case_text: those circumstances, I am not satisfied that Swanline has discharged its onus of satisfying the Court that it is 'just and convenient' for the trial to be split in the manner sought; see Reading Pty Limited v Australian Mutual Provident Society and Another (1999) 217 ALR 495 at [9]-[10]. Apart from the difficulty caused by the absence of a factual foundation for the resolution to the proposed separate questions, there are other issues that will need to be addressed if Swanline succeeds on the separate questions. Any potential saving of time and cost may be minimal. In any event, if I am overcautious in refusing the motion for determination of the proposed separate questions, such caution is justified by the fact that the pleadings in the proceeding are not finalised. Swanline has foreshadowed further amendments to its statement of claim. Until the pleadings are complete, it is difficult to assess the true utility of seeking to split the trial. However, as things currently stand, in the absence of a firm factual foundation for the resolution of the proposed separate issues, I consider that Swanline's application pursuant to O 29 r 2 should be dismissed with costs. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marshall. Associate: Dated: 9 October 2006 Counsel for the Applicant: Mr G Rabe Solicitor for the Applicant: Williams Ellison Pty Ltd Counsel for the Respondents: Ms Cahill Solicitor for the Respondents: Ebsworth & Ebsworth Date of Hearing: 5th October 2006 Date of Judgment: 5th October 2006 AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback URL: http://www.austlii.edu.au/au/cases/cth/FCA/2006/1318.html


case_outcome: cited

case_text: That is not confined to persons who control the company, but extends to those who will have the benefit of the proceedings if they succeed: Microcorp Pty Ltd v Terran Computers Pty Ltd (unreported, 26 June 1992, Northrop J); Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 1 FCR 311. In Caruso , Toohey J at 314 considered that it was reasonable that the two major and arms length creditors be expected to contribute to any security that may be ordered. See also John Arnold's Surf Shop Pty Ltd (In liq) v Heller Factors Pty Ltd (1979) 22 SASR 20; Pacific Acceptance Corp Ltd v Forsyth (No 2) [1967] 2 NSWR 402; Drumdurno Pty Ltd v Braham (1982) 42 ALR 563; Ariss v Express Interiors Pty Ltd (In Liq) [1996] 2 VR 507 at 508; Attorney-General v Transport Control Systems (NZ) Ltd [1982] 2 NZLR 19 at 20; Memutu Pty Ltd v Lissenden (1983) 8 ACLR 364 at 365-366; Reches Pty Ltd v Tadiran Pty Ltd (1998) 85 FCR 514 at 523. 27 Given the extent to which Deumer stands to gain from the proceedings if they are successful, and that the cause of action is apparently the only asset of Cosdean which may enable it to be paid, or to be substantially paid, under its agency agreement with Cosdean, and that in essence it has no real competing external creditors who might participate in any award of damages, I think it is reasonable that Deumer support Cosdean in the prosecution of the claim, or at least that it have the opportunity to do so. It may wish to make its own assessment of Cosdean's prospects of success in the proceedings or of the likely award of any damages, and balance those things against the amount of the further security for costs I have ordered. That is a matter for Cosdean and Deumer. The circumstances are different from those where there are a number of creditors, including small creditors: cf Yandil 3 ACLC 542 at 545; Tullock Ltd v Walker (Unreported, Supreme Court of New South Wales, Yeldham J, 8 December 1976). There is no other evidence of commercial impracticability in Deumer supporting Cosdean in the claim; see Ariss (1996) 2 VR 507 at 515 per Phillips JA.


case_text: That is not confined to persons who control the company, but extends to those who will have the benefit of the proceedings if they succeed: Microcorp Pty Ltd v Terran Computers Pty Ltd (unreported, 26 June 1992, Northrop J); Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 1 FCR 311. In Caruso , Toohey J at 314 considered that it was reasonable that the two major and arms length creditors be expected to contribute to any security that may be ordered. See also John Arnold's Surf Shop Pty Ltd (In liq) v Heller Factors Pty Ltd (1979) 22 SASR 20; Pacific Acceptance Corp Ltd v Forsyth (No 2) [1967] 2 NSWR 402; Drumdurno Pty Ltd v Braham (1982) 42 ALR 563; Ariss v Express Interiors Pty Ltd (In Liq) [1996] 2 VR 507 at 508; Attorney-General v Transport Control Systems (NZ) Ltd [1982] 2 NZLR 19 at 20; Memutu Pty Ltd v Lissenden (1983) 8 ACLR 364 at 365-366; Reches Pty Ltd v Tadiran Pty Ltd (1998) 85 FCR 514 at 523.


case_outcome: considered

case_text: Once the threshold prescribed by s 1335 is satisfied, the discretion as to whether to order security for costs is an unqualified one: Bell Wholesale Co Ltd v Gates Export Corp (1984) 2 FCR 1 at 3; Sir Lindsay Parkinson & Co Ltd v Triplan Ltd [1973] QB 609; Spiel v Commodity Brokers Australia Pty Ltd (In liq) (1983) 35 SASR 294; Ratepayers & Residents Action Association Inc v Auckland City Council [1986] 1 NZLR 746. 25 Those cases reflect the policy underlying s 1335 that security may be ordered where a company appears to be in no position to provide security from its own resources where, in all the circumstances, it is reasonable that the resources of some other person or entity standing behind the company or of some person or entity for whose practical benefit the proceeding is being conducted should provide the security. The privilege of limited liability should not necessarily exclude those standing to benefit from proceedings by that company from having to provide support to it: Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 at 303-304. The approach was conveniently expressed in Bell Wholesale 2 FCR 1 at 4 where the Full Court (Sheppard, Morling and Neaves JJ) said: "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 applicant 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." 28 Cosdean accepts that, where the opposition to an application for security for costs is based upon the assertion that the effect of an order for security for costs will stultify a bona fide claim, the onus is upon the party asserting that effect to prove it: see Idoport Pty Ltd v National Australia Bank [2001] NSWSC 744 at [51] - [52] and [66] per Einstein J; Bell Wholesale 2 FCR 1 at 4; Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 at 583. The last-mentioned case concerned a litigation funder, whose resources were considered to be relevant. Cosdean also accepts that there is no evidence that it has made any approach to Deumer to fund or support the proceedings, or to support any order for security for costs. There is no evidence to demonstrate that Deumer is either unable or unwilling to support Cosdean's action or of any other financial hardship or commercial impracticability in it doing so. 29 Consequently, as I consider for the reasons given that the circumstances of Deumer are properly to be taken into account in considering the applications, it follows that Cosdean has not demonstrated that further orders for security for costs would stultify the proceedings. It may be that Deumer is unable to support the proceedings but that is purely speculation. If it were not prepared to, but had the capacity to do so, in circumstances where it had in effect the first call upon the proceeds of the action to the extent of some $1.8 million, that in itself would be a relevant consideration as to whether to make further orders for security for costs. 30 As noted above, the respondents accept that Cosdean's claim is brought in good faith.


case_outcome: discussed

case_text: In my view, having regard to the nature of the claim and the status of Deumer in relation to Cosdean and its real interest in the outcome of the proceedings, it is reasonable that the circumstances of Deumer should be taken into account on the applications for further security. In BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 at 344, Anderson J adopted a similar approach. In other circumstances, the capacity of shareholders or directors of a limited liability company to support proceedings have been taken into account, as has the capacity of trustees of trading trusts, trust beneficiaries, members of associations, debenture holders, guarantors and appointors of receivers: see Colbran at [14.7] pp 237-238 and the cases cited there. The present circumstances provide simply another illustration of what may be taken into account, in appropriate circumstances, in addressing an application for security for costs against an impecunious corporate litigant.


case_text: Those cases reflect the policy underlying s 1335 that security may be ordered where a company appears to be in no position to provide security from its own resources where, in all the circumstances, it is reasonable that the resources of some other person or entity standing behind the company or of some person or entity for whose practical benefit the proceeding is being conducted should provide the security. The privilege of limited liability should not necessarily exclude those standing to benefit from proceedings by that company from having to provide support to it: Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 at 303-304. The approach was conveniently expressed in Bell Wholesale 2 FCR 1 at 4 where the Full Court (Sheppard, Morling and Neaves JJ) said: "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 applicant 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."


case_title: Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 1 FCR 311


case_title: Drumdurno Pty Ltd v Braham (1982) 42 ALR 563


case_title: John Arnold's Surf Shop Pty Ltd (In liq) v Heller Factors Pty Ltd (1979) 22 SASR 20


case_title: Memutu Pty Ltd v Lissenden (1983) 8 ACLR 364


case_title: Microcorp Pty Ltd v Terran Computers Pty Ltd (unreported, 26 June 1992, Northrop J)


case_text: In my view, it is clear that the Court may do so. There are a number of cases where, in the face of a contention that a security for costs order may stultify an action, the position of unsecured creditors has been taken into account: Pasdale Pty Ltd v Concrete Constructions (1995) 59 FCR 446 per Finn J; P S Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36 ; (1991) 65 ALJR 642; Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542; Newtons Travel Services Pty Ltd v Ansett Transport Industries (Operations) Pty Ltd (1982) 44 ALR 163.


case_title: Pacific Acceptance Corp Ltd v Forsyth (No 2) [1967] 2 NSWR 402


case_title: Pasdale Pty Ltd v Concrete Constructions (1995) 59 FCR 446


case_title: P S Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36 ; (1991) 65 ALJR 642


case_text: Once the threshold prescribed by s 1335 is satisfied, the discretion as to whether to order security for costs is an unqualified one: Bell Wholesale Co Ltd v Gates Export Corp (1984) 2 FCR 1 at 3; Sir Lindsay Parkinson & Co Ltd v Triplan Ltd [1973] QB 609; Spiel v Commodity Brokers Australia Pty Ltd (In liq) (1983) 35 SASR 294; Ratepayers & Residents Action Association Inc v Auckland City Council [1986] 1 NZLR 746.


case_title: Reches Pty Ltd v Tadiran Pty Ltd (1998) 85 FCR 514


case_title: Sir Lindsay Parkinson & Co Ltd v Triplan Ltd [1973] QB 609


case_title: Spiel v Commodity Brokers Australia Pty Ltd (In liq) (1983) 35 SASR 294


case_outcome: distinguished

case_text: Given the extent to which Deumer stands to gain from the proceedings if they are successful, and that the cause of action is apparently the only asset of Cosdean which may enable it to be paid, or to be substantially paid, under its agency agreement with Cosdean, and that in essence it has no real competing external creditors who might participate in any award of damages, I think it is reasonable that Deumer support Cosdean in the prosecution of the claim, or at least that it have the opportunity to do so. It may wish to make its own assessment of Cosdean's prospects of success in the proceedings or of the likely award of any damages, and balance those things against the amount of the further security for costs I have ordered. That is a matter for Cosdean and Deumer. The circumstances are different from those where there are a number of creditors, including small creditors: cf Yandil 3 ACLC 542 at 545; Tullock Ltd v Walker (Unreported, Supreme Court of New South Wales, Yeldham J, 8 December 1976). There is no other evidence of commercial impracticability in Deumer supporting Cosdean in the claim; see Ariss (1996) 2 VR 507 at 515 per Phillips JA.


case_text: In my view, it is clear that the Court may do so. There are a number of cases where, in the face of a contention that a security for costs order may stultify an action, the position of unsecured creditors has been taken into account: Pasdale Pty Ltd v Concrete Constructions (1995) 59 FCR 446 per Finn J; P S Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36 ; (1991) 65 ALJR 642; Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542; Newtons Travel Services Pty Ltd v Ansett Transport Industries (Operations) Pty Ltd (1982) 44 ALR 163. 27 Given the extent to which Deumer stands to gain from the proceedings if they are successful, and that the cause of action is apparently the only asset of Cosdean which may enable it to be paid, or to be substantially paid, under its agency agreement with Cosdean, and that in essence it has no real competing external creditors who might participate in any award of damages, I think it is reasonable that Deumer support Cosdean in the prosecution of the claim, or at least that it have the opportunity to do so. It may wish to make its own assessment of Cosdean's prospects of success in the proceedings or of the likely award of any damages, and balance those things against the amount of the further security for costs I have ordered. That is a matter for Cosdean and Deumer. The circumstances are different from those where there are a number of creditors, including small creditors: cf Yandil 3 ACLC 542 at 545; Tullock Ltd v Walker (Unreported, Supreme Court of New South Wales, Yeldham J, 8 December 1976). There is no other evidence of commercial impracticability in Deumer supporting Cosdean in the claim; see Ariss (1996) 2 VR 507 at 515 per Phillips JA.