Stewart v Atco Controls Pty Ltd (in Liquidation) [No 2] [2014] HCA 31: Calderbank Offers and Costs
Friday 15 August 2014 @ 10.08 a.m. | Legal Research
The High Court has today (15 August 2014) handed down judgment over costs in the case of Stewart v Atco Controls Pty Ltd (in Liquidation) [No 2] [2014] HCA 31.
Background to the First Case
The second appellant, Newtronics Pty Ltd (Newtronics), is a wholly owned subsidiary of the respondent, Atco Controls Pty Ltd (Atco). In January 2002, Atco appointed receivers to Newtronics. The receivers sold the business of Newtronics to another subsidiary of Atco and credited book entries against the debt owed to Atco by Newtronics.
In February 2002, Newtronics was wound up and the first appellant was appointed liquidator. The liquidator brought an action on behalf of Newtronics against Atco and the receivers. The liquidator's costs and expenses reasonably incurred in pursuing the action were paid by Seeley International Pty Ltd, Newtronics' largest unsecured creditor, under an indemnity agreement. Newtronics was successful at trial against Atco, but not against the receivers. Prior to an appeal being heard, the receivers paid Newtronics a settlement sum. Atco proceeded with its appeal and was successful. It subsequently demanded payment of the settlement sum pursuant to its charge. The liquidator refused, on the basis that he was entitled to an equitable lien over the sum.
The High Court unanimously held that the first appellant, the liquidator, was entitled to an equitable lien over a fund constituted by a settlement sum with respect to costs and expenses incurred in litigation against the Atco, a secured creditor, and receivers appointed by the respondent.
Follow Up Decision By High Court
In the follow up judgment of Stewart v Atco Controls Pty Ltd (in Liquidation) [No 2] [2014] HCA 31, handed down today (15 August 2014), the High Court determined that the second order of the High Court made on 7 May 2014 should be varied by ordering that the appeal to the Court of Appeal of the Supreme Court of Victoria be dismissed with costs, on an indemnity basis, stating:
"The principle in Universal Distributing and its application to liquidators are not novel. In order for the respondent to succeed in its claim against the appellants, it was therefore necessary for it to distinguish the principle. This is what it sought to do in the Court of Appeal and its argument was accepted. The decision of this Court on 7 May 2014, however, confirms the application of the principle to the circumstance where costs are incurred by a liquidator in getting in assets. That is the decision which ought to have been made by the Court of Appeal. In these circumstances, it can hardly be said that the respondent's non-acceptance of the [Calderbank] offer was reasonable. [at 6]"
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Sources:
Stewart v Atco Controls Pty Ltd (in Liquidation) [2014] HCA 15 (7 May 2014)
Stewart v Atco Controls Pty Ltd (in Liquidation) [No 2] [2014] HCA 31 (15 August 2014)
