MILINGIMBI EDUCATIONAL AND CULTURAL ASSOCIATION INCORPORATED
V   DAVIS	AND ORS

Supreme Court of the Northern Territory of Australia
'\.earney J.

18 and 23 April; 12 October 1990 at Darwin.

ASSOCIATIONS AND CLUBS - whether assimilated to trading corporation for purposes of Rules on security for costs - scope of Rule 62.02(1)(b) - Associations Incorporation Act, s.9(1), Rule 62.02(1)(b) of S.C. Rules

COSTS - principles applicable to award of costs on interlocutory applications - Rule 63.18 of S.C. Rules

COSTS - security for costs - whether incorporated Association assimilated to trading corporation for purposes of Rules on security for costs - pre-conditions to exercise of power in Rule 62.02(1)(b) - nature of discretionary power to order security for costs - relevant factors - Associations Incorporation Act s.9(1), Rule 62.02(1)(b) of
S.C. Rules
COSTS - taxation of costs - when taxation on indemnity basis appropriate - need for special or unusual feature - Rule
63.27 of S.C. Rules

Cases followed:
Bartlett v Barclays Bank Trust Co Ltd (No.2) (1980) Ch.515 Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984)
52 ALR 176
Bowen-Jones v Bowen-Jones (1986) 3 All E.R. 163
Bryan E Fencott and Assoc Pty Ltd v Eretta Pty Ltd (1981) 16
FCR 497
Buckley v Bennett Designs and Constructions Pty Ltd (1974)
1 ACLR 301
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397
Ilat Nominees Ltd v Murragong Nominees Pty Ltd (1980) 48
FLR 385
MA Productions Pty Ltd v Austarama Television Pty Ltd (1982)
7 ACLR 97.
Orison Pty Ltd v Strategic Minerals Corp N.L. (1987) 77 ALR
141
Pearson v Naydler (1977) 1 WLR 899
Sir Lindsay Parkinson and Co Ltd v Triplan Ltd (1923) QB 609 TTE Pty Ltd v Ken Day Pty Ltd (unreported, Martin J, 29 May
1990)
Watkins Ltd-v Ranger Uranium Mines Pty Ltd (1985) 35 NTR 27

Counsel for the Plaintiff: Solicitors for the Plaintiff:
Counsel for the First Defendant: Solicitors for the First
Defendant:

Counsel for the Second and
Third Defendants: Solicitors for the Second and
Third Defendants:

P.B. Bracher, K.A. Parish McCormack & Co.

T.J. Riley Q.C., with him
N.J. Henwood Cridlands
Johns,	J.B. Renew

Solicitor for the Northern Territory

kea90149
IN THE SUPREME COURT
OF THE NORTHERN TERRITORY OF AUSTRALIA

SC No. 259 of 1987

MILINGIMBI EDUCATIONAL AND CULTURAL ASSOCIATION INCORPORATED
Plaintiff

AND:
STEPHEN DAVIS
First Defendant

and
THE MUSEUMS AND ART GALLERIES BOARD
Second Defendant

SC No. 775 of 1989

MILINGIMBI EDUCATIONAL AND CULTURAL ASSOCIATION INCORPORATED
Plaintiff

AND
STEPHEN DAVIS
First Defendant

and
THE MUSEUMS AND ART GALLERIES BOARD
Second Defendant

and
NORTHERN TERRITORY OF AUSTRALIA
Third Defendant

CORAM:	KEARNEY J.

REASONS FOR DECISION

(Delivered 12 October 1990)

[His Honour referred to the applications to be ruled on.  Two of them were that the costs of certain interlocutory applications be taxed early, and on the indemnity basis; and that the plaintiff provide security for costs in proceedings No. 259 of 1987.	This report is confined to the rulings on these applications.]

The applications in relation to the award of costs

The question of early taxation

By its Summons of 12 April 1990 the plaintiff successfully sought:-

to vacate the dates fixed for the hearing and resolution of preliminary issues; and
leave to amend the Statement of Claim.

All three sets of costs awarded against the plaintiff on
18 April were costs in interlocutory applications.	The general rule as to the award of the costs of such an application is twofold.	First, each party bears its own costs unless the Court otherwise orders; see Rule 63.18. Second, costs awarded are not to be taxed until the conclusion of the action, unless the Court considers that they should be taxed at an earlier stage; see Rule
63. 04 (3) (a) and (4).

InTTE Pty Ltd v Ken Day Pty Ltd (unreported, Martin J,
29 May 1990) the general principles now applicable to the award of costs on interlocutory applications were discussed, viz:-

"[Rules 63.04(3) and (4), and· 63.18] make a radical departure from practice relating to costs prior to the commencement of [Order 63 - Costs] on
l February 1988.	Prior to then a party in whose favour an interlocutory order had been made would normally have expected to have an order for his costs of the application.	It was then up to that party as to when the costs were taxed and the amount found due enforced.	Under the current Rules a successful party on an interlocutory application must bear his own costs unless the Court otherwise orders [Rule 63.18], and even when such an order is made may not proceed to taxation and recovery, until the conclusion of the proceedings [Rule 63.04(3)(a)] unless it appears to the Court that the costs ought to be taxed at an earlier stage, and so orders [Rule 63.04(4)].

The policy behind the Rules seems to acknowledge [that] - - at the end of the day it is likely that in the ordinary course of events each side would have obtained and been obliged to comply with [interlocutory orders].		The object of [Rule 63.18] is to discourage unnecessary applications and promote agreement.	It acknowledges that orders for costs may be used oppressively.

Mention has already been made of the radical departure from past practice introduced by these particular Rules.	Such a departure implies a distinct reversal of thinking about costs in interlocutory matters and that leads to the view that there must be something exceptional about the circumstances of the interlocutory application under consideration to lead the Court, in the exercise of its discretion, to make an order as to costs, taxation and payment.

Given the tenor of the Rules, it would not be just to make interlocutory orders for costs, or, if made, to order that they may be taxed earlier than completion of the proceedings, with a view to punishing the unsuccessful party.	To do so may engender a reluctance in parties to properly ventilate their problems during the pre-trial process.	What is required is an approach which seeks to have a successful party reimbursed the expense of interlocutory proceedings which, for example, would have been unnecessary if the other side had acted reasonably; or which are

unnecessarily burdensome; or which are made at a time, such as here, when that party has been 9eprived of the value of the work done in preparation of his case for trial.	In such instances, and the list is not intended to be definitive or complete, it may well be within the Court's discretion to exercise the power to override the principles established by the Rules.

Costs in interlocutory matters no longer follow success.		No order as to costs ought to be made against the unsuccessful party, in the usual run of cases, even if contested, if the grounds of the application or resistance [of that party], as the case ma	be, are reasonable.	However, if such application or resistance	by the unsuccessful party] is without real merit, as if (sic) often the case, the successful party should not have to bear his [own] costs.
As to taxation and payment of interlocutory costs ordered to be paid by one party to another, a just approach to take is to consider whether the successful party ought to have reasonably anticipated interlocutory proceedings of the kind in question.	If so, then he should have anticipated bearing the expense, at least to the conclusion of the proceedings, and not reckoned on having it paid for by the other party.	If, however, the kind of interlocutory application or the number of them could not have been so anticipated, then there may_ be a better case fqr ordering that the successful party's costs be taxed and paid earlier."	(emphasis mine)

I respectfully agree with these general observations; they were made after this application had been argued.

Mr Riley of senior counsel for Davis sought an order under Rule 63.04(4) for the early taxation of the award of costs, on the basis that Davis would otherwise bear the expenses he had incurred in relation to those costs "until this matter can be given a hearing date which may be quite late in the year."	The other defendants adopted Mr Riley's submissions on costs.	Mr Parish of counsel for the plaintiff submitted that the normal situation obtains, and therefore the costs awarded should be taxed at "the

conclusion of the proceeding", in accordance with Rule 63.04(3).	He further submitted that if Davis were to succeed in his application for security for costs he would be adequately protected in any event.

The length of time, simpliciter, during which the party who has been awarded the costs of an interlocutory application may be out-of-pocket in respect thereof, is irrelevant to an application for the early taxation of those costs under Rule 63.04(4).	What should be addressed is: was the relief sought in the interlocutory applications of
12 April of a type which ought to have been reasonably expected?	The applications to vacate the hearing dates
23 - 27 April and 8 - 10 May were filed on 12 April 1990; they were argued on 17 April and determined on 18 April. The hearing dates had been fixed for some 2 months, since
14 February 1990.	The other relief sought in the applications of 12 April was leave to amend the Statement of Claim in proceeding No. 259 of 1987 in a manner which, if granted, would obviate the need for a hearing on the preliminary issue arising under the Limitation Act.	It is clea that ·the applications of•l2 April were brought on very much at the last minute, as far as the hearing date fixtures were concerned, and in the result deprived the defendants of the value of the work they had done in preparation for the trial of the preliminary issues.	I consider it is clear that the defendants could not reasonably have anticipated at such a late stage applications of the type which in fact were made, and conducted themselves accordingly.

Accordingly, I order under Rule 63.04(4) that the defendants may tax their costs of the applications of
12 April 1990 at any time.	[His Honour indicated that costs of the other applications were to be taxed under Rule 63.04(3)(a).]

The question of the basis of the taxation

[His Honour set out the competing submissions and continued:]

Rule 63.25 provides for costs to be taxed either on the standard basis or on the indemnity basis. Generally, costs are taxed on the standard basis; see Rule 63.28(1).
Irrespective of which basis is adopted, the question on taxation when the question is whether the cost of some particular step should be allowed, is whether it would be considered reasonable by a sensible solicitor considering, in the light of his then knowledge, what was reasonable in the interests of his client.	It is where doubts as to reasonableness exist, that the different basis has a marked effect; contrast Rules 63.26 and 63.27.	The authorities show that there must be special circumstances if an order for taxation on the indemnity basis is to be made; see Bowen-Jones v Bowen-Jones (1986) 3 All ER 163 and
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397.	The long-established practice as to costs, stated by
Brightman LJ in Bartlett v Barclays Bank Trust Co Ltd (No.2) (1980) Ch. 515 at p.547, still holds:-

" - - - the usual rule (subject to well-recognised exceptions) in the case of fiduciary, contractual or tortious wrongdoing is that the defendant pays to the plaintiff only party and party [for which now read 'standard'] costs.	It is not, I think, the policy of the Courts in hostile litigation to give the successful party an indemnity against the expense to which he has been put and, therefore, to compensate him for the loss which he has inevitably suffered, save in very special cases."

In Fountain Selected Meats (supra) Woodward J said at p.400:-

"Courts in both the United Kingdom and Australia have long accepted that solicitor and client costs [for which now read 'indemnity costs')	can properly be awarded in appropriate cases where 'there is some special or unusual feature in the case to justify the Court exercising its discretion in that way' (Preston v Preston (1982) 1 All ER 41 at 58)."

There is no evidence of any special or unusual feature in the applications the subject of the costs order, which satisfies me that the defendants will suffer detriment which cannot be cured by an award of costs on the standard basis, and by an order for the early taxation of those costs.
Accordingly, I refuse the defendants' application that the
costs awarded to them be taxed on the indemnity basis.
'
Application for security for costs in proceedings No. 259 of 1987

By Summons filed on 11 January 1990 in proceedings
No. 259 of 1987, Davis sought that the plaintiff be ordered to provide security for his costs in those proceedings.
The application was made pursuant to Rule 62.02(1)(b) of the Supreme Court Rules, which provides:-

7

"(1)	Where -

(b)		the plaintiff is a corporation and there is sufficient reason to believe that the plaintiff has insufficient assets in the Territory to pay the costs of the defendant if ordered to do so:

the Court may, on the application of a defendant, order that the plaintiff give security for the costs of the defendant of the proceeding and that the proceeding as against the defendant be stayed until the security is given."

The plaintiff is a corporation within the meaning of Rule 62.02(1)(b); see the definition of "corporation" in Rule 1.09 when read with s.9(1) of the Associations Incorporation Act.	It is perhaps doubtful whether
incorporated associations were intended to fall within the scope of Rule 62.02(1)(b); I note that in Victoria they do not. The Rule, which abrogates for corporations the
case-law rule that poverty is not to be made a bar to bringing an action, no doubt had its genesis in the need to avoid litigious abuse by artificial persons manipulated by natural persons.	In any event, it clearly applies in this jurisdiction to associations such as the plaintiff.

Mr Riley relied on the affidavits of Alison Mary Lowrie of 11 January 1990 and Kenneth Alan Parish of 20 April 1990 to support his submission that the plaintiff is impecunious and would be unable to meet an order for costs if unsuccessful in its action.	He submitted that having thereby established a prima facie case (in terms of
Rule 62. 02(1)(b)) that "there is reason to believe" the plaintiff will be unable to pay costs awarded against it, the onus shifts to the plaintiff to provide evidence to the contrary; he relied on Orison Pty Ltd v Strategic Minerals

Corp. NL (1987) 77 ALR 141 at p.162.	I accept this, in the sense that the plaintiff would bear a practical, though not a legal, onus in those circumstances; in the absence of evidence from the plaintiff there is no reason a court should not draw from.the existing evidence any inference which it can reasonably justify.

The exercise of the power under Rule 62.02(1)(b) requires as a pre-condition that the Court believes "that the plaintiff has insufficient assets in the Territory to pay the costs of the defendant(s) if ordered to do so", and that there is a reason for that belief.	I consider that the necessary reason must be founded on credible evidence.		I am satisfied that there is sufficient material in the affidavits to warrant, in the absence of other evidence, a reasonable belief that the plaintiff is impecunious.	The pre-conditions for the exercise of the power in the Rule being satisfied, it is necessary to consider the nature of that discretionary power.

The discretion to order security for costs is unfettered and must be exercised having regard to all the circumstances of the case; see Watkins Ltd v Ranger Uranium Mines Pty Ltd (1985) 35 NTR 27 at p.33, per Nader J.	There is no

predisposition in favour of of the plaintiff to pay the

the defendant.	The inability
defendant's costs is itself a

substantial factor in the exercise of the discretion; see Pearson v Naydler (1977) 1 W.L.R. 899.	The factors to be considered in the exercise of that discretion are set out in Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at pp. 512-5, viz:-

Whether the order will frustrate the plaintiff's claim.
The merits of the claim.
The cause of the plaintiff's impecuniosity.

Any delay in bringing the application for security for costs.

None of these four factors alone will determine the outcome either way, but all of them should be weighed in the balance to determine what is just between the parties.

Mr Bracher submitted that the impecuniosity of the plaintiff arose from the truth, if proved, of the facts it alleges against Davis; and that accordingly the plaintiff should not be shut out of Court by way of a requirement that it put up security for costs, and thereby be prevented from pursuing a remedy against Davis to recover that which made it impecunious.	He submitted that on the face of it and on the evidence provided by Davis the plaintiff has a strong case; and that it is sufficient for the purposes of this application to establish that prima facie the plaintiff's claim is regular and discloses a cause of action, in order to establish the plaintiff's bona fides.	I accept that the plaintiff's claim is made bona fide; I consider it has reasonable prospects of success.

In reply, Mr Riley submitted that the impecuniosity of the plaintiff could not be blamed on Davis, because the asset in dispute between them was not a "disposable asset"; and hence its value was irrelevant to impecuniosity of the plaintiff and the question of security for costs.	On consideration, I reject this interesting argument.	There is no suggestion in the cases that the enquiry into impecuniosity extends to the manner in which a plaintiff may choose to deal with the assets in dispute, if they are recoverable; see Sir Lindsay Parkinson and Co
Ltd v Triplan Ltd (1973) QB 609 at p.628, MA Productions
Pty Ltd v Austarama Television Pty Ltd (1982) 7 ACLR 97, at pp.99-100, and Ilat Nominees Pty Ltd v Murragong Nominees Pty Ltd (1980) 48 FLR 385.	I note that s.11 of the

Associations Incorporation Act empowers an incorporated association such as the plaintiff to borrow money and give security over its property.

An application for security for costs must be made promptly; see Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301 at p.308.		Here the application was made almost 3 years after the plaintiff instituted proceedings on 29 April 1987.	Mr Bracher submitted that the Court could consider whether the application for security was oppressive and a means of stifling a genuine claim; and in that connection the Court could have regard to the delay in bringing the application.

Mr Riley submitted that the delay in bringing the application was contributed to in a substantial way by the plaintiff and that Davis applied for security for costs as soon as it became obvious to him that the plaintiff was going to pursue its action.	From an examination of the Court files I note that while there appears to have been a prolonged period of Court inactivity after November 1987, activity resumed since March 1989; that is to say, the Court file was active for some 10 months prior to the application for security for costs being filed.

Mr Riley also submitted that there was no basis for assuming that members of the plaintiff's association were without means.	It has been held that an order for security for costs should not be refused on the ground that it would frustrate the litigation, unless the plaintiff company establishes that those who stand behind it and will gain from the litigation are also without means; see
Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984)
52 ALR 176 at p.179.	The Full Court of the Federal Court said:-

;

"It is not for the party seeking security to raise the matter; it is an essential part of the case of a 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 whom the litigation will benefit and to prove the necessary facts."

This was an application under s.533(1) of the Companies Code which is similar in wording to Rule 62.02(1)(b).	I have not been referred to any cases which apply this proposition to non-trading corporations; it is a proposition which is formulated in the context of trading corporations, but nevertheless appears to apply to this plaintiff, although its underlying rationale is not wholly applicable to such corporations.

As noted earlier, none of the Fencott factors taken alone are conclusive.	I consider that the claim of the plaintiff is bona fide and has reasonable prospects; and that there is some material to support the proposition that its impecuniosity may be attributable to Davis.	There has been some delay on the part of Davis in bringing the application for security for costs, following the "revival" of the litigation in March 1989.	There is a possibility that the plaintiff will be frustrated in pursuing the legal remedies it seeks, if an order for security for costs is made.	There is no evidence as to the individual financial capacities of the members of the plaintiff association.
Taking into account all the circumstances of the case, in an attempt to determine what justice as between the parties requires to be done, I do not consider on the whole that this is a case in which the plaintiff should be ordered to provide security for Davis' costs.

[Orders were made in accordance with these reasons]