In the matter of Sirrah Pty Ltd (in liq)

By Amended Originating Process filed, by leave, on 21 June 2024, the Plaintiff, Mr Hayes in his capacity as liquidator of Sirrah Pty Ltd (in liq) (“Sirrah”) (“Mr Hayes”) sought an order under s 488(2) of the Corporations Act 2001 (Cth) (“Act”) that he be granted special leave to distribute a surplus in the winding up of Sirrah to its contributories, other than the First Defendant, Harris Health Care Pty Ltd (recs and mgrs apptd) (“HHC”) and the Third Defendant, the Bankrupt Estate of Mr William Harris, and a declaration and direction as to the basis on which that distribution is to be made. That application raised a question as to whether Mr Hayes could properly rely on the “rule” in Cherry v Boultbee 4 Myl & Cr 442; (1839) 41 ER 171 (“Cherry v Boultbee”) in distributing that surplus. The relief sought by Mr Hayes, at least in respect of the basis on which the surplus was to be distributed, was opposed by HHC, by Mr Calabretta, who is the receiver and manager appointed to HHC by a firm of solicitors, Yates Beaggi Lawyers (“Yates Beaggi”).

By my judgment delivered on 26 June 2024 (Re Sirrah Pty Ltd (in liq) [2024] NSWSC 784) (“Principal Judgment”), I made an order under s 488(2) of the Act that Mr Hayes have special leave to distribute the surplus in the winding up of Sirrah in the form sought by Mr Hayes. I also made a declaration and direction as to the basis on which that distribution was made, which addressed the application of the rule in Cherry v Boultbee in the relevant circumstances. I there addressed, first, submissions put by Mr Calabretta, initially to the effect that the rule in Cherry v Boultbee was inconsistent with Pt 5.4 of the Act, which he then narrowed in oral submissions to the proposition that the rule should not be applied in this case. Second, I addressed, and did not accept, Mr Calabretta’s contention that Mr Hayes had made an election in the liquidation of HHC, that prevented him relying on that rule. Third, I addressed a submission put by Mr Calabretta that HHC’s debt to Sirrah accrued after it had notice of the security under which Mr Calabretta was appointed. I held that proposition was based on a false premise, where it had been common ground in the substantive proceedings between the parties that the large part of HHC’s debt to Sirrah existed before the proceedings commenced.

I observed, in paragraph 104 of the Principal Judgment that:

I should first address the applicable principles which are well-established. The Court has power to make an order for costs under s 98(1) of the Civil Procedure Act 2005 (NSW) (“CPA”) and r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”). Section 98 of the CPA confers a discretionary power to determine costs on the Court and requires that that discretion be exercised judicially: Ballam v Ferro (No 2) [2022] NSWSC 1358 at [54]. Rule 42.1 of the UCPR in turn provides that:

A successful party in proceedings has a “reasonable expectation” of being awarded costs against an unsuccessful party, unless there is good reason for that presumption to be displaced: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [22], [134]. In Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121], Hodgson JA (with whom Mason P agreed) observed that:

That observation was cited, with apparent approval, by the Court of Appeal in Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [98] and, in Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266 at [7]-[9], McColl JA summarised the applicable principles as follows:

The case law has addressed the application of these principles where an issue arises as to the distribution of a fund. Mr Katekar, with whom Mr Anderson appears for Mr Hayes, refers to BE Australia WD Pty Ltd (subject to a Deed of Company Arrangement) v Sutton (2011) 285 ALR 532; [2011] NSWCA 414 (“BE Australia”) at [213], where Campbell JA (with whom McColl JA agreed) observed that:

In Re Anglican Development Fund Diocese of Bathurst Board (recs and mgrs apptd) [2015] NSWSC 59 at [9], to which Mr Katekar also refers, I observed that:

I also there observed (at [10]) that:

The case law also deals with the position in an adversarial contest as to the distribution of a fund. In Farrow Finance Co Ltd (in liq) v ANZ Executors & Trustee Co Ltd (1997) 23 ACSR 521 at 526 (“Farrow Finance”), to which Mr Carolan who appears for the Second Defendants refers, Hansen J observed that:

In a different context, in New Cap Reinsurance Corporation Holdings Ltd [2001] NSWSC 1001 (“New Cap”) at [11], [13], to which Mr Carolan also refers, Santow J pointed to several factors that warranted an order for costs, although the liquidator had not there initiated the application for directions, including that:

His Honour there recognised that Farrow Finance was a case analogous to a contested probate suit, where the issue concerns the ultimate division of the estate, and I recognise this case has something of that character, or at least would have had that character had Mr Calabretta taken a different approach to it. His Honour went on to note that:

Mr Katekar submits that:

Mr Carolan also submitted that the Court should order that Mr Calabretta bear Mr Hayes’ costs of the application in whole or in part, and pointed to the fact that each of the submissions put by Mr Calabretta were rejected in the Principal Judgment, and that one of those submissions, that HHC’s debt to Sirrah arose after notice of the security granted by HHC to Yates Beaggi, was based on a false factual premise.

Mr Fernon and Ms Nolan, who appear for Mr Calabretta, submit in chief that costs in an application for directions by a liquidator are normally ordered to be paid by the relevant fund; that proposition is often correct, but is qualified by the existence of the different possibilities recognised in the case law to which I have referred above. Mr Fernon and Ms Nolan submit that Mr Calabretta’s costs should be paid out of the liquidation, on an indemnity basis, because:

I do not accept aspects of this submission. There was no particular utility in a contradictor as to the application of the rule in Cherry v Boultbee where the wider argument initially put by Mr Calabretta had previously been put and rejected by Gleeson JA, a very experienced judge in corporations matters, in a fully reasoned decision in Re Hawden Property Group Pty Ltd (in liq) (2018) 125 ACSR 355; [2018] NSWSC 481 (“Hawden”) and, in any event, Mr Calabretta abandoned that wider argument in oral submissions. There should only have been two and not many issues in this application, a straightforward application for leave to distribute a surplus and the question whether the rule in Cherry v Boultbee was applicable on the particular facts, which was also straightforward. No other material issues were raised by Mr Hayes and the other issues raised by Mr Calabretta were not well-founded.

Mr Fernon and Ms Nolan submit that Mr Calabretta did not go beyond what was “necessary” in order to present the facts and address the issues so as to enable the Court to provide advice to Mr Hayes, and the hearing of the application did not have the nature of true adversarial liquidation. They also submit that:

I do not accept these submissions, which seem to me to hypothesise a case that was quite different from the one that I heard and determined. Here, Mr Calabretta cross-examined Mr Hayes in a manner that was consistent with adversarial proceedings; and, as I noted above, it is not apparent why a contradictor was required, in an application for a distribution of a surplus in a liquidation, where the application of the rule in Cherry v Boultbee raised no novel issues; and the other issues raised were directed to advancing the secured creditor’s position, one of them on a false factual basis.

In reply to Mr Calabretta’s submissions, Mr Hayes, unsurprisingly, takes issue with Mr Calabretta’s characterisation of his role as a “proper contradictor” in Mr Hayes’ application for directions; submits that the case was one in which HHC (and more precisely, I should interpolate, Yates Beaggi as the secured creditor of HHC) (through Mr Calabretta) was acting in its own interests and the question was not complex so that costs should generally follow the event; and he submits that Mr Calabretta was “the loser” in a contested application, adopting Campbell JA’s language in BE Australia and should be ordered to pay the costs of the proceedings on that basis. I accept those submissions. Mr Hayes also submits and I also accept that the application would have proceeded in a straightforward manner, quickly and without significant costs, but for Mr Calabretta’s intervention to oppose the relief sought. Mr Katekar and Mr Anderson also submit, with substantial force, that:

Mr Fernon and Mr Nolan, in reply, again submit that HHC was not an “antagonist” and it was “a necessary contradictor” application. I do not accept that submission. First, it was Mr Calabretta, as the receiver appointed by the secured creditor to HHC, who opposed the application. Second, as I have noted above, there was no necessity for a contradictor to the application, where it raised no novel issues and could readily have been determined, as many such applications are determined, without a contradictor. Mr Fernon and Ms Nolan, in reply, also repeat the proposition that a contested determination of the question was necessitated, inter alia, by the need to determine a “relatively novel proposition” as to the coherence of the application of the rule in Cherry v Boultbee in the circumstances of this case. As I have noted above, the difficulty with that proposition is that, first, the wider proposition originally put by Mr Calabretta that the rule in Cherry v Boultbee was inconsistent with Pt 5.4 of the Act was not novel, because it was previously put and rejected in Hawden and, in any event, that wider proposition was abandoned in Mr Fernon’s oral submissions, and narrowed to a proposition that the rule did not apply in the particular case which was also not sustained.

Mr Fernon and Ms Nolan submit that it would be “contrary to public policy” if the conduct of arguments of a “necessary contradictor” were described as “adversarial”; I see nothing to the contrary of public policy in that respect where the party is not a necessary contradictor and the characterisation of its approach as “adversarial” is well founded. I also see nothing in an order for costs against Mr Calabretta, in the circumstances of this case, that would deter other persons from raising legal contentions as to genuinely novel questions in other cases. Mr Fernon and Ms Nolan also submit in reply that, if costs follow the event, that “event” refers to the adversarial aspect of the contradictor’s conduct, and that the costs awarded against Mr Calabretta should be limited. I do not accept that submission and will follow the approach adopted by Santow J in New Cap, in treating the costs of the application as a whole, without seeking to dissect particular aspects of it. But for Mr Calabretta’s approach, the costs of an uncontested application would have been minimal, and he can properly be ordered to pay all of the costs of the proceedings, as agreed or as assessed, without putting the parties to the delay and wasted costs of any attempt to adjust for the minimal costs of an uncontested application.

Here, it seems to me that the matters to which I have referred above have the consequence that a costs order should be made that Mr Calabretta pay the Plaintiff’s and the Second Defendants’ costs of the application. First, Mr Hayes’ application for leave to distribute the surplus should have been uncontroversial; a contested application was necessitated only by Mr Calabretta’s opposition to the course proposed by Mr Hayes; and the course that Mr Calabretta took was directed to advancing the economic interests of his appointor, Yates Beaggi. It is plain that Mr Calabretta’s intervention significantly extended the length of the application, and imposed substantial costs upon the liquidation and, consistent with the approach in New Cap, such costs should not be borne by the creditors.

Second, the principles on which Mr Hayes relied in respect of the rule in Cherry v Boultbee were also well-established; as I noted above, the wider argument initially put by Mr Calabretta had been put and rejected in Hawden; and Mr Calabretta abandoned that argument in oral submissions in any event. Third, the question as to election involved a straightforward factual and legal contest, as to which Mr Calabretta failed. Fourth, the claim that Sirrah was given notice of the secured debt before HHC’s debt to it arose was plainly wrong in fact, as Yates Beaggi must have known, and as Mr Calabretta would also have known had he made the most basic inquiry, including adequately reviewing the principal judgment in the previous proceedings between the parties.

For completeness, I did not understand the Second Defendants to submit that Mr Calabretta should pay their costs of the hearing and I will not make such an order. I reserve liberty to the Second Defendants to apply, within 2 business days, if they contend that I have misunderstood the position they took in submissions in this respect.

For these reasons, I make the following orders: