Re Moneysaver Free Coupons Pty Ltd (in liq)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S CI 2018 02435

IN THE MATTER of MONEYSAVER FREE COUPONS PTY LTD (IN LIQUIDATION) (ACN 068 353 739)

DAVID CHARLES QUIN IN HIS CAPACITY LIQUIDATOR OF MONEYSAVER FREE COUPONS PTY LTD (IN LIQUIDATION) (ACN 068 353 739)	First Plaintiff
MONEYSAVER FREE COUPONS PTY LTD (IN LIQUIDATION) (ACN 068 353 739)	Second Plaintiff
v
NICHOLAS MARTIN DOWER	First Defendant
PAUL ALEXANDER LIDGERWOOD	Second Defendant

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JUDGE:	Randall AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	2 December 2019 and 3 December 2019
DATE OF JUDGMENT:	20 May 2021
CASE MAY BE CITED AS:	Re Moneysaver Free Coupons Pty Ltd (in liq)
MEDIUM NEUTRAL CITATION:	[2021] VSC 279

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CORPORATIONS – Corporations Act 2001 (Cth) – ss 588G and 588M – Insolvent trading claim – Only external creditor withdrew its proof of debt – That proceeding was discontinued.

CORPORATIONS – Liquidators – Duties when commencing and continuing a proceeding.

PRACTICE AND PROCEDURE – Rule 63.15 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) – Costs on discontinuance – Discontinuance by reason of supervening event – Sole external creditor withdrawing proof of debt.

PRACTICE AND PROCEDURE – Costs – Whether proceeding commenced without regard to known facts – Whether liquidator commenced proceeding without concluding that the proceeding had a sufficient prospect of success – Whether the proceeding continued without regard to known facts.

PRACTICE AND PROCEDURE – Indemnity costs – Whether liquidator properly advised should have known proceeding had no sufficient prospect of success.

PRACTICE AND PROCEDURE – Joinder – Related Companies sought joinder to obtain a costs order against the liquidator.

PRACTICE AND PROCEDURE – Civil Procedure Act 2010 (Vic) – Costs order in the event of breach – Costs order in favour of non-parties.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr J L Evans QC with Mr P R Miller	Williams Winter
For the Defendants	Mr M Rivette	Maddocks
For HH&M Media Pty Ltd, Niche Media Pty Ltd, Waiviata Pty Ltd	Mr M Rivette	Rotstein Commercial Lawyers

TABLE OF CONTENTS

Background......................................................................................................................................... 2

Costs between the defendants and plaintiffs............................................................................. 29

Defendants’ position................................................................................................................... 29
The proceeding had no foundation and was brought with wilful disregard of known facts.................................................................................................................................. 29
PMP was not a creditor of Coupons.................................................................. 30
Coupons was not insolvent................................................................................. 32
Indemnity costs..................................................................................................... 33

Mr Quin unreasonably rejected offers to settle............................................................. 34
Mr Quin breached his overarching obligations under the CPA................................. 36

Plaintiffs’ position....................................................................................................................... 37
Commencement and continuation of the proceeding.................................................. 39
The offers were reasonably rejected............................................................................... 42
There was no breach of the CPA..................................................................................... 43

Key issues in dispute.................................................................................................................. 43
Should the plaintiffs pay the defendants’ costs up to 24 April 2019?................................. 44
PMP debt............................................................................................................................. 49
Insolvency........................................................................................................................... 59

Indemnity costs........................................................................................................................... 62
Contraventions of the CPA.............................................................................................. 64
Rejection of offers to settle................................................................................................ 66

Costs of the costs application.................................................................................................... 69

Application by Related Companies............................................................................................. 69

Related Companies’ position..................................................................................................... 69
Key issues..................................................................................................................................... 74
Joinder........................................................................................................................................... 74
Should costs be awarded to the Related Companies?........................................................... 76
Conclusion.................................................................................................................................... 77

Orders................................................................................................................................................. 77

HIS HONOUR:

The first plaintiff, Mr Quin, commenced this proceeding on 26 June 2018 in his capacity as the liquidator of the second plaintiff, Moneysaver Free Coupons Pty Ltd (‘Coupons’). The defendants, Mr Nicholas Dower and Mr Paul Lidgerwood, were the directors of Coupons between 2005 and the date of the liquidation of Coupons.

By orders made by consent on 24 April 2019, the proceeding was discontinued, otherwise than as to the question of costs. The plaintiffs contend that there should be no order as to costs up until that date, while the defendants seek costs on an indemnity basis.

Further, on 20 June 2019, HH&M Media Pty Ltd, Niche Media Pty Ltd, Waiviata Pty Ltd and Niche Media Management Services Pty Ltd (‘Related Companies’) filed a summons seeking to be joined to the proceeding for the purposes of costs and seeking costs from the plaintiffs on an indemnity basis from 1 October 2018. The application by Niche Media Management Services Pty Ltd is not being pursued as it is now deregistered.

For the reasons set out herein, I have determined that:

(a) there should not be an order as to costs up to 24 April 2019;

(b) the defendants pay the plaintiffs’ costs of and incidental to the application for costs on a standard basis;

(c) the Related Companies’ summons be dismissed; and

(d) the Related Companies pay the plaintiffs’ costs of and incidental to the summons on a standard basis.

Although I will discuss the costs application of the defendants and the summons of the Related Companies separately, I will set out the background facts together.

I am mindful of the comments of the Court of Appeal as follows:

In the ordinary case, it is both appropriate and desirable that a costs question be decided at the conclusion of argument. Rarely will it be necessary for a judge to give detailed reasons for decision adverting to every matter debated in argument. This court will assume, as should the parties, that every matter addressed in argument on costs has been considered. This court will set its face against any proposition which would require judges disposing of questions of costs to give elaborate reasons.[1]
[1]Luxmore Pty Ltd v Hydedale Pty Ltd (2008) 20 VR 481, 484 [12] (Maxwell P and Kellam JA).

Background

Coupons was in the business of publishing and distributing printed discount offer coupons to households. It engaged the services of PMP Print Pty Ltd trading as PMP Distribution (‘PMP’) to distribute the coupons.

Coupons had two shareholders, Lintel Investments Pty Ltd (Lintel Investments’) and Niche Group Pty Ltd (‘Niche Group’). The former was associated with the second defendant, Mr Lidgerwood, and the latter with the first defendant, Mr Dower. Mr Dower accepted that Lintel Investments held its 25 per cent interest in Coupons as trustee for the Lidgerwood Family Trust. He was unsure if he was involved in the control of any discretionary trusts in relation to the activities of Niche Group.

On 22 August 2011, Saascha Gabriel, the former accountant of Coupons, authorised and submitted a PMP commercial credit account application form on behalf of Coupons (‘Credit Application’). The required monthly credit limit is identified as $180,000 in the application. According to Mr Quin, the form was submitted to PMP that day.

In 2011, it appeared that Coupons’ business model was no longer viable long term. It also had material related party debt to other companies, including the Related Companies.[2] The defendants decided that in order for the business to survive, it had to branch into digital communication in addition to the use of traditional print media. A new entity, Moneysaver Vouchers Pty Ltd (‘Vouchers’), was incorporated in September 2011 for this purpose. Coupons then sold the coupon business to Vouchers. The sale price was $100,000, which was recorded as a loan from Coupons to Vouchers.
[2]Niche Management Services Pty Ltd has since been deregistered.

During cross-examination, Mr Dower could not recall who beneficially owned shares in HH&M Media Pty Ltd, Niche Media Pty Ltd and Waiviata Pty Ltd, although he did assume that the Lidgerwood Family Trust may beneficially own some of the shares in Waiviata Pty Ltd.

According to Mr Dower’s evidence at the hearing of the application, Coupons ceased trading in or around July 2011. In his affidavit, Mr Dower deposed that Coupons ceased trading on or after the incorporation of Vouchers. Mr Lidgerwood deposed in his affidavit that trading ceased in September 2011. An income statement for the year ending 30 June 2012, sets out a trading loss that financial year of $164,387.39. Further, the balance sheets indicate that a debt to Niche Management Services Pty Ltd was only incurred in the financial year ending 30 June 2012.

In September 2011, Vouchers published and distributed its first book of coupons (‘First Book’), engaging PMP for the purposes of distribution. Mr Dower deposes that Vouchers paid PMP for that work.

According to Mr Dower, a second book of coupons was published and distributed by Vouchers (‘Second Book’). PMP was again engaged for the purposes of distributing the Second Book, and in this regard sent an invoice for $184,748.78 (‘PMP Invoice’). The PMP Invoice, dated 2 December 2011, is addressed to Coupons. It is headed with the description ‘MONEYSAVER NOV CAMPAIGN’.

Mr Dower deposes that it appears that the PMP Invoice was issued to Coupons instead of Vouchers due to a clerical error in the filling out of the Credit Application.

By letter dated 13 April 2012, the lawyers for PMP, O’Donnell Salzano Lawyers (‘O’Donnell Salzano’), wrote to Coupons demanding payment of $180,190.61 by close of business on 27 April 2012. In the event of non-payment, the commencement of legal action was foreshadowed. No response was adduced into evidence.

On 1 May 2012, PMP served a statutory demand to Coupons for the sum of $180,190.61. The statutory demand was accompanied by an affidavit of Carolyn Dyson, dated 1 May 2012. As the credit and collections manager of PMP, Ms Dyson deposed that Coupons owed PMP the sum in relation to services invoiced by PMP on 2 December 2011, and that there was no genuine dispute about the sum.

An email from Mr Dower to Ms Dyson, dated 21 May 2012, states:

I would like to confirm that Moneysaver Free Coupons Pty Ltd [Coupons] ceased trading in January this year due to conditions in the advertising market.
Since that time we have been working to sell the remaining assets in an effort to maximise the return to creditors, we have had little success and have now determined that the company should be wound up.
In light of the above I would like [to] offer PMP $25226.60 … as full and final settlement of the account …
The alternative would be for PMP to have a liquidator appointed and have them dissolve the remains of the business.

During cross-examination, Mr Dower gave evidence that the reference to Coupons ceasing to trade in January 2012 in that email was an incorrect statement. Rather, it ceased to trade in the middle of 2011 and it was Vouchers which ceased trading in January 2012. In this regard, he gave evidence that ‘Moneysaver’, as used in the email’s subject line, was the ‘common vernacular [that was used] whenever referring to that company [Coupons]’. He agreed that the reference to Coupons was a ‘slip of the tongue’. In his re-examination, Mr Dower gave evidence that Moneysaver (Coupons), the business of 12 years, was never referred to as ‘Moneysaver Free Coupons’, but was referred to as ‘Moneysaver’, and that he had made a mistake in referring to Coupons rather than Vouchers. His intention was to reach a commercial solution on behalf of Vouchers.

Coupons did not make any payment or application to set the statutory demand aside. Mr Quin deposes that as such, upon the expiry of the statutory demand, Coupons was presumed to be insolvent.

On 4 June 2012, Mr Quin was contacted by O’Donnell Salzano via telephone requesting his consent to act as the liquidator of Coupons in the event that Coupons was wound up. On the same day, Mr Quin forwarded his written consent to O’Donnell Salzano to act as Coupon’s liquidator. He deposes that:

In making my decision to provide a signed consent to act, I relied on PMP’s assertion that it was a creditor of [Coupons]. As this time, if PMP had told me that it was not a creditor of [Coupons] I would not have consented to act as liquidator of [Coupons].

PMP commenced the winding up proceeding against Coupons on that day.

O’Donnell Salzano wrote to Mr Dower on 14 June 2012. The letter refers to a conversation between Mr Dower and Ms Simpson, a lawyer of O’Donnell Salzano, on 13 June 2012 during which Mr Dower asserted that Vouchers should be the named defendant in the proceeding commenced by PMP. It also encloses a copy of the Credit Application, filled in on behalf of Coupons on 22 August 2011, seven months after the date which Mr Dower had advised Ms Simpson that Coupons had ceased trading. In that letter, O’Donnell Salzano stated that Mr Dower had advised them that Coupons had ceased trading in January 2011. The letter then requests Mr Dower to advise, as a matter of urgency:

(a) the relationship between Coupons and Vouchers;

(b) what Mr Dower believed to be the relationship between PMP and the two companies; and

(c) any other information that he thought was relevant to the allegation that Vouchers should be named as the defendant rather than Coupons.

On 25 June 2012, Ms Dyson emailed Ms Simpson regarding the proceeding between PMP and Coupons. The email shows a table containing a number of payments and states:

These are the payments we received in the last couple of years, it does look like the payments came from Money Saver Voucher …
Does this cause an issue?

On 27 June 2012, this Court made orders that Coupons be wound up in insolvency, and that Mr Quin and Mr Clyde White be appointed liquidators.

The revenue for the Second Book was substantially less than that of the First Book, and the defendants decided that Vouchers should stop trading. On 3 July 2012, administrators were appointed to Vouchers.

By letters of 3 July 2012 to Mr Dower and Mr Lidgerwood, Mr Quin requested disclosure of the details of all of Coupons’ assets and for delivery of all of Coupons’ books and records. Mr Dower accepted that that letter contained an attachment, listing the books and records required by Mr Quin.

On 4 July 2012, Mr Scott Benger, then a colleague of Mr Quin, spoke to Mr Dower via the telephone making enquiries as to the asset position of Coupons and the identity of Coupons’ accountants. A file note of Mr Benger provides that according to Mr Dower, the wrong company had been wound up. Moreover, Mr Dower had stated that he was away interstate and asked for ‘the letter’ to be emailed. The following day, Mr Benger emailed Mr Quin’s letter of 3 July 2012 to Mr Dower.

Mr Dower deposes that on 10 July 2012 he met with Mr Benger and explained that the PMP Invoice debt was actually a debt of Vouchers, not Coupons. A file note of Mr Benger of that date states:

- PMP’s liability is for an outstanding invoice for November 2011 and should have been under [Vouchers] as thats [sic] who was making payments since July 2011.
- [Coupons] ceased to operate in August 2011.
- Outstanding debtors were in [Vouchers] and not in our company [Coupons].
…
- I raised the issue of Niche Group being the ultimate holding company and he stated that [Coupons] was never insolvent and was just dormant when the transfer to [sic] place
…
- Our company [Coupons] has a claim against [Vouchers] for the assets that they have obtained via the tarnsfers [sic] …

A ‘Questionnaire for Directors and Officers’ (‘Directors’ Questionnaire’) was certified by Mr Dower on 10 July 2012. He agreed that he was taken through the document by Mr Benger, on behalf of Mr Quin, and that he was certifying that the answers provided were true and complete to the best of his knowledge. The answer to question 52 identifies the amount owing to unsecured creditors as including $500,000 to Niche and $180,000 to PMP. Mr Dower stated in cross-examination that the answer was not his handwriting and he did not recall whether ‘Niche’ meant the Niche group as a whole. Moreover, Mr Dower stated that it was not his intention to represent to Mr Quin that PMP was a creditor of Coupons.

On 11 July 2012, Mr Quin sent a letter to Mr Martin of Martin & Martin Consulting Pty Ltd (‘Martin & Martin’), the accountants of Coupons. It enclosed a s 530B notice, and requested production of all of the books and records of Coupons. According to Mr Dower, he was aware of the request made to Mr Martin, and asked him to provide ‘whatever was required’ by Mr Quin.

Mr Dower signed a Form 507A statement verifying the report as to affairs (‘RATA’) on 16 July 2012. The RATA does not disclose PMP as an unsecured creditor.

In or around July 2012, Mr Quin received the report of the administrators of Vouchers, dated 27 July 2012. In that report, PMP is listed as an unsecured creditor to the sum of $180,190.61. Further, it is stated:

I note that [PMP] commenced winding-up proceedings against [Coupons] in respect of claims which the company’s directors state are actually against [Vouchers].
My preliminary investigations indicate that a credit application form was erroneously completed in the name of [Coupons] which they relied upon in their proceedings against that company.
The directors advise they did not contest the proceedings on commercial grounds where [Coupons] had no assets other than a loan account with [Vouchers] and was not trading.
Notwithstanding the credit application, I have formed an opinion that [PMP] is a creditor of this administration on the following grounds:
· The books and records of [Vouchers] are consistently prepared on the basis that [PMP] is a creditor
(ie [PMP] is named as the creditor in the accounts payable ledger of [Vouchers]. The goods and services it provided are not recorded via [Vouchers’] loan account with [Coupons].

· The directors have prepared their Report as to Affairs on the basis that [PMP] is a creditor for its claim against [Vouchers] in administration.
· My preliminary enquiries have determined that the goods and services that [PMP] provided have a direct nexus with the business activities of [Vouchers] which produced the revenues which contributed to the available cash at bank.

In these circumstances, I am satisfied to prima facie accept the disclosure in the books and records of [Vouchers] that [PMP] is a creditor of the administration.

Mr Quin deposes that he did not consider that the Vouchers administrators’ opinion was ‘definitive in respect to who was liable to pay the [PMP Invoice debt]’.

On 31 July 2012, Martin & Martin provided Mr Quin with a schedule of information, as well as copies of the documents listed in the schedule. The books and records that Mr Quin had received include a balance sheet for the year ending 30 June 2012 and tax returns for the years ending 30 June 2010 and 30 June 2011. Mr Quin deposes to a number of documents that he would expect to receive but which he had not, such as working papers for the preparation of the report as to affairs, cash books, and copies of business activity statements.

On 3 August 2012, Mr Quin submitted a proof of debt in the Vouchers administration on behalf of Coupons. The balance sheet attached to the proof of debt does not identify the PMP Invoice debt as a debt of Coupons. Mr Dower deposes that this is because at that time, the debt was treated as being one of Vouchers’.

On 9 August 2012, Mr Quin telephoned Mr Frank O’Donnell of O’Donnell Salzano, asking him if PMP was intending to lodge a proof of debt in the Vouchers administration. Mr O’Donnell informed Mr Quin that he believed that PMP would do so. According to Mr Quin, he informed Mr O’Donnell that he expected to receive a dividend from the Vouchers administration. His associated file note also refers to the possibility of recovery via an insolvent trading claim.

A formal proof of debt of PMP in the administration of Vouchers, dated 10 August 2012, identifies the PMP Invoice debt of $180,190.61.

On 14 August 2012, O’Donnell Salzano wrote to Mr Quin on behalf of PMP. They advised that PMP had lodged a proof of debt in the Vouchers administration, and that PMP’s rights were reserved ‘in respect of its claim with [Coupons]’ before asking for PMP to be ‘retained on the list of creditors’.

As a result of the Vouchers administration, all creditors of Vouchers received a payment of approximately 15.70 cents in the dollar, pursuant to a deed of company arrangement (‘DOCA’). In this regard, on 14 September 2012, the sum of $28,289.93 was paid to PMP.

On 1 March 2013, the Related Companies submitted proofs of debt in the liquidation of Coupons. These total $494,685 and relate to intercompany loans that originated when Coupons and the Related Companies operated as a group. Mr Dower deposed that there were no formal loan agreements in place in this regard and he considered that the debts would have been recoverable at the discretion of the Related Companies.

When taken during cross-examination to the balance sheet of Coupons for the year ending 30 June 2011, which included figures for the year ending 30 June 2010, Mr Dower accepted that they showed that certain debts to the Related Companies only came about after 30 June 2010. He did not recall whether there were no loan agreements at all, or whether there were agreed dates for the repayment of the intercompany loans.

On 7 March 2013, PMP lodged a proof of debt in the Coupons liquidation. In that document, O’Donnell Salzano identifies that Coupons was indebted to PMP for the sum of $180,190.61. The particulars of the debt cite the PMP Invoice of 2 December 2011. Further, it is acknowledged that PMP received $28,289.83 in relation to that debt from the Vouchers administration.

Mr Dower deposed that he did not have any contact with Mr Quin from early 2013 to early 2018 in relation to the winding up of Coupons.

On 4 June 2015, Niche Management Services Pty Ltd was wound up. An associated Notice of Meeting identifies unsecured creditors in the amount of $411,342.67, one of whom is listed as the Australian Taxation Office.

By letter dated 29 January 2018, Mr Quin wrote to each defendant stating, among other things, that Coupons failed to keep financial records as required by the Corporations Act 2001 (Cth) (‘the Act’) and that it was therefore presumed that Coupons was insolvent. Further, he demanded payment of $674,875.61 within 14 days.

According to Mr Dower in his affidavit, after receiving the letter of demand, he attempted to contact Mr Quin on several occasions but his calls went unanswered or were not returned. This is disputed by Mr Quin, who states that he never received any such messages from Mr Dower asking him to return his calls. During cross‑examination, Mr Dower gave evidence that he did not attempt to contact Mr Quin in writing or leave messages for him. Rather, he left seven or eight messages with Mr White.

On 31 May 2018, Williams Winter, the lawyers engaged by Mr Quin and Mr White, wrote to each of Mr Dower and Mr Lidgerwood, stating that their clients were of the view that Coupons did not maintain sufficient books and records from the date of incorporation until the date of liquidation. Reference was also made to Mr Dower and Mr Lidgerwood having failed to prevent Coupons from incurring debts whilst insolvent, being in breach in s 588G of the Act and personally owing the sum demanded. Moreover, Mr Quin and Mr White reserved the right to increase the amount of the claim if further investigations revealed that further debts were incurred whilst Mr Dower or Mr Lidgerwood were directors, and payment of $674,875.61 was demanded within seven days. In the event that the payment was not made or no response was given, Williams Winter held instructions to institute proceedings.

During cross-examination, Mr Dower gave evidence that he telephoned Williams Winter once upon receiving their letter, before concluding that he needed to speak with the liquidator.

Mr Quin deposes that between 29 January 2018 and 31 May 2018 four letters of demand were sent to the defendants. This refers to the two letters that were sent to each of the defendants.

Mr Dower deposes that, in or around June 2018, Mr Quin answered one of his telephone calls. He states that during the subsequent conversation he outlined to Mr Quin why the claim was flawed, including that: the PMP Invoice debt was not a debt of Coupons and had been settled by the Vouchers administration; and that the remaining creditors were the Related Companies. Mr Dower deposed that during the telephone call, Mr Quin dismissed his assertion as to the flaws of his claim and he said to Mr Dower to ‘make an offer for payment’ or words to that effect. Mr Dower denied that he did not make contact with Mr Quin’s office prior to the service of the originating process for this proceeding, stating that he initially attempted to contact Mr White several times, then, after being informed that Mr White had retired or resigned and after several days of failing to get in contact with Mr Quin, he used some ‘subterfuge’ to get in contact with Mr Quin.

On 25 June 2018, Mr White resigned as a liquidator of Coupons.

On 26 June 2018, the plaintiffs commenced this proceeding by originating process, pursuant to ss 588G and 588M of the Act. They claim $646,585.78 against each of the defendants for insolvent trading in contravention of s 588G. In an affidavit sworn on the same day, Mr Quin deposes that in his opinion, Coupons was insolvent at all times during the period of 2 March 1995 to 27 June 2012. His opinion is based upon Coupons’ failure to keep proper financial records pursuant to s 286 of the Act, such that pursuant to s 588E(4) of the Act it is presumed to be insolvent. Mr Quin deposed that Coupons continued to trade and incur debts between 1 June 2005 and 25 June 2012 (‘Relevant Period’). The debts said to have occurred during the Relevant Period include one owed to PMP for the sum of $180,190.61 on 2 December 2011, with $151,900.78 outstanding. The other identified debts were owed to the Related Companies.

Mr Quin deposes that he would not have instructed Williams Winter to commence the proceeding if PMP had told him that it was not a creditor of Coupons.

According to Mr Dower, aside from the letters of demand and telephone call in or around June 2018, Mr Quin did not otherwise communicate with him, Mr Lidgerwood or the Related Companies prior to commencing the proceeding.

Mr Dower gave evidence that he would have read Mr Quin’s affidavit sworn on 26 June 2018 when he received it. Further, Mr Dower gave evidence that he had no reason to disagree with the list of documents that Mr Quin deposed to receiving from Mr Martin.

According to Mr Quin, he spoke with Mr Dower on 3 July 2018. He states that he explained to Mr Dower that the paperwork that Mr Dower had just received was from Mr Quin’s solicitors and was related to the insolvent trading claim. Mr Quin deposed that Mr Dower told him that he had received everything that he had asked for, that 85 per cent of the debts owed by Coupons were owed to him, and that there was no insolvent trading. This was reflected in the associated file note of Mr Quin.

By letter dated 6 August 2018, which was emailed the following day, Mr Dower wrote to Williams Winter. The letter refers to evidence that PMP was not a creditor of Coupons and that PMP proved in the Vouchers administration. Further, the letter states that Coupons was never insolvent and that the commencement of the proceeding accordingly appeared to be ‘nothing more than an exercise in generating fees for Mr Quin and [Williams Winter]’. The letter then states that in the absence of PMP as a creditor, Mr Dower represents the only creditors and that he required the liquidation to be brought to an end. The letter then requests the following by 5:00pm on 9 August 2018: the proceeding be withdrawn; Mr Dower’s costs of $3,551.65 be paid; and that Mr Quin provide a detailed and up to date account of the liquidation of Coupons. The letter continues that in the event that such requests were not met, Mr Dower would be instructing solicitors to:

a.Make an urgent application to the court to have the matter struck out and seek an order that you pay our full party to party cost including that appearance;
b.Lodge a detailed complaint regarding Mr Quinn’s [sic] behaviour on this and several other matters to be lodged immediately with ASIC.
c.Compile a complaint on our behalf to the Legal Services Ombudsman and or the LSBC regarding the conduct of Williams Winter Solicitors.

The letter also states that:

Companies related to me, being the only creditors of [Coupons], will also require Mr Quinn [sic] to call a creditors meeting and provide all the details and information that we are entitled to.

The covering email attaches the Vouchers administrators’ report to creditors in addition to the letter.

On 8 August 2018, Mr Quin telephoned Mr O’Donnell, informing him that the defendants had asserted that PMP wound up the wrong company and that the PMP Invoice debt was owed by Vouchers. The response of Mr O’Donnell is said to have been that PMP is a public company, he had been acting for it for twenty years, and that it was always very careful with its paperwork. This is reflected in Mr Quin’s associated file note. Mr Quin also emailed Mr O’Donnell that day, referring to the telephone conversation, and requesting a copy of the Credit Application, which the defendants were asserting was ‘“erroneously” completed in the name of [Coupons]’. A later email sent that afternoon by Mr Quin also requests a copy of the PMP Invoice. Mr O’Donnell is said to have replied that day via email, attaching a copy of the Credit Application.

Mr Quin deposes that, in or about August 2018, he reviewed the Vouchers’ DOCA and considered that it did not prevent PMP from asserting that it was a creditor of Coupons.

On 14 August 2018, Williams Winter replied to Mr Dower by email, rejecting his offer in his letter dated 6 August 2018 to discontinue the proceeding and pay his costs to date. Williams Winter further stated: ‘I confirm that in the event our client’s claim is successful, you shall also be liable for our client’s costs. As such, it would be prudent to consider making a commercial offer of settlement to resolve this proceeding.’

On 16 August 2018, Maddocks wrote to Williams Winter on behalf of the defendants. The letter refers to the plaintiffs’ claim as ‘completely devoid of merit and destined to fail’. It then continues:

before filing an appearance … we are instructed to give your client the opportunity to discontinue the Proceeding on the basis that all parties bear their own costs.
This offer is made on an open basis, and this letter will be brought to the attention of the court if the offer is not accepted.
If your client does not withdraw the Proceeding, we are instructed to assume the conduct of the matter, which in the first instance will require our clients incurring the costs of preparing the affidavit required by the 20 July Orders and instructing counsel to appear at the hearing of the matter scheduled for 7 September 2018.
Our clients will ultimately look to your client for payment of these costs on an indemnity basis.

In relation to the merits of the plaintiffs’ claim, the letter refers to, among other things, the documents that the defendants and Martin & Martin provided as having satisfied s 286 of the Act, and that in any event, the presumption of insolvency being rebuttable as:

2.1[PMP] was not in fact a creditor of [Coupons], but a creditor of a related party: [Vouchers]. The debt the subject of the statutory demand made by PMP was raised in the name of [Coupons] erroneously. This fact was raised by our client at the time and was set out explicitly, and acknowledged, by the administrators of [Vouchers] … in their report to creditors dated 27 July 2012 …
2.2Moreover, PMP proved as a creditor of [Vouchers] under the Deed of Company arrangement ultimately agreed to by creditors in respect of that entity …, a clear acknowledgement by PMP that it was in fact a creditor of [Vouchers] and not [Coupons]. Having made that admission PMP cannot now assert to be a creditor of [Coupons] but, more importantly, the amount owed to PMP was never a liability of [Coupons] and is therefore not relevant to assessing the solvency of [Coupons] during the relevant period.
2.3It is clear that [the plaintiffs are] aware that PMP was not a creditor of [Coupons], and was aware of that fact before filing the Proceeding …

The final paragraphs of the letter conclude:

For the above reasons, we are instructed to invite your client to withdraw the Proceeding with no order as to costs within 7 days from the date of this letter.
If your client does not withdraw the Proceeding, we are instructed to vigorously defend the Proceeding, and ultimately produce this letter to the Court on an application that your client pay our clients’ costs on an indemnity basis.

On 16 August 2018, following receipt of the letter from Maddocks, Mr Quin attended the office of O’Donnell Salzano. He reviewed the firm’s file regarding Coupons’ liquidation, which contained, among other things:

(a) the PMP Invoice;

(b) the email of Ms Dyson to Ms Simpson dated 25 June 2012;

(c) the letter of demand from O’Donnell Salzano to Coupons dated 13 April 2012; and

(d) the letter from O’Donnell Salzano to Mr Dower dated 14 June 2012.

After these investigations, Mr Quin remained of the belief that PMP was a creditor of Coupons.

Williams Winter responded to Maddocks by letter dated 29 August 2018 rejecting the defendants’ offer. The letter refers to ‘numerous demands’ having been made by Mr Quin for books and records, which were not satisfied. Further, the letter states that:

(a) Coupons was wound up by orders of the Court on 27 June 2012 based upon the statutory demand of PMP, and that Coupons is presumed to be insolvent;

(b) the statutory demand was issued on the basis of the PMP Invoice, which was rendered to Coupons;

(c) Coupons’ company accountant, Ms Saascha Gabriel, submitted the Credit Application to PMP on 22 August 2011 on behalf of Coupons;

(d) although the administrators of Vouchers formed the opinion that PMP was a creditor of Vouchers, the points upon with the administrators relied had no implications with respect to PMP receiving the Credit Application in the name of Coupons, providing goods to Coupons on that basis, and subsequently rendering an invoice to Coupons. The ‘contract for the provision of goods was between [Coupons] and PMP’ and the Court had previously made orders to this effect; and

(e) Mr Dower made an offer of settlement to resolve the debt owed to PMP in the amount of $25,226.60 on behalf of Coupons.

On 31 August 2018, the second defendant filed an appearance in the proceeding. The first defendant had filed an appearance on 10 July 2018, and on 5 September 2018, a notice of solicitor acting for the first defendant was filed. On 4 September 2018, Maddocks wrote to Williams Winter serving the notice of appearance of the second defendant and the notice of solicitor acting for the first defendant, as well as the affidavit of Mr Lidgerwood affirmed on 3 September 2018. Maddocks also proposed that the proceeding be referred to judicial mediation.

By letter dated 7 September 2018, Williams Winter wrote to Maddocks, stating that the contents of the affidavit of Mr Lidgerwood had already been dealt with extensively. Additionally, a request was made for further books and records of Coupons if the position of the defendants was that more existed. The contents of their letter dated 29 August 2018 were then restated. The letter provides:

Notwithstanding the above, our client is prepared to resolve this matter on a purely commercial basis by way of payment by your clients of the sum of $140,000.00 inclusive of costs and interest in full and final settlement of all claims between [Coupons] and your clients.
We confirm that this offer of settlement is subject to all current creditors in the liquidation of [Coupons], other than the petitioning creditor, withdrawing their proofs of debt in the liquidation.
We confirm that this offer shall remain open for acceptance until close of business on 21 September 2018 after which it shall be formally withdrawn.
This offer is made strictly on a without prejudice basis and if this offer is rejected and our client obtains an award in its favour at Hearing, we give you notice that this letter will be relied upon in support of an application that your clients pay costs on an indemnity basis from the date of receipt of this letter. Such application will be made on the basis of the principles in Calderbank v Calderbank [1975] 3 ALL ER 333 …

On or about 1 October 2018, Mr Dower instructed Rotstein Commercial Lawyers (‘Rotstein’) to act on behalf of the Related Companies in relation to the winding up of Coupons. He deposes that he thought instructing different lawyers was appropriate to avoid any conflict between the interests of himself and Mr Lidgerwood on the one hand, and the Related Companies on the other, and because Rotstein was familiar with the operations of the Related Companies. When asked to describe the conflict of interest during cross-examination, Mr Dower stated that he received advice from Maddocks that it was the appropriate thing to do.

Rotstein sent a letter dated 11 October 2018 to Mr Quin on behalf of the Related Companies. That letter states that PMP is not a creditor of Coupons. It also directs Mr Quin to hold a meeting of creditors to put forward a resolution removing Mr Quin as liquidator of Coupons. It was proposed that the meeting take place on 18 October 2018.

When it was put to Mr Dower that in instructing Rotstein in that respect he was seeking to replace Mr Quin as the liquidator in order to have the proceeding ‘killed’ for the benefit of himself and Mr Lidgerwood, he stated that he was acting on the advice of his lawyers and that it was not his job to understand.

On 16 October 2018, the parties attended mediation which was unsuccessful.

Mr Quin replied to Rotstein on 15 October 2018, stating that he considered that the direction to convene a meeting of creditors was unreasonable. A number of bases for this opinion are set out, including that the effort of the Related Companies to remove him appeared to be a ‘deliberate attempt to stymie the proceeding’. The letter also sets out his reasons for considering PMP to be a creditor of Coupons, and states that ‘nothing in the Deed of Company Arrangement prevents PMP from claiming as a creditor in the liquidation of [Coupons]’. Further, the letter provides that in circumstances where Mr Lidgerwood claims that the debts owed to the Related Companies were not due and payable, the Related Companies would not be considered creditors of Coupons and would have no right to direct Mr Quin to convene a meeting of creditors.

By letter dated 17 October 2018, Rotstein replied to Mr Quin. That letter rejects the assertion by Mr Quin that the request to convene a meeting was unreasonable. A request is again made to convene a meeting, before reference is made to commencing proceedings should the meeting not be convened. A letter of Rotstein to Mr Quin the following day refers to correspondence of Mr Quin that day, in which Mr Quin requested that no action be taken before 24 October 2018. Rotstein informed Mr Quin that his request was rejected.

On 22 October 2018, Williams Winter wrote to Rotstein. The letter states, among other things:

We confirm that Mr Lidgerwood on behalf of he and Mr Dower has sworn an affidavit in [this] proceeding making claims that [PMP’s] claim as against [Coupons] has been made in error and that [PMP’s] alleged debt was satisfied by virtue of a receipt of funds in the Administration of a related entity.
Our client as Liquidator [Mr Quin] has rejected this position and has determined that the petitioning creditor’s claim as being valid and this debt forms part of the insolvent trading claim advanced by our client.

It goes on to allege that the attempt by the Related Companies to remove Mr Quin as liquidator is an abuse of process, and that the attempt to remove Mr Quin was based only upon Mr Quin’s acceptance of PMP’s claim of indebtedness against Coupons in liquidation. The letter then invites the Related Companies to withdraw their request for a meeting of creditors before reference is made to commencing an interlocutory application to prevent them from voting to remove Mr Quin as liquidator until the determination of this proceeding.

Mr Andrew Williams, the executive general manager of PMP between 2009 and 2012, affirmed an affidavit on 1 November 2018. Mr Williams deposed that PMP ceased providing services to Coupons in or around July 2011 as Coupons had ceased trading by that time. Mr Williams stated that the former owners and operators of Coupons established Vouchers to replace Coupons. Further, Mr Williams deposed that PMP asked Vouchers to complete a new credit application in order to establish a new account with Vouchers. I note that the Credit Application was provided to PMP on 22 August 2011 but Vouchers was not incorporated until September 2011. Mr Williams stated that he now understood that the Credit Application was incorrectly made in the name of Coupons rather than Vouchers by a temporary bookkeeper employed by Niche Media Group Ptd Ltd, which was the parent company of Vouchers. Mr Williams deposed that, in September 2011 and November 2011, PMP provided services to Vouchers. Mr Williams ceased working for PMP in or about early May 2012.

On 5 November 2018, Rotstein emailed Mr Alistair Clarkson, PMP’s general legal counsel and company secretary, setting out the background to the matter and requesting written confirmation that PMP was not a creditor of Coupons. Mr Clarkson replied on 26 November 2018, confirming that PMP was not a creditor of Coupons. Attached to the email is a screenshot of PMP’s accounts, indicating ‘[b]ad debt write off’ on 18 September 2012 and $28,289.93 received from Vouchers on the same day.

On 27 November 2018, Rotstein forwarded to Williams Winter the affidavit of Mr Williams and email of Mr Clarkson, which were said to confirm that PMP was not a creditor of Coupons. The cover letter invited Mr Quin to withdraw the proceeding against the defendants by 29 November 2018, failing which, removal proceedings would be commenced against him.

Mr Quin deposed that he was surprised by the contents of the affidavit of Mr Williams, as it was inconsistent with PMP’s statutory demand, the affidavit in support of the statutory demand, the winding up proceeding, the PMP proof of debt, and previous discussions that he had had with O’Donnell Salzano.

Williams Winter replied to Rotstein on 29 November 2018 noting that they were seeking instructions from PMP and requesting until 6 December 2018 to provide a response. The same day, they wrote to Maddocks, stating that the plaintiffs were ‘considering their intentions with respect to continuation of the proceeding’ and requesting an adjournment of a directions hearing scheduled for the following day.

The same day, Williams Winter wrote to Mr Clarkson, setting out, among other things, the costs incurred by Mr Quin and seeking clarification as to whether: PMP was a creditor of Coupons; PMP was seeking to withdraw its proof of debt; and whether PMP now agreed that it was not a creditor of Coupons at the time that it served the statutory demand and at the time it made an application for winding up Coupons.

On 3 December 2018, Williams Winter wrote to Rotstein stating that they had requested clarification from PMP as to the status of the proof of debt of PMP, and then requested that the Related Companies allow until 7 December 2018 for a response to be provided.

A number of emails were then exchanged between Rotstein and Williams Winter on the afternoon of 4 December 2018. Rotstein initially requested that Williams Winter provide them with copies of the correspondence between Williams Winter and/or the plaintiffs and PMP and/or their solicitors. Williams Winter refused to provide the correspondence, stating that it may be ‘the subject of a court application and potential litigation’. Rotstein then requested the correspondence by 10:00am the following day, and referred to Williams Winter’s response as unsatisfactory. Williams Winter replied:

The correspondence forwarded to [PMP] relates to matters contained in the affidavit served by you upon our office and the suggestion that [PMP] has either made an error in claiming it was a creditor or if [PMP] seeks to formally withdraw its proof of debt.
These are remarkable circumstances where a petitioning creditor appears to have either made a genuine error or has had a change of heart as to their creditor status most likely due to negotiations and inducements made outside the scope of the liquidation and clearly not involving our client.
If it is the case that the [PMP] has made application to wind [Coupons] up in error as suggested, or now seeks to withdraw its proof of debt due to other factors, [Mr Quin] specifically reserves his right to take action as against [PMP] …

On 10 December 2018, Rotstein emailed Williams Winter again seeking the correspondence and rejected the assertion that they induced PMP in any way to provide the confirmation that they are not creditors of Coupons. Williams Winter replied the same day, stating that they had ‘received a belated and confusing response from the lawyers from PNP [PMP]’ that day, and that they were awaiting a further response. The letter from O’Donnell Salzano to Williams Winter, dated 10 December 2018, provides as follows:

We are unaware of the liquidator’s instructions to you and note that the liquidator has not contacted PMP in relation to any recovery from [Coupons]. We therefore assume that any action for recovery has been brought for all creditors, rather than as a recovery for PMP alone.
Since issuing the Proof of Debt, PMP has received information which may suggest that the debt recorded against Coupons was rather a debt of [Vouchers]. This is based on the uncovering of an error by Vouchers’ staff when setting up the credit account with PMP …
Unfortunately, due to the passage of time since the events in question, PMP no longer has the corporate knowledge to confirm or contradict the contents of Mr Williams’ affidavit …
In answer to the questions posed in your letter:
1. [PMP] has been a creditor of both Coupons and Vouchers.
2.On the basis of Mr Williams’ affidavit, and subject to what the liquidator is able to show is recorded as a debt to [PMP] in Coupons’ books of account, the Proof of Debt may not reflect what PMP currently understands to have been the debt. In any event, PMP has since written off any debt to Coupons.
3. The information available to [PMP] when it issued the Statutory Demand showed that Coupons was a creditor of [PMP] and [PMP’s] actions at the time were consistent with the same.

Williams Winter replied to O’Donnell Salzano the following day, seeking among other things, clarification as to whether PMP was in error, either at the date that it served the statutory demand or when it made the application to wind up Coupons. A second letter from Williams Winter to O’Donnell Salzano that day foreshadowed Mr Quin being entitled to the costs of the liquidation, if PMP was in error in seeking to wind up Coupons. A without prejudice offer was made to negotiate the costs payable with PMP in good faith.

By letter dated 11 December 2018, Williams Winter wrote to Rotstein, noting that the request to provide the correspondence was unreasonable. The position of the Related Companies as creditors was also queried, based upon conflicting positions put by the defendants and Related Companies. The defendants’ assertions are that the debts owed to the Related Companies were not due and payable. On the other hand, the Related Companies assert that they are creditors of Coupons to remove the liquidator and demand access to correspondence, but they suggest that Coupons had no creditors and therefore the liquidation should conclude. Clarification was sought in this regard. The letter then provides:

we can confirm for the avoidance of doubt, that as at the time and date of sending this letter, PMP has not withdrawn its proof of debt in the liquidation, nor has it stated that as at the time of its application to wind up [Coupons], that no debt was due and payable to it by [Coupons]. Clearly this is inconsistent with the contents of the affidavit recently served upon our office undercover of your correspondence.

Mr Quin is then said to be considering whether he should in fact bring the matter to a head and seek directions from the Court.

On 12 December 2018, O’Donnell Salzano replied to Williams Winter, confirming that the proof of debt in the liquidation of Coupons ‘will be withdrawn’. The letter also provides that evidence at the time that PMP served the statutory demand and at the time it made an application to wind up Coupons showed that PMP was a creditor of Coupons, but that evidence coming to light since shows that it was not. Further, the letter asserts that, independent to the debt previously thought to be owing to PMP, Coupons was insolvent on account of the lack of proper books and records, as deposed by Mr Quin, and Coupons had incurred debts during 2011 and 2012 and had not repaid any part of those debts.

Williams Winter wrote to O’Donnell Salzano the following day, emphasising the statement in the report of the administrators of Vouchers that ‘a credit application form was erroneously completed in the name of [Coupons] which [PMP] relied upon in their proceedings against [Coupons]’. Further, the letter provides that Coupons would not have been wound up and deemed insolvent but for PMP’s winding up proceeding, and that:

[b]ut for [PMP] winding up [Coupons] on what now appears to have been an error as suggested by you, [Coupons] would not have been wound up nor the Supreme Court proceeding commenced. We also note that Mr Williams’ affidavit suggests that it was evident that [Coupons] was not the correct creditor prior to the Creditor’s Statutory Demand for Payment of Debt being served.

Confirmation was also sought that PMP would withdraw its proof of debt by midday that day.

Rotstein wrote to Williams Winter on 13 December 2018 confirming that the Related Companies are creditors and requesting that the proceeding be discontinued as a matter of urgency. A reply of Williams Winter dated 18 December 2018 reiterated that PMP had not withdrawn its proof of debt and that, in such circumstances, Mr Quin was entitled to treat it as a creditor of Coupons. It then states that as Rotstein had confirmed that the Related Companies were creditors, clear and unequivocal confirmation had been provided that Coupons was insolvent. Mr Quin was said to be proceeding with the insolvent trading proceeding and reference is made to a copy of the associated statement of claim being enclosed. The following points were also noted:

1.[Coupons] has several creditors, who despite being invited to withdraw their claims and proofs of debt have refused to do so;
2.[PMP] is not a related party and swore two affidavits and lodged a proof of debt verifying its claims against [Coupons]. The Court relied upon this evidence in winding up [Coupons];
3.Prior to the wind up of [Coupons], it made offers of settlement to [PMP] to resolve the wind up of [Coupons] and to discharge its debt to the petitioning creditor;
4.Based upon the above matters, it was evident that [Coupons] was insolvent as at the date it incurred the debts to [PMP] and to [the Related Companies]. The Directors of [Coupons] did continue to trade [Coupons] despite it being insolvent;
5.The Directors have defended the insolvent trading claim and have submitted that [PMP] was not in fact a creditor at all. These matters have been put to [PMP]. [PMP] has not (as of the date of this letter) withdrawn their Proof of Debt …

Further, it was asserted that Mr Quin would be in breach of his duties if he did not pursue the claim. The draft statement of claim pleads insolvency in paragraph nine, by referring back to the affidavit of Mr Quin sworn on 26 June 2018.

On 13 December 2018, O’Donnell Salzano sent a without prejudice save as to costs letter to Williams Winters, rejecting the proposition that PMP was liable for the costs of the liquidation and asserting that any resistance to PMP’s proof of debt by the directors of Coupons would not be fatal to the insolvent trading proceeding.

On 17 January 2019, Williams Winter wrote to Maddocks, stating that they had had extensive correspondence with O’Donnell Salzano, the lawyers for PMP, and Rotstein, the lawyers for the Related Companies, and that, as of that date, PMP had not withdrawn its proof of debt. As stated in the letter:

If it was the case that [PMP] and [the Related Companies] had withdrawn their Proofs of Debt, our client would have considered its position in this proceeding. As the Proofs of Debt remain, our client is bound to proceed with the insolvent trading claim against your clients.

A proposed minute of consent is attached for the timetabling of the proceeding. Orders were made by consent that day, which included an order that the plaintiffs file a statement of claim by 25 January 2019.

Later on 17 January 2019, O’Donnell Salzano wrote to Williams Winter confirming that the proof of debt ‘is now formally withdrawn’. It was additionally stated that it was in December 2018 that PMP determined that it was not a creditor of Coupons, after receiving the affidavit of Mr Williams and the correspondence from Williams Winter and from the solicitors for the defendants. It was noted that Mr Williams had left the employment of PMP prior to the commencement of the winding up. Further, it noted:

2.The insolvent trading proceedings were issued without [PMP’s] consent and without any prior consultation with [PMP].
3.It would appear that the insolvent trading proceedings were issued just prior to the expiry of the limitation period before a more thorough investigation could have been made of [PMP’s] proof of debt, which had been previously been [sic] admitted to proof at the time.

On 22 January 2019, Williams Winter wrote to Maddocks advising that PMP had withdrawn its proof of debt as of 17 January 2019. According to the letter, PMP only formed the opinion that it was not a creditor of Coupons in December 2018. Further, Williams Winter stated that:

It is the position of our client [Mr Quin] that he is prepared to conclude the proceeding against your clients on the following basis (subject to execution of a formal deed of release and settlement);
1.That our client’s claim against your client be struck out on the basis that there be no order as to costs;
2.That the [Related Companies] release [Coupons] from their claims and/or agree to forbear from making any claim against [Coupons] …

Williams Winter also wrote to O’Donnell Salzano on 22 January 2019, confirming that PMP had formally withdrawn its proof of debt. The letter again reiterates that but for PMP’s conduct in pursuing the winding up claim and thereafter submitting a proof of debt against Coupons, Mr Quin would not have been appointed as liquidator and the insolvent trading claim would not have been pursued. Moreover, Mr Quin was entitled to rely up the sworn evidence of PMP. In particular, it is asserted that Mr Quin commenced the insolvent trading proceeding on the basis of PMP’s: statutory demand and affidavit in support; winding up application and affidavit in support; and proof of debt. The letter goes on to make an offer for the payment of the costs of liquidation, in addition to any adverse costs order made against Coupons in the insolvent trading proceeding.

Maddocks replied to Williams Winter by letter dated 24 January 2019 rejecting the offer, and instead proposing that the defendants would consent to orders that the proceeding be discontinued and that the plaintiffs pay the defendants’ costs, fixed at $35,000, within 14 days. The letter sets out a number of points in support of such a proposal, including that Mr Quin had knowledge from July 2012 that the debt claimed by PMP had been claimed in the Vouchers administration, and that in the subsequent six years he failed to make enquiries of PMP regarding the PMP Invoice debt.

The following day, Williams Winter replied to Maddocks, considering it to be ‘physically impossible’ for the defendants to have incurred costs of $35,000. Williams Winter suggests that the matter of costs may be resolved if Maddocks provided itemised accounts rendered to the defendants regarding the proceeding, or an itemised claim for costs in taxable form. The letter then responds to the remainder of the letter from Maddocks, noting, among other things, that Mr Quin was entitled to rely upon sworn evidence and upon the finding of the Court as to the debt claimed by PMP.

I note that although the Court had ordered the plaintiffs to file and serve a statement of claim by 25 January 2019, the plaintiffs did not do so.

On 30 January 2019, Maddocks replied to Williams Winter, stating that the defendants would agree to orders that: the proceeding be discontinued; and that Mr Quin pay the defendants’ costs of and incidental to the proceeding, in an amount to be agreed, or, failing agreement, to be taxed on an indemnity basis.

On 4 February 2019, O’Donnell Salzano replied to Williams Winter’s letter dated 22 January 2019. In the letter, O’Donnell Salzano asserts, among other things, that Mr Quin was on notice from 2012 of Coupons’ directors’ claim that the debt was owed by Vouchers. Further, O’Donnell Salzano asserts that Mr Quin ‘explicitly addressed the prospect of treating the debt as the joint and several debt of Coupons and Vouchers’. The offer of Mr Quin set out in Williams Winters’ letter of 22 January 2019 was rejected.

An email of Williams Winter sent to Maddocks on 6 February 2019 states that the firm was seeking instructions, and that the plaintiffs were seeking to reach an agreement on a ‘global settlement’, addressing both the defendants’ claim for costs and the plaintiffs’ claim against PMP.

By letter dated 13 February 2019, Williams Winter wrote to Maddocks. Mr Quin is said to have disagreed that indemnity costs were appropriate, and instead proposed that the proceeding be dismissed, and that the plaintiffs pay the defendants’ costs on a party and party basis, to be taxed in default of agreement.

Maddocks replied by letter dated 22 March 2019, on behalf of the defendants and with the authority of the Related Companies, asserting that costs should be payable on an indemnity basis. The reasons said to justify such an approach are listed in the letter, including:

(a) that the plaintiffs were to pay the defendants’ costs in accordance with rr 25.05 and 63.15 of the Supreme Court (General Civil Procedure) Rules2015 (Vic) (‘the Rules’), and that in light of cases such as Ugly Tribe Co Pty Ltd v Sikola (‘Ugly Tribe’)[3] and the plaintiffs’ conduct in bringing a claim that was hopeless, indemnity costs were appropriate; and

(b) Mr Quin acted in breach of his overarching obligations under the Civil Procedure Act 2010 (Vic) (‘CPA’), such that he should pay the costs of the Related Companies pursuant to s 29 of the CPA.

The factual matrix said to support these propositions is set out in some detail, including an attached four page schedule of key dates. The letter concludes with a final offer, which is that the plaintiffs pay $35,000 to the defendants and Related Companies in full and final settlement of the proceeding and that the plaintiffs subsequently withdraw the proceeding. If that offer was not accepted, the letter states that the defendants would seek: an order striking out the proceeding; declarations that the plaintiffs had breached the CPA; and an order for costs on an indemnity basis. Further, the Related Companies would separately seek their costs on an indemnity basis. Reference was then made to the principles in Calderbank v Calderbank.[4]

[3][2001] VSC 189 (‘Ugly Tribe’).

[4][1975] 3 All ER 333.

Williams Winter replied by letter dated 26 March 2019. In that letter it is noted that Maddocks failed to provide any copies of accounts rendered or a bill of costs in taxable form. Williams Winter reiterated Mr Quin’s position that his conduct in pursuing the proceeding was supported by the evidence available to him and was in accordance with his duties and obligations as liquidator. Moreover, Williams Winter again stated that Mr Quin was prepared to agree that the plaintiffs pay the defendants’ costs on a party and party basis. That offer was again rejected by email the following day, with Maddocks stating further that the defendants would provide details of their costs once the basis for payment of the costs has been determined. An offer was then set out for the defendants’ costs to be paid on an indemnity basis.

On 3 April 2019, Williams Winter conveyed to Maddocks by email that the plaintiffs rejected the defendants’ offer, and instead proposed that they pay $20,000 in full and final settlement of the defendants’ claim for costs.

On 24 April 2019, orders were made by consent discontinuing the proceeding other than as to the question of costs, and dates were set for the filing of affidavits and submissions.

A directions hearing regarding the resolution of the proceeding was held on 17 July 2019.

On 20 November 2019, Williams Winter served upon Maddocks a notice to produce, requesting that the defendants produce all correspondence and documents touching or concerning the PMP Invoice debt in the period May 2012 to August 2019.

The same day, Williams Winter wrote to Rotstein. The letter raises the prospect that the defendants and Related Companies may have made an offer or payment to PMP in respect of the PMP Invoice debt. A request is then made for the production of all correspondence and related documents, in the period May 2012 to August 2019, touching or concerning the PMP Invoice debt.

By letter dated 22 November 2019, Rotstein rejected the proposition that their clients or the defendants made an inappropriate offer or payment to PMP and requested that the assertions be withdrawn. In the absence of withdrawal, referral to the Legal Services Board was foreshadowed.

On 25 November 2019, Maddocks wrote to Williams Winter, adopting and agreeing with the matters set out in Rotstein’s letter of 22 November 2019, and requesting that the notice to produce similarly be withdrawn, as it was said to be based on unsubstantiated and baseless allegations. Having not received a response, Maddocks wrote to Williams Winter two days later, stating that the directors were not in possession of any of the documents requested other than those already in evidence, and otherwise maintained their objection to the notice to produce.

The costs of the defendants to the date of the hearing are $116,544.59. Those of the Related Companies are $55,823.62.

Costs between the defendants and plaintiffs
Defendants’ position

The defendants seek their costs on an indemnity basis on the following three bases:

(a) Mr Quin commenced proceedings without any foundation and in wilful disregard of known facts;

(b) Mr Quin unreasonably rejected the letters of compromise; and

(c) Mr Quin breached his overarching obligations under the CPA.

The proceeding had no foundation and was brought with wilful disregard of known facts

The defendants submit that the proceeding should never have been commenced and that Mr Quin wilfully disregarded known facts. He also continued to prosecute the proceeding despite being provided with further information that the claim was without foundation.

The defendants essentially rely upon two points in establishing that the proceeding should never have been commenced: that PMP was not a creditor of Coupons and, in this regard, Mr Quin failed to properly investigate the matter and wilfully disregarded known facts; and that Coupons was never insolvent.

PMP was not a creditor of Coupons

The defendants contend that reg 5.6.53 of the Corporations Regulations 2001 (Cth) (‘Corporations Regulations’) contemplates that a liquidator must undertake an investigation. The defendants contend that liquidators must conduct a proper investigation, having regard to the circumstances, and must seek appropriate advice based upon the facts.[5] Further, the defendants contend that, in this regard, the liquidator acts in a quasi-judicial role, and they refer to Tanning Research Laboratories Inc v O’Brien (‘Tanning Research’),[6] in which Brennan and Dawson JJ said:

In determining whether to admit or reject a proof of debt, a liquidator has been said to act in a quasi-judicial capacity … according to standards no less than the standards of a court or judge … This description of the liquidator’s function reflects his duty to distribute the assets in his hands or under his control among the persons truly entitled. That duty was stated by Viscount Simonds in Government of India v Taylor:
I conceive that it is the duty of the liquidator to discharge out of the assets in his hands those claims which are legally enforceable, and to hand over any surplus to the contributories. I find no words which vest in him a discretion to meet claims which are not legally enforceable …[7]

[5]City & Suburban Pty Ltd v Smith (1988) 28 ACSR 328, 341 (Merkel J) (‘City & Suburban’).

[6](1990) 169 CLR 332 (‘Tanning Research’).

[7]Ibid 338–9 (citations omitted).

The defendants contend that, here, Mr Quin knew that PMP had submitted a proof of debt in the Vouchers administration and had been paid for part of the PMP Invoice debt by the Vouchers administration. The defendants contend that PMP had made an election by proving the debt in the Vouchers administration. The defendants submit that there is no evidence to suggest that the PMP Invoice debt was joint and several, and that Mr Quin did not make an independent inquiry in this regard. The defendants contend that Mr Quin did not check the legal foundation for the PMP Invoice debt or seek legal advice, particularly after O’Donnell Salzano informed him by letter on 14 August 2012 that PMP had lodged a proof of debt with the administrators of Vouchers but that PMP’s rights were reserved in respect of its claim with Coupons and requested PMP to be retained on the list of creditors, and after receiving the report of the Vouchers administrators. The defendants also referred to a file note of a conversation between Mr Benger and Mr Dower on 4 July 2012, in which it was recorded that Mr Dower had stated that the incorrect company had been wound up. Further, the defendants referred to another file note of a conversation between Mr Benger and Mr Dower on 10 July 2012, in which it was recorded that PMP’s liability is for an outstanding November 2011 invoice and it should be under Vouchers because that is who had been making payments since July 2011. The defendants contend that Mr Quin did not take timely steps to verify the veracity of the information that he had before him and that there is no evidence as to any action taken during the five years prior to the proceeding being filed. The defendants submit that Mr Quin did not notify PMP whether he rejected or accepted the proof of debt lodged with Coupons.

The defendants contend that after the lapse of five years, Mr Quin filed proceedings without contacting PMP to check the status of the debt. The defendants assert that there should have been an enquiry at that stage, and that Mr Quin had a higher duty as a professional litigant. The defendants contend that Mr Dower had made telephone calls after receiving the letters of demand dated 29 January 2018 and 31 May 2018, and that he spoke to Mr Quin prior to July 2018 and immediately after the filing of the proceeding. The defendants submit that saying that the other party did not respond does not absolve a potential litigant from testing each element of their case, particularly where the potential litigant has all the information prior to commencing proceedings.

Further, the defendants contend that had Mr Quin made enquiries, such as requesting the legal foundation for the PMP Invoice debt, the proceeding would not have been filed. There is said to have been ‘compelling evidence and communications between the parties that would have led … a reasonable and competent liquidator, properly advised, to the conclusion that there [was] no need to issue proceedings’.

The defendants contend that in filing the proceeding, Mr Quin relied upon secondary documents, which are the proof of debt, statutory demand and its accompanying affidavit in support, and that he only sought a copy of the invoice issued by PMP and the Credit Application on 8 August 2018, some six weeks after he commenced the proceeding. Moreover, the defendants contend that even when he received the affidavit of Mr Williams and the email of Mr Clarkson, he didn’t stop and make a determination — he just relied on PMP to do something. The defendants submit that the plaintiffs did not pause the proceeding at any point prior to the discussion about costs to undertake investigations.

With respect to the email of 21 May 2012, the defendants contend that Mr Dower gave evidence that it was his intention to try to reach a commercial solution on behalf of Vouchers and that the reference to Coupons was a slip of the tongue. With respect to the Credit Application, the defendants also contend that it was a mistake that the application was completed on behalf of Coupons rather than Vouchers and that the application was needed for the sale of the business of Coupons.

Coupons was not insolvent

Insofar as Mr Quin considered that Coupons was insolvent on account of failing to keep proper records, the defendants submit that relying upon such a ground was unjustified and in wilful disregard of established law. The defendants contend that for the asserted presumption of insolvency to arise, in accordance with s 588E(4)(a) of the Act, it must be proved:

either that no document whatsoever within the ‘financial records’ description was kept in relation to that period or that such documents within the definition as were kept in relation to the period were deficient as to content, in the sense that they either did not correctly record and explain the company’s transactions and financial position and performance (for example, because they did not accurately record the matters purportedly recorded … or would not enable true and fair financial statements to be prepared and audited. Separate and distinct proof is necessary in relation to each relevant period …[8]

[8]Fisher v Divine Homes Pty Ltd (2011) 85 ACSR 512, 517 [24] (citations omitted) (Barrett J) (‘Fisher’).

The defendants submit that for the presumption to arise, there must be no records or records that are not accurate; however, here, sufficient records were provided and as such, the legal test was not met. The defendants contend that if Mr Quin was undertaking a proper investigation, he could have asked for other books and records, but he did not.

The defendants contend that in any event, even if the presumption did arise, it could be rebutted by the defendants. The defendants contend that Mr Quin did not look into the normal indicia of insolvency, but that he limited the issue of insolvency to the records, particularly its absence. The defendants submit that there is no evidence that Coupons failed to meet any debt, and the defendants assert that the loans from the Related Companies, which were not called upon, were relevant to the question of solvency.[9] The defendants contend that the loans from the Related Companies are listed as non-current liabilities, as opposed to current liabilities. Further, the defendants contend that the only other debt Coupons may have had was the PMP Invoice debt; however, the directors believed that that debt was Vouchers’, and not Coupons’. The defendants contend that, therefore, Coupons did not trade whilst insolvent.

Indemnity costs

[9]Crema Pty Ltd v Land Mark Property Developments Pty Ltd (2006) 58 ACSR 631, 652–3 [141]–[145] (Dodds‑Streeton J).

The defendants contend that Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (‘Fountain Selected Meats’)[10] and Harper J in Ugly Tribe[11] set out circumstances in which indemnity costs are appropriate.[12] In Fountain Selected Meats, Woodward J stated:

it is appropriate to consider awarding ‘solicitor and client’ or ‘indemnity’ costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.[13]

The defendants submit that the circumstances of this proceeding fall within those circumstances because Mr Quin wilfully disregarded facts known to him, commenced the proceeding without proper foundation and continued to prosecute the proceeding after being provided with further information that the claims were without proper foundation.

[10](1988) 81 ALR 397, 401 (‘Fountain Selected Meats’).

[11]Ugly Tribe (n 3) [7].

[12]See also Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, 232–4 (Sheppard J) (‘Colgate’); DS Clarke Nominees Pty Ltd v Adder Holdings Pty Ltd [2015] FCA 277, [14] (Gilmour J); Mead v Watson (2005) 23 ACLC 718 (Sheller, Ipp and Tobias JJA) (‘Mead’).

[13]Fountain Selected Meats (n 10) 401.

Further, the defendants emphasise circumstances in which indemnity costs have been awarded against liquidators. Arena Management Pty Ltd (admin apptd) (recs and mgrs apptd) v Campbell Street Theatre Pty Ltd (No 2) (‘Arena Management’)[14] is relied upon in this regard, in which Palmer J stated:

In determining whether or not Mr Joubert acted properly and responsibly as liquidator of Arena in bringing and prosecuting these proceedings I must ask whether a prudent liquidator, with the benefit of commercial common sense and experience and with the benefit of competent legal advice, could reasonably have concluded that these proceedings had a sufficient prospect of success to justify spending a considerable amount of the creditors’ money on his own legal costs, not to mention risking an adverse costs order if the case failed.[15]

[14][2010] NSWSC 1230 (‘Arena Management’).

[15]Ibid [24].

His Honour went on to order that the liquidator personally pay indemnity costs. An appeal was upheld on the ground of a denial of procedural fairness.[16] The defendants also cited Mead v Watson (‘Mead’),[17] in which a liquidator was ordered to pay indemnity costs.
[16]Joubert v Campbell Street Theatre Pty Ltd (in liq) [2011] NSWCA 302 (‘Joubert’).
[17]Mead (n 12).

Mr Quin unreasonably rejected offers to settle

Regarding the rejection of offers to settle, the defendants refer to three offers:

(a) an offer made directly by Mr Dower on 6 August 2018 (‘First Offer’), in which the offer was for Mr Quin to withdraw the proceeding and pay Mr Dower’s costs to date of $3,551.65;

(b) a more formal offer in the correspondence of Maddocks on 16 August 2018 (‘Second Offer’), in which the offer was for Mr Quin to discontinue the proceeding on the basis that parties bear their own costs; and

(c) an offer in the correspondence of Maddocks on 24 January 2019 (‘Third Offer’), in which the offer was for Mr Quin to discontinue the proceeding and pay the defendants’ costs fixed at $35,000.

The defendants submit that although the Second Offer may be viewed as a ‘walk away’ offer, it still represents an offer of compromise for the purposes of determining costs as the compromise was that the defendants would walk away and pay their own costs if the plaintiffs discontinued the proceeding.[18] The defendants contend that the Second Offer was without prejudice correspondence aimed at settling the dispute, and which articulated the reasons why the plaintiffs’ claims would not succeed and indicated that it would be tendered to seek indemnity costs.
[18]Nolan v Nolan (No 2) [2003] VSC 136, [39], [50] (Dodds-Streeton J); Leichhardt Municipal Council v Green [2004] NSWCA 341, [2], [25] (Santow JA).

The defendants contend that an offer does not have to be a Calderbank offer for the Court to consider it in the exercise of discretion with respect to costs. Despite this, the defendants contend that the Second Offer is in Calderbank form, although it does not expressly refer to that case, because it was without prejudice, clear as to the nature, extent and foundation of the offer, and was capable of being accepted immediately. The defendants submit that although it is undesirable for Calderbank offers to be ‘burdened with technicality’,[19] the Second Offer is sufficiently ‘clear, precise, certain and capable of acceptance’[20] so as to constitute a Calderbank offer. The defendants contend that the letter is unambiguously clear and did not envisage any further negotiating between the parties. The defendants submit that as the Second Offer reflected a true compromise and would not be bettered, the Court must commence its consideration of the application for indemnity costs from the position that such an order should be made. Relied upon in this regard is Multicon Engineering Pty Ltd v Federal Airports Corporation.[21] There, Rolfe J stated:

However, all these authorities support the view, which in my opinion is correct, that when an offer of compromise is made in either of the forms to which I have referred, in circumstances where there can be no doubt that if the offeree does not accept it the making of the offer will be called in aid of an application for an award of indemnity costs if the offer is not bettered and, provided the offer reflects a compromise, the court commences its consideration of the application from the position that such an order should be made unless the offeree can persuade the court that it should not be. However … the ultimate decision will depend on a consideration of the particular facts and circumstances in each case.[22]

Indemnity costs

The defendants contended that they are entitled to costs on an indemnity basis for costs up to 24 April 2019 for the following reasons:

(a) the plaintiffs had commenced and continued the proceeding without a proper basis and in wilful disregard of known facts;

(b) the plaintiffs breached their overarching obligations under the CPA; and

(c) the plaintiffs unreasonably rejected the offers to settle.

I have already dealt with the issue of whether the plaintiffs had commenced and continued the proceeding without a proper basis and in wilful disregard of the facts.

In accordance with r 63.28 of the Rules, costs can be awarded on the standard basis, indemnity basis, or such other basis as the Court may direct. Usually, costs are awarded on a standard basis.[88] An applicant for indemnity costs is required to demonstrate that in the circumstances, the standard basis ‘is not appropriate and that the exceptional jurisdiction of awarding indemnity costs over and above the ordinary basis for taxation should be invoked’.[89] The applicable principles are set out in cases such as Ugly Tribe,[90] Colgate-Palmolive Co v Cussons Pty Ltd (‘Colgate’),[91] and Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3).[92]
[88]Supreme Court Rules (n 42), r 63.31.
[89]Sharma v Parbhakar [2015] VSC 632, [2] (John Dixon J).
[90]Ugly Tribe (n 3) [7] (Harper J).
[91]Colgate (n 12) 232–4 (Sheppard J).
[92][2012] VSC 399, [12]–[19] (Croft J).

In Colgate, Sheppard J noted the circumstances in which indemnity costs may be awarded as including:

the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud … ; evidence of particular misconduct that causes loss of time to the Court and to other parties … ; the fact that the proceedings were commenced or continued for some ulterior motive … or in wilful disregard of known facts or clearly established law … ; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions … ; an imprudent refusal of an offer to compromise … and an award of costs on an indemnity basis against a contemnor …[93]

In his Honour’s view, the question was whether the particular facts and circumstances at hand warranted an order for costs other than on a party and party basis (the forerunner to standard basis).[94]

[93]Colgate (n 12) 233–4 (citations omitted).

[94]Ibid 234.

One of the cases reviewed by Sheppard J in Colgate was Fountain Selected Meats.[95] In that case, Woodward J stated:

it is appropriate to consider awarding ‘solicitor and client’ or ‘indemnity’ costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.[96]

[95]Fountain Selected Meats (n 10).

[96]Ibid 401.

In Ugly Tribe, the following special circumstances were identified by Harper J as justifying a departure from the usual order for costs:

(i)The making of an allegation, known to be false, that the opposite party is guilty of fraud …
(ii)The making of an irrelevant allegation of fraud …
(iii)Conduct which causes loss of time to the Court and to other parties …
(iv)The commencement or continuation of proceedings for an ulterior motive …
(v)Conduct which amounts to a contempt of court ...
(vi)The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law …
(vii)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 …[97]

Harper J went on to also note that ‘[t]he categories of special circumstances [were] not closed’.[98]

[97]Ugly Tribe (n 3) [7] (citations omitted).

[98]Ibid [8] (citations omitted).

Contraventions of the CPA

Section 28 of the CPA provides that contravention of the overarching obligations may be taken into account when the Court is exercising any power in relation to a civil proceeding, including in exercising its discretion regarding costs. Section 29 of the CPA then states:

29 Court may make certain orders
(1)If a court is satisfied that, on the balance of probabilities, a person has contravened any overarching obligation, the court may make any order it considers appropriate in the interests of justice including, but not limited to—
(a)an order that the person pay some or all of the legal costs or other costs or expenses of any person arising from the contravention of the overarching obligation;
(b)an order that the legal costs or other costs or expenses of any person be payable immediately and be enforceable immediately;
(c)an order that the person compensate any person for any financial loss or other loss which was materially contributed to by the contravention of the overarching obligation …

The approach to be adopted for s 29 was discussed in Yara Australia Pty Ltd v Oswal (‘Yara’)[99] and Hudspeth v Scholastic Cleaning and Consultancy Services Pty Ltd (No 4) (‘Hudspeth’).[100] In the former, the Court of Appeal stated:

The court’s powers under s 29 of the Act include the power to sanction legal practitioners and parties for a contravention of their obligations as the heading to Pt 2.4 indicates. In our view, these powers are intended to make all those involved in the conduct of litigation — parties and practitioners — accountable for the just, efficient, timely and cost effective resolution of disputes. Through them, Parliament has given the courts flexible means of distributing the cost burden upon and across those who fail to comply with their overarching obligations. A sanction which redistributes that burden may have the effect of compensating a party. It may take the form of a costs order against a practitioner, an order that requires the practitioner to share the burden of a costs order made against their client or an order which deprives the practitioner of costs to which they would otherwise be entitled. The Act is clearly designed to influence the culture of litigation through the imposition of sanctions on those who do not observe their obligations. Moreover, the power to sanction is not confined to cases of incompetence or improper conduct by a legal practitioner.[101]

[99](2013) 41 VR 302, 309–10 [20] (Redlich and Priest JJA and Macaulay AJA) (‘Yara’).

[100][2013] VSC 14, [5]–[7] (Dixon J) (‘Hudspeth’). See also Re Chambeyron Pty Ltd (No 2) [2017] VSC 410, [110] (Robson J) (‘Re Chambeyron’).

[101]Yara (n 99) 309–10 [20] (citations omitted).

In Hudspeth, J Dixon J noted that ‘[a]n order will ordinarily be limited to costs or expenses that were caused by the contravention of an obligation to the court’.[102]
[102]Hudspeth (n 100) [5].

Whether a person has contravened the CPA is to be determined ‘by an objective evaluation of their conduct having regard to the issues and the amount in dispute in the proceeding’.[103]
[103]Yara (n 99) 307 [14].

As discussed above, I do not find that the proceeding was commenced without a proper basis nor with a wilful disregard of known facts. Consequentially, I also do not find that Mr Quin had breached his overarching obligations under the CPA with respect to the prohibition on making a claim without a proper basis.

Further, the defendants contend that Mr Quin did not take steps or reasonable endeavours to resolve the dispute and did not use reasonable endeavours to act promptly and minimise delay because he failed to review the defendants’ assertions that the debt was not owed by Coupons after the commencement of the proceeding. However, as discussed above, Mr Quin had conducted investigations after the defendants asserted that the PMP Invoice debt was not owed by Coupons. I am satisfied that he did not breach the overarching obligations by failing to take steps or reasonable endeavours to resolve the dispute or to act promptly and minimise delay.

The defendants also contended that Mr Quin breached the obligation to cooperate in the conduct of a proceeding by failing to comply with the court order to file the statement of claim. However, by 25 January 2019, which is the date by which the plaintiffs were ordered to file their statement of claim, PMP had withdrawn its proof of debt and Mr Quin was prepared to conclude the proceeding, which was conveyed to Maddocks. Given the circumstances, I am not satisfied that Mr Quin breached the obligation to cooperate notwithstanding the non-compliance with the court order. The provision of the statement of claim (which would have been substantially in the form exhibited to Mr Quin’s affidavit sworn on 26 June 2018) would have only increased costs without any countervailing benefit.

I am also not satisfied that the defendants had made out the claim that Mr Quin did not narrow the issues in dispute. The failure to file the statement of claim was immaterial given the circumstances and given that the draft statement of claim had been exhibited. Further, Mr Quin had taken steps to investigate the assertions made by the defendants.

Hence, I do not find that Mr Quin had breached his obligations under the CPA.

Rejection of offers to settle

In this proceeding, the defendants refer to three offers to settle. Given that all three offers are not stated to be offers of compromise in accordance with r 26.02 of the Rules, the question for determination is whether the offers were unreasonably rejected.[104] I will disregard the First and Third Offers because Mr Quin has obtained an order which is more advantageous than each of those offers. The Second Offer is the only offer which offered the parties to bear their own costs. Further, I do not believe that an open offer needs to include all the indices of a Calderbank offer.
[104]Defteros v Google Inc (Costs) [2017] VSC 189, [8] (John Dixon J) (‘Defteros’).

As the defendants contend that the Second Offer constituted a Calderbank offer, I will briefly deal with the issue.

A Calderbank offer is an offer ‘expressed to be without prejudice save to the question of costs and an indication that the letter will be adduced into evidence on the question of costs’.[105] It is not required to take a particular form.[106] Rather, the question surrounds the offeror’s intention:

In order to discern the offeror’s intent, it is not necessary for an offer of compromise to be accompanied by a letter expressing the intention that the offer operate as a Calderbank offer if it is incapable of operating under the Rules. In the absence of an express statement of intention in a covering letter, the intention of the offeror may be discerned by reference to the form and content of the offer itself to ascertain whether it is capable of operating as an offer more generally, and whether it was intended to be made ‘without prejudice save as to costs’ and to be adduced in evidence on the question of costs if not accepted.[107]

[105]MT Associates Pty Ltd v Aqua-Max Pty Ltd (No 3) [2000] VSC 163, [125] (Gillard J) (‘MT Associates’).

[106]See, eg, ibid; Giller v Procopets (No 2) (2009) 24 VR 1, 122 [13], citing BMD Major Projects (n 19) [4].

[107]Secretary, Department of Business and Innovation v Murdesk Investments Pty Ltd (No 2) [2012] VSC 586, [31] (Emerton J).

I also note that in MT Associates Pty Ltd v Aqua-Max Pty Ltd (No 3),[108] Gillard J stated:

In my opinion, any form of offer assuming it can be adduced into evidence should be considered by the court on the question of costs and overly technical reasons given by the other party for not seriously considering an offer should be rejected.[109]

[108]MT Associates (n 105).

[109]Ibid [74].

The principles concerning the rejection of Calderbank offers are set out in Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (‘Hazeldene’s Chicken Farm’).[110] In that case, the Court of Appeal stated that the correct approach was ‘to treat the rejection of a Calderbank offer as a matter to which the court should have regard when considering whether to order indemnity costs’,[111] the critical question being ‘whether the rejection of the offer was unreasonable in the circumstances’.[112] In assessing whether a rejection was unreasonable, regard should be had to at least the following:
[110]Hazeldene’s Chicken Farm (n 41).
[111]Ibid 441 [20].
[112]Ibid 441 [23].

(a)       the stage of the proceeding at which the offer was received;
(b)       the time allowed to the offeree to consider the offer;
(c)       the extent of the compromise offered;
(d)      the offeree’s prospects of success, assessed as at the date of the offer;
(e)       the clarity with which the terms of the offer were expressed;
(f)whether the offer foreshadowed an application for an indemnity costs in the event of the offeree’s rejecting it.[113]

[113]Ibid 442 [25].

The onus is on the offeror (the defendants in this proceeding) to show that the rejection of the offer was unreasonable.[114]
[114]Defteros (n 104) [8] (John Dixon J).

The Second Offer is an open offer and sets out:

before filing an appearance on behalf of [the defendants] in the Proceeding, we are instructed to give [the plaintiffs] the opportunity to discontinue the Proceeding on the basis that all parties bear their own costs.
This offer is made on an open basis, and this letter will be brought to the attention of the court if the offer is not accepted.
…
For the above reasons, we are instructed to invite [the plaintiffs] to withdraw the Proceeding with no order as to costs within 7 days from the date of this letter.
If [the plaintiffs do] not withdraw the Proceeding, we are instructed to vigorously defend the Proceeding, and ultimately produce this letter to the Court on an application that [the plaintiffs] pay [the defendants’] costs on an indemnity basis.

As I find that it was not unreasonable for the plaintiffs to reject the Second Offer, I do not find it necessary to determine whether the Second Offer was a Calderbank offer. The rejection of the Second Offer was not unreasonable for the following reasons:

(a) the offer was made early in the proceeding about one and a half month after the proceeding commenced;

(b) the offer was open for only seven days;

(c) the compromise was effectively for the discontinuation of the proceeding without seeking costs orders, which, in my view, is a disproportionately large compromise on the part of the plaintiffs compared to the defendants; and

(d) at the date of the offer, I consider that the plaintiffs had a sufficient prospect of success given that the assertions made by the defendants were contrary to the contemporaneous documents and dealings.

Although the terms of the offer were clear and an application for indemnity costs was foreshadowed, I do not find that these factors make it unreasonable for the plaintiffs to reject the Second Offer. Hence, I will not order indemnity costs in favour of the defendants.

Costs of the costs application

From 24 April 2019, the defendants pay the plaintiffs costs of and incidental to this application, including reserved costs, on a standard basis.

Application by Related Companies
Related Companies’ position

The Related Companies seek orders that the plaintiffs pay their costs, insofar as they are related to and connected with the proceeding, on an indemnity basis from 1 October 2018.

Out of an ‘abundance of caution’, the Related Companies also seek to be joined as parties pursuant to r 9.06 of the Rules, in pursuit of their costs under s 24 of the Supreme Court Act and s 29 of the CPA. The Related Companies contend that the common question between the Related Companies and the parties to the proceeding is the obligation of the plaintiffs to pay the costs of the Related Companies incurred from and in relation to the proceeding.

However, the Related Companies submit that joinder is unnecessary. This is because of the Court’s discretion as to costs under the CPA. The Related Companies contend that the Court can make an order under the CPA, which is consistent with its objects. The Related Companies contend that there is a public interest aspect to the CPA, which is to encourage participants in litigation to take appropriate steps to not bring matters before the Court and to not waste the time and resources of the Court and other litigants.

Section 24 of the Supreme Court Act sets out:

24 Costs to be in the discretion of Court
(1)Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.

…

Section 29 of the CPA sets out:

29 Court may make certain orders
(1)If a court is satisfied that, on the balance of probabilities, a person has contravened any overarching obligation, the court may make any order it considers appropriate in the interests of justice including, but not limited to—
(a)an order that the person pay some or all of the legal costs or other costs or expenses of any person arising from the contravention of the overarching obligation;
(b)an order that the legal costs or other costs or expenses of any person be payable immediately and be enforceable immediately;
(c)an order that the person compensate any person for any financial loss or other loss which was materially contributed to by the contravention of the overarching obligation …

(2) An order under this section may be made—
(a)on the application of—
(i) any party to the civil proceeding or
(ii)any other person who, in the opinion of the court, has a sufficient interest in the proceeding; or

(b)on the court’s own motion.

(3)This section does not limit any other power of a court to make any order, including any order as to costs.

The Related Companies contend that the Court can award them costs on the basis of s 29 of the CPA as they fall into the scope of ‘any person’. The Related Companies refer to Re Chambeyron Pty Ltd (No 2),[115] in which Robson J said:

In addition to the powers of the Court to make costs orders already mentioned, s 29 of the Civil Procedure Act 2010 (Vic) provides, if satisfied on the balance of probabilities that a person has contravened any overarching obligation, the Court may make an order including that the person pay some or all of the legal costs or other expenses of any person arising from the contravention of the overarching obligation.[116]

[115]Re Chambeyron (n 100).

[116]Ibid [110] (citations omitted).

The Related Companies submit that this is an acceptance that there is no requirement to join the person, but that the CPA makes it clear that in the same way that a Court can make a costs order against a party’s counsel without joining them, the Court can make an order that the costs of another person be paid by a litigant.

Further, the Related Companies contend that s 29(2) of the CPA does not require a person to be joined to apply for an order under s 29. The Related Companies submit that the reference to ‘sufficient interest’ in s 29(2) does not mean that the person could have been a party to the proceeding. The Related Companies sought to draw a parallel with the instance where legal counsel is ordered to pay costs without being joined. The Related Companies submit that in those circumstances legal counsel would not have a legal interest to be joined and their only obligation is pursuant to the CPA. The Related Companies contend that the principles are the same for the onus to meet costs and for the obtainment of the benefit. The submission ignores the powers conferred on the Court to regulate the conduct of its own officers.

The Related Companies referred to Yara,[117] in which the Court of Appeal stated: ‘[t]he Act [CPA] is clearly designed to influence the culture of litigation through the imposition of sanctions on those who do not observe their obligations’.[118] The Related Companies contend that Mr Quin is a party to this proceeding and can be sanctioned for his conduct.
[117]Yara (n 99).
[118]Ibid 310 [20].

Further, the Related Companies submit that the Court of Appeal has stated the public policy aspect as follows:

Section 28(2) enables a court, in exercising its discretion as to costs, to take into account any contravention of the overarching obligations. In our view, the enactment of s 29 together with s 28(2) imbues the court with broad disciplinary powers that may be reflected in the costs orders that are made. The court is given a powerful mechanism to exert greater control over the conduct of parties and their legal representatives, and thus over the process of civil litigation and the use of its own limited resources.[119]

[119]Ibid 310 [21].

The Related Companies contend that it is the breach of the overarching obligations which gives the Court power to exercise its influence over the litigants.

The Related Companies also referred to Hudspeth,[120] in which the Related Companies contend that John Dixon J was robust in bringing into account third parties who were required to pay costs. The Related Companies contend that this is the robust view that the Court should take, and that the Court should exert influence over Mr Quin given his conduct.
[120]Hudspeth (n 100).

The Related Companies contend that the critical question is whether the costs that they incurred arose from or were incidental to the alleged breaches of the CPA by Mr Quin. They submit that:

(a) Mr Quin and/or Williams Winter contravened their overarching obligations; and

(b) those contraventions materially contributed to the costs of the Related Companies.

With respect to the breaches of the overarching obligations, the Related Companies refer to the same overarching obligations and conduct of Mr Quin as contended by the defendants in their submissions.

The Related Companies contend that but for the appropriate decision to instruct Rotstein, the work that Rotstein undertook would have been performed by Maddocks. That is, the costs are part of those that ordinarily would have been incurred by the defendant to bring the proceeding to an end. The Related Companies submit that the engagement of Rotstein does not break the nexus of whether the costs incurred were directly related or incidental to the proceeding because Rotstein was instructed to undertake the enquiries, rather than Maddocks, due to the conflict of interest between Mr Dower’s interests as a director of Coupons and in relation to the Related Companies. Moreover, the Related Companies submit that the work of Rotstein:

(a) insofar as it related to confirming that PMP was not a creditor of Coupons, was work that Mr Quin was obliged to investigate in 2012 but repeatedly refused to do so;

(b) the preparation of Mr Williams’ affidavit and the work toward obtaining the email of Mr Clarkson were only necessary due to Mr Quin’s repeated refusal and failure to properly investigate; and

(c) in circumstances where Mr Quin failed to investigate, the attempts of Rotstein toward removing him as liquidator were work and costs that are directly attributable to this proceeding.

Accordingly, the Related Companies contend that the costs of the Related Companies arose solely from, or were materially contributed by, the contraventions of the CPA by Mr Quin and/or Williams Winter. However, the summons filed on 20 June 2019 did not seek costs against Williams Winter nor did the submissions made by the Related Companies provide any reason or detail of why a cost order ought to be made against the plaintiffs’ solicitors. Accordingly, I have not dealt with that issue in these reasons.

The Related Companies seek costs on an indemnity basis from 1 October 2018, which is the date that Rotstein was first instructed to act. The Related Companies seek indemnity costs for the same reason as the defendants, particularly because: Mr Quin refused reasonable offers to settle, contravened the CPA, and refused to resign as the liquidator of Coupons.

Key issues

In determining the application by the Related Companies, the key issues are as follows:

(a) should the Related Companies be joined to the proceeding; and

(b) should the plaintiffs pay the costs of the Related Companies, and if so, should any costs order be on an indemnity basis.

Joinder

Although the Related Companies contend that joinder is not required with respect to the costs question, they nonetheless made an application for joinder pursuant to r 9.06 of the Rules. Accordingly, I will briefly discuss joinder.

Rule 9.06 of the Rules sets out as follows:

9.06 Addition, removal, substitution of party
At any stage of a proceeding the Court may order that—
(a)any person who is not a proper or necessary party, whether or not that party was one originally, cease to be a party;
(b)any of the following persons be added as a party—
(i)a person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all questions in the proceeding are effectually and completely determined and adjudicated upon; or
(ii)a person between whom and any party to the proceeding there may exist a question arising out of, or relating to, or connected with, any claim in the proceeding which it is just and convenient to determine as between that person and that party as well as between the parties to the proceeding;

(c)a person to whom paragraph (b) applies be substituted for one to whom paragraph (a) applies.

In r 1.13(1) of the Rules, a ‘question’ is defined as:

any question, issue or matter for determination by the Court, whether of fact or law or of fact and law, raised by the pleadings or otherwise at any stage of a proceeding by the Court, by any party or by any person not a party who has a sufficient interest …

Although the Related Companies did not specify the particular sub-rule of joinder relied upon, I took it that they relied upon r 9.06(b)(ii) given their contention that the common question is with respect to costs incurred arising from and in relation to the proceeding.

Rule 9.06(b) is essentially in the same terms as its earlier form in the General Rules of Procedure in Civil Proceedings 1986 (Vic). In Tatterson v Wirtanen,[121] Gillard J stated that:
[121][1998] VSC 88.

There is a substantial difference between para(b)(i) and subpara(ii). The first part of the paragraph is limited in its application. An applicant has to establish the additional party ought to have been joined as a party or whose presence is necessary to ensure that all questions are effectually and completely determined and adjudicated upon. The limitations on its application were discussed and recognised by the House of Lords in Vandevell’s Trustees Ltd v White [1971] AC 912.
To overcome these limitations r9.06(b)(ii) was introduced into this State in 1986. It followed a similar rule in England which was introduced after Vandevell's case. See O15 r6(2)(b)(ii) of the English Rules.
In my opinion the scope of the rule has been substantially broadened by the addition of para(b)(ii).
An applicant who seeks to invoke the Court’s jurisdiction pursuant to r 9.06(b)(ii) has to establish the following:
(i)that there are two entities namely the person to be added as a party and a party to the proceedings;
(ii)between the two entities there may exist a question arising out of or relating to or connected with any claim in the proceeding;
(iii)it is just and convenient to determine that question between the proposed party and the other party as well as between the parties to the proceeding.

Even if the applicant establishes those matters the Court still has a discretion whether or not to make the order.[122]

[122]Ibid [27]–[31].

Gillard J further stated:

The first question which has to be considered is what cause of action, if any, does the plaintiff have against the proposed defendant. As a general rule it would be an abuse of process of the Court to permit a plaintiff to bring a proceeding against a defendant where there was no cause of action.[123]

[123]Ibid [33].

In this proceeding, although it is the Related Companies that seek to join, I find that a cause of action must also exist between the plaintiffs and the Related Companies for joinder. However, I note that in Anjin No 13 Pty Ltd v Allianz Australia Insurance Ltd,[124] in the context of a plaintiff seeking joinder of a proposed defendant for declaratory relief, Vickery J held that a cause of action is not necessary for joinder under r 9.06(b)(ii) in those circumstances, but it is the presence of a true legal controversy that is required.[125] Further, in CGU Insurance Ltd v Blakeley,[126] the High Court considered if there was a justiciable controversy between the plaintiff and the joined party. That controversy gave rise to a determination of a question of law.
[124](2009) 26 VR 148.
[125]Ibid 164 [71], 164–5 [74].
[126](2016) 259 CLR 339.

The joinder application by the Related Companies did not raise a justiciable controversy leading to any question, as defined in r 1.13(1) of the Rules, to be decided by the Court. The question sought to be raised is with respect to costs. As the question of costs is not a legal controversy nor a cause of action, but only arises after the determination of the legal controversy or cause of action, the joinder application must fail.

Should costs be awarded to the Related Companies?

The Related Companies contend that they can be awarded costs pursuant to s 29 of the CPA and that joinder is not necessary for them to be entitled to costs.

Section 29 of the CPA gives power to the Court to order a person to pay costs if a person has contravened any overarching obligation. However, as I have not found that the plaintiffs have contravened the overarching obligations in the CPA, I do not find it necessary to determine whether the Related Companies are entitled to costs in circumstances where they are not parties to the proceeding.

Further, for the same reasons that I determined that the question of costs is not a legal controversy or cause of action, I determine that the Related Companies do not have a ‘sufficient interest’ as referred to in s 29(2) of the CPA.

Conclusion

I determine that the summons filed on 20 June 2019 be dismissed.

The Related Companies (save for Niche Media Management Services Pty Ltd (deregistered)) pay the plaintiffs’ costs of and incidental to the summons filed on 20 June 2019, including reserved costs, on a standard basis.

Orders

There is no order as to costs between the plaintiffs and the defendants up to and including 24 April 2019.
After 24 April 2019, the defendants pay the plaintiffs’ costs of and incidental to the costs application between the plaintiffs and the defendants, including reserved costs, on a standard basis.
The summons filed on 20 June 2019 is dismissed.
The Related Companies (save for Niche Media Management Services Pty Ltd (deregistered)) pay the plaintiffs’ costs of and incidental to the summons filed on 20 June 2019, including reserved costs, on a standard basis.

[2021] VSC 279

20 May 2021