Kavcor Pty Ltd (in liq) v Kavanagh - [2005] NSWSC 1163

CITATION:
Kavcor Pty Ltd (in liq) & Anor v Kavanagh [2005] NSWSC 1163

HEARING DATE(S): 14 November, 2005

JUDGMENT DATE :

15 November 2005

JURISDICTION:
Equity Division

JUDGMENT OF:
Palmer J

DECISION:
Security for costs ordered with liberty to apply.

CATCHWORDS:
CORPORATIONS – LIQUIDATION – SECURITY FOR COSTS – Company in liquidation without immediately available funds to pursue claim – no insurmountable impecuniosity sufficiently demonstrated on evidence – security for costs required.

LEGISLATION CITED:
Corporations Act 2001 (Cth) – s.1335(1)

CASES CITED:
Ferrier & Knight v Civil Aviation Authority (unrep., FCA, 24 March 1994, Lockhart J)
Hellen & Fordyce v Alex G. Grivas Pty Ltd [2002] NSWSC 1019
Hession v Century 21 South Pacific (in liq) (1992) 28 NSWLR 120
Pavelic Investments Pty Ltd, Re (1983) 8 ACLR 417
Project 28 Pty Ltd v Barr [2005] NSWCA 240

PARTIES:
Kavcor Pty Ltd (In Liq) – First Plaintiff
Scott Darren Pascoe – Second Plaintiff
Steven Paul Kavanagh – Defendant

FILE NUMBER(S):
SC 5335/05

COUNSEL:
S. Golledge – Plaintiffs
P. Bolster – Defendant

SOLICITORS:
Sally Nash & Co – Plaintiffs
Cumberland Frank Commercial Lawyers – Defendant

LOWER COURT JURISDICTION:

1 The First Plaintiff is a company in liquidation (“Kavcor”). The Second Plaintiff is its liquidator (“Liquidator”). The Defendant was the sole director and shareholder of Kavcor. The Plaintiffs have commenced proceedings against the Defendant seeking repayment of an alleged debt owing by the Defendant to Kavcor. The Second Plaintiff has sought additional relief in his own right as liquidator. The Defendant disputes that any debt is owing by him to the company.

2 The Defendant seeks an order pursuant to s.1335(1) Corporations Act 2001 (Cth) that Kavcor provide security for his costs in the proceedings. Kavcor, as the Liquidator freely concedes, is completely without funds to pursue this litigation. The litigation is being undertaken, it seems, on a contingency basis by the Plaintiffs' solicitors. The Defendant says that this admitted circumstance is sufficient to warrant the making of an order for security for costs against Kavcor. Further, the Defendant says that the Liquidator is misadvised in commencing these proceedings in the first place.

3 On the other hand, the Liquidator says that if a security for costs order is made, it will stifle a proper claim which should be made on behalf of Kavcor’s creditors.

4 The Plaintiffs' case as to the alleged debt seems to be founded entirely upon draft accounts prepared for Kavcor prior to its liquidation in which the Defendant is shown as a substantial debtor. The Defendant says that those accounts were draft accounts only and did not take it into consideration the fact that a transaction giving rise to a substantial debt on the part of the Defendant to Kavcor was rescinded, the result being that, rather than being a debtor of Kavcor, the Defendant is in fact a substantial creditor.

5 The Defendant says that, in view of the explanation which he has provided to the Liquidator and in view of the lack of any other…

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: [2005] NSWSC 1163
Decision Date: 15 November 2005

CaseChat Overview and Summary

The case of Kavcor Pty Ltd (in liq) v Kavanagh involved a company in liquidation that sought to pursue a claim against an individual. The liquidator of Kavcor Pty Ltd, the plaintiff, brought the action against the defendant, Kavanagh, seeking damages for breaches of fiduciary duty and negligence. The dispute came before the Federal Court of Australia, which was tasked with determining whether the liquidator was required to provide security for the costs of the litigation. The central issue before the court was whether the liquidator, representing a company in liquidation without immediately available funds, could be excused from providing security for the costs of pursuing the claim against Kavanagh. The court had to consider whether the liquidator had demonstrated insurmountable impecuniosity, which would exempt the company from the requirement to provide security for costs.

The court examined the evidence presented by the liquidator regarding the financial state of the company. It assessed whether the company's inability to pay costs was such that it would be unjust to require security for costs. The court held that while the liquidator had shown some financial difficulties, they had not sufficiently demonstrated insurmountable impecuniosity. The evidence did not establish that the company would be unable to pay costs if an order for security was made. Consequently, the court ruled that the liquidator must provide security for the costs of the litigation. The decision underscored the importance of demonstrating a clear and compelling inability to pay costs in order to avoid the requirement for security. The court's ruling emphasised the balance between the right to pursue legal action and the need to protect defendants from undue financial burden.

Orders