Federal Court of Australia

Dixon (Liquidator), in the matter of Victoria Project Pty Ltd v Austhome Group Pty Ltd (No 2) [2023] FCA 146

ORDERS

THE COURT ORDERS THAT:

1.    The cross-claimants must pay the cross-respondents’ costs of the cross-claim to be assessed in a lump sum pursuant to r 40.02 (b) of the Federal Court Rules 2011 (Cth).

2.    The third to seventh defendants must pay the first and second defendants’ costs of the plaintiffs’ application as between party and party assessed in a lump sum pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth).

3.    The first plaintiff’s costs of the proceeding are payable as costs of the liquidation of the second plaintiff save for costs recovered pursuant to order 1.

4.    The costs in orders 2 and 3 do not include the costs of the remuneration approval reserved by Judicial Registrar Allaway on 8 October 2021.

5.    The following question be referred to a judicial registrar of this Court pursuant to s 54A of the Federal Court of Australia Act 1976 (Cth) and rr 28.62-28.67 of the Federal Court Rules 2011 (Cth) for inquiry and report:

(a)    In accordance with the proper construction of the deed of settlement and release dated 29 August 2019 (Deed) pursuant to paragraph 1 of the orders made on 1 February 2023, what are the costs of the liquidation of the second plaintiff that apply to cll 2(j), (k) and (l) of the Deed.

6.    The matter is adjourned to a date to be fixed before the appointed judicial registrar for the making of procedural directions on the conduct of the reference.

7.    Liberty to apply is reserved.

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

REASONS FOR JUDGMENT

MCELWAINE J:

1    I published my reasons for judgment in this matter on 1 February 2023: Dixon (Liquidator), in the matter of Victoria Project Pty Ltd v Austhome Group Pty Ltd [2023] FCA 42. I relevantly declared the meaning of the phrase “costs of the liquidation” in a deed of settlement between certain parties dated 29 August 2019. I dismissed the cross-claim of Mr Wu and Austhome Group Pty Ltd (Austhome) brought against Mr Dixon and his firm Hamilton Murphy Advisory Pty Ltd. I made consequential orders the effect of which was to adjourn all consequential questions including costs for further submissions. I have now received and considered submissions from the parties. I resolve the consequential issues as follows.

Costs

2    The cross respondents seek the usual costs order. The cross-claimants do not oppose that order. The costs will follow the event of the cross-claim.

3    There is disagreement as to the appropriate costs order in the principal proceeding between the plaintiffs and the defendants: the application for judicial advice as to construction of the deed. On that application I resolved the construction question broadly in accordance with the plaintiffs’ alternative submission and the submission of Mr Wu and Austhome (the first and second defendants). I rejected the plaintiffs’ submission that the relevant deed clauses are void for uncertainty and I rejected the submission of the majority shareholders, the third to seventh defendants, that the costs of the liquidation extend to any costs within the period of insolvency, even if such costs would have been incurred in any event in the normal course of trading. The eighth defendant did not participate in that hearing.

4    The competing submissions may be shortly stated. The plaintiffs submit, in summary, that:

(1)    The defendants’ costs of the proceeding, including reserved costs (other than the costs of the cross-claim and the costs of the remuneration approval the subject of the orders of Judicial Registrar Allaway dated 8 October 2021) are costs in the liquidation of the second plaintiff, to be taxed in default of agreement, on an indemnity basis.

(2)    The plaintiffs’ costs of the proceeding (other than the costs of the cross-claim), including reserved costs, are costs in the liquidation of the second plaintiff, payable on an indemnity basis.

5    Mr Wu and Austhome submit that the third to eighth defendants must pay:

(1)    The first and second defendants’ costs of the principal proceeding (save for the reserved costs of the remuneration determination of Judicial Registrar Allaway of 8 October 2021) on a party and party basis.

(2)    The plaintiffs’ costs of the principal proceeding (save for the reserved costs in (1) on an indemnity basis.

6    The third to seventh defendants agree with the costs orders proposed by the plaintiffs.

7    The rationale for the orders sought by Mr Wu and Austhome is that costs ordinarily follow the event and on that basis the plaintiffs, Mr Wu and Austhome should receive their costs from the parties who were unsuccessful on the construction question despite the fact that the plaintiffs failed in their contention that the deed clauses are void for uncertainty. Further, it is not appropriate to order that the plaintiffs pay the costs of Mr Wu and Austhome of the judicial advice proceeding as the effect of the indemnity pursuant to the deed would then require Mr Wu and Austhome to reimburse the second plaintiff for those costs.

8    The third to seventh defendants draw attention to the decision of Hansen J in Farrow Finance Co Ltd (in liq) v ANZ Executors & Trustee Co Ltd (1997) 23 ACSR 521 at 526-527 who stated that upon application by a liquidator for directions, some general principles which guide the costs discretion include:

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

On the other hand, where the issue involved is a complex one, or one involving a relatively novel proposition in law, then the starting point is that the cost of all necessary parties are to be paid by the liquidator and counted as costs in the liquidation...

(Citations omitted.)

9    Thus the submission runs that the construction question that I resolved was complex and the outcome resulted “in a measure of success” for each of the parties. It should not be understood that the statement of principles by Hansen J enjoys universal support: BE Australia WD Pty Ltd v Sutton (2011) 82 NSWLR 336; [2011] NSWCA 414 at [212]-[214], Campbell JA, (McColl JA concurring) said at [213]:

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

(Citations omitted.)

10    In Preston, in the matter of Sandalwood Properties Ltd (No 2) [2018] FCA 816, Colvin J made an event costs order in an application by receivers for directions by way of judicial advice and in doing so distinguished participation by a party as a proper contradictor from cases where participation is adversarial (at [19]-[21]) which is a reason to make an adverse costs order.

11    In this case, I am satisfied that the third to seventh defendants acted in self-interest and as adversaries. They urged a construction of the deed to their financial advantage which, if accepted would have imposed the substantial burden of paying all of the costs of the liquidation, including costs that would have been incurred in any event, upon Mr Wu and Austhome as the indemnifiers. As the majority shareholders of the second plaintiff they stood to significantly gain from the indemnity in favour of that company. They did not adopt a position upon the hearing of neutral parties or as simply offering, for consideration, a contrary construction. They took an active part in the entirety of the proceeding, save for the cross-claim. They were in my view true adversaries vis-à-vis the first and second defendants. Costs should therefore follow the event in favour of the first and second defendants who were the successful parties on the construction question.

12    The same result does not follow for the costs of the first plaintiff. Mr Dixon acted responsibly in commencing this proceeding for the purpose of resolving the question of construction in the interests of all of the parties. He did not have a personal interest in the outcome. There is no reason why the first plaintiff should not have the benefit of the usual order in favour of a liquidator that costs be payable as costs of the liquidation of the second plaintiff. I do not consider it appropriate to order that the third to seventh defendants must pay the first plaintiff’s costs, or indemnify the second plaintiff for those costs, as they were not true adversaries to the first plaintiff: as explained, the real contest was between the interests of the first and second defendants as indemnifiers of the second plaintiff for the material benefit of the third to seventh defendants as the majority shareholders.

13    Next there are the costs reserved by Judicial Registrar Allaway on 8 October 2021. The common position is that I should carve out those costs from my orders and leave that question to be determined by the Judicial Registrar. I am content to proceed in that way.

14    In each case, to limit further costs having regard to the principles set out in Part 4 of Costs practice Note (GPN-COSTS) I consider that lump sum orders are appropriate pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth).

15    For these reasons, the appropriate costs orders are:

1.    The cross-claimants must pay the cross-respondents’ costs of the cross-claim to be assessed in a lump sum pursuant to r 40.02 (b) of the Federal Court Rules 2011 (Cth).

2.    The third to seventh defendants must pay the first and second defendants’ costs of the plaintiffs’ application as between party and party assessed in a lump sum pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth).

3.    The first plaintiff’s costs of the proceeding are payable as costs of the liquidation of the second plaintiff save for costs recovered pursuant to order 1.

4.    The costs in orders 2 and 3 do not include the costs of the remuneration approval reserved by Judicial Registrar Allaway on 8 October 2021.

The referee referral

16    At [126] of my primary judgment I recorded the common position of the parties that the task of determining which particular claims for costs and disbursements made by Mr Dixon falls within the meaning of the costs of the liquidation as declared, be the subject of a referral for inquiry and report to a registrar of this Court pursuant to rr 28.62 – 28.67 of the Federal Court Rules. The parties are agreed on the form of order for the referral, and I approve of it.

17    Accordingly, the form of the reference is:

The following question be referred to a judicial registrar of this Court pursuant to s 54A of the Federal Court of Australia Act 1976 (Cth) and rr 28.62-28.67 of the Federal Court Rules 2011 (Cth) for inquiry and report:

In accordance with the proper construction of the deed of settlement and release dated 29 August 2019 (Deed) pursuant to paragraph 1 of the orders made on 1 February 2023, what are the costs of the liquidation of the second plaintiff that apply to cll 2(j), (k) and (l) of the Deed.

18    It is further appropriate to order that this matter be adjourned for further directions on a date to be fixed before the appointed judicial registrar for the making of procedural directions as to the conduct of the reference.

Conclusion

19    For these reasons I order as follows:

Associate:

Dated:    1 March 2023

SCHEDULE OF PARTIES