Meni's Tailoring & Alterations Pty Limited v Jeanswest Corporation Pty Ltd

REASONS FOR JUDGMENT 1 The respondent seeks an order that the applicants provide security for costs pursuant to Order 28 of the Federal Court Rules 1979 (Cth), ("the Rules") or s 1335 of the Corporations Act 2001 (Cth) ("the Corporations Act") or pursuant to "the inherent jurisdiction of the Court". 2 In Beach Petroleum NL v Johnson (1992) 7 ACSR 203 ("Beach Petroleum") at 205 von Doussa J stated a threshold test for a security of costs under s 1335 of the Corporations Act, that: "the power of the court under s 1335 arises if credible evidence establishes that there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on service of the allocatur, if judgment goes against it. This will be so even if in other events which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs. The degree of likelihood of the plaintiff corporation being unable to pay the costs along with all the circumstances, actual and possible, about its financial position, would be then taken into account in the exercise of discretion, and in framing the orders of the court if the decision is to order security." 3 I regard the test as also being helpful with respect to the discretion that arises in respect of whether the Court should order that security for costs be given upon the threshold being met. 4 The first applicant company is a $2 paid-up capital company with a significant business, in the sense of turn-over and staff, but it does not have substantial fixed or liquid assets. Even though it currently has an excess of assets over liabilities which, if realised, would not give rise to any real risk in respect of costs, the nature of its assets but, in particular, its trading stock, satisfies me that that the fairly modest threshold test discussed by von Doussa J has been met, namely that there is a real chance that in events which can fairly be described as reasonably possible, the first applicant will be unable to pay the costs of the respondent if judgment goes against the first applicant. 5 The second applicant is a foreign company and normally an order for security for costs would be made against it. But the first applicant, through its counsel, has offered an undertaking to the Court to pay any order for costs made against the second applicant. 6 The evidence in respect of the quantum of costs, which appears to have been accepted by the parties, is that the respondent's costs estimate of $80,000 is based on a four to five day trial. The evidence of the first applicant is that the respondent's costs from the present time to the conclusion of the first day of the trial would be about $18,000. 7 There are a number of matters that have persuaded me that, even though the threshold test for security has been met, the amount payable for security should be discounted to a modest amount. The factors that have led me to that conclusion are as follows. First, there has been some delay in making the application and during the period of the delay substantial costs have been incurred by the applicants. While I make no criticism of the period it has taken the respondent to come to the Court on its application for security for costs, it seems to me that any party that does delay in making an application runs the risk of having the amount of security discounted in respect of past costs. I do not regard that as a major factor in the present case but it is a factor that I think is appropriate to take into account in determining the amount of security. 8 The second factor is that the applicants have gone into evidence on the merits of the case and it is clear that they do have a substantial claim and the proceeding is certainly one that is bona fide and properly brought. I regard that as relevant to the quantum of security. 9 The third matter that I regard as relevant is that this is a case where I have formed the view that while the threshold test has been met, it has only just been met because this is a case where, as von Doussa J said in Beach Petroleum at 205: "in other events which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs." His Honour observed that the degree of likelihood of an applicant being unable to pay the costs, along with all the circumstances actually possible, would be taken into account in the exercise of the discretion and framing of orders, which I would take to include quantum. 10 The fourth factor to take into account in looking at the question of quantum, is that the first applicant has offered an undertaking to the Court in respect of the second applicant's costs and that undertaking will effectively extend to what is likely to be the costs awarded against both applicants if they fail in the proceeding. Therefore, in addition to any order I make, there is the additional protection of that undertaking. 11 In these circumstances, I propose to make an order that within 21 days the first applicant lodge security for costs in the sum of $20,000 in the form of a bank guarantee. I am of the view that it is appropriate that the costs of and incidental to the security for costs application be costs in the cause. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel.