ACN 153 364 491 Ltd (in liq) v GP No 1 Pty Ltd (in liq), in the matter of GP No 1 Pty Ltd (in liq) (No 2)

[2019] FCA 2112

FEDERAL COURT OF AUSTRALIA

ACN 153 364 491 Ltd (in liq) v GP No 1 Pty Ltd (in liq), in the matter of GP No 1 Pty Ltd (in liq) (No 2) [2019] FCA 2112

File number:

SAD 133 of 2018

Judge:

BESANKO J

Date of judgment:

2 December 2019

Date of publication of reasons:

13 December 2019

Catchwords:

COSTS — application for an order that the plaintiff provide further security for costs pursuant to s 1335 of the Corporations Act 2001 (Cth) and r 19.01 of the Federal Court Rules 2011 (Cth) — where the plaintiff is impecunious — whether the Court may in the exercise of its discretion order security for costs already incurred — whether the proceeding would be stultified if further security is ordered

Legislation:

Corporations Act 2001 (Cth) s 1335

Federal Court of Australia Act 1976 (Cth) s 56

Federal Court Rules 2011 (Cth) r 19.01

Cases cited:

ACN 153 364 491 Ltd (in liq) v GP No 1 Pty Ltd (in liq), in the matter of GP No 1 Pty Ltd (in liq) [2018] FCA 1933

Bryan E Fencott & Assocs Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497

Date of hearing:

2 December 2019

Registry:

South Australia

Division:

General Division

National Practice Area:

Commercial and Corporations

Sub-area:

Corporations and Corporate Insolvency

Category:

Catchwords

Number of paragraphs:

18

Counsel for the Plaintiff:

Mr L Gentry

Solicitor for the Plaintiff:

Pallaras Legal

Counsel for the Defendants:

Ms G Walker

Solicitor for the Defendants:

Andreyev Lawyers

REASONS FOR JUDGMENT

SAD 133 of 2018

IN THE MATTER OF GP NO 1 PTY LTD (IN LIQUIDATION)

BETWEEN:

ACN 153 364 491 LTD (IN LIQUIDATION)

Plaintiff

AND:

GP NO 1 PTY LTD (IN LIQUIDATION)

First Defendant

GAVIN MOSS

Second Defendant

BESANKO J:

1. This is an application by the defendants to this proceeding for an order that the plaintiff provide further security for costs. The application is made pursuant to s 1335 of the Corporations Act 2001 (Cth) and r 19.01 of the Federal Court Rules 2011 (Cth).

2. The initial application for security for costs was brought on 1 August 2018.  On 6 December 2018, I made an order that the plaintiff provide security for costs in the amount of $15,000.  I delivered reasons for those orders (ACN 153 364 491 Ltd (in liq) v GP No 1 Pty Ltd (in liq), in the matter of GP No 1 Pty Ltd (in liq) [2018] FCA 1933) and I will refer to those reasons as my reasons for the initial security for costs application.

3. The principal order sought by the defendants in the present application is that the plaintiff give further security for the defendants’ costs in the proceeding in the amount of $20,808 or such other amount as determined by the Court. 

4. On 2 December 2019, I made an order that the plaintiff give further security for the defendants’ costs in the proceeding in the amount of $10,000.  I also made an order that this amount be paid into Court within 14 days and that the proceeding be stayed until that occurs.  These are my reasons for making those orders.

5. Section 1335(1) of the Corporations Act provides that the Court may order security for costs if there is credible evidence that there is reason to believe that a plaintiff corporation will be unable to pay the costs of the defendant if successful in its defence.

6. The plaintiff is in liquidation and has no funds available to it to meet a costs order. The power to order security for costs contained in s 1335(1) is engaged.

7. As I have said, the amount of further security sought by the defendants is $20,808.  That figure incorporates a 30% reduction in solicitors’ fees and a 10% reduction in counsel’s fees.  The figure consists of costs already incurred as well as costs estimated by the defendants’ solicitor to be costs associated with the hearing of the claim in the Originating process that there be an inquiry. 

8. The discretion conferred on the Court by s 56 of the Federal Court of Australia Act 1976 (Cth) and s 1335 of the Corporations Act is a broad one. The Court may, in the exercise of its discretion, order security for costs already incurred by the defendants (see Bryan E Fencott & Assocs Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497 at 515 per French J (as his Honour then was)).

9. The plaintiff contended that the application had not been made promptly because the defendants had miscalculated the quantum of security in their initial security for costs application.  It contended that this had caused prejudice to the plaintiff and its creditors.

10. However, as the defendants contended (correctly in my view), there has been a “significant change” or “shift” in the plaintiff’s case since the initial application for security for costs was heard.  The defendants described the shift in the following way.  The plaintiff has shifted from asserting that its claim takes priority over the Commissioner of Taxation in the liquidation of the first defendant and that the second defendant was entitled to no remuneration or recoupment of expenses prior to meeting its claim, to accepting that the Commissioner is a priority creditor and that the second defendant is entitled to Universal Distributing remuneration, and seeking orders to have the first defendant lodge an out of time objection to reduce the Commissioner’s claim and disputing the amount of remuneration and expenses.  The defendants submitted that they have undertaken considerable unanticipated work in ascertaining the plaintiff’s case as now asserted.

11. The plaintiff accepted that the shift, which had resulted in an amendment to the Originating process, was relevant and must be addressed.  However, the plaintiff contended that the shift was caused by the defendants seeking to elevate the prominence of the issue.  The plaintiff submitted that the defendants could have and should have anticipated that the issue would assume prominence at the time they filed their initial security for costs application in August 2018. 

12. The defendants contended that they could only estimate the cost based on the proceeding as it was framed at the time and, at the relevant time, it was a much narrower dispute.  The defendants submitted that it is not an answer to the present application that the defendants should have predicted the plaintiff’s shift and the time it has taken for that shift to occur.  They also submitted in reply that the plaintiff’s criticism failed to take into account the detailed analysis conducted by their solicitor and the other unanticipated nature of the work for which the bulk of the security for costs is now sought.

13. In my opinion, it is not correct to say that the present application for further security is the result of a miscalculation on the part of the defendants.  The reality is that at the time of the initial application for security for costs, the dispute was narrower than it is now. 

14. The plaintiff contended that the proceeding would be stultified if further security is ordered.  The plaintiff referred to Mr Jacob’s evidence that he does not intend to provide funds from his own resources as security and that if further security is ordered, it is likely that the plaintiff will not be able to continue the proceeding.  Mr Jacobs also gave evidence that he contacted the creditor who funded compliance with the order for security on the initial application and that that creditor has indicated that it will not provide any further security.

15. The defendants contended that although the plaintiff’s evidence on the initial application was that the proceeding would be stultified if security was ordered unless Mr Jacobs provided funds from his own resources, the plaintiff ultimately satisfied the order for security.  The defendants submitted that the Court should infer in those circumstances that an order for further security will not stultify the proceeding.

16. Although it is certainly possible that an order for further security will lead to the abandonment of this proceeding, I must weigh against this matter the fact that the defendants should not be required to defend the proceeding in the knowledge that even if successful in their defence, they will not recover their costs (see my reasons for the initial security for costs application at [36]).

17. On balance, I decided that in the circumstances it was appropriate to order further security for costs in the amount of $10,000.

18. It was for these reasons that I made the orders I did on 2 December 2019.

I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.

Associate:       

Dated:       13 December 2019