In the Matter of Sullivans Cove IXL Nominees Pty Ltd; Crawford v de Kantzow (No 2)

[2011] TASSC 53

[2011] TASSC 53

COURT:                  SUPREME COURT OF TASMANIA

CITATION:In the Matter of Sullivans Cove IXL Nominees Pty Ltd; Crawford v de Kantzow (No 2) [2011] TASSC 53

PARTIES:IN THE MATTER OF SULLIVANS COVE IXL NOMINEES PTY LTD (IN LIQUIDATION) ACN 104 321 682)

CRAWFORD, Richard
  CRAWFORD, Karina
  v
  DE KANTZOW, Flora
  DE KANTZOW, Signe
  LIDO PTY LTD (ACN 053 114 088)

FILE NO/S:  291/2009
DELIVERED ON:            27 September 2011
DELIVERED AT:             Hobart
HEARING DATE:            19 September 2011
JUDGMENT OF:              Crawford CJ

CATCHWORDS:

Corporations – Winding up – Conduct and incidents of winding up – Applications to court for directions or advice – Costs of applications – Application by liquidator for directions – Dispute between shareholders as to distribution of surplus on winding up – Outcome of dispute depended on the construction of a contract between shareholders – Company not a party to the contract – Whether losing shareholder should pay the costs of the winning shareholder and the liquidator – Whether the company should pay the costs of all parties.

Aust Dig Corporations [1633]

REPRESENTATION:

Counsel:
           Applicant Liquidator:                  No Appearance
           Respondents/Plaintiffs:                T D Cox
           Respondents/Defendants:            C A Sweeney QC
Solicitors:
           Applicant/Liquidator:                   Butler McIntyre & Butler
           Respondents/ Plaintiffs:               Will Edwards Lawyers
           Respondents/:Defendants:           Slater & Gordon Lawyers

Judgment Number:  [2011] TASSC 53
Number of paragraphs:  21

Serial No 53/2011
File No 291/2009

IN THE MATTER OF SULLIVANS COVE IXL NOMINEES PTY LTD
(IN LIQUIDATION) ACN 104 321 682
RICHARD CRAWFORD and KARINA CRAWFORD v FLORA DE KANTZOW, SIGNE DE KANTZOW and LIDO PTY LTD (ACN 053 114 088) (NO 2)

REASONS FOR JUDGMENT  CRAWFORD CJ
  27 September 2011

1. These reasons concern costs and are supplemental to the reasons published on 2 March 2011 (In the Matter of Sullivans Cove IXL Nominees Pty Ltd; Crawford v de Kantzow [2011] TASSC 9).

1. The plaintiffs, Mr and Mrs Crawford, applied to the Court for an order liquidating Sullivans Cove IXL Nominees Pty Ltd ACN 104 321 682.  The defendants, Mrs and Ms de Kantzow and Lido Pty Ltd, initially resisted the application but then conceded it.  On 24 June 2009 it was ordered that the company be wound up and Paul John Cook was appointed official liquidator. 

1. After paying the creditors, the liquidator wished to distribute a surplus between the shareholders.  A dispute arose between Mr and Mrs Crawford on the one hand, and Mrs and Ms de Kantzow and Lido on the other.  It was that dispute I resolved in my earlier reasons. 

1. The holders of 480,000 ordinary shares are Ms Signe de Kantzow, 40,000, Lido, 247,265, and Mr and Mrs Crawford jointly, 192,735. Lido is also the holder of 200,000 "B" class ordinary shares. In my earlier reasons I found that there was nothing in the Constitution, register of members, share certificates, minutes of meetings of directors, or the Corporations Act 2001 (Cth) ("the Act"), to suggest that the rights on winding up of Lido as the holder of the "B" class ordinary shares were not the same as the rights of the holders of the other ordinary shares.

1. However, Mr and Mrs Crawford had consistently maintained that because of the provisions of what has become known as the "shareholder agreement", Lido was only entitled to repayment of its investment of $200,000 for the "B" class ordinary shares, and was not entitled to share in other respects in the surplus with the holders of the other ordinary shares. 

1. For a time, it was asserted for Lido that as the holder of the "B" class ordinary shares it was entitled to share with the other shareholders in the payment of dividends or it was entitled to interest on its investment.  It was also argued that some form of consulting fee should be paid in recognition of Mrs de Kantzow's services to the company.  The liquidator supported the arguments of Mr and Mrs Crawford that Lido should only be paid $200,000 for its "B" class ordinary shares and that no consulting fee should be paid. 

1. On 17 February 2010, the liquidator filed an interlocutory application to the Court under the Act, ss479(3), 485(2) and 488(2) for:

1directions as to the entitlements (if any) attaching to the 200,000 "B" class ordinary shares in the company to receive dividends and a distribution from the surplus on winding up;

2orders adjusting the rights of the contributories among themselves; and

3special leave to distribute any surplus among the persons entitled to it.

1. For a brief time, the defendants conceded to the liquidator that Mr and Mrs Crawford's argument should be accepted, and they indicated that they would not oppose an order that had the effect that Lido would only receive $200,000 in repayment for its 200,000 "B" class ordinary shares.  There is no reason to use that concession for a brief period of time against the defendants.

1. Ultimately, the liquidator decided to take a neutral position on the hearing of his application to the Court and he left it to the shareholders to argue their cases. 

1. The hearing of the application was conducted on 19 October 2010.  The liquidator maintained a neutral position.  The plaintiffs argued that because of the provisions of the shareholder agreement, Lido should only be paid $200,000 for its 200,000 "B" class ordinary shares.  The defendants argued that as the holder of those shares, Lido was entitled to share equally with the other shareholders in the surplus. 

1. In my reasons published on 2 March 2011, I found for Lido.  I held that on the application of general principles to the case, and absent the shareholder agreement, the respective entitlements of the company's shareholders to the surplus was in proportion to the number of shares held, regardless of the class of share.  I then considered the provisions of the shareholder agreement.

1. It was dated 1 July 2003 and executed by Lido and signed by Mr and Mrs Crawford and a previous shareholder and director, Mr Millington.  It provided for Lido subscribing $200,000 for the "B" class ordinary shares which, by the agreement, were described as non–voting.  In a provision of the agreement concerning dividend policy, it was agreed, among other things, that dividends would be payable to the shareholders of the company provided that the subscriber to the "B" class ordinary shares had been repaid in full and those shares had been cancelled[1].  There was no provision in the shareholder agreement as to what should happen if the company was wound up.

   [1]   In fact, no dividend was ever paid.

1. In my previous reasons, I pointed to the overriding principle throughout cases that the point in dispute was one of construction and that, in turn, depended on the terms of the particular documents.  I rejected an argument by the plaintiffs that the "B" class ordinary shares should be regarded as preference shares when compared with the other ordinary shares.  I considered that a conclusion that, apart from receiving a return of the $200,000 paid for them, the holder of the "B" class ordinary shares was to be entitled to nothing out of any surplus of assets on winding up, could not be reached unless the shareholder agreement so provided.  I found that the agreement was silent about the matter and concluded that it made no such provision.  I held that it was not a term that should be implied in the agreement.  For those reasons I found for the defendants and ordered that the plaintiffs and the defendants were entitled to an equal share in the surplus on the winding up of the company for each share they held in it, and gave leave for the liquidator to distribute the surplus on winding up accordingly.

1. Subsequently, with the consent of the plaintiffs and the defendants, I ordered that the liquidator's costs of the application be paid on an indemnity basis out of the assets of the company.  The plaintiffs and defendants were unable to agree concerning payment of their own costs.  The plaintiffs seek an order that the company pay the plaintiffs' and the defendants' taxed costs of and incidental to the application on a solicitor and client basis.  The defendants seek orders that the defendants' costs be taxed on an indemnity basis and paid by the company, and that there be no order for costs in favour of the plaintiffs.  The defendants also seek an order that the amount of the costs of the application of the liquidator and of the defendants, which have or are to be paid by the company, be repaid to it by the plaintiffs.

1. There are two major principles concerning costs that are in conflict here.  One is that where an application by a liquidator for directions involves an issue which is a complex one where all the parties, apart from the liquidator, were necessary contradictors, the starting point is that the costs of those parties are to be paid by the liquidator and counted as costs in the liquidation.  Farrow Finance Co Ltd (in liq) v ANZ Executors and Trustees Co Ltd (1997) 23 ACSR 521 at 526 – 527; Gothard, in the matter of AFG Pty Ltd (in liq) v Davey (No 2) [2011] FCA 59 at par[21]; Ansett Australia Ltd v Ansett Australian Ground Staff Superannuation Plan Pty Ltd [2002] VSC 114. That general principle is similar to that which generally applies where there is uncertainty about the construction of a will or trust and the executor or trustee applies to a court for guidance, with those who have contrary interests in the outcome arguing for an outcome that benefits them.

1. The other principle is that in most adversarial litigation, costs follow the event; that is the loser is usually ordered to pay the winner's costs of the matter. 

1. Counsel for the plaintiffs submitted that the first principle should apply. He pointed out that earlier in the proceedings, before the liquidator adopted a neutral position, the liquidator supported the plaintiffs' case that the shareholder agreement required that Lido should only receive $200,000 for its "B" class ordinary shares. He submitted that the liquidator was required to maintain the application to the Court for directions and for special leave under s488(2), and that even if the plaintiffs had not participated in the proceedings, the application was still required. He pointed out that the terms of the shareholder agreement were unclear and that the issues that arose were complex, because the agreement made no express provision concerning what should occur on winding up. He argued that the plaintiffs' opposition to the defendants' position cannot be said to have been unreasonable, and that by advancing their case and argument concerning the principles of law to be considered, the Court was assisted.

1. There is some merit in those arguments, but notwithstanding them, I have concluded that the plaintiffs should pay the defendants' costs of the application.

1. The dispute did not arise out of lack of clarity in provisions of the Constitution of the company or in the terms upon which the company issued the shares.  Nor did it arise out of any complexity in the law concerning shareholder entitlements on winding up.  If it had arisen from any of those matters, the plaintiffs may have had a sound case for the company paying their costs.  But the dispute arose out of lack of clarity in the terms of a private contract entered into by the plaintiffs and Lido.  The company was not a party to the contract.  The plaintiffs argued for an interpretation of the contract that favoured them.  The defendants argued for an interpretation that favoured Lido.  The liquidator, representing the company, took a neutral position.  In essence, the dispute concerned the determination of the substantive rights of the parties to the contract.  The hearing of the application was in the nature of an adversarial hearing between parties to a contract in dispute, and not merely one for directions.  Although the liquidator applied for directions, what they should have been depended on the determination of the substantive rights of the plaintiffs and Lido.

1. For these reasons, it will be ordered that the plaintiffs pay the defendants' costs of the application to be taxed on a party and party basis.  The plaintiffs should pay their own costs.

1. The costs of the liquidator should remain the responsibility of the company.  The liquidator was obliged to make the application to the Court and acted reasonably.  I regard his costs as having been incurred as a normal incident of his functions.