Environmental and Earth Sciences Pty Limited v Vouris (No 2)
[2006] FCA 771
•19 JUNE 2006
FEDERAL COURT OF AUSTRALIA
Environmental & Earth Sciences Pty Limited v Vouris (No 2) [2006] FCA 771
IN THE MATTER OF CHARBEN HAULAGE PTY LIMITED (IN VOLUNTARY ADMINISTRATION) ACN 083 376 701; ENVIRONMENTAL & EARTH SCIENCES PTY LTD ACN 002 347 971 v JOHN VOURIS AS VOLUNTARY ADMINISTRATOR OF CHARBEN HAULAGE PTY LIMITED (IN VOLUNTARY ADMINISTRATION) & ANOR
NSD 765 of 2006
GRAHAM J
19 JUNE 2006
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 765 OF 2006
IN THE MATTER OF CHARBEN HAULAGE PTY LIMITED (IN VOLUNTARY ADMINISTRATION) ACN 083 376 701
BETWEEN:
ENVIRONMENTAL & EARTH SCIENCES PTY LIMITED ACN 002 347 971
PlaintiffAND:
JOHN VOURIS AS VOLUNTARY ADMINISTRATOR OF CHARBEN HAULAGE PTY LIMITED
First DefendantCHARBEN HAULAGE PTY LIMITED (IN VOLUNTARY ADMINISTRATION) ACN 083 376 701
Second DefendantJUDGE:
GRAHAM J
DATE OF ORDER:
19 JUNE 2006
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.One half of the plaintiff's costs of the hearing on 22 May 2006 and all of the costs of the plaintiff of its application filed 21 April 2006 and its amended application filed on 11 May 2006 on a party and party basis be paid out of the assets of the second defendant. Otherwise there should be no order as to costs. To avoid any dispute, the costs to be paid out of the assets of the company should be treated as expenses properly incurred within the meaning of s 556(1)(dd) of the Corporations Act 2001.
2.The plaintiff's costs of the hearing on the question of costs be paid out of the assets of the second defendant.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 765 OF 2006
IN THE MATTER OF CHARBEN HAULAGE PTY LIMITED (IN VOLUNTARY ADMINISTRATION) ACN 083 376 701
BETWEEN:
ENVIRONMENTAL & EARTH SCIENCES PTY LIMITED ACN 002 347 971
PlaintiffAND:
JOHN VOURIS AS VOLUNTARY ADMINISTRATOR OF CHARBEN HAULAGE PTY LIMITED
First DefendantCHARBEN HAULAGE PTY LIMITED (IN VOLUNTARY ADMINISTRATION) ACN 083 376 701
Second Defendant
JUDGE:
GRAHAM J
DATE:
19 JUNE 2006
PLACE:
SYDNEY
REASONS FOR JUDGMENT
These proceedings were commenced by an originating process filed 21 April 2006. The foundation for the application contained in that originating process as recorded in it was misconceived. An amended originating process was filed on 11 May 2006 and the application contained in that amended originating process was the subject of a hearing before me on 22 May 2006.
On 19 May 2006 a Full Court handed down its judgment on costs in related proceedings which in effect led to the institution of these proceedings. Following the delivery by the Full Court of its decision on costs in the related proceedings, the administrator, who is the second defendant in the current proceedings, filed an interlocutory process on the morning of the day of the hearing, namely 22 May 2006, in which the administrator sought directions from the Court in accordance with s 447D of the Corporations Act 2001 (Cth) (‘the Act’).
The hearing proceeded to address both the plaintiff's amended originating process, filed 11 May 2006 and the administrator's interlocutory application, filed 22 May 2006. In relation to proceedings under s 447D of the Act, Finkelstein J said in Lofthouse, Re Riverside Nursing Care Pty Limited (Subject to Deed of Company Arrangement) (2004) 22 ACLC 215 at 217:
‘Difficult questions can arise as to the scope of this type of proceeding. ... no order binding upon or affecting the rights of third parties can be made ... The only proper subject of a direction is the manner in which the administrator should act in carrying out his functions ... The effect then of a direction is to protect the administrator against a claim that he has acted in breach of his duty when acting in accordance with the direction ... It is possible that a direction does not amount to a judicial determination, but only constitutes an advisory opinion ... For this reason one finds authority for the view that no appeal can be brought from a direction ...’
It seems to me that whilst the plaintiff was heard on the administrator's application, there was no right to be heard and no right of appeal was available to the plaintiff were he dissatisfied with the directions that were given in accordance with s 447D of the Act.
In the foregoing circumstances the question arises as to what is the appropriate order to be made in respect of costs.
Section 443A of the Act imposes a liability upon an administrator for certain classes of debts that he or she may incur in the performance or exercise, or purported performance or exercise, of any of his or her functions and powers as administrator. Section 443D of the Act provides for an indemnity out of the company's property for such debts and certain other matters which are not presently relevant. No provision is made for an automatic right of indemnity in respect of a costs order which may be visited upon an administrator in respect of proceedings such as those with which the court is presently concerned.
Counsel for the administrator has drawn my attention to s 1318(1) of the Act which confers on the Court a power to relieve a person either wholly or partly from liability in circumstances where proceedings have been brought against such a person for, amongst other things, default or breach of duty in a certain capacity. The administrator is a person within the purview of the section.
In defending the plaintiff's claims as recorded in the amended originating process, the administrator undoubtedly acted honestly. He relied upon legal advice provided by competent lawyers which in the result I have considered to be inappropriate advice, although perceived wisdom at the time may have suggested it to be appropriate advice. Inter alia in my reasons for judgment of 1 June 2006 I have said at [66] that In Re British Goldfields of West Africa [1899] 2 Ch 7 is not authority for the proposition for which it was cited by the administrator's solicitors in their letter of advice of 19 April 2006.
The plaintiff has sought an order that the plaintiff's costs of the application filed 21 April 2006, the amended application filed 11 May 2006 and the first defendant's interlocutory process filed 22 May 2006 be paid by the defendants, that is to say, the administrator as voluntary administrator of Charben Haulage Pty Ltd in voluntary administration and Charben Haulage Pty Ltd in voluntary administration.
It does not seem to me appropriate that such an order should be made. It would not seem to me to be appropriate that any order for costs should be burdened upon Mr Vouris as voluntary administrator of Charben Haulage Pty Ltd which may not be covered by an indemnity. As Young J, as his Honour then was, said in Irons v Merchant Capital Limited (1994) 116 FLR 204 at 209 – 210:
‘... as a general rule ... the appeal from a liquidator is part of the process of the winding up and ... if an appeal is allowed against the liquidator’s rejection of a proof of debt in whole or in part, then the costs and expenses of the applicant on a party and party basis should be paid out of the assets of the company. This is because the appeal is a necessary part of the administration ...’
The parties are agreed that the costs the subject of any order made by the court for their payment out of the assets of the second defendant would fall within s 556(1)(dd) of the Act in terms of priority in a winding up of the company.
As I have said earlier, the originating process originally filed was misconceived. In addition, I do not consider that there should be any order for costs made in favour of the plaintiff in respect of the administrator's application for relief under s 447D of the Act given the nature of such an application.
After I indicated the orders that I proposed to make, Mr Eassie quite properly on behalf of the administrator tendered a copy letter of 6 June 2006 from his instructing solicitors to Mr Aldridge's instructing solicitors. Notwithstanding the terms of that letter, I believe that the orders that I have proposed are the appropriate orders to be made in respect of costs and I so make them.
I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham. Associate:
Dated: 20 June 2006
Counsel for the Plaintiff: M R Aldridge SC Solicitor for the Plaintiff: Colin Biggers & Paisley Counsel for the First Defendant: R K Eassie Solicitor for the First Defendant: Nash O’Neill Tomko There was no appearance for the Second Defendant Date of Hearing: 19 June 2006 Date of Judgment: 19 June 2006
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