FEDERAL COURT OF AUSTRALIA

Bredenkamp v Gas Sensing Technology Corporation, in the matter of Welldog Pty Ltd (In Liq) (Receivers and Managers Appointed) (No 2) [2017] FCA 1125

ORDERS

THE COURT ORDERS THAT:

1.    The reasonable costs of the parties be paid out of the receivership on an indemnity basis.

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

REASONS FOR JUDGMENT

BARKER J:

1    This is a costs judgment.

2    On 7 September 2017 in these proceedings, I ordered in WAD401/2017 that:

(1)    The Originating Application filed on 14 August 2017 be dismissed.

(2)    In the event the parties are unable to agree on costs, the Defendant file and serve written submissions in respect of costs of and incidental to this proceeding and proceeding WAD 416/2017 by 4.00pm on Tuesday, 12 September 2017.

(3)    The Plaintiff file and serve written submissions in respect of costs of both proceedings in response by 4.00pm on Thursday, 14 September 2017.

(4)    The Defendant file and serve any further written submissions in respect of costs of both proceedings by 4.00pm on Friday, 15 September 2017.

(5)    The Court will determine the question of costs, if necessary, on the papers.

3    I also ordered in WAD416/2017 that:

(1)    A declaration is hereby made, pursuant to s 21 and s 22 of the Federal Court of Australia Act 1976 (Cth), that the Plaintiff is entitled to possession of each and all of the various items of equipment detailed in the letter from HopgoodGanim Lawyers to the Defendant dated 12 July 2017 (Equipment) which is annexed as Annexure “JRS-03” to the Affidavit of Jonathan Rex Shepherd filed in proceeding WAD 401/2017.

(2)    The Defendant forthwith deliver up possession of the Equipment to the Plaintiff.

(3)    The question of costs be dealt with in the same manner as ordered in orders (2) to (5) of the orders made 7 September 2017 in WAD 401/2017.

See Bredenkamp v Gas Sensing Technology Corporation, in the matter of Welldog Pty Ltd (In Liq) (Receivers and Managers Appointed) [2017] FCA 1065.

4    Using the same descriptions of the parties as used in the primary judgment, GSTC now seeks an order that the receivers pay its costs of the proceedings on an indemnity basis.

5    In support of an indemnity costs order, GSTC contends that the background to the proceedings is as follows:

5.    By 10 April 2017, the receivers had commenced a 6-week advertising program calling for expressions of interest in acquiring the assets of the Company (Welldog Pty Ltd (In Liq)). On 26 July 2017, the solicitors stated that the Equipment would be excluded from the sale of the assets of the Company pending determination of the question of is ownership.

6.    The receivers commenced proceedings by an originating process dated 14 August 2017. In that application, the receivers sought a direction under s 424 of the Corporation Act that all of the ‘Equipment’ vested in the Company pursuant to s 267 of the PPSA and that the receivers could ‘lawfully retain possession of and sell the Equipment’. The receivers commenced the application so that the Equipment could be included in the sale of the assets of the Company.

7.    The receivers joined GSTC to their originating application because they wished the direction under s 424 of the Corporations Act to somehow bind GSTC, to facilitate the sale of the Equipment.

8.    The proposed s 424 procedure was unsatisfactory to determine the issues in the proceedings. The receivers wished to have finally determined the Company’s right to the Equipment for the purposes of the sale. GSTC wished to have that question determined on a final basis because it wished to have its Equipment returned to it for use in its business.

9.    The proceedings were transformed into proceedings for declaratory relief under the Federal Court Act and the receivers formally amended their originating process. But the proceedings remained, in substance, proceedings by the receivers to afford them protection in relation to the proposed sale of the Equipment. It was only necessary for GSTC to file its originating application because of the position adopted by the receivers.

6    As to why it should be fully indemnified, GSTC submits that:

10.    The receivers’ costs of the proceedings are not payable personally, but out of a fund or pool of property which has come into the receivers’ hands, as receivers of the Company. It should be common ground that the receivers are fully indemnified for their costs out of the receivership assets, or such an indemnity has been given to them by the secured creditor (or both) (and see the General Security Agreement at pp 43, 44 of the affidavit of Mr Shepherd dated 23 August 2017, in which an indemnity is given by the Company to the secured creditor). The receivers’ costs are a cost of the receivership, and GSTC’s costs are also a cost of the receivership. GSTC was a necessary party to the proceedings if it was to have any utility in resolving the issue of the ownership of the Equipment. The proceedings involved some factual complexity, and some contested matters of fact. The proceedings involved the determination of question of law about which there is very little guidance in the authorities (see [11], [120]-[149] of his Honour’s reasons for judgment).

11.    In these circumstances, the ‘starting point’ is that GSTC’s costs are to be paid by the receivers and counted as a cost in the receivership: Farrow Finance Co Ltd (in liq) v ANZ Executors and Trustees Co Ltd (1997) 23 ACSR 521, 526-527; Gothard, in the matter of AFG Pty Ltd (receivers and managers appointed)(in liq) v Davey (No. 2) [2011] FCA 59, [18](4)-(6)], [21]-[25], [56]-[57]. There is no reason to depart from that ‘starting point’ (cf Farrow Finance, p 527).

7    The receivers accept that costs should follow the event and submit costs should be awarded on a party and party basis out of the receivership because GSTC had opted an adversarial position in filing its own cross-application, and changed its position as to the issues for determination.

8    Alternatively, the receivers submit that if the Court considers that it is proper to award costs on an indemnity basis, because of its conduct, GSTC should only be awarded 50% of its costs.

9    Further, the receivers submit, that the parties should bear their own costs in respect of GSTC’s originating application as it was unnecessary in the circumstances, where the receivers had informed GSTC that it would abide the decision of the Court and return the equipment if the Court found it was not vested in Welldog.

10    In support of their position, the receivers say the relevant background is as follows:

4    On 12 July 2017, GSTC’s solicitors sent a letter to the Receivers and Managers of Welldog Pty Ltd (Receivers and Managers appointed) (In Liquidation) ACN 147 697 845 (Receivers) stating, amongst other things, that:

4.1    the GSTC Tools, the GSTC Fibre Optic Tools, the GTI Equipment and the GSTC IT Equipment (together, the Equipment) were all held by Welldog under simple bailments for an indefinite term; and

4.2    the exceptions in ss. 13(2) and 13(3) of the Personal Properties Securities Act meant that the bailments did not constitute a PPS Lease and therefore, GSTC was not required to register their interest in the Equipment on the PPSR.

5    On 26 July 2017, the solicitors for the Receivers responded that, amongst other things:

5.1    in their opinion the arrangements relating to the Equipment did give rise to a PPS Lease and that GSTC was required to register its interest on the PPSR;

5.2    given the differing views of the parties, the Receivers had excluded the Equipment from the sale of the assets of Welldog; and

5.3    in the Receivers’ view, it was appropriate to consult with the liquidators of Welldog before taking any further steps.

6    On 28 July 2017, GSTC’s solicitors wrote to the Receivers’ solicitors stating, amongst other things, that given the impasse, it was necessary for their client to commence substantive proceedings against the Receivers in the Supreme Court of Queensland.

7    Between 28 July 2017 and 14 August 2017, the parties continued to liaise in respect to programming orders and the appropriate forum and at all times the Receivers maintained that they would apply to the Court for directions and abide by the outcome.

8    On 14 August 2017, the Receivers filed the Originating Process and supporting material also noting that GSTC requested an expedited hearing.

11    As to GSTC’s relevant conduct, the receivers submit that:

9    At paragraph 7 of its costs submissions, GTSC asserts that the Receivers joined GSTC because they wished the direction to somehow bind GSTC. That is not correct. The Receivers joined GSTC as an interested party to the proceedings and because GSTC had indicated that it wished to be heard in relation to the application for directions. Prior to filing the Originating Process, the Receivers had informed GSTC that they would abide by the outcome and return the Equipment if the Court found that the Equipment had not vested.

10    At paragraph 8 of its submissions, GSTC asserts that the s424 procedure was unsatisfactory to determine the issues in the proceedings. The Receivers’ submit that it was agreed until the week prior to the hearing of the application that both parties would abide by the decision of the Court and that the s424 and declaration application would be satisfactory.

11    The Receivers at all times communicated to GSTC that they maintained a neutral position and would abide by the outcome of the s424 and declaration application and return the Equipment if the Court found that it had not vested in Welldog. Therefore, the filing of the originating application by GSTC was unnecessary, and there should be no order as to costs in respect to that application.

12    However, given that GSTC did file their own originating application the proceedings are properly characterised as adversarial and therefore costs should be assessed on a party-party basis.

13    It has been established that where a party acts in its own self-interest and not as a ‘proper contradictor’ in the sense that its participation in the hearing was not objective, reasonable and responsive to relevant issues, it is appropriate that costs follow the event.

14    The Receivers’ submit that in this case GSTC acted in its own self interest and was not a proper contradictor as it:

14.1    raised late issues relating to whether a bailment existed despite having previously agreed that the Equipment was stored pursuant to a bailment; and

14.2    did not cooperate with the Receivers in the preparation of a statement of agreed facts despite requesting that the Receivers provide the statement of agreed facts.

12    In conclusion, the receivers submit that:

15    It was appropriate for the Receivers to bring their application.

16    The Court retains the discretion to award costs in the way it considers most appropriate.

17    In circumstances where:

17.1    the controversy as to the proper interpretation of the PPSA as it related to PPS Leases was a complex question and involved novel propositions in law as applied to the relevant facts;

17.2    the Receivers acted reasonably and adopted a neutral position in assisting the Court determine the controversy;

17.3    GSTC changed at the last minute the issues which were in dispute; and

17.4    GSTC adopted an adversarial approach by commencing its own application,

the appropriate costs order is that party-party costs should follow the event. No costs should be awarded in respect to GSTC’s originating application.

18    In the alternative, the Receivers submit that GSTC adopted an adversarial positon by bringing its own application and acted unreasonably by changing its position at the last moment in raising two additional issues for determination (i.e. the bailment and indefinite term issues). Accordingly, if indemnity costs are to be awarded, only an amount of 50% of GSTC’s costs should be awarded to account for the wasted costs relating to the additional issues which, up until two days before the hearing, had been agreed between the parties.

19    Further, in any costs order that is made an allowance for only one instructing solicitor should be made and GSTC should have no entitlement to recover the costs of GSTC’s instructing solicitor travelling from Brisbane to Perth.

13    In reply, GSTC emphasises its submission that there is a distinction, on the authorities, between costs awards in cases where a party, like a receiver, is entitled to payment of its costs out of a fund or pool of property it is administering, and cases where no such entitlement exists.

14    It says that in cases where a party, like a receiver, has a right of indemnity, indemnity costs may be awarded to a respondent not as a consequence of the conduct of the receiver being somehow impugned, but on the basis that the respondent’s costs are just as much a cost of the receivership as the receivers’ costs.

15    GSTC makes further submissions about cases where a receiver is indemnified, as follows:

4.    In cases where a receiver is indemnified out of a fund, the position, as stated in Farrow Finance Co Ltd (in liq) v ANZ Executors and Trustees Co Ltd (1997) 23 ACSR 521 and as applied in Gothard, in the matter of AFG Pty Limited (Receivers and Managers appointed)(in liq) v Davey (No 2) [2011] FCA 59, is that where the issue involved is a complex one, or one involving a relatively novel proposition in law, then the starting point is that the costs of all necessary parties are to be paid by the receiver and counted as costs in the receivership. These considerations may in some cases supply a basis for awarding indemnity costs to a respondent even if the respondent is not successful. In the present case, it is not necessary to go that far.

5.    The receivers are fully indemnified for their costs of the proceedings (this was confirmed by email correspondence between the parties dated 15 September 2017, which is attached to these submissions). The parties share the view that the proceedings involved issues that were both complex and novel (see the receivers’ submissions at [17.1] and GTSC’s submissions dated 12 September 2017 at [10]).

6.    It is irrelevant that the proceedings were transformed from directions proceedings under s 424 of the Corporations Act, to proceedings for a declaration of substantive rights. They remained proceedings brought by the receivers to provide protection to the receivers. In any case, the transformation of the proceedings should not be permitted to occasion an injustice to GSTC, and it would be an injustice if it were denied its costs (in part) by reason of the transformation.

7.    The principles in Farrow Finance and Gothard are applicable in the present case. GSTC should be awarded costs on an indemnity basis.

16    GSTC otherwise submits that the receivers’ submissions are misplaced in that it does not seek indemnity costs on the basis that the conduct of the receivers ought to engage the Court’s discretion to award indemnity costs.

17    In any event, it seeks to respond to a number of the criticisms made by the receivers:

11.    The receivers complain, variously, that GSTC ‘raised late issues relating to whether a bailment existed’, ‘changed at the last minute the issues that were in dispute’ and ‘raised two additional issues for determination (i.e. the bailment and indefinite term issues)’. If the receivers believed that they bore no legal onus to prove the existence of a bailment, or the term of a bailment, they would have said so in their submissions on 25 August 2017, and would have stated why that was so. They did not do so. Rather, in the receivers’ submissions at [22]-[24], [35] and [36] the receivers’ set out the legal and factual matters that, in their view, established the existence of bailments for an indefinite term. GSTC, in its submissions, responded to those matters by reference to the evidence that it had previously filed.

12.    The receivers complain that GSTC did not cooperate in the preparation of a statement of agreed facts. Because of the absence of pleadings, GSTC asked the receivers, on about 18 August 2017, to provide it with a statement of the material facts on which it relied. The receivers did not do so. The issue was agitated by Counsel for GSTC at the directions hearing on 28 September 2017. At the commencement of the final hearing, Counsel for the receivers handed up a version of a statement of facts that had been provided to GSTC at 7:20pm on the eve of the hearing. A different version had been provided earlier on the eve of the hearing, at about 1:30pm. Both versions were documents that advocated the receivers’ position, rather than being statements of neutral fact. Many of the statements of ‘fact’ directly contradicted GSTC’s evidence, or stated conclusions of fact or law favourable to the receivers’ case. GSTC could not, in the circumstances, and in the few hours it had to consider the statement of facts, make the wholesale changes that would have been necessary for it to be an agreed and neutral document.

13.    In any case, despite the obligations imposed on a receiver bringing a s 424 application, and despite the legal onus borne by the receivers, the receivers filed very little admissible evidence to put before the Court the true and full position concerning the arrangements by which the Equipment came to be at the premises. Most of that evidence was supplied by GSTC.

14.    The receivers complain that it was agreed between the parties that the s 424 procedure was satisfactory. This is not correct. But in any case the appropriateness of a direction under s 424 is a question of law for determination by the Court. It is not a matter that can be determined by agreement.

…

15.    The receivers submit that the filing of GSTC’s originating process was unnecessary. GSTC cannot be criticised for seeking an order that is merely consequential on the dismissal of the receivers’ application. GSTC did not know what position the receivers would adopt, in the event of their application being unsuccessful, and wished to put the matter beyond doubt.

16.    The mere filing of GSTC’s originating process did not change the true nature of the proceedings into ordinary adversarial proceedings. The substance of the proceedings remained the same, which was that the receivers wished to sell GSTC’s Equipment and were seeking the Court’s protection in order to do so.

…

17.    GSTC does not take issue with the receivers’ submission that they acted reasonably in the proceedings.

18.    But the receivers took a far-reaching approach when identifying property that, in the view of the receivers, had vested in the Company.

19.    The evidence suggests that the receivers decided that all of the Equipment vested in the Company without any investigation or analysis at all. The correspondence annexed to the affidavit of Mr Shepherd dated 9 August 2017 shows that the issue of the ownership of the ‘GSTC equipment’ was raised with the receivers on about 3 July 2017 (see the email at the bottom of p 146 of Mr Shepherd’s affidavit). Mr Kossen, for the receivers, responded on the same day asserting that all of the property in the possession of the Company had vested pursuant to s 267 of the Corporations Act (see the email at the top of p 146 of the affidavit of Mr Shepherd). There is no apparent basis on which the receivers could have formed such a view about all of the property in its possession.

20.    The approach taken by the receivers to the application of s 267 to the property located at the Company premises bears no resemblance to the careful, considered investigation that was undertaken by the receivers in Re Acarbi Pty Ltd [2014] WASC 310. In that case, once the receivers understood the nature of the business conducted by Arcabi, they undertook extensive investigations to determine what property was owned by Arcabi and what property was owned by the ‘investors’ and developed a detailed understanding of the relationship between the investors and Arcabi in relation to the property (see Re Arcabi at [5], [16], [17], [18]).

21.    It may be that, if the receivers had taken a similar, considered, approach, the issues the subject of their originating application would have been fewer.

18    I broadly accept the submissions made on behalf of GSTC and consider this is an appropriate case in which an indemnity costs order should be made.

19    In the same way as in Gothard, in the matter of AFG Pty Limited (Receivers and Managers appointed) (in liq) v Davey (No 2) [2011] FCA 59, where the Court (Edmonds J) treated the matter then before the Court effectively as an application for directions, notwithstanding that the parties had filed separate proceedings in order to obtain final relief, I consider the same approach should be adopted here.

20    While the different backgrounds to the matters finally in dispute before the Court provided by the parties, above, have endeavoured to apportion some measure of blame to the other for making the matter more legally complex or factually complex than it needed to be, I consider GSTC were a proper and necessary party in the proceedings and that, but for the steps taken by GSTC in placing evidence before the Court, the matter could not have been adequately resolved, at least in the way that it was. I do not consider the issues said to have converted the proceedings into adversarial proceedings, such that a different approach to the exercise of the costs discretion is warranted, are made out.

21    Because, as in Gothard, this is a case where it was proper for the receivers to obtain a court resolution of an important matter in dispute, the issues raised, if not novel, were of some complexity and, indeed, of some importance both to the receivers and to GSTC. Some level of contestation was perhaps inevitable. GSTC virtually had no alternative but to take the steps they took.

22    It would not be right in these circumstances if GSTC were only entitled to recover some of their costs for the action they have been obliged to take. They should be indemnified, therefore, for their reasonable costs.

23    In those circumstances, I will order that the reasonable costs of the parties be paid out of the receivership on an indemnity basis.

Associate:

Dated:    21 September 2017