Fountain Selected Meat (Sales) Pty Ltd v International Produce Merchants Pty Ltd

REASONS FOR JUDGMENT 1 I reserved my decision in this matter on 11 December 2003 and have now been informed by the plaintiff liquidator that he wishes to have the application dismissed, having regard to what he says is a realisation that the proceeding would probably not be successful. As I have reserved on the matter I do not think it appropriate for me to respond any further, other than to note that dismissal of the application is sought. The parties opposing the liquidator's application (the King Network Group Pty Ltd, Arts Investment Pty Ltd, Harry Stamoulis and Salvatore Mancuso ("the opposing parties")), who were given leave to appear without being made parties, are prepared to accede to that situation. The opposing parties now seek both their costs of the interlocutory proceeding to gain access to relevant documents and the costs of the principal proceeding, the latter on an indemnity basis. 2 The application for costs in relation to the application for access to relevant documents is resisted by the plaintiff liquidator and the application in relation to the costs of the substantive proceeding is resisted by the liquidator on the basis that only party and party costs should be awarded. So far as the interlocutory application for access to the documents is concerned, it was resisted on substantive issues and I consider in all the circumstances the opposing parties should have their costs of that earlier access application. 3 So far as the costs of the substantive proceeding are concerned, it has been submitted on behalf of the opposing parties that I should award costs on an indemnity basis consistently with the observation of Woodward J in Fountain Selected Meat (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 where his Honour said at 401: "I believe that it is appropriate to consider awarding 'solicitor and client' or 'indemnity' costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success." The opposing parties have submitted that this is such a case. However, when applying the approach considered by Woodward J one should not forget the observation which his Honour then made: "In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion." That observation was picked up and applied by the Full Court in Hamod v New South Wales (2002) 188 ALR 659 at 664‑665. 4 In the present circumstances the liquidator has brought the proceeding on the basis that he was seeking approval of his entry into an agreement, which he submits was the only agreement available to him. The liquidator is seeking to act in the interests of creditors and because the agreement was one which was not to be carried into effect or completed within three months, it was one in respect of which he was obliged to apply to the Court for approval. Nevertheless, the agreement suffered from the difficulty, identified by counsel for the opposing parties, that it involved a potential cross‑subsidisation of a proceeding other than the one in respect of which the liquidator was seeking funding. 5 It is easy with hindsight to make an observation that an action has no chance of success, after the matter has been fully argued and has enjoyed considered attention of experienced solicitors and senior and junior counsel. It may be that in the present circumstances the vice of this cross-subsidisation, now identified and the subject of consideration by counsel for the opposing parties, was such that it should have made a distinct impression on the liquidator and his advisers at the outset. 6 On the material before me I am prepared to accept for present purposes that the action was one that had substantial difficulties. Whether the liquidator should have known that he had no chance of success is very easy to answer with hindsight, but is not so easy to answer at an early stage, depending upon the nature of consideration given to the matter. It seems to me that, properly applied, the approach to which Woodward J referred in Fountain Meats (supra) is one where, in order to award indemnity costs where it is said that the action had no chance of success, there must be some added aspect warranting indemnity costs such as an ulterior motive or wilful disregard of the facts or established law. 7 The ulterior motive or wilful disregard of the facts are matters which I do not have the opportunity to investigate. There are numerous other bases upon which indemnity costs might be awarded and one finds them conveniently collected in Colgate‑Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 228-234. 8 In all the circumstances I do not consider that this is an appropriate case to order indemnity costs in favour of the opposing parties. Although the liquidator has now withdrawn the proceeding, I do not consider that there is anything which has been disclosed in the behaviour of the liquidator which warrants the award of indemnity costs. Indeed, counsel for the opposing parties disavowed such an approach. 9 Although it might be said that the proceeding had no chance of success, I consider that one looks at that position now with the benefit of hindsight. When I take into account the fact that the liquidator is acting on behalf of creditors and not on his own personal behalf, I do not consider this to be an appropriate case to order indemnity costs. Although the liquidator has been given, in effect, an indemnity by the funding entity in respect of any order for costs against him, I do not consider that is an appropriate matter to take into account in determining whether indemnity costs should be awarded in relation to the proceeding as such.