FEDERAL COURT OF AUSTRALIA

Qualify Me Pty Ltd v Get Qualified Australia Pty Ltd (No 5) [2017] FCA 676

ORDERS

THE COURT ORDERS THAT:

1.    The first respondent pay the applicant’s costs of the interlocutory application filed on 6 December 2016 (Interlocutory Application) fixed in the sum of $14,838.05 pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth).

2.    There be no order as to costs as between the applicant and Blair Pleash and Kathleen Vouris, the liquidators of the first respondent, in relation to the applicant’s application that Mr Pleash and Ms Vouris pay its costs of the Interlocutory Application personally from 24 March 2017.

3.    The Interlocutory Application be otherwise dismissed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MARKOVIC J:

1    On 30 June 2015 Qualify Me Pty Ltd (Qualify Me) commenced a proceeding against Get Qualified Australia Pty Ltd (GQA) as first respondent and Mr Adam Wadi, the sole director of GQA, as second respondent seeking, among other things, damages for breach of s 18 of the Australian Consumer Law (being Sch 2 to the Competition and Consumer Act 2010 (Cth)) (ACL); damages for passing off; and damages for trade mark infringement pursuant to s 126 of the Trade Marks Act 1995 (Cth).

2    On 14 August 2015 GQA filed a cross-claim seeking, among other things, an order cancelling the registration of Qualify Me’s trade mark; an injunction restraining Qualify Me from using the name or mark “Get Qualified” or “Qualify Me”; damages or an account of profits for passing off; a declaration that Qualify Me has engaged in misleading or deceptive conduct and contravened s 18 of the ACL; and damages for that contravention.

3    On 6 December 2016 Qualify Me filed an interlocutory application seeking orders that GQA provide security for the costs of its cross-claim pursuant to s 1335 of the Corporations Act 2001 (Cth), pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) or pursuant to r 19.01 of the Federal Court Rules 2011 (Cth) (Rules) (Interlocutory Application).

4    On 15 December 2016 timetabling orders were made in relation to the Interlocutory Application and that application was set down for hearing.

5    By the time of the hearing of the Interlocutory Application the members of GQA had resolved that GQA be wound up voluntarily. Blair Pleash and Kathleen Vouris were appointed as joint and several liquidators of GQA (Liquidators).

6    On 5 April 2017, when the Interlocutory Application was listed for hearing, there was no appearance on behalf of GQA. Qualify Me wished to proceed with the hearing of the Interlocutory Application and made submissions in relation to the substantive orders it sought. Having done so, it then sought two orders concerning its costs of the Interlocutory Application: an order that GQA pay its costs of the Interlocutory Application quantified pursuant to r 40.02(b) of the Rules; and an order that the Liquidators pay its costs of the Interlocutory Application personally from 24 March 2017.

7    Given the order sought against the Liquidators personally, I adjourned the hearing of the Interlocutory Application, initially until later in the day, to allow Qualify Me to notify the Liquidators of the application it made against them and, thereafter, to 20 April 2017.

8    On 20 April 2017 there was an appearance for the Liquidators, who opposed the making of the costs order against them personally. At the conclusion of the hearing the only issues left for determination were Qualify Me’s applications for costs of the Interlocutory Application. That is because, in the course of argument, the Liquidators agreed that they would file a notice of discontinuance of the cross-claim and leave was granted to permit them to do so. As a result there was no longer a need for Qualify Me to press its Interlocutory Application insofar as it sought orders for security of its costs of the cross-claim. It was agreed that, as part of the orders to be made consequent on these reasons, the Interlocutory Application should be dismissed.

9    Having considered the submissions made by the parties I have concluded that Qualify Me has not succeeded in establishing that the Liquidators should pay its costs of the Interlocutory Application from 24 March 2017. However, I am satisfied that an order should be made that GQA pay Qualify Me’s costs of the Interlocutory Application and that those costs should be quantified pursuant to r 40.02(b) of the Rules in the amount of $14,838.05. My reasons for reaching these conclusions follow.

background facts

10    On 17 March 2017 Mr Birchall of LegalVision ILP, the solicitor for Qualify Me, was informed of the appointment of the Liquidators by GQA’s then lawyers, Etienne Lawyers.

11    On 20 March 2017 Mr Birchall sent an email to the Liquidators in relation to the proceeding. In doing so, among other things, he provided copies of the cross-claim, Qualify Me’s defence to the cross-claim, the Interlocutory Application and the affidavits that Qualify Me relied on in support of that application. In his email Mr Birchall posed the following questions to the Liquidators:

1.    Could you please urgently advise whether GQA intends to discontinue the cross-claim? We note that GQA’s evidence-in-chief on the cross-claim is due by 14 April 2017. None has yet been filed or served.

2.    If GQA does intend to pursue the cross-claim, then please urgently advise whether GQA intends to contest the application for security for costs.

3.    If GQA does not intend to contest the security for costs application, then please advise whether GQA will enter into orders by consent, including that the cross-claim be stayed, until an amount of $115,079 be paid into Court as security for Qualify Me’s costs and that GQA pay Qualify Me’s costs of the application.

12    Later on 20 March 2017 Mr Birchall had a telephone conversation with Ms Vouris in relation to GQA. During their conversation Ms Vouris said words to the effect of: “There are not a lot of funds to work with”.

13    By letter dated 21 March 2017 the Liquidators informed Mr Birchall that they did not intend to pursue the cross-claim, nor did they propose to contest the Interlocutory Application, but that they would not be entering into any orders by consent. The Liquidators noted that judgment would need to be obtained in order to “quantify the claim for costs” and provided a proof of debt form for completion once the costs had been quantified.

14    On 22 March 2017 Mr Birchall had a further telephone conversation with Ms Vouris. During that conversation Mr Birchall said words to the following effect:

Notwithstanding consent orders as to costs, we seek your consent to orders as to disposing of the cross-claim. If you do not intend to pursue it, then for the Applicant to dispose of the cross-claim will involve unnecessary expense, such as by pressing its application for security for costs and making an application for summary judgment to dismiss the cross-claim.

15    On 24 March 2017 LegalVision ILP sent a letter to the Liquidators which included, among other things:

We welcome your statement that ‘as Liquidators we do not intend to pursue the cross-claim against Qualify Me Pty Ltd’. It would of course follow, and you also confirm, that the Liquidators do not propose to contest our client's security for costs application. As you know, the hearing on the application is set down for 10:15 am on 5 April 2017.

However, you then say that the liquidators will not be entering into any orders by consent. We respectfully request that you reconsider that position at this time, at least in relation to the cross-claim and application for security for costs.

Please see the attached proposed consent orders. In summary, by consent the cross-claim and application for security for costs are dismissed and agreed sums are payable in costs of defending the cross-claim and bringing the security for costs application. (In litigation that has cost our client several hundreds of thousands of dollars to date, the total costs of just over $8,000 are very modest in our view and, needless to say, are simply debts in the liquidation.)

…

Given your position in relation to the cross-claim, we believe that these orders are by far the quickest, most inexpensive and most efficient way to dispose of this aspect of the litigation. We see no disadvantage to the liquidators. On the other hand, the alternatives involve considerably greater time, expense and inefficiency. For example, I (sic) order for our client to dispose of the cross-claim for want of prosecution, it would be necessary to prepare, file with a substantial filing fee and have a hearing on an interlocutory application for summary judgment. In relation to the application for security for costs, it would be necessary to run the application on 5 April, even if unopposed, and incur the additional costs of that as well.

16    By letter dated 27 March 2017 the Liquidators informed Mr Birchall, by reference to his letter dated 24 March 2017, that:

I confirm that the Liquidators will not be entering into any cost orders by consent for the following reasons:

•    The Liquidators have not been involved in the litigation so are unable to make an assessment of the reasonableness of the costs sought.

•    It is necessary for the costs to be assessed so that the correct claim can be included in the Liquidation.

The Liquidators of the Company confirm that no representation will be retained in relation to these proceedings.

17    On 28 March 2017 Mr Birchall sent an email to the Liquidators which included:

[Ms Vouris], putting costs orders to one side for the moment, what about the orders for dismissal of the cross-claim and the application for security for costs (#1 and #3 in the attached). Would you at least consent to those orders?

(original emphasis)

18    On 4 April 2017 the Liquidators wrote to Mr Birchall. That letter included the following:

I confirm that our position has not changed from what was outlined in our correspondence of 27 March 2017, being:

•    The Liquidators have not been involved in the litigation and are unable to make an assessment of the reasonableness of the costs sought (noting that no specifics have been provided to date).

•    The Liquidators believe it suitable that the costs be assessed so that the correct claim can be recorded in the liquidation.

You will appreciate your clients cost entitlement had not been quantified as at the date of the Liquidators appointment. Accordingly, in the circumstances it is appropriate that the assessment be left with the Court.

I refer you to Section 545 of the Corporations Act 2001 and confirm that the Liquidators are currently unfunded. Accordingly and as previously advised, the Liquidators neither consent nor object to your clients application. In the circumstances I request you forward a copy of this correspondence to the Court.

19    On 5 April 2017, the date that the Interlocutory Application was listed for hearing, Mr Birchall put the Liquidators on notice of Qualify Me’s application that they personally pay the costs of the Interlocutory Application incurred since 24 March 2017, the date that Qualify Me sought their consent for orders dismissing the cross-claim and the Interlocutory Application; informed the Liquidators of Qualify Me’s costs incurred since 24 March 2017; and noted that submissions were to be made in support of the costs application later that day, the matter having been adjourned part heard for that purpose.

20    When the matter was resumed, Mr Calabretta of Piper Alderman appeared on behalf of the Liquidators. Qualify Me made submissions in support of the application and the matter was then adjourned part heard to allow the Liquidators to respond.

21    There was then further correspondence exchanged between Mr Birchall and Mr Calabretta. On 9 April 2017 Mr Birchall sent an email to Mr Calabretta in which, among other things, he set out the amount sought by way of costs from the Liquidators and noted the following:

Our respectful interpretation of her Honour's comments during the afternoon hearing last Wednesday is that she thought that the appropriate course was for the cross-claim to be resolved without the need for her to give judgment on the security for costs application. In our respectful view, the most appropriate course would be for the liquidators to agree to orders that the cross-claim be dismissed by consent. We now urge, for at least the fourth time, your clients to consider their position in relation to such an order and advise explicitly whether or not they consent to such an order. To avoid doubt, that order per se is a question discrete from any costs orders against any person, quantified as a gross sum order or not.

22    On 13 April 2017 Mr Birchall sent a further email to Mr Calabretta in which he made an open offer on behalf of Qualify Me to resolve the various issues that had arisen. That offer included the following:

(1)    the parties sign consent orders by which orders to the following effect would be made:

(a)    the cross-claim be dismissed;

(b)    the cross-claimant pay the cross-respondent’s costs;

(c)    the Interlocutory Application be dismissed;

(d)    the costs of the Interlocutory Application be reserved;

(e)    the interlocutory hearing listed for 20 April 2017 be vacated;

(2)    the Liquidators pay $2,250 into LegalVision ILP’s trust account in full and final settlement of their alleged liability for costs of the Interlocutory Application;

(3)    upon payment of that amount the parties sign consent orders that GQA pay Qualify Me’s costs of the Interlocutory Application in a fixed sum; and

(4)    if payment was not made into the trust account then Qualify Me could have the matter relisted and seek the same order as referred to in (3) above, but for a higher amount to account for additional costs incurred, plus an order that so much of those costs as had been incurred since 24 March 2017 be paid by the Liquidators pursuant to a gross sum costs order.

23    By letter dated 18 April 2017 Piper Alderman indicated to LegalVision ILP the Liquidator’s stance on a number of matters, including that:

4.    At the outset, the Liquidators deny that their conduct and correspondence since 24 March 2017 can be characterised as unreasonable, particularly in a context where the Liquidators are without funds. In this context, it is not uncommon, as the Liquidators did here, to adopt a position of neutrality in relation to GQA's Cross-Claim (the Cross-Claim), the Security Application and the proceedings generally. In this regard we note that:

4.1    in their letter dated 21 March 2017, the Liquidators clearly informed your client that they would not pursue the Cross­Claim and that they would not contest the Security Application; and

4.2    in their letter dated 4 April 2017, the Liquidators confirmed that they would neither consent to nor oppose the Security Application.

…

12.    We therefore ask that, by close of business today (18 April 2017) your client confirm that it will be not be seeking any personal costs orders against the Liquidators in respect of the Security Application or otherwise. To the extent that your client agrees to this course, and now that all parties are represented, we are instructed that the Liquidators would be prepared to agree to the dismissal of the Cross-Claim and the Security Application with costs against GQA until 21 March 2017 as agreed or taxed.

13.    To the extent that your client insists on seeking costs against the Liquidators personally, our clients will need to consider briefing Counsel for the application on 20 April 2017 and, to the extent they are successful on the costs argument, will be seeking their costs of that application.

(original emphasis)

24    By email dated 18 April 2017 Mr Birchall informed Mr Calabretta that his client did not agree with the arguments set out in Piper Alderman’s letter of that date and that it intended to proceed with the interlocutory hearing on 20 April 2017.

Qualify me’s claims for costs

25    Qualify Me seeks total costs, calculated on a party-and-party basis, of $9,910.71 from GQA and of $4,927.34, from the Liquidators. In the alternative, if no order for costs is made against the Liquidators then Qualify Me seeks the sum of $14,838.05 for its costs of the Interlocutory Application from GQA.

26    Insofar as Qualify Me has sought its costs on a lump sum basis, Mr Birchall has given evidence that:

(1)    he has read the Federal Court Costs Practice Note (GPN-COSTS) (Costs Practice Note);

(2)    Qualify Me is entitled to claim input tax credits in respect of any GST relevant to its claims for costs and thus has not claimed any GST;

(3)    he has prepared a costs summary, which was tendered in evidence, setting out how the total costs were calculated. Relevantly, a discount of 30% was applied to the total costs incurred, or to be incurred, by Qualify Me to allow for recovery on a party-and-party basis. In Mr Birchall’s experience, his usual recovery on taxation would be between 70 and 75% of total solicitor-client costs. He has applied the lower end of that scale, a reduction of 30%, to the total costs incurred by Qualify Me;

(4)    Qualify Me is not claiming more than it is liable to pay for costs and disbursements and Mr Birchall believes that the calculations are correct and that the amount claimed represents a fair and accurate summary of the costs and disbursements that Qualify Me is entitled to claim; and

(5)    the amounts claimed are capable of further verification through source material should the Court require that material to be produced.

the parties’ submissions

27    Qualify Me submitted, by reference to the correspondence which passed between its solicitors and the Liquidators, that there had been a fundamental failure by the Liquidators to engage with the proposal to dispose of the cross-claim and the Interlocutory Application. Qualify Me observed that the Liquidators informed Mr Birchall they would not be prosecuting the cross-claim and that they would not be retaining representation, but that they would not be entering into any consent orders. It was submitted that the Liquidators failed to engage with the matters put by LegalVision ILP in their letter dated 24 March 2017 and to give any consideration to the ongoing costs that would be incurred by Qualify Me. As at 4 April 2017, the day prior to the hearing of Interlocutory Application, the Liquidators position had not changed.

28    Qualify Me submitted, having regard to the decision in Lum v M V Developments (Lane Cove) Pty Limited (in liquidation) [2016] NSWSC 1248 (Lum), that there was no reasonable basis for the Liquidators’ conduct. In making that submission it relied on the following matters:

(1)    the Liquidators plainly stated that they did not intend to proceed with the cross-claim;

(2)    the Liquidators knew at all times that if Qualify Me proceeded with a summary judgment application or its Interlocutory Application then it would incur costs and that a costs order would then be made, in all likelihood, against GQA. In those circumstances the Liquidators knew that, because of the paucity of funds in GQA, Qualify Me would never recover any of the costs incurred by it;

(3)    the Liquidators must have appreciated that if the cross-claim were neither stayed or dismissed then Qualify Me would be faced with the unattractive commercial result that in its dealings, for example in responding to tenders or in efforts to attract capital or shareholders, it may be necessary to identify that there was a proceeding on foot against it;

(4)    the Liquidators simply did not engage. They did not come back with different consent orders or explain in any correspondence why there might be a problem with the proposed consent orders. Their only response was that Qualify Me would need to get its costs assessed so that any order for costs would constitute a debt;

(5)    while the Liquidators’ position was that they did not know enough about the litigation to assess whether the costs claimed were reasonable, they seemed to be able to form a view that they were not going to prosecute the cross-claim. It was submitted that that contradiction in the Liquidators’ position made their failure to engage with a proposal to dismiss the cross-claim even more unreasonable; and

(6)    it is difficult to see how a company in Qualify Me’s position incurring costs, which would then constitute a debt owed by GQA, could be of assistance to GQA or its creditors. Qualify Me would be yet another creditor drawing on an already limited pool and thus diminishing the pool of funds available to the body of creditors.

29    Qualify Me submitted that it was forced to pursue its Interlocutory Application and that it had no other option. It could not, for example, seek dismissal for want of prosecution because there had been an insufficient passage of time for such an application to be successful; nor could it seek summary judgment because there was a factual dispute evident on the pleadings. It contended that its only option, absent the signing of the consent orders, was to pursue the Interlocutory Application, which would achieve the objective it desired. It submitted that, seen in that context, the Liquidators’ conduct was unreasonable and that they had no reasonable basis to simply ignore the proposed consent orders.

30    Qualify Me also submitted that the suggestion that it would apply to the Court to dismiss the cross claim pursuant to r 5.08 of the Rules was not reasonable. It submitted that r 5.08 sanctioned the exercise at a directions hearing of powers found elsewhere in the Rules and is not itself the repository of a power, relying on Quin v Buchanan, in the matter of Queensland Roads, Earthmoving and Civil Construction Pty Ltd (In Liq) (No 2) [2015] FCA 789. Qualify Me submitted that it would have had to withdraw its Interlocutory Application and bring a completely different application, namely, an application for summary judgment pursuant to rr 5.08 and 26.01 of the Rules seeking that the Court, at a directions hearing, make an order for summary judgment of the cross-claim in Qualify Me’s favour. Qualify Me submitted, first, that it ought not to have been put to that trouble; and secondly, in any event, that there was no basis upon which the Court could have made an order for summary judgment in Qualify Me’s favour.

31    The Liquidators submitted that they had not acted unreasonably. They had not initiated any action or caused Qualify Me to take any action and they should not be treated as a party who forced the commencement of litigation. They submitted that for those reasons the Court ought not take the drastic step of ordering them to be personally liable for any costs in the proceeding.

32    The Liquidators further submitted that the question for the Court is whether the Liquidators have acted unreasonably so that they should be ordered to pay costs personally. They submitted in that regard that:

(1)    the cross-claim was commenced by GQA and the security for costs application was commenced by Qualify Me before GQA went into liquidation;

(2)    they had indicated promptly after their appointment that they did not intend to pursue the cross-claim. They had effectively surrendered it;

(3)    once they had indicated that they were not going to consent to any orders, it was open to Qualify Me to take action that it thought was available and appropriate having regard to the unequivocal position stated by the Liquidators; and

(4)    they did not have to take any positive steps in relation to the litigation, for example, by discontinuing the cross-claim. Once the Liquidators informed Qualify Me that they did not intend to pursue the cross-claim there were a number of avenues open to Qualify Me to bring the cross-claim to an end. Qualify Me did not have to proceed with the Interlocutory Application as it did. That application was unnecessary because it was for security for costs of a cross-claim that Qualify Me knew that the Liquidators were not going to pursue.

33    The Liquidators submitted that Qualify Me was never going to incur costs in connection with the cross-claim given the Liquidators’ attitude. They contended that Qualify Me’s submission that it was unreasonable for it to “jettison” its well-prepared Interlocutory Application was not to the point and not the issue to be determined. Rather, the issue to be determined is whether the Liquidators’ conduct was unreasonable.

34    The Liquidators submitted that the offer made in the letter from Piper Alderman dated 18 April 2017 to consent to a dismissal of the cross-claim on the basis that Qualify Me’s application for a personal costs order against them be abandoned was made in a different context. They contended that that offer was made after the Liquidators had had the benefit of legal advice and that it was a compromise that was offered in the situation that was thrust upon them by Qualify Me’s pursuit of its Interlocutory Application. The Liquidators submitted that, in any event, the offer was not accepted and so the question of whether the Liquidators were prepared to compromise and agree to a dismissal once their own interests were in issue does not arise.

Should a costs order be made against the liquidators personally?

35    It is convenient to first consider the circumstances in which a liquidator might be ordered to pay the costs incurred by a party in a proceeding personally.

36    In AMC Commercial Cleaning (NSW) Pty Ltd v Stephen Keith Coade & Anor; Rockcliffs Solicitors & IP Lawyers v Schon Condon as liquidator of AMC Commercial Cleaning (NSW) (No 2) [2013] NSWSC 332 (AMC Commercial Cleaning) Rein J considered an application by a liquidator against whom a personal costs order had already been made that the company in liquidation, and not he, pay the costs of Rockcliffs Solicitors & IP Lawyers (Rockcliffs), or that he only be liable to the extent that the company held assets available to indemnify him. Rockcliffs argued that its costs should be paid by the liquidator personally and without regard to the assets of the company in liquidation because, first, although the liquidator was named as a respondent to the substantive proceeding, he was in fact the one who had initiated the application and brought the parties before the court so that costs should be ordered against him; and, secondly, in the alternative, because the liquidator had acted unreasonably.

37    In support of the first ground Rockcliffs relied on Silvia & Anor v Brodyn Pty Limited (2007) 25 ACLC 385; [2007] NSWCA 55 at [50]-[55]. There, as Rein J noted at [5] of AMC Commercial Cleaning, Hodgson JA, with whom Ipp JA and Basten JA agreed, relevantly said:

50     If proceedings are brought by a liquidator in relation to a company's affairs, generally an order for security for costs will not be made; but if those proceedings are unsuccessful, then an order for costs will generally be made against the liquidator personally …

51     The liquidator would generally be entitled to an indemnity from the assets of the company, although that may be denied if the liquidator has acted unreasonably …

52     If proceedings brought against the liquidator are successful, generally a costs order will be made in such a way that the liquidator does not incur any personal liability. …

…

54     However, if the liquidator has acted unreasonably in defending the litigation, the liquidator may be made personally liable …

…

38    At [6] Rein J noted the submission made by the liquidator disputing that an order for costs will generally be made against a liquidator who has not acted unreasonably. Rein J referred to JGM Nominees Pty Ltd v Australvic Pty Ltd (in liq) (No. 3) [2010] VSC 623 (per Bell J) at [103], on which the liquidator relied, where her Honour said:

Generally speaking, the responsibility of a liquidator is to take control and management of the company, to get in and realise its assets, to identify its liabilities, to meet the debts of the creditors as far as is possible, to distribute the balance (if any) to the shareholders and to take all necessary other steps to wind the company up. In performing this function, a liquidator is an officer of the court and is answerable to the court. The courts are therefore loathe ‘to discourage 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.’ Those words were spoken by Northrop and Ryan JJ in Bent v Gough. Their Honours went on to say that the correct approach was that the discretion to order a liquidator personally to pay costs

should be exercised sparingly, not by way of punishing an imprudent liquidator, but only where the circumstances may make it just or appropriate for the successful party to be indemnified against his or her costs.

(footnotes omitted)

39    At [7] Rein J said:

In my view the express endorsement in Brodyn of the statement of principle by Oliver J in Re Wilson Lovatt & Sons [1977] 1 All ER 274 at 284 and the exposition of the law in relation to liquidators (and administrators) set out at [5] above leads to the conclusion that if the liquidator has "initiated" the proceedings then he or she should pay the costs of the other party although he may be entitled to an indemnity for those costs. In JGM Nominees the liquidator was not a party to the proceedings and the proceedings were not initiated by the liquidator. Brodyn was not referred to in JGM Nominees but on its face Bell J's conclusion that the liquidator had not acted unreasonably and ought not incur any personal liability is consistent with [52] of Brodyn. The reason for the different rule in relation to proceedings defended by a liquidator to that applicable where proceedings are initiated by the liquidator is explained by Oliver J in Re Wilson Lovatt at 285 (see [5] above) and Dal Pont in Law of Costs, 2nd ed, 2008, Lexis Nexis Butterworths at [10.49]:

Because the liquidator has not taken the initiative to institute the proceedings, it is unfair that he or she should be ultimately personally liable for an adverse costs order if company assets are insufficient to meet that order.

40    His Honour concluded at [10] that the case before him was one where the liquidator by his actions had forced Rockcliffs to come to court to obtain moneys which on their face were clearly due to them and, in those circumstances, the liquidator should pay the costs personally.

41    Lum was another case in which an order was made that liquidators should pay the costs of the proceeding personally. That was a proceeding for specific performance of a contract for sale of residential property. The substantive issues between the parties were resolved and the only outstanding issue for determination related to costs of the proceeding. The plaintiffs sought orders that their costs be paid by the first defendant or its liquidators. Relevantly, the substantive proceeding was commenced following the service by the first defendant of lapsing notices in respect of caveats that the plaintiffs had lodged claiming interests in certain land pursuant to contracts for sale. The service of the lapsing notices was procured by the liquidators, who at the time were the administrators of the first defendant. The plaintiffs submitted that the conduct of the liquidators was unreasonable and that, by the service of the lapsing notices and the liquidators’ assertion that they would ignore the contracts for sale, the liquidators forced the plaintiffs to commence the proceeding in order to protect their interests. The plaintiffs also submitted that, in any event, it was appropriate that the liquidators pay their costs because the proceedings were brought about by the liquidators’ action in issuing the lapsing notices.

42    At [17] Darke J found that the case was like AMC Commercial Cleaning, where the actions of the liquidators had forced the commencement of litigation and thus where the liquidators could be properly “regarded as the instigators of the litigation” rather than treated as true defendants. His Honour found at [19] that if the liquidators had not issued the lapsing notices then the position that was ultimately reached was likely to have been reached without any need for the plaintiffs to resort to litigation.

43    In the present case the Liquidators were not responsible for initiating the proceeding. Nor were they responsible for the pursuit by Qualify Me of its Interlocutory Application.

44    The cross-claim had been filed prior to the Liquidators’ appointment, as had the Interlocutory Application. The Liquidators, once notified of the cross-claim and the Interlocutory Application, put their position to Qualify Me. That is, they informed Qualify Me that they would not be pursuing the cross-claim. As at 24 March 2017 the Liquidators refused to sign the proposed consent orders to dispose of the cross-claim and the Interlocutory Application and, in that way, refused to address the cross-claim and the Interlocutory Application. But that is understandable given that they were unfunded and, at the time, did not have the benefit of legal advice.

45    It was Qualify Me’s decision to pursue the Interlocutory Application. Qualify Me saw that as being the only viable avenue by which to bring the cross-claim to an end because, knowing that GQA was in liquidation and that the Liquidators did not intend to pursue the cross-claim, success on that application would necessarily lead to a permanent stay of the cross-claim. However, that was not the only option open to Qualify Me. It could have, as the Liquidators submitted, informed the Court that in the circumstances it did not propose to pursue its Interlocutory Application, had the cross-claim listed for directions on a later date and taken steps to seek orders for dismissal of the cross-claim pursuant to ss 37P(5) and 37P(6) of the Federal Court Act and r 5.08 of the Rules. Qualify Me could have notified the Liquidators of its intention to make that application and awaited a default in the timetable, which was imminent given the need for GQA to file its evidence by 14 April 2017. Similarly, it could have availed itself of r 5.21 of the Rules, which permits a party to apply to the Court for an order that, unless another party does an act or thing within a certain time, the party have judgment against the other party; or r 5.23 of the Rules, which permits a party to apply to the Court for an order for judgment where a party is in default. It is not the case that, other than pursuing its Interlocutory Application, the only avenue available to Qualify Me was to seek summary judgment of the cross-claim pursuant to r 26.01 of the Rules.

46    Nor is it the case that the Liquidators acted unreasonably. While the Liquidators’ actions could be described as imprudent, they were not unreasonable in the circumstances in which they found themselves. That is, as at 24 March 2017, in circumstances where the Liquidators had no funds and had not taken any legal advice, it was not unreasonable for them to indicate their intention not to pursue the cross-claim and otherwise take a neutral position to the proceeding.

47    Qualify Me submitted that an inference should be drawn from the fact that, after 5 April 2017, when notified of the application that they pay a part of Qualify Me’s costs personally, the Liquidators were prepared to consent to a dismissal of the proceeding provided that that application was not pursued. It is clear that the threat of a personal costs order caused the Liquidators to take different steps: they retained lawyers and, I would infer, sought legal advice. However, the taking of those steps does not lead me to conclude that prior to that date, or at any time, they acted unreasonably.

48    Accordingly, I decline to make an order that the Liquidators pay Qualify Me’s costs of the Interlocutory Application personally from 24 March 2017.

should a costs order be made against GQA?

49    That leaves Qualify Me’s application for its costs of the Interlocutory Application against GQA. An order that GQA pay Qualify Me’s costs of the Interlocutory Application should be made.

50    The Interlocutory Application together with evidence in support was filed prior to GQA going into liquidation. It was pressed because Qualify Me at the time saw that as an available option to bring the cross-claim to an end. While it was not the only avenue to achieve that purpose, it was an available one. The cross-claim has now been discontinued by the filing of a notice of discontinuance by the Liquidators of GQA, but seemingly only because of the steps taken by Qualify Me in connection with the Interlocutory Application.

51    Qualify Me seeks that its costs of the Interlocutory Application be quantified and paid in a lump sum. Section 43(3)(d) of the Federal Court Act permits the Court to award a party costs in a specified sum. Rule 40.02(b) of the Rules provides that a party or person who is entitled to costs may apply to the Court for an order that costs be awarded in a lump sum, instead of, or in addition to, any taxed costs. The Costs Practice Note applies to all proceedings in the Court. It notes at [4.1] that the Court’s preference, whenever it is practicable and appropriate to do so, is to make a lump sum costs order. While the lump sum costs procedure is not intended generally to apply to interlocutory costs orders, it may be applied in appropriate circumstances.

52    The Court’s power to order lump sum costs is discretionary. It is not confined and may be exercised whenever the circumstances warrant it: Su v Australian Fisheries Management Authority (No 3) [2008] FCA 2018 at [1] (per Reeves J). In my opinion, this is a matter where it is appropriate for the Court to make an order that costs be paid in a lump sum because:

(1)    while the costs order is interlocutory, the cross-claim has been discontinued;

(2)    the application is a simple one where costs can be easily quantified; and

(3)    GQA is in liquidation. Given GQA’s lack of financial capacity, Qualify Me ought not be subjected to the burden of the costs of a taxation without any real prospects of recovering those costs: Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916 (per Mansfield J) at [24].

53    Mr Birchall has provided evidence of Qualify Me’s costs of the Interlocutory Application, a summary of which is set out at [26] above. In doing so, he has had regard to the Costs Practice Note. I have considered the costs summary that was tendered and Mr Birchall’s evidence about Qualify Me’s costs incurred in relation to the Interlocutory Application. I am satisfied that the costs claimed are appropriate having regard to the nature of the Interlocutory Application and that Qualify Me’s costs should be fixed in the amount sought of $14,838.05.

costs of this application

54    No submission was made regarding the costs of Qualify Me’s application for a personal costs order against the Liquidators. The application has been unsuccessful and costs would ordinarily follow the event. But this is not a case where I would exercise my discretion in favour of the Liquidators and award them their costs in connection with the application.

55    While I have not found that the Liquidators’ conduct was unreasonable, I am of the view that it was imprudent. One indicator of the imprudence of that conduct is that it was not until the parties were before the Court arguing the costs issue that the Liquidators agreed to file a notice of discontinuance of the cross-claim, bringing that proceeding to an end in a cost-effective manner without the need for the parties to incur further costs. Equally, I do not propose to make an order in Qualify Me’s favour in relation to its application given its lack of success.

56    The order I will make is that there be no order as to costs as between Qualify Me and the Liquidators in relation to the application that the Liquidators pay Qualify Me’s costs of the Interlocutory Application from 24 March 2017.

conclusion

57    I will make orders giving effect to these reasons.

Associate:

Dated:    20 June 2017