Re Octaviar Ltd (No 9)[2009] QSC 273

SUPREME COURT OF QUEENSLAND

[1] This judgment deals with the costs of the applications which I decided on 31 July 2009.[1] 

[2] The Public Trustee succeeded upon each of his applications to set aside the deed of company arrangement.  He argues that his costs should be paid by the respondents which opposed that outcome, i.e. the respondents other than the Commissioner of Taxation and Challenger Managed Investments Limited.  He argues that he should also have his costs against Fortress upon its unsuccessful application for an extension of time.  Fortress does not oppose that last order.  The arguments concern the costs of the applications to set aside the deeds. 

[3] With one exception, none of the respondents has argued that the Public Trustee should not have some order for costs.  But for the most part, they argue that he should have them out of the winding up of the two companies as “costs in respect of the application for the order [for winding up]” under s 556(1)(b) of the Corporations Act 2001 (Cth).  The exception is an argument for Wellington that the Public Trustee pay Wellington’s costs in relation to certain allegations made against Wellington in the Public Trustee’s points of claim.  These were mostly allegations as to matters which a liquidator of Octaviar Ltd would wish to investigate.  I accepted that some of those matters would be likely to be investigated by a liquidator.  As to the transaction pleaded in paragraphs 53 and 54 of the points of claim, I found that a liquidator would not be obliged to investigate that transaction but might wish to do so.[2]  The matters pleaded in paragraphs 58 to 72 related to the disposal of the responsible entity for the PIF, upon which Wellington’s argument prevailed.[3]  Paragraph 80 of the points of claim made allegations about the amendment of the MFS Support Mechanism, about which I found that a liquidator would wish to investigate the circumstances of the amendment.[4]  Paragraphs 102 and 103 pleaded one of several ways in which Wellington was said to be a party with an interest in avoiding a liquidation of these two companies.  It was a question which I found unnecessary to discuss, because for other reasons which were discussed, Wellington clearly had an interest in avoiding a winding up and consequent inquiries by a liquidator.[5]  The Public Trustee was successful, for the most part, in arguing that there were matters which a liquidator would wish to investigate in relation to Wellington.  The fact that he was not wholly successful should not result in an order for costs against him.  More generally, Wellington should not have an order for costs against the Public Trustee in the circumstance where Wellington also made extensive submissions against these applications, which went far beyond the transactions in which Wellington had been involved.  Overall, Wellington was quite unsuccessful in its response to these applications.  The bold submission by Wellington that it should have some order for costs against the Public Trustee must be rejected.

[4] Accordingly, the Public Trustee should have the costs of his successful applications.  The question then is whether he should have them out of the winding up, so that the burden would fall upon all creditors, or whether he should have them against one or more of the respondents who opposed the termination of the deeds.

[5] Counsel for Fortress referred me to Commonwealth v Leahy Petroleum – Retail Pty Ltd,[6] where it was ordered that a deed be terminated with the consequence, as for Octaviar Administration here, that the company was wound up pursuant to s 446B of the Act and reg 5.3A.07 of the Corporations Regulations 2001 (Cth).  The most important reason for setting aside that deed was that the Commonwealth had been unfairly prejudiced by it.  The respondents to its application were the company, the deed’s administrators and an entity which owned all the issued shares in the company.  Finkelstein J said:

“[23] This brings me to the question of costs.  The Commonwealth contends that the costs should be borne by the fourth defendant because it is in effect an unsuccessful party.  I think that the better principle is this.  Where an action is brought for the purposes of determining how a fund should be distributed, it is the fund that should bear the costs, so long as none of the parties to the litigation is guilty of misconduct.  That is the practice the Chancery courts have followed for many years and which, to my knowledge, has been adopted by company judges in cases similar to the present.  It is the practice I will adopt here.”[7]

I am not persuaded that this would be the appropriate outcome in the case of Fortress.  The deeds were proposed by Fortress and it strongly defended them in these proceedings.  It stood to substantially benefit from the deeds’ not being terminated.  Its arguments on the critical questions of the operation of the deed were rejected.  Overall its contribution to the necessity for and cost of these proceedings was substantial.  It should not have its own costs.  But its stance was not much different from that of the administrators.  In other words, it was not only because of the approach by Fortress to these applications that they had to be extensively litigated.  I am not persuaded that it should be ordered to pay the costs of the applications. 

[6] The administrators will be indemnified by the companies for their costs and accordingly they seek no orders.  They resist the Public Trustee’s application that they pay his costs.  Like Fortress, they advanced substantial arguments as to the operation of the deed for Octaviar Limited which were unsuccessful.  But unlike Fortress, they were endeavouring to assist the court with submissions which, I would infer, accorded with their advice.  There was no misconduct on their part.  Nor is it necessary to visit them with the Public Trustee’s costs to ensure that the Public Trustee recovers his costs.  In the application for Octaviar Limited, that could be achieved by ordering that the Public Trustee’s costs be paid by the company, as a cost in respect of the application for the order for the winding up of the company.  I respectfully agree with the analysis of Campbell J (as he then was) in Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd[8] that the application to terminate the deed in this context is an essential prerequisite to the obtaining of the order for winding up so that the costs of that application are costs “in respect of” the application for winding up for the purposes of s 556(1)(b).  There will be no order against the administrators.

[7] The positions of OPI Pacific Finance Pty Ltd and Wellington Capital Limited may be considered together.  Neither made any substantial argument as to the operation of the Octaviar Limited deed.  On the face of things, each is a large creditor with an interest as such in whether the deed remained.  Each was concerned to rebut the Public Trustee’s case that a liquidator would wish to investigate matters concerning it and its debt.  In those circumstances, I am not persuaded that it would be just that it be ordered to pay the Public Trustee’s costs.  Nor am I persuaded that it should recover its costs in the winding up.  Accepting that the approach of Finkelstein J in the above passage will in many cases be appropriate, in this case each of these parties had another reason to oppose the termination of the deed, which was that it would be likely to be subject to a liquidator’s investigation.  In other words its interest was not purely as a creditor in the proper application of the available funds.

[8] The respondent Sunleisure Group Pty Ltd is now in receivership, and the solicitors who appeared for it no longer hold instructions.  The other company for which they appeared, Octaviar Investment Holdings No. 3 Pty Ltd, opposes the order sought against it.  Although it supported the deeds, it did not vote at the relevant meetings.  Its debt is less than $1 million.  Yet the solicitors who appeared for it and Sunleisure Group actively participated in the cross-examination and submissions.  Ultimately however, I am not persuaded that these companies are in a special category such they should pay the Public Trustee’s costs. 

[9] No order for costs is sought by Challenger Managed Investments Limited, which did not participate in the hearing except to present a short written submission supporting the Public Trustee. 

[10] That leaves the Commissioner of Taxation.  It seeks an order against the other respondents (apart from Challenger).  For the above reasons it should not have that order.  However, with one qualification, it should have its costs in the liquidations.  As discussed in the principal judgment, at one time at least there was a view that the deeds were beneficial to creditors other than the Commissioner on the basis, which I held to be erroneous, that the deed for Octaviar Limited could be used to avoid the impact of the s 260-5 notice.  The participation of the Commissioner was therefore appropriate.  The exception is in relation to the hearing I conducted for the preliminary question of the validity of the Fortress charge.  The Commissioner made no submissions in that hearing and its costs in these applications should be limited to the period after 6 March 2009. 

[11] The Commissioner had a particular interest in resisting the application by Fortress for an extension of time.  However, that was not an interest as a participant under the deed or in a winding up, but rather as effectively a secured creditor whose priority as such would be affected by the outcome.  The particular argument made by the Commissioner, which was not made by the Public Trustee in resisting the application, was that there should be a Joplin condition, which I did not accept.[9]  I am not persuaded to allow the Commissioner his costs of this application.

[12] I have mentioned the order by which the Public Trustee could recover its costs in the application to terminate the deed for Octaviar Limited.  That could not apply to Octaviar Administration, because it is in liquidation by a deemed creditors’ voluntary winding up, there being no application for winding up.  In a like case in Commonwealth v Leahy Petroleum, Finkelstein J simply ordered that the costs “be costs in the administration of [the company]”.  Another form of order was made in Kalon v Sydney Land Corporation Pty Ltd (No 2),[10] where the New South Wales Court of Appeal upheld an order for termination of a deed, and saw fit to make the same order for costs as had been made at first instance.  The order was that the costs of the successful applicant be paid out of the assets of the company as if they were a deferred expense pursuant to s 556(1)(de).  No submission here addressed precisely what form of order would be appropriate in the case of Octaviar Administration.  I will make an order as Finkelstein J did, but will follow the course taken by the Court of Appeal in Kalon, in ordering that the operation of the costs orders for the application for Octaviar Administration be postponed until further order to allow the parties to file written submissions on the form of that order within 14 days of these reasons. 

[13] The orders will be as follows:

(1) In BS 1848/09, the costs of the Public Trustee of Queensland and the costs of the Commissioner of Taxation (save for the Commissioner’s costs prior to 7 March 2009) of these proceedings be paid by Octaviar Limited, as costs in respect of the application for the order for the winding up of that company.

(2) In BS 1850/09 the costs of the Public Trustee of Queensland and the costs of the Commissioner of Taxation (save for the Commissioner’s costs prior to 7 March 2009) be costs in the winding up of Octaviar Administration Pty Ltd.

(3) The operation of order (2) be postponed until further order to allow the parties to file written submissions on the question of costs within 14 days after delivery of these reasons.

(4) In BS 3650/09, the costs of the Public Trustee of Queensland be paid by Fortress Credit Corporation (Australia) II Pty Ltd.