FEDERAL COURT OF AUSTRALIA

078 148 099 Ltd v Duncan, Re Kirwen Pty Ltd [2002] FCA 1322

Federal Court of Australia Act 1976 (Cth), s 43(1)

Re Wakim;  Ex parte McNally (1999) 198 CLR 511

Obacelo Pty Ltd v Taberaft Pty Ltd (1995) 5 FCR 210

Bizuneh v Minister for Immigration & Multicultural Affairs [2000] FCA 250

Hughes v Western Australian Cricket Association Inc (1986) ATR 40 – 748

Inground Constructions Pty Ltd v Federal Commissioner of Taxation (1994) 27 ATR 513

Yates Property Corporation Pty Ltd v Bowland (2000) 179 ALR 664

Re Minister for Immigration & Ethnic Affairs (1988) 186 CLR 622

Australian Securities Commission v Aust-Home Investments Pty Ltd (1993) 44 FCR 194

RE: KIRWEN PTY LTD (RECEIVER AND MANAGER APPOINTED) (ADMINISTRATOR APPOINTED) ACN 078 167 370, 078 148 099 LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 078 148 099 FORMERLY KNOWN AS BRUNSWICK INTERNATIONAL LIMITED v STEPHEN JAMES DUNCAN AND CHRISTOPHER ROBERT POWELL AS ADMINISTRATORS OF KIRWEN PTY LTD (RECEIVER AND MANAGER APPOINTED) (ADMINISTRATOR APPOINTED) ACN 078 167 370

S 3006 of 1999

MANSFIELD J

31 OCTOBER 2002

ADELAIDE

THE COURT ORDERS THAT:

1.             The applicant pay to the respondents costs of the application from 1 September 1999.

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

REASONS FOR JUDGMENT

1                     The applicant entered into a debt factoring agreement with Kirwen Pty Ltd (Receiver and Manager Appointed) (Administrator Appointed) (Kirwen) on 11 December 1997, secured by the grant of a Deed of Charge also dated 11 December 1997 over Kirwen’s assets and business.  On 8 January 1999 the applicant appointed a Receiver and Manager to Kirwen under the Deed of Charge due to Kirwen’s alleged breaches of the Deed, including its alleged insolvency and the fact that it had sold its business to a third party.

2                     On 11 January 1999, the respondents were appointed as Administrators of Kirwen.  They initially alleged that the appointment by the applicant of a Receiver and Manager to Kirwen was invalid.  The respondents, in conjunction with the purchaser of Kirwen’s business, arranged for a Deed of Company Arrangement (the DOCA) to be presented, which Kirwen’s creditors adopted.  The DOCA was entered into on 1 March 1999.  The DOCA was apparently entered into in the face of negotiations between the applicant and the purchaser of Kirwen’s business and others, in which the respondents declined to take part, and had the effect of subverting those private negotiations.

3                     By application dated 15 March 1999, the applicant sought various relief against the respondents.  That relief included declaratory relief as to the validity of the Deed of Charge, and as to the validity of the appointment by the applicant of Receivers and Managers to Kirwen.  It also challenged the validity of the appointment of the respondents as Administrators of Kirwen under the DOCA, including asserting that the DOCA itself was invalid and of no effect, and that the conduct of the respondents in their dealing with the assets of Kirwen as its Administrators warranted their removal.

4                     The matter first came on for directions on 16 March 1999.  It was adjourned for a week by consent.  On 27 March 1999 the respondents indicated through their counsel that they no longer challenged the validity of the Deed of Charge or of the appointment of the Receiver and Manager to Kirwen under the Deed of Charge.  Hence, the first issue which the applicant sought to ventilate no longer remained alive, and was resolved in its favour by that acknowledgement.

5                     Before the next directions hearing on 13 April 1999, Kirwen went into liquidation and the DOCA came to an end.  The matter was further adjourned to enable the applicant to consider its position.  Because the DOCA had come to an end, issues as to its validity were no longer alive in practical terms.

6                     In subsequent directions hearings, the applicant indicated that it proposed to seek leave to amend the application, principally to seek damages against the respondents for their conduct as Administrators of Kirwen until its liquidation.  Before those proposals had progressed to pleadings, the decision in Re Wakim;  Ex parte McNally (1999) 198 CLR 511 (Wakim) was delivered.  It had the consequence that the Court did not have jurisdiction to entertain the application as formulated at the time it was commenced.  The applicant nevertheless indicated that it wished to proceed with the application, by amending it to alleged misconduct on the part of the respondents as Administrators of Kirwen so as to entitle it to damages against them.  It sought the adjournment of the directions hearing from time to time whilst it formulated precisely the terms of its proposed amendment, so that the Court could determine whether to grant the proposed amendment including, necessarily, whether it had jurisdiction to do so.  In an endeavour to bring the matter to a head, at a directions hearing on 27 February 2001, the Court set a timetable for the applicant to file and serve any proposed amended application and any proposed amended statement of claim.  The applicant did not adhere to that timetable.  At the next directions hearing on 24 April 2001, counsel for the applicant indicated that the applicant acknowledged that the proceedings could not be continued.  They were dismissed for want of jurisdiction.  The applicant indicated that it proposed to institute fresh proceedings against the respondents.  The Court reserved the question of costs of the application to that point, to the intent that the outcome of the proposed fresh proceedings may be an appropriate indication as to how the costs of these proceedings should fall. 

7                     No fresh proceedings were commenced by the applicant against the respondents.  The respondents now seek their costs of the proceedings from the applicant.  There is no doubt that the Court, under s 43(1) of the Federal Court of Australia Act 1976 (Cth), has jurisdiction to award costs in the proceedings, including proceedings dismissed for want of prosecution:  see Obacelo Pty Ltd v Taberaft Pty Ltd (1995) 5 FCR 210;  Bizuneh v Minister for Immigration & Multicultural Affairs [2000] FCA 250.  The Court set a timetable for the exchange of submissions on that question.  The respondents duly filed submissions in support of their claim for costs.  The applicant has not done so.

8                     The Court has a wide jurisdiction to award costs, as discussed by Toohey J in Hughes v Western Australian Cricket Association Inc (1986) ATR 40 – 748 especially at 48,136.  The respondents contend that there are three reasons why they should have their costs against the applicant.  The first is that the proceedings against them have been dismissed, in circumstances where the applicant has effectively elected simply not to proceed with the proceedings.  They draw an analogy with the rule as to costs which generally applies in the case of a discontinuance of proceedings under O 22 r 2 of the Federal Court Rules.  Order 22 r 3 provides that in such circumstances the costs follow the event:  see e.g. Inground Constructions Pty Ltd v Federal Commissioner of Taxation (1994) 27 ATR 513;  Yates Property Corporation Pty Ltd v Bowland (2000) 179 ALR 664.  The case is not one where the dismissal of the proceedings was on a consensual basis after some private resolution of the issues.  In cases where proceedings are discontinued by leave where there has been a private resolution of issues, the observations of McHugh J in Re Minister for Immigration & Ethnic Affairs (1988) 186 CLR 622 at 625 may be apt.  However, this is not such an instance because the respondents had not resolved their issues with the applicant, and continue to maintain that the application even if amended to allege misconduct against them, or any separate proceedings against them on that basis, would be unsuccessful.  There is, in those circumstances, much to be said for the respondents’ claim that they should have their costs of these proceedings in any event. 

9                     The second ground upon which the respondents seek to claim costs is that the applicant’s conduct in instituting proceedings is said to have been unreasonable.  It is plain that there are circumstances where, if it is shown that an applicant has unreasonably instituted proceedings, and where those proceedings are not brought to finality by judgment after trial of the issues, the respondents should be entitled to costs:  see e.g. Yates; Australian Securities Commission v Aust-Home Investments Pty Ltd (1993) 44 FCR 194 (Aust-Home Investments).  However, I do not know sufficient information about the discussions between the parties in the period of time leading up to the institution of these proceedings to form the view that the applicant’s conduct in instituting the proceedings was unreasonable.  Indeed, as I have noted, part of the applicant’s reason for instituting the proceedings was to resolve the asserted claim that the applicant had not been entitled under the Deed of Charge to appoint the Receiver and Manager to Kirwen on 8 January 1999, or had not done so lawfully.  That issue was resolved in its favour by acknowledgement on 22 May 1999.  I do not consider that the second ground upon which the respondents claim costs is made out. 

10                  The third basis upon which the respondents seek costs is to contend that the proceedings, when instituted, had very little prospect of success.  In the course of proceedings, they filed a Statement of Contentions in anticipation of seeking summary relief against the applicant.  If it were made out that the proceedings, when instituted, had very little chance of success, then in my view that would provide a reason for awarding costs against the applicant:  Aust-Home Investments.  However, again this is not a matter where I have been sufficiently exposed to the respective merits of the claims to be satisfied that the applicants had no real prospect or little prospect of success in the proceedings when they were instituted, at least up to the time when the decision of the High Court in Wakim was delivered.  As I propose to award costs in favour of the respondents after that time, in any event, it is not necessary to further address this ground of the claim.  I note however that the proceedings, when instituted, are not shown to have had no prospects of success at least insofar as they related to the respondents’ challenge to the appointment of the Receiver and Manager to Kirwen. 

11                  In my judgment, allowing the applicant a reasonable time after it had the opportunity of considering the reasons for decision in Wakim, its maintenance of these proceedings therefore has been in circumstances which warrant an order of costs against it.  It has sought to maintain the proceedings upon the proposal of an amendment to the proceedings so as to enliven the jurisdiction of the Court to claim damages against the respondents as Administrators of Kirwen.  No such amendment was ever formulated or presented, despite assertions that it was under active consideration.  When the proceedings were dismissed, the Court was told that independent proceedings would be instituted to that effect.  They have not been instituted.  In those circumstances, in my view it is appropriate that the respondents have their costs of the proceedings for the period from 1 September 1999.  That allows the applicant a reasonable time within which to have considered the consequences of the High Court decision in Wakim.  I do not propose to order costs in favour of the respondents in the proceedings prior to that time.  I do not do so because, at least until the decision in Wakim, the applicant had been in part successful in the proceedings by the informal acknowledgement by the respondents that they no longer challenged the validity of the appointment of the Receiver and Manager to Kirwen.  In respect of the claim concerning the validity of the DOCA, it seems to me the case is one which falls within the description where I am not satisfied that either party acted unreasonably in commencing or defending the proceedings;  I have no reason to think the parties’ conduct in relation to that aspect of the proceeding did not continue to be reasonable at least until Kirwen went into liquidation shortly before the directions hearing on 13 April 1999.  For the period of time between 13 April 1999 and 1 September 1999, I have not made an order for costs to allow for the fact that the applicant’s claim in part succeeded, at least informally.  It has not sought costs in these proceedings, but the acknowledgement given by the respondents on 27 March 1999 indicates that the institution of the proceedings at least in one respect was not inappropriate, and the claim at least in that respect was one which was successful.  I have allowed a period of “set off” of the costs to which the applicant might be entitled by reason of that aspect of its claim to cover the period up to 1 September 1999.

12                  Accordingly, I order that the applicant pay to the respondents costs of the action from 1 September 1999. 

Associate:

Dated:              18 October 2002