REASONS FOR JUDGMENT (No 3)
1 I have delivered two judgments in this proceeding; see Chamberlain v RG&H Investments Pty Limited; in the matter of Hardy Bros (Earthmoving) Pty Limited (in liq) [2009] FCA 1214 and Chamberlain v RG&H Investments Pty Limited; in the matter of Hardy Bros (Earthmoving) Pty Limited (in liq) (No 2) [2009] FCA 1531 (together, Earlier Reasons).
2 I will take the Earlier Reasons as read and will use the forms of abbreviation that I used in them.
3 These present reasons relate to a dispute over what has been described as Mr Chamberlain's "delay costs". The question is whether his costs to be paid out of the assets of the Company should include his costs that were occasioned by his delay in applying for the Court's approval under s 477(2B) of the Act, or whether he should have to bear those costs.
4 Section 477(2B) prohibited Mr Chamberlain from entering into either Indemnity without, relevantly, the approval of the Court. Mr Chamberlain was required to apply for the Court's approval prior to entering into the First Indemnity and the Second Indemnity respectively. The Court's approval would have been granted and Mr Chamberlain's costs of obtaining the approval would have been ordered to be paid out of the Company's assets as a cost of the winding up.
5 As the Earlier Reasons show, Mr Chamberlain did not apply for the Court's approval until he commenced this proceeding on 10 August 2009. Yet he had entered into the First Indemnity on 8 October 2007 and the Second Indemnity on 18 September 2008. He was some 22 months late in relation to the First Indemnity and nearly 11 months late in relation to the Second Indemnity.
6 The Hardys object to Mr Chamberlain's having his additional costs arising from his failure to apply for and obtain the Court's approval in a timely matter being paid out of the Company's assets as a cost of the winding up. The Hardys submit that these "delay costs" should be borne by Mr Chamberlain.
7 The proceeding was before the Court on 18 and 23 December 2009 and on the latter date I made directions for the filing and service of submissions on the present issue. Written submissions have been made by the Hardys, RGH and Mr Chamberlain.
8 It is not disputed that, apart from the delay costs, Mr Chamberlain should have an order that his costs of the proceeding be paid out of the Company's assets as a cost of the winding up. It is also not disputed that there should be a similar order for costs in favour of RGH.
9 It appears that the amount of the delay costs in dispute is small. According to Mr Chamberlain's submissions they are the costs of the preparation of his affidavit and an affidavit by Sarah Ann Hutchinson, both made on 3 November 2009 explaining Mr Chamberlain's delay. Mr Chamberlain asserts that he gave an estimate to the Hardys that those costs amounted to approximately $2,420. He states in his submission that his solicitors have since determined that the sum of their fees on the preparation of the two affidavits is $1,600 (plus GST). Mr Chamberlain also asserts in his submissions that he advised the solicitors for the Hardys that he would forego his own professional costs incurred in explaining his delay.
10 Mr Chamberlain raises an initial objection to the Hardys' being heard on the present issue. His case in this respect is contained in paras 2.1-2.3 of his submissions, and that of the Hardys in paras 6-10 of their written submissions.
11 Mr Chamberlain asserts that the Hardys were not joined as third defendants as they informed his solicitors on 1 September 2009 that they did not object to the granting of the relief sought in the application (subject to a minor amendment not presently relevant). He further asserts that the Hardys confirmed when the matter was listed for hearing on 30 September 2009 that they did not wish to be heard on the application. I note that at the commencement of the hearing their solicitor informed the Court that the Hardys had no objection to the granting of the relief sought in the application and wished to be excused from further participation in the hearing.
12 I agree with Mr Chamberlain that the Hardys are not entitled to be heard without a grant of leave pursuant to r 2.13 of the Federal Court (Corporations) Rules 2000.
13 The Hardys point out that Mr Chamberlain served a copy of the application on their solicitors on 31 August 2009 and that Mr Chamberlain has not previously objected to their standing to be heard.
14 As one of the only three creditors of the Company, the Hardys should be heard. I treat their appearance and submissions on the costs issue as an implied application for leave to be heard without their becoming a party under r 2.13. Leave will be granted.
15 Mr Chamberlain and the Hardys are agreed on the principles that govern the present application. The question is whether the costs, that is to say, the costs associated with the explanation of the delay, were honestly and reasonably incurred: see Adsett v Berlouis (1992) 37 FCR 201 at 211-212; The Bell Group Ltd v Westpac Banking Corporation (1998) 16 ACLC 65 at 69. Mr Chamberlain submits that the Court should also consider whether the explanation of the delay caused a significant increase in the length or cost of the proceeding.
16 In Re Newark Pty Ltd (in liq) [1993] 1 Qd R 409, Thomas J, with whom Derrington J and Moynihan J agreed, said (at 420) that where a liquidator was ordered to pay another party's costs of a proceeding brought by the liquidator, it is usual to permit the liquidator to recover his costs, so far as he is able to do so, from the company's assets, "unless there has been misconduct or there is some other unusual circumstance".
17 I set out the circumstances related to Mr Chamberlain's delay at [68]-[83] of the first of the Earlier Reasons and at [3]-[24] of the second set of the Earlier Reasons, and will not repeat what I said there.
18 The fact that I granted approval nunc pro tunc under s 477(2B) does not determine whether Mr Chamberlain should have his costs.
19 The terms of s 477(2B) are clear. Mr Chamberlain was aware of the provision and his own solicitor correctly took the position that the Court's approval was necessary. I infer that she informed Mr Chamberlain of her view. Mr Chamberlain contravened s 477(2B) deliberately. Rather than conform to the statutory provision, he preferred to fall in with the DCT. In substance, he surrendered his responsibility on the particular issue to the DCT. Initially, his affidavit evidence did not satisfactorily explain his delay.
20 In my view, the circumstances are "unusual", and it is difficult to think that Mr Chamberlain "properly and reasonably" incurred the additional costs. The costs associated with explaining the delay are little in amount though not confined to preparation of the two affidavits. This consideration does not conclude the matter in favour of Mr Chamberlain.
21 There will be an order that Mr Chamberlain's costs of the proceeding, with the exception of the costs that he incurred as a result of his not having applied for approval before entering into the Indemnities (including in the exception his costs of explaining his delay, the costs of the directions hearing on 23 December 2009 and the costs of his written submissions dated 15 January 2010) be paid out of the assets of the Company as a cost of the winding up. There will also be orders that RGH's costs of the proceeding and the Hardys' costs on the costs issue be paid out of the assets of the Company as costs of the winding up.
I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.