TNT Building Trades Pty Limited v Benelong Developments Pty Limited

merset Ryckmans (Defendants) File Number(s): 11/393181

Judgment 1On 9 July 2012, I delivered my judgment ([2012] NSWSC 766) in respect of an application by TNT Building Trades Pty Limited ("TNT") for an order under s 600A of the Corporations Act 2001 (Cth) that a resolution passed at a meeting of creditors of Benelong Developments Pty Ltd (administrators appointed) ("Benelong") on 20 January 2012 be set aside and for consequential orders that Benelong be wound up under s 461 of the Corporations Act. 2I held that the report provided by the administrators ("Administrators") appointed to Benelong to the second meeting of its creditors contained misleading information and material omissions, so as to raise the possibility that the proposed Deed of Company of Arrangement ("proposed DOCA"), if executed, could be terminated under s 445D of the Corporations Act. However, after comparing the outcome of the proposed DOCA and the likely outcome of a liquidation - a comparison that involved issues of some complexity - I held that TNT had not established that a winding up would allow a more favourable outcome to creditors than the proposed DOCA. I held that TNT had therefore not established that the Court should exercise its discretion to set aside the proposed DOCA under s 445D of the Corporations Act nor had it established a basis for relief under s 447A or s 600A of the Corporations Act. I directed the parties to bring in Short Minutes of Order to give effect to my judgment within 14 days. I noted that, in the ordinary course, TNT should pay the costs of the proceedings, but I indicated that I would hear the parties as to costs. Each party provided comprehensive submissions as to costs contending for different results. Costs in respect of Benelong 3Section 98(1) of the Civil Procedure Act 2005 (NSW) relevantly provides that: "Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis." Uniform Civil Procedure Rules 2005 (NSW) r 42.1 ("UCPR") provides that, if an order is made as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. UCPR r 42.2 states the general rule that costs payable to a person under an order of the Court or these rules are to be assessed on the ordinary basis. 4TNT referred to Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371, where Long Innes J observed that the Court could exercise a discretion to refuse costs to a successful defendant where it had brought about the litigation. That observation was cited with approval by Fisher J in Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201. TNT also referred to the observation of McHugh J in Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 102 that: "[T]he court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation". The Defendants point to an alternative view that the only delinquency which warrants a departure from an order for costs on ordinary principles is delinquency in or in relation to the conduct of the proceedings: Harrison v Schipp [2001] NSWCA 13 at [132]-[139]; NMFM Property Pty Ltd v Citibank Ltd (No 2) [2001] FCA 480; (2001) 109 FCR 77. It is not necessary for me to resolve any difference between those views in order to determine this application. 5TNT contends that the Defendants brought about the proceedings. TNT complains of the transfer of Benelong's legal interest in the properties that were in issue in the proceedings to the Second Defendant, Burbank Montague Pty Limited ("Burbank Montague"), which TNT contends deprived it of the fruits of adjudication certificates and judgments obtained against Benelong. To the limited extent this issue was raised in the proceedings before me, the evidence indicated that the replacement of Benelong by Burbank Montague as trustee of the Benelong Crescent Unit Trust was directed to issues arising under the strata titles legislation rather than to defeating TNT's interests. 6TNT also points to the fact that the Administrators' report was, as I found in my earlier judgment, misleading and contained material omissions and contends that their recommendation to creditors was based on a false premise, and contends that this necessitated TNT seeking orders restraining the execution of the proposed DOCA by the Administrators and setting aside the proposed DOCA. TNT also points to a matter to which I referred in my judgment, namely that the Administrators declined to provide it with copies of a mortgage and the associated loan agreements that were in issue in the proceedings, so that it did not have the opportunity to raise a challenge to the enforceability of that mortgage (which was then unstamped) at the second creditors meeting. 7TNT points out that an expert valuation evidence in respect of the reduction in value of the properties, which was significant to the exercise of the Court's discretion, was only served on 16 March 2012 and that the mortgage over the relevant properties was also not stamped until that date. Conversely, Benelong relies on the service of the valuer's affidavit and report as to the value of the properties, and on the fact that its solicitor informed TNT's solicitor on 16 March 2012 that the mortgage would be stamped on that day, to support a claim for indemnity costs for the period after 16 March 2012. Until that mortgage was stamped, TNT would, having regard to the findings in my judgment, have succeeded in the proceedings. However, the fact that the stamping of that mortgage and the decline in value of the properties would change that result would not have been apparent without the complex analysis undertaken in the judgment, which Benelong did not communicate to TNT (if, in fact, it had undertaken it) when it advised that the mortgage was to me stamped, and neither party advanced substantive submissions as to the issues raised by that analysis until supplementary submissions after the hearing before me. 8TNT also criticises the conduct of the proceedings by the Defendants, and particularly a delay in service of the Defendants' evidence until 16 March 2012, which it contends resulted in the vacation of a hearing date allocated for 21 March 2012. The Defendants contend that the hearing of 21 March was vacated, not because of any delay in filing their evidence, which was filed by the date on which it was due under an extension of the timetable, but because TNT accepted that the hearing was likely to take two days rather than one day after the filing of that evidence. I do not consider that I can determine the dispute as to this matter in the absence of cross-examination, given the parties' conflicting factual contentions as to the circumstances in which the adjournment took place. It is not necessary to determine it in order to determine this application. 9TNT draws attention to the decisions in Deputy Commissioner of Taxation v Pddam Pty Ltd (1996) 19 ACSR 498 and Khoury v Zambena Pty Ltd (1997) 23 ACSR 344. In each case, the plaintiff brought an application for an order setting aside a deed of company arrangement and was successful in establishing a deficiency in the administrator's conduct in respect of that deed, although the Court declined to exercise its discretion to set aside that deed. In each case, the Court held that it was reasonable for the plaintiff to have brought the application and that there should be no order as to costs. The exercise of the Court's discretion in respect of costs by Young J at first instance in Khoury v Zambena Pty Ltd was in turn upheld by the Court of Appeal in Khoury v Zambena Pty Ltd [1999] NSWCA 402. 10In my view, there is substantial force in TNT's submissions that its application in these proceedings was analogous to the position of the applicants in Deputy Commissioner v Pddam and Khoury v Zambena. At the time the application was brought, TNT would have succeeded in the application, since the relevant mortgage was then unstamped. There was substantial force in TNT's criticism of the disclosure made by the Administrators and it was ultimately successful in establishing that the information provided to creditors was misleading and contained material omissions. It may properly be said, as the Courts observed in Deputy Commissioner v Pddam and Khoury v Zambena, that TNT's conduct in respect of the commencement of the proceedings was reasonable, notwithstanding that it was ultimately unsuccessful in them. The matters which arose after 16 March 2012, to which I have referred above, would not have indicated the likelihood that TNT would fail in the proceedings without complex analysis which neither party addressed until supplementary submissions after the hearing. For these reasons, and consistent with the approach adopted in Deputy Commissioner v Pddam and Khoury v Zambena, I do not consider that TNT should be ordered to pay Benelong's costs of the proceedings. 11Benelong also relies on a letter dated 16 March 2012 to support an application for indemnity costs against TNT after that date. That letter offered to resolve the proceedings on the basis that TNT consent to their discontinuance and each party bear their own costs. I accept that the offer made by Benelong in the letter dated 16 March 2012 involved an element of genuine compromise, where it was made after Benelong had served the majority of its affidavits in the proceedings and would have incurred significant costs in respect of the preparation of the proceedings. However, that letter advanced no substantive analysis of the issues in the case so as to give any indication to TNT that its claims were likely to fail on any particular basis, still less the basis on which they ultimately failed. 12TNT points out that that letter is not an offer of compromise under UCPR Pt 20 Div 4 and UCPR Pt 42 Div 3 does not apply in that situation. That letter takes effect as a Calderbank (Calderbank v Calderbank [1975] 3 WLR 568) offer, and will only support an order for indemnity costs against TNT if it was a genuine offer of compromise, which it was unreasonable for TNT not to accept: Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375; Evans Shire Council v Richardson (No 2) [2006] NSWCA 61; Seven Network Ltd v News Ltd (2007) 244 ALR 374 at 388; Commonwealth of Australia v Gretton [2008] NSWCA 117. The relevant principles were recently summarised by Ward J in Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [9]-[15], where her Honour observed that: [9] The rationale for the principles applied in relation to Calderbank offers was outlined in Commonwealth v Gretton [2008] NSWCA 117 by Beazley JA, her Honour noting (at [41]) that the public policy considerations underpinning the making of favourable costs orders where a Calderbank offer has been made (and not accepted) are the encouragement of settlement of disputes as soon as possible and the discouragement of wasteful and unreasonable behaviour by litigants. [10] The Court of Appeal in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 recently reiterated the public policy objectives of special costs orders in the context of offers of compromise. Basten JA (with whom McColl and Campbell JJA agreed) referred at [6] to the objects underlying the formal offer of compromise procedures under the then court rules that were identified in Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 as including: