Australian Beverage Distributors v The Redrock Co [2008] NSWCA 200 | Case summary

6 AUGUST 2008 AUSTRALIAN BEVERAGE DISTRIBUTORS PTY LIMITED v THE REDROCK CO PTY LIMITED Judgment 1 ALLSOP P: I will ask Justice Campbell to deliver the first judgment. 2 CAMPBELL JA: This is an application for leave to appeal from two costs judgments. The applicant brought winding up proceedings against the respondent. Those proceedings were ultimately dismissed. The costs in question are the costs of two interlocutory applications. One of them is a decision that White J gave on 31 August 2007 called Australian Beverage Distributors Pty Ltd v The Redrock Co Pty Ltd [2007] NSWSC 966; (2007) 213 FLR 450. The other is a costs decision that Austin J gave on 21 February 2008. It was a separate decision to the decision by which he dismissed the proceedings and was the decision relating to the costs of the proceedings as a whole. That decision is Australian Beverage Distributors v The Redrock Co [2008] NSWSC 114. 3 The application before White J was an application by the respondent seeking summary disposal of the winding up proceedings on two grounds. One was that the applicant was not a creditor of the respondent, the second that the proceedings were an abuse of process. The first ground had two separate ways in which it was put. One was that there was no proper assignment of the debt on the basis of which the winding up petition was founded. The second was that even if there had been a proper assignment the applicant had ceased to be a creditor because the amount of the debt had been tendered and not accepted. 4 The application before White J was dismissed with the costs of the interlocutory process being ordered to be the respondent's costs in the proceedings, that is the respondent on that notice of motion, who is the applicant on this notice of motion. 5 The winding up application was brought in a context where there was a serious ongoing dispute between the parties about who had the entitlement to carry on a business under the name of Redrock. By the time of White J's decision, that dispute had reached the stage of litigation which was contained in proceedings quite separate to the present ones. 6 The applicant purchased a debt that the respondent owed and served a notice of assignment of debt and a winding up application at an office on the same floor as the registered office of the respondent. As the applicant well knew, that office was an empty office suite on the same floor as the address that the relevant registration authorities indicated was the registered office of the respondent. In fact, nothing with the precise address of the registered office existed. Once this service at an empty room had taken place, the applicant then promptly sent notice of the winding up application to the respondent's bankers and to one of its significant suppliers. 7 White J held that the first sub-ground for summary dismissal failed because even though there had not been an effective giving of notice to Redrock of the assignment of debt and thus there had not been an effective legal assignment under s 12 of the Conveyancing Act 1919, there had been an effective equitable assignment and that was enough to give the applicant standing to bring the winding up application. 8 The other basis on which the respondent contended that the applicant was not a creditor also failed. Even though the respondent had tendered the amount of debt to the applicant and the applicant had refused to accept it, his Honour held that this did not deprive the applicant of standing to bring the winding up proceedings either. 9 His Honour held that the second ground on which summary dismissal was sought likewise failed. He accepted that one of the purposes of the relevant director of the applicant was to create difficulties for Redrock by embroiling it in litigation and thereby causing it to incur costs and use up executive time. However, he did not find that that was the applicant's dominant purpose. As well, the applicant genuinely wanted to achieve the winding up of Redrock because its director hoped to be able to settle the other litigation more advantageously with a liquidator of the respondent than he could with the directors of the respondent. In those circumstances, White J held that the bringing of the winding up application was not an abuse of process. 10 As I have said, the costs order that White J made were that the costs of the applicant in today's proceedings be its costs in the cause. 11 The complaints that the applicant makes about this order were that no reasons were given for departing from the principle that costs should follow the event, and that the applicant was not heard as to whether this order should be made. 12 The provisions governing costs are first of all that in s 98 of the Civil Procedure Act 2005 which provides that: "Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or an indemnity basis." 13 The rule to which the applicant points is Uniform Civil Procedure Rule 42.1 which provides: "Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs." 14 The contention of the applicant is that the judge departed from the principle that the costs follow the event and yet his Honour gave no reasons why he made the departure. I do not agree that that is the correct way of regarding his Honour's decision. His Honour's reasons emerge, it seems to me, from his judgment as a whole. The reasons of the judge included a detailed account of the motives and tactics of the applicant in the overall litigation and the relationship of the winding up application to those tactics. 15 He expressly said at para [47]: "I say nothing as to whether the intentions and tactics of ABD will be relevant to the exercise of the discretion to make a winding-up order, if the grounds for so doing are established at the hearing of the winding-up application." 16 For the applicant to have staved off summary dismissal proceedings on a basis where in the judge's view there was still an open question about whether the circumstances that were the basis for seeking summary dismissal might be a basis for ultimately declining to grant final relief means that the applicant's success was less than full. It was open to the judge to reach the view as a matter of discretion that it would not be right for the respondent to receive the costs of defending the summary judgment application if the proceedings themselves ultimately failed. 17 I do not accept that the first basis on which leave is sought is one that the court should give effect to. 18 As to the second basis, the judgment was a reserved judgment that was given in writing. I shall accept for the purposes of the present argument that no specific submissions were made to the judge about the costs order that should be made. 19 When there is a reserved judgment, it is a commonplace practice for the written reasons for judgment to also identify the costs orders the judge makes. It is likely that in accordance with the usual practice the orders set out in the written judgment that we have before us were also pronounced orally in open court. It is equally commonplace that if following a reserved judgment costs orders are made concerning which no specific submissions had been made, any party seeking to address the judge on the costs orders that should be made can ask to do so and the judge will then hear argument on whether the costs orders should be varied. 20 One of the functions of counsel attending on the taking of reserved judgments is to be ready to make such an application if need be. No such application was made in the present case. 21 Mention was made in the course of submissions of the provisions of rule 36.11 UCPR, whereby an order of the court is taken to be entered once it is entered in the court's computer system. That does not bear upon the present situation because, while orders in the ordinary course now come to be entered in the court's computer system promptly after they are pronounced, if counsel attending on the taking of judgment make application to vary an order that has been pronounced orally then inevitably, the orders will not be entered while there is a live question still undecided about what the orders should be. In my view there was no basis for contending that the applicant had no opportunity to be heard about the costs order that should be made. 22 The decision of Austin J against which leave to appeal is sought was given after the winding up application had been dismissed and related to the costs of that application. The applicant contended that the costs of the respondent had been paid by one of the directors of the respondent and the father of that director without there being any obligation of the respondent to repay them. Thus the applicant argued the respondent had no liability to pay costs concerning which an indemnity could be sought. 23 Austin J found that there was a liability of the respondent to pay its solicitors and that though that liability had been discharged in the first instance by the director and his father, they did so: "… on the understanding that the payment would be recoverable in the event that the defendant was successful and obtained a costs order in its favour". (at [29]) 24 In its written submissions the applicant contended that Austin J made an error of law in finding that the respondent was liable to pay the director and his father. While it is true that a finding of liability to make a payment is a mixed question of fact and law, in the present case there was no contentious question of law and the decision on liability depended on a question of fact concerning the basis on which the director and his father had paid the fees. That is a question of fact that does not warrant re-examination by the granting of leave to appeal. 25 A separate basis for Austin J's order was that his Honour was not satisfied that absolutely all the costs that the respondent owed to its solicitors had been paid by the director and his father. As no doubt costs would continue to be incurred until at least the time his Honour delivered his judgment, that finding has quite some inherent plausibility. It is another question of fact, it does not warrant re-examination by the granting of leave to appeal. 26 This morning Mr Newlinds SC put a new argument that had not been put to Austin J and had not been put in the written submissions prepared for the application for leave to appeal. It was to the effect that there was an inconsistency between the judgment of Austin J whereby the winding up summons was dismissed - that judgment is Australian Beverage Distributors v The Redrock Co [2008] NSWSC 3; (2008) 26 ACLC 74 - and his findings on the application for costs. 27 The inconsistency was alleged to arise from findings that Austin J made in the dismissal judgment concerning the debts the respondent owed. Those findings were broadly that the balance sheet did not list any debt owed to the director or his father as a liability, that the loans provided by directors and related parties were subject to deferral arrangements and that, taking into account that another significant debt was also subject to deferral arrangements, the company was not insolvent. That was a sufficient basis for his Honour's order but he also noted, however, that there were a number of matters which may have led him to refuse to make a winding up order had he concluded that the company was marginally though not clearly insolvent. One of those was that he agreed with the interlocutory conclusion of White J about the purposes of the applicant. 28 I am not persuaded that there was the type of inconsistency that Mr Newlinds asserted existed between the findings. The question that his Honour needed to examine for the purpose of a finding about insolvency was what were the debts that needed to be paid in the comparatively short term by the company, and did it have the means to pay them. It is perfectly possible for there to have been a liability that the company had to repay the director or his father that was subject to a deferral and that therefore would not enter into a calculation of insolvency, though it ought properly appear on a balance sheet. 29 Mr Newlinds asserted that if he was correct about there being an inconsistency of this kind that that may raise questions of issue estoppel. In my view, that provides in itself a factor tending against the granting of leave to appeal against a costs judgment. It should be recollected that under s 101(2)(c) of the Supreme Court Act 1970 it is only by leave that any appeal can be brought against a costs judgment and there are no exhaustive list of criteria for leave to appeal. 30 Mr Newlinds accepts that there is no question of principle that arises concerning Austin J's decision. The complication of the raising of questions of issue estoppel and that might provide a back door means of attack on a judgment that was not itself the subject of appeal provide in my view further reasons why the application is not a suitable vehicle for any appeal. 31 In all the circumstances, it would not be appropriate to grant leave to appeal concerning Austin J's decision. 32 I therefore propose that the application for leave to appeal be dismissed with costs. 33 ALLSOP P: I agree with the orders proposed by Justice Campbell and would only add the following. Part 36 rule 16 subpara (3)(a) deals with the time given (being 14 days after entry of judgment) for a party to file a notice of motion to deal with any aspect of the orders made. This was said by Mr Newlinds to be posterior to an existing breach of the rules of procedural fairness. With respect, that is not correct. The existence of that power, being in a sense a form of review of the judge's orders, should clearly be taken into account in any assessment of the making of the order that his Honour did. I say that without wishing to detract at all from the reasons of Justice Campbell in relation to that matter. 34 With those additional comments, I agree entirely with the reasons of Justice Campbell. 35 Is there more than one application Mr Allen, or is there only one application? 36 ALLEN: There's only one application, your Honour. 37 ALLSOP P: The application for leave to appeal be dismissed with costs. **********

Australian Beverage Distributors v The Redrock Co

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