Health and Property Network P/L v Pettingill & Ors No. Scciv-98-1427

HEALTH AND PROPERTY NETWORK PTY LTD V PETTINGILL AND ORS
[2001] SASC 45

JUDGE BURLEY. In this action the plaintiff seeks to recover from the defendants monies belonging to the plaintiff which were allegedly disposed of by the defendants in a manner not authorised by the plaintiff, contrary to its interests and contrary to law.
On 8 April 1999 an order was made in favour of the fourth and fifth defendants for the provision of security for costs and for a stay of the proceedings pending the provision of that security. The order was made pursuant to Section 1335 of the Corporations Law (the Law). The plaintiff has not complied with the order and consequently a stay of the proceedings remains in force.
On 17 December 1999, Mr Austin Taylor was appointed the liquidator of the plaintiff. It has been stated from the Bar table without objection that Mr Tidswell, the then sole director of the plaintiff, appointed an administrator to the company on the basis that it was insolvent. Because no arrangement could be reached with the creditors, the company went into liquidation.
The liquidator, by application filed on 21 September 2000, sought an order setting aside the order for security for costs.
This application was subsequently amended to cure a technical defect. The amended application was filed on 19 February 2001 but, for the purposes of this application, the liquidator’s decision to continue with these proceedings can be taken as operating from 21 September 2000 when the original application was made.
The plaintiff relies upon the provisions of SCR 84.12 which provides:
“The Court may vary or set aside a judgment or order at any time if the justice of the case so requires.”
The plaintiff contends that because of matters which have occurred since the order for security for costs was made, it should be set aside. In particular, the fact of the appointment of Mr Taylor as liquidator is said to be important. In addition, there have been proceedings in the Magistrates Court in which adverse credibility findings have been made by a Magistrate in respect of the fifth defendant.
This latter point is said to support the plaintiff’s present contention that it has a strong case in respect of the fifth defendant. It has not been suggested that a res judicata has arisen by virtue of the Magistrates Court proceedings. In its absence, it is difficult to see how the Magistrate’s finding can affect the result of the case pursued by the plaintiff against the fifth defendant because this Court will have to approach the question of the credibility of the fifth defendant according to the evidence given by the fifth defendant at the trial of this matter.
As to the question of the appointment of a liquidator, the difference between the parties’ respective contentions is this: the plaintiff says that this is of crucial significance because the liquidator has the duty to recover the plaintiff’s assets for the benefit of the unsecured creditors; the defendant says that if the security for costs order is set aside on this basis, Section 1335 will have very little effect because the order may be subverted by the company going into liquidation. There is something to be said for each of the positions respectively taken by the parties on this application.
In Mohtar v Mohtar (1988) 146 LSJS 377 von Doussa J said at 391:
“Nevertheless, as members of the Full Court of New South Wales said in Hardaker v Wright & Bruce Pty Ltd [(1962) SR (NSW) 244 at 248], the public interest requires that litigation should not proceed interminably. An important factor in the application of Rule 84.12 must be the public interest consideration. For that reason the power to set aside a judgment so as to allow a rehearing must be exercised sparingly and with great care.”
His Honour then referred to matters of delay and whether or not third parties have obtained rights as a result of the judgment sought to be set aside. Neither of those two factors apply in this case.
The liquidator contended that the plaintiff’s impecuniosity was caused by the actions of the defendants including the fifth defendant. This was an opinion expressed by him, but no evidence was put before me to support such a contention which, in any event, is contrary to the finding made by the Master who granted the order for security for costs in the first instance.
The liquidator argued that he had a responsibility to realize the assets of the plaintiff for the benefit of the unsecured creditors. However, he has not seen fit to set out what those assets are beyond saying that the chose in action constituting these proceedings is the major asset of the plaintiff. He also said that he has sought the support of the creditors in relation to the proceedings but none has been forthcoming.
The liquidator has stated that he has not obtained “litigation funding” because the action is currently stayed. It is not clear to me where the distinction lies between litigation funding and the support of creditors and why the obtaining of same is dependent upon the stay being lifted. Consequently, I cannot place any reliance upon this aspect of the liquidator’s affidavit evidence.
In his affidavit of 16 February 2001, the liquidator has expressed the view that the alleged conduct of the defendants as referred to in the statement of claim amounts to gross neglect of the appropriate duties or fraud such that public interest requires that the action continues. There has been no attempt to articulate the basis upon which fraud is alleged against any of the defendants and, consequently, no reliance can be placed on that aspect of the plaintiff’s submissions.
It seems to me that it is necessary to decide whether the liquidator should be able to continue with the litigation (since I accept that if the order for security for costs is not lifted the liquidator will be unable to do so) or whether as a matter of policy, the order ought not to be set aside because to do so would seriously weaken the provisions of Section 1335 of the Corporations Law.
In my view, in cases such as this, the liquidator must necessarily have a strong case for the setting aside of the security for costs order before the Court will interfere because to do otherwise would seriously undermine the function of Section 1335 of the Law. It is not, in my view, a matter of merely evaluating whether or not, if the application for security for costs for the first time had been made after the appointment of a liquidator, the application would have been granted.
The function of Section 1335 of the Law would be undermined because any order for security for costs is made in the context that the plaintiff is impecunious and therefore likely to be insolvent. If the order for security for costs against a company were to be routinely set aside under SCR 84.12, the plaintiff company could go into liquidation which would, in turn, result in the liquidator applying to have the security for costs order set aside in circumstances similar to the case before me. I do not consider that the discretion conferred upon the Court by SCR 84.12 is intended to have such an effect in relation to the provisions of Section 1335 of the Law. It is for that reason that I have concluded that there must be a compelling reason (not available to the plaintiff company when the application for security for costs was heard) beyond the mere appointment of the liquidator to justify the Court setting aside the security for costs order.
In this case, the affidavit of Mr Taylor is cast in very broad terms relating to the assets of the company and lack of support in relation to the creditors. There is nothing out of the ordinary that requires the original order to be set aside. I accept that the liquidator in general terms has a responsibility to get in the assets of the company but, in the circumstances of this case, the liquidator is not obliged to pursue those proceedings unless he gets the support of the creditors and/or contributories.
For these reasons I consider that the application to set aside the security for costs order should be dismissed.

[2001] SASC 45

6 April 2001