Jet Corporation of Australia Pty Ltd & Ors v Petres Pty ltd & Ors [1983] FCA 262

Federal Court of Australia|1983-10-05|Before: Northrop J

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ad ai FEDERAL COURT OF AUSTRALIA

UST NVER OT 450 LITTLE BOURKE STREET "DMN KeCEE MELBOURNE 3060

re: Jet Corporation of Australia Pty. Ltd. and Ors. v. Petres Pty. Ltd. and Ors.

eae Please find enclosed a copy of his Honour's reasons for judgment with respect to certain motions of the

respondents in the above matter. The orders made by his Honour were as follows:

The motions by the respondents that the proceedings be stayed or dismissed generally or in part are each dismissed.

The motions by the respondents that the applicants provide security for costs are each dismissed.

Leave is granted to the applicants to strike out Electrum Acceptance Pty. Ltd. and Electrum Finance Pty. Ltd. as applicants in the proceedings.

Directions hearing adjourned to Tuesday, 11 October 1983 at 9.30 a.m.

His Honour has suggested that the attention of the law publishers need only be drawn to pages 22ff,of the judgment which deals with the question of security for costs. To that portion of the judgment the following catchwords may be appended:

"Federal Court - practice and procedure - application for order for security for costs against Company - source of jurisdiction or power - considerations in exercise of discretion.

Federal Court of Australia Act 1976 ss.56, 59. Federal Court Rules 0,28 Companies (Victoria} Code s.533."

aeclane ree itinaee 3 erreneteere nalbliner matin ooh Aenean arcane ce ai antl agg =

Also enclosed is information for the assistance of the law

publishers, It is suggested that a copy of this letter should be forwarded to them.

) ) VICTORIA DISTRICT REGISTRY ) Vv. No. G.109 of 1983 ) )

JET CORPORATION OF AUSTRALSA PTY. LIMITED (in 1ts capacity as Trustee of the JET CORPORATLON AUSTRALIA TRUST), ELECTRUM ACCEPTANCE PTY. LTD. and ELDECTRUY PINANCE PTY. LTD.

PETPES PTY. LIMITED (an 1ts own right and in its capacity as Trustee of The Schult Unit Trust)

DIPSON PTY. LIMITED (in its own right and in its capacicy as Trustee of The Dipson Settlement)

WESTWIND JET CORPORATION PTy. LIMITED Third Respondent

On 27 June 1983, Jec Corporation of Australia Pty. Ltd. (in its capacity es Trustee of the Jet Corporatio. Australia Trust), "Jet Corp.", Electrum Acceptance Fty. Ltd., "Blectrum Acceptance", and Electrum Finance Pty. Utcd., "Electrum Finance", as applicants commenced proceedings in the Federal Court against the eleven respondents named in the application. By their esmended application, the applicants seek declarations that the first, second and third named

respondents have contravened s.52 of the Trade Practices Act

1974, "the Act", and that the fourth to eleventh named respondents were, in sunmary, persons involved in those contraventions. In addition, the applicants seek orders for the recovery of the amount of loss or damage suffcred as a result of those contraventions, together with the

rectification of cerrain agreements. Attached tu those

claims is a claim against the fourth to seventh named respondents based on alleged breaches of their statutory and

The materjal facts on which the applicants' claims rely are set out in a lengthy statement of claim, as amended on 28 July 1983. The statement of claim contains seventy-one paragraphs and the substance of the claims 1s set out in paragraphs 57 to 71 inclusive chereof. The respondents, pursuant to 0.20 r.2 of the Federal Court Rules, have moved the Court for orders that the proceedings be stayed or dismissed generally or in part. , Pursuant to 0.28, the respendents have moved the Court for orders that the applicants provide security for costs. These inotions have been heard together. Other motirons on behalf of the

respondents have been adjourned to a date to be fixed.

Tt is necessary to set out at some length the allegations which form the basis of the applicants' claims

Jet Corp. is a company incorporated 1n Victoria and the trustee of the Jet Corporation Australia Trust. Subsequent to the events set out below, Laurence Brian Hunter and Peter Bernard Allon wo.e appointed receivers and managers by Citicorp Australia Pty. Ltd., "Citicorp", of Jet Corp.,

and the assets and undertakings of the Trust. At this stage

it as noted that Citicorp has appointed receivers and managers of Electrum Acceptance and Electrum Finance

corporation and the corporate trustee of The Schutt Unit

Trust. By a sale of business agreement and a supplemental sales agreement, together called "the Petres Sales Agreement", made in late Ontober 1981, Petres sold and Jet

Corp. purchased certain assets as set out in paragraph 33 of the statement of claim. Under the Petres Sules Agreenent, Jet Corp. assumed certain liabilities as set out ain that paragrapl:. It was a further term cf the agreement that Jet Corp. assume the obligations of Petres under two ayreements called "the Scapela Agreement" and "the Rovoi] Agreement" respectively. The applicants allege that certain representations were made in the Petres Sales Agreement and in pre-settlement negotiations that the value of the asscts and liabilities of Petres were as set out in Schedule 1A of the supplemental sales agreement, that the value of the goodwill of the business was as set out therein and that the value of leasehold improvements was $2 million. The applicants then pleaded that those statements, the first two of which were contained also in a report from Messrs. Simon

Lidgett Collingwood & Co., were untrue and, hence, misleading

or deceptive or likely to mislead or deceive. It is alleged that that report was given to the applicants by persons on

Dipson Pty. Itd. "Dipson", 1s a trading corporation and the trustee of The Dipson Settlement. Prior to 22 October 1981 it vas the holder or had the right Lo control the disposition of aJl the shares in the issued capital of Electrum Finance and Electrum Acceptance respectively. In June 1981, Electrum Finance had purchased an aircraft from Westwind Jet Corporation Pty. Limited and had leased that aircraft to the Stohl Aviation Partnership, the members of Which are not identified. EJectrum Acceptance had purchased another aircraft from Westwind Jet Corporation Pty. Limited and had leased that aircraft to the Lazar Partnership, the members of which are not identified. In October 1981, pursuant to an agreement called "the Dipson Sales Agreement", Dipson sold che shares in Electrum Acceptance and Electrum Finance respectively to Jet Corn. The applicants allege that in the Dipson Sales Agreement and in earlier pre-settlement negotiations, representations and warranties were made by Dipson that the Stohl lease and the Lazar lease were each valid and subsisting. The applicants then plead that this was untrue and constituted a contravention of s.52 of the Act. 'They allege also that the aircraft purchased by Electrum Acceptance and Electrui

Westwind Jet Corporation Pty. Ltd., "Westwind", is a trading corporation which carricd on the business of the sale of aircraft. In June 1981 it had sold the two aircraft to Electrum Finance and Electrum Acceptance respectively. The leases granted by those two companies are the subject of actions in the Federal Court. In October 1981 pursuant to an agreement called "the Westwind Sales Agreement", Westwind sold certain assets to Jet Corp. and Jet Corp. assumed certain liabilities. The applicants allege that pre-settlement representations were made and in addition are contained in the Westwind Sales Agreement itself, that the value of assets and liabilities transferred pursuant to the Westwind Sales Agreement were as set oul in the Schedule to the agreement. It is then pleaded that those representations were untrue and, hence, misleading or deceptive or likely to

Trevor Burton Huttley, "Huttley", was at all material times a director of the applicants and of Petres, Westwind, and of Rovo1rl Pty. Ltd., "Rovoil". He is alleged also to be a person, together with Wilson, in effective control of the affairs of Electrum Acceptance and Electrum Finance, és well as of Petres and Westwind, presumably since 10 September 1981, prior to which date Sent and Forshaw had controlled those companies in association with Wilson.

Buttley, together with Wilson and Collier, 1s alleged at all

material times to have been in effective control of Jet Corp. prior to 25 November 1981 and thereafter in effective control with those persons together with Hoga. It is alleged against Huttley that he, together with Wilson, aided, abetted, counselled and procured the contraventions by Petres, Dipson and Westwind, and was directly and indirectly knowingly concerned in and party to those contraventions, that he wis a person involved in those contravenkions (see s.75B of the Act), and that he breached his statutory and fiduciary dutics as a director of Jet Corp.; see sections 123 and 124 of the

Jon Dsan Wilson, "Wilson" was at all material times a director of the applicants, Petres, Dipson, Westwind and Scavela Ira Nominees Pty. Ltd., "Scapela". Ue is alleged also to have been, with Huttley, in effoccive control] of Electrum Finance, Petres, Dipson and Westwind (although the allegations contained in paragraph 13 of the statement of claim appear inconsistent with that allegation), in effective control of Scapela, and together with Huitley and Collier, in effective control of Jet Corp. prior to 25 November 198], and thereafter in effective control thereof with those persons together with Hogg. in Mey 1981, pursuant to an agreement called "the First Wilson Agreement", Wilson purchased on terms frow Messrs. Sent and Forshaw all their right, title

and interest in and to Petres, Electrum Finance, Electrum

Acceptance, Westwind, Jet Chartor Australia Pty. Ltd. and The

Schutt Unit Trust of which Petres was the trustee, said by counsel to be the interests under the Schutt aviation umbrella. Prior to 10 September 1981, being the date of an agreement called, "the Second Wilson Agreement", Wilson, together wich Sent and Forshaw, controlled the affairs of Electrum Acceptance, Electrum Finance, Petres and Westwind, and was, together with those persons, entitled to the assets of those companies and to The Schutt Unit Trust. Under the Second Wilson Agreement, Patres had assumed certain liabilities to Sent and Forshaw, bvt apparently had received no proprietary interest for that liability. Dipson and Westwind were also parties to the Second Wilson Agreement. It is alleged against Wilson that he, together with ftuttley, aided, ahetted, counselled and procured the contraventtions by Petres, Dipson and Westwind, and was directly and indirectly knowingly concerned in and party to thoze contraventions, that he was a person involved, together with Huttley, in those contraventions, and that he had breached his statutory and fiduciary duties as a director of Jet Corp. In addition, Huttley and Wilson are alleged to have aided and abeticd Petres, Dipson and Westwind in that they caused the various sales agreements to be carried out and completed and caused two certificates from Messrs. Touche Ross & Co., alleged to contain the pre-settlement representations to be preparcd and

Barry John Collior, "Collier", was at all times a director of Jet Corp. and prior ro 28 November 1981, together with Huttley and Wilson, had effective control of Jet Corp. Thereafter, he was said to be in effective control of that company with those persons, together with Hogg, but due to an apparent discrepancy appearing in paragraph 15(b) of the statement of claim, Wilson's name is omitted and Collier's name inserted. No allegation is made that Collier is in any way assoclated with any of the respondent companies. Collier is alleged to have aided, abetted, counselled and procured the said contraventions by Petres, Dipson and Westwind, to have beeil directly and indirectly knowingly concerned in and party to the contraventions, and to have been a person involved in the said contraventions by reason that, in his capacity as director of Jet Corpo., he was aware that the various sales agreement representations were untrue, and notwithstanding that knowledge, caused or permitted Jet Corp. to enter into the Petres Sales Agreement, the Westwind Sales Agreement and the Dipson Sales Agreement, and being aware that the sales agreement representations and the pre-settlement representations were untrue and notwithstanding that knowledge caused or permitted Jet Corp. to complete the said sales agreement. Damages also are claimed for breach of Collier's statutory and Fiduciary

Lindsay Quentin Hogg, "Hogg", became a director and, together with Huttley, and Wilson and Collier took effective control of Jex Corp. after 25 November 1981. The

alleyatious made against him correspond with those made

Edward Christiaan Sent, "Sent", and Brian Forshavy, "Forshaw", were, prior to 10 September 198], the date of the Second Wilson Agreement, directors of Electrum Acceptance, Electrum Finance, Petres and Westwind and, toqether with Wilson, in effective control of those companies. They are alleaed to have aided, abetted, counselled and procured the said contraventions, to have been directly and indirectly knowingly concerned in and party to those contraventions, and to have been persons involved in those contraventions in that they caused Electrum Finance to purchase from Westwind the aircraft, the subject of the Stohl lease, and to enter into the Stohl lease, and caused Electrum Acceptance to purchasc

from Westwind the aircraft the subject of the Lazar lease and

Scapela Ira Nominees Pty. Ltd., "Scapela", and Rovoil Pty. Ltd., "Rovoil", were the companies of which Wilson and Huttley were respectively directors and in sole effective control. Tt is alleged that those companies were

directly or indirectly knowingly concerned in and party tn

the contraventions by Petres, Dipson and Westwind an thet

they were enlitled to and derived valuable benefits under the

Before dealing with the substance of the motions to stay or dismiss the proceedings it is necessary to state the

principles to be applied. In Dey v. The Victorian Railways

Commissioners (1949) 78 C.L.R. 62 the defendant sought an interlocutory order that the action be dismissed or forever stayed on the grounds that it was frivolous, vexatious and an abuse of the process of the court. It was not clear whether the order was sought under O.XIVA, O.XIX r.27, or O.KAV r.4 of the Supreme Court Rules. Those rules are similar to 0.11

r.16 and 0.20 r.? of the Federal Court Rules. At p.91 Dixon

"The application was not made under, nor could 1t be supported under, Order XXV. rule 4 or Order XIX. rule 27. The question does not arise on the statement of claim ana it involves no matter of pleading. It is a substantive question chiefly of law relating to an alleged bar to the cause of action to be pleaded by way o£ confession and avoidance. But had it been a question capable of arising in such a way that either of those rules could be used, the application must have failed. For the power they confer is not to be used in cases of doubt or difficulty or where the pleading raises a debatable question of Jaw:

The application is really made to the inherent . jurisdiction of the court to stop the abuse of its process when it is employed for groundless claims. The principles upon which that jurisdiction 1s exercisable are well settled. A case must be very cloar indeed to justiry the summary intervention of the court to

prevent a plaintiff submitting his case for . determination in the appointed manner by the court with or without a jury. The fact that a transaction 1s intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action

as frivolous and vexat1ous and an abuse of process."

. In General Steel Industries Inc. v. Commissioner for Railways (N.S.W.) (1964) 112 C.L.R. 125 Barwick C.d. discussed the principles to be applied in some detail. At

"The plaintiff rightly points out that the jurisdiccion summarily Lo terminate an action is to be sparingly employed and is nov to be used except in a clear case where the Court 15 satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion. IL have examined the case law on the subject, to some of which I was referred in argument and to which I append a list of references. Thera is no need for me to discuss 1n any detail the various decisions, some of which were given in cases in which the inherent jurisdiction of a court was invoked and others in cases in which counterpart rules to Order 26, r.18, were the suagested source of authority to deal summarily with the claim an question. lt is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action ~ if that be the ground on which the court 1s invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The cest to be applied has been variously expressed; 'so obviously untenable

that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeea'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'to stand would anvolve useless expense'."

It is apparent that the facts forming the basis of the applicants' claim are of some complexity. At this stage the Court does not have before it the Wilson agreements nor the Petres, Dipson and Westwind agreencnts. The questions of law raised in argument by counsel for the respondents are no

The first submission put by the various counsel fo1 the respondents was to the effect that there could have been no misleading or deceptive conduct because the minds of the recipients of the conduct, namely the aAirectors of the applicant companies, were to all intents the same as the minds of the companies whose conduct is said to have contravened the Act. With respect to this submission it should first be noted that the Court is not satisficd that this allegation of fact 1s made out in the statement of claim as amended. In particular, on the face of that document the role of Colliér appears to some eatent to be one

GAisassociated from the respondent companies. However, even

were this contention to be accepted, in the context of this case as it stands, and applying the principles stated above,

the Court 1S not satisfied that the submission shovld

It is weli accepted that in erder to make out a contravention of s.52 of the Act 1t is not necessary to show that some person has actually been nisled or deceived by the conduct of the respondents. Rather, it is first necessary to identify the relovant group of persons by reference to whom the question of whether _conduct 1s, or 1s Jikely to be, misleading or deceptive falls tc fea tested and thus to determine objectively whether the conduct complained of misleads or deceives or is likely to mislezd or deceive

Here the conduct complained of consists not only of certain pre-setttlement representations, including the reports, which may not be made known to persons other than those party to them, but also of representations made in the agreements themselves. Although, leaving aside for a moment the submission of the respondents, the applicants could fall amongst that relevant group of persons, the class might also contain any persons who relied upon the agreements or the

reports, whether they be investors in the companies, would-be

shareholders or unit-holders, or other persons interested in the assets of the trust. The extent to which any of those

persons might have a remedy under s.82 is not in issue here.

The submission of counsel For the respondents to some extent overlaps with the Jater submission that s.5? could not apply to the present facts because the conduct complained of was essentially part of a private transaction with no public or 'consumer' aspect. Peliance was placed on

the recent decision of St. John 3G. in Westham Dredging

Company Pty. Ltd. v. Woodside Petroleum Development Pty. Ltd.

[1983] A.T.P.R. ».40-338. His Honour, at p.44,063, summarized the facts which formed the basis of the

"Broadly, the cause of action is based upon the supply by Woodside of a rerort prepared hy the consulting engineers as to the geological structure of a harbour basin which later became the subject matter of a dredging contract entered into between Westham and Woodside. Westham alleges that some of the geological data specified in that report was inaccurate and this affords them a right of action because such inaccuracies were misleading or deceptive within the meaning of sec.52 of the Act."

After canvassing the authorities, his Honour concluded that

s.52 should be read down by reference to the heading "Pt.V

With respect to the learned judge, on the present state of the authorities it may be doubted whether this conclusion is clearly correct; see for example the reasoning

of Stephen J. in Hornsby Buiiding Information Centre (1978)

140 C.L.R. 216 at p.223 (which his Honour attempted to distinguish), the numerous cases in this Court concerning misleading conduct in connection with leasing transaccions and the recent decision of the High Court in Fenectt v. Multer (1983) 46 A.L.R. 41, where, although the matter was not expressly raised, there was no suggestion that this Court did not have jurisdiction un respect of alleged contraventions of s.52 occurring in connection with the salc

Accordingly, the Court is not satisfied that in interlocutory proceedings of this kind, the statement of claim should be struck out for these reasons. lt may be noted, however, with respect to the first submission, that it may be appropriate to deal again with that argument if the

Several subsidiary submissions were also made. Senior counsel for Messrs. Collier and Hogg argued that no overt act constituting misleading or deceptive conduct had been pleaded. He also objected to the use of the word "caused" as ambiguous. The Court js not satisfied that this

submission 15 made out. The conduct complained of is

constituted by the pre-settlenment representations and representations contained in the agreements, which are specified. Jt 1s suggested that if a better description of the conduct is required, further particulars should instead

Turning now to the motions seeking dismissal of the proceedings in part, it is noted first that Mr. Graham of counsel, during the hearing of Lhe motions sought an order deleting Electrum Acceptance and Flectrum Finance. Those

companies had been joined originally to claim certain relief

in connection with the proceedings concerning the Stohl and Lazar leases. This claim for relief was deleted in the amended application. {ft 1S appropriate in the circumstances that those two companies be struck out as applicants. Leave for that purpose should be granted. At the same time the

respondents should have their costs which have been thrown

The basis of the claims against Collier and Hogg appears at paragraphs 59 and 60 of the amended statement of claim. Complaint was made that there was no nexus between their awareness and belief, expressed, it was said in vague terms and such that they were insufficient to found a claim for "aiding and abetting" 'pursuant to s.75B of the Act, their

"causing" agreements to be prepared "as a Director of Jet

Corp", both concepts being ill-defined, and the allegations

of "thereby" aiding and abeLting. On the face of the statement of claim, and mindful of the principles referred to earlier, the Court us not satisfied that the procecdings should be dismissed with respect to Collier and Hogg, although it is norced that it may be appropriate for the Matters referred to carlier to be further particularized. The further complaint that Collier and Hogy acting as "Directors" of Jet Corp. could not have aided and abetted because they were, by application of the organic theory, Lhe Company, is not one which on the present allegations can be

The basis of the claim against Sent and Yorshaw of which their counsel complains is set out at paragraph 61 of the statement of claim and concerns the two Electrun companies, no longer applicants in this action, and relates also to the foundation of the claim against Dipson. Paragraphs ({(c) and (d) allege awareness of matters which constitute the conduct complained of, namely that representations were incorporated in the various sales agreements, those representations were untrue, the pre-settlement representations were untrue, and that settlement would proceed. The relevance of the First ané Second Wilson Agreements is not on the face of it apparent, but it may be inferred that a valuation of assets, said to be an unreal valuation, was made after taking into account the

terms of the Wilson agreements. Nor is the relevance of the

date of settlement of the Wilson agreements immediately apparent. However, again it may be inferred that the act of completing and accepting payments pursuant to the Wilson agreements at the time of settlement of the Petres, Dipson and Westwind agreements, inter alia, established a nexus between Sent and Forshaw who received the moneys (albeit they were no longer directors or in effective control of Petres and Westwind), and the aiding and abetting. Again, chis 15 a matter on which the Court cannot be satisfied that the claim should be dismissed pursuant to 0.20 r.2, particularly as tho Wilson agreements, crucial to the claim, are not before the Court. It may be that particulér portioas of those agreements and the relevance thereof could be clarified by

In the event that claiums against the fourth to seventh named respondents pursuant to s.75B of the Act, have not been dismissed under 0.20 r.2, it remains to he considered whether this Court has jurisdiction to hear the claims for relief against those respondents for breach of their statutory and fiduciary duties as directors of Jec Corp. The nature of the attached jurisdiction of the Court

has been shown by the High Court in Fencott v. Muller, supra,

and been discussed by Northrop J. in Denpro Pty. Ltd. v.

Centrepoint Freeholds Pty. Ltd. (1983) A.T.P.R. p.40-363 at

In the present case it is not suggested that the Court does not have jurisdiction in respect of the claims made against Petres, Dipson and Westwind under s.52 of the Act. Those claims constitute a genuine and substantial aspect of the controversy before the Court. That controversy 1s apparent from the amended statement of claim and the application, and has been dealt wich in these reasons. The claims under the Act made against the remaining respondents depend on and arise out of those claims. They eppear to be

genuine. The factual basis for the allegations forming the

basis of the claim for breach of statutory and fiduciary duties corresponds to that supporting allegations alleging contraventions of the Act. As a matter of fact, the acts said to constitute breaches of duty are said to constitnte the acts of aiding and abetting. Accordingly, the

submissions by counsel that the Court does not nave

The facts alleged in the statement of claim disclose that there are real questions to be determined between the parties and that the rights of the parties depend upon the answers to those questions. The respondents have failed to satisfy the Court that Jet Corp's. claims must

fail. It is not appropriate that the questions to be

determined should be determined on a pleadings motion but

should be determined on facts found on a hearing of the

application. It follows that the respondents' motions that

the proceeding be stayed or dismissed are dismissed.

orders for security for costs. Under s.56 Federal] Court of

Australia Act 1976, the Court or a Judge has power to order an applicant to give security for the payment of costs that may be awarded against him and if security is not given in accordance with that order, the Court or a Judge may order

that the proceeding be dismissed. Sub-section 56(5) is set

"(5) Thais 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."

Under s.59 Federal Court of Australia Act, the Judges of the

Court have power to make Rules of Court not inconsistent with

the Federal Court Act, including a particular power to make

provision for or in relation to "the furnishing of security"; sce paragraph 59(2)(n). Federal Court Rule 0.28 makes provision for security for costs. It 1s necessary to set out

. "3.(1) Where, in any proceeding, it appears to the Court on the application of a respondent -

(b) that an applicant is suing, not for his own benefit, but for the benefit of some other person and there 1s reason to

believe that the applicant will be unable to pay the costs of the respondent if ordered to do so;

the Court may order that applicant to give such security as the Court thinks fit for the costs of the respondent of and incidental to the proceeding.

That sub-rule specifies principles to be applied by the Court un the exercise of the discretion to make an order for the giving of security for costs. That sub-rule appears to impose limitations or restrictions on the unfettered

discretion conferred by sub-section 56(1) of the Federal

The provisions of sub-section 56(5) are curious. In that sub-section the word "Act" must mean any other Act. made by the Commonwealth ParJiament. Paragraph 59(2)(n) of

the Federal Court Act when read with that sub-section appears

to confer a power on the Judges of the Federal Court to make tules relating to security for costs which are to take effect

urrespective of 5.56. The provisions of 0.28 r.6 may bring

"6. This Order does not affect the provisions of any Act of the Commonwealth or of a State or Territory under which the Court may require security for costs to be given."

It 1S necessary to consider these provisions of the Federal Court Act and the Federal Court Rules. Sub-section 533(1)

"533.(1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if 1t appears by credible testimony that there 1s reason to believe that the corporation 21] be nnable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs and stay all proceedings until the security is given."

to the provisions of s.56 Federa] Court \ct, and in

particular sub-section 56(5), the provisions of a State Act,

namely s.533 Companies (Victoria) Ccde, could not confer

jurisdiction or power on the Court to exercise the discretion

referred to in that section. The short answer to that contention appears from 0.29 r.6. In that rule the words "does not affect the provisions of any Act ... of a State

appear to assume that the Court has jurisdiction or power to exercise a discretion conferred by a State Act to mako an order in relation to the furnishing of security for costs.

Those words may be contrasted with the words used in

sub-section 56(5) Federal] Court Act. On their proper

construction, the Federal Court Rules wake applicable the

provisions of s.533 Companies (Victoria) Code, and to this

end reference 1s made to the words "Rules of Court" an sub-section 56(5) Federal Court Act. That provision enables 0.29 r.6 to have effect notwithstanding its apparent

inconsistency with s.56 Federal Court Act. Accordingly, the

Court proposes to exercise the dtscretion conferred by s.532

Companies (Victoria) Code. In so doing, the Court 1s

following the practice adopted in other proceedings before the Federal Court in circumstances where the contention made in the present case had not been made. See for example

Drumdurno Pty. Ltd. v. Braham (1982) 2 A.L.R. 563 and

Newtons Travel Services v. Ansett Transport Industries

The principles to be applied in exercising the discretion conferred by s.533 Companies (Victoria) Code and

the similar discretion conferred by s.363 Companies Act 1961

(Vic.) are set out by C.A. Sweeney J. and Smithers J. in the two cases just mentioned and need rot be repeated. They wiijl

The discretion must be exercised having regard to all the circumstances of the case before the Court. On the material before the Court, including the fact of the

appointment of receivers and managers of Jet Corn. and its

assets and undertakings, the Court is satisfied that Jet Corp., as applicant in these proceedings, is a corporation and there is reason to believe that Jet Corp. will be unable to pay the costs of the respondents if they are successful in their defences. As yet, no defences have been filed or delivered. On the material before it, the Court is unable to form a view as to the prospects of Jet Corp. succceding in its claim, but it appears that if it can establish its claims, it may be established that Jet Corp's. financial position has been worsened by the wrongful conduct of the respondents. It appears that Jet Corp. is making a genuine claim. There is no suggestion that the motions have been brought by the respondents oppressively in an attempt to stifle a genuine claim, but at the sane time i1t must be remembered that in the unusual circumstances of this case, most of the facts needed to be proved in order for Jet Corp. to establish its claim are within the knowledge of some or other of the respondents, and that many of the documents relevant to the claim by Jet Corp. are in the custody or

control of some or other of the respondents. Further, the

obligations placed upon the respondents by the Tradc

vactices Act are in the nature of public standards of

conduct which are considered desirable and in the public interest. To some extent the existence of that public interest transcends the private interests of the parties to these proceedings and at this stage weighs in the balance

against making the orders sought py the respondents. On the

material before it, the Court js not satisf1ed that an order for security For costs would mean that Jet Corp. would never

In all the circumstances of this case, and weighing the competing interests of the parties, the Court is not prepared to exercise 1ts discretion in favour of the making of an order for security for costs. In coming to this conclusion the Court has received much assistance from the

reasoning of O'Bryan J. in [Terncroft Pty. Ltd. v. Kew ana

Ors., Supreme Court of WVaictoria, 22 November 1979,

unrevorted, where his Honour discussed the principles to be

applied and their application to the facts of that case.

Companies (Victoria) Code, counsel for the 1espondents sought

the making of an order for security of costs based on 9.28 r.3(b). The Court is not satisfied that Jet Corp. is suing, not for its own benefit, but for the benefit of some other person, namely Citicorp Australia Ltd., which appointed the receivers and managers. In this respect, the Court adopts

and applies the principles applied by Kaye J. in Co-operative

Farmers' and Graziers' Direct Meat Supply Ltd. v. Smart

pecceding poges are Pp tie copy of ihe Reasons tor Ju@emen, Loren of the Hoaourndsls Mr. Justice Nocthre p

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (174 paragraphs)