Ballam v Ferro

Applicable case law

1. I should first address the applicable principles which are well-established. The Court has power to make an order for costs under s 98(1) of the Civil Procedure Act 2005 (NSW) ("CPA") and r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). Section 98 of the CPA confers a discretionary power to determine costs on the Court and requires that that discretion be exercised judicially: Ballam v Ferro (No 2) [2022] NSWSC 1358 at [54]. Rule 42.1 of the UCPR in turn provides that: "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."
2. A successful party in proceedings has a "reasonable expectation" of being awarded costs against an unsuccessful party, unless there is good reason for that presumption to be displaced: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [22], [134]. In Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121], Hodgson JA (with whom Mason P agreed) observed that: "… underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs."
3. That observation was cited, with apparent approval, by the Court of Appeal in Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [98] and, in Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266 at [7]-[9], McColl JA summarised the applicable principles as follows: "Section 98 of the [CPA] confers a wide discretion on the court with respect to costs. The general rule is that court costs follow the event unless the court makes some other order pursuant to the discretion conferred by Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.1. As Beazley JA explained in Baker v Towle [(2008) 39 Fam LR 323; [2008] NSWCA 73 at [11] (Mathews AJA agreeing)], in most litigation, UCPR r 42.1 "operates in a straightforward way, 'the event' being readily identifiable as a judgment for the plaintiff or the defendant on the claim. In that sense, 'the event' to which the rule refers is the result of the proceedings, so that the party who succeeds on the claim before the court is awarded costs, unless the court, pursuant to the discretion conferred by r 42.1, makes 'some other order'. Underlying both the general rule that costs follow the event, and qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs." I have here drawn on my summary of these principles in Re Munja Bakehouse Pty Ltd [2024] NSWSC 17 at [4]ff.
4. The case law has addressed the application of these principles where an issue arises as to the distribution of a fund. Mr Katekar, with whom Mr Anderson appears for Mr Hayes, refers to BE Australia WD Pty Ltd (subject to a Deed of Company Arrangement) v Sutton (2011) 285 ALR 532; [2011] NSWCA 414 ("BE Australia") at [213], where Campbell JA (with whom McColl JA agreed) observed that: "The form of the proceedings, as inter partes litigation, is not decisive of how the costs of that litigation should be dealt with. Courts exercising equity jurisdiction encounter a variety of situations where a fund is being administered subject to the control of the court, and a question arises about the proper manner in which that fund should be administered. Such a situation can arise concerning administration of deceased estates, concerning administration of trusts, concerning company liquidations, concerning administration of the estates of incapable people, and concerning DOCAs. In those situations, whether the costs of the court deciding the question that has arisen should be treated as costs of administration of the fund is significantly influenced by whether the proceedings are in substance adversarial ones. While where the costs should fall in litigation is always a matter of discretion, very commonly costs are paid from the fund for non-adversarial proceedings, and by the loser for adversarial proceedings …" [emphasis added]
5. In Re Anglican Development Fund Diocese of Bathurst Board (recs and mgrs apptd) [2015] NSWSC 59 at [9], to which Mr Katekar also refers, I observed that: "the Court will have regard to the particular character of claims to a fund held on trust and analogous claims. In Re Buckton [1907] 2 Ch 406, which is often cited in respect of issues of this kind, the possible cases were divided into three categories. The first category is where the trustee, as applicant, seeks to have the court construe the trust instrument or to have some question decided in the course of the administration of the trust, where the costs of all parties are ordinarily regarded as having been necessarily incurred for the benefit of the trust and are ordered to be paid out of the trust fund. That category was expanded, in Alsop Wilkinson (a firm) v Neary above to include a dispute as to trusts, where the trustees hold the subject matter of the settlement, and that observation was approved by Campbell JA in BE Australia WD Pty Ltd (subject to a Deed of Company Arrangement) v Sutton [2011] NSWCA 414; (2011) 285 ALR 532 at [213]. The second category of case identified in Re Buckton is where an application is made by a beneficiary and the trustee is a defendant but it is apparent that the application was made because of a difficulty in construing the trust instrument or with the administration of the trust so that the trustees would have been justified in making the application and, in that case, the costs of all parties are regarded as having been necessarily incurred for the benefit of the trust. The third category is where a beneficiary makes a claim that is adverse to another beneficiary, and the application is in the nature of hostile litigation, where the ordinary rule that costs follow the event is applied. In that case, the trustee's costs may be paid out of the trust fund rather than by the unsuccessful party in some instances."
6. I also there observed (at [10]) that: "in Hughes v NM Superannuation Pty Ltd (1993) 29 NSWLR 653 … the Court of Appeal observed that, where a trustee reasonably seeks advice from the Court as to how a trust should be administered, all parties properly joined should have their appropriate costs out of the fund. … Ward J (as her Honour then was) took the same approach in Re Perpetual Investment Management Ltd [2011] NSWSC 615 at [8] in respect of a party which appeared at and participated in proceedings for judicial advice and … White J also took that approach in Re All Class Insurance Brokers Pty Ltd (in liq) [2014] NSWSC 475 at [53], where his Honour noted that costs were properly allowed out of the fund where he had been assisted by submissions made on behalf of creditors who had appeared on an application brought by a liquidator."
7. The case law also deals with the position in an adversarial contest as to the distribution of a fund. In Farrow Finance Co Ltd (in liq) v ANZ Executors & Trustee Co Ltd (1997) 23 ACSR 521 at 526 ("Farrow Finance"), to which Mr Carolan who appears for the Second Defendants refers, Hansen J observed that: "In my opinion, the general principles which apply to the question of costs upon an application by a liquidator for directions include these: Where the application is necessitated only by the stand taken by one particular creditor, or a certain group of creditors acting only in their own interest, and the question involved is not a complex one, then costs should generally follow the event. In other words, if the position which the liquidator always intended to adopt is vindicated, and the submission of the opposing creditors is rejected, then those creditors should be liable for the liquidator's costs of the application. An example of the application of that principle is Re Masureik and Allan Pty Ltd (1981) 6 ACLR 39 (SC(NSW), Needham J). In that case, both the liquidator and the company's largest creditor (a bank) agreed that the liquidator should treat the recovery of a preferential payment as ensuing to the benefit of the general body of creditors on the well known authority of Re Yagerphone Ltd [1935] 1 Ch 392, and N A Kratzman Pty Ltd (in liq) v Tucker (No 2) (1968) 123 CLR 295. A director of the company, however, contended otherwise, for his interest as a guarantor of the company's debt to the bank lay in the sum recovered going in reduction of that debt. He insisted that the liquidator was obliged to seek directions on the issue, despite the liquidator informing him that an application would be made for costs if a directions hearing was necessary. The liquidator's submissions were upheld, and the director was ordered to pay the liquidator's costs."
8. In a different context, in New Cap Reinsurance Corporation Holdings Ltd [2001] NSWSC 1001 ("New Cap") at [11], [13], to which Mr Carolan also refers, Santow J pointed to several factors that warranted an order for costs, although the liquidator had not there initiated the application for directions, including that: "had it not been for the Respondents' opposition, either no application for directions would have been made or else at most, a simple short application in the Corporations List of the kind that customarily takes no more than half an hour for modest cost. Either way, the complexity which attended the resolution of this matter was not a function of the nature of the directions sought but of the determined opposition of the Respondents, in what became a fiercely contested two day hearing."
9. His Honour there recognised that Farrow Finance was a case analogous to a contested probate suit, where the issue concerns the ultimate division of the estate, and I recognise this case has something of that character, or at least would have had that character had Mr Calabretta taken a different approach to it. His Honour went on to note that: "It would be unexpected indeed if the remaining creditors should ultimately have to bear the costs of that contest by costs coming from the proceeds of the winding-up. This is more particularly when the Respondents have lost on all matters they sought to argue. Then there is the fact that there was a substantial degree of duplication as between the Respondents, regarding arguments put to the Court. That is not of course to say that from the point of view of their personal interests they may not have felt it prudent to take the active, and to a degree duplicative, role they did."

The parties' submissions in chief

1. Mr Katekar submits that: "Mr Calabretta actively opposed the relief sought by Mr Hayes on multiple grounds. He led evidence by affidavit and tendered documents. He appeared and cross-examined Mr Hayes. He made extensive written and oral submissions. All of those matters prolonged the litigation and were squarely adversarial in nature. Mr Calabretta's opposition was wholly unsuccessful. But for Mr Calabretta's opposition, it is likely that the application would have been dealt with in the Corporations Motions List, without the need for a full-day special fixture."
2. Mr Carolan also submitted that the Court should order that Mr Calabretta bear Mr Hayes' costs of the application in whole or in part, and pointed to the fact that each of the submissions put by Mr Calabretta were rejected in the Principal Judgment, and that one of those submissions, that HHC's debt to Sirrah arose after notice of the security granted by HHC to Yates Beaggi, was based on a false factual premise.
3. Mr Fernon and Ms Nolan, who appear for Mr Calabretta, submit in chief that costs in an application for directions by a liquidator are normally ordered to be paid by the relevant fund; that proposition is often correct, but is qualified by the existence of the different possibilities recognised in the case law to which I have referred above. Mr Fernon and Ms Nolan submit that Mr Calabretta's costs should be paid out of the liquidation, on an indemnity basis, because: "[Mr Calabretta's] participation has been, in effect, as a proper contradictor to the direction regarding the application of Cherry v Boultbee to the fact of this winding up. [Mr Calabretta] raised valid and complex propositions, which have a legitimate juridical basis, capable of curtailing the rule's operation. Indeed, the authorities upon which [Mr Calabretta] relied could not simply be ignored. The resolution of the position of [Mr Calabretta] was one of the many issues, which arose in [Mr Hayes'] administration of the winding up, on which he reasonably sought the assistance of the Court, and to which [Mr Calabretta] and the other representative defendants were properly joined."
4. I do not accept aspects of this submission. There was no particular utility in a contradictor as to the application of the rule in Cherry v Boultbee where the wider argument initially put by Mr Calabretta had previously been put and rejected by Gleeson JA, a very experienced judge in corporations matters, in a fully reasoned decision in Re Hawden Property Group Pty Ltd (in liq) (2018) 125 ACSR 355; [2018] NSWSC 481 ("Hawden") and, in any event, Mr Calabretta abandoned that wider argument in oral submissions. There should only have been two and not many issues in this application, a straightforward application for leave to distribute a surplus and the question whether the rule in Cherry v Boultbee was applicable on the particular facts, which was also straightforward. No other material issues were raised by Mr Hayes and the other issues raised by Mr Calabretta were not well-founded.
5. Mr Fernon and Ms Nolan submit that Mr Calabretta did not go beyond what was "necessary" in order to present the facts and address the issues so as to enable the Court to provide advice to Mr Hayes, and the hearing of the application did not have the nature of true adversarial liquidation. They also submit that: "[Mr Calabretta] participated as a proper contradictor solely for the purpose of assisting the court in addressing the issues necessary to provide proper and appropriate judicial advice to the party seeking directions, therefore, the approach to costs on applications concerning the administration of a trust, estate or fund should be applied. In such cases it is usual for all parties properly participating to be entitled to their costs on an indemnity basis paid out of the trust, estate, or fund on the basis that they are costs of due administration."
6. I do not accept these submissions, which seem to me to hypothesise a case that was quite different from the one that I heard and determined. Here, Mr Calabretta cross-examined Mr Hayes in a manner that was consistent with adversarial proceedings; and, as I noted above, it is not apparent why a contradictor was required, in an application for a distribution of a surplus in a liquidation, where the application of the rule in Cherry v Boultbee raised no novel issues; and the other issues raised were directed to advancing the secured creditor's position, one of them on a false factual basis.

The parties' reply submissions

1. In reply to Mr Calabretta's submissions, Mr Hayes, unsurprisingly, takes issue with Mr Calabretta's characterisation of his role as a "proper contradictor" in Mr Hayes' application for directions; submits that the case was one in which HHC (and more precisely, I should interpolate, Yates Beaggi as the secured creditor of HHC) (through Mr Calabretta) was acting in its own interests and the question was not complex so that costs should generally follow the event; and he submits that Mr Calabretta was "the loser" in a contested application, adopting Campbell JA's language in BE Australia and should be ordered to pay the costs of the proceedings on that basis. I accept those submissions. Mr Hayes also submits and I also accept that the application would have proceeded in a straightforward manner, quickly and without significant costs, but for Mr Calabretta's intervention to oppose the relief sought. Mr Katekar and Mr Anderson also submit, with substantial force, that: "Mr Calabretta took the risk on those costs when he - as receiver of a hopelessly - insolvent HHC - turned what would otherwise have been a non-adversarial application into an adversarial one. Costs should follow this particular event, and should be ordered to be paid by the true antagonist, Mr Calabretta."
2. Mr Fernon and Mr Nolan, in reply, again submit that HHC was not an "antagonist" and it was "a necessary contradictor" application. I do not accept that submission. First, it was Mr Calabretta, as the receiver appointed by the secured creditor to HHC, who opposed the application. Second, as I have noted above, there was no necessity for a contradictor to the application, where it raised no novel issues and could readily have been determined, as many such applications are determined, without a contradictor. Mr Fernon and Ms Nolan, in reply, also repeat the proposition that a contested determination of the question was necessitated, inter alia, by the need to determine a "relatively novel proposition" as to the coherence of the application of the rule in Cherry v Boultbee in the circumstances of this case. As I have noted above, the difficulty with that proposition is that, first, the wider proposition originally put by Mr Calabretta that the rule in Cherry v Boultbee was inconsistent with Pt 5.4 of the Act was not novel, because it was previously put and rejected in Hawden and, in any event, that wider proposition was abandoned in Mr Fernon's oral submissions, and narrowed to a proposition that the rule did not apply in the particular case which was also not sustained.
3. Mr Fernon and Ms Nolan submit that it would be "contrary to public policy" if the conduct of arguments of a "necessary contradictor" were described as "adversarial"; I see nothing to the contrary of public policy in that respect where the party is not a necessary contradictor and the characterisation of its approach as "adversarial" is well founded. I also see nothing in an order for costs against Mr Calabretta, in the circumstances of this case, that would deter other persons from raising legal contentions as to genuinely novel questions in other cases. Mr Fernon and Ms Nolan also submit in reply that, if costs follow the event, that "event" refers to the adversarial aspect of the contradictor's conduct, and that the costs awarded against Mr Calabretta should be limited. I do not accept that submission and will follow the approach adopted by Santow J in New Cap, in treating the costs of the application as a whole, without seeking to dissect particular aspects of it. But for Mr Calabretta's approach, the costs of an uncontested application would have been minimal, and he can properly be ordered to pay all of the costs of the proceedings, as agreed or as assessed, without putting the parties to the delay and wasted costs of any attempt to adjust for the minimal costs of an uncontested application.

Determination and orders

1. Here, it seems to me that the matters to which I have referred above have the consequence that a costs order should be made that Mr Calabretta pay the Plaintiff's and the Second Defendants' costs of the application. First, Mr Hayes' application for leave to distribute the surplus should have been uncontroversial; a contested application was necessitated only by Mr Calabretta's opposition to the course proposed by Mr Hayes; and the course that Mr Calabretta took was directed to advancing the economic interests of his appointor, Yates Beaggi. It is plain that Mr Calabretta's intervention significantly extended the length of the application, and imposed substantial costs upon the liquidation and, consistent with the approach in New Cap, such costs should not be borne by the creditors.
2. Second, the principles on which Mr Hayes relied in respect of the rule in Cherry v Boultbee were also well-established; as I noted above, the wider argument initially put by Mr Calabretta had been put and rejected in Hawden; and Mr Calabretta abandoned that argument in oral submissions in any event. Third, the question as to election involved a straightforward factual and legal contest, as to which Mr Calabretta failed. Fourth, the claim that Sirrah was given notice of the secured debt before HHC's debt to it arose was plainly wrong in fact, as Yates Beaggi must have known, and as Mr Calabretta would also have known had he made the most basic inquiry, including adequately reviewing the principal judgment in the previous proceedings between the parties.
3. For completeness, I did not understand the Second Defendants to submit that Mr Calabretta should pay their costs of the hearing and I will not make such an order. I reserve liberty to the Second Defendants to apply, within 2 business days, if they contend that I have misunderstood the position they took in submissions in this respect.
4. For these reasons, I make the following orders:
5. The Plaintiff's costs of and incidental to these proceedings be costs in the winding up of Sirrah Pty Ltd (in liq) and be paid from the assets of Sirrah Pty Ltd (in liq), to the extent those costs are not recovered pursuant to order 2.
6. Mr Calabretta, in his capacity as receiver and manager of Harris Health Care Pty Ltd (in liq) (recs & mgrs apptd) pay the Plaintiff's costs of and incidental to these proceedings, as agreed or as assessed.
7. Reserve liberty to the Second Defendants to apply, within 2 business days, as to the matter noted in paragraph 24 of the reasons for judgment.

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