FEDERAL COURT OF AUSTRALIA
McLellan, in the matter of The Stake Man Pty Ltd v Carroll (No 2)
[2009] FCA 1540
Corporations Act 2001 (Cth): ss 588G(2), 588H(2), 588M, 1317S(2)
Federal Court of Australia Act 1976 (Cth): s 43
Federal Court Rules: O 62 r15
Ruddock v Vadarlis (No 2) (2001) 115 FCR 229, cited
Fetherson v Peninsula Health (No 2) (2004) 137 FCR 262, cited
Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622, followed
Gribbles Pathology Ltd v Health Insurance Commission (1997) 80 FCR 284, followed
Australian Securities Commission v Aust‑Home Investments Ltd (1993) 44 FCR 194, followed
IN THE MATTER OF THE STAKE MAN PTY LTD (IN LIQUIDATION)
ACN 006 602 919
VID 373 of 2007
GOLDBERG J
14 DECEMBER 2009
MELBOURNE
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IN THE FEDERAL COURT OF AUSTRALIA |
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VICTORIA DISTRICT REGISTRY general division |
VID 373 of 2007 |
IN THE MATTER OF THE STAKE MAN PTY LTD (IN LIQUIDATION)
ACN 006 602 919
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BETWEEN: |
ANDREW JAMES McLELLAN (IN HIS CAPACITY AS LIQUIDATOR OF THE STAKE MAN PTY LTD) ACN 006 602 919 First Plaintiff
THE STAKE MAN PTY LTD (IN LIQUIDATION) ACN 006 602 919 Second Plaintiff
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AND: |
ANTHONY PAUL CARROLL Defendant
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JUDGE: |
GOLDBERG J |
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DATE OF ORDER: |
14 decEMBER 2009 |
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WHERE MADE: |
MELBOURNE |
THE COURT DECLARES THAT:
1. The defendant has contravened s 588G(2) of the Corporations Act 2001 (Cth) (“the Act”) by failing to prevent The Stake Man Pty Ltd (In Liquidation) (“the Company”) from incurring debts totalling $356,952.02.
2. Pursuant to s 1317S(2) of the Act, having regard to all the circumstances of the case, the defendant ought fairly to be excused for the contravention of s 588G(2) of the Act.
3. Pursuant to s 1317S(2) of the Act, the defendant be relieved wholly from any liability to pay to the plaintiffs pursuant to s 588M of the Act any amount in respect of the loss and damage suffered by creditors of the Company referred to in the schedule to the amended Statement of Claim herein, a copy of which schedule is annexed as Schedule “A” to this order.
THE COURT ORDERS THAT:
4 The defendant pay the plaintiffs’ costs of and incidental to the proceeding including any reserved costs, but excluding any costs of and incidental to the interlocutory process filed by the plaintiffs on 12 October 2007 in which the defendant and Louise Margaret Carroll are defendants.
5. There be no order as to the costs of and incidental to the interlocutory process filed on 12 October 2007 including any reserved costs relating thereto.
6. Paragraphs 4 and 5 of the order made on 20 November 2007 be discharged.
7. The undertakings given to the court by the plaintiffs and the defendant on 20 November 2007 be discharged.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.
SCHEDULE A
Debt from
Trade Creditor 31 December 2005
Advanced Timber Systems Pty Ltd 6,103.13
AE & GE Bonfield Pty Ltd 1,082.40
Allianz Workers Compensation 19,343.47
Alsafe Safety Industries 463.07
Australtech 451.11
AWM Electrical 1657.71
Biggin & Scott 2,200.00
BOC gases 101.55
Broken River Imaging 277.95
Burson Automotive 1,798.50
Caltex 4,988.26
Central General Practice 42.90
Chippy’s Discount Timber 1,288.35
City of Melbourne 68.90
Clark & Co 50.00
Country Garden Supplies 967.00
DGR Garden & Décor Pty Ltd 6.132.94
Dr Warren Seager 110.05
DUB Fabrication & Engineering 808.50
Elgas 21,224.25
Flood Marketing 1,002.65
Gadens Lawyers 5,561.38
GCH Harvesting Pty Ltd 97,990.72
GD & JL Coutts Pty Ltd 82.05
GTI International Pty Ltd 1,391.50
H Polsey & Co 392.70
Home Hardware/Yencken Dyson 3,171.77
Hutchison 3G Australia 45.00
Kirley’s Chainsaw Service 101.00
Leitz Tooling Systems Pty Ltd 1,791.35
Mansfield District Hospital 131.00
Mansfield Express 19,133.81
Mansfield Medical Clinic 1,178.50
Mansfield Parts Centre 2,186.15
Mark C Voerman 99.00
Monbulk Rural Enterprises 1,111.00
MPH Contractors 197.88
North East Fasteners 2,163.88
Phoenix Sawmill Supply 275.62
PPI Corporation Pty Ltd 2,271.50
Primus 441.79
R&M Kirley Transport 1,606.00
Reddrop’s Foodworks 411.79
Riverina Boiler and Combustion 638.00
Ryan & McNulty Pty Ltd 5,864.17
Safepak Pty Ltd 1,152.60
Sawdoc Benalla 794.20
Sawmaster Industries 64.83
Signet Pty Ltd 1,625.90
Solver Paints 5,012.70
State Revenue Office 6,359.77
Telstra 2,795.31
The Moisture Meter company 18.81
Transmet Taxi Trucks 208.25
TRUenergy 26,540.26
Vic Forests 57,289.93
Victorian Alpine Security 176.39
Victorian Association of Forest Industries 1,100.00
Wangaratta Bearings 1,918.59
Wantrup & Associates 2,500.00
WHK Armitage Downie 6,693.50
Yarra Valley Saws 3,386.90
Total Trade Creditors $336,038.80
ATO Liabilities
Running Balance Account 92,019.55
Superannuation Guarantee Charges 31,060.67
$123,080.22
TOTAL FRESH DEBTS POST 31/12/05 $459,119.02
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IN THE FEDERAL COURT OF AUSTRALIA |
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VICTORIA DISTRICT REGISTRY general division |
VID 373 of 2007 |
IN THE MATTER OF THE STAKE MAN PTY LTD (IN LIQUIDATION)
ACN 006 602 919
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BETWEEN: |
ANDREW JAMES McLELLAN (IN HIS CAPACITY AS LIQUIDATOR OF THE STAKE MAN PTY LTD) ACN 006 602 919 First Plaintiff
THE STAKE MAN PTY LTD (IN LIQUIDATION) ACN 006 602 919 Second Plaintiff
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AND: |
ANTHONY PAUL CARROLL Defendant
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JUDGE: |
GOLDBERG J |
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DATE: |
14 decEMBER 2009 |
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PLACE: |
MELBOURNE |
REASONS FOR JUDGMENT
1 On 30 November 2009 I published my reasons for judgment in this matter in which I set out the reasons why I had formed the view that the following declarations should be made:
(a) a declaration that Mr Carroll has contravened s 588G(2) of the Corporations Act 2001 (Cth) (“the Act”), by failing to prevent the company, The Stake Man Pty Limited, from incurring the debts referred to in the schedule to the amended statement of claim;
(b) a declaration pursuant to s 1317S(2) of the Act, that having regard to all the circumstances of the case, Mr Carroll ought fairly to be excused for that contravention, and
(c) a declaration pursuant to s 1317S(2) of the Act, that Mr Carroll be relieved wholly from any liability to pay to the plaintiffs, pursuant to s 588M of the Act, any amount in respect of the loss and damage suffered by creditors of the company, referred to in the schedule to the amended Statement of Claim.
2 I said I would hear the parties as to the form of orders which should be made, including any order as to costs. I directed that an outline of written submissions be filed and exchanged in relation to orders and costs, and both parties complied with that direction.
3 It is trite law to say that I have a discretion in relation to costs pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth), the only constraint being, speaking generally, that I am obliged to exercise that discretion judicially. The usual rule in relation to costs is that costs follow the event, in the absence of special reasons to the contrary: Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 at 234‑235.
4 A departure from the usual rule requires a valid, special reason. When considering the exercise of discretion in relation to the exercise of costs, it is frequently submitted that other cases bear upon the issue, and provide guidance as to how those costs should be ordered, but it has been established in a number of cases that other cases are not particularly helpful where the facts are quite different, and I adopt the observations of Heerey J in Fetherson v Peninsula Health (No 2) (2004) 137 FCR 262 at par [12].
5 The defendant has submitted that the plaintiffs should pay his costs as he has succeeded on the whole of the claim in the sense that he is not liable to pay any of the amount claimed by the plaintiffs.
6 The plaintiffs make a quite different submission. They submit that the defendant should pay their costs as they were successful in relation to all the substantive issues. The plaintiffs point to the fact that they succeeded in establishing the issues that the company was insolvent, that there were reasonable grounds to suspect insolvency and that the defendant was aware of those reasonable grounds. They also established that a reasonable person in a like position to the defendant would have been so aware of those reasonable grounds, and they succeeded in relation to the defences available under s 588H(2), which were not made out.
7 I found that the defendant had contravened s 588G(2) of the Act, and so I concluded that I should make a declaration accordingly. In the circumstances of this case, I consider that there should be a departure from the usual rule as to costs, that costs follow the event, for the following reasons.
8 The plaintiffs have succeeded in obtaining findings in their favour in respect of all the integers of the claim required to be established for a cause of action under s 588G of the Act, and for the entitlement to recover the amount of loss and damage suffered by the creditors identified in accordance with s 588M of the Act.
9 The defence which has succeeded in enabling the defendant to avoid liability, is not a defence which the liquidator could have accepted himself. It was not for the liquidator to make the judgment as to whether the defendant would obtain an order that he ought fairly to be excused, because that was a matter for the Court. Only the Court can excuse a defendant under s 1317S. The liquidator might believe that the defendant has acted honestly, but it is not a matter for him to decide that the defendant ought fairly to be excused. That is a matter for the Court to exercise its discretion.
10 In substance, the plaintiffs have established their case for liability of the defendant to pay the damages suffered by the creditors, and by raising the matters identified in s 1317S(2) of the Act, the defendant, in effect, seeks an indulgence. The way the defendant puts the case, in substance, is that he says, “I have been found liable to pay these damages, but I have acted honestly and,” – this is cumulative – “I ought to be excused.” That is akin to seeking an indulgence from the Court.
11 In bringing the action and not succeeding in obtaining the ultimate orders which they seek, the plaintiffs have not committed any error or default in the way they ran the proceeding. The plaintiffs have made out all the integers of their cause of action. As I said earlier, the liquidator could not have excused the defendant from payment of the loss and damages suffered by the creditors. In short, the plaintiffs were justified in bringing the proceeding and the reason why they do not obtain the orders which they seek in their favour is not due to any failure on their part to prove their case.
12 Mr Evans, who appeared for the defendant, submitted that it cannot be the case that, if a defendant succeeds in a defence under s 588H he would not ordinarily receive a costs order in his or her favour. That may be, but that is not the matter with which I am faced here. Mr Evans submitted further that there is, in substance or in truth, as he put it, no meaningful distinction between the defence pursuant to s 1317S of the Act upon which Mr Carroll has succeeded, and the defences pursuant to s 588H of the Act on which he failed. I think there is a meaningful distinction because pursuant to s 588H of the Act, there is a defence, strictly so‑called, available if the integers identified in that section are established.
13 Section 1317S is not a defence as such to the substantive action. It is a relief from a liability to pay the amount which otherwise might have been ordered by way of damages. In either case, whether a defence is raised under s 588H of the Act, or relief is sought pursuant to s 1317S of the Act, the basic elements of the claim can be established by a liquidator. Although it is for the liquidator to evaluate the strength or weakness of the defences under s 588H, it is a quite different exercise when considering whether the Court would exercise its discretion under s 1317S of the Act. So I consider that it is not inconsistent, as a matter of logic or principle, for there to be a different costs order depending upon whether a defence under s 588H of the Act succeeds, or whether relief is granted pursuant to s 1317S of the Act.
14 In those circumstances, it seems to me that the following orders should be made.
15 The Court declares that:
1. The defendant has contravened s 588G(2) of the Act by failing to prevent The Stake Man Pty Ltd (in liquidation) from incurring debts totalling $356,952.02.
2. Pursuant to s 1317S(2) of the Act, having regard to all the circumstances of the case, the defendant ought fairly to be excused for the contravention of s 588G(2) of the Act.
3. Pursuant to s 1317S(2) of the Act, the defendant be relieved wholly from any liability to pay to the plaintiffs, pursuant to s 588M of the Act, any amount in respect of the loss and damage suffered by creditors of the company referred to in the schedule to the amended Statement of Claim herein, a copy of which schedule is annexed as Schedule A to this order.
16 The schedule in the Statement of Claim sought debts totalling $459,119.02. I have made a number of findings in relation to those debts which reduced the claim, on the evidence, to $356,952.02, but I consider that the relief to be granted, pursuant to s 1317S(2) of the Act should relate to the claim as filed.
17 The defendant should be ordered to pay the plaintiffs’ costs of and incidental to the proceeding, including any reserved costs, save for the costs reserved in relation to the interlocutory proceeding which was filed on 12 October 2007 seeking freezing orders against the defendant and his wife, Louise Margaret Carroll.
18 In relation to the costs of that interlocutory proceeding, which was ultimately dismissed, it appears to me, and it was not seriously contested, that at the time that process was issued there was a proper basis for it. In the events which have now occurred that basis has fallen away. Pursuant to O 62 r15 of the Federal Court Rules, reserved costs follow the event, unless the Court otherwise orders. I consider in this case that the Court should otherwise order that the costs of and incidental to that interlocutory process lie where they fall. The formal order should be that there be no order in respect of the costs, including reserved costs, in relation to or incidental to that interlocutory process.
19 The situation which has arisen in relation to the interlocutory process is that at the time there was a reasonable basis for bringing it. That basis has now disappeared as a result of subsequent events. It is not appropriate that the Court try the whole of that interlocutory proceeding simply for the purpose of determining the costs, and there is clear authority for the proposition that, unless in those circumstances it is abundantly clear that the interlocutory process would have clearly succeeded or clearly failed, there should be no order as to costs in relation to it. I adopt and follow the reasoning of McHugh J in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622, Finkelstein J in Gribbles Pathology Ltd v Health Insurance Commission (1997) 80 FCR 284 and Hill J in Australian Securities Commission v Aust‑Home Investments Ltd (1993) 44 FCR 194.
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I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg. |
Associate:
Dated: 22 December 2009
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Counsel for the Plaintiffs: |
M Galvin |
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Solicitor for the Plaintiffs: |
Maddocks |
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Counsel for the Defendant: |
J L Evans |
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Solicitor for the Defendant: |
Voitin Lawyers |
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Date of Hearing: |
14 December 2009 |
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Date of Judgment: |
14 December 2009 |
