Plaintiffs v Defendants

2 The outcome of the orders made in the proceeding is that the liquidators have now taken possession of TVM's hard copy and electronic books and records from the defendants and the further prosecution of this proceeding is unnecessary. The only matter remaining for the Court's determination is the question of the costs of the proceeding in circumstances where there has been no final trial on the merits. The liquidators want their costs of this proceeding paid by the defendants on a party/party basis, whereas the defendants contend that the liquidators should pay their costs of the proceeding, failing which there should be no order as to costs.

3 Ordinarily, the Court will not make any order for costs where orders are obtained without a trial on the merits because the Court has not formed a view about the merits of the case. Ordinarily, the Court will not embark on a hypothetical trial in a costs application to determine the merits for itself for the purposes of deciding the question of costs. The proper exercise of the cost discretion in that circumstance will usually mean that the Court will make no order as to the cost of the proceedings.[1] That is not to say that costs will never be ordered where there has not been a trial as the Court has a wide discretion to award costs in a proceeding[2] and the discretion to award costs must be exercised having regard to the circumstances of the particular case.[3] In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the plaintiff no longer wishes to proceed with the action.[4] The authorities demonstrate that an appropriate case may be where the Court is able to conclude that one of the parties has acted so unreasonably in relation to the litigation that the other party should obtain the costs of the action.[5] The authorities also establish that a case may be made for a cost order in favour of a party where it is apparent from the orders put before the Court that the other party has effectively surrendered.[6] In those circumstances a cost order may be justified on the basis that success in an action usually controls the exercise of discretion in favour of a cost order and the successful party is ordinarily entitled to a cost order.[7]

4 It was submitted for the liquidators that they had acted reasonably in bringing these proceedings because the defendants had failed to comply with their statutory obligation to deliver up TVM's books and records. Moreover, that the defendants were unable to comply with their statutory obligation to deliver the books and records to the liquidators because of their failure to keep TVM's books and records in an orderly and systematic way when, had they done so, the identification, retrieval of and delivery up of those documents would have been a relatively straightforward process. It was further submitted that the liquidators were justified in seeking the

ex parte orders and that when the matter returned inter partes before the Court, the defendants effectively surrendered, given the terms of the consent orders that were made. It was also submitted that it is open to the Court on the material to draw the inference that the defendants had no substantial defence to the proceeding because they did not contest the ex parte orders or their obligation to produce TVM's books and records.

5 The defendants argued that the liquidators had not acted reasonably in bringing the proceedings but had acted precipitously and without warning in circumstances where the defendants were cooperating with the liquidators about the delivery up of the books and records of TVM. It was submitted that the proceeding was commenced, and the ex parte application made, in the face of the defendants' cooperation to provide what the liquidators have ultimately obtained. Evidence was put before the Court to support the proposition that the defendants had been co-operating with the liquidators prior to the commencement of the proceeding to deliver up TVM's books and records and that they never disputed that they had the obligation to deliver up. They argued, moreover, that the complexity of identifying the TVM records was demonstrated by the length of time that the process took during the proceeding with complete cooperation from the defendants. It was further submitted that the liquidators have not produced any evidence to demonstrate that their apprehension of document destruction was well founded and that no evidence of deliberate document destruction or other wrong-doing has been uncovered.

6 All submissions tended towards eliding the merits of the proceeding with the question of whether the liquidators were acting reasonably in bringing the proceedings. It is not appropriate for the Court to approach the question of costs by engaging in a hypothetical consideration of the merits to determine what the outcome of the proceeding may have been, if there had been a trial. The critical question is whether the liquidators acted reasonably in bringing the proceeding.

7 In my opinion, the reasonableness of the liquidators' commencement of the proceeding is demonstrated by the orders that the Court made on an ex parte basis. The fact that the liquidators obtained those orders demonstrates that there was an arguable case that the defendants were concealing documents and an arguable case that the documents were at risk of destruction.[8] Furthermore, the appropriateness of the Court making those orders was not challenged by any of the defendants. The proposition that the defendants had been, and would have, cooperated with the liquidators to facilitate the process that was effected by the ex parte orders obtained, if the liquidators had instead continued to negotiate appropriate protocols for delivery up of TVM's books and records to them, does not gainsay the reasonableness of the liquidators instituting the proceeding when they did.

8 Moreover, the consent orders made in the proceeding have secured the result that the liquidators have been wholly successful in obtaining the delivery up of the hard copy and electronic books and records of TVM from the defendants. In my view, this factor is sufficient reason for making a costs order in favour of the liquidators in this case.

9 The defendants argued that any costs order against them should not be joint and several but should be limited to the proportion that the Court deems appropriate, taking into account the conduct of the defendants. In the case of Dantay, it was argued that nothing has been proven that might point to the breach of any obligation by Dantay and there should be no costs order against it. In my view, the costs should be borne by the defendants jointly and severally. There has been no determination on the merits and in particular no investigation into the conduct of the defendants. The costs order follows from the conclusion that the liquidators acted reasonably in bringing the proceeding against all the defendants and have been substantially successful in achieving the result intended by the bringing of the action against them.

10 It was further argued for the defendants that they should not be required to pay the substantial costs and expenses of the external computer technician and the independent solicitor. Counsel for Taylor and Daniels both argued that those costs would have been incurred by the liquidators in any event because what happened under court supervision would have had to happen anyway. Counsel for Dantay argued that had the liquidators been reasonable and continued negotiations instead of running to court, the same outcome would have been reached, but without the very significant costs of the IT expert and an independent solicitor. In my view, the costs and expenses of the external computer technician and the independent solicitor are properly costs of the proceeding and payable by the defendants. It is not for the Court to second guess what may have occurred if the proceeding had not been commenced. Those costs were incurred by reason of the court orders made and are an incident of the costs of this proceeding.

11 Accordingly, I will order the defendants to pay the liquidators' costs of and incidental to the proceedings, including reserved costs, such costs to be taxed in default of agreement.

GEOFFREY NIELS HANDBERG AND BRENT LEIGH MORGAN (IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF TRADITIONAL VALUES MANAGEMENT LIMITED (IN LIQUIDATION) (ACN 055 106 100))

[1] Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Quin [1997] HCA 6; [1997] 186 CLR 622, 625; Australian Securities Commission v Aust-Home Investments Ltd [1993] FCA 585; (1993) 44 FCR 194, 201.

[2] The Supreme Court Act 1986 (Vic), s 24.

[3] Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213, 219; Colgate-Palmolive Company & anor v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225.

[4] Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Quin [1997] HCA 6; [1997] 186 CLR 622, 624.

[5] Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Quin [1997] HCA 6; [1997] 186 CLR 622, 624; Australian Securities Commission v Aust-Home Investments Ltd [1993] FCA 585; (1993) 44 FCR 194, 201.

[6] Peet Ltd v Richmond [2010] VSCA 71; Saeco International Group (Australia) Pty Ltd v Ubertini & anor [2011] VSC 360.

[7] Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Quin [1997] HCA 6; [1997] 186 CLR 622, 624; Hoddinott v Willmott Forests Ltd [2012] VSC 283.

[8] Australian Securities Commission v Aust-Home Investments Ltd [1993] FCA 585; (1993) 44 FCR 194, 201.