Mijac Investments Pty Ltd v Graham

Power of the Court to make the order sought 7 There is ample power to make the orders sought. Section 56 of the Federal Court of Australia Act 1976 (Cth) ("the Act") provides that the Court may order an applicant in a proceeding to give security for the payment of costs that may be awarded against him, in such manner and form as the Court directs. Subsection 56(3) specifically states that the Court may increase the amount of security to be given and vary the time at which, or manner and form in which, the security is to be given. I note too that O 28 of the Federal Court Rules 1979 (Cth) also provides for orders as to security, but this provision does not limit the unfettered power conferred by s 56 of the Act. Furthermore, s 1335(1) of the Corporations Act also provides that, where a corporation is plaintiff in an action, the court having jurisdiction 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 defence, require sufficient security to be given for those costs and stay all proceedings until security is given. 8 There is, therefore, a general power and a specific power, which would enable the Court to give further security in this case. I am satisfied, on the evidence to which I was taken, that there is reason to believe that the applicant/plaintiff, Mijac Investments Pty Ltd ("Mijac"), will be unable to pay the respondents/defendants costs should they succeed in their defence. This not only satisfies the condition for the exercise of power in s 1335 of the Corporations Act, it also provides an important factor militating in favour of an order for adequate security. For the purposes of this case, I do not think it necessary to distinguish between the relief granted under s 56 of the Act and the relief granted under s 1335 of the Corporations Act. It is enough to note that they provide alternative sources of power. 9 The authorities indicate that there are numerous factors that may be relevant to the Court's exercise of discretion. Broadly speaking, the matters relevant to an exercise of discretion to increase security are similar as on an initial application for security, although the weight to be given to the various considerations may differ. They include: (1) the nature of the risk that the applicant will not be able to satisfy a costs order; (2) the nature of the applicant's claim, including the chances of success; (3) whether an order for the giving of security would operate to prevent the applicant from pursuing the claim; (4) whether the applicant's impecuniosity arises from the conduct the subject of the proceeding; and (5) the existence of other discretionary matters, as for example, delay, that arise when considering the particular facts of the case at hand. The risk that the applicant will not be able to meet a costs order 10 I have already stated that I accept that there is such a risk. The applicant has not filed any material that might allay fears that it will be unable to meet any costs order. In the circumstances as outlined, the risk must be regarded as substantial that the respondents may not, if judgment is given for them, be reimbursed in full for their costs as taxed. Chances of success 11 Here the claim is on its face regular, and discloses a cause of action. There is nothing to indicate that the applicant does not have a reasonable prospect of success. Equally, however, there is nothing to indicate that the respondents' defence is not bona fide. At this stage, it too must be taken to have a reasonable prospect of success. Without more, it is impossible to say one way or another where the advantage, if any, lies. Whether the order sought would operate to prevent the applicant from pursuing the claim 12 The applicant filed no evidence to indicate that an order for security, if made, would operate to stifle the proceeding. While I can infer from the scant evidence before me that the applicant has no or insufficient funds to meet the costs that might be ordered against it if unsuccessful in its claim, the evidence does not support the inference that, if security were ordered, it could not satisfy that order, with the result that the litigation would practically end. Counsel for the applicant did not submit as much. Rather, he indicated that the applicant would have difficulty raising the funds within 7 days, but might better be able to do so within 14 days, subject to liberty to apply if an extension of time were needed. Whether the applicant's impecuniosity is the result of the impugned conduct 13 This factor has no application in this case. Discretionary factors - delay 14 I was initially troubled by the matter of delay. This was because I find myself considering the question of increased security about 7 weeks before the date of the trial. It is trite that applications for security must be made promptly. In this case, however, I am satisfied that the respondents have not been guilty of undue delay. The first application for security must have put the applicant on notice that security was an issue. Furthermore, as the transcript of the hearing before Registrar Agnew shows, the Registrar acknowledged that there might be a need to make a further application to increase security later in the proceeding, especially if the security subsequently proved inadequate. As already noted, when the motion for security was filed on 10 July 2008, a trial date had not been fixed. Indeed, when the parties came before his Honour on 15 July 2008, neither party was seeking a trial date, which was fixed on his Honour's initiative. Moreover, as counsel for the respondents noted, the amount of the security fixed by the Registrar covered the respondents' party/party costs up until about the time that the respondents made their present application. As he said, if they had made it at an earlier date, the application might well have been seen as premature. 15 In the latter connection, I note that the respondents obtained a report from Ariel Weingart, a costs consultant with much experience. Mr Weingart reported that: (a) the respondents' party/party costs up to and including 20 June 2008 (and excluding the costs orders already made in their favour and the costs order made on their motion seeking further discovery) was $27,370.20; and (b) the prospective costs from 20 June 2008 up to the first day of the trial were $50,237.00. I accept that delay is not a factor militating to any great extent against the respondents' application. 16 The principal reason the applicant's counsel advanced against the award of increased security was that there had been no material change of circumstances to justify the increase. Counsel for the applicant pointed out that, in an affidavit sworn on 16 August 2005, the respondents' solicitor, Mr Sweeney, had estimated the respondents' reasonable costs up until the first day of the trial to be around $95,300. This, he submitted, compared favourably with the estimate advanced in Mr Sweeney's affidavit of 9 July 2008, of $90,607.20. I accept that, in many circumstances, this would be a powerful factor militating against an order for increased security. I do not, however, consider that it has this effect in this case. 17 First, it is relevant that the Registrar made her order for security when the litigation was in its infancy. She herself referred to this saying "so much hasn't happened in the case yet" and noting that there would be some discounting for the contingencies of the future course of the litigation. Further, as noted, the Registrar reserved liberty to the respondents to apply for further security and noted that this was open to them should the quantum she ordered prove inadequate. At this stage in the litigation, the allowance to be made for contingencies is less. The parties stand on the brink of trial. It is now plain that the security that the applicant has given is likely to be inadequate against the respondents' reasonable party/party costs up until the first day of the trial. 18 The respondents' counsel referred to other circumstances that incline in the respondents' favour, such as the three costs orders that have now been made in their favour. 19 In all the circumstances, including the existence of the previous security order, the reservation of liberty to apply, and the absence of evidence of prejudice to the applicant, I consider that the respondents are entitled to an order for further security and that the lapse of time since the making of the initial orders does not preclude this application. Quantum 20 If there is to be further security, it must be sufficient. In this regard, I must consider the whole of the case. The principles are well-known. I do not repeat them. 21 Mr Weingart concluded that the costs up to trial, excluding the three costs orders already made, were $77,607.20. Mr Sweeney made further estimates in respect of the cost orders, and there were also costs reserved. Mr Sweeney estimated that the total party/party costs up to trial would be about $90,607.20. On this basis, the respondents sought the amount of $45,000 by way of further security. 22 There is necessarily an element of imprecision in determining the quantum of security in these circumstances. It seems to me that, in all the circumstances, I should fix the amount of $30,000 as further security. For the reasons stated, I would order that: (1) Within 14 days of the date of this order, the applicant provide further security in the amount of $30,000 in a manner satisfactory to the respondents and, failing agreement by the respondents, then to the satisfaction of the Victoria District Registrar of the Federal Court of Australia. (2) The security for costs referred to in paragraph (1) above will be further security for the respondents' costs up to the first day of the trial. (3) Unless the applicant provides the further security by 29 August 2008 in conformity with paragraph (1), the proceeding be stayed. I shall give the parties an opportunity to be heard on the question of costs after making these orders. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.

Associate: Dated: 15 August 2008 Counsel for the Applicant: Mr L Watts

Solicitor for the Applicant: Lillas & Loel Lawyers