Re Buckleys Earthmoving P/l (in Liquidation)

[1995] QSC 21

IN THE SUPREME COURT

OF QUEENSLAND

No. 18 of 1992

Brisbane

Before the Hon. Justice Williams

[Re Buckleys Earthmoving P/l (in liquidation)]

IN THE MATTER of The Corporations Law s. 516

AND:

IN THE MATTER of BUCKLEYS EARTHMOVING PTY LTD (In Liquidation) ACN 010 720 680

AND:

IN THE MATTER of The Corporations Regulations Regulation 5.6.62

JUDGMENT - G N WILLIAMS J

Judgment delivered 03/03/1995

CATCHWORDS      COSTS - appeal against liquidator's decision placing names on list of contributories - incompetence of directors - shareholders - inconsistent statements as to shareholding - appellants successful - no order for costs made in favour of appellants

Counsel:Sweeney for appellants

McKenna for liquidators

Jackson QC for solicitors - respondents

Solicitors:Flehr-Walker for appellants

Andrew P Abaza for liquidators

Corrs Chambers Westgarth for solicitors - respondents

Hearing date:    10 February 1995

IN THE SUPREME COURT

OF QUEENSLAND

No. 18 of 1992

IN THE MATTER of The Corporations Law s. 516

AND:

IN THE MATTER of BUCKLEYS EARTHMOVING PTY LTD (In Liquidation) ACN 010 720 680

AND:

IN THE MATTER of The Corporations Regulations Regulation 5.6.62

JUDGMENT - G N WILLIAMS J

Judgment delivered 03/03/1995

On 8 February 1995 I published reasons for judgment dealing with the substantive issues raised in the appeal before me.  I indicated that I would hear submissions as to the form or order that should be made.  I raised the question whether on the appeal I had jurisdiction to declare the shareholding of each of the appellants.  I further intimated that I was of a mind, in the light of the published reasons, to make no order as to costs - that is let each party bear his own costs - but counsel indicated they wished to make submissions thereon.  I have now heard further submissions on both of those questions.
           Counsel for all parties were in agreement that in addition to allowing the appeal I should make a declaration as to the shareholding of the individual appellants in the light of my findings.
           There will be a declaration that Quantic Pty Ltd is the holder of 2,000,000 "A" class fully paid $0.025 shares, that Keendeck Pty Ltd is the holder of 1,000,000 "A" class fully paid $0.025 shares, that Coleenie Pty Ltd is the holder of 2,000,000 "A" class fully paid $0.025 shares, that Marjorie Joyce Moore is the holder of 500,000 "A" class fully paid $0.025 shares and that Raymond Robert Moore is the holder of 500,000 "A" class fully paid $0.025 shares. 
           Counsel for the liquidators submitted that in the circumstances it was appropriate to make no order as to costs.  Counsel for the appellants, on the contrary, submitted that, notwithstanding r. 96 of The Corporations (Qld) Rules 1993, the respondent/liquidators should be personally ordered to pay the appellants' costs.  Counsel for the solicitors also sought an order for costs, but did not press for an order against the liquidators personally.
           Rule 96, so far as is relevant, provides:

"Unless the Court otherwise orders, the liquidator is not personally liable to pay any costs of -

. . .

b)an application to set aside or vary the liquidator's act or decision settling the name of a person on a list of contributories."

The existence of that rule is not decisive but it is not irrelevant to the consideration of the proper order for costs to be made in circumstances such as the present.  Mr Sweeney for the appellants and Mr Jackson QC for the solicitors contended that in these proceedings the liquidators were to be regarded no differently to any adversary in legal proceedings.  Each relied on observations made by Brennan and Dawson JJ in Tanning Research Laboratories Inc v. O'Brien (1990) 169 C.L.R. 332 at 341. There, in dealing with a liquidator defending his decision to reject a proof of debt, they equated his role with that of a party litigant. That approach may well also be correct in instances such as this but I am by no means satisfied, particularly given r. 96, that the observations of Blair C.J. and E A Douglas J In Re Tokenhouse Investments Ltd [1934] St.R.Qd. 189 are no longer appropriate.  But it is not necessary to resolve that question for present purposes.
           Because of the gross incompetence of the appellants and their then advisers, the liquidators did not have the assistance of a share register or share certificates in determining what the issued share capital of the company was.  The only people who knew, or ought to have known, what was the position with respect to the share capital were the appellants; it is clear that their belief (or at least their stated position), did not accord with the true situation as I have found it to be.  As is pointed out in my reasons for judgment, there were significant discrepancies between resolutions passed at directors' meetings, documents signed by various of the appellants, and formal documents lodged with the office of the Commissioner.
           In an affidavit filed by leave during the argument on the question of costs, the present solicitor for the appellants contended that he had, at an early stage, endeavoured to correct wrong impressions held by the liquidators as to the shareholding of the appellants and that if his advice had been accepted, the liquidators ought not to have continued with their demands.  A reading of the material referred to in that affidavit and other correspondence emanating from that solicitor, confirms that his clients did not know what the true position was and that he was seriously misled by them as to the true position.  For example, he asserts that he notified the liquidators by his letter of 9 July 1993 that the liquidators were "in error in respect of the proposed list".  That letter speaks of the appellants holding $0.50 "A" class shares and encloses an application for shares on which the solicitor asserted the allotment was based.  The attached application in terms applies for "A" class preference shares of $0.50 each.  That highlights the absurdity of the contention advanced by the solicitor for the appellants.  There were never at any time any preference shares in the company.  Further, as I have found, the appellants were never the holders of any $0.50 shares in the company.  If they became the holders of $0.50 shares, that could only have been as a result of the resolutions passed on 21 May, and if those resolutions were effective and operative then the appellants were liable for substantial unpaid capital on shares allotted to them.
           Far from making the position clear to the liquidators, the letter of 9 July 1993 could only have confirmed in the eyes of the liquidators, that a decision of a court on the issues was needed.
           At all times it must have been clear to the liquidators that they were either dealing with incompetents who knew nothing about company affairs though they were dealing with large sums of money, or with a group of people who were acting fraudulently in conducting the affairs of the company in order to obtain advantages for themselves.  The conclusion I reached on the evidence before me on the appeal is that the appellants were incompetents; there was no evidence of deliberate fraud on their part.
           The present solicitor for the appellants also refers to his letter of 12 July 1993 in support of the contention that the liquidators acted unreasonably and ought to pay costs personally.  Again it is obvious that he was still asserting the appellants were the holders of $0.50 fully paid shares; the shareholding alleged in that letter bears no relationship to the true position.
           The submissions made by counsel for the appellants were to the effect that the solicitor for the appellants was in a disadvantaged position because the liquidators did not fully inform him of the company's affairs.  But that misses the fundamental point; it was because of the conduct of the appellants that the problems arose.  The appellants were unable to give proper instructions to their solicitor and they were unable to give any reliable information to the liquidators.
           Throughout, the liquidators acted on legal advice.  It was said that they ought to have been advised along the lines of the conclusions I reached after the hearing.  But it is clear that there is no way a liquidator, properly doing his job, could have arrived at that conclusion.  The real problem here is that from 21 May 1990 the appellants acted as if they were controlling shareholders in the company holding $0.50 shares, and that all resolutions passed on that date were effective.  Given that formal returns had been lodged with the Commissioner asserting that to be the true position, the liquidator had in my view, no option but to base his claim on the assumption that the appellants were correct in so believing and in so acting and to assert that it was for the appellants in legal proceedings to establish the contrary. 
           In the circumstances it would in my opinion, constitute a miscarriage of justice to allow the appellants who have so abused the company law of this State to recover their costs of these proceedings.
           The fact that the liquidator had some limited indemnity as to costs is irrelevant for present purposes.
           The appellants should pay their own costs of the appeal.
           The peculiar role played by the solicitors in the appeal is outlined in my substantive reasons for judgment.  They were, of course, not originally a party to the appeal, but sought to be joined because of their concern as to the implications of findings made on this appeal for other litigation in which they were involved as a party.  I have made observations with respect to the conduct of those solicitors in my earlier reasons and I will not repeat that here.  They are in a position analogous to that of a third party, and observations made in cases such as Edginton v. Clark [1964] 1 Q.B. 367, Paron v. Fry (No. 2) [1990] 1 Qd.R. 250 and Gold Coast Bakeries (Qld) Pty Ltd v. Heat and Control Pty Ltd [1992] 1 Qd.R. 162 are of some relevance. In all of the circumstances, it is appropriate that those solicitors bear their own costs of intervening in the appeal.
           There will therefore be an order that the appeal be allowed, a declaration in the terms I have indicated above, and there will be no order as to costs.
           Given the intimation as to costs I made on 8 february 1995 and the fact that the appellants unsuccessfully sought a different order, I will order that the appellants pay the liquidators' costs of the further hearing on 10 February 1995 and of the appearance today to be taxed.