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[2003] NSWSC 180
procedural. The plaintiff was ordered to provide $200,000 security for the defendants’ costs from 13 March 2003 up to, but not including, the hearing, in a form agreed by the parties or otherwise fixed by a...
The defendants asked the court to require Parle Foods to put up security for their future legal costs. The court found that Parle Foods' financial records and creditor difficulties gave reason to believe it might not be able to pay those costs if the defendants succeeded. The application was made well after the case began, but the strongest evidence of financial difficulty came later, and the defendants sought security only for future costs. Parle Foods also did not provide evidence about the financial capacity of its shareholders or noteholder to support its argument that security might prevent it from continuing the case. The court ordered $200,000 for costs up to the hearing, but not for the trial itself, leaving open the possibility of a later application for further security.
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In Parle Foods v McClunie Birch [2003] NSWSC 180, Barrett J of the New South Wales Supreme Court considered an application for security for costs by two defendants in a construction-related dispute. The plaintiff, Parle Foods Pty Limited, claimed that the defendants had failed to complete construction and commissioning of a food processing plant at Hanwood near Griffith on time. The defendants' cross-claim sought unpaid remuneration for their construction and commissioning work ([2]).
The proceedings began in May 2001. The plaintiff amended its statement of claim in February 2002; the defendants filed a defence and cross-claim in May 2002; and the plaintiff filed a defence to the cross-claim in August 2002. By the time of the security application, neither side had filed evidence ([2]). The defendants sought $300,000 security for costs, more particularly for costs from 12 March 2003 through to the hearing of the plaintiff's claim ([1]). Their expert costs estimate put total costs from 31 January 2003 to the end of the hearing at about $530,000 ([8]).
The application relied on Part 53 of the Supreme Court Rules, s 1335 of the Corporations Act 2001 (Cth), and the court's inherent jurisdiction ([3]). The central evidentiary question was whether there was reason to believe that Parle Foods would be unable to pay the defendants' costs if ordered to do so. The judge considered company accounts, creditor information, financing arrangements, and claimed prospects for future sales.
The 2002 accounts recorded net assets of $9.01 million, but also current liabilities of $34.53 million and a loss of $76,000 for the year. The judgment noted that the financial statements were described as a special purpose report, and that the apparent references to independent audit reports did not correspond with an audit report in the material before the court ([10]–[11]). The October 2002 monthly results described pressure from overdue creditors, small but regular payments to suppliers becoming aggressive, and little cash available beyond vital expenses ([12]).
Parle Foods relied on possible new sales, including a proposed Coles Myer arrangement and discussions with Mitsubishi. The judge considered the evidence insufficient to show that these prospects had become tangible replacements for the ended Heinz relationship. The Coles Myer contract was still being negotiated, while the Mitsubishi email expressed interest and disappointment about earlier arrangements, rather than confirming a supply contract ([14]–[16]).
Barrett J ordered security of $200,000 for costs from 13 March 2003 up to, but not including, the hearing. The order allowed the parties to agree on the form of security or, failing agreement, have it fixed by a Master. The costs of the motion were reserved, and each party had liberty to apply on 48 hours' notice concerning the security ([29]).
The judgment used a two-stage structure. First, the court asked whether the statutory and rules-based threshold was met. Section 1335 and Part 53 rule 2 used the formulation “reason to believe” that a corporate plaintiff would be unable to pay the defendant's costs if ordered to do so. Barrett J relied on FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd and Owners - Strata Plan No 50530 v Walter Construction Group Ltd for the point that the task was an evaluation of the evidence, not proof in some separate technical sense ([5]–[6]).
Once that threshold was met, the court moved to a discretionary stage. The judgment cited Indaba Pty Ltd v McVeigh for the description of the court's “general and unfettered discretion” over whether to make an order and, if so, its amount and form ([7]). The threshold and discretion should not be collapsed into one question: satisfying the threshold made security available for consideration, but did not dictate the final terms.
On the threshold, the judge assessed the plaintiff's capacity at an approximate future date of 31 December 2003. Because no hearing date had been set and neither party had filed evidence, that date was adopted as a rule of thumb ([9]). The court compared estimated costs with the financial evidence. It considered the decline in profitability, the most recent year's loss, creditor pressure, and the limited cash available for expenses ([11]–[12], [15]–[16]). It also considered the proposed revenue opportunities, but found no convincing evidence that they would replace the ended Heinz relationship in a way that reduced the identified financial pressure ([14]–[16]). The judge concluded that there was reason to believe Parle Foods would be unable to pay $530,000 in costs at the relevant time ([15]–[17]).
Delay was the next issue. The case had been on foot for around 22 months, the plaintiff had incurred more than $150,000 in costs, and the claim's general size and shape had been apparent well before the application ([18]–[19]). But the judge distinguished the timing of the proceedings from the timing of the evidence that supported the application. The most telling material came from accounts for the year ended 30 June 2002 and the October 2002 monthly results. Because the defendants sought security only for future costs, the emergence of relevant circumstances after commencement did not, in Barrett J's view, make the application disqualifiably late ([21]).
The court also considered whether security might stultify the plaintiff's case. It accepted the general significance of a risk that a security order could prevent a company from litigating, referring to Yandil Holdings Pty Ltd v Insurance Co of North America. But it also relied on Bell Wholesale Pty Ltd v Gates Export Corporation for the requirement that the company resisting security raise and prove the impecuniosity of those standing behind it who might benefit from the litigation ([22]–[23]). Parle Foods identified shareholders and a convertible-note holder, but provided no evidence of their financial status ([24]–[25]). In the absence of that evidence, the court left the concern about the plaintiff's own ability to continue the litigation to one side ([25]).
Finally, the order was limited to pre-hearing costs. The case was expected to occupy four weeks, and trial costs were estimated at $194,400. The judge considered that the possibility of settlement continued despite an unsuccessful mediation, and adopted a staged approach: security for preparation up to the hearing, with any further application to be considered as the hearing approached ([27]). The calculation took estimated total costs of $530,530, subtracted the estimated trial costs of $194,400, and applied the ratio advanced in the defendants' application. That produced $190,075, rounded to $200,000 ([28]).
This judgment did not purport to change the law on security for costs. It applied the statutory provision and procedural rule to the evidence in a particular dispute. Its account of the framework drew on authorities including FFE Minerals, Owners - Strata Plan No 50530, and Indaba. The judgment treated the “reason to believe” formulation as an evidentiary threshold, followed by a separate discretionary decision ([5]–[7]).
The contribution of the decision in this case is its application of that framework to a late application based on financial material that emerged after proceedings began. Barrett J did not treat delay as irrelevant: the length of time, costs already incurred, and the early visibility of the litigation's general scope were all recorded ([18]–[20]). The conclusion was narrower. Where the strongest evidence of financial difficulty arose later and the requested security concerned future costs only, the passage of time did not automatically defeat the application ([21]).
The judgment also applied existing principles concerning stultification. It did not say that the practical risk of an order preventing litigation could never matter. Rather, it treated that risk as a powerful discretionary factor while requiring the company seeking to rely on it to establish facts about the means of people who stood behind it and might benefit from the litigation ([22]–[25]). On the facts before Barrett J, that evidentiary foundation was missing.
The decision's approach to amount was likewise an application rather than a new formula for all cases. The court adopted a staged order because the estimated trial costs were substantial and settlement remained possible. It used the defendants' own proposed proportion to derive an initial figure for pre-trial costs ([27]–[29]). The judgment does not establish that this arithmetic method must be used in other applications.
The judgment provides no account of later amendments to legislation or rules, and no subsequent decisions. It therefore cannot, on its own, establish the present state of the law or how later courts have treated its reasoning. Any use of the case for a current legal question would require checking the current legislation and procedural rules, as well as subsequent authorities.
At [5], Barrett J explained that the evidence did not have to satisfy a separate technical form of proof. The question was whether an evaluation of the applicant's evidence led to a reason to believe that the company could not pay the defendants' costs. In plain English, the court assessed the quality and force of the financial material together.
At [7], the judgment described the second stage as a “general and unfettered discretion” about whether to order security and, if so, its amount and form. That means meeting the threshold did not itself settle the result. The court still had to consider the circumstances and decide what order, if any, was appropriate.
At [15]–[17], the judge drew together the key financial evidence. The judgment placed weight on falling profitability, the recent loss, pressure from creditors, limited cash, and the lack of evidence that new sales would replace the former Heinz relationship. In plain English, the court was not satisfied by the existence of possible commercial discussions alone; it assessed whether the material showed reliable replacement revenue.
At [21], Barrett J addressed the timing point. The decision was not that delay never matters. It was that, in this case, the strongest evidence emerged after the litigation started and the requested security related only to future costs. The judgment's reasoning therefore depends on both the development of the financial evidence and the limited period for which security was sought.
At [23]–[25], the court considered who might fund or benefit from the plaintiff's litigation. It was not enough merely to identify shareholders or a noteholder. The plaintiff had to establish the relevant financial facts about those people or entities if it relied on their inability to provide support. Without that evidence, the court left aside the concern that the company itself might be unable to continue.
At [27]–[29], the court explained why it ordered an initial amount for costs before the hearing, rather than including estimated trial costs. The order left open a later application as the hearing approached. The actual order was $200,000 and covered the period from 13 March 2003 up to but not including the hearing.
The decision is most directly relevant to applications for security for costs against a corporate plaintiff where the applicant relies on evidence of inability to pay. Its reasoning is especially pertinent where that evidence consists of financial statements, creditor records, cash-flow information, or documented difficulty meeting payment obligations. In this case, the court considered these materials together, rather than treating net assets alone as decisive ([10]–[16]).
It may also be relevant where a security application is made after proceedings have been under way for a significant period. The judgment shows that timing should be considered alongside when the relevant financial circumstances emerged and whether the application concerns costs already incurred or only future costs ([18]–[21]). It does not say that every late application will succeed; its conclusion followed from the particular chronology and evidence.
The decision is also relevant where the plaintiff argues that security would prevent the litigation from continuing. It shows the importance, in the reasoning Barrett J applied, of evidence about the financial means of shareholders, funders, noteholders, or other people or entities standing behind the company and likely to benefit from success ([22]–[25]). The judgment does not establish that the same categories of people will be relevant in every case.
Finally, the decision may be considered where the parties' cost estimates distinguish preparation from trial, and where there is a basis for considering staged security. The court's order addressed pre-hearing costs and left open a possible later application for trial costs ([27]–[29]). That was a case-specific approach, not a universal requirement to split security in the same way.
The judgment supplied here contains no decisions after 21 March 2003 and gives no information about later treatment of Parle Foods. It would therefore be unsupported to state that later courts have followed, distinguished, approved, or criticised it. The authorities listed in the judgment are authorities Barrett J referred to in reaching his decision; they are not evidence of how later courts treated this judgment.
The reasoning in Parle Foods can be accurately described as an application of the cited framework in 2003. For example, Barrett J cited FFE Minerals and Owners - Strata Plan No 50530 on the “reason to believe” threshold, and Indaba on the subsequent discretionary stage ([5]–[7]). He relied on Yandil Holdings and Bell Wholesale in considering stultification and the financial position of those standing behind the plaintiff ([22]–[25]). The judgment's citation of these cases does not establish later acceptance of Parle Foods itself.
A current assessment of the case's precedential status would require sources beyond the judgment provided, including subsequent judgments and the current text of the legislation and rules. The supplied material does not establish whether the relevant provisions have changed or how courts have applied this decision since 2003.
The judgment does not identify a fixed hearing date. Its choice of 31 December 2003 as the approximate date for assessing financial capacity was expressly a rule of thumb adopted because the hearing date was unknown ([9]). The material does not show what the company's financial position was on that date or whether the hearing later proceeded as anticipated.
The court noted that neither party had filed evidence and that the case was expected to occupy four weeks ([2], [27]). The judgment does not explain what evidence would ultimately be led at trial, how the claim or cross-claim would be resolved, or whether the litigation settled. It also does not record whether a further application for security was made.
Several financial details remained uncertain. The accounts did not appear to be audited, the terms of the convertible notes were not in evidence, and the financial status of the shareholders and noteholder was not established ([10], [13], [24]–[25]). The court made an inference connecting two entities with Rabobank, but the judgment does not provide the underlying terms or financial information needed to assess their capacity to provide support ([13], [25]).
The judgment also does not establish whether the proposed Coles Myer arrangement became a formal contract or whether the Mitsubishi discussions resulted in sales. It assessed only the evidence before it at the time of the security application ([14]–[16]). Those later commercial developments, if any, are outside the supplied text.
Finally, the decision does not resolve the ultimate claims about delayed construction and commissioning or the defendants' claim for unpaid remuneration. It concerns only security for costs. The amount ordered, its pre-hearing scope, and the liberty to apply are the procedural outcome recorded in the judgment ([29]).
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CITATION : Parle Foods v McClunie Birch [2003] NSWSC 180 HEARING DATE(S) : 12/03/03 JUDGMENT DATE : 21 March 2003
JURISDICTION: Equity Division Technology and Construction List JUDGMENT OF : Barrett J DECISION : Security for costs in the sum of $200,000 ordered
CATCHWORDS : PROCEDURE - costs - security for costs - no question of principle LEGISLATION CITED : Corporations Act 2001 (Cth), s.1335 Supreme Court Rules, Part 53 rule 2 Bell Wholesale Pty Ltd v Gates Export Corporation (1984) 8 ACLR 588 Collignon Developments Pty Ltd v Wurth (1975) 1 ACLR 314 CASES CITED : FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 33 ACSR 739 Indaba Pty Ltd v McVeigh [2000] WASCA 332 Owners - Strata Plan No 50530 v Walter Construction Group Ltd [2001] NSWSC 820 Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 5 ACLC 542 Parle Foods Pty Limited - Plaintiff PARTIES : McClunie Birch Limited - First Defendant McClunie Birch Australia Limited - Second Defendant FILE NUMBER(S) : SC 55039/02 COUNSEL : Mr J J Young - Plaintiff Mr A J McInerney - Defendants SOLICITORS : Mackenzie & Vardanega - Plaintiff Ebsworth & Ebsworth - Defendants
55039/02 - PARLE FOODS PTY LIMITED v McCLUNIE BIRCH LIMITED & ANOR JUDGMENT 1 The defendants seek an order that the plaintiff provide security in the sum of $300,000 for the future costs of these proceedings, or, more particularly, costs from 12 March 2003 up to and including the hearing of the plaintiff's claim. 2 The proceedings were commenced by statement of claim filed in May 2001. An amended statement of claim was filed in February 2002. A defence and cross-claim were filed in May 2002. A defence to the cross-claim was filed in August 2002. The plaintiff's claims relate to alleged shortcomings on the defendants' part in failing to complete on time the construction and commissioning of a food processing plant at Hanwood near Griffith. The cross-claim is for unpaid remuneration for the construction and commissioning work. No evidence has, at this stage, been filed by either the plaintiff or the defendants. 3 The application for security for costs is made pursuant to Part 53 of the Supreme Court Rules, s.1335 of the Corporations Act 2001 (Cth) and the court's inherent jurisdiction to order security for costs. 4 The defendants, as applicants, acknowledge that they must deal successfully with two main issues to make out a case for an order for security for costs: first, that the defendant are in need of protection from being sued by an impecunious company; and, second, the fact that their application is made almost two years after the proceedings began which, on its face, may mean that a disentitlement because of delay will operate against the defendants. 5 To the extent that the application is founded on s.1335 of the Corporations Act, the task of the court, in the first instance, is to determine whether "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 FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 33 ACSR 739 it was pointed out by Pidgeon and Owen JJ that this does not entail any question of proof as such: "What is required is an evaluation of the evidence led by the applicant to see whether that leads to a reason to believe that the corporation will be unable to pay the costs of the defendant." 6 The words "reason to believe" used here by Pidgeon and Owen JJ appear also in Part 53 rule 2 of the Supreme Court Rules which provides that security for costs may be ordered if "there is reason to believe that a plaintiff being a body corporate will be unable to pay the costs of the defendant if ordered to do so". In Owners - Strata Plan No 50530 v Walter Construction Group Ltd [2001] NSWSC 820, Bergin J observed that, under this provision, an applicant "… is required to establish no more than that the quality of the evidence objectively gives rise to a reason to believe that the plaintiff will be unable to pay the defendants' costs if ordered to do so." 7 If the applicant succeeds in showing an affirmative answer to the threshold or jurisdictional question, the inquiry moves to a new stage described by Murray and Miller JJ in Indaba Pty Ltd v McVeigh [2000] WASCA 332: "The second stage in the process … is to exercise a general and unfettered discretion whether or not to make an order and, if so, how much security is to be provided and in what form." 8 A starting point in considering the first issue based on "credible testimony" or "reason to believe" is the evidence as to what the applicant's costs are likely to be. That is dealt with, in this case, by an affidavit of Ms Vine-Hall, a solicitor and costs consultant retained to provide an expert opinion. Her assessment, which was not challenged, is that the defendants' costs from 31 January 2003 up to and including the hearing may be expected to be of the order of $530,000. It is in the context of that expression of opinion that security is sought in the sum of $300,000. 9 I turn then to the question whether, on the evidence, there is reason to believe that the plaintiff will be unable to pay $530,000. That is, of course, a question to which some time frame must be put, given the "will be unable" aspect of the inquiry. No hearing date is yet fixed. Nor, as I have said, has either party filed evidence. I therefore adopt, as a rule of thumb, 31 December 2003 as the approximate date as at which the financial capability of the plaintiff should be assessed. 10 The financial statements of the plaintiff for the years ended 30 June 2001 and 30 June 2002 are in evidence. These do not appear to be audited (there is, in the table of contents, in each case, a reference to an independent audit report on page 32 but for 2002 there is no such page and for 2001 page 32 contains no such report). The plaintiff is not a reporting entity. The financial statements are described as a "special purpose financial report" to which approved accounting standards do not have "mandatory applicability". The accounts for the year to 30 June 2001 also provide information in relation to the preceding year because of the inclusion of comparison columns. 11 The net assets of the plaintiff, according to these accounts, were $6.54 million at 30 June 2000, $7.09 million at 30 June 2001 and $9.01 million at 30 June 2002. Net profit attributable to the members of the plaintiff (it being the holding company) were $1.03 million for the year ended 30 June 2000 and $554,000 for the year ended 30 June 2001, with a loss of $76,000 for the year ended 30 June 2002. Current liabilities at 30 June 2002 stood at $34.53 million (compared with $38.66 million at 30 June 2001 and $16.16 million at 30 June 2000), of which $25.71 million were interest bearing (2001: $23.11 million; 2000: $8.36 million) and $8.70 million were payables (2001: $14.71 million; 2000: $7 million), the payables being very predominantly trade creditors. 12 There is also in evidence a body of correspondence between the plaintiff and AgReserves Australia Limited which appears to be a financier and shareholder or, more accurately, a former financier and perhaps a former shareholder, given the evidence of Mr Parle that the commercial relationship with Heinz and AgReserve has terminated. The correspondence records delinquency on the part of the plaintiff in meeting its financial commitments. A documented headed "Parle Foods October 2002 Monthly Results" produced on subpoena by AgReserves reads in part as follows: " Creditors Although the creditor balance has reduced by $2m. since July 1, there is still considerable pressure being exerted by overdue creditors. The company is trading with a positive cash flow, but the requirement by most suppliers that we now pay cash before delivery of the goods, means that there is limited opportunity to make inroads on the rump of 180 day plus amounts. We are continuing to avoid legal difficulties, through constant negotiation, and small but regular payments to suppliers who are becoming aggressive. Cash There is little cash available for other than vital expenses, so little or no development or maintenance projects are being undertaken." 13 There is evidence of significant financing by way of the issue of convertible notes and increase in borrowings in the year ended 30 June 2002. This is accompanied by a roughly corresponding reduction in creditors. The convertible notes were taken up by Gresham Rabo Management Ltd but there does not appear to be evidence of their terms. Rabo Australia Limited holds fixed charges over certain assets and a floating charge over assets generally to secure all moneys owing. I infer that both Rabo Australia and Gresham Rabo Management are connected with the Dutch bank, Rabobank. 14 Mr Parle points, in his affidavit, to what he describes as the successful conclusion of negotiations in December 2002 for supplying of frozen vegetables to Coles Myer to a value of approximately $15 million annually, but with a formal contract still being negotiated; also to negotiations at an "advanced stage" for sales to Mitsubishi in Japan expected to result in additional annual sales of approximately $3.8 million. This followed termination of the commercial relationship with Heinz to which corn was to have been supplied. The Mitsubishi interest is said to be confirmed by an email of 11 December 2002. On examination, however, that email merely confirms "an interest in establishing a reliable and constant supply of Sweet Corn (Super Sweets) from Australia" and expresses disappointment at non-realisation of "an expectation that this would have occurred through Parle Foods' previous market arrangements", at the same time asking that Mitsubishi be kept advised of "any further developments or opportunities as and when they arise". This email does not contain any positive or encouraging message. 15 An assessment of the evidence leads to reason to believe that the plaintiff will be unable to pay costs in the sum of $530,000 in December 2003. Profitability has fallen significantly. There was a loss in the most recent financial year. The statements in the October 2002 monthly results document show that there was then quite considerable pressure from creditors and difficulty in paying what was due, with "small but regular payments being made to suppliers who are becoming aggressive" and "little cash available for other than vital expenses". The source of continuing and future revenues is, to say the least, unclear, with the relationship with Heinz at an end and nothing tangible having been shown to have taken its place. The arrangement with Coles Myer is said to be still awaiting the negotiation of a formal contract some three months after apparently successful completion of negotiations. The negotiations said to be at an "advanced stage" with Mitsubishi are evidenced by no more than an email from Mitsubishi (some three months old) expressing disappointment at non-realisation of concluded marketing arrangements with the plaintiff. There is really nothing to verify any expectation of significant marketing arrangements with either Coles Myer or Mitsubishi to take the place of Heinz. 16 In short, the evidence about more recent developments provides no ground for thinking that there will have been any lessening of the financial pressures that existed in October 2002 and were of such a quality that creditors could not be paid and the more aggressive were kept at bay with "small but regular payments". Indeed, in the absence of anything satisfactory about replacement revenue sources, it must be assumed that there is more likely to be increased financial pressure rather than less. 17 The threshold or jurisdictional question posed by s.1335 of the Corporations Act and Part 53 rule 2 of the Supreme Court Rules must therefore be answered by saying that the relevant "reason to believe" exists, so that the court must embark upon the discretionary task of deciding whether an order for security for costs should be made. 18 The defendants, as applicants, concede that they must contend with an issue of delay. The proceedings have been on foot for some 22 months, the statement of claim having been filed in May 2001. An amended statement of claim was filed more than 13 months ago, in February 2002. The plaintiff has invested more than $150,000 in its claims by way of costs to date. The defendants point to the fact that the plaintiff put a figure of $28 million to its claim only in October 2002 and have only recently discovered the plaintiff's financial difficulties. Those two factors, it is said, justify what would otherwise seem to be a late application, particularly where it is a claim only as to further costs. 19 I must say that I do not accept that the plaintiff's quantification of its claim at $28 million marks any relevant point of departure for present purposes. The general size and shape of the litigation must have been clear from the outset. In terms of the scope of the plaintiff's claims, it has not changed in the last 13 months. 20 As to the defendants' assertion that they have only recently realised that the plaintiff is experiencing financial difficulties, the plaintiff's response is that the ramifications of the events that gave rise to the litigation must have been obvious, insofar as they had the capacity to cause losses and financial difficulties for the plaintiff. Furthermore, it is said that the defendants could, at a much earlier stage, have resorted to subpoenas and notices to produce to obtain information relevant to an assessment of the plaintiff's financial situation. 21 The significant point here, in my view, is that the most telling evidence contributing to the outcome I have indicated on the "reason to believe" aspect of the present inquiry is evidence in the financial statements for the year ended 30 June 2002 (which presumably came into existence two months or more after year-end) and the October 2002 monthly results. This, coupled with the fact that the defendants seek security only as to future costs, seems to me to be a sufficient answer to the plaintiff's proposition that delay rules out the defendants' claim. Before the events reflected in the 30 June 2002 accounts and the October 2002 monthly results, it may well have been the case that an application for security for costs would have failed at the "reason to believe" threshold. The fact that circumstances relevant to that threshold emerge and become apparent after litigation has been in progress for some time cannot mean that the simple passage of time since commencement of proceedings works to the detriment of the applicant, at least where security for future costs only is sought. With the application for security for costs having been filed on 27 February 2003, I do not consider that any disqualifying delay operates here. 22 The other matter that arises for consideration is the question whether an order for security for costs would operate oppressively to shut the plaintiff out from claims properly maintainable by it or, putting it another way, whether the proceedings would be stultified. The guiding principle was stated by Clarke J in Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 5 ACLC 542: "(t)he fact that the ordering of security will frustrate the plaintiff's rights to litigate its claim because of its financial condition does not automatically lead to the refusal of an order. Nonetheless it will usually operate as a powerful factor in favour of exercising the court's discretion in the plaintiff's favour." 23 This leads on to the question whether there are persons standing behind the plaintiff who are likely to benefit from the litigation and are willing to provide the necessary financial backing. It is pertinent to quote here a passage from the joint judgment of Sheppard, Morling and Neaves JJ in Bell Wholesale Pty Ltd v Gates Export Corporation (1984) 8 ACLR 588: "In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. 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." 24 The persons who "stand behind" the plaintiff in this case are the holders of its share capital being, on the search material in evidence (which the plaintiff did not seek to challenge) are A W Parle, Gresham Rabo Management Ltd and AgReserves Australia Ltd (one share each), B S Parle (120,002 shares) and Trimgood Pty Ltd (360,005 shares); also the holder of the convertible notes, Gresham Rabo. The principal amount of the notes is some $4 million but there is no evidence as to the basis on which the notes may be or will be converted into share capital. 25 There is no evidence as to the financial status of the shareholders and the holder of convertible notes although, as I have said, I infer that Gresham Rabo is connected with a Dutch bank. It must follow that the plaintiff, in seeking to resist the order for security for costs, has failed "to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts". In the absence of that proof, any apprehension that the order sought might leave the plaintiff itself, as a company, financially unable to continue the litigation must be left to one side. 26 The discretionary considerations to which I have referred favour the making of an order that the plaintiff provide security for the defendants' costs of the proceedings, being costs after 13 March 2003. 27 It remains to be considered whether the order should extend to the whole of those costs. The case is a complex one expected to occupy four weeks of hearing time. Although the parties have already engaged in unsuccessful mediation, the significant weight of ongoing expense on each side means that the possibility of settlement must be regarded as continuing. That being so, I consider it appropriate to take the course that commended itself to Needham J in Collignon Developments Pty Ltd v Wurth (1975) 1 ACLR 314, that is, to order security to permit the preparation of the case up to hearing with the intention that the matter be looked at again as the hearing approaches so that the defendants may, if they wish, make an application for further security at that stage. 28 Of the total of $530,530 costs of the defendants after 31 January 2003 as estimated by Ms Vine-Hall, the defendants themselves attribute $194,400 to the four week trial. Future costs up to but not including any trial may therefore be taken to be $336,130 (ie, $530,530 minus $194,400). Applying to that figure of $336,130 the ratio suggested by the defendants' application (that is, 300,000 to 530,530, or 1 to 1.7684), the amount for which security should be ordered is $190,075 which may appropriately be rounded to $200,000. 29 The plaintiff is to provide to the defendants security in the sum of $200,000 for the defendants' costs of the proceedings from 13 March 2003 up to but not including the hearing, the security to be in such form as the parties shall agree or, in default of agreement, as shall be fixed by a Master. Each party has liberty to apply on 48 hours notice in relation to any matter in connection with such security. The costs of and incidental to the motion for security for costs should be reserved. **********
Last Modified: 03/21/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Parle Foods
McClunie Birch
[2000] WASCA 332
The plaintiff was ordered to provide $200,000 security for the defendants’ costs from 13 March 2003 up to, but not including, the hearing, in a form agreed by the parties or otherwise fixed by a Master; each party had liberty to apply on 48 hours’ notice, and the costs of and incidental to the motion were reserved.