New South Wales Court of Appeal CITATION: Dae Boong International Co Pty Ltd v Gray [2009] NSWCA 11 HEARING DATE(S): 2 February 2009 JUDGMENT DATE: 2 February 2009 JUDGMENT OF: Hodgson JA EX TEMPORE JUDGMENT DATE: 2 February 2009 DECISION: Application for review dismissed with costs. CATCHWORDS: PROCEDURE – Costs – Security for costs – Company appellant – Review of Registrar's decision – Grounds of review – Whether onus on company to prove means of persons who stand to gain from litigation – Whether impecuniosity caused by other party – Public policy. LEGISLATION CITED: Corporations Act 2001 s 1335 CATEGORY: Principal judgment Bell Wholesale Co Limited v Gates Export Corporation [1984] 2 FCR 1 House v The King (1936) 55 CLR 499 CASES CITED: Pioneer Park Pty Ltd (in Liq) v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344 Roufeil v Linder [2007] NSWSC 489 Tomko v Palasty (No 2) [2007] NSWCA 369 PARTIES: DAE BOONG INTERNATIONAL CO PTY LIMITED (ACN 076 232 436) (in liquidation) (Applicant) Ventry Wakefield Rollo GRAY (Respondent) FILE NUMBER(S): CA 40207/08 COUNSEL: J ANDERSON (Applicant) Ms A HORVATH (Respondnet) SOLICITORS: Hall Partners (Applicant) Moray & Agnew (Respondent) LOWER COURT JURISDICTION: Supreme Court LOWER COURT FILE NUMBER(S): SC 1920/05 LOWER COURT JUDICIAL OFFICER: Registrar Schell LOWER COURT DATE OF DECISION: 3 November 2008 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40547/08 HODGSON JA MONDAY 2 FEBRUARY 2009 DAE BOONG INTERNATIONAL PTY LIMITED (in liq) v Ventry Rollo Wakefield GRAY Judgment 1 HIS HONOUR: I am dealing with an application to review a decision given by the Registrar on 3 November 2008, by which the Registrar ordered that the appellant in these proceedings provide security for the respondent's costs of the appeal in the amount of $25,000 and made certain ancillary orders. 2 Before outlining the basis of the Registrar's decision and the grounds on which it is challenged, I will briefly outline the facts giving rise to the proceedings. 3 The company known as Dae Boong International Co Pty Limited owned and operated a supermarket business at Campsie called Kim's Club. In early 2005 one Hae Sook Kae brought proceedings in the Supreme Court for the winding up of that company. It appears that Hae Sook Kae had a judgment against the company for around $100,000 on the basis of some injury she had suffered at the premises of the supermarket. 4 The proceedings to wind up the company were returnable on 8 March 2005. 5 On 6 March 2005 the respondent, who is a barrister, sent an advice to solicitors acting for the company. This advice said, among other things, that if the company wanted to avoid control of the company's assets passing into the hands of a liquidator, it could sell the company's assets, undertakings and liabilities, other than the liability the subject of the creditors' proceedings, to a new company; and the new company would then continue trading as the old company had done. 6 On 7 March 2005 the company with the assistance of its solicitor entered into a purported contract to transfer all of its assets to another company for a price of $555,000. 7 On 8 March 2005 the Supreme Court appointed Peter Ngan as the company's liquidator. 8 It appears that the liquidator when he was appointed sought control of the company's assets, and was told that they had been transferred. So far as the evidence goes, it does not appear that he then either sought the purchase price or otherwise sought to pursue the assets. 9 The company that had purportedly purchased the assets did not pay any part of the purchase price, and it itself went into liquidation into 6 October 2005. 10 The company which had previously owned and operated the business, and which had gone into liquidation on 8 March 2005, then brought proceedings against a number of parties, but ultimately it pursued them only against the respondent. 11 The matter was heard by Windeyer J, and on 15 April 2008 Windeyer J dismissed the proceedings. 12 He held that the purported contract was a nullity, because it was entered into before the purported purchaser company had been incorporated. Windeyer J also was not satisfied that the respondent had breached his duty of care to the company; and he was not satisfied that the advice that was given caused loss to the company, in circumstances where there was no evidence that the liquidator had demanded the purchase price, and there was no evidence that at the time the purported contract was entered into the purchaser company could not pay the purchase price or satisfy an indemnity it had given to satisfy the liabilities of the vendor company other than the liability to the creditor who had sought the winding up. 13 The company appealed from Windeyer J's decision, and the respondent sought security for costs pursuant to s 1335 of the Corporations Act 2001 (Cth). 14 The Registrar noted that there was no prospect that the appellant itself could provide the security; and he noted the submissions of the appellant that the requirement of security would in effect stultify the prosecution of the appeal, that its inability to provide security was caused by the actions of the respondent, and that there were important issues of public policy which merited consideration by an appeal court. 15 The Registrar did not accede to any of those submissions and ordered the security. 16 As I have said, the matter comes before me on an application to review the Registrar's decision. 17 As regards the nature of such a review and the grounds on which such decisions can be reviewed, I adhere to what I said in Tomko v Palasty (No 2) [2007] NSWCA 369 at paras [4] to [10]. 18 Thus in my view a review of a decision of a Registrar is not an appeal, and in such a review a court must exercise its own discretion. This discretion extends to a discretion as to whether and if so how to intervene, and there is an onus on a person seeking to have a court set aside or vary a Registrar's decision to make out a case that the court in the interests of justice should exercise its discretion to do so. 19 In a case of a decision on practice or procedure, this will normally require at least a demonstration of error of law or an error of the kind referred to in House v The King [1936] HCA 40; (1936) 55 CLR 499, or a material change of circumstances or evidence satisfying the requirements of fresh evidence. 20 In this case, in effect it is submitted that the Registrar has erred in respects that satisfy the requirements of House v The King. 21 Mr Anderson for the appellant has submitted that there were three such errors by the Registrar: firstly, in not being convinced that there was proper evidence that there was no capacity for those who stood to gain by the proceedings to meet an order for security; secondly, in considering there was no compelling reason to exercise a discretion in favour of the appellant on the basis that its inability to provide security had been caused by the respondent; and thirdly, in failing to have proper regard to issues of public policy. 22 In the first matter, Mr Anderson submitted that the Registrar failed to take into account that the original proceedings against other defendants had been discontinued because of an inability of the appellant to provide security that had been required in the sum of $65,000; that the solicitor for the appellant had provided from his own funds the required security for $20,000 to continue the case against the respondent; and that it would be an expensive exercise for a person in the position of the liquidator in this case to obtain evidence concerning the ability of creditors to provide security, so that to insist on admissible evidence of that kind would already be to put an unreasonable obstacle in the way of appeals such as this. 23 On the question of the approach to be taken to contentions that the requirement of security will stultify proceedings where the litigant is a company, it was stated by the full Federal Court in Bell Wholesale Co Limited v Gates Export Corporation [1984] FCA 34; [1984] 2 FCR 1 at 4 as follows: In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts. 24 That statement has been approved in a number of cases, including Pioneer Park Pty Ltd (in Liq) v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344. 25 The effect of the passage is that, where a company resists an order for security on the ground that the order would stultify litigation, that company does have the onus to show that persons who stand behind it, and who would benefit from the litigation if it is successful, are without means. 26 Of course the court has a general discretion whether or not to order security for costs, and failure to prove stultification in this way does not necessarily mean that an order will be made; but Bell Wholesale does indicate that if a company wishes to have the benefit of a finding that litigation will be stultified, the company must prove that the persons who substantially stand to benefit are unable to provide the security. If that is not proved, it does not necessarily make the impecuniosity of the company and difficulties with providing security irrelevant; and if it can be shown that those persons are reasonably unwilling, even though possibly able, to provide the security, that may be a factor that would be taken into account. 27 Ultimately it seems to me the question to be determined by the court is whether it is fair that the person being sued by the company should be in the position of having to incur substantial costs, in this case perhaps tens of thousands of dollars of costs, and being at risk of liability for the company's costs, and yet have no real chance of recovering costs even if the action is unsuccessful, when there are persons who would benefit from the proceedings, who face no risk of liability for costs themselves and are either unwilling or unable to provide security. 28 In the present case, the matters referred to by Mr Anderson have some relevance to this question of fairness, even though in my view they fall short of showing that those who stand to benefit from the proceedings if they are successful are unable to provide security. There is no direct evidence from the person who brought the winding up proceedings as to her assets. Furthermore, there is reference in the judgment of Windeyer J to a creditor in the sum of around two million dollars of the company, and there is no evidence whatsoever about that creditor or any direct communication with that creditor concerning support for these proceedings. 29 There is some force in Mr Anderson's submission that it could be very onerous and expensive that a liquidator be required to lead evidence concerning all creditors; but in the circumstances of this case, I think it was reasonable to have expected the liquidator to have admissible evidence at least from the creditor who brought the winding up proceedings and admissible evidence concerning the position of the creditor referred to in the judgment of Windeyer J. 30 In those circumstances, to the extent that the Registrar took the view that the appellant had not proved that an order would stultify proceedings, in my opinion there was no error. 31 I note that the Registrar, having reached that view, went on to say that, in those circumstances, the motion to that extent must succeed and an order for the provision of security for costs must be made. I would not read that as suggesting that the Registrar did not understand that there was a discretion as to whether to order security in circumstances where actual proof of stultification had not been achieved. 32 In my opinion that first ground relied on by the appellant is not made out. 33 On the second matter, Mr Anderson submitted that the Registrar's reasoning, in reaching a conclusion that he would not exercise a discretion in favour of the appellant on the basis that the appellant's impecuniosity had been caused by the respondent, relied on the judgment of Windeyer J; and to that extent his reasoning was circular because that judgment was under challenge in the proposed appeal, and there were reasonable grounds on which the judgment could be challenged. 34 In any case where a company or person resisting security for costs relies on the point that the impecuniosity was caused by the other party, it is almost inevitably the case that that is a matter that is in issue in the proceedings. For that reason, so it seems to me, it is not a matter that should be assumed in favour of the person resisting security that the impecuniosity was not caused by that person, but on the other hand it should not be assumed in favour of the person seeking security that it was caused. It will very often be the position that the most that can be said is that it may have been caused and that the company or person against whom security is sought has an arguable case to that effect. In those circumstances it seems to me that, if the company or person resisting an order for security wishes to rely on the question of causation as a significant factor, it is not inappropriate for the court considering whether to grant security have some regard to the apparent strength of the case. It seems to me that this is what the Registrar has done. It seems to me that the Registrar has made an assessment that the case for causation is not particularly strong, in circumstances where Windeyer J found there was no valid contract and no evidence as to the capacity of the purchaser at the time of the contract, and where it appears the liquidator did not then pursue either the purchase money or the assets. 35 In those circumstances I am not satisfied there was any error by the Registrar in that respect either. 36 On the question of public policy, Mr Anderson has submitted that this was a case similar to a case considered by White J, namely Roufeil v Linder [2007] NSWSC 489. He submitted that it did raise a significant question, that should be dealt with at an appellate level, concerning the liability of advisers who advise companies to the effect that persons in control of a company, threatened with liquidation, could retain control of the company's assets by entering into a contract to dispose of the assets irrespective of the true value of the consideration then received by the company. 37 That was a matter addressed by the Registrar but apparently not considered by him sufficient to justify a refusal of the order for security. Again, it does not seem to me that in taking that view it can be said that the Registrar was in error. 38 As I said earlier, it seems to me that the ultimate question underlying applications for security is whether it is fair that a person be put in the position of having to pay, in this case perhaps $20,000 or perhaps more of costs, with no prospect of recovering them if successful, and being at risk of liability for the company's costs, in circumstances where there are or may be persons who stand to gain from the litigation who are themselves at no risk as to liability for costs and could give some security for costs. In cases like this, it is the liquidator that is in a position to prove what is the position of persons who stand to gain from the litigation. In the present case the Court hasn't been provided with that material. 39 On the whole I, in my view considerations of fairness, on the material presented, do favour the view adopted by the Registrar that the respondent should not be put in a position of incurring the very substantial costs in defending this appeal that will be irrecoverable if the appeal fails, when there is no real information about the persons who stand to gain from the success of the appeal. 40 So for those reasons, in my opinion, the application for review should be dismissed and the order that I make is: Application for review dismissed with costs. oOo 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. 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