Mutual Holdings Pty Ltd v Adam Shepard in his capacity as administrator of Quest Minerals Ltd
[2015] WASC 412 (S)
•4 DECEMBER 2015
MUTUAL HOLDINGS PTY LTD -v- ADAM SHEPARD in his capacity as administrator of QUEST MINERALS LTD [2015] WASC 412 (S)
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2015] WASC 412 (S) | |
| Case No: | COR:219/2014 | ON THE PAPERS | |
| Coram: | MITCHELL J | 4/12/15 | |
| 7 | Judgment Part: | 1 of 1 | |
| Result: | The defendant pay the plaintiffs' costs of the proceedings | ||
| B | |||
| PDF Version |
| Parties: | MUTUAL HOLDINGS PTY LTD ADAM SHEPARD in his capacity as administrator of QUEST MINERALS LTD CORPORATE ADMIN SERVICES PTY LTD |
Catchwords: | Corporations Voluntary administration Costs of successful appeal from administrator's rejection of proof of debt Priority of costs over creditors' claims Limitation of administrator's liability to funds available in the administration |
Legislation: | Corporations Act 2001 (Cth), s 1335 |
Case References: | Hamilton v Donovan Oates Hannaford Mortgage Corporation Ltd [2007] NSWSC 10; (2007) 207 FLR 163 Orrong Strategies Pty Ltd v Village Roadshow Ltd [2007] VSC 1; (2007) 207 FLR 245 Re Mendarma Pty Ltd [No 2] [2007] NSWSC 99; (2007) 61 ACSR 601 Re Universal Distributing Co Ltd (1933) 48 CLR 171 Re Windy Dropdown Pty Ltd [2010] NSWSC 1099 Stewart v Atco Controls Pty Ltd [2014] HCA 15; (2014) 252 CLR 307 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
ADAM SHEPARD in his capacity as administrator of QUEST MINERALS LTD
Defendant
- Plaintiff
AND
ADAM SHEPARD in his capacity as administrator of QUEST MINERALS LTD
Defendant
Catchwords:
Corporations - Voluntary administration - Costs of successful appeal from administrator's rejection of proof of debt - Priority of costs over creditors' claims - Limitation of administrator's liability to funds available in the administration
Legislation:
Corporations Act 2001 (Cth), s 1335
Result:
The defendant pay the plaintiffs' costs of the proceedings
Category: B
Representation:
COR 219 of 2014
Counsel:
Plaintiff : No appearance
Defendant : No appearance
Solicitors:
Plaintiff : Bennett + Co
Defendant : Somerset Ryckmans
COR 220 of 2014
Counsel:
Plaintiff : No appearance
Defendant : No appearance
Solicitors:
Plaintiff : Bennett + Co
Defendant : Somerset Ryckmans
Case(s) referred to in judgment(s):
Hamilton v Donovan Oates Hannaford Mortgage Corporation Ltd [2007] NSWSC 10; (2007) 207 FLR 163
Orrong Strategies Pty Ltd v Village Roadshow Ltd [2007] VSC 1; (2007) 207 FLR 245
Re Mendarma Pty Ltd [No 2] [2007] NSWSC 99; (2007) 61 ACSR 601
Re Universal Distributing Co Ltd (1933) 48 CLR 171
Re Windy Dropdown Pty Ltd [2010] NSWSC 1099
Stewart v Atco Controls Pty Ltd [2014] HCA 15; (2014) 252 CLR 307
1 MITCHELL J: On 5 November 2015, I made orders allowing the plaintiffs' appeals against the defendant's decision to reject their proofs of debt. I also ordered that the question of costs be determined on the papers. These are my reasons for making costs orders in the proceedings.
The defendant's obligation to pay the plaintiffs' costs
2 Section 1335(2) of the Corporations Act 2001 (Cth) (Act) provides for the costs of these proceedings to be borne by such party to the proceedings as the court, in its discretion, directs. It is common ground that the plaintiffs, having been successful in the appeals, should be awarded costs.
3 There was a dispute at the hearing on 5 November 2015 as to whether the costs should be borne by the defendant personally. There was no real debate as to the general principle to be applied in cases of this kind. While costs are in the discretion of the court, generally a liquidator or administrator who is joined to proceedings as a defendant, and who acts appropriately, should not be ordered to pay the successful plaintiff's costs beyond the amount of assets available for the liquidator or administrator to do so: Re Mendarma Pty Ltd.1
4 I am satisfied that the defendant acted appropriately in defending these proceedings. It was reasonable for the defendant to rely on the decision in Orrong Strategies Pty Ltd v Village Roadshow Ltd,2 which supported the position the defendant adopted in the proceedings. The submissions of counsel for the defendant were appropriately focused on the critical issue and assisted the court in resolving the matter. The defendant did properly fulfil his role in the proceedings.
5 It is regrettable that, at an earlier stage of the proceedings, the defendant did not comply with programming orders for the filing of affidavits in the proceedings. However, that failure does not require the conclusion that the defendant should personally bear the costs of the proceedings.
6 I do not accept the plaintiffs' invitation to deal with the question of costs by reference to the admissibility of the affidavits which were eventually filed. Those affidavits were directed to an issue which it was ultimately unnecessary to resolve in the proceedings, namely whether there had been a contravention of s 208 of the Act. I do not consider it appropriate for the court to resolve disputed questions as to the admissibility of the contents of the affidavits, which it has not yet proved necessary to answer, for the purposes of dealing with the costs of the proceedings.
Payment priorities
7 Under both the DOCA and the Creditors' Trust Deed, the defendant's liability to pay the plaintiffs' costs will be a 'disbursement' ranking in equal priority with other disbursements and ahead of the defendant's remuneration and amounts payable to creditors of Quest Minerals. The defendant's claim to be indemnified for such costs is not a debt which may be the subject of a Claim against the company for the purposes of the DOCA and Creditors' Trust Deed.3
8 The defendant referred to the principle that a creditor may not have the benefit of a fund created by a liquidator's efforts in the winding up of a company without the liquidator's costs and expenses, including remuneration, of creating that fund first being met.4 The cases to which the defendant refers in support of that proposition deal with the equitable lien which arises in those circumstances. The order which I make will recognise that lien by limiting the costs which the defendant must pay to the value of assets available to satisfy the lien.
9 However, the defendant's liability to pay the plaintiffs' costs is not the liability of a creditor of Quest Minerals, which ranks in priority behind the defendant's lien in respect of disbursements he has made in relation to the funds. Rather, the defendant's liability to pay the plaintiffs' costs is itself a disbursement which is the subject of a lien. I accept the plaintiffs' submission that the word 'disbursement' in the DOCA and Creditors' Trust Deed refers to the costs, fees, liabilities and other expenses incurred to third parties in the administration of the DOCA and Creditors' Trust Deed. The DOCA and Creditors' Trust Deed do not provide for different disbursements of the deed administrator and trustee to have priority over each other. Therefore, I do not accept the defendant's submission that certain disbursements of the deed administrator and trustee (such as those made to secure a tax payment) rank ahead of the disbursement constituted by the defendant's liability to pay the plaintiffs' costs of these proceedings.
10 I see no warrant in this case for altering the priorities provided for in the DOCA and Creditors' Trust Deed.
11 The defendant, as deed administrator and trustee, was aware of the terms of the DOCA and Creditors' Trust Deed when making decisions about expenditure and when deciding, with the support of the creditors, to defend these proceedings. I do not accept the defendant's submission that he could not reasonably have anticipated these proceedings, or his potential liability for costs in respect thereof, when making decisions about expenditure from the funds he controlled as deed administrator and trustee. The appeal could reasonably have been anticipated once the plaintiffs' informal proofs of debt were rejected.
12 In commencing the proceedings, the plaintiffs were aware of the terms of the DOCA and Creditors' Trust Deed, and the limited assets available to satisfy any award of costs which may be made in the proceedings.
13 The parties should reasonably have framed the commercial decisions which they made in the proceedings by reference to the provisions of the DOCA and the Creditors' Trust Deed. In those circumstances it seems to me to be inappropriate to interfere with the priorities provided for in the DOCA and Creditors' Trust Deed.
Terms of the costs order
14 The priorities provided for by the DOCA and Creditors' Trust Deed can be preserved by adapting the terms of the order made in Mendarma.
15 The defendant submits that his liability to pay the plaintiffs' costs should be limited to the assets of the creditors' trust. I do not accept that submission. The purpose of an order limiting the defendant's liability to his right of indemnity is to avoid the defendant, who has acted properly as administrator, deed administrator and trustee, from being subject to the risk that he may have to meet the plaintiffs' costs from his personal assets.5 That purpose is achieved if an order is made by reference to all rights of indemnity held by the defendant in relation to Quest Minerals and the assets available to satisfy the indemnity.
16 The purpose of the costs order I will make is not to insulate past payments of remuneration to the defendant. Under the DOCA and Creditors' Trust Deed, the defendant's remuneration ranks below the payment of disbursements of the deed administrator and trustee, and that position will be maintained under the order I will make. This may require the defendant to reinstate payments of remuneration which he has received in the past, to the extent that the otherwise available assets and funds are insufficient to cover disbursements which have priority over his remuneration. That outcome will be the result of the terms of the DOCA and Creditors' Trust Deed to which the defendant agreed.
17 However, because the order I will make is limited to assets and funds which are available to satisfy the defendant's rights of indemnity in respect of the liability, the defendant's liability to pay the plaintiffs' costs will not be extended by disbursements previously paid to third parties and which are not now available to the funds established by the DOCA and Creditors' Trust Deed. That is, the defendant's costs liability will not exceed the value of the assets and funds actually available (after any required reinstatement of remuneration) to satisfy his rights of indemnity in respect of that disbursement.
18 The parties made a number of other submissions ranging over a variety of topics. However, none of those submissions affect the conclusions I have reached above, and it is unnecessary to deal separately with them.
Order
19 In all the circumstances, the appropriate costs order in each of the proceedings is that the defendant pay the plaintiff's costs of the proceedings but that his liability to do so be limited to the extent there are assets of Quest Minerals Ltd and funds held under the DOCA and the Creditors' Trust Deed available to satisfy the defendant's rights of indemnity in respect of his liability under this order after making payments in priority to or pari passu with the defendant's liability under this order.
1Re Mendarma Pty Ltd [No 2] [2007] NSWSC 99; (2007) 61 ACSR 601 [23].
2Orrong Strategies Pty Ltd v Village Roadshow Ltd [2007] VSC 1; (2007) 207 FLR 245.
3 See Re Windy Dropdown Pty Ltd [2010] NSWSC 1099 [23] - [25].
4 Citing Re Universal Distributing Co Ltd (1933) 48 CLR 171; Stewart v Atco Controls Pty Ltd [2014] HCA 15; (2014) 252 CLR 307; Hamilton v Donovan Oates Hannaford Mortgage Corporation Ltd [2007] NSWSC 10; (2007) 207 FLR 163 [18].
5Mendarma [26].
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