FEDERAL COURT OF AUSTRALIA

Moussa v Eski Export Pty Ltd [2001] FCA 878

PRACTICE AND PROCEDURE – security for costs – corporate applicant likely to be unable to meet award of costs – sole proprietor of company also applicant – natural person resident in jurisdiction – delay in bringing application for security – whether excusable because applicant delivered more witness statements than expected – whether prejudice suffered

Corporations Law s 1335

MARIO MOUSSA and ANOTHER v ESKI EXPORT PTY LTD and OTHERS

V 787 OF 2000

HEEREY J

9 JULY 2001

MELBOURNE (BY VIDEOLINK FROM SYDNEY AND HOBART)

THE COURT ORDERS THAT:

1.         The respondents’ motion by notice dated 30 June 2001 is dismissed.

2.         The respondents pay the applicants’ costs of the motion.

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

REASONS FOR JUDGMENT

1                     The respondents apply under s 1335 of the Corporations Law for an order that security for costs be provided by the second applicant MCM Services Pty Ltd (MCM).  The first applicant, Mr Mario Moussa, has been at all relevant times the sole shareholder of MCM and the director of it. 

2                     The proceeding arises out of a contract between MCM and the first respondent Eski Export Pty Ltd (Eski), a Tasmanian producer of bottled water, under which MCM was to be, broadly speaking, Eski’s Victorian distributor.  The applicants claim that the product subsequently delivered was defective to such an extent that the agreement had to be terminated.  Mr Moussa alleges various representations as to the quality of the product, as a result of which he gave up his then employment and directed his sole energies to the conduct of the MCM distributorship business.  The claims are basically by Mr Moussa for misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth) and by MCM in the same regard and also for breach of contract. 

3                     The proceeding was commenced on 11 October 2000 in the Victorian District Registry but the trial is to be held in Hobart.  At the first directions hearing on 1 December 2000 Marshall J made a number of procedural directions and set the trial down to commence on 4 June 2001 in Hobart, with an estimate of four days.  Various interlocutory steps then proceeded, including the filing of the respondents’ defence and cross-claim on 15 December 2000.

4                     On 27 April 2001, at the request of the respondents and by consent, the trial dates were vacated and refixed for 20 to 23 August, 22 to 24 October, and 26 October 2001.  On 18 May the applicants filed an amended statement of claim consequent upon their inspection of the respondents’ documents earlier that month.  It would be fair to say that the amended statement of claim does not change the fundamental nature of the applicants’ claim.  Rather it pleads the alleged misleading and deceptive conduct with more particularity.

5                     On 4 June the applicants delivered eleven witness statements.  It was these witness statements, which apparently were greater in number than originally expected by the respondents, which prompted the current application for security for costs.  The respondents on 3 June gave the applicants warning that such an application would be made.  Their notice of motion was filed on 4 July. 

6                     There is some material about the financial position of the applicants.  MCM had at 30 June 2000 net liabilities of $25,278.  It is not in dispute therefore that there is credible testimony that MCM would be unable to pay the costs of the respondents if successful in their defence.

7                     As to Mr Moussa, he is currently working for a hospital consulting firm earning an annual income of $64,000.  He and his wife have a joint bank account with a current credit balance of approximately $47,000.  He owns a motor car with an estimated insured value of $31,700. 

8                     A number of authorities were referred to by counsel for the respondents.  I do not think it is necessary to refer to these in any detail.  It is accepted that the power to order security for costs is a discretion which ultimately must turn on circumstances of the particular case.

9                     There are a number of circumstances in the present case which, in my view, militate against the making of such an order.  The first of these is the position of Mr Moussa.  One of the reasons why there is statutory or court rule provision for security for costs is that it is obviously unfair if a corporate plaintiff without resources brings a proceeding in circumstances where persons behind the company will reap the rewards if the plaintiff obtains judgment, but not be liable for the defendant’s costs if the claim fails.  The present situation, as will be obvious, is different here because Mr Moussa, the person behind MCM, is himself an applicant.  If the claim fails, he will be liable for costs.

10                  I note that in an affidavit sworn on 4 July 2001 Mr Moussa deposed that he is prepared to guarantee any costs incurred by or on behalf of MCM and stand surety for any costs order made against MCM.  It may be that, practically speaking, that does not add a great deal to what would follow anyway, since it is very unlikely, I think, that there would be an outcome which resulted in the successful respondents gaining an order for costs against MCM but not against Mr Moussa.  If MCM fails, it is likely to be because the company does not make out its case as to the merchantability of the Eski product, in which case it is difficult to see how Mr Moussa could make out his case for misleading and deceptive conduct. 

11                  It is true, as counsel for the respondents pointed out, that in one of the applicants’ solicitor’s affidavits it was said that Mr Moussa has sufficient assets within the jurisdiction to pay costs arising from these proceedings if so ordered.  On the material available and taking judicial notice as to the expensiveness of litigation these days, at the very least that may be unlikely.  But in any event, Mr Moussa is obviously not a man of straw and the situation is really no different from that which would obtain if Mr Moussa were bringing the action solely in his own right.  It is of course beyond dispute that a natural person resident within the jurisdiction who brings a proceeding will not be ordered to provide security for costs.

12                  The second major factor that militates against the making of an order is the question of delay.  It should have been apparent to the respondents as early as 1 December last year that a trial, even for four days, with all the associated interlocutory expenses, would involve substantial cost.  Moreover, it was then open to the respondents to obtain information as to the financial standing of MCM.  The further comment made by the counsel for the applicants is probably a valid one, namely that if the parties had been in commercial dealings with each other, it is not unlikely that the respondents would be aware of the nature of MCM and that it was Mr Moussa’s alter ego.

13                  It is not suggested that when the original directions were given on 1 December there was any estimate of the number of witnesses likely to be called.  Moreover, the amendments to the statement of claim that have been made and foreshadowed do not alter the fundamental nature of this proceeding.  So it seems to me that the situation which the respondents now say warrants an order for security of costs should have been apparent to them within a month or so of the commencement of this proceeding.

14                  I think it is self evident that the delay in bringing this application would cause prejudice if an order were to be made now. One can infer from the extent of the interlocutory steps to date that Mr Moussa has already incurred substantial costs and that he will have to incur more in the course of preparation for trial.  For him to provide security – the amount sought, I might add, is approximately $100,000 – would vastly change the considerations under which Mr Moussa commenced this proceeding and has proceeded to date. 

15                  Accordingly the motion by notice dated 30 June 2001 will be dismissed.

Associate:

Dated:              11 July 2001