Background
Funds representing the proceeds of two dissolved partnerships were held in court. Dr Praneal Sharma sought payment out of those funds, while Glenn Livingstone, liquidator and receiver of South West Radiology Pty Ltd (in liquidation), sought judicial advice on their treatment.
In an earlier decision, the Court held that the statutory set-off in s 553C of the Corporations Act 2001 (Cth) did not apply. The parties subsequently agreed on most final orders but disputed costs, particularly whether costs of the unsuccessful set-off issue should come from partnership funds or be paid personally by Dr Sharma.
The Court’s Holding
Brereton J held that the costs of both Dr Sharma and Mr Livingstone concerning the set-off issue should substantially be borne from the partnership funds. Although Dr Sharma failed on set-off, his argument was novel, reasonably arguable, and, if successful, would have benefited all partners by maximising the funds returned to them. His participation was properly characterised as part of winding up the partnerships.
The Court fixed Dr Sharma’s costs at $48,870.66 and Mr Livingstone’s relevant costs at $51,706.76, payable from the partnership funds in stated proportions. Mr Livingstone’s costs relating to remuneration and aspects of the external administration remained recoverable from the company’s assets. The Court also made consequential payment, remuneration, discharge and distribution orders, subject to a 28-day stay.
Key Takeaways
- Costs of a partnership winding-up may be paid from partnership assets even where one partner’s argument fails.
- A useful contradictor on a novel insolvency question may justify a costs order from the common partnership fund.
- The Court distinguished costs of the s 553C dispute from costs properly incurred in the company’s external administration.
Why It Matters
The decision illustrates the discretionary approach to costs where partnership dissolution overlaps with corporate insolvency. It confirms that the ordinary costs outcome is not mechanically applied when an unsuccessful party advances a legitimate argument that assists resolution of a difficult issue affecting the partnership as a whole.