Mingarelli Bros Pty Ltd v Mingarelli
[2015] VSC 610
•6 November 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROBATE LIST
S CI 2015 05436
| MINGARELLI BROS PTY LTD (ACN 064 855 054) (trading as MINGARELLI TILES) | Plaintiff |
| v | |
| ROBERT MINGARELLI and LAI MEI LOW (also known as DOROTHY LOW) | Defendants |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 30 October 2015 |
DATE OF JUDGMENT: | 6 November 2015 |
CASE MAY BE CITED AS: | Mingarelli Bros Pty Ltd v Mingarelli |
MEDIUM NEUTRAL CITATION: | [2015] VSC 610 |
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PRACTICE AND PROCEDURE ‑ Costs ‑ Discretion of the Court to award costs ‑ Where defendants admitted wrongful conduct ‑ Whether plaintiff entitled to indemnity costs ‑ Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 ‑ Ugly TribeCo Pty Ltd v Sikola [2001] VSC 189 ‑ Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) [2012] VSC 399.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | M A Robins QC | Kliger Partners |
| For the Defendant | J L Evans | Madgwicks |
HER HONOUR:
Introduction
By order made 31 July 2015, All Pavings Co Pty Ltd was removed as the trustee of the Mingarelli Family Trust (‘the Trust’) and Mr Nathan Kuperholz, solicitor, was appointed as trustee in its place.
One of the primary assets of the Trust is a business known as Mingarelli Tiles, a retailer of tiles and related products carrying on business at 90 Cochranes Road, Moorabbin (‘the business premises’).
All Pavings Co Pty Ltd holds 98 ordinary shares of one dollar each in the plaintiff, Mingarelli Bros Pty Ltd. Paul Joseph Mingarelli and the first defendant each hold one ordinary share in the plaintiff.
On 31 July 2015, the children of Francesco Mingarelli deceased, being Robert Mingarelli, the first defendant and Claudia Katherine Mingarelli, were removed as executors and trustees of his estate, and Mr Kuperholz was appointed the administrator of the estate.
For a considerable time prior to the appointment of Mr Kuperholz, the children of the deceased have been in dispute concerning various matters, including the running of the Mingarelli Tiles business. Specifically, the first defendant claimed to be the owner of fifty per cent of the business pursuant to arrangements said to have been made in 2007 between him, Paul Mingarelli and the deceased. Those alleged arrangements are yet to be formalised and resolved between the three children.
Since his appointment on 31 July 2015, Mr Kuperholz repeatedly informed the first defendant that he objected to him and the second defendant having any access ‘as of right’ to the business or its records and objected to the first defendant going to the business premises, with or without notice.
From time to time the first defendant demanded the provision of certain financial records of the business. Mr Kuperholz informed him that he has no ‘as of right’ entitlement to such documentation, however, at a meeting on or about 1 October 2015, Mr Kuperholz informed the first defendant that he would obtain and provide him with further copies of the trading records of the business when Paul Mingarelli returned from leave on about 19 October 2015.[1]
[1]Mr Kuperholz refers to ‘further copies’ because he was informed by the then solicitor for the first defendant that prior to his appointment, the first defendant had already been provided with the current financial records from the accountants for the business
The unauthorised removal of the plaintiff’s business records by the defendants
Nothwithstanding this and without the permission or agreement of the plaintiff, on 17 October 2015, the defendants entered the business premises and removed the hard drive of the computer system for the business so as to access the computer backup tapes for the financial MYOB and other records of the business. The defendants also removed the backup tape from the computer, and replaced the computer backup tape with a new and differently coloured backup tape. These events were reported to the police who are currently making enquiries concerning the matter. The police have finger printed the replacement computer backup tape and it remains in a plastic bag as evidence.
The plaintiff issues proceedings against the defendants
On 20 October 2015, the plaintiff obtained orders restraining the defendants from entering or remaining on the business premises without permission or authority of the plaintiff, restraining the defendants from seizing, possessing or detaining any of the assets of the plaintiff or the business, delivery up by 12 noon on 21 October 2015 to the plaintiff of all of the property removed by the defendants from the business premises on 17 October 2015 and the filing of affidavits by 12 noon on 22 October 2015 verifying strict compliance with the order for delivery up of all of the property removed by them.
At the hearing on 20 October 2015, the defendants were unrepresented and readily conceded that they had removed the computer backup tape and replaced it with a new and differently coloured backup tape. They also readily conceded that they had copied the computer backup tape.
By summons filed 27 October 2015 the plaintiff sought orders for the filing of further affidavits by the defendants verifying their strict compliance with the orders made on 20 October 2015 for the filing of affidavits and for costs of the proceeding on an indemnity basis. The plaintiff contended that the defendants either failed to comply or only belatedly complied with parts of the orders made on 20 October 2015.
On 30 October 2015, the defendants were represented by counsel and gave various undertakings resolving the outstanding issues relating to the defendants’ compliance with the orders made on 20 October 2015. As to costs, the defendants conceded that it was appropriate that the defendants should pay the costs of the proceeding, but not on an indemnity basis.
The defendants’ submissions
On the return date of the plaintiff’s summons seeking orders against the defendants, the defendants appeared in person. They readily admitted they had removed the computer backup tape, with no obfuscation or attempt to deny that fact. The defendants’ wrongful removal of the backup computer tape should be seen against the background in which the first defendant is a shareholder of the plaintiff, that he had previously asserted he has an interest in the business and had sought the financial information of the plaintiff. As a shareholder of the plaintiff, the first defendant would ordinarily have a right to inspect the books and records of the plaintiff, provided there is justification for doing so.[2]
[2]Pursuant to s 247A of the Corporations Act 2001 (Cth).
The defendants accept their conduct prior to the proceeding was improper but it was born out of a misapprehension as to the first defendant’s rights to access the financial information of the business. The defendants’ conduct was not calculated to provoke the plaintiff to issue the proceeding and the first defendant promised to return the computer backup tapes prior to the commencement of the proceeding. As a general proposition, pre-litigation conduct is not a factor in terms of whether indemnity costs ought to be awarded, although it can reflect upon the manner in which the defendants then conducts the litigation.[3] For these reasons, it should not be considered as a basis for ordering indemnity costs against the defendants.
[3]Sunland Waterfront (BVI) Ltd & Anor v Prudentia Investments Pty Ltd & Ors [2013] VSCA 237 (6 September 2013) [548],[572] (Warren CJ, Osborn JA, Macaulay AJA); Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3)2012] VSC 399 [17] (14 September 2012) (Croft J); Robert Deutsch v Erwin Deutsch (No 2) [2013] VSC 15, [25] (Hargrave J); Talacko v Talacko [2009] VSC 579, [48] (Kyrou J); Masha Nominees Pty Ltd v Mobil Oil Australia Pty Ltd (No 2) [2006] VSC 56, [13]-[18] (Hargrave J); NMFM Property Pty Ltd v Citibank Ltd (No 2) (2001) 109 FCR 77, 92 [56] (Lindgren J).
As lay people, the defendants attempted to comply with the orders made for delivery up of the computer backup tape and for the provision of affidavits. They delivered up the computer backup tape. Wrongly, it was asserted by them at the time, that they had an entitlement to retain the copy computer backup disc. The fact that the first defendant put a second backup disc in place when he removed the backup hard drive demonstrated that the defendants were not seeking to cause any damage to the business itself.
Upon request, the defendants then delivered up the balance of the computer backup hard drives. They made statutory declarations, instead of affidavits, that did not comply exactly with the terms in the orders. Since obtaining legal representation on 23 October 2015, the defendants have now sworn affidavits. Taking into account that the defendants were unrepresented, it is not reasonable to infer from their failure to comply strictly with the orders made on 20 October 2015 that there was any intention on their part to act improperly.
The failure by the defendants during the litigation to comply with the orders made on 20 October 2015 does not constitute an intention by them to disobey the Court. Between them, the defendants made four statutory declarations on 22 October 2015 at which stage they were unrepresented. They then retained solicitors and made three affidavits between 23 October and 28 October 2015 to ensure compliance with the orders.
Applicable principles
The prima facie position in respect of costs in litigation is for standard costs to be ordered by the Court. A special costs order will only be made where the proceeding exhibits a special or unusual feature or special circumstances. Each proceeding must be considered on its own facts and, specifically, whether those facts support the making of a special order for costs.
The authorities concerning the principles to be applied when a court, in the proper exercise of its discretion, may depart from the making the usual order for costs on a standard basis are well known and are conveniently set out in cases such as Colgate-Palmolive Co v Cussons Pty Ltd;[4] Ugly TribeCo Pty Ltd v Sikola[5] and Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3).[6] In Ugly Tribe, Harper J identified the following circumstances as warranting a special costs order, noting that the categories of circumstances are not closed:
[4](1993) 46 FCR 225.
[5][2001] VSC 189.
[6][2012] VSC 399 [12]-[18] (14 September 2012). The decision at first instance was affirmed by the appellate decision on the issue of special costs: Sunland Waterfront (BVI) Ltd & Anor v Prudentia Investments Pty Ltd & Ors [2013] VSCA 237 (6 September 2013) [538]–[551].
(a) the making of an allegation, known to be false, that the opposite party is guilty of fraud;
(b) the making of an irrelevant allegation of fraud;
(c) conduct which causes loss of time to the court and to other parties;
(d) the commencement or continuation of proceedings for an ulterior motive;
(e) conduct which amounts to a contempt of court;
(f) the commencement or continuation of proceedings in wilful disregard of known facts or clearly established law; and
(g) the failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial.[7]
[7][2001] VSC 189, [7]-[8] (Harper J) (citations omitted).
Consideration
The conduct of the defendants on 17 October 2015 occurred notwithstanding that Mr Kuperholz agreed to obtain all of the information required by the first defendant upon the return of Paul Mingarelli from leave. There could be no misapprehension on the part of the defendants as to their access to the financial information of the business. The conduct also occurred notwithstanding that Mr Kuperholz had told the defendants not to attend the business premises without his permission and not to take any of the company's property. Their conduct was not only wrongful, it was also provocative and high handed.
Although the defendants refer to s 247A of the Corporations Act 2001 as a basis for their conduct, that section does not provide an absolute unfettered right to a company’s documents. Ultimately, it is a discretionary matter for the court to be satisfied that there is a proper good faith basis to either commence a derivative proceeding under s 237 of the Act or seek to intervene in other proceedings.
After the defendants took the computer back up tapes, the defendants continued to ignore the authority of Mr Kuperholz. There was no immediate delivery up of the items. At best, on the morning of 19 October 2015, there was a conditional offer to return the computer hard drive if the copy hard drive was returned to the defendants. Mr Kuperholz explained that this could not occur because the copy hard drive was held by the police in an evidence bag and there was no basis for the defendants to seek to impose conditions.
During the hearing on 20 October 2015, the import of the orders, in particular orders 3 and 4, were carefully explained to the defendants in clear and plain language. The Court was satisfied they understood what was required to be done by them within the timeframes set out in the orders and the consequences of a failure to comply with the orders.
After the hearing, initially Mr Kuperholz and thereafter his solicitor, Mr Brown, tried to help the defendants to understand their need to comply with the orders. There was non-compliance with the orders on 22 October 2015. On the morning of 23 October 2015, shortly before the defendants retained Madgwicks as their solicitors, Mr Brown expressly said to the defendants: ‘Look, if you give us the affidavits addressing this issue of the copies by 5 pm today that will be the end of it. We will treat that as full compliance.’[8] That did not occur.
[8]Affidavit of Nathan Kuperholz sworn 27 October 2015, exhibit NK3.
There was then correspondence from Madgwicks initially asserting that there had been compliance, then essentially conceding that there had been some non-compliance in relation to the copying issue. Further affidavits were obtained on 28 October 2015, particularly in respect of the non-compliance with orders 3(iii) and 4, however, their compliance with those orders remained ambiguous on the basis of those affidavits.
In a letter from Ms Cassie O’Bryan of Madgwicks to Mr Brown dated 29 October 2015, Ms O’Bryan then made some unfortunate and serious allegations against Mr Kuperholz and his solicitors that, in my view, were inappropriate, misplaced and baseless. These allegations meant that Mr Kuperholz was required to respond to the letter, including detailing all of the correspondence concerning the sale process of the estate property. The effect of this letter caused unnecessary aggravation and tension and further costs were necessarily incurred in responding to the allegations. Ms O’Bryan’s allegations were unfortunate considering the overarching obligations of practitioners and litigants under the Civil Procedure Act 2010, in particular, the obligations to minimise costs, narrow the issues in dispute and to use reasonable endeavours to resolve disputes.
On 30 October 2015, when the proceeding came back to Court, counsel for the defendants announced for the first time that he had instructions to give certain undertakings that had been sought by the plaintiff on 18 October 2015, prior to the issue of this proceeding. Ultimately, undertakings were obtained from the defendant that satisfied the Court as to compliance with the orders.
The defendants admitted trespass and the conversion and detinue of the computer backup tapes. Their persistent and deliberate misconduct both before and after the proceeding was wrongful and flouted the authority and clear instructions of Mr Kuperholz, a court appointed trustee of the Trust and administrator of the estate of the deceased.
In my view, the defendants‘ deliberate wrongdoing was high handed and provocative behaviour and in wilful disregard of the known facts and, in the circumstances, warrants a special costs order.
Orders
Accordingly, I will order that the defendants pay the costs of the proceeding on an indemnity basis.
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