Magney, David Bruce and Ors v Greatlands General Insurance Co Ltd Insurance and Superannuation Commissioner v Greatlands General Insurance Co Ltd

[1998] FCA 785

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY		NG 3050 of 1998
IN THE MATTER OF GREATLANDS GENERAL INSURANCE COMPANY LIMITED (ACN 003 641 834)
BETWEEN:	DAVID BRUCE MAGNEY AND OTHERS APPLICANTS
AND:	GREATLANDS GENERAL INSURANCE COMPANY LIMITED (ACN 003 641 834) RESPONDENT

NG 3057 OF 1998

BETWEEN:	INSURANCE AND SUPERANNUATION COMMISSIONER APPLICANT
AND:	GREATLANDS GENERAL INSURANCE COMPANY LIMITED (ACN 003 641 834) RESPONDENT

JUDGE:	LINDGREN J
DATE:	23 JUNE 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

(ex tempore)
(judgment on costs and provisional liquidator’s remuneration)

In these two proceedings I delivered reasons for judgment on 2 June 1998.  At that time I stood the proceedings over to 5 June for the making of orders including orders as to costs.  On 5 June in proceeding NG 3057 of 1998 I ordered that the application for winding up filed 31 March 1998 be dismissed; the appointment of Richard Grellman (“Grellman”) as provisional liquidator of the respondent (“GGI”) be terminated; and that the applicant (“the ISC”) pay the costs of the administrator of GGI, Mr P A Fielding (“the Administrator”), and of a director of GGI, Mr G A O’Connell (“the Director”), on the basis that only one set of costs was to be paid.  In the other proceeding, NG 3050 of 1998, I also ordered that the application for winding up be dismissed.  Submissions were then heard in relation to issues of costs and the remuneration of Grellman as provisional liquidator.  As well, there have been subsequent written and oral submissions. 

I find it necessary to give only brief reasons and have come to a clear view as to what orders should be made.  Magney & Rhodes commenced proceeding NG 3050 of 1998 on 23 March 1998 seeking a winding up of GGI.  As well, they filed a notice of motion seeking the appointment of a provisional liquidator.  When the proceeding was before the Court on 23 March I made certain directions by consent and adjourned the proceeding to 9 April.  The directions were that Magney & Rhodes were to file any further affidavits by 27 March, GGI was to file any affidavits in reply by 2 April, and Magney & Rhodes were to file any affidavits in reply by 7 April.

It has to be explained that the ISC also appeared on that date and I directed that the ISC file and serve any notice of motion seeking leave to be joined as an intervening party by 30 March, that GGI file any affidavits in reply to any such application by 6 April, and that Magney & Rhodes and GGI serve on the ISC all affidavits served in proceeding NG 3050 of 1998.

In the event, the ISC commenced an independent proceeding, NG 3057 of 1998, on 31 March 1998 and also filed in that proceeding a notice of motion seeking the appointment of a provisional liquidator.  That notice of motion was returnable on 9 April 1998. 

It is important for what follows later to understand that GGI did not serve affidavits in accordance with the directions made on 23 March, but on 8 April, the very day before the date when the two motions were due to be heard, its directors appointed Mr Andrew Fielding as administrator of GGI.  That appointment was notified to Magney & Rhodes, and no doubt to the ISC, on 8 April 1998, the day of the appointment.

When the two motions were called on for hearing on 9 April, GGI applied for an adjournment.  After submissions on that issue were heard I refused that application.  After a short adjournment for the purpose of his taking instructions, counsel for GGI consented to the appointment of Grellman as provisional liquidator of GGI. I made that order by consent in the ISC’s proceeding rather than in the proceeding brought by Magney & Rhodes. Magney & Rhodes’ motion being rendered otiose, I ordered that that motion be dismissed and that Magney & Rhodes’ costs of that motion, including the costs of 9 April, be paid by GGI.  So far as appears, since 9 April 1998 there has been no action of any kind taken by either party in the proceeding brought by Magney & Rhodes, that is, proceeding NG 3050 of 1998.  So far as I am aware, apart from the present submissions on costs, the only legal work done in the interests of Magney & Rhodes in that proceeding was that which preceded and included the hearing on 9 April 1998, and a similar observation applies to the legal work done in the interests of GGI in that proceeding.

The application by the ISC in his proceeding (NG 3057 of 1998) was heard finally on 18 and 19 May 1998 and I concluded that the he had not established that the condition of his being entitled to apply for an order to wind up GGI laid down in par 462(3)(b) of the Corporations Law had been satisfied.  It followed that the ISC’s application was to be dismissed with costs.  Magney & Rhodes elected not to press further their own application for the winding up of GGI and consented to the order for dismissal of that application to which I previously referred.

The parties have made thorough and helpful submissions on the questions of the appropriate costs orders to be made and the order to be made in relation to the remuneration of Grellman as provisional liquidator.  A brief and therefore inadequate summary of the submissions of Mr Freeman, counsel for GGI, is that it is now shown that the ISC’s application was doomed from the beginning and that justice is served only by seeking to restore GGI to its position prior to the commencement of the proceedings.  A particular submission which he makes is that GGI is in “run off” mode (see my Reasons for Judgment dated 2 June 1998) and that it is desirable that all of the assets of GGI be available to creditors, unencumbered by the provisional liquidator’s lien.

In relation to the position of Magney & Rhodes, he submits that the order for costs made on 9 April should be vacated and that in that proceeding Magney & Rhodes should be ordered to pay GGI’s costs. 

Subsection 472(2) of the Corporations Law provides as follows:

“The court may appoint an official liquidator provisionally at any time after the filing of a winding up application and before the making of a winding up order or, if there is an appeal against a winding up order, before a decision in the appeal is made.”

Subsection 473(2) provides:

“A provisional liquidator is entitled to receive such remuneration by way of percentage or otherwise as is determined by the Court.”

Order 71, subr 52(1) of this Court’s rules provides:

“Subject to any order of the Court or a Judge to the contrary, a provisional liquidator is entitled to be paid out of the assets of the company all costs, charges and expenses he or she has properly incurred and such remuneration as the Court or a Judge determines.”

It has been submitted on behalf of the ISC that the Court does not have power to order that the ISC pay the remuneration of Grellman as provisional liquidator.  An alternative form of order sought by GGI is that the ISC indemnify GGI in respect of the remuneration of the provisional liquidator. 

I do not find it necessary to discuss the question of power, because I am of the view that in the circumstances of this case the proper exercise of discretion is not to make an order to the contrary of the provision in O 71 subr 52(1).  It may appear at first blush somewhat harsh to the Director and the Administrator, having succeeded on the threshold point of the ISC’s entitlement to apply for a winding up, that the provisional liquidator’s remuneration should be borne by GGI.  However, the answer is found in the necessity for the Court to have a power of the kind given in subs 472(2) at an early stage of a proceeding before it is possible for a final hearing to take place, and, of course, in the present case, in the fact that the provisional liquidator was appointed by consent. Another consideration which should comfort GGI is the fact that Grellman’s investigatory work enabled him to provide a report on which I relied in finding in GGI’s favour. For similar reasons, I am not persuaded that the ISC should be ordered to indemnify GGI in respect of the remuneration charges and expenses of the provisional liquidator. 

In relation to the other proceeding, that is the proceeding brought by Magney & Rhodes, in principle there should be an order that they pay the costs, if any, incurred by the Administrator and the Director after 9 April which were incurred for the purpose of defending that proceeding, excluding any costs incurred by them for the purpose of defending the ISC’s proceeding NG 3057 of 1998.  I come to that view taking into account the fact that the evidence filed in both proceedings was relevant to the issue of the appointment of Grellman as provisional liquidator on 9 April.

Accordingly, the orders of the Court are as follows.  In proceeding NG 3057 of 1998 I order that the remuneration, costs, charges and expenses of the provisional liquidator of and incidental to the provisional liquidation be paid out of the assets of the respondent.  In the other proceeding, NG 3050 of 1998, I order that the applicants pay such costs if any as have been incurred by the respondent, its director Mr G A O’Connell and its administrator Mr P A Fielding, in respect of work done after 9 April 1998 for the purpose of defending that application, not including costs incurred in connection with the defence of the application by the Insurance and Superannuation Commissioner in proceeding NG 3057 of 1998 and not including their costs of the argument on 5 June and 23 June. The costs of those two days remain the parties’ own respective costs.

I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren

Associate:

Dated:            1 July 1998

Counsel for the Applicant in NG 3050 of 1998:	Mr M C L Dicker
Solicitor for the Applicant in NG 3050 of 1998:	Magney & Rhodes
Counsel for the Applicant in NG 3057 of 1998	Mr J E Thomson
Solicitor for the Applicant in NG 3057 of 1998:	Australian Government Solicitor
Counsel for the Respondent, Administrator and Director:	Mr C D Freeman
Solicitor for the Respondent, Administrator and Director:	MacGillivrays Solicitors
Solicitor for the Provisional Liquidator:	Mr M Deakin of KPMG Solicitors
Dates of Hearing:	5, 23 June 1998
Date of Judgment:	23 June 1998