Guizhou v Livestock Air (No 2)
[2019] VCC 973
•28 June 2019
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI- 17-01052
| GUIZHOU PROVINCE WUCHUAN COUNTY SHENJIMEIYANGYANG AGRICULTURAL TECHNOLOGY CO. LTD | Plaintiff |
| v | |
| LIVESTOCK AIR CORPORATION PTY LTD (ACN 007321 039) | First Defendant |
| and | |
| KWOK FU TSE | Second Defendant |
| and | |
| WILLIAM GEOFFREY PATTEN | Third Defendant |
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JUDGE: | HER HONOUR JUDGE MARKS | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 22 May 2019 | |
DATE OF JUDGMENT: | 28 June 2019 | |
CASE MAY BE CITED AS: | Guizhou v Livestock Air (No 2) | |
MEDIUM NEUTRAL CITATION: | [2019] VCC 973 | |
REASONS FOR RULING
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Catchwords: PRACTICE AND PROCEDURE – COSTS – Non- party costs application in respect of costs of counterclaim brought against sole director of defendant company - turns on own facts – application dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Mr K F Jones | Thomas Victoria Lawyers |
| For the defendant | Dr M Barrett | Karavias & Associates |
HER HONOUR:
The issue is whether I should make a costs order against the sole director and shareholder of an insolvent company which was a party to this proceeding.
Normally costs orders are made against parties to the litigation, but in extraordinary circumstances they can be made against a non-party.
I am not satisfied that there are extraordinary circumstances here, to justify the order sought.
On 13 February 2019, I delivered judgment in the substantive proceeding: see Guizhou v Livestock Air [2019] VCC 105 (the principal judgment). I dismissed the plaintiff’s claim, as I was not satisfied that the alleged misleading and deceptive conduct had occurred.
I will use the same names for the parties in relation to this costs application as I used in the principal judgment.
Guizhou initiated this proceeding against LAC and Eddy on 16 April 2017. LAC counterclaimed against it.
The background to the claims brought was that Guizhou had signed a contract with LAC to export over 1,500 sheep of various breeds from Australia to China, but never supplied any sheep. Guizhou sued LAC for breach of contract, seeking the return of the money it paid, and profits under the contract which did not proceed. It sued Eddy for two representations it claimed he had made which it said led it to make the payments, alleging these constituted misleading and deceptive conduct.
Later Guizhou joined Bill to the proceeding as third defendant, alleging that Bill had also made the two representations. Bill was the sole director and shareholder of LAC.
Various interlocutory steps occurred. Just before the trial was initially listed to begin, in June 2018, LAC was put into liquidation, and the trial was adjourned to commence at a later time.
When the case was finally heard – over the course of nine days in October 2018 - it proceeded only against Bill and Eddy. As LAC was in liquidation, neither the claim against it, nor its counterclaim, proceeded.
A week into the trial, on 15 October 2018, Guizhou issued the application the subject of these reasons, seeking an order that Bill pay its costs of the counterclaim LAC had instituted against it.
This ruling deals with that application for costs. These reasons have taken some time due to the hearing of the application being adjourned to a date following the delivery of both the judgment and orders in the substantive proceeding; the parties then filing written submissions; and the hearing of the application finally occurring on 22 May 2019.
By its summons, Guizhou seeks costs on an indemnity basis against Bill. It relies on affidavits of Daniel Isakow filed on 4 June 2018 and Chong Hao Toh filed 15 October 2018 and 5 November 2018. Bill relies on affidavits of Danny Karavias filed on 9 September 2017, 6 December 2017 and 6 June 2018.
Counsel for Guizhou conceded that in order for me to find extraordinary circumstances in this case, giving rise to the costs order against a non-party it seeks, I must be satisfied that LAC (and its director Bill) never intended to prosecute the counterclaim. In other words, that the bringing of the counterclaim was a sham; that it had no merit; and that it was brought for tactical reasons and to benefit Bill (as opposed to LAC).
I am not satisfied that LAC never intended to prosecute the counterclaim.
The Court has general power to award costs against the real promoter of litigation – the real party to it: Knight v FP Special Assets (1992) 174 CLR 178 at 188 per Mason CH and Deane J, at 202 per Dawson J.
Guizhou relies on a number of matters to submit that Bill was the real party to this litigation as LAC’s sole director, shareholder and authorised officer; and that LAC never intended to prosecute the counterclaim and that it had no merit.
In oral submissions Counsel for Guizhou made it clear Guizhou principally relies on the failure of LAC to comply with court orders about giving discovery and further and better particulars of the counterclaim. It says that this supports an inference that LAC (as directed by Bill) never intended to prosecute of the counterclaim; that the counterclaim was devoid of merit; that the necessary documents which would have supported the counterclaim did not exist, and that the particulars which would have supported the counterclaim could not be given.
The notice for discovery and request for further and better particulars were all made by Guizhou in a 9 day period between 26 April 2018 and 4 May 2018. This was about a year after the counterclaim was initiated on 1 May 2018. Less than a month later, on 1 June 2018, LAC went into liquidation.
It is often the case that parties give inadequate discovery or inadequate particulars before trial. Sometimes further discovery or better pleadings are given in the course of a trial. This failure to provide documents or particulars before LAC went into liquidation does not of itself establish that there were not documents underlying the claims in the counterclaim, or the particulars could not be given.
As there has not been a hearing of the counterclaim I cannot assess its prospects of success: Gdanski v Palms Court Management Pty Ltd [2017] VSCA 348 [110].
However, on its face the counterclaim raises matters which I cannot infer were devoid of prospects. The counterclaim alleges that Guizhou’s failure to provide an appropriate letter of credit was a breach of the agreement with LAC, which caused LAC to suffer loss.
The counterclaim alleges that Guizhou breached its contract with LAC by failing to provide LAC with an adequate letter of credit which complied with contractual obligations. The complexity of the parties’ understandings of, and the background to what occurred with, letters of credit is detailed in the principal judgment. I cannot be satisfied, without evidence, that there was no merit to this claim, or that LAC (and Bill) thought there was no merit to it when LAC initiated it.
The counterclaim alleged over $1 million in damages. Details of those damages are set out in a table Mr Toh has helpfully set out in his affidavit. The table lists all the items claimed as particulars of loss. It then sets out details of invoices discovered in relation to the claims, and of any proof of payment discovered. It sets out instances where invoices are discovered but there is no proof of payment. And some instances with claims but no invoices or payment details.
I do not accept Guizhou’s proposition that because there had not been discovery of invoices or proof of payment in relation to all the claims set out in the counterclaim by the time LAC went into liquidation, that means there was no proof of damages for the counterclaim as a whole and that I should infer those claims were a sham.
There is no evidence as to what the background was for the failure to give further discovery. Guizhou refers to the fact that in LAC’s financial statement documents for 2016 there is reference to the liquidator not receiving all the documents he requested from Bill. The fact that Bill did not comply with the liquidator’s requests for documents does not assist me with why further discovery was not given in this case before LAC went into liquidation.
The Karavias affidavit of 6 June 2018, sets out detail of the significant work involved in parallel arbitration proceedings that Guizhou instituted against LAC whilst this proceedings was on foot. According to Counsel for Bill, those arbitration proceedings required a diversion of resources and work, in order to defend them. .
Most significantly, however, there were a number of aspects of the counterclaim where there was discovery given of invoices and payment related to amounts claimed. These are also listed in the table Mr Toh has provided.
An amount of over $800,000 was sought for loss of profits. That no detailed particulars were given of that does not mean that it could not have been done further down the track. Claims for loss of profit require careful analysis. They are often refined closer to trial, or even during trial. I am not satisfied by the fact that no particulars had yet been given, that there was no real potential loss of profit claim.
Some documents were discovered by way of third party discovery by subpoena issued by Guizhou. Guizhou says these show that many of the expenses claimed by LAC never actually arose, because LAC had not paid many of the expenses claimed as particulars of loss. Guizhou submits that the Court should infer that Bill knew this at the time of filing the counterclaim on 1 May 2017.
However, LAC went into liquidation. It might have paid those expenses before trial; or it might have amended its claim to allege that it had an obligation to pay those amounts, and to seek that as part of its claim; or it might have reduced its claim by those amounts. Had it reduced its claim by those amounts, it would still have been left with a significant counterclaim which I am not satisfied lacked merit, or that LAC knew lacked merit at the time it was instituted
I also reject the submission that I should be satisfied that because LAC went into liquidation that in fact never had the funds to pursue its counterclaim. There is no evidence of that; and I accept Bill’s submission that there were significant costs caused by Guizhou running parallel arbitration proceedings together with these court proceedings.
LAC was not used simply as a vehicle by Bill to set up litigation he would benefit from, as sometimes occurs where non-party costs order are made. LAC was the trading company that Guizhou contracted and dealt with. Terms dealing with insolvency were included in the terms of their commercial relationship. It was sued in this proceeding in any event. I am not satisfied the counterclaim was purely brought for Bill’s benefit.
Guizhou also refers to the financial statements for LAC for the year ending 30 June 2016 as in some way establishing that LAC and Bill were not serious about the counterclaim.
The financial statements were signed by Bill on 24 May 2017 – a few weeks after the counterclaim was instituted - in his capacity as the sole director of LAC. They included the statement:-
Proceedings on behalf of company No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceeding to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of the proceeding. The company was not a party to any such proceeding during the year.
The financial statements also state:
After Balance Date Events
No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the company, the results of these operations, or the state of affairs of the company in subsequent financial years.
Guizhou argues that the second sentence in the paragraph headed ‘proceedings on behalf of company’ is incorrect. It states ‘The company was not a party to any such proceeding during the year’. Guizhou argues that this carries the meaning that ‘the company was not a party to any proceeding during the year’.
It argues that this shows that LAC, and Bill as the director of LAC, were not taking the counterclaim seriously because the counterclaim is ‘a proceeding’ and it was issued on 1 May 2017.
I reject the proposition that the sentence carries the meaning Guizhou submits. The sentence appears immediately after the first sentence which deals with proceedings where persons have applied for the leave of the court to bring proceedings on behalf of the company, or to intervene in any proceeding to which the company is a party, for the purpose of taking responsibility on behalf of the company for all or any part of the proceeding. The word ‘such’ before the word ‘proceeding’ cannot simply be ignored, which Guizhou’s construction requires.
And even if Guizhou’s construction was right, I do not accept that I can infer from the fact that statement is included, as a boilerplate provision, at one part of a 13 page report, that Bill turned his mind, in signing the report, to whether or not LAC was party to any proceeding before the Court either at 30 June 2016 or 24 May 2017, and decided to say it was not because he was not taking the counterclaim seriously.
I also take into account that Guizhou could have sought security for costs against LAC, and could have notified Bill that it would seek costs of the counterclaim against him. Neither of these things occurred. Instead, the counterclaim proceeded in the absence of those matters, and costs orders in the proceeding were made in favour of LAC against Guizhou along the way. Such costs orders could not be set off against any non-party costs order, were one made against Bill (whereas orders for and against LAC could be set off).
Finally, I note that under Section 28(2) of the Civil Procedure Act I may take into account any contravention of the overarching obligations in exercising my discretion as to costs. Section 29 sets out orders I can make, if I am satisfied on the balance of probabilities a person has contravened any overarching obligation and it is in the interest of justice to do so; but I am not limited by the orders set out in s29. I am not satisfied that any of the contraventions relied on are of a magnitude that I would exercise my discretion to make an order that a non-party pay costs.
I will dismiss the application.
I direct the parties to consider the costs orders that should be made as a result of these reasons and provide to me consent orders, or submissions as to the appropriate costs orders, by 4 pm on 12 July 2019.
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Certificate
I certify that these 8 pages are a true copy of the reasons for ruling of her Honour Judge Marks, delivered on 28 June 2019.
Dated: 28 June 2019.
Zeinab Ali
Associate to Her Honour Judge Marks
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