Obena Falls Pty Ltd v Normans Wines Ltd [2001] VSC 253

11. The plaintiff alleges that both the wine casks supplied by the second defendant and the method of packing them used by the first defendant were defective. As a consequence the wine in the casks became oxidised and a number of wine casks fell out of their packaging in the hands of retailers and customers. The plaintiff says that it was forced to recall the casks filled by the first defendant. As a result its reputation has been irreparably damaged and it has suffered loss and damage.

14. The basis upon which the defendants contend that they are entitled to orders for security for costs can be summarised as follows:

1. The plaintiff has a paid-up share capital of $4. The shares are beneficially held by two other companies, Camden Investments Pty Ltd and Burlington Investments Pty Ltd.

3. The two directors of the plaintiff are Joseph Orbach and Andrea Orbach.

4. On 26 May 2000 Orbach caused another company, Quintessence Wines Pty Ltd, to be incorporated. That same month that company relaunched the triangular wine cask. Since that time the plaintiff has not traded.

21. It is said that evidence of those matters is credible testimony that there is reason to believe that the plaintiff will be unable to pay the costs of the defendants if they are successful in their defence of the proceeding.

24. The arguments advanced on behalf of the plaintiff may be summarised equally as succinctly.

1. This proceeding has now been on foot for almost a year. During that time the plaintiff has incurred legal fees and expenses of approximately $30,000 in pursuing the proceeding. The proceeding is now ready for mediation and, if mediation is unsuccessful, trial. In those circumstances it would be unfair to now require the plaintiff to give security for costs.

2. The plaintiff was incorporated in 1984 and until 1994 traded successfully in microwave snack foods. At that time it commenced developing the triangular-shaped wine cask. The cask was launched in 1998. It is the case for the plaintiff that in December 1998-January 1999 the cask was withdrawn from the market following complaints from wholesalers and retailers as to the merchantability of the casks and the wine contained in them. As a consequence of that the plaintiff no longer trades in wines.

Quintessence Wines Pty Ltd was incorporated to provide a new image for the product, which image had been badly damaged in the marketplace by the actions of the first and second defendants. Any impecuniosity on the part of the plaintiff is directly attributable to the actions of the defendants.

3. Although the plaintiff is no longer trading in wine, it is a major shareholder in Quintessence and Prism Packaging Pty Ltd. Since December 2000 Quintessence has sold approximately 3,500 wine casks for a total of approximately $37,000. That produces a gross profit of approximately $2.50 per cask. To date all profits of Quintessence have been used to establish its business. However, in the foreseeable future the plaintiff is to be paid a management fee of $8,800 per month from Quintessence.

4. Heretofore and with the exception of the sum of approximately $165,000 which is in dispute between the plaintiff and the second defendant, the plaintiff has always paid its creditors. If orders for security were to be made against the plaintiff the plaintiff would be unable to comply with them and it would be denied the right to litigate its case, thereby causing it grave injustice.

5. The plaintiff's claim is bona fide and it has a strong case.

33. Having given this matter due consideration it is my opinion that the matters relied upon by the plaintiff far outweigh the matters put forward on behalf of the defendants.

36. The defendants' delay in making the application is unexplained and to some extent inexcusable. The plaintiff has now expended or incurred expenditure which its solicitor has sworn is of the order of $30,000 in pursuing the litigation. All interlocutory steps have been concluded and the position has been reached where if the proceeding is not compromised at mediation it will be ready for trial.

39. On the face of it the plaintiff's case is strong. To require it to give security at this late stage would have the effect of depriving it of the right to litigate the case, thereby causing it grave injustice. In my opinion it is inappropriate to make the orders the defendants seek.

42. The appeal will be dismissed with costs to be taxed and paid by the defendants.