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Gothard, in the matter of AFG Pty Limited (Receivers and Managers appointed) (in liq) v Davey (No. 2) [2011] FCA 59

by Martha.Ware 18. May 2011 12:22


This case concerned a motion by successful respondents for indemnity costs. The Applicants, the receivers and managers of AFG Pty Limited (“the Company”), commenced the substantive proceedings under s 424 of the Corporations Act 2001, seeking directions from the court to confirm the correct company within the Allco corporate group which employed certain employees.  The respondents, employees of the Company, were joined through no fault of their own to participate as contradicters to assist the court in deciding the issues on which the applicants required guidance: [15]. The proceedings were therefore commenced largely for the benefit of the applications to protect them, in the event that directions were given and followed, from an allegation of breach of duty: [18].


The court had previously made orders that the applicants were to pay the respondent’s solicitors $200,000 on account of costs and disbursements.  At the conclusion of the proceedings, the respondents’ costs totalled $1,567,360.69: [2].


The issue for determination on the present motion is whether the respondents should have their costs on an indemnity basis as they seek or on a party/party basis as contended by the applicants: [17].


The proposed application under s 424 was found to be an inappropriate vehicle to deal with the application and the application was therefore amended to seek declaratory relief that a certain company was the entity responsible for employment of certain employees, of which the respondents were: [18].


The court found that unless the respondents are indemnified for their costs there is a prospect that they will suffer such an injustice given that the applicants are entitled to full indemnity out of the proceeds of the charged assets and yet the respondents are not entitled to a similar indemnity.  Further, the respondents have not delayed or obstructed the applicants’ conduct of the proceedings: [18].


During the proceedings, a substantial burden fell on the respondents to ensure that they provide sufficient evidence to the court to ensure it was fairly appraised of the true position surrounding their engagement as employees. That situation arose from the manner in which employment contracts were contrasted within the Allco Group and was not a situation of the respondents’ making: [29], [31].


The fact that the court found in favour of the respondents in respect of a range of factual matters is not sufficient to ground an order for indemnity costs: [41].


If the proceedings had been run as true adversary litigation between parties, the settled practice of the court not making an order for payment of costs other than on the basis of party/party would apply: [55].



The court noted that the respondents’ costs are not payable by the applicants personally but out of a pool of property which is under their control pursuant to their appointment as receivers and managers: [56].


The court found that the respondents’ costs are just as much a cost of the receivership as the applicants, the applicants being indemnified out of the fund or pool of property they control: [56].


The court ordered the respondents’ costs to be paid on an indemnity basis from the assets controlled by the applicants.


Relevant paragraphs of Ford

[25.112], [25.160], [27.182], [27.480]


Ford's Principles of Corporations Law


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