Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd

Judgment 1On 20 November 2012, I delivered judgement in these proceedings and ordered, substantially without opposition of the parties, that the Second Defendant, bCode Pty Limited ("bCode") be wound up in insolvency and under s 461(e)-(g) and (k) of the Corporations Act 2001 (Cth). That order, and a further order which it will be necessary for me to make providing for the dismissal of, or for the Plaintiff to have leave to discontinue the balance of the proceedings, will finally determine the proceedings. 2The Plaintiff, Futurecorp International Pty Limited ("Futurecorp") is a shareholder in bCode. The First Defendant, bCode Middle East Africa Holdings Limited ("bCode Middle East") is the majority shareholder in bCode. The Third and Fourth Defendants are directors of bCode. 3The proceedings were commenced on 16 February 2012, after the issue of a "drag along notice" in February 2012 by bCode, which would have resulted in the compulsory purchase of Futurecorp's shares in the exercise of rights under a Shareholders Agreement following a purported sale to an unrelated third party. The claim then brought by Futurecorp was founded, inter alia, on allegations of oppression although the primary relief then sought was an order that bCode Middle East buy out Futurecorp's shares in bCode at fair value to be determined by the court. At that point, both bCode and bCode Middle East were apparently solvent trading entities. 4The acquisition of Futurecorp's shares under the purported "drag along" sale subsequently did not proceed. It then emerged that an amount in excess of $2.2 million, being keyman insurance received by bCode on the death of its former chief executive, had been transferred by bCode to bCode Middle East. Futurecorp filed an Interlocutory Process in respect of that transfer and certain undertakings were given when the matter was listed before the Court on 7 August 2012. An Amended Interlocutory Process filed on 7 August 2012 also introduced a claim for the appointment of a provisional liquidator to bCode Middle East on the basis that it was a Part 5.7 body. bCode Middle East was then placed in liquidation, apparently by its controllers, in the Seychelles, its place of incorporation. 5The Court made orders for further discovery on 5 September 2012, which was to be given by 26 September 2012. On 25 September 2012, a meeting or purported meeting of the directors of bCode took place and a voluntary administrator was appointed to bCode. On 22 October 2012, Futurecorp filed an Interlocutory Process challenging the appointment of the administrator. By its Further Amended Originating Process filed on 23 October 2012, Futurecorp sought relief in respect of the appointment of the administrator to bCode and specifically sought an order for the winding up of bCode. By the time that application was listed for hearing before me on 20 November 2012, the administrator appointed to bCode had formed the view that the interest of creditors of bCode would better be served by a winding up than an administration, and, as I noted above, orders were made on that date for the winding up of bCode without substantial opposition by any party. 6A question now arises as to whether any order should be made modifying the effect of s 466(2) of the Corporations Act so far as it provides for the payment of Futurecorp's costs of the winding up out of the company's assets. There is a dispute between the parties as the scope of the costs of the proceedings that would fall within s 466(2) of the Corporations Act in the absence of any order made by the Court and an associated dispute as to whether such an order should be made. Application of s 466 of the Corporations Act 7Section 466 of the Corporations Act relevantly provides that: "(1) The persons, other than the company itself or the liquidator of the company, on whose application any winding up order is made must, at their own cost, prosecute all proceedings in the winding up until a liquidator has been appointed under this Part [5.4B]. (2) The liquidator must, unless the Court orders otherwise, reimburse the applicant out of the property of the company the taxed costs incurred by the applicant in any such proceedings." Futurecorp submits, and I accept, that the reference to "all proceedings in the winding up" in s 466(1) must refer to the proceedings in the application to wind up the company in which the winding up order is made. Futurecorp accepts that that reference is confined to proceedings that are part of the winding up proceedings and would not extend to claims that merely happened to be joined in the same plaint but that are not properly described as "proceedings in the winding up". 8It seems to me that the language of s 466(2) and the authorities to which I will refer below indicate that the costs that a liquidator should reimburse to the plaintiff in a winding up application are those that are properly referable to the winding up, and that is to be determined by an assessment of the particular costs and the matters to which they were directed. In Re A & N Thermo Products Ltd [1963] 1 WLR 1341, Plowman J observed that a plaintiff that raises allegations that are not strictly relevant to the court to the winding up application does so "at his own risk as to costs", and that there is no reason for visiting other persons or the company with costs attributable to allegations which are irrelevant to the case which the petitioner is seeking to make in the first instance. On the other hand, in Morepine Pty Ltd v Crush Pacific Industries Pty Ltd (1986) 131 FLR 436; 20 ACSR 41, Young J pointed to earlier authorities that the court takes a "fairly benign view" of what is to be included in the costs allowable to a plaintiff in proceedings to wind up an insolvent company. Mr JT Johnson, who appears for the administrator, also draws attention to Re Superbee Pty Ltd (1988) 7 ACLC 418, where the Court ordered that the costs of a winding up application on just and equitable grounds be paid out of the company's assets, including the costs of a further attempt to resolve matters, other than additional costs generated by one party in seeking to avoid winding up which should be borne by that party. I do not read that decision as supporting a narrow reading of s 466 of the Corporations Act. 9The evidence before me does not allow the Court to reach a determination of which particular costs are properly recoverable on that basis, which is in any event a matter that could be more efficiently undertaken by a costs assessor. However, in principle, Futurecorp's reasonable costs of proving the relevant conduct on which reliance was placed to establish the case for winding up on just and equitable grounds may well be recoverable as costs incurred in the winding up application. For example, Futurecorp's costs of proving the issue and suggested invalidity of the drag along notice may fall within that category, since the fact of the drag along notice was a matter relied upon in support of the winding up application. On the other hand, Futurecorp's costs of seeking to establish relief other than by winding up, for example by a purchase of its shares by bCode Middle East, would not seem to be recoverable on that basis. 10The Third and Fourth Defendants, two directors of bCode, and the Sixth Defendant, the former administrator appointed to bCode, seek an order that the costs payable to Futurecorp should be limited to costs incurred after 23 October 2012, when the application for a winding up order was specifically pleaded in the Further Amended Originating Process. I do not presently consider that I should "otherwise order" under s 466(2) of the Corporations Act to that effect, for several reasons. First, there seems to me to be no reason in principle why Futurecorp should not be allowed its costs incurred in the winding up proceedings, meaning the costs properly referable to those proceedings, and the quantum of those costs is a matter to be determined on assessment. Second, Futurecorp had sought orders under s 233 of the Corporations Act from early in the proceedings, and a possible outcome, although not initially its preferred outcome, was a winding up of bCode. In principle, it seems to me that a plaintiff should be entitled to recover its costs incurred in establishing the grounds for an oppression claim that may have led to other relief had the company not become insolvent. Third, that position is consistent with the fact that, as Futurecorp points out, the amendments made on 23 October 2012 relate back to the commencement of the proceedings by reason of s 64 of the Civil Procedure Act 2005 (NSW). Fourth, the evidence on which the Plaintiff in fact relied to obtain the winding up order on just and equitable grounds at the hearing before me included evidence derived from its work earlier in the proceedings, and it should properly be allowed the costs of preparing that evidence on which it in fact relied to obtain the winding up orders. 11I note that it remains open to a liquidator of bCode to seek to revisit this position in the manner contemplated by Young J in Morepine Pty Ltd v Crush Pacific Industries Pty Ltd above, where his Honour noted that s 466(2) of the Corporations Act contemplates an application made subsequent to the making of the Court's order winding up the company and the liquidator may bring a further application under that subsection seeking an order that he should not reimburse the applicant the taxed costs otherwise to be paid in the proceedings, if so advised. Any such application will not necessarily have any impact upon Futurecorp's entitlement to costs arising under s 556(1) of the Corporations Act, which includes but is not limited to the costs payable under s 466 of the Corporations Act. Application of s 556 of the Corporations Act 12Section 556(1) of the Corporations Act refers to the priority in which debts and claims must be paid in the winding up and identifies the second priority payment as: "the costs in respect of the application for the order (including the applicant's taxed costs payable under section 466)". That paragraph uses the term "in respect of" and expressly contemplates that the costs recoverable in a winding up may include costs in addition to the applicant's taxed costs payable under s 466. In Trustees Executors and Agency Co Ltd v Reilly [1941] VLR 110 at 111, Mann CJ observed that: "The words 'in respect of' are difficult of definition, but they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject-matters to which the words refer." 13A question as to the scope of cost ranking in priority under s 556(1) of the Corporations Law was considered in Morepine Pty Ltd v Crush Pacific Industries Pty Ltd above, where an application for winding up of the company had originally been brought on just and equitable grounds but the winding up order was ultimately made on the ground of the company's actual insolvency, and the amount claimed by the applicant was several times larger than would normally be incurred in obtaining a winding up order. Young J observed that the words "in respect of" are words of wide meaning and describe relationships with a wide range of proximity. His Honour noted that the Court had no power to vary the statutory order of priorities on a winding up as set by s 556 but, where the costs appeared to be excessive, it would be a question whether all of the amount claimed constituted costs "with respect to" the winding up order under s 466 and whether the matter was one in which it would be appropriate for the court to make some other order, on application, under s 466(2). In that case, Young J made directions requiring the parties to seek to narrow the dispute between them as to what was properly recoverable, and leaving it open to the liquidator to apply to the court under s 466(2) for the Court to "otherwise order" as to appropriate payment of the plaintiff's costs. 14The content of the phrase "in respect of" was also considered by Campbell J in Wonall Pty Ltd v Clarence Property Corporation Ltd (2003) 58 NSWLR 23 at [41]-[43], to which reference was made in Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (in liq) [2006] NSWSC 434 at [32], where his Honour noted that the observation by Mann CJ has subsequently been applied by other courts, but also that the words "in respect of" will not necessarily have the widest possible meaning and will take their meaning from the context in which they are found. In Bidald Consulting, Campbell J held that the costs incurred in setting aside a deed of company arrangement before a winding up application could be brought were properly treated as costs "in respect of" the winding up application. 15In my view, applying s 556 of the Corporations Act in accordance with its terms, it is likely that the costs of Futurecorp ranking in this category will not be limited to the costs of the winding up application but would extend to costs having an appropriate connection with that application. The administrator contends that, unless the court is satisfied that all creditors entitled to participate in the winding up will be satisfied in full, it would be inappropriate for Futurecorp to achieve a "windfall" over other creditors by being given the priority afforded by s 556(1) of the Corporations Act. However, to the extent that s 556(1) of the Corporations Act gives priority to costs that are properly characterised as costs "in respect of" the application for the winding up order, there is no "windfall" in Futurecorp being allowed the priority which the statute affords it, and in any event that statutory priority is not open to modification by the Court. Dismissal of the balance of the proceedings 16A question arose as to whether the balance of the proceeding should be dismissed on the basis that they now lacked utility, or leave should be granted to discontinue them. Futurecorp points out that Uniform Civil Procedure Rules 2005 (NSW) r 12.1(1) provides for discontinuance of either the whole of the proceedings or, against a particular defendant, all claims for relief so far as they concern a defendant. All claims for relief are not being discontinued, since Futurecorp has already been successful in obtaining an order for winding up of bCode. The Third and Fourth Defendants do not contest Futurecorp's submission that the proper order is that the balance of the proceeding should now be dismissed. I consider that the proper order is that the balance of the proceedings be dismissed. Orders 17I am not presently satisfied that I should otherwise order for the purposes of s 466 of the Corporations Act, including by inserting the date limitation for which the Third and Fourth Defendants and administrator contend. That section will therefore have effect in accordance with its terms. The costs that are properly recoverable under it, in respect of particular activities, will be a matter for assessment. The Court has, as I have noted, no power to alter the statutory order of priorities under s 556 of the Corporations Act in respect of costs that are properly treated as in respect of the winding up, a category which is potentially broader than the costs under s 466 of the Corporations Act. 18The only further order that I now make is that the balance of the proceedings be dismissed.