1 The defendant seeks an order for security for costs against the plaintiff who is the applicant for an order that the defendant be wound up.
2 The defendant's contention is that the plaintiff is only a contingent or prospective creditor and that an entitlement to an order for security for costs arises under s.462(4) of the Corporations Act 2001 (Cth). That section is as follows:
"The Court must not hear an application by a person being, or persons including, a contingent or prospective creditor of a company for an order to wind up the company unless and until:
(a) such security for costs has been given as the Court thinks reasonable; and
(b) a prima facie case for winding up the company has been established to the Court's satisfaction."
3 The proposition that the plaintiff is only a contingent or prospective creditor is advanced by the defendant on the basis that the plaintiff, as the trustee under the Bankruptcy Act 1966 (Cth) of the estates of Efstratios Valamios and Constantina Valamios, seeks in the Federal Magistrates Court orders under that Act recognising as void certain dispositions by those persons in favour of the defendant, including payments of money. Such orders, if made, will have the effect that the relevant money becomes recoverable by the plaintiff.
4 Even if it is accepted that this circumstance makes the plaintiff a contingent or prospective creditor of the defendant, it does not follow that the court is compelled to make an order for security for costs or that, in the absence of such an order, the winding up application cannot be pursued. In Australia & New Zealand Banking Group Ltd v Ringrong Pty Ltd (unreported, Ryan J, FCA, 11 September 1995), it was recognised that the court has a discretion to dispense with the provision of security for costs by a contingent or prospective creditor applicant despite the terms of the section. In Re Austral Group Investment Management Ltd (1993) 2 NZLR 693, a case under an analogous New Zealand provision, the statutory prerequisite was seen by the judge as concerned with "such order for security as I might see fit to impose", thus again indicating that the condition applies only if the court sees fit to order security.
5 Section 462(4) itself does no more than say that the court may not hear an application by a contingent or prospective creditor unless the plaintiff has given such security for costs as the court thinks reasonable. It is for the court to decide in all the circumstances what is reasonable. It may conclude that circumstances are such as to make it reasonable that no security be given. It cannot have been the intention of the legislature that such a finding should then preclude the court's hearing the winding up application; nor would it be sensible to think that in such a case the court should go through the charade of ordering security in some purely nominal sum.
6 The purpose of s.462(2) in both its limbs is to ensure that the viability of winding up applications by contingent and prospective creditors is screened at the threshold and that the question whether security for costs should be ordered is directly addressed in that screening. Insofar as it is concerned with security for costs, the section aims not to cause an order for security for costs to be made in every case, but rather to make it clear that the issue is to be addressed in every case and that an order may be made whether or not the case is one in which such an application would, on ordinary principles, be entertained. In other words, the section itself causes the case with which it deals to be one in which there is a specific jurisdiction to order security, even though the circumstances are not otherwise such would cause the court to consider an application. The circumstances to which I refer are, in general terms, those enumerated in Part 53 rule 2 of the Supreme Court Rules.
7 Where s.462(4) applies, it thus supplies a specific and discrete jurisdiction to order security for costs but, as I view matters, the question whether that jurisdiction should be exercised (and, if so, how) is to be answered according to the generally applicable principles concerning security for costs, being in the main the principles applying in cases arising under Part 53 rule 2.
8 The plaintiff's view of matters does not coincide with that of the defendant. The plaintiff considers himself to be proceeding on the basis of an unsatisfied statutory demand and therefore with the status of a present creditor, as distinct from a contingent or prospective creditor, so that s.462(4) plays no part and the security for costs application is to be approached without regard to that section. When the matter is viewed in that way, the threshold question becomes whether one of the circumstances generally accepted as providing access to the jurisdiction to order security for costs exists, they being the circumstances referred to in Part 53 rule 2. On that, the plaintiff concedes that he falls within Part 52 rule 2(1)(a), being resident in Adelaide and therefore outside New South Wales. (I might add as an aside that it could not be suggested that Part 52 rule 2(1)(b) applies: although the plaintiff is a trustee, he can on no view be said to be suing for the benefit of some other person as a real plaintiff: see Riot Nominees Pty Ltd v Suzuki Australia Pty Ltd (1981) 34 ALR 653.)
9 When it comes to the substantive question whether the court should exercise the jurisdiction to order security for costs, whether the jurisdiction is regarded as arising specifically from s.462(4) or more generally in the way recognized in Part 53 rule 2, the first matter to be considered is the plaintiff's prospects of success. Given that the ground upon which the plaintiff seeks a winding up order is that the defendant is insolvent, the prospects of success, as they currently appear to the court, are very high. I say this because of the adverse findings I made as to the defendant's solvency, apart altogether from any s.459C presumption, when determining, on 31 October, another interlocutory application initiated by the defendant. My conclusion at that point, on the basis of the evidence adduced, was that the defendant was insolvent. I was told from the bar table when the present application was argued after 4 o'clock on Monday of this week that the solvency issue had again been canvassed upon an application by the defendant to Giles JA in the Court of Appeal earlier that day and that his Honour took a view generally corresponding with mine, although I hasten to say that no evidence on the matter of solvency has been adduced before me beyond that on which I based my decision of 31 October and that I take that alone into account now.
10 In this state of affairs, I must rate the chances of the plaintiff's failing in his attempt to obtain a winding up order and thereby becoming subject to a cost order as very low. That is something that tells heavily against the making of on order for security for costs.
11 The next consideration is whether the plaintiff is impecunious in such a way that the defendant may be entitled to some form of protection in respect of costs. I put the matter in that way because the plaintiff's impecuniosity alone, assuming it to exist, represents no reason for ordering security. On this aspect one can go straight to a principle referred to by Young J in Timbertown Community Enterprises Ltd v Holiday Coast Credit Union Ltd (1997) 15 ACLC 1679, as extracted from Cowell v Taylor (1885) 31 ChD 34. His Honour said:
"The general rule is that the court does not require security for costs to be given by a plaintiff who sues as a trustee in bankruptcy even when the estate is in insolvent circumstances. This is the rule in Cowell v Taylor (1885) 31 ChD 34. There is another aspect of that rule that the court does not deprive a person of the opportunity for litigating a matter solely because he or she is impecunious but that is not directly in point in the instant case. The basic rule in Cowell v Taylor has been considered to be applicable in Australia and its scope is noted in the leading book, Delany on Security for Costs (LBC, Sydney, 1989) at pages 34 and 43."
12 Young J went on to say that a similar principle holds good in relation to an administrator in an administration under Part 5.3A of the Corporations Act. Because they are instructive in the present context, I quote his Honour's observations on that aspect:
"The real question is whether that principle applies to an administrator. In my view, it does. The administrator is, almost by definition, dealing with a company whose solvency is questionable and the policy of the Corporations Law is that there shall be a complete freeze on people altering their positions whilst the administrator is assessing the situation. There would be a complete breakdown of this policy if as soon as the administrator tried to protect the assets of the company generally, he could be foiled by a stay because of failure to meet an order for security for costs. Indeed in most cases of administration, the administrator would be in no position to marshal sufficient resources to meet any security ordered.
Counsel have cited to me a case where security for costs was ordered against a company in administration, namely, Pasdale v Concrete Constructions (1995) 131 ALR 268 . It would not appear that Cowell v Taylor was referred to in that case either by counsel or the judge. Doubtless, there may be situations where it would be appropriate to order security for costs against an administrator, but I think that would rarely be the situation where the administrator is trying to protect the company generally against a person who, if the administrator is correct, may have acted contrary to the policy of Division 6 of Pt5.3A of the Corporations Law ."
13 The observations apply, with at least equal force, to a trustee under the Bankruptcy Act. It was said by the Full Federal Court in Adsett v Berlouis (1992) 37 FCR 201, that such a trustee has a dual function: first, to administer the estate in the interests of the creditors and the bankrupt; and second, to exercise, as a public duty and for the public welfare, certain powers given and duties imposed under the Bankruptcy Act. It would interfere with the due performance of these functions to regard any shortage of funds in the trustees's hands as a pretext for a security for costs order.
14 Security for costs applications also raise other considerations such as whether a requirement for security would stultify the ability of the plaintiff to pursue an arguable case legitimately instituted. In the present case, however, I regard the two particular considerations to which I have referred as so compelling as to dispose of the application. The case for the making of a winding up order on the grounds of insolvency, apart altogether from any s.459C presumption, is, on the evidence I have seen, very strong. The plaintiff, being a trustee in bankruptcy, will not, on principle and as a matter of policy, be required to give security for costs, except perhaps in some extreme circumstance of a kind not in any way suggested here.
15 The defendant's application for an order that the plaintiff give security for costs is dismissed and I record, in case due administration of the provisions of s.462(4)(a) will be assisted by my doing so, that the court thinks zero security for costs to be reasonable in relation to this winding up proceeding.
16 The defendant will pay the plaintiff's costs of the application for security for costs.