RURAL & GENERAL INSURANCE BROKING PTY LTD v AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY

3. The defendant further points out that the court also has powers under order 33B of the Supreme Court Rules (ACT) as well as the power to invoke the courts inherent jurisdiction. However, as the argument developed I understand the defendant to be essentially putting its case in reliance upon the Corporations Act. In so doing, I understand the submission to rely generally upon the way the courts have characterised the wide discretion to grant security for costs and the factors that affect its exercise.

4. The defendant's submission also accepted that, in order to invoke the courts discretion in this case, the jurisdiction is attracted in the case of the plaintiff corporation only 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. That approach accepts that there is a threshold question as to whether the court has jurisdiction to occasion the exercise of the discretion to order security for costs (FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 156 FLR 116 at 212, Warren Mitchell Pty Ltd v Australian Maritime Officers Union [1993] FCA 455; (1993) 11 ACLC 1,238, Beach Petroleum NL v Johnson [1992] FCA 110; (1992) 10 ACLC 525 at 526, Tipperary Developments Pty Ltd v Western Australia (1996) 22 ASCR 241).

5. A number of matters were advanced as to why I should exercise my discretion including what was said to be the lack of strength of the plaintiff's case, the plaintiff said to be suing on behalf of another and part of the plaintiff's claim being said to be an abuse of process. As well the defendant relied upon the matters that I need to consider in determining whether the jurisdiction had been invoked. It is to that material that I first turn, as the other material does not really become relevant until I am satisfied that I have jurisdiction to exercise the discretion.

The matter said to invoke the discretion to award costs

6. What was said to be the credible testimony upon which it was said that I could act is that contained in the unchallenged affidavits of Clare Julie Guilfoyle sworn on 8 October 2003 and 14 October 2003. One effect of the first of those affidavits was to put before me the audited company balance sheet and financial report for the year ended 30 June 2003 of the plaintiff company. These documents together with the letter provided with them were what was relied upon to establish that there was reason to believe that the plaintiff company, if unsuccessful, would not be able to meet a costs order, which the defendant estimated at $78,060.00.

7. What that material does show is that the plaintiff company had a net profit in the year ended 30 June 2003 of $28,890.71. It appears from the documents that it had only been trading for less than 12 months from when the present shareholders purchased the shares in the company in August 2002. The major asset of the company was that of what was said to be a trade debtor, the company Rural & General International Insurance Ltd (Vanuatu). The receivables listed in the accounts were in the sum of $215,672 of which trade debtors comprised $213,322.00. For these purposes I take the company Rural & General International Insurance Ltd (Vanuatu) to be the company that is associated with the plaintiff company in relation to these defamation proceedings. The specific complaint that the defendant put about this circumstance was that this primary asset of the plaintiff was an unsecured debt owed by a company which was registered outside the jurisdiction. I was also provided with a list of creditors that the plaintiff company had produced, as at September 2003. The amount owing to those creditors according to that list was the sum of $128,983.64. It was then submitted that, as this sum exceeded the cash assets of the company ($49,827.49 as at 30 June 2003), those facts demonstrated that the plaintiff company would not be able to meet the defendant's costs of these proceedings, if unsuccessful.

8. It was upon this material that I was asked to conclude that the plaintiff company would be unable to pay costs if the defendant was successful.

9. The question of what is involved in the concepts of "credible testimony" and "reason to believe" in s 1335(1) of the Corporations Act was considered by the Full Court of the Supreme Court of Western Australian in FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (supra). There was a division in that court as to the approach that should be taken. Pigeon and Owen JJ were of the view that the provision did not require an applicant for security to prove anything in order to attract the jurisdiction of the court. What was required was "credible testimony" capable of giving rise to the belief. They said that what is required is an evaluation of the evidence led by the applicant to see whether that leads to a reason to believe that the corporation will be unable to pay the costs of the defendant (at 122). In so doing they were not in accord with the proposition proposed by Lee J in Warren Mitchell Pty Ltd v Australian Maritime Officer's Union (supra). In that case Lee J said (at 1241)-

The use of the word "credible" suggests a requirement that evidence to be relied upon has some characteristic of cogency. Qualification of the words "testimony" by the word "credible" suggests that an evidentiary burden is undertaken by the party seeking the order. It amounts to an obligation on an application for an order to show that the material before the Court is sufficiently persuasive to permit a rational belief to be formed that, if ordered to do so, the corporation would be unable to pay the costs of that party upon disposal of the proceedings. To what extent the satisfaction of that standard may fall short of the demonstration of a likelihood that the corporation will be insolvent at the relevant time is unnecessary to decide. It is enough to say that speculation as to insolvency or financial difficulties likely to confront the corporation will be insufficient to ground the exercise of the discretion.

10. In FFE Minerals Australia v Mining Australia (supra), Murray J dissented from the view of Pigeon and Owen JJ and took a similar view to that taken by Lee J. He expressly disagreed with the view of Pigeon and Owen JJ that-

The applicant is required to do no more than place on record credible testimony and the exercise of the court at this stage is in judging the testimony and its quality rather than seeing if a matter has been proved by inference.

Like Murray J, I do not see how this can be done without judging the testimony as persuasive to a result even if that exercise is not related to any particular onus of proof.

In that regard it must be remembered what is the threshold fact which must be proved. It may be described as a future hypothetical fact. The court is required to look forward to the time when the litigation may be finally determined and to suppose the judgment is given for the defendant. The court is then required to ask itself whether the testimony which it accepts as credible establishes that the plaintiff corporation will then be unable to pay the defendants costs of the action.

12. In Europa Holding Ltd v The Circle Industries (UK) Plc [1993] BCLC 320 the Court of Appeal stressed that the section was concerned with the result and that the word "will" was used and not "may". I think that aspect together with the points made concerning the use of the word "credible" by Lee J in Warren Mitchell Pty Ltd and Australian Maritime Officers Union (supra) at 1241 suggests a requirement that the evidence to be relied upon have a quality of cogency which is persuasive. Accordingly, I prefer the views of Murray and Lee JJ as to the approach to be taken.

13. However, even if the approach of Pigeon and Owen JJ were adopted it seems to me that, in this case, the credible evidence falls short of indicating that there is reason to believe that the costs will not be met. I have no reason to believe one way or the other that the debt owed and relied upon, as the major asset, will not be able to be realised. I consider that to be a critical factor in respect of the existence of a reason to believe that the costs will not be met.

14. This case is quite different position from those cases where companies are insolvent or where the company is solvent but has no discernable assets and has been previously trading at a loss. Either of those matters might be a predictor for the future but they are not this case. The fact that, in this case, the company has been trading for a short time is not a factor to weigh as to its future prospects in the same way that one might speculate on the future of a company that has been trading with losses over a longer time. It was not suggested, and I have no material before me which might indicate that there are any external factors "constituting a real chance that in events which can be described as reasonably possible" that the plaintiff will be unable to meet the costs in the future (Beach Petroleum NL and Anor v Johnson and Ors [1992] FCA 110; (1992) 10 ACLC 525 at 527 per Von Doussa J).

15. It was further put on behalf of the defendant that a court is entitled, in ascertaining the capacity of a company to pay the future costs, to look at the manner in which the assets are contained within the company. I am not sure exactly what that means but the proposition was said to be supported by a passage from the judgment of Street CJ in Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301 at 304. The passage cited said -

The court in considering whether it ought to make an order as between two parties to an action ought prima facie to leave to the plaintiff to determine how it can best overcome any problems arising from its own impoverishment, internal structure and composition of its assets and liabilities and where it is under official management whether it overcomes these problems with or without leave of the court under Pt. IX, or with or without the assistance of individuals interested in the assets of the company and the outcome of the litigation.

In my view, the passage relied upon gives no support to the proposition contended for by the defendant, nor does it appear at all relevant in this context. The passage to which I was referred was concerned with an unexceptional proposition; that is, it is for the plaintiff as a respondent in a security for costs application, prima facie, to determine how it can best overcome any problems arising from having to provide the security.

16. In this case there is no credible evidence that indicates that, what is said to be, the major asset of the company may not be available to be realised if required. The issue is just not addressed by the material before me. I just do not have any adequate foundation to give me the reason to believe what s 1335(1) of the Corporations Act requires before I am called to exercise the jurisdiction conferred by that section.

17. I am satisfied that the defendant has not made out a case for this court to consider the exercise of its discretion to award security for costs.

I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Gray.

Counsel for the applicant/defendant: Mr S. J. Wheelhouse

Solicitor for the applicant/defendant: Australian Government Solicitor

Solicitor for the respondent/defendant: Ken Cush & Associates