Independent Powder Coating P/L (In Liquidation) v Doherty

[2007] NSWDC 64

CITATION:	Independent Powder Coating Pty Ltd (In Liquidation) v Doherty [2007] NSWDC 64 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	16 March 2007
EX TEMPORE JUDGMENT DATE:	16 March 2007
JURISDICTION:	Civil
JUDGMENT OF:	Sidis DCJ
DECISION:	1. Motion dismissed; 2. Costs of the motion costs in the cause.
CATCHWORDS:	Security for costs - Application rejected
PARTIES:	Independent Powder Coating Pty Ltd (In Liquidation) William Patrick Doherty
FILE NUMBER(S):	Newcastle 480/06
COUNSEL:	R D Marshall - Plaintiff P R Cummings - Defendant
SOLICITORS:	Turnbull Hill Partners - Plaintiff Sparke Helmore Lawyers - Defendant

JUDGMENT

HER HONOUR

1 In this matter the defendant seeks security for costs from the plaintiff by motion filed on 5 February 2007. The amount sought by way of security is $65,000.

2 There is no dispute on behalf of the plaintiff that it is not able to provide security as sought. The plaintiff is a company in liquidation and it is impecunious. That is freely conceded. It is also conceded that if security is ordered against the company then the proceedings will not progress. The question is whether in the exercise of its discretion the Court ought, notwithstanding, to require security for the defendant’s costs.

3 The claim is not without its complexities. The defendant is the former managing director of the plaintiff. It is alleged that he has misused his position as a director in respect of certain funds of the company and in respect of some of the property of the company. Both claims are disputed.

4 The funds at issue were provided by the Commonwealth Department of Transport and Regional Services for the purposes of a project to establish a metal fabrication plant at Dungog.

5 The funds have been used to provide fencing for property which is under contract for sale to the defendant. There is no evidence before me as to precisely how it was that the company was to benefit from those funds. The submissions made on behalf of the defendant appear to suggest that the funds were provided by DOTARS to the company without any obligation as to how they were to be so used. This, of course, raises some serious concerns in my mind as to the circumstances of the arrangements between DOTARS and the company and the defendant.

6 The principal submission for the defendant is that the company, being in liquidation and being without funds, has not provided any evidence that its creditors are not prepared to support the company by funding the litigation.

7 In particular, the defendant points to DOTARS and to the Australian Taxation Office, which is also a substantial creditor of the company.

8 There is evidence from the liquidator to the effect that he has sought funding from a litigation funding organisation and has been declined that funding. The company has about $3 in its bank account. There is no evidence to indicate that the creditors themselves have been asked to provide funding and have declined to do so. It is said that the onus is on the plaintiff to establish that it cannot get funding from the creditors, in particular the major creditors which are Commonwealth departments.

9 In response, my attention is drawn to the list of creditors set out in the liquidator’s report which indicates that there are a number of priority creditors, and that from this I can infer that those priority creditors are employees.

10 I do take account of the fact that the company is impecunious and that, should the claim fail, the defendant would be without recourse for costs of the litigation. I do take into account that there are two major creditors who might well have been approached to provide funding for the purpose of the litigation.

11 On the other hand, I note the very significant issues raised in respect of the conduct of the defendant and the application of the funds provided by way of grant to the plaintiff for purposes which appear to benefit himself personally. These are public funds intended to provide a benefit by way of establishment of industry and employment for persons living within the area of the Dungog Council. There is no material before me from the defendant to explain the circumstances in which these funds have been applied.

12 I note that it has been put to me that it is only recently that the plaintiff’s case has been pleaded by way of challenge to the defendant’s responsibilities as a director of the plaintiff. However, the issues raised in the current proceedings are extremely concerning and, having regard to those issues and having regard to the fact that they appear to raise a case of some substance on the part of the plaintiff, success which would ultimately benefit priority creditors, most likely former employees of the company, I do not propose to accede to the request for security in circumstances where the serious issues raised could not otherwise be aired by way of court proceedings.

13 The motion is, therefore, dismissed.

14 On the issue of costs, the defendant argues that costs of the motion should be costs in the cause. I am persuaded that that is the appropriate approach to be taken by reason of the fact that it appears to me that there are significant issues between the parties.

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11/09/2008 - Formatting of short case title and parties as to P/L - Paragraph(s) Short case title and parties