FEDERAL COURT OF AUSTRALIA

Rexel Electrical Supplies Pty Limited v Mentha (Administrator) in the matter of ACN 004 410 833 Limited (formerly Arrium Limited) (No 2) [2019] FCAFC 37

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The legal expenses of the Appellant and the Third Respondent in connection with the appeal before the Full Court be treated as costs incurred by those parties acting in their capacities as a representative parties under orders 1 and 2 of the orders made by Justice Davies in proceeding VID1010/2017 on 3 November 2017, and the said legal expenses shall be paid out of the Distribution Fund (as defined in paragraph 60 of the affidavit of Mark Anthony Korda sworn 21 September 2017) on an indemnity basis, to be taxed in default of agreement between the party seeking payment and the First Respondents, with liberty to apply with respect to the taxation process.

3.    The First Respondents are justified in paying the legal expenses incurred by the Appellant and the Third Respondent in accordance with order 2 above.

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

REASONS FOR JUDGMENT

THE COURT:

1    The Full Court has already delivered reasons for judgment in this matter: see Rexel Electrical Supplies Pty Limited v Mentha (Administrator) in the matter of ACN 004 410 833 Limited (formerly Arrium Limited) [2018] FCAFC 229. We adopt the terms defined in that judgment in these reasons.

2    The Full Court upon delivering its reasons on 20 December 2018 ordered that the parties file and serve an agreed minute of proposed orders (including on the question of costs), or in the absence of agreement, the parties file and serve short submissions (limited to three pages) as to their preferred proposed orders (including on the question of costs).

3    The parties have now filed their respective preferred proposed orders and the only dispute between the parties is as to costs.

4    No costs orders need be made in respect of the First and Second Respondents’ costs of the appeal as these will be paid from the Distribution Fund in any event.

5    The Appellant sought orders as follows:

(1)    The appeal be dismissed.

(2)    The legal expenses of the Appellant and the Third Respondent in connection with the appeal before this Court be treated as costs incurred by those parties acting in their capacity as a representative party under orders 1 and 2 of the orders made by Justice Davies in proceeding VID1010/2017 on 3 November 2017, and the said legal expenses shall be paid out of the Distribution Fund (as defined in paragraph 60 of the affidavit of Mark Anthony Korda sworn 21 September 2017) on an indemnity basis, to be taxed in default of agreement between the party seeking payment and the First Respondents, with liberty to apply with respect to the taxation process.

(3)    The First Respondents are justified in paying the legal expenses incurred by the Appellant and the Third Respondent in accordance with order 2 above.

6    The Respondents sought orders as follows:

(1)    The appeal be dismissed.

(2)    The Respondents’ costs of the appeal be paid by the Appellant.

(3)    The Third Respondent be paid out of the Distribution Fund (being the fund defined in the affidavit of Mark Anthony Korda sworn 21 September 2017) its costs of the appeal on an indemnity basis less any amount paid to it pursuant to order 2.

(4)    The First Respondents are justified in paying the costs of the Third Respondent in accordance with order 3 above.

7    We do not need to rehearse all the arguments of the parties on the question of costs.

8    We consider in the circumstances of this litigation that it is reasonable that the Appellant’s costs (as contradictor and representative party) be paid as costs in the administration, adopting the approach of the primary judge. We note that no objection was taken to the approach taken by the primary judge on the issue of costs at first instance.

9    It is important to recall the role of the parties in the proceeding. In the principal proceeding the plaintiffs joined Epic as a first defendant. On 3 November 2017, the primary judge ordered that the Third Respondent to the appeal and Epic be appointed to represent the interests of “the Financiers” and interests of those creditors “other than the Financiers” respectively in respect of the hearing of the preliminary question. The primary judge also ordered that the legal expenses reasonably incurred by those parties in acting in their representative capacities be paid out of the funds available to the Administrators of the Distribution Fund. There were two bases for this order. First, it was appropriate that Epic’s costs of acting as a contradictor be treated as the costs of the administration. Secondly, both Epic and the Third Respondent were appointed to act in representative capacities. This provided a proper basis for Epic’s costs to be paid from the Distribution Fund. It also made payment of the Third Respondent’s costs from that fund appropriate. On 15 December 2017, the primary judge determined the preliminary question adversely to Epic and those it represented. However, both representative parties’ costs were payable out of the Distribution Fund pursuant to the orders made 3 November 2017.

10    Epic sought leave to appeal the primary judge’s decision and that leave was granted (“to the extent necessary”) by Middleton J on 20 February 2018. On 23 May 2018, the Appellant in this appeal (Rexel) was substituted for Epic to serve “as the representative of the unsecured creditors” in the appeal. The Third Respondent represented the interests of the Financiers (and as this Court has found, in effect, the First and Second Respondents also, the Court considering that their interests were aligned).

11    The Full Court has upheld the primary judge’s decision. However, we are of the view that Rexel, as the representative Appellant, acted responsibly and properly in bringing the appeal, as did the Third Respondent in defending it. In assessing whether a representative party should claim its costs from the fund in dispute “it matters not whether the representative party wins or loses the suit, provided he has acted reasonably”: see eg Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 4) (2008) 169 FCR 497 at 500 [8]. In the circumstances, the appropriate costs orders are that the reasonable costs of the representative parties be treated as costs in the administration to be paid from Distribution Fund. No parties’ conduct in the appeal has been unreasonable, and costs should be paid on an indemnity basis as costs of the administration.

12    We do not accept that this litigation should be characterised as a normal “adversarial proceeding”, as the Respondents would have it characterised. Nor, in this litigation, is the situation on appeal relevantly different to that before the primary judge. We appreciate that courts have been concerned to ensure a relevant fund should not always bear the costs of an unsuccessful appeal. We also do not presume the Appellant is entitled to their costs to be paid out of the Distribution Fund just because those costs were so paid at first instance.

13    However, there is no universal approach to be applied in all circumstances. We consider, whilst the appeal was unsuccessful, that the dispute was a reasonable incident of the administration of the Distribution Fund. The appeal involved a complex construction analysis, and it cannot be concluded that the Appellant was acting in an unreasonable way in initiating and maintaining the appeal. The Appellant represented a class of entities, and was not appealing merely to vindicate its own right: the Appellant was acting as representative for thousands of creditors with claims (many of which would be uneconomic to run in the absence of the representative Appellant) in a complex administration worth approximately $500 million in aggregate. The nature of its role shows the costs are properly part of administration, even in pursuing an appeal that was ultimately unsuccessful.

14    It was also contended that any indemnity in favour of Rexel out of the Distribution Fund be restricted to that part of the Distribution Fund which would have been otherwise distributable to those creditors other than the Financiers. This was not the approach taken by the primary judge at trial. Like the primary judge, we see no basis to treat the Financiers or any of the Respondents differently in relation to the payment of the costs.

15    We will order:

(1)    The appeal be dismissed.

(2)    The legal expenses of the Appellant and the Third Respondent in connection with the appeal before this Court be treated as costs incurred by those parties acting in their capacities as a representative parties under orders 1 and 2 of the orders made by Justice Davies in proceeding VID1010/2017 on 3 November 2017, and the said legal expenses shall be paid out of the Distribution Fund (as defined in paragraph 60 of the affidavit of Mark Anthony Korda sworn 21 September 2017) on an indemnity basis, to be taxed in default of agreement between the party seeking payment and the First Respondents, with liberty to apply with respect to the taxation process.

(3)    The First Respondents are justified in paying the legal expenses incurred by the Appellant and the Third Respondent in accordance with order 2 above.

Associate:

Dated:    7 March 2019