New South Wales Supreme Court CITATION : Frontier Touring Co Pty Ltd v Peter Rodgers - Costs [2005] NSWSC 849 29/04/05 HEARING DATE(S) : Judgment: 08/07/05 Submissions on costs: 05/08/05 JUDGMENT DATE : 25 August 2005 Equity Division JURISDICTION : Corporations List JUDGMENT OF : Barrett J DECISION : Defendant to pay plaintiff's costs on party/party basis, such costs to be recouped by him as an expense of the winding up CATCHWORDS : PROCEDURE - costs - partly successful appeal against liquidator's rejection of proof of debt - whether liquidator delinquent in such a way that costs against him should be assessed on the indemnity basis and he should be denied recoupment out of company's assets Frontier Touring Co Pty Ltd v Rodgers [2005] NSWSC 668 Hypec Electronics Pty Ltd v Mead (2004) 61 NSWLR 169 Irons v Merchant Capital Ltd (1994) 116 FLR 204 CASES CITED : Mead v Watson (2005) 23 ACLC 718 Nicou v Ngan [2005] NSWSC 570 Oshlack v Richmond River Council (1998) 193 CLR 72 Frontier Touring Co Pty Limited - Plaintiff Peter Rodgers (as liquidator of Kidz.net Services Pty Limited) - First Defendant PARTIES : Kidz.net Services Pty Limited - Second Defendant FILE NUMBER(S) : SC 5508/04 Mr C.R.C. Newlinds SC/Ms V.E. Whittaker - Plaintiff COUNSEL : Mr B.J. Skinner - Defendants Swaab Attorneys - Plaintiff SOLICITORS : Eakin McCaffery Cox - Defendants LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J THURSDAY, 25 AUGUST 2005 5508/04 – FRONTIER TOURING CO PTY LIMITED v PETER RODGERS (AS LIQUIDATOR OF KIDZ.NET SERVICES PTY LIMITED (IN LIQUIDATION)) & ANOR JUDGMENT - COSTS 1 For reasons published on 8 July 2005 (Frontier Touring Co Pty Ltd v Rodgers [2005] NSWSC 668), the court varied a decision of Mr Rodgers, as liquidator of Kidz.net Services Pty Ltd ("Kidz.net"). The relevant decision of the liquidator was a decision to reject in its entirety a proof of debt for $585,562.78 plus interest lodged by the plaintiff in the winding up of Kidz.net. The court held that the decision of the liquidator should be varied so that the rejection related to only so much of the total claimed as exceeded $123,280.27 plus an interest factor described in the judgment. 2 In accordance with directions, the parties have filed submissions on costs. The plaintiff (creditor) says that its costs should be paid by the defendant (liquidator) personally and without recourse to the assets of Kidz.net; also that those costs should be assessed on the indemnity basis. The defendant accepts that there should be a costs order against him but says that the costs should be assessed on the ordinary basis and should be recoverable by him out of the assets of the company in the usual way. The plaintiff concedes that that would be the appropriate order in ordinary circumstances, referring to Irons v Merchant Capital Ltd (1994) 116 FLR 204 where Young J said: "As to costs, the applicant has been successful in showing that the liquidator ought to have admitted his proof of debt for a greater sum than was in fact admitted. However, he has not succeeded in showing the full amount that he claimed before the liquidator. It seems to me, as a general rule, that the appeal from a liquidator is part of the processes of the winding up and that if an appeal is allowed against the liquidator's rejection of a proof of debt in whole or in part, then the costs and expenses of the applicant on a party and party basis should be paid out of the assets of the company. This is because the appeal is a necessary part of the administration, ( Force v Thos. Clark and Son (Queensland) Pty Ltd (1982) 1 ACLC 320, and see McPherson The Law of Company Liquidation, third edition, 391). It would be otherwise if the failure before the liquidator was on account of some defect in the presentation of the applicant's case. That, however, is not really the case here." 3 This general rule is regarded as inapplicable by the plaintiff. It argues that there are exceptional circumstances warranting both assessment on the indemnity basis and disentitlement of the liquidator to recoup out of the assets of the company. 4 As to the latter aspect, the plaintiff refers to the statement of principle by Campbell J in Hypec Electronics Pty Ltd v Mead (2004) 61 NSWLR 169 which, in relevant respects, was left undisturbed by the Court of Appeal (Mead v Watson (2005) 23 ACLC 718). As the analysis by Campbell J makes clear, a defendant liquidator in a case such as the present may be deprived of the right of recoupment or reimbursement in "exceptional circumstances". Extravagance may represent such a circumstance: Nicou v Ngan [2005] NSWSC 570. So entrenched is the expectation of recoupment or reimbursement that something in the nature of (or closely approaching) impropriety or recklessness must, in my opinion, be found. 5 The plaintiff says that the liquidator dealt with the proof of debt in a wholly unsatisfactory way and failed to address important aspects of the claims it embodied until the hearing of the appeal against its rejection. The claims in the proof were identified by reference to the cross-claim advanced by the plaintiff in proceedings 5239/99. That cross-claim was framed by reference to a claim in contract, a restitutionary claim based on total failure of consideration, a claim under the Trade Practices Act or Fair Trading Act and a trust-based claim. The liquidator, in rejecting the proof of debt, referred only to the claim in contract and then in terms which, the plaintiff says, reflected a failure to appreciate the real issues. The plaintiff also says that the formulation of the rejection represented the work of a junior employee undertaken without legal advice and that the liquidator himself should be regarded as having simply adopted that unsatisfactory work product. Had the liquidator applied himself properly to the task and taken appropriate advice, the proof might well have been accepted, according to the plaintiff. 6 I accept that the liquidator's reasons for rejecting the proof of debt were stated in terms which could have been clearer. But it is to be remembered that the essential message of rejection of the contract-based claim was found by the court to be the correct message so far as that claim was concerned. The court decided against the plaintiff (creditor) on the contract claim, the claim based on total failure of consideration and the claim based on statute. It upheld the trust-based claim but for a much small sum. The plaintiff's complaint can therefore only be a complaint that the liquidator's statement of rejection failed to deal, except by implication, with the three bases for the claim apart from the contract claim. 7 I do not accept that the liquidator's conduct was deficient in this respect. There is a requirement under regulation 5.6.54 that a liquidator rejecting a proof of debt notify the grounds of rejection. In the present case, the rejection which, in terms, referred to the contract claim conveyed by necessary implication the message that the totality of the grounds had been considered and rejected. Furthermore, that rejection was ultimately found to be justified, except as to the part of the sum claimed and as to one of the bases of claim. There has not been – and could not be – any finding that the liquidator acted unreasonably or in bad faith. 8 For the reasons I have stated, there is no basis for departure from the principle that the liquidator should be protected as to costs out of the assets of the company. For the same reasons, I do not consider that the liquidator's conduct involved such a departure from acceptable norms as to represent, for indemnity costs purposes, what was termed "relevant delinquency" in Oshlack v Richmond River Council (1998) 193 CLR 72. 9 The order with respect to costs is accordingly that the defendant pay the plaintiff's costs of the proceedings on the party/party basis, such costs to be recouped by him as an expense of the winding up. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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