PRACTICE AND PROCEDURE – COSTS – where first respondent was
ordered by Court to be wound up – where disputed contest
in relation to a
claim for remuneration by provisional liquidator – where second respondent
Source
Original judgment source is linked above.
Catchwords
PRACTICE AND PROCEDURE – COSTS – where first respondent wasordered by Court to be wound up – where disputed contestin relation to aclaim for remuneration by provisional liquidator – where second respondentas objector raised serious allegationsof misconduct against provisionalliquidator – where objector subsequently informed provisional liquidatorthat claim for remunerationwould no longer be opposed – whetherexceptional circumstances arose – whether the costs of the application forremunerationby the provisional liquidator and the costs of the presentapplication should be met by the second respondent.Corporations Act 2001 (Cth), s 533C(1)
Batistatos v Roads and Traffic Authority (NSW) [2006] HCA 27
(2006) 226 CLR 256,
cited
BE Australia WD Pty Ltd (subject to a deed of company arrangement)
& Ors v Sutton [2011] NSWCA 414
(2011) 82 NSWLR 336, cited
Colgate–Palmolive
Company v Cussons Pty Ltd [1993] FCA 536
(1993) 46 FCR 225, considered
Farrow Finance
Co Ltd (in liq) v ANZ Executors & Trustee Co Ltd (1997) 23 ACSR 521,
cited
Kumarina Resources Ltd, in the matter of Kumarina Resources Ltd (No
2) [2013] FCA 723, cited
LHRC & Ors v Deputy Commissioner of
Taxation & Anor (No 3) [2015] FCA 52
(2015) 326 ALR 77, considered
Longley v
Chief Executive, Department of Environment and Heritage Protection [2018] QCA 32
(2018) 3
Qd R 459, cited
Northbourne Developments Pty Ltd v Reiby Chambers Pty
Ltd (1989) 19 NSWLR 434, considered
Re Ragata Developments Pty Limited
v Westpac Banking Corporation and Stanley Thompson Valuers Pty Limited
[1993] FCA 72, cited
Re Anderson Group (2002) 20 ACLC 1607,
cited
Re Barokes Pty Ltd (In Liq) [2020] VSC 555, considered
Re
Crusader Limited [1996] 1 Qd R 117, considered
Re Gasgrid Ltd (No
2) [2010] FCA 1006
(2010) 80 ACSR 179, cited
Re Matine Ltd
Chatham Investment Co Ltd
Milkirk Investment Co Ltd (1998) 28 ACSR 492, considered
Re VPlus
Superstores Pty Ltd (in liq) [2013] NSWSC 662, considered
Re: NRMA
Limited (No. 1) [2000] NSWSC 82
(2000) 156 FLR 349, considered
Victoria International
Container Terminal Ltd v Lunt [2021] HCA 11
(2021) 388 ALR 376, considered
Williams
v Spautz [1992] HCA 34
(1992) 174 CLR 509, cited
Judgment (129 paragraphs)
[1]
PRACTICE AND PROCEDURE - COSTS - where first respondent was ordered by Court to be wound up - where disputed contest in relation to a claim for remuneration by provisional liquidator - where second respondent as objector raised serious allegations of misconduct against provisional liquidator - where objector subsequently informed provisional liquidator that claim for remuneration would no longer be opposed - whether exceptional circumstances arose - whether the costs of the application for remuneration by the provisional liquidator and the costs of the present application should be met by the second respondent.
C A Wilkins for the liquidator of the first respondent
[22]
Colin Biggers and Paisley for the liquidator of the first respondent
[23]
[1] BROWN J: The present matter was originally to be the subject of a disputed contest in relation to a claim for remuneration by Mr Kirk for when he served as a provisional liquidator. By the time of hearing, Mr Verschoyle, the second respondent, was the only active objector. In making objections he raised serious allegations of misconduct against Mr Kirk, which were joined in by his then lawyers, PA Khoury Lawyers Pty Ltd (PAK Law). In making his objections he was assisted by Mr Latif. On 3 December 2021 Mr Verschoyle's lawyers informed Mr Kirk's lawyers that he would no longer be opposing the claim for remuneration. Mr Kirk put Mr Verschoyle on notice that he would seek costs against him. The question for determination by this court is whether the costs of the application for remuneration by Mr Kirk and the costs of this application should be met by Mr Verschoyle.
[2] Costs are generally not awarded against objectors. However, that is not a universal rule. In the present case it is alleged Mr Verschoyle has acted with an ulterior motive, has harassed and caused Mr Kirk serious and unjustified trouble and/or was in the position of an adversary not simply a contradictor. The allegations are denied by Mr Verschoyle.
[24]
[3] This matter has been the subject of a protracted dispute and unexplained delay. The basis of the present application cannot be understood without reference to the history of the matter.
[4] Mr Kirk was appointed a provisional liquidator of the first respondent, Commercial Images (Aust) Pty Ltd on 31 October 2017 by a decision of this court. Justice Boddice considered such a decision was warranted having determined that a purported appointment of administrators by Mr Verschoyle and his father was invalid. The appointment of a provisional liquidator was sought by the applicant, the first respondent's sister who is a 50 per cent shareholder in the first respondent. The second respondent owns the remaining 50 per cent. It is evident from the correspondence in this matter that there is significant acrimony between the siblings. That is only relevant as to a backdrop to negotiations between Mr Verschoyle and Mr Kirk. Mr Kirk also relies on various comments in conversations to show Mr Verschoyle's conduct was for motives other than objecting to the remuneration.
[5] On 15 February 2018 the court ordered that the first respondent be wound up. Mr Kirk was appointed the liquidator. On 4 May 2018 Mr Kirk's solicitor, Mr Williams, gave notice of Mr Kirk's intention to seek court approval of his remuneration to the five largest creditors and contributories. Additional time to make objection was sought by Mr Verschoyle's lawyer, Mr Anthony (who is also known as Mr Farhat, which I will use given that is the name he now uses) and given. Documents were sought, as a result of which timesheets were given. However, Mr Kirk's lawyers refused to provide further documents that were subsequently sought, disputing that there was any basis for those further documents to be provided.
[6] Mr Verschoyle claimed as a creditor of the company which was originally acknowledged. However, as a result of director's loans said to be owed by him to the first respondent, he became a debtor of the company, although he apparently disputes that to be the case.
[7] Mr Latif is a director of Global Equity and Development Group Pty Ltd (GEDG) and claims to be a creditor of the first respondent. The proof of debt was not and has not been accepted by Mr Kirk. Mr Latif was authorised by Mr Verschoyle to act on his behalf in relation to the remuneration dispute in October 2018. He gave evidence at that hearing.
[25]
"I'm thinking of a way of approving Darryl's remuneration with a 10% discount. In exchange I want you to ask for further information for the purposes of Global Equity's debt and it be admitted."
[26]
[14] On 27 August 2018 an enquiry was made by Mr Latif about the status of directors' loans to which Mr Williams responded that he had not yet got to the issue of the loans.
[15] On 10 September 2018 a further phone call took place between Mr Latif and Mr Williams where Mr Latif is alleged to have said:
[27]
"I have completed the response for the red items. I have gone nuts on him [Mr Kirk] because of the position he's taking in relation to my [GEDG's] proof of debt. I can either send it to you or meet and have a coffee and show it to you. I can give you a hard copy. Even if you see no merit in it, do you really want the company to pay? I don't care who pays Darryl as long as it's not the Company."
[28]
[16] On 11 September 2018 a "Note to WIP analysis" was sent by Mr Farhat to Mr Williams outlining the objections to Mr Kirk's remuneration application.
[17] On 14 September 2018 Mr Kirk made a demand for payment of a director's loan said to be owing to the first respondent by Mr Verschoyle.
[18] On 19 September 2018 Mr Williams sent the applicant's response to Mr Farhat, which referred to the case of Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd[1] ('Northbourne Developments'). That decision highlighted the limited scope for challenging commercial decisions by a liquidator.
[19] On 5 October 2018 the timesheets were filed in the court and referred to "See Note", which is a reference to the document of 11 September 2018.
[20] Orders were made by Boddice J providing for the filing of a Statement of Facts, Issues and Contentions by PAK Law and Mr Verschoyle, and a response from Mr Kirk.
[21] According to Mr Williams, on 15 October 2018 Mr Latif stated:
[29]
"If Darryl proceeds with the application, I will destroy his career. You don't think I don't have dirt on Darryl? I will destroy his career and his reputation".
[30]
[22] On 21 November 2018 PAK Law and Mr Verschoyle filed a Statement of Facts, Issues and Contentions (the 'Statement of Facts, Issues and Contentions') and on 22 November 2018 filed affidavits in support. Mr Kirk responded on 21 December 2018.
[23] In February 2019 the New South Wales Law Society appointed a receiver and manager to PAK Law.
[24] In December 2020 a second affidavit was filed by Mr Williams and PAK Law was de-registered.[2]
[25] On 13 October 2021 the matter was set down for hearing for the determination of remuneration.
[26] After the long history of the dispute, the court made orders that Mr Kirk be paid the remuneration he sought at the hearing on 15 December 2021 without opposition.
[27] The application for costs is a reasonably novel one and only made in exceptional circumstances. That would seem to accord with a recognition that there are policy reasons which support creditors and contributories being able to hold a liquidator to account for the costs incurred in a provisional liquidation or liquidation and that they serve as a proper contradictor when remuneration applications have to be determined by the court. However as is apparent from the discussion below, there is no unassailable legal principle that costs will not be awarded against objectors.
[28] Mr Kirk contends that there are three bases upon which he is entitled to be awarded costs on an indemnity or standard basis, namely:
[31]
(a) That Mr Verschoyle went beyond just being an objector and became an adversary, and that the usual cost consequences should apply as a result of his discontinuing his opposition;
(b) That Mr Verschoyle's conduct constituted serious and unjustified trouble and harassment of Mr Kirk;
(c) That Mr Verschoyle had at least one ulterior motive for making allegations of misconduct against Mr Kirk.
[32]
[29] Evidence was called and cross-examination occurred, particularly on matters as to the credit of Mr Verschoyle and Mr Latif. Neither Mr Kirk nor Mr Williams who provided affidavit evidence were required for cross-examination. Their evidence was not challenged, and I accept their evidence. In particular, where the content of conversations between Mr Latif and Mr Williams were disputed by Mr Latif, I accept Mr Williams' evidence given he made contemporaneous file notes of the conversations and I found Mr Latif's evidence self-serving for the reasons outlined below.
[30] It is appropriate to address the question of legal principles before turning to the evidence before the court.
[33]
[31] In Re Crusader Limited,[3] Thomas J stated that it was only in exceptional circumstances that the court would award costs against an objector who exercises their right to object. His Honour did not order costs to be paid by one of the objectors in that case, said to be disgruntled and seeking to undermine the new Board by his objection finding that was not established. However, his Honour noted that such orders could be appropriate where the objector embarks upon a deliberate campaign to frustrate actions of the Board or vent personal resentment such that their intervention may be seen to be for an ulterior purpose.[4] Similar sentiment was expressed by Santow J in Re Matine Ltd; Chatham Investment Co Ltd; Milkirk Investment Co Ltd,[5] where his Honour referred to objectors being exposed to costs orders where objectors used "the tactics of technical objection and delay".
[32] The accepted approach to be adopted by the court in relation to the question of costs where objectors oppose orders sought in the context of applications for approval of a scheme were summarised by Santow J in Re: NRMA Limited (No. 1),[6]('Re:NRMA') as follows:
[34]
"Whether the costs of objectors on their objection should be met by the applicant scheme company has been the subject of a number of cases, but all of them were in relation to cost applications made at the conclusion of the convening hearings. The principles which emerge from the cases show why that must be so. I wil1 attempt to distil their effect in these terms:
[35]
(i) The ordinary rule is that the scheme companies pay the objector's costs and do not suffer cost orders against them.
[36]
(ii) However, this is subject to the objections not being frivolous or without substance but rather such as to be properly and justifiably advanced, even if unsuccessfully. I would add that even sensible objections should be capable of being advanced with reasonable economy of time, consistent with the summary nature of a s 411 (1) application.
[37]
(iii) These principles reflect the fact that the scheme procedure unavoidably must provide an independent court forum on two separate occasions - for convening and then to approve the scheme. The court will often be assisted by having a contradictor at either stage. It must not be forgotten that the end point of most schemes, if adjudged sufficiently fair and achieving the statutory majorities, is compulsory acquisition of the member's property and the court is no rubber stamp in that process.
[38]
(iv) Where there is a clear indication that objectors are using the tactics of technical and artificial objection so as to stall a scheme of arrangement for their own purposes, the courts will not hesitate to make costs orders against objectors to the extent warranted; those cost orders may even be indemnity cost orders in appropriate cases.
[39]
(v) Since assessment of the objections cannot be made in advance, cost orders should not be made in advance either."
[40]
[33] It was accepted by Mr Verschoyle that the above principles outlined by Santow J were the relevant principles.
[34] It was submitted on behalf of Mr Kirk that what constitutes an exceptional circumstance is informed by the well-known statement of Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd ('Colgate').[7] That case dealt with the circumstances where a costs order may be made on an indemnity basis. His Honour relevantly said:
[41]
"...it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weeks(1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp (supra)); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson(1987) 10 NSWLR 525; Maitland Hospital v Fishers (No 2)(1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records (supra)). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. 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 a party and party basis."
[42]
[35] One of the difficulties in this matter is that the factual basis of the objections made were not ventilated before this court, other than in a reasonably cursory way, to enable the court to reach a view on the merits or otherwise of the objections as envisaged by Santow J in Re: NRMA. In a significant part, Mr Kirk relies on inferences to be drawn from conversations and conduct in respect of District Court proceedings to sustain its claim for costs.
[36] It is submitted by Mr Kirk that Mr Verschoyle's conduct in objecting was capable of establishing that he had an ulterior motive for objecting, continuing to object and making allegations against Mr Kirk, which were for his own purposes. It is submitted on behalf of Mr Kirk however, that he does not have to establish that Mr Verschoyle's conduct in objecting amounted to an abuse of process, which is a higher bar.[8] The High Court in Victoria International Container Terminal Ltd v Lunt[9] recently reiterated the distinction between motive and purpose and the fact that a party may have been motivated to bring proceedings out of loyalty to the CFMMEU or to avoid a possible forensic disadvantage to the CFMMEU did not mean that proceedings were necessarily brought for an improper purpose when the desired result was to quash the enterprise agreement concerned, even though the party did not personally desire the result for himself as opposed to the union.
[37] A key plank of Mr Kirk's application for indemnity costs is that Mr Verschoyle was driven to object to the remuneration application in order to assist his defence of the District Court proceedings seeking to recover his director's loan. That is submitted to be the basis upon which the court should find he held an ulterior motive of making the objections to avoid having to pay the company the debt he is alleged to owe in respect of a director's loan.
[38] Mr Verschoyle's counsel submits that there is no basis to award costs against Mr Verschoyle on the basis he had not gone outside the accepted role of an objector to justify such an order. In particular, Mr Verschoyle's counsel highlighted the fact that objectors are proper contradictors to a remuneration application and serve an important role in assisting the court in its determination, and that creditors and contributories have a legitimate interest in the proper scrutiny of the application and a genuine interest in resisting the relief sought and should be permitted to argue against the relief. That much may be accepted.
[43]
(a) Whether the power was exercised for an improper purpose is a question of fact;
(b) A discretion is exercised for a proper purpose within power if it is exercised "in good faith and not with a view of achieving ends or objects extraneous to the purposes for which the discretion exists";
(c) The onus lies upon the applicants to establish the exercise of a power was in furtherance of an improper purpose;
(d) The alleged improper purpose must be substantial in the sense that no attempt would have been made to exercise the power if it had not been for that purpose.
[44]
[40] The decisions with respect to administrative decision making do not provide great assistance to determining the present case, given decisions more directly on point in relation to abuse of process and motive discussed above. In that regard, Mr Kirk draws a distinction from those cases insofar as he contends that Mr Verschoyle was driven by an ulterior motive rather than improper purpose. Insofar as it was suggested that the purpose had to be the only purpose, counsel for Mr Kirk contends that the proper test is one of predominant purpose consistent with the decision of the High Court in Williams v Spautz[11], not that the purpose must displace all other purposes.
[41] Some caution must be exercised in relation to the reference to "ulterior motive" by Sheppard J in Colgate.[12] As Counsel for Mr Kirk rightly points out, there is a distinction between motive and purpose, but an examination of the decision relied upon by Sheppard J in Colgate suggests it was in fact directed to purpose rather than motive. Sheppard J referred to a particular passage from the decision of Davies J in Re Ragata Developments Pty Limited v Westpac Banking Corporation and Stanley Thompson Valuers Pty Limited ('Ragata'),[13] where his Honour in fact referred to an ulterior purpose, not dissimilar to the language used by the High Court in Williams v Spautz. Davies J in Ragata had stated that:[14]
[45]
"The very nature of the award of costs on an indemnity basis gives a guide to the type of case in which such an award is appropriate. Thus, indemnity costs may be awarded where unsuccessful proceedings have been brought and prosecuted, not for the bona fide purpose of protecting and enforcing a legal right, but to achieve an ulterior or extraneous purpose."
[46]
[42] While the circumstances outlined by Sheppard J in _Colgat_e may provide guidance as to what would constitute "exceptional circumstances", those circumstances are directed to whether indemnity costs should be awarded, rather than the threshold question in this case of whether costs should be ordered against Mr Verschoyle at all, when the usual order is someone who is an objector and entitled to object should not be liable for costs.[15]
[43] There is a dearth of decisions in relation to this question. Whether that is because costs are rarely awarded against objectors or decisions as to costs not being published is impossible to ascertain, although it is more than likely it is a combination of both. In any event, there is no dispute between the parties that Santow J in Re: NRMA set out the relevant principles. Whether or not costs are awarded is determined by whether or not the objector raises bona fide objections which are "properly and justifiably advanced, even if unsuccessfully" rather than seeking to stall the process using the tactics of technical and artificial objections, in which case costs including indemnity costs may be awarded against the objector. Costs may also be awarded against the objector if the objections are made for an ulterior purpose as referred to by Thomas J in Re Crusader Limited.[16]
[44] It is also contended that the conduct of the objections by Mr Verschoyle is "productive of serious and unjustified trouble and harassment" may amount to an abuse of process,[17] and justify not only ordering Mr Verschoyle pay costs but that he pay them on an indemnity basis.
[45] However, they are not the only circumstance in which costs will be awarded.
[46] It is contended in the alternative that the pursuit of the objections contained in the Statement of Facts, Issues and Contentions with respect to misconduct in the context of the remuneration application placed Mr Verschoyle in a position of an adversary.
[47] In Longley v Chief Executive, Department of Environment and Heritage Protection,[18] McMurdo JA[19] referred with approval to the decision of at [136]:
[47]
"BE Australia WD Pty Ltd v Sutton was an appeal against the rejection of a proof of debt, or alternatively an application for an order under s 447A of the CA. There was a substantial question of whether the applicant was a creditor. The proceedings were not, in form, inter partes litigation, but Campbell JA said that this was not decisive of how the costs of the litigation should be dealt with. Campbell JA there said:
[48]
"Courts exercising equity jurisdiction encounter a variety of situations where a fund is being administered subject to the control of the court, and a question arises about the proper manner in which that fund should be administered. Such a situation can arise concerning administration of deceased estates, concerning administration of trusts, concerning company liquidations, concerning administration of the estates of incapable people, and concerning DOCAs. In those situations, whether the costs of the court deciding the question that has arisen should be treated as costs of administration of the fund is significantly influenced by whether the proceedings are in substance adversarial ones. While where the costs should fall in litigation is always a matter of discretion, very commonly costs are paid from the fund for non-adversarial proceedings, and by the loser for adversarial proceedings ...""
[49]
[48] Counsel for Mr Verschoyle did not contend that as a matter of principle Mr Verschoyle could be liable if he was considered to be in the position of an adversary but contended that was not the case here.
[49] While the orders made in the present case allowed for allegations of misconduct in the context of a remuneration application to be raised,[21] it is not a matter without controversy as to whether that is the permissible forum to raise such allegations.[22] It is however at least supported by the statement of Black J in Re VPlus Superstores Pty Ltd (in liq)[23] that it is "well-established...that a finding of unsatisfactory conduct...in the sense of conduct in breach of duty or involving serious failures of misconduct of their part, may affect their entitlement to remuneration."[24] In any event, Mr Kirk contends that the making of serious allegations of misconduct against him transformed Mr Verschoyle from being an objector and placed him in the position of an adversary.
[50]
Evidence - was there an ulterior motive or improper purpose?
[51]
[50] It is uncontroversial that Mr Verschoyle made allegations of serious misconduct against Mr Kirk which are contained in the Statement of Facts, Issues and Contentions filed on his behalf.[25] Those allegations include that:
[52]
"(a) Mr Kirk contravened CA, s.579 (a section which was irrelevant on any view, as it concerns pooling determinations by a liquidator);
(c) Mr Kirk's "failure to correctly characterise the "Director Loan Liabilities" was, amongst other things, "self-serving to the interests of [Mr Kirk], by way of extending his appointment in the Provisional Liquidation of the Company to maximise his fee-earning capacity";
(e) Mr Kirk was "primarily motivated by extending the length of the Provisional Liquidation (and subsequent liquidation) in a scheme adopted by [Mr Kirk] to inflate and increase [his] and [his] Legal Representative's fees";
[57]
(f) Mr Kirk's "strategy was to refuse to meet with creditors in an informal and cost-effective setting, and instead insist on the current path (costly path)";
[58]
(g) Mr Kirk's "reasoning for [certain of his] conduct was to waste time and resources to extend the length of the Provisional Liquidation to incur significant costs for doing so";
[59]
(h) Mr Kirk "failed to make his business judgement(s) in good faith for a proper purpose as his intention was to extend the length of the liquidation of the costs of the creditors"; and
[60]
(i) Mr Kirk's "conduct in causing himself and his Legal Representative to invoice the Company for their services that were not required, and continuing to conduct a process, which allowed the Provisional Liquidator and his Legal Representative to deplete the pool of money at the expense of creditors - is a breach of the Provisional Liquidator's Fiduciary Duty owed to the creditors"."
[61]
[51] The above allegations were made after Mr Verschoyle's solicitor had been sent the decision of McLelland J in Northbourne Developments.
[52] It was not until 3 December 2021 that the applicant was notified by Mr Verschoyle's solicitors that it no longer opposed the remuneration application and implicitly that it did not intend to pursue the allegations against Mr Kirk made in the context of his remuneration application.
[53] According to Mr Kirk, responding to the allegations made by Mr Veschoyle put him to considerable cost to plead to and put in extensive affidavit material responding to those allegations.[26]
[54] As stated above it is contended that the motive in making the allegations by Mr Verschoyle was to aid his defence in the proceedings in the District Court against the recovery of the director's loan by Mr Kirk. However, the question of whether Mr Verschoyle owed or was obliged to repay the loan was not a matter that was to be canvassed in the context of these proceedings, although some of the allegations made touch upon his treatment of director's loans and Mr Kirk's refusal to accept Mr Verschoyle's offers which extended to dealing with the director's loans at least on his behalf. No attempt was made to demonstrate that they affected the outcome or were relevant to the determining whether the District Court was owed in this application, notwithstanding that was the subject of Mr Verschoyle's defence in the District Court proceedings (and was still the case when this application was heard).
[55] On 19 December 2018 Mr Kirk caused the first respondent to commence District Court proceedings against Mr Verschoyle, seeking recovery of monies said to have been loaned to him.
[56] According to Mr Williams, on 7 January 2019, Mr Farhat and Mr Latif telephoned him and during that conversation Mr Latif stated:
[62]
"If we're successful with the remuneration application, then Stephen won't have to repay the director loan."[27]
[63]
[57] The Defence filed in relation to the District Court claim on Mr Verschoyle's behalf on 11 February 2018 stated, inter alia, that:[28]
[64]
"The defendant says that the amount claimed ($416,375.00) is currently being disputed by the defendant in the matter of Commercial Images (Aust) Pty Ltd (in liquidation) & Anor (11087/17) before the Supreme Court of Queensland.
[65]
The Statement of Facts, Issues and Contentions of the Objector Respondent filed in the Supreme Court proceedings on 21 November 2018 in the matter of Commercial Images (Aust) Pty Ltd (in liquidation) & Another (11087/17)"
[66]
[58] Paragraph 14 of the Defence alleged, inter alia, that the outcome of the Supreme Court proceedings would decide or affect the outcome of the proceedings brought against Mr Verschoyle in the District Court.
[59] The proceeding was subsequently amended,[29] but the paragraphs referred to above remain.
[60] It is said on behalf of Mr Kirk that the belief that the outcome of the remuneration application could affect the present application was wrong. It is difficult to see how the allegations of misconduct against Mr Kirk could be in any way determinative of proceedings as to whether or not a debt was owing by Mr Verschoyle and that the allegation was anything other than misconceived. It is not appropriate to determine whether that is so in the present proceedings, given it remains a subject for determination by the District Court. According to Mr Kirk, the raising of the defence demonstrates that Mr Verschoyle was motivated to make allegations of misconduct against Mr Kirk because he thought those allegations if proved would result in his not having to pay his director's loan to the company. Thus, it is contended that Mr Verschoyle's motive was to achieve an outcome external to the question the court was being asked to adjudicate upon namely, Mr Kirk's remuneration where the question of whether the director's loan was owing was not relevant to the matters raised in the Statement of Facts, Issues and Contentions.
[61] Mr Kirk further points to the fact that Mr Verschoyle had nothing to gain by pursuing the allegations made against him.
[62] As a debtor of the company, Mr Verschoyle would have had no standing to object to an application for remuneration.[30] Mr Verschoyle's counsel points out however that was not necessarily accepted by Mr Verschoyle as he was referred to as a creditor in the context of the first creditor's meeting prior to the consideration of the director's loans by Mr Kirk. While that may be so, that appears to be the operation of the Corporations Act.
[63] According to Mr Kirk, Mr Verschoyle in his position as a contributory has standing to object but is not aggrieved in that capacity given that there will never be any distribution to contributories absent recovery of the director's loan, particularly when one has regard to the expense to which his objections and allegations have put Mr Kirk to, and the property available for distribution. According to Mr Kirk that outcome should have been obvious to Mr Verschoyle and his advisors. The basis upon which the Court should reach such a conclusion is unclear.
[67]
(a) Mr Latif, Mr Verschoyle's advisor asserted, without giving any particulars, that there were "fake entries" in the timesheets for the provisional liquidation. He refused to give particulars responding that they would save it for court and humiliate Mr Kirk if they had to.[44]
(b) On 7 July 2018, Mr Latif told Mr Williams that Mr Verschoyle and PAK Law would cause Mr Kirk's application to become protracted, responding "exactly" in response to an email from Mr Williams asking "Where does it end? This could go on for six months".[45]
(c) According to Mr Williams, on 15 October 2018 after the remuneration application was made, Mr Latif had told him:
[68]
"If Darryl proceeds with the application, I will destroy his career. You don't think I don't have dirt on Darryl? I will destroy his career and his reputation."[46]
[69]
[82] Mr Williams deposed to the above conversations, took contemporary diary notes and was not cross-examined as to them. None of the above conversations were refuted by Mr Latif. I accept that they occurred. However, having reviewed the significant amount of affidavit evidence relied upon in this application, I am conscious of the broader context in which conversations took place and that one must exercise caution in drawing conclusions as to a predominant purpose or ulterior motive by looking at individual conversations in isolation. Any conversations must, as contended by both parties, be considered in the context of conduct as a whole.
[83] Mr Latif's comments to Mr Williams of 15 October 2018 suggest Mr Latif had a personal axe to grind. However, Mr Latif swore to the basis upon which he carried out the WIP analysis,[47] which highlighted tasks he considered were duplication and those which he considered would have been avoided had Mr Verschoyle's offer been accepted.
[84] The evidence of Mr Williams of his conversations with Mr Farhat and Mr Latif shows that Mr Farhat and Mr Latif were working closely together on Mr Verschoyle's behalf at least once the notices of appearances were filed. That was evidenced amongst other things by them both seeking the same documents from Mr Williams within a day of each other or when a letter was sent by Mr Williams to Mr Farhat, Mr Latif phoned Mr Williams indicating "Got your letter. I'm preparing the objections".[48]
[85] The evidence of Mr Williams does establish that Mr Latif and Mr Farhat were largely acting in tandem in relation to Mr Kirk's remuneration application.
[86] However, while the statements relied upon by Mr Kirk suggest that Mr Latif was seeking to impede Mr Kirk's application and aware of the effect of the objection process to his remuneration application, the above does not rise to the level of showing engagement in the objection process by Mr Latif was to cause delay and put Mr Kirk to unjustified work in responding to the objections and allegations made. For instance, Mr Latif's statements made to Mr Williams that there were "fake entries" were shown to be nothing more than statements. I was not directed to any allegations of "fake entries" in the objections and allegations made in the Statement of Facts, Issues and Contentions to demonstrate he had in fact made an objection on that basis. While Mr Latif may have made scandalous comments to Mr Williams, that does not necessarily mean that formed the basis of the objections made. Nor does his acceptance that the objections could delay the process take six months lead, without more, to a conclusion the objections were made solely for that purpose. While Mr Latif was no doubt aware that the nature and extent of the objections for which he was responsible would cause delay in the finalisation of the remuneration application, it does not, without more, lead to an inference that that was the motivating purpose nor that the objections were without any substance, notwithstanding the high bar that had to be met to prove them and the abandonment of the allegations. While the evidence raises that suspicion, it does not permit me to conclude that was the case nor that the allegations were made as a result of "serious and unjustified trouble and harassment".
[70]
(a) That Mr Verschoyle made serious allegations of misconduct against Mr Kirk;
(b) That those allegations were abandoned;
(c) While the allegations made by Mr Verschoyle put Mr Kirk to considerable expense in responding to the allegations, I do not find that they have been productive of serious and unjustified trouble and harassment. The statements made by Mr Latif, although suggestive that Mr Latif intended to put Mr Kirk to time and expense in having to deal with the objections, was not sufficient to show that the intent should be attributed to Mr Verschoyle and secondly, that the statements implicitly mean that the substance of the objections made were predominantly for that reason. While I find that Mr Latif, Mr Farhat and Mr Verschoyle were working together co-operatively in opposition to the remuneration application, Mr Latif also had his own separate interests and statements made by him which could not simply be attributed to Mr Verschoyle. However, by 30 July Mr Latif was clearly working with Mr Farhat to lodge objections to the remuneration application and had been engaged by Mr Verschoyle for that purpose;
(d) That upon the consent to the Order of Justice Boddice of 10 October 2018, the proceedings became adversarial in nature and with the filing of the Statement of Issues, Facts and Contentions, Mr Verschoyle (and PAK Law) stood as an adversary;
(e) I do not find that in opposing the remuneration application Mr Verschoyle was seeking to raise the allegations predominantly motivated by a belief that by succeeding in the allegations in relation to the remuneration application he could escape liability on his director's loan, notwithstanding I did not find Mr Verschoyle a compelling witness. While there is some evidence to suggest that the director's loan and that its recovery was a concern of Mr Verschoyle, there is a disconnect in timing such that I do not consider that at the time of filing of the Statement of Facts, Issues and Contentions, the evidence establishes Mr Verschoyle had the alleged ulterior motive at that time. I do however find that a significant motivating feature in maintaining his opposition was to advance his position in the District Court, but I am not satisfied that it was his predominant purpose or ulterior motive in maintaining the objections. Utilising his objection for the District Court proceedings further supports that he was adopting an adversarial position in opposing Mr Kirk's remuneration and seeking to use the fact of his opposition to serve his own interests;
[71]
[101] Contrary to the submissions that were made on behalf of Mr Verschoyle, given the present application is made in respect of costs, Mr Kirk is not precluded from raising the question of ulterior purpose, notwithstanding it was not raised in response to the Statement of Facts, Issues and Contentions as the contention is raised in the context of costs.[54]
[102] The primary contention made on behalf of Mr Kirk is that I should not believe that Mr Verschoyle had a genuine purpose in making the objections he did to Mr Kirk's remuneration and should find that his objections and allegations were intended to try and circumvent the proceeding against him in the District Court.
[103] However, for the reasons above, while I found Mr Verschoyle and Mr Latif were unsatisfactory witnesses, I do not find that Mr Verschoyle's predominant purpose in making the objections and allegations as to Mr Kirk's conduct was to support a defence in the District Court proceedings.
[104] Similarly, for the reasons outlined above I am not persuaded that the evidence establishes that the allegations of conduct were productive of "serious and unjustified trouble and harassment".
[105] Given the absence of those findings, I am therefore not satisfied that costs should be ordered to be paid by Mr Verschoyle on an indemnity basis. In reaching that view I am conscious of the detrimental effect of the costs of defending this action is likely to have on creditors and recovery of any dividend, although that consequence is not a relevant consideration in determining the present application.
[106] I am however satisfied that costs should be ordered to be paid by Mr Verschoyle given his pursuit of serious allegations which were abandoned on the basis that he conducted himself as an adversary in these proceedings and that raises exceptional circumstances which justify the making of a costs order against Mr Verschoyle on a standard basis.
[107] While courts should be hesitant to make such orders so as not to discourage objectors from making objections to a remuneration application as they are entitled to do, that is not an unbridled right as is apparent from the legal authorities referred to above.
[108] In the present case Mr Verschoyle placed himself in the position of an adversary in opposing Mr Kirk's application by making serious allegations of misconduct and then using the allegations made in the present case as a basis for his defence in the District Court proceedings. In doing so he went beyond acting as an objector with legitimate interests and right to make Mr Kirk accountable for the work done in the provisional liquidation and acting as a proper contradictor. Mr Verschoyle in being a party to the Statement of Facts, Issues and Contentions joined in making very serious allegations in relation to Mr Kirk's conduct, which included allegations of bad faith and improper purpose. Those allegations largely related to grievances of Mr Verschoyle due to the non-acceptance of offers made by him to Mr Kirk and sought to impugn commercial judgments made by Mr Kirk as a provisional liquidator. In making those allegations, Mr Verschoyle and PAK Law were aware of the high threshold that had to be met in order to succeed by establishing bad faith or incompetence on Mr Kirk's behalf, given Mr Kirk's lawyers had sent PAK Law, prior to filing the Statement of Facts and Contentions, the decision of McLelland J in . In that case, his Honour stated at 440:
[72]
"Considerable attention was given, both in evidence and argument, to the question of the commercial wisdom of the transaction. I do not propose to canvass the various considerations in detail. It is sufficient to say that I am unable to conclude that the transaction was so commercially imprudent as to indicate either bad faith or incompetence on the part of Mr Harkness. For reasons analogous to those which I have already mentioned which inhibit a court in giving directions on matters of commercial judgment, the court in considering a challenge on commercial grounds to a liquidator's decision must approach the matter on the basis that the liquidator "is recognised as having both the qualifications and the access to the multiplicity of information which may be necessary in order to make ... commercial decisions" and, except where bad faith is established, will treat the liquidator's decision as a proper one unless satisfied that he acted "in a way in which no reasonable liquidator should have acted': see Mineral Securities Australia (at 230-232). I am not so satisfied here."
[73]
[109] That was elaborated upon by the solicitors for Mr Kirk in the note in response.[56] Mr Verschoyle was also put on notice costs may be sought against him in pursing objections based on allegations seeking to impugn Mr Kirk's commercial decisions.
[110] The Statement of Facts, Issues and Contentions sought to raise matters of both bad faith and negligence. Mr Verschoyle sought to raise bald allegations of misconduct against Mr Kirk arising out of Mr Kirk's refusal to accept offers made by him, which required detailed responses as to what had occurred in relation to the offers and the tender process, which he then sought to rely on in defence of proceedings against him. No evidence has been provided by Mr Verschoyle justifying the allegations of misconduct made against Mr Kirk in this application. However, in the present context I could not reach the view that they were baseless since that was not a matter explored due to the abandonment of the allegations. I do however infer he was well aware in raising the allegations that he was choosing to run a case where he held an onus of proving serious allegations in order to succeed.
[111] It was evident upon the making of the order by Justice Boddice on 18 October 2018 that this matter was going to proceed to a contested hearing upon the ordering of filing of a Statement of Facts, Issues and Contentions by the objectors.
[112] The fact that the Statement of Facts, Issues and Contentions was then relied upon by Mr Verschoyle as a defence in the District Court proceedings that he was prepared to use his continued opposition to the remuneration application to serve his personal interests. [57]
[113] While Mr Verschoyle's counsel contended that the making of the objection was not in Mr Verschoyle's own interest but for the benefit of all creditors and contributors insofar as it would put money back into the insolvent company if the objections were successful, that was not borne out by his actions. He knew at least from 15 October 2018 that Mr Kirk did not accept that he was a creditor given that the amount of the director's loan he was said to owe was greater than the amount of debt he claimed from the company[58] and only had standing as a contributory. Further, in raising the objections and allegations Mr Verschoyle is likely to have known that Mr Kirk was going to be put to considerable time and expense in having to respond to them. Even if acting under a misconception in relation to the inter-relationship between the allegatons raised in opposition to the remuneration application and the District Court proceedings, it is evident that Mr Verschoyle was not predominantly pursuing the objections to serve the interests of creditors or contributories and should have been aware that his conduct would in all likelihood only deplete the assets available for creditors let alone the contributories, who were only he and his sister.
[74]
1. That Mr Verschoyle pay Mr Kirk's costs to be assessed on a standard basis after 21 November 2018 of and incidental to the objections of Mr Verschoyle;
[75]
2. That Mr Verschoyle pay Mr Kirk's costs of the application against Mr Verschoyle for costs on a standard basis; and
[76]
3. That Mr Kirk's costs of and incidental to his application filed on 23 July 2018, not otherwise recovered from Mr Verschoyle as a result of the costs order made against him, be costs in the winding up of the company.
[6][2000] NSWSC 82; (2000) 156 FLR 349 at [45]. Referred to with approval by Gilmour J in Kumarina Resources Ltd, in the matter of Kumarina Resources Ltd (No 2)[2013] FCA 723 at [4]- [5] where his Honour refused to order that the costs of the objectors' costs be paid by the scheme company on the basis the contentions were obscure, without substance and provided no reasonable grounds for refusing to approve the scheme; Re Gasgrid Ltd (No 2)[2010] FCA 1006; (2010) 80 ACSR 179.
[21]Rule 90-15 appears to be wide enough to permit the court to consider such matters in the context of a remuneration application.
[96]
[22]Re Barokes Pty Ltd (In Liq)[2020] VSC 555 at [46]- [49] where Hetyey AsJ considered that a remuneration determination did not support such a process of enquiry.
[32] Second affidavit of Mr Verschoyle (CFI 96) at [9].
[105]
[34] Second affidavit of Mr Verschoyle (CFI 96) at [8].
[106]
[35] Although the letter of demand of 14 September foreshadowed legal action "may be taken" if Mr Verschoyle failed to pay; see Fourth affidavit of Mr Kirk (CFI 92) DEK - 23 at p 11.
[107]
[36] Although any challenge to the commercial decisions made were difficult to challenge unless bad faith was established which was asserted in the Statement of Facts, Issues and Contentions.
[108]
[37] Statement of Facts, Issues and Contentions (CFI 54) at [89]-[99].
[109]
[38] Statement of Facts, Issues and Contentions (CFI 54) at [111], [114].
[110]
[39] Statement of Facts, Issues and Contentions (CFI 54) at [56].
[111]
[40] Applicant's Response to Statement of Facts, Issues and Contentions of the Objectors (CFI 70).
[112]
[41] His opinions were admitted on the basis that they were evidence of his beliefs.
[113]
[42] Second affidavit of Mr Verschoyle (CFI 96) at [9].
[114]
[43] Fourth affidavit of Mr Kirk (CFI 92) at [10].
[115]
[44] Second affidavit of Mr Williams (CFI 72-77) at [127].
[116]
[45] Second affidavit of Mr Williams (CFI 72-77) at [129].
[117]
[46] Second affidavit of Mr Williams (CFI 72-77) at [179].
[118]
[48] Second affidavit of Mr Williams (CFI 72-77) at [148]-[149].
[119]
[49] Second affidavit of Mr Williams (CFI 72-77) at [154].
[120]
[50] Second affidavit of Mr Latif (CFI 94) at [17], [19].
[121]
[51] There was no Browne v Dunn issue in not doing so.
[8] On 6 July 2018 it is alleged that Mr Latif had a conversation with Mr Williams where he asserted that "fake entries" were made in the timesheets and when questioned about the details of that stated "We'll save it for court. If we have to humiliate Darryl, we will."
[9] On 7 July 2018, in a further conversation between Mr Williams and Mr Latif as to the remuneration claim, when Mr Williams stated to Mr Latif that he was concerned that they were losing control of the process having followed the statutory process and commented that the matter could go on for six months, Mr Latif responded "Exactly".
[10] On 20 July 2018 Mr Farhat provided four notices of objection to the claim for remuneration which claimed, "excessive hourly rates", "misleading report to creditors" and "duplication of work completed by provisional liquidator". The four notices were given on behalf of Mr Farhat's firm P.A. Khoury Lawyers Group Pty Ltd trading as PAK Law, Mr Verschoyle, GEDG and Mr Latif's wife in relation to employee entitlements.
[11] On 23 July 2018 Mr Kirk filed his application for approval of his remuneration in this Court returnable on 2 August 2018. On 1 August 2018 appearances were only entered by PAK Law and Mr Verschoyle.
[12] On 2 August 2018 Douglas J made consent orders to provide timesheets for the provisional liquidators to PAK Law and Mr Verschoyle in Excel with columns for objections, responses, and the remarks of the Registrar.
[13] On 2 August 2018 Mr Latif phoned Mr Williams and is alleged to have said:
[39] Counsel for Mr Verschoyle relied on the high evidential threshold to establish that a party acts with improper purpose and stated it had not been met. In particular, it was contended that the court should determine the question by reference to cases with respect to determining whether the exercise of a power or discretion has miscarried by reason for an improper purpose, as the relevant approach in this case. In particular, counsel for Mr Verschoyle referred to the decision of Perry J in LHRC & Ors v Deputy Commissioner of Taxation & Anor (No 3).[10] Relevantly, the considerations as to whether a power or discretion has miscarried by reason of an improper purpose are:
BE Australia WD Pty Ltd (subject to a deed of company arrangement) & Ors v Sutton
[64] Mr Verschoyle swore an affidavit in these proceedings in response to the application for costs and Mr Kirk's counsel's submissions.[31] He denied he had the ulterior motive alleged by Mr Kirk in objecting to Mr Kirk's remuneration.[32] Mr Kirk submits that the Court should reject Mr Verschoyle's evidence that he lacked such an ulterior motive as he was not a credible witness insofar as his affidavit did not refer to the defence raised in the District Court proceedings arising out of his objection to the remuneration application, that he lied as to the amount of evidence of Mr Kirk's remuneration that was not in dispute. Further, while Mr Verschoyle had deposed to a genuine belief that the remuneration was excessive, he did not depose as to the basis of any belief that Mr Kirk had been guilty of misconduct nor why his opposition to the remuneration claim had been abandoned.
[65] He deposed to the fact that his defence of the District Court proceedings was genuine, that he believed that the quantum of remuneration sought by Mr Kirk was excessive for the reasons outlined in the Note to WIP analysis and that Mr Kirk's approach to the offers provided by Mr Verschoyle in relation to the company were unreasonable. It was plain from his affidavit and evidence in cross-examination that Mr Verschoyle considers that his offers should have been accepted, and if they had, there would have been a significant reduction of the provisional liquidator's costs. He also contends that the closed tender process put in place by Mr Kirk to sell certain assets of the company was flawed.
[66] The criticisms of Mr Verschoyle were properly made, and he showed himself to be a less than candid witness.
[67] Mr Verschoyle did not in his affidavit specifically refer to that part of his defence based on the director's loan being the subject of dispute in the remuneration claim of Mr Kirk which had been the only defence raised originally in the District Court proceedings. He only referred specifically to a limitation defence which was the subject of the Amended Defence. He did not offer any convincing explanation for the omission notwithstanding that he accepted he had read the submissions of Mr Kirk before swearing the affidavit, which made clear Mr Kirk alleged he had an ulterior motive arising out of his defence to the District Court proceedings.
[68] As to Mr Kirk's claim for remuneration, Mr Verschoyle stated that he objected to $98,381 but not the remaining $135,510.37.
[69] While Mr Verschoyle stated in his affidavit that he had only ever objected to $98,381 of the remuneration claimed by Mr Kirk and not the remaining $135,510.37, his evidence was inaccurate. In the Excel spreadsheet prepared on his behalf analysing Mr Kirk's timesheets,[33] in yellow highlighting which stated "objected - objections and responses on spreadsheet" there was an additional $54,450 which was disputed in addition to the amount of $98,381 which had red highlighting. He was familiar with the document. He did not contend that the yellow amounts were not disputed. It was plain on the face of the document it was disputed. In cross-examination he could not say why he had not referred to the additional amount disputed simply stating that he did not know he was required to. Although he stated in re-examination that the red items were the ones of most concern, he again had no compelling explanation as to why he had not mentioned the yellow items which were the subject of objection in the sum of $54,450.
[70] Mr Verschoyle's evidence was unconvincing. Mr Verschoyle was responding to the material of Mr Kirk including the submissions and was aware of the contentions that were made as to his conduct.[34] It was evident that his affidavit sought to cast him in the most favourable light suggesting that he was reasonable in his dealings with Mr Kirk, for which he largely relied on Mr Farhat and Mr Latif. Given the above matters, I found that his evidence was incomplete and misleading. However, while Mr Verschoyle was on notice of the issues raised by Mr Kirk and his evidence in response did not answer a number of key matters raised by Mr Kirk, it was not put to him that in his failing to accurately address the above matters in his affidavit he was deliberately seeking to mislead or lying. Mr Kirk however submits that the court should draw the inference that given the omissions in his affidavit evidence and distortions of the real position, I should reject his evidence as to not having any ulterior motive in pursuing the objections.
[71] However, I have some difficulty in concluding as Mr Kirk submits I should, on the evidence that Mr Verschoyle's objections and allegations of misconduct against Mr Kirk was motivated by his seeking to resist the claim for recovery of the director's loan and that if he succeeded in proving his allegations of misconduct against Mr Kirk, he would not have to pay his director's loan to the company. The fact Mr Latif raised the status of the director's loan with Mr Williams before the filing of the Statement of Facts, Issues and Contentions showed that the question of the recovery of the director's loan was vexing Mr Verschoyle. It was plain in making the inquiry Mr Latif was acting on Mr Verschoyle's behalf. That was supported by the terms of Mr Verschoyle's offers to Mr Kirk to enter into an arrangement so the company and his position in the company could be reinstated, which included offers to take account of his director's loan. However, there is a disconnect in the timing of the events. Mr Verschoyle had objected to the claim for remuneration and the Statement of Facts, Issues and Contentions in the proceedings had been filed before the proceedings in the District Court were issued and Mr Verschoyle's defence had to be filed. While the evidence suggests Mr Verschoyle was concerned about Mr Kirk as liquidator seeking recovery of the loan, it is unlikely he would have made the objection to the remuneration in anticipation that the liquidator would commence proceedings in the District Court.[35]
[72] While a number of objections to the claim for remuneration seek to challenge Mr Kirk's decisions, particularly having refused offers which Mr Verschoyle had put forward, which I find Mr Verschoyle thought was unreasonable,[36] some of the matters raised were challenging the necessity of the work done. While I accept that Mr Latif had said to Mr Williams that if they were successful with the remuneration application they would not have to repay the loan, that is an insufficient basis for me to infer that the predominant purpose or motivation in making the allegations of misconduct contained in the Statement of Facts, Issues and Contentions was to serve as a pre-emptive strike in order to defend any proceedings seeking to recover the director's loan and avoid paying the director's loan. In my view it was more likely an afterthought once the District Court proceedings had been issued. I do however find that it was one of the motivations for sustaining the allegations made against Mr Kirk given that the defence continued to be raised in the Amended Defence, and that was the basis upon which Mr Verschoyle avoided addressing its merits in his affidavit in response to this application.
[73] Mr Latif also gave evidence. He is a director of GEDG, which is said to provide business, strategy and structuring consulting services. He stated that he has provided legal project management services to various clients for over 20 years. Mr Verschoyle agreed he engaged Mr Latif to act for him together with his lawyer, Mr Farhat, in relation to the claim for remuneration by Mr Kirk. According to the Statement of Facts, Issues and Contentions, Mr Latif also played a role in the negotiations for the purchase of the business with Mr Kirk advocating for the purchase of the business by Mr Verschoyle. Given his appointment to assist Mr Verschoyle in the remuneration claim and the conversations he had with Mr Williams both with and without Mr Farhat, one can infer there was collaboration between he, Mr Farhat and Mr Verschoyle in relation to the remuneration proceedings and the strategy adopted in making objections.
[74] Mr Kirk contends that the Court should find Mr Latif has engaged in conduct for which Mr Verschoyle was responsible, which in combination with the serious allegations made against Mr Kirk was productive of serious and unjustified trouble and harassment.
[75] The allegations of breaches of duty by Mr Kirk included using his position improperly to gain advantage for himself, which were based particularly on the failure of Mr Kirk to accept Mr Verschoyle's offers to purchase the business of the company and the conduct of the tender for the purchase of the business, including allowing Mr Verschoyle's sister, the applicant, to be part of the tender process. Allegations of a failure to act with due care were made which included an allegation that Mr Kirk failed to characterise the director's loans as an asset of the business that was part of the sale of the business and excluded director loan liabilities from the business.
[76] No factual basis was set out in the Statement of Facts, Issues and Contentions for alleging that the provisional liquidator was motivated to extend the liquidation to gain an advantage and "claiming, inflating and accruing the Provisional Liquidator and Provisional Liquidator's Legal representative fees" although it was asserted that was the basis for refusing the offers made by Mr Verschoyle.[37] The Statement of Facts, Issues and Contentions further alleged that the provisional liquidator's decisions were not made in good faith for a proper purpose as his intention was to extend the length of the liquidation at the costs of the creditors, again with no factual basis for asserting such an intention being set out.[38] No allegations arising out of the refusal to accept Mr Verschoyle's offers involved allegations of bad faith or improper purpose. Some allegations were made of negligence.
[77] While the Statement of Facts, Issues and Contentions referred to the objections provided by reference to exhibit 4 in red and yellow highlighting,[39] the Statement of Facts, Issues and Contentions did not elaborate further on those objections except by reference to the refusal of Mr Verschoyle's first to fourth offers. Those allegations were denied by Mr Kirk in his response.[40] No evidence was relied upon by Mr Verschoyle in this hearing supporting the serious allegations made, but rather he deposed to his belief of what the effect of the offers made by him[41] would have been and that Mr Kirk had not engaged in negotiations with him. He stated further that he genuinely believed that had Mr Kirk engaged with him the parties could have reached an agreement which would have reduced Mr Kirk's costs and that Mr Kirk had erred in not accepting the offers. He further deposed that the tender process was flawed given the lack of interest of the applicant.[42] He identified conduct of Mr Kirk which he said was "concerning" and that he had no ulterior motive when he lodged his objections and that he genuinely believed his fees were excessive. He did not however depose to a genuine belief that Mr Kirk lacked good faith or was seeking to act for personal gain or an improper purpose. That said, they are inferences and conclusions to be drawn from the evidence.
[78] The making of serious allegations of lack of good faith, seeking to gain personal advantage and improper purpose do not appear to have been substantiated by any evidence other than the fact of Mr Kirk's refusal to accept the offers and engage with Mr Verschoyle. It was clearly a source of grievance for Mr Verschoyle, but the making of such serious allegations without a proper basis would clearly be an abuse of process. Mr Verschoyle would have been aware of the high bar he would have to meet to succeed in the allegations given his solicitors had been provided with Re Northbourne well in advance of making the allegations_._ I find that Mr Verschoyle made serious allegations of misconduct against Mr Kirk in the Statement of Facts, Issues and Contentions.
[79] Mr Kirk has deposed to the costs to plead to and put extensive affidavit material on responding to the allegations made, which he considered to be serious in their nature and unjustified.[43] He was not cross-examined in that regard. He estimated that his remuneration attributable to responding to the objections and allegations was approximately $150,000 and he had incurred legal costs of approximately $350,000 in respect of the application for remuneration, which he stated was almost entirely for responding to Mr Verschoyle's objections and allegations.
[80] The allegations of misconduct made against Mr Kirk were serious and I accept that Mr Kirk would have incurred significant costs in responding to them. The nature of the allegations went beyond a mere challenge to the remuneration and sought to challenge the decision-making process by the liquidator. They were adversarial in nature in seeking to in effect put Mr Kirk's conduct of the provisional liquidation in issue. I consider that Mr Verschoyle was well aware that in making the extensive allegations that he did, that that would result in Mr Kirk having to respond to them in some detail to answer the allegations. However, that is an insufficient basis upon which to infer that the allegations were intended to be productive of "serious and unjustified trouble and harassment." The fact that Mr Kirk deposes to the fact that he found them to be serious and unjustified does not, without more, establish that the allegations of misconduct by Mr Kirk were productive of "serious and unjustified trouble and harassment" notwithstanding their abandonment, without an examination of the merits or otherwise of the allegations made. In that regard, while an examination as to the question of costs in matters such as the present does not occur until the end of a proceeding, it is of some relevance in the assessment of the effect of the allegations made that Mr Kirk did not raise in response to the Statement of Facts, Issues and Contentions that in raising the allegations, Mr Verschoyle was acting for an improper purpose or with an ulterior motive.
[81] As to the further conduct of Mr Latif that Mr Kirk relies upon to support a finding that Mr Verschoyle's conduct had been productive of serious and unjustified trouble and harassment, Mr Kirk refers to:
[87] It is also contended by Mr Kirk that the court should find that Mr Latif, as Mr Verschoyle's advisor, had his own separate ulterior motive to harass Mr Kirk, arising out of Mr Kirk's refusal to accept a proof of GEDG debt. There is evidence pointing to that being the case. In that regard, Mr Kirk relies on conversations between Mr Latif and Mr Williams in August and September 2018 indicating that he had "gone nuts" in making objections to timesheet entries for the provisional liquidation "because of the position he's taking in relation to my [GEDGs] proof of debt".[49]
[88] I had no confidence in the evidence Mr Latif gave.
[89] I found Mr Latif sought to avoid giving direct answers and gave answers that were self-serving. He displayed considerable arrogance in giving evidence and failed to give his evidence with objectivity and skewed it in what he considered was a favourable way to him and Mr Verschoyle's defence of this application. I had no confidence in the objectivity of the evidence Mr Latif gave and did not consider him reliable.
[90] Mr Latif, like Mr Verschoyle, stated that $98,381 was objected to and $135,510.37 was approved. That was inaccurate for the same reasons set out above in relation to the same statement in Mr Verschoyle's affidavit. Given he prepared the objections, he could not have been under any misapprehension as to the amount that had been objected to and that it included a further amount of some $54,000. His evidence in this regard was misleading.
[91] Mr Latif deposed evidence that it was Mr Williams who proposed that GEDG withdraw its proof of debt and get PAK Law to claim it as a disbursement. He contends Mr Williams indicated that there was no opposition to admitting him as a creditor, but he was trying to find a way to get him through the door without there being any witch hunt after the event. He stated that GEDG therefore did not lodge a notice of appearance in the remuneration proceedings. In his affidavit he failed to refer to the fact that he had been informed that Mr Kirk required Mr Verschoyle to provide a statutory declaration of the work done before he could consider admitting GEDG's debt.
[92] It was apparent from the concessions he made in cross-examination that the discussion he alleged took place with Mr Williams on 7 September 2018 had a very different context from that which was represented by him and that it was selective. I accept Mr Williams' evidence that he had informed Mr Latif that he needed to get Mr Verschoyle to provide an affidavit or statutory declaration about the consultancy agreement with GEDG and the arrangement underlining the debt which it claimed to exist. Mr Latif accepted that Mr Williams had also indicated to him that he would talk to Mr Kirk about it, that he would take his advice and it would depend on what the affidavit said. Notwithstanding these concessions, he refused to accept that the conversation that occurred was very different from that represented in paragraphs 17 and 19 of his affidavit.[50] The conversation that occurred was clearly quite different with the onus being placed upon Mr Latif to take active steps before GEDG's proof of debt could be considered. I consider he was, seeking to overstate the assurances Mr Williams gave to him to deflect the allegations that he had personal motives to challenge Mr Kirk's remuneration and made that clear to Mr Williams in his conversations.
[93] In relation to his evidence as to GEDG not lodging a notice of appearance, Mr Latif obfuscated when giving his answers. He agreed at least one of the reasons he did not appear in these proceedings was not the result of his alleged discussion with Mr Williams, but rather the fact that PAK Law and Mr Verschoyle were going to appear.
[94] According to Mr Latif's affidavit, he had no ulterior motive or quest for revenge because he believed what Mr Williams had stated. Similarly, he thought his assessment of Mr Kirk's remuneration was fair and he had no ulterior motive in the disputed figures when outlining the dispute.
[95] Unlike Mr Verschoyle who did make objections to Mr Kirk's remuneration application through the statutory process, I find that Mr Latif maintained an active role in objecting to the remuneration application as the man behind the scenes in his role of assisting Mr Verschoyle. I consider he did have at least in part an ulterior motive to create barriers to Mr Kirk's application through the objection process.
[96] Mr Latif was not challenged as to the process he had undertaken in the objections to Mr Kirk's remuneration claim. Nor was it put to him that he was lying as to his motivation when he made such objections. While Mr Kirk was not obliged to do so as Mr Latif had been put on notice of the inferences Mr Kirk sought the court to make involving Mr Latif, [51] the reliance on inferences by Mr Kirk rather than having Mr Latif respond directly to a suggestion that he was lying on oath made it difficult to conclude he was lying to the extent alleged. While I consider that he did have a personal ulterior motive in attacking Mr Kirk's application, it is not clear that was his predominant purpose in making the objections to Mr Kirk's affidavit. The statements highlighted by Mr Kirk do support his ulterior motive being his own personal grievances and were designed to bully and intimidate. When the evidence is examined in its entirety there were other conversations referred to by Mr Williams in his second affidavit,[52] where Mr Latif asserted that he considered Mr Kirk's fees were too high, suggesting that his involvement in the objection process was not solely to take objections for the sake of it to further his own personal position.
[97] According to Mr Kirk, the court should attribute the further ulterior motive of Mr Latif to Mr Verschoyle given he acted as his advisor. While Mr Latif acted as Mr Verschoyle's advisor, I find that Mr Latif had his own personal grievances as a result of Mr Kirk's rejection of GEDG's proof of debt which likely tainted his approach in assisting Mr Verschoyle to make objections, but I do not consider that the applicant has established that Mr Latif's personal motivations can be attributed to Mr Verschoyle. It was plain he did have his own personal grievances which he aired in his discussions with Mr Williams, but there is no evidence Mr Verschoyle was aware of those conversations, particularly the comment by Mr Latif that he would destroy Mr Kirk's career.
[98] Nor can Mr Latif's motives or statements made necessarily be attributed to Mr Verschoyle on the basis he was engaged for Mr Verschoyle and acting as his agent. While he acted for Mr Verschoyle in making the objections and in relation to a number of his dealings with Mr Williams, that is an insufficient basis for attributing all his comments to Mr Verschoyle given he was also discussing his own position. Further, prior to 1 August 2018, four notices of objection had been provided by GEDG, PAK Law, Mr Verschoyle and Mr Doran.[53] As such, conversations that took place prior to 1 August 2018 and statements made by Mr Latif cannot simply be attributed to Mr Verschoyle given he was not only acting on Mr Verschoyle's behalf at the time.
[99] The case that Mr Verschoyle was responsible for Mr Latif's comments and conduct after 1 August 2018 is stronger, given that only PAK Law and Mr Verschoyle entered notices of appearance. While Mr Verschoyle's counsel contended that an objector does not cease being an objector because they had not put a notice of appearance in, the fact is that it was only Mr Verschoyle and PAK Law who sought to further their objections in these proceedings through filing notices of appearance and then a Statement of Facts, Issues and Contentions. However, the statement of Mr Latif on 15 October 2018, as set out above, which made threats to destroy Mr Kirk's career, could equally have been him speaking of his own position and intent albeit in the context of his assisting Mr Verschoyle. In that regard, while he had been involved in the making of objections, the evidence was lacking as to the extent that he was involved in the drafting of the Statement of Facts, Issues and Contentions filed on 21 November 2018. While he was clearly working with Mr Farhat on behalf of Mr Verschoyle, the Statement of Facts, Issues and Contentions was filed not only on behalf of Mr Verschoyle but PAK Law, and who was the driving force behind the allegations made was not apparent from the evidence before me.
[100] As to the findings of fact which Mr Kirk seeks the court to make, I therefore find as follows:
(f) I do not find that Mr Latif's motive or intent can be attributed to Mr Verschoyle, notwithstanding his role as Mr Verschoyle's advisor and his involvement in discussions with Mr Williams and Mr Farhat and the making of objections.
[114] While Mr Verschoyle's counsel also sought to assert that Mr Kirk himself had sought to make the costs application for remuneration adversarial, insofar as he had threatened to seek costs against the objectors if they sought to oppose his remuneration application by a letter from his solicitors on 6 June 2018,[59] that argument is without merit. The letter contended that the objections made in the notices of objection did not contain any grounds of objections and only contained assertions. In those circumstances the objectors, including Mr Verschoyle, were invited to withdraw the objections and put on notice that if they pursued such objections, the letter would be relied upon by Mr Kirk in relation to the question of costs.
[115] I am satisfied that Mr Verschoyle pursued his opposition to the remuneration application in such a way as to make the objection in substance upon the filing of the Statement of Facts, Issues and Contentions on 21 November 2018 adversarial and to additionally advance his own interests[60]. He then abandoned his opposition to the application shortly before the hearing. His abandonment of any opposition to the remuneration application, and implicitly of the allegations made against Mr Kirk, well after the matter had been set down for hearing, satisfies me that there are exceptional circumstances which exist for making an order for costs against him .
[116] While PAK Law and Mr Verschoyle filed their Statement of Facts and Contentions on 21 November 2018 and affidavits of Mr Farhat and Mr Latif on 22 November 2018, PAK Law subsequently had a receiver and manager appointed to its law practice in February 2019 and was de-registered in late 2020. It was not a party to this action, and it would not be appropriate to make any order as to costs against it. In any event by jointly filing a Statement of Facts, Issues and Contentions with Mr Verschoyle with PAK Law, Mr Verschoyle was equally responsible for the allegations contained the Statement of Facts, Issues and Contentions. The evidence supports the fact that Mr Verschoyle maintained the opposition to the remuneration application after PAK Law was placed in receivership and then deregistered.
[117] Given Mr Kirk always had to seek the approval of the court for his remuneration, and that it was by filing the Statement of Facts, Issues and Contentions in the circumstances outlined above that I have found Mr Verschoyle adopted the position of an adversary in the litigation, I consider costs should only be ordered after the filing of the Statement of Facts, Issues and Contentions on a standard basis.