Chacmol Holdings Pty Limited v Handberg (in his capacity as Administrator of Australian Risk Analysis Pty Limited [2005] FCAFC 191 (7 September 2005)

Last Updated: 21 October 2005

FEDERAL COURT OF AUSTRALIA

Chacmol Holdings Pty Limited v Handberg (in his capacity as Administrator of Australian Risk Analysis Pty Limited [2005] FCAFC 191

COSTS – whether a costs certificate should be issued pursuant to the Federal Proceedings (Costs) Act 1981 (Cth)



Federal Proceedings (Costs) Act 1981 (Cth) ss 3, 6, 7, 14





















CHACMOL HOLDINGS PTY LIMITED (ACN 008 605 892) AND MATTHEW LEE JOHNSTON v GEOFFREY NIELS HANDBERG (IN HIS CAPACITY AS ADMINISTRATOR OF AUSTRALIAN RISK ANALYSIS PTY LIMITED) AND AUSTRALIAN RISK ANALYSIS PTY LIMITED (CONTROLLER AND ADMINISTRATOR APPOINTED) (ACN 052 231 937)

V 736 OF 2004




TAMBERLIN, NORTH AND DOWSETT JJ
7 SEPTEMBER 2005
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 736 OF 2004

BETWEEN:	CHACMOL HOLDINGS PTY LIMITED (ACN 008 605 892) FIRST APPELLANT MATTHEW LEE JOHNSTON SECOND APPELLANT
AND:	GEOFFREY NIELS HANDBERG (IN HIS CAPACITY AS ADMINISTRATOR OF AUSTRALIAN RISK ANALYSIS PTY LIMITED) FIRST RESPONDENT AUSTRALIAN RISK ANALYSIS PTY LIMITED (CONTROLLER AND ADMINISTRATOR APPOINTED) (ACN 052 231 937) SECOND RESPONDENT
JUDGES:	TAMBERLIN, NORTH and DOWSETT JJ
DATE OF ORDER:	7 SEPTEMBER 2005
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The application for a costs certificate be refused.











Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 736 OF 2004

BETWEEN:	CHACMOL HOLDINGS PTY LIMITED (ACN 008 605 892) FIRST APPELLANT MATTHEW LEE JOHNSTON SECOND APPELLANT
AND:	GEOFFREY NIELS HANDBERG (IN HIS CAPACITY AS ADMINISTRATOR OF AUSTRALIAN RISK ANALYSIS PTY LIMITED) FIRST RESPONDENT AUSTRALIAN RISK ANALYSIS PTY LIMITED (CONTROLLER AND ADMINISTRATOR APPOINTED) (ACN 052 231 937) SECOND RESPONDENT

JUDGES:	TAMBERLIN, NORTH and DOWSETT JJ
DATE:	7 SEPTEMBER 2005
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

THE COURT:

1 On 16 March 2005 this Court published its reasons for granting leave to appeal, allowing the appeal and remitting the matter for further hearing. At that time the Court ordered that the respondents pay the appellants’ costs of the appeal. Heerey J reconsidered the matter on 31 May 2005 and ordered as follows:

‘1. The applicants [the respondents in this appeal] pay the respondents [the appellants] costs of the trial of the separate questions, including the costs of the hearing in relation to such cost.

2. Such costs be taxed and paid forthwith.’

2 The respondents have subsequently made an application pursuant to s 6 of the Federal Proceedings (Costs) Act 1981 (Cth) (the "Act") for a costs certificate in respect of the appeal. That section relevantly provides:

‘(1) Subject to this Act, where a Federal appeal succeeds on a question of law, the court that heard the appeal may, on the application of a respondent to the appeal, grant to the respondent a costs certificate in respect of the appeal.

(2) ...

(3) The certificate that may be granted under subsection (1) ... by a court to a respondent to a Federal appeal is a certificate stating that, in the opinion of the court, it would be appropriate for the Attorney-General to authorize a payment under this Act to the respondent in respect of:

(a) the costs incurred by the respondent in relation to the appeal; and
(b) any costs incurred by an appellant in relation to the appeal that have been, or are required to be, paid by the respondent to the appellant in pursuance of an order of the court, not being costs to which the costs certificate granted under s 7 relates.’

3 This is clearly a Federal appeal. See par 3(1)(e) of the Act. Section 7 is not presently relevant. The costs contemplated by par 6(3)(a) are an unsuccessful respondent’s costs of the appeal. The costs contemplated by par 6(3)(b) are costs of a successful appellant which an unsuccessful respondent is ordered to pay.

4 Pursuant to pars 14(1)(f) and (g) of the Act, the Court may not grant a certificate to a body corporate which has a paid-up capital of $200,000 or more, or to a body corporate which is related to such a body corporate. The Court invited submissions concerning this matter but received none. The respondents to the appeal were Geoffrey Niels Handberg as Administrator of Australian Risk Analysis Pty Limited and Australian Risk Analysis Pty Limited (Controller appointed) (Administrator appointed) ("ARA"). The evidence suggests that ARA was, at some stage, involved in substantial commercial undertakings. For that reason it seems at least possible that its paid-up capital exceeded $200,000. Whilst Mr Handberg is not, himself, caught by subs 14(1), his claim was clearly derived from ARA. If it is disqualified by par 14(1)(f) or 14(1)(g) then, as a matter of discretion, the Court might well decline his application for security. However, as we have said, no submissions have been received concerning the paid-up capital of ARA. As we are of the view that the application should be refused for other reasons, it is not necessary that we take the matter further.

5 Our primary reason for rejecting the application is that the proceedings were highly speculative in nature. We demonstrate this in our reasons for allowing the appeal. For present purposes it is sufficient to say that the respondents sought to establish that a charge, containing an "all moneys" clause, granted by ARA in favour of the appellant, Chacmol Holdings Pty Ltd ("Chacmol") should be construed as not securing all moneys advanced by Chacmol to ARA. We infer that such a construction would have resulted in the property of ARA becoming available to Mr Handberg as administrator, free of such charge, whilst some of Chacmol’s advances to ARA would have become unsecured.

6 The respondents’ case was based upon the assertion that the charge was executed in discharge of a prior contractual obligation to do so. This was, at least partly, correct. However there was a considerable delay between the making of the relevant agreement and execution of the charge. Further the charge, as executed, did not accurately reflect the obligation imposed upon ARA by the agreement. The "all moneys" clause was the major respect in which the charge went beyond the contractual obligations, but not the only respect. These circumstances should, in our view have led the respondents to consider whether the charge had been executed solely in discharge of the contractual obligation, or whether there had been further dealings between the parties. In any event, we consider that the obvious course for the respondents, if they considered that the charge secured more than was intended by ARA at the time of its creation, was to seek rectification. That was not done.

7 In the course of argument we were told that at a directions hearing, the appellants had suggested that rectification was the appropriate remedy. We were told that the Judge presiding at the directions hearing said that it was ‘not a rectification case’ and ordered that the construction of the charge be decided as a preliminary issue. With all respect to his Honour, we do not agree that it was correct to dismiss rectification as the remedy appropriate to the respondents’ complaints. A Judge at a directions hearing is not necessarily in a position to appreciate fully all aspects of a case and may make observations which reflect this disadvantage. However the parties and their legal advisers bear the responsibility for identifying and defining the issues in a case. They should not rely upon such an observation made in passing. In our view, the respondents’ case was, if anything, for rectification. If that remedy appeared to them to be unavailable, then it is hard to see how they could have felt more hopeful about the approach which they actually adopted.

8 We do not consider that there should be a certificate. The purpose of the Act is to protect litigants from the financial consequences of miscarriages in the legal process. It is a form of risk-spreading. In an action at the suit of an insolvent company the risk is, to some extent, spread amongst those who may benefit from its successful prosecution. By this we mean that costs will come out of the assets of the company, thus reducing the amount otherwise available to creditors and shareholders. We see no good purpose in spreading the risk further if that course will have the effect of encouraging speculative litigation by insolvent companies.

9 The application for a certificate was also misconceived to the extent that it sought to include in the certificate the appellants’ costs of the appeal which Heerey J ordered the respondents to pay. Those costs were not, in our view, incurred by the appellant ‘in relation to the appeal’. They were incurred by the appellant in connection with the trial.

10 The application for a certificate will be refused.

I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Tamberlin, North and Dowsett.

Associate:

Dated: 7 September 2005

Solicitor for the Appellants:	Pointon Partners
Solicitor for the Respondents:	Mills Oakley
Date of Final Submissions:	16 June 2005
Date of Judgment:	7 September 2005