Liberty Industrial Pty Limited v Donald Mcarthy Trading Australia Pty Limited

Judgment - EX TEMPORE Background 1The plaintiff, Liberty Industrial Pty Limited ("Liberty"), commenced proceedings on 20 August 2012 seeking a declaration that the defendant, Donald Mcarthy Trading Pty Limited (in liquidation)("DMT") was indebted to it in the amount of $1,265,288.75. An administrator was shortly afterwards appointed to DMT on 28 August 2012 and the administrator was subsequently appointed as liquidator on 2 October 2012 when, I infer, the company passed from administration into voluntary liquidation. 2Liberty lodged a proof of debt with the liquidator reflecting the claim made in the proceedings. At a second creditors' meeting on 2 October 2012, the then administrator (now liquidator) noted the possibility that Liberty would continue the proceedings so as to seek to establish its claim to interest and costs. 3It appears that none of the directors of DMT have ever contested that DMT was, on any view, indebted to Liberty in a very substantial amount, although two overseas directors of Liberty have not admitted the quantum of that amount. By 18 October 2012, the liquidator had apparently formed the view that Liberty was owed at least $1.17 million by DMT and sought a direction from the Court that he would be justified in admitting a proof of debt of Liberty in that amount. The Court did not make that direction, on the basis that the liquidator should properly reach his own decision in that regard, or otherwise that matter could be established by these proceedings. On 29 October 2012, the Court granted leave for Liberty to continue the proceedings under s 500 of the Corporations Act 2001 (Cth). 4By 1 November 2012, the liquidator had apparently formed the view, and had advised the two overseas directors of DMT, that DMT was indebted to Liberty in the amount of $1,164,239.68, being the amount claimed by Liberty in these proceedings less a deduction for an amount of scrap metal that third parties had claimed had not been received when stock sold by Liberty to DMT was onsold to those parties. 5On 20 December 2012, the liquidator rejected Liberty's proof of debt in the full amount claimed but, in effect, admitted a proof of debt for $1,146,592.36, after deducting a further amount of $17,647.32 in respect of alleged damage to a shipping container. On 24 January 2013, Liberty indicated that it would accept that amount but pressed its claim for costs and interest in these proceedings. Verdict and judgment 6Liberty proceeded in the hearing before me on an Amended Summons, filed by leave today. First, Liberty seeks verdict and judgment against DMT in the amount of $1,146,592.36, being the amount admitted to proof by the liquidator, and interest under s 100 of the Civil Procedure Act 2005 (NSW). 7The liquidator initially resisted those orders in his outline of written submissions but accepted at the commencement of oral submissions that they should be made. In my view, that concession was properly made. As I noted above, by the time of his application for directions to the Court, the liquidator had formed the view that $1.17 million was owed to Liberty; by 1 November, he had formed the view that in excess of $1.164 million was owing; and, by 20 December, he had admitted a proof of debt by Liberty for $1.146 million. I find it difficult to see how, consistent with the liquidator's obligations in the conduct of these proceedings under s 56 of the Civil Procedure Act 2005 (NSW), he could have caused the company to deny that an amount was owing which, in admitting the proof of debt, he had acknowledged it was in fact owing. The concession made by the liquidator today was therefore consistent with the stance taken by the liquidator in accepting the proof of debt for that amount. An admission of the amount due to it would in turn have entitled Liberty to judgment in that amount and, in the ordinary course an order for interest under s 100 of the Civil Procedure Act. I should also note that an admission in that regard seems to me to be consistent with the broader principle applicable to the conduct of liquidators reflected in Ex parte James; Re Condon (1874) LR 9 Ch App 609; that principle is not limited to a liquidator acting as officer of the Court in a court-ordered winding-up, as Needham J noted in Re Autolook Pty Ltd (1983) 8 ACLR 419 at 421. 8I should note that the liquidator has reserved his position as to whether the interest awarded would be admissible to proof in the winding up. That issue is not before me and I make no comment in that regard. 9Liberty also sought an order that it be admitted as a creditor in the amount of the judgment. I do not presently consider it necessary to make that order where the liquidator, by his counsel, has made clear that there is no suggestion that he will not act in accordance with a judgment of the Court. I will, however, reserve liberty to the plaintiff to apply should any difficulty arise in that regard. Costs 10Liberty also seeks an order that DMT pay its costs of the proceedings on an ordinary basis. Section 98 of the Civil Procedure Act provides that, subject to the rules of court, costs are in the Court's discretion, which has the power to determine by whom and to what extent costs are to be paid. Liberty approached this issue on the basis that the principles applicable where a settlement of proceedings had occurred and there had been no hearing on the merits were applicable. I would not myself have adopted that characterisation of events, since it seems to me that the true position is that, rather than settling the proceedings, the liquidator had allowed a substantial part of the debt in acknowledging Liberty's proof of debt; that had the consequence that the Liquidator could not resist judgment in that amount; and judgment has followed from that matter rather than from a settlement of the proceedings. 11However, even on the basis that the principles applicable to a settlement of proceedings were to be applied, it seems to me that the history of the liquidator's recognition of the amounts owing to Liberty, to which I have referred above, means that the court can be satisfied that Liberty would have succeeded if the matter was fully heard, and that warrants an order for costs in its favour notwithstanding a settlement of the proceedings: Re Minister for Immigration and Ethnic Affairs (Cth); Ex parte Lai Qin (1987) 186 CLR 622 at 624-625; Transfield Services (Australia) Pty Ltd v Gaha [2012] NSWSC 865 at [27]. On the view of events that I would take, this is a matter in which an order for costs in favour of Liberty would follow the event, reflecting the ordinary operation of s 98 of the Civil Procedure Act and Uniform Civil Procedure Rules 2005 (NSW) rule 42.1. On either view, it seems to me that Liberty is entitled to its costs of the proceedings, subject to one other matter raised by the liquidator which I will now address. 12The liquidator did not resist an order that Liberty should have its costs of the proceedings up to the date when administrators were appointed on 28 August 2012, but contended that proceedings were then stayed until leave to proceed was granted on 29 October 2012, and that it was thereafter not necessary for Liberty to pursue the proceedings when the liquidator would in due course deal with its proof of debt. So far as this submission relies on the stay arising from administration and liquidation, I do not accept it, because work could properly be done by Liberty's solicitors in anticipation that leave would be granted for the proceedings to be continued, as it was; and the costs of that work are properly recoverable once those proceedings did continue, noting that, had it not been done in that period, it would no doubt would have had to be done after such leave was granted. 13I also do not accept the latter submission, relying on the fact that the liquidator subsequently admitted the proof of debt, since the course of events that I have set out above indicates that, as at mid October 2012, the liquidator's apparent position was that he would not or could not admit Liberty's claim without judicial advice or a direction that the Court did not give; there is no suggestion that he subsequently advised Liberty of any change of mind in that regard, prior to allowing Liberty's proof of debt in large part; and the liquidator had not opposed the grant of leave to Liberty to continue the proceedings, and, in particular, had not opposed that grant of leave on any basis that the matter would be addressed by his ruling on a proof of debt. In these circumstances, I find it difficult to see that Liberty could have had any realistic expectation that its claim would be determined promptly, if it did not continue proceedings, and I consider that it acted reasonably in doing so. 14Liberty also applies for an order that its costs of the proceedings be assessed in a lump sum under s 98 of the Civil Procedure Act. It relies on an affidavit of the solicitor with day to day conduct of the matter on its behalf, Mr Jury, in support of that application. The liquidator's position is that, to the extent that costs are ordered in favour of Liberty, they should be left to be agreed or assessed in the ordinary course. Section 98(1) of the Civil Procedure Act relevantly provides that the court may make an order to the effect that a party to whom costs are to be paid is entitled to a specified gross sum instead of assessed costs. That power has most commonly been exercised where costs have been incurred in lengthy or complex cases and it is not a power that the court would routinely exercise in place of the cost assessment process. The power to make a gross sum costs order should only be exercised where the court considers it can do so fairly between the parties, including achieving an appropriate sum on the materials available to it, and the courts have typically applied a discount in assessing costs on a gross sum basis: Ritchie's Uniform Civil Procedure NSW [s98.65]; Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23. 15In the present case, it seems to me that several factors are sufficient to justify a lump sum costs order. First, as Mr Jury's evidence indicates, assessment is likely to take approximately 7 to 12 months from the date of the cost order and the assessment process would delay a finalisation of the winding up; second, additional costs would inevitably incurred by both parties' solicitors and additional disbursements would be incurred in an assessment, including the likely costs of cost consultants to the parties and the assessor's fee for conducting the assessment; third, information provided by the liquidator's counsel, without objection by Liberty, indicates that there is already likely to be a deficiency in DMT's assets as against its liabilities which would likely be increased by those additional costs; fourth, as I noted below, Liberty has led detailed evidence as to the costs it has in fact incurred; and, fifth, as the liquidator's counsel fairly accepted in submissions, the amount claimed by Liberty does not on its face appear to be excessive. I note that the inability of an insolvent party to meet a costs order in full and the time likely to be required for assessment were factors which were treated as supporting a gross sum cost order in Dubow v Fitness First Australia Pty Ltd (No 2) [2012] NSWSC 961 per Garling J at [14]-[20]. I am satisfied that a lump sum order should be made in this case. I turn now to the principles applicable to the quantification of such an order. 16Where a gross costs order is made, the court is not required to undertake a detailed examination of the kind which would be undertaken in a cost assessment, in determining a gross sum payable, and will apply "a broad brush" approach: Hadid v Lenfest Communications Inc [2000] FCA 628 at [35]; Harrison v Schipp (2002) 54 NSWLR 738. Mr Jury has given evidence of substantial experience as a solicitor practising in commercial and civil litigation, including in the preparation of bills of costs and the consequential assessment process. A costs agreement between DMT and its legal representatives is in evidence; summary pages of invoices sent to DMT are in evidence; Mr Jury has reviewed the relevant invoices to exclude matters that do not properly relate to the conduct of the proceedings, and has quantified solicitor/client costs and disbursements (excluding counsel's fees) referable to the proceedings to 25 January 2013 as in the order of $78,500 and made a further estimate of the costs referable to the hearing today. Evidence has also been given of counsel's actual fees and the estimated fees of today, which are on their face appropriate for a counsel of his experience. 17Mr Jury gives evidence, based on his experience, that he would expect Liberty would recover 60-80 per cent of solicitor's fees and all of its disbursements and counsel's fees on an assessment. It seems to me that that assessment is consistent with the court's experience of the result of assessment, although on one view it is somewhat conservative. I note that, in Dubow v Fitness First Australia Pty Ltd (No 2) above, Garling J expressed a similar view in respect of a similar range, and was prepared to make a gross sum cost order for two-thirds of the costs actually paid on a solicitor-client basis. I would adopt the same approach, on the basis of Mr Jury's evidence and common experience of assessments, noting that the conservatism of the percentage adopted is consistent with allowing some discount in ordering costs on a gross sum basis. 18In my view, Liberty is therefore entitled to an order for costs on a lump sum basis, quantified as two-thirds of its solicitor-client costs referable to the proceedings, as set out in Mr Jury's affidavit, and its proper disbursements and counsel's fees. The parties agreed that I should not seek to calculate that amount, but allow time for the liquidator's solicitor to review the detail of those amounts and raise any issue as to any particular attendance, and for the parties to seek to agreement as to the amount due, on the basis of the principles that I have set out. 19Liberty has been substantially successful in the application before me and, in my view, the defendant should pay the costs of today. I therefore make following orders, which should be reflected in the form of draft orders to be prepared by the relevant parties: