Guildford International Group Pty Ltd, in the matter of Aviation 3030 Pty Ltd v Aviation 3030 Pty Ltd

1. Unless the plaintiff provide security for the costs of the first defendant in the sum of $240,000, the second defendant in the sum of $150,000 and the third defendant in the sum of $95,000 within 14 days of this order then: (a) the proceeding against each of the defendants be dismissed; (b) the plaintiff pay the defendants' costs of the proceeding; and (c) pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth), the defendants' costs be awarded in a lump sum and be paid immediately.
2. The plaintiff pay the defendants' costs of their respective interlocutory applications.
3. The proceeding be listed for directions on 29 October 2018. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

O'CALLAGHAN J: 1 Each of the first, second and third defendants seek orders brought by way of interlocutory applications under s 56(4) of the Federal Court of Australia Act 1976 (Cth) and rule 19.01(1)(c) of the Federal Court Rules 2011 (Cth) that the proceeding against them be dismissed (on the ground that the plaintiff has failed to provide security for costs which orders of the court required it to provide) or alternatively that self-executing orders be made dismissing the proceeding if security is not provided within 14 days. 2 Section 56 of the Federal Court of Australia Act 1976 (Cth) provides as follows: 56 Security (1) The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her. (2) The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs. (3) The Court or a Judge may reduce or increase the amount of security ordered to be given and may vary the time at which, or manner or form in which, the security is to be given. (4) If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed. (5) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security. 3 Rule 19(1) of the Federal Court Rules 2011 (Cth) provides as follows: 19.01 Application for an order for security for costs (1) A respondent may apply to the Court for an order: (a) that an applicant give security for costs and for the manner, time and terms for the giving of the security; and (b) that the applicant's proceeding be stayed until security is given; and (c) that if the applicant fails to comply with the order to provide security within the time specified in the order, the proceeding be stayed or dismissed. 4 The plaintiff does not dispute that it is in default of three orders for the provision of security for costs, viz: (a) an order made on 27 March 2018 that the plaintiff provide security for the costs of the second defendant in the sum of $150,000 by 10 April 2018; (b) an order made on 18 July 2018 that the plaintiff provide security for the costs of the first defendant in the sum of $240,000 by paying $120,000 by 8 August 2018 and $120,000 by 29 August 2018; and (c) an order made on 18 July 2018 that the plaintiff provide security for the costs of the third defendant in the sum of $95,000 by 15 August 2018. 5 The plaintiff has not complied with any of those orders. As counsel for the third defendant, Mr James Barber, pithily put the position in that regard: "There is no evidence of any attempt by the plaintiff to provide security for costs. There is no extant appeal against or application to set aside or vary the orders for the provision of security. [And] [t]here is no explanation of the plaintiff's failure to provide security for costs". 6 Dr Oren Bigos, counsel for the plaintiff, submitted that I should not make an immediate order staying the proceeding or a self-executing order for dismissal if security is not provided within a further specified time, because, since the making of the orders for the provision of security, the Australian Securities and Investment Commission (ASIC) has applied to this court for the appointment of provisional liquidators to the first defendant, and for related relief. That application has been set down for hearing before me commencing on 29 October 2018 on an estimate of 5 days. 7 The plaintiff relied on in affidavit sworn by Ms Rebecca Jaffe on 26 September 2018. In that affidavit Ms Jaffe helpfully describes the various parties involved in the proceeding, the substance of the relief sought, and the impact that she submits the proceeding brought by ASIC for the appointment of provisional liquidators and related relief may have upon this proceeding. 8 Counsel for the defendants (Mr Barber for the first defendant, Mr Christopher Northrop for the second defendant, and Mr David Leggatt for the third defendant) did not disagree with any of the matters to which Ms Jaffe deposed, relevantly in these terms: 8. In this Proceeding, there are 3 defendants: the company in which the plaintiff invested, Aviation 3030 Pty Ltd (Company), and two companies associated with directors of the Company - Lao Holdings Pty Ltd (associated with Hakly Lao) and Khay Suong Taing Aviation 3030 Pty Ltd (associated with Khay Suong Taing, a former director, and presently an alternate director, of the Company). The Amended Statement of Claim complains that various events were oppressive. The prayer for relief includes two heads of substantive relief. First, paragraph C seeks an order that Aviation 3030 buy the plaintiff's shares. Second, paragraphs D, E and F seek to reverse an issue of shares that had been made to the directors' companies in March 2016. 9. The gist of the complaints made by the Plaintiff is that directors of Aviation 3030 Pty Ltd have breached their directors' duties owed to the Company by inter alia, dissipating company funds to other companies associated with the directors (paragraphs 33 to 50 of the Amended Statement of Claim), dissipating company funds to the directors themselves (paragraphs 51 to 68 of the Amended Statement of Claim), issuing shares at a deep discount to certain persons, including persons associated with them (paragraphs 69 to 93). 10. The ASIC Proceeding may significantly [change] the landscape of this Proceeding. Based on the Court documents in the ASIC Proceeding and the ASIC media release, it appears that there is a substantial overlap between the ASIC Proceeding and this Proceeding. Specifically, the ASIC Proceeding appears to raise the same issues about the directors' breaches of duties and the share issues. 11. If the Court decides to wind up Aviation 3030, that will likely have a significant impact on this Proceeding including the relief sought by the Plaintiff in this Proceeding. Where a company is in liquidation, some remedies for oppressive conduct may be unavailable. Also, some of the relief may be unnecessary; for example, the share issues to the Second and Third Defendants may be set aside as a consequence of the ASIC Proceeding so there will be no need to set them aside in this Proceeding. 12. Even short of winding up Aviation 3030, the appointment of provisional liquidators to the Company and their investigation and reporting will likely have a significant impact on this Proceeding. For example, proof of some matters in this Proceeding (such as breaches of directors' duties) is likely to be facilitated by the provisional liquidators' investigation and reports. 13. Although this Proceeding was issued some time ago, there are no orders for the filing of evidence, and no trial date has been set. Given the urgent relief sought by ASIC it is foreseeable that the ASIC Proceeding will be heard and determined before this Proceeding would be heard and determined. 14. In the circumstances the Plaintiff seeks orders staying or adjourning this Proceeding until after the hearing and determination of the ASIC Proceeding, or alternatively at least until after the hearing and determination of the application for appointment of provisional liquidators or the provision of a report by the provisional liquidators. That would enable the Court and the parties to assess this Proceeding and what ought to be done in relation to it, in light of the outcome of the ASIC Proceeding. 15. It would cause the Plaintiff significant prejudice if [it] were shut out altogether from prosecuting the claims by dismissal of this Proceeding. It would also cause the Plaintiff prejudice if the Proceeding was not stayed and were to continue in circumstances where it may be overtaken by events in the ASIC Proceeding. On the other hand, I believe that a temporary stay or adjournment of this Proceeding would cause no prejudice to the Defendants (whom I expect will focus their attention and resources in the short-term on the ASIC Proceeding in any event) and would be consistent with the overarching objective in s 37M of the Federal Court of Australia Act 1976 (Cth). 16. Further, I note that Aviation 3030, by its cross-claim (in the form of an amended interlocutory process dated 12 February 2018) seeks an order that the Plaintiff's claim be permanently stayed as an abuse of process. In those circumstances, a temporary stay cannot be said to prejudice it. Nor is it feasible for this Proceeding to be stayed only against the First Defendant while requiring it to continue against the Second and Third Defendants, given the interrelation between the claims. 17. The ASIC Proceeding may also change the landscape in relation to security for costs. If ASIC is successful in its proceeding and the share issues to the directors are set aside, the Plaintiff's investment may be worth around 63% more than it is presently worth. This would challenge the allegation of impecuniosity against the Plaintiff, which was the basis for the orders for security for costs in the first place. 9 Counsel for the defendants submitted that each of the matters on which the plaintiff sought to rely in order to avoid the making of an immediate or a self-executing order is beside the point. The defendants contended that the "fortuitous" intervention of ASIC, and the possible implications of any order that the court may make with respect to its application for the appointment of provisional liquidators and related relief, do not and should not excuse the plaintiff from its obligation to provide security in circumstances where: (1) no appeal was brought against the security of a costs orders; (2) the proceeding has been, and remains, stayed in any event by virtue of the plaintiff's non-compliance with the security for costs orders; (3) the plaintiff does not dispute that Mr Tran and Ms Ngo stand behind plaintiff, that they will benefit from the litigation if it is successful and that they control assets of in excess of $2.5 million; and (4) no explanation for the failure to provide security is forthcoming. 10 Dr Bigos submits that, because ASIC's application is to commence on 29 October 2018, in those circumstances there will be no prejudice to the defendants if the stay that is effected by the plaintiff's non-compliance with the orders for security for costs is to continue until the hearing and determination of the ASIC proceeding when, it is submitted, the new "landscape" may be apparent, depending on the outcome of that application. 11 Dr Bigos also submitted that his client would suffer prejudice because "… if the proceeding were to continue such that the plaintiff [was] required to provide security and then spend money on its own lawyers progressing the proceeding that would achieve very little and perhaps likely … be a waste of resources [seeking] relief that might be achieved in any event". He also submitted that difficulties may arise with respect to the statute of limitations including "third-party investors who might want to piggyback off our proceeding - for example, join or be substituted or reform the type of proceeding as some sort of class action". 12 By leave, Dr Bigos relied on a short supplementary written submission, to this effect: Any self-executing order should provide for dismissal of the proceeding if the Plaintiff does not provide security as ordered by Registrar Luxton within 14 days after the hearing and determination of ASIC's winding-up application. The reasons for deferring the dismissal of this proceeding until after the outcome of the ASIC proceeding is known, are that: (a) If the company (the First Defendant) is wound-up, then the proceeding will become redundant insofar as the Plaintiff is concerned. As Debelle J explained in Zempilas v JN Taylor Holdings Pty Ltd (in liq) (No 6) (1991) 5 ACSR 28, 30, a shareholders' oppression action will not lie if a company is in liquidation. In some circumstances, the oppression remedy may even come to an end upon the appointment of a provisional liquidator: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, [179]-[182]. The first sentence above is qualified by the words 'insofar as the Plaintiff is concerned', because a liquidator may apply to be substituted in place of the existing Plaintiff (as occurred in Zempilas). In the present case there may be strong incentive for a liquidator of the company to make such an application in order to preserve any action against the Second and Third Defendants that would otherwise be statute-barred. (b) If the company is not wound-up, then the Plaintiff should pay security or give up its claim. The Plaintiff is not in a position to, and should not be forced to, make an 'election' until the outcome of the winding up application is known. (c) The Plaintiff has already made oral submissions about the significant prejudice it would stand to suffer if the proceeding is dismissed, compared with the absence of prejudice to the Defendants if any dismissal is deferred pending the ASIC proceeding. (d) The proposed order would preserve the integrity of the Court's orders on security for costs, and would be is consistent with r 19.01(1)(c) of the Federal Court Rules and with s 37M of the Federal Court of Australia Act 1976 (Cth). 13 I am unable to accept the plaintiff's submissions. 14 In Microbio Resources Inc v Betatene Ltd [1993] FCA 848 the Full Court said: The Court is careful to see that orders for security for costs do not work injustice to parties against whom such orders are made, but if those parties do not comply with the orders and give no evidence or explanation as to why they have not complied with them, they cannot be heard to complain of injustice if, after a considerable length of time, and extensions of time, the ultimate sanction of dismissal is applied. It is incumbent on parties in such circumstances to provide evidence of their position. See also Strategic Financial and Project Services Pty Ltd v Bank of China [2012] FCA 701, where Robertson J made self-executing orders in circumstances where the applicants had not complied with security for costs orders made two months earlier. 15 In Idoport Pty Ltd v National Australia Bank Ltd [2002] NSWSC 18 at [24] Einstein J held that the factors relevant to the exercise of a discretion as to whether to dismiss a proceeding where there has been a failure to comply with an order for security for costs include: the period that has elapsed since security was ordered; the fact that the plaintiff has been on notice of the application for dismissal; the seeming inability of the plaintiff to further fund the main proceedings; the prejudice to the defendants; and the position of the court. 16 In this case, the plaintiff has declined for many months to comply with the orders that it provide security for the defendants' costs; it has been given more than enough notice of the defendants' intention to seek orders dismissing its case; and it has declined to explain why those standing behind the plaintiff, who have means (and who stand to benefit if the claim succeeds) do not put the plaintiff in a position to comply with the orders. 17 Each of the submissions urged by the plaintiff as a reason why a self-executing order should not be made, or why, if made, it should not bite until 14 days after the hearing and determination of ASIC's proceeding, fails to address what, in my view, would be the manifestly unsatisfactory consequence of any such order; namely that, in either case, the order would effectively grant to the plaintiff the advantage it seeks (not putting up security) in circumstances where its failure to comply with multiple orders that it provide security is wholly unexplained. Whatever prejudice may flow from a self-executing order (including to third parties) it seems to me, is now entirely in the plaintiff's hands. If it wishes to make a case that the amount of security should be reduced, or that the new circumstance of the ASIC proceeding means that it should no longer have to put up security, then it may make an application to vary the orders made (see Truth About Motorways Pty Limited v Macquarie Infrastructure Investment Management Limited [2001] FCA 1603 at [11] per Hely J). But it cannot defy, or decline to comply with, the orders in the meantime. And the court should not make orders that would, in effect, permit it to continue to do so for a necessarily indeterminate period of time. 18 The question remains whether the proceeding should be dismissed now, or whether a self-executing order should be made. 19 As Hely J said in Truth About Motorways Pty Limited v Macquarie Infrastructure Investment Management Limited [2001] FCA 1603 at [28] "[i]t is a serious thing to terminate proceedings when there has not been a hearing on the merits, however, there is a public interest in the conduct of judicial proceedings in conformity with orders made by the Court." 20 That public interest is especially important (and on one view may be an overriding one) in a case like this where those standing behind the entity ordered to provide the security have the ability to put the entity in funds, and they stand to benefit if the plaintiff succeeds, but they decline to say anything about the reason for a persistent non-compliance with the court's orders. 21 As Foster J said in Austcorp International Limited v Owers (No 2) [2009] FCA 1112 at [18] "…the discretion which the Court might exercise to order security under s 56(1) of the Federal Court Act is broad and unfettered but must be exercised judicially (Bell Wholesale Co Ltd v Gates Export (1984) 2 FCR 1 at 3-4). A similar approach should be taken to the power to dismiss an appeal pursuant to s 56(4). The Court should have regard to all of the circumstances of the case in exercising its discretion". 22 In that case, Foster J held that "…in the absence of any attempt at all by the appellant to explain itself or to provide assistance to the Court as to when security might be provided, the only appropriate course is for me to dismiss the appeal pursuant to s 56(4) of the Federal Court Act". After referring to what Hely J said in Truth About Motorways Pty Limited v Macquarie Infrastructure Investment Management Limited [2001] FCA 1603 at [11] that it is a serious thing to terminate proceedings when there has not been a hearing on the merits, his Honour held in that case that "…in circumstances where there has been an unexplained failure to comply with an order of the Court, which itself was made in the circumstances which I have outlined, it seems to me that the proper exercise of the Court's discretion is to [dismiss the proceeding]". See also Mary River Cattle Station Pty Ltd v Northern Territory of Australia [2002] NTSC 11 per Martin CJ and Lawrance v Commonwealth of Australia (No 2) [2008] FCA 1060 per Flick J, where an order for dismissal was made. 23 On balance, however, in the circumstances of this case, I am persuaded, albeit reluctantly, in the exercise of the discretion about the form of order that should be made, that the plaintiff should, in effect, be given one final chance. 24 The defendants seek their costs of the proceeding in the event that security is not provided in the time allowed by a self-executing order. The plaintiff, on the other hand, contends: As regards the costs of the proceeding, they should simply be reserved at this stage. It is premature to make any costs order in favour of the Defendants (whether a lump sum order or any other costs order) in anticipation of dismissal. As explained above, depending on the outcome of the ASIC action, dismissal may not occur ultimately. Even if the proceeding is dismissed, then depending on the circumstances, there may be occasion for the Court, in the exercise of its discretion under s 43 of the Federal Court of Australia Act 1976 (Cth), to depart from the usual rule that costs follow the event (for example, if, in the course of the ASIC winding up proceeding, the Court makes adverse findings about the Defendants' conduct). 25 The usual costs order in cases such as this is that the party against which the self-executing order is made should pay the costs of the party seeking it, if the former does not take advantage of an additional period to pay the security. I see no reason to depart from that usual approach in this case. 26 Accordingly, I will order: (1) Unless the plaintiff provide security for the costs of the first defendant in the sum of $240,000, the second defendant in the sum of $150,000 and the third defendant in the sum of $95,000 within 14 days of this order then: (a) the proceeding against each of the defendants be dismissed; (b) the plaintiff pay the defendants' costs of the proceeding; and (c) pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth), the defendants' costs be awarded in a lump sum and be paid immediately. (2) The plaintiff pay the defendants' costs of their respective interlocutory applications. (3) The proceeding be listed for directions on 29 October 2018. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Callaghan.