Re Bluechain Pty Ltd (admin apptd) (No 3)
[2021] VSC 420
•15 July 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2021 00327
IN THE MATTER OF BLUECHAIN PTY LTD (ADMINISTRATORS APPOINTED)
(ACN 129 214 795)
| GLENCURR CONSULTING PTY LTD (ACN 115 541 707) and MARK WILLIAM WINNETT | First Plaintiff Second Plaintiff |
| v | |
| BLUECHAIN PTY LTD (ADMINISTRATORS APPOINTED) (ACN 129 214 795) | First Defendant |
| and | |
| BLUECHAIN PAYMENTS LIMITED (UK Company number 10646000) | Second defendant |
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JUDGE: | DELANY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF RULING: | 15 July 2021 |
CASE MAY BE CITED AS: | Re Bluechain Pty Ltd (admin apptd) (No 3) |
MEDIUM NEUTRAL CITATION: | [2021] VSC 420 |
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COSTS – Plaintiffs and administrators ordered to pay second defendant’s costs - Whether the administrators should be deprived their right of indemnity in respect of those costs and their own costs – Orders made that the administrators are not to be reimbursed - Adelaide Brighton Cement Ltd, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to a Deed of Company Arrangement) (No 6) [2020] FCA 928 applied - Knight v F.P. Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178, Cresvale Far East Ltd (in liq) v Cresvale Securities Ltd (No 2) [2001] NSWSC 791; (2001) 39 ACSR 622, Macks v Hedley [1999] FCA 1208; (1999) 94 FCR 188 cited – Corporations Act 2001 (Cth), s 443D; Insolvency Practice Schedule (Corporations), s 90-15.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr H Somerville | DSS Law |
| For the Second Defendant | Mr M Galvin QC and Mr J Kohn | Brand Partners Commercial Lawyers |
| For the Administrators | Mr J Evans QC | SLF Lawyers |
HIS HONOUR:
This Ruling concerns the costs of an application made by the second defendant, Bluechain Payments Limited (UK Company number 10646000) (‘Payments’) heard on 11 May 2021, seeking an order that the now former administrators, Mr Lawrence and Mr Albarran (‘Administrators’), be removed and replaced as administrators of the Company, or alternatively, an order compelling the Administrators to convene the first meeting of creditors and restraining them from further adjourning that meeting without leave of the Court.
On 12 May 2021, the Court delivered Reasons refusing to remove Mr Lawrence and Mr Albarran as Administrators, compelling them to convene the first meeting of creditors within seven days. The Administrators were restrained from further adjourning that meeting without leave of the Court.[1]
[1]Re Bluechain Pty Ltd (No 2) [2021] VSC 260 (‘Reasons’).
On 14 May 2021 the Court made orders giving effect to the Reasons, extending the convening period for the meeting required by s 439A of the Corporations Act 2001 (Cth) (‘the Act’) and made directions for submissions concerning costs.[2]
[2]The plaintiffs rely on submissions dated 20 May 2021. Payments rely on submissions dated 20 May and 9 June 2021. The Administrators rely on submissions dated 20 May and 15 June 2021.
This Ruling assumes a familiarity with the Reasons. Unless otherwise defined, terms defined in the Reasons are adopted in this Ruling.
Payments seeks an order the plaintiffs, being Glencurr Consulting Pty Ltd (‘Glencurr’) and Mark Winnett, and the Administrators pay its costs of and incidental to the application and hearing on 11 May 2021. Further, an order restraining the Administrators from being indemnified out of the Company’s assets for those costs if such an order is made. The Administrators oppose the application by Payments; they do not seek an order that their costs of the application be paid by either party. The plaintiffs contend the costs of and incidental to the hearing, including their costs, should be borne by Payments, or in the alternative, by the Administrators.
The discretion as to costs
The power and discretion of the court as to costs under s 24 of the Supreme Court Act 1986 (Vic) (‘SCA’) is to be exercised subject to and in accordance with Order 63 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’). The statutory discretion has been described as ‘absolute, unconfined or unfettered’,[3] but as with other discretionary powers, it must be ‘exercised judicially, by reference only to considerations relevant to its exercise and upon facts connected with or leading up to the litigation’.[4]
[3]Innes-Irons v Forrest (Costs) [2017] VSC 10, [5]; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 112.
[4]Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164, 172-173 [24]–[25]; Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534, 557.
Part 4.5 of the Civil Procedure Act 2010 (Vic) (‘CPA’) specifically addresses the Court’s power as to costs. Section 65C provides that ‘in addition to any other power a court may have in relation to costs, a court may make any order as to costs it considers appropriate to further the overarching purpose’. Pursuant to s 7 of the CPA, the overarching purpose in relation to civil proceedings is to ‘facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’.
The application
This proceeding was initiated by originating process filed on 12 February 2021, when the first named plaintiff, Glencurr sought the winding up on just and equitable grounds of the Company, pursuant to s 461(1)(k) of the Act, and the appointment of Mr Albarran and Mr Lawrence as joint provisional liquidators pursuant to s 472(2) of the Act.
On 17 February 2021 orders were made ex-parte appointing Mr Albarran and Mr Lawrence as joint provisional liquidators, adding Mr Winnett as the second named plaintiff, and for the further conduct of the proceeding.
On 16 April 2021 the Court made an order by consent pursuant to s 436B(2)(g) of the Act appointing the provisional liquidators of the Company as Administrators. Liberty to apply was reserved to all parties.
The first meeting of creditors was held on 28 April 2021. The meeting of creditors was adjourned by Mr Lawrence without affording the creditors an opportunity of voting on whether or not to remove the Administrators and if so, to appoint someone in their place, as contemplated by s 436E(4) of the Act. What occurred at the meeting provided the impetus for Payments to apply to the Court pursuant to liberty reserved in the 16 April 2021 orders.
On 11 May 2021 three separate arguments were advanced on behalf of Payments in support of its primary application, the removal of the Administrators. Those arguments failed.[5]
[5]Re Bluechain Pty Ltd (No 2) [2021] VSC 260.
I did not consider there were grounds to order the removal of the Administrators on the basis of apparent or ostensible bias based upon an asserted relationship between the Administrators’ firm and Mr Winnett. I did not consider that the events of the 28 April 2021 meeting required an order for removal. I found that when Mr Lawrence adjourned the first meeting of creditors there was no proper basis for him to have done so without permitting a vote pursuant to s 436B(4) of the Act. Whilst regrettable, I did not consider the events relating to the meeting required removal of the Administrators by the Court. What occurred could be addressed by ensuring the creditors were afforded the opportunity to vote at another meeting.
The third matter relied upon in support of removal concerned contested factual allegations in an affidavit of Mr McNamara filed on behalf of Payments. I did not accept that the contested factual matters in the affidavit, said to support the removal of the Administrators, even if accepted as accurate, provided a sufficient basis for removal.[6]
[6]Ibid, [35].
While declining the application to remove the Administrators, I also rejected the submission on behalf of the Administrators and on behalf of the plaintiffs that the Court should dispense with the need for holding a s 436E first meeting of creditors and make orders which provided for the Administrators to move directly to hold the s 439A meeting. When Mr Lawrence adjourned the first meeting of creditors he informed the meeting, as he had done in his earlier circular to creditors, it was his opinion that the actions of creditors proposing the appointment of an alternative voluntary administrator were inconsistent with the parties’ mutually held views expressed at the Court hearing on 16 April 2021.[7] He said it was his personal opinion that the proposal to appoint Mr Downey as replacement administrator was ‘an attempt to subvert the Court’.
[7]The affidavit referred in error to a hearing on 29 March 2021.
What Mr Lawrence reported to creditors, and what he said at the meeting concerning the Court hearing on 16 April 2021, were incorrect.
In a letter sent by Payments’ solicitors to the Administrators’ solicitors on 27 April 2021, the day before the meeting, any misapprehension on the part of the Administrators about what had occurred and had been said in open Court on 16 April 2021, was corrected. Given that correspondence, what Mr Lawrence said at the meeting and the actions that he took either reflected poor communication, with the letter not being drawn to the Administrators’ attention by their solicitors, or poor judgment if it was. The evidence did not enable a view to be formed as to the true cause of what occurred. If it was due to poor judgment, Mr Lawrence’s conduct at the meeting calls into question his independence.[8]
[8]Reasons, [40].
No matter what the true cause for the adjournment of the meeting on 28 April 2021, it was the adjournment of that meeting that gave rise to the application, and the hearing on 11 May 2021.
Throughout the hearing the plaintiffs and the Administrators continued to oppose an outcome which would permit the creditors to vote as provided for in s 436E(4) of the Act. When a compromise position was proposed for discussion and consideration by the parties, that would have seen a person other than Mr Downey appointed as a replacement administrator, both the Administrators and the plaintiffs refused to support such an outcome.
It was over the opposition of those parties that orders compelling the Administrators to convene the first meeting of creditors within seven days, and restraining them from further adjourning that meeting without leave of the Court, were made.
The plaintiffs’ costs
The plaintiffs contend their costs of and incidental to the hearing should be borne by Payments, or in the alternative, by the Administrators. They expressly declined to make any submission as to whether or not the Administrators should be indemnified out of the assets of the Company in the event an order was made that the Administrators pay the plaintiffs’ costs.
The costs orders sought on behalf of the plaintiffs were opposed both by Payments and by the Administrators.
The plaintiffs referred to Spear v Hallenstein (No 2), submitting that departure from the general rule that costs follow the event is only warranted in ‘special circumstances’.[9] Further, that the Court may award costs in relation to particular questions or issues where there has been ‘mixed success’,[10] and that a successful party may therefore be awarded a portion of its total costs.[11] Referring to Major Engineering Pty Ltd v Helios Electroheat Pty Ltd (No 2) they submitted that apportioning costs is to be determined as ‘a matter of impression and evaluation rather than arithmetic precision’.[12]
[9][2018] VSC 207, [5].
[10]ASIC v Flugge (No 2) [2017] VSC 117; (2017) 342 ALR 478, [129(3)] citing McFadzean v Construction Mining and Energy Union [2007] VSCA 289; (2007) 20 VR 250; (McFadzean), [157] – [158].
[11]Ibid, citing Spotless Group Limited v Premier Building and Consulting Pty Ltd and Northern Suburban Properties Pty Ltd [2008] VSCA 115, [15]; Hughes v Western Australian Cricket Association Inc (1986) 8 ATPR 40–748, 48, 136; Pricom Pty Ltd v Sgarioto (Unreported, Supreme Court of Victoria, Eames J, 24 April 1995), McFadzean, [152].
[12][2006] VSCA 114, [5].
It was submitted the plaintiffs were wholly successful in opposing orders for removal and, in accordance with these principles, should have their costs or at least a significant portion of them.
That submission overlooks the substantive issues on the application and how those issues were determined. Those issues were whether the Administrators should remain in place and the administration proceed directly to the second meeting of creditors; whether the Court should order removal of the Administrators; or whether the creditors should be afforded an opportunity to remove them as provided for in s 436E(4) of the Act, which opportunity had been denied to them at the 28 April 2021 meeting. To contend the question of whether the first meeting of creditors should be convened was an ‘ancillary issue’, as submitted on behalf of the plaintiffs, understates the importance of that issue and the events that provided the catalyst for the application. It also ignores the outcome of the application.
There is no basis to order that any other party pay the plaintiffs’ costs. The plaintiffs were not a successful party, and therefore the usual rule applies, costs should follow the event. It is not appropriate that either Payments, or the Administrators, be ordered to pay any part of the plaintiffs’ costs.
Even though the plaintiffs succeeded on the removal application, that application was not a discrete issue such that a costs apportionment is either appropriate or practical. Instead of removal by the Court, the opportunity to decide whether to remove or not, was given back to the creditors from whom it had been taken on 28 April 2021. The plaintiffs’ position at the hearing was largely aligned with that of the Administrators and in those circumstances there is no proper basis to order that the Administrators pay the plaintiffs’ costs, or any part of them.
The appropriate order concerning the plaintiffs’ costs is that the plaintiffs pay their own costs of and incidental to the application and the hearing on 11 May 2021.
Payments’ costs and the Administrators’ own costs
Payments seeks an order that the plaintiffs and the Administrators pay its costs of and incidental to the application and the hearing on 11 May 2021.
The plaintiffs and the Administrators oppose such orders.
It was the conduct of the Administrators at the 28 April 2021 meeting, a meeting controlled by them, which provoked Payments’ application to have the Administrators replaced. I accept the submission on behalf of Payments that, for whatever reason, the Administrators ignored the contents of the 27 April 2021 letter. That letter clarified any misapprehension the Administrators might have been labouring under about what took place during the 16 April 2021 hearing.
For reasons left unexplained by the Administrators, because they ignored the 27 April 2021 letter, the creditors were deprived of the opportunity to vote to remove them on 28 April 2021. It was because of this that the application was made by Payments, and the Court made orders restoring the creditors’ rights, that they should have been given the opportunity to exercise at the 28 April 2021 meeting. The opposition by the plaintiffs and the Administrators to the orders sought on behalf of Payments was maintained throughout the hearing. The plaintiffs and the Administrators were not successful parties on the hearing of this application.
The Administrators say that notwithstanding these matters, the Court must consider whether, as non-parties, they should be the subject of costs orders and if so, whether it is appropriate that they be required to bear those costs personally.
Referring to Knight v F.P. Special Assets Ltd,[13] the Administrators acknowledge that the jurisdiction to order costs against non-parties, such as an external administrator, is not in doubt. However, they say that the exercise of discretion as to costs against administrators who are non-parties, as is the case here, is different to the case of administrators who are parties to a proceeding.[14] They emphasise that they do not fall into one of the categories identified in Knight,[15] saying that they had no ‘interest’ in the outcome of the application heard on 11 May 2021.[16]
[13][1992] HCA 28; (1992) 174 CLR 178, [192] – [193] (‘Knight’).
[14]Cresvale Far East Ltd (in liq) v Cresvale Securities Ltd (No 2) [2001] NSWSC 791; (2001) 39 ACSR 622, [24], [65].
[15][1992] HCA 28; (1992) 174 CLR 178.
[16]Ibid, [192] – [193].
The Administrators also rely on Macks v Hedley,[17] where the Full Federal Court confirmed the existence of a ‘special position’ of a liquidator in relation to non-party costs orders.[18] In that case the conduct of the liquidator, Macks, was found not to be beyond criticism and was conduct that might be said to fall short of entirely prudent conduct. Nonetheless the Full Court was not satisfied there were compelling reasons, in the interests of justice, to warrant an order for costs against the liquidator.[19]
[17][1999] FCA 1208; (1999) 94 FCR 188, (‘Macks’).
[18]Ibid, [83], [85].
[19]Ibid, [88], referring to Knight [1992] HCA 28; (1992) 174 CLR 178.
The power and discretion in s 24 of the SCA is absolute and unconfined. It must be exercised by considerations relevant to the facts leading up to and connected with the litigation. It is not helpful or productive in that context to approach the position of the Administrators in this case through the Knight[20] lens which is concerned with the position of non-parties.
[20][1992] HCA 28; (1992) 174 CLR 178.
I do not accept that in the circumstances where it was the actions taken by the Administrators at the meeting that led to the hearing, and where the Administrators were legally represented and active participants in that litigation, that the Administrators are correctly regarded for costs purposes as non-parties or persons who should be treated for costs purposes as in a special category, as discussed in Knight,[21] and in Macks.[22]
[21]Ibid, [192] – [193].
[22][1999] FCA 1208; (1999) 94 FCR 188.
The overarching purpose in relation to civil proceedings is to ‘facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’.[23] The real issues in dispute were in dispute because of the actions of the Administrators. At the hearing they, and the plaintiffs, opposed the orders sought on behalf of Payments.
[23]Civil Procedure Act 2010 (Vic), s 7.
In the circumstances that happened both at the meeting and during the hearing, when seeking to give effect to the overarching purpose, in the exercise of the costs power for which s 65C of the CPA provides, and similarly in the exercise of the costs discretion conferred by s 24 of the SCA, the correct parties to bear Payments’ costs of and incidental to the application, and of the 11 May 2021 hearing, are the plaintiffs and the Administrators.
Applying the usual rule that costs follow the event it is appropriate that the plaintiffs and the Administrators be ordered to pay Payments’ costs of and incidental to the application and the hearing on 11 May 2021.
The question of the Administrators’ right to indemnity: the competing contentions
Payments seeks an order that restrains the Administrators from indemnifying themselves out of the assets of the Company in respect of:
(a) any costs which the Administrators may be ordered to pay on the application; and
(b) the Administrators own costs of the application.
Payments submits that unless orders restraining the Administrators from indemnifying themselves out of the assets of the Company, the creditors of the Company, including Payments, will be forced to indirectly bear costs of the application, including Payments’ own costs.
The Administrators submit that an order limiting their right to be indemnified in respect of their costs of dealing with the Application is not an order as to costs but is instead an order altering the statutory rights of administrators under Part 5.3A of the Act.
At the request of the Court, further submissions were provided by Payments and by the Administrators on the question of the Administrator’s right of indemnity raised by the orders for which Payments contends.
As provided for in s 443D of the Act, in general, administrators have a statutory right to be indemnified out of the assets of the company to which they have been appointed:
443D Right of Indemnity
The administrator of a company under administration is entitled to be indemnified out of the company’s property…. for:
(a)debts for which the administrator is liable under Subdivision A or a remittance provision as defined in subsection 443BA(2); and
(aa)any other debts or liabilities incurred, or damages or losses sustained, in good faith and without negligence, by the administrator in the performance or exercise, or purported performance or exercise, of any of his or her functions or powers as administrator; and
(b)the remuneration to which he or she is entitled under Division 60 of Schedule 2 (external administrator’s remuneration).
The Administrators accept that following legislative changes in March 2017, under the relevant subsections of s 90-15 of the Insolvency Practice Schedule (Corporations) set out in Schedule 2 to the Act (‘IPS’), the Court has power to deprive them of their right of indemnity in respect of adverse costs orders against them. Section 90-15 relevantly provides:
90-15 Court may make orders in relation to external administration
Court may make orders
(1)The Court may make such orders as it thinks fit in relation to the external administration of a company.
…
(3)Without limiting subsection (1), those orders may include any one or more of the following:
…
(d)an order in relation to the costs of an action (including court action) taken by the external administrator of the company or another person in relation to the external administration of the company;
…
(5)Without limiting subsection (1), an order mentioned in paragraph (3)(d) in relation to the costs of an action may include an order that:
(a)the external administrator or another person is personally liable for some or all of those costs; and
(b)the external administrator or another person is not entitled to be reimbursed by the company or its creditors in relation to some or all of those costs.
The Administrators rely upon the views expressed by Austin J in Cresvale Far East Ltd (in liq) v Cresvale Securities Ltd (No 2),[24] in support of their submission that the role of an administrator is analogous to that of a trustee in bankruptcy or a liquidator,[25] and that if a costs order is made against them they should not be refused indemnity from the assets of the Company.
[24][2001] NSWSC 791; (2001) 39 ACSR 622 (‘Cresvale’).
[25]Ibid, [20]-[22].
In Cresvale Austin J found:
15The obligation of an administrator to pay costs to another party involved in litigation unsuccessfully defended by the administrator and the company in administration, is a matter distinct from the administrator's entitlement to an indemnity against the company and recoupment out of the company's assets: cf Adsett v Berlouis (1992) 37 FCR 201, 210, as to the analogous position of a trustee in bankruptcy. An order for costs against the administrator imposes a personal obligation on him or her, ordinarily not limited to the assets of the company in administration. Such an order is fully enforceable against the administrator personally by the successful party. The question which then arises, namely whether the administrator is entitled to recoup the amount of costs out of the assets of the company, is a separate question between the administrator and company, not directly involving the successful litigant.[26]
[26]Ibid, [15].
Austin J determined that the Court was authorised to make an order against an administrator personally under the now repealed s 447E(1) of the Act.[27] Section 447E(1) of the Act was previously in the following terms:
[27]Ibid, [95].
Supervision of administrator of company or deed
(1)Where the Court is satisfied that the administrator of a company under administration, or of a deed of company arrangement:
(a)has managed, or is managing, the company’s business, property or affairs in a way that is prejudicial to the interests of some or all of the company’s creditors or members; or
(b)has done an act, or made an omission, or proposes to do an act, or to make an omission, that is or would be prejudicial to such interests;
the Court may make such order as it thinks just.
On the facts Austin J was satisfied that the administrator had:
95…managed the company’s affairs in a way that was prejudicial to the interests of some or all of the company’s creditors and members, by virtue of the improper conduct in which he engaged as administrator. I am also satisfied that Mr Gould, as administrator of Securities under a deed of company arrangement, has done an act prejudicial to such interests, by virtue of defending proceedings for his removal and termination of the deed on the ground of his improper conduct. I therefore have the power to make such an order as I think just, under s 447E (1). It is unnecessary for me to rely upon the inherent jurisdiction of the Court, but I would seek to exercise that jurisdiction if there were any doubt about my power under s 447E. I shall make an order in terms of paragraph 10.[28]
[28]Ibid.
Austin J made orders to the effect that the administrator was not entitled to be indemnified out of the assets of the company in respect of his costs of the proceeding:
87I have said that, in the absence of impropriety, a deed administrator is entitled, and indeed bound, to defend the deed of company arrangement against challenge. It is also appropriate for the administrator to defend himself against removal, in some cases….
88Mr Gould acted improperly in the ways described in my earlier judgment. Although he may have believed that he was acting properly, my view is that no reasonable person in his shoes, knowing what he knew, could have held that belief. It was therefore unreasonable for him to conduct an active defence to proceedings to terminate the deed and remove him from office. His duty to defend the deed was, in effect, superseded by the circumstances of his own wrongdoing.
89There are cases, of which Re Biposo is an example, where an administrator may have acted wrongly but is entitled to defend himself and to defend the deed under which he was appointed. But the difference between the facts of cases of that kind, and the facts of the present case, is in my opinion quite stark. …
90Merkel J reached a similar conclusion in the City & Suburban case, in which the Court ordered the removal of a liquidator. He said:
‘I see no reason why a liquidator ought to be indemnified for his costs of the removal proceeding where, as in the present case:
· the application was a consequence of the conduct of the liquidator and had he not done or failed to do the things successfully complained of by the applicants, the proceedings would be unlikely to have eventuated;
· in the removal proceeding the liquidator unsuccessfully defended his past performance on a factual and legal basis which I have substantially rejected.
Where a liquidator chooses to defend his conduct, as he or she is fully entitled to do, on a factual basis which is successfully challenged by the applicant for removal, it would be an odd result that the liquidator is able to do so at the expense of the company in liquidation, or more accurately, its creditors.’
91In my opinion, Mr Gould’s disentitlement to an indemnity and lien should extend to prevent him from recovering from Securities any of the costs incurred in defending the case, whether nominally on his own behalf as second defendant or on its behalf as first defendant. The reasoning in Re Beddoe and in Adsett v Berlouis suggests that such a result can be imposed in an appropriate case. The trustee’s failure to meet the requisite standard was to have the consequence, according to those cases, that the trustee would meet the whole of the costs incurred in the proceedings personally. Translated to a situation where an administrator appears as a party personally and also conducts the company’s case, a finding that the administrator has fallen well short of the requisite standard may lead to the consequence that all of the costs incurred by the administrator on his own behalf and on behalf of the company are borne by the administrator alone. That seems to me to be the correct result here, in view of my findings.[29]
[29]Ibid, [87]-[91].
The Administrators also rely on Young J’s finding in Re Biposo Pty Ltd,[30] in support of their submission that impropriety as distinct from negligence would ordinarily be required to deprive a liquidator in a voluntary winding up of the right of indemnity. In that case it was argued on behalf of the liquidators, that unless the liquidator had been removed on the grounds of corruption or maladministration, the liquidator was entitled to be indemnified out of the assets of the company. It was accepted by Young J that this was an accurate summary of the law. His Honour expressed his opinion that it was important that courts should endeavour to adopt a common policy to guide the exercise of discretions, including as to costs.[31]
[30](1995) 17 ACSR 730 (‘Re Biposo’).
[31]Ibid, 739.
The Administrators submit there is no reason why they should not be entitled to the benefit of the indemnity. They say that even though the Reasons were critical of the Administrators decision to adjourn the first meeting[32]:
[32]Reasons, [38]-[40].
(a) the Court did not remove the Administrators, which was Payments’ principal application;
(b) the Court did not make findings of impropriety, or of failure to take reasonable care, on the part of the Administrators;
(c) the Court did not find the Administrators chose to ignore the letter of 27 April 2021, and given that Payments did not seek to cross-examine Mr Lawrence, it is inappropriate to seek such a finding by way of inference given it amounts to an allegation of impropriety; and
(d) referring to Macks,[33] it has not been tested whether or not the Administrators decision to adjourn the meeting was based on legal advice which they received at the time, noting that they were legally represented during that period.
[33][1999] FCA 1208; (1999) 94 FCR 188, [86].
The cases upon which the Administrators placed reliance in their written submissions, Cresvale,[34] and Re Biposo,[35] are not cases that consider the broad power now contained in s 90-15 of the IPS. The now repealed s 447E(1) of the Act, as considered and applied in Cresvale,[36] is a power, the exercise of which was conditioned on the existence of conduct ‘prejudicial to the interests of some or all of the company’s creditors or members’.[37] Section 90-15 is not so conditioned. The power in s 90-15(1) is a very broad power to make such orders as the court thinks fit. Section 90-15(3) provides expressly that orders may be made in relation to the costs of an action taken by an administrator or of another person in relation to the external administration. Section 90-15(5) of the Act confers express and specific power to order an administrator to be personally liable for costs and that the administrator not be reimbursed by the company in relation to all or some of those costs.
[34][2001] NSWSC 791; (2001) 39 ACSR 622.
[35](1995) 17 ACRS 730.
[36][2001] NSWSC 791; (2001) 39 ACSR 622, [95].
[37]Repealed s 447E of the Act.
The relationship between s 90-15 of the IPS and the broad power of the Federal Court in relation to costs, power very similar in scope to s 24 of the SCA, was considered by Besanko J in Adelaide Brighton Cement Ltd, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to a Deed of Company Arrangement) (No 6),[38] in the context of deed administrators:
31The power of this Court to award costs in all proceedings before the Court is contained in s 43 of the Federal Court of Australia Act. The award of costs is in the discretion of the Court or judge (s 43(2)). In my view, it must be within the jurisdiction of the Court to determine the order as to costs as between ABCL and the deed administrators. ABCL seeks an order that costs be paid by the deed administrators personally, while the deed administrators seek an order that their liability for costs be limited to the assets of the company. By its terms, the order sought by the deed administrators raises an issue as to the deed administrators’ right of indemnity against the assets of Concrete Supply. Therefore, an issue as to the deed administrators’ right of indemnity arises in the course of the Court’s exercise of its power as to costs.
32In this case, the same result in terms of the deed administrators’ right of indemnity applies whether one is considering the costs the deed administrators are ordered to pay ABCL, or the deed administrators’ own costs. Whether that of itself gives the Court power under its power to make orders as to costs in relation to the deed administrators’ own costs may be debated, but in the circumstances, it is plainly convenient if both matters for which there will be one answer are considered at the same time. This Court has jurisdiction to determine whether the deed administrators are entitled to an indemnity in respect of their own costs under s 90-15 of Sch 2 of the Corporations Act. The examples of the orders that may be made under s 90-15(1) include an order determining any question arising in the external administration of the company and an order in relation to the costs of an action (including court action) taken by the external administrator of the company or another person in relation to the external administration of the company (s 90-15(3)(a), (d)). Section 90-15(5) provides that an order under s 90-15(3)(d) in relation to the costs of an action may include an order that the external administrator and another person is personally liable for some or all of those costs and the external administrator or another person is not entitled to be reimbursed by the company or its creditors in relation to some or all of those costs...
33 In summary, I have the power to determine whether the deed administrators have a right of indemnity with respect to the costs of the proceeding they are ordered to pay to ABCL by reason of the power I have to make orders as to the costs of the proceeding. If I am wrong about that, I have such power under s 90-15 in Sch 2 of the Corporations Act. I have the power under s 90-15 to determine whether the deed administrators’ right of indemnity extends to their own costs of the proceeding.[39]
[38][2020] FCA 928.
[39]Ibid, [31]-[33].
The factual circumstances that led to the application being made in this case are very similar to those referred to in the passage from City & Suburban Pty Ltd v Smith (liq of Conpac (Aust) Pty Ltd (in liq)),[40] quoted with approval by Austin J in Cresvale:
the application was a consequence of the conduct of the liquidator and had he not done or failed to do the things successfully complained of by the applicants, the proceedings would be unlikely to have eventuated.[41]
[40][1998] FCA 933 (‘City & Suburban’).
[41][2001] NSWSC 791; (2001) 39 ACSR 622, [90], citing City & Suburban [1998] FCA 933, 5.
In City & Suburban Merkel J went on to say:
Where a liquidator chooses to defend his conduct, as he or she is fully entitled to do, on a factual basis which is successfully challenged by the applicant for removal, it would be an odd result that the liquidator is able to do so at the expense of the company in liquidation, or more accurately, its creditors.’[42]
[42][1998] FCA 933, 5.
That same odd result would occur in this case if the Administrators are permitted to rely on the statutory right of indemnity. As submitted on behalf of Payments if the Administrators are entitled to be indemnified, even though successful in obtaining an order for its costs, Payments as a creditor of the Company, would end up bearing those costs in the form of a reduced return to all creditors, including Payments, whether as a result of a Deed of Company Arrangement, or on a winding up.
The Administrators accept that, under s 90-15 of the IPS, the Court has power to deprive them of their right of indemnity in respect of adverse costs orders against them. However, the language of ss 90-15(3)(d) and 90-15(5) of the IPS goes beyond indemnity for adverse costs orders against administrators. It includes power to order that administrators are not entitled to be reimbursed by the company or its creditors in relation to ‘some or all of those costs’; ‘those costs’ being a reference to ‘an order in relation to the costs of an action’.
Having regard to the express power in ss 90-15(1) and 90-15(5), I do not accept the submission on behalf of the Administrators that, if orders are made as contended for on behalf of Payments, that such orders are not orders as to costs, but are orders altering the statutory rights of the administrators under Part 5.3A of the Act. The Administrators submitted that for that reason, such orders cannot, or should not be made. Even if the orders sought do alter statutory rights such an alteration is expressly countenanced by ss 90-15(3)(d) and 90-15(5) of the IPS.
Sections 90-15(3)(d) and 90-15(5) of the IPS do not give guidance as to the circumstances in which an order depriving an administrator of the right of indemnity might appropriately be made. Clearly the Court has a broad discretion, to be exercised judicially, in the same way that the Court is bound to act when exercising the costs discretion in s 24 of the SCA and in the Rules.
I consider the present case is one in which it is appropriate to deprive the Administrators of the statutory right of indemnity as contemplated by s 90-15 of the IPS. That is so both in respect of the costs I have found the Administrators should pay to Payments, and in respect of the Administrators own costs of and incidental to the application and the hearing. Dealing in turn with each of the matters relied upon by the Administrators, as set out at paragraph 53 above:
(a) removal by the Court was not necessary when, consistent with the purposes of Part 5.3A of the Act, orders could be made placing the control of the determination of whether or not to remove the Administrators back in the hands of the creditors;
(b) section 90-15 of the IPS does not require findings of impropriety, or of failure to take reasonable care, on the part of the Administrators in order that the broad power in s 90-15(1), and the specific powers ss 90-15(3)(d) and 90-15(5) be exercised. An order will appropriately be made in cases including those where, as here, the application and therefore the costs of it, were the consequence of the conduct of the Administrators;
(c) it is correct that the Court did not find the Administrators chose to ignore the letter of 27 April 2021 and also that Payments did not seek to cross-examine Mr Lawrence. However it is also the case that the Administrators chose not to provide evidence as to the circumstances in which the meeting proceeded as it did on 28 April 2021, following the letter of 27 April 2021. The Administrators were represented at the hearing on 16 April 2021. The letter of 27 April 2021 was sent to their solicitors. There is no requirement that impropriety be established as a precondition to the making of an order pursuant to s 90-15 of the IPS, depriving the Administrators of the right of indemnity; and
(d) if the Administrators decision to adjourn the meeting was based on legal advice, that is no answer. The letter of 27 April 2021 was sent to the solicitors who were acting on behalf of the Administrators. If the solicitors failed to draw the letter to the attention of Mr Lawrence, they permitted him to proceed to adjourn the meeting based on an erroneous assumption as to what had taken place in open Court on 16 April 2021. That might mean that the ultimate costs burden as between the Administrators and their solicitors should lie with the solicitors, but it is not a reason, if it be the case, not to make an order that ensures that Payments and the creditors are not fixed with the costs burden of the hearing that followed.
As I have earlier found, the actions taken by Mr Lawrence at the meeting on 28 April 2021 caused the application to be made by Payments and resulted in the contested hearing on 11 May 2021. As noted in the Reasons, I accepted that if there had been a vote at the meeting on 28 April 2021, it was likely the Administrators would have been removed.[43] I refused to order a restriction on those who might vote upon the question of removal as was urged in opposition to the application by the Administrators.[44]
[43]Reasons, [14].
[44]Ibid, [49].
In these circumstances it is appropriate that orders be made pursuant to s 90-15 of the IPS that the Administrators are not entitled to be reimbursed by the Company, or by its creditors, in relation to the costs that they are ordered to pay Payments of and incidental to the application and the hearing, or in relation to their own costs.
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