Sheahan v Londish [2010] NSWCA 364 | Case summary

17 DECEMBER 2010 SHEAHAN v LONDISH Judgment 1 THE COURT: On 21 October 2010 the Court gave judgment on the application for leave to appeal and appeal: see Sheahan v Londish [2010] NSWCA 270. The Court reserved questions of costs and made directions for the filing and service of submissions on costs. The parties have filed and served those submissions. As indicated in the orders of 21 October 2010, the matter of costs is to be decided on the papers. 2 These reasons for judgment take the earlier reasons as read. Those reasons comprised three sets of reasons - those of Hodgson JA, Young JA and Lindgren AJA. All three members of the Court were in favour of allowing the appeal. Hodgson JA would have done so on the ground that each of the two notices (dated 25 and 26 February 2009) was effective as a resolution under s 249B of the Corporations Act 2001 (Cth) ("the Act"). It was not necessary for his Honour to decide other issues. His Honour would have granted leave to appeal, allowed the appeal and set aside the orders below. His Honour expressed the tentative view that having regard to the ground on which he would have allowed the appeal, the present applicants ("the Administrators") should have their costs at first instance (at [38]). 3 Young JA and Lindgren AJA, like the primary judge, considered that the notices did not satisfy the description in s 249B of the Act. Unlike the primary judge, however, Young JA and Lindgren AJA considered that the case fell within s 1322(4)(a) of the Act and that an order should be made under that provision. Hodgson JA expressed the tentative view that he would also have been of that opinion if he had not thought that the notices satisfied s 249B. 4 In the circumstances recounted above, the question of costs must be approached on the basis that the appeal succeeded on the s 1322(4)(a) ground. 5 It was if the appeal should succeed on that ground that Young JA made the observations concerning costs that he made at [175]-[177] of his Honour's reasons (with which Lindgren AJA agreed at [238]), which gave rise to the reservation of questions of costs. 6 In the proceeding at first instance, the Administrators took a mere supporting role. The contestants before Brereton J were the present first respondent, Peter Londish ("Peter") on the one hand and the present second respondent, David Bowman, and the present third respondent, Sidney Londish ("Sidney") on the other. The Administrators did, however, resist the making of an order for costs against them. They called in aid their lack of active participation and conceding that they had no interest in any events that pre-dated their purported appointment as administrators, of which they had no knowledge. Nonetheless, the primary Judge, Brereton J, made an order against them. 7 It seems to be correct, as Peter submits, that the purpose of the present appeal was only to overcome that adverse order for costs. Counsel for Peter submits that this fact "should inform the principled exercise of the costs discretion in the Court". Counsel does not, however, elaborate on how that fact should influence the costs order now to be made. 8 Under the interlocutory process in the proceeding at first instance, Peter challenged the appointment of the Administrators as administrators on two grounds:

In his decision given on 2 October 2009, Brereton J sustained the application on the first ground and did not resolve the second. His Honour made orders on 6 October 2009, including an order (Order 7) that the respondents to the interlocutory process, including the Administrators, pay Peter's costs of the interlocutory process. 9 Following delivery of judgment by the primary judge, there were further developments. On 16 October 2009 Sidney was appointed as a director of Valofo Pty Ltd ("Valofo") in place of Peter. The validity of that appointment has not been challenged. On 26 November 2009, Sidney and David Bowman as directors of Valofo resolved to place that company into voluntary administration and again appointed the Administrators to be Valofo's administrators. 10 On 10 December 2009 Peter commenced a proceeding seeking determination of the administration or removal of the Administrators on the grounds that Valofo was not insolvent at the time of the resolution on 10 December 2009, that the resolution had been passed for an improper purpose and that the Administrators were biased in favour of Sidney and David Bowman. 11 On 5 January 2010 a meeting of creditors of Valofo resolved to place Valofo into liquidation. The Administrators were appointed liquidators. 12 On 28 April 2010 Palmer J dismissed that proceeding: Londish v Sheahan [2010] NSWSC 337. His Honour found that Valofo was insolvent as at 26 November 2009 by reason of a debt of more than $25,000 which was the subject of a statutory demand that had been served on Valofo on 30 October 2009. His Honour rejected Peter's challenges to the effectiveness of the resolutions of 26 November 2009. 13 The course of events recounted above makes it clear that the present application for leave to appeal and appeal have indeed remained alive only because of the adverse order for costs against the Administrators in the proceeding at first instance (before Brereton J). It is also true, however, that Peter resisted the application for leave to appeal and the appeal only because of the same costs issue. 14 What, it may be asked rhetorically, were the Administrators to do in order to be rid of the adverse costs order which, ex hypothesi, should not have been made against them, short of appealing? 15 In fact it has now emerged that on 4 August 2010, their solicitors, O'Neill Partners, wrote to Peter's solicitors a letter which stated, relevantly, as follows: "For the purposes of attempting a commercial resolution of the Appeal Proceedings, we are instructed to make an offer of settlement on the following terms: 1. By consent, appeal allowed. 2. The declaration pronounced and orders numbered 1, 5, 6 and 7 made on 2 October 2009 be set aside. 3. There be no other order as to costs in the appeal proceedings. This offer remains open for acceptance until 4pm, Thursday, 12 August 2010." 16 The deadline of 12 August 2010 was five days before the hearing fixture for the application for leave to appeal on 17 August 2010. 17 The course taken by the Administrators was a reasonable one directed to avoiding the necessity of an appellate hearing only over costs. 18 Peter did not respond to the offer. By not accepting it or even making a counter-offer, Peter acted unreasonably. He preferred to contest the appeal for the sole reason of retaining the benefit of the costs order that Brereton J had made in his favour against the Administrators. 19 In Bovis Lend Lease v Wily [2003] NSWSC 884; (2003) 47 ACSR 351, Austin J noted at [29]-[31] that in some cases where the curative provisions of the Corporations Act 2001 (Cth) are invoked, it may be appropriate not to award costs to the successful party, and even to require that the successful party pay the costs of another party: cf Elderslie Finance Corporation Ltd v Australian Securities Commission (1993) 11 ACSR 157. On the other hand in Deputy Commissioner of Taxation v Portinex Pty Ltd [2000] NSWSC 557; (2000) 34 ACSR 422 ("Portinex") at [7], costs followed the event in circumstances where curative orders were made. In that case, curative orders were made under s 1322 (and s 447A) in relation to the appointment of administrators over the opposition of the plaintiff. The plaintiff was ordered to pay the defendants' costs of obtaining those orders. 20 The question of the appropriate order for costs to be made depends on the circumstances of the individual case. 21 At the time when the Administrators made their offer on 4 August 2010, Peter had little or no interest in the outcome of the appeal because the Administrators' appointment as administrators had been confirmed by Palmer J on 28 April 2010. Yet Peter contested all issues on the appeal. 22 In our opinion Peter should pay the Administrators' costs of the appeal. 23 We turn now to the position at first instance. As previously noted, the Administrators did not take an active role. The contest was between Peter of the one part and David Bowman and Sidney of the other part. The Administrators should not have to pay Peter's costs of the proceeding at first instance in which a curative order should have been made under s 1322(4)(a). 24 In this Court's orders made on 21 October 2010, Order 5 was a setting aside of the orders made by Brereton J entered on 6 October 2009. The orders that were set aside included the order (Order 7) that the Administrators pay Peter's costs of the interlocutory process. There is therefore no occasion for the making of a further order to set aside the order for costs that was made by his Honour against the Administrators. 25 Should Peter be ordered to pay the Administrators' costs of the proceeding below? The answer is not so obvious as it is in relation to the costs of the appeal. In the proceeding at first instance the Administrators responsibly took the role of a disinterested bystander, avoiding the incurring of unnecessary costs. The Administrators should not have to bear their costs. It was Peter's active opposition to the making of the curative orders that, according to the result in the appeal, caused them to incur those costs. As between Peter and the Administrators, costs should follow the event (as they did in Portinex). Peter should pay the Administrators' costs of the proceeding on the interlocutory process. 26 There is a further matter. On 11 November 2010 Peter filed a notice of motion seeking leave to re-open the appeal and an affidavit and written submissions in support. However, he did not pursue the motion and consented to its dismissal. He did not, however, consent to an order that he pay the costs of the respondents to the motion, apparently on the ground that his consent to its dismissal occurred so soon that they should not have incurred any costs on the motion. This, however, is no reason why the costs of the motion should not follow the event. If a respondent to the motion to re-open in fact incurred no costs on it, the order will have no work to do. Apparently this is the position in the case of David Bowman and Sidney who were inactive second and third respondents to the appeal and were also second and third respondents to the motion. It is clear, however, that the appellants/first respondents to the motion did incur some, if minor, costs on the motion. 27 There should not be a costs order in favour of David Bowman and Sidney Londish, either in respect of the appeal or the proceedings at first instance. The reason is that they have not appealed. They will, of course, obtain the benefit of the setting aside of the costs order made against them at first instance by reason of the appeal of the Administrators. 28 The following orders are therefore now to be made:

Sheahan v Londish

At a glance

Court

Decision date

Before

Source

Judgment (18 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (4)

Cited By (1)