TNT Building Trades Pty Limited v Benelong Developments Pty Limited (administrators appointed) (No 2)

[2012] NSWSC 884

Supreme Court

New South Wales

Case Title:	TNT Building Trades Pty Limited v Benelong Developments Pty Limited (administrators appointed) (No 2)
Medium Neutral Citation:	[2012] NSWSC 884
Hearing Date(s):	12 and 13 June 2012
Decision Date:	02 August 2012
Jurisdiction:	Equity Division - Corporations List
Before:	Black J
Decision:	Proceedings dismissed. Certain previous orders vacated. No order as to First Defendant's costs of proceedings. Plaintiff to pay Second Defendant's costs of proceedings on indemnity basis as agreed or as assessed.
Catchwords:	COSTS - Costs and consequential orders - Plaintiff unsuccessful in application to set aside deed of company arrangement in primary proceedings - Whether costs should follow the event in circumstances where deficiency in administrator's conduct was established in respect of deed of company arrangement although court declined to exercise discretion to set aside deed of company arrangement - Whether reasonable for Plaintiff to bring application.  COSTS - Indemnity costs - Application for indemnity costs by Second Defendant - Final relief against Second Defendant not pressed at trial.
Legislation Cited:	- Corporations Act 2001 (Cth) ss 445D, 461, 447A, 600A - Civil Procedure Act 2005 (NSW) ss 56, 98 - Uniform Civil Procedure Rules 2005 (NSW) Pts 20 Div 4, 42 Div 3, rr 42.1, 42.2
Cases Cited:	- Calderbank v Calderbank [1975] 3 WLR 586 - Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248 - Commonwealth of Australia v Gretton [2008] NSWCA 117 - Deputy Commissioner of Taxation v Pddam Pty Ltd (1996) 19 ACSR 498 - Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 - Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 - Harrison v Schipp [2001] NSWCA 13 - Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 - Khoury v Zambena Pty Ltd (1997) 23 ACSR 344 - Khoury v Zambena Pty Ltd [1999] NSWCA 402 - Lahoud v Lahoud [2006] NSWSC 126 - Liverpool City Council v Estephan [2009] NSWCA 161 - Ng v Chong [2010] NSWSC 127 - NMFM Property Pty Ltd v Citibank Ltd (No 2) [2001] FCA 480; (2001) 109 FCR 77 - Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 - Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 - Seven Network Ltd v News Ltd [2007] FCA 1489; (2007) 244 ALR 374 - Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371 - Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201 - TNT Building Trades Pty Ltd v Benelong Developments Pty Ltd (admins apptd) [2012] NSWSC 766 - White Constructions (ACT) Pty Ltd (in liq) v GB White [2004] NSWSC 303
Texts Cited:
Category:	Consequential orders
Parties:	TNT Building Trades Pty Limited (Plaintiff) Benelong Developments Pty Limited (administrators appointed) (First Defendant) Burbank Montague Pty Limited (Second Defendant) Riad Tayeh (Third Defendant) Antony de Vries (Fourth Defendant)
Representation
- Counsel:	Counsel: G. Carolan (Plaintiff) D. Smallbone (Defendants)
- Solicitors:	Solicitors: Holman Webb (Plaintiff) Somerset Ryckmans (Defendants)
File number(s):	11/393181
Publication Restriction:

JUDGMENT

1. On 9 July 2012, I delivered my judgment ([2012] NSWSC 766) in respect of an application by TNT Building Trades Pty Limited ("TNT") for an order under s 600A of the Corporations Act 2001 (Cth) that a resolution passed at a meeting of creditors of Benelong Developments Pty Ltd (administrators appointed) ("Benelong") on 20 January 2012 be set aside and for consequential orders that Benelong be wound up under s 461 of the Corporations Act.

2. I held that the report provided by the administrators ("Administrators") appointed to Benelong to the second meeting of its creditors contained misleading information and material omissions, so as to raise the possibility that the proposed Deed of Company of Arrangement ("proposed DOCA"), if executed, could be terminated under s 445D of the Corporations Act. However, after comparing the outcome of the proposed DOCA and the likely outcome of a liquidation - a comparison that involved issues of some complexity - I held that TNT had not established that a winding up would allow a more favourable outcome to creditors than the proposed DOCA. I held that TNT had therefore not established that the Court should exercise its discretion to set aside the proposed DOCA under s 445D of the Corporations Act nor had it established a basis for relief under s 447A or s 600A of the Corporations Act. I directed the parties to bring in Short Minutes of Order to give effect to my judgment within 14 days. I noted that, in the ordinary course, TNT should pay the costs of the proceedings, but I indicated that I would hear the parties as to costs. Each party provided comprehensive submissions as to costs contending for different results.

   Costs in respect of Benelong

3. Section 98(1) of the Civil Procedure Act 2005 (NSW) relevantly provides that:

   "Subject to rules of court and to this or any other Act:

   (a) costs are in the discretion of the court, and

   (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and

   (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis."

   Uniform Civil Procedure Rules 2005 (NSW) r 42.1 ("UCPR") provides that, if an order is made as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. UCPR r 42.2 states the general rule that costs payable to a person under an order of the Court or these rules are to be assessed on the ordinary basis.

4. TNT referred to Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371, where Long Innes J observed that the Court could exercise a discretion to refuse costs to a successful defendant where it had brought about the litigation. That observation was cited with approval by Fisher J in Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201. TNT also referred to the observation of McHugh J in Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 102 that:

   "[T]he court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation".

   The Defendants point to an alternative view that the only delinquency which warrants a departure from an order for costs on ordinary principles is delinquency in or in relation to the conduct of the proceedings: Harrison v Schipp [2001] NSWCA 13 at [132]-[139]; NMFM Property Pty Ltd v Citibank Ltd (No 2) [2001] FCA 480; (2001) 109 FCR 77. It is not necessary for me to resolve any difference between those views in order to determine this application.

5. TNT contends that the Defendants brought about the proceedings. TNT complains of the transfer of Benelong's legal interest in the properties that were in issue in the proceedings to the Second Defendant, Burbank Montague Pty Limited ("Burbank Montague"), which TNT contends deprived it of the fruits of adjudication certificates and judgments obtained against Benelong. To the limited extent this issue was raised in the proceedings before me, the evidence indicated that the replacement of Benelong by Burbank Montague as trustee of the Benelong Crescent Unit Trust was directed to issues arising under the strata titles legislation rather than to defeating TNT's interests.

6. TNT also points to the fact that the Administrators' report was, as I found in my earlier judgment, misleading and contained material omissions and contends that their recommendation to creditors was based on a false premise, and contends that this necessitated TNT seeking orders restraining the execution of the proposed DOCA by the Administrators and setting aside the proposed DOCA. TNT also points to a matter to which I referred in my judgment, namely that the Administrators declined to provide it with copies of a mortgage and the associated loan agreements that were in issue in the proceedings, so that it did not have the opportunity to raise a challenge to the enforceability of that mortgage (which was then unstamped) at the second creditors meeting.

7. TNT points out that an expert valuation evidence in respect of the reduction in value of the properties, which was significant to the exercise of the Court's discretion, was only served on 16 March 2012 and that the mortgage over the relevant properties was also not stamped until that date. Conversely, Benelong relies on the service of the valuer's affidavit and report as to the value of the properties, and on the fact that its solicitor informed TNT's solicitor on 16 March 2012 that the mortgage would be stamped on that day, to support a claim for indemnity costs for the period after 16 March 2012. Until that mortgage was stamped, TNT would, having regard to the findings in my judgment, have succeeded in the proceedings. However, the fact that the stamping of that mortgage and the decline in value of the properties would change that result would not have been apparent without the complex analysis undertaken in the judgment, which Benelong did not communicate to TNT (if, in fact, it had undertaken it) when it advised that the mortgage was to me stamped, and neither party advanced substantive submissions as to the issues raised by that analysis until supplementary submissions after the hearing before me.

8. TNT also criticises the conduct of the proceedings by the Defendants, and particularly a delay in service of the Defendants' evidence until 16 March 2012, which it contends resulted in the vacation of a hearing date allocated for 21 March 2012. The Defendants contend that the hearing of 21 March was vacated, not because of any delay in filing their evidence, which was filed by the date on which it was due under an extension of the timetable, but because TNT accepted that the hearing was likely to take two days rather than one day after the filing of that evidence. I do not consider that I can determine the dispute as to this matter in the absence of cross-examination, given the parties' conflicting factual contentions as to the circumstances in which the adjournment took place. It is not necessary to determine it in order to determine this application.

9. TNT draws attention to the decisions in Deputy Commissioner of Taxation v Pddam Pty Ltd (1996) 19 ACSR 498 and Khoury v Zambena Pty Ltd (1997) 23 ACSR 344. In each case, the plaintiff brought an application for an order setting aside a deed of company arrangement and was successful in establishing a deficiency in the administrator's conduct in respect of that deed, although the Court declined to exercise its discretion to set aside that deed. In each case, the Court held that it was reasonable for the plaintiff to have brought the application and that there should be no order as to costs. The exercise of the Court's discretion in respect of costs by Young J at first instance in Khoury v Zambena Pty Ltd was in turn upheld by the Court of Appeal in Khoury v Zambena Pty Ltd [1999] NSWCA 402.

10. In my view, there is substantial force in TNT's submissions that its application in these proceedings was analogous to the position of the applicants in Deputy Commissioner v Pddam and Khoury v Zambena. At the time the application was brought, TNT would have succeeded in the application, since the relevant mortgage was then unstamped. There was substantial force in TNT's criticism of the disclosure made by the Administrators and it was ultimately successful in establishing that the information provided to creditors was misleading and contained material omissions. It may properly be said, as the Courts observed in Deputy Commissioner v Pddam and Khoury v Zambena, that TNT's conduct in respect of the commencement of the proceedings was reasonable, notwithstanding that it was ultimately unsuccessful in them. The matters which arose after 16 March 2012, to which I have referred above, would not have indicated the likelihood that TNT would fail in the proceedings without complex analysis which neither party addressed until supplementary submissions after the hearing. For these reasons, and consistent with the approach adopted in Deputy Commissioner v Pddam and Khoury v Zambena, I do not consider that TNT should be ordered to pay Benelong's costs of the proceedings.

11. Benelong also relies on a letter dated 16 March 2012 to support an application for indemnity costs against TNT after that date. That letter offered to resolve the proceedings on the basis that TNT consent to their discontinuance and each party bear their own costs. I accept that the offer made by Benelong in the letter dated 16 March 2012 involved an element of genuine compromise, where it was made after Benelong had served the majority of its affidavits in the proceedings and would have incurred significant costs in respect of the preparation of the proceedings. However, that letter advanced no substantive analysis of the issues in the case so as to give any indication to TNT that its claims were likely to fail on any particular basis, still less the basis on which they ultimately failed.

12. TNT points out that that letter is not an offer of compromise under UCPR Pt 20 Div 4 and UCPR Pt 42 Div 3 does not apply in that situation. That letter takes effect as a Calderbank (Calderbank v Calderbank [1975] 3 WLR 568) offer, and will only support an order for indemnity costs against TNT if it was a genuine offer of compromise, which it was unreasonable for TNT not to accept: Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375; Evans Shire Council v Richardson (No 2) [2006] NSWCA 61; Seven Network Ltd v News Ltd (2007) 244 ALR 374 at 388; Commonwealth of Australia v Gretton [2008] NSWCA 117. The relevant principles were recently summarised by Ward J in Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [9]-[15], where her Honour observed that:

    [9] The rationale for the principles applied in relation to Calderbank offers was outlined in Commonwealth v Gretton [2008] NSWCA 117 by Beazley JA, her Honour noting (at [41]) that the public policy considerations underpinning the making of favourable costs orders where a Calderbank offer has been made (and not accepted) are the encouragement of settlement of disputes as soon as possible and the discouragement of wasteful and unreasonable behaviour by litigants.

    [10] The Court of Appeal in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 recently reiterated the public policy objectives of special costs orders in the context of offers of compromise. Basten JA (with whom McColl and Campbell JJA agreed) referred at [6] to the objects underlying the formal offer of compromise procedures under the then court rules that were identified in Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 as including:

    1. To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff's real claim which can be placed before its opponent without risk that its "bottom line" will be revealed to the court;
    2. To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and
    3. To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances, that party should ordinarily bear the costs of litigation.

    [11] The onus is on the party seeking to rely on a Calderbank offer (in this case, the defendants) to satisfy the Court that it should exercise the costs discretion in its favour (Evans Shire Council v Richardson (No 2) [2006] NSWCA 61). An indemnity costs order will not automatically follow from the fact that a genuine offer of compromise more favourable than the final judgment was made nor is there any presumption to that effect (Cat Media Pty Ltd v Allianz Australia Insurance Ltd [2006] NSWSC 790; Rolls Royce Industrial Power (Pacific) Limited v James Hardie & Co Pty Limited [2001] NSWCA 461). What must be considered is the reasonableness of the offeree's rejection or non-acceptance of the offer, having regard to the relevant circumstances at the time that the offer fell to be considered (ie, here, as at September 2006) (citing MGICA (1992) Pty Limited v Kenny & Good Pty Limited [1996] 70 FCR 236 per Lindgren J). The question is whether, in all the circumstances, the failure to accept the offer "warrants departure from the ordinary rule as to costs" (SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 per Giles JA at [37]). ...

    [13] Save where there is a special costs order by reference to the procedure provided for under the Rules or in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333; 3 WLR 586, it has been said that a court should depart from the general rule (and award indemnity costs only where the conduct of the party against whom the order is sought is "plainly unreasonable" (Sydney City Council v Geftlick [2006] NSWCA 280; Dunstan v Rickwood (No 2) [2007] NSWCA 266). In Leichhardt Municipal Council v Green [2004] NSWCA 341, Santow JA (at [57]) said that indemnity costs orders should be reserved for the most unreasonable actions by unsuccessful plaintiffs.

    [14] In that regard, it remains to be seen whether the exhortation in the above cases as to the category of case in which conduct by an unsuccessful plaintiff would warrant an indemnity costs order is to be reconsidered having regard to the regime now in place in relation to the conduct of litigation in this Court and, in particular, the recognition in s 56(5) of the Civil Procedure Act that non-compliance with the statutory objectives provided for in that legislation may be taken into account in the exercise of a discretion as to costs. ...

13. As I noted above, that letter also did not foreshadow the analysis which led to the Defendants' success in the proceedings, which were by no means simple, so as to indicate any reason why TNT was likely to fail in the proceedings, and the issues involved in that analysis were largely addressed by the parties in supplementary submissions after the hearing. I do not consider that the letter should alter the result that I have indicated above or warrants an order for indemnity costs against TNT after 16 March 2012.

    Costs in respect of Burbank Nominees

14. Burbank Nominees contends that an order for costs should be made in its favour on an indemnity basis. It points out that prayer 9 of the Amended Summons sought relief against Burbank Montague, namely an order that Burbank Montague pay Benelong's liquidator (if appointed) the amount of a judgment debt and the costs of the proceedings from the assets of the Benelong Crescent Unit Trust. That order was not pressed at trial.

15. It is not necessary to repeat the principles applicable to an order for indemnity costs at length. Those principles were summarised by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248 at 256-257 and by McDougall J in White Constructions (ACT) Pty Ltd (in liq) v G B White [2004] NSWSC 303 at [5]-[11] in a passage subsequently quoted in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 at [24]. The summary of principles in Colgate-Palmolive Co v Cussons Pty Ltd above was in turn applied in Lahoud v Lahoud [2006] NSWSC 126 at [11] and in Ng v Chong [2010] NSWSC 127 at [18]. In Liverpool City Council v Estephan [2009] NSWCA 161 at [100], Giles JA observed that s 56 of the Civil Procedure Act adds emphasis to the occasion to depart from costs on an ordinary basis where a failure to properly conduct the proceedings has caused costs to be incurred unnecessarily, but does not override the need for a rational connection between the reason for that departure and the extent of that departure.

1. As I noted above, the relief sought against Burbank Montague, which was the only basis for its joinder in the proceedings, was not pressed at the final hearing. In my view, the conclusion is properly open that the proceedings were commenced and continued against Burbank Montague in circumstances where TNT, properly advised, should have known that the proceedings could not be maintained against it. I consider than at an order that TNT pay Burbank Montague's costs on an indemnity basis is justified for these reasons.

   The Administrators' costs

2. I do not consider that there should be any order for costs in favour of the Administrators in respect of the proceedings where they did not take any active part in the proceedings.

   Orders

3. Accordingly, I make the following orders:

   1. The proceedings be dismissed.

   2. Order number 1 of the orders made on 6 February 2012 be discharged.

   3. Orders 1 and 2 of the orders made on 9 December 2011 be discharged.

   4. There be no order as to the First Defendant's costs of the proceedings.

   5. The Plaintiff pay the Second Defendant's costs of the proceedings on an indemnity basis as agreed or as assessed.
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