Smith, in the matter of Peko Rehabilitation Project Pty Ltd (Receiver and Manager Appointed) (in liq) [2011] FCA 1448

The application to the Court 9 The application by the liquidators was ex parte. It was supported by detailed affidavits sworn by Simon Wallace-Smith Avenue affirmed 30 June 2011 and 13 July 2011. In the context of the litigation between the shareholders of Sitzler Savage and Peko, the liquidators considered it prudent to give notice of its application to the Estate. In my view this decision was appropriate. 10 Although no defendant was named to the originating process, the proceeding quickly took on the appearance of a proceeding inter partes. The Estate opposed the application, and filed a detailed affidavit and an Outline of its Grounds of Opposition. Vermillion Resources Pty Ltd - a company which purported to have received a transfer of Jack Savage's shares prior to his death - also opposed the application and filed an affidavit and submissions in opposition. Vincent Savage filed an affidavit in opposition to the application together with submissions. Gibbins filed detailed affidavits and submissions in support of the application. There were two directions hearings, 19 July 2011 and 22 July 2011, in which the dispute between the interested parties was clear. 11 It is unnecessary to fully detail the contentions made by the interested parties in their affidavits and written submissions. The Court heard no oral submissions on these issues as the application was discontinued. In general terms, the objections centred around arguments that the Transaction Agreements operated to strip Sitzler Savage of the value of a significant asset. They were said to prevent Sitzler Savage from repaying the secured debt to Northern Mining within five years, and that during this period North Mines would exhaust the tailings dump which had a value of several hundred million dollars. They were argued to be not to the benefit of the unsecured creditors of Peko as the payment of $5 million to the Receiver was not to be made for five years and only then would money flow to unsecured creditors. The agreements were argued to proceed on the erroneous legal basis that Peko's licence to mine the tailings dump is alienable, when it was not capable of assignment. Gibbins' interests were argued to be in conflict with his fiduciary duties to the shareholders of Sitzler Savage and Peko. The agreements were said to constitute oppressive conduct by Gibbins as a shareholder in treating the Estate's shareholding unequally and unfairly. The liquidators contended that the agreements were the result of an extensive tender process. They argued that the Estate stood to obtain $7.6 million if the agreements proceeded which was more than double the amount for which they had sought to sell their shares to Vermillion. In any event, their position was that they did not ask the Court for an endorsement of the proposal contained in the Transaction Agreements, but merely sought permission to exercise their own commercial judgement: see Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109, at 118. 12 The liquidators discontinued their application for approval to enter into the relevant agreements by notice dated 29 July 2011. They contend that this was because the appointment of the Receiver who had negotiated the relevant agreements had been terminated, and because a key party, Northern Mining, advised that it would not now execute them. There were then no agreements for the Court to approve and the liquidators discontinued their application.

Consideration regarding costs 13 The Estate applies for an order that its costs be paid by the liquidators. It relies on Rule 26.12(7) of the Federal Court Rules 2011 which provides that a party that files a notice of discontinuance is liable to pay the costs of each other party to the proceeding. It seeks that the costs be treated as costs in the winding up, or alternatively be paid out of the assets of the company. It does not seek that the liquidators pay these costs from their own resources. 14 The liquidators oppose this order and contend that they sought no relief against any person and that no party was joined to the proceeding. They contend that they were obliged to make the application for approval by law and there was no exercise of any discretion on their part to do so. They argue that while the Court may grant leave to be heard to any person who claims to be a contributory or to any other interested person, there was no application for leave to appear nor was any leave to appear granted to the persons represented at the directions hearing. They argue that while the interested persons were permitted to file affidavits and submissions they did not become parties to these proceedings. 15 Although the Estate, and the other contributories or interested persons, were not joined as parties I consider that the application had taken on the character of a suit between parties. It had become a contest between the liquidators and Gibbins on the one hand, and the Estate on the other. The ultimate hearing, towards which the application was rapidly proceeding at the time of its discontinuance, would have had the characteristics of a suit between parties. I agree with the views of Finkelstein J at [8]-[9] in Traianedes v Mercury Brands Group Pty Ltd (No 2) [2010] FCA 1140. His Honour held that applications for directions sometimes raise substantive issues and once the application takes on the character of a suit between the parties the usual rules of civil practice apply: See also Re Lutscher; Ex parte Waddell (1877) LR 6 Ch D 328 at 331, Surpion Proprietary Ltd v M.R. Works Pty Ltd (Receivers and Manages Appointed) [2010] FCA 1262 at [19]-[20]. In this matter, the application took on the character of a civil dispute inter partes. The usual cost rules between parties apply. 16 It is common ground between the parties that the Court has a general discretion as to costs under s 43 of the Federal Court of Australia Act 1976 (Cth). This discretion extends to ordering costs against or in favour of non parties: Knight v FP Special Assets Ltd (1992) 174 CLR 178, O'Keefe v Hayes Knight GTO Pty Ltd [2005] FCA 1559 at [19]-[24]. Section 1335(2) of the Corporations Act 2001 (Cth) also provides a discretion as to costs of a party. I consider that s 1335(2) of the Act does not have the effect of preventing the Court from making a costs order against non parties under s 43: see Firepower Operations Pty Ltd (in liquidation) (No 3) (2010) 183 FCR 150. 17 Where an unsuccessful proceeding is brought by a company in liquidation then an order for costs is generally made against the company. Where a proceeding is brought by a liquidator personally, any costs order is usually made against the liquidator. However, unless the liquidator has acted unreasonably such an order is generally limited to the assets available to the liquidator: Silvia v Brodyn Pty Ltd (2007) 25 ACLC 385 at [48]-[54]. It was not submitted that the liquidators had acted unreasonably, or that the circumstances are so exceptional that the liquidators should meet any costs from their own resources. 18 The liquidators correctly apprehended that their application was likely to be of real interest to contributories and other interested persons. The effect of the Transaction Agreements was such that the liquidators could have expected the Estate to oppose approval. Having commenced the application, and it having been strenuously opposed, they then discontinued it. They were unable to provide any clarification to the Court as to why the Receiver had been terminated or why Northern Mining no longer supported the agreements. It is possible that the Estate's objections led to the discontinuance, but on the evidence I am unable to be so satisfied. What is plain is that the Estate incurred expense in opposing the liquidators' application, which was then discontinued. 19 The Estate is entitled to reimbursement of its costs on a party-party basis to be paid out of the assets of Peko. For the avoidance of doubt, I also note that the liquidators did not behave unreasonably in making the application. They too are entitled to their costs, as costs in the winding up. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Murphy.

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