Re Noitaroproc Pty Ltd (In Liq); Noitaroproc Pty Ltd v Hodgson [1999] VSC 507

5. It is common ground that Noitaroproc has insufficient funds to meet an order for costs which may be made in favour of the building society in the event that it should be successful; that, if security were ordered, the appeal would be stultified in the sense that Noitaroproc would be unable to fund the appeal from its own resources; and that this difficulty of Noitaroproc did not arise from the wrongdoing of the building society. It was accepted, too, that the liquidator of Noitaroproc has statutory obligations to collect available assets of that company for the benefit of its creditors. In this case, the position of Noitaroproc is such that, if the appeal is successful, its creditors will receive an estimated 90 cents in the dollar, but that if it fails, they will receive nothing.

8. Against this background the liquidator of the building society submitted that an order for security should be made for a number of reasons which I shall consider in turn.

12. This is, as I have said, not in issue. It follows that, in the event of success, the respondent would be faced with the unenviable prospect of an order for costs of no practical value. This is sufficient to trigger the jurisdiction of the court and to require me to exercise the discretion which is conferred by Rule 62.02. I am mindful however that while this is a significant factor, it does not cause me to approach the application with any predisposition one way or the other: Interwest Limited v Tricontinental Corporation Limited (1991) 5 ACSR 621, per Ormiston J.

16. The principal creditors of Noitaroproc for whom the proceeding has been instituted are:

(a) The liquidator's own priority claims for unpaid remuneration and expenses including legal costs - $259,771.

(b) Miscellaneous suppliers totalling $546,693, of which nearly $500,000 is owed to two creditors, Harvey Advertising Proprietary Limited and Leigh Mardon Proprietary Limited.

(c) Two creditors for legal costs, namely, the building society in the sum of $296,686 and the State of Victoria in the sum of $320,000, a total of $616,686.

22. The last group of creditors represents unsatisfied orders for costs made against Noitaroproc in two proceedings brought by it in this Court in 1990, Proceeding No. 2437 of 1990 against Kenneth James Russell, the administrator of the building society, and the building society; and Proceeding No. 10956 of 1990 against the Registrar of Building Societies, the Registrar of Friendly Societies, the Registrar of Cooperative Societies, the Attorney-General for the State of Victoria, the State of Victoria and the administrator. The second proceeding was terminated by order made on 19 December 1990 in which the plaintiffs, Noitaroproc and Robert William McIntyre Farrow, were ordered to pay the costs of the defendants. On 19 November 1990 Marks J had ordered that the building society indemnify the plaintiffs in that proceeding for those costs in the event that they do not recover such costs from another party. This last order was, however, set aside on appeal to the Full Court by order made on 23 March 1993.

25. The claims contained in the proof of debt which is the subject matter of this proceeding, for the most part, arise out of the same two 1990 proceedings. They are as follows:

Legal costs of the administrator ordered to be paid by Noitaroproc

Legal costs of the Registrar of Building Societies ordered to be paid by Noitaroproc

Legal costs of the State of Victoria ordered to be paid by Noitaroproc

The first of these items represent the costs which were the subject of the indemnity order made by Marks J in November 1990 which order was set aside. The claim is based upon a resolution of the directors of the building society of 10 September 1990 authorising Noitaroproc "to take such action on its own behalf and on behalf of all of the members of the Geelong Building Society to engage solicitors and issue such legal proceedings as it thinks fit to protect the assets and undertaking of Geelong Building Society to minimise any loss to the society, to recover damages in respect of any loss suffered by the society and to do all such things concomitant thereon in order to give effect to this resolution". This authority is said to carry an agreement by the building society to indemnify Noitaroproc as its agent for costs incurred in the performance of these functions.

31. What is therefore put on behalf of the liquidator of the building society is that the present appeal is likely to fail and the rejection of the proof likely to stand because a substantial component of it, namely, $1.2M has been rejected by the Full Court in its 1993 judgment and the balance, the costs of the administrator, the costs of the Registrar of Building Societies and the costs of the State of Victoria have been admitted to proof in the liquidation of Noitaroproc.

34. It is not for me on an application of this kind to express anything like a final view as to the prospects of success of the proceeding and I do not do so. It is, however, a relevant factor, if it be the fact, that these prospects are slender.

37. Counsel for the liquidator of the building society submitted that the case of Noitaroproc was not a strong one. He submitted that it was procedurally incompetent, since the appeal provisions of Part XIV of the Companies Code were not imported into the winding up of a building society by s. 121 of the Building Societies Act 1986. This point is not taken in its points of defence which on 30 July 1999 were directed to be delivered. If a point such as this is to be taken, it should be identified early and determined at the earliest stage. If it be a good point, then both parties will in this way be relieved of the burden of unnecessary expense. Whether it be good or bad, is not a point which should be permitted to remain undecided until the trial. The fact that it remains unresolved now should not therefore bear upon the decision whether the appeal will ultimately be successful. I will not place any weight upon this argument in an application such as the present.

40. Next, it was said that the appeal, insofar as it concerns the $1.2M claim for Noitaroproc's own costs, involves the revisiting of the point dealt with by the Full Court in 1993. In his submissions, counsel for the liquidator of the building society was careful, and correctly so, to say that it involved a re-agitation of the factual issues which were the subject of the Full Court decision and that this raised an estoppel of the kind discussed in the Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589. Compare para 13A of the points of defence. I am not at all confident that the issues are the same. In this appeal, Noitaroproc says that its entitlement to the indemnity in respect of its own costs arises from the resolution of the building society of 10 September 1990 that it bring the proceeding to protect the assets of the building society. The entitlement of Noitaroproc to the costs order which was before the Full Court in 1993 was predicated on its right as a contributory to bring the proceeding for the benefit of the company. Whether the Anshun defence is a good one will depend upon the circumstances existing in 1990 when the agency argument was not put: Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332. I know nothing of these matters. I am unable to conclude that this part of the appeal is not a strong one for this reason.

43. The associated argument concerning the costs ordered to be paid by Noitaroproc to the administrator and to the State of Victoria raises a similar point. An order for these costs was made on 19 December 1990 against the opposition of counsel for Noitaroproc. No application was made at that time that Noitaroproc should be indemnified by the building society in respect of these costs. I am likewise unable to treat the present claim for these costs as lacking a sufficient prospect of success to warrant the making of the orders sought.

46. Next, it was put that the agency created by the resolution of 10 September 1990 was not such as to show an entitlement to the indemnity with a reasonable prospect of success. Again, at the level at which I approach this argument, I do not conclude that the claims of Noitaroproc are of such little strength that I should put to one side the prospect that an order for security would stultify them.

50. This proceeding was commenced in June 1999. The question of security for costs was raised before me on 10 September 1999 at a time when the parties sought an order for mediation in October and, in due course, a trial date. The question of security had been raised in correspondence between solicitors on 3 September 1999. I directed, by consent, on 10 September that any application for security be brought on or before 1 October 1999. This was not done. In her affidavit of 3 September, Charlotta Josephine van Otterdyk, the solicitor for the liquidator of the building society, offers no explanation for this other than that it was evident that security may be sought and she says that no substantial costs had been incurred since 1 October. No explanation has been offered for the fact that the liquidator of the building society permitted the passage of some three months and perhaps $10,000 costs of Noitaroproc to accrue before the question of security was even raised. This is a matter which would have been apparent to litigants such as those before the court.

54. It was submitted that the appeal in the circumstances was being prosecuted, not for Noitaroproc, but for its creditors, notably its liquidator, its suppliers including Harvey Advertising Proprietary Limited and Leigh Mardon Proprietary Limited and the building society and the State of Victoria. It was put, then, that I should not refuse the security application in these circumstances unless it was shown that these creditors were themselves unable to put up the security. As Phillips JA points out in Arris v Express Interiors Proprietary Limited [1996] 2 VR 507 at 518, this is but an aspect of the stultification argument. An impecunious company must provide the factual basis for a conclusion that the proceeding will not go ahead if an order for security is made.

57. The evidence before me is that the liquidator of Noitaroproc has made no approach to its creditors because, in 1997, he had received no positive response to a similar request for assistance in other litigation. I accept that a similar response would probably be forthcoming if the creditors were to be approached again. The creditors at present stand to recover nothing in this winding up which is now eight years old. It would not be surprising that they were not prepared to throw more money into litigation in the hope of recovering part of a loss which may now be written off. If theirs was the only consideration, I should see this as a telling argument. I must, however, have regard to the fact that the liquidator of Noitaroproc has himself incurred in the performance of his statutory duties substantial liabilities and is standing out of substantial remuneration. This brings me to the next consideration.

61. The two companies in this case are members of the Farrow Group and each is in liquidation. The liquidator in each case has a public duty to wind up the affairs of the company and the court, too, has a duty to assist them. The liquidator of Noitaroproc and its lawyers are owed nearly $260,000 and have the prospect of recovering this from funds of only $17,325. If they have a claim against another company in liquidation to recover this sum the court should be reluctant to raise an obstacle to this.

65. The security sought by the liquidator of the building society is $57,419. This sum is estimated by Ms van Otterdyk to be the costs of that party of preparing for and conducting a three-day trial. On behalf of Noitaroproc the estimate of Neil Francis Hannan including a one-day trial is $12,630 as from 2 December. Adopting $10,600 as its costs to date, the total costs of the building society might therefore be about $23,500 on Mr Hannan's estimate. The liquidator for Noitaroproc, John Martin Walsh, says that, if security in either sum were ordered, the proceeding could not proceed for want of funds.

69. It is my task to weigh up these considerations in an endeavour to do justice to the parties. I conclude that this is a case where security should not be ordered. I place some weight on the unexplained delay of the liquidator of the building society in bringing this application, a delay which flies in the face of the order of the court, an order made by consent. Even accepting the applicant's costs estimate of $57,419, the amount of security is not great in the context of these liquidations. My own impression is that the figure would be more likely to be about $30,000 assuming the litigation can be restrained to the real issues and the trial conducted within two days as it might. Moreover, it is desirable that the issues between the companies in liquidation be determined according to law rather than by any economic imperative. The order of the court therefore will be that the application of the respondent for security for costs is refused.