Jeffcott Holdings Ltd (in Liquidation) (Respondent) v Paior and Others No. SCGRG 94/28 Judgment No. 5260 Number of Pages 5 Practice and Procedure (1995) 18 Acsr 213

The case of Jeffcott Holdings Ltd (in Liquidation) v Paior and Others is an appeal against a decision of a Master, who refused the appellant's application for an order that the respondent, the plaintiff in the action, provide security for his costs. The respondent is a public company that was ordered to be wound up by the Supreme Court of South Australia. The liquidator has instituted this action in the name of the company against the five directors, including the appellant. The respondent alleges that all five directors have acted in breach of s229 of the Companies Code in relation to certain financial transactions and seeks damages in the sum of $1,583,033.54.

The appellant sought security for costs in the form of a charge over any choses in action to which the respondent may be entitled. The choses in action referred to are the causes of action which the respondent has against the other defendants in the action. The appellant argued that he stands in a different position from the other directors and has defences which are not available to the other directors. The appellant submitted that security for costs should be granted in the form of a charge because it would not stifle the claim.

The court considered the relevant provisions in s441 of the Companies (South Australia) Code, which provides for the payment of certain debts in priority to all other unsecured debts. The Master held that the expression "the costs, charges and expenses of the winding up" included the costs of recovery, preservation and realisation of the assets, such as costs awarded against the liquidator in proceedings brought, continued or defended by him. The Master concluded that it would not be a proper exercise of his discretion to confer upon the appellant a priority which he would not otherwise have over other possible claimants to any monies which the respondent might recover from the other defendants.

The court further considered the principle that the solicitors for the company will have a lien for their costs over monies recovered and will thus recover their costs in priority over all other creditors. The court held that it would be inequitable if the appellant were able to gain a priority over those whose efforts have created the fund. The court also held that if the fund is inadequate to meet all claims upon it, the parties can, if necessary, apply to the Court pursuant to s386(3).

The appeal was dismissed.