Practice and Procedure - application for security for costs following adjournment of part-heard hearing - matters relevant for consideration - chances of applicant's claim ultimately succeeding - degree of risk that respondents would not be reimbursed for costs if successful - whether costs order would prevent applicant from proceeding with claim - whether applicant's impecuniosity arose out of breaches alleged against respondents - principal proceedings brought under s.52 Trade Practices Act - whether costs order would be contrary to public interest in fair competition.

Judiciary Act 1903: s.79

Trade Practices Act 1974: ss.52, 82.

for Applicant: Messrs. Abbott Tout Russell

Kennedy

Counsel and Solicitors Mr J J Garnsey instructed by

for First Respondent: Messrs Allen Allen & Hemsley

Counsel and Solicitors Mr Webb instructed by Messrs

for Second Respondent: Mallesons Stephen Jaques

Westpac Banking Corporation and Westpac Savings Bank Limited (which companies together are hereafter referred to as "Westpac") and Challenge Bank Limited ("Challenge") the first and second respondents respectively, move the Court for an order that the applicant, Equity Access Limited, provide security for their costs and an order that the applicant's claim be stayed until security is given.

2. The applicant commenced the present litigation by application filed in the Court on 16 May 1989. The statement of claim alleged that the applicant had, since about May 1988 been engaged in the development and marketing of a financial package under the name "Equity Access". This "package" was an arrangement for the acquisition of homes from persons who are paid the purchase price over a number of years and who retain the right to live in the home. The applicant further alleges that the words "equity access" have as a result of the applicant's activity in that time become associated with the business of the applicant and the financial package to which I have referred.

3. There is no dispute that both Westpac and Challenge have since on or around April 1989 each marketed a financial plan under the name "Equity Access" although the banks assert that the name "Equity Access" is always used in association with the names of the respective banks. These plans differ from the plan developed by the applicant in that each involves a loan being made to a customer of the bank on the security of a home, the funds to be used for some purpose such as investment. In this way the client's equity in his home is said to be accessed.

4. It is alleged that the use of the words "equity access" by the banks involves the making in trade or commerce of false representations that are misleading or deceptive or likely to mislead or deceive and accordingly involves breaches of s.52 of the Trade Practices Act 1976 (Cth). Additionally the applicant claims damages against the banks for passing off and injunctive relief.

5. The pleadings and pre-trial steps proceeded with commendable alacrity and the matter was set down for a hearing to commence on 24 July 1989. The parties estimated that the case would take three days and accordingly that number of days was allocated to it. The hearing proceeded before me for the three days allotted and evidence was taken on behalf of the applicant and on behalf of Westpac. Some of the evidence on behalf of Challenge was taken but that evidence was not concluded. It may be that further evidence in reply will be given on behalf of the applicant in due course.

6. It was apparent that to complete the evidence and submissions approximately two to two and one half days of further Court time should be set aside. As a result of difficulties in accommodating the convenience of counsel with available dates the hearing was adjourned until a date far further in the future than should have been expected. In the result the hearing of the matter will resume on 6 November 1989.

7. In support of the present motion affidavits setting out correspondence passing between the solicitors for the parties were read. I shall deal first with the correspondence passing between the solicitors of Westpac and the solicitors for the applicant.

8. It appears that the solicitors for Westpac wrote to the solicitors for the applicant on 19 July 1989 pointing out that as at 6 February 1989 the applicant had a credit balance of $423.44 in its current account, the bank statement covering the period ending on that date being annexed to an affidavit filed in support of the applicant's case. It was said that the affidavit evidence together with discovery had revealed that the applicant had no existing clients and no arrangements with financiers. Written evidence was demanded by 20 July 1989 that the applicant was in a position to pay its debts and satisfy any order of costs. The correspondence was, as was pointed out by the solicitor for the applicant in the letter in reply "a mere three working days from the commencement of the hearing".

9. Copies of the applicant's bank statements for a period of four months were provided in response to this request. Although the letter providing them indicated that they disclosed that during the period which they covered, approximately $200,000 had passed through the applicant's bank account a perusal of the bank statements discloses that at no time was there ever any significant credit balance and that generally the account had been in debit.

10. It was said in the correspondence that "financial arrangements" had been put in place involving finance from the directors of the applicant and associated companies although details of these arrangements were not provided. The solicitors for Westpac warned of the consequences of s.556 of the Companies (NSW) Code to the directors of the applicant if a cost order were made against the applicant. Apparently a decision was reached on the part of Westpac not to proceed then with a motion for security for costs. One could imagine that one of the reasons was the imminence of the hearing on the merits.

11. During the course of the hearing on the merits before me, Mr Lambert, a director of the applicant, was crossexamined. At p 93.1 of the Transcript the following appears:

MR GARNSEY: Equity Access itself has not got any

assets which would enable it to fund the scheme,

has it?

MR LAMBERT: It does not need to have any assets,

no.

MR GARNSEY: Well, leaving aside whether or not it

needs to, it has not got any, has it?

MR LAMBERT: No, it has not.

12. The crossexamination then went on to deal with another matter.

13. After the three days of hearing the correspondence was renewed by a letter of 28 July 1989 from the solicitors for Westpac seeking agreement on the part of the applicant that it provide to Westpac security for costs and threatening a formal application to the Court if such security were not forthcoming. The applicant in reply asserted that:

"The evidence does not indicate that our client is

unable to satisfy an order for costs and it is now

too late for your clients to be raising such questions."

14. A further affidavit from the solicitors for Westpac was read which estimated that costs to date including disbursements and counsel's fees had amounted to $91,372.39 and that the estimated future costs including counsel's fees were expected to amount to $22,000 with a total estimated costs for the proceedings on the part of Westpac of $113,372.39. It was estimated that if an order of costs were given in Westpac's favour it would recover between $55,000 and $73,000.

15. By letter dated 14 August 1989 the applicant mentioned a proposed issue of capital of $500,000 involving partly paid shares which issue was proposed to take place, it was said, in two to four weeks time. It was suggested that the motion be stood over for one month to allow the issue of capital to take place but this suggestion was rejected.

16. Mr Lambert, a director of the applicant, deposed that his co-director and himself were continuing to "refine" the financial package, that negotiations with financiers were at a critical stage and that the names of these financiers could not be disclosed. Reference in the affidavit was made to a proposed capital of $500,000 fully paid issued shares to be taken up substantially by two family companies, one the family company of Mr Moroney and the other the family company of Mr Lambert. One at least of these companies was trustee of a unit trust which was presently carrying out certain property developments. Mr Lambert disclosed that he himself had only one asset which had a net equity of $80,000 and that his co-director had an interest with others in the estate of Mr Moroney's late mother in respect of which a grant of probate had not yet been sought.

17. Similar correspondence evidence was adduced on behalf of Advance Bank. It suffices to say that the only practical distinction between this evidence and that filed by Westpac was that Challenge Bank had not threatened an application prior to the date of hearing and that that Bank estimated its costs to date as totalling $35,000 and its future costs at $20,000 with the amount recoverable on taxation being presumably a figure of approximately two thirds of that amount.

18. The motion filed on behalf of Westpac sought generally security for costs. The motion filed on behalf of Challenge was in its terms confined to an application made pursuant to s.533 of the Companies (NSW) Code. In the event nothing turns upon the source of power for granting the relief sought.

19. Section 56 of the Federal Court of Australia Act 1976 provides that the Court may order a plaintiff in a proceeding in the Court to give security for the payments of costs that may be awarded against him and that the security shall be of such amount, and given at such time and in such manner and form, as the Court directs. Order 28 of the Federal Court Rules deals with security for costs but r.31 is confined to the cases referred to in paragraphs (a) to (d) of that rule none of which is a case such as the present. The power of the Court to order security is not however confined to cases falling within Order 28: Sent v. Jet Corp of Aust Pty Ltd [1984] FCA 178; (1984) 2 FCR 201.

20. Since the Court is presently exercising jurisdiction within the State of New South Wales, the provision of s.533(1) of the Companies (NSW) Code are by force of s.79 of the Judiciary Act 1903 made applicable to proceedings in the Court: Cameron's Unit Services Pty Ltd v. Kevin R Whelpton & Associates (Australia) Pty Ltd (1986) 13 FCR 46, 48-9. That subsection provides:

"Where a corporation is plaintiff in any action or

other legal proceeding, the court having

jurisdiction in the matter 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 his

defence, require sufficient security to be given

for those costs and stay all proceedings until the

security is given."

21. For the purposes of this case I do not think it is necessary to distinguish between relief granted under the Federal Court Act on the one hand and relief granted under s.533(1) of the Companies (NSW) Code of the other. The sections have been treated as providing alternative sources of power: Sent v. Jet Corp of Aust Pty Ltd (supra), Bell Wholesale Co Pty Ltd v. Gates Export Corporation [1984] FCA 34; (1984) 2 FCR 1, Cameron's Unit Services Pty Ltd v. Kevin R. Whelpton & Associates (Aust) Pty Ltd (supra).

22. The power conferred by s.56 of the Federal Court of Australia Act is discretionary and as Morling J said in Barton v. Minister for Foreign Affairs [1984] FCA 89; (1984) 2 FCR 463 at 468 the Court should exercise its discretion having regard to the facts of each case. Of s.533(1) it has been said that the discretion conferred by the section can be regarded as one "which should be exercised merely with a predisposition in favour of the defendant party": Buckley v. Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 at 305 but as Burchett J points out in Cameron's Unit Services Pty Ltd v. Kevin R Whelpton & Associates (Aust) Pty Ltd (supra) subsequent decisions have cast doubt on that statement and the view now accepted as correct is that enunciated by Lord Denning MR and Lawton LJ in Sir Lindsay Parkinson & Co Ltd v. Triplan Ltd (1973) 1 QB 609, 626:

"Turning now to the words ...the important word is

"may". That gives the judge a discretion whether

to order security or not. There is no burden one

way or the other. It is a discretion to be

exercised in all the circumstances of the case."

23. See too the judgment in Bell Wholesale at p 4 and per Smithers J in Sent at p 217 where his Honour with some caution said:

"If it is going too far to say, as was said by

Street CJ in Buckley's case at 303 ... and as I

accepted in Tradestock's case ... that the

discretion conferred by this section should be

exercised merely with a predisposition in favour of

the defendant party, nevertheless, the discretion

is for the protection of the defendant from the

unfair and possibly burdensome consequences of an

unsuccessful claim against him by an impecunious

company. In every case of such an action, where

the result is in real doubt, risk of those

consequences exists, and the need for protection

exists. To my mind the statutory purpose is itself

a factor deserving of weight in the exercise of the

discretion and the greater the quantum of loss if

the risk materialises and the less apparent the

chances of success, the greater the weight."

24. The cases indicate that among the matters appropriate for consideration are:

* the chances of success of the applicant; whether

the applicant's claim is bona fide or a sham;

* the quantum of risk that the applicant cannot

satisfy a cost order;

* whether use of the power would shut out a small

company from making a genuine claim against a large

company, i.e. is the power being used oppressively;

* whether the impecuniosity arises out of the Act in

respect to which relief is sought;

* whether there are aspects of public interest which

weigh in the balance against the making of an

order;

* whether there are any particular discretionary

matters peculiar to the circumstances of the case.

25. The considerations relevant are listed by Smithers J in Drumdurno Pty Ltd v. Braham [1982] FCA 161; (1982) 42 ALR 563.

26. Although there is little evidence of the financial affairs of the applicant such evidence as there is and the absence of any evidence on the point led by the applicant establishes in my opinion that in the event of an order of costs being made, as matters presently stand, the applicant would be unable to meet that order. Certainly there has been no guarantee given to the Court or to anyone else that the proposed increase in share capital referred to both in correspondence and in affidavit will take place. Even if it did, no financial materials have been put before the Court to enable the Court to determine what, if any, the liabilities of the company presently are. All that is known about the company is that it has an issued share capital of $5 being a public company. That fact was stated from the bar table. The applicant has a cash flow. However, the evidence before me in the proceedings, indicated that this cash flow arose from factoring debts. However, the bank statements lend cogent support to the proposition that as things presently stand the applicant, if not insolvent, is certainly unable to meet costs of the order referred to in the affidavits of the respondents. The affidavit and other evidence so far adduced in the hearing clearly established that the applicants had no existing clients and there was argument before me as to a matter which will ultimately be in issue in the hearing, namely as to whether the applicant has any goodwill having regard to the steps that it has so far taken to establish a market for its financial product. I do not attempt to deal with this argument in these proceedings.

27. I propose now to consider the various matters upon which the exercise of my discretion depends.

28. Notwithstanding the suggestion in Sent that chances of success are a matter relevant to be taken into account in the exercise of discretion there is certainly not universal agreement to that proposition. Pincus J in Appleglen v. Mainzeal (1988) 79 ALR 634, at 635, made reference to the decision in Porzelack KG v. Porzelack (UK) Ltd (1987) 1 WLR 420 where the Vice Chancellor, considering a statement in the English Supreme Court practice: "A major matter for consideration is a likelihood of the plaintiff succeeding", commented:

"This is the second occasion recently on which I

have had a major hearing on security for costs and

in which the parties have sought to investigate in

considerable detail the likelihood or otherwise of

success in the action. I do not think that is a

right course to adopt on an application for

security for costs."

29. In the view of Pincus J with which, with respect I agree, the general rule is as stated in Porzelack. In the ordinary case where the hearing of the motion for security for costs takes place some considerable time prior to the hearing of the action and before the evidence has been tested, there would be difficulty in embarking upon a consideration of the prospects of success, at least in any detail. However the problem is greatly compounded where, as here, the application for security for costs is made after three days of hearing, when some but not all of the evidence has been heard, and when submissions on evidence have not yet been made. It would I think be quite improper for me to embark upon a view of the evidence as it presently stands to determine whether the applicant does or does not have a good case. It suffices to say that the case is one where it must clearly be said that the applicant has an arguable or triable case. Certainly it was not suggested to me that the case of the applicant is merely frivolous. There are real issues to be tried and ultimately a conclusion must be reached as to whether the conduct in question was misleading or deceptive, whether the applicant had a sufficient reputation to permit it to succeed and whether the name "equity access" is in essence a generic name. There may in addition be other issues which are yet to emerge.

30. Having regard to the absence of any detailed financial evidence it is difficult to determine the quantum of risk to the respondent banks. However, as I have already indicated, the evidence before me shows on the balance of probabilities that there is a substantial risk that the respondents may not, if judgment be given in their favour, be reimbursed in full for their costs as taxed. That however is a matter to be weighed against the very nature and standing of the respondents themselves. The respondents are each banks and while the policy of provisions permitting orders for security of costs is to protect defendants large and small against actions being brought against them in disregard of the possibility that the applicant may be unable to fund an order for costs, the damage to the respondents having regard to the size of the respondents is considerably less significant than the damage which might inure to the applicant if an order for security for the totality of costs incurred and to be incurred were made.

3. Would an Order shut out the Applicant from proceeding with

31. As I have already indicated the evidence before the Court as to the financial situation of the applicant is somewhat scant. While I can infer that the applicant has no or insufficient assets to meet the totality of costs of the respondents in the event that the application is not successful, I do not think that the evidence would entitle me to infer that the applicant, if ordered to give security for costs, could not satisfy that order with the result that its claim might practically be foreclosed to them. To some extent, of course, this question depends upon the extent of the security that might be demanded of the applicant. For reasons which will hereafter appear I think that to order security in respect of the totality of the costs of the respondents, where those costs have already been incurred, would be to do substantial injustice to the applicant so that the issue really is whether an order for security as to the remaining costs would have a disastrous effect upon the applicant. On the state of the present evidence I do not think that it is open to me so to find.

4. Did the Impecuniosity arise out of the Breaches Alleged

32. The present is not a case where it can be said that the applicant's impecuniosity arose out of the very acts which the applicant is seeking damages in respect of. The facts of the present application are that the applicant itself is in the throws of establishing itself in business as a vendor of financial products. Its impecuniosity arises from the fact that it has until now not been adequately capitalized and that it has incurred the usual costs of setting up in business. No doubt the present litigation has delayed the point of time at which the applicant might have commenced selling its financial package but the case is quite different from a case where an applicant has been, as it were, put out of business by the false and misleading conduct of the respondents in respect of which the applicant claims damages.

33. The present proceedings found upon s.52 of the Trade Practices Act and the private right of action given to a person who suffers damage as a result of the false and misleading conduct in trade and commerce of a corporation under s.82. It may be doubted that the legislature when enacting Part V of the Trade Practices Act and in particular ss.52 and 82 intended to create a cause of action which potentially covered almost the entire field of the law of contract and tort. In many cases, proceedings brought under s.52 will be at least co-extensive with ordinary civil proceedings which could be brought in tort. The present is probably such a case. But there will always be one essential difference between a proceeding under s.52 on the one hand and a proceeding brought sounding in tort on the other. Section 52 by proscribing certain conduct establishes what Fox J referred to in Brown v. Jam Factory Pty Ltd [1981] FCA 35; (1981) 53 FLR 340 as a "norm of conduct, failure to observe which has consequences provided for elsewhere in the same statute, or under general law." It is not to be forgotten that s.52 appears in that part of the Trade Practices Act concerned with consumer protection and in particular unfair practices that arise. It is the policy of the legislature that trade and commerce will be made more competitive and free if conduct which is essentially unfair, misleading or deceptive or likely to mislead or deceive is prohibited. Thus there is a public interest to be considered in proceedings based upon s.52 which public interest is not present in ordinary inter partes common law actions in tort.

34. In considering whether security for costs should be granted against the applicant consideration must be given not only to the fact that the legislature desired to promote fair competition but also that it desired to provide an effective mechanism in the combination of ss.52 and 82 whereby the question of whether conduct is in truth false or misleading can be agitated before a court. Thus it is appropriate to consider on the side of the applicant the public interest and it is not correct to say, as counsel for Westpac submitted, that essentially the litigation was just ordinary inter partes litigation in tort. That is not to say that too much weight can, in a case such as the present, be given to this factor. No doubt the more serious the allegation of unfair practice the more the public interest in the litigation might be attracted.

6. Discretionary Matters Peculiar to the Facts of the Present Case

35. There will, inevitably, be particular discretionary matters that will arise in a particular case. Here there arises the question of the timing of the application for security for costs. As I have already indicated the case had already proceeded three full days of hearing, being the time for which the matter was initially set down, presumably based upon estimates submitted by both parties. Without wishing to be critical in any way of counsel, it may be said that the case indeed should have been completed within the allotted three day span. Further in the ordinary course the matter should have proceeded to the conclusion of the case notwithstanding that the time estimate was defective. That this course could not happen depended both upon the convenience of counsel and the work load of the Court. The fact that there has been time to bring this application between the conclusion of the first three days of hearing and the resumption of the hearing has arisen in a way that is not to be laid solely or even in the main at the feet of the applicant.

36. It is obvious that an application for security for costs should be brought promptly: Smail v. Burton [1975] VicRp 76; (1975) VR 776; Foss Export Agency Pty Ltd v. Trotman (1949) 67 WN(NSW) 1. In Southern Cross Exploration N.L. v. Fire and All Risks Insurance Co Ltd (1985) 1 NSWLR 114 the application for security was made when the trial had occupied 65 days and it was estimated that the completion of the hearing would take another six to eight weeks. In the event Waddell J ordered that security be given for an amount based upon the estimates of the further eight weeks of hearing. In so doing his Honour referred to what had been said by Street CJ in Buckley v. Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301 at 308:

"A significant matter to be weighed in determining

whether or not an extension of time should now be

allowed is that this arbitration is run on for some

eight hearing days. The builder has expended money

in respect of its own legal costs for those eight

days. And, if security now be ordered, accompanied

by the usual sanction that the arbitration as well

as the proceedings in this court be stayed until

such security be furnished, this would, in effect,

place the company in the position of running a

risk, if unable to provide security, of having

wasted the costs of these eight days. It is an

accepted principle in the ordering of security for

costs that such an application should be made

promptly. There may of course, be cases where the

impecuniosity of the company will only be

discoverable or provable at a later stage of the

proceedings. Similarly there may be cases in which

the length of the proceedings was not foreseen when

they commenced. Other situations could occur in

which a late application could, without procedural

prejudice, be brought forward during the currency

of the disputed proceedings. But ordinarily, I

reiterate, the application ought to be made

promptly in order to avoid the very situation which

has developed in this case."

37. In Estates Property Investment Corporation Ltd v. Pooley (1975) 3 ACLR 256 an order was made for security of the whole of the defendant's costs of the proceedings notwithstanding that at the time the order was made the trial had commenced.

38. In the present case I am influenced by the fact that in the ordinary course of events by now the case would have been concluded to think that the present is not a case where security for costs in respect of the past three days of hearing is at all appropriate. That is a factor clearly favouring the applicant.

39. Counsel for Challenge Bank urged that a matter working adversely to the applicant in the present circumstances was the fact that the applicant had commenced these proceedings against two respondents unrelated resulting in each of the respondent banks becoming liable for more costs than otherwise they would have had each of the applications been only in respect of one bank. While that is true, there were common issues of reputation and generic usage which justified the course taken by the applicant. That point does not in my view weigh heavily against the applicant.

40. Weighing all the factors as best I can, the appropriate conclusion seems to me that the Court should order that, assuming the applicant's financial position to remain as it is, without the injection of further capital, the applicant provide security for costs, not in respect of the proceedings now past, but in respect of the remaining two and a half days of hearing yet to come. I so conclude because it seems relatively clear at the moment that the applicant could not meet an order for costs if such were made even in respect of the costs not yet incurred. There is some evidence of intention that the capital of the company will be increased and that as a result the company might then be able to meet the costs of the proceedings. However there is no certainty as to this cf National Bank v. Donald Export Trading Ltd (1980) 1 NZLR 97, 101. There is no suggestion that any impecuniosity of the applicant arose out of any false or misleading conduct of the respondents; the public element while clearly there, does not justify on its own the conclusion in the circumstances of this case that the proceedings continue without any security at all being made available. The application for security is not one which on the evidence I could say was being made oppressively. Accordingly I would propose that some order for security for costs should be made.

41. The question arises then as to the quantum of security and the form which that security should take. During the course of argument I indicated that if I were minded to order security for costs I would then adjourn the proceedings for an appropriate time to see if the parties could agree as to the quantum and form of security and if not would then hear further submissions on these matters. It may be that in the meantime the increase of capital to which reference was made in the affidavits will have taken place. If it has then this might very well affect the outcome of the application. Accordingly I propose to stand over the application for a period of four weeks from today. If by that time the increase of share capital has taken place and it can then be shown that the applicant could meet a costs order then evidence can be adduced to that effect. Also in the meantime the parties should see whether agreement can be reached as to the quantum of security to be provided to each respondent in respect of the remaining two and a half days of hearing having regard to the costs rules of the Court and further as to the form that security may take. In default of agreement the matter will be relisted before me on a date to be fixed for further argument.