Wang v McCluskey, in the matter of Sino Australia Oil and Gas Ltd

1. The proceeding be dismissed pursuant to s 56(4) of Federal Court of Australia Act 1976 (Cth) and rules 5.23 and 19.01(1)(c) of the Federal Court Rules 2011 (Cth).
2. The plaintiffs pay the costs of the defendant, such costs to be taxed in default of agreement. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

DAVIES J: 1 The defendant ("the liquidator") is the liquidator of Sino Australia Oil and Gas Ltd (in liquidation) ("the Company"), which was ordered to be wound up by the Court on 4 March 2016. The winding up order was made in proceedings commenced by the Australian Securities and Investments Commission in March 2014 against the Company and its directors for contraventions of the Corporations Act 2001 (Cth) ("the Act") in respect of false statements in prospectus documents for a capital raising. 2 The plaintiffs are claimed creditors of the Company. They submitted proofs of debt to the liquidator in June 2018, which the liquidator rejected in August 2018. In September 2018 the plaintiffs commenced these proceedings under s 1321 of the Act, appealing the decisions of the liquidator to reject the plaintiffs' proofs of debt. 3 The plaintiffs are foreign nationals and in October 2018, the liquidator filed an interlocutory application for security for costs. In March 2019 orders were made requiring the plaintiffs to pay security for the liquidator's costs in the sum of $60,000 by 26 April 2019 and staying the proceedings pending payment of the security. The security was not paid as ordered. In addition, the plaintiffs failed to comply with orders for the filing and serving of points of claim by 10 May 2019. 4 The liquidator has now applied for an order dismissing the proceedings pursuant to rr 5.23 and 19.01 of the Federal Court Rules 2011 (Cth) ("the Rules") and s 56(4) of the Federal Court of Australia Act 1976 (Cth) ("Federal Court Act") for failure to provide security. Rule 5.23 - Orders on default (1) If an applicant is in default, a respondent may apply to the Court for an order that: … (b) the proceeding be stayed or dismissed for the whole or any part of the relief claimed by the applicant: (i) immediately; or (ii) on conditions specified in the order. ... Rule 19.01 - Application for an order for security for costs (1) A respondent may apply to the Court for an order: (a) that an applicant give security for costs and for the manner, time and terms for the giving of the security; and (b) that the applicant's proceeding be stayed until security is given; and (c) that if the applicant fails to comply with the order to provide security within the time specified in the order, the proceeding be stayed or dismissed. … Section 56 - Security … (4) If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed. 5 The relevant principles for the exercise of the power to dismiss were referred to in Microbio Resources Inc v Betaten Ltd (unreported, Black CJ, Sheppard and Einfeld JJ, 8 October 1993), cited in Strategic Financial and Project Services Pty Ltd v Bank of China [2012] FCA 701 per Robertson J at [11]. The Full Court said: The Court is careful to see that orders for security for costs do not work injustice to parties against whom such orders are made, but if those parties do not comply with the orders and give no evidence or explanation as to why they have not complied with them, they cannot be heard to complain of injustice if, after a considerable length of time, and extensions of time, the ultimate sanction of dismissal is applied. It is incumbent upon parties in such circumstances to provide evidence of their position. I am satisfied that it is appropriate to exercise the discretion in the present case and to make an order that the proceedings be dismissed. 6 The plaintiffs were put on notice in open court on 22 March 2019 that a failure to provide security by the due date would result in the liquidator seeking orders for the dismissal of the proceeding. Further, having failed to pay security by the due date of 26 April 2019, the liquidator wrote to the plaintiffs' solicitors on 2 May 2019 putting them on notice of the liquidator's intention to bring an application to dismiss the proceedings if payment of security had not been made by 6 May 2019. 7 There has been no appearance by the plaintiffs on the liquidator's application to have the proceedings dismissed, nor have they filed anything in opposition. Two days ago, the solicitors acting for the plaintiffs advised the liquidator that they had no instructions from the plaintiffs to appear at the hearing of the application and were serving a notice of intention to cease to act in the matter. 8 No explanation at all has been received from the plaintiffs in relation to why security has not been paid, or whether there is any prospect that the security will be paid, apart from an email sent last evening from the first plaintiff advising that he was unable to attend the hearing because he is in China. In his email he wrote that he was not able to put up the money for the security for costs order because he had put his money into the Company and did not have much to spare to afford to pay the security by himself alone. He wrote that if it was not for the Company's conduct, he would not be in the financial situation of being unable to pay the security to keep his case going. It is clear from his email that he does not intend to pay the security ordered. 9 The asserted incapacity of the first plaintiff to pay the security is not, in my view, a reason why the Court should not exercise its discretion to dismiss the proceedings in this case. 10 First, based on the email the first plaintiff sent, it appears that he does not have the capacity to satisfy an adverse costs order in the event that the appeal from the liquidator's decision is unsuccessful. 11 Secondly, from the silence of the other plaintiffs, it may reasonably be inferred that they are also unable, or are unwilling, to pay the security. 12 Although there would be clear prejudice to the plaintiffs by the dismissal of their proceedings, that prejudice must be balanced against the prejudice to the liquidator arising from these proceedings remaining on foot in circumstances where it appears that the plaintiffs do not have the financial capacity to progress the matter. In the circumstances, the liquidator is at substantial risk of being unable to recover his costs, if the proceedings remain on foot. 13 Thirdly, it may also reasonably be inferred that the plaintiffs do not intend to prosecute their application. The plaintiffs have had ample opportunity to put up the security but have failed to do so. I also take into account that virtually nothing has progressed on this application since it was instituted in September 2018, no substantive step has been taken by the plaintiffs to prosecute that application, and there was non-compliance with the timetabling order for the filing of the points of claim and no explanation provided as to why that step was not taken by the plaintiffs. 14 Fourthly, it is relevant to take into account that the respondent is sued in his capacity as liquidator in relation to the rejection of proofs of debt. In an affidavit supporting the dismissal application, Mr Mark Troiani, solicitor for the liquidator, deposed that: (a) the liquidator is holding funds of approximately $3.55 million to be distributed to creditors; (b) these funds have been available to the liquidators for approximately nine months. The liquidator intended to distribute these funds following rejection of the plaintiffs' claims in August 2018; (c) although interest is accruing on the majority of these funds held in a term deposit, the final amount available for distribution remains subject to any future costs incurred in the liquidation; (d) this proceeding is the only matter that is preventing distribution by the liquidator to approximately 440 shareholders who purchased shares in the Company based on information contained in the replacement prospectus which was subsequently held to be misleading, and the finalisation of the winding up; (e) the liquidator has incurred and continues to incur costs in the proceeding without payment of security, to the detriment of the creditors of the Company who are in effect paying for the conduct of this proceeding; and (f) the failure of the plaintiffs to pay the amount of security has necessitated the liquidator incurring further costs in bringing the application. 15 It is plainly in the interests of the creditors that the liquidation be finalised as soon as practicable and the liquidator not be put to any further expense in defending an action in which he is sued in his capacity as liquidator of the Company, which the plaintiffs either do not have the financial capacity to prosecute or are unwilling to provide security. I do not think that the plaintiffs should be provided with a further opportunity to pay security for costs. 16 I am satisfied that I should make an order under s 56(4) of the Federal Court Act and r 5.23 and r 19.01(1)(c) of the Rules dismissing the proceedings and awarding costs in favour of the liquidator. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies.