Shaoyong (David) Guo & Anor v Xinwei Song & Ors; In the matter of SG Capricorn Investments Pty Ltd

Solicitors: Proceedings 2015/92649 W & H Lawyers (Plaintiffs) Arnold Bloch Leibler (First, Second and Sixth Defendants) Clayton Utz (Third to Fifth Defendants)

Proceedings 2017/346899 W & H Lawyers (Plaintiffs) Clayton Utz (First to Fifth Defendants) HWL Ebsworth (Sixth Defendant) File Number(s): 2015/926492017/346899

Judgment

1. This judgment deals with the orders to be made and with costs in two interlocutory applications and an Originating Process seeking an order to set aside a deed of company arrangement. I delivered judgment on 24 January 2018 ([2018] NSWSC 12) ("Judgment") dealing with those two interlocutory applications and that Originating Process. I summarised the outcome and my tentative views as to costs in paragraphs 165-166 of the Judgment as follows: "The Guo parties have failed in their opposition to the application for the Companies to be released from the undertaking and should pay the Administrators' costs of that application, as agreed or as assessed. The Guo parties have also failed in their application to amend the Statement of Claim and should pay the costs of that application, as agreed or as assessed. The Guo parties have succeeded in their application for leave to continue the Main Proceedings against the Companies, and I will hear the parties as to the question of the costs of that application. There is, however, no apparent basis for an order that the Administrators pay those costs personally. The Guo parties have succeeded in their application, in the Originating Process, that the DOCA be terminated and the Companies be wound up, although they failed to establish the wide range of allegations of partiality and impropriety that were advanced against the Administrators. It is well established that the Court may discount the amount of costs that are awarded in favour of a successful party where it is only successful on a narrower basis and that will bring about a fair result as to costs. My preliminary view is that the Companies should pay one quarter of the Guo parties' costs of the Originating Process, as agreed or as assessed, such costs to be costs in the winding up, and the Song parties should pay one quarter of the Guo parties' costs of the Originating Process, as agreed or as assessed. I can presently see no basis for an order that the Administrators pay those costs personally."
2. I directed the parties to bring in, within seven days, agreed orders to give effect to the Judgment including as to costs or, if there was no agreement between them, their respective draft minutes of order and submissions not exceeding a specified length as to the differences between them, indicating whether an oral hearing was required. I subsequently extended the time for submission of draft orders and submissions, at the parties' request. The parties did not agree draft orders between them, although there is some common ground between them as to the orders to be made.
3. In this costs judgment, I will refer to SG Capricorn Investments Pty Ltd (subject to a deed of company arrangement), Dameng Developments Pty Ltd (subject to deed of company arrangement) and New Mangrove Pty Ltd (subject to deed of company arrangement) as the "Companies"; to Messrs Vaughan and Edwards as the "Administrators", although they will be appointed as liquidators of the Companies pursuant to my orders; to Mr Shaoyong Guo and Dalavin Holdings Pty Ltd as the "Guo parties"; and to Mr Xinwei Song, Ms Jacqui Song and Ms Hui Zhang, who are among the Defendants in the Main Proceedings, as the "Song parties".

Proceedings 2015/92649 ("Main Proceedings")

1. By their motion filed on 29 August 2017 in the Main Proceedings, the Companies sought to be released from an undertaking to the Court given on 30 April 2015, as varied on 1 July and 29 October 2015. They were successful in that application. There is now substantial common ground between the parties as to the Administrators' proposed order 1 in these proceedings, which notes a narrower undertaking to be given by the Administrators to which I referred at paragraph 62 of the Judgment, and proposed order 2 which releases the Companies from the relevant undertaking. The Administrators also propound proposed order 3, consistent with a preliminary view as to costs that I expressed in paragraph 165 of the Judgment. They submit that the Companies were wholly successful in their application seeking a release from the undertakings; that application was resisted by the Guo parties; and it is appropriate that the Guo parties pay their costs of that motion.
2. The Song parties note that they supported the Companies' motion for release from the undertaking but did not, in submissions, seek an order as to their costs concerning the Companies' motion, although their draft orders initially provided for such an order. The Guo parties submitted that the Song parties' interests as creditors of the Companies were represented by the Administrators in respect of that application; that the Song parties had no distinct interest in that motion that could justify the need for separate submissions on their part; and that it would be unreasonable for the Guo parties to have to bear two sets of costs in relation to that motion. I accept that submission if, contrary to my understanding of the Song parties' submissions, they sought their costs of the undertakings motion. The order for costs in respect of the undertakings motion should extend only to the Companies' costs of that motion.
3. For completeness, the Song parties point out that they also filed a notice of motion on 18 September 2017 seeking to be released from an undertaking; no evidence was filed in support of that motion and it is no longer pressed. They submit, and I accept, that that notice of motion should be dismissed with no orders as to costs.
4. By their motion filed on 4 September 2017 in the Main Proceedings, the Guo parties sought leave under s 440D of the Corporations Act 2001 (Cth) to carry on the Main Proceedings, leave to file a Further Amended Statement of Claim (MFI 1) in the proceedings ("Amendment application") and orders as to the costs of that application, including orders that the costs of the Administrators of the Companies not be costs in the administrations of the Companies.
5. Paragraph 4 of the Administrators' draft orders deals with the Amendment application and there is a dispute as to whether this application should be dismissed in its entirety or allowed in respect of several more limited amendments. The Guo parties now seek an order that they be granted leave to file and serve a Further Amended Statement of Claim in a form provided to the Court and a consequential order that they pay the Defendants' costs thrown away by the amendment.
6. The Guo parties submit that the amendments proposed in the Further Amended Statement of Claim related, first, to orders in respect of a trust claim and, second, to a challenge to Mr Song's ability to rely on alleged loan agreements in his defence to an accounting to Mr Guo arising from an alleged breach of fiduciary duty. They submit that none of the parties opposed the grant of leave to amend in respect of the claims relating to the loan agreements and note that the Court did not deal specifically with them in the Judgment (where, I interpolate, I held that leave should not be granted for the wider range of amendments for which it was sought). They submit that the Song parties had stated, in written submissions, that they only opposed leave to make the amendments so far as they contained allegations that the Companies held monies on trust for Mr Guo or allegations premised upon the position that the Companies held monies on trust for Mr Guo, and identified the particular paragraphs which should not be allowed on that basis. The orders proposed by the Guo parties would permit some, but not all, of the amendments that had in fact been opposed by the Song parties. The Song parties resist the Guo parties' submission that leave should now be allowed for those parts of the Further Amended Statement of Claim, on the basis that the Song parties did not consent to the amendments, so leave was required under s 64 of the Civil Procedure Act 2005 (NSW), and the Court had determined that leave to file the Further Amended Statement of Claim in its proposed form should not be granted (Judgment [88]-[90]).
7. It seems to me that the Guo parties' submissions as to orders go beyond the orders that can properly be made, at least without the consent of other parties, to give effect to the Judgment. I was asked to determine, and determined, an application for leave to file a Further Amended Statement of Claim in a particular form, that marked MFI1. I held that there were significant amendments that could not be permitted and that was sufficient basis to find, as I did find, that leave to amend the Statement of Claim in that form should not be granted. It seems to me that it is not the Court's role, in a complex application for leave to amend, to edit the Plaintiffs' proposed Statement of Claim so as to permit a minority of paragraphs, where it has held that the Further Amended Statement of Claim as a whole should not be permitted. I also do not consider that I should now entertain a further debate as to which paragraphs which might have survived, had they and only they previously been included in the Guo parties' proposed draft Further Amended Statement of Claim. The Guo parties sought to file a Further Amended Statement of Claim in a particular form; I held that they should not be granted leave to permit that Further Amended Statement of Claim in that form; and that is the determination that should now be reflected in the orders to give effect to the Judgment.
8. If there were now agreement between the parties that some paragraphs of the Further Amended Statement of Claim should be permitted in any event, then I would make a further order to give effect to that agreement, notwithstanding that it was a matter not determined by the Judgment. However, there is no agreement as to that matter and, as I have noted above, the Guo parties seek to press several paragraphs that the Song parties opposed, although I reached my decision on other grounds. In that case, the appropriate course is for the Guo parties to bring a further Interlocutory Process seeking leave to amend the Further Amended Statement of Claim, in a revised form that only incorporates the paragraphs that they now seek to press and any necessary consequential amendments. Although that course will expose the parties to further costs, it seems to me to be preferable to a course by which the making of orders to give effect to the Judgment becomes a forum for further disputes that did not need to be and were not determined by the Judgment.
9. The Guo parties recognise that I expressed the preliminary view (Judgment [165]) that the Guo parties have "failed in their application to amend the Statement of Claim and should pay the costs of that application" and fairly reflected that matter in their draft orders. The Guo parties submit that the order for costs should be limited to the application for leave to amend the Originating Process contained in their notice of motion. I accept that submission, since that notice of motion also sought leave to carry on the proceedings which was, in substance, granted (in the Originating Process noted below) although on the basis that the Companies would now be placed in liquidation, rather than remaining in administration. The Guo parties' draft orders also sought to delete the extension to costs that were "incidental to" the notice of motion, which is the usual form of such an order, and which I will retain in the orders made.
10. The Song parties contend that the Guo parties should pay their costs of resisting the application for leave to file the Further Amended Statement of Claim, consistent with the preliminary view expressed in the Judgment (Judgment [165]). I accept that submission. Although the Song parties' costs of resisting the amendment application may not be substantial, where they had largely adopted the Administrators' submissions, they had a proper interest in opposing the amendment application and the costs order should reflect their success in doing so.

Progress of the Main Proceedings

1. The Song parties proposed a further timetable for evidence in their proposed orders 7-9. The Guo parties consented to the Song parties' proposed order for the Defendants to file any expert evidence in response to the expert evidence of Mr Potter by 7 March 2018, and sought to have the matter listed for directions shortly after that evidence was served. The Administrators propose that the question of further orders should be addressed on that occasion, and reasonably note that the grant of leave to proceed against the Companies has only just been given and that they wish, as liquidators, to take stock of the Companies' position in the litigation. They also foreshadow that they are not likely to agree to the matter being set down for hearing at the next directions hearing and that they also do not agree to serve any expert evidence by that date.
2. I will make an order for the service of expert evidence by the Song parties, where there is agreement between them and the Guo parties as to the order. I will not make an order requiring the Companies to serve expert or other evidence, at this stage, although I should add that I find it difficult to see why they would seek to lead substantive evidence directed to a dispute between creditors and contributories of the Company inter se. The question of the directions to be made at the next directions hearing will be matter for the Corporations Judge on that occasion.

Orders and costs in the Main Proceedings

1. In proceedings 2015/92649, I therefore note the following matters and make the following orders: 1 The Court notes the undertaking of the Third, Fourth and Fifth Defendants and their liquidators, Stephen Ernest Vaughan and Guy Edwards, that they will not distribute funds of the Third, Fourth and Fifth Defendants to the parties to these proceedings, or creditors of the Third, Fourth and Fifth Defendants without the leave of the Court until final judgment in these proceedings, however, such undertaking shall not prevent the application of such funds of the Third, Fourth and Fifth Defendants to: a the remuneration (subject to any necessary approval) of the administrators, deed administrators and liquidators of the Third, Fourth and Fifth Defendants, and b other proper costs and expenses of the administration, deed administration and liquidation, including the costs of the conduct of these proceedings by the Third, Fourth and Fifth Defendants. The Court orders that: 2 On the basis of the undertaking noted at paragraph 1 above, the Third, Fourth and Fifth Defendants be released from the undertaking given by them to the Court, as noted in paragraph 1 of the document entitled "Judgment/Order" which was noted by the Court on 30 April 2015; as varied and noted in paragraph 2 of the document entitled "Judgment/Order" noted by the Court on 1 July 2015; and as further varied and noted by the Court in paragraph 2 of the document entitled "Consent Orders" noted by the Court on 29 October 2015. 3 The First and Second Plaintiffs pay the Third, Fourth and Fifth Defendants' costs of and incidental to the notice of motion filed by the Third, Fourth and Fifth Defendants on 29 August 2017 as agreed or assessed. 4 The notice of motion filed by the First and Second Plaintiffs on 4 September 2017 be dismissed, and the First and Second Plaintiffs pay the Defendants' costs of and incidental to the application for leave to file a Further Amended Statement of Claim, as agreed or assessed. 5 The First and Second Defendants' notice of motion filed on 18 September 2017 is dismissed with no order as to costs.
2. The First, Second and Sixth Defendants serve any expert evidence in response to the expert evidence of Mr Michael Potter by 7 March 2018.
3. The proceedings be listed for further directions before the Corporations Judge at 10am on 12 March 2018.
4. Liberty to apply on 3 business days' notice specifying the relief sought.

Proceedings 2017/356899

1. By Originating Process filed in Court on 16 November 2017, and heard together with the interlocutory applications in the Main Proceedings, the Guo parties sought orders under s 75-41 of the Insolvency Practice Schedule (Corporations) setting aside resolutions passed at an adjourned second meeting of creditors of the Companies, or orders under s 445D of the Corporations Act terminating a deed of company arrangement dated 18 October 2017 between Mr Song, the Administrators and each of the Companies ("DOCA"), or orders under s 447A of the Corporations Act varying the DOCA, and also sought personal costs orders against the Administrators and Mr Song. The Originating Process also sought consequential orders, upon the termination of the DOCA by which the Companies passed into creditor's voluntary liquidation, granting leave to proceed against the Companies. The Guo parties were successful in an aspect of that application, since I held that the DOCA should be terminated under s 447A of the Corporations Act and granted them leave to proceed against the Companies under s 471B of the Corporations Act.
2. Paragraphs 1-3 of the orders proposed by the Administrators in these proceedings provide for termination of the DOCA pursuant to s 447A of the Corporations Act, the appointment of Messrs Vaughan and Edwards as joint and several liquidators of the Companies and for leave to be granted to the Guo parties to proceed against the Companies in liquidation in the Main Proceedings. As the Administrators point out, these orders reflect the conclusions reached at paragraphs 99, 144 and 160 of the Judgment. Several differences in wording between the Administrators' and the Guo parties' proposed draft orders are not material, other than for the fact that the liquidators' appointment should be joint and several which is now common ground. The Administrators also seek, and there should be an order for, the dismissal of the balance of the Guo parties' Originating Process where I did not, for example, make orders under s 75-41 of the Insolvency Practice Schedule (Corporations) or under s 445D of the Corporations Act. The orders terminating the winding up and appointing the liquidators are already reflected in specific orders.
3. The Administrators' proposed order 5 provides for the Companies to pay one quarter of the Guo parties' costs of the Originating Process, but excluding costs of the application for leave to proceed under s 471B of the Corporations Act in paragraphs 5-6 of the Originating Process ("Guo parties' leave application"), with such costs to be costs in the winding up of each of the Companies. The Administrators' proposed order 6 provides that the costs of the Guo parties' leave application be costs in the cause in the Main Proceedings. The Administrators' proposed order 7 contemplates that the Song parties will also pay one quarter of the costs of the Originating Process and does not exclude the costs of the Guo parties' leave application.
4. The Administrators' approach partly reflects the preliminary view expressed in paragraph 166 of the Judgment, although I did not there address the question of any exclusion of the costs of the Guo parties' leave application. The Guo parties support a wider order that the Companies should pay one-quarter of costs of the Originating Process, without an exclusion for the costs of the Guo parties' leave application, and the Song parties should pay one-quarter of costs of the Originating Process.
5. Mr Song submits that orders proposed in the Judgment that he should pay one quarter of the Guo parties' application to set aside the DOCA should not be made and that there should be no order as to costs against him in relation to that application, or alternatively he should be responsible for a small proportion of the costs incurred by the Guo parties, and suggests 10% of those costs, as agreed or as assessed, as the relevant proportion. Mr Song submits, first, that he was only joined as party to the proceedings seeking to set aside the DOCA on the first day of the hearing, and that any costs order against him should be limited to costs incurred from the date he was joined, much of which would have related to the substantial cross-examination of Mr Vaughan, one of the administrators, by the Plaintiffs' Counsel at the hearing. I accept that the order for costs as against Mr Song can only be made in relation to costs incurred from 28 November 2017, the date on which he was joined in and took an active role in opposition to the application to terminate the DOCA.
6. Second, Mr Song submits that his participation in these proceedings was limited and involved his responding to the allegation that he had an improper purpose in proposing the DOCA and points out that no adverse finding was made against him in that respect (Judgment [128]). I do not accept that that is a significant matter, where Mr Song had taken an active role in opposing the termination of the DOCA, albeit that he had not needed to repeat matters that had already been put by the Administrators in their opposition to the termination of the DOCA. Mr Song also submits that, as a matter of impression, his participation in the proceedings did not materially increase the quantum of costs being incurred by the Guo parties, where the Administrators had fully participated in those proceedings. Again, I give little weight to that matter, where the Administrators and Mr Song had advanced the same position, and the limits on Mr Song's participation reflected no more than he did not need to repeat that which the Administrators had already put. It seems to me that, where two parties advance substantially the same position on substantially the same grounds, it would be arbitrary to award the majority of those costs against the party which proceeded first, merely because the party which proceeded second did not need to repeat the first party's submissions.
7. Mr Song also submits that there are similarities between his participation in these proceedings and the Song parties' participation in the dispute concerning the Companies' motion concerning the undertaking and that costs orders should be made on a similar basis in relation to the two. It seems to me that there was a significant difference between the two, so far as the Song parties took little active role in respect of the Companies' motion concerning the undertaking, but had actively opposed the termination of the DOCA, and were only relieved from the need to make more detailed submissions in that respect by the fact that the Administrators had already made such submissions.
8. It seems to me that that the Companies and the Song parties should pay only a portion of the costs of the application to terminate the DOCA brought by the Originating Process (as distinct from the costs of the Guo parties' leave application), where the Guo parties canvassed a wide range of allegations of lack of independence on the part of the Administrators that took up a substantial time in cross-examination at the hearing and that were ultimately not established. The fact that the Court may reduce the costs awarded to a party, to reflect the manner in which the proceedings have been conducted, is well-established: see, for example, Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121]; Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [98]; Re Swan Services Pty Ltd (in liq) [2017] NSWSC 692 at [25]-[26].
9. In the Judgment, I invited submissions concerning the costs of that leave application and did not express a preliminary view as to that matter. The Administrators submit that such an order may be made where, for example, an interlocutory application is finely balanced and a difference in the evidence at the final hearing may alter the outcome: JT Stratford & Son Ltd v Lindley (No 2) [1969] 1 WLR 1547 at 1553-4; Petar v Macedonian Orthodox Community Church St Petka Inc (No 2) [2007] NSWCA 142 at [19]. The Administrators also point to the Court of Appeal's observation in Petar v Macedonian Orthodox Community Church St Petka Inc (No 2) above at [30], recognising that, although there is good reason for making an interlocutory order at the time it is made, that may be affected, with hindsight, by the outcome of the ultimate proceedings.
10. The Administrators submit, with substantial force, that the ultimate outcome of the Main Proceedings will likely be affected by disputed issues as to the conversations between Mr Song and Mr Guo and, if the Guo parties are ultimately unsuccessful at the hearing, then there would have been no utility in the Guo parties' leave application. The Administrators also submit that, if the Guo parties' claims are ultimately unsuccessful in the Main Proceedings, then there is at least a risk that the Companies' assets will have been dissipated by their participation in those proceedings. They also point out that I made an order of a similar character, in an application for leave to proceed against a company in liquidation, in Re Link Construction (NSW) Pty Ltd (in liq) [2016] NSWSC 684. I am persuaded that an order is properly made in that form, rather than in a form which provides for the Plaintiffs to have their costs of the Guo parties' leave application without regard to the outcome in the Main Proceedings. The costs of the Plaintiffs' application for leave to proceed should be excluded from the orders for costs made against Mr Song, on the same basis as they were excluded from the orders for costs made against the Companies.
11. The Administrators proposed order 8 provides for the Guo parties to pay their costs of the application. They submit that, prior to the hearing on 28-29 November 2017, the Administrators were not party to the proceedings, but were joined because the Plaintiffs sought a personal costs order against them, an application that was unsuccessful. They also point to a range of allegations made against the Administrators which were not established. The Guo parties respond that they should not be ordered to pay the Administrators' costs of the Originating Process where, relevantly, the Administrators defended the DOCA and opposed the Companies being placed into liquidation, and were unsuccessful on those issues.
12. An order should be made that the Guo parties pay the Administrators' costs of the application in their personal capacity, where significant attacks were made on the Administrators' conduct and were not sustained, and the Administrators were entitled to respond to those attacks, although they were not successful in resisting an order that the DOCA be terminated under s 447A of the Corporations Act on other grounds. I have not neglected the Guo parties' submission that the Administrators would not personally have incurred material costs in respect of the application as distinct from the costs attributable to the position taken by the Companies in respect of the application. While that is possible, it is not a reason not to make an appropriate costs order, even if the costs that are within its scope may ultimately not be substantial.

Orders and costs in proceedings 2017/356899

1. In proceedings 2017/356899, I make the following orders: 1 Pursuant to section 447A of the Corporations Act, the Deed of Company Arrangement dated 18 October 2017 entered into by the First, Second, Third, Fourth, Fifth and Sixth Defendants, in respect of each of the First, Second and Third Defendant companies, be terminated, and the First, Second and Third Defendants be wound up by the Court. 2 The Fourth and Fifth Defendants be appointed as joint liquidators of each of the First, Second and Third Defendants. 3 Pursuant to section 471B of the Corporations Act, leave is granted to the Plaintiffs to proceed against the First, Second and Third Defendants (all in liquidation) in Supreme Court of New South Wales proceeding number 2015/92649. 4 The Originating Process is otherwise dismissed. 5 The First, Second and Third Defendants pay one quarter of the Plaintiffs' costs of the Originating Process (excluding costs of the Plaintiffs' application pursuant to prayers 5-6 of the Originating Process seeking leave to proceed in proceeding 2015/92649 as against the First, Second and Third Defendants in this proceeding ("Guo parties' leave application")) as agreed or assessed, such costs to be costs in the winding up of each of the First, Second and Third Defendants. 6 The Sixth Defendant pay one quarter of the Plaintiffs' costs of the Originating Process, (excluding costs of the Guo parties' leave application) incurred on and after 28 November 2017 as agreed or assessed. 7 The costs of the Guo parties' leave application be costs in the cause in proceeding 2016/92649. 8 The Plaintiffs' pay the Fourth and Fifth Defendants' costs of and incidental to the Originating Process, as agreed or as assessed.

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