Farquhar v Rio Dorado Limited

RELEVANT FACTS

1. Mr Farquhar has explained that he considers that he has been defamed by a publication made by Rio Dorado on 17 March 2023 by the sending out of an email to Rio Dorado shareholders to which was attached an announcement made by Rio Dorado on that day, and which, in addition to that announcement, also attached an email dated 20 February 2023. Mr Farquhar says that he was defamed by numerous references that were made in that shareholder announcement to him as a shareholder of Rio Dorado. The arguable bases for the alleged defamation are more fully set out in the draft statement of claim in which Mr Farquhar seeks both damages and vindication.
2. On 10 November 2023, Rio Dorado was ordered by the court to be wound up in insolvency and Mr Ian Niccol (Liquidator) was appointed as liquidator of Rio Dorado.
3. On 27 February 2024, the solicitors for Mr Farquhar sent a letter to the Liquidator, attached to which was a proof of debt with respect to the claim for damages arising from the alleged defamation.
4. On 5 March 2024, the solicitors for the Liquidator provided a response to the letter of 27 February 2024, in which they indicated that they would not be able to respond to Mr Farquhar's proof of debt within the timeframe that he wished. The Liquidator's solicitors also stated that the claim was for unliquidated damages, and whilst there was an appreciation by the Liquidator of the upcoming limitation period expiry, they were not prepared to make the adjudication before the expiry of that time.
5. On 15 March 2024, the solicitors acting for Mr Farquhar sent two concerns notices to Rio Dorado, and to each of the directors of Rio Dorado, Gary Mares, Terry Cuthbertson and Nicholas Lindsay. The purpose of the concerns notices was for Mr Farquhar to initiate the procedure provided for in Division 1 of the Defamation Act 2005 (NSW). No response was provided seeking any further particulars of the concerns notices that were sent.
6. Since the Liquidator has been appointed, there have been a number of reports and circulars to creditors sent out by the Liquidator, including a first report to creditors dated 8 December 2023, an update circular dated 11 December 2023, an update circular dated 12 January 2024, a statutory report to creditors dated 9 February 2024 and an update dated 29 April 2024.
7. These materials indicate that the principal asset of Rio Dorado is a gold mine located in Ecuador. At an earlier point in time, it was postulated that there might be a possible sale of shares in that gold mine for an amount of $10 million, which did not in fact occur. Subsequently, there has been a further attempt to sell the gold mine which has also not eventuated. In either case, it would appear that the sale of the principal asset of Rio Dorado would be at an amount which would see all of the creditors of Rio Dorado repaid in full.

LEGAL PRINCIPLES

1. Section 471B of the Corporations Act provides: While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with: (a) a proceeding in a court against the company or in relation to property of the company; or (b) enforcement process in relation to such property; except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
2. The considerations to which I must have regard in an application for leave under s 471B were amply summarised in Zervas v Burkitt [2019] NSWCA 112 by Gleeson JA at [15] and [16], which provide: [15] The considerations relevant to a decision whether to grant leave under s 471B are discussed by McPherson J (Campbell CJ and Sheahan J agreeing) in Ogilvie-Grant v East (1983) 7 ACLR 669. The purpose of the requirement of leave is to ensure that a company in liquidation is not subjected to a multiplicity of actions which would be both expensive and time-consuming, as well as in some cases unnecessary. Ordinarily, claims against such companies should be pursued by means of the proof of debt process. The requirement for leave directs attention to the choice between ordinary litigation and the more streamlined procedure of a proof of debt: DSG Holdings Australia Pty Ltd v Helenic Pty Ltd [2014] NSWCA 96; (2014) 99 ACSR 121 at [55] (Leeming JA, Meagher JA and Bergin CJ in Eq agreeing). [16] The relevant factors affecting the exercise of the discretion to grant leave to proceed cannot be stated exhaustively: Ogilvie-Grant v East at 672; Re Gordon Grant and Grant Pty Ltd [1983] 2 Qd R 314 at 317; Attard v James Legal Pty Ltd [2010] NSWCA 311; (2010) 80 ACSR 585 at [136]. The particular factors raised for consideration in the present case are: the amount and seriousness of the claim; the degree of complexity of the legal and factual issues involved; the stage to which the proceedings, if already commenced, may have progressed; whether the cost of the hearing would be disproportionate to the company's resources; whether the company was insured against the liability in respect of which the plaintiff is suing; and any delay.
3. In the context of a plaintiff seeking leave to commence proceedings for a defamation against a company in liquidation, the earlier judgment of Maher v Taylor [1994] 1 NSWLR 231; (1984) 8 ACLR 931 is illustrative in respect of the earlier provision contained in the former Companies (New South Wales) Code, s 401(2). In that judgment, at 234, Hunt J (as his Honour then was) said as follows: It has long been the approach of the courts that the requirement of leave was imposed in order to prevent the harrassment of a company in liquidation and the waste of its assets by unnecessary litigation: Thomson v Mulgoa Irrigation Co Ltd (1893) 4 BC (NSW) 33. Leave has been granted in various cases to commence or to continue proceedings claiming general damages where the company was insured against those damages and where both the verdict and the costs of defending the proceedings were the responsibility of the insurer: for example, Re Sydney Formworks Pty Ltd (In Liq) (1965) 82 WN(Pt 1) (NSW) 558; Re A J Benjamin Ltd (In Liq) and the Companies Act (1969) 90 WN(Pt 1) (NSW) 107; see also Ex parte Walker (1982) 6 ACLR 423 at 426. In the A J Benjamin Ltd case, Street J, as he then was, drew attention (at 109, 110), firstly, to the need for an applicant for leave to show at least a prima facie case and, secondly, to the legislative policy which imposed the requirement that leave be obtained before commencing or continuing proceedings against companies in liquidation. His Honour placed considerable emphasis upon the obligation of the liquidator to administer the assets of the company with due regard to the rights inter se of all the creditors of the company. There is, as his Honour said, a strong case for granting leave where no prejudice - procedural or substantive - will result from the proceedings to the other creditors who have interests in the winding up. On the other hand, there is a good reason for refusing leave where there is no prospect of surplus assets in the company and no question of insurance. The ordinary terms imposed upon the grant of leave is in any event to shut the applicant out from proving in competition with the other creditors of the company.
4. Section 14B of the Limitation Act 1969 (NSW) provides: (1) An action on a cause of action for defamation is not maintainable if brought after the end of a limitation period of 1 year running from the date of the publication of the matter complained of. (2) The 1-year limitation period referred to in subsection (1) is taken to have been extended as provided by subsection (3) if a concerns notice is given to the proposed defendant on a day (the notice day) within the period of 56 days before the limitation period expires. (3) The limitation period is extended for an additional period of 56 days minus any days remaining after the notice day until the 1-year limitation period expires. Example - Assume a concerns notice is given 7 days before the limitation period expires. This means that there are 6 days left after the notice day before the period expires. Consequently, this subsection would operate to extend the limitation period by 56 minus 6 days, that is, 50 days. (4) In this section - concerns notice has the same meaning as in the Defamation Act 2005. date of publication, in relation to the publication of matter in electronic form, means the day on which the matter was first uploaded for access or sent electronically to a recipient.

CONSIDERATION

1. One of the principal aspects in relation to an application made under s 471B is to ensure that I balance all of the considerations in providing justice to the prospective plaintiff, but also ensuring that there is not significant prejudice caused to the streamlining of the liquidation process which is presently underway in relation to Rio Dorado. Each case turns on its own facts and the particular facts in this case are ones which, on balance, I consider give rise to the need for the grant of leave to be given.
2. The Liquidator has indicated that it does not wish to make any submissions in relation to these proceedings and has not actively participated. The Liquidator has indicated that it neither consents to nor opposes the application.
3. I have had particular regard to the fact that the regime which operates in relation to the limitation period under s 14B of the Limitation Act is one pursuant to which the period will expire either today or tomorrow when regard is had to the extension of the limitation period that arises by virtue of the concerns notices that were provided.
4. It appears to me, on the facts that have been outlined, that there will be no real prejudice suffered by Rio Dorado or, more importantly, the creditors of Rio Dorado by the grant of leave which I propose to give.
5. The Liquidator will have a choice, if the defamation proceedings are commenced today, to either take an active part in the proceedings, make a submitting appearance in the proceedings, or seek at some future time a revocation of the leave which I have granted.
6. With respect to the other creditors of Rio Dorado, it is no prejudice to them that there might be a possible watering down of a return to them on a pari passu basis in the event that the defamation proceedings are to succeed, because that will simply establish that Mr Farquhar is a creditor of Rio Dorado and, therefore, entitled to line up with the rest of those creditors to receive, on a pari passu basis, a distribution from the liquidation of Rio Dorado.
7. I have taken into account that the possible defamation proceedings may drag on for some considerable period of time. However, it does not seem that, as things currently stand, the defamation proceedings will delay the winding up. There is evidence before me of attempts by the Liquidator to sell the principal asset of Rio Dorado, but none of those attempts have yet come to fruition. It does not appear that any sale is imminent, despite the attempts by the Liquidator to finalise such a sale.
8. I have also taken into account that the damages which are sought in the proposed defamation proceedings are in the amount of $250,000, which is the statutory maximum only awarded in a most serious case (s 35 of the Defamation Act).
9. I have also given significant consideration to the delay which has occurred in the present case. The delay between the date of the purported defamation and the issuing of the concerns notices was considerable. However, in the period between the time that the concerns notices were issued and now, I am well satisfied that events of a very personal nature in the life of Mr Farquhar have derailed his consideration of this issue and whatever necessary steps had to be taken before the proceedings for defamation were in the state that they are now, in the draft statement of claim. This court must take account of such matters when it is considering what has to be done in any particular case and, in this case, whilst there is always an overarching purpose of there being a just, quick and cheap resolution, I cannot put aside the matters which have been placed before me in relation to Mr Farquhar's personal life, which lead me to believe that I must heavily weigh the "just" in that composite expression.

ORDERS

1. In the circumstances, I propose to make the orders that are contained in the short minutes of order dated 10 May 2024, being: 1. Upon the undertaking of the solicitor for the plaintiff to pay the filing fee, leave is granted for the plaintiff to file in court: 1. the originating process dated 10 May 2024; and 2. the affidavit of Joshua Barry Farquhar affirmed 10 May 2024. 1. The originating process is made returnable instanter. 2. The requirements relating to service of the originating process and the affidavit on the defendant are dispensed with. 3. The plaintiff is granted leave pursuant to s 471B of the Corporations Act 2001 (Cth) to commence the proceedings against the defendant in the District Court of New South Wales as outlined in the draft statement of claim which is part of Exhibit A. 4. Liberty to apply on 24 hours' notice. 5. These orders are to be entered forthwith.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 May 2024