Civil Procedure

KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189

Travis
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Facts

  • This was an interlocutory application for security for costs.
  • Meltglow Pty Ltd (Meltglow) was “beneficially owned” by a Chinese cable manufacturing company called Guilin Electric Wire Factory. The second respondent, which was initially called Knotpine Pty Ltd, was the vehicle through which KP Cable Investments Pty Ltd (KP Cable) and Meltglow conducted the joint venture business.
  • The parties entered into a joint venture to purchase business operations and assets of cable manufacturing company then in receivership, Electra Cables (Aust) Pty Ltd (Electra).
  • The second respondent entered into a contract to purchase Electra.
  • The second respondent obtained money to purchase Electra from shareholder funds and from Meltglow’s bank.
  • The second respondent conducted the joint venture business after its purchase and both KP Cable and Meltglow provided management services to second respondent for which they were paid management fees.
  • Problems soon arose in joint ventures and first respondent sought to rescind on grounds that they had been induced to enter joint venture agreement in reliance on applicant’s misleading and deceptive conduct within meaning of the (then) Trade Practices Act 1974 (Cth) s 52.
  • KP Cable did not accept the rescission of the contract as valid.
  • Meltglow brought an application against KP Cable for security of costs pending final hearing.
  • KP Cable while impecunious, resisted the application.  The directors and shareholders offered to provide guarantees and charges to account for the security.

Held

  • The Court ordered security for cost be provided by KP Cable.
  • Beazley J identified a number of well-established guidelines that a court will typically take into account when determining an application for security for costs:
    • The application should be brought promptly;
    • The strength and bona fides of the applicant’s case are relevant considerations. As a general rule, where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the court should proceed on the basis that the claim is bona fide with a reasonable prospect of success;
    • Whether the applicant’s impecuniosity was caused by the respondent’s conduct subject of the claim;
    • Whether the respondent’s application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate. If an order for security will act to stultify the applicant’s claim, whilst not definitive, that is a powerful factor in the exercise of the discretion to refuse an order;
    • Whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security;
    • Whether persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking; and
    • Security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not to be made against parties who are defending themselves and thus forced to litigate.

Full Text

The full text is available here: https://jade.io/j/?a=outline&id=152895


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