Blackjack Executive Car Services Pty Ltd v Koulax [2002] VSC 380

Supreme Court of Victoria|2002-09-09|Before: HABERSBERGER J

CORPORATIONS - Section 483(1) of the Corporations Act 2001 - Whether there was property to which the company was "prima facie entitled" - Whether procedure appropriate when there was a dispute as to ownership of company's assets. PRACTICE AND PROCEDURE - Application for leave to discontinue proceeding - Costs order on discontinuance - Section 24(1) of the Supreme Court Act 1986 - Rules 25.05 and 63.15 - Costs order where no hearing on the merits.

By originating process filed on 28 June 2001, the plaintiff, Blackjack Executive Car Service Pty Ltd (in liquidation) ("Blackjack"), sought an order from the Court:

"That pursuant to section 474 of the Corporations Law all property of the company be delivered up to the Liquidator at the registered office of the Liquidator 563 Bourke Street Melbourne within 5 days, such property to include but not be limited to the following:

1.1.5 Vehicle registration VHA 774 being a silver 1999 Holden sedan Vin No. 6H8WHY19HYL1477383 Engine No. VH891484

1.1.6 Vehicle registration VHA 775 being a silver 1999 Holden sedan Vin No. 6H8WHY19HYL509808 Engine No. VH915969

1.1.7 Vehicle registration VHA 779 being a silver 1999 Holden sedan Vin No. 6H8WHY19HYL510086 Engine No. VH916349

1.1.8 Vehicle registration VHA 780 being a silver 1999 Holden sedan Vin No. 6H8WHY19HYL501432 Engine No. VH911793."

Pursuant to leave granted on 20 July 2001, the originating process was amended to indicate that it was made under s.483(1) of the Corporations Act 2001 ("the Act").

It was common ground that the property listed in sub-paragraphs 1.1.1 to 1.1.4 of the originating process was intended to refer to four Commercial Passenger Vehicle Licences to operate chauffeured hire cars in Victoria, called Metropolitan Hire or MH Licences and which were numbered MH 4594, MH 4595, MH 4596 and MH 4622 ("the licences"), and that the property listed in sub-paragraphs 1.1.5 to 1.1.8 referred to four Holden Statesman motor vehicles ("the vehicles").

When the proceeding came on for hearing before me, Mr Kincaid of counsel, who appeared for Blackjack, informed me that the plaintiff wished to discontinue the proceeding and sought leave to do so under r.25.03 of the Supreme Court (General Civil Procedure) Rules 1996 ("Supreme Court Rules"). In addition, Mr Kincaid indicated that, despite discontinuing the proceeding, the plaintiff sought an order for costs against the defendants.

Mr Nixon of counsel, who appeared for the defendants, Mr and Mrs Koulax, stated that the discontinuance was not opposed, although he did not consent to it. Further, he sought an order for costs in favour of the defendants, including an order that the liquidator personally, and not Blackjack, pay the defendants' costs, and that the costs be taxed on a party and party basis up to 14 September 2001 and thereafter on a solicitor and client basis. The significance of 14 September 2001 was that on that date there was an offer of settlement made by the defendants on a "without prejudice save as to costs" basis.

I am satisfied that leave should be granted to the plaintiff to discontinue the proceeding. Therefore, the only question which I have to decide is what, in the circumstances of this case, is the appropriate order in respect of costs.

Once it became clear that the defendants were seeking an order for costs against the liquidator personally, I adjourned for a short time to allow Mr Kincaid to seek some instructions from the liquidator, Mr Leon Lumsden, as the issue of the personal liability of the liquidator had not been raised before. Mr Kincaid duly obtained instructions to act for the liquidator in respect of the argument about costs.

Rule 25.05 of the Supreme Court Rules states that where a proceeding is discontinued, "liability for costs shall be determined in accordance with Rule 63.15." That rule relevantly provides as follows:

"Unless the Court otherwise orders, a party who discontinues ... a proceeding ... shall pay the costs of the party to whom the discontinuance ... relates to the time of the discontinuance .."

Mr Nixon referred me to the case of Dohrmann v Attorney-General for the State of Victoria[1], which involved an application for an order of mandamus requiring the Attorney-General to advise the Governor to release the plaintiff from custody. The plaintiff had been held in custody for a number of years after having been found not guilty on two charges of arson on the ground that he was insane at the time of the commission of the offences. Thirteen months after the proceeding was commenced, the plaintiff was released from custody. The plaintiff sought leave to discontinue the proceeding but only on the basis that there also be an order that the defendant pay the plaintiff's costs of the proceeding. O'Bryan J held that r.63.15 did not empower the Court to make a costs order in favour of a discontinuing party, in the absence of the other party's consent. Although he referred to the general discretion in respect of costs vested in the Court by s.24(1) of the Supreme Court Act 1986, his Honour stated:

"I shall say something briefly about the plaintiff's application for leave to discontinue this proceeding pursuant to r.26.02 of the General Rules of Procedure in Civil Proceedings. Counsel for the plaintiff only wishes to discontinue if the order for discontinuance is accompanied by an order that the defendant pay the costs of the plaintiff. Rule 63.15 does not empower the court to make such an order. ... In the absence of consent of the defendant, which is withheld in the present case, the court cannot order the defendant to pay the plaintiff's costs should leave be given to the plaintiff to discontinue the proceeding. The result is the court will make no order as to costs in favour of the plaintiff. Should the plaintiff apply for leave to discontinue the proceeding, leave will be granted upon the basis that the defendant will not seek an order as to costs. ..."[2]

The learned author of Williams: "Civil Procedure - Victoria" in his commentary on r.25 refers to Dohrmann and states:

"It is submitted that the decision is wrong. Rule 63.15, in authorising the court to order otherwise than that the plaintiff pay the defendant's costs, does not limit the court to making an order that the plaintiff not pay those costs. The rule does not in terms prevent the court from ordering that the defendant pay the plaintiff's costs. Furthermore, by s.24(1) of the Supreme Court Act 1986, unless expressly provided otherwise by the rules, costs are in the discretion of the court and the court has full power to determine by whom and to what extent costs are to be paid, and r.63.15 makes no such contrary provision."[3]

That view is based in part on two other Victorian decisions. In Garwolin Nominees Pty Ltd v Statewide Building Society,[4] Kaye J declined to follow the decision in Mulcahey v Wilkinson[5] and ordered that the plaintiff be at liberty to discontinue the action and that the defendant pay the plaintiff's costs of the action on the basis that the plaintiff had, without a trial, in effect succeeded in securing the relief sought in the proceeding. In Taylor v Dow Corning Australia Pty Ltd[6], Hedigan J considered whether he should order the plaintiff's costs to be paid by the two defendants against whom the plaintiff was discontinuing the proceeding. In the end, his Honour decided to make no order as to costs in relation to the discontinuance, but he clearly considered that he could have, in the exercise of his discretion, made such an order against the defendants. Hedigan J referred to cases such as Ritter v Godfrey[7], Thorne v Doug Wade Consultants Pty Ltd[8], Verna Trading Pty Ltd v New India Assurance Co Ltd[9] as authority for the proposition that a successful defendant can be denied the costs, or ordered to pay the costs, of a proceeding which has gone to judgment. His Honour saw no reason why the same approach could not be adopted in respect of the costs of a discontinued proceeding.

In my opinion, the cases referred to above all indicate that the restrictive approach adopted by O'Bryan J in respect of r.63.15 was not correct. Further, the reasoning of the learned author of Williams is most persuasive. I note that Garwolin Nominees[10] was apparently not cited to his Honour, possibly because his Honour upheld the defendant's principal argument that the proceeding was incompetent and would inevitably have failed, so that the plaintiff would never have become entitled to an order for costs. In my opinion, when the plaintiff discontinues a proceeding, the Court is empowered, under s.24(1) of the Supreme Court Act 1986, to make whatever order for costs it considers appropriate, including an order that the defendant pay the plaintiff's costs, which is an order "otherwise" within the meaning of r.63.15. I, therefore, reluctantly conclude, with the greatest respect to his Honour, that I should not follow his decision.

One problem in dealing with arguments about costs, where the plaintiff wishes to discontinue, is that there has been no hearing on the merits. As McHugh J pointed out in Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia: Ex parte Lai Qin[11]:

"In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order."[12]

In Australian Securities Commission v Aust-Home Investments Limited,[13] Hill J outlined the following five propositions concerning the exercise of a court's discretion to order costs where the parties to a proceeding no longer wish to continue:

"(1) Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order. ...

(2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial. ...

(3) In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them. ...

(4) In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation. ...

(5) Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted ..."[14] (References omitted.)

In Lai Qin[15], McHugh J approved of this approach:

"In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties ... In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. ... Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried ... If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases."[16]

The approach adopted by both parties, in their submissions on costs, was to concentrate on whether the plaintiff acted reasonably in commencing the proceeding and then in continuing the proceeding. I turn, therefore, to an examination of those issues, but before doing so I should refer to the statutory basis for the plaintiff's application.

Section 483 of the Act concerns the "delivery of property to liquidator". Sub-section (1) provides:

"(1) The Court may require a person who is a contributory, trustee, receiver, banker, agent or officer of the company to pay, deliver, convey, surrender or transfer to the liquidator or provisional liquidator, as soon as practicable or within a specified period, any money, property or books in the person's hands to which the company is prima facie entitled."

Mr Nixon submitted that s.483(1) of the Act conferred a summary procedure only. In support of that proposition he referred me to the decision of Hayne J in Boyles Sweets (Australia) Pty Ltd (in liq) v Platt[17]. In that case, his Honour followed the decision of the Full Court, in Home v Walsh[18], in respect of a legislative predecessor of s.483(1) of the Corporations Law, by concluding that the section provided "a summary procedure" which was "not available where a claim is made by the person in whose hands the assets are found that is a claim adverse to the company." According to his Honour, the section neither required nor permitted the kind of inquiry which would be needed if there was going to be a final resolution of title to the property.[19] I did not understand Mr Kincaid to dispute that this was the correct analysis of s.483(1) of the Act.

Did the Plaintiff Act Reasonably in Commencing the Proceeding?

In order to decide whether it was reasonable for the liquidator of Blackjack, Mr Lumsden, to have commenced this proceeding on 28 June 2001, it is necessary to examine first of all just what he knew at that time about the ownership of the licences and the vehicles. The extent of that knowledge was set out in his affidavit sworn on 27 June 2001.

According to that affidavit, Mr Lumsden was appointed by the Court as official liquidator of Blackjack on 23 May 2001. He was informed of his appointment when he received a letter from Hall & Wilcox, the petitioning creditor, on 29 May 2001. On that day, Mr Lumsden's assistant, Mr Glenn Franklin, was instructed to commence investigations into the company. His preliminary investigations revealed the following relevant information:

(a) The directors and shareholders of Blackjack were Gregory Koulax and Kathy Koulax.

(b) A charge dated 25 July 2000 was registered by the National Australia Bank ("the NAB") over the assets of Blackjack on 14 August 2000.

(d) A search of the Telstra directory, White Pages online, indicated that the telephone numbers for On Time and Blackjack's registered business name "Blackjack Limousines" were the same.

On 29 May 2001, Mr Franklin was advised by Mr Geoff Alchin of the NAB that it held a fixed and floating charge over four hire car number plates (the licences) owned by Blackjack, that the "hire car plates" (the licences) were registered with the Victorian Taxi Directorate ("the VTD") and that the company operated the "hire car plates" (the licences) in Melbourne. A facsimile from Mr Alchin on 30 May 2001 confirmed that the NAB held a charge over the four "hire car plates" (the licences) and that Blackjack had provided a joint and several guarantee with two individuals for $100,000 in favour of On Time to secure an Instalment Loan which had a current debit balance of $86,516.

On 30 May 2001, the VTD informed Mr Lumsden that the licences were registered in the name of Blackjack. On the same day, following inquiries to VicRoads, Mr Lumsden ascertained that the four vehicles were registered in Blackjack's name.

Mr Franklin contacted Mr Koulax on 30 May 2001 and informed him that Blackjack was in liquidation. According to Mr Franklin's note of the conversation, he advised Mr Koulax that there was a registered charge over the hire car licences and that Mr Koulax told Mr Franklin that Blackjack did not own the "plates" or any other assets and that the vehicles were owned by On Time. Mr Koulax asked Mr Franklin whether there was any way out of the liquidation and Mr Franklin advised that he could apply to have the winding up stayed. Mr Franklin requested that, as the vehicles appeared to be registered in Blackjack's name, they be taken off the road immediately. Mr Koulax refused to do so as he asserted that the vehicles did not belong to Blackjack. In an affidavit sworn on 2 October 2001, Mr Koulax denied that he had told Mr Franklin that the vehicles were owned by On Time. He deposed that he said that the licences were owned by On Time. He agreed that later in the conversation Mr Franklin requested that the vehicles be taken off the road immediately and that he, Mr Koulax, said that the vehicles were not owned by Blackjack and would not be taken off the road.

On 31 May 2001, Mr Lumsden sent a facsimile to Toyota Finance Australia Limited ("Toyota Finance") advising that his investigations had revealed that Blackjack held four motor vehicle leases with Toyota Finance and urgently requesting the payout figures for each lease. Toyota Finance responded by facsimile on the same day providing the required information about the "lease accounts in the name of Blackjack ..."

In Mr Lumsden's affidavit sworn on 27 June 2001, he deposed that:

"12. I met with Gregory Koulax at my office at 9.30am on 1 June 2001. My assistant Mr Glenn Franklin was also present during the entire meeting with Mr Koulax. Mr Koulax informed me that the assets of the company had been disposed of and that an arrangement had been made with 'On Time Australia', but he couldn't disclose the nature of this transaction. I was not shown any documentation regarding the transaction at the meeting with Mr Koulax, nor at any other time since that meeting ..."

Mr Lumsden also said that Mr Koulax asked questions about a stay of the liquidation and that he advised Mr Lumsden that Mr Christopher Bunnett was the solicitor acting on his behalf and that he intended to apply to the Court to stay the liquidation.

Mr Koulax, in his affidavit sworn on 2 October, disputed Mr Lumsden's account of the meeting. He said:

"12. I refer to paragraph 12 of Lumsden's affidavit which is also inaccurate. I did meet with Lumsden and Franklin on June 2001 [sic]. The meeting took no more than 25 minutes. During this meeting I was asked what assets Blackjack owned. I said that its only assets were some internet domain names which I thought were worth about $7,000. I was then specifically asked about the vehicles. I told Lumsden and Franklin that the vehicles were leased from Toyota. Subsequently I was asked about the plates which I assumed to be a reference to the licences. I said that Blackjack had disposed of them. At no time did I say that the assets of the company had been disposed of."

At the meeting, Mr Lumsden provided Mr Koulax with a director's package with respect to the liquidation which included the company's "Report as to Affairs" form and a second package for his wife, the other director of Blackjack. Mr Koulax was informed that he had 14 days to complete the Report, however, if he was making an application to stay the liquidation, the Report could be handed to Mr Lumsden at the hearing. Mr Koulax failed to issue any stay application. Neither director had completed a "Report as to Affairs" by the commencement of this proceeding.

On 8 June 2001, Mr Lumsden sent a letter to Mr Koulax by facsimile. Mr Lumsden advised that his preliminary investigations into the affairs of the company had revealed that the vehicles and "VHA plates" (the licences) were "prima facie assets of the company" and outlined the evidence he had obtained supporting this view. Mr Lumsden noted that, at the meeting on 1 June 2001, Mr Koulax had asserted that the vehicles were no longer assets of the company. He requested that Mr Koulax immediately provide him with any documentation that supported Mr Koulax's assertion as Mr Lumsden could find no evidence to support that claim. The letter further stated that, based on the assumption that the vehicles were the property of Blackjack and regardless of whether Mr Koulax was intending to make a stay application, Mr Koulax was required to immediately surrender the vehicles to the liquidator or place them under Mr Lumsden's control. The letter continued:

"As I presume these vehicles are still being used, I may allow their continued operation once I am satisfied as to the basis upon which they will be operating. I am not prepared to make a decision about any agreement to their continued operation until effective control of the motor vehicles is surrendered to me and the full facts provided to me concerning the basis upon which they are operating. Of course, one of the most important considerations will deal with the question of proper insurance cover for the vehicles."

There was no response by Mr Koulax to Mr Lumsden's letter of 8 June 2001. On that date, however, Mr Bunnett contacted Mr Lumsden's solicitor, Mr Simon O'Hanlon of Ebsworth & Ebsworth. Mr Bunnett advised that he would be meeting Mr Koulax on 12 June 2001. He subsequently advised by letter dated 12 June 2001 that this meeting had been put back to 15 June 2001 and that he would contact Mr O'Hanlon as soon as he had had an opportunity to take instructions. The letter continued:

"My client will be providing all the information in his possession that has been requested by the liquidator."

By facsimile dated 15 June 2001, Mr Bunnett requested the amount outstanding for the debt to Hall & Wilcox and the liquidator's fees, as his client wished "to make application to reinstate the company."

On 18 June 2001, Ebsworth & Ebsworth wrote to Mr Bunnett advising that the liquidator was intending to proceed with the application to force delivery up of the vehicles because of the lack of response from Mr Koulax.

Mr Bunnett replied by letter dated 19 June 2001. He advised that Mr Koulax had instructed him that the vehicles were leased and were not the property of Blackjack, and that, although the licences were registered in the name of Blackjack, they had in fact been purchased by On Time. Mr Bunnett further stated that On Time was prepared to pay the liquidator's costs and expenses and the outstanding debt owed to Hall & Wilcox in consideration of the liquidator executing a formal transfer of the licences to On Time. By letter dated 21 June 2001, Ebsworth & Ebsworth informed Mr Bunnett that it was not possible for the liquidator to retire on the basis of the proposal put, as it was the liquidator's obligation to be satisfied as to Blackjack's solvency or otherwise and to form a view as to the value of the company's assets and the number and value of its creditors. The letter pointed out that no evidence to substantiate Mr Koulax's assertion that "the plates" (the licences) had been purchased by On Time had been forthcoming. Ebsworth & Ebsworth concluded by stating that there had to be either the immediate completion of the Report as to Affairs or the filing of an application seeking an order to stay the winding up. There was no further response from Mr Koulax, or Mr Bunnett on his behalf, prior to the commencement of the proceeding on 28 June 2002. No documentary evidence was produced before that date to substantiate Mr Koulax's assertions that the vehicles and the licences were not the property of Blackjack.

Mr Kincaid submitted that the plaintiff acted reasonably in commencing the proceeding and therefore that the plaintiff was entitled to costs. He argued that all that the liquidator knew at the commencement of the proceeding was that Mr Koulax had asserted that the licences and the vehicles were not owned by Blackjack and, despite requests to do so, had not produced any documents in support of these assertions. He was, therefore, entitled to assume that there was no bona fide dispute about the ownership of the property. In those circumstances, he submitted, it was reasonable for the plaintiff to commence the proceeding under s.483(1) of the Act.

Mr Kincaid submitted that the plaintiff was justified in disregarding Mr Koulax's assertions that the property was no longer owned by Blackjack because of the fact that the licences and the vehicles were still registered in Blackjack's name, that the NAB held a charge over the licences in Blackjack's name and that the vehicles were leased by Blackjack from Toyota Finance. All that Mr Lumsden knew to the contrary at that stage was that Mr Koulax was asserting that the licences had been purchased by On Time and that the leased vehicles were not the property of Blackjack. No details of, and no documents evidencing, the transactions constituting the purchase of the licences, the transfer of the licences or the transfer of the leases of the vehicles had been provided to Mr Lumsden by either Mr Koulax or his solicitor. Further, the vehicles appeared to be in Mr Koulax's hands because he had refused the request to take them off the road.

Mr Nixon submitted that it was totally misconceived for the plaintiff to bring the proceeding under s.483(1) of the Act which provided a summary procedure only, when he knew at the time the proceeding was commenced that there was a bona fide dispute as to ownership, and because, in any event, the property in question was not in the hands of the defendants.

Mr Nixon submitted that Mr Lumsden should have known from its commencement that the proceeding was doomed to fail. He argued that, based on the information Mr Koulax had given the liquidator and his assistant at the meeting on 1 June 2001, Mr Lumsden should have accepted that the licences and the vehicles were no longer the property of Blackjack, or at least that there was a bona fide dispute about that issue. Mr Nixon sought to characterise the 1 June meeting as a "fireside chat". He submitted that there was no evidence of anyone requesting Mr Koulax to bring to that meeting documents which supported his claim that the relevant property was no longer owned by Blackjack. Moreover, whatever view was taken about the conversations with Mr Koulax, Mr Nixon submitted that Mr Bunnett's letter of 19 June 2001 made it quite clear that there was a bona fide dispute about the ownership of the licences and the vehicles. In those circumstances, the proceeding should not have been commenced.

Mr Nixon's second limb to his submission that the proceeding was doomed to fail was that s.483(1) of the Act requires that the property must be "in the hands" of the officer of the company, that is, in his possession. Mr Nixon submitted that on no view could the liquidator have thought that either the licences or the vehicles were in the possession of the defendants because he had been told that they were in the possession of On Time.

I accept that one should not be critical of Mr Koulax's failure to produce any documentation at the first meeting with the liquidator. However, the liquidator waited nearly a month before the proceeding was commenced and, despite having a solicitor acting for him, Mr Koulax had still not given the liquidator any real explanation of why the property was no longer owned by Blackjack. I consider that it was reasonable for the liquidator, in the absence of the details of, and any documents evidencing, the transactions constituting the purchase of the licences, the transfer of the licences or the transfer of the leases, to have commenced the proceeding. In my opinion, the liquidator was entitled to regard Mr Koulax's unsubstantiated assertions as not establishing a bona fide dispute. Given the continued registration of the licences and the vehicles in the name of Blackjack, the prima facie position was that they were property of the company to which it was entitled.

I am also not convinced that the proceeding was doomed to fail because the wrong defendant had been sued. It is true that the liquidator was told by both Mr Koulax and Mr Bunnett that the licences had been purchased by On Time, so that presumably they were in the possession of that company. However, according to Mr Koulax's affidavit, he did not tell Mr Franklin that the vehicles were owned by On Time. If that is correct, then all the liquidator had been told was that the vehicles were leased and that they were not the property of Blackjack. In my opinion, the liquidator was entitled to assume from Mr Koulax's conduct that the vehicles were in his hands. Even if the liquidator suspected that On Time was in some way involved with the vehicles, arguably they were still "in the hands" of Mr Koulax. Although it is not clear to me why the liquidator joined Mrs Koulax, it was reasonable, in my opinion, on the state of his knowledge at that time to have commenced the proceeding under s.483(1) of the Act against Mr Koulax.

Therefore, subject to what follows, it seems to me that the plaintiff would be entitled to its costs of commencing the proceeding because it acted reasonably in doing so. To a large extent, it seems to me that the defendants only have themselves to blame. If they had produced to the liquidator the documents which were subsequently exhibited to the affidavit to Mr Koulax, then it would have been a lot harder for the plaintiff to have argued that the defendant's conduct prior to the commencement of the proceeding "precipitated the litigation."[20]

Did the Plaintiff Act Reasonably in Continuing the Proceeding?

The next question that arises is whether the liquidator acted reasonably in continuing the proceeding after he received Mr Koulax's affidavit of 17 September 2001. This involves a consideration of the liquidator's knowledge, at that time, about the ownership of the licences and the vehicles.

After the proceeding had commenced, the liquidator did receive the Report as to Affairs of Blackjack verified by Mr Koulax and dated 18 July 2001. With that report was a "Questionnaire for Directors and Officers", also signed by Mr Koulax and dated 18 July 2001. Paragraph 35 of the Questionnaire read:

"35. Have you or any member of your family during the two years prior to the administration/liquidation purchased an asset from the company?

Blackjack transfered ownership of 4 licences to G + K Koulax for monies loaned (secured) which Blackjack lost on stockmarket and to Michael Bastion."

"On Time Australia operates cars and has been the responsible for [sic] payment of leases to Toyota as 1 July 2000."

I note that no security document has ever been produced and that on its face the answer to question 35 contradicted Mr Koulax's previous assertion that the licences had been purchased by On Time. However, whilst Mr Nixon did refer to these answers, I did not understand him to be submitting that the critical date for present purposes was earlier than on or about 17 September 2001.

In his affidavit sworn on 17 September 2001, Mr Koulax explained the reasons for Blackjack getting into financial difficulties in the 1999-2000 financial year. It is not necessary to examine those reasons. What is important, was that Mr Koulax stated that Blackjack ceased trading as at 30 June 2000 and that there were no financial statements prepared for Blackjack for the 1999-2000 and 2000-2001 financial years.

Mr Koulax deposed that both defendants had loan accounts with Blackjack, and that they had effectively financed the company from the outset. He said that, as at February 2000, the defendants were owed the sum of $180,000. They were owed an additional amount for the provision of the three MH licences, which were initially issued to the defendants in 1995 and shortly thereafter transferred to Blackjack.

Mr Koulax exhibited two Agreements to his affidavit. He deposed that on 18 June 2000 an Agreement was made between Mr and Mrs Koulax and Blackjack which provided as follows:

1. Monies of $180,000 is owed by Blackjack Executive Car Services Pty Ltd by way of loans to Gregory Koulax and Kathy Koulax to which [sic] have not been repaid.

2. That Blackjack will transfer ownership of four hire car licenses [sic] (MH 4594, MH 4595, MH 4596 and MH 462) at an appropriate date stated by Gregory Koulax as means of full payment.

3. That Blackjack hand over all the clientele (database) who have travelled with Blackjack Limousines.

4. That Blackjack will transfer four Holden Statesmans leased from Toyota Finance to On Time Australia Pty Ltd on July 1 2000 [this date] and agree to pay all expenses incurred from this date until the vehicles are disposed by sale or transferred in the name of On Time Australia Pty Ltd.

5. That Gregory Koulax and Kathy Koulax agree to accept the licenses [sic] and clientele as full payment for monies owed by Blackjack as settlement.

6. That Gregory Koulax and Kathy Koulax cannot seek any further claim for payment of funds outstanding."

The second exhibit was an Agreement For Shareholding dated 20 June 2000 between On Time and Mr and Mrs Koulax. According to this Agreement, On Time agreed to issue 304 shares (or 30.4% of its capital) to each of Mr and Mrs Koulax and they agreed to transfer ownership of the licences and "client database" to On Time "by way of payment for the total issue of 604 [sic] shares." It was further agreed that beneficial ownership of the licences was to pass immediately on execution of the Agreement to On Time "pending their eventual transfer". Finally, it was agreed that On Time would "in due course arrange transfer of ownership to operate and maintain" the vehicles and would "assume monthly payments of leases to Toyota Finance ... from July 1 2000."

Mr Koulax deposed that On Time, which was incorporated on 4 May 2000, had commenced its business of hiring chauffeured limousines Australia-wide, from 1 July 2000 and had operated the licences from that date, and that On Time had assumed responsibility for making the four monthly lease payments to Toyota Finance. He said that On Time had reimbursed Blackjack for the July monthly instalments and that since August 2000 the monthly instalments had been debited to On Time's account with NAB.

Mr Koulax further deposed in his affidavit that:

"37. On Time required working capital to commence its business. Accordingly, it approached and was provided with [a] loan facility for $100,000 from the National Australia Bank. The National Australia Bank holds a charge over the assets of On Time and a mortgage over the licences."

Mr Koulax exhibited a transfer dated 25 August 2000 for each of the licences, but acknowledged that the transfers had not been lodged with the VTD. Mr Koulax stated that the vehicles and the licences were "in the custody of On Time", which had used them to operate its business from 1 July 2000. He said that they were not in the custody of Mr or Mrs Koulax.

In an affidavit sworn on 24 September 2001 Mr Lumsden responded to Mr Koulax's affidavit, and in particular paragraph 37. He said:

"4. During late May 2000 and up to and including 25 June 2000, Gregory Koulax was forwarding financial documentation of Blackjack to the National Australia Bank in support of the Financial Application referred to in paragraph 37. In fact, on 25 June 2000 Mr Koulax forwarded copies of the Victorian Taxi Directorate Licences in question to the National Australia Bank which clearly showed that Blackjack Executive Car Services Pty Ltd was the owner of those licences. This facsimile was sent to the National Australia Bank after the arrangement was made between Kathy Koulax, Gregory Koulax and Blackjack on 18 June 2000 ...

5. In that agreement referred to above, the Defendants and the Company had allegedly already agreed to transfer the licences to On Time Australia."

I also note that when Mr Lumsden contacted Toyota Finance in May 2001, it informed him that the "lease accounts" were in the name of Blackjack.

In his second affidavit, Mr Lumsden pointed out that on many occasions since his appointment as liquidator of Blackjack he had requested from the defendants the provision of supporting documentation regarding their assertions that the licences and the vehicles were no longer the property of Blackjack, and that the first time any such documentation had been provided to him was when he received Mr Koulax's affidavit.

On 12 December 2001, the plaintiff sought leave to file a further affidavit outlining that on 30 October 2001, Ebsworth & Ebsworth had requested that the documents exhibited to Mr Koulax's affidavit be released for testing by its document expert, Mr Neil Holland, of Scientific Document Services Pty Ltd, in an attempt to verify the dates of the documents. Mr Holland inspected the documents and prepared his report on 29 November 2001. The plaintiff's solicitors also made inquiries of the defendants, on 31 October 2001, concerning Blackjack's books of account and any documents evidencing the alleged $180,000 loan from the defendants to the company. Mr Bunnett replied, on 2 November 2001, that the defendants had no further documentation in their possession other than the documents exhibited to Mr Koulax's first affidavit.

Mr Kincaid submitted that it was reasonable for the plaintiff to continue the proceeding after receipt of Mr Koulax's affidavit, because the liquidator was entitled to undertake his own investigations and make further enquiries to determine the accuracy of the matters deposed to in the affidavit. Mr Kincaid submitted that as those investigations and inquiries were not finalised until 29 November 2001, I should find that the continuation of the proceeding was reasonable until notice of intention to discontinue was given on the day before the hearing, alternatively to about the end of November 2001. He emphasised the liquidator's criticisms of Mr Koulax's evidence and explained that although the plaintiff did not accept that ownership of the relevant property had been duly transferred to On Time, its position now was that, in the light of all of the evidence, it was no longer appropriate to continue this application under s.483(1) of the Act.

Mr Nixon submitted that once the liquidator received Mr Koulax's affidavit of 17 September 2001, he should have formed the view that the proceeding under s.483(1) was no longer appropriate. By that stage, he submitted, it should have been obvious that there was a bona fide dispute which could not be resolved under the summary procedure.

I accept the defendants' argument on this issue. In my opinion, once Mr Koulax's affidavit of 17 September 2001 was received by the liquidator he should have taken the view that, whether or not he accepted the truth of the matters set out in the affidavit, it was no longer appropriate to continue the summary form of proceeding when there were clearly going to be disputed questions of fact to be determined by the Court. Once the two Agreements were produced and an explanation of the transactions was given, it was no longer simply a matter of Mr Koulax making unsubstantiated assertions. It seems to me that Mr Nixon was correct when he submitted that the decision in Boyles Sweets leads inevitably to this conclusion.

Therefore, subject to what follows, it seems to me that the defendants would be entitled to their costs from about 21 September 2001 until 12 December 2001, because the plaintiff did not act reasonably in continuing the proceeding after receipt of Mr Koulax's affidavit sworn on 17 September 2001.

As previously stated, Mr Nixon sought an order that the costs after 14 September 2001 be taxed on a solicitor and client basis because on that date there was an offer of settlement made by the defendants on a "without prejudice save as to costs" basis. He later accepted that the starting date could be several days after receipt of Mr Koulax's affidavit. The offer, which was remade as an open offer in Mr Koulax's affidavit sworn 2 October 2001, was as follows:

"1. The Liquidator takes all steps necessary to effect the transfer of the legal title to the licences and the vehicles to On Time Australia Pty Ltd. 2. This proceeding be dismissed with no order as to costs. 3. Each party pay their own costs."

Mr Nixon submitted that the defendants were acting reasonably when they offered to bear their own costs to the date of settlement. He submitted that as I had now found that the plaintiff should not have continued this proceeding from about this date, the defendants had been forced to incur costs unnecessarily and, accordingly, the plaintiff or the liquidator personally should have to pay the defendants' costs on a higher scale.

However, this offer of settlement is not effective, in my opinion, for two reasons. First, contrary to the defendants' submission, the view I have reached is that the plaintiff was entitled to its costs of commencing the proceeding and continuing it until shortly after receipt of Mr Koulax's affidavit of 17 September 2001. Therefore, the result of the proceeding in that respect is more favourable to the plaintiff than the defendants' offer. Secondly, the offer of settlement went beyond ending the proceeding and dealing with costs. It contained a condition that the liquidator in effect accept that On Time and not Blackjack was entitled to the licences and the vehicles. For the reasons discussed above, discontinuing the proceeding does not necessarily carry with it any concession that Blackjack was not the owner of the property, and the liquidator has made it clear that he does not accept that On Time is the owner. By including this condition as part of the offer of settlement of the s.483(1) proceeding, it seems to me that the defendants have denied themselves the opportunity of relying on the offer, even if I had taken a different view of the reasonableness of commencing the proceeding. Accordingly, I decline to deal with the costs on any basis other than a party and party basis.

As explained above, the position I have reached is that the plaintiff would be entitled to an order for costs in its favour up to about 21 September 2001 and that the defendants would be entitled to an order for costs against the plaintiff or the liquidator personally from that date to the day of the hearing. During argument, I raised with the parties the possibility that if I came to the tentative conclusion that those were the appropriate orders, then it may also be appropriate in fact to make no order as to costs on the basis that the quantum of each of the above possible orders would be roughly equal. Whilst neither party adopted that result as their preferred position, each accepted that such an order was open to me.

If one takes 21 September 2001 as a suitable cut-off date, allowing the plaintiff a few days to consider its position in the light of Mr Koulax's affidavit of 17 September 2001, then the plaintiff has incurred the costs of preparing and issuing the originating process and the two lengthy supporting affidavits, serving the papers, appearing before Warren J on three directions hearings and perusing the answering affidavit of Mr Koulax. On the other hand, after 21 September 2001, the defendants have incurred the costs of perusing Mr Lumsden's affidavit in reply, preparing Mr Koulax's second affidavit, appearing before Warren J on one directions hearing and twice before Master Kings to fix the trial date and preparing for a hearing on the merits, which at the last minute turned into an application to discontinue. Although I do not pretend to be an expert on the taxation of costs, it strikes me that the work involved in each period is roughly equivalent. In my opinion, the appropriate order in respect of costs is that there be no order as to costs. I consider that such an order is a just result in respect of this dispute and it would have the added benefit, where costs have already been unnecessarily incurred by both parties, of saving those parties from spending further time and costs on a task which I consider would be most unlikely to result in any financial benefit to either side. To remove any doubt, I state that insofar as extra costs were incurred by the parties in arguing the question of costs on 12 December 2001, I have concluded that once again there should be no order as to costs. Each party has had some success on the question of costs and, in those circumstances, the just result, in my opinion, is that there be no order as to costs.

Having reached the above conclusion, it is unnecessary for me to embark on a consideration of the further question of whether the liquidator personally and not the plaintiff should pay any costs awarded to the defendants.

Subject to hearing from the parties, I would propose orders as follows:

1. The plaintiff have leave to discontinue the proceeding.

2. There be no order as to the costs of the proceeding

[20] Australian Securities Commission v Aust-Home Investments Limited [1993] FCA 585; (1993) 44 FCR 194 at 201 per Hill J

At a glance

Court

Decision date

Before

Source

Judgment (128 paragraphs)

Parties

Legislation Cited (8)

Cases Cited (2)