TurkAlert Seeking security for costs against a company upon whom you have served a creditor's statut

Seeking security for costs against a company Statutory Demand? Be careful what you wish for.

David McCrostie and William Marsh | July 2013 | Commercial Disputes and Transactions

AURORA NETWORKS PTY LTD (ACN 137 602 325) v GLENN ANTON HALBEDL In the Matter of Aurora Networks Pty Ltd [2013] FCA 632.

On 25 June 2013 Justice Foster of the Federal Court took the opportunity to re-state that it is only in the rarest of cases the Court will order security for costs against a recipient of a Creditor’s Statutory Demand for Payment of Debt.

Background: Mr Halbedl served a Demand upon Aurora. The Demand claimed unpaid wages described and set out in a series of 10 invoices. Aurora disputed liability under those invoices or at all and asserts an offsetting claim.

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upon whom you have served a Creditor’s

Aurora commenced proceedings seeking an order that the Demand be set aside pursuant to section 459G of the Corporations Act. Attempts to mediate the dispute failed. On 19 March 2013, Mr Halbedl filed an interlocutory process for security of costs (the security sought was for an amount exceeding the amount claimed in the Demand).

In support of his application for security of costs Mr Halbedl relied on an affidavit which asserted that there was no real or genuine dispute about Aurora’s liability to pay the amount claimed in the Demand and also that Aurora was having financial difficulties.

Consideration of Relevant Law: Observing similar facts to the present case in Aquatown Pty Ltd v Holder Stroud Pty Ltd (1995) 18 ACSR 622 (Aquatown), Foster J embraced the reasoning of Justice Sundberg who noted a long line of authority that stands for the proposition: … that security is not ordered where the plaintiff/applicant is the party attacked and is really in the position of a defendant/ respondent.

In Aquatown Sundberg J reviewed and distilled the authorities to provide a brief history regarding the principles in relation security for costs application that need to be applied, concluding at 625:

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David McCrostie and William Marsh | July 2013

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[I]n my view the principle illustrated by these cases is applicable to the present case. As the statutory demand pointed out, noncompliance would give rise to a ground upon which the applicant could be wound up. Unless it paid the respondent money it contends is not due, the only way the applicant could avoid that detriment was to apply under s 459G to have the demand set aside. To use the words of Wilcox J, “in a practical sense” the applicant was forced by the respondent to take legal action.”

Moreover, Foster J determined there was no evidence regarding insolvency as Mr Halbedl did not establish insolvency and only noted isolated facts. Finally, his Honour observed that the amount of security claimed was utterly disproportionate to the amount in issue as between the parties.

Outcome: In the result Justice Foster refused to make the order claimed by Mr Halbedl. Aurora sought its costs of the security for costs application on an indemnity basis relying upon a letter sent almost 2 months before the hearing identifying with precision the fundamental difficulties with the application and foreshadowed indemnity costs.

Justice Foster indicated Mr Halbedl’s application for security should never have been brought in consideration of the circumstances and accordingly made an order for indemnity costs against Mr Halbedl.

For more information, please contact: David McCrostie Partner T: 02 8257 5711 M: 0419 682 661 david.mccrostie@turkslegal.com.au

William Marsh Lawyer T: 02 8257 5745 M: 0415 504 486 william.marsh@turkslegal.com.au

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