FEDERAL COURT OF AUSTRALIA

Nivaran Herbal Private Ltd v Keenmind Pty Ltd

[2002] FCA 680

Federal Court of Australia Act 1976 (Cth) s 56

Corporations Act 2001 (Cth) s 1335

Federal Court of Australia Rules of Court O 28

NIVARAN HERBAL PRIVATE LIMITED and VELVETTE INTERNATIONAL PHARMA PRODUCTS LTD v KEENMIND PTY LIMITED and OLGA SAWTELL

N 1218 OF 2001

GYLES J

SYDNEY

18 APRIL 2002

THE COURT ORDERS THAT:

1.                  Within 21 days the applicants provide further security so as to bring the amount secured up to $50,000 in a manner satisfactory to the first and second respondents, and, failing agreement by the first and second respondents, then to the satisfaction of the Registrar.

2.                  Costs of the respondents’ notice of motion are the costs of the first and second respondents in the proceeding on the amended statement of claim.

3.                  Within 21 days the first cross claimant provide security for the costs of each of the third and fourth cross-respondents to the first cross claim in the sum of $30,000 in a manner satisfactory to the third and fourth cross-respondents respectively, failing agreement by either of the third and fourth cross respondents, then to the satisfaction of the Registrar.

4.                  Costs of the notice of motion of the third and fourth cross-respondents are the costs of each said cross respondent in the proceeding on the first cross claim.

5.                  Special liberty to apply is reserved in respect of the implementation of these orders.

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

REASONS FOR JUDGMENT

1                     These are the reasons for judgment in respect of orders I made on three motions heard on 18 April 2002

Motion by the Respondents for Security of Costs Against the Applicants

2                     The motion was filed by the respondents on 4 April 2002 and sought further security of costs in the sum of $120,000.00 against the applicants pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth), O 28 of the Rules of Court and s 1335 of the Corporations Act 2001 (Cth).  In support of the motion, the respondents relied upon the affidavit of G Judd sworn on 4 April 2002. 

3                     Counsel for the respondent submitted that the primary reason for granting security of costs against the applicants was that they are companies outside the jurisdiction with no, or no sufficient, realisable assets within it.  It is common ground that the applicants are foreign companies.  However, in the affidavit of Dr Rajkumar sworn on 16 April 2002 relied upon by the applicants in answer to the motion, it is submitted that the applicants do possess assets within the jurisdiction which may be realised in order to meet any costs order made against them.  The assets identified by Dr Rajkumar at [13] – [16] of his affidavit are the trade marks in the products of “Mem Ad”, “Memplus” and “Memory Plus”.

4                     As counsel for the respondents submitted, however, there is no evidence that either “Memplus” or “Memory Plus” have ever been traded in Australia, and whilst “Mem Ad” may have been a successful product, that trade mark is in issue in these proceedings.  Any finding adverse to the applicants as to that trade mark, then, would remove their claim to that asset within this jurisdiction.  The applicants also identify a contract they have recently entered into as a realisable asset.  However, there is no evidence that that represents money in Australia, nor is there evidence that that contract may be saleable.  There was finally a rather vague claim that the applicants are currently engaging in the development of other herbal products which will shortly yield “many millions of US dollars”.  I agree with the respondents that I cannot place any weight on this claim.  Counsel for the respondents further submitted that there was no basis for finding that an award for security of costs against the applicants would affect the progress of the proceeding, as against which there was a substantial risk that the respondents would be unable to enforce a costs order against the applicants.  It was submitted that there is no acceptable basis for concluding that by engaging in the conduct which it did, the respondents rendered the applicants impecunious.  On the issue of quantum of security, the respondents submitted that in a factually and legally complex case such as this, a substantial order for security is warranted.  Counsel relied on the affidavit of Mr Judd which details both the costs to date and the estimated future costs of this proceeding.

5                     Counsel for the applicants argued that if the dispute is examined in context, it is against the interests of justice that security for costs be granted as there is a substantial chance of success.  In the alternative it was submitted that judgment in this motion be deferred until such time as certain proceedings on foot in India have been decided.  He also submitted that the quantum sought was too high.

6                     In my opinion no sufficient reason has been shown to avoid the usual necessity for a foreign corporation to properly provide security for costs.  It is inappropriate to go into the merits of the case.  On the other hand, I am not persuaded that the quantum which is sought is justified.  Any assessment of quantum is, in a sense, arbitrary.  In my view the amount secured should be brought up to a sum of $50,000, the security to be satisfactory to the respondents respectively, failing that to the satisfaction of the Registrar.

7                     The costs of the motion are to be the costs of the first and second respondents in the principal proceeding.

Motions by the Third and Fourth Cross-Respondents for Security of Costs Against the First Cross-Claimants

8                     Each of the third and fourth cross-respondents to the first cross claim filed notices of motion seeking security of costs against the first cross-claimant.  These motions were heard together as the affidavit evidence tendered in support of each motion relied on the other.  Both motions were amended at the hearing so as to invoke jurisdiction under s 56 of the Federal Court of Australia Act as well as O 28 of the Rules of Court and s 1335 of the Corporations Act 2001.

9                     The primary basis of these applications is that Keenmind Pty Ltd, the first cross-claimant, is essentially a $2 company with no realisable assets.  In defence of this claim, evidence was lead from Ms Sawtell, the second respondent, that, whilst the company has only a small amount in its bank account at present, it will shortly be acquiring $70,000 due to a subordinated loan from Ms Sawtell of monies which she is to receive.  Thus it was contended that the first cross-claimant would be in a position at such time to meet a costs order.

10                  Counsel for the third cross-respondents submitted that the evidence is clear in establishing that the first cross-claimant is a $2 company, with no property, one director and only two issued shares, both held by Ms Sawtell.  Accounts tendered in evidence show, it was submitted, a steady decline in the funds available to the first cross-claimant.  It was argued that the only grounds for resisting an order for security of costs in such circumstances would be if it could be shown that those who stand behind the company, in this case Ms Sawtell, are similarly without means, referring to Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 52 ALR 176.  Counsel for the fourth cross-respondent pointed out that this cannot be established, given the evidence that the funds soon to be received by the first cross-claimant are Ms Sawtell’s own money.

11                  Counsel for the first cross-claimant submitted that I should not be satisfied on the balance of the evidence that it would not be able to meet an order for costs made against it in the proceeding.  He relied upon the $70,000 to be received by the company in the near future, a recently signed contact between the first cross-claimant and a new distributor of their product in Australia and the minimal debts and overheads of the company.  This evidence, it was argued, suggests that the first cross-claimant will shortly be a very successful trading entity generating in excess of $140,000 per month in profits.  In the alternative, it was submitted by counsel for the cross-claimant that the quantum to be provided by the first cross-claimant should be less than that provided to the respondents by it as the cross-claimant will bear a greater burden of costs in the proceeding.

12                  I am satisfied that the first cross-claimant presently has no assets to meet any order for costs on the first cross-claim, and there is no sufficient prospect that it will be in that position to avoid an order for security.  However, I am not satisfied that the quantum sought is necessary.  I fix the amount of $30,000 as the amount to be secured for each cross-respondent to the first cross-claim.

13                  The orders I make in relation to these motions are that within 21 days the first cross-claimant is to provide security for the costs of each of the third and fourth cross-respondents in the sum of $30,000 in a manner acceptable to the said cross-respondents respectively, failing such agreement then to the satisfaction of the of the Registrar.  The costs of the application are to be the costs of each said cross-respondent of the cross-claim proceeding against it.

General

14                  Special liberty to apply is reserved in respect of the implementation of these orders.

Associate:

Dated:              29 May 2002