Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd

Federal Court of Australia|2007-01-05|Before: Black CJ, Finn JJ, Northrop J, Gummow J, Burchett J, Citrus Queensland P

BACKGROUND 2 In determining this application it is useful to outline background events which resulted in an application for abridgment of time for service of the notice of motion before me, and extensive written submissions in relation to this application following the hearing on Friday 24 November 2006. 3 This application for security for costs comes in the context of a dispute which has been the subject of multiple applications during the course of 2006 including adjournment of the original date of the trial (Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd [2006] FCA 920), a recent unsuccessful application for security for costs brought by the respondents (Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 3) [2006] FCA 1498), and delays because of extensive objections to evidence (some of which have not yet been determined). As a result of developments including extensive and complex argument concerning objections to evidence of witnesses of the applicants, the non-appearance of a key witness for the applicants and foreshadowed amendment to his evidence, and other unforeseen complications during the course of the two weeks of the trial (which re-commenced 13 November 2006 following the adjournment in July 2006), the hearing of the matter was not completed during the time allocated. 4 After I ordered the applicants to open their case on Wednesday 15 November 2006, the applicants requested that the court adjourn for that day while they consulted their legal representatives. The respondents consented to this adjournment. However in Court on Thursday 16 November 2006, Mr Bell on behalf of the respondents indicated that if the hearing was adjourned to a future date prior to the applicants opening their case, his clients would be making another application for security for costs in the sum of $200 000. Despite my reservations as to the applicants opening their case in light of the clear risk that the trial would not conclude at the end of two weeks, and problems faced by the lack of availability of Counsel after that time which would prevent the trial running beyond that time, both the applicants and the respondents indicated that they preferred the trial to commence. Accordingly, I allowed Mr Perry on behalf of the applicants to make opening submissions on Thursday 16 November 2006. 5 By midway through last week it was clear that, despite lengthy hearing days commencing at 9.30 am and ending at times close to 6.00 pm and efforts by both counsel and this Court, the trial would not conclude by Friday 24 November 2006. Evidence in chief and cross-examination of the second applicant extended from Friday 17 November 2006 until Wednesday 22 November 2006. Indeed by Friday 24 November 2006 although the applicants had closed their case, only three witnesses out of twelve had been called by the respondents. Because of workload commitments of the Court and lack of availability of Counsel, the hearing of the substantive matter has now been adjourned until 8 May 2007. 6 At approximately 5.00 pm Wednesday 22 November 2006, Mr Bell on behalf of the respondents sought leave in Court to file and serve a notice of motion returnable at 2.15 pm on Friday 24 November 2006, by which the respondents sought further security for costs. I granted leave for the notice of motion to be filed and served, but deferred until the following day a decision as to whether the notice would be returnable on Friday, to allow the applicants to consider their position in relation to an abridgment of time, and to formulate submissions. On Thursday 23 November 2006 Mr Perry on behalf of the applicants opposed the respondents receiving what would clearly be an abridgment of time in which the notice could be heard, for reasons including: · that the application raised significant new issues in respect of quantum and the time frame referable to the amount sought · that it potentially had the effect of stultifying the litigation · that, given that the matter was almost certainly to be adjourned until 2007, there was no particular imperative to have the case heard by Friday 24 November 2006 rather than a subsequent date · that until the first witnesses called by the respondents had been cross-examined it was not possible to have any particular view about how long the balance of the trial will require. 7 On the afternoon of Thursday 23 November 2006 I ordered the Court to be adjourned while I considered the issue of whether time for hearing of this notice of motion should be abridged. I subsequently ruled that time in respect of this matter be abridged, that the requirements of O 19 r 3 Federal Court Rules be dispensed with in relation to the motion filed by the respondents on 22 November 2006, and that the notice of motion should be returnable on Friday 24 November 2006. My reasons were as follows:

THE HEARING OF THE APPLICATION 9 Cross-examination of witnesses by Mr Perry did not conclude until 5.05 pm on Friday afternoon, however Mr Bell pressed for the respondents' notice of motion in respect of security for costs to nonetheless be heard on the basis that there was a risk that the application could not be heard in the foreseeable future. 10 Mr Perry for the applicants submitted that the matter should not be heard in view of: · the time of day · the quantum sought · the lack of urgency to hear the matter and · the short notice given by the respondents. 11 Notwithstanding these submissions however, I ruled that the notice of motion should be heard. I noted that I had provided my reasons the previous day, which remained applicable. Further, I note that: · At the request of the applicants, the hearing had commenced slightly later than it had the previous two weeks in order to accommodate the applicants with respect to this notice of motion. · There was no issue of the notice of motion being returnable instanter; indeed as the notice of motion had been filed and served on the previous Wednesday, service was abridged only by one day. · Mr Perry for the applicants indicated that he had had the opportunity to peruse 150 cases on the topic of security for costs the previous evening in relation to issues raised by the respondents in their written submissions. Although not conclusive, the opportunity the applicants had had to research the case suggested in the circumstances that the applicants had had time to consider the issues raised in the notice of motion. · The resolution of this issue was clearly of importance to the respondents and, as acknowledged by Mr Perry, the applicants. · The respondents were prepared to rely on their written submissions, and consent to the applicants supplementing their oral submissions by written submissions. Subsequently, the parties have filed extensive written submissions in support of their positions. 12 Accordingly, notwithstanding the time of day it was in my view appropriate that the notice of motion be heard.

THE APPLICATION 13 The first and second respondents seek the following orders:

The first and third applicants provide by 4.00 pm on 20 December 2006 security for the first and second respondents' costs of the proceedings in the sum of $200 000 or such other sum as is ordered by the Court, to the satisfaction of the Registrar of the Court.
The proceeding by the first and third applicants be stayed as against the first and second respondents until provision of that security or until further order of the Court.
The first and third applicants pay the first and second respondents' costs of and incidental to the notice of motion to be taxed.
Any other orders that the Court deems appropriate. 14 On Friday 24 November 2006, Mr Perry made oral submissions supported by written submissions in reply to the submissions of the respondents. I gave leave to the applicants to file in court an affidavit of Michael Anthony Graham, an expert costs assessor. Mr Bell indicated that he was prepared to waive his right to cross-examine Mr Graham. 15 I gave leave to the applicants to supplement their submissions by further written submissions to be filed and served by 9.00 am on Monday 27 November 2006. I gave leave to the respondents to make further written submissions in response by 10.00 am on Monday 27 November 2006. Additional written submissions have, with consent, been provided by both parties.

SUBMISSIONS OF THE RESPONDENTS 16 In summary, the respondents have sought security for the following:

the trial to date, 13 November 2006 to 24 November 2006, including the objections.
preparation for the trial, conservatively five days.
for 6 November 2006, the day the objections should have been heard but for the failure of the applicants to deliver the objections by the 31 October 2006.
extensive written submissions will be prepared for the final hearing date and preparation otherwise for continuation of the trial: five days.
continuation of trial for five days hearing. 17 The items and the amount sought were set out in Mr Bell's written submissions in a schedule as follows: Schedule (1) Objections to evidence hearing (6 November 2006) Item 26 of Annexure "JAM‑02" of Affidavit of McLellan sworn 23/3/06, filed 27/3/06 - Counsel's fee on brief for hearing (1 day) $3,300.00 Item 25 of Annexure "JAM‑02" - Solicitor attending to instruct Counsel (2 hours) $444.00 (2) Preparation for trial before 13 November 2006 Para 8 of Affidavit of McLellan sworn 23/3/06, filed 27/3/06 $18,000.00 and $11,000.00 (3) 10 day trial (13 November to 24 November) Para 8 of Affidavit of McLellan sworn 23/3/06, filed 27/3/06 $87,832.00 (4) Conservative estimate of 8 further days' trial (including submissions) Para 8 of Affidavit $65,328.00 (5) 5 days preparation for further hearing days - Item 158 of Annexure "JAM-02" of Affidavit - Senior Counsel $18,000.00 - Item 59 of Annexure "JAM-02" of Affidavit - Junior Counsel $11,000.00 (6) Preparing Affidavits for objections to evidence Item 1 of Annexure "JAM‑02" $325.00 (7) General attendance to matter. Perusing and sending correspondence between solicitors, witnesses and counsels Annexure "JAM-02" of Affidavit $2,000.00 TOTAL $217,229.00

18 Further, in summary the respondents submitted:

the applicants suffered no disadvantage whatsoever by the conduct of the respondents in moving for further security in the sum of $200 000 on Friday 24 November 2006 at 5.05 pm.
the court may order security for costs already incurred: Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497.
there had been a change of circumstances before the Court which justifies the Court revisiting the issue of security for costs, in particular: · it is clear that the hearing of this matter will require 18 days · as is clear from the evidence of the second applicant, the second applicant and Mrs Tracy controlled, in February 2005, net assets of approximately $5 000 000 in value · Mrs Tracy, is a major beneficiary of the litigation · there is no dispute that Mr Tracy transferred assets out of his name in June 2005.
the evidence of Mr Graham, the expert witness in respect of costs for the applicants, is concerning because: · he argues legal points in his evidence, which are wrong in law · the Full Court rejected his evidence as to quantum · his second affidavit proceeds on the basis of a number false premises, including that the remaining number of days for the trial to be completed is three days (whereas the joint assessment of counsel had been to allow seven further days); that no valuation evidence was required (whereas four valuers are giving evidence); no non-party disclosure was required from HTW and National Australia Bank (which is not the case); that the solicitors for the respondents would require only 20 hours to prepare all statements (whereas there are 11 affidavits); and no allowances were made for senior counsel.
the evidence of Mr James McLellan, an expert witness in respect of costs for the respondents, assessed the costs, including preparation and hearing, for a 10 day trial at $347 413, the costs per day following being $8166 (totalling, for a further eight days being seven days in May 2007 and one day in July 2006, $65 328). The total amount in costs for the trial is accordingly $412 741.
as the respondents have already paid $150 000 towards security for costs, an order for a further $200 000 is appropriate in all the circumstances of this case.

SUBMISSIONS OF THE APPLICANTS 19 In summary, the submissions of the applicants are as follows:

short notice was given by the respondents for this application.
it is admitted that the first and third applicants are unable, from their own resources, to meet any costs order made against them in these proceedings.
the respondents have not adduced any new factual evidence in support of the application to justify the costs of $217 229.
it is inappropriate to consider future costs in light of the affidavit of Mr McLellan.
Mr McLellan made no calculation of the costs now claimed, and there is no suggestion that a person experienced in the calculation of legal costs has turned their mind to claims made in items 4-7 of the schedule.
No authority was cited by the respondents or principle enunciated to support the contention that in exercise of its discretion the Court will order security for costs already incurred, particularly where there has been an earlier unsuccessful application.
Mr Graham's evidence is that the daily rate for party and party costs is $7124.25, making a total of $21 372.75 for the further three days of the trial. Accordingly, in all the circumstances if the court decides to exercise its discretion to order further security then the appropriate quantum of such security is $21 372.
the effect of Mr Graham's evidence is that the costs claimed at items 1, 2, 3 and 6 of the schedule are not appropriate to form part of an order for security because they have already been incurred and because they have been dealt with by the orders made by the Court on the two previous security for costs applications.
In giving his evidence, Mr Graham relies on the fact that all that remains to be done in relation to the witnesses is cross-examination and re-examination.
the facts in Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd were not relevant to this case; further the observations of French J in that case concern the issue of power rather than discretion. Neither Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd nor another case, Southern Cross Exploration NL v Fire and All Ricks Insurance Co Ltd (1985) 1 NSWLR 114, are authority for the proposition that the court has power to order security for costs already incurred in the circumstances of this case.
the fact that the respondents have relied on previous affidavits filed by them in support of earlier applications for security for costs is a tacit admission that nothing that has occurred since those affidavits were filed.
the respondents chose not to cross-examine Mr Graham, and in those circumstances Mr Graham's evidence as to the quantum of any appropriate security order is uncontested.
there is no admissible evidence before the Court to support the assertion that the trial will take a further seven days to complete. The only admissible evidence which comprehends the extent to which the trial has been heard and the likely further duration of the trial is Mr Graham's evidence in which he gives his expert opinion that the trial will take a further three days to complete. This estimate is based on a consideration of the remaining witnesses to be cross-examined by the applicants and has regard to the fact that written submissions are likely to be required.
it is inappropriate for the court to take into account any of the evidence adduced thus far at the trial because the evidence is incomplete and no findings of fact have yet been made, including in relation to whether the third applicant was trading whilst insolvent or whether Mr Tracy had transferred property to which he was beneficially entitled in order to defeat creditors.
as the respondent had failed in its most recent application for security for costs (Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 3) [2006] FCA 1498) and had not appealed the decision, the decision created an estoppel against a further application based on the facts extant at the date of the order. The policy reason for such an estoppel is that, had the applicants known on the date upon which the Court dismissed the most recent security for costs application that they would have to provide a further $200 000 security, they may have elected to discontinue the proceedings at that point, thereby saving the costs of the 10 day trial because of their inability to meet the further security order. This is prejudice which cannot now be remedied.
Mr McLellan's evidence is unhelpful in that it does not contain any assessment of the likely further duration of the trial having regard to the witnesses already dealt with or remaining witnesses; whether the respondents are able to obtain an order for security for incurred costs or whether the respondents are estopped from obtaining further security; or whether the respondents are entitled on a party and party basis to obtain an allowance for preparation for trial more than once.

QUESTIONS FOR DECISION 20 In my view there are essentially three interrelated questions for decision. 21 The first question is whether in the circumstances of this case the first and second respondents are entitled to an order for security for costs against the first and third applicants in these circumstances. 22 If the answer to the first question is in the affirmative, the second question relates to the quantum of costs in respect of which the first and second respondents are entitled to have security, and the third question relates to the date by when an amount in respect of security for costs would be payable. 23 It does not appear to be in dispute that, if an order for security for costs is made, it is appropriate to order that the matter be permanently stayed pending the payment of the amount ordered.

ARE THE FIRST AND SECOND RESPONDENTS ENTITLED TO AN ORDER FOR SECURITY FOR COSTS AGAINST THE FIRST AND THIRD APPLICANTS UNDER EITHER SECTION 56 FEDERAL COURT ACT OR SECTION 1335 CORPORATIONS ACT?

General Principles 24 The Court is empowered by s 56 Federal Court of Australia Act 1976 ('the Act') to order an applicant in a proceeding in the court to give security for the payment of costs that may be awarded against him. Section 56(2) vests the court or judge with a discretion to order the security to be of such amount and given at such time and in such manner and form as the court or judge directs. 25 Although O 28 r 3 Federal Court Rules refers to matters the court may take into account when considering an application for an order for security for costs under s 56 of the Act, it is clear that the rule is not intended to be an exhaustive statement of the factors the court may consider, nor does the rule limit the power of the court under s 56 (Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1 at 2-3). 26 The first and third applicants in this case are corporations, one of which is currently subject to a Deed of Company Arrangement within the meaning of Pt 5.3A Corporations Act 2001 (Cth). Accordingly, s 1335 Corporations Act is also relevant. Section 1335 provides: '(1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter 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 his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. (2) The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs.' 27 Although the respondents have sought an order for security for costs pursuant to either s 56 of the Federal Court Act or s 1335 Corporations Act, in the circumstances of this case the parties have not addressed the issue whether the content of the requirement to act judicially is different under s 56 to that under s 1335. Accordingly, it is not necessary for me to consider this issue separately. 28 Notwithstanding the long-standing principle that the door of the court should not be barred to a prospective applicant because of impecuniosity (Bowen LJ in Cowell v Taylor (1885) 31 Ch D 34 at 38, Full Court of the Federal Court in Cherry v Read (unreported, Black CJ, Sackville and Finn JJ, 21 November 1996 at 8), and note cases discussed in GE Dal Pont Law of Costs LexisNexis Butterworths 2003 at p 955) the protective object of an order for security for costs is well known. As Einstein J said in Idoport Pty Limited & Anor v National Australia Bank Limited [2001] NSWSC 744 at [52]: 'The purpose of a security for costs order is therefore a protective jurisdiction to ensure that the primary purposes for having costs orders themselves, can be achieved. A defendant is protected against the risk that a costs order obtained at the end of the day may turn out to be of no value by reason of the impecuniosity of the plaintiff.' 29 As submitted by counsel in Idoport - in my view correctly - the jurisdiction to award security for costs should thus be seen as protecting the efficacy of the exercise of the jurisdiction to award costs and it is undesirable for the court to permit a situation to arise where a party's success is pyrrhic because an order for costs cannot be met (Idoport at [33]). 30 (For similar statements considering the purpose of an award of security for costs, see Lord Aldborough v Burton (1834) 2 My & K 401, 39 ER 997; Harpur v Ariadne Australia Ltd (1984) 2 Qd R 523 at 530; Re Energy Drilling Inc (unreported, Federal Court of Australia, Gummow J, 3 May 1989) at [24]; Microcorp Pty Ltd v Terran Computers Pty Ltd (unreported, Federal Court of Australia, Northrop J, 26 June 1992) at 16; Phoenix Court Pty Ltd v Melbourne Central Pty Ltd [1998] 753 FCA (19 June 1998); Silveira v Australian Institute of Management [2001] FCA 1358 at [6]; Rocter Tanks Pty Ltd v Adam [2001] SASC 196 at [25]; Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564; Wollongong City Council v FPM Constructions Pty Limited [2004] NSWSC 523 at [19]; La Rosa Constructions Pty Limited v PWR Developments Pty Limited [2004] NSWSC 235 at [7]; Baygol Pty Ltd v Huntsman Chemical Co Australia Pty Ltd t/a RMAX [2004] FCA 1248 at [9]; Interline Hydrocarbon Inc v Brenzil Pty Ltd [2005] QSC 109 at [34].) 31 However, the courts have traditionally adopted different approaches to individual applicants and corporate applicants. The approach was summarised by Megarry VC in Pearson v Naydler (1977) 1 WLR 899 at 904 as follows: 'In relation to security for costs, there seems to me to be an essential distinction between natural persons and limited companies as plaintiffs. For a natural person, the basic rule is that he will not be ordered to give security for costs, however poor he is… In the case of a limited company, there is no basic rule conferring immunity from any liability to give security for costs. The basic rule is the opposite…' 32 In Australia the substantial weight of authority has rejected any suggestion that a defendant is entitled to an order for security as of right where the impecuniosity of the company has been established: French J in Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 506. However the differing approaches are reflected by the broad terms of s 56 Federal Court Act, and the specific terms of s 1335 Corporations Act which apply where there is evidence that a corporate plaintiff is insolvent. A statutory predecessor of s 1335 was explained by the Full Court of the Supreme Court of Queensland in Harpur v Ariadne (1984) 2 Qd R 523 at 532 in the following terms: 'The mischief at which the provision is aimed is obvious. An individual who conducts his business affairs by medium of a corporation without assets would otherwise be in a position to expose his opponent to a massive bill of costs without hazarding his own assets. The purpose of an order for security is to require him, if not to come out from behind the skirts of the company, at least to bring his own assets into play. If however he is already available for whatever he is worth, the object of the legislation is seen to be satisfied.' 33 Notwithstanding the protective object of an award for security for costs, the onus of persuading the court that an award of security for costs should be made lies on the party seeking the order: see CBS Records Australia Ltd v Telmak Teleproducts (Aust) Pty Ltd (1987) 72 ALR 270 at 284-285, Cherry v Read. 34 It is well-settled that the court is vested with a discretion to award - or not - security for costs, and that the power is wide with the need to exercise the discretion judicially being the only relevant limitation (Bell Wholesale at 3). However, useful guidelines which courts typically take into account in determining such applications were listed by Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 197-198 as follows:

that such applications should be brought promptly.
that regard is to be had to the strength and bona fides of the applicant's case.
whether the applicant's impecuniosity was caused by the respondent's conduct subject of the claim.
whether the respondent's application for security is oppressive.
whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security.
whether persons standing behind the company have offered any personal undertaking to be liable for the costs.
is the party against whom security is sought in substance a plaintiff. 35 Two guidelines to add to this list which were suggested by Hill J in Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 at 50,635 are:
whether there are aspects of public interest which weigh in the balance against the making of an order, and
whether there are any particular discretionary matters peculiar to the circumstances of the case. 36 Obviously the factors of the individual case will to a significant degree determine the outcome because it is incumbent on the judge, in exercising discretion, to consider the circumstances of the case at hand. 37 The first and second respondents have sought an order for an award of security for costs in respect of their costs of these proceedings, essentially those not covered by the previous order of the Full Court. The onus is on them to satisfy the Court that it is a proper exercise of the Court's discretion to make such an order. It is clear that the costs represented in their application relate to costs incurred both during the 10 days of trial already held, and future costs. I propose to deal first with security in respect of costs yet to be incurred, and then consider the application of the respondents in respect of costs incurred during the 10 days of trial already held.

Security for future costs to be incurred by the first and second respondents 38 In my view an award of security in respect of future costs in this matter is appropriate. In forming this view I take into account the following factors:

The first and third applicants were ordered earlier this year to pay the first and second respondents security for costs up to the end of the first day of trial in the sum of $150 000: Sunstate Orchards Pty Ltd v Citrus Queensland Pty Ltd [2006] FCAFC 93. To paraphrase Emmett J in Checked-Out Pty Ltd v Eagle Eye Inspections Pty Ltd [2001] FCA 1475 at [26], for reasons I detail below I do not see any reason at all to depart from the view of the Full Court in making an order that security for costs were payable, and note that the Full Court did not preclude a subsequent application at an appropriate time.
The first and third applicants have admitted that they are unable, from their own resources, to meet any costs order made against them in these proceedings. This admission of the applicants means that under both s 56 Federal Court Act and s 1335 Corporations Act the Court has a broad discretion, fettered only by the requirement that the Court act judicially, to order the applicant to give security for the payment of the respondent's costs (Branson J in Hopeshore Pty Limited v Melroad Equipment Pty Limited [2004] FCA 1445 at [3]).
The application was filed and served on 22 November 2006 once it was clear that the trial would not finish on 24 November 2006, and the matter has been adjourned until May 2007. There is no issue of delay in respect of this application in respect of future costs.
Although the courts have shown reluctance to order security for future costs in respect of part-heard trial, on the basis that, if the applicant cannot provide security, it runs the risk of having wasted costs of the trial days already heard, the fact that the length of the proceedings was not foreseen is a factor which may influence the court to exercise its discretion in ordering security for those costs (see comments of Street CJ in Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301 at 308).
In my view it is not appropriate to form any views as to the strength of the applicants' case at this stage of the trial (cf comments of Hill J in Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 at 50,636). It is clear however that there are triable issues, and it has not been suggested to me that the case of the applicants is frivolous.
Insofar as this application is concerned, it is clear that the first and third applicants are unable to satisfy a costs order. I do not need to go to the evidence which has been heard to be so satisfied. Further, in my view the impropriety of reaching conclusions in this respect works both ways - clearly the respondents strongly deny that their conduct has caused the impecuniosity of the first and third applicants (indeed it is a basis of the litigation), and in my view it is not proper at this stage when some, but not all, of the evidence has been heard, to make any findings as to this issue. I believe it is acceptable, however, to note evidence given in court by Mr Hambleton, the administrator under the third applicant's deed of company arrangement, that in his opinion there was a strong prospect that the third applicant was insolvent from incorporation (TS 23 November p 572 ll 24-25).
Although the applicants contend that the reliance by the respondents on previous material filed in respect of security for costs is a tacit admission that nothing has occurred to justify this application for security for costs, I cannot accept that contention. Plainly, circumstances have altered. A trial which was listed for 10 days - being the best estimate of counsel as communicated to the Court - is now manifestly running over that time. I shall consider this issue later in this judgment in relation to quantum. However I fail to see how the respondents, in relying on evidence of Mr McLellan that the costs for each day beyond 10 days would be $8166, is a tacit admission of the kind submitted by the applicants, notwithstanding that the affidavit of Mr McLellan was filed 27 March 2006. In my view the only 'admission' of the respondents in this respect is that their trial costs beyond 10 days would not exceed $8166 per day, and would not increase in the 2007 calendar year.
There is no evidence before me that the effect of an order awarding security for costs would be to stultify the litigation. Indeed as was clear during the hearing it would be the second applicant, Mr Tracy, who would be providing any security for costs ordered (TS 23 November 2006 p 585 ll 25-27). As pointed out by Jessup J in Acohs Pty Ltd v Ucorp Pty Ltd [2006] FCA 1279 at [49], there is an intrinsic connection between the 'stultify factor' and the 'persons standing behind' factor as described by Beazley J in KB Cable. That the second applicant and his wife, Mrs Adrienne Tracy, are principal beneficiaries (and in the case of the second applicant, the principal architect), of the litigation before me is also clear from the evidence (for example TS 17 November 2006 p 194 ll 31; TS 17 November 2006 p 219 ll 41-43; TS 20 November 2006 p 233 ll 16-19, and exhibit R15). Further, that Mr and Mrs Tracy are of considerable means was made clear from evidence before the Court, including a balance sheet describing assets and liabilities of the second applicant, Mrs Tracy and their companies as at 12 November 2004 (exhibit R14). The first and third applicants appear to be impecunious, however there is no evidence before me that the second applicant or Mrs Tracy are at a similar financial disadvantage notwithstanding the events which have resulted in the litigation before me. No undertakings have been provided by the second applicant or any other person as to the costs to which the first and third applicants may become liable. Accordingly in such circumstances security for costs may be ordered to ensure that those who stand to benefit from the litigation undertake some of the risks. (Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 at 472-473; Acohs Pty Ltd v Merck Ltd [1997] FCA 573; Costa Vraca v Bell Regal Pty Ltd [2003] FCA 65 at [77]; Harpur v Ariadne at 532; Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4; Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 511; Interline Hydrocarbon at [35]; Acohs Pty Ltd v Ucorp Pty Ltd [2006] FCA 1279 at [49]-[51].) 39 As I have already indicated, I will consider issues of quantum later in this judgment.

Security for costs incurred by the first and second respondents in respect of the 10 days of trial already heard 40 This aspect of the claim of the first and second respondents raises an interesting issue which was the subject of contention between the parties both at the hearing and subsequently in written submissions. Are the respondents entitled, as part of an award of security for costs, to their costs representing the 10 days of trial already held? 41 I note that the applicants contend that the evidence of Mr McLellan for the respondents was unhelpful because the witness did not depose as to whether the respondents were able to obtain an order for security for incurred costs or whether the respondents were estopped from obtaining further security. I do not accept the applicant's submissions in this respect. Whether the respondents are entitled to security for incurred costs or are estopped in the current circumstances is in my view an issue to be decided by this Court, not a costs assessor, however expert. 42 As I have already noted, the respondents brought an application for security for trial costs 10 days before the trial was due to re-commence, which application I heard two days before the trial re-commenced. I held that, in the circumstances, the delay in bringing the further application was unacceptable, and dismissed the application: Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 3) [2006] FCA 1498. Clearly in making that order I did not preclude any subsequent application for security for costs. 43 Stephen Colbran notes in his text Security for Costs (Longman Professional, 1993) at 41, that prior to the enactment of the Supreme Court of Judicature Act 1873 (UK) [36 & 37 Vict, c 66) security for costs did not apply to past costs and nor would further security be required for a new trial (although an interesting exception to this rule appears to be in the case of Harvey v Jacob (1817) 1 B & Ald 159, 106 ER 59 where the plaintiff, having been convicted of a felony and receiving a sentence of transportation to Australia, was ordered to give security for costs retrospective and prospective). However in 2006 the discretion of the Federal Court vested by s 56 Federal Court Act and s 1335 Corporations Act is very broad, and there is nothing in the terms of either section which would in any way limit the discretion of the Court or its jurisdiction to order security for costs already incurred by the respondents. Indeed, a review of the case law indicates that it is not uncommon for courts to order security for costs already incurred. Examples of cases where such orders have been made are Brocklebank & Co v King's Lynn Steam Ship Co (1878) 3 CPD 365; Massey v Allen (1879) 12 ChD 807; JWH Turner & Co Ltd v O'Riordan (1923) 40 WN (NSW) 64; Estates Property Investment Corporation Ltd v Pooley (1975) 3 ACLR 256; Procon (Great Britain) Ltd v Provincial Building Co Ltd [1984] 1 WLR 557; and Bryan E Fencott (and see the discussion of this topic in Colbran at pp 291-292). 44 This application is of particular interest because it has been brought 10 days into a trial which has been adjourned and is expected to run another seven days. Two cases where similar applications were brought are Southern Cross Exploration and Equity Access. 45 In Southern Cross, the defendants brought an application for security for costs after 65 days of trial, in circumstances where it was anticipated that the trial would continue for another 30-40 days. The defendants sought security for the costs of the whole of the proceedings, namely for the costs they had already incurred as well as for the costs of the remainder of the trial. Waddell J held that the words of s 533(1) Companies (New South Wales) Code were in sufficiently wide terms to give the court power to make an order for security in respect of costs which had been incurred before the making of the order ((1985) 1 NSWLR 114 at 122). His Honour considered that the defendants' delay in making what was their first application for security for costs was a most important factor to be taken into account in the exercise of the court's discretion in this case (at 123). The defendants in that case submitted that it could not reasonably have been foreseen that the trial of the proceedings would take as long it had taken and was estimated to take in the future, and that therefore a late application was justified. Waddell J, in refusing to make an order for security in respect of costs already incurred, said: 'In the present case it seems to me that the circumstances mentioned are such as to make it quite impossible, without severe and unexpected prejudice to the plaintiffs, to make an order for security in respect of costs which have already been incurred by the defendants. The plaintiffs have incurred very substantial costs in relation to the proceedings to date and have been allowed to do so by the defendants in the absence of any intimation of any application for security for costs. It would clearly be highly unjust to make such an order in respect of costs already incurred.' 46 However, Waddell J was prepared to make an order in respect of future costs in light of the unexpected length of the trial. 47 In Equity Access the matter was heard for three days, and then adjourned for two months when it was expected to continue for a further two and a half days. Hill J, in declining to make an order for security for costs in respect of the two and a half days of trial already heard, said: 'Weighing all the factors as best I can, the appropriate conclusion seems to me that the Court should order that, assuming the applicant's financial position to remain as it is, without the injection of further capital, the applicant provide security for costs, not in respect of the proceedings now past, but in respect of the remaining two-and-a-half days of hearing yet to come. I so conclude because it seems relatively clear at the moment that the applicant could not meet an order for costs if such were made even in respect of the costs not yet incurred. There is some evidence of intention that the capital of the company will be increased and that as a result the company might then be able to meet the costs of the proceedings…' ((1989) ATPR 40-972 at 50,638) 48 In my view there are, as Hill J said in Equity Access, a number of discretionary issues peculiar to the facts of the present case which are persuade me that it is not appropriate to order that costs of 10 days of the trial already heard be encompassed in an award for security for costs. They are as follows:

in cases where security for costs have been awarded in respect of costs already incurred, there is often a catalyst which distinguishes the case from the usual circumstance where security is awarded in respect of prospective costs, and therefore justifies the application. So, for example: · in Pooley, Procon and Bryan E Fencott the retrospectivity of the award for security was not in contention · in Turner and Pooley the respondents had only immediately prior to bringing the application discovered that the applicants were insolvent. In the case before me, no such catalyst is evident.
In my view it would be oppressive to require the first and third applicants to now pay security for costs for those 10 days of trial already held, when they could reasonably rely on the decision in Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 3) [2006] FCA 1498 as meaning that they were not subject to a security for costs order in respect of that part of the trial. Although Mr Bell on behalf of the respondents made no secret of the fact that, if the trial did not commence within the scheduled time, his clients would be making an application for security for costs in the sum of $200 000, in my view to allow the respondents to have security for costs which have already been denied would be unjust in the circumstances.
Following on from this point, I note that I had dismissed the application by the first and second respondents for security for costs for that part of the trial just heard, on the basis of delay in bringing that application. Notwithstanding that the matter has now been adjourned, that the respondents indicated that they would seek security for costs if the trial did not get underway, and that the respondents were prompt in renewing their call for security for costs in respect of the trial dates once it was clear that the trial would not conclude within the scheduled 10 days, nothing has occurred which impacts on the reasons I gave dismissing the application of the respondents in respect of security for costs for the 10 days of trial.
the fact that the trial was not completed within the 10 days could substantially be attributed to such actions which could properly be laid at the feet of the applicants including the failure of the applicants to comply with earlier directions in relation to exchanging objections to evidence (thus requiring valuable scheduled trial time to be spent dealing with such issues), an adjournment requested by the applicants for the entirety of Wednesday 15 November 2006, and the failure of a key witness of the applicants to appear at court which required me to stand down the court while I considered an appropriate ruling in the circumstances. Having said that, it appeared that, despite my formal direction that the parties seek to resolve objections to evidence in advance of the trial and further attempts by Counsel on this score, the respondents' objections to evidence required two days of trial time - which was considerably more than had been anticipated. Further, while no blame at all attaches to Counsel the fact remains that the examination, cross-examination and re-examination of the second applicant extended over four days, which also appeared to be considerably more than had been anticipated. Accordingly, in light of these developments it would be unfair to lay fault for the failure of the trial to finish during the allotted time completely at the feet of the applicants. 49 Like Waddell J in Southern Cross and Hill J in Equity Access, weighing all the factors as best I can, in my view the appropriate conclusion in this case is that the respondents are entitled to an award for security for costs in respect of future costs, but not in respect of costs for that part of the trial recently heard.

QUANTUM 50 As I am of the view that security for future costs should be awarded, the next question relates to quantum. 51 I noted earlier in this judgment that the first and second respondents have sought $200 000 for the purposes of this notice of motion. This amount includes both costs of the matter resuming in May 2007, as well as costs incurred in November 2006 as a result of the 10 day trial period during which this notice of motion was heard. 52 Whilst the applicants do not concede that further security of costs should be ordered, evidence of Mr Graham, a costs assessor retained by the applicants, which was filed in Court on 24 November 2006, suggests that if costs are ordered, they should be in the amount of $22 372.75, being $7124.25 per day for three remaining days of trial and $1000 for general attendance. Any costs associated with the 10 days of trial just held and preparation costs are strongly disputed, and indeed I am of the view as I have stated that costs already incurred (including in respect of the 10 day trial period) should not be awarded. Accordingly I make no order in respect of costs identified by the respondents in items 1, 2, 3 and 6 of the Schedule set out earlier in the judgment. 53 I am prepared however to order security in the amount of $75 000, being in respect of seven further days of trial and further preparation for the May 2007 hearing. My reasons are as follows:

Although the applicants' costs assessor, Mr Graham, has deposed to a view that the trial will take a further three days, as distinct from the seven days which have now been allocated, I do not accept this view. During the 10 days of trial in November (of which seven days was hearing) Counsel made opening submissions and the evidence of only six witnesses was given. Nine witnesses of the respondent remain to be heard. This includes the second respondent, Mr Strahley, who I anticipate will be in the witness box for some time. Further, the seven days allocated in May 2007 includes closing submissions from Counsel, and dealing with the respondent's objections to the applicants evidence. On two occasions during the second week of the hearing I advised Counsel that I intended to list this matter for a further seven days in May 2007 (see TS 23 November 2006 p 585 ll 12-17 and TS 24 November 2006 p 775 ll 45-47. I note that on the second occasion the transcript reads that I indicated eight days, however, I believe it was understood by all parties in the room that I meant seven days being the 8-16 of May 2007). A listing for this matter for a period of seven days commencing 8 May 2006 has been made by the Federal Court Registry. At no time did either Counsel demur from this estimation. In my view this is a fair estimate of the time required and the respondents should be entitled to security for costs for seven further hearing days. I have compared the estimates of Mr McLellan in his affidavit filed 27 March 2006 ($8166 per day being fees for senior and junior counsel and the professional fees for the lawyers per day of trial) and Mr Graham in his affidavit filed 13 April 2006 ($7124.25 per day being fees for senior and junior counsel, the professional fees for the lawyers and the transcript fees per day of trial). In my view it is reasonable to order $50 000 in respect of the seven days of trial remaining.
Although the applicants dispute that any security for costs should include further preparation time, in my view it is appropriate to order security to encompass costs for further preparation. Notwithstanding the submission of Mr Perry that the applicants' case has now closed and that the majority of the work to be done henceforth is by Counsel for the applicants (TS 24 November 2006 p 755 ll 4-19), an adjournment part way through the trial will inevitably result in additional preparation costs being incurred by the parties prior to the resumption of the hearing: Brown v Rodgers [2006] FCA 713. It is to be expected that counsel for the respondents will need to prepare once again for the May 2007 hearing. This is particularly so in light of the - unfortunately - lengthy adjournment of this matter from November 2006 to May 2007. In any event, as a general rule, costs of and incidental to an application include costs reasonably incurred both in the litigation and in preparation for the litigation (Re Gibson's Settlement Trusts [1981] 1 All ER 233, Higgins v Nichol (No 2) (1972) 21 FLR 34, Liverpool City Council v Commonwealth of Australia (1993) 46 FCR 67, and I also note O 62 r 19 which contemplates preparation costs included in a taxation). It is reasonable that an award of security for costs should include preparation as well as trial time: The Council of the City of Sydney v Goldspar Australia Pty Ltd [2004] FCA 1023. In this matter the respondents claim five days preparation. Mr McLellan estimates preparation by senior and junior counsel at $5500 per day in total. Although the applicants dispute that further preparation for the trial is recoverable by the respondents, I note that in the affidavit of Mr Graham filed 13 April 2006 Mr Graham accepts the daily rate for preparation by counsel except to the extent that the figure should be discounted by 10 per cent on the basis that no allowance should be made for GST. In my view it is reasonable to order the first and third applicants to pay security for costs in the sum of $25 000 in respect of preparation.
In making an order for security for costs the court does not set out to give a complete and certain indemnity to a respondent, nor is it to be assumed that the applicant will fail in the proceeding: Brundza v Robbie & Co [No 2] (1952) 88 CLR 171 at 175; Menhaden Pty Ltd v Citibank NA (1984) 1 FCR 542 at 547; Caruso Australia Pty Ltd v Portec (Australia) Pty Ltd (1984) 1 FCR 311 at 314; Re Quad Consulting Pty Ltd (unreported, Federal Court of Australia, Burchett J, 28 June 1991 par 7); Bryan E Fencott at 515; Billinudgel Pastoral Co Pty Ltd & Ors v Westpac Banking Corp & Ors [1997] FCA 863. In my view the quantum of costs I have ordered is reasonable in the circumstances, taking into consideration the estimates of the expert witnesses for both parties, the likely length of the resumed hearing and the need for preparation after a lengthy adjournment. I do not consider it necessary to make any award in respect of general attendance.

TIME FRAME 54 It was clear from the submissions of Mr Perry that the second applicant would be providing security for costs in this matter if I made an order awarding security against the first and third applicants. No submissions have been made by the applicants as to any time frame issues or other difficulties associated with this course. Mr Perry has urged however that the matter is not urgent, given the adjournment of this matter for six months. In the notice of motion however the respondents sought an order for payment of security for costs by 20 December 2006, in default of which the matter should be stayed. 55 In light of my order for payment of what is a relatively large sum, I consider it important to seek to balance the rights of the respondents with the practicalities of the applicant raising the money and satisfying the costs order. An order requiring the payment of security for costs within one month of the order of the Court is not uncommon or unreasonable in the circumstances. Accordingly in my view it is appropriate to order the first and third applicants to pay the sum of $75 000 by way of security for costs, by way of unconditional bank guarantee in that sum, or otherwise to the satisfaction of the District Registrar of the Queensland District Registry of the Court, by 5 January 2007. I also order that the proceeding by the first and third applicants be stayed as against the first and second respondents until provision of that security or until further order of the Court. ORDER

The first and third applicants pay the sum of $75 000 by way of security for costs, by way of unconditional bank guarantee in that sum, or otherwise to the satisfaction of the District Registrar of the Queensland District Registry of the Court, by 5 January 2007.
The proceeding by the first and third applicants be stayed as against the first and second respondents until provision of that security or until further order of the Court.
The costs of the first and second respondents of and incidental to this notice of motion be reserved. I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier.

Associate: Dated: 5 December 2006 Counsel for the Applicant: RA Perry SC

Counsel for the Respondent: J Bell QC and PP McQuade

Solicitor for the Respondent: McCullough Robertson

Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 5) [2006] FCA 1672

Acohs Pty Ltd v Merck Ltd [1997] FCA 573 cited Acohs Pty Ltd v Ucorp Pty Ltd [2006] FCA 1279 cited Baygol Pty Ltd v Huntsman Chemical Co Australia Pty Ltd t/a RMAX [2004] FCA 1248 cited Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1 cited Billinudgel Pastoral Co Pty Ltd & Ors v Westpac Banking Corp & Ors [1997] FCA 863 cited Brocklebank & Co v King's Lynn Steam Ship Co (1878) 3 CPD 365 cited Brown v Rodgers [2006] FCA 713 cited Brundza v Robbie & Co [No 2] (1952) 88 CLR 171 cited Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 distinguished Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301 cited Caruso Australia Pty Ltd v Portec (Australia) Pty Ltd (1984) 1 FCR 311 cited CBS Records Australia Ltd v Telmak Teleproducts (Aust) Pty Ltd (1987) 72 ALR 270 cited Checked-Out Pty Ltd v Eagle Eye Inspections Pty Ltd [2001] FCA 1475 applied Cherry v Read, unreported, Federal Court of Australia, Black CJ, Sackville and Finn JJ, 21 November 1996 cited Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd [2006] FCA 920 cited Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 3) [2006] FCA 1498 cited Costa Vraca v Bell Regal Pty Ltd [2003] FCA 65 cited Cowell v Taylor (1885) 31 Ch D 34 cited Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 applied Estates Property Investment Corporation Ltd v Pooley (1975) 3 ACLR 256 distinguished Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 cited Harpur v Ariadne (1984) 2 Qd R 523 cited Harvey v Jacob (1817) 1 B & Ald 159; (1817) 106 ER 59 cited Higgins v Nichol (No 2) (1972) 21 FLR 34 cited Hopeshore Pty Limited v Melroad Equipment Pty Limited [2004] FCA 1445 cited Idoport Pty Limited & Anor v National Australia Bank Limited [2001] NSWSC 744 applied Interline Hydrocarbon Inc v Brenzil Pty Ltd [2005] QSC 109 cited JWH Turner & Co Ltd v O'Riordan (1923) 40 WN (NSW) 64 distinguished KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 applied La Rosa Constructions Pty Limited v PWR Developments Pty Limited [2004] NSWSC 235 cited Liverpool City Council v Commonwealth of Australia (1993) 46 FCR 67 cited Lord Aldborough v Burton (1834) 2 My & K 401; (1834) 39 ER 997 cited Massey v Allen (1879) 12 ChD 807 cited Menhaden Pty Ltd v Citibank NA (1984) 1 FCR 542 cited Microcorp Pty Ltd v Terran Computers Pty Ltd, unreported, Federal Court of Australia, Northrop J, 26 June 1992 cited Pearson v Naydler (1977) 1 WLR 899 cited Phoenix Court Pty Ltd v Melbourne Central Pty Ltd [1998] 753 FCA cited Procon (Great Britain) Ltd v Provincial Building Co Ltd [1984] 1 WLR 557 distinguished Re Energy Drilling Inc, unreported, Federal Court of Australia, Gummow J, 3 May 1989 cited Re Gibson's Settlement Trusts [1981] 1 All ER 233 cited Re Quad Consulting Pty Ltd, unreported, Federal Court of Australia, Burchett J, 28 June 1991 cited Rocter Tanks Pty Ltd v Adam [2001] SASC 196 cited Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 cited Silveira v Australian Institute of Management [2001] FCA 1358 cited Southern Cross Exploration NL v Fire and All Ricks Insurance Co Ltd (1985) 1 NSWLR 114 applied State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 cited Sunstate Orchards Pty Ltd v Citrus Queensland Pty Ltd [2006] FCAFC 93 cited The Council of the City of Sydney v Goldspar Australia Pty Ltd [2004] FCA 1023 cited Wollongong City Council v FPM Constructions Pty Limited [2004] NSWSC 523 cited GE Dal Pont, Law of Costs, LexisNexis Butterworths, 2003 S Colbran, Security for Costs, Longman Professional, 1993 CITRUS QUEENSLAND PTY LTD (ACN 110 885 359), PETER MICHAEL TRACY AND SUNSTATE CITRUS PTY LTD (ACN 112 847 560) v SUNSTATE ORCHARDS PTY LTD (ACN 095 659 733), ANDREW COLIN STRAHLEY AND DAVID BREED QUD400 OF 2005

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