Zinc & Copper Corp of Australia Ltd v Outokumpu Zinc Australia Pty Ltd

REASONS FOR JUDGMENT 1 On 3 November 2000 Sipa Resources Limited and a related company (together referred to as "SIPA") commenced proceedings against Zinc & Copper Corporation of Australia Ltd ("Z & C") and Outokumpu Zinc Australia Pty Ltd ("O.Z."). 2 On 12 January 2001, Z & C filed a cross-claim to which O.Z. was the first cross‑respondent and the second to fourth cross-respondents were foreign corporations related to O.Z.. 3 On 8 June 2001, by leave, Z & C filed an amended cross-claim which, inter alia, added SIPA and another related company as fifth cross-respondents. 4 On 30 July 2001 the District Registrar ordered, on the motion of the fifth cross‑respondents filed 29 June 2001, that Z & C provide security for the costs of the fifth cross-respondents in the sum of $8,000. 5 On 14 August 2001, O.Z. and the second to fourth cross-respondents filed a motion seeking an order that Z & C provide security for their costs in the cross-claim. 6 On 9 October 2001, Z & C filed an affidavit in opposition to the motion of the cross-respondents. On 26 October 2001 a further affidavit was filed in support of the motion together with submissions. On 2 November 2001 Z & C filed submissions in reply. 7 On 15 March 2002, by consent, SIPA discontinued its proceeding against Z & C and O.Z. and Z & C discontinued its cross-claim against the fifth cross-respondents. Since 15 March the only proceeding on foot has been the cross-claim between Z & C as cross-claimant and O.Z. and related companies as cross-respondents. 8 In its affidavit in reply to the affidavit of Z & C, O.Z. frankly conceded that the application for security for costs was an afterthought that followed the order for security for costs made in favour of SIPA against Z & C, in the cross-claim. 9 Under s 56 of the Federal Court of Australia Act 1976 ("the Act") the Court has a broad discretionary power in respect of making an order that an applicant provide security for costs. (See: Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 at 323). 10 Matters relevant to the exercise of the discretion have been well identified, however, under like provisions in other jurisdictions as well as in earlier cases in this Court. (See: Equity Access Ltd v Wespac Banking Corporation (1989) ATPR 40-972). 11 Such matters are more particularly described in O 28 r 3 of the Federal Court Rules although, of course, the rules do not limit the discretion of the Court available under s 56 of the Act. (See: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1). 12 Impecuniosity of a corporate applicant is always a consideration to be taken into account and is the basis in which an order might be made pursuant to s 1335 of the Corporations Law. The cross-respondents do not rely upon s 1335 of the Corporations Law for an order for security for costs in this matter. In the present matter there has been no descent into particulars in respect of the financial position of Z & C. There seems to be an apprehension that Z & C will not be able to meet an order for costs if it failed in its cross-claim but no detail of relevant facts has been provided. In the light of the share capital raised by Z & C and its expenditure upon intangible assets, one may assume that there would be some capacity to realise property or to obtain funds in the event that Z & C had to meet an order for costs. 13 Z & C states that it incurred substantial expenditure on the strength of representations it says were made to it by O.Z. and those representations form the foundation of the cause of action relied upon by Z & C in its cross-claim. However, Z & C does not say that it is impecunious or that such impecuniosity was caused by O.Z.. Z & C says that there is "a risk that [it] will not have resources available" to meet a costs order if it is unsuccessful and says that is so because of the expenditure it incurred. 14 As to the strength of Z & C's cross-claim it is not possible, nor desirable, to examine the question in depth. O.Z. states that the claim, which in effect asserts engagement in sharp practice in commerce, is not strong. Certainly Z & C will have an onus to satisfy in that regard in an area of litigation that is commonly unpredictable. It therefore poses great uncertainty for applicants, but is not possible to say that on its face the claim is hopeless. Given that the pleading involved the conduct of corporations in commerce, it is immediately apparent that the proceeding involves an element of public interest. 15 Substantial work had been carried out by Z & C in preparing its cross-claim for hearing before O.Z. decided to seek an order for security for costs and, as stated above, O.Z only moved to do so after SIPA had obtained such an order. 16 The circumstances considered when the order was made that Z & C provide security for costs to SIPA differ considerably from those that are relevant in respect of the motion of the cross-respondents. SIPA had only been joined as a cross-respondent to the cross-claim several weeks before it filed the motion seeking an order for security costs and the claim against SIPA was at least one stage removed from that made against O.Z.. 17 Another factor to be taken into account is that the second to fourth cross-respondents are foreign corporations. It is a ground to order security for costs that an applicant is not resident within the jurisdiction and it would be an ironic tilting of the odds to order security that a foreign corporation be given security for its costs without exposing it to enforcement of a costs order made against it if it failed in its defence to the cross-claim. 18 Insofar as O.Z. contended that "those who ultimately stand behind [Z & C]… stand to benefit from the outcome of the litigation", very little was put before the Court to allow it to make any determination in that regard. Z & C's shareholder was a nominee for the beneficial owner of the shares in Z & C but that, in itself, is not a basis on which to order that the beneficial shareholder provide security for costs. 19 If there is a relationship under which parties external to the corporation are financing the litigation, that has not been exposed. It is always open to O.Z. to give notice to Z & C that it will look to parties assisting Z & C financially in the litigation to pay the costs of O.Z. in the cross-claim if it succeeds in its defence to the litigation. (See: Knight v F P Special Assets Ltd (1992) 174 CLR 178; Caboolture Park Shopping Centre Pty Ltd v White Industries (Qld) Pty Ltd (1993) 45 FCR 224; Yates v Boland [2000] FCA 1895; Gore v Justice Corp Pty Ltd [2002] FCA 354.) 20 Having regard to all of these matters, in particular the delay in bringing the motion and the general uncertainty of the state of relevant facts, I am not persuaded that this is an appropriate case in which to make an order that Z & C provide security for costs at this time. The motion will be dismissed with costs. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.