Carey Builders Pty Ltd, Re [1997] QSC 134

IN THE SUPREME COURT OF QUEENSLAND Brisbane No 2938 of 1996 Before the Ron Justice White CATCHWORDS: Appearances: Solicitors: Rearing Dates: This judgment only. It is to IN mE MA ITER of The Corporations Law - and - IN mE MA ITER of CAREY BUILDERS PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 010 919 669 REASONS FOR JUDGMENT - WHITE J Judgment delivered 4/08/97 COSTS - against a non-pariy Knight v. FP Special Assets Limited Written submissions Boulton Cleary & Kern for the directors Russell and Company for Mikkelsen Contractors (Mt Isa) Pty Ltd Clayton Vtz for Queensland Building Services Authority Administrators personally Communications in May and June 1997 of research and private study republication in any other way without (Jf.:nniSsion. L ___________---,.,~,...- -- 1 of 9 -- IN THE SUPREME COURT OF QUEENSLAND Brisbane Before the Hon Justice White No 2938 of 1996 IN THE MA ITER of The Corporations Law - and - IN THE MAITER of CAREY BUILDERS PTY LTD (SUBJECT TO DEED OF COI\1P ANY ARRANGEMENT) ACN 010 919 669 REASONS FOR JUDGMENT - WHITE J Judgment delivered 4/08/97 Judgment was handed down in this matter on 14 May 1997. Submissions as to appropriate costs orders were subsequently made in writing. I do not propose to canvass again the facts of the principal application. They can be found in the reasons for judgment. There are four interests, to use a neutral expression, concerned with the costs of the application. They are: • the directors; • the administrators of the Deed; • Mikkelsen Contractors (Mt Isa) Pty Ltd (the original applicant); • Queensland Building Services Authority (QBSA). There are three separate hearings about which submissions have been made for costs orders. They are: -- 2 of 9 -- 2 • 28 January and 8 February 1997 before Fryberg J; • 27 March 1997 before Williams J for an extension of the stay imposed by Fryberg J; • 17 and 18 April before me. Two factors complicate the issue: • Mikkelsen's solicitors say that their client would not be in a position to meet an order for costs; and • QBSA provided funding to Mikkelsens to enable it to make the application to terminate the Deed. As a consequence the directors and the administrators seek orders for costs against Mikkelsens on the ground that it was the unsuccessful party and against QBSA on the principles enunciated in Knight v. FP Special Assets Limited (1992) 174 CLR 178. A2ainst Mikkelsens Mikkelsens submit that there should be no order as to costs because • The directors, although parties to the Deed and not served with the application to set it aside, knew of the hearing before Fryberg J and had seen some of the material and chose not to appear; • As a matter of public interest unsecured creditors ought not be dissuaded by fear of adverse costs orders from making such applications when it is reasonable to do so; • The administrators, Mr Carey and the directors' solicitors misled the creditors' meeting as to a number of matters; • The need for an extension of the stay from Williams J was due to matters within the control of the directors and the solicitors. -- 3 of 9 -- 3 Turning to those submissions, Mikkelsens, as applicant, ought to have served the directors who were parties to the Deed which it was seeking to set aside. Their interest in maintaining the Deed was obvious and the failure to recognise this by making them respondents cannot be overlooked because the directors and their solicitors in Townsville knew of the hearing in Brisbane. The evidence reveals that some only of the material was sent to the directors' solicitors by the administrators and onto them. It is no answer to say that much of the material was that which was relied upon before Thomas J on 12 April 1996 when Mikkelsens sought to have appointed a provisional liquidator to the company. Neither is it an answer to say that the directors were not served then but appeared and were joined before his Honour and could have done so on this occasion. On that occasion the company as well as the administrators had been served. Nothing could have led Mikkelsens to assume that the directors did not wish to participate in these proceedings. Mikkelsens refer to the need to protect the public interest in not dissuading unsecured creditors from applying to set aside deeds where it is reasonable that that ought to occur even if ultimately unsuccessful. I accept that proposition. Thomas J did not make an order for costs on Mikkelsens' unsuccessful application before him. Mikkelsens cite Deputy Commissioner of Taxation (CTH) v. Pddam Pty Ltd (1996) 19 ACSR 498 where Heerey J concluded that although not setting aside the deed there had been a number of deficiencies in the administrators' conduct or disregard for the requirements of the Corporations Law and concluded that it was reasonable for the applicant to bring the application and made no order as to costs. Mikkelsens also rely upon Khoury v. Zambena Pty Ltd (1997) 15 ACLC 620 at p.628. In those cases there had been seriously concerning conduct. In this case, as I have found, the only error of some seriousness in the conduct of the meeting was permitting Mr Kern to exercise certain proxies. Had he not done so it would have made no difference to -- 4 of 9 -- 4 the outcome. The other matters about which I have been critical could not be characterised as serious as were the matters noted by the court in Pddam and Khoury. There was significant delay by Mikkelsens in bringing this application. In its submissions it contends, as it did at the hearing, that it was not until it was formally notified that there would be no dividend that it felt that the circumstances had changed and it should act to bring the application. I have canvassed the conduct of Mikkelsens during the period of the Deed and do not propose to do so again, but on the evidence before me its conduct in blackbanning the completion of the building works has caused loss to the pool of assets available for distribution as well as benefiting itself by exacting payment to complete the work at a particular rate. I have not been persuaded that there is any basis for not making costs orders that will follow the event. I take a different vieyv with respect to the application for a stay before Williams J. Although there was an attempt to extend the stay by consent between the parties that did not eventuate. On the material there is no compelling reason why Mikkelsens should pay the costs of that application when there is no sufficient material to demonstrate why the directors could pot have been prepared to proceed within the time allowed. The argument that there was voluminous material and that counsel of choice was not available does not seem to me to be sufficient. Mikkelsens had not then been served with any material and no good reason is demonstrated for criticising Mikkelsens for not agreeing to the extension of the stay by an order for costs against it. The administrators seek their costs from Mikkelsens and QBSA and submit that they ought not to be required to recover those costs from the administration. They argued against the termination of the Deed before Fryberg J but made only a formal appearance before me on the basis, quite rightly in my view, that it was for the directors to place further material -- 5 of 9 -- 5 and argument before the court on 'that occasion. Accordingly minimal costs were incurred by that formal appearance. The administrators being parties to the Deed properly appeared and argued the application. I am not persuaded as Mikkelsens contends that the costs of the administrators should come out of the assets of the administration. As I have mentioned, there was evidence to indicate that Mikkelsens' conduct had increased the costs of the administration and there is no reason why it should not pay the administrators' costs. Against QBSA The directors and the administrators contend that there should be' an order for costs made in their favour against QBSA as well as Mikkelsens on the principles enunciated in Knight v. FP Special Assets Limited, supra. QBSA provided funding to Mikkelsens to apply for termination of the Deed of company arrangement. It did not appear at the hearing before Williams J on 27 March 1997. QBSA is a creditor of the company and holds guarantees from the directors. It is a statutory authority created under the Queensland Building Services Authority Act 1991. The objects of the Act as set out in s.3 are inter alia to regulate the building industry, to ensure the maintenance of proper standards in the industry and to achieve a reasonable balance between the interests of building contractors and consumers. QBSA contends that its decision to fund Mikkelsens to apply for an order to terminate the Deed was reasonable because at the time when funding was provided "it was clear that under the deed unsecured creditors stood to get nothing whereas a recovery for them was possible in a liquidation". QBSA also maintains that its interpretation of the reasons why Thomas J dismissed the application to appoint a provisional liquidator, to which I have referred in the reasons for judgment, was open and, in any event, s.445D may be resorted to to terminate a deed because of circumstances which have arisen after the deed's execution. QBSA refers again to the matters which were litigated as to why the Deed should be set aside making -- 6 of 9 -- 6 particular reference to the breach of regulation 5.6.33 by Mr Kern's wrongful proxy voting. QBSA also refers to the various representations which it had received from Mr and Mrs Carey for the continuation of Mr Carey's personal building licence to demonstrate their acceptable level of financial security. QBSA also refers to some misleading advice given at the creditors' meeting about the enforceability of guarantees against Mr and Mrs Carey held by unsecured creditors. A deed may be terminated because of events which occur after the execution of the deed. The matters raised by QBSA as causing it concern so as to make reasonable its funding of Mikkelsens have been dealt with by me in the body of the reasons for judgment. QBSA was in a good position to make enquiries about the level of profitability of any contracts that Mr Carey entered into himself and was able to peruse the material offered to QBSA as evidence of financial worth with what had been placed before the creditors by the administrators. On the face of .the material it was quite clear that the Careys appeared to be overvaluing .their assets to QBSA. QBSA seems not to have taken into account the conduct of Mikkelsens in blackbanning the completion of the building works which would have allowed an orderly disposal of the assets and the conduct of Mikkelsens associated with lifting that blackban which ran up costs and disadvantaged other unsecured creditors. QBSA says that it preferred to support Mikkelsens rather than bring the application itself because it held directors' guarantees and would therefore have found it difficult to argue that the Deed prejudiced it or discriminated against it when it could enforce the guarantees. QBSA says that it was unaware of the "procedural mistake" by the solicitors for Mikkelsens in failing to serve the directors until it was raised late in the course· of the hearing before Fryberg J. As to that, all I would comment is that QBSA was a supporting creditor present throughout that hearing. -- 7 of 9 -- 7 The circumstances in which an order for costs may be made against a non-party to litigation was considered by the High Court in Knight v. FP Special Assets Limited, supra. Mason CJ and Deane J observed at p.192 "As our discussion of the earlier authorities indicates, there are, however, a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs, support an order for costs against a non-party. . .. For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some persoll' on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made." There was no evidence to suggest that there was any prospect of a recovery for unsecured creditors in a liquidation. There was some prospect of a modest recovery in an administration had all gone according to the proposal advanced by the administrators. QBSA frankly concedes that it did not bring the application itself as it was entitled to do as a creditor because that would have jeopardised any suit which it might bring on the guarantees. It argues that it fulfils a public function in funding the application by Mikkelsens. To make good that submission it requires, as I have mentioned, a careful assessment of the appropriateness or reasonableness of the intervention. That in my view was not present here particularly in light of the full hearing of the issues before Thomas J to which I have referred. The warnings against delay in bringing such applications have been expressed clearly and regularly in a number of cases, Re Molit (No 55) Pty Ltd (1996) 14 ACLC 366 per Branson J at p.375 and Khoury v. Zambena Pty Ltd, supra, per Young J. -- 8 of 9 -- 8 QBSA in my view had an interest in this litigation and a particular interest in not appearing as a party. I have concluded that an order for costs ought to be made against it although a non-party in the interests of justice. I do not consider that QBSA ought to be held responsible for the costs associated with the stay before Williams J. Orders The formal orders are that Mikkelsen Contractors (Mt Isa) Pty Ltd and Queensland Building Services Authority pay the costs of and incidental to the application of Mikkelsens and the appearances on 28 January and 8 February 1997 and on 17 and 18 April 1997 of the administrators of Carey Builders Pty Ltd, Richard John Dennis and Richard Buckby to be taxed; and of the directors of Carey Builders Pty Ltd in respect of their application on 17 and 18 April 1997; together with the costs in each case of preparation of the submissions on costs. There will be no order as to costs with respect to the appearance before Williams J on 27 March 1997. -- 9 of 9 --