Waste Recycling and Processing Services of NSW v Local Government Recycling Co-operative

[1999] NSWSC 654

CITATION:	Waste Recycling and Processing Services of NSW v Local Government Recycling Co-operative [1999] NSWSC 654
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	2006/99
HEARING DATE(S):	22/06/99
JUDGMENT DATE:	22 June 1999
PARTIES :	Waste Recycling and Processing Services of New South Wales (t/as Waste Service NSW) (P) Local Government Recycling Co-operative Limited (D)
JUDGMENT OF:	Santow J

COUNSEL :	G A Seib (P) D P Courtenay (Sol for Liquidator) W B V McManus (SMS Municipal Services Limited - supporting creditor)
SOLICITORS:	Peter Kemp Solicitor (P) Shaw McDonald (for Liquidator) A J Law & Co (SMS Municipal Services Limited - supporting creditor)
CATCHWORDS:	PROCEDURE — Costs — Costs to be awarded to supporting creditor on a limited basis only where role essentially passive — Priority to be no less than for applicant for winding up.
ACTS CITED:	Corporations Law s485(3); s556(1)(b)
CASES CITED:	FAI Workers Compensation v Philkor Builders (1996) 14 ACLC 323 Re European Banking Co. [1866] 2 LR(Eq) 521 Re Humber Ironworks Company [1866] 2 LR(Eq) 15 Signature Resorts Pty Ltd & Anor v DHD Constructions Pty Ltd (1995) 18 ACSR 627
DECISION:	Supporting Creditor awarded two days' costs

REVISED — 30 June, 1999
IN THE SUPREME COURT
OF NEW SOUTH WALES
IN EQUITY

SANTOW J

No. 2006/99
WASTE RECYCLING AND PROCESSING SERVICE OF NSW (t/as Waste Service NSW )
Plaintiff
LOCAL GOVERNMENT RECYCLING CO-OPERATIVE LIMITED
Defendant
JUDGMENT — ex tempore

22 June 1999

THE ESSENTIAL ISSUE

1    This is a case about costs; is a supporting creditor who played a fairly passive role in the eventual winding up of a company to be allowed costs and, if so, to what extent and with what priority?

BACKGROUND

2    On 26 May 1999 I gave judgment allowing a short adjournment for a winding up application, doing so pursuant to 440A(2) of the Corporations Law. When the matter subsequently came back before me creditors and the Court had the benefit of a report from the administrator. The Administrator made clear that he had no confidence in the accuracy of the books and records of Local Government Recycling Co-operative Limited (“the Company”) as would enable any reliable decision as to its salvageability. Winding up inevitably followed. 3    The Applicant for the winding up was Waste Recycling and Processing Services of NSW (“the Applicant”). However, throughout the proceedings SMS Municipal Services Pty Ltd (“SMS”) were present as a supporting creditor save for one day where, though present, SMS determined that its position would now become neutral. This was on the basis that Mr Star had resigned as Administrator in favour of an Administrator of whom it could not be said there was any prior association. That took one day of neutrality out of four hearing days plus the further hearing day when the matter came back before me — more accurately for about 1 hour on that last day. 4    The question before me is whether costs should be awarded to SMS and, if so, the priority to be granted to any costs order. The former question is concededly a matter wholly within the discretion of the trial judge; FAI Workers Compensation v Philkor Builders (1996) 14 ACLC 323 per McLaughlin M. The latter question is affected by statute, but I have a limited discretion, as I explain. 5 The Liquidator has taken the position that while a cost order is within power having regard to s556(1)(b) of the Corporations Law and the decision of Bryson J in Signature Resorts Pty Ltd & Anor v DHD Constructions Pty Ltd (1995) 18 ACSR 627 at 633-4, my discretion should be exercised having regard to s485(3) of the Corporations Law. Section 485(3) provides:

485(3) [Payment of costs where property insufficient] The Court may, in the event of the property being insufficient to satisfy the liabilities, make an order as to the payment out of the property of the costs, charges and expenses incurred in the winding up in such order of priority as the Court thinks just.”
That is, it should be exercised by, at the least, denying SMS any priority in the liquidation of the Company for such cost order as is made. The Liquidator is faced with an undoubted deficiency of assets and with circumstances where the Applicant was able, without the necessity for support, to secure the winding up. Naturally the Liquidator is concerned to minimise the effect on creditors of a generous cost order in favour of SMS.

6    The role SMS played was a relatively passive one, though in saying that I acknowledge that a more active role would have in fact added to costs and prolonged the proceedings to no good purpose. The justification for SMS’s presence is best found in its concern that the attack upon the Applicant’s debt might have succeeded leaving SMS to fill the breach, though a similar attack was levelled at it. No doubt SMS was there also to protect its own interests given that attack. 7    The authorities are clear that the usual practice is that, having awarded costs on a priority basis to the successful applicant, supporting creditors as a class share in the one set of costs; see Re Humber Ironworks Company [1866] 2 LR(Eq) 15 per Lord Romilly at 18:

“Where the Court grants the prayer of the Petition, of course it will give no costs to persons who appear to oppose the Petition; because in that case the Court makes an order against them: it gives the costs of the Petitioner and those of the company out of the estate; and if a number of persons, whether shareholders or creditors, appear to ask for an order to wind up the company, in that case I am of the opinion that the Court ought to allow, out of the estate, one set of costs amongst them all, and they must arrange between themselves in what manner they are entitled to such costs. I will not allow a series of costs to them.
… Where the Court makes the order to wind up, and the shareholders and creditors, together or separately, appear to support the Petition one set of costs is to be given amongst them, and only one. In this case there are four or five parties who appear for that purpose, and they must arrange between them how the costs are to be distributed.”

8 This approach, in respect of supporting creditors who have given notice of their intention to appear, is stated to be the “usual practice” where a winding up application is granted in “McPherson, Law of Company Liquidation” (3rd Ed) at 93. (See also 1994 Student Edition of McPherson; current “Laws of Australia” at 4.7.49 [49]. See also Brinds Ltd v Offshore Oil NL (1984) 2 ACLC 89 at 95 where Re Humber (supra) was considered in relation to the issue of an opposing party’s costs. 9    The approach in Re Humber to costs where a petition was granted was expressly endorsed in Re European Banking Co. [1866] 2 LR(Eq) 521 by Kindersley VC, who stated at 523:

“Where a petition is presented, and shareholders and creditors appear to support the petition, and an order for winding up is made thereon, then the shareholders who support the petition ought not to have separate sets of costs, but all are to have one set of costs only among them, and likewise all the creditors who appear to support the petition are to have but one set of costs among them.”

Kindersley VC did not follow Re Humber in relation to costs of opposing creditors and contributories where a petition failed.

10    The concern in both these cases, so far as they concerned supporting creditors, appeared to be whether separate orders for costs should be made in favour of each supporting creditor. They appear to presume that the awarding of costs in favour of a supporting creditor will follow the event of a winding up application being made.

CONCLUSION AND ORDERS

11 In all the circumstances, I consider that the proper course, drawing so far as necessary not only upon the undoubted discretion of the trial judge in cost orders generally, but also upon s485(3) of the Corporations Law to do as the Court thinks just as regards order of priority, I award to SMS the costs of two days of the hearing being the first two days, these to be as costs enjoying the priority accorded by s556(1)(b) of the Corporations Law. In doing so I recognise that precision in these matters is not possible but that approximate justice best serves the realities of the present situation. This is one where SMS could have played a lesser role in terms of attendance by some informal arrangement with those attending, without real prejudice to the winding up application.

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Last Modified: 07/01/1999