Lottah Mining Pty Ltd (in liq) v Summers
[2024] VSC 47
•21 February 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2021 01447
BETWEEN:
| LOTTAH MINING PTY LTD (ACN 168 344 581) (IN LIQUIDATION) | Plaintiff |
| v | |
| GEOFFREY DOUGLAS SUMMERS | Defendant |
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JUDGE: | Goulden AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 28 November 2023 |
DATE OF RULING: | 21 February 2024 |
CASE MAY BE CITED AS: | Lottah Mining Pty Ltd (in liq) v Summers |
MEDIUM NEUTRAL CITATION: | [2024] VSC 47 |
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PRACTICE AND PROCEDURE — Substitution of a party — Assignment of causes of action — Claim for breach of statutory duty under Corporations Act 2001 (Cth) — Whether assignable — Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 9.09(2).
CORPORATIONS — Plaintiff in liquidation — Liquidators assignment of rights to sue former director to non-party — Non-party applies to be substituted as plaintiff under rule 9.09(2) — Whether statutory claims under s 181 and s 182 of the Corporations Act 2001 (Cth) capable of assignment by the liquidator— Corporations Act 2001 (Cth) Sch 2 Pt 4 div 100 s 100-5.
PRACTICE AND PROCEDURE — Security for Costs — Defendant’s cross application for security for costs against party on substitution — Claim for past costs prior to substitution and prospective costs — Supreme Court (General Civil Procedure) Rules 2015 (Vic) O62 —Corporations Act 2001 (Cth) s 1335.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Porteous of counsel | Johnson Winter Slattery |
| For the Defendant | Mr G Bigmore KC and Mr B Murphy of counsel | Cornwalls |
| For Rogetta Resources Pty Ltd | Mr N Kaskani of counsel | Aitken Partners |
TABLE OF CONTENTS
Background to the Applications..................................................................................................... 1
Evidence and Submissions.............................................................................................................. 3
The Assignment of Claims by the Liquidators of the Plaintiff to Rogetta Resources......... 4
Submissions of Rogetta Resources and the Defendant in Relation to the Substitution Application.......................................................................................................................................................... 6
Rule 9.09(2)(a) — Assignment as a Threshold Condition to Enliven Jurisdiction.............. 9
Assignability of the Plaintiff’s Tortious and Equitable Claims............................................. 10
Assignment of the Statutory Duty Claims.................................................................................. 11
Role of s 100-5 of the IPS............................................................................................................ 14
Conclusion in Respect of the Substitution Application.......................................................... 21
Additional Facts Relevant to the Security for Costs Application........................................... 22
Quantum of Security Sought......................................................................................................... 24
Exercise of the Discretion to Order Security.............................................................................. 26
The likelihood that Rogetta Resources will be unable to pay the defendant’s costs........ 26
The prospects of success of Rogetta Resources’s claims....................................................... 27
Delay in applying for security................................................................................................... 28
Quantum of Security....................................................................................................................... 30
Costs of the Substitution and Security for Costs Application................................................ 33
HER HONOUR:
Background to the Applications
The plaintiff in this proceeding, Lottah Mining Pty Ltd (ACN 168 344 581) (in liquidation), sues its former CEO and director Mr Geoffrey Douglas Summers, the defendant. The proceeding was commenced by Writ and Statement of Claim (the ‘SOC’) filed on 5 May 2021.
By the SOC, the plaintiff alleges that:
(a) the defendant was the CEO of the plaintiff at all material times and in that capacity owed fiduciary duties to the plaintiff (defined in the SOC as the ‘CEO Duties’);
(b) the defendant was a director of the plaintiff between 8 October 2019 and 17 August 2020 and owed the plaintiff duties under s 181 and s 182 of the Corporations Act 2001 (Cth) (the ‘Act’) (defined in the SOC as ‘the Corps Act Duties’);
(c) in causing the plaintiff to make various payments from the plaintiff’s bank accounts in the period between 8 April 2014 and 29 January 2021, the defendant breached the CEO Duties and the Corps Act Duties;
(d) by reason of the defendant’s breaches of the CEO Duties and the Corps Act Duties, the plaintiff has suffered loss and damage and the defendant is:
(i) required to account to the defendant for the payments in breach of those duties; and
(ii) liable for damages and/or compensation for breach of fiduciary duty; and/or
(iii) liable for damages to compensate the plaintiff pursuant to s 1317H of the Act.
(e) the defendant has retained property of the plaintiff in the form of ‘Feasibility Studies’ and ‘Mine Documents’ despite request for their return;
(f) the defendant has retained certain vehicles, defined in the SOC as the ‘Retained Vehicles’, being property of the plaintiff, and transferred further vehicles, defined as the ‘Transferred Vehicles’, being property of the plaintiff, to persons unknown;
(g) by reason of the transfers of the Transferred Vehicles, the defendant has breached the CEO Duties and the Corps Act Duties, or alternatively converted them to his own use; and
(h) the plaintiff has suffered loss and damage equivalent to the value of the Retained Vehicles and the Transferred Vehicles.
In its prayer for relief, the plaintiff claims damages, compensation pursuant to s 1317H of the Act, orders for delivery up of the Feasibility Studies, the Mine Documents and the Retained Vehicles, orders voiding the transfers of the Transferred Vehicles, and damages in detinue and conversion.
The defendant denies liability on the grounds set out in his defence dated 29 September 2021.
On 29 March 2022 the plaintiff entered administration and, on 19 August 2022, it was placed into liquidation. Christopher Damien Darin and Graeme Robert Beattie were appointed liquidators of the plaintiff (the ‘Liquidators’).
On 26 September 2023 a deed of assignment (the ‘Deed of Assignment’) was executed between the plaintiff, the Liquidators and the applicant, Rogetta Resources Pty Ltd (‘Rogetta Resources’). The Deed of Assignment is expressed as assigning to Rogetta Resources the causes of action being pursued in the proceeding as well as an additional cause of action not yet the subject of the litigation.
The applications before the Court are:
(a) an application by Rogetta Resources by summons seeking that it be substituted as the plaintiff in the proceeding in place of Lottah Mining pursuant to r 9.09(2)(a) of the Supreme Court (General Civil Procedure) Rules 2015 (the ‘Rules’) on the basis that all of the plaintiff’s claims against the defendant have been assigned to it under the Deed of Assignment (the ‘Substitution Application’); and
(b) an application by the defendant that, as a condition of any order made to substitute pursuant to the Substitution Application, an order be made that Rogetta Resources provide security for the defendant’s costs of the proceeding (including past costs) pursuant to r 62.02(1)(b) and (f) of the Rules and s 1335(1) of the Act (the ‘Security for Costs Application’).[1]
[1]No summons was filed in respect of the Security for Costs Application, the requirement for a summons having been dispensed with by order made in the proceeding on 12 October 2023 with the consent of the parties.
Evidence and Submissions
At the hearing of the two applications Rogetta Resources relied on:
(a) the affidavit of Junyu Su, a director of Rogetta Resources, sworn 27 September 2023 (the ‘Su Affidavit’); and
(b) the affidavit of Paolo Mauro Tatti, a partner at Aitken Partners — solicitors for Rogetta Resources — sworn 1 November 2023 (the ‘Tatti Affidavit’), which exhibited the report of accredited costs law specialist, John Anthony Colonna, dated 25 October 2023 (the ‘Costs Report’).
Rogetta Resources also relied on submissions filed 1 November 2023, its oral submissions at the hearing on 28 November 2023 and supplementary submissions filed subsequent to the hearing.[2]
[2]Filed pursuant to the orders of the Court made on 28 November 2023.
At the hearing of the two applications the defendant relied on:
(a) the affidavit of Jarrod John Munro, partner at Cornwalls — solicitors for the defendant — affirmed on 10 October 2023 and exhibit JJM-1 (the ‘First Munro Affidavit’);
(b) the second affidavit of Mr Munro affirmed on 13 November 2023 and exhibit JJM-2 (the ‘Second Munro Affidavit’).
The defendant also relied on submissions dated 10 October and 13 November 2023, oral submissions at the hearing and a supplementary submission filed subsequent to the hearing on 11 December 2023.[3]
[3]Filed pursuant to the orders of the Court made on 28 November 2023.
The Assignment of Claims by the Liquidators of the Plaintiff to Rogetta Resources
Although the SOC was filed on 5 May 2021, the proceeding did not substantially progress prior to the plaintiff entering voluntary administration on 29 March 2022.
On 21 July 2022, the creditors of the plaintiff unanimously resolved that the plaintiff execute a Deed of Company Arrangement (the ‘DOCA’). In accordance with clause 7.2 of the DOCA, the ‘Proponents’, being Rogetta Resources, Mr Junyu Su and Mr Gang Yang, were required to pay a ‘Deed Contribution’ of $1.2 million within 28 days of execution of the DOCA.
On 19 August 2022, the DOCA was terminated ‘due to non-compliance with the Deed Contribution requirements’.[4] Also on 19 August 2022, the plaintiff entered liquidation.
[4]Exhibit JS–1 to Su Affidavit at 55.
On 10, 11 and 12 May 2023 the Liquidators conducted public examinations in proceeding S ECI 2022 05406[5] of various current and former directors of the plaintiff, including the defendant.
[5]In the matter of Lottah Mining Pty Ltd (In Liquidation) (ACN 168 344 581) (Supreme Court of Victoria, S ECI 2022 05406, commenced on 23 December 2022).
On 7 September 2023, the Liquidators produced a report to the creditors of the plaintiff in which they stated:
Following the [public examinations] process it became apparent that the Company may have a further claim against Mr Summers in respect of payments made by the Company to certain other companies associated with Mr Summers (together with the allegations made in the Summers Proceeding, the “Claims”).
For reasons outlined in this report, we are seeking creditors (sic) approval to enter into an agreement with Rogetta Resources, to have the right to sue associated with the Claims assigned to Rogetta Resources. [6]
[6]Exhibit JS–1 to Su Affidavit, 56.
The Liquidators also concluded there were insufficient funds in the liquidation for the plaintiff to continue to fund this proceeding. By their report, the Liquidators informed the plaintiff’s creditors that they had formed the opinion that an assignment of the claims in this proceeding (and the mooted additional claim) to Rogetta Resources in accordance with its offer made to the Liquidators was in the best interests of creditors, and that they had entered a Deed of Assignment with Rogetta Resources for which they would seek the creditors’ approval in accordance with s 477(2B) of the Act.
On 21 September 2023 the Liquidators held a meeting of the plaintiff’s creditors at which the creditors passed the resolution to approve entry into the Deed of Assignment with Rogetta Resources.
By Deed of Assignment executed by the Liquidators, the plaintiff and Rogetta Resources on 26 September 2023, the Liquidators of the plaintiff caused it to assign to Rogetta Resources the ‘Assigned Rights’, defined in clause 1.1 of the Deed as:
any rights, interests, entitlements or claims of [the plaintiff] to:
(a) prosecute the causes of action pleaded in [this proceeding];
(b)any rights that [the plaintiff] has, including to sue [the defendant], in respect of any breach by [the defendant] of his fiduciary duties owed to [the plaintiff] by or in relation to any transfers of funds or assets, or the conferring of a benefit upon, Pace OHC Limited Company (Japanese Company Number 0300-01-070683); and
(c) the right to any judgment or settlement sum in relation to the above.[7]
[7]Exhibit JS–1 to Su Affidavit, 84.
Clause 3.2(b) of the Deed of Assignment provided that if the assignment of some of the ‘Assigned Rights’ is held to be invalid, the validity of the assignment of the balance of the ’Assigned Rights’ is not affected. The terms of the Deed of Assignment also required Rogetta Resources to make an application to this Court to either be added as a party to, or substituted as, the plaintiff in this proceeding.
On 27 September 2023, Rogetta Resources filed its summons seeking to be substituted for the plaintiff in this proceeding pursuant to r 9.09(2). It does not seek to be joined as plaintiff.
Submissions of Rogetta Resources and the Defendant in Relation to the Substitution Application
In short compass, Rogetta Resources contends, in relation to the Substitution Application, that:
(a) the application is not opposed by the plaintiff (by its Liquidators) and (at least not directly) by the defendant;
(b) despite the lack of resistance to the Substitution Application, r 9.09(2)(a) of the Rules confers a discretion on this Court to substitute Rogetta Resources for the plaintiff in the proceeding in circumstances where, at any stage of the proceeding, the interest or liability of the plaintiff has been ‘assigned or transmitted to or devolves upon’ Rogetta Resources and the Court’s jurisdiction to exercise the discretion under the rule is only enlivened where there is a valid assignment; [8]
[8]Rogetta Resources, ‘Submissions of Rogetta Resources Pty Ltd in Support of its Application for Substitution of plaintiff and in opposition to the Defendant’s Application for Security for Costs’, 1 November 2023, 6.
(c) whilst, prior to the introduction of s 100-5 of the Insolvency Practice Schedule (Corporations), being Schedule 2 to the Act (the ‘IPS’), the Courts distinguished between statutory claims, which were considered incapable of valid assignment to a party who did not suffer the loss directly, and all other claims (or non-statutory claims) which were considered capable of valid assignment to a party irrespective of whether that party had suffered the loss directly[9] — this distinction no longer arises, as has been confirmed by the Federal Court in the case of Aquisite Pty Ltd v Moss (‘Aquisite’);[10]
[9]Rogetta Resources relies as examples upon Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd [2018] VSC 633 and UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667 (‘UTSA1’).
[10][2023] FCA 410 (‘Aquisite’).
(d) the plaintiff by its Liquidators has, therefore, validly assigned its right, title and interest in this proceeding, comprising the plaintiff’s non-statutory[11] and statutory causes[12] of action, to Rogetta Resources, and the Court’s power in r 9.09(2) has been enlivened;
[11]Rogetta Resources contends that Lottah Mining’s non-statutory causes of action comprise the claims for breach of fiduciary duty in relation to the unauthorised payments and the unauthorised vehicle transfers, claims for the retention and failure to return company property (in the possession of the Defendant) and claims for the unlawful detention and conversion of vehicles belonging to Lottah Mining. These are defined subsequently in these reasons as the Equitable Claims and the Tortious Claims, being the terms used in Rogetta Resources’s supplementary submissions.
[12]Rogetta Resources contends that Lottah Mining’s statutory causes of action comprise claims for breach of ss 181 and 182 and for compensation under s 1317H of the Act by the Defendant in relation to the unauthorised payments and the unauthorised transfer of vehicles. These are defined subsequently in these reasons as the Statutory Duty Claims.
(e) with its jurisdiction to order substitution enlivened, the Court should exercise its discretion to substitute because:
(iv) the Liquidators have undertaken substantial work to identify whether to pursue the claims against the defendant, including the conduct of public examinations of the defendant;
(v) the Liquidators have concluded that the current claims are meritorious and that there may be additional claims that could be made against the defendant;
(vi) the only reason that the Liquidators are incapable of pursuing the current claims (and any future claims) on behalf of the plaintiff against the defendant is a lack of resources available in the liquidation;
(vii) Rogetta Resources is willing to pursue, and capable of pursuing, the claims against the defendant, which the Liquidators consider meritorious but which they otherwise cannot pursue; and
(viii) Rogetta Resources has provided good and valuable consideration to the Liquidators in order to have the relevant causes of action and the right to conduct this proceeding against the defendant assigned to it.
During the hearing, the Court asked some questions of Counsel for Rogetta Resources concerning the applicability of the power in s 100-5 of the IPS to the Liquidators’ assignment of the plaintiff’s statutory causes of action under ss 181 and 182 and the claim for compensation under s 1317H of the Act (the ‘Statutory Duty Claims’). Counsel for Rogetta Resources was not in a position to respond to the Court’s questions during the hearing, and by orders made at the conclusion of the hearing, the parties were invited to file supplementary submissions addressing the assignability of the Statutory Duty Claims and the Court’s jurisdiction to order substitution if not all of the pleaded claims in the proceeding have been validly assigned to Rogetta Resources.
The primary position advanced by Rogetta Resources in its supplementary submission is that the Statutory Duty Claims were validly assigned by the Liquidators pursuant to s 100-5 of the IPS and that Rogetta Resources can be substituted as plaintiff. Rogetta Resources submits as its secondary position that it should be substituted and these issues should be left to be resolved at the trial of the proceeding. Rogetta Resources submits that ‘as an absolute last resort’, if its primary and secondary submissions are not accepted, the Court’s general power of case management in r 1.14 of the Rules would permit the Court to allow the substitution application on the condition that the causes of action referring to ss 181 and 182 (and the relief sought under s 1317H) of the Act are struck out of the SOC.[13]
[13]Rogetta Resources, ‘Supplementary Submissions of Rogetta Resources Pty Ltd’, 5 December [29].
The defendant did not oppose the Substitution Application directly, instead arguing the Substitution Application should only be granted if the defendant’s Security for Cost Application is also granted as a condition of the substitution.
As the defendant did not oppose the Substitution Application directly, the defendant’s submissions filed before and made orally at the hearing did not address the validity of the assignment of the Statutory Duty Claims and whether the Court’s jurisdiction under r 9.09(2)(a) to order substitution was enlivened. The defendant’s supplementary submissions did address, albeit very briefly, that issue. The defendant submits that the Statutory Duty Claims are not assignable, urging the Court to reject Rogetta Resources’ argument at paragraphs 9 to 27 of its supplementary submission to the effect that s 100-5 of the IPS permits the assignment of the Statutory Duty Claims. The defendant, instead, stands by a submission made at the hearing that while the assignment of the Statutory Duty Claims is invalid, the substitution can nevertheless be ordered and the defendant can amend his defence to plead a lack of standing against Rogetta Resources in relation to the Statutory Duty Claims.
Rule 9.09(2)(a) — Assignment as a Threshold Condition to Enliven Jurisdiction
Rule 9.09(2) of the Rules provides as follows (emphasis added):
(2)Where at any stage of a proceeding the interest or liability of any party is assigned or transmitted to or devolves upon some other person, the Court may order—
(a)that the other person be added as a party to the proceeding or made a party in substitution for the original party; and
(b) that the proceeding be carried on as so constituted.
It was not disputed that the validity of the assignment, so that it can be established that there ‘is’ an assignment, is a threshold condition that must be determined for the purposes of enlivening the Court’s discretionary power to make substitution orders under r 9.09(2)(a).
In Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd (‘Pentridge’),[14] Connock J expressed it as follows:
The language of r 9.09(2)(a) of the Rules is clear and unambiguous and reveals that establishing that there “is” an assignment is a threshold condition to the enlivening of the discretionary substitution power where r 9.09(2)(a) and an alleged assignment is relied upon as the sole basis for seeking a substitution order. As the terms of the rule provide, the court “may order” substitution “where at any stage of the proceeding the interest or liability of any party is assigned … to … some other person”.
The clear, simple and unqualified language speaks of the existence of an assignment having occurred. [15]
[14](2018) 58 VR 1 (‘Pentridge’).
[15]Ibid [37].
It is submitted by Rogetta Resources, that by operation of the Deed of Assignment, the Liquidators have assigned to Rogetta Resources:
(a) the plaintiff’s claims against the defendant in tort for breach of duty, conversion and detinue (the ‘Tortious Claims’);
(b) the plaintiff’s claims against the defendant in equity for breach of fiduciary duty and the right to equitable compensation (the ‘Equitable Claims’);
(c) the plaintiff’s claims against the defendant under statute, being for breach of the statutory duties in ss 181 and 182 of the Act and the claim for compensation that resulted from the contraventions under s 1317H (defined earlier in these reasons as the Statutory Duty Claims).
Assignability of the Plaintiff’s Tortious and Equitable Claims
Whereas at general law the assignment of bare rights to litigate by any person may be void for offending the public policy against maintenance and champerty or because the assignee failed to demonstrate a genuine commercial interest in the enforcement of the claim of another,[16] the authorities considering the Liquidators’ power of assignment contained in s 477(2)(c) of the Act make clear that this is not the case in relation to an assignment of causes of action by a liquidator.[17] In this regard, Hayne JA said in relation to s 477(2)(c) in UTSA Pty Ltd (in liq) v Ultratune Australia Pty Ltd (‘UTSA2’)[18] that it was plain it was ‘the intention of the legislature that the powers of the liquidator are to be ample’.[19]
[16]See Trendtex Trading Corporation v Credit Suisse [1982] AC 679 (which was determined by Elliot J in EWC Payments Pty Ltd v Commonwealth Bank of Australia [2014] VSC 207, [62] to be good law in Australia — a view upheld by Connock J in Pentridge at [56]).
[17]See UTSA1 and UTSA Pty Ltd (in liq) v Ultratune Australia Pty Ltd (1996) 21 ACSR 457 (‘UTSA2’).
[18](1996) 21 ACSR 457.
[19]UTSA2, 463.
In the Supreme Court of Western Australia case of EC Dawson Investments Pty Ltd v Crystal Finance Pty Ltd (No 3) (‘EC Dawson’),[20] Beech J, having reviewed the authorities including the decision of Hayne JA in UTSA2, concluded that bare rights of action under general law, including claims based on breach of fiduciary duty, were assignable as property of a company by a liquidator pursuant to s 477(2)(c). Beech J described the power as the ‘third exception’ to the public policy based prohibition on the assignment of bare or personal rights of action. [21] In Re Colorado Products Pty Ltd (in prov liq) (‘Re Colorado Products’),[22] Black J in the Supreme Court of New South Wales embraced the decision of Beech J in EC Dawson, holding that the liquidator’s assignment of a claim for breach of fiduciary duty was effective to confer on the assignee the ability to prosecute that claim.[23]
[20][2013] WASC 183 (‘EC Dawson’).
[21]At [891].
[22](2014) 101 ACSR 233 (‘Re Colorado Products’).
[23]Re Colorado Products, [346].
It was not contended that the Equitable or Tortious Claims in this proceeding were incapable of assignment by the Liquidators to Rogetta Resources. Having regard to the authorities cited, I find that both the Equitable and Tortious Claims have been validly assigned under the Deed of Assignment by the Liquidators pursuant to their power under s 477(2)(c). It follows that the Court’s jurisdiction to exercise the discretion to substitute Rogetta Resources for the plaintiff in respect of those Equitable and Tortious Claims is enlivened.
Assignment of the Statutory Duty Claims
The reasoning in UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (‘UTSA1’)[24] and UTSA2 as to the exceptional nature of the power in s 477(2)(c) was not confined to the assignment of general law claims, but could encompass also the assignment of statutory based claims by a liquidator. In Pentridge, therefore, Connock J held that ‘the validity of the alleged assignments in question cannot be successfully attacked on the basis of maintenance or champerty related considerations, or on the basis that the [applicant] does not have a sufficient interest to satisfy the [Trendtex Trading Corporation v Credit Suisse][25] test’.[26] Likewise in these proceedings, there is no attack, nor could there be one, on the validity of the assignment of the Statutory Duty Claims for reasons of maintenance or champerty or lack of genuine commercial interest.
[24][1997] 1 VR 667.
[25][1982] AC 679.
[26]Pentridge [58].
However, in Pentridge, his Honour ultimately held that the particular statutory causes of action purportedly assigned in that case were inherently incapable of assignment and that s 477(2)(c) could not render ‘the unassignable, assignable’.[27] The language of the section did not empower a liquidator to sell or dispose of an otherwise non-assignable cause of action. The causes of action under consideration in Pentridge were statutory based claims for misleading or deceptive conduct and for unconscionable conduct pursuant to s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth), s 1041I of the Act, and ss 82 and/or 87 of the Trade Practices Act 1974 (Cth) (the ‘TPA’).
[27]Ibid [71], [99].
His Honour accepted a long line of authority which held that those causes of action were personal to the person who suffered the loss and damage ‘by’ the relevant conduct proscribed by the statute, and the statute only empowered that person, and not an assignee, to commence or bring proceedings to recover the loss, damage or compensation.[28] In reaching this conclusion, his Honour conducted a thorough review of the authorities considering the inherent assignability or non-assignability of various statutory causes of action, including cases in which the relevant assignment was of claims for breach of statutory directors’ duties and associated claims for compensation under s 1317H of the Act.
[28]Ibid [107], [114].
The terms of s 1317H provide as follows:
1317H Compensation orders—corporation/scheme civil penalty provisions
Compensation for damage suffered
(1)a Court may order a person to compensate a corporation, registered scheme or notified foreign passport fund for damage suffered by the corporation, scheme or fund if:
(a)the person has contravened a corporation/scheme civil penalty provision in relation to the corporation, scheme or fun; and
(b)the damage resulted from the contravention.
The order must specify the amount of the compensation.
The statutory provision is one which limits the persons who can seek compensation to a corporation or scheme that has suffered damage as a result of the contravention, in the same way as the provisions considered by his Honour in Pentridge under the former TPA and other legislation limited the persons who could claim loss or damage to those who had suffered it by the conduct of the other party.
Rogetta Resources concedes that, but for the introduction of s 100-5 of the IPS, the Court’s decision in Pentridge would lead to the conclusion that the Statutory Duty Claims are not assignable.[29] Given Rogetta Resources’s acceptance of that proposition there is no need for me to re-traverse the ground covered so comprehensively in Pentridge.
[29]This concession was well founded. In 2019 in Schlegel v Gourmania Holdings Pty Ltd [2019] WASC 277 Allanson J of the Supreme Court of Western Australia considered whether the claim for compensation under s 1317H of the Act was assignable. His Honour noted that most cases considering the question arose in the context of an assignment by a liquidator, which was not the case before him, but considered that the underlying question was not dependent on that legal context. The decision in Pentridge was cited in support of his conclusion that a claim based on s 1317H of the Act was not assignable because the section confers a right personal to the specified persons who suffered damage.
In September 2021 in Galati v Deans [2021] NSWSC 1094, Ward CJ in Equity (as she then was) cited Pentridge with approval when noting that s 477(2)(c) does not make assignable otherwise unassignable claims. In December 2021 in Chappell (as executor of the estate of Hitchcock) v Goldspan Investments Pty Ltd [2021] WASCA 205 the Court of Appeal of Western Australia cited Pentridge in considering that the weight of authority indicates that s 477(2)(c) of the Act does not empower a liquidator to sell or dispose of a cause of action under s 82(1) of the TPA in that s 477(2)(c) does not make assignable statutory claims which are not otherwise assignable.
However, there is one authority reviewed by his Honour in the course of his reasons in Pentridge concerning the assignment of statutory claims for breaches of directors’ duties and claims for compensation under the Act which bears closer consideration. That is the case of Re Colorado Products. As noted above at paragraph 32, Black J of the Supreme Court of New South Wales held in that case that claims at general law for breaches of directors’ duties were assignable. However, his Honour also held, citing with approval the decision of Barker J in MG Corrosion Consultants Pty Ltd v Gilmour,[30] that claims for compensation under s 1317H of the Act in respect of claims for breaches of statutory directors’ duties were not assignable by a provisional liquidator under s 477(2)(c) for the reason that only the corporation (or registered scheme) that suffers damage can be compensated under this provision.[31] This is the reasoning applied by Connock J in Pentridge and earlier authorities in holding that other statutory claims, for example under s 82 of the former TPA, could not be assigned.
[30][2012] FCA 383 at [18].
[31]Re Colorado Products [395].
In Re Colorado Products, his Honour went on to observe that the terms of s 1317J presented an additional impediment as it did not confer standing to seek orders for compensation on anyone other than the company or registered scheme. His Honour rejected an argument that the definition of corporation as used in the section, albeit defined inclusively in s 57A of the Act, could include a person who has the benefit of the corporation’s rights by assignment.[32] Therefore, under s 1317J(4), even were there to be an assignment of the underlying cause of action, his Honour held that it could never be enforced by the assignee. This part of Black J’s analysis has additional relevance in terms of understanding how, if at all, s 100-5 of the IPS could overcome the limitations on the assignability of such claims, as discussed further below.
[32]Ibid [396].
Role of s 100-5 of the IPS
Rogetta Resources relies on s 100-5 of the IPS as providing power to the Liquidators to assign the Statutory Duty Claims.[33]
[33]In its supplementary submissions, Rogetta Resources states at [28(d)]: ‘Pentridge Village determined the question of assignability of statutory claims having regard to s 477(2)(c) of the Corporations Act. This provision is not relied upon in the present proceedings. Rather this proceeding concerns the operation of s 100-5 (together with the intersection with s 477(2)(a)) (emphasis added).’ First, and most obviously, the power relied upon by the Liquidators is a matter for them, and not for Rogetta Resources and the Liquidators have made no submissions to the Court. Second, the Liquidators sought creditors’ approval for the assignment of all claims described in the Deed of Assignment under s 477(2B) of the Act, having exercised a specific power under s 477 to enter an agreement for which that approval was required. The power used by the Liquidators must have been s 477(2)(c), that is, the power to dispose of property of the company. If the Liquidators (could have) and did rely solely on s 100-5 of the IPS, they would have needed to obtain the Court’s approval for the assignment pursuant to s 100-5(2), as the action had already been commenced.
Section 100-5 of the IPS provides as follows:
100‑5 External administrator may assign right to sue under this Act
(1)Subject to subsections (2) and (3), an external administrator of a company may assign any right to sue that is conferred on the external administrator by this Act.
(2)If the external administrator’s action has already begun, the external administrator cannot assign the right to sue unless the external administrator has the approval of the Court.
(3)Before assigning any right under subsection (1), the external administrator must give written notice to the creditors of the proposed assignment.
(4)If a right is assigned under this section, a reference in this Act to the external administrator in relation to the action is taken to be a reference to the person to whom the right has been assigned.
Rogetta Resources cites in support of the applicability of the section to validate the Liquidators’ assignment of the Statutory Duty Claims the case of Aquisite. Specifically the statement made by McElwaine J at paragraph 19 as follows:
It was at one time doubted whether it was open to a liquidator to assign statutory causes of action vested in the liquidator and not otherwise assignable to a third party: see, for example UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667, per Hansen J; MG Corrosion Consultants Pty Ltd v Gilmour (2012) 202 FCR 354; [2012] FCA 383, per Barker J and Anderson v Canaccord Genuity Financial Ltd (2022) 161 ACSR 1; [2022] NSWSC 58 at [1271]-[1287] per Ward CJ in Eq. Clause 100-5(1) of the Insolvency Practice Schedule (Corporations) being Sch 2 to the Act now provides that an external administrator may assign any right to sue that is conferred by the Act. The defendants admitted the Assignment and did not contend that it was ineffective.
Rogetta Resources further submits that her Honour’s reasoning has been followed in the case of Lifestyle Holdings Australia & New Zealand Pty Ltd v Wu (‘Lifestyle Holdings’),[34] where Button J stated that:
The purpose of s 100-5 of the Schedule is to enable statutory rights of action to be assigned by liquidators. The sale and assignment of such rights of action stands to benefit creditors of a company by allowing the company to realise a negotiated value for such rights of action, which may otherwise go unexploited due to funding difficulties.[35]
[34][2023] FCA 795 (‘Lifestyle Holdings’).
[35]Lifestyle Holdings [20].
The Court asked Counsel to address in the supplementary submissions how the right to seek compensation under s 1317H as a result of contraventions of ss 181 and 182 was ‘a right to sue that is conferred on the external administrator by this Act’ within the terms of s 100-5.
In its supplementary submissions, Rogetta Resources submits as follows.
(a) Section 100-5(1) is couched in broad language, and this was a deliberate choice by the legislature to not impose any restrictions on the rights which can be assigned by a liquidator (provided it is a right to sue that is conferred on the liquidator by the Act). Put differently, the ‘right to sue’ which can be assigned by a liquidator is unrestricted save that the right must be ‘conferred on’ the liquidator by the Act.
(b) Section 477(2)(a) of the Act confers on a liquidator the power to ‘bring or defend any legal proceeding in the name and on behalf of the company’. That is, by this provision, the Act confers on a liquidator a ‘right to sue’ in relation to ‘any legal proceeding’ that the company is capable of bringing. The submissions cite the authorities provided by the New South Wales Court of Appeal in Mitry v Business Australia Capital Finance Pty Ltd (in liq),[36] and the Supreme Court of New South Wales in Bacich v Australian Broadcasting Corporation,[37] the latter of which is said to have endorsed a broad reading of s 477(2)(a), concluding that courts should be slow to conclude that the power conferred by s 477(2)(a) should be construed narrowly.
(c) the ordinary meaning of the word ‘confer’ is very broad and supports the broad interpretation given by the Courts to the power conferred by s 477(2)(a). ‘Confer’ is defined in Macquarie Dictionary as ‘to bestow’ (as a gift, favour, honour etc). ‘Bestow’ is defined as ‘to present as a gift; give; confer’. Similar definitions are expressed in the Oxford Dictionary, which defines ‘confer’ as to ‘grant or bestow’. The Oxford Dictionary defines ‘bestow’ as to ‘deposit; lodge; confer (thing)’ and defines ‘grant’ relevantly as to ‘give (possession, right) formally, transfer (property) legally’.
(d) It is trite law that a company may bring proceedings against a director or former director of the company for alleged breaches of ss 181 and 182 of the Act (defined in the submissions as ‘Directors’ Proceedings’). Because Directors’ Proceedings can be brought by or on behalf of a company then such proceedings form part (or a subset) of ‘any legal proceeding’ that a liquidator may bring under s 477(2)(a) of the Act. That is, the Directors’ Proceedings are a right to sue that is conferred on the liquidator by s 477(2)(a) of the Act. Therefore, the words of s 100-5 encompass the liquidator’s right to sue in Directors’ Proceedings and the right is capable of valid assignment.
[36][2010] NSWCA 360 at [43]-[49](Macfarlan JA).
[37](1992) 29 NSWLR 1 at 12 (Brownie J).
In response, the defendant submits that these submissions ought be rejected and makes the particular point that s 477(2)(a) of the Act confers a ‘power’ to use the company’s name to sue whereas s 100-5 of the IPS is concerned with the conferral of ‘rights’ to sue on the external administrators personally.
The defendant’s submissions find support in various secondary materials as well as the limited amount of case law. The authors of Ford, Austin & Ramsay’s Principles of Corporations Law state that the wording of s 100-5(1) ‘…implies that s 100-5 applies to a right to sue conferred on an external administrator in that capacity (including a right of action conferred upon a liquidator as such)’.[38] In Keay’s Insolvency, the authors state explicitly that the power is for liquidators or other external administrators:
…to assign rights to sue, that they have conferred in their own name by the Act (rather than actions in the company’s name, such as for breach of directors’ duties), to a third party (emphasis added).[39]
[38]Ian Ramsay, Michael Murray, John Sartori, RP Austin, Ford, Austin & Ramsay’s Principles of Corporations Law (LexisNexis Australia, 17th ed) [27.170.27].
[39]Michael Murray and Jason Harris, Keay’s Insolvency: Personal and Corporate Law and Practice (Thomson Reuters (Professional) Australia Limited, 11th ed, 2022) [16.145].
Writing extra-judicially in 2019,[40] Harper J pondered the implications of s 100-5 of the IPS. He drew attention to the words ‘conferred on the external administrator by this Act’, describing them as a limiting the application of the section to rights ‘conferred on’ the external administrator, including the right to sue in respect of voidable transaction under s 588FF of the Act. Having earlier in his article analysed the liquidators’ power to assign general law and statutory claims under s 477(2)(c), he states ‘[s 100-5] may not however alter the position in relation to rights to sue for breach of general law duties or for compensation under s 1317H.’[41] He then contrasts the operation of s 100-5 of the IPS in relation to a liquidator — in whom the property of the company does not vest upon the making of a winding up order or resolution unless vesting orders are made under s 474(2) of the Act —to the operation of s 100-5 that was enacted in identical terms in Schedule 2 of the Bankruptcy Act1966 (Cth) and the position of trustee in bankruptcy — in whom all property of the bankrupt automatically vests upon sequestration. If the property of the company vested in the liquidator, the liquidator would sue in their own name, rather than in the name of the company and, Harper J contends, it could be more readily argued that ‘he has … rights to sue “conferred on” him “by” the [Act], which would in turn enliven the power to assign in s 100-5’.[42] In the absence of a vesting order, he writes, the ‘expression “conferred on” will have to be construed to mean that the liquidator has “conferred on” him all rights to sue by virtue of the fact that the liquidator takes control and custody of the company’s property, including the right to sue, under s 474(1).’[43] Referring to the stated intention behind the IPS amendments as set out in its Explanatory Memorandum, Harper J concludes thus:
The upshot is that despite the laudable intention to simplify and streamline, the provisions of the [IPS] may simply have added another layer of complexity. Some judicial clarification will be necessary.[44]
[40]Robert Harper, ‘An Asset Shared Can Be a Problem Doubled: Assignment of Causes of Action by a Liquidator’ (2019) 93(1) Australian Law Review 36.
[41]Ibid 51.
[42]Ibid.
[43]Ibid.
[44]Ibid.
That judicial clarification has been provided, in part, in Lifestyle Holdings. A full reading of that case makes clear that the statutory causes there assigned were actions in respect of transactions voidable as unfair preferences under s 588FA of the Act, uncommercial transactions under s 588FB of the Act and unreasonable director-related transactions under s 588FDA of the Act, all of which are actions conferred on a liquidator in the liquidator’s name. Section 588FF of the Act describes the orders available to the court consequential upon its findings that a transaction by a company is voidable ‘on the application of the company’s liquidator’. None of the assigned rights in Lifestyle Holdings was in the nature of a claim for breach of statutory directors’ duties or for compensation under s 1317H under the Act, nor, it appears, were any of the claims assigned by the liquidator in Aquisite.[45] In Aquisite, in the paragraph relied upon by Rogetta Resources, her Honour also referred to the claims assignable under s 100-5 of the IPS as statutory claims ‘vested in the liquidator’, being claims which the liquidator could bring in his or her or their own names.[46]
[45]This was conceded by Rogetta Resources in its supplementary submissions at [26].
[46]Aquisite [19].
In Lifestyle Holdings, her Honour focussed specifically on how the causes of action were ‘conferred on’ the liquidators in that case. Her Honour stated, at paragraph 19, as follows:
Where s 588FF provides that the court has certain powers where it is satisfied that a transaction of the company is a voidable transaction “on the application of a company’s liquidator”, those words operate to confer the statutory cause of action on a company’s liquidators. Where the liquidators have exercised their power to assign that cause of action, those words do not have any residual function precluding the court acting on an application brought by a liquidator’s assignee. This is confirmed by the terms of s 100-5(4), which provides that, where the power to assign is exercised, a reference to the external administrator in relation to the action is taken to be a reference to the person to whom the right has been assigned (emphasis added).
By this paragraph, her Honour looked at the wording of the particular provision of the Act which operated to confer a right to sue in on the liquidators in their own name. The wording she identified within s 588FF are the words ‘on the application of a company’s liquidator’. What is more, her Honour clarified the purpose of s 100-5(4) as being to give effect to any assignment under s 100-5(1) by permitting a court to read the relevant provision, which refers to the external administrator, as referring instead to the liquidator’s assignee. In this case, s 100-5(4) permits, in effect, s 588FF of the Act to be taken to read ‘on application by the company’s liquidators’ assignee’ instead of ‘on application by the company’s liquidator’.
There is no wording within ss 1317H or 1317J by reference to which it can be argued that there is a right to sue for compensation under s 1317H that is ‘conferred on’ the Liquidators by the Act. Section 1317H of the Act (extracted at paragraph 37 above) speaks of orders being made to ‘compensate a corporation…for damage suffered by the corporation (emphasis added)’. Relatedly, s 1317J identifies those with standing to apply for a compensation order under s 1317H as being ASIC, the corporation or registered scheme that has suffered the loss or damage,[47] and also provides, in subsection (4) that ‘no person may apply for… a compensation order unless permitted by this section (emphasis added)’. There is no reference anywhere to an external administrator.
[47]Section 1317J(1), (2).
Moreover, even if the right under s 1317H was somehow conferred on a liquidator and capable of assignment, an assignee would need to get around the express limitation on standing to apply for a compensation order that appears in s 1317J(4). The limitation on standing in s 1317J(4) and an inability to enforce the assigned claim provided additional support for Black J’s conclusion in Re Colorado Products that a right to compensation under s 1317H in respect of contraventions of the statutory directors’ duties in ss 180-184 of the Act was ‘unassignable’, even by a liquidator.[48]
[48]Re Colorado Products [396].
Neither s 1317H nor s 1317J has been amended by the legislature to take account of s 100-5 of the IPS, that is, to enable the terms of s 100-5 of the IPS as enacted to operate in relation to those provisions and to resolve the difficulties specifically identified in cases which precede its enactment. In particular, there is nothing in the terms of s 100-5(4) that provides the tools necessary to overcome the limitation on standing in s 1317J(4) given the absence of any reference in that section to an external administrator that could, applying s 100-5(4) as was done in Lifestyle Holdings, be read as referring to the external administrators’ assignee.
Finally, and contrary to the submissions made by Rogetta Resources in its Supplementary Submissions, the assignment of the causes of action against the defendant in this case was not, in fact, undertaken by the Liquidators pursuant to s 100-5 of the IPS. Section 100-5(2) requires that, where an external administrator assigns an action conferred on them under the Act that they have already commenced, then the external administrator must get the approval of the Court for the assignment. Even though in this case the proceeding was already commenced, the Liquidators did not seek Court approval for the assignment. Rather, the Liquidators sought creditor approval to enter into an agreement on behalf of the company that would endure for longer than three months, as they were obliged to do under s 477(2B) of the Act. Put simply, by the Deed of Assignment, the Liquidators were not assigning causes of action that had vested in them in their own names under s 100-5 of the IPS, they were disposing of property of the company under s 477(2)(c).
Conclusion in Respect of the Substitution Application
For the reasons I have set out, there has been a valid assignment of the Equitable and Tortious Claims, but there has not been a valid assignment of the Statutory Duty Claims. Therefore, my power to substitute Rogetta Resources as plaintiff is enlivened only in respect of the Equitable and Tortious Claims. In respect of those claims, there is no opposition to the Substitution Application, and I am disposed to exercise the discretion to allow the Substitution Application. In respect of the Statutory Duty Claims, however, I must refuse the application. I do not accept that I can permit the Statutory Duty Claims to remain in the proceeding to be dealt with at trial (as suggested by Rogetta Resources), or so that the defendant could plead a defence based on Rogetta’s lack of standing (as submitted by the defendant), because in respect of those claims I have found that there has not been an assignment, and the jurisdiction to substitute Rogetta Resources as plaintiff in respect of those claims has not been enlivened.
Rogetta Resources accepted (albeit as ‘an absolute last resort’) that if I reached this conclusion it would be appropriate to order that it be substituted as plaintiff in respect of the Equitable and Tortious Claims and on condition that the Statutory Duty Claims are struck out. The extant plaintiff, Lottah Mining, does not seek to remain a party to the proceeding.
Additional Facts Relevant to the Security for Costs Application
The current and historical ASIC search for Rogetta Resources reveals it is an Australian proprietary company limited by shares, with paid up capital of $100,000. Searches reveal that Rogetta Resources has no real property in the state of Victoria.
Beyond the current and historical ASIC search referred to, Rogetta Resources did not produce any evidence of its financial position. Evidence is given that the sole business activity of Rogetta Resources is the prosecution of this proceeding against the defendant.
The proceeding was commenced by SOC filed on 5 May 2021.
The defendant filed his appearance on 30 August 2021. That same day, the defendant first wrote to the plaintiff requesting information concerning its financial position and inviting provision of a proposal to provide security for the defendant’s costs of the proceeding. No response was provided.
The defendant wrote to the plaintiff again on 14 September 2021, seeking security in the amount of $130,000 for his costs up to and including mediation. The letter provided an explanation of the reasons security was being sought, and a breakdown of the amount sought by reference to steps to be completed in the proceeding ahead of mediation.
On 20 September 2021, the plaintiff responded with a counter offer to provide security in the amount of $60,000 to be held in escrow to cover the defendant’s costs of defending (to conclusion) this proceeding and proceeding S ECI 2021 01454[49] (the ‘Dundas Proceeding’).
[49]Dundas Mining Pty Ltd v Geoffrey Douglas Summers (Supreme Court of Victoria, S ECI 2021 01454, commenced on 5 May 2021).
The plaintiff’s counter-proposal was not accepted by the defendant. No application was made by the defendant, nor has any correspondence been produced which shows the issue was again raised with the plaintiff until after its entry into voluntary administration in March 2022.
On 29 September 2021, the defendant filed his defence.
On 26 November 2021, receivers and managers were appointed to a related company of the plaintiff, namely Dundas Mining Pty Ltd, the plaintiff in the Dundas Proceeding. Voluntary administrators were appointed to that company on 30 November 2021. By reason of these appointments, and as they were being case managed together, orders were made to adjourn this proceeding until February 2022. Thereafter, Dundas was placed into liquidation in late February.
On 23 March 2022, the defendant filed his witness statement and tender bundle in this proceeding.
On 29 March 2022, voluntary administrators were appointed to the plaintiff.
On 14 April 2022, the defendant wrote to the voluntary administrators of the plaintiff foreshadowing that if the proceeding was to be continued, a request for security for costs would be forthcoming. There is no response to this letter in evidence, nor is there any further request for security in evidence prior to that made to the plaintiff on 18 August 2022.
The defendant wrote to the plaintiff on 18 August 2022 seeking security for his costs of the proceeding in order to complete interlocutory steps, including those contemplated by orders made on 5 August 2022, in the amount of $147,000. The letter provided an explanation of the reasons security was being sought, and a breakdown of the amount sought (which included a component of past costs said to total $50,000).
On 19 August 2022, the plaintiff was placed into liquidation.
The Liquidators’ responded to the 18 August 2022 letter by email from their appointed solicitors on 27 September 2022 suggesting that the issue of security be deferred until after the Liquidators had conducted their public examinations in proceeding S ECI 2022 05406.
On and from 5 October 2022 until July 2023, successive orders were made adjourning the proceeding. Orders were made in July 2023 requiring the plaintiff to indicate which claims it intended to pursue. On 30 August 2023, those orders were vacated and Rogetta Resources was ordered to file its Substitution Application.
Quantum of Security Sought
By his Security for Costs Application, the defendant initially sought security in the amount of $462,819.98 — being an amount equal to 75% of his estimated total costs up to and including trial and $243,172.81 in past costs.
Following receipt of Rogetta Resources’s written submissions, the defendant revised the figure claimed for past costs down to $114,226.38, having realised that the defendant had incorrectly included in the claimed past costs amount costs incurred by the defendant in responding to the examination summons issued in proceeding S ECI 2022 05406. The defendant also determined to confine his application so as to seek security for his costs up to and including a mediation, with liberty to apply for further security.
Accordingly, by the time of the hearing, the total amount sought by the defendant for security for his costs up to and including mediation is $193,049.53, inclusive of GST. That figure is said to represent 75% of their estimated total costs, broken down as follows:
(a) $114,226.38 (inc. GST) in past costs for work performed to date;
(b) $120,873 (inc. GST) for completing all necessary interlocutory steps, which comprises the estimated costs of 50 hours of billable work to be undertaken by a solicitor (at $555.50 (inc. GST) per hour), 28 hours of billable work to be undertaken by a principal (at $753.50 (inc. GST) per hour), six days of billable work to be undertaken by junior counsel (at $550 per hour and $5,500 per day (inc. GST)) and three days of billable work to be undertaken by senior counsel (at $1,300 per hour and $13,000 per day (inc. GST)) in relation to those steps;
(c) $22,300 (inc. GST) in preparing the matter for, and attending, a mediation or further negotiations, which comprises the estimated costs of 15 hours of billable work to be undertaken by a principal and one day of billable work to be undertaken by senior counsel in connection with mediation.
Rogetta Resources originally opposed the Security for Costs Application (and devoted a considerable portion of its written submissions to the argument) on the basis that the Court’s jurisdiction to order security, under either r 62.02(1)(b) and (f) of the Rules and s 1335(1) of the Act, had not been enlivened. It abandoned that argument during the hearing. Rogetta Resources nevertheless contended that despite the jurisdiction having been enlivened, it was not appropriate for the Court to exercise the discretion to grant security for costs, especially as a condition of granting the Substitution Application.
Rogetta Resources also disputes the quantum of security sought by the defendant. In disputing the quantum claimed by the defendant, Rogetta Resources relies on the Costs Report. In the Costs Report, Mr Colonna gives his estimate of the reasonable future costs of the defendant up to and including mediation as being $77,456.66.[50] In arriving at his estimate, Mr Colonna has, inter alia:
[50]Mr Colonna also provided an estimate of the defendant’s reasonable future costs up to and including the first day of trial in the amount of $181,187.46 at Costs Report, 62.
(a) not allowed any past costs because he was unable to assess the reasonableness of the costs claimed given no invoices or other supporting documents have been produced;
(b) applied rates for clerical work, solicitors and counsel in amounts more likely to be permitted under the Supreme Court Scale of Costs;
(c) disallowed amounts claimed for GST on disbursements.
Exercise of the Discretion to Order Security
Having conceded (as I would have found in any event) that the jurisdiction of the Court to order security has been enlivened, the first issue for determination in respect of the Security for Costs Application is whether the Court should exercise its discretion to order security against Rogetta Resources consequential upon its substitution as plaintiff. The discretion to order security is unfettered, although it must be exercised judicially.[51]
[51]Raventhorpe Pty Ltd & Ors v Westpac Banking Corporation [2017] VSC 362 at [13] (Matthews JR).
Exercising the discretion involves the court carrying out a balancing exercise between the interests of the defendant in applying for security if, at trial, the plaintiff’s claims fail and the defendant cannot recover his costs, as against the potential injustice to the plaintiff if it is prevented from pursuing a proper claim because of its impecuniosity.[52]
[52]Ibid [14], citing US Realty Investments LLC No.1 v Need [2013] VSC 590, [22] (Derham AsJ).
Although the factors relevant to the exercise of the discretion will vary from case to case, the factors relevant to this case, which were addressed in submissions and at the hearing are as follows.
The likelihood that Rogetta Resources will be unable to pay the defendant’s costs
The defendant contends that it is likely Rogetta Resources will not meet a costs order against it if the defendant is successful in the proceeding. The evidence showed:
(a) Rogetta Resources, as well as Mr Junyu Su and Mr Gang Yang, between them failed to pay the DOCA Contribution such that the DOCA was terminated;
(b) Rogetta Resources has paid up capital of $100,000;
(c) Rogetta Resources does not own any real property assets in Victoria; and
(d) the sole business activity of Rogetta Resources is the conduct of this proceeding.
Rogetta Resources has not adduced any evidence regarding its capacity to pay, and it conceded that the threshold question on the question of jurisdiction had been satisfied, that is, that there was reason to believe that Rogetta Resources would be unable to pay the costs of the defendant if successful in his defence. The very fact that the jurisdiction to award security was enlivened is itself a factor, even a most significant factor, in the exercise of the discretion.[53] I find that there is reason to believe that Rogetta Resources will be unable to pay a costs award in favour of the defendant if the defendant is successful, and this factor weighs strongly in favour of exercising the discretion to award security.
[53]Ariss v Express Interiors Pty Ltd [1996]2 VR 507.
The prospects of success of Rogetta Resources’s claims
The defendant argues that the prospects of success of the claims to be assumed by Rogetta Resources are not strong. The defendant relies on a Deed of Settlement which he says bars the current claims and provides a complete answer to them. The defendant also argues that the evidence that has been filed by the plaintiff is largely inadmissible. Conversely, Rogetta Resources argues that the prospects of success of its action are strong, that the defendant has never provided any explanation for the transactions sued upon, and the Deed of Settlement provides no bar to the present claims. Rogetta Resources also asserts that the objections made to the evidence, although extensive, relate, in the main, to the form in which the evidence will be tendered, rather than to exclusion of evidence.
The court is not required, in considering the grant of security, to consider at length the merits of the claim.[54] The court cannot at this stage form concluded views about matters such as the likelihood of success of objections to evidence. The parties also both submitted at the hearing that there is likely additional evidence to be filed on both sides, and some pleading refinements have been foreshadowed too. In all, it is difficult to form any clear view about the prospects of success of the claims to be assumed by Rogetta Resources, and this factor does not weigh heavily one way or the other in determining whether to exercise the discretion in this particular case.
[54]Impex Pty Ltd v Crowner Products Pty Ltd (1994) 13 ACSR 440 (QSC).
Delay in applying for security
Rogetta Resources contends that the defendant has delayed in applying for security, having first raised the issue based on his concerns regarding the financial position of the plaintiff in August 2021 but having not taken any steps to bring the Security for Costs Application until after Rogetta Resources filed its Substitution Application. Rogetta Resources submits that this should weigh against awarding any amount of security in respect of the claimed past costs incurred prior to its being substituted as plaintiff — as it would be unfair to require Rogetta Resources to provide security for those costs that the defendant ought to have secured against the original plaintiff some time ago. The defendant argues that he raised the issue of security promptly, that is, at a time when he had not yet filed a defence. The defendant further contends that not long thereafter, the related entity of the plaintiff (Dundas) entered receivership and voluntary administration and as this case was being case managed in lock step with the Dundas Proceeding, both proceedings were adjourned in December 2021 to allow the external administrators of Dundas to conduct investigations. In the meantime, the plaintiff’s financial position deteriorated and by March 2022, it too had been placed into voluntary administration. Thereafter, the progress of the proceeding slowed as it awaited completion of the external administrators’ investigations, the execution and failed implementation of the DOCA and the Liquidators’ examinations proceedings.
I am not satisfied with the defendant’s explanation for his delay in making any earlier application for security for costs against the plaintiff in this proceeding, so as to justify an award of security against Rogetta Resources in respect of his past costs, said to total $114,226.38 (inc. GST). The defendant first raised the issue of security with the plaintiff in his correspondence on the date he filed his appearance, being 30 August 2021. He received no reply to allay his concerns regarding the plaintiff’s financial position and he had knowledge of the receivership and entry into administration of Dundas. The plaintiff itself did not enter voluntary administration until 29 March 2022, yet despite receiving an unsatisfactory counter-proposal to his request for security of $130,000 in September 2021, the defendant did not pursue the issue of security with the plaintiff until after the appointment of administrators on 14 April 2022 and then only to foreshadow raising it substantively at some later time. Yet in the period to April 2022, and without the benefit of any security for his costs, the defendant prepared and filed his defence, witness statement and tender bundle, which taken together, would have required a considerable amount of work.
Then, despite having foreshadowed raising the issue of security by his solicitor’s letter sent on 14 April 2022, it appears on the evidence before the Court that the defendant did not actually do so until he issued his further request on 18 August 2022 (nearly a year after his first request). Contrary to the submission made at the hearing,[55] the proceeding was not automatically stayed upon the appointment of the administrators,[56] nor did the appointment preclude the defendant continuing with a security for costs application against the plaintiff in administration.[57] However, I accept that some of the delay in agitating the issue of security following the appointment of external administrators in their various guises would be attributable to those changed circumstances. Also, from 5 October 2022 until mid-2023, the Liquidators sought to adjourn the proceeding to conduct the public examinations. However, given the lack of substantive steps taken in this period, it is difficult to see how the defendant could have incurred a significant amount of costs in respect of this proceeding at that time in any event. In all, the defendant’s considerable and unexplained delay militates against exercising the discretion to award security against Rogetta Resources in respect of the defendant’s past costs.
[55]Transcript of Proceedings, Lottah Mining Pty Ltd v Geoffrey Summers (Supreme Court of Victoria, S ECI 2021 01447, Goulden AsJ, 28 November 2023), 56.
[56]Section 440D of the Act operates to stay all proceedings against the company upon its entry into voluntary administration, there is no automatic stay of proceedings being run by the company.
[57]Pasdale Pty Ltd v Concrete Constructions (1995) 59 FCR 446, which was decided under s 440D of the Corporations Law. In the subsequent cases of Simoon Pty Ltd v Renbay Systems Pty Ltd (1995) 18 ACSR 415, and Turner v Universal Home Loans [2005] NSWSC 834, leave was granted out of an abundance of caution and because the applications had been made, and not, in either case, because the court formed the view that leave was required under s 440D of the Act.
There is no argument that the defendant delayed in seeking security for his future costs against Rogetta Resources. Ultimately, by mid-2023 it was apparent to the Liquidators that they had insufficient funds to continue to prosecute the proceeding following the completion of the public examinations, and they sought to bring forward any realisations for creditors in the proceeding by assigning the actions against the defendant to Rogetta Resources for a sum of money. As soon as Rogetta Resources made the Substitution Application, the defendant made the Security for Costs Application. I am satisfied that the defendant did not delay in making his application in respect of the provision of security by Rogetta Resources for his prospective costs, and accordingly, delay is not a factor which militates against exercising the discretion to award security in relation to the defendant’s prospective costs.
Given the above consideration of factors relevant to the discretion, I am satisfied that, upon its substitution as the plaintiff in the proceeding, Rogetta Resources ought to provide security for the prospective costs of the defendant up to and including mediation. I will not order security for the defendant’s past costs due to the defendant’s delay in seeking security for those costs.
Quantum of Security
Rogetta Resources and the defendant have taken different approaches to estimating the defendant’s likely prospective costs up to and including mediation, however, in the finish, the result reached by each is not vastly different.
Rogetta Resources submits that the amount (if any) of security should be no more than $77,456.66 (which provides costs up to and including mediation), being the amount supported by Mr Colonna’s analysis at page 25 of the Costs Report.
Mr Munro deposes in the Second Munro Affidavit that the appropriate amount of security in respect of the defendant’s prospective costs up to and including mediation is $107,379.75.[58] The difference between them is circa $30,000.
[58]This is calculated as 75% of $257,399.38 minus $114,226.38 (past costs Item 1) taken from the table that follows [30] in the Second Munro Affidavit.
Neither party’s evidence nor their submissions satisfactorily addressed the issue of GST. Ordinarily, an entity registered for GST and which is entitled to an input credit on the GST paid on legal fees is not entitled to claim either security or recovery of the GST component of those costs. However, given the defendant is an individual, there is no positive suggestion that he is entitled to any such input credit, and his legal practitioners have claimed GST in circumstances where doing so would have been contrary to their obligations if he had been entitled to an input credit, I have concluded that it is appropriate to allow for GST in the quantum of security.
In Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd,[59] the Court of Appeal made the following observations concerning what constitutes ‘sufficient security’:[60]
In deciding what constitutes ‘sufficient security’ for the purposes of s 1335(1), the court does not seek to provide full protection for the estimated costs of the party seeking security. Rather, having regard to the fact that the order for security is usually made at an early stage of a proceeding and there are many contingencies that will affect the actual costs incurred by that party, the court fixes an amount that it considers adequate in all the circumstances of the case. Those circumstances include the nature of the proceeding, the nature and complexity of the steps that need to be undertaken by the party seeking security, the likely costs in undertaking those steps, the length of the trial, any security already provided, and the possibility that the proceeding may settle.
In determining a sufficient amount for security for costs, the court does not undertake precise mathematical calculations. Rather, it adopts a ‘broad brush’ approach involving ‘guesstimates as much as estimates’. However, the broad brush approach does not involve an abstract process. It must have an evidentiary basis. The court must have regard to the evidence adduced by the parties as to quantum — whether in the form of an affidavit by an experienced litigation lawyer or an expert report by a costs consultant — although it is not bound by the parties’ estimates. The court may scrutinise the individual items in the parties’ estimates, but not to the extent of minute examination akin to a taxation.
The amount ultimately fixed by the court must not be so low that it fails to provide any real protection to the party seeking security, or so high that it is oppressive to the party required to provide the security. The amount must be ‘just and reasonable’ in all the circumstances of the particular case.
[59][2017] VSCA 293.
[60]Ibid [63]–[65] (Tate and Kyrou JJA).
I accept that Mr Munro’s evidence is based on his considerable experience as a practitioner conducting commercial litigation and includes his best estimates of the likely costs that will be incurred given the additional interlocutory steps that will likely need to be undertaken in the proceeding. However, Mr Munro’s evidence is given at a reasonably high level of generality, for example, there is no breakdown of the hours estimated to be required for completing particular tasks, nor is there any particularity regarding which tasks would involve a principal rather than or in addition to a solicitor, and to what extent. This makes it difficult to exclude the possibility of some duplication in the estimate.
In his Costs Report, Mr Colonna, who is also undeniably experienced, has undertaken an exercise of estimation that is more akin to a hypothetical taxation of costs, producing at the end of his report a document which is even styled in the same form as a bill of costs for taxation. In my view, in dealing with prospective costs, this purports to deliver an unrealistically precise analysis of an entirely hypothetical set of circumstances. Such precision is unrealistic and at least in tension with the broad brush approach that is recognised in the authorities. However, the ultimate quantum is not vastly different from that estimated by the defendant (especially taking into account the inclusion of GST in the defendant’s estimated costs, and its exclusion from aspects of Mr Colonna’s estimate).
Ultimately, balancing the relevant interests of the parties, whilst the evidence of Mr Colonna is unrealistically precise, it has persuaded me that, having regard to the generality of Mr Munro’s evidence, I should not allow the full sum estimated by Mr Munro, but rather a lesser quantum. Having regard to the evidence adduced, I have formed the view that the appropriate amount of security to order is $100,000 for the defendant’s costs up to and including mediation, with liberty to apply for further security.
Costs of the Substitution and Security for Costs Application
Having regard to the circumstances of the applications, and the overall success of the defendant in relation to the Security for Costs Application, Rogetta Resources should pay the defendant’s costs of and incidental to the Substitution Application and the Security for Costs Application.
I will ask the parties to provide orders giving effect to these reasons.
SCHEDULE OF PARTIES
| S ECI 2021 01447 | |
| BETWEEN: | |
| LOTTAH MINING PTY LTD (ACN 168 344 581) (IN LIQUIDATION) | Plaintiff |
| - v - | |
| GEOFFREY DOUGLAS SUMMERS | Defendant |
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