Fletcher v Brown

1. The Receivers must pay the first respondent's trustee in bankruptcy's costs of and incidental to the applicants' and Receivers' application for the orders that are set out in the minutes that were sent to the court on 28 June 2021 and 13 July 2021.
2. The costs referred to in the preceding paragraph, and the costs referred to in paragraph 13 of the orders of 14 July 2021, are referred to a Registrar for assessment on a lump sum basis. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

JACKSON J: 1 On 14 July 2021, at the hearing at which I delivered Fletcher v Brown (No 3) [2021] FCA 803, and after hearing submissions on costs, I indicated that I was minded to order the Receivers to pay the costs of the Trustee (all terms as defined in that judgment). However, I gave the Receivers an opportunity to make a brief written submission as to whether their former status as court-appointed receivers put them in a position distinct from adversarial parties, so that they should not be ordered to be liable for costs. 2 I was minded to make a costs order against the Receivers because the relevant orders made on 14 July 2021 were substantially in terms that had either been proposed or agreed to by the Trustee before the hearing, and because other orders sought by the Receivers were not made. It therefore appeared to me that oral argument over those orders should not have been necessary; argument which took up the better part of the hearing on 14 July 2021, which in turn took up the better part of a day. 3 I did not accept the oral submissions made on behalf of the Receivers that the hearing was necessary. The Trustee was clearly prepared to agree to the orders that were ultimately made, but the Receivers pressed for more; in particular, the formal noting by the court of their asserted claims to equitable liens, and orders requiring them to be notified of any proposed distribution of property by the Trustee and a procedural framework for them to assert any claim to that property. I refused all of those things. In substance, then, in relation to the issues that were in dispute, the Receivers were unsuccessful, where the position they took made a hearing necessary. In those circumstances, it would be a commonplace exercise of the wide discretion conferred on the court by s 43 of the Federal Court of Australia Act 1976 (Cth) to order costs against the Receivers, unless their former position as officers of the court placed them in a different position to ordinary adversarial litigants. 4 The Receivers have filed a written submission to the effect that they are in a different position. They cite no case specific to court-appointed receivers, but seek to draw an analogy to cases about liquidators and trustees. They rely on Bent v Gough (1992) 36 FCR 204, in which Northrop and Ryan JJ (at 219) referred without disagreement to a concession made by a liquidator that the trial judge had correctly taken into account 'the need not to discourage liquidators from performing their public duty in pursuing litigation by an undue readiness to impose on them personal liability for the costs of successful parties'. 5 The Receivers also seek, in the alternative, an order that the Receivers' liability for costs be the subject of an indemnity from the assets of the respondents (which, to date, appear to be negligible), and that the amount of costs be limited to the extent of that indemnity. They rely on Re Beddoe [1893] 1 Ch 547, which concerned the costs of a trustee of unsuccessfully defending an action for detinue of title deeds. There, Lindley LJ said (at 558) that 'a trustee is entitled as of right to full indemnity out of his trust estate against all his costs, charges, and expenses properly incurred'. 6 The Receivers also relied on Cresvale Far East v Cresvale Securities (No 2) [2001] NSWSC 791; (2001) 39 ACSR 622, a case about administrators of a deed of company arrangement in which (at [62]) Austin J said (emphasis added): … the liquidator is appointed by the court as its officer to wind up the company on the court's behalf. In those circumstances one would expect the liquidator's liability to be limited to the assets of the company in liquidation except in extreme circumstances, and therefore that the court will routinely limit the liquidator's liability for costs as unsuccessful defendant to the assets of the company, even where the assets may not be adequate to meet the costs liability. However given that Cresvale was overturned on appeal (Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; (2002) 44 ACSR 21) it may be, with respect, that little weight can be put on it. 7 In any event the Receivers submitted that in Re Mendarma Pty Ltd (in liq) (No 2) [2007] NSWSC 99; (2007) 61 ACSR 601 at [37], White J referred to: the rationale for the distinction as to the appropriate usual costs orders to be made against liquidators when they initiate proceedings or defend them. As Oliver J said in Re Wilson Lovatt & Sons Ltd [[1977] 1 All ER 274] at 285, and Manning J said in Re Bonang Gold Mining Co Ltd [(1893) 14 NSWLR (Eq) 262] at 279, there are good reasons of public policy why a liquidator should be entitled to defend himself or herself against claims as to the manner in which the winding-up is carried out, without being exposed to personal liability for costs against which there may be no or insufficient assets of the company from which to be indemnified. However, where a liquidator chooses to commence litigation to which he or she is a party, then he or she takes the risk of being ordered to pay costs. 8 White J held that this last consideration did not apply in a case where liquidators had obtained the issue of an examination summons which had then been set aside. That was because, in applying for the issue of an examination summons, the liquidators were not commencing litigation against the proposed examinees, but were seeking to investigate the company's affairs, and they were to be treated as respondents to the application to set aside the examination summonses. 9 The Receivers submitted that the circumstances in Re Mendarma are analogous to this case. With respect, I do not accept that. There are two material differences. First, in Re Mendarma, the liquidators were defendants to the substantive applications. Here, the Receivers were in form and in substance the ones making the application for orders. Second, the liquidators in Re Mendarma were performing their statutory function of investigating the affairs of the company. Accordingly, White J did not consider it appropriate to order that the liquidators pay the applicants' costs without any limitation as to their personal liability: at [40]. Here, the Receivers' application was in furtherance of their personal interests in preserving the ability to claim equitable liens over assets of the respondents which may be realised in the future. As White J recognised in Re Mendarma at [12], a liquidator's entitlement to be indemnified out of the assets of the company depends upon the propriety of the liquidator's conduct and also on whether the liquidator is advancing a personal interest, as distinct from the interest of the company. While the propriety of the Receivers' conduct is not in issue here, they were clearly advancing their own interests, not those of the creditors of the respondents in whose interests they were appointed. 10 To say that is not to criticise the Receivers, but it does mean that the observations in Re Mendarma are not applicable here. It is also why the principles which the Receivers draw from Bent v Gough and Re Beddoe are not applicable. They were each stated in a context where the liquidator or trustee had been pursuing litigation in the interests of the company or estate over which they had been appointed, not pursuing their own interests. Another point of distinction between this case and Bent v Gough is that, there, the proceeding had been brought in the name of the company that was in liquidation, not the liquidator; here the application was brought in the names of the applicants and the Receivers. In any event, in both Bent v Gough and Re Beddoe, the ultimate conclusion was that the liquidator or trustee would be personally liable for costs. 11 If the analogy between court-appointed receivers and court-appointed liquidators is accepted then the fact that the Receivers were pursuing their own interests here points towards ordering that they will be personally liable for the costs: see Re Mendarma at [12]. While that will not prejudice any right of indemnity out of the assets over which the Receivers were appointed, the existence of that right is a separate question and no order limiting the recovery of other parties to those assets should be made in this case. 12 For those reasons, I will order that the Receivers pay the Trustee's costs of and incidental to the Receivers' applications for orders which resulted in hearings on 30 June 2021 and 14 July 2021. I will direct that those costs, and the costs of the second respondent which were the subject of the hearing on 14 July 2021, be assessed on a lump sum basis by a Registrar of the court. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackson.