Territory Broadcasting v Darwin Broadcasters [1992] NTSC 3; 106 FLR 66 - NTSC 1992 case summary — Zoe

Territory Broadcasting v Darwin Broadcasters [1992] NTSC 3; 106 FLR 66 - NTSC 1992 case summary — Zoe

That the plaintiff gives security for the defendant's costs in these proceedings.
That such security be in the form of a personal joint and several guarantee by Michael William Alsop, Frederick Michael Canaris and Frank Lam to pay to the defendant any costs which the plaintiff might be ordered to pay to the defendant in a sum not exceeding $25,000. Failing agreement between the parties, the form of the guarantee to be to the satisfaction of the Master.
That such guarantee be given on or before 21 February 1992 by delivery of the guarantee to the solicitors for the defendant.
That these proceedings be stayed until the said guarantee shall have been given. JUDGE1 MARTIN J This is an application by the defendant for an order that the plaintiff give security for costs in such manner and in such time as the Court directs. The application is said to be made pursuant to r. 62.02(1)(b) which provides that where the plaintiff is a corporation and there is reason to believe that it has insufficient assets in the Territory to pay the costs of the defendant if ordered to do so, the Court may, on the application of the defendant, order that the plaintiff give security for the costs to the defendant of the proceedings, and that the proceedings as against the defendant be stayed until the security is given. Where a plaintiff fails to give security required by an order the Court may dismiss the claim (r. 62.04).
On 15 June 1991 the defendant, as vendor, and the plaintiff, as purchaser, entered into an agreement for the sale of Radio Station 8DN. Clause 3 of the contract provided that it shall be subject to and conditional upon the grant of approval by the Australian Broadcasting Tribunal to the transfer of the radio broadcasting licence and it went on to provide that completion of the contract was to take place on or before seven days from notification of grant of that approval. There is no express provision in the contract limiting the time within which the approval is to be sought or granted nor as to the consequences should the approval be refused. By its decision of 2 October 1991, the Australian Broadcasting Tribunal decided that it was advisable in the public interest to refuse consent to the transfer of the commercial radio licence from the defendant to the plaintiff. The defendant had supported that application. The Tribunal left it open to the plaintiff to make a fresh application taking into account the problems identified by the Tribunal in the original application. There is evidence to suggest that the plaintiff set about endeavouring to overcome those problems and that it had kept the defendant aware of what it was doing in that regard. A fresh application for the Tribunal's approval was made by the plaintiff on 22 November 1991. On this occasion the defendant did not indicate its support to it which was consistent with the attitude it had adopted towards the plaintiff previously that it regarded the contract as having come to an end.
On 27 November 1991 the plaintiff issued the writ in which it claimed a declaration that the agreement was valid and binding on both parties, a declaration that the defendant had wrongfully repudiated the contract, and an order that the defendant specifically perform the contract by, inter alia, signing, by one of its directors, the Statement of Support annexed to the application which was lodged with the Tribunal on 22 November 1991. By a summons issued on the same day, the plaintiff required the defendant to attend before the Court on the hearing of an application by the plaintiff for an order that the defendant so specifically perform the contract. The summons was returnable on 5 December when both parties appeared before the Court and by consent the summons was referred to the Registrar with a view to fixing a date for hearing. The defendant's summons for security for costs was issued on 17 December, returnable on 19 December, upon which date the matter was adjourned by consent to 16 January when it came before me for hearing. In the meantime, on 15 January, both parties had appeared before the Registrar at which time the plaintiff's application was set down for hearing for three days commencing on 18 May.
There is evidence of searches made of public registers which disclose that there is no land or motor vehicles registered in the name of the plaintiff in the Northern Territory. Further enquiries and research conducted by the defendant indicate that some 15,264 shares of a nominal value of $1 each have been issued in the capital of the plaintiff, but the defendant was unable to ascertain the amount paid up on any of those shares. It was also considered by a director of the defendant company, Mr Garraway, that the plaintiff had negotiated with other persons to provide further share capital, but that those contributions were dependent upon the decision of this Court in these proceedings and the approval of the Australian Broadcasting Tribunal to the transfer of the licence.
The uncontested evidence of the solicitor for the defendant is that the defendant's costs for the hearing of the summons for interlocutory relief estimated to take three days and involving the appearance of senior and junior counsel will be in the vicinity of $20,000 to $25,000.
The plaintiff placed no evidence before the Court as to its financial position, and there is thus reason to believe that it has insufficient assets in the Territory to pay the costs to the defendant if ordered to do so. The defendant's summons seeking security for costs was filed and served without prior notice to the plaintiff's solicitors. In a letter of 20 December 1991 they expressed their disappointment that the solicitors for the defendant had chosen to issue the summons without first giving the plaintiff an opportunity to provide evidence of its ability to meet an award for costs or to provide an undertaking from persons standing behind the company that the costs would be paid. In that same letter they said that two directors of the plaintiff company, Mr Frank Lam and Mr Fred Canaris, would undertake to the defendant that they would meet any award of costs that may be made against the plaintiff up to a maximum of $25,000. The solicitors for the defendant response of the same day sought advice from the solicitors for the plaintiff as to the form in which Messrs Lam and Canaris proposed to provide their undertakings. The reply of the solicitors for the plaintiff was that the form of the undertaking was that disclosed in their letter of 20 December, but that if that was not sufficient to satisfy the defendant, then Messrs Lam and Canaris were willing to give such an undertaking to the Court. That proposal was rejected, those representing the defendant replying that it would not accept anything less, by way of security for its costs, than funds paid into Court, but immediately went on to say that if that posed difficulty then the defendant would accept a bank guarantee for the estimated amount of the costs. On the day the defendant's summons for an order for security of costs came before the Court there was filed in Court affidavits of Michael William Alsop, Frederick Michael Canaris and Frank Lam all sworn on 15 January 1992. Each of them deposes that he is a director of the plaintiff and, through the plaintiff's solicitors, he had undertaken to indemnify the defendant with respect to all legal costs which may be ordered in the proceedings to be paid by the plaintiff to a maximum of $25,000, and further that he had authorised the plaintiff's solicitors, if necessary, to give that undertaking to the Court. Undertakings to that effect were given on behalf of each of those directors during the course of the proceedings. There is no satisfactory evidence of the financial standing of any of those directors. It is not shown that either Messrs Lam or Canaris are shareholders. Although Mr Alsop has apparently been allocated a substantial number of shares in the company the amount paid up upon them is not before the Court. Clearly all of that information could have been brought forward by the plaintiff.

The rationale behind the rule is no doubt the same as that behind the like provisions of Companies legislation which was expressed by Street CJ in Buckley v Bennell (1974) 1 ACLR 301 at 303 as being a reflection of "the concern of the legislature that, in permitting the incorporation of a limited liability entity, it was necessary to ensure that persons who might have dealings, whether voluntary or involuntary, with such an entity should have a measure of protection against the consequences of limited liability .... Where, however, a company commences litigation against another party, that other party could find himself involuntarily prejudiced by the limited liability character of the plaintiff who had commenced proceedings against him." 8. But, in exercising its discretion "the Court needs to weigh up the competing interests of the parties having regard to all of the facts and circumstances of the particular case" per Sweeney J in Drumdurno v Braham [1982] FCA 161; (1982) 42 ALR 563 at 565. Obviously weight must be given to the fact that the company is impoverished for it is that fact which enlivens the exercise of the discretion, but the Courts have recognised that an order for security for costs may be satisfied by being given by a person having an interest in the benefit sought to be derived by the plaintiff company in the proceedings. Fairness requires that a defendant be placed in an equal position with a plaintiff company "by the company providing or having provided by those concerned in the fruits of the litigation a means of the defendant sued recovering his costs, if he wins" per Moffitt J in Pacific Acceptance Corporation Ltd v Forsyth (1967) 2 NSWR 402 at 407. In Bell Wholesale Co Pty Ltd v Gates Export Corporation [1984] FCA 34; (1984) 52 ALR 176 at 179 the Full Court of the Federal Court included in this class of persons the shareholders, creditors, and in that case, beneficiaries under a trust of which the company was trustee. In Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd (1990) 8 ACLC 304 Byrne J refused an application for security for costs where a director, an ultimate beneficiary of a trust administered by the plaintiff company, offered his personal guarantee to meet any order for costs on trial which might be made against the plaintiff. In that case both the plaintiff and the director were impecunious and there was no basis for supposing that there was someone who stood to gain by the litigation who could provide security for the defendant's but had chosen not to do so. His Honour noted that the director, though impecunious, had accepted personal responsibility for the defendant's costs and observed that that satisfied the object of the legislation there under consideration. 9. The plaintiff does not seek to resist the order for security for costs upon the basis that both the company and those standing behind it are without means (Bell Wholesale v Gates Export at p. 179). It is not suggested that if an order for security were made then the result would be to frustrate the litigation. It simply says that three of the persons standing behind the company are prepared to undertake to be responsible for any costs it may be ordered to pay. Each of them has "come out from behind the skirts of the company, at least to bring his own assets into play" (see the reference in Mantaray v Brookfield at p. 306). 10. The question of the nature of the security which might be ordered was the only issue seriously argued. Although there are yet no pleadings on the file (a matter which caused me some concern) the parties appear to be content that they know what the issues are going to be. It was not suggested that the cause of the plaintiff's impecuniosity rested in any way with the defendant, and the plaintiff's impecuniosity in itself would not lead to its claim being frustrated if an appropriate order for security for costs was made. I was somewhat troubled that the defendant may have been dilatory in making its application, but upon a closer review of the chronology of the proceedings I do not consider that any delay was such as to cause the order sought to be refused. 11. There is a sufficient indication in the affidavits of the three directors that they are prepared to accept personal responsibility for any costs which might be ordered against the plaintiff, and the defendant is thus in much the same position as it would be had the contract relating to the transfer of the licence been entered into between them as vendors and the defendant as purchaser. It is now a matter of determining in what way they might become legally bound to pay any costs which might be ordered against the plaintiff. I am not satisfied that the giving of an "undertaking" is sufficiently certain as to its practical enforcement so as to provide to the defendant the security to which it is entitled. The defendant's position will be more appropriately secured by the giving of personal guarantees. 12. Order: