Yan v Yangdo Pty Ltd (No 2)

[2024] NSWSC 1405

Supreme Court

New South Wales

Medium Neutral Citation:

Yan v Yangdo Pty Ltd (No 2) [2024] NSWSC 1405

Hearing dates:

On the papers; last submissions 25 October 2024

Date of orders:

6 November 2024

Decision date:

06 November 2024

Jurisdiction:

Equity - Expedition List

Before:

Rees J

Decision:

Costs orders made.

Catchwords:

COSTS – expert determination of buy-out price – expert issues valuation, identifies error and issues second valuation – resulting $10 million difference in buy-out price – each party supports the valuation which favours them at trial – neither valuation held to be binding – parties to pay their own costs.

Legislation Cited:

Civil Procedure Act 2005 (NSW), s 98

Uniform Civil Procedure Rules (2005 (NSW), r 42.1

Cases Cited:

James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296

ONE.TEL Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548

Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622

Ryde Developments Pty Ltd v Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40

Category:

Costs

Parties:

Philip Kam Hung Yan (First Plaintiff/Fourth Cross-Defendant)
Amelia Shu Man Yan (Second Plaintiff/Fifth Cross-Defendant)
Fincob Pty Ltd (Third Plaintiff/Sixth Cross-Defendant)
Yangdo Pty Ltd (First Defendant/First Cross-Defendant)
Kam Wing Yan (Second Defendant/Second Cross-Claimant)
Yangdo Service Pty Ltd (Third Defendant/Second Cross-Defendant)
Pengie Pty Ltd (Fourth Defendant/Third Cross-Defendant)
Penlop Pty Ltd (Fifth Defendant/First Cross-Claimant)

Representation:

Counsel:
R Dick SC / P Gaffney (Plaintiffs)
P Knowles SC / K Josifoski (Second and Fifth Defendants)
Solicitors:
Bartier Perry (Plaintiffs)
Project Lawyers (Second and Fifth Defendants)

File Number(s):

2024/211869

JUDGMENT

1. HER HONOUR: This judgment concerns costs. The proceedings concerned two brothers from the Yan family, Philip Kam Hung Yan (the plaintiff) and Kam Wing Yan (the defendant), who fell out. After mediation, the brothers signed a Deed of Settlement and Release, agreeing that the plaintiff would buy-out the defendant’s interest in various corporate entities and trusts at a price fixed by an asset valuation obtained from Ernst & Young.

2. Ernst & Young issued a draft report, on which the brothers were entitled to make submissions. Ernst & Young then issued its final report (the first report), accepting submissions made by the defendant in respect of whether the ‘embedded’ CGT liability associated with three commercial properties should be deducted before arriving at a valuation of the corporate entities and trusts. Ernst & Young then withdrew the first report and issued a revised valuation (the second report) on the basis that the first report contained an error. In the second report, Ernst & Young reverted to their opinion held in the draft report. The difference between the buy-out figure was in the order of $10 million.

3. In the result, I concluded that neither report bound the parties, where the valuer mis-stated their assigned task in the first report and the same problem infected the second report. The way forward was for the parties to request the expert to prepare a determination which complied with the Deed and by which the parties would be bound.

Submissions

4. The plaintiff submitted that the parties had mixed success. Each won and lost on some issues. No party got anything like the relief they sought and no party could be said to have ‘won the event’. It was a paradigm case for there to be no order as to costs. Alternatively, the defendant ought pay the plaintiff an appropriate percentage of the costs of the proceedings, in recognition that the plaintiff had more success on more issues which took up more of the Court’s time than the defendant. In this event, the plaintiff should have his costs of prayers 7 to 9 of the Cross-Summons, in respect of which the defendant was said to have capitulated.

5. The plaintiff submitted that the fact that prayer 6 of the Cross-Summons referred to having another valuation as alternative relief did not mean that the defendant succeeded on anything. That was simply the inevitable result if both parties lost. The defendant did not contend for that outcome. The argument about whether an expert can correct a mistake was ultimately irrelevant as the Court held that the first report did not satisfy the requirements of the Deed. Further, a significant amount of Court time and party expense was concerned with the expert evidence of Nicholas Gangemi. That evidence was not relevant to the task at hand and was put to one side by the Court. The only limited success of the defendant was that he succeeded in obtaining a declaration that was similar to, but not the same as, that sought in prayer 7 of the Amended Cross-Claim. That declaration was formulated on the second day of hearing in closing and was not addressed in written submissions or in opening and took up, generously, 10 minutes of total Court time.

6. The defendant sought an order that the plaintiff pay his costs on an ordinary basis or, alternatively, a proportion of the costs as determined by the Court but not less than 75% of his costs. The defendant submitted that the result of the trial reflected, in substance, prayer 6 of the Amended Cross-Summons which sought – in the alternative – an order that Ernst & Young “determine the Correct … Valuation … in accordance with the proper interpretation of the Deed”. The defendant submitted at trial that Ernst & Young were to determine the “net assets” (not the market value) of the Yan Unit Trust and Pengie Pty Ltd having regard to the property valuations prepared by Cushman & Wakefield. The Court so held. The Court also declared that Penlop Pty Ltd was entitled to any distributions from the Yan Unit Trust which are declared after 22 June 2023 (that is, with respect, an over-statement of my conclusion). This declaration was said to reflect prayer 7 of the Amended Cross-Summons. The defendant was said to have succeeded on this issue, albeit acknowledging that prayer 7 was amended in the Amended Cross-Summons (filed on the morning of the second day of the hearing) and the amendment reflected a narrowing of the way in which the argument was previously put.

7. As to the declarations sought in respect of prayer 9 of the Cross-Summons, the defendant submitted that this matter was surrendered by the plaintiff during the hearing (and an agreement was reached between the parties in favour of the defendant’s interests). The Court could exercise its discretion to order costs in absence of a full hearing on the merits where a proceeding was settled or resolved before final hearing and the parties reach no agreement as to costs: Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 625; ONE.TEL Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 at 553-4. The Court could be confident that the defendant would have succeeded on this issue. (I do not have this confidence and am disinclined to review the defendant’s submissions at trial as cross-referenced in order to determine whether I now agree with those submissions).

8. The defendant submitted that he essentially succeeded in establishing: his alternative relief that an Ernst & Young valuation be undertaken in accordance with the proper interpretation of the Deed; Penlop’s entitlement to distributions; and, that certain significant liabilities were owed to Penlop and the defendant. That was said to be a significant success in circumstances where, by the Summons, the plaintiff sought relief to enforce as binding the findings of the second report. Costs should follow the event. In the alternative, a costs order could be tailored to reflect the fact that the defendant was not successful in obtaining the primary relief in relation to the first report and did not succeed on the precise issue to which Mr Gangemi’s expert evidence was directed.

Consideration

9. At trial, each brother vied for the Ernst & Young report which gave them the most advantageous ‘bottom line’. The relevant material was placed before the Court by uncontentious affidavits made by the brothers’ solicitors. In addition, the defendant relied on the expert evidence of tax consultant, Mr Gangemi, who was asked to identify and explain available strategies to mitigate ‘embedded’ CGT and, further, whether Ernst & Young’s deduction of ‘embedded’ CGT in the second report was “correct”. Mr Gangemi’s opinion on possible ways to mitigate tax was not relevant to the task at hand, being whether Ernst & Young had gone about its task in accordance with the terms of the Deed such that the brothers were bound by its valuation. Nor was it appropriate to consider that question having regard to the opinion of an expert from another discipline altogether. Mr Gangemi’s opinion was put to one side and on no account should the plaintiff pay the defendant’s costs in respect of that evidence. If anything, the defendant should pay the plaintiff’s costs of considering that material.

10. The Court has wide discretionary powers to apportion costs where a case involves multiple issues and a party succeeds on some issues but fails on others. For example, a plaintiff may obtain judgment in their favour but the defendant may have succeeded on issues that occupied the bulk of the time taken by the proceedings. The successful plaintiff may not only be deprived of the costs of those issues but may be ordered as well to pay the defendant’s costs in respect of such issues: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [32]-[36] (per Beazley, Tobias and McColl JJA).

11. As the Court of Appeal observed in Ryde Developments Pty Ltd v Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 at [6]:

“Section 98 of the Civil Procedure Act2005 (NSW) confers on the Court a wide discretion with respect to costs. Under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) the general rule is that the Court is to order that costs follow the event. The ‘event’ may be characterised in more than one way. Generally the ‘event’ refers to the result of the claim or counterclaim, as the case may be, and may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Sons Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15] per Ward, Emmett and Gleeson JJA. Where there has been a mixed outcome in the proceedings, and it is appropriate to entertain the process of apportioning costs as between different issues in the proceedings, in general such an exercise will be carried out on a relatively broad brush basis, and largely as a matter of impression and evaluation by the Court: Doppstadt at [19]; James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [36]; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 at 22.”

12. Looking at the Amended Summons, the plaintiff succeeded in respect of prayer 1, obtaining a declaration that the second report did not contain a “manifest error”. This did not matter, however, as the second report did not meet the requirements of the Deed and was not binding. It followed that the plaintiff did not obtain the relief sought in prayer 2, being a declaration that the second report was binding. The defendant ultimately conceded the issue agitated in prayer 3 of the Amended Summons.

13. Looking at the Amended Cross-Summons, the defendant failed to obtain the declaration sought in prayer 1: that the first report was binding on the parties. The defendant failed to obtain the relief sought in prayer 4: that the second report contained a “manifest error”. True it is that, in prayer 6, the defendant sought, in the alternative, an order directing the brothers to jointly instruct Ernst & Young to attend to the task assigned by the Deed, albeit no mention was made of this alternative prayer at trial. Prayer 7 was heavily amended during the course of the hearing, whilst prayers 8 and 9 were not pressed. Nor was the declaration in respect of unpaid distributions made in the terms sought by the defendant in prayer 7.

14. I accept that more of the defendant’s submissions were accepted than those of the plaintiff, but the result was the same: neither brother succeeded in having the report they wanted ‘upheld’. I accepted the defendant’s submissions in respect of whether an expert can correct their determination but accepted the plaintiff’s submissions as to whether the second report had a “manifest error”. I accepted the defendant’s submission as to whether the valuer had undertaken the wrong task, but it inexorably followed that the same problem infected the second report. In addition, there was a disputed construction of the Deed in respect of the defendant’s entitlement to declared distributions of a unit trust after execution of the Deed. The clauses were construed in a manner which was not precisely the same as either party contended.

15. Essentially for the reasons advanced by the plaintiff, I do not consider that this is an appropriate case to apportion costs, where it is difficult to identify an issue on which either brother has clearly succeeded or to say that one brother succeeded overall more than the other. Rather, I consider this is a classic case where each brother should bear their own costs of the proceedings. I so order.

Orders

16. For these reasons I make the following orders:

1. Order that the plaintiffs and defendants bear their own costs of the proceedings comprising the Amended Summons and Amended Cross-Summons.

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Decision last updated: 06 November 2024