FEDERAL COURT OF AUSTRALIA

Sunstate Orchards Pty Ltd v Citrus Queensland Pty Ltd [2006] FCAFC 93

Federal Proceedings (Costs) Act 1981 (Cth) s 6

SUNSTATE ORCHARDS PTY LTD (ACN 095 659 733) AND ANDREW COLIN STRAHLEY vCITRUS QUEENSLAND PTY LTD (ACN 110 855 359), PETER MICHAEL TRACY AND SUNSTATE CITRUS PTY LTD (ACN 112 847 560)

QUD 185 of 2006

GRAY ACJ, SPENDER AND DOWSETT JJ

1 JUNE 2006

BRISBANE

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.         The appeal be allowed.

2.         The orders made on 24 April 2006 be set aside.

3.         There be substituted for those orders the following orders:

            (a)        On or before 22 June 2006, the first applicant and the third applicant provide security for the costs of the first respondent and the second respondent of the proceeding, up to the end of the first day of the trial, in the amount of $150 000, by way of unconditional bank guarantee in that sum, or otherwise to the satisfaction of the District Registrar of the Queensland District Registry of the Court;

            (b)        The proceeding, so far as it is brought on behalf of the first applicant and the third applicant, be stayed as against the first respondent and the second respondent until the provision of that security or until further order of the Court;

            (c)        The costs of the first respondent and the second respondent of the notice of motion filed on 27 March 2006, be costs of the first respondent and the second respondent in the proceeding.

4.         The persons who gave the undertakings to the Court referred to in the order of 24 April 2006 be released from those undertakings.

5.         The respondents pay the appellants’ costs of the appeal.

6.         The respondents be granted a certificate, pursuant to s 6 of the Federal Proceedings (Costs) Act 1981 (Cth), in respect of the costs referred to in s 6(3)(a) and (b).

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

THE COURT:

1                     This appeal is from the judgment of a single judge of the Court on 24 April 2006.  Her Honour dismissed an application for security for costs with costs, upon the relevant applicants in the proceeding at first instance giving undertakings, which were annexed to the order of the Court.

2                     The proceeding at first instance involves three applicants, two of which are corporate applicants.  The third, who is the second applicant, is a natural person.  In the notice of motion, filed on behalf of two of the three respondents to the proceeding at first instance on 27 March 2006, those two respondents sought an order that the first and third applicants provide security for their costs of the proceeding.  In response, the second applicant, the natural person applicant, and two other natural persons offered undertakings to the Court.  Those undertakings concern a property of which the second applicant and one of the other natural persons are the title holders, and the other natural person is a second mortgagee.  In substance, the undertakings involved: the making available of the sum of $100 000 from the proceeds of sale of that property, in priority to the second mortgage; undertakings not to further encumber or charge that property; and undertakings to execute a further security in relation to that property if a costs order were to be made.

3                     Leave to appeal was granted by Spender J on 24 May 2006.

4                     On the hearing of the appeal, the respondents have conceded that the appeal ought to be allowed.  It is our view that that concession is made properly, on the basis that the exercise of the discretion of the learned primary judge miscarried.  The question then arose whether this Court should exercise the discretion itself, or whether it should remit the matter to the learned primary judge for her to exercise afresh the discretion in relation to security for costs.  Having regard to the fact that the trial has been fixed to commence on 17 July 2006, and substantial costs have been incurred already, not only in relation to the preparation for the trial of the proceeding, but also in relation to the application for security for costs, it seemed to us appropriate to exercise the discretion afresh if that could be done.

5                     In consequence of discussions between the bench and counsel, there is broad agreement that the amount of $150 000 would be appropriate security for the costs of the respondent parties to the primary proceeding up to the end of the first day of the trial.  The differences that have to be resolved come down to differences of the manner in which that security ought to be provided.

6                     With respect to that, we received further evidence on the hearing of the appeal without objection, in the form of a further affidavit of the second applicant in the proceeding at first instance, sworn on 31 May 2006.  The effect of that affidavit is that the second applicant says that he and his co-owner of the property concerned and the other natural person, the second mortgagee, are prepared to increase the strength of the undertakings that are offered.  They are prepared to undertake: to borrow no further moneys on the security of the first mortgage, which is to a bank; to maintain repayments to that bank; to pay promptly any rates or outgoings on the property; to continue with the sale for 30 days; and, in the event that an unconditional contract of sale is not executed within that time, to commence an auction of the property and hold that auction not later than 90 days from today.  The second applicant also undertakes to execute a personal guarantee in favour of the first and second respondents, securing $100 000 to them for any adverse costs order they may obtain against the first and third applicants.

7                     We have been informed by counsel for the respondents to the appeal that the undertaking would extend to $150 000 by way of personal guarantee.  The Court has serious doubts whether, in the circumstances, a personal guarantee is an adequate form of security, even taking all of the other undertakings proffered into account.  The difficulty is that there is no evidence as to the assets of the second applicant in the proceeding below.  We can understand readily why there should be disquiet on the part of the appellants in relation to what has been offered.

8                     It is our view that, if the offer is worth anything, then it ought not to be very difficult for the second applicant in the proceeding below to secure an unconditional bank guarantee, which would resolve the issue of the manner of provision of security easily. 

9                     What we propose to do is: to set aside the orders that were made by the primary judge; to substitute orders that would have the effect of requiring the first applicant and the third applicant in the proceeding below to provide security for the costs of the first and second respondents up to the end of the first day of the trial, in the sum of $150 000, by way of unconditional bank guarantee in that sum, or otherwise to the satisfaction of the District Registrar; to stay the proceeding, so far as it is brought on behalf of the first and third applicants against the first and second respondents, until the provision of that security or further order of the Court; and to make the costs of the motion for security at first instance costs of the first and second respondent in that proceeding.

10                  We propose to release the persons who gave the undertakings from their undertakings given to the Court on 24 April 2006, and to order the respondents to pay the appellants’ costs of the appeal.

11                  Counsel for the respondents has applied for a costs order pursuant to s 6 of the Federal Proceedings (Costs) Act 1981 (Cth).  We think it would be appropriate to grant a certificate, both as to the costs incurred by those respondents in relation to the appeal, and as to any costs incurred by the appellants in relation to the appeal that will be required to be paid by the respondents in pursuance of the order of the Court.  The orders we propose include an order that the security be provided on or before 22 June 2006.  The orders that the Court makes, then, are as follows.

1.         The appeal be allowed.

2.         The orders made on 24 April 2006 be set aside.

3.         There be substituted for those orders the following orders:

            (a)        On or before 22 June 2006, the first applicant and the third applicant provide security for the costs of the first respondent and the second respondent of the proceeding, up to the end of the first day of the trial, in the amount of $150 000, by way of unconditional bank guarantee in that sum, or otherwise to the satisfaction of the District Registrar of the Queensland District Registry of the Court;

            (b)        The proceeding, so far as it is brought on behalf of the first applicant and the third applicant, be stayed as against the first respondent and the second respondent until the provision of that security or until further order of the Court;

            (c)        The costs of the first respondent and the second respondent of the notice of motion filed on 27 March 2006, be costs of the first respondent and the second respondent in the proceeding.

4.         The persons who gave the undertakings to the Court referred to in the order of 24 April 2006 be released from those undertakings.

5.         The respondents pay the appellants’ costs of the appeal.

6.         The respondents be granted a certificate, pursuant to s 6 of the Federal Proceedings (Costs) Act 1981 (Cth), in respect of the costs referred to in s 6(3)(a) and (b).

Associate:

Dated:              14 June 2006