Sherry v FAI General Insurance Co LTDRST RC No. Scciv-99-494

SHERRY & ORS v FAI GENERAL INSURANCE CO LTD
[2002] SASC 178
Civil
Reasons for Decision

BESANKO J There are four plaintiffs to this action. The first two plaintiffs are the executors and trustees of the estate of Eulalie Marie Angela Laubman and the third and fourth plaintiffs are the executors and trustees of the estate of Charlotte Joyce Schultz. The defendant is a company in liquidation.
By document number 58 the plaintiffs issued an application dated 27 March 2002 seeking the following orders:
“1.That the defendant (appellant) do provide security for costs in the sum of $30,000.
2.That the within appeal of the defendant (appellant) be stayed pending provision of the security by the defendant (appellant).
3.That the defendant (appellant) do pay the plaintiffs’ (respondents) costs of and incidental to this application.
4.Such further or other order as the Court deems fit.”
The application is brought pursuant to s 1335 (1) of the Corporations Act 2001 (Cth) which provides as follows:
“Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if unsuccessful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.”
The application also refers to Rule 95.13(b) of the Supreme Court Rules 1987, but no reference was made to this Rule during the course of the argument, and it may be put to one side.
The application is supported by an affidavit of the plaintiffs’ solicitor, Darren John Blight, sworn on 27 March 2002. Mr Blight deposes to the fact that the plaintiffs’ claim (which was instituted in 1999) relates to a policy of insurance issued by the defendant in 1992, and that the plaintiffs seek indemnity pursuant to the contract of insurance. The plaintiffs filed an application in the Court seeking an order that certain questions of construction of the contract of insurance be determined before the matter proceeded to trial on the facts. A single Judge of this Court granted the application and by judgment delivered on 18 January 2002 answered certain questions of construction in favour of the plaintiffs. The defendant has appealed, and a single Judge has given the defendant leave to appeal to the extent that it is necessary. The appeal is yet to be heard by the Full Court of the Supreme Court.
The plaintiffs’ application for security for costs relates to the defendant’s appeal.
The Supreme Court of New South Wales made an order on 27 August 2001 that the defendant be wound up in insolvency under the provisions of the Corporations Act. Mr Anthony Gregory McGraw and Alexander Robert McKay MacIntosh were appointed liquidators of the defendant.
Mr Blight deposes to the fact that before issuing the application he conducted searches of records kept by the Australian Securities and Investment Commission and that he obtained the following documents:
1.Report of Affairs lodged by the Liquidator (Form 912) dated 24 January 2002.
2.Accounts and Statement by Liquidator (Form 524) dated 27 September 2001.
3.Annual Return (Form 316) dated 30 December 2000.
4.Financial Statements and Records (Form 388) dated 11 December 2000.
Mr Blight deposes to the fact that the documents show that the defendant has a very substantial excess of liabilities over assets. It follows, it is said, that there are grounds for an order for security for costs. There is no reference to the possible operation of s 556 of the Corporations Act.
Mr Blight swore a further affidavit on 23 May 2002 whereby he exhibited (among other things) correspondence which had passed between the parties after the application had been issued.
The defendant filed and served three affidavits in opposition to the plaintiffs’ application. The affidavits filed and served by the defendant are as follows:
1.Affidavit of Alexander Robert McKay MacIntosh sworn on 17 May 2002;
2.Affidavit of Derrilee Yaeger (law clerk) sworn on 17 May 2001 (sic); and
3. Affidavit of Amanda March (clerk) sworn on 23 May 2002.
The defendant’s affidavits establish that at all relevant times the liquidators have held and hold a large amount of cash on behalf of the company. The affidavit of the liquidator refers to s 556 of the Corporations Act. That section deals with priority payments in the winding up of a company. It is said by the defendant that any costs payable by the defendant to the plaintiffs in relation to the appeal will fall within s 556 (1) (a) or s 556 (1) (dd). These subparagraphs provide:
“Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:
(a) first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company’s business;
…
(dd)next, any other expenses (except deferred expenses) properly incurred by a relevant authority ;”
Mr MacIntosh, one of the joint liquidators, deposes to the fact that even if any costs of an unsuccessful appeal which the defendant might be ordered to pay to the plaintiffs fall within s 556 (1) (dd) rather than (a), there are no significant costs in relation to the six items that rank before the expenses referred to in paragraph (dd) and that, accordingly, there is no risk of any costs awarded to the plaintiffs in relation to the appeal being unpaid in whole or in part. The defendant’s affidavits also annex correspondence which has passed between it and the plaintiffs.
When the application came before me on Friday 24 May 2002 the plaintiffs said that they no longer sought any of the orders set out in the application. They indicated that they would consent to an order that the application be dismissed. They argued that there should be no order as to costs. The defendant applied for an order that the plaintiffs pay its costs of the application on an indemnity basis.
Costs are in the discretion of the Court. Ordinarily, a successful party will be awarded his or her costs as against the unsuccessful party. A successful party includes a respondent to an application which is withdrawn or dismissed by consent. An order for costs compensates the successful party for the legal expenses he or she has incurred.
Is there any reason in this case not to order that the plaintiffs pay the defendant’s cost of the application?
The plaintiffs argue that the only reason they are not pursuing their application is because they now have certain “assurances” from the liquidators, and in particular they refer to the following statements in Mr MacIntosh’s affidavit of 17 May 2002:
“16.The effect of the foregoing is that there is no practical difference to the ability of the Liquidators to meet the cost of an adverse outcome in the Appeal if those costs are payable under s 556 (1) (a) or s 556 (1) (dd).
17.There is no reason of which I am aware to believe that the cash at Bank in the Liquidators’ administration is likely to materially reduce over the next 6 months. On the contrary the likelihood is that the cash at Bank will increase as further asset sales are achieved.
18.There is no event of which I am aware which might result in any costs awarded to the plaintiffs as a result of an unsuccessful appeal being unpaid in whole or in part.”
I do not believe that it is correct to describe these statements as “assurances”. They are statements by a liquidator of his understanding of the position. No doubt they provide a level of comfort for the plaintiffs, but they cannot be elevated to undertakings or assurances proferred in lieu of Court orders.
In my opinion, if one has regard only to the material which accompanied the application, the plaintiffs’ prospects of successfully obtaining an order for security for costs were at best uncertain. The plaintiffs made no request for information from the liquidators or their solicitors prior to the issuing of the application. Had they done so, and had the defendant unreasonably refused to provide relevant information, then that might have justified a conclusion that there should be no order as to costs. However, the plaintiffs did not do this.
I do not think there is any reason not to make an order for costs (including the costs of the argument on 24 May 2002) in favour of the defendant. In my opinion there are no circumstances in this case which would justify an award of costs on any basis other than on a party and party basis. There are no special or unusual features which would warrant a departure from the usual practice (Colgate-Palmolive Co Pty Ltd v Cussons Pty Ltd (1993) 46 FCR 225; State Government Insurance Commission v Lane and Anor (1997) 68 SASR 257 per Debelle J at 265; Civil Procedure South Australia Vol 1 Lunn pp 10,698-10,699).
I make the following orders:
1. Application of the plaintiffs by document number 58 is dismissed.
2.The plaintiffs are to pay the defendant’s costs of the application on a party and party basis.

[2002] SASC 178

31 May 2002