The Liquidator, S Pty Limited and Rand and Ors

[2010] FamCA 646

FAMILY COURT OF AUSTRALIA

THE LIQUIDATOR, S PTY LIMITED & RAND AND ORS [2010] FamCA 646

FAMILY LAW – JURISDICTION – Corporations law – Application for transfer to Supreme Court
FAMILY LAW – COSTS – Security for costs

APPLICANT: The Liquidator,
S Pty Limited

3^rd RESPONDENT: Mr G Rand

4^th RESPONDENT: Mrs N Rand

11^th RESPONDENT: C Pty Ltd

FILE NUMBER: SYF 2153 of 2001

DATE DELIVERED: 28 July 2010

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: The Hon. Justice Cohen

HEARING DATE: 5 July 2010

REPRESENTATION

COUNSEL FOR THE LIQUIDATOR: Mr Cotman SC
and Mr Tobin

SOLICITOR FOR THE LIQUIDATOR: Brown & Partners

COUNSEL FOR THE RESPONDENTS:

Mr Feller SC

and  Mr Milanovic

SOLICITOR FOR THE RESPONDENTS: Cadmus Lawyers

Orders

1. The application of the Third and Fourth Respondents filed 21 June 2010 is hereby dismissed.

2. The application of the Eleventh Respondent filed 21 June 2010 is hereby dismissed.

3. The application of the Third and Fourth Respondents filed 5 July 2010 for an order for security for costs against S Pty Limited (in liquidation) is hereby dismissed.

4. That if within 21 days of these orders the Third and Fourth Respondents fail to file and serve their points of defence in response to the points of claim annexed to the Application in a Case filed herein by S Pty Limited (in liquidation) on 23 April 2010 there shall be by this order judgment for S Pty Limited (in liquidation) against the Third and Fourth Respondents in the sum of $693,114.11 plus interest at the rate or rates provided by the Family Court Rules from 7 July 2006 to the date of payment of the said sum plus interest pursuant to this order and that sum and interest from 7 July 2006 and calculated pursuant to the said rules shall hereby become due and payable by the said respondents from the date of judgment.

5. That if within 21 days of these orders the Eleventh Respondent fails to file and serve its points of claim in its application filed 21 July 2009 that application hereby shall be dismissed.

6. Costs are reserved.

7. That the matter is stood over for mention and further directions to Monday

   
   

   16 August 2010 at 10am.

IT IS NOTED that publication of this judgment under the pseudonym The Liquidator, S Pty Ltd & Rand and Ors is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYF 2153 of 2001

THE LIQUIDATOR, S PTY LIMITED

Applicant

And

MR G RAND

3^rd Respondent

And

MRS N RAND

4^th Respondent

And

C PTY LTD

11^th Respondent

REASONS FOR JUDGMENT  

1. On 21 June 2010 the Third and Fourth Respondents (“Rands”), the parents of the husband in s79 proceedings filed an interlocutory application that proceedings against them which are encompassed by an application which was filed on 23 April 2010 by the liquidator of S Pty Ltd (In Liquidation) (“S Pty Ltd”) be transferred to the Supreme Court of New South Wales.

2. The 11^th Respondent; a company which I shall refer to as C Pty Ltd, filed an interlocutory application also seeking to transfer an application which C Pty Ltd filed on 21 June 2009 against the Liquidator to the Supreme Court. The Rands have a financial interest in C Pty Ltd. The Third Respondent is involved in its activities to the extent that he has had the power, and has exercised it, to give the solicitor acting for C Pty Ltd, the same solicitor who acts for him and his wife, the 4^th Respondent, instructions in the matter. The inference from the stance the solicitor has taken about filing points of claim for C Pty Ltd, is that he is the only person with the necessary knowledge and power.

3. In another application, filed on 5 July 2010, the Rands seek security for costs of $400,000 against S Pty Ltd (In Liquidation). This application will only warrant consideration if the transfer applications fail. An application, by the Liquidator on behalf of S Pty Ltd, filed on 16 July 2010, for judgments to be entered for want of a defence against the Rands in the proceedings filed 23 April 2010 and for dismissal for want of prosecution of C Pty Ltd’s application filed 21 July 2010 is also before the Court.

4. The essential element which is said by all three respondents to justify the applications for transfer is that the Family Court of Australia lacks jurisdiction to hear the application of the liquidator of S Pty Ltd against the Rands of 23 April 2010. They say, if this is the case, that this and the claim by C Pty Ltd against S Pty Ltd should both be transferred because it is more appropriate that both causes be heard in the Supreme Court.

5. This web of claim and counter claim requires the issue of jurisdiction to be dealt with first, then the application for undefended judgments.

6. On 10 January 2006, after a 24 day s79 hearing between the husband and wife in which the Rands and C Pty Ltd were parties and were represented as having the same interests by one Senior Counsel, Order 8 made by Rowlands J. was that S Pty Ltd be wound up pursuant to s 233 of the Corporations Act 2001. The liquidators were later appointed for that purpose.

7. A discretionary trust, The Rand Family Trust, of which the husband was originally the trustee, existed for the benefit of the husband, the wife and their children. The value of the trust was and still is dependent on the value of its interest in S Pty Ltd. The value of S Pty Ltd depended at the time of the hearing before Rowlands J. on the value of real property at E (“E property”).

8. When the husband was trustee he treated the trust property as his own. The trust property could thereby be regarded by the Court, and was so regarded by Rowlands J., as family property. In late 2005, the wife was, by court order, substituted for the husband as trustee.

9. S Pty Ltd was, in the words of Rowlands J., “a vehicle for three separate interests (namely the Trust, Mr [W] and Mr [G Rand] [now the third respondent] – the latter two men through their companies) to combine to acquire the [E] property.” His Honour ordered S Pty Ltd be wound up because, he found, it had acted in an oppressive manner toward the trust. He held that “the actions of [S Pty Ltd] at the instigation of [Mr G Rand] [now the third respondent] and the husband … resulted in the trust (and its beneficiaries) suffering” the oppression.

10. His Honour held that one of the oppressive acts was to attribute to a company, RE Pty Limited (“RE Pty Ltd”), a loan account involving $430,837 which was really the property of the Trust. He further held that through a deed of company arrangement, the asset then became the property of the third respondent through his ownership of a company, GD Pty Ltd.

11. It is this deed of company arrangement which seems to be the basis for the claim of C Pty Ltd made on 21 July 2009. That claim, as filed, is that C Pty Ltd’s formal proof of debt of $289,743.58 dated 29 June 2007 be admitted in full. It appears to be C Pty Ltd’s case that it paid moneys to the liquidator of RE Pty Ltd to enable the deed of company arrangement to be executed and the return of that money and, presumably, interest from S Pty Ltd is claimed because the payment benefited S Pty Ltd. I cannot be more specific about the basis of the claim because C Pty Ltd has not filed its points of claim despite the expiration of the time limited by orders I have made for doing so. This failure to file the points of claim is the basis for the Liquidator’s application to dismiss C Pty Ltd’s claim of 21 July 2009 for want of prosecution.

12. The claim of the Liquidator against the Rands which is the subject of the application of 23 April 2010 is said by the Liquidator to be a straight forward one. As part of the winding up of S Pty Ltd its only asset, E property, was sold. On sale part of the sale price was paid to the National Australia Bank (“the bank”) to discharge security it held over E property. That security was held by the bank as part of a guarantee from S Pty Ltd to it of a loan of $670,000 the bank had made to the Rands. S Pty Ltd now seeks to exercise what it says is its right to indemnity from the principle debtors, the Rands, who, for their part, argue that such a right is not absolute but depends on the circumstances.

13. They assert that the determinant of liability is whether it was the guarantor rather than the principal debtor who was the real recipient of the benefit of the overall transaction of which the guarantee formed part of its matrix. They allege that the guarantee was given so the Rands could borrow funds which S Pty Ltd needed to refinance the cost of purchase of E property but could not borrow and that the borrowed funds where made available to S Pty Ltd for the refinancing of the E property.

14. A problem faced by the Rands is that, despite their submission, they have not complied with the Court’s direction to file points of defence to the liquidator’s claim. However, it is this claim which all three respondents argue is outside the jurisdiction of the Family Court of Australia to hear.

15. The orders for the winding up of S Pty Ltd and for the appointment of a liquidator were made by Rowlands J. pursuant to s 233 of the Corporations Act 2001. That Order has not been challenged.

16. The claim on the guarantee is related to the winding up. The s 79 proceedings including the application for the winding up was a matrimonial cause. “Matrimonial Cause” includes, by (f) in the definition of that term, “proceedings … in relation to concurrent, pending or completed proceedings” which are otherwise matrimonial causes. There is no doubt in my mind that the s79 proceedings have been completed because final orders were made. The winding up proceedings are uncompleted or still pending. Each is or was a matrimonial cause; the winding up because of (f) as well because it was part of the whole matrimonial cause for s79 orders. The guarantee proceedings are related to the winding up proceedings and therefore to the s79 proceedings so they too are a matrimonial cause. The guarantee proceedings are directed at providing the wife with her entitlement under s79. They are therefore related to the s 79 proceedings and are a matrimonial cause. The consequence is that the Family Court has original jurisdiction to hear the guarantee proceedings as a result of s 31(1)(a) of the Family Law Act. For that reason alone, the proceedings should be heard by the Family Court of Australia. The Supreme Court now has no jurisdiction to hear matrimonial causes so has no jurisdiction to hear the guarantee proceedings.

17. There are other arguments which would result in a finding that the Family Court has jurisdiction to hear the guarantee proceedings if my analysis of the extent of the matrimonial cause is erroneous. It seems clear to me that s 233 did invest the Court with power, in the proceedings before his Honour, to order the winding up of S Pty Ltd. Section 233, when read with s 58AA and s 232 of the Corporations Act 2001, permits the Family Court to make a winding up order on the ground of oppression of a member of a company.

18. Section 234 of the Corporations Act limits the classes of applicants for winding up pursuant to s233. One of the permitted classes of applicants is a member of the company. In the proceedings before Rowlnds J. the wife applied to wind up S Pty Ltd. At the time she was the trustee of the Rand Family Trust and as such held 1 of 30,001 shares in S Pty Ltd. She was, in her capacity as trustee, a member of S Pty Ltd, so the Court had both jurisdiction and power to make the winding up order.

19. By s 233(2) of the Corporations Act, where an order to wind up a company is made under s 233, the provisions of the Act apply as if the order had been made under s 461 of the Act. Thus, the Court has the jurisdiction and the power to appoint a liquidator and that liquidator has the powers ordinarily vested in liquidators by s 477 of the Act, including the power to bring or defend legal proceedings in the name of and on behalf of the company (s 477(a)). The exercise of the liquidators powers is, by s 477(6), “subject to control of the Court.” Further, pursuant to that subsection, “any creditor may apply to the Court in respect to any exercise or proposed exercise of any of these powers.” That is the basis for C Pty Ltd’s claim that the Court overturn the Liquidator’s rejection of its proof of debt. I shall return to this aspect of the facts in dealing with the application to transfer C Pty Ltd’s claim to the Supreme Court of New South Wales.

20. The Rands and C Pty Ltd argue that, although the Family Court has statutory control over the Liquidator’s power to take action on the guarantee against the Rands, that does not mean the Court has jurisdiction to hear the action on the guarantee. It is submitted that such an action is based on contract and, as such, the Supreme Court of New South Wales has jurisdiction and that there is nothing in the Corporations Act or the Family Law Act which gives the Family Court jurisdiction to hear an ordinary contract claim. It is submitted that the fact that C Pty Ltd’s claim against the Liquidator is brought in the Family Court does not raise any associated jurisdiction pursuant to s 33 of the Family Law Act or accrued or inherent jurisdiction of the type recognised in In the Marriage of Warby (2001-02) 28 FamLR 443.

21. At the heart of the third, fourth and eleventh respondents’ argument about jurisdiction is the submission that the final orders in the s79 proceedings have been made, so there is nothing for the guarantee issue to accrue to and that there is no relationship between C Pty Ltd’s claim to overturn the rejection of its proof of debt for the guarantee claim against the Rands despite the patently misleading appearance of a temporal relationship which arose in the course of the Court’s supervision of the winding up of S Pty Ltd.

22. I do not agree with these submissions. One must look first at what Rowlands J. was attempting to achieve by the orders he made on 10 January 2006. He said he had been confronted with a husband who connived with his father to reduce the value of S Pty Ltd shares by a share issue which increased the issued shares in it from three, of which the trust held one, to 30,003 of which the trust held only one. The oppressive actions were by the husband, who was at the time the trustee of the Rand Family Trust, and his father, who was at the time able to control or direct S Pty Ltd’s relevant activities. His Honour’s judgment made these relevant findings:

    “158The actions of [S Pty Ltd] at the instigation of Mr [G Rand] [the husband’s father and third respondent] and the Husband… resulted in the Trust (and its beneficiaries) suffering. …

    …

    160First, [S Pty Ltd] "watered down" the Trust shareholding from one-third to one in 30,003. It effected one shareholder, the Trust.

    …

    162Third, [S Pty Ltd] attributed the loan account of the Trust (some $420,000) to [RE] Pty Ltd. This resulted, through the deed of company arrangement, in these assets becoming those of Mr [G Rand] (through [GD] Pty Ltd)…  This action meant, among other things, the Trust was denuded of funds from which to take up an allotment of new shares.

    …

    167Seventh, the Husband and Mr [G Rand] acted together to defeat the interests of the Wife.”

23. The orders his Honour made were obviously intended to allow the wife to obtain her proper share of the matrimonial property. He even prefaced his orders with the words “234. In order to carry out the terms of this decision so far [as] that is practical it appears appropriate to make orders in the following terms.” Inter alia, he made an order which had the effect of transferring control of the Rand Family Trust and any entitlements the husband had under it and ownership of the trust’s interest in S Pty Ltd to the wife. The purpose of the winding up order was to ensure that the value of the wife’s interests in it would not again be undermined by unconscionable behaviour such as he found the husband and his father, the Third Respondent, had engaged in. In the husband’s father’s case, the watering down of the Trust’s shareholding was achieved by the issue of 20,000 shares in S Pty Ltd to a company controlled by the husband’s father. That company is C Pty Ltd. The share allotment was set aside by his Honour’s orders.

24. The litigation before me which is the subject of the 23 April 2010 application by the liquidator and the 21 July 2009 application of C Pty Ltd against the liquidator came before me originally because the Family Court of Australia had made the S Pty Ltd winding up order and as a consequence of it the Court was exercising its jurisdiction and power to control and to supervise the exercise of the Liquidator’s powers in the winding up. There can be no realistic doubt that his Honour ordered the winding up to ensure that the wife’s rights to attain a proper s79 settlement would be protected because of the Court’s continuing power to supervise the winding up. That is why his Honour said that he was making the orders he made in order to uphold his decision.

25. Thus, as is inherent in his Honour’s decision, the supervision of the Court of the winding up of S Pty Ltd is necessary to achieve the result under s 79 which his Honour found to be just and proper. That supervision includes ensuring that the Liquidator gets in moneys owed to S Pty Ltd to pay out its debts and make a proper distribution among its creditors and members. The relevant litigation is before the Court because it is part of the process of winding up which is being supervised.

26. Accordingly, as it is part of the winding up, I find that the dispute between the Liquidator and the Third and Fourth Respondents based on the guarantee is within the jurisdiction of the Family Court to hear and determine pursuant to the Corporations Act ss 58AA, 233 and 477 if it is not a matrimonial cause.

27. The Court could permit a dispute of the nature of that between the Liquidator and the third and fourth respondents to be adjudicated in another court with jurisdiction, but it may decide to deal with the dispute itself. In this instance, there is no reason why it should not do so. The dispute over the guarantee appears to me to be one which is a civil matter arising under the Corporations legislation. Although a dispute between parties over liability to indemnify arising out of a guarantee does not in itself arise out of the Corporations legislation, where there is the additional element in it of one of the parties being a company in liquidation which is suing through its liquidator as part of the process of the liquidator fulfilling his duties in the winding up, the litigation is properly characterised as arising under the Corporations legislation. Section 1337C of the Corporations Act confers jurisdiction of the Family Court “with respect to civil matters arising under the Corporations legislation” and applies here to provide yet another basis for the Court’s jurisdiction to hear and determine the guarantee dispute.

28. Section 33 of the Family Law Act confers jurisdiction on the Court in associated matters “which are not otherwise within the jurisdiction expressed by this Act or any laws to be conferred on the Court.” If I am in error in my finding that the meaning of “Matrimonial Cause” and Corporations Act confer jurisdiction on the Court in the guarantee dispute, I am not satisfied the Court would have jurisdiction under s 33. This is because the only basis upon which it might be found that the Court does not have jurisdiction under the Corporations legislation would be to find that, although there is jurisdiction in the Family Court to make a winding up order under that legislation, the jurisdiction does not extend to hear a dispute over the implied terms of a contract between a guarantor and debtor as the this dispute is a matter within state jurisdiction; a matter which s 33 cannot under the Constitution be applied to (see In the Marriage of Smith (No. 3 (1986) 10 FamLR 769 at 783 per Gibbs CJ, Wilson and Dawson JJ). Thus the Corporations legislation would provide jurisdiction over the winding up but s 33 would not apply to the contract dispute because, in isolation, it is the subject of state law and is subject to state jurisdiction.

1. In Warby v Warby the Full Court held that the Family Court’s jurisdiction extends to permit it to decide “the non-federal aspects of a judiciable controversy of which the family law claim or cause of action forms part.” Here the judiciable controversy which was decided by Rowlands J. included the wife’s application to wind up S Pty Ltd. His Honour did so for the purpose of attaining her rightful share of the matrimonial property in the face of the conspiracy between the husband and his father which involved both S Pty Ltd and C Pty Ltd to deprive the wife of what was justly her share by depleting the husband’s property and trust property to the immediate benefit of the husband’s father and ultimately of the husband. The winding up application was properly part of the family law claim.

2. Any dispute over the implementation of the orders made by Rowlands J. or in relation to the winding up order or the winding up itself is part of the whole justiciable controversy of which the family law claim forms part. Accordingly, the current dispute in the winding up over the effect of the payment to the bank by S Pty Ltd as guarantor for the Rands and the alleged creation of a resultant indebtedness by the Rands to S Pty Ltd is, I find, within the Court’s accrued jurisdiction.

3. As I have already said, the Court had jurisdiction to make the winding up order. It is inherent in that that the Court control and therefore supervise the winding up for the purpose of achieving the s 79 division which Rowlands J. ordered. Thus, I find that the Court has original jurisdiction to hear the guarantee dispute as well as jurisdiction to hear it under the Corporations Legislation as well as jurisdiction to hear it in its accrued jurisdiction, but I am not satisfied that s 33 Family Law Act gives the Court jurisdiction.

4. There are considerations which the Court should undertake in order to decide whether it should, in its discretion, exercise its jurisdiction to hear the guarantee dispute if, despite my finding that the Supreme Court has no jurisdiction to hear it, this finding is erroneous.

5. In the context of accrued jurisdiction the Full Court in Warby v Warby said at p.478 (paragraph 90) that there are certain matters which are relevant to the exercise of jurisdiction. They are:

   1.what the parties have done;

   2.the relationship between or among them;

   3.the laws which attach right or liabilities to their conduct and relationships;

   4.whether the claims are part of a single justiciable controversy and in determining that question whether the claims are “attached” and not “severable” or “disparate”;

   5.whether claims are non-severable from a matrimonial cause and arise out of a common substratum of facts; and

   6.whether the Court has the power to grant appropriate remedies in support of the “attached” claims.

6. The first of these factors requires consideration of the actions of the parties which appear to be relevant to the decision on whether to exercise jurisdiction where there is another jurisdiction which might be said to be and is argued by a party to be more appropriate for a particular action. This consideration raises two specific matters which to me are powerful reasons why the Court should hear the guarantee claim. The first is that it arises out of what Rowlands J. has found to have been the deliberate action of one of the parties that claim is made against, Mr Rand, the Third Respondent, to deprive the wife of her just entitlements as against his son. Of course, the Fourth Respondent, Mrs Rand, the husband’s mother, participated in the borrowing which S Pty Ltd guaranteed. This does not mean the claim is stronger than that it otherwise would be. The Court will, if the need arises, judge it on its merits as between the Rands and the Liquidator of S Pty Ltd. Nevertheless, the winding up and its incidents are part of the process of achieving justice pursuant to s79 for the wife and, although the guarantee claim is brought in this Court as part of the Court’s supervision of the winding up, the winding up itself was for the purpose of making proper s79 orders and was part of those orders.

7. The second specific matter is a very compelling reason for the Family Court to hear the guarantee matter. It is that the parties conducted themselves until recently as though the dispute would be heard by the Court. The matter, with the proof of debt dispute, was listed for final hearing (for 5 days) commencing on 5 July 2010. This listing was allocated on 29 March 2010 without demur by the Third, Fourth and Eleventh Respondents’ counsel. The date was chosen, among other reasons, because it was suitable to the respondents and their legal advisers. The principal issues, as they evolved as a result of applications which refined them, were not heard on that day because the Third Respondent chose to absent himself from the jurisdiction and the Rands wrongfully failed to file their points of defence in the guarantee dispute and points of claim in the proof of debt dispute. On 24 June 2010, the respondents then sought to vacate the hearing dates and, for the first time, indicated they wished to make the applications I am now determining. The Liquidator also wished to have the applications for judgment heard. I shall discuss the reasons why I regard the actions of the Third and Fourth Respondents as wrongful in due course.

8. If I decide to hear the principal issues or either of them, I shall be able to give them an early date for hearing. This will allow the winding up and ultimate distribution to the wife to take place much earlier than is likely if either or both the principal issues are litigated in the Supreme Court. One would not expect the Supreme Court hearing to be earlier than 2011, whereas I am able to complete the hearing this year, even within the next three months. The wife is entitled to obtain her property without delay. After all, the s79 orders were made on 10 January 2006. There has been enough delay, the additional delay caused by transfer to the Supreme Court would be unconscionable to the wife and, as well, to the other creditors of S Pty Ltd whose rights are to a significant degree dependent on this litigation.

9. The second matter to be considered is the relationship between the parties. The relationship between the liquidator of S Pty Ltd and the Respondents is irrelevant, but the wife is still a party in the matrimonial cause. Rowlands J. wound up S Pty Ltd, among other reasons, because of the relationship between the wife on the one hand and the husband and Third Respondent on the other. His judgment is that the Third Respondent and husband collaborated to defeat the wife’s interests (see Judgment of Rowlands J. paragraph 167). The inference is that the Third Respondent’s attitude to the wife is unchanged. This inference arises under a principle sometimes known as the doctrine of continuance. Transfer, because of the delay likely to be involved, is likely to tend to harm and therefore defeat the wife’s interests and should not be permitted to the extent it can properly be avoided.

10. The third consideration, that of the laws which attach rights and liabilities to the parties’ conduct and relationships has been covered to some extent by what has been said about the first two considerations. Additionally, it is to be acknowledged that the guarantee dispute is, in essence, contractual and more appropriately, if considered in isolation, dealt with by a state court. Nevertheless, there are better reasons for treating this dispute as part of a larger dispute than in isolation.

11. The fourth consideration is whether the claim is essentially attached to other aspects of the proceedings which are to be dealt with by the Court. Senior Counsel for the three respondents pointed out that the s 79 proceedings have been completed and, although at an earlier stage in the proof of debt and guarantee disputes there appeared to be an inter-relationship, there is really none. What appeared to be a claim by the liquidator to set off S Pty Ltd’s indebtedness to C Pty Ltd when the liquidator was claiming, in a application he filed on 26 August 2009, to postpone payment to it until the guarantee issue is decided is no longer claimed. Now the liquidator simply denies S Pty Ltd’s indebtedness to C Pty Ltd. The argument about the lack of relationship put the claim by all respondents that the failure to file points of claim in the debt dispute was because C Pty Ltd was entitled to “see” what the Liquidator said in the guarantee dispute into better perspective. It emphasises the hypocrisy of the three respondents in using this excuse for non-compliance with my timetable for filing the points of claim.

12. However, I think there is an inter-relationship between the s79 orders and the guarantee dispute although not one which alters what is said in the preceding paragraph. The outcome of the guarantee dispute will effect the amount the wife recovers from the winding up of S Pty Ltd in two ways. The decision on whether the Rands are liable to S Pty Ltd under the guarantee will increase or decrease S Pty Ltd’s assets to a very significant extent. It does not matter for this aspect whether the decision is made by a state court or this Court. More importantly, the decision could determine whether the costs of both sides of the guarantee dispute are paid by one side or the other because the law on awarding costs is different in each court. In the Supreme Court, costs are likely to follow the event. In the Family Court this may not be the case, but is also a not inconsequential possibility. Section 117 of the Family Law Act creates a statutory bias towards costs being permitted to lie as they fall. The policy behind this is based on the public interest in not unduly harming family relationships. It should not be overlooked that even the outcome of the proceedings between the liquidator and the Rands will effect family relationships; as between the Rands and the husband of the one part and the wife of the other.

13. In the Supreme Court, the Court will, if the Rands succeed, not be able to consider the effect of a costs cost in their favour on the wife or, if they fail, one against them on the husband. The Family Court is obliged to consider the conduct of the parties and other factors of relevance in deciding whether to make a costs order (see for example s117(2A)(a), (c) and (g)). There is a connection between the ultimate entitlement of the wife under the orders of Rowlands J., his Honour’s findings about the behaviour of the Third Respondent in relation to the wife’s rights, the effect of the guarantee on them and his involvement in the arrangements which include the guarantee. If the Rands succeed in the guarantee dispute, the Family Court will be able to take the wife’s situation into account in determining the Rands’ rights to costs.

14. There is another consideration relating to costs. The costs in the Family Court have already been largely incurred in the dispute between the Rands and the Liquidator. A move to the Supreme Court is likely to significantly increase the legal costs of both parties. Whether costs do or do not follow the event and irrespective of the outcome, S Pty Ltd and therefore the wife, will probably be harmed financially to a greater extent by this litigation if it is in the Supreme Court rather than the Family Court.

15. The fifth consideration is whether the claims are non-severable from the matrimonial cause and arise out of a common substratum of facts. The claim involving the guarantee does arise out of relevant facts in the s 79 proceedings but, because the s 79 proceedings have been concluded so far as these facts are concerned, the common factual ground is not a reason for the Family Court to hear the contract claim. If, as the liquidator alleges, there is any relevant issue estoppel arising out of the judgment of Rowlands J., this can be as easily demonstrated in a state court as it can be in the Family Court. In the s 79 proceedings, the Third, Fourth and Eleventh Respondents here were the Third, Fourth and Twelfth Respondents respectively and S Pty Ltd was the Eighth Respondent.

16. The sixth consideration on whether to exercise discretion to hear the proceedings is whether the Court has power to grant appropriate relief. As the Court has control over the winding up and control over the Liquidator, it does have the power to grant the relief claimed. If it finds for the Liquidator, it can make orders for payment and, if needed, for sequestration of the estates of the respondents or order other appropriate means of satisfying the judgment against them if such means are available and justifiable.

17. These six considerations when weighed for and against exercise of discretion to hear the guarantee claim as their intrinsic characteristics require result in an overwhelming imbalance in favour of not transferring the matter from the Family Court for hearing.

18. In my assessment, it is not necessary to deal in as much detail with the claim to transfer the challenge to the liquidators rejection of C Pty Ltd’s proof of debt to the Supreme Court, if the Court has to decide whether to do so in the exercise of its discretion because the matter is only able to be heard by it because of its accrued jurisdiction. What has been said about the transfer of the guarantee dispute largely applies to the issue of transfer of the indebtedness claim by C Pty Ltd against S Pty Ltd, although there is no jurisdiction in the Family Court under s 33 of the Family Law Act if there is any other basis for jurisdiction, but if there is no other basis for jurisdiction s 33 does give the Family Court jurisdiction as a federal rather than state court would otherwise have jurisdiction. There can, therefore, be no doubt that the Family Court has jurisdiction to hear the proof of debt dispute.

19. The Corporations Act specifically provides for a scheme for dealing with creditor’s claims on a winding up. If the Court has jurisdiction and power to wind up S Pty Ltd, it has the jurisdiction and power to adjudicate on disputes over its indebtedness. The scheme seems to militate against resort to litigation beyond the Court which has the supervision of the winding up. Section 471B of the Corporations Act is a germane manifestation of the scheme. It emphasises that the scheme is for the Court administering the winding up to decide disputes between claimed creditors and the company being wound up over the existence and or extent of the disputed debt by providing that the claimed creditor cannot begin or proceed with any litigation including litigation designed to enforce the claimed debt without leave of the Court which made the winding up order and only then subject to conditions imposed by that Court.

20. The scheme is taken further by the Corporations Regulations 2001 and s 1321(d) and s 1337J. The regulations, in Part 5.6, provide the practical framework for winding up of companies. This part also imposes time limits for certain actions which are provided for by it. It provides the time limits for lodging a proof of debt, for the liquidator to accept or reject it and for appeal from rejection in whole or part. That appeal is, by Regulation 5.6.54(1)(b), to the Court which has made the winding up order. The appeal was in the present instance by way of the Application in a Case of C Pty Ltd filed 21 July 2009 which seeks an order from the Court which reverses the decision of the Liquidator to reject its formal proof of debt dated 29 June 2007 and to accept that proof for the full sum claimed or in such other sum it finds the debt to be. The full amount involved is $289,743.58. The Liquidator has not suggested this appeal was made out of time.

21. In addition, s 1321 of the Act in subjection (d) also creates a right of appeal to the Court, meaning the Court supervising the winding up, by a person aggrieved by a decision of the liquidator. Section 1337J of the Act makes the scheme clear. It provides for the general possibility of transferring, and power to transfer, proceedings in the Family Court to a state court such as the Supreme Court of New South Wales. By subsection (2), there are three specified grounds, one of which the Family Court must find to exist in order to transfer proceedings within the jurisdiction of the Family Court pursuant to s 1337C to another suitable court. It is clear that the adjudication of a dispute over the existence and/or size of a debt of a corporation which is in the process of being wound up between a liquidator and a claimed creditor who has lodged a proof of debt which has been rejected in whole or part by the liquidator is a civil dispute or matter arising under the Corporations legislation.

22. A necessary element of one ground of s 1337J is that there are proceedings pending in the transferee court (s 1337J(2)(a)). There are no such proceedings here. The second ground, that provided by subsection (2)(b), involves three elements. They are:

    (i) Whether the proceedings considered for transfer would have been in part or whole incapable of being heard in the transferor court if it were not for Division 1 of Part 9.6A of the Corporations Act. – The proceedings for debt would have been capable of being instituted in the Family Court if that division of the Corporations Act had not been enacted because, as part of a matrimonial cause and therefore being a matrimonial cause and under s 233 and related sections of the Corporations Act, the proceedings could have been instituted as part of the winding up.

    (ii)The extent that the matters for determination would not be within the Supreme Court’s jurisdiction if it were not for this Division. – I am of the view that the debt dispute is a matrimonial cause because it is, under (f) of the definition of matrimonial cause, “other proceedings in relation to concurrent, pending or completed proceedings” which are a matrimonial cause, being the s79 proceedings between the husband and the wife, being the proceedings in which the winding up order was made and the proceedings in which I am currently involved, being proceedings for the supervision of the winding up, both proceedings being within (ca)(i) of the definition of “matrimonial cause”. After all, the proceedings arise directly out of the order for winding up by Rowlands J. and the consequences and the implementation of that order for the purpose of achieving justice under s 79. As such, only the Family Court, pursuant to s 39 of the Family Law Act, has jurisdiction to hear the debt proceedings.

    If the Family Court does not have exclusive jurisdiction to hear the debt proceedings, because of the Corporations Act, ss 58AA, 233, 461, 477, 1321, and the regulations made under it, the Supreme Court would have jurisdiction to hear the debt dispute if leave of the Family Court is granted to C Pty Ltd to institute debt recovery proceedings against the company. That claim could then proceed without reliance on s 1337J(2).

    Thus, although prima facie there could be a transfer under the Corporations legislation, there does not need to be a transfer because the Family Court has either exclusive jurisdiction or jurisdiction because of the circumstances to hear the debt claim.

    (iii)The interests of justice. – This ground can only be effectively applied if there is jurisdiction in the transferee court. Nevertheless, it is in the interests of justice that the debt proceedings be resolved as quickly and cheaply as possible. The saving of time and/or costs is much more likely to be a consequence of a hearing in the Family Court than the transfer of the proceedings to the Supreme Court of New South Wales. There are no other valid reasons which would warrant transfer.

23. Not only does the Supreme Court have no jurisdiction to hear the dispute over the proof of debt, because it is a matrimonial cause, the scheme of the Corporations Act is such that transfer is only to be made if there are good reasons for it and/or it is in the interests of justice to do so. There are no good reasons and it is in the interests of justice not to do so. I shall refuse the application for transfer of the debt dispute.

1. The application by the Liquidator for what are in effect undefended judgments is based on the failure by the three respondents to comply with directions I have made for preparation of the trial of the issues.

2. As I have said, C Pty Ltd filed an application on 21 July 2000 for the Court to allow, in whole or part, C Pty Ltd’s formal proof of debt in $289,743.58 which had been rejected by the Liquidator after it was lodged on 29 June 2007 or thereabouts. No particulars of the basis for this application have been filed. On 23 April 2010, the Liquidator filed an Application in a Case claiming from the Rands the amount paid to the bank to discharge a loan of $670,000 the bank had made to the Rands which had been guaranteed by S Pty Ltd where the guarantee had been called on by the bank and the sum of $693,114.11 had been paid by S Pty Ltd to the bank to discharge the Rands’ indebtedness. The Liquidators claim the payment plus interest to date.

3. On 29 March 2010, for case management purposes, I make some relevant orders. One was Order 6 which made orders in accordance with Exhibit XY. Paragraph 2 of that exhibit required C Pty Ltd to file and serve on the Liquidator, “Points of Claim in relation to the Liquidator’s rejection of its proof of debt concerning the Deed of Company Arrangement with [RE] Pty Ltd in the amount of around $289,000 (‘DOCA Claim’) by 12 April 2010, together with any evidence in support.”  This was a reference to the application of C Pty Ltd which was filed on 21 July 2009. The hearing of this claim and that of the Liquidator on the guarantee was fixed for 5 July 2010 on 29 March 2010. Five days were allocated for the hearing of this and the guarantee claim. In relation to the guarantee, by paragraphs 5 and 7 of Exhibit XY, the Liquidator was ordered to file and serve any claim against the Rands by 6 April 2010 and evidence by 27 April 2010. As this claim was an ordinary contract claim based on the guarantee, it was inferred that the Liquidator was to file a statement of claim or its equivalent by way of points of claim. By paragraph 7 of my orders, the Liquidator was to include in his points of claim all the orders he sought against the Rands. By paragraphs 6 and 8 of Exhibit XY the Rands were to file and serve points of defence to the Liquidator’s guarantee claim by 20 April 2010 and their evidence by 4 May 2010. C Pty Ltd was required to file points of claim and evidence in reply by 12 April 2010 pursuant to Exhibit XY. At this hearing, all three respondents were represented by Mr Milanovic of Counsel.

4. At the compliance check date of 24 May 2010 I was informed that the Liquidator had been late in filing and serving his points of Claim and affidavit in the guarantee suit. They were filed on 23 April 2010. The solicitors for the Liquidator emailed the points of claim against the Rands to the Rands’ solicitor on 30 April 2010 but, for some unexplained reason, did not formally serve the Rands until 18 May 2010. Nevertheless, by the end of 30 April the solicitor for the Rands, and therefore the Rands, had notice of the basis for and allegations relied on in the guarantee claim.

5. Mr Grieve QC and Mr Milanovic of Counsel instructed by the three respondents’ current solicitor, Mr Elias, appeared on 24 May for the three respondents. Mr Grieve informed me that, because of the late notice by the Liquidator of the claim on the guarantee, the Third and Fourth Respondents were unable to comply with the timetable for filing their points of defence and evidence and the Eleventh respondent was late in filing its points of claim and evidence. I did not question him on why the points of claim in the dispute over C Pty Ltd’s proof of debt had been delayed when the facts were not connected to the guarantee dispute. There seemed to be no purpose in holding C Pty Ltd to the original timetable when the Liquidator and the Third and Fourth Respondents were able to gain an extension of time and preparation for the tiral would not be delayed. Mr Grieve informed me he would be able to have draft points of claim and draft points of defence prepared within seven days. It was suggested either by me or one of the parties that, in the circumstances, 14 days extension of time would be sufficient for filing and serving these documents. It is of very great significance that the respondents’ solicitor, Mr Elias who was present, either did not, one can assume, inform Mr Grieve that this would not be practical or Mr Grieve, on being informed of Mr Rand’s absence, felt he did not need him to draft the claim and defence. Certainly Mr Elias did nothing to inform me that an order extending time for filing and serving C Pty Ltd’s points of claim and the Rands’ points of defence on or before 7 June 2010 was impractical and Mr Grieve and/or Mr Milanovic said nothing of this. I made orders requiring C Pty Ltd’s draft points of claim and the Rands’ draft points of defence be provided by Mr Grieve to Mr Cotman SC for the Liquidator within seven days i.e. on or before 31 May 2010 and that the points of claim and points of defence be filed and served by 4pm on 7 June and retained the set date for commencement of the hearing on 5 July 2010.

6. On 16 June 2010 the Liquidator filed his Application in a Case for undefended judgment against C Pty Ltd on the proof of debt claim and the Rands on the guarantee claim. The Liquidator asked that he have judgment against C Pty Ltd in the event that, by 25 June 2010, C Pty Ltd had not filed its points of claim and judgment against the Rands if, by the same date, they had not filed their points of defence.

7. On 24 June 2010, the return day of the Liquidator’s application for judgments, the respondents were represented by Mr Feller SC and Mr Milanovic and instructed by Mr Elias. I was informed that Mr Grieve’s instructions had been withdrawn. Mr Feller then sought that I disqualify myself and vacate the hearing set for five days starting on 5 July 2010. He also informed me that he was challenging the Court’s jurisdiction, wished both disputes involving the respondents transferred to the Supreme Court of New South Wales and was seeking security for costs and in any event was seeking an adjournment of the hearings set for 5 July. Mr Feller also informed me that he was not able to file the pleading documents because he had only recently been instructed and the main person who could supply him with proper instructions, Mr G Rand, the third respondent, was overseas and would not be returning in time for the hearing. As it was clear that the principal proceedings; the disputes over the proof of debt and the guarantee, would not be heard on their merits at the time allocated, I vacated the allocation of 5-9 July 2010 to the hearing of them and stood all the interlocutory disputes except the application for disqualification over to 5 July 2010 for hearing. I dismissed the application for my disqualification on 24 June 2010.

8. Four affidavits of Mr Elias were filed for the hearing on 5 July, 2 on 24 June, sworn on that day and two on 5 July sworn on 4 July 2010. Mr Elias was also cross-examined. He informed the Court that Mr Rand had left Australia for Lebanon on 29 April 2010 and that he did not know and could not establish when he would return. Mr Elias swore, in paragraph 25 of one of his affidavits of 24 June, that the affidavit evidence of the Third Respondent, Mr G Rand who Mr Elias more correctly refers to as Mr G … Rand, is essential to C Pty Ltd’s claim and the Rands’ defence as “he was instrumental” in the relevant transactions and is a director of C Pty Ltd. Mr Elias must have know this, as must Mr Rand himself, before Mr Rand left for Lebanon.

9. The excuse for Mr Elias’ failure to obtain sufficient instructions and for the decision that Mr Rand made to go to Lebanon and by doing so, seemingly making Mr Elias incapable of obtaining proper instructions, is essentially the claimed failure of the Liquidator to serve his points of claim by 6 April in compliance with my orders. It is argued that they were served on 18 May, but, because, on 29 April, Mr Rand did not know when or even if they would be served, he decided to go to Lebanon for two purposes. The first is to organise and supervise a “multi-million dollar” building project which can only be built in Lebanon’s late Spring and Summer, i.e. from about the time he left until late August. It is said by Mr Elias that, if Mr Rand is not able to supervise the project, “he will suffer even worse financial losses.” The second purpose was to give instructions and give evidence in a Lebanese Court on 8 July 2010 in proceedings over real property in which he is the plaintiff.

10. It is not correct to simply assert that the respondents were not served with the particulars of the guarantee claim until 18 May. On 30 April a copy of those were emailed to Mr Elias, so he knew by then what was being relied on by the Liquidator. In any event, in order to file the particulars of claim in the proof of debt dispute, C Pty Ltd, Mr Elias and the Third Respondent did not need to wait until they knew what was alleged in the guarantee claim. It is entirely separate from the proof of debt dispute and the points of claim could and should have been completed before Mr Rand left for Lebanon.

11. There is no substance in Mr Elias’ stance that because he and Mr Rand did not know when or if the points of claim on the guarantee would be forthcoming Mr Rand could not be expected to wait and was justified in going to Lebanon for an indeterminate and lengthy time when he did and before preparing his points claim and points of defence. Mr Elias warned Mr Rand before he left that the points of claim might be served at any time. Thus, Mr Rand knew he might have to prepare the defence yet chose to leave and now uses the service as late as 18 May as his excuse for doing so. Not only was notice, the real basis for service, provided on 30 April but Mr Elias, on learning on or before 29 April that Mr Rand was intending to go overseas for a long and indeterminate time, a time which went well beyond 5 July, the date set for the hearing, had a duty to do more than sit back, do nothing and hope events would favour his client. He had a duty once he knew Mr Rand wished to go overseas to contact the Liquidator’s solicitor to enquire when and if the points of claim would be forthcoming. He also had a duty to warn Mr Rand that the late service of the points of claim were no excuse for C Pty Ltd’s failure to file and serve its points of claim in the proof of debt dispute and, as he would have learnt of the impending notice and service of the points of claim, to warn Mr Rand personally and on behalf of C Pty Ltd that he should not go overseas if he was going to be so long and his return was uncertain and that he should not leave before providing proper instructions for the preparation of points of claim and points of defence.

12. If Mr Elias had telephoned the Liquidator’s solicitors when he learnt Mr Rand was intending to travel overseas he would surely have learnt of the impending email and service of the points of claim on the guarantee. The points of claim on the guarantee were actually filed on 23 April, so any enquiry at a reasonable time before Mr Rand left for Lebanon would have resulted in Mr Elias and Mr Rand learning that the claim was about to be or had been filed and was to proceed. If Mr Elias was not informed by Mr Rand of his impending departure at a time which would have allowed Mr Elias to enquire and learn at a reasonable time before he did that the claim was proceeding and of its precise nature; sufficient time to then prepare points of defence to it, this must be the fault of Mr Rand who, on the evidence of Mr Elias that Mr Rand went to Lebanon to organise a development which could only be organised at a certain time of the year and to take part in a Court hearing on a particular date, must have planned to go well in advance of his departure.

13. Not only should Mr Elias have enquired of the solicitor for the Liquidator once he learnt of Mr Rand’s planned departure, he should have informed the Court and the Liquidator forthwith on learning of Mr Rand’s intentions and should have sought to vacate the hearing or warn the Court of the problem. He could have sought another extension of time to file the points of defence and points of claim if he was unable, in the time available before Mr Rand’s departure, to get the necessary instructions to draft these documents. He says he instructed Mr Grieve to do so on 24 May and Mr Grieve refused to make these applications. It was too late by then, just as it was too late by 24 June when the applications were made by Mr Feller.

14. Another aspect of the excuses proffered on behalf of the respondents is that when the matter was set down for 5 July on 29 March Mr Elias did not know of the existence of the Lebanese proceedings. Mr Elias swears he did not learn of these until “prior” to Mr Rand’s departure. I understand him to mean by this “immediately prior”, otherwise the attempt at this excuse would be baseless. This does not excuse Mr Rand and therefore any of the respondents. Nor is it an acceptable excuse to claim, as Mr Elias does on behalf of Mr Rand and the other respondents, that Mr Rand, although apparently aware of the dates of both the Lebanese and Family Court hearings because they were, or at the least one was, recorded in his diary, he did not realise there was a clash of dates until he checked his diary. If checking the diary alerted him, either both were recorded or one was recorded and he knew the date of the other. In either case, he must have known both dates.

15. 8 July 2010 has now passed and Mr Rand is not due in Australia at any known time and not in the near future. One of the excuses put forward for that on 5 July is that the Lebanese proceedings could not be vacated and the proceedings may not finish on the 8^th. It is claimed that they may be continued on any day after 8 July and that Mr Rand could not influence the adjourned date or dates for the continuance of the hearing. This would not have prevented Mr Rand or his Lebanese lawyer providing some estimate of the completion date or, by now, evidence of the actual dates on which the proceedings have been set if not completed. I do not accept that Mr Rand could not have provided some information which is more specific than the little he has sought to rely on.

16. Of course, the tenor of Mr Elias’ evidence is really that Mr Rand considers that he has more important business in Lebanon; important enough to warrant his absence from Australia from late April to the end of August and the delay involved in his stance, but was not concerned about the waste of Court time, the other parties’ time and costs and the delay for the wife and other creditors of S Pty Ltd sufficiently to inform the Court or do anything else to lessen the impact of his departure. He chose to benefit tactically from this unreasonable and improper behaviour by making the adjournment of the hearing a fait accompli then using the opportunity provided by the adjournment to make what he no doubt must regard as tactically beneficial applications.  

17. Although I regard the respondents’ failure to file and serve their points of claim and points of defence at a reasonable time as quite unjustified and regard the excuses for the failure as insignificant, I do not feel the interests of justice would be served by immediately precluding them from defending the guarantee claim and pursuing the debt claim.

18. I accept Mr Feller’s submission that because of the active part Mr Rand played in all relevant transactions and the need to get instructions from Mr Rand in a situation where documentary material and potential evidence is immediately accessible to both counsel and Mr Rand, it is necessary for Mr Rand to come to Australia before the points of defence and points of claim are prepared. I am, nevertheless, not willing to continue to permit Mr Rand to do as he pleases to suit his own agenda. Because I have not been provided with proper information which would permit me to decide when, within a reasonable time, Mr Rand could return to Australia for a sufficient time to permit him to give proper instructions to counsel and should have been given this information, I am forced to impose a time limit which I regard as reasonable in view of the need to permit these proceedings to be heard within an appropriate time, bearing in mind that the wife and the other creditors of S Pty Ltd have a right to a prompt determination of their rights. The proper and just course is to require the points of defence and points of claim to be served and filed within 21 days of this judgment and in the event that this is not done order that there be in effect a self-executing judgment for S Pty Ltd in one or both of the 2 matters if there is a failure to file and serve within the time permitted.

19. The final matter for decision is the claim by the Rands that S Pty Ltd lodge $400,000 security for costs of the guarantee dispute. The application for security for costs was filed in court and, presumably, served on 5 July, the date which was set for the hearing. The two applicants seek that the $400,000 be paid into Court. They did not say whether they are seeking security for costs in both the proof of debt and the guarantee disputes, so I shall assume that they are only seeking security in the guarantee dispute. They are, after all, not parties to the other dispute although Mr Rand has an interest in its outcome. This application is supported by an affidavit sworn by Mr Elias on 4 July 2010. Mr Feller provided written submissions on the other matters I have dealt with but not on the security for costs application. In his oral submissions on the issue of security for costs, he raised no specific reasons why it should be given other than the fact that S Pty Ltd is in liquidation and is likely, if the Rands succeed in the guarantee claim, to have insufficient funds to meet a costs order against it and in the Rands’ favour in full.

20. Mr Elias’ affidavit seeks to argue the case for security and points out the obvious, that S Pty Ltd is in the process of Liquidation or winding up. This is irrelevant in the light of the actual ability of S Pty Ltd to meet a possible costs order against it. The winding up was not because of S Pty Ltd’s inability to satisfy its debts as they fall due, it was to relieve its members from oppression.

21. In addition Mr Elias’ affidavit seems to justify the claim for security on his assertion that:

    (i) the matters in issue between the 2 respondents and the Liquidator involving the guarantee are complex and will take 5 days to hear;

    (ii)that “[i]t is anticipated that the costs to date and the costs to defend the matter up to completion would exceed $400,000”;

    (iii)that the two respondents “strongly believe” the claim lacks merit and is unlikely to succeed; and,

    (iv)there are serious concerns about S Pty Ltd’s ability to meet a costs order against it.

    I do not regard the guarantee claim as particularly complex. It would not, if heard alone, take more than two days to hear. I shall discuss the costs estimate below. The belief of the Rands, whether strong or not, is irrelevant but there are valid concerns about S Pty Ltd’s ability to meet a costs order against it. I shall expand on these concerns below.

22. Section 117 of the Family Law Act and s 1335 of the Corporations Act apply to the application for security for costs. Section 1335 permits the Court to order a company plaintiff to give “sufficient security” for a defendant’s costs if it appears to the Court that the company will be unable to pay the costs of a defendant who is successful. Very significantly, subsection (2) specifically permits the Court to exercise its discretion to visit a costs order on any party to the proceedings. “Party” would include the Liquidator personally.

23. Pursuant to s117, especially because the guarantee claim essentially involves a commercial civil dispute rather than one between husband and wife, there is the possibility that the above circumstances would justify the making of an order for costs in favour of the party to the commercial dispute who succeeds. As there may be an order for costs, an order for security for costs is not without its essential basis; the possibility of an order for costs. Thus, the Court must make the order, in determining the application for security for costs, which it considers to be just after paying regard to the matters specified in subparagraphs (a) to (g) inclusive of s117(2A), so far as they could be relevant. I shall consider these in order.

1. I know little of the respondents’ financial situation except that it is likely that the Third Respondent and therefore the Fourth Respondent, who is his wife, are well off. I know he is undertaking a development in Lebanon in which he must have invested a very large amount of money. In any event, because the respondents have failed to give more specific detail, I must assume they can afford to pay their legal costs of defending the guarantee dispute and, if they win, can afford to meet these costs without contribution from S Pty Ltd even if they obtain an order for costs against it. By analogy, that is the effect of the inference Jones v Dunkel (1959) 101 CLR 298 creates when a party who could be expected to call evidence of financial circumstances in a case like this does not do so and provides no valid excuse for the failure. The inference that the evidence, if it had been called, could not have assisted the party’s case means that, in practical terms, here.

2. The financial situation of S Pty Ltd in part depends on the result of the claim C Pty Ltd has made to prove its debt. Currently, so far as the latest statement of S Pty Ltd reveals, it holds $872,000, approximately, in cash. There is also the claim by C Pty Ltd which it has deferred and is in dispute over for $289,000, approximately. After taking into account the established and unpaid claims of creditors and making provision for the Liquidator’s own fees and expenses, S Pty Ltd will have a deficiency of about $1.15m if it fails against C Pty Ltd and the Rands or of about $572,000 if it fails against the Rands but succeeds against C Pty Ltd.

3. The provision I have made for the Liquidator’s costs including legal fees is $400,000, which is the mid range estimate made by the Liquidator. These costs are for all litigation and the Liquidator’s own fees rather than for the legal costs only in the limited dispute between the Rands and S Pty Ltd. They appear to me to point to the excessiveness of the estimate of $400,000 as the Rands’ legal costs in the limited dispute. No basis is given for this estimate in any attempt by Mr Elias to justify it.

4. Of course, it is to state the obviousness that if the Rands gain the benefit of a costs order they will become creditors of S Pty Ltd for those costs and will be paid in the proportion that the costs debt has to the total debts of S Pty Ltd. This proportional entitlement is an important consideration because it is a guarantee that the Rands will receive a proportion of any costs order in their favour. There is no risk that they will receive nothing from an award of costs in their favour. As the total liabilities of S Pty Ltd will be about $2.086m plus any costs award to the Rands and C Pty Ltd if S Pty Ltd loses to both and about $1.747m plus costs awarded to the Rands less any costs awarded to S Pty Ltd if S Pty Ltd loses to the Rands but succeeds against C Pty Ltd, it is likely that the Rands are, in effect, guaranteed to receive between one third and a half of any likely, because reasonable, costs awarded to them assuming as I estimate, any costs the Rands might recover would, at a maximum, tax at less than $125,000, possibly much less. However, this does not exhaust the Rands’ rights in relation to recovery of costs. At common law, (see Re Speedifix Building Products Pty Limited (In liq) (1987) 11 ACLR 863 and the cases referred to in that judgment), it is established that, where a company in liquidation sues in its name but through its liquidator, the liquidator personally can be ordered to pay the costs which the company cannot pay. It is for the Court to determine to what extent or whether the liquidator can have recourse to the company’s assets for the costs paid to a successful defendant. Thus, it seems that s 1335 is really the statutory manifestation of the common law and that the Rands have more protection than is ordinarily the case in that they will not only have recourse to S Pty Ltd for costs but also can seek orders against the Liquidator personally.

5. Neither party has legal aid. The conduct of the parties in relation to the proceedings is relevant. There has been an issue about the guarantee from an early point in the time the winding up has been before the Court. The dispute between S Pty Ltd and the Rands first came to a head in mid 2009. On 16 July 2009 the Liquidator filed an application designed to permit him to refuse payment of an admitted debt S Pty Ltd had to C Pty Ltd; not the debt over which the dispute continues, until the Rands paid S Pty Ltd the moneys the liquidator claimed were due to it under the guarantee, although proceedings to recover those moneys were not yet determined.

6. It was not until 29 March 2010 that it became apparent to the Court and probably first became apparent to the Rands then or a short time earlier that the S Pty Ltd stance on the guarantee had evolved into a suit by it against the Rands. On 29 March the dispute was fixed for hearing on 5 July 2010. The Rands were required to file and serve their points of defence to the guarantee claim by 20 April. S Pty Ltd failed to file and serve its points of claim by 6 April and did not notify the Rands of them until 30 April. Yet the failure of the Rands to file the points of defence at all by 5 July  after having been given an extension of time until 7 June on 24 May after formal service of the points of claim on 18 May, in the light of Mr Rand’s choice to leave Australia so he could not give proper instructions and his choice, though his solicitor, to do nothing to enquire about S Pty Ltd’s points of claim and his failure to notify S Pty Ltd and the client of his intention to go overseas forthwith after he decided to leave, something he must have known of for a significant time before he left, makes the late notification by S Pty Ltd of the points of claim a very slight excuse for the Rands’ failure to comply with orders. The conduct of Mr Rand directly and/or through his solicitor and the failure to file the points of defence by the extended time of 7 June is a serious matter in the circumstances. It warrants the Court demonstrating its dissatisfaction with it in a practical manner such as refusal to make an order for security for the costs of the Rands which they might otherwise be entitled to or the making of an order for a lesser sum than should otherwise be the case. It should be clearly said that, although Mr Elias must take some of the blame for Mr Rand’s conduct, I cannot say to what extent. I can say I accept that when he learnt Mr Rand intended to leave he warned Mr Rand that he might have to return if the points of claim were filed and he wanted to defend the case properly.

7. It cannot be said that the proceedings for guarantee were necessitated by a failure by either S Pty Ltd or the Rands to comply with orders of the Court. It can be said that the Rands’ failure to comply with the Court’s orders, in the circumstance in which Mr Rand left Australia and has left the Court without any realistic idea of when he will return, caused all the principal proceedings set for 5 July to be adjourned. These wrongful actions are the real cause of the Rands’ ability to apply for security. If he had not left, he would not have been given leave to file the application for security for costs on 5 July because the application would have been too late. As matters stand, I am of the view that such an application should have been filed earlier if it was to be made and the failure to do so in the circumstance is conduct, and a reason which comes within s117(2A)(c), why security should not be ordered.

8. Success or failure in the guarantee proceedings cannot be known at this stage, so cannot be relevant to the security for costs application. I have not been informed of any written offer to settle. One does not know what the final result in the guarantee dispute will be. On what I have been told, both parties, prima facie, seem to have arguments which could be accepted and, therefore, reasonable prospects of success. A written offer which is not a complete capitulation could not be judged as adequate or inadequate and, in any event, could not be disclosed to me as the trial judge.

9. There are two matters in which I have not referred to above which I regard as relevant. Even if S Pty Ltd fails, it may become entitled to a costs order against the Rands in relation to the vacated hearing. That is the first of the additional two matters. The second is that C Pty Ltd, too, has failed to file its points of claim as a result of Mr Rand’s absence and related conduct. It does not even have the weak excuse the Rands have of S Pty Ltd’s original delay in meeting its time table. There is no substance in the claim by all three respondents that C Pty Ltd’s failure to file its points of claim on time was due to the late failure of S Pty Ltd to file the guarantee claim on time. As Mr Elias said at the 5 July hearing when he gave evidence, he received his instructions in acting for C Pty Ltd from Mr Rand. Thus C Pty Ltd’s failure is wholly due to Mr Rand’s conduct too. Accordingly, C Pty Ltd, through Mr Rand, caused the hearing set for the proof of debt claim to be vacated and ultimately one or both may be subjected to an order for costs in favour of S Pty Ltd for doing so. The Rands have a financial interest in C Pty Ltd.

10. Those two reasons, the conduct of Mr Rand and therefore of the Rands, despite S Pty Ltd’s financial situation, in view of the availability of the Liquidators assets to meet a costs order in the Rands’ favour and the lateness and circumstances in which the claim was made are, together, the reasons why I should refuse the application for security for costs despite the real possibility that if S Pty Ltd loses the guarantee claim it will not be able to meet a costs order in favour of the Rands in full. I shall refuse the security for costs application.

I certify that the preceding eighty-four (84) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cohen

Associate:     

Date:              28 July 2010