Stamford Aus-Trade and Press Pty Ltd v Aloysius David Pty Ltd (No 2)
[2014] VSC 436
•8 September 2014 (Reasons published 9 September 2014)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2012 04855
| STAMFORD AUS-TRADE & PRESS PTY LTD (ACN 089 202 853) | Plaintiff |
| v | |
| ALOYSIUS DAVID PTY LTD | Defendants |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 29 August 2014 |
DATE OF JUDGMENT: | 8 September 2014 (Reasons published 9 September 2014) |
CASE MAY BE CITED AS: | Stamford Aus-Trade & Press Pty Ltd v Aloysius David Pty Ltd and Anor (No 2) |
MEDIUM NEUTRAL CITATION: | [2014] VSC 436 |
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COSTS – Claim by a third party to funds affected by a freezing order – Order for costs on a solicitor and client basis – Costs of adjournment of trial owing to late disclosure of documents – Effect of Calderbank offer.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Hoyne for Stamford Aus‑Trade & Press Pty Ltd | Lennon Mazzeo |
| For the First Defendant | No appearance | |
| For the Second Defendant | Mr M R Pearce SC with Mr A A Segal for Melbourne Orthopaedic Group | McKean + Park |
HER HONOUR:
Following the delivery of reasons for judgment on 24 July 2014,[1] I heard further from the parties on 29 August 2014 in relation to the following matters:
[1]See [2014] VSC 324. This ruling adopts the abbreviations and defined terms used in the reasons for judgment.
(a) the form of the undertakings to be given by the director of the plaintiff with respect to the disposition and disclosure of the funds which were the subject of this proceeding;
(b) the form of the orders to be made generally;
(c) the question of costs, including the following particular issues:
(i) the question of Stamford’s costs in its role as intervenor in proceeding No S CI 2012 1854;
(ii) the parties’ costs in this proceeding, including the costs of the applications heard on 20 June 2013;
(iii) the costs thrown away by reason of the adjournment of the trial on 31 May 2013; and
(iv) the parties’ costs occasioned by my grant of leave to file and serve further written submissions after the conclusion of the trial.
In relation to the form of the proposed undertakings, I agree that they fairly respond to the requirements as set out in paragraph 175 of the reasons for judgment.
In relation to the form of the orders to be made, counsel for MOG submitted that, given my findings at paragraph 142 of the reasons for judgment that Dr Denan had made an agreement with Mr David that he, Dr Denan, would loan Mr David the sum of $250,000, I should only make declarations in respect of half of the funds in the company bank account, leaving the remainder to be dealt with by Mr David’s trustee in bankruptcy as he sees fit. Counsel for Stamford submitted there was no basis for making orders of that nature, and that, in any event, I had already made findings that Stamford was entitled to a declaration that it was beneficially entitled to the whole of the funds in the company bank account.
I agree that, absent any action on the part of Mr David’s trustee to seek to enforce the agreement (which both Dr Denan and Mr David freely admitted had been made), Stamford is entitled to declarations that it is the beneficial owner of all of the funds in the company bank account. Further, while I did make a finding that there had been an agreement, leaving the funds to be dealt with at the discretion of the trustee would in effect be pre‑judging any claim by the trustee to enforce the agreement, in circumstances where there was no evidence about the terms upon which the funds would be advanced and the arrangements for repayment. On the basis of the limited evidence before me, it is not a foregone conclusion whether the agreement was sufficiently certain to be enforceable or whether the trustee or Mr David would be successful in any action for specific performance of the agreement.
However, given that there is a real possibility that the funds in the company bank account will, quite reasonably, be repatriated outside Australia once the declarations are made, I will stay the orders for 30 days to allow the trustee to consider his position, and give the trustee liberty to apply. However, neither the trustee or any other party should presume that I would be disposed to making an order which would, in effect, provide ongoing security for any such claim, although of course any further application will be considered on its merits.
In relation to the question of the costs of the proceeding and Stamford’s costs of the original proceeding, counsel for Stamford submitted that MOG should pay its costs of the original proceeding and this proceeding (or “recovery proceeding”) on an indemnity basis. In support of this submission, counsel for Stamford relied upon authorities concerning the costs payable to third parties required to come to court when their interests were affected by a Mareva injunction. Notwithstanding the fact that Stamford’s claim to the funds in the company bank account were ultimately agitated in the recovery proceeding, this was done at the suggestion of Beach J (as he then was) in order to streamline the process, but, in reality, the need for Stamford to pursue its claim arose out of the injunction obtained by MOG over the funds in the company bank account. Further, Stamford’s costs in the initial proceeding were increased by MOG’s refusal to agree to the injunction being lifted once Mr David ceased to be a director of the company, and control over the funds in the company bank account in effect passed to Mr David’s trustee. Finally, counsel for Stamford relied upon a Calderbank letter dated 3 May 2013 from Stamford’s solicitors to MOG’s solicitors, which proposed that the funds in the company bank account (including any accrued interest), be paid to Stamford, and that MOG pay 50% of Stamford’s party-party costs in both proceedings. This offer was clearly not accepted, and there is no evidence of any response.
Counsel for MOG resisted any suggestion that Stamford ought to be entitled to its costs on an indemnity basis, and drew my attention to various authorities which support the proposition that not only does the Court have a wide discretion with respect to costs (as is undoubtedly the case), but also, that the Court has:
jurisdiction to order a successful party, even a wholly successful party and whether plaintiff or defendant, to pay his opponent’s costs in part or in whole.[2]
[2]See GT Corporation Pty Ltd v Amare Safety Pty Ltd (No 3) [2008] VSC 296, per Robson J at [36].
While counsel for MOG did not precisely specify what proportion of its costs Stamford ought to be denied, or what issues I should find Stamford did not succeed upon, he made the following observations regarding Stamford’s claim and its conduct of the proceeding:
(a) Stamford had not succeeded on the case that it advanced before the Court, that is, that the funds were transferred to the company bank account in order to establish an express trust for the purpose of investing in business ventures in Melbourne, as it had specified in its originating motion and points of claim;
(b) rather, a substantial basis for Stamford’s ultimate success at trial was my finding that the transfer of the funds to the company bank account raised the presumption of a resulting trust in favour of Stamford, which had not been rebutted;
(c) my finding that the evidence raised strong suspicions regarding the purpose for which the transfer had been made, and the possibility that the transfer had been made for improper or illegal purposes, suggests that, at the very least, the witnesses called by Stamford had been less than frank with the Court; and
(d) Stamford had deliberately suppressed a critical document in the proceeding, being the 5 January email chain.
In my view, subject to some specified exceptions discussed later in these reasons, Stamford should have its costs of both proceedings on a solicitor-client basis up to and including 30 April 2013, and on a standard basis thereafter, rather than on an indemnity basis, but there is no reason why Stamford should not be entitled to its costs for the whole of the proceedings. As soon as reasonably practicable after becoming aware of the orders restraining the funds in the company bank account, it engaged solicitors and vigorously pressed its claim to the funds in the company bank account. Its claim was ultimately vindicated at trial. While I found that the evidence regarding the purpose for which the funds were transferred and for which they might ultimately be used was equivocal, the evidence did establish clearly and unambiguously that the transfer by Stamford to the company bank account was not by way of a repayment of a loan made by Mr David to Dr Denan, and there was never any intention on the part of either Dr Denan or Mr David that the beneficial ownership of the funds in the company bank account would pass to Mr David. At trial, MOG vigorously tested the evidence advanced on behalf of Stamford, as it was entitled to do, but in effect, Stamford’s claim to the funds was upheld. At a more practical level, it is difficult to see how the costs of the proceeding could be rationally apportioned by issue: in the end, the proceeding boiled down to one “issue”, being whether Stamford was entitled to declarations that it was beneficially entitled to the funds in the company bank account.
The fact that I found that, in the event that I was in error in finding that an express trust in favour of Stamford that the transfer of the funds led to the presumption of a resulting trust which was not rebutted, despite there being no direct reference to the term “resulting trust” in the plaintiff’s originating motion or pleadings does not advance matters far. For better or for worse, the proceeding was by way of originating motion and affidavit, rather than strict pleadings. Further, the issue of whether the transfer of the funds was by way of repayment of a loan made by Mr David, which would have been the only credible proposition which could have been raised by way of rebuttal of the presumption of a resulting trust, was squarely before the Court at trial.
Finally, in relation to the “suspicions” which were raised during the course of the evidence regarding the real purpose, or at least one of the purposes for the transfer, I note that I did not make a positive finding in that regard (see paragraph 175 of the reasons for judgment). It would have been difficult for me to do so in circumstances where the alternative “purpose” referred to in paragraph 137 of the reasons for judgment was not put to either Dr Denan or Mr David at trial (presumably because it was not in the interests of either party to do so). In any event, any concerns caused by these matters has been dealt with by the proffering of appropriate undertakings by Dr Denan, and I see no reason to impose an additional penalty by way of depriving Stamford of costs to which it otherwise would have been entitled. After all, the jurisdiction of the Court with respect to costs is compensatory in nature, not punitive. Although that general statement of principle has been modified by the provisions of the Civil Procedure Act 2010 (Vic) (see, for example, Yara Australia Pty Ltd v Oswal[3]), those provisions have not been relied upon by either party with respect to the costs of the proceeding itself (as opposed to the costs occasioned by the adjournment of the trial) and I cannot see any basis for invoking them myself.
[3][2013] VSCA 337, at [20].
In making an order that Stamford have its costs prior to 30 April 2013 on a solicitor-client basis, I do so in part on the basis of the undertakings proffered by MOG when it obtained the freezing order, and in particular, the following undertaking:
The applicant will pay the reasonable legal costs of anyone other than the first respondent which have been incurred as a result of this order, including the costs of finding out whether that person holds any of the respondent’s assets.
As I indicated during the course of the hearing, it was perfectly reasonable, based upon the information it had at the time, for MOG to seek the freezing order in respect of the funds in the company bank account. However, once the sequestration order had been made against Mr David, and Mr David resigned as a director of the company (on 5 July 2012), it would have been open to MOG, as the largest creditor of Mr David, to agree to the lifting of the freezing order, and to leave the question of the ownership of the funds in the company bank account to the trustee, on the reasonable assumption that the trustee would fulfil his duties conscientiously. Instead, it continued to insist on the freezing order being in place (until 24 May 2013) and it insisted that Stamford should bring its own proceeding to make good its claim to the funds. MOG was put on notice as early as 16 October 2012 that its continued insistence upon the maintenance of the freezing order might well have adverse costs consequences.
An order that MOG pay Stamford’s costs on a solicitor-client basis up until 30 April 2013, and on a standard basis thereafter, subject to the exclusions referred to later in this ruling, is consistent with the approach generally adopted by the authorities where an “innocent” third party has been ultimately successful in varying the terms of a Mareva order.[4] Of course, the facts and circumstances in which a freezing order is obtained and discharged are varied, but I accept the observations of McKerracher J in Sebastian that:[5]
a freezing order against an innocent third party may be in a special category because an innocent third party would normally be totally removed from the ambit of the litigation.
[4]Project Development Co Ltd SA v KMK Securities Ltd and Ors [1982] 1 WLR 1470, followed in Norilya Minerals Pty Ltd v Ireland (1994) 12 WAR 485, Westpac Banking Corporation v Hilliard [2001] VSC 198, and Sebastion v Strongwall International Ltd (No 2) [2011] FCA 1105.
[5]At [4].
In the current case, there is no suggestion that Stamford, or Dr Denan had any involvement in, or prior knowledge of Mr David’s misdeeds. It has been put to considerable expense and inconvenience to establish its beneficial entitlement to the funds by reason of MOG’s approach to Stamford’s claim, which was ultimately vindicated. However, there are circumstances which tell against making an award for costs on a full indemnity basis. First, I agree with another observation of McKerracher J in Sebastian that:[6]
it may be too sweeping a generalisation to assert that whenever an innocent third party succeeds in setting aside a freezing order it should have all its costs on an indemnity basis rather than a party and party basis.
[6]At [5].
In that case, his Honour refused to make an order for indemnity costs in respect of the full period of the application, on the basis that the party which originally obtained the Mareva order had reasonable grounds for suspicion about the bona fides of the third party’s claim, at least until a full explanation was provided. Further, it was noted that in Project Development, an order was made for costs to be paid on a “solicitor own client” basis, thus placing the burden on the third party to prove that the costs were reasonably incurred. In my view, placing a similar onus upon Stamford is appropriate in the current case. I also note that in Westpac v Hilliard, McDonald J made an order for solicitor-client costs in favour of the third party, not indemnity costs.
As noted above, Stamford also sought to rely upon a letter from its solicitors to MOG’s solicitors dated 3 May 2013, which was headed “Without prejudice save as to costs”, and purported to be an offer consistent with the principles in Calderbank v Calderbank. The letter stated, relevantly, as follows:
Our client maintains that your client has no realistic prospect of succeeding in this application. Accordingly, our client has instructed us to repeat the previous offer by confirming that it is willing to settle on the basis that the full amount of the monies held in the relevant bank account namely $500,000 plus any interest that has accrued be released to our client any your client pay 50% of our client’s party/party costs, with such sum to be agreed, or in default of agreement to be taxed.
This proposal is put for the specific purpose of seeking to protect our client in relation to costs in the event that these proceedings are ultimately resolved in terms no more favourable to your client than the above proposal.
Stamford has received a more favourable outcome at trial than the terms of the offer. The question is, as endorsed by the Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2):[7]
whether the offeree’s failure to accept the offer, in all of the circumstances, warrants departure from the ordinary rules as to costs.
[7](2005) 13 VR 435, at [20].
In the current case, a departure from the ordinary rule would mean that Stamford would be entitled to its costs on an indemnity basis after the date of the offer, being primarily the costs of the trial. In Hazeldene,[8] the Court of Appeal identified a number of matters to be taken into account when considering whether a party’s rejection of a Calderbank offer was unreasonable. In the current case, I do not consider that MOG’s failure to accept the offer was so unreasonable so as to warrant the making of a special costs order in favour of Stamford. First, the offer required close to a complete capitulation by MOG. Secondly, the offer was only open for a week. The offer was made in circumstances where no evidence had been put forward by Mr David as to why he made the statements he did in the interview with Mr Morris, and in circumstances whether there was, and there still remains, some questions about the purpose of the transfer of the funds in the company bank account.
[8]at [25].
As for the costs expressly reserved, Stamford’s costs of the proceeding should include the costs of and incidental to the hearing on 20 June 2013, where I rejected MOG’s application for security for costs, and MOG’s application to dismiss Stamford’s summons to remove the injunction over the funds in the company bank account as incompetent. I see no good reason why the costs of those applications should not follow the event. Furthermore, while both applications were, in hindsight, doomed to fail, I would not say they were so hopeless as to warrant an order for indemnity costs.
That leaves the costs of and incidental to the adjournment of the trial on 31 May 2013, and the costs of and incidental to my grant for leave to Stamford to file further written submissions. In relation to the costs of and incidental to the adjournment, in my view there should be no order as to costs. While MOG was in breach of its obligations under s 26 of the Civil Procedure Act 2010 (Vic) by failing to disclose the 5 January email chain until trial, and had deliberately refrained from doing so, Stamford itself was in breach of that same provision, and its obligations with respect to discovery generally, by failing to disclose that same document. It is not necessary for me to find that Stamford had deliberately withheld the 5 January email chain from disclosure, but at the very least, Stamford’s searches prior to Dr Denan swearing his affidavit of documents must have been cursory at best. I accept that once the 5 January email chain came to light, an adjournment of the trial was necessary given that a necessary witness, Mary Tan, was located in Singapore, but Stamford should bear the consequences of its own sloppiness.
Similarly, while Stamford should have its costs of the hearing on 22 August 2013, when MOG unsuccessfully applied to set aside my grant of leave for Stamford to file and serve its further written submissions, and the costs of preparing those submissions, it should be required to pay MOG’s costs of preparing its further written submissions dated 10 September 2013. While the submissions were helpful, and contributed to Stamford’s ultimate success, in my view, by not advancing those submissions at trial, Stamford caused MOG to incur costs that it would not otherwise have incurred.
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