[2002] FCA 424
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) (2008) 65 ACSR 324
Source
Original judgment source is linked above.
Catchwords
[2002] FCA 424
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) (2008) 65 ACSR 324
Judgment (5 paragraphs)
[1]
Nature of the application and affidavit evidence
By paragraphs 1 to 4 of his Originating Process filed on 6 February 2023, Mr Jason Porter as liquidator ("Liquidator") of Harmony Homes Pty Ltd (in liq) ("Company") sought an order for the transfer of eight unfair preference proceedings that the Company or Liquidator has commenced in the District Court of New South Wales or the Local Court of New South Wales to this Court and an order that a separate question be determined as to whether, and when, the Company was insolvent during the six months prior to its entering external administration. Further directions were sought, consequential upon those orders. Those orders have now been made. Prior to those orders being made, on 13 March 2023, I granted leave for the Liquidator to discontinue these proceedings as against the Sixth Defendant, MD Brick (NSW) Pty Ltd ("MD Brick") and reserved the question of costs of the proceedings to be determined in chambers.
The Liquidator relies on the affidavit dated 16 March 2023 of his solicitor, Mr Ormazabal, in relation to the question of costs. Mr Ormazabal referred to the history of the proceedings, and noted that MD Brick had filed an Amended Defence in proceedings in the Local Court of New South Wales in which it admitted the Company's insolvency, after the commencement of the proceedings. He contended that that admission avoided the need to continue these proceedings, rather than existing proceedings in the Local Court of New South Wales ("Local Court proceedings") against MD Brick. Mr Ormazabal also referred to correspondence between the parties' solicitors as to the conduct of the Local Court proceedings and these proceedings.
MD Brick relied on the affidavit dated 20 March 2023 of its solicitor, Mr Bastiani. Mr Bastiani referred to the commencement of the Local Court proceedings which sought recovery of a payment of $10,000.00 by the Company to MD Brick, which was contended to be a preferential payment, and the filing of an Amended Statement of Claim by the Liquidator which increased the amount claimed against MD Brick to $34,171.06. Mr Bastiani contends that, in the Local Court proceedings, MD Brick denies the allegation that it was a creditor of the Company and says the relevant payments were prepayments for goods or services provided by MD Brick to the Company and also relies on a good faith defence under s 588FG(2) of the Corporations Act 2001 (Cth). Mr Bastiani also refers to correspondence between the parties' solicitors and to developments in the Local Court proceedings.
[2]
Whether the presumption under UCPR r 42.19 is displaced
The parties dealt briefly with the principles applicable to a costs orders in these circumstances. I will deal with them at greater length, drawing on my judgment in Davis v Certain Lloyd's Underwriters [2022] NSWSC 131 ("Davis") for the outline of these principles. Rule 12.1 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") permits a plaintiff to discontinue proceedings as to, relevantly, all claims for relief with the consent of each active party or with the court's leave. Rule 42.19 of the UCPR deals with the position where proceedings are discontinued in accordance with UCPR r 12.1 and relevantly provides that:
"Unless the court orders otherwise or the notice referred to in rule 12.1(2) otherwise provides, the plaintiff must pay such of the defendant's costs as, at the date on which the notice of discontinuance was filed, had been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued."
The application of this rule was considered in Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 ("Bitannia") at [53]-[54] (Hodgson JA, Tobias and Basten JJA agreeing) and [70], [74] (Basten JA). In McNamara v San [2010] NSWSC 809 at [12], Hallen AsJ (as his Honour then was) summarised the principles applicable to the similar provision in UCPR r 42.20 as including that:
"(c) Rule 42.20 of the UCPR does not give rise to a presumption that costs will be ordered against the Plaintiff: Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497; Foukkare v Angreb Pty Limited [2006] NSWCA 335 at [65]; Pentroth Pty Ltd v Kirschild Pty Ltd (2006) 96 SASR 129; Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [53]; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32. However, the rule does create a starting point by requiring "… the plaintiff must pay the defendant's costs of the proceedings …" unless that outcome is displaced by a discretionary decision ("unless the court otherwise orders");
(d) Generally, there must be some proper justification, sound positive ground, or a good reason, for departing from the ordinary position: Fordyce v Fordham at [2] per Santow JA; Australiawide at [54] per Bryson JA; circumstances in which it has been held appropriate to depart from the ordinary position include where the proceedings have been rendered unnecessary by circumstances beyond the plaintiff's control; where the plaintiff achieved practical success in the proceedings, or where costs have been significantly increased by the unreasonable conduct of the defendant.
(e) The Plaintiff should be the moving party on an application for an alternative costs order: Bitannia at [70] per Basten JA. If facts are to be relied upon to found the court making a different order, the Plaintiff will bear the onus of proving the relevant facts;
(f) Where the proceedings are dismissed prior to any hearing on the merits, "the Court cannot try a hypothetical action between the parties" to determine the question of costs: Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201; Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624; Metro Chatswood Pty Ltd v CRI Chatswood Pty Ltd [2007] NSWSC 1120 at [35];
(g) It may be necessary to analyse the whole of the proceedings to determine the appropriate costs order: Fordyce at [67] per McColl JA. A relevant consideration is whether the Plaintiff acted reasonably in commencing the proceedings and whether the defendant acted reasonably in defending them: Australian Securities Commission v Aust-Home Investments Ltd at 201 (cited with approval in Foukkare); all the relevant circumstances, and not just the fact of dismissal, should be considered;
(h) It is also important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event, or settlement, so removes, or modifies, the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the court's discretion otherwise than by an award of costs by the successful party. It is the latter type of case that usually creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs: One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 at 553; cited with approval in Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 per Davies AJA (with whom Mason P and Meagher JA agreed) at [5];
(i) The distinction between the two categories referred to above is often helpful in exercising the costs discretion, notwithstanding that neither category can be precisely defined, the boundary between them is unclear and other factors may be relevant: Bitannia per Basten JA at [79]-[81]; Perre v State of New South Wales [2009] NSWLEC 51 at [49];
(j) The rule requires the court to make such order as it thinks just in the particular circumstances of the case."
That summary was cited with approval by Kunc J in Spatt v Benson [2019] NSWSC 1195 at [64] and I followed it in Parlby v Blair [2013] NSWSC 100 at [13]ff, Re Myao Travel Pty Ltd [2020] NSWSC 1672 at [6]ff, Australian Unity Funds Management Ltd v NorthWest Healthcare Australia RE Ltd [2021] NSWSC 1039 at [15]ff and in Davis at 9[ff].
Mr Anderson, who appears for the Liquidator, rightly submits that UCPR r 42.19(2) preserves the Court's discretion to otherwise order, if there is some positive ground or good reason for departing from the ordinary course: Bitannia at [54]. Mr Anderson points out that, in the Local Court proceedings, the Liquidator had contended that the Company was insolvent at relevant times, and MD Brick had not admitted that matter, thereby putting it into issue in the Local Court proceedings. Mr Anderson acknowledges that, by letter dated 18 November 2022, MD Brick, by its solicitors, communicated that it was willing to admit insolvency for the purposes of those proceedings. Mr Andersons notes that, after these proceedings were commenced against several Defendants including MD Brick, on 15 February 2023 MD Brick put forward a proposed Amended Defence to the Amended Statement of Claim which would admit the allegation of insolvency, which was subsequently filed in the Local Court proceedings on 7 March 2023. Mr Anderson submits, and I accept, that the effect of that amendment was, from 7 March 2023, to displace any common question of law and fact as to the Company's insolvency, as between the Liquidator on the one hand and MD Brick on the other, which would support MD Brick's joinder in these proceedings so as to determine that common question. Mr Anderson also points out that that amendment was not made until after these proceedings were commenced and MD Brick had been joined as party to them, although I recognise that the prospective amendment had been raised by MD Brick in November 2022.
Mr Anderson also submits that the commencement of these proceedings, so far as MD Brick was concerned, was reasonable, although the joinder of MD Brick in these proceedings ceased to have utility after MD Brick altered its position by amending its Defence in the Local Court proceedings to admit the Company's insolvency. Mr Anderson submits that there should be no order as to costs, with the intent that each party should bear their own costs, and that order would achieve a just result in the circumstances.
Mr Hallahan, who appears for MD Brick, put less focus on the operation of UCPR r 42.19(2) than on a more ambitious submission that the Liquidator should pay MD Brick's costs on an indemnity basis and without recourse to the Company's assets. Mr Hallahan submits that the Liquidator should never have brought the proceedings against MD Brick and had used the proceedings to delay the progress of the Local Court proceedings between November 2022 until March 2023. I am not persuaded by MD Brick's submissions in this respect. It seems to me that these proceedings where properly brought by the Liquidator against MD Brick, while there existed a common question of the Company's insolvency which MD Brick and other Defendants had put in issue in proceedings in the Local Court and the District Court, which would most efficiently be resolved by a single proceeding in this Court. If the Local Court proceedings were delayed, that occurred by reason of the fact that MD Brick did not admit the Company's insolvency until it had altered its position in that regard, and that alteration was effected not by foreshadowing it in correspondence in November 2022, but only by making it in MD Brick's Defence in the Local Court proceedings, after these proceedings had commenced.
Mr Hallahan submits that the Liquidator knew, from the time of MD Brick's solicitor's letter dated 18 November 2022, that MD Brick admitted the allegations of insolvency. I do not accept that submission. While MD Brick had communicated a willingness to admit the allegation of insolvency, for the purposes of the proceedings, from 18 November 2022, it was not bound to that position until it amended its Defence in the Local Court proceedings, and that only occurred after these proceedings were commenced. Conversely, the Liquidator could not have held MD Brick to its foreshadowed amendment until it made it, and could reasonably proceed on the basis of MD Brick's position as it was pleaded (not as it might in future be) when these proceedings were commenced.
Mr Hallahan also submits that the Liquidator's conduct in commencing these proceeding against MD Brick was unreasonable, first, because he should have known that he had "no chance of success in having the Local Court proceeding transferred and consolidated" where the question of solvency was not in issue in the Local Court proceedings. Mr Anderson responds to the submission that the Liquidator acted unreasonably in commencing the proceedings by pointing to the fact that an issue as to the Company's insolvency existed in the Local Court proceedings at the time these proceedings were commenced and until MD Brick filed its Amended Defence in the Local Court proceedings on 7 March 2023, and that supported MD Brick's joinder in the proceedings. I do not accept Mr Hallahan's submission, which neglects the fact that the question of solvency had been put in issue in the Local Court proceedings by MD Brick and remained in issue until MD Brick amended its Defence to admit insolvency after these proceedings were commenced, as distinct from foreshadowing an intent to do so. Second, Mr Hallahan criticises the Liquidator's failure to engage with MD Brick about amendment of the Defence prior to commencing these proceedings. I also do not accept that that criticism is well-founded, where these proceedings joined several Defendants (of which MD Brick is only one) to seek the determination of a common issue as to the Company's insolvency, and it was open to MD Brick to amend its Defence in the Local Court proceedings to admit insolvency at any time before these proceedings were commenced, rather than only after these proceedings were commenced.
Mr Hallahan also submits that it is "clear in the circumstances" that the Liquidator brought this proceeding against MD Brick in order to delay the progress of the Local Court proceeding. Unsurprisingly, Mr Anderson also takes issue with the allegation that the Liquidator joined MD Brick in these proceedings in order to delay the Local Court proceedings, pointing to the obvious basis for joinder, that a common issue as to insolvency supported that joinder. I do not accept Mr Hallahan's submission, where this proceeding involves a claim against multiple parties including MD Brick and it is not apparent why the Liquidator would wish to delay the progress of the Local Court proceedings, in which the Liquidator was seeking recovery against MD Brick.
Mr Hallahan submits, in the alternative to MD Brick's primary claim for indemnity costs, that the Court should order that the Liquidator pay MD Brick's costs on the ordinary basis, adopting the presumption under UCPR r 42.19. I do not accept that submission, where it seems to me that it was reasonable for the Liquidator to commence these proceedings, against the several Defendants in the Local Court and District Court proceedings which put the Company's insolvency in issue, including MD Brick, so as to determine the common issue of insolvency in these proceedings. I accept Mr Anderson's submission that the fact that this issue has become moot as against MD Brick, by reason of MD Brick's amendment of its Defence in the Local Court proceedings, is sufficient reason to displace the presumption as to costs under UCPR r 42.19.
[3]
Whether an order for indemnity costs should be made against the Liquidator without recourse to the Company's assets
Mr Hallahan submits that the Liquidator should be ordered to pay the costs of the proceedings on an indemnity basis and without having an indemnity from the Company's assets due to the Liquidator's "unreasonable conduct" in bringing the proceeding against MD Brick. Mr Hallahan sets out, at some length, the principles applicable to an order for indemnity costs. I can address those principles briefly here, where there seems to me to be no factual basis for such an order. The Court has power to award costs on an indemnity basis under s 98(1)(c) of the Civil Procedure Act 2005 (NSW) and, in order to establish a claim to indemnity costs, a party must ordinarily show conduct of the other party that is unreasonable or delinquent: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) (2008) 65 ACSR 324; [2008] NSWSC 199. An indemnity costs order does not punish an unsuccessful party for bringing a case that failed, but compensates the successful party for incurring costs arising from the other party's unreasonable conduct: Hamod v New South Wales (2002) 188 ALR 659; [2002] FCA 424 at [20].
I have largely addressed Mr Hallahan's submission in support of this claim in dealing with the application of UCPR r 42.19 above. The question of indemnity costs strictly does not arise, where I have found that the presumption under UCPR r 42.19 is displaced and there should be no order as to costs, and the matters that displace the presumption under UCPR r 42.19 also displace any basis for an order for indemnity costs. I do not accept Mr Hallahan's submission that the Liquidator's "manifestly unreasonable conduct" has caused MD Brick to incur unnecessary legal costs, where it does not seem to me that the Liquidator's conduct was unreasonable, still less that it was manifestly so. There is no basis, in my view, for an order that the Liquidator pay MD Brick's costs on an indemnity basis, or that he do so personally and without recourse to the Company's assets.
[4]
Orders
I am satisfied that the presumption as to costs under UCPR r 42.19 has been displaced, and there should be no order as to costs as between the Plaintiff and MD Brick in these proceedings. I will also make no order as to the costs of the costs application in these circumstances.
I order that:
1. There be no order as to costs as between Jason Porter as liquidator of Harmony Homes Pty Ltd (in liq) and MD Brick (NSW) Pty Ltd in these proceedings.
[5]
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Decision last updated: 29 March 2023