FEDERAL COURT OF AUSTRALIA

Eastern Pearl Corporation v Groundhog Sales & Rentals Pty Ltd [2011] FCA 411

REASONS FOR JUDGMENT

1    I am presently considering three applications. One is an application by the respondents to transfer the matter to the Melbourne Registry. There is also an application by the respondents for an order for security for costs against the applicant. There is a further application by the applicant for security for costs in respect of a cross-claim. Insofar as concerns the application for transfer, I am of the view that the evidence does not presently disclose any clear advantage in conducting the trial in either the Brisbane or the Melbourne Registry. It seems that some witnesses will come from Melbourne, some witnesses will come from Brisbane, and some witnesses will come from Japan. It is possible that in the course of preparation for trial, the need for some witnesses will disappear, so that present anticipations as to witnesses may not be reliable. In those circumstances I think it better that the question be treated as one of venue and considered after completion of preparation for trial – or at least nearer to the time at which the trial will occur. I will therefore defer that question for further consideration at a later stage.

2    As to the question of security for costs, the applicant is a Japanese company. There is no evidence, either as to its net asset position, or as to any significant assets in Australia. In those circumstances it seems appropriate to make an order for security. Had the applicant wished to resist that course, it would have been relatively easy to lead some evidence of assets available in Australia. I will return to the question of quantum in a moment.

3    I turn to the applicant’s application for security. The respondents are an Australian company and an Australian resident. In the course of pleadings, particularly at paras 15 and following of the statement of claim, it is alleged that on numerous occasions in early 2010, the respondents indicated to the applicant that they were unable to pay certain amounts which were then due and sought to arrange payment on terms. The respondents have substantially admitted those statements. I place considerable weight upon them. The first respondent’s balance sheet demonstrates, for the year ended 30 June 2009, a net excess of assets over liabilities of $874,599 and, for the year ended 30 June 2010, $294,581. The decline in position is clear.

4    It has been said, on behalf of the respondents, that their cross-claim is really defensive, and that for that reason, the first respondent ought not be ordered to give security. There are cases in which a cross-claim does nothing more than assert that the facts alleged by the other party lead to the conclusion that the respondent to those proceedings is really defending by cross-claim. However it seems to me that it is inappropriate so to characterize a defence where, as in the present case, the cross-claim appears to arise out of substantially different facts from the claim. This is particularly so, given that it seems to be common ground that much of the applicant’s claim has been substantially admitted in the present case. I am therefore of the view that orders for security should be made on claim and cross-claim.

5    As the assets and liabilities are not listed, it is not easy to identify assets which are likely to be available to satisfy any order for costs made against the first respondent. There is said to be an amount of $1.4 million owed by “GE Loan Security”. This sounds like some sort of deposit placed with a finance company, although the matter is not clear. On the other hand, GE Commercial Finance is said to be a creditor in the amount of $6,842,592. This figure corresponds, to some extent, to the figure for stock on hand, which is shown as $6,220,538. Cash appears to be limited to less than $20,000. Although one could not draw any firm conclusions as to solvency or insolvency from the balance sheet, it is difficult to identify, with any certainty, how the applicant might be able to enforce an order for costs in the event that one is made in its favour. The uninformative nature of the balance sheet and the admissions made in January 2010 lead me to infer that there is a probable risk that any order for costs obtained by the applicant against the first respondent will not be met. In those circumstances I am inclined to make an order for security against the first respondent and in favour of the applicant.

6    The question which then arises is the appropriate amount for security in each case. The practice, as I understand it, has generally been to make an order for costs, up to and including the first day of the trial, allowing the parties to make further applications thereafter. The respondent’s solicitor has calculated that amount at para 29 of her affidavit as follows:

i.    completion of interlocutory steps, including defence and discovery

$30,000.00 - $40,000.00

ii.    mediation, including half share of mediator’s fees, attendance by counsel and instructing solicitor

$10,000.00 - $12,000.00

iii.    expert witness, including allowance for preparation

$10,000.00 - $20,000.00

iv.    sundries, including photocopying costs, fees, attendance by counsel at interlocutory applications etc (initial estimate less transcript fees and a proportion of costs)

$15,000.00

v.    conduct of the trial: 1 day – attendance by counsel and instructing solicitor

                            $7,000.00 - $10,000.00

(b)     conduct of the trial: 4 days - attendance by counsel and instructing solicitor

$20,000.00

7    The total at the lower end of the range would be about $92,000 and, at the higher end, $117,000. I am told that these estimates include both the claim and the cross-claim. The solicitor for the applicant has put in a somewhat more detailed skeleton bill which shows a total of $117,000, apparently including costs incurred up to the first day of the trial. I doubt the correctness of including an allowance for mediation in a skeleton bill for present purposes, but, in view of the difference between the applicant and the respondent’s estimates it seems appropriate to leave it in and treat the estimate as being a global one.

8    Subject to one qualification, it seems inappropriate to differentiate between the amounts to be ordered. I am inclined to the view that I should commence from the position that each party is to provide security to the other in the amount of $92,000, being the amount of the estimate given by the respondents’ solicitor, it being the lower of the two, including the amount allowed in connection with the proposed mediation. However, in the course of argument my attention was drawn to the fact that there is an order for costs against the applicant and in favour of the first respondent in the Supreme Court of Victoria. I consider that the order for security made in favour of the applicant should be reduced to take account of that debt. However the amount has not yet been taxed. I shall reduce the amount of the security to be ordered in favour of the applicant against the first respondent by the sum of $25,000, so that the amount of security will be $67,000.

9    I order that the applicant give security for the respondent’s costs up to and including the first day of the trial, fixed in the amount of $92,000, such security to be given to the satisfaction of the registrar within 21 days. I order that the first respondent give security for the applicant’s costs on the cross-claim in the amount of $67,000, such security to be given to the satisfaction of the registrar within 21 days.

Associate:

Dated:    7 September 2011