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[2003] FCA 1108
procedural. The first applicant was ordered to provide $20,000 security for costs by bank guarantee in a form accepted by a Registrar within 21 days. The costs of and incidental to the security application...
The respondent asked the Court to require the applicants to provide security for its costs. The first applicant had a substantial trading business but limited fixed or liquid assets, and much of its asset position depended on trading stock. The Court found a real chance that it might not be able to pay the respondent's costs if it lost, but considered that risk only just crossed the threshold. The claim appeared substantial and bona fide, there had been delay while costs accrued, and the first applicant had undertaken to cover the second applicant's costs liability. Those matters led the Court to order $20,000 security rather than the respondent's estimated $80,000 trial costs. The security was to be provided by bank guarantee within 21 days.
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2 cited instruments linked from this judgment.
1,913 words · generated 30/09/2026
In Meni's Tailoring & Alterations Pty Limited v Jeanswest Corporation Pty Ltd [2003] FCA 1108, the respondent, Jeanswest Corporation Pty Ltd, applied for security for costs against two applicants: Meni's Tailoring and Alterations Pty Limited and Getzner Textil AG. Its application relied on O 28 of the Federal Court Rules 1979 (Cth), s 1335 of the Corporations Act 2001 (Cth), or the Court's inherent jurisdiction ([1]).
The application was an interlocutory costs-protection question, not a determination of the underlying dispute. Merkel J considered whether the first applicant's financial position created the necessary risk of non-payment if the applicants lost, and, if so, what amount of security was justified.
The first applicant was a company with $2 paid-up capital and a significant business measured by turnover and staff. It did not have substantial fixed or liquid assets. Although its assets exceeded its liabilities if realised, the Court considered the nature of those assets, particularly trading stock, important to the risk assessment ([4]). The second applicant was a foreign company. The first applicant undertook to meet any costs liability imposed on the second applicant ([5]).
The parties' cost estimates supplied context for the amount. The respondent estimated $80,000 for a four-to-five-day trial. The first applicant estimated that the respondent's costs from the time of the application to the end of the first trial day would be about $18,000 ([6]). The Court ordered the first applicant to provide $20,000 security by bank guarantee within 21 days. It also ordered that the costs of and incidental to the security application be costs in the cause, and reserved liberty to apply.
Merkel J adopted the threshold formulation in Beach Petroleum NL v Johnson (1992) 7 ACSR 203. As set out in the judgment, the test asks whether credible evidence establishes a real chance that, in reasonably possible events, the plaintiff corporation will be unable to pay the defendant's costs if judgment goes against it ([2]). The test does not require that inability to pay be the only reasonably possible financial outcome. The quoted formulation expressly recognises that a corporation might be able to pay in other reasonably possible events.
The Court found the threshold met because of the combination of the first applicant's limited paid-up capital, its lack of substantial fixed or liquid assets, and the character of its assets, particularly trading stock ([4]). The judgment does not say that low paid-up capital alone determines the issue. Rather, it explains the conclusion by referring to the company's broader financial position and the nature of the assets that made up that position.
Meeting the threshold did not automatically determine either whether security should be ordered or its amount. Merkel J said that the Beach Petroleum test was also helpful in exercising the discretion after the threshold was met ([3]). The degree of likelihood of inability to pay and the relevant financial circumstances informed the exercise of that discretion, including the framing of the order ([2], [9]).
Several matters led to a modest security amount. First, some delay had occurred before the application, and substantial costs had accrued during that period. The Court made clear it did not criticise the respondent for the timing, but observed that delay can expose an applicant for security to a discount for past costs ([7]). It was a factor, but not a major one in this case.
Second, the applicants had given evidence about the merits. Merkel J described the claim as substantial and the proceeding as bona fide and properly brought, and treated those matters as relevant to quantum ([8]). The judgment does not resolve the underlying claim or make findings about its ultimate success.
Third, the threshold was only just met. Merkel J applied the part of the Beach Petroleum formulation recognising that in other reasonably possible events the plaintiff company might be able to pay. That narrow threshold finding was relevant to the amount of security ([9]).
Fourth, the first applicant's undertaking provided additional protection for costs ordered against the second applicant, and the Court considered that it would likely extend to costs awarded against both applicants ([10]). Taking those matters together, the Court ordered $20,000 rather than the respondent's estimated $80,000 trial costs ([6], [11]).
The judgment identifies s 1335 of the Corporations Act 2001 (Cth) and O 28 of the Federal Court Rules 1979 (Cth) as bases advanced for the application ([1]). It does not set out the text of those provisions. The legal test it explains comes from Beach Petroleum, which Merkel J quoted and applied ([2]).
The judgment's treatment of Beach Petroleum has two linked parts. First, it applies the threshold test to the evidence about the first applicant's financial position. Secondly, it treats the threshold analysis as relevant to the discretionary question of whether to order security and how much security to require ([3], [9]). The decision therefore shows how the cited test operated on the facts before Merkel J; it does not purport to replace the test or give a comprehensive account of all circumstances that may matter in other applications.
The reasons do not describe the state of the law before Beach Petroleum, nor do they set out any later development or amendment. They also do not provide a history of s 1335 or O 28. Any broader account of changes in the law would require sources beyond this judgment. On the text available here, the accurate account is limited: Merkel J treated Beach Petroleum as the relevant threshold authority and used its approach to guide both the threshold decision and the assessment of security's amount.
At [2], Merkel J quoted the Beach Petroleum test: credible evidence must establish “a real chance” of inability to pay in events that are reasonably possible. In plain English, the company need not be certain to fail financially. The evidence must show a genuine possibility of non-payment in a reasonably possible scenario. The quoted test also says that the possibility of payment in other reasonably possible scenarios does not, by itself, prevent the threshold from being met.
At [3], Merkel J said the test was also helpful when deciding whether to order security after the threshold had been met. This matters because the threshold and the discretionary order are separate steps in the reasoning. The finding that the threshold is met opens the way to considering security; it does not mechanically dictate the final order.
At [7], the Court explained that delay may affect the amount. A party that waits before applying risks having security reduced to account for costs already incurred. The Court did not treat the respondent's delay as improper or decisive here. It expressly described the point as a factor, but not a major one.
At [8], the Court treated the apparent substance and bona fides of the case as relevant to quantum. This is not a finding that the applicants would win. It explains why the apparent character of the proceeding affected the amount of security the Court considered appropriate.
At [9], Merkel J emphasised that the threshold had only just been met. In practical terms, the Court distinguished the existence of a real chance of inability to pay from a stronger or more pronounced risk. The extent of the risk mattered to the amount.
The decision is most directly informative where a corporate applicant's assets exceed its liabilities on paper, but the composition or realisability of those assets raises a question about whether costs could be paid if the company loses. Here, the company had an excess of assets over liabilities if realised, but it lacked substantial fixed or liquid assets and held trading stock ([4]). The judgment supports examining the nature of assets, not merely the balance-sheet comparison described in isolation.
It is also relevant where a security application is made after the proceedings have progressed and costs have accrued. Merkel J treated delay and past costs as matters that may reduce the amount ordered ([7]). The Court's express qualification is important: delay was not a major factor in this case and the judgment does not establish an automatic discount.
The case may also be useful where the claim appears bona fide and substantial, but the corporate applicant's financial position still meets the security threshold. The Court treated those features as relevant to quantum rather than as reasons that necessarily defeated the application ([8]-[9]).
Finally, where one applicant offers an undertaking to cover another applicant's costs liability, the decision illustrates that such an undertaking may be considered as additional protection in setting security ([5], [10]). The reasons do not specify the undertaking's detailed terms beyond the undertaking recorded in the order, so the decision should be read in light of that stated commitment and the Court's assessment of its likely practical effect.
The supplied judgment does not identify any later decisions applying, distinguishing, or otherwise treating Meni's Tailoring. It would therefore be unsupported to claim, on this source alone, that later courts have adopted or limited its approach.
Within this judgment, the authority expressly applied is Beach Petroleum NL v Johnson (1992) 7 ACSR 203. Merkel J cited it for the threshold test at [2] and returned to its treatment of reasonably possible outcomes when explaining why the threshold was only just met at [9]. The judgment thus records an application of Beach Petroleum, not a survey of later case law.
For research purposes, the boundary of what this source establishes is clear: it demonstrates how Merkel J assessed the financial evidence and exercised discretion in this particular application. It does not provide a later-court history, a statement about the decision's subsequent precedential status, or a comprehensive account of how courts have treated undertakings or delay in other security applications.
The reasons leave several matters outside their scope. They do not decide the applicants' underlying dispute with Jeanswest, determine liability, or state whether either applicant ultimately succeeded. The security decision should not be read as a prediction of the result of the substantive proceeding.
The judgment also does not explain the detailed evidence about the value, liquidity, or saleability of the first applicant's trading stock. It records that the nature of the assets, particularly trading stock, satisfied the Court that there was a real chance of inability to pay in reasonably possible events ([4]). The precise evidentiary basis is not reproduced in these reasons.
The relationship between the estimated $80,000 trial costs, the $18,000 estimate to the end of the first trial day, and the selected $20,000 security amount is not expressed as a mathematical calculation. The reasons instead explain the amount by reference to the combined discretionary factors, including delay, the apparent merits, the narrow threshold finding, and the undertaking ([6]-[11]).
The reasons do not set out a general test for assessing an undertaking's sufficiency, nor do they detail what would happen if the undertaking were not honoured. They state only that the undertaking would provide additional protection and would likely extend to costs awarded against both applicants ([10]). They also do not explain the meaning or operation of the reserved liberty to apply beyond recording it in the orders.
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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.
Associate: Dated: 13 October 2003 Counsel for the Applicant: Dr MJ Collins
Meni's Tailoring & Alterations Pty Limited
Jeanswest Corporation Pty Ltd
The first applicant was ordered to provide $20,000 security for costs by bank guarantee in a form accepted by a Registrar within 21 days. The costs of and incidental to the security application were ordered to be costs in the cause, and liberty to apply was reserved.