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H Rolf Engineering Pty Ltd v ANI Corporation Ltd

 

[2003] QSC 283

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

McMURDO J

No 646 of 2002

H ROLF ENGINEERING (ACN 068 939 579)

Applicant/Defendant

and

 

ANI CORPORATION LTD (ACN 000 421 358) TRADING AS ANI ENGINEERING

Respondent/Plaintiff

BRISBANE

DATE 21/07/2003

JUDGMENT

HIS HONOUR: This is an application for security for costs made in reliance upon section 1335 of the Corporations Act and also chapter 17 of the Rules.

The plaintiff's claim is for an amount of approximately $835,000 arising out of business between the plaintiff and the defendant in the building industry. The plaintiff is a small family company owned by Mr and Mrs Rolf. It has paid up capital of $2.00.

Under section 1335 there is power to order security for costs if it appears by credible testimony that there is reason to believe that the Corporation will be unable to pay the costs of the defendant if successful in its defence.

In the present case the evidence well demonstrates that there is reason to so believe and, moreover, it is fairly conceded by counsel for the respondent/plaintiff that that is so.

Indeed, the response to this application includes a submission supported by an affidavit sworn by Mr Rolf that the order for security which is sought would stifle the proceedings because of the plaintiff's relatively poor financial position.

Accordingly there is power to make an order for security in these circumstances and I now turn to the matters which are relevant in this case to the exercise of my discretion as to whether security should be ordered.

The potentially relevant discretionary factors in applications such as this are indicated without necessarily being comprehensively defined in rule 672. The first of the matters mentioned in that rule is for reasons I will later mention critical to the outcome of this application, i.e. whether those standing behind the proceeding have the means of providing security and whether they are prepared to do so.

It is convenient that I first discuss some other discretionary factors which were the subject of debate. One of those was the merits of the plaintiff's claim so far as they can be assessed at a comparatively early stage of the case.

The applicant/defendant accepts that the plaintiff has at least a pleadable case. The respondent/plaintiff's solicitor has sworn an affidavit asserting that the plaintiff has strong prospects of success and further asserting that his view is fortified by an opinion to that effect from counsel who is not identified. Little weight with respect should be given to such assertions.

I do not mean to cast doubt upon the competence of that solicitor or the counsel who gave the advice but of course without knowing a great deal about the case and the content of the instructions to counsel or the facts which the solicitor and counsel have assumed in reaching their views as to prospects there is no particular significance for present purposes in their holding the views about the strength of the plaintiff's case which are asserted in that affidavit.

The plaintiff's case may or may not be a strong one but I cannot assess that today. Many cases are commenced by plaintiffs in the strong belief that they will succeed, although a contrary outcome often eventuates.

Correspondingly, the plaintiff does not assert that the defendant has no prospects of being successful in the ultimate outcome.

The acknowledged poor financial position of the applicant is said to be attributable to the conduct complained of in these proceedings. I give some weight to the evidence of Mr Rolf in that respect but it, like the plaintiff's ultimate prospects of success, is not a matter which can be assessed at this stage with any reliability, let alone precision.

The applicant/plaintiff complains of some delay in the making of this application for security. The case has been going now for about 18 months but at least some of that time is explained by amendments to the plaintiff's case or the provision by the particulars sought by the defendant.

It was not until February this year that there was a defence filed. It seems to me to have been a proper course for the defendant to have waited until its defence was filed before making this application for otherwise the plaintiff could have complained that the defendant should not be given the benefit of security for costs before putting its case on the table.

Nevertheless it is some months since that defence was filed and from this position the expiry of that time is not entirely explained. The relevance of delay, however, is in any prejudice it occasions to the party in the position of the plaintiff.

There is no evidence on this application which goes to the existence of such prejudice. In particular there is no evidence as to how much money has been spent on the case by the plaintiff between any time at which the plaintiff says the application should have been brought and the present time.

I now return to the issue mentioned earlier which is the absence of any evidence as to the attitude or means of those standing behind the plaintiff company in relation to this application for security.

Although Mr Rolf's affidavit swears to the company's inability to provide security, he says nothing at all as to his own position or that of Mrs Rolf. This is a very substantial claim in which success for the plaintiff would appear to have a fairly immediate impact for its shareholders, Mr and Mrs Rolf.

The company is not said to be a trustee company. Absent evidence that those persons are without the means to provide security, there seems to me to be a situation where those who would stand to benefit from a successful prosecution of this claim, nevertheless are not prepared to bear any of the risks of the case being unsuccessful.

The point was discussed by the Full Court of the Federal Court in Bell Wholesale Co v Gates Export Corporations (1994) 2 FCR 1 at 4 where it was said in the judgment of the Court “in our opinion a Court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter. It is an essential part of the case for the company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those and the litigation will benefit and prove the necessary facts.” See also P S Challoram and Co Ltd v China Ocean Shopping Co (1991) 102 ALR 321 at 323 per McHugh, J.

Accordingly upon the evidence here it does not at all appear to me that the proceedings will be stifled if security is ordered.

On the other hand it seems to be especially clear in this case that if security is not granted and the defendant is ultimately successful that it will be unable to recover its costs from the plaintiff. It therefore seems to me to be an appropriate case for the order of the provision of security for costs. The remaining questions then are as to the terms of that security including the amount of the security to be provided.

There is a very substantial difference in opinion between the respective solicitors for these parties as to the likely costs of the defendant. Mr Ritchie, the defendant's solicitor, estimates that his client's costs upon a standard basis through to the end of the case including the costs of any assessment of the costs of the case would be of the order of $107,000. That is upon the premise of the trial taking five days. On the plaintiff's side the estimate is of the order of $40,000 upon the basis that it is a three day case. That difference in view as to the likely duration of the trial only partially explains the substantial gap in the estimates. However upon reading the amended statement of claim it seems to me that this case has at least a substantial potential to go longer than three days and indeed so far as these matters can be assessed at such an early stage, I have to say that it has the potential to go longer than five days.

There are obviously factual issues in relation to what might be described as liability matters and in particular whether an oral contract as the plaintiff claims was made. But there is also a substantial potential for factual dispute as to matters of quantum.

All other things being equal, the defendant's solicitor would be in a better position to estimate the likely costs of the defence of the case than the plaintiff's solicitor which indicates that more weight should be given to Mr Ritchie's evidence upon that matter.

Mr Wellner's evidence so far as his own opinion is concerned is very shortly stated and seems to be heavily reliant upon the estimate of another person said to be a barrister and costs assessor who has not himself sworn an affidavit.

Mr Ritchie's estimate of course is just that. It is a forecast made as best a solicitor can fairly early in the course of a case. Inevitably such a forecast might be exceeded or in some cases be higher than the costs ultimately incurred especially if the matter is settled prior to trial.

At one point it seemed to me to be appropriate to grant security but in some amount which discounted Mr Ritchie's estimate, not because of some particular doubt about his evidence but because of the existence of contingencies which could affect the ultimate cost burden for the defendant.

However if the Court were to award security in an amount of say about $70,000 rather than $100,000 at this stage, there is then a greater potential for further costs to be incurred by both parties in another application for security having to be made. In addition it was not submitted that in effect security could be provided that some amount such as 40, 50 or 70 thousand dollars although not the amount of $100,000. In other words it was not said that some amount of security over the sum of $40,000 would present a particular difficulty for the plaintiff's side.

In the circumstances I think that justice would be served if security was ordered in the sum of $100,000. Mr Ritchie's estimate is for a total of $107,400. That includes $3,600 for the ultimate taxation or assessment of costs. After that amount is deducted something less than $104,000 remains and I think that the defendant is sufficiently protected by an order for security in the sum of $100,000.

The order should specifically provide that the defendant is at liberty to apply for further security at any time throughout the proceeding.

I shall therefore amend the draft order given to me by Mr Sullivan for the applicant so that it provides for security in the sum of $100,000 in paragraph 1. I am not prepared to make an order in terms of paragraph 5 of that draft which reads, “If the plaintiff should fail to provide security for costs as ordered then these proceedings shall be dismissed.” And I have deleted that paragraph.

HIS HONOUR: Mr Sullivan's draft also provided by paragraph 3 that security was to be provided within 28 days from the date of the order. Mr McLean William who appears for the plaintiff submitted that period of 28 days should be instead six months from the date of this order. That seems to me to be too long.

Mr Sullivan was prepared to give way to the point of two months but it seems to me that in the circumstances of this case that the plaintiff should be given three months from the date of this order to provide security. And I shall alter Mr Sullivan's draft in paragraph 3 to that effect.

The proceedings of course will be stayed until security is provided by paragraph 4 of this draft.

As to the costs of today's application they should follow the event and there should be an order for the plaintiff to pay them as per Mr Sullivan's draft.

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Editorial Notes

  • Published Case Name:

    H Rolf Engineering Pty Ltd v ANI Corporation Ltd

  • Shortened Case Name:

    H Rolf Engineering Pty Ltd v ANI Corporation Ltd

  • MNC:

    [2003] QSC 283

  • Court:

    QSC

  • Judge(s):

    McMurdo J

  • Date:

    21 Jul 2003

Litigation History

No Litigation History

Appeal Status

No Status