Aurora Networks Pty Ltd v Halbedl; In the Matter of Aurora Networks Pty Ltd

The Relevant Evidence 9 In support of his application for security, Mr Halbedl filed and served an affidavit affirmed by him on 19 March 2013. In that affidavit, Mr Halbedl asserted that there was no real or genuine dispute about Aurora's liability to pay the amount of $35,000 claimed by him in the Demand. He also asserted that Aurora was having financial difficulties. The only basis for this latter assertion appeared to be that, as at 14 June 2012, Aurora had only $4.16 in its bank account. It was also suggested that certain entries in Aurora's bank statement for May 2012 were evidence that Aurora had ceased to trade. 10 The solicitor for Mr Halbedl also swore an affidavit in support of Mr Halbedl's application for security. In that affidavit, she expressed her views as to the merits of her client's case. It is neither necessary nor appropriate for me to evaluate her opinions in that regard. In addition to expressing those views, Mr Halbedl's solicitor also gave evidence that she was of the opinion that the likely costs which Mr Halbedl would incur in the future in defending the present proceeding would be $43,879.50. 11 Mr Halbedl also filed a lengthy affidavit affirmed by him on 19 March 2013 in which he dealt with the merits of the case.

Consideration 12 Counsel for Mr Halbedl devoted his time and energies to establishing that there was no genuine dispute between his client and Aurora in respect of the amount claimed by his client in the Demand. He did so in order, as he submitted, to place the current application into its proper setting. 13 Counsel relied upon s 56 of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) and Pt 19 of the Federal Court Rules 2011 (the Federal Court Rules) as the source of the Court's power to grant the relief sought in Mr Halbedl's Interlocutory Process. He did not rely upon s 1335 of the Corporations Act. Counsel relied upon Aurora's lack of funds as at June 2012 as evidence of insolvency. He also pointed to entries in Aurora's bank statement for May/June 2012 which described one payment as a "final electricity account" and another as a "final" payment to Optus and submitted that these entries were evidence that Aurora had ceased to trade. This assertion was seen as bolstering Mr Halbedl's contention that Aurora is insolvent. 14 Counsel for Aurora focussed on the present application. He proceeded upon the basis that the present application was being made under s 1335 of the Corporations Act 2001 (Cth) (the Corporations Act) and r 19.02 of the Federal Court Rules. He submitted that only in the rarest of cases would the Court order an applicant seeking to set aside a Creditor's Statutory Demand to post security for the other party's costs. He said that the Court would not usually do so. In support of those submissions, Counsel relied upon the decision of Sundberg J in Aquatown Pty Ltd v Holder Stroud Pty Ltd (1995) 18 ACSR 622 (Aquatown). 15 In that case, in circumstances similar to those in play in the present proceeding, at 623, his Honour said: Although the applicant is a "plaintiff" in the ordinary sense of the word, a long line of authority establishes that security is not ordered where the plaintiff/applicant is the party attacked and is really in the position of a defendant/respondent. The court is guided by the substance and not the form of the matter. In Willey v Synan (1935) 54 CLR 175 a member of the crew of a ship travelling from New Zealand to Melbourne claimed that he had found on board some valuable coins. When the ship arrived in Melbourne the Collector of Customs took possession of the coins. The crewman made a claim to them under s 207 of the Customs Act 1901. The collector gave notice to the crewman requiring him to commence an action for recovery of the coins, stating that in default of bringing such action the coins would be condemned without further proceedings. That was indeed the effect of s 207. The crewman, who was not ordinarily resident in Australia, thereupon commenced an action against the collector for the recovery of the coins. The Collector's application for security for costs was rejected by the High Court. Dixon J, with whom Rich J agreed, said (at 184-5): The principle is that a party to judicial proceedings, who resides beyond the jurisdiction, should not be required to give security for costs unless, however the parties are arranged upon the record, he is the person invoking or resorting to the jurisdiction for the purpose of establishing rights or obtaining relief. The principle was considered in Maatschappij voor Fondsenbezit v Shell Transport and Trading Co [1923] 2 KB 166, where ... Scrutton LJ... said: "The position, I think, extends to every case where the person against whom security is sought is really defending himself against attack, even if he be nominally a plaintiff, but really defending himself against defendants' previous action against him". His Honour then examined the relevant provisions of the Customs Act, and continued (at 185-6): It appears to me that the Collector is the actor. The notice is a step taken by him directed at obtaining a condemnation. It is a statutory substitute for judicial proceedings by the Crown against the goods. Its effect is to cast the onus of taking proceedings upon the owner or supposed owner. ... The provisions of the Customs Act, in effect, enable the officers of the crown to take the preliminary steps by simple notices out of the court so that it is the claimant who must issue process. But when he does issue a writ he does so to protect his supposed ownership. In substance he is not the attacker, actor or person seeking redress. For these reasons I think he is not liable to give security for the costs of the action. Latham CJ said that the plaintiff was really in the position of the defendant: "as the collector has given him a notice under s 207, he is, in effect, forced into legal proceedings, not merely to enforce his claim, but to prevent his claim from being extinguished" at 180. McTiernan J said that the action "was truly instituted by way of defence" to a claim by the collector for condemnation of the plaintiff's goods, and that the rule that a plaintiff out of the jurisdiction should give security "should not be applied to the plaintiff in this action" at 187. 16 At 624-625, Sundberg J went on to review and consider other cases which endorsed the principles which his Honour had set out at 623-624. Those other cases were Re Travelodge Australia Ltd (1978) 21 ACTR 17 and Amalgamated Mining Services Pty Ltd v Warman International Ltd (1988) 19 FCR 324. 17 Having reviewed those cases, his Honour said, at 624-625: In my view the principle illustrated by these cases is applicable to the present case. As the statutory demand pointed out, non-compliance would give rise to a ground upon which the applicant could be wound up. Unless it paid the respondent money it contends is not due, the only way the applicant could avoid that detriment was to apply under s 459G to have the demand set aside. To use the words of Wilcox J, "in a practical sense" the applicant was forced by the respondent to take legal action. 18 After considering certain submissions advanced by the parties as to whether or not the cases to which his Honour had earlier referred were distinguishable, his Honour said (at 625-626): The applicant's counsel relied upon a somewhat different ground from the principle the respondent's counsel sought to distinguish. He referred to Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq) (1979) 4 ACSR 492; [1979] ACLC 32,446 where Mitchell J, with whom King CJ and Legoe J agreed, said that the trial judge was entitled, in the exercise of his discretion, to take into account whether the plaintiff was a true plaintiff or had been forced into the position of a plaintiff because the defendant was empowered to take self help procedure. No reference was made to the Willey v. Synan line of cases. These cases appear to establish that security is not to be ordered where a litigant, though technically a plaintiff, is in substance a defendant. None of them treats the "reality" as merely a matter to be taken into account together with others in the exercise of the court's discretion. Heller Factors was considered by Ormiston J in Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621; 9 ACLC 1218. At ACSR 626; ACLC 1228 his Honour said: Perhaps it may be said that the authorities support the proposition that security will only ordinarily be ordered against a party who is in substance the plaintiff, and that an order ought not to be made against parties who are defending themselves and thus forced to litigate: cf. Accidental & Marine Insurance Co v Mercati (1866) LR 3 Eq 200. That would appear to be an overstatement, but the fact that a plaintiff ... has instituted essentially defensive proceedings, must be a significant factor in the exercise of the court's discretion. After noting Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289 where, at 300, Smart J said that the factors relevant to the exercise of the discretion to order security include "whether the plaintiff's proceedings are merely a defence against 'self-help' measures taken by the defendant", Ormiston J said: Principally it would appear necessary to characterise the proceedings in respect of which security is sought. If they are "defensive" proceedings, either directly resisting proceedings already brought or seeking to "halt self-help procedures", it would seem that to require security would be oppressive, or at least would provide serious grounds for refusing to make an order. At the least, it is a factor to be considered in the exercise of the discretion. No reference was made to Willey v Synan or the other cases in which it has been followed. In my view these cases justify the proposition that Ormiston J rejected as an overstatement, namely that an order ought not to be made against parties who are defending themselves and thus forced to litigate. In the Accidental & Marine Case, to which his Honour referred, Sir William Page Wood VC said: ...in this case, as in Watteew v Billam, the company, though called a plaintiff, is really a defendant. The principle is not based on the narrow ground that the plaintiff in the original suit, having admitted the jurisdiction, is not at liberty to deny it: the true ground is, that a person who is in the position of the defendant (though nominally the plaintiff) is to be at liberty to defend himself. ... Where a company is defending itself, it must be regarded as, in substance, a defendant, and, therefore, is not to be called upon to give security. In this instance the company must be considered as a defendant, and not as a "plaintiff or pursuer", within the meaning of [s 69 of the Companies Act 1862]. The passage "a person who is in the position of a defendant (though nominally a plaintiff) is to be at liberty to defend himself" was the foundation of Scrutton LJ's judgment in Maatschappij which was applied in Willey v Synan. Watteew v Billam (1849) 3 De G&Sm 516; 64 ER 586, referred to by the Vice-Chancellor, was mentioned by Dixon J in Willey v Synan as an illustration of the principle he distilled and applied. Accordingly, I am of the view that the principle to apply in the present case is that espoused in Willey v Synan, and that the fact that a plaintiff/applicant has been forced into litigation so as to be a true defendant is more than a matter to be taken into consideration in the exercise of the discretion whether to require security. In the present case the applicant was in a practical sense forced into initiating litigation in order to avoid a ground upon which it could be wound up coming into existence. In those circumstances, security is not to be ordered. Cf. Willey v Synan, at 186, per Dixon J and Amalgamated Mining, at 329. It is interesting to note that in Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 13 ACSR 263; 12 ACLC 334 Young J in the Supreme Court of New South Wales ordered the server of a statutory demand to give security to the plaintiff applying to set it aside. His Honour said: Commercially speaking, the person who issued the statutory demand is the attacker and an applicant for an order under s 459G is responding to that attack ... one should focus on the question as to whether in a commercial sense the defendant to litigation is the aggressor. Even if one takes a different tack and says that one must find a legal aggressor, it seems to me that under the existing structure of the Corporations Law the person who issues the statutory demand is the legal aggressor. However, if contrary to my view the matter is to be approached along the lines favoured by Ormiston J in Interwest, I would, after taking the "reality" into account, have declined in the exercise of my discretion to order security in the present case. I would also have taken into account that, as I have said, the respondent did not request security before issuing its notice of motion. 19 Counsel for Mr Halbedl did not advance any substantive answer to his opponent's reliance upon the decision of Sundberg J in Aquatown. 20 I think that the reasoning of Sundberg J in Aquatown is sound and I propose to follow it. I think that it applies whether one views the present application as being made under s 1335 of the Corporations Act or as being made under s 56 of the Federal Court Act and the Federal Court Rules. 21 In any event, there is no evidence of insolvency in the present case. The matters relied upon by Mr Halbedl do not establish insolvency. They amount to nothing more than isolated facts which, even if taken at their highest and together, do not establish insolvency. Furthermore, the amount of security claimed is utterly disproportionate to the amount in issue between the parties. 22 For all of the above reasons, I refuse to make the order claimed by Mr Halbedl. 23 I also listed before me on 29 May 2013 a second Interlocutory Process filed by Mr Halbedl in which he sought an order setting aside a subpoena for production addressed to Netregistry Pty Ltd. That Interlocutory Process was filed on 9 April 2013. 24 Neither party made any oral submissions directed to the order sought in that Interlocutory Process. Aurora did not make any written submissions directed to that matter although Counsel for Mr Halbedl made a very brief reference to it in his Written Submissions. 25 In those circumstances, I think that I should not deal with that Interlocutory Process in these Reasons for Judgment but rather give to the parties a further opportunity to deal with it on proper notice. As I intend to allocate a date for further directions in the matter, I will list the Interlocutory Process filed by Mr Halbedl on 9 April 2013 for hearing on the next directions day. 26 Aurora has sought its costs of the security for costs application on an indemnity basis. It relies upon its solicitor's letter sent almost two months before the hearing of that application. In that letter, the author drew the attention of Mr Halbedl's solicitor to the fundamental difficulties with his application. That letter also foreshadowed an application for indemnity costs in the event that Mr Halbedl failed to obtain an order for security. In my judgment, Mr Halbedl's application for security should never have been brought. In the circumstances which I have described, I think that an order for indemnity costs in favour of Aurora is justified. 27 There will be orders accordingly. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.