Taken to the tower – royal lesson for liquidator

In the case of Cussen, in the matter of Monarch Tower Pty Ltd (in liq) v Sinoace Holdings Ltd (No 2) [2024] FCA 1309, the Federal Court considered whether indemnity costs should be awarded against a liquidator who withheld service of originating processes and supporting affidavits for strategic reasons.

The matter involved five separate unfair preference proceedings commenced by the liquidator (Liquidator) of Monarch Tower Pty Ltd (in liquidation) (Monarch) under section 588FF(1) of the Corporations Act 2001 (Cth) (the Act) on the last day of the (extended) time period for the Liquidator to make such applications.  The Liquidator did not serve the originating processes and supporting affidavits on any of the respondents by the first return date for the applications and instead applied for orders to extend the time for service of the applications.

The Court summarily dismissed all of the applications and turned to the question of the costs to be awarded against the Liquidator.

Background

In August 2019, Mr Neil Cussen was appointed as the Liquidator of Monarch.

On 9 March 2023, the Liquidator applied for and obtained orders under section 588FF(3)(b) of the Act, extending the time for the Liquidator to commence voidable transaction claims against certain specified parties up to 22 January 2024.

Then, on 22 January 2024, the Liquidator filed five separate originating processes seeking orders under section 588FF(1) against some of the parties named in the 9 March 2023 extension orders, and against a further 16 parties who were not named in the 9 March 2023 extension orders.

The applications were listed for a first return date of 2 February 2024.

The Liquidator was required to serve the relevant originating processes and supporting affidavits on the respondents as soon as practicable and in any event at least five days before the first return date pursuant to the requirements under the Federal Court Rules 2011 (Cth) and the Federal Court (Corporations) Rules 2000 (Cth).  However, the Liquidator did not do so.

Instead, the Liquidator applied for orders for the time for service of the originating processes and supporting affidavits to be extended nunc pro tunc.

The Liquidator explained in his affidavits in support of this application that:

• there were public examinations in relation to the affairs of Monarch that were scheduled to commence in April 2024;
• the Liquidator believed that the public examinations could reveal facts and documents relevant to the voidable transaction claims and that it would “less onerous” to all parties involved if the examinations were completed prior to the voidable transaction claims continuing;
• the Liquidator was also engaged in ongoing discussions with an existing litigation funder for further funding in connection with the examinations and the proceedings;
• the Liquidator had received legal advice proposing that instead of serving the applications, he should instead apply for an extension so that he could serve the applications after the completion of the public examinations; and
• the respondents had not been served but they had been “informed” about the proceedings.

The majority of the respondents applied for orders to dismiss or permanently stay the five proceedings on a range of grounds.  The Court ultimately summarily dismissed each of the proceedings for the following reasons:

• as to the respondents that were not named in the 9 March 2023 orders, the time period to bring any claim against those respondents had expired;
• as to one specific respondent that was named in the 9 March 2023 orders but that had not been served with the extension application, the extension order as it applied to that respondent should be set aside (with the effect that the time to bring a claim against that respondent had also expired); and
• as to the remaining respondents/claims, the Liquidator’s application to extend the time for service was denied because the Liquidator had made a deliberate decision to knowingly allow the time for service to expire and to pursue a course to obtain what would in effect be an impermissible further extension of the time period for bringing the voidable transaction claims.

The Court then turned its attention to the question of costs.

While some of the respondents were able to come to an agreement with the Liquidator in relation to costs, the remainder sought orders that the Liquidator pay their costs on an indemnity basis.  The indemnity costs orders were opposed by the Liquidator.

Indemnity costs

Section 43 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) grants the Court a broad power to award costs, including indemnity costs.  In exercising its discretion to award costs, the Court is required to consider any failures by a party to quickly, efficiently and inexpensively facilitate a just resolution to the dispute.

Generally, a standard costs order will be ordered which only allows parties to recover party/party costs determined by reference to the costs scale of the court.  However, as noted in Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd (No 2) [2017] FCAFC at [116], where a “special or unusual feature arises” that warrants the court departing from the usual course, the court may order an indemnity costs order which includes all costs reasonably encountered by a party in proceedings.

Decision

Ultimately, the Court found that due to the Liquidator’s deliberate breach of the court’s rules in not serving the respondents, the Liquidator should pay the respondents’ costs of and incidental to the proceeding on an indemnity basis.

The Court noted the following:

• the Liquidator deliberately contravened the Federal Court (Corporations) Rules;
• the Liquidator arrogated to himself a decision that should have been the subject of an application to the Court for an extension of time made before the expiry of the time for service under the Rules;
• the Liquidator was motivated by his own ulterior and strategic purposes;
• the conduct of the Liquidator was serious enough to justify summary dismissal of the proceedings;
• these matters constitute a special or unusual feature which justifies an indemnity costs order.

Lavan comment

This case is a stern reminder of the need to comply with the rules of court and to act quickly and openly and to apply to the court if there is any reason or need to seek to depart from strict compliance.

It also provides a useful example of the approach taken by the courts in assessing whether the circumstances of a case warrant the exercise of the court’s discretion to order costs on an indemnity basis.

If you have any questions about this decision, the service of documents by a liquidator or indemnity costs, the experienced Lavan team is here to help.

Thank you to Natalia Saman, Solicitor, for her valuable research and assistance with this article.

Disclaimer

The information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.