Practice and procedure - Security for costs - Party outside the jurisdiction - Relevant principles - Whether party has assets within jurisdiction capable of meeting order for costs - Relevance of nature of assets in the jurisdiction - Security for costs sought against counterclaimant - Whether counterclaim defensive in nature - Whether security will be ordered where claimant responding to attack - Whether counterclaimant forced to sue by self-help remedy employed by defendant to counterclaim

1 NEWNES J: The second to sixth defendants by counterclaim and the seventh defendant by counterclaim respectively have applied for an order that the plaintiff by counterclaim (Mabrouk Holdings) provide security for the costs of the counterclaim. The application is opposed by Mabrouk Holdings, substantially on the grounds first, that although it is registered outside the jurisdiction, it has within the jurisdiction sufficient assets to meet any order for costs that might be made in favour of the defendants by counterclaim; and secondly, that in any event the counterclaim arises out of the plaintiff's claim and is defensive in nature.

2 In the action, the plaintiff (Mabrouk Minerals) claims against Mabrouk Holdings as first defendant and the Director General of Mines as second defendant. The second defendant is taking no active part in the action.

3 Mabrouk Minerals pleads that at all material times it was the registered holder of a number of mining leases and exploration licences comprising the Cashmere Downs tenements and the Mount Anderson tenements. The directors of Mabrouk Minerals included the second, third, fourth and fifth defendants by counterclaim (Mr Hendrie, Mr Master, Mr Starkey and Mr Wilder respectively).

4 Mabrouk Holdings is a company incorporated in the British Virgin Islands. It is not registered as a foreign corporation under the Corporations Act 2001 (Cth).

5 Mabrouk Minerals alleges that between March 2004 and 12 October 2004, Mabrouk Minerals and Mabrouk Holdings entered into negotiations for the purchase by Mabrouk Holdings of the shares in Mabrouk Minerals held by the existing shareholders (the Original Shareholders), for the development of an iron ore mine and mines for other minerals on the Cashmere Downs tenements and the Mount Anderson tenements, and for the forward sale of ore.

6 It is alleged that, in about March 2004, Mabrouk Holdings informed Mr Hendrie, on behalf of Mabrouk Minerals, that Mabrouk Holdings required an evaluation, by a programme of drilling and analysis, of the iron ore resource in an area of the Cashmere Downs tenements known as the Northwest Target Area, to be conducted by a firm of independent consultants.

7 Mabrouk Minerals says that, in about July 2004, Mabrouk Holdings said that it had selected MacKay & Schnellmann to conduct the resource evaluation programme. Mabrouk Minerals says it informed Mabrouk Holdings that an amount of $1,298,000 would be required to establish an Inferred Mineral Resource in the Northwest Target Area.

8 Mabrouk Minerals says that, on about 15 September 2004, it informed Mabrouk Holdings that it could not raise the $1,298,000 required to carry out the proposed resource evaluation programme but could only raise $352,000. Mabrouk Minerals informed Mabrouk Holdings that a minimum of $500,000 was required to establish an Inferred Mineral Resource for iron ore over a smaller area (the evaluation area) and that Mabrouk Minerals was unable to meet the shortfall of $148,000.

9 Subsequently, in late September 2004, at a meeting of representatives of Mabrouk Minerals and Mabrouk Holdings there was discussion of the possibility of Mabrouk Holdings acquiring up to 90% of the shares in Mabrouk Minerals.

10 At the meeting it was agreed (the Hendrie share transaction) that for the purpose of meeting the shortfall of $148,000 for the resource evaluation programme:

• Mr Hendrie would transfer shares in Mabrouk Minerals which he owned or controlled, amounting to a 5% interest, to Steelglow, a company controlled by Mabrouk Holdings;
• Steelglow would pay to Mr Hendrie the sum of $148,000 for the shares;
• Mr Hendrie would pay that sum to Mabrouk Minerals to facilitate the resource evaluation programme;
• if Mabrouk Holdings failed to acquire up to 90% of the shares in Mabrouk Minerals (inclusive of the Hendrie shares), Mr Hendrie had the right to re-acquire the shares upon repayment of the $148,000 to Steelglow.

11 Mabrouk Minerals says it agreed with Mabrouk Holdings that any resource evaluation programme conducted by Mabrouk Minerals would be undertaken to establish an Inferred Mineral Resource in the evaluation area.

12 Mabrouk Minerals pleads that it was the common intention of the parties that if Mabrouk Holdings proceeded with the acquisition of 90% of the shares in Mabrouk Minerals, it would do so upon confirmation of an Inferred Mineral Resource in the evaluation area.

13 Mabrouk Minerals pleads that shortly afterwards, on 12 October 2004, it entered into a share acquisition agreement with Mabrouk Holdings by which Mabrouk Minerals agreed to sell 90% of the issued shares in Mabrouk Minerals to Mabrouk Holdings, to be transferred in three tranches.

14 In the first tranche, Mabrouk Minerals would transfer 5% of the shares and Mabrouk Holdings would provide to Mabrouk Minerals an unsecured loan of $352,000. The transfer of the shares was conditional upon Mabrouk Minerals undertaking to complete a drilling programme to confirm an iron ore resource deposit of approximately 100 million tonnes at the valuation area and procuring an independent report from MacKay & Schnellmann.

15 In the second tranche, Mabrouk Minerals would transfer 39% of the shares to Mabrouk Holdings and Mabrouk Holdings would pay to the Original Shareholders the sum of US$5 million. That tranche was dependent upon, among other things, the completion of the iron ore resource drilling programme confirming iron ore resource deposits of approximately 100 million tonnes and receipt of a report from MacKay & Schnellmann to that effect.

16 In the third tranche, Mabrouk Minerals would transfer 41% of the shares to Mabrouk Holdings and Mabrouk Holdings would pay to the Original Shareholders the sum of US$27 million. That tranche was dependent upon, among other things, the completion of a detailed economic feasibility study to be commissioned and paid for by Mabrouk Holdings, indicating the commercial viability of extracting iron ore from the Cashmere Downs tenements.

17 Mabrouk Minerals pleads that the agreement to sell 90% of the shares in Mabrouk Minerals was inclusive of the 5% interest to be transferred to Mabrouk Holdings pursuant to the Hendrie share transaction.

18 Mabrouk Minerals alleges that by about 19 October 2004 each condition of the first tranche had been fulfilled, and that by 11 October 2005 each condition of the second tranche had been fulfilled. In that connection, it is pleaded, among other things, that, on or about 28 February 2005, Mabrouk Minerals obtained a report from MacKay & Schnellmann confirming the existence of iron ore deposits of more than 100 million tonnes in the evaluation area for the purposes of the share acquisition agreement.

19 It is alleged that, on 20 December 2005, Mabrouk Minerals advised Mabrouk Holdings that the conditions for the second tranche had been fulfilled and demanded payment of the sum of US$5 million to the Original Shareholders.

20 Mabrouk Minerals pleads that, in breach of the share acquisition agreement, Mabrouk Holdings failed to pay the sum of $5 million and failed to execute certain formal agreements that it was required to execute.

21 It is alleged that, on 19 December 2005, Mabrouk Holdings claimed that the MacKay & Schnellmann report did not establish an Indicated Mineral Resource of at least 100 million tonnes and therefore the conditions required for payment of the second tranche had not been fulfilled. Mabrouk Minerals maintained that the conditions had been met.

22 It is alleged that, on 9 January 2006, Mabrouk Minerals and Mabrouk Holdings agreed to resolve that dispute by entering into an agreement (the general agreement) to vary the share acquisition agreement.

23 Mabrouk Minerals pleads that, among other things, the share acquisition agreement, as varied by the general agreement, extended the time by which Mabrouk Holdings was to pay the sum of $5 million to the Original Shareholders to 31 March 2006 and required Mabrouk Holdings to pay, upon demand, a further $3 million to Mabrouk Minerals by 31 March 2006 to prove up the Cashmere Downs tenements from an Inferred Mineral Resource to an Indicated Mineral Resource. Mabrouk Holdings was also required to pay to Mabrouk Minerals, by 15 January 2006, the sum of $300,000 and up to $500,000, if demanded by Mabrouk Minerals, to meet exploration expenditure upon the Cashmere Downs tenements and to engage MacKay & Schnellmann to further prove up the iron ore resource.

24 Mabrouk Minerals says that it was a term of the varied share acquisition agreement that Mabrouk Minerals and Mabrouk Holdings was each entitled to withdraw from it at will.

25 Mabrouk Minerals pleads that, on or about 15 January 2006, Mabrouk Holdings advised Mabrouk Minerals that it (Mabrouk Holdings) did not have funds to meet its obligations under the share acquisition agreement or the general agreement and that it would not be making any further payments to Mabrouk Minerals or the Original Shareholders.

26 On 24 January 2006, Mabrouk Minerals demanded payment of the sum of $500,000 under the general agreement, which sum Mabrouk Holdings failed to pay.

27 Mabrouk Minerals says that Mabrouk Holdings thereby withdrew from the share acquisition agreement (releasing Mabrouk Minerals from all obligations in relation to the acquisition of its shares by Mabrouk Holdings) and repudiated the share acquisition agreement.

28 Mabrouk Minerals says that, on 18 February 2006, it accepted Mabrouk Holdings's withdrawal from, or alternatively it terminated, the share acquisition and the general agreement. In the alternative, Mabrouk Minerals says that the share acquisition agreement was unenforceable in that, among other things, it contemplates that the Original Shareholders will sell 90% of their shares in Mabrouk Minerals to Mabrouk Holdings in circumstances where the Original Shareholders are not parties to the agreement and there is no term requiring them to sell the shares.

29 In the action, Mabrouk Minerals seeks, in substance, a declaration that the share acquisition agreement is invalid and unenforceable, alternatively that the share acquisition agreement and the general agreement were validly terminated; a declaration that Mabrouk Holdings has no caveatable interest in the Cashmere Downs tenements, an order that it remove the caveats it has lodged over those tenements, and damages for the wrongful lodgement of the caveats. As I understand the case for Mabrouk Minerals, the relief in relation to the caveats follows from a finding as to the invalidity or termination of the share acquisition agreement.

30 It is unnecessary to canvass in detail the defence pleaded by Mabrouk Holdings. The defence substantially consists of denials of Mabrouk Minerals's claim. But as I understand the substance of its case, Mabrouk Holdings denies, in particular, that the MacKay & Schnellmann report confirmed the existence of iron ore deposits of exceeding 100 million tonnes in the evaluation area and accordingly Mabrouk Holdings says that the conditions for the second tranche had therefore not been satisfied.

31 Mabrouk Holdings also denies that the general agreement was entered into for the purpose of resolving a dispute about whether the conditions of the second tranche had been satisfied and says it was entered into for the purpose of providing funding for Mabrouk Minerals to undertake a further drilling programme and for exploration expenditure.

32 In addition, Mabrouk Holdings says that the general agreement did not vary the terms of the share acquisition agreement or create any binding obligations on the parties to the share acquisition agreement. Mabrouk Holdings says the general agreement is uncertain and therefore void, or is unenforceable because Mabrouk Minerals gave no consideration for it.

33 Mabrouk Holdings denies that Mabrouk Minerals was entitled to terminate the share acquisition agreement or that that agreement has come to an end and says that the agreement remains on foot.

34 It is also pleaded by Mabrouk Holdings that the Original Shareholders were Messrs Hendrie, Master, Starkey and Wilder and entities controlled by them and that Messrs Hendrie, Master, Starkey and Wilder executed the share acquisition agreement in their personal capacities as Original Shareholders and on behalf of the entities they controlled which were Original Shareholders. The Original Shareholders were therefore bound by the share acquisition agreement.

35 Relevantly for present purposes, Mabrouk Holdings pleads a counterclaim against Mabrouk Minerals, Messrs Hendrie, Master, Starkey, Wilder and MacPherson Nominees (in their capacity as the Original Shareholders) and the seventh defendant by counterclaim (Cashmere Iron).

36 In the counterclaim, Mabrouk Holdings pleads that, on 12 October 2004, it entered into the share acquisition agreement with Mabrouk Minerals and the Original Shareholders. It says the share acquisition agreement, among other things, was subject to express terms that Mabrouk Minerals warranted it was the registered holder of mine tenements which included the area known as Cashmere Downs; that it granted to Mabrouk Holdings an exclusive right to develop and commercialise the iron ore resource deposits and other mineral resource deposits in the Cashmere Downs tenements; and that Mabrouk Holdings was, on fulfilment of certain conditions, entitled to purchase 85% of the shares in the capital of Mabrouk Minerals for US$32 million.

37 Mabrouk Holdings pleads that the share acquisition agreement was subject to an implied term that Mabrouk Minerals would not, during the term of the agreement, transfer or license its interest in the Cashmere Downs tenements to a third party so that the tenements ceased to be subject to the exclusive rights granted to Mabrouk Holdings and ceased to be assets of Mabrouk Minerals.

38 It further alleges that Messrs Hendrie, Master, Starkey and Wilder controlled Mabrouk Minerals or, alternatively, it was controlled by the Original Shareholders and that those parties therefore had knowledge of negotiations leading up to, and the terms of, the share acquisition agreement.

39 Mabrouk Holdings pleads that, on 26 July 2007, Messrs Hendrie, Master, Starkey and Wilder, alternatively the Original Shareholders, caused the registration of Cashmere Iron. Messrs Hendrie, Master, Starkey and Wilder were directors and the Original Shareholders owned the majority of the shares in Cashmere Iron. Accordingly, it is alleged, Cashmere Iron also had knowledge of negotiations leading up to, and the terms of, the share acquisition agreement.

40 It is alleged that, on or about 15 August 2007, Messrs Hendrie, Master, Starkey and Wilder, or alternatively the Original Shareholders, caused Mabrouk Minerals to grant to Cashmere Iron an exclusive licence to the Cashmere Downs tenements and accordingly transferred or licensed Mabrouk Minerals's interest in the tenements to Cashmere Iron.

41 Mabrouk Holdings pleads that that transfer or licence was in breach of the share acquisition agreement. Mabrouk Holdings says it has thereby lost the opportunity of the exclusive right to develop and commercialise the Cashmere Downs tenements, and the value of its right to purchase 85% of the shares of Mabrouk Minerals has been diminished by the value of the Cashmere Downs tenements.

42 It is pleaded that if the Original Shareholders caused Mabrouk Minerals to grant the licence to Cashmere Iron, the Original Shareholders knew and intended to breach the share acquisition agreement, and have therefore knowingly interfered in the contractual relations between Mabrouk Holdings and the other parties to the share acquisition agreement. Alternatively, the Original Shareholders have acted unconscionably in that, with knowledge of and intending to breach the share acquisition agreement, they granted the exclusive licence to Cashmere Iron thereby depriving Mabrouk Holdings of the benefit of the tenements and transferring it to a company of which the Original Shareholders held the majority of shares. It is pleaded that the Original Shareholders have thereby been unjustly enriched.

43 Mabrouk Holdings also claims against Cashmere Iron as having knowingly interfered with the contractual relations between Mabrouk Holdings and the other parties to the share acquisition agreement, and having been unjustly enriched by the acquisition of the benefit of the Cashmere Downs tenements.

44 By the counterclaim, Mabrouk Holdings seeks as against Mabrouk Minerals, damages for the loss of the right to commercialise the tenements and for the diminution in the value of the shares in Mabrouk Minerals; and as against Messrs Hendrie, Master, Starkey, Wilder, MacPherson Nominees and Cashmere Iron, damages, equitable compensation for interference with contract, and an account of the benefits received by the transfer of the tenements.

The submissions on behalf of the defendants by counterclaim

45 The second to seventh defendants by counterclaim (to whom I shall refer collectively as 'these defendants by counterclaim') seek security for costs on the basis that Mabrouk Holdings is a company ordinarily resident out of the jurisdiction.

46 It was not in issue that Mabrouk Holdings owns shares in Cashmere Iron, the value of which is more than sufficient to meet any order for costs that might be made against Mabrouk Holdings in the action. On behalf of these defendants by counterclaim it was submitted, however, that the ownership of those shares would be relevant only if they were available by way of security for the costs of these defendants by counterclaim. Cashmere Iron is currently converting to a public unlisted company. The shares in it are assets that can readily be disposed of and, in addition, as Mabrouk Holdings is not registered in this jurisdiction but was incorporated in the British Virgin Islands, it is impossible for these defendants by counterclaim to know whether, or to what extent, the shares are, or might in the future be, encumbered. Mabrouk Holdings has not gone on oath to reveal whether or not they are currently encumbered. In any event, Mabrouk Holdings has not offered to secure a sufficient number of shares to be available in the event that costs are awarded in favour of Cashmere Iron.

47 Mabrouk Holdings does not suggest that the making of an order for the payment of money by way of security or the provision of security in some other form could not be complied with.

48 It was submitted there is no basis for a contention that the counterclaim against these defendants by counterclaim is in the nature of a defensive action. They are not parties to the claim by Mabrouk Minerals against Mabrouk Holdings. The claim against these defendants by counterclaim is a separate and fresh claim by Mabrouk Holdings.

49 Whilst the original shareholders of Mabrouk Minerals are shareholders in Cashmere Iron, there are other shareholders. Currently, there are 12 shareholders, holding approximately 7.76% of the shares in Cashmere Iron, who are not shareholders in Mabrouk Minerals. Once Cashmere Iron becomes a public unlisted company, a further share issue is to be made with the result that approximately 10.3% of the shareholders in Cashmere Iron will not be shareholders in Mabrouk Minerals.

50 It was submitted that the claim against Cashmere Iron is not in any sense defensive but, on the contrary, is offensive in that it is a claim which Mabrouk Holdings would have brought against Messrs Hendrie, Master, Starkey, Wilder, MacPherson Nominees and Cashmere Iron regardless of the proceedings by Mabrouk Minerals against Mabrouk Holdings. Messrs Hendrie, Master, Starkey, Wilder, MacPherson Nominees and Cashmere Iron are not parties to the original action and the counterclaim against them is a separate and distinct claim for damages and other pecuniary relief.

51 It was also submitted that there is no basis for the contention by Mabrouk Holdings that it has a strong claim against Cashmere Iron. The highest the case for Mabrouk Holdings could be put is that it is reasonably arguable.

The submissions on behalf of Mabrouk Holdings

52 Counsel for Mabrouk Holdings submitted that it was evident that Mabrouk Holdings had a strong claim. Although Mabrouk Minerals had commenced this action on 15 June 2006 and knew of the matters that would need to be determined at trial, on or about 15 August 2007 it transferred its main asset to Cashmere Iron, a company owned and controlled by Mabrouk Minerals and the Original Shareholders. In reality, the interests of Mabrouk Minerals, the Original Shareholders and Cashmere Iron are one and the same.

53 It was argued that the counterclaim is defensive in nature or that it has come about that Mabrouk Holdings is the plaintiff by counterclaim (rather than a defendant) only because of the 'self-help' conduct of the defendants by counterclaim in transferring the interest in the tenements from Mabrouk Minerals to Cashmere Iron, despite the fact that the issue of the enforceability of the share acquisition agreement remained unresolved.

54 Counsel argued that all of the counterclaims raised by Mabrouk Holdings arise out of the principal issue in relation to the enforceability of the share acquisition agreement. Cashmere Iron is the alter ego of Mabrouk Minerals and the Original Shareholders. If the transfer of assets to Cashmere Iron had not occurred, Mabrouk Holdings may not have taken action against the Original Shareholders in Cashmere Iron. The counterclaims by Mabrouk Holdings are merely extensions of the claims it has made in response to the claims against it by Mabrouk Minerals.

55 Counsel submitted that the conduct and position of the parties, including whether, given competing claims, one party or the other could equally have been plaintiff or defendant, are relevant considerations on an application for security for costs. If one party has taken a pre-emptive step so that the other has to become the plaintiff, that is also a relevant consideration. Thus, a plaintiff cannot divest itself of assets to a related party and then seek security when the related party is joined as a proper defendant. In the present case, those considerations favour the dismissal of the applications for security for costs.

56 It was further submitted that Mabrouk Holdings had sufficient assets in the jurisdiction in the form of the shares it held in Mabrouk Minerals and Cashmere Iron to meet any order for costs that might be made against it and on that basis too an order for security should be refused. Counsel did not dispute that the shares might be readily disposed of or that they were capable of being encumbered in a manner that was not ascertainable by these defendants by counterclaim, but submitted that in those respects the position of Mabrouk Holdings was in substance no different to a plaintiff which resided within the jurisdiction.

57 It is well-established that the discretion to order security for costs is unfettered and depends upon an examination of all of the relevant circumstances. The circumstances in which the discretion should be exercised cannot be stated exhaustively. They will vary from case to case and the weight to be given to any circumstance in a particular case will depend not only upon its own intrinsic persuasiveness but upon the impact of the other circumstances which have to be weighed: PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36; (1991) 102 ALR 321, 323.

58 The fact that a plaintiff is ordinarily resident out of the jurisdiction is a ground upon which an application for security for costs may be granted: O 25 r 2(a). The basis of the rule in O 25 r 2(a) is the risk that either an order for costs is likely to be unenforceable or that it will be enforceable only by a significant expenditure of time and money: Berkeley Administration Inc v McClelland [1990] 1 All ER 958, 963. But while residence out of the jurisdiction enlivens the court's jurisdiction, it is not of itself a sufficient ground for making an order. Whether or not an order will be made will depend upon the circumstances of the case. In Energy Drilling Inc v Petroz NL [1989] ATPR 50,418, Gummow J put the position as follows:

The purpose of ordering security for costs against an applicant ordinarily resident outside the jurisdiction is to ensure that a successful respondent will have a fund available within the jurisdiction of this Court against which it can enforce the judgment for costs, so that the respondent does not bear the risk as to the certainty of enforcement in the foreign country and as to the time and complexity of the action there which might be necessary to effect enforcement: Kent Heating Ltd v Cook-on-Gas Products Pty Ltd (1984) 59 ALR 277 at 279. On the other hand, the mere circumstance that an applicant is resident outside the jurisdiction does not necessarily invite an exercise of discretion in favour of ordering security, the question being how justice will best be served in the particular case. [50,422]

59 Where a party resident out of the jurisdiction has no assets within the jurisdiction, that will usually be a factor weighing heavily in favour of an order for security. In PS Chellaram & Co Ltd v China Ocean Shipping Co, McHugh J said:

... the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made. Indeed, 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. (323)

60 But it will generally not be appropriate to order security if the court is satisfied that the plaintiff has assets within the jurisdiction which will remain available to meet the defendant's costs if the plaintiff is unsuccessful at trial. In determining whether the plaintiff has such assets, it may be relevant to consider the value and the nature of the assets, including whether they are of a fixed and permanent nature: Ebrard v Gassier (1884) 28 Ch D 232, 235; or whether the court can ensure that the assets will not be dissipated: De Bry v Fitzgerald [1990] 1 All ER 560, 563.

61 Order 25 r 4 expressly provides that an order for security may be made against a defendant who counterclaims in respect of a claim not arising out of the claim against him. I respectfully agree, however, with the learned authors of Civil Procedure Western Australia [25.4.1] that the rule does not limit the court's discretion to deal with a wide range of circumstances in which defendants are in substance plaintiffs. On an application for security for costs, what is relevant is not how the parties appear on the court record, but whether the counterclaim is in substance in the nature of a defence to the plaintiff's claim or whether it is a separate and distinct claim: Neck v Taylor [1893] 1 QB 560, 562, 563; New Fenix Compagnie Anonyme d'Assurances de Madrid v General Accident Fire & Life Assurance Corporation Ltd [1911] 2 KB 619, 625 - 626; see Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301, 307. The question of whether a counterclaim is defensive or offensive in nature should be considered in a realistic commercial sense: see Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 13 ACSR 263, 266; D S Parklane Developments Pty Ltd v Korea First Finance Ltd (Unreported, NSWSC, 20 August 1997).

62 Security will generally not be ordered to be provided by a party who has been put into the position in which he or she has had to sue in order to defend himself or herself against the other party's prior attack; such as where a person has been forced to bring proceedings to protect their property from statutory acquisition or forfeiture: Maatschappij Voor Fondsenbezit v Shell Transport and Trading Co [1923] 2 KB 166, 177; Willey v Synan [1935] HCA 76; (1935) 54 CLR 175, 184 - 185; Re Travelodge Australia Ltd (1978) 21 ACTR 17; or where the defendant has obtained possession of disputed property by a pre-emptive 'self-help' remedy: Spence Financial Group Pty Ltd v GE Commercial Corporation (Australia) Pty Ltd [2007] WASC 15. See also Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (1979) 22 SASR 20; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289, 300; Interwest Ltd v Tricontinental Corporation Ltd (1991) 9 ACLC 1218.

63 In Willey v Synan, the plaintiff was a member of the crew of a ship which arrived in Australia from New Zealand. He claimed ownership of some silver coins which he had found on the ship. Customs officers took possession of the coins. The plaintiff claimed the coins and the Collector of Customs then gave notice under s 207 of the Customs Act 1901 (Cth) requiring the plaintiff to commence an action for their recovery. The effect of the statute was that, if such an action was not commenced within four months of the notice, the goods would be deemed to be condemned without any further proceedings. The plaintiff issued a writ against the Collector claiming return of the coins and damages for detention. The defendant sought an order for security of the costs on the ground that the plaintiff was ordinarily resident beyond the Commonwealth. The High Court accepted that the plaintiff was 'really a party attacked, not a party attacking and therefore was substantially in the position of a defendant and should not be ordered to give security for costs' (179). Latham CJ said:

In this case the Collector really initiated legal process by giving a notice under s 207 which would result in the exclusion of any right of the plaintiff unless the plaintiff himself took legal proceedings. If the Collector had not acted under s 207, it would not have been necessary for the plaintiff, in order to prevent the extinction of his right, to take any proceedings. If, no notice having been given, he took proceedings in conversion or detinue, he would be in the same position as any plaintiff who comes into the jurisdiction to complain of an act which he alleges to be wrongful.

But, as the Collector has given him a notice under s 207, he is, in effect, forced into legal proceedings, not merely to enforce his claim, but to prevent his claim being extinguished. He is therefore in the position of a defendant. (180)

The principle is that a party to judicial proceedings, who resides beyond the jurisdiction, should not be required to give security for costs unless, however the parties are arranged upon the record, he is the person invoking or resorting to the jurisdiction for the purpose of establishing rights or obtaining relief.

...

The principle was considered in Maatschappij voor Fondsenbezit v Shell Transport and Trading Co [1923] 2 KB 166, where ... Scrutton LJ ... said: 'The position, I think, extends to every case where the person against whom security is sought is really defending himself against attack, even if he be nominally a plaintiff, but really defending himself against defendants' previous action against him'. (184 - 185)

65 His Honour then examined the relevant provisions of the Customs Act, and continued:

It appears to me that the Collector is the actor. The notice is a step taken by him directed at obtaining a condemnation. It is a statutory substitute for judicial proceedings by the Crown against the goods. Its effect is to cast the onus of taking proceedings upon the owner or supposed owner.

...

The provisions of the Customs Act, in effect, enable the officers of the Crown to take the preliminary steps by simple notices out of Court so that it is the claimant who must issue process. But when he does issue a writ he does so to protect his supposed ownership. In substance he is not the attacker, actor or person seeking redress. For these reasons I think he is not liable to give security for the costs of the action. (185 - 186)

66 In Re Travelodge Australia Ltd, the applicant was a holder of stock in a company which had been the subject of a takeover offer. The applicant did not accept the offer and thus became a 'dissenting offeree' within the meaning of the Companies Ordinance 1962 (ACT). He was served with a notice under a provision of that statute, the effect of which would have been that, if nothing more occurred, the respondent would have been entitled and bound to acquire the applicant's stock units. In an endeavour to prevent this happening, the applicant commenced proceedings seeking to obtain an order under the Ordinance that the relevant provision was inapplicable to the case. The respondent sought an order for security for costs. Blackburn CJ refused the application for security. After referring to Willey v Synan, his Honour said:

There is a clear resemblance to the facts of the case before me. The applicant is a person who invokes a special statutory procedure in order to preserve to himself a right which he considers a valuable one, which by the combined effect of a statute and the actions of the respondent may be taken away from him. The respondent asserts that the applicant is the owner of the stock units and relies on the statute to effect a transfer of those stock units to himself. The case clearly falls within the principle which was applied by the High Court, and illuminated by the judgment of Dixon J, in Willey v Synan ... (19 - 20)

67 In Spence Financial Group Pty Ltd v GE Commercial Corporation (Australia) Pty Ltd, the plaintiff had entered into a hire-purchase agreement with a financier in respect of a boat purchased from a boat dealer. The plaintiff had taken possession of the boat and kept it on a mooring at a local yacht club. Subsequently the defendant claimed that it had title to the boat under a prior security granted by the dealer. The defendant, without notice to the plaintiff, seized the boat from the mooring. The plaintiff brought proceedings against the defendant to recover the boat. The defendant sought security for costs. The issue in the action was who, as between the plaintiff and the defendant, had good title to the boat. It was clear that had the defendant not taken the 'self-help' remedy of seizing the boat, the defendant would have been required to bring proceedings against the plaintiff. The application by the defendant for security for costs was refused.

68 It must be borne in mind, however, that there are no hard and fast rules and that whether or not an order for security for costs should be made is a matter of discretion, to be exercised as the interests of justice require in the circumstances of the particular case.

69 In the present case, it was not in issue that Mabrouk Holdings is 'ordinarily resident out of the jurisdiction'. The only issue in that connection was whether it had available assets within the jurisdiction sufficient to meet any order for costs that might be made against it.

70 It was not suggested that Mabrouk Holdings had any such assets beyond the shares it held in Cashmere Iron and possibly those it held in Mabrouk Minerals. But it was accepted by the parties for the purposes of this application that at least the value of the shares in Cashmere Iron would be sufficient for that purpose. The complaint of these defendants by counterclaim, however, is that, first, as Mabrouk Minerals is not registered in Australia, they cannot ascertain whether or not those shares would be available after trial to meet an order for costs; the shares may already be, or might subsequently become, the subject of some security granted by Mabrouk Holdings which would denude them of any, or any sufficient, value. As I understand them, these defendants by counterclaim say, in effect, they should not be exposed to the risk that, if an order for costs is made in their favour, claims will be made on the shares by a third party who claims to have security over the shares and these defendants by counterclaim will then become embroiled in a costly and time-consuming dispute with the third party. Secondly, in any event, the shares are assets that can at any time be readily encumbered or the interest of Mabrouk Holdings in them disposed of by transactions outside the jurisdiction and any funds received for them dissipated outside the jurisdiction. No proposal has been advanced on behalf of Mabrouk Holdings as to an arrangement which would ensure the availability of a sufficient number of the shares to provide a fund to meet any adverse costs order.

71 In the circumstances, I am not satisfied that Mabrouk Holdings has assets within the jurisdiction which will be available to meet an order for costs should such an order be made against it at trial. I do not consider that simply the current existence of the shares as assets of Mabrouk Holdings provides sufficient assurance that after trial there will be a fund capable of meeting any order for costs. As matters stand, it is not difficult to conceive of circumstances in which the shares might cease to be an asset of Mabrouk Holdings, or cease to be available to meet a costs order made against it, without any countervailing asset of Mabrouk Holdings coming into existence (or alternatively remaining) within the jurisdiction.

72 It was contended on behalf of Mabrouk Holdings that it had strong prospects of success in the action. I do not consider that I can reach a view on the substantive merits of the case on the material currently available to me. I consider that I should proceed on the basis that the case is reasonably arguable, and that is what I will do.

73 It is necessary, then, to turn to the contention of Mabrouk Holdings that the counterclaim is defensive in nature.

74 In the present case, Mabrouk Minerals says that the contract with Mabrouk Holdings ceased to have effect in February 2006 and it seeks, in substance, declarations to that effect and damages for the wrongful lodgement by Mabrouk Holdings of caveats over the tenements. Mabrouk Holdings, on the other hand, not only denies that the share acquisition agreement has ceased to have effect but, by the counterclaim, seeks to enforce rights it maintains that it has as purchaser pursuant to that agreement. It claims substantive relief in the form of damages and equitable compensation against not only Mabrouk Minerals but also these defendants by counterclaim, in respect of the transfer, in August 2007, of the substantive assets to which Mabrouk Holdings says it is entitled under the share acquisition agreement.

75 In those circumstances, I do not consider that the counterclaim by Mabrouk Holdings can properly be regarded as defensive in nature. The counterclaim is not directed to defeating the claim made by Mabrouk Minerals but consists of distinct and separate claims by which Mabrouk Holdings seeks to obtain substantive relief by way of damages and equitable compensation against not only Mabrouk Minerals but a number of other parties as well. The counterclaim is, in substance, offensive, not defensive.

76 Nor do I consider that it can properly be said that it was only by reason of some self-help remedy exercised or participated in by these defendants by counterclaim that Mabrouk Holdings is in the position of making a claim, rather than defending one. The counterclaim remains in substance a claim by Mabrouk Holdings to obtain recompense in respect of the substantive benefits to which it says it was entitled under the share acquisition agreement. It is not in the nature of a claim which has become necessary because of some self-help remedy resorted to by the other parties.

77 I should note that it has not been suggested by Mabrouk Holdings that it does not have the capacity to provide the funds necessary to provide the security if it were ordered to do so. It was not contended that an order for security for costs would stifle the counterclaim.

78 I am satisfied that an order for security for costs should be made on each application.

79 The amount of the security sought differs markedly. The solicitors for the second to sixth defendants to counterclaim estimate their clients' total costs of the action at $67,600, based on a seven-day trial. The solicitors for the seventh defendant to counterclaim estimate their client's costs at $112,510, apparently based on the same trial length but with two junior counsel and a solicitor attending the trial. The amounts estimated in respect of a number of the interlocutory steps are substantially different between the second to sixth defendants on the one hand and the seventh defendant on the other.

80 As none of the parties addressed the amount of the security in their written outlines of submissions or in oral argument, I consider the appropriate course is to invite short submissions on that question, as well as on the form the security should take and the time (or times if it is to be stages) within which it should be provided.