HRNG ADELAIDE, 8 September 1993 #DATE 8:9:1993 Counsel for appellant: Mr N Strawbridge Solicitors for appellant: Baker O'Loughlin Counsel for respondent: Mr R Whitington Solicitors for respondent: Fisher Jeffries

JUDGE1 OLSSON J This is an appeal against the order of a Master, whereby, on 17 June 1993, he directed that the appellant provide security for the costs of the respondents in the sum of $30,000. 2. That order was made in the context of what has become a fairly complex process of litigation. 3. Three separate actions have been commenced in this court. The first, in point of time, was action no 1359 of 1992, in which the appellant was plaintiff and the respondents Sims and Sheahan ("the first respondents") were defendants. In those proceedings the appellant alleged a breach of fiduciary duty on the part of the first respondents, in relation to their activities as appointed receivers and managers of the appellant. The claim made was for an appropriate declaration in that regard and an account. 4. The second was action no 1360 of 1992. In that action the appellant asserts an alleged breach by the Australian and New Zealand Banking Group Ltd ("the second respondent") of its contractual banking obligations. It seeks an order that the second respondent pay and draw and honour certain cheques. 5. The third was the present action, no 1661 of 1992, originally brought solely against Matthew Hall Mechanical and Electrical Engineers Pty Ltd ("the third respondent") claiming a total sum of $539,744.59 for work done and goods and services rendered. (I will refer to that action as "the principal action".) 6. On 17 August 1992 the appellant obtained leave of a Master, pursuant to SCR 25, to enter judgment in the principal action against the third respondent for a total sum of $2l,935.36, inclusive of interest, being portion of the sum claimed. Judgment was entered accordingly on 20 August 1992. 7. On 24 August 1992 Cox J set aside that judgment on the undertaking of the third respondent to pay a sum of $219,935.36 into court, which sum was in fact duly paid into court on 31 August 1992. The amount paid into court represented the net amount conceded by the third respondent to be due by it to the appellant at that time, leaving the balance of the sum claimed by the latter for dispute in the action. 8. In an affidavit filed in the principal action in support of the application to Cox J, a senior officer of the third respondent deposed that it was faced with competing claims by the appellant on the one hand and the first respondents on the other hand to any moneys payable by it under its contractual arrangements with the appellant. 9. On 3 September 1992 the third respondent made application in the principal action for interpleader relief. 10. As a consequence, on 10 September 1992, a Master made an order, inter alia, in the following terms:- "1. That the Plaintiff and Ramsay Air Conditioning (SA) Pty Ltd (in liquidation) care of A M Broome, Liquidator, of Keogh Miles and Co, Certified Practising Accountants, of 155 Fullarton Road, Rose Park in the State of South Australia and the ANZ Banking Group Limited of 13 Grenfell Street, Adelaide in the

said State and John Sheahan and Anthony Milton Sims both care of Sheahan Sims, Chartered Accountants, of 101 Pirie Street,

Adelaide in the said State appear and state the nature and particulars of their respective claims to the subject matter of this action and maintain or relinquish the same and abide by such orders as shall be made in respect thereof. 2. That the Defendant serve on the parties named in paragraph 1 hereof a copy of the material filed herein relevant to the plaintiff's application before Judge Anderson, a Master of this Honourable Court, on the 17th day of August 1992 and to the Defendant's application before the Honourable Justice Cox on the 24th day of August 1992, which is to include the affidavit of Mr Sims and the affidavit of Mr Jenkins both filed herein on the 9th day of September 1992. 3. That the Liquidator of Ramsay Air Conditioning (SA) Pty Ltd (in liquidation) be served at the address named in paragraph 1 hereof and that the ANZ Banking Group Limited and Messrs Sheahan

and Sims be served care of Messrs Fisher Jeffries, Solicitors. 4. That the parties named in paragraph 1 hereof be at liberty to file and deliver affidavit material in relation thereto within 7 days of notice to them of the terms of this order.

5. That the Defendant's application for interpleader relief be made specially returnable for hearing before the Chamber Judge at a date and time to be fixed being a date not earlier than 10 days from this date.
6. The first and second respondents duly entered appearances in the principal action, pursuant to that order, on 21 September 1992.
7. On 22 September 1992 the proceedings came before me, at which time I made an order expressed as under:- "1. Pursuant to the provisions of SCR 44.01 order that

Messrs Sheahan Sims, the Australian and New Zealand Banking Group and Anthony Broome (as liquidator of Ramsay Airconditioning SA Pty Ltd) be joined as parties to these proceedings as to the interpleader issues therein. 2. Order that the defendant do within 28 days of today pay into court the sum of $157,633.69, in addition to the monies already paid in to the credit of this action to abide the outcome of the proceedings, the amount being made up of the sum of $153,022 referred to in paragraph 7 of the affidavit of C.S. Jenkins filed on 3/9/92, together with an additional sum of $4,611.69 which, together with an amount of $15,319.53 already paid into court is intended to make up the total sum of $19,931.22 which is referred to in paragraph 9 of the affidavit of C.S. Jenkins previously referred to. 3. Costs of this morning's hearing reserved. 4. C for C." 13. The amount of $157,633.69 was duly paid into court in terms of the order. It was said to represent the proceeds of guarantees held by the third respondent as security for the due completion of work by the appellant. 14. Pursuant to the order of a Master the plaintiff filed an amended statement of claim in the principal action. 15. That document pleaded the alleged contractual history between the relevant parties and, inter alia, asserted a right to the moneys paid into court as against the first, second and third respondents. Relevant defences have been filed to that statement of claim. It is to be noted that the appellant's statement of claim also asserts a balance liability said to be due by the third respondent to it under the alleged contractual arrangements between the two parties. 16. Against that background the first and second named respondents made application to the Master for an order for security for costs pursuant to section 1335 of the Corporations Law. 17. That application was resisted by the appellant, essentially upon the basis that the circumstances did not fall within the section, because, it was said, the appellant was not, for the purposes of the interpleader issues, a "plaintiff" within the meaning of the section. The relevant portion of section 1335 reads as follows:- "(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." 18. The basic reasoning of the Master was expressed in these terms: "I return, therefore, to both parties being claimants and, effectively plaintiffs. The plaintiff has not filed any material taking issue with the defendants' allegations as to the real plaintiff and the state of the plaintiff's finances. There is credible evidence that the plaintiff will not be able to meet the defendants' costs were they to be successful and that any claim for costs would have to rank with other unsecured creditors in what at this time, upon the unavailable evidence, in the real likelihood that there will be no significant payment to such creditors. The papers establish that the plaintiff is insolvent. These proceedings can only be maintained with the financial support of the secured creditor Craminster Pty Ltd. That Company has not sought to respond in the usual way to the telling inferences to be drawn from the material filed by the defendants in support of this application. The inference to be drawn, therefore, is that most favourable to the applicants. Hence, the plaintiff Company is under the control of a receiver and manager appointed by the secured creditor Craminster pty. Ltd. In such circumstances it is appropriate to order that the company provide security for costs: Sent v. Jet Corporation of Australia Pty. Ltd. [1984] FCA 178; (1985) 3 ACLC 397. This is so as, upon the test set out by von Doussa J in Beach Petroleum NL and Anor. v. Johnson and ors. [1992] FCA 110; (1992) 7 ACSR 203 at 204, it appears 'by credible testimony that there is reason to believe that if the (defendants are) successful circumstances may then exist in which the plaintiff will be unable to pay the costs'. The decision of Perry J in Troisi Steel Fabrications pty. Ltd. v. Johns Perry Industries pty. Ltd. (1992) 165 LSJS 333 also supports such a conclusion allowing, as he did there, that the funds in dispute should not be used in the calculation of what the financial position of the plaintiff may be at judgment because the fate of the monies in Court 'is very much in issue in the action' (p.333). There, as here, a receiver was behind an otherwise impoverished plaintiff." 19. Before embarking upon a consideration of the detailed submissions of the parties it is convenient to summarize a number of salient principles applicable to applications for security for costs made pursuant to section 1335. As applicable to this case they are:- . the section confers an unfettered discretion upon the court without giving rise to a predisposition in favour of any party. However, that discretion falls to be exercised in light of a number of well established broad principles. (John Arnold's Surf Shop Pty Ltd (in liquidation) v Heller Factors Pty Ltd and Anor (1979) 22 SASR 20.) . As was said by Ormrod J in Visco v Minter (1969) P 82 at 85, "there is no magic in a name" - for the court is required to construe the word "plaintiff" in section 1335 as a reference to the party, however described on the record, who is, in substance, in the position of a plaintiff in the proceedings in question. A defendant who seeks to counterclaim may well be in that position (Thunderdome Racetiming and Scoring Pty Ltd and Anor v Dorian Industries Pty Ltd and Anor [1992] FCA 291; (1992) 109 ALR 196). . Who is, in truth and in substance, the "plaintiff" must be decided by the real merits of the case and not by the mere form of the proceedings (Rhodes v Dawson (1886) 16 QBD 548). So it may often be that, in the context of interpleader proceedings, the nominal plaintiff is not the attacker, but the person attacked by the party who is, nominally, the defendant. In such a situation the defendant may properly be regarded as the true plaintiff when a question of security for costs arises (Willey v Synan [1935] HCA 76; (1935) 54 CLR 175, Amalgamated Mining Services Pty Ltd v Warman International Ltd and Anor [1988] FCA 309; (1988) 19 FCR 324). . It follows that, if the course of the proceedings is such that, in effect, a party is forced to become a plaintiff due to claims advanced by another party who is, in reality, initiating the type of "self help" procedures adverted to in the John Arnold's Surf Shop Case, then it may well be inappropriate to order security for costs against that plaintiff. (See also Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd and Ors [1987] FCA 102; (1987) 16 FCR 497.) . If both parties to interpleader issues are, in truth, each plaintiffs, then each may properly be the subject of an order for security for costs if the normal pre-conditions for the making of such an order exist in relation to that party. (Tomlinson v The Land and Finance Corporation Ltd (1884) 14 QBD 539, Tudor Furnishers Ltd v Montague and Company and Finer Production Company Ld (1950) 1 Ch 113.) To those broad principles I would only desire to add one further reference to a concept first enunciated by Jordan CJ in In re the Will of F B Gilbert (deceased) [1946] NSWStRp 24; (1946) 46 SR (NSW) 318 and adopted by the High Court in Adam P Brown Male Fashions Pty Ltd v Philip Morris Incorporated and Anor [1981] HCA 39; (1981) 148 CLR 170:- "... there is a material difference between an exercise of discretion on a point of practice or procedure and an exercise of discretion which determines substantive rights. In the former class of case, if a tight rein were not kept upon interference with the orders of Judges of first instance, the result would be disastrous to the proper administration of justice. The disposal of cases could be delayed interminably, and costs heaped up indefinitely, if a litigant with a long purse or a litigious disposition could, at will, in effect transfer all exercises of discretion in interlocutory applications from a Judge in Chambers to a Court of Appeal." 20. In the instant case what is essentially in issue is a dispute between the appellant and the first and second respondents (whose interests I take to be virtually co-incident). As I understand what has been put to me the appellant says that the moneys in question were due to it under a novated contract with the third respondent, who admits that they were properly payable by it to the appellant for work done for it. 21. On the other hand the first and second respondents assert that the moneys in question are payable to them or one of them - either because they are subject to a deed of assignment referred to in the pleadings (which deed relates to the taking over by the appellant of the benefit of a contract, previously held by an associated company, with the third respondent) or, alternatively, the moneys are, by reason of relevant dealings between the parties, impressed with a contractual liability, on the part of the appellant, to account for the moneys in question in a particular manner, for the benefit of the first and second respondents. 22. The riposte of the appellant to those suggestions is that the moneys in question are payable by the third respondent to it for work done subsequently to the deed of assignment and that the first and second respondents have no beneficial interest in them. 23. Against that background I take the view of the Master to have been that, in essence, both the appellant and the first and second respondents are equally claimants to the money and thus are, in substance, equally plaintiffs. 24. What was not then before him, but is now a matter of record on the file, is that the first and second respondents have, since the order appealed against, both filed a defence running to some 48 pages (which denies the right of the appellant to recover the moneys in issue, essentially on the basis which I have above outlined), and also lodged an application for leave to file a formal counterclaim against the appellant, seeking positive orders entitling them to recover the moneys paid into court, to the exclusion of the appellant. 25. There is, accordingly, no doubt that, as assessed by the Master, the first and second respondents are, in substance, plaintiff parties. The real question to be posed and answered is as to whether, within the concept espoused in Tomlinson and Tudor Furnishers, it may fairly be said that, viewing the situation realistically, the appellant itself is no less an equal plaintiff. 26. In reality it is undeniable that the situation in this case is that, so far as the subject moneys of the present appeal are concerned, the original defendant has dropped out of the contention. It admits that it owes the moneys in relation to the work done for it. What is left is a situation in which two separate claimants who, as between themselves, have been parties to a most involved series of commercial dealings and are in contention as to what rights (if any), vis a vis the subject moneys, have been vested in them as a consequence of those commercial dealings. 27. It seems to me that the ultimate conclusion which may fairly be drawn is that the relevant parties are, indeed, equal claimants to the moneys and that each is therefore susceptible to an application for security if the factual pre-conditions for that application can be made good against the party in question. 28. I do not suggest that the matter is devoid of difficulty but, at the end of the day, I cannot see that there is any proper basis for interfering with what the Master has done - the assessment of the situation which he made was properly open 10 to him and, in any event, what is under consideration is an interlocutory procedural matter falling fairly and squarely within the principle espoused in the Adam P Brown Case. 29. In the circumstances the appeal must be dismissed.