Ausino International Pty Ltd v Apex Sports Pty Ltd

The applicable principles

1. The applicable principles as to an order for costs are well-established. Section 98 of the Civil Procedure Act 2005 (NSW) confers a discretionary power to determine costs on the Court and requires that that discretion be exercised judicially. Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) in turn provides that: "Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs."
2. A successful party has a "reasonable expectation" of being awarded costs against an unsuccessful party, unless there is good reason for that presumption to be displaced: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [22], [134]. In Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121], Hodgson JA (with whom Mason P agreed) observed that: "… underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs." That observation was cited, with apparent approval, by the Court of Appeal in Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [98].
3. In submissions, the First and Thirteenth Defendants fairly accepted that the general rule that costs follow the event is applicable to the determination of separate questions. In Baulderstone Hornibrook Pty Ltd v Qantas Airways Ltd [2003] FCA 325 at [5], Finkelstein J observed that: "… in a case where there has been a split trial of disputed questions of fact or law and it is possible at each stage of the case to identify the successful party, the ordinary rule which is applied after a final hearing should also be applied to the split trial. That is, there is no justification for implying to the discretionary power to award costs a limitation to the effect that costs should only be ordered once the outcome of the whole action is known." There are several recent cases where Courts have ordered that parties pay the costs of a separate question: see, for example, Morris Finance Ltd v Free (No 2) [2016] NSWSC 1064; Spear v Hallenstein (No 2) (Costs) [2018] VSC 207; Global Constructions Australia Pty Ltd (in liq) v AIG Australia Ltd (No 3) [2018] FCA 432.
4. The Seventeenth Defendant refers to the observations of Campbell J as to the treatment of the costs of interlocutory applications in Ausino International Pty Ltd v Apex Sports Pty Ltd [2006] NSWSC 1119 at [55]-[56], and it (and several other Remaining Defendants) also refer to the observations of the Court of Appeal as to the same matter in His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand v The Macedonian Orthodox Community Church St Petka Incorporated (No 2) [2007] NSWCA 142 at [20]-[21]. The Court of Appeal there dealt with the question whether the costs of granting an interlocutory injunction should be ordered as costs in the cause. That decision recognises, first, that costs are always in the discretion of the Court, and identifies a "usual rule" that is applicable to the position where a person succeeds in obtaining an interlocutory injunction. That decision is not directed to the position in respect of the determination of a separate question in preference proceedings, still less a determination of a separate question where a defendant or several defendants put a plaintiff to proof of a matter that would plainly be established by the evidence, without seeking to controvert any aspect of that evidence and without any real prospect of avoiding the result for which the plaintiff contended on the separate question. That decision does not assist the Remaining Defendants in this application.

The Defendants' position as to insolvency

1. The First and Thirteenth Defendants submit that, in this case, there are good reasons to depart from the position that costs should follow the event and they should not be required to pay the costs of the separate hearing, which they contend should be costs in the cause or the Plaintiffs' costs in the cause. The First and Thirteenth Defendants acknowledge that they did not admit the insolvency of the Company during the relevant period, with, I interpolate, the necessary consequence that they put the Plaintiffs to proof of insolvency. They submit that the fact of the Company's solvency was not within their knowledge and they were not qualified to make a determination of the question. The Second Defendant similarly submits that the question of the Company's solvency was not within its knowledge. The Third Defendant submits that it did not admit the Company's insolvency during the relevant period, and that it did not deny that matter. The consequence of that non-admission, in the face of the evidence led by the Plaintiffs as to insolvency, was to put the Plaintiffs to proof of that matter at the separate hearing. The Eleventh Defendant similarly points out that, in her pleading, she did not admit the allegations of insolvency. The Sixteenth Defendant similarly points out that it did not deny the allegation of insolvency, but did not admit it, on the basis that it was not aware whether the allegation was true. That submission does not have regard to the information which became available to the Sixteenth Defendant, after service of the Plaintiffs' evidence, which it took no steps to controvert in the separate hearing. In reply, the Plaintiffs point out that, at the time of the hearing of the separate questions, each of the First, Second, Third, Eleventh, Thirteenth, Sixteenth and Seventeenth Defendants had not admitted the Company's insolvency in the relevant period.
2. Several of the Remaining Defendants point out that, as I noted in the Judgment, the solicitors for the Eleventh Defendant advised on 3 August 2018 that it did not oppose the admission into evidence of the liquidator's solvency report and did not wish to cross-examine the liquidator or participate in any hearing regarding the question of insolvency. Between 3 and 6 August 2018, the solicitors for the Third and Sixteenth Defendants also informed the Plaintiffs that their clients did not oppose the admission into evidence of the liquidator's solvency report, would not cross-examine the liquidator and would not participate in the hearing of the separate question. By email dated 17 August 2018, the solicitor for the Second Defendant informed the solicitor for the Plaintiffs that it would not take any further part in the hearing of the separate question. The consequence of these positions, combined with the positions adopted by the Remaining Defendants in their Defences, was still to put the Plaintiffs to proof of the Company's insolvency in the relevant period.
3. On 16 November 2018, the solicitors for the First and Thirteenth Defendants advised that they would not contest the hearing of the separate question, and a solicitor for those Defendants appeared at the commencement of that hearing, advised the Court that his clients did not wish to be heard, recognised (after an exchange with the Court) that his clients may be liable for the costs of that hearing, by reason of the position they were adopting, and was then excused from further attendance. None of the Remaining Defendants had, by this point, admitted the insolvency of the Company in the relevant period. As the Plaintiffs point out, in reply, the effect of their pleaded position, individually and collectively, was to require the Plaintiffs to lead detailed evidence as to the Company's insolvency in the relevant period and make detailed submissions as to that matter, which would not have been required had the insolvency of the Company been admitted.
4. The First and Thirteenth Defendants submit that insolvency could only be proved by the Plaintiffs. I do not accept that proposition, where it could be admitted by the First and Thirteenth Defendants, based on their assessment of the evidence that plainly established it, and the Plaintiffs would then not have to prove it against them. The First and Thirteenth Defendants also submit that it was not until 9 November 2018 that the totality of the Plaintiffs' evidence on the separate question was served on the First and Thirteenth Defendants. That proposition does not assist them. First, the liquidator's solvency report was served in July 2018. Second, all of the Plaintiffs' evidence was served by early November 2018, as the First and Thirteenth Defendants acknowledge. The Remaining Defendants did not take any further steps to amend their Defences to admit insolvency, or advise the Plaintiffs that they now accepted that insolvency would be established by the evidence and that they did not require the Plaintiffs to prove it against them.
5. The First and Thirteenth Defendants submit that, on 16 November 2018, they notified the Plaintiffs that they "did not oppose and implicitly conceded" the insolvency of the Company. That submission is not correct, since the email on which the First and Thirteenth Defendants rely did not admit insolvency or accept that it need not be proved, and expressly reserved the question whether the First and Thirteenth Defendants would have consented to orders disposing of the separate question, if other parties did so. That position was calculated to preserve any (remote) prospect that insolvency might not be established, if other Defendants contested it. It was therefore necessary for the Plaintiffs to establish insolvency, as against the First and Thirteenth Defendants. That supports a conclusion that the First and Thirteenth Defendants should pay the costs of the Plaintiffs having done so. The First and Thirteenth Defendants go further to submit that their solicitor appeared at the hearing and indicated to the Court that they "did not oppose the question of insolvency" of the Company and "admitted to the Plaintiffs' position regarding the insolvency" of the Company. Their submission is also incorrect. There was, to the contrary, no such admission at the hearing before me and the First and Thirteenth Defendants did not then accept that the separate question could be resolved in favour of the Plaintiffs as against them.
6. The Seventeenth Defendant submits that, given the position which it adopted and the "admissions" made by it, it was not necessary for a hearing on the separate question of solvency for the Plaintiffs to advance their claims against the Seventeenth Defendant. That submission is also incorrect. The Seventeenth Defendant and other Remaining Defendants did not admit the Company's insolvency and therefore continued to put the Plaintiffs to proof of insolvency. It was necessary for a hearing of the separate question to proceed, both because of the position then adopted by the Seventeenth Defendant, and because of the position adopted by the Remaining Defendants collectively.
7. In summary, I do not accept the submission that the Remaining Defendants could not determine the position as to the Company's solvency in the relevant period from the evidence served upon them, which they did not seek to controvert. It should have been apparent to the Remaining Defendants, or their legal advisers, that the evidence served by the Plaintiffs would establish the insolvency of the Company in the relevant period, particularly, as was the case, if none of them led any evidence to the contrary or sought to contradict any aspect of that evidence. The Remaining Defendants therefore put the Plaintiffs to proof of the Company's insolvency, over a hearing of a day, when it was virtually inevitable that it would be established.

The pass the parcel submissions

1. A number of the Remaining Defendants sought to shift the responsibility for costs arising from their individual positions, and their collective position, to other of the Remaining Defendants. The First and Thirteenth Defendants submit that: "… it was the position taken by other Defendants, and not the First and Thirteenth Defendants, that put the Plaintiff to proof."
2. The Third Defendant advances a similar argument, altering only the identity of the parties which it contends should be liable for costs to its exclusion, by submitting that the costs incurred by the Plaintiffs resulted not from the Third Defendant's conduct but from that of the First, Fifth and Thirteenth Defendants. The Sixteenth Defendant submits that the question of insolvency could have been determined "on the papers" but for the position adopted by "certain defendants". That submission does not meet the difficulty that the position of insolvency could have been determined without a need for a hearing as against the Sixteenth Defendant had it admitted the Company's insolvency, and as against all the Remaining Defendants had they collectively admitted that insolvency which emerged from the evidence that they did not seek to controvert.
3. I also have regard to a letter dated 21 December 2018, on which the Sixteenth Defendant relies, by which the Plaintiffs observed that: "[The Plaintiffs] needed to proceed with the hearing of the separate question because two defendants (the fifth and the twenty-first defendants) actively opposed [the Plaintiffs] on the question of insolvency and gave notice that they required the Liquidator for cross-examination. Although ultimately [the Plaintiffs] settled with both those defendants, those settlements were achieved at a time when [the Plaintiffs] had incurred all of the costs of preparing for the hearing and in the case of the fifth defendant, after [they] had partly conducted the hearing." There is no reason to question the accuracy of that account of events. However, that proposition does not exclude the proposition that the Plaintiffs also needed to proceed with the hearing of the separate question because each of the Remaining Defendants had not admitted insolvency and put them to proof of it.
4. The Seventeenth Defendant also seeks to attribute responsibility for the need of a separate question to Defendants other than itself, nominating the Fifth and Twenty-First Defendants, and submits that it should not be "penalised" with a costs order for a separate interlocutory hearing necessitated by the positions taken by other Defendants. A costs order is, of course, not punitive but compensatory, and I have observed above that the hearing of the separate question was necessitated by the position taken by each of the Remaining Defendants both individually and collectively.
5. I reject the submissions by each of the Remaining Defendants that some other defendant should bear the costs of the separate question. The position taken by each of the Remaining Defendants, individually and collectively, put the Plaintiffs to proof of the Company's insolvency in the relevant period. Each of the Remaining Defendants could have admitted insolvency, and avoided the need for the Plaintiffs to prove it as against that defendant and a consequential liability for costs. None of the Remaining Defendants did so.
6. The Second Defendant also submits that it would be unjust that one party should be left bearing the costs of the separate question, where several of the Remaining Defendants were involved. I also do not accept that submission. Each of the Remaining Defendants could have avoided that result, in respect of itself, by admitting the Company's insolvency in the relevant period in the claim against that Defendant, and each of the Defendants can fairly be left to the consequences of its choice not to do so and to whatever rights of contribution it may have against the other Remaining Defendants in respect of the costs liability which may fall upon it. Contrary to the Second Defendant's submission, there is no prospect that the Plaintiffs would be "doubly compensated" for the costs of the separate question, since they cannot recover from any one of the Remaining Defendants costs that have already been met by another.

The Remaining Defendants' collateral attack on the separate question

1. The First and Thirteenth Defendants submit that the matter could have been heard without a separate question, and any question of costs would then be determined by reference to the ultimate result of the proceedings. The Third Defendant submits that there was no "necessity" for a separate question as to insolvency of the Company and that the application for the separate question was made by the Plaintiffs for "their convenience". The Sixteenth Defendant also submits that a "reasonable approach" would have seen the issue of insolvency heard and determined at the final hearing of the matter. The Seventeenth Defendant also submits that, if it was the only defendant in the proceeding, the question of insolvency could have been determined at a final hearing.
2. The Plaintiffs submit, in reply, that the determination of a separate question as to solvency was prudent, reasonable, and cost-effective, and would have avoided further costs for all parties had the Plaintiffs not established the insolvency of the Company over the relevant period. In any event, the hearing proceeded on the basis of a separate question, by reason of orders made by Brereton J as to that effect.
3. I do not accept the Remaining Defendants' several submissions in this regard. Orders for separate questions as to insolvency are often made in preference proceedings, to promote the just, quick and cheap resolution of the real issues in dispute in proceedings in accordance with s 56 of the Civil Procedure Act: for example, Dean-Willcocks v Air Transit International [2002] NSWSC 525; Re ACN 108153251 (Formerly JFTA Pty Ltd) (in liq) [2014] NSWSC 1903; Re RCG CBD Pty Ltd (in liq) [2016] NSWSC 1489. The order made by Brereton J was made for that purpose and not, as the Third Defendant submitted, for the "convenience" of any one party in the proceedings. The Sixteenth Defendant's submission that another approach would have been a "reasonable" approach, and implicitly that the approach taken was an unreasonable approach, is a collateral attack on the order made by Brereton J for a hearing of the separate question in these proceedings, necessarily on the basis that that was a proper and not an unreasonable approach to adopt. The question of costs is to be determined in the proceedings as they were constituted, not by reference to the position that might have existed had the proceedings been conducted in a less satisfactory way.

The submission that the Remaining Defendants were not notified of a submission to seek an order for costs and related submissions

1. The Third Defendant submits that it was not notified that the Plaintiffs intended to seek their costs of and incidental to the separate question against it. The Third Defendant also submits that the Plaintiffs were on notice that it would not attend the hearing of the separate question and "would not be in a position to make an argument on costs, should it have been necessary". I reject that submission. As I noted above, the Defendants have been provided an opportunity to make submissions as to costs and have done so.
2. The Eleventh Defendant submits that the Plaintiffs did not request her to amend her Defence to admit the Company was insolvent, or indicate that an order for costs would be sought against her. It does not seem to me that the Plaintiffs were required to advise the Commissioner of State Revenue (Qld), or her legal advisers, as to the position which she should adopt in her Defence, and they could responsibly leave her to decide for herself, with the assistance of her legal advisers, whether she should properly admit a fact that the evidence served on her would plainly establish and that she did not seek to contest, or put the Plaintiffs to proof of it. I will address the question of notice of a claim for costs below.
3. The Eleventh Defendant also submits that, where the claim against her for a total debt of $22,135.18, the District Court had jurisdiction to hear the claim, and that there should be a direction that the assessor assess the costs on the District Court scale. I do not accept that submission. These proceedings were properly commenced in this Court and there is no reason to depart from the usual approach to an assessment of costs. It might have been put that the relatively small size of the claim against the Eleventh Defendant simply emphasises the unreasonable position that she took in putting the Plaintiffs to the costs of proof of the Company's insolvency, where that readily emerged from the evidence. I do not, however, take that matter into account, where it has not been the subject of full submissions by the parties.
4. In reply, the Plaintiffs acknowledge that they did not notify the Remaining Defendants of an intention to seek particular costs orders at the hearing of the separate question, but point out that any Defendant that had put the Plaintiffs to proof of insolvency was at risk of an adverse costs order, and that the position adopted by the Remaining Defendants accepted that risk.
5. It seems to me that there was no need for the Plaintiffs to offer a gratuitous notification of the usual position as to costs to the Remaining Defendants, where the principles applicable to an order for costs are well-known and would have been known to the Remaining Defendants' solicitors. In any event, it is the Court that makes an order for costs, and the Remaining Defendants have been allowed procedural fairness as to whether that order should be made.

The costs orders for which the Remaining Defendants contend

1. Several of the Remaining Defendants contend that there should be an order that the costs of the separate hearing be costs in the cause, or the Plaintiffs' costs in the cause. I do not consider that such orders would be appropriate, where the Plaintiffs were successful on the separate question as against them, and were only put to the costs of argument as to that question because, as I have noted above, the Remaining Defendants did not concede the Company's insolvency, which plainly emerged from the evidence on which the Plaintiffs relied and which the Remaining Defendants did not seek to controvert.

Conclusion and orders

1. In these circumstances, an order for costs of the separate hearing as against each of the Remaining Defendants is amply justified. My preliminary view is that each of the Remaining Defendants should be ordered to pay the costs of this costs application. The parties should bring in agreed short minutes of order as to the costs of this application or, if there is no agreement, their respective short minutes of order and short submissions as to the differences between them within 7 days.
2. Accordingly, I make the following orders, as to which orders 1, 3 and 4 are made by consent of at least some of the Remaining Defendants, and reflect the determination of the separate question, order 2 reflects the conclusions that I have reached above, and orders 5-6 will deal with the costs of this application. Those orders are that: 1 The separate question of whether the Second Plaintiff was continuously insolvent between 25 February 2014 and 25 August 2014 be answered in the affirmative. 2 The First, Second, Third, Eleventh, Thirteenth, Sixteenth and Seventeenth Defendants pay the costs of and incidental to the hearing of the separate question in order 1, as agreed or as assessed. 3 Leave be granted to the Plaintiffs to file an Amended Reply in the form of the document provided to the solicitors for the First, Second, Third, Eleventh, Thirteenth, Sixteenth and Seventeenth Defendants under cover of a letter dated 18 December 2018 and to serve the amended reply on or before 15 February 2019. 4 The proceedings be adjourned for further directions before the Corporations List Judge on 18 February 2019. 5 The parties bring in agreed short minutes of order as to the costs of this application or, if there is no agreement, their respective short minutes of order and short submissions as to the differences between them within 7 days.

Amendments 17 February 2019 - Amended to correct typographical error. 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: 17 February 2019