Twigg v Twigg

Introduction

1. On 31 August 2020, I delivered reasons for judgment in this matter (Twigg v Twigg (No 4); Lambert v Twigg Investments Pty Ltd (No 3) [2020] NSWSC 1159) (the Principal Judgment) and on 11 December 2020, I delivered reasons for judgment on a number of outstanding issues relevant to the final orders to be made in the proceedings (Twigg v Twigg (No 5); Lambert v Twigg Investments Pty Ltd (No 4) [2020] NSWSC 1782). Several issues remain, the principal one of which is costs. This judgment is concerned with those issues. Abbreviations used in this judgment have the meaning given to them in the Principal Judgment.

Costs

1. There are four main issues in relation to costs. One is whether the Court should order that the first to thirteenth and fifteenth defendants pay the plaintiffs' costs of the Main Proceeding on an indemnity basis from 15 May 2020. The second is what costs order should be made in the UBE Proceeding. The third is whether the Court should vary a costs order made in connection with an application for a freezing order that was refused by Stevenson J on 5 April 2019 (see Twigg v Twigg [2019] NSWSC 373). The fourth is what order for costs should be made in relation to the cross-claim.

Indemnity Costs in the Main Proceeding

1. On 15 May 2020, the plaintiffs offered to resolve both proceedings for a combined total of $16 million plus costs. The offer was expressed to be made in accordance with the principles stated in Calderbank v Calderbank [1975] 3 All ER 333. The offer was to settle (1) the Main Proceeding on the basis that there would be judgment in favour of the plaintiffs against the defendants for the total sum of $10 million (plus costs) and that there would be "full releases between the plaintiffs, defendants, cross claimant, and all related entities to all parties" and (2) the UBE Proceeding on the basis that there would be judgment in favour of the plaintiffs against the defendants for the total sum of $6 million (plus costs) and "full releases between the plaintiffs and defendants". The plaintiffs' claim that they did substantially better than that offer and consequently should have their costs from that date on an indemnity basis.
2. Max resists an order for indemnity costs on two bases. First, he submits that the Court cannot be satisfied that the plaintiffs did better than the offer. Second, he submits that it was not unreasonable for him to reject the offer.
3. As to the first of Max's submissions, that submission was made before the plaintiffs succeeded in their application to reopen the Principal Judgment. The plaintiffs submit that, as a consequence of the final conclusions I have reached in relation to tracing, they are entitled to recover approximately $27.7 million. That amount includes some properties valued at cost. However, it also includes $13,663,972.73 held by the Twigg Investments No 2 Trust and $5,525,233.50 held by Twigg Co according to portfolio valuations as at 20 November 2020. It is plain on the basis of these figures that the plaintiffs have done better than their offer.
4. Max submits that it was reasonable to refuse the offer because, at the time it was made, he did not have access to information concerning the plaintiffs' claim which later became available, including some affidavit evidence and the plaintiffs' submissions. In addition, he submits that he was not given sufficient time to accept the offer, which was expressed to be open until 25 May 2020.
5. I do not accept either of those submissions. The case against Max was clear from the pleadings and the other material that had been served. Much of the case depended on Max's conduct, about which he, of course, knew. He was also the person who knew how the proceeds of sale of the Twigg Group business had been dealt with and consequently was in the best position to assess the plaintiffs' tracing claim. The other important witness was Mrs Twigg, whose affidavit evidence had been served. For those reasons, Max was in a good position to assess the reasonableness of the offer.
6. The offer of compromise was made approximately two weeks before the hearing commenced. It expired a week before the hearing commenced. It gave Max six business days to consider the offer. In my opinion, that was a reasonable length of time in the circumstances. The case was in an advanced state of preparation. Consequently, Max would have been in a good position to assess his prospects of success. He would not have required additional time in order to do so. It was reasonable for the offer to expire a week before the commencement of the hearing. By that stage, the plaintiffs would be required to incur very substantial costs in preparation for the hearing, which would have a substantial effect on the value of the offer to them because of the irrecoverable legal costs they were likely to incur.
7. One feature of the offer was that it would have required Max to accept that he was personally liable for $6 million in respect of the UBE Proceeding, whereas in fact I concluded that the UBE Proceeding would have failed against Max in any event. I deal with that proceeding below. The offer also required Max to accept that he was personally liable for $10 million in respect of the Main Proceeding, whereas the conclusions I reached was that he was not personally liable but that the plaintiffs were entitled to trace assets held largely by entities controlled by Max rather than Max himself. However, I do not think that is a reason for concluding that it was reasonable of the defendants to refuse the offer. It is apparent from the terms of the offer that what was intended was that the claims between the parties would be settled for the sum of $16 million plus costs. As I have said, the plaintiffs in the proceedings plainly did better than that. In substance the judgment is to be satisfied out of assets controlled by Max. Consequently, in my opinion, the plaintiffs in the Main Proceeding should have the benefit of the offer of compromise.

Costs of the UBE Proceeding

1. The plaintiffs seek the costs of the UBE Proceeding on an indemnity basis. In doing so, they rely on a formal offer of compromise served on 7 May 2019 in accordance with Uniform Civil Procedure Rules 2005 (NSW) r 20.26 in which each of Mrs Twigg, Francis and Elizabeth offered to settle the proceedings for $2.4 million. They also rely on the offer of compromise of $16 million served in both proceedings on 15 May 2020.
2. The defendants (that is, Twigg Investments and Max) contest the plaintiffs' claim on three bases. First, they submit that only Twigg Investments should be liable for costs since Max was only joined to the UBE Proceeding on 30 April 2020 and on the findings I made, the case against him would have failed. Second, they submit that Mrs Twigg should pay one-third of the costs of the UBE Proceeding because her claim failed. Third, they submit that the costs of the UBE Proceeding should not be awarded on an indemnity basis.
3. I accept that a costs order should not be made against Max in respect of the UBE Proceeding because of the finding I made in the Principal Judgment at [267] that the case against him would fail.
4. I do not accept that it is appropriate that Mrs Twigg pay one-third of the defendants' costs of the UBE Proceeding. The claims in the UBE Proceeding brought by each of Frances, Elizabeth and Mrs Twigg were essentially the same. The claims were brought in a single proceeding. Much of the evidence was common to all three claims. I concluded that Mrs Twigg's claim would have failed even if the plaintiffs had failed in the Main Proceeding because, unlike Frances and Elizabeth, she had agreed to a proposal the effect of which was that she would not claim her UBEs. But I do not think that should be regarded as a separate claim for the purposes of costs. Rather, in substance, there was a single proceeding brought by three plaintiffs which, had it been necessary to decide, I would have concluded should be partially successful and partially unsuccessful. Most of the costs would have to have been incurred whether or not the claim was advanced by Mrs Twigg as well as Frances and Elizabeth. It would not be possible to separate those costs referable to Mrs Twigg's claim from those that were not. On the other hand, in my opinion, the costs order should reflect the fact that I would have concluded that Mrs Twigg's claim should fail. Taking those matters into account, I think it is appropriate that the plaintiffs recover 90 percent of their costs.
5. That leaves the question whether the costs should be paid on an indemnity basis. In my opinion, they should from the date of the second offer of compromise.
6. I do not think it could be said that Frances and Elizabeth did better than the first offer of compromise. That offer of compromise was an offer to settle all three claims. It is far from clear that the offer could have been accepted in respect of Frances and Elizabeth alone. Moreover, on the findings I made, the UBE Proceeding was overtaken by the Main Proceeding and ultimately, because Mrs Twigg and the Corporate Plaintiffs succeeded in the Main Proceeding, no sum of money was ordered to be paid in the UBE Proceeding. Accordingly, any significance that might have been attached to the first offer of compromise and its refusal was overtaken by events.
7. On the other hand, I think it was unreasonable for the defendants (other than the fourteenth defendant in the Main Proceeding) to refuse the second offer of compromise. Although there were two separate proceedings, the two proceedings were interrelated. Both arose out of the sale of the Twigg Group business and Max's treatment of those proceeds. As things transpired, the UBE Proceeding was advanced as an alternative to the Main Proceeding. The parties were different, but in substance the two proceedings involved a claim by Mrs Twigg and her daughters against Max to recover all or some of the proceeds of sale of the Twigg Group business. The plaintiffs offered to settle that claim on the basis that Max (or entities controlled by him) pay them $16 million. That offer was a genuine offer to compromise both claims. The plaintiffs did better than that offer. Consequently, they should have the costs to which they are entitled in both proceedings on an indemnity basis from the date the offer was made.

Costs of the Freezing Order

1. On 8 March 2019, the plaintiffs in the Main Proceedings filed an application for a freezing order which relevantly sought: … orders restraining Max and the other defendants from disposing of, or dealing with or diminishing the value of: (a) any assets "to the extent those assets represent" the Impugned Sum or are assets acquired or profits "derived consequent upon receipt of" the Impugned Sum; (b) seven identified properties (two in Victoria and five in Queensland) and a share and managed fund portfolio, upon the basis that those properties and assets were acquired using the Impugned Sum or the proceeds of assets acquired using the Impugned Sum; and (c) any assets up to the unencumbered value of $200 million. (see Twigg v Twigg [2019] NSWSC 373 at [15] per Stevenson J).
2. By a judgment delivered on 5 April 2019, Stevenson J refused those orders.
3. By consent, on 11 April 2019, the Court made an order in the following terms: The plaintiffs are to pay the defendants' costs of the notice of motion dated 8 March 2019 assessable forthwith.
4. In a subsequent judgment (Twigg v Twigg (No 2) [2019] NSWSC 1356) Stevenson J made orders the effect of which was that the defendants could not enforce any assessment of costs until the conclusion of the proceeding.
5. Stevenson J gave the following reasons for refusing the freezing order (see Twigg v Twigg [2019] NSWSC 373 at [101]-[104]): [101] The first is that I am not persuaded Diane has shown that there is a sensible risk that, unrestrained, Max will dissipate his assets (see [61] to [76] above). [102] The second is that I am not persuaded that an adequate explanation has been given by Diane for the delay in bringing this application (see [82] to [87] above). [103] The third is the speculative nature of Diane's prospects of tracing the Impugned Sum into any of the real property Max and his related entities now own, let alone into Max's share and managed funds portfolio (see [52] to [54] above). [104] The fourth is the nature of the forensic task Diane faces in making out her case on liability. I accept that there is a serious question to be tried that Max acted without authority when purportedly passing the directors' resolutions leading the making of the Impugned Sum. But Diane's success in that regard seems likely to depend on establishing, amongst other things, that Mr Fitzpatrick's recollection of the conversations to which I have referred, and to which he has put his oath, should not be accepted. Although I cannot predict, and express no view about, Diane's prospects in that regard, it represents a stark potential barrier to her success in the proceedings.
6. The plaintiffs submit that the application before Stevenson J proceeded on a false basis - namely, that Mr Fitzpatrick's evidence concerning a meeting on 26 May 2009 in which Mrs Twigg is alleged to have agreed that Max could do what he liked with the sale proceeds of the Twigg Group business was likely to be accepted and that Mrs Twigg's claim that the proceeds of sale of the Twigg Group business could not be traced to the properties owned by Max. Mr Fitzpatrick knew, as he conceded in cross-examination, that he had no recollection of the conversation on 26 May 2009. Moreover, Max knew that a number of the properties he owned had been purchased using the proceeds of sale of the Byron Bay Hotel which itself had been purchased using proceeds from the sale of the Twigg Group business.
7. I am not satisfied that these matters provide a sufficient basis for setting aside the costs order made by Stevenson J. That order was made by consent following the delivery of Stevenson J's judgment. It was open to the plaintiffs to submit that the question of costs should be reserved. They chose not to make that submission. Stevenson J gave a number of reasons for rejecting the application for a freezing order. They included a lack of evidence that Max would dissipate his assets and the delay in bringing the application. At the final hearing, Max submitted that the proceeds of the Byron Bay Hotel could not be traced to the proceeds of sale of the Twigg Group business because the amount contributed from the proceeds of the sale of the Twigg Group business towards the purchase price of the hotel had been repaid. I rejected that argument. However, it could not be said that Max had no basis for contending that the relevant properties could not be traced to the proceeds of sale of the Twigg Group business. It is true that Mr Fitzpatrick gave evidence of a conversation that he in fact could not recall. However, it is unclear how significant that conversation was to the conclusions of Stevenson J. It was not of great significance to the final hearing.
8. It is quite apparent that Max took a high-handed approach to the litigation generally and his obligations to give discovery in particular. The approach he took has contributed unnecessarily to the costs of the proceedings. But those facts alone do not provide a basis for interfering with a costs order already made.

Costs of the cross-claim

1. The plaintiffs and Frances seek an order that the first to thirteenth defendants pay the plaintiffs' and Frances's (the fourteenth defendant) costs of the cross-claim. On the other hand, Max seeks an order that Frances pay the fifth to seventeenth cross-defendants' costs of the cross-claim. Frances was only joined to the Main Proceeding to permit her to pursue the cross-claim. It was not appropriate for her to be joined for any other purpose.
2. In my opinion, it is appropriate to make the orders sought by Max. It was not necessary for me to express a final view on the cross-claim. However, I indicated in the Principal Judgment that had it been necessary, I would not have found that Max or the Corporate Plaintiffs breached their duties to Frances in distributing the proceeds of sale of the Twigg Group business in the way that they were. Having regard to that conclusion, there is no reason why Frances should not pay the fifth to seventeenth cross-defendants' costs of the cross-claim.

Other issues relating to costs

1. The plaintiffs seek an order that the costs of their motion filed on 3 October 2020 be costs in the cause. The plaintiffs were largely successful in that motion. Accordingly, there is no reason why that order should not be made.

Apportionment of trust assets

1. In my judgment of 11 December 2020, I concluded that Mrs Twigg had a 48 percent interest in the assets that could be traced, that the second plaintiff had a 28 percent interest and the third plaintiff a 24 percent interest. The plaintiffs seek to give effect to that finding by treating some of the assets as being the subject of a trust solely in favour of Mrs Twigg and other assets as being the subject of trusts in favour of all the plaintiffs according to different percentages so that the net result is an apportionment in accordance with my judgment. Max, on the other hand, submits that the Court should make a declaration that each traceable asset is held on trust in the proportions stated in my judgment.
2. In my opinion, there is no reason why the plaintiffs should not be entitled to agree among themselves which funds are traceable to which assets provided that agreement genuinely reflects the conclusions of the Court. It is not possible to trace particular sums to particular assets. An apportionment according to the plaintiffs' interests in the original funds depends on an assumption made by the Court. There is no reason why that assumption should not be capable of being displaced by an agreement between the affected parties. An agreement on the division of the assets has practical benefits in terms of enforcement and reduces the complications that may arise where assets that are not practically divisible - such as motor vehicles and real estate - are owned by an individual and the trustees of discretionary trusts.
3. Max criticises the distribution of assets proposed by the plaintiffs because it is not based on up to date valuations. Rather, it is based on the cost price of the relevant real property or vehicle. However, all the property in question was acquired relatively recently. Consequently, the cost price is a reasonable guide to value. Accordingly, I accept the division proposed by the plaintiffs.

The freezing order

1. The plaintiffs seek a continuation of the freezing order first made on 3 June 2020 in relation to the assets of the Twigg Investments No 2 Trust and the assets of Twigg Co pending a determination of the account that it is agreed should be made the subject of a reference. Max opposes that order but agrees to a continuation of the freezing order until the determination of an appeal by the plaintiffs subject to a carve-out in respect of his share of those assets for the payment of legal costs.
2. In my opinion, it is appropriate to continue the freezing order in respect of Max's share of the assets of the Twigg Investments No 2 Trust and Twigg Co pending a determination of the account. Max does not seriously resist that order. On the other hand, I accept that Max should be entitled to use those assets to pay reasonable legal costs in respect of an appeal. That is a usual exception to a freezing order. There is no reason to depart from that exception in this case.

Stay

1. The defendants seek a short stay of those orders giving effect to the transfer of property pending an application for a stay pending an appeal. In my opinion, it is appropriate to grant that stay on the basis proposed by Max with one qualification. The case involved a number of complicated legal issues, particularly concerning the application of limitation periods and the doctrine of laches. I accept that Max has an arguable appeal in relation to those issues. Given the time of the year, it is not practical to deal properly with an application for a stay immediately. The plaintiffs submitted that Max has delayed in making an application for a stay. However, it would have been difficult for an application to be made until final orders were made. It would plainly be unsatisfactory for the orders relating to the transfer of real property to take effect if they are at risk of being reversed. There is no apparent reasons for the liquid assets to be treated differently from the real property for the short period the stay is to operate.
2. The qualification to the order sought by Max is that the temporary stay should only operate for a fixed period of time or further order. In my opinion, that is the best way of ensuring that any application is pursued expeditiously.

Orders

1. Attached are copies of the Final Orders (94947, pdf) I have made consistently with this judgment.

Amendments 18 December 2020 - Orders now linked 02 August 2022 - Removed semi-colon after the word "Investments" inadvertently added to case name DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 August 2022