Boost Foods Pty Ltd v Blu Oak Pty Ltd

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SUPREME COURT OF QUEENSLAND

CITATION:

Boost Foods Pty Ltd v Blu Oak Pty Ltd and Ors [2015] QSC 146

PARTIES:

BOOST FOODS PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 113 408 987)

(Plaintiff)

v
BLU OAK PTY LTD (ACN 118 969 850)

(First Defendant)
BRADLEY WARDROP-BROWN
(Second Defendant)
JULIE VAN EPS
(Third Party)

FILE NO/S:

Brisbane No 2038 of 2011

DIVISION:

Trial

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court of Queensland at Brisbane

DELIVERED ON:

4 June 2015

DELIVERED AT:

Brisbane

HEARING DATE:

17 February 2015; 30 March 2015

JUDGE:

Boddice J

ORDER:

1.   The defendants’ application filed 21 November 2014 is dismissed.

2.   The third party’s application filed 5 December 2014 is dismissed.

3.   Each party in proceeding number 2038 of 2011 is to bear its or their own costs of that proceeding.

CATCHWORDS:

PROCEDURE – COSTS – GENERAL RULE – DEPARTING FROM THE GENERAL RULE – DISCONTINUANCE OR ABANDONMENT – where the Third Party decided it was not commercially sensible to pursue the proceeding to trial as there was no prospect of recovering costs against the Defendants – where the Third Party discontinued proceedings on the eve of trial – where the proceeding did not proceed to trial – where the proceeding was subsequently dismissed

PROCEDURE – COSTS – GENERAL RULE – DEPARTING FROM THE GENERAL RULE – INCONCLUSIVE PROCEEDINGS – where, because of the dismissal of the proceeding, there had not been any independent assessment of the parties’ submissions – where there had been no determination on the merits – where both parties made submissions about the likelihood of their success in a determination on the merits – where there was significant expert evidence to be adduced – where it was not possible for the judge to assess the likelihood of the parties’ success at trial

PROCEDURE – COSTS – GENERAL RULE – DEPARTING FROM THE GENERAL RULE – CONDUCT OF PARTIES – where the defendants’ insurance policy was limited to $1,000,000.00 and included legal fees – where the third party claimed she was unaware of that limitation or its inclusion of legal fees – where the third party did not become aware of these terms until the proceeding had been significantly advanced towards trial – where the third party was the initiating and driving force of the litigation by the plaintiff – where the litigation was protracted – where the third party alleged misconduct by the defendants, their solicitors and insurers – where other parties reached a settlement as to costs

Uniform Civil Procedure Rules 1999 (Qld), r 681

Burns v State of Queensland and Croton [2007] QCA 240

Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 10) [2009] FCA 498

FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340

Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622

Rushton (Qld) Pty Ltd v Rushton (NSW) [2004] QSC 47

The Beach Retreat Pty Ltd v Mooloolaba Marina Ltd [2009] 2 Qd R…

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Details
Case
[2015] QSC 146
Decision Date

CaseChat Overview and Summary

The case of Boost Foods Pty Ltd v Blu Oak Pty Ltd involved the plaintiff, a food products producer and supplier, which was placed into administration following financial difficulties. The third party, who was the plaintiff's director and major shareholder, proposed a Deed of Company Arrangement which involved pursuing damages against the defendants, who were food product developers. The administrator recommended the Deed to creditors, who voted in favour, leading to the administration's end but the reappointment of the administrator. The litigation was funded by the third party, who proposed to receive a percentage of any judgment after legal costs.

The central legal issue was the determination of costs in the proceeding, specifically whether the third party should bear the defendants' costs, and whether the defendants, their insurers, and solicitors should bear the third party's costs. The third party argued that the defendants' solicitors made unsupported allegations and pursued a baseless case. The defendants, in turn, argued that the third party's litigation was protracted and not commercially sensible. The court considered the conduct of the parties, the prospects of success at trial, and the lack of a determination on the merits due to the proceeding's dismissal.

The court dismissed both the defendants' and the third party's applications for costs. It found that there was no evidence of improper conduct by the defendants' solicitors or insurers. The court highlighted that the proceeding was dismissed without a determination on the merits, making it difficult to assess the likelihood of success for either party. Additionally, the court noted that the third party was unaware of the limitation of the defendants' insurance policy until late in the proceedings. Given these considerations, the court exercised its discretion and determined that no party should bear the other's costs.

Accordingly, the court dismissed both applications for costs and ordered that each party bear its own costs of the proceeding. This ruling underscored the importance of the general rule regarding costs in Australian litigation, and the court's discretion in departing from this rule based on the specific circumstances of the case.

Orders

Orders of the court

1. The defendants’ application filed 21 November 2014 is dismissed.

2. The third party’s application filed 5 December 2014 is dismissed.

3. Each party in proceeding number 2038 of 2011 is to bear its or their own costs of that proceeding.

Background

Background to the litigation

The defendants and the plaintiff’s administrator reached agreement as to costs between themselves, resulting in an order that there be no order as to costs. There remains in dispute the defendants’ application for orders that the third party pay their costs of the proceeding, and the third party’s application for orders that the defendants, the defendant’s insurers, Dual Australia, and the defendants’ solicitors, Moray & Agnew Lawyers, pay her costs of the proceeding, including costs paid by her to fund the plaintiff’s claim.Background The plaintiff, a producer and supplier of food products to retailers, was placed into administration on 19 July 2010. Initially, William Fletcher was appointed administrator. However, Mr Fletcher resigned on 29 July 2010 and Ian Currie was appointed as administrator. At that time the third party was the plaintiff’s sole director and major shareholder. The first defendant is a food product developer. The second defendant is the first defendant’s sole director. Prior to the plaintiff being placed in administration, the plaintiff and the defendants entered into commercial arrangements for the development of a food product, under the brand name Nutriboost. Subsequent to the appointment of the administrator to the plaintiff, the third party, in her capacity as the company’s director and then majority shareholder, put forward a proposal for a Deed of Company Arrangement (“the Deed”). The administrator advised creditors of the details of that proposal in his report to the creditors dated 17 August 2010. Relevantly, for present purposes, the proposal advanced by the third party was that the plaintiff remain active as a company but not trade whilst it pursue an action for damages against the defendants. The action was to be funded by the third party or by a litigation funder. In the event the third party funded that litigation, she proposed she be paid 20% of the judgment, after legal costs and fees, with creditors to receive the balance up to 100 cents in the dollar, and any surplus be paid to the company. After briefly speaking with the plaintiff’s then lawyers, the administrator advised creditors it was in their best interest for the company to execute the Deed. In making this recommendation, the administrator noted there were limitations on the available information, that investigations were preliminary and that there were no funds available to allow the administrator to carry out any further or substantial investigations. A creditors’ meeting was held on 25 August 2010. The minutes of that meeting record the administrator advised creditors he had received an email from the second defendant which contained matters that the administrator took issue with, in a number of respects. At the time of the meeting, the unsecured creditors of the plaintiff company totalled $713,536.00. The company’s total liabilities were $1,121,226.00. The meeting of creditors voted in favour of the Deed, which was duly executed by the administrator and the third party on 13 September 2010. That Deed ended the administration of the company under Part 5.3A of the Corporations Act. However, the Deed reappointed Mr Currie as administrator of the plaintiff.

Evidence

Evidence Before The Court

The third party submits an order for costs should be made against the solicitors because they were party to making unsupported allegations to the Court, thereby pursuing a case which was baseless and which had no or substantially no chance of success.Evidence There were multiple affidavits from the third party dealing extensively with a contention that the plaintiff had substantial prospects of success at trial and that there was no substance in the defendants’ pleaded defences as the defendants had produced no evidence prior to the trial to support those contentions. Central to these assertions was the third party’s contention that the contemporaneous documentation supported the plaintiff’s case, as did the expert evidence relied upon by the plaintiff. The third party contended that the expert report provided late by the defendants was inadmissible, as the report was not from a food technologist and the author had no qualifications with respect to food science. The report also had significant factual and technical errors. The third party further contended there were significant defects in the accountant’s report in response to the expert evidence relied upon by the plaintiff. The third party further contended neither the second defendant, nor any staff of the first defendant, had supplied any direct evidence. All that had been sworn to, to date, was the defendants’ solicitors’ account of evidence that would have been led from witnesses at trial. In all the circumstances, no weight should be afforded to such evidence. The defendants relied on multiple affidavits from Angela Yates, the solicitor having carriage of the matter on the defendants’ behalf. She deposed to aspects of the defendants’ defence including the contentions that it was not ultimately responsible for the manufacturing of the products on behalf of the plaintiff and that the manufacture occurred using ingredients which were inconsistent with the specifications provided by the defendants. Her affidavit contained detailed assertions as to the evidence that would have been led at trial. Evidence would also have been led at trial to establish significant deficiencies in the assumptions made by the plaintiff’s expert as to the accuracy of the expert’s conclusions. Ms Yates gave evidence at the hearing in relation to these assertions. Mr Da Lozzo also gave evidence at the hearing that at the first creditors’ meeting the plaintiff’s insurance policy was discussed, with specific reference to the policy being for “$1,000,000.00”. He did not resile from that proposition, despite the third party’s assertion the insurance policy was not mentioned at this meeting and a contention his evidence was inconsistent with the evidence of other witnesses. There was also no mention in the minutes about any insurance matters being raised or discussed. Deborah Seabrook, the compliance officer of Lumley Insurance, the insurer of the defendants’ insurance policies, gave evidence that an initial search found no record of any insurance policies in favour of the defendants. Subsequent searches revealed a 2009 policy and a 2008 policy. The inability to initially find reference to the policies was due to a lack of information in respect of the relevant reference number. She did not accept that was inconsistent with her initial search of the “bordereaux”.

Decision

Reasons for decision

Similarly, there is nothing in the conduct of the defendants’ solicitors which would support the making of an order for costs against those solicitors. Nothing in the matters raised by the third party supports the conclusion those solicitors behaved improperly or pursued the litigation for an ulterior purpose. Ms Yates’ evidence was concise and clear. It properly raised significant matters, relevant to the defence of the plaintiff’s claims. The suggestion of improper conduct on her part is without substance. There was also no substance in any allegation that Counsel instructed by the defendants’ solicitors engaged in improper conduct. I am satisfied, in the exercise of my discretion, there should be no order for costs against the defendants’ instructing solicitors or insurers.Conclusions Both the defendants’ application for costs against the third party, and the third party’s application for costs against the defendants, the defendants’ insurers, and their solicitors, are dismissed.Orders:1. The defendants’ application filed 21 November 2014 is dismissed.2. The third party’s application filed 5 December 2014 is dismissed.3. Each party in proceeding number 2038 of 2011 is to bear its or their own costs of that proceeding.

Ratio Decidendi

Legal Principle Established

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