Chand v Azurra Pty Ltd

Judgment 1YOUNG JA: The appellants were involved in a building dispute with the respondent, a company which is now in liquidation. In simple terms, the adjudication of the dispute at first instance was that the appellants', who were the proprietors, claims for faulty workmanship were dismissed and the appellants were ordered to pay the respondent, a builder, a substantial sum of money. The appellants challenged this result in the District Court. However, the respondent then went into creditors' voluntary liquidation. In that liquidation, the only assets appeared to be the debt owing by the appellants and another small debt. 2The liquidator assigned the debt owing by the appellants to a new company, apparently controlled by the same people who formerly controlled the respondent before liquidation. The new company was called Lifestyle Homes Pty Ltd, a name that once was borne by the respondent. The liquidator apparently received $12,000 for that assignment and also got in the other asset for $35,000, so that it would appear that he had $47,000 in hand. 3What happened to these funds is unclear, but much of it may have been absorbed by the liquidator's fees and expenses, and the respondent may well only have limited assets, apart from the subject matter of the present proceedings. 4The appellants wish to continue their appeal against the finding of debt against them, but they are prevented from so doing by s 500(2) of the Corporations Act 2001 (Cth) which is in the same terms as s 471B, the section applicable to court windings-up which is the usual section under which these disputes occur. Those sections prevent the continuation of civil proceedings against the company in liquidation without the leave of the Court. 5The appellants sought that leave by summons of 7 April 2009. It was dealt with by Austin J in the Equity Division of this Court on 22 June 2009. On that occasion, not only was the liquidator represented by a solicitor, but also Lifestyle Homes appeared by counsel. Austin J granted the application. However, his Honour ordered that the appellants pay the costs of the application on the basis that they were seeking a dispensation. His Honour actually said, with respect to the matter of costs in [17] and [18] of his judgment as follows: [17] As to the question of costs, my view is that the correct course is to order that the plaintiffs pay the costs of the liquidator in the present proceedings, and that there be no order for costs in respect of the appearance today, by leave, on behalf of Lifestyle Homes. [18] It seems to me appropriate that an order for costs be made in favour of the liquidator having regard to some correspondence between the liquidator and the solicitors for the plaintiffs, which is in evidence before me. On 28 April 2009 the liquidator made his position clear, but in their updated reply, the solicitors for the plaintiffs appear to have misunderstood the position. The result has been that issues that might have been readily resolved by negotiation have been allowed to create difficulty and uncertainty that has made the present application more difficult to resolve than it ought to have been. 6This appeal is brought against that costs order. The appeal is by leave granted by Tobias and Basten JJA. That leave was granted, "on the papers", so there is no record as to the reasons for the grant of leave and it is not clear whether the fact that the appeal appears only to involve about $6,000 was fully considered on the leave application. 7The policy of the Corporations Act , as with its predecessors, is that once the company goes into liquidation, no action can be commenced or prosecuted against it without the leave of the Court. The reason for this is that claims against the company are to be administered by the liquidator by admitting and rejecting proofs of debt under the supervision of the Supreme Court and then paying a pari passu dividend to valid claimants. However, there are some pieces of litigation which can be continued without disturbing this basic policy and the Corporations Act in sections such as 471B and 500, provides that the Court may give leave for litigation to continue. 8On the appeal Mr Patel of counsel appeared for the appellants and Mr Farrar, solicitor, appeared for the respondent company in liquidation. 9It is clear that when considering what order for costs ought to be made, the Court looks to the statute and to the Rules. Section 98 of the Civil Procedure Act 2005 provides that costs are, subject to the Rules, in the discretion of the Court. Part 42 r 1 of the Uniform Civil Procedure Rules, specifies that, as a general rule, costs follow the event, unless it appears to the Court that some other order should be made. Although that rule states the usual position, it is important to realise that the Court may otherwise order, and the authorities show that there are a number of situations where the usual provision does not apply. Administrative decisions made by an Equity Judge are one of them. Another is where there has been misconduct by a party or litigation has been unnecessarily prolonged, but I would note that those last two are not the present case, though the first might be. 10Now generally I agree with Mr Patel's submissions in para 7 of his written document, that an order for the successful party to pay the costs of an unsuccessful party is generally regarded as requiring particular justification, but again, one has got to give some semantic significance to the word "generally". However, it is useful to note that Austin J did have this basic principle in mind in an earlier case under s 471B, Tyrrell v Tyrrells Building Consultancy Pty Ltd [ 2008 ] NSWSC 416; 66 ACSR 134 at 142, where he did consider that where there was an opposed application under the section and the application was successful, the unsuccessful opponent should pay the costs. 11The appellants strongly argue that they were successful below and it was an extraordinary result that they had to pay the liquidator's costs. They further put that there was no reason for the liquidator to come to court and he could well have simply consented to the order. Well now, that last submission needs to be looked at in connection with the material that is in the Red Book as to the correspondence between the parties. There was no letter before the summons was issued on 7 April 2009 to the liquidator, asking whether he would consent. There was some exchange of faxes between January and April but these were not focussed on the question of consent to the ongoing litigation. Mr Patel says that "inferentially", the appellants were asking the liquidator for his consent, but I must confess that I cannot get that from the material myself. 12It is difficult for the appellants to maintain that the liquidator should have resolved the matter by negotiation when the court process was commenced without formal notification. Austin J, in his judgment at [18] refers to the fact that the letter of 28 April 2009 from the liquidator, and the appellants' solicitors' reply, show that there was misunderstanding on the appellants' part about what the liquidator's position was. That was a view which, to my mind, the judge was entitled to take. There is a peculiar aspect too, that the appellants' solicitors' letter, even though written about three weeks after the proceedings were commenced, says that it contains a form of confirmation and consent, though that does not appear in the Red Book at all. Whether or not it was sent to the liquidator, is a matter of pure speculation. 13There was discussion too, about the liquidator's conduct regarding the application, but the transcript, which is before us, does not appear to show any untoward conduct. All the liquidator did was put material before the Court and leave the decision to the Court. 14So the question really is: was the order for costs which the learned primary judge made one which was within his ambit to make? Apart from the fact that these were administrative proceedings in equity, there were two situations relevant to the present case from which it could be argued that it was proper to make some other order than the successful party receive costs. 15The first is that when a person needs to ask a privilege or dispensation from the Court, he or she must pay the costs of the other parties who need to be notified of that claim, that is, the reasonable costs of those parties. The principle most frequently occurs in applications to modify the restriction of a covenant. 16The second is that a liquidator who has limited funds and who is a necessary party and who acts reasonably is usually entitled to his or her own costs, see the notes to Ritchie's Practice under the Civil Procedure 17Act 2005 s 98.27. 18I have spent some time examining a number of cases in the last twenty years or so where s 471B has been considered. Unfortunately, for present purposes, few of the reported cases deal with the costs aspect. The vast majority of cases under s 471B occur where the company is insured, in which case leave is almost invariably given with costs being costs in the cause where the litigation is pending with a proviso that there is to be no execution against the assets of the company without further leave. 19Indeed, where there is no insurance factor but the Court holds that a public interest factor or the efficiency of decision making requires a Court hearing, again, costs are usually costs in the cause. 20Now in this case, Mr Patel rightly says that the appellants put before the learned primary judge that costs should be costs in the cause. However, there are problems with this because the cause of action had been assigned to the new Lifestyle Homes. The liquidator is probably still a necessary party and technically will have to remain a party in the District Court, but the liquidator is not paying any active role in the further proceedings. That was a complication as to simply making an order that the liquidator's costs be costs in the cause. It could have been made in a more convoluted form, but that was a factor against making it. 21As I have noted, most of the reported cases on s 471B do not deal with the question of costs. Those that do tend to protect the liquidator against the costs of the application, such as Re Sydney Formworks Pty Ltd (in liq) [1965] NSWLR 646 at 652 where C McLelland CJ in Eq ordered the liquidator to get his costs out of the assets of the company after a successful application for leave and reserved all other questions of costs. Where the application is lost, the applicant may have to pay the costs; see for instance Swaby v Lift Capital Partners Pty Ltd (in liq) [2009] FCA 749; 72 ACSR 627. However there are few reported cases where the application was lost and the judge considered how the costs should be borne. 22In the instant case, Austin J exercised his discretion and applied the principles that I have referred to, particularly the seeking of a dispensation principle. He gave warning in the transcript that that was a view that he might take and heard submissions about that proposal. There was some response, but, with great respect, it did not really address the point. His Honour then gave the decision that he did. 23I should note that there was some comment made in this Court about the quantum of the costs, but I do not need to deal with it because that is a matter for the costs assessor and I understand the costs have now actually been assessed. 24Thus, in my view, Austin J was entitled to come to the view he did and this appeal should be dismissed with costs. 25CAMPBELL JA: I agree with Young JA. I would add the following remarks. 26The situation that the appellants were in when they instituted their proceedings in the Equity Division was that they had been held liable in the Consumer Trader and Tenancy Tribunal to pay a significant sum to a builder, and a cross-claim that they had brought against the builder had been dismissed. The resulting Tribunal order in favour of the builder was legally enforceable under s 51 Consumer Trader and Tenancy Act 2001 (" CTTT Act ") unless it was appealed against to the District Court under s 67 CTTT Act . 27It was because of the peculiarities of the appellants' own situation, where this Tribunal decision had been given against them and could only be upset by a statutory appeal to the District Court, that they could not follow the usual way in which claims concerning a company in liquidation were dealt with. 28The statutory policy that justifies there being a stay of actions against the company in liquidation is that it is better to leave the ascertainment of the assets and liabilities of the company, at least in the first instance, to the liquidator but to permit the liquidator's decisions about admission of proofs of debt to be questioned by an appeal concerning rejection of a proof of debt. That policy is imposed to minimise the costs of the liquidation in the interest of the creditors as a whole. 29In a situation though where the liquidator was not able to displace the Tribunal decision that had been given, there was a practical necessity for the appellants to approach the District Court if they were to overcome that decision. However, this is not a case where it was known to the Court that the claim that the appellants brought against the builder was one in relation to which the builder was insured. One of the situations in which a court frequently grants leave to bring an action against a company in liquidation is when the claim is insured against, and hence any costs involved in the claim would not be costs of the liquidator. Frequently in that situation the costs of seeking leave to proceed are made costs in the proceedings concerning which leave is granted. But when the claim they wish to bring is not insured against, if the appellants were not ordered to pay the liquidator's costs of seeking leave to continue the action, the liquidator's costs would become one of the expenses of the liquidation. That would not happen in the unusual situation where a liquidator had so misconducted himself that he was required to bear certain of the costs of the liquidation himself, but it is not suggested that this is such a situation. 30Except in that unusual situation, a liquidator has a lien over the company's assets for his proper costs and expenses which has the practical effect that he is paid before all the other creditors. Thus if the liquidator were to be ordered to pay the costs of the application for leave to proceed or (as between the parties to the application for leave to proceed) were required to bear his own costs (even as a result of the costs of the application for leave being made costs in the District Court appeal) it would, in effect, be the other creditors of the company who were required to pay. 31Thus the situation was one where, through no fault of the appellants, they needed to obtain the leave of the Court to continue the District Court litigation, but equally it was through no fault of the other creditors that the appellants needed to obtain that leave, and it was inevitable that some costs would be incurred in obtaining the leave. A just balancing of the interests involved justifies the usual practice whereby a person seeking such leave is required to pay the costs involved in obtaining it, unless there are other intervening factors. 32The general principle concerning costs that is expressed in UCPR 42.1 is a rule which applies ordinarily in the situation of contentious litigation. However an equity court has a significant administrative jurisdiction, part of which involves overseeing the administration of trusts, receiverships and also conduct of liquidations. The exercise of the Equity Division's administrative jurisdiction involves different factors relevant to who should bear the cost of court proceedings to those that are involved in contentious litigation. It is by reason of those different factors that UCPR 42.1 does not apply in the present case. 33I agree with the orders that Justice Young proposes. 34MACFARLAN JA : I agree with the judgment of Young JA and also with the additional remarks of the presiding judge. I add the following observations. 35Although he did not expressly refer to it, the primary judge can be assumed to have been aware of the general rule that, in the ordinary case, costs follow the event and can be assumed to have taken it into account. Every judge in this Court is aware of this principle, particularly one as experienced as the present primary judge. 36His Honour examined the facts and concluded that in light of those and of the nature of the application, being one in which the appellant was seeking an indulgence, the appellants should pay the costs of the application. In my view the conclusions that his Honour reached were open to him and no basis for appellate intervention has been established. 37In substance, the appellants' basis of challenge to the judgment of the primary judge is that the judge's view of the facts was erroneous. Without more this is not a basis upon which a discretionary decision, such as the costs order made by his Honour, may be challenged in accordance with the principles stated in House v R [1936] HCA 40; (1936) 55 CLR 499. 38CAMPBELL JA : I also agree with the additional remarks of Macfarlan JA. The order of the Court is that which Young JA proposed.