Orr v Lusute Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) GENERAL DIVISION ) No. NG975 of 1993 BETWEEN: CRYPTA FUELS PTY LIMITED A.C.N. 010 036 512) First Applicant ROBERT JOSEPH HAGAN Second Applicant AND: SVELTE CORPORATION PTY LIMITED (A.C.N. 056 922 887) First Respondent HARRY SIALEPIS Second Respondent JAMES JOHN ("JIM") SMILES Third Respondent SMILES, POULOS SERVICES PTY LIMITED (A.C.N. 057 527 634) trading as SMILES, POULOS & ASSOCIATES, Chartered Accountants Fourth Respondent DANNY NAKOLIC (aka DRAGON NIKOLIC) Fifth Respondent CORAM: Lehane J PLACE: Sydney DATE: 5 December 1995 MINUTE OF ORDERS THE COURT ORDERS: THAT the motions be dismissed with costs. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) GENERAL DIVISION ) No. NG975 of 1993 BETWEEN: CRYPTA FUELS PTY LIMITED (A.C.N. 010 036 512) First Applicant ROBERT JOSEPH HAGAN Second Applicant AND: SVELTE CORPORATION PTY LIMITED (A.C.N. 056 922 887) First Respondent HARRY SIALEPIS Second Respondent JAMES JOHN ("JIM") SMILES Third Respondent SMILES, POULOS SERVICES PTY LIMITED (A.C.N. 057 527 634) trading as SMILES, POULOS & ASSOCIATES, Chartered Accountants Fourth Respondent DANNY NAKOLIC (aka DRAGON NIKOLIC) Fifth Respondent CORAM: Lehane J PLACE: Sydney DATE: 5 December 1995 EXTEMPORE REASONS FOR JUDGMENT LEHANE J: I have before me two motions in matter NG 975 of 1993 to which I shall refer as the Crypta proceedings. One of the motions is that of the first respondent, Svelte Corporation Pty Limited, to which I shall refer as Svelte, the other that of the third and fourth respondents, James John Smiles and Smiles Poulos Services Pty Limited. Each motion seeks, in reliance on sections 56 of the Federal Court of Australia Act and 1335 of the Corporations Law, an order that the first applicant, Crypta Fuels Pty Limited, to which I shall refer as Crypta, provide security for costs. The notices of motion were filed on 24 and 23 November 1995 respectively and each was made returnable for directions on 29 November. At the directions hearing I stood motions over until yesterday, 4 December. The Crypta proceedings were commenced by an application and statement of claim filed on 13 December 1993. It is unnecessary to describe them in detail but the allegations in the statement of claim include some relating to allegedly misleading or deceptive conduct and others relating to alleged breaches of contract, all concerned with the sale in the latter part of 1992 of a service station business at Port Kembla. Additionally, it should be noted that orders were made that another related matter, to which I shall refer as the Zaknic proceedings, should be heard concurrently with the Crypta proceedings. The Zaknic proceedings are matter number NG 216 of 1994 and relate to claims against the first and second respondents to the Crypta proceedings and against Crypta and one of its directors. The applicant in the Zaknic proceedings is a purchaser from Svelte of the freehold land on which the service station business at Port Kembla is conducted. The hearing of the Crypta proceedings and the Zaknic proceedings has already occupied two sitting weeks in late October and early November this year. At a final directions hearing before the main hearing began I was told that one of the advantages of having the two matters heard concurrently was that the length of the hearing might be substantially reduced. Optimistic suggestions were made that it might occupy only a week. However, it quickly became clear that at least the full allocated two weeks would be needed, and, by 3 November, the last of the allocated sitting days, indeed I think well before that day, it was clear that at least another week would be required and five days have accordingly been allotted to the two matters, this week and next, commencing tomorrow. As I have said, the notices of motion seeking orders for security for costs were filed on 23 and 24 November 1995, about three weeks after the last day of the adjourned hearing and, of course, shortly before its resumption. There is no evidence before me nor has there been any suggestion made to me that any warning had been given to the parties concerned that the motions were proposed, nor is there any evidence (or any suggestion made to me) that there had been correspondence between the parties concerned on the subject of costs and particularly security for costs. It is in those circumstances, which I have described in very general terms, that I have to consider the motions before me. The ground on which each motion is put is I think twofold. First, the apparent impecuniosity of the first applicant, Crypta, and secondly, the previously unforseen extension of the period of the hearing so that it may be expected that at least one more week will be required than originally was thought likely.

As to impecuniosity, the respondents concerned rely substantially upon the fact that annual returns filed by Crypta indicate that Crypta is a trustee company apparently without substantial assets of its own. What assets it may hold as trustee is a matter on which there is no evidence before me. I should add, however, that Mr Levitt who appeared yesterday for Crypta in effect conceded, I believe, that Crypta is indeed impecunious for the purpose of any relevant test on an application for security for costs. The matters raised on behalf of Crypta in opposition to the motions were threefold. First, delay; secondly, special considerations said to arise out of the fact that Crypta is a trustee; and thirdly, the existence of cross claims which had the effect, so it was said, that Crypta is not so much the attacker as the attacked, as those terms, or terms like them, are used in authorities to which I was referred. I can deal with the second and third of those grounds of opposition quite briefly. The second related to Crypta's position as trustee. There it was said, and truly, that there are a number of authorities which hold that a trustee is not a nominal party for the purposes of rules of court such as Order 28, rule 3(1)(b) of the Federal Court Rules. I was referred also to other authorities, for example, the decision of Sheppard J in this Court in Orr v Lusute Pty Ltd (1987) 72 ALR 617, to the effect that in certain circumstances it may not be appropriate to make an order for security for costs against a trustee. I confess to a considerable degree of scepticism in relation to that argument. Principally and obviously, this is not a motion under the rules of court, but rather, one relying on sections 56 and 1335 of the Federal Court of Australia Act and Corporations Law respectively, as I have said. Consequently, the question whether for the purposes of O 28 r 3(1)(b) Crypta is a nominal plaintiff probably does not arise. In any event, I must say that I can see no reason why authorities which hold that security for costs may, as a discretionary matter, be awarded where an impecunious corporate applicant or plaintiff has substantial parties standing behind it, whether they be shareholders or creditors as in the recent decision of Finn J in Pasdale Pty Ltd v Concrete Constructions (1995) 131 ALR 268 should not apply equally to a situation where a trustee company has standing behind it, and in a position to benefit from any decision in its favour, substantial beneficiaries of a trust. For reasons which will appear, however, there is no need for me now to come to a definite conclusion on that matter. Nor is there any necessity for me now to come to a firm decision on the matter raised in relation to cross claims. I was referred to a number of authorities to the effect that one is to take a substantial rather than a technical view as to whether a party is an applicant or respondent, that in doing so one has regard to cross-claims and that in some circumstances, particularly where the amount of a cross-claim may exceed the amount of the claim, it will be appropriate to regard the applicant as, in substance, the respondent. The application of those principles to this case raises issues which are not entirely straightforward and which, because of my conclusion in relation to delay, I need not pursue. That leaves the ground of opposition which may be described broadly as delay. I was referred to a series of cases which discuss the general principles applicable to the grant of an order for security for costs and deal, among other things, with delay. Notable among those for present purposes are the decision of Hill J in Equity Access Ltd v Westpac Banking Corporation 1989 ATPR 50,631 and the unreported decision of Lindgren J in Omega Data Furniture Pty Ltd v Email Furniture Ltd, delivered on 22 August 1995. I was referred to a number of other decisions, particularly relating to delay including, notably, the decision of Waddell J in the Equity Division of the Supreme Court of New South Wales in Southern Cross Exploration N.L. v Fire & All Risk Insurance Co. Ltd (1985) 1 NSWLR 114. Without referring in any greater detail to those authorities, my conclusion from a consideration of them is that there is first and foremost a proposition accepted in every one of the cases which is that if an application for security for costs is to be made it must be made promptly. Obviously, there are degrees of promptness and obviously, equally, security for costs being a discretionary matter, there are cases where delay will weigh more heavily with the court than it does in other cases. In Southern Cross Exploration, for example, Waddell J held that it was appropriate to order that security be provided for costs well into a very long hearing. It is notable, however, that in the cases where, despite delay, an order has been made for the provision of security, there have been present at least one and usually two other factors. One is that the hearing or resumed hearing was not immediately imminent, certainly not as immediately imminent as it is in these proceedings. The other is that there has been some forewarning: usually correspondence concerning the financial standing of those who might benefit from the success of an applicant or plaintiff, and often detailed correspondence foreshadowing an application for security for costs. In this case, there is, so far as anything before me indicates, no history of correspondence or suggestion or question about matters relevant to the provision of security before the notices of motion were actually filed and served. There is additionally the factor which weighed with O'Loughlin J of this Court in one of the cases to which I was referred, Town and Country Sport Resorts (Holdings) Pty Ltd v Partnership Pacific Ltd which again, so far as I know, is unreported but judgment in which was delivered on 19 July 1991 where his Honour held that one of the relevant factors in considering such a motion in such circumstances is the scarce availability of court time and the undesirability of vacating on short notice hearing dates already set for a particular matter. There is a similar strong reference to that same topic and to the system of case management which this Court has now adopted in a decision, again I think unreported, of French J to which I was referred of 24 June 1992 in Ricochet Pty Ltd v Equity Trustees Executors and Agency Co Ltd. There is finally one other matter which is I think peculiarly relevant to these proceedings and that is the matter to which I referred at the outset. An order has been made for a concurrent hearing of the Crypta proceedings and the Zaknic proceedings. That hearing has already proceeded for two weeks. There are parties who are not directly concerned with this motion but whose interests will undoubtedly be adversely affected by any further disruption to these already protracted and, in some respects, somewhat disrupted proceedings. For those reasons, while otherwise I might well have regarded this as an appropriate case for security, I dismiss the motions with costs. I should add, however, that circumstances can, as this case has already demonstrated, change and change rather rapidly. If, as I devoutly hope will not turn out to be the case, it appears during the next five sitting days that this matter may have to be adjourned further, it may be that one party or another may wish to make a further application. If that happens it is perhaps not unduly pious to express a hope that in doing so the parties concerned will take account of the reasons I have just delivered. I certify that this and the preceding 7 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane. Associate: Dated: 7 February 1996 Heard: 5 December 1995 Place: Sydney Decision: 5 December 1995 Appearances: Stewart Levitt & Company appeared for the applicants in proceedings NG 975 of 1993 and for the third and fourth respondents and first and second cross respondents in proceedings NG 216 of 1994.

Mr C M Harris of counsel instructed by Robert A Harper & Co. appeared for the applicant in proceedings NG 216 of 1994. Mr C J Hockey of counsel instructed by Galloways Solicitors appeared for the first respondent in proceedings NG 975 of 1993 and for the first respondent and second cross claimant in proceedings NG 216 of 1994. G J Mavrakis & Associates appeared for the third and fourth respondents in proceedings NG 975 of 1993.