O'CALLAGHAN J
1 On 4 July 2024, I made orders summarily dismissing the related proceedings VID 31, VID 32, VID 33, VID 34 and VID 35 of 2024 (the 2024 proceedings), and dismissing VID 410 of 2022. See Cussen, in the matter of Monarch Tower Pty Ltd (in liq) v Sinoace Holdings Ltd [2024] FCA 716 (Reasons). In the Reasons, I invited the parties to file brief submissions about costs. This judgment deals with that issue.
2 The first applicant in each of the proceedings, Mr Neil Cussen, was appointed the liquidator of the second applicant, Monarch Tower Pty Ltd, in August 2019.
3 On 9 March 2023, on the liquidator's application made in proceeding VID 410 of 2022 pursuant to s 588FF(3)(b) of the Corporations Act 2001 (Cth) (the Act), I made an order extending the time for making an application under s 588FF(1) of the Act up to 22 January 2024 with respect to "any voidable transaction involving the Company, and including voidable transactions involving each of any of" a named list of persons and entities.
4 By five separate originating processes filed on 22 January 2024, the liquidator sought to bring applications under s 588FF(1) in the 2024 proceedings against some of the persons named in the 9 March 2023 order, and sixteen other persons not named in it.
5 In breach of the Federal Court Rules 2011 (Cth) (Federal Court Rules) and the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules), however, the liquidator did not serve a copy of the originating processes and supporting affidavits on any respondent by the first return date on 2 February 2024. The liquidator then made an application in each of the 2024 proceedings seeking orders for the time for service of the relevant originating processes and supporting affidavits to be extended nunc pro tunc.
6 Each of the respondents (other than those in VID 35 of 2024) then sought to have the proceeding brought against them set aside or permanently stayed on various overlapping grounds. I summarily dismissed each of the 2024 proceedings, in short, for the following reasons:
(a) On its proper construction, the 9 March order extending the time for making an application under s 588FF(1) of the Act only extended to the entities and individuals named in the order. It did not extend to the respondents who were not named, and it was, as the liquidator accepted, now too late to bring any application against them.
(b) The first respondent in VID 31 of 2024, Sinoace Holdings Ltd (BVI), although named in the 9 March order, was never served with the liquidator's extension application in VID 410 of 2022. I therefore set aside the order in so far as it applied to it. I also rejected the liquidator's contention that I had authority to re-hear the extension application made under s 588FF(3)(b) in VID 410 of 2022, finding that that application was spent.
(c) I refused the liquidator's application for nunc pro tunc orders extending the time for service of the originating processes and supporting affidavits in the 2024 proceedings because I found that the liquidator deliberately arrogated to himself the decision not to serve the respondents within the time provided for by the rules, and could not subsequently resile from that position.
7 I also dismissed proceeding VID 410 of 2022.
8 The parties in VID 34 of 2024 were able to reach agreement on the question of costs. I therefore made orders by consent in that proceeding on 23 August 2024 and there is no need to address it further here.
9 Similarly, the applicants and the second, thirteenth and fourteenth respondents in VID 33 of 2024 also reached agreement about costs. Accordingly, I made consent orders giving effect to that agreement on 18 October 2024.
10 The respondents in VID 35 of 2024 did not appear. As such, no order will be made as to costs in respect of that proceeding.
11 That leaves VID 31, 32 and the first, third to twelfth and fifteenth respondents in 33 of 2024 (who, for convenience, I will refer to as the Payton respondents). In each of those proceedings, the relevant respondents seek orders that the applicants or first applicant pay their costs on an indemnity basis, on a number of different but overlapping grounds. The applicants oppose each of those applications, and submit that they should instead pay the respondents' costs on a standard basis.
12 For the reasons that follow, I am of the view that the liquidator's deliberate breach of the court's rules and his decision to arrogate to himself the decision not to serve the originating processes and supporting affidavits before public examinations were conducted is a sufficient basis to order that the applicants pay the costs of the respondents in VID 31 and 32 of 2024 and of the Payton respondents in VID 33 of 2024, on an indemnity basis. As this ground is applicable to and relied upon by all respondents, it is not necessary for me to consider the other various grounds upon which the respondents seek an order for indemnity costs.
13 The relevant legal principles are well established and were not in dispute.
14 The court has a broad power to award costs, including indemnity costs, under s 43 of the Federal Court of Australia Act 1976 (Cth) (the FCA Act). In exercising the discretion to award costs, s 37N(4) of the FCA Act requires the court to take account of any failure by a party or their lawyer to comply with the duty to conduct the proceeding consistently with the overarching purpose of the civil procedure provisions set out in s 37M, viz to facilitate the just resolution of disputes according to law; and as quickly, inexpensively and efficiently as possible.
15 Where the circumstances of the case warrant a departure from the usual course the Court may order indemnity costs. The circumstances which may justify the exercise of the discretion are not exhaustive, but in broad terms an order for indemnity costs requires that some "special or unusual feature arises". See Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd (No 2) [2017] FCAFC 116 at [3]-[5] (Jagot, Yates and Murphy JJ).
16 As noted above, a basis for indemnity costs upon which all respondents rely is the liquidator's deliberate breach of the court's rules in determining not to promptly serve the originating processes and affidavits in support filed on 22 January 2024.
17 As I explained at [47]-[61] of the Reasons, pursuant to the Federal Court Rules and Corporations Rules, the liquidator was required to serve those documents on the respondents as soon as practicable, and in any event, at least five days before the first return date of the originating applications, which was 2 February 2024.
18 On 30 January 2024, however, the liquidator obtained advice from his solicitors and counsel about extending the time for service of the originating processes and supporting affidavits. The liquidator's lawyers proposed that rather than complying with the rules for service, he should instead not serve the applications until after the conclusion of planned public examinations commencing in April 2024. The liquidator deposed in affidavits read and relied upon in the 2024 proceedings that his intention was to complete the public examinations before continuing with the voidable transactions because:
(a) the public examinations may reveal facts and documents that are relevant to the further conduct of proceedings, as well as the relief sought and the claims made in those proceedings;
(b) it would be less onerous on the applicants' administrative resources and solicitors if the public examinations were completed prior to the continuation of the voidable transaction proceedings; and
(c) similarly, it would be less onerous on the respondents, and their resources, and the resources of the respondents' legal representatives, if any, if the public examinations were completed first, prior to the continuation of the voidable transaction proceedings.
19 The liquidator also deposed that he had been undertaking discussions with the funder for further funding in connection with the public examinations and the voidable transaction proceedings. He gave evidence that his ongoing negotiations with the funder were an "ancillary consideration" for him at the time he instructed his lawyers to apply to extend time for service of the originating processes and supporting affidavits, as this would have the added benefit of allowing him further time to finalise those negotiations before incurring further costs in the substantive proceeding.
20 On 1 February 2024, the liquidator's solicitors advised the court of their client's position that they "ought to refrain" from serving the originating processes until after the public examinations had concluded, and that the respondents had not been served but had been "informed" about the proceedings.
21 The case management hearing was then adjourned to 16 February 2024. At the hearing, counsel for the respondents in VID 32 of 2024 indicated their intention to apply for orders for a permanent stay of the proceeding on the basis that the originating process and supporting affidavit had not been served in accordance with the rules. In the course of doing do, counsel referred to the decision of the Victorian Court of Appeal in Horne v Retirement Guide Management Pty Ltd (2017) 54 VR 325, which recites the well-established principles, among others, that a decision not to serve, made by a plaintiff for forensic or strategic purposes, is antithetical to the duty to serve promptly; and a delay in service of a proceeding commenced under s 588FF, in contravention of the applicable rules, is particularly serious if it occurs after the expiration of the limitation period. Those principles are extracted at [165] of the Reasons.
22 The liquidator deposed that his solicitors and counsel informed him that they had not been aware of the decision in Horne. Following the case management hearing on 16 February, the liquidator instructed his solicitors to effect "service" of the originating processes and supporting affidavits on all the respondents in the voidable transaction proceedings, and to apply to adjourn the proceedings until after the conclusion of the public examinations. The documents were subsequently provided to the various respondents on various disparate dates.
23 On 12 March 2024, the liquidator lodged interlocutory processes in each of the voidable transaction proceedings seeking orders extending the time for service of the relevant originating processes and supporting affidavit nunc pro tunc until various different dates.
24 I refused the liquidator's applications to extend the time for service nunc pro tunc for the reasons given at [167]-[172] of the Reasons. In essence, I accepted the submissions made on behalf of the respondents, summarised at [166] as follows:
the liquidator deliberately and strategically took it upon himself not to take any steps to serve the originating process on the respondents; that he knowingly allowed the time for service required by r 2.7 of the Corporations Rules and r 8.06 of the Federal Court Rules to expire, including because it would be "less onerous" on him to delay service until after the completion of certain public examinations; and that in those circumstances, having arrogated to himself a decision to delay service that was not his to make, his application for nunc pro tunc orders to make good late service should be refused.
25 In particular, at [167] of the Reasons, I extracted (and adopted in full) the submissions of counsel for the respondents in VID 32 of 2024 which, in my view, precisely explained why the liquidator's application should be refused. They included, relevantly:
As Hodgson JA noted in Tolcher v Gordon, "[a] liquidator who does not commence proceedings until just before expiry of the limitation period should in my opinion be especially diligent in pursuing prompt service of the proceedings", and any "delay in service of such proceedings, in contravention of the rules, is particularly serious if it occurs after the expiration of the 3-year limitation period." The Liquidator in the present case has shirked diligent service and instead set in motion a scheme which was designed to obtain for him what was tantamount to a further extension to the extension period he had previously been granted in order for him to continue investigations into the 588FF(1) claims against the Respondents through conducting public examinations.
Delaying service of an originating process in order to conduct further investigations into the merits of a claim has been specifically rejected by the Court; in Pell v Hodges Handley AJA stated "[a] plaintiff who issues proceedings just before the limitation period and only then has the merits of the case investigated should not have any expectation of obtaining an extension of time to enable investigations to continue. There should also be no expectation that time spent in this way after the statement of claim has been issued, especially after it has become stale, will be accepted as an adequate explanation for such delays."
Delaying service of an originating process in order to avoid costs and inconvenience in a liquidation, being the only other reason given by the Liquidator for his deliberate decision to withhold service, was specifically rejected by Judd J in Horne as founding a proper basis upon which to extend the date for service of a proceeding commenced under s 588FF of the Corporations Act.
In an application for an extension of time to affect service, the applicant is required to demonstrate reasonable steps have been taken to attempt to serve the court process. None [was] taken in this case.
In Buzzle Ipp JA stated that "a deliberate decision to allow a writ to become stale after a limitation period had expired would be a powerful factor against the grant of [an extension]. Any prejudice suffered, in such circumstances, were the writ not to be extended, would be self-inflicted … the failure of the Liquidator to serve in this case was entirely deliberate. Any prejudice the Liquidator may [have] suffered as a result of his application for an extension of time being refused is, therefore, self-inflicted.
…
There was further a continued stark lack of diligence by the Liquidator in seeking to obtain an extension of the time to affect service. It was communicated to the Respondents that the Liquidator had instructed his lawyers not to make a formal application to extend time for service in an email sent on 15 February 2024, following Summer Lawyers' proposal to Mills Oakley that this was the proper course to adopt. Despite orders made by the Court on 16 February 2024 requiring the Liquidator to make any application for an extension of time for service by 4pm on 8 March 2024, no formal application to extend time for service was made until 12 March 2024. This lack of diligence by the Liquidator occurred with the knowledge that the limitation period for the commencement of the proceedings set by the extension period had expired, the time for service of the proceedings had been allowed to expire, this was in contravention of the service requirements of the Court Rules and required the indulgence of an extension of time by the Court pursuant to r 1.39 the Rules, and of the authority of Horne, of which he was made aware on 16 February, that the Courts took a very dim view of such conduct by liquidators. As such, the Liquidator is not blameless for the dilatory conduct in this case.
26 I also observed, at [169]-[170] of the Reasons, that:
[t]he liquidator's conduct in arrogating to himself the role of deciding when to effect proper service on the respondents, flying in the face of the Rules and the applicable principles, is made even worse in light of the leisurely way he has approached his task since his appointment, and his unfortunate practice of making court applications on the final day of limitation periods.
…
As the liquidator's own evidence demonstrated, from 30 January 2024, he was aware that the time for service had expired. With that knowledge, and for the strategic purposes to which he deposed, and which are set out above, he took it upon himself to decide for himself when service should occur, for a reason that could best be summed up as "because it suited me to do so".
27 As each of the respondents submitted, it is readily apparent from what I said in the Reasons that the liquidator's conduct is a sufficient basis to justify departure from the usual costs order.
28 The liquidator deliberately contravened r 2.7 of the Corporations Rules and arrogated to himself a decision that should have been the subject of an application to the Court for an extension of time made before the expiry of the time limit under 2.7. As the respondents in VID 31 of 2024 submitted, it follows, by reason of what is said in Horne, that the liquidator deliberately and knowingly failed to comply with his obligations under ss 37M and s 37N(1) of the FCA Act.
29 The deliberate and knowing delinquency on the part of the liquidator was done for his own ulterior and strategic purpose, and was so serious as to warrant summary dismissal of the proceedings. In my view, it clearly rises to the level of a special or unusual feature which justifies that the applicants pay the respondents' costs on an indemnity basis in each proceeding, and I will order accordingly.
30 I should note that I do not accept the liquidator's submission that his conduct does not justify such an order because it did not occasion greater expense to the respondents, and instead "provided a basis to the respondents to apply for a summary stay of the proceeding". That submission is fundamentally flawed. It fails to recognise that the liquidator's deliberate non-compliance with the rules led to the respondents incurring the cost of preparing and filing interlocutory applications seeking permanent stay or summary dismissal of the proceeding on that basis, and incurring further costs for the preparation and hearing of those applications when they were opposed by the applicants.
31 No submissions about costs were filed in proceeding VID 410 of 2022. However, the Payton respondents also sought that the first applicant pay the costs of their interlocutory process filed on 22 April 2024 in proceeding VID 410 of 2022 on an indemnity basis.
32 By that application, the Payton respondents sought to be joined as defendants to the VID 410 proceeding, and to have the 9 March 2023 order set aside insofar as it affected them (replicating one aspect of their application in VID 33 of 2024). As I explained at [15] of the Reasons, in the view I took of the various applications in the 2024 proceedings, it was not necessary to deal separately with that application in VID 410 of 2022. That was, in effect, because of the conclusion I reached that the 9 March order did not apply to any parties who were not named in it, including the Payton respondents.
33 The Payton respondents submitted that they should nevertheless be awarded their costs of the interlocutory application in VID 410 of 2022 on an indemnity basis because:
(a) although not determined, the Court accepted much of the reasoning underpinning their application, albeit with respect to Sinoace BVI (in VID 31 of 2024) which had been named in the 9 March order but not served (see [114] and [115], [124]-[147] of the Reasons);
(b) apart from the interlocutory process and a very brief affidavit in support, the respondents did not file any materials in proceeding VID 410 of 2022 additional to those already filed in proceeding VID 33 of 2024.
(c) the application was a necessary adjunct to the applications already on foot in response to Button J's concerns (to whom the 2024 proceedings were initially allocated for case management) that the Court might not be permitted to make an order in proceeding VID 33 of 2024 that affected the 9 March orders made in proceeding VID 410 of 2022.
34 The Payton respondents further submitted that the liquidator's conduct in respect of VID 410 of 2022 was "also deserving of criticism" because although he had documents detailing the Payton respondent's and other non-named parties' position, he failed to make any application under s 588FF(3) with respect to those parties (see [101]-[102] of the Reasons) but then instituted proceedings against them.
35 While I accept that the Payton respondents suffered additional inconvenience and incurred further costs in filing the VID 410 of 2022 application, as they recognised, this application replicated an aspect of their application filed in VID 33 of 2024, and the further costs and inconvenience would have been minimal. And while it may be that the liquidator's conduct in VID 410 of 2022 is "deserving of criticism", I do not consider that it rises to the same level of seriousness as that of his deliberate conduct in the 2024 proceedings in breach of court rules and procedures.
36 For those reasons, I do not consider that these circumstances justify departure from the usual course, and I will therefore order that the applicants pay the Payton respondents' costs of their interlocutory application filed in VID 410 of 2022 on a standard basis.
I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Callaghan.