Angus Carnegie Gordon in his capacity as liquidator of Lyon Form Pty Ltd (in liq) v Leon Plant Hire Pty Ltd (in liq)

[2015] NSWSC 662

Supreme Court

New South Wales

Medium Neutral Citation:	Angus Carnegie Gordon in his capacity as liquidator of Lyon Form Pty Ltd (in liq) & Anor v Leon Plant Hire Pty Ltd (in liq) & Ors [2015] NSWSC 662
Hearing dates:	24 – 25 February 2015, submissions as to orders and costs 8 and 11 May 2015.
Decision date:	29 May 2015
Jurisdiction:	Equity Division - Corporations List
Before:	Black J
Decision:	Several orders made in accordance with short minutes of order as agreed between the parties. First Defendant to pay the Plaintiffs’ costs on an ordinary basis to 26 September 2014 and an indemnity basis from 27 September 2014; Second, Fourth and Fifth Defendants to pay the Plaintiffs’ costs on an ordinary basis for specified dates and on an indemnity basis from 27 September 2014; Plaintiffs to pay the Third Defendant’s costs of and incidental to specified issue on an ordinary basis.
Catchwords:	PROCEDURE – Costs – Where Plaintiffs required to pay costs thrown away for earlier vacated hearing date – Where offer of compromise made by Plaintiffs – Whether costs be awarded on ordinary or indemnity basis – whether Plaintiffs should pay costs in respect of claim against Third Defendant who failed on several issues in common with other Defendants and succeeded on one issue.
Legislation Cited:	- Corporations Act 2001 (Cth) ss 588FB, 588FDA, 588FF - Civil Procedure Act 2005 (NSW) ss 56, 98 - Uniform Civil Procedure Rules 2005 (NSW) rr 20.26, 42.1, 42.2, 42.5, 42.14
Cases Cited:	- Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801; (1993) 46 FCR 225 - Lahoud v Lahoud [2006] NSWSC 126 - Liverpool City Council v Estephan [2009] NSWCA 161 - Ng v Chong [2010] NSWSC 127
Category:	Costs
Parties:	Angus Carnegie Gordon in his capacity as liquidator of Lyon Form Pty Ltd (First Plaintiff) Lyon Form Pty Ltd (in liquidation) (Second Plaintiff) Leon Plant Hire Pty Ltd (First Defendant) Marcos German Leon (Second Defendant) Carol Paulina Dicsiascio (Third Defendant) Marco Antonio Leon (Fourth Defendant) Manuela Leon (Fifth Defendant)
Representation:	Counsel: S. Golledge (Plaintiffs) J T Johnson (Defendants) Solicitors: Kells Lawyers (Plaintiffs) Hall Partners (Defendants)
File Number(s):	2014/96930

Judgment

1. The liquidator of Lyon Form Pty Ltd (in liq) (“Lyon Form”) and Lyon Form sought a range of relief against Leon Plant Hire Pty Ltd (“Leon Plant Hire”) and associated persons. By my judgment delivered on 10 April 2015 ([2015] NSWSC 397), I held that the liquidator had succeeded in his claims against Leon Plant Hire and Mr Marcos Leon, Mr Marco Leon and Mrs Manuela Leon under s 588FF of the Corporations Act 2001 (Cth) in respect of several repayments made by Lyon Form against a loan to Leon Plant Hire (“Mortgage Payments”); Lyon Form had established an entitlement to relief by way of an equitable charge or lien over a property owned by Leon Plant Hire in the amount of that claim, although it did not establish other alternative relief; the liquidator had also succeeded in his claims against Mr Marcos Leon under s 588FF of the Corporations Act for $107,450; and Lyon Form had established a right to equitable compensation or damages for breach of directors’ duties in that amount against Mr Marcos Leon in respect of those payments. I also held that a claim against the Third Defendant, Mrs Carol Dicsiascio, did not succeed, by reason of her entry into a personal insolvency agreement by reason of which that claim had been extinguished.

2. I held that the Plaintiffs should have interest and costs, other than in respect of their claim against Mrs Dicsiascio, and that I would hear the parties as to the costs of the claim against Mrs Dicsiascio if they could not reach agreement as to that question. I directed the parties to bring in Short Minutes of Order to give effect to my judgment within 14 days. It appears that there is agreement between the parties as to the substantive orders to be made but disagreement as to the question of costs. The Plaintiffs do not seek a further calculation of interest between 8 May 2015 and the date when orders are pronounced, in the absence of significant delay prior to the delivery of the cost judgment, which will not occur. The parties did not require an oral hearing in respect of the form of orders or as to costs.

3. The principles applicable to an order for costs are well-established and were not controversial in this application. Section 98 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. UCPR r 42.5 provides for orders for indemnity costs.

Costs order for the period prior to 23 May 2014

4. Several aspects of the costs orders are in dispute between the parties. Leon Plant Hire seeks orders that the Plaintiffs should pay its costs up to the date of an earlier hearing date, which was vacated, on 23 May 2014, and the orders made on that day, for payment for costs thrown away, should be vacated. Alternatively, Leon Plant Hire submits that those costs should be its costs in the cause so that the Plaintiffs are not entitled to recover them against it although they succeeded in the proceedings against it.

5. Leon Plant Hire refers to a letter dated 31 March 2014 from its solicitors which, it contends, would have removed the urgency from the proceedings at the time they were commenced against it. I am not satisfied that that letter had any substantial impact on the conduct of the proceedings. That letter addressed a lapsing notice which had been lodged by Leon Plant Hire in respect of a caveat lodged by Lyon Form only by an indication that Leon Plant Hire had no immediate intentions to sell the relevant property or deal with it, and that Leon Plant Hire’s solicitors would advise of any change in intention, and by a suggestion of a future undertaking not to deal with the property, to be given only after payments from funds made by Lyon Form had been identified by the liquidator and proceedings commenced by the liquidator to establish the interest for which it contended in the caveat. It seems to me unlikely that the parties would have agreed the position as to any payments that were recoverable by Lyon Form, where there was no substantive agreement as to that issue in these proceedings. It does not seem to me that it was unreasonable for the liquidators to commence or maintain the proceedings, in which they have ultimately been successful, in those circumstances.

6. The Plaintiffs respond that Leon Plant Hire was the only Defendant to the proceedings up to that date and that the case against Leon Plant Hire, up to that date, was for an extension of caveat based on the interest which has now been established by the successful claim to an equitable charge or lien over the property owned by Leon Plant Hire and for an order under s 588FF in respect of the Mortgage Payments, which the Court has held were uncommercial transactions, and that the case against Leon Plant Hire did not subsequently change notwithstanding the addition of other Defendants and other causes of action to the proceedings. The Plaintiffs also point out that work previously done by Leon Plant Hire’s solicitors was not wasted by reason of the amendment, so far as the Defendants read, as part of their case, an affidavit of Mr De La Barra sworn 2 April 2014 which had been prepared before the vacation of the trial date. The Plaintiffs also point out that Leon Plan Hire has the benefit of an order that the Plaintiffs pay the costs thrown away by reason of the vacation of the earlier hearing date, and do not seek to have that order rescinded. The Plaintiffs otherwise submit that the ordinary rule should apply in respect of the whole of their costs of their successful claim against Leon Plant Hire, where they have maintained throughout, so that costs should follow the event. I accept that submission. Conversely, I am not satisfied that either order sought by Leon Plant Hire should be made, where the Plaintiffs succeeded in the claim which was maintained throughout against Leon Plant Hire.

7. The Defendants also indicate that they will submit, on a costs assessment, that the costs thrown away by reason of the earlier hearing date were all of their costs to date. That submission could only be made in respect of Leon Plant Hire which was the only defendant to the proceedings at that date. I should also indicate, for the assistance of an assessor, that I find it difficult to see the basis of that submission, so far as the claim against Leon Plant Hire was maintained throughout the proceedings, and so far as evidence prepared in the period prior to the vacated hearing date was relied upon by the Defendants at the hearing before me.

Costs following joinder of the Second, Fourth and Fifth Defendants

8. The Plaintiffs contended that an order should be made, as my judgment indicated, that the other unsuccessful Defendants should pay their costs, extending to the Second, Fourth and Fifth Defendants from the later date on which they were joined to the proceedings. The Plaintiffs also submitted that an offer of compromise was served and that the unsuccessful Defendants should pay their costs on an indemnity basis from 27 September 2014.

9. The Defendants (other than Mrs Carol Dicsiascio) accept that they cannot oppose an order for party/party costs (or, in the current usage, costs on an ordinary basis) from the date following the service of the Amended Statement of Claim on them until the date on which the offer of compromise takes effect, being the last date on which it was capable of acceptance, 24 October 2014. However, r 42.14 of the UCPR provides that, if a plaintiff makes an offer of compromise under r 20.26 which is not accepted by the defendant and the plaintiff obtains an order or judgment no less favourable than the terms of the offer, the defendant is to pay the plaintiff’s costs on the ordinary basis up to and including the day of the offer and thereafter on an indemnity basis, unless the Court orders otherwise. Accordingly, the order for costs on an indemnity basis should run from the date of the offer, as the Plaintiffs propose, not from the last date for its acceptance.

Costs in respect of Mrs Carol Dicsiascio

10. Mrs Dicsiascio seeks an order for indemnity costs against the Plaintiffs, or alternatively an order for costs on the ordinary basis, which are resisted by the Plaintiffs. The Defendants contend that such an order is justified because Mrs Dicsiascio was brought into the proceedings by reason of an Amended Statement of Claim without a separate grant of leave to join her and in the absence of a previous demand against her. No issue was raised in the proceedings as to the validity of Mrs Dicsiascio’s joinder in that regard, and I do not consider that the absence of demand to her had any particular weight, when it is plain from her defence of the proceedings that she would not have acceded to such a demand.

11. As I noted above, Mrs Dicsiascio was successful in her defence of the proceedings by reason of her defence relying on her entry into a personal insolvency agreement, although, as the Plaintiffs point out, I held that she had breached her duties as a director of Lyon Form and she had contested that allegation and other aspects of the Plaintiffs’ case including the claim that Lyon Form was insolvent at the relevant time. The Plaintiffs also point out that the Defendants were represented by the same firm of solicitors and Counsel and took a common approach on all factual issues at the trial, and submit that there should be no order as to costs as between Mrs Dicsiascio and the Plaintiffs. So far as Mrs Dicsiascio’s claim for costs on an indemnity basis is concerned, the Plaintiffs submit that the claim against her was not without merit, the Court found she had acted in breach of duty, and there were reasonable arguments available concerning the effect of the personal insolvency arrangement, and that their position in that regard was not so unreasonable as would ordinarily attract an order for indemnity costs.

12. The principles applicable to an order for indemnity costs were summarised by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801; (1993) 46 FCR 225 at 232–234 where his Honour noted that the Court ought not usually make an order for the payment of costs other than on the party and party basis, and that some special or unusual feature in the case is needed to justify the Court in departing from the ordinary practice. His Honour noted several circumstances recognised in the authorities in which indemnity costs may be ordered, including the making of allegations which ought never to have been made and observed that, ultimately (at 234):

“The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.”

The summary of principles in Colgate-Palmolive Co v Cussons Pty Ltd above was in turn applied in Lahoud v Lahoud [2006] NSWSC 126 at [11] and in Ng v Chong [2010] NSWSC 127 at [18] and, in Liverpool City Council v Estephan [2009] NSWCA 161 at [100], Giles JA (with whom McColl JA agreed) observed that s 56 of the Civil Procedure Act adds emphasis to the occasion to depart from costs on an ordinary basis where a failure to properly conduct the proceedings has caused costs to be incurred unnecessarily, but does not override the need for a rational connection between the reason for that departure and the extent of that departure.

13. It seems to me that the Plaintiffs must pay Mrs Dicsiascio’s costs of her defence relating to the issue concerning the Part X arrangement, on an ordinary basis. It seems to me that that issue is plainly severable from the other issues as to which Mrs Dicsiascio was not successful and as to which her defence was in common with that of the other unsuccessful Defendants. I am not persuaded that an order for indemnity costs should be made in favour of Mrs Dicsiascio, since the position in respect of the application of the personal insolvency agreement was by no means clear, as my analysis of that issue in the judgment indicated, and it could not be said that that Plaintiffs had pursued allegations against Mrs Dicsiascio that ought never to have been made.

Orders

14. Accordingly, I make the following orders, reflecting those orders that are agreed between the parties and the determination that I have reached above in respect of costs:

1. Pursuant to s 588FF of the Corporations Act, the Court orders that the First, Second, Fourth and Fifth Defendants pay $110,779.55 to the Second Plaintiff.

2.   The Court declares that the Second Plaintiff holds an equitable charge over the land comprised in Certificate of Title Folio Identifier 78/5739 and known as 48 Railway Terrace, Merrylands, New South Wales 2160 as security for payment to it of the judgment sum referred to in paragraph 1.

3.   The Court declares that the payments made by the Second Plaintiff on:

(a)   20 April 2012 in the amount of $103,000; and

(b)   8 May 2012 in the amount of $4,450

to the Second Defendant constitute:

(c) unreasonable director related transactions within the meaning of section 588FDA of the Corporations Act; and

(d) uncommercial transactions within the meaning of section 588FB of the Corporations Act.

4.   The Court declares that in causing and allowing the Second Plaintiff to make those payments, the Second Defendant has breached the statutory and fiduciary duties owed by him to the Second Defendant.

5.   In addition to the judgment provided for in paragraph 1 hereof, the Court orders that there be a judgment for the Second Plaintiff against the Second Defendant in the sum of $130,062.64.

6.   The proceedings against the Third Defendant be dismissed.

7.   Excluding those costs relating to the application to vacate the earlier trial date on 23 May 2015, the First Defendant pay the Plaintiffs’ costs, as agreed or as assessed:

(a)   on an ordinary basis from the commencement of the proceedings to 26 September 2014; and

(b)   on an indemnity basis from 27 September 2014 thereafter.

8.   The Second, Fourth and Fifth Defendants pay the Plaintiffs’ costs, as agreed or as assessed:

(a)   on an ordinary basis from 11 June 2014 to 26 September 2014; and

(b)   on an indemnity basis from 27 September 2014 thereafter.

9.   The Plaintiffs’ pay the Third Defendant’s costs of and incidental to argument concerning her personal insolvency agreement dated 23 July 2012 on an ordinary basis, as agreed or as assessed, and there otherwise be no order as to costs between the Plaintiffs and the Third Defendant.

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Decision last updated: 04 June 2015