Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (in liq); Yazbek v Gleeson as Liquidator of Atlas Construction Group Pty Ltd (in liq); Fitz Jersey Pty Ltd v Gleeson as Liquidator of Atlas Construction Group..

[2022] NSWSC 772

Supreme Court

New South Wales

Medium Neutral Citation:

Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (in liq); Yazbek v Gleeson as Liquidator of Atlas Construction Group Pty Ltd (in liq); Fitz Jersey Pty Ltd v Gleeson as Liquidator of Atlas Construction Group Pty Ltd (in liq) [2022] NSWSC 772

Hearing dates:

On the papers; submissions received 23 May and 6 June 2022

Decision date:

10 June 2022

Jurisdiction:

Equity - Technology and Construction List

Before:

Stevenson J

Decision:

Defendants to pay 80% of Fitz Jersey’s costs of the 2017 Proceedings on the ordinary basis up to and including 15 December 2020 and on an indemnity basis from 16 December 2020.

Fitz Jersey to pay 80% of the plaintiffs’ costs in the 2019 Proceedings.

Fitz Jersey to pay the second and third defendants’ costs of the 2020 Proceedings.

Catchwords:

COSTS – three proceedings heard together – plaintiff in main proceedings substantially successful in relation to all claims other than its building contract claims – plaintiff had limited success in relation to building contract claims – offers of compromise – whether the offers complied with the Uniform Civil Procedure Rules 2005 (NSW) – whether the offers involved substantial compromise

Legislation Cited:

Building and Construction Industry Security of Payment Act 1999 (NSW)

Conveyancing Act 1919 (NSW)

Corporations Act 2001 (Cth)

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (in liq); Yazbek v Gleeson as Liquidator of Atlas Construction Group Pty Ltd (in liq); Fitz Jersey Pty Ltd v Gleeson as Liquidator of Atlas Construction Group Pty Ltd (in liq) [2021] NSWSC 1692

Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (in liq); Yazbek v Gleeson as Liquidator of Atlas Construction Group Pty Ltd (in liq); Fitz Jersey Pty Ltd v Gleeson as Liquidator of Atlas Construction Group Pty Ltd (in liq) [2022] NSWSC 394

Jones v Bradley (No 2) [2003] NSWCA 258

Miwa v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344

Scripture Union v Prime Industrial Pty Ltd [2006] NSWSC 38

Category:

Costs

Parties:

In proceedings 2017/11963:
Fitz Jersey Pty Ltd (Plaintiff)
Atlas Construction Group Pty Ltd (in liq) (First Defendant)
Robert Yazbek (Second Defendant)
Kebzay Pty Ltd (Third Defendant)
Botany Road Project Pty Ltd (Fourth Defendant)
Scott Sweeney (Fifth Defendant)
Sweenham Pty Ltd (Sixth Defendant)
Annette Yazbek (Seventh Defendant)
Kebzay Custodian No. 2 Pty Ltd (Eighth Defendant)
Castlefield Corner Pty Ltd (Ninth Defendant)
620 Botany Road Pty Ltd (Tenth Defendant)

In proceedings 2019/305131:
Robert Yazbek (First Plaintiff)
Scott Sweeney (Second Plaintiff)
Kebzay Pty Ltd (Third Plaintiff)
Sweenham Pty Ltd (Fourth Plaintiff)
Bruce Gleeson t/as Liquidator of Atlas Construction Group Pty Ltd (in liq) (First Defendant)
Fitz Jersey Pty Ltd (Second Defendant)

In proceedings 2020/87065:
Fitz Jersey Pty Ltd C/- Economos Group Pty Ltd (Plaintiff)
Bruce Gleeson t/as Liquidator of Atlas Construction Group Pty Ltd (in liq) (First Defendant)
Robert Yazbek (Second Defendant)
Scott Sweeney (Third Defendant)

Representation:

Counsel:
L Shipway with B Mostafa (Plaintiff)
G A Sirtes SC with A R R Vincent and J Adamopoulos (Second to Tenth Defendants)

Solicitors:
Eakin McCaffery Cox (Plaintiff)
Matthews Folbigg (First Defendant)
Madison Marcus (Second to Tenth Defendants)

File Number(s):

2017/11963; 2019/305131 and 2020/87065

Judgment

1. I delivered my principal judgment in this matter on 22 December 2021. ^[1]

   1. Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (in liq); Yazbek v Gleeson as Liquidator of Atlas Construction Group Pty Ltd (in liq); Fitz Jersey Pty Ltd v Gleeson as Liquidator of Atlas Construction Group Pty Ltd (in liq) [2021] NSWSC 1692.

2. I will use the same abbreviations here as in that judgment.

3. I delivered a further judgment on 5 April 2022 dealing with the orders that should be made to give effect to my reasons of 22 December 2021. [2]

   2. Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (in liq); Yazbek v Gleeson as Liquidator of Atlas Construction Group Pty Ltd (in liq); Fitz Jersey Pty Ltd v Gleeson as Liquidator of Atlas Construction Group Pty Ltd (in liq) [2022] NSWSC 394.

4. I entered final orders in the 2017 Proceedings, the 2019 Proceedings and the 2020 Proceedings on 6 May 2022.

5. I have now received submissions as to costs.

6. As I set out in the 22 December 2021 judgment, I heard the 2017 Proceedings, the 2019 Proceedings and the 2020 Proceedings at the same time, with evidence in each proceeding being evidence in the other.

7. The parties’ positions were articulated in pleadings in the 2017 Proceedings. There were no pleadings in the 2019 Proceedings or the 2020 Proceedings, those proceedings being appeals from the Liquidator’s admission of Fitz Jersey’s proof of debt in the winding up of Atlas. The only document filed in the 2019 and 2020 Proceedings was a Summons.

8. Fitz Jersey’s Building Contract Claims were brought in the 2017 Proceedings but, in substance, were determinative of the 2019 Proceedings and the 2020 Proceedings. [3]

   3. See, [26] and [27] in the 22 December 2021 judgment. I there incorrectly stated that the Building Contract Claims were made in the 2019 and 2020 Proceedings.

9. Fitz Jersey achieved only moderate success in relation to its Building Contract Claims. It failed to establish the 2013 Agreement and, having originally claimed a far greater sum (the Directors contended it was in the order of $39.6 million), established an entitlement against Atlas of some $2.155 million.

10. However, in relation to the Dividends Claim, the claim under s 37A of the Conveyancing Act 1919 (NSW), the claim for breach of directors’ duties, the claim alleging voidable transactions under the Corporations Act 2001 (Cth), the tracing claim and the claims concerning the Shareholders’ Loans, Fitz Jersey was successful and obtained judgment against the Directors and the other defendants.

The 2017 Proceedings

11. Fitz Jersey accepts that the success it achieved in the 2017 Proceedings was principally in relation to the claims assigned to it by the Liquidators of Atlas which were only introduced into the 2017 Proceedings on 23 April 2020.

12. Accordingly, Fitz Jersey accepts that any costs payable to it in respect of the 2017 Proceedings should not include costs incurred prior to 23 April 2020, other than the costs of, or incidental to, the Third Further Amended Summons and Second Further Amended Technology & Construction List Statement filed on 23 April 2020.

The 15 December 2020 offers

13. On 15 December 2020 Fitz Jersey made an offer to each of the defendants purporting to be an offer of compromise under Uniform Civil Procedure Rules 2005 (NSW) r 20.26.

14. Each offer was in the same form, although for different amounts, depending on the defendant to whom it was directed.

15. Taking the offer made to Mr Yazbek as an example, the operative terms of the letter were as follows:

“Fitz Jersey Pty Limited v. Atlas Construction Group Pty Limited (in liq) & Ors: 2017/0001963 and related proceedings – Your clients: Robert Yazbek et al

We refer to the above-named proceedings. The purpose of this letter is to make an offer of compromise under r 20.26 of the [UCPR] on behalf of our client to your client, Mr Yazbek, the second defendant.

The terms of the offer are as follows:

(a) the offer relates to the whole of our client’s claim against Mr Yazbek in the proceeding;

(b) our client offers to compromise its claim on the basis that judgment be entered in our client’s favour against Mr Yazbek in the amount of $7,000,000;

(c) the offer is open for acceptance for 28 days from the date of this letter.

We note that, pursuant to r 42.13A(2), an effect of Mr Yazbek accepting this offer will be that our client is entitled to an order against Mr Yazbek for our client’s costs in respect of our client’s claim, assessed on the ordinary basis up to the time when the offer was made.”

16. The Directors submitted that these offers did not comply with UCPR r 20.26 because “each offer related to all three proceedings”. The Directors pointed to the words “and related proceedings” in the heading to the letter and to the words in the opening sentence “we refer to the above-named proceedings”.

17. I do not think this is a fair way to read the letters.

18. Taking the letter to Mr Yazbek as an example, the heading of the letter refers in terms to the 2017 Proceedings. It is true that the heading continues with the words “and related proceedings”. But the letter goes on to state that the “offer relates to the whole of our client’s claim against Mr Yazbek in the proceeding”. The “proceeding” there referred to must be the proceeding particularised in the heading: the 2017 Proceedings.

19. It is thus clear from the terms of the letter that it is addressed to Mr Yazbek in his capacity as a defendant in the 2017 Proceedings. The same is true of the letters addressed to the other defendants.

20. Next it was submitted that the aggregate of the various offers was some $40 million being “over four times the combined quantum of the dividend and value of the right-offs”.

21. But on no reasonable reading of the letters could the defendants have concluded that Fitz Jersey was seeking that total sum from the defendants.

22. As Fitz Jersey submitted in reply, its claim against the defendants was for the amount of the Dividends, plus damages associated with the Shareholder Loan write-offs. Fitz Jersey’s recoveries could never exceed those amounts, plus interest; as the defendants must have appreciated.

23. As Fitz Jersey submitted:

“If Mr and Mrs Yazbek accepted the offers made to them, the status of the remaining offers would remain unchanged. Each other Defendant could either accept or reject the offer made to it. If any of the other Defendants rejected the offer made to it, Fitz Jersey would be entitled to pursue that Defendant to judgment for the full amount claimed against it (unless Fitz Jersey had made a recovery against Mr or Mrs Yazbek in the meantime, in which case this could have the effect of reducing the amount claimable against the other Defendants). If any of the other Defendants accepted the offer made to it, then consent orders would be entered against that Defendant accordingly. But, … this would not entitle Fitz Jersey to recover a ‘surplus’.”

24. The defendants also submitted that the offers did not constitute a genuine compromise and “were made only to trigger r 42.14” and that the Court should “order ‘otherwise’” under UCPR r 42.14(2).

25. A table, setting out the amounts offered by Fitz Jersey, compared to the result achieved by Fitz Jersey against each defendant (with interest calculated to the date of the offers, 15 December 2020), follows:

Defendant	Offer amount	Amount obtained (with interest up to 15 Dec 2020)	Amount of discount	Percentage discount
Mr Yazbek	$7,000,000	$8,753,462	$1,753,462	20%
Kebzay	$6,103,403	$6,739,503	$636,100	9.4%
Botany Road Project	$6,100,000	$7,784,568	$1,684,568	21.6%
Mr Sweeney	$7,000,000	$8,753,462	$1,753,462	20%
Sweenham	$678,156	$820,813	$142,417	17.4%
Mrs Yazbek	$2,460,510	$3,881,927	$1,421,417	36.7%
Kebzay Custodian No 2	$4,838,898	$5,775,978	$937,080	16.2%
Castlefield	$519,346	$651,857	$132,511	20.3%
620 Botany Road	$4,864,998	$6,521,256	$1,656,258	25.4%

26. The table demonstrates the amounts offered did involve significant compromise by Fitz Jersey.

27. It is true that, ultimately, judgment was entered against Kebzay in favour of Atlas, rather than Fitz Jersey.

28. UCPR r 42.14 applies:

“… if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer.”

29. Here, the offer was made by Fitz Jersey. Fitz Jersey has not itself obtained an order or judgment no less favourable than the terms of the offer. But has obtained an order in favour of Atlas.

30. As I set out in my 5 April 2022 judgment,[4] by reason of the terms of the Deed of Assignment between the Liquidator and Fitz Jersey, regardless of whether recovery is made by Atlas or Fitz Jersey, the monies recovered are to be used essentially in the same way. I think Fitz Jersey was correct to submit that the order obtained by Fitz Jersey against Kebzay in favour of Atlas was just as favourable to Fitz Jersey as if Kebzay had been ordered to pay the relevant sum to Fitz Jersey instead of Atlas. Thus, in substance, Fitz Jersey has obtained an order or judgment, albeit not in its favour, no less favourable than the terms of the offer.

    4. At [36].

31. The 15 December 2020 letters were, in the alternative, expressed to be Calderbank offers.

32. It is common ground that the question that arises is whether it was unreasonable for the defendants not to accept the offers. [5]

    5. For example, Miwa v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [10]-[16] (Basten JA; Campbell and McColl JJA agreeing).

33. The table above demonstrates that the offers were genuine compromises.

34. The letters also outlined, albeit briefly, the basis on which Fitz Jersey predicted it would succeed.

35. Thus, the letter to Mr Yazbek stated:

“… it is difficult to see how Mr Yazbek proposes to escape findings of breach of his duties to [Atlas] in circumstances where he knew, or should have known, at the time of the dividend payments, that the dividends were being funded by money that have been obtained under an interim, non-finally binding, determination under the Building and Construction Industry Security of Payment Act 1999 (NSW). In the circumstances of the case, as set out in our client’s list statement, it was a plain breach of Mr Yazbek’s duties to cause or permit the dividends to be paid. Similarly, it is an obvious case of breach of duty for Mr Yazbek to simply allow $455,085 of funds owed to [Atlas] to be written off with no corresponding benefit to [Atlas]”.

36. The letter to 620 Botany Road stated:

“When Mr Yazbek caused the dividend to be paid to Kebzay Pty Limited, he knew, or should have known, that the dividend was being funded by money obtained under an interim, non-finally binding, determination under the Building and Construction Industry Security of Payment Act1999 (NSW). In the circumstances of the case, as set out in our client list statement, it was a plain breach of Mr Yazbek’s duties to cause or permit the dividend to be paid. [620 Botany Road] is fixed with the relevant knowledge of breach of fiduciary duty because Mr Yazbek was its sole director. We also think it relatively plain that, given the quantum of funds involved, Mr Yazbek (and [620 Botany Road]) will be found to have had the requisite degree of knowledge that [620 Botany Road] was receiving funds that were sourced from the dividend payment. The payment was also a avoidable transaction because, given the matters noted above and in more detail in our client’s list statement, the payment contravened s 254T of the Corporations Act 2001 (Cth)”.

37. Letters to the same effect, with details changed appropriately, were sent to each of the other defendants.

38. I have, largely, made findings to the same effect as the contentions in these letters. As Fitz Jersey points out, I have found that the Directors paid the dividends with an intention to defraud Fitz Jersey. The Directors must have known their own states of mind and, notwithstanding the complexity of many of the issues in the proceedings, must have appreciated that they had significant difficulty in this litigation.

39. On behalf of the defendants, it was submitted that the offers were made “less than two weeks before Christmas” and at a time when their attention was directed to preparation of the evidence. Thus, it was submitted that:

“… the simple fact was that the defendants did not have sufficient time to review and consider the offers, especially given the convoluted nature in which they will put. The defendant had to prioritise the evidence”.

40. There are a number of difficulties with that submission. The first is that it is not supported by any evidence to which my attention has been directed. The second is that if the defendants’ position was as set out in that submission, there is no reason why they could not have sought further time to consider the offers. [6] They did not do so.

    6. For example, Jones v Bradley (No 2) [2003] NSWCA 258 at [19] (Meagher, Beazley and Santow JJA).

41. I am persuaded it was unreasonable of the defendants not to accept the offers.

42. Overall, my conclusion is that offers made by Fitz Jersey on 15 December 2020 entitle it to indemnity costs from 16 December 2020.

The Building Contract Claims

43. As I have set out above, the Building Contract Claims were a discrete part of Fitz Jersey’s claim. They were, however, a necessary integer of a number of claims made by Fitz Jersey against the Directors, including that Fitz Jersey was a creditor of Atlas at the time that the Dividend Payments were made.

44. The outcome of these claims had obvious implications for the 2019 Proceedings and the 2020 Proceedings. Fitz Jersey achieved only partial success in relation to these claims and, in particular, failed to establish the existence of the 2013 Agreement; the determination of which occupied a considerable amount of hearing time and a considerable portion of the 22 December 2021 judgment.

45. Fitz Jersey’s senior counsel emphasised the significance of the 2013 Agreement during his opening as follows:

“MR CHRISTIE: Yes. We say they were resolved by [the 2013 Agreement]. Our friends say largely, they weren’t or, alternatively, they weren’t at all. So it’s really at my learned friend’s initiative that this is a four-week building case, because on our case, with great respect, it shouldn’t be a four-week building case based on the agreement reached in 2013.”

46. I emphasised the significance of the alleged 2013 Agreement in relation to Fitz Jersey’s Dividends Claim in the 22 December 2021 judgment as follows:

“[29] At the heart of the Dividends Claim is the very serious proposition that by reason of an agreement (the ‘2013 Agreement’) reached between Mr Wong, Mr Yazbek, and Mr Sweeney at a meeting in February 2013 (the ‘February 2013 Meeting’), Atlas had already been paid for the Payment Claim Items and thus that Mr Yazbek and Mr Sweeney ‘did not hold a genuine belief that Atlas was entitled’ to make those claims in the Payment Claim.

[30] Fitz Jersey’s case is that, accordingly, Mr Yazbek and Mr Sweeney must have known, when they resolved to declare the Dividends, that by reason of s 32 of the SOPA, Fitz Jersey would ultimately be entitled to recover from Atlas the amount of the Adjudication Determination, that Fitz Jersey was thus a ‘creditor’ of Atlas for the purposes of s 254T of the Corporations Act and that Atlas for that reason was not entitled to pay the Dividends. There is more to Fitz Jersey’s Dividends Claim than this, but this suffices for the moment and for the purpose of explaining how the Dividends Claim relates to the Building Contract Claims.”

47. Leaving aside the 2013 Agreement, Fitz Jersey was unsuccessful in relation to a number of other aspects of the Building Contract Claims, including claims premised on the allegation that work on Separable Portion 1 commenced at the same time as Separable Portion 2.

48. On behalf of Fitz Jersey it was submitted that the Directors’ success on these issues was “catered for” by an appropriate costs order in the 2019 Proceedings. However, as I have said, the Building Contract Claims were made in the 2017 Proceedings, and not in the 2019 Proceedings.

49. I am persuaded that Fitz Jersey’s lack of success in relation to the Building Contract Claims should be reflected in the overall costs order it obtains against the defendant.

50. An evaluative decision is called for which is not susceptible to precise mathematical analysis.

47. Overall, to reflect Fitz Jersey’s success in relation to the Dividends Claim and Shareholders’ Loans claims as well as its lack of success in relation to the Building Contract Claims, I have concluded that the appropriate order is that the defendants pay 80% of Fitz Jersey’s costs of the 2017 Proceedings.

Fitz Jersey’s rights under the Deed of Assignment from the Liquidator

52. The Directors submitted that Fitz Jersey’s entitlements under the Deed of Assignment with the Liquidator was somehow relevant to the costs order that I should make in the 2017 Proceedings because Fitz Jersey “will likely recover all of its legal fees under the Deed of Assignment”.

53. I cannot see why Fitz Jersey can be deprived of its costs on the basis that the Deed of Assignment provides such an indemnity.

Apportionment

54. The defendants submitted that any order for costs should be “apportioned between the Defendants based on the proportion of the claim that was brought against each of them in the context of the proceedings as a whole”.

55. The defendants did not develop that submission. The general rule is that if a plaintiff succeeds against a number of defendants, an order that costs follow the event means that the plaintiff has its costs against all defendants. [7] Here the defendants did not seek to conduct separate or distinct defences. As I observed in the 22 December 2021 judgment, “although there are nine active defendants to Fitz Jersey’s claims, their defence was in substance advanced by Mr Yazbek and Mr Sweeney”. [8]

    7. For example, Scripture Union v Prime Industrial Pty Ltd [2006] NSWSC 38 at [28] (McDougall J).

    8. At [47].

56. Thus, the defendants acted as a whole and advanced their unsuccessful defences together through the Directors. In these circumstances, I see no basis upon which to make the apportionment sought.

Conclusion

57. For those reasons I make the following orders in the 2017 Proceedings:

1. The Second to Tenth Defendants are to pay 80% of the Plaintiffs’ costs of the proceedings on the ordinary basis up to and including 15 December 2020, and on an indemnity basis from 16 December 2020.

2. The costs payable under the preceding order are not to include any costs prior to 23 April 2020, other than costs of or incidental to the Third Further Amended Summons and the Second Further Amended Technology & Construction List Statement filed on 23 April 2020.

The 2019 Proceedings

58. These proceedings comprise Mr Yazbek’s and Mr Sweeney’s appeal against the admission by the Liquidator of Fitz Jersey’s proof of debt in the winding up of Atlas.

59. The Liquidator admitted Fitz Jersey’s claim for some $12.5 million.

60. I have ordered that Fitz Jersey’s Notice of Admission of Proof of Debt and Notice of Rejection of Formal Proof of Debt or Claim be set aside and that Fitz Jersey’s Formal Proof of Debt be admitted in the sum of some $2.1 million.

61. In those circumstances, Fitz Jersey proposed that I should order that it pay 60% of the plaintiffs’ costs of the 2019 Proceedings.

62. However, as Fitz Jersey accepted, “on a monetary basis” the Directors and Shareholders prevailed for about 80% for the amount of the disputed proof of debt, while Fitz Jersey prevailed for about 20%”.

63. In those circumstances, I make the following order in the 2019 Proceedings:

1. The Second Defendant is to pay 80% of the Plaintiffs’ costs of the proceedings.

The 2020 Proceedings

64. Fitz Jersey accepts that in these proceedings I should order:

1. The Plaintiff is to pay the Second and Third Defendants’ costs of the proceedings.

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Endnotes

Decision last updated: 10 June 2022