Logue v Hansen Technologies Ltd

Federal Court of Australia|1985-04-23|Before: Weinberg J

THE COURT ORDERS THAT:

On or before 24 February 2003 the first and second respondents file and serve draft short minutes of orders giving effect to the reasons for judgment published today.
The proceedings stand over to a date to be fixed for the making of orders and for any argument in relation thereto, including any argument in relation to the appropriate orders as to costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

AND: HANSEN TECHNOLOGIES LIMITED (ACN 090 996 455)

Introduction 1 This is an application by the respondents in the principal proceeding, Hansen Technologies Limited and Hansen Corporation Asia Limited, for an order that the applicant in that proceeding, Darren John Logue, provide security for the respondents' costs. The amount sought by the respondents is $311,762.50, or such other amount as the Court thinks fit. 2 The application is brought pursuant to both O 28 r 3 of the Federal Court Rules, and s 56(1) of the Federal Court of Australia Act 1976 (Cth). 3 Order 28 r 3 provides, so far as is relevant: "(1) Where, in any proceeding, it appears to the Court on the application of a respondent - (a) that an applicant is ordinarily resident outside Australia; … 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. …" 4 Section 56(1) provides: "(1) The Court or a Judge may order an applicant in a proceeding in the Court … to give security for the payment of costs that may be awarded against him or her." 5 Section 56(2) provides that the security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs. Section 56(5) provides that the 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. 6 The respondents have chosen to invoke both O 28 r 3 and s 56(1) because, although they contend that the applicant is ordinarily resident outside Australia, and therefore falls squarely within O 28 r 3(1)(a), they recognise that his status may not be entirely free from doubt. They say, therefore, that regardless of whether the applicant falls within O 28 r 3(1)(a), he should be required, under the discretion conferred upon the Court by s 56(1), to give security for costs. They rely, in support of that argument, upon the breadth and unfettered nature of the discretion under that section which, while it must be exercised judicially, is not delimited by O 28 r 3: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 3-4 and Chapman v Luminis Pty Ltd [2002] FCA 496 at [12]. In particular, they rely upon evidence which, they contend, suggests that the applicant has ordered his affairs in such a way as to ensure that his assets are located overseas, beyond the reach of any costs order that might be made against him. 7 The principal proceeding arises out of a Share Sale Agreement dated 28 December 2001 between the applicant as vendor, and the respondents as guarantor and purchaser, and an Employment Agreement dated 7 January 2002 between the applicant as employee, and the second respondent as employer. 8 It is unnecessary for present purposes to set out in any detail the nature of the principal proceeding. It is sufficient to say that the applicant claims that the respondents engaged in misleading or deceptive conduct, in breach of s 52 of the Trade Practices Act 1974 (Cth), and thereby induced him to enter into both the Share Sale Agreement and the Employment Agreement. He also claims that the respondents failed to honour these agreements by paying him monies that were due and owing, and by terminating his employment without proper cause. Finally, he claims that the respondents were negligent in making the various representations which they did. He claims that he thereby suffered substantial loss and damage including, in particular, a lost opportunity claim which he values at some millions of dollars. 9 There is both a defence and cross-claim by the respondents in which they deny having engaged in misleading or deceptive conduct, or having acted in breach of contract or negligently. They claim that it was the applicant himself who misled and deceived them. They seek recovery of an amount of US$860,265 paid as the first tranche of the Share Sale Agreement, and damages for other losses sustained.

The evidence before the Court 10 Among the matters that are relied upon by the respondents in support of their contention that the applicant is ordinarily resident outside Australia are the following: · he gave a Hong Kong address at the time of entering into the Share Sale Agreement; · he required notices under that agreement to be sent not merely to a New South Wales address which is apparently that of his mother and step-father, but also to an address in Atlanta, Georgia which was where his attorney was located. Subsequently, in September 2002, he changed that address to that of his legal representatives in Australia; · he is not now, and has not been for some years, a resident of Australia for tax purposes; · he was in Australia only infrequently during the period of negotiation leading up to the execution of the Share Sale Agreement; · both before and after the execution of the Share Sale Agreement he spent little time in Australia. Most of his time was spent overseas, visiting customers, and supervising the operations of the companies whose shares were the subject of that agreement. None of those customers were in Australia. The operations of the companies in question were all located overseas. · the Employment Agreement was expressly made subject to Hong Kong law, and the non-exclusive jurisdiction of the Courts of Hong Kong. · he directed payment of the first part (as events transpired it was the only part) of the monetary consideration under the Share Sale Agreement, a net amount of US$860,265 to be made to him in Hong Kong. That sum was, in fact, paid into his Hong Kong account with the Hong Kong and Shanghai Bank. · he directed payment of his salary to be made into that account. 11 The respondents also relied upon the results of searches for Australian assets, and other Australian connections of the applicant. Those searches reveal that the applicant owns no land in Australia, and is not currently listed as a director of any Australian company, and was last a director in 1995. Importantly, a search of the Electoral Rolls showed that he is not currently recorded as enrolled in Australia, and according to Electoral Commission Archives he was last enrolled in 1994. Evidence was adduced that he had not voted in Australia since that year. 12 The evidence adduced also included correspondence passing between the parties' advisors regarding the applicant's place of ordinary residence, any assets that he might have, and their location. In substance, the applicant declined to answer any of the questions put to him regarding these matters. The respondents relied upon the applicant's unwillingness to provide any information regarding his assets, or their location, as the basis for an inference that those assets were substantial, and located outside Australia. 13 The applicant was also asked whether he had filed any tax returns during the past few years, and if so, to provide details. He declined to provide any such information. Again, the respondents submitted that the effect of his unwillingness to provide this information gave rise to an inference that such income as he derived was not derived in Australia. This was said to shift the evidential burden, which would normally rest with the respondents, to the applicant so far as his place of ordinary residence was concerned: FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241. 14 Finally, the respondents adduced evidence from a solicitor and qualified cost consultant that their likely party and party costs, in the event that this matter proceeded to trial, were likely to be of the order of $311,762.50, the global figure claimed as security for costs. It should be noted that that figure was broken down by the cost consultant into various components. She estimated that an amount of $109,780.50 would be the likely party and party costs in relation to the completion of all preliminary steps prior to a mediation. She further estimated that an additional $32,712 would be required for the costs of preparing for such a mediation. She said that a further $70,310 would be required for the costs of preparing for trial, and she estimated that the sum of $98,960 would be required to cover the actual costs of the trial itself. It is significant that the applicant did not challenge any of these estimates. 15 In response to this evidence, the applicant filed and served two affidavits. In the first, filed on 24 December 2002, he set out something of his background, and made the following points: · He was born on 5 March 1961, at Lithgow, New South Wales. · His parents separated and his mother remarried. His mother and step-father currently reside at 54 Priestman Avenue, Umina, New South Wales where he himself had lived for most of his childhood, and throughout his early adult years. · He has remained in regular contact with his mother and step-father by telephone. · He was educated in Australia. He enrolled in, but did not complete, tertiary courses at universities in Newcastle and Bathurst. · He was employed by Telecom Australia (now Telstra) from August 1980 to March 1993. · In 1994 he moved from Umina to Cremorne, in Sydney in order to cohabit with his partner, Ms Renee Bourke. · In March 1993 he incorporated Sultans of Software (Australia) Pty Ltd ("SOS"), a consultancy firm that offered services to various telecommunications companies. He was, at that stage, together with his mother, a shareholder and director of that company. · Even though he had ceased to be a director of SOS, and that company had ultimately been deregistered, it had lodged tax returns on an annual basis for some years, the most recent being for financial year ending June 1999. · On the advice of his tax accountant, he had no outstanding liability for tax in Australia and had not been required to file tax returns for financial years 2000, 2001 and 2002. · In January 1998, he incorporated a professional services company, Strategic Vision International Limited ("SVi"), in Hong Kong. The shareholders and directors of that company were SOS, and himself. SVi offered services to the telecommunications industry. Initially its business focussed on South-East Asia but later expanded to include Central and Latin America, and Europe. It then diversified to offer interconnect billing and settlement software, with a product known as Interconnect Billing Platform ("IBP"). As the parent company expanded, new companies were incorporated. These included SVi (Asia), Sdn Bhd (which was incorporated in Malaysia) and SVi IBP Limited (which was incorporated in Hong Kong). · On 28 December 2001, he entered into an agreement with the respondents for the sale of the shares in the three companies in the SVi Group. That was the Share Sale Agreement to which reference has already been made. The consideration for that purchase was as follows: (a) an initial payment of US$2 million (less certain defined adjustments); (b) a First Additional Payment of US$500,000; (c) a Second Additional Payment of US$500,000; and (d) an "Earn Out Amount" as defined in cl 8 of the Share Sale Agreement. · On 7 January 2002, he entered into a separate agreement with the second respondent to manage and operate the Hansen SVi Group business as Chief Executive Officer. That was the Employment Agreement discussed earlier. His employment was based in Hong Kong, and he was required to engage in extensive international travel on a regular basis. · On the same date, the first respondent paid the sum of US$2 million into the applicant's account with the Hong Kong and Shanghai Banking Corporation Limited. The payment was made in error, and he subsequently refunded the sum of US$1,139,735 to take into account the defined adjustments. · Although the applicant claimed that the respondents were obliged to make both the First and Second Additional Payments, neither payment was in fact made . · On 30 August 2002, the second respondent terminated the applicant's employment. · As a result, the applicant claimed that he had lost the opportunity to receive the Earn Out Amount, as stipulated in the Share Sale Agreement. · Since 1 July 2002, the applicant claimed that his "permanent place of abode" was 11 The Meadows, Kirkham, New South Wales where he resided with his partner, Ms Bourke, and their sons Joshua and Nicholas. · The applicant was currently negotiating with Mr Fergal Power, the SVi Group liquidator, to purchase the IBP assets from the second respondent. He said that "ideally" he would "like to start up a new business in Australia" using that product. · On 5 November 2002, the applicant spoke to the liquidator by telephone and was informed by him that his offer to purchase the IBP assets had been accepted. However, the liquidator said that he was still considering the position regarding certain restrictive covenants contained in both the Share Sale Agreement and the Employment Agreement. The applicant said that these covenants could affect his ability to start up the proposed business. · On 18 December 2002, the applicant spoke to the liquidator by telephone and was told that the first respondent had indicated that it was prepared to waive the restrictive covenants, in the event that the sale went through, though that proposed waiver had yet to be documented. · Although the applicant's preference was to start his own business, marketing the IBP product, the fact that he was "the sole breadwinner" of his family meant that had been forced to commence looking for employment in early October 2002. In that regard, his "preferred employment" was "in an executive management role in a software company based in Sydney". · He had applied for a number of permanent positions within Australia as Chief Executive Officer, Chief Operating Officer, General Manager, or Sales and Marketing Director in the Telecommunications, Information Technology, and other related industries. He identified eleven specific positions for which he had applied. · He had also applied for the position of "Chief Operating Officer for ITCC in Sydney which is based out of Dubai". He said that if he obtained that position, his family would remain in Australia "with home leave on a quarterly basis bundled into the remuneration package". · He had not applied for any positions after 5 November 2002, having regard to the acceptance by the liquidator of his offer to purchase the IBP assets. However, given the delay in hearing from the liquidator regarding the restrictive covenants, and the general uncertainties surrounding the start up of a new business, he had decided to resume looking for employment. · His strong preference was to remain in Australia (preferably Sydney) given his past experience of long periods of time away from a young family and the proceedings against the respondents. However, given the restrictive covenants, and the difficult times within the IT&T industry, he recognised that this might not be possible, and that he could be forced to look abroad. Should a job abroad "negatively impact" his proceedings against the respondents, he would reject that job "on the grounds that it would not be financially viable", or in the circumstances, logistically possible. 16 On 5 February 2003, the applicant filed a supplementary affidavit. In that affidavit he deposed to the following matters: · On 27 December 2002, he separated from his partner and moved out of the home in which he had shared with her and their two sons. Since that date he had resided with his mother and step-father at their home in Umina. · It was his intention to reconcile with his partner, if possible, and they were in regular contact with each other in an attempt to facilitate that outcome. It was uncertain at this stage whether the separation would be permanent. · He spoke with his sons on a daily basis by telephone, and saw them each weekend. · He had had further discussions with Mr Power, and those discussions were continuing. However, since making his initial offer, he had given further thought to the implications upon his financial position of the present application for security for costs. The offer which he had made to the liquidator, and which had been accepted, was to acquire the IBP assets for the sum of US$35,000. In addition, he believed that a further sum of approximately US$10,000 would have to be expended if the product were to be successfully developed and marketed. · He had already expended AUD$10,000 on visits to existing users of IBP as part of the process of negotiating the purchase of that product. · There were question marks about the short term profitability of IBP. · After carefully considering these matters, and his legal costs to date, he had come to the view that, in the event that an order were made for security for costs, he might not be in a position to pay for the IBP, and make the additional expenditure required. He would therefore probably not proceed with the purchase. · Given the uncertainty associated with the proposed acquisition of IBP, he was now continuing to look for employment opportunities "as a fallback position". However, having regard to the restrictive covenants referred to earlier, which would continue to bind him in the event that the IBP transaction did not proceed, his prospects of finding employment in his chosen field, at least in this country, would "continue to be limited".

Is the applicant "ordinarily resident" outside Australia? 17 The fact that the respondents have sought to invoke O 28 r 3 requires consideration to be given to the expression "ordinarily resident outside Australia". There is surprisingly little reported authority on the meaning of that expression. 18 It is clear, however, from the relatively few reported cases in this Court that the purpose of ordering security for costs against an applicant "ordinarily resident outside Australia" is to create a fund within this country against which a successful respondent may enforce a judgment for costs thereby enabling the avoiding of the risks, uncertainties and delays of attempting to enforce such a judgment in the applicant's claimed country of residence: Barton v Minister for Foreign Affairs (1984) 2 FCR 463; Kent Heating Limited v Cook-On Gas Products Pty Ltd (1984) 59 ALR 277 at 279; Energy Drilling Inc v Petroz NL (1989) ATPR 40-954 at 50,422. 19 It also seems tolerably clear that the burden of proof is on the applicant to show that the respondent is "ordinarily resident" out of the jurisdiction. The question must be one of fact, and of degree. 20 The meaning of the expression "ordinarily resident out of the jurisdiction", which is the English formulation, is discussed in some detail in Vol 1 of the White Book Service 2001 at par 25.13.2. In Levene v Inland Revenue Commissioners [1928] AC 217 Lord Warrington of Clyffe observed at 232 that "ordinarily resident" had no technical or special meaning. In particular, it was impossible to restrict its connotation to its duration. For the purpose of determining whether under the Income Tax Act a person is "ordinarily resident" in the United Kingdom in any given year, "the usual ordering of his life must be judged by what he does in that and preceding years …". 21 In Inland Revenue Commissioners v Lysaght [1928] AC 234 Viscount Sumner, said at 243, that the word "ordinarily" could be contrasted with expressions such as "usually", or "most of the time", or "exclusively". Ordinarily could also be contrasted, on the other hand, with expressions such as "occasionally", or "exceptionally", or "now and then". His Lordship suggested that the converse to "ordinarily" is "extraordinarily" and that part of the regular order of a man's life, adopted voluntarily, and for settled purposes, is not "extraordinary". 22 In R v Barnet London Borough Council, Ex parte Nilish Shah [1983] 2 AC 309 it was held by the House of Lords that, in the context of the Education Act 1962 (UK) and the Education Act 1980 (UK), the term "ordinarily resident" should be construed according to its ordinary and natural meaning. Lord Scarman, with whom the other members of the House of Lords agreed, referred to Levene and Lysaght with approval and observed at 343 that the question whether a person is "ordinarily resident" in a place is to be resolved in favour of that conclusion if he habitually and normally resides lawfully in such place from choice and for a settled purpose, apart from temporary or occasional absences, even if his permanent residence or "real home" is elsewhere. His Lordship emphasised at 344 that there must be a degree of settled purpose. That does not mean that the "propositus" intends to stay where he is indefinitely. Indeed his purpose, while "settled", may be for a limited period. However, the purpose of living where one does must have a sufficient degree of continuity to be properly described as "settled". 23 The principles in Levene, Lysaght, and Shah were said by the authors of the White Book to have been applied by the Court of Appeal in an application for security for costs in Parkinson v Myer Wolff and Manly (unreported, 23 April 1985). 24 The English authorities suggest that it may also be possible for a person to have two ordinary residences, one within the jurisdiction and one outside. In such a case the Court has power to order security for costs, but that person's connection with the United Kingdom will be relevant to the exercise of that discretion. The closer the connection, the greater the relevance. If the claimant has an established home, and is resident, though not "ordinarily resident" in that country, security will rarely be ordered. If the claimant has an established home and is ordinarily resident in that country, security will be ordered even more rarely: Leyvand v Barash (unreported, Chancery Division, 15 February 2000, per Lightman J). 25 The expression "ordinarily resident" is also discussed in Stroud's Judicial Dictionary (5th ed, 1986, Sweet & Maxwell). A number of examples are given, most concerned with the meaning of that expression in the context of either bankruptcy, or revenue law. Thus: · a man who had frequently stayed in London with friends, or at a lodging-house, or at a hotel, for some weeks or a month at a time, was not thereby shown to have "ordinarily resided" there, within the meaning prescribed in the Bankruptcy Act 1883 (UK): Re Erskine (1893-4) 10 TLR 32; · a property developer who worked from the Channel Islands but spent the majority of his time in England, where he stayed at hotels and with friends, and occasionally at a house of which he was the lessee and which was occupied by his son's mother, was, although he had no "dwelling house" within the meaning of the section, held to have "ordinarily resided" in England for the purposes of the Bankruptcy Act 1914: Re Brauch (A Debtor), Ex parte Britannic Securities & Investments Ltd [1978] Ch 316; · a person domiciled in Australia who became a lunatic and was detained while on a visit to the United Kingdom was held to be "ordinarily resident" in that country for the purposes of income tax: Re Mackenzie [1941] Ch 69; · a wife resident with her husband in Canada for five months immediately before presenting her petition for divorce was not "ordinarily resident" in the United Kingdom within the relevant matrimonial causes legislation: Hopkins v Hopkins [1950] 2 All ER 1035; · a resident who expressed an intention in certain circumstances to leave the country at the conclusion of a case could not on such a provisional decision be said to be "ordinarily resident" out of the jurisdiction: Appah v Monsen [1967] 1 WLR 893; · where two persons, both aged 17, came to England, the first to settle and further his education, the second to further his education and then leave, the former was held by the Queen's Bench Division to be "ordinarily resident" but not the latter: R v Barnet London Borough Council, ex parte Nilish Shah [1981] 2 WLR 86. This case subsequently found its way to the House of Lords, along with several other similar cases, in R v Barnet London Borough Council, Ex parte Nilish Shah [1983] 2 AC 309; · similarly, an Italian who from the age of ten had attended boarding schools in England, returning to Italy for holidays, but who had formed the intention to live and work in England, was held to be "ordinarily resident" there: Cicutti v Suffolk County Council [1980] 3 All ER 689. 26 What these cases, and others like them seem to establish is that the test for ordinary residence depends to a significant degree upon the state of mind of the person whose residence is in question. The language used in a number of the cases focuses upon whether the person habitually and normally resides in the jurisdiction, and does so for a settled purpose. 27 It is worth noting, at this stage, that although there are some similarities between the question whether a person is "ordinarily resident" within a jurisdiction, and whether that person is "domiciled" within that jurisdiction for the purposes of choice of law rules in private international law, there are also differences between these concepts. The classic formulation of "domicile" is that laid down in Lord v Colvin (1859) 4 Drew. 366 at 376. Domicile is the place at which a person: "…has voluntarily fixed the habitation of himself and his family, not for a mere special and temporary purpose, but with a present intention of making it his permanent home, unless and until something (which is unexpected or the happening of which is uncertain) shall occur to induce him to adopt some other permanent home." 28 At common law no person could be without a domicile. Conversely, no person could have more than one domicile at a time. Neither of these propositions is applicable to the expression "ordinarily resident". If anything, the threshold for acquiring a new domicile of choice appears to be higher than the threshold for acquiring a new ordinary residence. 29 It was all but conceded by Senior Counsel for the applicant, in answer to the claim for security for costs, that his client had not been "ordinarily resident" in Australia between at least 1998 and July 2002. Indeed, the evidence suggests that the applicant was not "ordinarily resident" in this country as far back as 1997, if not prior to that date. The question to be determined is whether, since his return in July 2002, he is now "ordinarily resident" in this country. 30 The onus rests upon the respondents to demonstrate that the applicant is not, at this time, ordinarily resident in Australia. The question relates to his status at this time, and not his status at the time the principal proceeding was commenced. So much emerges from the word "is" in O 28 r 3. However, nothing of any significance turns upon that distinction in the present case given that the applicant only returned to Australia in July 2002. 31 There are also a number of factors which support the applicant's contention that he is "ordinarily resident" in this country. He is an Australian citizen, having been born in this country and educated here. The evidence is that he currently resides in New South Wales, and has done so continuously since July 2002. He has strong family connections, including his mother, partner and children. 32 However, there are also a number of factors which tend to negate that conclusion. These were previously summarised, and I shall not repeat them here. Whether or not he is ordinarily resident in this country seems to me to depend heavily upon his purpose for being here at this time, and in particular, whether he has formed a "settled purpose" to reside in Australia. In that regard, the applicant's two affidavits do not assist his case. 33 In his first affidavit he states that he is looking for work in Australia and overseas. He also acknowledges that one of the main reasons for his presence here now is to conduct this litigation. His second affidavit, in particular, raises real doubts as to whether he has actually formed a "settled purpose" of remaining in this country. The general tenor of that affidavit suggests that, although his desire would be to remain in Australia, and he would certainly do so if conditions allowed for that possibility, there are significant impediments to that course. As the applicant himself says, the prospects of the purchase of the IBP assets from the liquidator have diminished. If the applicant does not proceed with that transaction, the likelihood is that the restrictive covenants under the Share Sale Agreement and the Employment Agreement imposed upon him will continue to operate. As he himself conceded this makes it less likely that he will be able to find employment in his chosen field of endeavour. 34 The impression which I have formed from reading the two affidavits filed on behalf of the applicant is that the main reason that he is still here today is to pursue this litigation. In my opinion, he has not formed a "settled purpose" to remain in this country. Were it not for this litigation, he would probably have remained in Hong Kong, or gone to some other place where the prospects of employment for someone with his background would be significantly greater. Although, the onus rests upon the respondents to demonstrate that the applicant is not ordinarily resident in Australia, that onus can be discharged by proving that he was last ordinarily resident outside this country, and has not yet acquired ordinary residence in this country. That onus is met by establishing that the applicant has not formed a settled purpose to remain in Australia. 35 I am fortified in my conclusion that the applicant is not ordinarily resident in Australia by the fact that his name does not appear on the electoral roll. Persons who are ordinarily resident in this country are obliged to ensure that there names are recorded on that roll pursuant to the Commonwealth Electoral Act 1918 (Cth). I note that the applicant has adduced no evidence to explain why he was last included on the electoral role in 1994, and has not taken the necessary steps to rectify his omission from the roll although he has resided here since July 2002. 36 There are also certain features of the applicant's supplementary affidavit which heighten my doubts as to whether he has acquired ordinary residence in Australia. If anything, the break-up of his relationship with his partner in December 2002 renders less likely the prospect that he has a settled purpose to remain in this country. This is not a matter of great weight, but it must be taken into consideration in determining whether that settled purpose exists. Similarly, the fact that the applicant is currently living with his mother and step-father at their home in Umina, rather than near his partner and children at Kirkham suggests that the weight normally to be accorded to the fact that he has a partner and children in this country is somewhat diminished. 37 Doing the best that I can to balance the competing considerations, I have come to the view that the evidence establishes, on the balance of probabilities, that the applicant is not ordinarily resident in Australia. 38 The practice is that a party who is not ordinarily resident in this country, and has no assets within the jurisdiction, is normally ordered in the exercise of the Court's discretion within O 28 r 3 to give security for costs. At the very least these factors are regarded as circumstances of "great weight" in determining whether such an order should be made. 39 In P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 McHugh J observed at 323 that: "… for many years the practice has been to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction." 40 In this case, the applicant cannot point to any such circumstances. He did, however, refer to the fact that judgement for costs against him, were such a judgment made, could be registered in Hong Kong. I note that a litigant ordinarily resident outside Australia cannot resist an application under O 28 r 3 merely by showing, without more, that he is ordinarily resident in one of the countries specified in regulations made under the Foreign Judgments Act 1991 (Cth): Farmitalia Carlo Erba SRL v Delta West Pty Ltd (1994) 28 IPR 336. 41 It follows that the respondents are entitled, pursuant to O 28 r 3, to an order for security for costs.

The general discretion under s 56(1) 42 As indicated earlier, the respondents relied, in the alternative, upon the general discretion conferred upon the Court under s 56(1). As indicated earlier, the discretion of the Court under that section has been held to be broad, and unfettered. While it must be exercised judicially, it is not delimited by O 28 r 3: Bell Wholesale Co Ltd v Gates Export Corporation (No 2) (supra) and Chapman v Luminis Pty Ltd (supra). 43 In Pegasus Gold Inc v Bateman Project Engineering [1999] FCA 1734 at [18] it was held that unlike O 28 r 3, there is no "threshold test" to be met before an order for security for costs can be made under s 56. 44 In Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 Hill J identified a number of factors as being relevant to the exercise of the discretion under s 56. These included the chances of success, whether an order for security would shut the applicant out from pursuing his claim, whether the impecuniosity arose out of the breaches alleged against the respondent, the public interest, discretionary matters peculiar to the relevant case, and the quantum of risk that the applicant might not be able to satisfy an order for costs. 45 I note that Hill J included among the relevant factors to be taken into account in an application under s 56 an evaluation of the prospects of success. In Chapman v Luminis (supra) Tamberlin J conducted just such an evaluation in the context of an appeal from a decision of the Administrative Appeals Tribunal. It is one thing to form a preliminary view about the prospects of success in such a matter, and quite another to do so in relation to a claim of the kind with which I am presently concerned. The only material before the Court at this stage is a set of pleadings in which each party makes factual allegations against the other. Neither party has adduced any evidence which bears upon the applicant's prospects of success. In those circumstances, no assessment can sensibly be made as to what those prospects of success might be. 46 It would also be inappropriate, in my opinion, in a case of this kind, for a judge who will ultimately have to determine the outcome of such a proceeding to make findings based solely upon the pleadings, as to the likelihood that the applicant will ultimately succeed. The position might well be different if the application for security for costs were heard by a registrar (which cannot be done insofar as reliance is based upon s 56), or a different judge, and there was some evidence before the Court which enabled an assessment of the prospects of success to be made. There is a useful discussion of this issue by Hill J in Equity Access at 50,636. 47 It follows that I do not propose to embark upon the task of expressing an opinion as to the applicant's prospects of success, and nothing that I have said should be regarded as indicating, in any way, what I consider the likely outcome of the principal proceeding to be. 48 It was submitted on behalf of the applicant that, in reality, he was not the "attacker" in this case, but had instituted this proceeding "defensively" in response to the respondent's decision to terminate his employment and withhold payments to which he was entitled. This was said to be a factor which should result in the dismissal of the application for security for costs: Amalgamated Mining Services Pty Ltd v Warman International Ltd (1988) 19 FCR 324. 49 I reject that submission. The applicant's claim is for an amount that vastly exceeds the amount of the respondents' cross-claim. In addition, the matters which they raise in answer to his claim, including the allegation that they were relevantly misled are essentially defensive in nature. Senior Counsel for the respondents indicated that if an order for security for costs were made, the respondents would undertake not to prosecute their cross-claim against the applicant for so long as his the effect of that order for security for costs was to stay the applicant's claim. 50 I accept that the general rule is that a natural person who commences litigation will not be required to provide security for costs merely because that person is impecunious: Barton v Minister for Foreign Affairs (supra) and Fletcher v Federal Commissioner of Taxation (1992) 110 ALR 233 at 238. That principle has no application to this case. Far from demonstrating impecuniosity on the part of the applicant, the evidence suggests that he is well able to meet any order for security for costs in the amount sought, or some lesser figure. I am not persuaded that his ability to pursue this litigation would be prejudiced if such an order were made. I note, in particular, that he received an amount of US$860,000 (then worth close to AUD$2 million) approximately one year ago. That sum was paid to him in Hong Kong, a jurisdiction which is well known to impose low rates of income tax. 51 The applicant has provided no evidence to suggest that this money has been spent, or is not otherwise available to him. He has not provided any evidence to suggest that he is impecunious, save by a veiled suggestion to that effect when he claimed that the deal to purchase the IBP assets from the liquidator would be jeopardised by an order for security for costs. I reject that suggestion. The amount in question is modest, having regard to the size of the payment made to him only last year. 52 The applicant also deposed that he was the "sole breadwinner" for his family which suggested that he was under some pressure to find employment. However, this evidence was tenuous, and did not condescend to any detail. 53 I do not find the suggestion that the applicant may be impecunious to be persuasive, particularly in the absence of any evidence from him as to what, if anything, he has done with the money which he received from the respondents: Jones v Dunkel (1959) 101 CLR 298. 54 Any person is entitled to render themselves "litigation proof" if they so choose. Many high wealth individuals in this country have done so, sometimes for sound commercial reasons. That fact alone will not be sufficient, in my view, to warrant the making of an order for security for costs under s 56. 55 The applicant's position goes further. His current links with this country are, at best, somewhat tenuous. His future intentions are unclear. It is likely that he has substantial assets offshore, and the evidence suggests that he has no assets of any real value in Australia. The evidence also suggests that his assets overseas are not fixed, and can readily be moved beyond the reach of the respondents, should any order for costs be made against him. At any rate, the applicant has chosen not to provide the Court with any evidence regarding his current financial position. That is, of course, his right, and there may be sensible reasons from a forensic point of view as to why he would be reluctant to reveal the strength of his finances. However, it does not follow that, in a case of this type, the Court cannot take into account the absence of such evidence in determining whether to order security for costs. 56 I consider that it would be grossly unfair to the respondents, in these circumstances, to expect them to spend substantial sums of money in meeting the claims brought against them, and in the event that they succeed in defeating those claims, be unable to recover at least some portion of their costs. 57 It follows that even if I were not persuaded that the applicant was "ordinarily resident" outside Australia, and that he was therefore amenable to the discretion under O 28 r 3, I would nonetheless order security for costs under s 56.

The orders 58 The applicant has not challenged the estimate submitted by the respondents of the likely costs which they would incur, should this matter proceed to trial. Nonetheless, it was submitted by Senior Counsel for the applicant that if security for costs were ordered, it ought to be staged rather than covering the entire costs of the trial. It was also submitted that there ought to be some apportionment made to allow for the fact that a part of the case is likely to involve the respondents' own cross-claim against the applicant, based upon allegations which are not purely defensive. 59 I think there is merit in at least the first of these submissions. I propose therefore to order that the applicant provide a sum which will allow for this matter to proceed to the end of pre-trial preparation. On the evidence, the amount likely to be incurred, and to be recoverable on a party and party basis would be $109,780.50. I will round that figure down to $100,000 to make limited allowance for the possibility some small part of this case involves expenditure related solely to the respondent's allegations against the applicant which are not defensive in nature. 60 It follows that I will order that, upon the respondents giving the undertaking which they indicated they would proffer to the Court, the applicant provide the sum of $100,000 by way of security for costs. The respondents will have liberty to apply for further security for costs to cover the cost of any mediation, preparation for trial, and the trial itself, at a later stage. 61 I propose to publish these reasons for judgment, and to give the parties an opportunity to formulate both the undertaking, and the orders required, in order to give effect to them. I certify that the preceding sixty one (61) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg J.

Counsel for the Respondents: R.A. Brett QC and J.D.S. Barber

Australia" Federal Court of Australia Act 1976(Cth)s 51(1)

Trade Practices Act 1974(Cth)

Electoral Act 1918(Cth)

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Judgment (8 paragraphs)

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Cases Cited (11)