Gothard, in the matter of AFG Pty Limited (Receivers and Managers appointed) (in liq) v Davey

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 256 of 2009

(RECEIVERS AND MANAGERS APPOINTED ) (IN LIQUIDATION)

(RECEIVERS AND MANAGERS APPOINTED ) (IN LIQUIDATION)

ALLCO FINANCE (AUSTRALIA) LIMITED (ACN 003 315 446)

(RECEIVERS AND MANAGERS APPOINTED ) (IN LIQUIDATION) BETWEEN: PETER JAMES GOTHARD AND STEVEN JOHN SHERMAN AS RECEIVERS AND MANAGERS OF EACH OF AFG PTY LIMITED (IN LIQ) (ACN 051 982 560), ALLCO FINANCE GROUP LIMITED (IN LIQ) (ACN 077 721 129), ALLCO FINANCE (AUSTRALIA) LIMITED (IN LIQ) (ACN 003 315 446)

JUDGE: EDMONDS J DATE OF ORDER: 10 FEBRUARY 2011 WHERE MADE: SYDNEY

1. The applicants pay the respondents' costs of and incidental to the proceedings and cross-claims, including the costs of this motion less the sum of $200,000, the subject of order 6 of the Court, made on 29 September 2009 (as agreed, or failing agreement, as taxed); 2. The costs are to be calculated on the basis that they are to include all costs, except insofar as they are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, the respondents would be completely indemnified for their costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 256 of 2009

(RECEIVERS AND MANAGERS APPOINTED ) (IN LIQUIDATION)

(RECEIVERS AND MANAGERS APPOINTED ) (IN LIQUIDATION)

ALLCO FINANCE (AUSTRALIA) LIMITED (ACN 003 315 446)

(RECEIVERS AND MANAGERS APPOINTED ) (IN LIQUIDATION) BETWEEN: PETER JAMES GOTHARD AND STEVEN JOHN SHERMAN AS RECEIVERS AND MANAGERS OF EACH OF AFG PTY LIMITED (IN LIQ) (ACN 051 982 560), ALLCO FINANCE GROUP LIMITED (IN LIQ) (ACN 077 721 129), ALLCO FINANCE (AUSTRALIA) LIMITED (IN LIQ) (ACN 003 315 446)

JUDGE: EDMONDS J DATE: 10 FEBRUARY 2011 PLACE: SYDNEY

Background 1 On 28 October 2010 I dismissed the applicants' application and granted declaratory relief to the respondents/cross-claimants. In the course of my reasons I indicated that, in the circumstances outlined, I did not propose to make any order as to costs before hearing the parties on that matter at a mutually convenient time. 2 A little over twelve months earlier, on 29 September 2009, I had made the following orders as to costs: '4. Subject to Order 5 each party bear their own costs of the Proceedings. 5. The Applicants pay so much of the Respondents' costs determined by the Court at the conclusion of the Proceedings, not being less than the sum referred to in Order 6. 6. The Applicants forthwith pay to the Respondents' solicitors the sum of $200,000 on account of the determination contemplated by Order 5.' 3 The orders made on 29 September 2009 were made following the hearing of a motion by notice dated 3 July 2009 and heard on 14 September 2009 when the respondents sought, inter alia, an order that their costs of and incidental to the proceedings and any cross-claim be paid on a full indemnity basis from any property of Allco Finance Group Limited (ACN 077 721 129) (Receivers and Managers appointed) (in liquidation) ('AFGL'), Allco Finance Australia Limited (ACN 003 315 446) (Receivers and Managers appointed) (in liquidation) ('AFAL') or AFG Pty Limited (Receivers and Mangers appointed) (in liquidation) ('AFGPL') in the possession of, under the control of or coming into the hands of the applicants as receivers of such property; in the alternative, an order that the applicants indemnify the respondents for their costs of and incidental to the proceedings and any cross-claim on a full indemnity basis. 4 In support of the order or alternative order sought, it was put on behalf of the respondents that: (1) It is relevant that the applicants as receivers are being funded out of the property of the relevant companies; (2) the applicants as receivers of such property are coming to the Court for assistance and, in effect, relying on the respondents as contradictors; (3) in those circumstances, it is appropriate that those companies bear the costs; it is a cost of the receivership, not a personal liability of the receivers; and it is fair and just that the cost burden fall on the relevant entities. 5 On the hearing of the 3 July 2009 motion I indicated that having regard to the evidence filed in support of the order or alternative order, in particular, 'that over $400,000 had been incurred already in legal costs' against an overall estimate of $700,000, I was reluctant to give the respondents 'an open-ended costs order on an indemnity basis at this stage of the proceedings'. Indeed, I suggested to counsel for the respondents that, having regard to the size of the legal costs already incurred, the overall estimate of $700,000 was an unrealistic one and that '[i]t's more likely to be three times the present amount'. 6 The matters set out in [4] and the considerations firing my reluctance in [5] above, informed my response to the respondents' submissions in the form of the orders made on 29 September 2009 set out in [2] above. I have to say that, with the benefit of hindsight, it may have been more appropriate if the amount in Order 6 had been for the full amount of costs incurred to that date. 7 By motion on notice dated 12 November 2010, the respondents now seek the following orders: (4) The applicants pay the respondents' costs of and incidental to the proceedings and cross-claims, including the costs of this motion less the sum of $200,000, the subject of order 6 of the Court, made on 29 September 2009 (as agreed, or failing agreement, as taxed); (5) The costs are to be calculated on the basis that they are to include all costs, except insofar as they are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, the respondents would be completely indemnified for their costs. 8 I heard this motion on 23 November 2010.

Evidence on the Motion 9 The respondents relied on two affidavits sworn by Shana Schreier-Joffe, one on 12 November 2010 which, together with Ex 'SSJ1', became Ex 1; and one on 30 April 2010 which became Ex 2. 10 The applicants relied on three affidavits, two sworn by Ruth Elizabeth Nocka, one on 22 November 2010 which became Ex A, one on 5 May 2010 which became Ex B and one sworn by Michelle Wagner on 5 May 2010 which became Ex C. A third affidavit sworn by Ruth Elizabeth Nocka also on 5 May 2010 was read by the respondents and the attachments to it tendered. It was marked as part of Ex B. 11 Significantly, tab 1 of Ex 'SSJ1' is an updated Schedule of the respondents legal costs in this matter, up to and including 18 June 2010, the date on which the last item of work relating to the hearing in the matter was carried out by the respondents' solicitors. It records a total of $1,567,360.69, not including any fees incurred in relation to the motion before me. 12 The two major components of that sum are the respondents' solicitors' professional fees and disbursements ($1,173,728.34) and barristers' fees ($341,036.50) It is not clear from Ex 1 whether the respondents' solicitors' fees and disbursements have been charged, in the sense of being rendered, let alone whether they have been paid, although the latter is extremely unlikely. It is also not clear whether the barristers' fees have been paid, but again it is extremely unlikely that they have been paid in full.

The Position of the Applicants on the MOtion 13 The applicants' position is put in paras 2 and 3 of their written submissions as follows: '2. The Applicants' submission is that the figure contemplated in the order at paragraph 5 [of the orders made on 29 September 2009 - see [2] above] should be no more than $500,000 including $200,000 already paid pursuant to the order at paragraph 6, being an estimate of party and party costs of the hearing based on the total costs of the hearing of $700000 estimated by the Respondents on 11 September 2010. 3. As an alternative, if the Court is minded to depart from the regime [set] down on 29 September 2010 (which is opposed), the only appropriate order is that the Applicants pay the Respondents costs on a party and party basis.' 14 This was expanded upon in address by the applicants' senior counsel in the following terms: 'The approach we would favour is that your Honour adhere to the model laid down on 29 September of determining a figure as an exception to the general proposition in order 4 that each party bear their own costs of the proceedings, and the only figure that your Honour can take as a starting point is the respondent's figure of $700,000 as the absolute maximum. Now, it was expressed as an absolute maximum and we would submit that all the things that later occurred would or should have been foreseen in the giving of that estimate, and the fact that they remained silent to [sic] many months when that estimate was shown to be false does not justify the respondents now turning around and saying, "Well, we're liable for a great deal more than the 700,000." If one takes as a starting point the 700,000 and one applies to that a fairly conventional rule of thumb as to what a taxing officer would say is unreasonable or unnecessary which ordinarily cashes out at about 70 per cent of actual costs, then one would reduce the 700,000 to a figure of $500,000, one gives us credit for the 200,000 that we've already paid and that leaves us owing the respondents a further amount of $300,000 in costs and we would submit that that is the appropriate exercise of your Honour's discretion, meeting the twin objectives of fairness to the respondents in all the circumstances and also ensuring that we are not unfairly prejudiced by being exposed to what has been an unnecessarily costly exercise given the way it's been approached in the respondent's camp.' 15 At the outset, I need to make a couple of preliminary observations on the applicants' position: (1) First, in making the orders I did on 29 September 2009 I was not laying down or setting down some regime or model. As indicated in [6] above, those orders were an informed response to the matters set out in [4] above and my reluctance, as noted in [5] above, to give the respondents an open-ended costs order on an indemnity basis at that point in time. Indeed, I was endeavouring to craft orders which would provide the Court with as much flexibility as possible in making appropriate costs orders at the conclusion of the proceeding, irrespective of its outcome but, at the same time, put the respondents, who had been joined to participate as contradictors to assist the Court in deciding the issues on which the applicants required guidance, in immediate funds to meet their legal costs and expenses which already exceeded the sum ordered to be paid ($200,000) by more than $247,000. As I said at [6] above, with the benefit of hindsight, it may have been more appropriate if the amount in Order 6 made on 29 September 2009 had been for the full amount of costs incurred to that date. (2) Second, the estimate 'that the total legal fees, including counsels' fees, up to and including the final hearing of the matter on 30 October 2009 will not exceed $700,000' (para 26 of the affidavit of Lisa Anna Spence sworn 10 September 2009), did not have any role to play or input into the terms of the orders made on 29 September 2009. Indeed, as noted in [5] above, I was of the view that, having regard to the amount of legal costs and disbursements incurred to that date (in excess of $447,000), it was more likely to be three times that latter amount; that is, not $700,000, but $1.34 million. 16 It follows, in my view, that insofar as the applicants' primary position on the motion is founded on the $700,000 estimate, that position is flawed and must be rejected.

The Real Issue for Determination 17 Having regard to the orders made on 28 October 2010 and the reasons underlying those orders, I am unable to comprehend why the respondents should not have their costs of and incidental to the proceedings and cross-claims including the costs of this motion, less the sum of $200,000 the subject of Order 6 of the Court made on 29 September 2009. Indeed, this was the fall-back position of the applicants, albeit on a party/party basis (see [13] above). So viewed, the real issue for determination is whether the respondents should have their costs on an indemnity basis as they seek in their motion, or on a party/party basis as contended by the applicants.

The Respondents' Submissions 18 On the hearing of the respondents earlier motion on 14 September 2009 when the respondents sought, inter alia, an order that their costs of and incidental to the proceedings and any cross-claim be paid on a full indemnity basis from any property of AFGL, AFAL or AFGPL in the possession of, under the control of or coming into the hands of the applicants as receivers of such property, it was submitted by the respondents that the following factors favoured the making of such an order: (1) The respondents did not commence these proceedings. The respondents were joined as respondents through no fault of their own to provide contradictors to proceedings that were originally brought by the applicants for directions under s 424 of the Corporations Act 2001 (Cth) ('the Act'). (2) The proceedings were therefore commenced largely for the benefit of the applicants to protect them, in the event that directions were given and followed, from an allegation of breach of duty: Re TTC (SA) Pty Ltd (in liq) (1983) 32 SASR 532 at 535 and Re GB Nathan & Co Pty Ltd (1991) 24 NSWLR 674 at 677, 679 and 681. Both of these cases involved applications for directions by liquidators but, as noted in Re GB Nathan & Co Pty Ltd at 679, the principles are the same. (3) The proposed s 424 procedure was an unsatisfactory vehicle to determine the issues which arise in these proceedings for a number of reasons: (i) any directions given to the applicants would not have been binding on the respondents even if they were represented on the hearing of the application: Sicree & Anor v Deputy Commissioner of Taxation (Vic) (1980) 32 ALR 307 at 319 and Re Regis Towers Real Estate Pty Ltd [2006] NSWSC 852 at [5]). A fortiori they would not have been binding on employees who were not parties; (ii) as a result, the proceedings would not have given rise to any issue estoppel: Bank of New Zealand v Essington Developments Pty Ltd (1991) 5 ACSR 86 at 87); and (iii) an application for directions is not an appropriate procedure to use to determine substantive rights of third parties: Re TTC (SA) Pty Ltd (in liq). (4) No doubt these considerations led the applicants to amend their application to seek the declaratory relief they did. In this regard, the comments of McClelland J in Re GB Nathan & Co Pty Ltd at 680 are relevant: 'It should be observed that there are instances where a court has, in proceedings commenced as a liquidator's application for directions, gone on to make orders declaratory of substantive rights, clearly intended to be of binding effect on the parties to the proceedings, and where necessary has made representative orders for this purpose. The procedures of the court are sufficiently flexible to enable proceedings commenced as an application for directions to be changed into proceedings for the determination of substantive rights, and this is sometimes a convenient course in order to avoid the need to commence further proceedings involving additional cost and delay. However it is important that the distinction between the two kinds of proceedings be not lost sight of or blurred, and such a fundamental change should not be permitted unless the court is satisfied that those affected either consent to that course, or will not suffer injustice in consequence of the alteration to the status of the proceedings.' (Emphasis added and citations omitted.) (5) Notwithstanding the formal change to the status of the proceedings as a result of the applicants amendment of their application, the fact remains that as a matter of substance these proceedings are akin to a trustee's application for directions: Re Blackbird Pies (Management) Pty Ltd (No 2) [1970] QWN 14. See also Expo International Pty Ltd (rec and mgr apptd) (in liq) v Chant (No 2) (1980) 5 ACLR 193 at 197 and Re Neander Constructions Pty Ltd (1988) 12 ACLR 775 at 776. Thus, although the proceedings will affect the rights of the respondents (and those they represent in the face of the representative orders that were made) they are in fact brought to provide guidance and protection to the receivers and managers. This is not to be critical of the applicants' approach. Rather, it is to recognise that these proceedings are not ordinary adversarial proceedings. The respondents' role remains that originally envisaged for them by the applicants - as a contradictor to the orders sought by the applicants. (6) Further, the bolded passage from Re GB Nathan & Co Pty Ltd reproduced in (4) above highlights that the change in the characterisation and status of the applicants' application should not result in the respondents suffering 'injustice'. Unless the respondents are indemnified for their costs there is a prospect that they will suffer such an injustice for the following reasons: (i) If this matter had continued in its original form as an application for directions the position on costs would be straightforward. The applicants would have been entitled to their costs on an indemnity basis: Re Regis Towers Real Estate Pty Ltd at [33] (a case involving an application by an administrator for directions under s 447D); (ii) in such circumstances it would also have been appropriate for the costs of the respondents to that application to be met on a similar basis. There would be no reason to deprive a person joined as a respondent to provide a contradictor to a receiver's application for directions to be deprived of their costs or to be awarded costs on a less favourable basis than the applicants. It was presumably for these reasons that the litigation in Basis Capital Funds Management Limited v BT Portfolio Securities Ltd (2008) 219 FLR 157 was conducted on the basis that the representative parties were entitled 'to have their costs paid out of the Funds on an indemnity basis in preference to any other unsecured creditor', per Austin J at [204]; (iii) the position should be no different as a result of the conversion of the proceedings from an application for directions to an application for declaratory relief. In this regard it should be noted that it is likely that the applicants have an indemnity for their costs from the assets of the companies on a full indemnity basis under the security taken by the secured creditor or, alternatively, such an indemnity has been given to them by the secured creditor. Attempts by the respondents' solicitors to clarify this have been unsuccessful; (iv) it would be incongruous if the applicants are entitled to a full indemnity out of the proceeds of realisation of the charged assets and yet the respondents, who were joined to provide proper contradictors to the applicants' application, are not entitled to a similar indemnity. (7) This is particularly the case where the respondents have not delayed or obstructed the applicants' conduct of this action and their desire for a speedy hearing. Nor could it be said that the respondents' conduct of the litigation has been unreasonable so as to disentitle them from an award of indemnity costs. On the contrary, the respondents have been forced to take the running of the representative issue to cure the procedural defects posed by the current proceedings. 19 These submissions were repeated at the hearing of the present motion on 23 November last. In addition, the respondents made the submissions set out in [20] to [33] below in support of their motion. 20 The proceedings concerned the rights of each of the respondent groups to be paid in priority entitlements due to them as employees. It would not be just that they bear the costs associated with the applicants seeking to clarify how they are to exercise their powers, and meet their obligations pursuant to ss 433(3) and 556(l)(e),(g) or (h) of the Act. 21 Although there does not appear to be a great deal of authority on the principles to be applied in respect of successful or unsuccessful parties, in awarding costs in circumstances where receivers, administrators or liquidators seek directions from a court in respect of the treatment of company assets, it appears that the approach adopted in Farrow Finance Co Ltd (in Liq) v ANZ Executors and Trustees Co Ltd (1997) 23 ACSR 521 at 526 - 527 by Hansen J, has found favour and should be adopted. 22 His Honour approached the matter thus: 'In my opinion, the general principles which apply to the question of costs upon an application by a liquidator for directions include these: where the application is necessitated only by the stand taken by one particular creditor, or a certain group of creditors acting only in their own interest, and the question involved is not a complex one, then costs should generally follow the event. In other words, if the position which the liquidator always intended to adopt is vindicated, and the submission of the opposing creditors is rejected, then those creditors should be liable for the liquidator's costs of the application. An example of the application of that principle is Re Masureik & Allan Pty Ltd (1981) 6 ACLR 39 (SC) NSW ... On the other hand, where the issue involved is a complex one, or one involving a relatively novel proposition in law, then the starting point is that the costs of all necessary parties are to be paid by the liquidator and counted as costs in the liquidation: see, for example, Re GPI Leisure Corp Ltd (in liq) (1994) 130 ALR 256 (Fed C of A, Whitlam J).' 23 This approach in principle was followed by Santow J in Re New Cap Reinsurance Corp Holdings Ltd [2001] NSWSC 1001 at [3], [11] - [12] and by Warren J in Re Ansett Australia Ltd [2002] VSC 114 at [23] - [25]. 24 Senior counsel for the respondents referred me to what was said by Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 232 in summarising the principles or guidelines which seemed to his Honour could be distilled out of the authorities to which his Honour had referred: 'The ordinary rule is that, where the Court orders the costs of one party to litigation to be paid by another party, the order is for the payment of those costs, on the party and party basis.' Immediately prior to that his Honour had said: 'Different considerations apply where parties may be found to be entitled to the payment of their costs out of a fund or assets being administered by or under the control of a trustee, liquidator, receiver or person in like position …' 25 An approach taken in a fund case, as distinct from ordinary civil litigation, has been to apply the principle enunciated by Kekewich J in Re Buckton; Buckton v Buckton [1907] 2 Ch 406, and the cases following it. That principle being that if a trustee, beneficiary, or personal representative brings an action relating to the construction of the trust, instrument or some other issue arising in the administration of the trust, or as regards the propriety of any action taken or to be taken by the representative party, those costs may ordinarily be viewed as necessarily incurred for the benefit of the trust estate and are to be paid on a solicitor and own client basis or an indemnity basis. In Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 4) (2008) 169 FCR 497, Finkelstein J held that these principles which the Chancery Courts developed in relation to representative parties could be extended to receivers, liquidators and administrators (at [10]). His Honour held that the principles had also been extended beyond fund cases (at [14]). 26 In the present proceedings, the respondents were not acting in their own interests, but as representatives and in defence of their statutory entitlements. They were, as was correctly submitted by counsel for the applicants, necessary parties to perform the role of contradictors, and to do so as representatives: Transcript 29/3/2010 (Hearing Day 1), pp 5 and 6. 27 The applicants' claims and contentions have been wholly rejected by the Court. 28 The respondents were proper contradictors in effecting that outcome. It is respectfully submitted that they endeavoured to assist the Court in its determination and that they were able to do so. In the end, their contentions were accepted and their entitlements to priority have been upheld. It is submitted that they assisted the Court in dealing with the novel propositions of law raised by the applicants in respect of the proper interpretation of s 556(1)(e) of the Act, and also with the law in respect of the relevant principles of agency, whether a corporate group can nominate one company within that group as the reporting entity for taxation and superannuation purposes, and the effect that the attempts to do so have on employee entitlements for the purposes of s 556(l)(e) of the Act. 29 A substantial and disproportionate burden fell on the respondents to ensure that, as far as they were able, sufficient evidence was placed before the Court to ensure that it was fairly appraised of the true position surrounding their engagement as employees and the manner in which the various entities within the Allco Group treated them after they were employed. 30 Despite being invited to recognise the true position, the applicants pursued their contentions concerning the second and third respondent groups up to trial, and only then made the concessions noted in the Court's judgment of 28 October 2010 at [176] and [177]. The applicants should not have commenced or continued the proceedings in respect of the second and third respondents and should not have caused them to continue to incur costs at all, or for the length of time that they have done. The applicants' senior counsel conceded on the first day of the trial that it is AFAL (not AFGPL) that is contractually liable to pay the second respondent and further that it is AFGL (not AFGPL) that is contractually liable to pay the third respondent. The respondents' solicitors wrote to the applicants on 3 September 2009 outlining these issues and requested that the applicants amend the amended application to seek directions that the second and third respondents were priority creditors of AFGL, or alternatively AFAL. No response was received by the respondents' solicitors to the request. Had the proceedings in respect of these two groups been discontinued, or at least amended, a significant amount of costs would not have been incurred. 31 The situation giving rise to the need for a determination by the Court on the true employer arose from the manner in which the contracts were constructed within the Allco Group and was not a situation of the respondents' making. 32 The very substantial reliance by the applicants on the employees' tax returns (and which added quite substantially to the costs, both through Court time and preparation) occurred in circumstances where it was the Allco Group which identified AFGPL as 'payee' and in circumstances where no real attempt was made by the applicants to show, by reference to the financial records of the group, the true position. That burden fell on the respondents. 33 The Court has a wide discretion, and there is a sound basis for making the orders sought for the reasons set out above and further developed below. 34 In further support of the motion, the respondents made a number of submissions under the umbrella of 'the burden of bringing evidence', critical of the way in which it was alleged that the applicants presented, or rather failed to present, relevant facts to the Court thereby allegedly imposing the burden of harnessing these facts, in circumstances which were not always easy, and presenting them to the Court, on the respondents. Many, if not all of these criticisms were refuted or rejected by the applicants (see [30] to [44] below). They may be paraphrased as follows: (1) There never was any real attempt made by the applicants to put the true and full position to which the respondents as contradictors, could be expected to respond. It was the respondents that had to seek out the relevant (and not readily available to them) information, in order to expose the true position before the Court. (2) It fell to the respondents to expose a range of fundamental factual errors relied upon by the applicants for the relief they sought. The extent of such errors were extensive. Reference was made to various examples by reference to the pleadings. There was, accordingly, no factual foundation for such allegations. (3) Since 4 November 2008, the applicants had access to all materials and documents held by the Allco Group, both hard copy and electronic, which would assist the Court in determining this issue. However, the applicants failed to present a significant amount of relevant information to the Court. The applicants' affidavit evidence consisted of four brief affidavits, two each from Mr Gothard and Ms Wagner, which were selective and limited in content. As a result, the respondents were forced to issue several informal requests for documents, Notices to Produce, Subpoenas and Notices to Admit Facts, in an attempt to obtain the necessary information. (4) In attempting to obtain the necessary financial and accounting information with minimal further costs and delay, the respondents suggested that an independent forensic accounting expert attend the Allco Group's offices, accompanied by a representative of the applicants, to obtain the required financial information. The applicants rejected this approach. (5) It was necessary to engage an independent expert accountant to provide evidence on the true financial position and, as it turned out, such a step was necessary in circumstances where there was a challenge to the evidence (and independence) of Mr Pace because of his interest in the outcome of the proceedings. (6) However, the evidence of Mr Pace, in his affidavit, with attachments, was largely agreed with by Ms Wagner in her reply affidavit, but neither she nor Mr Gothard had put these materials before the Court. (7) No real attempt was made by the applicants to examine or put evidence before the Court to show whether some of the documents they relied upon were reflective of the true position (for example, BAS and FBT external documents versus internal accounting records). (8) Moreover, a cursory examination of the accounts of the Group would show that a number of matters relied upon by the applicants, even in opening submissions and then later in closing submissions, could not be sustained. (9) Furthermore, up until at least 1 October 2009, the records show that the applicants also employed approximately 13 individuals who worked in Group Finance, Group Tax, Human Resources and Payroll who could have shed light on how employee entitlements and liabilities were accounted for and the administrative and organisational structure of the Allco Group with respect to employees. The applicants did not obtain affidavit evidence from any of those persons or call any one of them at trial. (10) Over a period of eight months, the respondents undertook a significant amount of work to attempt to generate a comprehensive Agreed Statement of Facts and bundle of supporting documents. A significant proportion of the facts contained in the final Agreed Statement of Facts and supporting documents were proposed and supplied by the respondents, following the various formal and informal requests for documents issued to the applicants and other parties. 35 Finally, the respondents made a number of disparate submissions in support of the motion, including the following: (1) The amounts claimed by the respondents and those they represent are only those to which they are individually contractually entitled, amounts that are not significant sums in relation to most employees. The benefits for some will thus be outweighed by the costs of the litigation. In those circumstances, it would be unjust for the respondents to carry the costs burden for having the issues raised by the applicants clarified unless an appropriate order is made as to costs to avoid such an outcome. (2) The two-tiered approach on the interpretation of s 556(l)(e) of the Act was raised and pursued at trial in the absence of any authority to support it, and was, as found by the Court, without substance. (3) In the absence of any privity of contract between AFGPL and any of the respondents, the applicants, at trial, sought to rely on agency and indemnity arguments, in respect of which it was found by the Court that there was no evidentiary basis for the arguments (which, nonetheless, increased the respondents' costs). (4) It is well recognised that there is a significant gap between costs recovered by a successful party from the other on a party/party taxation of costs and those payable by the successful party to his or her own solicitors. (See, for example, Colgate-Palmolive at 227). (5) A determination that the respondents be entitled only to costs on a party/party basis would result in an unjust outcome in that they will effectively be required to meet the costs from their entitlements which are given priority by the Act as a result of performing the role of contradictor - a role which in this case has been demonstrated to be both necessary and of utility in the ultimate determination of the issues. (6) Even in truly adversarial proceedings (as opposed to proceedings for guidance or directions with a proper contradictor), indemnity costs may be awarded in certain circumstances, for example, (a) where there is a wilful disregard of known facts or clearly established law; (b) the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions; (e) an imprudent refusal of an offer to compromise. (See: Colgate-Palmolive at 233 - 234.) It was submitted that those factors were present in these proceedings.

The Applicants' Submissions 36 The applicants submitted that the respondents did not conduct the proceedings in a manner consistent with the costs orders made on 29 September 2009. Reference was made to the following matters: (1) That the initial batch of the respondents' affidavit evidence was filed late; (2) at the final directions hearing on 26 October 2009, the respondents, without any notice, sought to vacate the original hearing dates of 29 and 30 October 2009 - with the Court agreeing and setting the matter down for hearing for four days commencing on 29 March 2010; (3) at that time there was no application to vary the orders made about costs and no notice that the respondents had or would incur costs well in excess of the estimated $700,000; (4) on 9 November 2009, the respondents sent a request for further documents. The request was quite extensive and sent some two weeks after the directions hearing on 26 October 2010. Some documents were provided on 12 November 2009 and other documents were made available for inspection on 27 November 2009; (5) on 13 November 2009, the respondents filed eight affidavits. This is contrary to representations made at the final directions hearing that one lay and one expert affidavit would be filed. For the most part, the 14 affidavits filed by the respondents contained unnecessary and irrelevant material. They traversed issues which were covered in the Agreed Statement of Facts. Having sought that the proceeding be conducted as a representative proceeding, the provision of affidavits of some of the group members was contrary to that approach. A significant portion of the hearing was spent dealing with objections to the evidence and much of it was rejected; (6) the respondents justified the delay in filing on the basis that they did not receive material from the applicants relevant to the affidavits of Tony Samuel and John Pace. Mr Samuel was engaged as an expert. While Mr Pace was an employee, he also provided some accounting evidence in his affidavit. Mr Pace's evidence was of limited relevance to the issues in dispute. It is clear from the Court's decision these affidavits provided limited or no assistance to the outcome of the matters which arose for determination: [2010] FCA 1163 at 6. Much of Mr Samuel's report was struck out and the Court also found there was considerable duplication between the two affidavits; (7) as to the preparation of an Agreed Statement of Facts, on countless occasions the respondents would put the applicants to the cost of amending the Agreed Statement of Facts rather than providing marked up versions. Further, they delayed for some seven months on the issue of workers compensation when comprehensive documentation on the issue had been provided in late October and initial documentation provided some months before; (8) in addition to the affidavits, the respondents sought to rely on a four volume Tender Bundle. The majority of the documents relate to those in the respondent's groups of employees rather than the respondents themselves; (9) the matter was heard over six days, not the scheduled four days. Much of that hearing time was spent dealing with objections to the respondents' evidence. 37 The applicants submitted that a number of the respondents' submissions, specifically those in [29], [30] and [34(1) to (10)] above, were misleading and misstated the process undertaken by the parties. The applicants approached the trial on the basis that the Statement of Agreed Facts would obviate the need for voluminous affidavits. It was not conceded by the applicants that the second respondent's employer was AFGPL. Evidence of the structure and organisation of the Allco Group was a matter that was addressed in the Statement of Agreed Facts and the affidavits filed by the applicants. The respondents have no evidence to support their submission that no real attempt was made by the applicants to put the true position before the Court. To the extent that the respondents assert that it was up to them to put the relevant information before the Court in relation to the Allco Group structure, the amount of evidence ruled inadmissible by the Court or not read by the respondents at the hearing attests otherwise. 38 In reference to the respondents' submissions at [34(4)] above, the applicants said that, for confidentiality reasons, it was not appropriate to allow a third party access to all of the financial and accounting records of the Allco group for the purposes of providing a report. 39 In relation to the failure of the applicants to call evidence from Allco staff (see [34(9)] above), the applicants referred to the affidavit evidence of Ruth Nocka and Michelle Wagner deposing as to their attempts to obtain evidence from the relevant Allco payroll staff. 40 Furthermore, said the applicants, it was apparent from the Court's decision that the evidence put forward by the respondents was not relied upon by the Court in construing the identity of the employer to the exclusion of the matters set out in the applicants' evidence or the Statement of Agreed Facts. 41 In any event, the fact that the Court found in favour of the respondents in respect of a range of factual matters is not sufficient to ground an order for indemnity costs. 42 In relation to the respondents' submissions at [30] above, there was evidence supporting the identity of the employer of the second and third respondents as AFGPL, including evidence of representations made by the second and third respondents. On that basis, the applicants maintained their application for declarations in respect of those employees. 43 With respect to the costs incurred by the respondents there is no proper or adequate explanation as to the costs and how those costs were incurred. There was no significant change in the nature of the proceeding after the final directions hearing on 26 October 2009 that necessitated the filing of eight additional affidavits by the respondents. 44 According to the applicants, other aspects of the respondents conduct of the proceeding, specifically in relation to the issue of subpoena, have also resulted in unnecessary costs and duplication. 45 In summary, the applicants submitted that the orders sought by the respondents should not be made. 46 First, the applicants submitted that the respondents have not identified any grounds to justify that costs be paid on a 'full indemnity basis': De Alwis v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 77 at [6] - [7] and Colgate-Palmolive at 231 - 234. 47 It is well accepted that in deciding whether to award indemnity costs each exercise of discretion depends on the particular facts and the manner in which the litigation is conducted. There was nothing done by the applicants which invite the Court to consider making an indemnity costs order. This is not a claim that: (1) has been commenced or continued in circumstances where the applicants properly advised should have known there was no chance of success; (2) involved making allegations of fraud knowing them to be false; (3) made irrelevant allegations of fraud; (4) involved evidence of particular misconduct that causes loss of time to the Court and to other parties; (5) was commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law; (6) makes allegations which ought never to have been made or the undue prolongation of a case by groundless contentions; (7) concerns an imprudent refusal of an offer to compromise; (8) is 'high-handed'; (9) is 'unnecessary'; (10) is brought and prosecuted 'not for the bona fide purpose of protecting and enforcing a legal right, but to achieve an ulterior or extraneous purpose'; (11) involves delinquency on the part of the applicants; (12) has particular features that means the justice of the case warrants such an order; and/or (13) has some special or unusual features in a case so as to justify the Court exercising its discretion in this way. InterTAN Inc v DSE (Holdings) Pty Ltd [2005] FCAFC 54 at [11]. 48 Secondly, the applicants submitted that contrary to the respondents' submissions at [18(1)] and [28] above, they were not true 'contradictors': Oil Basins Limited v The Commonwealth of Australia (1993) 178 CLR 643 at 649 and compare Australian Securities and Investments Commission v Piggott Wood & Baker (a firm) (No 4) [2008] FCA 1774. The respondents did more than merely contradict. They filed cross-claims and took an active role in the proceeding. In the present case, the respondents had an interest in opposing the declaration sought by the applicants, which went beyond assisting the Court on questions of law. The respondents actively contended for a particular outcome. 49 The respondents were in no different position to any person who is named as a respondent to a proceeding. As the Court's jurisdiction depends upon the existence of justiciable controversy, there must be a respondent: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-582 and Yanner v Minister for Aboriginal & Torres Strait Islander Affairs (2001) 108 FCR 543 at [69]. 50 The respondents contended that the amounts they stood to gain from a successful outcome were not significant but the applicants pointed out that the fourth respondent, Christine Bowen's claim is for $147,611.24 and the first respondent, Steven Davey's claim is for $224,247.10. 51 Finally, the applicants submitted that the authorities cited by the respondents in their submissions did not support their contentions.

Reasoning 52 As I said at [17] above, the real issue for determination on the motion, indeed the only issue, is whether the respondents should have their costs on an indemnity basis as they seek in their motion, or on a party/party basis as contended by the applicants. 53 It is common ground, and is well recognised, that there is a significant gap between the costs recovered by a successful party from the other on a party/party taxation of costs and those payable by a successful party to his or her own solicitors: Colgate-Palmolive at 227 - 228, where Sheppard J canvassed the different judicial views as to the merit or otherwise of that state of affairs. 54 There can be no argument that the respondents' legal costs and disbursements, not including any fees incurred in relation to the motion before me, totalling $1,567,360.69 (see [11] above), is not only 'surprising' but, as I suggested to senior counsel for the respondents on the hearing of the motion, 'staggering', at least by reference to the earlier estimates of $700,000. It even exceeds, by more than $220,000, the rough estimate I made, on the hearing of the earlier motion on 14 September 2009, as to the likely total costs based on the costs and disbursements incurred to that date (see [15(2)] above). 55 If this proceeding had been commenced, prosecuted and defended as true adversary litigation between parties at arm's length, in the sense referred to by Sheppard J in Colgate-Palmolive, although at times during the course of the hearing a neutral observer could be forgiven for thinking it was such a proceeding, the settled practice for centuries in England and which is entrenched in Australia would apply, namely, the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis. Of course, it has long been recognised that the Court had a general and discretionary power to award costs as between solicitor and client 'as and when the justice of the case might so require': Andrews v Barnes (1888) LR 39 ChD 133 at 141. While I think there is some force in the respondents' submissions that in this proceeding there exist circumstances which, if it were true adversary litigation, would warrant the exercise of the discretion, such as wilful disregard of known facts or clearly established law (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 (Woodward J); J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2) (1993) 46 IR 301 (French J)); and the undue prolongation of a case by groundless contentions (Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, 5 March 1993, Davies J), the sheer size of the costs incurred might mitigate against the exercise of the discretion even if those circumstances were made out. Fortunately, I do not think I have to get involved in such considerations. 56 This is a case where the respondents' costs are not payable by the applicants personally but out of a fund or pool of property which has come in the applicants' hands, or under their control, as receivers of that property. The respondents' costs are just as much a cost of the receivership as the applicants' costs and it is common ground that the applicants are fully indemnified for their costs out of that fund or pool of property. The respondents were necessary parties if the proceeding, as commenced by the applicants, was to have any real utility in resolving the issue of which company or companies employed the respondents. Moreover, it had a factual complexity and, on the applicants' arguments, involved such novel propositions in law that 'the starting point is that costs of all necessary parties are to be paid by the [receiver] and counted as costs in the [receivership]': Farrow Finance at 527 (see [22] and [23] above). 57 Even if the respondents had not been as successful as they were, the foregoing considerations would, in my view, warrant that their costs be fully indemnified out of the assets in the hands, or under the control, of the receivers as a cost of the receivership. That they were totally successful avoids the need to test the soundness of my view. 58 Each party criticised the other for the way in which it conducted the proceeding, in particular post the orders made on 29 September 2009. The respondents' criticisms of the applicants' conduct are contained in [30], [32] and [34] above while the applicants' criticisms of the respondents' conduct are contained in [36] above. Some of these criticisms if made out, may well be relevant to the issue of the basis upon which costs should be awarded in a case where parties are not entitled to payment of their costs out of a fund or pool of property being administered by a liquidator, trustee or receiver. But for the reasons referred to above, their relevance here does not warrant a close analysis of their respective merit. 59 Having said that, I have to say that my observation of the hearing over six days led me to the firm view that, but for the material put into evidence by the respondents and the efforts taken by the respondents in ultimately producing a meaningful and constructive Agreed Statement of Facts, the Court would not have had before it, at least on the evidence adduced by the applicants, anything resembling the informed factual platform upon which to undertake the analysis it did. By this I do not mean to suggest that there was a lack of cooperation on the part of the applicants in relation to the development of the Agreed Statement of Facts, merely that the impetus for that development came from the respondents' camp.

Conclusion 60 The respondents should have their costs calculated on the basis sought in their motion. I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.