FEDERAL COURT OF AUSTRALIA

Nendy Enterprises Pty Ltd v New Holland Australia Pty Ltd [2001] FCA 582

NENDY ENTERPRISES PTY LIMITED v NEW HOLLAND AUSTRALIA PTY LIMITED

N 1149 of 2001

WHITLAM J

6 NOVEMBER 2001

SYDNEY

THE COURT ORDERS THAT:

1.                  On or before 7 December 2001 the applicant provide security in the sum of $50,000 in respect of the costs of the respondent, such security to be provided in a manner acceptable to the New South Wales District Registrar of the Court.

2.                  In the event of default by the applicant in providing security in accordance with the first order, the proceeding be stayed.

3.                  The parties have liberty to apply on three days’ notice in respect of these orders.

4.                  The applicant pay the respondent the costs of its motion for security for costs.

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

REASONS FOR JUDGMENT

1                     This is an application for security for costs in respect of a proceeding brought under Part IVA of the Federal Court of Australia Act 1976 (Cth) (“the Act”).  The group on whose behalf the proceeding has been commenced may be described as farmers and contractors who acquired combine harvesters sold by the respondent for the purpose of harvesting crops.  It is claimed that defects in the harvesters have affected the livelihoods of members of the group.

2                     On 10 September 2001 the respondent filed notice that it would move the Court for orders that the applicant provide security for costs of the proceeding pursuant to s 56 of the Act.  This morning, upon the motion coming on for hearing, the respondent filed in Court an amended notice of motion adding an alternative application under s 1335(1) of the Corporations Law.

3                     There is no conflict in the authorities on the manner in which the discretion under s 56 of the Act is to be exercised.  Each side has relied on the same authorities and does not suggest that they stand for different propositions.  The ultimate refinement of the authorities is in the recent decision of Wilcox J in Tobacco Control Coalition Inc v Philip Morris (Australia) Ltd [2000] FCA 1004 where his Honour gathered the case law from Merkel J’s decision in Woodhouse v McPhee & ors (1997) 80 FCR 529 to the Ryan v Great Lakes Council cases which include his own decision (1998) 154 ALR 584 and that of Lindgren J(1998) 155 ALR 447.

4                     One feature of this case that calls for comment is the way in which the applicant may have been selected for its role.  It is common ground that the applicant’s solicitors sent out a guide on representative actions to a number of persons, including the applicant.  It is not agreed that the applicant did, in fact, receive this document.  In any event, it seems to me that the inference may be drawn, as I do, that at least the drift of the document was conveyed by the solicitors for the applicant to its directors before the proceeding was commenced.  What is said in the pamphlet about the way in which a person might be identified to commence representation proceedings is important.  The applicant’s solicitors subsequently circulated a newsletter setting out information about ongoing claims they considered to be of interest to people in agricultural businesses. There is an item relating to these very proceedings on page 3 of that newsletter under the heading “New Holland”.

5                     The solicitor for the respondent has made an affidavit giving his estimate of costs likely to be involved in the preparation and handling of this case.  In my view, those costs are grossly unrealistic.  Very little weight can be attached to such estimates, when no real consideration has been given to the likely issues in this case and how it will be fought out.  The estimates assume that, because there are about thirty-eight persons in the group, there will necessarily be a number of interlocutory applications and that the proceedings will run for some twelve weeks at trial.  That may or may not be the case.  There is no material before me which would convince me that any estimate can be made that the trial is likely to run for that amount of time.

6                     On the other side of the record Mr Rowe, for the applicant, submits that in proceedings under Part IVA of the Act there are real difficulties if security for costs orders are made.  He couched his submissions in general terms and by reference to specific examples in other cases.  The kind of factors that might affect the exercise of the discretion available under s 56 of the Act were identified several years ago by Merkel J in Woodhouse (at 534).  The public policy considerations referred to by his Honour in that case are not the kinds of considerations to which Mr Rowe referred in his submissions.

7                     The group presently identified involves people who are, perfectly properly, as they are entitled to do, using procedures available in the Court to advance their own commercial interests.  There is no suggestion that their case is not arguable.  Indeed, I proceed on the assumption that the case is arguable.  I also proceed on the assumption, although there is no real evidence of it, that it is quite likely that many of the defects which are put against these products are defects in design which will affect all the group members, making it unnecessary to go into the particulars set out in the statement of claim in detail with each group member.  But there is another consideration to which I should have regard and that is that the resources available to the applicant are extremely modest.  Greater resources are, it appears, possessed by the applicant’s directors.

8                     There is no evidence that if, a security for costs order is made at this stage, it is likely to bring the proceedings to a halt.  Such an order is interlocutory and can, of course, be varied, set aside or modified in an appropriate fashion at a later stage.  This is an important consideration because I accept for present purposes that the claims are arguable and, in that situation, that the proceedings should not be brought to a halt by a security for costs order being made. 

9                     The amount of security for costs, as I said a moment ago, will not be the large amounts sought by the respondent’s solicitor.  This proceeding is in its very early stages.  An affidavit filed by the applicant’s solicitor shows that the group members have a broad geographical spread, and is possible that this may have some ramifications as to costs even at the liability stage.  (I should say that I accept entirely Mr Rowe’s submission that liability is likely to be determined separately as it generally is in Part IVA proceedings.)  Nonetheless, the matter will involve some considerable expense in preparing for hearing.  It may be expected that there will be some interlocutory applications, although I make no assumption that the statement of claim necessarily invites a strike out application.  Nonetheless a fair amount of preparation will be involved.  Mr McNally, counsel for the respondent, refers to the need for proper discovery in a case like this.  That may be fairly expected to take up a lot of time on the part of the lawyers and the executives of the respondent.

10                  In all the circumstances, I am convinced that I should exercise my discretion to make an order for security for costs but that, at this stage, it should not be in a very large sum.  Whilst it can be little more than an educated guess at this stage, in my view it would be appropriate to order that security be provided in the sum of $50,000.

11                  Accordingly, I make the following orders: (1) that on or before 7 December 2001 the applicant provide security in the sum of $50,000 in respect of the costs of the respondent, such security to be provided in a manner acceptable to the New South Wales District Registrar of the Court and (2) in the event of default by the applicant in providing security in accordance with that order the proceeding be stayed.  The parties may have liberty to apply on three days notice in respect of these orders.  The applicant must pay the respondent’s costs of the motion heard today.

Associate:

Dated:              10 December 2001