New South Wales Supreme Court CITATION : Hoang Giet & Anor trading as Hong Ky Quality Meats v Poumeaton Enterprise Pty Ltd (No. 3) [2007] NSWSC 122 HEARING DATE(S) : 27/10/06 JUDGMENT DATE : 23 February 2007 JURISDICTION : Equity Division Corporations List JUDGMENT OF : White J DECISION : Order that the plaintiffs pay the costs of the defendant, and of the Commonwealth Bank and CBFC Limited, of the application of Mr Liu commenced by interlocutory process filed on 19 October 2006 and amended on 20 October 2006. CATCHWORDS : COSTS - Winding-up - Fundamental irregularity in winding-up application - Application to stay or terminate winding-up order - Plaintiff liable to pay costs incurred by defendant and third parties properly interested in application. LEGISLATION CITED : Corporations Act 2001 (Cth) Uniform Civil Procedure Rules 2005 (NSW) CASES CITED : Double Bay Newspapers Pty Ltd v The Fitness Lounge (2006) 57 ACSR 131 Hoang Giet & Anor t/as Hong Ky Quality Meats PARTIES : v Poumeaton Enterprise Pty Ltd (No. 3) FILE NUMBER(S) : SC 4384/06 Applicant: D K Raphael COUNSEL : Respondent: M Pesman Liquidator: D A C Robertson CBA Bank: N Manousaridis Applicant: N/A SOLICITORS : Respondent: Leonard Legal Liquidator: N/A CBA Bank: J M Lanser IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST WHITE J Friday, 23 February 2007 4384/06 Hoang Giet & Anor t/as Hong Ky Quality Meats v Poumeaton Enterprise Pty Ltd (No. 3) JUDGMENT 1 HIS HONOUR: This judgment concerns applications made by the defendant and its liquidator, and by the Commonwealth Bank of Australia and CBFC Limited, that the plaintiffs pay their costs of the interlocutory process filed by Mr Liu, the director of the defendant, on 19 October 2006. 2 As originally filed, Mr Liu sought an order that the winding-up of the defendant be terminated pursuant to s 482 of the Corporations Act 2001 (Cth). It was then foreshadowed that the application would be amended to seek an order pursuant to r 36.15 or 36.16 of the Uniform Civil Procedure Rules 2005 (NSW) to set aside the order for winding-up of the defendant made on the plaintiffs' application on 17 October 2006. An amended interlocutory application was filed on 20 October 2006. 3 In the circumstances described in my judgments of 20 and 27 October 2006, the applicant, Mr Liu, proceeded only with his application under s 482 of the Corporations Act that the winding-up be stayed or terminated. That application was dismissed on 27 October 2006. Orders were made that the applicant pay the defendant's costs of the interlocutory process. I made no order that the applicant pay the costs of the Commonwealth Bank and CBFC Limited. 4 As I recorded in my judgment of 27 October 2006, the plaintiffs accepted that they could not support the winding-up order if the application to set it aside were persisted with. However, had the order been set aside, it is clear that I would have ordered that the Commonwealth Bank and CBFC Limited be substituted as creditors, and would have made an order for the winding-up of the defendant on their application. In the result, the applicant did not press his application to set aside the winding-up order. 5 The reason the winding-up order was liable to be set aside was that it was obtained in breach of an agreement made between the plaintiffs' agent and the defendant for the payment of the plaintiff's debt by monthly instalments. The winding-up order was liable to be set aside ex debito justitiae (Double Bay Newspapers Pty Ltd v The Fitness Lounge (2006) 57 ACSR 131). 6 On 27 October 2006, I reserved liberty to the defendant and to the Commonwealth Bank and CBFC Limited to seek orders for costs against the plaintiffs. 7 Had the applicants' only application been brought under s 482 of the Corporations Act for an order staying or terminating the winding-up, that is, had the validity of the winding-up order itself not been called into question, there would be no reason to order the plaintiffs to pay the costs of the defendant or the Commonwealth Bank or CBFC Limited in opposing such an application. If that had been the only application, it would not have been necessary for the Commonwealth Bank and CBFC Limited to have been joined to it. 8 The attendance of the Commonwealth Bank and CBFC Limited was required because the applicant, for a time, sought to set aside the winding-up order. They were properly interested in the application. As I have said, it is likely that had the applicant persisted in his application to set aside the winding-up order, it is almost certain that the winding-up order would have been set aside. But the victory for the applicant would have been a pyrrhic one, as the company would still have been wound up on the application of the supporting creditors. 9 Had the order been set aside, the order that the plaintiffs be paid their costs of the originating process would also have been set aside. The supporting creditors would have had their costs out of the defendant with the ranking provided by s 556(1)(b) of the Corporations Act. As the appearance of the Commonwealth Bank and CBFC Limited on Mr Liu's interlocutory process was occasioned by the conduct of the plaintiffs in obtaining the winding-up order in breach of their agreement with the defendant, it is just that the plaintiffs pay their costs. I accept the plaintiffs' explanation as to how the winding-up order came to be made in breach of the agreement to accept instalments from the defendant. It appears that the arrangement was not made by the person who was providing instructions to the plaintiffs' solicitors. However, that is not a relevant consideration. I do not accept that the appearance by the Commonwealth Bank and by CBFC Limited on Mr Liu's application was not necessary. But for the last minute decision by the applicant to press only for an order under s 482 of the Act, their appearance would have been necessary in the interest of all creditors. 10 Accordingly, I will order that the plaintiffs pay the costs of the Commonwealth Bank and CBFC Limited of, and incidental to, Mr Liu's interlocutory application. 11 The position of the defendant and his liquidator is different. Unlike the bank and CBFC Limited, the defendant was a necessary party to the applicants' application under s 482. The liquidator incurred legal costs in adducing evidence and making submissions through counsel as to the insolvency of the defendant, the failure of officers of the defendant to keep proper books and records, and the possibility of fraudulent conduct said to warrant investigation. All of these matters were undoubtedly relevant to the claim that the winding-up should be stayed or terminated pursuant to s 482 of the Corporations Act. 12 The plaintiffs submitted that that was all such material was relevant to. The plaintiffs submitted that whilst the winding-up order was liable to be set aside ex debito justitiae in order to preserve the integrity of the Court's own processes, evidence of the defendant's solvency or misconduct of its officers, was irrelevant to such an application. Whilst the plaintiffs could be said to be responsible for bringing about an application to have the winding-up order set aside on the grounds it was obtained through a fundamental irregularity, it would not be just for the plaintiffs to be responsible to meet the liquidator's costs of adducing evidence and making submissions on matters which were only relevant to the application under s 482 of the Act. It was submitted that the liquidator could not have resisted the application to set aside the winding-up order. Therefore, it is not just that the plaintiffs should pay the defendant's costs of resisting Mr Liu's application. 13 The difficulty with this submission is that had the winding-up order been set aside, the liquidator would still have been entitled to be heard and to have adduced evidence on the desirability of a winding-up order being made on the application of a substituted creditor. He would have been entitled to be heard on what orders should be made to protect his own position in respect of his entitlement to remuneration, and to be indemnified from the assets of the company against expenses incurred in the winding-up. 14 Moreover, it was the fact that the winding-up order was made in breach of the agreement between the plaintiffs and the defendant that prompted Mr Liu's application, both for an order under s 482 of the Corporations Act, and for an order setting aside the winding-up order. In other words, had the order been obtained regularly, so that the applicant's attention was focused on the need to establish solvency, it is highly unlikely that any application would have been brought. 15 In the circumstances, it is just that not only Mr Liu, but also the plaintiffs be liable for the defendant's costs of Mr Liu's application. 16 For these reasons, I order that the plaintiffs pay the costs of the defendant, and of the Commonwealth Bank and CBFC Limited, of the application of Mr Liu commenced by interlocutory process filed on 19 October 2006 and amended on 20 October 2006. ****** 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. 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