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[2012] VSC 282
General information, not legal advice.
Supreme Court of Victoria
2012-06-27
DAVIES J
Original judgment source is linked above.
PRACTICE AND PROCEDURE - COSTS - Orders agreed without adjudication on the merits - Relevant principles for an award of costs in a compromised proceeding - Costs order made - Corporations Act 2001 (Cth), s 601ND
1 The plaintiffs are members of registered and unregistered managed investment schemes, of which the defendant ("WFL") is the responsible entity ("RE"). WFL is in liquidation and the Liquidators have brought the schemes to an end in the course of the winding up of WFL. The parties are in agreement that the Court should make an order under of the (Cth) ('the Act") directing WFL, in its capacity as RE of the registered schemes, to wind up the registered schemes. An order under can be made if the Court "thinks it is just and equitable" to wind up the schemes. I am of the view that if it is just and equitable to wind up the registered schemes in the circumstance where the Liquidators obtained, and have acted on, directions from the Court under of the Act ("the principal proceedings") to the effect that they were justified and acting properly in terminating those schemes and in selling the scheme assets. The Liquidators also intend to wind up the unregistered schemes pursuant to the investment deeds of those schemes.
2 The disputed issue for the Court's determination is the question of who should bear the costs of this proceeding. The plaintiffs seek an order that their costs be costs in the winding up of the registered and unregistered schemes. The Liquidators want the plaintiffs to pay WFL's costs of the proceeding. The receivers and managers ("the Receivers") (who were served with the originating process but not made a party) also want their costs of the proceeding paid by the plaintiffs.
3 Ordinarily, the costs of obtaining a winding up order under s 601ND would be costs in the winding up of the scheme on the basis that the winding up is for the benefit of all the members[4] and Senior Counsel for the plaintiffs contended that the usual rule should apply. Senior Counsel for the Liquidators contended that the order under
s 601ND(1)(a) is made without adjudication on the merits of the claims made against them by the plaintiffs and that the court's discretion on the question of costs is exercisable by reference to circumstances where the plaintiffs have essentially abandoned their claims against the Liquidators.
4 Usually a court will not make any order for costs where orders are obtained without adjudication on the merits on the basis that the Court cannot determine which party should get their costs without forming a view about the merits of the case and ordinarily, the Court will not embark on determining the merits for itself.[5] Even so, the authorities establish that a case can be made for a costs order in favour of a party where it is apparent from the orders put before the Court that the other party has effectively surrendered.[6] In that circumstance a costs order may be justified in the exercise of discretion in order to do justice between the parties[7] on the basis that in an adjudicated outcome success in the action usually controls the exercise of discretion in favour of a costs order and the successful party is ordinarily entitled to a costs order.[8]
5 The plaintiffs applied in this proceeding for an order for the appointment of Messrs John Sheahan and Ian Lock as joint and several receivers "of the [registered and unregistered] schemes" and, in the alternative, for an order under s 601ND(1)(a) of the Act for the winding up of the registered schemes and the appointment of Messrs Sheahan and Lock as provisional liquidators "for the registered schemes".[9] The plaintiffs commenced this proceeding after the Court had heard the Liquidators' application for directions under
s 511 of the Act in the principal proceeding but before judgment in that proceeding was delivered.
6 There are no pleadings, as the proceeding was commenced by originating process supported by affidavit. The basis of the application appears from the affidavits of the plaintiffs. They each deposed to the need to appoint an independent insolvency practitioner to all the schemes in order to protect the interests of the members of those schemes, regardless of whether the Court made the directions that the Liquidators sought in the principal proceedings. The plaintiffs relied on a number of matters deposed to in their affidavits for their position they did not have confidence in the independence of the Liquidators from the Receivers and for their view that the Liquidators were not acting in the best interests of the schemes or the scheme members ("the Growers"). These claims against the Liquidators were asserted to justify the orders sought. Responding affidavits were filed on behalf of the Liquidators.
7 The written submissions filed on behalf of the plaintiffs made it clear that the orders were sought because there is the need for an independent insolvency practitioner to act "as a check and balance on the power of the liquidator".[10] It was submitted that the appointment of Messrs Sheahan and Lock as receivers "is necessary and is a measure of last resort":
... because there is no other way for the Growers to protect their interests in the "scheme property" and to ensure an independent insolvency practitioner is appointed to investigate the dealings of WFL and to make independent decisions for the benefit of the schemes and the [members].[11]
8 It was contended that the "benefits" that an independent insolvency practitioner would bring would "include":
a) investigation of, and reporting on, the conduct and transactions of the schemes both before and during the winding up of WFL,
b) assistance to the plaintiffs and the members of the schemes to investigate the circumstances surrounding the granting of the Grower loans, which is likely to assist the Growers in the Group Proceeding,[12]
c) a transparent and independent body administering and protecting the fund brought into existence from the sale of the trees and the receipt of insurance proceeds, and which will hold the "scheme property" in trust pending the hearing of the appeal of the orders in the [principal proceeding],
d) an experienced practitioner to assist [Willmott Action Group[13]] in the costs objection proceedings in the [principal proceedings].
e) a supervisory body to allay or confirm any concerns that the Growers have about the perceived conflict of interest.[14]
9 It was submitted, in the alternative, that it was just and equitable for the schemes to be wound up not only because of the insolvency of WFL and that the schemes cannot perform the purpose for which they were established, but also because:
The scheme property and trust property is in jeopardy of being dissipated, as set out in the submission for the appointment of receivers.[15]
10 Furthermore, the submissions stated that as part of the remedy of a wind-up order, the plaintiffs were seeking the appointment of Messrs Sheahan and Lock as provisional liquidators because:
... for the reasons ... in relation to the appointment of a receiver, the current liquidator of WFL is not the appropriate party to be conducting the winding up, and that the proposed provisional liquidator, Messrs John Sheahan and Ian Lock, who are independent of all parties, ought to be appointed. The appointment of an independent party to act would act as a check and balance of the power of the liquidator (whose actions are impugned in the appeal), including the payment by the liquidators of their and the receivers' costs.[16]
11 The Liquidators and the Receivers both contested the appointment of a receiver, arguing in their written submissions that no basis had been shown for the appointment. The Liquidators agreed to an order under s 601ND(1)(a), stating that "an order under
s 601ND is, in the circumstances now prevailing, appropriate"[17] but disputed that a provisional liquidator could, or should, be appointed, submitting amongst other things, that "no cogent evidence has been adduced to suggest that WFL has acted in any way which would render it 'necessary' to appoint a person to oversee the winding up".[18]
12 On the morning of the trial, the Court was handed proposed orders agreed to by the parties, save as to costs. The only substantive proposed order is the order under
s 601ND directing WFL as the responsible entity to wind up the registered schemes. That order for winding up is justified for reasons totally unconnected with the allegations behind the claim that there is a need to appoint an independent insolvency practitioner to act as a check and balance on the power of the Liquidators. Furthermore, the order under s 601ND will not have the result that responsibility for the winding up of the schemes will be taken outside the control of the Liquidators nor, more particularly, will the order have the result that the interests of the members of the schemes will be "protected" by an insolvency practitioner independent of the Liquidators. In my view, this is a case where it is possible to reach the conclusion that the plaintiffs have effectively surrendered their claims against the Liquidators and in that circumstance, the Liquidators and the Receivers should have their costs of defending the proceeding. No submission was put against the Receivers also receiving their costs, if the Court accepted the Liquidators' submission on costs.
13 Accordingly the order of the Court is that the plaintiffs are to pay the Defendant's costs and the costs of the Receivers.
[1] There is no comparative provision for the winding up of unregistered schemes.
[3] Re Willmott Forests Limited (No 2) [2012] VSC 125.
[5] Australian Securities Commission v Aust-Home Investments Ltd [1993] FCA 585; (1993) 44 FCR 194, 201 (Hill J); Re the Minister for Immigration and Ethnic Affairs, Ex Parte Lai Qin [1997] HCA 6; [1997] 186 CLR 622, 624-625 (McHugh J).
[6] Peet Limited v Richmond [2010] VSCA 71.
[7] Rhodium Australia Pty Ltd v Deputy Commissioner of Taxation [2012] FCAFC 17; Ringwood Plus Pty Ltd v Commissioner of State Revenue [2004] VSC 494; Peet Limited v Richmond [2010] VSCA 71 and Saeco International Group (Australia) Pty Ltd v Ubertini [2011] VSC 360.
[8] Re the Minister for Immigration and Ethnic Affairs, Ex Parte Lai Qin [1997] HCA 6; [1997] 186 CLR 622, 624.
[9] Amended Originating Process filed 16 April 2012 at [2]-[3] and [5].
[10] Plaintiffs' Outline of Submissions dated 15 June 2012 at [47].
[12] This is a reference to proceeding number VID 1485/2011 in the Federal Court of Australia.
[13] A group representing the interests of Growers, which was granted leave to intervene in the principals proceedings.
[14] Plaintiffs' Outline of Submissions dated 15 June 2012 at [31].
[17] Defendant's Outline of Submissions dated 15 June 2012 at [15].
Hoddinott & Ors
Willmott Forests Limited
(1993) 44 FCR 194