B Pty Ltd & Youn & Anor

[2019] FamCA 706

FAMILY COURT OF AUSTRALIA

B PTY LTD & YOUN AND ANOR [2019] FamCA 706

FAMILY LAW – PRACTICE AND PROCEDURE – Joinder – Application by a third party company to become a party to proceedings between the wife and the trustee of the bankrupt estate of the husband – Where the husband was the sole director and shareholder of the applicant company – Where the rights of the company may be directly affected by issues in the proceedings – Where the participation of the company would be necessary for the Court to determine all the issues in the  proceedings – Where the case that the company seeks to prosecute could lead to the removal of some funds from the matrimonial property pool and would affect the husband's bankrupt estate – Application granted

FAMILY LAW – SECURITY FOR COSTS – Where the trustee of the  bankrupt estate of the husband sought security for costs in the event that the joinder application was successful – Where the circumstances did not justify a departure from the usual position in relation to costs – Where the trustee failed to make a case for such an order – Application dismissed

Competition and Consumer Act 2010 (Cth) Sch 2
Bankruptcy Act 1966 (Cth)
Corporations Act 2001 (Cth) ss 180, 181, 182 and 254T

Family Law Act 1975 (Cth) ss 90AE, 92, 117

Family Law Rules 2004 (Cth) rr 6.05, 19.05

Barro & Barro (1983) FLC 91-300
Grainger & Bloomfield and Anor (2015) 54 Fam LR 115; [2015] Fam CAFC 221
In the Marriage of Harris; Re Banaco Pty Limited (1980) 6 Fam LR 45
Luadaka and Luadaka (1998) 24 Fam LR 340; [1998] FamCA 1520
Penfold v Penfold (1980) 144 CLR 311; [1980] HCA 4
Port of Melbourne Authority v Anshun PtyLimited (1981) 147 CLR 589
Stanford v Stanford (2012) 247 CLR 108; [2012] HCA 52

APPLICANT: B Pty Ltd (in Liquidation)

FIRST RESPONDENT: Ms Youn

SECOND RESPONDENT: Mr Middlebrough as the Husband’s Trustee in Bankruptcy

FILE NUMBER: SYC 2144 of 2018

DATE DELIVERED: 4 October 2019

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Loughnan J

HEARING DATE: 25 September 2019

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms Christie SC

SOLICITOR FOR THE APPLICANT: Bridges Lawyers

COUNSEL FOR THE RESPONDENT: Mr Wilson

SOLICITOR FOR THE RESPONDENT: Linden Legal

COUNSEL FOR THE 2^ND RESPONDENT: Mr Campton SC

SOLICITOR FOR THE 2^ND RESPONDENT: Corrs Chambers Westgarth

Orders

1. The Application in a Case filed on 16 August 2019 by B Pty Ltd (in liquidation) is granted.

2. The Response to an Application in a Case filed on 19 September 2019 by Mr Middlebrough as the husband’s Trustee in Bankruptcy, is dismissed.

Note:  The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the pseudonym B Pty Ltd & Youn has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER:  SYC2144 of 2018

B Pty Ltd (in Liquidation)

Applicant

And

Ms Youn

First Respondent

And

Mr Middlebrough as the Husband’s Trustee in Bankruptcy

Second Respondent

REASONS FOR JUDGMENT

Introduction

1. Before the Court is an application by the liquidator of B Pty Ltd (in liquidation) to intervene in proceedings for settlement of property between Ms Youn (“the wife”) and Mr Middlebrough (“the trustee”), who is the trustee of the bankrupt estate of Mr Youn (“the husband”).  The application is opposed by the trustee but is neither opposed, nor consented to by the wife.

Applications

1. By an Application in a Case filed on 16 August 2019 B Pty Ltd seeks leave pursuant to r 6.05 of the Family Law Rules 2004 (Cth) to intervene in the substantive proceedings.

2. By a Response to an Application in a Case filed 19 September 2019 the trustee seeks that the Application be dismissed.  In the event that B Pty Ltd is permitted to intervene in the proceedings, the trustee seeks that it pay security for costs in the sum of $250,000.

Background Facts

1. The wife is 63 years of age and the husband is 61 years of age.  They were married in 1990 and separated on 6 February 2017.

2. The husband was the sole director and shareholder of B Pty Ltd.  B Pty Ltd traded under the business names C Business and the D Business which provided services to local and international clients respectively.  

3. On 9 April 2015, the husband and wife purchased a property at E Street, Suburb F (“the E Street property”) for $9,000,000.  It is contended by B Pty Ltd that $5,663,900 to $5,963,900 of the funds used to purchase the property were funds of B Pty Ltd that the husband applied towards the purchase:

   (a)in breach of his fiduciary duties as a director of B Pty Ltd;

   (b)in breach of his statutory duties as a director of B Pty Ltd pursuant to ss 180, 181, 182 and 254T of the Corporations Act 2001 (Cth); and

   (c)in breach of his common law duties of reasonable skill and diligence and avoidance of conflicts of interest and duties.

4. As of 31 December 2015, entities controlled by the husband and the husband himself were indebted to B Pty Ltd in the sum of $30,454,551.  On 1 February 2016, the husband and B Pty Ltd entered into a Deed of Assignment whereby:

   (a)B Pty Ltd assigned the related party loans to the husband;

   (b)the husband was obligated to pay B Pty Ltd, by way of consideration, the sum of $30,454,551; and

   (c)the amount of $30,454,551 was paid by declaration of a dividend in favour of the husband effective from 31 December 2015.

5. By entering into the Deed of Assignment, it is contended that the husband further breached his duties as a director of B Pty Ltd.

6. On 20 April 2017 B Pty Ltd was placed into liquidation.

7. On 8 March 2018 the husband and the wife sold the E Street property for $7.9 million.

8. It is contended by B Pty Ltd that not less than $5,663,900 of the proceeds of sale of that property are held by the husband and wife for B Pty Ltd by way of a constructive trust and that therefore those funds do not form part of the matrimonial estate of the husband and the wife and by extension, do not form part of the bankrupt estate of the husband.

9. The husband became bankrupt and in March 2018 Mr Middlebrough was appointed trustee of the husband’s bankrupt estate.

10. On 6 April 2018 the wife instituted proceedings for settlement of property against the husband and his trustee in bankruptcy.

11. On 30 April 2018 B Pty Ltd lodged a proof of debt in the bankrupt estate in the amount of $43,409,271 relating to various loans from B Pty Ltd to the Youn Companies contended to be assigned to the husband on 31 December 2015.

12. On 6 July 2018 the Federal Court of Australia appointed joint and several liquidators for the following entities of which the husband was the sole shareholder and director:

    G Pty Ltd ACN …;
    H Pty Ltd ACN …;

    J Pty Ltd ACN …

13. On 16 August 2019 B Pty Ltd filed an Application in a Case seeking leave to intervene in the property settlement proceedings.

14. In late 2019 the Federal Court of Australia found that during the period June to mid-December 2014, B Pty Ltd (by its agents), engaged in unconscionable conduct within the meaning of s 21 of the Australian Consumer Law being Sch 2 to the Competition and Consumer Act 2010 (Cth). As a result, B Pty Ltd was ordered to pay compensation to the Commonwealth in the amounts of $55,810,203.82 and $515,860 plus costs.

Application to Intervene

Submissions

1. The submissions for B Pty Ltd were to the following effect:

   ·Section 92 of the Family Law Act1975 (Cth) (“Family Law Act”) provides that any person may apply for leave to intervene in proceedings.  The purpose of this section was described by the Full Court in In the Marriage of Harris; Re Banaco Pty Limited (1980) 6 Fam LR 45 as follows:

   This section, in our view, clearly makes provision for persons who may be affected by an order or a proposed order of the Court to approach Court and be heard.

   It is to be noted that neither by the Act nor the Regulations, apart from sec. 92, is provision made for a party to join a stranger as a party to the proceedings, nor is there provision for a party otherwise to become involved in the proceedings. But, in our view, the provisions of sec. 92 preserve the fundamental principles of natural justice and provide that a person against whom a claim or charge is made or against whom an order is proposed shall be given a reasonable opportunity of appearing and presenting his case. In our view, the fact that sec. 92 prescribes a statutory form of approaching the Court to seek such fundamental natural justice provides the machinery for claiming such natural justice, machinery which must be complied with by any person so seeking.

   ·In Barro & Barro (1983) FLC 91-300 (“Barro”), a differently constituted Full Court took a different view and held that it is not necessary in all circumstances for a third party to seek unlimited intervention under s 92 to be heard in relation to orders which had been made, or which were proposed to be made, affecting their interests. In particular, it was held that it was a matter of identifying the interests of the third party in a particular case and making orders which do it justice in those circumstances. It should be noted that Barro was decided before the enactment of s 90AE of the Family Law Act.

   ·It is submitted that in all the circumstances, it is necessary and appropriate that B Pty Ltd be permitted to intervene in the proceedings and be deemed a party to the proceedings with all the rights, duties and liabilities of a party (as per s 92(3) of the Family Law Act) in order to ventilate and have its rights recognised.

   ·The interim relief sought in the proceedings is a declaration that the proceeds of sale of the E Street property are held on trust for B Pty Ltd, either by way of an institutional constructive trust or in the alternative, a remedial constructive trust or resulting trust.  The determination of this claim is crucial to the first step of the determination of proceedings under s 79, being the identification of the property of the parties.

   ·B Pty Ltd seeks to be recognised as a secured creditor (by operation of an order under the Family Law Act).

   ·The appropriate forum for such a claim to be raised is in the context of the current proceedings, absent which the liquidator would likely be estopped from making such a claim in later proceedings:  Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589.

   ·B Pty Ltd’s claim with respect to the proceeds of the E Street property is a separate and distinct cause of action to that which the trustee may have in these proceedings, and it cannot be said that such claim is frivolous, vexatious or doomed to fail such to warrant its summary dismissal which will be the necessary consequence of a refusal of joinder.

2. The submissions on behalf of the trustee were to the following effect:

   1.Subsequent to achieving the freezing and other orders made by Justice Foster in the Federal Court on 6 April 2018, 11 April 2018 and 6 July 2018, the trustee has been engaged in:

   ·Identifying the extent of the bankrupt’s asset holdings; and

   ·Recovering dispositions of that property[1].

   [1] The trustee’s report as to creditors dated 16 April 2018 is exhibited to Mr K’s affidavit. 

   2.Subject to limited exceptions, the Bankruptcy Act1966 (Cth) (“Bankruptcy Act”) and the public policy considerations underlying that Act, regulate that once bankruptcy intervenes, no action can be taken by a creditor against the debtor to enforce a creditor’s debt – rather, the creditor’s rights are confined to proving the debt in the bankruptcy, to sharing in the distribution of the bankrupt’s estate, and to ensure the property administration of the estate by the trustee.  It is a matter for the trustee to take action, where appropriate, to recover property disposed of by the bankrupt prior to the bankruptcy. 

   3.Hence the remedies available to a creditor to enforce a debt change by virtue of the provisions of the Bankruptcy Act. 

   4.Relevant provisions of the Family Law Act provide as follows:

   Section 79

   …

   (10)The following are entitled to become a party to proceedings in which an application is made for an order under this section by a party to a marriage (the subject marriage):

   (a)a creditor of a party to the proceedings if the creditor may not be able to recover his or her debt if the order were made;

   (10A)Subsection (10) does not apply to a creditor of a party to the proceedings:

   (a)if the party is a bankrupt to the extent to which the debt is a provable debt (within the meaning of the Bankruptcy Act 1966);

   5.In Grainger & Bloomfield and Anor (2015) 54 Fam LR 115 the Full Court of this Court identified the following, commencing at paragraph 41, from the Explanatory Memorandum to the amending legislation in 2005:

   41.The revised Explanatory Memorandum to the Family Law Amendment Bill 2005 (Cth) contained the following explanation in relation to the proposed new s 79(10A): 

   168.This item inserts subsection 79(10A) after subsection 79(10) in the Family Law Act 1975. Subsection 79(10)was inserted by the Bankruptcy and Family Law Legislation Amendment Act 2005, providing that certain persons are entitled to become a party to family property proceedings - in particular, a creditor of a party to the proceedings if the creditor would not be able to recover his or her debt if the order were made, and any other person whose interests would be affected by the making of the order.

   169.Subsection 79(10A) qualifies the operation of subsection 79(10) so that subsection 79(10) will not apply to allow a creditor to be a party to family property proceedings if a party to the proceedings is a bankrupt (to the extent to which the creditor's debt is a provable debt under the Bankruptcy Act 1966) or is a debtor subject to a personal insolvency agreement (to the extent to which the creditor's debt is covered by the personal insolvency agreement).

   170.This amendment supports the aims of the reforms in the Bankruptcy and Family Law Legislation Amendment Act 2005, ensuring that the trustee in bankruptcy represents the interests of all creditors in family law property proceedings where a party is a bankrupt or is the subject of a personal insolvency agreement.

   6.The Trustee contends sequentially that:

   ·B Pty Ltd has no standing by way of the Family Law Act to intervene.  Its claim is agitated as a debt by way of the filing and maintenance of the proof of debt in the bankrupt estate; and

   ·In the alternative, the B Pty Ltd claim does not achieve the mandatory thresholds for intervention, identified in rule 6.02 of the Family Law Rules 2004 (Cth): being – an entity whose rights may be directly affected by an issue in the case; and whose participation in (as) a party is necessary for the Court to determine all issues in disputing the case.

   7.The claim made by the trustee against the wife - as identified in the Response to the Initiating Application filed 14 April 2018 - seeks to recover from the wife an amount greater than the B Pty Ltd claim.  It remains available to B Pty Ltd to make a claim against the trustee outside the litigation and within the bankruptcy.

   Putting it another way, in determining the legal and equitable interests of the husband and the wife in the property of each of those parties[2] the trustee will, as part of the s 79 claim, engage to trace the funds contended to be received by the husband and applied into the E Street property – the same claim made against the wife as made by the B Pty Ltd liquidators. 

   [2]Stanford v Stanford (2012) 247 CLR 108.

Discussion

1. Section 58 of the Bankruptcy Act  provides:

Vesting of property upon bankruptcy--general rule

(1)  Subject to this Act, where a debtor becomes a bankrupt:

(a)  the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and

(b)  after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee.

Note 1:       This subsection has a limited application if there are orders in force under the proceeds of crime law: see section 58A.

Note 2:       Even if property has vested under this section, it may, under the Proceeds of Crime Act 2002 :

(a)    become subject to a restraining order; and

(b)    be taken into account in making a pecuniary penalty order; and

(c)    become subject to a charge to secure the payment of an amount under a pecuniary penalty order, if it is subject to a restraining order; and

(d)    be dealt with by the Official Trustee, if it is subject to a restraining order and a court has directed the Official Trustee to pay the Commonwealth an amount under a pecuniary penalty order out of property subject to the restraining order.

(2)  Where a law of the Commonwealth or of a State or Territory of the Commonwealth requires the transmission of property to be registered and enables the trustee of the estate of a bankrupt to be registered as the owner of any such property that is part of the property of the bankrupt, that property, notwithstanding that it vests in equity in the trustee by virtue of this section, does not so vest at law until the requirements of that law have been complied with.

(3)  Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:

(a)  to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or

(b)  except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.

(4)  After a debtor has become a bankrupt, distress for rent shall not be levied or proceeded with against the property of the bankrupt, whether or not the bankrupt is a tenant of the landlord by whom the distress is sought to be levied.

(5)  Nothing in this section affects the right of a secured creditor to realize or otherwise deal with his or her security.

(5A)  Nothing in this section shall be taken to prevent a creditor from enforcing any remedy against a bankrupt, or against any property of a bankrupt that is not vested in the trustee of the bankrupt, in respect of any liability of the bankrupt under:

(a)  a maintenance agreement; or

(b)  a maintenance order;

whether entered into or made, as the case may be, before or after the commencement of this subsection.

(6)  In this section, after-acquired property , in relation to a bankrupt, means property that is acquired by, or devolves on, the bankrupt on or after the date of the bankruptcy, being property that is divisible amongst the creditors of the bankrupt.

(emphasis added)

1. It is apparent that the rights of a secured creditor are not subsumed within the role of the bankruptcy trustee in the same way as the rights of an unsecured creditor are subsumed.  If B Pty Ltd is a secured creditor then it is free to take action independent of the bankruptcy trustee and subject to having a viable claim, should/must be permitted to intervene.

2. Secured Creditor is defined in s 5 of the Bankruptcy Act in the following terms:

   "secured creditor" , in relation to a debtor, means:

   (a)  in the case of a debt secured by a PPSA security interest--the PPSA secured party in relation to the interest, if the interest:

   (i)  arose as security for the debt; and

   (ii)  is perfected (within the meaning of the Personal Property Securities Act 2009 ); or

(b)  in the case of any other debt--a person holding a mortgage, charge or lien on property of the debtor as a security for a debt due to him or her from the debtor.

1. The question would then become:  Do or could the B Pty Ltd claims of the creation of a trust as to some of the proceeds of sale of the E Street property make B Pty Ltd a secured creditor of the husband?  I confess that I do not really understand the argument that B Pty Ltd’s claim is as a creditor.  But in my view, B Pty Ltd has a legitimate interest in the proceedings in any event.

2. Shorn of all excrescences, the dispute before the Court is whether there is relief available to B Pty Ltd in the family law proceedings that cannot or may not be adequately prosecuted on its behalf by the trustee.  The trustee contends that particularly given that B Pty Ltd has lodged a proof of debt that apparently encompasses the claims that B Pty Ltd wishes to separately prosecute, the trustee stands in the shoes of the creditors, including B Pty Ltd, and should be left to do his work.  In the event that B Pty Ltd is aggrieved about the trustee’s conduct then that matter can be taken up elsewhere at a later date.

3. For B Pty Ltd it is contended that because it seeks to remove from the matrimonial pool (and from the bankruptcy estate), moneys over which it has security, that claim falls outside the terms of s 79(10A) because the debt would not be a provable debt.

4. The submissions on behalf of the trustee include something in the style of – B Pty Ltd cannot both lodge a proof of debt for $43 million and seek permission to intervene to agitate a claim for part of those same funds in the substantive proceedings.  I do not follow the logic of that submission.  I was taken to nothing that requires B Pty Ltd to make an election of that type.  In terms of the interests of justice, there is no prejudice to the other parties or to the creditors who have proved in the bankrupt estate by B Pty Ltd maintaining two claims as there is no possible risk of B Pty Ltd being paid twice for the same claim. 

5. One of the submissions on behalf of B Pty Ltd was to the effect that it would be estopped from later prosecuting a claim based on having an equitable interest in the proceeds by virtue of a trust, if it did not prosecute that claim when it could in these proceedings.  The fact of the application to intervene would seem to address any such risk.  In light of that application, it cannot be said that B Pty Ltd sat on its rights.

6. In my view, B Pty Ltd has a case to prosecute that could lead to at least part of the funds it claims against the husband being removed from the matrimonial pool (and the bankrupt estate).  The question of joinder is ultimately a question of the interests of justice.  I am not satisfied that the trustee is in the same interest as B Pty Ltd to the extent of the constructive trust claim.  That is at least partly demonstrated by the trustee’s doubts about the prospects of that claim in these proceedings.  Indeed the trustee will be a respondent to the claim of B Pty Ltd.  It is notoriously difficult to both prosecute and defend the same claim with appropriate diligence.

7. Rule 6.02 of the Family Law Rules 2004 (Cth) includes:

   Necessary  parties

   (1) A person whose rights may be directly affected by an issue in a case, and whose participation as a party is necessary for the court to determine all issues in dispute in the case, must be included as a party to the case.

8. In my view, the rights of B Pty Ltd may be directly affected by an issue in the property settlement proceedings and its participation as a party is necessary for the Court to determine all of the issues in those proceedings.  Leave will be granted to B Pty Ltd to intervene in these proceedings.

Application For Security For Costs

1. In the event that B Pty Ltd is permitted to intervene in the proceedings, the trustee seeks that it pay security for costs in the sum of $250,000.

2. In relation to costs, the Family Law Act provides as follows:

   Section 117

   Costs

   (1)Subject to subsection (2), subsection 70NFB(1) and sections 117AA, 117AC and 118, each party to proceedings under this Act shall bear his or her own costs.

   (2)If, in proceedings under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4), (4A) and (5) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.

   (2A)In considering what order (if any) should be made under subsection (2), the court shall have regard to:

   (a)the financial circumstances of each of the parties to the proceedings;

   (b)whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;

   (c)the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;

   (d)whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;

   (e)whether any party to the proceedings has been wholly unsuccessful in the proceedings;

   (f) whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and

   (g)such other matters as the court considers relevant.

Submissions

1. The trustee’s submissions were to the following effect:

   ·Section 117(2) is the source of power for the Court to make an order for security for costs.  The legislation does not specify the circumstances in which an order for security of costs will be made – the section envisages that the circumstances of a case should justify such an order and there is a very broad discretion[3].

   ·It is submitted that the overriding purpose of an order for security for costs is to ensure that an unsuccessful party does not occasion an injustice on the other by way of the proceedings[4].

   ·By reference to relevant Full Court authority[5] and the matters identified in r 19.05, the trustee submits:

   oThe current funds available to the liquidator are in the range of $385,501.00 as at 25 April 2019[6].

   oA repetition of the submissions made as to joinder - specifically the duplication of claim.

   oThe poor prospects of success of the tracing claim in the terms contended by B Pty Ltd, and the absence of particularisation within the identified evidence supporting same[7].

   oThat an order for security for costs would not be oppressive or stifle the case – it would simply preserve a fund should the liquidators claim be unsuccessful

   oThe costs of engaging and responding to these claims as part of the current s 79 proceedings are substantial – in the range of $250,000 – including the addition of three further respondents in liquidation without funds to pay costs[8]. 

   oThe order for security will not shut the liquidator out of the proceedings or unfairly deal with the liquidator’s claims. 

   [3]Penfold v Penfold (1980) 144 CLR 311.

   [4] Luadaka and Luadaka (1998) 24 Fam LR 340.

   [5]Ibid.

   [6] Middlebrough #39

   [7] The liquidator would need to establish the husband’s intention to use the monies contended to be sourced from B Pty Ltd to purchase the Suburb F property.  This is likely to be difficult to establish to the requisite degree in circumstances where the husband will not give evidence.  It is not the subject of contest that any funds (about half) derived by the husband from the sale of the property have been transferred outside the jurisdiction – the constructive trust claim made against the husband’s legal share of the proceeds of sale of the Suburb F property is thus otiose.

   [8] Middlebrough #28-31

Discussion

1. There is no entitlement to security for costs.  Indeed, there is no entitlement to costs.  The general position is that parties bear their own costs.  The Court can make such orders for costs or for security for costs, as it considers just.  In considering whether to make an order or what order to make, the Court must have regard to the matters identified in s 117(2A).

2. Dealing with the s 117(2A) matters:

(a) the financial circumstances of each of the parties to the proceedings;

1. There is no evidence before me about the current value of the bankrupt estate.  Obviously, there may be changes to that value over time.  In relation to B Pty Ltd, there is something in excess of $380,000 in the liquidator’s accounts.  Something of the order of $1,900,000 has been paid out in legal and other liquidator’s fees.  I was told, without complaint, that the wife holds about $4 million and some real estate.

(b) whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;

1. No party has a grant of legal aid.

(c) the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;

1. Nothing comes to attention here.

(d) whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;

1. The proceedings do not arise from a failure to comply with a Court order.

(e) whether any party to the proceedings has been wholly unsuccessful in the proceedings;

1. The proceedings are at an interlocutory stage and therefore the ultimate success of the parties’ applications not known.

(f) whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and

1. I was told of no written offers of settlement that would be relevant to the proceedings for security for costs.

(g) such other matters as the court considers relevant.

1. In Luadaka and Luadaka (1998) 24 Fam LR 340 (“Luadaka”) at 85,507 the Full Court said that the purpose of an order for security is to secure justice between the parties by ensuring that an unsuccessful party does not occasion injustice to the other. Noting the matters set out in s 117(2A), and without attempting to be exhaustive, the Court identified additional matters that may be relevant to the determination of an application for security for costs.  No doubt with the benefit of authorities such as Luadaka, the Family Law Rules 2004 (Cth) provide some guidance in this regard. Rule 19.05 (2) provides:

   (2) In deciding whether to make an order, the court may consider any of the following matters:

   (a) the applicant's financial means;

   (b) the prospects of success or merits of the application;

   (c) the genuineness of the application;

   (d) whether the applicant's lack of financial means was caused by the respondent's conduct;

   (e) whether an order for security for costs would be oppressive or would stifle the case;

   (f) whether the case involves a matter of public importance;

   (g) whether a party has an order, in the same or another case (including a case in another court), against the other party for costs that remains unpaid;

   (h) whether the applicant ordinarily resides outside Australia;

   (i) the likely costs of the case;

   (j) whether the applicant is a corporation;

   (k) whether a party is receiving legal aid.

2. The additional matters identified in Luadaka are:

   ·Whether there was a delay in bringing the application; and

   ·The difficulties of enforcing an order for costs and the amount of costs to be incurred.

3. Of those matters that have not already been referred to:

4. There is no reason to doubt the genuineness of B Pty Ltd’s application.

5. There is no sense in which the plight of B Pty Ltd resulted from the trustee’s conduct.

6. There is no evidence as to whether an order for security for costs would stifle the litigation or not.

7. It was not submitted that the proceedings involve an issue of public importance.

8. There is no evidence about the likely costs of the case.  The trustee submits that as B Pty Ltd has foreshadowed joining three other entities, it is likely that the costs of the proceedings will be increased if B Pty Ltd is joined.  B Pty Ltd responds to the effect that those entities are also in liquidation and are also caught up in the bankruptcy, are already represented by the trustee and therefore any additional costs will be minimised.

9. As far as I am aware, the trustee is not a corporation.

10. There was no submission about a delay in bringing the application.

11. As to the difficulty in enforcing a costs order, it should not be difficult, provided there is any significant return to the creditors of the bankrupt estate.  That is to say, the trustee himself may hold the funds from which his costs could be met.  B Pty Ltd has lodged a proof of debt in excess of $40 million.  If that claim was established and there is a distribution to creditors of say, 10 cents in the dollar, there would be something like $400,000 going to B Pty Ltd, from which the trustee’s costs could be paid.  I was not told of the prospects of a return to creditors but I note that there are at least some assets in Australia.

12. Finally, as was submitted on behalf of B Pty Ltd, no basis is articulated let alone established, for the quantum of costs sought to be secured.

13. It falls to the trustee to justify an order and he has not.  The primary position is that parties bear their own costs.  Parties are not automatically entitled to secure their potential costs.  The present circumstances do not justify the order sought.

Conclusion

1. The application for security of costs will be dismissed.

I certify that the preceding fifty-five (55) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Loughnan delivered on 4 October 2019.

Associate:

Date:  4 October 2019