Re Bonnie View Petroleum Pty Ltd (in liq)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

CORPORATIONS LIST

S CI 2015 03909

IN THE MATTER of BONNIE VIEW PETROLEUM PTY LTD (ACN 110 006 052) (in liquidation)

BETWEEN

UNITED PETROLEUM PTY LTD (ACN 085 779 255)	Plaintiff
v
BONNIE VIEW PETROLEUM PTY LTD (ACN 110 006 052) (in liquidation) AND OTHERS (according to the attached schedule)	Defendants

- and -

S CI 2015 05473

IN THE MATTER of BONNIE VIEW PETROLEUM PTY LTD (ACN 110 006 052) (in liquidation)

UNITED PETROLEUM PTY LTD (ACN 085 779 255)	Plaintiff
v
BONNIE VIEW PETROLEUM PTY LTD (ACN 110 006 052) (in liquidation) AND OTHERS (according to the attached schedule)	Defendants

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JUDGE:	Randall AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	30 November 2015, 3 December 2015, 16 September 2016, 4 November 2016 and supplementary submissions dated 11 August 2017 and 18 August 2017
DATE OF JUDGMENT:	31 August 2018
CASE MAY BE CITED AS:	Re Bonnie View Petroleum Pty Ltd (in liq)
MEDIUM NEUTRAL CITATION:	[2018] VSC 489

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COSTS – Where applications are fully heard but rendered inutile by a supervening event prior to final determination – Where action of one party caused the supervening event – Whether the merits of the applications should be considered – Whether costs order should be made.

CORPORATIONS – Winding Up – Disclaimer of contract and lease of land by liquidators – Whether disclaimers should be set aside – Whether leave of Court was required by liquidators to disclaim the contract – Whether purportedly disclaimed contract was unprofitable – Whether party had standing to seek order setting aside disclaimer of lease of land – Consideration of prejudice in respect of disclaimer of lease of land – Corporations Act 2001 (Cth), ss 568(1A), 568(8), 568B, 568C, 568D.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S R Horgan QC with Mr C Moller	K&L Gates
For the First, Second and Third Defendants	Mr M J Galvin QC with Mr J Kohn	Meerkin & Apel
For the Applicant for intervention	Mr N P Jones	Still & Co

TABLE OF CONTENTS

Introduction

Factual background

Applicable principles – Costs

General principles
Costs upon discontinuance or supervening event

Submissions

United’s submissions
Liquidators’ submissions

Merits of the Disclaimer Proceedings

Consideration of the merits
Legislative provisions
Side Agreement Disclaimer Proceeding
Issues for determination
Section 568(8): Liquidators’ disentitled from disclaiming?
Section 568(1A): Was the Side Agreement unprofitable?
Applicable principles
Liquidators’ submissions
United’s submissions
Consideration

Conclusion

Original Lease Disclaimer Proceeding
Issues for determination
Section 568(8): Liquidators were not disentitled from disclaiming
Section 568B(1): United’s standing
‘Interest in disclaimed property’
‘Claims to have’

Section 568B(3): Prejudice calculation
Temporal issue
Preferable interpretation
Limited relevance to this costs application
Submissions
Questionable prejudice
Grossly disproportionate prejudice?

Conclusion

Costs of the Disclaimer Proceedings

Reasonableness of the parties
Costs of the Side Agreement Disclaimer Proceedings
Costs of the Original Lease Disclaimer Proceedings

Orders

HIS HONOUR:

Introduction

This decision relates to the costs of these two proceedings, being S CI 2015 03909 (‘Side Agreement Disclaimer Proceeding’) and S CI 2015 05473 (‘Original Lease Disclaimer Proceeding’). These proceedings, which are together referred to in these reasons as the ‘Disclaimer Proceedings’, comprised applications pursuant to s 568B(1) of the Corporations Act 2001 (Cth) (‘Act’) by the plaintiff in each proceeding, United Petroleum Pty Ltd (‘United’), seeking an order of the Court setting aside disclaimers of certain property of the first defendant in the Disclaimer Proceedings, Bonnie View Petroleum Pty Ltd, which is now in liquidation (‘Bonnie View’). The disclaimers were made under the Act by the liquidators of Bonnie View, being the second and third defendants in each of the Disclaimer Proceedings, Glenn Anthony Crisp and Malcolm Kimbal Howell (‘Mr Howell’) (together, ‘Liquidators’).

Despite the Disclaimer Proceedings having been fully heard, the parties now agree that these proceedings have been rendered inutile due to certain supervening events. There is accordingly no need for a final determination to be made in respect of the applications made by United. However, both United, on one hand, and the Liquidators, on the other hand, now seek an order for their costs in the Disclaimer Proceedings.

Where, prior to a hearing on the merits of a proceeding, there has been a supervening event that has so altered the subject matter of the proceeding, the Court will ordinarily make no order in respect of the costs of that proceeding. But in the Disclaimer Proceedings, United’s applications were fully heard and subject to full submissions of the parties. The supervening event then occurred after the hearings had finalised but before final determination. In those circumstances, it is permissible for the Court, in considering whether to make a costs order in the Disclaimer Proceedings, to consider the reasonableness of the parties in conducting the litigation and the merits of United’s applications, and the Liquidators’ response to those applications, on the premise that the relevant supervening event had not occurred.

In accordance with that approach, and for the reasons set out below, I order that the Disclaimer Proceedings be dismissed with orders that:

(a) the Liquidators pay United’s costs of the Side Agreement Disclaimer Proceeding; and

(b) United pay the Liquidators’ costs of the Original Lease Disclaimer Proceeding.

Factual background

The Disclaimer Proceedings were satellite litigation to substantive proceedings before Kennedy J in proceeding S CI 2015 01438 (‘Substantive Proceeding’). Her Honour handed down judgment in the Substantive Proceeding on 21 April 2017,[1] as further detailed at [37]. The reasons for that judgment provide an extensive outline of the facts relevant to the Disclaimer Proceedings.[2] Given the only issue now before the Court is the costs of the Disclaimer Proceedings, I will provide only a cursory overview of the most relevant facts.
[1]United Petroleum Pty Ltd v Bonnie View Petroleum Pty Ltd (In Liquidation) [2017] VSC 185 (21 April 2017).
[2]Ibid [18]–[132] (Kennedy J).

Until the liquidation of Bonnie View, it conducted a retail petroleum business from various sites in Victoria, including a service station (‘Sale Business’) at the corner of Foster and York Street, Sale Victoria (‘Sale Site’).

Bonnie View entered into a lease as lessee of the Sale Site on 15 June 2008 (‘Original Lease’). The Original Lease relevantly provided that:

(a) the base rent for the Sale Site was $200,000 per annum plus GST, being payable monthly at the rate of $18,333.33 including GST;

(b) the term of the lease was 15 years, commencing 15 June 2008;

(c) there was a prohibition against the transfer of the lease or subletting the Sale Site without the written consent of the landlord of the Sale Site, which was not to be unreasonably withheld. The landlord as at the date of execution of the Original Lease was Gippsland Petroleum Group Pty Ltd. On 10 June 2009, Thomas Coad and Vicki Dianne Dunn (‘Landlords’) became the joint registered proprietors of the Sale Site;

(d) to obtain the landlord’s consent to a transfer or a sub-lease, Bonnie View must (inter alia) remedy any breach of the lease;

(e) the landlord is entitled to terminate the lease, by re-entry or notice of termination, if the rent were overdue for 14 days or if the tenant was a corporation which went into liquidation or administration.

On 14 May 2010, Bonnie View, then under a previous name, sold its retail petroleum business, including the Sale Business, to United. Settlement under the sale of business agreement between United and Bonnie View (‘Sale Agreement’) was scheduled for 1 September 2010. However, after due diligence and prior to settlement, United discovered that the Sale Site was significantly contaminated. The estimate to remediate the Sale Site was between $666,000 and $799,200.

On 1 September 2010, United and Bonnie View entered into an agreement (‘Side Agreement’) in relation to the Sale Site. The Side Agreement relevantly and broadly provided that:

(a) Bonnie View would:

(i) appoint a consultant to prepare a remediation action plan for the Sale Site and prepare that plan within six months of the settlement date; and

(ii) commence remediation works on the Sale Site within twelve months of the settlement date and complete such works within a period of three years of the settlement date; and

(b) if Bonnie View failed to comply with one of the obligations above, United could elect to take from Bonnie View an assignment of the lessee interest in the Original Lease (and Bonnie View would do all things necessary to secure that assignment) and further demand from Bonnie View the remediation costs and expenses for the Sale Site.

As security for Bonnie View’s obligations under the Side Agreement, Bonnie View would provide a bank guarantee for $400,000 (‘Bank Guarantee’) and United was also entitled to withhold an amount of $100,000 from the purchase price under the Sale Agreement (‘Retention Amount’).

Prior to any remediation works or transfer of the Original Lease, Bonnie View went into voluntary administration and then liquidation. The Liquidators were first appointed as joint and several administrators on 23 February 2015.

After the appointment of administrators, United wrote to the Liquidators (then as administrators) on 27 February 2015. The letter stated that Bonnie View had not remediated the Sale Site and that United has not yet made an election in respect of that breach of the Side Agreement. The letter further set out that United intended to:

… cash the [Bank Guarantee] strictly on the basis … in doing so, United is not making an election under the Side Agreement.
…
For the avoidance of doubt, United reserves all its rights under the Side Agreement – including its right to make an election – and the cashing of the [Bank Guarantee] is in no way to be construed an election by United under the Side Agreement. The monies making up the [Bank Guarantee] will be… held in full pending an election and will not be used or applied to remediate the [Sale Site] or for any other purpose.

On 14 March 2015, Bankwest confirmed with the Liquidators (then administrators) that United had cashed the Bank Guarantee.

On 26 March 2015, the Landlords wrote to the Liquidators (then administrators) purporting to terminate the Original Lease due to unpaid rent.

On the same day, United wrote to Bonnie View formally requesting an assignment of the Lease, stating as follows:

… United requires you to assign the lease to it with immediate effect. In so doing, United is entitled to (and will) retain the full amount of the [Bank Guarantee] in order to remediate the [Sale Site] to the Remediation Standards.

By way of separate letter of the same date, United wrote to the Landlords, referring to an earlier discussion of 19 March 2015, and asserted that:

…on 19 March 2015, we had an agreement to lease the [Sale Site] from you on the agreed terms. Through the course of your discussions with Mr Carmeli [being the National Real Estate Manager at United], you accepted the terms and agreed to be bound by the terms. There is a clear and concluded lease on the agreed terms; alternatively, an agreement to lease.

A meeting of creditors was convened under s 439A of the Act and held on 30 March 2015. At that meeting the creditors resolved to wind up Bonnie View and the Liquidators (until then the administrators) became the liquidators of Bonnie View for the purposes of the winding up.

On 31 March 2015, United launched the Substantive Proceeding in this Court. United alleged that Bonnie View committed breaches of the Side Agreement, in particular by, first, failing to remediate the Sale Site and, second, failing to take necessary steps to assign the lease when United required it to do so in March 2015.

On 2 April 2015, an interim injunction was granted by Zammit J restraining the Landlords from taking any further steps to terminate the Original Lease and from entering into a lease over the Sale Site with a third party.[3] By way of order of Bell J on 17 April 2015, the injunction was continued until after the Substantive Proceedings were finalised.
[3]United Petroleum Pty Ltd ACN 085 779 255 v Coad (Unreported, Supreme Court of Victoria, Zammit J, 2 April 2015).

On 15 April 2015, following on from previous correspondence, United’s solicitors wrote to the Liquidators’ solicitors. That letter summarised United’s position in relation to the contamination at the Sale Site and sought an undertaking that Bonnie View would not purport to disclaim the Side Agreement or the Original Lease until the Substantive Proceeding was finalised. United’s solicitors further requested that the Liquidators provide United with 14 days written notice of any intention of the Liquidators to disclaim the Side Agreement or the Original Lease.

On 16 April 2015, the Liquidators’ solicitors replied to United’s solicitors’ letter, advising that Bonnie View would not give an undertaking not to disclaim, and setting out reasons for that position.

On 28 April 2015, United filed a statement of claim in the Substantive Proceeding, seeking:

(a) to enforce the purported agreement with the Landlords made on or about 19 March 2015, as referred to in the passage of the letter from United’s solicitors to the Landlords dated 26 March 2015 extracted at [16];

(b) to have Bonnie View do all things necessary to procure an assignment of the Original Lease to United; and

(c) damages from Bonnie View for breaching the Side Agreement by not remediating the Sale Site and by failing to assign the Original Lease to United.

Mr Coad, one of the Landlords, filed a defence in the Substantive Proceeding, asserting that it was the Landlords’ intention that no agreement with United would be final until written documents were executed.

Bonnie View counterclaimed in the Substantive Proceeding. Bonnie View claimed that United was not entitled to keep the Bank Guarantee and the Retention Amount and also sought orders with respect to the calling of the Bank Guarantee being a void disposition under s 468 of the Act.

On 29 June 2015, the Liquidators’ solicitors wrote to United’s solicitors further setting out Bonnie View’s position, including stating that ‘the Liquidators are desirous to disclaim the Side Agreement’. This refers to the statutory power of disclaimer under Division 7A of the Act, the relevant parts of which are discussed at [63]–[65]. As will be discussed below, a liquidator may only disclaim a contract of the company in liquidation without the leave of the Court if that contract is ‘unprofitable’ or a lease of land. The letter from the Liquidators’ solicitors in particular provided as follows:

16.If United believes the Side Agreement is not unprofitable or leave is required we request that you advise us in writing by 4pm on 2 July 2015. Also, if United believes that the Side Agreement is not unprofitable, would you please advise what monies are payable by Bonnie View to United under the Side Agreement. Upon receipt we will consider same [sic].
17.If we do not receive an appropriate response by the date outlined above, we are instructed that the liquidators will disclaim the Side Agreement immediately thereafter. …

On 2 July 2015, United’s solicitors wrote back to the Liquidators’ solicitors. That letter contended that the Side Agreement was not unprofitable. Notwithstanding Bonnie View’s non-compliance with its remediation obligations, the letter provided that:
(d)Upon the assignment of the Lease to United, [Bonnie View] will not be subject to any ongoing remediation obligations under the Side Agreement (whether pursuant to clause 2.3, 2.4 or 2.7) or otherwise.
(e)For that reason, the Side Agreement cannot be said to ‘[impose] on [Bonnie View] a financial obligation which is detrimental to the creditors, prospective liabilities [sic] and it will delay the orderly winding up of [Bonnie View]’. The only relevant ‘financial obligation’ to which [Bonnie View] would be subject is its liability to United for damages for breach of contract. However, that liability has already been incurred and is not prospective.
The letter subsequently provided as follows:
(g)Further, the [Original Lease] is subject to the Retail Leases Act 2003 (Vic). By the operation of s 62 of that Act, provided the relevant disclosure statement was provided, [Bonnie View] would be released from liability to perform any obligations under the [Original Lease] following its assignment.
(h)In that regard, we are instructed that United will co-ordinate and pay for the preparation of relevant assignment documentation, thereby relieving your clients from the burden (financial or otherwise) of doing so.
(i)Finally, the practical effect of an assignment would be that United would assume the day- to- day operation of the Sale Site, thereby relieving [Bonnie View] of responsibility for doing so. Thus, an assignment would relieve [Bonnie View] of “financial obligations and prospective liabilities” and would allow the Liquidators to progress an orderly winding up.
3.Given that disclaimer of the Side Agreement would potentially remove the basis for an assignment by [Bonnie View], and thereby the advantages to [Bonnie View] identified in subparagraph 2(i) above, we do not understand why the liquidators are contemplating the disclaimer. We would have thought that they would rush to do all things necessary to procure the assignment of the [Original Lease].

On 15 July 2015, the Liquidators’ solicitors replied to the letter above. They contended that the arguments of United’s solicitors in opposition to the Liquidators’ right to disclaim the Side Agreement were misconceived. The grounds put by the Liquidators’ solicitors included the following:

(a)There are substantial prospective liabilities which [Bonnie View] would need to incur pursuant to the Side Agreement which, if they were to be incurred, would bring either little or no return to [Bonnie View’s] creditors.
(b)The winding up of [Bonnie View] would be significantly delayed if the remediation works were to be carried out. For example, an independent environmental auditor would need to be appointed who would then need to prepare a report which would have to be put into place. This would delay the winding up of [Bonnie View] and the payment of any returns to creditors.
(c)[Bonnie View] does not have any funds other than the [Bank Guarantee] amount referred to in the Side Agreement to pay for an independent environmental auditor and to carry out remediation works of the [Sale Site].
(d)It is improper for your client to insist that [Bonnie View] carry out remediation works in circumstances where your client has unlawfully retained the [Bank Guarantee] amount and refuses to relinquish same.
(e)Furthermore, the remediation works are only required to be carried out if your client elects to take an assignment of the lease. It is unreasonable for your client to insist on the [Bank Guarantee] monies to be used to pay for the remediation works in circumstances where your client has refused to make an unequivocal election to take an assignment and pay the sum of $100,000 which was payable immediately after an election being made.
(f)Even if an election was made by your client, the Side Agreement is unable to be complied with since [the Landlords have] served a notice of termination of the [Original Lease] on [Bonnie View] and has expressed an unwillingness to assign the [Original Lease] to your client.

(g)Our clients do not require the Side Agreement to assign the [Original Lease]. Under the [Original Lease], our clients can assign the [Original Lease] to any other party pursuant to the [Landlords’] consent. The Side Agreement merely states this obligation and does not create it. Accordingly [Bonnie View] does not require the Side Agreement to exercise this right.
(h)Even if the [Landlords were] willing to consent to an assignment of the [Original Lease] to your client, [Bonnie View] is unable to remedy the defaults pursuant to the [Original Lease]. For example, [Bonnie View] is unable to pay the outstanding rent and rectify the fact that it is under external administration.
(i)It is unreasonable for our client to insist that the [Landlords] assign the [Original Lease] to your client in circumstances where your client has refused to pay the outstanding rent and agree to be bound by the existing lease terms.
(j)As your client is not intending to pay any monies to [Bonnie View] pursuant to the Side Agreement, adhering to the Side Agreement will only necessitate further costs and obligations on [Bonnie View]. Therefore…no profit can be generated by [Bonnie View] and therefore adhering to the Side Agreement will be unprofitable for [Bonnie View].

On 15 July 2015, the Liquidators served a disclaimer notice under s 568A of the Act in respect of the Side Agreement (‘Side Agreement Disclaimer’).

On 29 July 2015, United made an application under s 568B(1) of the Act to set aside the Side Agreement Disclaimer in the Side Agreement Disclaimer Proceeding. United alternatively sought orders or declarations under s 1321 of the Act that the Side Agreement is not an ‘unprofitable contract’ for the purposes of s 568(1A) of the Act, therefore rendering leave of the Court mandatory for the Liquidators to disclaim the Side Agreement.

On 9 October 2015, the Liquidators served a disclaimer notice, again under s 568A of the Act, in respect of the Original Lease (‘Original Lease Disclaimer’).

On 21 October 2015, United made an application, again under s 568B(1) of the Act, to set aside the Original Lease Disclaimer in the Original Lease Disclaimer Proceeding. United alternatively sought orders with respect to obtaining an assignment of the Original Lease if that disclaimer was not set aside.

On 30 November 2015 and 3 December 2015, I heard United’s applications in the Disclaimer Proceedings. Throughout the hearing of these applications I have voiced my concerns about the interrelationship between the Disclaimer Proceedings and the Substantive Proceeding. In deference to the Substantive Proceeding, I reserved formulating a judgment on United’s applications in the Disclaimer Proceedings.

On 5 July 2016, prior to trial of the Substantive Proceeding, United settled with the Landlords in the Substantive Proceeding under a settlement agreement (‘Landlord Settlement Agreement’). As part of the terms of the Landlord Settlement Agreement, United obtained a new lease for the Sale Site (‘New Lease’). It was accordingly no longer necessary in the Substantive Proceeding for the Court to consider orders in respect of the assignment of the Original Lease or United’s claims against the Landlords.

On 15 July 2016, Riordan J dissolved the injunction referred to at [19].

On 16 September 2016, the Liquidators obtained leave to reopen their defence in the Disclaimer Proceedings and tender evidence of the Landlord Settlement Agreement and the New Lease.

On 4 November 2016, I heard the parties in relation to the future evidence of the Landlord Settlement Agreement and the New Lease and reserved my decision. Given Kennedy J was yet to hear and determine the Substantive proceedings, I remained reluctant to make any determination which interfered with the Substantive Proceedings.

On 21 April 2017, Kennedy J upheld United’s claims against Bonnie View in the Substantive Proceeding, awarding United damages of $890,238.26, and dismissing Bonnie View’s counterclaim.[4] Kennedy J also relevantly held that United was entitled to declarations that:
[4]United Petroleum Pty Ltd v Bonnie View Petroleum Pty Ltd (In Liquidation) [2017] VSC 185 (21 April 2017).

(a) demand and retain the payment of the Bank Guarantee;

(b) retain the Retention Amount; and

(c) apply the Retention Amount and the proceeds of the Bank Guarantee against the damages owed by Bonnie View.

On 22 June 2017, United’s application that the Liquidators pay United’s costs of the Substantive Proceeding was subsequently dismissed.[5]
[5]United Petroleum Pty Ltd v Bonnie View Petroleum Pty Ltd (In Liq) (No 2) [2017] VSC 334 (22 June 2017). United was ordered to pay the Liquidators’ costs of that application.

On 24 July 2017, I granted leave for the parties to file further submissions in respect of the costs of the Disclaimer Proceedings.

Applicable principles – Costs
General principles

Unless otherwise provided by statute, the Court has an untrammelled discretion to determine by whom and to what extent the costs of conducting proceedings are to be paid.[6] The Court’s discretion as to costs is ‘absolute and unfettered’ but one that is to be exercised ‘judicially, that is to say, not by reference to irrelevant or extraneous considerations, but upon facts connected with or leading up to the litigation.’[7]
[6]Supreme Court Act 1986, s 24(1).
[7]Latoudis v Casey (1990) 170 CLR 534, 557 (Dawson J).

Costs upon discontinuance or supervening event

The application for the award of costs in the Disclaimer Proceedings raises the issue of how a Court should deal with supervening events that have rendered proceedings inutile or futile. A number of the relevant authorities on that issue are considered in chronological order below.

The leading authority is the judgment of McHugh J in Re Minister for Immigration & Ethnic Affairs; Ex Parte Lai Qin[8] (‘Lai Qin’). That case involved an unsuccessful applicant for a protection visa bringing proceedings for prerogative orders directed to the Minister for Immigration and Ethnic Affairs. The Minister subsequently reviewed the earlier decision to refuse a protection visa and instead decided to grant the applicant a protection visa. Further prosecution of the proceedings was thereby rendered unnecessary. The applicant sought an order that the Minister pay her costs of the proceedings. The basis for the application was not simply that, by the Minister undertaking a review and granting the protection visa, the applicant had achieved practical success, but rather that the Minister acted unreasonably in not informing the applicant prior to her commencing the proceedings that he intended to review her application for a protection visa.
[8](1997) 186 CLR 622, 625 (McHugh J).

McHugh J held in Lai Qin that the Minister‘s conduct was not so unreasonable and did not justify making a costs order against the Minister. McHugh J stated the relevant principles as follows:

In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action…
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried… But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.[9]

[9]Ibid 624-625 (citations omitted).

In ONE.TEL Ltd v Deputy Commissioner of Taxation,[10] Burchett J considered the principles identified in Lai Qin. Based on Lai Qin, amongst other relevant authorities, his Honour then drew the distinction between:

cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs.[11]

[10](2000) 171 ALR 227.

[11]ONE.TEL Ltd v Deputy Commissioner of Taxation (2000) 171 ALR 227, 231–232 (Burchett J).

In Yates Property Corporation Pty Ltd v Boland[12] (‘Yates’), Goldberg J referred to a number of cases where the issues before the Court were either resolved by settlement or became moot for some other reason. In each of the cases referred to, his Honour noted that ‘the court did not consider it necessary to determine the substantive merits of the matter before determining the appropriate order as to costs’.[13]
[12](2000) 179 ALR 664, 667 [4] (Goldberg J).
[13]Ibid.

Goldberg J then made a number of observations about particular authorities:[14]
[14]Ibid 667 [5].

In Australian Securities Commission v Aust‑Home Investments Ltd [(1993) 44 FCR 194], Hill J examined a number of authorities and concluded that they supported the following propositions (at FCR 201 … ):
(1)Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order: Stratford [[1969] 1 WLR 1547] and the SEQEB case [(Unreported, Federal Court of Australia, Pincus J, 10 February 1989)].
(2)It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial: Stratford. This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.
(3)In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them: SEQEB.
(4)In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation: cf Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371.
(5)Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted: cf Re Asiatic Electric Co Pty Ltd [1973] 1 NSWLR 603 at 606, a case which, however, depended upon the specific wording of the statute under consideration.

In Gribbles Pathology Pty Ltd v Health Insurance Commission [(1997) 80 FCR 284] Finkelstein J emphasised that (at 287):
… in the absence of a hearing on the merits it is difficult to see how any order, other than an order that each party bear its own costs, can be made except in special circumstances.

Goldberg J concluded that, based on the relevant authorities, it was open to him to determine the costs issues by reference to the reasonableness of the conduct of the parties.[15] However, he ultimately decided to determine the costs issue by reference to the outcome of the application in respect of which he had formed a concluded considered view.[16]
[15]Ibid 668 [7].
[16]Ibid.

In Main-Road Property Group v Pelligra & Sons (No 2),[17] Bell J accepted the approach adopted in Yates; that costs should be awarded by reference to the likely outcome of the application. His Honour then continued to assess the likely outcome of the application before him. On appeal, Redlich JA and Beach AJA accepted the approach and reasoning adopted by Bell J.[18] Their Honours recited[19] as the relevant principles the following passage from an earlier decision of Redlich J (as he was then):

If a supervening event or compromise so removes or modifies the issues in dispute that it cannot be said that one side has won, the Court should not attempt to assess the merits of the case. This is particularly so where the issues are complex or questions of credit are involved. If it is clear on the undisputed facts that one party would almost certainly have succeeded if the matter had been fully tried, the Court may make an order in favour of that party.
Where it is not clearly discernible that a party would have won and it appears that both parties have acted reasonably in commencing and defending the proceedings until the litigation was compromised or became futile, the Court would usually make no order as to costs. But where the Court concludes that a party has acted unreasonably prior to or during the course of the litigation the making of a costs order against it may be justified.
It is not in doubt that a party may rely upon matters of undisputed fact disclosed by the pleadings, affidavits, discovered documents or interlocutory relief granted in the course of proceedings to establish that the party acted reasonably and would have succeeded had the matter been tried … Such a course is appropriate where the hearing can be of relatively short compass and those matters that are not in dispute readily identified. The boundaries of such an inquiry must be strictly observed to ensure that an inappropriate use of Court resources does not occur.[20]

[17][2009] VSC 174 (6 May 2009) [16]-[17] (Bell J).

[18]A Team Diamond Headquarters Pty Ltd v Main-Road Property Group Pty Ltd (2009) 25 VR 189, 207 [59] (Redlich JA and Beach AJA).

[19]Ibid 198-199 [33].

[20]Jeruth Pty Ltd v Haybale Pty Ltd [2004] VSC 319 (30 August 2004) [4]-[6] (Redlich J).

In Australians for Sustainable Development Inc v Minister for Planning (No 2)[21] (‘Australians for Sustainable Development’), Biscoe J outlined the principle for determining the question of costs where a proceeding has ended without a court adjudicating on the merits:

… where there has been a supervening event that has so altered the subject matter of the dispute, the proper exercise of the discretion would ordinarily be to make no costs order unless:
(a) one of the parties has acted so unreasonably that the other party should obtain the costs of the proceedings; or
(b) even if the parties had acted reasonably, one party was almost certain to have succeeded if the subject matter of the dispute had not changed or been rendered inutile so that that party should obtain the costs of the proceedings.[22]

[21][2011] NSWLEC 70 (20 April 2011) (‘Australians for Sustainable Development’).

[22]Ibid [11] (Biscoe J).

In Australians for Sustainable Development the supervening event was the amendment of a planning policy that altered the subject matter of the dispute after the hearing. The policy was changed by the Minister who was a party to the proceedings and had vigorously defended the applicant’s claim. Biscoe J concluded that, but for the Minister’s conduct, the applicant would have won the case.[23] His Honour accordingly concluded that, subject to the issue of apportionment with respect to particular issues in the proceedings, a costs order in favour of the applicant was justified.[24]
[23]Ibid [9].
[24]Ibid [12].

In Yong v Velik Trading as SV Law,[25] Manousaridis J made an almost identical observation to the principles outlined in Australians for Sustainable Development:

the following principles apply when determining an application for costs where a court has not determined the merits:
a) The court should not try a hypothetical action between the parties.
b) In some cases, however, the court may be able to conclude that one of the parties acted so unreasonably that the other party should obtain the costs of the action.
c) In other cases the court may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried.
d) Where the proceeding has been terminated in a way that leads to one side being clearly successful, there is then a basis on which the court can exercise its discretion in favour of the successful party.[26]

[25][2017] FCCA 2843 (24 November 2017).

[26]Yong v Velik Trading as SV Law [2017] FCCA 2843 (24 November 2017) [5] (Manousaridis J).

To complete this survey of the applicable principles, it must be noted that most of the authorities above considered the applicable principles within the context of where the relevant supervening events occurred prior to there being a trial on the merits. Where, like in the Disclaimer Proceedings, the relevant supervening event occurs after a trial on the merits, with full argument and submissions from the parties, but before the decision is handed down, the merits of those arguments will hold greater weight in the Court’s decision whether to make an order in respect of the costs of the proceeding. The merits of a fully argued case will be a strong factor in determining whether, notwithstanding the proceedings becoming inutile due to some supervening event, ‘there is some circumstance that justifies a costs order in order to do justice between the parties’.[27]
[27]Saeco International Group (Australia) Pty Ltd v Giorgio Massimo Ubertini [2011] VSC 360 (3 August 2011) [2] (Davies J).

Submissions

United and the Liquidators agree that the applications the subject of the Disclaimer Proceedings are now futile because United’s motivation to make the applications – to protect its interest in the Original Lease – dissipated once it entered into the New Lease with the Landlords. It is accordingly unnecessary for me to finally determine United’s application in those proceedings. The Disclaimer Proceedings should be dismissed. However, United and the Liquidators now seek their costs of the proceedings. They both filed written submissions in support of their contentions.

United’s submissions

United characterises the supervening events that rendered the Disclaimer Proceedings inutile as both:

(a) the entry into the New Lease by United; and

(b) the judgment of Kennedy J in the Substantive Proceeding.

United argues that the Liquidators should pay United’s costs in the Disclaimer Proceedings for two broad reasons. The first reason is that the conduct of the Liquidators in the Disclaimer Proceedings was ‘sufficiently unreasonable’. The second reason is that the Court can be confident that United would have succeeded on the merits of its applications in the Disclaimer Proceedings.

United’s submissions in support of its contention that it has acted reasonably in commencing and conducting the Disclaimer Proceedings, while the Liquidators’ conduct in disclaiming the Side Agreement and the Original Lease was unreasonable, may be summarised as follows:

(a) United filed the applications in the Disclaimer Proceedings to set aside the Side Agreement Disclaimer and Original Lease Disclaimer (together, ‘Disclaimers’) to protect its rights in the Substantive Proceeding;

(b) it was necessary for United to seek to set aside the Original Lease Disclaimer. At the time of the Disclaimers, United was suing in the Substantive Proceeding for assignment of the Original Lease. Had the Original Lease been successfully disclaimed, there would have been nothing capable of assignment because the Original Lease Disclaimer would have put an end to the leasehold interest;

(c) Kennedy J held in the Substantive Proceeding that Bonnie View breached its obligation to procure the assignment of the Original Lease. This breach occurred on the Liquidators’ watch (that is, after their appointment as Bonnie View’s administrators). Had Bonnie View assigned the Original Lease, as it was obliged to do under the Side Agreement, there would have been no need at all for the Original Lease Disclaimer;

(d) it was likewise necessary for United to apply to set aside the Side Agreement Disclaimer. The Side Agreement was the source of Bonnie View’s obligation to assign the Original Lease. Successful disclaimer of the Side Agreement would have ended United’s right to require Bonnie View to assign the Original Lease and its ability to obtain that relief in the Substantive Proceeding;[28]
[28]United noted that, where a contract is terminated (or disclaimed), rights accrued prior to termination are not lost, but that specific performance will generally not be available following termination.

(e) irrespective of the merits of United’s application to set aside the Side Agreement Disclaimer, United maintained that the Liquidators were not entitled to disclaim the Side Agreement as it was not an ‘unprofitable contract’ within the meaning of s 568(1A) of the Act and, accordingly, leave of the Court to disclaim was required;

(f) the Liquidators’ conduct in disclaiming the Side Agreement and the Original Lease was a misuse of the disclaimer provisions in the Act. The Liquidators pursued the disclaimers to seek to obtain the benefit of the proceeds of the Bank Guarantee and Retention Amount; and

(g) disclaimer of the Side Agreement would have never entitled Bonnie View to recover the proceeds of the Bank Guarantee. Further, Kennedy J held that Bonnie View was not entitled to those proceeds or to the Retention Amount.

Liquidators’ submissions

The Liquidators acknowledge that United’s purpose in applying for orders setting aside the Disclaimers was to protect its claim to an assignment of the Original Lease in the Substantive Proceeding. However, once United entered into the New Lease, the maintenance of the Disclaimer Proceedings after that time served no observable purpose. If United does not wish this Court to deliver a judgment in the Disclaimer Proceedings, then, according to the Liquidators, it should withdraw or discontinue its applications. Alternatively, it should seek to amend its application to reflect precisely what relief it seeks.

The Liquidators maintain that United’s entry into the New Lease is the only relevant supervening event for the purposes of awarding the costs of the Disclaimer Proceedings. They submit that the judgment of Kennedy J in the Substantive Proceeding did not touch on the question of the assignment of the Original Lease, except insofar as it demonstrated that United failed to establish grossly disproportionate prejudice, or indeed any prejudice (for the purposes of s 568B(3)), by reason of the Disclaimers. Her Honour’s judgment, which gave effect to her finding with respect to United’s claims for damages, did not amount to a supervening event. Nothing in the judgment made the Disclaimer Proceedings any more pointless than they had become when United acquired the New Lease.

The Liquidators submit, with respect to the question of costs in the Disclaimer Proceedings, that the primary consideration is the assessment of the merits of the competing arguments ‘with respect to prejudice (under s 568B)’. The focus should not be on whether United’s conduct was ‘reasonable’.

The Liquidators press that costs should follow the event. Even if the Court is minded to dispose of the Disclaimer Proceedings without making orders under s 568B of the Act, it must nonetheless determine the merits of the applications in those proceedings in order to determine the question of costs. Even if United had not obtained the New Lease, it could not demonstrate prejudice sufficient to meet the test in s 568B(3) of the Act.

The Liquidators explained in particular that the purpose of the Liquidators seeking, and obtaining, leave in 2016 to reopen their case in the Disclaimer Proceedings, and tender the settlement agreement and the New Lease, was that those transactions removed any force that there may have been in United’s claim to prejudice. United at that time had the very thing it claimed to be seeking to protect by the Disclaimer Proceedings, namely a lease of the Sale Site.

Merits of the Disclaimer Proceedings
Consideration of the merits

The Court will ordinarily ‘set its face against any proposition which would require judges disposing of questions of costs to give elaborate reasons’.[29] Furthermore, in making an award for costs, ‘it is to be expected that the reasons for any conclusion as to the prospects of success of the underlying application would be more sparse than if the underlying application was being determined’.[30] Nonetheless, given the Disclaimer Proceedings were subject to a full hearing on the merits, it is desirable, for the reasons explained at [52], to outline the merits of United’s applications in greater detail than would ordinarily be the case for the making of a costs order.
[29]Luxmore Pty Ltd v Hydedale Pty Ltd (2008) 20 VR 481, 484 [12] (Maxwell P and Kellam JA).
[30]A Team Diamond Headquarters Pty Ltd v Main Road Property Group Pty Ltd (2009) 25 VR 189, 200 [36] (Redlich JA and Beach AJA).

Legislative provisions

Division 7A of Part 5.6 of the Act, comprising ss 568-568F, provides a mechanism for a liquidator of a company to disclaim certain property of the company upon compliance with prescribed processes. One purpose of the liquidators’ power to disclaim property of the company ‘is to expedite the realisation of the money value of the company’s assets in the course of the efficient administration of the insolvent estate’.[31] Another purpose is ‘permitting the liquidator to rid the company of ongoing and burdensome financial obligations’.[32] The ultimate ‘feature of the scheme of disclaimers is to achieve a release of the company in liquidation from its obligations’.[33]
[31]Willmott Growers Group v Willmott Forests Ltd (In Liq) (2013) 251 CLR 592, 627 [125] (Keane J). See also Re Middle Harbour Investments Ltd (in liq) (No 2) [1977] 2 NSWLR 652, 657 (Bowen CJ in Eq); Global Television Pty Ltd v Sportsvision Australia Pty Ltd (in liq) (2000) 35 ACSR 484, 498 (Santow J); Sims v TXU Electricity Ltd (2005) 53 ACSR 295, 299-300 [15]-[20] (Spigelman CJ, with Sheller JA and Brownie AJA agreeing); Longley v Chief Executive, Department of Environment and Heritage Protection (2018) 124 ACSR 527, 542 [52] (McMurdo JA, with Gotterson JA agreeing).
[32]Simms v TXU Electricity Ltd (2003) 204 ALR 658, 672 [76] (Austin J). See also Re Middle Harbour Investments Ltd (in liq) (No 2) [1977] 2 NSWLR 652, 657 (Bowen CJ in Eq), quoted in Willmott Growers Group v Willmott Forests Ltd (In Liq) (2013) 251 CLR 592, 626 [124] (Keane J); Longley v Chief Executive, Department of Environment and Heritage Protection (2018) 124 ACSR 527, 542 [52] (McMurdo JA, with Gotterson JA agreeing).
[33]Sims v TXU Electricity Ltd (2005) 53 ACSR 295, 300 [20] (Spigelman CJ, with Sheller JA and Brownie AJA agreeing).

Unless otherwise expressed, all legislative references in the balance of these reasons refer to the provisions of the Act. The relevant provisions of Division 7A, which is entitled ‘Disclaimer of onerous property’, are as follows:

568 Disclaimer by liquidator; application to Court by party to contract
(1)Subject to this section, a liquidator of a company may at any time, on the company’s behalf, by signed writing disclaim property of the company that consists of:
(a)       land burdened with onerous covenants; or
(b)       shares; or
(c)       property that is unsaleable or is not readily saleable; or
(d)property that may give rise to a liability to pay money or some other onerous obligation; or
(e)property where it is reasonable to expect that the costs, charges and expenses that would be incurred in realising the property would exceed the proceeds of realising the property; or
(f)a contract;
whether or not:
(g)except in the case of contract – the liquidator has tried to sell the property, has taken possession of it or exercised an act of ownership in relation to it; or
(h)in the case of a contract – the company or the liquidator has tried to assign, or has exercised rights in relation to, the contract or any property to which it relates.
...

(1A)A liquidator cannot disclaim a contract (other than an unprofitable contract or a lease of land) except with the leave of the Court.
(1B)On an application for leave under subsection (1A), the Court may:
(a)grant leave subject to such conditions; and
(b)make such orders in connection with matters arising under, or relating to, the contract;
as the Court considers just and equitable.

…
(8) Where:
(a)An application in writing has been made to the liquidator by a person interested in property requiring the liquidator to decide whether he or she will disclaim the property; and
(b)The liquidator has, for the period of 28 days after the receipt of the application, or for such extended period as is allowed by the Court, declined or neglected to disclaim the property;

The liquidator is not entitled to disclaim the property under this section and, in the case of a contract, he or she is taken to have adopted it.

…
568ALiquidator must give notice of disclaimer
(1)As soon as practicable after disclaiming property, a liquidator must:
(a)lodge a written notice of the disclaimer; and
(b)give written notice of the disclaimer to each person who appears to the liquidator to have, or to claim to have, an interest in the property; and

…
568BApplication to set aside disclaimer before it takes effect
(1)A person who has, or claims to have, an interest in disclaimed property may apply to the Court for an order setting aside the disclaimer before it takes effect but may only do so within 14 days after:
(a)if the liquidator gives to the person notice of the disclaimer, because paragraph 568A(1)(b), before the end of 14 days after the liquidator lodges such notice – the liquidator gives such notice to the person; or
…

(2)On an application under subsection (1), the Court:
(a)may by order set aside the disclaimer; and
(b)if it does so – may make such further orders as it thinks appropriate.

(3)However, the Court may set aside a disclaimer under this section only if satisfied that the disclaimer would cause, to persons who have, or claim to have, interests in a property, prejudice that is grossly out of proportion to the prejudice that setting aside the disclaimer would cause to the company’s creditors.

568CWhen disclaimer takes effect
(1)A disclaimer takes effect if, and only if:
(a)in a case where only one application under section 568B for an order setting aside the disclaimer, or each of two or more such applications, is made within the period that that section prescribes for making the application – the application, or each of the applications, is unsuccessful; or
(b)no such application is so made.

(2)For the purposes of subsection (1), an application under section 568B is successful if, and only if, the result of the application, and all appeals (if any) arising out of the application, being finally determined or otherwise disposed of is an order setting aside the disclaimer (whether or not further orders are also made).
(3)A disclaimer that takes effect because of subsection (1) is taken to have taken effect on the day after:
(a)if:
(i)the liquidator gave to a person notice of the disclaimer because of paragraph 568A(1)(b); or
…

before the end of 14 days after the liquidator lodged notice of the disclaimer – the last day when the liquidator so gave such notice or such notice was so published; or
(b)otherwise – the day when the liquidator lodged notice of the disclaimer.

568DEffect of disclaimer
(1)A disclaimer is taken to have terminated, as from the day on which it is taken because subsection 568C(3) to take effect, the company’s rights, interest, liabilities and property in or in respect of the disclaimer property, but does not affect any other person’s rights or liabilities except so far as necessary in order to release the company and its property from liability.
(2)A person aggrieved by the operation of a disclaimer is taken to be a creditor of the company to the extent of any loss suffered by the person because of the disclaimer and may prove such a loss as a debt in the winding up.

As further considered below, the interpretation of the test under s 568B(3) for a Court to set aside a disclaimer was disputed between the parties. That provision is to be applied where a person applies to set aside the disclaimer before it has taken effect. Section 568E(5) provides a similar test for the Court to consider in response to an application made to set aside a disclaimer after it has taken effect.[34] Although both tests require the Court to undertake a comparison of different prejudice that would be caused by setting aside the disclaimer, the test in s 568E(5), unlike s 568(3), requires the Court to consider other persons who have changed their position in reliance on the disclaimer taking effect.
[34]See Re Williams Corporation Pty Ltd (in liq) & Hinchinbrook Resorts & Cruises Pty Ltd (in liq) ]2015] QSC 324 (19 November 2015) [37] (McMurdo J).

The Liquidators submitted that I should consider the merits of the Side Agreement Disclaimer Proceeding and the Original Lease Disclaimer Proceeding separately for the purposes of this application for costs. That submission must be accepted. The Side Agreement Disclaimer Proceeding and the Original Lease Disclaimer Proceeding each related to distinct disclaimers under Division 7A. Consideration of the merits of the Disclaimer Proceedings requires each Disclaimer to be considered separately. I turn first to the Side Agreement Disclaimer Proceeding.

Side Agreement Disclaimer Proceeding
Issues for determination

United first contended that the Liquidators were not entitled to disclaim the Side Agreement either by operation of s 568(8) or because the Liquidators had not sought the leave of the Court to disclaim as, in the submission of United, the Liquidators were required to do under s 568(1A).

If the Liquidators were entitled to disclaim the Side Agreement without the leave of the Court, the next issue would be whether the Court would have set aside the Side Agreement Disclaimer, which would require application of the test in s 568B(3).

Section 568(8): Liquidators’ disentitled from disclaiming?

As extracted at [64], s 568(8) broadly provides that a liquidator is disentitled from disclaiming property where a person interested in the property makes an application in writing requiring the liquidator to consider whether the property will be disclaimed and the liquidator declines or neglects to disclaim the property for a period of 28 days after receipt of that application.

United argued that the letter from its solicitors to the Liquidators’ solicitors dated 15 April 2015, as referred to at [20], constituted an application in respect of the Side Agreement and Original Lease for the purposes of s 568(8)(a) and that, because the Liquidators did not disclaim the Side Agreement or Original Lease within 28 days of receiving that letter, the Liquidators were disentitled from disclaiming that property. The relevant paragraph of that letter from United’s solicitors provided as follows:

We request your clients to provide an undertaking that they will not purport to disclaim the Side Agreement and/or the [Original Lease] until the final determination of the [Substantive Proceeding]. In any event, United requests that the [Liquidators] provide United with 14 days written notice prior of any intention to disclaim the Side Agreement or the [Original Lease].

This passage is not ‘requiring the liquidator to decide whether he or she will disclaim the property’ for the purposes of s 568(8)(a). The passage in the letter first seeks an undertaking in respect of the timing of any potential disclaimer and, second, requests certain notice of any intention to disclaim. That passage did not oblige the Liquidators to elect whether or not to disclaim.

United’s argument in respect of the applicability of s 568(8) would have failed.

Section 568(1A): Was the Side Agreement unprofitable?

As extracted at [64], s 568(1A) provides that a liquidator cannot disclaim a contract (other than an unprofitable contract or a lease of land) except with the leave of the Court. The Liquidators did not obtain leave to disclaim the Side Agreement. United contended that the Side Agreement was not an ‘unprofitable contract’ and that the Liquidators should have sought leave to disclaim.

Applicable principles

In Re Real Investments Pty Ltd,[35] Chesterman J considered in what circumstances contracts will be regarded as ‘unprofitable’ for the purposes of s 568(1A). The applicable principles were summarised[36] by his Honour as follows:
[35][2000] 2 Qd R 555.
[36]Re Real Investments Pty Ltd [2000] 2 Qd R 555, 561 [21] (Chesterman J).

(a) a contract is unprofitable for the purposes of s 568 if it imposes on the company continuing financial obligations which may be regarded as detrimental to the creditors, which presumably means that the contract confers no sufficient reciprocal benefit;

(b) before a contract may be unprofitable for the purpose of this section it must give rise to prospective liabilities;

(c) contracts which will delay the winding up of the company’s affairs because they are to be performed over a substantial period of time and will involve expenditure that may not be recovered are unprofitable;

(d) no case has decided that a contract is not profitable merely because it is financially disadvantageous. The cases focus on the nature and the cause of the disadvantage; and

(e) a contract is not unprofitable merely because the company could have made or could make a better bargain.[37]

Liquidators’ submissions

[37]See Old Style Confections Pty Ltd v Microbyte Investments Pty Ltd (In liq.) [1995] 2 VR 457, 466-467 (Hayne J); Global Television Pty Ltd v Sportsvision Australia Pty Ltd (in liq) (2000) 35 ACSR 484, 497 (Santow J).

The onus of establishing that leave was not required under s 568(1A) rests on the Liquidators. The Liquidators’ argued at the hearings for the Disclaimer Proceedings that the Side Agreement was unprofitable at the time of disclaiming the agreement because:

(a) it imposed continuing financial obligations on Bonnie View which are detrimental to that company’s creditors;

(b) it delayed the winding up of Bonnie View’s affairs; and

(c) in return for Bonnie View undertaking continuing obligations there was no commensurable return to Bonnie View which could be distributed amongst its creditors.

In his affidavit evidence filed for the purpose of the Disclaimer Proceedings, Mr Howell, one of the Liquidators, named two specific bases upon which the Side Agreement was disclaimed:

42.But for the disclaimer of the Side Agreement, Bonnie View would be obliged under the Side Agreement and by reason of United’s election to call for an assignment to procedure an assignment of the [Original Lease] to United. This would obliged Bonnie View, under the terms of the [Original Lease], to pay the amount of unpaid rent owing to the [Landlords]. United has made no proposal to indemnify Bonnie View for the amount of the unpaid rent.
43.Further, but for the disclaimer of the Side Agreement, United would be entitled to retain so much of the proceeds of the Bank Guarantee as would be required to complete the remediation of the [Sale Site], up to an amount of $400,000 (being the amount of the Bank Guarantee). This would plainly be to the detriment of Bonnie View and its creditors …

Counsel for the Liquidators, invoking the principle summarised at [74(a)], submitted that the creditors of Bonnie View would receive no reciprocal benefit from holding onto the Side Agreement. It was submitted for that purpose that the Court should isolate its attention on the Side Agreement and not to consider circumstances beyond that agreement.

United’s submissions

United addressed the two bases for disclaimer propounded by Mr Howell as extracted at [76]. United said that neither basis could sustain the argument that the Side Agreement was unprofitable. The thrust of United’s submissions was that the Side Agreement was in fact beneficial to Bonnie View.

In respect of the first basis propounded by Mr Howell, United observed that an assignment of the Original Lease by Bonnie View to United according to the terms of the Side Agreement would in fact relieve Bonnie View of financial obligations and prospective liabilities. This is because, upon assignment of the Original Lease, United would assume the day-to-day operation of the Sale Site and to remediate that site, thereby relieving Bonnie View of responsibility for it. Procuring an assignment to United would not be expensive for Bonnie View; United had offered to co-ordinate and pay for the preparation of the relevant assignment documents.[38] Furthermore, it is true that Bonnie View would have to pay any unpaid rent to the Landlords, but it was the Liquidators’ delay in procuring the assignment that increased the amount of arrears under the Original Lease.
[38]See paragraph (h) of the letter from United’s solicitors to the Liquidators’ solicitors dated 2 July 2015, as extracted at [26].

In respect of the second basis propounded by Mr Howell, United contended that disclaimer of the Side Agreement would not entitle the Liquidators to the proceeds of the Bank Guarantee. As the disclaimer operates prospectively, any rights in respect of the Bank Guarantee had already accrued. Counsel for United submitted at the hearing for the Disclaimer Proceedings in late 2015, at a time when the proceeds of the Bank Guarantee were subject to dispute in the Substantive Proceeding, that any disclaimer of the Side Agreement was not going to prevent a dispute about those proceeds; the dispute would exist with or without the disclaimer.

Consideration

For the following reasons, the Side Agreement was not an unprofitable contract for the purposes of s 568(1A).

Given the disclaimer provisions in the Act seek to facilitate speedy determination of the liability of the company in liquidation, the requirement for the liquidators to hold a contract for a prolonged period of time and take additional steps before reaping any reciprocal benefit may render the contract unprofitable in the statutory sense.[39] It may therefore be accepted, as the Liquidators contended, that continuing to hold the Side Agreement involved cost and expenditure on the part of the Liquidators. But that detriment must be considered alongside other relevant circumstances.
[39]Dekala Pty Ltd v Perth Land & Leisure Ltd (1987) 17 NSWLR 664, 667–668 (Young J).

The act of disclaimer only operates prospectively; it does not affect rights and obligations in respect of the disclaimed property that have accrued prior to the disclaimer.[40] By the time the Liquidators purported to disclaim the Side Agreement on 15 July 2015, Bonnie View was, subject to the final adjudication in the Substantive Proceeding, already required to assign the Original Lease to United. Likewise, upon United’s election that Bonnie View assign the Original Lease, United was, pursuant to the Side Agreement, prima facie entitled, again subject to final determination in the Substantive Proceeding, to retain the Retention Amount and apply the Bank Guarantee. Regardless of the final determination in the Substantive Proceeding, those were rights or liabilities that Bonnie View had incurred prior to the disclaimer of the Side Agreement. They could not be counted as continuing financial obligations for the purposes of assessing the profitability of the Side Agreement under s 568(1A).
[40]Willmott Growers Group v Willmott Forests Ltd (In Liq) (2013) 251 CLR 592, 613 [71] (Gageler J).

The Side Agreement conversely conferred on the creditors of Bonnie View a series of relevant benefits. The first benefit was an immediate potential avenue by which the Liquidators could assign the Original Lease to United, albeit subject to the consent of the Landlords. Although Bonnie View would have retained the obligation to pay to the Landlords any unpaid rent prior to the assignment, the assignment of the Original Lease would assign to United any prospective liability to pay rent to the Landlords. United would likewise assume from Bonnie View the obligation to remediate the Sale Site.

The second benefit to the creditors of Bonnie View was that, in the alternative scenario where Bonnie View did not assign the Original Lease to United, the continuing obligation to pay the costs of remediation of the Sale Site would have enabled the Liquidators to reject the Landlords’ proof of debt in respect of the costs of remediation. That is, although Bonnie View would have had the continuing financial obligation of incurring costs in remediating the Sale Site, that obligation would have been offset by the reciprocal benefit of negating the relevant claim by the Landlords.

The third benefit to the creditors of Bonnie View relates to the role the Side Agreement played in the context of Bonnie View’s sale of the Sale Business to United. As recounted above, Bonnie View sold the Sale Business to United pursuant to the Sale Agreement in 2010. But the discovery of contamination at the Sale Site before settlement of the sale of the Sale Business threatened completion of the sale. The Side Agreement effected arrangements to address the remediation of the Sale Site. In doing so, it enabled the sale of the Sale Business to continue.

In considering whether a contract is unprofitable for the purposes of s 568(1A), the Court is not confined to assessing the value of the prospective rights and liabilities of the contract isolated from surrounding circumstances. Although the contract in question may, when viewed in isolation, appear financially detrimental, the surrounding circumstances may establish that the contract is an essential plank in a lucrative commercial matrix for the company in liquidation. In those circumstances, the contract cannot be said to be unprofitable.

The Side Agreement, when appropriately viewed alongside the Sale Agreement, provided notable prospective value to the creditors of Bonnie View as at the date of the Side Agreement Disclaimer. In my view, as at the date of the Side Agreement Disclaimer, these benefits outweighed the detriment to the creditors of Bonnie View in continuing with the Side Agreement. The Side Agreement was not unprofitable within the meaning of s 568(1A). Leave of the Court was required before the Liquidators could disclaim the Side Agreement.

Conclusion

Counsel for the Liquidators accepted at the hearing for the Disclaimer Proceedings that, were I to find that the Side Agreement was not an unprofitable contract, then the Court would be justified in setting aside the Side Agreement Disclaimer. Based upon the analysis above, if United had not entered into the New Lease, and the Side Agreement Disclaimer Proceedings had not accordingly been rendered inutile, I would have set aside the Side Agreement Disclaimer. United would thus have succeeded in the Side Agreement Disclaimer Proceeding.

Original Lease Disclaimer Proceeding
Issues for determination

Broadly the same issues involved in the Side Agreement Disclaimer Proceeding, as summarised at [67]-[68], were applicable to the Original Lease Disclaimer Proceeding. However, there was no dispute that the Liquidators were entitled to disclaim the Original Lease without the leave of the Court, as the Original Lease is a ‘lease of land’ under s 568(1A). Additionally, the Original Lease Disclaimer Proceeding raised a further issue in that the Liquidators, with the support of the Landlords intervening at the hearing of the Disclaimer Proceedings, contended that United did not have standing under s 568B(1) to seek an order setting aside the Original Lease Disclaimer.

Section 568(8): Liquidators were not disentitled from disclaiming

For the same reasons expressed at [69]-[72], the Liquidators were not disentitled under s 568(8) from disclaiming the Original Lease.

Section 568B(1): United’s standing

Section 568B(1) provides that ‘[a] person who has, or claims to have, an interest in disclaimed property’ may seek an order setting aside a disclaimer in respect of that property. The Liquidators argued that United lacked the requisite interest in the Original Lease to found its standing to seek to set aside the Original Lease Disclaimer.

United contended at the hearing of the Disclaimer Proceedings that its interest in respect of the Original Lease at that time was sufficient to satisfy the test for standing. United explained that, at the time of the hearing, it had a contractual expectation under the Side Agreement that it would take an assignment of the Original Lease from Bonnie View. United said that it was entitled to specific performance of the Side Agreement, which would entitle United to the assignment of the Original Lease. Alternatively, if United’s interest did not amount to an equitable interest, the statutory test did not require the interest to be a legal or equitable interest. United cited Re Bastable[41] in support of that proposition.
[41][1901] 2 KB 518.

The Liquidators contended that a mere expectation of assignment was insufficient to support United’s claim to standing. Although United may have elected to receive assignment of the Original Lease, the right to assignment was under the Side Agreement. United therefore had an interest under the Side Agreement, but not an interest in the Original Lease. Furthermore, any purported interest United had in the Original Lease was even more tenuous given United still required the consent of the Landlords to the assignment. The Liquidators sought to distinguish Re Bastable on that basis. United only had a contractual right as against Bonnie View, and not the Landlords. Accordingly, whilst United could seek specific performance against Bonnie View, it could not compel the Landlords to assign the Original Lease.

‘Interest in disclaimed property’

In conformity with the surrounding statutory framework, the relevant interest which a person has, or claims to have, to have standing under s 568B(1) must be one that would be affected if the disclaimer were to take effect. It must be an interest that would be affected if the company in liquidation’s rights, interests, liabilities and property in or in respect of the relevant property were terminated in the manner contemplated by s 568D(1). This will typically involve interests enforceable at law or in equity but in limited circumstances the relevant interest may not be so enforceable.

At the time of the hearing for the Disclaimer Proceedings, it was highly doubtful whether United would be able to obtain specific performance of the assignment of the Original Lease in the absence of consent from the Landlords. It was thus highly doubtful that United had an equitable interest in the Original Lease. Nonetheless, United’s stake in the Original Lease, however conditional, was a sufficient interest for the purposes of seeking an order for the setting aside of the Original Lease Disclaimer.

If the Original Lease Disclaimer were to take effect, Bonnie View’s rights, interests, liabilities and property in respect of the Original Lease would be taken to be terminated from the relevant effective date of disclaimer. Upon that event, any possibility of United taking the leasehold interest under the Original Lease would be extinguished. United clearly had a concern for the continuing performance of the Original Lease. Regardless of whether or not this is best characterised as an ‘expectation’ of United, the connection between United and the Original Lease is an ‘interest’ sufficient to found standing under s 568B(1).

‘Claims to have’

The phrase ‘claims to have’ requires more than a mere allegation of an interest. The claim made by the person seeking to set aside the disclaimer must have some minimal possibility of success. However, subject to that low threshold, the Court should not inquire further into the merits of the claim in a manner that would effect a precondition for standing that is unsupported by the text of s 568B(1).

Given the interpretation above of what may constitute a relevant interest for the purposes of s 568B(1), there is no room to argue that United’s claims to its ‘interest’ in the Original Lease were unmerited. Indeed, United had that interest, as defined above, as at the hearings of the Disclaimer Proceedings.

United therefore had standing to seek an order setting aside the Original Lease Disclaimer.

Section 568B(3): Prejudice calculation

The final question is whether I would have set aside the Original Lease Disclaimer under s 568B(2)(a). In accordance with s 568B(3), that power could only be exercised if the Court was satisfied that the Original Lease Disclaimer would cause United prejudice that is grossly out of proportion to the prejudice that setting aside the Original Lease Disclaimer would cause Bonnie View’s creditors. The relevant prejudice will ordinarily manifest itself in financial disadvantage.[42]
[42]Re Real Investments Pty Ltd [2000] 2 Qd R 555, 564 [29] (Chesterman J).

The statutory test under s 568B(3) requires two sets of comparisons to be made.[43] The first is an examination of the relative positions of United and the creditors of Bonnie View on the supposition that the Original Lease is ended by the Original Lease Disclaimer. The second is the same examination on the supposition that the Original Lease remains in force. For the Court to reach the state of satisfaction referred to in s 568B(3), the change in United’s position must be much greater than the alteration in the creditor’s positon.[44] That being said, the design of the statutory framework is that the rights and obligations of United are to be affected only to the extent necessary to achieve the release of Bonnie View from all liability.[45]

Temporal issue

[43]Ibid 564 [30].

[44]Ibid 564 [31].

[45]Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] AC 70, 87 (Lord Nicholls of Birkenhead), quoted in Sims v TXU Electricity Ltd (2005) 53 ACSR 295, 302 [30] (Spigelman CJ, with Sheller JA and Brownie AJA agreeing).

A threshold issue relating to the application of s 568B(3) was raised by the parties after United’s entry into the New Lease. The issue was the extent to which, if at all, the New Lease (and United’s settlement with the Landlords in the Substantive Proceedings which brought about the New Lease) was relevant to the Court’s consideration of s 568B(3).

United submitted that the application of the test in s 568B(3) to both the Side Agreement Disclaimer and the Original Lease Disclaimer fell to be determined by reference to the circumstances that prevailed when the relevant Disclaimers occurred and the matter was argued. Matters that occurred afterwards, including United’s entry into the New Lease, could not, in United’s submission, inform whether those Disclaimers should be set aside. Subsequent events may give rise to a new occasion to disclaim, but that did not occur on the current facts.

Amongst other reasons, United pointed specifically to the wording of s 568C, which provides that a disclaimer is to take effect at a particular point in time, which is broadly on the date that the liquidator lodged notice of the disclaimer or shortly thereafter. The disclaimer, if upheld, affects the rights of other persons and creditors as at that time. The Court should, in United’s submission, apply the prejudice calculation contemplated by s 568B(3) as at that point in time.

The Liquidators submitted that the statutory test under s 568B(3) includes consideration of the prejudice that the disclaimer ‘would cause’ in respect of United and the creditors of Bonnie View. That test is, according to the Liquidators, necessarily prospective and it is therefore appropriate to consider facts and circumstances that occurred after the date of the Disclaimers.

The Liquidators sought to draw a comparison with another aspect of the disclaimer provisions. They raised that one of the consequences of a disclaimer is that any person aggrieved by the operation of that disclaimer is taken to be a creditor of the company to the extent of any loss suffered because of the disclaimer.[46] That creditor may then prove such a loss as a debt in the winding up of the company.[47] The Liquidators noted that, although the provable claim arises immediately on the disclaimer, it is quantified by reference to future matters.
[46]Act, s 568D(2).
[47]Ibid.

No authority, however, was relied upon by either party as to the appropriate time for the Court to consider prejudice under s 568B(3). Although, for the reasons explained at [111]-[115], this issue has only peripheral relevance in the context of this costs application.

Preferable interpretation

Where an interested person applies for the setting aside of a disclaimer, the practical determination of the Court is whether or not to allow the disclaimer to take effect, with the prospective[48] consequences described in s 568D. The Court may only set aside a disclaimer if the relevant test under s 568B(3) is satisfied. That provision requires the Court to assess what prejudice the disclaimer ‘would cause’ to various persons. This phrase should be read alongside the other provisions of the Act, in particular the prescription as to when a disclaimer is to take effect.[49] In light of that statutory context, the phrase ‘would cause’ in s 568B(3) is appropriately read as meaning ‘would cause, as from the date it comes into effect, if the Court were to dismiss the application under subsection (1)‘.
[48]Willmott Growers Group v Willmott Forests Ltd (In Liq) (2013) 251 CLR 592, 613 [71] (Gageler J).
[49]See Act, s 568C.

Although this test requires the Court to make predictions of certain future prejudice flowing on and from the effective date of the disclaimer, there is no basis in the text or framework of the disclaimer provisions for the calculation of prejudice under s 568B to be confined to those events prior to a particular date. There is no restriction as to the date which the Court may reach the state of satisfaction referred to in s 568B(3). The preferable interpretation is that the Court may accordingly take into account all relevant events up to determining whether or not to grant or dismiss the application to set aside the disclaimer.

Limited relevance to this costs application

The reality is, however, that the interpretation of s 568B(3) has, for the following reasons, only peripheral implications for the purposes of the Court making an award for costs in the Disclaimer Proceedings.

Where the Court is required to consider whether to make a costs order in proceedings that have been rendered inutile by a supervening event, any assessment of the merits of the parties’ arguments in those proceedings for that purpose will be based on the premise that the supervening event did not occur. As expressed in Australians for Sustainable Development,[50] the Court may make an order for costs in such a situation where ‘one party was almost certain to have succeeded if the subject matter of the dispute had not changed or been rendered inutile’. Accordingly, the question for a Court in these circumstances is which party would have been successful in the proceedings if the supervening event had not occurred.
[50]Australians for Sustainable Development [2011] NSWLEC 70 (20 April 2011) [11] (Biscoe J).

The relevant supervening event causing both the Side Agreement Disclaimer Proceeding and Original Lease Disclaimer Proceeding to become inutile was United’s entry into the New Lease in July 2016. The New Lease supplanted the original motivation of United to commence the Disclaimer Proceedings in 2015, being protection of its interest in the Original Lease. Accordingly, for the purposes of making an award for costs in the Disclaimer Proceedings, the relevant question is thus whether United would have successfully obtained an order of the Court setting aside the Side Agreement Disclaimer and Original Lease Disclaimer if United had not entered into the New Lease. It is therefore appropriate for the Court to consider the state of events that existed as at the date of the hearings of the Disclaimer Proceedings in late 2015.

One qualification should be added to these principles. The supervening event rendering proceedings inutile may be an event outside the reasonable control of the parties to the proceeding. In that situation, the principles above should apply without further qualification. However, in other circumstances, the occurrence of the supervening event that renders the proceedings inutile have been caused, or at least influenced, by one of the parties to the proceedings. In that situation, the Court, in making a costs order in respect of the inutile proceeding, must be wary not to permit the party causing or influencing the supervening event to undeservedly reap the benefits of a costs award when its own conduct brought an end to the utility of that proceeding. Whether a costs award in favour of that party would be undeserved would depend on the circumstances of the case, including the extent of the party’s involvement in the supervening event and the purposes for which the party caused or influenced the supervening event.

That cautionary principle is relevant to the current application for costs in the Disclaimer Proceedings. As explained above, the relevant supervening event causing the Disclaimer Proceedings to become inutile was United’s entry into the New Lease. It was thus United’s actions that rendered the Disclaimer Proceedings inutile. Should the Court find that United would have certainly succeeded in the Disclaimer Proceedings, it would be necessary to consider whether it’s conduct in causing the supervening event to occur – by entering into the New Lease – affected any entitlement to a costs award in its favour.

It is accordingly necessary, for the purposes of making any costs award in the Original Lease Disclaimer Proceeding, to consider the merits of United’s application in that proceeding as if United had not entered into the New Lease. The calculations of any prejudice in accordance with s 568B(3) must be performed on that basis.

Submissions

As noted at [102], s 568B(3) requires the Court to consider the respective positions of United and the creditors of Bonnie View in the alternative scenarios depending on whether the Original Lease Disclaimer takes effect. It is necessary to identify and critique the forms of prejudice which were said by the parties to flow from the Court’s decision.

On behalf of United, Mr Carmeli stated in his affidavit evidence in the Disclaimer Proceedings that the prejudice that would be suffered by United if the Original Lease was disclaimed was the same as the prejudice that would be suffered if the Side Agreement was disclaimed. Broadly summarised, this comprised:

(a) the strategic significance of the Sale Site: United contended that the Sale Site was the jewel in the Crown of the 19 properties purchased under the Sale Agreement. This was reflected in the higher price attributed to the Sale Site. The Sale Site’s strategic significance is partially attributable to its proximity to the fuel terminal at Hastings which is owned and operated by United;

(b) the loss of profit from the Sale Site: This loss of profit, based on an estimate of profit of $155,000 to $160,000 per annum across the life of the Original Lease, was claimed to be at least $6,200,000 to $6,400,000; and

(c) the damage to United’s reputation: Since trade ceased at the Sale Site due to administrators being appointed to Bonnie View, the Sale Site was looking derelict and that United accordingly had concerns with the damage to its reputation in Sale and the surrounding area. United accepted, however, that this prejudice was not readily quantifiable.

The Liquidators challenged the affidavit evidence of Mr Carmeli in respect of the prejudice that would be suffered by United should the Original Lease be disclaimed. The evidence of the future profitability of the Sale Site was, in the submission of the Liquidators, at the best speculative and at worst inadmissible in part on the basis Mr Carmeli was impermissibly giving evidence as a purported expert. The Liquidators further observed that, contrary to Mr Carmeli’s estimates in respect of the future profitability of the Sale Business, financial statements of the Sale Business revealed that Bonnie View had been trading at a loss during the 2012 to 2015 financial years.

Counsel for United submitted that, in the event that I was unpersuaded by the evidence of the Sale Site’s future profitability, I should nonetheless find that United’s loss of the assignment of the Original Lease, the loss of the future tenure at the Sale Site pursuant to that lease and the loss of the potential of future profits of the Sale Business constituted gross prejudice to enable satisfaction of the test in s 568B(3).

Questionable prejudice

In respect of United’s purported prejudice, the Court cannot place great weight on the future predictions of the profitability of the Sale Site. The estimates by Mr Carmeli were based on rosy assumptions of the profitability of the Sale Site that were not borne out in the most recent financial statements of Bonnie View, even taking into account that those statements were unaudited and likely contained some irrelevant expenses.

Another factor serves to undermine the cogency of the future losses estimated by Mr Carmeli. If the Original Lease Disclaimer were to stand, United would potentially be able to obtain another site besides the Sale Site which would mitigate or nullify any prejudice. Although United highlighted the unique advantages of the Sale Site, including its strategic significance relating to the proximity of United’s Hastings terminal, United had failed to demonstrate that they could not obtain a site of relatively similar profitability in the area.

In respect of the creditors’ purported prejudice if the Original Lease Disclaimer were to be set aside, the sum of the Retention Amount and the Bank Guarantee – $500,000 – cannot be counted towards the prejudice that would have been suffered by the creditors for the same reasons explained at [83]. Those are liabilities that Bonnie View incurred prior to the disclaimer of the Side Agreement. That prejudice would not be caused by the setting aside of the Original Lease.

Grossly disproportionate prejudice?

United bears the onus of adducing probative evidence sufficient to support the Court’s satisfaction of the test in s 568B(3). In light of the concerns expressed above about the evidence on the future profitability of the Sale Business, I would not have been satisfied that the prejudice that the Original Lease Disclaimer would cause United would be grossly out of proportion with the prejudice that setting aside the Original Lease Disclaimer would cause to the creditors of Bonnie View. The Original Lease Disclaimer would have therefore taken effect and United would instead have to satisfy itself with proving any loss as a result of the Original Lease Disclaimer as a debt in the winding up of Bonnie View.

Conclusion

For these reasons, if United had not entered into the New Lease, and the Original Lease Disclaimer Proceedings had not accordingly been rendered inutile, I would have declined to set aside the Original Lease Disclaimer. The Liquidators would thus have succeeded in the Original Lease Disclaimer Proceeding.

Costs of the Disclaimer Proceedings

In accordance with the submissions summarised at [54]-[61], both United and the Liquidators contended that the other should pay its costs of the Disclaimer Proceedings. For the reasons expressed at [62]-[125], consideration of the merits of the Disclaimer Proceedings reveals that, but for the relevant supervening events, United would have succeeded in the Side Agreement Disclaimer Proceeding, but that the Liquidators would have succeeded in the Original Lease Disclaimer Proceeding. In accordance with a number of the authorities referred to at [42]-[51], it remains for me to consider the reasonableness of the parties in the course of the litigation.

Reasonableness of the parties

The Court should be reticent to discourage the disclaimer of property by a liquidator in accordance with the terms of the Act. The purpose of those provisions, as explained at [63], is to facilitate the efficient administration of the insolvent company. But those provisions also hold concern for persons, other than creditors of the company, that would be disproportionately damaged by disclaimer of the relevant property.

As a general statement, I do not characterise as unreasonable the Liquidators’ arguments in the course of defending United’s applications in the Disclaimer Proceedings. Although I have found that the Liquidators should have sought the Court’s leave to disclaim the Side Agreement, I accept that the profitability of the Side Agreement (or lack of) was an arguable point.

My criticism of the Liquidators relates to the purposes for which they originally purported to disclaim the Side Agreement. As set out in the affidavit evidence of Mr Howell extracted at [76], a dominant purpose of the Side Agreement Disclaimer was to claw back the Retention Amount and the proceeds of the Bank Guarantee. But that was a matter to be determined in the Substantive Proceeding. By the time of the Side Agreement Disclaimer, any right or liability that Bonnie View had in respect of the Bank Guarantee had already accrued. Disclaimer of the Side Agreement could not change that. The Liquidators purpose for the Side Agreement Disclaimer was flawed from the start. The motivations of the Liquidators in purporting to disclaim the Side Agreement were unreasonable.

United was justified in filing its applications to set aside the Disclaimers. It was seeking to protect its interest in the Original Lease. Furthermore, notwithstanding the cautionary principle discussed at [114]-[115], and the fact that it was United’s conduct that brought an end to the utility of the Disclaimer Proceedings, United should not be penalised for entering in to the New Lease. In doing so, United obtained a commercial resolution with the Landlords in respect of the Sale Site and otherwise mitigated its losses in the Substantive Proceeding. The Court should not discourage such activity.

Costs of the Side Agreement Disclaimer Proceedings

As explained at [129], the motivation of the Liquidators in disclaiming the Side Agreement was unreasonable. Furthermore, for the reasons explained at [73]-[89], if United had not entered into the New Lease, the Side Agreement Disclaimer would have been set aside. In those circumstances, the Liquidators should pay United’s costs of the Side Agreement Disclaimer Proceeding.

Costs of the Original Lease Disclaimer Proceedings

For the reasons explained at [90]-[125], if United had not entered into the New Lease, United’s application in the Original Lease Disclaimer Proceedings would have been dismissed. In those circumstances, United should pay the Liquidators’ costs of the Original Lease Disclaimer Proceeding.

Orders

I make the following orders:

(a) the Side Agreement Disclaimer Proceedings and the Original Lease Disclaimer Proceedings are dismissed;

(b) the Liquidators shall pay United’s costs of the Side Agreement Disclaimer Proceeding; and

(c) United shall pay the Liquidators’ costs of the Original Lease Disclaimer Proceeding.

(d) The Liquidators be entitled to reimburse themselves for the amount paid pursuant to order b hereof and for their own costs out of the assets of Bonnie View in the priority afforded by s 556(1)(dd) of the Act.

SCHEDULE OF PARTIES

S CI 2015 03909

UNITED PETROLEUM PTY LTD (ACN 085 779 255)	Plaintiff
- and -
BONNIE VIEW PETROLEUM PTY LTD (ACN 110 006 052) (in liquidation)	First Defendant
GLENN ANTHONY CRISP	Second Defendant
MALCOLM KIMBAL HOWELL	Third Defendant

S CI 2015 05473

UNITED PETROLEUM PTY LTD (ACN 085 779 255)	Plaintiff
- and -
BONNIE VIEW PETROLEUM PTY LTD (ACN 110 006 052) (in liquidation)	First Defendant
GLENN ANTHONY CRISP	Second Defendant
MALCOLM KIMBAL HOWELL	Third Defendant

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[2018] VSC 489

31 August 2018