In the matter of Wetherill Park Holdings Pty Ltd (No 2)

[2021] NSWSC 1397

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Wetherill Park Holdings Pty Ltd (No 2) [2021] NSWSC 1397

Hearing dates:

On the papers, last submissions received 21 June 2021

Date of orders:

4 November 2021

Decision date:

04 November 2021

Jurisdiction:

Equity - Corporations List

Before:

Rees J

Decision:

Non-party costs orders made.

Catchwords:

COSTS – application for costs against non-parties – principles at [4]-[15] – company wound up as woefully insolvent -$35M – defence of winding up proceedings funded by secured creditors – proceedings protracted as a consequence – 17 months under application heard – 4 day hearing –serious, unsubstantiated allegations made by secured lenders’ representative and then withdrawn – unsatisfactory witnesses – costs sought against director installed by secured creditors, secured creditors who funded the defence, representatives of secured creditors – non-party costs order made against some.

Legislation Cited:

Civil Procedure Act 2005 (NSW), s 98

Corporations Act 2001 (Cth), ss 459R, 459S

Cases Cited:

Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1

Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd (2008) 232 CLR 314; [2008] HCA 9

Browne v Dunn (1829) 57 ER 909

Capital Securities XV Pty Ltd (in liq) v Calleja [2020] NSWSC 688

Dwyer v Volkswagen Group Australia Pty Ltd t/as Volkswagen Australia (No 2) [2021] NSWSC 1137

Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2005] 1 NZLR 145

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

Gore v Justice Corp Pty Ltd (2002) 119 FCR 429; [2002] FCAFC 83

Hamilton v Al Fayed (No 2) [2003] QB 1175

In the matter of Wetherill Park Holdings Pty Ltd [2021] NSWSC 282

Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75; [2009] HCA 43

Jin Lian Group Pty Ltd (in liq) v ACapital Finance Pty Ltd (No 2) [2021] NSWSC 1202

Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8

Knight v FP Special Assets Ltd (1992) 174 CLR 178; [1992] HCA 28

KSMC Holdings Pty Ltd v Bowden (No 3) [2020] NSWCA 158

Manderson M & F Consulting (a Firm) v Incitec Pivot Ltd (No 3) [2011] VSC 441

May v Christodoulou (2011) 80 NSWLR 462; [2011] NSWCA 75

Parsons (a pseudonym) v R [2016] VSCA 17

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

Symphony Group Plc v Hodgson [1994] QB 179

Vestris v Cashman (1998) 72 SASR 449

Xabregas v The Owners – Strata Plan No 79205 [2014] NSWSC 1027

Category:

Costs

Parties:

Wetherill Park Plaza Pty Ltd (Plaintiff)
Wetherill Park Holdings Pty Ltd (Defendant)

Representation:

Counsel:
Mr A Fernon SC (Plaintiff)
No appearance (Defendant)

Solicitors:
Low Doherty & Stratford Lawyers (Plaintiff)
Cockburn & Co Lawyers (David Cacciola)
Conomos & Spinak Lawyers (Bridge Street Capital Pty Ltd, Bridge Street Capital No 2 Pty Ltd and Graham Werry)
Matthews Folbigg Lawyers (Saddleback Mountain Estates No. 2 Pty Ltd and John Leonard Dykes)

File Number(s):

2019/321482

Judgment

1. HER HONOUR: On 25 March 2021, I made an order winding up the defendant on the grounds of insolvency: In the matter of Wetherill Park Holdings Pty Ltd [2021] NSWSC 282. The plaintiff’s application, based on non-compliance with a statutory demand, had a protracted procedural history with the hearing 17 months after commencement of proceedings and requiring multiple extensions of time under section 459R of the Corporations Act 2001 (Cth). The proceedings were hard fought, in large part because the defendant made serious allegations of wrongdoing against the plaintiff which were later abandoned. The plaintiff now seeks an order that the costs of the proceedings be paid by the defendant and non-parties, being:

1. Bridge Street Capital No. 2 Pty Ltd (BSC2) and Saddleback Mountain Estates No 2 Pty Ltd (SME2), the secured lenders to the defendant who funded opposition to the winding up application;

2. Bridge Street Capital Pty Ltd, the company funding BSC2;

3. Graham Werry, the representative of the secured lenders who was the driving force behind opposition to the winding up application;

4. John Dykes, a director of SME2; and

5. David Cacciola, a director of the defendant company installed by the secured lenders.

2. The plaintiff relied on the evidence of its solicitor, Patrick Doherty. Mr Cacciola swore an affidavit. Mr Dykes swore two affidavits. There was no cross-examination.

3. I received eight sets of written submissions. The parties were content for me to determine this application on the papers. This judgment assumes familiarity with my principal judgment.

PRINCIPLES

4. There was no dispute as to the law. Given the number of parties against whom a non-party costs order is sought, submissions canvassed cases where such an order was sought against litigation funders, directors of a corporate party, those supporting distressed companies and the “real party” generally. I have endeavoured to summarise the principles by reference to these categories.

5. The Court has wide discretion in respect of orders for costs, including “by whom … costs are to be paid”: section 98(1)(b), Civil Procedure Act 2005 (NSW). A costs order can be made against a non-party to the proceedings.

6. The most relevant body of case law concerns orders made where a non-party funds or effectively advances the claim of a financially insecure company. In Knight v FP Special Assets Ltd (1992) 174 CLR 178; [1992] HCA 28, Mason CJ and Deane J held that circumstances that may warrant the making of a costs order against a third party include, at 193:

… where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.

In that case, the unsuccessful parties to the litigation were companies in receivership, whilst the receivers were not themselves parties. Mason CJ and Deane J noted that these principles would encompass the receivers: at 192.

7. In Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2005] 1 NZLR 145, a non-party costs order was made against a related company which provided funds to Mr and Mrs Todd, without which they would not have pursued an appeal: at [20]. The Privy Council summarised the principles concerning the exercise of discretion to make costs orders against non-parties at [25]: (emphasis added)

(1)    Although costs orders against non-parties are to be regarded as “exceptional”, exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such “exceptional” case is whether in all the circumstances it is just to make the order. …

(2)    Generally speaking the discretion will not be exercised against “pure funders”, described in para [40] of Hamilton v Al Fayed as “those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course”. In their case the Court’s usual approach is to give priority to the public interest in the funded party getting access to justice over that of the successful unfunded party recovering his costs and so not having to bear the expense of vindicating his rights.

(3)    Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party’s costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is “the real party” to the litigation …

In KSMC Holdings Pty Ltd v Bowden (No 3) [2020] NSWCA 158, Payne JA followed the Privy Council’s first observation – that “exceptional” in this context means no more than outside the ordinary run of cases: at [44].

8. Relevant to the particular category under consideration, where non-parties fund receivers, liquidators, or financially insecure companies in litigation, the Privy Council continued in Dymocks v Todd at [29]: (emphasis added)

… generally speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fails. … that is not to say that orders will invariably be made in such cases, particularly, say, where the non-party is himself a director or liquidator who can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his own interests.

This passage was cited with apparent approval by the High Court in Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75; [2009] HCA 43, per French CJ, Gummow, Hayne and Crennan JJ at [32]. The reference to "defence" makes clear that the principle applies whether the non­party is supporting the prosecution or defence of proceedings.

9. A non-party costs order will not ordinarily be made against directors of corporate parties unless a director has engaged in particular conduct which would warrant the Court doing so. The starting point is FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340, where Basten JA (Beazley JA agreeing) cautioned that non-party costs orders should not overrun considerations such as the corporate veil. Whilst in that case the sole director and shareholder of the corporate defendant was the driving force behind the company, that did not mean that the benefit of the proceedings, in law, flowed to anyone other than the company, “Were it otherwise, the corporate veil would, in effect, be nullified at the very point at which it provides protection against personal liability for the shareholders and directors”: at [206]. Following a review of the case law, Basten JA observed at [210]:

What is significant from a survey of the cases in which orders have been made against non-parties is that they tend to satisfy at least some, if not a majority, of the following criteria:

(a)    the unsuccessful party to the proceedings was the moving party and not the defendant;

(b)    the source of funds for the litigation was the non-party or its principal;

(c)    the conduct of the litigation was unreasonable or improper;

(d)    the non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial, was a substantial interest, and

(e)    the unsuccessful party was insolvent or could otherwise be described as a person of straw.

10. Whilst Basten JA noted that there would frequently be a non-party, such as a company officer or solicitor, who was active in the conduct of the litigation and who would obtain some direct or indirect financial benefit from its success, careful attention was required to the conduct of the parties said to be involved in the litigation and the nature of their “interests” in its outcome: at [214].

11. Likewise, in Rushton (Qld) Pty Ltd v Rushton (NSW) Pty Ltd [2004] QSC 47, Muir J rejected an application for a non-party costs order against a sole director and shareholder of the unsuccessful corporate party to a proceeding. At [13]:

… The control of a corporate litigant by a director who is also its sole or majority shareholder is an unremarkable occurrence. It is sanctioned by a long established legislative framework which recognises that a company has an independent legal personality distinct from that of its members and that neither members nor directors, as a general proposition, are personally liable for its acts and defaults.

12. Similarly, in May v Christodoulou (2011) 80 NSWLR 462; [2011] NSWCA 75, Sackville AJA (with whom Macfarlan JA agreed) observed, “merely representing the company, especially when the company is a defendant, is not enough to justify the exercise of the power to award costs against the director personally:” at [94]. Sackville AJA also considered it relevant that there was no evidence that the director would benefit financially from the proceedings or had legal or de facto control of the company, where the shareholder was his mother: at [105], [112].

13. As for litigation funders, the starting point is Gore v Justice Corp Pty Ltd (2002) 119 FCR 429; [2002] FCAFC 83, where the Full Federal Court made a non-party costs order against a litigation funder. Although the litigation funder did not control the litigation, it had a direct financial interest in the outcome of the case, being prepared to take a commercial risk and hoping to profit from its investment. This being “a simple straightforward commercial arrangement. … It seems to us, as a logical consequence of these circumstances, that in return for the chance of obtaining 8% of the judgment debt and a recoupment of much of its outlay for costs, [the litigation funder] should be expected to incur the risk of a costs order in the event of [the opposing party] being the successful party”: at [64]. As to whether it was necessary to warn the non-party of the proposed costs order, the Court observed at [52]:

… the question of the need for prior notice is no more than one of many relevant matters that should be considered when considering an application for costs against a stranger to a litigation.

14. Likewise, in Dwyer v Volkswagen Group Australia Pty Ltd t/as Volkswagen Australia (No 2) [2021] NSWSC 1137, Stevenson J summarised relevant considerations vis a vis litigation funders, being whether the non-party has provided the funds for the litigation; has a direct interest in, and entitlement to, a substantial part of the fruits of the litigation; was involved in the litigation purely for commercial gain; had a right to information and involvement in decision making in relation to the litigation; and agreed to provide an indemnity to the unsuccessful party for any adverse costs order: at [9]. More recently, in Jin Lian Group Pty Ltd (in liq) v ACapital Finance Pty Ltd (No 2) [2021] NSWSC 1202, Stevenson J made a non-party costs order against a litigation funder where the funder did not fund the proceedings from the outset but the funding that was provided proved to be the decisive factor in the continuation of the proceedings to trial: at [25], [68].

15. Importantly, in Xabregas v The Owners – Strata Plan No 79205 [2014] NSWSC 1027, White J (as his Honour then was) observed that neither the criteria stated in Knight v FP Special Assets nor those in FPM Constructions are exhaustive; the categories of case in which a costs order can be made against a non-party are not closed: at [87]. More recently in KSMC Holdings Pty Ltd v Bowden (No 3), Payne JA noted at [43]:

The five criteria identified in FPM must not be applied mechanically: Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [81]. The individual criteria are not to be treated as separate and independent factors; they are capable of interacting: Mistrina Pty Ltd v Australian Consulting Engineers Pty Ltd – Costs [2020] NSWSC 633 per Hammerschlag J at [23]. In HRX Pty Ltd v Scott [2013] NSWSC 451 Bergin CJ in Eq at [56] also referred to a third party playing an “active part in the conduct of litigation” as a factor for consideration.

FACTS

16. Regrettably, the focus of this judgment is different from that of Wetherill, where I was largely concerned with solvency. Here I am concerned with the non-parties’ interest and involvement in these proceedings, their conduct and its effect on the proceedings.

The underlying debt

17. The plaintiff provided some $128,000 in vendor finance to the defendant in 2018, when selling land in Wetherill Park for development. The vendor finance was not repaid, leading to default judgment in the District Court of New South Wales and the statutory demand on which these proceedings were based. As I noted in Wetherill at [97]:

… there was no real suggestion that the plaintiff did not provide the vendor finance … or that it had not been repaid. … [W]hen the defendant’s [then] solicitor, Mr Kassem, became aware of the default judgment in July 2019, he did not appear to quibble with the plaintiff’s entitlement to the judgment sum. Mr Kassem, of course, had been involved in the transaction at the time when the vendor finance was provided … Nor, for that matter, were Mr Cacciola or Mr Werry in a position to contend otherwise as the provision of vendor finance … pre-dated Mr Cacciola’s appointment as a director of the defendant; nor was there any suggestion that Mr Werry had any dealings with the plaintiff in respect of it either. When the defendant applied to set aside the default judgment – seven months after becoming aware of it – the application appears to have been prompted by the defendant’s efforts, in these proceedings, to establish solvency …

The secured lenders

18. To fund the purchase of the Wetherill Park land, the defendant obtained short-term finance from the secured lenders, BSC2 and SME2. More precisely, the then director of the defendant, Mark Bryers, approached Credit Solutions Group to assist with raising finance. Mr Cacciola was the mortgage broker who originally dealt with Mr Bryers in respect of the secured loans.

19. Credit Solutions Group invited Mr Werry to consider Mr Bryer’s application. Mr Werry was associated with Weriton Finance Pty Ltd and Weriton Finance No 2 Pty Ltd, although it is not clear which company received the application. In any event, in April 2018, Mr Werry of “Weriton” forwarded an investment proposal to Mr Dykes of SME2 to consider. Mr Werry proposed that SME2 provide $27 million, and further:

BSC will contribute approx. $12m and take a subordinated position behind SME No. 2 P/L’s 2nd mortgage position.

… The sponsors expect to earn about $5m profit from the venture after payment of all development costs and repayment of the loans.

BSC will earn Loan Establishment Fees on the 2nd Mortgage, and interest at 2.3% p.m. (less 15% p.a. prepaid to SME No. 2) …

[Credit Solutions Group] will receive 50% of the Loan Establishment Fees and a percentage of BSC’s interest share.

In effect, BSC is taking the position of joint venture partner/developer. The Borrower is introducing the transaction and arranging construction but contributing minimal equity.

… Please let me know if SME is interested in principle in participating in this transaction and if so I will proceed with the due diligence.

20. I take “BSC” to be a reference to Bridge Street Capital. Mr Werry is a director of Bridge Street Capital. His company, Edessa Holdings Pty Ltd, is a shareholder. Bridge Street Capital operates a mortgage finance business. Bridge Street Capital has substantial assets: Wetherill at [139].

21. Precisely who the secured lenders were, their financial wherewithal and funding arrangements was the focus of my principal judgment. Suffice to say that there was little evidence on the subject at the hearing, albeit now supplemented by some evidence from Mr Dykes about SME2. SME2 is wholly owned by STWS Pty Ltd, which is wholly owned by Christian Enterprises Ltd, a registered charity. Mr Dykes is a director of each of these companies, for which he is not paid any wage. Mr Dykes said that SME2 and BSC2 have in the past agreed to co-lend on construction and property acquisition projects, as they did with the project being undertaken by the defendant. The link between SME2 and BSC2 (and Bridge Street Capital) was through Mr Werry, whom Mr Dykes has known for many years.

22. As for BSC2, Mr Werry is a director but not a shareholder. BSC2 has no assets. Bridge Street Capital provides funds to BSC2 as a vehicle for effecting loans and taking mortgages and other loan security. Whilst BSC2 was not referred to in Mr Werry’s email proposing the transaction to Mr Dykes, BSC2 was used as the lender in the transaction, presumably for the purposes of protecting Bridge Street Capital’s assets from unwanted liability arising from the transaction.

20. Whilst documentation of the loan to the defendant is poor, it appears that BSC2 and SME2 lent $18.7 million to the defendant for four months at the perhaps uncharitable cost of $3.46 million in interest and charges. The defendant promptly fell into default. The defendant sought to refinance. Mr Werry and Mr Bryers had a significant falling out, including because Mr Werry had been deceived into believing that the purchase price of the land was $3 million more than it was. (Problems emerged in these proceedings when Mr Werry sought to attribute responsibility for this deception to the plaintiff, without any obvious basis for doing so, apparently for the purposes of resisting the plaintiff’s claim for payment.)

21. On 22 January 2019, Mr Bryers was replaced as director of the defendant by Mr Cacciola, at the request of BSC2. This was effected by BSC2 exercising a power of attorney. BSC2 was also entitled, by reason of a charge, to have the shares in the defendant transferred to BSC2 but Mr Werry chose not to exercise this right as it would trigger a substantial stamp duty impost.

22. At the principal hearing, Mr Cacciola said that he had an agreement with the secured lenders that he would be paid a director’s fee. On this application, Mr Cacciola said he was never paid any wage or money at all for his directorship of the defendant.

23. Mr Dykes said that in about January 2019, when the borrower had defaulted on the loan facility, a decision was made that, rather than attempt to sell the security property, the secured lenders would proceed with the development to attempt to achieve a successful outcome of the investment and the return of the loan funds. From SME2’s perspective, Mr Dykes said the financial impact of the defendant being placed into liquidation would have been immaterial, the only effect being “a small irritant” by reason of the liquidator’s involvement in the process.

24. As to the precise arrangement between the non-parties, the plaintiff relied on the following evidence by Mr Cacciola at the principal hearing:

A.   If you refer to notes and emails between Graham Werry, John Dykes and myself, we had negotiated not to charge the default interest and for us to deliver the project and see the project through.

…There was an agreement in writing between John Dykes, myself and Graham Werry.

Q.   What's that agreement?

A.   The agreement ‑ I don't have the details in front of me but it was for us to deliver the project, finish it and work on a just over 20% profit to deliver the project.

28. The plaintiff suggested this evidenced an agreement between Mr Cacciola, Mr Werry and Mr Dykes, in their personal capacity, to continue the development and share a 20% profit. On this application, Mr Cacciola explained he was referring to Mr Werry, Mr Dykes and himself in their capacity as directors of their respective companies. He did not mean that the directors would get a profit of 20% but that the defendant would achieve a 20% profit on developing the property, being the typical profit margin a developer expects to make on top of development costs. Mr Cacciola’s explanation seems likely, and I am not satisfied on the basis of his evidence at the principal hearing that there was an agreement between Mr Cacciola, Mr Werry and Mr Dykes to personally share the profits.

Statutory demand

29. On 5 February 2019, presumably as part of the change of management of the defendant company, the defendant’s registered office was changed to the office of Mr Werry. Unfortunately, the plaintiff’s solicitor relied on an earlier company search when serving a statement of claim on the defendant, on 21 February 2019, by post to the defendant’s previous registered office. On 2 April 2019, default judgment was entered against the defendant.

30. On 1 August 2019, a statutory demand was served on the defendant’s correct registered office and came to Mr Werry and Mr Cacciola’s notice, but no application was made to set it aside. On 15 October 2019, the plaintiff filed an originating process seeking to wind up the defendant on the grounds of insolvency, relying on its failure to comply with the statutory demand.

31. As I noted in Wetherill at [5], the secured lenders’ strategy to recover their money (and to deal with the plaintiff’s application) was to stave off the appointment of a liquidator, including by negotiating with, and paying out pre-existing unsecured creditors where possible or convenient; continuing to fund expenses associated with keeping the development prospects of the site alive; with the assistance of Mr Cacciola, to procure cheaper construction finance; to complete the development; and, use the development profit to repay the principal – and some interest at least – to the secured lenders.

Window dressing

32. To this end, on 11 November 2019, BSC2 deposited funds in its solicitor’s trust account, comprising the monies the subject of the statutory demand. (More recent correspondence from the solicitors in question suggests that the monies were deposited by Bridge Street Capital.) Despite several invitations by the plaintiff to pay the money into Court to abide the outcome of the proceedings, the defendant resisted such entreaties. Mr Werry said that he intended to leave the monies there to demonstrate that the defendant was capable of paying the default judgment. As I noted in Wetherill at [123]:

… I place no weight on the placement of those funds with Summer Lawyers; I expect the funds would be immediately withdrawn should a liquidator be appointed to the company. The inclusion of this amount in the balance sheet for the defendant is nothing but window dressing.

33. I note from Mr Doherty’s affidavit in support of this application that, as soon as Wetherill was published, Bridge Street Capital instructed the defendant’s solicitors to repay the monies to it, which was promptly done. Wasting the Court’s time with this sort of ‘window dressing’ is to be thoroughly discouraged. It gives the false impression that an insolvent company has access to funds to pay its debts, when it does not.

A serious allegation

34. On 22 November 2019, the defendant filed a notice of appearance, advising that it intended to oppose the application for winding up on the ground that the company was solvent. Further, leave would be sought under section 459S of the Corporations Act to oppose the application on a ground that the company could have relied to set aside the statutory demand, being to argue that the debt was disputed and the agreement by which the purported debt was created should be set aside or not enforced either under the general law or section 243 of the Australian Consumer Law because of the plaintiff’s misleading and deceptive conduct of unlawfully and artificially inflating the sale price of the underlying property by $3 million by a side deed and falsely representing that vendor finance in the amount of the purported debt was required to be provided to enable the company to complete the purchase at that artificially inflated price.

35. In support of these allegations, Mr Cacciola swore an affidavit on 13 December 2019, describing a series of conversations with Mr Werry where Mr Werry informed him of the suggested involvement of the plaintiff in Mr Bryer’s deception. According to Mr Cacciola’s affidavit, Mr Werry said that he had been tricked into lending extra money to the defendant, “It was a secret deal and it was effectively fraud. [Bridge Street Capital] will want [the defendant] to pay back that $3 million. My problem is that [Bridge Street Capital] is so financially committed to this project …”.

36. The allegations thereby made were most serious. Annexed to one of Mr Cacciola’s affidavits was a settlement adjustment sheet said to emanate from the plaintiff’s solicitor, referring to a purchase price which was $3 million higher than the actual purchase price. The plaintiff’s solicitor gave evidence that the settlement adjustment sheet did not originate from his office and was a false document. The portion of Mr Cacciola’s affidavit annexing the letter was ultimately not read at the hearing.

37. Although ultimately abandoned, these allegations significantly increased the temperature in these proceedings, requiring the solicitor who acted for the plaintiff on the sale to prepare a substantive affidavit to dispel any suggestion of wrongdoing on the plaintiff’s part. Considerable time was taken at the hearing cross-examining witnesses on this subject, which also occupied a deal of my primary judgment: see [38]-[46], [53]-[58] of Wetherill. I ultimately concluded at [58]:

Assuming that Mr Bryers misled Mr Werry as to the purchase price of the land, there was no evidence in these proceedings that the plaintiff was in any way involved in such a misrepresentation and, indeed, evidence to the contrary. [The plaintiff’s solicitor’s] description of the circumstances in which the vendor finance came about was perfectly straightforward and unremarkable. His evidence was not challenged; [he] was not required for cross-examination. Mr Lyons, a director of the plaintiff, gave evidence that the monies the subject of the default judgment were due and payable and there was no genuine dispute as to the debt. Mr Lyons was not required for cross-examination either. It may be that, in the District Court proceedings, Mr Werry can marshall additional evidence which supports a contention that the plaintiff was somehow involved in his deception but, on the basis of the evidence in these proceedings, the defence and cross-claim make serious allegations without the necessary factual substratum.

Proving solvency

38. Undertaking what might be thought a heroic task, Mr Werry set out to establish the defendant’s solvency with the assistance of liquidator, Mr Lakomy. Financial statements and a tax return were prepared for the year ended 30 June 2019, but unpaid interest was not recorded in the accounts and the loans from the secured lenders – now in default – were recorded as non-current liabilities. Whilst the defendant’s reported financial position was poor – with a trading loss and negative net assets of some –$4 million – in fact the defendant was woefully insolvent, with negative net assets of some –$35 million: Wetherill at [136].

39. The notes to the accounts recorded that the defendant owed the monies claimed to the plaintiff but added, “The company considers it has a counter-claim for $1,500,000,” this being a reference to the plaintiff’s suggested involvement in Mr Bryers deception.

40. In support of the suggested counter-claim, Mr Werry sent a demand to Mr Cacciola (as director of the defendant) on 10 December 2019, suggesting that BSC2 and SME2 had been misled by the defendant as to the purchase price of the property, demanded $3 million and suggested that Mr Cacciola pursue claims for contribution from all parties who participated in the deception including the plaintiff.

41. On 12 December 2019, the first of several Deeds of Variation were executed by the defendant (Mr Cacciola), BSC2 (Mr Werry) and SME2 (John Dykes), suspending interest payments and agreeing to pay the defendant’s debts (subject to Mr Werry deciding that the debts were not disputed). Importantly, the deed was only to take effect if the defendant was successful in proving solvency. Mr Werry agreed that he gave instructions to prepare the deed to show that the defendant was solvent. On 13 December 2019, Mr Lakomy provided a solvency report, concluding that the defendant was solvent. Supporting affidavits were also sworn by Mr Cacciola and Mr Werry. On 19 December 2019, the defendant filed an interlocutory process seeking leave under section 459S of the Corporations Act.

42. On 6 February 2020, the plaintiff filed an expert report by accountant Mariano Rossetto in response to that served by Mr Lakomy. This was an expense necessitated by Mr Lakomy’s report and the affidavits, financial statements, Deed of Variation and correspondence which underpinned it.

43. On 18 February 2020, Mr Werry sent an email to Mr Lakomy and counsel referring to eliminating the plaintiff’s claim by filing a motion to set aside default judgment, which was duly filed the next day, supported by an affidavit from Mr Cacciola. On 20 February 2020, Mr Dykes sent an email to Mr Cacciola and Mr Werry offering financial support to the defendant on behalf of SME2.

44. On 21 February 2020, Mr Werry swore a second affidavit in these proceedings. Mr Werry described the nature of Bridge Street Capital’s business and said Bridge Street Capital had made some $14 million available to BSC2 for mortgage lending purposes in this transaction. Whilst BSC2 and SME2 had agreed to vary the terms of their loan to the defendant, the agreement was made with the knowledge and consent of Bridge Street Capital, which was prepared to provide such financial support as BSC2 required to extend the loan facility and to enable the defendant to carry out construction of the development.

45. Mr Werry annexed the financial statements of Bridge Street Capital, which he explained in detail, presumably because it was thought to support a conclusion by the Court that the defendant was solvent by reason of its ability to call on the resources of Bridge Street Capital to complete the development. Mr Werry deposed, “there will be no likelihood of diminution of available cash for [Bridge Street Capital] to support funding by BSC2 to [the defendant] for construction of its industrial estate.” Mr Werry said, “BSC has provided funding to BSC2 over many years for the purpose of enabling BSC2 to make mortgage loans to third parties. BSC intends to continue funding BSC2 and in particular will provide the capital or funding which BSC2 may need to extend the repayment date of its current loans to [the defendant]”.

46. Mr Cacciola also swore a further affidavit on 24 February 2020. On the basis of Mr Werry and Mr Cacciola’s further affidavits and accompanying documents, Mr Lakomy prepared a second report on 24 February 2020 opining that the defendant was solvent.

47. On 6 April 2020, default judgment was set aside in the District Court. On 9 April 2020, Black J made an order under section 459R of the Corporations Act, extending the period within which the winding up application must be determined to 1 July 2020. On 15 April 2020, the defendant filed an amended interlocutory process seeking leave under section 459S of the Corporations Act for the defendant to oppose the application on the ground there was a dispute as to the existence of the underlying debt. Otherwise, the defendant proposed to defend the proceedings on the basis that it was solvent. Further, the defendant sought that the proceedings be dismissed on the basis that it was an abuse of process for the plaintiff to maintain the proceedings.

48. On 29 April 2020, Mr Cacciola filed a third affidavit. On 4 May 2020, the defendant filed a cross-claim in the District Court, seeking $3 million but abandoning any award about $750,000. Again, the basis of the cross-claim was the plaintiff’s suggested involvement in Mr Bryer’s deception of Mr Werry.

49. On 5 June 2020, Mr Werry sent an email to Mr Cacciola confirming the ongoing financial support of BSC2 and SME2 and suggested that the lenders were making good progress with the development project. Mr Werry swore an affidavit updating the financial position of the secured lenders and repeating their support. A further solvency report was provided by Mr Lakomy on 9 June 2020, opining that the defendant was solvent by reason of this financial support. On 15 June 2020, Mr Cacciola swore his fourth affidavit.

50. By an amended notice of appearance filed on 15 June 2020, the defendant withdrew the suggestion that the plaintiff had been involved in unlawfully and artificially inflating the sale price of the property by $3 million. Presumably, these allegations were withdrawn in light of a substantive affidavit filed by the plaintiff’s solicitor who acted on the sale of the property, filed on 14 May 2020, comprising some 150 pages of material. The defendant maintained opposition to the winding up on the grounds of solvency and that it was an abuse of process to maintain the proceedings given that the judgment debt in the District Court had been set aside.

51. On 30 June 2020 and 6 July 2020, Black J made further orders under section 459R of the Corporations Act, extending the period within which the winding up application must be determined to 2 October 2020 and listing the matter for hearing on 1 September 2020.

52. On 6 August 2020, Mr Dykes provided a letter (prepared by Mr Werry) agreeing to extend SME2’s loans to 31 October 2021. The same day, Mr Werry sent an email to Mr Cacciola confirming that BSC2 would provide funding for any debts which the defendant had to pay. The same day, Mr Lakomy was instructed to prepare a further solvency report. On 11 August 2020, Mr Cacciola swore his fifth affidavit. Mr Cacciola attached recent communications from Mr Dykes and Mr Werry confirming their financial support. Mr Werry swore his fourth affidavit, noting that Bridge Street Capital and BSC2 continued to provide financial support to the defendant. On 12 August 2020, Mr Lakomy prepared his fourth solvency report, dutifully opining that the defendant was solvent, in particular, having regard to the financial support of BSC2 and SME2.

53. On 1 September 2020, the hearing began. The evidence of each of the defendant’s witnesses – Mr Cacciola, Mr Werry and Mr Lakomy – was problematic, for varying reasons: see Wetherill at [18]-[20]. I was hesitant to rely on the evidence of either Mr Cacciola or Mr Werry in the absence of corroboration by other reliable evidence. As to documentary evidence, much of it had little probative value, being emails and letters between Mr Werry and Mr Cacciola, or from Mr Werry to Mr Lakomy, or from Mr Dykes to Mr Werry but apparently written by Mr Werry, which came into existence after the commencement of the proceedings, generally contemporaneous with giving instructions to Mr Lakomy to prepare a further solvency report, and of a self-serving nature: Wetherill at [21].

54. A further problem with the documentary evidence placed before the Court was that an email chain tendered by the defendant on the second day of the hearing proved to be a partial chain which, without the intervening or subsequent emails, was misleading. Mr Werry’s explanation as to why he had omitted the intervening emails was unsatisfactory: Wetherill at [116]-[117]. Whilst the Court was not ultimately misled, time was wasted dealing with the matter, including the plaintiff’s time in obtaining the missing emails from the sender and bringing the matter to the attention of the Court. There is a real cost attached to such conduct, which is why it is to be thoroughly discouraged.

55. On 2 September 2020, mid-hearing, a further deed of variation was signed in an effort to address criticisms of the regime identified by the plaintiff’s senior counsel. The hearing continued on 3 September 2020, when a further deed of variation was produced. Written submissions were provided after the conclusion of the hearing; the plaintiff’s final submission on 29 September 2020 gave notice of its intention to seek third party costs orders. Oral submissions were made on 6 October 2020. Further orders were made under section 459R extending the time in which the application had to be determined until my judgment was handed down.

56. As a consequence of the body of evidence relied upon by the defendant, and the chaotic manner in which it was assembled and presented, the hearing of this application, which would ordinarily have occupied less than a day, occupied four days. It also took a considerable amount of time to unravel the evidence and prepare a judgment, which was regrettably lengthy. On the question of solvency, I ultimately concluded that the defendant was woefully insolvent viewed in isolation from the financial support proffered by the secured lenders. The quality of the financial information in respect of the secured lenders was poor and I was not satisfied that BSC2 and SME2 had the capacity to find the secured lenders’ recovery strategy. The orders sought by the plaintiff were made.

38. On this application, Mr Dykes said that, whilst he signed various correspondence and deeds of variation which he understood may be tendered in evidence, the correspondence accurately reflected the terms on which BSC2 and SME2 were providing funding to the defendant. “At no stage did I make any decisions about the conduct of the proceedings, nor did I seek to influence any parties to the proceedings in making any decisions about the conduct of the proceedings. I was not involved in, nor ma[d]e any decisions about, the preparation of any affidavits in the proceedings.” He has never sought any personal benefit from the loan to the defendant.

39. Mr Cacciola said he had no personal financial interest in the project and obtained no personal benefit from it. Mr Werry was silent.

SUBMISSIONS

59. The plaintiff submitted that each of Mr Werry, Bridge Street Capital, BSC2, SME2, Mr Dykes and Mr Cacciola effectively opposed and/or stood to benefit from the opposition to the plaintiff’s claim to wind up the defendant. The proceedings were funded by BSC2 and SME. BSC2's funding was in turn obtained from Bridge Street Capital. Due to the opposition by third parties, what was otherwise a straightforward application to wind up a woefully insolvent company relying on a deemed insolvency became an expensive application spread over four days with competing expert evidence and extensive cross examination of witnesses. Their direct involvement in the proceedings substantially increased its costs, including wasted costs associated with the abandoned interlocutory process, late amendments to the grounds of opposition, late additional evidence subsequent to such amendments and a failed "abuse of process" argument. Given the woeful insolvency of the defendant, it was said to be in the interests of justice that each were liable for the plaintiff’s costs of the proceedings.

60. The plaintiff submitted that BSC2, SME2, Mr Werry, Mr Cacciola and Mr Dykes supported the preparation of evidence of the further Deed of Variation entered into on the last day of the hearing to support their attempts to defend the proceedings. Whilst Mr Werry and, to a lesser extent, Mr Cacciola were primarily responsible for conducting the proceedings on the defendant’s behalf, such conduct was also on behalf of Mr Dykes and the secured lenders. Mr Dykes and SME2 sought to benefit from defending the proceedings and gave documentary evidence to support the defendant. The secured funders sought to secure a benefit by proceeding with the development and recovering significant returns on the investment. There was no relevant difference between the funding provided by BSC2 and SME2 and the funding provided by a litigation funder. Further, given Mr Cacciola's evidence that an agreement existed between Mr Werry, Mr Dykes and himself (in their personal capacity) to continue the development for a 20% profit, the plaintiff submitted that the contention that Mr Cacciola, Mr Werry and Mr Dykes were acting as mere corporate functionaries could not be sustained. (For reasons earlier stated, I do not accept the latter submission.)

61. The plaintiff submitted that Bridge Street Capital was the ultimate financier of the funding provided by BSC2 to the defendant. Without such funding and support for the defendant, these proceedings would not have been conducted. Bridge Street Capital was ultimately seeking to recover funding it had provided to the defendant and stood to benefit from the defence of these proceedings. Having regard to Mr Werry’s email at [19], Bridge Street Capital was a joint venture partner/developer in the development. SME2's investment was part of a joint arrangement/venture with BSC/BSC2, negotiated and implemented by Mr Werry, Mr Cacciola and Mr Dykes.

62. Mr Werry, Bridge Street Capital and BSC2 together opposed the costs order sought on the basis that there was nothing untoward in the secured lenders’ strategy, nor did it conflict with the reasonable objectives of any other creditor, nor with the objectives of the defendant. It was said to be in the interests of all parties, including the plaintiff, for the property development to be completed and sold for the best possible price. As such, their conduct was reasonable and proper, having regard the suggested disputed nature of the plaintiff’s debt and the views of Mr Lakomy that the defendant was solvent. Whilst BSC2 funded the defendant’s legal costs, it was submitted that it could not be compared to a litigation funder as its motivation was to protect existing interests rather than to profit from the outcome of proceedings, unlike in Gore v Justice Corp at [64]. The fact that the defendant ultimately failed did not mean that its opposition to the appointment of a liquidator was unreasonable. It was submitted that the financial benefit from any successful defence of the application was indirect, intangible and modest, by comparison to the alternative outcome likely to arise from the defendant being wound up. Either way, BSC2 remained a secured creditor, entitled to take steps to realise the property of the defendant and be paid from those proceeds.

63. In addition, Bridge Street Capital separately submitted that the defence of the proceedings was not solely or substantially for its benefit, nor did it have a substantial interest in the proceedings: Jeffery & Katauskas at [32], Capital Securities XV Pty Ltd (in liq) v Calleja [2020] NSWSC 688 at [14]. Its role in the conduct of the proceedings was not real, material and direct: Manderson M & F Consulting (a Firm) v Incitec Pivot Ltd (No 3) [2011] VSC 441 at [27]; May v Christodoulou at [21]). Any financial benefit to Bridge Street Capital was indirect and unclear. Whilst the Court found that Bridge Street Capital was the ultimate financier of the funding provided by BSC2 to the defendant, Bridge Street Capital was not the lender to the defendant. BSC2 obtained funding from sources other than Bridge Street Capital. The proposition that these proceedings would not have been conducted without such funding and support could not be made, as it had not been put to Mr Cacciola or Mr Werry in cross examination: Browne v Dunn (1829) 57 ER 909. Bridge Street Capital had no real role or interest in the conduct of the proceedings and only became involved in the context of establishing the financial wherewithal of BSC2 to fund the development.

64. Mr Werry separately submitted that no order should be made against him as the defence of the proceedings was not solely or substantially for his financial benefit: Jeffery & Katauskas at [32], Capital Securities XV Pty Ltd at [14]. His role was as the representative of BSC2 and Bridge Street Capital: Manderson at [28]; May v Christodoulou at [90]–[94]. Mr Werry did not stand to benefit as he was not a shareholder of BSC2. Whilst Mr Werry is a shareholder of Edessa Holdings Pty Ltd, which has shares in BSC2, it does not automatically follow that he would personally stand to benefit. Even if Mr Werry was the driving force behind Bridge Street Capital and BSC2 and was their representative for the purpose of the litigation, it does not mean that the benefit of the proceedings opposed by the defendant (and ostensibly by BSC2), in law, flowed to anyone other than the defendant (and ostensibly to BSC2): FPM Constructions at [206].

65. Further, Mr Werry submitted that, whilst the Court had found that Mr Werry’s evidence was unsatisfactory or unlikely, there was no evidence that it had added to the costs of the proceedings. Nor was there wilful refusal to comply with directions”: May v Christodoulou at [94]. A company’s secured creditors should not be discouraged from supporting a company in an application to appoint a liquidator, by making a third party costs order. Nor was adequate notice given that such an order would be sought: Symphony Group Plc v Hodgson [1994] QB 179 and Vestris v Cashman (1998) 72 SASR 449.

66. Mr Werry’s submissions were essentially replicated by Mr Cacciola, who submitted that it would be a dangerous precedent to impose a costs award on the director of the defendant company on the basis that they expressed their support for the company, in a manner consistent with the objectives of the defendant company and its creditors as a whole to complete and realise the main asset of the company. Such an order was said to discourage any director to support their company, no matter how meritorious and well-intended that support may be. Mr Cacciola submitted that he did no more than what was reasonable as the sole director of the defendant company: May v Christodoulou at [94]. He sought an order that the plaintiff pay his costs of this application.

67. Mr Dykes and SME2 together submitted that their involvement in the proceedings was limited to issuing correspondence which was tendered in evidence and offering finance to the defendant which included funding costs of the litigation. SME2 was said to be a “pure funder”, as described in Dymocks v Todd at [25]. It was submitted that, where the benefit is financial, the benefit should be substantial: FPM Constructions v Council of the City of Blue Mountains at [210]. The benefit alleged was at best speculative.

68. Mr Dykes and SME2 submitted the preparation of correspondence tendered in evidence was not playing “an active part in the conduct of the litigation”, which required the non-party to be active throughout the course of the proceeding. Nor could the provision of finance to the defendant, which was used (among other things) to fund a defence, be compared to the activities of a litigation funder whose return is directly linked to the outcome of the action. Whilst acknowledging that the source of funds for the litigation was BSC2 and SME2, this was said to be insufficient to warrant the making of a third party costs order against a mere financier. It was said to be far from clear how SME2 or Mr Dykes benefited from the proceedings. Further, the plaintiff only notified Mr Dykes and SME2 that such an order was sought when serving the application. In the absence of notice of an intention to seek such an order, it should not be made: Gore v Justice Corp at [51]-[52]. The plaintiff should be ordered to pay SME2 and Dykes’ costs of responding to the application.

69. As to the matter of notice, the plaintiff submitted in reply that, as noted in Gore v Justice Corp at [52], an absence of notice is just one of many relevant matters to be considered in the exercise of the Court's discretion on costs. Nor was the involvement by the secured creditors (including Bridge Street Capital), Mr Cacciola, Mr Werry and Mr Dykes in the proceedings and their involvement in the creation of the Deeds of Variation and the $182,984 deposit into Summer Lawyers bank account evident until all evidence was given (including on the last day of the hearing) and tested in cross examination. Notice was not practically feasible or relevant at an earlier stage in the proceedings and accordingly any absence of notice is of insignificant, if any, relevance. I accept this submission.

CONSIDERATION

70. This should have been a straightforward application to appoint a liquidator, following non-compliance with a statutory demand. The provision and amount of the vendor finance was uncontroversial. The only ‘wrinkle’ in the plaintiff’s application was that the statutory demand was based upon a default judgment obtained in the District Court of New South Wales which, by the hearing of the application to appoint a liquidator some 17 months’ later, had been set aside. As no application had been made to set aside the statutory demand, this was no great obstacle.

71. The real obstacle was opposition, effectively by the defendant’s secured creditors, on the grounds that the defendant was solvent. In opposing the application for the appointment of a liquidator, the defendant relied upon the evidence of Mr Cacciola, Mr Werry and Mr Lakomy. As noted in Wetherill at [17], whilst Mr Cacciola and Mr Werry notionally gave evidence on behalf of different companies, they effectively gave evidence with the same voice and in the same interest, being that of the secured lenders. The secured lenders’ funding of the defence was a decisive factor in the continuation of the proceedings to a final hearing of such length and complexity. Having succeeded, the justice of the case requires that the plaintiff’s costs of these proceedings be paid by the non-parties who were the “real parties”.

As against Mr Werry

72. The centrality of Mr Werry in the defence of the application cannot be overstated. The bulk of the documentary evidence stemmed from him, being self-serving emails or letters sent by him to Mr Cacciola or Mr Dykes, letters authored by him to be sent by Mr Dykes, and financial accounts prepared at his instigation. The affidavit evidence was either from him, or Mr Cacciola who appeared to conduct himself under the direction of Mr Werry, or Mr Lakomy who was content to opine on the solvency of the defendant on the basis of the instructions and material provided by Mr Werry without critical analysis. To the extent that the underlying debt was said to be disputed, that dispute was raised by Mr Werry, without a proper basis, and withdrawn. To the extent that Mr Lakomy opined that the defendant was solvent, that opinion was dependent upon Mr Werry’s instructions.

73. I do not agree that Mr Werry’s conduct was reasonable as being in the interests of the defendant and its creditors at large. The plaintiff’s interest was to be paid its longstanding debt. The secured lenders' strategy caused the plaintiff to incur substantially more costs than it otherwise would have to prosecute its remedies. In addition, delayed the winding up of an insolvent company is generally not considered to be in anyone’s interests. An important legislative policy is the expeditious determination of applications to wind up companies in solvency: Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd (2008) 232 CLR 314; [2008] HCA 9 at [14] and [17] per Gleeson CJ, Hayne, Crennan and Kiefel JJ. As to Mr Werry’s conduct in these proceedings, as referred to elsewhere in this judgment, Mr Werry’s actions led to the prolongation of these proceedings and the hearing: see, in particular, [33]-[38], [56].

74. Whilst Mr Werry submitted that his involvement in the defence of the proceedings did not benefit him financially, relying upon the corporate shield vis a vis Bridge Street Capital and BSC2, the evidence on this subject is limited. I infer that any evidence from Mr Werry on this subject would not have assisted him: Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8. Presumably, there was good reason for Mr Werry to go to such trouble and expense in opposing the plaintiff’s application.

75. Precisely who Mr Werry was representing was never entirely clear. Was it Weriton Finance, Bridge Street Capital, BSC2, SME2 or other unit trusts that were proffered as the money behind the deal but, on closer inspection, proved to be the wrong entity: Wetherill at [143]. As best can be told, Mr Werry brought this investment proposal to Mr Dykes as a representative of Weriton Finance. It was then proposed that Mr Werry’s part of the loan would be provided by Bridge Street Capital. In fact, the secured lender on the limited documentation to hand was BSC2, being a $2 company funded by Bridge Street Capital. Having got SME2 into this deal, Mr Werry appears to have taken it upon himself to represent SME2 in an effort to retrieve the position as best he could. Mr Werry referred, in his written submissions, to an “underwriting” or “keep safe” agreement with SME2, which I take to mean that Bridge Street Capital has agreed to indemnity SME2 for any liability which it may be found to have for the plaintiff’s legal costs.

76. Whether it was worth doing for Weriton Finance, the secured lenders, Bridge Street Capital as an indemnifier of SME2 or himself is not clear but the investment which Mr Werry made in defending these proceedings is consistent only with his perception that it was worthwhile as a matter of business. He controlled the course of this litigation. He perceived that he or his companies or his business would benefit from a successful outcome. He should bear responsibility for the plaintiff’s costs. To the extent that Mr Werry was, in truth, acting only as a representative of BSC2 or Bridge Street Capital, then presumably those companies, which he appears to control, will indemnify him.

As against the secured lenders

77. BSC2 and SME2 funded the defence of the proceedings. Whilst it was suggested that the benefit of doing so was unclear, presumably the benefit was considered sufficient for the secured lenders to expend the necessary funds. That there is no clear evidence of the benefit beyond stamp duty considerations does not detract from the plaintiff’s application, where much of the evidence as to precisely what the secured lenders were doing and why was vague and not within the plaintiff’s knowledge. The secured lenders’ motives were unlikely altruistic.

78. I do not agree that SME2 was a “pure funder”, that is, a party who had no personal interest in the litigation, did not stand to benefit from it, was not funding it as a matter of business and did not seek to control its course: Hamilton v Al Fayed (No 2) [2003] QB 1175 at [40]. The secured lenders were funding the litigation “as a matter of business” and, through Mr Werry, sought to control its course. As explained in Dymocks v Todd, the secured lenders were thereby gaining access to justice for their own purposes and were the “real parties” to the litigation: at [25]. The secured lenders have funded and advanced the claims of a financially insecure company to advance their interests. The interests of justice require that the secured lenders pay the plaintiff’s costs.

79. Whilst SME’s involvement in the evidential component of the proceedings was relatively slight, it is SME2’s financial contribution which warrants the making of a non-party costs order against it. As to the conduct of the proceedings, having left the decisions as to how to proceed to Mr Werry, SME2 is bound by the consequences of his actions and ought contribute to the plaintiff’s costs. Noting the “underwriting” or “keep safe” agreement referred to by Mr Werry, SME2 may be entitled to look to Bridge Street Capital for an indemnity but, in the first instance at least, I consider it appropriate that SME2 be jointly and severally responsible with BSC2 for the plaintiff’s costs.

As against Bridge Street Capital

80. To the extent it was submitted that any benefit derived by Bridge Street Capital was unclear, I repeat what I have already said on this subject. Throughout these proceedings, Mr Werry repeatedly referred to Bridge Street Capital’s financial support of the defendant. In his affidavits, Mr Werry deposed that he was a director of BSC2 and Bridge Street Capital and was authorised to swear his affidavits on behalf of both companies. He referred to the financial position and businesses of both BSC2 and Bridge Street Capital collectively, stating “BSC and BSC2 continue to provide financial support to [the defendant]”. Bank statements for BSC2’s bank accounts were not attached to his affidavits, presumably because there were no funds. Annexed to Mr Werry’s affidavits were bank statements for Bridge Street Capital’s bank accounts, showing substantial funds. See also [45]-[46].

81. Having elided Bridge Street Capital and BSC2’s financial position when it suited him – to suggest that the defendant was solvent by reason of the combined financial position of the secured lenders and those who stood behind BSC2 – it is inconsistent to now seek to rely on the corporate veil as protection from a non-party costs order against Bridge Street Capital. Bridge Street Capital paid the defendant’s bills and provided the funds to BSC2, including presumably money to pay the defendant’s legal costs. Bridge Street Capital appears to have paid the ‘window dressing’ into the defendant’s solicitor’s trust account: see [33]. Bridge Street Capital was the “real party” and a non-party costs order should be made against it.

80. I may not have understood the Browne v Dunn point. As Hunt J expressed the principle in Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1:

It has in my experience always been a rule of professional practice that, unless notice has already clearly been given of the cross-examiner's intention to rely upon such matters, it is necessary to put to an opponent's witness in cross-examination the nature of the case upon which it is proposed to rely in contradiction of his evidence, particularly where that case relies upon inferences to be drawn from other evidence in the proceedings. Such a rule of practice is necessary both to give the witness the opportunity to deal with that other evidence, or the inferences to be drawn from it, and to allow the other party the opportunity to call evidence either to corroborate that explanation or to contradict the inference sought to be drawn. …

83. The defendant’s case at the principal hearing – including that advanced in affidavits sworn by Mr Werry and Mr Cacciola – was that the defendant was only surviving on funds provided by the secured creditors and Bridge Street Capital. The defendant’s financial records tendered at the hearing indicated its parlous financial state (although Browne v Dunn is a rule which relates to oral evidence, not documents). On the plaintiff’s application for a non-party costs order, the credibility of witnesses was not in issue, nor for that matter did Mr Werry put on any evidence. It is self-evident that, unless the defendant’s legal costs were funded by the secured creditors, then the defence of the application to appoint a liquidator would have been short-lived. It was not necessary to put such a matter to these witnesses, noting that they do not suggest otherwise in any event.

As against the director

84. As I observed in my primary judgment at [111], Mr Cacciola appeared to be acting at all time in accordance with the instructions of Mr Werry. Whilst Mr Cacciola was a director of the defendant, he appeared to have no first hand knowledge of the company’s financial position but relied on Mr Werry to attend to that side of the company’s affairs: at [118]. On this application, Mr Cacciola remained under the thrall of Mr Werry, submitting that it was he who gave instructions to the defendant's solicitors "and there is no evidence to suggest that his role was usurped by Mr Werry". That was not my observation.

85. Although Mr Cacciola was a director of the defendant, he was no director in the ordinary sense. He was appointed by the secured lenders and acted at their behest. The interests of the defendant company do not appear to have been at the forefront of his mind. Whilst it would be easy to make a non-party costs order against Mr Cacciola as, in effect, he was no director at all, to do so would detract from Mr Werry’s overall responsibility for the conduct of these proceedings. Where Mr Cacciola was Mr Werry’s agent, the principal should be responsible for the extent to which these proceedings were protracted by reason of Mr Cacciola’s actions, those actions being at Mr Werry’s direction.

As against Mr Dykes

86. It is apparent that Mr Dykes was acting in his capacity as a director of SME2. I am not satisfied on the evidence that there was an agreement, in his private capacity, that he, Mr Cacciola and Mr Werry would complete the development and share the profit between themselves. Mr Dykes left it to Mr Werry to run the proceedings and make the decisions. Mr Dykes was content to sign documents prepared by Mr Werry but appears to have checked that he agreed with the contents before signing them. I do not consider that there is anything in his conduct which warrants a non-party order being made against him personally.

ORDERS

87. For these reasons, I make the following orders:

1. Graham Werry, Bridge Street Capital No. 2 Pty Ltd, Bridge Street Capital Pty Ltd and Saddleback Mountain Estates No. 2 Pty Ltd are jointly and severally liable with the defendant to the plaintiff for the payment of the plaintiff’s costs of the proceedings, including the plaintiff’s costs of its application for a non-party costs order.

2. Make no order in respect of the application for a non-party costs order against David Cacciola or John Dykes, including in respect of the costs of that application.

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Decision last updated: 04 November 2021