [2009] FCA 68 at [20] and [21].
32. In Harpur & Ors v Ariadne Australia Ltd & Ors (1984) 2 ACLC 356 at 362; [1984] 2 Qd R 523 at 532, Connolly J (Campbell CJ and Demack J agreeing) said (in considering the jurisdiction under s 533(1) of the Companies (Queensland) Code) [in substantially the same terms as s 1335 of the Corporations Act] that the purpose of an order for security is to require a person who conducts his or her business affairs by medium of a corporation, without assets, and who would otherwise be in a position to expose his opponent to substantial costs without hazarding his own assets, is to require such a person, “if not to come out from behind the skirts of the company, at least to bring his [or her] own assets into play”. The Full Court observed that “if however he [or she] is already available for whatever he [or she] is worth, the object of the legislation is seen to be satisfied” because that is the “obvious mischief” to which the provision is directed.
33. That statement of principle by an intermediate Court of Appeal was applied by Byrne J in Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd (1990) 8 ACLC 304 at 306 on the footing that the relevant individual, Mr Newton, had, for whatever he was worth, accepted responsibility for the defendant’s costs of the proceeding and thus the object of s 533 of the Companies (Queensland) Code was satisfied. In Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd & Ors (1992) 10 ACLC 1394, Cooper J described the offer by shareholders to accept personal liability for the costs of the corporation as a factor “weighing heavily” against the making of an order for security “notwithstanding that the worth of the shareholders may ultimately prove insufficient to satisfy any judgment in whole or in part”.
34. Plainly enough, the offer by Mr Hanmer is a significant consideration in determining whether any order for security ought to be made. One of the factors upon which the satisfaction of the statutory purpose is made out, identified by the Full Court in Harpur v Ariadne, is the notion that the individual has put his or her own assets in a hazardous position. If the individual has brought his or her own assets already into play “for whatever he [or she] is worth”, the statutory purpose is satisfied. In Togito Pty Ltd v Pioneer Investments (Aust) Pty Ltd & Anor [2009] QSC 68, de Jersey CJ observed, as a matter of principle, at [2] that “[W]hen a plaintiff company would likely be unable to meet an adverse costs order, then absent any other discretionary consideration (and none is pressed here), the alternative proposal must be reasonably secure, if an order is to be avoided”. [emphasis added]
35. In that particular case, Mr Smits (supported by a corresponding undertaking by his wife), a solicitor, offered a personal undertaking to pay the respondent’s costs of the proceeding and told the relevant respondent that he had $3 million on deposit with the Bank of Queensland. A draft statement of Mr Smits’s assets was provided by the solicitors for Togito to the respondent’s solicitors. Ultimately, the Chief Justice made an order for security on the footing that the Chief Justice was satisfied that the “querulous” responses to proper questions about documents supporting the contentions concerning Mr Smits’s assets was unsatisfactory and that Mr Smits was obfuscating the position. The election by Mr Smits to use the $3 million by lending it to another entity without disclosing that matter to the respondent’s solicitors was regarded as significant. Thus, the Chief Justice could not be satisfied that the “alternative proposal” (to an order for security) was “reasonably secure”.
36. In this application, Mr Hanmer has not filed an affidavit.
37. He has not provided any indication of the assets which might be available to satisfy an order for security. Plainly there is a property owned by Mr Hanmer and that property is at risk. It is mortgaged but nevertheless Mr Hanmer’s net interest in that property is exposed and put at risk. However, the Form 484 filed by Mr Moon on 22 November 2004 (although six years old) suggests that Bralville Pty Ltd is the trustee of three trusts and holds the shares in NL in that capacity. Bralville in a trustee capacity may own other assets as well. I infer that Mr Hanmer has selected the structural vehicle of a corporate trustee of relevant trusts as a mechanism for properly organising his financial and legal affairs with the result that assets and income (which might ultimately be deployed in a way that results in distributions of income or capital to Mr Hanmer, or might not) are held under such arrangements.
38. That is not to express any criticism of Mr Hanmer in selecting that method of organising his financial or legal affairs or the vehicle in which assets might be held. However, it does recognise that on the facts of the present case, although Mr Hanmer has in the sense used by Connolly J in Harpur v Ariadne, come out from behind the skirts of the company, he has not necessarily, in a real, substantive or operative sense, brought all of “his own assets into play” and is not necessarily already at risk “for whatever he is worth”, as relevant assets which might otherwise be available, are held (as to shares) by a corporate trustee upon the relevant trusts and other assets might similarly be so held.
39. Tarong contends that the claims made by NOPL are unmeritorious. It is not possible to form even a preliminary view of the merits. The pleadings formulate a claim under s 82 for loss and damage arising out of contraventions of s 52 with recourse to s 51A and claims based upon contentions of unconscionable conduct on the part of Tarong within the meaning of s 51AA of the Act. However, since the principal business undertaking of NOPL is the conduct of a Paulownia plantation on K3 and NL was incorporated for the purpose of raising capital, in part at least, so as to advance funds to K3 for that undertaking, the material suggests that the contended conduct the subject of these proceedings goes to and affects the totality of NOPL’s business undertaking.
40. That matter should be weighed in the balance in exercising the discretion.
41. Tarong also contends that, a little like Mr Smits, NOPL has failed to respond to legitimate questions put to it, as between the solicitors, to identify the strengths and weaknesses of the undertaking Mr Hanmer offered. On 11 February 2011, the solicitors for NOPL wrote to the solicitors for Tarong advising that Mr Hanmer “director and principal shareholder of the applicant company, offers to personally indemnify Tarong in relation to your costs to the value of $262,971 as indicated in your Application” [filed on 23 December 2010]. On 14 February 2011, a request was made by the solicitors for Tarong of the solicitors for NOPL for security from Mr Hanmer in a form that would give Tarong some comfort as to the real value of the security. Mr Hanmer was requested to swear an affidavit setting out his current financial position. NOPL’s solicitors responded by saying that Mr Hanmer’s proposal was an adequate one and answered the application.
42. In addition Tarong contends that NOPL has failed to respond to a request for particulars requested of it, within the time limited by an order of 18 November 2010 and NOPL failed to file its reply (which is now filed) within the time limited by those directions orders. Tarong also says that the fundament of the claim in the proceedings remains unaddressed because the reliance loss is to be demonstrated by an expert’s report which has not been obtained and thus there can be no confidence that there is any demonstrated loss arising out of the contended conduct.
43. It is true that NOPL has not complied with aspects of the directions orders and it is also true that the formulation of the loss and damage is to be the subject of an expert’s report. Apart from the matter of the expert’s report, it is nevertheless not possible to presently form a view about the merits of the proceeding especially in the absence of evidence going to the evidential onus and then ultimately the dispositive onus having regard to s 52 and s 51A.
44. NOPL does not contend that Mr Hanmer is without means. NOPL does not respond to Tarong’s application by saying, upon proper evidence, that the litigation will be frustrated by the making of an order for security on the footing of the impecuniosity of a person, Mr Hanmer, who will benefit from the proceedings. Proof of the frustration of the proceedings is a matter which falls to NOPL on proper probative material: Bell Wholesale Co Ltd v Gates Export Corporation (supra) at p 4.
45. One aspect of Bell Wholesale which is often overlooked is this.
46. Bell Wholesale v Gates was a case in which Bell Wholesale had established a substantial business throughout Australia for the wholesale distribution of particular component parts. It enjoyed those distribution rights under agreements with particular corporations including US corporations. Gates, an American wholesale distributor corporation, entered the Australian market for the distribution of such components and, it was contended, made representations that it was now the relevant Australian distributor. Those statements to Australian retail traders were said to be inconsistent with continuing agreements with Bell Wholesale and were said to constitute contraventions of s 52. The principal shareholder of Bell Wholesale, Mr Kempel, who had built up the business over 30 years was not willing to personally place a lifetime of work at the risk of substantial legal costs of a highly resourced and disproportionately large respondent. The security for costs order foreclosed the litigation, resulted in the discontinuance of the proceedings, the closure of Bell Wholesale’s undertaking and the effective transition of the business of that company to Gates without a shot being fired on the merits of the applicant’s claims.
47. It seems to me that the discretion under s 1335 of the Corporations Act and s 56 of the Federal Court of Australia Act ought to be exercised on this basis.
48. NOPL is unlikely to be in any position to satisfy a costs order made against it. The dilemma for Tarong demonstrated on the face of Mr Bloemendal’s material is sought to be answered by Mr Hanmer’s unconditional undertaking to assume the burden of a costs order at least, for present purposes, in the full amount of the costs identified by Mr Bloemendal.
49. Since Mr Hanmer’s assets are not fully exposed to the risk of such a costs order because some assets which might otherwise have been held by Mr Hanmer are held or owned by a trustee of a discretionary trust in which Mr Hanmer seems to be (I infer) one of the beneficiaries within a field of beneficiaries, Tarong ought to be given a measure of protection by making a limited order for security which provides some mitigation of the risk but, more importantly, demonstrates, if satisfied, a commitment by Mr Hanmer to the prosecution of the proceedings. Those proceedings concern and affect what appears to be the entirety of the undertaking of NOPL as it concerns the conduct of Tarong in relation to the activities conducted on K3. NL issued a prospectus to raise money to enable NOPL to conduct that undertaking and Bralville as trustee of Mr Hanmer’s trust holds its interest in NL.
50. Mr Hanmer, by reason of the correspondence, seems to accept that the amount identified by Mr Bloemendal is the relevant amount having regard to the identified steps. However, because Mr Hanmer has willingly assumed the burden of an order for costs (at least up to the amount sought by way of security) should NOPL be unsuccessful in the principal proceeding, that matter weighs heavily in determining the measure or extent of what is really “additional security”. Had Mr Hanmer been an applicant in relevant proceedings on his own behalf (not relevant for the causes of action in this proceeding) it would be unlikely indeed that an order for security for costs would be made against him personally.
51. In the face of the undertaking, qualified by the circumstances concerning the underlying principle reflected in the Ariadne decision, and the reality that Mr Hanmer adopts the vehicle of a corporate trustee of trusts for the holding of assets, it is appropriate to make a very limited order for further security directed to demonstrating Mr Hanmer’s commitment in the governance of NOPL to the proper prosecution of the litigation and the contended causes of action which, NOPL contends, has caused it the reliance loss it asserts in respect of what seems to be NOPL’s only business undertaking.
52. An order for security for costs will be made for $30,000.00.
53. I accept that in terms of the total costs, the order for security represents a small sum. Nevertheless, the order for security is in addition to the undertaking given by Mr Hanmer personally and the discretion to make an order of that kind is informed by the considerations I have already mentioned.
54. I do not propose to stay the proceeding pending the provision of security to the satisfaction of the Registrar of the Federal Court of Australia. However, the security is to be provided within 30 days of the date of this order failing which the proceedings will be stayed.
55. The parties will be directed to make submissions on costs of and incidental to this application in the light of these reasons. The question of costs will be determined on the papers in the absence of either party requesting in their written submissions an oral hearing.

I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.

Associate:

Dated: 17 February 2011