OPS SCREENING & CRUSHING EQUIPMENT PTY LTD -v- GOLD VALLEY IRON PTY LTD (IN LIQ) [2020] WASC 412 (17 November 2020)

(a) Terex Finlay 984 horizontal screener with serial TRX984HSCDGKA1167;

(b) Telestack LS 6036 wheeled stacker with serial number 16-0331-0719;

(c) Telestack LS 5032 wheeled stacker with serial number 16-0313-0719;

(d) Terex Finlay J-1175 jaw crusher with serial number TRX1175JCOMKA1402; and

(e) Terex Finlay C-1540S cone crusher with serial number TRX1540SHOM K50180,

1. your clients arrange for all Equipment still held by your clients (namely items (a) to (c) in paragraph 1 above) to be delivered to our client's Darwin depot on an urgent basis at your clients' expense;
2. our client will not pursue your clients personally nor the Company for any costs, loss or damage it has suffered or will suffer;
3. this settlement is in full and final settlement of any and all claims each of our respective clients and the Company have or may in the future have against each other in relation to or arising out of the Equipment, and that each of our respective clients and the Company release and discharge each other from any such claims;

This offer remains open for acceptance until 12:00pm, Thursday 9 April 2020, upon which it shall automatically lapse and our client will commence proceedings against your clients in their personal capacity for, amongst other things, conversion to recover the Equipment and damages for the substantial losses it will incur, without further reference or warning.

This offer is made pursuant to the principles of Calderbank v Calderbank [1975] 2 All ER 333 in that if our client's offer is not accepted and our client achieves an overall outcome more favourable in any proceedings commenced by our client, our client will seek to claim its costs on an indemnity basis from the expiry date of this offer against your clients in their personal capacity.

(n) The liquidators' solicitors rejected the offer of compromise on 9 April 2020 and rejected what they characterised as the plaintiff's 'bald assertion' that the liquidators' conduct 'was putting at risk 2 significant contracts which would cause [the plaintiff] substantial loss and damage'.

(o) The action was commenced on 15 April 2020. It was entered into the Commercial and Managed Cases List on 29 May 2020. At a strategic conference held on 30 June 2020 the preliminary question was listed for hearing on 10 September 2020.

(p) After proceedings had been commenced the parties continued to negotiate and ultimately agreed terms on which the equipment was released to the plaintiff pending the determination of the preliminary question. The plaintiff obtained possession of the equipment on about 13 July 2020.

1. The principles applicable to the making of indemnity costs orders were set out by the Court of Appeal in Swansdale Pty Ltd v Whitcrest Pty Ltd.[15] Those are the principles that I apply.
2. It is well-established that an order for indemnity costs may be justified by a rejection of a Calderbank offer if the rejection was unreasonable.[16] An offeree does not unreasonably reject an offer if there is some reasonable doubt about its value.[17]
3. Both the plaintiff and the liquidators cited the summary of principles applicable to the making of personal costs orders against liquidators contained in the judgment of Rees J in In the matter of Azmac Pty Ltd (in liq) [No 2].[18] Her Honour identified the following principles (omitting citations of authority):[19]

(a) If proceedings are brought by a liquidator in relation to a company's affairs and those proceedings are unsuccessful, then an order for costs will generally be made against the liquidator personally.

(b) If proceedings brought against a liquidator are successful, a costs order will ordinarily be made in such a way that the liquidator does not incur any personal liability.

(c) Where a liquidator defends proceedings on behalf of the company in liquidation, a costs order may be made against the liquidator personally in 'exceptional circumstances', that is, where the liquidator's opposition to the relief sought was, in the circumstances, unreasonable, unnecessary or dishonest. In this respect a liquidator's entitlement to be paid his or her costs from the assets of a company may be compared with the entitlement of a trustee in bankruptcy. A liquidator can only be indemnified out of the assets of the company against costs, charges, and expenses properly incurred for the benefit of the company's creditors. In this context 'properly' means reasonably as well as honestly incurred. Mere errors in judgment which fall short of negligence or unreasonableness are not sufficient to disentitle a liquidator from the benefit of an indemnity. Bona fides is not the test and reliance on legal advice is not a satisfactory answer from a liquidator who has engaged in litigation unreasonably ‑ costs in fact unreasonably incurred do not assume the character of reasonableness simply because the lawyer is the person at fault.

(d) The question is whether the expenditure was honestly and reasonably incurred. It is unnecessary to establish personal misconduct or wilful recklessness. Mere negligence or mistake or the incurring of costs unreasonably or unnecessarily was sufficient to lead to the conclusion that the costs were not 'properly incurred'.

(e) It may be the case that the liquidator is a defendant or not even a party to the proceedings but provoked the litigation such that they should be regarded as a plaintiff and thus not entitled to the protection afforded by the need to show 'exceptional circumstances'. In that event, the court will order costs against the liquidator personally. Such an order, without more, may not preclude the liquidator from being indemnified from the assets of the company in liquidation.

1. Rees J observed that the cases in which courts have ordered that liquidators pay costs personally and not be indemnified by the company in liquidation roughly fall into two groups: liquidators taking an irremissible stance in litigation; and liquidators dealings with proofs of debt in a cavalier fashion. Her Honour stated that these groups are not mutually exclusive.[20]

Rejection of the offer of compromise not unreasonable

1. I am satisfied that it was not unreasonable for the liquidators to reject the plaintiff's offer of compromise made on 7 April 2020 for the following reasons.
2. First, it was impossible for the liquidators to assess the extent of the compromise, if any, involved in the offer. The requirement that the liquidators release the equipment in their possession and release all claims in relation to it involved no compromise by the plaintiff. If accepted it would have constituted a capitulation by the defendants to the plaintiff's demands. The proposed release of the liquidators by the plaintiff from claims for costs, loss or damage 'it has or will suffer' may have involved some element of compromise. However, although the plaintiff's solicitors had referred to the risk that the plaintiff might lose two valuable contracts, the plaintiff had not attempted any substantiation of those claims. It was difficult, if not impossible, for the liquidators to make an informed judgment on whether the claims had any substance. The claims did not rise above the level of assertion. It was impossible for the liquidators to make a reasoned assessment of the benefit, if any, to the first defendant of the plaintiff's proposed release from these claims. These were important considerations from the liquidators' perspective as they owed duties to the creditors, and if called upon to do so, would have been obliged to justify the compromise.
3. Second, that the plaintiff was ultimately successful on the preliminary question does not compel the conclusion that it was unreasonable for the liquidators to reject the plaintiff's offer. The PPSA established a statutory regime which application is not without difficulty. In this case the difficulty was compounded by two factors. First, the plaintiff had registered security interests but was disclaiming that any such interests had been established. Second, the terms of the hire agreements were not easy to construe. This combination of circumstances made an assessment of the merits of the plaintiff's claim difficult and this contributes to my view it was not unreasonable for the defendants to reject the offer of compromise.

1. There are a number of reasons why I do not accept the plaintiff's submission that the liquidators' conduct justifies the making of an indemnity costs order against them and depriving them of their indemnity from the assets of the first defendant.
2. First, that the liquidators started from the position that the plaintiff held a security interest in each item of equipment is hardly surprising when the plaintiff had registered a security interest in each item of equipment. The liquidators were entitled to insist that the plaintiff satisfy them that it did not have such a security interest and it is not surprising that the liquidators and those advising them were not satisfied of that matter simply on the basis of assertion from the plaintiff's solicitors.
3. Second, the liquidators' reluctance to accept that the hire agreements did not give rise to security interests in the equipment was explicable also by the lack of precision and clarity in the terms of the hire agreements to which I referred in my judgment on the preliminary question.
4. Third, whilst it may be accepted that the liquidators' solicitors did not contend initially that the hire agreements constituted PPS leases, it was not unreasonable for them to reconsider the position. The reconsideration occurred at an early stage of the dispute and caused no prejudice. The plaintiff's submissions overstate the significance of the matter.
5. Fourth, the position taken by the liquidators, as evidenced by their solicitors' correspondence prior to the commencement of the action, was reasonable. The liquidators' solicitors set out the propositions relied on to defend their clients' position clearly. They explained why they did not accept the arguments being advanced by the plaintiff. I do not accept that the liquidators were 'disingenuously attempting to manufacture an entitlement to the equipment when one [did] not exist in an attempt to negotiate and extract a payment from our client'.
6. Fifth, I do not accept the plaintiff's contention that the liquidators' defence of the action was hopeless or untenable. The liquidators had a reasonably arguable defence that was conducted efficiently and properly. The plaintiff offers some criticism of the pleading that the hire agreements were PPS leases but the subject of the criticism was of no practical consequence and gave rise to no prejudice.
7. Sixth, in circumstances in which the liquidators had a reasonably arguable defence to the claim, I do not accept that they should be taken to have provoked the litigation by refusing to yield to the plaintiff's demands made prior to the commencement of the action.
8. Seventh, a theme that underpinned the plaintiff's submissions was that the liquidators should either have made an application for judicial advice in respect of the preliminary question or should have adopted a non-adversarial approach to the preliminary question, that is, they should have limited their participation to ensuring that the relevant facts were before the court and not argued for a particular result. There are two points to be made. First, the proceedings were adversarial in nature and the defendants were entitled to maintain their defences. Second, the preliminary question was resolved efficiently and cost effectively. I am not satisfied that had the preliminary question been determined in the context of an application for judicial advice, this would have achieved any appreciable saving in costs.

1. For the above reasons I conclude that the appropriate costs order is that the defendants pay the plaintiff's costs on a party-party basis.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[1] The extracts from the agreement are reproduced with the spelling and grammatical errors contained in the agreement.

[2] White v Spiers Earthworks Pty Ltd [2014] WASC 139.

[3] Re Arcabi Pty Ltd (Receivers & Managers Appointed) (in liq) [2014] WASC 310 [20].

[4] White v Spiers Earthworks Pty Ltd [2014] WASC 139.

[5] First defendant's outline of submissions 4 September 2020 [23].

[6] First defendant's outline of submissions 4 September 2020 [20.4].

[7] Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 [35] (French CJ, Hayne, Crennan & Kiefel JJ); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 [46] (French CJ, Nettle & Gordon JJ).

[8] Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544 [17] (Kiefel, Bell & Gordon JJ); Electricity Generation Corporation v Woodside Energy [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting [51].

[9] Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219 [42] (Newnes & Murphy JJA & Beech J).

[10] Woodroffe v Box [1954] HCA 22; (1954) 92 CLR 245 (Fullagar & Kitto JJ), 257 - 258.

[11] Rabobank New Zealand Limited v McAnulty [2011] NZCA 212 (O'Regan P, Chambers & Harrison JJ).

[12] OPS Screening & Crushing Equipment Pty Ltd v Gold Valley Iron Pty Ltd (in liq) [2020] WASC 412.

[13] Calderbank v Calderbank [1975] 2 All ER 333.

[14] Affidavit of Marc Brendan De Ronchi sworn 7 December 2020; Affidavit of Andrea Marie Symons sworn 7 December 2020; affidavit of Andrea Marie Symons sworn 4 September 2020.

[15] Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) [10] (Pullin JA & Kenneth Martin J).

[16] Ford Motor Co of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1 (Wheeler & Buss JJA).

[17] See Duncan & Weller Pty Ltd v Mendelson [1989] VicRp 36; [1989] VR 386, 401 (Kaye J); Grbavac v Hart [1996] VSC 37; [1997] 1 VR 154, 155 (Winneke P); Mount Lawley Pty Ltd v Western Australian Planning Commission [2006] WASC 82 (S); (2007) 157 LGERA 1 [92] (Templeman J).

[18] In the matter of Azmac Pty Ltd (in liq) [No 2] [2020] NSWSC 363 (Rees J).

[19] In the matter of Azmac [3] - [8].