Re S & D International Pty Ltd (in liq); Malhotra v Tiwari

[2006] VSC 51

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

CORPORATIONS LIST

No. 7149 of 2005

IN THE MATTER OF S & D INTERNATIONAL PTY LTD (IN LIQ) (AS TRUSTEE FOR THE S & D INTERNATIONAL UNIT TRUST)

DINESH MALHOTRA	Plaintiff
V
SHEELA TIWARI & PRADEEP TIWARI	First Defendants
PETER ROBERT VINCE AND STIRLING LINDLEY HORNE (in their capacity as administrators and liquidators of S & D International Pty Ltd)	Second Defendants
DAVID MOND	Third Defendant

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JUDGE:	Mandie J
WHERE HELD:	Melbourne
DATE OF HEARING:	17 February 2006
DATE OF JUDGMENT:	24 February 2006
CASE MAY BE CITED AS:	Re S & D International (in liq); Malhotra v Tiwari
MEDIUM NEUTRAL CITATION:	[2006] VSC 51

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COSTS – application to terminate liquidation – whether successful defendants should have indemnity costs – whether successful defendants should be disentitled to their costs.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Selimi	Starnet Legal Pty Ltd
For the First Defendants	Dr P Vout
For the Second Defendants	Mr R Randall	Madgwicks
For the Third Defendant	Mr G Parncutt	Comlaw

HIS HONOUR:

1. These reasons concern the question of costs arising out of the judgment in this proceeding given on 22 December 2005[1] in which the plaintiff’s originating process was dismissed and the injunctions granted against the liquidators in this proceeding and in all related proceedings were discharged. 

   [1][2005] VSC 496.

1. Each of the defendants, whom I will refer to as “the Tiwaris”, “the liquidators” and “Mr Mond”, sought an order for costs against the plaintiff to be taxed on an indemnity, or a solicitor and client, basis.

1. Dr Vout who appeared as counsel for the Tiwaris submitted that the plaintiff should be ordered to pay the Tiwaris’ costs on an indemnity basis because the plaintiff’s case (a) was commenced in wilful disregard of known facts or clearly established law, (b) included unmeritorious claims and groundless contentions resulting in an undue prolongation of the proceeding and (c) included allegations of fraud and dishonesty against the Tiwaris not supported by evidence, ultimately determined to be unfounded and made with reckless indifference to their truth or falsity.  As to (a) and (b), Dr Vout referred to paras [259] to [282] of the judgment in which numerous aspects of the prayer for relief were decided to be without foundation or in respect of which it was noted that they were not pressed.  In addition, as to (b), Dr Vout referred to the time expended at trial by counsel for the plaintiff, in relation to cross-examination and in relation to the tendering of documents, concerning matters that were irrelevant or marginally relevant to the issues before the Court.  As to (c) Dr Vout submitted that there was no real evidence supporting the core allegation against the Tiwaris that they had taken money from the cash receipts of the business during the course of the administration and the liquidation and that it had been decided that this allegation was unfounded. 

1. Mr Randall who appeared as counsel for the liquidators sought an order that the plaintiff pay the liquidators’ costs on an indemnity or solicitor and client basis.  Mr Randall adopted Dr Vout’s submissions lettered (a) and (b) above and in addition referred to a number of misconceptions in the way the plaintiff’s case was put.  Mr Randall also referred to the filing of  voluminous affidavits and materials and the use of protracted cross-examination on behalf of the plaintiff without a proper identification of those aspects of the material which were relevant to the issue of whether the liquidation ought to be terminated.  Mr Randall said that the plaintiff had never addressed the “moribund state” of the trustee or come up with a satisfactory alternative to liquidation and that a vast amount of time had also been taken up with peripheral issues.  Further, Mr Randall submitted that it was appropriate to make such an order for costs in circumstances where the company was obliged to indemnify the liquidators out of the assets of the trust and any deficiency in recovery from the plaintiff would be to the detriment of the fund available to the liquidators for any investigations and litigation and, ultimately, for distribution to the creditors.

1. Mr Parncutt who appeared as counsel for Mr Mond also sought an order for indemnity costs against the plaintiff.  These costs are in relatively small compass because the application as against Mr Mond was stayed (with a minor exception) on 19 August 2005 and Mr Mond played no real part after that date.  Mr Parncutt submitted that any case against Mr Mond would have failed having regard to the actual result in the proceeding.

1. Mr Selimi who appeared as counsel for the plaintiff accepted that the general rule was that costs followed the event, subject to the caveat that the Court had an absolute discretion to depart from that general rule if the successful party was guilty of some “disentitling conduct”.  A successful party had a reasonable expectation of obtaining an order for costs in his favour unless “for some reason connected with the case” a different order was specially warranted. 

1. Mr Selimi submitted that the Tiwaris should pay the plaintiff’s costs, notwithstanding that they were successful parties.  Mr Selimi submitted that an order for costs in favour of the Tiwaris was “repugnant” and should in the interests of justice be dismissed, having regard to their misconduct.  Mr Selimi further pointed to the offer of the plaintiff in his solicitors’ letter dated 25 May 2005 to consent to a general stay of execution of al the orders in his favour granted by Balmford J on 4 March 2005 provided that Mrs Tiwari agreed to join in an application to either remove the administrators or restrain them from selling any assets of the trust pending the hearing and determination of Mrs Tiwari’s appeal from the judgment of Balmford J.  The said letter said that “our client would prefer it if your client continued to run the business and hold all the assets of the Trust pending the hearing of the appeal, rather than run the risk of the assets of the trust being sold off prematurely in some fire sale conducted by Administrators or otherwise diluted by the on going exorbitant costs of administration.”  Mr Selimi submitted that Mrs Tiwari’s failure to respond to this offer and its repetition by solicitors’ letter dated 17 June 2005 was unreasonable and had led to and justified the bringing of the present proceeding by the plaintiff.  I note that Mrs Tiwari’s solicitors, Boyle Telfer Kooblal, did in fact reply by a letter dated 20 June 2005 indicating that they had no instructions regarding the removal of the administrators or the administrations coming to an end, but noting that the parties’ legal representatives were engaged in discussions in an endeavour to resolve “all aspects”. 

1. In my opinion the matters relied upon by Mr Selimi do not give rise to a sound basis for rejecting the Tiwaris’ entitlement, as successful parties, to an order for costs in a substantial and expensive proceeding in which they were entitled to be represented and in which they were successful, a proceeding that the plaintiff elected to institute and the many grounds of which he endeavoured, but failed, to establish.  Further, insofar as the plaintiff demonstrated that there was, at least prima facie, possible misconduct[2] on the part of either of the Tiwaris, that did not result in the plaintiff obtaining any relief in this proceeding and thus should not affect the costs question.  It is clear to me that the Tiwaris are entitled to an order for costs, the only question is whether those costs should be awarded on other than a party-party basis. 

   [2]When I refer to possible misconduct, I have in mind primarily the matters which the administrators/liquidators thought were appropriate for further investigation and I exclude the allegations of dishonesty in relation to cash takings which were found to be not proved.

1. I reject Dr Vout’s submission that the allegations of dishonesty against the Tiwaris were shown to be unfounded.  Rather, I was not satisfied that the allegations were made out and the evidence did not go all one way as I noted in para [174] of the judgment, particularly in the passage commencing “No doubt the most serious allegation”.  I accept Dr Vout’s submissions that many aspects of the relief sought by the plaintiff were baseless, but these took up little time.  I also accept Dr Vout’s submissions that the proceeding was prolonged by the forensic approach taken on behalf of the plaintiff, both in cross-examination and in relation to affidavits and exhibits, but I do not think that the prolongation of the proceeding of itself can be fairly utilised to justify an order for indemnity costs.

1. In the end I am satisfied that the usual order as to costs is appropriate and I am not satisfied that the Court should depart therefrom to order solicitor and client or indemnity costs in favour of the Tiwaris.

1. In relation to the costs of the liquidators, Mr Selimi submitted that they should not be entitled to their costs by reason of their conduct associated with the payout of the CBA mortgage and related matters and their conduct in relation to the ANZ Bank letter of demand.  Mr Selimi submitted that this conduct served to breed suspicion on the part of the plaintiff that the liquidators were biased in favour of the Tiwaris.  I reject these submissions.  The plaintiff made wide-ranging and serious allegations against the liquidators and failed to establish his case of misconduct against them.  There is no good reason why the liquidators should be disentitled from obtaining the usual order as to costs.  The only question is whether they should have costs on a solicitor and client or indemnity basis.

1. Mr Randall’s criticisms of the plaintiff’s case are, I think, justified but they do not provide a sound basis for an order for solicitor and client costs or indemnity costs.

1. However the criticisms made both by Dr Vout and by Mr Randall of the plaintiff’s conduct of this litigation that relate to the prolongation of the proceeding are justified to the extent that I should, I think, reflect them in the orders for costs made in their clients’ favour.   Doing the best I can, I think that the party-party costs awarded should be increased by 10% representing (perhaps under-representing) what to my mind was the undue prolongation of this proceeding by the plaintiff.

1. As regards the costs of Mr Mond, I have read that part of Mr Selimi’s written submissions dealing with this subject and, in my view, they provide no grounds for disentitling Mr Mond to his costs.  In my opinion there was no proper basis for joining Mr Mond as a party to this proceeding and he should have indemnity costs.

1. I will make the following orders:

1.The plaintiff is to pay the costs (including reserved costs) of this proceeding of each of the defendants to be calculated and taxed on the following bases:

(a)in the case of the first defendants (the Tiwaris) and in the case of the second defendants (the liquidators) such costs are to be taxed on a party-party basis and the total of the taxed costs in each case is to be increased by 10%;

(b)in the case of the third defendant such costs are to be taxed on an indemnity basis.

2.The question of whether there should be any inquiry as to damages pursuant to the plaintiff’s undertakings as to damages be adjourned sine die.

3.Liberty to apply

4.In proceeding number 6869 of 2002, the plaintiff pay the costs (including reserved costs) of the second defendant to be taxed on a party-party basis.

5.In proceeding number 7263 of 2005:

(a)Dinesh Malhotra pay the costs (including the reserved costs) of the plaintiffs to be taxed on a party-party basis;

(b)the costs of the plaintiffs (including reserved costs) of and incidental to the proceeding otherwise be costs in the winding up.