Supreme Court New South Wales Medium Neutral Citation: In the matter of Clarkes Pty Limited (ACN 078 949 112) [2015] NSWSC 2101 Hearing dates: 13 August 2015 Date of orders: 13 August 2015 Decision date: 13 August 2015 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: Winding up orders made. Catchwords: CORPORATIONS – winding up – just and equitable ground – irretrievable breakdown of relationship of partners in incorporated quasi-partnership – where winding up application not contested; PROCEDURE – costs – application for plaintiff's costs to be paid by third defendant – plaintiff's entitlement to costs under (CTH) Corporations Act 2001, s 466(2) – whether costs incurred due to third defendant's unreasonable conduct – general approach upon winding up of partnerships that costs be paid out of assets of partnership. Legislation Cited: (CTH) Corporations Act 2001, s 466(2) Cases Cited: Hamer v Giles (1879) 11 Ch D 942 Category: Principal judgment Parties: Reginald Anthony Clarke (plaintiff) Cafsoul Pty Limited ACN 002 515 371 (first defendant) Clarkes Pty Limited ACN 078 949 112 (second defendant) Stephen Robert Clarke (third defendant) S.R. Clarke Pty Limited ACN 099 302 495 (fourth defendant) Representation: Counsel: J T Johnson (plaintiff) H Pintos-Lopez (defendant) Solicitors: Access Law Group (plaintiff) Tony Cullinan Lawyers (defendants) File Number(s): 2015/167422 Judgment (ex tempore) 1. HIS HONOUR: By originating process filed on 5 June 2015, the plaintiff Reginald Anthony Clarke sought orders that the first defendant company Cafsoul Pty Limited and the second defendant company Clarkes Pty Limited be wound up on the just and equitable ground and other related grounds, and that a liquidator be appointed. He also sought orders to the effect that the third defendant Stephen Robert Clarke indemnify the other defendants in respect of all costs incurred by them in relation to the proceedings and/or all unrecoverable amounts payable to the first and second defendants, and an order that the defendants (apparently including the third defendant) pay the plaintiff's costs of the proceedings. 2. The precise relief sought was clarified by an amended originating process filed on 18 June 2015. The order for an indemnity in respect of "unrecoverable amounts", whatever that might have been intended to capture, was not pressed at the hearing. 3. Both companies are ultimately, albeit through an intermediate entity in one case, equally held by the plaintiff Reginald Anthony Clarke and his brother the third defendant Stephen Robert Clarke, and performed functions in connection with an accounting practice operated by the Clarke brothers. They were in effect an incorporated quasi-partnership. Unhappily, the relationship between the Clarke brothers has broken down irretrievably. For all practical purposes, they have gone their separate ways so far as the accounting practice is concerned. It is plain on the evidence that both are of the view that there has been a breakdown of mutual trust and confidence between them and that there is no prospect of their co-operating in the operation of the companies. In those circumstances, the ground that it is just and equitable that the companies be wound up is plainly established. Such an order was not opposed and no submission was made that, as a matter of discretion, the order ought not be made. 4. David Young of Young RIT, an official liquidator, has consented to be appointed liquidator of both companies. The evidence establishes that notice of making an application for a winding up order was published on the ASIC website on 11 August 2015. 5. Under (CTH) Corporations Act 2001, s 466(2), the liquidator must, unless the Court otherwise orders, reimburse the plaintiff, out of the property of the company, the taxed costs incurred by the plaintiff in winding up proceedings. Accordingly, the plaintiff is, in the absence of an order otherwise, entitled to his costs out of the assets of the company upon a winding up order being made. The plaintiff, as I have indicated, seeks in effect an order that the third defendant pay the plaintiff's costs of the proceedings. However, the plaintiff effectively submits that the costs have been incurred because of unreasonable conduct on the part of the third defendant. 6. It is true that after a settlement was apparently negotiated in late 2014, the third defendant subsequently refused to execute a deed which would have perfected those negotiations and resulted in an out of court resolution. More recently, after the institution of the proceedings, the third defendant indicated that he would be prepared to execute such a deed, but the plaintiff then declined to accept that course, and proceeded to press for a winding up order. It is also true that the defendants filed a notice of opposition – but, in reality, the winding up order has not been opposed. The third defendant has filed evidence as to the history of the relationship between the Clarke brothers and the companies and the breakdown of that relationship, but that was not an unreasonable response to an application which sought to visit on the third defendant personally the costs of the proceedings. 7. In the winding up of partnerships, the ordinary practice of the Court is that the costs of both parties are paid out of the partnership assets, unless there is some good reason to the contrary [see Hamer v Giles (1879) 11 Ch D 942]. Although this is an application for the winding up of a company, that principle reinforces the view that the plaintiff's costs be paid out of the assets of the company, rather than be recoverable from the third defendant. When one has regard to the totality of the evidence such as it is before the Court, the picture that emerges is one of the breakdown of a quasi-partnership in circumstances in which, if there is attributable fault, it could only be ascertained after a contested hearing which neither of the parties wishes to pursue and, in the ordinary experience of life, it is likely that there would either be no attributable fault, or there would be some fault on each side. 8. In those circumstances, it seems to me proper that the third defendant also should have his costs, which were incurred in to resisting an application that he be personally liable for its costs, out of the assets of the company. 9. The Court therefore orders that: 1. The first defendant Cafsoul Pty Limited ACN 002 515 371 be wound up on the just and equitable ground and David Young of Young RIT, 9 Hunter Street, Sydney, be appointed liquidator. 2. The second defendant Clarkes Pty Limited ACN 078 949 112 be wound up on the just and equitable ground and David Young of RIT, 9 Hunter Street, Sydney, be appointed liquidator. 3. In conformity with Corporations Act, s 466(2), the liquidator reimburse the plaintiff, out of the property of the companies equally, its taxed costs incurred by the plaintiff in the proceedings. 4. The liquidator reimburse the third defendant, out of the property of the companies equally, the taxed costs incurred by the third defendant in the proceedings. ********** 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: 08 September 2016