By FND 110, filed on 7 May 2019, the defendants seek to have 5 allocaturs set aside. These allocaturs were entered on 2 January 2018, following orders made on 18 December 2017. The defendants’ application to have them set aside was filed some 16 months after they were entered.
Background – the Victorian proceedings
Alfred Yard and his son, Trevor Yard were partners, along with Alfred’s wife Gladys, and Trevor’s wife, Lorraine, in a farming business. The property on which the partnership farmed was held by a company, Yardoo Pty Ltd. Without meaning any disrespect thereby, throughout these reasons, I will refer to the individuals by their first names, and to the company as Yardoo.
The shareholders and directors of Yardoo were Alfred, Trevor, Gladys and Lorraine.
In the late 1990’s, David Starke (“Mr Starke”) was instructed by Alfred, Trevor, Gladys and Yardoo to act for them in litigation brought by Lorraine, following the breakdown of her marriage with Trevor. Mr Starke operated his legal practice through the entity, D A Starke Pty Ltd, the plaintiff in this matter. I will refer to Mr Starke and D A Starke Pty Ltd jointly as “Mr Starke”.
Initially, Lorraine issued proceedings in the Family Court of Australia. She then issued proceedings in this Court, seeking an injunction to prevent Yardoo from disposing of its assets, and for pre-action discovery. These applications were dismissed. She then filed an application for oppression. This action was transferred to the Supreme Court of Victoria.
Alfred issued proceedings in the Supreme Court of Victoria, claiming that Yardoo held property on trust for him. He also alleged that certain property held by Trevor, Gladys and Lorraine was also held on trust for him.
I understand that Lorraine’s oppression claim and Alfred’s trust claims were heard concurrently. The defendants in Lorraine’s action were Alfred, Trevor, Gladys and Yardoo. In Alfred’s action, the defendants were Lorraine, Trevor, Gladys and Yardoo, although Trevor, Gladys and Yardoo did not contest his claims. The trial commenced in July 2004 and was completed in April 2005. Judgment was delivered in March 2006. The trial judge ordered the winding up of the…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
D a Starke Pty Ltd v Yard [2020] SASC 3
Case
[2020] SASC 3
Decision Date
CaseChat Overview and Summary
The matter before the court involved a claim by Mr. Starke against Yardoo, Alfred, Trevor, and Gladys for non-payment of legal fees. Mr. Starke alleged that he had been retained by all four parties and had performed services up to the commencement of the trial. The defendants paid Mr. Starke's fees only up to the trial's start, claiming that Mr. Starke and Mr. Stevens had agreed to do the trial for a fixed fee and undertake the appeal on a contingency basis. The case was brought before the Supreme Court of South Australia.
The primary legal issues before the court were whether the allocaturs should be set aside due to non-compliance with the Bankruptcy Act 1966 and the Corporations Act 2001, and if the apportionment and quantum of costs should have been determined differently. The liquidators argued that leave had not been sought to proceed against the bankrupt estate of Alfred and Yardoo in liquidation, and that the orders in the Kourakis judgment were not complied with because apportionment should have been determined prior to quantum, and the costs should have been taxed rather than agreed.
The court found that the failure to follow the process set out in the Kourakis judgment was not a valid ground for setting aside the allocaturs. The court held that the Kourakis judgment did not provide a rigid template for cost calculation and that it was reasonable for the parties to negotiate a resolution to the question of costs. The court noted that the parties had proceeded for over four years on the basis that overall quantum would be determined first, after which apportionment would be addressed. This process was undertaken with the consent of Alfred and Yardoo, who were represented throughout and attended settlement conferences. The court concluded that it was now too late to complain that a different process should have been followed.
In terms of the evidence, the court preferred the evidence of Mrs. Stevens over that of Mr. Lock due to the contemporaneous notes she made and the fact that Mr. Lock had resiled from many previous statements, including statements made on oath. The court held that Mrs. Stevens' file note and email relating to the apportionment conference were not refuted by Mr. Oliver Sheahan's file note.
The final orders of the court were not explicitly stated in the text, but it is likely that the court ruled in favor of Mr. Starke, allowing the allocaturs to stand and rejecting the liquidators' and trustee's submissions to set them aside.
Orders
Orders of the court
Full text does not contain this section.
Background
Background to the litigation
Yardoo, Alfred, Trevor and Gladys paid Mr Starke’s and Mr Stevens’ fees only up to the commencement of trial. They alleged that Mr Starke and Mr Stevens agreed to do the trial for a fixed fee, and undertook the appeal on a contingency basis.Background – Mr Starke’s claim against Alfred and Yardoo On 3 June 2009, Mr Starke commenced these proceedings against Alfred and Yardoo, alleging non-payment of his and Mr Stevens’ fees. Gladys and Trevor were not named as defendants, despite Mr Starke’s pleading that he was instructed by both Alfred and Trevor[1] and that he acted on the instructions of Alfred and Trevor between 2000 and 2007, which instructions included the retention of counsel.[2] Mr Starke also pleaded that he was instructed by Trevor in relation to water licences in about May 2005, and that Trevor has failed to pay his fees in relation to that engagement.[3] The quantum of fees that Mr Starke alleged Alfred and Yardoo owed him fell just short of $500,000, plus interest. I do not know why Trevor was not named as a defendant in the action.[1] FDN 1 at [6].[2] FDN 1 at [7] – [8].[3] FDN 1 at [15]. I note that on 17 February 2010, two interim allocaturs were issued. The first was in the sum of $22,201 and was directed towards Yardoo.[4] The second, directed towards Alfred, was in the sum of $72,092.96.[5] This amount was subsequently amended to $70,092.96.[6][4] FDN 11.[5] FDN 12.[6] FDN 16. On 7 September 2011, a cross action by counterclaim was filed.[7] This document is somewhat confusing. It appears to have been filed by Trevor, on behalf of Yardoo, alleging negligence by Mr Starke in his advice to Yardoo. It appears to seek damages for losses suffered by the directors of Yardoo, Alfred, Trevor and Gladys. The cross action was amended by a second cross action which was filed on 16 April 2012, by solicitors on behalf of Yardoo and Alfred. This document pleaded negligence by Mr Starke in relation to a particular aspect of the management of the appeal. The plaintiffs by cross action were Alfred and Yardoo.[7] FDN 44. I understand that Gladys died some time before the commencement of the trial in this action, although I do not know whether her death occurred before or after Mr Starke issued his claim. The trial of Mr Starke’s claim against Alfred and Yardoo was held in October 2011, before Kourakis J as he then was. The counterclaim was not heard at the same time as it had been filed so close to trial. Judgment (“the Kourakis judgment”) was delivered on 13 February 2012.[8] His Honour made the following findings:·Mr Starke was retained by Yardoo, Alfred, Trevor and Gladys;[9]·…the engagement of Mr Starke by both Yardoo and Alfred Yard, in itself, carried with it only an obligation to pay for that part of the work performed to advance their respective interests. A separate engagement of the same legal practitioner by two parties in the same litigation does not, of itself, make each of them liable for the costs of the order. It requires the costs to be apportioned between them.[10]·I am not satisfied that there is a sufficient basis upon which to find an agreement that Yardoo would pay Alfred Yard’s costs. Alfred Yard remains liable for his proportion of Mr Starke’s fees. The quantification of the liability of the only defendants to this action, Alfred Yard and Yardoo, will require an apportionment between all of Mr Starke’s clients. I expect that very few, if any, costs will be allocated to Gladys Yard but a significant proportion may fall on Trevor Yard.[11]·There is an element of unreality about the point taken as to Yardoo’s limited liability for Mr Starke’s fees. To the extent that Alfred Yard remains a shareholder of Yardoo, the assets of Yardoo will at least indirectly remain available to satisfy the costs payable by him. Hopefully, an arrangement will be reached consensually between Mr Starke and the Yards which will avoid the painstaking and costly exercise of apportioning costs between the parties. The apportionment exercise is likely to be expensive in itself, and will be a cost which will ultimately be borne by the defendants.[12][8] [2012] SASC 19.[9] [2012] SASC 19 at [21].[10] [2012] SASC 19 at [21].[11] [2012] SASC 19 at [31].[12] [2012] SASC 19 at [32].
Evidence
Evidence Before The Court
The fundamental position of the liquidators is that the allocaturs should be set aside for two reasons: the first, that leave had not been sought to proceed against the bankrupt estate of Alfred and against Yardoo in liquidation, contrary to the provisions of the Bankruptcy Act 1966 and Corporations Act 2001; and the second, that the orders in the Kourakis judgment were not complied with, in that apportionment should have been determined prior to quantum, and the costs should have been taxed, not agreed. The liquidators submitted that they did not consent to the apportionment in the allocaturs, nor was the question of leave pursuant to the Bankruptcy Act and the Corporations Act raised prior to the issue of the allocaturs.The evidence The liquidators relied on the affidavit of Justin Matthew Sharman sworn on 2 May 2019,[21] and that of Ian Russell Lock worn on 17 July 2019.[22][21] D1.[22] D2. The salient points raised by Mr Sharman are that:·The liquidators retired as Alfred’s trustee in bankruptcy on 12 April 2019, with Gregg Johnson of BCR Advisory taking their place.[23]·The liquidators considered that the allocaturs should be set aside because leave had not been sought under s 471B of the Corporations Act at the time they were entered.·The allocaturs were entered without the liquidators forming a position on their merits.·The allocaturs did not reflect the position set out in the Kourakis judgment.·The interest calculations are contrary to the provisions of s 114 of the Supreme Court Act 1935 (SA).·The allocaturs included sums for GST where the plaintiff is entitled to an input tax credit.[24][23] D1 at [7.1] – [7.2].[24] D1 at [9]. Mr Sharman exhibited a letter from Ms Natasha Riach on behalf of Trevor to Mr Starke, dated 5 June 2018. In this letter, Ms Riach outlines her instructions as to the chronology of the matter, that at the directions hearing on 18 December 2017, Yardoo was represented by Mr Oliver Sheahan, and that the liquidators did not oppose the orders being made, or request that the matter be listed for formal adjudication. It went on to outline Trevor’s concerns, which included the process undertaken to reach the quantum of the fees owed, the failure to seek leave to proceed, and that the apportionment does not reflect the intention of the Kourakis judgment. Ms Riach stated:Mr Lock has informed us that, despite the breach of Section 471B of the Act, he does not propose to apply to set aside the orders. He has informed us that he considers any further steps in that regard ought property be taken by Trevor. He has indicated that if Trevor applies, the liquidators will adopt a neutral approach in respect of any such application.[25][25] D1 at 107. Mr Sharman’s affidavit also exhibited correspondence from Ms Riach to Mr Lock, which confirmed Ms Riach’s understanding of what was said at a meeting between her and Mr Lock on 28 May 2018. Ms Riach said:3.1You did not oppose the allocaturs entered by the Court on 18 December 2017 because of the extensive history of the proceedings in which representatives of the company had put substantial submissions. You did not accept that it was appropriate to characterise the allocaturs as having been obtained by default.3.2While you did not recall any discussion of the requirement for leave pursuant to Section 471B of the Corporations Act 2001 it does not concern you now that there appears not to have been any grant of leave nor that the allocaturs were made apparently in contravention of the Act.3.3In your view, it is not appropriate for you now to investigate the proof further nor obtain specialise advice, even at a summary level, in respect of the claims for costs, and that you are conformable with the amount claimed despite the matters raised in our earlier letter. 3.4You would not make any application to Court to challenge the Allocaturs.3.5It was therefore your intention to admit the proof in full for the purposes of an interim dividend subject to a minor correction as to the interest component.3.6In your view any challenge to the proof was a matter for our client to undertake, which he could primarily do by appealing your adjudication.[26][26] D1 at 112-113.
Decision
Reasons for decision
I will deal with the issues in contention in turn.The allocaturs should be set aside because of the failure to follow the process set out in the Kourakis judgment I do not consider that the failure to follow the process set out in the Kourakis judgment is a valid ground for setting aside the allocaturs. I do not consider that the Kourakis judgment provided a template for the calculation of costs, which could not be varied. Indeed, I am not convinced that it has the meaning ascribed to it by the liquidators and the trustee. Kourakis J said:I give judgment for the plaintiff against both defendants for his fees and disbursements of the trial before justice Cummins, the application to extend the stay order made by Justice Cummins and the settlement. The quantum of those fees is to be determined after an apportionment between all of Mr Starke’s clients.[135][135] [2012] SASC 19 at [8]. This could mean that apportionment was to be determined before any calculation of quantum had occurred, as pressed by the liquidators and trustee. Or, it could mean that the quantum of those fees to be attributed to each defendant is to be determined after an apportionment between all of Mr Starke’s clients. Each interpretation is reasonable. Regardless of the interpretation put on that final paragraph of the Kourakis judgment, to suggest that no other process must be followed is nonsensical. It is not unusual for orders to be made, but for parties ultimately to finalise their dispute in a way different to that set out in the formal court orders. One only needs to consider the situation where, following the filing of an appeal, the parties resolve the matter without the need to hear the appeal. The proposition put by the liquidators would mean that any such resolution would be invalid and liable to be set aside, because it did not comply with the original orders of the court, and despite the agreement of all of the parties. The Kourakis judgment, itself, gives an indication that there was an intention that the parties should seek to negotiate a resolution to the question of costs. Kourakis J said:Hopefully, an arrangement will be reached consensually between Mr Starke and the Yard which will avoid the pain staking and costly exercise of apportioning costs between the parties.[136] [136] [2012] SASC 19 at [32]. It is clear from this that Kourakis J did not expect the parties to engage in an item by item inquiry as to apportionment if it could be avoided. Additionally, the parties themselves agreed the method by which costs would be dealt with. On 4 April 2013, the following remarks were recorded on the record of outcome of a directions hearing held that day:I am going to direct a further settlement conference in this matter as it seems to me the parties should endeavour to agree at least lump sum costs before consideration is given to who it is that is responsible for those costs.[137][137] Record of outcome 4 April 2013. No objection was made by Mr Bourne on behalf of the Alfred and Yardoo that this process did not comply with the orders in the Kourakis judgment. For more than four years from that date, the parties proceeded on the basis that overall quantum would be determined first, after which apportionment would be addressed. It is clear that this process was undertaken with the consent of Alfred and Yardoo, in that they were represented throughout, they sought various adjournments to allow them to respond, and further particulars in relation to the various schedules provided by Mr Starke. They attended settlement conferences. It is now too late to complain that a different process should have been followed.
Ratio Decidendi
Legal Principle Established
Without canvassing all of the issues dealt with by Mr Duggan in reply, it is important to deal with one submissions, which responded to Mr Ross-Smith’s submission that an adverse inference should be drawn from the failure of Mr Oliver-Sheahan to give evidence. Mr Duggan said the following:In circumstances where Mr Lock was present at all of the key meetings, not calling Oliver Sheahan could only at the most amount to not calling a corroborative witness; so, in those circumstances, quite unlike a scenario where Oliver Sheahan was the only witness who was present at a meeting or a discussion, but once again that concept was underdeveloped. It could be said that the same would apply to Greg Stevens, why wasn't he called as well. My submission is there is very little scope for drawing adverse inferences in relation to this matter.[124][124] T219.33-220.5.Consideration There is a significant dispute between the parties as to a range of factual matters. Where the evidence of Mrs Stevens conflicts with that of Mr Lock, I prefer Mrs Stevens’. There are two reasons for this. The first reason I prefer Mrs Stevens’ evidence is because she made contemporaneous notes of the meetings and other attendances in relation to which she gave evidence. For example, she made a file note of her attendance at the meeting on 13 December 2017, at which the question of apportionment was discussed, which note clearly records the apportionment of 70:30 between Yardoo and Alfred’s estate. She also wrote to Mr Cogan two days later, on 15 December 2017, at which time she reported:The liquidator and trustee propose apportionment as 30% Alfred Yard 70% Yardoo P/L.[125][125] D6. I have no reason not to believe that, combined, these two pieces of evidence do not accurately reflect what occurred at the meeting. In particular, I note that Mrs Stevens reported to Mr Cogan that the liquidator and trustee had proposed the percentages used in the final allocaturs, before the question of who suggested that apportionment became an issue in contention between the parties. If it had been she who had made that proposal, there is no reason why she would not have said so, as at 15 December 2017. There is also no reason why she would lie about that fact, at a time when it was not in dispute between the parties. Further, Mrs Stevens’ file note and email relating to this conference are not refuted in any way by the file note created by Mr Oliver Sheahan.[126] That note also clearly records an apportionment of 70:30. While it does not record who proposed these percentages, it does not suggest that they were not proposed by the liquidators or otherwise opposed or questioned by the liquidators.[126] P5 at FMS23. Secondly, in the course of his evidence, Mr Lock resiled from many previous statements that he had made, including statements made on oath. For example, he initially said that he did not recall being provided with a copy of the draft allocaturs prior to the hearing on 18 December 2017.[127] On further questioning, however, he acknowledged that he received the draft allocaturs the day before the hearing.[128] Mr Lock sought to distance himself from the statement made in the Alfred report as to the scrutiny of the allocaturs.[129] Mr Lock also sought to distance himself from the statement made in the second Yardoo report that the costs were apportioned with his consent.[130] He then sought to resile from a paragraph of the affidavit that he swore for the purpose of the Federal Court proceedings, in relation to whether he considered that leave was required and now said that that paragraph was not correct.[131] He also sought to distance himself from correspondence written by Mr Oliver Sheahan,[132] where Mr Oliver Sheahan wrote:We…will formally write to David in due course proposing terms of an appropriate resolution.[133][127] T26.23.[128] T32.6-9.[129] T45.32-46.9.[130] T47.5-9.[131] T59.15-20.[132] T50.27-30.[133] P4 at 18.