SHOW ME THE MONEY
In Hodgkinson, in the matter of Kupang Resources Ltd (Subject to Deed of Company Arrangement) [2017] FCA 1342, Markovic J recently dismissed an application to grant security for costs in a Public Examination.
The Facts
- Damian Hodgkinson was appointed Deed Administrator of Kupang Resources Ltd (Subject to Deed of Company Arrangement) (“Kupang”) in September 2015.
- Antony William Paul Sage (“Mr Sage”) was appointed Director of Kupang 2010 and remained a director at the time of Appointment remained a director.
- Mr Sage is also an executive director of Cape Lambert Resources Pty Ltd (“Cape Lambert”) and held that position during the period in respect of which documents are sought.
- Pursuant to a Public Examination into the affairs of Kupang, summonses for production of documents were issued to both Mr Sage and Cape Lambert.
- It is common ground that the same categories of documents sought from both parties.
- During that period Mr Sage only maintained one email account, being the email account he had in his capacity as a director of Cape Lambert.
- Much back and forth transpired between the lawyers acting for the parties in relation to the onerous workload required to sort through the large volume of documents and email searches required under the summonses.
- There was also a very large number of duplicate emails that needed to be sorted and ‘de-duplicated’.
- Lawyers acting for Mr Sage and Cape Lambert provided an indicative cost of complying with the summonses at 25 working days being $200,000 (no need to reach for your calculators – it’s $8000 a day).
The Application
- Cape Lambert and Mr Sage subsequently brought an Application pursuant to section 56 of the Federal Court of Australia act1976 (Cth) (“FCA Act”) seeking security for payment of costs.
- Cape Lambert and Mr Sage submitted that they are entitled to an order for security for their costs of production of documents. They submitted that in the present case the factors relevant to the grant of security are:
- the likelihood of Mr Hodgkinson being unable to pay their costs;
(2) the characteristics of Mr Hodgkinson;
(3) whether there are persons standing behind Mr Hodgkinson who are likely to benefit from the litigation;
(4) whether the persons standing behind Mr Hodgkinson have offered any security or personal undertaking to be liable for the costs and, if so, the form of that security or undertaking; and
(5) any factors relating to the public interest.
The Law
- Section 56 of the FCA Act provides that the Court or a Judge may order an applicant in a proceeding in the Court to give security for the payment of costs that may be awarded against him or her and that the security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs.
- Interestingly The applicants were unable to point to any authority for the court to make an order for security for costs. It was submitted that the court had inherent jurisdiction to order such security. Whether that is so or not, there is no occasion to order security for costs.
- Although the application was for an order for security for costs of production under, relevantly, the Sage Summons and not an application for an order that Mr Hodgkinson in fact pay those costs, the issue of when a party can obtain its costs of production was raised in argument.
- Section 597B of the Corporations Act provides for the payment of a person’s costs where the Court is satisfied that a summons issued to a person under ss 596A or 596B, or a requirement made of a person under s 597A, was obtained without reasonable cause.
In those circumstances the Court may order that some or all of the costs incurred by the person because of the summons or requirement be paid by, in any case, the applicant for the summons or requirement; or, in the case of a summons, any person who took part in the examination.
The Decision
- Markovic J:
On the material before me, there is no reason to think that the summons was obtained without reasonable cause. There is no realistic prospect of an order for costs being made under s 597B. In any event, even if there were, there is no reason to think that the liquidator, who would be liable to pay such costs, would be unable to do so.
- Further, Markovic J commented that it is not unusual for an external administrator to have only limited funds and assets available to carry out his or her duties, and that an order requiring security for costs of an examination summons, could be used as a tool in the armoury of an intended examinee avoiding examination or production of material.
The court dismissed the Application and confirmed that the court will only make an order for security for costs of an examination summons or summons for production in exceptional circumstances or where a summons was issued without reasonable cause.
