Correa v Whittingham

Court of Appeal (NSW)|2013-12-23|Before: Barrett JA, Gleeson JA, Black J, Brereton J

) [2007] NSWCA 373 Golski v Kirk (1987) 14 FCR 143 Griffiths v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 Macquarie International Health Clinic Pty Ltd v South Sydney West Area Health Services (No 2) [2011] NSWCA 171 McIntosh & Anor v CMX Technologies Pty Ltd (Administrators Appointed) [2005] NSWSC 1282; 56 ACSR 283 Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 Monks v Poynice Pty Ltd (1987) 8 NSWLR 662 Parkview Constructions Pty Ltd v Tayeh [2009] NSWSC 186 Reed Constructions Australia Ltd v DM Fabrications Pty Ltd [2007] NSWSC 1190; 25 ACLC 1,463 Re Employ (No 96) Pty Ltd (in liq) [2013] NSWSC 456 Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 1106 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1987) 8 NSWLR 270 Waters v PC Henderson (Australia) Pty Ltd [1994] NSWCA 338; 254 ALR 328 Windsurfing International Inc v Petit (1987) AIPC 90-441 Woolworths Ltd v Strong (No 2) [2011] NSWCA 72; 80 NSWLR 445 Category: Costs Parties: Dolores Correa (First Appellant) The Spanish Club Limited (Subject to a Deed of Company Arrangement) (Second Appellant) Kenneth Michael Whittingham (Respondent) Representation: Counsel: V R W Gray (Appellants) G E S Ng (Respondent) Solicitors: Somerset Ryckmans (Appellants) Norton Rose (Respondent) File Number(s): 2012/190786 Decision under appeal Citation: [2012] NSWSC 526 Date of Decision: 2012-05-21 00:00:00 Before: Black J File Number(s): 2009/290732

Judgment 1BARRETT JA: I agree with Gleeson JA. 2GLEESON JA: On 15 August 2013, the Court published reasons for its decision allowing the appellants' appeal from the judgment of Black J and setting aside the orders and declaration made by his Honour on 21 June 2012 (see Correa v Whittingham [2013] NSWCA 263). The terms used in these reasons are as defined in those reasons (the principal reasons). 3The Court reserved questions of costs and invited the parties to make submissions as to the costs of the proceedings, including the proceedings in this Court. The Court has now received submissions as to costs. 4In the principal reasons, the Court upheld the appellants' challenge to the primary judge's finding that Mr Whittingham had been validly appointed as administrator of the Club. The Court found that, by reason of contravention of s 41 of the Registered Clubs Act 1976, Mr Whittingham was not capable of being appointed to act in the capacity of voluntary administrator of the Club, or of acting as such voluntary administrator. The Court made a declaration to this effect. 5Further, the Court directed that the proceedings be remitted to the primary judge to determine Mr Whittingham's claim that he is entitled to be paid out of the assets of the Club his reasonable remuneration, costs and expenses, including legal expenses for work performed pursuant to his purported appointment as voluntary administrator and as deed administrator for the Club, on a quantum meruit basis.

The costs orders which are sought 6The appellants' written submissions contented for the following orders: (1)The respondent personally to pay the appellants' costs of the appeal, the costs of this costs application, and the costs at first instance, including the costs of: (a)the application heard by Black J on 13 March 2012; (b)the interlocutory application for an injunction heard by Brereton J on 30 September 2009; (c)the interlocutory application heard by Brereton J on 9 December 2009; (d)the interlocutory application heard by Palmer J on 18 March 2010, and that none of these costs are to be paid from the assets of the Club on any basis; (2)The respondent personally to bear his own costs of the appeal, the costs of this costs application, and the costs at first instance - that is without right of indemnity or lien to the assets of the Club; (3)Alternatively to Order 1 above, the respondent personally to pay the Appellants' costs of the appeal, the costs of this costs application, 90 per cent of the costs at first instance, and all of the costs of the interlocutory applications, and that none of these costs are to be paid from the assets of the Club on any basis. (4)The respondent reimburse the Club all amounts received by him from the Second Appellant for his own legal costs and disbursements, together with interest accrued and calculated as from the date of payment pursuant to s 100 of the Civil Procedure Act 2005 "up to [...] in the sum of [$ ]". (No date or amount was specified. It may be assumed that the intended "date", is the date of reimbursement by the respondent.) 7As explained below, the interlocutory applications referred to in the appellants' proposed Order 1(a), (b) and (d) above relate to applications made in the proceedings below. The challenge on appeal to the primary judge's costs order, that the appellants pay Mr Whittingham's costs of and incidental to the proceedings, extends to the costs of those applications. 8The position is different in relation to the "interlocutory application" referred to in proposed Order 1(c). This relates to separate proceedings brought by Mr Whittingham in respect of which there is no appeal against any judgment or order by either Ms Correa or the Club. The circumstances relating to those proceedings are outlined below. The costs of those proceedings are not properly the subject matter of the present appeal. 9Mr Whittingham's written submissions contended for the following orders: (1)The respondent pay 15 per cent of the appellants' costs of the proceedings at first instance, including reserved costs. (2)The respondent pay 30 per cent of the appellants' costs of the appeal. (3)Declare that: (a)pursuant to cl 19.4 of the Deed of Company Arrangement dated 16 March 2009 between Kenneth Michael Whittingham and the Club Limited, as varied by order of the Supreme Court of New South Wales on 6 May 2010 (the DOCA), the respondent is entitled to be reimbursed by the second appellant (the Club) from its property (including, but not limited to, any property furnished by way of security for costs in this appeal) for the entirety of his costs of the proceedings below and of the appeal; (b)alternatively, pursuant to cl 19.4 of the DOCA, the respondent is entitled to be reimbursed by the Club from its property (including, but not limited to, any property furnished by way of security for costs in this appeal) as to 80 per cent of his costs of the proceedings below and of the appeal; and (c)further, pursuant to cl 20.1(l)(b) of the DOCA, the respondent may have recourse to the assets of the Club (including, but not limited to, any property furnished by way of security for costs in this appeal) for the purpose of discharging Orders (1) and (2) above. 10By their reply submissions, the appellants submitted that Mr Whittingham should pay at least 75 per cent of the costs at first instance. In addition, they sought that the Court make the following additional order "for the avoidance of all doubt": (1)Declare that: (a)the DOCA and varied DOCA are void ab initio; (b)the respondent is not entitled to be reimbursed out of the property of the Club for any of his costs of the proceedings below and of the appeal, with the intent that he pay these costs personally; (c)the respondent is to pay the entirety and/or a percentage of the appellants' total costs of the proceedings below and of the appeal (as determined by this Court) without recourse to the assets of the Club (including property furnished by way of security) for the recovery of those costs; (d)in so far as the respondent's total legal costs of the proceedings below, including the interlocutory aspects thereof (in the amount of approximately $1.5 - $2 million), as well as $200,000 as security for his costs of the appeal, has already been paid by the Club, the respondent should immediately reimburse this amount to the Club in accordance with proposed Order (4) in the appellants' submissions on costs. 11As is apparent from the competing declaratory relief sought by the parties, the submissions on costs were not limited to that topic but raised other issues concerning claims by the Club for reimbursement by Mr Whittingham of all amounts which have already been paid by the Club to him in respect of his own legal costs, as well as a substantive issue relating to the validity of the Deed of Company Arrangement dated 16 March 2009 between Mr Whittingham and the Club, as varied on 6 May 2010.

Issues for determination 12The following issues arise for determination: (1)The costs of the appeal. (2)The costs of the equity division proceedings, including various interlocutory applications. (3)Whether a declaration should be made concerning the validity of the Deed of Company Arrangement dated 16 March 2009, as varied on 6 May 2010. (4)Whether the Court should order or make a declaration that Mr Whittingham personally bear his own costs of the proceedings below and of the appeal and pay any costs he might be ordered to pay to the appellants without recourse to the assets of the Club. (5)Whether Mr Whittingham should reimburse the Club all amounts received by him from the Club for his own legal costs and disbursements.

Costs of the appeal 13The starting position is s 98 of the Civil Procedure Act which provides that costs are in the discretion of the Court including, to what extent costs are to be paid. Next, reference should be made to Uniform Civil Procedure Rules 2005 r 42.1 which provides that, if the Court makes any order as to costs, it should be in terms that costs follow the event unless there are circumstances justifying some other order. 14The appellants submitted that the relevant "event" on the appeal is the validity of Mr Whittingham's appointment and the power of the Court to validate any invalidity arising under s 41 of the Registered Clubs Act. Whilst acknowledging that they were unsuccessful on a number of issues on appeal, the appellants contended that no other costs order is appropriate in respect of the appeal. 15Mr Whittingham submitted that there should be an apportionment of the costs of the appeal, based on the success or otherwise of the various issues raised for determination. The issues on the appeal are summarised at [55] of the principal reasons. Broadly, they related to the validity of Mr Whittingham's purported appointment as administrator of the Club, and whether the primary judge erred when making curative orders. The significant issue in this regard was whether Mr Whittingham's conduct was prejudicial to the interests of members of the Club. 16As to the "invalidity" issues, Mr Whittingham accepted that he should be liable for the costs incurred by the appellants in litigating the issue concerning the proper construction and effect of s 41 of the Registered Clubs Act. Mr Whittingham contended that the appropriate order is that he pay 30 per cent of the appellants' costs of the appeal. 17As to the other issues on appeal, Mr Whittingham submitted that the matters relied upon by the appellants in relation to opposing relief under s 447A provided the basis of the appellants' own application for orders under s 447E of the Corporations Act 2001 in respect of Mr Whittingham's remuneration. There was no appeal in relation to the primary judge's rejection of the appellants' claim under s 447E alleging conduct by Mr Whittingham prejudicial to the interests of members. However, one aspect of this claim, being Mr Whittingham's conduct in attempting to sell the Club's core asset, was relied upon by the appellants as militating against the making of the curative orders below. This ground of the complaint was unsuccessful on appeal. The curative orders were set aside for a different reason, being that contravention of s 41 of the Registered Clubs Act was beyond the curative reach of s 447A of the Corporations Act. 18Mr Whittingham's submissions contained annexure A which provided an analysis of the time spent on the various issues by reference to the pleadings, written submissions and transcripts. It was submitted that this analysis revealed that 18.5 per cent of the time was spent on the s 41 issue and the balance of 76.7 per cent was devoted to the validity or otherwise of Mr Whittingham's purported appointment as administrator. 19The appellants submitted that the analysis in annexure A obfuscated and ignored the "result", which was that the appellants largely succeeded in their claims as a whole on the appeal. 20The appellants further submitted that annexure A should be accorded little weight. They contended that annexure A is both subjective and inaccurate. They complained that annexure A purports to separate the issue of "invalidity" of Mr Whittingham's appointment as administrator on the grounds from the s 41 issue, with the intent that only the time spent on the s 41 issue should be the costs of the appellants. 21The appellants submitted, correctly in my view, that the type of detailed analysis in annexure A should be given very little weight in circumstances where the Court can make its own assessment of these issues: Macquarie International Health Clinic Pty Ltd v South Sydney West Area Health Services (No 2) [2011] NSWCA 171 at [3]. 22In response to Mr Whittingham's submission that none of the costs associated with the "invalidity" issue should be costs which Mr Whittingham is liable to pay - being the costs which Mr Whittingham defined as arising from Grounds 1A-1E, 8, 9, 9A, 11, 12, 12A, 12B and 13 of the amended notice of appeal - the appellants accepted that they were unsuccessful on grounds 1A to 1E. These grounds related to the Club's failure to comply with the requirements of its Constitution. 23The appellants contended that the evidence and submissions in support of Grounds 1A to 1E were successfully deployed by them below, in opposing Mr Whittingham's own application under s 447C of the Corporations Act to have his appointment declared valid: see [2012] NSWSC 526 at [77]. The appellants submitted that the correct course in regards to Grounds 1A-1E of the amended notice of appeal is that there should be no order as to costs. 24It should be observed that Mr Whittingham did not challenge on appeal the primary judge's refusal to validate his appointment under s 447C. Accordingly, Grounds 1A to 1E are properly viewed as severable issues on appeal, on which the appellants failed. 25The appellants were also unsuccessful on Ground 8 (which asserted that there was no proper resolution of insolvency as required by s 436A(1)(a) of the Corporations Act). 26As to Grounds 9, 9A(a) and (c)(i), 12, 12A and 12B, the appellants submitted that they were the successful party and therefore should have these costs. These grounds related to the absence of a written consent to act as administrator, as required by s 448A of the Corporations Act, prior to Mr Whittingham's purported appointment. The appellants were successful on the particular grounds they have identified. The balance of Grounds 9A and 11 were not made out: see principal reasons at [191]. 27As explained by Campbell JA in Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 at [64], the usual circumstance in which a court will deprive the successful party of the costs relating to an issue on which the successful party lost, is when that issue is clearly dominant or separable. Campbell JA noted with approval that the statement of principle set out in the notes to the Supreme Court Rules Pt 52 r 11.2 and extracted in Waters v PC Henderson (Australia) Pty Ltd [1994] NSWCA 338; 254 ALR 328 at 330-331, per Mahoney JA as follows: "Where the proceedings involve multiple issues the application of the rule that costs follow the event may involve hardship where a party succeeds on some issues and yet fails on others. Particularly is this so where, for example, a defendant succeeds on issues that occupied the bulk of the time taken by the proceedings. Nevertheless unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed." 28The principles governing the making of an order as to costs so as to reflect the time taken in dealing with a particular issue in which the successful party in the proceedings or on the appeal did not succeed, were reviewed by this Court in Elite Protective Service Pty Ltd & Anor v Salmon (No 2) [2007] NSWCA 373, and summarised in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] [per Beazley, Ipp and Basten JJA, as follows: "· Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported). · In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal. · If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick & Ors (No 2) [2006] NSWCA 374 at [27]. · Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: State of New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed). · A separable issue can relate to "any disputed question of fact or law" before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34]. · Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272." 29In this case, the appellants were successful on the s 41 issue and the s 447A issue. These were important matters on the appeal. The appellants also succeeded on the s 448A issue (absence of written consent), although the significance of this success was militated by the fact that the curative orders made by the primary judge covering this specific ground of invalidity would not have been displaced on appeal, but for the contravention of s 41 of the Registered Clubs Act and the consequent invalidity of Mr Whittingham's appointment being beyond the reach of s 447A of the Corporations Act. 30The other grounds of "invalidity" on which the appellants were unsuccessful were clearly separable from the s 41 issue. The appellants also failed on their contention that Mr Whittingham's conduct of the administration of the Club in attempting to sell the Club's core property, 88 Liverpool Street, without member approval, was prejudicial to the interests of its members. This issue was also separable from the s 41 issue. These grounds occupied a not insignificant portion of both written and oral submissions on the appeal. Mr Whittingham should not be required to pay the appellants' costs relating to the time spent in dealing with these issues. 31Accordingly, in my view, the costs order on the appeal should be that Mr Whittingham pay 50 per cent of the appellants' costs of the appeal, with such costs to include the costs of this application.

Costs of the equity division proceedings 32Having initially contended (albeit in the alternative), that Mr Whittingham should pay 90 per cent of the costs of the proceedings below and all of the costs of the identified interlocutory applications, the appellants submitted in reply that substantial justice would be done if the Court ordered Mr Whittingham to pay at least 75 per cent of the costs of the proceedings below. 33For his part, Mr Whittingham contended that he should pay only 15 per cent of the appellants' costs of the proceedings below, including reserved costs. 34The analysis by Mr Whittingham in annexure A to his submissions of the time spent below was 6.7 per cent on the s 41 issues and 27.9 per cent on the "invalidity" issue. For the reasons given above, very little weight should be given to this type of analysis in a case such as the present. 35Mr Whittingham accepted that he should be liable for the costs incurred by the appellants in litigating the s 41 issue, but contends that the appellants themselves engaged in disentitling conduct of the sort that should result in a substantial reduction of costs awarded in their favour. Mr Whittingham referred to a statement of Black J in Re Employ (No 96) Pty Ltd (in liq) [2013] NSWSC 456 at [8] that: "... the Court may limit the costs awarded to a party, or not award costs to that party, if its conduct has obscured the issues, caused unnecessary evidence to be led and inappropriately prolonged proceedings and increased their cost." 36Mr Whittingham submitted that the appellants' conduct of the proceedings below should be so characterised because: (1)in resisting Mr Whittingham's application under s 447A for curative orders in respect of his purported appointment and in their seeking orders under s 447E limiting Mr Whittingham's entitlement to remuneration, including the reimbursement of his legal expenses, the appellants asserted, unsuccessfully, that Mr Whittingham had managed the business, property or affairs of the Club in a manner prejudicial to the interests of its creditors or members; (2)the appellants' significant delay in challenging the validity of Mr Whittingham's appointment on the s 41 ground. 37As to the first matter, Mr Whittingham submitted that the issues relating to the claims for relief under s 447A and s 447E of the Corporations Act can be separated with ease from the question of the validity of Mr Whittingham's purported appointment as administrator of the Club. These issues were said to be "sufficiently distinct" and "have involved sufficient time and expense" to justify some measure of reduction in the appellants' costs: Windsurfing International Inc v Petit (1987) AIPC 90-441 at 37,863. 38As to the second matter, Mr Whittingham submitted that the appellants' delay in agitating their claims for relief meant that much of the post appointment conduct of Mr Whittingham, of which the appellants complained, could have been avoided and the issues substantially reduced had the appellants mounted their challenge to the validity of his purported appointment in a timely fashion. 39It is unnecessary to set out the lengthy history of the dispute which culminated in the challenge of the validity of Mr Whittingham on the s 41 ground. That history, so far as is material, to the present question appears at [31]-[54] of the principal reasons. The aspect of the appellants' delay which is significant, is that Ms Correa first suggested that Mr Whittingham had not been validly appointed in a draft further amending originating process sent to Mr Whittingham's solicitors on 17 March 2010. The following day, Palmer J declined to grant leave to Ms Correa to file this document: see [43]-[44] of the principal reasons. Ms Correa did not press her contentions concerning invalidity until 28 February 2011. By that time, Mr Whittingham had substantially implemented the DOCA: see [47]-[51] of the principal reasons. 40Mr Whittingham submitted that the vast preponderance of the Court's time in the proceedings below was absorbed in litigating issues that arose only because of Ms Correa's dilatory conduct in prosecuting her claims for relief, being issues on which the appellants met with no success. This was a reference primarily to the allegations that Mr Whittingham's conduct of the administration was prejudicial to the interests of members. An additional relevant factor was said to be the acquiescence of the appellants to steps taken by Mr Whittingham on the assumption that the DOCA was valid. 41Mr Whittingham contended that the appellants should be deprived of part of their costs to recognise their role, in particular that of Ms Correa, "in creating precisely the factual circumstances about which there was a protracted contest in the proceedings below and to discourage all future litigants from embarking upon a similar course of delay". 42Insofar as this submission might be taken to suggest that a successful party should be punished, so as not to receive part of its costs because of delay in challenging the validity of the administrator's purported appointment, then this submission should be rejected. Costs are not awarded as a measure of punishment for a party's conduct of proceedings. However, delay is a relevant factor in assessing whether a successful party engaged in disentitling conduct, or otherwise ought not be entitled to part of the costs of proceedings in which it has been successful. So much was accepted by the appellants in their submissions in reply. 43The appellants sought to meet the issue of delay by contending that Mr Whittingham was the party responsible for any delay, because relevant facts were concealed from the appellants. These were said to be that Mr Whittingham had "inappropriately" inserted the date "17 November 2008" in the instrument of appointment and his written consent to act, and had given evidence that he had received pre-approval for his appointment prior to commencing to act as administrator. 44They argued that had Mr Whittingham conceded that he had not received pre-approval for his appointment from the Authority, the parties could have consented to a separate determination of the s 41 issue and this would have resulted in considerable savings in time and costs. 45As to the first of these matters, the outcome of the s 41 issue did not turn on the dating of the relevant documents. It turned on the fact that the letter from the Authority which purported to approve Mr Whittingham's appointment to act as administrator of the Club, was not given until 28 November 2008. The appellants did not submit that this letter was concealed from them. The fact that the approval letter was given after the date of the purported instrument of appointment was apparent from the face of both documents. 46As to the second matter, whether or not Mr Whittingham had received pre-approval in a telephone conversation was a matter in issue in the proceedings below. That issue was determined adversely to Mr Whittingham. Of itself, the existence of that factual issue does not explain the delay by Ms Correa in making a challenge to the validity of Mr Whittingham's appointment. 47It is to be observed that the transcript of the hearing before Palmer J on 18 March 2010 records that counsel for Ms Correa, when unsuccessfully attempting to obtain leave to file a further amended originating process challenging the validity of Mr Whittingham's appointment as administrator of the Club, contended that Mr Whittingham's appointment was invalid because approval was not given by the Authority until 11 days after his appointment by the Club, and that retrospective approval was not provided for under the Registered Clubs Act (Blue 4/1638S-X). In addition, counsel for Ms Correa, whilst not disputing that Mr Whittingham had received oral information from an employee of the Authority prior to his appointment, asserted that there was a dispute concerning whether that person had authority to grant the required approval under s 41 of the Registered Clubs Act (Blue 4/1640F-K). Ms Correa delayed her challenge to the validity of Mr Whittingham's appointment until an amended originating process was filed on 28 February 2011. That delay is not explained by the assertion that relevant facts were concealed from Ms Correa. 48The transcript of 18 March 2010 also records the observation of Palmer J concerning the inconsistency in the position adopted by Ms Correa on that occasion as follows: "HIS HONOUR: I am not going to permit it to continue, Mr Gray, because you don't want the deed of company arrangement to continue with that purpose. You can't have your cake and eat it. GRAY: The cake I seek to have is that the DOCA in the existing form stay in its existing form. HIS HONOUR: Not in the way the situation has been revealed, Mr Gray. You take the consequences - your clients take the consequences of their actions; they either have the deed of company arrangement and go with the administrator, or they don't. That means the secured creditor takes over and exercises the secured creditor's right. If you want to challenge the secured creditor's right, that is a separate case. You can start that case. GRAY: What we are doing at the moment is dealing with the deed of company arrangement as it stands. We are making the application that the statute enables a creditor to make and, at the moment, that is the application before the Court. HIS HONOUR: I am not going to permit you to waste further - your clients to waste further time and money, Mr Gray. They come here today with their primary application to have the administration declared invalid, the contravention of section 41. That means no DOCA at all. Now they say, 'Keep it there, but make sure the secured creditor can't sell to Mr Drivas'. I'm sorry, it is a mutually inconsistent position. Your clients have to make up their mind. I am not going to allow what is obviously an extremely contentious and extremely expensive dispute to continue to interfere with the secured creditor's right." (Blue 1648S-1649J) 49As the passage from the transcript reveals, Ms Correa opposed Mr Whittingham's application to amend the provisions of the DOCA, because she considered the amendment would permit the secured creditor to sell the Club's core property in the exercise of its power of sale. Her position on 18 March 2010 was that the DOCA should remain in its existing terms. Although Palmer J did not give reasons, it is readily understandable why his Honour did not grant leave to Ms Correa to file a further amended originating process on that day seeking to challenge the validity of Mr Whittingham's appointment as administrator. That proposed application by Ms Correa was fundamentally inconsistent with the position she was taking in relation to the separate proceedings commenced by Mr Whittingham to amend the provisions of the DOCA. 50The delay by Ms Correa until February 2011 in bringing forward her challenge to the validity of Mr Whittingham's appointment is unexplained. The delay was substantial and productive of wasted costs in the proceedings between the period March 2010 and February 2011. This is a relevant factor to be taken into account in the exercise of discretion in respect of the costs of the proceedings below. 51The costs position below must now be assessed as if the result before the primary judge had been as this Court has found: Heperu Pty Ltd v Belle (No 3) [2013] NSWSC 1088 at [11]. 52On the findings in this Court, the appellants would have succeeded below on the "invalidity" issue on the grounds of s 41 of the Registered Clubs Act and Mr Whittingham's contravention of s 448A of the Corporations Act. Mr Whittingham's application for curative relief under s 447A would have failed because it was unavailable in respect of the contravention of s 41 of the Registered Clubs Act. The appellants would have also succeeded in two other respects. First, in opposing Mr Whittingham's application under s 447C of the Act for a declaration that he was validly appointed and secondly, in opposing his application for an order that he was entitled to remuneration under s 449E of the Corporations Act. The latter success would have been militated somewhat by the fact that Mr Whittingham's alternative claim for relief, on a quantum meruit basis, would have been available. 53The appellants acknowledged that, even though the overall result was that they would have been successful in the Court below, as effected by the judgment of this Court, they were unsuccessful on a number of sub-issues in relation to the validity of Mr Whittingham's appointment and the discretion to make a validating order under s 447A of the Act, and these could be seen as severable issues. 54The appellants submitted that it is necessary to take a global view of the outcome of the proceedings: Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 1106 at [31]-[32]; Waters v Henderson at 331. So much may be accepted. 55The appellants contended that it is artificial to identify every ground of challenge to the validity of Mr Whittingham's appointment so as to work out on which issues they succeeded and on which they did not. They argued that they were (ultimately) successful in obtaining relief on the question of whether Mr Whittingham was validly appointed. For this reason, the appellants contended that they should have their costs of this particular issue. They also contended that of the five grounds of alleged invalidity of Mr Whittingham's appointment, four succeeded, albeit two could not be asserted by reason of s 128 of the Corporations Act. This analysis is flawed. Insofar as s 128 of the Corporations Act provided a sufficient answer to an alleged ground of invalidity of appointment, then the appellants were unsuccessful on that ground of invalidity. The combined effect of s 128 and s 129 of the Corporations Act precludes a party from asserting invalidity based on non-compliance with the requirements of the Constitution of a company. 56The appellants contended that there should be no apportionment among sub-issues relating to the question of the Court's discretion under s 447A of the Corporations Act. They argued that Mr Whittingham was in effect a party seeking an indulgence of the Court consequent upon a contravention of the Act (relevantly, s 448A). They pointed to the usual rule that the party seeking such an indulgence should pay the costs of obtaining it should apply: Golski v Kirk (1987) 14 FCR 143 at 157; Amlaki FZ LLC v Pinnacle Network (Aust) Pty Ltd [2008] FCA 1491 at [9]; Elderslie Finance Corporation Ltd v Australian Securities Commission [1993] 11 ACSR 157,161. 57However, the issues raised by the appellants in unsuccessfully opposing the s 447A order made below, went well beyond issues relevant to the circumstances in which the administrator failed to provide his written consent prior to appointment as requested by s 448A. In many respects the issues raised by the appellants involved a challenge to Mr Whittingham's conduct of the administration of the Club. 58The appellants sought to characterise themselves as being in substance defendants rather than plaintiffs, because they were defending themselves against what they characterised as an "unsustainable" claim to validate Mr Whittingham's appointment. They contended that they were entitled to "raise the earthworks". They argued that they should not be deprived of their costs so long as they acted reasonably in raising those issues: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) at [10]; Griffiths v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 at [19]-[20], [38]-[39]. 59This submission ignored that it was the appellants who made the claim against Mr Whittingham under s 447E of the Corporations Act alleging conduct by him prejudicial to the interests of members. The claim was made with the objective of denying the administrator his remuneration and expenses. The claim raised many individual complaints concerning Mr Whittingham's conduct, all of which were unsuccessful before the primary judge. The s 447E claim itself was not pressed on appeal. However, one aspect of Mr Whittingham's conduct, in attempting to sell the Club's core asset, was relied upon on appeal as militating against the making of the curative orders by the primary judge, because it was alleged to be conduct prejudicial to the interests of members. This contention also failed on appeal. In my view, the issues raised by the appellants' unsuccessful s 447E claim are properly viewed as a severable issue. 60The appellants also contended that Mr Whittingham's success below on the issue of discretion was ultimately irrelevant having regard to the findings of this Court on the s 41 issue and the absence of power under s 447A to cure that contravention. They referred to the decision of Barrett J (as his Honour then was) in Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd at [28]-[30] as an example of a case where the Court found no reason to depart from the general rule that costs followed the event, notwithstanding the successful defendant had not succeeded on all issues. In the circumstances of that case, the plaintiff's success on a number of issues was considered to have been irrelevant. Those circumstances were that the primary judge had dealt with those issues against the contingency that the matter was taken on appeal. 61The appellants sought to apply this type of reasoning to the present case, arguing that everything in the decision of the primary judge after [116] and in this Court's decision after [106], was, in a sense, "surplusage". They argued that Mr Whittingham's success was on an irrelevant issue, and accordingly there should be no apportionment among sub-issues relating to the s 447A discretion issue. 62This submission again ignored that it was the appellants who failed below, and did not press on appeal, their claim against Mr Whittingham under s 447E of the Corporations Act. 63In my view, the grounds of invalidity upon which the appellants failed below and which were not affected by the decision of this Court, were clearly severable issues, even if considered sub-issues of the "invalidity" issue. Likewise, the appellants' opposition to the making of a validating order under s 447A of the Act, relying upon the same grounds as raised by their claim under s 447E, relate to a severable issue. Mr Whittingham should not be required to pay the costs of those issues. 64An order apportioning costs of the proceedings below is primarily a matter of impression and evaluation, rather than being arrived at with arithmetical precision. 65Taking into account the importance of the matters upon which the parties have been successful or unsuccessful, the time occupied and the ambit of the submissions made below, as may be gleaned from the materials in the Court Book, together with the appellants delay until February 2011 in raising the s 41 issue, in my view, the appropriate order for costs is that Mr Whittingham pay 40 per cent of the appellants' costs below. 66For completeness, I next address the costs of the interlocutory applications in respect of which the appellants also seek an order for costs.

Costs of interlocutory applications 67In relation to the appellants' proposed Order 1(a) (see [6] above), this relates to an application in the proceedings below on 13 March 2012, that the Club be removed as the first defendant and joined as the second plaintiff. The primary judge made an order that costs be costs in the cause. His Honour also ordered that the plaintiffs pay Mr Whittingham's costs thrown away by the amendments. I would not disturb the latter order. The appellants' costs of this application will fall within the costs order to be made in respect of the proceedings below . 68In relation to the appellants' proposed Order 1(b), the interlocutory application heard by Brereton J on 30 September 2009 related to an application by Ms Correa to restrain Mr Whittingham from completing the contract for sale of a property at 88 Liverpool Street. Brereton J granted injunctive relief restraining completion of the sale and ordered that the costs were to be the plaintiff's costs in the proceedings. At that time, the file number of the proceedings was 2009/4777. Those proceedings were subsequently renumbered 2012/290732, being the proceedings below determined by Black J. The costs of this interlocutory application also fall within the costs order to be made in respect of the proceedings below. 69So far as may be gleaned from the materials available to the Court, the appellants' proposed Order 1(c) relates to an interlocutory application heard by Brereton J on 9 December 2009 in separate proceedings number 2009/5486. Those proceedings concerned an application by Mr Whittingham for directions regarding the holding of a meeting of creditors to vary the terms of the DOCA to enable the completion of the sale of certain property of the Club, or alternatively to place the Club in liquidation. Brereton J declined to give the directions sought by Mr Whittingham and there was no order as to costs: see [2009] NSWSC 1426. There is no appeal by either Ms Correa or the Club in respect of that order. No relief has been sought in the amended notice of appeal directed to that order. It may be put to one side. 70The appellants' proposed Order 1(d), relates to an interlocutory application made in the proceedings below on 18 March 2013 to file a further amended originating process, which challenged the validity of Mr Whittingham's appointment: see [47]-[49] above. That application was heard at the same time as a directions hearing in separate proceedings number 2010/40769, commenced by Mr Whittingham on 15 February 2010 seeking an order under s 447A of the Corporations Act deleting certain provisions of the DOCA, and in the alternative seeking an order under s 445D terminating the DOCA and an order under s 447A appointing Mr Whittingham as liquidator of the Club. What occurred on 18 March 2010 is referred to at [42]-[44] of the principal reasons. His Honour made no formal orders on that date other than to reserve costs of all the applications. 71Again, there is no appeal in respect of any order or judgment in proceedings 2010/40769, and no relief has been sought by the appellants in the amended notice of appeal relating to costs orders in those proceedings. The costs orders, if any, made in those proceedings are not properly the subject of consideration on this appeal. 72Insofar as the proceedings below were mentioned before Palmer J on 18 March 2010, in my view, the costs of that occasion were wasted. This is because, as noted above, Ms Correa adopted inconsistent positions on that occasion in relation to seeking to uphold the DOCA and challenge the validity of Mr Whittingham's appointment. This conduct and the subsequent delay in raising the s 41 issue has been taken into account in the exercise of discretion in respect of the costs of the proceedings below.

Mr Whittingham's proposed declaration 73Mr Whittingham submitted that despite the invalidity of his purported appointment as administrator of the Club, the Deed of Company Arrangement in respect of the Club continues to bind that entity under the general law of contract, because the Club itself agreed to the varied terms of the DOCA and ratified its adoption. This consequence was said to arise from two matters: (1)on 29 February 2012, the directors of the Club resolved that all steps taken by Ms Correa in the proceedings below should be treated as if they were steps taken by the Club; and (2)this necessarily included Ms Correa's consent to orders made by Palmer J on 6 May 2010 varying the terms of the DOCA. 74On the premise that the DOCA bound the Club as a matter of contract, Mr Whittingham submitted that the provisions of the DOCA governed his entitlement to reimbursement by the Club from its property for the entirety of his costs of the proceedings below and of the appeal (cl 19.4) and that he was entitled to have recourse to the assets of the Club for the purpose of discharging any costs orders made against him in respect of the proceedings below and on appeal (cl 20.1(1)(b)). 75The premise of Mr Whittingham's argument is incorrect. A deed of company arrangement derives its force from the Corporations Act, s 444D and 444G. It cannot achieve its statutory effect in binding the company, its creditors and other persons (being its officers and members, and the deed administrator) by its own force: Brandrill Ltd v Newmont Yandal Operations Pty Ltd [2006] NSWSC 974; 24 ACLC 1,179 at [47] per Austin J. 76As explained by Barrett J (as his Honour then was) in Reed Constructions Australia Ltd v DM Fabrications Pty Ltd [2007] NSWSC 1190; 25 ACLC 1,463 at [20]: "... A deed of company arrangement derives its operative force from statute. The statutory process by which the content of an instrument produced and dealt with in a particular way becomes a deed of company arrangement by operation of s.444B(6) was examined by the High Court in MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636. Sections 444D and 444G identify persons who are bound by a deed of company arrangement. Those persons are not parties bound together by contract. They are persons whose rights and obligations are created by law by virtue of the execution of the relevant instrument. They are akin, in that respect, to persons bound by a scheme of arrangement under Part 5.1 of the Corporations Act." (emphasis added). 77In the present case, Mr Whittingham was invalidly appointed administrator of the Club. What was done in procuring a deed of company arrangement is likewise invalid: McIntosh & Anor v CMX Technologies Pty Ltd (Administrators Appointed) [2005] NSWSC 1282; 56 ACSR 283 at [31] per Palmer J. 78If a deed of company arrangement has never come into force, its provisions would never become the source of any obligation: Parkview Constructions Pty Ltd v Tayeh [2009] NSWSC 186; 71 ACSR 65 at [69] per Barrett J. 79There is simply no room for the argument that independently of the Corporations Act, a company may be bound by contract by a deed of company arrangement with a purported "deed administrator", let alone bound by ratification by the act of the member of the Club in court proceedings concerning a deed of company arrangement. This is because the binding force of a deed of company arrangement, insofar as it binds the company and the deed's administrator, only arises by force of s 444G of the Corporations Act. 80There are other problems with the ratification argument, which is based on the Club's adoption of the earlier steps taken by Ms Correa in the proceedings below. First, Ms Correa did not profess to act on behalf of the Club when she consented to the court order varying the terms of the DOCA on 6 May 2010. It is essential for ratification that the agent professes to act on behalf of the principal: Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1987) 8 NSWLR 270 at 276. 81Secondly, Ms Correa never "agreed" to the varied terms of the DOCA. Rather, what she agreed to was a court order varying the terms of the DOCA. Ms Correa did not purport to agree to enter into the DOCA as varied, either on her own behalf, let alone on behalf of the Club. Her conduct in the proceedings below on 6 May 2010 was not amenable to ratification by the Club in any relevant sense such that it could give rise to binding contractual obligations between the Club and Mr Whittingham. 82Accordingly, the declaration sought by Mr Whittingham as referred to in 9 above, should not be made.

The appellants' proposed declaration 83As to the declaration sought by the appellants - that the DOCA and varied DOCA are void ab initio - it is inappropriate for the Court to make such a declaration. 84First, such a declaration is beyond the scope of the relief sought by the appellants in their amended notice of appeal. Secondly, the appropriateness of making such a declaration was not the subject of submissions on the appeal. No attention was given to whether any things were in fact done by Mr Whittingham in such a way as to create independent sources of rights and obligations quite distinct from the rights and obligations purportedly created by the DOCA: Parkview Constructions Pty Ltd v Tayeh at [70]. 85For the purposes of disposition of the costs argument, it is sufficient to record my view that the DOCA never came into force. Accordingly, the DOCA was not binding on the Club or Mr Whittingham pursuant to s 444G of the Corporations Act. Nor was the DOCA binding on creditors pursuant to s 444D of the Corporations Act.

Should Mr Whittingham bear his own costs? 86The appellants submitted that Mr Whittingham should personally bear his own costs of the proceedings below and of the appeal, and pay any costs he might be ordered to pay to the appellants, without recourse to the assets of the Club. 87Mr Whittingham submitted that he was entitled to be reimbursed his legal expenses of the proceedings below and on appeal by the Club, relying upon the right of indemnity conferred by cl 19.4 of the DOCA. He also submitted that he was entitled to have recourse to the assets of the Club for the purpose of discharging any costs orders made against him in favour of the appellants, relying on cl 20.1(b) of the DOCA. 88Mr Whittingham's entitlement to rely upon the right of indemnity and reimbursement provisions of the DOCA has been considered and rejected above. 89Mr Whittingham did not advance any further arguments against the orders sought by the appellants. It was not contended that Mr Whittingham's own legal expenses in relation to the appeal or the proceedings below were for the incontrovertible benefit of the Club: Monks v Poynice Pty Ltd (1987) 8 NSWLR 662 at 665. In circumstances where there is no statutory or contractual entitlement for indemnity or reimbursement in respect of his own costs of the proceedings, nor in respect of any costs which Mr Whittingham might be ordered to pay to the appellants and no basis for a quantum meruit claim, the order sought by the appellants is appropriate and should be made.

Reimbursement of legal costs and expenses already paid 90The appellants contended that they have already paid Mr Whittingham's costs and expenses (including his legal costs) in full. They seek restitution of the payments they have made, together with interest. Proposed Order 4, as amended in the appellants' reply submissions seeks reimbursement of "(... the amount of approximately $1.5-$2 m) as well as $200,000 as security for his costs of the appeal". 91The appellants submitted that this case falls within the principle that when a judgment that has been paid in whole or in part is reversed on appeal, the appellant is entitled as of right to restitution of the sum paid, with interest: Woolworths Ltd v Strong (No 2) [2011] NSWCA 72; 80 NSWLR 445 at 449 [25] per Campbell JA (Handley AJA and Harrison J agreeing). 92There are a number of difficulties confronting the order for restitution sought by the appellants. 93First, the proposed order does not relate to the reversal of the costs orders made below. The costs order made by the primary judge was that the first plaintiff pay the defendant's costs of and incidental to the proceedings as agreed or assessed. That is, Mr Whittingham obtained an order for costs only against Ms Correa. The appellants do not seek restitution in respect of any amount paid by Ms Correa to Mr Whittingham pursuant to that order. Indeed, there is no evidence of the amount, if any, paid to Mr Whittingham by Ms Correa, or the date or dates upon which any payment was made to Mr Whittingham, for the purpose of ordering restitution with interest. 94Secondly, insofar as the proposed order relates to the $200,000 said to have been provided as security for the costs of appeal, the appellants can apply for the release of any such security, after the making of the orders giving effect to these reasons, if Mr Whittingham's consent to the release of such security to the appellants is not forthcoming. 95Thirdly, insofar as the order for restitution is directed to the consequence of this Court's order setting aside the declaration made by the primary judge, that Mr Whittingham is entitled to be reimbursed and indemnified in respect of his remuneration, legal costs and disbursements as administrator and deed administrator out of the assets of the Club, proposed Order 4 lacks specificity and does not provide a mechanism by which those expenses which are said to have been already been reimbursed to Mr Whittingham, might be quantified for the purpose of giving effect to such an order. The appellants refer to an amount of "approximately $1.5-$2 m". 96It is not appropriate for this Court to make an order for restitution in the vague terms sought by the appellants. There is no evidence before the Court of the amounts and dates of any payments by the Club to Mr Whittingham in respect of his legal expenses which are referable solely to the conduct of these proceedings, as opposed to his legal expenses for work performed pursuant to his purported appointment as voluntary administrator and as deed administrator of the Club. 97The orders giving effect to these reasons will provide, in effect, that Mr Whittingham is to personally bear his own costs of the proceedings and pay the costs that he is ordered to pay, without recourse to the assets of the Club. The appropriate forum to determine the quantum of any claim by the Club for restitution of the legal expenses charged by Mr Whittingham to the Club in respect of these proceedings is on the remitter of Mr Whittingham's quantum meruit claim, which has already been ordered. 98In this regard, and for the avoidance of doubt, it is appropriate that the Court make a further order in terms similar to the relief sought in [8] of the amended notice of appeal which was follows: "In the event that the amount of remuneration and expenses determined in accordance with order 7 be less than the amount already paid to the Respondent in respect of his claims for remuneration and expenses as the purported administrator and deed administrator of the Second Appellant, the Respondent pay to the Second Appellant the difference between the amount already paid to him and the amount assessed in accordance with order 7." 99The reference in [8] of the amended notice of appeal to "Order 7" was a reference to an order sought by the appellants that the proceedings be remitted to the primary judge to determine Mr Whittingham's application for remuneration, costs and expenses on a quantum meruit basis. Such an order has already been made by this Court on 15 August 2013: see [303] (5).

Orders 100The orders that I propose are: (1)Order that Mr Whittingham (the respondent) pay 50 per cent of the appellants' costs of the proceedings in the Court of Appeal. (2)The respondent to have a certificate under the Suitors' Fund Act 1951 if otherwise qualified. (3)Order that Mr Whittingham (the defendant) pay 40 per cent of the plaintiffs' costs of the proceedings in the Equity Division including the costs of: (a)the application heard by Black J on 13 March 2012; and (b)the interlocutory application for an injunction heard by Brereton J on 30 September 2009. (4)The Court declares that the respondent is not entitled any right of indemnity or lien over the property of the second appellant for: (a)his liability to the appellants for costs in accordance with Orders 1 and 3 above; and (b)any of his own costs of the proceedings below and of the appeal, with the intent that he personally bear his own costs. (5)In the event that the amount of remuneration and expenses determined by the primary judge pursuant to the remittal of the respondent's claim in [4], [5] and [6] of the amended interlocutory process filed 20 February 2012 (in accordance with Order 5 made by this Court on 15 August 2013), be less than the amount already paid to the respondent in respect of his claims for remuneration and expenses as the purported administrator and deed administrator of the second appellant, the respondent pay to the second appellant the difference between the amount already paid to him (including property furnished by way of security to the extent that it has not been already reimbursed to the second appellant) and the amount assessed by the primary judge. 101TOBIAS AJA: I agree with Gleeson JA.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 January 2014

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