Baida Holdings Pty Ltd v Pocknell [2002] ACTSC 88 (6 September 2002)

Last Updated: 9 September 2002

BAIDA HOLDINGS PTY LIMITED v MARGUERITE POCKNELL [2002] ACTSC 88 (6 September 2002)

CATCHWORDS

COMPANIES - Security for Costs - company in liquidation - no principle that action brought on recommendation of liquidator be immune to security for costs.

Corporations Act 2001 (Cth), s 1335

Jurisdiction of Courts (Cross Vesting) Act 1993

Good Motel Co (In Liq) v Shepherd [1992] ACTSC 107; (1992) 110 FLR 87

Hession v Century 21 South Pacific(In Liq) (1992) 28 NSWLR 120

Re Pavelic Investments Pty Ltd (1983) 8 ACLR 417

Re Strand Wood Co Ltd [1904] 2 Ch 1

No. SC 645 of 2001

Coram: Master T. Connolly

Supreme Court of the ACT

Date: 6 September 2002

IN THE SUPREME COURT OF THE )

) No. SC 645 of 2001

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: BAIDA HOLDINGS PTY LIMTED

Plaintiff

AND: MARGUERITE POCKNELL

Defendant

ORDER

Coram: Master T. Connolly

Date: 6 September 2002

Place: Canberra

THE COURT ORDERS THAT:

1. The plaintiff provide security for costs in the sum of $35,000

2. The proceedings be stayed until the security is provided

3. The parties have leave to bring in short minutes dealing with the form of security

4. The parties be heard as to costs

1. This is an application by way of notice of motion seeking security for costs. The notice of motion of 31 July 2002 also sought orders pursuant to the Jurisdiction of Courts (Cross Vesting) Act 1993 that the proceedings be transferred to the Supreme Court of New South Wales, but the defendant indicated on the morning of the hearing that she did not wish to proceed with that aspect of the application. As the plaintiff had prepared to meet such a claim, I ordered that the defendant pay the plaintiff's costs as taxed of that part of the Notice of Motion dealing with the transfer application.

 

2. The application for security for costs proceeded. The application is brought pursuant to s 1335 of the Corporations Act 2001 which provides that:

"Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given."

 

3. This is a matter which may properly be brought within the jurisdiction of the Master.

 

4. The substantive claim is brought by the plaintiff company, which is identified as being in liquidation. It is a claim for damages for claimed breaches of director's duties by the defendant, who was at the relevant time a director of the company. The substantive action concerns the way funds were dealt with following the sale of a business conducted by the plaintiff company in 1996.

 

5. There is, it seems to me, no question that the defendant has established that there is reason to believe that the corporation will be unable to pay the costs of the defendant if the defendant is successful in her defence. The plaintiff company is in liquidation, and Mr Rangott, the liquidator, in his affidavit filed by the company, says that

"the Plaintiff does not have the sources of income or assets to provide security for costs."

 

6. The real issue was whether the fact that the liquidator instructed his solicitors to bring the action is a reason for security for costs not to be ordered. Ms Fogerty, for the plaintiff, referred me the decision of Blackburn CJ in Re Pavelic Investments Pty Ltd (1983) 8 ACLR 417 where His Honour referred to

"a rule of practice so inveterate as to be almost a rule of law, namely that the liquidator of a company, appointed by the court, is not required to give security for costs save in very exceptional circumstances ."

His Honour referred to the decision of Re Strand Wood Co Ltd [1904] 2 Ch 1.

 

7. Mr Spry, for the defendant, argued that this was no longer a good proposition of law. He referred me to Hession v Century 21 South Pacific(In Liq) (1992) 28 NSWLR 120 where Meagher JA held that a trial judge had erred in following the decision in Re Strand Wood in a case where the company was itself the plaintiff. His Honour pointed out that Re Strand Wood was an action where the liquidator was personally the plaintiff, and so, if the action failed, the liquidator would be liable for costs. Meagher JA said

"A distinction must be made between cases in which the liquidator personally is the plaintiff, and those when the company (albeit by its agent, the liquidator) is the plaintiff. In the former case....if the proceedings fail costs will be awarded against the liquidator personally, but no order for security for costs will be made against him, apparently on the ground that he is exercising a statutory power vested in him personally. Where the company in liquidation is the plaintiff, things are otherwise. In this case, obviously the court has jurisdiction to order security for costs: that is what s 1335 says. The fact that the company has a deficiency of assets compared to liabilities (a not uncommon feature of companies in liquidation) is evidence of entitlement under the section to an order, not (as His Honour seemed to imagine) evidence of immunity from an order. In this regard, it should also be noted that where a company in liquidation sues and fails, there is no jurisdiction in the Court to order the liquidators personally to pay the defendants costs."(at 123)

 

8. I note that in Good Motel Co (In Liq) v Shepherd [1992] ACTSC 107; (1992) 110 FLR 87 Higgins J accepted that security for costs may be ordered, where otherwise made out, in the situation where the claim is brought by the company through the liquidator. It seems to me that the NSW Court of Appeal has in Hession v Century 21 South Pacific explained that it is not the law that the mere fact that a company in liquidation sues through the liquidator makes it immune from an order for security for costs, and to the extent that the decision of Blackburn CJ in Re Pavelic is inconsistent with this, I decline to follow it, noting that Higgins J in Good Motel, without referring to Re Pavelic, also ordered security for costs in a matter where the company was in liquidation and the liquidator had authorised the company to bring the claim.

 

9. Mr Rangott's affidavit, referred to earlier, makes the point that the company has no assets or income, and could not meet the security sought. There is uncontradicted evidence by an experienced solicitor for the defendant estimating costs to defend the action in the order of $35,000. I note that in Hession v Century 21 Meagher JA summarised the law here by stating that

"a company in liquidation against whom an order for security for costs is sought cannot successfully resist such an order merely by proving that it cannot fund the litigation from its own resources if an order for security is made: it must prove that it cannot do so even if it relies on the other resources available to it (the company's shareholders or creditors):Bell Wholesale Co Pty Ltd v Gates Expert Corporation [1984] FCA 34; (1984) 52 ALR 176." (at 123)

 

10. In this case the evidence for the company does not go beyond establishing that the company itself cannot provide security for costs. There is no evidence as to whether the company's shareholders or creditors may or may not have resources to proceed with the claim. There is evidence contained in the affidavit of the defendant to the effect that Mr Nicolaou, another director of the plaintiff company, had made loans to the company and there is a letter of 16 August 1996 alleging that the defendant breached her duties as director in the circumstances set out in the present substantive cause of action, and demanding that monies be paid to the company so that they can be disbursed by the company towards its claimed outstanding liability to Mr Nicolaou. There is no evidence from Mr Nicolaou in this present application, and it would seem to me that it would follow that, absent an explanation, the mere fact that the company itself cannot fund the litigation is not, for the reasons set out by Meagher JA, sufficient to defeat a claim for security for costs.

 

11. This is also relevant to the question of the exercise of the discretion. In Good Motel Higgins J held that where it appears that a company in liquidation sues for the benefit of another, there is a predisposition to order that security for costs be given, because justice requires that the real beneficiaries of the action, if it succeeds, be as much at risk of paying costs as are the defendants. The evidence before me satisfies me that the real beneficiaries of this action, if successful, would be Mr Nicolaou, but absent security for costs the defendant would, if successful, obtain only a costs order against an impecunious company already in liquidation.

 

12. I am satisfied that security for costs should be ordered, and as I accept the evidence given as to the estimated cost of defending the action, I accept that this should be in the sum of $35,000. It is not essential that this be in cash, and I did not hear argument as to the appropriate form of security. I give leave, therefore, to the parties to bring in short minutes of orders giving effect of my decision, and so deal with the form of any security offered. I stay further proceedings by the plaintiff until that security is provided. I will hear the parties as to costs.

I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master, Mr T Connolly

Associate:

Date: 6 September 2002

Counsel for the Plaintiff: Ms Fogerty

Solicitor for the Plaintiff: Colquhoun Murphy

Counsel for the Defendant: Mr Spry

Solicitor for the Defendant: Lazarus Smith Lawyers by the Canberra agents: Howes & Kaye Solicitors

Date of hearing: 23 August 2002

Date of judgment: 6 September 2002