Practice and Procedure - security for costs - interlocutory injunction granted on "usual" undertaking as to damages - injunction later discharged by consent - application withdrawn - assessment of compensation pursuant to undertaking as to damages - application for security for costs by party seeking compensation - power of Court to order security - whether applicant for security is in the position of a respondent.

High Court Rules, 1928 (Repealed), Order XXVIII, Rule 17

J.H. Billington Limited v Billington (1907) 2 KB 106

King v Commercial Bank of Australia Limited [1920] HCA 62; (1920) 28 CLR 289

Willey v Synan [1935] HCA 76; (1935) 54 CLR 175

Lines v Tana Pty Ltd [1987] VicRp 53; (1987) VR 641

Tomlinson v Land and Finance Corporation (1884-5) 14 QBD 539

Maatschappij Voor Fondsenbezit v Shell Transport and Trading Co. (1923) 2 KBD 166

Visco v Minter (1969) P 82

Stanley-Hill v Kool (1982) 1 NSWLR 460

Bell Wholesale Co. Pty Ltd v Gates Export Corporation [1984] FCA 34; (1984) 52 ALR 176

cross-respondents: Mr D. Shavin and Mr M. Goldblatt

cross-claimant: Mr J. Fajgenbaum QC and Mr Lucarelli

1. As to the respondents' notice of motion filed 26 March 1992, order

that:

(a) Paragraphs 1 and 2 be dismissed, costs reserved with liberty

to apply;

(b) Paragraph 3 be dismissed and any costs of the applicants

thrown away by reason of the respondents not pursuing the

claim for relief be taxed and paid by the respondents.

2. As to the applicants' notice of motion filed 18 May 1992, by

consent order that:

(a) The respondents have leave to amend paragraphs 37 to 42 and

45 to 46 of the amended points of claim filed on 13 March

1992;

(b) Any costs thrown away by the amendment be paid by the

cross-claimant to the cross-respondents;

(c) The costs of the motion be reserved.

3. There be no order pursuant to Order 62 Rule 3(3) as to the time

for the payment of the costs ordered against the respondents on 25

March 1992 and against the cross-claimant pursuant to order 1(b)

above.

4. The Court directs that:

(a) The Respondents file and serve amended points of claim on or

before 3 July 1992;

(b) Any amended defence to the amended points of claim be filed

and served on or before 31 July 1992;

(c) Any reply be filed and served on or before 14 August 1992;

(d) Lists of discoverable documents be exchanged on or before 28

August 1992;

(e) Mutual inspection of documents be given on or before 4

September 1992;

(f) The matter be listed for further directions on 11 September

1992 at 9.30 am.

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

The applications presently before the Court arise in a proceeding in which the applicants, having sought injunctive and other relief against the respondents, and in particular having obtained an interim injunction at the outset of the proceedings upon giving the usual undertaking as to damages, totally discontinued their application during the course of the trial. At the time of discontinuance the cross-respondents acquiesced in orders being made, inter alia, that the cross-claimant have judgment on its cross-claim for damages to be assessed and at the same time directions were given to enable the question of damages arising from the applicants' undertaking to be determined.

2. The respondents and cross-claimant have not been altogether astute in formulating their respective claims with the result that there have been numerous occasions since the applicants' capitulation when various aspects of the case have been before the Court and on occasions costs orders have been made in favour of the applicants. The applicants now say that the payment of those costs ought not await the ultimate resolution of the proceedings but rather there should be an order pursuant to Order 62 Rule 3(3) of the Federal Court Rules that the costs be taxed and paid forthwith.

3. For their part, the respondents seek an order that the applicants provide security for the respondents' costs as a condition of being permitted to defend the claim for compensation.

4. In order to provide a better understanding of the context in which these applications have arisen I propose to first set out the more relevant events that have occurred over the course of the proceedings.

5. By application filed on 21 September 1990 Thunderdome Racetiming and Scoring Pty Ltd (Thunderdome) and Calder Park Raceway Pty Ltd (Calder Park) as applicants commenced proceedings against Dorian Industries Pty Ltd (Dorian), Ian Chatwin (Chatwin) and Race Timing Systems Pty Ltd (RTS) in which they sought injunctive and other relief in relation to what for convenience is described as an automatic race timing system (the system). (Calder Park has since changed its name to Zedback Pty Ltd and is referred to hereafter as Zedback.) On the day the application was filed the applicants obtained ex parte an injunction restraining Dorian and Chatwin until 4.15 pm on 25 September 1990 from using the system for certain purposes. The injunction was obtained upon the applicants giving an undertaking to pay to any party adversely affected by the injunction such compensation as the Court thinks fit in such manner as the Court directs.

6. On 25 September 1990 upon a similar undertaking being given, the injunction was, by consent, continued until the hearing and determination of the applicants' application for interlocutory orders.

7. On 12 December 1990, upon Dorian undertaking to keep true and accurate accounts of all transactions entered into by it with respect to the system, and upon the understanding that all rights of Dorian and Chatwin arising by virtue of the undertakings given by the applicants on 21 and 25 September 1990 (the undertakings) be preserved, the injunction was discharged by consent. At about the same time the application was discontinued in so far as it related to RTS. (Hereafter the term respondents refers to Dorian and Chatwin.)

8. The applicants filed their statement of claim on 16 January 1991 and on 31 January 1991 the respondents filed a defence and Dorian cross-claimed against the applicants seeking damages and other relief. On 8 March 1991 an amended defence and cross-claim was filed and Norman Grant Tillett was joined as a third cross-respondent. A reply and defence to cross-claim was filed on 28 March 1991.

9. All other preliminary matters having been attended to, the trial commenced on 24 June 1991 and continued on 25 June 1991. On 26 June 1991 the proceedings were temporarily stood over by consent and on 27 June 1991, counsel for the applicants sought leave to discontinue the application and indicated that the cross-respondents would submit to judgment on the cross-claim. The applicants' changed position necessarily gave rise to the question of compensation arising pursuant to the undertakings. After hearing argument as to the basis upon which costs should be taxed, and as to the exact form of the order which ought to be made in relation to question of compensation the matter was reserved and on 2 July 1991 orders were made that:

1. The applicants have leave to discontinue the

application.

2. By consent the Court declares that the whole of the

joint venture agreement executed on 2 August, 1989 by

the second applicant and the first respondent was void

as from October, 1989.

3. By consent, judgment be entered on the cross-claimant's

cross-claim for damages to be assessed.

4. The respondents' costs of the proceedings including

the proceedings with respect to the cross-claim be

taxed and paid by the applicants.

5. In respect of the applicants' liability to pay damages

pursuant to the cross-claim and the respondents' claim

for compensation pursuant to the applicants'

undertakings given on 21 and 25 September, 1990, the

Court directs that:

(a) the respondents file and serve points of claim

on or before 26 July, 1991;

(b) the applicants file and serve points of defence

on or before 25 August, 1991;

(c) each party provide discovery to the others by

filing and serving verified lists of documents

on or before 24 September, 1991;

(d) the directions hearing in respect of the

assessments of damages and compensation be

adjourned to 11 October, 1991.

10. Points of claim were filed on 31 July 1991 in which Dorian particularised its claim for damages on the cross-claim and the respondents particularised their claim for compensation. This document comprised a total of 129 paragraphs and 6 schedules, running in all to 60 pages.

11. On 26 August 1991 the applicants made a request for further and better particulars of the points of claim. Particulars were sought as to both the claim for damages on the cross-claim and the claim for compensation. The respondents (which term is intended to include Dorian in its capacity as cross-claimant) did not answer the request for particulars and on 11 October 1991 an order was made by consent, that the respondents file and serve further and better particulars on or before 11 November 1991. Further and better particulars were filed on 15 November 1991 but they fell short of what the applicants were entitled to and on 22 November 1991 orders were made that:

1. The points of claim of the respondents filed 31 July

1991 be struck out unless

(a) within 7 days the respondents file and serve a

notice of motion returnable on 5 December 1991

seeking orders in relation to the request for

further and better particulars filed 26 August

1991, or

(b) the respondents file and serve answers to the

request for further and better particulars by 13

December 1991

2. The directions hearing be adjourned to 20 December

1991

3. The respondents pay the applicants' costs of the day.

12. On 29 November 1991 the respondents filed a notice of motion seeking orders that:

1. (a) the first and second respondents be at liberty

to obtain final judgment for the amount

totalling $377,829 under A and B of the Points

of Claim and the Particulars together with

interest thereon in accordance with the Rules,

and costs; and

(b) the cross-respondents provide security for the

payment of the damages and compensation under

the heads in the Points of Claim, other than the

amounts set out in sub-paragraph 8 (sic) hereof,

as a condition of leave to defend them.

2. Alternatively to paragraph 1, the Court refuse the

applicants leave to defend their liability for damages

to the first respondent as cross-claimant and the

respondents request for compensation pursuant the

Points of Claim unless

(a) the applicants pay into court the said sum of

$377,829 plus the said interest interest (sic);

further or alternatively

(b) the applicants provide security for the costs of

the respondents on the assessment liability for

of (sic) damages and the request for

compensation;

3. The respondents provide security for further costs

incurred and to be incurred by the cross-claimant on

the Points of Claim and current proceeding ordered

pursuant to the minutes of order of Olney J. made on 2

July, 1991, of $100,000.

4. Any other orders that the Court thinks just; and

5. Costs.

13. The notice of motion was returnable on 5 December 1991 and on that day was adjourned to 20 December 1991. In the meantime, by agreement, it and the directions hearing were brought on and on 11 December orders were made, inter alia, that:

1. Subject to the respondents filing and serving further

and better particulars of their points of claim by 13

December 1991, applicants to file and serve points of

defence on or before 14 February 1992;

2. Respondents to have leave to serve on or before 20

December 1991 further affidavit material in support of

the notice of motion filed 29 November 1991;

3. Notice of motion be adjourned to 17 February 1992.

14. Further and better particulars of the points of claim were filed on 13 December 1991 and on 12 February 1991 the applicants filed a notice of motion to strike out numerous paragraphs of the points of claim. The notice of motion was heard on 17 February 1992 when, by consent, orders were made that:

1. On or before 13 March 1992 the respondents file either

(a) amended points of claim, or

(b) further and better particulars of points of

claim filed 31 July 1991

2. Notices of motion filed 29 November 1991 and 12

February 1992 be adjourned to 18 March 1992.

15. (The last mentioned date was later changed by agreement to 25 March 1992.) Amended points of claim were filed on 16 March 1992 and on 25 March 1992 orders were made, inter alia that:

1. The respondents have leave to amend the notice of

motion filed 29 November 1991

2. The respondents pay the costs thrown away by the

amended points of claim and the costs of applicants'

notice of motion filed 12 February 1992, and costs

thrown away by the amendment of the notice of motion

filed 29 November 1992. The question of the time for

payment of those costs be reserved to 1 June 1992.

16. An amended notice of motion was filed by the respondents on 26 March 1992 in which they now seek orders:

1. That the Applicants (and each of them) provide

security for the Respondents' costs of and incidental

to the Respondents' claim for compensation pursuant to

the undertaking given by the Applicants to the Court

at the time that the Applicants applied for and were

granted an ex parte interlocutory injunction on 21

September 1990 and interlocutory injunction on 25

September 1990.

2. Further to paragraph 1 above, that unless the

Applicants provide the said security for costs in

accordance with any order of the Court made pursuant

to paragraph 1 above, the Respondents be at liberty to

enter judgment as to paragraphs 1 to 36 of the Amended

Points of Claim.

3. Pursuant to Order 20 that there be summary judgment

for the Cross-Claimant in respect of:

(a) the sum of $187,575 referred to, inter alia, in

paragraph 39 of the Amended Points of Claim;

(b) the sum of $105,000 referred to, inter alia, in

paragraph 41 of the Amended Points of Claim.

4. Costs.

5. Any further or other order as the Court may deem

appropriate.

17. The applicants filed a defence to the amended points of claim on 4 May 1992 and on 18 May 1992 they filed a notice of motion seeking orders that numerous paragraphs of the amended points of claim be struck out.

18. On 1 June 1992 the following matters came before the Court for determination:

1. The question of the time for the payment of costs awarded against

the respondents on 25 March 1992.

2. The respondents' amended notice of motion filed on 26 March 1992.

3. The applicants' notice of motion filed 18 May 1992.

19. At the outset, counsel for the cross-claimant announced first that the motion for summary judgment would not be pressed and that in respect of the matters raised in the applicants' notice of motion filed 18 May 1992, the parties had agreed that there be orders that:

1. The respondents have leave to amend paragraphs 37 to 42 and 45 to

46 of the amended points of claim filed on 13 March 1992.

2. Any costs thrown away by the amendment be paid by the

cross-claimant to the cross-respondents.

3. The costs of the motion be reserved.

20. The question of whether there should be an order pursuant to Order 62 Rule 3 of the Federal Court Rules requiring payment of the costs thrown away before the conclusion of the proceedings was left to be argued at the same time as the similar question raised in respect of the costs order made on 25 March 1992.

21. The only live issue on the respondents' motion was whether the applicants should be required to provide security for the respondents' costs in respect of the compensation claim. It was not suggested that security for costs should be ordered with respect to the cross-claim.

22. Basic to the case argued in support of the application for security for costs is the assertion that at the time the undertakings were given both applicants were exempt proprietary companies and in one case (Thunderdome) its only asset was its paid up capital of $20 and in the other (Zedback), it was hopelessly insolvent. Further, it is said that the same position has continued until the present.

23. Evidence before the Court tends to support the respondents' assertions. The assertion concerning Thunderdome is not put in issue. The balance sheet for Zedback for the year ending 30 June 1990 shows that it had accumulated losses of $1.7m and its net equity was a negative $1,001,737. The accounts for the two previous years indicate that the company had not traded profitably during either of those accounting periods. The respondents say that this evidence gives rise to a compelling inference that at the time the undertakings were given, neither applicant would have been able to meet any judgment for compensation from its own resources.

24. The respondents say further that the failure to disclose the financial state of the applicants at the time of giving the undertakings amounted to an abuse of process. Whether this is so or not is a matter that need not presently be considered, but it is said with some justification that had the applicants disclosed details of their financial standing at the time, the injunction would not have been granted in the absence of appropriate security being provided or an undertaking being given by some other person or body of appropriate financial standing.

25. It was not until 5 June 1991, when Zedback voluntarily provided copies of its accounts for the years ending 30 June 1988, 1989 and 1990, that the respondents became aware of its insolvency. By that time the injunctions had been discharged.

26. The annual accounts of Zedback for each of the 3 years covered by the documents referred to contain the following statement of accounting policy.

The accounts have been prepared in accordance with the

accounting standards issued by the Australian accounting

bodies, approved accounting standards and with the

disclosure requirements of Schedule 7 of the Companies

(Victoria) Code. Notwithstanding the deficiency of net

assets in the Company the financial statements have been

prepared on a going concern basis adopting the principles of

historical cost accounting. This basis has been applied as

the Directors of an associated company have given

notification of intention to provide continuing financial

support and it is the Directors' belief that such financial

support will continue to be made available. The accounting

policies have been consistently applied, unless otherwise

stated.

27. There is no suggestion that this statement is other than factual and by way of example the respondents concede that the costs in the proceedings up to 27 June 1991, having been taxed in a sum of the order of $100,000, were paid on due date by another company on the applicants' behalf.

28. Other evidence adduced by the respondents establishes that until it changed its name on 21 November 1991 Zedback had been known as Calder Park Raceway Pty Ltd, and its principal activity had been that of a motor racing operation. It is common cause that the company was involved in the operation of a large and well-known motor racing facility known as Calder Park Thunderdome which was and is associated with a well-known motor racing identity Mr Bob Jane and companies under his control which are engaged both in the promotion of motor racing and in the motor tyre trade. In February 1991 a company then known as Sintervan Pty Ltd, (which was then shown in the records of the Australian Securities Commission as having the principal activity of "non operating") changed its name to Calder Park Promotions Pty Ltd. There is some evidence to suggest that at about the same time Calder Park Promotions Pty Ltd took over from Zedback (then Calder Park Raceway Pty Ltd) the function of operating the Calder Park Thunderdome.

29. No explanation has been offered as to why Zedback has been "put back on the shelf" (as counsel put it) under a name that cannot readily be identified with either Calder Park or Mr Jane and another company has both adopted the Calder Park name and taken over the operation of the Calder Park racetrack. There may be a simple and innocent explanation for these changes but in the absence of any explanation being offered, I am asked to infer from the facts that steps have been taken to distance the well-known names of the raceway and its founder from an insolvent company which is likely to have a substantial award of damages made against it with the result that there would be less incentive for the other companies in the group to continue to support a company which on the face of it is no longer readily identified as part of the Calder Park/Bob Jane business enterprise.

30. According to conventional wisdom, the power of the Superior Courts to order security for costs is derived from the Court's inherent power to regulate its procedure.

31. In J.H. Billington Limited v. Billington (1907) 2 KB 106 on a motion for security for costs in an appeal to the Kings Bench Division in an action tried before an Official Referee Lord Alverstone C.J. said at p 109:

I have always understood that the power of the Superior

Courts of common law to order security for costs arose from

the inherent jurisdiction of those Courts over their own

procedure. It is true that security was as a rule ordered

only in a few exceptional cases which were subject to

special considerations - for example, where the action was

brought by a foreigner or merely nominal plaintiff, where it

was obviously unjust that the action should be allowed to

proceed unless payment of the costs were secured; but I am

not aware of any statute conferring this power upon the

Courts of common law. The cases I have mentioned are

instances in which the power of the Superior Courts of

common law has been in fact recognized, but I take it that

the three Superior Courts had theoretically the power to

order security to be given in all cases where they thought

it just to do so. Their practice in exceptional cases is

proof of their general jurisdiction.

32. In the same case, Phillimore J was of like opinion, but drew a distinction between the inherent power of the High Court to order security and the power of the Court of Appeal to order security in the case of an appeal, which was conferred by statute. At p 111 he said:

The jurisdiction of the Court of Appeal, and the power of

that Court to impose conditions before it hears an appeal,

is regulated by the Judicature Acts and the Rules of Court

made under those Acts, and therefore it was probably

necessary that a special power should be conferred upon that

Court to enable it to order security for costs to be given

before it would enter upon the appeal. But there has

descended upon the High Court the inherent power of the old

Courts of common law to regulate their domestic

jurisdiction, and therefore while a case remains in the High

Court this power may be exercised without any special

provision enabling the Court in this behalf. Instances of

the exercise of this power have grown up from time to time

pro re nata as the Court has thought proper; for example, in

the case where the plaintiff is a foreigner the Court has

ordered security for costs to be given without any statutory

power being conferred upon it.

33. The High Court Procedure Act 1903 (Commonwealth) (which has since been repealed and replaced) provided in section 35 that in appeals to the High Court, otherwise than from a judgment of the Supreme Court of a State, security in an amount fixed by subsection 35(3) was to be required only under an order of the High Court and that in the case appeals from State Supreme Courts, security was to be given by the party appellant "for the prosecution of the appeal without delay, and for the payment of all such costs as may be awarded by the High Court to the party respondent". Section 36 empowered the Court to increase or reduce the amount of security fixed by subsection 35(3). The statutory nature of the power to order security in the case of appeals was recognised by Rich J in King v. Commercial Bank of Australia Limited [1920] HCA 62; (1920) 28 CLR 289 when upon an application to decrease the amount fixed by statute his Honour said at pp 292-3:

Under sec.35 of the High Court Procedure Act security for

costs in the case of appeals such as this is prescribed, and

the amount of security is fixed at 50 pounds subject to an

application under sec. 36 to increase or reduce this amount.

The first thing for me to consider is what principles should

guide me in determining the application. Sec.35 is a rule

established by the Legislature that there shall be security

to the extent of 50 pounds unless by an affirmative act of the

Court under sec.36 that amount is reduced or increased. The

burden of altering that sum rests on the party who applies

for the alteration. The Legislature, however, has left

absolute discretion to the Court, and has done so without

prescribing any rules for its exercise. In these

circumstances no rules can be formulated in advance by any

Judge as to how the discretion shall be exercised. It

depends entirely on the circumstances of each particular

case. The discretion must, of course, be exercised

judicially, which means that in each case the Judge has to

inquire how, on the whole, justice will be best served,

whether by altering the amount and, if so, to what extent,

or by letting it stand unaltered. Authority is clear that

no Judge has any jurisdiction to formulate rules controlling

the unqualified discretion conferred by the Legislature on

the Court: for instance, Hyman v. Rose (1912) AC 623 at p

631, per Lord Loreburn L.C., in whose judgment three other

learned Lords concurred; Palmer v. Palmer (1914) P 116 at p

121, per Sir S. Evans P, following Lindley LJ. in a case

there cited; and Wickins v. Wickins 87 L.J. P 155 at p 159,

following other cases. There are, however, cases which

afford illustrations of circumstances proper to take into

consideration in judicially exercising this discretion: one

is the nature of the case.

34. The High Court Rules do not currently make any provision concerning the ordering of security for costs in relation to proceedings in its original jurisdiction, but this has not always been the case. In rules adopted in 1928, Order XXVIII provided under the heading of "Security for Costs":

9. (Security for costs of plaintiff.) A plaintiff

ordinarily resident beyond the Commonwealth may be

ordered to give security for the costs of the cause,

whether he is or is not temporarily within the

Commonwealth.

10. (Second action for same cause.) ...

11. (Security to be given.) ...

12. (Amount of security.) ...

13. (Time for application.) ...

14. (Staying proceedings.) ...

15. (Disposal of money paid into Court.) ...

16. (Registrar to certify at conclusion of cause.) ...

17. (Saving.) Nothing in the eight last preceding Rules

shall be construed to affect the power of the Court or

a Justice to require security for costs to be given by

any party to any cause or matter in any case in which

it is just that such security should be given.

35. The inherent power of the High Court to order security was recognised by Latham C.J. in Willey v Synan [1935] HCA 76; (1935) 54 CLR 175 (a proceeding in the original jurisdiction of the Court) in which he said at p 178:

Order XXVIII., rule 17, of the High Court Rules assumes that

there is a general power to order security for costs to be

given in any case in which it is just that such security

should be given. This rule is not included in the English

Rules of Court, but it is unnecessary to consider the rule

in this case because the application for security for costs

was made under Order XXVIII., rule 9, on the ground that the

plaintiff is ordinarily resident beyond the Commonwealth.

36. In Lines v. Tana Pty Ltd [1987] VicRp 53; (1987) VR 641 the Full Court of the Supreme Court of Victoria (Crockett, O'Bryan and Tadgell JJ.) upon an appeal against the decision of a judge to order security for costs in an action for damages, said at p 642:

There can be no question that the power to order security

for costs exists and derives from the Court's inherent power

to regulate its own procedure.

37. In the exercise of the inherent power to order security for costs the Courts developed a "rule" that a defendant or a party in the position of a defendant shall not be compelled to give security. The most commonly quoted authorities are Tomlinson v. Land and Finance Corporation (1884-5) 14 QBD 539 and Maatschappij Voor Fondsenbezit v. Shell Transport and Trading Co. (1923) 2 KBD 166. The question of whether in a particular case a party seeking to resist an order for security is to be regarded as being in the position of a defendant has not always been easy to resolve. Frequently, the question arises when a defendant counterclaims against the plaintiff in the action. As to this Ormrod J said in Visco v Minter (1969) P 82 at p 85:

There is no dispute as to the basic principles, which are

clearly set out in the judgment of Scrutton L.J. in what I

might call the Shell Transport and Trading Case (1923) 2

KB 166, 176 et seq. The court will not order a defendant

resident abroad to give security for the plaintiff's costs

because the plaintiff has chosen to institute the suit

against him in this country where he has no assets. The

defendant is entitled to defend himself here without the

added embarrassment of having to find security for the

plaintiff's costs. So, if the defendant wishes to raise a

counterclaim by way of defence, he is allowed to do so

without incurring the liability of having to provide

security for the costs of the counterclaim. But this rule

is subject to certain limits, because otherwise it would

enable a defendant, sued in this court, to bring a cross-action

about something quite different. Where the

counterclaim or cross-action raises the matters quite

outside the plaintiff's claim, the defendant will be treated

as a plaintiff so far as the cross-action is concerned and

may be ordered to find security for costs: see New Fenix

Compagnie v General Accident, Fire and Life Assurance

Corporation Ltd. (1911) 2 KB 619. The principle seems to

be that where a defendant counter-attacks on the same front

on which he is being attacked by the plaintiff, it will be

regarded as a defensive manoeuvre. But if he opens a

counter-attack on a different front, even to relieve

pressure on the front attacked by the plaintiff, he is in

danger of an order for security for costs depending upon the

court's assessment of the position in each case.

38. However, it would appear that the general rule may be but a manifestation of the exercise of the inherent jurisdiction of the Courts to regulate their proceedings in a just manner. This thought was clearly expressed by Reynolds J.A. in the NSW Court of Appeal in Stanley-Hill v Kool (1982) 1 NSWLR 460 at p 464:

The proposition that is basic to the appellant's submissions

is the well-known principle that a court will not order a

person who is in substance a defendant to provide security

for the plaintiff's costs. It is submitted that this

principle involves a rule of law in the sense that an order

which does so is made without power and if made in a

superior court is liable to be set aside ex debito

justitiae. There is no authority which so decides of which

I am aware or to which we have been referred. If it

matters, and I do not think it does in the present case, I

think that a consideration of the cases and the dicta to

which we have been referred indicates that the law says no

more than that to order a defendant to provide security for

the costs of a proceeding brought against him will almost

invariably be a wrong exercise of discretion.

39. The Federal Court Act 1975 appears to be unique in Australia in that having created a Superior Court of Record (which presumably would enjoy the inherent jurisdiction to make orders for security for costs in the exercise of its power to regulate its own proceedings) section 56 makes specific provision for such a power both in proceedings at first instance and in its appellate jurisdiction. The section provides:

56 (1) The Court or a Judge may order an applicant in a

proceeding in the Court or an appellant in an

appeal to the Court to give security for the

payment of costs that may be awarded against

him.

(2) The security shall be of such amount and given

at such time and in such manner and form, as the

Court or Judge directs.

(3) The Court or a Judge may reduce or increase the

amount of security ordered to be given and may

vary the time at which, or manner or form in

which, the security is to be given.

(4) If security, or further security, is not given

in accordance with an order under this section,

the Court or a Judge may order that the

proceeding or appeal be dismissed.

(5) This section does not affect the operation of

any provision made by or under any other Act or

by the Rules of Court for or in relation to the

furnishing of security.

40. Given the purpose and function of the Federal Court Act, namely to create a new Superior Court, it would seem that the very specific provisions of section 56 were intended to provide a comprehensive statement of the Court's power to order security for costs. Had the intention been to merely preserve those powers which such a Court in our legal system has traditionally enjoyed, there would have been no purpose enacting section 56, at least so far as proceedings at first instance are concerned. But parliament has adopted the course of particularising the Court's power in a way that leaves no scope for any inherent power in this field. Subsection (5) tends to support this view in that it preserves other statutes and the Rules of Court in relation to the operation of furnishing of security for costs. As the rule-making power is limited to making rules not inconsistent with the Act, it would not be possible to expand the Court's power in this area by making a rule inconsistent with section 56, and indeed the Rule do not seek to do so.

41. In exercise of the rule making power conferred by section 59 of the Federal Court Act (and in particular paragraph 59(2)(n) which refers to the making of rules relating to "the furnishing of security") the Federal Court Rules provide:

ORDER 28

SECURITY FOR COSTS

1. In this Order -

(a) references to an applicant extend to any person

who makes a claim for relief in any proceeding;

and

(b) references to a respondent extend to any person

against whom a claim for relief is made in any

proceeding.

Application

2. (1) An application that an applicant shall provide

security for costs shall be made by motion upon

notice.

(2) The notice of motion shall be supported by an

affidavit stating the material facts and the

grounds upon which security for costs is sought.

Cases for security

3. (1) Where, in any proceeding, it appears to the

Court on the application of a respondent -

(a) that an applicant is ordinarily resident

outside Australia;

(b) that an applicant is suing, not for his

own benefit, but for the benefit of some

other person and there is reason to

believe that the applicant will be unable

to pay the costs of the respondent if

ordered to do so;

(c) subject to sub-rule (2), that the address

of an applicant is not stated or is mis-stated

in his originating process; or

(d) that an applicant has changed his address

after the commencement of the proceeding

with a view to avoiding the consequences

of the proceeding,

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.

(2) The Court shall not order an applicant to give

security by reason only of paragraph (1)(c) if

it appears to the Court that the failure to

state his address or the mis-statement of his

address was made without intention to deceive.

Manner of giving security

4. Where the Court orders an applicant to give security

for costs, the security shall be given in such manner,

at such time, and in such terms (if any), as the Court

may by order direct.

Stay or dismissal

5. (1) Where the Court orders that the applicant

provide security for costs, it may order -

(a) that the proceeding on any claims by the

applicant for relief by stayed until

security is provided; or

(b) that if the applicant fails to comply with

the order to provide security within the

time limited in the order, the proceeding

be thereafter stayed or dismissed.

(2) Subject to sub-rule (1), the Court may set aside

or vary any order made under this Order.

(3) Where a proceeding stands dismissed pursuant to

an order under this Order, that order shall not

be set aside or varied except in special

circumstances.

Saving

6. This Order does not affect the provisions of any Act

of the Commonwealth or of a State or Territory under

which the Court may require security for costs to be

given.

42. There is good authority, if it be needed, that Order 28, Rule 3 does not limit the power conferred by section 56 (Bell Wholesale Co. Pty Ltd v. Gates Export Corporation [1984] FCA 34; (1984) 52 ALR 176). But it would seem that section 56 does restrict the power of the Federal Court (in proceedings at first instance) to ordering security for costs against an applicant only. The broader notion expressed by Reynolds J.A. in Stanley-Hill v. Kool would appear to be not applicable in the Federal Court. Be that as it may, as a matter of construction there is no reason to think other than that the long established principles whereby parties who occupy the positions of plaintiff and defendant in proceedings are treated as such however they are arranged on the record would apply to the term "applicant" in section 56. The Act does not define the term, and although the provisions of Order 28 Rule 1 clearly cannot affect the meaning of a term used in the Act, as a matter of construction there would seem to be no doubt that parliament would have intended that the conventional approach to the identification of the party against who security could be ordered should be followed.

43. The respondents do not seek to say that upon its literal construction section 56 applies to them and that therefore they are entitled to seek security against the applicants. Indeed, they seem to concede that in respect to the claim for compensation they are in the position of applicants. If this be the case, then in my opinion, the application for security must fail as being beyond the power conferred by section 56.

44. The case advanced in support of the application for security is that by reason of what is said to be the concealment from the Court of the true financial position of the applicants (and thus the concealment of the fact that the undertakings as to damages were mere hollow undertakings) the applicants obtained the injunction in circumstances in which it would not have been granted had the true position been revealed to the Court. It is said, further, that the applicants were at the time of giving the undertakings, and remain, hopelessly insolvent and that in those circumstances it would be unjust that the respondents should now be forced to mount a claim for compensation without some security for the costs that will be incurred in so doing. But for section 56 of the Federal Court Act, I would have thought that such a proposition would have been at least arguable, and that the views expressed in Stanley-Hill v. Kool may be supportive of such an approach. However, I do not think that option is open in the Federal Court. To succeed the respondents need to satisfy the Court that in relation to the claim for compensation they should be regarded as being in the position of respondents and not applicants.

45. I have not been referred to any authority that suggests that the present situation or anything like it has ever been the subject of judicial determination. That being so, resort must be had to first principles. This is a case in which the nominal respondents have been forced into Court by applicants who have since withdrawn their claim. Along the way, in order to preserve what they claimed to be their rights, they caused the respondents to be restrained by injunction from engaging in conduct which it must now be conceded they were in fact entitled to engage in. As the price of obtaining the injunction the applicants gave an undertaking to pay compensation to any party adversely affected by the injunction. The respondents say they were adversely affected and now seek to have the Court quantify their entitlement to compensation, an entitlement they would never have had but for the conduct of the applicants in pursuing what has turned out to be an unjustified claim against them. To borrow the words of Ormrod J, it seems to me that the claim for compensation does not raise matters quite outside the applicants' claim, but rather the respondents seek to counterattack on the same front on which they were attacked by the applicants, and this for the purpose of defending their right to be compensated pursuant to an undertaking volunteered by the applicants. It would be quite inappropriate to now treat the respondents as being in the position of an applicant in these proceedings. They are in my opinion entitled to ask the Court to exercise the power conferred upon it by section 56 of the Federal Court Act.

46. Had the respondents been arguing a case for the provision of security for the undertaking as to damages or for security for the costs of the proceedings brought on the original application, the case would have been quite compelling. Clearly, Zedback has never been in a position to meet from its own resources either any compensation that may be ordered pursuant to the undertakings or the costs of the proceedings. If there had been a full disclosure at the time the undertakings were given, there is little doubt that the injunction would neither have been made nor continued without some form of security or a third party undertaking. Clearly, the arrangements made between Zedback and other companies within the group would not have been sufficient without that arrangement being made manifest to the Court in the form of an undertaking or some form of security for Zedback's undertaking. Similarly, had the respondents acted promptly upon becoming aware of Zedback's position on 5 June 1991, they may well have been able to obtain security for the costs of the trial of the action which commenced on 24 June 1991. But they did not seek security for their costs and as it has turned out there was no need to do so, the costs ordered against the applicants having been paid.

47. Reduced to its simplest terms, and I hope without doing it an injustice, the argument put by the respondents is this. The applicants would not have obtained the injunction if they had made a full disclosure at the time. If the injunctions had not been made the respondents would not have suffered damage by reason of the injunction. Therefore, the applicants should not be permitted to defend the claim for compensation unless they now provide security for the costs of presenting the compensation claim.

48. I have some difficulty in understanding the final step in the argument. I would have thought that the consequence of the applicants' conduct should logically lead to them now being required to provide security for the compensation. But that is not what is sought, nor have I been referred to any authority to suggest that at this stage, that is after the discharge of the injunction, the Court should or could order security for the compensation. Nor indeed, is there any precedent for the ordering of security for costs in these circumstances.

49. In the absence of any precedent covering the facts of the case, the application for security for costs should be approached upon the principles that are normally applicable to such applications. This is not a case in which the applicants have said that by reason of their impecuniosity they will be deprived of their remedy at law if security is ordered. Indeed, the applicants have pointed to their past record in arranging for substantial costs to be paid by a third party and suggest, but without providing any real support for the suggestion other than the past event, that the same would occur in the future if the occasion arose again. However, no undertaking has been given by counsel or any other person or company that this will be so. Given the history of the matter, I do not think that any adverse inference should be drawn against Zedback from the change of name and the altered role that it now seems to play within the Bob Jane group of companies.

50. On the other hand, the respondents have delayed making their application for many months after becoming aware of the financial standing of the applicants, and in that intervening period they made several unsuccessful attempts to formulate their claims. At this stage the final form of the damages claim (in respect of which security is not sought) remains unresolved but it is sufficiently clear that in a general way the respective cases relating to the damages on the cross-claim and the claim for compensation are being pursued as a single enterprise and it has not been made clear as to what costs are likely to be referable to each part of that enterprise. I do not think that the two parts of the case can sensibly be separated. Further, even if the applicants were shut out of defending the claim for compensation, it will be necessary for the respondents to prove their damages. But in the course of the respondents' attempts to formulate their claims, the applicants have been put to considerable expense and costs orders have been made in their favour. It is not without significance that the application for security was originally made at a time when the applicants were applying considerable pressure to the respondents by reason of their failure to plead their claim in accordance with orders made by the Court. The application for security has all the appearances of a strategic manoeuvre rather than a genuine attempt to ensure that costs will be paid if later ordered.

51. It is not possible to entirely divorce the application for security from the applicants' application under Order 62 Rule 3(3). The rule does not suggest any particular criteria by which the Court should be guided in approaching such an application, and accordingly I take the view that the discretion should be exercised in favour of a party who establishes that the demands of justice require that there be a departure from what appears to be the general practice envisaged by the rule namely, that an order for costs of an interlocutory proceeding shall not entitle a party to have a bill of costs taxed until the principal proceeding in which the interlocutory order was made is concluded.

52. The applicants' case for an order under subrule 3(3) is that they have already become entitled to the payment of substantial costs whatever the outcome of the proceeding, and this by reason of the manner in which the respondents' case has been conducted thus far. It is said that the justice of the case demands that the respondents should have to pay now rather than later. Except that the amount of costs involved is likely to be quite substantial, the applicants have not sought to distinguish this case from any other case. On the other hand, the respondents counter by asserting that they are likely, if not certain, to finish up with an order for costs against the applicants and that it would be unjust, given the uncertain financial standing of Zedback, to require the respondents to pay their liability now and possibly, at the end of the day, be left with an unsatisfied order for costs in their own favour.

53. Having considered all that has been said in respect of both the application for security and the application under Order 62 Rule 3(3) I am of the opinion that substantial justice will be done between the parties if both applications are refused. The application for security was not brought with the alacrity that is normally expected in such circumstances and as I have said appears to have been a last minute strategic manoeuvre, although I have some sympathy for the respondents who have been forced into Court by reason of the applicants having, without justification as it happened, obtained the injunction in the early stages of the proceeding.

54. But the compensation claim is only part of the ongoing proceedings. It would be quite impractical to devise an appropriate sanction to apply to the applicants in the event of their failure to provide any security that may be ordered. They will in any event be entitled to defend the cross-claim and I envisage enormous potential for dispute if they were not entitled, in the same proceeding, to resist the compensation claim. There is however, some merit in approaching the question of the time for payment of the costs already ordered on the basis advocated by the respondents. The applicants have not made out a case to justify an order pursuant to Order 62 Rule 3(3).

55. To give effect to the foregoing I propose to make the following orders:-

1. As to the respondents' notice of motion filed 26 March 1992, order

that:

(a) Paragraphs 1 and 2 be dismissed with costs reserved;

(b) Paragraph 3 be dismissed and any costs of the applicants

thrown away by reason of the respondents not pursuing the

claim for relief be taxed and paid by the respondents.

2. As to the applicants' notice of motion filed 18 May 1992, by

consent order that:

(a) The respondents have leave to amend paragraphs 37 to 42 and

45 to 46 of the amended points of claim filed on 13 March

1992;

(b) Any costs thrown away by the amendment be paid by the

cross-claimant to the cross-respondents;

(c) The costs of the motion be reserved.

3. There be no order pursuant to Order 62 Rule 3(3) as to the time

for the payment of the costs ordered against the respondents on 25

March 1992 and against the cross-claimant pursuant to order 1(b)

above.