In October, we issued an Insolvency Newsflash with respect to the decision in Re: Joe & Joe Developments Pty Ltd (subject to a Deed of Company Arrangement) [2014] NSWSC 1444. On 1 December 2014, a further judgement was handed down by the Supreme Court of New South Wales (Re: Joe & Joe Developments Pty Ltd (subject to a Deed of Company Arrangement) [2014] NSWSC 1703), which considered additional matters and included orders for costs.

Click  here to  read  our  October  Newsflash on Re: Joe & Joe Developments Pty Ltd (subject to a Deed of Company Arrangement) [2014] NSWSC 1444.

Background

On 22 October 2014, the First Judgment was delivered. It held that a number of claims that were made against the Defendants – Messrs Albarran and Pleash (the administrators, and subsequent deed administrators of Joe & Joe Developments Pty Ltd (subject to a Deed of Company Arrangement (the Company) were not made out, including some serious allegations of misconduct. That being said, two claim for relief, one in relation to a payment made by the Administrators and one that they had failed to properly consider the legal fee expenditure was established. It was entirely explicable in those circumstances that Justice Black, the presiding judge, referred to the First Judgment as a “mixed result”.

Draft orders and submissions were submitted by the respective parties in light of the First Judgment. Those draft orders and submissions were considered in the Second Judgment.

Orders sought

Of note:-

  1. It was common ground that:

1.1 the deed administrators should repay some expenditure to the Company $16,855.91 (which had in fact already been paid by the deed administrators after the First Judgment)

1.2 there needed to be some form of determination as to the validity of the expenditure on legal fees which would include preparation of a schedule of attendances with respect to the professional fees charged by the deed administrators’ former solicitors. Ultimately the Court accepted the deed administrators’ submission that:

  1. the schedule should include a better description of the work undertaken than was originally included in the former solicitors’ narrative
  2. the schedule identify any claim for legal professional privilege.
  1. Claims for relief by way of declaration were refused by the court as having no real utility.
  2. Further, the deed administrators sought that the costs be referred to a referee selected by the Manager, Costs Assessment of the Court.
  3. Each party claimed costs.

Consideration

First Declaration Sought (Plaintiffs)

The Court did not consider that the First Declaration Sought should be made, for two main reasons, being:

  • the declaration sought would be merely prefatory to the Court’s order made under section 447E of the Act
  • a declaration in the form sought, which records a finding adverse to the deed administrators, would have the capacity to mislead as to the complexity of the issues addressed in the First Judgment, which also included allegations against the deed administrators which were not established.

Accounting Order Sought (Plaintiffs)

The Court considered that the case brought by the Plaintiffs was limited to the former solicitors’ professional fees, rather than disbursements. Accordingly, it was only appropriate for an accounting to occur for the professional fees. It was determined that orders for payment of the amount arising from the justification process, and accordingly interest, are at this stage premature. The deed administrators accepted, in principle, that an order for payment would be made, but should be at a later time.

Indemnity Order Sought (Plaintiffs)

The Court considered that the deed administrators’ defence of the proceedings was reasonable and proper. There was no basis depriving the deed administrators of indemnity in respect of their legal costs or, or their remuneration in respect of, successfully defending the substantial parts of the claims against them as to which orders for costs have also been made against the Plaintiffs.

Corresponding with the order for costs set out below, was a position that the deed administrators should not be entitled to indemnity from the deed fund for 30% of their legal costs incurred in defending the proceedings.

As to an order sought by the Plaintiffs to deprive the deed administrators of an indemnity with respect to the justification process – the Court determined that such an order was premature as the justification process was not yet completed.

Referee Order Sought (deed administrators)

The Court determined that the matters should not be referred to a referee at this stage, and should continue under the Court’s control at least until the relevant schedule is completed and parties’ evidence is served.

Costs

The Court determined that the matters on which the Plaintiff failed would have taken up 70% of the time taken to prepare the case for hearing and the time taken at hearing, and the matters on which the Plaintiffs succeeded approximately 30%.

Accordingly, applying the rule that costs follow the event, it was determined that the Plaintiffs should pay 40% (70% failed offset against 30% success) of the deed administrators’ costs of and incidental to the hearing, excluding the justification phase.