Bank of Queensland Ltd & Anor v Ross Auto Auctions Pty Ltd

[1] PHILIP McMURDO JA: On 7 December 2015 I ordered that the second respondent be removed as liquidator of the first respondent. The parties have since provided written submissions as to costs.

[2] The applicants seek an order that the second respondent pay their costs of and incidental to the proceeding on a standard basis and that he do so without recourse to the assets of the company. The second respondent submits that the costs of all parties should be costs in the liquidation or alternatively, if he is to be ordered to pay the applicants' costs, his liability should be limited to the amount of assets of the company available to indemnify him for that purpose. He further argues that he should be entitled to an indemnity for his own costs.

[3] Clearly the applicants should have their costs. Further there should be an order that they be paid by the second respondent, who unsuccessfully resisted their application. The applicants did not persuade the court with all of their submissions but that is no basis in itself for refusing them their costs.

[4] The next question is whether the second respondent should be denied his indemnity from the assets of the company to meet that liability. In this context the question of indemnity is approached by reference to the entitlement of a trustee to be indemnified out of the trust estate for all the trustee's costs, charges and expenses "properly incurred",[1] meaning "reasonably" as well as honestly incurred".[2] These statements were applied in the context of a trustee in bankruptcy by the Full Federal Court in Adsett v Berlouis.[3] That case and others were reviewed by Bergin CJ in Eq in SingTel Optus Pty Ltd & Ors v Weston[4]. and I respectfully adopt her Honour's summary of the relevant principles as follows:

"13. A liquidator who has acted "reasonably" and/or "properly" in defending removal proceedings is usually entitled to indemnity for the costs he is ordered to pay. Caution must be exercised to ensure that such expressions are understood in context: Gatsios Holdings v Kritharas Holdings (in Liquidation) [2002] NSWCA 29 per Spigelman CJ at [7]-[17]. However if the liquidator has acted unreasonably or improperly in defending removal proceedings, indemnity may be denied for the costs of the proceedings that it was unreasonable or improper to defend. It will depend upon the particular circumstances of the case.

1. The discretion to deny indemnity should be exercised with great caution and only in exceptional circumstances: In Re Chennell (1878) 8 Ch 492 at 502 per Jessel MR, quoted with approval by Spigelman CJ in Gatsios Holdings v Kritharas Holdings (in Liquidation) [2002] NSWCA 29 at [10]. It has been described as an "unusual and extreme step": Adsett v Berlouis at 214."

[5] In the present case there was no allegation of actual bias or other impropriety on the part of the second respondent. It can be seen from the outcome that he should not have resisted the application for his removal. But that is not to say that he acted unreasonably in doing so. His case was arguable and the basis for his removal was not as clear as that in ASIC v Franklin[5] upon which the applicants' argument heavily relied. Many of the argued bases for his removal were not established. I accept, as the applicants argue, that there was a degree of self interest in the resistance to this application. On the other hand liquidators facing applications for their removal ought not to accede to them too readily because the replacement of a liquidator will ordinarily involve some cost to an administration.

[6] I am not persuaded that the second respondent acted unreasonably or improperly in the relevant sense. Therefore this is not a case of exceptional circumstances in which the liquidator should be denied indemnity. However I am not persuaded to limit the second respondent's liability to the amount available to indemnify him.

[7] It will be ordered that the second respondent pay to the applicants their costs of the proceeding. The second respondent is to pay his own costs of the proceeding and is entitled to indemnification from the assets of the first respondent for the payment of the costs of the applicants and his own costs.

[1] Re: Beddoe; Downes v Cottam [1893] 1 Ch 547 at 558 per Lindley LJ.

[3] [1992] FCA 368; (1992) 37 FCR 201 at 211-212.

[4] [2012] NSWSC 1002.

[5] (2014) 223 FCR 204; [2014] FCAFC 85.