AAD Services Pty Ltd (In liq) v ALD Wholesale Pty Ltd (No 2)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

S CI 2017 01640

AAD Services Pty Ltd (ACN 091 589 981) (In Liquidation) and DAVID RAJ VASUDEVAN and GIUSEPPE MICHELE RAMBALDI in their capacity as Joint and Several Liquidators of AAD SERVICES PTY LTD (ACN 091 589 981) (In Liquidation)	Plaintiffs
v
ALD WHOLESALE PTY LTD (ACN 160 067 738)	First Defendant
BEJTULLA TAHIRI	Second Defendant
DANIEL PETER JURATOWITCH in his capacity as Trustee of the Bankrupt Estate of BETJULLA TAHIRI	Third Defendant

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JUDGE:	Lansdowne AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	13 December 2018 and 20 February 2019
DATE OF JUDGMENT:	25 February 2019
CASE MAY BE CITED AS:	AAD Services Pty Ltd (In liq) v ALD Wholesale Pty Ltd and ors (No 2)
MEDIUM NEUTRAL CITATION:	[2019] VSC 99

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COSTS – liquidators’ costs – dispute between liquidators and others as to the ownership of funds in Court, the source of which was a company account – held that the company did not beneficially own the funds – whether a portion of the liquidators’ costs should nevertheless be paid from the funds before payment out to the beneficial owner – whether the liquidators had ‘cared for or preserved the funds’ – Re Universal Distributing Co Ltd (in liq) (1933) 48 CLR 171; Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307; Primary Securities Ltd v Willmott Forests Ltd (recvs and mngrs apptd) (in liq) & ors (2016) 50 VR 752 discussed and distinguished.

COSTS – competing applications for payment of funds out of Court – whether a costs order should be made in favour of the unsuccessful claimant for some of its costs – held: yes given the nature of the proceeding and conduct of the successful claimant.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Ms B Slocum	SLF Lawyers
For the First and Second Defendants	Mr A Silver	Madgwicks
For the Third Defendant (on 20 February 2019)	Mr A Biskup, solicitor, of Dimos Lawyers

TABLE OF CONTENTS

Background......................................................................................................................................... 1

Issues.................................................................................................................................................... 3

Discussion............................................................................................................................................ 5

Should the plaintiffs’ costs be paid from the Funds prior to payment to Mr Tahiri?........ 5
Should a costs order be made in favour of the plaintiffs as against the defendants?........ 8
Success in the proceeding.................................................................................................. 9
Nature of the proceeding................................................................................................. 10
Conduct of the parties....................................................................................................... 10
Overarching obligations under the CPA....................................................................... 14

To what date or stage should the costs order be made?....................................................... 15
Differentiation between the defendants.................................................................................. 15
Indemnity or standard costs...................................................................................................... 16

Conclusion and orders.................................................................................................................... 16

HER HONOUR:

Background

This proceeding concerned competing claims for payment out of funds in Court in the sum of $59,000 (Funds). The Funds are the deposit paid for the purchase of a property formerly owned by AAD Services Pty Ltd (in liquidation) (AAD) which was later sold by the mortgagee in possession to another purchaser. The real estate agent to whom the Funds had been paid subsequently paid them into Court because their ownership was in dispute.

The deposit was drawn on the account of the first plaintiff, AAD. The other two plaintiffs are the liquidators of AAD. Their joint contention was that the Funds are the property of the first plaintiff and they sought payment out to the first plaintiff on that basis. The first and second defendants jointly contended that the source of the deposit was a loan by the first defendant (ALD Wholesale) to the second defendant personally to enable him to purchase the property. Their contention was that the second defendant (Mr Tahiri) utilised the company account of AAD as a matter of convenience only. The first and second defendants further contended that the loan was impressed with a specific purpose or Quistclose trust in favour of ALD Wholesale, and that as the purpose of that trust (purchase of the property by Mr Tahiri) failed the Funds were owned beneficially by ALD Wholesale, and should be paid out to it.

By reasons delivered 8 October 2018 (Principal Reasons)[1] I accepted the first and second defendants’ first contention (that the source of the Funds was a loan to Mr Tahiri) but not their second (that he held the funds subject to a Quistclose trust for ALD Wholesale). Accordingly, I held that the Funds should be paid out to Mr Tahiri. I also indicated some preliminary views about the payment of costs, including that notwithstanding the usual approach to costs, I did not consider that the plaintiffs should be ordered to pay Mr Tahiri’s costs, and, indeed, subject to further submissions it may be that he should be ordered to pay some of theirs.
[1]AAD Services Pty Ltd (in liq) v ALD Wholesale Pty Ltd and anor [2018] VSC 585.

The parties were unable to agree on costs orders, and accordingly a further hearing was required, held on 13 December 2018 (Costs Hearing). This was regrettable in view of the relatively small amount of the Funds, the costs already expended, and the further costs of the disputed Costs Hearing. I will return to the competing proposals at that hearing shortly.

The unfortunate circumstances bedevilling this matter did not end there, however. It transpired that Mr Tahiri, together with his wife Vezire Tahiri, had become bankrupt on 19 October 2018 – in other words, after delivery of the Principal Reasons but well before the Costs Hearing. I infer that Mr Tahiri did not inform his solicitors in this proceeding of his bankruptcy, because had he done so, they would have taken steps to inform the Court and in all likelihood the Costs Hearing would not have taken place until Mr Tahiri’s trustee (Trustee) had had an opportunity to be involved. In fact, it was the plaintiffs, not the second defendant, who informed the Court of Mr Tahiri’s bankruptcy by email in the late afternoon of 20 December 2018. I do not know the circumstances by which they came to be apprised of the bankruptcy, but accept the submission of their counsel that they were under no obligation to check the position prior to the Costs Hearing, and the obligation to inform the Court was Mr Tahiri’s.

Given the imminent closure of the Court and solicitors’ offices for the Christmas vacation, and uncertainty as to whether or not the Trustee was in a position to address the costs questions, it was not practicable to reconvene the Court prior to Christmas. The proceeding was listed for directions on 20 February 2019 (Relisted Hearing).

On that day, the Trustee entered an appearance and was joined as the third defendant. The plaintiffs and first defendant submitted that no leave was required pursuant to s 58(3)(b) of the Bankruptcy Act 1966 (Cth) for the plaintiffs to make a costs application against Mr Tahiri, as on one view they had done at the Costs Hearing. The Trustee did not seek to be heard on that question. I accepted the submission of the plaintiffs and first defendant that leave was not required, as there can be no ‘provable debt’ in relation to costs unless and until an order for costs is made.

Neither the plaintiffs nor the first defendant sought to re-open the Costs Hearing, and were content for the Court to deliver judgment on the basis of arguments put at that hearing. The Trustee did not seek to be heard on costs. As I had, in fact, planned to deliver judgment on costs on 21 December 2018, I was then able at the Relisted Hearing to give a short oral summary of my conclusions and reasons. These written reasons elaborate those oral reasons.

Issues

The first and second defendants’ proposal is that no order for costs be made i.e. that each party bear its or his own costs. They submit that such an order sufficiently addresses the delay by the ultimately successful party, Mr Tahiri, in making a claim and the fact that he would have had to bring a proceeding in any event, and incur the necessary costs of such a proceeding, to have the Funds paid out of Court to him. The plaintiffs’ proposal is that, despite their lack of success, they be paid the sum of $40,000 for their costs from the Funds, before they are paid out to Mr Tahiri. As Mr Tahiri is the beneficial owner of the Funds, the effect of this proposal if adopted would be that Mr Tahiri pay the plaintiffs’ costs fixed in the sum of $40,000.

There are a number of elements to the plaintiffs’ proposal. First, the plaintiffs seek that their costs be paid out of the Funds before payment of the balance to Mr Tahiri. They characterise this as a payment from the Funds, not by Mr Tahiri. In substance, however, the effect would be that, although Mr Tahiri was ultimately successful against them, he bear their costs, as opposed to ALD Wholesale, against whom they were successful. The plaintiffs base this proposal on the proposition first elaborated in Re Universal Distributing Co Ltd (Universal Distributing),[2] and subsequently illuminated by the High Court in Stewart v Atco Controls Pty Ltd (in Liquidation) (Stewart v Atco Controls)[3] and by the Court of Appeal in Primary Securities Ltd v Willmott Forests Ltd (recvs and mngrs apptd) (in liq) and ors (Primary Securities).[4] In its broadest form, as identified in Primary Securities, the proposition is that where a liquidator has ‘cared for or preserved an asset’, the liquidator may have a claim in equity to have his or her costs paid from the asset, before it is distributed to the rightful owner.[5] The plaintiffs contend that by this proceeding they ‘cared for or preserved’ the Funds, and so although the Court has found they have no claim to the Funds, they nevertheless should recover their costs of the proceeding, or some of them, from the Funds before they are paid to Mr Tahiri.
[2](1933) 48 CLR 171.
[3](2014) 252 CLR 307; [2014] HCA 15.
[4](2016) 50 VR 752; [2016] VSCA 309.
[5](2016) 50 VR 752, 784 [124] (Whelan and Santamaria JJA).

Next, the plaintiffs seek a specified sum. In so doing, the plaintiffs’ proposal is in essence an application for a gross costs order pursuant to r 63.07(2)(c) of the Supreme Court (General Civil Procedure) Rules 2015. The benefit of a gross costs order is that it avoids the further cost and delay of a taxation, which can be desirable where those costs might be disproportionate to the original sum in issue, or the costs to be recovered, particularly if there are limited prospects of recovery. The process of arriving at a gross costs order is, by definition, not a taxation, and so does not require the specific itemisation of costs required for a taxation. However, it does require some evidence and the plaintiffs did not provide any evidence of their costs to support their submissions until the morning of the Costs Hearing, and then only in response to a request from the Court. Counsel for the defendants was understandably not in a position to respond to that evidence at the Costs Hearing, and the plaintiffs did not seek that the first defendant do so at the Relisted Hearing.

For the reasons I will shortly give, I will order that the first and second defendants pay some of the plaintiffs’ costs but given the lateness of the plaintiffs’ evidence identifying those costs, a taxation will be required, unless the parties can now reach an agreement. This is very regrettable given the further costs that will be incurred.

Finally, the plaintiffs do not seek the whole of their costs. They fix the sum that they seek by reference to their actual legal costs up to and including the date on which Mr Tahiri filed his notice of appearance, and so became a claimant in his own right as opposed to just a witness for ALD Wholesale. That date was the last working day before the hearing, and so the plaintiffs had already incurred most of their costs by that date. They submit (and their invoices may show, although I make no finding on the evidence as it was served too late for the first and second defendants to respond to it) that their actual costs were $44,576.25 to this date, and they seek $40,000 as being a rounded down figure. In other words, the plaintiffs are seeking their costs broadly on an indemnity basis up until 13 October 2017. They submit that they have excluded any contingency fee in this calculation. They propose that each party bear their own costs thereafter.

As the defendants do not seek a costs order, and I do not consider it appropriate to make a gross costs order in favour of the plaintiffs if they are successful in obtaining an order in their favour, given the lateness of their evidence, it follows that the issues for determination are as follows:

1. Should the costs be paid out of the Funds before they are paid to Mr Tahiri?

2. Should any costs order be made in favour of the plaintiffs as against one or both of the first and second defendants?

3. If so, to what stage of the proceeding?

4. Should any differentiation be made as between the first and second defendants if such an order is made?

5. Should any such order be on an indemnity basis?

Discussion
Should the plaintiffs’ costs be paid from the Funds prior to payment to Mr Tahiri?

The plaintiffs seek recovery of their costs to the date Mr Tahiri became a claimant on the basis of a liquidators’ lien, in accordance with the principles underlying Universal Distributing, as subsequently illuminated by the High Court in Stewart v Atco Controls and recently by the Court of Appeal in Primary Securities.

These cases all relate to a claim by liquidators for the priority of their costs of realising, or endeavouring to realise, an asset or fund for the benefit of the creditors of the company. In Universal Distributing and Stewart v Atco Controls, the priority contest was between the liquidator and a secured creditor, in relation to an asset obtained by the liquidator’s efforts. In Stewart v Atco Controls the fund in question was the sum paid to the liquidators to settle proceedings against a third party, which depended on the liquidators asserting that the charge of the secured creditor, Atco Controls, was invalid. The charge was later held valid. Nevertheless, the High Court held that the liquidators could utilise the settlement sum for their costs of obtaining it.

In Primary Securities, the contest was between the liquidators of the company formerly appointed the responsible entity of a managed investment scheme, and its successor company. There was no dispute in that case that the liquidators had taken steps during the time the company to which they were appointed was the responsible entity to preserve and maintain assets of the scheme, and that they thereby incurred costs and expenses. However, those assets were not realised during that period, and so no fund was created as a result of the liquidators’ efforts. The Court of Appeal upheld the decision of Efthim AsJ that the liquidators could be reimbursed from the fund subsequently created. The plaintiff relies on the statements of underlying principle by the Court, that can be read as expressing a general equitable principle, not confined to the actions of a liquidator, and one that extends to circumstances where the fund is not realised.

Whelan and Santamaria JJA expressed this underlying statement of principle thus:

It is important to be mindful of the fact that what is under consideration is a position where a claimant seeks to recover out of property, in relation to which the claimant has no proprietary interest and no statutory entitlement, in priority to those who do hold the proprietary interests. The claimant, in effect, seeks priority over the owner of the property in circumstances where the owner has not agreed to employ the claimant or to pay the claimant for the work done, and where no statute provides for that priority. Accordingly, the circumstances where a claimant might obtain such priority must be strictly confined.
Where the claimant’s work has created a fund, the position may be relatively straightforward. The holder of the proprietary interest wishes to take possession of property (the fund) which would not exist at all but for the work of the claimant.
In our view the authorities also make it clear that the principle may apply where the claimant has cared for or preserved an asset, and not simply where the claimant has realised it and created a fund. One circumstance where the principle may apply is where the claimant has acted as a kind of ‘stand in’, undertaking activities which the holder of the proprietary interest would have had to undertake itself had the claimant not done so. In essence, that is what happened in Pattison v Lockwood. On the other hand, if the claimant’s activities are properly characterised as unrelated to the interests or objectives of the holder of the proprietary interest then the claimant may have no entitlement to priority over that proprietary interest holder. It seems to us that that was the position in Dean-Willcocks.[6]

[6]Primary Securities (n 4) 784 [122]-[124]. See also Maxwell P at 755 [10].

The plaintiffs submit that these cases apply here because the liquidators’ costs were incurred ‘in the care, preservation or realisation’ of the Funds. They submit, on the basis of Primary Securities, that it is ‘irrelevant that the liquidators did not ultimately realise the fund for the benefit of AAD’s creditors’. Further, they submit, on the basis of Stewart v Atco Controls, that it is irrelevant that ‘the costs were incurred (in part) in dispute with Tahiri’.[7]
[7]Plaintiffs, ‘Submissions as to Costs’, 11 December 2018, [7].

In my view these submissions are misconceived. As the Court of Appeal noted, the principle would afford priority to a claimant with no proprietary interest in the asset and so ‘must be strictly confined’. When I asked counsel for the plaintiffs in what way it was said that the liquidators had ‘cared for or preserved’ Mr Tahiri’s asset, being the Funds, she replied that they did so by making application for payment of the Funds out of Court when he had not. I do not consider that to be caring for or preserving the Funds. They existed independently of that action, and would have remained in Court without it until such time as the proper claimant, later established to be Mr Tahiri, made application for them. At the very most, the plaintiffs’ action in commencing a proceeding stimulated, or brought forward in time, a claim by Mr Tahiri and paid for him costs that he would otherwise have had to pay to obtain the Funds. I do not consider this to be sufficient to attract the Universal Distributing principle, although as will be seen I consider it very relevant in relation to the exercise of the general costs discretion.

Further, in the portion of the joint judgment of Whelan and Santamaria JJA extracted above, the Court of Appeal gave examples of circumstances where the principle might apply, and where it might not. In my view, the facts here do not fit within the first category, and fit squarely within the second. The liquidators did not act as a ‘stand in‘ for Mr Tahiri, ‘undertaking activities which (he) would have had to undertake (himself) had (the liquidators) not done so’. It was not necessary for Mr Tahiri’s claim that the liquidators make a claim, and he was at liberty to make his claim at a time of his choosing. By contrast, the alternative circumstance, where the principle might not apply, does fit the facts of this case. It requires consideration of whether the liquidators actions were ‘unrelated to the interests or objectives of the holder of the proprietary interest’ i.e. Mr Tahiri. I am conscious that the plaintiffs only seek their costs to the date Mr Tahiri became a claimant in his own right, from which time their continuation of the proceeding was directly opposed to his interests. As will be seen, I consider that the plaintiffs were justified in commencing the proceeding and continuing it until there was evidence that the Funds were not, or may not have been, beneficially owned by AAD, but this does not make their actions to that date related to Mr Tahiri’s interests. They would only have been related to Mr Tahiri’s interests if he was a creditor of AAD. Counsel could not say when questioned whether or not this was the case, and I was not directed to any evidence to that effect.

For these reasons, I do not consider that the plaintiffs have shown that their costs should be reimbursed from the Funds prior to payment out to Mr Tahiri. I accept the submission by counsel for the first and second defendants that the Court should exercise its discretion in relation to costs according to usual principles applicable to costs in litigation, rather than the Universal Distributing principle.

Should a costs order be made in favour of the plaintiffs as against the defendants?

Pursuant to s 24 of the Supreme Court Act 1986 (Vic), the award of costs is in the discretion of the Court, a discretion that must be exercised judicially. Frequently the proper exercise of the discretion in contested litigation results in an order that costs follow the event i.e. that the unsuccessful party pay the costs of the successful party. That is not an absolute rule, however, and the proper exercise of the discretion may require a different order. There is also explicit provision in s 28(2) of the Civil Procedure Act 2010 (Vic) (CPA) for the Court to take any contravention of the overarching obligations imposed on parties and their lawyers by that Act into account in exercising its discretion as to costs.

Notwithstanding that they were not ultimately successful, I consider that a costs order should be made in favour of the plaintiffs as against one or both of the first and second defendants. In reaching that conclusion, I consider the following matters.

Success in the proceeding

The principal reason militating against an order in favour of the plaintiffs, which in the usual case would be determinative, is that they were not ultimately successful. Mr Tahiri was ultimately successful. Both of the first and second defendants succeeded in establishing that the source of the Funds was a loan to Mr Tahiri, not to AAD, but they were not successful in establishing the Quistclose trust in favour of ALD Wholesale.

Given that, until 13 October 2017, ALD Wholesale was the only alternative claimant to the Funds to the plaintiffs, one question that arises is whether the plaintiffs would have been successful had Mr Tahiri not become a claimant at the last minute. Applying my findings in the Principal Reasons, they would not, because I held that the money paid into AAD’s account from which the deposit, which became the Funds, was drawn was a loan to Mr Tahiri, not to AAD. In other words, AAD was not the beneficial owner of the Funds. It follows that even if ALD Wholesale was the only other claimant, and its claim failed, the plaintiffs would not have been entitled to the Funds. It was not essential that the Funds be paid out to someone – they are to be paid to the rightful owner, and if that rightful owner was not at that time a claimant, then the Funds would remain in Court until such time as that owner made a claim.

On this analysis, the plaintiffs were unsuccessful, irrespective of the late claim by Mr Tahiri. It might be thought then that no order should be made in their favour. However, the nature of the proceeding and the conduct of the parties in my view favour the making of an order.

Nature of the proceeding

As the deposit had been paid into Court, the only mechanism for payment out is by application, even where the application is unopposed.[8] To obtain the Funds on his own application, Mr Tahiri would have been required to pay the fees associated with such an application, which would ordinarily include the cost of drawing documents, filing them, serving them on other potential claimants and appearing in Court at least once, possibly twice. He has not had to pay those amounts to obtain the Funds, because the proceeding was commenced by the plaintiffs who incurred them. This is a matter that I raised in my Principal Reasons.[9] I do not consider that Mr Tahiri should be able to take the Funds without bearing the necessary costs of that receipt. In this analysis, he was not a defendant who successfully resisted a claim against him, and so has no obligation to pay the costs of bringing that claim. He was an alternative claimant who has not been required to pay the necessary costs of his claim.
[8]Strictly, an application commenced by originating motion would be required even where all potential claimants consent to the payment, although on occasion the Court may dispense with this requirement.
[9]Principal Reasons (n 1) [70].

Conduct of the parties

Further, I consider that the plaintiffs were justified in commencing the proceeding, and the liquidators arguably bound to do so. They were also justified in continuing it at least until such time as there was doubt as to whether the money paid into the AAD account was in fact beneficially owned by AAD.

The first and second defendants contend that the plaintiffs brought their claim even though there was no evidence to support a claim of beneficial ownership i.e. that the money had been lent to, invested in, or gifted to AAD. They submit that ‘the plaintiffs should never have claimed ownership of the funds if they had no real basis for the claim’.[10]
[10]Defendants, ‘Outline of the Interested Parties’ Contentions’, 10 December 2018, [5]-[6].

I do not accept this submission. The deposit was drawn from the company account of AAD. The liquidators were entitled to treat the Funds as legally owned by the company. This does not, of course, necessarily mean that the company beneficially owned them. Counsel for the defendants has drawn my attention to commentary that confirms the proposition that a liquidator has no right to beneficial ownership of assets held by the company in trust for others.[11] That is plainly correct as a statement of principle, and my ultimate finding is consistent with it. I also accept the proposition next stated in that commentary that it is part of a liquidator’s duties to ascertain ‘whether particular assets under the control of the company are beneficially owned by the company or others’.[12] However, in this case there was nothing known to the liquidators to suggest that the funds withdrawn from the company account were not beneficially owned by the company until well after the commencement of the proceeding.
[11]Thomson Reuters, McPherson’s Law of Company Liquidation (online at 13 December 2018) [8.2000].
[12]Porter v Miller Street Pty Ltd [2008] FCAFC 77 [44].

Mr Tahiri had given evidence about the ownership of the deposit in November 2015 in earlier proceedings concerning the sale of the property to a third party. His evidence was that the deposit was ‘supplied (to the real estate agent) by’ or ‘paid out by’ AAD.[13] He said that this was ‘to protect my family interests’ and that AAD was used to ‘own and operate assets for my family’ but he did not go on to say that AAD did so as a trustee or that the money was his, and not the company’s. Further, the mortgagee gave Mr Tahiri and others the opportunity to make a claim in March 2016, prior to the payment of the Funds into Court, and he had not done so by March 2017 when the mortgagee caused the Funds to be paid into Court. The only claim as a result of those enquiries was the claim by the company itself, through the liquidators.
[13]Affidavit of Bejtulla Tahiri sworn 4 November 2015 in S CI 2015 5528 [19]-[20], being Exhibit DRV-9 to the Further Affidavit of David Raj Vasudevan affirmed 15 September 2017.

I accept the submission of the plaintiffs that the liquidators were under a statutory duty, imposed by s 474 (1)(a) of the Corporations Act 2001 (Cth) to claim what appeared to be a company asset. That paragraph imposes an obligation on a liquidator to ‘take into his or her custody, or under his or her control, all the property which is, or which appears to be, property of the company’ (emphasis added). The only means by which the liquidators could do that in respect of the Funds was to commence this proceeding and prosecute it, until such time as there was evidence that the Funds were not, or may not have been, beneficially owned by AAD.

In these circumstances, I consider the plaintiffs acted entirely appropriately in commencing the proceeding and making their claim.

The originating motion was filed on 5 May 2017. It was initially returnable on 1 June 2017, but was adjourned on the application of the plaintiffs to 8 June 2017 to enable service on other potential claimants. Mr Tahiri was served on 30 May 2017 by service on Madgwicks, solicitors who confirmed that they acted for him and had instructions to accept service. Madgwicks contacted the solicitors for the plaintiffs on 7 June 2017 to seek a further adjournment to obtain instructions. The plaintiffs agreed to that request, and the proceeding was further adjourned to 3 July 2017, and thereafter by agreement to 3 August 2017. Madgwicks filed a notice of appearance for a competing claimant on 7 July 2017, but that competing claimant was not Mr Tahiri, but ALD Wholesale.

ALD Wholesale’s claim was set out in a letter dated 18 July 2017 to the solicitors for the plaintiff. That letter stated unequivocally that the source of the deposit was loan by ALD to ‘the Company’ i.e. to AAD (not to Mr Tahiri) and that the loan was impressed with a Quistclose trust in favour of ALD Wholesale.[14] In his affidavit sworn and filed 13 October 2017, the author of that letter, Mr Grant Walker of Madgwicks deposes that his statement that the loan was to the company was based on a misunderstanding of his instructions. He deposes that he understood in late August 2017 after taking further instructions from Mr Tahiri and Mr Bozic (the effective controller of ALD Wholesale) that the loan was to Mr Tahiri personally, and not to AAD. However, there is no evidence before me that he informed the plaintiffs of this error at that time i.e. in late August 2017, and indeed the thrust of his affidavit is that he did not. In other words, the contention by the solicitors on the record for ALD Wholesale, and later Mr Tahiri, that the money advanced by ALD Wholesale was a loan to AAD was not withdrawn until the last working day before the hearing.
[14]Exhibit COB-1 to the affidavit of Cassie Ann O’Bryan sworn 2 August 2017.

There was, however, some material before the plaintiffs from late August 2017 that viewed closely could have led to doubt as to the beneficial ownership of the deposit monies. This was the affidavit of Mr Tahiri, sworn 28 August 2017, and conceded to have been served around that time, although not filed until the hearing. In that affidavit, Mr Tahiri deposes that the deposit funds ‘were never AAD’s funds’ and uses language consistent with the loan being to him personally. As against this, Mr Tahiri was not a claimant at this time, and his assertion that the loan was to him personally was inconsistent with the assertion made by Mr Walker the previous month that the loan was to AAD.

The uncertainty was not clarified until 13 October 2017, after the following events had occurred. Mr Tahiri’s evidence was eventually supported by service of the sworn affidavit of Mr Bozic, the effective controller of ALD Wholesale, after working hours on 12 October 2017. Mr Walker withdrew his assertion that the loan was to the company on service on 13 October 2017 of his affidavit sworn that day. Mr Tahiri at the last moment made a claim in his own right also on 13 October 2017, and the contention that the loan was to Mr Tahiri personally was made explicit on service of the submissions for the first and second defendants also on that date.

In summary, the first and second defendants failed to make clear their own case, which was ultimately successful as far as the second defendant is concerned, until 13 October 2017.

Counsel for the first and second defendants submits that an order for costs against those defendants is not appropriate because it would amount to a punishment of them for Mr Tahiri’s delay, rather than compensation to the plaintiffs. Counsel submits that this is the case because Mr Tahiri was not required to make his claim to the Funds at any particular point in time, and so was not required to make it in a timely way in response to the plaintiffs’ claim.

Technically, this is correct. The proceeding involved competing claims to the same Funds, not a claim by the plaintiffs against Mr Tahiri as defendant. However, I do not consider it correct to say that, as a consequence, an order against Mr Tahiri is a punishment. It is compensation to the plaintiffs for the steps they were necessarily required to take to make their claim; there was no reason to question the basis of that claim until service of Mr Tahiri’s affidavit; and Mr Tahiri had had earlier opportunities to make his own claim, or least make the factual situation clear.

For these reasons, I consider that the first and second defendants, or one of them, should pay some of the plaintiffs’ costs.

Overarching obligations under the CPA

In the course of argument at the Costs Hearing I asked the parties to address the overarching obligations imposed by the CPA, in particular the overarching obligation imposed by s 24 to ensure that costs are reasonable and proportionate and imposed by s 25 to act promptly and minimise delay. These were not matters that they themselves had raised. My concern in relation to the first was that the disclosed costs incurred by the plaintiffs approach the quantum of the claim. My concern in relation to the second is the lateness of the ultimately successful claim by Mr Tahiri.

The first and second defendants do not contend that the plaintiffs have contravened s 24 in relation to the quantum of their costs. Their counsel accepts that litigation in this Court was the only means by which the liquidators could claim the Funds, and such litigation is expensive. In the absence of a contest about particular costs, I make no finding in relation to compliance with or contravention of s 24 by any party.

The plaintiffs do complain of the delay by Mr Tahiri, although they do not express it as a contravention of s 25. I have taken Mr Tahiri’s delay in becoming a party into account in my discussion in the previous section. Further, on reflection, he cannot be found to have contravened s 25 until the date on which he became a claimant, as prior to that date he was merely a lay witness for ALD Wholesale, not a party, and so the overarching obligations did not apply to him.

To what date or stage should the costs order be made?

The question thus becomes whether the relevant date to which the first and second defendants (or one of them) should be responsible for the plaintiffs’ costs is late August 2017 (service of Mr Tahiri’s affidavit) or 13 October 2017, when the defendants’ contentions were made explicit.

Although Mr Tahiri’s affidavit was not clear, on balance I consider that it should have given the plaintiffs pause, or at least caused them to seek clarification from Mr Walker. Accordingly, it would not be just for the defendants to be responsible for the plaintiffs’ costs thereafter, given that the plaintiffs were unsuccessful for the very reason deposed to by Mr Tahiri – that the money was not beneficially owned by AAD. To that date, however, the plaintiffs were not only justified in bringing their claim, they were reinforced in their belief that the money was beneficially, as well as legally, owned by AAD. Mr Tahiri had failed to make any competing claim despite opportunity; he had in fact given evidence consistent with the money being held beneficially by AAD; and the solicitor for the only other claimant, ALD Wholesale, explicitly stated that the money was a loan to AAD. If the money was a loan to AAD and the Quistclose trust was found not to exist, as was the result, then ALD Wholesale would have been merely an unsecured creditor of AAD, and not entitled to payment of the Funds.

For these reasons, I will order the first and second defendants to pay the plaintiffs’ costs to 28 August 2017.

Differentiation between the defendants

The plaintiffs seek that the costs order be made against the first and second defendants jointly and severally. I consider this to the correct approach. The first and second defendants retained the same solicitors and same counsel throughout, including at the Costs Hearing. Indeed, for that very reason, counsel for those defendants could not argue against the proposition of joint and several liability. That this is appropriate is also shown by the interdependence of their respective cases. The case for each of ALD Wholesale and Mr Tahiri depended on the source of the Funds being a loan by ALD Wholesale to Mr Tahiri personally. Until such time as he became a claimant in his own right, Mr Tahiri was a witness for ALD Wholesale. His case was advanced in the alternative to that of ALD Wholesale. For these reasons, it would be invidious to try to allocate responsibility between the first and second defendants for the conduct that has led me to conclude that a costs order should be made in favour of the plaintiffs.

Indemnity or standard costs

The plaintiffs did not in terms put their application as one for indemnity costs, but as discussed in substance it can be seen as amounting to such an application. I do not consider they have shown any basis for taxation on other than the standard basis. I will order costs on that basis.

Conclusion and orders

I made a limited costs order in favour of the plaintiffs against ALD Wholesale on 3 August 2017. Otherwise, I will order that the first and second defendants jointly and severally pay the plaintiffs’ costs of and incidental to the proceeding to 28 August 2017. I consider that there should be no order for the costs thereafter, to and including the costs of the Costs Hearing. As the position advanced by the first and second defendants, which was ultimately successful to a degree, was not made plain until the last working day before the hearing, it would not be appropriate for the plaintiffs to be required to pay the first and second defendants’ costs of the principal contest after 28 August 2017. I have considered the Costs Hearing separately, but as neither the plaintiffs nor the first and second defendants have been wholly successful in relation to the costs orders they proposed, each should bear their own costs of that Hearing.

I take a different view in relation to the Relisted Hearing. It was Mr Tahiri’s obligation to inform his solicitors and counsel, and through them the Court, of his bankruptcy. Had he done so in a timely way then in all likelihood the necessity for two hearings relating to costs could have been avoided, by the adjournment of the Costs Hearing until such time as the Trustee could form a view and participate if he wished. For those reasons, I made an order on 20 February 2019 that the second defendant pay the plaintiffs costs of and incidental to that day.

I have been informed that there may be a dispute between Mr Tahiri and his Trustee as to ownership of the Funds, and for that reason I will not at this stage make orders, which must include the appropriate orders for payment out of Court. I ask the parties to formulate appropriate orders to reflect these reasons, and the Principal Reasons, including appropriate orders for the payment out of the Funds. If there remains a dispute between Mr Tahiri and the Trustee, I will hear them further, but I do urge that all endeavours be made to reach an agreement.

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