BL and GY International Company Limited v Hypec Electronic Pty Limited; Colin Anthony Mead v DP Watson (as Liquidator of Hypec Electronics Pty Ltd in liquidation)

[2003] NSWSC 1138

CITATION:	BL & GY International Company Limited v Hypec Electronic Pty Limited; Colin Anthony Mead v DP Watson (as Liquidator of Hypec Electronics Pty Ltd in liquidation) & Ors [2003] NSWSC 1138
HEARING DATE(S):	4/12/02
JUDGMENT DATE:	4 December 2003
JURISDICTION:	Equity Division
JUDGMENT OF:	Einstein J
DECISION:	Costs orders made.
CATCHWORDS:	Costs
LEGISLATION CITED:	Corporations Act 2001 (Cth)
CASES CITED:	Oshlack v Richmond River Council (1998) 193 CLR 72 Process Engineering Pty Limited v Derby Meat Processing Pty Limited (1976) 1 ACLR 352
PARTIES :	BL & GY International Company Limited (Plaintiff 1933/01) Hypec Electronics Pty Limited (Defendant 1933/01) Colin Anthony Mead (Plaintiff 3832/01) DP Watson (Defendant 3832/01)
FILE NUMBER(S):	SC 1933/01; 3832/01
COUNSEL:	Mr S Bell (for BL & GY International Co Limited in both matters) Mr D Fagan SC with Mr V Bedrossian (for Colin Mead in both matters) Mr P H Greenwood SC with Mr T J Morahan (for DP Watson the liquidator of Hypec Electronics Pty Limited)
SOLICITORS:	Ian B Mitchell (BL & GY International Co. Ltd) Etheringtons Solicitors (Colin Mead) A R Connolly & Co. (for DP Watson the liquidator of Hypec Electronics Pty Limited)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Einstein J

Thursday 4 December 2003 ex tempore
Revised 8 December 2003

001933/01 - BL & GY INTERNATIONAL CO LIMITED v HYPEC ELECTRONICS PTY LIMITED

003832/01 - COLIN ANTHONY MEAD v DAVID PATRICK WATSON AS LIQUIDATOR OF HYPEC ELECTRONICS PTY LIMITED (IN LIQUIDATION) AND OTHERS

JUDGMENT

The applications before the Court

1 On 28 August 2001 the Court made orders empowering Mr Colin Mead to act in the name of Hypec Electronics Pty Limited (in Liquidation) [“Hypec”] in common law proceedings no 1264 of 1997.

2 Mr Mead's application for these orders had been contested by the liquidator of the company, Mr Watson, and by BL & GY International Co Limited “BL & GY”], the plaintiff in the Common Law Division proceedings. The costs of Mr Mead's application were reserved. The orders presently sought by Mr Mead in terms of costs are as follows:

“1. Order that Hypec Electronics Pty Limited (in Liquidation) pay Etheringtons Solicitors the costs and disbursements (on an indemnity basis) [during submission Mr Fagan of senior counsel accepted that the wording "costs on a solicitor-client basis" would suffice] of Mr Colin Mead of proceedings commenced by him by summons no 3832 of 2001 and of the notice of motion filed by him in proceedings no 1933 of 2001 seeking substantially the same relief as in the summons proceedings.

2. Direct that the said costs be treated in the winding up of Hypec Electronics Pty Limited as liquidator's expenses within s 556(1)(a) Companies Act [Corporations Act 2001 (Cth)] to be paid in priority accordingly.”

3 A detailed chronology has been prepared and is annexed to this judgment as Annexure “A”.

4 Mr Mead, by his counsel, contends that prima facie he should have his costs against the parties who opposed him on the subject application, simply on the basis that costs should follow the event. It is submitted that that proposition may be subject to a consideration of whether the subsequent course of litigation showed that Mr Mead's obtaining of the orders of 21 August 2001 had any utility. It is submitted that the utility and benefit to Hypec can be readily demonstrated by the subsequent events.

5 Mr Mead seeks to place reliance upon the subsequent events, the main points in respect of which are said to be as follows:

“4.1 On 25 September 2001 Mr Mead obtained an order from Sully J setting aside BL & GY’s default judgment against the company. Thus there was removed a judgment debt of $7,665,504.67, plus interest on that sum from 4 December 1997.

4.2 On 4 October 2001 Mr Mead secured from McClellan J the dismissal of a strike out application and a security for costs application, brought by BL & GY.

4.3 After a hearing before Matthews AJ from 5 to 26 November 2001, on 15 February 2002 Mr Mead obtained judgment from her Honour dismissing BL & GY’s claim against the company. BL & GY’s claim had been increased to approximately $11.7m by an amendment at the commencement of the trial. Matthews AJ also dismissed the Cross Claim which Mr Mead had filed in the company’s name against BL & GY.”

6 The submission put by Mr Mead is that the setting aside of BL & GY's default judgment and the final dismissal of its claim after a three week trial are self-evidently a substantial benefit to the company in liquidation. The submission further pursued is that the liquidator has, however, persistently asserted that there was no benefit upon the basis that he would have rejected BL & GY's proof of debt in due course in any event. Mr Mead then contends that the liquidator's assertion does not refute the benefit to the company for three reasons:

“6.1 The liquidator’s letter of 17 September 2001 and his affidavit of 18 September 2001 show that, contrary to his claims made post the judgment of Matthews AJ, he was not willing to challenge BL & GY’s supposed debt. He would have admitted the proof and the company would have been over $7m worse off.

6.2 If the liquidator had rejected the BL & GY proof this would certainly have led to litigation – had it not been for Mr Mead defending the claim in the trial before Matthews AJ and obtaining a judgment on the merits. Mrs Lucy Mead and her two sisters, who gave the main evidence for BL & GY before Matthews AJ, were evidently determined to assert BL & GY’s claim to judgment. The liquidator would have had to incur the same costs that Mr Mead incurred, of defending BL & GY’s claim at trial, if he had rejected the proof.

6.3 Even if the liquidator might have changed his mind and rejected the BL & GY claim and if he had been able to do so without having to litigate it, the fact is that the Court on 21 August 2001 determined that Mr Mead should defend the company against BL & GY by applying to have the default judgment set aside and defending the case at trial from 5 November 2001. The benefits which flowed from Mr Mead following that course are no less benefits just because, if the Court had determined Mr Mead’s application differently, the same result might have been arrived at through actions of the liquidator instead of actions of Mr Mead.”

7 In my view the reference to the subsequent events is essentially misconceived as the Court is here simply determining the proper exercise of the Court's discretion in relation to an application regularly litigated before the Court with care and in detail.

8 The proposition advanced by Mr Mead is that an order for Mr Mead's costs only against BL & GY would be inadequate. BL & GY is a Taiwanese company apparently controlled by Mrs Lucy Mead. Mr Mead relies upon the proposition that it has no assets in Australia. The submission is that at the least any attempt at recovery of Mr Mead's costs from BL & GY would be expensive, time-consuming and very doubtful of success. The submission is that court orders should not leave Mr Mead to the risk and doubts of recovery against BL & GY while Hypec takes the benefit of his having succeeded in the application of August 2001 and having therefore removed a $7 million-plus liability of the company.

9 The further submission is that an order for the costs to be treated as liquidator's expenses in the winding up is the norm in such a case and reference is made to Process Engineering Pty Limited v Derby Meat Processing Pty Limited (1976) 1 ACLR 352.

10 Assessment of costs on a solicitor-client basis is sought by Mr Mead not because of fault or wrongdoing on the part of the liquidator in contesting the application in August 2001, but in suggested recognition that in the events which have occurred the application was to the benefit of the company and its creditors. To my mind the submission is one of substance. The submission is that it would not be just that Mr Mead should be out of pocket to the extent of the difference between solicitor and client and party-party costs where, in the events which have occurred, the company has derived the substantial benefit identified.

11 The Australian Tax Office apparently also lodged an amended proof of debt on 22 January 2002 for $769,961.75. By further amended proof lodged on 29 May 2002 the amount claimed was apparently increased with penalties to $1,472,508.95. Mr Mead submits that but for the setting aside of BL & GY's default judgment, the Australian Tax Office's debt would have been swamped by that of BL & GY and its total dividend would have been very small. The submission is that there would certainly not be some $10 million of assets available to the administration which would have been required to pay all expenses of the liquidation and both the Australian Tax Office and BL & GY proof.

The submissions by the liquidator

12 The liquidator has submitted that:

“appropriate orders for costs would be:

· Mr Mead's party-party costs be paid by Hypec Electronics Pty Ltd (in liquidation), except costs relating to the preparation and presentation of Mr McKewen's report;

· the Liquidator's costs be paid by Hypec Electronics Pty Ltd (in liquidation); and

· BL and GY International Co Ltd indemnify Hypec Electronics Pty Ltd (in liquidation) for the costs of Mr Mead and the Liquidator.”

Dealing with the issue

13 The conventional rule applicable in relation to contested proceedings is that the losing party is ordered to pay the costs of the successful party (see Oshlack v Richmond River Council (1998) 193 CLR 72. A careful reading of the judgment delivered on 21 August 2001 points out the number of issues then before the court for determination in what was quite plainly a very strongly litigated set of applications. I do not see that Mr Mead's failure on his claim to be appointed receiver advanced in paragraph 2 of the summons and notice of motion alters the appropriate exercise of the discretion of the Court.

14 There are several disparate matters which have essentially been the subject of submission before the Court which it is necessary to deal with and I deal with them seriatim.

15 The first matter concerns the proposition pursued by the liquidator that it is inappropriate for Mr Mead's solicitor-client costs, if ordered to be paid by Hypec, to include the costs relating to the preparation and presentation of a particular report by Mr McKewen.

16 It is possible to deal with this matter in very short compass. Notwithstanding the assertions by the liquidator that the McKewen report ought to have been provided to the liquidator earlier than it was, the background course of events which faced Mr Mead [and was carefully exposed in general terms and to a certain extent in specific terms in the judgment of 21 August 2001] makes plain the essential tangle of circumstance and litigation in which Mr Mead was then placed. I am prepared to proceed upon the basis that he is not seen in anything which he did prior to the application before the Court, to have carried out legal wrongdoing of any significance or with any calculated intent to in any fashion erode the liquidation. The fact is that, as events showed, the McKewen report was presented to the liquidator on the day of the proceedings before the Court and notwithstanding the fact that the liquidator and his solicitors and counsel had the benefit of that report, the same approach was taken by the liquidator to the proceedings before the Court. Apparently, at least a month thereafter, the liquidator's position had not changed in that the stance taken was that there was no merit in setting aside or proceeding to set aside the default judgment. These are questions of close analysis and history but, to my mind, there is no substance in the submission put forward by the liquidator that the costs to which Mr Mead is entitled should exclude costs relating to the preparation and presentation of the McKewen report.

17 The next matter concerns the claim by Mr Mead for an order that Hypec pay Etheringtons Solicitors the costs and disbursements (on a solicitor-client basis) of Mr Mead in the proceedings and on the notice of motion. In that regard it does not seem to me that there is any substance in any of the submissions put forward by Mr Fagan. Apparently there is a prospect which is sought to be guarded against, that the liquidator may have a cross-claim or series of cross-claims against Mr Mead and that unless the order were made that the company in liquidation pay the solicitors these costs and disbursements directly the net effect would be an arid exercise, by reason of the set-off.

18 Notwithstanding the Court's power to make such orders as are appropriate in the circumstances, the almost invariable order made by the Court is that a losing party pay the successful party's costs of the relevant motion or suit. The notion that the Court, because it has the power, should in a case such as the present exercise the power to simply direct payment of the costs to the legal advisers, is misconceived at the level of principle. I am not persuaded that the appropriate exercise of the Court's discretion is for the order to require payment to Etheringtons Solicitors.

19 The next question concerns the solicitor-client costs aspect. This is a circumstance in which the net result of the success by Mr Mead before this Court, led to Mr Mead personally and directly shouldering the burden of costs on behalf of the company, it being common ground that the company was then in liquidation. Mr Mead is perfectly entitled, in my view, to have his solicitor-client costs of the summons in proceedings 3832 of 2001 and of the notice of motion filed by him in proceedings 1933 of 2001, which of course includes on a solicitor-client basis, costs and disbursements. This is not a circumstance in which one looks for any rationale for the making of such an order other than the interests of justice. In the particular circumstances which obtain the making of that order is entirely appropriate.

20 There has also been debated submissions by Mr Bell who appears for BL & GY, which submissions are to the effect that it is not appropriate for an order to be made that BL & GY International Co Limited indemnify the company in liquidation for the costs of Mr Mead and the liquidator. To my mind there is no substance in any of the submissions which Mr Bell has put forward in that regard.

21 The proper orders should reflect the rule that the costs of proceedings defended by a liquidator are payable in priority to the costs of the liquidation.

22 For those reasons, in my view, the proper exercise of the discretion of the Court is to make the following orders:

“1. Order that Mr Mead's costs on a solicitor-client basis of proceedings 3832 of 2001 and of the notice of motion filed by Mr Mead in proceedings 1933 of 2001 be paid by Hypec Electronics Pty Limited (in Liquidation) and direct that the said costs be treated in the winding up of Hypec Electronics Pty Limited as liquidator's expenses within section 556(1)(a) of the Corporations Act to be paid in priority accordingly.

2. Order that the liquidator's costs of proceedings 3832 of 2001 and of the notice of motion in proceedings 1933 of 2001 be paid by Hypec Electronics Pty Limited (in Liquidation).

3. Order that BL & GY International Co Limited indemnify Hypec Electronics Pty Limited (in Liquidation) for the costs of Mr Mead and of the liquidator.”

I certify that paragraphs 1 - 22
are a true copy of the reasons
for judgment herein of
the Hon. Justice Einstein
given on 4 December 2003 ex tempore
and revised on 8 December 2003

___________________
Susan Piggott
Associate

Last Modified: 12/19/2003