FEDERAL COURT OF AUSTRALIA In the matter of Stockport (NQ) Pty Ltd, Carter & Lewis Applicants (No.2) [2003] FCA 179 COSTS – application brought by administrators pursuant to s 447D Corporations Act 2001 – whether taxed costs out of creditors' fund in favour of administrators and participant creditors appropriate. BRUCE JAMES CARTER and MARTIN DAVID LEWIS IN THE MATTER OF STOCKPORT (NQ) PTY LTD ABN 76 008 015 837 (RECEIVER AND MANAGER APPOINTED) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) and the CORPORATIONS ACT 2001 S 3013 of 2002 MANSFIELD J 13 MARCH 2003 ADELAIDE IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY S 3013 OF 2002 BETWEEN: BRUCE JAMES CARTER FIRST APPLICANT MARTIN DAVID LEWIS SECOND APPLICANT AND: STOCKPORT (NQ) PTY LTD, ABN 76 008 015 837 (RECEIVER AND MANAGER APPOINTED) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) and the CORPORATIONS ACT 2001 JUDGE: MANSFIELD J DATE OF ORDER: 13 MARCH 2003 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. Bruce James Carter and Martin David Lewis recover their costs of this application from the monies available in the Contractor Creditors' Fund (the Fund) established under clause 8(a)(ii) of the Deed of Company Arrangement entered into by Stockport (NQ) Pty Ltd ABN 76 008 015 837 (Receiver and Manager Appointed) on 23 August 2002; 2. Boral Resources (Queensland) Pty Limited recover 60% of its costs in the application out of the Fund; and 3. Pioneer Road Services Pty Ltd recover 20% of its costs in the application out of the Fund. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY S 3013 OF 2002 BETWEEN: BRUCE JAMES CARTER FIRST APPLICANT MARTIN DAVID LEWIS SECOND APPLICANT AND: STOCKPORT (NQ) PTY LTD, ABN 76 008 015 837 (RECEIVER AND MANAGER APPOINTED) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) and the CORPORATIONS ACT 2001 JUDGE: MANSFIELD J DATE: 13 MARCH 2003 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 On 31 January 2003 I published reasons for having given directions under s 447D of the Corporations Act 2001 to the administrators of a Deed of Company Arrangement entered into by Stockport (NQ) Pty Ltd (Receiver and Manager Appointed) (Subject to Deed of Company Arrangement) (Stockport) on 23 August 2002 (the Deed). Those directions were that: 1. creditors of Stockport who are entitled to a charge under s 5 of the Sub-contractors Charges Act 1974 (Qld) (the Charges Act) on money payable to Stockport and who have given notice of the claim under s 10 of that Act after the commencement of the administration, and whose claim has not been extinguished or whose claim under the Charges Act has not been withdrawn, are secured creditors of Stockport for the purposes of s 444D(2) of the Act and of the Deed, and are not bound by the Deed from realising their respective securities; and 2. creditors of Stockport who fall within the category of creditors referred to in direction 1 hereof are not "contractor creditors" of Stockport as that term is defined in the Deed and are not entitled to participate in any distribution from the Contractor Creditor's Fund established under cl 8(a)(ii) of the Deed. 2 At the hearing, in addition to the administrators, Boral Resources (Queensland) Pty Ltd (Boral), Piling Contractors (Queensland) Pty Ltd, Walls Quarries Pty Ltd, Wagner Investments Pty Ltd, and Pioneer Road Services Pty Ltd (Pioneer) appeared and made helpful submissions. Those appearing then sought an opportunity to make submissions as to costs of the application for directions. I gave directions as to the exchange of the written submissions by those seeking any order for costs. 3 In the event, the administrators seek an order that their costs should be paid from the funds that are available to the creditors of Stockport under the Deed, and that otherwise no order for costs should made. Boral and Pioneer, but not the other entities who appeared at the hearing, do not resist such an order but seek an order that their costs too should be paid out of the funds available to creditors under the Deed. 4 I consider it was appropriate for the administrators to seek directions under s 447D of the Act in the circumstances. The issue as to whether, under the Charges Act, certain creditors of Stockport who had given notice of a claim under s 10 of that Act after the commencement of the administration (being the date specified in the Deed pursuant to s 444A(4)(i) of the Act), and whose claim had not been extinguished or withdrawn, were secured creditors of Stockport for the purposes of s 444D(2) of the Act and of the Deed was a difficult one. The reasons for making the orders discuss the relevant legislative provisions and judicial decisions in some detail. In my view, the administrators acted appropriately and reasonably in seeking the directions which they did. It is true that, on the hearing, they contended for an answer to the first issue that each of the creditors who fell within direction 1 were no longer secured creditors of Stockport and were bound by the Deed. However, they recognised through counsel that the question was not an easy one and that it was appropriate for them to seek those directions. 5 I accordingly propose to order that the costs of the administrators should be taxed and paid out of the Contractor Creditors' Fund established under cl 8(a)(ii) of the Deed. I think it is more appropriate that their costs should be paid from that fund, rather than the monies generally available to unsecured creditors of Stockport. It is also desirable that I avoid any uncertainty as to which fund established under cl 8(a) of the Deed should bear the costs, or how the costs should be apportioned to the tax funds. The participants in the Contractor Creditors Fund were those directly affected by the directions sought. 6 Boral and Pioneer seek orders that their costs also should be paid out of the moneys available to creditors of Stockport under the Deed. Each argued successfully on the hearing that, on the proper construction of the Charges Act, each was entitled to a charge under s 5 of the Charges Act in the circumstances and that they were not bound by the terms of the Deed from realising their respective securities. Their arguments were concise and helpful. On the other hand, each also contended unsuccessfully that, to the extent to which their respective securities were insufficient to meet the extent of their indebtedness of Stockport to them, they were entitled to participate as contractor creditors in any distribution from the Contractor Creditors' Fund established under the Deed. Their participation in the hearing assisted the Court in arriving at a proper understanding of the operations of the Charges Act, and to the proper construction of the Deed: cf In the Matter of Ansett Australia Ltd & Korda [2002] FCA 90. In my view it is also appropriate to give recognition to the fact that they have been "successful" parties to the extent referred to, and that in a practical sense they were successful contradictors to the argument advanced on behalf of the administrators. 7 I consider, therefore, that some provision for costs in favour of each of those entities should be made out of the Contractor Creditors' Fund available under the Deed. However, I do not see why each should have all of its costs, as in my view it was an appropriate matter in which all of those entities presenting a position as contradictors should have been represented by the same counsel. There was no significant difference in the positions adopted by each. It would be unfair to the other contractor creditors entitled to participate in the distribution of funds from the Contractor Creditors Fund if as many creditors as had wished to appear on the hearing and to present in large measure the same arguments were able to do so, with the costs of each being paid out of that fund. I think it is also appropriate to have regard to the fact that, to some degree, the arguments advanced by those entities were unsuccessful on a discrete point, albeit a point which did not take a great deal of hearing time. To reflect the latter consideration, I propose to allow one set of costs of the contractor creditors who seek costs, but only to the extent of 80% of the costs which would be recoverable. The submissions of Boral and Pioneer did not address how one set of costs should be apportioned between them. Bearing in mind that Boral adopted the leading role on behalf of the contractor creditors who appeared, in my view an appropriate order would apportion the costs between them roughly on a 75/25 basis. To reflect those considerations, I propose to order that: 1. Boral should recover 60% of its costs to be taxed out of the fund called the Contractor Creditors' Fund established under the Deed; and 2. Pioneer should recover 20% of its costs to be taxed out of that fund. Those orders will, in effect, allow Boral and Pioneer together the equivalent of 80% of one set of costs from the fund. I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield. Associate: Dated: 12 March 2003 Counsel for the Applicants: Mr S Evans Solicitor for the Applicants: Finlaysons Counsel for Boral Resources (Qld) Pty Ltd: Mr L Hayer Solicitor for the Boral Resources (Qld) Pty Ltd: Gadens Lawyers Counsel for Pioneer Road Services Pty Ltd: Mr L Bowden Solicitor for Pioneer Road Services Pty Ltd: Cosoff Cudmore Knox as agents for Stephen Comino & Cominos Counsel for Wagner Investments Mr M Brodrich Solicitor for Wagner Investments: Deacons Lawyers Date of Hearing: 31 January 2003 Date of Judgment: 13 March 2003