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[2001] FCA 99
Federal Court of Australia
2001-02-13
Heerey J
Original judgment source is linked above.
REASONS FOR JUDGMENT 1 By a notice of motion dated 9 January 2001 the respondent seeks an order for security for costs. The application is brought under s 56 of the Federal Court of Australia Act 1976 (Cth), O 28 r 3(1)(b) of the Federal Court Rules and s 1335(1) of the Corporations Law. 2 The substantive proceeding was commenced in the Tasmania District Registry of the Court on 29 March 2000. The applicant's case is that in April 1999 it stored apples in the respondent's cool store and that as a result of the failure of the respondent to control properly the temperature at the cool store the apples were spoiled. There are various contractual claims and allegations of misleading and deceptive conduct contrary to the Trade Practices Act 1974 (Cth). The matter has been fixed for trial commencing on 27 March next with an estimate of three to four days. That trial date was fixed on 5 December 2000. 3 The question of security for costs was first raised by the solicitors for the respondent in a letter dated 16 June 2000 to the applicant's solicitors. The letter enclosed a copy of the applicant's last annual return filed with the Australian Securities and Investments Commission. The letter noted that the applicant's paid up capital was $10. It was said that the respondent was concerned that in the event that it is successful in the litigation it would be unable to recover its costs, which on a conservative basis were estimated to be at least $50,000, with the top of the range $75,000. The letter asked the applicant's solicitors to advise on what basis their client would be able to meet a costs order. The letter concluded: "We advise that if we do not receive our response from your client by 4 pm on Tuesday, 20 June next, we intend obtaining instructions to make a formal application for security for costs." 4 The applicant's solicitors replied by letter dated 19 June. Relevantly that letter stated: "Unless you can provide some evidence that our client is not solvent, then we do not intend to address your request with respect to an application for security of costs. You are of course free to make any application you see fit." 5 On 6 September the respondent's solicitors obtained the issue of a subpoena for production addressed to the applicant's accountants KPMG. On 10 October KPMG lodged with the Registry of the Court in Hobart the following documents together with a covering letter: the financial statements for the C.R. Hansen Family Trust No 2 (the Trust) for the years ended 30 June 1998 and 1999, the income tax returns for the Trust for the same years and a notice of assessment issued to the applicant on 22 May 1998 and a refund notice. The letter concluded: "Please note that we have provided documents relating to C.R. Hansen Family Trust No 2 which is the entity operating the business of Hansen Orchards. Hansen Orchards Pty Ltd acts in a trustee capacity only and has not had financial statements prepared for the 1998 or 1999 financial years, nor has it lodged income tax returns for these years. We note that the financial statements and income tax return for the year ended 30 June 2000 are yet to be prepared." 6 As at 30 June 1999 the financial statements of the Trust showed gross assets of $1,066,025 and net assets of $2554. The liabilities included substantial loans to members of the Hansen family, totalling several hundred thousand dollars. The trading account for the year ended 30 June 1999 disclosed net income of $125,926. 7 Mr Roderick Casimir, solicitor for the respondent, deposed as to an estimate of the respondent's costs which, after taking into account GST, amounted to $80,000. His affidavit indicates that the respondent's case at the trial will be that the applicant harvested the fruit late and made incorrect assessments as to the length of time for which the fruit could or should be stored. There are also disputes as to the state of the apple market at the time of the loss and whether all or any of the applicant's apples could have been sold in the market for the price alleged by the applicant. It appears that the trial will involve disputed questions of fact as to conversations and also technical evidence as to the cause of the damage to the apples and the commercial state of the apple market. On the present application the merits of the applicant's claim were not canvassed, although I accept it will be strongly defended. 8 The applicable principles are not in dispute and I simply cite, without quoting passages, the well-known authorities in Pacific Acceptance Corporation Ltd v Forsyth (No 2) (1967) 2 NSWR 402 at 407, Harpur v Ariadne Australia Ltd (1984) 2 Qd R 523 at 532, and Southern Cross Exploration NL v Fire and All Risks Insurance Co Ltd (1985) 1 NSWLR 114 at 116. An authority on which counsel for the respondent strongly relied was Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) 7 ATPR 40-584, a decision of Smithers J. As counsel correctly pointed out, that case is significant because it deals with the position of a plaintiff company that is the trustee of a trust and owns no assets in its own right.
9 The present case does appear to be one which would attract the normal approach when an applicant is a trustee company and possesses no assets of its own. I would be disposed to make an order for security of costs were it not for one significant factor in the present case and that is the question of delay. It is well established that the party seeking an order for security for costs must move promptly. In Lysmar Pty Ltd v Lee [2000] NSWSC 662, Young J said (at par 7):
"Ordinarily, the Court expects these applications to be made as soon as reasonably practicable after the commencement of the proceedings." 10 Then in the following paragraph, his Honour, before turning to the facts of the case, which also concerned the trustee of a family trading trust, said: "Once one gets over the delay, the case is one where an order for security for costs must be made." 11 Can one get over the delay in the present case? I think not. The proceeding having been commenced at the end of March 2000, it might reasonably have been expected, having regard to the usual course of business in the Tasmania Registry of this Court, that the trial would take place not more than twelve months later and quite possibly earlier. It is not clear when the respondent was served with the application. Its notice of appearance was filed on 29 May and its solicitors' letter requesting advice about security was, as I have mentioned, sent on 16 June. Thus far there could not be too much complaint about delay. But that letter was met three days later with a firm rejection of any proposal for obtaining security by agreement. The respondent thereupon did not take any action for several months, until it obtained the issue of a subpoena on 6 September. A month later, on 10 October, the respondent learned from KPMG that the applicant was a trustee of a trading trust, hardly a startling discovery, one would have thought, in the light of ordinary commercial practice today. Yet the respondent did not bring its security for costs application until three months later. In the meantime, as I have already noted, the trial was on 5 December 2000 fixed to commence on 26 March 2001. Throughout much of this period the respondent was in substantial default in complying with various procedural directions for the filing of evidence. 12 I do not think that this delay was reasonable. A respondent wishing to seek an order for security could and should have acted much more promptly. Amongst other things it could have obtained relevant financial documents by a notice to produce: see Bailey v Beagle Management Pty Ltd [2001] FCA 60. 13 Counsel for the respondent referred to a passage in the judgment of Smithers J in Laundry Coin-Wash at 46,730, where his Honour said: "However, it is my view that where, as here, there is no question that the litigation be frustrated by an order for security for costs, delay in seeking such an order is of little significance to the exercise of the court's discretion." 14 However, the discretion of the Court remains. It seems that delay did not loom large in Laundry Coin-Wash. A statement of claim was filed 14 November 1984, defence on 17 December 1984 and the notice of motion seeking security was brought on 22 March 1985. As far as I can see from the report, there is no suggestion that the trial had already been fixed or was impending. 15 I do not read Smithers J's comment as establishing any fixed rule that delay is unimportant, or is irrelevant unless there is evidence that a security for costs order would frustrate the litigation. On the contrary, the comment of Young J, already mentioned, that prompt action will usually be required, is in my respectful opinion consistent with the practice in this Court. 16 I note that at the conclusion of his argument counsel for the respondent abandoned the request for a stay until security was given, that being of course the usual form of an order. He simply asked for an order for security. In the event of that not being complied with, the course the respondent would take was not really made clear. If anything, this highlights the unfairness and difficulty caused by the delay in making an application for security until such a late stage in the litigation. It is inherently unfair and distracting for an applicant, enmeshed shortly before trial in the usually stressful preparations for its own case, including financial arrangements, to have to turn around and seek to arrange security for costs in a substantial amount for a respondent. 17 The motion will be dismissed. There will be an order that the respondent pay the applicant's costs of the motion. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey.
Solicitor for the Respondent: PriceWaterhouseCoopers Legal
Hansen Orchards Pty Ltd
Craig Mostyn & Co Pty Ltd