Fodare Pty Ltd v Shearn - [2009] NSWSC 1140

CITATION: Fodare Pty Ltd v Shearn [2009] NSWSC 1140

HEARING DATE(S): 15 October 2009

JUDGMENT DATE :
27 October 2009

JURISDICTION: Equity Division
Corporations List

JUDGMENT OF: Barrett J

DECISION: Security for costs ordered.

CATCHWORDS: PROCEDURE - security for costs - action by company in liquidation - proceedings commenced by company through its liquidator - liquidator without funds - commencement of proceedings assisted by substantial creditor - that creditor unwilling to provide financial assistance - not shown that he is unable to do so - security to be provided - approach to quantum where respective solicitors express different views

CATEGORY: Principal judgment

PARTIES: Fodare Pty Limited - Plaintiff
Doris Emily Elizabeth Shearn - First Defendant
Kathleen Anne Hirtzell - Second Defendant

FILE NUMBER(S): SC 3048/09

COUNSEL: Mr J T Johnson - Plaintiff
Mr M J Cohen - First and Second Defendants

SOLICITORS: Garland Hawthorn Brahe - Plaintiff
Dignan & Hanrahan - Defendants

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

TUESDAY 27 OCTOBER 2009

ANOR

JUDGMENT

1 The defendants seek an order that the plaintiff provide security for costs.

2 The plaintiff is a company in liquidation. The proceedings were instituted after commencement of the winding up. The decision to sue was a decision of the liquidator, Mr Clout, but it is clear that he relied on advice and information given to him by a solicitor, Mr Dennis.

3 Mr Dennis was (and is) a significant creditor of the plaintiff. He obtained a judgment against the company. It is on his application that the winding up order was made.

4 The approach to be taken to an application for security for costs in proceedings commenced by a company at the instigation of its liquidator was outlined by Hodgson JA in Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105. After referring to cases in which the liquidator (as distinct from the company) is plaintiff and observing that a liquidator is generally regarded in the same way as a natural person plaintiff, his Honour said (at [45]):

Bell No 2

Bryan E Fincott P/L v Eretta Pty Ltd (1987) 16 FCR 497

Bryan

Bell No 2

5 In the present case, there is the added factor that the plaintiff is, it seems, the trustee of a family trust. That factor has a significance emphasised by the Full Federal Court in Bell Wholesale Co Pty Ltd v Gates Export Corporation

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2009] NSWSC 1140
Decision Date: 27 October 2009

CaseChat Overview and Summary

In the case of Fodare Pty Ltd v Shearn, the court was asked to determine the issue of security for costs in proceedings brought by a company in liquidation. The liquidator of Fodare Pty Ltd commenced the action with the assistance of a substantial creditor, who later declined to provide financial assistance. The primary concern was whether the liquidator was required to provide security for the defendant's costs in light of the creditor's refusal to contribute.

The legal issue before the court was whether the liquidator was obligated to furnish security for the defendant's costs. The court considered the circumstances under which a company in liquidation could be required to provide such security, particularly where a substantial creditor has assisted in the commencement of proceedings but subsequently refuses to provide further financial support. The court needed to decide whether the liquidator was estopped from seeking security due to the creditor's initial involvement and refusal to continue assisting financially.

The court concluded that the liquidator was indeed required to provide security for the defendant's costs. Despite the substantial creditor's initial involvement, there was no evidence to suggest that the creditor was unable to provide the necessary financial assistance. The court found that the liquidator, being in control of the litigation and having the funds available, should bear the responsibility of providing the security. Regarding the quantum of security, the court acknowledged the differing views of the respective solicitors but ultimately decided on an amount that balanced the interests of both parties, ensuring that the defendant's costs were adequately covered without unduly burdening the liquidator.

Orders