Australia China Business Bureau v MCP Australia Pty Ltd

REASONS FOR JUDGMENT 1 The appellant appeals from orders made by Hely J on 5 September 2003 dismissing its application. By the application the appellant claimed damages from the respondents. Notice of appeal was filed on 10 November 2003 and a notice of contention was filed on behalf of the respondents on 2 December 2003. On 11 February 2004 a notice of motion was filed on behalf of certain of the respondents seeking security for costs likely to be incurred by the respondents in the conduct of the appeal. 2 The application is based on section 56 of the Federal Court of Australia Act 1976 (Cth) or, alternatively, s 1335 of the Corporations Act 2001 (Cth). Section 56(1) relevantly provides that the Court or a judge may order an appellant in an appeal to the Court to give security for the payment of costs that may be awarded against that appellant. Section 1335(1) of the Corporations Act relevantly provides that where a corporation is a plaintiff in any action or other legal proceeding, the Court 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 its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. 3 The language of each provision is not entirely satisfactory. However, I am satisfied that the Court has power to order security be given by an appellant in circumstances where the Court is satisfied that there is a reasonable prospect that, if an order for costs is made against an appellant, the appellant would not be able to meet such an order. The evidence on that question is not entirely satisfactory on either side. The applicant for security, the respondents to the appeal, point to several matters from which an inference can be drawn that the Court should be satisfied that if an order for costs were made against the appellant, the appellant would not be able to pay it. 4 The first matter referred to is that prior to the hearing of the matter by Hely J, security for costs was ordered by consent. Although there was a subsequent application for security that was abandoned because there was a threat to the hearing date, it seems to me that some inference can be drawn from the fact that the appellant consented to an order for security for costs that there would be some doubt as to whether the appellant would be able to meet an order for costs, if made. 5 The second matter is that documents filed with the Australian Securities Investments Commission indicate that the appellant has a paid up capital of $3 and no more. No other financial material appears to be on the public record. Again, an inference could be drawn from that fact that the appellant does not have substantial assets from which it could meet an order for costs. 6 The third matter is that there have been applications for the winding up of the appellant made to the Supreme Court of New South Wales; there has been no finality in that regard. However, there is currently before the Supreme Court of New South Wales an application by the Commissioner of Taxation to be substituted as an applicant in the winding up application. The ground for winding up appears to be that the appellant is unable to pay its debts as and when they fall due from its own assets. The claim by the Commissioner of Taxation is in excess of $5 million, which may suggest that there have been substantial funds passing through the appellant at some stage. However, the appellant has chosen not to enlighten the Court as to its financial position. 7 No evidence has been adduced by the appellant to indicate that it would be in a position to meet an order for costs, if one were made. If an inference can be drawn, then the Court can be more confident in drawing an inference if those who could give evidence as to the relevant matters choose not to do so. I am therefore prepared to draw the inference that the financial position of the appellant is such that if an order for costs were made against it following the hearing of the appeal, it would not be able to meet that order. 8 Two matters have been raised by the appellant in opposition to the application for security. The first is a bald assertion that the appellant's financial position was caused or contributed to by the actions of the respondents. In the absence of any evidence from the appellant, I do not consider that such a submission is open to the appellant. Reference was made to findings made by Hely J that the appellant expended money to set up and select factories in China to manufacture products intended to be supplied by the appellant to the respondents, and that the appellant set up a centralised packing centre in China. 9 His Honour's findings do not lead to the conclusion that any significant sums of money were expended, or that those moneys would not have been expended but for some conduct on the part of the respondents. It is an accepted principle that if the ordering of security would constitute a bar to the prosecution of a claim that had merit and it can be shown that the inability to provide security is the result of the conduct complained of in the claim, the Court, in its discretion, may decline to order security. That is to say, if justice would be frustrated, in effect, by reason of the conduct complained of, then the Court has a discretion to permit a claim to be prosecuted without security. 10 I do not consider that such a basis for exercise of discretion against the award of security has been made out on the evidence before me. It is, of course, necessary in considering the exercise of discretion to have regard to the respective merits of the cases, at least on a prima facie basis. Counsel for the appellant contends that the appellant has good prospects of success on the appeal. No submission has been made on behalf of the respondents that the appeal has no substance at all. I am prepared to proceed on the basis that the appellant has reasonably good prospects of success. I am also prepared to proceed, however, on the basis that there is some substance in the notice of contention filed on behalf of the respondents. Counsel for the appellant has not suggested to the contrary. 11 The second matter raised by the appellant in opposition to the application for security arises out of the matters to which I have just referred, that is, the respective merits of the appeal and the notice of contention. Counsel for the appellant contends that significant costs would be added to the conduct of the appeal by the Notice of Contention. He says, although there is no evidence to support this, that the appeal limited to the grounds in the notice of appeal would be disposed of in a day but that, by reason of the issues raised by the Notice of Contention, the appeal would take two days. 12 The respondents have adduced evidence to indicate that the costs that the respondents would be likely to recover on a party/party basis if an order was made in their favour on the appeal would be in the vicinity of $62,000. That assessment has not been the subject of any challenge on behalf of the appellant. However, the appellant says that some significant allowance should be made for the fact that the assessment is based on an appeal lasting for two days. There is no cross-appeal on behalf of the respondents. The Notice of Contention does no more than seek to support the conclusion of Hely J for reasons other than those adopted by Hely J. But for the appeal, there would be no notice of contention. 13 I am not persuaded, therefore, in the absence of any suggestion that the notice of contention is vexatious or without substance, that the fact that the appeal might be complicated by the Notice of Contention, , should deprive the appellant of security for costs. In any event, however, I am not persuaded that the issues raised by the Notice of Contention would necessarily add significantly to the time and cost involved in the preparation and hearing of the appeal. 14 The Notice of Appeal, in its first ground, asserts that his Honour erred in finding that there was no contract in terms of pars 17 and 18 of the Further Amended Statement of Claim. Paragraph 16 of the Further Amended Statement of Claim asserts that, apart from other things, the respondents contracted with the appellant for the exclusive supply by the appellant of certain products to the respondents. Paragraph 17 then alleges that it was a term of that contract that the respondents would procure from the appellant exclusively, all of certain product categories particularised in that paragraph. 15 The Further Amended Statement of Claim at par 18 then alleges that there was an agreement made subsequently between the respondents and the appellant varying the terms of that contract. His Honour apparently found that there was no such contract. The first paragraph of the Notice of Contention asserts that his Honour was correct in finding that there was no contract for reasons that, I will assume for present purposes, are different from the reasons adopted by his Honour. Paragraph 2 of the Notice of Contention seems to be a fleshing out of the same matter, namely, that his Honour was correct in concluding that there was no contract in the terms alleged, but that there are other reasons for his Honour to reach that conclusion. 16 In order to arrive at the conclusions that his Honour reached, it was necessary for his Honour to make a detailed consideration of the factual matrix that was said to give rise to the contract. The Further Amended Statement of Claim asserted that the contract resulted from conversations, conduct and documents over a period of some 10 months. His Honour's reasons consist of 276 paragraphs; over 80 pages. It is clear that in order to determine whether his Honour erred in not finding a contract in the terms alleged in pars 17 and 18, it will be necessary to examine much of his Honour's reasoning. 17 It was submitted on behalf of the appellant that his Honour concluded that there was no agreement in the terms alleged by reason of one narrow issue. That is not self-evident. In any event, the other grounds of appeal, which comprise twelve grounds of appeal in total, will require a very substantial examination of the dealings between the parties. There is a challenge, for example, to a failure on the part of his Honour to find that certain of the respondents were acting in bad faith. There is also a challenge to his Honour's failure to find that the respondents were estopped from denying the contract alleged. 18 Those matters must, it seems to me, require a fairly detailed examination of the factual matrix to which his Honour referred. I am not persuaded, even if it were a relevant factor, that the issues raised by the Notice of Contention will add significantly to the time or costs involved in the preparation for and conduct of the appeal. 19 The Notice of Motion seeking an order for security, as I have said, was filed some three months after the filing of the Notice of Appeal. However, while some costs have been incurred in the interim, not a great deal has taken place. The Appeal Book index has not yet been finalised. I consider that the Notice of Motion should be taken to have been filed as promptly as is required. In my opinion, it is appropriate that there be an order that the appellant provide security for the respondents' costs of the appeal from the time of the filing of the notice of appeal. In the light of the evidence before me, I am satisfied that the reasonable costs likely to be recovered on a party/party basis, if the appeal is unsuccessful, would be in the vicinity of $62,000. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.