Farquhar v Rio Dorado Limited (in liquidation)

These proceedings have been commenced today. Urgent relief is sought in relation to them by the plaintiff, Joshua Farquhar, against Rio Dorado Limited (in liquidation). Mr Farquhar not only seeks orders from the court to commence these proceedings on an urgent basis by the filing in court of an originating process and supporting affidavit, but also seeks substantive relief, being an order pursuant to s 471B of the Corporations Act 2001 (Cth). That is, in effect, an order that would provide Mr Farquhar with leave to bring defamation proceedings against Rio Dorado.

The basis on which Mr Farquhar has approached the court on an urgent basis is that apparently, either today or tomorrow, the limitation period for the defamation action which he proposes to bring against Rio Dorado in the District Court of New South Wales will expire.

In support of the application, Mr Farquhar has made an affidavit affirmed 10 May 2024 setting out the relevant facts.

Mr Farquhar has explained that he considers that he has been defamed by a publication made by Rio Dorado on 17 March 2023 by the sending out of an email to Rio Dorado shareholders to which was attached an announcement made by Rio Dorado on that day, and which, in addition to that announcement, also attached an email dated 20 February 2023. Mr Farquhar says that he was defamed by numerous references that were made in that shareholder announcement to him as a shareholder of Rio Dorado. The arguable bases for the alleged defamation are more fully set out in the draft statement of claim in which Mr Farquhar seeks both damages and vindication.

On 10 November 2023, Rio Dorado was ordered by the court to be wound up in insolvency and Mr Ian Niccol (Liquidator) was appointed as liquidator of Rio Dorado.

On 27 February 2024, the solicitors for Mr Farquhar sent a letter to the Liquidator, attached to which was a proof of debt with respect to the claim for damages arising from the alleged defamation.

On 5 March 2024, the solicitors for the Liquidator provided a response to the letter of 27 February 2024, in which they indicated that they would not be able to respond to Mr Farquhar's proof of debt within the timeframe that he wished. The Liquidator’s solicitors also stated that the claim was for unliquidated damages, and whilst there was an appreciation by the Liquidator of the upcoming limitation period expiry, they were not prepared to make the adjudication before the expiry of that time.

On 15 March 2024, the solicitors acting for Mr Farquhar sent two concerns notices to Rio Dorado, and to each of the directors of Rio Dorado, Gary Mares, Terry Cuthbertson and Nicholas Lindsay. The purpose of the concerns notices was for Mr Farquhar to initiate the procedure provided for in Division 1 of the Defamation Act 2005 (NSW). No response was provided seeking any further particulars of the concerns notices that were sent.

Since the Liquidator has been appointed, there have been a number of reports and circulars to creditors sent out by the Liquidator, including a first report to creditors dated 8 December 2023, an update circular dated 11 December 2023, an update circular dated 12 January 2024, a statutory report to creditors dated 9 February 2024 and an update dated 29 April 2024.

These materials indicate that the principal asset of Rio Dorado is a gold mine located in Ecuador. At an earlier point in time, it was postulated that there might be a possible sale of shares in that gold mine for an amount of $10 million, which did not in fact occur. Subsequently, there has been a further attempt to sell the gold mine which has also not eventuated. In either case, it would appear that the sale of the principal asset of Rio Dorado would be at an amount which would see all of the creditors of Rio Dorado repaid in full.

Section 471B of the Corporations Act provides:

The considerations to which I must have regard in an application for leave under s 471B were amply summarised in Zervas v Burkitt [2019] NSWCA 112 by Gleeson JA at [15] and [16], which provide:

In the context of a plaintiff seeking leave to commence proceedings for a defamation against a company in liquidation, the earlier judgment of Maher v Taylor [1994] 1 NSWLR 231; (1984) 8 ACLR 931 is illustrative in respect of the earlier provision contained in the former Companies (New South Wales) Code, s 401(2). In that judgment, at 234, Hunt J (as his Honour then was) said as follows:

Section 14B of the Limitation Act 1969 (NSW) provides:

One of the principal aspects in relation to an application made under s 471B is to ensure that I balance all of the considerations in providing justice to the prospective plaintiff, but also ensuring that there is not significant prejudice caused to the streamlining of the liquidation process which is presently underway in relation to Rio Dorado. Each case turns on its own facts and the particular facts in this case are ones which, on balance, I consider give rise to the need for the grant of leave to be given.

The Liquidator has indicated that it does not wish to make any submissions in relation to these proceedings and has not actively participated. The Liquidator has indicated that it neither consents to nor opposes the application.

I have had particular regard to the fact that the regime which operates in relation to the limitation period under s 14B of the Limitation Act is one pursuant to which the period will expire either today or tomorrow when regard is had to the extension of the limitation period that arises by virtue of the concerns notices that were provided.

It appears to me, on the facts that have been outlined, that there will be no real prejudice suffered by Rio Dorado or, more importantly, the creditors of Rio Dorado by the grant of leave which I propose to give.

The Liquidator will have a choice, if the defamation proceedings are commenced today, to either take an active part in the proceedings, make a submitting appearance in the proceedings, or seek at some future time a revocation of the leave which I have granted.

With respect to the other creditors of Rio Dorado, it is no prejudice to them that there might be a possible watering down of a return to them on a pari passu basis in the event that the defamation proceedings are to succeed, because that will simply establish that Mr Farquhar is a creditor of Rio Dorado and, therefore, entitled to line up with the rest of those creditors to receive, on a pari passu basis, a distribution from the liquidation of Rio Dorado.

I have taken into account that the possible defamation proceedings may drag on for some considerable period of time. However, it does not seem that, as things currently stand, the defamation proceedings will delay the winding up. There is evidence before me of attempts by the Liquidator to sell the principal asset of Rio Dorado, but none of those attempts have yet come to fruition. It does not appear that any sale is imminent, despite the attempts by the Liquidator to finalise such a sale.

I have also taken into account that the damages which are sought in the proposed defamation proceedings are in the amount of $250,000, which is the statutory maximum only awarded in a most serious case (s 35 of the Defamation Act).

I have also given significant consideration to the delay which has occurred in the present case. The delay between the date of the purported defamation and the issuing of the concerns notices was considerable. However, in the period between the time that the concerns notices were issued and now, I am well satisfied that events of a very personal nature in the life of Mr Farquhar have derailed his consideration of this issue and whatever necessary steps had to be taken before the proceedings for defamation were in the state that they are now, in the draft statement of claim. This court must take account of such matters when it is considering what has to be done in any particular case and, in this case, whilst there is always an overarching purpose of there being a just, quick and cheap resolution, I cannot put aside the matters which have been placed before me in relation to Mr Farquhar's personal life, which lead me to believe that I must heavily weigh the “just” in that composite expression.

In the circumstances, I propose to make the orders that are contained in the short minutes of order dated 10 May 2024, being: