National Australia Bank Limited v Sayed

Costs of the winding up proceedings

1. SOR was successful in the winding up proceedings. It is entitled to have its costs of those proceedings (as assessed) reimbursed pursuant to s 466 of the Corporations Act and paid out of the assets of the Company in priority to the claims of other unsecured creditors pursuant to s 556(1)(b) of that Act.
2. The question whether the Court should fix the amount of those costs pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW) will be addressed later in these reasons.

Costs of the recognition proceedings

1. SOR successfully opposed the Company's application for recognition of the UK proceeding as a foreign main proceeding under the Model Law. Costs should follow the event. The question is whether the costs order to be made in SOR's favour should be made against the Company alone, or against the Company and the joint monitors jointly and severally.
2. SOR submitted that, in circumstances where the joint monitors are the foreign representatives and were therefore the proper plaintiffs to the recognition proceedings, an order for costs should be made against them as well as against the Company. SOR's submissions referred to the candid acknowledgement by counsel for the Company and the joint monitors immediately prior to their joinder as second plaintiffs that the sole reason they had not been made parties to the proceedings previously was a desire to avoid a personal costs order. [4] It was submitted that a costs order against the joint monitors involved no unfairness because it was likely that they had the funds to pay such costs out of moneys drawn down under the moratorium facility referred to in the principal judgment at [106]-[114]. SOR's submissions asserted that the joint monitors would be entitled to an indemnity from Hydrodec Group Plc under UK law.
3. It was submitted on behalf of the joint monitors that no costs order should be made against them for four reasons.
4. First, SOR's submissions filed and served prior to their joinder as second plaintiffs stated that the costs of the recognition proceedings should be treated as if they were costs in the winding up of the Company and paid in the same priority as set out in s 556(1)(b) of the Corporations Act. SOR had not notified any proposed change in its position in relation to costs in the event that the joint monitors were joined as plaintiffs. It was submitted that SOR should be "held to" the position in its submissions filed and served prior to the joinder of the joint monitors.
5. Second, the joinder of the joint monitors as second plaintiffs had not occasioned any additional cost or expense to SOR in prosecuting the recognition proceedings.
6. Third, the joint monitors do not have control over the assets of Hydrodec Group Plc, do not have the benefit of a statutory indemnity under the Insolvency Act 1986 (UK) and are not a party to the moratorium facility referred to at [106]-[114] of the principal judgment. It was submitted that there is "no issue" that the Company will be able to meet the costs order made against it under that moratorium facility and that there was therefore "both unfairness, and no utility, in ordering that the Monitors should be personally liable for SOR's costs of the recognition application: they do not have direct recourse to the funds made available under the Funding Agreement".
7. Fourth, it was submitted that the monitors are professional advisers who have undertaken their role and performed their duties as monitors in the moratorium properly and in good faith. It was submitted that the monitors were entitled to rely on the expert opinion of Mr Flannery in relation to the recognition proceedings.
8. If proceedings brought by a liquidator in relation to a company's affairs are unsuccessful, then an order for costs will generally be made against the liquidator personally: see Silvia & Anor v Brodyn Pty. Limited [2007] NSWCA 55 at [48]-[51] and the authorities there cited. In my opinion, there is no principled reason why any different approach should be taken in respect of the joint monitors and the costs of the recognition proceedings. Although they were not made parties to the proceedings until the commencement of the final hearing, that was acknowledged to have been a mere strategy to avoid potential costs liability. They had clearly been aware of the proceedings and supported them from the outset, including by one of the joint monitors providing an affidavit in support of the recognition application. They were aware of their potential liability for costs if they were joined as parties to the proceedings. They immediately consented to their joinder as plaintiffs on the Court raising with counsel for the Company the question of the identity of the foreign representative and the potential jurisdictional issue. It was apparent from counsel's ability to immediately continue with the final hearing representing both the Company and the joint monitors that their position in relation to the recognition proceedings was wholly aligned.
9. The parties' submissions did not adequately address the question whether the joint monitors are entitled as a matter of law to an indemnity out of the Company's assets in the same way as a liquidator or trustee. I need not determine that question because, at the very least, the joint monitors had ample opportunity in the circumstances I have recounted above to negotiate such an indemnity with the Company or those standing behind the Company prior to becoming parties to the recognition proceedings. If it be the case that they do not have the benefit of an indemnity, there is no reason why this should deprive SOR of the costs order that would ordinarily be made in its favour as the successful defendant against all of the unsuccessful plaintiffs jointly and severally. I am not persuaded by the submission that there was "no issue" about the Company's ability to meet a costs order by utilising the moratorium facility. I do not regard it as obvious that the Company will draw down on that facility (that is, go into further debt) in order to access funds to meet a costs order in these proceedings.
10. It is not to the point that the joinder of the joint monitors as second plaintiffs did not occasion additional costs to SOR. The joint monitors, together with the Company, are the unsuccessful parties in the recognition proceedings and costs should follow the event. The costs order is a reflection of that event and compensates the successful party for the costs that it has incurred. It is not punitive of the unsuccessful parties, and it is irrelevant whether the joint monitors have undertaken their role and performed their duties as monitors in the moratorium properly and in good faith. The point is that the recognition proceedings were dismissed.
11. I reject the joint monitors' submission that SOR should be "held to" a submission made in relation to costs before the joint monitors became parties to the proceedings. The landscape for potential costs orders changed as a result of their joinder, as the joint monitors must have known at that time. The explanation proffered by counsel for the decision not to join them as parties to the proceedings earlier indicates that they did in fact know the potential costs consequences of their joinder.
12. For those reasons, the Company and the joint monitors will be ordered to pay SOR's costs of the recognition proceedings. The order will operate against the Company and the joint monitors jointly and severally.
13. A key objective of the recognition proceedings was to avoid the winding up of the Company. In my opinion, SOR's costs of opposing the recognition application are properly referable to the winding up: see In the matter of bCode Pty Limited and In the matter of bCode Middle East Africa Holdings Limited [2012] NSWSC 1530 at [8]-[9]. I accept SOR's submission that, insofar as the Company is ordered to pay costs of the recognition proceedings, those costs should be reimbursed by the liquidator pursuant to s 466 and paid in the order of priority provided by s 556(1)(b) of the Corporations Act.

Application for gross sum costs order

1. I now to turn to whether the costs orders in SOR's favour in the recognition proceedings and the winding up proceedings should be for payment of its costs in a specified sum pursuant to s 98(4)(c) of the Civil Procedure Act and, if so, the quantum of that sum.
2. Section 98(4)(c) provides that, at any time before costs are referred for assessment, the Court may make an order to the effect that the party to whom costs are to be paid is to be entitled to a specified gross sum instead of assessed costs.
3. I respectfully adopt the following summary of the principles applicable to s 98(4)(c) in National Australia Bank Limited v Sayed [2020] NSWSC 1316 (Ward CJ in Eq): "9. The principles applicable on such an application are set out in Hamod v State of New South Wales [2011] NSWCA 375 (Hamod) at [813]-[820], per Beazley JA, as Her Excellency then was, Giles and Whealy JJA agreeing. Before exercising the power to make a gross sum costs order, the Court should be confident that the approach taken to estimating costs is fair, logical and reasonable. Further, having regard to the terms of s 98(4) of the Civil Procedure Act, together with the more general considerations reflected in ss 56-60 of the Civil Procedure Act, the factors that merit particular consideration in this context include the degree of any disproportion between the issue litigated and the costs claimed, and the complexity of proceedings in relation to their cost. 10. As was noted by Slattery J in Bahamad v Wong [2020] NSWSC 991 at [19], the power may be exercised where a party's conduct has contributed unnecessarily to the cost of the proceedings, especially where the costs incurred have been disproportionate to the result of the proceeding. 11. The Court in Hamod indicated that the assessment of any lump sum to be awarded must represent a review of the successful party's costs by reference to the pleadings and complexity of the issues raised on the pleadings, interlocutory processes and preparation for hearing and for hearing, but that in the exercise of its discretion the Court is not required to undertake a detailed examination of the kind that would be appropriate to a formal costs assessment process; rather the costs ordered should be based on an informed assessment of the actual costs having regard to the information before the Court (see at [819]-[820] of Hamod). 12. As I have said, the approach to be taken is required to be logical, fair, and reasonable, but this may involve an impressionistic discount of the costs actually incurred or estimated in order to take into account the contingencies that would be relevant in any formal costs assessment process. 13. In Harrison v Schipp [2002] 54 NSWLR 738; [2002] NSWCA 213, at [52], Giles JA noted that the specified gross sum can be fixed under s 98(4)(c) of Civil Procedure Act by the application of what has been described as a "broad brush" approach. (See also Hadid v Lenfest Communications Inc [2000] FCA 628 at [35], per Lehane J; Penson v Titan National Pty Limited (No 3) [2015] NSWCA 121 at [7], per Campbell AJA; and, more recently, Reliance Financial Services Pty Ltd v Altair Investments Pty Ltd [2020] NSWSC 1138 (Reliance v Altair) at [46], per Kunc J.) 14. In Reliance v Altair, Kunc J adopted as a convenient summary the statement by the Court of Appeal in Bechara trading as Bechara and Company v Bates [2016] NSWCA 294 at [12]-[15], those principles including that courts typically apply a discount in assessing costs on a gross sum basis (by reference to what was said in Hamod at [814]). 15. In Hamod at [815], reference was made also to the decision in Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119; 135 ALR 160 where von Doussa J noted that the specified gross sum costs procedure was particularly useful in complex cases, that the power must be exercised judicially and only after giving the parties an appropriate opportunity to make submissions, and that before exercising the power the Court should be confident that the approach taken to estimate costs was fair, logical and reasonable.
4. In support of its application for a gross sum costs order, SOR relied on the affidavit of Mr Graham Roberts sworn on 2 July 2021. Mr Roberts is the partner of the solicitors for SOR in both the recognition proceedings and winding up proceedings. He gave a brief description of the manner in which a junior solicitor, on his instructions, had extracted time entries relating to the two proceedings from his firm's electronic time-cost recording system, allocated those entries between the two proceedings, and then assigned the work allocated to each proceeding to various categories. Mr Roberts exhibited to his affidavit a two page summary of the resulting allocation and categorisation of the work, totalling: 1. $44,491.49 in relation to the winding up proceedings (including solicitors' fees of $25,058, counsel's fees of $12,005 and disbursements of $7,428.49); and 2. $60,863.58 in relation to the recognition proceedings (including solicitors' fees of $31,115, counsel's fees of $29,120 and disbursements of $628.58).
5. Counsel's invoices were also exhibited to Mr Roberts' affidavits.
6. I am not satisfied that Mr Roberts' evidence is a fair, logical and reasonable approach to estimating the costs of the two proceedings. His affidavit does not explain the approach taken or criteria applied in allocating solicitors' fees and counsel's fees between the two proceedings. A fair, logical and reasonable approach to this allocation is important given that the costs order in relation to the recognition proceedings will be made against the joint monitors and the Company, whereas the costs of the winding up proceedings will be payable by the Company alone.
7. On the face of it, the allocation of counsel's costs between the two proceedings is unreasonable. In the winding up proceedings, SOR relied on a presumption of insolvency arising out of the Company's non-compliance with a demand to pay a judgment debt. SOR briefed one counsel to appear on the Company's application to stay the winding up proceedings pending its foreshadowed appeal against the judgment giving rise to the judgment debt. That application was dismissed by Black J on 19 April 2021, principally on the basis that the Company had not even filed a notice of appeal despite having had ample time to do so. In about early June 2021, SOR briefed different counsel who then appeared at the concurrent hearing of the recognition proceedings and the winding up proceedings on 21 and 22 June 2021. The Company had not served any evidence of solvency. It was plain that it would have no defence to the winding up proceedings, given the presumption of insolvency: see principal judgment at [173]-[178]. Mr Roberts has nevertheless embraced his junior solicitor's allocation of 20 per cent of the second counsel's fees for the two proceedings to the recognition proceeding. The reasons for this are not explained. As I have said, it appears to me to be unreasonable in the sense that it is disproportionate to the straightforward nature of the winding up proceedings by the time the second counsel was briefed. There is no information in the invoice issued by the second counsel that would support allocating any particular proportion of the fees charged to the winding up proceeding. I emphasise that my concern is with the allocation between the two matters, not with the total amount of fees charged by counsel.
8. The unreasonable allocation of counsel's fees between the two proceedings casts doubt on the reasonableness of the approach to the allocation of solicitors' fees between the two proceedings in the absence of any detailed explanation of the approach.
9. The solicitors' fees included in the two page summary exhibited to Mr Roberts' affidavit include almost $6,000 of solicitors' fees for preparing submissions in relation to the winding up proceedings, including the Company's application to stay those proceedings pending appeal. It is not clear to me how Mr Roberts' firm could have reasonably incurred costs of this magnitude in preparing to resist an application for a stay pending appeal (on which counsel was briefed to appear, and which must have been seen as having very poor prospects in circumstances where the applicant had not even filed the appeal) and in preparing for an application to wind up the Company relying on a presumption of insolvency against which the Company had served no evidence. This casts further doubt on the accuracy of the characterisation of the costs in addition to the allocation of the costs between the two proceedings.
10. If all of the costs had been incurred in one proceeding, these problems might have been addressed by applying a larger than usual discount in fixing a gross sum under s 98(4)(c). However, as I have already mentioned, the costs have been incurred in two separate proceedings and different parties are liable for SOR's costs in each proceeding. The problems to which I have referred above undermine confidence in the accuracy of the allocation of the costs between those two proceedings. The Company's creditors should not bear the sole burden of costs allocated to the winding up proceedings if those costs were, in truth, incurred in the recognition proceedings for which the joint monitors are liable together with the Company. Equally, the joint monitors, who are to be liable in respect of the costs of the recognition proceedings only, should not have to pay even a heavily discounted proportion of costs incurred in the winding up proceedings. The very limited detail in Mr Roberts' affidavit does not provide an adequate basis for the Court to form its own view about the appropriate allocation of costs between the two matters. The better course is for the costs orders to be for payment of SOR's costs in each proceeding in an amount agreed or assessed.
11. SOR already has the benefit of one costs order in its favour in the winding up proceedings. That order requires the Company to pay SOR's costs of its unsuccessful application for a stay in an amount agreed or assessed. Although SOR's submissions suggested that this order could be varied or set aside so that the costs of the stay application could be included in a gross sum costs order, no application was made to set aside this existing costs order under r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW). A gross sum costs order is not appropriate for the reasons explained above, and all of SOR's costs of the winding up proceedings and the recognition proceedings can now be assessed at the same time as its costs that are the subject of the existing order.

Conclusion and orders

1. For all of the reasons explained above, I make the following orders:

In proceeding 2021/155167 (the recognition proceedings): 1. Order that the plaintiffs pay the second defendant's costs of the proceedings, as agreed or assessed. 2. Insofar as order 1 above applies to the first plaintiff, order pursuant to s 466 of the Corporations Act 2001 (Cth) that the liquidators of the first plaintiff reimburse to the second defendant its costs of the proceedings (as agreed or assessed) out of the first plaintiff's property in the order of priority provided by s 556(1)(b) of the Corporations Act 2001 (Cth).

In proceeding 2021/87641 (the winding up proceedings): 1. Order pursuant to s 466 of the Corporations Act 2001 (Cth) that the liquidators of the defendant reimburse to the plaintiff its costs of the proceedings (as agreed or assessed) out of the defendant's property in the order of priority provided by s 556(1)(b) of the Corporations Act 2001 (Cth).

Endnotes

1. References to the Model Law are references to the Model Law as applicable in Australia pursuant to the Cross-Border Act, unless expressly indicated to the contrary.
2. Submissions dated 2 July 2021.
3. Submissions dated 9 July 2021.
4. T3, lines 22-25.

Amendments 19 November 2021 - Typographical error on cover sheet DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 November 2021