Minh Tan Tran v Nicols (Costs)

These reasons relate to the question of costs of proceedings in which the applicants failed in their application that the liquidator should be removed: Minh Tan Tran v Nicols [2015] NSWSC 1635.

When the Judgment was delivered on 5 November 2015 the parties were advised that if they were unable to agree on a costs order, they could file written submissions by no later than 13 November 2015 and the question of costs would be dealt with on the papers (J [61]). The parties had some discussions and written communications but failed to reach agreement. They each filed written submissions on 13 November 2015.

The applicants contend that because the liquidator is guilty of disentitling conduct, it is appropriate to depart from the usual order that costs follow the event. The liquidator seeks an order that the applicants pay his costs on an indemnity basis for the whole of the proceedings or from the date of the expiry of an offer in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333.

The applicants commenced the proceedings by Interlocutory Process on 26 August 2015. On 28 September 2015 the application was set down for hearing on 28 and 29 October 2015.

On 13 October 2015 at 5.06pm the applicants’ solicitors (Somerset Ryckmans (Ryckmans)) wrote to the liquidator’s solicitors (Swaab) referring to a telephone conference that afternoon. That communication included the following:

On 13 October 2015 at 11.24 pm Swaab wrote to Ryckmans expressing the view that it was inevitable that the application would fail and that the applicants would be liable for costs. Swaab referred to Brereton J’s decision in In the matter of St Gregory’s Armenian School (in liq) [2012] NSWSC 1215 and contended that there was no basis for the liquidator’s removal. Swaab’s letter included the following:

Swaab also advised that this offer would remain open until the time that had been nominated by Ryckmans, being 12.00 pm on 14 October 2015. Swaab’s letter stated that the offer was made pursuant to the principles of Calderbank v Calderbank and that if it was not accepted and a result no better than the offer was achieved at final hearing, application would be made that the costs for the period after the expiry of the offer be paid on an indemnity basis.

On 14 October 2015 there was communication between the solicitors in respect of the quantum of the costs that had been incurred. Swaab advised that the “ball-park” amount was “about $58,000”. Swaab clarified that the 80% was of the assessed costs and did not preclude an agreement being reached on quantum.

On 14 October 2015 Ryckmans wrote to Swaab in terms that included the following:

That offer was rejected by email on 14 October 2015. Swaab noted that if the applicants were to lose the application costs would follow the event and a 20% discount was a “significant concession” on the liquidator’s part.

On 10 November 2015 Swaab wrote to Ryckmans suggesting that the liquidator should “at least” obtain an order for costs “as agreed or assessed”. However they then recounted some of the events and exchanges at trial with the suggestion that there was a very real prospect that the liquidator would obtain an indemnity costs order in respect of the entire proceedings. Alternatively Swaab claimed that the applicants had obtained a result no better than the offer made by the liquidator on 13 October 2015 and the appropriate order was that the applicants pay the liquidator’s costs on an indemnity basis from 14 October 2015. Swaab’s letter included the following:

On 10 November 2015 Ryckmans responded by email advising that the “offer” had been rejected. That communication included the following:

The applicants’ submissions may be summarised as follows:

The liquidator’s submissions may be summarised as follows:

The applicable principles are not in issue. The Court is to order that costs follow the event unless it appears that some other order should be made as to the whole or any part of the costs: Rule 42.1 Uniform Civil Procedure Rules 2005. The court has a wide discretion in determining by whom and on what basis the costs of the proceedings are to be paid: s 98 Civil Procedure Act 2005.

The liquidator pointed to the five bases of complaint originally identified by the applicants in communications with the liquidator being: (1) the liquidator’s pursuit of Assets’ debtors; (2) not passing to the applicants funds received by T&T; (3) banking the DCN cheque; (4) an alleged failure by the liquidator to complete settlement of the previous proceedings; and (5) repossession of two motor vehicles. Complaints (1), (2) and (3) were not pressed at trial.

Notwithstanding the abandonment of these claims, the liquidator had to prepare to meet these allegations in the context of an application for his removal. This is a matter to be taken into account in determining the appropriate costs order to be made.

In the applicants’ Outline of Submissions dated 19 October 2015 served prior to the hearing, the following claim was made:

In opening the applicants’ case at the hearing Mr Rosenblatt said (tr 3):

There was no evidence called in chief or elicited in cross-examination that would establish any basis to conclude that the liquidator was biased or that his conduct would give rise to an apprehension of bias. This claim should never have been made.

The “grab bag” of claims made by the applicants included an extraordinary allegation of laziness that was totally misconceived. The liquidator was required to instruct solicitors and deal with the previous proceedings which have been found to have been settled in a prompt and appropriate manner (J [47], [59]). Far from being lazy, the liquidator applied himself diligently and professionally both to the liquidation and to the proceedings that were brought against him. His pragmatism and good commercial judgment was demonstrated in the settlement that he achieved in those earlier proceedings. The claim of laziness should never have been made.

It is appropriate to consider whether the liquidator invited or precipitated the litigation: Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256 at [97]-[98]; Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194. Indeed the applicants claimed that they were compelled to commence the proceedings by reason of the liquidator’s conduct that was the subject of the earlier proceedings.

The earlier proceedings were settled and final orders were made within a month of the commencement. Although the applicants agreed to pay their own costs of those proceedings, the motor vehicles were reinstated on a conditional basis and the proceeds of the DCN cheque were paid over to Aust, also on a conditional basis.

The applicants had a choice whether to commence the proceedings seeking the liquidator’s removal. In making that choice they are taken to have been aware of the relevant principles applicable to such an application. The prompt manner in which the liquidator settled the earlier proceedings could not be characterised as an invitation to the applicants to seek his removal. I would have thought that his conduct should have persuaded the applicants to leave the liquidator to do his best in circumstances made more difficult by them where: the books and records were in disarray; there was little or no cooperation from the applicants in respect of T&T’s operation; there was an allegation that T&T had ceased trading in mid-2014 when clearly the records suggested otherwise; and money and assets had been removed from T&T days and weeks before the appointment of the liquidator and after the applicants had notice of the application for the winding up of T&T.

There was nothing in the liquidator’s conduct that forced or compelled the applicants to commence the proceedings. I am not satisfied that the liquidator’s conduct the subject of the earlier proceedings or the settlement of those proceedings invited the commencement of the present proceedings.

The suggestion by the applicants that there was a public interest in commencing the proceedings so that the liquidator’s conduct could be scrutinised by this Court is also without foundation. There was plenty of opportunity for this Court to scrutinise the liquidator’s conduct in the earlier proceedings. The applicants chose to settle those proceedings.

The applicants contended in their written submissions that although the liquidator’s conduct in respect of the DCN cheque did not amount to conversion, it is nevertheless “enough to constitute disentitling conduct on costs” (par [18]).

The conduct relied upon in this regard was the fact that the liquidator retained the proceeds of the DCN cheque “for a period of nearly one month in the face of increasing evidence that the proceeds did not belong” to T&T (par [17]). The so-called “increasing evidence” was information that was drip fed to the liquidator over a period of weeks culminating in an unsworn affidavit by an officer of DCN who would (if the affidavit was sworn or affirmed) give evidence that he made a mistake in writing T&T’s name on the cheque as the payee.

Although it is unclear from the applicants’ submissions, I will assume that they also rely upon the liquidator’s conduct in seizing the vehicles without notice as disentitling conduct. The applicants’ submissions included the statement that “the evidence may not have been sufficient” to establish trespass. There should be no tentative approach to this. The evidence did not establish trespass. The applicants sought to characterise two passages of the Judgment as a criticism of the liquidator’s conduct that would disentitle him to his costs of the proceedings. The first passage was as follows (J [47]):

The observation in that paragraph was of course made with the luxury of “reflection”. It was a suggested “better course” that may have avoided litigation. On the other hand it may well not have avoided the litigation having regard to the rather robust (and rather misconceived) claims made in these proceedings. It is not an observation that should be read as a criticism amounting to disentitling conduct. Indeed the liquidator exposed the reality of the situation in his cross-examination when he was asked whether he thought about making a court application in respect of the vehicles. He said (tr 82-83):

Obviously the Court expects the liquidator to make the commercial decisions in the liquidation and pursue the interests of the company vigorously: In the matter of St Gregory’s Armenian School (in liq) at [32]. Some of the judgment calls may be urgent and it is possible that a mistake might be made. Indeed the applicants relied on the following passage of the Judgment in this regard (J 55]):

Having regard to the manner in which the applicants conducted the proceedings it was not necessary to decide whether the liquidator was in fact mistaken. This was an assumption. The fact that the assumption was made is not a basis for concluding that there was disentitling conduct.

The applicants have failed to establish that there is any basis for departing from the usual order that costs follow the event. The applicants should pay the liquidator’s costs of the proceedings. The next question is whether any or all of those costs should be paid on an indemnity basis.

The first question for determination is whether indemnity costs should be awarded in line with what Woodward J said in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 as follows:

The second question to be determined (if the liquidator fails in respect of the first question) is whether indemnity costs should be awarded from 14 October 2015 when the liquidator’s Calderbank offer was rejected.

The liquidator was facing serious allegations that were ultimately not proved. The two main matters upon which the applicants pursued the liquidator were the alleged trespass and conversion of the cheque.

Notwithstanding the applicants’ claim that Aust was entitled to the monies that were paid by DCN to T&T, there was no proper basis to make a claim that the liquidator had converted the cheque. The cheque was clearly made payable to T&T and the liquidator was entitled to bank it. The fact that there were other matters that were raised over time with the liquidator such as the contractor making a mistake in identifying the payee of the cheque bears no relationship to a case in conversion in respect of the cheque. The applicants claim in this regard was hopeless and should not have been pursued.

The applicants failed to call evidence to establish that the liquidator or those at his direction had entered their property without their authority so as to establish a trespass. It was clear that Mr Rosenblatt was claiming prior to the hearing of the matter that the liquidator had taken the vehicle from the applicants’ “residential driveway”. However this was not established on the evidence. It was necessary for the applicants to establish: the precise location of the motor vehicle that was repossessed; that this location was in fact on their private property; and that the liquidator and/or those at his direction had in fact entered their private property without authority.

There is a difference between the trespass case and the conversion case. The latter was hopeless and should not have been brought. The former suffered the evidentiary problems to which I have referred.

The liquidator should not have been required to meet the case brought by the applicants in conversion. He should not have been required to meet the “grab bag” of claims that he was lazy and/or possibly biased in some way.

The liquidator was met with conduct that was highly suspicious in which $110,000 had been transferred out of the T&T account just two weeks prior to his appointment, and only two days prior to his appointment the registration of eleven cars had been transferred to an associated company. Even if the applicants had established that the liquidator entered the property without authority it would have been necessary to decide whether it was in the interests of the liquidation that the liquidator should be removed. It should not be thought that this Court would endorse liquidators trespassing onto private property. However if there were an inadvertent trespass it would be a relevant matter to take into account in such an application. As was recounted in the Judgment there was no detailed cross-examination of the liquidator about this very matter. The only question that was asked was whether the vehicle was in the driveway to which the liquidator responded that he did not know (J [48]).

Had the plaintiff pursued the only aspect of the case that might possibly have had some prospect of success if the evidence had been called, I am satisfied that the case would have finished in one day rather than two. It is not possible to make a precise assessment of the amount of time that was spent on the trespass case. However I am satisfied that a fair assessment of the time in preparation and hearing is 35% of the total.

I am satisfied in all the circumstances that the applicants should pay the liquidator’s costs of the proceedings. I am also satisfied that the applicants should pay 65% of the liquidator’s costs on an indemnity basis.

In those circumstances it is not necessary to deal with the second question.

I order that: