Cosmetic Laser Clinic Pty Ltd v Pirintji;; In the matter of Health and Beauty International Limited in Liquidation

Brief overview

1. Cosmetic Laser Clinic ran a cosmetic laser business ("the Avana business") at various sites in New South Wales. Mr Moini was the sole director and shareholder of these companies.
2. Cosmetic Laser Clinic sold the Avana business to Hair and Beauty International. On 29 September 2008, the sale was completed. Pursuant to the sale agreement (Avana sale agreement) Hair and Beauty International was to pay Cosmetic Laser Clinic $750,000 on completion and $1.375,000 12 months later ("the deferred component") and an amount for goodwill. On completion, Cosmetic Laser Clinic would give Hair and Beauty International possession of the Avana business and cause legal title to it to pass to Hair and Beauty International. As security for the purchase price, Hair and Beauty International would grant an charge and execute all documents necessary to register the charge with ASIC; and if Hair and Beauty International was in default of its payment obligations, Cosmetic Laser Clinic could purchase the Avana business back for $1.
3. It is common ground that the solicitor did not obtain an effective charge from Hair and Beauty International.
4. About a year later, Hair and Beauty International still owned the assets of a related company, Lasersmooth, used the assets (largely in the form of laser machines and fit out) and became the trading entity.
5. On 19 November 2009 Hair and Beauty International sold its assets to Body Technology for $561,000. On the same day, Lasersmooth sold its assets to Body Technology for $592,000. The business that was sold to Body Technology was largely the business that was the subject matter of the sale of the Avana business.
6. On 27 November 2009, Hair and Beauty International was placed into voluntary liquidation. Hair and Beauty International has failed to pay the deferred component to Cosmetic Laser Clinic.

The solicitor's proceedings

1. In the solicitor's proceedings, Cosmetic Laser Clinic's claims against the solicitor are, relevantly, for his negligence in failing to take those steps to register the charge and otherwise advise Cosmetic Laser Clinic in relation to securing the payment of the deferred component. Another issue in dispute is the value of the Avana business. Cosmetic Laser Clinic has served a report by Mr Potter accountant dated 4 October 2013, which provides an opinion on the value of the Avana business. The methodology adopted by Mr Potter is the depreciated replacement cost methodology.
2. At the same time as prosecuting of the solicitor's proceedings, Mr Moini, the sole director and shareholder of each Cosmetic Laser Clinic and Barodo Investments, is funding the liquidator in their action against Dr Mark Kohout and Dr Piera Kohout (who are husband and wife), and the directors of Hair and Beauty International, alleging, among other things, that Hair and Beauty International's assets and Lasersmooth's assets were sold at below a reasonable market value to Body Technology.
3. The liquidator has also alleged that aim of the directors of Hair and Beauty International in selling the Avana business to Body Technology was to prevent the plaintiffs from being able to enforce any judgment against Hair and Beauty International to recover the deferred component, and to ensure that Hair and Beauty International and Lasersmooth has no assets in the event that any action to recover the deferred component is successful.

The liquidator's proceedings

1. On 27 November 2009, Mr Kukulovski was appointed liquidator of Hair and Beauty International and Lasersmooth.
2. The brief facts are as follows:

• Hair and Beauty International purchased the Avana business from the plaintiffs in these proceedings for $2,125,000 plus stock;
• Between 29 September 2008 until around 19 November 2009, Hair and Beauty International owned the assets of the Avana business and Lasersmooth used the assets of the Avana business and was the trading entity;
• By agreement dated 19 November 2009, Hair and Beauty International sold its assets to Body Technology Pty Limited for $561,000 (however, the net purchase price payable to Hair and Beauty International was $395,000);
• By agreement dated 19 November 2009, Lasersmooth sold its assets to Body Technology for $592,000 (however, the net purchase price payable was $160,000).

1. The causes of action set out in the liquidator's FASC are: (a) Lasersmooth seeks $160,000 from Body Technology for breach of the Lasersmooth contract in that Lasersmooth failed to pay the consideration for the sale; (b) Lasersmooth seeks $160,000 from Mark Kohout pursuant to a personal guarantee given by him in clause 5(c) of the Lasersmooth contract; (c) Damages against Mark Kohout for breach of ss 180(1), 181(1), 182(1), 183(1) of the Corporations Act 2001 (Cth) and for breach of fiduciary obligations owed by him, in each case as a director of Hair and Beauty International by causing Hair and Beauty International to make payments totalling $393,501.34 from Hair and Beauty International's bank account. These payments were made to discharge a liability to CBFC. However, an allowance for the same liability had been made in the Hair and Beauty International contract and such liability was already deducted from the sale price; (d) Damages against Body Technology for its involvement in the contraventions of the Corporations Act by Mark Kohout referred to in paragraph (c) above; (e) Damages against Mark Kohout and Piera Kohout for breach of ss 180(1), 181(1), 182(1), 183(1) of the Corporations Act for loss and damage sustained by Hair and Beauty International and Lasersmooth in entering into the Hair and Beauty International contract and Lasersmooth contract. It is alleged that the sale price in each contract as at 19 November, 2009 was below a reasonable value. The relevant date of valuation of the loss is 19 November, 2009 (being the date of entry into each of the contracts).
2. The liquidators of Hair and Beauty International are seeking to recover damages and/or compensation from the directors of Hair and Beauty International. The most substantial head of loss is calculated by reference to the difference in effect between the actual value of Avana business disposed of, and the price paid by Body Technology. The liquidators have also engaged Mr Potter, who has provided an opinion on the value of the Avana business. Mr Potter uses the same methodology as he used in the report in the solicitor's proceedings, but provides valuations at different dates to the solicitor's proceedings.
3. Alternatively, in the liquidator's proceedings the liquidators rely on breaches of statutory and general law duties owed by the Kohouts. The Kohouts have denied any wrongdoing, and have raised defences including the breach of the Avana sale by Cosmetic Laser Clinic and Barodo Investments. The value of the Avana business is in issue in both the liquidator proceedings and the solicitor's negligence proceedings.
4. The Kohouts have issued an amended cross claim against 180 Corporate Pty Limited. 180 Corporate Pty Limited is alleged to have advised the Kohouts to sell the Avana business and to put Hair and Beauty International into liquidation. The Kohouts essentially seek an indemnity from 180 Corporate Pty Limited. On 30 March 2015, 180 Corporate Pty Limited advised the liquidator's solicitor that it wished to join its former employee, Jan Onley. However, that cross claim has not been filed. On 16 November 2015 (the Monday after this motion was heard), the following timetable was made granting leave to the cross defendants/cross claimants to rely on two affidavits, the cross defendant to serve all its affidavits on which it intends to rely on or before 29 January 2015.

Hearing dates and legal costs in both matters

1. It is estimated that all parties' evidence in the liquidator's proceedings will be completed by April 2016, at which time the liquidator will be seeking a hearing date. It has an estimated hearing time of 10 days, and if both proceedings are heard together, the liquidator estimates 4 week of hearing time. The liquidator's solicitor Mr Roser (Aff. 21/4/2015 [23]) provides an estimate of the costs of an additional 10 day hearing, excluding preparation and additional disbursements such as transcript, being not less than $107,400 plus GST. These costs are comprised of counsel's costs $4,500 per day x 10 days = $45,000; Mr Roser's firms costs for attending $550 per hour x 10 days = $44,000; and the liquidator to attend proceedings $560 per hour x 5 days = $18,400. I accept that with some overlap of the damages issue relating to the first transaction, the estimate may be reduced but not any significant extent.
2. The solicitor's proceedings are ready to take a date for trial. If liability is heard in the solicitor's proceedings separately from quantum, the parties estimate court hearing time of five days. If both liability and quantum were listed for hearing, the parties estimate the hearing time to take 10 days. If this matter were to be listed for trial today, it would be allocated a hearing date in April 2016 regardless of whether it were to take 5 or 10 days. Hence, it is likely that the solicitor's negligence proceedings will be heard before the liquidator's proceedings are ready for trial.

The relevant law

1. UCPR 28.5 reads: "28.5 Consolidation etc of proceedings If several proceedings are pending in the court and it appears to the court: (a) that they involve a common question, or (b) that the rights to relief claimed in them are in respect of, or arise out of, the same transaction or series of transactions, or (c) that for some other reason it is desirable to make an order under this rule, the court may order those proceedings to be consolidated, or to be tried at the same time or one immediately after another, or may order any of them to be stayed until after the determination of any other of them."
2. Sections 56, 57 and 60 of the Civil Procedure Act 2005 (NSW) are also relevant. They relevantly provide: "56 Overriding purpose (1) The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. (2) The court must seek to give effect to the overriding purpose when it exercises any power given to it by this Act or by rules of court and when it interprets any provision of this Act or of any such rule. … 57 Objects of case management (1) For the purpose of furthering the overriding purpose referred to in section 56 (1), proceedings in any court are to be managed having regard to the following objects: (a) the just determination of the proceedings, (b) the efficient disposal of the business of the court, (c) the efficient use of available judicial and administrative resources, (d) the timely disposal of the proceedings, and all other proceedings in the court, at a cost affordable by the respective parties. … 60 Proportionality of costs In any proceedings, the practice and procedure of the court should be implemented with the object of resolving the issues between the parties in such a way that the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute."
3. Austin J examined UCPR 28.5 in some detail in Ghose v CX Reinsurance Company Ltd [2007] NSWSC 367. His Honour made two relevant observations at [29] and [31]: "[29] It is of some utility to identify the factors that a court is likely to take into account in the exercise of its discretion on an application for consolidation or joint hearing. For example, Besanko J listed some nine matters to be considered, in the course of determining whether it was appropriate that eight proceedings be tried together (Humphries v Newport Quays Stage 2A Pty Ltd [2009] FCA 699 at [11]): 1 .Are the proceedings broadly of a similar nature? 2. Are there issues of fact and law common to each proceeding? 3. Will witnesses (lay and expert) in one proceeding be witnesses in one or more of the other proceedings? 4. Has there been an alternative proposal put forward that there be a test case and have the parties agreed to abide the outcome, or, at least, the determination of common issues of fact and law? 5. Is there a prospect of multiple appeals with substantial delays if the proceedings are not tried at the same time? 6. Will there be a substantial saving of time if the proceedings are tried at the same time, compared with each proceeding being tried separately? 7. Will an order that the proceedings be tried at the same time create difficulties in terms of trial management, complexity of procedural issues and difficulties in determining cross-admissibility of evidence? 8. Is one proceeding further advanced in terms of preparation for trial than the others? 9. Are there parties to one or some only of the proceedings who will be inconvenienced if all of the proceedings are tried at the same time? … [31] Some other factors were identified by Hely J in Wilson v Minister for Land and Water Conservation (NSW) (2003) 126 FCR 500 ; [2003] FCA 307. His Honour observed at [46] that a highly relevant factor in determining whether claims ought be consolidated is whether pursuing two claims, rather than a combined claim, is an abuse of process; and he also considered at [46] that a relevant factor pointing against consolidation was that it would force parties to be involved in a much larger set of proceedings relating to areas in which they had no interest. These considerations are relevant if the application is for joint hearing rather than consolidation, though in most circumstances they would be less weighty."
4. It should be noted that the solicitor is not seeking consolidation as such, but rather that these two sets of proceedings be heard at the same time.
5. On this topic, senior counsel for the plaintiff in the solicitor's proceedings, referred to Haddad v Nationwide New Pty Ltd; Cheikhor v Nationalwide News Pty Limited [2014] NSWSC 775 at [15] and [24].
6. All parties agree that the liability issues in the solicitor's proceedings and liability issues in the liquidator's proceedings do not overlap and that there is an overlap in the damages claims. What is in issue is whether commonality of the issues raised in the damages claims are substantial or small.

The solicitor's submissions

1. The solicitor submitted that there are compelling reasons why orders should be made pursuant to UCPR 28.5. Most important is that an award in the liquidator's proceedings must be taken into account in the calculation of any loss established by Cosmetic Laser Clinic in the solicitor's proceedings.
2. Further, counsel for the solicitor submitted that it would be just and reasonable that these proceedings and the liquidator's proceedings be consolidated or heard together for the following reasons: (a) The overlapping factual matrix can be properly explored in one rather than two sets of proceedings; (b) Contradictory judgments can be avoided; (c) Credit findings can be made in one such proceedings so as to avoid contradictory credit findings in different proceedings; and (d) The mechanics of reducing the judgment that the plaintiff might obtain in these proceedings with any judgment obtained in the liquidator's proceedings can be simplified and dealt with at the same time.

Cosmetic Laser Clinic's submissions

1. Counsel for Cosmetic Laser Clinic submitted that the solicitor must persuade the Court of two matters. First, that UCPR 28.5 is enlivened; and secondly, that the Court should exercise its discretion in favour of a joinder.
2. Cosmetic Laser Clinic says that these proceedings are very different to the liquidator's proceedings; and while the liquidator's proceedings are related to these proceedings, they are like distant cousins. They involve different parties, different issues and concern distinct events that occurred at different time periods.
3. Cosmetic Laser Clinic accepts that the solicitor cannot double recover and to the extent that it does, it is required to account to the solicitor. Cosmetic Laser Clinic is prepared to give an undertaking or any other suitable effective means of dealing with double recovery without creating substantial additional costs and time burdens through the joinder of two otherwise disparate proceedings.
4. Cosmetic Laser Clinic commenced these proceedings in 2011 and says that it is ready to be allocated a date for hearing. Counsel for Cosmetic Laser Clinic says that the merger of these proceedings and the liquidator's, or them being heard concurrently, will further delay the proceedings, especially as the defendants in the liquidator's proceedings have cross claimed against another party (180 Corporate Pty Limited), which will delay the timely administration of justice pursuant to s 56 of the Civil Procedure Act.

The liquidator's submissions

1. The Liquidator opposes orders 1 and 2 in the notice of motion on the basis that: (a) The pre-conditions for making an order in UCPR 28.5(a), (b) and (c) have not been established; (b) Alternatively, because the orders will result in the addition of three new "groups" of parties who will separately incur not less than $100,000 each in extra legal costs in circumstances where these parties have no interest in the issues in these proceedings. Any order for consolidation or joinder would not be consistent with the overriding purpose in s 56 of the Civil Procedure Act) as it would not result in the "quick and cheap resolution of the real issues".

No commonality

1. In the solicitor's proceedings, Cosmetic Laser Clinic's claim that the solicitor breached his retainer in failing to give them certain advice in relation a contract for the sale of the business ("the first transaction"). Exchange and settlement of the original sale contract occurred on 29 September 2008.
2. Neither the original sale contract nor the circumstances of entry into it, form any part of the equity proceedings. The only commonality (if it be that) is that substantially the same business was the subject of the Hair and Beauty International's contract and Lasersmooth's contract some 14 months later. Each proceeding involves different parties, contracts, breaches and valuation dates (and damages).

Do the terms of the proposed amended defence raise issues of commonality?

1. The proposed amendments to the defence do not raise matters which require an order for joinder of proceedings. This proposition is self-evident having regard to the matters pleaded in the proposed amended defence: (a) Contributory negligence at paragraphs 29-34; (b) Breach of contract at paragraphs 35-39; (c) Proportionate liability at paragraphs 40-47.
2. The reduction of damages claim is pleaded at paragraphs 48-58 of the proposed amended defence. Paragraph 58 is in the following terms: "In the premises, any damages awarded to the plaintiffs should be reduced by the amount that the plaintiffs receive as a dividend out of any judgment in the Liquidator's Proceedings."
3. Cosmetic Laser Clinic will only recover any damages from the liquidator if the following three steps occur. They are: (1) The liquidator is successful in the equity division proceedings; (2) The liquidator is able to enforce any judgment; (3) The amount of dividend is determined by the liquidator once steps (1) and (2) are completed and his costs and expenses are finalised.
4. It follows that even if the Court were to make an order that the proceedings be heard together, the amount of any reduction in damages would not be known until steps (2) and (3) were completed. Thus, any joinder would be of no utility to determining damages.

Conclusion

1. It is my view that a threshold issue has been met because part of the damages in both proceedings arise out of the same transaction, namely, the contract between the Cosmetic Laser Clinic and Hair and Beauty International dated 29 September 2008 (the first transaction). However, the liquidator's claim involves other latter transactions such as a sale of the business and assets by Hair and Beauty International to Lasersmooth, the sale of assets to Body Technology, a personal guarantee given by Dr Mark Kohout and the indemnity sought by the Kohouts from 180 Corporate Pty Limited.
2. It is not clear whether the liquidator will recover damages in relation to the first transaction. As previously stated, that depends on the liquidator being successful in all of the following three steps, firstly, the liquidator is successful in the equity division proceedings; secondly, the liquidator is able to enforce any judgment; and finally the amount of dividend is determined by the liquidator once steps (1) and (2) are completed and his costs and expenses are finalised, there may be no funds left to distribute to Cosmetic Laser Clinic. However, the damages that have arisen to Cosmetic Laser Clinic wil be assessed if the proceedings were heard together. If funds are recovered by Cosmetic Laser Clinic and if it was successful in its claim for damages against the solicitor, Cosmetic Laser Clinic will proffer an undertaking to reimburse the solicitor for the sum paid by the liquidator.
3. The solicitor's proceedings are ready to take a hearing date. These proceedings may be listed for hearing in April 2016, regardless of whether they are listed for liability only or for both liability and quantum. This hearing most likely will take place before the liquidator's proceedings are ready for trial.
4. I accept that there will be an overlap of the same witnesses in both damages claims, such as the director of Cosmetic Laser Clinic, Mr Moini and the expert accountant, Mr Potter. Mr Potter has used the same valuation methodology in both damages claims and calculated the valuation of the Avana business in both proceedings. There is also the possibility that the same two lay witnesses, Mr Shane Steinwell and Mr Farzad Hendi who have provided affidavits in relation to the Cosmetic Laser Clinic's business structure and the manufacture and cost of laser aid, will be called to give evidence at both trials. That being so, I accept that it is possible that different credit findings may arise in relation to these witnesses in the different proceedings. I also accept that having two separate proceedings gives rise to two separate appeals. A more important consideration is that only a small part of the factual matrix overlaps.
5. If both matters are heard together, there will be more hearing time required and more legal costs incurred. There will be a longer set of proceedings that will necessitate all parties being required to be present when they have no interest in the evidence being given on particular issues.
6. While the threshold issue has been met, after taking these discretionary matters into account, it is my view that these two proceedings should not be heard together because the parties will incur more legal costs on the larger set of proceedings and this is not in the interest of justice where there is in reality a relatively small amount of commonality in the damages claim

Determination of separate question

1. UCPR 28.2 reads: "28.2 Order for decision The court may make orders for the decision of any question separately from any other question, whether before, at or after any trial or further trial in the proceedings."
2. There are a number of authorities on this topic which include Tepko Pty Limited v Water Board [2001] HCA 19; (2001) 206 CLR 1; Perre v Apand Pty Limited [1999] HCA 36; (1999) 198 CLR 180 at [436]; State of New South Wales v Lepore [2003] HCA 4; (2003) 212 CLR 511 at [187]; Dunstan v Simmie & Co Pty Ltd [1978] VR 669 at 671.30; and per Rolfe J in ABB Engineering Construction Pty Limited v Freight Rail Corp [1999] NSWSC 1037. In Idoport Pty Limited v National Bank Ltd [2000] NSWSC 1215, Einstein J at [7]-[8] helpfully provides a compendium of cases upon this topic which I need not reproduce here.
3. In Tepko, Kirby and Callinan JJ cautioned against the severing of issues by the court. Their Honours stated: "[168] …we should not leave this case without making four comments. Both Mason P and Fitzgerald JA were critical of the course of limiting the issues to be tried that the primary judge adopted. In Perre v Apand Pty Ltd attention was drawn to difficulties that can be caused when that course is adopted. In light of the experience in this case, what was there said should be restated with emphasis. The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real. Common experience demonstrates that savings in time and expense are often illusory, particularly when the parties have, as here, had the necessity of making full preparation and the factual matters relevant to one issue are relevant to others, and they all overlap. [169] The second and related comment is this. A party whose whole case is knocked out on a trial of a preliminary or single issue, may suspect, however unjustifiably, that an abbreviated course was adopted and a decision reached in the court's, rather than the parties', interests. [170] Thirdly, there is an additional potential for further appeals to which the course of the trial on separate issues may give rise. Indeed, that could occur here were this appeal to be allowed and a retrial had in which the remaining issues of causation and damages were decided. Single-issue trials should, in our opinion, only be embarked upon when their utility, economy, and fairness to the parties are beyond question. [171] The fourth of our comments is related to evidence compiled, committed to writing and filed in advance of the hearing. Parties frequently, either together or separately, compile "books of documents". Although most of these have the potential to be admitted in evidence, often they are defective in form. Many of them are often irrelevant, or their significance is either not recognised or adverted to during the hearing. Their status, as in the case of the letter written by Mr Rhodes, can be ambiguous. Discrimination and economy should be exercised by those who prepare cases in which documentary evidence is likely to be extensive and important. Those who conduct such cases should ensure that what is actually in evidence, and its relevance and significance, are clearly identified." [Footnotes omitted]
4. As previously stated in the solicitor's proceedings, the same hearing date can be allocated regardless of whether liability only is listed for hearing (5 days) or both liability and quantum are heard together. It is my view that factual matrix will involve both liability and quantum. Mr Moini will be required to give evidence in relation to both liability and quantum. Overall, in my view, there is no bright line between the issues of liability and quantum. I do not think that a separate determination of liability will result in saving of court time and parties' legal costs. I decline to order that liability and quantum be determined separately.

Conclusion

1. The result is that the solicitor's further amended notice of motion dated 21 August 2015 is dismissed.

The Court orders that: (1) The further amended notice of motion dated 21 August 2015 is dismissed. (2) The common law proceedings 2011/363483 - Cosmetic Laser Pty Ltd v Steven Michael Pirintji are listed for directions at 9.00 am on 18 December before the Registrar. (3) In common law proceedings 2011/363483 - Cosmetic Laser Pty Ltd v Steven Michael Pirintji the defendant is to file and serve short written submissions on costs on or before 5.00 pm on Thursday, 10 December 2015. (4) Any party who wishes to response to those submissions are to file and serve short written submissions on costs on or before 5.00 pm on Monday, 14 December 2015.

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: 07 December 2015