Hansen Orchards Pty Ltd v Craig Mostyn & Co Pty Ltd

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.