Kamb Investments Pty Ltd (in liq) v Jde Equities Pty Ltd - [2021] WADC 128

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION:   PERTH
CITATION:   KAMB INVESTMENTS PTY LTD (in liq) -v- JDE EQUITIES PTY LTD [2021] WADC 128
CORAM:   DEPUTY REGISTRAR HEWITT
HEARD:   9 DECEMBER 2021
DELIVERED          :   21 DECEMBER 2021
FILE NO/S:   CIV 1984 of 2021
BETWEEN:   KAMB INVESTMENTS PTY LTD (in liq)
First Plaintiff
CAMERON SHAW
Second Plaintiff
RICHARD ALBARRAN
Third Plaintiff
AND
JDE EQUITIES PTY LTD
Defendant

Catchwords:

Practice and procedure - Application for security for costs - Effect on application of the role of liquidators - Consideration whether special circumstances exist justifying an order - Turns on its own facts

Legislation:

Corporations Act 2001 (Cth), s 588FA, s 588FF

Result:

Application dismissed

Representation:

Counsel:

First Plaintiff	:	Mr J E Scovell
Second Plaintiff	:	Mr J E Scovell
Third Plaintiff	:	Mr J E Scovell
Defendant	:	Mr A P Hershowitz

Solicitors:

First Plaintiff	:	Rostron Carlyle Rojas Lawyers
Second Plaintiff	:	Rostron Carlyle Rojas Lawyers
Third Plaintiff	:	Rostron Carlyle Rojas Lawyers
Defendant	:	James Chong Lawyers

Case(s) referred to in decision(s):

Nil

DEPUTY REGISTRAR HEWITT:

This action was commenced by a writ filed on 4 June 2021 by the plaintiffs, the first of which is a company in liquidation and the second and third, the liquidators of that company, seeking to recover from the defendant the sum of $375,000 and interest thereon on the basis that the payments comprising the $375,000 were unfair preferences pursuant to s 588FA of the Corporations Act 2001 (Cth) and recoverable from the defendant pursuant to s 588FF.
By chamber summons lodged on 19 August 2021 the defendant made application for security for costs and that is the matter which is before me for determination. The issue really devolves down to the question of whether or not the liquidators should be required to provide security for costs.
The first point to note is that the liquidators are natural persons and as such would not ordinarily be required to give security for costs save in exceptional circumstances. I do not propose to canvas all of the potential circumstances which might attract an order for security for costs but amongst them are whether or not the plaintiffs are resident out of the jurisdiction or are about to depart from the jurisdiction or enjoy some privilege which makes them immune wholly or in part from the law or process of execution. Additionally, the fact that a plaintiff is an undischarged bankrupt or is in default of costs orders previously made against him would be relevant. The list is not complete, but it gives a general flavour of the circumstances in which security for costs might be ordered.
In considering a claim the court is to have regard to the merits of the claim, what assets within the jurisdiction may be available to satisfy a costs order against the plaintiff, and whether the normal processes of the court would be available within the jurisdiction for enforcement of any order for costs made against the plaintiff. It is to be noted however, that no order shall be made purely on account of the poverty of the plaintiff or the likely inability of the plaintiff to pay any costs which may be awarded against him.
The company obviously is not in a position to pay a costs order, however, there is no reason to suppose that the second and third defendants are in a like position. Liquidators and administrators are in a somewhat different position to ordinary litigants and in that regard I rely upon the following passage from Law of Costs:[1]
Liquidators and administrators
29.53If a liquidator brings proceedings in his or her own name pursuant to his or her duty - say, an action for the recovery of property; for instance, as a result of an alleged voidable transaction - costs will most likely be awarded against the liquidator personally if the proceeding fails; as a general principle, no order for security for costs will be made against the liquidator. Various reasons have been proffered for this: a liquidator exercises a public function under statutory authority; in being exposed to the risk of an unfavourable costs order, a liquidator's position is analogous to a natural person plaintiff suing for his or her own benefit (though this point may be queried); and the personal gain to the liquidator from running the litigation consists only of professional fees. There is thus arguably no difference for this purpose between a trustee-in-bankruptcy and a liquidator (or, for that matter, an administrator).
(footnotes omitted)
[1] Dal Pont GE, Law of Costs (5^th ed, 2021) 1097.
It will be seen that as a general rule security for costs are not ordered against a liquidator and that a liquidator is not protected from an unfavourable costs order in the event that an action fails. To that observation I would add the fact that the second and third plaintiffs are registered liquidators whose professional status would be lost if, following an adverse costs order, the defendant found it necessary to bankrupt them. In that case the registration would be lost with presumably significant consequences to the second and third plaintiffs.
Despite the fact that security for costs are not ordinarily ordered against a liquidator it is certainly the case that in some circumstances such an order may be made. In the present case it is argued by the applicant defendant that the financial condition of the company is so parlous that the fruits of any successful litigation such as the present action are unlikely to benefit the creditors of the company but simply find their way into the pockets of the liquidators.
In this action the defendant has not raised any argument to say that the plaintiffs do not have an arguable case. If the case succeeds, of course the defendant will be liable to pay the plaintiff's costs. It is difficult to conceive of the fact that in addition to recoverable legal fees, the whole amount of the $375,000, if recovered, will be absorbed by the liquidators' efforts in pursuing this matter. Effectively, the defendant's submission is that the liquidators should simply wipe their hands of their responsibilities and duties in regard to the liquidation of the company on the grounds that the company is so far gone, and any recoveries spread so thin, that it is pointless to continue. If indeed the cause of action pursued by the plaintiffs has merit, such an attitude would confer a substantial benefit on the defendant, even though the impact on the creditors of the company is likely to be insignificant.
In my view a liquidator has certain duties to perform in regard to the liquidation of a company and the performance of those duties necessarily involves cost. To say that the purpose of the action will be to line the liquidators' pockets seems to me a rather simplistic way to view the matter. A proper investigation of the affairs of the company, in particular having regard to the depth of the liabilities which it now has, in my view, is a task which should be properly undertaken. Clearly something went very wrong in the present instance because the company apparently has debts amounting to some $27 million and assets of scarcely $200,000.
In my view the liquidators in instigating this action have potentially exposed themselves to an adverse costs order in the event that the claim fails. They are carrying out a task which has within it a certain element of public duty. To make an order such as is sought by the defendant in this action, namely the payment of $117,000 as security, will in all probability seriously enfetter that process. One can easily imagine on a big liquidation where there are multiple potential claims the need to provide security would be a huge handicap to the proper administration of a liquidation.
For these reasons I am of the view that the defendant's application is not soundly made. There is no need for security for costs to be given and there are sufficient protections for the defendant in the event the defendant succeeds in the defence.
My order is therefore that the application be dismissed and that the defendant pay the costs of the application. Given the circumstances of the liquidation and the scanty means available to the liquidators to pursue it, I will consider an order that the costs be payable forthwith.

I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
MK
Court Officer
20 DECEMBER 2021