Strazdins v Enterprise Global Resources Pty Ltd - [2018] SASC 160

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
STRAZDINS & ORS v ENTERPRISE GLOBAL RESOURCES PTY LTD & ORS
[2018] SASC 160
Judgment of The Honourable Justice Peek
11 October 2018
PROCEDURE - COSTS
GUARANTEE AND INDEMNITY - INDEMNITIES
ESTOPPEL - GENERALLY
The plaintiffs claim damages (and the enforcement of security interests) arising out of the alleged breach of an indemnity agreement entered into by the parties in May 2011 by way of a heads of agreement and a deed of indemnity.
The plaintiffs assert that the defendants expressly agreed to indemnify them in respect of the costs and expenses incurred in relation to an appeal against orders made by a Federal Court Judge in April 2011. A notice of discontinuance of that appeal was filed and served on 6 July 2011. On 20 July 2011, a Federal Court Judge ordered that the first and second plaintiffs were jointly liable with the third plaintiff for the costs of the withdrawn appeal.
The plaintiffs further claim that, in breach of the indemnity, the defendants have failed to satisfy demands made in connexion with those costs and expenses, and have failed to allow the plaintiffs to realise any security under the indemnity.
Held per Peek J:
1.       The plaintiffs satisfied the conditions precedent to the defendants’ liability on the indemnity by obtaining barristers’ opinions as to the merits of filing a notice of appeal and acting on those opinions.
2.       The notice of discontinuance of the appeal was filed because the liquidators could not properly or ethically support the continued prosecution of the appeal.
3.       That the appeal was discontinued with notice to, and input from, the defendants is clearly demonstrated in the correspondence and records of meetings tendered in evidence by the plaintiffs.
4.       The plaintiffs did not err in appealing against the orders made in April 2011 rather than seeking to have the orders set aside. The joint cost order was made in July 2011 on the basis that the plaintiffs would be indemnified by the defendants.
5.       The payment by the plaintiffs of the sum of $30,000 in full settlement of the appeal costs order was proper and reasonable; it benefitted the defendants by reducing the plaintiff’s claim pursuant to the indemnity. A review of the correspondence exchanged after the filing of the notice of discontinuance demonstrates that the assertion that the plaintiffs did not confer with the defendants about the matters of settlement and payment of Clipsal’s appellate costs is without merit.
6.       The proposition that the first and second plaintiffs made false and misleading representations to the defendants prior to entering the deed is baseless.
7.       The defendants are required to pay the costs and expenses incurred by the plaintiffs in connexion with the appellate proceedings within the meaning of the deed of indemnity.
8. The defendants are not estopped from relying upon clause 6.2 of the deed of indemnity; the principles of estoppel espoused in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 have no present application.
Federal Court of Australia Act 1976 (Cth) ss 24(1A), 31A, referred to.
Lumbers v W Cook Builders Pty Ltd (In Liquidation) [2008] HCA 27; Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd [2011] FCA 821; Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd (No 6) [2011] FCA 419; Strazdins & Cooper (as Liquidators of the Smart Company Pty Ltd (In Liq)) v Tomazou & Enterprise Global Resources Pty Ltd [2010] SASC 262; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, discussed.

STRAZDINS & ORS v ENTERPRISE GLOBAL RESOURCES PTY LTD & ORS
[2018] SASC 160
Civil
PEEK J.

The plaintiffs claim monies said to be owing to them by the defendants (and the enforcement of security interests) as a result of an indemnity entered into by the defendants in the form of heads of agreement signed on 20 May 2011 and a deed of indemnity executed by the corporate parties and signed, sealed and delivered by the natural parties on 26 May 2011 (to be collectively referred to as “the indemnity agreement”).[1]
[1] The terms of the indemnity contained within each of the documents is the same and no issue arose at trial as to any differentiation to be made between the two documents.
The plaintiffs assert that the indemnity agreement requires the defendants to indemnify them for their fees, costs and expenses incurred in connexion with an appellate proceeding instituted on behalf of the defendants against orders made by Lander J in the Federal Court. His Honour there dismissed proceedings initiated by the third plaintiff, The Smart Company Pty Ltd (in liquidation) (Smart Company) against Clipsal Australia Pty Ltd and related entities (Clipsal) in respect of certain intellectual property and licensing fees which it asserted were owed to it by Clipsal (the Clipsal proceedings).[2]
[2] Originally the pleaded claim was approximately $2 billion.
The plaintiffs assert that, in breach of the indemnity agreement, the defendants have failed to pay demands made in respect of their fees, costs and expenses, and that the defendants have not enabled the plaintiffs to realise their security interests.
PART ONE: INTRODUCTION
The parties to the present proceedings
The first and second plaintiffs are Mr Andre Strazdins (Strazdins) and Mr Nicholas Cooper (Cooper), who were appointed official liquidators of the third plaintiff, Smart Company.[3] Strazdins was primarily responsible for working on the liquidation, assisted by his staff, including Mr Heidt (Heidt) and Mr Maris Rudaks. For convenience, the first and second plaintiffs are sometimes collectively referred to as “the liquidators”.
[3] At this time, Strazdins and Cooper were both principals of BRI Ferrier (SA) Pty Ltd (‘BRI Ferrier’), however, Cooper has since commenced work at a separate insolvency firm.
The third plaintiff, Smart Company, previously operated in the areas of house and building automation. The main asset of the company was the Federal Court claim against Clipsal. An order was made by the Supreme Court of South Australia winding up Smart Company on 28 May 2010, at which time the first and second plaintiffs were appointed official liquidators.
The first defendant, Enterprise Global Resources Pty Ltd (Enterprise Global), was the sole shareholder of Smart Company. It has since been deregistered and played no role in the trial.
The second defendant, Opal World Andamooka Australia Pty Ltd (Opal World), provided security under the indemnity agreement consisting of a charge over some opal stones which are held jointly by Opal World and the liquidators, in a safety deposit box at Bank SA.
The third defendant, Nature Land Parks Pty Ltd (Nature Parks), also provided security under the indemnity agreement, namely a mortgage and charge over property it owns at Katherine in the Northern Territory.[4] Its directors are John and Colin Pitman. Neither of these men are parties to the proceedings, although John Pitman is also the director of Opal World.
[4] CT Volume 430 Folio 181.
The fourth defendant is Ms Dorothea Tomazos (Tomazos), the sole shareholder and director of Enterprise Global. She was also a director of Smart Company as at the time of its winding up.
The fifth defendant is Mr Sotiri Portellos (Portellos) the sole shareholder of Opal World. He was previously a director of Opal World[5] and a director of Smart Company. He is an undischarged bankrupt and did not participate in the trial.
[5] [2011] FCA 419, [22].
The defendants are sometimes referred to as “the directors” or as “the proponents” (of the deed of indemnity). Mr Stephen McNamara acted for the defendants at all relevant times until on or about 29 January 2015.
The Federal Court Clipsal proceedings
The Smart Company commenced the Federal Court claim against Clipsal on 18 June 2004.[6] Lander J summarised its history thus:[7]
[6]     The applicant was incorporated in Western Australia and was involved in the development of various technologies. It developed an electronic control system sold under the brand name “Jeeves” for installation in residential premises. The applicant’s products were distributed through the applicant’s wholly owned subsidiary Home Systems Plus Pty Ltd (HSP) and through various independent dealer networks.
[7]     The respondents in these proceedings Clipsal Australia Pty Ltd (CA), Clipsal Integrated Systems Pty Ltd (CIS) and Clipsal Technologies Australia Pty Ltd (CTA) were at all material times manufacturers, wholesalers and distributors of electrical products. All three entities were part of the Clipsal Group of companies and at various times had directors in common. CA was formerly known as Gerard Industries Pty Ltd, and CTA was formerly known as Gerard Industries (No 2) Pty Ltd. CA was a wholly owned subsidiary of CTA. CIS was a wholly owned subsidiary of CTA. CTA was a wholly owned subsidiary of Clipsal Australia Holdings Pty Ltd (CAH).
[8]     As at May 1995 the respondents had developed and released a product for electronic building automation lighting known as the Clipsal Bus, or C-Bus System. Bus Systems were at the time commonly used systems which enabled signals or data to be transmitted around a network from one device to another via wired or wireless transmission paths. They allowed for electronic control of buildings, such as control of heating, cooling and lighting.
…
[13]    On 22 May 1995 the applicant and CA entered into a Collaboration Agreement to enable the direct connection of the Smart system to Clipsal’s C-Bus system. The applicant claimed that the integration of the Smart system and the C-Bus system gave the C-Bus “Smart Functionalities”. These are described in more detail below.
[14]    On or about 26 September 1996 the applicant, its subsidiary HSP, and CA, entered into a Heads of Agreement (HOA). From 7 September 1999 CIS performed CA’s obligations under the HOA. Under the HOA, the applicant and the respondents agreed to pool information for the development of certain products.
[15]    The scope of the products which were to be developed under the HOA, and the extent to which those products were in fact developed, is the subject of substantial disagreement between the parties.
[16]    The applicant claims that it owns the intellectual property for numerous products and systems developed by both parties or by the respondents only during the term of the HOA. It claims that licence fees are owed to by the respondent for the continuing sale and distribution of these products and systems.
[6]    WAD 132 of 2004.
[7]    In the course of his Honour’s reasons for dismissing the proceedings on 29 April 2011.
In April 2010, Clipsal applied to dismiss the proceedings pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth). This was the third time in the lengthy proceedings that an application of this type had been filed.[8] As Lander J observed, “these proceedings have had an unfortunate history due mainly to the applicant’s inability to articulate its case with any precision or particularity; the applicant frequently changing solicitors; and the applicant’s failure to comply with directions in a timely fashion”.[9]
[8] [2011] FCA 419, [4].
[9] [2011] FCA 419, [19].
On 27 and 28 May 2010, Clipsal’s application for dismissal was heard. On the second day of argument, the liquidators were appointed by the Supreme Court; they immediately attended before Lander J and made submissions that the proceedings should be stayed rather than be dismissed and applied for an adjournment of the application.
On 4 June 2010, Lander J refused the liquidators’ application seeking an adjournment of the hearing of the application to dismiss the claim and ordered that the Smart Company pay Clipsal’s costs fixed in the amount of $200,000 relating to costs thrown away by reason of the adjournment of the trial (for which some three months had been set aside), and some costs of discovery.[10] His Honour reserved judgment on Clipsal’s application for dismissal.
[10] Ibid, [475].
The attempted assignment of the Clipsal proceedings chose-in-action to Tomazos for $1 consideration
Shortly prior to the company being placed into liquidation, and unknown to Lander J until 28 May 2010, there was an attempted assignment by deed of the chose-in-action in the Federal Court from Smart Company to Tomazos for $1 consideration. Proceedings to nullify the deed were instituted by the liquidators, and the transaction was ultimately set aside as void by Judge Withers on 27 August 2010 (subsequent to Lander J reserving his decision on the application to dismiss the Federal Court claim but prior to him doing so on 29 April 2011). In his reasons Judge Withers summarised the matter thus:[11]
[8]     There were attendances before Lander J in April 2010 and the trial date of 19 July 2010 was vacated by him on 27 May 2010. He adjourned further consideration of the Notice of Motion to 28 May 2010 at 12.00 noon. It was on the morning of that day that an order was made in this Court placing the applicant company into liquidation.
[9]     A copy of the transcript of the hearing before Lander J on 28 May 2010 is exhibited to Mr Strazdins’ affidavit as Exhibit “AJS-8” or Document 3H. His Honour advised counsel that he had been forwarded an email at 11.38 am that day which had attached to it a Deed of Assignment of the chose-in-action of the proceedings before him. Counsel for the liquidators advised that she knew nothing about any assignment. It appears that counsel for Clipsal had first been given notice of the Deed of Assignment at about the same time as Lander J. The Court was informed that no counsel for The Smart Company had earlier known of the assignment. His Honour expressed considerable dismay that he was only advised of this assignment after an order had been made in the Supreme Court that the company be wound up. His Honour said (at P-5):
HIS HONOUR:     It would be an odd exercise of the role of the company director acting in the best interests of the company to assign a $4 billion claim away to a director of – another director for $1.
[10]    The Federal Court was informed by solicitors representing The Smart Company that they had seen the document for the first time at about the time his Honour had seen it. His Honour described the situation as “extraordinarily serious” – see P-7 of the transcript. The Deed of Assignment had been executed before submissions by the company were made before Lander J on 29 April 2010 and again on 27 May 2010 and yet he had not been informed of it. Counsel for the company had not been aware of it. His Honour was very concerned at the misleading of his Court and the Supreme Court.
[11] Strazdins & Cooper (as Liquidators of the Smart Company Pty Ltd (In Liq)) v Tomazou & Enterprise Global Resources Pty Ltd [2010] SASC 262.
It is evident that until Judge Withers set aside the transaction, the defendants did not cooperate with the liquidators. Thus his Honour stated:[12]
[39] On 23 July 2010 a further affidavit (FDN 8) was filed by Mr Strazdins in which he set out the continuing difficulties that the liquidators were experiencing in accessing the books and records of the company from its directors, namely Ms Tomazou and Mr Clift. He recorded that the liquidators had made complaints about this non-co-operation to the appropriate division of the Australian Securities and Investments Commission. Mr Strazdins asserted that from the documents that he had seen he had been unable to find anything that suggested that the financial position of the company changed during the period 31 March 2010 (when the application for a winding up order was argued) to 5 April 2010, the day before the First Deed of Assignment.
[12] Ibid. See also Lander J’s judgment in [2011] FCA 419, [532]-[534].
Judge Withers made orders for the production to the liquidators of the Smart Company’s books and records.[13]
[13] [2011] FCA 419, [545].
On 29 April 2011, Lander J delivered his reserved judgment on the application to dismiss the Federal Court claim and ordered that the proceedings against Clipsal be dismissed with costs. It is clear on the evidence before me that, as at that time, (some eight months after the purported assignment transaction was set aside by Judge Withers), the liquidators were receiving “no cooperation” from the defendants.[14]
[14] See the judgment of Lander J [2011] FCA 419, [653].
The indemnity agreement between the present parties
On 20 May 2011, an indemnity was granted to the plaintiffs by the defendants in the form of signed heads of agreement and on 26 May 2011 a deed of indemnity was executed by the corporate parties and signed, sealed and delivered by the natural parties, (to be collectively referred to as “the indemnity agreement”). Important terms of the indemnity agreement included the following:
3.     Liquidators
3.1Subject to the due performance of their obligations pursuant to clause 4 of this Deed, the Liquidators shall have a right of indemnity and the Proponents hereby indemnify them for the Costs and Expenses and any GST.
4.     Appeal
4.1The Liquidators shall obtain a barristers opinion on the merits of the Company filing an appeal in relation to the Justice Lander Decision (“the Barrister’s Opinion”).
4.2If so advised by the Barrister’s Opinion the Liquidators shall cause a Notice of Appeal to be filed and served (“the Appeal”).
4.3The Liquidators shall have no obligation to prosecute the Appeal, including defending or prosecuting any incidental applications.
5.     Indemnity
5.1     The Proponents shall pay to the Liquidators on demand the Costs and Expenses.
…
Security interests in certain properties were granted to the liquidators under the indemnity. In particular, Opal World charged certain Andamooka opal stones held by the plaintiffs jointly with the second defendant in a safety deposit box at Bank SA (clause 6.1.1 of the indemnity); the charge over the opal stones was later registered with ASIC on 16 June 2011. Further, Nature Parks (the third defendant) charged an unencumbered property at Katherine, in the Northern Territory, and agreed to grant a mortgage to the plaintiffs; the mortgage over the Katherine property was later registered on 25 August 2011.
The subject Federal Court appellate proceedings
On 20 May 2011, a notice of appeal against Lander J’s orders (the notice of appeal) was caused by the liquidators to be filed by Smart Company, thus initiating the subject Federal Court appellate proceedings. On 22 June 2011, the plaintiffs filed and served a notice of motion seeking leave to appeal (the notice of motion) should the court consider Lander J’s orders to be interlocutory and the appeal not to be as of right.
On 6 July 2011, a notice of discontinuance of the appeal was filed in the Federal Court. On 20 July 2011, Mansfield J made an order that the liquidators were jointly liable with the Smart Company for the costs of the withdrawn appeal (the appeal costs order).
There followed a large amount of correspondence, mainly from the plaintiffs to the defendants (with much of it not being responded to), concerning various matters, including reference to the particular topic of Clipsal’s award of its costs of the abandoned appeal (which Clipsal stated amounted to $63,081.64). This culminated in Lynch Meyer writing to the defendants on 15 June 2012 informing them of the plaintiffs’ intention to offer $30,000 to the solicitors for the respondents in the Federal Court proceedings in satisfaction of the appeal costs order, unless the defendants communicated to the contrary by 18 June 2012; the defendants did not respond to this letter. On 26 June 2012, Clipsal agreed to accept the sum of $30,000 in full settlement of the appeal costs order and the liquidators paid that amount to Clipsal. They have not recouped any of that amount from any of the defendants.

On 24 January 2013, the plaintiffs sent a letter to the defendants demanding payment of $356,855.66, being the then total amount claimed in the present proceedings (which includes the abovementioned amounts). No money has been paid to the plaintiffs by any of the defendants.
On 10 April 2013, the present proceedings were initiated by the plaintiffs.
PART TWO: THE TRIAL OF THE PRESENT ACTION
The trial did not commence until 18 June 2018. The position of the plaintiffs at trial conformed to the pleadings. Ms Walker, counsel for the plaintiffs, opened the case at length and called three witnesses: Mr James Neate (Neate) from Lynch Meyer, former solicitors for the Smart Company; Mr Jason Heidt, an employee of BRI Ferrier, the liquidation firm in which Strazdins is a principal; and Strazdins himself. I consider the evidence of each witness below.
The plaintiffs tendered by consent two ‘tender books’ of documents as exhibit P1. The documents included copies of file notes and telephone attendance notes prepared by lawyers from Lynch Meyer and email correspondence involving the parties and their legal representatives. Counsel provided a written closing address and spoke to that document.
Mr Strawbridge, counsel for the defendants, called no witness and tendered no document (apart from those in the joint tender book). His cross-examination of the plaintiffs’ witnesses was not detrimental to the plaintiffs’ case and none of the witnesses were cross-examined so as to suggest that they were lying in their evidence. His closing address on both liability and quantum occupied only about seven pages of transcript.
Nine propositions advanced by the defendants
As I understood it, the matters sought to be advanced and relied upon by the defendants were matters stated in the defendants’ second defence (the defence) which may be summarised, in roughly chronological order, in the following nine propositions:[15]
[15] A cross-action (counterclaim) was filed but this was struck out in full by orders of Judge Dart on 1 October 2015. It is to be noted that there were some references in the defence to this former “cross-action” and counsel for the defendants specifically accepted that any such references should be treated as if they had each been specifically struck out of the defence.
1.   The plaintiffs did not obtain the prerequisite opinion on the merits of the third plaintiffs’ prospects of success on appealing the orders or such other steps as may be taken and as a consequence the conditions precedent to the defendants’ liability to indemnity were not met.
2.   The application for leave to appeal should have been made by the plaintiffs on or before the 20 May 2011 in order to comply with the correct procedure.
3.   The plaintiffs should have made an application to set aside the orders instead of appealing the orders.
4.   The notice of discontinuance of the appeal was filed and served as a result of the facts in 1 and 2 above.
5.   The plaintiffs withdrew the appeal of their own volition in their capacity as liquidators of the plaintiff without reference to or input from the defendants.
6.   Mansfield J made the joint liability costs order because the plaintiffs had inappropriately appealed the orders instead of applying to have the orders set aside.
7.   The plaintiffs did not confer with the defendants at all about an appropriate offer in respect of the order for the respondent’s costs of the abandoned appeal.
8.   If the plaintiffs paid the sum of $30,000 to the respondents they did so because they were personally liable in that they had incompetently commenced the appeal.
9.   A number of complaints to the effect that prior to entering the deed of indemnity the first and second plaintiffs made false and misleading representations to the defendants.
After assessing the witnesses and making findings of fact, I will consider these propositions in the following groups: one to three; four to five; six to eight, and nine.
Assessment of witnesses
I find each of the plaintiffs’ three witnesses to be both honest and reliable and I accept the whole of their evidence. Since the evidence of the witnesses was not challenged by the defendants at trial, and since that evidence somewhat overlaps, I will give only a short summary of the evidence of each witness and will then make findings of fact based upon the whole of the evidence.
Mr James Neate
Neate is a partner at Lynch Meyer lawyers. On the day that the liquidators were appointed, 28 May 2010, they engaged that firm to guide them in respect of the Federal Court proceedings and how to protect it as an asset of the company; and after the proceedings were dismissed by Lander J, how to resume conducting that litigation. Neate was the partner dealing with the matter and dealt principally with Strazdins; Cooper played a “secondary role” in the liquidation and did not attend all of the meetings. Neate was present for a number of meetings involving the plaintiffs and defendants, during which he took a number of handwritten notes which were tendered.[16] He also gave evidence in respect of a number of communications with various persons and file notes of such communications are before the Court.[17] He also gave evidence in relation to the billing by Lynch Meyer to the liquidators.
[16] For example, P1, part 1, tab 3.
[17] Exhibit P2.
Mr Jason Heidt
Heidt has been employed by BRI Ferrier for 21 years and gave evidence as to the work he did in connexion with the liquidation of the Smart Company, including attending a number of meetings, including with the defendants, at which he took contemporaneous notes which appear in the tender book P1.
Mr Andrew Strazdins
Strazdins has been a registered liquidator since approximately 1998 and gave evidence that at the time Smart Company entered into liquidation, there were a number of outstanding creditors, many being related parties, that the claims totalled approximately $16 million, and that there has been no payment made to creditors. He primarily conducted the liquidation since appointment as liquidator in May 2010, with the assistance of Cooper and staff, including Heidt. He gave evidence as to what occurred subsequent to Lander J’s dismissal of the action including in relation to a number of meetings and legal advice that the liquidators obtained from senior counsel and junior counsel; the liquidators’ conversations with Mr John Pitman, a director of the third defendant, about selling the Katherine Property. He also gave evidence concerning the opal stones security including that one of the two required keys was held by Portellos and the other held by the liquidators; that he did not know where Portellos presently is, but that the bank has granted Portellos’ trustee in bankruptcy access to the opals in the company of Strazdins.
Findings of fact: Events from the dismissal of the Clipsal proceedings to the filing of the notice of appeal against that decision
I make the following findings of fact concerning the events from the dismissal of the Clipsal proceedings (on 29 April 2011) to the filing of the notice of appeal against that decision (on 20 May 2011) on the basis of the witnesses’ evidence and the admissions appearing on the pleadings or made at trial.
Under the Federal Court Rules, the liquidators had 21 days within which to file a notice of appeal against Lander J’s decision of 29 April 2011. On 3 May 2011, Strazdins and Neate met with Portellos and others. Portellos indicated that he wanted to work jointly with the liquidators to further the Federal Court proceedings and stated that he would “put money up”. Neate and Strazdins told Portellos that the liquidators would require funding to obtain opinion of counsel on the merits of any appeal and would need to consider how any appeal would be funded. McNamara arrived mid-way through the meeting, and Strazdins informed him that they were considering an appeal against Lander J’s decision but would need urgent counsel opinion and funding. During this meeting, the potential use of the opal stones as security was also discussed.
The following day, 4 May 2011, there was a meeting attended by Strazdins, Heidt and Rudaks (each from BRI Ferrier), Neate and Hayes (from Lynch Meyer), Portellos, two members of the Pitman family, McNamara and others. In his evidence Neate correctly summarised the nature of the meeting thus:
By 4 May the proceedings had been dismissed and this was effectively a planning meeting cumulative upon various other meetings that had been held since day one of the liquidation where the continuing conversation was about the directors obtaining funding, clearing a back list of issues that needed to be addressed in the litigation and resuming the prosecution of the claim. This meeting, of course, had a certain and extra urgency given that the claim by this day had in fact been dismissed, so it was a planning meeting to work out how they, how the proponents as they became known in the documents, how those parties were to work out how they were going to put the action back on foot.
During the course of the meeting, the liquidators told the defendants that before an appeal could be instituted, they urgently needed funding to obtain an opinion from senior counsel as to the merits of any appeal;[18] and that the liquidators would only act on advice that would “justify their position beyond criticism”. The liquidators decided that Mr Blue QC (as his Honour Justice Blue then was) should be approached since he was familiar with the litigation; he will henceforth be referred to as senior counsel. At 3:10pm, during the course of the meeting, a telephone call was made to senior counsel at which time Mr McNamara and the defendants left the room. Senior counsel indicated that he was prepared to assist but only on the basis that he had only limited time during the forthcoming two weeks.
[18] Mr Neate said that any advice was “always going to be” from senior counsel, in light of the complexity of the claim, the attitude of the defendants and the need to protect the liquidators: T53.
During the further course of the resumed meeting, the question of funding for an appeal and (should it be successful) the further prosecution of the claim was further discussed. The defendants’ wish to apply for the company to be put into voluntary administration and then to enter into a deed of company arrangement was also discussed at length. Thus Neate stated in evidence:
… from very early on in the litigation, there had been discussion that one option for the claim to be prosecuted even though the company was now in liquidation was for the directors to put up a proposal for the company to move into a voluntary administration and then into a deed of company arrangement where they would assume the conduct of the action going forward, so my note simply records that Sotiri Portellos has again said they’re keen to move on that [deed of company arrangement] proposal.
Strazdins also stated in evidence:
A… The purpose is that you go into voluntary administration and a proposal is put to the creditors, then they can vote on ... accept, and if the proposal is accepted by the creditors at a creditors meeting by the majority, it will go into what is called a deed of company arrangement. A deed of company arrangement is a deed executed by everyone that’s party to that proposal and generally the control of the company returns back to the directors, or whatever the deed is being proposed, and they will run the course of action that's put forward in the proposal.
QSo when you referred to a proposal, what kind of things are contained in a proposal that might lead to a voluntary administration process.
AThe law states a proposal has to provide a better return to the creditors than would otherwise be available in a liquidation. So the proposal is aimed at providing a greater return. What we have to do is eventually write a report under 439A which will compare liquidation to the voluntary administration's proposal, and we’ve got to provide our opinion as to whether the company stays in this case in liquidation or whether the proposal should be accepted. So, particularly in this case when it’s already in liquidation, normally you either start initially in a voluntary administration – it’s unusual to go from a liquidation into a voluntary administration unless there is a very good proposal, because if the proposal is not accepted by creditors you’re back in liquidation, so we’d just go a full circle in this case. Normally you start in a voluntary administration and you put the proposal forward. Now, an example of a proposal is simply someone injecting a pool of money; an example of this is there’s a litigation to run, somebody may want to fund that, run it and say ‘You’ll get a better return’. It can be from trading, future profits, the proposals are endless; every administration, every company, it’s different.
It was agreed that the defendants would submit a written proposal to the liquidators by the deadline of 30 May 2011.[19] The meeting concluded on the basis that McNamara stated that he would inform Strazdins who was to fund what in respect of the appeal.
[19] However, such a proposal was not received by that date.
On 6 May 2011, having not heard from McNamara as to funding, Hayes emailed McNamara, making it clear that the liquidators did not have funds to instruct counsel to provide an opinion as to the merits of an appeal and inquiring, in light of the critical timing for lodging of an appeal, as to when McNamara would inform them in respect of “possible funding”. A further three days later, on 9 May 2011, McNamara replied and inquired as to the basis upon which the funds for senior counsel’s advice were to be paid.
On 11 May 2011, a further two days later, McNamara asked the liquidators a number of further questions on behalf of the defendants. Later that day, Hayes replied inter alia:
… The matters raised in your e-mail were either discussed at the meeting on 4 May 2011 or should have been raised at that meeting.
A further seven days have elapsed since that meeting and the Liquidators still do not know whether the parties who attended the meeting, and whom we understand you represent, will raise the funds required by the Liquidators to instruct Counsel. In this regard we take it that you also act for the directors. As you will recall, Mr Strazdins informed those present at the meeting of the critical time constrains within which to obtain an opinion as to the merits of an appeal. Clearly, the Liquidators cannot commence and run an appeal if there is no merit in an appeal and if the Liquidators do not have funds to do so.
To be clear, and to repeat what Mr Strazdins made very clear at the meeting, the Liquidators do not have funds to brief Counsel in respect of the merits of an appeal or in respect of an appeal itself. It was also made clear that, apart from the costs of an opinion, your clients would also have to turn their minds to the costs of an appeal and that would involve them showing how they intend to fund an appeal. The Liquidators must be indemnified by creditors in respect of those costs if the Liquidators are to advance an appeal, if at all. …
The issue in respect of which we seek an immediate answer is whether those whom you represent will indemnify the Liquidators in an amount of $20,000 in respect of the costs of obtaining an opinion on the merits of an appeal – yes or no! The question as to whether this claim can be salvaged now rests, as it always has, with all those whom you represent.
Some six days later, as at 17 May 2011, the defendants still had not provided any funding or an indemnity to the liquidators to enable them to obtain counsel’s opinion; and nor had they informed the liquidators how they intended to fund any appeal. Accordingly, that day Hayes again emailed McNamara stating that:
… the prospects of salvaging this claim, given the time that has elapsed since our meeting on 4 May 2011 and your clients’ failure to indemnify the Liquidators, are now even more remote. In this regard we point out that it is doubtful that Mr Blue QC would be able to provide an opinion on the merits of an appeal by Friday, 20 May 2011 which in turn, would enable the Liquidators to consider the further conduct of the appeal and for your clients to indicate how they propose to fund an appeal.
On 18 May 2011, McNamara finally emailed Hayes a draft indemnity. On the same day, Neate spoke with senior counsel who opined that there were “some prospects” regarding an appeal but that expert reports had to be available; and that once those reports were at hand they could also make an application to set aside the judgment.[20] Senior counsel was formally retained that evening to draw and settle a notice of appeal on the basis that, due to the shortness of time brought about by the defendants dilatory conduct, he would only consider proposed grounds by reference to Lander J’s reasons for judgment (without looking at affidavits, documents or other matters referred to therein or relevant thereto) and that he was not retained to provide an opinion on the prospects of success of the appeal as distinct from the question of whether the appeal was arguable.
[20] Hayes gave evidence that he was “confident” that the further avenue of applying to set aside the judgment was discussed with McNamara and the defendants, but only as a “fall-back position rather than the primary attack on the judgment”; they did not “workshop or discuss the merits of doing one or the other”.
On 19 May 2011, there was further discussion between the parties regarding the matter of security and the drafting of the indemnity. During a meeting between Neate, Hayes and McNamara, Hayes informed McNamara that the appeal would be withdrawn if a proposal for a deed of company arrangement was not submitted, or if the proposal was not accepted by the creditors. The liquidators and their solicitors also spoke to Pitman by telephone; the Katherine property was discussed and Pitman indicated that he would arrange for the certificate of title to be delivered to Strazdins within 24 hours.
On 20 May 2011, the last day for filing an appeal, the defendants executed the heads of agreement concerning the indemnification of the plaintiffs. Later that same day, Lynch Meyer received a written advice from senior counsel attaching a draft notice of appeal and advising that:
-On the limited basis upon which he had been retained, he considered the grounds of appeal arguable, but made “no further comments about prospects of success”;
-The notice of appeal should be filed that day;
-The grounds of appeal should be reviewed and amended after full advice was obtained (as opposed to the limited basis upon which he was retained);
-Proper and admissible expert reports on liability and quantum needed to be obtained as soon as possible;
-Once the expert reports were obtained, consideration needed to be given to the possibility of applying to set aside the default judgment;
-The lay witness statements served in May 2010 needed to be reviewed to ensure they are admissible and prove the Smart Company’s case; and
-If the above steps were not done, “the prospects of success would be so poor as not to justify prosecution of the appeal.”
Also on 20 May 2011, Lynch Meyer received a facsimile from Mr Hoile, a barrister who was retained to assist senior counsel (junior counsel). He confirmed that, consistent with the opinion of senior counsel, the grounds of appeal were “reasonably arguable”; he also qualified this advice on the basis that he had “very limited time to consider the issues, and [had] been able only to read the reasons of Lander J without any of the applications or affidavit material”. He advised that, following the appeal being filed, “a considered opinion as to the prospects of success should be obtained promptly, within the next few weeks”.

Later that day, Hayes provided the draft notice of appeal to McNamara who, still later that day, told Hayes that he had considered the grounds and was satisfied that senior counsel had addressed the relevant issues, and that the appeal should be filed. And so it was that on the last day within which the company could appeal, the notice of appeal was accepted for filing at about 4:29pm on 20 May 2011.
The defendants’ propositions one to three
The defendants assert that:
1.   The plaintiffs did not obtain the prerequisite opinion on the merits of the third plaintiffs prospects of success on appealing the orders or such other steps as may be taken and as a consequence the conditions precedent to the defendants being liable to the indemnity were not met
2.   The application for leave to appeal should have been made by the plaintiffs on or before the 20 May 2011 in order to comply with the correct procedure.
3.   The plaintiffs should have made an application to set aside the orders instead of appealing the orders.
It is important to note that under clause 3, the right of the plaintiffs to indemnity was conditional only upon “due performance of their obligations pursuant to clause 4”. Clause 4 (and in particular (4.1) and (4.2)) denotes the particular acts the performance of which constitutes the condition precedent to the indemnity arising. These acts are specifically confined to (4.1) “obtain a Barrister’s opinion on the merits of the Company filing an appeal” and (4.2) “if so advised by the Barrister’s opinion the Liquidators shall cause a Notice of Appeal to be filed and served”.
As to clause 4.1, barristers’ opinions were indeed obtained from both senior and junior counsel, both of whom were “barristers”.[21] Importantly, these opinions were directed to the critical question of “the merits of the company filing an appeal” as distinct from a detailed analysis of the ultimate prospects of success of such an appellate proceeding. The essential point here is that, having decided (as did both senior counsel and junior counsel) that an appeal was arguable, the merits of filing such an appeal within the time limit strongly outweighed any merits attaching to a course of not filing an appeal within time. This was obviously so in this case having regard to factors such as:
-Proposed grounds of appeal could later be amended and added;
-Work could be done to strengthen the appellant’s position such as the payment of the outstanding costs order of $200,000 and the provision of expert witness statements in admissible form; and
-If it subsequently appeared on further analysis that the prospects of success were unreasonably low the appeal could be abandoned (with some cost penalty).
[21] And interestingly, Mr McNamara, acting on behalf of the defendants, concurred in those opinions and in filing the notice of appeal.
As to clause 4.2, the plaintiffs were “so advised by the Barrister’s opinion” and did “cause a Notice of Appeal to be filed and served”.
I consider that the meaning and function of clause 3 is specifically limited to making the liability of the defendants under the indemnity conditional upon the performance of the liquidators of the particular acts specified in clause 4. Clause 3 is not directed to the duties that the barristers might have in connexion with rendering an opinion to the liquidators; such duties would be assessed by reference to the usual principles of the laws of contract and tort as they apply to barristers.
As to proposition two, an application for permission to appeal was later lodged ex abundanti cautela, but the matter of permission to appeal is both irrelevant and moot in the present case for several reasons. First, the need for permission depended upon the appropriate characterisation of Lander J’s orders as final or interlocutory, a matter upon which there remains considerable doubt and as to which matter the defendants made no submission at this trial. Secondly, and most importantly, the matters of permission to appeal[22] and the success of a substantive appeal were inextricably linked (to which was also linked the further matter of a motion to set aside judgment). As advised by senior counsel in his opinion of 20 May 2011 (and subsequently to the same effect by junior counsel), for any appellate proceeding to have any chance, at the very least three things had to first happen. First, the sum of $200,000 had to be paid to satisfy Lander J’s order for Clipsal’s costs thrown away (against which order there was no appeal). Secondly, full expert witness statements in admissible form had to be produced (again at substantial cost). Thirdly, there would inevitably be an order made for security for costs of the appeal and such a sum would have to be also paid; junior counsel estimated its likely amount at $50,000.
[22] Including any short extension of time that may have been required.
As it transpired, the defendants were unwilling or unable to achieve any of those basic requirements; and in fact they determined to withdraw the notice of appeal because of this inability. In those circumstances, any question of a need for a grant of permission to appeal becomes entirely moot.
As to proposition three, the position is largely the same as that pertaining to proposition two. In fact, proposition three makes very little sense. The indemnity agreement specifically proceeded on the basis that the primary relief sought was that of an appeal and that such an appeal was to be instituted by the liquidators. It may be that a secondary application to have the judgment set aside could have also been pursued (if sufficient supporting evidence was to be later forthcoming) but it was never the case that the liquidators could (or should) have pursued such an application alone, and instead of, filing an appeal having regard to the very clear words of clauses 3 and 4.
I find that the liquidators satisfied their obligations under clause 4.1 and 4.2 and were accordingly entitled to indemnity by the defendants.
The defendants’ propositions four to five
The defendants assert that:
4. The notice of discontinuance of the appeal was filed and served as a result of the facts in 1 and 2 above.
5. The plaintiffs withdrew the appeal of their own volition in their capacity as liquidators of the plaintiff without reference to or input from the defendants.
In order to consider the defendants’ propositions four and five, I make the following findings of fact concerning relevant events from the filing of the notice of appeal on 20 May 2011 to its discontinuance on 6 July 2011.
On 24 May 2011, Strazdins, Heidt, Neate and Hayes met with Portellos, Tomazos, McNamara and three members of the Pitman family.[23] Both the appeal and the additional avenue of applying to set aside the judgment were discussed. Strazdins emphasised that the defendants were responsible for “doing all of the things necessary … so that the appeal could either be pressed or this alternative fall back second string strategy could be enacted”; he said that the defendants needed to urgently action the recommendations of senior counsel or the liquidators would withdraw the appeal. Tomazos assured the liquidators that progress was occurring.
[23] Exhibit P4 (agenda for meeting); and exhibit P5 (notes from meeting).
On 24 and 25 May 2011, John Pitman and Colin Pitman each respectively executed a mortgage in favour of the Smart Company over the Katherine Property. The indemnity was executed by the plaintiffs on 26 May 2011. The charge over the opals was registered on 16 June 2011.
On 1 June 2011, the solicitors for Clipsal wrote to Lynch Meyer suggesting that the notice of appeal was “incompetent” because, it was said, Lander J’s decision was interlocutory and leave to appeal was therefore required.[24] In the days that followed, Hayes sought the advice of senior counsel who, due to the urgency of the circumstances, opined, without providing a detailed opinion, that any such detailed written opinion would “conclude that, at best, there is doubt that leave may be required”. Senior counsel reaffirmed the urgency with which the expert reports needed to be obtained, the lay witness statements reviewed, and the $200,000 costs order made by Lander J be paid.
[24] Pursuant to s 24(1A) of the Federal Court of Australia Act 1976 (Cth).
McNamara was later provided with this advice and stated that he considered that Lander J’s judgment was final, not interlocutory (and therefore leave to appeal was not required).
On 15 June 2011, a meeting of the creditors and contributories was held for the purpose of the liquidators providing an “update as to the status of the liquidation and to discuss, amongst other business” the proposal for a deed of company arrangement. Present at the meeting, amongst others, were John Pitman, representing the first defendant, Portellos, McNamara and a Mr O’Halloran (representing Clipsal). A written proposal was not formally tabled at this meeting but it was resolved that the liquidators would apply for the company to be placed into voluntary administration.
On 22 June 2011, a notice of motion seeking permission to appeal was filed ex abundanti cautela against a possibility of a finding being made that leave to appeal was required. On that same day, Hayes wrote to McNamara attaching the notice of motion and again referring to the matters which needed to be dealt with urgently to progress appellate proceedings in any form; he emphasised the need for further considered counsel opinion as to the merits of the appeal once these steps had been taken, and asked McNamara what progress had been made. Neate gave evidence that at this time, the option of applying to set aside the judgment “was still in play” but was not, in their opinion, a “live or imminent issue” because of the issues which needed to be attended to before such an application could realistically be made, such as the obtaining of the expert reports.
On 27 June 2011, (prior to the withdrawal of the appeal), Lynch Meyer wrote to the defendants demanding payment of certain disbursements incurred by the plaintiffs in respect of the appeal in the amount of $14,132.99. Attached to the letter was a schedule setting out the costs incurred which included: court filing fees; fees for the advice of senior counsel and junior counsel; and, valuation fees. Under the terms of the indemnity, payment was due by 11 July 2011.
On 1 July 2011, the motion for leave to appeal (if necessary) came on before Mansfield J who indicated to the plaintiffs that he wished to know how any future proceedings between the Smart Company and Clipsal were to be funded, and how the costs order made by Lander J was to be paid. He gave the plaintiffs until the following Wednesday, 6 July 2011 to provide further materials.
Later on 1 July 2011, Strazdins, Neate and others met with McNamara to discuss what had occurred. During this meeting, Neate stated that the argument on appeal was covered by the indemnity, with which observation McNamara agreed. McNamara also indicated to the liquidators that cash was being raised from a sale of some of the opal stones.
Still later on 1 July 2011, Neate wrote to McNamara to “set out … concerns as to the inadequacy of the various securities [and] invite the proponents to address a range of other matters pertinent to the viability of any [Deed of Company Arrangement]”. As to this last matter, it was stressed that the security pledged to assure an outcome to creditors of $3,000,000 pursuant to the proposed deed of company arrangement was now shown to be manifestly inadequate with a shortfall between $2,070,000 and $2,640,000. On the same day, Neate also wrote to McNamara in similar urgent terms.
On the following day, 2 July 2011, junior counsel emailed Lynch Meyer and McNamara advising that they needed to provide the court, by the deadline of the following Wednesday, 6 July set by Mansfield J, with evidence that:
-The Smart Company had paid (or at the least could quickly pay) the $200,000 costs order; and
-It could fund an inevitable security for costs order for the appeal (which he estimated would require around $50,000); and
-It had sufficient funding for the trial preparation costs (should the appeal be successful).
He therefore concluded that he thought there to be “no reasonable prospects of success unless Smart can find 250K by [that] Wednesday” (6 July).
On 4 July 2011 McNamara replied, expressing his opinion that the Smart Company “did not need to appeal, but simply needed to apply to set aside the default judgment”. This was the first time he had ever proffered such an opinion. Hayes responded to this the following day, 5 July 2011, including as follows:
4.     The Liquidators (and their solicitors) are first and foremost officers of the Court. The Liquidators are faced with no alternative, absent a clear indication that your clients can pay the existing costs order, costs of appeal and provide material to the satisfaction of the Liquidators indicating that your clients are in a position to prosecute the appeal, but to withdraw the appeal as foreshadowed in your e-mail yesterday.
…
7.     It is simply wrong to say that the Proponents have put up security to the value of $3 million. We refer to our letter of 1 July 2011 in this regard. I am simply not in a position (as an officer of the Court) to swear an affidavit to the effect that there are funds available to the Liquidators (or for that matter the Proponents) to prosecute the proceedings to the value of $3 million, It would obviously be a completely different matter if your clients were to provide a bank guarantee or cash in the amount of $3 million. Given the history of the matter, the only reasonable inference that can be drawn from your client’s failure to come up with the cash is that your clients are simply not in a position to do so.
...
11.     In the light of the matters set out above and, in particular, your clients failure to come up with cash and show how your clients will further prosecute and fund the proceedings, the Liquidators have no alternative but to withdraw the appeal to limit their exposure to adverse costs and consequently limit any possible prejudice to creditors.
…
13.     It remains a matter for your clients whether they authorise the Liquidators to withdraw the appeal so that your clients may put up a further proposal (if at all) for example, your proposal of an application under O 35(7). However, if your clients do not attend the meeting this afternoon or put the Liquidators in a position to deal satisfactorily with the matters referred to by Martin Hoile, the liquidators will have no alternative but to withdraw the appeal by 2 PM on Wednesday, 6 July 2011.
The following day, Wednesday 6 July 2011, McNamara wrote to Lynch Meyer informing them that the defendants proposed the following course of action:
1.   The Liquidators not file any further material in relation to the Appeal or application for leave to Appeal;
2.   The Liquidators advise Kelly & Co and the Court that the Liquidators would withdraw their application for leave to Appeal and the Appeal;
3.   The Liquidators apply to the Supreme Court as a matter of urgency to have the Company put into administration, and following from this call a meeting of Creditors to have the [Deed of Company Arrangement] put to creditors;
4. On the DOCA being accepted by the creditors, that the Proponents apply to the Federal Court to have the Decision set aside pursuant to Order 35 R7 as the Proponents through the DOCA will have the litigation funding in place, and can place their own material before the Court.
On 6 July 2011, a notice of discontinuance of the appeal was filed.[25]
[25] On 8 July 2011, Hayes wrote to McNamara rejecting certain self-serving statements contained in his letter of 6 July 2011.
Conclusion concerning the defendants’ propositions four to five
I conclude that it is clear that the notice of discontinuance of the appeal was filed because the liquidators came to the (correct) conclusion that, having regard to their obligations to the creditors and to the courts, and in light of the conduct of the defendants referred to above, they could not properly or ethically support the continued existence of the appellate proceedings before the court. A review of the correspondence and meetings referred to above demonstrates that the assertion that the plaintiffs “withdrew the appeal without reference to or input from the defendants” is really quite ludicrous.
The defendants’ propositions six to eight
The defendants assert that:
6.The reasons for the joint liability costs order made by Mansfield J was based on the fact that the plaintiffs had inappropriately appealed the orders instead of applying to have the orders set aside.
7.The plaintiffs did not confer with the defendants at all about an appropriate offer in respect of costs and refer to the letter dated 18 July 2011 from Lynch Meyer to Commercial and General Law.
8.If the plaintiffs paid the sum of $30,000 to the respondents they did so because they were personally liable in that they had incompetently commenced the appeal.
On 8 July 2011 (two days after the filing of the notice of discontinuance on 6 July 2011), Mansfield J made a costs order against the Smart Company (the appeal costs order), and allowed the liquidators the opportunity to file submissions and affidavit material in respect of Clipsal’s application for a personal costs order also to be made against them. On 20 July 2011, Mansfield J made such a personal costs order against the liquidators. Clipsal originally claimed the amount of $63,081.64 in relation to its appeal costs order, but later offered to accept the sum of $41,182.18 in satisfaction of it.
In order to consider the defendants’ propositions six to eight, I make the following findings of fact concerning relevant events from the filing of the notice of discontinuance of the appeal on 6 July 2011 to the payment of the amount of $30,000 by the plaintiffs to Clipsal in settlement of its appeal costs order.
On 22 July 2011, Hayes wrote to McNamara and confirmed that the liquidators had no alternative but to recover the costs and expenses, including the appeal costs order, and set out in some detail the history of the matter.[26]
[26] The liquidators also complained that they had still not been provided with the necessary duplicate certificate of title for the Katherine property required in order for them to register their mortgage over it. Subsequently, on 25 August 2011, the mortgage was registered over the Katherine property (of which the second defendant was the registered proprietor).
On 4 October 2011, Lynch Meyer wrote to McNamara in relation to the application by Clipsal in the Federal Court proceedings that the Smart Company pay their costs on an indemnity basis, fixed in the amount of $2,660,807.10. The liquidators said that they were not “in a position to take issue with the relief sought”, nor did they have “the necessary funds to engage costs experts”. They invited the defendants to participate in the costs adjudication, and provide funds to the liquidators to engage an independent costs expert, should they wish to do so.
On 24 November 2011, Hayes met with McNamara and handed him a copy of a letter dated 17 November 2011 in which Clipsal’s solicitors offered to reduce their claim for appeal costs from $63,081.64 to the amount of $41,182.18.
On 5 December 2011, Hayes wrote to McNamara referring to the appeal costs order and enclosing a further letter from Clipsal’s solicitors wherein they extended the deadline to close of business on 5 December 2011 for acceptance of their offer to compromise their claim of $63,081.64 in the amount of $41,182.18. Hayes indicated that the liquidators were, in the absence of comment by the defendants, minded to accept that offer. There does not appear to have been any reply to this correspondence.

On 21 March 2012, Hayes again wrote to “the proponents” demanding a number of payments including the appeal costs order in the amount of $63,081.64 still being claimed by Clipsal, their compromise offer not having been accepted.
On 15 June 2012, Hayes wrote yet again to the proponents in respect of the appeal costs order and stated:
1.3Clipsal made various offers in respect of the Appeal Costs but withdrew those offers. Clipsal continues to press for payment of the Appeal Costs.
1.4The Liquidators propose making an offer to Clipsal in respect of the Appeal Costs to limit their exposure and to avoid incurring further costs including the costs of taxation and this form’s costs in responding further to the Appeal Costs and a taxation.
1.5Accordingly, unless we hear from you by close of business of Monday, 18 June 2012, the Liquidators propose offering $30,000.00 (inclusive of all disbursements, counsel’s cost and GST) payable on or before 30 June 2012 in settlement of the Appeal Costs.
1.6The Proponents are invited to place the Liquidators in funds to pay the amount of $30,000. If not, that amount will form part of the claim for costs and disbursements under the Indemnity.
On 26 June 2012, Clipsal accepted the offer of $30,000 in satisfaction of the costs order. The liquidators subsequently paid this amount personally.
Conclusion concerning the defendants’ proposition six
As to the defendants’ proposition six, the defendants’ submission appears to be that the court ordered joint liability for the costs order on the basis that the amount should be paid by the liquidators rather than the defendants because of some error made by the liquidators; the submission continues that the alleged error was that the plaintiffs had proceeded by way of appeal rather than seeking to set aside the Lander J’s judgment.
I reject that submission. The basis of the making of the joint costs order by Mansfield J was that if the liquidators paid in the first instance, they would recover payment from the defendants pursuant to the indemnity. Thus his Honour noted:[27]
2.     … The effect of an order for costs against them personally will be that, through the indemnity, the costs of the appeal will be paid by those who apparently stand behind the appellant and intended to support it in the appeal and, presumably, to benefit in the event that the appeal was successful.
…
4.     Thereafter, the liquidators obtained counsel’s opinion as to the prospects of an appeal and instituted the appeal. In taking that action, they were provided with funding indemnities in relation to the appeal. On 26 May 2011, the liquidators executed a Deed of Indemnity with Enterprise Global Resources Pty Ltd (shareholder of the appellant), Opal World Andamooka Australia Pty Ltd, Nature Land Parks Pty Ltd, Dorothea Tomazos (one of the directors of the appellant at the time of its liquidation) and Sotiri Portelos. All of them acknowledged that the indemnity covered the costs associated with obtaining an opinion as to the merits of appealing the primary judgment, and the costs associated with that appeal.
…
7.     In my view, the present circumstances amply warrant the exercise of the discretion to order that the liquidators be personally jointly liable with the appellant for the costs of the appeal as ordered. They made the decision to institute the appeal in the name of the appellant. They took the precaution of seeking an indemnity for costs of the appeal from those apparently interested in its outcome, and who in some way or another stood to gain if the appeal were successful. Their personal liability will be indemnified in accordance with that arrangement. In those circumstances, there is no element of inhibiting an officer of the Court from properly bringing proceedings. They obviously took the appropriate precaution of seeking the indemnity. I do not infer anything about the strength or otherwise of the prospects of success on the appeal from the mere fact of its discontinuance.   (Emphasis added)
[27] [2011] FCA 821.
Conclusion concerning the defendants’ propositions seven and eight
As to the defendants’ propositions seven and eight, I consider that the liquidators’ behaviour concerning the payment of the appeal costs order was entirely reasonable. As was communicated to the liquidators by the reasons of Mansfield J, the liquidators had a valid indemnity agreement under which the defendants were wholly liable to pay the appeal costs order. The liquidators, who could certainly not ignore payment of the appeal costs order, entered into responsible negotiations with Clipsal and were able to secure a very favourable resolution, to which they agreed only after positively inviting the participation of the directors (with no success). If the liquidators had simply paid the amount of $63,081.64 originally claimed (or the later amount of $41,182.18 suggested by Clipsal), the defendants would no doubt have asserted that the plaintiffs had made insufficient efforts to mitigate the loss. The arrangement come to by the plaintiffs to settle the appeal costs order for $30,000 benefitted the defendants by way of a substantial reduction in the plaintiffs’ claim under the indemnity. The position of the defendants concerning this matter is without any merit; it can be seen from correspondence between the liquidators and the defendants reproduced above that it is quite false to assert that the defendants were not consulted about the matters of settlement and payment of Clipsals award of appellate costs.
The defendants’ proposition nine: False and misleading representations
The ninth of the defendants’ propositions was:
9.A number of complaints to the effect that prior to entering the deed of indemnity the first and second plaintiffs made false and misleading representations to the defendants.
There was no evidence led at trial of the making of any false or misleading representation by or on behalf of any of the plaintiffs. This complaint is baseless.
Conclusion as to liability
The final demand for $356,885.66 (the amount claimed in the subject proceedings) was sent on 24 January 2013, with the intimation that, “if payment remains outstanding, the liquidators give … notice of their intention to file proceedings in the Supreme Court of South Australia to recover moneys owed.”
I conclude that the defendants are obliged to indemnify the plaintiffs for “costs and expenses” associated with the appeal proceedings within the meaning of the deed,[28] notwithstanding that the appeal was subsequently withdrawn in the circumstances stated above.
[28] Clause 2.1.7.
The question of quantum
The amount owed by the defendants as a result of my findings above is limited by the terms of the indemnity to the value of the “costs and expenses” incurred, as so defined. “Costs and expenses” are defined in clause 2.1.7 of the deed of indemnity as follows:
Costs and Expenses means:
2.1.7.1       all costs, fees, stamp duty, liabilities and expenses including all legal costs and counsel fees in connection with the receipt of Justice Lander’s decision, all negotiations and advice related to this Deed or arrangements contemplated by this Deed and the commencement of the Appeal including but not limited to Counsel‘s opinion as to the merits of an Appeal and the preparation, settling and filing of any Notices of Appeal and all matters incidental thereto on a solicitors and client basis; and/or
2.1.7.2       all fees, costs and expenses arising out of or associated with all actions, suits, proceedings, accounts, claims and demands arising out of the Appeal, incurred by or made on the Liquidators by any person, and all costs, charges and expenses incurred by the Liquidators in respect of any of them including all legal costs and counsel fees on a solicitor and client basis; and/or
2.1.7.3       the remuneration of the Liquidators calculated on an hourly basis in respect of the reasonable time spent by them, their partners, staff and agents with respect to the matters referred to at 2.1.7.1, and the convening of a meeting of the creditors of the company in Liquidation, any Application to the Supreme Court for Orders related to the Voluntary Administration process, causing and conducting a meeting of creditors of the company in Voluntary Administration, including all legal costs and counsel fees on a solicitor and client basis and all costs and fees in respect of any matters arising from the Voluntary Administration and all costs associated with the company entering any Deed of Company Arrangement, at the usual hourly rates from time to time charged by BRI Ferrier (SA) Pty Ltd.
Tendered as part of exhibit P1 (by consent) was a “schedule of quantum”, which is said to support the amount claimed in paragraph [40] of the third statement of claim.[29] I consider that the amount claimed in paragraph [40] of the third statement of claim is established by the plaintiffs.
[29] Filed 5 June 2018.
A question concerning security over the Northern Territory land
In addition to orders as to damages, the plaintiffs seek a declaration that the defendants are estopped from relying on clause 6.2 of the deed of indemnity.[30] Clause 6.2 provides that:
6.2If for any reason the Liquidator requires to realise any of the securities put forward by the Proponents the Liquidators shall in all cases first realise the Opal Stones, before making a call on the Katherine Property. For the avoidance of doubt the Liquidators shall satisfy any indemnity by first selling all of the Opal Stones before selling the Katherine Property.
[30] Supplied to the Court by email on 28 June 2018.
It is to be noted that the details of the ownership of the two sets of security (the opals and the land) are different; and one can see here that the owner of the land was only prepared to pledge the land as security on the very clear basis that “the Liquidators shall satisfy any indemnity by first selling all of the Opal Stones before selling the Katherine Property”. This arrangement was equally clear to the plaintiffs and their solicitors, and they were prepared to accept and agree to the term. Whether they now regret this decision is none to the point.
Counsel for the plaintiffs submitted that the defendants (including the third defendant) are estopped from relying on the clear words of clause 6.2, but the only authority cited by her was the well-known statement of principle by the High Court in Waltons Stores (Interstate) Ltd v Maher.[31] At the hearing, I expressed difficulty in accepting that that principle would apply in the present circumstances and invited further written submissions on the point and, in particular, references to decisions of some similarity to the present case of a term of a contract that was clear to all parties. A written submission was later received from the plaintiffs but it did not refer to any authority at all, except to again suggest that the Waltons principle is here applicable.
[31] (1988) 164 CLR 387.
With respect, I disagree. There is no evidence that the third defendant, the owner of the land, has acted in a way that would disentitle it within the Waltons doctrine from relying on the protection given to it by clause 6.2. And nor is it enough to deprive it of that protection to point to unco-operative or disingenuous conduct by other persons concerning the opal security. I simply note the observation of the plurality of the High Court in Lumbers v W Cook Builders Pty Ltd (In Liquidation):[32]
[127] … (I)dentification of the rights and obligations of the parties, in this as in any matter, requires close attention to the particular facts and circumstances of the case. Necessarily that requires close attention to what contractual or other obligations each owes to the other.
[32] [2008] HCA 27 (Gummow, Hayne, Crennan and Kiefel JJ).
Accordingly, I find that the plaintiffs will only be able to have resort to the land as security after they have fully complied with clause 6.2 of the deed of indemnity.
I will hear the parties on the form of the orders to be made.