24 It does seem that the policy of the Corporations Act is to provide administrators with an immediate breathing space by the imposition of a stay on proceedings on foot at the time of the administration until leave is sought and possibly granted. It also seems that such policy could be frustrated if proceedings are able to be brought and or continued against the company in administration, in a place other than in a court. However that is what the legislature has permitted to occur.
25 In deciding that the definition of "court" in s58AA of the Act did not apply to the word "court" in s 440D, Austin J followed the "lead", as he put it, of Jordan CJ, in Jones v Hall (1942) 42 SR (NSW) 203, at 208 as follows:
… the authorities establish also that if the words in a Statute when read in their primary or natural sense would produce the result which, in relation to the provisions of the Statute itself, are fantastic or absurd, a court is entitled to pay the Legislature the not excessive compliment of assuming that it intended to enact sense and not nonsense.
26 The circumstances of this case are different from those with which Austin J was dealing. In that case the moratorium had been applicable to proceedings before the industrial commission prior to the amendment of the relevant statute in 1996. Austin J's analysis of the change in the legislation provided a basis upon which he could take the lead provided by Jordan CJ to conclude that it would have been unintended, or absurd, to give the word "court" the meaning in s58AA.
27 It is not absurd or fantastic to exclude an arbitrator from the general definition of "court". One can understand that the legislature would have been cognisant of the capacity of parties to agree, privately, to have disputation resolved by resort to a mechanism other than a court, such as arbitration, conciliation or mediation, whether structured or unstructured. It is also not absurd or fantastic to conclude that the legislature would be cognisant of the provisions of the CA Act and the exclusion of the Court from the process of arbitration except to a very limited extent.
28 There are many hallmarks of what some arbitrators do, for instance administering an oath, hearing evidence, deciding facts and giving reasons for a decision, that are similar to what occurs in Courts created by statute. However those similarities do not seem to me to convert an arbitrator, who is appointed by reason of the arbitration agreement, into a "court" for the purposes of s 440D. It seems to me that s 440D does not apply to this arbitration and there is no need for leave to continue the cross claim.
29 By reason of the urgency of this application and the need to have some certainty in the proceedings, it seems to me that a better course to adopt is to grant leave to the plaintiff to commence the proceedings for leave to continue the cross-claim in the arbitration proceedings and to make the provisional order sought by the plaintiff in paragraph 2 of the Summons. In that way there can be no prejudice to the parties proceeding to finality with their arbitration proceedings.
Security for costs
30 The next question is whether leave should be granted to the plaintiff to commence these proceedings for security for costs. It is agreed that there is jurisdiction in this Court to order security in relation to costs incurred in arbitration proceedings: Johnson v Macri and Marcellino Pty Ltd (unreported, SCNSW, Cole J, 8.6.90).
31 The plaintiff relies upon s 1335 of the Act and there is no issue between the parties that the defendant is insolvent and, according to the administrators report to creditors was insolvent at the time of the appointment of the administrators and "had been for a number of months". I raised this question with counsel for the defendant as being an exceptional circumstance, in that, the defendant had apparently pursued the arbitration, incurring debts at least for senior and junior counsel and solicitors, whilst apparently insolvent. Mr Davie submitted that no criticism can be levelled at the directors of the defendant based on the content of the administrators' report and was not in a position to respond further. I agree that the administrators' view of the company prior to 31 December 2003 may have been formed with the benefit of hindsight and the directors may not have been in a position to know the extent of the incapacity to meet debts.
32 These matters were raised with Mr Davie because he had put a submission that leave should not be granted to the plaintiff, or security should not be ordered, because the plaintiff had delayed in bringing its application for security. Ms Brew, the solicitor for the plaintiff, gave unchallenged evidence that there was an understanding in the plaintiff that prior to the appointment of the administrators there was no proper basis upon which to bring such an application. The plaintiff was entitled to assume by the presence of the defendant during this long arbitration, including in November and December 2003, that the defendant was more probably than not solvent.
33 The plaintiff moved promptly after the appointment of the administrators and sought their agreement for security for the plaintiff's costs in the arbitration in defending the defendant's claim. That was declined as late as 6 February 2004 and, as I have said, these proceedings were commenced on 19 February 2004. I do not regard the defendant's submission on delay as having any force.
34 The defendant also submitted that this application should not be entertained because it would distract the administrators from their task under the Act. This case is a little different to those relied upon to make the submission that the grant of leave is rare. The Westpac Bank appointed the administrators and the administrators promptly informed the arbitrator that they were of the view that the arbitration should proceed and "without delay". The thorny problem of whether a stay was in place was debated between the parties and ultimately left to the Court to decide. Costs were continued to be incurred in the arbitration from the date of the appointment of the administrators and notwithstanding the plaintiff's attempts to reach an agreed position in respect of security it was not possible.
35 Far from the administrators claiming that the arbitral proceedings would distract them from their administration tasks, they positively embraced the continuation of and involvement in those proceedings.
36 The defendant also submitted that it is clear that a liquidator will be appointed in the very near future. The administrators' report to the creditors recommended that step and in the light of the evidence of insolvency it may well be that such a step is taken rather promptly. The defendant submitted that there is no prejudice in requiring the plaintiff to wait until the liquidator is appointed to make its application. I was unable to ascertain in argument what the difference would be in the circumstances of this case between the application being heard today or later in the week when a liquidator may be appointed.
37 In any event it is obvious from the evidence before me that rather large amounts of costs are being incurred on a daily basis and if the plaintiff does not have security there is a disadvantage.
38 The next point raised by the defendant was that the plaintiff had sought to secure an advantage in this application by blurring the nature of the claim before the arbitrator with the nature of the cross-claim. It is in this territory that the epithets of "aggressor" and "defensive action" have been used. Although Barrett J in Arpic Pty Limited v Austin Australia Pty Limited [2004] NSWSC 83 described the epithet "aggressor" as an emotive term with doubtful utility (at par 22) it has some utility in an application for security for costs.
39 The plaintiff claims that its cross-claim is really a defence to the defendant's claim by way of equitable set-off. In this regard it points to paragraphs 47 and 48 of its Amended Defence before the arbitrator. Those two paragraphs claim reliance upon the whole of the amended cross-claim as an answer to the defendant's claim, as though it was set out in the Amended Defence. There is then a claim that if any sum is found due to the defendant then the plaintiff "sets-off all sums found due". In support of this submission reliance was placed on the approach adopted by Giles J in AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 at 712.
40 The closeness of the respective claims and their nature is really a matter that needs to be assessed in this application because the plaintiff is only entitled to security for costs in defending the defendant's claim before the arbitrator. I have in mind the principles expounded in Circaz Pty Limited and Ors v Manolidis and Ors [2003] 45 ACSR 542 where Davies AJ said at 14:
….once it is shown, in a case where the plaintiff is a corporation that the corporation is unlikely to pay the defendant's costs if unsuccessful then consideration will be given as to whether there is some form of security for the payment of those costs which can readily be given and the giving of which will not frustrate or stifle the plaintiff's claim. Ordinarily it is not a difficult task to ascertain whether there is some form of security which can be ordered which will alleviate or minimise the risk to the defendant without frustrating the further conduct of the proceedings….. this process can often take no more than an hour or two, provided the parties approach the issues with a proper attitude.
41 Mr Davie submitted that his clients were at a disadvantage because they were unable to make a proper assessment, at this stage, as to whether an order for security would stifle the litigation. That submission demonstrates that there is no evidence before me that it would be stifled. Westpac Banking Corporation appointed the administrator and it may take the view that it would fund the litigation and, from the administrators' approach that the arbitration should proceed without delay, there is at least an inference available that such may well be occurring. In any event, I am not satisfied on the evidence before me that an order for security will stifle the arbitration.
42 I am satisfied that it is appropriate to grant the plaintiff leave and it is appropriate that an order for security be made.