Ren Nominees Pty Ltd v MS Cognosis Pty Limited

REASONS FOR JUDGMENT 1 The question in this case is one of costs. The plaintiff ('REN') commenced an application to wind up the first defendant ('MS Cognosis') in this Court on 27 February 2013 which was opposed until 7 June 2013 when MS Cognosis and the second defendant, its sole director Mr Alexander Kennedy, dropped their opposition to the winding up, although continuing to object to the appointment of the liquidator nominated by REN, then a Mr Jones. The solicitors for MS Cognosis and Mr Kennedy advised that they would prefer to see the liquidator nominated by an independent third party not associated with either REN or Mr Kennedy. After some toing and froing the parties agreed that they were content for me to perform this function and, on 15 July 2013, I ordered that MS Cognosis be wound up and that Mr Peter Gothard be appointed as its liquidator. The winding up does not relate to insolvency but rather to the manner in which the company's affairs have been conducted. 2 REN now seeks to recover its costs of the proceedings, in part on an indemnity basis, from Mr Kennedy. For his part, Mr Kennedy says that the REN's costs of the winding up should be payable out of the assets of the company. Further, so he submits, REN should pay Mr Kennedy's costs of meeting certain allegations with evidence together with his costs of the proceedings after 7 June 2013. Here the argument was that the proposal then put forward by Mr Kennedy - that an independent third party should choose the liquidator - was the one that REN had eventually consented to when both parties agreed that I should identify the liquidator and after which I then appointed Mr Gothard. The time between 7 June 2013 and 12 July 2013 during which the parties debated the appropriateness of REN's choice of liquidator was to be seen as a wasted period of time caused by REN's refusal to accept the need for an independent choice. 3 In a situation such as the present, REN would ordinarily be entitled to its taxed costs out of the property of MS Cognosis. In a court ordered winding up, s 466(2) of the Corporations Act 2001 (Cth) ('the Corporations Act') applies and it requires the liquidator, unless the Court otherwise orders, 'to reimburse the applicant out of the property of the company the taxed costs incurred by the applicant in any such proceedings'. 4 It was not disputed before me that the Court had power to award costs. The most likely source of that power was s 43(2) of the Federal Court of Australia Act 1976 (Cth). The fact that the Court has the power to order Mr Kennedy to pay REN's costs does not mean, however, that that power should necessarily be exercised. One matter relevant to the exercise of that discretion is s 466(2) of the Corporations Act which reflects a presumption that a party who succeeds in having a company wound up is to be treated as a priority creditor. This is likely to be of less significance where, as here, the winding up is not one which is in insolvency. In this case MS Cognosis has two equal shareholders one of which is REN and the other of which is Mr Kennedy. In economic terms, the practical matter being debated, therefore, is largely whether REN's costs should be shared between REN and Mr Kennedy (through the operation of s 466(2) of the Corporations Act) or shifted in their entirety onto Mr Kennedy. 5 The present litigation has been approached by both REN and Mr Kennedy as vigorously contested civil litigation. Formal pleadings were prepared and witness proofs exchanged. It seems to me appropriate, given that approach to the litigation, to consider the question of costs on a similar basis. 6 That, perhaps, does not get one very far because in this case REN ultimately obtained the winding up order by consent and without the hearing of the matter on its merits. REN submitted that it was very likely, however, to secure the winding up order it had sought and it should not be deprived of its costs just because Mr Kennedy had come to accept the inevitable. 7 In resisting the claim for costs Mr Lawrance of counsel, who appeared for Mr Kennedy, relied upon the well known statement of McHugh J in Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 625: If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases. (footnotes omitted) 8 Of course, as a passage on the same page shows, his Honour did not intend thereby to exclude the possibility that a costs order might be made in an appropriate case for he also observed: Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. 9 Mr Bevan of counsel, who appeared for REN, drew my attention to the decision of Burchett J in One Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548 where his Honour took precisely that approach to the matter before him. 10 It is important to be careful that this inquiry does not have the consequence of elevating the costs debate between the parties into a mini-trial of the underlying merits of the action. The need to avoid that outcome requires more than passing attention be paid to the high threshold involved. Nevertheless, if victory was almost certainly at hand, even given the vicissitudes of litigation, then a costs order will be justified. 11 For the reasons which follow, I believe that Mr Kennedy's defence of the proceedings was reasonable and that REN was not almost certain to have succeeded. In principle, there should be no order as to costs.