FEDERAL COURT OF AUSTRALIA

Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 6) [2020] FCA 928

ORDERS

THE COURT ORDERS THAT:

1.    The application for costs and other orders be adjourned for submissions (if any) on the form of the proposed orders as set out in [119] of the reasons delivered this day to Thursday, 9 July 2020 at 9.15 am.

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

REASONS FOR JUDGMENT

BESANKO J:

Introduction

1    These reasons address the issue of costs in a proceeding in the Court and the issue of the right of indemnity of deed administrators who were parties to the proceeding. The proceeding was commenced on 17 January 2018 and it involved a number of complex legal and factual issues. Various disputes arose in the course of the interlocutory stages of the proceeding and I delivered reasons and made orders in relation to those disputes (Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) [2018] FCA 315; Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 2) [2018] FCA 1003; Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 3) [2018] FCA 1058). The proceeding came on for trial and the trial extended over a period of 20 sitting days. I delivered reasons for judgment on 12 November 2019 (Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 4) [2019] FCA 1846 (the substantive reasons)) and I made orders that the plaintiff file and serve draft minutes of order which reflected the conclusions expressed in those reasons and contain such other orders as it sought on or before 9.30 am on 13 November 2019, and that the matter be adjourned to that date at 4.30 pm for the making of final orders. I heard submissions on the final orders which should be made, other than as to costs, and I made final orders on 19 November 2019 and delivered reasons for those final orders (Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 5) [2019] FCA 1914 (the reasons for the final orders)).

2    The issue of costs remains outstanding. The right of indemnity of the deed administrators is also an issue.

3    These reasons should be read with the substantive reasons and the reasons for the final orders. In these reasons, I will describe the parties in the same way in which I did in the substantive reasons, save and except for the fact that I will refer to the second and third defendants, Mr Cantone and Mr Cooper, as the deed administrators. I do that because the costs which are in issue, and which are the subject of these reasons, are costs incurred during the role of the second and third defendants as deed administrators.

4    On 13 November 2019, I made various orders designed to facilitate the resolution of outstanding issues as to costs. As will become apparent from the chronology of events set out below, the issue of costs has been complicated by a number of matters.

The Matters which have arisen in relation to the Issue of Costs

5    The relief sought in the Originating Process whereby this proceeding was commenced is set out in the substantive reasons (at [15]). Among the types of relief sought are costs and such further or other order as the Court thinks fit. The Originating Process does not contain an express claim for relief directed to the deed administrators’ right of indemnity with respect to any costs orders made against them, or in respect of their own costs. The deed administrators submit that that is significant and it is a point to which I will return.

6    The procedural orders I made on 13 November 2019 culminated in an order that the issue of costs be adjourned to 11 December 2019 for oral submissions.

7    ABCL’s Written Submission on Costs is dated 22 November 2019. ABCL seeks the following orders as to costs:

(1)    The six defendants to the proceeding pay ABCL’s costs of the proceeding, to be taxed if not agreed. In the alternative, ABCL submits that it ought to be awarded its costs of the Debt Claim and of the DOCA Claim on an indemnity basis. The nature of these claims is described below (at [37]–[44]).

(2)    The directors pay Concrete Supply’s costs of and incidental to the proceeding, including Concrete Supply’s liability to ABCL under Order (1).

(3)    The deed administrators’ costs of and incidental to the proceeding, including their liability to ABCL under Order (1), be paid by them without recourse to the assets of Concrete Supply.

8    ABCL’s application for costs was supported by an affidavit of Mr Patrick Leader-Elliott affirmed on 22 November 2019. Mr Leader-Elliott is a senior associate employed by the firm, Lipman Karas. Lipman Karas acts for ABCL in this proceeding. Subject to one qualification, Mr Leader-Elliott’s affidavit was received and he was not required for cross-examination. The qualification is that paragraphs 5 to 8 inclusive of his affidavit were received as submissions and not as evidence.

9    The deed administrators’ Written Submission on Costs is dated 2 December 2019. They oppose the costs orders sought by ABCL. In their written submission, the deed administrators submit that no order for costs should be made against them. At the hearing of submissions as to costs on 11 December 2019, they conceded that an order that they pay ABCL’s costs with respect to the DOCA Claim was appropriate, subject to the qualification that the order for costs be limited to the assets of the company. The form of the order they proposed is the same as the form of the order made by Greenwood J in Deputy Commissioner of Taxation v BE100 Property Investments Pty Ltd [2016] FCA 597 (Deputy Commissioner of Taxation v BE100 Property Investments) and the deed administrators submit that it is the appropriate order in this case. The deed administrators also seek an order that their costs of and incidental to the proceeding be paid out of the assets of Concrete Supply. It is important to note the scope of the order the deed administrators seek. It relates to the costs of the proceeding and does not relate to their remuneration and it does not relate to costs incurred prior to the commencement of the proceeding.

10    The deed administrators filed an affidavit in support of their application for costs and in opposition to ABCL’s application for costs. It is an affidavit of Mr Samuel Black sworn on 2 December 2019. Mr Black is a partner in the firm, O’Loughlins Lawyers. They are the lawyers for the deed administrators. Mr Black was not required for cross-examination.

11    The Concrete Supply defendants’ Submissions on costs are not dated, but were filed on 2 December 2019. The Concrete Supply defendants are the company and the directors. At that point in time, Crawford Legal continued to act for the company as well as the directors. The final orders I made on 19 November 2019 included an order that the Deed of Company Arrangement executed on 21 December 2017 (the DOCA) be terminated pursuant to s 445D of the Corporations Act 2001 (Cth), and an order that Messrs Martin Lewis and David Kidman be appointed as joint and several liquidators of the first defendant. However, I also made an order that those orders be stayed until 17 December 2019.

12    The Concrete Supply defendants oppose the orders for costs sought by ABCL. The orders as to costs which they submit are appropriate are as follows:

(1)    Concrete Supply pay the party and party costs of ABCL in respect of those aspects of the proceeding to which Concrete Supply pleaded in its Defence, being the Debt Claim, the DOCA Claim and the claim for a contravention of s 286 of the Corporations Act. The Concrete Supply defendants submit that the ambit of the dispute as to costs between them and ABCL on these issues is limited to whether costs should be awarded on an indemnity basis.

(2)    The director defendants be paid their costs of the Misleading or Deceptive Conduct Claim and the Breach of Trust Claim on a party and party basis. These claims are described below (at [37]–[44]). The Concrete Supply defendants submit that the ambit of the dispute as to costs between the directors and ABCL is as follows:

(a)    whether ABCL should be liable to pay their costs, or whether the directors should pay ABCL’s costs on an indemnity basis (or at all) despite ABCL being unsuccessful; and

(b)    whether the directors should indemnify Concrete Supply for its unsuccessful defence of the claims against Concrete Supply.

(3)    The costs awarded against the deed administrators should be paid from their own resources and not from the Deed Fund, and that as between Concrete Supply and the deed administrators, there should be an apportionment or, alternatively, a contribution, for those costs on the basis that the deed administrators pay 75% of the costs awarded in favour of ABCL in respect of the Debt Claim, the DOCA Claim and the claim for a contravention of s 286 of the Corporations Act or (and it is not entirely clear) simply in relation to the DOCA Claim.

13    The Concrete Supply defendants’ application in respect of costs is supported by an affidavit of Mr Mark Jackson affirmed on 2 December 2019. Mr Jackson is a partner of Crawford Legal and he has had the day-to-day conduct of this proceeding on behalf of the Concrete Supply defendants. The Concrete Supply defendants’ application with respect to costs is also supported by an affidavit of Mr Albert D’Alessandro sworn on 29 November 2019. At that time, Mr D’Alessandro was the chief financial controller of Concrete Supply. He was a witness at the trial and is referred to in the substantive reasons in a number of places and, in particular, at [498]–[541]. Neither Mr Jackson nor Mr D’Alessandro were required for cross-examination.

14    The deed administrators’ Written Submissions Inter Se On Costs are dated 9 December 2019. A point to note, for reasons which will become clear, is that those submissions include a submission by the deed administrators that the contention by both ABCL and the Concrete Supply defendants that the deed administrators’ costs are not to be recovered from Concrete Supply has no foundation in the case as pleaded or presented. In a footnote to that submission, the deed administrators assert that there is no pleaded relief to the effect sought by ABCL against the deed administrators that they be denied their indemnity according to statute or the DOCA and they refer to both the Originating Process and the Statement of Claim.

15    ABCL’s Reply Submission on costs is dated 9 December 2019.

16    The parties were heard in support of their submissions as to costs on 11 December 2019. One matter arose in the course of those submissions which I must address.

17    In the course of its submissions, ABCL referred to the decision of Austin J at first instance in Cresvale Far East v Cresvale Securities (No 2) [2001] NSWSC 791; (2001) 39 ACSR 622 (Cresvale Far East). The deed administrators referred to the decision of the Court of Appeal in the same case: Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; (2002) 44 ACSR 21 (Kirwan v Cresvale Far East) and in the course of their submissions, asked me to note that s 447E(1) of the Corporations Act, upon which Austin J had relied to make certain orders with respect to the deed administrator’s right of indemnity, had been repealed. This prompted counsel for ABCL to seek leave to make a short submission tracing the legal basis for challenging the deed administrators’ right of indemnity. I made an order that each party had leave to file and serve written submissions relevant to the legal basis for the challenge to the administrators’ right of indemnity limited to one page by 4 pm on 13 December 2019.

18    ABCL’s Supplementary Written Submission on Costs is dated 12 December 2019. In those submissions, ABCL submits that this Court has the power to make the third costs order it seeks under s 90-15 of the Insolvency Practice Schedule (Corporations) 2016; and/or under s 43 of the Federal Court of Australia Act 1976 (Cth). It submits that, although the deed administrators are correct to say that s 447E had been repealed, the point is an arid one. Section 90-15 is in Sch 2 to the Corporations Act which is the Insolvency Practice Schedule (Corporations). Section 600K of the Corporations Act provides that Sch 2 has effect. Section 600K came into effect on 1 March 2017. It is convenient at this point to set out the relevant provisions of s 90-15:

90-15 Court may make orders in relation to external administration

Court may make orders

(1)    The Court may make such orders as it thinks fit in relation to the external administration of a company.

Orders on own initiative or on application

 (2)    The Court may exercise the power under subsection (1):

(a)    on its own initiative, during proceedings before the Court; or

(b)    on application under section 90-20.

Examples of orders that may be made

(3)    Without limiting subsection (1), those orders may include any one or more of the following:

(a)    an order determining any question arising in the external administration of the company;

(b)    an order that a person cease to be the external administrator of the company;

(c)    an order that another registered liquidator be appointed as the external administrator of the company;

(d)    an order in relation to the costs of an action (including court action) taken by the external administrator of the company or another person in relation to the external administration of the company;

(e)    an order in relation to any loss that the company has sustained because of a breach of duty by the external administrator;

(f)    an order in relation to remuneration, including an order requiring a person to repay to a company, or the creditors of a company, remuneration paid to the person as external administrator of the company.

…

Costs orders

(5)    Without limiting subsection (1), an order mentioned in paragraph (3)(d) in relation to the costs of an action may include an order that:

(a)    the external administrator or another person is personally liable for some or all of those costs; and

(b)    the external administrator or another person is not entitled to be reimbursed by the company or its creditors in relation to some or all of those costs.

Orders to make good loss sustained because of a breach of duty

(6)    Without limiting subsection (1), an order mentioned in paragraph (3)(e) in relation to a loss may include an order that:

(a)    the external administrator is personally liable to make good some or all of the loss; and

(b)    the external administrator is not entitled to be reimbursed by the company or creditors in relation to the amount made good.

Section does not limit Court’s powers

(7)    This section does not limit the Court’s powers under any other provision of this Act, or under any other law.

19    The deed administrators’ Supplementary Submissions are dated 13 December 2019. In those submissions, the deed administrators submit that ABCL’s supplementary submissions on costs dated 12 December 2019 seek to do more than is permitted by the grant of leave. They submit that to the extent the Court has regard to the further submissions of ABCL, the following matters should be considered as well:

3.    …

(b)    The removal or denial of the Administrator Defendants’ statutory and contractual rights of indemnity are not “cost orders”. They are special orders that should have been pleaded and, then, proved to have been engaged in this case. To the extent that this is described as a “recent invention” of the Administrator Defendants, that evidentiary concept is of no relevance at this point in the proceedings and, in any event, cannot obviate the plaintiff’s obligation to have identified the source of power it relies upon and the justification for its application to both the Administration and the DOCA;

(c)    The Administrator Defendants accept that the Court has power under s 90-15 to make wide ranging orders about an external administration. We note that the Act defines “administration” and “administrator”, but not “external administration” or “external administrator”. The latter two definitions are contained in sections 5-15 and 5-20 respectively of the Schedule;

…

I consider the effect of these submissions below.

20    After I had reserved my decision, and upon considering the matter, it seemed to me that it might be appropriate to apportion costs between the parties and between the issues. The parties had not addressed those issues, or at least had not addressed them at any length. In those circumstances, I decided to give the parties the opportunity to make further written submissions on the following matters:

1.    An appropriate division in percentage terms of the costs of the issues relating to the Deed of Company Arrangement on the one hand (the DOCA issues), and all other issues in the case, on the other (the non DOCA issues).

2.    With respect to the non DOCA issues, an appropriate division in percentage terms of the costs of the issues relating to the misleading or deceptive conduct and unconscionable conduct claim and the breach of trust or fiduciary duty claim on the one hand, and all other non DOCA claims on the other.

21    ABCL’s Further Submission on Costs is dated 31 January 2020. The deed administrators’ Supplementary Submissions on Apportionment of Costs are dated 21 February 2020. The directors’ Further Submissions on Costs are undated, but were filed on 21 February 2020. I say the directors’ Further Submissions on Costs because by that stage, the stay of the final orders which I had ordered had expired and the appointment of the liquidators had taken effect. The liquidators of Concrete Supply wrote to the Court indicating that they did not intend to put any position on behalf of Concrete Supply other than that they would abide by the orders of the Court.

22    The deed administrators’ Reply Submissions Apportionment of Costs, are dated 28 February 2020 and ABCL’s Reply Submissions on Costs are also dated 28 February 2020.

23    There were then two further issues which arose and they both relate to the deed administrators’ right of indemnity in relation to costs which they are ordered to pay another party and their own costs.

The Power of the Court to make an Order with respect to the Deed Administrators’ Right of Indemnity

24    As I will explain later in these reasons, the sources of the deed administrators’ right of indemnity against Concrete Supply in this case are the general law and the DOCA which was executed on 21 December 2017 by Concrete Supply, the deed administrators and the directors. The deed administrators also made reference to s 443D of the Corporations Act, but as I will explain, that section provides a right of indemnity to an administrator, and not to a deed administrator.

25    For the purposes of understanding the position of the respective parties, it is important to distinguish between a claim by deed administrators that they are entitled to be indemnified with respect to a costs order against them, and a claim by deed administrators that they are entitled to be indemnified with respect to their own costs. The third costs order sought by ABCL addresses both of these matters in the one order and seeks an order that has the effect that there is no right of indemnity with respect to these costs. By contrast, the two orders sought by the deed administrators separate the two types of liability. As I have said, the first order sought by the deed administrators is that ABCL’s costs order against them with respect to the DOCA be limited to the assets of the company. As I understand it, that raises an issue as to the deed administrators’ right of indemnity. It seems to me to be an order as to costs in the proceeding because it affects the costs which may be recovered by the successful party. That was noted by Greenwood J in Deputy Commissioner of Taxation v BE100 Property Investments in which, as I have said, his Honour made such an order. His Honour said (at [85]):

… That may well mean that the costs order is, in practical terms, of no particular value to the DCOT but it nevertheless reflects a principled approach to the exercise of the discretion in the circumstances of the case.

26    The second order sought by the deed administrators is, it will be recalled, that their costs of and incidental to the proceeding be paid out of the assets of Concrete Supply. That plainly raises an issue as to the scope or extent of the deed administrators’ right to an indemnity in the particular circumstances.

27    On considering the matter, I was concerned to understand the precise import of the particular submissions in paragraphs 3(b) and (c) of the deed administrators’ Supplementary Submissions dated 13 December 2019 and set out above (at [19]). In particular, I was concerned to understand the effect of the submission that the “removal or denial” of the deed administrators’ statutory or contractual rights of indemnity were not “costs orders” and the earlier complaint they made about the fact that ABCL did not seek relief in its pleadings to the effect that the deed administrators be denied their indemnity according to statute or the DOCA (see at [14] above). I was concerned to understand how these submissions were consistent with the fact that, on the face of it at least, the first order sought by the deed administrators was a costs order and raised an issue as to the deed administrators’ right of indemnity, and the second order sought by the deed administrators clearly raised an issue as to their right of indemnity.

28    In those circumstances, I called the parties back and asked the deed administrators to address me on these aspects of their submissions. Counsel for the deed administrators said that they do not contend that the Court did not have power to make the orders sought. Counsel submitted that it was only a question of fairness and that they had made their submissions about that. I take that to be a reference to the submission that an order denying the right of indemnity is not pleaded by ABCL. I said to counsel for the deed administrators that if he wished to make a submission that they should be given a further opportunity of some sort, then he would need to identify that. He did not make a submission to that effect.

29    Finally, in terms of matters affecting the issues of costs, I note that s 90-20 identifies the persons who may apply for an order under s 90-15 and that r 2.8(3) of the Federal Court (Corporations) Rules 2000 (Cth) provides as follows:

Notice of certain applications to be given to ASIC

(1)    This rule has effect in addition to the requirements of the Corporations Act that, in relation to a proceeding, particular documents are to be served on ASIC or notice of particular matters is to be given to ASIC.

(2)    This rule does not apply to a person making an application if the person is ASIC or a person authorised by ASIC.

(3)    Unless the Court otherwise orders, if a person makes an application under a provision of the Corporations Act mentioned in column 2 of an item of the following table, the person must serve on ASIC, a reasonable time before the hearing of the application, a copy of the originating process, or interlocutory process, and supporting affidavit in respect of the application.

30    I made a direction in chambers on 1 June 2020 to the following effect:

1.    The plaintiff within two days provide the Australian Securities and Investments Commission (ASIC) with the following:

  (a)    a copy of the Originating process;

(b)    notice of the orders sought by the various parties as set out in the respective submissions of the parties;

(c)    advice that notice is being given to ASIC because of the reliance placed on s 90 15 of the Insolvency Practice Schedule (Corporations);

(d)    a reference to the reasons that the Court delivered on 12 November 2019 and 19 November 2019 respectively;

(e)    notice that the submissions and affidavits on the costs applications will be provided upon request; and

(f)    notice that should ASIC wish to intervene, or take any other steps with respect to the application of the parties, then, among such other matters as may be necessary, it should provide advice to the Associate to the Honourable Justice Besanko at associate.besankoj@fedcourt.gov.au within 7 days of the notice.

The Australian Securities and Investments Commission has indicated that it does not propose to intervene on the topic of the costs of the proceeding or seek leave to appeal.

31    The power of this Court to award costs in all proceedings before the Court is contained in s 43 of the Federal Court of Australia Act. The award of costs is in the discretion of the Court or judge (s 43(2)). In my view, it must be within the jurisdiction of the Court to determine the order as to costs as between ABCL and the deed administrators. ABCL seeks an order that costs be paid by the deed administrators personally, while the deed administrators seek an order that their liability for costs be limited to the assets of the company. By its terms, the order sought by the deed administrators raises an issue as to the deed administrators’ right of indemnity against the assets of Concrete Supply. Therefore, an issue as to the deed administrators’ right of indemnity arises in the course of the Court’s exercise of its power as to costs.

32    In this case, the same result in terms of the deed administrators’ right of indemnity applies whether one is considering the costs the deed administrators are ordered to pay ABCL, or the deed administrators’ own costs. Whether that of itself gives the Court power under its power to make orders as to costs in relation to the deed administrators’ own costs may be debated, but in the circumstances, it is plainly convenient if both matters for which there will be one answer are considered at the same time. This Court has jurisdiction to determine whether the deed administrators are entitled to an indemnity in respect of their own costs under s 90-15 of Sch 2 of the Corporations Act. The examples of the orders that may be made under s 90-15(1) include an order determining any question arising in the external administration of the company and an order in relation to the costs of an action (including court action) taken by the external administrator of the company or another person in relation to the external administration of the company (s 90-15(3)(a), (d)). Section 90-15(5) provides that an order under s 90-15(3)(d) in relation to the costs of an action may include an order that the external administrator and another person is personally liable for some or all of those costs and the external administrator or another person is not entitled to be reimbursed by the company or its creditors in relation to some or all of those costs. I should also record that ss 5-15 and 5-20 provide, among other things, that a company is taken to be under external administration if a deed of company arrangement has been entered into in relation to the company and a person is an external administrator of the company if the person is the administrator under a deed of company arrangement that has been entered into in relation to the company. In this case, a deed of company arrangement was entered into in relation to Concrete Supply and the deed administrators are administrators under that deed of company arrangement.

33    In summary, I have the power to determine whether the deed administrators have a right of indemnity with respect to the costs of the proceeding they are ordered to pay to ABCL by reason of the power I have to make orders as to the costs of the proceeding. If I am wrong about that, I have such power under s 90-15 in Sch 2 of the Corporations Act. I have the power under s 90-15 to determine whether the deed administrators’ right of indemnity extends to their own costs of the proceeding.

34    The deed administrators’ complaint that there has been a lack of notice by ABCL that their right of indemnity was challenged, and therefore unfairness to them, must be rejected for a number of reasons. First, the complaint is inconsistent with the very orders that the deed administrators now seek. Secondly, it is not clear to me that notice is required and that the correct position is not that the deed administrators need to ensure that their liabilities are properly incurred within the authorities which are discussed below. Thirdly, insofar as the deed administrators rely on the absence of notice in the Originating Process, that does not seem to be sustainable because the course of conduct that led to the costs had not at that point been undertaken. Fourthly, the deed administrators had the opportunity to put before the Court such evidence and submissions as they may be advised with respect to the challenge to their right of indemnity. Finally, it is relevant to note that the deed administrators were given notice by ABCL shortly prior to trial that there would be a challenge to their right of indemnity with respect to the costs of the proceeding.

35    The solicitors acting for ABCL wrote to all six defendants shortly prior to trial, namely on 28 November 2018, and said in relation to the deed administrators that they consider that the deed administrators “will be personally liable for the cost of defending the present litigation and all remuneration taken by them in connection with this administration together with disbursements paid by them will be ordered to be restored to the company”. The solicitors for ABCL went on to assert that if ABCL was successful and Concrete Supply was placed into liquidation, then all monies expended in connection with the DOCA would need to be restored to Concrete Supply for the benefit of its creditors. The solicitors sought confirmation from the deed administrators that they would not use any of Concrete Supply’s funds under their control to pay the costs of defending the action.

36    Further, I note that although after the trial, the solicitors for ABCL wrote to the solicitors for the deed administrators saying, among other things, the following:

Your clients were, on their own concession, participating in the litigation to justify their conduct and defend themselves against potential findings of misconduct or mal-administration. Their costs of doing so are personal costs and should be borne by your clients or by their professional indemnity insurers. The costs were not incurred for the benefit of the company, its administration or the deed administration so are not costs which can properly be imposed on the administration or deed administration.

Further and in any event, if (as we expect will be the case) the Court ultimately makes findings of serious misconduct against your clients, we are instructed to seek orders that your clients personally pay: (i) our client’s costs of the proceedings; and (ii) their own costs of the proceedings, without recourse to the assets of the company or the Deed Fund. If such orders are made it will render otiose the resolution which your clients have put to creditors.

Classification of ABCL’s Claims for Relief

37    In the substantive reasons, I organised ABCL’s claims as follows: (1) ABCL’s Claim in Debt (the Debt Claim); (2) Section 286 of the Corporations Act 2001 (Cth); (3) the Misleading or Deceptive Conduct Claim and Unconscionable Conduct Claim, and Breach of Trust or Fiduciary Duty Claim; and (4) ABCL’s Challenge to the Deed of Company Arrangement (the DOCA Claim).

38    As I have said, ABCL’s claims in the Originating Process are set out in the substantive reasons (at [15]).

39    The claim for relief in paragraph 9 relates to the Debt Claim.

40    The claim with respect to a contravention of s 286 of the Corporations Act is the claim in paragraph 10 and is a claim against Concrete Supply. The evidence relevant to this claim was part of the body of evidence relevant to the Debt Claim and part of the body of evidence relevant to the DOCA Claim and I do not consider that it ought to be treated as a separate claim for costs purposes. For convenience, I will refer to this claim as the Claim for a contravention of s 286 of the Corporations Act.

41    The Misleading or Deceptive Conduct Claim and the Unconscionable Conduct Claim are claims made against Concrete Supply and the directors as accessories to the company’s conduct (paragraphs 11 and 12). Very little was said by ABCL at trial in relation to the Unconscionable Conduct Claim and I think that can be put to one side and it is appropriate to focus on the Misleading or Deceptive Conduct Claim (see the substantive reasons at [576]). Although it was alleged that Concrete Supply was liable as principal and the directors as accessories, the force of the case was against the directors because the primary claim against Concrete Supply was the claim in debt (see, in the context of the Breach of Trust or Fiduciary Duty Claim, the substantive reasons at [701]).

42    The Breach of Trust or Fiduciary Duty Claim are also claims made against Concrete Supply and the directors as accessories in that they knowingly assisted in the breach by the company (paragraphs 13 and 14). For convenience, I will refer to this claim as the Breach of Trust Claim.

43    I will deal with the Misleading or Deceptive Conduct Claim and the Breach of Trust Claim together.

44    The DOCA Claim is the subject of paragraphs 2, 3, 4, 5, 6 and 7 of the Originating Process. ABCL had alternative routes to the destination it sought to reach, namely, the setting aside of the DOCA and an order that Concrete Supply be placed into liquidation. It was successful on those alternative routes (see the substantive reasons at [1398] and [1418]), but when it came to making final orders, I held that it was not necessary to make orders reflecting its success on each matter (see the reasons for the final orders at [25] and [26]). Plainly, that has no effect on the order for costs (Cresvale Far East at [9]) and I reject the contention of the deed administrators to the contrary (see the deed administrators’ Written Submission on Costs dated 2 December 2019 at para 7.5).

The Evidence on the Applications

45    In addressing the issues as to costs, I may rely on the knowledge I have obtained as the docket judge and then the trial judge in the proceeding. In addition, and as I have said, the parties tendered affidavits on the applications and it is to that evidence I now turn.

46    Mr Leader-Elliott addresses the following matters in his affidavit.

47    First, Mr Leader-Elliott said that he had reviewed the affidavit evidence filed by the parties and tendered at the trial, the parties’ written openings and closings, and the substantive reasons. He did so in order to allocate the paragraphs in those documents to the Debt Claim, the DOCA Claim, the Claim for a contravention of s 286 of the Corporations Act, the Misleading or Deceptive Conduct Claim and the Breach of Trust Claim. He reached certain conclusions as to relevance of the paragraphs to one or more of the four claims. His principal conclusions are as follows: (1) with one exception, all the affidavit evidence filed by the parties and tendered at the trial was relevant to one or both of the Debt Claim and the DOCA Claim; and (2) all the evidence went principally to the existence of the debt, the contested contention that Concrete Supply was entitled to a discount or rebate and the conduct of the administration and deed administration, subject to three comments he makes which I do not need to set out.

48    Counsel for the deed administrators objected to this evidence to the extent it went beyond submissions. It seemed to me that the “evidence” could not go beyond submissions and I received it and have had regard to it on that basis.

49    Secondly, Mr Leader-Elliott addresses an element in the proof of ABCL’s Debt Claim which ABCL contends should have been admitted by the Concrete Supply defendants well before it was admitted by them and which led, on ABCL’s case, to the unnecessary preparation of four copies of a Supplementary Tender Book comprising 27 lever arch folders. This is said by ABCL to be relevant to its alternative claim for indemnity costs in relation to the Debt Claim. The element in the proof of ABCL’s Debt Claim was the price payable calculated in accordance with the Bulk Supply Agreement and price increase letters for product delivered to Concrete Supply by ABCL between 1 August 2009 and 6 November 2017.

50    Before delving into the facts any further, it is convenient to identify with more precision the way ABCL seeks to deploy this conduct by the Concrete Supply defendants. In its alternative claim for indemnity costs in relation to the Debt Claim and the DOCA Claim and, in particular, the former, ABCL contends that the Concrete Supply defendants acted unreasonably in denying, up until the eve of trial, the quantum of the debt claimed by ABCL and, separately, that the Concrete Supply defendants were not candid in their evidence and Rino and Jason (in particular) falsely and dishonestly asserted a belief that Concrete Supply was entitled to a discount or rebate.

51    In their submissions, the Concrete Supply defendants addressed the alleged unreasonable denial by them of the quantum of ABCL’s Debt Claim from a different perspective. They attribute to ABCL a claim based on this submission for a specific costs order in respect of the printing of the invoices to prove the quantum of the debt and submit that ABCL printed the invoices without giving prior notice to them and that ultimately, and in any event, the invoices were not tendered at trial.

52    ABCL made it clear in its submissions in reply that its contention is that Concrete Supply directly, and the directors by causing Concrete Supply to act as it did, acted unreasonably, and therefore, should pay indemnity costs because, inter alia, they denied until the eve of the trial the value of cement received by Concrete Supply as pleaded by ABCL despite the fact that Concrete Supply’s own records supported ABCL’s contention. Furthermore, Concrete Supply did not admit the fact of the value of the cement despite having the opportunity to do that in its Defence and in response to the Notice to Admit subsequently served by ABCL. This, it was said by ABCL, was unreasonable conduct and is certainly an answer (and this is the second thread in terms of the relevance of the issue) to the suggestion by the Concrete Supply defendants that it was unreasonable or unnecessary for ABCL to incur the cost of preparing this evidence for trial.

53    For reasons I will give, I have decided not to award costs to ABCL on an indemnity basis. The conduct of the Concrete Supply defendants in relation to the quantum of ABCL’s Debt Claim is not in itself sufficient to justify an award of costs on an indemnity basis. As to the cost of printing the invoices, the course taken by ABCL appears, on the face of it, to have been reasonable in light of the refusals by the Concrete Supply defendants to admit the quantum of ABCL’s Debt Claim despite what was shown in Concrete Supply’s own records.

54    Thirdly, Mr Leader-Elliott addresses an apparent payment of $500,000 (evidenced by Concrete Supply’s journal report for April 2018 being a financial record of Concrete Supply tendered at the trial: Court Book vol 25 tab 827 p 16273) by Concrete Supply into the trust account of the solicitors for the Concrete Supply defendants for the purpose of pre-paying those defendants’ costs of the proceeding. As I have already said, Lipman Karas wrote to the solicitors for the Concrete Supply defendants and the solicitors for the deed administrators by letter dated 28 November 2018 raising a matter against each of them. As against the Concrete Supply defendants, ABCL asserted that the payment of $500,000 involved a breach of directors’ duties and that the money which was the subject of the payment was impressed with a trust in favour of Concrete Supply. Crawford Legal responded by letter dated 30 November 2018 saying, inter alia, that the fundamental premise in the letter from Lipman Karas dated 28 November 2018 was misconceived. The letter from Crawford Legal goes on to say:

In making that deduction or drawing that inference, you have failed to consider whether the amount may have been funded by other means and whether such funding has been appropriately treated in the company’s accounts.

55    The Concrete Supply defendants adduced evidence on this topic. Mr D’Alessandro said that the payment of $500,000 was not paid by Concrete Supply. The payment of $500,000 to Crawford Legal was made by Mantina Investments Pty Ltd (Mantina Investments) which company had borrowed the money from Tina who, in turn, had borrowed the money from Perebo Pty Ltd under a loan agreement dated 1 March 2018. Rino and Jason guaranteed the repayment of the loan from Perebo Pty Ltd to Tina.

56    Mr D’Alessandro said that the financial statements of Concrete Supply and the Mantina entities were prepared on an accruals basis and not on a cash basis. The payment of anticipated legal fees, although made by Mantina Investments, was recorded by Mr D’Alessandro as an expense in the accounts of Concrete Supply. He said that in the case of accounts prepared on an accruals basis, the recording of an expense or liability does not mean that any cash has been paid out of the company.

57    Tina repaid the loan from Perebo Pty Ltd in March 2019. There was a further loan arrangement in relation to anticipated legal costs in March 2019, but it is not necessary for me to set out the details of that arrangement.

58    I accept Mr D’Alessandro’s evidence. It was not challenged by ABCL.

59    ABCL submits that the evidence shows that Concrete Supply funded the joint legal representation of Concrete Supply and the directors and that, absent an order that the directors indemnify Concrete Supply for its costs of the proceeding, the joint legal representation will have the practical effect of imposing on ABCL as the successful party and the other creditors of Concrete Supply: (1) the costs of the director (and deed administrators) defendants’ defence of the proceeding; and (2) Concrete Supply’s liability to meet its costs of the proceeding.

60    The Concrete Supply defendants responded by saying Mr D’Alessandro’s evidence showed that the deposit of $500,000 was financed by Tina borrowing from a third party, supported by a guarantee from Rino and Jason.

61    It seems that the effect of the evidence is that the payment of $500,000 was not a payment of cash out of the resources of Concrete Supply. However, a liability of $500,000 to Mantina Investments was recorded in the books and records of Concrete Supply. How much of that amount has actually been expended in legal costs and what, if any, amount has been expended in legal costs by the directors are matters which are not known. I take this matter into account, but, in the end, it does not play a decisive part in the reasons for the orders which I have decided should be made.

62    Before leaving the letter from Lipman Karas to the solicitors for the Concrete Supply defendants and the solicitors for the deed administrators dated 28 November 2018, it should be noted that Lipman Karas said to the directors that it would be seeking a costs order requiring the directors to pay ABCL’s costs personally. The passage in the letter is as follows:

Further, if our client is successful in this action we put you on notice that we will seek an order that the plaintiff’s costs be paid on an indemnity basis personally by the second defendant, the third defendant, the fourth defendant, the fifth defendant and the sixth defendant.

63    The fourth matter addressed by Mr Leader-Elliott is the deed administrators’ costs and remuneration. On 16 April 2019, the deed administrators circulated an Advice to Creditors in which they proposed a virtual meeting of the creditors of Concrete Supply to resolve the further interim remuneration of themselves. On 29 April 2019, Lipman Karas wrote to O’Loughlins enclosing a proxy on behalf of ABCL by which ABCL objected to the deed administrators’ remuneration being resolved without a meeting of creditors being held. By letter dated 7 May 2019, O’Loughlins advised Lipman Karas that their clients would seek Court approval for their remuneration in due course. An electronic portal maintained by the administrators contains a “time charged” report. As at 20 November 2019, that report showed that Worrells (the deed administrators’ firm) had accrued fees of $515,858.94 in the administration of Concrete Supply and legal costs and outlays in an additional amount of $550,324.39.

64    In his affidavit, Mr Black sought to rely on annexures to an affidavit he swore on 8 June 2018. Of particular relevance is the annexure which is the DOCA. Mr Black referred to the deed administrators’ response to the letter from Lipman Karas dated 28 November 2018. That response is dated 29 November 2018. In their response, the deed administrators assert that they have been impartial throughout the action with respect to the outcome of the claim that the DOCA be set aside and that that remained the case. They assert that whether the DOCA was to be maintained was a matter entirely for the Court. They made the following statement:

We once again confirm that our clients defend the Action firstly, for the purpose of assisting the Court by providing relevant evidence to inform the Court’s decision-making, and secondly, because your client has chosen to make serious and unsupported allegations with respect to our clients’ professional conduct in the course of the administration of the Company.

65    The deed administrators also contend in their letter that they will not be personally liable for the costs associated with defending the action or their remuneration, including disbursements in connection with the administration or deed administration of the company. They refer to ss 443A, 443B, 443BA and 443C of the Corporations Act in the context of their assertions that they will not be personally liable.

66    With respect to their right of indemnity, the deed administrators refer to the statutory right of indemnity against the assets of the company in s 443D of the Corporations Act and they assert that that right of indemnity relates not only to debts or liabilities incurred in performing or exercising any of the powers or functions in their capacity as administrators of the company, but also to their remuneration. They refer to the lien granted to them over the company’s property to secure the right of indemnity (s 443F). The deed administrators also contend that they have a contractual right of indemnity in their capacity as deed administrators and they refer to cll 15.3, 16.1, 16.2 and 16.3 of the DOCA. They assert that they also have an equitable lien over the assets in the Deed Fund to secure their right of indemnity. They then refer to their right to remuneration. They reject any suggestion that they will not be entitled to remuneration and disbursements, including legal costs. The deed administrators conclude their letter by noting that ABCL intends to seek an order that its costs be paid by the deed administrators personally on an indemnity basis if ABCL is successful in the trial of the action. The deed administrators state that for the reasons outlined in the letter, they reject any assertion that ABCL is entitled to be paid its costs of the action by the deed administrators personally.

67    Lipman Karas responded to this letter on 30 November 2018. In their letter, Lipman Karas asserted that it is not correct for the deed administrators to say that they had been impartial throughout the action. The letter goes on to state:

They are defendants and have defended the proceedings vigorously. They and the directors have sought to resist the claims made by our client.

68    In Mr Jackson’s affidavit, he identifies two settlement offers made to ABCL. First, on 12 November 2018, Crawford Legal wrote to Lipman Karas making an offer to settle the proceeding on terms which involved ABCL discontinuing its proceeding, a payment by Rino and Jason of an amount of $1 million to ABCL in settlement of the claims against them and Tina, and the DOCA remaining in place with a possible return to ABCL in relation to its Proof of Debt of 92% of a Deed Fund of approximately $5 million minus any of the administrators’ outstanding fees and expenses. The estimate of a possible return of $5 million was based on a Deed Fund of $3.9 million and a possible recovery of overpaid tax of $1.1 million. Secondly, on 29 November 2018, Crawford Legal wrote to Lipman Karas making an offer to settle all matters on the basis that ABCL would withdraw its Proof of Debt in relation to the Deed Fund and Concrete Supply would pay ABCL a total amount of $5.5 million by 31 January 2021 (or $5.25 million by 31 January 2020), such amount to be secured by equitable mortgage over extended quarry land.

The Representation of the Parties and the Result in the Proceeding

69    ABCL has been represented throughout the proceeding by Lipman Karas and counsel.

70    The Concrete Supply defendants, that is, Concrete Supply and the directors, have been represented by Crawford Legal and counsel throughout the proceeding, save and except that the liquidators have acted on behalf of Concrete Supply after the stay expired. The directors gave instructions on behalf of Concrete Supply until that point. The deed administrators were represented throughout the proceeding by O’Loughlins Lawyers and counsel. They filed a Defence in which they pleaded various matters in response to ABCL’s Debt Claim. They did not deny or admit the debt. They pleaded extensively to the allegations in relation to the DOCA Claim. They denied the allegations that their conduct fell below the standard of reasonable insolvency practitioners. They denied the allegation that Mr Cantone’s exercise of the casting vote was flawed and they denied the allegation that the DOCA should be terminated or set aside. They did not plead to the Misleading or Deceptive Conduct Claim or the Breach of Trust Claim. The deed administrators filed affidavits and gave evidence themselves and called witnesses. They were represented throughout the trial and they made extensive submissions. This is a summary of the deed administrators’ involvement in the proceeding and the substantive reasons should also be examined for an appreciation of their involvement.

71    The deed administrators told the Court during the trial that their defence of the proceeding was to assist the Court and because of the serious allegations made about their conduct. That is consistent with what they said in their letter dated 29 November 2018 which is set out above (at [64]).

72    The declarations and final orders made in this proceeding are as follows:

THE COURT DECLARES THAT:

 1.    The first defendant is indebted to the plaintiff in the amount of $12,457,472.22.

2.    The first defendant failed to keep written financial records which complied with s 286 of the Corporations Act 2001 (Cth) between April 2009 and November 2017.

THE COURT ORDERS THAT:

3.    The Deed of Company Arrangement executed on 21 December 2017 be terminated pursuant to s 445D of the Corporations Act 2001 (Cth).

4.    Messrs Martin Lewis and David Kidman be appointed as joint and several liquidators of the first defendant.

 5.    Orders 3 and 4 be stayed until 17 December 2019.

6.    The claims in paragraphs 11–14 inclusive of the Originating Process be dismissed.

In summary, ABCL succeeded in relation to the Debt Claim, the Claim for a contravention of s 286 of the Corporations Act and the DOCA Claim, and was unsuccessful in the Misleading or Deceptive Conduct Claim and the Breach of Trust Claim.

The Submissions of the Parties

ABCL

73    The orders as to costs sought by ABCL are set out above (at [7]). I will not summarise ABCL’s submissions as to the relevant legal principles. I set out the relevant legal principles later in these reasons.

74    ABCL submits that a general order for costs in its favour against all the defendants should be made because:

(1)    it has been overwhelmingly successful in the proceeding having succeeded on the Debt Claim, the Claim for a contravention of s 286 of the Corporations Act and the DOCA Claim. The key issues in the proceeding were the Debt Claim and the DOCA Claim;

(2)    the matters upon which ABCL was unsuccessful were comparatively minor issues in the proceeding. They were the attribution of Ms Burgess’ knowledge to ABCL in the Misleading or Deceptive Conduct Claim and the Breach of Trust Claim. These matters or issues were based on the same factual substratum as the matters or issues upon which ABCL succeeded. In the case of the Debt Claim, Concrete Supply’s defence of estoppel to which ABCL pleaded that Ms Burgess’ knowledge could not be attributed to it (and with respect to which ABCL succeeded) and in support of its allegation that it was misled (and which, apart from attribution, ABCL succeeded). In the case of the DOCA Claim where the terms of the Bulk Supply Agreement (upon which the Breach of Trust Claim was based) and their continued operation were issues, they were issues upon which ABCL succeeded; and

(3)    the matters or issues upon which ABCL “failed” were not discrete issues, were not unmeritorious claims and do not warrant a special costs order. The Court should exercise care to avoid making orders which in form or substance have the effect of placing the burden of costs on the successful party, being, in this case, ABCL.

75    ABCL submits that if the Court is not prepared to make the order it seeks, then, in the alternative, an order should be made that the defendants pay its costs on an indemnity basis in relation to the Debt Claim and the DOCA Claim. The matters advanced in support of an award of indemnity costs are as follows: (1) in relation to the Concrete Supply defendants, the denial up until the eve of trial of the amount of cement delivered to Concrete Supply by ABCL and the price payable for the cement delivered under the Bulk Supply Agreement and price increase letters, and the false claims by Rino and Jason that they considered that Concrete Supply was entitled to a discount or rebate; and (2) in relation to the deed administrators, they sought to defend conduct and decisions that ought not to have been defended and opposed ABCL’s case and pressed a case that was aligned with the case of the Concrete Supply defendants.

76    In support of the second order it seeks, ABCL submits that it is unusual for the defence of a company in the position of Concrete Supply to be conducted by its directors, rather than the deed administrators. That may be accepted (Sydney Land Corporation Pty Ltd v Kalon Pty Ltd (1997) 142 FLR 188 (at 189–190 per Santow J); Cresvale Far East (at [77] per Austin J)). As I have said, the directors gave instructions to Crawford Legal and counsel on behalf of Concrete Supply.

77    ABCL submits that whilst Concrete Supply and the directors filed separate defences, that was the highwater mark of the separation between the two. The real parties to the proceeding were ABCL on the one hand, and the directors and the deed administrators on the other. If Concrete Supply is liable for the costs of defending the proceeding (as appears likely having regard to the Journal Report) and is liable to pay ABCL’s costs, the liability of Concrete Supply is effectively borne by ABCL and other creditors of Concrete Supply. The directors were the real parties to the litigation.

78    With respect to the third order it seeks, ABCL submits that the usual order is that the deed administrators as the unsuccessful party should be ordered to pay the successful party’s costs (i.e., ABCL’s costs) and it is a further and separate question as to whether those costs should be limited to the assets of the company. ABCL submits that the costs order should not limited to the assets of Concrete Supply. In summary, ABCL makes two submissions. First, Concrete Supply, through the directors, was defending the DOCA and there was no need for the deed administrators to do that on behalf of the company. Secondly, insofar as they were defending the serious allegations made against them by ABCL, that was not a legitimate reason for them to proceed in the way in which they did. Further, and in any event, even if the deed administrators subjectively believed their conduct was justified, no reasonable person standing in their shoes could take that view. In support of that proposition, ABCL referred to a number of deficiencies in their investigations and Second Report to Creditors as outlined in the substantive reasons.

79    In the result, so ABCL contends, the deed administrators’ liability for costs and their own costs were not properly incurred and are not within the deed administrators’ right of indemnity.

80    As I have said, I invited the parties to make further submissions on the appropriate division in percentage terms of the costs of the issues relating to the DOCA on the one hand (the DOCA issues), and all other issues in the case on the other (the non DOCA issues) and, as to the non DOCA issues, an appropriate division in percentage terms of the costs of the issues relating to the Misleading or Deceptive Conduct Claim and Unconscionable Conduct Claim and the Breach of Trust Claim on the one hand, and all other non DOCA claims on the other.

81    A summary of ABCL’s submissions in response to that invitation is as follows. The conclusion of those submissions is that ABCL contends that 90% or more of the time and costs associated with the proceeding was in relation to the DOCA issues. The only non DOCA issues were the Misleading or Deceptive Conduct Claim and the Breach of Trust Claim and less than 10% of the time and costs of the proceeding were associated with those claims. ABCL put two submissions in support of that conclusion. The first submission is that the Debt Claim (and the Claim for a contravention of s 286 of the Corporations Act) was an inseparable part of the DOCA issues. It was a matter to be investigated by the deed administrators, had a bearing on the accuracy of the company’s books and records and on its solvency and on whether there were claims against the directors and claims to recover unpaid tax. All of these issues surrounding the Debt Claim would, according to ABCL, have been part of the case even if the only claim for relief made by ABCL had been for an order that the DOCA be set aside. The second submission involved ABCL identifying matters, such as the length of affidavits, the time taken giving evidence and the topics of evidence, to support its submission that over 90% of the time and costs in the proceeding were directed to the DOCA issues.

The Deed Administrators

82    The orders sought by the deed administrators are set out above (at [9]). Again, I will not summarise the deed administrators’ submissions as to the relevant legal principles, particularly those relating to the circumstances in which, in relation to particular liabilities, persons in the same position as the deed administrators have been held not to be entitled to a right of indemnity. I set out the relevant legal principles later in these reasons.

83    The principal submissions made by the deed administrators are as follows:

(1)    The deed administrators’ involvement in the proceeding as summarised above (at [70]) was for two reasons. First, they were “required” to defend the proceeding because of the “serious and unsupported allegations that the Plaintiff levelled against them”. Secondly, they were fulfilling their role of assisting the Court in its decision as to whether the DOCA should be set aside, “particularly by reference to the question of whether the DOCA would provide a better return to creditors”. This articulation of the reasons the deed administrators played the part they did in the proceeding is consistent with what they said in their letter to Lipman Karas dated 29 November 2018 (see [64] above) and their statement to the Court during the trial (at [71]).

Despite the emphasis placed on these two reasons, the deed administrators also pointed out that they were only sued in their representative capacity and not in their personal capacity and that it was “self-evidently reasonable” for them to participate in a proceeding brought against Concrete Supply.

(2)    As far as the serious and unsupported allegations that ABCL levelled against them, there were no findings of negligence, professional misconduct or impropriety made against them and nor have they been removed on grounds of corruption, maladministration or other similar conduct regarded as sufficiently odious or to have involved such impropriety as to justify an order that they pay costs.

(3)    As far as assisting the Court is concerned, that includes putting before the Court material which the Court needs to decide the issues before it. The deed administrators did not seek an ongoing role in Concrete Supply and, although they continued to hold the view that the DOCA would provide a better return to creditors, they accepted that “the ultimate determination in that regard was for the Court”.

(4)    The deed administrators have a right of indemnity by reason of s 443D of the Corporations Act and the DOCA, cll 15.3, 16.1, 16.2 and 16.3. Although the right of indemnity which arises under the general law was not specifically mentioned in the Written Submission on Costs dated 2 December 2019, the deed administrators did not abandon reliance on it.

(5)    A majority of the hearing time at trial was occupied by the Misleading or Deceptive Conduct Claim and the Breach of Trust Claim. That cannot be right on any view of the facts and I think the deed administrators later clarified their submission (see [84] below).

(6)    In response to the orders sought by the Concrete Supply defendants as set out above (at [12]), the deed administrators contend:

(a)    there is no pleaded or procedural foundation for the orders sought;

(b)    for the reasons given in their response to ABCL’s submissions, they should not be deprived of their right of indemnity;

(c)    the orders sought by the Concrete Supply defendants in relation to the deed administrators, or at least the second order, reflect what is in reality a claim for damages which has been neither pleaded nor proved, rather than an order for costs;

(d)    if a costs order is made against the deed administrators and limited to the one issue in which it was joined, i.e., the DOCA Claim, then the deed administrators accept that such costs order would be made on a joint and several basis with the Concrete Supply defendants. However, there is no warrant for a 75%/25% apportionment in favour of the Concrete Supply defendants against the deed administrators; and

(e)    the deed administrators did not participate in the issues which occupied the bulk of the time involved with the hearing of evidence at the trial. The Debt Claim, the Misleading or Deceptive Conduct Claim and the Breach of Trust Claim occupied, according to the deed administrators, 12 of the 18 days approximately involved in the hearing of evidence.

84    As far as an appropriate division in percentage terms of the costs of the DOCA issues on the one hand, and the costs of the non DOCA issues on the other and, with respect to the non DOCA issues, an appropriate division in percentage terms of the costs of the issues relating to the Misleading or Deceptive Conduct Claim and the Breach of Trust Claim on the one hand, and all other non DOCA claims on the other, the principal submissions made by the deed administrators are as follows:

(1)    30% of the costs of the proceeding are attributable to the DOCA issues and 70% are attributable to the non DOCA issues. This is supported by the calculation made by the deed administrators that approximately six out of the 18 days over which evidence was heard related to the DOCA issues;

(2)    of the costs attributable to the DOCA issues, 75% should be paid by the Concrete Supply defendants and 25% by the deed administrators. An important issue in the DOCA issues — the adequacy of the books and records in terms of s 286 of the Corporations Act — was the sole responsibility of the directors; and

(3)    the deed administrators should not be ordered to pay any costs in relation to the non DOCA issues because they were not involved in those issues.

The Concrete Supply Defendants

85    The orders sought by the Concrete Supply defendants are set out above (at [12]). Again, I will not summarise the submissions of the Concrete Supply defendants as to the relevant legal principles. The relevant legal principles are set out later in these reasons.

86    The principal submissions made by the Concrete Supply defendants are as follows:

(1)    There is no basis in this case for an award of indemnity costs in relation to the Debt Claim, the DOCA Claim and the Claim for a contravention of s 286 of the Corporations Act because of the following: (a) indemnity costs, when awarded, are usually awarded by reason of conduct in the litigation, not conduct prior to the litigation, such as the taking of the discount or rebate by Concrete Supply based allegedly on the belief of Rino and Jason; (b) there was nothing unreasonable about Concrete Supply’s defence of the litigation and, in particular, its case seeking to uphold the DOCA supported as it was by a number of factors, including the opinion of an independent expert and in circumstances where there were acknowledged and substantial irregularities in ABCL’s own customer account ledgers; and (c) ABCL’s act of printing the invoices for the purpose of proving the quantum of the debt it claimed was done without notice to the Concrete Supply defendants and, as it happened, the invoices were not tendered at the trial.

(2)    With respect to the Misleading or Deceptive Conduct Claim and the Breach of Trust Claim, costs should follow the event and ABCL should be ordered to pay the directors’ costs of those claims in light of, or particularly in light of, the following: (a) Tina was wholly successful; (b) the 2009 Misrepresentation Case was statute-barred; (c) ABCL, through Ms Burgess’ knowledge, was held to be aware of the true level of indebtedness of Concrete Supply; (d) the directors made offers to settle the claims against the directors on terms that were more favourable to ABCL than the result it achieved in the litigation.

(3)    Whilst there might be some overlap in the factual basis of ABCL’s claims against Concrete Supply and ABCL’s claims against the directors, they were separate claims against separate parties and the claims against the directors raised factual matters not raised in the claims against Concrete Supply, including the payment terms and just-in-time delivery practices, Tina’s involvement in the business of Concrete Supply, the circumstances surrounding the execution of the audit confirmation letter, a number of matters put to Mr Hughes and Mr Lemmon in their respective cross-examinations and the retention of title clause in the Bulk Supply Agreement. Furthermore, the estoppel defence raised by Concrete Supply to the Debt Claim failed on a different element from the element which led to the failure of the Misleading or Deceptive Conduct Claim.

(4)    With respect to the claim that the directors should indemnify Concrete Supply in relation to the costs it is ordered to pay to ABCL, an order of this nature is the same or similar to an order that non-party directors pay the company’s costs or the costs it is ordered to pay. Such an order is only made in exceptional circumstances, such as impropriety or bad faith or circumstances in which the directors are the real parties. Such circumstances do not exist in this case. Concrete Supply was a proper party to the proceeding and the important order setting aside the DOCA was the result primarily of failures by the deed administrators in the course of the administration. No finding was made that the DOCA was entered into in bad faith or for an improper purpose. In responding to the DOCA Claim, Concrete Supply was “representing multiple interests, including those of creditors, directors and employees”. Finally, the Concrete Supply defendants submit that it is significant that ABCL did not put the directors on notice of the orders which it now seeks.

(5)    With respect to the order that the deed administrators not be indemnified in relation to any costs order made against them and their argument for an apportionment or contribution of 75%/25% against the deed administrators, the Concrete Supply defendants largely rely on the findings of the deed administrators’ failures during the administration. As to their apportionment or contribution argument, it is of note that one of the submissions made by the Concrete Supply defendants is as follows:

In contrast, the company (through its directors) was in the position of a consumer seeking the assistance of a professional insolvency practitioner. The company (through its directors) was not in a position to know what investigations the Administrators ought to have carried out or to influence the exercise of the casting vote.

87    As far as the appropriate division in percentage terms of the costs of the DOCA issues on the one hand, and the costs of the non DOCA on the other, and with respect to the non DOCA issues, an appropriate division in percentage terms of the costs of the issues relating to the Misleading or Deceptive Conduct Claim and the Breach of Trust Claim on the other hand, and all other non DOCA claims on the other, the key submissions made by the directors are as follows:

(1)    ABCL’s claims against the directors were unsuccessful. Those costs were not necessary to the success of the Debt Claim or the DOCA Claim.

(2)    The components of the proceeding and the appropriate allocation of the costs of the proceeding are as follows: (a) Debt Claim: 15%; (b) DOCA Claim: 45%; (c) Claim for a contravention of s 286 of the Corporations Act: 0%; and (d) Misleading or Deceptive Conduct Claim and Breach of Trust Claim: 40%.

(3)    In terms of time taken and the importance of the issues, those matters evolved from the time of the preparation of evidence to the trial and the latter is a more reliable guide to the appropriate division in percentage terms of costs than the former.

(4)    The directors support their argument that only 15% of the costs should be allocated to the Debt Claim by reference to matters such as the extent to which the substantive reasons addressed the issue, the amount of evidence of the key witnesses devoted to the issue (i.e., Rino, Jason, Mr D’Alessandro, Ms Senanayake and Ms Booth) and the extent to which Mr Morris’ evidence was relevant to the issue.

(5)    With respect to the DOCA Claim, the existence of the debt was not a direct criterion for the DOCA’s termination and “in significant respects” it was material deficiencies in the investigations carried out by the deed administrators that led to the DOCA being set aside. The directors sought to support their allocation of 45% of the costs to the DOCA Claim by reference to various asserted proportions of a witness’ evidence.

(6)    With respect to the Misleading or Deceptive Conduct Claim and Breach of Trust Claim, the directors submit the following: (a) there was no overlap between these issues on the one hand, and the DOCA Claim and the Claim for a contravention of s 286 of the Corporations Act on the other; (b) there was a perceived overlap between the Debt Claim and the Misleading or Deceptive Conduct Claim, but it was minimal and related to a contested assessment of damages which was, in any event, not reached because the Misleading or Deceptive Conduct Claim failed at the first hurdle. The directors make a specific point in relation to Mr Lemmon’s evidence which extended over two days, and that was that it was directed to avoiding the attribution of Ms Burgess’ knowledge to ABCL, a contention by ABCL which was ultimately unsuccessful.

The Relevant Legal Principles

88    In this section, I will identify the relevant legal principles with respect to the issues raised by the submissions made by the parties.

89    The first issue is the Court’s approach to costs in a case where a party succeeds, but not on all issues raised in the proceeding and the question is whether the Court should reflect that lack of success on particular issues in its order for costs. ABCL submits that this issue is raised. By contrast, the Concrete Supply defendants submit that this issue does not arise and that the position is that ABCL’s claims against Concrete Supply succeeded and ABCL should have its costs of those claims against the company, whereas ABCL’s claims against the directors failed and the directors should have their costs of those claims against ABCL. For reasons which I will give, I consider that it is appropriate to treat Concrete Supply and the directors as, in effect, one party and therefore the first issue (as I have described it) does arise.

90    The decision of the Full Court of this Court in Les Laboratoires Servier v Apotex Pty Ltd [2016] FCAFC 27; (2016) 247 FCR 61 contains a summary of the relevant principles with respect to the first issue. The Full Court said (at [297], [298], [301] and [303]):

297    There are two general approaches to the award of costs that have general application and have been the subject of numerous decisions:

(1)    The successful party is generally entitled to its costs. That is, costs usually follow the event.

(2)    It is also the case that a successful party may be awarded less than its costs, or there may be an order apportioning costs, on the basis of success on the issues.

298    This has been recently reiterated by the High Court (per French CJ, Kiefel, Nettle and Gordon JJ) in Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 90 ALJR 270 at [6], where their Honours observed that if the event of success cannot be seen as contestable, having regard to how separate issues have been determined, then:

‘There are no special circumstances to warrant a departure from the general rule, and good reasons not to encourage applications regarding costs on an issue-by-issue basis, involving apportionments based on degrees of difficulty of issues, time taken to argue them and the like.’

301    On the other hand, Courts have been increasingly concerned, generally, to use all proper means to encourage parties to consider carefully what matters they will put in issue in their litigation. This has led to decisions whereby the successful party does not recover all of its costs where it has been unsuccessful on a discrete issue or in what is decided to be an unmeritorious objection. While it is acknowledged that, ordinarily, costs follow the event, the wide discretion in awarding costs has led to circumstances where a successful party who has failed on certain issues may be ordered to pay the other party’s costs of them (as discussed in Hughes v Western Cricket Association (Inc) [1986] ATPR 40-748 per Toohey J), although warnings have been stated that care should be taken in such a course and consideration be given to whether the issues on which the successful party failed are clearly dominant or separable (Waters v PC Henderson (Australia) Pty Ltd (1994) 254 ALR 328 at 330-331 per Mahoney JA) and to whether the issues involved different factual enquiries in the one proceeding or multiple causes of action, even if based on a common substratum of fact.

303    … However, the Courts have been slow to order a successful party to pay the costs where it has been unsuccessful on some issues. In Mok v Minister for Immigration, Local Government and Ethnic Affairs (No 2) (1993) 47 FCR 81, Keely J was of the view (at 84) that, without attempting to fetter the discretion, this power ought to be exercised only where the Court, on a consideration of all of the circumstances, has concluded that the raising of an issue by the applicant on which it has failed was so unreasonable that it is fair and just to make the order.

91    Assuming the case is not one in which it is appropriate to order that costs follow the event even though the successful party has not succeeded with respect to all issues, I note that Professor GE Dal Pont in Law of Costs (4th ed, LexisNexis Butterworths, Australia, 2018) (Dal Pont) at 8.4–8.10 discusses the various ways in which the Court may reflect in its order as to costs, the fact that a party has not succeeded on all issues. They are an order for costs on an “issue by issue” basis or a reduction in the costs of the party substantially successful to reflect the fact that that party has not succeeded on all issues or a reduction in the costs of the party substantially successful to reflect the fact that the party has not succeeded on all issues and that the unsuccessful party has succeeded on certain issues (i.e., notionally recognising the unsuccessful party’s entitlement to costs by the size of the reduction in the successful party’s costs). An example of the last approach is the approach adopted by Keely J in Mok v Minister for Immigration, Local Government and Ethnic Affairs (No 2) (1993) 47 FCR 81 at 89. As to the decision about whether, in a particular case, it is appropriate to proceed on the basis that the party substantially successful should have their costs reduced to reflect the lack of success on certain issues or reduced to reflect that fact and that the unsuccessful party has succeeded on certain issues, Dal Pont (at 8.6) suggests that the former approach is appropriate unless the party substantially successful improperly or unreasonably raised the issue or issues upon which it failed. This was the approach adopted by the Court of Appeal in England in In re Elgindata Ltd (No 2) (1992) 1 WLR 1207. Nourse LJ (with whom Stocker LJ agreed), said (at 1213-1214):

In order to show that the judge erred I must state the principles which ought to have been applied. They are mainly recognised or provided for, it matters not which, by section 51 of the Supreme Court Act 1981 and the relevant provisions of R.S.C., Ord. 62, in this case rules 2(4), 3(3) and 10. They do not in their entirety depend on the express recognition or provision of the rules. In part they depend on established practice or implication from the rules. The principles are these. (i) Costs are in the discretion of the court. (ii) They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made. (iii) The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs. (iv) Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs. Of these principles the first, second and fourth are expressly recognised or provided for by rules 2(4), 3(3) and 10 respectively. The third depends on well established practice. Moreover, the fourth implies that a successful party who neither improperly nor unreasonably raises issues or makes allegations on which he fails ought not to be ordered to pay any part of the unsuccessful party’s costs. It was because of his disregard of that principle that the judge erred in this case.

92    The second issue is the circumstances in which the Court may make an order for costs against non-parties. This issue arises because ABCL seeks an order for costs against, not only Concrete Supply, but also against the company’s directors in relation to all of its costs of the proceeding, or at least that part of it involving the claims ABCL made against the company. Although the directors are in fact parties, they in fact successfully defended the particular claims made against them and the costs sought from them are, at first blush, costs that would be awarded against the company. Furthermore, ABCL seeks an order that the directors indemnify the company against the costs it is ordered to pay to ABCL.

93    Dal Pont identifies at least two types of case where the directors of a company have been ordered to pay the costs of the successful party in an action brought by or against a company (see Dal Pont at 22.36–22.39). The starting point is that ordinarily a company which unsuccessfully sues or defends will be ordered to pay costs and the principle of limited liability means that the company alone is responsible for the costs. If it was reasonably to be anticipated that the company would be unable to meet a costs order if an action by or against the company is unsuccessful, then the first criterion in an inquiry as to whether a costs order should be made against the directors is satisfied. In this context, the court will also consider whether, in the case of a company as plaintiff, the party ultimately successful should have brought an application for security for costs, or, in the case of a company as defendant, the party ultimately successful gave the directors notice that a personal costs order would be sought against them if the company is unsuccessful.

94    The next stage of the inquiry is to determine whether there is something exceptional about the case so as to justify an order for costs against a non-party. “Exceptional” in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense (Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807; Total Spares & Supplies Limited v Antares SRL [2006] EWHC 1537 (Ch)).

95    The two types of case identified by Dal Pont as cases in which the courts have been prepared to award costs against non-party directors of a company litigant are as follows. First, a court may award costs against a non-party director who has given false evidence or raised an issue knowing it to be a false issue or otherwise acted in bad faith (Naomi Marble and Granite Pty Ltd v FAI General Insurance Co Ltd (No 2) (1999) 1 Qd R 518; Re Talk Finance and Insurance Services Pty Ltd (1994) 1 Qd R 558). Secondly, a court may award costs against a non-party director even in circumstances not involving bad faith (or a lack of good faith) where the director is properly regarded as the real party in the litigation. The company in such circumstances has been referred to in various ways in the cases (“mere shell or conduit”, “cypher” or “a shield of limited liability”). The cases are referred to in Dal Pont and I do not propose to go through them (see Dal Pont at 22.37). It is sufficient to say that, recognising that there is no precise formula, the factors a court will consider are whether the company is likely to be able to meet an order for costs, whether the non-party director has funded and controlled the litigation, the benefits the non-party director is likely to receive if the litigation is successful, and whether the litigation was a reasonable course to adopt.

96    The third issue is the circumstances in which the Court may exercise the power to award indemnity costs. In a well-known passage in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801; (1993) 46 FCR 225, Sheppard J said (at 233–234):

4.    In consequence of the settled practice which exists, the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the Court in departing from the usual course. … Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said (at p 8) in Tetijo, “The categories in which the discretion may be exercised are not closed”. Davies J expressed (at p 6) similar views in Ragata (supra).

5.    Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp (supra)); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records (supra)). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.

(see also Morad v El-Ashey (No 2) [2017] FCA 1612 at [6]–[11] per Kenny J).

97    The categories of cases in which indemnity costs may be awarded are not closed. Nevertheless, the particular categories relied on by ABCL in this case are putting a party to proof where it is unreasonable to do so and a party persisting with a defence in circumstances in which the party knows that the defence cannot be maintained.

98    The fourth issue is the apportionment of the costs between parties liable for costs. This issue arises because of the respective submissions by the Concrete Supply defendants and the deed administrators as to how the costs which they are ordered to pay should be apportioned between them, either by way of direct apportionment or by way of an order for contribution

99    There is a general rule that where a costs order is made against several parties, the liability is joint and several. If there is any difference in relative responsibility, then that is a matter for contribution between the parties who are liable. However, the rule is no more than a general rule and there are circumstances in which the Court will apportion costs having regard to an unsuccessful party’s contribution to the costs incurred by the successful party. Generally speaking, at the apportionment stage, the ruling consideration is the conduct of the parties in the litigation, not the conduct giving rise to the litigation (Probiotec Ltd v University of Melbourne [2008] FCAFC 5; (2008) 166 FCR 30 at [62], [71] and [77] per Rares J; at [91] per Besanko J; see also Dal Pont at 11.2–11.7).

100    The fifth issue concerns the scope of a deed administrator’s right of indemnity against the assets of the company in respect of which he or she is deed administrator. In this case, that issue arises in relation to costs the deed administrators are ordered to pay ABCL and their own costs.

101    The deed administrators rely on three sources for their right of indemnity: the general law, s 443D of the Corporations Act and the DOCA. For reasons I will give, s 443D does not apply to deed administrators and the right of indemnity under the DOCA extends no further than the right of indemnity under the general law.

102    In Adsett v Berlouis (1992) 37 FCR 201 (Adsett v Berlouis), the Full Court of this Court considered the right under the general law of a trustee to be indemnified out of the trust estate for an expense incurred by the trustee. The Court said that a trustee in bankruptcy had the same right in the same circumstances. A former trustee of the bankrupt estates of four persons appealed against two orders made by a trial judge that involved the trustee paying costs of an application and paying his own costs of other applications, and that no part of such costs be included in any sum payable under the compositions accepted by the creditors of the bankrupts and which ultimately led to the annulment of the bankruptcies. A natural justice complaint by the former trustee was rejected by the Full Court. The second ground of challenge by the former trustee is the relevant one for present purposes. It was that a trustee should be deprived of the right to recover his or her costs relating to litigation from the bankrupt estate only where the trustee had recklessly instituted or precipitated the litigation.

103    The Full Court held that the circumstances in which a trustee might be deprived of the indemnity were not as limited as the former trustee’s argument suggested.

104    The Full Court addressed the duty of a trustee and the proper manner of its performance by adopting as a correct statement of the law the observations of Smithers J in Mannigel v Aitken (1983) 77 FLR 406 at 408–409. There is no need for me to set out those observations.

105    The Court then made the following important points.

106    First, the Court said that with respect to the right of a trustee to be reimbursed in respect of costs, charges or expenses incurred in the administration of the estate, the then Bankruptcy Act did not provide for a right of indemnity. Such a right arose under the general law and was for costs, charges and expenses properly incurred by the trustee (see the third point below).

107    Second, the Court said that with respect to the “right” to be remunerated for his or her own efforts, that is distinct from a right to the reimbursement of outgoings and is not conferred by the general law. A trustee, generally speaking, has no right to remuneration and, absent a statutory provision giving the phrase “costs, charges or expenses” a different meaning, remuneration is not covered by that phrase. The then Bankruptcy Act assumed, rather than provided for, the right of a trustee to remuneration.

108    Third, and in further development of the first point, the Court said that the case where a trustee involved in litigation unsuccessfully brings the proceeding or defends a proceeding and is ordered to pay costs is distinct from the trustee’s entitlement to recoupment out of the bankrupt’s estate. In the ordinary case, the unsuccessful trustee will be ordered to pay the successful party’s costs and the obligation on the trustee to pay costs is a personal obligation, and the question which then arises, namely, whether or not the trustee has a right to be reimbursed out of the trust estate arises in the administration of the bankruptcy, not in the original litigation. The Full Court then referred to the case of Re Beddoe; Downes v Cottam [1893] 1 Ch 547 (Re Beddoe) which addressed, in the general area of the administration of trusts, the circumstances in which a trustee is entitled as of right to a full indemnity out of his trust estate against all his costs, charges and expenses. It is convenient to refer to Re Beddoe at this point.

109    In Re Beddoe, Lindley LJ and Bowen LJ considered the circumstances in which a trustee has a right of indemnity in relation to costs incurred. Lindley LJ said (at 558):

I entirely agree that a trustee is entitled as of right to full indemnity out of his trust estate against all his costs, charges, and expenses properly incurred: such an indemnity is the price paid by cestuis que trust for the gratuitous and onerous services of trustees; and in all cases of doubt, costs incurred by a trustee ought to be borne by the trust estate and not by him personally. The words “properly incurred” in the ordinary form of order are equivalent to “not improperly incurred”.

Bowen LJ said (at 562):

The principle of law to be applied appears unmistakably clear. A trustee can only be indemnified out of the pockets of his cestuis que trust against costs, charges, and expenses properly incurred for the benefit of the trust — a proposition in which the word “properly” means reasonably as well as honestly incurred. While I agree that trustees ought not to be visited with personal loss on account of mere errors in judgment which fall short of negligence or unreasonableness, it is on the other hand essential to recollect that mere bona fides is not the test, and that it is no answer in the mouth of a trustee who has embarked in idle litigation to say that he honestly believed what his solicitor told him, if his solicitor has been wrong-headed and perverse. Costs, charges, and expenses which in fact have been unreasonably incurred, do not assume in the eye of the law the character of reasonableness simply because the solicitor is the person who was in fault. No more disastrous or delusive doctrine could be invented in a Court of Equity than the dangerous idea that a trustee himself might recover over from his own cestuis que trust costs which his own solicitor has unreasonably and perversely incurred merely because he had acted as his solicitor told him.

110    These principles formulated in the general area of the administration of trusts apply to the administration of bankrupt estates.

111    Returning to Adsett v Berlouis, the fourth point made by the Full Court was the test of the circumstances in which a trustee in bankruptcy has a right to be indemnified out of the bankrupt estate in relation to costs he has been ordered to pay another party, or his own costs, is whether the expense was honestly and reasonably incurred, or put in slightly different words, prudently and reasonably incurred in the discharge of the trustee’s duties. An expense may be properly incurred, but not the particular expense incurred by the trustee, in other words, the particular expense may be extravagant and excessive. The question of whether an expense has been properly incurred is to be determined on the particular facts of the case and in the exercise of judgment.

112    I have already referred to Deputy Commissioner of Taxation v BE100 Property Investments. The issue in that case relevant for present purposes was whether the costs of the Deputy Commissioner, the major creditor of BE100 Property Investments Pty Ltd, should be paid by the deed administrator of the company. The deed administrator had acted on legal advice, although the advice was not at arms-length. The issue was whether the deed had terminated because the circumstances for its termination as specified in the deed existed. The Court found that the deed administrator erred in his conduct in relation to this issue. Greenwood J said (at [81]):

In the ordinary course, an order for costs would be made against Mr Hamilton, the DCOT having been successful in the proceeding, and he would be entitled to be indemnified out of the assets of the administration (or the Deed Property) as a first charge before distribution of Deed Property to creditors: Kirwan v Cresvale Far East Ltd (in liq) (“Kirwan”) (2002) 44 ACSR 21 at [434], Young CJ (in Eq). An administrator is entitled to an indemnity for costs reasonably and honestly incurred: Kirwan at [259], Giles JA. Provided the step of acting on the legal advice given to him was reasonably and honestly taken although shown to be in error, Mr Hamilton would be entitled to an indemnity out of the assets of the administration for those costs incurred by him as a result of a costs order in the proceeding. In this case, there is no fund out of which Mr Hamilton can be indemnified. In those circumstances, Mr Hamilton would then bear the burden of a costs order personally. In those cases where there is no prospect of the administrator receiving indemnification of the burden of a costs order arising out of a successful challenge to a step taken by him (or her) in the course of an administration, the question that arises is whether the exercise of the discretion to order costs against the administrator is informed by other considerations.

Also relevant is the following passage in his Honour’s reasons (at [84]):

… The phrase “acting appropriately” seems to me to mean acting reasonably and honestly. If the administrator acted reasonably and honestly, he or she ought not to be the subject of an order for costs personally, that is to say, an unlimited costs order. In this case, Mr Hamilton fell into error by removing from the meeting a decision about whether the DOCA should be brought to an end and whether BE100 ought to be placed into liquidation and wound up. He was in error in taking that course. I accept that he acted honestly in procuring legal advice notwithstanding that the advice was given to him by his own son. I accept that having regard to the sequence of considerations that informed his decision-making, he acted on the footing that having analysed the source of assets that might be available in the administration to unsecured creditors, there was no likelihood in any practical sense of a recovery of funds in excess of the secured Wolli debt. In that sense, Mr Hamilton acted reasonably according to that frame of reference although he acted in error in removing the matter from the plenary decision-making forum of the unsecured creditors.

113    In Kirwan v Cresvale Far East, there were a number of issues concerning a company which had gone into administration, then executed a deed of company arrangement and then, under that deed, had issued shares to one of its directors. The primary judge (Austin J) made findings of improper conduct against the administrator and deed administrator and ordered him to pay the costs of an action brought against him and the company with no right of indemnity for the costs he was ordered to pay and his own costs. On appeal, the findings of improper conduct were set aside, as was the costs order against him. Giles JA said (at [259]):

For the reasons I have given, I have come to a different view of the findings of impropriety essential to his Honour’s making of orders 3 and 4. On the view I have come to, it was reasonable for Mr Gould actively to defend the proceedings brought against Securities and against himself as administrator. He was entitled to indemnity for costs reasonably and honestly incurred: Re Beddoe; Downes v Cottam [1892] 1 Ch 547; National Trustees Executors and Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268; [1941] ALR 58; Adsett v Berlouis (1992) 37 FCR 201; 109 ALR 100. It does not matter that at the same time Mr Gould was “defending his own character”: Walter v Woodbridge (1878) 7 Ch D 504. Whether particular costs were reasonably incurred may arise, but there was not impropriety in the administration amounting to misconduct whereby, because defending his own misconduct, Mr Gould did not incur the costs reasonably and honestly.

114    Young CJ in Eq noted that the primary judge, in refusing to allow the administrator and deed administrator an indemnity out of the company assets, had held that it was unreasonable for him to defend the proceeding “given that the gist of the proceedings was to complain, successfully in the result, about the administrator and deed administrator’s improper conduct”. Young CJ in Eq also referred to a general guideline to the effect that a liquidator or administrator acting appropriately is entitled to an order, if unsuccessful, that the costs be paid by the company and not by the liquidator or administrator personally.

115    A deed administrator might incur costs as part of the duty of a reasonable administrator “to put before the court material which the court would need to decide the issues before it”. Young CJ in Eq said (at [429]):

With respect, it does not necessarily follow from Mr Gould’s decision actively to defend the proceedings that all the costs incurred by Securities or Mr Gould were unreasonably incurred. It would be almost certain that some of those costs would be necessary to perform the duty of any reasonable administrator in seeking to put before the Court material which the Court would need to decide the issues before it.

116    In Cadwallader v Bajco Pty Ltd [2002] NSWCA 328, Heydon JA said (at [35]):

Parties who see themselves as having a role of assisting the court in some respects cannot easily also occupy the role of parties advancing positive self-interested claims in other respects – particularly where the arguments advanced by way of assistance to the court are also strongly in the self-interest of those advancing them. Sacro egoismo is not a quality which a statutory office holder can easily claim. The submissions advanced on behalf of the administrators pursuant to their “duty” as liquidators were not noticeably more restrained, in volume and fire, than those otherwise advanced. The result was that the submissions fairly advanced by the administrators in support of the personal conduct of Mr Cardwell and of themselves suffered by association with other submissions. It detracted a little from the dignity of the administrators’ entrance on the appellate scene that the submissions just referred to were accompanied by necessarily mercenary arguments about expenses and costs, but that dignity was affected much more by the advancing of arguments in support of the continuation of the liquidation. In reality, as counsel said in the passage quoted above and elsewhere, it should be a matter of indifference to liquidators in the position of the second defendants in this case whether they remain liquidators, whether they revert to being administrators, or whether they give up all office in the company.

117    In Walters v Woodbridge [1878] 7 Ch D 504 (Walters v Woodbridge), the Court of Appeal decided that a trustee who had acted properly and for the benefit of the estate was not precluded from recouping his costs from the estate (the other party to the litigation being unable to pay) by the fact that at the same time he defended his own character. Jessel MR said (at 509–510):

It seems to me, therefore, to come within the principle that where an action is brought against a trustee in respect of the trust estate, whether it be an action of ejectment, trespass, or of any other description, and is defended by the trustee, not for his own benefit, but for the benefit of the trust estate, he is entitled to indemnity. Here the defence by the trustee was for the benefit of the trust estate; it is true that at the same time he defended his own character, but that was merely an incident. If he had died, and his co-trustees had defended the action, they must at the same time have defended him. The defence of his character, therefore, does not make the defence less a defence on behalf of the trust estate, and there is no reason why he should be left to bear his own costs.

The Orders as to Costs which should be made

118    The issues concerning the costs in this proceeding are complex and it is important that the orders which are made reflect precisely the conclusions I have reached. For those reasons, I will give the parties an opportunity to address the form of the orders which I propose to make, if they are so advised.

119    The orders which I propose to make are as follows:

(1)    The first, fourth, fifth and sixth defendants pay the plaintiff 75% of its costs of the proceeding on a party and party basis to be taxed in default of agreement (Proposed Order 1).

(2)    The fourth, fifth and sixth defendants pay the first defendant’s costs of and incidental to the proceeding, including the first defendant’s liability under Order 1 above, or any other order made this day (Proposed Order 2).

(3)    The second and third defendants pay the plaintiff 40% of its costs of the proceeding on a party and party basis to be taxed in default of agreement (Proposed Order 3).

(4)    The second and third defendants’ costs of and incidental to the proceeding, including their liability under Order 3 above, be paid by them without recourse to the assets of the first defendant.

Proposed Order 1

120    The first issue is whether it is appropriate to treat the company and the directors as, in effect, one party. In my opinion, it is appropriate in the circumstances of this case to proceed in that way.

121    Rino, Jason and Tina are the directors and shareholders of Concrete Supply and the other operating companies in the Mantina Group (i.e., Mantina Earthmovers and Constructions Pty Ltd trading as Mantina Quarries (Mantina Earthmovers) and Mantina Investments) (see the substantive reasons at [2]).

122    Rino and Jason gave instructions in the proceeding on behalf of Concrete Supply. Even if it is to be inferred that Tina had minimal involvement in the giving of instructions, that does not mean that she can avoid a liability for costs. If she left the giving of instructions to Rino and Jason, then she is to be attributed with their conduct and its consequences.

123    Rino and Jason stood to benefit from the rejection of the Debt Claim and the upholding of the DOCA in that they thereby avoided the prospect of claims against them, including insolvent trading claims, and issues arising from, and associated with, the treatment of Concrete Supply’s liability for the purchase of cement from ABCL and the taxation obligations of Concrete Supply (see the substantive reasons at [1395]).

124    Concrete Supply was insolvent at the time it incurred costs in the proceeding and Rino and Jason are taken to have known that fact. They are taken to have known that fact because their claim that Concrete Supply was entitled to a discount or rebate was rejected on the basis that neither of them had a genuine belief that Concrete Supply was entitled to the discount or rebate. As to Rino, I refer to [305] and [354] of the substantive reasons by way of example, and as to Jason, I refer to [413], [423], [425] and [430] of the substantive reasons by way of example. Rino and Jason caused an insolvent company to defend claims thereby, on the face of it, increasing the liabilities of the company which, at least in the case of the Debt Claim, they knew would not, or was most unlikely, to succeed.

125    The next issue is the costs ABCL should recover from the Concrete Supply defendants. I have reached the conclusion that it should recover 75% of its costs of the proceeding on a party and party basis.

126    There was a substantial overlap between the Debt Claim and the DOCA Claim and, in fact, all three claims, being those claims and the Misleading or Deceptive Conduct Claim and Breach of Trust Claim, overlapped. In reasons I delivered well before the trial in Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) [2018] FCA 315, I said the following (at [51] and [54]):

51    In my opinion, the decisive factor in this case is that there is a substantial overlap between ABCL’s claim to set aside or terminate the DOCA and ABCL’s claim in debt. I do not think that the two issues can be compartmentalised in the way suggested by the defendants. I refer to ABCL’s pleadings set out above (at [15]). The matter can be put reasonably simply in the following way. ABCL alleges that the administrators failed to carry out sufficient investigations into the debt and their report was misleading in relation to it and, in those circumstances, ABCL’s case will include evidence of what proper investigations would have revealed and what should have been disclosed to the second meeting of creditors. That will include evidence as to the existence of the debt. It may be possible to determine ABCL’s case concerning the setting aside or termination of the DOCA without deciding whether the debt exists, but that cannot be predicted with confidence at this stage and, in any event, the evidence common to both issues is likely to be substantial. In reaching the conclusions which I have, I have not overlooked the fact that proof of the existence of the debt does not mean that the DOCA will be set aside or terminated.

54.    In the end, the matter which brings the scale down in favour of a grant of leave is the overlap between the claims. In my opinion, the existence of the debt and the circumstances in which it was incurred (if it was incurred) is a common and underlying theme in respect of all three categories of the claim and the Court should take steps to ensure, so far as it is possible to achieve at this stage, that that issue should be examined by a court only once.

Subsequent events, including the trial, have only served to emphasise the extent of the overlap referred to in these passages.

127    There was clearly a relationship between the Debt Claim and the DOCA Claim. If the Debt Claim was not established, then Concrete Supply was not insolvent and the probable result would have been that the administration would have been brought to an end and Concrete Supply would have resumed trading in the usual way. If the Debt Claim was established (as it was) and yet the DOCA upheld (the DOCA was not upheld), then ABCL had only advanced its position to the extent that, by establishing the Debt Claim, it would avoid any future contest about the amount of its proof of debt under the DOCA.

128    The evidence which was said to be relevant to the existence of the discount or rebate was plainly relevant to the investigations carried out by Mr Cantone and questions as to whether those investigations were adequate. The evidence was also relevant to the adequacy of the Second Report to Creditors. I give one example of the overlap. In the substantive reasons, I referred to a document prepared by Concrete Supply and provided to the administrators in mid-November 2017 in response to a request by the administrators for details of the alleged discount or rebate (at [171]). Later in the substantive reasons, I referred to the features of the alleged discount or rebate (a number of which are referred to in the note) in the context of addressing the evidence of the directors (at [281]–[289]) and later still I referred to the investigations carried out by the deed administrators during the administration and, in particular, Mr Cantone’s request for a note, the matters set out in the note and the fact that there were a number of “strange things” about the alleged discount or rebate, a number of which are set out in the note (at [1245]–[1250]).

129    The evidence relating to the alleged discount or rebate included communications between Concrete Supply and ABCL, and this evidence was also clearly relevant to the issue of Rino and Jason’s genuine belief for the purposes of the estoppel plea and to the question of whether ABCL was misled as to the amount Concrete Supply was paying it for the supply of cement.

130    On the one hand, I reject ABCL’s submission that it has been overwhelmingly successful and its lack of success in relation to the Misleading or Deceptive Conduct Claim and the Breach of Trust Claim should not be reflected in the orders as to costs. I consider that these claims were sufficiently identifiable and significant to bear upon the appropriate order as to costs. On the other hand, the fact that all three claims overlapped in the manner which I have identified suggests to me that to make an award of costs “issue by issue” would present the taxing officer with a very difficult exercise. The taxing officer would be left to work out the appropriate characterisation (or characterisations) and then the appropriate allocation to each characterisation of particular items of work. That would occur in circumstances where the taxing officer would have, at least at the outset, considerably less knowledge than I have as to the issues in the proceeding.

131    The process of allocating the costs of particular issues by reference to the evidence, the submissions and the reasons for judgment is difficult in any case, but even more so in a case of three overlapping claims as was the position in this case. In the past, courts have been critical, in terms of accuracy and utility, of such a process and, in my respectful view, rightly so. I am not critical of the parties for putting forward the calculations they did. They did the best they could. However, unless one does a line by line analysis, almost all of the conclusions are contestable. Furthermore, the overlapping nature of the claims means that even a line by line analysis will produce contestable conclusions. I have considered the parties’ submissions. I provide one example of the difficulties of the process by reference to those submissions. The director defendants submit that 15% of the time and cost of the proceeding should be allocated or apportioned to the Debt Claim. They advance calculations based on the number of pages of the transcript of the trial (see Further Submissions on Costs filed on 21 February 2020, para 15, footnote 18). The immediate difficulty with this approach is that it does not include the affidavits. For example, I do not think it can be right to allocate only 45% of Mr D’Alessandro’s evidence overall and the submissions on it to the Debt Claim. An analysis based on the number of paragraphs in his affidavit alone results in a percentage allocation to the Debt Claim of just under 57%, including the introductory paragraphs and just under 68% minus the introductory paragraphs.

132    I have decided to adopt the following approach. First, I consider that if I am able (in terms of doing justice to the parties) to allocate appropriate percentages, in terms of the time and cost of the proceeding, to the three claims, then I should do so. Secondly, I have decided that I am able to do that based on my involvement in the proceeding as docket judge and as trial judge and by reference to some reasonably simple calculations by way of a cross-check.

133    I consider that the Debt Claim and the DOCA Claim were the major claims in terms of the time and cost of the proceeding. The Misleading or Deceptive Conduct Claim and the Breach of Trust Claim were lesser claims in terms of the time and cost of the proceeding, although, as I have said, of sufficient significance to warrant being recognised in the orders for costs. The appropriate allocation, in my view, is 35% for the Debt Claim, 40% for the DOCA Claim and 25% for the Misleading or Deceptive Conduct Claim and the Breach of Trust Claim together.

134    I have performed a calculation using the paragraphs in the opening written submissions of the parties as the basis for allocation. The allocation in ABCL’s opening written submissions is 11.1% (Introduction), 20.7% (Debt Claim), 43.7% (DOCA Claim and Claim for a contravention of s 286 of the Corporations Act) and 24.4% (Misleading or Deceptive Conduct Claim and Breach of Trust Claim). The allocation in the Concrete Supply defendants’ opening written submissions is 12.8% (Introduction and Early Background), 16.0% (Debt Claim), 23.2% (DOCA Claim), 7.2% (Claim for a contravention of s 286 of the Corporations Act) and 40.8% (Misleading or Deceptive Conduct Claim and Breach of Trust Claim). The deed administrators’ opening written submissions are, for all intents and purposes, directed to the DOCA Claim.

135    I have performed a calculation using the paragraphs in the closing written submissions of the parties as the basis for allocation. The allocation in ABCL’s closing written submissions is 5.9% (Introduction), 37.2% (Debt Claim), 28.6% (DOCA Claim and Claim for a contravention of s 286 of the Corporations Act), 28.3% (Misleading or Deceptive Conduct Claim and Breach of Trust Claim). The allocation in the Concrete Supply defendants’ closing written submissions is 13.5% (Introduction and Summary of Evidence), 7.0% (Debt Claim), 43.2% (DOCA Claim), 1.7% (Claim for a contravention of s 286 of the Corporations Act), 34.6% (Misleading or Deceptive Conduct Claim and Breach of Trust Claim). The deed administrators’ closing written submissions are, for all intents and purposes, directed to the DOCA claim, although I note that a small number of paragraphs might be considered to be relevant to the Debt Claim.

136    I have performed a calculation using the paragraphs in the substantive reasons as the basis for allocation. The allocation is 1.8% (Introduction and Conclusions), 38.4% (Debt Claim), 48.3% (DOCA Claim), 0.3% (Claim for a contravention of s 286 of the Corporations Act) and 11.3% (Misleading or Deceptive Conduct Claim and Breach of Trust Claim). If the “directors’ paragraphs” in the Debt Claim are also allocated to the Misleading or Deceptive Conduct Claim and Breach of Trust Claim, then the apportionment is 1.6% (Introduction and Conclusions), 34.5% (Debt Claim), 43.4% (DOCA Claim), 0.3% (Claim for a contravention of s 286 of the Corporations Act) and 20.2% (Misleading or Deceptive Conduct Claim and Breach of Trust Claim). If the “directors’ paragraphs” in the Debt Claim are also allocated to the DOCA Claim (in addition to the Debt Claim and the Misleading or Deceptive Conduct Claim and Breach of Trust Claim), then the apportionment is 1.5% (Introduction and Conclusions), 31.3% (Debt Claim), 48.6% (DOCA Claim), 0.2% (Claim for a contravention of s 286 of the Corporations Act) and 18.3% (Misleading or Deceptive Conduct Claim and Breach of Trust Claim).

137     I recognise the limitations attending these types of calculations. Nevertheless, considered overall and so far as they go, they support the allocation which I think is appropriate.

138    I have reached the conclusion that an appropriate allocation for the costs associated with the Debt Claim and the DOCA Claim is, in the case of ABCL, 75% of its costs of the proceeding. Although it is appropriate to reduce the costs recovered by ABCL to reflect its lack of success with respect to the Misleading or Deceptive Conduct Claim and the Breach of Trust Claim, I do not consider that this is an appropriate case to award costs on those issues to the directors or, as I put it earlier, notionally recognise the unsuccessful party’s entitlement to costs by the size of the reduction in the successful party’s costs. I take that view for two reasons.

139    First, I do not consider that ABCL acted unreasonably or improperly in raising the claims of misleading or deceptive conduct or breach of trust as far as they were made against Concrete Supply. Those claims were, in a sense, the other side of the coin from the Debt Claim. The state of mind of the directors and, in particular, Rino and Jason, was critical to the claim in estoppel and, in those circumstances, it was not unreasonable or improper for ABCL to allege that the directors were accessories in respect of the alternative claims.

140    Secondly, and I refer to this matter as something of a counterbalance to any suggestion that the order causes injustice to the directors, I consider that there is otherwise a strong argument that the Concrete Supply defendants should pay the costs of the Debt Claim on an indemnity basis. Not only is that so because of the fact that the alleged discount or rebate on its face had a number of unusual, if not very unusual, features (see the substantive reasons at [1279]), but more importantly, the argument depended on the directors establishing that they had a genuine belief about the existence of the discount or rebate and their evidence on that topic was not accepted.

141    The director defendants submit that the offer of settlement they made is a reason they should be awarded their costs of ABCL’s unsuccessful claims for misleading or deceptive conduct and breach of trust. That offer of settlement is described earlier in these reasons (at [68]). I reject that submission because the offer to settle the Misleading or Deceptive Conduct Claim and Breach of Trust Claim was not a “stand alone” offer capable of acceptance without accepting all the terms of settlement which included the settlement of claims in relation to which ABCL succeeded. The same point is made with respect to the second offer of settlement insofar as the directors rely on that offer, with the additional point that that offer appears to have been made by Concrete Supply.

Proposed Order 2

142    There is no doubt that the Court has the power to apportion costs between defendants or order a contribution between defendants in relation to costs. That is clearly the position under the general law and is made clear by s 43(3)(c) of the Federal Court of Australia Act.

143    Proposed Order 1 creates a joint and several liability between the defendants referred to in the order. That means that ABCL can, if it chooses, recover all of its costs from one or more of the directors. However, absent an indemnity of the type sought by ABCL, the directors may be in a position to claim a contribution from Concrete Supply with respect to the costs paid by them. Such a claim, would be a claim in the liquidation of Concrete Supply as would the claim for Concrete Supply’s costs, or in the alternative, if those costs have already been paid, the assets of Concrete Supply had been diminished to that extent.

144    At the time Concrete Supply went into administration, the parties with an interest in Concrete Supply’s assets were its creditors. ABCL was owed over 90% of the total debt of the company. Any increase in those liabilities will diminish the dividend paid to ABCL in relation to its Debt Claim.

145    In my opinion, had the directors conceded the Debt Claim, as on my findings they should have done, the claim would not have been litigated. Furthermore, the DOCA Claim may well not have been litigated either. That is certainly the case had the directors acknowledged the debt to ABCL as and when the debt arose. Had they done so when ABCL served its letter of demand in October 2017 (the substantive reasons at [738]), matters thereafter may well have proceeded in quite a different way. The debt owed by Concrete Supply to ABCL would not have been assumed, but would have been admitted by the directors with all the differences that might have led to in terms of the conduct of the administrators, and indeed, by the directors themselves.

146    In my opinion, Proposed Order 2 should be made.

Proposed Order 3

147    ABCL presented with some force an argument to the effect that most of the time and cost of the proceeding should be allocated to the DOCA Claim. However, I reject the argument because I consider that the claims were sufficiently distinct, at least from the point of view of the costs of ABCL which the second and third defendants should be ordered to pay. Based on my earlier analysis, I am of the opinion that the allocation of 75% should be apportioned 35% to the Debt Claim and 40% to the DOCA Claim.

148    The deed administrators must pay 40% of ABCL’s costs of the proceeding. ABCL made a submission that the approach of the deed administrators to the litigation warranted an award of indemnity costs against them. It submits that the deed administrators were wholly unsuccessful in their defence of themselves and of the DOCA and that the serious deficiencies in their investigation meant that their defence of the DOCA Claim was doomed to failure from the outset and that ABCL and Concrete Supply were put to an unnecessary cost as a consequence. A problem with this last point is that whatever the deed administrators did, the Concrete Supply defendants were defending the DOCA Claim. ABCL also submits that the professed purpose of the deed administrators of assisting the Court was undermined by “their failure to be candid in their evidence”. The problem with this submission is that it is not correct in relation to Mr Cooper’s evidence and, although there were a number of unsatisfactory features of Mr Cantone’s evidence, they do not rise to the level of justifying an award of indemnity costs.

149    I will address the submission made by the deed administrators that their liability under the order should be limited to the assets of Concrete Supply when I come to deal with their right of indemnity.

150    The Concrete Supply defendants submit that the costs both they and the deed administrators are ordered to pay should be apportioned on a 25%/75% basis in their favour because the costs of the unsuccessful defence to the DOCA Claim was caused by the many failures of the deed administrators. I reject this argument for two reasons. First, the conduct of the deed administrators relied on by the Concrete Supply defendants for the purposes of this submission does not directly relate to the proceeding. Ordinarily, the conduct relevant to the apportionment of costs between defendants will be conduct in the proceeding and not conduct prior to the proceeding, and the subject of the proceeding. Secondly, it may be possible to apportion costs between defendants on the basis of the respective contributions to the conduct giving rise to the proceeding where the respective contributions is an actual issue in the case and is the subject of the Court’s decision or a transparent settlement. Although the submission by the Concrete Supply defendants outlined above (at [86](5)) seems to be directed to respective contributions in this sense, the fact is that the respective contributions was not an actual issue in the case and was not the subject of the Court’s decision.

151    At the same time, I see no reason to apportion costs in relation to the DOCA Claim on a 25%/75% basis in favour of the deed administrators. It seems to me that, as far as the DOCA Claim is concerned, there is no reason to distinguish between the deed administrators and the Concrete Supply defendants.

Proposed Order 4

152    Proposed Order 4 involves a rejection of the two orders sought by the deed administrators.

153    An administrator of a company has a right of indemnity under the general law and under s 443D of the Corporations Act. Section 443D is in the following terms:

443D Right of indemnity

The administrator of a company under administration is entitled to be indemnified out of the company’s property (other than any PPSA retention of title property subject to a PPSA security interest that is perfected within the meaning of the Personal Property Securities Act 2009) for:

(a)    debts for which the administrator is liable under Subdivision A or a remittance provision as defined in subsection 443BA(2); and

(aa)    any other debts or liabilities incurred, or damages or losses sustained, in good faith and without negligence, by the administrator in the performance or exercise, or purported performance or exercise, of any of his or her functions or powers as administrator; and

(b)    the remuneration to which he or she is entitled under Division 60 of Schedule 2 (external administrator’s remuneration).

154    The debts covered by the administrator’s right of indemnity are given a certain priority in the winding up of a company (see ss 443E and 556(1)(c)).

155    A deed administrator generally has a right of indemnity under the deed of company arrangement appointing him or her to the position, and may also have a right of indemnity under the general law. The debts covered by the right of indemnity are given a certain priority in the winding up of a company (s 556(1)(dd) of the Corporations Act). The termination of a deed of company arrangement does not affect “the previous operation of the deed” (s 445H). A deed administrator does not have a right of indemnity under s 443D. That section does not in its terms (“the administrator of a company under administration …”) apply to a deed administrator under a deed of company arrangement. This was the view of Austin J in Cresvale Far East (at [67]) and is a view with which I respectfully agree. It was not altered by anything said by the Court on the appeal (Kirwan v Cresvale Far East).

156    The clauses in the DOCA which were relied by the deed administrators were cll 15.3, 16.1, 16.2 and 16.3.

157    Clause 15.3 is in the following terms:

15.3    Deed Administrators Not Personally Liable

Subject to any relevant provisions of the Act in the performance or exercise of the Deed Administrators’ powers, obligations, functions and duties under this Deed, the Deed Administrators will not be personally liable for:

(a)    any debts, liabilities, obligations or claims of any kind whatsoever incurred by or on behalf of the Company whether before, during or after the period of the operation of this Deed; or

(b)    any loss or damage of any kind whatsoever excluding loss or damage arising from fraud or gross negligence default or omission of the Deed Administrators or any person or body corporate or incorporate acting on their behalf in exercising their powers, obligations functions or duties under this Deed.

This clause does not assist the deed administrators in terms of a costs order made against them or their own costs. Those costs are not debts, liabilities, obligations or claims “incurred by or on behalf of the Company” within cl 15.3(a). The deed administrators were not acting on behalf of the company. As I have said, the directors were giving instructions to Crawford Legal on behalf of the company. Nor, in my opinion, do the costs I have identified amount to “loss or damage” within cl 15.3(b) of the DOCA when that paragraph is read in the context in which it appears.

158    Clause 16.1 is in the following terms:

16.1    Calculation of Remuneration

The Deed Administrators will be remunerated by the Company, and will be entitled to draw from the Deed Fund for their work as Deed Administrators. The Deed Administrators will be entitled to employ staff to assist them in the performance or exercise of their duties, obligations, responsibilities and powers under this Deed and the remuneration of the Deed Administrators, their employees and staff will be calculated in accordance with the rates of charge issued from time to time by the Deed Administrators plus GST payable thereon, determined according to and as required by law

This clause relates to the remuneration and calculation thereof of the deed administrators and that is not relevant to the issues under consideration.

159    Clause 16.2 is in the following terms:

16.2    Indemnities

(a)    Nature of Indemnities

The Company covenants with the Administrators and Deed Administrators that they are indemnified and will be kept indemnified from Property and the Deed Fund in respect of the following:

(1)    Administrators’ Remuneration;

(2)    Administrators’ Disbursements;

(3)    Administrators’ Liabilities;

(4)    Deed Administrators’ Remuneration;

(5)    Deed Administrators’ Disbursements;

(6)    Deed Administrators’ Liabilities.

The Deed Fund is defined in cl 8 and “Property” is defined in cl 1.1 as follows:

Property means any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description of the Company and includes a thing in action;

160    The relevant matters in cl 16.2(a) for present purposes are “Deed Administrators’ Disbursements” and “Deed Administrators’ Liabilities”. Those terms are defined in cl 1.1 of the DOCA in the following way:

Deed Administrators’ Disbursements means all incidental costs and disbursements incurred by the Deed Administrators from the Commencement Date to the Termination Date in connection with the implementation of this Deed and the performance of the Deed Administrators’ duties including, but not limited to, all legal costs incurred by the Deed Administrators plus any GST payable thereon;

Deed Administrators’ Liabilities means:

(a)    any debt or other obligation incurred by the Company for which the Deed Administrators are liable and which were incurred during the period from the Commencement Date to the Termination Date;

(b)    any debts or other obligations incurred by the Deed Administrators during the period from the Commencement Date to the Termination Date;

(c)    all actions, suits, proceedings, accounts, claims and demands arising after the Commencement Date, out of or relating to this Deed which may be commenced, incurred by or made on the Deed Administrators (in any capacity), by any person and against all costs, charges and expenses incurred by the Deed Administrators; and

(d)    any amount in respect of which the Deed Administrators are entitled to the benefit of the indemnity in clause 16.2 of this Deed;

161    I should mention two other features of the DOCA. Under cl 7, the company is returned to the control of the directors upon the execution of the Deed by all parties, and under cl 8, the deed administrators hold the Deed Fund defined in that clause on trust for their benefit and for creditors in accordance with terms of the Deed.

162    Schedule 8A to the Corporations Regulations 2001 (Cth) provides for prescribed provisions in the case of a deed of company arrangement and reg 5.3A.06 provides that for subs 444A(5) of the Act, the prescribed provisions are those set out in Sch 8A. Section 444A(5) provides that the deed of company arrangement is taken to include the prescribed provisions accept so far as it provides otherwise. The DOCA provides in cl 5.1 as follows:

5.1    Regulations

Each of the prescribed provisions contained in Schedule 8A of the Regulations is included in this Deed, save to the extent that they are expressly excluded in this Deed. If any provision in this Deed contradicts any provision in Schedule 8A, then this Deed will prevail.

163    The prescribed provisions in Sch 8A include a provision to the effect that in exercising the powers conferred by this deed and carrying out the duties arising under this deed, the administrators are taken to act as agent for and on behalf of the company. This means that the deed administrator owes fiduciary obligations to the company. In Cresvale Far East, Austin J set out provisions of the deed of company arrangement in issue in that case (at [75]) and then said (at [76]):

While those provisions do not, in terms, incorporate the limitation that the right of reimbursement is available only where the administrator acts properly and reasonably (in other words, the limitation explained in Adsett v Berlouis), it seems to me that such a limitation must be implied, because of the fiduciary nature of the administrator’s office. As an agent and a fiduciary, an administrator must exercise his or her powers subject to equitable limitations. Nothing in the DCA purports to exclude such a limitation.

In my respectful opinion, his Honour is correct and the fiduciary nature of the deed administrators’ position means that the same limitation on their right of indemnity under the general law applies to their right of indemnity under the DOCA.

164    The deed administrators were not acting on behalf of Concrete Supply in the proceeding. Concrete Supply was represented by Crawford Legal and was seeking to uphold the DOCA and resist an order that the DOCA be set aside. The deed administrators asserted in their letter dated 29 November 2018 that they had been impartial throughout the action with respect to the outcome of the relief whereby ABCL sought to set aside the DOCA. In submissions, the deed administrators said that they had been impartial and left it up to the Court to determine whether the DOCA should be set aside.

165    It is convenient to repeat again what the deed administrators said in their letter dated 29 November 2018. It was as follows:

We once again confirm that our clients defend the Action firstly, for the purpose of assisting the Court by providing relevant evidence to inform the Court’s decision-making, and secondly, because your client has chosen to make serious and unsupported allegations with respect to our clients’ professional conduct in the course of the administration of the Company.

166    Dealing with the first purpose of assisting the Court by providing relevant evidence to inform the Court’s decision-making, I have already referred to the remarks of Young CJ in Eq in Kirwan v Cresvale Far East (at [115]). It may be accepted that deed administrators have a duty to assist the Court and that may involve putting information before the Court and incurring costs in doing so. Those costs reasonably and properly incurred may be recovered by the deed administrators under their right of indemnity. Critically, what is reasonable assistance depends on the circumstances of the case. If in doubt as to what is reasonable assistance in any particular case, the deed administrators may make a formal application under s 90-15(3)(a) of Sch 2 of the Corporations Act for directions. In this case, the deed administrators went well beyond what could be considered reasonable assistance on any view. They were not representing Concrete Supply and yet they fully participated in the trial in the manner I have previously outlined (at [70]). Concrete Supply was represented and was presenting a defence, which included expert evidence, seeking to maintain the DOCA. At no point during the proceeding were the deed administrators putting a position on behalf of Concrete Supply. That was done by Crawford Legal and the counsel they instructed. Whatever was reasonable assistance in this case, it was a great deal less than the deed administrators’ actual involvement. I say “whatever was reasonable assistance in this case” because the deed administrators did not put an alternative claim in terms of their liabilities in relation to, or their costs of, the proceeding. They must be taken to have chosen not to do so. I should add that an alternative claim would not involve an exercise of starting with the existing claim and then removing certain items, but rather, a completely new and different counterfactual.

167    The other purpose advanced by the deed administrators for their involvement in the proceeding, namely, to defend serious and unsupported allegations with respect to their conduct in the course of the administration is not a proper purpose. It is true that it is not a disqualifying factor if it is merely an incident of an exercise of a power for a proper purpose (Walters v Woodbridge at 509 per Jessel MR). However, in this case, there is no proper purpose to which it was an incident.

168    For the purposes of their right of indemnity, the deed administrators cannot rely on the purpose of defending serious and unsupported allegations with respect to their professional conduct in the course of the administration. I should say that even if that was a proper purpose, ABCL has another argument which has considerable force, but which I do not need to decide, that the failures on the part of the deed administrators in their investigations and in their preparation of the Second Report to Creditors outlined in summary form below are so substantial that no reasonable person in the shoes of the deed administrators would have expended funds in defending the allegations. In saying this, I acknowledge that I did not find that Mr Cantone was acting at the behest of the directors (the substantive reasons at [1368]), however, it would seem to me to be appropriate to look at the allegations in the round and many of them were allegations which I upheld.

169    My findings in the substantive reasons concerning the inadequacies in the deed administrators’ investigations and the deficiencies in the Second Report to Creditors may be summarised as follows:

(1)    a failure to investigate Concrete Supply’s debt to ABCL and the impact of the debt on Concrete Supply’s accounts and on its solvency ([1244]–[1249] and [1278]–[1289]);

(2)    a failure to investigate the assets of the directors (at [1317]–[1320]);

(3)    a failure to investigate invoices from Mantina Earthmovers and a dramatic fall in the debt owed by Mantina Earthmovers in the period shortly before the administration and a failure to assess properly the recoverability of the debt (at [1334]–[1340]);

(4)    incorrectly stated in the Second Report to Creditors that Concrete Supply’s books and records complied with s 286 of the Corporations Act when they did not (at [1374]);

(5)    a failure to explain in the Second Report to Creditors any possibility of an earlier date of insolvency, and the consequences for insolvent trading and other potential claims against the directors (at [1374]);

(6)    incorrectly stated in the Second Report to Creditors that the deed administrators were currently seeking legal advice from counsel (at [1376]);

(7)    a failure to qualify the opinion about the recoverability of the Mantina Earthmovers debt in the Second Report to Creditors (at [1375]);

(8)    the flaws in Mr Cantone’s exercise of his casting vote (at [1412]); and

(9)    other failures in the administration (at [1358]–[1362]).

Conclusion

170    I refer to the proposed orders set out in these reasons (at [119]). I will give the parties an opportunity address the form of the orders, if they are so advised.

Associate:    

Dated:    6 July 2020

SCHEDULE OF PARTIES