Liberty Industrial Pty Limited v Donald Mcarthy Trading Australia Pty Limited

Judgment 1In my Judgment delivered on 8 February 2013, I held that Liberty Industrial Pty Limited ("Liberty") was entitled to judgment against Donald Mcarthy Trading Australia Pty Limited (in liq) ("DMT") in the amount of $1,146,592.36, in circumstances that, shortly before the hearing, DMT's liquidator had, in effect, admitted a proof of debt in that amount and Liberty had indicated that it would accept that amount but pressed its claim for costs and interest in the proceedings. I also held that an order for costs on a gross sum basis should be made in favour of Liberty under s 98 of the Civil Procedure Act 2005 (NSW). I directed the parties to bring in agreed Short Minutes of Order to give effect to the Judgment, including any quantification as to costs, within 14 days or otherwise their respective short minutes of order and submissions as to the differences between them. 2On 17 February 2013, Liberty's solicitors advised my Associate that issues as to quantum had been largely agreed between Liberty and the liquidator but Liberty was considering whether to exercise liberty to apply which I had reserved to the parties in respect of one issue. By letter dated 22 March 2013, Liberty's solicitors advised my Associate that the parties had agreed the quantum of costs and interest calculated to the date of my Judgment, 8 February 2013, but sought to have the matter restored before the Court to determine the final form of order. 3It appears that, by 20 February 2013, the form of orders proposed by Liberty's solicitors were substantially agreed between Liberty and the liquidators, although an issue remained as to the form of the first order to be made, and another issue had arisen by reason of the liquidator's advice that he did not accept that Liberty's claim for costs and interest would be a provable date in the winding up of DMT. Liberty now seeks to address that issue by including additional orders in those to be made by the Court. On the other hand, the liquidator contends that orders should be made in the form of those proposed on 20 February 2013, other than that there should be no reference to "verdict", as distinct from "judgment" in the first of those orders, where the hearing was before a Judge alone in the Court's civil jurisdiction. 4An issue arose as to whether the question of the additional orders sought by Liberty was properly raised and I delivered an ex tempore judgment in the course of the further argument before me holding that those matters were properly determined prior to the making of orders in the proceedings. Interest 5The first issue which arose is whether Liberty is entitled to prove, in the winding up, for the amount of interest awarded on the judgment debt under s 100 of the Civil Procedure Act 2005 (NSW). Liberty initially sought to address that issue by claiming an order that it was admitted as a creditor in the winding up of DMT in the amount of $1,186,738.70, which is the sum of the principal amount of the judgment and the amount of interest under s 100 of the Civil Procedure Act to 8 February 2013 as agreed between the parties. The liquidator opposed the making of that order on the basis that it was neither necessary or justified, where the liquidator has already admitted Liberty as a creditor in the winding up for the full amount of the judgment sum and takes the position that any sum (including interest and costs) which is required to be admitted will be admitted. 6In my view, it is appropriate, in order to achieve the overriding objective of the just, quick and cheap resolution of the real issues in dispute under s 56 of the Civil Procedure Act to address the substantive issue of the treatment of interest in the winding up. The Court allowed an opportunity for each party to make further submissions as to that issue including, in particular, as to the implications of s 563B of the Corporations Act 2001 (Cth) and the Court of Appeal's decision in McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) [2011] NSWCA 315; (2011) 81 NSWLR 690 to which I will refer below. 7Liberty initially drew attention to s 553 of the Corporations Act which provides that, relevantly, all debts payable by, and all claims against, the company (present or future certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which accrued before the relevant date, are admissible to proof against the company. Liberty emphasised the width of that provision, as noted by Hayne and Crennan JJ in Sons of Gwalia Ltd (subject to Deed of Company Arrangement) v Margaretic (2007) 231 CLR 160. In its supplementary submissions, Liberty modified its position to contend that interest prior to 28 August 2012 would fall within s 553, and accepted that interest from that date could only be paid in accordance with s 563B of the Corporations Act. 8The position as to orders for interest under s 94 of the Supreme Court Act 1970 (NSW), the predecessor to s 100 of the Civil Procedure Act, in respect of interest incurred after a winding up order was considered by Barrett J in Re Emilico Pty Ltd [2002] NSWSC 1124; (2002) 43 ACSR 536, where his Honour held that a creditor may only receive interest accruing after the commencement of a winding up, in relation to an obligation incurred by the company before the commencement of the winding up, if a surplus existed in the winding up. That decision dealt with the position prior to the introduction of s 563B of the Corporations Act by the Corporate Law Reform Act 1992, with effect from 23 June 1993. His Honour observed at ACSR 540 that: "... The right to prove is a right referable to the state of [the company's] indebtedness at the commencement of the winding up, while any question of entitlement to interest accruing after that commencement falls to be dealt with separately once it becomes clear (assuming that it does) that there is a surplus after satisfaction of provable claims as they existed at commencement and are afterwards admitted." That observation was approved by Anderson J (with whom Mullighan and Nyland JJ agreed) in Gerah Imports Pty Ltd v Duke Group Ltd (in liq) [2004] SASC 178; (2004) 49 ACSR 660 at [46], where the Court referred to the practice of second round proofs for claims for post-liquidation interest by creditors who had a contractual or statutory right to it. 9Section 563B(1) of the Corporations Act in turn provides for payment of interest, at the prescribed rate, where a liquidator pays an amount in respect of an admitted debt or claim, on the amount of the payment in respect of the period starting on the relevant date (as defined) and ending on the day on which the payment is made. It is common ground in the present case that the relevant date is 28 August 2012, when administrators were appointed. Section 563B(2) provides that, subject to a qualification in s 563B(3) which is not presently relevant, payment of the interest is to be postponed until all other debts and claims in the winding up have been satisfied, other than subordinate claims (within the meaning of s 563A). 10The position where that section applied was considered in McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) above, where Bathurst CJ (with whom Macfarlan JA relevantly agreed and Sackville AJA agreed) addressed a claim for interest (which was ultimately put under the principle in Hungerfords v Walker (1989) 171 CLR 125 rather than under s 100 of the Civil Procedure Act), which relied on the liquidator's power under s 477(1)(b) of the Corporations Act to pay a creditor in full. Bathurst CJ there expressed the view that a liquidator is not authorised, by s 477(1)(b), to pay post-liquidation interest other than in accordance with s 563B of the Corporations Act. His Honour observed (at 707) that the sole entitlement to such interest arises under s 563B of the Corporations Act and is payable in the circumstances set out in that section. His Honour noted that that result is consistent with the fact that, prior to the introduction of that section, there was no entitlement to post-liquidation interest except as provided under any contractual arrangement between the parties, and referred to the authorities addressing that question including Re Emilico to which I have referred above. 11I accept Liberty's submission that its claim for interest under s 100 of the Civil Procedure Act in respect of the period prior to 28 August 2012 falls within s 553 of the Corporations Act, being a contingent claim that arose from an event, namely the failure to pay the amount due to Liberty, prior to the Liquidator's appointment. It follows from s 563B of the Corporations Act and the decisions to which I have referred above that interest on the judgment debt arising after the date of the liquidator's appointment is not admissible to proof in the winding up, other than if a surplus arises and in accordance with s 563B of the Corporations Act. 12I will therefore make an order for interest up to 28 August 2013. I do not understand there to be any need for an order to be made in respect of the treatment of interest after 28 August 2012, since there is no suggestion that the liquidator would not act in accordance with the requirement of s 563B of the Corporations Act. Costs 13Liberty seeks additional orders that the liquidator pay its costs of the proceedings as a priority payment under s 556 of the Corporations Act. 14The Liquidator contends that a costs order against him cannot be characterised as an expense incurred by a relevant authority in preserving, realising or getting in property or carrying out on DMT's business or that, alternatively, it cannot be so characterised prior to the point at which the liquidator had an active involvement in the conduct of the proceedings. The liquidator relied on the decision of the High Court of Australia in Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52, which held that a costs order made against a bankrupt, after his bankruptcy, in respect of proceedings that had taken place prior to his bankruptcy was not a debt provable in the bankruptcy. Ms Richards, who appears for the liquidator, also drew attention to the decision in McDonald v Commissioner of Taxation [2005] NSWSC 2 (2005) 187 FLR 461. However, that decision is readily distinguishable, since it turns upon a finding that costs in that case had not been incurred by the insolvency practitioner, where they arose from an order for costs made in respect of proceedings commenced prior to the winding up, and imposed without any relevant act or any choice on his part. Here, the costs were incurred by reason of the liquidator's decision to conduct the defence of the proceedings. 15Liberty contends that the position in this case is to be distinguished from Foots v Southern Cross Mine Management because Liberty's costs are a proper expense of the winding up under s 556(1)(a) or s 556(1)(dd) of the Corporations Act. Liberty points out that the costs order to be made in Liberty's favour is made in circumstances that Liberty was granted leave to continue the proceedings and that the liquidator had actively defended Liberty's claim, at least until the point when it allowed the substantial part of that claim shortly before the hearing. 16In Jeffcott Holdings Ltd (in liq) v Young (1995) 16 ACSR 33 at 34-35, Burley J held that costs awarded against a liquidator in proceedings brought by the liquidator are "expenses of the winding up" for the purposes of s 4401(1)(a) of the Companies Code, the predecessor to s 556(1)(a) of the Corporations Act, and held that that position was not limited to circumstances where a liquidator had improperly defended proceedings. In Lofthouse, in the Matter of Riverside Nursing Care Pty Ltd (subject to Deed of Company Arrangement) [2004] FCA 93 at [26]-[28], Finkelstein J undertook a detailed review of the position at general law and by statute, including referring to the decision in Jeffcott Holdings Ltd (in liq) v Young, and noted that costs of the unsuccessful conduct of proceedings by a liquidator ordered against a company in liquidation form part of the expenses of a winding up for the purposes of s 556 of the Corporations Act. In Green v Equititrust Ltd (formerly Equiloan Ltd) [2010] NSWSC 1099, White J dealt with an application by the administrator of a deed of company arrangement for directions as to whether an amount for which the company was liable under a costs order, arising from the deed administrator's decision as to how proceedings should be defended, should be treated as the administrator's disbursements under the deed. His Honour referred to Lofthouse, in the Matter of Riverside Nursing Care Pty Limited (subject to Deed of Company Arrangement) above and pointed out that the correct question was whether the insolvency administrator's conduct leading to the making of a costs order was such that they incurred costs or disbursements in performing their duties for the relevant purpose. 17Ms Richards also put an argument that costs should be apportioned between the period before and after the liquidator assumed active carriage of the proceedings; however, a similar argument was rejected by White J in Green v Equititrust Ltd (formerly Equiloan Ltd) above at [31]-[32], and I would not accept the argument put by Ms Richards for the same reasons. 18In this case, I reviewed the liquidator's significant role in the conduct of the proceedings in paragraph 13 of my primary judgment. The liquidator plainly defended the liquidation in carrying out the Company's business and the liability to costs incurred by the Company therefore ranks under s 556(1)(a) of the Corporations Act. I will therefore make an order in the form of paragraph 5 sought by Liberty, but amending the reference to s 556 to refer to s 556(1)(a) of the Corporations Act. Costs since 20 February 2013 19The final issue in dispute is that of costs incurred by the parties since 20 February 2013. The liquidator contends that the proceedings have been unnecessarily prologued by Liberty since the parties had reached "agreement" (or, I interpolate, at least substantial consensus) as to the orders to be made in the proceedings on 20 February 2013. I do not accept that submission. The question of the treatment of interest and costs were significant matters and needed to be resolved to give practical effect to the Court's judgment. I therefore do not accede to the liquidator's submission that Liberty should pay his costs since 20 February 2013. On the other hand, Liberty seeks its costs over the period since 20 February 2013 and for the further hearing as to these matters also seeks an order that those costs be assessed on a gross sum basis. 20The result of the hearing was finally balanced, since Liberty succeeded in respect of only a relatively small part of its claim for interest in the winding up (up to 28 August 2012, rather than 8 February 2013 as it originally claimed) but succeeded in respect of its claim for costs, and the liquidator had the converse result. In these circumstances, I consider that the proper order is that there should be no order as to the costs incurred by the parties since 20 February 2013. Form of judgment 21An issue was raised between the parties as to whether the first order should refer to "verdict and judgment for the Plaintiff" or only to "judgment for the Plaintiff". I accept that the liquidator's submission that the latter reference is appropriate in the context of a judgment given in civil proceedings before a Judge alone. Orders 22Accordingly I make the following orders: