Papua New Guinea Law Reports - 1992
[1992] PNGLR 557
N1057
PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]
OSPREY INDUSTRIES
V
HALLAM
Waigani
Salika J
1 April 1992
COSTS - Security for costs - Where plaintiff company may be unable to pay costs of the defendant if defendant is successful in defence - Court's discretion whether or not to order security for costs - Companies Act Ch 146 s 395(1).
COSTS - Security for costs - Amount of security within court's discretion.
Facts
The plaintiff is a company incorporated in Papua New Guinea and has taken out court proceedings against the defendants. At the time of this application the trial was only partly heard and could go on for another 5 to 7 days. The defendant/applicants had already incurred over K38,000.00 in costs, of which K14,000.00 had been paid. They were of the view that the plaintiff company will be unable to meet their legal costs if they were successful in their defence and applied by way of notice of motion under s 395(1) Companies Act Ch 146, for orders inter alia, that the plaintiff forthwith deposit with the Registrar of the National Court the sum of K20,000.00 as security for costs. Section 395(1) reads:
"Where a company is plaintiff in an action or other legal proceedings, a court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay costs of the defendant if he is successful in his defence, require sufficient security to be given for the costs, and stay all proceedings until the security is given".
Held
1.       If it appears by credible testimony that there is reason to believe that the plaintiff company will not pay costs of the defendants if the defendants were successful in defence, the Court may require sufficient security to be given for costs and stay all proceedings until the security is given. Per Salika J at p 559: "The Court must have credible testimony before it in order to give such order for security for costs".
2.       Even if there is credible testimony before the Court to the effect that the plaintiff will be unable to pay costs of the defendants if the defendants are successful in their defence, the Court still has the ultimate discretion whether to grant or not to grant orders for sufficient security for costs under s 395(1) of the Companies Act Ch 146. Lindsay Parkinson Co. Ltd v Triplan Ltd [1973] QB 609 referred to.
In exercising the Court's discretion, the following factors should be considered:
1.       whether there has been delay in making the application. (Loreva Pty Ltd v Lefa Associated Agencies Pty Ltd (1982) 7 ACLR 164)
2.       the bona fides of the plaintiff's claim
3.       nullification of proceedings
4.       whether the defendants have a cross-claim.
Having considered the evidence and all the relevant factors as to whether or not to exercise the Court's discretion to order security for costs, an order for further security of costs was made.
3.       The amount of security is a discretionary matter for the Court, having regard to the circumstances of the case and in the light of s 395(1) of the Companies Act Ch 146. Reynolds v Walcott [1985] PNGLR 316 referred to. 
4.       In the circumstances of this case, K20,000.00 is an amount which would be sufficient security. Since K3,000.00 was previously awarded by Amet J, the Court awarded a further K17,000.00.
Cases Cited
Papua New Guinea cases cited
Reynolds v Walcott [1985] PNGLR 316.
Other cases cited
Lindsay Parkinson Co Ltd v Triplan Ltd [1973] QB 609.
Loreva Pty Ltd v CEFA Associated Agencies Pty Ltd (1982) 7 ACLR 164.
Counsel
J Bray, for the applicants.
E Anderson, for the respondents.
1 April 1992
SALIKA J: This is an application for security for costs by way of a notice of motion. The applicants/defendants move the court for orders that:
1.       the plaintiff forthwith deposit with the Registrar of the National Court the sum of K20,000.00, being security for costs;
2.       the time for entry of the order be abridged to the time of entry by the Registrar, which shall take place forthwith; and
3.       such other orders as the court deems fit?
The application is based on s 395(1) of the Companies Act Ch 146. Section 395(1) says:
"395(1)         Where a company is plaintiff is an action or other legal proceedings, a court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay costs of the defendant if he is successful in his defence, require sufficient security to be given for the costs, and stay all proceedings until the security is given."
In this case, it is not disputed that the plaintiff in this proceedings is a company incorporated in Papua New Guinea. It is involved in this action against the defendants.
This court is the court that has been hearing the action up to this stage and has jurisdiction over the matter. Therefore, this court may, if it appears by credible testimony that there is reason to believe that the plaintiff company will not pay costs of the defendants, if they are successful in his defence, require sufficient security for costs. This means that before an order for security for costs is awarded or given the court must have credible testimony before it in order to give such order for security for costs. However, even if it has credible testimony before it that the plaintiff will be unable to pay costs of successful defendants, the Court still has the ultimate discretion whether or not to grant orders for sufficient security for costs under s 395(1) of the Companies Act.
In this case, I have heard evidence from one of the applicants/defendants, Mr Murray Hallam. His evidence, in essence, has been that the plaintiff company will be unable to meet his legal costs if he is successful in his defence. He says that he already has incurred a large amount of expenses and that his legal costs for the remainder of the trial are expected to be another K9,000.00. So far he has incurred over K38,000.00, of which he has paid some K14,000.00.
This trial is part heard before me and to be continued this month. The issues involved are by no means easy. They are complex. This trial could go on for another 5 to 7 working days.
I also bear in mind that this application is really a supplementary application. A prior application for security for costs was made sometime last year before Amet J, who awarded K3,000.00 as security for costs.
The respondent/plaintiff submits, if I understand correctly, that the K3,000.00 awarded by Amet J, covers security for costs for the first K38,000.00 and that this application is only in relation to the extra anticipated K9,000.00 that is going to be incurred by the applicants/defendants. Therefore, the respondent/plaintiff argues that, if any award is to be given, it will only be for the extra K9,000.00.
I have before me evidence to the effect that the plaintiff company currently has a K200,000.00 overdraft facility with the Australian and New Zealand Bank and that it had been lower than that earlier. This is conceded by the plaintiff company manager, Mr Child.
There is also evidence before me that the plaintiff's costs in this proceedings will be met by the directors of the plaintiff personally. There is also evidence before me that the K200,000.00 overdraft facility with the bank is guaranteed by the plaintiff's directors personally. This evidence is conceded by the plaintiff's general manager. There is no such undertaking by the directors of the plaintiff to guarantee the payment of the applicants/defendants' costs if the defendants are successful in their defence. This, I am sure, would be a real concern to the defendants.
The plaintiff says it is currently operating a profitable business and that it has substantial or sufficient assets to meet the legal costs of the defendants. The plaintiff further says it is currently carrying out jobs in excess of K60,000.00 and that it will be engaged in a K100,000.00 job soon and other minor ones totalling to over K200,000.00.
From all the evidence I have before me, it is clear to me that the plaintiff company is just managing to hold its head above the water, so to speak. Like any other company, it has its problems. The evidence I have before me of the financial situation of the plaintiff is from both the defendant and the plaintiff. It is credible testimony. From all the evidence, I find that the plaintiff will not be able to pay legal costs of the defendants if the defendants are successful in their defence. The defendants' legal costs are likely to be in excess of K40,000.00.
At this stage, the court still has a discretion whether or not to award security for costs. See Lindsay Parkinson Co Ltd v Triplan Ltd [1973] QB 609. In considering whether or not to order security for costs, the following factors should be considered:
1.       delay in making the application
2.       bona fides of the plaintiff's claim
3.       impecuniosity contributed by the defendants
4.       nullification of proceedings
5.       existence of a cross claim
Delay in making the application
It has been held in other jurisdictions that a court should not generally exercise its discretion in favour of an applicant for security if, by his delay, the other party has been forced to incur expenses in the litigation, Loreva Pty Ltd v CEFA Associated Agencies Pty Ltd (1982) ACLR 164.
In this case, the matter was set for trial in August 1991 but was adjourned because there was no judge to hear the matter. Then the trial commenced on 4 November 1991 and continued for 5 days before being adjourned. It is now part heard. On 14 October 1991, a prior application for security for costs was made and K3,000.00 was awarded. This trial was originally estimated to take 5 working days, and that has been surpassed. It is expected to take another 5 or, perhaps, more days. The delay in the proceedings is that the court has not had sitting time to hear this matter. The applicant in this case has not allowed or permitted the expenses to be incurred by the plaintiff.
BONA FIDES OF THE PLAINTIFF'S CLAIM
The pleadings in this case reveal a substantial claim which is bona fide, however, the defendants have also a counter claim which is substantial and is also bona fide.
NULLIFICATION OF PROCEEDINGS
This matter is now part heard, to be continued this month. The plaintiff has called a couple of witnesses so far in the proceedings. It is believed the plaintiff has some more witnesses to call and then the defendants will have their witnesses to call. The plaintiff's main witness has given evidence. There is no evidence that the making of the order for security will nullify the proceedings.
THE CROSS-CLAIM
The defendants have a substantial cross-claim in this case.
Having considered the relevant factors as to whether or not to exercise the court's discretion to order security for costs, I am of the view that, considering all the circumstances of the case, I will exercise the court's discretion to award a further security for costs. The original order by Amet J, was made on the basis that the trial was to go from 4 to 8 November. The court did sit on those dates but exceeded beyond those days. I think it is only fair that, because the trial is likely to go another week or more, another amount for security for costs be added to the current one. In other words, circumstances have changed and there is a need to review the original security. I, accordingly, award security for costs to the applicants.
Having made the order to award security for costs, I have to consider how much I should award. The amount to be awarded is a discretionary matter for the court, having regard to the circumstances of the case. See Reynolds v Walcott [1985] PNGLR 316. Section 395(1) of the Companies Act says that sufficient security should be given. In this case, the costs of the proceedings is likely to be in excess of K40,000.00. That is the evidence from Murray Hallam per his print out bill of costs dated 30.3.92. What is sufficient security then for costs, an amount in excess of K40,000. The English have fixed the amount at about two-thirds party and party costs, but there is no hard and fast rule. The courts here have not established any hard and fast rule either.
The amount is, in my view, a matter of discretion for the court, having regard to the circumstances of the case and having regard to what might amount to sufficient security as envisaged by s 395(1) of the Companies Act.
In this case I consider that K20,000.00 is an amount which would be sufficient security. However, because K3,000.00 has already been ordered by another of my brother Judges, I will award K17,000.00 to add onto the K3,000.00 to make it K20,000.00.
I order the plaintiff to deposit a further K17,000.00 as security with the Registrar of the National Court and order that his proceedings be stayed until K17,000.00 is paid.
Lawyers for applicant: Kirkes.
Lawyers for respondent: Gadens Ridgeway.