Western Suburbs Electrical Supplies Pty Ltd v Russell Electrical Services Pty Ltd

[1994] FCA 612

WESTERN SUBURBS ELECTRICAL SUPPLIES PTY LIMITED v. RUSSELL ELECTRICAL SERVICES
PTY LTD
No. G3261 of 1993
FED No. 612/94
Number of pages - 7
Costs

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
LINDGREN J

CATCHWORDS

Costs - General Rule - Costs follow the event - exercise of discretion when a statutory dismissal of proceedings under Corporations Law, sub-section 459R(3) - no significant points of law.

HEARING

SYDNEY, 18 August 1994
#DATE 2:9:1994

Mr A. C. Hogg of counsel instructed by Simon Beverley and Associates appeared for the Applicant.

Mr C. Stomo of counsel instructed by C F Shirley appeared for the Respondent.

Mr R. Webb of counsel instructed by Potts Latimer appeared for the Liquidator.

ORDER

THE COURT

1. ORDERS that the applicant pay the costs of the respondent as applicant on its own (the respondent's) motion brought by notice of motion filed 17 May 1994.

2. ORDERS that the applicant pay the costs of the respondent as respondent to the applicant's motion brought by notice of motion filed 17 May 1994.

3. ORDERS that the applicant pay 75% of those fees and liquidation-related expenses of the Liquidator to which the Liquidator is otherwise entitled, incurred in the period 11 February 1994 to 25 February 1994.

4. ORDERS that the respondent pay 25% of the fees and liquidation-related expenses of the Liquidator to which the Liquidator is otherwise entitled, incurred in the period 11 February 1994 to 25 February 1994.

5. ORDERS that the applicant pay the legal costs of the Liquidator on the motions referred to in paragraphs 1 and 2 above.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

INTRODUCTION
LINDGREN J In these proceedings I decided on 3 August 1994 that the application for the respondent to be wound up in insolvency had been dismissed by the operation of sub-section 459R(3) of the Corporations Law. That conclusion was expressed as an answer to a question which I ordered to be decided separately from any other question in the proceedings. I reserved the question of costs. On 18 August 1994 I heard submissions by Mr A. C. Hogg of counsel for the applicant, Mr C. Stomo of counsel for the respondent, and Mr R. Webb of counsel for the Liquidator, on the question of costs and on the question of liability to pay the Liquidator's fees.

HISTORY OF THE LITIGATION
2. The application was filed on 16 September 1993 and was returnable on 29 October 1993. On 29 October 1993 and 12 November 1993, the application was adjourned by consent, on the latter date to 11 February 1994.

1. On 3 December 1993 the application was erroneously listed before the Registrar and neither party appeared.

2. On 10 February 1994, Neville Henry Russell, the managing director of the respondent, attended at the office of his solicitor, and swore an affidavit in preparation for the hearing on 10 February 1994. His solicitor, Charles Frederick Shirley, also swore an affidavit dated 10 February 1994. On the morning of 11 February 1994 Mr Russell travelled with his wife from their home in Nowra to the chambers of Mr Stomo, taking with them the affidavits and exhibits, arriving at about 9 a.m.

3. On 11 February 1994 the proceedings did not appear in the Court list for that day. Mr Stomo, having noted that the proceedings were not listed, had his clerk make an inquiry of the Registry, and the clerk was told,
   

"The matter was in court on the 3rd December, 1993 when it was stood out because there was no appearance. It will need to be restored. The earliest will be in two weeks."

1. Having been told this, Mr Stomo informed Mr and Mrs Russell who returned to Nowra.

2. Apparently, someone on behalf of the applicant arranged for the file to be brought before the Registrar. The Registrar made orders that the respondent be wound up under the Corporations Law, that Geoffrey David McDonald ("the Liquidator") be appointed liquidator, and that the applicant's costs be taxed and reimbursed in accordance with sub-section 466 (2) of the Corporations Law.

3. So far as the affidavit evidence before me shows, no-one representing the applicant attempted to contact anyone representing the respondent to advise that notwithstanding the non-listing of the proceedings, they were in fact before the Registrar. There had been correspondence between Simon Beverly and Associates, solicitors for the applicant, and Charles F Shirley, solicitor for the respondent, in which Mr Shirley had made it clear that the respondent contended that there was a bona fide dispute as to the alleged indebtedness and that the winding up application should be dismissed. In particular, by a letter dated 26 November 1993 Mr Shirley advised Simon Beverly and Associates that the respondent would, on 11 February 1994, seek orders that the application be dismissed and that the applicant pay the respondent's costs. In the light of this, and for the purposes of the present question of liability for costs, it was incumbent, in my view, upon those representing the applicant to notify or to make reasonable attempts to notify those representing the respondent that notwithstanding the non-listing the proceedings were in fact to be heard.

4. I was told by Mr Hogg from the Bar table that in fact on 11 February 1994 he had telephoned the number of Mr Shirley and had been told that Mr Shirley was out of the office. Mr Stomo for the respondent raised a question whether this could have occurred, at least in the way in which Mr Hogg had described it, for the reason that Mr Shirley practised from his home rather than from an office with a secretary. Subsequently I was informed by Mr Hogg, with Mr Stomo's consent, that there was an explanation for this incongruity, and I readily accept that this is so.

5. The fact remains that the only evidence before me as to what happened on 11 February 1994 is that contained in the affidavit of Neville Henry Russell sworn 23 February 1994 and the affidavit of John Cole, barrister's clerk, sworn 23 February 1994. In the light of that evidence of preparation for the hearing, Mr and Mrs Russell's travel to Sydney, the telephone inquiry of the Registry, and Mr and Mrs Russell's return from Sydney to Nowra, it is difficult to identify any major shortcoming on the part of the respondent or those representing it. They accepted the telephone advice from the Registry as reliable. A counsel of perfection might have led Mr Stomo to appear at Court notwithstanding that advice. A prudent course would have been for the respondent's representatives to contact the applicant's solicitors, having regard to the fact that they knew that the proceedings had been stood over to 11 February and that the respondent was at risk of being ordered to be wound up if the matter were to be heard.

6. The applicant pressed on with the hearing in circumstances in which it had not in fact been in contact with anyone representing the respondent to advise that it was doing so. It should be noted that the respondent had been ordered on 12 November 1993 to file and serve affidavits on or before 3 December 1993, yet as at 11 February 1993 it had filed and served none. This non-compliance by the respondent with the Court's direction may well have caused those representing the applicant to think that the respondent had decided not to oppose the application for winding up after all. However, there was no evidence before me that these thoughts were in fact those of the applicant's legal representatives on the morning of 11 February.

7. The orders of 11 February 1994 were taken out on 21 February 1994 whereupon the Liquidator and his staff commenced work in the winding up.

8. Having become aware of the making of the winding up order, Mr Russell caused an application to be made ex parte on 22 February 1994 for an order setting aside, alternatively temporarily staying, the orders which had been made on 11 February 1994. Beazley J ordered that the orders of 11 February be stayed up to and including 25 February. The party which, on 22 February, made the application before Beazley J appears to have been "the respondent" represented by Mr Stomo of counsel. But the respondent was in liquidation, and while a company is being wound up in insolvency by the Court, subject to exceptions not presently relevant, a person cannot perform or exercise a function or power as an officer of the company and must not do so: Corporations Law, sub-section 471A(1). Moreover, as Mr Hogg has pointed out in his written submissions, section 482 of the Corporations Law empowers the Court "on the application of the liquidator, or of a creditor or contributory, to make an order staying the winding up," and it was not suggested before me that the application before Beazley J was made by the liquidator or by a creditor or contributory. However, as the holder of fully paid shares in the respondent, Neville Henry Russell would in fact have qualified as a contributory: Corporations Law, section 9, definition of "contributory". So far as the evidence and the Court file reveal, the application on 22 February 1994 was made not by him but by the respondent. The application on 22 February was made ex parte. One might reasonably have expected those representing the respondent to have notified those representing the applicant of the application for a stay. If this had happened, the applicant probably would have appeared. If it had taken the point that the respondent lacked locus standi to apply for a stay, Mr Russell would probably have been substituted as applicant for the stay.

9. A notice of motion by "the respondent" seeking an order setting aside the Registrar's orders of 11 February was returnable before Beazley J on 25 February. The notice of motion was addressed to the Liquidator as well as to the applicant. On 25 February, the applicant was represented by Mr Hogg and the respondent by Mr Stomo. There was no appearance for the Liquidator. However, the Liquidator swore an affidavit dated 24 February 1994 to the effect that he had no objection to the making of the orders to be sought on 25 February "save that orders be made for the payment of my remuneration and expenses."

10. Her Honour ordered that the Registrar's orders of 11 February be set aside, that the Liquidator's costs be reserved, that the costs of the respondent's notice of motion be costs in the proceedings, and that the application for a winding up order be stood over until 4 March 1994 before the Registrar. The annexures to an affidavit by the Liquidator sworn 12 August 1994 in connection with issues of costs of the litigation and Liquidator's fees and expenses show that the Liquidator was in frequent contact with the parties and their legal representatives at about 25 February 1994. I infer that he became aware of "the setting aside orders" on that date or perhaps, on Monday 28 February 1994, and so knew from that time that he no longer held office.

11. On 4 March 1994, apparently by consent of the applicant and the respondent, the Registrar directed that the respondent file and serve affidavits by 5 April 1994, that the applicant file and serve affidavits in reply by 19 April 1994, that the proceedings be stood over to 22 April 1994 at 9.30 am before the Registrar, and that costs be reserved.

12. The next development of significance was that, as I held on 3 August 1994, the application was dismissed by the operation of sub-section 459R(3) of the Corporations Law when it was not determined within six months after it was made, that is to say, when it was not determined by 16 March 1994.

13. Notwithstanding the consent direction made on 4 March 1994, no affidavits had been filed when the proceedings came before the Registrar on 22 April 1994. On that day the proceedings were stood over by consent to 13 May 1994.

14. There was an abortive listing of the proceedings before Beazley J on 4 May 1994 in circumstances which do not matter for present purposes.

15. On 13 May 1994, by consent, directions were made for the filing of affidavits.

16. The proceedings were again before the Court on 25 May 1994, 27 May 1994, and 8 June 1994, prior to their being before me for hearing on 29 July 1994.

COSTS
22. It is clear that the award of costs is in my discretion: Federal Court of Australia Act 1976, sub-section 43(2). The respondent submits that the result on costs is determined by the principle that "costs follow the event" and that "the matter having been dismissed then prima facie the respondent is entitled to the costs of the matter and incidental thereto." In my opinion, the costs issue is not so easily disposed of. Firstly, there was not a dismissal on the merits but a statutory dismissal without reference to the merits. Secondly, just as it would have been open to the applicant to apply for an extension of time under sub-section 459R(2) of the Corporations Law, so it would have been possible for the respondent to apply for such an extension if it had wished to have the application determined on the merits. It may be that both parties overlooked the provision of sub-section 459R(1). But one or both of them may not have done so: one can imagine situations in which either an applicant-Creditor or a respondent-Company might prefer a statutory dismissal rather than a hearing on the merits.

1. The respondent made several submissions the effect of which was that the applicant should be ordered to bear its (the respondent's) costs because the respondent would have succeeded on a hearing on the merits. There may well have been substance in some of these submissions. However, on the costs hearing before me, neither party read the affidavits on the substantive issues. The respondent's written submissions do not refer to the particular evidence said to support them. The applicant did not reply to the submissions of the respondent to the effect referred to.

2. In my opinion, the appropriate exercise of discretion is for me to order that the applicant pay the respondent's costs of the respondent's motion and of the applicant's motion both the subject of my decision on 3 August 1994, and that otherwise there be no order as to costs as between the applicant and respondent to the intent that those parties pay and bear their own respective costs of the proceedings.

LIQUIDATOR'S FEES, EXPENSES AND LEGAL COSTS
25. The Liquidator held office as such only from 11 February 1994 to 25 February 1994, a period of 14 days. The Liquidator, Geoffrey David McDonald, has sworn affidavits on 19 April 1994 and 12 August 1994 giving details of the work undertaken by him, his partners and staff.

1. The period from 11 February 1994 to 22 February 1994 is dealt with in his first affidavit, para 3, annexures "A" and "B", and in his second affidavit, para 2, annexure "A". The period 23 February 1994 to 28 February 1994 is dealt with in his first affidavit, para 4, annexures "A" and "B", and in his second affidavit, para 3, annexure "B". The period 1 March 1994 to 30 June 1994 is dealt with in his second affidavit, paras 4 and 5, annexures "C" and "D". The period 1 July 1994 to 11 August 1994 is dealt with in his second affidavit, paras 6-8, annexures "E" and "F". The question of his legal fees is addressed in his second affidavit, paras 10-12, annexures "G" and "H".

2. The winding up order made on 11 February 1994 having been set aside on 25 February 1994, and the application for an order winding up the respondent having been dismissed upon the expiry of a period of six months from 16 September 1993, it would not be a proper exercise of my discretion to order the respondent to pay any part of the Liquidator's fees or legal costs unless I thought that the respondent had contributed to the making of the winding up order. There are two respects in which it might be said that it did so. The first is its failure to comply with the direction to file and serve its affidavits by 3 December 1993. The second is its non-appearance on 11 February 1994. The respondent's legal representatives could reasonably be expected to have attempted to contact the applicant's legal representatives on 11 February 1994. Moreover, if they had filed and served their affidavits in accordance with the Court's direction it would have been evident to the Registrar as well as to the applicant that the respondent was indeed seriously contesting the application. However, I do not regard these shortcomings as the major cause of the making of the winding up order, and I consider it an appropriate reflection of the extent of the respondent's responsibility and contribution if I order it to pay 25% of the fees and liquidation-related expenses to which the Liquidator is otherwise entitled, incurred in the period 11 February 1994 to 25 February 1994.

3. Likewise I think it an appropriate exercise of discretion to order the applicant to pay 75% of the amount of those fees and liquidation-related expenses to which the Liquidator is otherwise entitled, incurred in the period 11 February 1994 to 25 February 1994.

4. In relation to the Liquidator's fees and liquidation-related expenses for work done after 25 February 1994, it is difficult to see why either party should be ordered to pay any of them. The Liquidator was not in office as from 25 February 1994 and knew this virtually from that date. Indeed, from 16 March 1994 the application was dismissed by the operation of sub-section 459R(3). Accordingly, I make no order as to payment of Liquidator's fees and liquidation-related expenses in respect of the period after 25 February 1994.

5. As to the costs of the litigation, it seems to me that the Liquidator was entitled to appear by counsel, partly to protect his entitlement to fees and expenses and partly to assist the Court. I think that the applicant, having failed on the two notices of motion, should pay the Liquidator's costs on the two notices of motion.

CONCLUSION
31. The formal orders which I make at this time are as follows:

1. ORDER that the applicant pay the costs of the respondent as applicant on its own (the respondent's) motion brought by notice of motion filed 17 May 1994.

2. ORDER that the applicant pay the costs of the respondent as respondent to the applicant's motion brought by notice of motion filed 17 May 1994.

3. ORDER that the applicant pay 75% of those fees and liquidation-related expenses of the Liquidator to which the Liquidator is otherwise entitled, incurred in the period 11 February 1994 to 25 February 1994.

4. ORDER that the respondent pay 25% of the fees and liquidation-related expenses of the Liquidator to which the Liquidator is otherwise entitled, incurred in the period 11 February 1994 to 25 February 1994.

5. ORDER that the applicant pay the legal costs of the Liquidator on the motions referred to in paragraphs 1 and 2 above.