Crawford v Oswald Park Pty Ltd [2006] NSWSC 1078 | Case summary

JUDGMENT 1 This is another matter in which costs orders are sought in the absence of a determination on the merits. 2 The plaintiff and the second defendant are the only contributories in the voluntary winding up of the first defendant. The winding up commenced in October 2004. In July 2005, the liquidator indicated to the contributories the basis on which he intended to distribute the net surplus of more than $2 million between them. There had previously been an interim distribution of $600,000 in February 2005. 3 Differences of opinion arose between the shareholders about the appropriateness of the plan of distribution notified by the liquidator. Those differences became the subject of these proceedings. A hearing took place before Austin J on 28 April 2006. His Honour reserved his decision. 4 On 3 May 2006, the plaintiff made a request for an interim distribution of $500,000. She did so by letter to the liquidator. The second defendant's solicitors stated by letter dated 11 May 2006 that the second defendant did not agree with the idea that there should be an interim distribution of $500,000 or, indeed, any interim payment. The solicitors said that there was no indication that the plaintiff, in making her request, had taken account of "any potential taxation liability, costs orders and other expenses which the company may be obliged to meet". The plaintiff's solicitors replied on 15 May 2006 pointing out that the dispute which had been aired before Austin J involved amounts of $102,682.00 and $39,734.05 and that, with funds in the liquidator's hands being more than $2 million, the interim distribution sought by the plaintiff was reasonable. On the same day, the plaintiff's solicitors wrote to the liquidator's solicitors making the same points and reiterating the request for the interim distribution. 5 The liquidator's solicitors wrote to the plaintiff's solicitors on 16 May 2006. They stated the liquidator's position as being that there would be no interim distribution before delivery of judgment by Austin J. A number of reasons were stated. By letter dated 17 May 2006, the solicitors for the second defendant stated that "it would be prudent to await the judgment of Austin J". 6 On 13 July 2006, the plaintiff filed an interlocutory process by which she sought an order adding the liquidator as a party to the proceedings and an order under s.1321 of the Corporations Act reversing or modifying his decision "made on or about 16 May 2006 refusing to make any interim distribution of the funds of the First Defendant under his control to the Plaintiff", as well as an order "directing Kevin R Shirlaw to distribute out of the assets of the First Defendant under his control an amount of not less than $500,000". This interlocutory process came before the court on 21 August 2006 and was, by consent, stood over to 28 August 2006. On the latter occasion, an order joining the liquidator was made and the balance of the interlocutory process was, by consent, dismissed. I then heard argument on costs. 7 The background to the events of 28 August 2006 appear from Mr Lacy's affidavit of 28 August 2006. Annexed to that affidavit is correspondence between solicitors showing that a consensus had been reached to the following effect on 23 August 2006: (a) the contributories accepted that the liquidator was "entitled to make whatever decision he considers appropriate in relation to the interim adjustment of rights as between the contributories"; (b) the contributories would not seek to challenge the propriety of any decision made by the liquidator in relation to the interim adjustment of rights as between the contributories; (c) that in consideration of a payment representing the liquidator's decision in relation to the interim adjustment of rights by 25 August 2006, the interlocutory process would be dismissed. 8 The letter went on to say that the liquidator had determined to adjust contributories' rights in an interim fashion by making a payment of $600,000 to each of them on 25 August 2006. The payments were made on that day. 9 When the matter of costs was argued on 28 August 2006, the principal submission on behalf of the plaintiff was that the second defendant (that is, the other contributory) should be ordered to pay the plaintiff's costs on the indemnity basis. It was said that such an order was warranted because the second defendant had opposed the making of any interim distribution and had done so on a basis that disregarded the realities of the matter. On the plaintiff's view of matters, the resolution set out in the letter of 23 August 2006 eventuated only after the second defendant had resiled from his "patently false" position. 10 In the alternative, the plaintiff submitted that she should have a costs order against the liquidator personally. 11 The second defendant's position is that he did not agree to the making of the particular interim distribution sought by the plaintiff because he did not know (and could not know) whether the sum the plaintiff proposed was appropriate. He accepted, however, that the liquidator would make any interim distribution he thought fit if and when he considered it appropriate to do so. 12 On this basis, the second defendant says that there should be no costs order against him and in favour of the plaintiff. But he goes further. He says that he should have an order for costs against the liquidator. 13 The liquidator resists any costs order. A particular point made on his behalf is that the agreement of 23 August 2006 was a commercial agreement which cannot be taken as any indication of the rights and wrongs of the parties' positions. It was also submitted (and I accept) that the plaintiff was by no means assured of success in her application directed towards compelling an interim distribution. It has been said that, generally speaking, a liquidator in a voluntary winding up will not be held accountable for delay in effecting distribution to contributories except in case of knowing and wilful conduct actuated by bad faith, dishonesty or fraud: Knowles v Scott [1891] 1 Ch 717. In circumstances where the rights of the contributories had not been adjusted, judgment was pending on questions relating to the matter of adjustment and the two contributories were at loggerheads on the question of the interim distribution proposed by one of them, it would be unlikely that the liquidator's conduct would be found to be wanting in that way. 14 There has been no determination on the merits of the plaintiff's claims in her interlocutory process filed on 13 July 2006. Guiding principles with respect to costs are therefore those noted in the judgment of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at pp.624-625 and recently discussed by McColl JA in Fordyce v Fordham [2006] NSWCA 274. These matters are referred to in my judgment in Cockatoo Ridge Wines Ltd v Naked Wines Direct Pty Ltd [2006] NSWSC 1074 published at the same time as these reasons. I will therefore not go over the same territory again. I would, however, add a reference to the recent decision of Young CJ in Eq in Indyk v Wiernik [2006] NSWSC 868 where those guiding principles were applied in a situation analogous to that before me, being a situation in which one of the claims was a claim that an executor should be compelled to make an interim distribution. 15 The expectation that there should be no order as to costs in respect of the interlocutory process will yield to some other result only if some element of unreasonableness is found. In saying that, I discount the possibility that the plaintiff's likelihood of success in her interlocutory application was so obvious that I should proceed on the basis of any view or assumption as to what the outcome would have been. 16 I am not satisfied that the second defendant acted unreasonably. He was of the opinion that there should be no interim distribution while the matters of uncertainty that had been aired before Austin J remained unresolved. That view, while perhaps unduly conservative, was not perverse or unreasonable. And, of course, the second defendant had no power or ability to cause the liquidator to act in any particular way. No basis for a costs order against the second defendant and in favour of the plaintiff has been sufficiently shown. 17 When it comes to the liquidator, the possibility of a costs order against him personally falls to be assessed against the principle recognised by the Court of Appeal in Mead v Watson (2005) 23 ACLC 718 that a liquidator will be ordered to pay costs from his or her own pocket only if the position taken by the liquidator in the litigation was unreasonable, unnecessary or dishonest. For the reasons I have stated in relation to the liquidator's refusal to accede to the plaintiff's request for the particular interim distribution, his conduct in relation to the subject matter of the interlocutory process was not of that quality. 18 As for the proposition that the plaintiff should pay the second defendant's costs, it is sufficient to say that the plaintiff did not act unreasonably in pressing for an interim distribution. 19 In the result, there will be no order as to costs in respect of the plaintiff's interlocutory process filed on 13 July 2006, to the intent that each party shall bear her or his own costs. **********

Crawford v Oswald Park Pty Ltd

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Judgment (11 paragraphs)

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