Alora Davies Developments 104 Pty Ltd (in liq) & Ors v Raphael & Anor

The Plaintiffs' application for indemnity costs

1. The Plaintiffs seek their costs of the proceedings on an indemnity basis, or on alternative bases including on the ordinary basis up to 6 March 2024 and on an indemnity basis from 7 March 2024, relying on the principles in Calderbank v Calderbank [1975] 3 All ER 333 ("Calderbank"). The applicable principles were summarised by Ward J (as the President then was) in Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [9]-[15] and I summarised them in Re Alsafe Security Products Pty Ltd atf Alsafe Trust (in liq) [2016] NSWSC 575 ("Alsafe") at [8] as follows: "[T]he fact that a party ultimately achieves a worse result than he or she would have achieved if he or she had accepted a Calderbank offer does not itself establish that the other party should be awarded indemnity costs, unless it can be said that it was unreasonable for the first party not to accept that offer, so as to warrant a departure from the general rule as to costs: Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [above] at [9]-[15]; Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 at [14], [16]. In Lawrence v Gunner; Gunner v Lawrence [2015] NSWSC 1229 at [26], Stevenson J observed that: If a Calderbank offer is made, but not accepted, the court's discretion to make a special order is enlivened. The court's discretion is an open one, but is commonly enlivened if (a) the party that made the offer achieves a better result than the amount offered, (b) the offer was a genuine offer of compromise, and (c) it was unreasonable of the offeree not to accept: for example Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [7]-[8]."
2. I also recognise that a Calderbank offer will not justify an indemnity costs order unless its rejection was unreasonable: Ofria v Cameron (No 2) [2008] NSWCA 242 at [20].
3. In support of this aspect of their application, the Plaintiffs rely on aspects of Ms Griffiths' affidavit dated 16 May 2024. Ms Griffith there refers to her experience in acting for insolvency practitioners in insolvency related litigation and refers to a demand issued to the Defendants on 13 October 2022, prior to the commencement of the proceedings, and to an offer made by the liquidator on the Calderbank basis prior to the commencement of the proceedings and subsequent offers also made on a Calderbank basis to each of Mr Raphael and Mrs Raphael and to APG following the commencement of the proceedings. Ms Griffiths' evidence is that the orders made in the proceedings against the Defendants represents a better outcome for the Plaintiffs than a Calderbank offer made on 17 October 2022 in respect of the Defendants, although that assessment is complicated by the different amounts recoverable by the Plaintiffs against the several Defendants.
4. Mr Davis, who appears for the Plaintiffs, submits that the Court should make an order for indemnity costs against each of the Defendants by reference to the letter of demand and the Calderbank offers to which I have referred above. Ms King, who appears for Mr and Mrs Raphael, refers to Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [99] as authority that a failure to accept a Calderbank offer will only justify an order for costs if it constituted a genuine offer of compromise and it was not reasonable for the offeree not to accept it, and she also refers to the observations in Alsafe to which I referred above. Ms King submits that the offer made by the Plaintiffs on 17 October 2022, prior to the commencement of the proceedings, did not identify the bases on which the Plaintiffs were ultimately successful at the hearing, and relied on claims under s 588FF of the Corporations Act 2001 (Cth) as against Mr and Mrs Raphael, which were ultimately not successful in the proceedings. She also points out that the claim in respect of the VPA on which the Plaintiffs succeeded, reflecting a late amendment, was distinct from the basis of the claim identified by the Plaintiffs in the Plaintiffs' offers made prior to the commencement of the proceedings and, I should add, were pursued by the Plaintiffs until that late amendment occurred. She submits that it was not unreasonable for Mr and Mrs Raphael not to have accepted the Plaintiffs' offer made on 17 October 2022. She submits that the orders made by the Court on 10 May 2024 were not more favourable than the offer made by the Plaintiffs on 6 March 2024. It is not necessary to address that submission given the conclusion that I reach on other grounds.
5. It seems to me that, here, the Plaintiffs have not established that a costs order on an indemnity basis, where the Plaintiffs' success in respect of the VPA Transaction, a significant aspect of the proceedings, resulted from a late amendment to the formulation of its claim made in the course of the hearing and the Plaintiffs would likely not have succeeded in that claim but for that amendment. The Defendants' assessment of the offers previously made by the Plaintiffs would necessarily have reflected the case then pleaded by the Plaintiffs, prior to the significant amendment made to that case in the course of the hearing. I cannot be satisfied that, at the time the Defendants decided not to accept those offers, it was unreasonable not to accept them where they then, prior to the amendment, likely sought payment of an amount exceeding that which would have been recoverable by the Plaintiffs in a judgment.

The Plaintiffs' application for costs on a gross sum basis

1. The Plaintiffs also seek a gross sum costs order on an indemnity or ordinary basis. I summarised the applicable principles in respect of such an order in my judgment in Re Beverage Freight Services Pty Ltd [2020] NSWSC 797 ("Beverage Freight Services"). Section 98(4) of the Civil Procedure Act 2005 (NSW) ("CPA") relevantly provides that the Court may make an order to the effect that a party to whom costs are to be paid is entitled to a specified costs order instead of assessed costs. That power is commonly exercised in complex cases, having regard to the several matters identified by Beazley JA (with whom Giles and Whealy JJA) agreed in Hamod v New South Wales [2011] NSWCA 375 at [816]-[817], but the power is not limited to such a case: Simone Starr Diamond v Talus Diamond (No 4) [2013] NSWSC 811 at [8]; Beverage Freight Services at [19]. The power to make such an order should only be exercised where the Court considers it can do so fairly between the parties, including achieving an appropriate sum on the materials available to it, and the Court will typically apply a discount to professional fees in assessing costs on a gross sum basis, although there are cases in which it has not done so. In particular, a gross sum costs order may be made to avoid the expense, delay and aggregation involved in litigation arising out of an assessment: Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 ("Harrison"). Where a gross sum order is made, the Court is not required to undertake a detailed examination of the kind which would be undertaken in a cost assessment in determining a gross sum payable, and will adopt a "broad brush" approach: Hadid v Lenfest Communications Inc [2000] FCA 628 at [35]; Harrison at [22]; Beverage Freight Services at [19].
2. In support of this aspect of their application, the Plaintiffs also rely on aspects of Ms Griffiths' affidavit dated 16 May 2024. Ms Griffiths there refers to the hourly rates charged by an earlier firm at which she was a principal and by her present firm in respect of the conduct of the proceedings and to the rates charged by Counsel acting for the Plaintiffs in the proceedings. She also refers to the professional costs and disbursements incurred by the Plaintiffs in respect of the conduct of the proceedings, which are claimed on a GST inclusive basis, and without adjustment for any GST credit that may be available to the Plaintiffs in respect of the conduct of the proceedings. She expresses a view, by reference to her experience, as to the extent to which the Plaintiffs' costs, awarded on an indemnity basis, would be recoverable in an assessment. She does not, however, identify any matters in which she had acted n which indemnity costs had been awarded and an assessment had taken place, so as to support that expression of opinion. She also addresses the extent of costs which she expects would be recoverable on an assessment in respect of an order for costs on a party/party basis.
3. Ms Griffiths also refers to costs which would be incurred by the Plaintiffs in an assessment of costs and the likely time that would be taken for such an assessment and refers to the liquidator's instructions that neither the Company nor the liquidator have any funding available to them to conduct a costs assessment for the Plaintiffs' costs in the proceedings. I give limited weight to that proposition, where Ms Griffiths' evidence is also that the Australian Securities and Investments Commission ("ASIC") funded the Plaintiffs to conduct these proceedings; Ms Griffiths does not indicate that the Plaintiffs have sought further funding for an assessment from ASIC or that ASIC has declined to provide such funding; and it would be perverse for ASIC to fund the proceedings but then decline to fund the costs of an assessment to allow the recovery of their costs.
4. Mr and Mrs Raphael rely, in response, on the affidavit dated 31 May 2024 of Mr Taylor, a solicitor acting for them in respect of the proceedings. Mr Taylor referred to a possible substantive variation of one of the orders made by the Court, but no application has been made to reopen the proceedings or vary that order and I need not address that issue. Mr Taylor also referred to the terms on which an earlier claim brought by the Plaintiffs against the Fourth Defendant, Mr Davies, was dismissed with no orders as to costs between the Plaintiffs and Mr Davies. That evidence was relevant because, it appears, the Plaintiffs initially included the costs of aspects of the claim against Mr Davies in the amount they claimed as a gross sum costs order against the other Defendants.
5. The Plaintiffs seek to rely on a further affidavit of Ms Griffiths dated 4 June 2024 relating to further costs incurred since her earlier affidavit and also seeking to adjust the gross sum costs claimed to exclude costs of the claim against the Fourth Defendant, but subsequently dismissed against the Fourth Defendant by consent with no order as to costs. That affidavit does not address the position of costs incurred by the Plaintiffs which were referable both to the claim against Mr and Mrs Raphael and the claim against Mr Davies, which involve issues of some complexity. A dispute has now arisen as to whether the Plaintiffs should be permitted to rely on that affidavit, which it is not necessary to determine given the conclusions that I reach on other grounds below.
6. Mr Davis submits that a gross sum costs order should be made that each of Mr and Mrs Raphael and APG pay the Plaintiffs' costs of the proceedings in a specified amount, whether on an indemnity basis or, as I noted above, on alternative bases including on the ordinary basis up to 6 March 2024 and on an indemnity basis from 7 March 2024. It will immediately be noted that this approach does not make any allowance for the different scope of the Plaintiffs' cases against each Defendant and the level of their respective participation in the proceedings, where APG took no active role. Mr Davis submits, and I recognise, that s 98(4)(c) of the CPA, to which I referred above, permits (but I interpolate, does not require) the Court to order that costs be paid in a specified gross sum instead of being assessed. Mr Davis submits that a gross sum costs order should be made because APG is in liquidation and there is a real prospect that APG would not be able to meet any costs liability that is likely to result from any assessment. I give limited weight to that proposition, where the position in respect of a costs order against APG is no different from that in respect of the money judgment against it; APG is not likely to take an active role in the assessment, where it did not take an active role in the proceedings; and its involvement in an assessment will add little to the costs that would be incurred in any event. Second, Mr Davis submits that the assessment process will involve a significant expense to the Plaintiffs and there are "presently" no funds available to the liquidator to pay for that assessment. I have noted Ms Griffith's evidence as to that matter above, and I also give limited weight to that submission, where, as I noted above, it would be perverse for ASIC to fund the conduct of the proceedings but then not fund the costs of an assessment necessary to recover their costs and there is no evidence that the liquidator has sought and not been provided with funding for an assessment. Third, Mr Davis submits that the costs of an assessment are likely to be disproportionate to the amounts in issue in the proceedings, but that proposition is neither self-evident nor established by evidence.
7. Ms King responds that there is insufficient evidence before the Court to ground a well-informed exercise of the discretion to make a gross sum costs order and refers, inter alia, to the observations of Ball J in Tzaneros Investments Pty Ltd v Walker Group Constructions Pty Ltd (No 4) [2018] NSWSC 431 at [21] that: "the Court will not make a gross sum costs order unless it can be satisfied that it has sufficient information before it to be satisfied that "it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available": Harrison v Schipp [2002] NSWCA 213 at [22] per Giles JA. The calculation of that sum must be "logical, fair and reasonable" after an informed assessment of the available information: Beach Petroleum NL & Claremont Petroleum NL v Johnson (1995) 57 FCR 119; (1995) 135 ALR 160 at 164-5 per von Doussa J. The Court is entitled to take a "broader brush" approach than would be applied on assessment, but in doing so "it must be confident that the material before it enables it to make a sufficiently reliable calculation or estimate of an appropriate costs sum. And a decision as to what is an appropriate sum will depend to a large extent on reaching some kind of view on what the outcome of an assessment might be": Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2011] NSWSC 11 at [21] per Barrett J."
8. Ms King refers to the resolution of the proceedings against the Fourth Defendant, Mr Davies, on the basis that the Plaintiffs would bear their own costs of the proceedings against Mr Davies, and submits that, obviously enough, Mr and Mrs Raphael should not now be ordered to pay the Plaintiffs' costs of the proceedings against Mr Davies. She notes that the gross sum costs order originally sought by the Plaintiffs included claims for costs referable to the claim against Mr Davies, although I have referred above to the further affidavit served by the Plaintiffs that sought to recalculate those costs. Ms King also submits, with justification, that Mr and Mrs Raphael should not be required to pay costs referable to the claims against APG, including the costs relating to the Plaintiffs' application for leave to proceed against it or of a proposed application for a freezing order that was not pursued by the Plaintiffs.
9. I am not persuaded that the Court could here fairly reach a gross sum costs order for the same amount against the three remaining Defendants. First, the complexities introduced by the different scope of the cases against them are not addressed by a gross sum costs order for the same amount against the three remaining Defendants. Second, the question whether particular costs incurred in the proceedings are properly treated as recoverable against Mr and Mrs Raphael in whole or in part, as distinct from being referable to claims made against the Fourth Defendant which were dismissed by consent with no order as to costs, could only be addressed by detailed review of particular attendances. Third, where the Plaintiffs' initial claim of a gross sum costs order included a significant amount of unrecoverable costs, including but not limited to costs of the claim against the Fourth Defendant, the Court cannot be satisfied that only recoverable costs are now claimed in the gross sum costs order, and the detailed scrutiny of costs claimed necessary to determine that question is properly a matter for an assessor and not a Judge of the Court.

An order for costs as agreed or as assessed

1. The Plaintiffs alternatively seek an order for costs in their favour on the usual basis. Mr Davis points to the general rule that costs follow the event under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) and submits that the Plaintiffs have been successful in the proceedings (although not, I interpolate, in all of the claims they made) and that costs should follow the event. He points to the principle that, where a party has achieved practical success as to the outcome of the claim, the Court will ordinarily award the costs of the proceedings to that party without attempting to differentiate between the issues on which that party succeeded and any issues on which it failed. He submits, and I accept, that the aspects of the Plaintiffs' claim on which they were not successful were not dominant and did not take up a sufficient amount of hearing time to warrant the apportionment of costs and that there should be no apportionment. By an email dated 20 May 2024, the solicitor acting for Mr and Mrs Raphael indicates that they do not seek to be heard against the making of a standard costs order against them. By her submissions in respect of costs, Ms King, who appears for Mr and Mrs Raphael, confirms that they do not resist the usual costs order for the proceedings, but resist the indemnity costs order and gross sum costs order sought by Plaintiffs.
2. An order for costs on the ordinary basis should be made against each of Mr and Mrs Raphael, who do not contest it, and against APG, for the reasons noted above and where I have not accepted that orders for costs on an indemnity or gross sum basis should be made.

Orders

1. For these reasons, I order that the First and Second Defendants pay the costs of the proceedings against them, and the Third Defendant pay the costs of the proceedings against it, on an ordinary basis as agreed or as assessed.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 June 2024