Consideration
31 The courts have long recognised that there can be circumstances in which a party who is a defendant or respondent must bring a cross-claim that is substantively defensive, and, in that situation, the responding party is not in the same position as a person who brings a cross-claim that is independent. The principle initially was developed in cases involving foreign defendants who brought cross-claims for which the plaintiff sought security. Thus, in Willey v Synan (1935) 54 CLR 175 at 184, Dixon J, with whom Rich J expressly agreed, said:
The principle is that a party to judicial proceedings, who resides beyond the jurisdiction, should not be required to give security for costs unless, however the parties are arranged upon the record, he is the person invoking or resorting to the jurisdiction for the purpose of establishing rights or obtaining relief. If he does avail himself of the remedies the jurisdiction provides in order to obtain affirmative relief or redress, he may be ordered to give security, although he becomes a defendant in the action. (emphasis added)
32 Importantly, Dixon J held that this principle extended to all classes of case, not merely those involving a party who did not reside in the jurisdiction. In Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4, Sheppard, Morling and Neaves JJ said:
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. (emphasis added)
33 In Australian Equity Investors, an Arizona Limited Partnership v Colliers International (NSW) Pty Ltd [2012] FCAFC 57 at [30], Jacobson, Besanko and Perram JJ said that this passage was not to be read like a statute so as to ossify the discretion, but that the "principle at play is a simple one: those who stand to share the benefits of the litigation cannot shirk its burdens". They said that they did not think that, in Bell Wholesale 2 FCR at 4 the Full Court meant to say any more, and that each case depended on its facts. In P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 at 323, McHugh J applied the same principle. And, in Madgwick v Kelly (2013) 212 FCR 1 at 20 [83], Allsop CJ and Middleton J held that it was open to a judge exercising the discretion whether to order security to take into account the unwillingness of people to contribute as a relevant factor, albeit that they were considering the different position of members of a class in a class action, who may or may not have been willing to contribute.
34 In Pioneer Park Pty Ltd (In Liq) v Australia and New Zealand Banking Group (2007) 65 ACSR 383 at 396 [51]-[52] Basten JA, with the agreement of Tobias JA and McColl JA, said that the "likelihood that an order for security would stifle or stultify proceedings, if established, is a factor that will tend against an order for security", but that factor was not made out merely by reference to a company's impecuniosity. Basten JA said that the asserted consequence required proof of the kind referred to in Bell Wholesale 2 FCR at 4. He quoted with approval what Clarke J had said in Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 at 545:
… the mere fact that the corporate plaintiff is financially unable to provide security does not lead inevitably to the conclusion that the making of an order for security will stultify the plaintiff's claim. It may be that there is someone else who will satisfy the order on the plaintiff's behalf. (emphasis added)
35 Basten JA continued (at 65 ACSR at 396) [52]) to note a factor that might encourage the court to not otherwise order security is that a person who seeks to benefit from the litigation might be:
…willing to step out from behind the corporate shield and offer undertakings in relation to an adverse costs order in the event of failure.
36 I discussed those principles in Top Stuff 4 Business Holdings Pty Ltd v Vodafone Pty Ltd (No 2) [2012] FCA 645.
37 The evidence does not satisfy me that these proceedings will be stultified if security for costs is ordered. I accept that each amount of security sought by both the University and Visionsearch is a very significant sum. However, Mr Cheng's late provision of information, as put into evidence by Mr Mattock on information and belief only today, indicates first that Mr Cheng and his wife are both funding this litigation and have some resources. However, Mr Cheng and his wife have not put forward any statement of their assets and liabilities, nor have they offered any guarantee of ObjectiVision's liability if it could not meet any ultimate order for costs.
38 All that Mr and Mrs Chen have done is to assert that they are prepared to pay up to $200,000 by way of further security, if ObjectiVision were ordered to provide security, and that if more than that were ordered, for reasons that they have chosen not to reveal, they, in Mr Mattock's words "would not be able to continue with the proceedings" without attempting to raise further funds.
39 I am not satisfied by that assertion. First, the assertion is completely uninformative of what, if anything, is available to Mr and Mrs Cheng. Secondly, they are not prepared to step out from behind ObjectiVision's corporate veil to offer a guarantee or their own personal liability were ObjectiVision's new breach of copyright or confidential information claims not to be stayed. I am not satisfied that that part of the case is defensive at all.
40 In my opinion, the impecuniosity of ObjectiVision was clear as at late 2007 and early 2008 as is inherent in the evidence that I have referred to above. By that time, as Mr Cheng astutely said, the development of the AccuMap 2 product could not proceed without a new investor and there were no investors then on the horizon. The mere fact that, subsequently, the University acted to turn the principal licence into a non-exclusive licence and ultimately to terminate it does not, in my opinion, establish that the University was a real and operative cause of the impecuniosity of ObjectiVision. That impecuniosity was plain for all to see when MOD withdrew its financial support. In the subsequent period of over nearly eighteen months until August 2008, when the University changed the nature of the licence, no new funds were forthcoming and, what is more, no apparent work was done to further develop the product.
41 I do not accept that there is any substantive basis for inferring that ObjectiVision was not able to pursue raising funds or its business operations because of the University's alleged conduct. The University's conduct was simply reactive to the financial collapse of ObjectiVision that had occurred prior to the change in the nature of the principal licence and its subsequent termination.
42 Nor do I accept that ObjectiVision's asserted need to bring the breach of confidence and confidential information claims is so integral to the positive defences that it wishes to make in these proceedings that ObjectiVision had no choice but to add the new claims and a new party to these proceedings. I reject its argument that, in effect, it had to include those new claims and join Visionsearch as part of its defensive assertions that it had included in its original cross-claim so as to avoid an estoppel.
43 In Anshun 147 CLR at 602-603, Gibbs CJ, Mason and Aickin JJ identified the relevant principle upon which an estoppel will arise if a party fails to raise or litigate a particular matter as follows:
there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings e.g. expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few. See the illustrations given in Cromwell v. County of Sac [(1876) 94 US [24 Law. Ed., at p. 199]. (emphasis added)
44 Here, it would not be unreasonable for ObjectiVision to maintain the new part of its cross-claim in a separate action because of the expense in litigating it now. Indeed, I am of opinion the new amendments to the cross-claim and joinder of Visionsearch are distinct, in substance, and separate from the balance of the proceedings. It follows that the University is entitled to an order for security for its costs.
45 Moreover, Visionsearch is in a different position to the University. It has not brought any claim against ObjectiVision. It is merely being sued by ObjectiVision, as a plaintiff in a proceeding where, although Visionsearch may be a proper and necessary party, it is being exposed to litigation in which it would not otherwise need to participate. Accordingly, in my opinion, Visionsearch also is entitled to an order for security for its costs.
46 While I am satisfied that the confidential information and breach of copyright claims that ObjectiVision wishes to bring are bona fide and cannot be viewed as claims without substance, I am not satisfied that an order for security will stultify those claims or operate in a way that is unfair. In my opinion, the lack of evidence from Mr Cheng and the late attempt to raise some unwillingness of him and his wife to expose themselves beyond a further $200,000 by way of security demonstrates that he and his wife are likely to stand to gain from the pursuit of this litigation. However, they are not prepared to wear the consequences of doing so other than through the provision of a limited amount of security that they are prepared to offer and, then, only on the terms that they are prepared to put forward.
47 For these reasons, in my opinion, each of the University and Visionsearch is entitled to security for their costs of the copyright and confidential information claims part of the cross-claim.