In the matter of Civil Mechanical Engineering Contractors Pty Ltd

The current application arose out of proceedings commenced on 26 September 2022, when KGB Coatings-Site Services Pty Ltd applied to wind up Civil Mechanical Engineering Contractors Pty Ltd (Civil Mechanical).

By an interlocutory process filed in the winding up proceedings, on 24 February 2023 Big River Group Pty Ltd (Big River) applied for an order that it be substituted as plaintiff in the proceedings under s 465B of the Corporations Act 2001 (Cth). The application was opposed by Civil Mechanical, but orders for substitution were made by Black J on 13 March 2023. Big River is the substituted plaintiff in the winding up proceedings.

The winding up application was heard by Black J on 24 March 2023. His Honour noted that the matter “ultimately presents as a relatively straightforward application”. His Honour made orders that Civil Mechanical be wound up in insolvency, and appointed Mr Bradd Morelli as liquidator. His Honour also made the following order:

Since that order was made, some 2 years ago, Big River and the Liquidator have been unable to resolve the question of the costs to be paid under the order.

By an amended interlocutory process filed on 9 March 2026 in the winding up proceedings, the Liquidator seeks orders to fix an amount in respect of the costs arising from the order made by Black J on 24 March 2023. The Liquidator seeks orders that the costs be fixed in the sum of $9,000, or such other amount as the Court deems appropriate. The application is made pursuant to the inherent jurisdiction of the Court, s 98 of the Civil Procedure Act 2005 (NSW), s 556 and/or s 466 of the Corporations Act, and/or r 42.4(1) of the Uniform Civil Procedure Rules 2005 (NSW).

Big River submits that the Court should order, pursuant to s 98(4)(c) of the Civil Procedure Act, that the costs ordered on 24 March 2023 be fixed in the gross sum of $50,045.93, being the amount in its final itemised bill of costs issued on 12 November 2025, or such other amount as the Court deems appropriate. It seeks an order pursuant to s 466 of the Corporations Act that the Liquidator pay that amount to Big River out of the Civil Mechanical’s property in the order of priority provided by s 556(1)(b) of the Corporations Act. It seeks, in the alternative, orders that will facilitate an assessment of Big River’s costs.

Both parties seek incidental orders as to costs in relation to the interlocutory process.

There is a long history of correspondence between the Liquidator and Big River concerning the payment of costs pursuant to the order made by Black J. I do not need to set out that history in detail. Briefly, relevant steps include the following:

The Liquidator made the present application because:

Mr Marcellus Dignam, the solicitor for Civil Mechanical and the Liquidator, has given evidence that, based on his experience dealing with winding up proceedings, with respect to the costs claimed by Big River:

Big River relied on evidence from Mr Patane and Ms Kalkman, who were solicitors acting for Big River in respect of the winding up of Civil Mechanical. They give detailed evidence about the work undertaken in respect of the substitution application and the winding up. Mr Patane’s affidavit also included a report from Mr Paul Cameron, who is a court-appointed costs assessor in Queensland. Mr Cameron’s report concludes that total fees of $50,045.93 (as well as his fees of $1,694.00) are recoverable pursuant to s 76 of the Legal Profession Uniform Law Application Act 2014 (NSW).

The current application, as it was argued, does not simply invite the Court to fix an amount in respect of a costs order. Questions arose during the course of argument about the operation of s 466 and s 556 of the Corporations Act.

Section 466 relevantly provides:

Following the hearing, the parties provided (by leave) some short further written submissions dealing with issues concerning the application of those sections.

The costs that are propounded by Big River include costs associated with the application for substitution as well as various costs incurred after the winding up order was made. At the oral hearing, it was submitted for the Liquidator that the costs in these categories are not “costs in respect of the application for the order” within the meaning of s 556(1)(b).

In the written submissions provided after the hearing, the Liquidator accepted that “a substitution application may fall within s 556(1)(b)”, but submitted that costs incurred “after the making of the winding up order or prior to it but not for the preparation of the case relating to it” could not justifiably be claimed.

The intersection of s 466 and s 556 has been considered in a number of decisions. My attention was drawn to Morepine Pty Ltd v Crush Pacific Industries Pty Ltd (1996) 20 ACSR 41; Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (In Liq) [2006] NSWSC 434 and In the matter of bCode Pty Limited and In the matter of bCode Middle East Africa Holdings Limited [2012] NSWSC 1530.

Section 466(2) imposes an obligation on a liquidator to reimburse the applicant on a winding up application for the “taxed costs incurred by the applicant in any such proceedings”. They must be reimbursed out of the property of the company. The obligation is subject to other order by the Court. I note that taxation of costs passed into history in NSW a long time ago: see Morepine at 43.

Section 556 serves a different function. It is concerned with priorities in the making of payments. Section 556(1)(b) gives a specified priority to “costs in respect of the application for the [winding up] order (including the applicant’s taxed costs payable under section 466)”. Section 556(1)(b) may include costs in addition to taxed costs payable under s 466: see bCode at [12].

The policy lying behind s 556(1)(b) was explained by Palmer J in Expile Pty Ltd v Jabb’s Excavations Pty Ltd [2004] NSWSC 284 in the following terms (at [56]):

The order made by Black J on 24 March 2023 was that the costs of Big River of its application for substitution and of the winding up be costs in the winding up. The effect of that order is twofold. It means that for the purposes of s 466(2), the costs “incurred by the applicant in any such proceedings” include the costs incurred on the substitution application, as well as the winding up application itself. Those costs, once agreed or assessed, would engage s 466(2). It also means that for the purposes of s 556(1)(b), the costs payable pursuant to the order achieve the s 556(1)(b) priority.

Even if the order made on 24 March 2023 did not expressly include the costs of the substitution application, there would have been a strong argument that the costs of that application achieved the s 556(1)(b) priority as costs “in respect of” the application for the winding up order. Any costs incurred before the winding up order will be the subject of the s 556(1)(b) priority if they are properly said to be “in respect of the application”. In Bidald (at [43]), Campbell J concluded that the costs that a company was ordered to pay in separate proceedings taken to set aside a deed of company arrangement were relevantly costs “in respect of” the application for winding up for the purposes of s 556(1)(b). See also bCode at [15]. In this case, the substitution application was made in the winding up proceedings and was plainly “in respect of” the application for the winding up order.

I do not accept that costs incurred after an order for winding up cannot be costs in respect of the application for a winding up order within the meaning of s 556(1)(b). As Young J observed in Morepine at 44, the words “in respect of” are words of wide meaning and describe relationships with a wide range of proximity: see also bCode at [13]. There is no reason to construe s 556(1)(b) artificially and narrowly to extend only to costs incurred before a winding up order is made. What is required is a sufficient connection between the costs and the application to permit the conclusion that the costs are in respect of the application, whenever those costs have been incurred.

Having regard to the reasons in Morepine, it appears that an option for a liquidator who considers that the applicant on a winding up application is making an excessive claim for reimbursement of costs under s 466(2), and seeks priority under s 566(1)(b) for that claim, is to approach the Court to seek an order under s 466(2) that addresses costs. There is no difficulty with a liquidator making that application after the winding up order has been made. That is because s 466(2) contemplates an application by the liquidator and he or she will only have been appointed as a consequence of the winding up application. It is impossible for a liquidator to seek an order under s 466(2) until after a winding up order is made. Costs that are excessive may not be “costs in respect of the application” under s 556(1)(b) and the Court could make an order under s 466(2) that identifies those costs that are to be reimbursed under that section.

In Morepine, Young J observed (at 45):

Young J made observations that the costs claimed in that case appeared excessive notwithstanding evidence that a costs assessor would likely allow all of the costs as reasonable on a party and party basis (at 45). His Honour commented that allowing 7 hours to peruse 830 pages appeared “ludicrous”, including because judges of this Court are usually allowed about an hour to peruse many more pages than that. I recognise, as did Young J, that the rate of perusal will depend on the absorption that is demanded in the particular case. Sometimes it is impossible to peruse 830 pages in an hour. Sometimes it is easy.

In any event, I have perused the most recent bill of costs relied upon by Big River. I have not conducted an assessment or considered every line item. My approach has been broad-brush. The bill is based on the Queensland Court Scale (which is where the practitioners were based), which is said (without challenge) to reflect a discount to the full commercial rates and also to the hourly rates contemplated under the NSW Costs Assessment Rules Committee Guidelines for senior practitioners. The bill does not include generous periods to peruse documents, of the kind that concerned Young J in Morepine. It includes $1,730.70 for a period of 4 hours and 24 minutes for a solicitor to appear before Black J at the hearing of the substitution application on 13 March 2023 and $480.75 for the appearance at the winding up application on 24 March 2023. Those amounts do not appear to be excessive. While the winding up application turned out to be reasonably straightforward at the hearing, the matter had not been straightforward in the lead up to the hearing. A large amount of the total bill is made up of many items of small value, such as “electronically imaging and saving email to virtual file - $0.65”.

There could be some complexity in the precise manner in which s 98 of the Civil Procedure Act and s 466 and s 556 of the Corporations Act all intersect. I do not need to descend into that complexity, which has not been the subject of full argument. The way I propose to approach this application is to proceed on the basis that the Liquidator seeks an order under s 466(2) of the Corporations Act to fix an amount of costs that the Liquidator must reimburse to Big River out of the property of the company. In fixing that amount, I am guided by the principles that apply in fixing a gross lump-sum costs order pursuant to s 98(4)(c) of the Civil Procedure Act. Once fixed, that amount will achieve the priority contemplated by s 556(1)(b) of the Corporations Act.

The considerations arising when the Court is asked to make a gross lump-sum costs order pursuant to s 98(4)(c) of the Civil Procedure Act were considered by the Court of Appeal in Bechara trading as Bechara and Company v Bates [2016] NSWCA 294 at [12]-[15]. The Court observed that the power to award a lump sum should only be exercised when the Court considers it can do so fairly between the parties and where an appropriate sum can be determined from the available materials. The Court recognised that a broad-brush approach is appropriate and noted that typically a discount is applied in assessing costs on a gross sum basis.

In the present case, I am satisfied of the following matters:

Consistently with what Young J said in Morepine, I propose to take a relatively benign approach to Big River’s costs, while recognising the need to guard against excessive or wasteful costs. I consider that some discount is appropriate to reflect the contingencies that would be relevant in a formal costs assessment. I consider that a discount of approximately 10% is reasonable in this case. That reflects the benign approach, gives due recognition to the discounted charge rates reflected in the bill of costs but allows for the possibility that on a formal assessment not all of the items claimed would be recovered.

The orders of the Court are as follows: