Hem, in the matter of Coulco Trading Pty Ltd (Subject to Deed of Company Arrangement) v Cant (Administrator ofthe Deed of Company Arrangement of Coulco Trading Pty Ltd(Subject to Deed of Company Arrangement)) (No 2)

[2007] FCA 549

FEDERAL COURT OF AUSTRALIA

Hem, in the matter of Coulco Trading Pty Ltd (Subject to Deed of Company Arrangement) (No 2) v Cant (Administrator of the Deed of Company Arrangement of Coulco Trading Pty Ltd (Subject to Deed of Company Arrangement)) [2007] FCA 549

COSTS – proof of debt – disallowed by administrator – time to appeal extended – costs of application before registrar borne by plaintiff – costs of review by the court borne by administrator – offer of compromise - offer rejected by administrator – appeal successful – costs awarded on a solicitor and client basis

Austin Securities Ltd v Northgate & English Stores Ltd [1969] 1 WLR 529

In re National Wholemeal Bread and Biscuit Company [1892] 2 Ch 457

Inre The Fruit and Vegetable Company Ltd (1912) 12 SR (NSW) 52

In re ThePastoral Finance Association Ltd (1922) 23 SR (NSW) 43

IN THE MATTER OF COULCO TRADING PTY LTD (Subject to Deed of Company Arrangement)

GEOFFREY HEM v ANTHONY CANT (Administrator of the Deed of Company Arrangement of COULCO TRADING PTY LTD (Subject to Deed of Company Arrangement))

VID 643 of 2005

FINKELSTEIN J
18 APRIL 2007
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 643 of 2005

IN THE MATTER OF COULCO TRADING PTY LTD (Subject to Deed of Company Arrangement)

BETWEEN:	GEOFFREY HEM Plaintiff
AND:	ANTHONY CANT (Administrator of the Deed of Company Arrangement of Coulco Trading Pty Ltd (Subject to Deed of Company Arrangement)) Defendant

JUDGE:	FINKELSTEIN J
DATE OF ORDER:	18 APRIL 2007
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.The plaintiff’s costs of the application for review of the decision of the registrar made on 10 May 2006 be taxed in default of agreement and be paid as part of the costs of the administration of Coulco Trading Pty Ltd (Subject to Deed of Company Arrangement).

2.The plaintiff’s costs of the appeals from the administrator’s rejections of his proofs of debt (apart from those costs incurred on 3 October 2006) be taxed on the following basis:

(i)in relation to the proof of debt for the loan, on a party and party basis;

(ii)in relation to the proof of debt relating to wrongful dismissal:

(a)for the costs incurred up to and including 11 October 2006, on a party and party basis;

(b)for the costs incurred thereafter, on a solicitor and client basis;

and be paid as part of the costs of the administration of Coulco Trading Pty Ltd (Subject to Deed of Company Arrangement).

3.The plaintiff pay the defendant’s costs incurred on 3 October 2006 on a solicitor and client basis, such costs to be taxed in default of agreement.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 643 of 2005

IN THE MATTER OF COULCO TRADING PTY LTD (Subject to Deed of Company Arrangement)

BETWEEN:	GEOFFREY HEM Plaintiff
AND:	ANTHONY CANT (Administrator of the Deed of Company Arrangement of Coulco Trading Pty Ltd (Subject to Deed of Company Arrangement)) Defendant

JUDGE:	FINKELSTEIN J
DATE:	18 APRIL 2007
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1. At one point I was minded to require the administrator to pay all the plaintiff’s costs on a solicitor and client basis.  See my reasons in Hem, in the matter of Coulco Trading Pty Ltd (Subject to Deed of Company Arrangement) v Cant (Administrator of the Deed of Company Arrangement of Coulco Trading Pty Ltd (Subject to Deed of Company Arrangement) [2007] FCA 81. Having reflected on the matter further and having considered the submissions by the administrator’s counsel I am satisfied that my original view was incorrect.

2. In order to deal with the costs the application should be divided into several parts.  First, there is the plaintiff’s application to extend the time within which to appeal the administrator’s rejection of his proofs of debt.  That application came about because the plaintiff failed to bring his appeals within time.  There is no reason why the administrator should bear the costs associated with the application for the extension while the application was before the registrar.  In fact it has been agreed that the plaintiff should pay the administrator’s costs of the application to that point.  

3. The second part is the review of the registrar’s refusal to extend the time.  The plaintiff succeeded on the review and should have his costs of it.

4. Next there are the appeals proper.  In fact there were two appeals, one in relation to each proof.  Following the extension of time for the appeals the administrator reassessed his rejection of the proof for the loan.  In due course that proof was admitted in full.  In effect, then, the plaintiff was successful and should have his costs of that appeal. 

5. In a winding up the usual order on a successful appeal against the rejection of a proof is that the costs of the application (but not of the proof) be taxed on a party and party basis and paid out of the company’s assets:  In re National Wholemeal Bread and Biscuit Company [1892] 2 Ch 457, 461. This follows the practice in bankruptcy. I think the practice should also apply to administrations. It follows that the plaintiff’s costs of prosecuting the appeal against the rejection of the proof of debt for the loan should be paid as part of the costs of the administration of Coulco.

6. The other appeal was in relation to the proof for wrongful dismissal.  The plaintiff was successful on that appeal and is entitled to his costs.  The plaintiff seeks these costs on a solicitor and client basis. 

7. Here it is necessary to consider what are the duties of an administrator on receipt of a proof.  In my view his duties are the same as the duties of a liquidator.   The duties were described by Lord Denning MR in Austin Securities Ltd v Northgate & English Stores Ltd [1969] 1 WLR 529, 532. He said that the liquidator’s duty was “to enquire into all claims, to see whether they are well-founded or not, to pay the good claims, to reject the bad, to settle the doubtful, or, if need be, to contest them.” But, in my opinion, the right of an administrator to contest a doubtful claim in court is not unqualified. This is a case where he should have done more.

8. On 27 September 2006, the plaintiff offered to compromise his wrongful dismissal claim on the basis that he would reduce his claim from $75,000 to $37,500 with costs of $3,500.  The offer was rejected.  In deciding to reject the offer the administrator did not seek directions from the court as regards the course he should take.  This is what liquidators can do:  Inre The Fruit and Vegetable Company Ltd (1912) 12 SR (NSW) 52; In re ThePastoral Finance Association Ltd (1922) 23 SR (NSW) 43. And an administrator can do the same. Having failed to seek directions to protect his position the administrator put himself at risk on costs. The risk was that if the plaintiff did better than his offer, he might have his costs taxed on a special basis.

9. In my view the plaintiff is entitled to his costs up to 11 October 2006 taxed on a party and party basis and thereafter on a solicitor and client basis.  The date I have chosen is fourteen days after the date of the offer and is a reasonable time for the administrator to consider the offer.  The costs will not be ordered against the administrator personally.  That should only occur in the case of misconduct or negligence and I do not think that the administrator is guilty of either. 

10. There was some discussion whether the plaintiff’s costs should be reduced for him having lost certain points that he had put forward in support of his appeal.  I think there is no warrant for such an approach, especially in a one day case where the overall costs were not increased, or substantially increased, by arguments that failed.

11. Finally, I must deal with the costs of the hearing on 3 October 2006 which were occasioned by the plaintiff’s application to reopen his case and tender additional evidence.  In my earlier reasons I said those costs should be borne by Mr Hem on a solicitor and client basis.  There is nothing in the parties’ submissions that dissuades me from that course. 

12. I will make orders in accordance with the foregoing discussion. 

I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Associate:
Dated:        18 April 2007

Counsel for the Plaintiff:	A Kaitinis
Solicitor for the Plaintiff:	John Curtain & Associates
Counsel for the Defendant:	A Sandbach
Solicitor for the Defendant:	Lennon Settle Mazzeo Solicitors
Date of Submissions:	Defendant - 16 February 2007 Plaintiff - 28 February 2007 Defendant’s Reply - 2 March 2007 Plaintiff’s Reply - 14 March 2007
Date of Judgment:	18 April 2007