New South Wales Supreme Court CITATION : Glazier v Aust Mens Health [1999] NSWSC 297 CURRENT JURISDICTION : Equity FILE NUMBER(S) : 4905/97 HEARING DATE(S) : 8, 9 & 10 March 1999 JUDGMENT DATE : 22 March 1999 Glazier Holdings Pty Ltd (P) PARTIES : v Australian Men's Health Pty Ltd & 4 Ors (D) JUDGMENT OF : Austin J COUNSEL : P Dodson (A) P A Somerset (R) Henry Davis York (A) SOLICITORS : P A Somerset & Co (R) CATCHWORDS : Corporation - company - unsuccessful application for order for costs against administrator personally - court declines to make order interfering with statutory order of priorities in s 556 DECISION : Motion denied CASES CITED Knight v. F P Special Assets Pty Ltd (1992) 174 CLR 178 THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION AUSTIN J 22 MARCH 1999 4905/97 - GLAZIER HOLDINGS PTY LTD -V- AUSTRALIAN MEN'S HEALTH PTY LTD & 4 ORS. JUDGMENT (Delivered orally on 22 March 1999; transcript edited on 1 April 1999) 1 By Notice of Motion filed on 8 December 1998 the first defendant, Australian Men's Health Pty Ltd, which was then the subject of a deed of company arrangement, applied for orders which would have given its administrator, Mr Star, access to fund help by Mr Madden. Mr Madden had been appointed by the Court as trustee of the Australian Men's Health Unit Trust to replace the first defendant and was subsequently appointed by the Court as receiver. He had sold the trust business and assets and the fund is the residue of the proceeds of sale less expenses. 2 On the first defendant's application I held that the application failed because three obstacles to it had not been overcome. The first obstacle was that the evidence did not identify any particular expenditure made or liability incurred by the first defendant as trustee, in a way which would enable me to conclude that expenditure had actually been made or liability had actually been incurred by the first defendant in the proper performance of its duties as trustee. In the absence of evidence of that kind I was unable to conclude that the first defendant had the entitlement to indemnity out of trust assets on which the application was based. I said the application seems to have been based on a false assumption that it would be sufficient to show that funds were needed to enable the first defendant and Mr Star to defend other proceedings (proceedings 4237/98) in which the competence of the administration of the first defendant has been challenged. 3 The second obstacle was an issue arising out of Mr Madden's report as receiver, as to whether the first defendant's right as trustee to an indemnity out of trust assets would be available even if particular expenditure had been identified. The issue arose because a significant part of the first defendant's expenditure as trustee seemed, on the basis of Mr Madden's report, to arise out of related party transactions which might have been in breach of the trust. 4 The third obstacle was, in my view, that the application was premature. Mr Madden had applied for directions as to whether he should take further steps as receiver and trustee. The outcome of that application, which is still not resolved, could affect the destination of the remaining funds in his hands. 5 I also noted in my judgment of 17 December 1998 that in view of the purported assignment of the first defendant's right of indemnity to Mr Star as administrator, the application may have been brought by the wrong party as the applicant was the first defendant in administration rather than Mr Star as administrator. 6 I indicated in my reasons for judgment that I would hear submissions as to costs but that I was disposed to order that costs should follow the event in the usual way. That would mean, of course, that the prospects for the respondents to recover their costs of the motion would depend on whether the first defendant had any assets to meet those claims. The evidence indicates that it does not. Subsequently the first defendant has by resolution of creditors terminated the deed of company arrangement. By virtue of the Corporations Law and Regulations the first defendant is therefore in a creditors' voluntary winding up and Mr Star is now the liquidator rather than administrator. 7 By Notice of Motion filed on 14 January 1999 pursuant to leave granted by the Court, the plaintiff in proceedings 4905/97, namely, Glazier Holdings Pty Ltd, seeks orders with respect to the costs of the first defendant's unsuccessful motion. The orders sought are in the alternative, that Mr Star personally pay the plaintiff's costs as respondent to the Notice of Motion, or that the costs payable in relation to the motion be deferred expenses for the purpose of s 556(1)(de) of the Corporations Law. 8 In support of its application the plaintiff refers to the dispute in proceedings 4237/98. Although the substantive relief sought in those proceedings appears now to be obsolete in view of the winding-up of the first defendant, those proceedings remain alive on the question of costs, the plaintiff asserting that the costs of the present proceedings should be payable by the second and third defendants in the present proceedings. Affidavits filed in proceedings 4237/98 were read on the plaintiff's motion to recover costs from Mr Star or under s 556(1)(de) in order to prove the existence of the plaintiff's assertions in proceedings 4237/98 rather than to prove the truth of those assertions. It appears from that evidence that the plaintiff regards Mr Star's administration of the first defendant as highly deficient and in effect negligent. It also appears from the evidence that Mr Star and the first defendant would vigorously contest those allegations if they were pressed against either of them, subject only to the availability of funds to do so. 9 The plaintiff also refers to the long and complex history of the dispute which has led to the 1997 and 1998 proceedings and the various motions and orders in them. The dispute is essentially between the plaintiff and the second, third and fifth defendants in proceedings 4905/97. It relates to the business of the trust, which was the conduct of clinics to treat virility problems in men. The plaintiff says Mr Star has not paid sufficient attention to evidence which was available in the proceedings, including the transcript of evidence of the hearing before Young J on 18 March 1998 which should have led Mr Star to make fuller and more thorough investigations than he has evidently made. 10 The plaintiff refers to s 76 of the Supreme Court Act and Pt 52A r 4 of the Supreme Court Rules and to cases such as Knight v. F P Special Assets Pty Ltd (1992) 174 CLR 178, and says that I have jurisdiction to make an order that Mr Star personally pay the costs of the first defendant's unsuccessful application. The plaintiff submits that while the first defendant's application was not an abuse of process or made for a collateral purpose, it was a totally unfounded application. The plaintiff says Mr Star purported to conduct the application without authority for the purposes of Pt 52A r 4(4)(f), and that he commenced and carried on the application as the authorised director of a corporation for the purposes of Pt 52A r 4(4)(g). 11 It is not necessary for me to determine whether in an appropriate case these rules would support an order that an administrator personally pay the costs of proceedings. My view is that, assuming I have the power to make such an order, this is not a proper case for doing so. Here the application by the first defendant appears to have been brought in good faith. The fact that I rejected it does not, in my opinion, imply that it had no arguable foundation. These proceedings are of considerable complexity, visited already by three Judges of the Equity Division of this Court, and the application involves some difficult questions of law as to the trustee's right of indemnity and the inter-relationship of that right with the rights and duties of an administrator. The application also involves an assessment of a complex financial report by Mr Madden. Whether Mr Star might or should also have been a party to the application, in fact he was not, and no doubt that decision was deliberate. There was no application to strike out the motion on the ground that it was incompetent for the first defendant rather than Mr Star to make it. Taking into account all of these considerations I therefore decline to make an order against Mr Star personally. 12 I turn to s 556(1)(de). I do not intend to make any order interfering with the statutory order of priority in s 556. In my opinion there is no good ground for doing so, essentially for reasons of the kind already given. This is a complex case in which an application was made in good faith by a company in administration under a deed of company arrangement with little or no assets, and the application was contested also in good faith by parties well aware of all the relevant circumstances. 13 My declining to make an order altering the statutory order of priority should not be taken to imply any particular view as to the priorities which the statute entails. Section 556(1)(de) has the effect that in the winding-up of a company, debts and claims must be paid in a certain priority in which deferred expenses appear as the ninth category in a list of priority expenses. 14 'Deferred expenses' are defined in s 556(2) to mean expenses properly incurred by a relevant authority in so far as they consist of: (a) remuneration or fees for services payable to the relevant authority; (b) expenses incurred by the relevant authority in respect of the supply of services, by (in effect) the partnership of which the relevant authority is a member or an employee of the relevant authority; (c) expenses incurred by the relevant authority in respect of the supply to the relevant authority of services that it is reasonable to expect could have instead been supplied by the relevant authority or its partnership or employee. 15 'Relevant authority' is defined in s 556(2) to include an administrator of the company, even if the administration ended before the winding-up began, and an administrator of a deed of company arrangement executed by the company even if the deed terminated before the winding-up began. 16 It is clear that the costs incurred by the first defendant were incurred by its administrator under the deed of company arrangement, Mr Star, in the course of the performance of his duties as such. The costs incurred included his own costs of legal representation and costs flowing from any order which I may make that the first defendant pay the costs of the unsuccessful application. It seems to me, without expressing a final view, that it is plausible to contend that costs of both of those kinds fall within par (b) or (c) of the definition of 'deferred expenses' in s 556(2). 17 It therefore may well be that the liability of the first defendant in liquidation to meet a costs order made against it in consequence of the unsuccessful application is wholly classified as deferred expenses, and therefore has the level of priority allocated by s 556(1)(de), without the Court making any orders to that effect. 18 My conclusion therefore is that the plaintiff's Notice of Motion filed on 24 January 1999 is unsuccessful. 19 On the question of costs I propose to order that the plaintiff in the 1997 proceedings, which is also the applicant in the Notice of Motion filed on 24 January 1999, should pay the first defendant's costs of that application. (Submissions as to costs) 20 While it is true that in the reasons for judgment which I have just delivered I expressed the view that the decision by the first defendant and Mr Star that the application of 8 December 1998 be made by the first defendant and not Mr Star was deliberate, I also noted that there was no procedural application to challenge the constitution of the application. It is also true that the application, so far as it relates to s 556(1)(de), was brought on the basis of an apprehension that if the order were not made the first defendant might seek to claim its costs under s 556(1)(a) or (b). However, the thrust of my reasons for judgment is that I see no ground for interfering with the consequences which flow from the application of s 556. 21 The plaintiff's Notice of Motion filed on 24 January 1999 to which the first defendant is the respondent is denied. I order that the plaintiff as applicant pay the first defendant's costs of that motion. 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