Blackadder v McQuinn & Ors

The form of the declaration

1. I said in the Principal Judgment: "375 Domenic sought an order that CZAPL pay him the amount he would have received if he had signed the deed of release. The difficulty is that the only basis on which he contended such an order should be made was under the Court's wide power to make orders where it is satisfied there was oppression. The Court has not found any such oppression. 376 However, there does not appear to be a dispute that he is entitled to the money from CZAPL, which he would have received if he had signed the Release ($390,097.39). If the Court is correct that is not a matter of dispute, the Court will make a declaration that CZAPL owes Domenic that amount and will afford Domenic and other interested parties (including the soon to be liquidators) an opportunity to be heard as to whether any further order should be made."
2. Mr Morahan (while still acting for both Twinkledom and Busy Traveller) proposed that the Court should declare that "Carzapp Pty Ltd is indebted to Twinkledom Pty Ltd in the sum of $390,097.39". A declaration in those terms was not opposed by Graham and Marcus.
3. Mr Rosenblatt, for the Administrators, submitted that the appropriate declaration should be in terms that Twinkledom was to be admitted to proof in the winding up of CZAPL in the sum of $390,097.39. He submitted that this was a more accurate reflection of Twinkledom's rights, as they now were, and would avoid anyone (especially Domenic) being under the misapprehension that Twinkledom was entitled to and would in fact be paid that amount in the winding up of CZAPL.
4. In reply, Mr Morahan submitted that the declaration which he had proposed on behalf of Twinkledom reflected what was in substance an uncontested fact during the hearing. He also argued that Domenic was under no misapprehension and that he understood that a declaration of indebtedness in a particular amount did not mean that was the amount Twinkledom would receive in the winding up.
5. The Court has concluded that the form of declaration proposed by Twinkledom is to be preferred. The reason for this is essentially the first of the reasons proposed by Mr Morahan. The uncontested fact in the proceedings and which, in any event, was made out by the evidence, was that Twinkledom was entitled to receive $390,097.39 from CZAPL. No issue of admissibility to proof in the winding up was raised by any of the parties. That is unsurprising, because proving in the winding up may be a consequence of these proceedings but formed no part of their subject matter.
6. The Court will therefore declare the existence of the debt between CZAPL and Twinkledom. Mr Rosenblatt did not dispute that Twinkledom would be entitled to prove in the winding up of CZAPL for the debt as declared by the Court, but what dividend Twinkledom might ultimately receive in respect of that debt would be a matter for the working out of the winding up in accordance with the ordinary rules for payment of unsecured creditors. The Court accepts that Domenic understands that to be the case.

Apportionment between Twinkledom and Busy Traveller

1. At the resumption of the costs hearing, Mr Livingston of Counsel informed the Court that Twinkledom and Busy Traveller had agreed between themselves that any costs which they had to pay should be apportioned as to 90% and 10% respectively. While that reflected what might be called an indemnity agreement as between the plaintiffs, Mr Livingston and Mr Morahan also submitted that the Court should order the plaintiffs to pay costs in those proportions. Such an order would disrupt what would otherwise be the usual situation that the plaintiffs would be jointly and severally liable for costs to those parties whose costs they were ordered to pay.
2. The defendants resisted any such apportionment as between them and the plaintiffs. Mr O'Mahoney submitted that the appropriate course was to treat the two plaintiffs as one for the purposes of the litigation. They ran the matter together and were commonly represented. Domenic and Dr O'Connor were key witnesses in each of the cases advanced by them.
3. The Court does not accept this submission. It would be a seriously unjust outcome for Busy Traveller to be liable to the relevant defendants for all of their costs. This is because, as I said in paragraph [2] of the Principal Judgment, "Reduced to essentials, these proceedings concern a dispute between three company directors, Domenic Ruberto, Marcus Lasarow and Graham Meyerowitz". Dr O'Connor, through Busy Traveller, was far from being a principal protagonist. As events unfolded his role was in the nature of an honest broker or mediator between the warring directors before he abandoned that task as hopeless.
4. Quite apart from the factual situation, I accept Busy Traveller's submission that as a matter of law nearly all of the case was taken up by Twinkledom's oppression suit, claims of breach of the Shareholders' Agreement and challenging the appointment of the Administrators. Busy Traveller was not a party to the Shareholders' Agreement, had no standing to (and did not prosecute) the oppression proceedings and, if it did anything at all in relation to the appointment of the Administrators, it was no more than to support the position put on behalf of Twinkledom.
5. Legally, factually, and as a matter of quantum, Busy Traveller was in a quite different (and very much smaller in every respect) position in the litigation when compared to Twinkledom. So much is apparent from these conclusions in the Principal Judgment: "377 Dr O'Connor seeks an order that he be paid what was offered by CZAPL if he had signed the Release ($46,306.52). However, neither the Amended Statement of Claim nor the submissions made on his behalf identify a legal basis for this entitlement given that he was not a shareholder in CZAPL. 378 There can be no doubt that Dr O'Connor, like the other parties, would have been paid had he signed a deed of release. However, as a matter of law the payment proposed to Dr O'Connor from CZAPL was either a gift or a contractual offer that he would be paid the money on condition and in consideration for him entering into a deed of release. Dr O'Connor has failed to demonstrate any legal basis on which he could enforce such a gift or unaccepted offer. It will be a matter for the soon to be liquidators to determine whether Dr O'Connor should in all the circumstances nevertheless be permitted to prove he is entitled to the payment in the liquidation of CZAPL. 379 The parties gave no detailed attention to how Domenic and Dr O'Connor had a presently enforceable right to receive what was intended to be paid to them as distributions to unitholders from the CZAUT ($68,200 to Domenic and $7,260 to Dr O'Connor). There is no basis in the evidence to find a formal resolution on the part of CZAH as trustee of the CZAUT to make distributions to anyone. Insofar as it might be said there was somehow an informal resolution, that resolution was for a distribution on condition of the provision of a deed of release. There was no argument addressed as to whether such a condition was an improper exercise of the trustee's powers (assuming they had in fact been exercised). Assuming the validity of that condition, neither Dr O'Connor nor Domenic has satisfied it, so they are not assisted by the fact that distributions were made to those unitholders who executed deeds of release. 380 In the Amended Statement of Claim Dr O'Connor claimed he was owed the distribution as a debt, relying on clause 12.1(g) of the Trust Deed, which provided that a "requirement" in the Trust Deed to pay any amount to a unitholder could be effected "by setting the amount aside to a separate account in the books of the Trust in the name of the unitholder whereupon such moneys will constitute a debt due to the unitholder at call and will not bear interest". However, no such "requirement" was identified. Even more fundamentally, neither Dr O'Connor nor Domenic could point to "a separate account in the books of the" CZAUT referring to the proposed payments to them."
6. Having regard to the claims for which Busy Traveller was responsible and the way in which the case on its behalf was conducted, doing the best I can and as a matter of impression, I am satisfied that 10% of the overall proceedings can be attributed to Busy Traveller and 90% to Twinkledom. In reaching this conclusion I have given no weight to how the plaintiffs agreed to divide any costs liability for the proceedings between themselves. It is no more than a coincidence that the Court has come to the same conclusion as to the plaintiffs' respective responsibility for the costs of the proceedings as the plaintiffs have themselves.

Graham and Marcus' application for indemnity costs

1. Graham and Marcus applied for indemnity costs against the plaintiffs on and from 11 July 2018. This submission was based on a series of Calderbank letters dated 13 June 2018, 12 July 2018, 13 July 2018, 24 July 2018 and 7 August 2018. Because of their length, I have not reproduced those offers in the body of these reasons. The relevant part of each letter forms part of Schedule A to these reasons. There was no dispute between the parties as to the applicable legal principles.
2. The offers may be summarised as: 1. On 13 June 2018, Graham and Marcus made a "walk away" offer subject to a deed of release being entered into and the proceedings being discontinued against them with no order as to costs. That offer was expressed to be open for 28 days and in reliance on the principles in Calderbank v Calderbank to ground an application for indemnity costs. 2. An offer was made on 12 July 2018 to pay the plaintiffs $185,000 and to guarantee a further $330,000 to them if that amount was not received from the administration process, on terms that there be a deed of settlement with full mutual releases and the proceedings being discontinued with no order as to costs as against Marcus and Graham. This offer requested a response "as soon as possible" (being made on the Thursday before the trial was to start the following Monday) and did not make express reference to Calderbank principles. 3. The parties had engaged in an unsuccessful mediation on 9 July 2018, being one week before the hearing was fixed to commence. On 13 July 2018, Graham and Marcus offered to settle the proceedings by paying to the plaintiffs $530,000 conditional upon the plaintiffs agreeing to a deed of company arrangement to return control of the Carzapp Companies to Graham and Marcus, with Domenic to resign his directorships and shareholdings in those companies, and with the proceedings to be discontinued with no order as to costs and a deed of release being executed. This offer was expressed to be open until the commencement of the hearing on 16 July 2018 and referred to the possibility of a claim for costs on the indemnity basis. This offer was copied to the solicitors for the Administrators and included a draft deed of release to which the Administrators were intended to be parties. 4. The proceedings stood adjourned between 20 July 2018 and 1 August 2018. On 24 July 2018 Graham and Marcus offered to settle the proceedings by paying $100,000 to the plaintiffs and otherwise essentially on the same terms as the offer of 13 July 2018. This offer was copied to the solicitors for the Administrators and included a draft deed of release to which the Administrators were intended to be parties. The offer was expressed to be open until 5.00pm on 30 July 2018, stated that it was made in accordance with Calderbank principles and would be relied upon in a claim for indemnity costs.
3. Because of the view to which the Court has come, it is only necessary to consider the Calderbank offer of 13 June 2018, being the "walk away" offer (the "First Offer").
4. Graham and Marcus submitted that First Offer justified an award of indemnity costs because it was unreasonable for the plaintiffs not to have accepted it for these reasons: 1. The term of the First Offer was far more favourable to the plaintiffs than the result of the Principal Judgment. 2. The offer was expressed to be made in accordance with the principles in Calderbank and foreshadowed the making of an application for indemnity costs. 3. The offer was expressed in clear terms. 4. The offer represented a genuine compromise. 5. The offer was made at a time when the proceedings were sufficiently advanced to enable its attractiveness to be considered by reference to the merits of the parties' respective cases. 6. The offer was open for 28 days, which was clearly an adequate time within which the plaintiffs could consider the merits of the offer. 7. The offer clearly expounded the commercial and legal reasonableness of the offer.
5. In addition to relying specifically upon the First Offer, Graham and Marcus called in aid the plaintiffs' conduct more generally in the proceedings as supporting an order for indemnity costs. The three matters relied upon were: 1. The Court's finding that Domenic's behaviour had been "unreasonable and obstructive" and "abusive and destructive" and had caused the demise of the business venture, and which had been demonstrated during the course of the trial by Domenic's behaviour towards Graham and Marcus personally. 2. The unsatisfactory and incoherent conduct of the litigation, noting the plaintiffs' own counsel's description of the proceedings as being "a work in progress" and that the Court had accepted there had been a fundamental lack of clarity about the relief sought by the plaintiffs, which had made the case longer and more complex than it needed to have been. What had been a trial listed for five days ended up taking up nine days of Court time and producing lengthy and complex written submissions. 3. There had been two unsuccessful applications to alter the case in fundamental respects which had added unnecessarily to the length and cost of the unsuccessful proceedings.
6. The plaintiffs submitted that it was not unreasonable for them to have rejected the First Offer for these reasons: 1. The offer was characterised as being a confusing offer which was incapable of acceptance. The confusion was said to arise from the fact that it left uncertain how much the plaintiffs might receive (if anything at all) from the administration. 2. The offer was made subject to the parties entering into a deed of release.
7. In reply, Graham and Marcus submitted: 1. The First Offer was not unclear or uncertain and was obviously capable of acceptance. The plaintiffs were sophisticated litigants represented by solicitors and counsel throughout and, insofar as there was any lack of clarity about the offer (which there was not), no clarification had been sought. 2. The plaintiffs should not be heard to complain of a lack of certainty or clarity in the First Offer in circumstances where the relief sought by the plaintiffs was itself uncertain and ambiguous throughout nearly all of the litigation.
8. Generally for the reasons advanced by them, the Court accepts Graham and Marcus' submission that the plaintiffs refusal to accept the First Offer was unreasonable and that, therefore, in the circumstances it is an appropriate exercise of the Court's discretion as to costs to order the plaintiffs to pay Marcus and Graham's costs on the indemnity basis on and from 11 July 2018 (being the last day on which the First Offer was open for acceptance).
9. I do not accept the plaintiffs' submission that there was any lack of clarity about the terms of the offer or that it was incapable of immediate acceptance. The offer is clearly expressed in paragraph 17 of the letter (see Schedule A to these reasons). The fact that it is subject to the parties entering into a deed of release "which fully and finally settles all claims arising from these proceedings" does not detract from that conclusion.
10. Furthermore, in my respectful view, the complaint that the First Offer did not give certainty as to what the plaintiffs might receive out of the administration is misconceived. That was not something which Marcus and Graham could guarantee. Nor, importantly, was it part of the claim which the plaintiffs brought against Graham and Marcus.
11. At the time of the First Offer, the proceedings were being conducted by reference to the statement of claim which had been filed on 13 December 2017. A perusal of that statement of claim and, in particular, to the relief sought, would leave the reader with no doubt that the focus of the claim against Marcus and Graham was that they had engaged in oppressive conduct in the affairs of the Carzapp Companies against Twinkledom. Incidental relief was sought against Marcus and Graham in relation to the payment to Twinkledom and the ex gratia payment to Busy Traveller.
12. The First Offer, in reciting the likely levels of recovery from the administration, set out the commercial and legal reality with precision and prescience. It made the obvious point that whatever the plaintiffs' recovery from the administration might be, it would be reduced by ongoing fees incurred by the Administrators if the litigation continued. Insofar as the appointment of the Administrators was concerned, it asserted what was ultimately found to be the case, namely that they had been validly appointed. The letter went on to set out, again correctly in the light of events, the difficulty faced by Busy Traveller in making a claim to enforce what was an ex gratia payment. It gave reasons why the claim of shareholder oppression would, as it did, fail.
13. The First Offer was an entirely reasonable offer for Marcus and Graham to make to settle the dispute as between them and the plaintiffs. For the reasons I have set out above and those advanced by Marcus and Graham, I am satisfied that the plaintiffs' refusal to accept that offer was unreasonable, such that they should be ordered to pay indemnity costs from the date the offer closed.
14. In reaching this conclusion I am fortified by the first and, especially, the second of the matters set out in paragraph [23] above and relied upon by Marcus and Graham. Those matters support the conclusion which the Court has reached but would not, in and of themselves and without more, justify that conclusion. Nor do I take them into account as a justification for an indemnity costs order as some form of punishment. That is not a proper reason to make an indemnity costs order.
15. I also take into account the plaintiffs' failure to engage with (whether by way of inquiry or counter offer) either the First Offer or any of the subsequent offers made by Marcus and Graham, each of which the Court accepts was a reasonable offer in the commercial and litigious circumstances in which the parties found themselves. That conduct, and the unsatisfactory way in which the case was presented, all bespeak a fundamental unreasonableness in the plaintiffs' approach to the litigation. That pattern of conduct fortifies the Court's conclusion that the plaintiffs' failure to accept or otherwise engage with the First Offer was itself unreasonable conduct amongst a number of examples of unreasonableness over the course of the litigation.

Set-off

1. Graham and Marcus submitted that, in the circumstances of this case, either: 1. any amount payable by the Administrators to the plaintiffs should be paid to Graham and Marcus as part payment of costs owed to them by the plaintiffs; or 2. any order requiring the Administrators to make any payment to the plaintiffs should be stayed until such time as the plaintiffs satisfy the costs order in favour of Graham and Marcus.
2. This application was based on their concern that Twinkledom would receive substantial funds from the winding up of the Carzapp Companies but that Graham and Marcus, who had been put to considerable trouble and expense in defending unmeritorious litigation, would be left out of pocket by reason of the plaintiffs' non-payment of costs. Their fear as to non-payment of costs was based on the evidence of the history of the relationship between Domenic on the one hand and Graham and Marcus on the other.
3. This application gave rise to detailed legal argument whether the Court has power pursuant to the principles of set-off to grant Graham and Marcus the relief which they sought. They drew attention to statements of principle which they submitted made it clear that the Court did have such power. The plaintiffs submitted, among other things, that the Court did not have such power because the principles of set-off could only be applied against judgments for debts or damages and that set-off could only be invoked between the same parties. Graham and Marcus took issue with these and other arguments raised by the plaintiffs.
4. While I very much incline to the view that Graham's and Marcus' submissions are correct and that the Court does have power to order such a set-off, in particular notwithstanding lack of identity of the parties and the absence of a presently liquidated claim for costs, it is not necessary for me to resolve the question. This is because, even assuming the Court has such power, I would not, in the circumstances of this case, exercise the Court's discretion to order any such set-off.
5. Insofar as Twinkledom is concerned, the evidence suggests that most, if not all, of any payment which the Administrators in their capacity as liquidators may make to Twinkledom will be in respect of the $390,097.39 debt which is the subject of the declaration referred to in paragraphs [7] to [12] above. It would be inappropriate to order any set-off in relation to that sum where, as I have recorded above, Twinkledom's entitlement to that amount was not the subject of any dispute between the parties. Nor does the amount have any other sufficient connection to the dispute between the parties which the Court has been called upon to resolve, other than that it is an incident of the final working out of the relationship between them.
6. Putting it another way, there is an insufficient nexus between that amount and the litigation which has given rise to the costs award. Some such nexus would be required for the Court to exercise its discretion to give preferential treatment to Graham and Marcus in respect of what otherwise is a simple debt for costs. In reaching this discretionary judgment I have also taken into account that it is open to Graham and Marcus to protect their interests, if so advised, by applying for an asset preservation order (which, as a matter of principle, is available in relation to costs orders) or by way of a garnishee order.
7. In relation to Busy Traveller, the position is even more tenuous. There is no evidence that the Administrators will ultimately be paying Busy Traveller anything. Nor is there any evidence that there will be anything else to set-off. The amount to which Busy Traveller may be entitled, representing the ex gratia payment, will come from the newly appointed trustee of CZAUT (see paragraphs [382] to [386] of the Principal Judgment). That trustee (who has since been appointed) has not been a party to the proceedings and there is no evidence one way or another whether the trustee will exercise his discretion to make any such payment to Busy Traveller.

The Release

1. It will be recalled that an important factual element in the dispute between Graham, Marcus and Domenic was the requirement for the relevant parties to execute the Release. The deed of release executed by Media Tag, Graham and Marcus, for example, was in these terms: " Deed of Release THIS DEED is made Today 1st June 2017. BY 1. Media Tag Pty Ltd (ACN 128 358 270); and 2. Graham Meyerowitz; and 3. Mark Lasarow jointly and severally (Releaser) AND CARZAPP PTY LTD (ACN 607 358 887) of C/- Accounting for your Future, Suite 17, 110 -126 Botany Road, Alexandria, NSW 2015 (Company) Terms and Conditions 1 Definitions and Interpretation 1.1 Definitions The following definitions apply in this deed unless the context otherwise requires: Claims means actions, allegations, appeals, complaints, rights of action, causes of action, arbitrations, debts, liabilities, dues, costs, claims, demands, verdicts, loss of any kind whatsoever and judgments either at law or in equity or arising under a statute, howsoever arising. Released Parties means all of the following: (a) the Company; (b) Carzapp Trading (Aus) Pty Ltd (ACN 613 155 561); (c) Carzapp Holdings Unit Trust; (d) Carzapp Holdings Pty Ltd (ACN 612 819 548); (e) Graham Meyerowitz (Graham); (f) Mark Lasarow (Mark) (g) Domenic Ruberto (Domenic); and (h) In respect of any of Graham, Domenic and Mark, the release applies also to trusts and companies in which Graham or mark are trustees, or officers. Settlement Sum means an amount of $390,097.39. 2 Settlement Amount 2.1 The parties hereby agree that the Company must cause the payment of the Settlement Sum to the Releaser within 7 days of Today. 2.2 Payment under clause 2.1 will be made by EFT to the Releaser's nominated account. 3 Release 3.1 The Releaser agrees and acknowledges that: (a) the payment of the Settlement Sum in clause 2.1 represents the full and final discharge of all money or services owed or potentially owed to it by any of the Released Parties, and the Releaser is entitled to no further money or services by any of the Released Parties; (b) it has no Claim against any of the Released Parties in respect of any conduct or events occurring prior to Today; (c) to the extent that any such Claim or right of action referred to in subclause (b) exists or may exist against any of the Released Parties, the Releaser; (i) irrevocably waives such Claim or right of action; (ii) releases and forever discharges all of the Released Parties from all and any liability in respect thereof; and (iii) indemnifies, jointly and severally, the Released Parties against any such Claims; (d) it must take all necessary action (including using any voting power or practical influence it may have in relation to any of the Released Parties) in favour of the Released Parties and to give effect to these releases in clause 3.1. (e) The Releaser grants this release in his personal capacity and also in his capacity as shareholder and/or trustee. For avoidance of doubt, the release covers any right to receive any distribution, dividend or capital return, as well as any payments for goods or services. (f) The Company holds the benefit of this release for each of the Released Parties (other than the Company) on trust. 4 Effect of this deed 4.1 This deed shall bind each party and any executor, administrator, transferee, assignee, receiver, liquidator or trustee in bankruptcy appointed in respect thereof. 4.2 This deed may be pleaded as a full and complete defence by any of the Released Parties to any Claims, actions, suits or proceedings commenced, including arbitration proceedings, continued or taken by the Releaser or on the Releaser's behalf in connection with any of the matters referred to in this deed, except insofar as is necessary to enforce the terms of this deed. If the Releaser commences or continues an action it will indemnify the Released Parties for any loss or expense (including costs) incurred by them resulting from the breach. 5 Power of Attorney 5.1 The Releaser hereby irrevocably appoints Graham Meyerowitz and Mark Lasarow (Attorneys) as its attorneys in accordance with this clause 5. 5.2 The Attorneys jointly and severally have the power to make any decision, cast any vote, amend or execute any document in relation to any matter (of any kind) in connection with any of the Released Parties. This also constitutes the appointment of the Attorneys as the proxy of the Releaser in relation to the Releaser's right and entitlements over any shares or units it may hold in any of the Released Parties, instead of the Releaser, who will not deal with any such units or shares and will not use any power associated with them without the written consent of an attorney. 5.3 The powers and authorities given by this deed and will remain in full force until the relevant Released Parties (other than natural persons) are wound up or dissolved, and ASIC records are updated. 5.4 The Releaser hereby acknowledges: (a) the appointment of the ATTORNEYS under this deed is made for valuable consideration; and (b) this power of attorney is an "irrevocable power of attorney" for the purposes of the Powers of Attorney Act 2003 (NSW). 6 Third-Party Claims 6.1 If any of the Released Parties notify the Releaser in writing of a Third-Party Claim, then; (a) the Releaser must return the Settlement Amount to the Company for the purpose of resolving the Third-Party Claim only. The relevant Released Party is entitled to resolve the Third-Party Claim at its sole discretion. (b) The Releaser is entitled to receive the balance of the Settlement Amount after conclusion of the Third-Party Claim. 6.2 Nothing in this clause 6 affects the releases provided in clause 3. 7 General 7.1 The construction, validity and performance of this deed shall be governed in all respects by the law of New South Wales. 7.2 Each Party to this deed warrants to each other that the Party has received or taken or has had the opportunity to receive and pay for independent and financial advice before executing this deed and has entered into this deed freely and willingly. 7.3 Each party must do and perform all such other acts, matters and things as may be necessary or convenient to implement provisions of this document so as to give effect to the intentions of the Parties as expressed in this document. 7.4 If any clause or subclause of this deed is held to be invalid or unenforceable for any reason, it shall be severable and shall not affect the remaining provisions of this deed. 7.5 A waiver by any party of any breach or a failure to enforce or to insist upon the observance of a condition of this deed will not be a waiver of any other or of any subsequent breach. 7.6 This deed may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and it shall not be necessary in making proof of this deed to account for more than one such counterpart. 7.7 This deed constitutes the entire agreement of the parties relating to this deed and supersedes all prior understandings, negotiations, agreements (written or oral, express or implied). 7.8 This deed must not be amended, except by instrument in writing signed by the Parties hereto and stating the parties' intention to amend this deed accordingly. 7.9 Each natural person executing this deed warrants and represents that they have authority to enter into this deed on behalf of the relevant party."
2. Marcus and his interests entered into a deed in identical terms, save for a settlement sum of $68,200.
3. On the costs hearing, Twinkledom and Domenic tendered evidence to show that they had recently purported to notify Graham and Marcus under clause 6.1(a) of the Release executed by them to the effect that the debt of $390,097.39 owing by CZAPL to Twinkledom was a "Third-Party Claim" within the meaning of that clause. Twinkledom submitted that, therefore, each of Graham and Marcus was obliged, by clause 6.1(a), to return to CZAPL his settlement sum ($68,200 and $390,097.39, respectively) for the purpose of resolving the "Third-Party Claim". It was submitted that in order to ensure the efficacy of the Court's orders, and to do justice between the parties, any costs order in favour of Graham and Marcus should be conditional upon them complying with their respective obligations under clause 6.1(a) of the Release. It was said that without such an order, it appeared likely that Twinkledom would recover a far smaller proportion (if any) of the debt owing to it by CZAPL because the amount of any dividend in the winding up of that company would almost certainly be less than the full amount of the debt.
4. In response, Graham and Marcus submitted: 1. Clause 6.1 did not operate in the way suggested by Twinkledom. The term "Third-Party Claim" was not defined and, it was submitted, the assertion by Twinkledom that CZAPL was indebted to Twinkledom for the sum of $390,097.39 "as a return of capital" was not a "Third-Party Claim" and did not come within the scope of clause 6.1. 2. The construction of the Release was not an issue to be decided in the context of a decision on costs when the substantive issues between the parties had already been determined. This issue should either have been raised as a substantive issue in the original proceedings or could be the subject of separate proceedings. 3. Twinkledom was not a party to the Release and, as such, was not in a position to seek performance or any remedy for any breach of clause 6.1. 4. While not suggesting the claim was time barred, as a matter of discretion the Court should not entertain the claim in the context of a costs argument because almost three years had passed since entry into the Release in the circumstances said to give rise to the alleged "Third-Party Claim". 5. Twinkledom had not identified any basis in principle as to why Graham and Marcus' entitlement to receive payment of their costs should be suspended pending their compliance with the alleged requirement under clause 6.1.
5. Twinkledom's response to these submissions was: 1. It was clear that Twinkledom was a "third party" for the purposes of clause 6.1 of each of the deeds because Twinkledom was not a party to the Release. As the term "Third-Party Claim" was otherwise not defined, there was no reason to interpret it as being subject to any unexpressed limitations and full effect should be given to the ordinary meaning of the language used. 2. The argument as to the proper construction of clause 6.1 fell within a narrow compass. It raised a pure question of interpretation which did not depend on any evidence or findings of fact. The Court had received the benefit of submissions regarding the competing interpretations and it would be efficient, proportional, and minimise expense for the parties if the Court now determined the question of construction. 3. If, which was not conceded, Twinkledom lacked standing to seek any remedy for any breach of clause 6.1, then this was a further reason to impose the condition sought by Twinkledom on the costs order. It would be unjust to make an unqualified costs order in favour of Graham and Marcus without holding them to their bargain by requiring them to comply with their alleged obligations under clause 6.1(a).
6. The Court rejects Twinkledom's attempt to rely on the Release for three reasons.
7. First, the Court has already rejected an informal attempt by Twinkledom to raise the question of the effect of the Release in the substantive proceedings. It would be inconsistent with the Court's earlier ruling for Twinkledom to be allowed to do so now, in the context of the costs argument.
8. I observed in paragraph [199] of the Principal Judgment that the plaintiffs' closing written submissions included this paragraph: "227. Pursuant to the Deeds of Release, in which the Fourth and Fifth Defendants contracted with the Companies, the Fourth and Fifth Defendants should be ordered to pay back to the Companies the sums of $458,297.39 each until the resolution of the Twinkledom and Busy Traveller claims, which will probably be finalised by an ultimate distribution to the shareholders by the liquidator."
9. I went on to say: "202 I propose to consider only those claims for relief set out in the Amended Statement of Claim. In practical terms this means I will not consider the claim made in paragraph 227 of the plaintiffs' closing submissions. That claim had not been pleaded, formed no part of the case and, in any event, the plaintiffs do not have standing to seek that relief in relation to deeds of release to which they are not a party."
10. Second, I accept Graham and Marcus' submission that it would be inappropriate for the Court to make a final determination as to the proper construction of clause 6.1 in the context of a costs argument. I do not accept Twinkledom's submission that the question is only one of interpretation which does not depend on any evidence or any finding of fact. Precisely because "Third-Party Claim" is undefined, its proper construction would require an examination of the background facts known to the parties at the time, with submissions made with a focus on the proper construction of the clause in the light of those, and any other relevant, facts. It would be contrary to the proper principles of contractual interpretation to take up Twinkledom's implicit invitation to construe the clause as words on a piece of paper devoid of the context in which they came into existence to record the parties' bargain.
11. Furthermore, bearing in mind the facts of which I am aware through the evidence that was adduced at the main hearing (most of which are recorded in the factual narrative in the Principal Judgment), I have no doubt that it would risk serious injustice to all parties if the Court were to embark upon the construction of clause 6.1 without the benefit of facts and cross-examination directed to the circumstances surrounding the creation and execution of the Release.
12. Even if the Release were to be construed within its four corners, what is and is not a "Third-Party Claim" is not, in my respectful opinion, as obvious as Twinkledom's submissions suggest. Given the matter may be litigated in the future, I will confine my observations to two examples of first impression.
13. First, even in construing the Release on its face, it seems to me that each party would have to contend with the, prima facie, somewhat curious sub-clause (h) of the definition of "Released Parties" that "in respect of any of Graham, Domenic and Mark, the release applies also to trusts and companies in which Graham or mark (sic) are trustees, or officers". To my mind, at least, there is a real question about what is to be made of Domenic being mentioned in the first collocation of names, but not the second.
14. Second, the question of Twinkledom's standing to seek relief in relation to the Release may depend upon the precise nature of the right or entitlement it is seeking to enforce or protect. This is not a matter that has been developed in the submissions and should only be resolved in the context of a substantive hearing.
15. Finally, I accept Graham and Marcus' submission that, even if Twinkledom is correct about the proper construction of clause 6.1, Twinkledom has failed to demonstrate any reason or principled basis why Graham and Marcus' alleged obligation to repay funds should have any impact upon their right to receive their costs of these proceedings. Twinkledom has failed to demonstrate any, or any sufficient, nexus between any contested issue in these proceedings and any alleged obligation under clause 6.1 that would warrant the Court linking the performance of one obligation (an entitlement to costs) to the other (the obligation under clause 6.1).

The Administrators' costs - introduction

1. The Administrators submitted that: 1. The plaintiffs should pay the Administrators' costs and the costs of the first to third defendants (being the Carzapp Companies). 2. Those costs be paid on the indemnity basis. 3. The administrators as liquidators of the Carzapp Companies should be entitled to off-set any costs liability of the plaintiffs owed to them against any dividend payable to either of the plaintiffs in the winding up of any of those companies.
2. Before turning to consider those submissions, three preliminary points should be made.
3. First, notwithstanding that the solicitors for the Administrators also made their application for costs on behalf of the three Carzapp Companies, the Court does not propose to make any order in favour of those companies. As is usual in cases of this kind, the companies played no active role and it would not be appropriate to make any order for their costs.
4. Second, in circumstances which I will set out below, the Administrators have brought a cross-claim, primarily for declarations that their appointment as joint and several voluntary administrators of the Carzapp Companies was valid. Correctly, in my respectful opinion, the administrators did not press for that declaration to be made. The plaintiffs' challenge to the validity of the appointment failed. The administrators have become the liquidators of those companies. There is no utility in a declaration as to the validity of their appointment as administrators.
5. Third, in their original submissions prepared for the first of the costs hearings, the Administrators also sought personal costs orders against Domenic and Dr O'Connor. The claim against Dr O'Connor was not pressed at the first hearing and the claim against Domenic was abandoned before the resumption of the costs hearing.
6. To understand the Administrators' arguments, it is necessary to say something about the role of the Administrators in the proceedings.
7. The proceedings were commenced on 7 September 2017 by originating process by the plaintiffs, and included a claim seeking to restrain the Administrators.
8. On 21 September 2017, the plaintiffs were directed to file and serve a statement of claim by 12 October 2017 (which they did not in fact do until 13 December 2017).
9. On 22 September 2017, a notice of appearance was filed on behalf of the Carzapp Companies and the Administrators. This was an unrestricted (as opposed to submitting) appearance.
10. On 18 April 2018, the Administrators filed an interlocutory process in related proceedings seeking declarations regarding the validity of their appointments to the Carzapp Companies.
11. On 20 April 2018, the first directions hearing was held after the filing of the plaintiffs' statement of claim before the Corporations List Judge, Black J. There was what the solicitor for the administrators referred to as a "colloquy" between his Honour and the legal representative of the Administrators as to how to advance the two related matters. This resulted, in accordance with comments made by his Honour, in the Administrators agreeing to file a cross-claim in the present proceedings instead of maintaining the interlocutory process in the related proceedings, and to proceed in a neutral way in accordance with what was described as the "usual course" for an administrator on a challenge to the validity of his appointment.
12. These orders were made by consent: "2. The sixth defendant and the seventh defendant shall have leave to file and serve a cross claim pursuant to s 447A and 447C(2) of the Corporations Act, 2001 seeking declarations regarding the validity of their appointment to the First Defendant, Second Defendant and Third Defendant (Cross-Claim), by 4 May 2018. 3. Without prejudice to the leave granted in order 2 above, note that the Sixth and Seventh Defendants do not propose to take an active role in the defence of the plaintiffs' claim and submit to any order of the Court in that claim except as to costs."
13. During the course of these proceedings the Administrators served an affidavit sworn by one of them, including a folder of documents.
14. For the final hearing, the Administrators did not brief counsel and were ably represented by the solicitor with carriage of the matter, Mr M Rosenblatt. Mr Rosenblatt attended on the first day of the final hearing.
15. During the course of the opening by the plaintiffs' counsel, numerous criticisms were levied at the Administrators. However, ultimately counsel for the plaintiffs clarified that his clients would not be pressing for any adverse findings in relation to the conduct of the administration. Mr Rosenblatt informed the Court that: "By virtue of our submitting position, all I am really here to do, subject to what I will say in a moment, is to rely on the written submissions and to read a small amount of evidence which I understand is not objected to."
16. As matters turned out, counsel for the plaintiffs did take objection to the Administrators' evidence, a subject which took up substantial time on day eight of the hearing.
17. During the course of the first day of the hearing, Mr Rosenblatt asked that he be relieved from attending so that a junior solicitor could attend on a watching brief, while reserving the right to make closing submissions. The plaintiffs did not object to that course. At the request of the Court, Mr Rosenblatt remained for the first day of the hearing. Thereafter, on days two to seven of the hearing, the administrators were represented by a junior solicitor on a watching brief. On the eighth day of the hearing Mr Rosenblatt returned to read the evidence. Another solicitor attended on the last day of the hearing.
18. In paragraph [395] of the Principal Judgment I concluded: "395 I do not accept that the administrators have acted in a partisan way in these proceedings. My impression was that they acted scrupulously to maintain a neutral position but being available to assist the Court if required."
19. In the context of the present costs debate I add these further observations. The level of legal representation for, and degree of participation in the proceedings by, the Administrators was proportionate and appropriate. In particular, I am satisfied that it was necessary for the Administrators to have a junior solicitor attend the hearing on a watching brief because the relief sought in the proceedings was a "work in progress" and there was no certainty that the matter would follow a predictable course from day to day.

The Administrators' costs - costs generally

1. Insofar as costs follow the event, the Administrators submitted that the validity of their appointment had been vindicated. That vindication was the event that dictated that the plaintiffs should pay the Administrators' costs. They drew attention to the decision of Barrett AJA in In the matter of Condor Blanco Mines Ltd (No 2) [2016] NSWSC 1304 ("Condor Blanco") as authority for the proposition that where the appointment of an administrator is challenged, then if the administrator plays a constructive role in the proceedings without abandoning a position of essential neutrality, the administrator should be entitled to his costs. They also relied on the decision of Hiley J in the Supreme Court of the Northern Territory as an example of a case where, applying the principles set out in Condor Blanco, a costs order had been made in favour of an administrator: Blackadder v McQuinn & Ors (No 2) [2017] NTSC 57.
2. The plaintiffs submitted that no order should be made in respect of the Administrators' costs. They submitted that the Administrator should have filed a submitting appearance or, at least, have taken a submitting role in the proceedings. There was, it was said, no occasion for the Administrators to become active participants because the issues were being fully and capably ventilated by the plaintiffs, of the one part, and Graham and Marcus, on the other part.
3. In relation to Condor Blanco, the plaintiffs submitted that while the Court had power to make a costs order in favour of an administrator in a suitable case, this was not such a case because the active contest between the plaintiffs and other defendants made the participation of the Administrators unnecessary. They also submitted that the administrators had impermissibly departed from a position of neutrality by initially pressing applications for personal costs orders against Domenic and, briefly, Dr O'Connor.
4. Condor Blanco concerned the challenge to the validity of the appointment of a voluntary administrator, Mr Calabretta. Barrett AJA ordered Mr Calabretta to pay one half of the plaintiff's costs of the proceedings because his Honour was satisfied that in certain respects Mr Calabretta had departed from an appropriate position of neutrality.
5. I respectfully agree with, and propose to apply, his Honour's analysis of the relevant principles (footnotes omitted): "The approach to the costs issues 4. The general rule with respect to costs is that, unless there is good reason to make some other order, the court is to order that costs follow the event: Uniform Civil Procedure Rules 2005 (NSW), rule 42.1. Subject to that (and to any other applicable provisions), costs are in the discretion of the court: Civil Procedure Act 2005 (NSW), s 98(1). 5. The rule that costs follow the event is predicated on an assumption that, as to a whole controversy or parts of it, one party will be successful in achieving an outcome against the opposition of another party. In a narrow sense, the "event" in this case was the making of the declaration of invalidity which, in turn, flowed from the conclusion that one of the directors of Condor who was party to the purported s 436A(1) resolution of 4 July 2016 (Mr Stops) did not, as at that date, hold a genuine opinion, formed in good faith, that Condor was insolvent or likely to become insolvent at some future time. That conclusion meant that the statutory pre-condition to appointment of an administrator prescribed by s 436A(1)(a) was not satisfied. The conclusion was one that Condor pressed upon the court. Mr Calabretta, according to his formal stance, did not advocate any contrary position. … 7. Each party accepts that this is not a case in which it is appropriate to approach the question of costs according to any narrow concept of "event" or by reference to success or failure on discrete aspects or issues. Condor refers to an acknowledged exception to the ordinary rule on costs, being an exception that applies to a liquidator, administrator or trustee in bankruptcy who is joined as a defendant and acts "appropriately" - and, conversely, that such an official who acts unreasonably in defending litigation may be made personally liable for costs. I did not understand the principles on which Mr Calabretta relied to be different. 8. Central to the exception applying to a liquidator, administrator or trustee in bankruptcy acting "appropriately" is the proposition that such an official is not personally concerned in the "event" and merely plays in the litigation a role that is commensurate with the responsibilities attaching to the office itself. Relevant principles, as they apply to a liquidator, are illustrated by cases in which a liquidator in a voluntary winding up is confronted by an application for compulsory winding up - a move, of course, that involves displacing of that liquidator. 9. The role of the liquidator in circumstances of that kind was described in Souster v Carman Construction Co Ltd [2000] BPIR 371 (at 372) in this way: "It is well understood that the role of the voluntary liquidator in a position like this is that of neutrality to assist the court. He should not be partisan and should not become involved in arguing the merits for or against the making of a winding up order." 10. Similarly instructive are observations in a Singapore case of the same kind. In Korea Asset Management Corp v Daewoo (Singapore) Pte Ltd [2004] SGHC 25; [2004] 1 SLR 671, V K Rajah JC said (at [72]): "The liquidators in this case ought not to have conscientiously opposed in their affidavit the granting of leave to the applicants to commence proceedings that might possibly displace them. This is jarringly at odds with what is expected of them in such an application. It is incumbent upon them in the circumstances merely to recite the relevant facts and to leave it to the court to decide the matter on its merits. The role of a liquidator in legal proceedings must be one of pure and utter impartiality." 11. Thus, where a liquidator in a voluntary winding up is confronted by an application for an order for winding up by the court and the installation of another liquidator in his or her place, the appropriate course is to adopt a stance of essential neutrality which assists the court, particularly by the volunteering of relevant facts. … 14. Among the findings recorded in the principal judgment is a finding that Mr Calabretta was not under any obligation to seek from the court a decision as to the validity of his appointment. He was without funds. Also, his fiduciary position would have precluded his adopting any adversarial stance in favour of the proposition that he had been validly appointed. That being so, there was necessarily an expectation that he should cooperate in a non-adversarial way once it became clear that Condor itself had decided to approach the court. 15. Since, as I have said, both parties were content to see the costs questions assessed by reference to an analogy with the case of a liquidator, administrator or trustee in bankruptcy joined as a defendant (and since submissions concentrated overwhelmingly on the reasonableness of various aspects of Mr Calabretta's conduct), I approach the matter of costs on the basis that, if Mr Calabretta acted in and about the litigation in a way that constructively facilitated resolution of the important issue of Condor's status and, in so doing, did not abandon a position of essential neutrality in favour of some partisan role, there is a case for making a costs order in his favour; but if he is seen to have overstepped that mark, it will be necessary to address the question whether, as Condor seeks, he should be ordered to pay personally some part of Condor's costs."
6. The Court has already found in the Principal Judgment that the Administrators did not act in a partisan way. I am satisfied that the Administrators "acted in and about the litigation in a way that constructively facilitated resolution of the important issue of [the Carzapp Companies'] status and, in doing so, did not abandon a position of essential neutrality in favour of some partisan role" (to adopt the language of Barrett AJA in Condor Blanco at [15]). Accordingly, the Court will exercise its costs discretion in favour of the Administrators against the plaintiffs (but in the proportions referred to in paragraph [18] above).
7. In reaching this conclusion, I have not overlooked the plaintiffs' complaint concerning the Administrators' short lived applications for personal costs orders. There are two reasons why I have concluded that conduct does not alter the exercise of the Court's discretion.
8. First, in practical terms the claims were only briefly pressed, although I accept that the plaintiffs would have been put to some relatively minimal expense in preparing a response to that particular application.
9. Second, and more importantly, what I shall refer to as the requirement for "essential neutrality" does not, as a matter of principle, extend to the question of costs. It is clear from the way that Barrett AJA approached the matter in Condor Blanco that attention is directed to the administrators' conduct of the litigation itself. It would make no sense to extend that principle to apply in a way that suggests that, lest they appear not to be neutral, liquidators or administrators are prevented from applying for such costs as they may be advised to which they are properly entitled, including personal costs orders.
10. Furthermore, making a costs application is an appropriate exercise of an administrator's or liquidator's duties. In the absence of any such application, an administrator's costs of the proceedings would fall within the general costs of the administration and be borne by all creditors. The return to them will be maximised if the administrator is entitled to, and seeks, that the responsible party (who in many cases may be a creditor) should be solely responsible for the administrator's costs.

The Administrators' costs - indemnity costs?

1. The Administrators submitted that they were entitled to their costs being paid by the plaintiffs on the indemnity basis for three reasons: 1. Prior to the commencement of the proceedings, the plaintiffs had "failed to engage and provide the Administrators with an opportunity to address or ameliorate the claims before filing them". 2. The plaintiffs' claims that the Administrators were invalidly appointed were entirely without merit and doomed to fail. The Court did not accept the plaintiffs' challenge on either of the bases advanced, being that the directors did not hold a reasonable belief as to the insolvency of the Carzapp Companies and that the appointments were in breach of the Shareholders' Agreement. 3. The conduct of the proceedings had caused undue delay and expense, given the Court's observations in paragraph [9] of the Principal Judgment that "the utility of these proceedings and the precise relief sought by Domenic was very much a "work in progress"".
2. The Court accepts the plaintiffs' submissions that none of the grounds advanced by the Administrators warrant the making of an indemnity costs order.
3. First, there is no logical reason why pre-litigation engagement with the Administrators would have avoided the question of the validity of their appointments being litigated, given the positions taken by the main protagonists in the proceedings. Insofar as the Administrators had attempted to engage with the plaintiffs, there is no suggestion that at that time, or at any time during the course of the proceedings, the Administrators put the plaintiffs on notice of the possibility that the Administrators might seek their costs on the indemnity basis. While the "failure to engage" point is, in and of itself, entirely unpersuasive as a basis for the making of an indemnity costs order, more generally I regard the failure to have put the plaintiffs on notice of the possibility of any such application as a discretionary matter which weighs significantly against the ordering of indemnity costs.
4. Second, insofar as the outcome of the proceedings is concerned, a party's lack of success is insufficient to warrant the making of an order for indemnity costs. In accordance with well settled principles, indemnity costs will be ordered where the Court is satisfied that the case was patently hopeless or that a litigant, properly advised, ought to have understood that its claim was doomed to failure. As an examination of the Principal Judgment will demonstrate, the plaintiffs' arguments in relation to the validity of the Administrators' appointments do not meet any such description. They were arguable, even if ultimately unsuccessful.
5. Third, while the plaintiffs' conduct of the proceedings was unsatisfactory and unfocused, making them longer and more complex than they would otherwise have been, I am not satisfied that the plaintiffs' conduct was such a serious departure from the overriding purpose under s 56 of the Civil Procedure Act 2005 (NSW) to warrant the making of an order for indemnity costs. More would be required. Again, I am fortified in this conclusion by the absence of any written warning to the plaintiffs that they were at risk of a special costs application.
6. The Administrators' application for costs on the indemnity basis therefore fails.

The Administrators' costs - set-off

1. The Administrators submitted that they should be entitled, now as liquidators, to set-off any costs liability of the plaintiffs to them against any dividend to which the plaintiffs might be entitled in the winding up of the Carzapp Companies. That entitlement was said to arise either under the general law of set-off or pursuant to s 553C of the Corporations Act 2001 (Cth). Unlike the detailed and vigorous argument in relation to set-off referred to in paragraphs [34] to [40] above, I did not understand the plaintiffs seriously to contend that the Administrators could not set-off costs payable to the Administrators and any dividend owing to the plaintiffs in the winding up. The Court's orders will make provision for such a set-off.

Conclusion

1. Subject to any further submissions which any party may wish to make about the precise form of these orders, the orders which the Court proposes to make are: 1. Declare that the First Defendant is indebted to the First Plaintiff in the sum of $390,097.39. 2. Subject to the orders of the Court made on 8 November 2019 and 16 December 2019, the Amended Statement of Claim is otherwise dismissed. 3. The First Plaintiff is to pay 90% and the Second Plaintiff is to pay 10% of the Fourth and Fifth Defendants' costs of the proceedings, in each case on the ordinary basis up to and including 11 July 2018 and thereafter on the indemnity basis. 4. The First Plaintiff is to pay 90% and the Second Plaintiff is to pay 10% of the Sixth and Seventh Defendants' costs of the proceedings (including, for the avoidance of doubt of their Cross-Claim) in each case on the ordinary basis. 5. The Sixth and Seventh Defendants are entitled to set-off any amount owing to them pursuant to Order (4) by the First Plaintiff or the Second Plaintiff, as the case may be, against any amount payable to that plaintiff in the winding up of any of the First to Third Defendants. SCHEDULE A - CARZAPP (433 KB, pdf) SCHEDULE A - CARZAPP (433 KB, pdf)

Amendments 26 February 2020 - Schedule A attached 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: 26 February 2020