Perth Fashion Festival Pty Ltd (in Liq) v Fashion Council WA Ltd (in Liq) - [2022] WASC 210

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   PERTH FASHION FESTIVAL PTY LTD (IN LIQ) -v- FASHION COUNCIL WA LTD (IN LIQ) [2022] WASC 210
CORAM:   SOLOMON J
HEARD:   16 FEBRUARY 2022
DELIVERED          :   24 JUNE 2022
PUBLISHED           :   24 JUNE 2022
FILE NO/S:   COR 170 of 2021
BETWEEN:   PERTH FASHION FESTIVAL PTY LTD (IN LIQ)
Plaintiff
AND
FASHION COUNCIL WA LTD (IN LIQ)
Defendant

Catchwords:

Corporations Act 2001 (Cth) - Application for appointment of special purpose liquidator - Where the plaintiff seeks the appointment of a special purpose liquidator for the purpose of investigating and commencing proceedings against the company's directors - Absence of funding agreement - Utility of appointment of special purpose liquidator

Legislation:

Corporations Act 2001 (Cth), s 475(2), s 511, s 588M, s 588G, s 588H, s 596A, s 596B, s 597(9)

Result:

Application for appointment of special purpose liquidator denied

Category: B

Representation:

Counsel:

Plaintiff	:	J E Scovell
Defendant	:	D P Butler
Directors of Fashion Council WA Ltd (In liq)	:	T Htin

Solicitors:

Plaintiff	:	Mendelawitz Morton Commercial Lawyers
Defendant	:	Jackson McDonald
Directors of Fashion Council WA Ltd (In liq)	:	Bennett + Co

Cases referred to in decision:

Deputy Commissioner of Taxation v Italian Prestige Jewellery Pty Ltd (in liq) [2018] FCA 983; (2018) 129 ACSR 115
GDK Projects Pty Ltd, Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541
Lewis v Battery Mineral Resources [2021] FCA 963; (2021) 156 ACSR 162
Melham Pty Ltd, Boka Beverages Pty Ltd (in liq) v Boka Beverages Pty Ltd (in liq) [2019] FCA 1184; (2019) 138 ACSR 95
Re ACN 076 673 875 Ltd [2002] NSWSC 578; (2002) 42 ACSR 296
Re Atlas Construction Group Pty Ltd (in liq) – Fitz Jersey Pty Ltd v Fraser [2018] NSWSC 1189; (2018) 129 ACSR 238
Re Jabiru Satellite Limited (in liq) v NewSat Limited (in liq) [2022] NSWSC 459
Reidy ATF PR Mining Superannuation Fund v Contained Gold [2020] FCA 268; (2020) 143 ACSR 260
Shangri-La Construction Pty Ltd v GVE Hampton Pty Ltd (in liq) [2021] VSC 161; (2021) 152 ACSR 19
Smith v Commissioners of the Rural and Industries Bank of Western Australia [2009] WASC 100
Williams & Kersten Pty Ltd v Walton Construction (Qld) Pty Ltd (in liq), re Walton Construction (Qld) Pty Ltd (in liq) [2019] FCA 1201

SOLOMON J:

Overview

Both the plaintiff (Perth Fashion Festival/PFF) and the defendant (Fashion Council WA/FCWA) are corporate entities that operated, as their names suggest, in the fashion industry in Perth. They are now both in liquidation, controlled by their respective liquidators. PFF's liquidators are Cameron Hugh Shaw and Richard Albarran who were appointed joint and several liquidators on 28 February 2020. FCWA's liquidator is Kimberley Stuart Wallman who was appointed on 6 May 2020.
In his capacity as liquidator of FCWA, Mr Wallman has undertaken some investigation into the affairs of FCWA. He has been constrained in the extent of his investigations by a lack of funding. On the basis of the investigations he has undertaken, he has concluded that the prospects of any substantial return to creditors are very poor. Mr Wallman therefore considers that the liquidation should be completed.
PFF is a creditor of the FCWA. PFF claims to be owed $510,000 by FCWA.
As liquidator of PFF seeking recovery of the debt, Mr Shaw is dissatisfied with the investigations thus far undertaken by Mr Wallman of FCWA. Mr Shaw considers that further investigation may lead to a better return to creditors generally and PFF in particular.
There is no person or entity who is prepared to fund Mr Wallman to undertake further investigation. PFF seeks the appointment of a Special Purpose Liquidator, Mr Shumit Banerjee, to undertake the further investigations. PFF seeks orders that Mr Banerjee can only be paid from the proceeds of actions which he brings as a result of his appointment or 'any other funding' which he obtains.

Background

FCWA was incorporated in December 2016 as an unlisted public company, limited by guarantee and operating as a non‑profit company.[1] The documentary evidence indicates that it was established some time prior to its formal incorporation as a non-profit organisation to promote and develop creative and fashion-focussed industries in Western Australia.[2] At some stage it appears to have operated under the name 'Fashion Concepts WA'[3] and 'Perth Swim Week and West Coast Fashion'.[4] Its functions included raising revenue from corporate and government sponsors to promote the Perth fashion industry.[5]
[1] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 32 - 33.
[2] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 84.
[3] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 84.
[4] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 246.
[5] Affidavit of Kimberley Stuart Wallman (sworn 8 October 2021), 10.
PFF was incorporated as an ordinary proprietary company limited by shares in April 2005. There appears to have been a close relationship between PFF and FCWA. Some of the activities of FCWA were previously undertaken by PFF. The two entities shared an office and some administrative functions.[6]
[6] Affidavit of Kimberley Stuart Wallman (sworn 8 October 2021), 12.
Both entities appear to have been involved in an annual event known as the Perth Fashion Festival.
In December 2014, prior to its incorporation, FCWA entered into an agreement with PFF. That agreement provided for PFF to manage and deliver the festival and other projects. On 23 September 2017, that agreement was renewed and a formal 'management services agreement' was entered into between the now incorporated FCWA and PFF.[7]
[7] Affidavit of Kimberley Stuart Wallman (sworn 8 October 2021), 12.
On 17 May 2019, FCWA and PFF entered into a 'provisional' written agreement, said to be immediately binding but to be superseded by a formal legal agreement.[8] It does not appear that any further agreement was entered into. The provisional agreement provided for two amounts to be paid by FCWA to PFF. The first amount was $305,000 're‑payable over six years commencing 31 December 2019 … in line with funding tranches received by FCWA in the ordinary course of business'. The second amount was $205,000 to acquire 50% of certain intellectual property rights held by PFF in relation to the Perth Fashion Festival and other events. That amount too was to be 'repayable over six years commencing 31 December 2019 … in line with funding tranches received by FCWA in the ordinary course of business'.
[8] Affidavit of Kimberley Stuart Wallman (sworn 8 October 2021), 12.
The relationship between the provisional agreement of May 2019 and the management services agreement of December 2017 is not particularly clear. In his first affidavit, Mr Shaw gave evidence that FCWA entered into 'two separate agreements' with FCWA on 17 May 2019, one for an amount of $305,000 and the other for an amount of $205,000.[9] Mr Shaw annexed two documents – one in respect of each amount. However, they are precisely the same document, that is, the provisional agreement of May 2019. Mr Shaw's affidavit states that the provisional agreement was entered into 'pursuant to the [management services agreement]'.
[9] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 16.
The position emerged a little more clearly in Mr Wallman's administrator's report to creditors of 24 April 2020, referred to below. That report explains:
My review of the [management services agreement of December 2017] and the [provisional agreement of May 2019] between the Company and PFF indicates that:
i)the relationship between PFF and the Company is that of a contractor and principal; and
ii)The Company engaged PFF to exclusively manage and deliver the annual Perth Fashion Festival event and other PFF initiated projects; and
iii)The Company agrees to repay PFF $305K owing pursuant to a contingent liability (which appears to be based on terms of the MSA) over a 6-year period commencing 31 December 2019; and
iv)The Company agrees to acquire 50% of PFF's Intellectual Property held by PFF in relation to the annual Perth Fashion Festival, Swim + Resort and WA Fashion awards for $205,000 which is payable monthly over 6 years.[10]
[10] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 86.
In a note contained in that report, Mr Wallman stated that the amount owed to PFF pursuant to the provisional agreement of May 2019 was $510,000 less one repayment of $50,833 already made.[11]
[11] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 88.
Prior to his appointment as liquidator of FCWA, on 20 March 2020, Mr Wallman was appointed administrator of FCWA. In that capacity, Mr Wallman issued a report to creditors dated 24 April 2020. In that report Mr Wallman advised the following (among many other things):
(a)based on the review of the company's financials, Mr Wallman's preliminary view was that FCWA may have traded whilst insolvent from 1 January 2019;
(b)given the asset position of FCWA and costs involved in administration and liquidation, Mr Wallman anticipated that there would be no return to any class of creditor; and
(c)there may be claims against the directors of FCWA, as the directors may have traded while FCWA was insolvent from 1 January 2019 and the quantum of the insolvent trading claim against the directors was between $500,000 to $800,000.[12]
[12] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 87 - 91.
Mr Wallman issued an addendum to the administrator's report to creditors on 4 May 2020. In that report, Mr Wallman stated that he had now formed the preliminary view that the directors may not have traded while insolvent, but that further investigations were required and the conclusions may change after those investigations.[13]
[13] See, Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 150.
Mr Wallman issued a liquidator's statutory report to creditors dated 6 August 2020. In that report, Mr Wallman, among many other things, advised the following:
(a)of the $510,000 owing to PFF under the provisional agreement of May 2019, $459,000 remained owing;[14]
(b)his view was that the books and records of FCWA complied with the requirements of the Corporations Act;[15]
(c)Mr Wallman's investigations based on the records of FCWA revealed some relatively modest potential preference claims but did not indicate the presence of any material uncommercial transactions, unfair loans, unreasonable director related transactions, or transactions entered into for the purposes of defrauding creditors;[16]
(d)in relation to the possible recovery of compensation for loss resulting from insolvent trading, Mr Wallman advised that 'creditors should note that further detailed investigations will be required before I am able to consider any possible recoveries pursuant to section 588M of the Act. This is noting there maybe defences available to the Directors pursuant to section 588H of the Act… I also advise that the Directors have indicated to me that at no time did the company trade whilst insolvent. I presently have insufficient funds to progress any further investigations in this regard, which may include a public examination of the Directors and officers to determine the merits of any potential claim pursuant to section 588M of the Act';[17]
(e)Mr Wallman then advised that he had insufficient funds to progress additional detailed investigations for the recovery of any possible claims.[18] Under the heading 'Further investigations to be undertaken', Mr Wallman listed further investigations surrounding the potential preferences and concluding investigations into possible insolvent trading claims;[19] and
(f)Mr Wallman anticipated that there would be no return to any class of creditors 'unless I am funded and successful in realising the potential claims discussed in this report'.[20]
[14] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 156.
[15] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 157.
[16] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 157 - 158.
[17] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 159.
[18] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 160.
[19] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 160.
[20] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 161.
By letter dated 2 December 2020, Mr Shaw advised Mr Wallman that he remained of the opinion that there was benefit in pursuing an insolvent trading action against the directors of FCWA. Such an action would pursue recovery of PFF's debt of $510,000. Mr Shaw then noted that other creditors may also seek to recover damages from the directors if the claim was successful. The letter sought the consent of Mr Wallman as liquidator under s 588R of Corporations Act (the Act) to pursue recovery against FCWA's directors for insolvent trading under s 588M of the Act.
Mr Wallman responded by letter dated 8 December 2020. Mr Wallman gave PFF the consent it sought to bring a claim under s 588M against the directors of FCWA. At the same time, Mr Wallman noted that defences may be available under s 588H of the Act and also noted that certain documentation indicated that the debt that remained owing was $459,166, not $510,000.
By letter dated 21 December 2020, Mr Wallman provided creditors, including PFF, with an update since his report of 6 August 2020.[21] The letter included the following:
[21] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 186.
Potential insolvent trading claim against the Directors - s 588M
As foreshadowed in my SRC, I informed creditors that further detailed investigations were required before being able to consider any possible recoveries pursuant to section 588M of the Act. Additionally, I formally requested funding from creditors to assist in proceeding with these investigations. I also advised in my previous SRC that the Directors indicated to me that at no time did the company trade whilst insolvent.
Since my invitation for creditor funding to pursue and initiate further investigations, including possible public examination of the Directors, I have had no tangible offers from creditors to provide funding. Notwithstanding the lack of funding from creditors, I proceeded with my investigations into the merits of this potential claim as part of my statutory investigations as the Company's Liquidator.
Creditors should note that whilst the Company's management accounts indicate that it may have been insolvent from 30 September 2019, a company is considered to be insolvent at the point when it is unable to pay its debts as and when they fall due within the meaning of section 96 of the Act. Whether a company can pay its debts as they become due and payable is predominantly a 'cash flow' based test. However, this should also be considered together with other key indicators of insolvency as provided for in ASIC v Plymin (2003) 46 ACSR 126.
Following my enquiries, I have formed the view that the Directors have defences pursuant to section 588H of the Act against the potential insolvent trading claim discussed above.
Unfair preference recovery
As advised in my SRC, my investigations into two payments made to a Director in December 2019 and February 2020 amounting to circa $37K were ongoing.
My investigations have since revealed that these payments are not preferential in nature.
The Company has however been reimbursed $18.3K as a result of a refund from a cancelled prepaid overseas airline ticket.
Investigations and report to the Australian Securities & Investments Commission ('ASIC')
I advise that I have concluded my obligation to investigate the past affairs of the Company and that on 6 November 2020, I filed a report with ASIC containing a summary of my findings.
I confirm that ASIC does not intend to carry out any further investigations into the matters identified in my report and that I have received the necessary clearance from ASIC to proceed with the finalisation of the liquidation.
In that same letter of 21 December 2020, Mr Wallman advised that unless he was funded, he intended to finalise the liquidation within the next three months.
In response, by letter dated 15 January 2021, Mr Shaw requested Mr Wallman not to finalise the liquidation 'until the conclusion of insolvent trading action'. Mr Shaw then wrote:
Please note that I intend to apply to the Court for an Order appointing a Special Purpose Liquidator in respect of alleged breached of the Corporations Act including but not limited to section 588G of the Act, by the Directors.[22]
[22] Affidavit of Kimberley Stuart Wallman (sworn 8 October 2021), 21.
On 22 January 2021, Mr Wallman notified Mr Shaw that he would refrain from completing the liquidation until 22 March 2021, in order to accommodate any application brought by the plaintiff to appoint a special purpose liquidator.[23]
[23] Affidavit of Kimberley Stuart Wallman (sworn 8 October 2021), 5 [18].
Notwithstanding Mr Shaw's stated intention of 15 January 2021 to apply for the appointment of a special purpose liquidator, no such application was made at that time.
Over February and March 2021, the liquidators of PFF and FCWA exchanged correspondence regarding some modest additional funding for the prolonging of FCWA's liquidation and Mr Wallman granted a request from PFF for the inspection by PFF of FCWA's records. On 13 April 2021, Mr Wallman updated creditors regarding the prolongation of the liquidation and PFF's intention to apply for the appointment of a special purpose liquidator.[24]
[24] Affidavit of Kimberley Stuart Wallman (sworn 8 October 2021), 22 - 23.
On 15 April 2021, staff of Hall Chadwick attended Mr Wallman's offices and inspected FCWA's books and records.[25]
[25] Affidavit of Kimberley Stuart Wallman (sworn 8 October 2021), 5 [20].
On 20 April 2021, Mr Wallman provided the liquidators of PFF with a document entitled 'Preliminary solvency analysis and assessment of the potential insolvent trading claim'.[26] The document included the following statement:
Subject to further investigations which requires funding from creditors to ascertain whether [FCWA] was previously continuously insolvent prior to 30 September 2019, it is likely that [FCWA] became insolvent between 1 September 2019 to 30 September 2019 when [FCWA] ran the 2019 Perth Fashion Festival event during the month of September 2019.
Assuming that [FCWA] was insolvent as at 1 September 2019, the quantum of the insolvent trading claim is estimated at $152,006, being the current indebtedness of [FCWA]'s creditors incurred from the date of [FCWA]'s likely insolvency from 1 September 2019 to 20 March 2020 (the date [FCWA] was placed in voluntary administration).
[26] Affidavit of Kimberley Stuart Wallman (sworn 8 October 2021), 10 - 15.
That preliminary analysis also advised that on 7 August 2020, an insolvent trading demand for $152,000 pursuant to s 588M of the Act was issued to the directors of FCWA. The analysis then concluded that the directors may be able to rely on certain statutory defences, and that the action was 'presently uncommercial for the liquidator to pursue'.[27]
[27] Affidavit of Kimberley Stuart Wallman (sworn 8 October 2021), 14.
Further correspondence ensued in relation to the funding of the prolonged liquidation of FCWA. That correspondence included advice by letter dated 8 June 2021 from Mr Shaw that the liquidators of PFF had incurred unpaid costs of $322,000 during the external administration of PFF, which had less than $2,000 in its liquidation account.
By July 2021, PFF had still not applied for the appointment of a special purpose liquidator. It appears PFF had resolved to pursue an alternative course.
By letter dated 14 June 2021, Mendelawitz Morton wrote to each of the directors of FCWA on behalf of the liquidator of PFF. The letter referred to 'investigations' by its client PFF and Mr Wallman. Based on those investigations, PFF's lawyers made the following unqualified assertions:
(a)FCWA was insolvent from 31 December 2017;
(b)by the provisional agreement of 17 May 2019, FCWA incurred a debt to PFF of $510,000 while insolvent;
(c)each of the directors was aware of the financial position of FCWA and had grounds to suspect that it was insolvent or would become insolvent by the incurring of the debt;
(d)each of the directors had contravened s 588G of the Act and was liable to PFF in the sum of $510,000; and
(e)no defence was available to the claim.

On the basis of those matters, PFF's lawyers made demand for $510,000 from each of the directors.[28]
[28] Exhibit A, 6.
The letter was written in strident and unequivocal terms. Such an approach is entirely permissible. But it carries with it the implication of matters that arise by reason of the professional obligations imposed upon, and assumed to be observed (at least in the absence of evidence to the contrary), by each practitioner. Those obligations include a degree of honesty and integrity such that if a fact is asserted or a position advanced, then it follows that a belief in that fact or position is genuinely, honestly and reasonably held. Lawyers are in a privileged position in our society. That privilege comes with grave responsibility. Lawyers are not permitted to cast aspersions or make allegations that do not have a proper foundation. Bluster ought never to be the tool of the lawyer; bluster without foundation must never be the tool of the lawyer.
It follows that PFF's lawyers are presumed to have genuinely and reasonably held the views expressed in the letter of 14 June 2021 on the basis of investigations into FCWA's affairs. Notwithstanding that, and the permission granted by Mr Wallman in December 2020 to PFF to commence such a claim, no claim ensued.
PFF also sought to have Mr Wallman replaced as liquidator.
By letter dated 27 July 2021, Mr Wallman advised creditors that he had been directed by PFF to convene a meeting to replace him as liquidator of FCWA. In accordance with that directive, Mr Wallman gave notice of a meeting to be held on 17 August 2021 to consider the appointment of Mr Banerjee as FCWA's liquidator in place of Mr Wallman. Mr Banerjee is the person now proposed as the special purpose liquidator in this application.
The Chairperson, Mr Wallman, abstained from voting. A majority in the number of creditors, that is, 24 of 34, voted against replacing the liquidator of the Company. A majority in the value of creditors voted for the replacement of the Liquidator of the Company.[29]
[29] Affidavit of Cameron Hugh Shaw (23 September 2021) 252 - 255.
That should be understood in context. The majority in value was 70.82% constituted by creditors' claims totalling $625,476. Of that, $510,00, or 81%, was PFF. Two other creditors made up $91,718. That is, PFF and two other creditors made up more that 96% of the value that voted in favour of Mr Wallman's replacement.
After PFF the next largest creditors by a very considerable margin were the Australian Taxation Office ($173,973) and Okewood Pty Ltd ($146,063). It is noteworthy that the ATO voted against the motion and Okewood abstained.
Following the defeat of the motion on 17 August 2021, PFF did not issue the proceedings it had threatened against the directors for insolvent trading. It was not until 23 September 2021 that PFF issued this application. There is no material before me to explain this delay.
The parties' respective positions may be summarised, in broad terms, as follows.

Parties' positions

PFF contends that in all the circumstances, the appointment of a special purpose liquidator is justified. The liquidator's investigations were preliminary and constrained by a lack of funding. On Mr Wallman's own evidence, further investigation is warranted to ascertain whether there are potential claims that may benefit creditors. The proposed special purpose liquidator is prepared to bear the cost of those investigations and only be paid from funds recovered by actions that may ensue, or procure funding from other sources. There is no prospect of funding further investigation or advancing any claims by the present liquidator Mr Wallman. At present, the creditors have in effect, no prospect of any return. The appointment of a special purpose liquidator may possibly bring a benefit to creditors with no risk of the outcome being worse for creditors. As described by Jackson J in Reidy ATF PR Mining Superannuation Fund v Contained Gold, 'there will be no dividend to creditors if the special purpose liquidators are not appointed, and at least the possibility of a dividend if they are appointed'.[30] In colloquial terms, there is something to gain and nothing to lose. PFF also contends that the appointment would give creditors the benefit of a 'second opinion' and a 'different perspective'.[31]
[30] Reidy ATF PR Mining Superannuation Fund v Contained Gold [2020] FCA 268; (2020) 143 ACSR 260 [45] (Reidy v Contained Gold).
[31] Plaintiff's Submissions (26 November 2021) [16].
In those circumstances, the court ought to exercise its discretion to appoint a special purpose liquidator on the terms sought in the application.
On behalf of the present liquidator, Mr Wallman, it was submitted that PFF's approach falls well short of the test. Counsel for FCWA emphasised that before the usual course is disturbed, an applicant must demonstrate the actual utility and benefit to creditors of appointing an additional and separate liquidator. On behalf of FCWA, it was submitted that this test has not been satisfied.

Legal principles

The relevant statutory provisions were previously embodied in s 511 of the Act. It is now (and has been since 1 September 2017) contained in sch 2 of the Act entitled 'Insolvency Practice Schedule (Corporations)'. Clause 90-15 of sch 2 empowers the court to make such orders as it thinks fit in relation to the external administration of a company.
Section 90-20(1)(a) allows for such an application to be made by a person with a financial interest in the external administration of the company. Under s 5-30(a)(ii), a creditor of a company is a person with a financial interest in the external administration of a company. The term 'creditor' when used in relation to a company under external administration means a creditor of the company. PFF's standing to bring the application as a creditor of FCWA was not in dispute.
The provision is cast in very broad and unconstrained terms. Clause 90-15(3) is headed 'Examples of orders that may be made'. The examples include, at cl 90-15(3), an order that another registered liquidator be appointed as the external administrator of the company.
The principles that guided the power previously contained in s 511 continue to be relevant to the statutory power in cl 90-15, including the previously express requirement that the appointment of a special purpose liquidator must be 'just and beneficial'. That threshold requirement remains germane: GDK Projects Pty Ltd, Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq);[32] Lewis v Battery Mineral Resources.[33]
[32] GDK Projects Pty Ltd, Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541 [33] (GDK Projects).
[33] Lewis v Battery Mineral Resources [2021] FCA 963; (2021) 156 ACSR 162 [81] - [82].
The principles guiding the exercise of the power to appoint a special purpose liquidator have been considered in many cases. The relevant principles applicable to this application may be summarised as follows:
(a)it is necessary to identify with specificity the special purposes (or powers) for which the appointment of the special purpose liquidator is sought: Re Atlas Construction Group Pty Ltd (in liq) - Fitz Jersey Pty Ltd v Fraser;[34] GDK Projects;[35]
(b)a special purpose liquidator will not be appointed unless it would be just and beneficial to creditors. The power should not be exercised if the court cannot be satisfied that it would be just and unless the applicant had demonstrated sufficient utility to the external administration: GDK Projects;[36] Fitz Jersery.[37] That necessarily requires an applicant to demonstrate that the appointment for the specified special purposes could potentially lead to a recovery for the benefit of creditors: Lewis v Battery Mineral Resources;[38]
(c)a common instance warranting the appointment of a special purpose liquidator is where it has been demonstrated that there are matters that require investigation with a view to possible recovery for creditors in circumstances where it is of utility and just for such matters to be investigated by a different liquidator such as where the current liquidator has insufficient access to funds, and a creditor is prepared to fund only another liquidator. It remains necessary to demonstrate sufficient utility in such a course: see Melham Pty Ltd, Boka Beverages Pty Ltd (in liq) v Boka Beverages Pty Ltd (in liq);[39] Shangri-La Construction Pty Ltd v GVE Hampton Pty Ltd (in liq);[40]
(d)it is neither necessary nor appropriate to make findings regarding the potential claims in determining an application for the appointment of a special purpose liquidator: GDK Projects;[41] Deputy Commissioner of Taxation v Italian Prestige Jewellery Pty Ltd (in liq).[42] However, an applicant for a special purpose liquidator must demonstrate a reasonable basis for the view that the matters identified warrant investigation and that there is sufficient evidence to support the possibility of an action being brought: Williams & Kersten Pty Ltd v Walton Construction (Qld) Pty Ltd (in liq), re Walton Construction (Qld) Pty Ltd (in liq);[43] and
(e)delay in bringing an application for the appointment of a special purpose liquidator weighs against the application and may be fatal: Lewis v Battery Mineral Resources.[44]
[34] Re Atlas Construction Group Pty Ltd (in liq) – Fitz Jersey Pty Ltd v Fraser [2018] NSWSC 1189; (2018) 129 ACSR 238 [90] (Fitz Jersey).
[35] GDK Projects [2].
[36] GDK Projects [33].
[37] Fitz Jersey [91].
[38] Lewis v Battery Mineral Resources [121].
[39] Melham Pty Ltd, Boka Beverages Pty Ltd (in liq) v Boka Beverages Pty Ltd (in liq) [2019] FCA 1184; (2019) 138 ACSR 95 [57] - [58].
[40] Shangri-La Construction Pty Ltd v GVE Hampton Pty Ltd (in liq) [2021] VSC 161; (2021) 152 ACSR 19 [85] (Shangri-La Construction v GVE Hampton).
[41] GDK Projects [36].
[42] Deputy Commissioner of Taxation v Italian Prestige Jewellery Pty Ltd (in liq) [2018] FCA 983; (2018) 129 ACSR 115 [37].
[43] Williams & Kersten Pty Ltd v Walton Construction (Qld) Pty Ltd (in liq), re Walton Construction (Qld) Pty Ltd (in liq) [2019] FCA 1201 [21].
[44] Lewis v Battery Mineral Resources [129].
This matter also raises particular issues in relation to the funding of any investigations or proceedings to be undertaken by the proposed special purpose liquidator. That is because Mr Wallman has advised that there are no further funds available. That circumstance directs attention to how the special purpose liquidator will be funded.
How a proposed special purpose liquidator will be funded is a matter properly to be taken into account on an application seeking the appointment of a special purpose liquidator: Shangri-La Construction v GVE Hampton.[45] If a special purpose liquidator proposes to enter into a funding agreement, then the agreement will require approval of the court under s 477(2B) of the Act. The principles relevant to approval of a proposed funding agreement (which were summarised by Austin J in Re ACN 076 673 875 Ltd),[46] are also relevant to the application to appoint a special purpose liquidator: Re Jabiru Satellite Limited (in liq) v NewSat Limited (in liq).[47] A liquidator, including a special purpose liquidator, may apply for such approval subsequent to his or her appointment: see Reidy v Contained Gold.[48]
[45] Shangri-La Construction v GVE Hampton [87].
[46] Re ACN 076 673 875 Ltd [2002] NSWSC 578; (2002) 42 ACSR 296.
[47] Re Jabiru Satellite Limited (in liq) v NewSat Limited (in liq) [2022] NSWSC 459 [41].
[48] Reidy v Contained Gold [51].
It is not necessary to have the terms of any funding in place as a precondition of an application for the appointment of a special purpose liquidator. The court may approve the appointment without an understanding of the proposed funding arrangements or the specific terms of any such proposed arrangement, although a funding agreement may be disclosed, and its approval sought simultaneously, with the application for appointment.
It is therefore not strictly necessary for a funding agreement to be disclosed and approved for the court to be moved to appoint a special purpose liquidator. However, in my view, in circumstances where there is a likelihood or serious prospect that a funding agreement will be required and sought, and the terms of that arrangement are undisclosed or not known at the time of the application for appointment, it may be more difficult for the court to be satisfied of the utility of the appointment. That difficultly is likely to be more acute if the potential recovery is modest.

Application

PFF filed this application on 23 September 2021. The application proposes that the special purpose liquidator be appointed for the following purposes:
a.conducting investigations into any of the matters set out in the Schedule [attached to the Application], including by:
i)inspecting the books and records of the Company, excluding any files and working papers of Mr Wallman;
ii)conducting public examinations pursuant to ss 596A or 596B of the Corporations Act or obtaining orders for production pursuant to s 597(9); and/or
iii)requiring statements to be provided pursuant to s 475(2) of the Corporations Act.
b.pursuing any claim, including commencing legal proceedings, that may be available to the Company or the Special Purpose Liquidator in relation to any of the matters set out in the Schedule, including considering and obtaining legal advice in respect of pursuing any such claim;
c.taking any steps in relation to any matters set out in the Schedule, including by commencing legal proceedings, to preserve or to protect the assets of the Company, whether or not in the possession of the Company;
d.exercising any powers conferred on the liquidator of the Company by ss 477 and 506(1)(b) of the [Corporations Act], including the power to seek relief under [ss] 588FF, 1317E and 1317H of the [Corporations Act], in relation to any matters set out in the Schedule, except for the powers contained in s 477(1)(a) of the [Corporations Act]; and
(e)considering any offers of settlement that may be received and pertaining to the matters set out in the Schedule.
The Schedule is as follows:
SCHEDULE
The solvency of the Company at any time prior to its entry into liquidation, including any potential breach by any director or former director (including any shadow or de facto director) of the Company of s 588G of the Act.
Any potential breach of duty (whether statutory, at common law or in equity) by any director, former director, officer, former officer, employee or former employee of the Company and any involvement in those breaches (whether statutory, at common law or in equity) by other individuals and or entities, in respect of the Company.
In the event recoveries are made in connection with these Orders, and Perth Fashion Festival (PFF) seeks to maintain its claim against the Company by way of a Formal Proof of Debt, to do all things necessary in connection with adjudicating on PFF's claim.

Submissions by FCWA's directors

On 7 December 2021, solicitors acting on behalf of the directors of FCWA advised the court that their clients wished to be heard in relation to PFF's application to appoint a special purpose liquidator. On 10 December 2021, in the absence of objection from either party, I made orders for the directors to file any material in support of its application to be heard by 24 December 2021.[49] It was also agreed in the hearing that I would determine the directors' application on the papers.[50]
[49] Transcript, Perth Fashion Festival Pty Ltd (in liq) v Fashion Council WA Ltd (in liq) 10 December 2021, 29.
[50] ts 10 December 2021, 31.
By their submissions, the directions explained that they sought to be heard on the basis that the matters sought to be made the subject of the proposed further examination concerned the conduct of the directors and that PFF had made demand asserting that the directors were liable to PFF for the amount of $510,000. The directors therefore contended that they have a 'significant interest in the outcome of the application'.[51]
[51] Director's Submissions (24 December 2021), 4.
In Smith v Commissioners of the Rural and Industries Bank of Western Australia, Martin CJ explained the relevant principles regarding an application by a non-party to be heard:
The jurisdictional basis for the power of the court to commit intervention by a non-party was examined by Brennan CJ in Levy v The State of Victoria (1997) 189 CLR 579. It is an incident of the court's jurisdiction to hear and determine matters falling within its jurisdiction. Where a non-party's legal rights and interests will be directly affected by the determination of the court, the non-party will have a right to intervene, consistent with basic considerations of procedural fairness. Where the interests of the non-party will be indirectly affected by the determination of the court, the court has a discretion to permit intervention if such intervention would be in the interests of justice.
In this court, the exercise of discretions such as the discretion to permit intervention will be heavily influenced by the considerations enunciated in O 1 r 4A and r 4B, which set out the overriding principles by which the Rules of the Supreme Court 1971 (WA) (the Rules), and the case management powers of the court, are to be construed and administered.[52]
[52] Smith v Commissioners of the Rural and Industries Bank of Western Australia [2009] WASC 100 [41] - [43].
The submissions filed on behalf of the directors did not address those principles particularly. The 'significant interest' identified by the directors is not a 'direct' interest because the application is brought to permit an examination of the conduct of the directors by a proposed liquidator, rather than in aid of an outcome which will directly impact upon their interests. Nevertheless, it may be that the identified interest is indirect, and as neither party objected to the application, I gave leave for the directors to make submissions in the application. Ultimately, those submissions did not add materially to the matters raised on behalf of PFF.

Affidavit evidence

In support of PFF's application, two affidavits were initially filed; one from Mr Shaw dated 23 September 2021 and another from Shumit Banerjee dated 24 September 2021. Mr Shaw, as well as being the liquidator of PFF, is a partner of Hall Chadwick. On 8 October 2021, an affidavit of Mr Wallman was filed by FCWA in response to the application. Mr Wallman, in addition to being the liquidator of FCWA, is a principal of HLB Mann Judd Insolvency WA. In response to Mr Wallman's affidavit, a second affidavit of Mr Shaw was filed on 26 October 2021. On 7 February 2022, Drew Anthony Townsend, a director of Hall Chadwick New South Wales, also filed a responsive affidavit.

Consideration

The principles set out above require the court to be satisfied of the utility of the course proposed by PFF before the usual regime is disturbed and an additional liquidator is appointed. In that regard, PFF has emphasised the provisional or preliminary nature of Mr Wallman's conclusions and the consequential utility of further investigations.
Although Mr Wallman candidly described his views as preliminary and suggested that further investigations were warranted, the views he felt able to express are significant. Other than the preliminary or provisional nature of his views, no criticism is made of Mr Wallman, and none is apparent on the evidence before me. He reviewed the books and records of FCWA and concluded that they were compliant. He identified potential insolvent trading claims and made appropriate demands, but the amounts were modest. His conclusions that the directors may have defences to any claim and that the pursuit of those claims was uncommercial presents as realistic and sensible. He was able to conclude that there was no indication of any material uncommercial transactions, unfair loans, unreasonable director-related transactions or transactions entered into for the purpose of defrauding creditors. I also note Mr Wallman's comment in his letter to creditors of 21 December 2021 that, notwithstanding the lack of funding from creditors, he proceeded with his investigations into the merits of a claim under s 588M of the Act.

Mr Wallman may have candidly accepted that his views could not be more conclusive without further investigation in respect of which he was constrained by lack of funding. But his views were nevertheless reasoned and based on an investigation of FCWA's affairs, including by reference to what he regarded as FCWA's legally compliant books and records.
As I have noted above, while it is not necessary to make findings regarding the potential claims, it is necessary to demonstrate a reasonable basis for the view that the matters identified warrant investigation and that there is sufficient evidence to support the possibility of an action being brought. The potential claims identified by PFF, on the evidence before me, did not in substance rise above assertions. Mr Shaw's evidence was that he has considered all the matters, their complexity and risks.[53] Mr Shaw did not provide any detail or explanation of that consideration. Mr Shaw concluded in his affidavit of 23 September 2021, that 'while there are currently no pleadings against which to assess critically the prospects of the potential claims, I am satisfied on the information before me that those claims appear to have some merit'.[54] In his further affidavit of 26 October 2021, Mr Shaw's evidence was 'following a review of the documents … I formed the opinion that the insolvent trading claims in accordance with ss 588M and 588G at the Act had respectable prospects of success and warranted further investigations'.[55] There is no explanation as to why, in the space of approximately one month, the prospects were elevated by Mr Shaw from 'may have some merit' to 'have respectable prospects'. With respect, those bald assertions by a non-lawyer, without any explanation, do not provide any meaningful assistance to the court in demonstrating that the matters warrant investigation, or that there is sufficient evidence to support the possibility of an action being brought.
[53] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 5 [24].
[54] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 5 [25].
[55] Affidavit of Cameron Hugh Shaw (sworn 26 October 2021), 3 [8].
Moreover, it is plain from the letter from Mendelawitz Morton of 14 June 2021 that PFF must have a sound basis for the claims it asserts and made the subject of strident demands through its lawyers. The letters followed the inspection of FCWA's books and records. Yet, the basis for the claims was not put before the court so that an assessment could be made as to whether there is sufficient evidence to support the possibility of an action being brought.
Further still, the letter of 14 June 2021 stated unqualified conclusions about the date of insolvency and the recoverability of PFF's claims. Those unqualified conclusions stand in marked contrast to the position adopted in this application by PFF that they are matters that require investigation by an additional liquidator. As I have noted above, in December 2020, Mr Wallman, notwithstanding his own reservations about their merits, granted PFF consent to commence the claims that became the subject of the unequivocal contentions and demands in the letter of 14 June 2021. It follows that PFF has undertaken sufficient investigation and analysis to advance the claims and has been given consent to do so.
Counsel for PFF pointed out that the purpose of the proposed appointment was not limited to the insolvency claims the subject of the letter from Mendelawitz Morton of 14 June 2021. The investigations proposed for the special purpose liquidator extended to 'any potential breach of duty, whether statutory, at common law or in equity, by any director or by a range of others'. It is correct that investigatory objects and powers of the special purpose liquidator are sought in extremely wide terms. But that itself serves to suggest their extravagance and lack of evident utility. There is no suggestion on the evidence before me of any breach of the nature suggested by the wording of the schedule.
I turn then to the issue of funding. There is no dispute regarding Mr Wallman's conclusion that no funding is available. Mr Shaw deposed that the expense and risk of further investigations and proceedings will be borne by the special purpose liquidator 'and any persons he may engage, including any litigation funder'.[56] Mr Shaw went on to depose that if the SPL requests funding, then PFF or Hall Chadwick, Mr Shaw's accounting firm, 'will be prepared to fund the [special purpose liquidator] or procure funding…'.[57] In his own affidavit, Mr Banerjee said that if he is appointed then 'PFF or Hall Chadwick may be prepared to fund me or procure the funding…'.[58]
[56] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 7 [43].
[57] Affidavit of Cameron Hugh Shaw (sworn 23 September 2021), 7 [45].
[58] Affidavit of Shumit Banerjee (sworn 24 September 2021), 2 [13].
An affidavit was also filed by Mr Townsend, a director of Hall Chadwick (NSW) Pty Ltd and a substantial holder of the equity in that company. Mr Townsend's evidence was that 'while a funding agreement is yet to be executed, there is no impediment to this occurring once the court grants approval to appoint the SPL'.[59] Mr Shaw added that 'Hall Chadwick (NSW) is willing and able to fund the SPL until completion of his duties'.[60]
[59] Affidavit of Drew Anthony Townsend (sworn 7 February 2022), 2 [9].
[60] Affidavit of Drew Anthony Townsend (sworn 7 February 2022), 3 [10].
On the evidence before me, I am satisfied that there is a very real prospect, if not a probability, that any special purpose liquidator will seek to procure a funding agreement for any recovery action. As I have explained, the absence of a funding agreement does not preclude the appointment of a special purpose liquidator. However, that absence makes the assessment of the utility of the appointment more difficult to determine.
That difficulty presents itself in the following uncontroversial context:
(a)Mr Wallman's assessment is that the identified maximum amount recoverable is $152,000;
(b)Mr Shaw's assessment is that the identified maximum amount recoverable is $1,050,730 (of which $510,000 is the debt claimed by PFF);[61]
(c)the directors maintain that they have defences to, and would presumably contest, any claims. Without descending into the details of the claims and potential defences, there is sufficient information to suggest that that it will involve some level of both legal and factual complexity;
(d)Mr Wallman has given evidence that as at 8 October 2021, he had incurred approximately $100,000 in undrawn remuneration which would be paid in priority to unsecured creditors;[62]
(e)as at 8 June 2021, the liquidators of PFF had already incurred $322,000 (excluding GST) in unpaid 'time costs' in the external administration of PFF and there was less than $2,000 in PFF's liquidation bank account; and
(f)it is plain that since that time, further significant costs in the external administration of both companies has been incurred, including significant legal costs.
[61] Affidavit of Cameron Hugh Shaw (sworn 26 October 2021), 3 [7]; 7 [15].
[62] Affidavit of Kimberley Stuart Wallman (sworn 8 October 2021), 8 [42].
In those circumstances, the usual regime for the priority of payments under s 556 of the Act renders it very difficult to perceive the likely utility of any proceedings. The outcome is more likely to assist the professional service providers than the creditors. Plainly, that is not the object of the legislative regime.
In addition, as I have noted, the utility is obscured by the absence of a possible, if not likely further factor, that could impact very considerably on the commercial utility for creditors. Any funding agreement is bound to impact on the commercial outcome for creditors. Given the modest sums involved, that impact could be overwhelming.
In addition, the delay of some eight to nine months between the time when PFF first stated its intention to apply for the appointment of a special purpose liquidator and when it issued the application, further weighs against the application.
Those matters fall to be considered against the background I have explained above. PFF has inspected the books and records of FCWA and must have come to the view that there is a sound foundation for the matters set out at in [30] above. PFF has already drawn conclusions about the date of insolvency and insolvent trading claims. PFF was granted consent to bring such a claim some considerable time ago, and has not done so. In respect of a broader spectrum of claims for possible breaches of different kinds, PFF has not provided any foundation for concluding that there are prospects of successful claims. Those circumstances militate against the utility of a special purpose liquidator.
Counsel for PFF submitted that there was additional utility to a special purpose liquidator bringing proceedings, rather than PFF pursuant to the consent it had been granted. That is because the special purpose liquidator would have power to obtain the books and records of FCWA. However, it emerged at the hearing that there was no impediment to PFF's access to the books and records of FCWA.
In all the circumstances, I am not persuaded that the appointment of a special purpose liquidator is justified. It follows that the application must be dismissed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

NW
Associate to Justice Solomon

24 JUNE 2022

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA
CITATION: PERTH FASHION FESTIVAL PTY LTD (IN LIQ) -v- FASHION COUNCIL WA LTD (IN LIQ) [2022] WASC 210 (S)
CORAM:   SOLOMON J
HEARD:   ON THE PAPERS
DELIVERED          :   19 DECEMBER 2022
FILE NO/S:   COR 170 of 2021
BETWEEN:   PERTH FASHION FESTIVAL PTY LTD (IN LIQ)
Plaintiff
AND
FASHION COUNCIL WA LTD (IN LIQ)
Defendant

Catchwords:

Costs - Personal costs order sought against liquidator - Whether 'exceptional circumstances' established justifying a personal costs order against liquidator - Indemnity costs - Rejection of Calderbank offer - Whether rejection was unreasonable - Whether conduct of litigation such as to warrant award of indemnity costs against liquidator - Party/party costs

Legislation:

Consolidated Practice Directions, 4.7.1.1

Rules of the Supreme Court 1971 (WA), O 66 r 1

Result:

Plaintiff to pay the defendant's costs of the proceedings on a party/party basis, including any reserved costs, to be taxed if not agreed

Category: C

Representation:

Counsel:

Plaintiff	:	No appearance
Defendant	:	No appearance
Directors of Fashion Council WA Ltd (In liq)	:	No appearance

Solicitors:

Plaintiff	:	Mendelawitz Morton Commercial Lawyers
Defendant	:	Jackson McDonald
Directors of Fashion Council WA Ltd (In liq)	:	Bennett

Cases referred to in decision:

Calderbank v Calderbank [1975] 3 All ER 33
Gove v Black [2006] WASC 298 (S)
Lo Presti v Ford Motor Co of Australia Ltd [No 2] [2008] WASC 12 (S)
Mead v Watson (As liquidator for Hypec Electronics) [2005] NSWCA 133; (2005) 23 ACLC 718
Perth Fashion Festival Pty Ltd (In liq) v Fashion Council WA Ltd (In liq) [2022] WASC 210
Silvia & Anor v Brodyn Pty Ltd (2007) 25 ACLC 385; [2007] NSWCA 55
Strzelecki Holdings Ltd v Jorgensen [2019] WASCA 96

SOLOMON J:

On 24 June 2022, I published my reasons in this matter.[63] The relevant facts are set out in that decision. In summary, the plaintiff's application for appointment of a special purpose liquidator was denied on the basis that there would be insufficient utility in making such an appointment. I made orders programming the filing of submissions and responsive submissions on the question of costs, to be determined on the papers.
[63] Perth Fashion Festival Pty Ltd (In liq) v Fashion Council WA Ltd (In liq) [2022] WASC 210.
The plaintiff submits that there be no order as to costs, or otherwise, that there be a fixed costs order in the amount of $2,227 payable by the plaintiff to the defendant.
The defendant seeks orders that the plaintiff's liquidators personally pay the defendant's liquidators costs of, and incidental to, the plaintiff's application. The defendant seeks that those costs be payable on a party/party basis to 29 October 2021, and on an indemnity basis thereafter.
For the reasons that follow, I will not make a fixed costs order. I also will not order that the plaintiff's liquidator personally bear the defendant's costs. Costs will follow the event, to be taxed if not agreed.

The plaintiff's submissions

The general principles in relation to costs are not controversial. Pursuant to O 66 r 1 of the Rules of the Supreme Court 1971 (WA), the court has absolute discretion to determine all matters of costs. That discretion ought ordinarily to be exercised in favour of the successful party.
The plaintiff contends that the defendant maintained a 'neutral position' and therefore cannot be considered the successful party in this matter.[64] There was some indication early in the proceedings that the defendant may provide a notice to abide, and that they had 'no absolute opposition to this course of conduct'.[65] Ultimately, the defendant did not provide a notice to abide.
[64] Plaintiff's Submissions (14 July 2022) [4].
[65] Transcript, Perth Fashion Festival Pty Ltd (In liq) v Fashion Council WA ltd (In liq), Supreme Court of Western Australia, 5 November 2021, 12.
As matters unfolded, the defendant provided an affidavit and two sets of written submissions in the substantive matter. Counsel appeared on the defendant's behalf at directions hearings and at the substantive hearing and advanced comprehensive oral submissions. The defendant professed neutrality as to the outcome but in reality, assumed the role of contradictor.
I do not accept the submission that the defendant's professed neutrality ought to deprive the defendant of its costs. The position adopted by the defendants was appropriate in all the circumstances. The function of a costs order is not simply to 'reward' a successful party for their win. Particularly where the defendant is the successful party, a costs order protects the defendant from the costs incurred as a result of the plaintiff's action, regardless of how vigorously the application is opposed.
The defendant was put to work and incurred costs by virtue of the plaintiff's ultimately unsuccessful application. There is no reason to oust that general rule in this case. The defendant is entitled to recover its costs from the plaintiff in the ordinary course.
The plaintiff argues in the alternative that the court should fix costs in the relatively small sum of $2,227. The plaintiff draws an analogy between this matter and various items on the Schedule of Standard Costs Orders for Interlocutory Applications at 4.7.1.1 of the Consolidated Practice Directions. Specifically, the plaintiff submits that its application for a special purpose liquidator is analogous to an application to set aside a statutory demand, item 2.5 of the Schedule, and an application for winding up, at item 2.6. I note that both of these items provide for an allowance of more than $2,227; item 2.5 allows for $2,722 for a hearing of no more than 30 minutes, and item 2.6 allows for $3,641 for a hearing of no more than 30 minutes. Additionally, as conceded by the plaintiff in its submissions, the relevant hearing in this application well exceeded 30 minutes in duration.
I do not consider that the analogy is apt in the circumstances. In any event, there is insufficient material before me upon which I might make an appropriate approximation of the costs actually incurred by either side. I am not satisfied that the fixed costs sum sought by the plaintiff is adequate. I am therefore not prepared to make such an order.

The defendant's submissions

I turn now to the orders sought by the defendant. These orders depart from the ordinary course in two respects.
First, the defendant seeks an order that the plaintiff's liquidator be personally liable for costs. Secondly, the defendant seeks partial indemnity costs on the basis of the plaintiff's rejection of an informal Calderbank offer.
I shall deal first with the liability of the liquidator. If an unsuccessful case is brought by a company in liquidation, and the liquidator is not a party to the proceedings, then costs should not be awarded against the liquidator personally unless the liquidator has acted unreasonably.[66] The threshold of 'unreasonableness' required to justify such an order does not necessarily require misconduct or wilful recklessness. It is sufficient that the liquidator unreasonably, dishonestly, or unnecessarily incurred costs.[67]
[66] Silvia & Anor v Brodyn Pty Ltd (2007) 25 ACLC 385; [2007] NSWCA 55 [49].
[67] Mead v Watson (As liquidator for Hypec Electronics) [2005] NSWCA 133; (2005) 23 ACLC 718 [14] - [16].
The defendant submitted that the plaintiff's liquidator had acted unreasonably because:
(a)the liquidator could have pursued alternative courses of action;
(b)there was at all times a deficiency in the assets available to the plaintiff to meet any costs order made against it;
(c)the defendant's liquidator put the plaintiff's liquidator on notice that the application to appoint a special purpose liquidator would likely fail, and maintained that position throughout the proceedings;
(d)the plaintiff's liquidator failed to produce any funding agreement, the absence of which made the application difficult to justify; and
(e)the plaintiff's liquidator had a financial interest in the outcome of the application.[68]
[68] Defendant's Submissions on Costs (13 July 2022) [19].
Although the application was unsuccessful for the reasons I explained in my published reasons, I am not satisfied that the plaintiff's liquidator acted unreasonably or improperly in the relevant sense. The plaintiff's liquidator was moved by the provisional nature of the investigations to date and the inability of the defendant's liquidator to advance further investigations. For the reasons I explained, the application was not granted. But it was not so unreasonable a position, that the usual rule should be displaced.
I turn now to the issue of indemnity costs. The usual position is that an order for indemnity costs will be made only if there is some special or unusual feature in the case to justify departure from the ordinary course. The court has a discretion to award indemnity costs if and when justice so requires.[69]
[69] Lo Presti v Ford Motor Co of Australia Ltd [No 2] [2008] WASC 12 (S) [8].
The defendant seeks an order that any costs incurred after 29 October 2021 be payable on an indemnity basis. The defendant submits that such an order is justified as the plaintiff failed to accept a Calderbank settlement offer.
It is not controversial that an unreasonable rejection of a Calderbank offer may be presented to the court in support of an application for indemnity costs.[70] A rejection of an offer of compromise, even where the settlement is ultimately more favourable to the offeree, does not give rise to any prima facie entitlement to an award of indemnity costs.[71] The court must consider all the relevant circumstances.
[70] Strzelecki Holdings Ltd v Jorgensen [2019] WASCA 96 [82].
[71] Lo Presti v Ford Motor Co of Australia Ltd [No 2] [17].
It is not contested that the offer was made consistent with the principles applied in Calderbank v Calderbank,[72] nor is it contested that the plaintiff did not accept the offer by the acceptance date, being 29 October 2021.
[72] Calderbank v Calderbank [1975] 3 All ER 33.
The applicable test for determining whether rejection of an offer is unreasonable was formulated by Templeman J in Gove v Black[73] and adopted by Beech J in Lo Presti v Ford Motor Co of Australia Ltd [No 2] as follows:
[A] failure to accept an offer may give rise to costs on an indemnity basis if the failure to accept the offer was so unreasonable in all the circumstances that an order for costs on a party and party basis would not be just.[74]
[73] Gove v Black [2006] WASC 298 (S) [45] - [46].
[74] Lo Presti v Ford Motor Co of Australia Ltd [No 2] [19].

The offer was made by letter dated 22 October 2021 and was, in substance, that the plaintiff consent to a dismissal of its application and pay the defendant $10,000 for costs. The offer was open for seven days until 5.00 pm on 29 October 2021. In my view, the plaintiff's rejection of the defendant's settlement offer falls short of the threshold justifying an order for indemnity costs. The plaintiff was being asked to abandon its claim entirely and pay a significant sum of costs to the defendant which were not itemised or otherwise explained in any detail. The plaintiff was asked to accept those terms in seven days. In my view, the failure to accept that offer was not so unreasonable in all the circumstances that an order for costs on a party and party basis would not be just.

Conclusion

Accordingly, I will order that the plaintiff pay the defendant's costs of the proceedings on a party and party basis, including any reserved costs, to be taxed if not agreed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

NW
Associate to Justice Solomon

16 DECEMBER 2022