McGlone v Gerard Brandrick & Associates Pty Ltd (Costs)
[2023] VCC 1895
•23 October 2023
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-19-02031
| ANDREW JOHN MCGLONE (as legal personal representative of the estate of Donald Oberin (deceased)) | Plaintiff |
| And | |
| GERARD BRANDRICK & ASSOCIATES PTY LTD (ACN 079 074 061) | First defendant |
| And | |
| Second defendant | |
| TUGNOTION PTY LTD (ACN 006 063 717) (in liquidation) |
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JUDGE: | Her Honour Judge Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 6 October 2023 | |
DATE OF RULING: | 23 October 2023 | |
CASE MAY BE CITED AS: | McGlone v Gerard Brandrick & Associates Pty Ltd & Anor (Costs) | |
MEDIUM NEUTRAL CITATION: | [2023] VCC 1895 | |
RULING
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Subject:COSTS – NON-PARTY COSTS ORDER
Catchwords: Whether third party costs order ought to be made – Whether costs should be paid on a standard or indemnity basis – Whether rejection of Calderbank Offer reasonable.
Legislation Cited: County Court Civil Procedure Rules 2018 O63A and rr30 and 31; County Court Act 1958 (Vic) s78A; Corporations Act 2001 (Cth) s500(2)
Cases Cited:McGlone v Gerard Brandrick & Associates Pty Ltd & Anor [2023] VCC 999; Royal Fresh International Pty Ltd v Nutracare Life Sciences Pty Ltd [2019] VCC 553; Zhang v Oakmont Properties Pty Ltd [2023] VSC 248; GVE Hampton Pty Ltd v Shangri-la Construction Pty Ltd [2018] VCC 1806; Knight v FP Special Assets Ltd (1992) 174 CLR 178; Gdanski v Palms Court Management Pty Ltd [2017] VSCA 348; Rushton (Qld) Pty Ltd v Rushton (NSW) Pty Ltd [2004] QSC 47; IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248; Colgate-Palmolive Co & Anor v Cussons Pty Ltd (1993) 46 FCR 225; BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH (No 3) [2012] VSC 414; Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG [No 2] [2015] VSCA 123; Hannover Life Re of Australasia v Colella [2014] VSCA 205; Calderbank v Calderbank [1975] 3 All ER 333; Aljade and MKIC v OCBC [2004] VSC 351; Oshlack v Richmond River Council (1998) 193 CLR 72; Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (No 3) [2002] FCA 1294; Hobartville Stud Pty Ltd v Union Insurance Co Ltd [2004] FCA 1600; Leichardt Municipal Council v Green [2004] NSWCA 341; VWA V O’Brien [2017] VSC 68; Szencorp Pty Ltd v Clean Energy Council Limited (No 2) [2009] FCA 196; Murphy v Mackay Labour Hire Pty Ltd [2018] QCA 90
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APPEARANCES: | Counsel | Solicitors |
| For the First Defendant | Mr J A F Twigg KC with Ms A Mobrici | Sparke Helmore Lawyers |
For the Non-Party | Mr N J Phillpott | Oldham Fairweather Legal |
HER HONOUR:
Introduction
1On 19 June 2023, I gave judgment in favour of the plaintiff against the second defendant (“Tugnotion”) in this matter and dismissed Tugnotion’s notice of contribution against the first defendant (“Brandrick”).
2I further ordered that Tugnotion pay the plaintiff and Brandrick’s costs of and incidental to the proceeding on a standard basis to be taxed in default of agreement, unless either party had a basis for seeking a different order as to costs and invited the parties to prepare draft orders to give effect to my reasons.[1]
[1] McGlone v Gerard Brandrick & Associates Pty Ltd & Anor [2023] VCC 999 at [8].
3The parties were unable to reach agreement on the issue of costs. By email dated 6 July 2023, Brandrick foreshadowed making submissions in support of a non-party costs order against Tugnotion’s director, Mr Peter Kyne (“Mr Kyne”). By email dated 17 July 2023, the plaintiff sought a special costs order against Tugnotion by reason of an offer of compromise made on 20 October 2021.
4By email dated 19 July 2023, Mr Shane Cremin (“Mr Cremin”) of Rodgers Reidy informed the Court that he had been appointed liquidator of Tugnotion on 13 July 2023. Pursuant to s500(2) of the Corporations Act 2001 (Cth), the proceeding is stayed pending leave of the Federal or Supreme Court. Mr Cremin advised that Tugnotion did not have any funds available to defend the proceeding. As such, Mr Cremin did not intend to participate in the action.
5By summons filed on 8 August 2023, Brandrick made its application for a non-party costs orders against Mr Kyne. The application is supported by the affidavit of Mark Andrew Beech (“Mr Beech”), solicitor for Brandrick, affirmed on 10 August 2023. The application is opposed by Mr Kyne. Mr Kyne relies on his affidavit in opposition declared on 11 September 2023.
6The first and second defendants prepared written submissions on the question of whether the costs of the proceeding should be paid on a standard (that is, partially in accordance with the County Court Scale) or indemnity basis (that is, in their entirety) and whether Mr Kyne, being a non-party, ought to pay Brandrick’s costs of and incidental to the proceeding.
7Brandrick seeks orders that Mr Kyne pay its costs of and incidental to the proceeding prior to 27 January 2022 on a standard basis and thereafter on an indemnity basis. Alternatively, Brandrick seeks an order that Mr Kyne pay its costs of and incidental to the proceeding on a standard basis. Alternatively, that Mr Kyne pay Brandrick’s costs of and incidental to the proceeding on and from 14 July 2022 on an indemnity basis, or alternatively, on a standard basis. At the hearing, Brandrick did not press the first basis for a costs order. The crux of the argument was that, by issuing the notice of contribution against Brandrick, Tugnotion caused it to incur legal fees.
8Mr Kyne opposes the orders that he pay Brandrick’s costs as he claims Brandrick has failed to establish that Mr Kyne is a person to whom the category of person liable for a non-party costs order applies and the interests of justice are against the making of such an order.
9For the reasons set out below, I am satisfied that it is in the interests of justice that Brandrick’s application should be granted, and that Mr Kyne pay Brandrick’s costs of and incidental to the proceeding on and from 14 July 2022 on a standard basis to be taxed in default of agreement. Further, Mr Kyne ought to pay Brandrick’s costs of and incidental to the application on the standard basis to be taxed in default of agreement.
Relevant Background
10On 21 January 2022, the plaintiff and Brandrick fully executed a deed of release in this proceeding. The settlement funds were transferred to Dawes & Vary Riordan Pty Ltd, solicitors for the plaintiff, on 11 February 2022. At this time and given there was no notice of contribution issued by Tugnotion and addressed to Brandrick, Brandrick considered that its active involvement in the matter had come to an end. Pursuant to the deed of release, Brandrick would only remain in the proceedings for the purposes of apportionment under Part IVAA of the Wrongs Act 1958.
11On the first day of trial, on 13 July 2022, Tugnotion notified the Court and the other parties of its intention to seek leave to file and serve a notice of contribution on Brandrick. Leave was granted and Tugnotion filed the notice of contribution on 14 July 2022. The further hearing of the trial was adjourned to 23 November 2022.
12On 18 October 2022, Brandrick presented a letter of offer to Tugnotion in the form of a Calderbank Offer, the terms of which were that Tugnotion agree to the dismissal of its notice of contribution against Brandrick, with no order as to costs between the parties.
13Among other things, the Calderbank Offer stated:
“5. Brandrick has applied to dismiss the notice of contribution filed by Brandrick, primarily because KGB’s notice gives no consideration to the fact that Brandrick has discharged its liability to Oberin and, by reason of s 24AJ of the Wrongs Act, Brandrick cannot be required to contribute to the claims made by Oberin against KGB.
6. As set out in our client’s submissions filed with its application to dismiss the notice of contribution, Brandrick has a complete defence to the notice of contribution. And, any liability of Brandrick to Oberin is limited to the settlement sum”.
(Emphasis added.)
14Tugnotion did not respond to Calderbank Offer.
15The balance of the trial was heard and completed in November 2022. Written submissions closed on 7 February 2023. Judgment was delivered on 19 June 2023.
16At paragraph [8] of the reasons for judgment, I stated:
“…I also order that [Tugnotion] pay the plaintiff’s and [Brandrick’s] costs of and incidental to the proceeding on the standard basis, in default of agreement, unless either party has a basis for seeking a different order as to costs”.
(Emphasis added.)
17On 27 June 2023, the Court made, among other things, timetabling orders for submissions as to costs. Such orders were extended on 10 July 2023.
18On 6 July 2023, Brandrick wrote to Tugnotion’s solicitors, foreshadowing a potential non-party costs order against Mr Kyne and seeking discovery of documents relating to the same.
19On 13 July 2023, Mr Cremin was appointed as liquidator of Tugnotion.
20On 14 July 2023, Tugnotion’s solicitors responded to Brandrick’s 6 July 2023 letter stating (among other things):
“This is not a category of case which consists of circumstances where the party to the litigation (Tugnotion) is an insolvent person or man of straw”.
21On 21 July 2023, the liquidator notified the Court that it had been appointed as liquidator of Tugnotion on 13 July 2023.
22On 21 July 2023, the Court made orders staying the proceeding against Tugnotion.
Legal framework
Non-party costs order
23This Court has set out the relevant legal framework in previous decisions as follows.[2]
[2] Royal Fresh International Pty Ltd v Nutracare Life Sciences Pty Ltd [2019] VCC 553 at [27]–[33] and GVE Hampton Pty Ltd v Shangri-la Construction Pty Ltd [2018] VCC 1806 at [24]–[33].
24Section 78A of the County Court Act 1958 (Vic) provides that the costs of and incidental to all proceedings are in the discretion of the Court and the Court may determine by whom and to what extent the costs are to be paid.
25It is common ground that the principles set out by the High Court in Knight v FP Special Assets Ltd (“Knight”)[3] are relevant to the making of orders against non-parties. These principles were recently examined in some detail by the Victorian Court of Appeal in Gdanski v Palms Court Management Pty Ltd.[4] There, the Court noted:[5]
“The making of an order for costs against a non-party is an exceptional course for a court to take. The usual order, of course, is that the losing party pays the successful party’s costs of the proceeding. There are, however, recognised sets of circumstances in which express provisions authorise, or the interests of justice require, the making of a non-party order for costs. Naturally, such an order can only be made if the circumstances of the case satisfy the conditions laid down for the exercise of the relevant power.”
[3] (1992) 174 CLR 178, 192–3 (“Knight”).
[4] [2017] VSCA 348 (“Gdanski”).
[5] Ibid at [1].
26The court did not take issue with the trial judge’s summary of the applicable principles decided in Knight[6] and later authorities applying that case.[7] Knight identified a well-established category of case where a court has discretion to make a non-party costs order.[8] Mason CJ and Deane J said:[9]
“For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active role 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.”
(Emphasis added.)
[6] (1992) 174 CLR 178.
[7] See Gdanski [2017] VSCA 348 at [33].
[8] (1992) 174 CLR 178
[9] Ibid at 192–3.
27So, the power to make a non-party costs order can arise where:
(a) a named party is insolvent or a “man of straw”;
(b) the non-party played a sufficiently active role in the conduct of the litigation;
(c) the non-party has a sufficient interest in the litigation.
28In other words, for the Knight category to be applicable, there is a threshold requirement that the non-party is a real party to the litigation. This requires that the party be actively involved and personally interested in the proceeding. It is the combination of these two requirements which enlivens the Court’s jurisdiction to consider making an order against a non-party for the costs of the successful party. Unless the non-party can be properly characterised as a real party to the litigation, no question of the interests of justice or of exceptional circumstances arises and it cannot be appropriate to make a costs order against such a non-party.[10]
[10] Gdanski [2017] VSCA 348 at [69]–[70].
29The discretion to make a costs order against a non-party is to be exercised with considerable caution. The discretion is to be exercised judicially and in accordance with general legal principles pertaining to the law of costs. It is not lost on the court that a non-party costs order appears on one hand to be contrary to the principles of limited liability. Ultimately, the enquiry will depend upon the facts of each particular case.
30The mere fact that a director causes an insolvent company to either bring or defend legal proceedings is insufficient of itself to justify a non-party cost order under the Knight principle. Something more is required to justify such an order. As explained in Gdanski, the Knight principle applies where recourse to the losing party is unavailable because it is insolvent, and the non-party can be seen to have substantively contributed to the claim or defence in pursuit of the non-party’s own interests such that the non-party was a real party to the proceeding.
31In assessing whether a director has been actively involved in the litigation in the requisite sense, it is necessary to acknowledge that a company is an artificial legal entity which must, of necessity, act through the agency of natural persons. The fact that a sole director and shareholder was the prime decision-maker in the company’s litigation is not sufficient to establish that the director was a real party to the litigation in the necessary sense. As Muir J explained in Rushton (Qld) Pty Ltd v Rushton (NSW) Pty Ltd:[11]
“In my view the mere fact that a person is the sole director and shareholder of an unsuccessful litigant corporation will not, without more, suffice to justify a costs order against that person. And that is so even if the person was the corporation’s sole, principal or ultimate decision maker in relation to the litigation.
To conclude otherwise would be to ignore the principle that costs orders against non-parties are “exceptional” and ought be made only if appropriate in the interest of justice. 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”.
[11] [2004] QSC 47 at [12]–[13]. This passage was quoted with approval by the Court of Appeal in Gdanski at [43].
32In assessing a director’s conduct, it is also important to recognise that when a company director plays an active role in litigation involving the company, this may be entirely consistent with the director’s fiduciary duty to the company. The director’s duties might require the director to cause the company to prosecute a potentially valuable cause of action. Here, the company’s solicitors advised the liquidators that there were merits in the claim against the defendant.
33The question whether the non-party had standing to bring the proceedings is relevant to whether or not the non-party was a real party to the litigation with the requisite personal interest in the outcome of the litigation. The fact that a non-party does not have standing to bring the claim and the corporate litigant is the only proper plaintiff militates against the making of a non-party costs order.
34The courts have exhibited a general concern to avoid undermining principles of limited liability. Accordingly, the mere fact that a non-party is a sole director and shareholder of a corporate litigant does not of itself attract the Knight principle. If this were not so, the corporate veil would effectively be nullified at the very point where it provides protection against personal liability for shareholders and directors. Thus, the simple fact that a shareholder has an indirect interest in the success of a company’s litigation does not mean that the Knight exception for costs orders is applicable.
35Similarly, the mere fact that a creditor, which might include a director who lent money to the company, has an indirect interest in the success of a company’s litigation does not mean that the Knight exception applies. Relevant factors in this context include the existence of other creditors of the company and the amount of the indirect benefit which the creditor might receive from successful litigation.
Indemnity costs
36As a general rule, the Court will order costs to be taxed on the standard basis.[12] The discretion to make a special costs order is an unlimited one, though it must be exercised judicially and not unreasonably, and the circumstances should be “special”.[13] The usual order as to costs is that costs follow the event, and the successful party is entitled to an award of costs in its favour.[14]
[12] County Court Civil Procedure Rules 2018 (“Rules”) r63A.31 (see r63A.30 regarding the meaning of “standard basis”).
[13] Aljade and MKIC v OCBC [2004] VSC 351 at [10].
[14] Oshlack v Richmond River Council (1998) 193 CLR 72 at [97].
37In Colgate-Palmolive Co v Cussons Pty Limited,[15] Shepherd J set out many categories of circumstances which will warrant the making of a special costs order:
(a) the making of allegations of fraud knowing them to be false;
(b) the making of irrelevant allegations of fraud;
(c) evidence of particular misconduct that causes loss of time to the court and to other parties;
(d) the fact that the proceedings were commenced or continued for some ulterior motive or with wilful disregard of known facts or clearly established law; and
(e) the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions.
[15] (1993) 46 FCR 225 at [23]–[24].
38In IMC Aviation Solutions Pty Ltd v Altain Khuder LLC,[16] the Court of Appeal also stated that:
“Special circumstances may be found where, for instance, the unsuccessful party has made serious unfounded allegations, pursued the proceeding for an ulterior purpose, wasted the court’s time, committed a contempt of court or engaged in some other improper conduct. But in each case it is a question to be determined in the light of the particular facts and circumstances”.
[16] [2011] VSCA 248 at [325].
Issues
39The issues for determination are as follows:
(a) whether Tugnotion as a named party is insolvent or a “man of straw”;
(b) whether the non-party played a sufficiently active role in the conduct of the litigation;
(c) whether the non-party has a sufficient interest in the litigation;
(d) whether the interests of justice permit the non-party to hide behind the corporate veil;
(e) whether Mr Kyne should pay Brandrick’s costs of the proceeding on and after 27 January 2022 on an indemnity basis, alternatively on a standard basis;
(f) whether Mr Kyne should pay Brandrick’s costs of the proceeding on and after 14 July 2022 on an indemnity basis, alternatively, on a standard basis.
Brandrick’s submissions
40On 18 February 2022 (being the month after Brandrick entered the deed of settlement with the plaintiff), Mr Kyne became the sole director and secretary of and a shareholder in a newly registered company known as “Kyne General Builders Pty Ltd (ACN 657 425 735) (“Kyne General Builders”).
41By virtue of its notice of contribution filed on 14 July 2022, Tugnotion was the “moving party” as against Brandrick. Brandrick submitted that it was Tugnotion’s notice of contribution that caused it to incur legal fees and costs, otherwise, it was excused from participating in the trial as a defendant for apportionment of liability (it was not pursuing its rights in its notice of contribution).
42Brandrick submitted that Tugnotion’s claim in its notice of contribution was flawed from the outset for the following reasons:
(a) Tugnotion accepted that its contribution claim applied only to non-apportionable claims made against Brandrick, however, its claim for contribution relied entirely on the plaintiff’s apportionable claims against Brandrick at trial;
(b) the Court rejected, in its entirety, all contractual terms Tugnotion sought to imply into the retainer between the plaintiff and Brandrick on the basis that such an attempt was contrary to established authority, the Trade Practices Act 1974, the Building Act 1993 and Regulations and the construction contract;
(c) pursuant to the terms of the retainer between the plaintiff and Brandrick (upon which Tugnotion’s claim for contribution relied), Brandrick’s liability was limited to $300,000.00 and to a six-year limitation period from the date of practical completion.
43Brandrick contended that, in circumstances where Brandrick’s position in the Calderbank Offer has been vindicated by the Court’s reasons, it was unreasonable for Tugnotion to not have accepted the offer.
44Brandrick argued that Tugnotion engaged in conduct that caused loss of time to the Court and to other parties because:
(a) Tugnotion’s closing submissions traversed matters beyond its pleaded case;
(b) Tugnotion’s criticisms of the concurrent expert evidence process was inconsistent with current case management practices.
45Mr Kyne was a director, secretary and shareholder of Tugnotion.
46The other director of Tugnotion was, up until 13 July 2023, Mr Kyne’s wife. There is no evidence that Mr Kyne’s wife played an active (or any) role in the management of Tugnotion. As such, Tugnotion was Mr Kyne’s company. He had both a financial interest and personal interest in the proceeding.
47By his own admission in his affidavit in opposition, Mr Kyne has paid at least a portion of Tugnotion’s legal costs relating to the proceeding by forgoing a wage from Tugnotion so that it would have “more money to pay legal fees”. In oral evidence, Mr Kyne said that he and his wife also lent funds to Kyne General Builders which was used to pay Tugnotion’s legal fees.
48Brandrick contended that the financial statements (financial year end of 30 June) exhibited to Mr Kyne’s Affidavit show legal expenses of: $131,461.95 in 2023, $58,856.71 in 2022 and $78,839.17 in 2021.
49Mr Kyne deposes that the estimate of $250,000.00 was provided by Oldham Construction Lawyers in or around August 2021. As such, and assuming the ordinary course that an estimate is provided before legal fees are incurred, any legal expenses incurred by Tugnotion between 1 July 2020 and 30 June 2021 must be separate from and unrelated to the estimate provided by Oldham Construction Lawyers in or around August 2021.
50Even if all “legal expenses” itemised in the financial statements for financial years ended 30 June 2022 and 30 June 2023 (and, as per the previous paragraph, excluding amounts incurred in the financial year ended 30 June 2021) were in relation to the proceeding (in respect of which there is no direct evidence), this equals $190,318.66, leaving an unexplained shortfall of approximately $60,000.00.
51Brandrick contended that it is difficult (if not impossible) to see how Tugnotion’s sale of plant and equipment to Kyne General Builders (in respect of which Mr Kyne is the sole director and secretary of and shareholder) for the sum of $105,000.00 is supportive of anything other than the phoenixing of Tugnotion to Kyne General Builders. Those assets could not all be applied to legal fees relating to the proceeding.
52Brandrick says that Mr Kyne caused Tugnotion to make the contribution claim and was responsible for legal costs being incurred by Brandrick. He stood personally to gain from the contribution claim, knowing that Tugnotion would be unable to meet an adverse costs order.[17] Justice requires that Mr Kyne pay the legal costs for the failed claim.
[17] Zhang v Oakmont Properties Pty Ltd [2023] VSC 248 at [1], [42] and [42] per Gorton J.
53Brandrick submits that the Court’s power to make a non-party costs order is unfettered, noting that in Knight, the High Court makes no mention of the need for a security for costs application to precede the non-party costs order. This is contrary to the submissions advanced by Tugnotion, who argued that a security for costs application is a more appropriate avenue to protect against liquidation.
54Brandrick contends that there is no temporal requirement in Knight and that the requirements outlined in Knight are not a “shopping list” that needs to be “ticked off”.
55Brandrick draws upon Royal Fresh International Pty Ltd v Nutracare Life Sciences Pty Ltd (in liq) as Trustee for the Nutracare Life Sciences Unit Trust (“Royal Fresh”),[18] whereby Cosgrave J outlined the scenarios in which the power to make a non-party costs order arise and, importantly, made no mention of any indicia relating to security for costs.
[18] [2019] VCC 553.
56Brandrick draws upon Payton Securities (which related to the analogous s24(1) of the Supreme Court Act 1986 (Vic)), in which the Supreme Court stated (at [46]) that:
“… the absence of any warning being given to [a non-party] of a non-party costs order being sought against it and no security for costs application being commenced in the circumstances is not a bar to the making of any non-party costs order. Those factors are important but not an insuperable bar to any application”.
(Emphasis added.)
57In support of this argument, Brandrick also draws upon Murphy v Mackay Labour Hire Pty Ltd (“Murphy”),[19] in which the appellant Judges agreed with the primary Judge’s decision to not reject the appeal on the basis that no effort to forewarn the appellant had been made.
[19] [2018] QCA 90.
58Brandrick submits that that they had no way of knowing that Tugnotion was an “entity of straw” up until as late as June 2023, as there was no public information available. This is despite the fact that as early as February 2022, Mr Kyne had taken deliberate steps with the result that Tugnotion (and thereafter Mr Kyne) would not need to account for any adverse consequence of the proceeding.
59To support their argument that they had no way of knowing that Tugnotion was an “entity of straw”, Brandrick notes that the “Creditorwatch” report dated 26 June 2023 ranked Tugnotion as having a “1.70% chance of failure within the next 12 months”, and assigned Tugnotion a “risk level” of “neutral” and a “credit rating grade” of “B3”, being a description of an entity that currently has the aptitude to meet credit commitments. Brandrick says that this is consistent with the written assurance that they received from KGB’s solicitor on 14 July 2023 that, as at this date, Tugnotion was not insolvent.
60Brandrick contends that, although it could not have known it at the time, Mr Kyne took steps to strip Tugnotion of its assets, transferring those assets to a new “phoenix company”, at a time convenient to Mr Kyne, and then continuing to trade through his new “phoenix” company. The ultimate effect of the transfer of these assets and the ceasing of trade was to place Tugnotion into liquidation. Brandrick argues that this conduct is clear from the following steps taken by Mr Kyne:
(a) in February 2022, Mr Kyne created a new company with the same trading name, “Kyne General Builders Pty Ltd”;
(b) on and from 25 May 2022, Kyne General Builders had, as its registered office, 26-42 Old Aerodrome Road, Echuca, being the same premises as that occupied by Tugnotion;
(c) in June 2022, Mr Kyne caused Tugnotion to stop entering into new contracts;
(d) on and from 3 August 2022, Kyne General Builders held a commercial builder licence;
(e) on 30 September 2022, Mr Kyne transferred assets from Tugnotion to Kyne General Builders;
(f) on 31 October 2022, Mr Kyne transferred assets from Tugnotion to Kyne General Builders;
(g) on 10 November 2022, Mr Kyne transferred assets from Tugnotion to Kyne General Builders;
(h) in November 2022, Mr Kyne caused Tugnotion to cease leasing its factory and office;
(i) for the year ended 30 June 2023, Kyne General Builders made sales of $515,875.88;
(j) for the period 1 July 2023 to 28 September 2023, Kyne General Builders made sales of $340,250.64;
(k) in June 2023, and shortly after judgment had been handed down against Tugnotion in the proceeding, with the Court’s Reasons strongly suggesting that the Court would be making an order that Tugnotion be liable for Brandrick’s costs, Mr Kyne placed Tugnotion into insolvency; and
(l) on 23 August 2023, Mr Kyne (through Kyne General Builders) entered into a building contract with the Moama Bowling Club with an estimated value of $320,573.00 (excluding GST).
61Brandrick submits that these circumstances, coupled with Mr Kyne’s conduct during the litigation and his payment of at least a certain amount of Tugnotion’s legal fees (neither matters which are meaningfully addressed in Mr Kyne’s submissions), that gives rise to circumstances sufficient to justify a costs order against Mr Kyne.
62Brandrick contends that, with regards to Tugnotion’s legal fees, there are unexplained discrepancies between the financial statement exhibited to Mr Kyne’s affidavit and the invoice produced by Oldham Fairweather Legal pursuant to a subpoena issued by Brandrick on 13 September 2023:
(a) The amount shown on the financial statements for year ended 30 June 2022 is $58,856.71, whereas the total value of the invoices issued by Oldham Fairweather Legal during this period is $77,485.98.
(b) The amount shown on the financial statements for year ended 30 June 2023 is $131,461.95, whereas the total value of the invoices issued by Oldham Fairweather Legal during this period is $126,062.61.
(c) The total expenditure by Tugnotion on legal fees as evidenced by the financial statements for year ended 30 June 2022 and 30 June 2023 is $190,318.66. The total expenditure by Tugnotion on legal fees as per the invoices issued by Oldham Fairweather Legal during this period is $203,548.59. Neither equate to the $250,000.00 estimate provided by Kyne at paragraph [7] of his affidavit.
63Brandrick reiterates the Court’s jurisdiction as provided for under s78A of the County Court Act 1958 (Vic), which in its view, provides the Court with the power to make non-party costs orders with no restriction other than that it be exercised judicially.
64Brandrick argues that it is in the interests of justice that a non-party costs order be made, given that Mr Kyne misused his power as a director and shareholder to:
(a) bring proceedings against Brandrick in circumstances where he stood personally to gain from doing so; and
(b) arranged his affairs to avoid any adverse costs consequences of doing so.
65Brandrick submits that Mr Kyne’s attempt to rely on “the principles of limited liability” constitute a blatant contortion of the “corporate veil” to circumvent the interests of justice. Brandrick contends that Mr Kyne’s conduct is antithetical to a director’s fiduciary duties to the company, which as it approaches insolvency, include those of its creditors. In such circumstances, Mr Kyne’s submission that he did no more than act as a director taking steps to defend legal proceedings against his company cannot withstand scrutiny.
66Brandrick argues that having exploited his powers as a director and shareholder to ensure Brandrick would be denied the fruits of an order as to costs, the interests of justice cannot now permit Mr Kyne to hide behind the corporate veil.
67Brandrick submits that, in his oral evidence, Mr Kyne said that money did pass from Kyne General Builders to Tugnotion and that the source of money is a combination of the continuing business undertaken by Kyne General Builders, Tugnotion and money advanced by Mr Kyne and his wife personally.
68Brandrick notes that, despite making a loss in the end of financial year June 2023, Mr Kyne and his wife still received wages and dividends even though Tugnotion was not trading. Brandrick says that this is proof that Mr Kyne simply does what he wants with the money available in his various businesses.
69Brandrick submits that the Court should not accept Mr Kyne’s argument that the legal costs were funded by cash or assets retained by Tugnotion, and that the explanation at paragraph 11 of his affidavit that the costs of the legal proceeding was funded from cash or assets retained in Tugnotion is unsatisfactory. Brandrick says that the Court should infer that the legal costs were paid by Mr Kyne and his wife, or by Kyne General Builders.
70Brandrick contends that, the authority of Knight does not stand for the proposition that failing to apply for security for costs deprives the Court of jurisdiction to order a non-party costs order, drawing particular attention to the paragraph from the decision which states (at 191) that:
“the availability of an order for security for costs at an earlier stage of the litigation would, in many situations, be a strong argument for refusing to exercise a discretion to orders costs against a non-party, but discretion must be distinguished from jurisdiction”.
71Brandrick submits that the Court should not rely on paragraph (at 217) from Knight quoted by Tugnotion in their submissions on the basis that Justice McHugh was in dissent.
72Brandrick contends that the circumstances of this proceedings are analogous to the Queensland Court of Appeal’s findings in Murphy,[20] in particular, the findings by the Court of Appeal in that case that the respondent should not have been penalised for failing to give notice or make a security for costs application in circumstances where it had no way of knowing that the appellant was heading into insolvency.
[20] [2018] QCA 90.
Mr Kyne’s submissions
73Mr Kyne relies on the dissenting decision of McHugh J in Knight (at 217), which states that, as a matter of policy, security for costs is a better remedy for protecting persons involved in litigation with insolvent companies.
74Mr Kyne submits that the four criteria enunciated in Knight are interactive and must take into account commercial reality, as well as all work together.
75Mr Kyne argues that Tugnotion only became insolvent on 13 July 2023. At this date, the litigation was substantially completed.
76Mr Kyne contends that, on this simple analysis alone, Brandrick cannot establish that the party to the litigation was an insolvent person, or “man of straw” being kept afloat by Mr Kyne. Until the delivery of the reasons for judgment on 19 June 2023, Tugnotion was solvent.
77Mr Kyne argues that, at no time before the delivery of the reasons for judgment by the Court on 19 June 2023 did Brandrick raise in writing its concerns with the solvency of Tugnotion. Consistent with the comments of the High Court in Knight (or at least, those relied on by Mr Kyne), if Brandrick genuinely had concerns about the solvency of Tugnotion, the appropriate course to adopt would have been to bring an application for security for costs to secure its costs against Tugnotion, failing which, the notice of contribution would have been stayed.
78Mr Kyne submits that there is no dispute that he was, in his role as director, involved in the management of Tugnotion during the course of the proceeding. This, however, is insufficient for the purposes of the present application.[21]
[21] Royal Fresh International Pty Ltd v Nutracare Life Sciences Pty Ltd (in liq) as Trustee for the Nutracare Life Sciences Unit Trust [2019] VCC 553 at [32]–[34] per Cosgrave J.
79Mr Kyne contends that Brandrick establishes no more than Mr Kyne acting as a director taking steps to defend legal proceedings against his company named as a defendant. Brandrick’s submissions otherwise do not establish participation by Mr Kyne in the proceeding beyond the defence of the proceeding.
80Mr Kyne argues that there is no explanation from Brandrick as to what the personal gain Mr Kyne stood to obtain.
81Mr Kyne relied on Cosgrave J’s observations in Royal Fresh as follows:[22]
“The courts have exhibited a general concern to avoid undermining principles of limited liability. Accordingly, the mere fact that a non-party is a sole director and shareholder of a corporate litigant does not of itself attract the Knight principle. If this were not so, the corporate veil would effectively be nullified at the very point where it provides protection against personal liability for shareholders and directors. Thus, the simple fact that a shareholder has an indirect interest in the success of a company’s litigation does not mean that the Knight exception for costs orders is applicable.
Similarly, the mere fact that a creditor, which might include a director who lent money to the company, has an indirect interest in the success of a company’s litigation does not mean that the Knight exception applies. Relevant factors in this context include the existence of other creditors of the company and the amount of the indirect benefit which the creditor might receive from successful litigation”.
[22] [2019] VCC 553 at [35] and [36].
82Mr Kyne submits that the interests of justice do not require the making of a non-party costs order against him. There is no egregious or nefarious conduct identified by Brandrick which can be attributed to Mr Kyne. Rather, the conduct referred to in Brandrick’s submissions simply reflects a defendant exercising its rights in an attempt to minimise its liability to the plaintiff. That is litigation. It is submitted that it would be an absurd outcome, and one which would be contrary to public policy, for a defendant to defend a proceeding in a manner it determines fit and within the confines of the law, only for its director to be punished by a piercing of the corporate veil.
83Mr Kyne contends that, contrary to Brandrick’s submissions, Mr Kyne did not fund the litigation on behalf of Tugnotion.
84Mr Kyne argues that criticisms of the manner in which Tugnotion conducted the trial of the proceeding are without merit and, more importantly, fail to link back to any conduct of Mr Kyne.
85Mr Kyne submits that there is no evidence that Tugnotion was a “man of straw” at the time the notice of contribution was filed, given that, at this time, Tugnotion only had a 1.70% chance of insolvency.
86Mr Kyne contends that, in terms of the requirements in the decision of Knight, all considerations must be satisfied, and as accepted by Judge Woodward (as his Honour then was) in Greenbow Pty Ltd v Rossi Recycling Pty Ltd (No 2),[23] all elements are “interactive” and must also take into account commercial reality. Therefore, Mr Kyne argues that an inability to satisfy the “man of straw” requirement means that the test in Knight is not satisfied.
[23] [2022] VCC 1729 at [16].
87Mr Kyne asks the question that, if the selling of $100,000.00 in plant and equipment was so significant as to make Tugnotion a “man of straw”, why did Tugnotion not “fall over” and become insolvent immediately after the sale and distribution of funds.
88Mr Kyne’s counsel conceded in oral submissions that some portion of the $100,000.00 legal fees was paid for by Mr Kyne and his wife, but that it is impossible to “infer” that 100% of these funds came from Mr Kyne. It is accepted that this $100,000.00 went to the overall payment for litigation.
89Mr Kyne submits that he should not be criticised for not paying the entire $250,000.00 legal fees estimate in circumstances where the fees for the trial came to around $190,000.00. As there was no evidence of undercharging, it would be counterintuitive to insist that solicitors should have charged more.
90Mr Kyne argues that the present case is distinguishable from the decision in Ipex ITG Pty Ltd v Melbourne Water Corporation (No 6),[24] in that the present proceeding is not a case whereby a trustee company was funding a shell company plaintiff.
[24] [2009] VSC 571.
91Similarly, Mr Kyne submits that the decision of Payton Securities Pty Ltd v Bertacco Ferrier Pty Ltd (No 2)[25] cannot be relied upon, because the facts of that case involved a group of companies, which is not the case here.
[25] [2023] VSC 456.
92Mr Kyne contends that the case of Murphy[26] also cannot be analogous, as each case must be determined on its own facts.
[26] [2018] QCA 90.
93In essence, Mr Kyne agreed with Brandrick that a notice of contribution is like a third-party notice. Mr Kyne claimed that Tugnotion is a moving party, but it is not a defendant suing another as such. Mr Kyne claims that he does not stand to receive any money unless there is a dividend from the company and it is in profit. The only benefit considered is the financial gain from a notice of contribution.
94Mr Kyne submits that he does not understand how keeping a “man of straw” to pay for litigation helps save his business reputation.
95Mr Kyne contends that much is made about the action of “phoenixing” within the context of arguments around the interests of justice ground, but this does not assist in the overall evaluation as to whether the categories in Knight have been met.
96Counsel for Mr Kyne submitted that less weight could be given to Mr Kyne’s evidence, but it is not unreliable and unsatisfactory.
97On the interests of justice grounds, Mr Kyne relies on the following matters:
(a) The criticism of the conduct of the trial is criticism of counsel and not Mr Kyne.
(b) It was found that the notice of contribution raised an arguable case and had a proper basis when the Court granted leave to file and serve the notice.
(c) The assets were not transferred or sold to Kyne General Builders until September 2022 – 7 months after the entity was created. It did not happen immediately. Mr Kyne tried unsuccessfully to on-sell to other third parties, demonstrated by the fact that, in 2021, the sale of assets to third parties fell through. It cannot be inferred that the ultimate sale was a conscious step to avoid the enforcement of an award of costs.
(d) Mr Kyne has “semi-retired” in that he reduced the work he is doing personally. The new company has entered into just one contract. Caution should be exercised to extrapolate one quarter’s turnover to make a finding on annual turnover.
(e) With regards to the forms of order, Mr Kyne submits that he cannot be liable for costs prior 27 January 2022. Mr Kyne says the Calderbank was not a Calderbank at all, it was not asking Tugnotion to compromise but to fall on its sword and compromise its whole proceeding. Rather, Brandrick’s summons seeking summary judgment failed. The only costs to be awarded should therefore be from the date of Tugnotion’s notice of contribution.
Evidence
The witnesses
98Mr Kyne was cross-examined at the hearing. He was not an impressive witness. He appeared very nervous, was evasive in answering questions and needed time to carefully answer the questions put to him. I am unable to rely on his evidence absent other objective evidence.
99Mr Kyne accepted that Shed 4 was the same premises that was occupied by Tugnotion, which ceased to operate in June 2022. Kyne General Builders operated from 1 July 2022 from Shed 4.
100The financial statement of Kyne General Builders for the year ended 30 June 2023 indicates a sale of goods in the sum of $515,875.88 under the section entitled “trading income”.
101On 23 August 2023, Kyne General Builders entered into a contract with Moama Bowling Club for construction works. Prior to 23 August 2023, there was no construction contract, however, construction work was undertaken by KGB 2 for Moama Bowling Club. There were projects that came up. Kyne General Builders undertook the works, not Tugnotion.
102The only function of Tugnotion was to defend the legal proceedings.
103Mr Kyne denied that he made the decision to stop Tugnotion from trading to avoid paying any award against it in the legal proceedings such that there would be nothing available to the plaintiff or any orders against the company.
104Mr Kyne said he kept Tugnotion solvent for the duration of the court case. Tugnotion needed $100,000.00 to pay its legal fees, which required the selling of plant and equipment.
105Mr Kyne rejected that his deliberate strategy as its director and decision maker was to stop Tugnotion from trading and started up Kyne General Builders to undertake trade. He agreed he made the decision to stop Tugnotion from trading and did so to protect its assets.
106Mr Kyne disagreed that he was not transitioning to retirement. He said he is almost 63 years old and was doing less work personally. He was heading into semi-retirement.
107The profit and loss for Kyne General Builders for 1 July – 28 September 2023 showed sales of $340,250.64. Mr Kyne rejected the proposition that Kyne General Builders was doing as much work as Tugnotion pre-30 June 2022. Tugnotion’s trading statement for 30 June 2022 indicates trading income in the sum of $1,481,956.38. Mr Kyne said that he and his wife did not take wages during this time but conceded that, on the document, Tugnotion was trading as much as Kyne General Builders. Mr Kyne said that turnover is different to profit.
108The income statement for Kyne General Builders for the year ended 30 June 2023 indicates the total income in the sum of $195,749.24 and depreciation in the sum of $95,454.55. The Ford ranger and the trailer, tools and sundry items in the depreciation schedule represented the $95,454.55. Mr Kyne said there was an invoice from Tugnotion to Kyne General Builders for the acquisition of the items. He claimed that Kyne General Builders paid for these items.
109Mr Kyne said that he and his wife put money into Kyne General Builders to purchase the items and Tugnotion then paid its lawyers for its legal fees.
110Kyne General Builders was a startup company and the only money available to it was from trading or loans from Mr Kyne and his wife.
111Mr Kyne said he recalled that the trial was adjourned in July 2022. He gave instructions to issue a notice of contribution against Brandrick. He said the notice was issued to bring Brandrick back into the court case. He conceded that he knew that up until that point, Brandrick was “pretty much out of the case”. Mr Kyne said that, at that stage, he was not worried about Brandrick. He did not think that the effect would be that Brandrick would incur legal costs. He was focussed on representation for Tugnotion.
112Mr Beech was also cross-examined at the hearing. He presented as a careful, considered witness who was ready to make appropriate concessions. Mr Beech commenced employment with Sparke Helmore Lawyers in the position of Senior Associate on 16 November 2020. He considered it unusual that Tugnotion was appointed to undertake the rectification works for the plaintiff. His concern was not in relation to the financial stability of Tugnotion. He was told by his client that “KGB was the only commercial builder in and around Echuca who was capable of undertaking projects of this size and scale”.
113After Brandrick settled with the plaintiff, it was passive for the purposes of apportionment only. Mr Beech did not turn his mind to Tugnotion’s solvency because the client was not brought back in until July 2022 and was passive. After that time, he thought it was a large viable builder in Echuca. He did not think that a security for costs application was necessary.
114The purpose of the notice of contribution was an attempt to obtain monies from Brandrick. He was not concerned that Tugnotion was unable to pay judgment or that there was phoenixing activity going on by Tugnotion.
115Mr Beech first undertook searches after judgment when there was a costs order made in favour of his client. He wanted to look at enforcement of the costs orders.
116Once Mr Oldham, the solicitor for Tugnotion, informed him that it was in liquidation on 14 July 2023, Mr Beech obtained instructions from his client to make a non-party costs order against Mr Kyne. Mr Beech then did a search and subsequently found that Kyne General Builders had been formed and was engaged in the same or similar work as Tugnotion. He formed the view that there had been a stripping of assets from Tugnotion which were sold off to Kyne General Builders.
117The application was made on 8 August 2023.
118In re-examination, Mr Beech clarified that, on 6 July 2023, he sent a letter to Tugnotion’s solicitors, noting that, in light of Tugnotion’s conduct of the litigation and the relationship between Tugnotion and Mr Kyne, Brandrick considered it appropriate to seek a non-party costs order against Mr Kyne. Mr Beech sought classes of documents to resolve the extant issue as to costs. On 14 July 2023, Tugnotion’s solicitors responded, advising that Tugnotion was in liquidation.
Analysis
Whether Mr Kyne ought to pay Brandrick’s costs of the proceeding
119I accept Brandrick’s interpretation of the principles in Knight and its application to the present case. I find that the Knight principles have been met and that a non-party costs order ought to be made against Mr Kyne personally. My reasons follow.
120As per Knight, the failure to pursue a security for costs application at an earlier point in time is not a determinative factor but is persuasive for the Court in deciding whether or not to exercise its discretion. To this end, I do not accept Tugnotion’s reliance on Justice McHugh’s dissenting judgment, and am more persuaded by the majority in Knight (at 191):
“the availability of an order for security for costs at an earlier stage of the litigation would, in many situations, be a strong argument for refusing to exercise a discretion to orders costs against a non-party, but discretion must be distinguished from jurisdiction”.
121I also accept Brandrick’s argument that it had no way of knowing of Mr Kyne’s plan to reduce Tugnotion to a “man of straw” prior to it being placed into liquidation. I am persuaded by the fact that on 26 June 2023, Tugnotion was rated as having only a 1.70% risk of insolvency, with a “neutral” risk level. Therefore, at no point did Brandrick possess any information to alert it to the fact that a security for costs order might be sought, even if Mr Beech undertook solvency searches at an earlier point in time.
122Having dealt with the jurisdictional point, I now turn to the specific categories of Knight.
123Although it is not required that I “tick off” all the requirements specified in Knight and they in fact interact, I have found it useful to outline my reasons with reference to these requirements and have set out my reasons below.
124First, the named party is insolvent or a “man of straw”.
(a) In my view, Mr Kyne’s premeditated effort to reduce Tugnotion to a “man of straw” began when he incorporated Kyne General Builders Pty Ltd in February 2022 (following the compromise of the proceeding between the plaintiff and Brandrick), operated the building business from the same premises as Tugnotion, and obtained a commercial building licence for this new company.
(b) The plan then entered the second phase, where he chose to cease trading with the Tugnotion company and transferred and sold its assets to Kyne General Builders Pty Ltd.
(c) Once Tugnotion was sufficiently stripped of its assets and income, it was inevitably placed into liquidation on 13 July 2023. Mr Kyne’s plan came to its full fruition and entered the final phase, as Tugnotion was compromised in its ability to pay for any costs awarded against it arising from the judgment delivered on 19 June 2023.
(d) Finally, as the evidence indicates, Mr Kyne had no real intention of “retiring” or ceasing trading (as was offered as an explanation for his stripping of assets from Tugnotion). His decision not to trade was done to reduce the funds available for Tugnotion to pay legal costs awarded against it.
(e) As a side note, it does not matter, as argued by Mr Kyne, that Tugnotion only had a 1.7% change of insolvency at the time the notice of contribution was filed, as this was early on in his ultimate plan to phoenix Tugnotion.
125Second, the non-party played a sufficiently active role in the conduct of the litigation.
(a) As the sole director and shareholder of Tugnotion, Mr Kyne clearly directed the course of the litigation on the part of Tugnotion and was making decisions which impacted the parties as the proceedings unfolded.
(b) Mr Kyne, on his own admission, lent money (together with his wife) to Tugnotion to fund at least a portion of the litigation, which is further evidence of his personal involvement.
126Third, the non-party has a sufficient interest in the litigation.
(a) As the sole director and shareholder of Tugnotion, the ability not to meet the costs order due to liquidation clearly benefits Mr Kyne.
(b) His “interest” in the litigation is perhaps best exemplified by the series of decisions which he made to deliberately restructure his building companies, phoenixing Tugnotion and continuing to trade under Kyne General Builders. These efforts demonstrate a high degree of “interest” in the overall outcome of the litigation.
(c) My Kyne stood to personally gain from the prospect of a contribution from Brandrick, given that he was sole director of Tugnotion and, after the phoenixing of Tugnotion, would have been unable to meet any adverse costs orders made against Tugnotion. It is not relevant that up until 13 July 2023, Mr Kyne’s wife was the other director of Tugnotion. Mr Kyne himself still held a financial and personal interest in the proceeding.
127Finally, I am also required to consider whether it is in the interests of justice to permit Mr Kyne to hide behind the corporate veil and avoid liability. On this issue, I make the following findings.
(a) My Kyne’s plan to avoid the payment of costs is a deliberate use of the principles surrounding limited liability, and an example of the reliance on the corporate veil designed to avoid the payment of costs that Tugnotion ought rightfully bear. To this end, in my view, it is in the interests of justice that Mr Kyne is not able to rely on the principles of limited liability.
(b) It is likewise in the interests of justice to ensure that Brandrick receive the fruits of the Court’s costs order, especially in circumstances where efforts have been made by Mr Kyne to deprive it of that right.
(c) Mr Kyne’s phoenixing of Tugnotion is also contrary to his director’s fiduciary duties for the company when it approaches insolvency, which extends to obligations to the company’s creditors. Phoenixing is “antithetical” to these duties and is, therefore, a further consideration of how the interests of justice is best served by providing for a non-party costs order.
Whether Mr Kyne ought to pay indemnity costs
128Brandrick submits that it is appropriate to consider awarding indemnity costs whenever it appears that a party, properly advised, should have known that it had no chance of success.[27]
[27] Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397, 401.
129Brandrick further relied on conduct that caused loss of time to the Court and other parties and the imprudent refusal of an offer of compromise as grounds to award costs on an indemnity basis.
130First, I do not accept Brandrick’s submissions that Tugnotion’s notice of contribution was fundamentally flawed. In my ruling made on 28 October 2022,[28] I dismissed Brandrick’s summary judgment application and found that Tugnotion’s notice of contribution ought not be dismissed on the basis that it has no real prospects of success. Critically (at [44]), I observed that:
“The plaintiff has made a number of claims against both defendants. The second defendant submits that some of those claims are apportionable claims. For example, the breach of contract alleged at paragraph 11 of the Further Amended Statement of Claim filed 11 August 2021 alleges that KGB carried out the work without due care and skill, and paragraph 14 alleges a breach of a common law duty to duty of care. The plaintiff also presses claims which it says are not apportionable claims, such the strict liability claims set out at paragraph 8(b), which alleges that KGB would comply with various acts, ordinances, Regulations, By-laws, Orders and Proclamations, and paragraph 11, which pleads that KGB would carry out the works in accordance with the terms of the construction agreement. It is for this reason that KGB applied for leave to file and serve the Notice of Contribution”.
[28] Oberin v Brandrick & Anor [2022] VCC 1829.
131Further, at [48], I concluded that:
“In my view, the Further Amended Statement of Claim raises strict liability claims against the first defendant such as the fitness for purpose and merchantable quality of the plans drawn up by the first defendant, which would be, if constructed, suitable for use as a hotel. It also includes that the plans drawn up by the first defendant would accord with the Australian Standards and any other applicable statutory standards. This construction is also consistent with the fact that the first defendant filed a Notice of Contribution on the second defendant on 17 July 2019 in near identical terms as the Notice of Contribution the subject of the present application”.
132Ultimately, in the main proceeding, I was not satisfied that any non-apportionable claims had been made out against Brandrick. However, these were triable issues. Therefore, I do not accept Brandrick’s submission that Tugnotion’s notice of contribution was flawed from the outset or that, properly advised, Tugnotion should have known that these arguments had no chance of success. I, therefore, do not accept that Mr Kyne ought to pay indemnity costs from the date of the plaintiff and Brandrick settling their claim in January 2022 or the date of issuing the notice of contribution.
133Second, Brandrick submits that the Calderbank Offer dated 18 October 2022 was a good opportunity for Tugnotion to withdraw its notice of contribution and, by refusing to do so (even though to accept would have resulted in a complete capitulation of their claim), Tugnotion did not exercise sound judgment on the merits of their notice.
134Brandrick further argues that Tugnotion also did not adequately take into account the terms of the retainer between the plaintiff and Brandrick, which limited the liability of Brandrick to $300,000.00 and to a six-year limitations period from the date of practical completion.
135The mere refusal of an offer does not automatically mean that the Court should make an order for costs on an indemnity basis where the ultimate result is less favourable than that contained in the offer.[29]
[29] Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCoverAuthority (No 2) (2005) 13 VR 435 at [18]–[20].
136I accept that the Calderbank Offer was more favourable than the judgment entered as its terms contained consent to orders dismissing the notice of contribution with no order as to costs. However, the principles are that there must be some unreasonableness in the refusal to accept.[30]
[30] Hobartville Stud Pty Ltd v Union Insurance Co Ltd [2004] FCA 1600 per Crennan J at [6].
137The New South Wales Court of Appeal in Leichardt Municipal Council v Green found that:[31]
“In an appropriate case, the giving up by a defendant of the opportunity to recover from the plaintiff the costs it has incurred in defending a proceeding can constitute consideration for a compromise which is real, particularly where the costs incurred have been substantial”.
[31] Leichardt Municipal Council v Green [2004] NSWCA 341.
138In my view, giving up the opportunity to recover costs has value.[32] If the proceeding was pursued to judgment in favour of the defendant, then the defendant would be able to obtain an order to recover its costs from the plaintiff.
[32] VWA V O’Brien [2017] VSC 68 at [8]–[10] and the authorities cited therein.
139Justice Goldberg observed in Szencorp Pty Ltd v Clean Energy Council Limited(No 2)[33] that, “the renunciation of that opportunity, in my opinion, clothes the offer with the cloak of a genuine compromise of substance”.
[33] Szencorp Pty Ltd v Clean Energy Council Limited(No 2) [2009] FCA 196 at [15].
140Relying on the above reasoning, I do not agree that an invitation to dismiss the notice of contribution with each party bearing their own costs is not a genuine attempt to resolve the proceeding by way of compromise for the purposes of considering the consequences of an offer made in a Calderbank letter in the particular circumstances of the present case.
141In my view, the Calderbank Offer was a genuine offer to compromise, however, it was not unreasonable for Tugnotion to reject the offer in circumstances where Brandrick’s summary judgment application was dismissed on 28 October 2022 and the Court rejected the arguments that the notice of contribution had no real prospect of success. The arguments involved issues regarding expert evidence, statutory construction, contractual interpretation and legal argument.
142Finally, Brandrick claims that Tugnotion caused loss of time to the Court and to other parties by making closing submissions that went beyond the pleaded case and by criticising the concurrent evidence process. Counsel for Tugnotion submitted that these were criticisms of counsel rather than Tugnotion. Further, the different costs estimate in Tugnotion’s legal fees was due to the fact that the trial was listed for 5 days, however, it only ran for 3 days given the experts’ joint report and the use of concurrent evidence. Overall, the trial was shorter than the estimate of duration provided. This ground is rejected.
143Therefore, I refuse to exercise my discretion to award indemnity costs in this proceeding. The appropriate costs order should be the payment of costs of the proceeding from the date of the issuing of Tugnotion’s notice of contribution against Brandrick, being 14 July 2022, on the standard basis.
Conclusion
144In the result, I find that by:
(a) determining to place Tugnotion into liquidation shortly after publication of the reasons for decision;
(b) playing an active part in the conduct of the proceeding;
(c) personally paying at least some of the legal costs relating to the proceeding; and
(d) having both a financial and a personal and/or professional interest in the outcome of the proceeding,
Mr Kyne must properly and fairly be described as a real party to the proceeding.
Orders
145For the forgoing reasons, I consider that it is in the interests of justice for Brandrick to pierce the corporate veil and recover an order against Mr Kyne under the Knight principle. Accordingly, I order that:
(a) Mr Kyne pay Brandrick’s costs of and incidental to the proceeding on and from 14 July 2022 on a standard basis.
(b) Mr Kyne pay Brandrick’s costs of its summons filed 8 August 2023, such costs to be taxed on a standard basis in default of agreement.
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Certificate
I certify that these 35 pages are a true copy of the judgment of Her Honour Judge Burchell delivered on 23 October 2023.
Dated: 23 October 2023
Gideon Lipinski
Associate to Her Honour Judge Burchell
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