In the matter of A.C.N. 607 358 887 (formerly known as Carzapp Pty Ltd) (No 3) [2020] NSWSC 181

Supreme Court of NSW|2020-03-04|Before: Kunc J

Summary

The Court delivered its judgment in these proceedings on 8 November 2019: In the matter of A.C.N. 607 358 887 (formerly known as Carzapp Pty Ltd) [2019] NSWSC 1561 (the "Principal Judgment"). On 26 February 2020 the Court delivered its judgment as to the costs of the proceedings: In the matter of A.C.N. 607 358 887 (formerly known as Carzapp Pty Ltd) (No 2) [2020] NSWSC 144 (the "Costs Judgment"). These reasons assume a familiarity with both the Principal Judgment and the Costs Judgment and should be read with them. Defined terms in the Principal Judgment and the Costs Judgment have the same meaning in these reasons.
At the conclusion of the Costs Judgment I said: "92 Subject to any further submissions which any party may wish to make about the precise form of these orders, the orders which the Court proposes to make are: (1) Declare that the First Defendant is indebted to the First Plaintiff in the sum of $390,097.39. (2) Subject to the orders of the Court made on 8 November 2019 and 16 December 2019, the Amended Statement of Claim is otherwise dismissed. (3) The First Plaintiff is to pay 90% and the Second Plaintiff is to pay 10% of the Fourth and Fifth Defendants' costs of the proceedings, in each case on the ordinary basis up to and including 11 July 2018 and thereafter on the indemnity basis. (4) The First Plaintiff is to pay 90% and the Second Plaintiff is to pay 10% of the Sixth and Seventh Defendants' costs of the proceedings (including, for the avoidance of doubt of their Cross-Claim) in each case on the ordinary basis. (5) The Sixth and Seventh Defendants are entitled to set-off any amount owing to them pursuant to Order (4) by the First Plaintiff or the Second Plaintiff, as the case may be, against any amount payable to that plaintiff in the winding up of any of the First to Third Defendants."
Pursuant to my invitation to receive any further submissions, Mr Rosenblatt, on behalf of the Administrators indicated he wished to make submissions to the effect that the apportionment of the costs liability as between Twinkledom (90%) and Busy Traveller (10%) should not extend to their liability to the Administrators. In coming to the views which I expressed in the Costs Judgment, I had in fact taken into account the Administrators' opposition to the liability to them being split in that way.

The argument which led to the Costs Judgment

At the outset of the costs argument before me on 24 February 2020, the Court was informed that Twinkledom and Busy Traveller had agreed between themselves that they would bear any liability for the costs of the proceedings as to 90% and 10% respectively. That agreement could not govern those companies' liability to any of the defendants. As I said in paragraph [18] of the Costs Judgment, I gave no weight to how the plaintiffs agreed between themselves that the costs liability should be divided between them.
Mr T J Morahan of Counsel prepared the written costs submissions of Busy Traveller dated 31 January 2020. In that document he summarised the submissions of Graham, Marcus and the Administrators as to costs and then proceeded immediately to make Busy Traveller's submissions that "It is respectfully submitted that the proportion of the costs to be paid should be 90% by the first plaintiff and 10% by the second plaintiff".
Because those submissions followed immediately after a summary of both sets of defendants' submissions as to costs, I understood Busy Traveller's submission to relate to any liability which it may have had to any of those defendants, including the Administrators. At the hearing before me today, Mr Morahan confirmed that was his intention. Nevertheless, as it is not stated in terms, I do not think any criticism can be made of Mr Rosenblatt for not reading the submissions that way. There can be no doubt that the primary thrust of Busy Traveller's submissions was that the Administrators were not entitled to any costs.
Twinkledom's written costs submissions dated 31 January 2020, prepared by Mr L T Livingston of Counsel, did not address the point of proportional liability. However, in Twinkledom's submissions in reply dated 19 February 2020, Mr Livingston wrote "Twinkledom accepts that, as between it and the second plaintiff, it is appropriate that Twinkledom pay 90%, and the second plaintiff pay 10%, of Mr Meyerowitz's and Mr Lasarow's costs of the proceedings". Again, no criticism can be made of Mr Rosenblatt in circumstances where the Administrators were not referred to in the submission just quoted and, like Busy Traveller, Twinkledom's primary submission was that the Administrators were not entitled to any orders as to their costs.
At the hearing on 24 February 2020, I pressed Mr Livingston in relation to the apportionment (T2:32-43): "LIVINGSTON: It is now agreed between the first plaintiff and the second plaintiff that apportionment of costs should be 90% and 10%. HIS HONOUR: I saw that. But what does that actually mean? That may be an agreement between the two plaintiffs but are you suggesting that as between the parties that ought to be the order? LIVINGSTON: Yes. In my submission, the order ought to be the first plaintiff pay 90%, and the second plaintiff pay 10% of the fourth and fifth defendants' costs. HIS HONOUR: Thank you."
Again, without being critical of anyone, Mr Livingston's response to me did not mention the Administrators.
I also took the matter up with Mr G O'Mahoney of Counsel, who appeared for Graham and Marcus (T10:16-T11:5): "HIS HONOUR: What do you say about the apportionment question 90/10? Do you accept that that ought to be an inter partes apportionment as well? O'MAHONEY: No, we don't your Honour. We think that at its highest it might be an agreement as between the plaintiffs. But no, we don't accept that that is an agreement inter partes. HIS HONOUR: Well, no, but there is of course a difference between the two plaintiffs as it were agreeing between themselves what's really an indemnity arrangement, but presumably your position is you want joint and several liability for a hundred per cent of the costs against the two plaintiffs. O'MAHONEY: Precisely your Honour. And for the obvious reason, and I'm not for a moment suggesting it's the case here, but if a simple agreement as between the plaintiffs could be arrived at at this late stage and visited on the Court decisively, it might be that a plaintiff with an ability to meet an adverse costs order accepts liability to the tune of 10%, and a plaintiff without such ability to meet an adverse costs order accepts 90% of the liability, therefore frustrating the Court's processes. HIS HONOUR: What do you say on the inter partes basis that here you've got two plaintiffs, one was very much a small part of the proceedings, and the other was very much a large part of the proceedings. Do you accept that the Court has jurisdiction in its costs jurisdiction to make a distinction between them on that basis? O'MAHONEY: Yes we accept that, your Honour. HIS HONOUR: Why shouldn't I do that in this case? O'MAHONEY: We submit in this case the appropriate course is to treat the plaintiffs as one for the purpose of the litigation. They ran the matter together, they were commonly represented; they both were key witnesses in the cases each advanced by them. And we would say, your Honour, that the appropriate course is to make, should an adverse costs order be made against the plaintiffs, make them jointly and severally liable. HIS HONOUR: For the whole? O'MAHONEY: Yes. They are our submissions."
Critically, immediately after the exchange which I have just set out, I invited Mr Rosenblatt to make his submissions on behalf of the Administrators and he said (T11:9-13): "ROSENBLATT: I will be brief as well. The defendants which I act for also adopt the position in relation to the joint and several liability. It's one thing for the plaintiffs to have made a decision between themselves, but unless your Honour actually considers the various aspects and makes a ruling on it, it shouldn't be binding inter partes."
I was in no doubt that all of the defendants resisted any apportionment of the plaintiffs' liability to any of the defendants, and recorded as much in the Costs Judgment, where I said: "14 The defendants resisted any such apportionment as between them and the plaintiffs. Mr O'Mahoney submitted that the appropriate course was to treat the two plaintiffs as one for the purposes of the litigation. They ran the matter together and were commonly represented. Domenic and Dr O'Connor were key witnesses in each of the cases advanced by them. … 16 Quite apart from the factual situation, I accept Busy Traveller's submission that as a matter of law nearly all of the case was taken up by Twinkledom's oppression suit, claims of breach of the Shareholders' Agreement and challenging the appointment of the Administrators. Busy Traveller was not a party to the Shareholders' Agreement, had no standing to (and did not prosecute) the oppression proceedings and, if it did anything at all in relation to the appointment of the Administrators, it was no more than to support the position put on behalf of Twinkledom."
Mr Rosenblatt's position was that the Costs Judgment had not expressly considered the position of the Administrators in relation to the question of apportioning the plaintiffs' costs liability. Notwithstanding having made the submissions that I have recorded in paragraph [12] above, he submitted that had not been given an opportunity, and now on behalf of his clients wished, to put submissions as to why the circumstances of the Administrators were materially different to those of Marcus and Graham in relation to the question of apportioning the plaintiffs' liability to them. No other party opposed the Administrators being given that opportunity.

Consideration

Mr Rosenblatt made three submissions as to why Twinkledom and Busy traveller should be jointly and severally liable to the Administrators for the full amount of costs that might be payable.
First, he submitted that Twinkledom and Busy Traveller did not contend for an apportionment in respect of any liability they might have for the costs of the Administrators. I did not understand that to be the case and Mr Morahan of Counsel confirmed that his submissions (see paragraph [6] above) were made in relation to all of the defendants. However, nothing turns on this in circumstances where no one objected to the Administrators making their further submissions.
Second, it was submitted that apportioning the plaintiffs' liability to the Administrators did not "justifiably and reasonably arise" from the Costs Judgment.
After referring to what I had said in paragraph [16] of the Costs Judgment (set out in paragraph [13] above), the Administrators' submissions continued: "6. Accepting (as we must) His Honour's finding that the second plaintiff did "no more than support" the Invalidity Case, it is respectfully submitted that that finding (which is the only one relating to the Invalidity Case) does not give rise to an order apportioning the costs liability. 7. The support given by the second plaintiff was not inconsiderable. It took the form of pleading and running the Invalidity Case in equal measure with the first plaintiff. There was no distinction between the plaintiffs in how the case was run and none was identified either in the plaintiffs' costs submissions or His Honour's reasons. 8. Both plaintiffs took the position that the administrators were invalid and wanted them gone. It was this (equally) shared position that required the Defendants to defend the claims in the way they did and incur costs. It does not justify an apportionment order to say that one only supported the other. 9. That the first plaintiff had more at stake than the second or that the proceedings were at their essence a dispute between the director of the first plaintiff and fourth and fifth defendants is perhaps relevant to apportionment of the costs of the oppression and Shareholders' Agreement cases but is irrelevant to the Invalidity Case. The second plaintiff brought that case along with the first and should not escape with only a 10% costs liability."
I do not agree. The Administrators' argument does not cause me to depart from what I said in paragraph [16] of the Costs Judgment. My overall impression was, and remains notwithstanding the Administrators' further submissions, that even in relation to the challenge to the appointment of the Administrators, Busy Traveller played no more than a minor supporting role. Viewing the hearing in its entirety, I am unable to accept the Administrators' characterisation that the role of Busy Traveller was "pleading and running the Invalidity Case in equal measure with [Twinkledom]".
Third, the Administrators' submitted that giving effect to the apportionment as between the plaintiffs would have an unintended consequence. The submissions were: 10. The Court should take some meaning from the circumstances that the plaintiffs agreed between themselves to the 90/10% apportionment and that the first plaintiff said nothing in the face of the second plaintiff's submissions that the former deserved to wear nearly all the costs. In the Defendants' respectful submission this sort of apparent altruism should be viewed cynically. 11. The Defendants will adduce ASIC company and Personal Property Securities Register extracts and Title Search in relation to the first plaintiff showing the first plaintiff: (a) Has only $100 issued share capital; and (b) holds no real property or property against which a charge has been given. 12. According to para. 15 of the reasons His Honour was seeking to avoid injustice to the second plaintiff in making orders providing for a 90/10% apportionment. In the Defendants' respectful submission, the apportionment will have a different and unintended consequence, that is to potentially nullify the costs order."
There are two difficulties with these submissions.
First, even assuming Busy Traveller was financially better able than Twinkledom to meet any costs liability, ability to pay is not a proper basis on which to allocate responsibility for costs. In any event, this submission was rendered hypothetical by the discovery shortly before this latest hearing before me that Busy Traveller has in fact been deregistered for some months.
Second, I do not accept, on the material before me, the injustice feared by the Administrators is a real one (assuming it to be a relevant consideration). All the Court does know is that the Administrators are protected by the fact that the Court has concluded that the Administrators are entitled to set off any amount which, as liquidators, they might have to pay to Twinkledom against Twinkledom's liability to them (as administrators) for the costs of these proceedings (see paragraph [91] of the Costs Judgment). Although there was no evidence before me as to the likely amounts to be set off, Mr Rosenblatt fairly accepted that there was a possibility that the set off might substantially, if not completely, satisfy the Administrators' entitlement to 90% of their costs against Twinkledom.

Conclusion

None of the reasons advanced on behalf of the Administrators justifies the Court departing from the orders which it foreshadowed at the conclusion of the Costs Judgement. As discussed with the parties at the conclusion of the latest hearing, these reasons will be published electronically to avoid the costs of a further appearance, and the final orders proposed at the end of the Costs Judgment will be made in chambers.

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 March 2020

At a glance

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Judgment (5 paragraphs)

Cases Cited (2)

Cited By (1)