FEDERAL COURT OF AUSTRALIA

Preston, in the matter of Sandalwood Properties Ltd (No 2) [2018] FCA 816

ORDERS

THE COURT ORDERS THAT:

1.    The intervener do pay the plaintiff's costs assessed in the amount of $66,532.80 plus GST.

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

REASONS FOR JUDGMENT

COLVIN J:

1    The Receivers appointed to Sandalwood Properties Ltd (Administrators Appointed) (Receivers and Managers Appointed) (SPL) sought judicial advice pursuant to s 424 of the Corporations Act 2001 (Cth). The advice concerned the provision of services under lease and management agreements entered into by SPL as part of the arrangements for two managed investment schemes (agreements). The schemes were to establish sandalwood plantations near the Ord River in Kununurra, Western Australia. The participants in the schemes were referred to as Growers.

2    SPL sought advice to the effect that (a) the Receivers may ignore notices which had been given by one Grower which purported to terminate the appointment of SPL as manager under the agreements; (b) the Receivers may ignore resolutions appointing Sandalwood Growers Co-op Ltd (SGCL) as the new manager; and (c) the Receivers cause SPL to continue to perform the role of manager and provide the services the subject of the agreements.

3    SGCL intervened in the proceedings to oppose the making of any directions by way of judicial advice. Amongst other things it said that the directions concerned the making of a commercial decision, there was a broader commercial dispute with the Growers that would not be resolved by the making of directions, the only real issue was about the proper construction of the agreements and the construction relied upon by the Receivers was doubtful and the Court should not give its imprimatur to SPL continuing as manager where the Growers had voted overwhelmingly in favour of removal of SPL as manager. There was also a submission made as to the appropriate form of directions if they were to be made.

4    Having regard to the nature of the matters raised and the manner in which they were presented for SGCL, its participation in the hearing was as a party seeking to advance what it considered to be the commercial interests of the Growers who were its members. Significantly, it did not confine its submissions to the main legal issues that were relevant to whether the Receivers were justified in continuing to manage under the agreements. Rather, the main thrust of the submissions advanced by SGCL was to the effect that there was a commercial dispute between the Receivers and the Growers and the court should not intervene in the midst of that adversarial battle in a manner that may be commercially advantageous for the Receivers over the Growers.

5    I made directions to the effect that SPL was justified in performing the role of manager and providing services under the agreements: Preston, in the matter of Sandalwood Properties Ltd [2018] FCA 547. I did not accept that the contentions raised by SGCL were reasons why I should decline to provide the directions sought. I did accept arguments advanced by SGCL as to the form of orders.

6    I now consider the appropriate costs orders.

Competing positions of the parties

7    At the conclusion of argument on the application for directions, I reserved my decision and directed that the parties inform the court as to the amount of costs that the party would seek in the event that the outcome of the hearing was determined favourably to the party and costs were assessed on a lump sum basis. I also directed that the parties provide short submissions on the question whether a lump sum order should be made and, if so, whether it should be made by reference to the lump sum amounts notified by the parties.

8    The Receivers filed submissions to the effect that, if successful, they would seek a lump sum order for costs in an amount of $111,207 payable by SGCL, alternatively if the costs order was limited to additional costs associated with the participation of SGCL in the court proceedings then a lump sum order in the amount of $14,393 was sought. Particulars of actual costs incurred for solicitors and counsel were provided to support these amounts and a discount of 25% was applied to the actual solicitors' costs.

9    SGCL filed submissions to the effect that if it was successful it would seek a lump sum order for costs payable by the Receivers in an amount of $51,965.94 being 70% of the actual costs that it incurred for solicitors and counsel.

10    After delivery of my reasons, I made orders allowing the parties to make further submissions as to the form of order that was appropriate having regard to matters addressed in my reasons.

11    The Receivers maintained the submissions they had made previously. SGCL submitted that the appropriate order should be that the costs of the Receivers and SGCL should be paid out of funds in the hands of the Receivers on an indemnity basis (alternatively on a lump sum basis in the amount of $65,000 for the Receivers and $52,269 for SGCL).

12    All the amounts for costs as stated by the parties exclude GST.

13    For the following reasons, SGCL should pay the costs of the Receivers fixed in the amount of $66,532.80 plus GST.

Costs are discretionary

14    The award of costs is discretionary: s 43 of the Federal Court of Australia Act 1976 (Cth). The discretion to award costs is unconfined, but must be exercised judicially, that is according to relevant considerations and taking account of the contextual features and facts of the litigation: Kazar (Liquidator) v Kargarian; Re Frontier Architects Pty Ltd (in liq) [2011] FCAFC 136; (2011) 197 FCR 113 at [4]. Settled principle guides the exercise of the discretion: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [38]. Generally, the discretion is exercised in favour of the successful party: Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at [25].

Settled principles concerning costs in cases of judicial advice

15    In Farrow Finance Co Ltd (in liq) v ANZ Executors & Trustee Co Ltd (1997) 23 ACSR 521, an application by a liquidator for directions was upheld, but the substantive submissions advanced by the liquidator were not (described as being right for the wrong reasons): at 526. In that case, Hansen J stated the general principles to be applied as to costs upon an application by a liquidator for directions in the following terms at 526-527:

Where the application is necessitated only by the stand taken by one particular creditor, or a certain group of creditors acting only in their own interest, and the question involved is not a complex one, then costs should generally follow the event. In other words, if the position which the liquidator always intended to adopt is vindicated, and the submission of the opposing creditors is rejected, then those creditors should be liable for the liquidator's costs of the application. …

On the other hand, 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 liquidator and counted as costs in the liquidation.

16    These principles have been applied by other single judges, including in the context of applications for directions by receivers: Re New Cap Reinsurance Corp Holdings Ltd [2001] NSWSC 1001; Ansett Australia Ltd v Ansett Australia Ground Staff Superannuation Plan Pty Ltd [2002] VSC 114; and Gothard, in the matter of AFG Pty Ltd (Receivers and Managers Appointed) (in liq) v Davey (No 2) [2011] FCA 59.

17    However, in BE Australia WD Pty Ltd v Sutton [2011] NSWCA 414 at [212]-[214] Campbell JA (McColl JA agreeing) stated:

In my view, there is no occasion to make a costs order by reference to any principle other than that costs follow the event. In form, the litigation in the court below was an application by Ms Sutton appealing against the rejection of her proof of debt, or alternatively seeking an order under s 447A. Even though she ultimately did not press the appeal against rejection of her proof of debt, the question of whether she was a creditor was an integral part of considering whether it was appropriate to make an order under s 447A.

The form of the proceedings, as inter partes litigation, is not decisive of how the costs of that litigation should be dealt with. Courts exercising equity jurisdiction encounter a variety of situations where a fund is being administered subject to the control of the court, and a question arises about the proper manner in which that fund should be administered. Such a situation can arise concerning administration of deceased estates, concerning administration of trusts, concerning company liquidations, concerning administration of the estates of incapable people, and concerning DOCAs. In those situations, whether the costs of the court deciding the question that has arisen should be treated as costs of administration of the fund is significantly influenced by whether the proceedings are in substance adversarial ones. While where the costs should fall in litigation is always a matter of discretion, very commonly costs are paid from the fund for non-adversarial proceedings, and by the loser for adversarial proceedings [citations omitted]

The principles that Hansen J stated in Farrow Finance v ANZ … and that Warren J adopted in Re Ansett Australia are, with respect, very shallowly rooted in principle and authority. While it is true that in Re GPI Leisure Corp Ltd (in liq) (1994) 53 FCR 365 … Whitlam J made an order, on a liquidator's application for directions at which interested parties also appeared, for the costs of all parties to be paid out of the assets of the company, his Honour gave no reason for taking that course, and indeed it is not even clear from the judgment whether there was any contest about the appropriate order for costs. Hansen J's judgment in UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (unreported, SC(Vic), 19 July 1996) stated no general principle, and made an order for costs by reference to detailed consideration of the facts relating to the conduct of the particular litigation he was deciding. I do not find in those cases a reason to depart from the guidance arising from Re Buckton and to other cases I have mentioned concerning the way the costs of the present application should fall. Both the hearing in the court below and the appeal and cross-appeal were in substance adversarial litigation. The costs should follow the event.

18    In other cases, courts have approached the issue of costs on an application for directions by applying the ordinary rule as to costs where a trustee, beneficiary or personal representative brings an action relating to the construction of the trust instrument or some other issue arising in the administration of the trust or the propriety of any action taken or to be taken. In such cases it is usual for orders to be made for the costs to be paid out of the trust, fund or estate on an indemnity basis: see, for example, the authorities collected by Finkelstein J in Australian Securities and Investment Commission, in the matter of GDK Financial Solutions Pty Ltd (in liq) v GDK Financial Solutions Pty Ltd (in liq) (No 4) [2008] FCA 858; (2008) 169 FCR 497 at [8]-[10].

19    Where the application for directions concerns a subject matter that must be resolved as part of the administration of a receivership such that the costs may be viewed as costs of the receivership, then that is a matter that may warrant the costs of a party being fully indemnified out of the assets in the hands of the receivers. This is especially so where a party's participation has been, in effect, as a proper contradictor and the proceedings do not have the character of true adversarial litigation: as to these matters see Gothard v Davey (No 2) at [55]-[57]. Also relevant may be the approach taken by receivers on the application and the extent to which they took a considered approach to the issues raised on the application for directions: Bredenkamp v Gas Sensing Technology Corporation, in the matter of Welldog Pty Ltd (In Liq) (Receivers and Managers Appointed) (No 2) [2017] FCA 1125.

20    Therefore, if a party's participation is adversarial in the sense that it goes beyond that which is necessary in order to present the facts and address the issues so as to enable the court to provide advice for the purposes of the administration being conducted (in this case the receivership) then the approach to costs that applies to adversarial litigation should be applied. This is all the more so where the intervener participates to agitate a claim or position that has arisen from steps taken by the intervener.

21    On the other hand, if a party participates as a proper contradictor solely for the purpose of assisting the court in addressing the issues necessary to provide proper and appropriate judicial advice to the party seeking directions, then the approach to costs on applications concerning the administration of a trust, estate or fund should be applied. In such cases it is usual for all parties properly participating to be entitled to their costs on an indemnity basis paid out of the trust, estate or fund on the basis that they are costs of due administration.

22    Further, having regard to the views expressed by the Court of Appeal in BE Australia WD Pty Ltd v Sutton, the proper approach does not depend upon whether the issue raised is a complex one. Costs on an application for directions that raise complex matters that are dealt with in an adversarial way should be dealt with according to the principle that generally the discretion as to costs is to be exercised in favour of the successful party.

23    Also, in an appropriate case, where directions by way of judicial advice are sought and the matter is not complex, a party who appears to oppose the directions in a manner that is not adversarial may nevertheless be exposed to the risk of a costs order. This is because, in such a case, the proper administration of the receivership is not advanced by a party who intervenes where the issue is relatively simple, and the issue can be dealt with by the court without the assistance of a proper contradictor. I take this to be the thrust of the concern behind the general principles stated by Hansen J in Farrow Finance which I have quoted above.

24    For completeness, I note that none of these principles bear upon the extent to which the party seeking advice may recover the costs of seeking directions (including any costs awarded against that party) from the trust, estate or fund being administered. That is an issue which does not arise here.

25    I now turn to the application of these principles in the particular circumstances of the present case.

Relevant considerations in this case

26    The Receivers sought directions from the court because the Growers claimed that SPL had been removed as manager under the agreements. SGCL intervened in the proceedings to advance the position that had been pressed upon the Receivers by the Growers. In those circumstances, SGCL came before the court on behalf of the Growers who were its members.

27    Further, this was not a case where the Receivers sought directions in respect of an issue that was present at the time of their appointment and therefore necessarily a part of the issues to be addressed in the receivership. Rather, it arose from steps taken by Growers in agitating a right to remove SPL as manager under the agreements.

28    In those circumstances, the proceedings were adversarial. They concerned the competing positions as between the Receivers and the Growers in respect of the ongoing management of the schemes based on the notices and the meetings. SGCL submitted that there should be no directions because the dispute should be resolved by proceedings between the relevant parties. Indeed, a submission was advanced that any direction should be made on condition that the Receivers cause SPL to commence proceedings seeking appropriate relief as to the position that it maintained in relation to the notices and the meetings of Growers. Further, as I have already stated, SGCL advanced contentions based on the commercial interests of the parties rather than what was best for the administration of the receivership. Its case was not confined to the merits of the issue of interpretation of the relevant provisions of the agreements.

29    For those reasons, the present case is to be contrasted with one where parties with an interest in a trust or fund that is being administered intervene to assist the court in resolving complex legal issues as to the administration of the trust or fund.

30    Further, the proceedings were only required because of action taken in relation to the service of the notices and convening the meetings of Growers which was supported by SGCL. This was not a case where there was uncertainty as to the meaning of the agreements that arose independently of the conduct of the parties.

31    It is the case that there were complexities in the issues that were raised as to the meaning of the agreements when it came to the termination of SPL as manager. Each party filed extensive written submissions and oral argument occupied a number of hours. The extent of costs incurred by the parties reflects the complexity. However, even though there were difficulties in the construction issues that were raised, the underlying question was whether it was appropriate for the Receivers to proceed to tend to the sandalwood trees and otherwise provide services under the agreements in the course of the receivership. The position of SGCL was not confined to the practicalities faced by the Receivers in those circumstances where steps needed to be taken with some urgency.

32    Finally, the only issue upon which SGCL had any success was as to the form of orders that should be made. Nevertheless, this was an issue of some significance because it required the court to consider the precise extent of any judicial advice.

33    SGCL relies upon three decisions of this court in which orders were made for costs to be paid out of the receivership.

34    First, SGCL points to White v Huxtable [2006] FCA 559. The directions sought in that case by the receivers and managers of a company were opposed by the directors. Ultimately the relief sought was revised and the revised form of relief was not opposed by the directors: at [4]. In that context, the court made an order that the costs of the directors be paid out of the funds in the hands of the plaintiffs in their capacity as receivers and managers. The present circumstances must be distinguished. This is a case where the proceedings had an adversarial character by reason of the underlying dispute generated by the actions of the Growers. Further, it is not a case where the directions ultimately made were not opposed by SGCL. It maintained its opposition to the making of directions throughout.

35    Second, SGCL relies on Gothard v Davey (No 2). Those proceedings were commenced as an application by receivers and managers for directions. However, they were amended to include an application for declaratory relief. There was a trial of the matter over six days. The context in which costs orders were made in that case is readily distinguished from the present.

36    Third, SGCL relies on Bredenkamp v Gas Sensing Technology Corporation. That too was a case where proceedings were commenced as an application for directions but then were transformed into a contested application for declaratory relief, in that instance concerning the ownership of certain property that the receivers were seeking to sell. In considering the appropriate order as to costs, Barker J found that the different form of relief did not convert the proceedings into adversarial proceedings. The defendant to the proceedings submitted that the proceedings remained proceedings to protect the receivers and were in that category of case where the costs of determining the issues as to ownership were part of the costs of the receivership. This submission was upheld: at [18]. Barker J found that the defendant was a necessary and proper party and that, but for the steps that it took in placing evidence before the court, the matter could not have been adequately resolved in the way it was. Further, his Honour found that the conduct of the defendant in raising these matters did not turn the proceedings into adversarial proceedings such that a different approach to the exercise of the costs discretion was warranted: at [20].

37    For reasons I have given, in my view the proceedings in the case were adversarial in nature. They involved a contest between competing positions that arose from actions taken by the Growers through SGCL to assert that the appointment of SPL as manager under the agreements had been terminated in the course of the receivership. Further, the submissions advanced by SGCL were substantially to the effect that no directions should be made because the matter should be allowed to proceed solely on the basis of contested proceedings which SGCL urged the court to require the Receivers to commence.

38    This is not a case where all parties were each doing there bit to bring before the court an issue that had arisen in the course of the receivership and independently of the actions of the parties so that judicial advice might be provided to guide the administration. The intervention by SGCL was to raise an adversarial position.

39    For those reasons, SGCL is to be viewed as an unsuccessful party and the usual order as to costs should follow.

Quantum

40    As to the quantum of costs, both parties have submitted throughout that there should be a lump sum assessment of any costs. There should be some reduction of the costs awarded to be met by SGCL to reflect the fact that the Receivers did alter the form of directions that they sought and ultimately part of the directions they sought were refused.

41    The amounts sought by the Receivers on a lump sum basis if they were successful are more than double those sought by SGCL ($111,000 for the Receivers and $51,000 for SGCL). Having regard to the level of costs incurred by SGCL (taking account of the fact that SGCL did not have the carriage of the application and therefore may be expected to incur less costs than the Receivers) and the fact that otherwise the parties were both represented by senior and junior counsel at the hearing, both parties filed affidavit material and both parties were required to address similar issues by written and oral submissions, I consider that it is possible to make a broad comparison for reasonableness between the two amounts submitted.

42    Given the extent of the differential, I would apply a greater reduction to the costs of the Receivers than they propose (being 25% confined to solicitor's costs). The level of costs incurred by SGCL in undertaking a similar forensic task is an important factor when assessing reasonableness.

43    The total of the costs actually incurred by the Receivers was $138,610. Applying an overall reduction of 40%, which I consider appropriate given the differential in costs, produces a result of $83,166. I would then allow a further reduction of 20% to allow for the fact that the Receivers were not wholly successful producing an amount of $66,532.80.

44    Therefore, I would assess the costs to be paid by SGCL on a lump sum basis in the amount of $66,532.80 plus GST.

Associate:

Dated:    1 June 2018