Wood v Heard No. Scciv-00-106

WOOD v HEARD
[2001] SASC 217

WILLIAMS J On 22 September 2000 I made an interim order restraining Messrs Hall and Heard from putting a particular motion to a meeting of creditors of Tasmanian Sandstone Pty Ltd (subject to Deed of Company Arrangement) which had been convened for 25 September 2000 in Hobart. The order was made upon the application of Mr Peter Lawrence Wood; I reserved for further consideration the costs associated with the application.
The parties have now requested me to deal with the question of costs. I heard counsel on 19 June 2001 when each party claimed to be entitled to costs.
Messrs Hall and Heard were appointed administrators of Tasmanian Sandstone on 24 January 2000. On 20 March 2000 a deed of company arrangement was executed; this was varied by a Master’s order dated 11 May 2000 and by an amendment to the deed executed on 19 July 2000. On 26 July 2000 the deed administrators (Messrs Hall and Heard) applied to the Court to examine Mr Wood and another (Mr Dunn). On 9 August 2000 the Court made an order for Mr Wood’s examination under s 596A of the Corporations Law (Cth). On 8 September 2000 Mr Wood applied to discharge the order for his examination. Mr Wood was ultimately unsuccessful in seeking to set aside the order for examination. The history of that application appears from reasons for judgment delivered by Gray J on 20 April 2001. (Wood v Heard Judgment No. [2001] SASC 121).
Mr Wood’s argument in essence was that the deed of company arrangement when read with s 596A did not entitle the administrators to obtain the order for examination. To overcome this alleged criticism and with a view to minimising costs the administrators sought to avoid the argument by seeking further specific authority from creditors in order to put the matter beyond doubt. For this purpose the abovementioned meeting was convened. With the benefit of hindsight it now appears (as a result of the decision upon appeal of Gray J) that there was no need for this precaution as the deed of company arrangement was sufficient in its terms to provide a basis for the examination and accompanying order. However, when the matter came before me on 22 September 2000 this was still a matter of contention; Mr Wood was then anxious to preserve the status quo in order to argue that the order for examination ought not to have been made; Mr Wood contended that if the meeting of creditors varied the terms of the deed of company arrangement as proposed, then arguably the status quo would be affected.
The agenda for the meeting of 25 September 2000 proposed three resolutions:
1“A resolution to vary the terms of the Deed of Company Arrangement pursuant to Section 445A of the Corporations Law by inserting a new Clause 10.34 being “to examine in the Supreme Court of South Australia Peter Laurence Wood and John Gerard Dunn and to issue legal proceedings to recover losses suffered by the Deed Fund if recommended to the Administrators by their legal advisers.””
2.“A resolution directing the Administrators to withdraw the summonses for the examination of Peter Laurence Wood and John Gerard Dunn and to not pursue the recovery of losses to the Deed Fund.”
3.“A resolution that the Deed of Company Arrangement be terminated and the company be wound up.”
My order prevented the first proposal from being put to the meeting. The administrators intimated that the third proposal would not be put to the vote. I allowed the meeting to consider the second proposal; in fact that motion was not carried as insufficient creditors in number supported it. (Apparently Mr Wood himself had a large enough debt as creditor to carry the meeting in terms of value).
In making my order on 22 September 2000 I made it clear that I was not determining the rights of the parties but I was only making an order at short notice in order to preserve Mr Wood’s right to challenge the order for his examination without his legal position being altered in mid-stream. Mr Wood now contends that I should treat the question as to the ability of the administrators to improve their position in law by resort to the creditors as a moot point which remains unresolved. Counsel for Mr Wood relies upon the principles summarised by McHugh J in re Minister for Immigration & Ethnic Affairs & Anor; Ex parte Lai Qin (1997) ALR 1 at 3; Mr Wood argues that where there has been no hearing on the merits the Court is not necessarily deprived of the ability to award costs because factors involving the assessment of the respective conduct of the parties may enable the court to do justice. McHugh J said:
“In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd [1971] QWN 13, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80% of the applicant’s taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.”
I dealt with a similar question in Elmawey v Adelaide Islamic Society [2000] SASC 192 and Debelle J did likewise in Boscaini Investments Pty Ltd & Ors v Corporation of the City of Kensington and Norwood [1999] SASC 327. It is to be emphasised that each case will turn on its own facts within the framework of the principles discussed in the abovementioned cases.
Mr Wood argues that the actions of the administrators in calling the meeting were unnecessary and that it was unreasonable for them to seek to take the matter out of the hands of the Court and back into the hands of creditors after the order for examination had been made. Mr Wood relies upon the refusal of the administrators to adjourn the meeting so as to allow him to pursue his point of law. Moreover, Mr Wood contends that it is an unresolved point of contention as to whether Company Law enabled the deed to be varied in the manner proposed in the first mentioned in the agenda. Mr Wood also points out that he was successful in obtaining the injunction and he contends that it was unreasonable that he should have met resistance in this respect. He therefore contends that in the exercise of the Court’s discretion he should be entitled to costs as the successful party; alternatively he contends that there should be no order for costs.
I look at the matter in a different way.
The administrators brought before the court an application for examination and they were ultimately successful in establishing their rights based on the existing deed in light of s 596A. It seems to me that there was good commercial sense on the part of the administrators in seeking to meet Mr Wood’s point by obtaining further express authority from the creditors if the law so allowed. I consider that the calling of the meeting was a reasonable step with a view to minimising costs. Even if the proposed resolution (if passed) were eventually found to be ineffective the same might arguably be seen as a reasonable step in light of the challenge which Mr Wood had mounted. In my view the successful administrators are to be commended for their attempt to save costs. Mr Wood made a challenge which was without foundation and it can now be seen that no detriment would have resulted to Mr Wood if he had not obtained the injunction and the relevant motion had been adopted by the meeting. The injunction was only justified if, indeed, Mr Wood did have a legal right which was in jeopardy of being destroyed by the creditors’ meeting. However, as the judgment of Gray J confirms, there was no such right.
In my view it is therefore reasonable that having been unsuccessful in his principal contention before Gray J Mr Wood should also bear the costs of the injunction which he obtained. In my opinion the conduct of the administrators with regard to the application for injunction cannot be criticised. When the application came to their attention their solicitors wrote at short notice putting the following proposal:
“1.That the meeting of creditors proceeds on Monday 25 September 2000.
2.That the creditors deal with Resolutions 1 and 2 as set out in the Notice of Meeting.
3.That the Administrators withdraw the third resolution regarding liquidation of the company.
4.That your clients immediately discontinue their application, each party bearing their own costs.
5.That your clients reserve their rights to challenge the outcome of the meeting of creditors, if so advised.
This offer is made by way of open letter and is open until 10.30am today. It will lapse automatically if it is not accepted by that time.”
This offer was not accepted and the hearing before me then began. I am reinforced in my conclusion as to the appropriate order by reference to the terms of that letter (dated 22 September 2000) which I consider would have sufficiently protected Mr Wood’s position. I make that comment with the benefit of hindsight in the light of the decision of Gray J. Mr Wood and his advisers, of course, were not to know of the eventual outcome of Mr Wood’s challenge but parties to litigation must expect the Court when dealing with costs to consider such offers in the light of the ultimate outcome. The Court exercises a wide discretion on questions of costs. I consider that the approach taken to the litigation by the administrators was entirely reasonable. With the benefit of hindsight I do not consider that the same can be said for Mr Wood. I confine my remarks to that part of the litigation with which I am concerned.
There will be an order that Mr Wood pay to Messrs Heard and Hall their party and party costs of and incidental to:
(i)the application for injunction and order for injunction.
(ii)the hearing before me on 19 June 2001 and this order as to costs.

[2001] SASC 217

3 July 2001