Federal Court of Australia

Lee v Parker (No 2) [2022] FCA 582

ORDERS

THE COURT ORDERS THAT:

1.    The defendant’s amended interlocutory application filed on 8 February 2022 (Security for Costs Application) be dismissed.

2.    Pursuant to r 8.21(2) of the Federal Court Rules 2011 (Cth), the date that the Amended Originating Process takes effect, with respect to the claims advanced by the first and second plaintiffs, be 13 May 2020.

3.    The plaintiffs’ interlocutory application filed on 8 February 2022 (Commencement Date Application) be otherwise dismissed.

4.    The defendant pay the plaintiffs’ costs of and incidental to the Security for Costs Application.

5.    The plaintiffs pay the defendant’s costs of and incidental to the Commencement Date Application.

6.    The matter be listed for a case management hearing, to be heard with NSD1339/2021, at 9.30 am on Friday, 3 June 2022.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

HALLEY J:

Introduction

1    In these proceedings the plaintiffs contend that the first defendant (Mr Parker), the former liquidator of the third plaintiff, Worldwide Speciality Services Pty Ltd (in liquidation) (WSPS), caused WSPS to suffer loss and damage by reason of his failure to take any steps to preserve and then realise the intellectual property of WSPS, being 140 patents and patent applications in the United States, with an alleged value of $18,848,613 (US Patents).

2    By an amended interlocutory application filed on 8 February 2022, Mr Parker seeks an order for security for costs in the amount of $550,931.50 against each of the plaintiffs, other than the fourth plaintiff, Mr David Ingram (Mr Ingram) who is the current liquidator of WSPS, and an order that pending provision of that security the proceedings be stayed (Security for Costs Application).

3    By an interlocutory application also filed on 8 February 2022, the plaintiffs seek orders pursuant to:

(a)    rule 8.21(2) of the Federal Court Rules 2011 (Cth) (FCR) that the date that the Amended Originating Process takes effect is 11 May 2020;

(b)    rule 1.34 of the FCR that r 9.05(3) of the FCR be dispensed with in respect of the start date of the proceeding against the third to fifth plaintiffs; and

(c)    rule 1.35 of the FCR that the date of the commencement of the proceeding for the third to fifth plaintiffs be 11 May 2020,

(Commencement Date Application).

4    Impecuniosity is admitted for the purposes of the Security for Costs Application but the application otherwise gives rise to the following principal issues:

(a)    whether an order for security for costs would stultify the proceedings;

(b)    whether it is arguable that the first plaintiff, Ms Janette Lee (Ms Lee) and Mr Kia Silverbrook (Mr Silverbrook) are creditors or contingent creditors of WSPS;

(c)    whether the proceedings raise any public interest considerations; and

(d)    if security for costs is not ordered against Ms Lee and Mr Silverbrook, whether that would, in combination with other considerations in this case, preclude an order for security for costs against the corporate plaintiffs, WSPS and the fifth plaintiff, ACN 081 122 232 Pty Ltd, formerly known as Serif Pty Ltd (Serif).

5    The Commencement Date Application gives rise to the following principal issues:

(a)    the availability of r 8.21(2) of the FCR to avoid limitation periods that might have arisen with respect to plaintiffs that were subsequently joined to existing proceedings;

(b)    whether an order can be made pursuant to r 1.34 of the FCR dispensing with r 9.05(3) of the FCR; and

(c)    whether an order should be made pursuant to r 1.35 of the FCR, inconsistently with r 9.05(3), that the start date of the proceedings against WSPS, Mr Ingram and Serif be the date the proceedings were originally commenced.

6    For the reasons that follow, I have concluded that:

(a)    an order for security for costs would be likely to stultify the proceedings;

(b)    the prospects of success of the contentions advanced by Ms Lee and Mr Silverbrook that they are creditors or contingent creditors of WSPS are not so weak that they would justify an order for security for costs against impecunious natural persons that would have the effect of stultifying the proceedings they had commenced;

(c)    there is a public interest in the conduct of liquidators being scrutinised and liquidators being held to account if they have contravened their statutory or fiduciary duties;

(d)    security for costs should not be ordered against Ms Lee and Mr Silverbrook or against WSPS and Serif;

(e)    rule 8.21(2) of the FCR cannot be relied upon to avoid limitation periods that might have arisen with respect to plaintiffs that were subsequently joined to existing proceedings;

(f)    an order should otherwise be made pursuant to r 8.21(2) of the FCR that the date the Amended Originating Process takes effect with respect to the claims advanced by Ms Lee and Mr Silverbrook be 13 May 2020 (the date the proceedings were originally filed);

(g)    an order cannot be made pursuant to r 1.34 of the FCR dispensing with r 9.05(3) of the FCR; and

(h)    an order should not be made pursuant to r 1.35 of the FCR that the start date of the proceedings against WSPS, Mr Ingram and Serif be 11 May 2020 (or 13 May 2020, the date the originating process was actually filed).

Evidence

Mr Parker

7    Mr Parker relied on five affidavits of Dean Bryan Pinto, a partner of Wotton & Kearney, the solicitors for the defendant, affirmed on 1 February 2021, 23 February 2021, 4 February 2022, 25 February 2022 and 4 March 2022 respectively, on both applications. He was not cross examined.

8    Mr Pinto provided an estimate of the quantum of the costs that Mr Parker could expect to recover if the proceedings progressed to a contested hearing and he received a costs order in his favour. He also gave evidence of the procedural history of the proceedings, the impecuniosity of Ms Lee and Mr Silverbrook and the report as to affairs for WSPS dated 16 April 2014 and certified by Mr Silverbrook on 29 April 2014 (RATA), related financial statements, the general security agreement between WSPS and Ms Lee and Mr Silverbrook dated 12 April 2012 (General Security Agreement), the liquidator’s statutory report to creditors of WSPS dated 25 January 2021 prepared by Mr Ingram (2021 Report to Creditors) and formal proofs of debt lodged by the Deputy Commissioner of Taxation dated 30 April 2014.

The plaintiffs

9    The plaintiffs relied on the following affidavits on both applications:

(a)    affidavits of Mr Ingram affirmed on 19 February 2021, 4 February 2022 and 25 February 2022;

(b)    an affidavit of Ms Lee affirmed on 25 February 2022; and

(c)    an affidavit of Jason Green, a solicitor director of Gibson Howlin Lawyers, the solicitors for the plaintiffs in the proceedings, affirmed on 11 April 2022.

10    None of the plaintiffs’ witnesses was cross examined.

11    Mr Ingram gave evidence of the limited funds available to WSPS, his unsuccessful attempts to obtain additional funding, the reasons for him not joining the proceedings earlier and his investigations into the affairs of WSPS since his appointment, including the conduct of Mr Parker in relation to his alleged failure to preserve and then realise the US Patents. Mr Ingram also gave evidence that, if no litigation funding is able to be secured, the proceedings will only be able to be pursued on a speculative basis, and further that if the Court made the security for costs orders sought by Mr Parker, he would be prevented from proceeding on the claim and there would be no possibility of any return to creditors of WSPS.

12    Ms Lee gave evidence of her impecuniosity, the serious health conditions of Mr Silverbrook, for whom she is the full time carer, and the extent to which she and Mr Silverbrook have had to rely on the generosity of family and friends to pay for their living expenses.

13    Mr Green gave evidence of the extent to which Ms Lee and Mr Silverbrook had paid legal costs that they had incurred to date in this and related proceedings and that the source of the funds to make those payments was Ms Lee’s sister.

Procedural History

14    On 16 April 2014, Mr Parker was appointed as the liquidator of WSPS pursuant to a creditors’ voluntary winding up. Mr Parker retired as the liquidator on 20 March 2019.

15     WSPS and its parent company, Serif, were deregistered in 2019.

16    Ms Lee and Mr Silverbrook were the former directors of WSPS. Each held 50% of the shares in Serif.

17    The proceedings were initially commenced by the first plaintiff, Ms Lee and Mr Silverbrook, on 13 May 2020 by the filing of an Originating Process and a Concise Statement.

18    At the time the proceedings were commenced, both WSPS and its holding company, Serif, remained deregistered. It was alleged in the Concise Statement that Mr Parker, in his capacity as the former liquidator of WSPS, had failed to preserve and realise the US Patents and had thereby:

(a)    contravened s 180 of the Corporations Act 2001 (Cth) (Act) by failing to act with the degree of care and diligence that a reasonable person would have in the exercise of his powers and discharge of his duties as an officer of WSPS;

(b)    contravened s 181 of the Act by not exercising his powers and discharging his duties as an officer of WSPS in good faith and for a proper purpose; and

(c)    breached his fiduciary duties to WSPS and its creditors.

19    On 8 October 2020, Griffiths J made orders on the application of Ms Lee and Mr Silverbrook that WSPS and Serif were to be reinstated and Mr Ingram was to be appointed the liquidator of WSPS (Reinstatement Application), and delivered reasons for judgment: Lee v Parker [2020] FCA 1453 (Lee).

20    On 26 October 2020, WSPS was formally reinstated by ASIC and Mr Ingram was appointed as the liquidator of WSPS.

21    On 22 December 2021, WSPS, Mr Ingram and Serif were joined to the proceedings, as the third to fifth plaintiffs, respectively.

22    On 14 January 2022, the plaintiffs filed an Amended Originating Process and a Statement of Claim.

Security for Costs Application

Legal principles

23    Section 1335 of the Act relevantly provides:

1335 Costs

(1)    Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.

…

(2)    The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs.

24    If the jurisdictional requirement in s 1335(1) is satisfied the provision of security for costs will then be determined on discretionary grounds.

25    The inability of a corporate plaintiff to meet a costs order is a significant factor to be taken into account in the exercise of the discretion: Idoport Pty Limited & Anor v National Australia Bank Limited & 8 Ors; [2001] NSWSC 744 at [62] (Einstein J); Wollongong City Council v Legal Business Centre Pty Limited [2012] NSWCA 245 at [30] (Beazley JA); Mecrus Pty Ltd (ACN 088 126 756) v Industrial Energy Pty Ltd (ACN 080 687 681) (2015) 327 ALR 523; [2015] FCA 103 at [23] (Murphy J).

26    The Court has a broad discretion to order security for costs but it must be exercised judicially: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1; [1984] FCAFC 34 at 3 (Sheppard, Morling and Neaves JJ).

27    In All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Limited [2020] FCA 840 (All Class), Allsop CJ stated at [42]:

The matter which lies at the heart of the discretion is one of fairness, both in terms of whether security should be granted, and if so, in what amount: Madgwick v Kelly [2013] FCAFC 61; 212 FCR 1 at 21 [92]. The Court aims to achieve a “balance between ensuring that adequate and fair protection is provided to the defendants, and avoiding injustice to an impecunious plaintiff by unnecessarily shutting it out or prejudicing it in the conduct of the proceedings”: Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 at 470 (Giles J).

28    In KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189; [1995] FCA 76 (KP Cable) at 197-8, Beazley J (as her Honour then was) stated that the Court will typically take into account the following well established but not exhaustive guidelines in determining an application for security for costs:

(a)    whether the application has been brought promptly;

(b)    the strength and bona fides of the applicant’s case;

(c)    whether the applicant’s impecuniosity was caused by the respondent’s conduct the subject of the claim;

(d)    whether the respondent’s application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate;

(e)    whether there are any persons standing behind the company who are likely to benefit from the litigation and are prepared to provide the necessary security;

(f)    whether any person standing behind the company has offered a personal undertaking to be liable for the costs, and if so the form of that undertaking; and

(g)    security will only ordinarily be ordered against a party who as a matter of substance is a plaintiff — an order ought not be made against parties who are litigating because they have been forced to defend themselves,

(cited with approval by Allsop CJ in All Class at [43]).

29    An additional guideline that has been taken into account in determining whether security for costs should be ordered is whether there are public interest considerations weighing against the provision of security: Concrete Mining Structures Pty Ltd v Cellcrete Australia Pty Ltd (No 2) [2016] FCA 360 at [13] (Edelman J, as his Honour then was); Jazabas v Haddad [2008] NSWSC 593 at [49]-[54] (Harrison AsJ); Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972; [1989] FCA 520 at 50,635 (Hill J).

Submissions

Mr Parker

30    Mr Parker advances the following submissions in support of his application for security for costs against the corporate plaintiffs, WSPS and Serif:

(a)    each of the corporate plaintiffs is insolvent and the discretion to grant security against the two corporate plaintiffs pursuant to s 1335 of the Act is thus enlivened;

(b)    contrary to the position advanced by the plaintiffs there is no evidence that suggests that there is any public interest in the litigation — the proceeding is a conventional one in which the plaintiffs seek damages for the losses that they have suffered;

(c)    there is no causative link between the payment of his fees in the course of the liquidation of WSPS and its deregistration;

(d)    on no view could the allegations made against Mr Parker have caused WSPS to be placed into liquidation and the indebtedness of WSPS to unsecured creditors prior to the appointment of Mr Parker was $15,113,438.14, of which $14,502.334.48 was owed to the Australian Taxation Office (ATO) (I note that the proof of debt lodged by the ATO, however, was in an amount of $15,515,922.97, comprising a running balance account deficit of $14,025,021.19 and superannuation guarantee, general interest and penalty charges of $1,490,901.78);

(e)    in the absence of any evidence as to how Ms Lee and Mr Silverbrook as the moving parties or the persons standing behind the moving party were able to commence proceedings in the New South Wales Supreme Court (citing In the matter of Priority Matters Pty Ltd [2022] NSWSC 3 (Rees J)), the New South Wales Court of Appeal (Lee v Deputy Commissioner of Taxation; Silverbrook v Deputy Commissioner of Taxation (2020) 102 NSWLR 825; [2020] NSWCA 95 (Payne and McCallum JJA and Simpson AJA)) and in the High Court (Lee & Anor v Deputy Commissioner of Taxation [2020] HCASL 217 (Bell and Nettle JJ), the Court cannot accept any suggestion that an order for security for costs would stultify these proceedings.

31    Mr Parker accepts that something more than impecuniosity is required if security is to be ordered against the natural plaintiffs.

32    He submits that the matters in addition to impecuniosity that he relies upon in seeking security for costs against Ms Lee and Mr Silverbrook are their lack of prospects for success and their failure to satisfy the Court, as alleged above, that any order for security for costs would stultify the proceedings.

33    Mr Parker advances the following submissions in support of his contention that the cases sought to be advanced by Ms Lee and Mr Silverbrook have limited prospects of success:

(a)    the contention that Ms Lee and Mr Silverbrook were secured creditors of WSPS is a matter of controversy, no documents have been produced to substantiate the claim made by them in the RATA that they were owed an estimated $2.5 million as secured creditors, and the fact that Mr Ingram had assigned a nil value to the asserted security interest in the 2021 Report to Creditors tells strongly against the contention;

(b)    even if Ms Lee and Mr Silverbrook were found to be creditors of WSPS, that could not give rise to the existence of any fiduciary duty as the duties owed by administrators and liquidators are owed to the company, not to shareholders or creditors, citing the decision of Barrett J, as his Honour then was, to that effect in Hausmann v Smith (2006) 24 ACLC 688; [2006] NSWSC 682 at [12] and noting that this statement of principle was cited with express approval by the Full Court of the Supreme Court of South Australia in Macks v Viscariello (2017) 130 SASR 1; [2017] SASCFC 172 at [207] (Lovell J, Corboy and Slattery AJJ); and

(c)    the common law duty of care case advanced in the Statement of Claim at [11] depends on Ms Lee and Mr Silverbrook being able to establish that they are creditors of WSPS, a factual premise that appears to be “most unstable” and therefore the claim in negligence can properly be characterised as weak.

34    Finally Mr Parker submits that the evidence of Mr Pinto that his likely solicitor/client costs in defending the proceedings would be $787,045.00 is “detailed” and that in the absence of any challenge to that evidence this figure should be accepted. He submits that after applying a 30% discount to determine likely party/party costs, security should be ordered in an amount of $550,931.50.

The plaintiffs

35    The plaintiffs admit for the purposes of the Security for Costs Application that they are impecunious and unable to meet an adverse costs order, but they otherwise advance the following submissions in opposition to the exercise of the discretion to order security for costs in these proceedings:

(a)    there is no reason in the present case to depart from the well-established disinclination of courts to order security for costs against individual plaintiffs, including impecunious plaintiffs;

(b)    the Security for Costs Application was not brought promptly as the initial application for security for costs was not brought until nine months after the commencement of the proceedings on 13 May 2020;

(c)    in order for Mr Parker to make good his contentions concerning the alleged lack of the strength and bona fides of the plaintiffs’ case he would need to reagitate improperly matters already dealt with by Griffiths J in the Reinstatement Application, but in any event the plaintiffs’ claims are prima facie regular on their face and disclose causes of action and there is plainly a case to be answered by Mr Parker in the absence of any evidence that suggests that he took any steps to realise the US Patents;

(d)    the failure of Mr Parker to realise the US Patents was the cause of the impecuniosity of the plaintiffs. The expert evidence that Griffiths J accepted for the purpose of the Reinstatement Application valued the US Patents at between $20 million to $38 million at the time that WSPS went into liquidation. Had those patents been realised, the surplus available for distribution to its shareholder Serif, whose only two shareholders were Ms Lee and Mr Silverbrook, after paying out creditors in the sum of $15,734,667.00 would have been between $4 million and $22 million;

(e)    given the plaintiffs are impecunious the Security for Costs Application is oppressive and given the absence of any litigation funder, if security is ordered the proceedings will be stultified;

(f)    there is no person standing behind the corporate plaintiffs who stands to benefit that is willing to provide security or a personal undertaking, Ms Lee and Mr Silverbrook are at the end of any chain of entities that might have an interest in the litigation and they are both parties to the proceedings; and

(g)    public policy considerations favour a liquidator being held to account and if the proceedings are thwarted by an order for security for costs then Mr Parker’s conduct as liquidator in not realising potentially valuable assets of WSPS in which he has a prima facie case to answer will not be scrutinised.

36    The plaintiffs further submit that the Court should not order security for costs against a corporate plaintiff where security for costs has not been ordered against a natural plaintiff agitating the same issues and the persons standing to benefit from the proceedings being the natural plaintiffs are not attempting to shirk their burden, where they too are plaintiffs.

Consideration

Should security for costs be ordered against Ms Lee and Mr Silverbrook?

37    Given the potential relevance of the outcome of the application for security for costs against the natural persons to the application for security for costs against the corporate plaintiffs, it is first necessary to consider that application.

38    It was common ground that the natural persons are impecunious, or at least not in a position to meet any likely costs order.

39    The relevant issues are first, whether an order for security for costs would necessarily stultify the proceedings and second, whether the prospects for success of the causes of action sought to be advanced by Ms Lee and Mr Silverbrook are so weak that an order should be made that impecunious natural persons should provide security for costs notwithstanding that the likely effect of that order would be to stultify the proceedings. In the present context, the second issue turns on whether it is reasonably arguable that Ms Lee and Mr Silverbrook are creditors or contingent creditors of WSPS and whether it is reasonably arguable that a liquidator may owe a duty of care to a contingent creditor.

Would an order for security stultify the proceedings brought by Ms Lee and Mr Silverbrook?

40    In his 11 April 2022 affidavit, Mr Green gives evidence that his firm had not issued any invoices for professional fees and is unlikely to do so in the future unless a litigation funder is located or a monetary award is obtained, and counsel have only issued invoices for some of their fees to date.

41    He further gives evidence that Ms Lee and Mr Silverbrook had placed $141,378.98 into his firm’s trust account to pay filing fees, liquidator’s costs, counsel fees and other disbursements, of which only $45,892.98 remains. He gives the following evidence of his knowledge of the source of those funds:

13.    I understand that the main source of the funds placed into our Trust Account has been from the First Plaintiff’s sister. I also understand that the First Plaintiff’s sister makes ongoing payments to the First and Second Plaintiff in order that they have funds to obtain food, shelter and clothing. I am not aware of any sources of income currently available to the First or Second Plaintiff.

14.    I am also instructed that the First and Second Plaintiffs have no bank accounts in their name.

15.    On 11 April 2022, I had a telephone call with the First Plaintiff’s sister where words were spoken to the following effect:

Me:    “In the proceedings the defendant is asking for security in the amount of $550,931.50. Do you have that much money available that you would be willing to provide to your sister in the event that such security is ordered?”

  Sister:    “No.”

42    While I accept the inherent limitations in Mr Green’s evidence, not least any potential willingness or ability of Ms Lee’s sister to provide security for a sum less than $550,931.50 or details of any other enquiries that Ms Lee or Mr Silverbrook may have pursued to seek funds to provide any security that might be ordered, I am satisfied that any substantive order for security for costs would have the practical effect of stultifying the proceedings brought by Ms Lee and Mr Silverbrook. An ability to bring proceedings by relying on funds from relations and the willingness of counsel and solicitors not to issue or delay issuing invoices pending obtaining litigation funding or a monetary award does not permit the drawing of an inference that a natural plaintiff could obtain access to funds to meet a substantive order for security for costs.

43    I turn next to address the lack of prospects of success contention advanced by Mr Parker in support of the application for security for costs against the natural plaintiffs.

Are Ms Lee and Mr Silverbrook creditors of WSPS?

44    The claims advanced by Ms Lee and Mr Silverbrook depend upon them being able to establish, as a threshold issue, that they are creditors of WSPS.

45    The only evidence before the Court on these applications that the natural plaintiffs are existing creditors of WSPS is in the RATA in which Ms Lee and Mr Silverbrook are listed as debenture holders with an estimated value of their security of $2.5 million depending upon “IP realisation value” and the particulars of the security are stated to be “General Security Agreement Dated 12 April 2012”.

46    The General Security Agreement had a broadly drawn definition of the moneys secured in favour of Ms Lee and Mr Silverbrook but did not include any reference to any particular sum of money that might have been secured.

47    In the 2021 Report to Creditors, Mr Ingram advised that his estimate of the liabilities of WSPS to secured creditors was $0. Ms Lee and Mr Silverbrook were included in the list of security holders in the report with the notation from Mr Ingram “I understand that this security interest relates to funding advanced to the Company by the Directors”.

48    I accept that the evidence that Ms Lee and Mr Silverbrook are creditors of WSPS is not strong. At the same time, it is necessary to take into account that a defence has yet to be filed and therefore the parties have not yet joined issue on what is in dispute.

49    The challenge to the status of the natural persons as creditors of WSPS was only squarely raised when the plaintiffs received the written submissions of Mr Parker in support of the Security for Costs Application, filed on 8 April 2022 shortly prior to the hearing of the application.

50    I appreciate that more substantive evidence of the basis on which the natural persons were creditors might have been able to be included in Mr Green’s 11 April 2022 affidavit. On balance, however, I do not consider that the absence of any additional evidence beyond that contained in the RATA, 2021 Report to Creditors and the General Security Agreement provides a sufficient basis for me to conclude for the purposes of the Security for Costs Application that the claims sought to be advanced by Ms Lee and Mr Silverbrook are so weak that they amount to the “something more” that would be necessary to make a security for costs order against natural impecunious persons that in all the circumstances would have the effect of stultifying the proceedings brought by them.

Are Ms Lee and Mr Silverbrook contingent creditors of WSPS?

51    In the course of the hearing of the Security for Costs Application an issue arose as to whether rights that Ms Lee and Mr Silverbrook might have against WSPS with respect to penalties each owed on unpaid taxation liabilities of WSPS supported a contention that they were contingent creditors of WSPS. Prior to the liquidation of WSPS, the ATO had issued director penalty notices to Ms Lee and Mr Silverbrook with respect to their concurrent liability for unpaid PAYG withholding tax and superannuation guarantee charge liabilities of WSPS (Director Penalty Notices). The parties were given leave to serve supplementary submissions to address this issue.

52    Mr Parker submits that Ms Lee and Mr Silverbrook are not contingent creditors of WSPS by reason of their concurrent liability with WSPS to the ATO with respect to unpaid PAYG withholding tax and superannuation guarantee charge liabilities of WSPS, because there was no existing obligation whereby WSPS must pay a sum of money to them based on a future event. He submits that there is no suggestion that Ms Lee and Mr Silverbrook have paid, or can pay, the penalties the subject of the penalty notices. He submits that therefore the future event which might require the payment of money can only be the presumed success of the plaintiffs in the proceedings giving rise to an award of damages in favour of WSPS. He submits that should that occur and any award is used to reduce the liability of WSPS to the ATO, then that would not be a future event which requires WSPS to then discharge any existing obligation to Ms Lee and Mr Silverbrook.

53    Mr Parker further submits that at no time during the liquidation of WSPS have Ms Lee and Mr Silverbrook occupied the position of guarantor or a position analogous to guarantor;

54    The plaintiffs submit that it is reasonably arguable that Ms Lee and Mr Silverbrook were contingent creditors of WSPS by reason of the combined effect of ss 269-10, 269-15, 269-40 and 269-45 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (STAA).

55    I set out below the provisions of the STAA that the plaintiffs rely upon.

56    Section 269-10 of the STAA relevantly provides that the objects of Division 269 include ensuring that a company meets its obligations in relation to PAYG withholding and the superannuation guarantee charge.

57    Section 269-15 of the STAA relevantly provides:

269-15 Directors’ obligations

Directors’ obligations

(1)     The directors (within the meaning of the Corporations Act 2001) of the company (from time to time) on or after the initial day must cause the company to comply with its obligation.

(2)     The directors of the company (from time to time) continue to be under their obligation until

(a)     the company complies with its obligation; or

(b)     an administrator of the company is appointed under section 436A, 436B or 436C of the Corporations Act 2001; or

(ba)     a small business restructuring practitioner for the company is appointed under section 453B of that Act; or

(c)     the company begins to be wound up (within the meaning of that Act).

58    Section 269-40 of the STAA provides:

269-40 Effect of director paying penalty or company discharging liability

Liabilities

(1)     This section applies to the following liabilities:

(a)     the liability of the company under its obligation referred to in section 269- 10;

(b)     the liability of each director (or former director) to pay a penalty under this Division in relation to the liability of the company referred to in paragraph (a);

(c)     a liability under a judgment, to the extent that it is based on a liability referred to in paragraph (a) or (b).

Discharging one liability discharges other liabilities

(2)     If an amount is paid or applied at a particular time towards discharging one of the liabilities, each of the other liabilities in existence at that time is discharged to the extent of the same amount.

(3)     If, because of section 268-20 (Nature of liability to pay estimate), one of the liabilities is discharged at a particular time to the extent of a particular amount, each of the other liabilities in existence at that time is discharged to the extent of the same amount.

(4)     This section does not discharge a liability to a greater extent than the amount of the liability.

59    Section 269-45(2) provides that upon payment of a director penalty notice a director has:

… the same rights (whether by way of indemnity, subrogation, contribution or otherwise) against the company or anyone else as if:

(a)    you made the payment under a guarantee of the liability of the company; and

(b)    under the guarantee you and every other person who has paid, or from whom the Commissioner is entitled to recover, a penalty under this Division in relation to the company’s obligation were jointly and severally liable as guarantors.

60    The combined effect of ss 269-10, 269-15, 269-40 and 269-45 of the STAA is relevantly that:

(a)    a director has an existing concurrent liability, unless the company goes into liquidation, for the obligations of a company to the ATO regarding its obligations with respect to PAYG withholding tax and the superannuation guarantee charge liabilities;

(b)    the payment by a director of an amount to satisfy that concurrent liability releases the company from its obligations in that respect; and

(c)    a director may recover a payment made to satisfy the concurrent liability from the company.

61    The Full Court explained the nature of the contingency necessary to give rise to the existence of a contingent creditor in Morton as Liquidator of MJ Woodman Electrical Contractors Pty Ltd v Metal Manufactures Pty Limited [2021] FCAFC 228 (Morton) in which Allsop CJ (with whom Middleton and Derrington JJ agreed) stated at [157]:

A contingency in the context of a contingent creditor requires an existing obligation and out of that obligation a liability to pay a sum on money will arise in a future event whether the event be one that must happen or only may happen: Community Development Pty Ltd v Engwirda Construction Company [1969] HCA 47; 120 CLR 455 at 459 per Kitto J (Barwick CJ and Windeyer J agreeing) referred to with approval in Foots v Southern Cross Mine Management Pty Ltd 234 CLR at 66 [36] and see also National Bank of Australasia Ltd v Mason [1975] HCA 56; 133 CLR 191 at 201 where Barwick CJ, also citing Re William Hockey Ltd [1962] 1 WLR 555, referred to the importance in the definition of contingent creditor of the insistence on the presence of an existing obligation out of which the ultimate liability will grow.

62    The three essential elements for an entity to be a contingent creditor, as explained in Morton, can thus be stated as follows:

(a)    an existing obligation owed by one entity to a second entity;

(b)    a liability by the first entity to pay a sum of money by reason of that obligation to the second entity; but

(c)    only if a future event happens.

63    Contrary to the submissions advanced by Mr Parker I do not accept that the future event could only be the presumed success of the plaintiffs in the proceedings such that WSPS would then be awarded damages and would thereby extinguish the debt the subject of the Director Penalty Notices. As matters currently stand, it might be thought that the prospect of Ms Lee and Mr Silverbrook making any payments under the Director Penalty Notices might be slight, but it cannot be dismissed entirely. I am not satisfied that the future event can be restricted to a payment of the outstanding PAYG withholding tax and the superannuation guarantee charge liabilities by WSPS to the exclusion of any possible payment by Ms Lee or Mr Silverbrook.

64    I am satisfied that it is sufficiently arguable for the purposes of resisting an application for security for costs in the present context, as submitted by the plaintiffs, and without making any concluded finding at an interlocutory level, that:

(a)    the concurrent liability of Ms Lee and Mr Silverbrook to ensure that WSPS meets its PAYG withholding tax and superannuation guarantee obligations can be characterised as an “existing obligation” that arose at the same time as WSPS was required to meet those obligations and prior to the liquidation of WSPS, and that by reason of the failure of WSPS to meet those obligations, Ms Lee and Mr Silverbrook became contingent creditors of WSPS;

(b)    the payment by Ms Lee or Mr Silverbrook of any of the amounts in the Director Penalty Notices would give rise to “a liability to pay a sum” by WSPS to the directors; and

(c)    the payment by WSPS to Ms Lee or Mr Silverbrook of any amounts they might have been paid pursuant to the Director Penalty Notices could be characterised as a “sum payable upon the happening of a future event”.

65    Any substantive determination of this issue, however, would have to grapple with the implications of s 269-15(2)(c) of the STAA. That subsection provides that the director’s obligation to ensure that a company complies with its taxation obligations continues, relevantly for present purposes until “the company begins to be wound up”. This aspect of s 269-15 of the STAA, in particular its application to the discrete obligations created by the Director Penalty Notices, was not the subject of any submissions. It would not be appropriate to comment further at an interlocutory stage about the potential consequences of this subsection to the prospects for success of the contingent creditor contentions advanced by the plaintiffs.

Does a liquidator owe a duty of care to contingent creditors?

66    The analogy drawn in s 269-45(2) of the STAA with an obligation to payment under a guarantee of the liability of a company requires a consideration of authorities addressing liabilities of liquidators to sureties and guarantors.

67    In Mills v Sheahan (2007) 99 SASR 357; [2007] SASC 365 (Mills) the Full Court of the South Australian Supreme Court (Debelle, Sulan and Layton JJ) upheld an appeal from a decision of the primary judge striking out a proceeding founded on a claim that a liquidator owed a duty of care to third-party sureties in respect of asset sales. At [34], Debelle J, who was not in the majority, found that a liquidator owed a duty of care to the plaintiffs after stating at [33]:

The conclusion that a duty of care to the plaintiffs exists is consistent with the principle that a subsequent mortgagee can set aside a sale by mortgagee where there has been a failure to enter into a truly independent bargain or to obtain a higher price known to be available: Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195 at 227–228; Alliance Acceptance Co Ltd v Graham (1974) 10 SASR 220. It is consistent also with the principle that, if a creditor sacrifices or impairs a security or by his neglect or default has allowed it to be lost or diminished, the surety is entitled in equity to be credited with a deficiency in reduction of his liability: Williams v Frayne (1937) 58 CLR 710 at 738 and see the cases collected in Rowlatt Principal and Surety (4th ed) Ch 9; see also Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654 at 675 per Brennan J. It is consistent also with the principle that a controller appointed under s 420A of the Corporations Act has an equitable duty to a guarantor to act in good faith when exercising a power of sale of property: Jovanovic v Commonwealth Bank of Australia (2004) 87 SASR 570.

68    The decision of the Court in Mills was found in the judgment of Sulan J (with whom Layton J agreed) at [125]-[126]:

Since preparing my reasons I have had the opportunity to read the reasons of Debelle J. In my view, the question of whether the defendant, acting in his capacity of a liquidator or trustee in bankruptcy, owed a duty of care to one or more of the plaintiffs can only finally be determined at trial. In my opinion, it is reasonably arguable that the defendant owed a duty of care to the plaintiffs. It follows that the statement of claim discloses a reasonably arguable cause of action which, if established, entitles the plaintiffs to relief.

I would grant leave to appeal. I would order that the application of the defendant to strike out the plaintiffs’ statement of claim be dismissed.

69    In Perpetual Nominees Ltd v McGoldrick & Anor (No 3) (2017) 317 FLR 227; [2017] VSC 78 (Perpetual Nominees), Vickery J concluded that a liquidator owed a duty of care to guarantors of a company’s liabilities, stating:

Inconsistent duties

140    Another relevant factor is whether the imposition of a duty of care would be compatible with other duties which the Liquidators owed. A liquidator, when exercising the power to realise assets, is subject in each case to a duty to creditors and the shareholders to exercise reasonable care and diligence.

141    So it was in this case. The duty on the part of the Liquidators was to sell or otherwise dispose of the Maroondah Hwy properties acting in good faith and with due care and skill to an extent that was reasonable in all the circumstances. This involved taking reasonable care to secure the best price possible in the commercial context which existed at the time.

142    The duty which the Guarantors seek to enforce is a duty to secure the best price reasonably obtainable in the circumstances for the assets which have been sold. The duties are entirely compatible. There was a coincidence of the interests of the creditors with those of the Guarantors who were liable to indemnify. If the Liquidators discharged that duty, there could be no impairment to the interests of the creditors or the shareholders of Racso.

143     For this reason, the coincidence of duties did not conflict, and do not operate to negate the duty of care.

Conclusion as to duty of care

144     Having considered the “salient features” relevant to this case, I find that the Liquidators owed a duty of care to the Guarantors. The duty was to sell or otherwise dispose of the property of the company Racso, being the Maroondah Hwy properties, acting in good faith and with due care and skill to an extent that was reasonable in all the circumstances. This involved taking reasonable care to secure the best price possible in the commercial context which existed at the time.

[Footnote omitted.]

70    I am satisfied that in the light of the reasoning in Mills and Perpetual Nominees and s 269-45(2) of the STAA, it is reasonably arguable, without expressing any concluded view at an interlocutory stage, that Mr Parker owed a duty of care to Ms Lee and Mr Silverbrook.

Conclusion on application for security for costs against Ms Lee and Mr Silverbrook

71    For the reasons outlined above, I cannot conclude that the claims sought to be advanced by Ms Lee and Mr Silverbrook are not reasonably arguable or are so weak that they give rise to the existence of something more that would justify an order for security for costs against impecunious natural persons that would stultify the proceedings commenced by them.

72    No order will be made requiring Ms Lee and Mr Silverbrook to provide security for costs.

73    I now turn to consider the application by Mr Parker for the corporate plaintiffs to provide security for costs.

Should security for costs be ordered against the corporate plaintiffs?

74    The impecuniosity of the corporate plaintiffs is a consideration that weighs heavily in favour of an order for security for costs against them.

75    The following considerations also support an order that the corporate plaintiffs provide security for costs:

(a)    the application was brought promptly, there was no relevant delay between the joinder of the corporate plaintiffs on 22 December 2021 and the filing of the Security for Costs Application on 8 February 2022; and

(b)    the impecuniosity of WSPS and in turn Serif was not caused by Mr Parker’s conduct the subject of the proceeding, WSPS was placed into liquidation prior to the impugned conduct.

76    Ms Lee and Mr Silverbrook are the only natural persons that could be said to be standing behind WSPS and Serif and both are parties to the proceedings and thus already exposed to a costs order.

77    Further, given the inability of Mr Ingram to obtain any litigation funding and the impecuniosity of Ms Lee and Mr Silverbrook, I am satisfied that the practical effect of an order that the corporate plaintiffs provide security for costs in the sum sought by Mr Parker would be to stultify the proceedings that they have now brought against Mr Parker.

78    Moreover, it is necessary to have regard to first, the implications of the decision not to order the natural plaintiffs, Ms Lee and Mr Silverbrook, to provide security for costs on the application for security for costs against the corporate plaintiffs and second, public interest considerations in the present context.

79    The question of whether security for costs should be ordered against corporations that are plaintiffs where the Court has declined to order security for costs against natural plaintiffs in the same proceeding has been considered in several authorities, including Harpur v Ariadne Australia Limited [1984] 2 Qd R 523 (Harpur); Street & 7 ors v Lunar Park Sydney Pty Ltd & 3 ors [2006] NSWSC 1317 (Street); Brecher v Barrack Investments Pty Ltd [2018] FCA 472 (Brecher).

80    In Harpur, Connolly J (with whom Campbell CJ and Demack J agreed) stated at 532:

It is not disputed in this case that Harpur is the real plaintiff. The plaintiff companies are joined as a means to his establishing his own rights if he can. There is no question of the companies having any claim independent of Harpur’s. There is, to use Plowman J.’s expression, a complete overlap of the interests put in suit. The companies are joined because Harpur has chosen to conduct his business affairs in a fashion which requires the presence in this litigation of corporations of his creation which the law may regard as the appropriate plaintiffs but their interests are, as it is pleaded, beneficially his property. Why then should he be asked to provide massive security for the defendant’s costs? He is not seeking to shelter behind the companies. On the contrary he is the prime plaintiff. It does not seem to me that he should therefore be in any different position from any other plaintiff whose assets are within reach of the court’s process. The court cannot permit orders for security for costs to be used as a means of keeping a plaintiff out of court Orders for security are in fact infrequently made except in the cases of companies to which s. 533(1) or similar provisions apply and where there is no circumstance to outweigh the obvious force of the company's insolvency.

[Emphasis added.]

81    In Street, Brereton J, after noting that some authorities had proceeded on the basis that if it was concluded that one or more plaintiffs should not provide security for costs, other plaintiffs should not be ordered to pay security, stated at [28]-[29]:

However, this is not an absolute rule, as appears from the judgment of Plowman J in John Bishop (Caterers) Ltd v The National Union Bank Ltd [1973] 1 All ER 707; see also Fiduciary Ltd v Morning Star Research. Where there is a complete identity between the corporate plaintiff and the individual plaintiff, so that all plaintiffs are suing in relation to one and the same defendant, and all plaintiffs must succeed or fail together, security will not ordinarily be ordered against only one of them [Bishop, 709-710]. But where the various plaintiffs’ claims have different elements and aspects, so that they will not all necessarily succeed or fail together, although the existence of individual plaintiffs is a factor that diminishes the defendant's claim to be entitled to security against the corporate plaintiff, it does not extinguish it [Interwest Ltd v Tricontinental]. And where the degree of overlap between the claim of the individual and corporate plaintiffs is comparatively small, such that separate orders for costs might be made in respect of each of the plaintiffs, it is usually appropriate that an order for security be made [Bishop, 716; Fiduciary v Morning Star, 33-36].

In the present case, while all the plaintiffs rely on similar facts, they do not sue on the same cause of action. This is particularly so in respect of the Trade Practices claims. Each plaintiff separately has to prove reliance, and each plaintiff separately has to prove that plaintiff’s own damages. Importantly, it is only in respect of the Trade Practices claims that liability is asserted against the third and fourth defendants.

[Emphasis added.]

82    In Brecher, Thawley J stated at [28]:

In my view, this is not an appropriate case in which to order security for costs for the following reasons. First, I am not satisfied that there are sufficiently substantial incremental costs over and above what would be incurred in meeting Dr Brecher’s claims in any event: Luna Park at [27], [28], Funds First Pty Ltd v Owners Corporation Strata Plan 66609 (No 2) [2008] NSWSC 428 at [13]. It is evident from the pleading that there is substantial overlap between the claims brought by each and that substantially all of the factual substratum would need to be traversed in the claim brought by Dr Brecher. In my view, the principles referred to in Harpur v Ariadne Australia Limited [1984] 2 Qd R 523 (Harpur) and Luna Park at [26] to [28] apply. In my view, there is no realistic possibility of different outcomes as between the applicants. In particular, it was not demonstrated, as it was in Luna Park, that the defence of the corporate applicant’s case substantially increased the complexity and likely cost of the case or its nature. It may be accepted that both applicants have different causes of action and that, if EBPL recovers certain damages, then Dr Brecher will not recover damages reflecting that loss and, indeed, may be unsuccessful in obtaining certain relief. For example, Dr Brecher’s financial liability under the guarantees may not be shown to be greater if EBPL is successful in its claim for damages. A not dissimilar situation arose in Harpur, where the company had the claim for compensation rather than the individual shareholders and, if the company failed, the individuals also necessarily failed: at 525. So too, the individual shareholders would not recover damages to the extent the relevant damages were obtained by the company. The real difficulty for the first to third respondents is that, if Dr Brecher had brought his claims alone, or the proceedings were now stayed vis-à-vis EBPL, it would still be necessary to traverse substantially the same facts and issues in the claim brought by Dr Brecher. This weighs heavily against an order for security.

[Emphasis added.]

83    While the reasons of Thawley J include the absence of any realistic possibility of “different outcomes as between the applicants” they are not expressed to be dependent on that finding. Read as a whole, the reasoning of Thawley J was directed at more practical issues such as the degree of the overlap in the claims that had been brought, the factual substratum that would need to be traversed and the extent to which the defence of the corporate applicants’ claims would increase the complexity and cost of the proceeding.

84    The focus on incremental and increased costs was highlighted by the further reasoning of Thawley J at [29]:

Secondly, even if I had been satisfied that there were sufficient areas of dispute which did not overlap, there was no attempt by the first to third respondents to substantiate what the incremental costs would be in respect of that non-overlapping area. The first to third respondents had sought to tender a two page schedule setting out a costs estimate prepared by Mr Hourn and exhibited to his affidavit. This set out hourly rates of the various identified people who would carry out legal work, the estimated number of hours they would work and, in very general terms, the task that they would perform. This provided a total of $298,270 which was reduced to take into account that only 60% of the solicitor client costs were considered likely to be recovered. The second applicant objected to this schedule on the basis that it insufficiently set out the basis for the assumptions contained within it. The parties agreed that the schedule would be received as a submission. However, no attempt was made by the first to third respondents to identify a rational basis to determine from this total estimate what would be the incremental costs of any non-overlapping area or what additional cost would be incurred specifically by reference to the inclusion in the proceedings of the corporate applicant and its claims.

85    I accept that in these proceedings it cannot be said that the causes of action advanced by the natural and corporate plaintiffs will inevitably rise and fall together. Nevertheless, the causes of action advanced substantially overlap and the factual substratum is the same, namely the alleged failure of Mr Parker to realise valuable assets of WSPS by allowing the US Patents to lapse.

86    Further, Mr Parker has not sought to adduce evidence of additional complexity or incremental costs that would be incurred with respect to the defence of the claims brought by the corporate plaintiffs. It might be reasonably inferred that the breach of statutory and fiduciary duties claims and the tortious claims sought to be advanced against the corporate plaintiffs were materially less complex and the necessary matters to be established to make good those claims substantially overlap with the matters necessary to establish the equivalent claims sought to be advanced by the natural plaintiffs.

87    The other factor that weighs against ordering security for costs against the corporate plaintiffs is the public interest in liquidators being held to account. As Griffiths J stated in Lee at [24] in the context of the Reinstatement Application, there is a public interest in bringing the proceeding against Mr Parker where his alleged failures occurred as an official liquidator. I do not accept that the present proceedings can be characterised as simply a claim for damages by the plaintiffs. An alleged failure by an official liquidator to take steps to secure and then realise significant assets of a company is a serious allegation that has ramifications well beyond the immediate interests of parties seeking to recover damages. It reflects on the public confidence in the administration of insolvent companies, which is an important consideration in the preparedness of stakeholders to have confidence that if a company becomes insolvent all reasonable steps will be taken to secure and realise its assets for the benefit of creditors and members by competent professional insolvency practitioners.

Conclusion on application for security for costs against corporate plaintiffs

88    On balance, for the reasons outlined above, I have concluded that the corporate plaintiffs should not be ordered to provide security for costs. It is not suggested that the causes of action advanced by the corporate plaintiffs are not reasonably arguable. Alleged breaches of duty that may have led to a failure to preserve and realise intellectual property rights materially in excess of the amounts owing to creditors give rise to significant public interest considerations. If established, they would constitute serious breaches of statutory, fiduciary and common law duties with profound adverse consequences for creditors and more generally with public confidence in the administration of insolvent companies, in particular, the effective preservation and then realisation of valuable assets.

Commencement Date Application

Legal principles

89    I set out below the relevant provisions of the FCR for the Commencement Date Application.

90    Rule 9.05(3) of the FCR provides:

If a person is joined as a party under this rule, the start date of the proceeding for the person is the date on which the order is made.

91    Rule 8.21(1) of the FCR relevantly provides:

(1)    An applicant may apply to the Court for leave to amend an originating application for any reason, including:

…

(g)     to add or substitute a new claim for relief, or a new foundation in law for a claim for relief, that arises:

(i)     out of the same facts or substantially the same facts as those already pleaded to support an existing claim for relief by the applicant; or

(ii)     in whole or in part, out of facts or matters that have occurred or arisen since the start of the proceeding.

92    Rule 8.21(2) of the FCR provides:

An applicant may apply to the Court for leave to amend an originating application in accordance with paragraph (1)(c), (d), (e) or subparagraph (g)(i) even if the application is made after the end of any relevant period of limitation applying at the date the proceeding was started.

93    Rules 1.34 and 1.35 of the FCR provide:

1.34 Dispensing with compliance with Rules

The Court may dispense with compliance with any of these Rules, either before or after the occasion for compliance arises.

1.35 Orders inconsistent with Rules

The Court may make an order that is inconsistent with these Rules and in that event the order will prevail.

Submissions

The plaintiffs

94    The plaintiffs submit that r 8.21(2) of the FCR expressly contemplates that leave to make amendments to an originating process or application may be granted even if limitation periods with respect to the proposed amendments have expired between the commencement of the proceedings and the application to amend. They submit that the amendments to the Originating Process made in the Amended Originating Process should therefore be taken to commence from 11 May 2020, being the date of the commencement of the proceedings (Start Date). (As I have noted above the Start Date is more accurately stated to be 13 May 2020. The Originating Process was dated 11 May 2020 but was filed on 13 May 2020.)

95    The plaintiffs submit that the only amendment of substance to the Originating Process was to add a claim for general damages, whereas previously damages had only been sought pursuant to s 1317H of the Act. They submit the underlying matters to establish the negligence claim against Mr Parker are the same as those matters relied upon to establish a breach of Mr Parker’s duties under the Act.

96    The plaintiffs acknowledge that there was no pleading that identified the factual matters in dispute at the time the proceedings were commenced but they submit that a comparison between the Concise Statement and the Statement of Claim filed with the Amended Originating Process reveals that the “factual circumstances relevant to the relief sought are identical”.

97    The plaintiffs also submit the commencement date of the causes of action now advanced by WSPS, Mr Ingram (as the liquidator of WSPS) and Serif (together, New Plaintiffs) should also be taken to commence on the Start Date, by making an order dispensing with r 9.05(3) of the FCR. They submit that the interests of justice dictate that rather than being locked out of pursuing their claims against Mr Parker they should be joined on the basis that they were parties from the Start Date because:

(a)    the New Plaintiffs were not able to be joined at the Start Date, as both WSPS and Serif were deregistered at that time;

(b)    the New Plaintiffs have not subsequently delayed joining the proceeding in any meaningful manner; and

(c)    the claims that the New Plaintiffs seek to bring, even if they remained statute barred, would in any event still be litigated by Ms Lee and Mr Silverbrook.

Mr Parker

98    Mr Parker submits that r 8.21(2) cannot be relied upon by the plaintiffs because r 8.21(2)(g)(i) permits a “new claim or relief, or a new foundation in law for a claim for relief” but the discretion is not at large and does not extend to the addition of new claims by new parties. Mr Parker points to the language in that sub-paragraph of claims for relief arising “out of the same facts or substantially the same facts as those already pleaded to support an existing claim for relief by the applicant”. He submits that this requires there to be an existing claim by an existing applicant with facts already pleaded in support. He submits that no “existing facts” could have been pleaded by the New Plaintiffs as they were not parties bringing existing claims.

99    Mr Parker further submits that no reliance can be placed on either rr 1.34 or 1.35 of the FCR to dispense with r 9.05(3) of the FCR such that the commencement date of the proceedings against the New Plaintiffs be the Start Date.

100    Mr Parker submits that r 1.34 is only concerned with dispensing with compliance with the FCR and r 9.05(3) does not contemplate compliance by a party but rather states the basis on which a joinder of a new party is to take effect.

101    Mr Parker submits that the exercise of a discretion pursuant to r 1.35 to dispense with r 9.05(3) in the manner contemplated by the plaintiffs would circumvent rr 9.03(5) and 8.21(2) and the preservation of limitation defences for parties joined to proceedings after the expiry of limitation defences. He submits that such an order would only be made in the most unusual or extreme of circumstances and the present case does not meet that description. He submits that the evidence relied upon by the plaintiffs does not provide any proper basis for any exercise of the discretion pursuant to r 1.35, given the consequence of the exercise of the discretion would be to deprive Mr Parker of limitation defences that would otherwise be available to him.

Consideration

Rule 8.21(2)

102    The plaintiffs’ reliance on r 8.21(2) with respect to the claims advanced by the New Plaintiffs is misplaced.

103    The plaintiffs contend that r 8.21(2) is engaged because the claims sought to be advanced by the New Plaintiffs fall within r 8.21(1)(g)(i) of the FCR.

104    To fall within r 8.21(1)(g)(i) of the FCR, a new claim for relief or new foundation in law for a claim for relief that an applicant might seek to raise in an amended originating application or process must:

(a)    arise out of the same facts or substantially the same facts;

(b)    the facts must already be pleaded;

(c)    the facts must support an existing claim for relief; and

(d)    the claim must be made by the applicant.

105    Rule 8.21(1)(g)(i) is directed at an amendment by an applicant to raise a new claim for relief, not at an amendment by an applicant to raise new claims for relief by third parties. In effect, the plaintiffs erroneously seek to construe r 8.21(1)(g)(i) as providing a mechanism whereby an application can be amended to add new parties to raise new claims for relief in an existing proceeding on the basis that the claims arise out of the same facts or substantially the same facts, that are already pleaded, to support an existing claim for relief made by an applicant.

106    The claims sought to be advanced by the New Plaintiffs do not fall within r 8.21(1)(g)(i) as they are not claims raised by the existing applicants and further, all the material facts necessary to establish the claims could not have already been pleaded because the New Plaintiffs had not brought any existing claims for relief.

107    I am otherwise satisfied that the claims in tort now sought to be advanced by Ms Lee and Mr Silverbrook in the Amended Originating Process and the Statement of Claim arise out of the same facts or substantially the same facts, namely the alleged failure of Mr Parker to preserve and realise the US Patents, that are already identified in the Concise Statement, to give rise to the existing claims for breaches of statutory and fiduciary duties.

Rule 1.34

108    I turn now to consider the plaintiffs’ applications for dispensation pursuant to r 1.34 from the operation of r 9.05(3) of the FCR, so as to provide that the commencement date of the proceedings for the New Plaintiffs would be the Start Date.

109    It is plain that r 1.34 of the FCR has no relevant operation because r 9.05(3) of the FCR does not purport to specify a procedure or matter for compliance by a party but rather prescribes the basis on which a joinder of a new party is to take effect.

Rule 1.35

110    Finally, it is necessary to consider whether an order should be made pursuant to r 1.35 of the FCR that, inconsistently with r 9.05(3), the start date for the proceedings brought by the New Plaintiffs should be the Start Date.

111    The principle that an amendment generally takes effect from the date of the commencement of a proceeding, sometimes described as the relation-back principle, has not been extended to the addition of a party as an applicant and has been expressly stated not to apply in circumstances where a new party is added as a respondent. It has been held not to apply when a new party is added as a respondent because it would deprive the new party of any limitation defences that might otherwise be available to it.

112    In Ethicon Sarl and Others v Gill and Others (2018) 264 FCR 394; [2018] FCAFC 137 (Ethicon) the Full Court (Allsop CJ, Murphy and Lee JJ) said at [47]:

Be that as it may, the point of principle raised by the respondents has substance for two reasons. The first is that it is somewhat an overgeneralisation to say that the “usual position” is that an amendment of a statement of claim takes effect from the commencement of the proceeding. As Perram J explained in Voxson Pty Ltd v Telstra Corporation Ltd (No 7) (2017) 343 ALR 681, the former rules provided that a respondent should not generally lose its right to a successful limitation defence where an amendment arose out of facts which were not substantially the same by making provision for an “otherwise order”: see former O 13, r 3A. Notwithstanding the new rules were not intended to operate differently, there is no analogue under the current rules to the former O 13, r 3A. Although it is undoubtedly the case in ordinary inter partes litigation, that amendments often take effect from the commencement of the proceeding, this is in circumstances where the amendment is to add a claim between existing parties that arises out of the same or substantially the same facts. This flexibility operates as an amelioration of the rule of practice established by Weldon v Neal (1887) 19 QBD 394. As the case law has developed, to the extent that there is a usual position, it is as explained by Brereton J in Street & 7 v Luna Park Sydney Pty Ltd [2006] NSWSC 230 at [46]-[47]:

It is true that ordinarily “an amendment, duly made, takes effect, not from the date the amendment is made, but from the date of the original document which it amends” [Baldry v Jackson [1976] 2 NSWLR 415, 419 (Samuels JA)]. Since Baldry v Jackson, there has been considerable judicial discussion of this “relation-back” doctrine, in the context of limitation periods [Liff v Peasley [1980] 1 All ER 623, 641-643 (CA); [1980] 1 WLR 781, 802-804; Ketteman v Hansel Properties Ltd [1987] AC 189 (HL); Wenham v General Credits Ltd (NSWSC, McLelland J, 16 December 1988, unreported); Fernance v Nominal Defendant (1989) 17 NSWLR 710 (NSWSC); Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, 559-562 (HCA); Morgan v Banning (1999) 20 WAR 474 (WASC, FC); Agtrack (NT) Pty Ltd v Hatfield (2003) 7 VR 63 (VCA); Agtrack (NT) Pty Ltd v Hatfield (2005) 218 ALR 677 (HCA)]. Generally, these cases have dealt with the relation-back doctrine in the context of two categories of amendments: those which would add a new defendant after the applicable limitation period against that defendant had expired, and those which would introduce a new cause of action after the limitation period for its commencement had expired.

As to the first, it is clear that the relation-back principle does not apply to an amendment which adds a party: where a party is added, proceedings against it are commenced only at the date of its joinder, so that the relation-back doctrine does not deprive a party joined after expiry of a limitation period of its limitation defence [Liff v Peasley; Ketteman v Hansel Properties; Wenham v General Credits; Fernance v Nominal Defendant].

113    The statements of principle in Ethicon were directed at the application of the relation-back doctrine when a new defendant or respondent was sought to be added to proceedings. I do not see any difference in principle, however, between depriving a new party that had been joined from raising a limitation defence and depriving an existing party from raising a limitation defence to a claim sought to be advanced by a new party to an existing proceeding

114    Further, I observe that in Ethicon the Court was concerned with an application to amend a class definition that would have the consequence of adding new group members. After acknowledging that analogies with principles concerned with the addition of a new party to proceedings were apt to mislead and the regime established for amendments to class definition in Part IVA of the Federal Court of Australia Act 1976 (Cth) were sui generis, the Court observed at [51]:

It is consistent with the scheme introduced by Part IVA and, in particular, the need for there to be certainty as to the persons who comprise the class at all times, that the Group Definition Amendment should have been ordered to take effect from the date of amendment, being the date of filing of the 5FASOC. To adopt that course is consistent with the expansion of the class effected by the earlier Amendment Orders which, unfortunately, were not drawn to the attention of the primary judge in the present context. Apart from anything else, this prevents the topsy turvy notion that someone retrospectively becomes a group member on commencement, when the Court has thus far proceeded on the basis that they are not group members. As a matter of principle, such an approach would avoid the vice of potentially resuscitating causes of action by persons who have never sought to agitate them. It would be odd that by becoming a group member through the augmentation of a class, substantive rights were conferred on a claimant that had been either extinguished or barred by operation of statute and could not otherwise be advanced by that claimant.

115    The last sentence would, notwithstanding the sui generis nature of the regime for making amendments to class definition, appear to be equally apposite in the current context. The claims made by the New Plaintiffs may arise out of the same underlying factual matrix but they may succeed or fail independently of the causes of action pursued by Ms Lee and Mr Silverbrook.

116    I am not persuaded that an order should be made dispensing with r 9.05(3) of the FCR such that the date of the commencement of the proceedings is to be the Start Date rather than the date on which the New Plaintiffs were joined when the Amended Originating Process was filed.

117    First, the effect of making such an order would be to permit plaintiffs to overcome limitation periods by joining existing proceedings to advance claims that they may have otherwise been precluded from pursuing if they had commenced new proceedings. Such a result would be inconsistent with the effective preservation of limitation periods and might well, as in this proceeding, deprive a defendant from raising a limitation defence that it could have relied upon if the new plaintiffs had not joined an existing proceeding. The rationale for the relation-back principle for new causes of action arising out of the same facts or substantially the same facts by an existing plaintiff to a proceeding is that the plaintiff has in effect, tolled the relevant limitation period by commencing a proceeding in relation to those factual matters. The same rationale would not apply to a plaintiff which had not previously been a party to the proceedings.

118    Second, in assessing the significance to be given to the deregistration of WSPS and Serif at the time of the commencement of the proceedings it is necessary to have regard to the time period between the reinstatement of WSPS and Serif and their joinder to the proceedings. WSPS and Serif were reinstated pursuant to the orders made by Griffiths J on 8 October 2020 but it was not until 22 December 2021 that the New Plaintiffs were joined to the proceedings.

119    Third, the explanations provided for the delay in the New Plaintiffs commencing proceedings are not compelling. The submission that the New Plaintiffs have not delayed joining the proceeding in any meaningful manner after WSPC and Serif had been reinstated appears to be largely based on a contention that Mr Parker declined to provide the assistance that Mr Ingram could reasonably have expected to have received from Mr Parker in assessing the strength of the claims that might be brought against him in relation to the lapse and failure to realise any value from the US Patents. It provides at best a partial explanation and certainly does not account for the whole of the delay between reinstatement and the joinder of the New Plaintiffs. Given the almost self-evident limitation issues that must have been readily apparent to the plaintiffs given the nature of the proceeding commenced by Ms Lee and Mr Silverbrook, a delay of more than 14 months in the New Plaintiffs being joined to the proceedings speaks against any discretion to apply the relation-back principle in the context of the addition of new parties to existing proceedings.

120    Fourth, the contention that the claims the New Plaintiffs seek to bring, even if they remained statute barred, would in any event still be litigated by Ms Lee and Mr Silverbrook does not assist the plaintiffs. The claims are not identical. As explained above, the New Plaintiffs might succeed and Ms Lee and Mr Silverbrook might fail. The claims made by the New Plaintiffs might arise out of a common subject matter but the specific claims made by the New Plaintiffs, to the extent that they remain statute barred, will not be determined in the proceedings.

121    Fifth, the substantial overlap in the claims made by the New Plaintiffs and the claims made by Ms Lee and Mr Silverbrook and the extent of the common factual matrix giving rise to their respective claims weighs in favour of making a relation-back order but this consideration is outweighed by the prejudice to Mr Parker in not being able to rely on potential limitation defences that might have arisen between the commencement of the proceedings and the joinder of the New Plaintiffs.

122    I note that an alternative course to determining the application of the relation-back principle to the commencement date of the claims by the New Plaintiffs would be to defer making any ruling until the final hearing. On balance, I have rejected that course because from a case management perspective the determination of a start date permits them to make more informed decisions as to the potential impact of limitation periods on their respective prosecution of and defence to the claims advanced in the proceedings.

Costs

123    Neither party succeeded in obtaining the relief they sought in their respective applications, except to the extent that the plaintiffs have obtained an order with respect to the commencement of the tort claims now advanced by Ms Lee and Mr Silverbrook. Mr Parker did not advance any submissions in opposition to such an order.

124    The affidavit evidence was read on both applications but it was principally directed at the Security for Costs Application. The plaintiffs’ primary written submissions addressed both applications but Mr Parker filed discrete submissions for each application and the supplementary written submissions of both parties were only directed at the Security for Costs Application. Further, the two applications were heard sequentially and the time taken for the hearing of the Security for Costs Application was significantly greater than for the Commencement Date Application.

125    In the circumstances, the preferable course is to make discrete costs orders rather than a single costs order that sought to reflect the greater proportion of time spent by the parties on the Security for Costs Application than on the Commencement Date Application.

Disposition

126    The Security for Costs Application is to be dismissed.

127    An order will be made pursuant to r 8.21(2) of the FCR that the date that the Amended Originating Process takes effect, with respect to the claims advanced by the first and second plaintiffs, is to be 13 May 2020 and the Commencement Date Application is otherwise to be dismissed.

128    Mr Parker is to pay the costs of the plaintiffs of and incidental to the Security for Costs Application. The plaintiffs are to pay the costs of Mr Parker of and incidental to the Commencement Date Application.

Associate:    

Dated:    20 May 2022