United Petroleum Pty Ltd v Bonnie View Petroleum Pty Ltd (In Liquidation) (No 2)

[2017] VSC 334

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE
COMMERCIAL COURT

S CI 2015 01438

BETWEEN:
UNITED PETROLEUM PTY LTD (ACN 085 779 255)	Plaintiff
and
BONNIE VIEW PETROLEUM PTY LTD (IN LIQUIDATION) (ACN 110 006 052) AND OTHERS (ACCORDING TO THE SCHEDULE ATTACHED)	Defendants

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JUDGE:	Kennedy J
WHERE HELD:	Melbourne
DATE OF HEARING:	9 June 2017
DATE OF RULING:	22 June 2017
CASE MAY BE CITED AS:	United Petroleum Pty Ltd v Bonnie View Petroleum Pty Ltd (In Liquidation) & Ors (No 2)
MEDIUM NEUTRAL CITATION:	[2017] VSC 334

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COSTS – Liquidators not parties - Whether costs orders should be made against liquidators personally - no exceptional circumstances - Supreme Court Act 1986 (Vic) s 24.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S R Horgan QC with Mr C T Möller	K&L Gates LLP
For the Third Defendant	Mr M J Galvin QC	Meerkin & Apel Lawyers
For the Liquidators	Mr M J Galvin QC	Colin Biggers & Paisley Lawyers

HER HONOUR:

1. By reasons published on 21 April 2017 (Reasons),[1] the Court gave judgment in favour of the plaintiff, United Petroleum Pty Ltd (United). 

   [1]United Petroleum Pty Ltd v Bonnie View Petroleum Pty Ltd (In Liquidation) & Ors [2017] VSC 185.

1. Directions were then made for the parties to provide a form of order to give effect to the Reasons. In the result, the parties were generally able to agree on the form of order save that, by summons filed on 1 May 2017, United sought an order that the liquidators of Bonnie View Petroleum Pty Ltd (Bonnie View) — Glenn Anthony Crisp and Malcolm Kimbal Howell (the liquidators) — pay United’s costs of the proceeding.  United’s application is opposed by the liquidators.

1. There were four bases for United’s application:  

(i)     That the litigation was occasioned by the liquidators’ own conduct;

(ii)  That the counterclaim, even if successful, would not have been to the advantage of Bonnie View’s winding up since any recoveries would have been consumed by payments to the liquidators for their remuneration costs;

(iii)             That the liquidators did not seek or obtain any independent advice or directions from the Court;

(iv)That the liquidators’ conduct in the proceeding generally caused unnecessary costs given extensive amendments made to the defence and counterclaim.

Principles

1. Section 24 of the Supreme Court Act 1986 (Vic) provides that costs are generally ‘in the discretion of a Court and the Court has full power to determine by whom and to what extent the costs are to be paid’.

1. Both parties accept that the Court’s powers under the provision are wide enough to encompass the making of a costs order against a non-party to the proceeding, including a liquidator. 

1. Section 65C of the Civil Procedure Act2010 (Vic) (Civil Procedure Act) would also appear to provide an additional source of power given it provides that a court may make any order as to costs it considers appropriate to further the overarching purpose.

1. The issue of costs orders against liquidators has been considered by the Victorian Court of Appeal in the decision of JGM Nominees v Tulip Investments (JGM Nominees).[2] In the leading judgment of Neave JA (Kyrou AJA agreeing), her Honour highlighted certain observations of Northrop and Ryan JJ in the decision of Bent v Gough[3] to the effect that the exercise of the discretion to make liquidators personally liable for the cost of litigation should take account of the undesirability of discouraging liquidators from performing their public duty in pursuing litigation by an undue readiness to impose on them personal liability for the costs of successful parties.[4]

   [2][2013] 46 VR 709.

   [3](1992) 36 FCR 204.

   [4]JGM Nominees [2013] 46 VR 709, 720 [49].

1. Her Honour also determined that such power can only be exercised in ‘exceptional circumstances’.[5]

   [5]Ibid 718 [41].

1. In terms of whether ‘exceptional circumstances’ have been established, it appears that there are a number of other relevant matters for the Court to consider as follows:

(v)   First, whether the liquidator has taken an active part in the conduct of the proceeding.[6] This includes whether or not the liquidator might be described as the moving party,[7] or whether a liquidator has effectively caused the commencement of the litigation;[8]

[6]Knight v FP Special Assets Ltd (1992) 174 CLR 178; Mischel (as executor of the estate of Maria Mischel) v Mischel Holdings Pty Ltd (in liq) (No 2) [2012] VSC 421 (Mischel).

[7]FPM Constructions Pty Ltd v Council of the City of the Blue Mountains [2005] NSWCA 340 (FPM Constructions).

[8]AMC Commercial Leaning (NSW) Pty Ltd v Coade (No 2) [2013] NSWSC 332; Lum v M V Developments (Lane Cove) Pty Ltd (in liq) [2016] NSWSC 1248.

(vi)Second, courts have generally considered whether the liquidator’s conduct was unreasonable;[9]

(vii)            Third, courts have considered whether or not the liquidator has taken advice, including whether or not the liquidator has taken advice from the Court.[10] Nevertheless, in the decision of JGM Nominees the Court of Appeal stated that, although a liquidator who is uncertain as to how to exercise his power to initiate or defend proceedings could seek guidance under s 479(3) of the Corporations Act 2001 (Cth) a failure to do so does not mean that the liquidator has acted unreasonably.[11]

[9]JGM Nominees [2013] 46 VR 709; FPM Constructions [2005] NSWCA 340.

[10]Mischel [2012] VSC 421, [66]–[74].

[11]JGM Nominees [2013] 46 VR 709, 725 [73]; Croft J in Mischel [2012] VSC 421, [74] also accepted that it was not a ‘determinative factor’.

Submissions

Submissions of United

1. United emphasised that the litigation had been occasioned by the liquidators’ own conduct, in particular, by reason of their failure to seek an assignment of the lease and further by reason of their prosecution of a counterclaim that was ‘doomed’ to fail (highlighting that the claim to recover the guarantee as a void disposition should have been brought in the liquidators’ names in any event).

1. In oral submissions, United emphasised the following:

·      If the lease had been assigned the litigation would have been unnecessary. Further, that the litigation appeared to be driven by a wrongful belief by the liquidators that they would get the guarantee back if the lease was not assigned.

·      That the liquidators continued to drive the litigation by continuing to refuse to assign the lease despite continual efforts by United to try to resolve the matter.

1. United further submitted that the counterclaim was not to the advantage of creditors given any recovery would have been consumed by costs (including remuneration of the liquidators). In so saying, United highlighted that, as at May 2016, the liquidators had already incurred liability for legal costs of more than $225,000.00 in relation to the proceedings, and that in April 2017 the liquidators reported to ASIC that they did not expect to see any dividend to creditors. 

1. United also submitted that the liquidators did not seek or obtain any independent advice or directions from the Court under s479(3)[12] in making any decision in relation to the proceeding.  It was submitted that had they done so it was likely that the cost of the proceeding would not have been incurred. 

   [12]Although s 479(3) was repealed on 1 March 2017 by the Insolvency Law Reform Act 2016 (Cth) it could have been utilised prior to that time.

1. Finally, United emphasised the liquidators’ conduct in the proceeding by reason of amendments to the defence and counterclaim made in February 2017 wherein all of Bonnie View’s defences were abandoned and amended.

Submissions of Bonnie View

1. Bonnie View emphasised that the proceeding was commenced only a few days after the request for the assignment in circumstances where the liquidators had only just been appointed and there were difficulties with the landlords.

1. It further emphasised that it was a defendant to the litigation and that the outcome on the counterclaim was related to the defence to the damages claim, i.e. if Bonnie View had been successful in defending United’s damages claim, then it would have been entitled to judgment on the counterclaim for the bank guarantee and retention amount together with interest.

1. The fact that it stood to gain the bank guarantee and the retention amount plus interest and costs also meant a potential gain for creditors.

1. Bonnie View further denied that that the cost of the proceeding would not have been incurred if advice had been taken, highlighting the complexity of the issues raised (and the absence of a summary dismissal application). Rather, that a request for advice would have simply run up further costs. 

1. Finally, it submitted that the amendments made were not that substantive and it was not appropriate for it to be punished in relation to its approach. Further, that the claim in relation to the void disposition was a very small part of the proceeding.

Resolution

1. Consistent with the Reasons, I accept that Bonnie View failed to do all things necessary to procure an assignment of the lease. However, as highlighted in those Reasons, there was some distraction caused by the attempted termination of the lease as well as the attempts by United to negotiate a varied lease following any assignment.[13]

   [13]Reasons [157].

1. In any event, even if the lease had been assigned, as the Reasons make clear, there were a number of other issues between the parties. In such circumstances, I am unable to be satisfied that the litigation would have been unnecessary even had Bonnie View taken necessary steps to assign the lease.

1. I also accept that Bonnie View’s position, in substance, was that of a defendant to a claim for damages and declarations about certain sums (the guarantee and retention amounts).

1. I am also unable to be satisfied that there would be no gain for the creditors after a hearing at trial. The liquidators, if successful, would have been entitled to the guarantee, retention amount, interests and costs.  Although there may be concerns as to whether such an order would constitute a real net benefit (having regard to the actual costs being incurred) the Court was not in a position to make such a determination.

1. In terms of advice, it appeared to be likely (given the presence of a legal team) that the liquidators had access to lawyers. Given the nature of this particular case, I am unable to be satisfied that judicial advice would necessarily have resolved the matter as United contends, and certainly not without the expenditure of further substantial costs. In such circumstances I am not satisfied that the liquidators acted unreasonably.

1. I have also considered the changes to the pleadings and the course of the trial generally.

1. Consistent with my earlier ruling,[14] I accept that the changes to the pleadings in February were substantive. There was also a lack of clarity, at times, about the precise positions taken by Bonnie View. A number of issues taken were also of dubious merit (including the void disposition claim).

   [14]An unpublished costs ruling made on 6 March 2017 wherein the Court ordered that the plaintiff’s costs of and occasioned by the amendments as well as the costs associated with obtaining leave to amend be the plaintiff’s costs in the proceedings.

1. Nevertheless, the matter was generally run efficiently on the basis of agreed issues in a context wherein the whole trial was disposed of in four days. I am also unable to find that the position taken at trial, generally, was unreasonable such as should warrant a personal costs order. In particular, the void disposition claim (highlighted by United) took up a relatively short period of time.

1. Overall, then, I am not satisfied that ‘exceptional circumstances’ have been established. In the exercise of my discretion, I am not satisfied that costs ought be ordered against the liquidators personally.

Conclusion

1. The application by United is refused.

1. Given United conceded that costs should thereby follow the event,[15] there should also be an order for costs against United in relation to this application.

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[15]Transcript of Proceedings (9 June 2017) 61.

SCHEDULE OF PARTIES

BETWEEN:
UNITED PETROLEUM PTY LTD (ACN 085 779 255)	Plaintiff
AND
THOMAS COAD	First Defendant
VICKI DIANNE DUIN	Second Defendant
BONNIE VIEW PETROLEUM PTY LTD (IN LIQUIDATION) (ACN 110 006 052)	Third Defendant
ANTHONY CRAIG VAN BREUGEL	Fourth Defendant