Malayan Banking Berhad v Vietnam Industrial Investments Ltd

Supreme Court of NSW|2024-07-08|Before: McGrath J, Black J

INTRODUCTION

On 30 September 2022, on the application of the plaintiff, Malayan Banking Berhad, Black J ordered that the defendant, Vietnam Industrial Investments Ltd, be wound up in insolvency and that David Mansfield and Matthew Donnelly be appointed joint and several liquidators of Vietnam Industrial.
On that occasion, Black J also made the following orders: 1. costs (including reserve costs if any) be assessed and reimbursed out of the defendant's property in accordance with s 466(2) of the Corporations Act 2001 (Cth); and 2. reserve liberty for the plaintiff to apply in chambers for a lump sum costs order in respect of the costs of the application.
The reasons given by Black J for making these orders are expressed in Re Vietnam Industrial Investments Pty Ltd [2022] NSWSC 1411 (Vietnam Industrial Judgment).
Malayan Banking has now applied pursuant to the liberty granted on 30 September 2022 for an order that the liquidators of Vietnam Industrial reimburse Malayan Banking out of the property of Vietnam Industrial for costs in the amount of $233,628.32 on an indemnity basis or, alternatively, $198,566.77 on an ordinary basis, and the costs of the assessment and this application in the amount of $32,412.00.
The liquidators of Vietnam Industrial have been provided with notice of this application, have not provided any submissions in respect of it and have confirmed that they neither consent to nor oppose the application.

Gross sum costs

Section 98 of the Civil Procedure Act 2005 (NSW) (CPA) relevantly provides: Courts powers as to costs (1) Subject to rules of court and to this or any other Act - (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. … (4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to - … (c) a specified gross sum instead of assessed costs …
In Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213, Giles JA at [21] said (citations omitted): The power conferred by [s 98(4)] is not confined, and may be exercised whenever the circumstances warrant its exercise. It may appropriately be exercised where the assessment of costs would be protracted and expensive, and in particular if it appears that the party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment.
In Hoho Property Pty Ltd v Bass Finance No 37 Pty Ltd [2022] NSWSC 1062, Rees J at [12]-[15] summarised the principles pursuant to which the court should approach the task of calculating the gross sum that should be awarded as follows: [12] In Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23, Einstein J summarised the principles which inform the exercise of the discretion to specify a gross sum, at [9]: … ii. the touchstone requires that the Court be confident that the approach taken to estimate costs is logical, fair and reasonable: [Beach Petroleum NL v Johnson (1995) 57 FCR 119] at [16]; iii. the fairness parameter includes the Court having sufficient confidence in arriving at an appropriate sum on the materials available: Harrison v Schipp (2002) 54 NSWLR 738, per Giles JA at [22] …; iv. a gross sum assessment, by its very nature, does not envisage that a process similar to that involved in a traditional taxation or assessment of costs should take place: Harrison v Schipp at [22]; v. the gross sum "can only be fixed broadly having regard to the information before the Court": Beach Petroleum at 124; [In Hadid v Lenfest Communications Inc [2000] FCA 628 at [35] it was said that the evidence enabled fixing a gross sum "only if I apply a much broader brush than would be applied on taxation, but that … is what the rule contemplates".] vi. nevertheless the power to award a gross sum must be exercised judicially, and after giving the parties an adequate opportunity to make submissions on the matter: Leary v Leary [1987] 1 WLR 72 at 76, and Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120; vii. In terms of the necessity for the approach taken to be logical, fair and reasonable, Von Doussa J in Beach Petroleum NL v Johnson & Ors (No 2) (1995) 57 FCR 119, put the matter as follows, at [16]: On the one hand the Court must be astute to prevent prejudice to the respondents by overestimating the costs, and on the other hand must be astute not to cause an injustice to the successful party by an arbitrary "fail safe" discount on the cost estimates submitted to the Court: Leary v Leary at 265 … [13] His Honour's summary has been cited with approval in the Court of Appeal: Hamod v New South Wales [2011] NSWCA 375 per Beazley JA, with whom Giles and Whealy JJA agreed, at [793]. Her Honour continued, at [816]: … the factors that merit particular consideration include: the relative responsibility of the parties for the costs incurred … the degree of any disproportion between the issue litigated and the costs claimed; the complexity of proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability… [14] And at [820] (citations omitted): The costs ordered should be based on an informed assessment of the actual costs having regard to the information before the court (for example, by relying on costs estimates or bills). The approach taken to estimate the costs to be ordered must be logical, fair and reasonable. This may involve an impressionistic discount of the costs actually incurred or estimated, in order to take into account the contingencies that would be relevant in any formal costs assessment. [15] Further, as Ball J explained in Baychek v Baychek [2010] NSWSC 987 at [11]: …Implicit in this principle is that the gross sum bear a reasonable relationship to the actual costs of the party making the application, and to the costs that that party might reasonably be expected to recover on assessment. That means, among other things, that there must be a reasonable evidentiary basis for the order the court makes. That evidentiary basis is normally provided by the costs applicant in the form of an affidavit setting out the actual costs incurred and how they were calculated. Often, the evidence also includes evidence of the amount that is likely to be recovered on assessment.
In undertaking the exercise of calculating a gross sum, in Penson v Titan National Pty Ltd (No 3) [2015] NSWCA 121, JC Campbell AJA at [7] said (citations omitted): Because s 98(4)(c) makes clear that a gross sum costs order is intended to be an alternative to assessed costs, the meticulous item by item examination of a bill of costs that occurs in the course of an assessment need not be engaged in. A "broader brush" approach can be adopted. However, because the discretion is one which must be exercised judicially the Court must arrive at a figure that it is confident does justice between the parties, even though the full assessment process has not been gone through. In Hamod at [814] this court approved the statement in Richie's Uniform Civil Practice (NSW) that "the courts have typically applied a discount in assessing costs on a gross sum basis".

Indemnity costs

The Court of Appeal of this court recently reviewed and summarised the principles governing the discretion to award costs on an indemnity basis based on the conduct of a party in Cappello v HomeBuilding Pty Ltd [2023] NSWCA 109. In Cappello, Mitchelmore JA (with whom Simpson AJA and Meagher JA agreed) at [46]-[48] observed: [46] The Court has a discretion to award costs on an ordinary or indemnity basis. Usually costs will follow the event, unless the Court considers that some other order ought to be made: Civil Procedure Act 2005 (NSW), s 98; Uniform Civil Procedure Rules 2005 (NSW), r 42.1; Collier v Country Women's Association of New South Wales [2018] NSWCA 36 at [116] ("Collier"). [47] For an order of indemnity costs to be made, the conduct of the party against whom such costs are sought must usually exhibit some special or unusual feature: Collier at [117]. The focus is on the way the litigation was conducted: Mead v Watson [2005] NSWCA 133 at [8]-[9]. For example, the discretion may be enlivened where a party persists in what should have been seen to be a hopeless case, such as where the case was unduly prolonged by groundless contentions: Ferella at [36]; Liverpool City Council v Estephan (Executor and Administrator of the Estate of the late Jocelyn Estephan) [2009] NSWCA 161 at [93] (Liverpool City Council). It has also been said that indemnity costs may be awarded where the unsuccessful party's conduct was unreasonable or delinquent: Amirbeaggi v Matrix Group Co Pty Ltd [2021] NSWCA 21 at [18]. [48] The categories of circumstances in which the discretion may be exercised are not closed: Liverpool City Council at [93]. Ultimately, the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on the ordinary basis: Liverpool City Council at [93].
The principle of whether the court should award indemnity costs arising from a contractual entitlement to the recovery of costs on that basis has also been considered on a number of occasions by this court.
In Rail Corporation New South Wales v Leduva Pty Ltd [2005] NSWSC 138, Nicholas J at [27] applied the approach in Gomba Holdings (UK) Ltd v Minories Finance [1993] Ch 171; [1992] 4 All ER 588 at 194, that ordinarily the court's discretion as to costs should be exercised so as to reflect the contractual right. This principle was approved in Abigroup Limited v Sandtara Pty Limited [2002] NSWCA 45, by Stein JA at [9]: It is, of course, correct that a court is not bound to give effect to any extra curial contract as to costs when exercising its discretion to award costs. It does not follow, however, that the discretion takes over from the contract and the exercise of discretion against giving effect to the contract precludes enforcement of the contract as to costs… [A]greements as to costs are common practice and perfectly valid and enforceable… The contractual right simply stands independently of the curial power and order.
In Kyabram Property Investments Pty Ltd v Murray [2006] NSWSC 54, Campbell J made an indemnity costs order, stating at [17]: … The jurisdiction which is being invoked here is the jurisdiction of the Court to make an order for costs on a basis other than the usual party/party basis in circumstances where there is a contractual agreement that costs will be dealt with other than on the usual party/party basis. When there is such a contractual entitlement to costs on a different basis, the Court will usually give effect to that contract, by its own order for costs: Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171; Leda Holdings Pty Ltd v Oraka Pty Ltd [1999] FCA 444; Rayner and Anor v Australia and New Zealand Banking Group Limited [2003] WASCA 264 at [25]-[26] per Murray and Parker JJ; Rumball & Ors v Mortimore [2000] WASC 126 per Owen J at [15]-[17]. It was considerations like these which led Palmer J, in his judgment of 24 November 2005, to make an order for costs of those proceedings on an indemnity basis: Kyabram Property Investments Pty Ltd & Anor v Murray [2005] NSWSC 1202 at [9].
In Dee-Tech Pty Limited & Anor v Neddam Holdings Pty Limited (No 2) [2012] NSWSC 517, White J held that the contractual qualification for "reasonable legal costs" did not justify making an indemnity costs order, for the following reasons expressed at [44]-[46]: [44] … Where parties have contracted that costs be paid on a particular basis, it will usually be proper that the statutory discretion as to costs be exercised so as to approximate as closely as possible the parties' contract (Gomba Holdings UK Limited & Ors v Minories Finance Limited & Ors (No. 2) [1993] Ch 171 at 194; Kyabram Property Investments Pty Ltd & Anor v Murray & Anor [2005] NSWCA 87 at [12]; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No. 2) [2011] NSWCA 171 at [36]). Under the current legislation (s 98 of the Civil Procedure Act and Pt 42 of the Uniform Civil Procedure Rules) costs the subject of an order under s 98 are to be assessed on one of two bases, either the ordinary basis or the indemnity basis. [45] If costs are assessed on the ordinary basis, a costs assessor is to determine whether or not it was reasonable to carry out the work to which the costs relate, whether or not the work was carried out in a reasonable manner, and what is a fair and reasonable amount of costs for the work concerned (Legal Profession Act 2004, s 364(1)). That is what would be required in a determination of what reasonable legal costs were incurred by the lessor relating to a default by the lessee. [46] If costs were ordered to be assessed on the indemnity basis, the lessor would be entitled to all its costs, other than those that appeared to have been unreasonably incurred, or appeared to be of unreasonable amount (r 42.5(b)). If costs were ordered on the indemnity basis and the costs assessor was in doubt as to whether a particular item of charge was reasonable, he or she would be obliged to allow it. However, under clause 4.10.3 of the lease, the lessor would be entitled only to those costs which were reasonable, not those costs which might be reasonable. It would not be in accordance with the lease to cast on the lessee the burden of proving that a charge was unreasonable. In other words, whilst contractual provisions may have the effect that costs should be ordered on the indemnity basis rather than the ordinary basis, whether that is so depends upon the terms of the particular contract. In the case of the present lease, an order for costs on the ordinary basis is in accordance with the contractual term.
In A1 Catering Services Pty Ltd v Manassen Holdings Pty Ltd (No 2) [2024] NSWSC 530, Richmond J at [17], awarded indemnity costs arising from a contractual entitlement, stating the principles as follows: Costs are in the discretion of the Court and may be awarded on the ordinary basis or on an indemnity basis: Civil Procedure Act 2005 (NSW), s 98. In circumstances where there is a contractual entitlement for the payment of costs on an indemnity basis which is valid and enforceable, the Court will ordinarily exercise its discretion in accordance with the contractual entitlement: Gomba Holdings UK Ltd & Ors v Minories Finance Ltd (No 2) [1993] Ch 171 at 194; Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 at [12]-[14]; Kyabram Property Investments Pty Ltd v Murray [2006] NSWSC 54 at [17]-[18]; Dee-Tech Pty Ltd & Anor v Neddam Holdings Pty Ltd (No 2) [2012] NSWSC 517 at [44].
In A1 Catering Services, Richmond J distinguished the decision in Dee-Tech on the basis that the contract under consideration in that case did not contain any qualification of "reasonable legal costs", stating at [19]-[20]: [19] Critical to his Honour's conclusion that the contractual indemnity did not entitle the successful party to indemnity costs was that it was expressly limited to the recovery of "reasonable legal costs". [20] There is no such qualification in the contractual indemnities involved here, which expressly confer an entitlement to costs on a "solicitor and own client basis" which is sufficiently close to indemnity costs that it justifies a discretionary order for indemnity costs on the principle stated at [17] above, if the costs are within the scope of the clause: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171 at [36].

CONSIDERATION

I am satisfied that because Vietnam Industrial has been wound up in insolvency it is appropriate for me to approach the award of costs in favour of Malayan Banking by ordering those costs as a gross sum rather than as assessed costs pursuant to my discretion under s 98(4)(c) of the CPA. It appears to me that Vietnam Industrial as the party obliged to pay the costs of Malayan Banking would not be able to meet a liability of the order likely to result from the assessment.
The costs application is supported by the affidavit of Ian Ramsey-Stewart sworn 24 April 2024. Mr Ramsey-Stewart has been a solicitor admitted to practice in this court for 29 years and for the last 22 years he has practised solely in the area of legal costing. In that time, his experience in legal costing extends over approximately 2,300 costing matters. Mr Ramsey-Stewart has provided his independent expert opinion on the properly incurred and reasonably recoverable professional costs and disbursements if they were awarded on a party/party basis and on an indemnity basis.
Mr Ramsey-Stewart has calculated the total incurred costs of Malayan Banking at $398,459.83, from which he has deducted $141,287.01 incurred for professional costs and disbursements for work undertaken in a separate jurisdiction, being Singapore. This leaves the total amount of costs to be claimed by Malayan Banking in these proceedings as $257,172.82.
The calculation of costs has been undertaken by Mr Ramsey-Stewart on the basis that the services supplied by Squire Patton Boggs to Malayan Banking were not subject to GST under Item 2, s 38-190(1) of the A New Tax System (Goods and Services) Tax Act 1999 (Cth) because they were supplied to Malayan Banking, a non-resident with no presence in Australia. I agree with this approach.
Mr Ramsey-Stewart considers the hourly rates charged by the solicitors for Malayan Banking (Squire Patton Boggs) of between $200 and $870 based on seniority of experience as reasonable market place rates charged in the Sydney CBD for litigation proceedings of the type and complexity involved in these proceedings. He also considers that the hourly rates of counsel to be reasonable.
Mr Ramsey-Stewart has also expressed the view that the work undertaken by the solicitors at Squire Patton Boggs was appropriately delegated so as to reduce the overall costs by having a limited number of them working on the matter and the work allocated to team members with lower charge out rates.
Mr Ramsey-Stewart has expressed the opinion that he would expect reductions on an ordinary costs assessment which would result in a recovery of 75% of professional costs, 95% of counsel's fees and 100% for general disbursements. Mr Ramsey-Stewart's estimated reductions on a costs assessment on an indemnity basis would result in a recovery of 90% of professional costs, 97.5% of counsel's fees and 100% for general disbursements.
Mr Ramsey-Stewart has calculated that the amounts of fair and reasonable costs on an ordinary basis for each component as follows: 1. professional costs - applying as 25% reduction to the amount claimed of $230,329.21 results in a 75% recovery of $172,746.91 (exclusive of GST); 2. counsel's fees - applying a 5% reduction to the amount claimed of $20,475.00 results in a 95% recovery of $19,451.25 (exclusive of GST); and 3. other disbursements - applying no reduction results in a 100% recovery of the amount claimed of $6,368.61 (exclusive of GST).
Mr Ramsey-Stewart's calculations of the amounts of fair and reasonable costs on an indemnity basis for each component are as follows: 1. professional costs - applying a 10% reduction to the amount claimed of $230,329.21 results in a 90% recovery of $207,296.29 (exclusive of GST); 2. counsel fees - applying a 2.5% reduction to the amount claimed of $20,475.00 results in a 97.5% recovery of $19,965.13 (exclusive of GST); and 3. other disbursements - applying no reduction results in a 100% recovery of the amount claimed of $6,368.61 (exclusive of GST).
These calculations result in a total expected recovery of $198,566.77 (exclusive of GST) if the costs of Malayan Banking were assessed on an ordinary basis and a total expected recovery of $233,628.02 (exclusive of GST) if the costs were assessed on an indemnity basis.
Malayan Banking has submitted that indemnity costs should be awarded for the following reasons: 1. Vietnam Industrial took no steps to respond to the letters of demand or statutory demand and any steps taken in the lead up to the Winding Up Application were grossly delayed. 2. It is contractually agreed that Vietnam Industrial will pay Malayan Banking's costs of recovering its debts on an indemnity basis. 3. There was no credible basis to pursue a restructure through the Singapore proceedings which were ultimately abandoned. 4. Vietnam Industrial's insolvency was first brought to the attention of its directors by its own auditors approximately two years prior to the Winding Up Application. 5. There was no reasonable basis for the adjournment sought by Vietnam Industrial and the basis proffered, being the Singapore proceedings, lacked merit.
It appears that cll 1 and 16 of the Malayan Guarantee and Indemnity together provide contractual entitlements for Malayan Banking to receive payment of "all legal costs and expenses on a full indemnity basis" and "all whatsoever cost, charges, fees stamp duty and other disbursements (including the professional charges of [Malayan Banking's] solicitors on a full indemnity basis" from Vietnam Industrial, and that recovery of such costs are not subject to any limiting factor such as "reasonable legal costs", party/party costs or costs on the ordinary basis.
In the circumstances, applying the approach summarised in A1 Catering Services, I consider that significant weight in the exercise of my discretion should be placed on Malayan Banking's contractual entitlement to the payment of its costs on an indemnity basis.
I also consider that it was unreasonable in the sense described in Cappello for Vietnam Industrial to approach the opposition to the Winding Up Application by seeking to delay the hearing of the Winding Up Application, in circumstances where it had no evidence capable of rebutting the presumption of insolvency, by reference to a speculative restructuring. This approach caused Malayan Banking to incur unnecessary costs and expenses in the prosecution of the Winding Up Application (which it drew to Vietnam Industrial's attention on 26 September 2022) for which it should be fully reimbursed.
Accordingly, I propose to order that the gross sum costs to be awarded to Malayan Banking should be calculated on an indemnity basis.
Mr Ramsey-Stewart has also calculated that the fair and reasonable costs for the preparation of this application total $32,412 (excluding GST), comprising the costs of Squire Patton Boggs in the amount of $19,412 (excluding GST) together with the fees charged by Mr Ramsey-Stewart for the preparation of his opinion of $13,000 (excluding GST). I consider that the amount of $32,412 (excluding GST) should be added to the gross sum costs to be ordered by me.
In my opinion, the approach to be adopted by me in calculating the gross sum costs should follow the considered and soundly expressed opinions of Mr Ramsey-Stewart in relation to the recovery of costs on an indemnity basis.
This makes the gross sum costs to which Malayan Banking is entitled a total of $266,040.32 (exclusive of GST), being the amount of $233,628.02 (exclusive of GST) for the Winding Up Application and $32,412 (excluding GST) for the preparation of this application.

ORDERS

For the reasons expressed above, I propose to make the following orders: 1. Order pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW) that the plaintiff is entitled to a specified gross sum to be reimbursed out of the defendant's property in accordance with s 466(2) of the Corporations Act 2001 (Cth) in the amount of $266,040.32 (exclusive of GST). 2. These orders are to be entered forthwith.

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: 08 July 2024

A New Tax System (Goods and Services) Tax Act 1999(Cth)ss 38-190(1)

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