FEDERAL COURT OF AUSTRALIA

Banki Trading BV v Ausland Export Pty Ltd [2022] FCA 373

ORDERS

THE COURT ORDERS THAT:

1.    Within 14 days of the date of these orders, the applicant provide security for the respondents’ costs of this proceeding in an amount of $73,049, by way of payment of that sum into the Court Litigants’ Fund.

2.    The proceeding be stayed until security is given by the applicant in accordance with Order 1.

3.    The proceeding be dismissed if the applicant fails to provide the security in accordance with Order 1 and within the time specified in that order.

4.    Subject to Orders 5 and 6, the applicant pay the respondents’ costs of the interlocutory application dated 2 December 2021 filed by the respondents, as agreed or assessed.

5.    If any party seeks an alternative order as to costs:

(a)    that party is to file and serve within 7 days of the date of these Orders:

(i)    a proposed form of alternative order;

(ii)    any evidence in support of that proposed form of order;

(b)    any party against whom an alternative order as to costs is sought is to file and serve within 14 days of the date of these Orders, any evidence upon which it wishes to rely;

(c)    any party seeking an alternative costs order is to file and serve within 21 days of the date of these Orders:

(i)    any evidence in reply;

(ii)    its submissions (limited to 3 pages);

(d)    any party against whom an alternative order for costs is sought is to file and serve within 28 days of the date of these Orders its submissions (limited to 3 pages); and

(e)    any party seeking an alternative order for costs is to file and serve within 35 days of the date of these Orders any submissions in reply (limited to 2 pages).

6.    Unless the Court otherwise orders, any question of costs so arising will be determined on the papers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

GOODMAN J

INTRODUCTION

1    By interlocutory application dated 2 December 2021, the respondents seek an order that the applicant provide security for the respondents’ costs of the proceeding, together with ancillary orders. For the reasons that follow, the applicant is to provide the security sought.

BACKGROUND

2    In or about December 2018, the applicant, an entity resident in The Netherlands, and the first respondent entered into a contract for the supply of particular lamb cuts (Goods).

3    On or about 8 February 2019, the applicant paid €100,000 (approximately $155,000) to the first respondent under the contract as a partial deposit (Deposit). The applicant did not provide a letter of credit to the first respondent.

4    On 1 May 2019, the first respondent served on the applicant a “Notice of Default and Notice to Remedy Breach” (the validity of which has been put in issue by the applicant) which:

(1)    stated that:

(a)    the applicant had been required to pay a deposit and provide a letter of credit;

(b)    the applicant had paid only part of the deposit and had not provided a letter of credit; and

(2)    demanded that the applicant, within 14 days, pay the balance of the deposit and deliver a letter of credit;

5    On 17 May 2019, following further correspondence between the applicant and the second respondent on behalf of the first respondent, the first respondent sent an email to the applicant purporting to terminate the contract because of the applicant’s alleged breaches in not paying the whole of the deposit and not providing a letter of credit, and asserting that the Deposit had been forfeited to the first respondent.

6    The first respondent has not returned the Deposit to the applicant.

7    On 12 October 2021, following correspondence concerning the applicant’s claim to be entitled to the return of the Deposit, the applicant commenced the proceeding by the filing of an Originating Application and a Statement of Claim. On 11 November 2021, the respondents filed a Defence.

8    On 18 November 2021, the solicitor for the respondents wrote to the solicitor for the applicant requesting the applicant to provide security in the sum of $73,049 within 14 days and foreshadowing the filing of an application for security for costs if that were to not occur. The principal bases upon which it was asserted that security ought to be provided were the applicant’s Netherlands residency and its apparent lack of assets in Australia. The 18 November 2021 letter also enclosed a schedule setting out the basis of the calculation of the amount of $73,049.

9    On 25 November 2021, the applicant filed a Reply.

10    On 30 November 2021, the solicitor for the applicant responded to the 18 November 2021 letter, declining to provide the security sought and offering to consider the provision of security in an amount of “AUD 10,000 or thereabouts”.

11    On 2 December 2021, the respondents filed the interlocutory application seeking an order for the provision of security for costs.

LEGAL FRAMEWORK

12    The application is brought pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) and r 19.01 of the Federal Court Rules 2011 (Cth). Section 56 provides:

56    Security

(1)    The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her.

(2)    The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs.

(3)    The Court or a Judge may reduce or increase the amount of security ordered to be given and may vary the time at which, or manner or form in which, the security is to be given.

(4)    If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed.

(5)    This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security.

13    Rule 19.01 provides, in so far as is presently relevant:

19.01    Application for an order for security for costs

(1)    A respondent may apply to the Court for an order:

(a)    that an applicant give security for costs and for the manner, time and terms for the giving of the security; and

(b)    that the applicant’s proceeding be stayed until security is given; and

(c)    that if the applicant fails to comply with the order to provide security within the time specified in the order, the proceeding be stayed or dismissed.

(2)    An application under subrule (1) must be accompanied by an affidavit stating the facts on which the order for security for costs is sought.

  (3)    The respondent’s affidavit should state the following:

(a)    whether there is reason to believe that the applicant will be unable to pay the respondent’s costs if so ordered;

(b)    whether the applicant is ordinarily resident outside Australia;

…

(d)    whether the applicant is impecunious;

…

14    The principles applicable to the exercise of the discretion conferred by s 56 of the Act are well settled and not in dispute on this application. In Madgwick v Kelly [2013] FCAFC 61; (2013) 212 FCR 1, Allsop CJ and Middleton J said at [6]:

[6]    The primary judge at [11]-[14] of the reasons described the principles attending the exercise of the judicial discretion in s 56. In [12] the primary judge helpfully set out a number of broad considerations that attend any security for costs question that bear repeating:

It is established that the discretion conferred by s 56 is broad and unfettered. Many attempts to set limitations upon the discretion have been rejected by the Courts, and the only limitation is that it must be exercised judicially: Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1…at 3 per Sheppard, Morling and Neaves JJ. It is a discretion to be exercised according to the merits of each case and without any particular predisposition: Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497…at 511 per French J. The discretion is to be exercised by reference to the particular circumstances arising in each case: Woodhouse v McPhee (1997) 80 FCR 529…at 533 per Merkel J.

15    In Commissioner of Taxation v Vasiliades [2016] FCAFC 170; (2016) 344 ALR 558, Kenny and Edelman JJ said at [71]-[75]:

[71]    The discretion conferred by s 56 is a broad one, subject only to the limitation that it must be exercised judicially. The discretion has been sometimes described as unfettered and to depend on the particular circumstances of the case: Bell Wholesale Co Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1 at 4. The latter observation might be thought a truism, save that it strongly indicates that the exercise of the discretion is not determined by rules.

[72]    The purpose to be served by making an order for security for costs is to ensure that a successful respondent to a claim will have a fund available within the jurisdiction of the Court against which the respondent, if successful in defence, can enforce a judgment for costs in the respondent's favour. This purpose is, of course, relevant to an exercise of discretion. The factors that the courts have over time recognised as relevant to an exercise of discretion are relevant because they bear on the purpose for which an order for security for costs is made. Thus, if an applicant in a proceeding is ordinarily resident outside the jurisdiction, an award of security for costs means that a respondent “does not bear the risk as to the certainty of enforcement in the foreign country and as to the time and complexity of the action there which might be necessary to effect enforcement”: Energy Drilling Inc v Petroz NL (1989) ATPR 40-954 at 50,422 (Gummow J). See also: Logue v Hansen Technologies Ltd 125 FCR 590 at [18] (Weinberg J); GAIN Capital UK Limited v Citigroup Inc [2015] FCA 1009 at [18] (Yates J); and Oswal [2015] FCA 1143 at [57] (Nicholas J).

…

[74]    Regarding the first principal consideration to which we have referred, however, there was no evidence before her Honour concerning either Mr Vasiliades’ assets or ordinary residence, although it was common ground that he was an Australian non-resident without apparent assets in Australia. The significance of this consideration was emphasised in PS Chellaram & Co Ltd v China Ocean Shipping Co 102 ALR 321 (in which the respondents applied for an order that the appellant provide security for the costs of its appeal). In reasons for judgment awarding security, McHugh J stated (at 323):

To make or refuse to make an order for security for costs involves the exercise of a discretionary judgment. That means that the court exercising the discretion must weigh all the circumstances of the case. The weight to be given to any circumstance depends not only upon its own intrinsic persuasiveness but upon the impact of other circumstances which have to be weighed. A circumstance which may have very great weight when only two or three circumstances have to be weighed may be of minor significance when many circumstances have to be weighed. However, for over 200 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.

[75]    The fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction is clearly a significant circumstance militating in favour of an applicant for security for costs. As the above passage highlights, however, there is no rule that security for costs will be awarded as of course where an applicant is resident out of the jurisdiction and has no assets within the jurisdiction. A case may disclose countervailing circumstances that properly justify refusing an application.

CONSIDERATION

16    It is common ground that the applicant is resident in The Netherlands and does not have any assets in Australia against which a costs order against the applicant could be enforced.

17    As is clear from the judgment of Kenny and Edelman JJ in Vasiliades, the fact that an applicant is resident outside of Australia and has no assets within Australia is a significant circumstance militating in favour of the respondents on this application, but it is not of itself a sufficient basis for an order that security be provided. It is necessary to consider all of the circumstances.

18    The applicant relies upon the following as countervailing circumstances:

(1)    the strength of the applicant’s case in the proceeding;

(2)    the applicant being effectively a respondent;

(3)    the conduct of the respondents following the termination of the contract;

(4)    the absence of evidence regarding the impecuniosity of the applicant; and

(5)    the ability of the respondents to enforce any costs judgment in The Netherlands.

19    These matters are considered in turn below.

The strength of the applicant’s case in the proceeding

20    The applicant submitted that its case is particularly strong and is a matter which should be afforded considerable weight in the exercise of the discretion.

21    The matters described at paragraphs [2] to [6] above are common ground.

22    However, the parties are at issue as to (at least):

(1)    the documents which form part of the contract. Whilst each party accepts that a Memorandum of Understanding (MOU) forms part of the contract, the respondents contend that three other documents also form part of the contract, namely:

(a)    a pro forma invoice issued by Ausland to the applicant dated 10 October 2018;

(b)    Ausland’s Terms and Conditions of Sale of Goods, which is described in the Defence as “being that licensed to Ausland by Samex Australia Pty Ltd”; and

(c)    Incoterms 2010 (Cost and Freight or CFR), which is described in the Defence as “being international trade terms published under that name by the International Chamber of Commerce”;

(2)    whether, as the applicant contends and the respondents deny, the contract contained an implied term that following termination of the contract any funds held by the first respondent as security and not required as payment in respect of any Goods supplied by the first respondent would be returned to the applicant;

(3)    whether, as the respondents contend and the applicant denies, the contract contained implied terms that:

(a)    the full deposit would be paid to it, and the letter of credit provided to it, within a reasonable time;

(b)    if the applicant breached the contract, the first respondent would become entitled to terminate the contract and upon termination it would be entitled to retain the full deposit; and

(4)    whether the applicant breached the contract, and if so, whether on the proper construction of the contract, the Deposit paid by the applicant was forfeited by reason of such breach and subsequent termination of the contract.

The applicant’s case against the first respondent

23    The essence of the applicant’s claim against the first respondent, as pleaded, is that:

(1)    the contract contained:

(a)    express terms, contained in the MOU, including terms that:

(i)    payment for goods was to be per container shipped on confirmed irrevocable letter of credit at sight to the first respondent’s bank account with a deposit in advance to the value of two containers of Goods;

(ii)    the “usual” force majeure clause was to apply;

(b)    an implied term that following termination of the contract any funds held by the first respondent as security and not required as payment in respect of any Goods supplied by the first respondent would be returned to the applicant;

(2)    the applicant was unable to obtain a suitable letter of credit because of international circumstances beyond its control;

(3)    in these circumstances, the Deposit should be returned to the applicant or the applicant should be paid an equivalent amount as damages because:

(a)    the applicant’s inability to obtain a suitable letter of credit occurred for reasons beyond its control and unforeseen by the applicant and the first respondent with the result that the force majeure provisions of the contract applied to relieve the parties from any further conduct of their respective obligations pursuant to the contract;

(b)    the contract was frustrated by the inability of the applicant to obtain a letter of credit from a prime international bank with the result that the parties were discharged from any further obligations pursuant to the contract;

(c)    the first respondent is in breach of the implied term of the contract that it would return to the applicant any funds advanced by the applicant which were not used for the payment of the Goods;

(d)    the failure of the first respondent to provide any Goods pursuant to the contract constituted a total failure of consideration with the result that the contract was discharged and the Deposit is due and payable to the applicant;

(e)    the purported termination of the contract by the first respondent on or about 17 May 2019 evinced an intention on the part of the first respondent to repudiate the contract; such repudiation was accepted by the applicant; and such repudiation caused the applicant loss, namely the loss of the Deposit;

(4)    further, the first respondent engaged in unconscionable conduct pursuant to s 21 of the Australian Consumer Law by:

(i)    issuing the Notice;

(ii)    refusing to confirm new supply arrangements for the Goods until further sums were paid by the applicant on unreasonable conditions before the proposed terms of the new supply agreement were formally documented;

(iii)    not supplying any Goods; and

(iv)    withholding the Deposit after termination of the contract,

which conduct has caused loss (namely the loss of the Deposit) to the applicant.

The applicant’s case against the second respondent

24    The essential allegations concerning the second respondent are that:

(1)    he is the sole director and shareholder of the first respondent and its controlling mind and agent; and

(2)    as the controlling mind of the first respondent, the second respondent “aided, abetted, counselled and procured” the conduct of the first respondent and has been “knowingly concerned” in any contravention of the Australian Consumer Law by the first respondent.

25    The precise cause of action relied upon against the second respondent is not identified. The terms used suggest that it may be intended to be a cause of action based upon s 236 of the Australian Consumer Law, which provides for the recovery of loss caused by the conduct of another person (here, the first respondent) in contravention of a provision of Chapter 2 or 3 of the Australian Consumer Law (here s 21, within Chapter 2) from any person involved in the contravention.

26    There is no reference to s 236 of the Australian Consumer Law in the Statement of Claim, or the Originating Application. There is also no (at least express) averment that the second respondent was involved in the first respondent’s conduct. It may be that the averments that the second respondent “aided, abetted, counselled” and “procured” and “knowingly concerned”, which expressions appear within the definition of “involved” in s 2 of the Australian Consumer Law, are intended to be an allegation of involvement of the second respondent. It is not necessary to decide the adequacy of this pleading for the purposes of this application, and for those purposes I will assume that the applicant does propound a claim under s 236 of the Australian Consumer Law against the second respondent.

Consideration

27    I am not satisfied that the applicant’s case is of such sufficient strength that I should do more than assume that it is brought bona fide and has reasonable prospects of success: see KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 197C; Fiduciary Limited v Morningstar Inc [2004] NSWSC 665; (2004) 208 ALR 564 at 574 [37]-[30]. This is for the following reasons.

28    First, on an application for security for costs it is not usually appropriate to consider the strength of an applicant’s case other than in a provisional manner in order to gain a broad brush impression as to its strength or otherwise: see Concrete Mining Structures Pty Ltd v Cellcrete Australia Pty Ltd (No 2) [2016] FCA 360 at [13(11)].

29    Secondly, the evidence before the Court on the present application does not allow for a meaningful assessment of prospects, much less does it allow the Court to form the view that the applicant’s case is strong. The Court does not have before it any of the alleged contractual documents, other than Ausland’s Terms and Conditions. In particular, the Court does not have the MOU, which as noted above, the parties agree forms part of the contract and which appears, from the Statement of Claim, to impose obligations on the applicant to provide a deposit and a letter of credit to the first respondent.

30    The difficulties which attend any examination of the strength of the applicant’s case may be illustrated by reference to the applicant’s two principal submissions on this aspect of the application.

31    The first is the applicant’s submission that the respondents’ case depends upon the applicant having been in breach of the contract, and the applicant’s submission that it could not have been in breach because:

(1)    the Notice referred to the MOU incorporating Ausland’s Terms and Conditions and stated that the obligation on the applicant to pay the Deposit and to deliver the letter of credit was an obligation pursuant to the MOU and the Ausland Terms and Conditions;

(2)    the Ausland’s Terms and Conditions, provided by the respondents at the request of the applicant, is apparently produced by a different company, namely, Samex Australian Meat Co Pty Ltd; and

(3)    the alleged breach depends upon those Terms and Conditions, which are irrelevant.

32    Analysis of this submission requires consideration of the whole contract and in particular, the MOU which, as noted above, is not in evidence. This is particularly so when the MOU appears to be the source of the obligations upon the applicant to provide the deposit and letter of credit. It may also be necessary to consider the circumstances surrounding the contract.

33    The second is the applicant’s submission that the respondents’ case depends on the proposition that the applicant’s breach entitled the first respondent to retain the whole of the Deposit and that this is contrary to relevant case law.

34    The determination of this issue will require consideration of the authorities in this area, such as Howe v Smith (1884) 27 Ch D 89; Dies v British and International Mining and Finance Corporation Ltd [1939] 1 KB 724; Commission Car Sales (Hastings) Ltd v Saul [1957] NZLR 144; Reid Motors Ltd v Wood [1978] 1 NZLR 319; Baltic Shipping Co v Dillon (1993) 176 CLR 344; Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342; Lumbers v W Cook Builders Pty Ltd [2008] HCA 27; (2008) 232 CLR 635; Fiorelli Properties Pty Ltd v Professional Fencemakers Pty Ltd [2011] VSC 661; (2011) 34 VR 257; and Fernandez v Perez [2012] NSWSC 1242.

35    It will also require, as the applicant submitted, an assessment of the objective contractual intention of the applicant and the first respondent. This will, in turn, require consideration of (at least) the documents said to form part of the contract. Again, the Court does not have before it all of those documents and in particular the MOU. There may also be surrounding circumstances to be considered in the construction of the contract. Understandably, there is no evidence of such circumstances before the Court at this early stage of the proceeding.

36    For the above reasons, I am not satisfied that the applicant’s case is of such strength that I should treat it otherwise than as one brought bona fide and with reasonable prospects of success.

Is the applicant effectively a respondent?

37    The applicant submitted that the applicant is effectively a respondent “to the respondents’ implied cause of action in alleged breach of contract” and the retention of the Deposit by the respondents constitutes a “self-help” procedure by the respondents, with the consequence that the applicant should not be required to provide security for the respondents’ costs.

38    In Willey v Synan (1935) 54 CLR 175, Dixon J (as his Honour then was and with whom Rich J agreed) said at page 184:

The principle is that a party to judicial proceedings, who resides beyond the jurisdiction, should not be required to give security for costs unless, however the parties are arranged upon the record, he is the person invoking or resorting to the jurisdiction for the purpose of establishing rights or obtaining relief. If he does avail himself of the remedies the jurisdiction provides in order to obtain affirmative relief or redress, he may be ordered to give security, although he becomes a defendant in the action.

39    In that case, the plaintiff commenced a proceeding after the service upon him of a statutory notice by the defendant under the Customs Act 1901 (Cth), the effect of which required the plaintiff to commence an action for recovery of coins seized by the defendant, failing which the coins would be forfeited to the Crown.

40    At first instance, Starke J made an order requiring the plaintiff to provide security for costs. That order was set aside on appeal by the Full Court of the High Court of Australia (Latham CJ, Rich, Dixon and McTiernan JJ). Latham CJ at page 180 stated:

In this case the Collector really initiated legal process by giving a notice under sec.207 which would result in the exclusion of any right of the plaintiff unless the plaintiff himself took legal proceedings. If the Collector had not acted under sec. 207, it would not have been necessary for the plaintiff, in order to prevent the extinction of his right, to take any proceedings. If, no notice having been given, he took proceedings in conversion or detinue, he would be in the same position as any plaintiff who comes into the jurisdiction to complain of an act which he alleges to be wrongful. But, as the Collector has given him a notice under sec. 207, he is, in effect, forced into legal proceedings, not merely to enforce his claim, but to prevent his claim from being extinguished. He is therefore really in the position of a defendant.

41    Dixon J stated at pages 185-186:

It appears to me that the Collector is the actor. The notice is a step taken by him directed at obtaining a condemnation. It is a statutory substitute for judicial proceedings by the Crown against the goods. Its effect is to cast the onus of taking proceedings upon the owner or supposed owner.

42    A similar approach has been taken in some cases where a party has brought an action to set aside a statutory demand served under the Corporations Act 2001 (Cth) in circumstances where that party is in effect compelled to seek to set aside the statutory demand lest it suffer the consequences that flow from the service of such a demand.

43    Whilst it is necessary to consider substance rather than form, the question does not reduce to a consideration of who is “attacking” and who is “defending” at a commercial level. The relative positions of the parties are to be considered by reference to the commencement of proceedings, as is clear from the passages from the judgments of Latham CJ and Dixon J in Willey extracted above at paragraphs [40] and [41] above. This distinction was explained by Mossop J in Atarashii Stone Pty Ltd v Granite Transformations Ltd (No 3) [2017] ACTSC 198 at [15]-[19]:

[15]    The plaintiff relied upon the decision in Willey and subsequent cases to support the proposition that because the defendant was in a commercial sense the aggressor by terminating the franchise agreement, the plaintiff, for the purposes of this application, should be characterised as being effectively in the position of a defendant.  The decision in Willey was relied upon by Blackburn J in Re: Travelodge Australia (1978) 21 ACTR 17. It was also relied upon in Amalgamated Mining Services v Warman International Ltd (1988) 19 FCR 324 (‘Amalgamated Mining’). 

[16]    In each of these cases a step had been taken by the defendant which triggered or enlivened a statutory power which compelled, in a legal or commercial sense, the plaintiff to take the proceedings which it did.  In Willey, it was the giving of the notice under s 207 of the Customs Act 1901 (Cth) which would result in the forfeiture of the goods the subject of the action. In Re: Travelodge Australia it was the service of a notice under the company’s ordinance which would have required the respondent to acquire the applicant’s stock.  In Amalgamated Mining it was the assertion of breaches of copyright against a third party which was offering to supply the applicant’s parts for the respondent’s pumps. That gave rise to an entitlement under s 202 of the Copyright Act 1968 (Cth) to bring proceedings to obtain a declaration that threats of breach were unjustifiable. In such proceedings the respondent was statutorily entitled to make a counterclaim for relief for breach of copyright, which the respondent had done.

[17]    An equivalent category of case would also be applications to set aside a statutory demand under the Corporations Act where, because a party is compelled to respond to the statutory process invoked by the defendant, it would be inappropriate to make an award of security for costs. 

[18]    So far as the researches of counsel have disclosed, these decisions have not been applied in cases where there is simply an allegation of a breach of contract.  It is not appropriate on this application to apply the cases more generally so as to ask in the language of Scrutton LJ in Maatschappij voor Fondsenbezit v Shell Transport and Trading Co [1923] 2 KB 166 at 178, ”[w]ho is the attacker and who the defender”. If that was the case, then in any breach of contract case, notwithstanding the form of the action, an inquiry would need to be made having regard to the underlying commercial dealings of which party was appropriately characterised as attacker or defender.

[19]    In this case, although it can be seen that in order to preserve its business the plaintiff was compelled to challenge the termination by the defendant of the franchise, that is not sufficient to put it in the category of case equivalent to that in Willey.

44    In the present case, the applicant has commenced a proceeding in this jurisdiction seeking relief from this Court. The applicant suggests that the respondents are the attacking parties because of their failure to return the applicant’s Deposit. However, to the extent that it may be considered an attack at all (which is doubtful), it is an attack at a commercial level and is insufficient to attract the operation of the principle described in Willey. Put another way, the respondents have not taken any steps by way of initiation of a proceeding whether in fact or in substance (for example, by the service of a statutory notice) which has compelled the applicant to commence this proceeding.

45    The applicant relied upon three decisions of this Court in support of its argument that it is in substance a respondent, namely Rusca Bros Services Pty Ltd v DLaw Pty Ltd, in the matter of Rusca Bros Services Pty Ltd [2019] FCA 562 (Markovic J); Toolgen Incorporated v Fisher [2019] FCA 2158 (Nicholas J); and Energy City Qatar Holding Company v Hubstreet Equipment Pty Ltd [2020] FCA 1033 (Jagot J). None of these decisions advances the applicant’s case or is inconsistent with the analysis of the principles set out above.

46    I also do not accept that the applicant is in substance a respondent who has been forced to bring the proceedings in response to a self-help measure taken by the respondents. No action on behalf of the respondents has compelled the applicant to bring this proceeding.

47    Further, the proceeding brought by the applicant is not limited to a case based on contract but extends to a case based upon allegations of unconscionable conduct in contravention of s 21 of the Australian Consumer Law (in the case of the first respondent) and involvement in such conduct (in the case of the second respondent). The applicant has chosen to open a new front and has included as a party to the proceeding the second respondent who is not a party to the contract. As such, the applicant’s action in commencing this proceeding cannot be characterised as defensive: see Energy City Qatar at [9], citing Visco v Minter [1969] 2 All ER 714 at 716.

48    For the above reasons, I am not satisfied that the applicant should be treated as if it were a respondent for the purposes of the security for costs application.

The conduct of the respondents following the termination of the contract

49    The applicant identified a catalogue of suggested misconduct by the respondents which it submitted should count against the respondents in the exercise of the Court’s discretion, whether generally or by dint of s 11(b) of the Civil Disputes Resolution Act 2011 (Cth).

50    The first instance is the issue of the Notice in circumstances where the Notice purported to rely upon the terms of the MOU and the Ausland Terms and Conditions and where the MOU did not expressly permit the service of any notice. As noted above, the MOU is not in evidence. In any event, this submission appears to rest on the implicit premise that a notice of breach can only be issued where a contract expressly provides for the provision of such notices. I do not accept that such a premise is sound.

51    The second instance is that the respondents “obstructed every effort” made by the applicant to resolve the dispute in a cheap, quick and just manner. The example provided by the applicant is that the Ausland Terms and Conditions were not provided to the applicant until November 2021, some three years after the MOU was entered into, and only after service of a Notice to Produce served under r 20.31(1) of the Rules.

52    There is evidence of a request by the applicant’s solicitor to the respondents’ solicitor on 3 June 2021 for a copy of the Ausland Terms and Conditions and of a response dated 8 July 2021 indicating that the respondents’ solicitor had been instructed not to engage in further substantive correspondence and that he had instructions to accept service on behalf of the respondents. Thereafter, the proceeding was commenced on 14 October 2021; on 11 November 2021, the respondents’ Defence was served, which referred to the Ausland Terms and Conditions forming part of the contract; on 16 November 2021, the applicant served a Notice to Produce seeking production of the Ausland Terms and Conditions; and on 18 November 2021, that Notice to Produce was answered. This chronology does not suggest any relevant delinquency on the part of the respondents. It appears that the initial request was not made until June 2021. That request was met with a terse response in circumstances where there had apparently already been extensive discussions, and an indication that service would be accepted. Once the proceeding was commenced and a request made it was answered promptly.

53    The third instance is the failure of the respondents to accept an offer made by the applicant on 6 July 2021 to settle the dispute between the parties on the basis of a payment of $125,000 by the respondents to the applicant, inclusive of costs (which costs the offer noted were modest because litigation had yet to be commenced). The applicant submitted that this offer, if accepted, would have provided the respondents with a financial advantage, namely the difference between the amount paid by the applicant to the first respondent (€100,000; or approximately $155,000) and $125,000 (a difference of approximately $30,000), in circumstances where the Defence does not plead that the first respondent suffered a loss because of the applicant’s breach of contract.

54    It is not appropriate to seek to determine the value of such an offer and whether the respondents ought to have accepted it at this stage of the proceedings, particularly as the applicant’s argument depends upon the proposition that the first respondent is required to prove loss and that question is a question (among others) for the final hearing. Further, another way of looking at the offer is that it required the first respondent to forego $125,000 that, on its case, it is entitled to.

55    The fourth instance is said to be that after proceedings were commenced the respondents instructed their solicitors not to engage in meaningful communication with the applicant’s solicitor. The evidence relied upon in support of this submission is the Genuine Steps Statements filed by the applicant and the respondents. Those statements set out the respective positions of the parties as to their communications prior to the commencement of the proceeding, including an indication by the respondents that they did not wish to engage further with the applicant. The respondents’ position as recorded in the correspondence that is in evidence is that there had already been extensive discussions between the parties.

56    It is not possible on the basis of the Genuine Steps Statements and in the absence of all of the underlying correspondence referred to therein to make any determination to the effect that the respondents behaved unreasonably prior to the commencement of the proceeding, much less a serious finding of the nature sought by the applicant that the respondents are in breach of their obligations pursuant to s 37N of the Act to conduct the proceeding consistently with the overarching purpose identified in s 37M of the Act. A further impediment to the applicant’s submission is that it purports to be a submission as to the conduct of the respondents after proceedings were commenced but the Genuine Steps Statements relate only to conduct before that occurred.

57    As part of this submission as to suggested contraventions of s 37N, the applicant submitted that the Court should infer that:

(1)    the respondents sought to take advantage of the difficulties that the applicant would face as a non-resident entity, including an application for security for costs, in an attempt to force the applicant to capitulate and that the correspondence demonstrates an element of threat and oppression in foreshadowing the making of the application for security for costs; and

(2)    “threats” made by the respondents to file a cross-claim for damages were made in terrorem because no cross-claim has been filed.

58    I am not satisfied that there is evidence capable of supporting the inferences and findings sought by the applicant.

59    For the reasons set out above, I am not satisfied that any of the suggested conduct on the part of the respondents is of significance in the exercise of the discretion.

Absence of evidence as to the impecuniosity of the applicant

60    There is no evidence suggesting that the applicant is impecunious. This is a factor relevant to the exercise of the discretion, as is the evidence that the applicant has been trading since 2007. However, it is common ground that none of the applicant’s assets are within Australia with the consequence that this factor is of considerably lesser significance than it would have been if the applicant had assets in Australia sufficient to satisfy any costs order that might be made in favour of the respondents.

Enforceability of a costs order in The Netherlands

61    It is common ground that a judgment of this Court may be recognised in The Netherlands if The Netherlands court is satisfied of various criteria.

62    The parties are at issue as to the likely cost of obtaining recognition of a judgment of this Court in The Netherlands. The applicant adduced evidence that its Import and Export Manager had been informed by (unidentified) lawyers in The Netherlands that the cost of registration would be in the order $11,600.

63    In contrast, the evidence adduced by the respondents from the opinion of Mr Yuri Wehrmeijer, a partner of Eversheds Sutherland in The Netherlands, specialising in litigation and dispute management, is that the costs could be in the order of $56,000 although the costs could be considerably less (and perhaps less than half of that estimate), depending on how straightforward the matter is and the attitude taken by the applicant, and in particular whether the applicant seeks to defend the application for recognition of the judgment.

64    The availability of the recognition of a judgment of this Court in The Netherlands is a factor to be weighed in the exercise of the discretion.

65    The cost of obtaining such recognition will likely be at least $11,600. It may be higher, depending upon the attitude taken by the applicant and whether it seeks to obstruct the process of obtaining such recognition. There is no evidence as to the approach that the applicant will take. Its Import and Export Manager does not address this point and no undertaking has been proffered on behalf of the applicant to consent to the recognition and thereby minimise potential costs.

66    In addition to the costs of securing the recognition of a judgment of this Court in The Netherlands, it must be recognised that the process of doing so will involve time and uncertainty and potentially complexity: see Cellcrete at [26]; Vasiliades at [72].

Conclusion as to the exercise of the discretion

67    Having considered the various factors which inform the exercise of the discretion, I am satisfied that the applicant should provide security for costs in the amount sought by the respondents. That is so for the following reasons.

68    First, the applicant is a Netherlands entity with no assets in Australia. Thus, if the respondents succeed in the proceeding and obtain an order for costs in their favour, there will be no fund in Australia against which they can enforce that costs order, and any enforcement will need to occur outside Australia. The fact that the applicant is a Netherlands resident entity with no assets in Australia is a significant factor that militates toward an order for the provision of security: Vasiliades at [75], [90] and [108].

69    Secondly, whilst it would be open to the respondents to seek recognition of such a costs order in The Netherlands that would involve time, uncertainty and further costs. Such costs would likely be at least $11,600 and may be significantly more, if the application for recognition were to be opposed by the applicant. The applicant has not indicated whether it will consent to or oppose such an application.

70    Thirdly, there is no suggestion that the applicant is unable to provide the security or that an order for its provision would stultify the proceeding.

71    Fourthly, the absence of evidence of the impecuniosity of the applicant is a matter of little weight, for the reasons set out at paragraph [60] above.

72    Fifthly, I do not accept that the applicant should be treated as being in effect a respondent, for the reasons discussed at paragraphs [37] to [48] above. If I had reached a conclusion that the applicant was in substance a respondent this would have been a factor to be weighed in the exercise of the discretion (see Vasiliades at [86]-[89]), but I would not have reached a different conclusion in view of the matters set out in paragraphs [68] to [71] above.

73    Finally, whilst misconduct by the respondents could be relevant to the exercise of the discretion, I am not satisfied that any of the allegations of misconduct have been proven and thus the suggested misconduct of the respondents is not of significance to the exercise of the discretion.

74    Taking all of the above matters into account, the applicant should be required to provide security for the respondents’ costs.

QUANTUM

75    As noted above, the respondents’ solicitor included an estimate of anticipated costs in the 18 November 2021 letter. That estimate was calculated as follows:

76    In his affidavit evidence, the respondents’ solicitor, a practitioner of 40 years’ experience, explained the basis on which that estimate was made. There was neither contrary evidence nor any challenge to the evidence of the respondents’ solicitor. I accept that evidence as a conservative estimate of the costs likely to be incurred by the respondents in this proceeding.

77    The applicant submitted that if security were to be ordered, it should be limited to an amount referable to the costs of obtaining recognition of a judgment of this Court in The Netherlands.

78    The applicant placed reliance upon the decision of Logan J in Donoghue v Commissioner of Taxation [2018] FCA 468, where his Honour made an order for security for costs in an amount referable to an estimate of the costs of registering a judgment in the United Kingdom (or at least exploring with reputable practitioners in the United Kingdom whether such a course was possible).

79    I acknowledge that an order for security in an amount referable to the costs of obtaining recognition of a judgment of this Court is an available alternative to an order for security for the costs of the proceeding generally. A similar approach was taken by Morling J in Barton v Minister for Foreign Affairs (1984) 2 FCR 463.

80    However, that is not an appropriate order in the circumstances of this case. The respondents should have the benefit of security for their estimated costs and there is no reason, in my view, to reduce that amount and to expose the respondents to the delay and uncertainty involved in the process of obtaining recognition of a judgment of this Court in The Netherlands. In this regard, I note that in each of Barton and Donoghue there was a different factual matrix, including a concern that the proceeding might have been stultified if security in a higher amount had been ordered. As noted above, that is not so in the present case.

CONCLUSION

81    There should be an order that the applicant provide security for costs in the sum of $73,049, together with the ancillary orders sought by the respondents in their interlocutory application. As the applicant has unsuccessfully resisted the respondents’ interlocutory application, my view, subject to any successful application for a different costs order, is that it should pay the respondents’ costs of that application.

Associate:    

Dated:    12 April 2022