FEDERAL COURT OF AUSTRALIA

Stratford Sun Limited v OM Holdings Limited [2009] FCA 1055

STRATFORD SUN LIMITED v OM HOLDINGS LIMITED (ARBN 081 028 337)

WAD 75 of 2009

SIOPIS J

28 JULY 2009

PERTH

THE COURT ORDERS THAT:

1.                  The applicant do give security for the respondent’s costs in the amount of $18,000 to be paid into the Freehills trust account.

2.                  Costs are reserved.

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

1                     The respondent seeks security for costs in the sum of $30,000 from the applicant in respect of its costs of defending an application brought by the applicant for preliminary discovery from the respondent.

2                     The applicant, Stratford Sun Limited, is a company which is incorporated in the British Virgin Islands.  The respondent is a company which is incorporated in Bermuda but which has its corporate headquarters in Singapore.  Through its wholly owned subsidiary, OM (Manganese) Ltd, the respondent operates the Bootu Creek Manganese mine in the Northern Territory, Australia.  The respondent’s shares are listed on the Australian Stock Exchange.  The applicant is a major shareholder of the respondent.  The applicant has no assets in the jurisdiction other than its shareholding in the respondent.

3                     By an application filed on 19 May 2009, the applicant seeks preliminary discovery under O 15A r 6 of the Federal Court Rules, in respect of documents which relate to the issue of options to a number of directors and senior management of the respondent.  The issue of the options was approved at a general meeting of members of the respondent which was held in Singapore on 23 September 2008.  In its application, the applicant contends that it needs the discovery of the documents specified to determine whether to commence a proceeding against the applicant in relation to the extent of the disclosures made of possible associations between the recipients of options, the directors and shareholders; and the purpose for which the options were issued.

4                     The parties both accept that the Court has the power to make an order for security for costs in the circumstances of this case.  The question is whether the Court should exercise that power.

5                     The applicant contends that by reason of its shareholding in the respondent, the applicant should not be treated as a foreign company with no assets in the jurisdiction, and the Court should not make any order in respect of security for costs.

6                     The fact that a company has no assets in the jurisdiction is a factor which weighs very heavily in favour of an order for security for costs.  A major object of an order for security for costs is to facilitate a successful party being able to enforce a costs order in its favour, without having to engage in difficult and perhaps lengthy enforcement proceedings, particularly in relation to a foreign party.

7                     In my view, the fact that the applicant has a substantial shareholding in the respondent, does not meet the objections which ordinarily apply to a foreign party suing in this jurisdiction.  This is because there is no evidence before the Court as to the process by which any costs judgment obtained against the applicant would be satisfied by recourse to its shares in the respondent.  I am, therefore, not in a position to assess whether that process would provide the respondent with a simple and effective means of satisfying any costs order obtained against the applicant.  It follows that I am not satisfied that the shareholding provides an adequate substitute for an order of security for costs.

8                     In exercising my discretion, I also take into account the fact that the application is one which is reasonably arguable.  However, both parties seem to have points which could be made at the hearing.

9                     In my view, the applicant should provide security for the respondent’s costs of the application for preliminary discovery.

10                  The next issue is the amount of the security that should be provided.

11                  The respondent has filed a draft bill of costs which provides for an estimate of total fees and disbursements of $46,038.  This amount includes estimated disbursements of $25,300, comprising an estimate of $17,500 for senior counsel’s fees and $4,750 in respect of junior counsel’s fees.  These estimates appear to me to be somewhat on the high side taking into account the nature of the application.  It is also the case that the object of a security for costs order is not to provide a complete indemnity in respect of the costs which are incurred in defending an application.  In my view, for these reasons, security for costs should be provided in the amount of $18,000.

12                  Accordingly, I will order that security for costs be provided by the applicant in the sum of $18,000.

Associate:

Dated:         17 September 2009