Consideration
15 The jurisdiction of the court to order security is conferred in s 56 of the Federal Court of Australia Act 1976 (Cth), as well as O 28 of the Federal Court Rules. First, s 56(1) provides that the Court or a judge may order an applicant in a proceeding in the Court, relevantly, to give security for the payment of costs that may be awarded against him or her. Secondly, O 28 r 3(1)(a) provides that when considering an application by a respondent for an order for security for costs under s 56 the Court may take into account, relevantly, that the applicant is ordinarily resident outside Australia. That is the basis upon which this present application has proceeded. There is no suggestion that Elbow River would be required to provide security for costs under provisions such as s 1335 of the Corporations Act 2001 (Cth).
16 The gravamen of the position revealed on the pleadings is that Elbow River contends that the parties made a contract that did not require it to comply with, and so, relieved it of, the obligation to meet the terms of the letter of credit relating to the nitrogen blanket either from the time of the formation of the contract or by reason of a waiver. Thus, it will claim it is entitled to substantial damages.
17 The parties debated the proper characterisation of their respective positions. Elbow River argued that because, in substance, its participation in the proceedings is defensive and responsive to a substantive claim made by National Biofuels, the power to order it to provide a substantive amount of security has not been enlivened.
18 The word 'applicant' used in s 56 of the Act has for many years in various statutory analogues and under the Federal Court Act been accepted as referring to the party against whom security for costs is sought, whether in legal form a plaintiff or initially moving party in the proceedings or a defendant or respondent who brings a cross-action or cross‑claim: see eg Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301 at 306 per Street CJ.
19 In my opinion, the authorities establish that where a foreign defendant counterclaims or cross‑claims, it will be ordered to provide security for costs if, in substance, what it puts forward is not simply a defence to the claim, but a distinct claim in itself, provided that on an overall assessment by the Court it is just and fair that such an order be made. In Neck v Taylor [1893] 1 QB 560 at 562 Lord Esher MR identified the applicable principles (see also at 563 per Lindley LJ and per Lopes LJ). Those principles were applied by Street CJ in Buckley 1 ACLR at 307; see too Bev Wizz Group Pty Ltd v Transport Solutions Pty Ltd [2008] NSWSC 1399 at [12]-[18] where Brereton J summarised a number of the authorities. Lord Esher MR said (Neck [1893] 1 QB at 562):
"Where the counterclaim is put forward in respect of a matter wholly distinct from the claim, and the person putting it forward is a foreigner resident out of the jurisdiction, the case may be treated as if that person were a plaintiff, and only a plaintiff, and an order for security for costs may be made accordingly in the absence of anything to the contrary. Where, however, the counterclaim is not in respect of a wholly distinct matter, but arises in respect of the same matter or transaction upon which the claim is founded, the Court will not, merely because the party counterclaiming is resident out of the jurisdiction, order security for costs; it will in that case consider whether the counterclaim is not in substance put forward as a defence to the claim, whatever form in point of strict law and pleading it may take, and, if so, what under all the circumstances will be just and fair as between the parties and will act accordingly."
20 In Willey v Synan (1935) 54 CLR 175 at 184, Dixon J, with whom Rich J expressly agreed, identified the principle as follows:
"… a party to judicial proceedings, who resides beyond the jurisdiction,should not be required to give security for costs unless, however the parties were arranged upon the record, he is the person invoking or resorting to the jurisdiction for the purposes of establishing rights or obtaining relief. If he does avail himself of the remedies the jurisdiction provides in order to obtain affirmative relief or redress, he may be ordered to give security, although he becomes a defendant in the action."
21 There, Dixon J analysed the substantive positions of the parties. He held that the foreign plaintiff had assumed the position of a defending party principally because he was compelled to do so by the provisions of the legislation under which his goods would otherwise be condemned. He characterised that position as being one in which the foreign plaintiff had assumed the burden of commencing the proceedings in order to defeat the true moving party's claim, being that of the Collector of Customs to be entitled to condemn and forfeit the plaintiff's goods.
22 As a matter of impression, in substance the real issue in the present proceedings involves Elbow River establishing positively that the terms of the letter of credit dealing with the nitrogen blanket, which were vital to its right to be paid in a commercially efficient way, reflected no part of the contract and National Biofuels' reliance on them as terms either was wrong or the terms were inessential. Next, Elbow River is seeking to establish its entitlement to a very substantial claim for damages. While National Biofuels also has a claim for damages and does seek some relief, in substance its position is defensive. It seeks to resist what, at the time the proceedings were brought and subsequently has eventuated, was anticipated to be Elbow River's substantive claim for damages for breach of contract.
23 I am of opinion that the pleadings reveal that in reality the substance of the case and the substantial claim is that brought by Elbow River to recover damages for the breach of the version of the contract on which it relies. Moreover, it seems to me that the evidentiary burden, albeit in a formal sense, borne by each of the parties equally to establish the respective contracts on which they rely, is really created by Elbow River's positive denial that the terms of the letter of credit, requiring production of documentary proof to the bank that there was a nitrogen blanket, form part of any contract between the parties. In my opinion, that will be a heavy burden to discharge, having regard to the commercial arrangement the parties evidently have accepted on the pleadings. The substance of that arrangement arose out of dealings and conduct in negotiations between businessmen for the payment of a very large sum of money under a c.i.f. contract using a letter of credit.
24 Prima facie, it would be odd that the letter of credit would contain an additional requirement, albeit one which Elbow River said was acceptable to it, that formed no part of the contract whatsoever concerning the way in which the goods were to be carried. Again, that prima facie view is simply a matter of impression based on my reading of the pleadings and the fact that this case arises because the bank, presumably justifiably, rejected the tender of the documents on which Elbow River's entitlement to be paid depended.
25 For these reasons, I am of opinion the real plaintiff or moving party in these proceedings is Elbow River.
26 That leaves the question of what order I should make for security. There is substance in Elbow River's contention that some additional costs will be incurred because of National Biofuels' claim. I recognise the reality that there are seriously competing factual and legal contentions open to both parties in the matter. But, security should be ordered for the costs that National Biofuels is likely to recover, were it to succeed defending in the proceedings in substance brought against it. I will reduce the amount of security for those costs to recognise that National Biofuels also has a substantive claim that, at present, it seeks to pursue in its own right. Although it may be an unsatisfactory yardstick, the evidence is that Elbow River contends that the additional issues it wishes to raise would add about $10,000 to National Biofuels' costs. I am of opinion that the amount of $116,000, agreed to be 65% of what National Biofuels would recover in costs if successful should be reduced by about that sum. That will take account of the fact that while National Biofuels' claim is principally defensive, it includes a relatively small claim for damages.
27 I will order Elbow River to provide $105,000 by way of security for the costs of the proceedings. The parties should bring in short minutes to provide for the manner in which security will be provided and a further timetable to prepare the matter for hearing.
I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.