CATCHWORDS
PRACTICE AND PROCEDURE - Security for costs - Applicant substantially in position of respondent - Action commenced in response to service of statutory demand under Corporations Law - Whether security to be ordered.
Corporations Law, s1335
Accidental & Marine Insurance Co v. Mercati (1866) LR 3 Eq 200
Willey v. Synan (1935) 54 CLR 175
Re Travelodge Australia Ltd (1978) 21 ACTR 17
Heller Factors Pty Ltd v. John Arnold's Surf Shop Pty Ltd [1979] ACLC 32,446
Amalgamated Mining Services Pty Ltd v. Warman International Ltd (1988) 19 FCR 324
Interwest Ltd v. Tricontinental Corporation (1991) 9 ACLC 1218
Classic Ceramic Importers Pty Ltd v. Ceramica Antiga SA (1994) 12 ACLC 334.
AQUATOWN PTY LIMITED (ACN 007 014 253) v. HOLDER STROUD PTY LIMITED (ACN 000 020 226) VG 3557 of 1995
COURT: Sundberg J
PLACE: Melbourne
DATE: 16 November 1995
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No VG 3557 of 1995
GENERAL DIVISION )
BETWEEN: AQUATOWN PTY LIMITED (ACN 007 014 253)
Applicant
AND: HOLDER STROUD PTY LIMITED (ACN 000 020 226)
Respondent
COURT: Sundberg J
DATE: 16 November 1995
PLACE: Melbourne
MINUTES OF ORDER
The Court orders that:
1. In so far as it seeks an order for security for costs, the motion notice of which was filed on 13 October 1995 be dismissed.
2. The respondent pay the applicant's costs of the application for security.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No VG 3557 of 1995
GENERAL DIVISION )
BETWEEN: AQUATOWN PTY LIMITED (ACN 007 014 253)
Applicant
AND: HOLDER STROUD PTY LIMITED (ACN 000 020 226)
Respondent
COURT: Sundberg J
DATE: 16 November 1995
PLACE: Melbourne
REASONS FOR JUDGMENT
SUNDBERG J:
On 11 September 1995 the respondent served on the applicant a statutory demand under s.459E of the Corporations Law. The demand required the applicant to pay the sum of $8305.60 within 21 days after service, stated that the respondent could rely on a failure to comply with the demand as grounds for an application to wind up the applicant, and noted that s.459G of the Corporations Law enabled a company served with a demand to apply to the Court for an order setting aside the demand, such an application to be made within 21 days of service of the demand.
Within the 21 day period the applicant applied to set aside the statutory demand. On 13 October 1995 the respondent applied for an order that the applicant provide security for the respondent's costs of the application. The application was not preceded by a request for
security. In support of the application the respondent relied on the applicant's 1984 Annual Return which showed current assets of $97,862, current liabilities of $169,178, and a deficiency of shareholders' funds of $28,750. The respondent also relied on an affidavit from its solicitor in which it was estimated that the party/party costs of the proceeding would be in the order of $6,000 to $10,000.
In response, a director of the applicant swore that the applicant was not insolvent, and was able to pay its debts as they fell due. He produced the applicant's financial accounts for the year ending 30 June 1995, from which it appears that the company had an after tax operating profit of $30,884 and an unappropriated profit of $2,026 after deducting accumulated losses of $28,858. The Balance Sheet disclosed total assets of $149,680, total liabilities of $147,554, and net assets of $2,126.
The application for security was made under s.1335 of the Corporations Law:
Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.
Although the applicant is a "plaintiff" in the ordinary sense
of the word, a long line of authority establishes that security is not ordered
where the plaintiff/applicant is the party attacked and is really in the
position of a defendant/respondent. The
court is guided by the substance and not the form of the matter. In Willey v. Synan (1935) 54
C.L.R. 175 a member of the crew of a ship travelling from New Zealand to
Melbourne claimed that he
had found on board some valuable coins.
When the ship arrived in Melbourne the Collector of Customs took
possession of the coins. The crewman
made a claim to them under s.207 of the Customs Act 1901. The Collector gave notice to the crewman
requiring him to commence an action for recovery of the coins, stating that in
default of bringing such action the coins would be condemned without further
proceedings. That was indeed the effect
of s.207. The crewman, who was not
ordinarily resident in Australia, thereupon commenced an action against the
Collector for the recovery of the coins.
The Collector's application for security for costs was rejected by the
High Court. Dixon J., with whom Rich J.
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.
...
The position was considered in Maatschappij voor Fondsenbezit v. Shell Transport and Trading Co. [1923] 2 K.B. 166, where ... Scrutton L.J. ... said: "The position, I think, extends to every case where the person against whom security is sought is really defending himself against attack, even if he be nominally a plaintiff, but really defending himself against defendants' previous action against him".
His Honour then examined the relevant provisions of the Customs Act, and continued:
It appears to me that the Collector is the actor. The notice is a step taken by him directed at obtaining a condemnation. It is a statutory substitute for judicial proceedings by the Crown against the goods. Its effect is to cast the onus of taking proceedings upon the owner or supposed owner.
...
The provisions of the Customs Act, in effect, enable the officers of the Crown to take the preliminary steps by simple notices out of the Court so that it is the claimant who must issue process. But when he does issue a writ he does so to protect his supposed ownership. In substance he is not the attacker, actor or person seeking redress.
For these reasons I think he is not liable to give security for the costs of the action.
Latham C.J. said that the plaintiff was really in the position of the defendant: "as the collector has given him a notice under s.207, he is, in effect, forced into legal proceedings, not merely to enforce his claim, but to prevent his claim from being extinguished": p.180. McTiernan J. said that the action "was truly instituted by way of defence" to a claim by the Collector for condemnation of the plaintiff's goods, and that the rule that a plaintiff out of the jurisdiction should give security "should not be applied to the plaintiff in this action": p.187.
In Re Travelodge Australia Ltd. (1978) 21 A.C.T.R. 17 the applicant held stock in a company which had been the subject of a takeover offer. The applicant did not accept the offer and thus became a "dissenting offeree" within the meaning of the Companies Ordinance 1962. He was served with a notice the effect of which would have been that, if nothing more occurred, the respondent would have been entitled and bound to acquire the applicant's stock units. See s.180X(5). In an endeavour to prevent this happening the applicant commenced proceedings for an order under that sub-s.(5) was inapplicable to him. The respondent applied for security. In refusing it, Blackburn C.J. said that the case came within the general principle illustrated by Willey v. Synan:
The
applicant is a person who invokes a special statutory procedure in order to
preserve to himself a right which he considers a valuable one, which by the
combined effect of a statute and the actions of the respondent may be taken
away from him. The respondent asserts
that the applicant
is the owner of the stock units and relies on the statute to effect a transfer
of these stock units to himself.
The principle was again applied by Wilcox J. in Amalgamated Mining Services Pty. Ltd. v. Warman International Ltd. (1988) 19 F.C.R. 324. Warman's solicitors had written to Queensland Mining Supplies ("QMS") complaining that QMS had been offering to supply parts made by Amalgamated Mining Services ("AMS") for Warman pumps, thus infringing Warman's copyright in the drawings of those parts. The letter concluded by saying that unless QMS desisted, Warman would take proceedings. AMS commenced proceedings against Warman for a declaration that the threats made by Warman were unjustifiable within the meaning of s.202 of the Copyright Act 1968. Warman applied for security for costs under s.56 of the Federal Court of Australia Act 1976. The application was dismissed. Wilcox J. said that although the case was not as strong as Willey v. Synan, where the plaintiff was forced to take proceedings or lose any claim to the coins, "in a practical sense, the present applicant has been forced to take legal action". His Honour concluded:
If one applies the homely test adopted by Scrutton L.J. of asking who, in the litigation, was the attacker and who was the defender, I think it must be said that the first attack came in the letter from Phillips Fox. Although the letter was not written directly to Amalgamated Mining, it is that company which has an interest in defending and, in a commercial sense, probably has very little alternative other than to take that course. I think that it is an accurate analysis of the matter to say, therefore, that it is the respondents to the principal proceeding who are the attackers and that Amalgamated Mining is, in substance, the defender.
In my view the principle illustrated by these cases is applicable to the
present case. As the statutory demand
pointed out, non-compliance would give rise to a ground upon which the
applicant could be wound up. Unless it
paid the respondent money it contends is not due,
the only way the applicant could avoid that detriment was to apply under s.459G
to have the demand set aside. To use the
words of Wilcox J., "in a practical sense" the applicant was forced
by the respondent to take legal action.
Counsel for the respondent contended that the cases I have mentioned are distinguishable on the ground that in each of them the plaintiff/applicant had to institute proceedings in order to protect a proprietary interest. Had proceedings not been taken, property in the coins, the stock and the right to copyright would have been lost. That is true of the coins in Willey v. Synan and the stock in Re Travelodge, but it is not true of Amalgamated Mining, where the detriment to be avoided was simply the possible loss of sales. Nor was it the case in Maatschappij, which is the foundation of the Australian cases I have mentioned.
The applicant's counsel relied upon a somewhat different ground from the principle the respondent's counsel sought to distinguish. He referred to Heller Factors Pty. Ltd. v. John Arnold's Surf Shop Pty. Ltd. [1979] A.C.L.C. 32,446 where Mitchell J., with whom King C.J. and Legoe J. agreed, said that the trial judge was entitled, in the exercise of his discretion, to take into account whether the plaintiff was a true plaintiff or had been forced into the position of a plaintiff because the defendant was empowered to take self help procedure. No reference was made to the Willey v. Synan line of cases. These cases appear to establish that security is not to be ordered where a litigant, though technically a plaintiff, is in substance a defendant. None of them treats the "reality" as merely a matter to be taken into account together with others in the exercise of the court's discretion. Heller Factors was considered by Ormiston J. in Interwest Ltd. v. Tricontinental Corporation (1991) 9 A.C.L.C. 1,218. At p.1,228 his Honour said:
Perhaps it may be said that the authorities support the proposition that security will only ordinarily be ordered against a party who is in substance the plaintiff, and that an order ought not to be made against parties who are defending themselves and thus forced to litigate: cf. Accidental & Marine Insurance Co. v. Mercati (1866) L.R. 3 Eq. 200. That would appear to be an overstatement, but the fact that a plaintiff ... has instituted essentially defensive proceedings, must be a significant factor in the exercise of the Court's discretion.
After noting Sydmar Pty. Ltd. v. Statewise Developments Pty. Ltd. (1987) 73 A.L.R. 289 where, at p.300, Smart J. said that the factors relevant to the exercise of the discretion to order security include "whether the plaintiff's proceedings are merely a defence against 'self-help' measures taken by the defendant", Ormiston J. said:
Principally it would appear necessary to characterise the proceedings in respect of which security is sought. If they are "defensive" proceedings, either directly resisting proceedings already brought or seeking to "halt self-help procedures", it would seem that to require security would be oppressive, or at least would provide serious grounds for refusing to make an order. At the least it is a factor to be considered in the exercise of the discretion.
No reference was made to Willey v. Synan or the other cases in which it has been followed. In my view these cases justify the proposition that Ormiston J. rejected as an overstatement, namely that an order ought not to be made against parties who are defending themselves and thus forced to litigate. In the Accidental & Marine Case, to which his Honour referred, Sir William Page Wood V.C. said:
in
this case, as in Watteew v. Billam, the company, though called a Plaintiff, is
really a Defendant. The principle is not
based on the narrow ground that the Plaintiff in the original suit, having
admitted the jurisdiction, is not at liberty to deny it: the true ground is,
that a person who
is in the position of the Defendant (though nominally the Plaintiff) is to be
at liberty to defend himself.
...
Where a company is defending itself, it must be regarded as, in substance, a Defendant, and, therefore, is not to be called upon to give security. In this instance the company must be considered as a Defendant, and not as a "plaintiff or pursuer", within the meaning of [s.69 of the Companies Act 1862].
The passage "a person who is in the position of a Defendant (though nominally a Plaintiff) is to be at liberty to defend himself" was the foundation of Scrutton L.J.'s judgment in Maatschappij which was applied in Willey v. Synan. Watteew v. Billam (1849) 3 De G.&Sm. 516; 64 E.R. 586, referred to by the Vice-Chancellor, was mentioned by Dixon J. in Willey v. Synan as an illustration of the principle he distilled and applied.
Accordingly, I am of the view that the principle to apply in the present case is that espoused in Willey v. Synan, and that the fact that a plaintiff/applicant has been forced into litigation so as to be a true defendant is more than a matter to be taken into consideration in the exercise of the discretion whether to require security. In the present case the applicant was in a practical sense forced into initiating litigation in order to avoid a ground upon which it could be wound up coming into existence. In those circumstances, security is not to be ordered. Cf. Willey v. Synan, at p.186, per Dixon J. and Amalgamated Mining, at p.329.
It is interesting to note that in Classic Ceramic Importers Pty. Ltd. v. Ceramica Antiga S.A. (1994) 12 A.C.L.C. 334 Young J. in the Supreme Court of New South Wales ordered the server of a statutory demand to give security to the plaintiff applying to set it aside. His Honour said:
Commercially speaking, the person who issued the statutory demand is the attacker and an applicant for an order under s.459G is responding to that attack. ... one should focus on the question as to whether in a commercial sense the defendant to litigation is the aggressor. Even if one takes a different tack and says that one must find a legal aggressor, it seems to me that under the existing structure of the Corporations Law the person who issues the statutory demand is the legal aggressor.
However, if contrary to my view the matter is to be approached along the lines favoured by Ormiston J. in Interwest, I would, after taking the "reality" into account, have declined in the exercise of my discretion to order security in the present case. I would also have taken into account that, as I have said, the respondent did not request security before issuing its notice of motion.
I will dismiss the motion notice of which was filed on 13 October 1995 in so far as it seeks an order for security for costs. The remaining relief sought in the motion, namely a change of venue, is adjourned to a date to be fixed.
I certify that this and the preceding 8 pages are a true copy of the reasons for judgment of the Honourable Justice Sundberg
............................................
Associate
16 November 1995
Counsel for the Applicant: Mr D Flynn
Solicitors for the Applicant: Darrer Muir Fleiter
Counsel for the Respondent: Mr V Ruta
Solicitors for the Respondent: McBride Harle & Martin
Date of Hearing: 9 November 1995
Place of Hearing: Melbourne
Date of Judgment: 16 November 1995
