Sands Contracting Pty Ltd v Cant

CONSIDERATION 3 The Liquidators were formerly the liquidators of Foodcorp (VIC) Pty Ltd (ACN 074 563 385) (the Company). 4 In separate proceedings commenced prior to the appeal proceedings, Sands sought the removal of the Liquidators. In the course of my reasons for judgment in Sands Contracting Pty Ltd v Foodcorp (VIC) Pty Ltd [2020] FCA 1274 (Sands (No 1)), in which the application for removal was refused, I stated that the Liquidators should take all reasonable steps to assess Sands' proof of debt. In Sands Contracting Pty Ltd v Foodcorp (VIC) Pty Ltd (No 2) [2020] FCA 1415, I ordered that the Liquidators should report to the Court within 21 days of completing an adjudication of the proofs of debt lodged by creditors in the liquidation of the Company. The Liquidators conducted an adjudication of the proofs and reported to the Court as required. 5 On 15 March 2021, Sands commenced the present proceeding, comprising an appeal against the Liquidators' adjudication of their proof of debt. On 23 March 2021, the Liquidators consented to orders that they be removed as liquidators of the Company. The Liquidators elected to take no part in the conduct of this proceeding. 6 Contrary to Sands' submissions, there was no criticism of the Liquidators in Sands v Cant, let alone findings of 'numerous errors'. Indeed, an important element of Sands' appeal was its ability to adduce new evidence which was, in significant respects, decisive of its success as was made clear (at [34] and [36]): 34 I am satisfied that there is adequate proof to support the fact that the amount claimed by Sands is due in full. Although the Company raised challenges, I am satisfied that those challenges are adequately addressed by the additional evidence produced by Sands. … 36 … the decision I am required to make on the plaintiffs' present application to set aside that decision is to be, in effect, a hearing de novo in which the appellant is required to prove its case. I now have additional evidence and argument available to me which, in my view, casts real doubt on two of the key premises adopted by the Liquidators to reach the relevant compromise. In saying that I do not intend to be critical of the Liquidators who I consider carried out their task appropriately in the circumstances. 7 The Liquidators submit, and I accept, that an appeal of an adjudication of a proof of debt is an unusual proceeding by nature. The determination being appealed concerned a decision made by the Liquidators in their capacity as liquidators of a company, rather than in their personal capacity or from which they would derive any benefit. 8 As observed by the High Court in Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332 (at 338-339), in the adjudication of a proof of debt, a liquidator acts in a quasi-judicial capacity and reflects a liquidator's performance of his or her duty to distribute the assets of the company to those truly entitled to a distribution. If the Court on an appeal of an adjudication of proof allows the appeal in part or in full where there is no finding of wrongdoing on the part of the liquidator, then the Court may order costs against the liquidator together with an order that the liquidator is to be indemnified for those costs from the assets of the company: Brodyn Pty Ltd v Dasein Constructions Pty Ltd (No 2) [2005] NSWSC 302. 9 In this case, unusually, the Liquidators conducted a final adjudication of proofs in circumstances where there were no assets available for distribution to creditors: Sands (No 1) (at [21]-[22]). This was as a result of, and in compliance with, the orders of the Court made in Sands (No 2). 10 Ordinarily, a liquidator would only be required to adjudicate final proofs at a time when there were assets available for distribution and therefore the capacity to be indemnified from those assets in the event of a successful appeal and adverse costs order. 11 In this case, Sands' agitation regarding the proof of debt resulted directly in the requirement on the Liquidators to adjudicate the debt in circumstances where they could not exercise any right of indemnity. As a result, any costs order made against the Liquidators would be borne by them personally. 12 As noted, the submission made by Sands that the Liquidators made 'numerous errors in the adjudication' is not borne out by the reasons for judgment and a significant factor in the Court's consideration of the appeal was the new evidence adduced by Sands. That is because the appeal from a liquidators' adjudication proceeds as a hearing de novo: Capocchiano v Young [2013] NSWSC 879 (at [46]). 13 The Liquidators have not taken any steps which would increase Sands' costs in this proceeding. Indeed they have presumably incurred private expense by engaging solicitors who have made submissions on costs for them. 14 Sands has taken the risk of electing to conduct the appeal for its own reasons, even though it was clear at the time of commencing the appeal that there are currently, and may never be, any assets available for distribution, and even though the Court's decision on the appeal would not be binding on any former directors and/or shareholders of the Company in the event that recovery proceedings are contemplated by a future liquidator: Sands v Cant (at [9]). 15 The Liquidators submit, and I accept, that Sands has undertaken this appeal and incurred the costs of doing so for their own reasons and have achieved an outcome, but this has not been caused by or contributed to by the conduct or actions of the Liquidators and they should not be responsible to bear those costs, particularly given that those costs would be borne by them personally rather than from the assets of the Company. 16 In short, Sands, knowing there were no assets presently available in the liquidation, has still pursued this appeal in the hope that a replacement liquidator may be able to recover additional assets. That is not a step commonly taken by creditors in a liquidation. I do not accept that fault has been established on the part of the retired liquidators who are now to be replaced. Further the Liquidators have taken no steps to resist the appeal so as to increase the cost of the exercise to Sands. Having regard to those three features, in my view there is no reason that the liquidators should be penalised in effect by being required to pay the costs of Sands. I do accept however that if the Company (in liquidation) comes into funds that Sands should be entitled to recover its costs of the appeal from those funds. 17 A similar disposition was ordered by Finkelstein J in Handberg, in the matter of Greight Pty Ltd (in liq) [2006] FCA 17. In that case, an apparent conflict arose between a liquidators' duties to a number of companies to which he had been concurrently appointed. After initially disputing the existence of any conflict, the liquidator conceded that point but proposed a remedial course of action which differed significantly from the course of action proposed by certain creditors. Following a contested hearing, his Honour preferred the creditors' approach but did not consider the liquidator's opposition to justify an award of costs against him. The creditors' costs were ordered out of the property of two of the companies in liquidation, one of which the liquidator undertook to resign from. 18 In this case, there is nothing in the conduct of the Liquidators to justify an adverse costs order. Accordingly, there will be no costs orders against the Liquidators, but I will award costs in favour of Sands out of the property (if any) of the Company so that if a replacement liquidator does recover additional assets for distribution, the costs of Sands in the appeal will be payable from any such recovery. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McKerracher.