FEDERAL COURT OF AUSTRALIA

January Force Pty Ltd v Tricon Restaurants Australia Pty Ltd [1999] FCA 1746

COSTS – security for costs – effect of order for security for costs on applicants – delay in seeking security for costs – hearing not imminent – conduct of respondents as cause of applicants’ impecuniosity – would security frustrate litigation – no evidence of directors’ or shareholders’ means.

Federal Court of Australia Act 1976 (Cth):  s 56

Federal Court Rules:  O 28 r3

Corporations Law:  s 1335

Sir Lindsay Parkinson and Co v Triplan Limited [1973] QB 609 cited

Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68 cited

Buckley v Bennell Design and Constructions Pty Limited (1974) 1 ACLR 301 cited

James v Australia and New Zealand Banking Group Ltd (No 1) (1985) 9 FCR 442 cited

Devenish v Jewel Food Stores Pty Ltd (1990) 94 ALR 664 cited

Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 cited

P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 cited

JANUARY FORCE PTY LTD & ORS v TRICON RESTAURANTS AUSTRALIA PTY LTD & ANOR

VG 202 of 1998

GOLDBERG J

15 DECEMBER 1999

MELBOURNE

THE COURT ORDERS THAT:

1.         By 31 January 2000 the applicants provide security for the costs of each of the respondents up to the commencement of the final hearing of the proceeding in the sum of $25,000 in respect of each respondent to the satisfaction of the District Registrar of the Court and in default of the provision of such security the application of the applicants be stayed until further order.

2.         The applicants pay the respondents’ costs of and incidental to the motions filed 1 October 1999 and 7 October 1999.

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

REASONS FOR JUDGMENT

1                     Each of the respondents has filed a notice of motion seeking an order that the applicants provide security for its costs in such amount as the Court thinks fit.  The applications are made pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth), O 28 r3 of the Federal Court Rules and s 1335 of the Corporations Law. 

2                     The proceeding commenced with the filing of an application and a statement of claim on 18 May 1998.  In their current statement of claim (a proposed further amended statement of claim has been propounded which is the subject of objection and leave to file and serve it has not yet been granted) the applicants allege that by three separate agreements made on or about 16 March 1993, 16 July 1993 and 14 January 1994 between the first respondent (“Tricon”) as head franchisor, the second respondent (“Jardine”) as sub‑franchisor and each of the applicants as franchisee, Jardine granted to each of the applicants (“January Force”, “Limnet” and “Dallas Downs”) a Pizza Hut delivery franchise.  A Pizza Hut delivery franchise consists of 90% telephone home delivery pizza orders and 10% takeaway pizza orders, the majority of which takeaway orders are lodged by telephone. 

3                     The applicants allege that the franchise agreements contained terms which included the provision by Tricon and Jardine of the Telecom Customnet telephone ordering system or some comparable system for the taking of telephone orders for the home delivery of takeaway pizzas, pursuant to which orders for pizzas within the specified delivery areas would be directed to the applicants’ outlets within their delivery area.  The applicants allege that Tricon and Jardine terminated the Telecom Customnet telephone ordering system on or about 22 August 1996 and replaced the same with a CSC telephone ordering system and refused to provide any telephone ordering system to the applicants unless they paid certain fees and signed another agreement.  It is alleged that these matters constituted a breach of the franchise agreements and unconscionable conduct within the meaning of s 51AA of the Trade Practices Act 1974 (Cth) and s 10A of the Fair Trading Act 1985 (Vic).  The applicants allege that they were compelled to use the CSC call system which did not work properly as a result of which they have suffered loss and damage.  The applicants also allege conduct in breach of s 52 of the Trade Practices Act and s 11 of the Fair Trading Act and they claim exemplary damages for the alleged conduct in breach of the franchise agreements.  The applicants’ allegations are denied by the respondents.

4                     The proceeding has progressed to a point where a further amended statement of claim has been filed and served, defences have been delivered and leave has been sought to file and serve a proposed second further amended statement of claim.  Objections have been taken to leave being granted to file and serve that proposed further amended statement of claim.  Discovery has been completed and the matter has been mediated, although unsuccessfully.  Requests by both respondents for the applicants to provide security for the respondents’ costs of the proceeding have not been responded to affirmatively. 

5                     Evidence as to the financial position of the applicants has been provided by the applicants and the respondents and can be summarised as follows:

(a)        As at 30 June 1997 January Force had an excess of liabilities over assets of $54,415 and for the year ended 30 June 1997 had an operating loss of $31,845.

(b)        For the year ended 30 June 1997 Limnet had an income of $12,988 and as at 30 June 1997 it had an excess of assets over liabilities of $12,990.

(c)        For the year ended 30 June 1997 Dallas Downs had a net profit of $13,134 and an excess of assets over liabilities of $35,356.

(d)        As at 30 June 1998 January Force had an excess of liabilities over assets of $56,921.  Current assets were $4,961 and current liabilities were $102,283.  Its operating profit for the year ended 30 June 1998 was $5,493.

(e)        For the period ended 1 December 1998 Limnet incurred a net loss of $48,932.75.  As at 1 December 1998 Limnet had cash at bank of $9,819.29, petty cash of $17,754 and plant and equipment valued at $13,124.92.

(f)         For the year ended 30 June 1998 Dallas Downs made a net profit of $5,160 and as at 30 June 1998 had an excess of assets over liabilities of $38,658.

In or about August 1998 Limnet and Dallas Downs sold their Pizza Hut delivery businesses, the subject of the proceeding.  The proceeds were used to satisfy outstanding debts and expenses of the companies and to contribute to the purchase of a further business in which the directors of Limnet and Dallas Downs work.  Limnet and Dallas Downs do not operate that business.

6                     The applicants’ solicitor says that the effect of the introduction of the call centre, of which complaint is made in the further amended statement of claim, was to increase the applicants’ costs but, the represented increase in sales revenue from the use of the call centre did not occur.  The result was that the business of each of the applicants was “less profitable than it had been in the past, if not marginal”.  It is not said explicitly that the introduction of the call centre brought about any impecuniosity of the applicants.

7                     The applicants claim that their current financial position or their position prior to the sale of any franchise has been caused by the actions of the respondents, in that the introduction of the call centres has caused them to suffer loss which is the result of reliance on the representations made by the respondents during the course of the introduction and implementation of the call centre.

8                     The applicants have incurred professional costs in relation to the proceeding to date of $65,000 and there is a further sum of unbilled professional costs of approximately $15,000 which will be billed shortly.  The applicants have paid $21,535.93 in disbursements to date and a further $2,680 is to be billed.  Thus, the total actual expenditure made and incurred in respect of the proceeding to date is $104,215.93.  The solicitor for the applicants estimates that the costs of disbursements incurred on behalf of the applicants in respect of the further preparation and conduct of the trial will be of the order of $113,500.

9                     The applicants’ solicitor says that the effect of any order for the provision of security for the costs of the respondents will be to remove the ability of each applicant to provide sufficient resources to fund the proceeding.  Limnet and Dallas Downs are no longer operating due to the sale of their franchises and they do not have any funds to pay any security. 

10                  It was not in issue between the parties that the applicants would not be able to pay the costs of the respondents if the applicants failed in the proceeding and an order for costs in favour of the respondents was made against them.  Indeed, counsel for the applicants submitted that that had always been the position since the application was commenced on 18 May 1998 and that that fact was known to the respondents as they were aware of the financial position of the applicants through the franchise arrangements between them.  Thus, the threshold question as to whether there is credible testimony that there is reason to believe that the applicants will be unable to pay the respondents’ costs is answered in the affirmative.

11                  Although the motions are based on s 56 of the Federal Court of Australia Act, O 28 r3 of the Federal Court Rules and s 1335 of the Corporations Law, the issue of whether security for costs should be ordered falls to be determined by reference to the principles which are applicable to s 1335 of the Corporations Law which provides:

“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 threshold may be overcome the discretion thereupon committed to the Court is at large.  In Sir Lindsay Parkinson and Co v Triplan Limited [1973] QB 609 Lawton LJ said at 629, when commenting on an early English equivalent of s 1335, that the Court’s discretion:

“… ought not to be hampered by any special rules or regulations, nor ought it to be put into a straightjacket by considerations of burden of proof.  It is a discretion which the court will exercise having regard to all the circumstances of the case.” 

(See also Barton v Minister for Foreign Affairs (1984) 2 FCR 463.)

12                  The relevant principles were recently discussed and analysed in considerable detail by Phillips JA, with whom Ormiston and Charles JJA agreed, in the Victorian Court of Appeal in Ariss v Express Interiors Pty Limited (In Liq) [1996] 2 VR 507.  There are a number of discretionary considerations that have been referred to in the cases:  see, eg, Gentry Brothers Pty Limited v Wilson Brown and Associates Pty Limited (1992) 8 ACSR 405.  An authority often referred to is Equity Access Ltd v Westpac Banking Corporation (1989) 11 ATPR 40‑972 in which Hill J listed six matters as being appropriate for consideration in determining whether to exercise the discretion to order security for costs.  Those six matters were not exhaustive and his Honour’s sixth matter was “whether there are any particular discretionary matters peculiar to the circumstances of the case” (at 50,635). 

13                  The applicants submitted that I should not exercise the discretion committed to me to order security for costs for the following reasons:

(a)        the respondents had delayed in putting the applicants on notice that they require the provision of security for costs and in making such application;

(b)        the delay in making application for security for costs was a deliberate and calculated tactical decision;

(c)        any order for the provision of security for costs would bring the litigation to an end;

(d)        the financial position in which the applicants found themselves was a direct consequence of the conduct of the respondents which is the subject‑matter of the proceeding.

14                  The respondents submitted:

(a)        Having regard to the events which had occurred since the commencement of the proceeding, there had not been delay in making the application for security for costs and, in any event, any such delay was not per se a disentitling factor but was to be taken into account and balanced with other relevant factors;

(b)        any delay in making the application for security for costs was not a tactical decision;

(c)        the evidence did not support the proposition that the financial position of the applicants was a direct consequence of the conduct complained of in the proceeding;

(d)        the persons who were the directors of, and lying behind, the applicant companies had not given any evidence of their financial position and the applicants’ counsel had submitted that he was instructed that those persons had no proposals to put any funds into the applicants for the purpose of funding the proceeding or any order for security of costs.

Delay

15                  In order to put the submissions as to delay in context it is necessary to identify what has occurred since the initiating application and statement of claim were filed on 18 May 1998.  On 5 June 1998 I ordered that an amended statement of claim be filed by 24 June 1998 but that order was not complied with.  On 29 July 1998 I ordered that an amended statement of claim be filed by 6 August 1998 but that order was not complied with.  On 4 September 1998 I ordered that an amended statement of claim be filed by 11 September 1998 and that order was complied with on that date.  On 30 September 1998 a further amended statement of claim was served by the applicants and on 9 October 1998 I ordered that the applicants file and serve a further amended statement of claim by 16 October 1998 and that the parties give discovery by 20 November 1998.  The further amended statement of claim was served on 19 October 1998 and the applicants completed discovery by 27 November 1998.  On 16 December 1998 I ordered that the applicants file and serve supplementary lists of documents by 29 January 1999.  On 12 February 1999 I ordered that the applicants file and serve their supplementary lists of documents by 19 February 1999 and this order was complied with.  I also ordered on that date that the matter be referred to mediation which occurred unsuccessfully on 27 July 1999.  On 4 August 1999 I ordered that the applicants file and serve a proposed further amended statement of claim by 13 August 1999 and this occurred on 20 August 1999.  The first written intimation that security for costs was being considered was on 26 August 1999 when the solicitors for Jardine wrote to the applicants’ solicitors seeking details about the financial position of the applicants and foreshadowing an application for security for costs.  This was followed by subsequent correspondence between the parties on the issues of security for costs and the proposed further amended statement of claim.

16                  The respondents submitted that I should take into account the time periods during which interlocutory orders were not complied with in determining whether any period of delay should be considered adversely to the respondents.  They said that any question of delay should be considered in the context of the proposed further amended statement of claim.  The respondents submitted that this proposed further amended statement of claim significantly alters the substance of the applicants’ claims so that the proceeding is being returned or set back to an earlier stage of its procedural progression.

17                  Delay, of itself, is not a disentitling factor, but rather a matter which must be taken into account in considering and, if necessary, balancing other considerations relevant to the exercise of the Court’s discretion:  Commonwealth v Cable Water Skiing (Aust) Ltd (1994) 14 ACSR 760 at 763.  As Lehane J said in Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68 at 71:

“Without referring in any greater detail to those authorities [to which he had already referred], my conclusion from a consideration of them is that there is first and foremost a proposition accepted in every one of the cases which is that if an application for security for costs is to be made it must be made promptly.

Obviously, there are degrees of promptness and obviously, equally, security for costs being a discretionary matter, there are cases where delay will weigh more heavily with the court than it does in other cases.  In Southern Cross Exploration, for example, Waddell J held that it was appropriate to order that security be provided for costs well into a very long hearing.  It is notable, however, that in the cases where, despite delay, an order has been made for the provision of security, there have been present at least one and usually two other factors.  One is that the hearing or resumed hearing is not immediately imminent, certainly not as immediately imminent as it is in these proceedings.  The other is that there has been some form of forewarning:  usually correspondence concerning the financial standing of those who might benefit from the success of an applicant or plaintiff, and often detailed correspondence foreshadowing an application for security for costs.  In this case, there is, so far as anything before me indicates, no history of correspondence or suggestion or question about matters relevant to the provision of security before the notices of motion were actually filed and served.”

In the circumstances prevailing in that case his Honour dismissed the application for security for costs. 

18                  Any delay should be considered by reference to whether the delay has occasioned any prejudice to the applicant.  Situations may often arise where, although there has been delay, the timing of the application will not cause substantial prejudice to the applicant.  As was pointed out by Street CJ in Buckley v Bennell Design and Constructions Pty Limited (1974) 1 ACLR 301 at 308:

“It is an accepted principle in the ordering of security for costs that such an application should be made promptly.  There may, of course, be cases where the impecuniosity of the company may only be discoverable or provable at a later stage of the proceedings.  Similarly, there may be cases in which the length of the proceedings was not foreseen when they commenced.  Other situations could occur in which a late application could, without procedural prejudice, be brought forward during the currency of the disputed proceedings.  But ordinarily, I reiterate, the application ought to be made promptly in order to avoid the very situation which has developed in this case.”

The situation which had developed in that case was that proceedings had been brought by building proprietors against a builder for possession of the site from the builder and damages for breach of the building contract.  The builder cross‑claimed for damages for wrongful repudiation of the building contract.  The questions and matters in dispute had been referred to arbitration and a preliminary hearing had been held four days before the application for security was dismissed.  Leave to appeal from that dismissal was sought but, in the meantime, there had been a substantial hearing of the arbitration.  There was obviously what Street CJ called “procedural prejudice” to the builder.

19                  Similarly in James v Australia and New Zealand Banking Group Ltd (No 1) (1985) 9 FCR 442, Toohey J refused an application for security for costs which was filed between one and two months after a hearing date had been fixed and one month before the hearing was to commence.  Toohey J said at 446:

“The matter is now so close to a hearing, so much time and costs have been expended, that it would work a grave injustice to the applicants if they were ordered to provide security for costs when it is apparent that they could not comply with such an order.”

20                  In Devenish v Jewel Food Stores Pty Ltd (supra) Mason CJ refused an application for security for costs in an appeal to the High Court where special leave to appeal was granted in April 1990, the appeal was fixed for hearing in the week commencing 28 August 1990 and the application for security for costs was heard on 15 August 1990.  His Honour said at 666:

“In these circumstances, it is obvious that the major steps preparatory to the hearing of the appeal have been taken, so that the appeal is ready for hearing and the bulk of the costs of the appeal would already have been incurred by the second appellant.  In the result, the application for security comes at the heel of the hunt.”

In a number of the authorities Courts have been influenced by the expenditure incurred by the plaintiff or applicant during the period of delay which would be rendered abortive if a security for costs order was made and not complied with. 

21                  In the present case although the expenses incurred by the applicants which had either been paid or were shortly to be billed total $104,215.93 the proceeding is nowhere near being set down for trial.  The applicants contend that any order for security for costs will render abortive the costs they have incurred to date which are of the order of $102,000.  As noted earlier, there is a proposal for the statement of claim to be amended further.  It is also probably true that the respondents have known of the financial situation of the applicants for some time. 

22                  The applicants’ criticism of the respondents’ conduct is that from the commencement of the proceeding they have known of the financial position of the applicants but have not raised it until after the mediation failed.  It appears to be implicit in the applicants’ submission that if a respondent knows of the parlous financial position of an applicant at the time the proceeding is commenced the respondent is bound to bring an application for security for costs shortly thereafter.  I accept that any application for security for costs must be brought promptly, but promptness is relative having regard to all relevant circumstances and is a factor to be weighed with other relevant factors.

23                  I have taken the period of delay into account but I do not consider that it should cause a bar to an order for security for costs, particularly having regard to the fact that a substantially amended statement of claim is proposed witness, statements have not yet been prepared, no trial directions have been given and the proceeding is a long way from final trial.  Although a period of some fifteen months has elapsed since the proceeding commenced and substantial costs have been incurred by the applicants during that period, some three to four months overall have elapsed due to the delay of the applicants in complying with Court orders.

24                  In this case the respondents are not seeking security for costs already incurred but only for costs to be incurred hereafter.  Although significant costs have been incurred to date and paid by the applicants the proceeding is presently at a stage where the process of pleading is poised to recommence.  This is a relevant factor to take into account as it shows that the procedural steps as to pleadings and, to a certain extent, discovery, are to be duplicated.

25                  If I am wrong in my view that there has not been such delay by the respondents as should disentitle them from making their application for security for costs, I consider that there are other factors which should be taken into account in considering and balancing all relevant factors in determining whether, in all the circumstances, the respondents’ delay should result in their application for security for costs being refused.  As I have noted, one such factor is the current proposal for the further amended statement of claim to be amended substantially.  I have not heard argument in relation to the proposed further amended statement of claim but I was shown a draft of it.  If leave is granted to file and serve that proposed further amended statement of claim, then amended defences will be required and there may well be a need for further discovery, albeit limited to particular issues.  In such circumstances the proceeding is recommencing procedural steps already traversed and I consider that is a matter relevant to the exercise of my discretion to order prospective security for costs of the respondents.

26                  It is also significant, in my opinion, that the trial of the matter is many months away.  I do not accept the submission that the present applications for security for costs are made at a “late stage” nor do I accept the submission that an order for security for costs would, as the applicants submitted “work a substantial injustice on the applicants and would discredit the system of justice and rule of law which is the foundation stone of our strong democracy”.  I do not accept the submissions that the applications for security for costs come on the “heel of the hunt”:  Devenish v Jewel Food Stores Pty Ltd (supra) at 666.  The hunt has a long road to traverse before it reaches a climax.

27                  I do not accept the submission that any delay in making the application for security for costs by the respondents is a deliberate and calculated tactical decision in the sense that the respondents do not have a genuine concern that the applicants will be able to meet any costs orders made against them.  The applicants submitted that the timing of the application for security for costs was dictated by what was called a “strategic imperative” rather than by a genuine concern that the applicants will not be able to meet any costs orders which might be made against them.  I accept the fact that the application for security for costs was first raised formally on 26 August 1999, one month after the conduct of the unsuccessful mediation.  But that does not mean that it was inappropriate for the issue of security for costs then to be raised.  In my opinion, there is nothing sinister or inappropriate about bringing an application for security for costs after an unsuccessful mediation has been conducted when it becomes apparent that the matter will proceed to a trial for a number of days and when a further amended statement of claim is proposed.

28                  Another relevant factor which should be taken into account in determining whether to exercise the discretion to order security for costs is the fact that the directors and persons lying behind the corporate applicants have not given any evidence as to their financial circumstances or their ability or desire to fund the proceeding.  Rather they have instructed counsel for the applicants that there is no proposal for them to place funds with the applicants for the purposes of the proceeding.

29                  In determining whether security for costs should be ordered, a relevant consideration is the financial position of the persons who are the directors of the applicants or who lie behind it.  It is submitted by the applicants that if security for costs are ordered the proceeding will not be able to be continued.  The applicants’ solicitor said:

“I have received instructions from each client as to the effect of the orders sought by the Respondents in this matter.  Each Applicant has instructed me that the effect of such orders will be to remove the ability of each Applicant to provide sufficient resources to continue funding the proceeding and that they would be unable [to] provide the funding required by Slater & Gordon to continue acting on their behalf.  Slater & Gordon would not continue acting on the Applicants’ behalf in circumstances where funding was not provided on request and would withdraw as Solicitors on the record.  In the case of the First Applicant, I am instructed and verily believe that it can only use itself as security if an order is made as it’s overdraft is but all expended in funding this matter to date.  In the case of the Second and Third Applicants they are no longer operating due to the sale of the franchises and lack funds to pay any security.”

In Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 the Full Court (Sheppard, Morling and Neaves JJ) said at 4:

“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.”

The principles set out in Bell (supra) have been followed in a number of subsequent cases:  DJM Developments Pty Ltd v Northern Territory of Australia (1992) 110 FLR 269 at 271; Impex Pty Ltd v Crowner Products Ltd (1994) 13 ACSR 440 at 445‑446; Ariss v Express Interiors Pty Ltd (In Liq) (supra) at 510.

30                  In P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 McHugh J said at 323:

“The appellant tendered no evidence concerning the financial position of Mr Chellaram or Chellaram Investment Pte Ltd or how its own costs are being financed.  In Bell Wholesale Co Ltd v Gates Export Corp (1984) 2 FCR 1; 52 ALR 156, the Full Court of the Federal Court said that a court was not justified in declining to order security on the ground that to do so would frustrate the litigation unless the company established that those who stand behind it and would benefit from the litigation if successful are also without means.  As I have indicated, there is no evidence before me that the two shareholders in the appellant are not in a position to put the appellant in sufficient funds to provide the security sought.”

(See also Gentry Bros v Wilson Brown & Associates (supra) at 411‑413).

31                  Although it is asserted that any order for security for costs will frustrate the litigation I have no evidence as to the financial circumstances of the directors of, or the shareholders in, the applicant companies or those lying behind it.  Counsel for the applicants acknowledged that there was no evidence as to the financial resources of the directors of the applicants and said he was instructed that they would not be putting any funds into the companies.  All I have been told is that whether the directors have funds or do not have funds, there is no proposal to put funds into the companies.  Thus there is no evidence that the directors, shareholders of the applicants or those lying behind them are impecunious or unable to fund the applicants so as to fund the proceeding or provide the amount of any security ordered.  Consistently with principle, I am not prepared to decline to order the provision of security on the ground that the order will frustrate the litigation.

32                  It is also relevant to the exercise of the discretion in this respect that, although funds became available to Limnet and Dallas Downs as a result of the sale of their franchises, the balance of the funds available after the payment of debts and expenses of those companies was not retained for the purposes of those companies but was used for the purchase of a business which they do not operate but in which the directors of Limnet and Dallas Downs work.  Put another way, it appears that Limnet and Dallas Downs have had funds available to them to be used in funding the litigation but they have made a decision not to use those funds for the purposes of Limnet and Dallas Downs.

Did conduct of respondents cause impecuniosity of applicants?

33                  I am not satisfied on the evidence before me that the financial position in which the applicants find themselves is a direct consequence of the alleged wrongful conduct of the respondents.  The applicants’ solicitor says he is instructed that at the time the call centre was introduced each applicant was financially viable and that further costs have been incurred by January Force in running the business.  The most the solicitor has been able to say on his instructions is that:

“The additional immediate costs of the call centre, combined with the failure to meet sales increases had the effect of making the business of each of the Applicants less profitable than they had been in the past, if not marginal.”

It is not said explicitly that the applicants’ current financial position is a consequence of the alleged wrongful conduct of the respondents.  On one view, so far as Limnet and Dallas Downs are concerned, the evidence is to the contrary, namely that upon the sale of the businesses an unknown sum of money became available after the payment of debts and expenses which was used otherwise than for the purposes of Limnet and Dallas Downs.

Conclusion

34                  I am therefore satisfied that in all the circumstances to which I have referred it is appropriate that the applicants should provide security for the prospective costs of the respondents.  Although in the affidavit material and written submissions filed on behalf of the respondents, security was sought in respect of the costs of the respondents up to and including the final hearing of the proceeding, counsel for the respondents accepted that it was more appropriate at this stage, if an order for security for costs was to be made, that such order apply up to the commencement of the trial.  The evidence before me as to those costs is relatively sparse.  The solicitor for Jardine estimates that its costs for preparing the matter for hearing will be in the vicinity of $71,000 and the solicitor for Tricon has expressed the opinion that that estimate is reasonable.  The solicitor for the applicants estimates the applicants’ costs up to the commencement of the final hearing as $50,000.  There is no evidence before me as to what accounts for the difference but it may be that a component of the difference is the costs which will necessarily be incurred by the respondents if leave is granted to file and serve the proposed further amended statement of claim.  If such leave is granted further costs will be incurred in considering the issues raised by that pleading, the preparation and delivery of an amended defence and a consideration of any further discovery.

35                  An order for security for costs is not an order which provides an indemnity to the respondents in respect of their costs:  Brundza v Robbie & Co (1953) 88 CLR 171 at 175; Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 515.  It is a security and no more than that.  In the circumstances presently before me I consider it appropriate that the applicants provide security for the costs for each of the respondents in the sum of $25,000, that is to say a total provision of $50,000. 

36                  The order of the Court will be that by 31 January 2000 the applicants provide security for the costs of each of the respondents up to the commencement of the final hearing of the proceeding in the sum of $25,000 to the satisfaction of the District Registrar of the Court and in default of the provision of such security the application of the applicants be stayed until further order.  The applicants should pay the respondents’ costs of and incidental to the motions filed by the respondents for security for costs.

Associate:

Dated:              15 December 1999