Florgale Uniforms Pty Ltd v Orders (No 2)

[2000] VSC 470

SUPREME COURT OF VICTORIA
COMMERCIAL AND EQUITY DIVISION	Not Restricted
COMMERCIAL LIST

No. 2000 of 2000

FLORGALE UNIFORMS PTY LTD (ACN 004 233 167) (Receiver and Manager Appointed) (In Liquidation) and OTHERS	Plaintiffs
v
MALCOLM JOHN ORDERS	First Defendant
and
NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)	Second Defendant
and
NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)	Plaintiff by Counterclaim
and
GROUP TEXTILE ENTERPRISES PTY LTD (ACN 005 970 178 AND OTHERS	Defendants by Counterclaim

---

JUDGE:	Warren J
WHERE HELD:	Melbourne
DATE OF HEARING:	3 November 2000
DATE OF JUDGMENT:	9 November 2000
CASE MAY BE CITED AS:	Florgale Uniforms Pty Ltd & Ors v Orders & Ors (No. 2)
MEDIUM NEUTRAL CITATION:	[2000] VSC 470

---

Costs – leave to pursue proceedings under s.477(6) of Corporations Law – costs of other parties – costs of liquidator – indemnity to liquidator for past and future costs.

---

APPEARANCES:	Counsel	Solicitors
For the 4th to 10th Plaintiffs	Nr P. Collinson	O'Donnell Frampton Salzano
For the Defendants	Mr I.R. Jones	Russell Kennedy
For the Liquidator of the 1st to 3rd Plaintiffs	Mr R.S. Randall	Lewis Hutchinson

HER HONOUR:

1. The fourth to tenth plaintiffs sought leave to conduct this proceeding on behalf of the first to third plaintiffs, each being companies in liquidation.  On 20 October 2000 I delivered reasons in favour of the application by the fourth to tenth plaintiffs: Florgale Uniforms Pty Ltd & Ors v Orders & Ors (No. 1) (2000 VSC 427).  For present purposes I refer to the application hereafter as "the plaintiffs' application".

1. As a consequence of my earlier reasons, I now consider the question of costs and indemnity.  I turn first to consider the costs of the defendants.  They seek costs in two respects.  First, the costs of a number of adjournments of the plaintiffs' application.  I am satisfied that on each occasion the various adjournments were caused by the fourth to tenth plaintiffs when each time the defendants were ready to proceed.  It follows that it is appropriate that those plaintiffs pay the costs of the defendants of 2 June and 1 and 8 September and 27 October 2000.

1. The second aspect of costs sought by the defendants is their costs of the plaintiffs' application.  The fourth to tenth plaintiffs argued that costs ought follow the event as they succeeded and that their costs ought be paid by the defendants.

1. Some observations are called for.  First, the fourth to tenth plaintiffs and their solicitors issued the proceedings in total disregard of the requirement for the written approval of the liquidator or leave of the court with respect to the issue or continuation of the proceeding on behalf of the first to third plaintiffs pursuant to s.477(6) or s.471A and 471B of the Corporations Law.  Second, the fourth to tenth plaintiffs and their solicitors continued the conduct of the proceedings for a period of two months (that is from January to March 2000) without regard to their obligations under the Law.  Third, in March 2000 the defendants raised with the fourth to tenth plaintiffs and their solicitors the status of the proceedings given the lack of approval of the liquidator or the leave of the court in relation to the proceedings on behalf of the first to third plaintiffs.  The fourth to tenth plaintiffs continued the proceedings without making an appropriate application to the court.  Fourth, in April 2000 the liquidator of each of the first to third plaintiffs learned for the first time of the fact that the proceedings had been instituted, that is, three months after their commencement.  Fifth, the fourth to tenth plaintiffs continued the proceedings up until August 2000 including attendance at further directions hearings, compliance with interlocutory steps and attendance at mediation all in anticipation of settling the proceedings without involving the liquidator and without making application to the court.

1. Lastly, these plaintiffs eventually issued their application on 31 August 2000 only after the liquidator issued his application to stay the proceedings on 22 August 2000.  In my view the conduct of these proceedings by the fourth to tenth plaintiffs over the eight month period up until they issued their application constituted entirely improper conduct of proceedings in flagrant disregard for the requirements of the Corporations Law.  In view of the history of this matter it can be reasonably contemplated that if the defendants had not raised the question of standing as they did the fourth to tenth plaintiffs may have purported to proceed and, from their perspective, hopefully settle, without appropriate leave and notice.

1. The proper course, as the solicitors for the fourth to tenth plaintiffs ought have well known, was for those defendants to consult the liquidator and, if needs be, seek leave of the court prior to the commencement of the proceeding.  More often than not such applications proceed ex parte.  I observe that the defendants did not enter into the fray by challenging the factual matrix that the fourth to tenth plaintiffs relied upon in support of their application.  Quite properly, when faced by the plaintiffs' application and being joined as a party to that application they were entitled to adopt the role of contradictor as they did.  Bearing these matters in mind I am satisfied that all of the problems underlying the necessity for the plaintiffs' application were created by the fourth to tenth plaintiffs.  In my view these circumstances take the matter outside the usual principle of costs following the event and it is appropriate that the fourth to tenth plaintiffs pay the defendants' costs of the plaintiffs' application.  The defendants seek costs, and I interpolate quite reasonably, on a party party basis.  I will make orders accordingly.

1. The next matter was the costs of the liquidator.  On the same basis as for the defendants I am satisfied that the fourth to tenth plaintiffs ought pay those costs including the costs of the various adjournments, the liquidator's summons of 22 August 2000 and the 4^th to 10^th plaintiffs' summons of 31 August 2000.  Mr Collinson for those plaintiffs complained that the liquidator at the outset had been obstructive, had improperly required an excessive indemnity and, yet, ultimately, did not oppose the plaintiffs' application.  In my view these factors are of no consequence as for the reasons already stated the fourth to tenth plaintiffs created the entire problem and in my view they must bear the penalty of the liquidator's costs.  The liquidator seeks costs on an indemnity basis.  In my view this is appropriate.  The liquidator cannot claim costs from the companies as there are no funds available.  The fourth to tenth plaintiffs created the problem for the liquidator and they must meet his costs.

1. The next matter relating to the position of the liquidator is that he seeks an indemnity for his costs both past and future in the sum of $15,000.  The fourth to tenth plaintiffs resist an indemnity on the grounds that the liquidator incurred past costs unnecessarily and that insofar as future costs are concerned suggest he will have none because he will not be conducting the proceeding for the first to third plaintiffs.  In my view an indemnity of $15,000 is reasonable and I observe that the quantum of costs actually incurred and those anticipated by the liquidator are not challenged.  In all the circumstances of this matter I consider that the liquidator is entitled to an indemnity from the fourth to tenth plaintiffs for past costs on an indemnity basis.  As for future costs, it may be reasonably anticipated that the liquidator's costs will be negligible or non-existent.  However, in my substantive reasons I took account of the fact that the continuation of the proceedings may be in the interests of the creditors of the company.  It follows in my view that the liquidator although not conducting the proceeding for the first to third plaintiffs potentially has an ongoing interest in the outcome of the proceeding.  He is entitled, therefore, to be indemnified for any costs up to (and allowing for the deduction of past costs) the amount sought and I will make orders accordingly.

1. Following on from my earlier judgment and these reasons, subject to submissions from the parties as to form I will make orders as follows:

1.The fourth to tenth Plaintiffs are authorised at their own expense and risk as to costs to use the name of each of and conduct the proceeding on behalf of the first to third plaintiffs.

2.The fourth to tenth plaintiffs pay the costs of the defendants:-

(a)of 2 June, 1 and 8 September and 27 October 2000;

(b)of the fourth to tenth plaintiffs' summons filed 31 August 2000.

3.The fourth to tenth plaintiffs pay the costs of the liquidator of the first to third plaintiffs, David Henry Scott ("the liquidator") on an indemnity basis of and incidental to the proceeding up to and including this day.

4.The fourth to tenth plaintiffs pay to the liquidator [by a date to be fixed] the sum of $15,000 to be applied:-

(a)in satisfaction of the order for costs made in paragraph 3;

(b)in satisfaction of the costs on an indemnity basis of the liquidator of and incidental to the proceeding as may be incurred by the liquidator after this day.

5.In the event of the default by the fourth to tenth plaintiffs to pay the sum of $15,000 to the liquidator as provided in paragraph 4 the proceeding is immediately stayed until further order.

6.The balance of the sum of $15,000, if any, ordered in paragraph 4 be paid by the liquidator to the fourth to tenth plaintiffs upon the making of final orders in the proceeding or upon further order.

7.The liquidator's summons filed 22 August 2000 is adjourned to a date to be fixed.

8.Liberty to apply.

---