White v Norman; In the Matter of Forest Enterprises Australia Limited [2012] FCA 163 | Case summary

REASONS FOR JUDGMENT 1 I delivered reasons in this proceeding on 2 February 2012: White v Norman; In the Matter of Forest Enterprises Australia Limited (Receivers and Managers Appointed) (in Administration) [2012] FCA 33. I made an order that the plaintiff bring in draft minutes of order reflecting the conclusions reached in my reasons and any claims for interest and costs. These are my reasons for the final orders which I will make in this proceeding. 2 The defendants made a decision about the payments which should be made to the plaintiff under s 433(3) of the Corporations Act 2001 (Cth) ("the Act"). The principal amounts in dispute were amounts described as Non-discretionary Remuneration ("NDR") and Discretionary Remuneration ("DR") under a contract of employment between the plaintiff and Forest Enterprises Australia Limited (Receivers and Managers Appointed) (In Administration) ("Forest Enterprises Australia") and amounts of annual leave and long service leave respectively. I decided that the amounts claimed by the plaintiff by way of NDR and DR were not prohibited by Div 2 Pt 2D.2 of the Act and were entitled to priority under s 433(3) and that the amounts claimed by the plaintiff for annual leave and long service leave were not entitled to priority under that subsection. 3 Except for three orders, the defendants agree with the orders proposed by the plaintiff. The three orders in dispute are as follows. First, the plaintiff claims, and the defendants dispute, that he is entitled to an order directing the defendants to pay him the amounts in respect of which I have found that he is entitled in priority. Secondly, he claims, and the defendants dispute, an entitlement to interest on the amount payable for NDR and DR. Thirdly, he claims, and the defendants dispute, an entitlement to costs on an indemnity basis. The defendants do not dispute the plaintiff's entitlement to an order for costs but they contend that his costs should be assessed on a party and party basis. 4 The plaintiff's Originating Process referred to a number of statutory provisions which he alleged provided a source of power for the orders he sought. There were no detailed submissions on the source of power at the time of the hearing of the substantive issues in dispute between the parties. I said in my reasons delivered on 2 February 2012 that the appropriate source of power seemed to be s 1321 of the Act and that the final orders of the Court should be framed having regard to the terms of that section. The plaintiff's draft minutes of order and the parties' respective submissions proceeded on the basis that I was dealing with an appeal under s 1321(1) against the defendants' decisions with respect to the plaintiff's claim. 5 Section 1321(1) is in the following terms: 1321 Appeals from decisions of receivers, liquidators etc. (1) A person aggrieved by any act, omission or decision of: (a) a person administering a compromise, arrangement or scheme referred to in Part 5.1; or (b) a receiver, or a receiver and manager, of property of a corporation; or (c) an administrator of a company; or (ca) an administrator of a deed of company arrangement executed by a company; or (d) a liquidator or provisional liquidator of a company; may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit. 6 In effect I have decided that the defendants' decision that the plaintiff was not entitled to amounts claimed for NDR and DR was erroneous, but that their decision that the plaintiff was not entitled to payments for annual leave and long service leave in priority under s 433(3) of the Act was correct. 7 The parties are agreed that it is appropriate for the Court to make the following declarations: 1. Subject to deduction of all applicable tax withholding, the plaintiff's unpaid entitlements pursuant to his contract of employment with Forest Enterprises Australia Ltd (FEA) are: (a) $67,677.35 on account of unused annual leave; (b) $57,199.62 on account of unused long service leave; (c) $646,170.49 in lieu of notice, representing $497,092.20 on account of non-discretionary remuneration and $166,197.15 on account of discretionary remuneration, less the sum of $17,118.86; (d) $819.96 in respect of wages (CPI component) for the period 1 April 2010 to 19 April 2010; (e) $3,943.80 on account of superannuation in respect of the amount in paragraph (c) above, to be paid to a complying superannuation fund or a Retirement Savings Account to be nominated by the plaintiff. 2. The amounts in paragraphs 1(a) and 1(b) above are not amounts which are to be afforded priority pursuant to ss 433 and 556 of the Corporations Act 2001 (Cth) or otherwise. 3. The amounts in paragraphs 1(c) and 1(e) above are amounts which are to be afforded the priority provided by ss 433(3)(c) and 556(1)(h) of the Corporations Act. 4. The amount in paragraph 1(d) above is an amount which is to be afforded the priority provided by ss 433(3)(c) and 556(1)(e) of the Corporations Act. 8 The defendants contend that, in addition to those declarations, I should make the following orders: 5. The defendants' decision in respect of the plaintiff's claim for unpaid entitlements pursuant to his contract of employment with FEA be modified so as to accord with paragraphs 1 to 4 above and, to that extent, the plaintiff's appeal from the defendants' decision be allowed. 6. The proceeding otherwise be dismissed. 9 The defendants submit that I should not make an order against them requiring them to pay the amounts referred to in the declarations in paragraphs 1 (c), (d) and (e). They contend that there is no need for such an order because there is no suggestion that they will not abide by the declarations and other orders of the Court. Furthermore, the defendants contend that they have a number of obligations under the Act and there is a danger that an order for payment will not be framed with sufficient precision to take account of those obligations. The defendants point to what they claim is an analogous jurisdiction of the Court to hear and determine appeals from a liquidator's rejection of a proof of debt and the type of orders ordinarily made in the exercise of that jurisdiction. By contrast, the plaintiff seeks an order for payment. He refers to the clear terms of s 433(3) of the Act and the fact that he has been kept out of his money since May 2010. He submits that any analogy with the rejection of a proof of debt by a liquidator is quite limited. 10 I was not referred to any authorities directly on point and my researches have not revealed any. I think the defendants' contentions are correct. The defendants' proposed fifth order will modify the defendants' decision in a way which accurately reflects the decision of this Court. There is no reason to think that the defendants will not act in accordance with the declaration and orders of this Court and give proper effect to them. The defendants as receivers and managers of Forest Enterprises Australia are subject to a number of obligations under the Act. Although there are clearly differences between their position and the position of a liquidator who has rejected a proof of debt, there are sufficient similarities to suggest that the authorities dealing with liquidators in that situation provide guidance. A successful appeal from a liquidator's total or partial rejection of a proof of debt does not ordinarily result in an order for payment: Re Federation Health Ltd (Admin. Appt.) [2006] FCA 314 at 35 per Young J; Sturesteps v A G McGrath and Ors (2010) 242 FLR 122 at 134 [53]-[54] per Brereton J. The usual order is to direct the liquidator to admit the proof of debt and then leave matters of implementation to the liquidator. I will not make the order for payment sought by the plaintiff. 11 The parties are agreed that if the plaintiff is entitled to interest on the amounts for NDR and DR then the appropriate amount is the sum of $95,234.91. The plaintiff submits that he should be awarded interest because since May 2010 the defendants have had the use of money to which this Court has found the plaintiff was entitled. 12 The plaintiff's primary submission was that the Court has the power to award interest under s 1321(1) of the Act. In the alternative, the plaintiff submitted that the Court has the power to award interest under s 51A of the Federal Court of Australia Act 1976 (Cth). 13 Section 1321(1) of the Act is expressed in broad terms and, in addition to confirming reversing or modifying the relevant act or decision, the Court may make orders "as it thinks fit". However, the power is not unlimited and in determining its limits regard must be had to the scope and purpose of the section and the statutory context in which it appears: ASIC v Forestview Nominees Pty Ltd (2006) 236 ALR 652. 14 The defendants' decision in this case involved a consideration of whether the amounts for NDR and DR were amounts payable by Forest Enterprises Australia and, if so, whether they were entitled to priority by virtue of ss 433(3) and 556(1) of the Act. 15 A "retrenchment payment" is defined in s 556(2) of the Act as follows: … in relation to an employee of a company, means an amount payable by the company to the employee, by virtue of an industrial instrument, in respect of the termination of the employee's employment by the company, whether the amount becomes payable before, on or after the relevant date. "[I]ndustrial instrument" means, relevantly, a contract of employment (s 9). It is not suggested here that the plaintiff's contract of employment provided for the payment of interest on the amounts for NDR and DR. The amount which is entitled to priority under s 433(3)(c) is the retrenchment payment that in a winding up is payable in priority to other unsecured debts pursuant to s 556(1)(h) of the Act. That does not include any amount for interest. Furthermore, by virtue of s 563B of the Act, in a winding up the payment of interest is postponed until all other debts and claims in the winding up have been satisfied. This statutory ranking of interest cannot be overcome by the use of the power in s 477(1)(b) of the Act: McGrath and Others v Sturesteps (2011) 254 FLR 384 at 400 [76] per Bathurst CJ. The receivers did not have the power to pay interest in priority and the Court on appeal under s 1321 does not have the power to award interest in priority. 16 The plaintiff made a brief submission to the effect that this Court could award interest under s 51A of the Federal Court of Australia Act 1976 (Cth). To succeed he must show that his proceeding was a proceeding "for the recovery of any money". Although the proceeding has some features of a proceeding for the recovery of any money, I do not think it is proper to characterise it in that way. Not only have I declined to make an order for payment for the reasons given, but even if I had made such an order, the proceeding is properly characterised as an appeal from a receiver's decision involving a question of whether priority should be accorded to a sum claimed. As it happens, there was a question as to whether the payment of the amounts for NDR and DR were prohibited by Div 2 Pt 2D.2 of the Act, but that does not change the character of the proceeding. I do not think I have the power to award interest. 17 The plaintiff's claim for costs on an indemnity basis is based on the contention that his proceeding concerned the proper administration of a fund and that it was not an adversarial proceeding. He submitted that the case fell within the second class of case identified by Kekewich J in Re Buckton [1907] 2 Ch 406 at 414-415. The principles which were developed in cases involving trustees and beneficiaries have been extended to receivers, liquidators and administrators: ASIC v GDK Financial Solutions Pty Ltd (in liq) (No 4) (2008) 169 FCR 497. 18 The plaintiff submitted that the decision of Edmonds J in Gothard v Davey (No 2) (2011) 277 ALR 172 ("Gothard v Davey") supported his contention that his costs should be paid on an indemnity basis. In that case receivers and managers of three companies applied for directions under s 424 of the Act. There were various classes of employees and the point at issue was which of the companies employed the various employees. The respondents were joined as representatives of the various classes of employees. The respondents were successful and Edmonds J made an order that they have their costs on an indemnity basis. His Honour endorsed the approach taken by Hansen J in Farrow Finance Co Ltd (in liq) v ANZ Executors and Trustees Co Ltd (1997) 23 ACSR 521. In that case Hansen J said (at 526-7): In my opinion, the general principles which apply to the question of costs upon an application by a liquidator for directions include these: Where the application is necessitated only by the stand taken by one particular creditor, or a certain group of creditors acting only in their own interest, and the question involved is not a complex one, then costs should generally follow the event. In other words, if the position which the liquidator always intended to adopt is vindicated, and the submission of the opposing creditors is rejected, then those creditors should be liable for the liquidator's costs of the application. An example of the application of that principle is Re Masureik & Allan Pty Ltd (1981) 6 ACLR 39 (SC(NSW), Needham J). In that case, both the liquidator and the company's largest creditor (a bank) agreed that the liquidator should treat the recovery of a preferential payment as ensuing to the benefit of the general body of creditors on the well known authority of Re Yagerphone Ltd [1935] 1 Ch 392, and N A Kratzman Pty Ltd (in liq) v Tucker (No 2) (1968) 123 CLR 295; [1968] ALR 616. A director of the company, however, contended otherwise, for his interest as a guarantor of the company's debt to the bank lay in the sum recovered going in reduction of that debt. He insisted that the liquidator was obliged to seek directions on the issue, despite the liquidator informing him that an application would be made for costs if a directions hearing was necessary. The liquidator's submissions were upheld, and the director was ordered to pay the liquidator's costs. On the other hand, where the issue involved is a complex one, or one involving a relatively novel proposition in law, then the starting point is that the costs of all necessary parties are to be paid by the liquidator and counted as costs in the liquidation: see, for example, Re GPI Leisure Corp Ltd (in liq) (1994) 130 ALR 256; 15 ACSR 282 (Fed C of A, Whitlam J). That was the starting point I adopted upon the issue of costs in UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (19 July 1996, SC Vic), Hansen J, unreported). That case also serves as a good example of the factors which might lead a court to depart from the starting point. The liquidator's application in UTSA ran over three days, and involved detailed evidence (including cross examination of witnesses) and submissions. The defendant to the liquidators' summons for directions raised a very large number of points in opposition, the bulk of which were rejected outright. Principally for that reason, the defendant was required to pay two-thirds of the costs of the liquidators. (See also, Re Ansett Australia Ltd [2002] VSC 114; (2002) 41 ACSR 598 at [23] per Warren J (as her Honour then was)). 19 In dealing with the case before him Edmonds J in Gothard v Davey said (at 187 [56]): This is a case where the respondents' costs are not payable by the applicants personally but out of a fund or pool of property which has come in the applicants' hands, or under their control, as receivers of that property. The respondents' costs are just as much a cost of the receivership as the applicants' costs and it is common ground that the applicants are fully indemnified for their costs out of that fund or pool of property. The respondents were necessary parties if the proceeding, as commenced by the applicants, was to have any real utility in resolving the issue of which company or companies employed the respondents. Moreover, it had a factual complexity and, on the applicants' arguments, involved such novel propositions in law that 'the starting point is that costs of all necessary parties are to be paid by the [receiver] and counted as costs in the [receivership]': Farrow Finance at 527 (see [22] and [23] above). 20 The breadth of the principles stated by Hansen J was doubted by Campbell JA (with whom McColl JA agreed) in BE Australia WD Pty Ltd (subject to a Deed of Company Arrangement) v Sutton [2011] NSWCA 414 at [214]. Campbell JA said (at [214]): The principles that Hansen J stated in Farrow Finance v ANZ (1997) 23 ACSR 521, and that Warren J adopted in Re Ansett Australia are, with respect, very shallowly rooted in principle and authority. While it is true that in Re GPI Leisure Corp Ltd (in liq) (1994) 53 FCR 365; 130 ALR 256; 15 ACSR 282 Whitlam J made an order, on a liquidator's application for directions at which interested parties also appeared, for the costs of all parties to be paid out of the assets of the company, his Honour gave no reason for taking that course, and indeed it is not even clear from the judgment whether there was any contest about the appropriate order for costs. Hansen J's judgment in UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (unreported, SC(Vic), 19 July 1996) stated no general principle, and made an order for costs by reference to detailed consideration of the facts relating to the conduct of the particular litigation he was deciding. I do not find in those cases a reason to depart from the guidance arising from Re Buckton and to other cases I have mentioned concerning the way the costs of the present application should fall. Both the hearing in the court below and the appeal and cross-appeal were in substance adversarial litigation. The costs should follow the event. 21 I do not need to enter into this debate because I think that on any view of the authorities where the proceedings are properly characterised as adversarial, costs should be assessed on a party and party basis. I have reached a clear view that the plaintiff's proceedings are properly characterised as adversarial. Unlike Gothard v Davey, the proceeding in this case was brought by the alleged creditor and involved an appeal against a receiver's decision. The alleged creditor was pursuing his own interests and not acting on behalf of a group of potential claimants. The plaintiff's proceeding bears considerable similarities to an appeal against a liquidator's rejection of a proof of debt which is considered to be adversarial and where the usual order is that costs be paid on a party and party basis (Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 341 per Brennan and Dawson JJ; Rosseau Pty Ltd (in liq) v Jay-o-Bees (in liq) (2004) 50 ACSR 565 at 589-590 [106]-[107]. I will make an order that the defendants pay the plaintiff's costs of the proceeding, to be taxed on a party and party basis in default of agreement. 22 For these reasons, I will make the declarations set out in paragraph 7, the orders set out in paragraph 8 and the costs order referred to in the previous paragraph. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.

White v Norman; In the Matter of Forest Enterprises Australia Limited

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