Quest Enterprises (NSW) Pty Ltd v Cassaniti [2007] NSWSC 519 | Case summary

5328/06 QUEST ENTERPRISES (NSW) PTY LTD & ANOR v GINO CASSANITI & 4 ORS JUDGMENT 1 I am dealing with several questions relating to costs in these proceedings. Before referring to the orders sought, it will be convenient to outline the background. This may be done by quoting from the outline of submissions provided by the solicitors for the plaintiffs, but with names included for greater clarity. "1. On 4 August 2006, the second plaintiff [Mr Wykes] was appointed liquidator of the first plaintiff [Quest]. 2. Following his appointment, the second plaintiff [Mr Wykes] made demands upon the defendants [Gino Cassaniti, Patricia Cassaniti, Armstrong Scalisi Holdings, David Cassaniti and Sam Cassaniti] for the provision of books and property of the first plaintiff [Quest Enterprises], and upon the first, second and fifth defendants [Gino Cassaniti, Patricia Cassaniti and Sam Cassaniti] to provide reports as to affairs and directors questionnaires. 3. On 17 October 2006, a warrant was issued in these proceedings pursuant to s.530C of the Corporations Act 2001. 4. On 18 October 2006, the warrant issued pursuant to s.530C of the Act was served and executed by the second plaintiff [Mr Wykes] at the premises at 1/106 Moore Street Liverpool, NSW ('the Liverpool premises'). 5. Upon exercising the warrant, the liquidator found that the server of the computer system in use at the Liverpool premises had been removed and that the premises contained no documents or records relating to the first plaintiff [Quest Enterprises] apart from those minimal documents provided to the second plaintiff [Mr Wykes] by the first defendant [Gino Cassaniti] on 18 October 2006. 6. On 30 October 2006, White J made further orders in the matter as to the provision of reports as to affairs and directors questionnaires by the first, second and fifth defendants [Gino Cassaniti, Patricia Cassaniti and Sam Cassaniti], as to restraints upon all defendants and as to the filing of affidavits by the defendants. 7. On 13 November 2006, the first defendant [Gino Cassaniti] swore an affidavit, purportedly in compliance with the orders of 30 October 2006, in which he claimed that minimal books and records of the first plaintiff [Quest Enterprises] existed and annexed a report as to affairs. 8. On 11 December 2006, White J made further orders including an order that the defendants serve affidavits by 1 February 2007. 9. On 15 December 2007, the plaintiffs filed an interlocutory process in these proceedings. On 19 December 2006 an amended interlocutory process was filed, seeking orders as to the issue of a warrant for the arrest of the first defendant [Gino Cassaniti] under s.486B of the Act, orders the same as those the subject of this application relating to costs, and orders as to contempt. 10. On 5 February 2007, the proceedings were adjourned to 12 February 2007. 11. On 8 February 2007, the plaintiffs' solicitors wrote to the defendants' solicitors requesting that the defendants comply with the previous court orders. The defendants' solicitor did not reply to the plaintiffs' solicitors letter dated 8 February 2007. 12. On 12 February 2007, the matter was re-listed for directions, at which time a further amended interlocutory process was filed in court, which severed the prayers for orders relating to contempt from the amended interlocutory process. The defendants' counsel indicated that the first defendant [Gino Cassaniti] would be available to attend the court to be questioned as to the location of the books and records of the first plaintiff [Quest Enterprises]. The matter was adjourned to 19 February 2007, and the parties were directed to inform the court on the next return date as to when the first defendant [Quest Enterprises] would be available to attend court for voluntary examination. 13. On 13 February 2007, the plaintiffs' solicitors requested the first defendant's solicitor confirm the date upon which the first defendant [Gino Cassaniti] would be able to attend court to be examined and again enquired as to whether the defendants proposed to correct their breaches of previous court orders. 14. The defendants' solicitors did not reply to the plaintiffs' solicitor's letter dated 13 February 2007 and failed to confirm whether the first defendant [Gino Cassaniti] is available to attend court to be questioned as to the location of the books and records of the first plaintiff [Quest Enterprises]. 15. On 19 February 2007, the defendants' solicitor could not inform the court of when the defendants would be able to attend for examination, and the matter was stood over to 27 February 2007 for the hearing of the further amended interlocutory process. 16. At the hearing of the further amended interlocutory process on 27 February 2007, the first, fourth and fifth defendants [Gino Cassaniti, Patricia Cassaniti and Sam Cassaniti] attended in person and their counsel indicated that in lieu of a warrant being issued for the arrest of the first defendant [Gino Cassaniti] and the fourth defendant [David Cassaniti] pursuant to ss.596A and 596B of the Act respectively. 17. The plaintiffs agreed to the defendants' proposal, and the balance of the application was pressed as to costs of obtaining and exercising the warrant pursuant to s.530C of the Act, the directions hearings on 17 October 2006 and 30 October 2006 and in respect of the further amended interlocutory application." 2 To this should be added the observation that, on 27 February 2007, I made by consent orders for Part 5.9 examinations of Gino Cassaniti and David Cassaniti and orders dispensing to facilitate service. Gino Cassaniti and David Cassaniti were examined before Senior Deputy Registrar Kiang on 12 March 2007. 3 Not expressly mentioned in the above account is the precise relief sought in the originating process filed on 17 October 2006. There were claims for Order 1: a declaration that, during a stated period, Quest owned and operated an accountancy practice known as "Cassaniti & Associates"; Order 2: the issue of a warrant under s.530C authorising Mr Wykes to search for and seize property or books of Quest in the possession of the defendants; Order 3: an order that each of the defendants deliver up to Mr Wykes all books and property of Quest in their possession; Order 4: an order that Gino Cassaniti provide to Mr Wykes a report as to affairs and answers to a questionnaire as required by Mr Wykes' letter of 2 September 2006; Order 5: a corresponding order in respect of Patricia Cassaniti and Sam Cassaniti by reference to a letter of 27 September 2006; Order 6: an order that Gino Cassaniti file an affidavit identifying books of Quest and giving other particulars; Order 7: an order that the defendants account to the plaintiffs for all money and property of Quest "received, sold, disposed of or otherwise dealt with by them at any time"; Order 8: an order under s.597A that each of Gino Cassaniti, Patricia Cassaniti, Armstrong Scalisi Holdings and David Cassaniti file and serve an affidavit disclosing certain matters relating to receipt of money for work done by Quest; Order 9: orders under s.596A and 596B for the issue of examination summonses directed to Gino Cassaniti, Sam Cassaniti Patricia Cassaniti and David Cassaniti; Order 10: an order that the defendants, upon receiving any money or property of Quest, deliver it to Mr Wykes;

Order 11: an order restraining the defendants from dealing with property of Quest; Order 12: an order restraining the defendants from issuing invoices for work done by Quest. 4 In the context I have described, the plaintiffs maintain that they should have orders 8, 9, 10, 11, 12 and 13 in the further amended interlocutory process filed on 12 February 2007, that is the following orders: "8. An Order that the Defendants pay the Plaintiffs' costs of and incidental to this Interlocutory Process on an indemnity basis, as agreed or assessed. 9. An Order that the First, Third and Fourth Defendants pay the Plaintiffs' costs of and incidental to the Hearing on 17 October 2006 on an indemnity basis, as agreed or assessed. 10. An Order that the First, Third and Fourth Defendants pay the Plaintiffs' costs of and incidental to the Hearing on 30 October 2006 on an indemnity basis, and that these costs be assessable forthwith and be payable forthwith of agreement or assessment. 11. An Order that the First, Third and Fourth Defendants pay the Plaintiffs' costs of and incidental to the Directions Hearing on 11 December 2006 on an indemnity basis, as agreed or assessed. 12. An Order that the First, Third and Fourth Defendants pay the Plaintiffs' costs of and incidental to the execution of the Warrant on 18 October 2006 at the premises situated at Suite 1, 106 Moore Street, Liverpool, New South Wales on an indemnity basis, as agreed or assessed, including the costs incurred by the Second Plaintiff attending to execute the Warrant, the attendance of the Second Plaintiff's staff and solicitor to execute the Warrant, the attendance of an independent solicitor to execute the Warrant and the attendance of an information technology expert to execute the Warrant and to search the hard drive seized under the Warrant. 13. An Order that the costs referred to in Orders 7, 8, 9, 10, 11 and 12 to be assessable forthwith and be payable forthwith of agreement or assessment." 5 This application is made in a context where there has not yet been any final hearing. In particular, there has been no determination of the central issue whether Quest owned and operated the accountancy practice during the relevant period. That the question of the ownership of the accountancy practice continues to be a live question is confirmed by several matters to which reference was made by Mr Allen of counsel who appeared for the defendants. First, Gino Cassaniti has said that his evidence in other proceedings supporting the plaintiffs' case is wrong. Second, uncertainty about the respective roles of Quest and Sam Cassaniti in relation to the practice is referred to at paragraph [41] of White J's judgment in Alam v Quest Enterprises (NSW) Pty Ltd [2006] NSWSC 751. Third, the ABN on the Cassaniti & Associates' letterhead is not that of Quest. Fourth, four of the five bank accounts in the name of Cassaniti & Associates were opened before Quest existed. Fifth, the account for work done for the client Alam and said by Mr Tsakalos to be work performed by Quest shows that work was performed before Quest existed. 6 Even though the central question regarding Quest's assets and activities has not been determined, the plaintiffs contend that the various costs orders should be made now (that is, before the completion of the substantive proceeding) and on the basis of assessment and payment of the costs forthwith. 7 It is relevant to note, at this point, that certain orders with respect to costs have already been made. Upon ordering the issue of a warrant under s.530C of the Corporations Act, White J ordered on 17 October 2006: "Costs of the application are reserved." 8 On 30 October 2006, White J: (a) made orders in accordance with paragraphs 4 to 6 of the originating process (in essence, orders directing Gino Cassaniti to furnish a report as to affairs and to file an affidavit as to the whereabouts of documents and directing Patricia Cassaniti and Sam Cassaniti file such an affidavit); (b) continued injunctions made on 17 October 2006; (c) ordered that the defendants, upon receiving money or assets of Quest, deliver the money or assets to the liquidator; (d) ordered that the defendant maintain particular records regarding revenues of Cassaniti & Associates; (e) made certain supplementary orders regarding the above; and (f) made certain directions. 9 Also on 30 October 2006, White J ordered as follows: "Subject to any such special applications, order that the costs of today be costs in the proceedings." 10 I should add that it appears to be accepted that costs of 11 December 2006 were reserved. 11 This pre-existing position raises a question whether, with the central question in contention (that is, whether Quest owned and operated the accountancy practice) still unresolved and the controversy about it yet to be heard and determined, the court should now deal with the costs that have been reserved and the costs in respect of which there has been an order that they be costs in the cause "[s]ubject to any such special applications". 12 There is a preliminary question here as to the meaning of the words just quoted at the start of the costs order of 30 October 2006. The word "such" raises a matter of uncertainty since there does not appear to have been any earlier reference in the orders to "special applications". I approach the matter, therefore, as if the qualification had simply been, "Subject to any special applications" - that is, subject to any application that the costs in question should be treated otherwise than costs in the cause. On that basis, the application with which I am now dealing is such a "special application" - being, in essence, an application for an order that the costs in question no longer be costs in the cause but be awarded now to the plaintiffs. 13 On that basis, the question I must address in respect of the costs reserved on both 17 October 2006 and 11 December 2006 and the costs ordered on 30 October 2006 to be costs in the cause is whether those costs should now be awarded to the plaintiffs, despite those orders and the fact that the central issue has not yet been determined. 14 Subject to two exceptions to be mentioned presently I am of the opinion that that course should not be taken and that all questions of costs should be left, in the usual way, until the conclusion of the proceedings. The plaintiffs complain that very little by way of books, records and other documents were delivered to the liquidator. There is obviously a view or suspicion that something was withheld - although I have no way of knowing whether that view or suspicion continues in the same form (or at all) in the light of the Part 5.9 examinations that occurred after I had heard the present application (see paragraph [2] above). The sufficiency or otherwise of steps taken to deliver corporate property and records to the liquidator will be much clearer after the question about the scope of Quest's activities has been answered by the court. It is therefore premature, in my view, to consider making any further determination in respect of costs reserved and costs ordered to be costs in the cause, except in respect of two particular matters. 15 It is accepted by the defendants, on my understanding, that the court may properly and conveniently address two matters of costs at this time. The first of these concerns the application for and execution of the warrant under s.530C, that is, a warrant authorising search for and seizure of books or property of Quest. As noted above, the application was dealt with on 17 October 2006. Execution occurred on 18 October 2006. These events occurred after attempts to obtain books and property of the company in liquidation had proved fruitless. Issue of the warrant necessarily reflected a conclusion of the court that the persons concerned had not performed statutory duties: see s.530C(1)(b). It is submitted on behalf of those persons that there is no precedent for the making of a costs order in such a case and that this tells against the awarding of costs. It is also pointed out that, in contradistinction to provisions such as ss.596A, 596B and 597A, s.530C makes no provision for a costs order. This, it is submitted by Mr Allen of counsel, indicates that costs relevant to action under s.530C should be regarded simply as costs of the liquidation. 16 The absence of specific provision in s.530C and the absence of precedent are by no means determinative. The application under s.530C was made in a proceeding under the Corporations Act. Section 1335(2) of the Act therefore empowers the court to make an order as to how costs incidental to the application are to be borne. Because the liquidator did not receive co-operation and was compelled to enlist the court's assistance by way of warrant, the persons who failed to co-operate should bear the costs of obtaining that assistance. There is no reason why an order with respect to those costs should not be made now. The obtaining and execution of the warrant represented a discrete phase or aspect not directly bound up with the central question whether Quest conducted the accountancy practice. Whatever its activities may have been, there was a clear and immediate requirement that the company's property and documents be delivered to the liquidator. When he received nothing, his resort to s.530C was perfectly justified. The plaintiffs are entitled to a costs order in this respect. 17 In this connection, it is to be noted that the warrant did cause some documents to be delivered, even though there continues to be a dispute on the central question whether Quest conducted the accountancy practice. That being so, I do not accept the related submission advanced by Mr Allen that the warrant was used as some kind of inappropriate substitute for discovery. 18 The second matter that may be appropriately dealt with now is the plaintiffs' claim for a costs order in respect of the application for a warrant under s.486B. That application was never determined. It was, as it were, overtaken by the consent regime under which Gino Cassaniti and David Cassaniti submitted to orders that they be examined by the liquidator under Part 5.9. 19 The liquidator submits that the application for a warrant under s.486B was justified because of conflicting statements by Gino Cassaniti about the affairs of Quest and, in particular, about the existence of company documents. It is said that an affidavit of 13 November 2006 conflicted with an affidavit sworn in Federal Court proceedings on 10 July 2006. The liquidator says that he had good grounds for an apprehension that information was being withheld. It follows, according to the liquidator, that he had good grounds to seek a warrant for the arrest of Gino Cassaniti under s.486B. He refers, in that connection, to the following observation of Young J in Re Rainbow Systems of Australia Pty Ltd; Wily v Parker (1996) 21 ACSR 171 at p.172: "I should say this, however, that there is provision under s 486B of the Corporations Law , which was inserted, as was s 530C, by Act No 210 of 1992. I think also the time has now been reached where the public expects that if people do not comply with the Corporations Law in respect of failed companies they can expect to be pursued. There is power under s 486B to arrest a company director who is concealing books from the liquidator. It seems to me that, generally speaking, if a warrant is issued under s 530C and produces a nil result an order should be made for the arrest of the directors, but for the writ to lie in office for, say, seven days so that they can explain to the court what has happened to the records so that the law does not take the course it would otherwise take." 20 On the basis that a warrant under s.486B might, on this basis, be a back-up, as it were, to a warrant under s.530C, the liquidator says that the s.486B application was properly made and pursued. 21 The contrary position advanced by Mr Allen is that resort to s.486B was inappropriate and unwarranted. A s.530C warrant had been issued and executed. Even if the liquidator continued to be of the view that something was being withheld, there was no basis for resort to s.486B as a measure auxiliary to s.530C. It is submitted that if and to the extent that the liquidator wished to obtain information from Gino Cassaniti, the appropriate course was resort to the inquisitorial mechanisms of Part 5.9 - something to which Gino Cassaniti eventually consented, with an examination having occurred on 12 March 2007 as I have already noted. In summary, it is submitted, that resort to s.486B envisaged the apprehension of Gino Cassaniti and his being brought before the court when there was no need for him to be brought before the court. 22 I am not satisfied that there should be an order for costs in favour of the liquidator in respect of the s.486B aspect. There is substance in the submissions advanced on behalf of the defendants. The appropriate outcome is that the costs in question should be costs in the cause. 23 It remains to consider whether the costs to be awarded to the plaintiffs in accordance with paragraph [16] above should be assessed on the indemnity basis and whether it should be ordered that those costs be payable forthwith. 24 Indemnity costs may be awarded if there has been unreasonable conduct, including relevant misconduct, by the person against whom costs are awarded: Oshlack v Richmond River Council (1998) 193 CLR 72. In the present context, the directors of Quest were under a duty to deliver company documents to the liquidator. Regardless of the dispute about whether Quest conducted the accountancy practice, there must have been some documents that were obviously documents of the company. These should have been delivered up at once. It was unreasonable for the directors of Quest to fail to deliver any documents whatsoever, thus putting the liquidator to the trouble and expense of obtaining the issue of a warrant under s.530C and of executing that warrant. Relevant costs should therefore be assessed on the indemnity basis. 25 There is then the question whether the costs associated with the warrant under s.530C should be payable forthwith. On the basis that that matter represented a separate and now concluded aspect of the proceedings, I am of the opinion that such an outcome is appropriate: Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1. 26 Bearing in mind what I have said about the principal issue having not yet been determined, I am of the opinion that all costs other than those dealt with by existing orders (and those in respect of which I have indicated an outcome in these reasons) should be reserved. The result is accordingly that the court now makes the following orders: 1. Order in terms of paragraph 9 of the further amended interlocutory process filed on 12 February 2007. 2. Order in terms of paragraph 12 of the further amended interlocutory process filed on 12 February 2007. 3. Order that the costs referred to in orders 1 and 2 of these orders be assessed and payable forthwith. 4. Order that costs of and incidental to the plaintiffs' application for the issue of a warrant under s.486B of the Corporations Act be costs in the cause. 5. Order that, except to the extent otherwise ordered by orders 1, 2, 3 and 4 of these orders, all subsisting orders with respect to costs be continued. 6. Order that, to the extent, that they are not dealt with by orders 1 to 5 of these orders, all costs be reserved. **********

Quest Enterprises (NSW) Pty Ltd v Cassaniti

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