This decision concerned an application for security for costs against a liquidator in court proceedings against a director for insolvent trading, and against the Commissioner of Taxation for recovery of unfair preference payments. The present dispute arose as consent orders had previously been made before Black J in the Supreme Court for the liquidator to provide security in the sum of $70,000, with the defendants having liberty to apply to seek additional security. The defendants sought a further $400,000 in security for costs. The liquidator ultimately succeeded in resisting the application.
Arguments of the parties
The liquidator resisted the application for there being insufficient evidence to show ‘reason to believe’ that he would be unable to satisfy an order for costs. The liquidator also relied on a line of authority to the effect that an order for security should not be made against a company liquidator suing in that capacity, although this issue went against the liquidator.1 The defendants argued that as the liquidator had previously consented to an order for security for costs, this had ‘determined’ his liability for security and the only issue was the quantum of security.2
Effect of previous orders
The defendants asserted that the previous orders contemplated that any further application would be limited to argument over the quantum of any security for costs (and not the obligation to provide security). Alternatively, it was argued that the earlier orders gave rise to an issue estoppel on the question of liability.3
The court found that the previous orders merely disposed of the earlier application, but did not restrict the parties in making a further application for security as the trial approached, and likely costs became more apparent. Further, ‘liberty to apply’ did not impose any restrictions and the defendants were free to make a further application, as was the liquidator free to resist the application.4
The assertion that the previous orders created an ‘issue estoppel’ was also rejected, as an issue estoppel would generally not arise in procedural applications such as security for costs.5 Further, the ‘issue’ of the liquidator’s liability to provide security was not determined by the court in the previous application, as it was merely a consent order.6
Alleged abuse of process
There was no abuse of process by the liquidator resisting his liability to pay security under the current application.7 Parker J considered that the settlement of interlocutory applications by the making of consent orders should be encouraged, and that the court should be slow to adopt an approach which would lead to arguments that the parties are fettered in the approach they may take in such applications, due to the making of the previous consent order before Black J.8
Whether further security should be ordered?
Counsel for the defendants asserted that should it be found that it was not improper for the liquidator to further contest liability to pay security, the court should order that security be provided as there was evidence that lawyers were conducting the litigation on a ‘no win, no fee’ basis.
The obligation to provide security was based on Rule 42.21(1)(e) of the Uniform Civil Procedure Rules 2005 (NSW) that allowed for security to be granted if it appears to the court that ‘a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so’. This rule effectively outflanked the argument of the liquidator that an order for security should not be made against a company liquidator suing in that capacity.
However, Rule 42.21(1)(e) was only engaged if there was ‘reason to believe’ that that the liquidator would be unable to pay the costs if unsuccessful. There was evidence that the liquidator owned a 5/1000th share in a real property in Sydney (presumably his matrimonial home), although there was no evidence in the form of financial statements or tax returns of the liquidator.9 There was evidence that the liquidator, through his firm, held professional indemnity insurance issued by Lloyds of London that would respond to personal liability in the proceedings.10 The indemnity provided under the insurance policy could be taken into account in assessing the liquidator’s ability to meet any costs ordered against him.11
Parker J also endorsed comments he made in Devine v Liu12 that where an established liquidator who is a member of an apparently substantial firm engages in litigation, it is possible that he/she may garner support from his/her partners to avoid bankruptcy and to satisfy a costs order. As bankruptcy could spell the end of his professional career, it was likely that any costs order would be paid.13
The liquidator succeeded.
This article was written by Matthew Broderick, Partner.
Publication Editor: Grant Whatley
1At [8], referring to Hession v Century 21 South Pacific Ltd (in liq) (1992) 28 NSWLR 120 at 123; Green v CGU Insurance Ltd (2008) 67 ACSR 105; [2008] NSWCA 148 at [27] – [28].
2At [8].
3At [12].
4At [15] Parker J noted that the solicitors for the defendants may have had in mind that the order could be ‘topped up’ at some later stage in the proceedings, but the consent orders, as a matter of construction, did not have that effect (at [16]).
5At [38], although Parker J noted that this was not a fixed rule.
6At [40].
7At [41]. The court noted that the categories of abuse of process are not closed: UBS AG v Tyne (2018) 92 ALJR 968; [2018] HCA 45 at [52] – [59].
8At [43].
9At [48].
10At [48].
11At [52] – [53]. The indemnity provided under the policy of insurance was distinguishable from the indemnity provided by the litigation funder in Australian Worldwide Pty Ltd v AW Exports Pty Ltd [2018] NSWSC 1632, which Parker J did not consider to be relevant in determining if a liquidator could pay costs. It was distinguishable as it was not obtained for the purposes of the litigation, but instead as part of the ordinary course of the liquidator’s professional activities.
12[2018] NSWSC 1453.
13At [49] – [50].