J. & M. O'BRIEN ENTERPRISES PTY. LIMITEL v THE SHELL COMPANY CF

BETWEEN: Jd. & M. O'BRIEN ENTERPRISES PTY. LIMITED Appellant ANL: THE SHELL CCMPANY OF AUSTRALIA LIMITED Respondent ORDER JUDGE MAKING ORDER: Bowen C.d. WHERE MADE: Sydney. DATE: 25 May 1983 THE COURT CRDERS THAT:

1. The respondent's notice of motion filed on 9 May 1983 be

Appellant AND THE SHELL COMPANY OF AUSTRALIA LIMITED Respondent

This is a motion brought by The Shell Company of Australia Limited ("Shell") against J. & M. O'Brien Enterprises Pty. Limited ("O'Brien Enterprises") seeking the following

"1. That the appellant give security for payment of costs that may be awarded against it.

2. That the security be cf such amount and given at such time and in such manner and form as the Court directs.

3. That if the appellant fails to comply with the aforesaid orders that the appeal herein be dismissed.

4. That the appellant pay the respondent's costs of these proceedings".

Referring to order number 3. counsel for Shell stated

that he was not asking for an order dismissing the appeal but an order staying the appeal.

The motion concerns an appeal from a judgment of Fox J. given on 7 December 198Z in which his Honour held that the

Petroleum Retail Marketing Franchise Act 1950 had no application

to the case put forward by C'Brien Enterpries. O'Brien Enterprises had brought two applications. The first of these sought orders to the effect that Shell was bound under that Act to renew a three year lease held by O'Brien Enterprises or alternatively a declaration that by reason of the agreement for continued possession Shell should be regarded as having done so. The second application which followed the issue and service by Shell of a Notice of Termination and a Notice of Decision Not to Renew claimed a declaration that the Notice of Termination was of no effect and an order that Shell renew the lease. Shell filed certain cross-claims in relation to these two applications. Fox J. dismissed the two applications brought by O'Brien Enterprises and held that it was unnecessary to make some of the declarations sought in the cross-claims; in respect of other declarations sought in the cross-claims, his Honour stood the matter over generally. The cross-claims, which had been stood over, subsequently came before Neaves J. who dismissed them with costs on the 28 April 1983.

Shell asked Neaves J. to release it from an undertaking which it had given on 13 August 1981 that 1t would "keep the

C.T.1.R.O. agreement on foot until determination of these

proceedings and forthwith to take all necessary steps to notify its customers accordingly". His Honour refused to release Shell from this undertaking.

O'Brien Enterprises filed a notice of appeal from the decision of Fox S. on 24 December 1982 and there wes an appointment to settle the index on 2 February 1983. However, it

was not settled on that day since the draft was not regarded as satisfactory. The index was finally settled on 13 May 1983. Apparently in anticipation work had been done by O'Brien Enterprises on the preparation of the appeal papers. These are said to comprise thirteen volumes and to be already printed and awaiting binding.

The matter was listed in the call-over for the sittings of the Federal Court in Sydney commencing on the 7 June this call-over taking place on the morning of the 17 May. It was then stated that the parties estimated the appeal would take ten hearing days and no date was specifically assigned to it on the call-over, an appeal of that length requiring special treatment.

The motion for security was filed on 9 May 1983 and came on for hearing on 17 May.

The relevant section of the Companies (N.S.W.) Code 1981

"(1) Where a corporation is plaintiff in any action or other legal proceeding, the ccurt 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 1f successful in his defence, require sufficient security to be given for those costs and stay all proceedings until the security 1s given.

under this Code shall be borne by such party to the preceeding as the court, in its discretion, directs".

introduced into company legislation to protect defendants against the risk that plaintiffs under the shield of limited liability

might use litigation as a weapon of aggression putting defendants to expense they would not be able to recover under an order for costs. In this respect, the legislation placed company litigants

in a different position from individual litigants so far as

security for costs was concerned. The section is remedial. Thus the word "plaintiff" is given a wide meaning. It includes an appellant. Where the situation referred to in the section is

established by credible testimony a discretion arises in the

court to order security and the general disposition is to order

security. However, the discretion 1s a wide one and the

circumstances may be such that an order for security will be

refused (see Buckley v. Benneli Designs and Constructions Pty.

Lid. (1976) 1 A.Cc.L.R. 301; Pearson v. Naydler (1977) 1

wW.L.R. 899; and Ilat Nominees Pty. Ltd. v. Murragong Ncminees Pty. Ltd. (1980) 48 F.L.K. 365).

In the present case the first question 1s whether it appears by credible testimony that there 1s reason to believe that C'Brien Enterprises will be unable to pay the costs of Shell

1f Shell 1s successful in defending the appeal. In evidence is

a copy of the annual return cf C'Erien Enterprises for the year

ended 36 June 1981 which shows it is a limited company with a share capital of $2.00. There is also in evidence a copy of the auncome tax return of C'Brien Enterprises for the income year ended 30 June 1982. This shows the company had gross sales amounting to $1,997,752 ain that year. However, it also shows that although the company had shareholders' funds at the 3C June 1981 which included a profit and loss appropriation account of $10,929, there was a deficiency in shareholders' funds at 30 June 1962 amounting to $39,614. This deficiency, as appears from the profit and loss account for the year ended 30 June 1962, was due to a loss incurred in that year of $50,543 after there had been included in expenses in the profit and loss account an item of legal expenses amcunting to $54,346. It is to be noted that Fox J. on 7 December 1982 ordered O'Brien Enterprises to pay the costs of Shell of the proceedings before him which occupied twenty-two hearing days. It is estimated that such costs will be of the order of $100,0C0 which stands as another liability of O'Brien Enterprises although one which is subject to the appeal. O'Brien Enterprises have not gone into evidence with a view to showing that they would be in a position to pay the costs of the appeal, if unsuccessful, but have tendered sales dockets for the period 6 May 1983 to the 16 May 19€3 showing cash sales by Shell to O'Brien Enterprises of almost $606,000. In the accounts which I have mentioned there is also shown a substantial

liability to the bank and substantial loans by shareholders and

An estimate was given by both sides that the appeal

would last ten days and the solicitor for Shell, in an affidavit, estimated its costs of the appeal would amount to about $25,000.

On balance, 1 would conclude that O'Brien Enterprises would be unlikely to be able to meet the costs of Shell of the appeal, if the appeal were unsuccessful.

In view of this conclusicn, I have a discretion to order security for costs. The question is whether 1 should dc so.

In exercising the discretion under s.533 where impecuniosity of the plaintiff has been shown, the Court will, as I have said, have a disposition to order security for costs. However, all the circumstances have to be considered and the competing interests of plaintiff and defendant have to be weighed. The interests of Shell in the present case are, of course, to be protected against having unnecessary liability imposed upon it as a result of the appeal brought by O'Brien Enterprises. The interests of C'Brien Enterprises are to be able to exercise the right of appeal which is given to them by the Federal Court of Australia Act 1976.

Cne matter which 1s generally considered in relation to applications for security for costs in relation to proceedings at first instance 1s what prospects of success the plaintiff has in the proceedings. If the plaintiff has a strong and apparently meritorious case the Court is reluctant to make an order which may have the effect of shutting the plaintiff out. in the case of an appeal the position is slightly different. For one thing

the plaintiff has had his day in Court. In the present case the

questions of law raised cn the appeal are, in my opinion, raised

bona fide and are questions of substance. The Petrol ketail

Marketing Franchise Act 1980 came into force on the 19 September

1980. The Act operates to give greater security of tenure to persons marketing motor fuel by retail. At the time the Act came into operation O'Brien Enterprises had, in effect, a franchise agreement with Shell to which the Act in terms applied. However, the term of the lease held by O'Brien Enterprises was due to expire on 30 September 1980, that is eleven days after the Act came into force. Certain of the provisions of s.17 of the Act entitled a franchisor to give one month's notice prior to expiry of the lease and Fox J. was concerned that this provision was not able to be applied to the situation existing between C'Brien Enterprises and Shell. In the result, he held that O'Brien Enterprises were not entitled to the benefit of the Act. This decision 1s contested on the appeal and raises a substantial question concerning the construction of the Act. I do not consider it 1s necessary for me to express any view about the prospects of success in the appeal. 1t is sufficient to state my opinion that O'Brien Enterprises has a bona fide and genuine interest in having the question determined and the question of law involved is substantial.

Another matter to be considered is the relationship between the parties 1n the present case. This relationship goes back for some time. Had Fox J. held that the Act applied to O'Brien Enterprises, he would have made an order to renew under

sub-section 17(10) of the Act. In the course of his judgment he

the protection of s.17 of the Act, 1 would have made an order to renew under sub-section (10) of that section. I would not have been satisfied that it was just and equitable that the franchise agreement not be renewed. My view would be based principally on several considerations:

the applicant has operated the outlet well, particularly so far as fuel sold is concerned;

it (or Mr. C''Brien) has done so for over ten years;

Mr. C'Brien himself works on the premises constantly, and manages its operations;

the business, which is the sole or principal source of income for Mr. and Mrs. O'Brien, has

been built up into a highly successful outlet by the personal efforts of Mr. O'Brien;

the applicant has sought always to be competitive and to give a good service, and has many regular clients;

the applicant is prepared to co-operate with Shell in having extensive alterations made to the premises, in accordance, generally, with Shell's plans, and to accept some self-serve units;

the applicant's refusal to convert completely to self-serve at this stage is reasonable;

that its refusal, and that of Mr. C'Erien, to operate on an employee basis 1s reasonable;

that the conduct of Shell, as in the matter of rebates, insistence on cash payments, and inadequate maintenance of the outlet, was provocative;

that the matters established against the applicant, relative to the grounds set out in s.16(2), while not to be overlooked or unduly minimised, all relate to the purchase of Shell-refined distillate from Laidely and its subsequent handling, in the circumstances already fully discussed;

complained of very seriously in its correspondence and discussions with Mr.

action available to it in respect of those matters except to terminate the C.T.T.R.O.

It was argued on behalf of O'Brien Enterprises that the impecuniosity of O'Brien Enterprises was due to the actions of Shell and particular reference was made to paragraph (1) above. Il think it is true to say that the actions of Shell, particularly their decision in 1979 to require C'Brien Enterprises, along with other of their distributors, to change to a cash basis in paying for deliveries of petrol, produced a liquidity problem for O'Brien Enterprises from which some of their difficulties have stemmed. However, I consider this was no more than a contributing factor to their financial difficulties.

Looking at the course of the proceedings, it is to be noted that Shell did not apply for security for costs in relation to the proceedings at first instance. These proceedings came before two Judges of this Court, other than Fox d., on different occasions and the hearing on each occasion occupied two days. The hearing before Fox J. occupied twenty-two days and it 1s estimated that the costs incurred by Shell were of the order of $100,000. However, Shell did not make any application for security for costs at this stage nor did Shell lodge such an application soon after the notice of appeal against the decision of Fox J. was lodged by O'Brien Enterprises on 24 December 19682. Indeed, the application for security, as has been mentioned, was lodged on 9 May 19s3. Apparently by this time a good deal of the

work and expense in relation to the preparation of appeal books

had already been undertaken by O'Brien Enterprises. The index was not finally settled by the Registrar until 13 May 1983 but the appeal was listed in the call-over on 17 May 1983 with a view to obtaining a date for hearing in the Sydney sittings of the Full Court commencing on 7 June 1983. It was then stated that the papers for the appeal books had been printed but remained tc be bound and filed and that there would be thirteen volumes. It was submitted that in these circumstances there was delay on the part of Shell in applying for security, which should be taken anto account. This 1s a proper matter to be raised and taken inte account, but I do not consider there 1s much substance in this argument.

The next matter to consider is whether an order for security for costs would prevent or inhibit O'Brien Enterprises from proceeding with this appeal. No direct evidence has been offered on this matter. However, I would infer from the financial figures presented in evidence that an order to provide security for the costs of Shell, which were estimated at about $25,000, if it would not prevent O'Brien Enterprises from proceeding with the appeal, would present a substantial obstacle to them in their

present financial situation. It was not suggested any lesser sum

In all the circumstances I have come to the conclusion that in the exercise of my discretion I should refuse to order security for costs. Accordingly, I would dismiss the application. I would order that the costs of the application for