Re The Corporations Law In The Matter of Giga Investments Pty Ltd (In liq) ACN 007 924 665 I & J Foods Ltd

[1995] FCA 719

CATCHWORDS

COSTS - costs order sought by applicant for order pursuant to s447A of Corporations Law - application for order that applicant recover its costs of action and in priority to former administrators - no trial on merits: factual material in supporting and answering affidavits not tested - discretion bestowed by Court by s447A of Corporations Law does not extend to varying statutory scheme of priorities upon winding up - alternative application that costs be paid by former administrators in personal capacity.

CORPORATIONS LAW - costs - whether order may be made against a person not a party to proceeding.

Corporations Law ss 439C, 440D, 443D, 443E, 443F, 447A, 449E, 600A, 600B, 600C, 1321, 1335(2), Division 12 of Part 5.3A, Subdivision D of Division 6 of Part 5.6
Corporations Regulations reg 5.2.26(3)
Federal Court of Australia Act 1976 (Cth) s 43
Federal Court Rules O 71 rr 10 and 34A
Acts Interpretation Act 1901 (Cth) s 38
Corporations Act 1989 (Cth) s 56(2)
Corporations (South Australia) Act 1990 (SA) s 42(3)

Cretazzo v Lombardi (1975) 13 SASR 4
Australian Transport Insurance Pty Ltd & Anor v Graeme    Phillips Road Transport Insurance Pty Ltd and Anor (1985) 10 FCR 177
Knight & Anor v F.P. Special Assets Limited & Ors (1992) 174 CLR 178
Re Wridgemont Display Homes Pty Ltd (1992) 39 FCR 193
Australian Securities Commission v Aust-Home Investments Limited & Ors (1993) 44 FCR 194

No. SG 3095 of 1995

RE:  THE CORPORATIONS LAW
- and -
IN THE MATTER of GIGA INVESTMENTS PTY LTD (IN LIQUIDATION) ACN 007 924 665

I & J FOODS LIMITED  Applicant

Branson J
Adelaide
8 September 1995

IN THE FEDERAL COURT OF AUSTRALIA )
  )
SOUTH AUSTRALIA DISTRICT REGISTRY )    No. SG 3095 of 1995
  )
GENERAL DIVISION                 )

RE:  THE CORPORATIONS LAW

- and -

IN THE MATTER of GIGA INVESTMENTS PTY LTD (IN LIQUIDATION)

ACN 007 924 665

I & J FOODS LIMITED

Applicant

REASONS FOR DECISION

CORAM:    Branson J
PLACE:    Adelaide
DATE:     8 September 1995

On 30 June 1995 on the application of I & J Foods Limited I set aside a purported resolution of creditors of GIGA Investments Pty Ltd ("the company") to the effect that the company execute a deed of company arrangement. I ordered the administrator of the company to convene a further meeting of the creditors of the company to consider afresh the issues identified in s439C of the Corporations Law. Certain ancillary orders were also made. My reasons for making the orders of 30 June 1995 are set out in my reasons for judgment in this matter of that date.

The further meeting of creditors of the company was held on 25 July 1995.  At that meeting a resolution was unanimously passed that the company be wound up.  Mr Robert Anthony

Ferguson, the then administrator of the company, became the liquidator of the company. (Division 12 of Part 5.3A of the Corporations Law).

I & J Foods Limited ("I & J Foods") now seeks an order that its costs of this action be paid from the assets of the company and in priority to any amounts to be paid to Messrs Woodgate and Mansom in their capacities as former administrators of the company. The costs of Messrs Woodgate and Mansom were not agreed by the creditors of the company: they will be entitled to such remuneration as the Court fixes (s449E of the Corporations Law).

At the time of making the orders referred to above I reserved the question of the costs of the application.  The first issue which now arises is whether it would be appropriate for an order to be made that I & J Foods recover its costs of the application from the company.

The company is now in liquidation. I do not consider that fact alone is of significant weight on the present question. At the time of the making of the application and at the time that the orders consequential thereon were made the company was under administration pursuant to Part 5.3A of the Corporations Law.

The application was brought in reliance on ss447A, 600A, 600B, 600C and 1321 of the Corporations Law and reg5.2.26(3) of the
Corporations Regulations. A question arose as to whether the application amounted to proceedings against the company within the meaning of s440D of the Corporations Law. I doubted that it did. It seemed to me that the application concerned the administration of the company but was not properly to be characterised as a proceeding against the company. The provisions of O71 r34A of the Federal Court Rules might be thought to support this view. No formal leave to institute the proceedings was given. If I had considered it necessary for such leave to be granted I would have granted such leave. The administrator of the company was represented by counsel on the application.

Section 43 of the Federal Court of Australia Act 1976 (Cth) ("the Federal Court Act") gives the Court jurisdiction to award costs in all proceedings before the Court other than proceedings in respect of which any other Act provides that costs shall not be awarded. No Act so provides in the circumstances of these proceedings. Section 43(2) provides that, except as provided by any other Act, the award of costs is at the discretion of the Court. The discretion has been described as "absolute and unfettered" but it must be exercised judicially and cannot be exercised on grounds unconnected with the litigation.  (Cretazzo v Lombardi (1975) 13 SASR 4; Australian Transport Insurance Pty Ltd & Anor v Graeme Phillips Road Transport Insurance Pty Ltd and Anor (1985) 10 FCR 177). Section 43 is sufficiently wide to authorise, in appropriate circumstances, the awarding of costs against a non-party (Knight & Anor v F.P. Special Assets Limited & Ors (1992) 174 CLR 178).

Section 1335(2) of the Corporations Law provides as follows:-

"The costs of any proceedings before a court under this Law shall be borne by such party to the proceeding as the court, in its discretion, directs."

The Corporations Law is not "any other Act" within the meaning of s43(2) of the Federal Court Act. The reference to "any other Act" in s43(2) is to be construed as a reference to any other Act of the Parliament of Australia (Acts Interpretation Act 1901 (Cth) s38). However, when exercising jurisdiction in civil matters arising under the Corporations Law (S.A.) as authorised by s56(2) of the Corporations Act 1989 (Cth) and s42(3) of the Corporations (South Australia) Act 1990 (SA) the jurisdiction is to be exercised in conformity with the provisions of s1335(2) of the Corporations Law of (S.A.) (Re Wridgemont Display Homes Pty Ltd (1992) 39 FCR 193 at 195). Section 1335(2) of that Law appears to restrict the wide powers of the Court to award costs to a power to order costs to be borne by a party to proceedings.

No argument was put to me that the company was not properly to be regarded as a party to these proceedings. In the particular circumstances of this case I am prepared to act on the basis that the company is to be regarded as a party to these proceedings within the meaning of s1335(2) of the Corporations Law.

The allegations contained in the affidavits filed on behalf of I & J Foods in support of the application have not been tested.  Answering affidavits were filed on behalf of Messrs Woodgate and Mansom.  The factual material contained therein also remains untested.  The reasons for this are set out in my reasons for judgment dated 30 June 1995.

The case is in the above regard analogous to cases such as Australian Securities Commission v Aust-Home Investments Limited & Ors (1993) 44 FCR 194 and the authorities there cited. They are authorities for the proposition that where there has been no trial on the merits it will rarely be appropriate for the Court to endeavour to determine for itself the case on the merits in order to determine how the costs of the proceedings should be borne. I will not do so here.

Nonetheless I note the unanimous resolution of creditors at the meeting of 25 July 1995 that the company be wound up.  The resolution the subject of challenge in these proceedings was that the company execute a deed of company arrangement.  It is impossible to speculate as to the reason or reasons for the apparent change of heart of creditors between the two meetings.  I do not assume anything adverse to Messrs Woodgate and Mansom by reason of this change of mind.  However, assuming as I think that I must, that the later resolution was in the best interests of the creditors of the company, their chance to pass the resolution at the time that it was passed, arose by reason of the actions of I & J Foods in initiating these proceedings.

It is true that Messrs Woodgate and Mansom had resigned as administrators of the company before the institution of these proceedings and a new administrator had been appointed.  However, it remained necessary for the status of the resolution of creditors the subject of challenge in these proceedings, to be resolved.  By reason of the institution of these proceedings the new administrator was not required to seek directions from the Court as he had apparently earlier intended.

In all of the circumstances I consider it appropriate to order that the company, now in liquidation, pay the costs reasonably incurred by I & J Foods in these proceedings.

I & J Foods seek an order that such costs be paid in priority to any amounts to be paid to Messrs Woodgate and Mansom. It contends that the power of the Court to order such priority can be found in s447A of the Corporations Law. The nature of the discretion conferred on the Court of s447A was considered by me in my reasons for judgment in this matter dated 30 June 1995. I will not repeat here things set out there.

Section 447A is contained in Part 5.3A of the Corporations Law. It provides by subsection (1) as follows:-

"The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company".  (emphasis added)

The payment of debts and claims upon the winding up of a company is governed by Subdivision D of Division 6 of Part 5.6 of the Corporations Law. That is, the payment of claims upon the assets of the company, now that it is in liquidation, are not affected by the operation of Part 5.3A of the Corporations Law. They are affected by the operation of Part 5.6 of the Corporations Law.

In my view the wide discretion bestowed on the Court by s447A of the Corporations Law does not extend to varying the statutory scheme of priorities upon winding up established by Part 5.6 of the Corporations Law. It may be that s447A does extend to altering the operation of ss443D, 443E and 443F. That question does not arise here. I decline to order that the costs of I & J Foods be paid in priority to any amounts to be paid to Messrs Woodgate and Mansom.

In the alternative I & J Foods sought an order that its costs be paid by Messrs Woodgate and Mansom personally.

Messrs Woodgate and Mansom are not parties to these proceedings. Their application to be heard as interveners was not opposed: their conduct as the former administrators of the company was at the heart of the dispute then before the Court. It is not clear that at the time of their application to be heard they were officers of the company within the meaning of O71 r10 of the Federal Court Rules. It is, however, not necessary for me to decide this question. I am not persuaded that their attendance by counsel at the hearing, or their filing of affidavits, has resulted in additional costs which should be borne by them within the meaning of O71 r10(3). As discussed above, s1335(2) of the Corporations Law has the consequence that I have no other authority to order a non-party to pay costs of proceedings under the Corporations Law.

I will hear counsel as to the appropriate order to be made against the company.

I certify that this and the preceding     pages are a true copy of the Reasons for Decision of Justice Branson.

Associate:

Dated:

Counsel for the Applicant            :    Mr P Slattery
Solicitors for the Applicant         :    Wallmans

Counsel for GIGA Investments Pty Ltd  :    Mr M Barrett
Solicitors for GIGA Investments Pty Ltd    :    Kelly & Co.

Counsel for the Interveners          :    Mr D Kennelly
     Messrs Woodgate & Mansom
Solicitors for the Interveners       :    Knox & Hargrave
     Messrs Woodgate & Mansom

Hearing Date  :    21 August 1995