1 In the consolidated action, that the application be

dismissed.

2 In action 1645/1993:

(a) That the action be stayed until such time as the

respondent pays into Court, or otherwise provides security

for, the sum of $4,000 by way of security for the

applicant's costs up to and including the filing of a

certificate of readiness.

(b) That insofar as the application seeks security for the

defendant's costs in respect of any step after the filing

of a certificate of readiness, the application be adjourned

sine die.

ZEEMAN J I have before me two applications. By those applications Weily's Quarries Pty Ltd ("the applicant") sought orders that Devine Shipping Pty Ltd ("the respondent") provide security for the applicant's costs pursuant to the Corporations Law ("the Law"), s1335(1) in each of actions 787/1993 and 1645/1993. Each of those actions was instituted by the respondent as plaintiff and in each case the applicant has appeared as the owner of the ship "Greshanne". The third action which is relevant to the applications is action 749/1993, instituted by the applicant against the owners of the ship "Brooke D" as the surrogate for the ship "Greshanne", in which the respondent has appeared as the owner of the ship "Brooke D".

2. On the day that the applications were filed, the Master made an order consolidating actions 749/1993 and 787/1993, but he did not then make any necessary consequential order. On 13 May 1994 I made orders in the consolidated action that the set-off and counterclaim delivered in action 749/1993 be amended and that the pleadings in action 749/1993 stand as the pleadings in the consolidated action. The effect of those orders is that the claim made by the respondent in action 787/1993 is now the subject of one of the counterclaims in the consolidated action. Action 1645/1993 is unaffected by the order for consolidation.

3. A preliminary question arises as to the ambit of the application filed in action 787/1993. The applicant has submitted that that application ought to be taken as extending to the various counterclaims raised in the consolidated action. The respondent has submitted that it must be taken as being limited to the counterclaim which formerly was the subject of action 787/1993. I accept the respondent's submission. Section 1335(1) enables the application to be made where "a corporation is plaintiff in any action or other legal proceeding". The respondent was plaintiff in action 787/1993. For relevant purposes it remains plaintiff in the counterclaim which raises the cause of action first raised by that action. Other counterclaims raised by the respondent raise quite different causes of action which never were the subject of action 787/1993. Each counterclaim is a separate "action or other legal proceeding" for the purposes of s1335(1). The applicant, by the application filed in action 787/1993, did not purport to seek security in relation to the other counterclaims. The order for consolidation did not have the effect of enlarging the ambit of the application. No application was made for an order amending the application.

4. In considering the applications, I propose to follow the principles enunciated by Underwood J in Goliath Portland Cement Company Pty Ltd v McNally Australia Pty Ltd (No 6) A62/1993. There may be derived from that case the following principles:

1 The Law, s1335 constitutes a code which sets out all the

relevant substantive law concerning the circumstances in

which an order may be made requiring that a plaintiff

corporation provide security for costs.

2 The discretion conferred is not fettered by any provision

of the Rules of the Supreme Court.

3 Before the discretion may be exercised in favour of

ordering security, it must be established by credible

testimony that there is reason to believe that the

corporation will be unable to pay the costs of the

defendant if the latter is successful in its defence.

4 Generally, security ought not be ordered in favour of a

defendant to a counterclaim where, in substance, the

counterclaim is in the nature of a defensive proceeding.

5. I proceed upon the basis that the discretion conferred by s1335(1) ought not to be exercised with any predisposition one way or the other. I am content to adopt the reasons for such an approach which were expressed in Interwest Ltd v Tricontinental Corporation Ltd (1991) 9 ACLC 1218 at 1226-7.

6. In the consolidated action, the applicant claims from the owners of the ship "Brooke D" an amount payable for the hire from the applicant of the vessel "Greshanne" and damages for breach of the hiring agreement. The action is brought in rem, presumably upon the basis that the claims made constitute general maritime claims within the meaning of the Admiralty Act 1988 (Cth), s4(3)(f) and in reliance on the rights conferred by that Act, s19.

7. The relevant counterclaim in the consolidated action is expressed as being for damages allegedly suffered by the respondent as the result of the breach by the applicant of the same agreement for hire as that relied upon by the applicant, although the respondent has pleaded that the terms of that agreement were varied and it relies on the terms of the agreement as varied. Whether the counterclaim appropriately may be categorised as being a claim for damages is a matter of some doubt. The counterclaim relies on an express term of the hiring agreement, as varied, whereby it was agreed between the parties that the respondent would carry out all necessary works and repairs, supply all necessary tools, materials and equipment and make payment of all necessary fees, charges and expenses in order to obtain the necessary Commonwealth survey exemption certificate in respect of the relevant voyage ("the works") and upon an express, or alternatively an implied, term that the applicant would pay to the respondent the reasonable price for the works. The respondent counterclaims the sum of $32,156.28 as being the reasonable cost of the works. Surprisingly no set-off is raised in respect of that sum.

8. When the claim now the subject of the relevant counterclaim was sought to be made by the commencement of action 787/1993 it could not be described as being defensive. I do not consider that to be a matter of any importance. The true nature of the counterclaim is to be determined by reference to its present status as a counterclaim in the consolidated action. Its nature is such that it appears to be capable of being raised as a set-off (for a discussion of the authorities, see Zeekap (No 47) Pty Ltd v Anitam Pty Ltd A26/1989). Although it has not been raised as a set-off, the fact that it is capable of constituting a set-off is of assistance in determining whether the counterclaim may be categorised as being truly defensive in nature.

9. I am satisfied that the applicant has established what it needs to establish to enable me to exercise the jurisdiction conferred by the Law, s1335(1). I have before me the last annual return of the respondent as filed with the Australian Securities Commission. That annual return discloses that as at 30 June 1993 the respondent's liabilities far exceeded its assets. Total assets were disclosed in an amount which was about 46% of the amount shown for total liabilities. Current assets were about 50% of current liabilities. In earlier proceedings between the parties, Underwood J, on 9 July 1993, ordered the respondent to pay the applicant's costs. Those costs were taxed and allowed at $2,862.33. The respondent has not paid those costs. A writ of fi fa in respect of those costs, delivered to the Sheriff on 6 January 1994, has not been satisfied. When an officer of the Sheriff attempted to execute the writ on 22 January 1994, Mr Devine, a director of the respondent, informed that officer that the only asset owned by the respondent was the "Brooke D" and that that vessel was under arrest. That vessel remains under arrest.

10. Counsel for the respondent submitted that, whilst the material before me might point to his client's insolvency on 30 June 1993 and at some times subsequent to that date, the relevant inquiry is not to be directed to the respondent's present financial position but to its position at the time that it might be called upon to meet an order for costs made in favour of the applicant. I accept that submission. However, I consider that the material before me goes far enough to enable me to reach the state of satisfaction required by the Law, s1335(1). No evidence was placed before me by the respondent. I have no direct evidence as to the respondent's present financial position or as to its future prospects. As the respondent still has not satisfied the order for costs made against it and as it has offered no explanation for its failure to do so I am satisfied that presently it is insolvent and without the resources to pay any costs which it might be ordered to pay. All the evidence points to it being unlikely that that position will alter in the future. Certainly there is ample reason to believe that that position will not alter in the future. I am satisfied that the evidence establishes that there is reason to believe that the respondent will be unable to pay any costs which it may be ordered to pay to the applicant.

11. The general proposition that security ought not to be ordered where the proceedings are defensive in the sense of directly resisting proceedings already brought or seeking to halt self help procedures is no more than that, a general proposition. It ought not to be elevated to being a rule of law. In many cases of that nature it could be considered oppressive to require security and that in itself may be sufficient to refuse to make an order. In other such cases, to require security, if not oppressive, would be quite inappropriate by reference to the justice of the case. I refer to the discussion in Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 11 ACLR 616 at 624-629 and in Interwest Ltd v Tricontinental Corporation Ltd (supra) at 1228-1230.

12. The claims made by the applicant in the consolidated action and by the respondent by the relevant counterclaim each will require the trial court to determine the terms of the contract between them. The relevance of the variation alleged by the respondent is not limited to the counterclaim. It is directly relevant to the applicant's claim because the respondent alleges that by that variation the parties agreed that the daily hire rate payable under the contract be reduced. A determination of the terms of the contract will determine whether it contained the term relied upon by the respondent for its counterclaim. By its reply the applicant has admitted that it has not paid the amount which the respondent claims is due to it pursuant to that term. Leaving aside the question of quantum, substantially the same facts are likely to be canvassed in determining the applicant's claim and the respondent's counterclaim. The counterclaim properly may be described as being defensive because it asserts that pursuant to the contract between the parties, which is the foundation of the applicant's claims, there are moneys owing by the applicant to the respondent, although in a sum substantially less than that claimed by the applicant.

13. I am not persuaded that I should make the order sought in the consolidated action. It would be quite unjust to permit the applicant to proceed with the consolidated action and recover such sums as are due to it by the respondent under one term of the contract and damages for breach of another term whilst at the same time preventing the respondent from pursuing a claim that some sum is due to it under yet another term. The fact that the respondent has not seen fit to raise its claim in the form of a set-off does not matter (see T Sloyan and Sons (Builders) Ltd v Brothers of Christian Instruction (1974) 3 All ER 715 at 721).

14. I turn to the other application. Nothing has been put before me on behalf of the respondent to suggest that it would be inappropriate to make the order sought in action 1645/1993. It is appropriate that there be an order in that action. The question which arises is the form of order which ought to be made. Counsel for the respondent submitted that it would not be appropriate at this stage to order a stay of the action until the company provide security for the whole of the costs of the action, including the trial of the action, when as yet no statement of claim has been delivered. In Electrona Carbide Industries Pty Ltd v Tasmanian Government Insurance Board [1985] TASSC 34; (1985) 3 ACLC 702 at 705, Cox J without deciding the matter, raised whether he had power to make an order requiring that security be given in respect of costs to be incurred up to a particular stage of the proceedings and to otherwise adjourn the application sine die with a view to making, at some later time, an order requiring that further security be provided. Such an order was made in Scott v Telegraph Newspaper Co Ltd (1938) QWN 40 and in Sturla v Freccia (1878) WN 161.

15. The application is one which seeks security for the whole of the applicant's costs of the action. It invokes the jurisdiction to order security for all of those costs. It is permissible to exercise some part of the jurisdiction invoked by the application at this stage leaving a consideration of the exercise of the balance of that jurisdiction to some later time. It is desirable that such a course be adopted. The applicant will suffer no prejudice if at this stage I do no more than require the respondent to provide security for the costs to be incurred by the applicant up to a certain stage of the proceedings and otherwise adjourn the application, so that when that stage has been reached consideration may be given to what further security, if any, then ought to be provided by the respondent. At this stage the applicant should have security for the costs up to the time of filing a certificate of readiness. The applicant has estimated those costs in the sum of $4,000 and that figure has not been challenged by the respondent.

16. In accordance with these reasons I make the following orders:

1 In the consolidated action, that the application be

dismissed.

2 In action 1645/1993:

(a) That the action be stayed until such time as the

respondent pays into Court, or otherwise provides security

for, the sum of $4,000 by way of security for the

applicant's costs up to and including the filing of a

certificate of readiness.

(b) That insofar as the application seeks security for the

defendant's costs in respect of any step after the filing

of a certificate of readiness, the application be adjourned

sine die.