Sands Contracting Pty Ltd v Foodcorp

MCKERRACHER J: 1 In Sands Contracting Pty Ltd v Foodcorp (VIC) Pty Ltd [2020] FCA 1274 (Sands (No 1)), I directed that the parties confer on appropriate orders to reflect the somewhat mixed result that the plaintiffs achieved on their amended originating process filed on 13 May 2020. As stated in Sands (No 1) (at [125]-[126]), although the conduct of the second defendants (Liquidators) did not justify their removal, I do consider that a proper examination of the plaintiffs' proof of debt should have been and should be undertaken. The parties are agreed that the Liquidators should file and serve a report on the outcome of the adjudication of the proofs of debt in the liquidation of the first defendant (the Company) within 21 days of the completion of that process. Such order will be made. 2 The parties were also directed to file submissions on the question of costs. For the following reasons, I consider that there should be no order as to costs as between all parties. 3 The plaintiffs contend that the Liquidators should pay their costs of both the originating process filed on 20 January 2020 and the amended originating process filed on 13 May 2020. They seek orders that the Liquidators be personally liable for those costs and that they should be precluded from indemnifying themselves from the Company's assets. An order is also sought for the fourth defendant (Superior Foods) to pay the plaintiffs' costs of, and incidental to its contention that the Company remained in administration (see Sands (No 1) at [133]-[142]). 4 The Liquidators contend that the plaintiffs have been wholly unsuccessful in their action for removal and seek their costs from the plaintiffs on a party-party basis, or alternatively, that there be no order as to costs. 5 Superior Foods argues similarly that whilst its joinder by the plaintiffs was in order, it was also at the plaintiffs own risk as to costs and, being unsuccessful, the plaintiffs should meet its costs. 6 The third defendants (Company Accountants) elected not to file further submissions on costs, presumably on the basis of my ruling in Sands (No 1) (at [127]-[132]) that they were properly joined by the plaintiffs (including on the amended originating process) and that they could have preserved their position by filing a submitting appearance save as to costs. 7 Section 43(2) of the Federal Court Act 1976 (Cth) confers a wide discretion on the Court to make orders as to costs. The plaintiffs also rely on s 90-15(5) of Sch 2 of the Corporations Act 2001 (Cth) (Insolvency Practice Schedule) in support of the orders they seek which is in the following terms: Costs orders (5) Without limiting subsection (1), an order mentioned in paragraph (3)(d) in relation to the costs of an action may include any order that: (a) the external administrator or another person is personally liable for some or all of those costs; and (b) the external administrator or another person is not entitled to be reimbursed by the company or its creditors in relation to some or all of those costs. 8 By the originating process filed on 20 January 2020, the plaintiffs sought to set aside the Deed of Company Arrangement (DOCA) which was approved by the Company's creditors at the adjourned second creditors meeting on 8 January 2020 on the votes of the Company Accountants and Superior Foods, with the plaintiffs voting against. In the course of the meeting, the plaintiffs' solicitor Mr Arthur Metaxas informed Mr Anthony Cant, of the Liquidators (then administrators), that the plaintiffs would file an application to terminate the DOCA. This course was confirmed by email to Mr Cant on 17 January 2020 to which Mr Cant did not respond until 21 January 2020. Mr Cant's response informed the plaintiffs 'in light of your clients' foreshadowed legal application, that the directors of the company will no longer agree to execute the deed in accordance with the resolution of creditors.' The plaintiffs were further advised that the Company would pass into liquidation on 31 January 2020. 9 While it is somewhat unfortunate that Mr Cant, for whatever reason, did not inform the plaintiffs that the DOCA would not proceed until the day after the originating process had been filed, this is no basis for a costs order against any party. Though in practical terms the relief sought did eventuate, the application never proceeded past the most preliminary stage and was overtaken by events that were still unfolding following the outcome of the adjourned second creditors meeting on 8 January 2020. 10 The plaintiffs' amended originating process filed on 13 May 2020 sought the removal of the Liquidators. They concede that although they did not obtain this specific relief, they say they were ultimately successful in circumstances where I concluded in Sands (No 1) (at [126]) that a proper examination of the plaintiffs' claim should be undertaken. It was always open, it is said, for the Court to make such orders as it thought fit in relation to the external administration of the Company under s 90-15 of the Insolvency Practice Schedule. Even if the Court is of the view that the Liquidators successfully defended the application, the plaintiffs argue that the proceedings were brought as a consequence of deficiencies in the administration. 11 The Liquidators contend instead that, confined as it was to seeking their removal, the plaintiffs have been unsuccessful in achieving the relief sought in the amended originating process. They say this view is supported by the fact that the plaintiffs' election to continue the proceedings, after achieving in practicality the initial relief sought, was purely directed at the removal and replacement of the Liquidators. An affidavit of Ms Danielle McCredden, solicitor for the Liquidators, sworn 18 September 2020 is relied upon which annexes correspondence of 4 February 2020 from Ms McCredden to the plaintiffs informing them that: I am instructed that my clients would be prepared to resign on the condition that no costs are sought against them and your clients do not pursue any allegation that my clients acted improperly. 12 The Liquidators say that they did not receive a response to this offer and that the plaintiffs have now achieved a result that is no more favourable. It is submitted that the plaintiffs' election to continue these proceedings notwithstanding the offer is now relevant to the exercise of the Court's discretion on costs, and that the Court is entitled to accept evidence of communication of the offer pursuant to s 131(2)(h) of the Evidence Act 1995 (Cth). 13 The Liquidators correctly point out that no adverse findings have been made against their bona fides in conducting the administration (see Sands (No 1) at [124]-[125]) and that they did not engage in any conduct which had the effect of prolonging the proceedings. As officers of the court against whom wrongdoing was alleged, the Liquidators were required to participate in the proceedings. Given that there are presently no assets in the liquidation, any costs order made against the Liquidators would have to be borne personally by them. Such an outcome, it is said, would not be in the interests of justice and would have a punitive effect on the Liquidators who have at all times sought faithfully to execute their obligations under the Act. 14 The discretion to award costs is guided by the general principle that a successful party is entitled to its costs of the proceeding. As the High Court noted in Gray v Richards (No 2) [2014] HCA 47; (2014) 89 ALJR 113 (at [2]): The disposition of costs is within the general discretion of the Court. Ordinarily, that discretion will be exercised so that costs are awarded to the successful party, but other factors may have a significant claim on the discretion of the Court. The disposition which is ultimately to be made in any case where there are competing considerations will reflect a broad evaluative judgment of what justice requires. There is no absolute rule with respect to the exercise of the discretion that the Court must award costs in favour of a successful party: see Oshlack v Richmond River Council (1998) 193 CLR 72, per Gaudron and Gummow JJ (at [40]). 15 In the unusual factual circumstances of this case, although the conduct of the Liquidators did not reach the high threshold required to justify their removal, it was not ideal (see Sands (No 1) at [78]-[82] and [124]). It cannot be said therefore that the plaintiffs were unsuccessful. They have achieved some relief. It is significant however that the relief now achieved is not very different from that offered by the Liquidators almost nine months ago. Further, as indicated in Sands (No 1) (at [123]-[125]), although other avenues of relief were potentially available to the plaintiffs, it is apparent that they have lost confidence in the impartiality of the Liquidators. However, on the evidence adduced, the plaintiffs failed to demonstrate any reason to doubt the actual bona fides of the Liquidators, or that they failed to act impartially or independently in conducting the administration. The submissions for the Liquidators on this point should be accepted. 16 Although the position with respect to Superior Foods' involvement in the proceedings is somewhat different, its conduct does not justify a costs order one way or the other. As a creditor who voted to approve the DOCA, Superior Foods was properly joined by the plaintiffs. Although it did not succeed on its proposition that the Company remained in administration, I do not consider that this issue unnecessarily prolonged the matter or put the parties to any great expense. The arguments of Superior Foods were brief and the correct response to them even more succinct. 17 A mixed result of this kind does not lend itself to an apportionment of costs: see for example Polar Aviation Pty Ltd v Civil Aviation Safety Authority (No 3) [2010] FCA 514. In these circumstances, the appropriate disposition in the interests of justice is that there be no order as to costs as between each party. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McKerracher.

SCHEDULE OF PARTIES WAD 9 of 2020 Plaintiffs Fourth Plaintiff: ANTHONY JEROME SANDS Fifth Plaintiff: CARMEL JEAN SANDS Sixth Plaintiff: KEVIN JOHN SANDS Seventh Plaintiff: LYNNE MARGARET SANDS Defendants Fourth Defendant: SUPERIOR FOOD GROUP PTY LTD