Environmental & Earth Sciences Pty Limited v Vouris

Environmental & Earth Sciences Pty Limited v Vouris - [2006] FCA 679 - FCA 2006 case summary — Zoe

[6]

Background facts 1 These proceedings have their origins in the purchase by Charben Haulage Pty Limited ('Charben') of the site of the Caltex garage situated on the Pacific Highway at Killara. 2 In 2002 Charben sued the plaintiff, Environmental & Earth Sciences Pty Limited, and Caltex Petroleum Pty Limited for, amongst other things, damages for misleading conduct in relation to two reports concerning the service station site. 3 On 8 April 2004 Charben obtained a judgment against the plaintiff in the sum of $2,147,800 in respect of the misleading conduct. 4 On or about 17 May 2004 the plaintiff paid $1.4m to Charben in partial satisfaction of the judgment and on 21 May 2004 the plaintiff paid a further $747,800 to Charben's lawyers to be held in trust to abide the outcome of the plaintiff's appeal from the judgment at first instance. 5 On 22 December 2005 the plaintiff's appeal was upheld, the orders made at first instance on 8 April 2004 were set aside and, in lieu thereof, an order was made that the proceeding against the plaintiff be dismissed. On 20 January 2006 an application for special leave to appeal was filed in the High Court but that application has yet to be determined. 6 The costs of the proceeding at first instance and of the appeal were reserved, directions being made for the filing and service of written submissions thereon. 7 On 19 January 2006 the Full Court relevantly amended the directions given by it on 22 December 2005, extending the time for the filing of written submissions in respect of costs. Charben's submissions in reply were due to be filed by 5pm on 17 February 2006. 8 On 19 May 2006 the Full Court which determined the appeal ordered Charben to pay 80% of the plaintiff's costs on the appeal, to pay the costs of the plaintiff on the hearing at first instance and to pay the costs of the plaintiff on the costs application. 9 On or about 6 February 2006 the plaintiff was repaid the amount of $747,800 which had been held in trust by Charben's solicitors pending the outcome of the appeal. However, notwithstanding a demand for payment, none of the balance of $1.4m, paid by the plaintiff to Charben on or about 17 May 2004, has been repaid. 10 On 9 March 2006 the plaintiff issued a statutory demand on Charben for the repayment of the balance of $1.4m. That demand was not satisfied within the requisite 21 day period. 11 On 31 March 2006 Charben proceeded to appoint an administrator in accordance with s 436A of the Corporations Act 2001 (Cth) ('the Act'), the board of Charben having resolved to the effect that: (a) in the opinion of the sole director, the company was insolvent or was likely to become insolvent at some future time; and (b) an administrator of the company should be appointed. 12 Under s 436E of the Act the administrator of Charben, Mr John Vouris, the first defendant, was obliged to convene a meeting of the company's creditors (the 'first meeting') in order to determine whether to appoint a committee of creditors and, if so, who should be members of that committee. The first meeting took place on 7 April 2006. It will be appreciated that as at the date of that meeting no orders for costs had relevantly been made against Charben in the plaintiff's favour even though the plaintiff had been successful in its appeal and it had been ordered that the proceedings brought against it by Charben be dismissed. 13 With a view to securing a right to vote at the first meeting, the plaintiff lodged a proof of debt with the administrator of Charben dated 6 April 2006 claiming an entitlement to $1.4m being the balance owing under the Full Court's judgment of 22 December 2005 and $617,000 for legal costs described in a Schedule as follows: 'Legal costs incurred by client in relation to proceedings referred to in paragraph 1 [the proceedings which had been the subject of the Full Bench decision in the plaintiff's favour of 22 December 2005]. Costs claimed are on party/party basis being 2/3 thirds (sic) of the actual costs incurred by EES. See copy of Colin Biggers & Paisley Billing Status Report for period 1 January 2001 to 5 April 2006 attached.'

[10]

21 At the meeting on 27 April 2006 the creditors proceeded to pass resolutions providing for the remuneration of the administrator and his staff and for the adjournment of the meeting until Friday 23 June 2006. 22 Prior to the administrator rejecting the proof of debt for voting purposes to the extent to which it claimed an amount in excess of $1.4m the administrator received from his lawyers a letter of advice dated 19 April 2006, which relevantly provided as follows: 'The issue discussed at our meeting with the directors and Phillips Fox was whether … the claims of EES and Caltex (to the extent that they have any claims) with respect to costs are debts/claims which are provable in any Deed of Company Arrangement that may be proposed. As we have indicated to you in our view they are not. It is of course a matter for any party propounding a Deed of Company Arrangement to specify in the proposal the debts and claims of creditors which are provable in the Deed (see section 444A(4) of the Corporations Act). Relevantly however section 444A(4)(i) states that the Deed must specify the day (being a day not later than the day when the administration began) on or before which claims must have arisen if they are to be admissible under the Deed. The word "claims" is not defined in the Act although the definition contained in 553 of the Corporations Act which deals with debts provable in a winding up is often used as the definitions in a Deed as to which claims are provable in the Deed. Whatever definition of claims is incorporated into the Deed however it is clearly the case that the claim must have "arisen" by the time of the Administrator's appointment for the debt to be provable. The question arises whether the asserted right of Caltex and EES to the benefit of Costs Orders is a claim which has "arisen"as at the date that the Administrator was appointment (sic). In our view the claims had not "arisen" at that date. As long ago as 1899 the Courts had determined (in Bankruptcy proceedings - see Re: British Goldfields of West Africa (1899) 2 Ch 7) that the legal costs arising out of Court proceedings are not provable unless an Order is made for the payment prior to the date of the winding up. The New South Wales Supreme Court recently considered this position when determining whether the costs incurred by an applicant in seeking to wind up a company are provable in a subsequent Deed of Company Arrangement in circumstances where no Order had been made for costs with respect to that application prior to the Administrator's appointment. The Court held that such costs were not provable in the Deed of Company Arrangement (see McDonald v Deputy Commissioner of Taxation (2005) 23 ACLC 324). The logic behind these decisions is that the award of costs is a matter which is wholly within the discretion of the Court. While in many cases it is fairly predictable as to how that discretion will be exercised (ordinarily costs follow the event so that the successful party would expect an Order to be made in their favour with respect to costs) until the Court actually exercises its discretion to make an Order it is wholly impossible for an Administrator or Liquidator to make an assessment that the discretion will be exercised in a particular way. It seems to us this is particularly the case in the circumstances of this matter. The issue concerning costs is complicated. There are clearly complex matter to be taken into account in determining what if any Costs Orders should be made and it seems to us those complexities only reinforce the importance of the following the previous authorities and not allowing EES or Caltex to vote with respect to any amount they may claim for legal costs nor to participate in any distribution that may be under any Deed of Company Arrangement that may be proposed. There have been cases which have considered exceptions to this principle. There is some authority for the proposition that contractual arrangements between the parties may alter the legal position. If for instance a party agrees in a contract to be responsible for another parties legal costs then there is an argument that the costs have arisen under that contract and so may be provable. In Re: Pasminco Limited (2002) 20 ACLC 782 considered whether costs associated with pursuing a personal injury action against the Company would be provable. The Court considered alternative views as to the nexus between incurring costs and obtaining compensation for personal injury but reinforced the general principle that costs are not provable in the absence of agreement to the contrary or an Order for their payment. In all the circumstances we confirm that we do not believe EES and/or Caltex should be allowed to vote or prove for their legal costs. To the extent that an Order is made by the Court subsequently those costs will be claimable against the Company and it may be if Caltex and EES intend to pursue their claim for costs (if an order is made in their favour) that it is important for the purposes of any Deed proposal that the directors commit to continuing to resist the making of any Order for Costs and give some consideration as to how any Order against the Company would subsequently be funded. It seems to us little point in proceeding with a Deed of Company Arrangement if the commercial reality is that the Company will subsequently face insolvency by breach of its inability to meet an adverse Costs Order.'

[14]

A just estimate of the value of the plaintiff's claim for costs 30 In the course of the hearing of the matters, counsel for the administrator informed the Court that the administrator did not want to be heard in opposition to the proposition that two-thirds of the actual costs incurred by the plaintiff in the earlier proceedings would represent a just estimate of the value of the plaintiff's entitlement to costs were the plaintiff's entitlement to be 100% on all issues. Given that the plaintiff's entitlement in respect of its costs on the appeal was limited to 80% of its costs, a just estimate would be a lesser amount. At the conclusion of the hearing of the applications leave was granted to the plaintiff to file and serve evidence on the appropriate quantum for which a right to vote at the adjourned meeting of creditors on 23 June 2006 should be allowed by the administrator. Liberty was granted to either party to apply should such party wish to be further heard in respect of the relevant additional evidentiary material. No such application has been made within the time allowed for that purpose. 31 In an affidavit sworn 26 May 2006 Dean George Bitsis a solicitor in the employ of Colin Biggers & Paisley, has deposed to the fact that as at 25 May 2006 the costs and disbursements incurred by the plaintiff through Colin Biggers & Paisley have totalled $937,140.20. Mr Bitsis has referred to the fact that the plaintiff was originally represented by Levy Peatman solicitors and later by Hunt & Hunt solicitors before Colin Biggers & Paisley were retained as the solicitors for the plaintiff on 23 April 2003. 32 According to Mr Bitsis the appeal proceedings commenced on 28 April 2004. Mr Bitsis apparently assumed the conduct of the matter for the plaintiff under the direction of Mr Skehan, who was the solicitor on the record, in July 2004. 33 Mr Bitsis says that the plaintiff's costs and disbursements in relation to the trial including GST totalled $188,479.51. In respect of the appeal he says that the plaintiff's costs and disbursements including GST totalled $917,128.43. 34 It is difficult to reconcile with precision the earlier claim in respect of costs as recorded in the proof of debt of 6 April 2006 with the figures now provided. Be that as it may, the total costs of the plaintiff of the trial and of the appeal to 25 May 2006 are now said to have been $1,105,607.94. In respect of this sum the question arises as to what amount would represent a just estimate of the value of the claim for costs in the light of the Full Court's judgment in relation to costs of 19 May 2006. In Mr Bitsis' affidavit he suggests that in respect of professional costs it is likely that on taxation there will be a reduction of 15% to 25% in respect of the amount claimed and that, in respect of disbursements, there is likely to be a 10% reduction in respect of the amount claimed. These percentages are, of course, inconsistent with the discount which Mr Harkin considered appropriate when formulating the proof of debt, namely one-third. 35 If one applies Mr Harkin's one-third discount to trial costs and disbursements totalling $188,479.51, the resultant just estimate becomes $125,653.00. Again, if one applies Mr Harkin's one-third discount to the amount said to have been incurred by way of appeal costs and disbursements totalling $917,128.43, a just estimate becomes $611,418.95. In relation to this figure Mr Bitsis accepts that there should be a further 20% discount in the light of the order made by the Full Court in respect of the plaintiff's entitlement to be paid costs on the appeal. This would reduce the just estimate in respect of the appeal costs to $489,135.16. 36 Mr Bitsis propounds that a just estimate of the plaintiff's costs should be $157,323.58 for the trial and $644,926.99 for the appeal, a total of $802,250.57. In my opinion the administrator would be justified in allowing for voting purposes an amount of $125,653 in respect of the plaintiff's costs and disbursements of the trial and an amount of $489,135.16 in respect of the plaintiff's costs and disbursements of the appeal, a total of $614,788.16. This, of course, is subject to the plaintiff establishing that it has an entitlement to have its proof in respect of costs admitted, at least in part, for voting purposes.

[34]

'554A(1) This section applies where, in the winding up of a company, the liquidator admits a debt or claim that, as at the relevant date, did not bear a certain value. (2) The liquidator must: (a) make an estimate of the value of the debt or claim as at the relevant date; or (b) refer the question of the value of the debt or claim to the Court. (3) A person who is aggrieved by the liquidator's estimate of the value of the debt or claim may, in accordance with the regulations, appeal to the Court against the liquidator's estimate. (4) If: (a) the liquidator refers the question of the value of the debt or claim to the Court; or (b) a person appeals to the Court against the liquidator's estimate of the value of the debt or claim; the Court must: (c) make an estimate of the value of the debt or claim as at the relevant date; or (d) determine a method to be applied by the liquidator in working out the value of the debt or claim as at the relevant date. (5) If the Court determines a method to be applied by the liquidator in working out the value of the debt or claim, the liquidator must work out the value of the debt or claim as at the relevant date in accordance with that method. (6) If: (a) the Court has determined a method to be applied by the liquidator in working out the value of the debt or claim as at the relevant date; and (b) a person is aggrieved by the way in which that method has been applied by the liquidator in working out that value; the person may, in accordance with the regulations, appeal to the Court against the way in which the method was applied. (7) If: (a) a person appeals to the Court against the way in which the liquidator, in working out the value of the debt or claim, applied a method determined by the court; and (b) the Court is satisfied that the liquidator did not correctly apply that method; the Court must work out the value of the debt or claim as at the relevant date in accordance with that method. (8) For the purposes of this Division, the amount of the debt or claim that is admissible to proof is the value as estimated or worked out under this section. 554B The amount of a debt that is admissible to proof but that, as at the relevant date, was not payable by the company until an ascertained or ascertainable date ('the future date') after the relevant date is the amount payable on the future date reduced by the amount of the discount worked out in accordance with the regulations.' (emphasis in original)

[36]

'849. The reforms embodied in these provisions reflect the recommendations of the Harmer Report in relation to the making of claims in insolvency. As the reforms relate to matters which under the current law are dealt with under the Bankruptcy Act, and incorporated into the Corporations Law by reference under s 553, the implementation of these reforms has necessitated the incorporation in the Corporations Law of provisions modelled on sections in the Bankruptcy Act. This is in line with the general policy implicit in the Harmer Report that the provisions dealing with insolvency of companies should, as far as practicable, be located within the Corporations Law rather than included by reference. 850. As a result of the current application of the Bankruptcy Act provisions, demands in the nature of damages arising otherwise than by reason of contract, promise or breach of trust are not provable in the winding up of a company (Bankruptcy Act, subsection 82(2)). 851. The Harmer Report noted that this could result in a number of anomalies, not the least of which is that a set of circumstances can produce both a claim in tort and in contract. … The Harmer Report made the point that there was no justification for such a distinction and noted that this could result in significant injustice where a claim could only be framed in tort. In such cases the claimant would make no recovery at all. The Harmer Report noted that the only substantial argument against permitting claims for unliquidated damages in tort was the problem of quantification. The Report noted too that this had not prevented claims for unliquidated damages arising from contract being made. … … 853. The operation of proposed sections 553 and 554A overcome the effect of subsection 82(2) of the Bankruptcy Act and thereby permit claims in tort which are unliquidated at the time of the winding up to be admissible in the winding up. Proposed section 554A provides for the determination of the value of debts and claims of uncertain value. … 855. The Harmer Report recommended a procedure for quantification in corporate insolvency where the amount of the claim is not certain. … … 861. Proposed section 553 re-enacts those parts of existing subsection 553(1) which are not dealt with by other proposed provisions, and provides that in every winding up, all claims against the company (present or future, certain or contingent, ascertained or sounding only in damages) are admissible to proof against the company. … Proposed section 554A - Determination of value of debts and claims of uncertain value. 876. Proposed subsection 554A will give effect to the recommendation of the Harmer Report that a mechanism be provided for the estimation of a debt or claim of uncertain value. …'

[38]

'Introduction Principles 774. A comprehensive system. A basic aim of insolvency law is to deal comprehensively with all the debts and liabilities of the insolvent. In the case of an individual insolvent, the aim is to have all claims to which the insolvent was subject at the time of the commencement of the formal administration resolved so that the insolvent can made a fresh start. This reflects the rehabilitative aim of insolvency law. In the case of a company, the aim is to deal with all the claims against a company so that its affairs can be fully wound up or so that it can resume trading. 775. A simple procedure. To facilitate the proving and administration of claims, the procedure provided should be as simple as possible and the rules relating to various aspects of the procedure (particularly the quantification of claims) should be clear. 776. Terminology. The process whereby creditors are required to notify the trustee or liquidator of their claims against the insolvent is currently referred to as "proving a debt". The Commission prefers the expression "making a claim" as being more comprehensive and therefore more accurate, and the term "admissible" as describing a claim that may be accepted by the insolvency administrator. 777. The need for wide categories of admissible claims. The categories of claims which are admissible should be as wide as possible so that the financial affairs of the insolvent are dealt with comprehensively [emphasis added]. In the case of individuals, this promotes the policy of rehabilitation and thus primarily favours the debtor by including the maximum number of claims in the insolvency process and releasing the debtor from those claims. It also reduces the wasteful cost of pursuing (usually, to no productive end) claims which are not admissible. In the case of corporate insolvency, it completes the insolvency process. In the case of an insolvent winding up, it also favours creditors, since, if the creditors are unable to make their claims in the insolvency, they are unable to recover at all [emphasis added] (unless they have a basis for action against either directors of the company or a guarantor of the company's debts or unless the winding up is stayed). The Commission recommends that this basic principle should also apply to a voluntary insolvency administration, such as under Part X of the Bankruptcy Act and the proposed deed of company arrangement form of administration. … Admissible claims A broader provision? 779. The Commission's view that the categories of admissible claims should be as wide as possible required a review of the admissibility of claims for unliquidated damages in tort and fines [emphasis added]. Neither of these categories is admissible in an individual bankruptcy or a corporate involvency (sic). [The legislature later rejected the proposed extension of claims to include fines: see s 553B of the Act] Tort Claims 780. Current law. … The present Australian law in relation to tort claims in an insolvency is that tort claims which are unliquidated at the commencement of the insolvency cannot be made against an insolvent company (except in a scheme of arrangement) or against an insolvent individual who is subject to a formal insolvency administration. … … 783. Arguments for reform. As mentioned, the right to make a claim under the present law may depend merely on a technical distinction between framing the claim in contract and framing it in tort. There is no justification for such a distinction. Furthermore, if a claim cannot be framed in contract, the claimant makes no recovery at all. In the case of an individual bankrupt, the person who has suffered the tort at least retains the right to sue the bankrupt (although this may well be an empty right). However, this result impairs the fresh start philosophy of bankruptcy. It could result in a double or second bankruptcy for that individual. Even more serious is the situation where a company is being wound up in insolvency. There, the entity against which the person suffering the tort has the claim most often simply goes out of existence and the tort claimant recovers nothing. 784. The problem of quantification. The only substantial argument against permitting claims for unliquidated damages in tort is the problem of quantification. However, this has not prevented claims for unliquidated damages arising from contract being made. Moreover, a claim for unliquidated damages in tort can be made under the Insolvency Act 1967 (NZ). From the inquiries made by the Commission, this has not presented any problems in practice in that country. The Cork Committee agreed that it was unacceptable that tort claims be left outside the category of provable debts. Now, under the new Insolvency Act 1986 (UK), unliquidated claims in tort may be made in any insolvency administration, whether of an individual or a company. … 786. Recommendation. The Commission therefore recommends that claims for unliquidated damages arising from tort should be admissible. … … Quantification of claims Claims not of a certain value 796. Problems of quantification. Frequently the amount of claims may not be certain and an estimate of the amount may be required. This may occur, for example, because the claim is subject to a contingency. It is therefore necessary to have a method by which the value of such a claim may be estimated. Such a provision is particularly important if claims for damages in tort are to be admitted (although, as mentioned, the problems of quantification may be precisely the same as for a claim in contract which is admissible under existing law). 797. Recommendation. The Commission recommends a procedure for quantification in both individual and corporate insolvency where the amount of claims is not certain. … …' (emphasis in original, footnotes omitted)

[67]

72 Barwick CJ agreed with the observations of Kitto J and, inferentially, so did Windeyer J. Owen J found that the petitioning creditor was within the meaning of the expression 'contingent creditor' and therefore entitled to petition for the winding up of Community Development Pty Limited, although his Honour addressed other possible meanings of the expressions 'contingent debt' and 'contingent liability' in reaching that conclusion. 73 In The National Bank of Australasia Limited v Mason (1975) 133 CLR 191 Barwick CJ adopted the same approach as had been adopted by Kitto J in Engwirda. At 200 he said: 'There must be some present obligation to pay out of which the money may become due' for monies to be regarded as 'owing contingently'. 74 In FAI Workers Compensation (NSW) Limited v Philkor Builders Pty Limited ('Philkor') (1996) 20 ACSR 592, Young J, as his Honour then was, held that the prospect of a plaintiff securing an entitlement to costs in winding up proceedings under the Corporations Law did not enable such a plaintiff to contend that a contingent debt was payable by the company to the plaintiff in circumstances where, before a winding up order was made, the company was placed in administration and a deed of company arrangement was thereafter executed following a resolution of the majority of creditors of the company that it should do so. Such resolution had not been supported by the plaintiff. This decision is quite unexceptional and has no real bearing on the resolution of the issues in the present case. As his Honour said at 597: 'As under s 466 there is a personal obligation to bear one's own costs of a winding up petition until the winding up order is made and then a statutory right to get costs which commences as at that day, it does not appear to me that a claim for costs before the order is made can be classed as a contingent debt.' (see also Expile at 673-5 and McDonald at 474-5) 75 After referring to Philcor and Expile Barrett J said in respect of the costs of winding up proceedings in McDonald at 474-5 [45]-[46]: '… The preferable analysis … is that it is the state of insolvency found by the court to exist that forms the basis of the winding up order. The applicant's debt is the source of the applicant's standing to seek a winding up order. That debt may also cause a presumption of insolvency to apply via the statutory demand process provided for in Div 2 of Pt 5.4 for the purposes of the winding up application. But even then, it is the court's positive decision that insolvency exists, rather than the particular circumstance of non-payment of the applicant's debt, that forms the basis for the exercise of the jurisdiction to make a winding up order.'

[68]

76 In these circumstances his Honour proceeded to find that an entitlement to costs arising under a winding up order did not reflect a claim the circumstances giving rise to which occurred at an earlier point in time. 77 In Fisher v Madden as Receiver and Manager of Dataflow Computer Services Pty Limited ('Fisher') (2002) 54 NSWLR 179 the New South Wales Court of Appeal was concerned to determine whether a payment ordered by the Industrial Relations Commission of New South Wales to be made under s 106 of the Industrial Relations Act 1996 (NSW) would be entitled to priority under s 556(1)(h) of the Corporations Law. In the course of his reasons for judgment Meagher JA adverted to s 553 of the Corporations Law at 183-5 [7] and [13]. In addressing whether any payment ordered to be made by the Commission might qualify as a contingent debt or claim within the meaning of s 553(1) of the Act his Honour said at [13]: '… The word "contingent" is a slippery word. … In Federal Commissioner of Taxation v Gosstray [1986] VR 876 at 878, Tadgell J said: "An attempt to formulate a universally applicable definition of a contingent debt or of a contingent creditor is difficult … . A contingent creditor, like an elephant, is rather easier to recognize than to define. The following statement by Pennycuick J in Re William Hockley Ltd … is well known: 'The expression "contingent creditor" … must, I think, denote a person towards whom under an existing obligation, the company may or will become subject to a present liability upon the happening of some future event or at some future date'. In Re Gasbourne Pty Ltd [1984] VR 801 at 837, Nicholson J said that he did not regard that description as exhaustive, and with respect I would not disagree. …" It follows … that … one cannot accurately categorise Miss Fisher's rights (if any) as a "contingent" debt or claim. She has the bare right to make a claim, nobody knowing whether it will succeed or not, or if so in what amount, or subject to what terms or conditions. …'

[73]

84 In Molit, Branson J held that a covenant by a lessee to pay rent by calendar monthly payments in advance on the first day of each month during the term of the lease, created future claims with respect to such payments, contingent upon the lease not being determined pursuant to the terms of the lease or otherwise by agreement. Her Honour found that in the deed of company arrangement there under consideration the lessor was a creditor of the company so far as its claims for future rent under the lease were concerned (see 169-70). 85 McCluskey v Pasminco Limited (Administrators appointed) ('Pasminco')(2002) 120 FCR 326 was concerned with the status of claims for legal costs and expenses incurred in prosecuting claims for injury compensation prior to the date of the commencement of the administration of Pasminco Limited and 21 other companies in the Pasminco Group. Prior to the appointment of the administrators there were approximately 442 claims outstanding against three of the Pasminco companies for injury compensation. The Pasminco Group carried on a number of lead and zinc mining and smelting operations. Goldberg J held that the claims for injury compensation were admissible to proof in the administration they being present claims sounding in damages under s 553(1) of the Act, the relevant workplace events giving rise to the claims having occurred prior to the commencement of the administration. His Honour found that the claims for injury compensation were present claims which had to be valued or quantified by the administrator and in respect of which a just estimate of value must be made before the relevant claimants were allowed to vote at a creditors meeting. His Honour proceeded to find that any claims for legal costs and expenses incurred in prosecuting the claims for injury compensation prior to the date of the commencement of the administration were admissible to proof as contingent claims because of their association and connection with the primary claims for injury compensation, even though there had not been any costs orders obtained for the payment of such legal costs and expenses prior to the commencement of the administration. (See 338 at [39]-[41]). 86 Pasminco may be distinguished from the present case in that the legal costs and expenses, which Goldberg J held were admissible to proof as contingent claims, were costs and expenses in relation to claims for injury compensation against the relevant Pasminco companies which had not, at the time of the appointment of the administrators, proceeded to judgment against those companies. The relevant principles in relation to such a situation, as enunciated by Lindley MR in British Goldfields at 11, applying the then s 37(1) of the Bankruptcy Act 1883 (UK), were as follows: 'If an action is brought against a person, who afterwards becomes bankrupt, for the recovery of a sum of money, and the action is successful, the costs are regarded as an addition to the sum recovered and to be provable if that is provable, but not otherwise. If, therefore, what is recovered is unliquidated damages "arising otherwise than by reason of a contract, promise, or breach of trust," that sum is not recoverable unless judgment, or at least a verdict for it, has been obtained before adjudication, or now the receiving order; and if the sum recovered is not provable, neither are the costs of recovering it: In re Newman; Re Bluck. On the other hand, if what is recovered is provable, so are the costs of recovering it: see Emma Silver Mining Co. v. Grant.' (footnotes omitted)

[76]

The First Question 91 When addressing who may fall within the expression 'the creditors' in s 439C of the Act, it is important to note that there are distinct differences between the terminology used in s 82 of the Bankruptcy Act referable to the determination of 'debts provable', being the applicable section in relation to insolvent companies by virtue of s 553(2) of the Corporations Law prior to the passage of the Corporate Law Reform Act 1992, that used in s 553(1) of the Corporations Law at that time referable to the determination of debts and claims that were 'admissible to proof' against a solvent company that was being wound up, and that used in the current s 553(1) of the Act referable to the determination of debts and claims which are 'admissible to proof' against a company that is being wound up, whether solvent or insolvent. 92 Firstly, the Bankruptcy Act was concerned with debts and liabilities to which a bankrupt was subject at the date of the bankruptcy, or to which he may become subject before his discharge by reason of an obligation incurred before the date of his bankruptcy. Section 553(1) of the Corporations Law, prior to its amendment in 1992, was silent in respect of any question of prior 'obligation'. It provided for 'all debts payable on a contingency' and for 'all claims' against the company to be admissible to proof against the company. Section 553(1) of the Act is concerned with debts and claims 'the circumstances giving rise to which occurred before the relevant date'. 93 Whilst the Harmer Report, the Explanatory Memorandum and the Second Reading Speeches are silent on the reasons for the expression 'the circumstances giving rise to which occurred before the relevant date' being used in s 553(1) of the Act, it seems to me that the change in terminology cannot be overlooked. The observations in the Harmer Report, to which emphasis has been added above, and the reliance placed upon that report by the Parliament as indicated in the Attorney-General's Second Reading Speech, support the proposition that the new provisions in what was then the Corporations Law, and what is now ss 553 et seq of the Act, were intended to make the categories of claims which might be admissible to proof as wide as possible. 94 Secondly, s 82 of the Bankruptcy Act qualified 'all debts and liabilities' with the phrases 'present or future, certain or contingent' and also the expression 'or to which he may become subject before his discharge by reason of an obligation incurred before the date of the bankruptcy'. Section 553(1) of the Corporations Law, prior to its amendment, qualified 'all claims' with the phrases '(present or future, certain or contingent, ascertained or sounding only in damages)' and s 553(1) of the Act qualified 'all debts payable by, and all claims against' with the phrases '(present or future, certain or contingent, ascertained or sounding only in damages)'. In addition, s 554A made provision for the valuation of debts or claims that, at the relevant date, did not bear a certain value and s 554B made provision for the discounting of debts that were not payable at the relevant date but at a later ascertained or ascertainable date. 95 In my opinion it is questionable whether for the purposes of establishing admissibility to proof, at least for voting purposes, it is necessary to be able to identify a prior 'obligation' out of which a debt or liability, or, for that matter, a claim, arises. However, such considerations would, no doubt, bear upon the determination of just estimates of the value of claims that may be made. It is also questionable whether the traditional concepts of 'future' and 'contingent' as applied to 'debts payable by' a company, necessarily have the same connotations when applied to 'claims against' a company within the meaning of s 553(1) of the Act (cf. the observations of Finkelstein J in McLellan at 330 [9] and 333 [16]). 96 In the present case, Mr Aldridge SC, counsel for the plaintiff, submits that his client had, as at the date of the appointment of the administrator to Charben, a 'present' 'claim' for costs in respect of the trial and of the appeal to the Full Court, 'the circumstances giving rise to which occurred before the relevant date', namely the success of the plaintiff on its appeal with the consequential orders made in the plaintiff's favour on 22 December 2005 in respect of the disposition of the appeal and of the proceedings. Therefore, he submits, that such claim was admissible to proof against the company and the plaintiff was entitled to have its value determined in accordance with s 554A of the Act. 97 In the alternative, counsel for the plaintiff submits that the plaintiff had, as at the date of the appointment of the administrator to Charben, a 'contingent' 'claim' for such costs 'the circumstances giving rise to which occurred before the relevant date' with the same consequences. 98 To use Barrett J's expressions in McDonald, the eventual liability of Charben under the costs orders of the Full Court made on 19 May 2006, following the appointment of Charben's administrator on 31 March 2006, had its 'genesis' in the judgment of the Full Court in the plaintiff's favour, handed down on 22 December 2005. One could also say that 'the seeds' of the costs orders were the circumstances occurring before 31 March 2006, namely the delivery of the judgment in the plaintiff's favour on 22 December 2005. 99 In my opinion the plaintiff had, as at the date of the appointment of the administrator to Charben, a present claim for costs to which s 553(1) of the Act applied. Accordingly, subject to compliance with the regulations, the plaintiff would be entitled to vote at the adjourned decision meeting under s 439A-439C of the Act on Friday 23 June 2006 as a creditor of Charben in respect of both the debt of $1.4m which has already been admitted and also in respect of the plaintiff's costs and disbursements. 100 It seems to me that this conclusion is generally in sympathy with the judgment of the Court of Appeal in England in British Goldfields. 101 Charben's administrator should admit the plaintiff's claim for voting purposes in respect of that part of the plaintiff's claim for costs and disbursements as represents two-thirds of the amount claimed by the plaintiff, in respect of the trial and the appeal, subject, in the case of the costs and disbursements on the appeal to a reduction of 20% in the amount so claimed. 102 In my opinion, an amount so determined would constitute a just estimate of the value of the plaintiff's unliquidated claim for costs and disbursements in respect of the earlier proceedings. 103 Subject to the foregoing, the first question should be answered in the affirmative.

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Judgment (84 paragraphs)

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Legislation Cited (7)

Cases Cited (6)