Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (in liq); Yazbek v Gleeson as Liquidator of Atlas Construction Group Pty Ltd (in liq); Fitz Jersey Pty Ltd v Gleeson as Liquidator of Atlas Construction Group Pty Ltd (in liq)

1. [1]

   I delivered my principal judgment in this matter on 22 December 2021. [1]

2. [2]

   I will use the same abbreviations here as in that judgment.

3. [3]

   I delivered a further judgment on 5 April 2022 dealing with the orders that should be made to give effect to my reasons of 22 December 2021. [2]

4. [4]

   I entered final orders in the 2017 Proceedings, the 2019 Proceedings and the 2020 Proceedings on 6 May 2022.

5. [5]

   I have now received submissions as to costs.

6. [6]

   As I set out in the 22 December 2021 judgment, I heard the 2017 Proceedings, the 2019 Proceedings and the 2020 Proceedings at the same time, with evidence in each proceeding being evidence in the other.

7. [7]

   The parties’ positions were articulated in pleadings in the 2017 Proceedings. There were no pleadings in the 2019 Proceedings or the 2020 Proceedings, those proceedings being appeals from the Liquidator’s admission of Fitz Jersey’s proof of debt in the winding up of Atlas. The only document filed in the 2019 and 2020 Proceedings was a Summons.

8. [8]

   Fitz Jersey’s Building Contract Claims were brought in the 2017 Proceedings but, in substance, were determinative of the 2019 Proceedings and the 2020 Proceedings. [3]

9. [9]

   Fitz Jersey achieved only moderate success in relation to its Building Contract Claims. It failed to establish the 2013 Agreement and, having originally claimed a far greater sum (the Directors contended it was in the order of $39.6 million), established an entitlement against Atlas of some $2.155 million.

10. [10]

    However, in relation to the Dividends Claim, the claim under s 37A of the Conveyancing Act 1919 (NSW), the claim for breach of directors’ duties, the claim alleging voidable transactions under the Corporations Act 2001 (Cth), the tracing claim and the claims concerning the Shareholders’ Loans, Fitz Jersey was successful and obtained judgment against the Directors and the other defendants.

The 2017 Proceedings

1. [11]

   Fitz Jersey accepts that the success it achieved in the 2017 Proceedings was principally in relation to the claims assigned to it by the Liquidators of Atlas which were only introduced into the 2017 Proceedings on 23 April 2020.

2. [12]

   Accordingly, Fitz Jersey accepts that any costs payable to it in respect of the 2017 Proceedings should not include costs incurred prior to 23 April 2020, other than the costs of, or incidental to, the Third Further Amended Summons and Second Further Amended Technology & Construction List Statement filed on 23 April 2020.

3. [13]

   On 15 December 2020 Fitz Jersey made an offer to each of the defendants purporting to be an offer of compromise under Uniform Civil Procedure Rules 2005 (NSW) r 20.26.

4. [14]

   Each offer was in the same form, although for different amounts, depending on the defendant to whom it was directed.

5. [15]

   Taking the offer made to Mr Yazbek as an example, the operative terms of the letter were as follows:

6. [16]

   The Directors submitted that these offers did not comply with UCPR r 20.26 because “each offer related to all three proceedings”. The Directors pointed to the words “and related proceedings” in the heading to the letter and to the words in the opening sentence “we refer to the above-named proceedings”.

7. [17]

   I do not think this is a fair way to read the letters.

8. [18]

   Taking the letter to Mr Yazbek as an example, the heading of the letter refers in terms to the 2017 Proceedings. It is true that the heading continues with the words “and related proceedings”. But the letter goes on to state that the “offer relates to the whole of our client’s claim against Mr Yazbek in the proceeding”. The “proceeding” there referred to must be the proceeding particularised in the heading: the 2017 Proceedings.

9. [19]

   It is thus clear from the terms of the letter that it is addressed to Mr Yazbek in his capacity as a defendant in the 2017 Proceedings. The same is true of the letters addressed to the other defendants.

10. [20]

    Next it was submitted that the aggregate of the various offers was some $40 million being “over four times the combined quantum of the dividend and value of the right-offs”.

11. [21]

    But on no reasonable reading of the letters could the defendants have concluded that Fitz Jersey was seeking that total sum from the defendants.

12. [22]

    As Fitz Jersey submitted in reply, its claim against the defendants was for the amount of the Dividends, plus damages associated with the Shareholder Loan write-offs. Fitz Jersey’s recoveries could never exceed those amounts, plus interest; as the defendants must have appreciated.

13. [23]

    As Fitz Jersey submitted:

14. [24]

    The defendants also submitted that the offers did not constitute a genuine compromise and “were made only to trigger r 42.14” and that the Court should “order ‘otherwise’” under UCPR r 42.14(2).

15. [25]

    A table, setting out the amounts offered by Fitz Jersey, compared to the result achieved by Fitz Jersey against each defendant (with interest calculated to the date of the offers, 15 December 2020), follows:

16. [26]

    The table demonstrates the amounts offered did involve significant compromise by Fitz Jersey.

17. [27]

    It is true that, ultimately, judgment was entered against Kebzay in favour of Atlas, rather than Fitz Jersey.

18. [28]

    UCPR r 42.14 applies:

19. [29]

    Here, the offer was made by Fitz Jersey. Fitz Jersey has not itself obtained an order or judgment no less favourable than the terms of the offer. But has obtained an order in favour of Atlas.

20. [30]

    As I set out in my 5 April 2022 judgment, [4] by reason of the terms of the Deed of Assignment between the Liquidator and Fitz Jersey, regardless of whether recovery is made by Atlas or Fitz Jersey, the monies recovered are to be used essentially in the same way. I think Fitz Jersey was correct to submit that the order obtained by Fitz Jersey against Kebzay in favour of Atlas was just as favourable to Fitz Jersey as if Kebzay had been ordered to pay the relevant sum to Fitz Jersey instead of Atlas. Thus, in substance, Fitz Jersey has obtained an order or judgment, albeit not in its favour, no less favourable than the terms of the offer.

21. [31]

    The 15 December 2020 letters were, in the alternative, expressed to be Calderbank offers.

22. [32]

    It is common ground that the question that arises is whether it was unreasonable for the defendants not to accept the offers. [5]

23. [33]

    The table above demonstrates that the offers were genuine compromises.

24. [34]

    The letters also outlined, albeit briefly, the basis on which Fitz Jersey predicted it would succeed.

25. [35]

    Thus, the letter to Mr Yazbek stated:

26. [36]

    The letter to 620 Botany Road stated:

27. [37]

    Letters to the same effect, with details changed appropriately, were sent to each of the other defendants.

28. [38]

    I have, largely, made findings to the same effect as the contentions in these letters. As Fitz Jersey points out, I have found that the Directors paid the dividends with an intention to defraud Fitz Jersey. The Directors must have known their own states of mind and, notwithstanding the complexity of many of the issues in the proceedings, must have appreciated that they had significant difficulty in this litigation.

29. [39]

    On behalf of the defendants, it was submitted that the offers were made “less than two weeks before Christmas” and at a time when their attention was directed to preparation of the evidence. Thus, it was submitted that:

30. [40]

    There are a number of difficulties with that submission. The first is that it is not supported by any evidence to which my attention has been directed. The second is that if the defendants’ position was as set out in that submission, there is no reason why they could not have sought further time to consider the offers. [6] They did not do so.

31. [41]

    I am persuaded it was unreasonable of the defendants not to accept the offers.

32. [42]

    Overall, my conclusion is that offers made by Fitz Jersey on 15 December 2020 entitle it to indemnity costs from 16 December 2020.

33. [43]

    As I have set out above, the Building Contract Claims were a discrete part of Fitz Jersey’s claim. They were, however, a necessary integer of a number of claims made by Fitz Jersey against the Directors, including that Fitz Jersey was a creditor of Atlas at the time that the Dividend Payments were made.

34. [44]

    The outcome of these claims had obvious implications for the 2019 Proceedings and the 2020 Proceedings. Fitz Jersey achieved only partial success in relation to these claims and, in particular, failed to establish the existence of the 2013 Agreement; the determination of which occupied a considerable amount of hearing time and a considerable portion of the 22 December 2021 judgment.

35. [45]

    Fitz Jersey’s senior counsel emphasised the significance of the 2013 Agreement during his opening as follows:

36. [46]

    I emphasised the significance of the alleged 2013 Agreement in relation to Fitz Jersey’s Dividends Claim in the 22 December 2021 judgment as follows:

37. [47]

    Leaving aside the 2013 Agreement, Fitz Jersey was unsuccessful in relation to a number of other aspects of the Building Contract Claims, including claims premised on the allegation that work on Separable Portion 1 commenced at the same time as Separable Portion 2.

38. [48]

    On behalf of Fitz Jersey it was submitted that the Directors’ success on these issues was “catered for” by an appropriate costs order in the 2019 Proceedings. However, as I have said, the Building Contract Claims were made in the 2017 Proceedings, and not in the 2019 Proceedings.

39. [49]

    I am persuaded that Fitz Jersey’s lack of success in relation to the Building Contract Claims should be reflected in the overall costs order it obtains against the defendant.

40. [50]

    An evaluative decision is called for which is not susceptible to precise mathematical analysis.

41. [51]

    Overall, to reflect Fitz Jersey’s success in relation to the Dividends Claim and Shareholders’ Loans claims as well as its lack of success in relation to the Building Contract Claims, I have concluded that the appropriate order is that the defendants pay 80% of Fitz Jersey’s costs of the 2017 Proceedings.

42. [52]

    The Directors submitted that Fitz Jersey’s entitlements under the Deed of Assignment with the Liquidator was somehow relevant to the costs order that I should make in the 2017 Proceedings because Fitz Jersey “will likely recover all of its legal fees under the Deed of Assignment”.

43. [53]

    I cannot see why Fitz Jersey can be deprived of its costs on the basis that the Deed of Assignment provides such an indemnity.

44. [54]

    The defendants submitted that any order for costs should be “apportioned between the Defendants based on the proportion of the claim that was brought against each of them in the context of the proceedings as a whole”.

45. [55]

    The defendants did not develop that submission. The general rule is that if a plaintiff succeeds against a number of defendants, an order that costs follow the event means that the plaintiff has its costs against all defendants. [7] Here the defendants did not seek to conduct separate or distinct defences. As I observed in the 22 December 2021 judgment, “although there are nine active defendants to Fitz Jersey’s claims, their defence was in substance advanced by Mr Yazbek and Mr Sweeney”. [8]

46. [56]

    Thus, the defendants acted as a whole and advanced their unsuccessful defences together through the Directors. In these circumstances, I see no basis upon which to make the apportionment sought.

47. [57]

    For those reasons I make the following orders in the 2017 Proceedings:

    1. (1)

       The Second to Tenth Defendants are to pay 80% of the Plaintiffs’ costs of the proceedings on the ordinary basis up to and including 15 December 2020, and on an indemnity basis from 16 December 2020.

    2. (2)

       The costs payable under the preceding order are not to include any costs prior to 23 April 2020, other than costs of or incidental to the Third Further Amended Summons and the Second Further Amended Technology & Construction List Statement filed on 23 April 2020.

The 2019 Proceedings

1. [58]

   These proceedings comprise Mr Yazbek’s and Mr Sweeney’s appeal against the admission by the Liquidator of Fitz Jersey’s proof of debt in the winding up of Atlas.

2. [59]

   The Liquidator admitted Fitz Jersey’s claim for some $12.5 million.

3. [60]

   I have ordered that Fitz Jersey’s Notice of Admission of Proof of Debt and Notice of Rejection of Formal Proof of Debt or Claim be set aside and that Fitz Jersey’s Formal Proof of Debt be admitted in the sum of some $2.1 million.

4. [61]

   In those circumstances, Fitz Jersey proposed that I should order that it pay 60% of the plaintiffs’ costs of the 2019 Proceedings.

5. [62]

   However, as Fitz Jersey accepted, “on a monetary basis” the Directors and Shareholders prevailed for about 80% for the amount of the disputed proof of debt, while Fitz Jersey prevailed for about 20%”.

6. [63]

   In those circumstances, I make the following order in the 2019 Proceedings:

   1. (1)

      The Second Defendant is to pay 80% of the Plaintiffs’ costs of the proceedings.

The 2020 Proceedings

1. [64]

   Fitz Jersey accepts that in these proceedings I should order:

   1. (1)

      The Plaintiff is to pay the Second and Third Defendants’ costs of the proceedings.