Re Willmott Forests Ltd, Carson and Crosbie (Liquidators)
[2015] VSC 251
•10 April 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2014 03003
IN THE MATTER OF WILLMOTT FORESTS LTD (ACN 063 263 650)
Receivers and Managers Appointed (In Liquidation)
| IAN MENZIES CARSON AND CRAIG DAVID CROSBIE (in their capacities as joint and several Liquidators of Willmott Forests Ltd) (ACN 063 263 650) (Receivers and Managers Appointed) (In Liquidation) | Plaintiffs |
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JUDGE: | GARDINER AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 10, 11 February 2015 (last submissions 2 March 2015) |
DATE OF JUDGMENT: | 10 April 2015 |
CASE MAY BE CITED AS: | Re Willmott Forests Ltd, Carson and Crosbie (Liquidators) |
MEDIUM NEUTRAL CITATION: | [2015] VSC 251 |
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CORPORATIONS – External administration – Examination being conducted under s 596B of Corporations Act 2001 (Cth) – Application by examinee for his costs of representation by senior counsel and solicitor at examination – Application refused – s 597(16) of Corporations Act 2001 (Cth).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R G Craig | Arnold Bloch Leibler |
| For the examinee David Armstrong | Mr G P Harris QC | Wotton + Kearney |
HIS HONOUR:
On 7 August 2014 I made orders that summonses be issued pursuant to s 596B of the Corporations Act 2001 (Cth) (‘the Act’) against several persons in relation to the examinable affairs of Willmott Forests Ltd (Receivers and Managers Appointed) (In Liquidation) (‘the Company’) on the application of the Company’s liquidators Messrs Carson and Crosbie.
One of the examinees the subject of a summons was David Armstrong of Armstrong Dubois Pty Ltd, the auditors of the Company. In addition to being required to attend at the examination, Mr Armstrong was required to produce specified documents relating to the audit of the Company for the period 1 July 2006 to 30 June 2010.
The examination proceeded on 10 and 11 February 2015. At the conclusion of the hearing, counsel for the examinee Mr Armstrong, Mr Harris QC, made an oral application that the liquidators pay Mr Armstrong’s costs of having senior counsel and a solicitor appear on his behalf at the examination. Mr Harris seeks the costs of two days for senior counsel at $6,000 and $260 per hour for the cost of his instructor attending at Court, both excluding GST.
In addition to Mr Harris’ oral application, the parties have exchanged and filed outlines of submissions. Mr Armstrong also relies on an affidavit of Christy Mellifont sworn 2 March 2015. The liquidators rely on an affidavit of Shaun Stuart Clement sworn 18 February 2015. Both those affidavits are concerned with a proceeding issued by the Company against Armstrong Dubois Pty Ltd in August 2013 (the pending proceeding). Ms Mellifont and Mr Clement are solicitors involved in representing the respective parties in the pending proceeding.
Mr Armstrong’s submission is that costs ought to be awarded because litigation is now on foot between the parties by reason of the pending proceeding. Mr Armstrong is a director of Armstrong Dubois Pty Ltd and the examination related to matters connected to that litigation, and because of this, what his counsel, Mr Harris, describes as the ‘in litigation’ principle is attracted. The application is opposed by the liquidators.
Mr Harris submitted that while costs will not normally be awarded for representation at liquidator’s examinations, the power to do so is well recognised. He cited a number of authorities in this regard which he contends support that proposition. Several of those cases deal with the question in the context of examinations conducted under corporations legislation while others deal with it in the context of examinations under bankruptcy legislation.
Mr Harris placed some emphasis on the decision of Re Appleton, French and Scrafton Limited (‘Re Appleton’),[1] where Warrington J held that the Court in that instance had jurisdiction to make an order for costs in favour of persons who were the subject of an examination summons under s 115 of the Companies Act 1862 (UK). In that case, the examinees were persons who were directors of a company and who had successfully resisted a misfeasance summons issued against them. They were awarded their costs of that proceeding. In Re Appelton, they applied for the costs they incurred in connection with being represented by counsel at the examinations conducted of them which had preceded the issue of the misfeasance summons.
[1][1905] 1 Ch 749.
The statutory scheme which was the subject of Warrington J’s consideration was highly relevant to the outcome of the matter. Section 115 of the Companies Act 1862 (UK) provided that in a winding up the Court may:
…summon before it any officer of the company or person known or suspected to have in his possession any of the estate or effects of the company, or supposed to be indebted to the company, or any person whom the Court may deem capable of giving information concerning the trade, dealings, estate or effects of the company…
and that
…if any person so summoned, after being tendered a reasonable sum for his expenses, refuses to come before the Court at the time appointed…The Court may cause him to be “apprehended and brought before the Court for examination”.[2]
[2]Ibid 753.
Section 5 of the Supreme Court of Judicature Act 1890 (UK) stated:
Subject to the Supreme Court of Judicature Acts, and the rules of Court made thereunder, and to the express provisions of any statute, … the costs of and incidental to all proceedings in the Supreme Court, including the administration of estates and trusts, shall be in the discretion of the Court or judge, and the Court or judge shall have full power to determine by whom and to what extent such costs are to be paid. [emphasis added]
Thus while there was specific provision in s 5 for an examinee’s expenses, there was no mention of reimbursement of an examinee’s legal costs of being represented at the examination. Warrington J stated:[3]
The section [section 115] makes no provision as to the costs of the person examined, and therefore there is in it no “express provision of any statute” to prevent the application of s 5. of the Judicature Act, 1890.[4]
[3]Ibid 753.
[4]Ibid 753.
His Honour considered that s 5 provided jurisdiction to award costs and proceeded to make an order for costs in favour of the examinees.
Mr Harris submitted that the operation of s 24 of the Supreme Court Act 1986 (Vic), which is very similar in its terms to s 5 of the Supreme Court of Judicature Act 1890 (UK), is attracted in these circumstances to give the Court jurisdiction to make an order for costs in favour of Mr Armstrong.
Section 24 of the Supreme Court Act 1986 (Vic) provides:
Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.[5] [emphasis added]
[5]Section 24(1).
In his written submissions, Mr Craig, counsel for the liquidators, contended that s 597(16) of the Act clearly and unambiguously does ‘otherwise expressly’ provide in … ‘any other Act’ specifically for this very situation. It provides:
A person ordered to attend before the Court or another court for examination under this Division, may at his or her own expense, employ a solicitor, or a solicitor and counsel, and the solicitor or counsel, as the case may be, may put to the person such questions as the Court, or other court, as the case may be, considers just for the purpose of enabling the person to explain or qualify any answers or evidence given by the person. [emphasis added]
Further, Mr Craig referred to terms of s 597B which provides:
597B Costs of unnecessary examination or affidavit
Where the Court is satisfied that a summons to a person under section 596A or 596B, or a requirement made of a person under section 597A, was obtained without reasonable cause, the Court may order some or all of the costs incurred by the person because of the summons or requirement to be paid by:
(a) in any case--the applicant for the summons or requirement; or
(b)in the case of a summons--any person who took part in the examination.[6]
[6]It was not submitted by Mr Harris that the summons for the examination of Mr Armstrong was obtained without reasonable cause.
Mr Craig submitted that the language of ss 597(16) and 597B of the Act is clear and unambiguous. Section 597(16) affords an examinee attending Court ‘for examination’ a right to representation on a particular and specific condition that is, that the costs of the representation are ‘at his or her own expense’. He submitted that s 597B operates as a limited carve out, if the summons was ‘obtained without reasonable cause’. He stated that the effect of Mr Armstrong’s submission would be to subvert the clear language of the statute by creating an unstated exception to s 597(16). In this regard, he referred to the decision of the Court of Appeal of this State in The Treasurer of Victoria v Tabcorp Holdings Ltd,[7] where the Court stated:
101As the High Court has pointed out, there are powerful reasons of principle for giving primacy to the statutory text. First, the separation of powers requires nothing less. Axiomatically, it is for the Parliament to legislate and for the courts to interpret. Close adherence to the text, and to the natural and ordinary meaning of the words used, avoids the twin dangers of a court ‘constructing its own idea of a desirable policy’, or making ‘some a priori assumption about its purpose’.[8]
[7][2014] VSCA 143.
[8]Ibid [101], per Maxwell P, Beach JA and McMillan AJA).
I consider that because of the express provisions of s 597(16) deal very specifically with the costs of examinees retaining counsel and solicitors to represent them at an examination, the legislative scheme of the Act is to be distinguished from that under consideration by Warrington J in Re Appelton. I do not consider that Re Appelton is authority for the proposition that the Court in these circumstances has jurisdiction to award costs under s 24 of the Supreme Court Act 1986 (Vic).
Mr Harris also referred to a decision of Finkelstein J in Surpion Pty Ltd & Another v MR Works Pty Ltd (Receivers and Managers Appointed) and Others (‘Surpion’).[9] Surpion involved the consideration of whether the Court had power to award costs when, in the course of an examination, a director of the company in question who was not the examinee, opposed production of files by the company’s solicitors on the basis that the documents contained privileged communications. The director contended he was entitled to invoke protection of the privilege. In a hearing before a Registrar in the Federal Court, an order was made that the director pay 60% of the liquidators’ costs incurred in the application involving the consideration of whether the subject documents were privileged.
[9](2010) 80 ACSR 635.
On appeal, Finkelstein J held that, given the true character of what had occurred was a dispute inter partes, the ordinary cost rules applied. At [18]–[19] Finkelstein J observed:
[18]In this case a different analysis is called for. What occurred before the registrar was that a dispute arose during the examination of a witness, Mr Simmonds. The dispute did not involve the examinee; it was between the liquidator and Mr Furnari [the director], who in effect intervened in the examination. The dispute was, in substance, litigation between those parties conducted before a judicial officer (a registrar) who had authority to resolve at [sic] dispute.
[19]As I see it, given that the true character of what occurred was a dispute inter partes, the ordinary cost rules should apply…
His Honour went on to hold that in the circumstances, the director should pay the costs of the application involving the issue of privilege attaching to the documents at the examination. The director had intervened in an examination to attempt to protect a right he contended he had in respect of privilege. This is a distinctly different situation than the one arising in these circumstances. The ‘litigation’ with which Finkelstein J was dealing with was the agitation of a privilege dispute arising in the examination itself which took on the character of inter partes litigation. I would distinguish Surpion from the situation under consideration here on that basis.
In Crosbie (as joint and several liquidators of Radicle Projects Pty Ltd (In Liq) v McLachlan (‘Crosbie’),[10] Gordon J adopted a similar approach to Finkelstein J in the context of another privilege dispute which occurred during the course of an examination under the Act. Her Honour reviewed several authorities including those cited by Mr Harris. Gordon J stated at [10]-[14]:
[10][2013] FCA 1101.
10What then are the applicable principles to be applied? As a general proposition, the courts have been reluctant to allow examinees to recover their costs of legal representation: see, for example, Ex parte Waddell; In re Lutscher (1877) 6 Ch D 328; Re Appleton, French & Scrafton, Limited [1905] 1 Ch 749; Re Equiticorp Finance; Ex parte Brock (No 2) (1992) 27 NSWLR 391 at 397 and Surpion Pty Ltd (ACN 005 245 054) v M R Works Pty Ltd (recs and mgrs apptd) (2010) 80 ACSR 635 at 638. However, the courts have also recognised a limited exception to that general principle. In Surpion, Finkelstein J stated (at 683):
… when the examination may properly be characterised as ‘litigation’ between the liquidator and the examinee, payment of the costs of representation of the examinee, payment of the costs of the representation of the examinee may be justified.
11In support of that proposition, Finkelstein J cited Inre Lutscher and Re Appleton, French & Scrafton, Limited. It is necessary to consider those authorities in some detail. In In re Lutscher, the examinee was the managing director of a company in which the bankrupt had once held shares. The examinee was summoned on the application of the trustee in bankruptcy and sought the costs of retaining two counsel who attended on his behalf to watch the proceedings. The Court disallowed those costs. Cotton LJ stated (at 332):
There can be no doubt he is entitled to his reasonable expenses, and the whole question is whether the expenses charged in this case were reasonable. Although a witness may be entitled to have counsel present to protect him, he must retain such counsel at his own expense. And a mere witness summoned under this section cannot be allowed costs which he would not have if summoned as a witness in any litigation.
12 Relevantly, James LJ stated (at 331):
He was summoned … he was bound to give evidence, and, considering the position he held towards them, the company thought it advisable to instruct counsel to attend his examination. That course appears to have been taken by them entirely of their own accord, no right to do so being given them by the Act. This is not the case of a man who is charged with having property in his possession belonging to a bankrupt and is summoned to give evidence respecting it. In such a case it might possibly be said that there was a litigation between him and the trustee, and that he was entitled to be protected by counsel. The circumstances of the present case are quite different.
[Emphasis added]
13In Re Appleton, French & Scrafton, Limited, a creditor and contributories of a company in a voluntary winding up examined two officers of the company as to certain alleged acts of misfeasance by them. Following their examination, at which the officers employed solicitors and counsel, a misfeasance summons was issued against them. The officers applied for, and were allowed, their costs of legal representation. Having regard to In re Lutscher, Warrington J considered that the facts of the case fell within the exception identified by James LJ, namely “an examination of persons against whom allegations were made with respect to the company’s property and against whom proceedings were intended to be taken”: at 756.
14The reasoning in both In re Lutscher and Re Appleton, French & Scrafton, Limited has been adopted in the context of examinations concerning bankruptcies (prior to the introduction of s 81(14) of the Bankruptcy Act 1966 (Cth)): see Scott (Trustee), in the matter of Price (Bankrupt) [2011] FCA 1478 at [41]-[50]. For example, in Re Kusmenko, Ex parte Golovachenko v Wilson (1976) 14 ALR 673 at 680, Riley J considered that an order for costs should only be made where the examiner and the examinee had reached a stage where legal proceedings were “either actually in existence or in contemplation, in the sense of being actually determined upon”.[11]
[11]Ibid [10]–[14].
I consider that Surpion and Crosbie are authority for the proposition that if in the course of an examination, a dispute arises such as for example one concerning privilege over documents, the liquidator and the party involved are considered to be in a dispute with the character of inter partes litigation, with all that involves in terms of the Court’s discretion about costs. It is quite a different situation from an examinee being required to attend at the examination and being represented by counsel. In this regard in Crosbie, Gordon J stated:
[27]First, the applicable principle. A person required by law to come before a court and give evidence has an obligation as a citizen to comply and is not entitled to compensation: Re Equiticorp at 396-397. However, it is possible for the court to make a condition of an order for examination under s 597 of the Act to make an order for expenses, if justice requires. The circumstances where such an order may be made are limited to out of pocket expenses for travelling, accommodation and through missing work in attending the examination: Re Equiticorp at 397. There may be circumstances where it is appropriate to allow compensation for searching for documents: Re Equiticorp at 397. However, where a witness is compelled to attend under s 597 of the Act, compensation does not generally extend to costs incurred in a witness conferring with his or her staff or associates or with his or her legal advisers or otherwise obtaining information from others that might be used in evidence in the examination: Re Equiticorp at 397.
[28]What then were the expenses the subject of this order? The items of expense were highlighted in green in Sch C to the Respondents’ submissions to the Registrar. I have reviewed the items. On the face of what appears to be an itemised bill from a solicitor, each item would appear to fall within that otherwise excluded category of expenses – legal costs incurred by the Respondents’ legal advisers. The tasks listed include not only what would appear to be research about legal professional privilege and the applicable conduct money but administrative tasks including drafting emails and the like.[12]
[Emphasis added]
[12][2013] FCA 1101 [27]–[28].
Clearly, Gordon J considered the position involving recovery of legal costs associated with representation and advice to be distinct from the situation where an examinee can be awarded expenses of the type discussed in the decision of Young J in Re Equitcorp Finance Limited; Ex parte Brock.[13]
[13](1992) 6 ACSR 725.
Reference was also made by Mr Harris to several bankruptcy cases in support of his proposition. These included Re Lutscher Ex Parte Waddell (‘Re Lutscher’),[14] and the recent decision of the Federal Court in Scott (Trustee) Re Price (Bankrupt) (‘Scott’),[15] I do not consider that the bankruptcy decisions dealing with this issue assist in resolving the question. I accept that in rejecting an application for costs in Re Lutscher, James LJ did observe in obiter:
…this is not the case of a man who is charged with having property in his possession belonging to a bankrupt and is summoned to give evidence respecting it. In such a case it might possibly said that there was litigation between him and the trustee, and that he was entitled to be protected by counsel. The circumstances of the present case are quite different.[16]
The existence of such a principle in the Courts of bankruptcy nearly 140 years ago however does not in my view stand as authority which would override the clear words of the Act, more particularly s 597(16).
[14](1877) 6 Ch D 328.
[15][2011] FCA 1478.
[16](1877) 6 Ch D 328,331.
The recent decision of Lander J in Scott ,[17] is similarly in my view of no assistance in resolving the question. His Honour decided the matter by reference to the statutory scheme of the Bankruptcy Act 1966 (Cth).
[17][2011] FCA 1478.
Section 81 of the Bankruptcy Act 1966 (Cth) relevantly provides:
Section 81 of the Bankruptcy Act relevantly provides:
(1)Where a person (in this section called the relevant person) becomes a bankrupt, the Court or a Registrar may at any time (whether before or after the end of the bankruptcy), on the application of:
(a)a person (in this section called a creditor) who has or had a debt provable in the bankruptcy;
(b) the trustee of the relevant person’s estate; or
(c) the Official Receiver;
summon the relevant person, or an examinable person in relation to the relevant person, for examination in relation to the bankruptcy.
…
(7)A person summoned to attend before the Court, the Registrar or a magistrate for examination under this section is entitled to be represented, on his or her examination, by counsel or a solicitor, who may re-examine him or her after his or her examination.
…
(14)The Court, the Registrar or the magistrate, as the case may be, may direct that the costs of a person, other than the relevant person, examined under this section shall be paid out of the estate of the relevant person.
…
As will be seen, s 81(14) makes clear provision for a discretion in the Court to direct that the cost of a person other than a bankrupt examined under s 81 shall be paid out of the estate of the bankrupt. Lander J went on to award costs in favour of an examinee at the s 81 examination and in doing so relied on s 81(14). I do not consider that the reasoning in Scott assists resolution of the current issue by reason of the quite different legislative provisions dealing with costs in the bankruptcy arena, which contrary to s 597(16), specifically provide for payment of an examinee’s costs.
The liquidators and Mr Armstrong both filed affidavits in support of the positions that they have adopted in this application. In an affidavit of Mr Clement sworn 18 February 2015, he deposes as to the issue of the pending proceeding in August 2013. Application was made to extend the time for service of the writ quite late in the piece and a decision was not able to be given on the question before the expiry of the writ. The writ was served on 14 August 2014. The writ which is exhibited to an affidavit of Ms Mellifont makes a claim for damages for breach of contract, negligence alternatively under s 159 of the Fair Trading Act1999 (Vic) and/or s 82 of the Trade Practices Act 1974 (Cth), in respect of the audits it conducted of the Company for the financial years ending 2007, 2008 and 2009. The statement of claim has been the subject of amendments, the most recent of which was pursuant to the order of Zammit AsJ (as she then was) of 12 December 2014. Ms Mellifont’s affidavit sets out the history of the pending proceeding since its commencement. It is clear that there is substantial litigation on foot between the liquidators and Armstrong Dubois Pty Ltd. It may be accepted that the examination of Mr Armstrong canvassed at length matters centrally relevant to the pending proceeding as well as other matters.
Even if I am not correct and there is a discretion to award costs in favour of Mr Armstrong I would not be minded to do so merely because the examination dealt with matters relevant to the pending proceeding.
The position in this country at least (as distinct perhaps from the United Kingdom) is that it is a permissible purpose for a liquidator to conduct an examination the subject matter of which traverses matters which are the subject of a pending proceeding before the Courts.
In the decision of the Full Court of the Supreme Court of South Australia in Re Southern Equities Corp Ltd (In Liq); Bond v England,[18] Lander J stated:
It is clear enough from the authorities that the mere fact that proceedings are pending against the proposed examinee does not make the application for an examination an abuse of process. Nor will it be so even if the proposed examination touches upon or explores the subject matter of those existing proceedings. Still it will not be an abuse if the examination will give rise to a forensic advantage, for example by way of securing admissions or obtaining material or evidence not otherwise available to the liquidator.[19]
[18](1997) 15 ACLC 1582.
[19]Ibid 1613.
Later in his judgment, Lander J observed that the liquidator ‘is entitled to use the examination process to gather as much information as possible about the transaction in order to assess the prospects of success of the claim and moreover for the purpose of obtaining and presenting evidence to the court to support the claim’.[20]
[20]Ibid 1614.
Similarly in Re Moage Ltd (In Liq),[21] Mansfield J stated:
It is sufficient for present purposes to note that it is established clearly by authority that it is a legitimate use of that power by a liquidator to obtain information that might assist in the conduct of litigation. Such information may be sought whether or not proceedings are sought to be commenced or be continued. It may be sought to identify the nature and extent of evidence available to support a claim in respect to proposed or actual proceedings, and to determine the probability or otherwise of success in those proposed or actual proceedings. It may be sought to assess the prospects of recovery in proceedings.[22]
[21](1997) 15 ACLC 1034.
[22]Ibid 1045–6.
The examination was a conventionally conducted one in respect of the examinable affairs of the Company, including the conduct of audits by Armstrong Dubois Pty Ltd.
Mr Harris was not able to identify a case in which an examinee responding to a summons under s 596A or s 596B had been awarded their costs of representation at the examination. There are authorities[23] which decide that an order for legal costs can be made against an examinee who fails to attend an examination in answer to a summons, but there is clear power under r 11.10(2)(b) of the Supreme Court (Corporations) Rules 2013 (Vic) to do so in that very specific type of case.
[23]See Hughes, in the matter of Firepower Operations Pty Ltd (In Liq) (No.3) [2010] FCA 141.
In my view the application can be determined by construction of the provisions of s 597(16). I consider that its terms are clear and unambiguous and provide that if an examinee wishes to retain counsel and solicitors to represent them at an examination that they do so at their own cost. The intention would appear to be that the cost of doing so is not to be visited on the creditors of the company the subject of the examination. Because of such clear and unambiguous expression in relation to the position as to costs of an examinee, the jurisdiction of s 24 of the Act is not attracted as it has ‘been otherwise expressly provided … in any other act’.
The application by Mr Armstrong for his costs is refused.
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