The wrecker’s yard of dysfunctional administrations left behind by banned ex-liquidator David Iannuzzi and the late Murray Godfrey continues to smoulder, as is most recently demonstrated in North Shore Property Developments Pty Ltd (in liq) v Haddad [2024] FCA 728.
“I am not persuaded that the applicants’ substantive case has obvious infirmities that would justify an order for security for costs.” Justice Geoff Kennett.
Brooke Bird partner Robyn Erskine was appointed liquidator of North Shore Property Developments Pty Ltd by order of the court in September 2017.
Two months earlier her predecessors Iannuzzi and Godfrey, who had identified claims of $7.55 million against a party that had acquired assets from North Shore, entered into a deed of settlement with that party for the payment to them of just $32,500.00.
Shortly after settling with the former liquidators the acquiring party – 72-74 Gordon Crescent Lane Cove Pty Ltd – was deregistered by its director Eddy Samuel Haddad.
In the ensuing almost seven years Erskine has sought to show that the settlement was procured by fraudulent misrepresentations, that the settlement deed is therefore rescinded and that Haddad must pay damages for losses incurred by Erskine as a result of the misrepresentations, including for the costs of earlier unsuccessful proceedings.
Understandably, Erskine’s efforts have been resisted, most recently via an application brought by Haddad and 72 – 74 Gordon Crescent Lane Cove in the Federal Court for orders requiring Erskine to provide security for costs of almost $400,000 and that her proceedings be stayed until security is provided.
To advance the argument in favour of an award for security for costs the respondent applicant’s lawyers and counsel took aim at, among other things, the deed of indemnity existing between Erskine and North Shore’s most significant creditor, the Deputy commissioner of Taxation (DCoT).
Three grounds were articulated, namely that the terms of the deed of indemnity mean that the DCoT could terminate it any time without warning; that the entirety of the deed isn’t before the court because so much has been redacted, and that the indemnity only protects Erskine in circumstances where North Shore Property Developments Pty Ltd is the other plaintiff and it was conceivable that costs orders could be made against the company but not against Erskine.
Justice Geoff Kennett however refused the security for costs application for several reasons, including on the basis that Erskine’s case as to fraud is not as weak as the respondents sought to make out.
“I note that it was also submitted for the respondents that the applicants’ substantive case is “on its face” a difficult one,”B the judge said.
“That submission was not developed in any detail. It does appear to be correct that the applicants’ case is one of fraud and does not get anywhere unless they can prove outright dishonesty on the part of Mr Haddad.
“However, I was taken to an affidavit filed in the substantive case (deposed by the purported author of a sales appraisal that is alleged to be bogus) which indicates that at least one of the allegations of fraud has substance.
“I am not persuaded that the applicants’ substantive case has obvious infirmities that would justify an order for security for costs,” the judge concluded.
a reminder that the order for security for costs is discretionary. This is more so where there is evidence of a substantive solvent indemnity from a creditor ie the Commonwealth