These reasons relate to the question of costs of proceedings in which the applicants failed in their application that the liquidator should be removed: Minh Tan Tran v Nicols [2015] NSWSC 1635.
When the Judgment was delivered on 5 November 2015 the parties were advised that if they were unable to agree on a costs order, they could file written submissions by no later than 13 November 2015 and the question of costs would be dealt with on the papers (J [61]). The parties had some discussions and written communications but failed to reach agreement. They each filed written submissions on 13 November 2015.
The applicants contend that because the liquidator is guilty of disentitling conduct, it is appropriate to depart from the usual order that costs follow the event. The liquidator seeks an order that the applicants pay his costs on an indemnity basis for the whole of the proceedings or from the date of the expiry of an offer in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333.
[2]
Background
The applicants commenced the proceedings by Interlocutory Process on 26 August 2015. On 28 September 2015 the application was set down for hearing on 28 and 29 October 2015.
On 13 October 2015 at 5.06pm the applicants' solicitors (Somerset Ryckmans (Ryckmans)) wrote to the liquidator's solicitors (Swaab) referring to a telephone conference that afternoon. That communication included the following:
As mentioned we are instructed that our clients would dismiss the current proceeding on a without admission basis with each party to bear his own costs.
If this offer is refused our instructions are to proceed with the final hearing.
As mentioned our clients' current position is based to large extent on the evidence that has been adduced by the liquidator regarding the extent of his efforts in the winding-up, which we acknowledge is a factor that weighs against us, not any reversal of our view of the liquidator's actions otherwise.
Because we would still need to serve reply evidence and submissions if the proceedings were to continue, the aforementioned offer is open until 12:00 pm tomorrow, 14/10.
On 13 October 2015 at 11.24 pm Swaab wrote to Ryckmans expressing the view that it was inevitable that the application would fail and that the applicants would be liable for costs. Swaab referred to Brereton J's decision in In the matter of St Gregory's Armenian School (in liq) [2012] NSWSC 1215 and contended that there was no basis for the liquidator's removal. Swaab's letter included the following:
However, in order to bring the matter to finality, our client is prepared to consent to the application being dismissed on the basis that your clients pay 80% of our clients costs up to the time of acceptance of the offer, as agreed or assessed. The effect of this is that your clients will receive a 20% discount on its actual costs exposure - and won't be exposed to the costs of the remainder of the application.
Accordingly, if your clients accept this offer, consent orders to the following effect will be field (sic):
1. The application be dismissed;
2. The applicant to pay 80% of the respondents costs of the application as agreed or assessed.
Swaab also advised that this offer would remain open until the time that had been nominated by Ryckmans, being 12.00 pm on 14 October 2015. Swaab's letter stated that the offer was made pursuant to the principles of Calderbank v Calderbank and that if it was not accepted and a result no better than the offer was achieved at final hearing, application would be made that the costs for the period after the expiry of the offer be paid on an indemnity basis.
On 14 October 2015 there was communication between the solicitors in respect of the quantum of the costs that had been incurred. Swaab advised that the "ball-park" amount was "about $58,000". Swaab clarified that the 80% was of the assessed costs and did not preclude an agreement being reached on quantum.
On 14 October 2015 Ryckmans wrote to Swaab in terms that included the following:
Our clients are unwilling to pay costs at that scale considering that the starting point for this is that the liquidator took two vehicles registered to the related company, one of which he grabbed from our clients' residential driveway and took the $37k cheque which clearly didn't belong to the Company.
While you didn't think much of our original application, Brereton had a clear view of the liquidator's behaviour such that the liquidator returned the vehicles and $37k.
I cannot imagine that the liquidator is eager for these matters to be agitated before the Chief Judge in Equity.
There are other aspects to the application but I suspect there is no point in canvassing them here. Suffice to say the application, which is wholly discretionary with the Judge, is not doomed to fail. We are familiar with the St Gregory's authority and the facts of that case bear no resemblance to this matter.
We remind you that our clients bore their own costs on the initial application (which was in effect successful) and we assume the Company bore the costs incurred by your client.
While we think that it is entirely reasonable in these circumstances that there is a walk-away, we are instructed to offer the sum of $10,000 in full satisfaction of costs.
Please respond asap but in any event by 2:00 pm today.
That offer was rejected by email on 14 October 2015. Swaab noted that if the applicants were to lose the application costs would follow the event and a 20% discount was a "significant concession" on the liquidator's part.
On 10 November 2015 Swaab wrote to Ryckmans suggesting that the liquidator should "at least" obtain an order for costs "as agreed or assessed". However they then recounted some of the events and exchanges at trial with the suggestion that there was a very real prospect that the liquidator would obtain an indemnity costs order in respect of the entire proceedings. Alternatively Swaab claimed that the applicants had obtained a result no better than the offer made by the liquidator on 13 October 2015 and the appropriate order was that the applicants pay the liquidator's costs on an indemnity basis from 14 October 2015. Swaab's letter included the following:
Rather than the parties incurring further unnecessary costs with regard to the preparation of submissions on costs, we are instructed that our client is prepared to agree to an order which takes a middle ground, as follows:
1. The applicants, Minh Tan Tram (sic) and Minh Tam Tran, to pay the first respondent's costs of the interlocutory process filed on 26 August 2015 as agreed or assessed for the period from 21 August 2015 to 13 October 2015; and
2. The applicants to pay the first respondent's costs of the interlocutory process filed on 26 August 2015 on an indemnity basis from 14 October 2015.
We request that you please let us know by no later than 12.00 pm tomorrow, 11 November 2015, whether your clients consent to the above costs orders.
Should your clients reject the terms of the above costs order, or fail to provide us with any response to this letter, we are instructed to proceed with preparing submissions for indemnity costs against your client and filing those submissions with her Honour prior to 13 November 2015.
On 10 November 2015 Ryckmans responded by email advising that the "offer" had been rejected. That communication included the following:
On our view, there is sufficient basis for the court to exercise its discretion to depart from the general rule that costs follow the event.
Our clients were compelled to bring the proceedings to remove your client as a result of his conduct and there was clearly a public interest in having your client's conduct scrutinised by the court. This is in line with the principles set out in Oshlack v Richmond River Council [1998] HCA 11 which noted that evidence of disentitling conduct on the part of the successful party was sufficient for the court to depart from the usual order in respect of costs.
[3]
Submissions
The applicants' submissions may be summarised as follows:
1. The usual order that costs follow the event should be departed from and the liquidator should pay the applicants' costs of the proceedings;
2. The liquidator's conduct essentially compelled the applicants to commence the proceedings for his removal;
3. The proceedings were in the public interest;
4. Although there was no finding that the liquidator had converted the DCN cheque, the liquidator retained the proceeds of the cheque ($37,730) for a period of nearly one month "in the face of increasing evidence" that the proceeds did not belong to T&T;
5. While the liquidator's conduct was not enough to meet the standard for his removal, it is enough to constitute disentitling conduct on costs;
6. The liquidator's offer in the Calderbank letter of 13 October 2015 was not a genuine offer of compromise; and
7. If the court is minded to order that the applicants pay the liquidator's costs, there should be no award of indemnity costs.
The liquidator's submissions may be summarised as follows:
1. The applicants abandoned a number of their claims at the hearing;
2. The applicants propounded an unparticularised bias claim against the liquidator;
3. The conversion claim against the liquidator was misconceived and should not have been brought;
4. The trespass claim against the liquidator failed;
5. The pursuit of the proceedings had caused the liquidation to incur significant costs and delay that were entirely unnecessary and to the detriment of the liquidation;
6. There was no public interest in the proceedings nor were the applicants compelled to bring the proceedings;
7. There was no disentitling conduct on the part of the liquidator;
8. The conduct of the litigation warrants an order that the applicants pay the liquidator's costs of the proceedings on an indemnity basis; and
9. Alternatively an order should be made that the applicants pay the liquidator's costs on an indemnity basis from 14 October 2015 when the offer in the Calderbank letter was rejected.
[4]
Consideration
The applicable principles are not in issue. The Court is to order that costs follow the event unless it appears that some other order should be made as to the whole or any part of the costs: Rule 42.1 Uniform Civil Procedure Rules 2005. The court has a wide discretion in determining by whom and on what basis the costs of the proceedings are to be paid: s 98 Civil Procedure Act 2005.
[5]
Abandonment of claims
The liquidator pointed to the five bases of complaint originally identified by the applicants in communications with the liquidator being: (1) the liquidator's pursuit of Assets' debtors; (2) not passing to the applicants funds received by T&T; (3) banking the DCN cheque; (4) an alleged failure by the liquidator to complete settlement of the previous proceedings; and (5) repossession of two motor vehicles. Complaints (1), (2) and (3) were not pressed at trial.
Notwithstanding the abandonment of these claims, the liquidator had to prepare to meet these allegations in the context of an application for his removal. This is a matter to be taken into account in determining the appropriate costs order to be made.
[6]
Additional claims
In the applicants' Outline of Submissions dated 19 October 2015 served prior to the hearing, the following claim was made:
8. The application is brought for the removal of the liquidator on the grounds that he has shown himself to be unfit and acted improperly and with apparent bias to the applicants.
In opening the applicants' case at the hearing Mr Rosenblatt said (tr 3):
ROSENBLATT: It's not, in its current form, a bias case. Perhaps as the case progresses we'll say something about that in closing, but at the moment it's not a …
HER HONOUR: But if it's not a bias case, shouldn't we be clear at the beginning that you're not running a bias case?
ROSENBLATT: Well I'm making that clear now. There's a suspicion of bias that we formed a view doesn't rise to an apprehension of bias but we suspect - we contemplate that it's possible during cross-examination that suspicion may raise at least to an apprehension.
There was no evidence called in chief or elicited in cross-examination that would establish any basis to conclude that the liquidator was biased or that his conduct would give rise to an apprehension of bias. This claim should never have been made.
The "grab bag" of claims made by the applicants included an extraordinary allegation of laziness that was totally misconceived. The liquidator was required to instruct solicitors and deal with the previous proceedings which have been found to have been settled in a prompt and appropriate manner (J [47], [59]). Far from being lazy, the liquidator applied himself diligently and professionally both to the liquidation and to the proceedings that were brought against him. His pragmatism and good commercial judgment was demonstrated in the settlement that he achieved in those earlier proceedings. The claim of laziness should never have been made.
[7]
Commencement of the proceedings
It is appropriate to consider whether the liquidator invited or precipitated the litigation: Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256 at [97]-[98]; Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194. Indeed the applicants claimed that they were compelled to commence the proceedings by reason of the liquidator's conduct that was the subject of the earlier proceedings.
The earlier proceedings were settled and final orders were made within a month of the commencement. Although the applicants agreed to pay their own costs of those proceedings, the motor vehicles were reinstated on a conditional basis and the proceeds of the DCN cheque were paid over to Aust, also on a conditional basis.
The applicants had a choice whether to commence the proceedings seeking the liquidator's removal. In making that choice they are taken to have been aware of the relevant principles applicable to such an application. The prompt manner in which the liquidator settled the earlier proceedings could not be characterised as an invitation to the applicants to seek his removal. I would have thought that his conduct should have persuaded the applicants to leave the liquidator to do his best in circumstances made more difficult by them where: the books and records were in disarray; there was little or no cooperation from the applicants in respect of T&T's operation; there was an allegation that T&T had ceased trading in mid-2014 when clearly the records suggested otherwise; and money and assets had been removed from T&T days and weeks before the appointment of the liquidator and after the applicants had notice of the application for the winding up of T&T.
There was nothing in the liquidator's conduct that forced or compelled the applicants to commence the proceedings. I am not satisfied that the liquidator's conduct the subject of the earlier proceedings or the settlement of those proceedings invited the commencement of the present proceedings.
The suggestion by the applicants that there was a public interest in commencing the proceedings so that the liquidator's conduct could be scrutinised by this Court is also without foundation. There was plenty of opportunity for this Court to scrutinise the liquidator's conduct in the earlier proceedings. The applicants chose to settle those proceedings.
[8]
Disentitling conduct
The applicants contended in their written submissions that although the liquidator's conduct in respect of the DCN cheque did not amount to conversion, it is nevertheless "enough to constitute disentitling conduct on costs" (par [18]).
The conduct relied upon in this regard was the fact that the liquidator retained the proceeds of the DCN cheque "for a period of nearly one month in the face of increasing evidence that the proceeds did not belong" to T&T (par [17]). The so-called "increasing evidence" was information that was drip fed to the liquidator over a period of weeks culminating in an unsworn affidavit by an officer of DCN who would (if the affidavit was sworn or affirmed) give evidence that he made a mistake in writing T&T's name on the cheque as the payee.
Although it is unclear from the applicants' submissions, I will assume that they also rely upon the liquidator's conduct in seizing the vehicles without notice as disentitling conduct. The applicants' submissions included the statement that "the evidence may not have been sufficient" to establish trespass. There should be no tentative approach to this. The evidence did not establish trespass. The applicants sought to characterise two passages of the Judgment as a criticism of the liquidator's conduct that would disentitle him to his costs of the proceedings. The first passage was as follows (J [47]):
Although it was suggested to the liquidator in cross-examination that he repossessed the vehicles so that he would be able to have his fees paid, that was denied. I do not accept that the liquidator's actions were motivated in this regard. On reflection, a better course might have been for notice to be given to Aust that the liquidator intended to repossess the vehicles.
The observation in that paragraph was of course made with the luxury of "reflection". It was a suggested "better course" that may have avoided litigation. On the other hand it may well not have avoided the litigation having regard to the rather robust (and rather misconceived) claims made in these proceedings. It is not an observation that should be read as a criticism amounting to disentitling conduct. Indeed the liquidator exposed the reality of the situation in his cross-examination when he was asked whether he thought about making a court application in respect of the vehicles. He said (tr 82-83):
A liquidator can't run off to court for every issue; and sometimes there is no funds in liquidation to enable the court application; and thirdly, the cars may not be there by the time I've won the application; fourthly, it was in a proprietary limited company that already owed our company 173,000.
Obviously the Court expects the liquidator to make the commercial decisions in the liquidation and pursue the interests of the company vigorously: In the matter of St Gregory's Armenian School (in liq) at [32]. Some of the judgment calls may be urgent and it is possible that a mistake might be made. Indeed the applicants relied on the following passage of the Judgment in this regard (J 55]):
Even on the assumption that the liquidator may have been mistaken in respect of his entitlement to repossess the vehicles, he reached what I regard as a sensible arrangement in respect of their return pending further investigation.
Having regard to the manner in which the applicants conducted the proceedings it was not necessary to decide whether the liquidator was in fact mistaken. This was an assumption. The fact that the assumption was made is not a basis for concluding that there was disentitling conduct.
The applicants have failed to establish that there is any basis for departing from the usual order that costs follow the event. The applicants should pay the liquidator's costs of the proceedings. The next question is whether any or all of those costs should be paid on an indemnity basis.
[9]
Indemnity costs
The first question for determination is whether indemnity costs should be awarded in line with what Woodward J said in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 as follows:
I believe that it is appropriate to consider awarding "solicitor and client" or "indemnity costs", whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.
The second question to be determined (if the liquidator fails in respect of the first question) is whether indemnity costs should be awarded from 14 October 2015 when the liquidator's Calderbank offer was rejected.
The liquidator was facing serious allegations that were ultimately not proved. The two main matters upon which the applicants pursued the liquidator were the alleged trespass and conversion of the cheque.
Notwithstanding the applicants' claim that Aust was entitled to the monies that were paid by DCN to T&T, there was no proper basis to make a claim that the liquidator had converted the cheque. The cheque was clearly made payable to T&T and the liquidator was entitled to bank it. The fact that there were other matters that were raised over time with the liquidator such as the contractor making a mistake in identifying the payee of the cheque bears no relationship to a case in conversion in respect of the cheque. The applicants claim in this regard was hopeless and should not have been pursued.
The applicants failed to call evidence to establish that the liquidator or those at his direction had entered their property without their authority so as to establish a trespass. It was clear that Mr Rosenblatt was claiming prior to the hearing of the matter that the liquidator had taken the vehicle from the applicants' "residential driveway". However this was not established on the evidence. It was necessary for the applicants to establish: the precise location of the motor vehicle that was repossessed; that this location was in fact on their private property; and that the liquidator and/or those at his direction had in fact entered their private property without authority.
There is a difference between the trespass case and the conversion case. The latter was hopeless and should not have been brought. The former suffered the evidentiary problems to which I have referred.
The liquidator should not have been required to meet the case brought by the applicants in conversion. He should not have been required to meet the "grab bag" of claims that he was lazy and/or possibly biased in some way.
The liquidator was met with conduct that was highly suspicious in which $110,000 had been transferred out of the T&T account just two weeks prior to his appointment, and only two days prior to his appointment the registration of eleven cars had been transferred to an associated company. Even if the applicants had established that the liquidator entered the property without authority it would have been necessary to decide whether it was in the interests of the liquidation that the liquidator should be removed. It should not be thought that this Court would endorse liquidators trespassing onto private property. However if there were an inadvertent trespass it would be a relevant matter to take into account in such an application. As was recounted in the Judgment there was no detailed cross-examination of the liquidator about this very matter. The only question that was asked was whether the vehicle was in the driveway to which the liquidator responded that he did not know (J [48]).
Had the plaintiff pursued the only aspect of the case that might possibly have had some prospect of success if the evidence had been called, I am satisfied that the case would have finished in one day rather than two. It is not possible to make a precise assessment of the amount of time that was spent on the trespass case. However I am satisfied that a fair assessment of the time in preparation and hearing is 35% of the total.
I am satisfied in all the circumstances that the applicants should pay the liquidator's costs of the proceedings. I am also satisfied that the applicants should pay 65% of the liquidator's costs on an indemnity basis.
In those circumstances it is not necessary to deal with the second question.
[10]
Orders
I order that:
The applicants are to pay the liquidator's costs of the proceedings, 65% of which are to be paid on an indemnity basis.
[11]
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Decision last updated: 23 November 2015