Federal Court of Australia
Vouris (liquidator) v Johnson, in the matter of Zivaust Pty Ltd (deed administrator appointed) [2024] FCA 150
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. There be no order as to the costs of the First Defendant’s interlocutory application filed on 28 September 2023.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ANDERSON J:
Introduction
1 This judgment concerns the question of costs in relation to an Interlocutory Application filed by the First Defendant (Ms Johnson) on 28 September 2023 (Interlocutory Application), which sought various orders including that Ms Johnson and the Second Defendant (Ms Lewinsmith) be joined as defendants to the proceeding and directions pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) as contained in Sch 2 of the Corporations Act 2001 (Cth) (IPS), including a direction that a parcel of Woodside Energy Group Ltd (Woodside) shares (Woodside Shares) owned by the Third Plaintiff, the Marie D Company Pty Ltd (in liq) (MDC), formed part of a Deed Fund under a Deed of Company Arrangement (DOCA).
2 Ms Johnson relies on her submissions dated 28 November 2023, reply submissions dated 26 February 2024, an affidavit affirmed by her on 22 September 2023 and an affidavit affirmed by her solicitor, Alexander Nicol, on 26 February 2024. Ms Lewinsmith relies on submissions dated 19 February 2024 and an affidavit of her solicitor, Brent Lodding, sworn on 19 February 2024.
3 The liquidator of the Second Plaintiff, Zivaust Pty Ltd (in liq) (Zivaust), and MDC (Liquidator), has also filed submissions dated 10 November 2023, which, at [13], briefly address the issue of costs.
4 For the reasons that follow, I have determined that there should be no order as to the costs of the Interlocutory Application.
Background
5 On 22 December 2021, Ms Lewinsmith and Ms Johnson entered into a deed of settlement in respect of the distribution of the assets of the estate of their deceased mother. The deceased was, prior to her death, the main shareholder of Zivaust and MDC (together, the Companies). Those estate’s assets were comprised largely of shares held by the Companies in the Australia and New Zealand Banking Group Ltd, National Australia Bank Ltd and BHP Group Ltd (BHP).
6 In late May 2022, MDC received Woodside Shares as a result of the merger between BHP and Woodside. The Woodside Shares were valued at approximately $140,000-$150,000.
7 The underlying proceeding was commenced by originating application filed on 8 July 2022 by the Liquidator, in her capacity as liquidator of the Companies. The Court made orders on 25 October 2022 enabling the Liquidator to be appointed as administrator of the Companies, with a view to the Companies executing the DOCA.
8 On 21 December 2022, a DOCA was executed and the Liquidator was appointed as deed administrator (Deed Administrator). The DOCA had a definition of “Shares” in cl 1.1 which did not include specific reference to the Woodside Shares. However, cl 9(c) of the DOCA provided that the “Deed Fund will comprise: (i) any cash at bank held by the Administrator; and (ii) any other asset or undertaking of the Companies (including of The Marie Gold Family Trust)”. Clause 11 of the DOCA specified how the Deed Administrator was to “apply the Deed Fund”, providing at cl 11(a)(iv) that, after certain specified amounts were paid, “the balance (if any) to be paid to the ordinary shareholder, Marie Gold to her Deceased Estate and distributed to Johnson as the beneficiary of the Will pursuant to the Settlement Deed and in the manner set out in clause 16 below”.
9 A dispute arose between Ms Lewinsmith and Ms Johnson as to the proper construction of cll 9 and 11 of the DOCA, in summary, as to whether the Woodside Shares formed part of the Deed Fund.
10 On 14 June 2023, the Deed Administrator’s solicitors wrote to Ms Lewinsmith and Ms Johnson’s solicitors advising, amongst other things, that:
(1) in respect of the Woodside Shares currently held by MDC, the Deed Administrator’s view was that under the DOCA (and in accordance with the Deed of Settlement) the Woodside Shares formed part of the Deed Fund as set out in cl 9(c) and were to be distributed under cl 11(a) of the DOCA;
(2) Ms Johnson’s position aligned with the view of the Deed Administrator and, in contrast, Ms Lewinsmith’s view was that the Woodside Shares could not be dealt with under the DOCA given the definition of “Shares” in cl 1.1 of the DOCA;
(3) given the dispute between the parties, the most commercially sensible option to avoid delay, remuneration, costs and expenses was to reach agreement as to the treatment of the Woodside Shares under the DOCA;
(4) if such an agreement could not be reached, the Deed Administrator would need to make an application to the Court to seek judicial guidance on the treatment of the Woodside Shares under the DOCA;
(5) should a judicial advice application be required as a result of the parties’ conflicting positions, the Deed Administrator would expend further time and funds in making the application; and
(6) should the dispute not be resolved between the parties, there would be no other choice but for the Deed Administrator to seek judicial guidance (14 June 2023 Letter).
11 Between June and September 2023, Ms Lewinsmith and Ms Johnson held negotiations, facilitated by the Deed Administrator, with a view to reaching an agreement as to whether the Woodside Shares formed part of the Deed Fund. Negotiations had reached the point in September 2023 where Ms Lewinsmith was prepared to accept $50,000 and relinquish any claim to the Woodside Shares; Ms Johnson was prepared to offer $20,000 for the Woodside Shares.
12 On 28 September 2023, and without notice to Ms Lewinsmith or the Deed Administrator, Ms Johnson filed the Interlocutory Application seeking, amongst other things:
(1) an order that Ms Johnson and Ms Lewinsmith be joined as defendants to the proceeding;
(2) directions pursuant to s 90-15 of the IPS, including a direction that the Woodside Shares formed part of the Deed Fund pursuant to the DOCA; and
(3) an order that Ms Lewinsmith pay Ms Johnson’s costs of the Interlocutory Application on an indemnity basis.
13 On 17 November 2023, Ms Lewinsmith’s solicitors wrote to Ms Johnson’s solicitors noting, amongst other things, that:
(1) the decision to unilaterally terminate the negotiations and file the Interlocutory Application was not reasonable or commercial given the offers made between the parties;
(2) the Deed Administrator was yet to make a determination in respect of the Woodside Shares; and
(3) the costs occasioned by the Interlocutory Application would likely be approximately $60,000 between the parties which were neither reasonable or commercial given the issues in dispute, and the offers made by the parties, and the Interlocutory Application would unnecessarily occupy the time of the Court and the parties.
14 Following a case management hearing on 30 November 2023, I made orders (Orders) which required, amongst other things, that the Deed Administrator advise Ms Lewinsmith and Ms Johnson of her determination in respect of the treatment of the Woodside Shares under the terms of the DOCA by 18 December 2023.
15 On 19 December 2023, and as required by the Orders, the Deed Administrator made her determination that the Woodside Shares formed part of the Deed Fund under the DOCA (Determination).
16 On 22 January 2024, Ms Lewinsmith confirmed that she accepted the Determination on the basis that it was not commercial to engage in litigation given the modest quantum in dispute.
Competing positions on costs
17 Ms Johnson seeks an order that Ms Lewinsmith pay her costs of the Interlocutory Application on an indemnity basis. Ms Johnson and the Deed Administrator also seek an order that Ms Johnson is entitled to recover from Ms Lewinsmith an amount equal to such amount as is applied from the Deed Fund to meet the Plaintiffs’ legal costs and the Deed Administrator’s remuneration incurred in respect of the Interlocutory Application, which legal costs and remuneration are costs and remuneration incurred by the Deed Administrator in performing her duties under the DOCA. Ms Johnson’s submission, in overview, is that the Interlocutory Application was required because of the refusal of Ms Lewinsmith to agree to the Deed Administrator’s proposed course of action in relation to the Deed Fund as set out in the 14 June 2023 Letter.
18 Ms Lewinsmith seeks an order that Ms Johnson pay her costs of and incidental to the Interlocutory Application on an indemnity basis or alternatively on a standard basis. The substance of Ms Lewinsmith’s submission is that the Interlocutory Application was premature in circumstances where the parties were in negotiations as to whether the Woodside Shares formed part of the Deed Fund and Ms Johnson had not requested, and the Deed Administrator had not made, a determination as to whether the Woodside Shares formed part of the Deed Fund.
Relevant principles
19 Costs are in the discretion of the Court: Federal Court of Australia Act 1976 (Cth) s 43(2). The Court has a “broad discretion” as to costs. The discretion must be exercised judicially, not arbitrarily or capriciously, and must relate to the litigation in question: Summers v Repatriation Commission (No 2) [2015] FCAFC 64 at [14].
20 The exercise of the discretion to award costs on an indemnity basis is reserved for where there is a special or unusual feature in the case to justify the Court in departing from the ordinary practice: Wills v Chief Executive Officer of the Australian Skills Quality Authority (Costs) [2022] FCAFC 43 at [20] (Logan, Griffiths and Perry JJ), quoting Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233 (Sheppard J) (Colgate).
21 Recognised categories warranting the exercise of the discretion to award indemnity costs include, amongst others:
(1) evidence of particular misconduct that causes loss of time to the Court and the other parties;
(2) the fact that the proceedings were commenced for some ulterior motive;
(3) the fact that the proceeding was commenced in wilful disregard of known facts or clearly established law; and
(4) the making of allegations that ought never to have been made or the undue prolongation of a case by groundless contentions: Colgate at 233-4.
22 Pursuant to s 90-15(1) of the IPS, the Court may also make such orders as it thinks fit in relation to the external administration of a company. Such orders may include, in relation to the costs of an action taken by an external administrator, an order that the external administrator or another person is personally liable for some or all of those costs, or that 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 cost: IPS s 90-15(5).
23 Where proceedings are resolved before a hearing on the merits, the Court will usually make no order as to costs with the intent that each party bears its own costs: see, eg, Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284 at [287] (Finkelstein J); Tervonen v Minister for Home Affairs (No 2) [2008] FCA 872 at [19]-[22] (Flick J)); Gogo v Attorney-General (Cth) [2022] FCA 70 at [71]-[73] (Wigney J). As explained by McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624-5 (citations omitted):
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. …
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. ... But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.
24 In determining the question of costs in the case of a resolved proceeding, it is, however, appropriate for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them: ASC v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201 (Hill J).
Consideration
25 In the present circumstances, I do not consider that the Court should make any order as to costs.
26 Ms Johnson’s submissions as to her entitlement to costs are, in substance, premised on her success in the proceeding. In her written submissions dated 28 November 2023 at [10], she contends that, if the Court were to accept the construction of the DOCA contended for by her and the Deed Administrator, there should be cost consequences visited on Ms Lewinsmith for her “unsuccessful resistance”. Similarly, in her reply submissions dated 26 February 2024 at [8], Ms Johnson contends that, as Ms Lewinsmith ultimately accepted the Deed Administrator’s Determination that the Woodside Shares formed part of the Deed Fund, Ms Johnson was the “successful party” on the Interlocutory Application.
27 The difficulty with these submissions is that the issue of the proper construction of the DOCA as it concerns the treatment of the Woodside Shares has not been determined by the Court, and there has been no hearing on this issue. Ms Lewinsmith’s acceptance of the Deed Administrator’s Determination was said to be on the basis that it was not commercial to engage in litigation given the modest quantum in dispute. In the absence of a hearing, it is not appropriate for me to try a hypothetical action between the parties to determine the merits of Ms Lewinsmith’s previous position that the Woodside Shares could not be dealt with under the DOCA given the definition of “Shares” in cl 1.1 of the DOCA.
28 It is also difficult for me to assess whether Ms Lewinsmith’s conduct prior to the filing of the Interlocutory Application was reasonable without deciding the central issue raised by the Interlocutory Application – that is, the proper construction of cll 9 and 11 of the DOCA.
29 It follows that I reject Ms Johnson’s submissions on costs.
30 I also am unable to accept Ms Lewinsmith’s submissions that an adverse costs order ought to be made against Ms Johnson for prematurely filing the Interlocutory Application.
31 The parties contested whether negotiations were ongoing at the time that Ms Johnson filed the Interlocutory Application. It is not necessary for me to resolve this issue. On either view, it is apparent that the parties’ negotiations had been protracted. It is impossible to assess the reasonableness of Ms Lewinsmith’s last settlement offer prior to the filing of the Interlocutory Application without embarking on a hypothetical trial of the substantive issue raised by the Interlocutory Application.
32 I also do not regard Ms Johnson’s conduct in filing the Interlocutory Application without further notice to Ms Lewinsmith as unreasonable. The 14 June 2023 Letter made clear that, if the parties were unable to reach agreement, it may be necessary for the Deed Administrator to seek “judicial guidance” on the treatment of the Woodside Shares. By September 2023, the parties were still not in agreement as to the treatment of the Woodside Shares. It was reasonable, in these circumstances, for Ms Johnson to file the Interlocutory Application at this time without further notice to Ms Lewinsmith.
33 Much is made in Ms Lewinsmith’s submissions of the fact that Ms Johnson had not, prior to filing the Interlocutory Application, requested the Deed Administrator to make a determination as to whether the Woodside Shares formed part of the Deed Fund under the DOCA and no determination had yet been made by the Deed Administrator. That submission overlooks the fact that, by the 14 June 2023 Letter, the Deed Administrator had informed the parties of the Deed Administrator’s view that the Woodside Shares held by MDC formed part of the Deed Fund, and fell to be distributed under cl 11(a) of the DOCA. That view aligned with Ms Johnson’s position, but not with Ms Lewinsmith’s position.
34 At a case management hearing before me on 30 November 2023, Ms Lewinsmith’s legal representative maintained that the Deed Administrator had not made a determination on the distribution of the Woodside Shares. Counsel for the Deed Administrator informed the Court that the Deed Administrator’s position was that it had made a decision on this issue. On the same day, I made the Orders, which required the Deed Administrator to advise Ms Lewinsmith and Ms Johnson of her determination in respect of the treatment of the Woodside Shares under DOCA. I did so to avoid any ambiguity as to whether the Deed Administrator had made a determination, not because the Deed Administrator’s position had not generally been communicated to the parties. The Deed Administrator’s Determination on 19 December 2023 confirmed the Deed Administrator’s view communicated in its 14 June 2023 Letter that the Woodside Shares held by MDC formed part of the Deed Fund and were to be distributed under cl 11(a) of the DOCA.
35 In circumstances where the Deed Administrator had by 14 June 2023 informed the parties of her view as to the distribution of the Woodside Shares, and the Deed Administrator’s Determination merely confirmed that position, I do not consider that the fact that Ms Johnson filed the Interlocutory Application in the absence of the Deed Administrator’s formal determination amounts to unreasonable conduct.
36 I am not satisfied that Ms Lewinsmith has otherwise established that Ms Johnson’s conduct in filing the Interlocutory Application was so unreasonable as to warrant a costs order being made against her.
Disposition
37 The Court will make no order as to costs for the Interlocutory Application.
I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Anderson. |
Associate:
