Strazdins, in the matter of DNPW Pty Ltd (subject to DOCA) ACN 107 484 711 v Birch Carroll & Coyle Limited

REASONS FOR JUDGMENT 1 Earlier this year relying on the provisions of s 444F of the Corporations Act 2001 (Cth) (the Corporations Act) I entered judgment restraining the respondent from taking possession of property which had been the subject of a lease from the respondent to the second applicant: Strazdins, in the matter of DNPW Pty Ltd (subject to DOCA) ACN 107 484 711 v Birch Carroll & Coyle Limited [2009] FCA 731. 2 At the relevant time the first applicants were the joint and several deed administrators of the second applicant which was subject to a Deed of Company Arrangement. The respondent was the registered proprietor of a property situate at Mitchell Street, Darwin. The second applicant was the assignee of a lease granted by the respondent to Lorlina Pty Ltd on 6 March 2003. Since the assignment (20 June 2005), the second applicant had conducted a business on licensed premises on the property at Mitchell Street, Darwin. 3 On 24 April 2008, by resolution of the directors of the second applicant, the second applicant entered into voluntary administration which resulted in the appointment of the first applicants as the administrators. 4 On 12 June 2008 the respondent wrote to the second applicant giving notice of intention to terminate the lease effective from the date of the service of the notice on the ground that an Insolvency Event had occurred by reason of the second applicant being placed into administration. The respondent was not able to take possession of the property, notwithstanding there had been a default: s 440C and s 440D of the Corporations Act. 5 Eventually the second applicant executed a Deed of Company Arrangement which provided, inter alia, for the continuation of the second applicant's business on the premises owned by the respondent. The applicants sought the respondent's agreement to the continuation of the lease but that agreement was not forthcoming. 6 The lease which was granted to Lorlina Pty Ltd was if both renewals were exercised for a period of 25 years and would not expire until 2027. 7 Mr McKenzie, who was the General Manager of Property of the respondent's holding company said that the lease was entered into when the retail market in Darwin was depressed. He said the length of the lease was more than double any other lease he managed. 8 The leasehold property forms part of the respondent's cinema complex in Darwin which has five auditoriums. The property is, Mr McKenzie said, of strategic importance to the respondent's long-term development plans regarding a range of potential retail users. 9 The respondent made two offers to the applicants for a new lease. The first was for a term of two years with three renewals options of one year, subject to a redevelopment clause. The second was for a term of five years with no renewals options on terms consistent with the lease. 10 The respondent said that the offers were made to avoid this litigation. 11 Because no agreement could be reached with the respondent, the first applicants applied under s 444F of the Corporations Act for an order that the respondent not take possession or otherwise recover the Mitchell Street property. The applicants were successful on that application and the order mentioned above reflects that success. 12 During the course of the proceedings the applicants contended that they would also be entitled to an order relieving the second applicant from forfeiture. However, I determined that that relief had not been pursued in the applicants' Points of Claim. The applicants sought to amend their Points of Claim to include that plea but that application was refused. 13 Thus it was that the first applicants were successful on the claim for relief under s 444F of the Corporations Act but the applicants were unsuccessful in relation to a claim for relief from forfeiture. 14 During the proceeding the respondent also sought to amend its pleadings. The respondent's counsel attempted to cross-examine Mr Strazdins in relation to the existence of a management agreement that was to be entered into between the administrators and a third party. The respondent had not pleaded that that management agreement also gave the respondent a right to terminate the lease. It sought leave to amend its Points of Defence to raise that issue but that application was also refused. 15 I handed down my reasons with the direction that the applicants bring in Minutes of Order to reflect my reasons for judgment which should include the appropriate conditions to be made under s 446F(6) of the Corporations Act. I also indicated that I would hear the parties on the question of costs. 16 The applicants brought in short Minutes of Order which, after some argument and some amendment, eventually became the orders of the Court. 17 At the same time, the applicants sought an order that the respondent pays the applicants' costs of and incidental to the proceeding save and except the costs of and incidental to the applicants' application for leave to amend its Points of Claim. In that regard, the applicants submitted that it would be appropriate that the applicants pay the respondent's costs of that application. The applicants argued that the respondent should pay their costs because of they had been successful on the application under s 444F and costs should follow the event. They recognised however that they had been unsuccessful on their application for leave to amend their Points of Claim and, in those circumstances, they should not have their costs and that they should pay the respondent's costs of that application. 18 That proposal recognised that the applicants had been successful in relation to their claim under s 444F and unsuccessful in relation to the application for leave to amend the Points of Claim. 19 On the other hand, the respondent argued that the appropriate order for costs should be that the applicants pay the respondent's costs. 20 The respondent contended that the applicants should pay its costs for four separate reasons. First, it contended that it had a contractual right to costs and in that regard relied on clause 4.7 of the lease. Clause 4.7(d) provides: 4.7 The Lessor and the Lessee must pay their own costs relating to the preparation, negotiation and completion of this Lease, but the Lessee must pay to the Lessor on demand: ... (d) the Lessor's legal and other costs (on a full indemnity basis) in relation to: (i) any application for consent required under this Lease (whether or nor the consent is given); (ii) any surrender or early termination of this Lease; (iii) any litigation or arbitration in which the Lessor is made a party or is otherwise involved, arising directly or indirectly out of this Lease or the Lessee's occupancy of the Premises (except where a court or arbitrator awards costs in favour of the Lessee against the Lessor); and (iv) default by the Lessee or the Lessee's Invitees under this Lease. In particular, the respondent relied upon placita (iii) and (iv). 21 The respondent contended that clause 4.7(d) gave the respondent a right to costs and therefore an order should be made in the respondent's favour. 22 I do not think that argument can be accepted. Clause 4.7(d)(iii) itself recognises that a court may make an order for costs other than in accordance with the provisions of clause 4.7. 23 In my opinion, clause 4.7 does not constrain or otherwise detract from the general discretion reposing in a court to order costs in any proceeding before the court: s 43 of the Federal Court of Australia Act 1976 (Cth). 24 The agreement between the parties however is a relevant factor to be taken into account in the exercise of the court's discretion. 25 Next the respondent argued that, consistent with the decision of the Supreme Court of New South Wales in Fekala Pty Ltd v Cenbond Pty Ltd [2001] NSWSC 340, an order for costs ought to be made in the respondent's favour. 26 In that case, the Court was concerned with two interlocutory applications relating to an order under s 441D(2) of the Corporations Act. Section 441D operates to protect a company's property during an administration. Section 441D allows an administrator to apply to the Court for an order that a chargee or receiver or other person not perform specified functions or exercise specified powers during the course of the administration: s 441D of the Corporations Act. The section allows the Court to restrain a secured creditor from realising on the creditor's security. 27 In Fekala Pty Ltd v Cenbond Pty Ltd [2001] NSWSC 340, the Court was asked to make an order under s 441D where the administrators had had considerable time to put forward some firm proposal in relation to a payment due to the secured creditor and even at the time of the hearing could only put forward a speculative proposal. The administrators were not in a position to give any undertaking as to damages. The trial judge, Young J, made the order under s 441D only because he thought there was some chance that the secured creditors would benefit by the order being made. He made it a condition of the order, without saying why, that the administrators pay the costs of the application. 28 It seems to me that that case is no authority for any general proposition that when a court makes an order under s 444F, the court should award the chargee or the owner or lessor of property its costs. Justice Young did not say that. He merely made it a condition of the order that the costs be paid. In my opinion, that case is not authority for the proposition advanced by the respondent. 29 Next the respondent contended that, if the applicants had applied to the Court for relief under the Law of Property Act 2000 (NT), the Court could have made an order for costs in favour of the respondent. 30 The applicants did initially include in their application a claim for relief under that Act but that was abandoned very early in the hearing. The matter did not proceed under that Act. It seems to me irrelevant what powers the Law of Property Act 2000 (NT) gives to the Court in relation to costs for applications under that Act. 31 Next it was put that there is a presumption that where a party seeks an order for relief from forfeiture that the party seeking relief ought to pay the lessor's costs. In support of that contention the respondent relied on Hayes v Gunbola Pty Ltd (1986) 4 BPR 9247. 32 That was a case for relief from forfeiture under s 128 of the Conveyancing Act 1919 (NSW) in which the trial judge (Young J) was of the opinion that, in the exercise of the Court's discretion relief should be granted. His Honour addressed the question of costs and said "it is abundantly clear that as the price of getting relief against forfeiture the plaintiff must pay the lessor's reasonable costs": Hayes v Gunbola Pty Ltd 4 BPR 9247 at 9255. His Honour referred to Howard v Fanshawe [1895] 2 Ch D 581 at 592 where he said the ordinary order was that the plaintiff must bear the costs of the action except where those costs have been increased by the defendant resisting the claim and those costs must be borne by the defendant. He also referred to Langley v Foster (1909) 10 SR (NSW) 54 at 62 where Simpson CJ in Eq said: ... prima facie one of the terms imposed should be the payment of all costs, for the plaintiff's own breach of his agreement has given rise to the litigation ... this is not a hard and fast rule, for, if it were, a lessor might always oppose relief being granted knowing he would always get his costs from the lessee. If the court thinks the lessor ought not have opposed in toto the grant of relief from forfeiture, the court may make the lessor pay the costs so far as they have been increased by the lessor resisting the claim to relief on any terms ... But the court may make, and has in one case at any rate made, the lessee pay all the costs, notwithstanding the lessor contested his claim to relief at all: Quilter v Mapleson [1882] 9 QB 672. It is a question for the court's discretion in each case. 33 Justice Young made an order requiring the plaintiff to pay some of the defendant's costs but also the defendant to pay some of its own costs by reason of its conduct in the trial. 34 On an application for relief from forfeiture the applicant is seeking an indulgence from the Court, namely to be excused from the consequence of the applicant's breach and to be allowed to remain in possession of the leased premises. In those circumstances it is understandable why the courts may from time to time impose as a condition of the grant of relief the payment by the applicant of the respondent's costs. There is no rule to that effect, nor could there be. Such a rule would interfere with the court's unfettered discretion in relation to costs. It would also be a licence to a landlord to unreasonably resist a claim for relief from forfeiture. 35 On an application under s 444F the administrator is seeking to prevent the owner or lessor seeking to exercise its right to take possession or otherwise recovering property. It must be assumed in an application relying on s 444F that the owner or lessor has the right to possession or recovery of the property. Otherwise no such application would need to be made. 36 In those circumstances it may be appropriate to make it a condition of the order that the applicant pay the respondent's costs or some part of those costs as the price of the order. But again there is no rule to that effect and again, for the reasons already mentioned, nor could there be. 37 If there were a rule to that effect then an owner or lessor could behave unreasonably and put the administrators to the cost of proceedings unnecessarily or by their behaviour increase the costs of the proceeding. 38 The purpose of an order for costs is to compensate the party in whose favour the costs order is made for the costs of the proceeding. The orders for costs are not an indemnity but are designed to compensate the party in whose favour the order for costs is made in part for the costs of the proceeding. The purpose of an order for costs is not to punish the party against whom the order for costs is made: Latoudis v Casey (1990) 170 CLR 534 at 543, 563 and 567; Oshlack v Richmond River Council (1998) 193 CLR 72 at 96. 39 But that said however, if a party does behave unreasonably in resisting an application or in the conduct of the proceeding generally, the Court may take that matter into account in determining where the burden of costs should lie because that kind of conduct may have increased the costs incurred by the other parties to the proceeding. 40 In this case the respondent acted as it did, in my opinion, to further its commercial interests. The respondent wished to obtain possession of the property so that it could develop the property. The lease which was granted to Lorlina Pty Ltd was potentially, if both renewals were exercised, for a period of 25 years, which would have inhibited the respondent's ability to develop its property. 41 The respondent was not so much concerned about the ability of the second applicant to pay rent in the future or comply with what were the terms of the terminated lease. It was more concerned with obtaining a commercial advantage. 42 In those circumstances, its actions in resisting this application should be taken into account in assessing the appropriate order for costs. 43 In my opinion, it is a relevant factor in determining any order for costs on a s 444F application that the administrators have sought an indulgence from the Court to restrain an owner or lessor from exercising a right that would otherwise be available to be exercised to take possession or otherwise recover property. 44 The respondent contended that it ought to be paid the whole of its costs of the proceeding for the reasons mentioned. 45 The applicants contended in reply that the orders which they had proposed reflected their winning on one issue and their failing on another. 46 In my opinion, it would be appropriate to address the question of costs in the following manner. First, to acknowledge that the applicants in this case sought an indulgence of the kind to which I have referred. Secondly, to have regard to the contractual arrangements between the parties, which indicate that the parties intended that in any litigation in relation to the lease the burden of costs should fall upon the second applicant. Thirdly, to acknowledge that the respondent was entitled to resist the application if the respondent would suffer a real detriment by the granting of the order. Fourthly, to acknowledge that the respondent's failed application to amend its pleadings increased the costs of the litigation. Fifthly, to acknowledge that the applicants claim to be entitled to the relief from forfeiture and its application to amend to include such a claim also increased the costs of the litigation. Sixthly, that despite the respondent's opposition the first applicants were successful. 47 In my opinion, it would be an appropriate exercise of discretion that there be no order as to costs and there will be an order accordingly. I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.