BETWEEN : KEVIN ERNEST JUDGE As Liquidator of Citystyle Enterprises Pty Ltd

Practice and procedure - Costs on discontinuing application under s511(1) Corporations Act 2001 (Cth) - Turns on own facts

Corporations Act 2001 (Cth), s 511

Liquidator ordered to pay the costs thrown away as a result of discontinuing application

Anglican Insurance Ltd [2008] NSWSC 41

Australian Securities Commission v Melbourne Asset Management Nominees Pty Ltd [1994] FCA 1031; 49 FCR 334

Covell Matthews & Partners v French Wools Ltd [1977] 1 WLR 876; [1977] 2 All ER 591

Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209; 24 ACSR 74; 15 ACLC 833

Graf Holdings & Parer Holdings [1999] NSWSC 217

Heartlink Ltd v Jones as liquidator of HL Diagnostics Ltd (in liq) [2007] WASC 254; (2007) 35 WAR 190

McClure v Mayor and Councillors of the City of Stirling (No 3) [2009] WASC 247

Meadow Springs Fairway Resort Pty Ltd v Balanced Securities Ltd (2007) 25 ACLC 1433; [2007] FCA 1443

Mineralogy Pty Ltd v National Native Title Tribunal [1998] FCA 1700

ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548

O'Neill v Mann [2000] FCA 1680

Re Equity Funds of Australia (in liq) (1976) 2 ACLR 238

Re Evers Motor Company Ltd [1962] QWN 6

Re GB Nathan & Co Ltd (1991) 24 NSWLR 674

Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622

Silvia v Brodyn Pty Ltd [2007] NSWCA 55; 25 ACLC 385

1 The plaintiff is the liquidator of Citystyle Enterprises Pty Ltd (Citystyle). He was appointed on 24 June 2010.

2 On 30 October 2008, Citystyle and the defendant, Trifield Corporation Pty Ltd (Trifield), entered into a written agreement (the Loan Deed) by which Trifield agreed to lend $100,000 to Citystyle, repayable on 30 July 2010.

3 On 4 June 2010, Citystyle and Trifield made a deed (the Deed of Rectification) by which they agreed to rectify the Loan Deed to provide that Citystyle charged all of its assets, undertaking and property with repayment of the loan made by Trifield. It was recited in the Deed of Rectification that, 'up to and including the time of execution of the [Loan Deed], there was an agreement and an intention common to both parties that the [Loan Deed] would include a clause whereby [Citystyle] would grant to [Trifield] a floating charge over the Assets to secure the Loan'.

4 The liquidator commenced these proceedings on 3 September 2010 seeking a determination under s 511(1)(a) of the Corporations Act 2001 (Cth) (the Act) of the question of whether the Deed of Rectification was effective to 'cause the floating charge over the assets of Citystyle to be retrospectively created as from October 2008'. Further questions were posed by the liquidator, including whether the charge was void under s 588FJ of the Act. That section provides that a floating charge 'created' six months of the relation-back day is void as against the liquidator of a company that is being wound up in insolvency except to the extent that it secures certain advances, liabilities and payments. Consequently, the issue that the liquidator sought to have determined was whether the floating charge granted by Citystyle was 'created' by the Deed of Rectification or by the Loan Deed.

5 By letter dated 17 September 2010, the solicitors for Trifield wrote to the liquidator's solicitors asserting that an application under s 511 of the Act only permitted a liquidator to obtain the court's advice as to the 'proper course of action in the liquidation'. An application under the section could not determine rights and liabilities arising from a company's transactions prior to liquidation and the court hearing the application had 'no authority to resolve substantive matters in dispute between the liquidator and a third party', reference being made to Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674. It was said that the liquidator sought relief in the nature of a declaration as to Trifield's substantive rights. It was also said that any 'direction' under s 511 could not bind Trifield, reference being made to Re Equity Funds of Australia (in liq) (1976) 2 ACLR 238. The liquidator was invited to either commence fresh proceedings by way of a writ of summons or to seek orders 'having the effect of converting the present proceedings into satisfactorily formulated proceedings' (see attachment CSW-1 to the affidavit of Christopher Stephen Williams).

6 The letter from Trifield's solicitors further asserted that there was, in any event, no basis for the liquidator to contend that the charge was void under s 588FJ of the Act. It was said that rectification was retrospective so that the Loan Deed was to be read as if it had been initially made in its rectified form.

7 Following a short exchange of correspondence, the liquidator's solicitors wrote to Trifield's solicitors by letter dated 7 October 2010 advising that Trifield's position on the liquidator's application under s 511 of the Act meant that the application was unlikely to be dealt with in a cost-effective and efficient manner. Accordingly, the liquidator had decided to withdraw his application. The letter further advised that the liquidator had determined that Trifield should be treated as an unsecured creditor on the basis that, among other things, the Deed of Rectification did not validly rectify the Loan Deed and that any charge granted by Citystyle was caught by s 588FJ of the Act.

8 The first directions hearing in the matter was held on 8 October 2010. Counsel for the liquidator confirmed that the liquidator did not intend to proceed. Trifield sought its costs thrown away on the discontinuance of the application and accordingly, directions were made for written submissions on whether an order for costs should be made.

9 Having considered those submissions, I have decided that the liquidator should pay Trifield's costs thrown away on the discontinuance of his application.

The liquidator's affidavit in support of his application

10 The liquidator made an affidavit in which he deposed to the circumstances in which he sought to have questions concerning the effect of the Deed of Rectification determined (affidavit of Kevin Ernest Judge sworn 31 August 2010) (the Liquidator's Affidavit). He stated that the investigations he had undertaken into the affairs of Citystyle disclosed that:

(a) the company's assets comprised $180,270 cash at bank and a receivable of $2,808;

(b) it owed employees at least $59,997 in superannuation entitlements; and

(c) it had at least 29 other creditors who were owed a total of $369,922.

11 The liquidator attached copies of the Loan Deed and the Deed of Rectification to his affidavit. He noted that the Deed of Rectification was made six days prior to notice being given of the creditor's meeting that resulted in Citystyle being placed in voluntary liquidation. He stated that he was uncertain whether the charge granted by Citystyle was caught by s 588FJ of the Act in those circumstances. He also noted various matters that he considered made it appropriate for him to apply to have questions concerning the effect of the Deed of Rectification determined. Those matters primarily focussed on the consequences of a determination of the questions posed by the liquidator for the winding up of Citystyle.

12 The liquidator did not indicate whether he had pursued the question of the effect of the Deed of Rectification with Trifield prior to making the application.

(a) The conduct of the parties and the reasons for the discontinuance of an action bear heavily on the exercise of the court's discretion to award costs; see O'Neill v Mann [2000] FCA 1680 and McClure v Mayor and Councillors of the City of Stirling (No 3) [2009] WASC 247.

(b) There was authority for the proposition that s 511 of the Act could be used to determine the substantive rights of a purported secured creditor provided that the creditor was joined as a defendant to the application. Consequently, the liquidator had acted reasonably in commencing the proceedings: see Re Evers Motor Company Ltd (1962) QWN 6; Meadow Springs Fairway Resort Pty Ltd (in liq) v Balanced Securities Ltd [2007] FCA 1443; 25 ACLC 1433.

(c) Trifield had refused to concede that there was any uncertainty about the effect of the Deed of Rectification and had adopted an approach that was not consistent with the issues raised by the liquidator being resolved in a cost effective and efficient manner.

(d) The liquidator was 'given cause to re-evaluate the benefit of the proceedings to the creditors of Citystyle' given Trifield's position regarding the s 511 procedure, the costs involved in resolving a dispute regarding the court's jurisdiction and the likely ongoing disputes over the originating process adopted by the liquidator and the relative expense and complexity of the liquidator commencing proceedings by way of a writ of summons seeking declarations.

(e) The liquidator did not unreasonably delay in deciding to discontinue his application.

(f) The proceedings were commenced for the benefit of the creditors of Citystyle and were only discontinued because of the uncertainty over the court's jurisdiction to effectively determine the questions raised by the liquidator.

14 There was a considerable delay in the liquidator providing his submissions on the question of costs. Consequently, Trifield served its submissions in advance of those provided by the liquidator. It then provided further submissions in response to those filed by the liquidator.

15 In its initial submissions, Trifield contended that:

(a) The fact that there had been no determination on the merits of the liquidator's application did not mean that there could not be an order for costs as the court may be able to conclude that one party has acted so unreasonably that the other party should obtain the costs of the action; see Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622.

(b) A distinction can be drawn between cases where one party after litigating for some time effectively surrenders to the other party and cases where some supervening event or settlement has so modified the subject of the dispute that effectively no issue remains between the parties except that of costs. In the former type of case, there will often be no basis for the court exercising its discretion other than by awarding costs to the party that did not discontinue; see ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548.

(c) Trifield raised the question of the court's jurisdiction at an early stage but the plaintiff initially persisted with the application.

(d) The liquidator simply surrendered. He ought not to have been surprised to find that Trifield objected to the procedure that had been adopted on the authorities concerning the power conferred on the court by s 511 of the Act.

16 Trifield stated in its responsive submissions that 'the basis for the costs order sought ... is that the plaintiff commenced an inappropriate form of proceedings, continued to pursue those proceedings even after the deficiencies in the form of the proceedings were raised and then changed his mind and decided he did not want to pursue the proceedings any further' (submissions dated 8 February 2011, par 3). The balance of the submission emphasised that the liquidator's application was an inappropriate procedure for resolving any dispute over the effect of the Deed of Rectification and the operation of s 588FJ of the Act; for example, it was submitted that the liquidator's proceedings could not have 'succeeded' in that they would not have resulted in a final determination of the application of s 588FJ for the reasons given in Trifield's initial submissions.

Costs in proceedings commenced by liquidator

17 The principles relevant to awarding costs in proceedings involving a liquidator and/or a company in liquidation were summarised by Hodgson JA (with whom Ipp JA and Basten JA agreed) in Silvia v Brodyn Pty Ltd [2007] NSWCA 55; 25 ACLC 385; see also McPherson's Law of Company Liquidation (Lawbook Co looseleaf) at [8.1125].

18 Neither party made any submission concerning those principles or their application. As the summary of their submissions disclosed, their argument focussed on the reasonableness of the liquidator's actions in commencing and discontinuing the proceedings. However, it should be noted that:

(a) I accept the principles identified by Hodgson JA in Silvia;

(b) the parties' submissions on reasonableness concerned the principles applicable to awarding costs on a discontinuance and not on whether the liquidator should be personally liable for the costs without any right to be indemnified out of the property of Citystyle;

(c) an order for costs will ordinary be made against a liquidator personally where s/he commenced proceedings that were unsuccessful, with the liquidator generally being entitled to an indemnity from the assets of the company.

19 The means by which proceedings commenced by originating process seeking orders under Act may be discontinued was considered by Martin CJ in Heartlink Ltd v Jones as liquidator of HL Diagnostics Ltd (in liq) [2007] WASC 254; (2007) 35 WAR 190. His Honour held that:

(a) Proceedings commenced by the plaintiff seeking orders under s 503 of the Act for removing the liquidators of the company could only be discontinued with the leave of the court [40] - [41].

(b) In granting leave to discontinue, the court may impose any particular terms or conditions that it considers necessary to prevent manifest injustice to, or the loss of some advantage by, a defendant. The Chief Justice cited the following passage from the judgment of Graham J in Covell Matthews & Partners v French Wools Ltd [1977] 1 WLR 876, 879; [1977] 2 All ER 591, 594:

It is not desirable that a plaintiff should be compelled to litigate against his will. The court should therefore grant leave, if it can, without injustice to the defendant, but in doing so should be careful to see that the defendant is not deprived of some advantage which he has already gained in the litigation and should be ready to grant him adequate protection to ensure that any advantage he has gained is preserved.

20 It was not necessary for his Honour in Heartlink to consider the question of costs as the plaintiff accepted that it should be ordered to pay the liquidator's costs of the proceedings. However, the Chief Justice did note that this was the 'automatic consequence of discontinuance without leave', being the course that the plaintiff unsuccessfully attempted to follow in that case.

The principles relevant to costs on discontinuing an action with leave

21 It is well established that the court is not to try a hypothetical action between the parties to determine whether costs should be paid on proceedings being discontinued. As McHugh J observed in Lai Qin, 'to do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided'. His Honour indicated that the court might, nevertheless, order costs where it was able to conclude that one of the parties had acted so unreasonably that the other party should obtain the costs of the action or where the court felt confident that, although both parties had acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. However, 'if it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings' (624 - 625).

22 In O'Neill v Mann, Finn J concluded that it could be said that there was an 'underlying policy' in the Federal Court Rules relating to a discontinuance that the discontinuing party should be liable for the other party's costs unless the court orders otherwise. That policy was manifest in the rules concerning discontinuance without leave or consent and discontinuance with consent. However, his Honour added:

But so various can be the reasons for, and circumstances of, discontinuance that that policy cannot safely be said to have hardened into a 'usual rule' where leave is granted such as exists where there has been a determination of a claim on its merits. [13]

23 His Honour then contrasted cases where discontinuance had occurred as a consequence of legislative amendment making proceedings then on foot futile (as in, for example, Mineralogy Pty Ltd v National Native Title Tribunal [1998] FCA 1700) and cases where 'discontinuance could be said to be an acknowledgement by an applicant of likely defeat or where no objective circumstance provided reason for the discontinuance'. In the latter category of cases, a costs order in favour of the other party would ordinarily be made [13].

24 In Anglican Insurance Ltd [2008] NSWSC 41 Barrett J observed at [38] that:

[A] determination under s 511 cannot, of itself, bind anyone except the liquidator and the persons entitled to participate under the winding up. Its effect within that group is merely to sanction a course of conduct on the part of the liquidator so that he or she may adopt that course free from the risk of personal liability for breach of duty.

25 His Honour referred to the judgment of McLelland J in Re GB Nathan concerning the scope of what Barrett J described as the 'closely analogous jurisdiction' conferred by s 479(3) of the Act (cited at [38]):

Modern Australian authority confirms the view that s 479(3) 'does not enable the court to make binding orders in the nature of judgments' and that the function of a liquidator's application for directions 'is to give him advice as to his proper course of action in the liquidation; it is not to determine the rights and liabilities arising from the company's transactions before the liquidation'.

26 The view taken by Barrett J in Anglican Insurance of the scope of s 511 is broadly consistent with the propositions put by the solicitors for Trifield in their letter of 17 September 2010 to the solicitors for the liquidator.

27 There are differences in the language of s 479(3) and s 511 of the Act that may be significant in defining the scope of the court's jurisdiction; most obviously, the inclusion of the 'just and beneficial' requirement in s 511(3). However, there may also be a substantive difference between the court giving a direction and the determination of a question (the difference may explain why it had at one time been considered that an application under s 511 should not be made ex parte; see Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209, 212; 24 ACSR 79, 81; 15 ACLC 833, 836 and see also, the comment of Austin J in Graf Holdings & Parer Holdings [1999] NSWSC 217 [37] on the difference between seeking a direction and a determination).

28 The reason why the jurisdiction under each section has been regarded as analogous is explained by French J in Meadow Springs. Section 479 appears in that part of the Act concerning court ordered liquidations. The liquidator is an officer of the court who seeks directions as someone who is subject to the court's control in respect of a matter that is ultimately under its supervision. The section confers a power on the liquidator rather than on the court; the court's power flows from the making of the winding up order: see Australian Securities Commission v Melbourne Asset Management Nominees Pty Ltd [1994] FCA 1031; 49 FCR 334 [55]. Section 511, however, applies to creditors' liquidations where the liquidator seeks to have a question determined by the court as an agent of the company. Consequently, the section expressly confers a power on the court to make orders relevant to the liquidator and those who participate in the winding up. It provides a procedure by which the court can resolve questions arising in the liquidation; for example, issues concerning the administration of the winding up or other matters where the liquidator is not a plaintiff in the ordinary sense of being a party seeking to prosecute a cause of action.

29 However, I do not consider that the power conferred by s 511 is so limited that the court is precluded from determining questions involving substantive rights. In Dean-Willcocks, Young J stated that it was not 'completely true' to say that the jurisdiction under s 479 and s 511 of the Act was much the same. For example, 'under s 511 the court is only given power to avoid expensive procedures but must act according to law and not authorise the liquidator to do anything which is ultra vires the company' (212). His Honour continued:

Section 511(2) provides that the court is only to accede to the liquidator's application if the determination of the question or exercise of power 'will be just and beneficial'. These words have been in companies legislation since the English Act of 1862. Although there have been some observations from judges from time to time as to what these words comprehend ... it seems to me that they plainly mean that the court has a discretion as to whether making an order under this section will be of advantage in the liquidation. There are many questions where the only order that the court should make is that the liquidator or the claimant proceed in the ordinary courts in the ordinary way for the determination of a dispute. However, there are many other situations where the court can summarily solve the difficulty that has arisen in the liquidation by an order under the section in a cheap and efficient manner. Where this can be done it is 'just and beneficial' to exercise the power.

Under s 511, the court does not give directions to the liquidator as to what he should do. It cannot advise the liquidator to do something which would be, for instance, a wise and commercial breach of trust. Although it is said that the section must be construed liberally ... the court's role is to decide disputes according to law. Thus the court decides a question of fact or law in a summary way, but the decision is the same as would have been reached by a court sitting with a jury or after full-blown pleadings. The jurisdiction is not to decide matters according to the opinion of the presiding judge as to what would be commercially appropriate.

31 In Melbourne Asset Management Nominees, Northrop J noted that courts have made final orders in preference claims under s 479(3) of the Act and concluded that there was 'no logical reason why final orders binding on other persons cannot be made on applications under s 479(3) with respect to other subject matters' [60]. French J referred to Melbourne Asset Management Nominees in Meadow Springs and observed that what was said by Northrop J were even more apposite in applications made under s 511(1) given the 'more substantive character of the applications contemplated' by that section [50]. His Honour continued:

Whether the court should proceed to entertain applications for the determination of substantive rights and award final relief as between competing creditors and others in an application under s 511, is a matter of discretion ...

In my opinion it is open to the court, in a suitable case, to entertain an application for the determination of questions under s 511 by joining affected parties with competing interests as defendants and permitting them to file cross-claims for declaratory relief as between themselves and any other interested parties and the liquidator so that there can be a res judicata between all of them. Such a course may be appropriate where the evidence necessary to determine the questions and the competing claims is largely documentary and amenable to expeditious hearing and determination. Otherwise the parties can simply commence their own substantive proceedings.

32 Three points concerning s 511 should be expressly identified in the light of the liquidator's reasons for discontinuing his application.

33 First, the section confers jurisdiction over subject matters and powers that the court might not otherwise possess. That is most clearly evidenced by s 511(1)(b). However, there may also be questions arising in the winding up of a company that would not have been justiciable but for the conferral of power under s 511(1)(a).

34 Second, the section does not by its terms confine the questions that may be determined to questions that do not involve substantive rights. Rather, whether the court will exercise a power to determine any particular question under s 511 is to be decided by reference to s 511(2) - whether it is just and beneficial to accede wholly or partially to any application for a determination - and not solely by reference to the nature of the question sought to be determined.

35 Third, the section has a significant procedural as well as substantive element, as Young J emphasised in Dean-Willcocks.

36 I can see no reason why a court could not determine a question between the company and a creditor so as to bind each of them (as French J clearly contemplated in Meadow Springs). I also consider that the court has power to determine a question concerning a transaction that occurred prior to the company going into liquidation provided that the question arises in the liquidation. To hold otherwise would be to impose a limit on the scope of the power conferred that is not expressed in the section.

37 It follows that I do not accept Trifield's submission that the procedure adopted by the liquidator in this matter was misconceived as a matter of law. Dean-Willcocks and Meadow Springs indicate that it would have been within the court's discretionary power to permit the liquidator's questions to be determined on his application under s 511. It also follows that I do not consider that the liquidator acted unreasonably in commencing proceedings under s 511 of the Act. However, those findings do not mean that no order should be made for the costs thrown away by the discontinuance.

38 There is no doubt that the liquidator would have had standing to seek declarations concerning the effect of the Deed of Rectification and the operation of s 588FJ of the Act, that the court would have had jurisdiction over the subject matter of such a claim and that the issues sought to be raised by the liquidator would not have been moot. It was not in issue that the liquidator could have commenced proceedings by writ had he wished. Consequently, the liquidator did not rely on s 511 to confer power on the court to deal with the subject matter of his application. Rather, he sought to rely on s 511 for procedural reasons of the kind identified by Young J in Dean-Willcocks - to take advantage of a summary procedure that would, hopefully, result in a speedier and cheaper resolution of the questions he sought to have determined. He withdrew from that course when he thought that those advantages would not be realised.

The liquidator should pay the costs thrown away

39 I consider that the liquidator should pay Trifield's costs of the discontinuance for the following reasons:

(a) I discern the same underlying policy in the Rules of the Supreme Court 1971 as Finn J identified in O'Neill v Mann in the Federal Court Rules 1979. The provisions of O 23 of the Rules of the Supreme Court are not materially different to O 22 of the Federal Court Rules. I accept entirely the observations of Finn J concerning the application of that policy. However, in my view, the reasonableness in the plaintiff's conduct in commencing and discontinuing proceedings must be considered in the context of the policy.

(b) There was no supervening event anterior to the conduct of the proceedings that rendered the liquidator's application futile.

(c) Although it has been suggested that the jurisdiction conferred by s 511 of the Act is limited (for example, in Anglican Insurance), the position is made reasonably clear by the judgments of Young J in Dean-Willcocks and French J in Meadow Springs (reinforced by the comments of Northrop J in Melbourne Asset Management Nominees). Further, in the context of s 479(3), McLelland J recognised in Re GB Nathan that 'the procedures of the court are sufficiently flexible to enable proceedings commenced as an application for directions to be changed into proceedings for the determination of substantive rights, and this is sometimes a convenient course in order to avoid the need to commence further proceedings involving additional cost and delay' (680). It is difficult to see why the court would not have adopted the same approach in this matter where the liquidator relied on s 511 only for a procedural advantage and not as the source of jurisdiction over the subject matter of the application. French J readily made orders on the liquidator's application under s 511 in Meadow Springs to facilitate the determination of a number of questions involving substantive rights. The possibility that orders might be made to enable the liquidator's application to proceed on a basis that Trifield regarded as being appropriate for determining questions involving substantive rights was raised in the letter of 17 September 2010 from Trifield.

(d) No doubt some additional cost would have been incurred by the liquidator had he pursued his application once the question of the court's jurisdiction under s 511 of the Act was raised. He would have had to either seek a ruling on the question or have proposed orders that accommodated Trifield's concerns. However, it is difficult to see how that cost would be substantial given the state of the relevant authorities and the questions that he sought to have resolved by his application (they were essentially questions of law given that the liquidator did not apparently challenge the Deed of Rectification or the existence of the mutual intention to which it was said to give effect). That is, it is difficult to see how, in substance, procedural directions for determining the questions in a way that was fair as between the parties would be much affected by whether the application was viewed as being summary in nature or some variant of a summary procedure.

(e) The liquidator would have been at risk of incurring costs in proceedings that might ultimately be futile if he was relying on the section to give the court power to deal with the subject matter of his questions. However, in this matter there was no issue over the court's jurisdiction. Even on Trifield's contentions, the only issue was a matter of procedure. That might have been a significant issue if the only option available to the liquidator was to commence fresh proceedings by way of a writ. However, Trifield had not insisted on that course and reference to Dean-Willocks and Meadow Springs would have made it clear that it was unlikely to be a necessary course.

(f) Consequently, there was a sense in which the liquidator did surrender to the objections made by Trifield. The objections did not necessarily render the proceedings futile. However, the liquidator simply retreated in the face of Trifield's concerns without testing whether those concerns were well founded.

(g) The question of jurisdiction arose out of the liquidator's decision to commence proceedings under s 511 of the Act. The question ought to have been considered by him in making that decision.

(h) The liquidator provided no evidence or made any submission to substantiate the proposition that the proceedings could no longer be pursued in a 'cost-effective or efficient' way as a result of the position adopted by Trifield. The assets of Citystyle are limited and no doubt the liquidator was required to be conservative in the administration of the winding up. However, it is not immediately apparent that the concerns expressed by Trifield would result in significantly increased costs or delay for the reasons already given. That is so even if the liquidator had chosen to accept the concerns as being well founded. Consequently, I do not consider that the objections were so fundamental or burdensome or unpredictable that they provided a sufficient reason for the liquidator to discontinue without paying the costs thrown away.

(i) In the event, the liquidator chose to do what was always open to him to do - to make a decision within the winding up as to the status of Trifield as a creditor. No doubt he made the application to obtain the certainty and protection that a determination of the question by the court would provide. However, he discontinued immediately when confronted with an objection to the procedure that he had adopted. The liquidator's subsequent decision reinforces the notion that he 'surrendered' in a sense that is relevant to whether he should pay the costs thrown away.

40 I have discussed the operation of s 511 of the Act on the liquidator's application at some length as I would not like the result in this matter to be misunderstood by liquidators and those who advise them. The result reflects the particular circumstances in which the liquidator discontinued his application and should not be seen as in some way discouraging liquidators from applying to the court under s 511. Indeed, I would hope that the reasoning reinforces the notion that the section has a wide and flexible operation that is designed to enable the court to assist liquidators in discharging their statutory functions. That appears to me to accord with the legislative intent clearly expressed, for example, in s 511(1)(b) of the Act.