Supreme Court New South Wales Medium Neutral Citation: In the matter of Kala Capital Pty Limited (in liquidation) [2012] NSWSC 1073 Hearing dates: 24 July and 16 August 2012 Decision date: 16 August 2012 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Further Amended Interlocutory Process dismissed. Applicant pay Second Respondent's costs on indemnity basis as agreed or as assessed. Second Respondent's costs be liquidator's costs of the winding up. Catchwords: CORPORATIONS - Winding up - Examinations by liquidator - Application to set aside examination summonses and orders for production - Application for removal of liquidator - Whether liquidator should be removed. Legislation Cited: - Civil Procedure Act 2005 (NSW) ss 56, 98 - Corporations Act 2001 (Cth) ss 461(1)(a), 473, 530A, 596A, 596B - Uniform Civil Procedure Rules 2005 (NSW) rr 42.2, 42.5 Cases Cited: - Apple Computer Australia Pty Ltd v Wily [2003] NSWSC 719; (2003) 46 ACSR 729; - Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; (2003) 45 ACSR 612 - Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248 - Evans v Wainter Pty Ltd [2005] FCAFC 114; (2005) 145 FCR 176 - Hamod v State of New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 - Lahoud v Lahoud [2006] NSWSC 126 - Liverpool City Council v Estephan [2009] NSWCA 161 - Ng v Chong [2010] NSWSC 127 - Re Allebart Pty Ltd (in liq) and the Companies Act [1971] 1 NSWLR 24 - Re Biposo Pty Ltd; Condon v Rodgers (No 3) (1995) 17 ACSR 730 - Re Club Superstores Australia Pty Ltd (in liq) (1993) 10 ACSR 730 - Re Clutha Ltd [2000] NSWSC 647; (2000) 34 ACSR 685 - Re Mendarma Pty Ltd (in liq) [2006] NSWSC 1306 - Smarter Way (Aust) Pty Ltd v D'Aloia [2000] VSC 408; (2000) 35 ACSR 595 - Re Southern Equities Corporation Ltd (in liq); Bond v England (1997) 25 ACSR 394 - White Constructions (ACT) Pty Ltd (in liq) v GB White [2004] NSWSC 303 Category: Interlocutory applications Parties: Alfred Kin Chau Lee (Applicant) Kala Capital Pty Limited and Schon Condon (Respondents) Representation: Counsel: A. Ogborne (Applicant) J.T. Johnson (Respondents) Solicitors: Paul Bard Lawyers (Applicant) Carroll & O'Dea (Respondents) File Number(s): 11/338044 Judgment - EX TEMPORE 1By further Amended Interlocutory Process the Applicant, Mr Alfred Lee, ("Mr Lee") seeks an order that examination summonses in respect of Mr Lee and Peter CL King & Co (or, more precisely, an accountant at that firm) be discharged and that orders for production issued in respect of Mr Lee and associated entities, Arten Atelier Pty Ltd ("Arten Atelier") and Archirox Pty Ltd ("Archirox"), be set aside and that an order for production against Peter CL King & Co also be set aside. 2Mr Lee also seeks an order that Mr Schon Condon ("Liquidator") be removed as liquidator of Kala Capital Pty Ltd (in liq) ("Company"). The Further Amended Interlocutory Process does not itself identify the section under which that order is sought and I infer that it is sought under s 473 of the Corporations Act 2001 (Cth). 3Mr Lee relies on affidavits of his solicitor, Mr Bottrell, dated 30 April 2012, 18 May 2012 and 20 July 2012 which set out the chronology of events. The Defendants rely on the Liquidator's confidential affidavit sworn 16 April 2012 in support of an application for the issue of examination summonses and orders for production, which was made available to Mr Lee's solicitors for inspection on a confidential basis. The Defendants also rely on an affidavit of Mr Michael Hayter of Gillis Delaney sworn 24 May 2012. Mr Hayter is an experienced solicitor with specialist expertise and extensive experience in insolvency who had been retained to provide independent advice to the Liquidator. Factual background 4By way of background, the Company was incorporated on 15 October 2009. Ms Astrid Ng was its sole member and Mr Lee was its sole director and company secretary. Ms Ng was ordinarily resident outside Australia. Ms Ng was appointed as the Company's second director on 15 November 2010 and Mr Lee ceased to be a director on 16 December 2010. Solicitors acting for Ms Ng shortly thereafter sought an accounting from Mr Lee in respect of moneys expended by the Company. By letter dated 11 January 2011, Mr Lee's solicitors acknowledged to Ms Ng's solicitors that he had received the amount of $1.2 million into his business account and was obliged to repay any "surplus" funds in his possession and disputed liability as to a further amount of $1.6 million. 5On 28 March 2011, the Company and Ms Ng commenced proceedings in the Equity Division ("Equity Proceedings") against Mr Lee and his Company seeking interlocutory relief by a freezing order over the Defendant's assets and final relief in the nature of an accounting. In particular, the Company and Ms Ng sought orders that the Defendants account for moneys alleged to have been paid to the Defendants in relation to the establishment of a karaoke business. Carroll & O'Dea, solicitors, acted for Ms Ng and the Company in those proceedings. On 31 March 2011, the Defendants gave an undertaking to the Court, without admissions, not to deal with their property on terms, and the Company and Ms Ng gave the usual undertaking as to damages. 6Mr Lee and Arten Atelier subsequently sought an order for security for costs in the Equity Proceedings which was part heard in June 2011 and stood over to 14 September 2011. At about this time, issues also emerged in the Equity Proceedings as to whether Ms Ng had personally contributed funds to the Company from moneys lent to her by an associate, or whether that associate had directly advanced the moneys and was to take an interest in the Company. Mr Lee vigorously criticised the conduct of the Equity Proceedings by Ms Ng and the Company in this application. 7Mr Lee contends that Ms Ng subsequently took steps to place the Company in liquidation so as to obtain collateral benefits in respect of the Equity Proceedings. He contends that Ms Ng decided, on the advice of her lawyers, to wind up the Company for the purpose of obtaining an advantage for herself or the associate standing behind her, in the Equity Proceedings, by allowing amended claims contemplated against Mr Lee to be brought by a liquidator who would have the power to examine Mr Lee about the proposed claims. It will be noted that this is, in substance, an attack on the motives of those who promoted the application to the Court for the Court's appointment of its officer as an official liquidator. 8On 21 October 2011, the Company in general meeting (and, in effect, Ms Ng as its only shareholder) passed a special resolution that the Company apply to the Court to be wound up. On 24 October 2011, Barrett J made orders to wind up the Company under s 461(1)(a) of the Corporations Act and appointed the Liquidator, who was nominated by the Company, (and in effect, by Ms Ng) as its liquidator. There is evidence, perhaps not surprisingly, of contact between the Company and its solicitors and the Liquidator prior to his appointment. 9Mr Lee contends that: "It is apparent that decision to put [the Company] into liquidation was a calculated strategy carried out by Ms Ng, on the advice of her lawyers, to improve her position against Mr Lee and his firm in the Equity Division proceedings. It is in these circumstances that [the Liquidator] came to be appointed as the liquidator of [the Company]. It is from this starting point that Mr Lee advances his grounds of apparent bias, improper purpose and nondisclosure of material matters. " 10Pausing there, the inference as to Ms Ng's strategy and as to her legal advisers' role in it could be drawn from the timing of events. However, the Liquidator was properly appointed by orders made by Barrett J; the Liquidator is an officer of the Court and subject to the Court's supervision; and his position is not impugned merely because there is an attack on the motives of the applicant for his appointment. I should add that I do not understand Mr Lee to contend that the mere fact that Ms Ng sought an advantage from the Liquidator's appointment would justify the relief which he seeks. 11Turning now to subsequent steps, the Liquidator required completion of a report of affairs and delivery of books to him, by letters to Ms Ng and Mr Lee dated 1 November 2011 and 11 January 2012 respectively. In his report to creditors dated 12 January 2012, the Liquidator noted that the Company was incorporated to establish a karaoke business and noted Ms Ng's allegation that it did not trade because funds sourced to establish that business were misappropriated by Mr Lee. The liquidator noted Ms Ng's advice that funds had been expended by Mr Lee but no assets purchased by the Company, and identified concerns as to the lack of an accounting by Mr Lee as to the funds expended. Mr Lee attacks the fact that the Liquidator's report to creditors foreshadowed a public examination of Mr Lee, and it might be recognised that this was before Mr Lee had responded or, had any real opportunity to respond to, the request for information made to him the day before. Having said that, it does not seem to me that the Liquidator's consideration of compulsory examination at this stage was out of the ordinary or inappropriate given the nature of the allegations which had been advanced by Ms Ng, and the fact, which does not appear to be in contest, that the Company or interests associated with it had received significant funds for an investment purpose of which little remained and where no assets appeared to have been acquired by the expenditure of those funds. 12Mr Lee completed a report as to affairs dated 20 February 2012 which noted that the Company was intended to be the owner of a proposed karaoke business as nominee for certain investors and contended that there was an agreement that the investors would be repaid from the proceeds of the proposed business, which had ceased with the termination of those arrangements. It appears that Mr Lee also provided the Liquidator with a folder containing Company documents about this time. 13The Liquidator then requested, through Mr Lee's solicitor, that Mr Lee attend for an informal meeting with the Liquidator. By letter dated 21 February 2012, Mr Lee's solicitor responded by asking the Liquidator's solicitors to advise the intended purpose of the meeting and the basis on which the request was made. Mr Lee rightly notes that he did not receive an immediate response to that request. 14By letter dated 7 March 2012, Gillis Delaney, who were independent solicitors retained by the Liquidator for the purpose of potential examinations, requested Mr Lee to confirm, by noon the next day, his availability to attend a meeting at a specified time to provide information under s 530A of the Corporations Act and also to confirm that he had no plans to travel overseas in the next three months. There appears to have been a misunderstanding or error as to whether the proposed time had previously been discussed with Mr Lee, although I do not regard this as having the highly inappropriate quality which Mr Lee attributes to it. Mr Lee's solicitors did not respond by the requested time, to suggest, for example, that Mr Lee would attend such a meeting but that the time proposed was not suitable or he had not been consulted about that time. 15By letter dated 8 March 2012, Gillis Delaney advised Mr Lee's solicitors that they had received instructions to conduct compulsory examinations. Mr Lee's solicitors then responded that they were in the process of preparing a response and would provide it shortly. A response was ultimately provided on 20 April 2012, to which I will refer below. Mr Lee did not then volunteer further information in respect of the topic areas identified by the Liquidator, or volunteer to attend a meeting, notwithstanding that the Liquidator had by then indicated that he would proceed by compulsory examinations. 16Mr Lee contends that the timing of these events was driven by a security for cost motion in the Equity Proceedings which was listed on 9 March 2012. That is a possible inference, but is not an inference that necessarily follows. At the least, one would expect that the security for costs motion would have focused the Liquidator's mind on the need to progress investigations so as to be in a position to either adopt, or remove the Company from, the proceedings to which it was then party. 17Mr Condon's affidavit in support of the application for issue of the examination summonses and orders for production was sworn on 16 April 2012. Mr Lee's solicitors then wrote to the Liquidator's solicitors on 20 April 2012 and indicated that, since the Liquidator had indicated that he would move to conduct examinations, Mr Lee was acting on the basis that he had been excused from attendance to provide information under s 530A of the Corporations Act, and was awaiting service of the examination summons. Of course, when that examination summons was served, Mr Lee moved to set it aside, with the apparent result that he would neither be required to provide information under s 530A of the Corporations Act nor be required to provide that information under a compulsory examination. Grounds of application to set aside the examination summonses and orders for production 18With that background, Mr Lee initially sought to set aside the examination summonses and orders for production on several grounds, including that the Liquidator was not eligible to have the examination summonses or orders for production issued or was seeking to examine on matters not within the meaning of examinable affairs for the purposes of the Corporations Act. Some of those grounds appear no longer to be pressed, and the two remaining grounds that are pressed were improper purpose and bias, such that the liquidator should be removed. 19A third ground, of suggested non disclosure in respect of the application for the issue of the examination summonses and orders for production, was introduced at the hearing before me on 24 July 2012, having previously been particularised in correspondence from Mr Lee's solicitors to the Liquidator's solicitors. In fairness it should be noted that that matter could not have been raised prior to Mr Lee's solicitors having access to the affidavit which the Liquidator had sworn in support of the application. 20The first basis for the application to set aside the examination summonses and orders for production is a contention by Mr Lee that the issue of those summonses and orders for production are an abuse of process because they were undertaken for the predominant purpose of advancing Ms Ng's position or the undisclosed investor's position in the Equity Proceedings. This appeared to be primarily based on a suggestion that those matters were intended to advantage M Ng or that investor in respect of the security for costs application in those proceedings. 21It is, of course, well established that an examination may be set aside where it is for an improper purpose, at least so far as a discretionary examination under s 596B of the Corporations Act is concerned. I will proceed on the basis that the Court has a similar jurisdiction under s 596A of the Corporations Act, notwithstanding that section appears to be mandatory in its nature. The authorities indicate that there are several legitimate purposes for the conduct of examinations, which include assisting a liquidator to obtain evidence and information to support the bringing of proceedings against officers and other persons in connection with the Company's examinable affairs: Evans v Wainter Pty Ltd (in liq) [2005] FCAFC 114; (2005) 145 FCR 176 at [252]. The fact that a liquidator's examination is funded by a single creditor or a single contributory or may advance the interests of a creditor who has instituted proceedings against an examinee does not give rise to an improper purpose or abuse of process, provided that advancing those interests will also advance the Company's interests: Re Clutha Ltd [2000] NSWSC 647; (2000) 34 ACSR 685. 22In the present case, Mr Lee has not, in my view, established the improper purpose for which he contends the examination is to be conducted. I accept the Liquidator's evidence as to the proper purpose for the examination. Mr Hayter, who is, as I have noted, a solicitor of considerable experience, also gave evidence and was cross-examined at some length. His evidence was that he had been retained by the Liquidator to give independent advice as to whether examinations should be conducted and, in particular, whether Mr Lee should be examined, and also as to whether he should conduct those examinations or whether they should be conducted by Carroll & O'Dea and counsel retained by that firm. Mr Hayter's evidence is that he formed the view that examinations should be conducted for reasons which he indicates; that it was important that the examinations be conducted as soon as possible; and that, although the Company's books and records appeared to be incomplete, so far as records of payment to Mr Lee was concerned, the volume of documents was such that the Liquidator would be best served by taking advantage of Carroll & O'Dea's and counsel's knowledge of the documents, arising from their retainer in the Equity Proceedings. He notes that he has been instructed to maintain an ongoing brief, albeit he also accepted that brief was limited in character, to ensure that there was no conflict of interest in the conduct of the examinations. 23In my view, the matters disclosed in the Liquidator's report to creditors, and in particular the possibility that substantial funds were transferred to the Company and disbursed without apparent benefit to it, are matters which would warrant a Liquidator's investigation. No inference of improper purpose arises from the fact that the liquidator now seeks to proceed by way of examination, where he was under no obligation to proceed in preference under s 530A of the Corporations Act and some time had passed without Mr Lee's attending an interview under that section. The lynchpin of Mr Lee's attack, namely that the examinations are an artifice to avoid providing security for costs in the Equity Proceedings, fails both by reason of the apparent desirability of those examinations and the fact, disclosed in Mr Lee's solicitor's cross-examination, that security for costs has in fact been provided in the Equity Proceedings. 24The second basis of the application to set aside the examination summonses and orders for production, and the basis for the application of removal of the Liquidator under s 473 of the Corporations Act, is an allegation of apprehended bias, in the sense that a fair minded and disinterested lay observer might reasonably apprehend that the Liquidator had failed to act, and would continue to fail to act, impartially and independently. Mr Lee relies on the fact that the Liquidator was appointed on the Company's application and on the circumstances motivating that appointment by Ms Ng; the Liquidator's retention of Carroll & O'Dea who were also retained by the Company and Ms Ng in the Equity Proceedings; an alleged failure to investigate Ms Ng's claim to have advanced moneys to the Company, despite evidence filed by Mr Lee in the Equity Proceedings; and the reversal of his decision to obtain information under s 530A of the Corporations Act rather than by examination. 25Again, the relevant principles are well established and do not appear to be in dispute in these proceedings. A liquidator must be independent and must act impartially in the discharge of his or her duties and responsibilities: Re Allebart Pty Ltd (in liq) and the Companies Act [1971] 1 NSWLR 24 at 30; Re Club Superstores Australia Pty Ltd (in liq) (1993) 10 ACSR 730 at 734; Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; (2003) 45 ACSR 612. A liquidator may be removed if his or her conduct is such that a reasonable observer would perceive a lack of impartiality or lack of objectivity: Re Biposo Pty Ltd; Condon v Rodgers (No 3) (1995) 17 ACSR 730; Apple Computer Australia Pty Ltd v Wily [2003] NSWSC 719; (2003) 46 ACSR 729 at 738. 26I do not consider that the matters on which Mr Lee relies establish apparent bias so as to warrant setting aside the examination summonses or orders for production, or warrant an order for removal of the Liquidator under s 473 of the Corporations Act. The Liquidator, as a court appointed liquidator, is an officer of the Court and the fact that his appointment was made on the Company's application initiated by Ms Ng does not establish bias. The proposition that the Liquidator has taken no steps to investigate the accuracy of Ms Ng's claims faces the difficulties, first, that he had sought information and documents from Ms Ng who provided her report as to affairs; second, that those matters will primarily be relevant to proofs of debt, rather than to recovery of the Company's assets which might reasonably be thought to be a matter to be addressed in priority; and third, that the proposed examinations and orders for production are one way of investigating those matters. 27Mr Lee also vigorously criticised the Liquidator's role in the Equity Proceedings, contending, in effect, that the Liquidator has surrendered the control of those proceedings to Ms Ng, having indicated to her that she would have to pay the cost of those proceedings, notwithstanding that he has retained common solicitors with her. However, it should be noted that the Liquidator might reasonably take a lesser role in those proceedings, pending his investigations, and that those investigations have been delayed, not least by reason of this application. Mr Lee's solicitor acknowledged, under cross-examination, that the Liquidator had advised the Court in the Equity Proceedings that he wished to investigate matters before adopting those proceedings, commencing new proceedings or amending those proceedings (T16-17) and fairly accepted that a liquidator would generally wish to find out more about such matters (T18). 28I do not consider the change in approach from seeking information under s 530A to examination summonses gave rise to apparent bias, given that I consider that the approach of examination summonses was reasonable in the circumstances. 29The use of Carroll & O'Dea as the Liquidator's solicitor is a more difficult question, and I accept that it is generally undesirable for a liquidator to engage solicitors who act for a substantial creditor: Smarter Way (Aust) Pty Ltd v D'Aloia (2000) 35 ACSR 595. This is, however, not an absolute rule, and I accept Mr Hayter's evidence as to the practical utility of that course in the present circumstances, particularly where Mr Hayter has been retained to provide an independent overview. The Court would expect the Liquidator, as its officer, to maintain continued alertness, with Mr Hayter's assistance, to whether this position needs to change. However, I do not consider that the present position is one that warrants an order for the Liquidator's removal or for setting aside the examination summonses or orders for production. 30The third basis for seeking to set aside the examination summonses and orders for production are alleged non-disclosures in the Liquidator's affidavit in support of the issue of the examination summonses and orders for production, of the production of a folder of Company documents by Mr Lee to the Liquidator in January 2012, of the request for information under s 530A of the Corporations Act and the decision to proceed by examination summonses, and of various matters in respect of the Equity Proceedings. I should note that it is plain that there was a non-disclosure in that affidavit, as the Liquidator frankly conceded, so far as the production of the folder of documents by Mr Lee was concerned. 31It is well established that an order for examination may be set aside if the application for an examination summons did not make full and frank disclosure of any matters which may impact on the decision to issue that summons, including anything that might lead the Court to refuse the application: Re Southern Equities Corporation Ltd (in liq); Bond v England (1997) 25 ACSR 394 at 422 423; Re Mendarma Pty Ltd (in liq) [2006] NSWSC 1306 at [45]. However, the setting aside of an examination summons is discretionary, as Lander J noted in Re Southern Equities Corporation above which was in turn cited in Re Mendarma above at [47]. His Honour there noted that: "It cannot be said that an order obtained in circumstances where there has been a failure to disclose material facts must necessarily be set aside. Whether or not the order ought to be set aside for failing to disclose material facts will depend on the facts not disclosed and the circumstances in which the non disclosure came about. ...an innocent non disclosure may not necessarily require the setting aside of the order for the examination. On every occasion where there has been a non disclosure and an order obtained it will be a matter of inquiry as to whether or not that non disclosure should lead to the setting aside of the order." 32I am by no means satisfied that the matters to which Mr Lee refers are in fact material non-disclosures, although I have noted that there was a non-disclosure in respect of the production of a folder of documents by Mr Lee to the Liquidator. The position is a fortiori where Mr Lee was a former officer under s 596A of the Corporations Act and the Liquidator's right to conduct the examination arose from that matter. The affidavit properly disclosed the existence of the Equity Proceedings and noted that the Liquidator would seek to confine the investigations to affairs of the Company and the manner in which financial dealings concerning its business and the receipt of moneys by Mr Lee and associated entities took place. The Court would, of course, have the role of supervising the examination conducted before it, having regard to the fact of the Equity Proceedings which had been disclosed. The non-disclosure of the receipt of the folder of documents also exists in the context where both Mr Condon and Mr Hayter have given evidence, which I accept, that they have continuing concerns as to the completeness of the documents produced. In my view, the change from seeking information under s 530A to an examination was not material, for the reasons I have noted above, and the various matters as to the Equity Proceedings were also not material, both because I have not, in substance, accepted the allegations made in respect of the conduct of those proceedings and because the conduct of Ms Ng was, in my view, wholly irrelevant to the Registrar's decision whether to issue the examination summonses and orders for production on the Liquidator's application and in the relevant circumstances. 33I do not understand Mr Lee to contest the examination summonses and orders for production other than on the bases noted above, which I have not accepted. 34I note, for completeness, that several recipients of orders for production, Peter CL King & Co, Arten Atelier and Archirox, did not themselves move to set aside the orders for production and, in the case of Arten Atelier and Archirox, Mr Lee's solicitor indicated in cross-examination that that was an intentional decision (T13). There is evidence that each of Arten Atelier, Archirox and Mr Lee provided services to the Company prior to its winding up and the nature of those services and payments made for them would be examinable affairs within the meaning of the Corporations Act. I also note, and accept, Mr Hayter's evidence that the examinations as contemplated will assist the Liquidator to carry out his duties and the documents sought to be produced contain classes of documents that will assist the Liquidator in carrying out those duties. 35Accordingly, I order that the Further Amended Interlocutory Process be dismissed. Costs 36In this matter Mr Johnson, who appears for the Liquidator, seeks an order for costs against Mr Lee on an indemnity basis, and also an order that the liquidator's costs of the application, including Mr Hayter's costs, should be paid as costs of the winding up. 37The application for indemnity costs is opposed by Mr Lee. The principles applicable to an order for indemnity costs are well established. Section 98 of the Civil Procedure Act 2005 (NSW) provides that costs are in the discretion of the Court, and, among other matters, the Court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. Rule 42.2 of the Uniform Civil Procedure Rules 2005 (NSW) states that the general rule is that the costs payable to a person under an order of the Court or these rules are to be assessed on the ordinary basis. Rule 42.5 provides for orders for costs on an indemnity basis. The principles applicable to an order for indemnity costs have been summarised in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248 and by McDougall J in White Constructions (ACT) Pty Ltd (in liq) v GB White [2004] NSWSC 303 at [5]- [11], and that summary of principles was in turn applied in Lahoud v Lahoud [2006] NSWSC 126 at [11] and in Ng v Chong [2010] NSWSC 127 at [18]. 38I am conscious that, as the Full Court of the Federal Court observed in Hamod v State of New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 at [20], indemnity costs are not a means of punishment of a party for persisting with a case that turns out to fail, but instead serve the purpose of compensating the other party fully for costs incurred, as a normal costs order would not be expected to do, if the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs. In Liverpool City Council v Estephan [2009] NSWCA 161 at [100], Giles J observed that s 56 of the Civil Procedure Act adds emphasis to the occasion to depart from costs on the ordinary basis where costs have been incurred unnecessarily, but does not override the need for a rational connection between the reason for that departure and the extent of that departure. 39In the present circumstances, it seems to me that an order for indemnity costs is justified for two reasons. First, much of Mr Lee's case turned upon allegations which depended upon drawing adverse inferences from events, which were readily capable of other explanations consistent with the proper performance of the Liquidator's duties. The allegations put against the liquidator were serious allegations and they were required to be met, and were met, with a comprehensive response, which required, amongst other things, Mr Hayter to be called to give evidence. In particular, the application for removal of a liquidator was a serious application, with potentially significant implications for the Liquidator as an officer of the Court. Ultimately, these allegations have failed, because I have not been satisfied that the inferences which Mr Lee sought to draw from the relevant facts could properly be drawn. 40Secondly, as Mr Johnson points out, the effect of an order for costs on a party party basis would be to deplete the estate of the Company, in winding up, so far as it would not be fully indemnified for the loss in which it had been put by the conduct of these proceedings. The need to make good to compensate the estate of the Company, in winding up, for the loss to which it has been exposed, reinforces the desirability of an order for indemnity costs in these circumstances. 41Accordingly, I make the following additional orders: 1. The Applicant pay the Second Respondent's (the Liquidator's) costs of the proceedings on an indemnity basis, as assessed or as agreed. 2. The Second Respondent's costs of the proceedings, including the costs of Mr Hayter's engagement in the proceedings, be the liquidator's costs 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. 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. Decision last updated: 19 September 2012