Supreme Court New South Wales Medium Neutral Citation: Sliteris v Ljubic [2014] NSWSC 1785 Hearing dates: 30 September, 8 October 2014 Decision date: 12 December 2014 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Declaration made pursuant to s 447C of the Corporations Act 2001 (Cth) that the first and second defendants were validly appointed as voluntary administrators of the company on 4 April 2014. Order made that proceedings are otherwise dismissed. Plaintiff's costs of the winding up application, other than dispute as to the identity of appointed liquidator, be costs in the winding up. Third Defendant's costs of the winding up application be costs in the winding up. Plaintiff to pay first and second defendants' costs of proceedings on an indemnity basis, as agreed or as assessed. Plaintiff to pay third defendant's costs of and incidental to matters heard on specified dates on an indemnity basis, as agreed or as assessed. Each party to pay its own costs after 19 November 2014. Catchwords: PROCEDURE - costs - general rule that costs follow the event - whether reason shown to depart from general rule - orders sought by first to third defendants against plaintiff for further costs on indemnity basis - whether circumstances justify order for costs against plaintiff on indemnity basis. Legislation Cited: - Civil Procedure Act 2005 (NSW) ss 56, 98 - Corporations Act 2001 (Cth) ss 181, 443D, 443D(a), 443E(1)(c), 447C, 449E, 449E(1)(c) - Uniform Civil Procedure Rules 2005 (NSW) r 42.1 Cases Cited: - Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801; (1993) 46 FCR 225 - 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 Category: Costs Parties: Viktoras Sliteris (Plaintiff) Dragan Ljubic (First Defendant) Geoffrey Robert Davis (Second Defendant) Nicholas Harrow (Third Defendant) Angela Harrow (Fourth Defendant) A V & M J Nominees Pty Ltd (Fifth Defendant) Representation: Counsel: D K L Raphael (Plaintiff) C Peadon (First and Second Defendants) H Somerville (Third, Fourth and Fifth Defendants) Solicitors: Penhall & Co (Plaintiff) Lander & Rogers (First and Second Defendants) Nelson McKinnon (Third, Fourth and Fifth Defendants) File Number(s): 2014/112763 Judgment Introduction 1By Summons filed on 14 April 2014, the Plaintiff, Mr Viktoras Sliteris, sought a declaration that a meeting of the directors of IONA Developments Pty Ltd ("Company") held on 4 April 2014 ("4 April Meeting") was a nullity and the purported appointment of Messrs Ljubic and Davis ("Administrators") as administrators of the Company at that meeting was invalid. Mr Sliteris also sought orders that the Administrators be denied their costs of the administration from the date of their proposed appointment to the date of the Court's final orders or alternatively that the Third Defendant, Mr Nicholas Harrow, be ordered to pay those costs. The large part of the claim against the Administrators was abandoned in the course of the hearing. 2I delivered judgment on 19 November 2014 ([2014]) NSWSC 1632) and indicated that I proposed to make orders, after allowing the parties an opportunity to make submissions, declaring under s 447C of the Corporations Act 2001 (Cth), that the Administrators were validly appointed as voluntary administrators of the Company and that the proceedings otherwise be dismissed. I also indicated that I proposed to make orders that Mr Sliteris' costs of the winding up application, other than the dispute as to the identity of the liquidator to be appointed, should be costs in the winding up. 3In my principal judgment, I ordered that Mr Sliteris should pay the Administrators' costs of the proceedings on an indemnity basis, as agreed or as assessed. I noted that the serious allegations of inadequate advice and lack of independence that were originally made by Mr Sliteris against the Administrators, and ultimately abandoned, required them to take an active role in these proceedings that it would otherwise not have been necessary for them to take, and that that course was particularly inappropriate where the amount at issue in the proceedings was relatively small and it was always very likely, and possibly inevitable, that the costs of continuance of the proceedings after Pembroke J had appointed a liquidator to the Company would be disproportionate to the amount that was in issue in them. I held that these matters were such as to warrant an order for indemnity costs in favour of the Administrators against Mr Sliteris, on the basis that it was unreasonable for Mr Sliteris to have put the Administrators (and, indirectly, the Company and its creditors) to the expenditure of the costs they have incurred in their successful defence of the proceedings. 4I also held that Mr Sliteris had not succeeded in his claims against Mr Harrow and should be ordered to pay Mr Harrow's costs of the proceedings on the usual basis that costs follow the event. Mr Harrow had not then sought an order for indemnity costs and I did not make such an order. 5On 19 November 2014, I directed the parties to submit agreed short minutes of order to give effect to my judgment or, if there was no agreement between them, their respective draft short minutes of order together with short submissions as to any differences between them. A direction in respect of "agreed" short minutes of order contemplates that that the parties will take appropriate steps to reach agreement. Regrettably, it appears that the parties and their legal representatives made little real attempt to reach agreement as to the orders to be made and no agreement was reached between them. Mr Harrows' claim to indemnity costs 6By his submissions also dated 26 November 2014, Mr Harrow sought an order that Mr Sliteris pay his costs of the proceedings on an indemnity basis, as agreed or as assessed. He submitted that the proceedings brought by Mr Sliteris were misconceived and pointed out that Mr Sliteris failed in each of his claims against Mr Harrow. He also referred to several serious allegations that had been made by Mr Sliteris against Mr Harrow, including allegations that, in effect, Mr Harrow was seeking to appoint an administrator who was not independent to consider his claims as creditor and that he had done so for his own benefit so as to negative Mr Sliteris' claims, and that he acted in breach of fiduciary duty owed to Mr Sliteris' company and breached statutory duties under s 181 of the Corporations Act. Mr Harrow submitted that these allegations were in the nature of allegations of fraud, dishonesty, impropriety or bad faith and they were plainly, at least, allegations of impropriety. Mr Harrow also pointed out that those allegations had potentially serious implications where made against a chartered accountant, and might, if upheld, have had significant consequences for him. Mr Harrow pointed out that none of these allegations was upheld in my judgment and that I had found that the appointment of a voluntary administrator was not illogical or inappropriate and did not involve any breach of duty or improper purpose on his part. 7Mr Harrow also pointed to the principles by which an order for indemnity costs is made, to which I referred in my principal judgment in dealing with the Administrators' claims for costs on an indemnity basis. In particular, I referred to s 98 of the Civil Procedure Act 2005 (NSW) and to r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) and noted that the principles applicable to an order for indemnity costs were summarised by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801; (1993) 46 FCR 225 at 232-234 and applied in, inter alia, Lahoud v Lahoud [2006] NSWSC 126 at [11] and in Ng v Chong [2010] NSWSC 127 at [18]. I also referred to the observations of the Full Court of the Federal Court in Hamod v State of New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 at [20] and noted that, in Liverpool City Council v Estephan [2009] NSWCA 161 at [100], Giles JA (with whom McColl JA agreed) had observed that s 56 of the Civil Procedure Act adds emphasis to the occasion to depart from costs on an ordinary basis where a failure to properly conduct the proceedings had caused costs to be incurred unnecessarily, but did not override the need for a rational connection between the reason for that departure and the extent of that departure. 8Mr Harrow submitted that there was little difference between the allegations made against the Administrators (which were the subject of a proposed indemnity costs order in my principal judgment) and those against Mr Harrow. I accept that submission. It seems to me that Mr Harrow's position is indistinguishable from that of the Administrators, other than for the fact that Mr Sliteris had unsuccessfully maintained allegations against Mr Harrow that turned on substantially the same facts as those abandoned against the Administrators. It seems to me that, as Mr Harrow points out, the fact that the allegations against him were pursued, in a hearing over two days, where the amount in issue was on any view significantly less than the costs that would be incurred in that hearing, also supports an order for indemnity costs in his favour. 9For completeness, I note that Mr Harrow also submitted that the evidence available to Mr Sliteris did not satisfy the necessary standard to advance the allegations made against Mr Harrow. I do not consider it necessary to determine that matter, where I have found that an order for indemnity costs should be made in favour of Mr Harrow on other grounds. Mr Sliteris also addressed the position as to costs in respect of the Fourth and Fifth Defendant, but it is not necessary for me to do so since those Defendants did not seek an order for costs against him, in circumstances that the claims against them had previously been withdrawn on that basis. 10Mr Sliteris responds that his actions were "successful in saving the company further administration costs of conducting meetings of creditors and inevitably resolving in favour of liquidation". Mr Sliteris also referred to the reasons for judgment of Pembroke J, to which I had referred in my principal judgment, in ordering that a liquidator be appointed to the Company. Mr Sliteris submitted that, on that basis, costs in favour of Mr Harrow should be ordered on an ordinary basis. 11Mr Sliteris' submission that his application for a winding up order had saved the Company the costs of a voluntary administration (putting aside the question whether there was any material difference in the costs of the two regimes, to which I referred in my principal judgment) supports an order that Mr Sliteris have the costs of the winding up application brought before Pembroke J, and I indicated in my earlier judgment that I proposed to make such an order. That submission and the fact that Pembroke J ordered a winding up also support a conclusion that Mr Sliteris should not be ordered to pay Mr Harrow's costs of the winding up application before Pembroke J, on the basis that it had reasonably been brought by Mr Sliteris. Mr Harrow's costs of the winding up application before Pembroke J should be costs in the winding up, corresponding to the similar order made in favour of Mr Sliteris, but without an exclusion for the costs of argument as to the identity of the liquidator as to which Mr Sliteris had failed. 12However, Mr Sliteris' submission that his application for a winding up order had saved the Company the costs of a voluntary administration provides no answer to the criticisms made by Mr Harrow of the conduct of the subsequent proceedings before me, after a winding up order had already been made by Pembroke J. Mr Sliteris did not respond to the other matters raised by Mr Harrow in his submissions, to which I have referred above. I am satisfied that Mr Sliteris should be ordered to pay Mr Harrows' costs of and incidental to the matters heard before me on 30 September and 8 October 2014 up to and including the date of my principal judgment on an indemnity basis, as agreed or as assessed. I do not propose to make any order for costs in favour of any party as to this application. Other matters raised by the administrators and Mr Harrow 13The Administrators also submitted proposed short minutes of order, supported by an affidavit of Ms Clautina Douglas sworn 26 November 2014 and, by letter dated 26 November 2014 from their solicitors to my Associate, indicated that they requested that the Court determine their remuneration in the administration in the sum of $13,307.80 under s 449E of the Corporations Act and also sought an order confirming the amount in which they were entitled to indemnity for debts incurred in the course of the administration under s 443D(a) of the Corporations Act. The affidavit of Ms Douglas dated 26 November 2014 was addressed to those issues. 14By his submissions dated 26 November 2014, Mr Harrow also sought an order that the Administrators' costs (including remuneration and disbursements) be fixed in a specified amount, referring to s 443D of the Corporations Act (dealing with the administrator's right of indemnity which I have referred above), s 443E(1)(c) (relating to the priority of that right of indemnity) and s 449E(1)(c) which refers to the Court's power to fix the administrator's entitlement to remuneration where there was no resolution of the company's creditors fixing that remuneration. Mr Harrow's submissions did not identify the basis on which the Administrators' costs were calculated, for the purposes of his proposed order that they be paid out of the Company's assets. I note, however, that the total amount provided in his proposed order corresponds to the total amount provided in the Administrators' proposed orders. 15These matters were not in issue in the substantive proceedings before me and were not reserved for further submissions in the proceedings, and I do not propose to make orders as to matters that were not in issue in the proceedings before me. I encourage the parties to seek to reach agreement as to these issues, given the relatively small amounts involved. If that is not possible, then the proper course will be for the Administrators to file an interlocutory process raising those issues, so that Mr Sliteris has a proper opportunity to be heard about them. I should add that, so far as the Administrators relied on s 443D(a) of the Corporations Act, that section provides that the administrator of a company is entitled to be indemnified out of the company's property (other than certain excluded property) for debts for which the administrator is liable under Pt 5.3A Div 9 Subdiv A, which relates to debts which the administrator incurs in the performance or exercise of any of his or her functions and powers as administrator. That section confers a statutory right on the administrator and does not contemplate that the Court should, as matter of course, determine the amount of the specified debts. It does not seem to me that there is any particular reason why the Court should do so in this case, where there is no evidence that that the Administrators are unable to do so for themselves or that there is any present dispute between the parties as to that matter. Ms Douglas's affidavit would also have been insufficient to support approval of the remuneration, legal costs or disbursements claimed by the Administrators, where it merely annexed a schedule of those costs without verification of them. 16The letter dated 26 November 2014 from the Administrators' solicitors also expressed a view, apparently intended for the information of other parties to the proceedings, that the Administrators were entitled to recover the costs of the proceedings out of the Company's assets and then hold any amount recovered from Mr Sliteris for the benefit of the Company. The correctness of that position is a matter for the Administrators and their legal advisers and was also not in issue in the proceedings before me. Orders 17Accordingly, I make the following orders: 1. Declare, pursuant to s 447C of the Corporations Act 2001 (Cth), that the First and Second Defendants, Mr Dragan Ljubic and Mr Geoffrey Davis, were validly appointed as voluntary administrators of IONA Developments Pty Ltd on 4 April 2014. 2. The proceedings otherwise be dismissed. 3. The Plaintiff's costs of the winding up application, other than any dispute as to the identity of the liquidator to be appointed, be costs in the winding up. 4. The Third Defendant's costs of the winding up application be costs in the winding up. 5. The Plaintiff pay the First and Second Defendants' costs of the proceedings, up to and including 19 November 2014, on an indemnity basis, as agreed or as assessed. 6. The Plaintiff pay the Third Defendant's costs of and incidental to the matters heard before Black J on 30 September and 8 October 2014 up to and including 19 November 2014, on an indemnity basis, as agreed or as assessed. 7. Each party pay its own costs after 19 November 2014. ********** 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: 21 December 2014