Reported Decision : (2000) 35 ACSR 367 New South Wales Supreme Court CITATION : Parkston Limited (in liquidation), Application of [2000] NSWSC 919 revised - 25/09/2000 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 1546/90 HEARING DATE(S) : 31/08/00 JUDGMENT DATE : 31 August 2000 PARTIES : Martin Russell in his capacity as Official Liquidator of Parkston Limited (in liquidation) (Applicant) JUDGMENT OF : Santow J Mention (Tricontinental) COUNSEL : J Hamilton (Sol.) (Gibraltar Factors) M Walton, SC/T G R Parker (State Bank of New South Wales/Bank of Western Australia) S Hedge (Sol.) (Liquidator Parkston Limited) Middleton Moore & Bevins (Tricontinental) SOLICITORS : Baker & McKenzie (Gibraltar Factors) Blake Dawson Waldron (State Bank of New South Wales/Bank of Western Australia) Kemp Strang (Liquidator Parkston Limited) CATCHWORDS : COSTS — Corporations — Recovery of costs for funding creditors under s564 of Corporations Law — to be paid from proceeds of recovery or by other creditors who strenuously opposed 100% recovery. LEGISLATION CITED : Corporations Law s564 CASES CITED : Brien & 1 Ors v Australasian Memory Pty Limited & 1 Ors ([2000] NSWSC 333, Santow J, unreported) Re Ken Godfrey Pty Ltd (in liq) (1994) 14 ASCR 610 DECISION : ORDERS; 1. The Applicant Liquidator's costs of this application including reserved costs be part of the costs, charges and expenses of the winding-up of Parkston Limited (in liq) ("the Company").; 2. The costs of SBNSW and Bankwest other than as provided in 3 below, shall be likewise part of the costs, charges and expenses of the winding-up of the Company.; 3. Ninety per cent of the costs attributable to the hearing on 9 June 2000 incurred by Tricontinental Corporation Limited and Gibraltar Factors Pty Limited (in liquidation) shall be paid by SBNSW and Bankwest in equal shares.; 4. All other costs of Tricontinental Corporation Limited and Gibraltar Factors Pty Limited (in liquidation) shall be part of the costs, charges and expenses of the winding-up of the Company.; Otherwise I note that I have earlier made the orders contained in the Short Minutes of Order of to-day's date. REVISED — 25 September, 2000 IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY SANTOW J No. 1546/90 PARKSTON PTY LTD (in liquidation) and the Corporations Law MARTIN RUSSELL BROWN (in his capacity as the official liquidator of PARKSTON PTY LTD (in liquidation) Applicant JUDGMENT — ex tempore 31 August 2000 INTRODUCTION 1 Should two funding creditors awarded 100% of the recovered amount pursuant to the earlier equivalent of s564 of the Corporations Law be entitled to recover the whole, part or none of their costs from the two banks that strenuously opposed their application? Or should they recover in whole or part from the proceeds of recovery, thus diminishing what they would otherwise have received? Were they seeking a dispensation, like an applicant to extinguish a restrictive covenant, whose price in cost terms was inevitably to be paid from the sale proceeds, though thereby diminishing their successful 100% recovery? These questions arise in relation to my earlier judgment of 3 August 2000. It is not now in contest that the foreshadowed orders should be made joining those entities referred to in para 67 of my judgment. It is also accepted that the division referred to in para 68 reflects the outcome of my judgment. 2 In my earlier judgment I stated (para 68) that I was satisfied that the two banks unsuccessfully opposing 100% recovery, namely Colonial State Bank Limited ("SBNSW") and Bank of Western Australia Limited ("Bankwest") should pay the liquidator's costs on a party and party basis, and, subject to them being joined as parties, the costs of Tricontinental and Gibraltar. So far as Gibraltar is concerned, on reflection I am satisfied there is no occasion to disturb the orders I earlier made on 11 May 2000. However, on reflection I do think it proper that further consideration be given to the appropriate cost orders that should be made first in relation to the Liquidator as the Applicant, and second, in relation to Tricontinental Corporation Limited ("the funding creditors") and Gibraltar Factors Limited to the extent that those costs have not yet been the subject of any order or are reserved. 3 No authority on costs has been found concerning funding creditors who were successful to the extent of one hundred percent of the available proceeds, in the face of resistance from other creditors. The nearest authority is Re Ken Godfrey Pty Ltd (in liq) (1994) 14 ASCR 610. There an order was made by Hayne J (as he then was) that half the net proceeds recovered should go to the funding creditor, so that cost recovery if made from the company in liquidation would effectively have reduced the amount going to each side equally. However, that case involved not merely opposition from ANZ Bank. In addition, in what Hayne J described as the "unusual circumstances of this case", ANZ Bank was "a very large unsecured creditor of the company …. whose refusal to disgorge the challenged payment occasioned the action for which indemnity for costs was necessary …. "; at 613. He concluded that this unusual circumstance justified a cost order against it and a departure from the normal position of cost recovery out of the assets of the company. 4 Significantly Hayne J said at 613 as to the normal position: " Ordinarily speaking , I would consider that it would be appropriate for a creditor that is not one of the indemnifying creditors and which chose to appear on the return of such an application as this to have its costs of the application, and indeed to have its costs of the application as part of the costs and expenses of the winding up." [emphasis added] 5 I have taken that approach as favouring contradictors in the ordinary case. But like Hayne J, I should also take into account distinguishing circumstances including 100% recovery and the strenuous opposition beyond that of being a mere contradictor. Thus the Liquidator should on any view of matters recover his costs, charges and expenses. That recovery would be expected ordinarily to come from the assets of the company as a priority claim. Moreover the two banks should not be responsible for so much of the costs of the funding creditors as would have been payable in any event upon an unopposed application being made, or an application where opposition went no further than putting the funding creditors to reasonable proof. 6 I am therefore satisfied that the funding creditors should be paid so much only of such ordinary costs out of the assets of the relevant company, being Parkston Limited (in liq). Concededly, such an approach will mean that the funding creditors will thereby suffer pro tanto a reduction of the one hundred percent of recovery that would otherwise go to them. However, it is in accordance with the approach which as Hayne J put it, "ordinarily" would apply. 7 However here, not only have the funding creditors been successful in obtaining an order which between them accounts for one hundred percent of the proceeds of recovery but have done so in conventional and vigorously contested litigation in which the two banks have failed to establish any of the grounds of their opposition. It would therefore be inequitable for that factor not to be taken into account. Essentially, there is a distinction between acting as a conventional contradictor putting the claimant creditors to proof and the fierce contest that occurred here with its wholly unsuccessful outcome for the banks; see by analogy in the case of a successful application under s447A of the Corporations Law despite strenuous opposition, in Brien & 1 Ors v Australasian Memory Pty Limited & 1 Ors ([2000] NSWSC 333, Santow J, unreported) especially at para 15 where I said: "Nor is it irrelevant to note the scope of the wide-ranging resistance mounted by the Second Defendant. It went well beyond the merits of the application to include a constitutional challenge and a challenge based on interpretation of the relevant provisions. That was a forensic choice properly open to the Second Defendant. But he cannot complain if, having lost so far, he has to bear the costs. The proceedings bore all the hallmarks of conventional and vigorously contested litigation. This was not a case of dispensation for the Administrators resisted by those to whom the duty to convene the meetings was primarily owed, namely the creditors. In those circumstances the proper order is for costs to follow the event. Creditors should not suffer by any of those costs being awarded against the Company, where the costs are so substantial and there is already a deficiency of assets." 8 There is a further factor, namely that in contradistinction to the invocation of a dispensing discretion for private purposes, here the public interest is invoked. This is because it is in the interests of creditors as a whole that there be sufficient incentive to fund risky litigation. If in circumstances where a 100% recovery is considered justified, and if in addition there is strenuous opposition rendering costs a very substantial burden, that incentive is commensurately diminished, should costs come not from the unsuccessful opponents but effectively out of the proceeds of recovery that would otherwise have gone to the funding creditors. I consider that that factor is present here. 9 It was not in Brien practical to dissect the minor costs attributable to a conventional application. Here though, I have decided to do so, though in a necessarily rough and ready manner. This is so as to recognise what I describe as the ordinary approach, but only to the extent of limited costs of reasonable contradiction. For the rest of the costs of opposition, the unsuccessful opponents should have to meet them, rather than come out of the recovery. Translating this into a cost outcome is not a matter for surgical precision but for doing what appears just overall in a broad-brush manner. Accordingly, I make the following orders. ORDERS 1. The Applicant Liquidator's costs of this application including reserved costs be part of the costs, charges and expenses of the winding-up of Parkston Limited (in liq) ("the Company"). 2. The costs of SBNSW and Bankwest other than as provided in 3 below, shall be likewise part of the costs, charges and expenses of the winding-up of the Company. 3. Ninety per cent of the costs attributable to the hearing on 9 June 2000 incurred by Tricontinental Corporation Limited and Gibraltar Factors Pty Limited (in liquidation) shall be paid by SBNSW and Bankwest in equal shares. 4. All other costs of Tricontinental Corporation Limited and Gibraltar Factors Pty Limited (in liquidation) shall be part of the costs, charges and expenses of the winding-up of the Company. Otherwise I note that I have earlier made the orders contained in the Short Minutes of Order of to-day's date. ********** Last Modified: 10/03/2000 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.