Damcevski v Demetriou

These proceedings involve Bobi Damcevski (Plaintiff), Emilios Demetriou (First Defendant), Janette Linda Ashley (Second Defendant), Georgina Demetriou (Third Defendant), SPC & Co Pty Ltd (Fourth Defendant) and Ventry Gray (Fifth Defendant).

This judgment deals with costs and the appropriate orders to be made arising out of a hearing before me on 21 May 2018 and 13, 14 and 22 June 2018 concerning whether a Heads of Agreement dated 28 October 2016 was a binding agreement between the parties: Bobi Damcevski v Emilios Demetriou [2018] NSWSC 988 (principal judgment).

On or about 3 November 2009 the First Defendant, Second Defendant and Third Defendant retained the Plaintiff as their solicitor to act for them to recover moneys in a venture (see for example Demetriou v Gusdote Pty Ltd [2010] FCA 581) (principal judgment [3]).

The Plaintiff subsequently alleged that the First Defendant, Second Defendant and Third Defendant owed him fees as of 12 December 2012 amounting to $224,707 which included the majority of fees owing to counsel Mr Gray (now the Fifth Defendant) (principal judgment [4]).

On or about 16 October 2015, the Second Defendant paid the Plaintiff $25,000 leaving an allegedly outstanding amount of $199,707 plus interest (principal judgment [6]).

This dispute over fees owing culminated in a mediation that occurred on 28 October 2016 where Holding Redlich appeared for the First, Second and Third Defendants (principal judgment [15]). The Plaintiff, First Defendant, Second Defendant and Third Defendant were present at the mediation, as was the Fifth Defendant (principal judgment [15]).

This mediation resulted in a handwritten document entitled “Heads of Agreement” which in my judgment objectively viewed was a binding agreement that the parties intended to be bound as and from that date of 28 October 2016 (principal judgment [261]). As per my reasons this was a legally binding arrangement that was entered into between the Plaintiff and the First, Second, Third, Fourth and Fifth Defendants (principal judgment [285]).

The agreement was set out in the Heads of Agreement with two outcomes still outstanding. First the preparation and signing of a deed of release and settlement by the parties and second a mortgage to be provided by the Fourth Defendant (principal judgment [286]).

On 7 December 2016, the Plaintiff filed a Notice of Motion seeking specific performance of the Heads of Agreement, but did not list the Fourth Defendant or the Fifth Defendant as parties (principal judgment [41]). On 23 March 2017, the First Defendant filed a Points of Defence, again not seeking to join the Fourth Defendant or Fifth Defendant as parties (principal judgment [48]).

On 1 June 2017 the Plaintiff filed an Amended Statement of Claim again seeking specific performance of the Heads of Agreement, as against the First, Second, Third, Fourth and Fifth Defendants (principal judgment [49]).

On 16 June 2017 the Fourth Defendant sold the Willows Golf Course to Willows Country Club Pty Ltd for $1,000,000 (principal judgment [52]).

On 11 July 2017 Mr Darren John Vardy and Mr Jason Lloyd Porter were appointed as the voluntary administrators of the Fourth Defendant, being appointed as liquidators on 17 August 2017 (Plaintiff’s orders submissions [7]).

On 21 August the Plaintiff filed a Second Amended Statement of Claim and on 4 September 2017 filed a Third Amended Statement of Claim (principal judgment [54]).

On 30 August 2017 Parker J heard an application by the Fifth Defendant for summary judgment of the proceedings on a cross-claim filed by him (principal judgment [55]).

On 7 September 2017 the Fourth Defendant filed a Defence to the Third Amended Statement of Claim (principal judgment [56]). The Plaintiff and Fifth Defendant’s submission state this is the date from which the Fourth Defendant actively engaged in the proceedings, raising new issues and adding a layer of costs to the resolution of the proceedings.

This judgment concerns the question of costs and the final form of any orders sought to give effect to my judgment.

On 19 September 2017 the Plaintiff filed a Fourth Amended Statement of Claim against the First to Fifth Defendants (principal judgment [59]).

On 10 October 2017, the Fourth Defendant filed a Defence to the Fourth Amended Statement of Claim largely denying the Plaintiff’s claim, including that the Heads of Agreement was devoid of consideration and did not bind the Fourth Defendant (principal judgment [60]). On 19 October 2017 the First Defendant filed a Defence to the Fourth Amended Statement of Claim (principal judgment [61]).

On 22 February 2018 the Plaintiff filed a Notice of Motion seeking an order pursuant to s 73 of the Civil Procedure Act 2005 (NSW) that the dispute between the parties had been compromised or settled as set out in the Heads of Agreement of 28 October 2017 (principal judgment [65]).

On 16 April 2018 the Fifth Defendant issued and served a subpoena on Mr Vardy one of the liquidators of the Fourth Defendant, with a schedule of 14 numbered items generally limited to bank statements and documents evincing the movement of money in and out of the Fourth Defendant between 1 July 2016 and 30 June 2017, including relating to the transfer of the Willows Golf Course.

On 3 May 2018 Mr Jonathon Prowse of MCW Lawyers acting for the Fourth Defendant responded (as attached to the Fourth Defendant’s submissions of 19 July 2018):

On 19 June 2018 a letter detailing the claim for expenses was forwarded to the Fifth Defendant by Mr Prowse (incorrectly dated 22 May 2018) (as attached to the Fourth Defendant’s submissions of 19 July 2018):

Apparently attached to this letter was a file note recording the time and charge incurred.

On 8 May 2018, the Fourth Defendant went into evidence in the affidavits of Mr Darren John Vardy liquidator (and previously administrator) for the Fourth Defendant and solicitor Mr Jonathon Prowse (see for example principal judgment [184]).

On 25 May 2018 the Plaintiff provided Points of Claim, and on 30 May 2018 the Fourth Defendant filed their defence to the Points of Claim (principal judgment [69]-[70]).

On 7 June 2018, the liquidators of the Fourth Defendant provided further evidence in the form of the affidavit of Ms Maria Demetriou (principal judgment [231]).

The matter was heard on 21 May 2018, 13, 14 and 22 June 2018 and I delivered judgment on 29 June 2018 which held, as I have said, that the Heads of Agreement was binding. On 13, 14 and 22 June 2018 it is clear that the Fourth Defendant participated in the proceedings being represented at times by Mr Prowse solicitor and Mr Johnson of counsel.

On 13 June 2018, Mr Vardy was required for cross-examination, including the following cross-examination by counsel for the Plaintiff (T65/17-30).

On 14 June 2018, I had the following exchange with Mr Prowse (T149/14-36):

On 22 June 2018 I had a further exchange with Mr Johnson counsel for the Fourth Defendant (T165/25-40):

The Plaintiff and Fifth Defendant submit that their costs should be paid by the First Defendant and the liquidators of the Fourth Defendant personally and on an indemnity basis in accordance with rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) (costs submissions [1]-[7]).

They contend that the Fourth Defendant has played an active role in the proceedings ever since being joined by filing pleadings, evidence and fully participating in the hearing. To this extent they submit the liquidators for the Fourth Defendant should be placed in exactly the same position in relation to costs as any other litigant (costs submissions [8]).

Their position is that the First Defendant must have known at all times that on 28 October 2016 he was acting as a shadow director of the Fourth Defendant because his daughter Ms Maria Demetriou (the real director of the Fourth Defendant) was accustomed to complying with his instructions and wishes. They likewise assert the Fourth Defendant’s liquidators did not admit that on 28 October 2016 the First Defendant was acting as a shadow director of the Fourth Defendant. They contend therefore both the First Defendant and liquidators of the Fourth Defendant failed to assist the Court and should be liable for indemnity costs (costs submissions [9]-[16]).

The Plaintiff and Fifth Defendant additionally submit that the First Defendant and Fourth Defendant raised arguments and defences that were not reasonably open to them or arguable, including by denying the First Defendant was a shadow director, raising a Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72 that the Heads of Agreement was not legally binding, and alleging non-performance of Heads of Agreement clauses 8 and 9 (costs submissions [17]-[31]).

Relying on the principles of Mead v Watson [2005] NSWCA 133, the Plaintiff and Fifth Defendant suggest that the Fourth Defendant took an active role in contesting their claims in litigation and must therefore be just as susceptible to costs orders as any other active litigant (costs submissions [32]-[41]). Further they suggest the liquidators’ arguments were not reasonably justified, including that the company was insolvent and destitute and had disposed of the Willows Golf Course thereby precluding it from complying with clause 4 of the Heads of Agreement. They suggest it should pay the costs of the proceedings on an indemnity basis (costs submissions [42]-[50]).

With respect to the orders sought by the Plaintiff and the Fifth Defendant, they refer to the following proposed orders (updated and provided to my chambers on 6 December 2018):

The Plaintiff seeks orders 2, 3 and 6 above whilst the Fifth Defendant seeks all the above proposed orders (Plaintiff’s orders submissions [1]-[4]).

With respect to order 2, the Plaintiff emphasises personal costs should be made against Mr Darren John Vardy and Mr Jason Lloyd Porter as liquidators of the Fourth Defendant on an indemnity basis because they actively defended the proceedings, raised grounds of opposition that dramatically changed over time and defended proceedings in a manner not to the benefit of the creditors of the Fourth Defendant (Plaintiff’s orders submissions [6]-[15]).

The Plaintiff submits order 3 as above is necessary to reflect the agreement between the parties and the terms of the relevant deed of settlement (Plaintiff’s orders submissions [16]).

The Fifth Defendant asserts he has a contractual right against the Fourth Defendant to be given a registered first mortgage over the Willows Golf Course (Fifth Defendant’s orders submissions [1]-[3]). He denies that the Heads of Agreement has been frustrated, as it is not pleaded, and the Fourth Defendant’s sale and transfer of the Willows Golf Course is a unilateral act that does not constitute frustration (Fifth Defendant’s orders submissions [4]).

In addition to seeking costs on an indemnity basis against the liquidators of the Fourth Defendant, the Fifth Defendant suggests Mr Vardy as liquidator of the Fourth Defendant has claimed excessive costs for compliance with a subpoena which should not be paid, and should simply be fixed by the registrar. He asserts although he issued the relevant subpoena, Mr Vardy’s costs should be paid by the First Defendant and out of the Fourth Defendant’s funds (Fifth Defendant’s orders submissions [5]-[17]).

The Fifth Defendant further asserts that in the general discretion of the Court, there should be a Bullock order or costs order against the First Defendant, ordering him to pay to the Fifth Defendant the costs ordered against the Fifth Defendant in relation to the hearing before Parker J in relation to the interest claimed in a caveat against both the Fourth Defendant and Willows Country Club Pty Ltd (Fifth Defendant’s orders submissions [18]-[40]).

The Fourth Defendant submits that the Willows Golf Club referred to in clause 4 of the Heads of Agreement has been sold prior to the company being placed in administration and liquidation, and that both the Plaintiff and Fifth Defendant were given notice of the liquidators’ intention to allow the transfer of the Willows Golf Club be processed by the Queensland Land Titles Office (submissions [1]-[7]). The Fourth Defendant submits its obligation to provide a mortgage over the Willows Golf Course has been frustrated, and both the Plaintiff and Fifth Defendant no longer make any monetary claim against the company (submissions [8]).

The Fourth Defendant contends costs should not follow the event, and the appropriate costs order would be that the Plaintiff pay the Fourth Defendant’s costs up to and including the costs of the hearing on 21 and 22 May 2018, and that after that date each party pay their own costs. It denies there ought to be any order that the Fourth Defendant pay the costs of the Fifth Defendant (submissions [9]-[12]).

The Fourth Defendant asserts the Fifth Defendant should be required to pay the liquidator’s costs of compliance with a subpoena totalling $10,560 as a lump sum (submissions [13]-[18]).

The Fourth Defendant states there is no possible ground for the liquidators to be personally liable for any costs order, let alone indemnity costs, as there was no element of unreasonable conduct on their part (submissions [19]-[28]).

The above discretion as to costs is relevantly provided by s 98 of the Civil Procedure Act 2005 (NSW):

Bullock v London General Omnibus Co [1907] 1 KB 264 is broadly speaking authority for the making of costs orders known as “Bullock Orders” in which courts exercise their costs discretion where it is just to do so to oust the general rule that a plaintiff who succeeds against one defendant but fails against the other must pay the costs of the successful defendant. The courts may order the unsuccessful defendant to reimburse the plaintiff for the costs of the successful defendant.

In Sze Tu v Lowe (No 2) [2015] NSWCA 91 Gleeson JA (with Meagher and Barrett JJA agreeing) said (at [55]-[58]) (citations omitted):

In Knight v FP Special Assets Ltd (1992) 174 CLR 178; [1992] HCA 28 Mason CJ and Deane J said (at 192-3) (citations omitted):

In PM Works Pty Ltd v Management Services Australia Pty Ltd trading as Peak Performance PM [2018] NSWCA 168 Leeming JA, with McColl and Basten JJA agreeing, said (at [35]):

In In the matter of J A Westaway Pty Ltd (in liq) [2016] NSWSC 868 Black J made a personal costs order against liquidators. In this case, the liquidators had attempted to hold a final meeting of members and creditors of the company in their control, which Black J held was unreasonable and premature. His Honour said (at [9]-[10]):

In this case, his Honour concluded (at [17]):

In my view both the Plaintiff and Fifth Defendant should get their costs on an indemnity basis with respect to the First Defendant.

This is because in my view the First Defendant had no reasonable basis for denying that the Heads of Agreement was not binding and raised unreasonable arguments which warrant indemnity costs. At trial I rejected in large part the First Defendant’s evidence, including his denial that he was not shown the trust account statement at the mediation. I also rejected his account of what happened at the mediation (principal judgment [272]-[274]). Indeed I was satisfied that at the mediation the First Defendant was acting as a “shadow director” of the Fourth Defendant, and attempted to utilise the Fourth Defendant to provide a safety net of security for himself (principal judgment [284]).

In my view the First Defendant’s submissions and denials were wholly unreasonable and I rejected his evidence almost in its entirety. He should be liable for an indemnity costs order with respect to the Plaintiff and the Fifth Defendant.

With respect to the liquidators of the Fourth Defendant in my view and in the exercise of my discretion both should be liable personally for the costs of the Plaintiff and the Fifth Defendant from the date of 7 September 2017 being the date in which the liquidators filed a Defence to the allegations of the parties.

It is uncontroversial that a liquidator of a company, once appointed, has an obligation to the company and its creditors not to engage in activity that is useless save for producing fees for the liquidators. The Fourth Defendant’s main if not only asset was the Willows Golf Course and this was sold for $1,000,000 on 16 June 2017 (principal judgment [52]) prior to the appointment of the liquidators (previously as administrators on 11 July 2017 and then as liquidators on 17 August 2017).

With the minimum amount of investigation that would be expected of liquidators it must have been immediately apparent to them that the Fourth Defendant had little to no assets, having sold its primary asset the Willows Golf Course. Indeed, on two occasions I was informed by solicitor and counsel for the Fourth Defendant on 14 June and 22 June 2018 that indeed the company had no money (T149/14-36, T165/25-40).

Consequently, in my view, the moment it was apparent to the liquidators of the Fourth Defendant that the company was now ostensibly a shell, the only reasonable course was to inform the Court that the company had no money and that the other parties in the litigation should be aware of this fact in formulating their respective forensic strategies, and in effect to proceed at their own risk and cost. The liquidators did not do that, but from 7 September 2017 proceeded to defend the case, advancing issues such as frustrated contracts, opposing an argument of “shadow director”, and suggesting that the Fourth Defendant was not a party and/or bound by the Heads of Agreement or mediation, indeed calling Ms Demetriou to give evidence in the trial. Legal representatives for the Fourth Defendant (be they Mr Prowse solicitor or Mr Johnson of counsel) actively participated in the defended hearing.

Furthermore, Ms Demetriou had indeed signed the mortgage over the Willows Golf Course referred to in clause 4 of the Heads of Agreement (principal judgment [39], [276]) and to this end it was always going to be a difficult case for the Fourth Defendant to run that it was not a party to the Heads of Agreement.

This active participation in the litigation offered nothing in terms of positive gains to the creditors of the Fourth Defendant, because whatever was going to be available to the creditors was not going to be increased as a result of the proceedings even if successfully defended. All that the liquidators could hope to achieve from a successful defence of the case was that there would be an order for costs in the Fourth Defendant’s favour.

I do not go so far as to say the conduct of the liquidators amounted to “churning and burning” or dishonesty, but their conduct in my view was wholly unreasonable. This is in my view a degree of unreasonableness in the liquidators’ conduct sufficient to support an order for costs from 7 September 2017 against the liquidators personally. It follows that this degree of unreasonableness likewise warrants indemnity costs, as in my view and in the exercise of my discretion indemnity costs is the appropriate order in all the circumstances.

It seems to me that, in the particular circumstances, it was unreasonable for the liquidators to contest the proceeds as the proceedings would not have benefited the company or its creditors. To suggest somehow the Fourth Defendant was appearing solely to “assist” the Court is entirely untenable given the adversarial nature of the company’s pleadings and its active defence and participation at the trial.

In ordering indemnity costs against the liquidators personally, I make it clear that the liquidators have no right to indemnify themselves from the assets (if any) of the Fourth Defendant.

As per his written submissions of 11 October 2018 the Fifth Defendant seeks a Bullock order for costs against the First Defendant as follows: “[o]rder that the costs payable by the First Defendant to the Fifth Defendant include the costs payable by the Fifth Defendant to the Fourth Defendant and to Willows Country Club Pty Limited pursuant to orders made by the Court on 20 October 2017”.

This relates to the Fifth Defendant’s costs resulting from his application by motion for a freezing order restraining the Fourth Defendant from taking any action to dispose of the Willows Golf Course on 4 July 2017, lodging a caveat on 19 July 2017, the hearing of the freezing order before Parker J on 30 August 2017 and the dismissal of the Fifth Defendant’s claim with costs of the Fourth Defendant and Willows Country Club on 12 September 2017 (Fifth Defendant’s orders submissions [27]).

In my view consistent with the authorities it was reasonable for the Fifth Defendant to have brought the above proceedings, and given the First Defendant’s conduct as a shadow director of the Fourth Defendant transferring the golf club land to the Willows Country Club, the First Defendant was indeed the motivating cause and driver of the proceedings. Moreover, in my view the First Defendant’s conduct was entirely designed to escape the effect of the binding Heads of Agreement of 28 October 2016 by transferring the golf club land out of the control of the Fourth Defendant, subverting and reneging on the agreement. The only immediately available step open to the Fifth Defendant to protect his right to a mortgage over the Willows Golf Course was to engage in the above proceedings. In my view it is only fair that the First Defendant’s attempt to subvert his prior agreement by selling the Willows Golf Course justifies the making of a Bullock order as sought by the Fifth Defendant.

Having carefully considered the materials available and including those provided as attached to the Fourth Defendant’s written submissions (T22/31-43), apart from the mere assertion that a number of work hours had to be undertaken in compliance with the Fifth Defendant’s subpoena, accompanied by a schedule, in my view there is not sufficient evidence provided on this issue. That is, there is not enough information before the Court as to the tasks taken and why the total of 19 hours of work and 10 hours of legal advice had to be undertaken by the liquidators of the Fourth Defendant to comply with the subpoena. This level of generality is unsatisfactory in the extreme, and without further expense being incurred it is impossible to determine what or was not reasonable in the circumstances, beyond simply letters documenting the various positions taken by the parties on this issue.

Ordinarily recipients of a subpoena are entitled to money for compliance with a subpoena to attend as conduct money (UCPR r 33.6(1)) and the Court may order costs for a subpoena for “any reasonable loss or expense incurred” (UCPR 33.11(1)).

Nothing short of an explanatory affidavit would suffice in my view given the state of the materials presently, as without further detail the Court is placed in a position that without further information it cannot do justice between the parties on this issue. On the basis of the evidence, I would reject the claim for costs by Mr Vardy entirely, but accept some work was necessary to respond to the subpoena. I would therefore grant leave to the Fourth Defendant and/or Mr Vardy to provide evidence within 7 days to provide precise details as to what was charged and what work was done in complying with the subpoena dated 16 April 2018. It is regrettable further expense has to be incurred, especially over an apparent issue that has been in dispute for some time.

I am inclined to make the following orders as provided by the Plaintiff and Fifth Defendant on 6 December 2018, with an amendment to order 1 reflecting the date which the order made on 26 October 2018 was amended to read “declared” instead of “declare”. There is also an amendment to order 5: