In the matter of Sirrah Pty Ltd (in prov liq)

By my Judgment delivered on 23 April 2021 ([2021] NSWSC 413) (“Judgment”) I held that there should be judgment for the First Defendant, Sirrah Pty Ltd (in prov liq) (“Sirrah”) in derivative proceedings brought by the Plaintiffs on its behalf in respect of certain claims, and ordered that the First Defendant be wound up on the just and equitable ground. I set out the orders that I proposed to make in paragraph 173 of that Judgment.

Proposed orders 3 and 5 set out in my Judgment dealt with the amount of the judgment which I proposed to order in favour of Sirrah against the Second Defendant, Mr William Harris (“WH”) and the Fourth Defendant, Harris Health Care Pty Ltd (“HHC”) respectively. I noted an issue as to the form of those orders in paragraph 170, as follows:

I directed the parties to make any further submissions within 7 days as to the form of those orders and they have now done so.

By their further submissions, the Plaintiffs adopted the form of orders which I proposed, but indicated that the amount set out in proposed order 3 should be reduced from $16,699,789.82 to $16,688,979.82, correcting a mathematical error. The Second and Fourth Defendants did not take issue with the amount of that order and order 5, although they made submissions as to the form of those orders.

The Second and Fourth Defendants respond that the form of orders proposed in the Judgment has the potential for the Plaintiffs to recover a total sum in the order of $31-32 from the Second and Fourth Defendants. I do not accept that proposition where I had observed in paragraph 170 of the Judgment that the Plaintiffs rightly accepted they could not recover more than their total loss against WH and HHC under the judgments against each of them. However, the Second and Fourth Defendants also submit, with greater force, that there should be judgment for Sirrah against WH and HHC jointly and severally in the sum of $15,674,735 (being the claims as to which both WH and HHC were found liable, excluding the loan to WH personally) and an additional judgment for Sirrah against WH only in the amount of $1,014,244 reflecting the amount of his loan account.

I accept that an order in the form now proposed by the Second and Fourth Defendants would be consistent with the principle that, where multiple defendants are found to be in breach of duty they will be jointly and severally liable, and that should be reflected in the form of orders. I have regard to the observations of Santow J in that regard in Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80; [2002] NSWSC 483 at [116]-[119], to which the Second and Fourth Defendants refer, as follows:

The form of the orders that the Second and Fourth Defendants now propose does not give rise to a difficulty which had arisen from the form of order that they had previously proposed, also noted by Santow J in Adler, of exposing Sirrah to the risk of being unable to recover its judgment on the insolvency of one or other of defendants who are jointly and severally liable for that judgment. I will make orders in that form.

The Plaintiffs also updated their interest calculations, to identify interest payable in respect of several heads of damages. The amounts on which the interest calculations were based correspond to those set out in paragraph 170 of the Judgment. As against WH, the Plaintiffs calculated pre-judgment interest in the amount of $1,533,879 to 30 April 2021, referable to interest on loans to WH and HHC, interest on three elements of the management fees claim for three periods and interest on the reimbursement of expenses claim for a specified period. They separately calculated interest as against HHC, which contained interest on the loan to HHC, interest on the three elements of the management fees claim and interest on the reimbursement of expenses claim. The difference in the interest calculations as against WH and HHC reflects the treatment of a loan to WH personally as to which interest is recoverable only against WH and not against HHC. It seems to me that the judgment in respect of the interest calculations should take the same form as judgment in respect of the principal. I do not consider that I need to adopt the explanation of the components of calculation of the interest set out in the Plaintiffs’ proposed orders, which will be apparent from the parties’ submissions which I will place in the file.

The Second and Fourth Defendants did not take issue with the balance of the orders proposed in the Judgment.

The Plaintiffs submit that, consistent with my preliminary observation at Judgment [172], WH and HHC should be ordered to pay their costs of and incidental to the proceedings, on the basis that costs follow the event. The Plaintiffs accept that the costs of paragraphs 59X–59AD of the Further Amended Statement of Claim should be excluded from this order. The Second and Fourth Defendants did not resist this order.

There is a controversy as to whether the Plaintiffs should be ordered to pay the costs of the Third Defendant, Ms Michelle Harris (“MH”), where the claim against MH was withdrawn by the Plaintiffs and dismissed in the course of the hearing. The Plaintiffs submit that no order as to costs should be made in favour of MH, where she, WH and HHC have throughout been represented by the same firm of solicitors and Counsel, although the firm representing them changed in June 2020; the evidence suggests that costs incurred by them were paid, in whole or in part, using Sirrah’s assets; and there is no evidence to suggest that MH has personally paid any legal fees or incurred any liability for legal fees. The latter proposition requires qualification, to some extent, by reference to a letter of engagement that I address below. Alternatively, the Plaintiffs submit that, if a costs order is to be made in favour of MH, it should exclude costs incidental to the preparation of parts of MH’s affidavit that were irrelevant and which she was not granted leave to read out of time, and in respect of which I previously identified a question whether orders should be made that would prevent her solicitors seeking to recover the costs of the preparation of that “obviously inadmissible and irrelevant evidence”.

MH accepts that the indemnity principle applies to her claim for costs. I summarised the scope of that principle in Re Ryals Hotel Pty Ltd [2021] NSWSC 42 at [6] as follows:

MH submits that the application of the indemnity principle is to be assessed at the time of quantification, not at the time a costs order is made. MH also submits that “[t]his is particularly so when solicitor/client costs are still to be paid and a liability exists or potentially exists to pay solicitor/client costs”. However, there is an open question whether, and to what extent, that is the case here. MH submits that she is liable to meet the costs of her solicitors and relies on an affidavit of her solicitor, Mr Amirbeaggi dated 30 April 2021, for that proposition. That affidavit refers to a letter of engagement dated 2 June 2020 addressed to HHC, WH and MH, which recorded that Mr Amirbeaggi’s firm operated on the basis of having funds from clients in trust in advance of the work that was to be carried out. Mr Amirbeaggi does not there say that MH had at any relevant time paid funds into trust or paid any invoice issued by his firm on any other basis. Mr Amirbeaggi also raises the prospect that, if WH is made bankrupt or HHC is placed in liquidation, claims could be made (presumably against Mr Amirbeaggi’s firm) by a trustee or liquidator to recover funds alleged to have been paid by WH or HHC for MH’s benefit in circumstances where, he recognises, such benefits may be (or alleged to be) unreasonable or uncommercial transactions.

It seems to me that, where the retainer between Mr Amirbeaggi’s firm and MH provided for the payment of funds into trust in advance and there is no evidence that MH was required to or did place any funds in trust or paid any invoices, a question may arise as to whether it would be open to that firm now to recover costs from MH in arrears, particularly if they were previously paid by WH or HHC. There seems to me to be a real possibility, not recognised in the submissions made for MH in this application, that her interests and that firm’s interests may diverge in that respect, so that she ought now to have the opportunity to take independent advice. Any amount that that firm could now recover against MH may also be affected by any application that she makes (again, presumably, with independent advice) that she should not be required to pay the wasted costs incurred by that firm of preparing irrelevant affidavit evidence, which she did not seek to or was not permitted to read. I do not express any concluded view as to these matters, where they were not addressed in MH’s submissions and there is no suggestion that she has had access to independent legal advice about them.

Given these complexities, the extent to which MH’s liability to costs may depend on future events including recoveries by a liquidator against Mr Amirbeaggi’s firm and the desirability of MH having access to independent legal advice in respect of these issues, it seems to me that the preferable course is to continue to reserve the costs of and incidental to the proceedings against MH. I reserve liberty to all parties to apply including if, at any point, MH pays or confirms that she accepts liability to pay those costs, in the light of the matters noted above and any independent advice she obtains.

Accordingly, I make the following orders: