FEDERAL COURT OF AUSTRALIA

Cheng XI Shipyard v The Ship ‘Falcon Trident’ [2006] FCA 759

PRACTICE AND PROCEDURE – application by respondent to action for order that applicant give security for costs – Federal Court Act 1976 (Cth), s 56 – Federal Court Rules, O 28 r 3 – factors relevant to exercise of discretion – apparent strength of applicant’s case – where applicant resident outside jurisdiction and has no assets in jurisdiction – held, in circumstances, appropriate to order security for costs.

Federal Court of Australia Act 1976 (Cth), s 51A, s 56

Federal Court Rules, O 28 r 3

Thasos Shipping Agency Co Ltd v Owners of the Ship ‘Balakleya’ [1998] FCA 520, referred to

Tisand Pty Ltd v Owners of the Ship MV ‘Cape Morton’ (Ex ‘Freya’) (2004) 141 FCR 29, referred to

PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321, referred to

Logue v Hansen Technologies Ltd (2003) 125 FCR 590, referred to

Silveira v Australian Institute of Management [2001] FCA 1358, referred to

Balderrama v Commissioner for Australian Federal Police [2001] FCA 577, referred to

Gartner v Ernst and Young (No 3) [2003] FCA 1437, referred to

CHENG XI SHIPYARD v THE SHIP ‘FALCON TRIDENT’

WAD 180 OF 2004

BESANKO J 

19 JUNE 2006

PERTH

THE COURT ORDERS THAT:

1.         The plaintiff give security in a form satisfactory to the Registrar for the payment of costs that may be awarded against it in the sum of $65,000.

2.         Pending the provision of security as required by paragraph 1 hereof, this proceeding be stayed.

REASONS FOR JUDGMENT

1                     The plaintiff is incorporated according to the laws of the People’s Republic of China and is able to bring proceedings in its own name.  At all material times, it has carried on business as a ship builder and ship repairer at No 1 Hengshan Road, Jiangyin City, Jiangsu, in the People’s Republic of China (‘the shipyard’).

2                     It is common ground that the plaintiff carried out repair work on the defendant ship, the ‘Falcon Trident’.

3                     On 2 August 2004 the plaintiff issued a writ in rem against the defendant, claiming the unpaid balance of the plaintiff’s charges for repairs to the ship, being a sum of US$233,500, the issue of a warrant for the arrest of the ship, interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) and costs.  The relevant person named in the writ was Maritime Carriers International Corporation, of Monrovia, Liberia, being the owner of the ship.  The ship was arrested on 2 August 2004.  It was released on 4 August 2004 upon the sum of US$350,000 being paid into court.

4                     There is no challenge to the jurisdiction of the Court.

5                     On 20 January 2005 the defendant issued a notice of motion wherein it sought an order that the plaintiff pay into court the sum of $75,000 as security for the costs of the defendant incurred or likely to be incurred in defending the action, and an order that the defendant be at liberty to apply for further security, if appropriate.  The notice of motion is supported by an affidavit from a solicitor of the firm representing the defendant, and in that affidavit he sets out, among other things, his estimate of the costs of defending the action, which he puts at about $190,000.

6                     By s 56 of the Federal Court of Australia Act 1976 (Cth), the Court is given the power to make orders requiring an applicant in a proceeding to give security for the payment of costs.  Some of the relevant matters when considering whether to make an order under s 56 are set out in O 28 r 3 of the Federal Court Rules, which provides as follows:

‘3.  (1)When considering an application by a respondent for an order for security for costs under section 56 of the Act, the Court may take into account the following matters:

(a)        that an applicant is ordinarily resident outside Australia;

(b)       that an applicant is suing, not for the applicant’s own benefit, but for the benefit of some other person and the Court has reason to believe that the applicant will be unable to pay the costs of the respondent if ordered to do so;

(c)        subject to subrule (2), that the address of the applicant is not stated or is incorrectly stated in the originating process;

(d)       that an applicant has changed address after the commencement of the proceeding in an attempt to avoid the consequences of the proceeding.

       (2)The Court shall not order an applicant to give security by reason only of paragraph (1) (c) if it appears to the Court that the failure to state his address or the mis-statement of his address was made without intention to deceive.’

7                     Clearly, these are only some of the relevant matters and a number of other relevant considerations have been identified in the authorities.

8                     The ordinary rules as to the security for costs apply in this action: see D Cremean, Admiralty Jurisdiction: Law and Practice in Australia and New Zealand (2^nd ed, 2003) at page 177-178; and see Thasos Shipping Agency Co Ltd v Owners of the Ship ‘Balakleya’ [1998] FCA 520 and Tisand Pty Ltd v Owners of the Ship MV ‘Cape Morton’ (Ex ‘Freya’) (2004) 141 FCR 29, cases which considered the question at an earlier stage when the jurisdiction of the court was challenged.

9                     The plaintiff is ordinarily resident outside Australia within the provisions of O 28 r 3(1)(a) of the Federal Court Rules and, on the evidence, I am satisfied that it has no assets in Australia.  The plaintiff did not contend to the contrary; nor did it argue that there has been delay in the bringing of the application, or that an order for security for costs will in any way stifle the proceedings.  Furthermore, the plaintiff accepts that, in these circumstances, there must be weighty reasons why an order for security for costs should not be made.  In PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321, McHugh J said (at 323):

‘However, for over two hundred years, the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made.  Indeed, for many years the practice has been to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction.’

10                  This principle is well-established and has been applied on a number of occasions: see, eg, Logue v Hansen Technologies Ltd (2003) 125 FCR 590 at 600-601 [38]-[41] per Weinberg J; Silveira v Australian Institute of Management [2001] FCA 1358 at [6] per Stone J;  Balderrama v Commissioner for Australian Federal Police [2001] FCA 577 at [5] per Emmett J.

11                  The plaintiff’s main, and indeed only, submission is that the defendant’s application for security for costs should be refused because it is very unlikely, having regard to the merits of the respective claims, that the plaintiff will be ordered to pay the defendant’s costs.  It is clear that I cannot determine the merits of the plaintiff’s claim and the defendant’s set-off and counterclaim on this application.  However, the plaintiff’s prospects of success are relevant on an application for security for costs:  Gartner v Ernst and Young (No 3) [2003] FCA 1437.  In this case, it is not the defendant who is submitting that the plaintiff’s claim appears weak and that this is a factor in favour of granting security.  It is a plaintiff submitting that its case is so strong that security for costs should not be ordered.

12                  The plaintiff claims that it carried out repairs to the ship between 29 February 2004 and 22 March 2004.  The plaintiff claims that the first instalment of the agreed price, namely, the sum of US$250,000, was paid prior to the ship leaving the shipyard.  The balance of the agreed price, namely, the sum of US$233,500, was to be paid by the defendant within 60 days.  It was not paid, and on the plaintiff’s case the benefit of a discount was therefore lost and the sum of US$308,117 became due and payable by the defendant.  Little was said about that matter in the submissions before me and I will proceed on the basis that, for the purposes of this application, the plaintiff’s claim is for US$233,500.

13                  It seems to be common ground that, initially at least, it was a term of the repair contract that the work would be performed within a period of 22 days.

14                  At the forefront of the defendant’s case is an allegation that there was a liquidated damages clause in the contract between it and the plaintiff and that that clause applied if there was delay by the plaintiff in the performance of the repair work.  It is alleged that in the course of performance the parties agreed to remove certain repair work from the scope of the contract and that, in those circumstances, the contractual period for the performance of the work should have been reduced by about 11 days.  The defendant asserts that, notwithstanding the removal of certain work from the scope of the contract, the plaintiff still took over 22 days to complete work on the ship, and that it has a claim under the liquidated damages clause, which it quantifies at US$184,800.

15                  It is not entirely clear from the defence and counterclaim whether the defendant says the period for performance was renegotiated, or in what other way the defendant can found a claim in relation to what it says was a variation to the period for performance.  The plaintiff did not pause on these questions because, it submits, the evidence is to the effect that its claim is likely to succeed, and that even if the defendant’s set-off and counterclaim is also successful, there will still be a balance of judgment in its favour.  In those circumstances, it is said that it is most unlikely an order for costs will be made against the plaintiff.  In relation to the strength of its claim, the plaintiff points to the fact that the defendant’s agent signed the invoice indicating that the price and repair work were satisfactory.  In its defence, the defendant denies that the person who signed the invoice was its agent.

16                  In submissions, the defendant’s counsel described its claim on the liquidated damages clause, which in substance is a set-off and counterclaim, as the ‘nub’ of the defendant’s case.  That submission is supported by the evidence put before me and, in particular, the evidence to the effect that the defendant’s real concern in the period immediately after the ship left the shipyard was the delay of about 11 days.  In those circumstances, and bearing in mind the evidence suggesting the defendant was otherwise happy with the price and the standard of the repair work, there is a good deal to be said for the plaintiff’s submission.

17                  However, there are other strands to the defendant’s case.  They are not easy to articulate because in some cases they are not properly pleaded.  As I have said, there is an allegation by the defendant that there was an overrun of the original period for performance of 22 days and that a loss was thereby incurred by reason of commercial relations with third parties.  There is also a suggestion that some of the repair work was defective and that the removal of certain work from the scope of the contract caused the defendant to suffer loss because that work had to be carried out at a later stage at the cost of the defendant.  In submissions, the defendant’s counsel also suggested that the contract price may be disputed because of the removal of certain work from the scope of the contract.  Such a case is not articulated in the pleadings.  It has to be said that the defendant’s pleadings are unsatisfactory in that a number of these arguments are not clearly pleaded and particularised.

18                  Nevertheless, it would be unwise at this stage to place too much weight on the apparent strength of the plaintiff’s case.  At present and on the evidence before me, the plaintiff’s claim that it will obtain a judgment in its favour appears to be a strong one.  However, that conclusion is not sufficient to outweigh the fact that the plaintiff is not resident in the jurisdiction and has no assets in the jurisdiction.  In my opinion, security for costs should be ordered.

19                  I have considered the estimates put forward by the defendant.  They seem high in terms of the forecast number of items and attendances.  Furthermore, the estimates include the costs of trial, whereas I think it appropriate to proceed on the basis that I should calculate the amount by reference to work to be carried out up to and including the first day of trial.  The defendant can always make another application for further security.  In all the circumstances, I have decided to fix an amount of $65,000.

Conclusion

20                  For these reasons, I will order that the plaintiff give security in a form satisfactory to the Registrar for the payment of costs that may be awarded against it in the sum of $65,000.  Pending the provision of security, the proceedings will be stayed.  I will hear the parties as to the costs of the notice of motion.

Associate:

Dated:              19 June 2006