Yan v Yangdo Pty Ltd

JUDGMENT

HER HONOUR: This judgment concerns costs. The proceedings concerned two brothers from the Yan family, Philip Kam Hung Yan (the plaintiff) and Kam Wing Yan (the defendant), who fell out. After mediation, the brothers signed a Deed of Settlement and Release, agreeing that the plaintiff would buy-out the defendant's interest in various corporate entities and trusts at a price fixed by an asset valuation obtained from Ernst & Young.
Ernst & Young issued a draft report, on which the brothers were entitled to make submissions. Ernst & Young then issued its final report (the first report), accepting submissions made by the defendant in respect of whether the 'embedded' CGT liability associated with three commercial properties should be deducted before arriving at a valuation of the corporate entities and trusts. Ernst & Young then withdrew the first report and issued a revised valuation (the second report) on the basis that the first report contained an error. In the second report, Ernst & Young reverted to their opinion held in the draft report. The difference between the buy-out figure was in the order of $10 million.
In the result, I concluded that neither report bound the parties, where the valuer mis-stated their assigned task in the first report and the same problem infected the second report. The way forward was for the parties to request the expert to prepare a determination which complied with the Deed and by which the parties would be bound.

Consideration

At trial, each brother vied for the Ernst & Young report which gave them the most advantageous 'bottom line'. The relevant material was placed before the Court by uncontentious affidavits made by the brothers' solicitors. In addition, the defendant relied on the expert evidence of tax consultant, Mr Gangemi, who was asked to identify and explain available strategies to mitigate 'embedded' CGT and, further, whether Ernst & Young's deduction of 'embedded' CGT in the second report was "correct". Mr Gangemi's opinion on possible ways to mitigate tax was not relevant to the task at hand, being whether Ernst & Young had gone about its task in accordance with the terms of the Deed such that the brothers were bound by its valuation. Nor was it appropriate to consider that question having regard to the opinion of an expert from another discipline altogether. Mr Gangemi's opinion was put to one side and on no account should the plaintiff pay the defendant's costs in respect of that evidence. If anything, the defendant should pay the plaintiff's costs of considering that material.
The Court has wide discretionary powers to apportion costs where a case involves multiple issues and a party succeeds on some issues but fails on others. For example, a plaintiff may obtain judgment in their favour but the defendant may have succeeded on issues that occupied the bulk of the time taken by the proceedings. The successful plaintiff may not only be deprived of the costs of those issues but may be ordered as well to pay the defendant's costs in respect of such issues: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [32]-[36] (per Beazley, Tobias and McColl JJA).
As the Court of Appeal observed in Ryde Developments Pty Ltd v Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 at [6]: "Section 98 of the Civil Procedure Act 2005 (NSW) confers on the Court a wide discretion with respect to costs. Under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) the general rule is that the Court is to order that costs follow the event. The 'event' may be characterised in more than one way. Generally the 'event' refers to the result of the claim or counterclaim, as the case may be, and may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Sons Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15] per Ward, Emmett and Gleeson JJA. Where there has been a mixed outcome in the proceedings, and it is appropriate to entertain the process of apportioning costs as between different issues in the proceedings, in general such an exercise will be carried out on a relatively broad brush basis, and largely as a matter of impression and evaluation by the Court: Doppstadt at [19]; James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [36]; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 at 22."
Looking at the Amended Summons, the plaintiff succeeded in respect of prayer 1, obtaining a declaration that the second report did not contain a "manifest error". This did not matter, however, as the second report did not meet the requirements of the Deed and was not binding. It followed that the plaintiff did not obtain the relief sought in prayer 2, being a declaration that the second report was binding. The defendant ultimately conceded the issue agitated in prayer 3 of the Amended Summons.
Looking at the Amended Cross-Summons, the defendant failed to obtain the declaration sought in prayer 1: that the first report was binding on the parties. The defendant failed to obtain the relief sought in prayer 4: that the second report contained a "manifest error". True it is that, in prayer 6, the defendant sought, in the alternative, an order directing the brothers to jointly instruct Ernst & Young to attend to the task assigned by the Deed, albeit no mention was made of this alternative prayer at trial. Prayer 7 was heavily amended during the course of the hearing, whilst prayers 8 and 9 were not pressed. Nor was the declaration in respect of unpaid distributions made in the terms sought by the defendant in prayer 7.
I accept that more of the defendant's submissions were accepted than those of the plaintiff, but the result was the same: neither brother succeeded in having the report they wanted 'upheld'. I accepted the defendant's submissions in respect of whether an expert can correct their determination but accepted the plaintiff's submissions as to whether the second report had a "manifest error". I accepted the defendant's submission as to whether the valuer had undertaken the wrong task, but it inexorably followed that the same problem infected the second report. In addition, there was a disputed construction of the Deed in respect of the defendant's entitlement to declared distributions of a unit trust after execution of the Deed. The clauses were construed in a manner which was not precisely the same as either party contended.
Essentially for the reasons advanced by the plaintiff, I do not consider that this is an appropriate case to apportion costs, where it is difficult to identify an issue on which either brother has clearly succeeded or to say that one brother succeeded overall more than the other. Rather, I consider this is a classic case where each brother should bear their own costs of the proceedings. I so order.

At a glance

Court

Decision date

Before

Source

Judgment (5 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (5)