New South Wales Supreme Court CITATION : New Cap Reinsurance Corporation Holdings Limited and the Corporations Law [2001] NSWSC 1001 revised - 7/11/2001 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 5128/99 HEARING DATE(S) : 05/11/01 JUDGMENT DATE : 5 November 2001 In the matter of NEW CAP REINSURANCE CORPORATION HOLDINGS LIMITED (ARBN 076 137 249) and the Corporations Law PARTIES : JOHN RAYMOND GIBBONS Plaintiff JUDGMENT OF : Santow J D R PRITCHARD (Plaintiff) S EPSTEIN, SC (ASC P/L & 4 Ors (Mr Saville; Saville Group)) COUNSEL : A BLACK (Solicitor) (Macquarie Equities/ Macquarie Equity Markets Ltd) G M COLMAN (John Trowbridge Consultant P/L) T A ATKINS (solicitor) (Phillips Fox - William Peck) T J SCHEINBERG (solicitor) (PWC (Elsa Payne/ Pat Murray) Henry Davis York (Plaintiff) Deacons (ASC P/L & 4 Ors (Mr Saville; Saville Group)) SOLICITORS : Mallesons Stephen Jaques (Solicitor) (Macquarie Equities/ Macquarie Equity Markets Ltd) Clayton Utz (John Trowbridge Consultant P/L) Freehills (Phillips Fox - William Peck) Blake Dawson Waldron (PWC (Elsa Payne/ Pat Murray) CATCHWORDS : CORPORATIONS - Procedure - Liquidator - Costs of unsuccessful disputants claimed out of proceeds of winding up in relation to opposition to handing over documents earlier produced in examination in context of Liquidator's application for directions - Costs should instead follow event. CASES CITED : Farrow Finance Co Ltd (in Liq) v ANZ Executors and Trustee Co Ltd (1997) 23 ACSR 521 DECISION : Costs to follow event. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION SANTOW J 5128/99 In the matter of NEW CAP REINSURANCE CORPORATION HOLDINGS LIMITED (ARBN 076 137 249) and the Corporations Law JOHN RAYMOND GIBBONS Plaintiff Judgment - ex tempore 5 November 2001 (Revised 7 November 2001) THE CENTRAL ISSUE - COSTS 1 Following the handing down of my judgment of 31 October 2001 allowing access to all documents produced at compulsory examinations to the Applicants (see para 49 of the judgment) I have to determine the question of costs. 2 That question is contested between, on the one hand the Liquidator and successful Applicants, and on the other the unsuccessful Respondents. Put shortly, the Liquidator and successful Applicants are at one in contending that such costs should follow the event in accordance with the general rule and thus be awarded against the unsuccessful Respondents. Though it was an application by the Liquidator for directions, this followed earlier contest between Applicants and Respondents. 3 The unsuccessful Respondents contend that, because this was an application for directions by a Liquidator, and was in relation to a complex matter where all of the Respondents were necessary contradictors, I should order that all their costs be paid in priority out of the winding-up proceeds; that is to say, along with the Liquidator's costs and those of the successful Applicants. It would follow that if those proceeds were insufficient, it being unclear at this point whether they are or are not, the unsuccessful Respondents would either be seeking such costs against the Liquidator personally, or foregoing such costs. The legal representative for Macquarie Equity Capital Markets Limited and Macquarie Equities Limited ("Macquarie parties") stated that he had no instructions as to which course he should pursue in that event. 4 The unsuccessful Respondents, in so claiming their costs, rely on Farrow Finance Co Ltd (in Liq) v ANZ Executors and Trustee Co Ltd (1997) 23 ACSR 521, claiming it to be indistinguishable. Their argument is developed in their written submissions of 5 November 2001. RESOLUTION OF CENTRAL ISSUE 5 Before reaching the conclusion he did in Farrow Finance Co Ltd (supra) Hansen J acknowledged (at 526) that there is surprisingly little precedent as to the precise principles which apply to the question of costs upon a Liquidator's application for directions. With respect, I agree with that observation. I consider that it justifies a careful consideration of the particular facts in Farrow Finance Co Ltd in comparison to those before me, to see whether the principles there laid down do indeed apply in the present circumstances; that is, to justify an exception to the general rule of costs following the event. Those principles are set out in these two passages at 526-7: "In my opinion, the general principles which apply to the question of costs upon an application by a liquidator for directions include these: 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 interests, 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 costs of all necessary parties are to be paid by the liquidator and counted as costs in the liquidation: see, for example, Re GPI Leisure Corp Ltd (in liq) (1994) 130 ALR 256; 15 ACSR 282 (Fed C of A, Whitlam J)." 6 Before dealing with that question, I need briefly to describe the forensic steps that led to the issue before me, in order to determine whether it can be viewed as simply an application by the Liquidator for directions in a complex case of the kind leading to the result in Farrow Finance Co Ltd (of indemnity being allowed to all parties from the assets of the winding-up). 7 The starting point is the applications filed by the Applicants, the Saville Interests. They successfully sought access to the documents produced upon examination of the various Respondents or individuals associated with them. That Notice of Motion was filed on 19 March 2001. 8 The next step was that the Respondents filed opposing Notices of Motion in which, not only did they oppose that production but also sought destruction or return of the relevant documents currently retained by the Liquidator. That occurred on 18 April 2001 and was the date when it first became apparent that the Respondents would oppose that production and seek orders of their own in relation to destruction or handing back of documents. Thus far the proceedings had all the hallmarks of conventional adversary litigation. 9 The Liquidator prompted by the Respondent's Notice of Motion of 18 April 2001, for the first time then applied for directions, doing so on 23 April 2001 having not found any need to seek directions earlier, for over a month. 10 From the Bar table, the Liquidator's Counsel states that he had not advised that directions should be sought during that month and did not then anticipate any need to do so. However, following the opposition of the Respondents, it was determined that such directions should be sought. 11 I am prepared to infer that, had it not been for the Respondents' opposition, either no application for directions would have been made or else at most, a simple short application in the Corporations List of the kind that customarily takes no more than half an hour for modest cost. Either way, the complexity which attended the resolution of this matter was not a function of the nature of the directions sought but of the determined opposition of the Respondents, in what became a fiercely contested two day hearing. 12 Moreover, in contrast to Farrow Finance Co Ltd, this is not a case where the Liquidator initiated an application for directions; that was triggered by the earlier contest between Applicants and Respondents. Nor, unlike Farrer Finance Co Ltd, was this a case where that contest was one between creditors in relation to competing claims to assets on a winding-up. The complexity that attended the resolution of the issues before me arose in a very different context from that before Hansen J. Farrer Finance Co Ltd was a case analogous to a contested probate suit, where the issue concerns the ultimate division of the probatable estate or the construction of the relevant will. Here, the complexity had to do with a contest between the Respondents, as to whether there was power at all for the Liquidator to be directed in relation to the relevant matter. Only secondarily did it deal with the discretionary exercise of that power if, contrary to the Respondent's main submission, power did exist. Nor did it have to do with the division of the assets but the destination of produced documents as between two warring parties, the liquidator left in the middle. 13 In such a case the Liquidator is holding the ring between two contesting parties. One group of these (the unsuccessful Respondents) are not proceeding as creditors at all. The other group, though creditors, are only indirectly seeking to vindicate their rights as such, in seeking the produced documents. It would be unexpected indeed if the remaining creditors should ultimately have to bear the costs of that contest by costs coming from the proceeds of the winding-up. This is more particularly when the Respondents have lost on all matters they sought to argue. Then there is the fact that there was a substantial degree of duplication as between the Respondents, regarding arguments put to the Court. That is not of course to say that from the point of view of their personal interests they may not have felt it prudent to take the active, and to a degree duplicative, role they did. 14 One final matter is this. This was not a case where, ultimately the Liquidator was asserting that production only "may" have been in the interests of the beneficial winding-up. Rather, by the second day, the Liquidator concluded that, based on an undertaking then proffered by the Saville interests, such production will be in the interests of the beneficial winding-up (T, 57.4 - .29). It thus lacked in that respect also, the hallmark of a conventional application for directions. Here the liquidator was forced to seek directions, by the dispute between Applicants and Respondents, very different from the case before Hansen J. CONCLUSION AND ORDERS 15 In all the circumstances I consider that the appropriate order for costs is that costs should follow the general rule. Therefore the order contained in paragraph 3 of Short Minutes of Order handed up by the Applicants should be made. 16 I have also concluded that a short period of time should be allowed during which time the Respondents, if they so elect, have the opportunity either to appeal or seek leave to appeal on the substantive issue the subject of my earlier judgment. The Court of Appeal will be in the best position to judge whether that time to appeal should be extended, or whether my orders should then come into effect. 17 Accordingly, I have deferred the operation of orders 1 and 2 of the orders handed up until the expiry of 15 November 2001, recognising that there is the possibility that a longer extension may affect limitation periods. ********** Last Modified: 11/08/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.