Buzzle Operations v Apple Computer Australia Pty Ltd

Judgment (ex tempore)

1. This judgment relates to the costs of four proceedings brought by the plaintiffs Neil Robert Cussens and John Lethbridge Greig, as liquidators of Heavy Plant Leasing Pty Ltd, to recover allegedly voidable transactions, in which an order was made for the determination, as a preliminary question, of the issues of the insolvency of Heavy Plant Leasing, which question was ultimately resolved by the defendants admitting that the company was insolvent as alleged. The balance of the proceedings remains to be resolved, but the plaintiffs seek a costs order at this stage in respect of the separate question.
2. In proceedings 2016/77618, the defendant is McConnell Dowell Constructors (Australia) Pty Ltd (for convenience referred to as "McDow").
3. In proceedings 2016/77606, the first defendant is Civil Pacific Services Group Pty Ltd, which is now in liquidation. McDow was joined as an additional defendant, because it was said to be a party to the impugned payment and potentially affected by the relief sought.
4. In proceedings 2016/77628, Kelly Teresa Henry and Murray John Henry are the principal defendants; again, McDow was joined as an additional defendant on the same basis.
5. In proceedings 2016/77602, the only defendant is Christine Mancer.
6. Although each case has some idiosyncrasies, they share many common relevant factors. In each proceeding, the plaintiffs necessarily alleged that, at the relevant date, the company was unable to pay its debts as and when they fell due and was insolvent within the meaning of the (CTH) Corporations Act 2001. Each defendant put that in issue in its defence.
7. In each proceeding other than proceeding 77618 (the proceeding in which McDow alone is a defendant), the plaintiffs on 7 November 2016 served a notice to admit facts, requiring the defendants to admit that the company was unable to pay its debts as and when they fell due at the relevant date and was insolvent within the meaning of the Act. Civil Pacific Services did not, but the other defendants (including McDow in the proceedings in which it was an additional defendant), served a notice disputing facts. Thereafter the plaintiffs adduced additional evidence, including expert evidence, on the question of insolvency.
8. In March, Black J made an order that the question of insolvency be determined separately and before the other issues in the proceedings, and that that question be resolved in all four proceedings concurrently. The hearing of that separate question was set down for three days commencing on 17 October 2017.
9. Between July and August, the defendants conceded the question of insolvency and amended their defences so as to admit it and/or withdrew their notices disputing facts. However, until then, the plaintiffs were put to proof on the question of insolvency.
10. The plaintiffs seek, in substance, orders first, that the defendant pay their costs of and occasioned by the amendment of their defences (relying on the ordinary costs consequences of amendment); secondly, that the defendants pay on an indemnity basis their costs of the expert report of Mr Samuels as to the question of solvency, of an affidavit which exhibited the factual material relied on by the expert, and of responding to requests for production of documents made by the defendants (in this respect they invoke (NSW) Uniform Civil Procedure Rules 2005, r 42.8(2), consequent upon the notices disputing facts); and thirdly, that the defendants pay their costs of a number of directions hearings in relation to the separate determination, also on the indemnity basis.
11. In reality, the plaintiffs invoke three grounds for an award of costs. The first is that, on the separate question, they have substantially succeeded; the second is that they have incurred or wasted costs as a result of the amendment of the defendants' defences; and the third is the consequences of the defendants disputing the notice to admit facts.
12. The first main issue is whether a costs order should be made now - or deferred, as the defendants generally submitted, until the final determination of the proceedings. In favour of deferral is the attraction in minimising the number of costs orders made in any one proceeding, that, absent any special costs order, the costs of the separate question will be treated as costs in the proceedings and disposed of by the final costs order in the proceedings; the possibility that, notwithstanding their failure on the separate question, one or more of the defendants may ultimately succeed on matters peculiar to that defendant's defence; and the circumstance that, in any event, r 42.8 has automatic effect upon the conclusion of the proceedings.
13. Against those considerations, however, it is conventional to make costs orders in respect of interlocutory applications on the disposal of the interlocutory applications. That is generally because the judge who hears and determines the interlocutory application is usually better positioned to determine who should bear the costs of that application than a trial judge who may have had no involvement in the interlocutory application. It is also because the questions that were agitated will be fresh in the mind of the judge who heard the interlocutory application. Moreover, awarding costs in respect of interlocutory applications, effectively as separate events in the proceedings, is a very important aspect of maintaining discipline and order in the conduct of interlocutory proceedings and deterring the bringing of unnecessary applications or the unreasonable opposition of interlocutory applications, when a party can do so taking comfort in the thought that it will not suffer any adverse costs consequence, at least until the end of the case.
14. McDow argued that there was a special reason for deferring consideration of the costs questions so far as concerned it, namely that other proceedings were being brought against it by the liquidators in the Commercial List on a basis inconsistent with that propounded in these proceedings. However, I am far from convinced that the bases are inconsistent, in any way that would make these proceedings potentially an abuse of process. As I understand it, in these proceedings the plaintiffs impugn, as a voidable transaction, a set off exercised by McDow under a construction contract, essentially on the basis that Heavy Plant was insolvent at the time of the exercise of the set-off. As I understand it, in the Commercial List proceedings the liquidators contend that the right of set-off never arose in the first place, being contrary to the (QLD) Building and Construction Industry Security of Payment Act 1999. It seems to me that there is not necessarily any inconsistency in the liquidators adopting the position, if it is the position they adopt, that the right of set-off never arose in the first place, but that if it did then at the time it was exercised the company was insolvent, so that the transaction is a voidable preference. In any event, one should not in these proceedings speculate too much as to whether they are an abuse of process, when no application to stay them on that basis has been made.
15. The considerations which weigh in favour of making interlocutory costs orders are, if anything, accentuated in the case of the separate determination of a final issue in the proceedings pursuant to an order for determination of a preliminary question as occurred here. That is because what is involved is a discrete issue and a separate phase of the proceedings. And it is even more accentuated where that separate question is the question of insolvency in recovery proceedings or, for that matter, in insolvent trading proceedings. The practice is now well-developed in the Corporations Court of ordering the determination of the question of insolvency as a separate question in so-called "mothership" proceedings brought by liquidators against numerous defendants. The benefits of that course include that once the question of insolvency is resolved, issues peculiar to individual defendants can be resolved without involving all the defendants at the one time. Another advantage is that experience dictates that resolution of the question of insolvency typically leads to resolution of the balance of the proceedings.
16. In proceedings of this kind, it is important that the assets of the company in liquidation be, so far as possible, conserved and not expended, and time not taken in the contest of issues which ought not be contested. It is important that there be, and be seen to be, cost consequences for unsuccessfully opposing a liquidator's contention that a company is insolvent, just as there would be cost consequences if a liquidator were unsuccessfully to contend that a company was insolvent.
17. In this context, an ultimately successful defendant who has nonetheless unsuccessfully resisted an adverse finding on the question of insolvency should not be protected from the costs consequences of putting the liquidator to proof on insolvency and expending the company's limited resources in that way.
18. Here, the liquidators have succeeded on the separate question, ultimately by concession. If they had done so on a contested hearing of the separate question, then it is practically inevitable that there would have been a costs order in their favour in respect of that question. The fact that that position was achieved by capitulation before the hearing rather than at the hearing itself makes no material difference.
19. A further basis for reaching the same conclusion is that costs have been incurred and wasted as a result of the amendment of the defendant's defences. The costs payable by a party who amends a pleading as the "costs of the amendment" include the costs that are thrown away by the amendment. To ascertain what are the costs thrown away by the amendment, one asks what costs have been incurred in dealing with the pleading in its original form which would not have been incurred had the pleading originally been in its amended form. Had the defences been in their amended form at the outset, insolvency would have been admitted, and the liquidators would not have incurred the costs of adducing evidence on that question.
20. Some of the defendants submitted that they should not be responsible for the costs incurred on the issue because other defendants had put insolvency in issue and the plaintiffs would have had to prove the case anyway. Alternatively, it was submitted that the liability of any particular defendant should in some way be limited having regard to the responsibility of the other defendants. If that argument were correct, no costs order could be made against any one defendant because any of the others might have persisted in the defence of the issue. The proper view is that all of the defendants who participated in putting the liquidator to proof on the question of insolvency should be responsible for the costs of that issue, jointly and severally.
21. The next real question is the basis of the costs order and, in particular, whether it should be on an indemnity basis and, if so, from what date. The liquidator's claim to an indemnity order arises under (NSW) Uniform Civil Procedure Rules, r 42.8, as a result of the defendants disputing the notice to admit facts. That rule operates automatically, but upon the conclusion of the proceedings the Court may make an order confirming the effect of the rule under Uniform Civil Procedure Rules, r 42.8, or it may make an "otherwise order" under r 42.8.
22. As I have decided, for the reasons already given, that a costs order should be made now rather than leaving it to the conclusion of the proceedings, it would be inconvenient and lead to undue complexity in the assessment process to separate the question of the basis of any liability for costs and leave it to take automatic effect only on the conclusion of the proceedings. It is not apparent how the trial judge would be in any better position than am I now to determine the basis upon which the costs order should be made.
23. McDow made a particular submission that it ought not be liable as a result of r 42.8 for costs on an indemnity basis and that, if necessary, an "otherwise order" should be made, essentially on the footing that it was not the real defendant in the only proceedings in which a notice to admit was served on it, and that arguably it should not have been a party at all. However, the bare fact is that it was a party. It did not apply to be removed as a party. It remained a party, and it ultimately amended its defence to admit insolvency, as had been alleged from the outset in the statement of claim.
24. The argument that the proceedings are potentially an abuse of process does not apply to the proceedings in which a notice to admit was served and in respect of which indemnity costs are available under the rule, although no notice was served in the proceedings directly against McDow. Rule 42.8 provides a default position, the effect of which is to cast on the party seeking an "otherwise order" some onus to show why some different result should prevail. I accept that one ground on which the Court might well be persuaded to "otherwise order" is as referred to by White J (as his Honour then was) in Buzzle Operations, [1] that is, if the defendants were not in a position to assess the truth of the facts required to be admitted in the relevant period after the notice was served and they acted reasonably in disputing the facts. However, his Honour's acknowledgment that that would be a circumstance in which it might be appropriate to make an "otherwise order" does not mean that an indemnity order or consequence will follow only where that is not the case. It would undermine the rationale of r 42.8 if a party was expected to serve all its evidence on an issue before it could have the benefit of a notice to admit facts.
25. Thus the defendants' argument that after service of the plaintiff's lay and expert evidence, requests for and answers to particulars, and requests for and provision of documents, the defendants promptly changed their stance from one of non-admission to one of admission, is insufficient to show that they were not in a position to make an admission earlier. They needed at least to show by evidence that as a result of the service of evidence or the provision of particulars or the provision of documents they learnt things which, if known earlier, would have resulted in their not disputing the facts asserted in the notice to admit facts. The defendants made no attempt to do so, and subject to one matter referred to below, have not established any reason to depart from the default position.
26. The exception is that when the notice to admit was given, the plaintiffs were already under a direction to serve their evidence on insolvency; they had already retained and briefed an expert to prepare their expert's report; and the time for service of their expert evidence more or less coincided with the date on which the notice to admit would expire. Though they in fact served their evidence a little later than that, the costs of that evidence would, or at least should, have been incurred in any event, regardless of the notice to admit. In those circumstances it seems to me that the notice to admit cannot be regarded as a genuine attempt to avoid the costs of proving insolvency through the evidence that was served late in December of 2016, which costs were going to be incurred regardless. For that reason, the indemnity order should not extend to the evidence that was served in December 2016. As it seems to me, largely as a matter of convenience but partly in recognition of some of the other matters raised by the defendants, justice will be done if the indemnity order runs from the date on which the order for a separate question was made, namely 27 March 2017.
27. Significant complexities arise from the fact that there are before the Court four proceedings; that McDow is a defendant in three of them; that a notice to admit was not served in one of those three; and that there are otherwise different defendants; while the plaintiff's costs will have been common to all of the proceedings, at least on the question of insolvency. I confess to having struggled for some time as to how to accommodate those facts with the general principle that costs orders should be as simple for an assessor to implement as possible, and that a multiplicity of cost orders should be avoided. As a matter of principle, it seems to me that each of what I will call the three active defendants - McDow, the Henrys and Mancer - should be regarded as jointly and severally liable for the whole of the costs incurred by the plaintiffs over the four proceedings. Although it is true that no notice to admit was served in proceedings 77618, McDow 's involvement in the other proceedings implicates it in responsibility for the costs incurred after the notice disputing facts was served.
28. The practical course, as it seems to me, is to consolidate the four proceedings and to make a single costs order to the effect that I have indicated. The consolidation of the four proceedings does not mean that it will not be possible to make orders for the separate determination of any part of the consolidated proceedings against any individual defendant in the future; but not doing so would involve, at a minimum, four cost orders on different bases in different proceedings with considerable complexities of implementation.
29. Accordingly, the Court orders that: 1. Proceedings 2016/77602, 2016/77628, 2016/77618 and 2016/00077606 be consolidated. 2. McConnell Dowell Constructors Australia Pty Limited, Kelly Teresa Henry and Murray John Henry and Christine Mancer pay the costs of the plaintiff of the issue whether the company Heavy Plant leasing was unable to pay its debts as and when they fell due and insolvent, such costs to be assessed on an ordinary basis until 27 March 2017, and thereafter until 31 July 2017 on the indemnity basis, and thereafter on the ordinary basis. 3. For the purposes of any question of contribution between the parties liable under the foregoing order, McConnell Dowell be treated as one party, Kelly Teresa Henry and Murray John Henry as one party, and Christine Mancer as one party.
30. The Court further orders that: 1. Proceedings 2016/77618 be treated as the consolidated proceeding. 2. McDonnell Dowell Constructers (Aust) Pty Ltd provide a response to the plaintiffs' request for particulars dated 3 August 2017 by 8 September 2017. 3. Time for the plaintiffs to file a reply to the amended defence of McDonnell Dowell Constructers is extended to 22 September 2017. 4. The defendant Christine Mancer has leave to amend her defence by filing an amended defence admitting insolvency by 8 September 2017. 5. The plaintiffs serve any lay evidence in reply to the evidence of the Henrys by 18 September 2017. 6. The proceedings are adjourned to 23 October 2017 for further directions.

Endnote

1. Buzzle Operations v Apple Computer Australia Pty Ltd [2010] NSWSC 490 at [16]. 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: 05 February 2018