AMC Commercial Cleaning (NSW) Pty Ltd v Stephen Keith Coade & Anor; Rockcliffs Solicitors & IP Lawyers v Schon Condon as liquidator of AMC Commercial Cleaning

Judgment 1REIN J: On 8 March 2013 I handed down reasons for judgment (see AMC Commercial Cleaning (NSW) Pty Ltd v Stephen Keith Coade; Rockcliffs Solicitors & IP Lawyers v Schon Condon as liquidator of AMC Commercial Cleaning (NSW) Pty Ltd [2013] NSWSC 192) and ordered that monies held in a controlled monies account were to be paid to Rockcliffs, the applicant on the motion. I also ordered Mr Condon, the liquidator of AMC NSW, to pay the applicant's costs. I use here the same terminology as was used in the earlier reasons for judgment. 2Mr Orlizki who appears for Mr Condon indicated that Mr Condon would seek an order that AMC NSW, and not he, pay the costs of Rockcliffs or alternatively that Mr Condon be liable to pay costs only to the extent that there are assets held by AMC NSW available to indemnify him. It was agreed by Mr Orlizki and Mr Mitchell, counsel for Rockcliffs, that a regime be put in place for submissions and that I could determine the matter "on the papers". 3I have received submissions from Mr Orlizki and Mr Mitchell. I also received with Mr Orlizki's submissions a new affidavit of Mr Condon. Mr Mitchell points out there was no provision for an affidavit and no leave was sought to include such a document. For reasons, which I shall shortly give, I do not need to consider its contents, or whether I should grant leave for the affidavit to be filed. 4Mr Mitchell submits that Rockcliffs' costs should be paid by the liquidator personally, and without regard to the assets of AMC NSW available to meet it, for two reasons: (1)Although the liquidator was named as respondent to the motion he was in fact the one "who initiated the application and brought the parties before the Court" so that costs should be awarded against him personally without the need to show unreasonable conduct on his part. (2)The liquidator has acted unreasonably and that is an alternate basis on which the liquidator should be held liable. 5Dealing with the first ground, Mr Mitchell submitted that where a liquidator initiates proceedings and is unsuccessful then an order for costs will generally be made against the liquidator personally. He relies on Silvia v Brodyn Pty Limited (2007) 25 ACLC 385; [2007] NSWCA 55 and in particular [50] - [55] per Hodgson JA with whom Ipp JA and Basten JA agreed: [50] If proceedings are brought by a liquidator in relation to a company's affairs, generally an order for security for costs will not be made; but if those proceedings are unsuccessful, then an order for costs will generally be made against the liquidator personally: Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274. In that case, at 285, Oliver J said this: I think that a review of the authorities does disclose that a clear dichotomy between the case where the liquidator is sued and the case where the liquidator initiates proceedings, is established, and indeed it seems me to be a perfectly reasonable one. I cannot at the moment see why it should be contended that a liquidator who takes it on himself to institute proceedings, to bring parties before the court, to subject them to costs, and as against whom it is quite clearly established that no order for security can be made, should then be entitled to plead that he is not responsible beyond the extent of the assets in his hands. I can see no reason at all why a liquidator should be entitled to an immunity which is not conferred on other litigants. A trustee or a personal representative who institutes proceedings no doubt has a right to indemnity out of the estate which he represents but, if he litigates, he litigates at his own risk and so, in my judgment, it should be with the liquidator, and the authorities which point that way seem to me, if I may say so respectfully, to be completely reasonable. I can quite see that there may be very powerful reasons of policy for a rule that a liquidator, when carrying out his functions and thus subjecting himself to the possibility of proceedings against him by parties who are discontented with the way in which he has carried out those functions, must be entitled to defend himself without being subjected to the risk of having costs awarded against him personally, because of course he cannot protect himself against claims being made. Unless there were some such rule it might be very difficult to get persons to take on the heavy responsibility of the liquidation of companies. It seems to me that it is quite a different matter where the liquidator himself takes it on himself to institute proceedings, whether they be proceedings in the winding-up or otherwise. [51] The liquidator would generally be entitled to an indemnity from the assets of the company, although that may be denied if the liquidator has acted unreasonably: In Re Silver Valley Mines (1882) 21 ChD 381. [52] If proceedings brought against the liquidator are successful, generally a costs order will be made in such a way that the liquidator does not incur any personal liability. This is in accordance with the passage from Re Wilson Lovatt quoted above, and is supported by Re Bonang Gold Mining Co Ltd(1893) 14 NSWLR (Equity) 262, Re Beuna Vista Motors Pty Ltd (in liq) [1971] 1 NSWLR 72; Irons v Merchant Capital Ltd (1994) 116 FLR 204 at 209-10, and Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395 ; (2002) 44 ACSR 21. I generally agree with the discussion of the authorities by White J in Mendarma Pty Ltd (in liq) (No 2) [2007] NSWSC 99 at [13]-[34]. [53] The result indicated by those authorities may be achieved by ordering that the company in liquidation pay the costs (if the company is also a defendant), or by ordering that the liquidator's liability for costs be limited to the amount of assets of the company available for that purpose. [54] However, if the liquidator has acted unreasonably in defending the litigation, the liquidator may be made personally liable: In Re Beddoe[1893] 1 Ch 547; Mead v Watson; Re Network Welding Pty Ltd (in liq) (No 2) [2001] NSWSC 809. [55] Generally, the same principles apply to administrators as to liquidators: Kirwan v Cresvale Far East Ltd (in liq) . 6Mr Orlizki (apart from contesting the characterisation of the liquidator's conduct as unreasonable) disputed that an order for costs will generally be made against a liquidator who has not acted unreasonably. Mr Orlizki relies on [52] - [55] of Brodyn and the following paragraph in JGM Nominees Pty Ltd v Tulip Investments Pty Ltd (No 3) [2010] VSC 623 per Bell J at [103]: Generally speaking, the responsibility of a liquidator is to take control and management of the company, to get in and realise its assets, to identify its liabilities, to meet the debts of the creditors as far as is possible, to distribute the balance (if any) to the shareholders and to take all necessary other steps to wind the company up. In performing this function, a liquidator is an officer of the court and is answerable to the court. The courts are therefore loathe "to discourage liquidators from performing their public duty in pursuing litigation by an undue readiness to impose on them personal liability for the costs of successful parties." Those words were spoken by Northrop and Ryan JJ in Bent v Gough. Their Honours went on to say that the correct approach was that the discretion to order a liquidator personally to pay costs - should be exercised sparingly, not by way of punishing an imprudent liquidator, but only where the circumstances may make it just or appropriate for the successful party to be indemnified against his or her costs." 7In my view the express endorsement in Brodyn of the statement of principle by Oliver J in Re Wilson Lovatt & Sons [1977] 1 All ER 274 at 284 and the exposition of the law in relation to liquidators (and administrators) set out at [5] above leads to the conclusion that if the liquidator has "initiated" the proceedings then he or she should pay the costs of the other party although he may be entitled to an indemnity for those costs. In JGM Nominees the liquidator was not a party to the proceedings and the proceedings were not initiated by the liquidator. Brodyn was not referred to in JGM Nominees but on its face Bell J's conclusion that the liquidator had not acted unreasonably and ought not incur any personal liability is consistent with [52] of Brodyn. The reason for the different rule in relation to proceedings defended by a liquidator to that applicable where proceedings are initiated by the liquidator is explained by Oliver J in Re Wilson Lovatt at 285 (see [5] above) and Dal Pont in Law of Costs, 2nd ed, 2008, Lexis Nexis Butterworths at [10.49]: Because the liquidator has not taken the initiative to institute the proceedings, it is unfair that he or she should be ultimately personally liable for an adverse costs order if company assets are insufficient to meet that order. 8Mr Mitchell submits that although the liquidator was not the applicant on the motion, it is plain that he "initiated" the proceedings within the meaning of that phrase used in Re Wilson Lovatt. Mr Mitchell set out the factual matters in support of that contention: (a)pursuant to clause 1 of the Deed of Settlement (Ex AB1 p.67), payments were expressly to be made to the applicants directly by Coade and National (as those parties are defined in the Deed). See also the irrevocable direction & authority (Ex AB1 p.64); (b)immediately upon his appointment on 14 September 2011, the liquidator wrote to the applicants (Ex AB1 p.86) asserting that "any monies payable under the settlement agreement represent an asset of the Company, and should be accounted for to me as Liquidator" and requiring that the applicants account to him for any funds paid or received after his appointment. The liquidator also wrote to the solicitors for Coade and National (Ex AB1 p.88) requesting that no payments under the Deed be made to "any other person or entity, irrespective of any previous directions provided to you or your client"; (c)by reason of the liquidator's action, on 16 November 2011 Coade and National took the position (Ex AB1 p. 100) that they did not want or need to be involved in the dispute between the liquidator and the applicants and that should that dispute not be resolved prior to the next payment being due, they would "pay those funds into the Supreme Court of NSW and file a summons together with an affidavit explaining what the funds are and listing both the liquidator and Rockliffs as potential claimants" and that they would also seek costs on an indemnity basis; (d)the only agreement that could be reached between the applicants and the liquidator in the circumstances was that the funds be placed in a term deposit account with Westpac in the joint names of the applicants and the liquidator pending further agreement or order of the Court (see the Balafas affidavit at [26] and ExABI p.134); (e)to obtain an order for the disposition of the funds in the joint account, at least one of the parties had to bring an application to the Court. Ultimately, the vehicle that concluded the controversy was the applicants' notice of motion. 9Mr Mitchell submits that were it not for the conduct of the liquidator, the funds would have been paid to the applicant pursuant to the Deed of Settlement or irrevocable direction and authority. Mr Orlizki's submissions appear to proceed on the assumption that since the liquidator was the defendant the liquidator was a party who was brought to Court at the behest of Rockcliffs and therefore must be entitled to the general protection outlined in [52] of Brodyn and JGM Nominees in the passage cited at [6] above. 10I accept Mr Mitchell's contention that it was only by reason of the liquidator's conduct that payment due to Rockcliffs was not made by AMC National (which naturally did not want to be exposed to further claims itself), and that this is really a case where the liquidator by his actions has forced Rockcliffs to come to Court to obtain monies which on their face were clearly due to them. In such circumstances it is not appropriate to treat the liquidator as a defendant with the attached protection for that class of case and there is no "unfairness" in requiring the liquidator to pay the costs of the applicant. 11The liquidator may well have thought that in blocking the transfer of funds to the Rockcliffs, who on the face of the matter was entitled to them, he was acting in the best interests of the company and he may well be entitled to an indemnity out of the funds that have, or are yet to be, realised in the liquidation. However, by deciding to take steps to prevent Rockcliffs from receiving the money, which under the Deed they were to be paid, it was a matter for him to ensure funds were available to meet any adverse costs order, either from the assets of the company or from creditors, before he put Rockcliffs to the expense of having to bring proceedings. 12In view of my conclusion on the first ground I do not think it is necessary to examine whether the liquidator had any proper basis for making the claim that Rockcliffs had engaged in unconscionable conduct or had "unclean hands", which he originally made and abandoned, or whether his conduct of the proceedings, more generally, was unreasonable.