Pleash (Liquidator) v Tucker

GREENWOOD J: 1 These proceedings are concerned with an interlocutory application in the principal proceeding. 2 The interlocutory application was filed on 13 March 2018 and heard on 19 March 2018. The respondents to the principal proceeding are the applicants on this interlocutory application. They seek an order that the applicant in the principal proceeding (the "principal applicant") provide security for any order for costs that might be made in their favour, in an amount of $107,777.10 on the footing that the principal applicant pay the security into Court within seven days. A second order is sought that, should the principal applicant fail to comply with Order 1, the proceeding either be dismissed or stayed until the security is provided. The principal applicant is Mr Blair Alexander Pleash ("Mr Pleash") together with Mr Richard Albarran ("Mr Albarran"). They bring the principal proceeding personally but in their capacity as liquidators of Equititrust Limited (in liquidation) (Receivers and Managers appointed). Notwithstanding the capacity in which Mr Pleash and Mr Albarran act as professional liquidators and in which they move the Court, they nevertheless bring the principal proceeding personally. Mr Peden QC who appeared for Mr Pleash and Mr Albarran accepted, on the hearing of the application for security, that should an order for costs be made against Mr Pleash and Mr Albarran in the principal proceeding in favour of the respondents, they are each personally, jointly and severally, liable on the costs order. 3 The respondents to the principal proceeding and applicants on the security for costs application are Mr David Robert Walter Tucker ("Mr Tucker") and nine entities related to him. 4 The principal proceeding is concerned with an application for leave to appeal from an order of Reeves J made on 20 December 2017. Should leave be granted, the principal proceeding would ordinarily then engage the hearing of an appeal on the grounds relied upon in the application for leave. However, a case management conference concerning the application for leave and the proposed appeal was conducted on 1 March 2018 as a result of which orders were made that the application for leave be heard together with the appeal before the Full Court. 5 Because there is some question about whether the principal proceeding might not be completed in one day, two days have been set aside for the hearing of the application for leave and the appeal. Obviously enough, the parties will need to keep that allocation under review as material emerges in compliance with the directions orders made on 1 March 2018, which might suggest a need to review (or otherwise) the reservation of two days. 6 It is not necessary to examine any aspect of the underlying elements of the principal proceeding except to say that on 20 December 2017, Reeves J made orders further varying orders made by his Honour on 10 August 2017 in turn varying an order of the Deputy Registrar of the Court of 14 June 2017. The order of 20 December 2017 set out the relevant variations in Schedule A to the order. Schedule A sets out, for the purposes of s 597(9) of the Corporations Act 2001 (Cth) (the "Act"), those persons and entities directed to produce documents identified in the schedule. Those orders were made consequent upon the hearing of an amended interlocutory application brought by Mr Tucker and the related entities seeking particular relief in relation to a summons issued on 16 June 2017. 7 Mr Pleash and Mr Albarran challenge aspects of the orders of the primary judge. 8 Mr Tucker and the nine related entities as respondents to the leave application and proposed appeal, have been contending, inter-parties, that they ought to be provided with security for the costs of the leave application and the appeal. Mr Pleash and Mr Albarran, by their solicitors, have shown, until recently, a willingness to provide security in a particular proposed amount. The amount of the security was unable to be agreed. An aspect of the security question is the consideration that the liquidators have entered into a funding agreement with a litigation funder, Vannin Capital Operations Limited ("Vannin"). On the hearing of the present application on 19 March 2018, Mr Peden for Mr Pleash and Mr Albarran sought to rely on an affidavit of Mr Timothy Russell sworn on 18 March 2018. The affidavit had come at the last minute and is on information and belief. Mr Timothy Russell is a solicitor in the employ of the solicitors for the liquidators, Russells, and he says that he is informed by Mr Stephen Russell (an experienced solicitor and managing partner of Russells) about the negotiations with Vannin and the extent to which the funding arrangement through Vannin might be sufficient to meet the costs associated with the principal proceeding, should an order for costs be made in favour of the respondents. The respondents object to the affidavit in its entirety on the ground that it is late and based on information and belief. The respondents say that they have not been able to address or respond to the affidavit. I propose to admit the affidavit although I place little weight upon it. 9 The solution to the present problem is to be found elsewhere, that is, in the exchanges. 10 The solicitors for Mr Tucker and the nine related entities are Tucker & Cowen Solicitors. 11 The exchanges are these. 12 By a letter dated 5 January 2018, Mr Tucker acknowledged the receipt of the application for leave to appeal; requested the liquidators to put a proposal for the provision of security; said that searches had revealed that neither liquidator owned any real property in Queensland; observed that Equititrust Limited had no assets to meet a costs order; observed that an undertaking from a litigation funder would not be acceptable as experience had shown that at least one litigation funder itself was now in liquidation; Vannin appeared to have no assets in Australia (among other difficulties); and said that either a bank guarantee or a cash security deposit ought to be provided as the means of security in a relevant amount, to be proposed by the liquidators. 13 I will return to the question of the property searches concerning Mr Pleash and Mr Albarran. 14 On 24 January 2018, Russells sought clarification as to whether security was directed to the application for leave only or also in relation to the appeal as well. They also said that notwithstanding the answer to that question, "the litigation funder will provide security by way of deposit to our firm's trust account". They asked whether that was satisfactory and requested an estimate of the amount of security by reference to the schedule to the Federal Court Rules 2011 (Cth). 15 On 2 February 2018, Tucker & Cowen said that they would provide the quantum estimate shortly. 16 On 9 February 2018, Tucker & Cowen provided Russells with a schedule of costs in relation to both the application for leave to appeal and the appeal. The estimate was not itemised (and a reason for that was given). The estimate suggested an amount of $139,700.00 as security. They accepted, as the method of providing security, a deposit to the trust account of Russells and sought the deposit of the itemised amount within seven days (of 9 February 2018). 17 On 14 February 2018, Russells responded and said that the estimate was "too high". They also said this: We will not rehearse the range of factors which militate against the provision of security for the present application. Our clients reserve their rights in that regard. [emphasis added] 18 Russells went on to say in that letter that, nonetheless, for the purposes of saving costs, the applicant would be prepared to provide security for the respondents' costs of the application for leave to appeal in the sum of $40,000.00. An estimate was provided. They said that the offer of $40,000.00 was substantially more than the costs which a litigant could expect to incur in an application for leave to appeal. They requested Tucker & Cowen to let them know whether the proposal was acceptable, within 21 days. Russells followed up that proposal on 21 February 2018. 19 On 28 February 2018, Mr Russell sent a letter by email to Mr Tucker in which he observed that since the position appeared to be that the application for leave to appeal would be heard concurrently with the appeal, it was appropriate for the applicant to revise the proposed offer of security. Mr Russell said that the applicant had agreed to provide security for the respondents' costs of the application for leave to appeal and of the appeal in an amount of $55,000.00 on the basis of an estimate set out in the letter totalling $47,416.00. Mr Russell said that the estimate provided for the maximum rate allowable for an instructing solicitor; two counsel and additional preparation time. Accordingly, the offer was put in an amount of $55,000.00. 20 On 28 February 2018, Mr Tucker responded and advised that the proposal would be considered and sought confirmation that if the quantum could be agreed the amount would be paid into the trust account of Russells within 21 days. Mr Tucker sought confirmation that Russells had instructions to make the offer. 21 On 28 February 2018, Russells confirmed that they held instructions to make the offer on the footing that the amount would be deposited to the trust account of Russells within 21 days. 22 On 1 March 2018, Mr Tucker responded and took a different view about the amount of the security. He said this: … if your clients wish to make an offer [to the respondents] for security for costs of $65,000, that will be acceptable. 23 That proposal was subject to an appropriate letter from Russells and confirmation of the date upon which the security would be paid into Russells Trust Account. 24 On 2 March 2018, Russells took issue with the amount of $65,000.00 and told Tucker & Cowen that they were "instructed to re-put our clients' offer of $55,000 to you on the terms set out in Mr Russell's email of 28 February 2018" and their letter of that date. 25 Mr Tucker responded on 5 March 2018 by observing that the amount of $55,000.00 was approximately 40% of the estimated costs and observed that "[t]here is no offer by the liquidators to be personally liable for the costs, in the event that there is a shortfall in the security amount" [emphasis added]. Various propositions were put concerning the elements of the costs. Mr Tucker said that if the amount could be resolved at $65,000.00 it would not be necessary to file an application for security for costs. 26 On 6 March 2018, Mr Stephen Russell responded to Mr Tucker's email of 5 March 2018. Mr Russell said that if there was some rational basis for the calculation of $65,000.00, he would recommend it to the liquidators. However, the estimate accompanying the letter of 9 February 2018 suggested to Mr Russell that the estimate was "too high". Mr Russell identified a number of criticisms of the estimate. At point 3 of his email, Mr Russell said this in relation to the proposition that there had been no offer by the liquidators to be personally liable for the costs in the event of a shortfall in the security amount: This is the first time you have noted that the offer is not accompanied by an offer by the liquidators that they be personally liable in the event that there is a shortfall in the security amount. We do not consider this to be relevant to the question of what is an appropriate amount of security for the present application. In any event, these proceedings have been instituted in the liquidators' own names, and the usual costs consequences follow. This is another circumstance which weighs against an order for security. [emphasis added] 27 On 9 March 2018, Mr Tucker responded to that email in which he said this: We would be inclined to accept your client's offer if your client's [sic], the liquidators, acknowledge that they will be personally liable for any shortfall in any costs order over and above the security amount. They no doubt have an indemnity from their funder, and they can draw comfort from that. Kindly advise if they will do so. If not, kindly advise why. If they only have a limited indemnity, kindly advise. [emphasis added] 28 These exchanges of 6 March 2018 and 9 March 2018 were occurring, obviously enough, after the date of the directions hearing of 1 March 2018. At that date, the Court was advised that the only issue between the parties was the quantum of the security for costs. The expectation was that that matter would be resolved but if it could not be resolved, the matter would need to come back before the Court. On that footing, the date of 19 March 2018 was set aside for the hearing of the application for security should agreement not be reached. 29 On 14 March 2018, Mr Russell responded to Mr Tucker's email of 9 March 2018. Mr Russell's letter was described as an "open letter" in relation to the application for security for costs. In that letter, Mr Russell said this: In our view, if proceedings are brought by a liquidator in relation to a company's affairs, generally an order for security for costs will not be made; but if those proceedings are unsuccessful, then an order for costs will generally be made against the liquidator personally: Silvia v Brodyn Pty Ltd (2007) 25 ACLC 385; [2007] NSWCA 55 and in particular [50]-[55] per Hodgson JA with whom Ipp JA and Basten JA agreed. [emphasis added] 30 Mr Russell went on to say that in his view, these principles applied in a proceeding of "this kind", where the liquidators are merely investigating the affairs of the company. Mr Russell took the view that the application for security was thus "misconceived". However, Mr Russell also said this: "as we have said to you repeatedly, our clients have arranged security for $55,000". Mr Russell concluded with this observation: Given that our clients have now been put to the expense of responding to an application that is, with all due respect, misconceived as being contrary to authority, that offer will expire at 4pm today. Thereafter, our clients will insist on their costs. 31 Mr Tucker responded by saying this: The authority you cite says that an order will generally be made against the liquidator personally. But it's not an absolute rule. We asked you last week for confirmation of that, namely that your clients would assume that personal liability over and above the security amount: see our email of 9 March 2018 … [emphasis added] 32 Mr Tucker also said this: Of course, if your clients unequivocally agree to be personally liable for any shortfall in any costs order over and above the security amount, then we should be able to dispose of the application by way of consent orders, save for the issue of costs (which will continue to be incurred until the matter is resolved). [emphasis added] 33 There is some force in Mr Russell's notion that once it becomes clear that the liquidators accept, jointly and severally, personal liability for any costs order that might be made in favour of the respondents, there seems to be no principled reason why an order for security is really necessary, absent any demonstrated incapacity on the part of the individual liquidators to meet a costs order and assuming that the proceedings are "proportional" in the sense that they are in the nature of a one or two day proceeding, rather than a five or six or 10 week trial. 34 As to that, although, in the main, I place little weight on the late-filed affidavit of Mr Timothy Russell because Mr Tucker and the related entities have not been able to test aspects of that affidavit, I nevertheless accept that the notion that professional liquidators such as Mr Pleash and Mr Albarran who have been partners of the national accounting firm Hall Chadwick for 10 years and eight years respectively, would not be likely to be able to pay a costs liability of $107,777.10 either on their own behalf or as, ultimately, an aspect of the cost of Hall Chadwick conducting the professional undertaking of administering and liquidating companies such as Equititrust Limited, can, as a practical matter, be discounted almost entirely in the exercise of the discretion. 35 For the same reason, it is ultimately not to the point that Mr Pleash and Mr Albarran as Sydney resident partners of Hall Chadwick do not own real property in Queensland. 36 However, it was not until the hearing of the application for security that a clearly unqualified position emerged that Mr Pleash and Mr Albarran accepted personal liability for any costs order that might be made. Mr Russell had identified what he called the position "generally" whereas, unsurprisingly, the respondents wanted to know the position "specifically", especially since the liquidators had already had the benefit of a hearing and a judgment. Mr Tucker had noted and, in effect, pressed in his email of 5 March 2018, the issue of whether the liquidators accepted liability for any costs order personally and said in his email of 9 March 2018 that he and the related entities would be inclined to accept the offer of $55,000.00 if the liquidators "acknowledged" personal liability for the contended shortfall. Both these exchanges occurred before the filing of the application on 13 March 2018. 37 However, the liquidators, through Mr Russell, only went so far as to say what the position would be generally. Mr Tucker took up the generality of that position and noted that the general proposition was not an "absolute rule". The point, of course, is that the respondents were indicating that they would not want to put off to the ultimate resolution of the principal proceeding (after all the costs had been incurred) an outstanding question of whether the general rule would apply; or whether a point of distinction as to personal liability might be said to arise; or whether some other qualification might be said to apply to such an order being made, so as to displace the general rule. 38 Had the liquidators made it plain in an unqualified way that they accepted personal lability in respect of any order made by the Court in favour of the respondents in the principal proceeding rather than resting on the "general rule", the application for security would not have been necessary because there would have been no reason to test the contentious question of the quantum in issue because the offer of $55,000.00 coupled with the unqualified acceptance of personal liability for the balance (if any) would have prevailed. 39 No-one would have needed to come to Court. In the result, the $55,000.00 was entirely withdrawn and the liquidators rested on the "general principle". That made the application for security necessary. 40 These considerations inform the exercise of the discretion under s 56 of the Federal Court of Australia Act 1976 (Cth) because the parties to proceedings including the liquidators, must always be conscious of the overarching purpose of the civil practice and procedure provisions which is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. Without limiting the generality of that proposition, the overarching purpose includes all of the objectives in s 37M(2) and the burden of s 37N of the Act. 41 I propose to make an order for security for costs. However, by reason of the security for costs application, the respondents now have the benefit of the clear unqualified position adopted by the liquidators that they accept that any order for costs made against them gives rise to a personal liability in them. However, that position only emerged by reason of the hearing of the application. The costs the respondents say they will incur are those costs identified in the affidavit of Mr Jeffrey Carl Petersen. Mr Petersen assesses the costs of the application for leave and the appeal in a total amount of $107,777.10. 42 I propose to discount that figure significantly. 43 The function of the security for costs order is to give the respondents some measure of protection in respect of the costs coupled with the position which emerged at the hearing, that is, that the liquidators accept a liability as just described. I propose to make an order for security for costs of $55,000.00. 44 The respondents, as applicants, have been put to the cost of prosecuting the security for costs application in order to secure some degree of costs protection and, to crystallise on the morning of the hearing, an unqualified commitment by the liquidators that they accept personal liability in respect of any order for costs that might be made. Had that position been made clear in the correspondence, the application would not have been necessary. Accordingly, the respondents ought to have their costs of the application. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.