Maecher Pictureproducts Pty Ltd v R E Davison Pty Ltd

Judgment 1These proceedings concern an application, by Further Amended Notice of Motion, that the plaintiff, Maecher Pictureproducts Pty Ltd (hereinafter, "Maecher"), provide security for the defendant's costs by payment into Court. The Court made orders, ex tempore, on 7 March 2013, which were entered on 12 March 2013. These are the reasons those orders were issued. 2The substantive proceedings involve Maecher claiming damages for breach of contract, misleading and deceptive conduct and negligent advice by R E Davison Pty Ltd (hereinafter, "Davison"). 3Briefly, Maecher conducts a business that incorporates children's artwork into melamine tableware and clocks. Davison is a melamine compression moulder. A contract was executed between them on 10 August 2000 pursuant to which Davison was to provide melamine compression moulding services to Maecher. 4Between August 2000 and April 2009 Davison supplied Maecher with the services to which the agreement related with a reject rate that rarely exceeded 4 per cent. Between 2 March 2009 and 7 June 2010 Davison moulded over 77,500 items of which 15,635 were rejected as defective, a reject rate of approximately 20 per cent. In some batches the reject rate was over 50 per cent. 5In or about May 2010, Maecher changed manufacturer and the reject rate fell to approximately 2 per cent. Maecher sued on the causes of action previously outlined and claims damages totalling approximately $890,000. 6The evidence in chief of the plaintiff, Maecher, has been filed. There are nine affidavits, including a report on damages. 7The defendant, Davison, has commenced the process necessary for the filing of its evidence. 8Evidence was adduced relating to the financial position of the plaintiff. Relevantly, that evidence discloses that the year to date sales of Maecher amounted to $861,000, being a gross profit of $365,000 and a net loss of $161,000. Further, the evidence discloses that Maecher's total assets amount to $186,000 and total liabilities amount to $542,000, resulting in a "negative net asset" of $355,000. 9Before the Court it has been conceded that Maecher is unable to pay the costs of Davison, were Davison to be successful in the proceedings. 10Plainly the jurisdiction to order security for costs pursuant to the terms of s 1335 of the Corporations Act 2001 (Cth) and Part 42, Rule 21 of the Uniform Civil Procedure Rules 2005 has been enlivened. 11In Jazabas Pty Ltd v Haddad [2007] NSWCA 291; (2007) 65 ACSR 276 at [74], McClellan CJ at CL adopted the summary of the relevant principles adumbrated by Beazley J (as her Honour then was) in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 196-198. With great respect to McClellan CJ at CL (as his Honour then was) I adopt his summary of the principles, in the following terms: "[73] The principles by which orders for security for costs are made in relation to financially stressed corporations are well known. They are frequently considered in relation to matters in the Commercial List. They must often be applied where it is alleged that the stressed financial position of a plaintiff corporation has been caused or contributed to by the conduct of the defendant. [74] A convenient summary of the relevant principles was made by Beazley J, as her Honour then was, in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189. Her Honour's judgment has been applied in many subsequent cases. Beazley J said at 196-198: 'Principles governing application for security for costs The law is now settled that the discretion to order security for costs is unfettered and should be exercised having regard to all the circumstances of the case without any predisposition in favour of the award of security: see the review of the authorities by French J in Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 AT 509. See also Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621 at 623-624 and Zeeman J's decision in Weily's Quarries v Devine Shipping Pty Ltd (1994) 14 ACSR 186 at 188. In Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405 at 415, Cooper J stated that: "[i]t is not possible or appropriate to list all of the matters relevant to the exercise of the discretion. The factors will vary from case to case. The weight to be given to any circumstance depends upon its own intrinsic persuasiveness and its impact on other circumstances which have to be weighed: P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 65 ALJR 642 at 643." Notwithstanding the broad unfettered discretion with which the Court approaches an application for security for costs, there are a number of well established guidelines which the court typically takes into account in determining any such application. They are: