Lee v Parker (No 2)

Case [2022] FCA 582

FEDERAL COURT OF AUSTRALIA

Lee v Parker (No 2) [2022] FCA 582

File number(s): NSD 528 of 2020
Judgment of: HALLEY J
Date of judgment: 20 May 2022
Catchwords:

PRACTICE AND PROCEDURE – application for security for costs – whether an order for security would stultify the proceedings brought by natural and corporate plaintiffs – where plaintiffs are impecunious – whether claims by natural plaintiffs are so weak that an order for security for costs should be made – whether it is arguable that a liquidator owes a duty to contingent creditors – whether the natural plaintiffs are contingent creditors of the corporate third plaintiff – whether security for costs should be ordered against the corporate plaintiffs where no order for security for costs against natural persons with overlapping factual and legal claims – public interest in liquidators being scrutinised – application dismissed

PRACTICE AND PROCEDURE – application for amendment of start date of claims advanced in amended originating process – whether r 8.21(2) of the Federal Court Rules 2011 (Cth) (FCR) available to avoid limitation periods with respect to subsequent joinder of new plaintiffs – whether an order can be made pursuant to r 1.34 of the FCR dispensing with r 9.05(3) of the FCR – whether an order should be made pursuant to r 1.35 of the FCR, inconsistently with r 9.05(3), that the start date of the proceedings for newly joined plaintiffs be amended to the commencement date – application dismissed

Legislation:

Corporations Act 2001 (Cth) ss 180, 181, 1335

Taxation Administration Act 1953 (Cth), Schedule 1, ss 269-10, 269-15, 269-40, 259-45

Federal Court Rules 2011 (Cth) rr 1.34, 1.35, 8.21, 9.05

Cases cited:

All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Limited [2020] FCA 840

Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1; [1984] FCAFC

Brecher v Barrack Investments Pty Ltd [2018] FCA 472

Concrete Mining Structures Pty Ltd v Cellcrete Australia Pty Ltd (No 2) [2016] FCA 360

Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972; [1989] FCA 520

Ethicon Sarl and Others v Gilland Others (2018) 264 FCR 394; [2018] FCAFC 137

Harpur v Ariadne Australia Limited [1984] 2 Qd R 523

Idoport Pty Limited & Anor v National Australia Bank Limited& 8 Ors [2001] NSWSC 744

Jazabas v Haddad [2008] NSWSC 593

KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189; [1995] FCA 76

Lee v Parker [2020] FCA 1453

Mecrus Pty Ltd (ACN 088 126 756) v Industrial Energy Pty Ltd (ACN 080 687 681) (2015) 327 ALR 523; [2015] FCA 103

Mills v Sheahan (2007) 99 SASR 357; [2007] SASC 365

Morton as Liquidator of MJ Woodman Electrical Contractors Pty Ltd v Metal Manufactures Pty Limited [2021] FCAFC 228

Perpetual Nominees Ltd v McGoldrick & Anor (No 3) (2017) 317 FLR 227

Street & 7 ors v Lunar Park Sydney Pty Ltd& 3 ors [2006] NSWSC…

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Details
AGLC
Lee v Parker (No 2) [2022] FCA 582
Case
[2022] FCA 582
Decision Date

CaseChat Overview and Summary

Lee and Silverbrook, the natural plaintiffs, and WSPS and Serif, the corporate plaintiffs, were involved in proceedings against Parker. The dispute centred on an application for security for costs and an application to amend the start date of claims advanced in an amended originating process. The court had to decide whether an order for security for costs would stultify the proceedings, particularly given the impecuniosity of the natural plaintiffs and the potential impact on their ability to pursue the claims. The court also had to determine if there were sufficient grounds to order security for costs against the corporate plaintiffs, and whether the Federal Court Rules 2011 (Cth) could be used to amend the start date of claims for the newly joined plaintiffs.

The court concluded that an order for security for costs would likely stultify the proceedings brought by the natural plaintiffs, who were impecunious and had no realistic means to meet any likely costs order. The prospects of success of the contentions advanced by the natural plaintiffs were not so weak that it would justify an order for security for costs that would have the effect of stultifying the proceedings they had commenced. The court also found that there was a public interest in scrutinising the conduct of liquidators and holding them accountable if they had contravened their statutory or fiduciary duties. Consequently, security for costs should not be ordered against the natural plaintiffs or the corporate plaintiffs. The court further ruled that rule 8.21(2) of the Federal Court Rules 2011 (Cth) could not be relied upon to avoid limitation periods for the subsequently joined plaintiffs. An order was made that the date the Amended Originating Process takes effect with respect to the claims advanced by the natural plaintiffs be 13 May 2020. However, an order could not be made dispensing with rule 9.05(3) of the Federal Court Rules 2011 (Cth), and it was decided that the start date of the proceedings against the corporate defendants should not be amended to 11 May 2020.

The court dismissed the defendant’s application for security for costs and the plaintiffs’ application to amend the start date of claims, while awarding costs to the respective parties for the applications. The matter was listed for a case management hearing.

Orders

Orders of the court

1. The defendant’s amended interlocutory application filed on 8 February 2022 (Security for Costs Application) be dismissed.

2. Pursuant to r 8.21(2) of the Federal Court Rules 2011 (Cth), the date that the Amended Originating Process takes effect, with respect to the claims advanced by the first and second plaintiffs, be 13 May 2020.

3. The plaintiffs’ interlocutory application filed on 8 February 2022 (Commencement Date Application) be otherwise dismissed.

4. The defendant pay the plaintiffs’ costs of and incidental to the Security for Costs Application.

5. The plaintiffs pay the defendant’s costs of and incidental to the Commencement Date Application.

6. The matter be listed for a case management hearing, to be heard with NSD1339/2021, at 9.30 am on Friday, 3 June 2022.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

In Street, Brereton J, after noting that some authorities had proceeded on the basis that if it was concluded that one or more plaintiffs should not provide security for costs, other plaintiffs should not be ordered to pay security, stated at [28]-[29]:However, this is not an absolute rule, as appears from the judgment of Plowman J in John Bishop (Caterers) Ltd v The National Union Bank Ltd [1973] 1 All ER 707; see also Fiduciary Ltd v Morning Star Research. Where there is a complete identity between the corporate plaintiff and the individual plaintiff, so that all plaintiffs are suing in relation to one and the same defendant, and all plaintiffs must succeed or fail together, security will not ordinarily be ordered against only one of them [Bishop, 709-710]. But where the various plaintiffs’ claims have different elements and aspects, so that they will not all necessarily succeed or fail together, although the existence of individual plaintiffs is a factor that diminishes the defendant's claim to be entitled to security against the corporate plaintiff, it does not extinguish it [Interwest Ltd v Tricontinental]. And where the degree of overlap between the claim of the individual and corporate plaintiffs is comparatively small, such that separate orders for costs might be made in respect of each of the plaintiffs, it is usually appropriate that an order for security be made [Bishop, 716; Fiduciary v Morning Star, 33-36].In the present case, while all the plaintiffs rely on similar facts, they do not sue on the same cause of action. This is particularly so in respect of the Trade Practices claims. Each plaintiff separately has to prove reliance, and each plaintiff separately has to prove that plaintiff’s own damages. Importantly, it is only in respect of the Trade Practices claims that liability is asserted against the third and fourth defendants. [Emphasis added.] In Brecher, Thawley J stated at [28]:In my view, this is not an appropriate case in which to order security for costs for the following reasons. First, I am not satisfied that there are sufficiently substantial incremental costs over and above what would be incurred in meeting Dr Brecher’s claims in any event: Luna Park at [27], [28], Funds First Pty Ltd v Owners Corporation Strata Plan 66609 (No 2) [2008] NSWSC 428 at [13]. It is evident from the pleading that there is substantial overlap between the claims brought by each and that substantially all of the factual substratum would need to be traversed in the claim brought by Dr Brecher. In my view, the principles referred to in Harpur v Ariadne Australia Limited [1984] 2 Qd R 523 (Harpur) and Luna Park at [26] to [28] apply. In my view, there is no realistic possibility of different outcomes as between the applicants. In particular, it was not demonstrated, as it was in Luna Park, that the defence of the corporate applicant’s case substantially increased the complexity and likely cost of the case or its nature. It may be accepted that both applicants have different causes of action and that, if EBPL recovers certain damages, then Dr Brecher will not recover damages reflecting that loss and, indeed, may be unsuccessful in obtaining certain relief. For example, Dr Brecher’s financial liability under the guarantees may not be shown to be greater if EBPL is successful in its claim for damages. A not dissimilar situation arose in Harpur, where the company had the claim for compensation rather than the individual shareholders and, if the company failed, the individuals also necessarily failed: at 525. So too, the individual shareholders would not recover damages to the extent the relevant damages were obtained by the company. The real difficulty for the first to third respondents is that, if Dr Brecher had brought his claims alone, or the proceedings were now stayed vis-à-vis EBPL, it would still be necessary to traverse substantially the same facts and issues in the claim brought by Dr Brecher. This weighs heavily against an order for security. [Emphasis added.]

Evidence

Evidence Before The Court

For the reasons that follow, I have concluded that:(a)an order for security for costs would be likely to stultify the proceedings;(b)the prospects of success of the contentions advanced by Ms Lee and Mr Silverbrook that they are creditors or contingent creditors of WSPS are not so weak that they would justify an order for security for costs against impecunious natural persons that would have the effect of stultifying the proceedings they had commenced;(c)there is a public interest in the conduct of liquidators being scrutinised and liquidators being held to account if they have contravened their statutory or fiduciary duties;(d)security for costs should not be ordered against Ms Lee and Mr Silverbrook or against WSPS and Serif;(e)rule 8.21(2) of the FCR cannot be relied upon to avoid limitation periods that might have arisen with respect to plaintiffs that were subsequently joined to existing proceedings;(f)an order should otherwise be made pursuant to r 8.21(2) of the FCR that the date the Amended Originating Process takes effect with respect to the claims advanced by Ms Lee and Mr Silverbrook be 13 May 2020 (the date the proceedings were originally filed);(g)an order cannot be made pursuant to r 1.34 of the FCR dispensing with r 9.05(3) of the FCR; and(h)an order should not be made pursuant to r 1.35 of the FCR that the start date of the proceedings against WSPS, Mr Ingram and Serif be 11 May 2020 (or 13 May 2020, the date the originating process was actually filed). EVIDENCEMr Parker Mr Parker relied on five affidavits of Dean Bryan Pinto, a partner of Wotton & Kearney, the solicitors for the defendant, affirmed on 1 February 2021, 23 February 2021, 4 February 2022, 25 February 2022 and 4 March 2022 respectively, on both applications. He was not cross examined. Mr Pinto provided an estimate of the quantum of the costs that Mr Parker could expect to recover if the proceedings progressed to a contested hearing and he received a costs order in his favour. He also gave evidence of the procedural history of the proceedings, the impecuniosity of Ms Lee and Mr Silverbrook and the report as to affairs for WSPS dated 16 April 2014 and certified by Mr Silverbrook on 29 April 2014 (RATA), related financial statements, the general security agreement between WSPS and Ms Lee and Mr Silverbrook dated 12 April 2012 (General Security Agreement), the liquidator’s statutory report to creditors of WSPS dated 25 January 2021 prepared by Mr Ingram (2021 Report to Creditors) and formal proofs of debt lodged by the Deputy Commissioner of Taxation dated 30 April 2014.The plaintiffs The plaintiffs relied on the following affidavits on both applications:(a)affidavits of Mr Ingram affirmed on 19 February 2021, 4 February 2022 and 25 February 2022;(b)an affidavit of Ms Lee affirmed on 25 February 2022; and(c)an affidavit of Jason Green, a solicitor director of Gibson Howlin Lawyers, the solicitors for the plaintiffs in the proceedings, affirmed on 11 April 2022. None of the plaintiffs’ witnesses was cross examined.

Decision

Reasons for decision

I am satisfied that in the light of the reasoning in Mills and Perpetual Nominees and s 269-45(2) of the STAA, it is reasonably arguable, without expressing any concluded view at an interlocutory stage, that Mr Parker owed a duty of care to Ms Lee and Mr Silverbrook.Conclusion on application for security for costs against Ms Lee and Mr Silverbrook For the reasons outlined above, I cannot conclude that the claims sought to be advanced by Ms Lee and Mr Silverbrook are not reasonably arguable or are so weak that they give rise to the existence of something more that would justify an order for security for costs against impecunious natural persons that would stultify the proceedings commenced by them. No order will be made requiring Ms Lee and Mr Silverbrook to provide security for costs. I now turn to consider the application by Mr Parker for the corporate plaintiffs to provide security for costs.Should security for costs be ordered against the corporate plaintiffs? The impecuniosity of the corporate plaintiffs is a consideration that weighs heavily in favour of an order for security for costs against them. The following considerations also support an order that the corporate plaintiffs provide security for costs:(a)the application was brought promptly, there was no relevant delay between the joinder of the corporate plaintiffs on 22 December 2021 and the filing of the Security for Costs Application on 8 February 2022; and(b)the impecuniosity of WSPS and in turn Serif was not caused by Mr Parker’s conduct the subject of the proceeding, WSPS was placed into liquidation prior to the impugned conduct. Ms Lee and Mr Silverbrook are the only natural persons that could be said to be standing behind WSPS and Serif and both are parties to the proceedings and thus already exposed to a costs order. Further, given the inability of Mr Ingram to obtain any litigation funding and the impecuniosity of Ms Lee and Mr Silverbrook, I am satisfied that the practical effect of an order that the corporate plaintiffs provide security for costs in the sum sought by Mr Parker would be to stultify the proceedings that they have now brought against Mr Parker. Moreover, it is necessary to have regard to first, the implications of the decision not to order the natural plaintiffs, Ms Lee and Mr Silverbrook, to provide security for costs on the application for security for costs against the corporate plaintiffs and second, public interest considerations in the present context. The question of whether security for costs should be ordered against corporations that are plaintiffs where the Court has declined to order security for costs against natural plaintiffs in the same proceeding has been considered in several authorities, including Harpur v Ariadne Australia Limited [1984] 2 Qd R 523 (Harpur); Street & 7 ors v Lunar Park Sydney Pty Ltd& 3 ors [2006] NSWSC 1317 (Street); Brecher v Barrack Investments Pty Ltd [2018] FCA 472 (Brecher). In Harpur, Connolly J (with whom Campbell CJ and Demack J agreed) stated at 532:It is not disputed in this case that Harpur is the real plaintiff. The plaintiff companies are joined as a means to his establishing his own rights if he can. There is no question of the companies having any claim independent of Harpur’s. There is, to use Plowman J.’s expression, a complete overlap of the interests put in suit. The companies are joined because Harpur has chosen to conduct his business affairs in a fashion which requires the presence in this litigation of corporations of his creation which the law may regard as the appropriate plaintiffs but their interests are, as it is pleaded, beneficially his property. Why then should he be asked to provide massive security for the defendant’s costs? He is not seeking to shelter behind the companies. On the contrary he is the prime plaintiff. It does not seem to me that he should therefore be in any different position from any other plaintiff whose assets are within reach of the court’s process. The court cannot permit orders for security for costs to be used as a means of keeping a plaintiff out of court Orders for security are in fact infrequently made except in the cases of companies to which s. 533(1) or similar provisions apply and where there is no circumstance to outweigh the obvious force of the company's insolvency. [Emphasis added.]

Ratio Decidendi

Legal Principle Established

The plaintiffs further submit that the Court should not order security for costs against a corporate plaintiff where security for costs has not been ordered against a natural plaintiff agitating the same issues and the persons standing to benefit from the proceedings being the natural plaintiffs are not attempting to shirk their burden, where they too are plaintiffs.ConsiderationShould security for costs be ordered against Ms Lee and Mr Silverbrook? Given the potential relevance of the outcome of the application for security for costs against the natural persons to the application for security for costs against the corporate plaintiffs, it is first necessary to consider that application. It was common ground that the natural persons are impecunious, or at least not in a position to meet any likely costs order. The relevant issues are first, whether an order for security for costs would necessarily stultify the proceedings and second, whether the prospects for success of the causes of action sought to be advanced by Ms Lee and Mr Silverbrook are so weak that an order should be made that impecunious natural persons should provide security for costs notwithstanding that the likely effect of that order would be to stultify the proceedings. In the present context, the second issue turns on whether it is reasonably arguable that Ms Lee and Mr Silverbrook are creditors or contingent creditors of WSPS and whether it is reasonably arguable that a liquidator may owe a duty of care to a contingent creditor.Would an order for security stultify the proceedings brought by Ms Lee and Mr Silverbrook? In his 11 April 2022 affidavit, Mr Green gives evidence that his firm had not issued any invoices for professional fees and is unlikely to do so in the future unless a litigation funder is located or a monetary award is obtained, and counsel have only issued invoices for some of their fees to date. He further gives evidence that Ms Lee and Mr Silverbrook had placed $141,378.98 into his firm’s trust account to pay filing fees, liquidator’s costs, counsel fees and other disbursements, of which only $45,892.98 remains. He gives the following evidence of his knowledge of the source of those funds:13.I understand that the main source of the funds placed into our Trust Account has been from the First Plaintiff’s sister. I also understand that the First Plaintiff’s sister makes ongoing payments to the First and Second Plaintiff in order that they have funds to obtain food, shelter and clothing. I am not aware of any sources of income currently available to the First or Second Plaintiff.14.I am also instructed that the First and Second Plaintiffs have no bank accounts in their name.15.On 11 April 2022, I had a telephone call with the First Plaintiff’s sister where words were spoken to the following effect:Me:“In the proceedings the defendant is asking for security in the amount of $550,931.50. Do you have that much money available that you would be willing to provide to your sister in the event that such security is ordered?”Sister: “No.”