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[2002] FCA 821
procedural. MHG was ordered to provide a bank guarantee from an Australian trading bank, or another form approved by a Registrar, for $50,000 in favour of Quality Assurance and $35,000 in favour of the RTA...
The respondents showed a credible risk that MHG could not pay their costs if they won. MHG had stopped trading, and the value of its reported asset depended on recovering a substantial costs award from earlier litigation. The judge accepted that MHG's claims were genuine and arguable, and that the respondents' alleged conduct may have contributed to its financial difficulties. But MHG did not show that the parent company, which had already paid substantial litigation costs, could not provide security or would stop funding the case. The judge therefore ordered security, but set lower interim amounts than the respondents had requested because their evidence about costs was incomplete. MHG also had to pay the costs of the security motions.
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In MHG Plastic Industries Pty Ltd v Quality Assurance Services Pty Limited [2002] FCA 821, Sackville J dealt with applications by two respondents for security for costs. The respondents, Quality Assurance Services Pty Limited (Quality Assurance) and the Roads & Traffic Authority of New South Wales (RTA), each sought $75,000 from MHG Plastic Industries Pty Ltd (MHG) as security for their costs of defending MHG's substantive claims: [1].
Those claims arose against the background of earlier litigation about motor cycle helmets. In 1999, the ACCC brought proceedings alleging that certain MHG helmets did not comply with the prescribed Australian standard. The trial judge made declarations and orders, including orders concerning public notice, refunds and recovery of helmets: [2]-[3]. The Full Court allowed MHG's appeal in August 2000 and set aside the first-instance orders. It also ordered the ACCC to pay MHG's costs of the first-instance case and, subject to a qualification, the appeal: [4].
In the new proceedings, MHG alleged that the RTA, through its commercial business unit Crashlab, negligently tested its helmets, and that the Court had relied on the test reports in the earlier case. MHG also alleged that Quality Assurance had purported to suspend its StandardsMark licence on the basis of the RTA's reports: [5]-[6]. MHG claimed losses including recall advertising costs, irrecoverable costs from the ACCC litigation, administration costs, loss of business and reputation, and the consequences of disposing of assets to a related company: [7]. These were allegations described in the judgment, not findings on the merits of MHG's claims.
The security applications turned substantially on MHG's financial position. MHG had transferred assets valued at $3.2 million to MHG Plastic Industries (Vic) Pty Ltd in July 1999. Its board appointed an administrator in August 1999, and a deed of company arrangement was later executed and ultimately terminated after being wholly effectuated: [12]-[13]. MHG was not trading, and did not appear to have traded since the asset transfer: [14].
The latest financial report before the Court showed net assets of $894,970 at 30 June 2001, but this depended on valuing MHG's costs orders against the ACCC at $1,264,674. The judge considered that the amount likely to be allowed on taxation was uncertain and might not be significantly more than MHG's liabilities: [14]-[16]. The parent company had paid at least $117,000 in costs in the current proceedings, and the judge inferred that this might increase MHG's indebtedness to its parent: [15].
The Court first considered whether the threshold for security was met. The respondents relied on s 1335(1) of the Corporations Act 2001 (Cth) and s 56 of the Federal Court of Australia Act 1976 (Cth). The judgment treated these as alternative sources of power: [8]-[9]. Although s 56 does not contain the same express wording as s 1335, the parties proceeded on the basis that the s 1335 threshold should be satisfied before the discretion was exercised: [9].
Sackville J applied the approach in Beach Petroleum NL v Johnson. The threshold did not require proof that MHG certainly would be unable to pay. It was enough for credible evidence to establish reason to believe there was a real chance of inability to pay in events fairly described as reasonably possible: [10]. The judge found that threshold established. MHG was not trading, its reported asset position depended on the value of a costs order that remained to be taxed, and there was reason to expect substantial costs if the respondents succeeded: [14]-[17]. The judge said that, taking account of MHG's own costs of pursuing the litigation, it was probable MHG would be unable to meet adverse costs orders: [17].
Meeting the threshold did not make security automatic. The parties accepted that the Court should consider the factors listed in Equity Access Ltd v Westpac Banking Ltd: prospects and bona fides, the risk of non-payment, possible oppression or stultification, the cause of impecuniosity, public interest and other circumstances: [18]. The respondents accepted that MHG's claim was bona fide and arguable, and the judge declined to assess its prospects more precisely at that interlocutory stage: [19].
A key consideration was whether an order would prevent MHG from pursuing a genuine claim. MHG bore the onus of establishing that those standing behind it, and who would benefit if it succeeded, lacked means to finance the litigation: [21]. The parent company would benefit as both shareholder and creditor. It had funded the proceedings to date, and MHG had not provided evidence about its financial position or that of those behind it. The judge inferred that the parent was likely able to meet security and continue funding: [22]. The Court was therefore not satisfied that security would shut MHG out of the case.
The judge accepted that the alleged conduct of the respondents might have contributed to MHG's impecuniosity. The evidence suggested that MHG's 1999 financial position may have included a surplus if abnormal expenses associated with the earlier Court orders were disregarded: [24]. But that point did not decide the application. Following the approach in BPM Pty Ltd v HPM Pty Ltd, and referring also to Reches v Tadiran and Rosenfield Nominees Pty Ltd v Bain & Co, the judge treated the cause of impecuniosity alongside the question whether security would stultify the litigation: [25]-[26]. Because MHG had not established that it could not continue with support from its parent, the alleged contribution of the respondents carried relatively little weight: [26]-[29].
The balance also reflected the asymmetry between the parties if costs orders were made. If MHG succeeded, there was no suggestion that either respondent could not meet a costs order. If the respondents succeeded, the evidence suggested MHG might not be able to pay them: [29]. The judge concluded that security was in the interests of justice. Delay in bringing the motions did not change that conclusion, given the respondents' warnings, MHG's delay in providing requested information, and the fact that the case had not yet been set down for final hearing: [30].
This decision applied existing statutory powers and discretionary principles; it did not purport to create a new statutory test. Before the decision, s 1335(1) provided a power to require security where credible testimony gave reason to believe a corporate plaintiff would be unable to pay the defendant's costs if successful. Section 56(1) of the Federal Court Act separately permitted security against an applicant or appellant: [8]-[9].
The judgment adopted the explanation of the s 1335 threshold in Beach Petroleum: the court assesses the prospect of inability in reasonably possible events, rather than requiring certainty of default: [10]. The likelihood of inability, together with actual and possible circumstances of the corporation's financial position, then informs the exercise of discretion and the form of any order: [10].
The discretionary framework in Equity Access was accepted by the parties and applied as a structured list of considerations: [18]-[30]. The decision also applied the principle, discussed in BPM, that alleged defendant-caused impecuniosity cannot be viewed in isolation from whether security would actually stultify the litigation: [25]-[26]. The judgment's practical contribution in this case was its application of those principles to a parent-funded corporate applicant and its use of modest interim amounts where the evidence about costs was too imprecise to support the amounts sought: [31]-[37].
The decision therefore illustrates the distinction between satisfying the threshold and establishing how the discretion should be exercised. A corporation's financial risk may establish the threshold, while evidence about the ability of shareholders, creditors or other beneficiaries to fund litigation may bear on whether security would prevent the claim from proceeding. The judgment does not state that parent-company support is invariably available or that a corporate applicant must always obtain funding from its backers. Its conclusion depended on the evidence and the inferences drawn in this case: [21]-[22], [26].
At [10], the judgment adopted the Beach Petroleum formulation that the power arises where there is a “real chance” of inability to pay in events that are reasonably possible. In plain English, the respondent does not need to prove that non-payment is certain. The court looks at credible evidence of a genuine risk, while recognising that different reasonably possible events may produce different financial outcomes.
At [17], Sackville J found that the respondents had shown reason to believe MHG would be unable to pay their costs if they succeeded. This was a finding about the security threshold, not a final determination of MHG's liability on the underlying claims.
At [21]-[22], the judgment placed the onus on MHG to establish that those who would benefit from its success lacked the means to provide funding. The parent had funded the case to that point, and the absence of evidence about the parent supported an inference that it would continue to fund the litigation. The practical point is that the court considered more than MHG's balance sheet when assessing whether security would stop the claim.
At [26], the judge said the respondents' alleged contribution to MHG's financial position was of “relatively little significance” because MHG had not demonstrated that its impecuniosity would prevent it from pursuing the proceedings. In plain English, a causal link between alleged wrongdoing and financial difficulty mattered, but it did not outweigh the evidence about available support and the lack of demonstrated stultification.
At [31]-[36], the judge criticised the lack of precise evidence supporting the amounts sought. Quality Assurance's evidence was more detailed than the RTA's, but the material did not provide a sufficiently reliable basis to order $75,000 for each respondent. The Court instead made interim orders for different amounts and left open a later application supported by better evidence.
The decision is relevant to security-for-costs applications where a corporate applicant may not be able to meet an adverse costs order. The financial features that mattered here included cessation of trading, a reported asset position dependent on a disputed or uncertain costs recovery, existing liabilities, and costs being paid by a parent company: [14]-[17].
It is also relevant where a company argues that security would prevent it from pursuing a genuine claim. The judgment makes the capacity of those who stand behind the company a pertinent evidential issue, particularly where those people or entities would benefit if the litigation succeeded: [21]-[22]. In this case, prior funding by the parent was a basis for inferring likely future support, while the absence of evidence about the parent's position counted against MHG's stultification argument: [22].
The reasoning may also be relevant where the applicant says the respondent's conduct caused or contributed to its financial distress. The decision indicates that this factor is considered alongside whether security would actually prevent the proceedings and whether other beneficiaries can provide funding: [25]-[26]. It does not treat respondent-caused impecuniosity as irrelevant; the judge accepted it could be a factor, but found it had limited weight on the evidence before him: [24], [26], [28].
Finally, the decision addresses cases where security is justified but the evidence about the amount is incomplete. Rather than accepting a figure without adequate support, the Court ordered limited interim security and specified a later stage at which additional security could be sought: [31]-[37]. The judgment's orders were tailored to the evidence then available and should not be read as setting general security amounts for other proceedings.
The supplied judgment records authorities considered by Sackville J up to 28 June 2002, but it contains no account of later decisions applying or distinguishing MHG Plastic Industries. On the material provided, it is not possible to describe how later courts have treated this judgment.
Within this decision, Sackville J relied on Beach Petroleum NL v Johnson for the s 1335 threshold, accepted the discretionary considerations stated in Equity Access Ltd v Westpac Banking Ltd, and followed the approach in BPM Pty Ltd v HPM Pty Ltd concerning the relationship between defendant-caused impecuniosity and stultification: [10], [18], [25]-[26]. The judgment cited Bell Wholesale Co Ltd v Gates Export Corporation on the evidential burden concerning those who stand behind a corporate applicant: [9], [21]. It also cited P S Chellaram & Co Ltd v China Ocean Shipping Co, Reches v Tadiran, Rosenfield Nominees Pty Ltd v Bain & Co and Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd on specific aspects of the analysis: [21], [25], [30]. These are authorities considered in this judgment, not evidence of later treatment of this judgment itself.
The reasons do not decide the underlying merits of MHG's allegations. The respondents accepted only that MHG had an arguable and bona fide case; Sackville J expressly said it was not appropriate at that stage to assess prospects more precisely: [19]. Nothing in the security ruling determines whether the testing was negligent, whether the licence suspension was improper, or whether MHG suffered recoverable loss.
The Court also did not finally determine the amount of security needed to cover the respondents' potential costs. It described the amounts as interim and contemplated later applications after discovery and inspection: [35]-[37]. It expected a future application to include precise, updated evidence of costs incurred: [37]. The reasons do not provide an eventual assessment of those costs or record whether any additional security was later ordered.
The judgment's treatment of the parent company's support depended on the evidence before the Court, including prior payments and the absence of evidence about the parent's financial position: [15], [22]. It does not specify how the analysis would change if a parent denied any commitment to fund the case, could not provide security, or had funded costs on terms that materially affected the inference of future support.
Nor does the decision establish a universal rule about delay. It found the particular delay insufficient to refuse security because of the warnings given, MHG's late information, and the fact that the matter had not been set down for hearing: [30]. Different timing or procedural circumstances could require a different assessment, a question not resolved by this judgment.
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REASONS FOR JUDGMENT 1 The first and second respondents ("Quality Assurance" and "RTA", respectively) have each filed a motion seeking an order that the applicant ("MHG") provide interim security for costs in the sum of $75,000.
The Earlier Proceedings 2 Some background is necessary. In early 1999, the Australian Competition and Consumer Commission ("ACCC") instituted proceedings against MHG seeking declarations that the supply in trade or commerce of certain protective helmets manufactured by MHG would contravene s 65C(1)(a) of the Trade Practices Act 1974 (Cth) ("TP Act"). The ACCC also sought orders restraining MHG from supplying the helmets. Section 65C(1)(a) of the TP Act prohibits a corporation, in trade or commerce, supplying goods that are intended to be used by a consumer, if the goods are of a kind in respect of which there is a prescribed consumer product safety standard and the goods do not comply with that standard. 3 After a three day hearing, the trial Judge delivered a judgment on 15 June 1999 in which he found that three models of motor cycle helmets manufactured by MHG since 1996 - nearly 51,000 helmets in all - did not comply with the relevant Australian standard. On 13 July 1999, his Honour made declarations to that effect, and also made a declaration that MHG had contravened s 65C(1)(a) of the TP Act. The trial Judge made consequential orders obliging MHG to give public notice of the Court's determination and to refund to purchasers of the helmets the price they paid for them and to use its best endeavours to recover all helmets distributed by it. 4 MHG appealed to the Full Court. In a judgment delivered on 9 August 2000, the Full Court allowed the appeal and set aside the orders made by the trial Judge. By orders made on 12 October 2000, the ACCC was ordered to pay MHG's costs of and incidental to the proceedings at first instance. Subject to one minor qualification, the ACCC was also ordered to pay to MHG its costs of and incidental to the appeal.
The Present Proceedings 5 The present proceedings were commenced in this Court on 13 June 2001. MHG alleges, inter alia, that the RTA, through its commercial business unit known as "Crashlab", improperly conducted tests on MHG's helmets for the purpose of determining whether they complied with the relevant Australian standard. MHG claims that the tests were carried out negligently and that the Court had relied on the test reports by the RTA in making the orders at first instance that were ultimately set aside on appeal. 6 MHG further alleges that it was unable to sell helmets in Australia that did not bear a StandardsMark under a scheme administered by Quality Assurance (formerly a division of the Standards Association of Australia). MHG claims that Quality Assurance, on the basis of the RTA's Crashlab test reports, purported to suspend the licence pursuant to which MHG was permitted to use the StandardsMark. MHG alleges that the purported suspension of the licence was in breach of various duties owed by the RTA to MHG. 7 MHG says that it is entitled to damages from each of the RTA and Quality Assurance in respect of its losses, including the following:
the threshold question 8 The RTA and Quality Assurance rely on s 1335 of the Corporations Act 2001 (Cth) ("Corporations Act") and s 56 of the Federal Court of Australia Act 1976 (Cth) ("Federal Court Act") as the sources of power to make the orders for security for costs. Section 1335(1) of the Corporations Act provides as follows: "Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given." Section 56 of the Federal Court Act is relevantly in the following terms: "(1) The Court or a Judge may order an applicant in a proceeding in the Court or an appellant in an appeal to the Court to give security for the payment of costs that may be awarded against him or her. (2) The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs." 9 Section 56(1) of the Federal Court Act and s 1335(1) of the Corporations Act are alternative sources of power for the making of an order for security for costs: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1, at 3, per curiam. Unlike s 1335(1) of the Corporations Act, s 56(1) of the Federal Court Act does not expressly require "credible testimony that there is reason to believe that the corporation will be unable to pay the costs of [the respondent] if successful in his defence". Nonetheless, both Mr Simpkins SC, who appeared with Mr Manousaridis for the RTA, and Mr Leopold, who appeared for Quality Assurance, were content to proceed on the basis that the respondents to the proceedings had to satisfy the requirement laid down by s 1335(1) before the discretion to order security for costs is enlivened. 10 Section 1335(1) of the Corporations Act does not require proof that the applicant corporation will be unable to pay the respondent's costs if the action fails. The approach to be taken was explained by von Doussa J in Beach Petroleum NL v Johnson (1992) 10 ACLC 525, at 527, as follows: In my opinion 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 to be taken into account in the exercise of the discretion, and in framing the orders of the Court if the decision is to order security." 11 In order to determine whether the respondents have satisfied the threshold requirement imposed by s 1335(1) of the Corporations Act, as considered by von Doussa J in Beach Petroleum v Johnson, some further background is necessary. 12 On 30 July 1999, MHG assigned its assets at going concern values, amounting to $3.2 million, to a newly incorporated company, MHG Plastic Industries (Vic) Pty Ltd ("MHG (Vic)"). It appears that the consideration took the form of MHG (Vic) taking over portion of MHG's indebtedness to the parent company of the group. According to Mr Haritos, a director of MHG, the transfer of assets was designed to preserve the component manufacturing business conducted by MHG (constituting the bulk of its operations) and to protect the jobs of 87 employees engaged in that business. 13 On 2 August 1999, the board of MHG resolved, pursuant to s 436A of the Corporations Law as then in force, to appoint an administrator. In consequence of that resolution, a deed of company arrangement was executed on 3 September 1999. The deed was terminated on 16 February 2001 "by reason of it having been wholly effectuated". 14 It was common ground that MHG is not currently trading. Indeed, it does not appear to have traded since it assigned its assets to MHG (Vic). MHG's financial report for the year ended 30 June 2001, the latest period for which a statement is available, indicates that it had at that time net assets of $894,970. However, its only asset consisted of the costs orders made by the Full Court on 9 August 2000 awarding costs in favour of MHG against the ACCC. The financial report valued this asset at $1,264,674. The conclusion that MHG had a surplus of assets over liabilities as at 30 June 2001 is therefore wholly dependent on the value attributed to the costs orders. 15 I should interpose that the evidence establishes that the costs incurred by MHG in the current proceedings have not been met by it, but by its parent company, MHG Corporation Pty Ltd ("MHG Corporation"). The costs paid in this manner total at least $117,000. There was no direct evidence as to how these payments were treated in the accounts of MHG, but I would infer that they have been, or at least could be, treated as increasing the indebtedness of MHG to the parent company. If they are so treated, the effect would be to increase the liabilities of MHG as recorded in the 2001 financial report. Since MHG chose not to adduce up to date evidence of its financial position, I can more readily draw the inference that the indebtedness to the parent company has increased since 30 June 2001 by at least $117,000. 16 It seems extraordinary that a case which took four hearing days at trial (allowing for argument about the form of orders) and one day on appeal should result in a costs order in favour of one party amounting, on a party and party basis, to $1.26 million (the amount recorded in MHG's 2001 financial report). The explanation for this apparently extraordinary state of affairs is that many of the items claimed by MHG as party and party costs recoverable from the ACCC are unlikely to be allowed on a taxation. The evidence of Ms Vine-Hall, a costs consultant, identified a number of very large items which fall into this category. It is inappropriate, having regard to the fact that the taxation is yet to take place, to analyse the bill of costs submitted by MHG item by item. It is enough to say that on the evidence before me, it is unlikely that the amount allowed on taxation will be significantly more than MHG's current liabilities (that is, the liabilities of $369,704 recorded in MHG's 2001 financial report and any increase in liabilities since 30 June 2001). 17 In my opinion, the respondents have shown by credible evidence that there is reason to believe that MHG will be unable to pay the costs of each of them should they be successful in their respective defences. In reaching this conclusion, I have taken into account evidence indicating that costs orders in favour of the respondents, should they succeed in the proceedings, are likely to be for substantial amounts. Indeed, on the evidence, taking into account the costs that MHG will itself incur in pursuing the proceedings, I would say it is probable that MHG will be unable to pay the respondents' costs should they succeed in obtaining costs orders against MHG in the current litigation.
discretionary considerations 18 There was no dispute that the matters appropriate for consideration in relation to the discretion conferred by s 1335(1) of the Corporations Act and s 56(1) of the Federal Court Act include the six matters identified by Hill J in Equity Access Ltd v Westpac Banking Ltd [1989] ATPR 40-972, at 50,635, as follows: "· the chances of success of the applicant; whether the applicant's claim is bona fide or a sham; · the quantum of risk that the applicant cannot satisfy a cost order; · whether use of the power would shut out a small company from making a genuine claim against a large company, i.e. is the power being used oppressively; · whether the impecuniosity arises out of the [act] in respect to which relief is sought; · whether there are aspects of public interest which weigh in the balance against the making of an order; · whether there are any particular discretionary matters peculiar to the circumstances of the case." It is convenient to consider each of these matters in turn.
MHG's Chances of Success 19 Mr Simpkins and Mr Leopold properly accepted that MHG's claim was bona fide and that it must be regarded as having an arguable case against each of the respondents. It is neither feasible nor appropriate for me at this stage of the litigation to attempt to be more precise about MHG's prospects of success.
The Quantum of Risk 20 For the reasons I have given, I think that it is unlikely that MHG will be able to satisfy any costs order made against it in the current proceedings, should the respondents ultimately succeed. There is nothing in the evidence to suggest that its financial position will improve between now and the conclusion of the proceedings.
Whether MHG Will Be Shut Out From Making a Genuine Claim 21 The onus is on MHG to establish that those who stand behind it and who will benefit from the litigation if it is successful, whether they be shareholders or creditors, lack the means to finance the litigation. As was said in Bell Wholesale v Gates Export Corporation, at 4: "It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts." See also P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321, at 323, per McHugh J. 22 In this case, MHG Corporation, the parent company of MHG will benefit from the litigation, should MHG succeed, both in its capacity as shareholder and as a creditor of MHG. MHG has not established that the granting of security will frustrate the litigation. On the contrary, I would infer from the fact that MHG Corporation has funded the litigation thus far and from the fact that MHG chose not to adduce evidence as to the financial position of MHG Corporation, the parent company, or those standing behind it, will be able to meet orders for security and will continue to fund the litigation. It follows that I am not satisfied that MHG will be shut out from pursuing the litigation if orders requiring MHG to provide security for costs are made.
Whether MHG's Impecuniosity Arose out of the Actions of the Respondents 23 The parties were in dispute on this issue. The respondents submitted that MHG's financial position was so parlous immediately before the declaration and orders were made by the trial Judge in June 1999, that its impecuniosity cannot be attributed to the conduct alleged against the respondents. It was also submitted that the board of MHG voluntarily appointed the administrator and assigned MHG's assets to MHG (Vic) and that the consequences of these acts could not be laid at the respondents' door. 24 Although the evidence is by no means clear, I am inclined to think that the alleged conduct of the respondents (assuming the allegations can be made out) is partly responsible for MHG's current financial position. It is true that MHG incurred very large losses in each of its last three trading years (the years ended 30 June 1997, 30 June 1998 and 30 June 1999). It is possible that the losses would have continued independently of the costs incurred by MHG in complying with the Court orders. However, a significant portion of these losses was attributable to abnormal items, including relocation expenses and the estimated cost of the helmet recall (an estimate which proved to be very much overstated). If abnormal expenses for the 1999 year, all of which seem to be attributable to the June 1999 Court orders, are disregarded, MHG seems to have had a surplus of assets over liabilities of some $600,000 at 30 June 1999. This would suggest that the effect of the Court orders was to eliminate the surplus that otherwise presumably would have been available to fund MHG's operations. Contrary to the respondents' submissions, there is no basis in the evidence for concluding that the appointment of the administrator and the transfer of assets were anything other than reasonable and appropriate steps in the light of the Court orders and the likely commercial consequences of those orders. 25 The conclusion that MHG's impecuniosity was in part the result of the conduct alleged against the respondent does not mean that the applications for security for costs must fail. In BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857 (S Ct WA), the Court considered the significance, for the purposes of an application for security for costs, of a finding that the defendant had caused the plight of the plaintiff company. Anderson J, with whom Kennedy and Ipp JJ agreed, doubted that this factor can be taken in isolation. He said (at 862) that it "must be considered together with the assertion that the effect on the plaintiff of an order for security will be to stultify the action. If that will not be or is not shown to be the effect of the order, that is, if other parties who will benefit from the plaintiff's success are financially able to provide the security and it is reasonable that they do so, the fact that the defendant has caused the plaintiff's own impecuniosity will hardly be good reason to decline security." A similar approach was taken by Lehane J in Reches v Tadiran (1998) 85 FCR 514, at 523, and Giles J in Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467, at 472. 26 In the present case, MHG has not shown that its impecuniosity will prevent it from maintaining the proceedings against the respondent. In particular, it has not shown that those standing behind the company and who will benefit from the litigation, if successful, are without means. On the contrary, for the reasons I have given, the likelihood is that the parent company will continue to fund the current proceedings until they are resolved. Consequently, the fact that the respondents' alleged actions were partly responsible for MHG's impecuniosity, in my opinion, is of relatively little significance in determining whether an order for security for costs should be made.
The Public Interest 27 No party suggested that the public interest has a significant part to play in the exercise of the Court's discretion.
Other Discretionary Matters 28 Mr Ryan SC, who appeared with Mr Hemmings for MHG, emphasised that MHG would not be in its current position were it not for the respondents' conduct. As I have explained, while that is a factor to be taken into account, it is of relatively little weight, given that, on the evidence before me, MHG will not be shut out from pursuing the litigation. 29 In exercising the discretion conferred by s 1335(1) of the Corporations Act it is necessary to bear in mind that if MHG succeeds in the proceedings and obtains costs orders in its favour, it will recover its costs, at least on a party-party basis, from the respondents. In this respect, there has been no suggestion that either the RTA or Quality Assurance would be unable to meet any costs order against it. On the other hand, if the respondents (or either of them) succeed against MHG, it is unlikely that they will be able to enjoy the fruits of any costs orders in their favour. In these circumstances, in the absence of any other significant consideration suggesting that orders for security for costs should not be made, it seems to me to be in the interests of justice that MHG be ordered to provide security for the costs of the respondents. 30 Mr Ryan submitted that account should be taken of the respondents' delay in filing the motion seeking orders for security for costs. The proceedings were commenced on 13 June 2001 and the motions were filed on 15 February 2002. But each respondent gave ample warning of its intentions and indeed a good part of the apparent delay is explained by MHG's failure to provide in a timely fashion information reasonably requested by the respondents. Moreover, the proceedings have not yet been set down for a final hearing, so that there is no danger of costs incurred in respect of an anticipated hearing being wasted if orders for security are not complied with: cf Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68, at 72, per Lehane J. I do not think that such delays as there may have been in bringing the motions warrants refusing to make the orders of the kind sought by the respondents.
quantum 31 The parties devoted relatively little attention to the quantum of any orders. It would have been sensible and helpful for the respondents to have adduced evidence as to the costs incurred up to the date of the hearing of the motions, although I appreciate that there has been a delay not of their making between the filing of the motions and the hearing. Evidence of this kind would have enabled an order to be made covering work completed up to the date of the hearing, with a provisional allowance for the next stage of the litigation. It may be that the respondents assumed that, since they sought interim orders, any adjustment could be made later in the proceedings. Perhaps for this reason they seem to have plucked the figure of $75,000 out of the air. 32 The evidence of Mr Sutherland indicated that Quality Assurance had incurred costs of $35,425 up to 31 January 2002. Since then he said that 295 hours had been spent on the matter, including 226 hours on discovery. It is not clear what charges have been or will be made in respect of the time devoted to the matter since 31 January 2002. Ms Vine-Hall, the costs assessor, thought that of the costs of $35,425 incurred by Quality Assurance to 31 January 2002, about $26,000 would be recoverable on a taxation on a party and party basis. She suggested that for future work an hourly rate of $230 would be recoverable as professional costs. She did not, however, give detailed consideration to whether the particular work actually done by Quality Assurance's solicitors between 31 January 2002 and 24 June 2002 justified this figure. Nor did her affidavit leave me satisfied that the number of hours said to have been spent on discovery thus far was necessarily reasonable and appropriate. 33 The evidence adduced on behalf of the RTA was even less precise. Its solicitor contented himself with an estimate that the costs required to complete discovery would be about $45,000, while the likely costs of completing affidavit evidence, including experts' reports, were said to be about $105,000. The solicitor's second affidavit suggested that preparation for a ten day hearing would involve costs of around $75,000. 34 As I have indicated, I think that the preferable course would have been to require MHG to provide security in an amount approximating the costs (assessed on a party and party basis)
costs 38 The respondents have largely succeeded on their respective motions. I see no reason why costs should not follow the event. Accordingly, MHG should pay the costs of each motion.
addendum 39 After the hearing in this matter was concluded, MHG's solicitors sent to my chambers a further affidavit sworn by Mr Haritos. This affidavit annexed certain correspondence from the Federal Court relating to the taxation of costs in the proceedings involving the ACCC. The affidavit did not form part of the evidence at the hearing and I have not taken it into account. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice SACKVILLE.
Counsel for the Applicant: Mr D Ryan SC with Mr I Hemmings
Solicitor for the Applicant: Peter Kemp Solicitors
Solicitor for the First Respondent: Eakin McCaffery Cox Counsel for the Second Respondent: Mr J B Simpkins SC and Mr N L Manousaridis Solicitor for the Second Respondent:
Clayton Utz Date of Hearing: 24 June 2002
MHG Plastic Industries Pty Ltd
Quality Assurance Services Pty Limited
(1984) 2 FCR 1
(1991) 102 ALR 321
(1998) 85 FCR 514
MHG was ordered to provide a bank guarantee from an Australian trading bank, or another form approved by a Registrar, for $50,000 in favour of Quality Assurance and $35,000 in favour of the RTA within 28 days. Failure to provide security would stay the proceedings against the relevant respondent. Each respondent could seek additional security, subject to the stated timing and leave requirements. MHG was ordered to pay each respondent's motion costs.