Commonwealth Bank of Australia v Fernandez (No 2) [2011] FCA 709 (22 June 2011)

Last Updated: 24 June 2011

FEDERAL COURT OF AUSTRALIA

Commonwealth Bank of Australia v Fernandez (No 2) [2011] FCA 709

Citation:		Commonwealth Bank of Australia v Fernandez (No 2) [2011] FCA 709
Parties:		COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) AND OTHERS (ACCORDING TO THE SCHEDULE) v AVITUS THOMAS FERNANDEZ AND OTHERS (ACCORDING TO THE SCHEDULE)
File number:		VID 836 of 2010
Judge:		FINKELSTEIN J
Date of judgment:		22 June 2011
Cases cited:		Adsett v Berlouis (1992) 37 FCR 201 In re Beddoe [1893] 1 Ch 547 In re R Bolton & Co [1895] 1 Ch 333
Date of last submissions:	Plaintiffs: 7 and 9 February 2011 First Defendant: 7 February 2011 Willmott Growers Group Inc: 7 February 2011 Willmott Action Group Inc: 18 February 2011
Place:	Melbourne
Division:	GENERAL DIVISION
Category:	No Catchwords
Number of paragraphs:	15
Counsel for the Plaintiffs:	Mr P Crutchfield SC Mr C Moller
Solicitor for the Plaintiffs:	Clayton Utz
Counsel for the First Defendant:	Mr N Lucarelli QC Mr J Kohn
Solicitor for the First Defendant:	Hunt & Hunt
Counsel for the Willmott Growers Group Inc:	Mr M Galvin
Solicitor for the Willmott Growers Group Inc:	Clarendon Lawyers
Counsel for the Willmott Action Group Inc, Kay Ledson and Jokamon Pty Ltd:	Mr G Slater
Solicitor for the Willmott Action Group Inc, Kay Ledson and Jokamon Pty Ltd:	Lilley Dawson & Co

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	VID 836 of 2010

IN THE MATTER OF WILLMOTT FORESTS LTD (RECEIVERS AND MANGERS APPOINTED) (ADMINISTRATORS APPOINTED) (ACN 063 263 650) AND OTHERS (ACCORDING TO THE SCHEDULE)

BETWEEN:	COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) AND ANOTHER (ACCORDING TO THE SCHEDULE) Plaintiffs
AND:	AVITUS THOMAS FERNANDEZ AND OTHERS (ACCORDING TO THE SCHEDULE) Defendants

JUDGE:	FINKELSTEIN J
DATE OF ORDER:	22 JUNE 2011
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The first defendant pay the plaintiffs’ costs of and incidental to the proceeding.
2. The first defendant be indemnified out of the property of each of the second to eleventh defendants (inclusive) in respect of the costs referred to in Order 1.
3. The first defendant be paid out of the property of each of the second to eleventh defendants (inclusive) 50% of his costs of and incidental to this proceeding on an indemnity basis.
4. Each of Willmott Growers Group Inc, Willmott Action Group Inc, Kay Ledson and Jokamon Pty Ltd bear their own costs of and incidental to the proceeding.
   

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	VID 836 of 2010

IN THE MATTER OF WILLMOTT FORESTS LTD (RECEIVERS AND MANGERS APPOINTED) (ADMINISTRATORS APPOINTED) (ACN 063 263 650) AND OTHERS (ACCORDING TO THE SCHEDULE)

BETWEEN:	COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) AND ANOTHER (ACCORDING TO THE SCHEDULE) Plaintiffs
AND:	AVITUS THOMAS FERNANDEZ AND OTHERS (ACCORDING TO THE SCHEDULE) Defendants

JUDGE:	FINKELSTEIN J
DATE:	22 JUNE 2011
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1. Following a contested hearing, Mr Fernandez was removed as administrator of the Willmott Forests group of companies. The costs of the removal application were reserved. Now all parties have applied for a costs order in their favour. The parties are the successful plaintiffs, the Commonwealth Bank of Australia (CBA) and St George Bank, the defendant, Mr Fernandez, and the Willmott Forests group of companies (which did not have separate representation). Two other groups became involved in the proceeding, namely the Willmott Growers Group Inc, which represents one group of investors in managed investment schemes that had been operated by the Willmott Forests group and the Willmott Action Group Inc, Kay Ledson and Jokamon Pty Ltd, which represent another group of investors. Strictly, these two groups were not parties to the proceeding. They were, however, given leave to appear and make submissions as it was felt it might be important that investors express their opinion on whether or not Mr Fernandez should be removed.
2. There seems to be no general rule as regards how costs should be awarded in applications to remove an insolvency practitioner from office. In the past the tendency has been to allow both the applicant’s and the insolvency practitioner’s costs out of the company’s assets unless the insolvency practitioner was removed on grounds of “corruption or mal-administration”. If removed for that type of conduct the insolvency practitioner would be required to pay all the costs: In re R Bolton & Co [1895] 1 Ch 333.
3. I propose to proceed, based on Adsett v Berlouis (1992) 37 FCR 201, 210, by approaching the costs application at three levels: (1) which party is entitled to its costs; (2) whether those costs should be paid by another party or out of the company’s assets; and (3) if paid by another party, whether that party should be indemnified out of the company’s assets.
4. While costs are always in the court’s discretion, there are, I think, some general rules of thumb which should be applied in this kind of case, all things being equal.
5. The first rule is that the successful parties (here the two banks) should have their costs. The general rule that is applied in most cases is that costs follow the event. That rule should be applied on a removal application.
6. The second rule of thumb is that the costs should be paid by the unsuccessful party. One has to be careful in applying this rule on a removal application because the circumstances which give rise to the application can vary significantly. Here Mr Fernandez made a deliberate decision to resist the banks’ application, despite having been forewarned of the grounds on which they would rely. In addition, Mr Fernandez knew that the Australian Securities and Investments Commission (ASIC) intended to support the banks’ application. Moreover, looked at objectively, it would have been apparent to Mr Fernandez that the banks’ case for his removal was a fairly good one. Having unsuccessfully resisted the application, he should pay the banks’ costs.
7. The third rule of thumb is that a person in Mr Fernandez’ position should be entitled to an indemnity out of the companies’ assets. It was, after all, the directors of the Willmott Forests group companies that appointed Mr Fernandez to the office. Generally an administrator has a right to indemnity for expenses incurred while in office provided he has acted properly. In this connection acting properly means acting reasonably and honestly: In re Beddoe [1893] 1 Ch 547, 562. Perhaps some might view this as a borderline case where Mr Fernandez ought to have resigned rather than resist the removal application. But his problem originated with his appointment by the directors, which put Mr Fernandez in a very embarrassing position. Finally, I note that the banks have not suggested that Mr Fernandez should be denied an indemnity.
8. I will not, however, limit Mr Fernandez’ liability to pay the banks’ costs to the extent that the assets of the companies can meet the indemnity. That could unfairly prejudice the banks.
9. Whether Mr Fernandez should be entitled to his own costs is a difficult one. In my view, he should be paid some of his costs, but not all. Mr Fernandez chose to challenge the appropriateness of Mr Carson and Mr Crosbie as substitute administrators. This is not a matter that concerned him and he ought not to have made the attack. In the circumstances, and without being too scientific about the precise proportions, it is appropriate that Mr Fernandez be awarded half of his costs on an indemnity basis. These costs should be paid out of the assets of the companies.
10. That disposes of the costs of the parties. I can now move to a more interesting question, which is whether the two groups representing investors who claim to be creditors of group companies should have their costs. It is an interesting question because there is a developing practice that creditors appear in applications brought by liquidators or administrators, whether or not the orders sought affect creditors’ rights.
11. In my opinion this practice ought not to be encouraged. I accept that there will be some cases where the court may be assisted by having the views of creditors. But when an application is brought inter partes and does not affect the rights of creditors, the creditors need to point to some special circumstance to justify their right to be heard. Otherwise, their participation will simply add to the length, and therefore the cost, of the hearing, with no corresponding gain. Moreover, the creditors should be required to show even more to get the benefit of a cost order.
12. In this case the two groups were permitted to be heard. But it does not follow that they should have their costs. It is apparent that the view each representative group wanted to put could have been raised by one or other of the parties. If either party thought it necessary to adduce evidence about the groups’ views, that could easily have occurred. In my opinion there is nothing in the circumstances of this case that justifies the making of a costs order in their favour. In arriving at this conclusion I have not needed to take into account the likelihood that the investors put their money into these schemes principally to gain a significant tax advantage. That is, they are not, so it seems, typical investors seeking to gain a reasonable return on capital. This is not to suggest that their legal rights should be diminished. But it is to suggest these kind of investors (that is, those who obtained the benefit they sought) ordinarily should not be given the same right of audience as an ordinary investor.
13. Also left unresolved at the hearing was whether the PPB report should continue to be confidential. Portions of that report have been disclosed to the parties, but on a confidential basis. The group consisting of Willmott Action Group, Kay Ledson and Jokamon Pty Ltd seeks to have the confidentiality order lifted.
14. I do not propose to accede to this request. The PPB report was not tendered by any party. It was provided at my request because I was not prepared to appoint the new administrators without satisfying myself that they had performed only limited work on behalf of the CBA. Having read the report I was so satisfied.
15. In that circumstance I do not propose to treat the report as I would a document that found its way into evidence in the ordinary way.

I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Associate:

Dated: 22 June 2011

SCHEDULE

IN THE MATTER OF WILLMOTT FORESTS LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) ACN 063 263 650

IN THE MATTER OF WILLMOTT FINANCE PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 081 274 811

IN THE MATTER OF WILLMOTT FOREST PRODUCTS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 103 019 094

IN THE MATTER OF WILLMOTT FORESTS INVESTMENT MANAGEMENT PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 098 718 837

IN THE MATTER OF WILLMOTT FOREST NOMINEES PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 085 588 772

IN THE MATTER OF WILLMOTT ENERGY PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 130 251 759

IN THE MATTER OF WILLMOTT NOTES PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) A CN 134 963 036

IN THE MATTER OF WILLMOTT SUBSCRIBER PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) ACN 134 963 027

IN THE MATTER OF BIOENERGY AUSTRALIA PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) A CN 096 335 901

IN THE MATTER OF BIOFOREST LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) A CN 096 335 876

B E T W E E N

COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124)
First Plaintiff

ST GEORGE BANK, A DIVISION OF WESTPAC BANKING
CORPORATION (ACN 007 457 141)
Second Plaintiff

and

AVITUS THOMAS FERNANDEZ
First Defendant

WILLMOTT FORESTS LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) (ACN 063 263 650)
Second Defendant

WILLMOTT FINANCE LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) (ACN 081 274 811)
Third Defendant

WILLMOTT FOREST PRODUCTS PTY LTD (RECEIVERS & MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) (ACN 103 019 094)
Fourth Defendant

WILLMOTT FORESTS INVESTMENT MANAGEMENT PTY LTD (RECEIVERS & MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) (ACN 098 718 837)
Fifth Defendant

WILLMOTT FOREST NOMINEES PTY LTD (RECEIVERS & MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) (ACN 085 588 772)
Sixth Defendant

WILLMOTT ENERGY PTY LTD (RECEIVERS & MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) (ACN 130 251 759)
Seventh Defendant

WILLMOTT NOTES PTY LTD (RECEIVERS & MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) (ACN 134 963 036)
Eighth Defendant

WILLMOTT SUBSCRIBER PTY LTD (RECEIVERS & MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) (ACN 134 963 027)
Ninth Defendant

BIOENERGY AUSTRALIA PTY LTD (RECEIVERS & MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) (ACN 096 335 901)
Tenth Defendant

BIOFOREST LTD (RECEIVERS & MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED) (ACN 096 335 876)
Eleventh Defendant