Mondello Farms Pty Ltd v Annatom Pty Ltd (Subject to Deed of Company Arrangement) (No 2) - [2007] SASC 334

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
MONDELLO FARMS PTY LTD v ANNATOM PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) & ORS (NO. 2)
[2007] SASC 334
Judgment of The Honourable Justice Layton
17 September 2007
CORPORATIONS - VOLUNTARY ADMINISTRATION - DEEDS OF COMPANY ARRANGEMENT - TERMINATION OR AVOIDANCE
PROCEDURE - COSTS - INTERLOCUTORY PROCEEDINGS - COSTS RESERVED
Costs of the application to join third defendant reserved - third defendant sought an order that the plaintiff pay costs of, and incidental to joinder application - third defendant argued that it was not given appropriate notice of the proceedings - plaintiff argued that third defendant was given notice of proceedings on two separate occasions.
Held: proper notice was not given to third defendant - plaintiff ordered to pay third defendant's costs, including costs of adjournment.

PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - CONDUCT OF PARTIES - OTHER CONDUCT
Plaintiff sought costs of, and incidental to the application to terminate deed of company arrangement - plaintiff argued that it was successful and costs should follow the event - third defendant argued that costs ought not to run against it prior to being joined - third defendant also argued that the second defendant, although abiding the event was not entirely neutral and should share in these costs.
Held: third defendant not liable to any costs prior to being joined - plaintiff not entirely without fault and should not get all its costs - second defendant to pay half of plaintiff's costs prior to third defendant being joined - remaining costs, after joinder of third defendant, are to be apportioned equally and paid by second and third defendants.

PROCEDURE - COSTS - CERTIFICATE FOR COSTS: COSTS ON OTHER THAN INFERIOR COURT SCALE - CERTIFICATE FOR COSTS OR OTHER ORDER - CIRCUMSTANCES WHEN GRANTED
Costs - certification for plaintiff's senior counsel sought - plaintiff argued that the matter was complex and difficult.
Held: certification granted as matter was complex and difficult.

MONDELLO FARMS PTY LTD v ANNATOM PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) & ORS (NO. 2)
[2007] SASC 334
Civil
LAYTON J:
Introduction

On 10 August 2007, I made an order pursuant to s 445D of the Corporations Act 2001 (Cth) (“the Act”) terminating a deed of company arrangement (“the Deed”) executed on 6 November 2006 between Annatom Pty Ltd (Administrator Appointed), Mr Tarquin Raoul Koch (in his capacity as Administrator of Annatom Pty Ltd), Mr Thomas Tigani, Stix Farms Pty Ltd, Tomdan Pty Ltd in its own right and in its capacity as trustee of the Tigani Family Settlement and Tomdan Pty Ltd in its capacity as trustee of the Tomdan Trading Trust. As a consequence of terminating the Deed, Annatom Pty Ltd (“Annatom”) was placed in liquidation by virtue of Regulation 5.3A.07(1)(a) of the Corporations Regulations 2001 (Cth). Annatom’s Administrator has now assumed the role of liquidator.
A number of costs issues remain to be determined. The first issue concerns costs of the application to join Tomdan Pty Ltd (“Tomdan”) as a defendant. On 20 June 2007, I made an order joining Tomdan as third defendant. Consequently the argument originally set down for that day was adjourned to 4 July 2007 to allow Tomdan to file affidavit material. Accordingly, I reserved the question of costs. The second issue concerns costs of the application to terminate the Deed over Annatom. The third issue is whether there should be certification for senior counsel.
On 10 August 2007, the plaintiff (“Mondello Farms”), the second defendant (“the Administrator”) and the third defendant (“Tomdan”) made oral submissions with respect to costs. I have also had the benefit of reading written submissions filed by Mondello Farms and Tomdan. The Administrator has not filed any written submissions.
Orders sought
Mondello Farms seeks the following costs orders:
·that Tomdan pay costs thrown away to Mondello Farms as a result of the adjournment of the hearing on 20 June 2007 because of Tomdan’s joinder application;
·that Tomdan pay the costs of, and incidental to Mondello Farms’ application to terminate the Deed;
·certification for Queen’s Counsel for this application, with no allowance for the costs of a second counsel; and
·no specific order was sought against the Administrator.
The Administrator seeks an order that his costs be paid as costs in the liquidation of Annatom.
Tomdan seeks the following costs orders:
·that there be no order as to costs; or
·alternatively, that Mondello Farms pay the costs of, and incidental to Tomdan’s application to be joined as a defendant;
·in the event that costs for the application to terminate the Deed are awarded to Mondello Farms as against Tomdan:
-Tomdan should not be held responsible for costs incurred prior to being joined to the action;
-the Administrator should share in these costs; and
-only that portion of Mondello Farms’ costs, which are attributable to the additional costs occasioned by the joinder of Tomdan, should be awarded; and
·Mondello Farms should not get certification for senior counsel.
The Administrator’s costs
As a preliminary issue, I note that Mondello Farms has consented to the Administrator’s proposal that his costs be paid as costs in the liquidation of Annatom. A draft consent order was submitted and states that:
(1) By consent, the Second Defendant’s costs of and incidental to the within action shall be paid in the liquidation of Annatom Pty Ltd (In Liquidation) as a special priority pursuant to section 556 of the Corporations Act, 2001.
This consent order appears to be appropriate and Tomdan has not objected to it.
Costs of the joinder application
With regard to the joinder application, counsel for Mondello Farms, Mr Livesey QC, submitted that Mondello Farms did not consider it necessary to join all parties to the proceedings, particularly where the unsecured creditors of the company were few in number and had been given notice of the proceedings and the opportunity to intervene.[1]
[1] Papua New Guinea Dockyard Ltd v Adams (2005) 215 ALR 742, [6].
In Papua New Guinea Dockyard Ltd v Adams, [2] Finkelstein J held:[3]
It is by no means clear whether, in deciding which parties should be before the court on an application to terminate a deed, the answer is to be found by identifying a proper contradictor. Ordinarily the court will try to settle the rights of all persons interested in the subject of the action to prevent future litigation. For this reason all persons interested in the subject should generally be made parties, even if only by a representative order. However that may be, in this case the unsecured creditors are few in number, each of them has been given notice of the application and each has decided not to intervene. By standing by and allowing the case to be conducted by others they will be deemed to be parties and bound in the result. [Footnotes omitted]
[2] (2005) 215 ALR 742, [6].
[3] Ibid.
After referring the Court to the above passage, Mr Livesey submitted that Tomdan was given notice of the proceedings on two occasions: first, by a letter dated 10 May 2007 from Mondello Farms’ solicitors (Websters Lawyers) to Tomdan’s solicitors (Carbone, Polvere & Co); and second, by the Administrator’s circular to all of Annatom’s creditors dated 30 May 2007. Mr Livesey submitted that despite having sufficient notice of the proceedings, Tomdan only intervened on 19 June 2007, a day before argument was set. As a result of the adjournment on 20 June 2007, Mr Livesey argued that the time devoted to preparing for argument and appearing in court became costs thrown away. As a consequence, Mr Livesey submitted that Tomdan should be ordered to pay Mondello Farms’ costs thrown away, including the attendance of counsel.
In response, Tomdan’s counsel, Mr Dart, submitted that with respect to the joinder application on 20 June 2007, Tomdan should have costs against Mondello Farms as Tomdan was joined after the hearing of argument. Further, it was argued that there should be no costs thrown away to Mondello Farms as the adjournment on 20 June 2007 was inevitable, and was occasioned by the fact that all the appropriate parties had not been joined at the outset. In addition, although Mondello Farms submitted that it had notified Tomdan of the proceedings on two occasions, Mr Dart stated that the letter dated 10 May 2007, from Mondello Farms’ solicitors to Tomdan’s solicitors, was not addressed to Tomdan but to Carbone, Polvere & Co “presumably in their capacity as the solicitors for Annatom”. Moreover, this letter did not mention the application to set aside the deed or attach any supporting documentation.
Conclusion on joinder application
If proper notice had been given to Tomdan, then there would have been no requirement for Tomdan to seek to be joined in the proceedings. Accordingly, given that Tomdan was given inadequate notice, I agree with Mr Dart’s submission that contrary to Mondello Farms’ opposition, Tomdan should have its costs in relation to the joinder application.
Costs of the application to terminate Deed
Mr Livesey submitted that Tomdan should pay Mondello Farms’ costs of, and incidental to the application to terminate the Deed. I note that no specific application was made against the Administrator. Mr Livesey also submitted that costs should follow the event because Mondello Farms was successful in its application to terminate the Deed. Mr Livesey further submitted that in defending the action, Tomdan put Mondello Farms to additional expense by taking an active role in the proceedings, securing an adjournment of a hearing with costs thrown away, and keenly promoting a view that was eventually found to be unsuccessful.
In response, Mr Dart submitted that there should be no order as to costs, but if costs are to be awarded to Mondello Farms, given that Tomdan’s joinder was proper, they ought not to run against it prior to being joined. Mr Dart also submitted that since the Administrator had made the decision to abide the event, Tomdan felt obliged to be present at the hearing to “avoid a one-sided contest”. Mr Dart further submitted that irrespective of Tomdan being joined as third defendant, the application to terminate the Deed would have proceeded and Mondello Farms would have been required to prove its case, as the Administrator neither consented nor opposed the application. In other words, Mondello Farms would have made the same submissions and referred to the same authorities notwithstanding Tomdan’s involvement.
Mr Dart further submitted that the Administrator had not been completely neutral, as his affidavit raised arguments in opposition, which required consideration and answering by Mondello Farms, regardless of whether or not Tomdan was joined in the proceedings. Lastly, Tomdan submitted that the Court should take into account costs thrown away by Tomdan by reason of preparing argument on s 600A of the Corporations Act 2001 (Cth), which Mondello Farms later sought not to rely on.
Conclusion on termination of deed
Costs orders are not a mathematically precise exercise. There are guiding principles, such as the general rule that costs usually follow the event. In the present case, Mondello Farms was successful in its application and ordinarily it should get its costs.
Although the Administrator stated that he would abide the Court’s decision, he did not hold a neutral position. There were various matters raised in the Administrator’s affidavit that Mondello Farms had to overcome in order to satisfy the Court that it was appropriate to make the order. The reason for the application to terminate the Deed, in part, arose from the Administrator’s failure to make inquiries about Mondello Farms’ creditor status. I note that two other creditors supported Mondello Farms’ application, although they were not parties to the proceedings. Even so, Mondello Farms is not entirely blameless as it was aware of Annatom’s administration as early as December 2006, but only instituted proceedings in May 2007. In the light of this, I consider that Mondello Farms should not have all its costs but only have half its costs up until Tomdan was joined. This half of its costs should be borne by the Administrator for reasons already given. From the date that Tomdan was joined, that is 20 June 2007, Mondello Farms’ costs should be equally apportioned between the Administrator and Tomdan for reasons already expressed.
Certification of counsel
Mondello Farms submits that certification should be given for Queen’s Counsel for the application and hearing to terminate the Deed with no allowance for costs of a second counsel. Mr Livesey submits that the issues in this matter were “complex and difficult” and Mondello Farms had a lot at stake in these proceedings. Mr Dart objects to this certification and submits that the question of appropriate counsel fees should be left to the Taxing Master.
I agree with Mr Livesey’s submissions. I consider that certification for Queen’s Counsel, as sought by Mondello Farms, is appropriate and that the Taxing Master can assess the appropriate fees in the absence of agreement.
Orders
For these reasons, I make the following orders:
1That the second defendant have his costs paid as costs in the liquidation of Annatom Pty Ltd.
2With respect to the application made on 20 June 2007 to join the third defendant, the third defendant have its costs, including costs of the adjournment to be paid by the plaintiff.
3With respect to the application made on 4 July 2007 to terminate the Deed:
a.the plaintiff have half its costs to be paid by the second defendant up until the third defendant was joined; and
b.from 20 June 2007, the plaintiff’s costs should be equally apportioned and paid by the second defendant and the third defendant.
4The costs of the plaintiff’s counsel be certified as fit for senior counsel, with the fees to be either agreed or taxed.