Laing and Simmons Corporation Pty Ltd v Sydney Property Auction Centre Pty Ltd

[2005] NSWSC 734

CITATION:	Laing & Simmons Corporation Pty Ltd v Sydney Property Auction Centre Pty Ltd [2005] NSWSC 734
HEARING DATE(S):	21/07/05
JUDGMENT DATE :	21 July 2005
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Order that the plaintiff's costs of the proceedings, assessed on the party and party basis, be paid by Pantlings & Co Pty Ltd.

CATCHWORDS:	PRACTICE AND PROCEDURE - costs - application by shareholder for winding up order not pressed after appointment of voluntary administrator - question of costs unresolved - plaintiff shareholder seeks costs order against other shareholder - such order made despite no determination on merits of plaintiff's substantive claim
CASES CITED:	McDonald v Deputy Commissioner of Taxation (2005) 58 ATR 418 Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622
PARTIES:	Laing & Simmons Corporation Pty Limited - Plaintiff Sydney Property Auction Centre Pty Limited - Defendant Pantlings & Co Pty Limited - Plaintiff's co-shareholder in Defendant
FILE NUMBER(S):	SC 2086/05
COUNSEL:	Mr M.J. Dawson - Plaintiff Mr P.L. Dodson - Pantlings & Co Pty Ltd
SOLICITORS:	TressCox - Plaintiff Cohen & Krass - Pantlings & Co Pty Ltd

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

THURSDAY 21 JULY 2005

2086/05 - LAING & SIMMONS CORP PTY LTD v SYDNEY PROPERTY AUCTION CENTRE PTY LTD

JUDGMENT

1 I am dealing with the question of costs following resolution of these proceedings. The plaintiff is one of two shareholders in the defendant. It sought a winding up order and, as an interlocutory measure, an order appointing a provisional liquidator in respect of the defendant. Those applications were not pressed after action was taken by the directors to appoint an administrator under Part 5.3A of the Corporations Act 2001 (Cth).

2 The winding up application and the application for the appointment of the provisional liquidator were based on both the insolvency ground and the just and equitable ground.

3 The plaintiff maintains that its co-shareholder, Pantlings & Co Pty Ltd, should pay the costs of the proceedings. Pantlings & Co is not formally a party, but it was given leave to file an appearance and appeared by counsel on the question of costs and made submissions. Pantlings & Co did not argue that that its non-party status represents any form of barrier to the making of a costs order against it, although it does argue on the merits that it should not be subjected to a costs order.

4 The substantive matter was before the court on 29 March 2005, the originating process and the interlocutory process having been filed on 23 March 2005. There is, in the court records, some uncertainty as to what transpired on that occasion. It is common ground that the plaintiff's application was not pressed because a voluntary administrator had been or was about to be appointed. The associate's record of proceedings does not record any order of dismissal of proceedings or any grant of leave to discontinue, but there are directions for the filing of submissions on costs. In the end, I do not think that any of this matters so far as costs are concerned, although, for the sake of good order and with the concurrence of both counsel indicated by them this morning, I will, in due course, make an order by consent dismissing the proceedings.

5 Written submissions on costs were directed on 29 March 2005 and later filed, although with some delay in one case. The matter was re-listed for further argument on costs this morning at the request of Mr Dodson’s client.

6 Important factors from the costs viewpoint are that there was never a hearing on the merits and that the parties found an out of court resolution that made it unnecessary and inappropriate for the court to determine the application. Also of importance is the fact that the resolution involved acceptance by the defendant's two directors (effectively the alter-egos of its two shareholders) that, in the words of s.436A, the company was insolvent or likely to become insolvent. This is of significance when it is recognised that the plaintiff's winding up application was advanced on the ground of insolvency as well as the just and equitable ground.

7 In cases where there is no determination on the merits, it is only rarely that the court can see such matters going to the merits as might warrant the making of some order other than that each party bear its own costs. I refer in that connection to the observations of McHugh J in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 (at pp.624-5):

“In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd , the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent Council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.”

8 One case in which a departure from the course of making no order as to costs (so that costs lie where they fall) will be justified is where, as referred to by McHugh J, one of the parties has acted so unreasonably that the other party should obtain costs of the action.

9 It is that approach that gives rise to the common outcome as to costs in cases where an application for a winding up order on the grounds of insolvency is overtaken by creditors’ voluntary winding up as a sequel to the appointment of a Part 5.3A administrator. It is often the case that the winding up application and its allegation of insolvency focus the minds of directors in such a way as to bring home to them the need to appoint a voluntary administrator, thus, in effect, accepting that the financial position of the company is such as to require an appropriate form of external administration.

10 In cases of the kind to which I have just referred, the winding up application is typically dismissed by consent and the defendant company, although theoretically victorious, is ordered to pay the plaintiff's costs: see, for example, McDonald v Deputy Commissioner of Taxation (2005) 58 ATR 418. That, of course, does not reflect in any way either the principle that costs should follow the event or the principle that where there is no substantive contest there should be no order as to costs. It represents, rather, a recognition of the reality that, although the relief sought by the plaintiff has not been granted, the defendant, through its directors, has accepted the proposition on which the plaintiff's application is based, namely, that the defendant is insolvent or, at all events, likely to become insolvent.

11 In the present case, the contest as to costs has become one between the two shareholders in the defendant, the plaintiff holding 20 per cent and Pantlings & Co holding 80 per cent. The evidence makes it clear that the plaintiff had, for some time, maintained that the defendant was insolvent, mainly because of its inability to recover moneys due by Pantlings & Co, but that Pantlings & Co (or, in real terms, the director appointed by it) had resisted the notion that the defendant should be recognised as insolvent and dealt with accordingly. Pantlings & Co’s preference was to seek to purchase the plaintiff's shares.

12 In my opinion, the eventual appointment of a part 5.3A administrator must, in the circumstances of this case where the company is essentially a partnership in corporate form, be seen as tantamount to an eventual acceptance by Pantlings & Co of the validity of the plaintiff's claim that, because of insolvency, the defendant required the imposition of an appropriate form of external administration.

13 Evidence has been put before me this morning that the company is solvent. That, it is said, detracts from what has just been said. But any present solvency position follows the execution of a deed of company arrangement and ancillary measures under which Pantlings & Co not only bought out the plaintiff's shareholding but also injected funds into the company. Any present solvency is attributable to these moves by Pantlings & Co.

14 Only six days elapsed between the filing of the originating process and the hearing at which the matter was resolved. There is nothing to suggest that there was any drastic change in the financial position of the defendant during that six-day period. On the contrary, the affidavits would suggest that the financial position remained the same. The proceedings would have been avoided altogether had Pantlings & Co and the director installed by it recognised, six days earlier, what they recognised when the matter came before the court for hearing. They failed to do so and no good reason has been shown for that failure.

15 The orders I now make are as follows:

1. For the sake of good order and by consent I order that the proceedings be dismissed.
2. I order that the plaintiff's costs of the proceedings, assessed on the party and party basis, be paid by Pantlings & Co Pty Ltd.
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