Take away
- Insolvency practitioners can take comfort that they will be protected from third-party costs when seeking directions from a Court in the discharge of their duties and powers.
- The authorities confirm that the Court’s discretion to award costs in favour of non-parties will be exercised only in the most exceptional circumstances.
- As such, the starting point is that Insolvency Practitioners will be protected from further liability when called upon to seek the direction of the Court in order to navigate difficult issues and competing interests that they often encounter in the course of an appointment.
The Principles
The leading authority remains the decision of Barret J in Pan Pharmaceuticals Ltd – Selim v McGrath [2004] NSWSC 129; 48 ACSR 681 at [20], where his Honour held:
“20 These considerations, coupled with the emphasis by members of the High Court in Knight’s case on the extraordinary nature of the aspect of the general costs power that involves orders against non-parties, lead me to think that some very special factor outside the ordinary and expected course of events and engendering a justifiable expectation of compensation in the mind of the non-party would have to be found before any relevant aspect of the comprehensive jurisdiction with respect to costs might be regarded as properly and regularly invoked in favour of a non-party as against a party. In other words, such an award, if ever appropriate, will be extraordinary and exceptional. Someone who seeks and is granted leave under rule 2.13(1) chooses a course entailing the limited costs exposure described in rule 2.13(2). Such a person can have very little expectation of being awarded costs.“
This statement has been picked up in several recent decisions [1] where non-party stakeholders have sought, with differing levels of success, to advance their own interests by intervening in directions applications brought by Insolvency Practitioners and sought, unsuccessfully, to get their costs for doing so.
The principle recognises that in applying to the Court for directions, an Insolvency Practitioner is not seeking to determine substantive rights and responsibilities as the Court would be called on to do in ordinary inter partes litigation.
Rather, in bringing a directions application, an Insolvency Practitioner is simply seeking confirmation that they are justified in exercising their powers and discharging their duties in a particular way. If a direction of the Court is followed, the Practitioner will be protected from claims for breach of duty that might otherwise arise.
The authorities also recognise that relevant Court rules [2] that limit cost exposure for certain non-parties to the “additional costs” that arise from their intervention in the proceedings are such that a non-party who enjoys the limited exposure to costs (as described in that rule) can have very little expectation of being awarded costs. In short, limited costs exposure means limited prospect of being awarded costs.
Although there have been examples of costs being awarded in favour of non-parties under the Court’s general discretion to award costs, such instances are rare. One such case was In the matter of SurfStitch Group Limited [2018] NSWSC 164, where costs were awarded in favour of an intervenor. However, that result appears to have been a consensual outcome and driven by the unusual characteristics of that particular administration, namely, that there were sufficient resources to pay all ordinary creditors claims (with the possible exception of contingent deferred creditors).
If you have any questions about these decisions or the circumstances in which it may be appropriate to seek directions, please do not hesitate to contact us at Assured Legal Solutions.