Duncan v Wandina Holdings Pty Ltd
[2012] FCA 31
•1 February 2012
FEDERAL COURT OF AUSTRALIA
Duncan v Wandina Holdings Pty Ltd [2012] FCA 31
Citation: Duncan v Wandina Holdings Pty Ltd [2012] FCA 31 Parties: ADRIAN STEWART DUNCAN v WANDINA HOLDINGS PTY LTD
RICARDO CACHO v WANDINA HOLDINGS PTY LTD
File numbers: WAD 127 of 2011
WAD 128 of 2011Judge: GILMOUR J Date of judgment: 1 February 2012 Catchwords: COSTS – application for security of costs – factors relevant to exercise of Court’s discretion – whether applicants will be unable to pay respondent’s costs – applicants previously defaulted on order to pay costs – applicants permanently resident outside Australia – consideration of form and amount of costs – whether part or whole of the costs should be granted Legislation: Bankruptcy Act 1996 (Cth) s 41
Corporations Act 2001 (Cth) s 443B
Federal Court of Australia Act 1976 (Cth) ss 31A, 56Cases cited: KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 Date of hearing: 19 August 2011 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 49 Counsel for the Applicant: Mr C M Slater Solicitor for the Applicant: Corrs Chambers Westgarth Counsel for the Respondent: Mr K M Pettit Solicitor for the Respondent: John Panegyres
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
WAD 127 of 2011
BETWEEN: ADRIAN STEWART DUNCAN
ApplicantAND: WANDINA HOLDINGS PTY LTD
Respondent
JUDGE:
GILMOUR J
DATE OF ORDER:
1 FEBRUARY 2012
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
1.The applicant pay the sum of $7,500 into Court as security for the respondent’s costs.
2.The proceeding be stayed pending payment of that amount into Court.
3.The applicant pay the respondent’s costs of this application for security to be taxed if not agreed.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
WAD 128 of 2011
BETWEEN: RICARDO CACHO
ApplicantAND: WANDINA HOLDINGS PTY LTD
Respondent
JUDGE:
GILMOUR J
DATE OF ORDER:
1 FEBRUARY 2012
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
1.The applicant pay the sum of $7,500 into Court as security for the respondent’s costs.
2.The proceeding be stayed pending payment of that amount into Court.
3.The applicant pay the respondent’s costs of this application for security to be taxed if not agreed.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
WAD 127 of 2011
BETWEEN: ADRIAN STEWART DUNCAN
ApplicantAND: WANDINA HOLDINGS PTY LTD
RespondentWAD 128 of 2011 BETWEEN: RICARDO CACHO
ApplicantAND: WANDINA HOLDINGS PTY LTD
Respondent
JUDGE:
GILMOUR J
DATE:
1 FEBRUARY 2012
PLACE:
PERTH
REASONS FOR JUDGMENT
The respondent in each of these proceedings (Wandina) seeks an order that each applicant provide security for its costs. The Court has a discretionary power under s 56 of the Federal Court of Australia Act 1976 (Cth) and Part 19 of the Federal Court Rules 2011 (Cth) to make such an order. The discretion is unfettered although it must be exercised judicially.
These applications were heard together on 19 August 2011. Thereafter in September 2011 the Court was informed that a settlement between the parties was possible and that a deed of settlement in draft had been prepared for consideration. Despite further enquiries by the Court in October and December 2011 no settlement was forthcoming. Accordingly, the matter was then listed for judgment.
Background
On 25 October 2004, one applicant, Ricardo Cacho, was an employed insolvency practitioner with Knights Insolvency Administration Limited (Knights Insolvency) when he and the other applicant, Adrian Duncan, a partner of that practice, were appointed administrators of Precast Prestressed Building Perth Pty Ltd (the company).
The company had been run by its director, Mr Serge Pecoult, who had claims against the company. Mr Pecoult remained at the premises of Wandina during the period of the administration by the applicants. Wandina knew of Mr Pecoult and his occupation.
At the time of the appointment the company had contracts with third parties including Diploma Constructions Pty Ltd, a company associated with Wandina through at least a joint director. Wandina owned premises at which the company operated. There was a period of conflict between the applicants as administrators, Wandina and Diploma.
In about April 2005 Mr Duncan left Knights Insolvency.
In March/April 2005 after some storm damage to the premises Mr Pecoult asked Mr Cacho to withhold rent from Wandina and Mr Cacho agreed to do that on the basis that Mr Pecoult indemnified Mr Cacho.
Mr Pecoult purchased the business of the company in late 2005.
In accordance with the Corporations Act 2001 (Cth) (Corporations Act) all actions of the administrators were reported to creditors (including Wandina) and the funds received accounted to the creditors in reports lodged with the Australian Securities & Investments Commission (ASIC). At no time were Mr Cacho or Mr Duncan trading on their own behalf.
In about 2005 the dispute over the unpaid rent had become the subject of proceedings by Wandina against each of the applicants in the Magistrates Court of Western Australia.
Mr Duncan left Australia in November 2005 and, according to him, he was not aware that the proceedings in the Magistrates Court had been brought.
Mr Cacho’s practice declined. He had limited insolvency work and eventually he moved to the United Kingdom. The insolvency practice was wound down. The company was de-registered and the administration, then a liquidation, was finalised in September 2009. He was aware of and participated in the proceedings brought against him in the Magistrates Court.
After very long delays the proceedings in the Magistrates Court of Western Australia were heard in January 2010. Mr Cacho gave evidence at the trial. Mr Duncan did not.
Judgment for $72,405.06 in favour of Wandina was delivered on 3 March 2010 against the applicants. The Court granted the applicants an indemnity for any liability to Wandina by giving judgment on a third party notice to the applicants against Mr Pecoult. No appeal has been filed by either applicant.
Mr Duncan says that the first document he received in respect to the proceedings in the Magistrate’s Court was his receipt of correspondence from Wandina serving bankruptcy notices at the end of March 2011.
After being served with the bankruptcy notice pursuant to the orders of Federal Magistrate Lucev, each applicant commenced proceedings in the Federal Court to set aside the bankruptcy notice.
The present proceedings
The present applications under s 433B of the Corporations Act each seek an order that the respective applicant’s liability to Wandina be excused. The applicants each also seek relief under s 41(6) of the Bankruptcy Act 1966 (Cth) to set aside the respective Bankruptcy Notices. These claims, the applicants say, are ones which could not have been brought before the Magistrate because they in part rely on facts arising after judgment: the administration has ceased; the third party liable to indemnify the applicant has not been pursued but is now being pursued. They say that in their respective current financial circumstances the excusing orders ought to be made. By the operation of s 41(7) of the Bankruptcy Act the application affords the applicants an automatic extension of time on the bankruptcy notice until the application is determined.
On 11 August 2011 the applicants sought to amend their applications to include a ground in the alternative that would extend the time for compliance with the bankruptcy notice for the period in which the Magistrates Court extends the judgment pursuant to a means inquiry and instalment order application made in that court. By s 41(6A) of the Bankruptcy Act the time for compliance with the bankruptcy notice on this new ground is not automatically extended but may be extended in appropriate circumstances.
Wandina asserts that the applications lack merit. The applicants submit that Wandina has not challenged the applicants’ facts with a single contradictory affidavit.
Wandina has filed a motion to strike out these proceedings pursuant to s 31A of the Federal Court of Australia Act but these have not been determined. The strike out motions are contested. The applicants assert that they are entitled to a hearing on the merits and in the absence of contradictory facts their case ought to be taken as bona fide and with reasonable prospects.
Magistrates Court of WA – means inquiry and instalment order application
The applicants have made applications to stay the enforcement of the judgment in the Magistrates Court of Western Australia pending a means inquiry and an application for the judgment to be paid by an instalment order. The applications were heard on 12 August 2011 and stand adjourned to 16 September 2011.
The means inquiry and instalment order applications are based on the disclosed financial circumstances of Mr Cacho and Mr Duncan which each submits establishes their respective very limited income that is not committed to living expenses and almost no assets. Mr Cacho and Mr Duncan seek an instalment order which will permit them to meet the judgment by part payments of $1,708.94 per month for 48 months. The asserted ability to meet the proposed instalment did not consider an obligation to pay security for costs in this action.
Accordingly, each applicant submits that it is apparent on the material before the Magistrates Court of Western Australia and copied to this Court that each is of very limited means although not insolvent. They submit that Wandina’s submissions misconstrue the actual uncontested evidence and take no account of the applicants’ living expenses and family obligations.
They submit that the generalised evidence of inability to meet a costs order is contradicted by the evidence of a limited capacity to meet the judgment albeit by instalments. The assertion of incapacity to meet the judgment also fails, they submit, to account for the entitlement of the applicant to pursue Mr Pecoult.
The applicants then submit that if the Federal Court application is stayed or dismissed and the bankruptcy notice expires and the instalment order is not in place at that time or the judgment not otherwise suspended then a creditors petition could be commenced which would see a sequestration order made rendering further prosecution of the means inquiry and instalment order application redundant. The fact of a sequestration order against the applicant would have important implications for the applicant’s continued pursuit of a career as a chartered accountant and as a registered insolvency administrator.
The application for security
The application in each case is supported by an affidavit by Mr John Konstantinos Panegyres, Wandina’s in-house solicitor sworn on 16 August 2011. The applicant in WAD 127 of 2011, Mr Adrian Stewart Duncan relies on his affidavit sworn on 21 April 2011. The applicant in WAD 128 of 2011, Mr Ricardo Cacho relies on his affidavits sworn on 4 May 2011 and 31 May 2011. These affidavits by Mr Duncan and Mr Cacho were not sworn specifically in respect to this application for security for costs which post dates them.
There are a number of established guidelines which the Court typically takes into account in determining such an application. These are conveniently set out in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 197-8.
Wandina submits that the following facts should incline the Court to order security:
(a)There is reason to believe that each of the applicants will be unable to pay Wandina’s costs;
(b)The applicants have already defaulted on an order to pay costs, in the sum of only $2830.00 each;
(c)Wandina is not responsible for the financial condition in which each of the applicants finds himself;
(d)The applicants are permanently resident outside Australia, and have no assets in Australia or the United Kingdom (UK) against which Wandina might execute an order for costs;
(e)Each applicant is suing only on his own behalf, not for the benefit of another.
However, neither applicant is impecunious.
Mr Duncan:
(a)is qualified to act as a chartered accountant in the UK;
(b)held a job in the UK paying UK £180,000pa, before he commenced a private venture with Mr Cacho; and
(c)provides no evidence that he is unable to recommence employment on similar income.
Mr Cacho:
(a)is qualified to act as a chartered accountant in the UK;
(b)specialises in insolvency solutions; and
(c)works in association with Mr Duncan and draws UK £120,000pa.
The applicants contest a judgment debt which is only $72,405.06, for which they are jointly liable. The debt could be discharged by each paying $36,200 plus interest and costs.
Each applicant has engaged a firm of Perth solicitors and the solicitors have engaged a barrister. There is no evidence that these engagements are pro bono.
As to the merits of the applicant’s respective claims Wandina submits that the claim, to be excused under s 443B Corporations Act, is unsustainable at law, and would be unstainable as a matter of discretion even if open at law.
Wandina further submits that the applicants could have applied under s 443B Corporations Act several years ago, and on their submission as to the law, at any time subsequent including before Magistrate Cockram in 2009. There was, as I mentioned, no appeal lodged, or other relief sought, in respect of the judgment. Their delay and inaction, Wandina submits, and I accept, is a relevant factor against the applicants on the issue of security for costs. The applicants deny that they have been responsible for any delay. Mr Duncan professed ignorance of the proceedings in the Magistrates Court.
Form and amount
Wandina submits that the security should be by way of payment into court, which is the only means of effectively providing security in these circumstances and that the amount at which security is fixed should be heavily influenced by the fact that even moderate unrecoverable costs will substantially erode the judgment debt.
The applicants make the following submissions:
(1)Wandina is not entitled to an indemnity for its costs incurred or to be incurred. It is only entitled to security towards meeting those costs;
(2)It has sought approximately half of the anticipated costs of this matter going to trial with senior counsel;
(3)It does not offer expertise opinion evidence as to the likely assessed costs of a trial of this matter;
(4)It does not calculate costs by reference to a published scale of costs in this Court;
(5)It gives no basis for the necessity for senior counsel to attend the trial.
The applicants submit that no order for security for the whole of the costs of this action would be appropriate.
They then submit that when considering part security for costs the applicants ought only to be asked to meet half of the anticipated costs up to and of the hearing of the application to strike out the action under s 31A of the Federal Court of Australia Act. They say that the costs to take the matter to that stage are not identified by Wandina. They submit that once that is heard and only if the matter progresses further, then the court should revisit the extent of ordered security. They submit that the taxed or assessed costs up to that point are likely to be significantly less than Wandina’s senior counsel’s accounts rendered to date.
They submit that in line with the instalment order application the order for security ought to be, if made at all, by instalments sufficiently within the financial capacity of the applicant and then only up to the assessed costs to the next stage of the action so as not to unfairly stifle the prosecution of the claim.
The applicants’ position then in summary as to why security should not be ordered is as follows:
(a)the challenged liability involved no personal benefit for the applicant;
(b)the challenged liability is the single most significant debt of the applicant and causes the applicant’s financial predicament;
(c)the security application, like the application to strike out the action, is colourable as an attempt to deny the applicant a hearing for protection as a court officer;
(d)A stay of the main application will frustrate the applicant’s claim and a bankruptcy will compromise the applicant’s continued practice as a chartered accountant licensed to act as an insolvency practitioner. A stay and a sequestration order would also limit the pursuit of Mr Pecoult, the person responsible to the respondent (a liability with which the trial magistrate agreed).
Mr Pecoult
Much of the applicants’ case is built on the matter of Mr Pecoult’s responsibility for and liability to the applicants. In the present application, Mr Pecoult’s interests would be identical to those of the applicants: both benefit from an excusing of the debt under s 443B Corporations Act.
Wandina submits, and I accept, that the matter of Mr Pecoult is irrelevant to the issue of security, for two reasons. First, the applications are to excuse the applicants from liability, in which case there would be no liability by Mr Pecoult, and no capacity for the respondent to pursue Mr Pecoult. Hence, the applicants’ alleged pursuit of Mr Pecoult could not stand as a reason to oppose security for the respondent. Second, there is no evidence that security for the respondent would impair the applicants’ capacity to pursue Mr Pecoult. It is no answer for the applicants to say they will confer the benefit of their judgment of indemnity against Mr Pecoult.
I am satisfied, substantially on the grounds identified by Wandina, that security for costs ought be ordered against each applicant. They have made no attempt to appeal the judgment of the Magistrates Court. They reside outside Australia and have no assets here. They obviously have sufficient funds to retain solicitors and counsel.
In my opinion, security ought be ordered in respect of the proceedings from their commencement up to the conclusion of Wandina’s s 31A dismissal application.
The costs to date of Wandina amount to approximately $19,000 for both proceedings.
The costs of Wandina likely to be incurred on its s 31A application for both proceedings amounts in total to a further $11,000.
The total amount then to the conclusion of the s 31A application is approximately $30,000.
I will order that each applicant provide security for costs in the sum of $7,500, a total of $15,000. Each proceeding will be stayed pending the payment of those funds into Court. The applicant in each case should pay Wandina’s costs of this application. If necessary, Wandina may apply for further security in the future.
I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour. Associate:
Dated: 1 February 2012
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