Landsville Huynh Pty Ltd v Huynh (No 2)
[2023] VSC 304
•7 June 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2022 02295
| LANDSVILLE HUYNH PTY LTD (ACN 634 308 366) and others (according to the schedule attached) | Plaintiffs |
| v | |
| TRI TAM HUYNH | First Defendant |
| HUYNH ASSET HOLDINGS PTY LTD ATF HUYNH FAMILY TRUST (ACN 634 147 827) | Second Defendant |
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JUDGE: | LYONS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 7 June 2023 |
CASE MAY BE CITED AS: | Landsville Huynh Pty Ltd v Huynh (No 2) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 304 |
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COSTS – Limited grant of derivative leave pursuant to Corporations Act 2001 (Cth) s 237 –Where plaintiffs successful in obtaining leave on limited grounds – Whether costs of derivative leave proceeding should await outcome of substantive proceeding.
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APPEARANCES: | Counsel | Solicitors |
| For the First Plaintiff | No appearance | |
| For the Second to Fifth Plaintiffs | Mr S P T Bunce | Rennick & Gaynor |
| For the Defendants | Mr I Hristovski | HWL Ebsworth |
HIS HONOUR:
I delivered reasons for ruling in this proceeding on 23 February 2023 (Reasons).[1] In the absence of agreement between the parties, it is necessary now for me to determine the costs of this proceeding. I have determined to issue short reasons for my decision in relation to costs, consistent with the decision of the Court of Appeal in Luxmore Pty Ltd v Hydedale Pty Ltd (2008) 20 VR 481. For convenience, I have adopted the defined terms in the Reasons.
[1]Landsville Huynh Pty Ltd v Huynh [2023] VSC 55.
In this proceeding (the derivative leave proceeding), the applicants (i.e. the second to fifth plaintiffs) sought leave to issue a proceeding in the name of the Company pursuant to s 237 of the Corporations Act 2001 (Cth) (i.e. the Corporations Act), including for:
(1) the breach of duty claims against Mr Huynh as the sole director of the Company (including the cancellation claim, the default notice claim, the personal profit claim and the improper expenses claim);
(2) the shareholders agreement claims, namely, the interest claim and the shared losses claim.
As is evident from my Reasons, the substantial proportion of the material, submissions and time spent in oral argument related to the breach of duty claims. These were also the substantial claims in terms of monetary value, with the cancellation claim and the default notice claim alleged to result in damages claims well in excess of $880,000.[2] By contrast, the shareholders agreement claims totalled approximately $36,000 (as at February 2022) for the interest claim and approximately $151,000 for the shared losses claim.[3] At the outset, I wish to note again that lengthy submissions and substantial affidavit evidence was filed, most of which related to the breach of duty claims.
[2]Reasons, [95]; [97].
[3]Reasons, [102].
I determined only to grant leave to the second, fourth and fifth defendants in respect of the shareholders agreement claims as I was not satisfied that all the requirements of s 237 of the Corporations Act had been made out in respect of any of the breach of duty claims. I requested the parties confer on the final form of order and on the issue of the costs of the application.
By email dated 29 March 2023, the parties indicated to chambers that they had agreed to a proposed form of order save for the question of costs.
As a consequence of the parties’ failure to agree as to costs, on 30 March 2023 I directed my chambers to send an email to the solicitors for the parties indicating my preliminary view that, given the outcome of the proceeding and the nature of the issues raised (in respect of which the applicants had had only a relatively moderate degree of success) and to avoid the unnecessary costs of taxation, the Court might fix the applicants’ costs in the sum of $15,000 and there should be no other order as to costs (the suggested orders). The parties were requested to confer as to these matters. In the absence of agreement, I indicated that I would list the proceeding for mention.
The parties were unable to agree. In summary, while the applicants were willing to agree with the suggested orders, the defendants did not agree with the result that submissions on costs were required to be made. As a result, I ordered the exchange of submissions limited to three pages on the issue of costs.
The applicants submitted that, given the defendants did not consent to the proposed costs order by the Court, the basis of making the suggested orders had been vitiated and the Court may prefer to order:
(1) standard costs for the applicants (or a portion of their costs); or
(2) a fixed amount for the applicants’ costs.
The applicants noted in their submissions that their indemnity costs, including court filing fees and counsel’s fees were approximately $44,387.90 (I presume to the time of the costs submissions). They noted that the leave application required substantial work in addition to a full day hearing. The applicants submitted that the Court may wish to increase the amount awarded under the suggested orders or, at least, the $15,000 proposed plus additional costs to cover the costs associated with the costs dispute.
In doing so, the applicants relied on authorities to the effect that costs follow the event and that, while it is in the discretion of the Court to apportion costs, the general rule is that, absent disqualifying conduct, the successful party should receive costs of the action even where it has not succeeded on all heads of claim.
By contrast, the defendants submitted that the appropriate costs order is that there be no order as to costs or that the applicants’ costs be costs in the cause. The defendants noted the limited success of the applicants in the derivative leave proceeding, namely, that they were only successful in respect of the shareholders agreement claims. They submitted that the overwhelming proportion (approximately 90%) of the evidence and time spent at hearing related to the breach of duty claims and that leave was not granted in respect of those claims.
The defendants noted that the costs of the applicants of $44,387.90 referred to in the applicants’ submissions were costs on an indemnity basis, which would be reduced on scale on a standard basis and that a costs order of $15,000 in favour of the applicants (as proposed in the suggested orders) would represent approximately one third of the applicants’ indemnity costs in circumstances where approximately 90% of work related to issues for which leave was not obtained.
Further, the defendants relied upon a number of decisions which support the proposition that the proper orders for costs in derivative leave claims should be costs in the cause, including Cassegrain v Gerard Cassegrain and Co Pty Ltd [2008] NSWSC 1159, [19]–[20] (Sackville AJ) and Carbon Copies Composites Pty Ltd [2022] NSWSC 1762, [26] (Black J) (Carbon Composites).
It is appropriate that I deal with this submission first. I acknowledge that there are some single judge authorities which suggest that there is some usual or common order that a plaintiff is not entitled to an order for its costs in respect of a derivative leave proceeding at the time of the determination of that application, rather, the costs of the application should be the costs of the cause in the substantive proceeding.
For my part, given that the costs discretion is broad and unfettered, I am reluctant to accept the existence of any ‘usual order’ in a derivative leave proceeding. Further, in my view, a derivative leave proceeding is a separate proceeding involving separate and distinct criteria and issues from those that will be determined in the substantive proceeding should leave be granted. This is evident from the fact that it was necessary for the applicants to meet the particular requirements of s 237 of the Corporations Act for leave to be granted in respect of any claims sought.
In my view, these factors suggest that it is appropriate to order the costs in favour of a successful applicant in a derivative leave proceeding. While in one sense it is open to say that costs of the derivative leave proceeding are unnecessary if the substantive proceeding is unsuccessful, in my view, this ignores the fact that the derivative leave application involves different matters to be proved than the matters in the substantive proceeding. It is always open for a respondent to consent to the derivative leave application (thereby avoiding costs) and then vigorously defending the substantive proceeding.
As a consequence, I consider that it is appropriate in the exercise of my discretion to make some order in favour of the successful party in the derivative leave proceeding given that it was successful, at least in part.
As to the power of the court to order costs and the ability of the court to apportion them, I refer to my decision summarising the relevant principles in Euromark Limited v Smash Enterprises Pty Ltd & Ors (No 2) [2021] VSC 393, [85]–[90]. Given the issues argued on which the applicants were not successful, I consider that there ought be some apportionment of the costs of this proceeding (noting that a filing fee and a brief fee would need to be incurred in any event). Consistent with authority, I will undertake this apportionment in a broad brush and pragmatic way, based on impression and evaluation rather than arithmetic precision.
As is evident from my comments above, I do not consider it is appropriate that the applicants obtain an order for all of their costs of the derivative leave proceeding given that they were only successful in respect of a limited number of claims, by value, the material filed and the time spent in respect of the derivative leave proceeding.
Based on my assessment of the material, submissions and oral hearing, the time and effort devoted to the breach of duty claims was in the order of 70–80% and the shareholders agreement claims occupied between 20–30%. I note that separate submissions were filed after the hearing relating to the shareholders agreement claims. Further, I am conscious that leave was granted and that it was necessary for the applicants to brief counsel for the purpose of obtaining leave in any event. In these circumstances, I consider that the applicants are entitled to one third of their standard costs of the derivative leave proceeding. I will not make any special order dealing with the costs dispute between the parties. I have included the costs of the third plaintiff notwithstanding his application was not successful.
While I am concerned about the costs incurred to date, I do not consider that I am in a position to fix those costs without any evidence as to what the costs on a standard basis might be.
As a result, I will order that the applicants are entitled to one third of their costs of the proceeding on a standard basis, to be taxed in default of agreement.
SCHEDULE OF PARTIES
S ECI 2022 02295
| BETWEEN: | |
| LANDSVILLE HUYNH PTY LTD (ACN 634 308 366) | First Plaintiff |
| DAT TAN LE | Second Plaintiff |
| KHUYEN TRI NGUYEN | Third Plaintiff |
| MOHAMMAD IBRAHIM ZERMATI | Fourth Plaintiff |
| LANDSVILLE PTY LTD (ACN 633 819 799) | Fifth Plaintiff |
| - and - | |
| TRI TAM HUYNH | First Defendant |
| HUYNH ASSET HOLDINGS PTY LTD ATF HUYNH FAMILY TRUST (ACN 634 147 827) | Second Defendant |
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