In the Matter of Infant Nutrition Company of Australia Pty Ltd (Administrators Appointed)
[2019] VSC 595
•13 September 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2019 00978
| B NICHOLS HOLDINGS PTY LTD (ACN 625 929 302) AND ANOR (ACCORDING TO THE ATTACHED SCHEDULE) | Plaintiffs |
| v | |
| THE INFANT NUTRITION COMPANY OF AUSTRALIA PTY LTD (ADMINISTRATORS APPOINTED)(ACN 610 187 196) AND ORS (ACCORDING TO THE ATTACHED SCHEDULE) | Defendants |
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JUDGE: | KENNEDY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 30 August 2019 |
DATE OF JUDGMENT: | 13 September 2019 |
CASE MAY BE CITED AS: | In the Matter of Infant Nutrition Company of Australia Pty Ltd (Administrators Appointed) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 595 |
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CORPORATIONS – Voluntary administration – Deed of company arrangement – Application to amend originating process and points of claim to abandon previous claims –Whether delay explicable – Whether proceeding futile – Amendment allowed – Sections 175, 445D, 445H of the Corporations Act 2001 (Cth).
PRACTICE AND PROCEDURE – Costs – Where costs awarded in respect of abandoned claims – Orders for costs to be taxed immediately made where discrete claims – Rules 63.15, 63.20.1 of the Supreme Court (General Civil Procedure) Rules 2015.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr A Herskope with Mr B Fry | Kalus Kenny Intelex |
| For the First and Second Defendants | Mr S Rosewarne | SBA Law |
| For the Third Defendant | Ms M Jeremiah (solicitor) | Maddocks |
HER HONOUR:
This is an application to file and serve a Second Further Amended Originating Process (SFAOP), together with Further Amended Points of Claim, for orders that a deed of company arrangement (DOCA) be terminated or declared void, as well as to add CBS International Trading Co Pty Ltd (CBS) (the transferee of shares issued and allotted pursuant to the DOCA) as party to the proceeding.
The issue before the Court is whether the application for leave to amend ought to be granted and, secondly, what, if any, costs orders ought to be made.
Background
The first defendant, the Infant Nutrition Company of Australia Pty Ltd (Administrators Appointed) (TINCA), Oz Dairy Leasing Pty Ltd (Subject to Deed of Company Arrangement) (ODL) and Aussie Milk Products Pty Ltd (In Liquidation) (AMP) were companies operating in a corporate group (collectively, the Group). The Group operated an infant formula manufacturing business such that ODL held the relevant leases, AMP conducted the manufacturing, and TINCA held the relevant licences.
Mr Stephen O’Neill provided the initial capital for the Group’s operation through the second plaintiff, Stemano Holdings Pty Ltd (Stemano). Mr O’Neill is a director and shareholder of both Aus Dairy Holdings Pty Ltd (formerly known as B Nichols Holdings Pty Ltd) (ADH),[1] the first plaintiff, and Stemano.
[1]ASIC records in exhibit MR-1 to the Affidavit of Martin Rosenblatt sworn 8 August 2019 [2].
ADH formerly held 80% of the shares in TINCA, with the other 20% held by the sole director and the third defendant, Mr Brendan Nicholls. The shareholding in AMP and ODL is also held in the same proportion. Stemano is a creditor of TINCA.
During the period from mid-2018 to early 2019, ADH and Mr Nicholls were conducting negotiations with CBS for the sale of the Group. In the course of those negotiations, Mr O’Neill and Mr Nicholls appear to have fallen into dispute.
Administration
On 30 January 2019, Stemano, in its capacity as a secured creditor of ODL and AMP, appointed administrators, Mr Steven Naidenov and Mr David Iannuzi, to ODL and AMP.
On 15 February 2019, Mr Nicholls, in his capacity as the sole director of TINCA, caused administrators to be appointed to TINCA.
On 8 March 2019 this proceeding was commenced. At that time, the original Originating Process sought leave to proceed against TINCA (paragraph 1). Further, a declaration that the appointment of the second defendant, Mr Laurence Fitzgerald, as an administrator was not valid (paragraph 2). It also sought to terminate the administration (paragraph 3) as well as to appoint Mr Naidenov and Mr Iannuzi as substitute joint and several administrators of TINCA (paragraph 4).
Mr Michael Humphris, was subsequently added as a second defendant by Amended Originating Process of 25 March 2019 (both Mr Fitzgerald and Mr Humphris being ‘the Administrators’).
On 22 March 2019, the plaintiffs then sought urgent relief to restrain the second meeting of creditors under s 439A of the Corporations Act2001 (the Act) to vote on a proposal for a DOCA (Proposal) as well as an order for an expedited hearing of the proceeding.
The Proposal encompassed a number of components, however, broadly, it included the following:
(a) CBS would convert its claim against the company of $350,000 into equity via 35 million fully paid ordinary shares in TINCA at an effective price of $0.01 per share;
(b) the debt conversion and issue of the conversion shares would be subject to and conditional upon the satisfaction of a number of conditions prior to the sunset date (of 30 April 2019[2]). Those conditions included:
•written consent of the members of TINCA to the transfer of their shares or, where consent was not given, leave of the court being granted;
•CBS obtaining written confirmation from relevant authorities that TINCA’s intangible assets (including their licences) would remain valid; and
•completion of CBS’ acquisition of assets of AMP and ODL, including the assignment and transfer of various leases.
[2]This date appears to have been extended subsequently up to 1 August 2019.
The Proposal also contemplated that there would be a deed advance from CBS of a non-refundable deposit of $150,000 and a further amount of $1,070,000.
At the time, the Administrators’ Report pursuant to s 75-225 of the Insolvency Practice Rules (Corporations) 2016 (the Report) suggested that there would be a full return to creditors in the best case scenario on the proposed DOCA, or a 69 cents in the dollar worst case scenario. Further, that there would be a nil return on a liquidation and ‘to be confirmed return’ in a best case scenario.
There was also reference to the fact that a sale of the licences would be pursued in a liquidation scenario but that ‘the estimated values have been withheld as these are commercially sensitive and may prevent a fair and reasonable price being achieved if disclosed.’
The plaintiffs’ application for urgent relief was dismissed on 25 March 2019, with the defendants’ costs reserved.
The matter was then listed for further directions on 12 April 2019 in circumstances where an application for an expedited trial had been foreshadowed.
On 26 March 2019, the second creditors’ meeting was held where a resolution was passed to execute the DOCA.
By orders made on 12 April 2019, the directions hearing of 12 April 2019 was then adjourned by consent by orders made on the papers to 3 May 2019.
DOCA
On 10 April 2019, two new directors (also of CBS) were appointed as directors of TINCA.
On 15 April 2019, the DOCA was executed. The conditions relating to share transfer and completion of the CBS sale were maintained. However, (as highlighted by the plaintiffs) the DOCA did not include the condition relating to written confirmation that TINCA’s intangible assets would remain valid. More critically, the DOCA contained a cl 3.3 which provided that:
The conditions are for the sole benefit of the deed proponent and any non-satisfaction of them may only be waived by the deed proponent by notice in writing to the deed administrators.
On 16 May 2019, a separate proceeding was also commenced in this Court by CBS, which sought to challenge the separate DOCA entered into in relation to ODL. That proceeding was ultimately discontinued. However, it has been suggested that this proceeding was ‘distracting’ the plaintiffs.[3]
[3]See e.g. Transcript of Proceedings, In the Matter of the Infant Nutrition Company of Australia Pty Ltd (Administrators Appointed)(Supreme Court of Victoria, S ECI 2019 00978, Kennedy J, 30 August 2019), 9.
Orders were made on the papers on 30 April 2019 adjourning the directions hearing again by consent to 17 May 2019, with the matter further adjourned by consent orders made on 16 May 2019.
By communication received on 13 June 2019, the parties again requested that the matter be further adjourned by consent to a date after 12 July 2019. It was also proposed that Mr Nicholls be joined as the third defendant and that he file Points of Defence.
No order was made on the papers. Rather, the Court, of its own motion, requested that the parties appear and raised concerns as to what was happening with the matter in circumstances where it had previously been suggested that an early trial date might be necessary. The plaintiffs were also invited to consider a number of issues including the future of the proceeding generally given that, as the DOCA had been executed, the administration had ended under s 435C of the Act in any event.[4]
[4]Transcript of Proceedings, In the Matter of the Infant Nutrition Company of Australia Pty Ltd (Administrators Appointed)(Supreme Court of Victoria, S ECI 2019 00978, Kennedy J, 14 June 2019), 3.
In the result – and without opposition[5] – orders were made on 14 June 2019 to permit Mr Nicholls to be joined as a party, as well as orders for the filing of a Further Amended Originating Process and Amended Points of Claim by 28 June 2019. The matter was then listed for further directions on 9 August 2019. No injunctive relief was sought at that time, nor was any suggestion made that the DOCA had been, or was about to be, implemented.
[5]Ibid, 7-9.
On 1 July 2019, a Further Amended Originating Process was filed pursuant to the orders made on 14 June 2019. This sought to add, in the alternative to the orders for termination of administration, orders that the DOCA be terminated (paragraph 4A(a)) and further orders appointing Mr Naidenov and Mr Iannuzi as joint and several liquidators (paragraph 4A(b)).
Amended Points of Claim were also filed in support of this claim. These included complaints, first, that the TINCA DOCA differed in material respects from the Proposal, that there were material omissions from the s 439A Report (including details of prior offers and commercial arrangements between CBS and Mr Nicholls), and further that the DOCA was oppressive, unfairly prejudicial, or unfairly discriminatory against Stemano.
Waiver of conditions and implementation of DOCA
On 11 July 2019, lawyers for CBS, Ivy Law Group, wrote a letter to SBA Law, solicitors for the Administrators, which materially stated:
The Deed Proponent gives written notice under clause 3.3 of the TINCA DOCA that it hereby waives the Conditions (as that expression is used in the TINCA DOCA).
In the circumstances, please proceed with the Implementation as contemplated in clause 6 of the TINCA DOCA.
Following receipt of this letter, the plaintiffs’ solicitors wrote to SBA Law on 15 July 2019 requesting that the Administrators confirm that they would write to the lawyers for CBS suggesting that it was not appropriate to comply with the request pending the determination of this proceeding. Barring that, that their clients would be forced to consider what steps would be required to stay the implementation of the DOCA.
On 16 July 2019, the plaintiffs’ solicitors wrote directly to Ivy Law (for CBS) requesting that it withdraw its waiver of the conditions precedent, failing which they would seek to enjoin the Administrators from taking steps to implement the deed.
In the absence of a reply, on 19 July 2019, the plaintiffs’ solicitors wrote further correspondence to Ivy Law stating that they were aware that CBS had purported to transfer the shares, despite the plaintiffs’ claims in the current proceeding. The plaintiffs demanded that no further steps be taken towards implementation of the DOCA and stated:
In any event because of the failure to reply to our earlier correspondence, we are instructed to proceed without further notice, to join CBS to the proceedings and seek an urgent injunction.
Then, on 24 July 2019, CBS provided its response to the plaintiffs’ earlier correspondence and stated:
Prior to receiving your letter dated 15 July 2019, the Company had, by 11:16 am on Monday 15 July 2019, already completed the necessary procedures to facilitate the Implementation (as that expression is defined in the TINCA DOCA). In this regard, the two share transactions contemplated under the Implementation, namely:
3.1the transfer of 120 shares from Brendan Nicholls ATF Mai Tai Trading Trust to CBS International Trading Co Pty Ltd (ACN 144 943 840) (Deed Proponent); and
3.2 the allotment of 32,500,000 shares to the Deed Proponent in respect of the conversation of debt to equity under the DOCA,
were entered into the Company’s register of members before 1.32pm on 15 July 2019.
We enclose copies of the relevant Company minutes, extracts of the Company’s register of members, and share certificates by way of confirmation of the above.
On this basis, our clients cannot defer the Implementation as it was already completed by 11:16am on Monday 15 July 2019.
In fact, an ASIC search showed that the effective date of the allotment and issue of shares to CBS was 19 July 2019.
On 24 July 2019, the plaintiffs’ solicitors wrote to CBS, rejecting the validity of the actions taken, and requesting that the directors of CBS confirm that they had not sought to sell or dissipate any TINCA assets and to undertake not to do so pending the hearing and determination of this proceeding.
On 9 August 2019, the matter was again heard before the Court. At that time, the Court directly raised the issue of the futility of the existing proceeding given the transfer and allotment of shares had already occurred pursuant to the DOCA. In the result, the plaintiffs were ordered to file any application to further amend to be returnable on 23 August 2019 (which was subsequently adjourned by consent to 30 August 2019).
The current position is that there would only be a few days further work to completion of the DOCA, although at the hearing the Court was advised that payment of creditors has been deferred in the light of this application.[6]
[6]Affidavit of Andrew Schnaider sworn 27 August 2019 [6]; See also Transcript of Proceedings, In the Matter of the Infant Nutrition Company of Australia Pty Ltd (Administrators Appointed)(Supreme Court of Victoria, S ECI 2019 00978, Kennedy J, 30 August 2019) 2–3, 60-1.
Nature of amendments
The SFAOP seeks to add CBS as a fourth defendant. It further seeks an order that, in the alternative to termination, the DOCA be ‘declared void.’
It then seeks additional orders as follows:
5.An order declaring the issue and allotment of 32,500,120 ordinary shares in the First Defendant to the Fourth Defendant on 19 July 2019 void and of no effect.
6.An order pursuant to section 175 of the Act rectifying the share register of the First Defendant.
6B.An order pursuant to s 499(2D) of the Act appointing the Second Defendants as the joint and several liquidators of the company.
The SFAOP further deleted claims seeking to terminate the administration, and appoint substitute administrators (at paragraphs 3 and 4). During the course of the hearing, Counsel for the plaintiffs further abandoned a claim for a declaration that the Administrators were not validly appointed and an order for leave to proceed against TINCA (at paragraphs 1 and 2) (together, the Abandoned Claims).[7]
[7]Transcript of Proceedings, In the Matter of the Infant Nutrition Company of Australia Pty Ltd (Administrators Appointed)(Supreme Court of Victoria, S ECI 2019 00978, Kennedy J, 30 August 2019) 25, 59.
The proposed Further Amended Points of Claim challenge the execution of the DOCA and issue of shares. However, the three main complaints otherwise remain substantially similar to those the subject of the documents filed on 1 July 2019. Counsel also accepted that paragraphs 7 to 34 of the proposed Further Amended Points of Claim should be excised (which paragraphs generally challenged the appointment of the Administrators).[8]
[8]Ibid 59-60.
In the result, the claims challenging the administration were thereby abandoned.
Legal Principles
Amendment
The Court has discretionary power to grant leave to amend pleadings on a party’s motion. However, it has the remedial objective of ensuring that any defect in the pleadings is cured, and that the real questions in the controversy are properly agitated to avoid a multiplicity of proceedings.[9]
[9]Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, 185-6 [14]-[16] (French CJ) (‘Aon Risk’).
A Court will also give effect to the overarching purpose, which is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute, as well as the objects contained in s 9 of the Civil Procedure Act2010 (Vic).
Where the Court is considering an objection to a proposed amendment on the basis that it lacks merit, the correct test is whether the amendment raises a claim that has no real prospect of success.[10]
[10]Mandie v Memart Nominees Pty Ltd [2016] VSCA 4 [47].
In circumstances where there has been a significant delay, relevant factors will include the extent and effect of the delay, as well as costs associated with it, and the point the litigation has reached.[11] An explanation for the delay is also generally required.[12]
Termination of DOCA
[11]Aon Risk (n9) 214-5 [102] (Gummow, Hayne, Crennan, Kiefel and Bell JJ).
[12]Ibid 215 [103].
Section 445D(1) of the Act provides that the Court may make an order terminating a DOCA if it is satisfied about a number of things which include:
(c)there was an omission from such a document [a report or statement under s439A(4)] and the omission can reasonably be expected to have been material to such creditors in so deciding; or …
(e) effect cannot be given to the deed without injustice or undue delay; or
(f)the deed or a provision of it is, an act or omission done or made under the deed was, or an act or omission proposed to be so done or made would be:
(i)oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more such creditors; or
(ii)contrary to the interests of the creditors of the company as a whole; or
(g) the deed should be terminated for some other reason.
The plaintiffs bear the onus of establishing first, whether any grounds referred to in s 445D(1) are established and second, if so, whether as a matter of discretion the deed should be terminated.[13] The Court’s discretion is to be exercised having regard to the interests of creditors as a whole and the public interest.[14] This includes considerations of commercial morality and the interests of the public at large.[15]
[13]Eco Heat (Vic) Pty Ltd v the Syndicate Forty Four Pty Ltd (Subject to Deed of Company of Arrangement) [2018] VSC 156 [34].
[14]Emanuele v Australian Securities Commissioner (1995) 63 FCR 54, 69.
[15]Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 34 ACSR 391, 414 [105].
Pursuant to s 445H, the termination of a DOCA does not affect the previous operation of the deed. However, the plaintiffs placed significant reliance on the decision in Cresvale Far East Ltd v Cresvale Securities Ltd[16] wherein Austin J found that he had equitable jurisdiction to set aside the allotment in issue, and statutory jurisdiction under s 175 of the Act to make an order correcting the register of members.
[16](2001) 37 ACSR 394 (‘Cresvale’).
This decision was subsequently the subject of an appeal in Kirwan v Cresvale Far East Ltd,[17] which appeal was allowed in part. Although the majority of Young CJ with Meagher JA agreeing, held that the allotment of shares was not done for an improper purpose (as had been found by Austin J), the Court ultimately determined that it ought not interfere with the order in the light of subsequent circumstances.[18] In the result (apart from the addition of a condition), the rectification order stood.
Submissions
[17](2002) 44 ACSR 21 (‘Kirwan’).
[18]Ibid 96 [333]-[334].
Counsel confirmed that the three main complaints were: there were material omissions from the s 439A report; that the TINCA DOCA differs in material respects from the Proposal; and a strong challenge that the allotment and issue of the 32,500,120 shares was oppressive (i.e. where the shareholding of ADH went from 80% to less than 0.01%).
In relation to the complaint that the DOCA differed from the Proposal, the plaintiffs placed emphasis on the fact that cl 3.3 did not appear in the Proposal, and further that the DOCA did not contain the condition requiring CBS to obtain confirmation about the validity of the licences. This was said to have the effect that the ‘instrument’ the subject of the creditor’s resolution had not been executed at all, and not within the time stipulated in s 444B(2) of the Act (being 15 business days from the end of the meeting of creditors). It followed that, pursuant to s 446A(2), TINCA was taken to have passed a special resolution that the company be wound up voluntarily such that Administrators become the liquidators.[19]
[19]Citing Re Kruger Engineering Pty Ltd (2006) 60 ACSR 191, 194 [10].
This also independently meant there was no delay since the Administrators were already liquidators.
Insofar as the interests of creditors were concerned, the plaintiffs submitted that this would depend on the true value of TINCA, taking into account the licences (which are not valued in the report). One would also expect that CBS would not have turned a $350,000 debt into equity unless there was some value in TINCA.
In terms of delay, TINCA was also not trading so that any delay was of less significance. In any event, it was suggested that there were a number of reasons for delay as follows:
·First, that there was distraction by the other proceeding;
·Next, that the argument about s 445B(2) meant there was no delay;
·That the case had already been enlarged by reason of the relief sought on 14 June 2019;
·That within the principles cited by the plaintiffs in Khoury v Zambena Pty Ltd[20] (that one month was a ‘rule of thumb’) that the plaintiffs had been back before the judge ‘within a month’ i.e. that 9 August 2019 was within one month of implementation of the DOCA on 11 July 2019; and
·That delay in any event was simply a factor to be weighed up and that any dismissal ought be exercised with great caution.
[20](1997) 23 ACSR 344, 353 (‘Khoury’).
There was also reference in the affidavit of Mr O’Neill sworn 28 August 2019 that, as a consequence of orders made on 2 July 2019 discontinuing the other proceeding, he formed the view that the completion of the CBS sale could not proceed such that it was likely that there would be a further meeting of creditors. Further, that he did not expect that CBS would press for implementation of the DOCA (which it did by letter of 11 July 2019).
The defendants did not challenge the power to make the relevant amendments.[21] They also did not invite the Court to find that the 3 grounds raised no real prospects of success since, with one exception, the focus was not on the merits of the underlying arguments.[22] The exception was that the defendants submitted that there was no fundamental change in the Proposal (with the conditions always inserted for the benefit of CBS).
[21]Transcript of Proceedings, In the Matter of the Infant Nutrition Company of Australia Pty Ltd (Administrators Appointed)(Supreme Court of Victoria, S ECI 2019 00978, Kennedy J, 30 August 2019) 1, 3.
[22]Ibid 34-5. See also 38-9.
Instead, opposition was based on delay and utility.
In terms of delay, Counsel for the first and second defendants submitted that there should have been a challenge within a month after the DOCA was executed (on 15 April 2019), citing Khoury, above.[23] Next, that the plaintiffs ought to have obtained an injunction. It was further submitted that the significant delay meant that the Court would ultimately decline to exercise its discretion to set aside the DOCA even if there was otherwise some basis to do so.
[23]Khoury (n20).
In terms of utility, Counsel highlighted that, if the amendments were not granted, then the whole proceeding was pointless. Further, that creditors were about to be paid 100 cents in the dollar absent costs being further incurred in this proceeding, and that there was no evidence that the plaintiffs would produce a result that was more favourable to the creditors.
Mr Nicholls supported the submissions of the first and second defendants that there was delay without any explanation.
Resolution
In terms of prospects, there is a change between the Proposal and the DOCA which included the waiver condition 3.3, and which will need to be assessed on all the evidence. Equally, any material omissions, including previous commercial arrangements, will warrant careful consideration and may give rise to a ground under s445D(1)(c). In relation to the third ground, however, it is unclear how the DOCA was ‘oppressive, unfairly prejudicial or unfairly discriminatory against creditors’ under s 445D(1)(f) by reason of the dilution of ADH’s shareholding. This is because ADH is not a creditor of TINCA but rather is only a shareholder. The question of such a substantial dilution may however warrant termination on the basis of it being ‘some other reason’ though the matter was not properly addressed.
Suffice to say, then, there appears to be some basis for complaint in circumstances where the defendants did not generally challenge the merits of the grounds themselves. It is also significant that the substance of the complaints was already contained in the earlier Amended Points of Claim (filed without objection). In reality, then, the subject matter of the proposed amendment concerns a challenge to the issue of the shares and rectification of the register. However, as highlighted already, the defendants did not challenge the Court’s power to make these orders.
In terms of delay, I am of the view that there was unsatisfactory delay up to and including 14 June 2019, which delay was only addressed by action of the Court, rather than the parties. The factors raised by the plaintiffs do not provide a proper explanation for this part of the delay. In particular, I am unable to be satisfied that the other proceeding provides any satisfactory explanation. The submission based on s 445B(2) further remains to be tested.
However, it is highly significant that, in the absence of any opposition from the defendants, the case was effectively enlarged by 1 July 2019 to involve a direct attack on the DOCA. From this point, then, the case was no longer a case about terminating an administration, but rather a challenge to the DOCA. In those circumstances, I do not consider that the early delay ought serve to disentitle the plaintiffs altogether from making the amendments now sought.
Insofar as the events of July 2019 are concerned, it is true that the plaintiffs did not seek injunctive relief to prevent the waiver of conditions and implementation of the DOCA. Such inaction will no doubt be relevant to whether any relief ought be given. Nevertheless, the plaintiffs appear to have believed that the conditions would not be fulfilled. It is true that they did not act to prevent the waiver. However, given the proceeding was already enlarged by this time, any failure to prevent the waiver is more relevant to utility rather than delay.
In terms of utility, I have concerns as to whether it will ultimately prove that the creditors will be better off in any liquidation, particularly in the light of the Report. Nevertheless, the plaintiffs challenged aspects of this Report, more particularly claiming that there has been no proper valuation of the relevant licences. At the hearing, the Administrators then sought to adduce further evidence (post hearing) on a licence in a liquidation scenario. There was also a suggestion that the licence had come to an end (although it was not clear whether this was prior to liquidation and/or whether licences could be renewed). I rejected this application in circumstances where it appeared that the deponent might be cross examined on an interlocutory application, particularly about renewal processes. Rather, these are matters which ought to be determined at trial.
Although the plaintiffs face considerable challenges and payment to creditors is being delayed, I am, overall, unable to say that the case is futile such that it is appropriate to shut out the plaintiffs on a summary basis. Rather, the plaintiffs are entitled to have their claims tested in Court in circumstances where the DOCA was already the subject of challenge. I say this taking into account the overarching purpose, and the need to justly determine the real issues in dispute, as well as the other factors contained in s 9 of the Civil Procedure Act 2010. I also propose making costs orders so as to ameliorate the impact on the defendants.
It follows that leave will be granted to file and serve the SFAOP, as well as the Further Amended Points of Claim (excising paragraphs 7 to 34).
Costs
Given that any allegations directed at Mr Nicholls’ conduct as director of TINCA (in paragraphs 7-34 of the Further Amended Points of Claim) will be excised, and that no direct relief is now sought against Mr Nicholls, the plaintiffs and the third defendant have agreed that an order should be made that the plaintiffs pay their costs of the proceeding on a standard basis, to be taxed in default of agreement.[24]
[24]Email correspondence dated 12 September 2019 attaching minutes of proposed orders as agreed between the plaintiffs and the third defendant.
The first and second defendants also sought an order that the plaintiffs pay their costs to date of and incidental to defending the Abandoned Claims (concerning the administration), including the costs of the application for the injunction on 25 March 2019. They further sought an order that these costs be taxed and paid forthwith as a discrete claim.
The plaintiffs opposed this application and said that the question of costs should ultimately be determined at trial.
Pursuant to 63.15 of the Supreme Court (General Civil Procedure) Rules 2015 (the Rules), unless the Court otherwise orders, a party who discontinues or withdraws part of a proceeding shall pay the costs of the party to whom the discontinuance relates to the time of the discontinuance.
The plaintiffs have effectively discontinued part of this proceeding insofar as it sought to challenge the administration. That administration is also now terminated given the execution of the DOCA. I am therefore satisfied that it is appropriate to make an order in the form sought by the first and second defendants.
In relation to the claim regarding immediate taxation, r 63.20.1 of the Rules stipulates that if an order for costs is made on an interlocutory application or hearing, the party in whose favour the order is made shall not tax those costs until the proceeding in which the order is made is completed, unless the Court orders that the costs may be taxed immediately.
The Court’s discretion under r 63.20.1 to order that costs be taxed immediately is not circumscribed in any way by the rule itself, although it must be exercised judicially.[25] But it has been held, depending upon the circumstances of the particular matter, that the default position may be upset where – (1) there is prospect of considerable delay in completion of the proceeding; (2) the issue the subject of the interlocutory order was discrete from what will finally require determinations; (3) the party against whom the substantive order was made was guilty of unsatisfactory conduct- described variously as ‘unreasonable’ or ‘reprehensible’, or as involving a want of ‘competence and diligence’.[26] These categories are not closed.[27]
[25]Setka v Abbott (No 2) [2013] VSCA 376 [27] citing Dale v Clayton Utz (No 3) [2013] VSC 593.
[26]Setka v Abbott (No 2) [2013] VSCA 376 [27] citing Dale v Clayton Utz (No 3) [2013] VSC 593 [58]-[71], [80]-[82].
[27]Farnissa v Versace [2016] VSC 416 [26]-[27].
For reasons already expressed, I accept the submission of the defendants that the Abandoned Claims constitute a separate or discrete issue quite separate from the challenge to the DOCA and the share issue which will require final determination. If it was necessary to find, I would also be satisfied that the plaintiffs were guilty of unsatisfactory conduct, being the unreasonable/unexplained delay for reasons given above.
I am thereby satisfied, having regard to all the circumstances, that I should exercise my discretion to make an order for immediate taxation.
Conclusion
Subject to hearing from the parties as to the precise form of orders, the following orders are appropriate:
(a) The plaintiffs file and serve a notice of the change of name of the first plaintiff pursuant to rule 1.17(2) of the Supreme Court (General Civil Procedure Rules) 2015;
(b) There will be leave to the plaintiffs to file and serve a Second Further Amended Originating Process in the form of the document attached herein, (save that paragraphs 1 and 2 will be deleted), together with a copy of this order, on or before 4.00 pm on 18 September 2019;
(c) CBS will be joined as the fourth defendant to the proceeding;
(d) There will be leave to the plaintiffs to file and serve the Proposed Further Amended Points of Claim (but excluding paragraphs 7-34) on or before 4.00 pm on 18 September 2019;
(e) The plaintiffs pay the third defendant’s costs of the proceeding on a standard basis, to be taxed in default of agreement;
(f) The plaintiffs pay the first and second defendants’ costs of and incidental to defending the Abandoned Claims (articulated at paragraphs 1-4 of the SFAOP attached herein), including the costs of the interlocutory process filed 22 March 2019, to be taxed and payable forthwith;
(g) The matter is listed for directions before the Honourable Justice Riordan on 3 October 2019.
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