EPA and Anor v Australian Sawmilling Company Pty Ltd (in liq) and Ors (No 2)
[2020] VSC 741
•2 November 2020
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE | Not Restricted |
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2019 02112
| ENVIRONMENT PROTECTION AUTHORITY | First Plaintiff |
| STATE OF VICTORIA | Second Plaintiff |
| v | |
| THE AUSTRALIAN SAWMILLING COMPANY PTY LTD (IN LIQUIDATION) (ACN 075 382 580) (and others according to the Schedule attached) | Defendants |
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JUDGE: | GARDE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 6 October 2020 |
DATE OF JUDGMENT: | 2 November 2020 |
CASE MAY BE CITED AS: | EPA & Anor v Australian Sawmilling Company Pty Ltd (in liq) & Ors (No 2) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 741 |
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CORPORATIONS – External administration – Disclaimer by liquidators – Undertaking as to limited recourse if disclaimer set aside – Form of undertaking – Costs order against liquidators where indemnified by third party – Corporations Act 2001 (Cth) ss 545(1), 556(1).
COSTS – Form of costs order where liquidators indemnified and acted reasonably but were unsuccessful.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr P Crutchfield QC with Dr C Parkinson | Corrs Chambers Westgarth |
| For the Defendants | Mr P Collinson QC with Ms E Dias | Norton Rose Fulbright Australia |
HIS HONOUR:
Introduction
On 2 September 2020, I handed down reasons for decision in this proceeding.[1] The form of the undertaking to be given and the order to be made as to costs remain to be resolved.
[1]EPA & Anor v Australian Sawmilling Company Pty Ltd (in liq) & Ors [2020] VSC 550 (‘reasons’).
The parties filed written submissions as to both issues, and were heard at a mention.
Form of undertaking
The Environment Protection Authority (‘EPA’) and the State of Victoria (‘State’) have submitted a form of undertaking under which the second and third defendants (‘the liquidators’) are put in funds as to their own fees, expenses and costs, including legal costs and expenses, to pursue a proceeding (‘Dongwha proceeding’) to recover payment from Dongwha Australia Pty Ltd (ACN 104 629 058) (‘Dongwha Australia’) under cl 5.3 of the deed of indemnity dated 19 February 2019 (‘indemnity’).
Under the form of undertaking, the EPA and the State have limited their recourse to the amounts recovered in the Dongwha proceeding on the basis that:
(a) the liquidators diligently pursue the Dongwha proceeding to recover payment from Dongwha Australia to the extent that it is commercially reasonable to do so;
(b) the EPA and the State will put the liquidators in funds as to their own future fees, expenses and costs, and future legal costs and expenses that are not unreasonable, of the ongoing liquidation of the first defendant (‘TASCO’) prior to and until any recovery from Dongwha Australia is made; and
(c) the EPA and the State will indemnify the liquidators against any judgment, order or costs order that may be made against them in the Dongwha proceeding, except to the extent that one or both of the liquidators fail to act in good faith or are grossly negligent.
For their part, the EPA and the State undertake to limit recourse against the liquidators to the enforcement or recovery under a judgment order, costs order or admitted liability to:
(a) the property and assets of TASCO available to meet the expenses of the liquidators under s 556(1) of the Corporations Act 2001 (Cth) (‘Corporations Act’); and
(b) any payment that the liquidators receive under cl 5.3 of the indemnity;
after making any necessary allowance for the fees, expenses and costs of the liquidators.
I am satisfied that the form of undertaking meets the requirements of s 545(1) and the provisions of the Corporations Act generally, and the requirements specified in the reasons.[2] I am also satisfied in the exercise of my discretion as to relief that it is just and equitable for the EPA and the State to give an undertaking of this nature if the disclaimer is to be set aside.
[2]Ibid [192].
Costs
Liquidator’s submissions
The liquidators submit that:
(a) an order for costs should not be made against them personally as they have acted reasonably in defending the proceeding; [3]
[3]Wells Fargo Trust Company, National Association (trustee) v VG Leaseco Pty Ltd (administrators appointed) [2020] FCA 1269, 46–7 [188] (Middleton J); Silvia v Brodyn Pty Ltd (2007) 25 ACLC 385, [52] (Hodgson JA, Ipp and Basten JJA agreeing) (‘Silvia’); Melhelm Pty Ltd, in the matter of Boka Beverages Pty Ltd (in liq) v Boka Beverages Pty Ltd (in liq) (No 2) (2019) 140 ACSR 424, 426 [7] (Gleeson J) (‘Melhelm’).
(b) the issues in dispute were complex and involved questions of construction not previously considered;
(c) the liquidators engaged frankly and directly with the EPA about their proposed course of action before and after their appointment;
(d) it was in the interests of the liquidation that the disclaimer be allowed to stand so that the liquidation could be brought to an end; and
(e) the Court’s discretion to order costs under s 24(1) of the Supreme Court Act 1986 (Vic) is broad. If costs are to be ordered in favour of the EPA and the State, the order should be made against TASCO alone, and not the liquidators personally.
EPA’s and State’s position
The EPA and the State submit that:
(a) there are two ways in which the Court can structure a costs order so that a liquidator does not incur any personal liability. The Court may order that:
(i) the company in liquidation pay the costs; or
(ii) the liquidator’s liability for costs be limited to the amount of assets of the company available for that purpose;[4]
[4]Silvia (n 3) [53] (Hodgson JA; Ipp and Basten JJA agreeing); Melhelm (n 3) 428 [10].
(b) the Court should order that the liquidators pay the costs of the proceeding limited to the amount of assets available for that purpose;
(c) Dongwha Australia has indemnified the liquidators for costs and expenses (including legal costs) up to the sum of $500,000 under cl 4.1 and 4.2 of the indemnity; and
(d) it is an agreed fact that Dongwha Australia has paid the liquidators’ legal costs of this proceeding to date.[5]
[5]Reasons [7].
Analysis
The Court has a broad discretionary power to make orders as to costs.[6] The Court’s discretion is unfettered but is exercised judicially upon facts connected with the litigation and not by reference to irrelevant or extraneous considerations.[7]
[6]Supreme Court Act 1986 (Vic) s 24(1); Civil Procedure Act 2010 (Vic) s 65C.
[7]Latoudis v Casey (1990) 170 CLR 534, 557 (Dawson J) (‘Latoudis’); Oshlack v Richmond River Council (1998) 193 CLR 72, 86 [34] (Gaudron and Gummow JJ) (‘Oshlack’).
Although costs are in the discretion of the Court, the ordinary rule is that, in the absence of sound reason to the contrary, a successful litigant should receive his or her costs.[8] As between the parties, fairness dictates that the unsuccessful party should bear the liability for the costs of the litigation.[9] The purpose of an order for costs is to compensate the successful party, and not to punish the unsuccessful party.[10]
[8]Milne v Attorney-General for the State of Tasmania (1956) 95 CLR 460, 477 (Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ).
[9]Oshlack (n 7) 97 [67]–[68] (McHugh J).
[10]Latoudis (n 7) 562–3 (Toohey J), 567 (McHugh J).
In Oshlack, McHugh J explained that the principle that a successful party in litigation is entitled to an award of costs is grounded in reasons of fairness and policy.[11] If the litigation had not been brought or defended by the unsuccessful party, the successful party would not have incurred the expense which it did.[12]
[11]Oshlack (n 7) 97 [67] (Gaudron and Gummow JJ agreeing).
[12]Ibid.
In Silvia, Hodgson JA said:
If proceedings brought against the liquidator are successful, generally a costs order will be made in such a way that the liquidator does not incur any personal liability…
[This] may be achieved by ordering that the company in liquidation pay the costs (if the company is also a defendant), or by ordering that the liquidator’s liability for costs be limited to the amount of assets of the company available for that purpose.
However, if the liquidator has acted unreasonably in defending the litigation, the liquidator may be made personally liable...[13]
[13]Silvia (n 3) [52]–[54] (Ipp and Basten JJA agreeing) (citations omitted).
In Melhelm, Gleeson J said:
…a liquidator, when carrying out his functions and thus subjecting himself to the possibility of proceedings against him by parties who are discontented with the way in which he has carried out those functions, must be entitled to defend himself without being subjected to the risk of having costs awarded against him personally, because he cannot protect himself against claims being made…
This result may be achieved by ordering that the company in liquidation pay the costs, if the company is also a defendant, or by ordering that the liquidator’s liability for costs be limited to the amount of assets of the company available for that purpose...[14]
[14]Melhelm (n 3) [9]–[10] (citations omitted).
In the present case, the EPA and the State have been successful on the major issues, and it is fair and just that they should be awarded the costs of the proceeding.
I accept the liquidators’ submissions that they have acted reasonably during the proceeding, and that the issues in the dispute were complex. I also accept their submission that they should not incur any personal liability as a result of a costs order.
If an order for costs is to be made, it should be made in a form that is likely to be efficacious. There is no point in making a costs order in a form that will be ineffective and inutile.
There is no dispute that TASCO is without funds. An order for costs against the company in liquidation would have no meaningful consequence.
However, the liquidators have the benefit of an indemnity for costs and expenses from Dongwha Australia up to $500,000. If an order is made in the form sought by the EPA and the State, it is likely that the costs ordered to be paid will be paid out of the money available under the indemnity by Dongwha Australia, which has paid the liquidators’ costs and expenses to date.
Conclusion
I will order that the plaintiffs’ costs of the proceeding be taxed by the Costs Court on the standard basis, and when taxed be paid by the second and third defendants limited to the amount of the assets available to them for that purpose.
SCHEDULE OF PARTIES
ENVIRONMENT PROTECTION AUTHORITY First Plaintiff STATE OF VICTORIA Second Plaintiff THE AUSTRALIAN SAWMILLING COMPANY PTY LIMTIED (in liquidation) (ACN 075 382 580) First Defendant STEPHEN GRAHAM LONGLEY (in his capacity as liquidator of the Australian Sawmilling Company Pty Ltd (in liquidation)) Second Defendant MELISSA JANET MARY HUMANN (in her capacity as liquidator of the Australian Sawmilling Company Pty Ltd (in liquidation)) Third Defendant
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