Addenbrooke Pty Ltd v Duncan [2013] FCA 573

FEDERAL COURT OF AUSTRALIA

Addenbrooke Pty Ltd v Duncan [2013] FCA 573 Citation: Addenbrooke Pty Ltd v Duncan [2013] FCA 573

Parties: ADDENBROOKE PTY LIMITED ACN 055 973 576 v TRAVERS WILLIAM DUNCAN, PETER GRAY, SOUTHERN CROSS EQUITIES PTY LTD ACN 071 935 441, ARTHUR PHILLIP PTY LTD ACN 100 908 101, ARTHUR PHILLIP NOMINEES PTY LTD ACN 111 862 358, CASCADE COAL PTY LTD ACN 119 180 620, RICHARD JONATHAN POOLE, JOHN VERN MCGUIGAN, JOHN CHARLES ATKINSON, JOHN ALAN KINGHORN, COAL AND MINERALS GROUP PTY LTD ACN 144 641 092 and AMANDA POOLE

File number: NSD 2243 of 2012

Judge: JACOBSON J

Date of judgment: 31 May 2013

Catchwords: COSTS – security for costs – discretion of the court – interests of justice – Corporations Act 2001 (Cth) s 1335

Legislation: Corporations Act 2001 (Cth) s 1335 Federal Court Rules 2011 r 19.01

Cases cited: Gentry Brothers Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405 KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 Prynew Pty Ltd v Nemeth [2010] NSWCA 94

Date of hearing: 31 May 2013

Date of last submissions: 31 May 2013

Place: Sydney

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 14

Counsel for the Applicant: Mr FM Douglas QC with Mr G O'Mahoney

Solicitor for the Applicant: Gye & Associates

Counsel for the First Respondent: Mr H Chiu

Solicitor for the First Respondent: Yeldham Price O'Brien Lusk

Counsel for the Second Respondent: Mr GK Rich

Solicitor for the Second Respondent: Watson Mangioni Lawyers

Solicitor for the Fourth, Fifth, Seventh, Eleventh and Twelfth Respondents: Mr T Murray of Torq Murray Law

Counsel for the Sixth, Eighth, Ninth and Tenth Respondents: Mr MJ Dawson

Solicitor for the Sixth, Eighth, Ninth and Tenth Respondents: TressCox Lawyers

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2243 of 2012

BETWEEN: ADDENBROOKE PTY LIMITED ACN 055 973 576

Applicant

AND: TRAVERS WILLIAM DUNCAN

First Respondent

PETER GRAY

Second Respondent

SOUTHERN CROSS EQUITIES PTY LTD ACN 071 935 441

Third Respondent

ARTHUR PHILLIP PTY LTD ACN 100 908 101

Fourth Respondent

ARTHUR PHILLIP NOMINEES PTY LTD ACN 111 862 358

Fifth Respondent

CASCADE COAL PTY LTD ACN 119 180 620

Sixth Respondent

RICHARD JONATHAN POOLE

Seventh Respondent

JOHN VERN MCGUIGAN

Eighth Respondent

JOHN CHARLES ATKINSON

Ninth Respondent

JOHN ALAN KINGHORN

Tenth Respondent

COAL AND MINERALS GROUP PTY LTD ACN 144 641 092

Eleventh Respondent

AMANDA POOLE

Twelfth Respondent

JUDGE: JACOBSON J DATE OF ORDER: 31 MAY 2013 WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. The parties are to send in short minutes of order. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2243 of 2012

BETWEEN: ADDENBROOKE PTY LIMITED ACN 055 973 576

Applicant

AND: TRAVERS WILLIAM DUNCAN

First Respondent

PETER GRAY

Second Respondent

SOUTHERN CROSS EQUITIES PTY LTD ACN 071 935 441

Third Respondent

ARTHUR PHILLIP PTY LTD ACN 100 908 101

Fourth Respondent

ARTHUR PHILLIP NOMINEES PTY LTD ACN 111 862 358

Fifth Respondent

CASCADE COAL PTY LTD ACN 119 180 620

Sixth Respondent

RICHARD JONATHAN POOLE

Seventh Respondent

JOHN VERN MCGUIGAN

Eighth Respondent

JOHN CHARLES ATKINSON

Ninth Respondent

JOHN ALAN KINGHORN

Tenth Respondent

COAL AND MINERALS GROUP PTY LTD ACN 144 641 092

Eleventh Respondent

AMANDA POOLE

Twelfth Respondent

JUDGE: JACOBSON J DATE: 31 MAY 2013 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 The first respondent, Mr Duncan, seeks an order for security for costs in the sum of $600,000. The order is sought pursuant to r 19.01 of the Federal Court Rules 2011 and s 1335 of the Corporations Act 2001 (Cth) (the Act). The applicant, Addenbrooke Pty Limited (Addenbrooke) does not dispute that its most recent published accounts disclose a substantial deficiency of net assets. However it submits that I should not exercise my discretion to order security against it because those who are said to stand behind the company have offered undertakings in the following terms: (a) Neforu Pty Ltd (ABN 96 002 401 792) [and] Denis James O'Neil hereby undertake to the Court to be jointly and severally liable for the payment of any adverse cost orders found by this Honourable Court to be due and owing by Addenbrooke Pty Ltd, the First Applicant and which costs are not met on presentation by Addenbrooke Pty Ltd once such costs have been assessed or agreed; and (b) In consideration of Neforu Pty Ltd (ABN 96 002 401 792) issuing an Undertaking to the Federal Court of Australia in the above proceedings, Neforu Pty Ltd undertakes not to pay any dividends to preference shareholders until the costs order envisaged by the Orders consent[ed] to by Neforu Pty Ltd in respect of security for costs for adverse costs orders against Addenbrooke Pty Ltd are resolved without giving 7 days prior notice to all Respondents to the above proceedings. 2 The evidence establishes that all of the issued capital of Addenbrooke is held by Neforu Pty Ltd (Neforu) and that all of the issued ordinary shares in Neforu are owned, beneficially, by Mr Denis James O'Neil (Mr O'Neil). There are a small number of preference shares in Neforu which are held by members of Mr O'Neil's family. The preference shares carry preferential dividend entitlements but do not confer any equity in Neforu on the holders of those shares. 3 Mr Douglas QC, who appears for Addenbrooke, submits that in those circumstances, the application is met by the statement made by Cooper J in Gentry Brothers Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405 at 415 to the effect that once those who stand behind the company have accepted personal liability for a plaintiff's costs, the weight to be given to the statutory purpose behind s 1335 of the Act is satisfied. 4 Mr Douglas accepts that, in more recent years, there has been a retreat from the position that Gentry contains a statement of universal application. The authorities were reviewed by Beazley J in Prynew Pty Ltd v Nemeth [2010] NSWCA 94. It seems to me that her Honour's summation of the relevant principles is correct and that it applies to applications in this Court. Indeed, in my view, the overwhelming weight of the authorities is that the discretion is unfettered and should be exercised having regard to all of the circumstances of the case. See, for example, KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 196. 5 The factors which inform the exercise of the discretion or provide guidelines, as set out at page 197 of that case, had been generally accepted as informing the exercise of the discretion but ultimately, the question is one of fairness, in all the circumstances of the case. It calls for the exercise of robust judgment, which is ordinarily made as part of case management by the docket judge, where the issue is raised in this Court. 6 Mr Duncan's counsel, Mr Chiu, submits that security for costs is ordinarily given by a bank guarantee or payment into court. He submits there are three grounds upon which I ought not to depart from the usual course. 7 First, Mr Chiu submits that not all of the persons who stand to benefit from the litigation have been identified. That submission may be rejected shortly. As I have said, Mr O'Neil is the only person who holds beneficial ownership in the shares in Neforu and Neforu is the sole shareholder of Addenbrooke. 8 Second, Mr Chiu submits that I cannot be satisfied, on the evidence, that Mr O'Neil has fully exposed all of his assets in the evidence that has been filed in this application. It is true that Mr O'Neil has not sworn an affidavit and that the evidence is at least double hearsay on information and belief from his solicitor. However, it seems to me that in the circumstances in which this matter comes before me, there is sufficient disclosure of the relevant facts. 9 Mr Chiu's third submission is that the Court is not in a position to properly assess the net worth of Mr O'Neil or Neforu. He has issued a number of subpoenas, seeking a large quantity of documentary material, apparently targeted at investigating Mr O'Neil's net worth. He submits that he should be entitled to investigate that question in order to determine whether I ought to exercise my discretion in favour of the order of cash security. However, Mr Douglas seeks to set aside the subpoenas as an abuse of process. He submits that there is sufficient evidence to establish that Mr O'Neil is a man of substance and accordingly, there is no legitimate forensic purpose in the issue of the subpoenas. 10 It is true that the evidence which has been read discloses only a part of the full financial position of Mr O'Neil. It is also true that I can take into account, as a matter going both to the weight of the evidence and the exercise of the discretion, the fact that Mr O'Neil has not sworn an affidavit and seeks to set aside the subpoenas. I accept that the evidence provides not much more than a glimpse of Mr O'Neil's corporate enterprise but on any view, indeed taking the most unfavourable view possible of his financial position, I am satisfied that Mr O'Neil is a man of some substance. 11 It may well be that the downturn in the economy has had an adverse impact on Mr O'Neil's net worth and liquidity position but I am satisfied that he can by no means be described as impoverished. Of course, it is incumbent upon a person in Mr O'Neil's position to be frank with the Court as to his financial position but there is nothing in the evidence which suggests that those who have supplied the evidence on his behalf are lacking in candour. I do not consider that the evidence which has been relied upon is such as to warrant the detailed examination of Mr O'Neil's affairs, as is sought by Mr Duncan. 12 Bearing in mind the nature of the case brought by Addenbrooke (as to which I express no view on prospects, other than to say it is an arguable case on the statement of claim and there is no suggestion that it lacks bona fides), Mr O'Neil ought not to be subjected to a detailed examination of his financial position in circumstances where he has offered the undertaking set out above. I therefore propose to dismiss Mr Duncan's application for security for costs and I will order that the subpoenas be set aside. As to costs, there is force in Mr Douglas' submission that the undertaking was offered some time ago, however further evidence in the application was filed only this morning. 13 Accordingly, I do not propose to order indemnity costs, however Mr Duncan must pay the costs of both of the interlocutory applications on a party/party basis. Accordingly, the orders that I will make are that on the undertakings given on behalf of Neforu and Mr O'Neil, given as I have said, on their behalf by senior counsel for Addenbrooke, I will dismiss Mr Duncan's application for security for costs. I will also order that the subpoenas issued by Mr Duncan be set aside. 14 There is also the question of a confidentiality order in relation to evidence filed this morning. The order seems to me to be warranted in order to prevent prejudice to the proper administration of justice. The order is to provide for a redacted version of the document in question to be provided, redacting out the figure which is contained in the document as the description of the dollar value of Mr O'Neil's net worth. The duration of the order ought to be pending the determination of the proceeding. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Associate: Dated: 31 May 2013