Hookway v M I D Pty Ltd

INTRODUCTION 1 In September 2012, the Plaintiff, Tamzin Peta Hookway, made application pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) (Corporations Act) to wind up on just and equitable grounds the following four Defendant companies of which the Plaintiff and her brother, Stirling Mathew Hookway, are the only directors: (a) M I D Proprietary Limited (ACN 004 576 970) (MID); (b) Hookway Aerospace Pty Ltd (ACN 004 996 114) (Hookway Aerospace); (c) Ballyvergan Pty Ltd (ACN 009 575 731) (Ballyvergan); and (d) Sol-Rio Pty Ltd (ACN 009 571 493) (Sol-Rio). 2 The Plaintiff's application seeks to: (a) wind up the Defendant companies under the provisions of the Corporations Act; (b) have Barry Kenneth Hamilton of B K Hamilton & Associates appointed the liquidator of each of the Defendant companies; and (c) have the liquidator reimburse out of the property of the Defendant companies the taxed costs incurred by the Plaintiff in this proceeding, in accordance with the Corporations Act. 3 On 5 October 2012, at a directions hearing before Justice Kerr, Mr Hookway sought leave to be heard, and stated that he had not been able to find legal representation and had not yet decided if he would oppose the Plaintiff's application. 4 By an Order of the Court the Plaintiff and Mr Hookway were referred to the Tasmania District Registrar to conduct a mediation to be completed by 31 October 2012. In the event that the mediation did not succeed, the District Registrar was to conduct a case management conference. 5 On 12 October 2012, the Plaintiff, her counsel and Mr Hookway attended the mediation with the Tasmania District Registrar. The Plaintiff and Mr Hookway were not able to resolve their issues at that mediation. Following the mediation, at a case management conference before the District Registrar, Mr Hookway stated he remained undecided about whether he would oppose the Plaintiff's application. Accordingly, to allow Mr Hookway time to obtain proper legal advice and to decide how he would proceed, the District Registrar adjourned the case management conference until 1 November 2012, unless Mr Hookway notified the Court and the Plaintiff of his intentions in writing prior to that date. 6 By a letter from Garth O'Rafferty of counsel to McDonald Slater & Lay (solicitors) dated 24 October 2012 (of which Mr Hookway received a copy), Mr Hookway was advised, inter alia: (a) Mr Hookway had very little chance of resisting the Plaintiff's winding up application; (b) "given the level of acrimony and distrust between [Mr Hookway and the Plaintiff], and given [the Plaintiff's] allegations as to whether or not [Mr Hookway's] actions in taking his salary and allegedly establishing [Mr Hookway] Stockfeed Pty Ltd were lawful and ought to be actioned, [the value of the shares may be affected]. If so, the winding up would likely be ordered"; and (c) "it is likely the winding up will be ordered". 7 On 1 November 2012, the case management conference - held by telephone - was attended by the District Registrar, Plaintiff's counsel and Mr Hookway. At that conference, Mr Hookway stated that he would not oppose the Plaintiff's application to wind up the Defendant companies. Instead, Mr Hookway requested that consent orders be entered by him and the Plaintiff. The District Registrar reminded Mr Hookway that he had not been joined as a party to the proceeding. 8 At the relevant time, Mr Hookway, having not filed a Notice of Appearance in this proceeding until 20 November 2012, was not a party to the proceeding and hence was without the capacity to enter into the consent orders he sought on 1 November 2012. 9 It was not until 20 November 2012 that Mr Hookway's Notice of Appearance and his Affidavit of the same date were filed with the Court. Mr Hookway's Affidavit was faxed to the Plaintiff's solicitors by the Tasmania Registry on 21 November 2012 at 10:08 am and Mr Hookway's Notice of Appearance was faxed to the Plaintiff's solicitors by the Tasmania Registry on 26 November 2012 at 4:18 pm. To the extent necessary, I dispense with the requirements of the Federal Court Rules 2011 (Cth) for service of these documents. 10 Mr Hookway has now agreed that: (a) the Defendant companies be wound up under the provisions of the Corporations Act, and (b) that Barry Kenneth Hamilton of B K Hamilton & Associates be appointed the liquidator of each of the Defendant companies. 11 Having reviewed the evidence before the Court, I consider these orders should be made. 12 The only question before the Court is whether the liquidator should reimburse out of the property of the Defendant companies the taxed costs incurred by the Plaintiff in this proceeding, in accordance with the Corporations Act. The parties were content that I deal with this question on the papers, and placed before the Court written submissions. 13 It was submitted by the Plaintiff that, given the serious level of mistrust and longstanding antipathy that exists between the Plaintiff and Mr Hookway (as is apparent in the evidence), the differences between the Plaintiff and Mr Hookway as directors and shareholders of the Defendant companies are insurmountable. The incapacity of the Plaintiff and Mr Hookway to manage the Defendant companies cooperatively left the Plaintiff with no alternative but to bring the winding up application. 14 It was further submitted by the Plaintiff that as her application for a winding up order is unopposed, she is entitled to an order for costs based on the usual principle that costs follow the event: see eg Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys [2012] FCA 282 at [30]; and Xat Ky v Australvic Property Management Pty Ltd (No 2) [2007] FCA 1785 at [4]. 15 The Federal Court's discretionary power to award costs, conferred by s 43 of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act), must be exercised judicially and in accordance with general legal principles covering awards of costs: see eg Gore v Justice Corporation Pty Ltd (2002) 119 FCR 429 at 447-448 [50]. It is also to be noted that under s 37N(4) of the Federal Court Act, in awarding costs, the Court must take into account any failure to comply with the duty imposed by s 37N(1) and (2). In addition, in awarding costs, the Court may take into account whether a person took genuine steps to resolve the dispute - see s 12(1) of the Civil Dispute Resolution Act 2011 (Cth) (Civil Dispute Resolution Act). 16 Then, pursuant to s 466 of the Corporations Act: (1) The persons… on whose application any winding up order is made must, at their own cost, prosecute all proceedings in the winding up until a liquidator has been appointed… (2) The liquidator must, unless the Court orders otherwise, reimburse the applicant out of the property of the company the taxed costs incurred by the applicant in any such proceedings. 17 In accordance with the statutory presumption or mandate of s 466 of the Corporations Act, ordinarily the applicant for any winding up order is awarded the costs of making the application: Australian Securities and Investments Commission v Centro Financial Synergy Group [2007] FCA 2084 at [29]; and Xat Ky v Australvic Property Management Pty Ltd (No 2) [2007] FCA 1785 at [4]. 18 As the Defendant companies are solvent, have significant assets, and (other than inter Defendant company creditors) have few, if any, creditors, displacement of the creditors is not an issue. 19 The Plaintiff submits that the current application does not present a circumstance in which it would be appropriate to depart from the statutory mandate as set out in s 466 of the Corporations Act, and accordingly, seeks that the costs of making the application be taxed and paid from the Defendant companies' property. 20 In opposition, Mr Hookway submitted that the Plaintiff is not entitled to these costs, as she failed to take genuine steps to resolve the dispute before instituting proceedings. 21 Where an applicant has not complied with the obligation to file a genuine steps statement in making its winding up application or has failed to sincerely and genuinely attempt to resolve the dispute, the Court may use its discretion to order that costs not be paid in accordance with the Corporations Act. 22 On the premise (which I assume - without deciding - to be correct, based on the Plaintiff's submissions) that the current proceeding is not an "excluded proceeding" under s 6(3) of the Civil Dispute Resolution Act, on 3 September 2012, at the time of filing her application to wind up the Defendant companies, the Plaintiff purportedly complied with the requirements of the Civil Dispute Resolution Act by filing a genuine steps statement which stated that she had: (1) notified Mr Hookway as a director of Hookway Aerospace, Ballyvergan and Sol-Rio and a former director of MID that there were issues in dispute, and offered to discuss them with a view to resolving the dispute; and (2) attempted to negotiate with Mr Hookway with a view to resolving the issues in dispute. 23 It is clear that the disputes between the Plaintiff and Mr Hookway as directors of the Defendant companies had been intensifying since at least early 2010. Since that time, the Plaintiff has been in frequent contact with Mr Hookway and there have been various attempts to resolve issues related to the Defendant companies. 24 For many years, the Defendant companies have struggled to operate due to the serious mistrust and disharmony between the Plaintiff and Mr Hookway. The nature of the Plaintiff's relationship with Mr Hookway has precluded any reasonable hope of reconciliation between them. I accept the Plaintiff brought her application to wind up the Defendant companies as a matter of last resort. 25 Mr Hookway received a copy of the Plaintiff's application to wind up the companies on or before 6 September 2012 but he did not notify the Plaintiff or the Court until 1 November 2012 that he would not oppose the winding up application. 26 However, Mr Hookway has been disposed to contest matters even after the commencement of the proceeding. Mr Hookway initially stated that he was going to object to the appointment of the liquidator proposed by the Plaintiff and direct the liquidator to offer him a right of first refusal for all of the Defendant companies' property. However, in his Affidavit filed on 20 November 2012, he stated that he "no longer seek[s] to make submissions to the Court in relation to who should be appointed liquidator in this proceeding, and nor do[es he] seek any directions to the liquidator." 27 In my view, given that the Plaintiff's application has been successful, she is entitled to an order for costs, based on the usual principle that costs follow the event. 28 Whilst there may be the presumption or mandate provided for in s 466 of the Corporations Act, I nevertheless consider that when the Court is considering making a different order as to costs, the Court should consider the operation of each of ss 37N(4) and 43 of the Federal Court Act, and s 12(1) of the Civil Dispute Resolution Act. 29 Taking the operation of these legislative provisions into account, the current application does not present a circumstance in which it would be appropriate to depart from the statutory presumption or mandate that the costs of making the application be taxed and paid from the Defendant companies' property. 30 I see no sound reason why the liquidator should not reimburse out of the property of the Defendant companies the taxed costs incurred by the Plaintiff in this proceeding, in accordance with the Corporations Act. 31 The main submission of Mr Hookway was in reliance on the Civil Dispute Resolution Act and Superior IP International [2012] FCA 282. In addition, Mr Hookway could rely upon s 37N(4) of the Federal Court Act, which is couched in mandatory terms. 32 Mr Hookway submitted that the issue in dispute in this proceeding for the purposes of s 6(2)(a) of the Civil Dispute Resolution Act is whether or not the Defendant companies ought to be wound up on the just and equitable ground, and not just the conduct of Mr Hookway. 33 I am prepared to accept, in favour of Mr Hookway, that at the time that the Plaintiff took the steps referred to in [22] above, there was no express notification or identification of the exact issue in dispute, namely whether or not the Defendant companies ought to be wound up on a just and equitable ground. However, this does not mean that the Court cannot or should not make the order sought by the Plaintiff. 34 It seems to me that the Plaintiff is entitled to the order she seeks for the following reasons: (a) The object of the Civil Dispute Resolution Act only requires that genuine steps be taken "as far as possible". (b) I accept, having regard to the background facts in this dispute, that the Plaintiff brought the application to wind up as a matter of last resort, and in the circumstances took sufficient steps before initiating the proceeding to try and resolve the differences between the relevant parties. (c) On the balance of probabilities, I find that it was unlikely that Mr Hookway would have settled on the terms of the orders he finally agreed to and which I now propose to make without the proceeding having been instituted. The fact that soon after receiving advice to consent to the winding up Mr Hookway accepted this advice does not detract from this conclusion. If the proceeding had not been on foot, with the expectation of an early trial and determination of the proceeding, I am of the view that Mr Hookway would not have settled in the manner sought by the Plaintiff in this proceeding. (d) Whilst Mr Hookway has been unrepresented, his conduct (both before and after the institution of the proceeding) indicates that without the matter being brought before the Court, disputation between the parties would have continued. (e) The Plaintiff has been successful in the primary relief claimed, and in this circumstance, costs should follow the event and the prima facie position stated in s 466 of the Corporations Act should be applied. (f) I find that even if the Plaintiff did not comply precisely with s 12(1)(a) of the Civil Dispute Resolution Act (which relates to the filing of a genuine steps statement), she did comply with s 12(1)(b) (which relates to taking genuine steps to resolve a dispute). (g) Further, I find that the Plaintiff did comply with s 37N(1) of the Federal Court Act. 35 For the above reasons, I propose to order that: 1. The Defendants: (i) M I D Pty Ltd (ACN 004 576 970); (ii) Hookway Aerospace Pty Ltd (ACN 004 996 114); (iii) Ballyvergan Pty Ltd (ACN 009 575 731); and (iv) Sol-Rio Pty Ltd (ACN 009 571 493) be wound up under the provisions of the Corporations Act 2001 (Cth). 2. Barry Kenneth Hamilton of B K Hamilton & Associates, Level 1, 63 Salamanca Place, Hobart, Tasmania be appointed the liquidator of each of the Defendants; and 3. The liquidator reimburse out of the property of the Defendants the taxed costs incurred by the Plaintiff in this proceeding. 36 I observe that the final order is probably unnecessary, because of the operation of s 466 of the Corporations Act. Nevertheless, as the issue has arisen, and as it has been contentious, I propose to make the final order even if it is only "declaratory" of the position. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton.