Practice and Procedure - Change of venue - test to be applied

Practice and Procedure - Security for costs - one plaintiff resident in jurisdiction where no statutory system of reciprocal foreign judgment registration in force - whether order for security for costs would frustrate litigation.

Federal Court Rules 0. 6 r. 2, 0. 10 r. 1, O. 28 r. 3.

Federal Court of Australia Act 1976: ss. 12, 48, 56. Companies (NSW) Code 1981: s. 533.

Counsel and Solicitors A S Martin instructed by Parish

Counsel and Solicitors T A Gray QC and J R Sulan

for First and Second instructed by Mallesons Stephen

Simmons & Co

Counsel and Solicitors S M P Reeves instructed by

for Third Respondent: Gaden as agents for McLaughlin,

In respect of the first and second respondents' motion:

1. Counsel for the first and second respondents bring in

short minutes of order to give effect to my Reasons for

Judgment.

2. The first and second respondents prepare and serve upon

the applicants a draft bill of anticipated costs on or

before 9 June 1989 verified on oath by their solicitor.

3. The matter be listed for further mention on 14 June

In respect of the third respondent's motion:

1. The name of the third respondent be struck from the

application.

2. Liberty be reserved to the applicants to make amendments

to the application and statement of claim consequent

upon the striking out of the name of the third

respondent.

3. There be no order as to costs of the motions.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

The first and second respondents by notice of motion filed 8 May 1989 and the third respondent by notice of motion filed 18 May 1989 seek orders: that the actions against the first and second respondents be "severed" from the action against the third respondent on the ground that there was a wrongful joinder of parties; that the action against the first and second respondents be transferred from the Sydney Registry to the Adelaide Registry; that the action against the third respondent be transferred from the Sydney Registry to the Brisbane Registry and that the applicants provide security for costs.

2. To understand the requests of the two groups of respondents for "severance" it is necessary to summarise briefly the claims made in the applicants' statement of claim in its presently amended form.

3. It is claimed that the first applicant carries on in Thailand a business of manufacturing high quality silk fabrics used in interior decorating and that its fabrics are distinguished by their original distinctive patterns and colours. The second applicant, it is claimed, carries on a business of importing, distributing and supplying throughout Australia the first applicant's silk fabrics. The distinctive designs of the fabrics have, it is claimed, become known in the trade of interior decorating and further, it is alleged that the applicants have a substantial reputation and goodwill in Australia in relation to these fabrics.

4. Clause 8 of the statement of claim then alleges an agreement said to have been made between the second applicant and the first respondent pursuant to which it was agreed that the second applicant would supply to the first respondent a number of metres of fabric for the sole purpose of the first respondent using that fabric as a bedspread in a display King Room for the Hyatt Hotel in Adelaide. The material having been supplied it is alleged that in breach of an implied or express term of that agreement the first respondent copied the designs and used those designs by printing them on to its own fabric and supplying such fabric to others at a profit. That supply is said to have been by way of usage in the Hyatt Hotel in Adelaide.

5. Clause 13 of the statement of claim refers to an agreement made on or about 29 April 1987 between the second applicant and the first respondent for the supply to the first respondent of ten metres of a different fabric alleging that supply to be for the sole purpose of the first respondent using the fabric as a bedspread in a display twin room for the Hyatt Hotel in Adelaide; an ultimate copying of those designs by the second applicant by printing them on to its own fabric and supplying such fabric to others at a profit, the particulars again alleging usage in the Hyatt Hotel.

6. Clause 25 refers to an agreement of 27 July 1986 between the second applicant and the second respondent concerning yet another design of fabric alleging that the fabric was supplied to be used as a bedhead in a display King Room for the Hyatt Hotel Adelaide and in breach of an express or implied term the copying of that design on the fabric of the second applicant and supplying such fabric to others at a profit by way of usage in a number of bedrooms in the Hyatt Hotel.

7. Clause 37, for the first time, introduces a claim against the third respondent. It is alleged that on or about 28 October 1986 an agreement was made between the second applicant and the third respondent for the supply to the third respondent of a quantity of a particular fabric, not being one of the fabrics previously referred to, as a bedspread in a display room for the Hyatt Hotel in Canberra. It is then alleged that the third respondent in breach of an express or implied term of that agreement copied the design on to its own fabric and supplied the fabric to others at a profit, the particulars given being usage in the Hyatt Hotel Canberra.

8. The statement of claim alleges against the respondents conduct that is misleading and deceptive under s.52 of the Trade Practices Act as well as damages in tort for passing off.

9. It is not suggested that there is any relationship between the first and second respondents, on the one hand, and the third respondent, on the other, or that there is any connection other than name between the Hyatt Hotel in Adelaide and the Hyatt Hotel in Canberra. The sole connection between the causes of action alleged against the first and second respondents, on the one hand, and the third respondent, on the other, is that each group of respondents was supplied, albeit under separate contracts, with material of different design by the applicants.

10. Joinder of parties is dealt with in the Federal Court Rules in Order 6 Rule 2 which provides as follows:

"Two or more persons may be joined as applicants or

respondents in any proceeding -

(a) where -

(i) if a separate proceeding were brought by

or against each of them, as the case may

be, some common question of law or of

fact would arise in all the proceedings;

and

(ii) all rights to relief claimed in the

proceeding (whether they are joint,

several or alternative) are in respect of

or arise out of the same transaction or

series of transactions; or

(b) when the court gives leave so to do."

11. It is said for the applicants that the provisions of Order 6 Rule 2 have been fulfilled. The common questions of law or fact which are said to arise are whether the applicants have distinctive designs and more particularly whether they have a reputation in Australia. It is said that the second requirement, that the right to relief be in respect of or arise out of the same transaction or series of transactions, is also satisfied in that each of the sales are pursuant to contracts entered into between the applicant and others, the connecting link between the sales, transforming them into a series of transactions, being the common thread of the applicant as a contracting party.

12. For the respondents it is said that neither of the requirements set out in Order 6 Rule 2(a)(i) and 2(a)(ii) are satisfied. First, it is said that there is no common question of law or fact and in particular that the case against the first and second respondents requires the applicants to prove a reputation in South Australia and the case against the third respondent requires the applicants to prove a reputation in the Australian Capital Territory. The fabrics being different, it is said there could not be a common question arising out of the distinctiveness of a particular fabric. It is further submitted that the contracts between the applicants and the first and second respondents, on the one hand, and between the applicants and the third respondent, on the other, can clearly not be seen to be "a series of transactions" for the purposes of the Rule. Clearly, the contracts are not alleged to be part of the same transaction.

13. Order 6 Rule 2 derives initially from Order XVI Rule 1 of the Rules of the High Court in the United Kingdom. The history of the Rule is referred to in Stroud v. Lawson (1898)2 QB 44 at 49. It appears that the rule was brought into operation after the decision in Carter v. Rigby & Co. (1896) 2 QB 113 where it was held under the then rules of the County Court that 50 relatives of deceased miners drowned in a mine flood and bringing actions against the mine owner under Lord Campbell's Act could not be joined in the one action as their causes of action were several. See too Peninsular & Oriental Steam Navigation Co v. Tsune Kijima (1895) AC 661 where it was held that different parties sustaining damage by reason of a collision of ships alleged to have been caused by the negligence of the defendants could not join in one action against the defendants.

14. In Stroud v. Lawson the plaintiff sought in one action to have joined two separate causes of action, the one a common law claim in deceit by the plaintiff in his own right and the other by the plaintiff in a representative capacity for a declaration that the payment of a dividend was ultra vires and illegal. It was held under the English Rules of Court that the plaintiff could not join the two causes of action which he was putting forward in different capacities unless he was able to show that they both arose out of the same transaction. They did not. No consideration was given to the words "series of transactions" in that case.

15. The effect of the English rule was described by Chitty LJ at 51-2 as follows:

"It is obvious on the face of the rule that it was

not thereby intended to allow any number of

different plaintiffs to join in one action any

number of separate causes of action, but that it

was intended merely to effect a modification of the

old rule by which a limited liberty of joining

plaintiffs with separate causes of action should be

conferred."

16. After setting out the terms of the rule his Lordship continued:

"It is necessary that both these conditions should

be fulfilled, that is to say, that the right to

relief alleged to exist in each plaintiff should be

in respect of or arise out of the same transaction,

and also that there should be a common question of

fact or law, in order that the case may be within

the rule."

17. A similar rule in the Rules of the High Court of Australia, (Order 16 Rule 1) was considered in Payne v. Young [1980] HCA 54; (1979-80) 145 CLR 609. In that case a number of plaintiffs joined in an action against a number of defendants claiming declarations that regulations made under the Health Act 1911 (WA) levying meat inspection fees were duties of excise and therefore invalid and also claiming the recovery of inspection fees from a particular defendant to whom they had been paid under protest. The inspection fees had been paid by various of the plaintiffs to different defendants and the amounts of the fees and the scale upon which they were payable differed as between the parties. It was held that as each series of transactions was peculiar to each individual plaintiff the right to relief claimed did not permit a joinder within the Rules.

18. It was not disputed in Payne v. Young that there was a common question of law. The only issue was whether there was a right to relief in respect of or arising out of the same transaction or series of transactions. At first instance Aickin J, while pointing out that the Rules should be construed in a liberal way so as to permit joinder where reasonably practicable, was nevertheless of the view that the case was not an appropriate one for joinder because:

"the most that can be said here is that the claims

arise out of similar transactions or several series of

similar transactions." (p 611)

19. On appeal the judgment of Aickin J was upheld. Barwick CJ pointed out that the right to recovery of the money sums was individual to each plaintiff and particular to the appropriate defendant. While it would have been right in his Honour's view to say of each plaintiff that its money claim arose out of a series of transactions, that is to say his own transactions with a particular defendant, it was incorrect to say that the relief by way of payment of a money sum arose out of the same series of transactions. As his Honour put it at 614:

"There is clearly no transaction to which all the

plaintiffs are party, nor indeed, if it matters, is

there any claim by any plaintiff to which all the

defendants are really parties."

20. Mason J, in the course of his Honour's judgment, pointed out that each plaintiff had a separate cause of action against each defendant with no other plaintiff having an interest in that cause of action or in its subject matter. His Honour at 618 continued:

"The object of the amendment was to allow several

plaintiffs to join separate causes of action

where under the old rule as interpreted by judicial

decision they could not do so. Subject to the two

limitations expressed in pars.(a) and (b) of the

rule, it permits the joinder of separate causes of

action which have accrued to different plaintiffs.

The effect of the rule was, in my opinion,

correctly stated by Vaughan Williams LJ in Stroud

v. Lawson when he said (at pp 54-55):

"I do not think that the rule means that the

whole of a transaction must be involved in

each of the causes of action joined. I think

that, if there was a transaction or series of

transactions in respect of which one plaintiff

was interested up to a certain point, and

other plaintiffs were interested, not only up

to that point, but in respect of the entire

transaction or series of transactions from

beginning to end, under this rule they might

join their separate causes of action in one

action, because there would be one transaction

or series of transactions in respect of which

the various plaintiffs all claimed a right to

relief. Their remedies or damages might be

different, but they would be claiming relief

in respect of the same transaction or series

of transactions."

To these observations I would add the comment that

the rule may well authorize the joinder of separate

causes of action accruing to various plaintiffs

against different defendants, so long as the causes

of action arise out of the same transaction or

series of transactions.

The consequence is that under par.(a) of the rule

joinder of separate causes of action accruing to

different plaintiffs is authorized when the relief

claimed is in respect of, or arises out of, the

same or a particular series of transactions.

Joinder is not authorized when the relief claimed

is in respect of, or arises out of, two or more

different series of transactions, when the

participation of each individual plaintiff is

limited to participation in one series of

transactions, the other plaintiffs not

participating in that series."

21. Counsel for the applicants relied particularly upon the passage from the judgment of Mason J which I have set out above, suggesting that his Honour in that passage when referring to the case where joinder was not authorised was, as it were, setting out the only circumstances in which in his Honour's view a joinder would not be authorised. I do not read his Honour as so doing. What his Honour, with respect, was addressing was the issue before him and he was not in the passage last quoted endeavouring to set out a general proposition.

22. A number of contracts entered into by one party with others does not become a series of transactions merely because one of the parties to those contracts remains constant. Whether there is a relevant series of transactions to permit joinder will ultimately involve a question of fact. A case may be imagined where a vendor sold a number of properties by auction, each one going immediately after the other under the hammer. It may further be imagined that in each contract there was some misrepresentation by the vendor. It would not be correct to describe each of the contracts negotiated at auction with different purchasers as being a series of transactions for the purposes of the rule. Cf. Attorney General v. Cohen (1937) 1 KB 478. Although the context of the lastmentioned case is different it was pointed out by Slesser LJ that the words used in the Finance Act, s.73 there under consideration, were "part of a series of transactions" and not "part of a transaction in series". As his Lordship found there had to be some interdependence so as to form a series. While, in the present context, the interdependence could be found where both the applicants and respondents were parties to all transactions, I would adopt the words of Greene LJ in Attorney General v. Cohen at 489:

"It is, in my judgment, incumbent upon those who

assert that a number of transactions constitute a

series within the meaning of the section (rule) at

least to point to some quality in them which upon

some intelligible ground removes them from the

category of separate transactions and unites them

under the head of a series."

23. In the present case there seems no such intelligible ground. It is just not logical to regard the coincidence that the applicant is a party to all of the contracts as converting what is not a series of transactions into a series.

24. It follows, in my view, that the claims against the first and second respondents should not have been joined with the claims against the third respondent.

25. The question then arises as to what relief should be granted in this respect to the respondents. The first and second respondents sought to persuade me that the case had gone so incurably wrong that I should require the applicants to commence proceedings afresh, separately against the first and second respondents, on the one hand, and the third respondent, on the other. However, in view of the fact that the events claimed against the first and second applicants occurred outside the three year limitation period I would be loath to dismiss the proceedings against them. As I understand it the period of limitation, so far as the claim against the third respondent is concerned, has not yet expired.

26. Although the notice of motion sought orders "severing" the respective actions I have grave doubts as to my power to do this. In any event, it does not seem to me that "severing" what are really two actions is a convenient course having regard to mechanical matters such as courts files and the like. Rather, it seems to me that the appropriate procedure would be that adopted in the High Court in Payne v. Young (supra), namely, striking out of the present proceedings the names of the respondent which should not have been joined (i.e. the third respondent) thereby leaving the applicants to commence fresh proceedings should they so desire against the third respondent. According I propose to order that the name of the third respondent be struck out of the applicants' application reserving liberty to the applicants to amend the application and statement of claim to make appropriate changes thereto consequent upon the striking out of the name of the third respondent.

27. The second order sought in each notice of motion was for a change of venue. I propose to consider the matter on the basis that my consideration relates to the two proceedings which will ultimately result from my decision on wrongful joinder although I appreciate that the effect of my order on joinder will be that the present judgment can have no direct application to the third respondent.

28. Affidavit evidence was adduced from Mrs Morgenthaler and Mr Weiss on behalf of the first and second respondents and Mr Graham and Mr Mortimore on behalf of the third respondent. Evidence was also given by Mr Kent, solicitor, on behalf of the applicants.

29. On behalf of the first and second respondents it was pointed out that the claim arose from contracts alleged to be made in South Australia but clearly performed by delivery of goods in South Australia. In this proceeding the question of reputation in South Australia will arise, being the place where the alleged passing off took place. Approximately eleven witnesses are proposed to be called for the first and second respondents, seven or eight of whom live in Adelaide and the remainder, about whom no decision had yet been made, also would come largely from Adelaide (and one from Hong Kong). It was also submitted that it would be necessary for the Court to have a view of the hotel in Adelaide where the offending fabrics had been made up into sofas and bedheads and bedspreads in the Hyatt Regency Hotel.

30. For the third respondent it was pointed out that although the transactions in question were concerned with the Australian Capital Territory the witnesses proposed to be called by the third respondent resided in Queensland, save one who resided in Murwillumbah and that the third respondent would be put to considerable cost if the matter were to proceed in Sydney rather than in Brisbane. No issue of a view arose in the submissions of the third respondent, presumably because that would point to a hearing in Canberra, which no party wished, rather than a proceeding in Brisbane.

31. For the applicants it was said that the second applicant was incorporated in New South Wales, it carried on its principal business in Sydney and the key witnesses for the applicants all came from Sydney. The proposed witnesses are outlined in Mr Kent's affidavit. It was also pointed out that if the two applications were severed and one transferred to Adelaide and one to Brisbane, the applicants would have significant increased costs in issues which would at least in part be similar and there could be problems of the Court making divergent findings on common issues with resultant embarrassment to the Court.

32. The Court is a national Court and may sit anywhere in Australia. Section 12 of the Federal Court of Australia Act 1976 provides that sittings of the Court shall be held from time to time as required at the places at which the registries of the Court are established. Prima facie where an application is lodged in a particular registry, the matter proceeds to hearing in the place of that registry. Nevertheless s.48 of the Federal Court of Australia Act empowers the Court or a Judge at any stage of proceedings to direct that the proceeding or part of it be conducted or continued at a place specified in the order. Order 10 Rule 1(2)(f) provides that on a directions hearing the Court may direct that "the proceedings be transferred to a place at which there is a Registry other than the then proper place ...", the proper place being, where there has been no transfer, the place where the proceedings have been commenced.

33. The parties agreed that the proper test to be applied in any application for change of venue was that laid down by the Full Court of this Court in National Mutual Holdings Pty Ltd v. The Sentry Corporation (1988) 83 ALR 434. The Court is entitled to take into account a number of factors, weighing them up in each case. The factors include the residence of the parties and of the witnesses, the expense to the parties, the place where the cause of action arose and the convenience of the Court itself among others. As the Full Court said in the Sentry Corporation case at 441-2:

"The balance of convenience will generally be a

relevant consideration but not necessarily

determinative of each case ... there is no onus of

proof in the strict sense to be discharged by the

parties seeking to conduct or continue the

proceedings elsewhere ... the Court must, however,

be satisfied, after considering all relevant

matters, that there is sound reason to direct that

the proceeding be conducted or continued elsewhere.

Its starting point is that the proceeding has been

commenced at a particular place. Why should it be

changed? On the other hand, if the party who

commenced the proceeding chose that place

capriciously the Court would be justified in giving

no weight to the choice of place. At the other end

of the scale, a proceeding may have continued for

some time at the place of commencement with many

steps having been taken there, for example, filing

of pleadings and affidavits, discovery and

inspection. Due weight will be given by the Court

to such matters before directing that the

proceeding should continue at a different place.

...Ultimately the test is: Where can the case be

conducted or continued most suitably, bearing in

mind the interests of all the parties, the ends of

justice in the determination of the issues between

them and the most efficient administration of the

Court? It cannot and should not, in our opinion,

be defined more closely or precisely."

34. It is not suggested in the present case that there is any juridical difference whether the proceedings are to be conducted in Sydney, Adelaide or Brisbane. Nor can it be suggested that the applicants chose New South Wales capriciously. There may be an issue of fact as to where the relevant contracts were made, those contracts being apparently alleged to have been, at least in part, oral as a result of telephone conversations. The contracts may have been made in Sydney or they may have been made elsewhere. In any event it does not seem to me that the place where the contracts were made is, in the circumstances of what in essence is a passing off case, of particular significance.

35. It is clear that the applicants' witnesses are likely to be in New South Wales. In a case such as the present where the witnesses of one party are in one State and the witnesses of another party are in another State, one party or the other must be inconvenienced by a hearing proceeding in one of those places. The present is not a case where there can be suggested to be a considerable body of documentary evidence in one State which would present practical difficulties in being brought to another place. It is merely a case where it is convenient for one party for the hearing to be in Sydney and for the other parties for the hearing to be elsewhere. Subject to the question of security for costs, it seems to me that if the hearing takes place in Sydney and the respondents are put to additional cost to have witnesses in Sydney and it should turn out that the application is unsuccessful, the respondents will be adequately compensated for by an order for costs.

36. From what has been said to me to date, it does not seem to me that a view in a case such as the present would be necessary. However, there has been at this stage no application formally that a view be undertaken and if it were thought by the judge ultimately to hear the case that a view were necessary it would be possible for that to be done irrespective of whether the hearing ultimately takes place in Sydney or Adelaide. I should say that there is no particular convenience in the present case to the Court whether the matter be heard in Sydney or elsewhere.

37. I have considered the various matters that have been put to me and am of the view that the case can be conducted and continued as suitably in Sydney as in one of the other capitals suggested. I do not think that a sound reason has been shown why the proceedings should be moved from Sydney, when that venue has been chosen by the applicants originally for reasons which are certainly not capricious. The present is not a case where much has yet occurred in Sydney. In particular, an application for particulars has been made but not yet answered and interlocutory steps are far from complete.

38. Accordingly, I would dismiss each motion so far as it referred to the change of venue. The proceedings at this stage should continue in Sydney. This would not preclude at a later stage the making of an application in respect of the hearing of particular evidence in Adelaide or Brisbane as the case may be, should that be sought by the respondents or any of them.

39. The final matter dealt with in the notices of motion is the question of security for costs.

40. Order 28 Rule 3(1)(a) provides:

"Where, in any proceeding, it appears to the Court

on the application of a respondent -

(a) that an applicant is ordinarily resident

outside Australia; ...

the Court may order that applicant to give such

security as the Court thinks fit for the costs of

the respondent of and incidental to the proceeding."

41. It should also be noted that s.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 payment 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. Further, 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."

42. The first applicant is a company incorporated in Thailand with no place of business, so far as it appears, in Australia.

43. The power conferred by s.56 of the Federal Court of Australia Act and Order 28 Rule 3(1)(a) of the Rules 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 in contradistinction to what appears to have been said by Denning J, as his Lordship then was, in Kohn v. Rinson & Stafford (Brod) Ltd (1948) 1 KB 327 against a non resident applicant viz. that the Court in the United Kingdom ordered security for costs "as a matter of course". See too Aussie Protection Inc v. Hy-Way Sunvisers (Sales) Pty Ltd, Gummow J 23 December 1987 (unreported).

44. I note that Gummow J in Energy Drilling Inc v. Petroz NL 3 May 1989 (unreported) said:

"The purpose of ordering security for costs against

an applicant ordinarily resident outside the

jurisdiction is to ensure that a successful

respondent will have a fund available within the

jurisdiction of this Court against which it can

enforce the judgment for costs, so that the

respondent does not bear the risk as to the

certainty of enforcement in the foreign country and

as to the time and complexity of the action there

which might be necessary to effect enforcement:

Kent Heating Ltd v. Cook-on Gas Products Pty Ltd

(1984) 59 ALR 277 at 279. On the other hand, the

mere circumstance that an applicant is resident

outside the jurisdiction does not necessarily

invite an exercise of discretion in favour of

ordering security, the question being how justice

will best be served in the particular case: Barton

v. Minister for Foreign Affairs [1984] FCA 89; (1984) 2 FCR 463;

CBS Records Australia Ltd v. Telmak Teleproducts

(Aust) Pty Ltd (1987) 72 ALR 270 at 284-285."

45. Although there is no evidence before me on the matter, there is not in my understanding any statutory system of reciprocal foreign judgment registration in Thailand in respect of judgments of this Court so that if the respondents were to be unsuccessful and obtain an order for costs they would have to seek to enforce that order by bringing proceedings in Thailand directly which no doubt would involve additional expense which could be considerable. That matter, so far as it relates alone to the first applicant would be a significant factor in favour of security being ordered. Nevertheless, if the circumstances were such that I would not in respect of the second applicant make an order for security, then it might well be inappropriate to make that order in respect of the first applicant. Accordingly, I propose to consider first the question of the second applicant before concluding whether security should be given in respect of the first applicant.

46. Evidence was led by the respondents of reports in respect of the second applicant from Dunn & Bradstreet and an accountant's analysis thereof showing, that despite a substantial increase in sales between 1986 and 1987, the company's net worth had decreased to a negative value of $78,687 and that within the same period the current assets of the second applicant had diminished by approximately $135,000 and the current liabilities had increased by approximately $80,000 resulting in the working capital being reduced from $188,800 to $27,818 in deficit. These losses were said to have been sustained despite a substantial reduction in stock by approximately 60 percent.

47. Evidence was also adduced of a charge over the assets of the company held by the Macquarie Bank Limited, the amount of which was unstated but which as at March 1988 was valued at $176,000.

48. Evidence was adduced for the applicants in the form of an affidavit by the applicants' solicitor, inter alia, exhibiting an unaudited balance sheet and profit and loss statement of the second applicant for the period ended 30 June 1988. The balance sheet demonstrated, if all assets were to be regarded as having the values shown thereon, a deficiency of shareholders' funds of $58,239.45 in contrast with the prior year deficiency of $78,686.88. That deficiency had resulted after an operating profit of $21,877.59 as compared with a loss in the preceding year of $76,875.43. This was achieved largely by virtue of a substantial increase in sales.

49. The solicitor deposed on information and belief from Mr Hay, who was present in court, but who did not swear an affidavit or give oral evidence, that the financial position since 30 June 1988 had improved in that the charge to the Macquarie Bank of $176,000 had been discharged, the overdraft of the second applicant with the Macquarie Bank had been reduced to about $70,000, the overdraft with the ANZ Bank had been reduced by some $50,000 and trade creditors had been reduced marginally. The result, it was said, was that there had been an increase in the net worth of the second applicant of approximately $220,618.36. How this came about, whether by infusion of capital or by trading is not stated and of course the figures are clearly only part year figures not prepared in a form which enables any comparison to be made between those figures and the figures in the annual accounts.

50. It is said that Mr Hay believes that the operating profit for the financial year will be $100,000. If that be so then the increase in assets apart from the infusion of any capital which is not suggested could only be in net terms approximately $42,000 rather than the figure of $220,618.36 suggested.

51. It is said, although no undertaking has been proffered to the Court, that Mr Hay would not demand repayment of a loan of $104,315.85 which is owing to him. The effect would be, if the promise were enforceable, that the net assets would increase by the sum of $104,315.85. However, in the absence of any undertaking to the Court, the statement by the applicants' solicitor is of no assistance to me.

52. It was argued for the applicants that, were I to order security for costs, that would frustrate the litigation, especially as the present was a case where on the case of the applicants it was in part the result of the respondents' actions that the assets of the applicants were depleted. This is a significant matter, however, I bear in mind what was said by the Full Court of this Court in Bell Wholesale Co Ltd v. Gates Export Corp [1984] FCA 34; (1984) 2 FCR 1 at 4:

"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."

53. No attempt has been made by the applicants to comply with what the Full Court there said and there is no evidence before me one way or the other as to the possible impecuniosity of the shareholders or creditors of the second applicant or those otherwise behind it.

54. Some evidence was put before me as to the potential costs of the present litigation to the respondents particularly if the hearing or hearings on severance is or are to proceed in Sydney. Since I have already determined that the proceedings should proceed in Sydney this is a matter which I must also take into account.

55. The evidence adduced as to the financial standing of the second applicant is somewhat scant. Having regard to the suggestion that the full trading profit for the year would be expected to be $100,000 I can but deduce that by the time 30 June comes around the net worth of the applicant will, as I have already calculated, be merely its paid-up capital of $3 plus approximately $42,000.

56. I have considered in favour of the applicants the obvious public policy implicit in Part V of the Trade Practices Act pursuant to which, in part, the proceedings are based and the possibility of frustration of that policy if security be ordered against an application seeking damages as a result of an alleged breach. I have also been prepared to accept that there is an arguable issue to be tried between the parties although there are some matters in the statement of claim as presently framed and criticised by counsel for the first and second respondents which cause me some concern. Of course, it would be inappropriate for there to be a preliminary trial of the issues at this stage in a motion for security for costs and quite properly there was no cross-examination addressed at all to the ultimate issues.

57. I am of the view that the present application is genuinely based on a fear that there may be substantial costs incurred by the respondents which they may well be unable practicably to recover against either of the applicants, the first applicant being outside Australia and the second applicant being without substantial funds. As I have already indicated this is specially so in a case where the matter will, in accordance with my decision on the change of venue, proceed in Sydney and there will be a need for witnesses on behalf of the respondents to be brought to Sydney from their places of residence. In these circumstances it seems to me that the present is a case where it is appropriate to order that the applicants provide security for the costs of the first and second respondents. As the proceedings against the third respondent will effectively be terminated as a result of my orders it is inappropriate that I make any order for security of the costs of the third respondent at this stage.

58. Accordingly, I would direct that counsel for the first and second respondents bring in short minutes of order to give effect to this judgment. The quantum of security for costs may be agreed between the parties but failing agreement I direct the first and second respondents to bring in a draft bill of anticipated costs and disbursements on or before 9 June 1989 supported by such affidavit evidence, if any, as the respondents may wish to rely upon, and the matter can be relisted before me on 12 June 1989 for further directions.

59. So far as the notice of motion filed by the third respondent, I will make the orders already indicated. The third respondent has been successful in having the proceedings against it struck out but a considerable amount of time in the proceedings was occasioned by the application for change of venue which has been refused. Although I am conscious that unnecessary costs were occasioned to the third responent by the requirement of the applicants that deponents attend for cross-examination, I think in all the circumstances that the appropriate order in this case should be that no order be made as to costs.