Hallford Pty Ltd v Caltex Petroleum Pty Ltd

LEGAL REPRESENTATIVES: RESPONDENT (Applicant in the Notice of Motion) Mr A R Moses of counsel SOLICITORS Ernst & Young Law

INDUSTRIAL RELATIONS OF NEW SOUTH WALES IN COURT SESSION

Matter No IRC 311 of 1997 HALLFORD PTY LTD v CALTEX PETROLEUM PTY LTD Application under s106 of the Industrial Relations Act 1996

INTERLOCUTORY JUDGMENT ON SECURITY FOR COSTS APPLICATION

1 By summons issued under s 106 of the Industrial Relations Act 1996 on 22 January 1997 the applicant Hallford Pty Ltd commenced proceedings against the respondent Ampol Petroleum Ltd, now known as Caltex Petroleum Pty Ltd. Those proceedings are now governed by a further amended summons filed 11 October 1999. The amount claimed in the further amended summons by way of compensation is approximately $483,000. 2 The summons seeks orders with respect to franchise agreements and leases by which the applicant conducted service stations at Baulkham Hills and at mid Dural. Various allegations of unfairness are made with respect to that documentation and the conduct of the respondent. 3 The proceedings have had somewhat of a chequered history, having been set down for hearing in April this year but the hearing days having been vacated at the request of the parties. The respondent complains that the applicant has been in default of certain orders of this Court since that time, which the applicant refutes. 4 On 20 March 2000 the respondent filed this notice of motion seeking that the applicant lodge with the Court $100,000 to be provided by way of security against the respondent's costs. An affidavit of the respondent's solicitor Rosalind Persaud estimated the respondent's costs if the matter proceeds to a three week hearing inclusive of counsel's fees and other disbursements as being within the range of $320,500 to $330,500. 5 Exhibited to the affidavit of Ms Persaud were financial statements of the applicant, including profit and loss and balance sheets for the periods 30 June 1995, 30 June 1996 and 30 June 1997. 6 The financial accounts and management reports exhibited to the affidavit of Ms Persaud lead me to infer that during the relevant periods the applicant operated a service station at Baulkham Hills and during the period February 1995 until some time prior to 30 June 1996 the petrol station at mid Dural which was ultimately sold. 7 The profit and loss statement and balance sheet as at 30 June 1997 is entitled "Hallford Pty Ltd - Baulkham Hills t/as Caltex Service Station Baulkham Hills" Profit and Loss Account and Balance Sheet. 8 Accordingly, that document does not necessarily reflect the totality of the circumstances of the applicant, but appears to be confined to its trading position with respect to the Caltex service station at Baulkham Hills. Whether and to what extent the applicant had additional income or additional assets I am unable to say, or infer for the purpose of these interlocutory proceedings. 9 In any event the documentation reflects an operating profit for that year of $16,542.97. The balance sheet shows total assets including current and non current assets of $143,606 and total liabilities including current and non current liabilities of $159,051.03. This shows a deficiency in net assets of $15,444.97. However the non current assets seem to be shown at historical cost less depreciation on a basis which is not disclosed. Current liabilities include directors loan account of approximately $90,000. 10 An affidavit of Edward Robert Bruce a director and shareholder of the applicant company sworn 5 May 2000 became evidence in the interlocutory proceedings, and Mr Bruce gave evidence under cross-examination. In the affidavit Mr Bruce said that the applicant had not traded at the Baulkham Hills service station since the respondent had terminated its lease and franchise arrangements in March 1999 and "This issue is part of Hallford's claim before the Court." Mr Bruce said that the applicant continued to operate "as a functioning entity" but I infer from his evidence that it does not engage in any active business operations. Mr Bruce said that if he and his fellow director, his wife, operated another service station the applicant company would be utilised for this purpose. 11 No other evidence was given on behalf of the applicant as to its financial situation, nor was any offer made with respect to security either by the applicant or by the applicant's directors or shareholders. In particular the applicant adduced no specific evidence about the nature and extent of its activities, and the extent to which those activities were related to its dealings with the respondent. 12 The respondent, the applicant in the notice of motion relied on s 1335 of the Corporations Law which is in the following terms: (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 Law shall be borne by such party to the proceeding as the court, in its discretion, directs.

13 The respondent also relied on the inherent power of this Court to award security for costs. 14 Mr Bernie of counsel who appeared for the applicant to resist the notice of motion conceded that s 1335 applied to these proceedings and conceded that this Court had inherent power to order security for costs. The relevant authorities in this area are well known and the position jointly contended for by the parties is so well established, that I am content to proceed on this basis. 15 There have been a number of decisions which have considered whether or not there should be any different approach to the exercise of discretion under s 1335 of the Corporations Law to that which is adopted at common law as codified, in effect, by provisions such as the Supreme Court Rules (see, generally Pt 53). In Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACTR 301, at 303 Street CJ in the Supreme Court of New South Wales indicated that in connection with applications made under the predecessor of s 1335 there was a predisposition in favour of a defendant party in terms of whether security for costs should be awarded in the exercise of the discretion of a court. This approach has not been followed in other cases in Australia. See for example the judgment of Ormiston J in the Supreme Court of Victoria in Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621 and the cases cited at 624. 16 A number of factors which may be taken into account in the exercise of discretion to order security for costs are conveniently collected by Smart J in the Supreme Court of New South Wales in Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 5 ACLC 480 at 484. 17 Whether or not one approaches the exercise of discretion by reference to a predisposition in favour of the defendant by reason of the provisions of s 1335, or whether the fact that the applicant is a corporation is but one matter to be taken into account in the exercise of what is an unfettered and unlimited discretion, it is obvious that each case needs to be determined by reference to its own circumstances. 18 For my part I am content to approach the matter in the same way as that adopted by Megarry VC in the Chancery Division in Pearson v Naydler (1977) 1 WLR 899. In discussing a provision of the English Companies Act which is equivalent to s 1335, his Lordship said: It seems plain enough that the inability of the plaintiff company to pay the defendants' costs is a matter which not only opens the jurisdiction but also provides a substantial factor in the decision whether to exercise it. It is inherent in the whole concept of the section that the court is to have power to order the company to do what it is likely to find difficulty in doing, namely, to provide security for costs which ex hypothesi it is likely to be unable to pay. At the same time, the court must not allow the section to be used as an instrument of oppression, as by shutting out a small company from making a genuine claim against a large company. For this reason, Mars-Jones J was not prepared in the Parkinson case to make an order for security for costs for more than the £1,500 that the master had ordered: see [1973] QB 609, 617. As against that, the court must not show such a reluctance to order security for costs that this becomes a weapon whereby the impecunious company can use its inability to pay costs as a means of putting unfair pressure on a more prosperous company. (at 906).

19 In determining whether to order security for costs against the applicant in these proceedings I take into account the following matters:

1. It is arguable, although by no means conclusive, that there is reason to believe that the applicant will be unable to pay the costs of the respondent if the respondent is successful in its defence.
2. It is arguable, although by no means conclusive, that any inability of the applicant to pay the costs of the respondent if unsuccessful in these proceedings is likely to be dependant on its failure to recover moneys claimed by it in these proceedings. (see by way of analogy the judgment of Cairns LJ in the English Court of Appeal in Parkinson v Triplan (1973) 2 All ER 273 at 285). That is, there is an arguable (but not conclusive) correlation between the applicant's financial position and its dealings with the respondent.
3. The applicant's claim is a bona fide claim, as conceded by Mr Moses of counsel for the respondent.
4. There is no evidence that any inability to pay the costs of the respondent if successful existed prior to or independently of the relationship between the applicant and the respondent, the subject matter of the substantive proceedings.
5. In all the circumstances if an order for security for costs was made, on the basis of such evidence as is before the Court, it is arguable that the applicant may be deprived of its claim under s 106 of the Act against the respondent. 20 Having taken the above matters into account I propose to refuse the respondent's application. 21 I should add that in arriving at this decision I have not taken into account any delay on the part of the respondent in bringing this application for security for costs. Having regard to the manner in which the proceedings have been conducted and having regard to the state of the proceedings any such delay would not, in my opinion, militate of itself against the making of an order for security for costs.

22 ORDERS

1. The respondent's application for security for costs is dismissed.
2. The respondent is to pay the applicant's costs of the application to be assessed in default of agreement.

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