In the Matter of Windy Dropdown Pty Limited (Subject to a Deed of Company Arrangement) ACN 080 130 114; Green v Equititrust Limited ACN 061 383 944 (Formerly Equitiloan Limited) [2010] NSWSC 1099 (27 August 2010)

Last Updated: 23 September 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
In the Matter of Windy Dropdown Pty Limited (Subject to a Deed of Company Arrangement) ACN 080 130 114; Green v Equititrust Limited ACN 061 383 944 (Formerly Equitiloan Limited) [2010] NSWSC 1099


JURISDICTION:
Equity

FILE NUMBER(S):
2010/87512

HEARING DATE(S):
27 August 2010

JUDGMENT DATE:
27 August 2010

EX TEMPORE DATE:
27 August 2010

PARTIES:
Martin John Green and Peter Paul Krejci (Joint Deed Administrators) v Equititrust Limited ACN 061 383 944 (Formerly Equitiloan Limited)

JUDGMENT OF:
White J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Plaintiff: J T Johnson
Defendant: J A Hogan-Doran with B D Kaplan

SOLICITORS:
Plaintiff: Watson Mangioni Lawyers
Defendant: Tucker & Cowen, Solicitors


CATCHWORDS:
CORPORATIONS – application by administrators of deed of company arrangement for directions in respect of giving effect to costs orders made against company – whether amount for which company liable under costs orders is “Administrators’ Disbursements” under deed of company arrangement – where claim not defended by deed administrators but by third party pursuant to leave under Corporations Act 2001 (Cth), s 237 with deed administrators’ consent – defending claim part of deed administrators’ duties in implementing deed – company’s liability to costs order arose from deed administrators’ decision as how claim should be defended – deed administrators’ lack of control over and involvement in litigation not relevant – costs incurred by company considered costs incurred by deed administrators – no basis for apportioning costs incurred before appointment of administrators
PRACTICE AND PROCEDURE – whether court has power to make lump sum costs order under Civil Procedure Act 2005 (NSW), s 98 after costs order already made – appropriate in circumstances to make lump sum costs order – costs not yet referred for assessment – court’s power to make lump sum costs order not spent – whether Civil Procedure Act precludes another judge from making lump sum costs order such that trial judge should make order

LEGISLATION CITED:
Corporations Act 2001 (Cth)
Civil Procedure Act 2005 (NSW)
Legal Profession Act 2004 (NSW)

CATEGORY:
Procedural and other rulings

CASES CITED:
Re Lofthouse; Riverside Nursing Care Pty Ltd (subject to deed of company arrangement) [2004] FCA 93; (2004) 22 ACLC 215
Re Mendarma Pty Ltd (in liquidation) (No 2) [2007] NSWSC 99; [2007] NSWSC 99; (2007) 61 ACSR 601
McCluskey v Pasminco Ltd [2002] FCA 231; (2002) 120 FCR 326
Foots v Southern Cross Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52

TEXTS CITED:


DECISION:
Refer to paras 56-58 of judgment.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST


WHITE J

Friday, 27 August 2010

2010/87512 In the Matter of Windy Dropdown Pty Limited (Subject to a Deed of Company Arrangement) ACN 080 130 114;

Martin John Green and Peter Paul Krejci (Joint Deed Administrators) v Equititrust Limited ACN 061 383 944 (Formerly Equitiloan Limited)

JUDGMENT

1 HIS HONOUR: The plaintiffs are the administrators of a deed of company arrangement executed by Windy Dropdown Pty Limited (subject to deed of company arrangement) ("the company") on 26 August 2004. They seek directions under s 447D of the Corporations Act 2001 (Cth) as to how they should give effect to an order for costs made against the company on 4 April 2008 in favour of Equititrust Limited (“Equititrust”). Those orders were made in proceedings number 4333/2000. Equititrust has been joined to this application and has made submissions. It has brought its own interlocutory process.

2 The first substantial question on the application is whether the amount for which the company is liable to Equititrust under the costs order of 4 April 2008 is part of "Administrators' Disbursements" within the meaning of the deed of company arrangement to which the deed fund is to be applied before a pari passu distribution to creditors. The second principal question is whether a lump sum costs order can and should be made.

3 The company had been engaged in a property development at North Curl Curl. In 1998 and subsequently it borrowed moneys secured by mortgage from Equitiloan Securities Pty Ltd. A dispute arose in relation to the amount of interest the company was liable to pay. Equitiloan Securities contended that the company was liable to pay interest at a higher rate. The company denied this. The company discharged the mortgage by repaying the loan at the higher rate of interest claimed by Equitiloan Securities.

4 In proceedings number 4333/2000 the company sought to recover the additional amounts paid in excess of those it contended it was liable to pay.

5 On 10 May 1999 the company had entered into a profit share agreement with Equititrust. Equititrust contended that it was entitled to be paid approximately $722,000 under that agreement. Equititrust brought a cross-claim in proceedings 4333/2000 in respect of that claim.

6 On 28 April 2004 the plaintiffs were appointed as voluntary administrators of the company. On 26 August 2004 the company entered into a deed of company arrangement. I will refer to the terms of that deed later in these reasons. The deed provided that there would be a deed fund comprising the proceeds of all of the assets of the company and that during the continuance of the deed the company would not trade. It appears from the administrators' report to creditors that there were assets on hand to form a deed fund in the order of $438,000.

7 On 27 September 2004 Equititrust lodged a proof of debt. It claimed $722,888.28 as its profit share under the agreement of 10 May 1999. It also claimed $148,802.94 for legal costs of proceedings 4333/2000 and interest.

8 On 1 September 2005 the company, through the deed administrator, assigned for value to Mr Phillip Franks (the director of the company) the company's causes of action against Equitiloan Securities.

9 On 7 April 2006 the deed administrators substantially rejected Equititrust's proof of debt. The proof was allowed only to the extent of $16,218.62 for legal costs in proceedings 4333/2000. That amount was allowed in respect of a costs order made by Campbell J (as his Honour then was) on 12 March 2003.

10 On 24 April 2006 Equititrust filed an originating process in proceedings 2473/2006 appealing against rejection of the proof of debt. It sought an order that its claim for $722,888.28 under the profit share agreement should be accepted by the deed administrators, and it sought an order that the administrators should accept its claim for legal costs in the sum of $25,441.42 rather than the sum of $16,218.62 which had been allowed. It did not appeal from the rejection of the proof in respect of its claim for costs which had not been the subject of a costs order.

11 On 7 November 2006 I made orders in chambers with the consent of the parties in proceedings 2473/2006 vacating the hearing date for the appeal from the rejection of the proof of debt and adjourning those proceedings until the finalisation of proceedings 4333/2000. The deed administrators were the defendants to the appeal from the rejection of the proof of debt. I noted that they agreed to be bound by any findings made by the court in proceedings 4333/2000. They also agreed not to distribute the deed fund until those proceedings had been finalised or further order.

12 On 6 February 2007 Brereton J made the following orders in proceedings 4333/2000 by consent:

“BY CONSENT:

1. Subject to paragraph 2, below, pursuant to section 444E(3) of the Corporations Act 2001, leave be granted to the Cross-Claimant, Equititrust Limited (formerly known as Equitiloan Limited) to begin and proceed with its Cross-Claim against Windy Dropdown Pty Limited (subject to Deed of Company Arrangement).

2. The leave granted in paragraph 1, above, is conditional upon Equititrust Limited not taking any step to enforce any judgment obtained by it in relation to its Cross-Claim against Windy Dropdown Pty Limited (subject to Deed of Company Arrangement) without further leave of the Court.

3. Pursuant to section 237(2) of the Corporations Act 2001, leave be granted to Phillip Maurice Franks to defend the Cross-Claim by Equitiloan Limited against Windy Dropdown Pty Limited (subject to Deed of Company Arrangement), on behalf of Windy Dropdown Pty limited (subject to Deed of Company Arrangement).”

13 In this way Mr Franks proceeded to assert his claim as assignee of the company's chose in action against Equitiloan Securities and to defend Equititrust's claim against the company. Those proceedings were heard over six days in 2007 before Brereton J. Both the claim and the cross-claim were successful. On 4 April 2008 Brereton J gave judgment for Mr Franks against Equitiloan Securities for $427,869. His Honour declared that the company was liable to pay Equititrust the sum of $722,880. His Honour also ordered:

“... save insofar as any special costs order otherwise provides:-

...

(ii) Windy Dropdown Pty Ltd (subject to Deed of Company Arrangement) pay the cross-claimant’s costs of the cross-claim.”

14 Another proceeding had been instituted in 2001 by Equititrust against the company. In those proceedings Equititrust sought to prevent the dissipation of the net proceeds of sale of the remaining lots subject to the profit share agreement. On 4 April 2008 an order was made in those proceedings that:

“Save insofar as any special costs order otherwise provides, the costs of the proceedings, including any reserved costs, be costs in the cross-claim in proceedings 4333/00."

15 These costs orders were made against the company, not against the deed administrators.

16 One of the questions raised in the plaintiffs’ originating process is whether the deed administrators are personally liable for any part or all of the costs the subject of those orders. No-one contended for an affirmative answer to that question. The administrators were not parties to those proceedings and no orders were made against them.

17 On 4 April 2008 orders were also made in proceedings 2473/2006, that is, the proceedings by way of appeal from the rejection of the proof of debt which had been adjourned pending the finalisation of proceedings 4333/2000. It was ordered that the appeal from the administrators' decision be allowed, and that in lieu of the administrators' decision, the proof of debt of Equititrust be admitted in the sum of $722,880. The defendants to those proceedings, the deed administrators in their capacity as deed fund administrators, were ordered to pay the costs of Equititrust out of the deed fund with their liability under that order being subject to their being entitled to indemnity, and being limited to any available amount in the deed fund. On or about 23 April 2009 the plaintiffs paid $130,000 to Equititrust from the deed fund in satisfaction of that order.

18 Where a liquidator causes the company in liquidation to bring or defend proceedings which are unsuccessful and a costs order is made against the company, then the company's liability is regarded as an expense of the winding-up and has priority as a liquidator's expense under s 556(1)(a) or s 556(1)(d) of the Corporations Act. The question is whether a similar principle or outcome is applicable to the deed of company arrangement in question.

19 Clause 7 of the deed provides:

“7. APPLICATION OF DEED FUND

The Administrators will apply the Deed Fund as follows:

(a) Firstly, in payment of the Administrators’ Remuneration and Administrators’ Disbursements and the Unpaid Administrators’ Remuneration and Expenses;

(b) Secondly, pari pasu in whole or part payment of the amounts owing to all Deed Creditors whose debts are proven and admitted by the Administrators in accordance with the terms of this Deed; and

(c) Thirdly, the balance (if any) be paid to the Company.”

20 The expressions "Administrators’ Remuneration" and "Administrators’ Disbursements" are defined as follows:

“’Administrators [sic]

Remuneration’ means the remuneration incurred and to be incurred by the Administrators and their staff acting as Administrators of this Deed, calculated in accordance with the GHK scale of fees plus GST.

‘Administrators [sic]

Disbursements’ means all incidental costs and disbursements incurred by the Administrators in connection with the implementation of this Deed and the performance of the Administrators [sic] duties under this Deed including, but not limited to, all legal costs incurred by the Administrators in respect of the foregoing.”

21 “Unpaid Administrators' Remuneration & Expenses" means remuneration, expenses and liabilities of the administrators for the period of the administration of the company under Pt 4.3A up to the commencement date of the deed.

22 Equititrust contends and the plaintiffs deny that the liability of the company under the costs order of 4 April 2008 in proceedings 4333/2000 and the costs payable under that order are:

“... all incidental costs and disbursements incurred by the Administrators in connection with the implementation of this Deed and the performance of the Administrators’ duties under this Deed including ... all legal costs incurred by the Administrators in respect of the foregoing.”

23 A similar question was considered by Finkelstein J in the Federal Court in Re Lofthouse; Riverside Nursing Care Pty Ltd (subject to deed of company arrangement) [2004] FCA 93; (2004) 22 ACLC 215. In that case, there was an order for priority for payments out of the deed fund which gave priority to "the balance owing of any Voluntary Administration and Deed of Company Arrangements’ fees and expenses". The latter included "the remuneration of the Administrator of the Deed of Company Arrangement ... and such costs, disbursements and liabilities incurred by the Administrator of the Deed of Company Arrangement" (at [19]).

24 The issue was whether the deed administrator was required to apply any part of the deed fund (which were apparently trust funds) to discharge costs orders made against the company after the appointment of the deed administrator. The administrator had caused or permitted proceedings to be brought by the company, although Finkelstein J observed that in respect of one of the applications he had not been told whether the application had been begun with the knowledge or concurrence of the administrator (at [16]). Finkelstein J (at [24]) framed the question for resolution as being whether the costs orders against the company could be described as "costs incurred by the administrator during the course of the administration or as costs incurred by the administrator of the deed". He said two questions arose in that respect, first, whether costs awarded against the company could be regarded as costs incurred by the administrator and, secondly, whether that could be so even if the company was not under the immediate control of the administrator. His Honour answered those questions by applying the principles developed over many years in relation to the priority afforded to costs ordered against a company in liquidation. His Honour observed (at [26] and [28]):

“[26] ... The cases established the following rules. If the liquidator commenced an unsuccessful action in the name of the company any costs ordered against the company were not to be proved as a debt in the winding up. This was because the costs were incurred in the winding up and were payable in full out of the company’s assets. The same position held if the liquidator unsuccessfully defended an action brought against the company. It did not matter whether the action was begun before liquidation and its defence or prosecution (as the case may be) was taken over by the liquidator. Nor did it make any difference whether the liquidation was compulsory or voluntarily. Moreover, if the company was insolvent the costs were to be paid in priority to the general costs of the liquidation and in priority to the liquidator’s remuneration.

...

[28] The cases show that the costs of unsuccessful litigation ordered against the company in liquidation form part of the expenses of the winding up for purposes of s 556: Fused Electrics Pty Ltd v Donald (1995) 13 ACLC 432 , 433; Jeffcott Holdings Ltd (in liq) v Young (1995) 16 ACSR 33 , 35–36. In the ordinary case, there is no reason for the unsuccessful costs incurred in a proceeding brought or defended by an administrator in relation to a company under administration or under a deed of company arrangement to be treated any differently. That is, they are part of the costs of the administration or deed (as the case may be). I appreciate that in McCluskey v Pasminco Ltd [2002] FCA 231; (2002) 120 FCR 326, 341; [2002] FCA 231; 41 ACSR 256, 270 Goldberg J reached a different conclusion. In fairness to the judge, it appears that he was not referred to all relevant authorities. Moreover, if the costs are ordered against the company in a proceeding which is begun or defended on the instruction of the administrator they are properly characterised as costs incurred by the administrator. Likewise if the company is under the indirect control of the administrator, as was the case here while the director was under the ‘supervision’ of the administrator.”

25 His Honour concluded that applying those principles the costs ordered against the company fell within the general category of costs, disbursements and liabilities incurred by the administrator.

26 Counsel for the plaintiffs submitted that a different outcome should be arrived at in the present case primarily because of the fact that the cross-claim in the proceedings in which costs were ordered was defended for the company, not by the deed administrators, but by Mr Franks. He was given leave to do so pursuant to s 237 of the Corporations Act. Hence it is said that not only were the costs incurred by the company in defending the claim incurred by him, and not by the deed administrators, but the liability of the company under the costs order could not be regarded as having been incurred by the deed administrators.

27 The powers given to the deed administrators by the deed included the power to defend in the name and on behalf of the company any action, suit or proceeding. The plaintiffs could have admitted Equititrust's claim to proof. They could have sought to insist that the issues between the company and Equititrust be resolved by way of appeal from rejection of the proof of debt. They did not take either course but rather they defended the company's position by allowing Mr Franks to defend it.

28 In my view the liability of the company to the costs order arose from the administrators' decision as to how the cross-claim should be defended. The plaintiffs consented to the order of 6 February 2007 giving Mr Franks leave to defend the cross-claim on behalf of the company and they agreed (as noted in the orders of 7 November 2006) that they would be bound by the findings in those proceedings. In those circumstances it seems to me that on the same reasoning as in Re Lofthouse; Riverside Nursing Care Pty Ltd and by analogy to the cases in a winding-up, the deed administrators are to be taken as having incurred the costs for which the company is liable.

29 It was submitted that in contrast to Re Lofthouse; Riverside Nursing Care Pty Ltd the deed administrators in this case did not supervise the litigation in which the costs orders were made, and their lack of control of the conduct of those proceedings after Mr Franks was given leave to defend the proceedings also distinguishes that case.

30 In my view the question of whether the conduct of the defence was under the administrators' supervision is a red herring. The question is not whether legal costs incurred in defending the cross-claim were incurred by the deed administrators, but whether the company's liability under the costs order was incurred by them such that the costs payable under the order are properly characterised as costs or disbursements incurred by them in implementing the deed or performing their duties under it. In my view Re Lofthouse; Riverside Nursing Care Pty Ltd is not distinguishable on the ground of the extent to which the deed administrators supervised the litigation.

31 Counsel for the plaintiffs argued that the costs incurred by Equititrust before the plaintiffs were appointed as voluntary administrators, which are recoverable under the order, could not be considered as costs incurred by the administrators. This was so, it was said, because the administrators at that time had no involvement in the litigation. But that is not the correct question. It was the making of the order that created the liability of the company to pay costs, and it is the plaintiffs' conduct leading to the making of that order that is to be considered in deciding whether they incurred costs or disbursements in implementing the deed or performing their duties under it. Clearly, defending the claim brought by Equititrust (assuming, as I do, that there were proper grounds for defence) was part of their duties in implementing the deed. That would be so whether the claim was defended by resisting the appeal from the rejection of the proof or by defending the cross-claim. There is nothing surprising in that construction. Had the issue between Equititrust and the company been determined by way of appeal from the rejection of the proof of debt then, given the findings made by Brereton J, the appeal would have succeeded. The consequence would be that the deed administrators would have been made personally liable for the costs of the appeal but their liability would be limited to their right to be indemnified in respect of that liability out of the deed fund (Re Mendarma Pty Ltd (in liquidation) (No 2) [2007] NSWSC 99; (2007) 61 ACSR 601). That was the form of order made in proceedings 2473/2006. It would be strange if there were a different outcome merely because the parties, no doubt for very good reason, adopted what they saw as a more convenient vehicle for resolving the issues between Equititrust and the company, that is by allowing Mr Franks to defend the cross-claim.

32 It is common ground that the costs of Equititrust incurred before the appointment date which were not the subject of an order made prior to that date, in other words which were not the subject of the order of Campbell J of 12 March 2003, were not a provable debt. There is no basis for apportioning the costs recoverable under the order of 4 April 2008 between costs incurred by Equititrust before or after the appointment date. To the extent that the decision in McCluskey v Pasminco Ltd [2002] FCA 231; (2002) 120 FCR 326 at [33], [37] and [41] suggests otherwise, it should not be followed. As Finkelstein J observed in Re Lofthouse; Riverside Nursing Care Pty Ltd at [28] the judge in McCluskey v Pasminco Ltd was not referred to authorities relevant to the question of when legal costs recoverable under an order against the company after liquidation may be recoverable as liquidator's expenses. Insofar as the view was taken in McCluskey v Pasminco Ltd that legal costs expenses incurred in prosecuting a claim for which no order has been made might nonetheless amount to a contingent claim provable in a winding-up, the reasoning does not appear to be consistent with the High Court's decision in Foots v Southern Cross Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52.

33 The reasoning thus far enables me to answer the questions raised in the plaintiffs’ originating process and in the first paragraph of the defendant’s interlocutory process.

34 The questions upon which directions have been sought by the plaintiffs are as follows:

“(a) Whether the Defendant having lodged a Proof of Debt dated 21 September 2004 in the administration of the Deed of Company Arrangement entered into by Windy Dropdown Pty Limited on 25 August 2004 ... is entitled to claim costs pursuant to the Order[s] which have already been the subject of adjudication by the Plaintiffs under the Deed.”

35 The answer to that question is "Yes", but the question itself is somewhat obscure. Part of the adjudication was as to the quantum of the costs of Equititrust which would be admitted to proof, being costs payable under the orders of Campbell J of 12 March 2003. That order was not disturbed by the orders of Brereton J of 4 April 2008. Thus the costs order of 4 April 2008 does not affect the adjudication, admitting that part of the claim in the amount of $16,218.62.

36 No order was subsequently made in proceedings 2473/2006 in relation to that part of the appeal. I do not understand Equititrust to be contending that it is entitled to any amount other than that which has been admitted to proof in respect of its costs claimed pursuant to the order of Campbell J. If the purport of the question is whether Equititrust is not entitled to claim costs pursuant to the costs order of 4 April 2008 because it included in its proof of debt an amount for costs which had not been the subject of a costs order, which claim was rejected, then the answer is that Equititrust is not precluded from claiming costs pursuant to the costs order by reason of its having sought to prove for part of those costs in its proof of debt. Otherwise there has been no adjudication by the plaintiffs of the costs the subject of the costs order of 4 April 2008 and the question would not arise.

37 The second question is:

“(b) Whether the Plaintiffs are personally liable for any part or all of the costs the subject of the order.”

38 It is common ground that the answer to that question is "No".

39 The third question does not arise. The fourth question is as follows:

“(d) Whether any portion of the funds which the Administrators may be personally liable [sic] under the Order are 'Administrators Disbursements' provided for under the Deed.”

40 This question also does not arise because the administrators are not personally liable under the order.

41 The real issue is raised in the fifth question, namely:

“(e) Whether the Plaintiffs are required to admit the costs properly payable in accordance with the Order as an ‘Administrators disbursement’ as defined in the Deed or as ‘Debt' by a 'Deed Creditor' as so defined under the Deed."

42 For the reasons I have given, the costs properly payable under the order of 4 April 2008 are an “Administrators' disbursement” and have priority accordingly under clause 7(a) of the deed. The costs in question are not a "debt" of a "Deed Creditor". A "deed creditor" was defined to be a person who is or claims to be owed a debt by the company on the appointed date other than director interests and "debt" meant any debt, claim or right of action against the company arising out of or having its origin in any act, omission, transaction, situation, relationship or other occurrence on or prior to the appointed date. I did not understand either party to contend that the costs incurred by Equititrust prior to the appointed date would be a "debt" owed to a "Deed Creditor". In any event, as the costs properly payable under the order, whether in respect of work done before or after the appointment date are payable under clause 7(a) as Administrators' Disbursements, the other question does not arise.

43 Equititrust seeks the following relief:

“A direction to the plaintiffs/respondents that they pay, out of the assets of Windy Dropdown Pty Ltd ... those costs ... ordered by the Court to be paid by the Company to the defendant in proceedings 4333 of 2000 and 3435 of 2001 on 4 April 2008 ..."

44 Equititrust is entitled to such an order provided it is qualified so that the amounts payable to it under the costs orders are to be paid pari passu with other amounts payable in the same priority under clause 7(a) of the deed if the deed fund is insufficient to pay all amounts payable under clause 7(a).

45 Equititrust also seeks an order under s 98 of the Civil Procedure Act 2005 (NSW) or otherwise that the costs be assessed in an amount of $63,568.78. That amount is made up of two sums. A costs consultant retained by Equititrust, a Mr Jeffrey Petersen, has assessed the costs of the cross-claim in proceedings 4333/2000 in the sum of $47,048.38, and the costs of proceedings 4325/2001 in the amount of $16,520.40. He deposes to having 13 years’ experience as a legal costs consultant and to having assessed costs in both Queensland and New South Wales, amongst other places. He deposes to having been asked to assess Equititrust's costs in accordance with the orders of Brereton J which he sets out in his affidavit. He deposes to having examined the files of Equititrust's solicitors and having used Queensland Supreme Court scale of costs as the basis of his assessment. That of course would not be the basis upon which costs would be assessed by a costs assessor under the Legal Profession Act 2004 (NSW). He deposes in para 12:

“Queensland has a prescribed [scale] of costs whereas in New South Wales costs are usually claimed at an hourly rate and on an assessment as to what is fair and reasonable. Under the New South Wales system it is more likely than not that costs assessed at an hourly rate will come in at a higher figure than costs assessed under the Queensland Supreme Court scale. ... Based on my experience preparing cost statements an assessment of costs on the ordinary/standard basis (previously party and party costs) for both Queensland and New South Wales proceedings I have found the total professional fees are likely to be more if claimed on an hourly rate as opposed to a scale of costs. Also based on my experience, the commercial hourly rate charged by solicitors is invariably higher than the hourly rate allowed under the Queensland Scale of Costs.”

46 Hence, counsel for Equititrust submit that the assessment of $63,568.78 is a conservative assessment. Counsel points to the fact that there is only a limited amount available in the deed fund. I was told that as at today the amount of the deed fund is approximately $96,000. The deed administrators consider that some further moneys might be received from a claim said to be in an amount of $70,000 and also that a debt is owed by Mr Franks pursuant to the assignment of the cause of action. That amount would be approximately $21,393.

47 I do not know whether there are any outstanding amounts owed to the administrators which might rate pari passu with Equititrust's claim under clause 7(a) of the deed. It appears that the total value of admitted creditors is $1,839,815. Equititrust has been admitted for an amount of $739,098.40. Any costs assessment will entail incurring further costs not only by Equititrust in submitting a costs assessment, but also by the deed administrators if the costs assessment is disputed, as well as the costs of the costs assessor.

48 There was no challenge to the evidence of Mr Petersen. He was not required for cross-examination. The plaintiffs argued that they weren't able to evaluate the reasonableness of Mr Petersen's assessment. They said that his breakdown of costs did not enable them to ascertain, for example, the times at which correspondence was sent or received. I understood at one point it was submitted that Mr Petersen may have included in his assessment costs which would be covered by the order of Campbell J. I see no reason to apprehend that that would be so, given that the order of Brereton J which Mr Petersen sets out expressly excludes costs payable under previous special costs orders. It does not appear that the deed administrators or their solicitors have undertaken any inquiry as to the assessment made by Mr Petersen. The expenditure of further costs on a costs assessment will operate to the prejudice of creditors, and in particular to Equititrust itself, whose claim represents approximately 40 per cent of the admitted claims.

49 In my view it is appropriate to make a lump sum costs order in the amount sought if there is jurisdiction to do so. Counsel for the plaintiffs submitted that the court does not have jurisdiction to make a lump sum costs order either under s 98 of the Civil Procedure Act or pursuant to its inherent jurisdiction. Counsel submitted that the power of the court to order costs has already been exercised and costs are required to be assessed by a costs assessor appointed under the Legal Profession Act, unless those costs are agreed. Counsel did not refer to any authority on whether a power to make a lump sum costs order is spent if an order has already been made for the payment of costs.

50 That power cannot be so spent. Subsection 98(4) provides that at any time before costs are referred for assessment the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to a specified gross sum instead of assessed costs (s 98(4)(c)). Clearly that power can be exercised after an order for costs has been made but before the costs have been referred for assessment. The costs in the present case have not been referred for assessment.

51 It was also submitted that such a costs order could only be made in proceedings 4333/2000. I think that is correct. It was then said that before an order could be made in those proceedings notice would have to be given to Mr Franks of the application because he is the person given leave to defend the cross-claim on behalf of the company.

52 Mr Franks has no interest in the present question. It is a question between the deed administrators and Equititrust. I agree with the submission for Equititrust that Mr Franks' role pursuant to the leave given under s 237 has been completed. He has completed his defence of the cross-claim. The present question does not involve defence of the cross-claim, but assessment of the costs payable under the orders of 4 April 2008.

53 Of course the company is entitled to be heard on the question, and it has been heard through the deed administrators who have power in that respect under the deed.

54 It was suggested that the order could not be made without notice to Mr Franks because he might be exposed to an application under s 242 of the Corporations Act. I do not think there is any substance in that. An application was made to Brereton J on 4 April 2008 that Mr Franks be personally ordered to pay the costs of the cross-claim. His Honour gave reasons on that day for rejecting that application. It would not be open to Equititrust now to seek to re-agitate that issue. Nor does it seek to do so. There is no evidence that the deed administrators might be contemplating any application that Mr Franks indemnify the company in respect of the costs ordered against the company and there is no material before me which would indicate any ground for such an application.

55 I was referred to no authority that would preclude my making the lump sum costs order in proceedings 4333/2000, rather than the trial judge being asked to make such an order. There is nothing in s 98 which precludes another judge making the order. Given that the issue has been raised and argued before me it would be contrary to the dictates of s 56 of the Civil Procedure Act if I were to decline to deal with the question and send the parties to argue the question afresh before Brereton J. I should add in this respect that the contentions advanced for the deed administrators that the court lacked power to make the lump sum costs order sought were apparently only advanced in counsel's outline of submissions, which were served only yesterday. That is a further reason why I would be reluctant to adjourn this part of the application.

56 For these reasons I order that the costs payable by Windy Dropdown Pty Limited (subject to deed of company arrangement) pursuant to order 5(ii) made on 4 April 2008 in proceedings 4333/2000 be assessed in the sum of $63,568.78.

57 I note that this assessment includes the costs payable pursuant to order 1 made on 4 April 2008 in proceeding 3435 of 2001. I direct counsel for the defendant to bring in short minutes of order otherwise in accordance with these reasons.

58 I order that the plaintiffs pay the defendants' costs of these proceedings as an Administrators’ Disbursement under the deed of company arrangement, such that the plaintiffs' liability be limited to the available assets in the deed fund from which the payment is to be made.

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LAST UPDATED:
22 September 2010