FEDERAL COURT OF AUSTRALIA

Hamilton, in the matter of Aquagenics Pty Ltd (in liq) v Tasmanian Water & Sewerage Corporation Pty Ltd (No 2) [2022] FCA 1370

ORDERS

THE COURT ORDERS THAT:

Terms used in this order have the following meaning:

Act means the Corporations Act 2001 (Cth).

Aquagenics means Aquagenics Pty Ltd (in liquidation), the second plaintiff in this proceeding.

Costs Sum means the amount of $125,000 paid to Aquagenics on 24 October 2018 by TasWater in the Indemnity Proceeding in respect of Aquagenics’ legal costs. The first plaintiff has retained this amount on behalf of Aquagenics.

Disputed Pool means the Principal Judgment Sum, Pre-Judgment Interest Sum, the Post-Judgment Interest Sum and the Costs Sum.

DOCA means the deed of company arrangement between Aquagenics, Hayes and William Day dated 25 September 2013.

Funding Agreement means the agreement between the first plaintiff and TasWater entered into on or about 15 June 2015, by which TasWater indemnified the first plaintiff for the costs and expenses of the Indemnity Proceeding.

Hayes means Alan Hayes, the former deed administrator of the DOCA and interested person in this proceeding.

Indemnity Proceeding means proceeding no. TAD 57 of 2015.

Post-Judgment Interest Sum means the amount of $89,179.06 paid to Aquagenics on 11 April 2018 in respect of interest accrued on the Principal Judgment Sum between 23 June 2017 and 11 April 2018. The first plaintiff has retained this amount on behalf of Aquagenics.

Pre-Judgment Interest Sum means the amount of $90,946.00 paid to Aquagenics by TasWater in the Indemnity Proceeding following an order of this Court on 23 June 2017 that TasWater pay pre-judgment interest on the Principal Judgment Sum from 26 February 2016 to 23 June 2017, calculated under s 57 of the Insurance Contracts Act 1984 (Cth). The first plaintiff subsequently paid this amount to TasWater in full.

Principal Judgment Sum means the amount of $1,695,092.00 paid to Aquagenics by TasWater in the Indemnity Proceeding following an order of this Court on 23 June 2017, in respect of an indemnity which TasWater gave Aquagenics pursuant to a contract of insurance. The first plaintiff subsequently paid this amount to TasWater in full.

Schedule means Schedule 2 – Insolvency Practice Schedule (Corporations) to the Act.

TasWater means Tasmanian Water & Sewerage Company Pty Ltd.

1.    The first plaintiff’s remuneration, costs and expenses of recovering the Disputed Pool, including his remuneration, costs and expenses of this proceeding, be paid on an indemnity basis (Liquidator Entitlements).

2.    TasWater’s costs of this proceeding be paid on an indemnity basis (TasWater Costs).

3.    The costs of Hayes of this proceeding be paid on a party/party basis, in an amount as agreed by the first plaintiff or as taxed (Hayes Costs).

4.    Pursuant to s 564 of the Act, TasWater be paid an advantage from the Disputed Pool of:

(a)    $71,256.61 being the additional (GST exclusive) legal costs and expenses paid by TasWater pursuant to the Funding Agreement (TasWater Funding Payment); and

(b)    $24,163.50 being the (GST exclusive) costs of Hayes paid by TasWater pursuant to the order of Middleton J in Tasmanian Water & Sewerage Corporation Pty Ltd v Hayes [2015] FCA 506 (TasWater Remuneration Payment).

5.    The first plaintiff is justified and acting reasonably in causing Aquagenics to:

(a)    apportion the Pre-Judgment Interest Sum and the Post-Judgment Interest Sum:

(i)    73.81% as to TasWater;

(ii)    26.19% as to Aquagenics;

(b)    recover from TasWater, including the commencement of proceedings against TasWater within 28 days of the date of this order (or such other time as agreed between the first plaintiff and TasWater) for the recovery of, the amounts of:

(i)    $443,901.86 from the Principal Judgment Sum; and

(ii)    $23,816.61 from the Pre-Judgment Interest Sum

less a deduction by way of set-off of the amounts of:

(iii)    $65,825.17 of the Post-Judgment Interest Sum; and

(iv)    $125,000.00, being the entirety of the Costs Award; and

(c)    pay the amounts referred to in these orders from the funds retained and recovered by Aquagenics pursuant to order 5(b) above, in the following priority:

(i)    first, the Liquidator Entitlements;

(ii)    second, the TasWater Funding Payment;

(iii)    third, the TasWater Costs;

(iv)    fourth, the Hayes Costs; and

(v)    fifth, the TasWater Remuneration Payment and the remuneration and expenses of Hayes.

6.    Pursuant to s 90-15 of the Schedule or further and alternatively s 447A of the Act, the DOCA be re-instated with effect from the date of these orders and any funds retained and recovered by Aquagenics pursuant to order 5(b) above, after deduction of those amounts referred to in order 5(c) above, are to form part of the “Deed Fund”, notwithstanding clauses 4(vi) and 5(d) of the DOCA.

7.    Pursuant to s 90-15 of the Schedule or further and alternatively s 447A of the Act, that Hayes cease to be the deed administrator of Aquagenics and that the first plaintiff be appointed as the deed administrator of Aquagenics.

8.    Pursuant to s 90-15 of the Schedule or further and alternatively s 447A of the Act, that the DOCA be varied so that:

(a)    clause 5(a)(i)-(iii) is deleted and replaced with the following:

“(a)    Subject to clauses 6 and 7 the Deed Fund will be distributed in the order of priorities given by s. 556 of the Act”;

(b)    clause 13.2 of the DOCA is amended as follows: “Subdivisions A, B, C and E of Division 6 and section 562 of Part 5.6 of the Act …”;

9.    Within 7 days of the date of this order, the first plaintiff must give or send to creditors of Aquagenics notice of this order, which notice may be validly given or sent by sending this order and any related correspondence to the last known email address or postal address retained in the records of Aquagenics for that creditor.

10.    Any person with sufficient interest to discharge or alter the above orders have liberty to apply on 3 business days’ notice, and any such application be made within 14 days of any notification under order 9.

11.    Mr Day pay the plaintiffs’ and TasWater’s costs of the case management hearing on 21 September 2022, to be taxed or agreed, and pay to the first plaintiff the sum of $5,205 for Court fees thrown away.

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

REASONS FOR JUDGMENT

O’CALLAGHAN J:

1    This is an application brought by the plaintiffs’ originating process filed 14 September 2021 under s 90-15 of Schedule 2 to the Corporations Act 2001 (Cth) (the Act) (the Insolvency Practice Schedule (Corporations) (Schedule)), s 447A of the Act and/or the inherent jurisdiction of the court. The first plaintiff, Mr Barry Hamilton (the liquidator or Mr Hamilton), is the sole liquidator of the second plaintiff, Aquagenics Pty Ltd (Aquagenics).

2    The application concerns the recovery and distribution of:

(a)    a judgment sum of $1,695,082 and an award of pre-judgment interest of $90,946 awarded to Aquagenics by order of this court on 26 June 2017 in proceeding TAD 57 of 2015; and

(b)    party/party costs of $125,000 and post-judgment interest of $89,179.06 which was, by agreement between the parties, quantified and paid to Aquagenics in the same proceeding,

collectively, the Disputed Pool.

3    The plaintiffs sought orders and directions, among others, that the liquidator is justified and acting reasonably in causing Aquagenics to:

(a)    apportion the awards of interest:

(i)    73.81% as to the defendant, Tasmanian Water & Sewerage Corporation Pty Ltd (TasWater), pursuant to s 562 of the Act; and

(ii)    26.19% as to Aquagenics;

(b)    recover from TasWater, including commencing proceedings against TasWater within 28 days (or such other time as agreed between the liquidator and TasWater) for the recovery of the amounts of:

(i)    $443,901.86 from the judgment sum; and

(ii)    $23,816.61 from the pre-judgment interest sum;

less a deduction by way of set-off of the amounts of:

(iii)    $65,825.17 of the post-judgment interest sum; and

(iv)    $125,000, being the entirety of the costs award.

4    The plaintiffs also sought an order pursuant to s 90-15 of the Schedule, or further and alternatively s 447A of the Act, that the deed of company arrangement between Aquagenics, Mr William Day (a director of Aquagenics) and Mr Alan Hayes (the deed administrator of Aquagenics) (DOCA) be reinstated and that any funds retained and recovered by Aquagenics are to form part of the “Deed Fund”.

5    At the case management hearing on 8 October 2021, I made orders that Mr Hayes and Mr Day be given leave to be heard in this proceeding as interested persons without becoming a party to the proceeding, pursuant to r 2.13(1) of the Federal Court (Corporations) Rules 2000 (Cth).

6    Mr Hayes, by interlocutory process dated 15 November 2021, sought orders under ss 449E(1A)(c) and 1581(1) of the Act and r 9.2 of the Federal Court (Corporations) Rules 2000 (Cth) for the determination of his remuneration, and ancillary orders.

7    Mr Hayes has not been paid remuneration and expenses as deed administrator (with the unpaid sums totalling $110,128.95 plus GST).

8    The plaintiffs also sought an order pursuant to s 90-15 of the Schedule, or further and alternatively s 447A of the Act, that Mr Hayes cease to be the deed administrator of Aquagenics and that Mr Hamilton be appointed as the deed administrator of Aquagenics.

9    Mr Day was a director of Aquagenics. At the March hearing, Mr Day filed no documents in the proceeding. Mr P Zeeman of counsel appeared for Mr Day and did not “have any additional submissions other than to support the submissions by Mr [C] Groves and Mr [J] Hamilton” (who appeared for the plaintiffs and Mr Hayes, respectively).

10    At the March hearing, it was agreed that I should decide three preliminary questions, and having done so, relist the matter for further hearing. The three questions, and the answers, were:

(1)    Did TasWater validly allocate the security realisation proceeds firstly in satisfaction of that part of its claim for which Aquagenics was uninsured?

Answer: No.

(2)    If no, how should the insurance proceeds be apportioned across TasWater’s claim?

Answer: The insurance proceeds should be apportioned 84% to TasWater and 16% to Aquagenics; and both pre- and post-judgment interest should be apportioned 73.81% to TasWater and 26.19% to Aquagenics.

(3)    As to the funds remaining with Aquagenics, what if any further advantage should be given to TasWater pursuant to s 562 or s 564 of the Act?

Answer: None pursuant to s 562. Under s 564, it was appropriate that TasWater be paid an advantage in the amount of the total of the expenses referred to in J1[58] and [59].

See Hamilton, in the matter of Aquagenics Pty Ltd (in liq) v Tasmanian Water & Sewerage Corporation Pty Ltd [2022] FCA 530 (J1).

11    A further hearing took place on 4 November 2022.

12    It emerged at that hearing, and it was common ground, that the answer to the first part of the second question reflected incorrect figures, and that in light of my reasons the answer should have read: “The insurance proceeds should be apportioned 73.81% to TasWater and 26.19% to Aquagenics”.

13    I will not repeat the relevant facts. I assume that the reader of these reasons has read my reasons in J1, in particular the facts set out at [7]-[42].

14    It is necessary, however, to record what happened between the time of the publication of my reasons in J1 (10 May 2022) and the November hearing.

15    On 15 August 2022, I made the following orders:

1.    That within 14 days, Mr Day advise the Court and the other parties what orders he contends should be made within the current proceeding, and commence and serve any further application or proceedings he wishes to commence and which relate to the relief sought within this proceeding.

2.    That within a further 14 days, each other party and person joined:

(a)    advise what, if any, orders proposed by Mr Day are agreed; and

(b)    if not agreed, advise the Court and the other parties what orders are sought or which it is said should be made within this proceeding.

3.    That this proceeding be listed for a directions hearing before Justice O’Callaghan on 21 September 2022 at 9.30am in Hobart.

16    Mr Day did not comply with order 1.

17    Instead, he caused to be published in “The Mercury” newspaper the following notice on 16 September 2022:

18    A further case management hearing, at which all parties, and Mr Day and Mr Hayes, were represented, was convened on 21 September 2022. The following orders were made:

1.    That the order made on 15 August 2022 be vacated and replaced with an order that “Mr Day commence and serve, including any affidavit(s) in support, any further application or proceeding he may be advised to commence, and which relates to the relief sought within this proceeding by 4:00pm on 19 October 2022.”

2.    Any respondent to any such proceeding, if commenced, is to file and serve any response, by affidavit or otherwise, by 28 October 2022

3.    That the legal representatives of each party or interested person are to confer in relation to the question of what orders should be made in light of the Court’s reasons of 10 May 2022, by 7 October 2022.

4.    Mr Day file and serve any written submissions in relation to the orders that he seeks contained within Exhibit WGD-2 in his affidavit affirmed 20 September 2022, by 4:00pm on 19 October 2022.

5.    Any other party or interested person file and serve written submissions in response to or in relation to any other issue by 4:00pm on 28 October 2022.

6.    The further hearing of the proceeding and any hearing of any additional application or proceeding to be commenced by Mr Day be set down for hearing on 3 and 4 November 2022.

7.    Reserve the costs of today’s hearing.

19    On 2 November 2022, the plaintiffs paid the court setting down and hearing fees for a two day hearing, totalling $10,410.

20    In the events that occurred, Mr Day made no application of the kind contemplated by order 1 of the 21 September orders.

21    At the hearing on 4 November 2022, Mr Groves for the plaintiffs proffered the following proposed orders (as amended to reflect changes that were either consented to or not opposed):

PRELIMINARY:

Terms used in this proposed minute of order have the following meaning, except where otherwise indicated:

Act means the Corporations Act 2001 (Cth).

Aquagenics means Aquagenics Pty Ltd (in liquidation), the second plaintiff in this proceeding.

Costs Sum means the amount of $125,000 paid to Aquagenics on 24 October 2018 by the defendant in the Indemnity Proceeding in respect of Aquagenics’ legal costs. The first plaintiff has retained this amount on behalf of Aquagenics.

Disputed Pool means the Principal Judgment Sum, Pre-Judgment Interest Sum, the Post-Judgment Interest Sum and the Costs Sum.

DOCA means the deed of company arrangement between Aquagenics, Hayes and William Day dated 25 September 2013[.]

Funding Agreement means the agreement between the first plaintiff and TasWater entered into on or about 15 June 2015, by which TasWater indemnified the first plaintiff for the costs and expenses of the Indemnity Proceeding.

Hayes means Alan Hayes, the former deed administrator of the DOCA and interested person in this Proceeding.

Indemnity Proceeding means proceeding no. TAD 57 of 2015 in this Honourable Court.

Post-Judgment Interest Sum means the amount of $89,179.06 paid to Aquagenics on 11 April 2018 in respect of interest accrued on the Principal Judgment Sum between 23 June 2017 and 11 April 2018. The first plaintiff has retained this amount on behalf of Aquagenics.

Pre-Judgment Interest Sum means the amount of $90,946.00 paid to Aquagenics by the defendant in the Indemnity Proceeding following an order of this Court on 23 June 2017 that the defendant pay pre-judgment interest on the Principal Judgment Sum from 26 February 2016 to 23 June 2017, calculated under s 57 of the Insurance Contracts Act 1984 (Cth). The first plaintiff subsequently paid this amount to TasWater in full.

Principal Judgment Sum means the amount of $1,695,092.00 paid to Aquagenics by the defendant in the Indemnity Proceeding following an order of this Court on 23 June 2017, in respect of an indemnity which the defendant gave Aquagenics pursuant to a contract of insurance. The first plaintiff subsequently paid this amount to TasWater in full.

TasWater means the Tasmanian Water & Sewerage Company Pty Ltd, the defendant in this proceeding.

ORDERS:

1.    The first plaintiff’s remuneration, costs and expenses of recovering the Disputed Pool, including his remuneration, costs and expenses of this proceeding, be paid on an indemnity basis (Liquidator Entitlements).

2.    The defendant’s costs of this proceeding be paid on a party/party basis, in an amount as agreed by the first plaintiff or as taxed (TasWater Costs).

3.    The costs of Hayes of this proceeding be paid on a party/party basis, in an amount as agreed by the first plaintiff or as taxed (Hayes Costs).

4.    Pursuant to s 564 of the Act, the defendant be paid an advantage from the Disputed Pool of:

a.    $71,256.61 being the additional (GST exclusive) legal costs and expenses paid by TasWater pursuant to the Funding Agreement (TasWater Funding Payment); and

b.    $24,163.50 being the (GST exclusive) costs of Hayes paid by TasWater pursuant to the order of Middleton J in Tasmanian Water & Sewerage Corporation Pty Ltd v Hayes [2015] FCA 506 (TasWater Remuneration Payment).

5.    The first plaintiff is justified and acting reasonably in causing Aquagenics to:

a.    apportion the Pre-Judgment Interest Sum and the Post-Judgment Interest Sum:

i.    73.81% as to TasWater;

ii.    26.19% as to Aquagenics;

b.    recover from TasWater, including the commencement of proceedings against TasWater within 28 days of the date of this order (or such other time as agreed between the first plaintiff and TasWater) for the recovery of, the amounts of:

i.    $443,901.86 from the Principal Judgment Sum; and

ii.    $23,816.61 from the Pre-Judgment Interest Sum

less a deduction by way of set-off of the amounts of:

iii.    $65,825.17 of the Post-Judgment Interest Sum; and

iv.    $125,000.00, being the entirety of the Costs Award; and

c.    pay the amounts referred to in these orders from the funds retained and recovered by Aquagenics pursuant to order 5.b above, in the following priority:

i.    first, the Liquidator Entitlements;

ii.    second, the TasWater Funding Payment[;]

iii.    third, the TasWater Costs;

iv.    fourth, the Hayes Costs; and

v.    fifth, the TasWater Remuneration Payment and the remuneration and expenses of Hayes.

6.    Pursuant to s. 90-15 of the Schedule or further and alternatively s 447A of the Act, the DOCA be re-instated with effect from the date of these orders and any funds retained and recovered by Aquagenics pursuant to order 5.b above, after deduction of those amounts referred to in order 5.c above, are to form part of the “Deed Fund”, notwithstanding clause 4(vi) and 5(d) of the DOCA.

7.    Pursuant to s 90-15 of the Schedule or further and alternatively s 447A of the Act, that Alan Hayes cease to be the deed administrator of Aquagenics and that the first plaintiff be appointed as the deed administrator of Aquagenics.

8.    Pursuant to s 90-15 of the Schedule or further and alternatively s 447A of the Act, that the DOCA be varied so that:

a.    clause 5(a)(i)-(iii) is deleted and replaced with the following:

“(a)    Subject to clauses 6 and 7 the Deed Fund will be distributed in the order of priorities given by s. 556 of the Act”.

b.    clause 13.2 of the DOCA is amended as follows: “Subdivisions A, B, C and E of Division 6 and section 562 of Part 5.6 of the Act…”;

9.    Within 7 days of the date of this order, the first plaintiff must give or send to creditors of Aquagenics notice of this order, which notice may be validly given or sent by sending this order and any related correspondence to the last known email address or postal address retained in the records of Aquagenics for that creditor.

10.    Any person with sufficient interest to discharge or alter the above orders have liberty to apply on 3 business days’ notice, and any such application be made within 14 days of any notification under order 9.

22    Subject to what was put on behalf of Mr Day, orders 1, 3, 4, 5, 6, 7, 8, 9 and 10 were either consented to or not opposed.

23    In written submissions filed on behalf of Mr Day, he:

(1)    opposed the reinstatement of the DOCA;

(2)    opposed an order for costs in favour of the liquidator;

(3)    opposed an order for costs in favour of TasWater;

(4)    opposed an order for costs in favour of Mr Hayes; and

(5)    submitted that his costs should be borne by the liquidator and/or TasWater.

24    At the hearing, I understood Mr L Shipway, who appeared for Mr Day, not to press the first or fourth points.

25    I need not say anything more about the remaining points, save to say that no tenable reason was advanced in respect of any of them. They are manifestly untenable points.

26    There was no dispute about reinstating the DOCA. I agree that the order in that regard is appropriate.

27    Justice Middleton terminated the DOCA in 2015 pursuant to s 445D(1)(g) of the Act because, as was then the understanding of the parties, “the DOCA ha[d] been fully effectuated, save that [Aquagenics] has potential claims against insurers, the sole beneficiary of which, under s 562 of the Act, [was TasWater]”. See Tasmanian Water & Sewerage Corporation Pty Ltd v Hayes [2015] FCA 506 at [6]. As was agreed, that understanding proved to be incorrect, because TasWater was not the sole beneficiary of the sum received for the claim against the insurer, for the reasons I explained in J1. It makes sense now to reinstate the DOCA so that the monies controlled by the plaintiffs can be distributed in accordance with the terms of the DOCA, and bring the saga to an end.

28    Two issues thus remain:

(1)    whether TasWater’s costs should be paid on an indemnity or party/party basis; and

(2)    what responsibility Mr Day should bear in terms of costs.

29     The plaintiffs made this submission about the first point:

14.    TasWater was a proper contradictor to the liquidator’s application for judicial advice. It was also successful in obtaining a decision from the Court entitling it to an order under s. 564 of the Corporations Act, albeit not to the extent sought. The liquidator submits that TasWater is, for these reasons, a person recognised by the authorities … as usually entitled to have its costs paid from the relevant fund.

15.    However, in the liquidator’s submission, some deduction against the usual award of indemnity costs should be made in the Court’s discretion, in recognition of:

(a)    TasWater’s failure on the first question of allocation;

(b)    the rejection of TasWater’s submissions as to the proper interpretation of s. 562 of the Corporations Act; and

(c)    the rejection by the Court of the contested portion of TasWater’s application pursuant to s. 564 of the Corporations Act.

16.    In recognition of TasWater’s failures on these adversarial contests within the proceeding, the liquidator submits that the Court should adopt a ‘broadaxe’ assessment in discounting TasWater’s costs, and that an appropriate order is that TasWater’s costs be paid from the subject funds on a party/party (rather than an indemnity) basis.

30    Mr B Cassidy, for TasWater, submitted that although his client had lost a number of the points contended for in J1, there had been no relevant disentitling conduct, and the hearing was necessary in any event.

31    Mr Groves made a forceful submission to the contrary at the hearing on 4 November, but, on balance, I think that the usual rule should apply and TasWater should have its costs paid on an indemnity basis. As to the usual rule, see by way of example, Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 4) (2008) 169 FCR 497 at 500 [8]-[10].

32    As to the second dot point, in my view Mr Day should pay the parties’ costs of the case management hearing on 21 September 2022, and half of the court fees (that is, the sum of $5,205). The case management hearing was brought about entirely by Mr Day’s failure to comply with the earlier order, and, in the events that occurred, he never made any application of a type contemplated in his advertisement, or at all. As a result, the two day hearing was reduced to a two hour hearing.

33    Otherwise, Mr Day should bear his own costs, for the simple reason that at no time after he was given leave to appear as an interested party has he contributed to the substance of any debate. But in any event, see Re Pan Pharmaceuticals Ltd; Selim v McGrath [2004] NSWSC 129; (2004) 48 ACSR 681 at 686 [20] (a party which seeks and is granted leave to appear as an interested party limits its costs exposure and has “little expectation” of being awarded costs).

Associate:

Dated:    18 November 2022