Ventura v Higgins

The applicants seek an order pursuant to s 135 of the Civil Procedure Act 2005 (NSW) and the inherent jurisdiction of the Court, that a judgment for costs against them in favour of the respondents be stayed until an order for costs that one of the applicants has obtained against the respondents is quantified by assessment.

Section 135 of the Civil Procedure Act relevantly provides:

The application was commenced by notice of motion filed in the District Court of New South Wales at Newcastle on 15 February 2018.

On 6 March 2018, Ashford DCJ granted a short stay of execution pending a full hearing of the motion. The hearing took place before Gibson DCJ, who published her reasons for judgment in Ventura v Higgins [2018] NSWDC 49 on 14 March 2018.

Her Honour made an order pursuant to ss 140 and 144 of the Civil Procedure Act that the proceedings be transferred to the Supreme Court Equity Division for hearing of the applicants' notice of motion. The stay made by Ashford DCJ was continued until further order.

With respect to Gibson DCJ, it is doubtful that it was necessary for the proceedings to be transferred to the Supreme Court, and it would be preferable if this course could be avoided wherever that outcome is possible. I will make some additional observations below on that matter, after I have dealt with the substance of the notice of motion.

The judgment as to which the applicants seek a stay of execution is a judgment entered on 19 October 2017 in the District Court in the sum of $538,311.43 (the costs judgment), and is a judgment that was entered upon the registration of a certificate of costs dated 18 October 2017 under s 71 of the Legal Profession Uniform Law Application Act 2014 (NSW), and Rule 36.10 of the Uniform Civil Procedure Rules 2005 (NSW).

The order for costs made in favour of the respondents that has given rise to the costs judgment was made in proceedings in this Court between the parties to the notice of motion, which were heard by Black J and were decided by judgment delivered on 27 August 2012: Barescape Pty Limited as trustee for The V's Family Trust & Anor v Bacchus Holdings Pty Limited as trustee for The Bacchus Holdings Trust & Anor (No 9) [2012] NSWSC 984.

The plaintiffs in those proceedings were the respondents to the notice of motion, Mr Anthony Ventura and Barescape Pty Limited as trustee for the V's Family Trust (Barescape). The defendants were the present applicants, Mr Matthew Gordon Higgins and Bacchus Holdings Pty Limited as trustee for The Bacchus Holdings Trust (Bacchus). In that matter, Bacchus filed a cross claim against the plaintiffs and another party. Mr Higgins was not a cross claimant.

The issues in the principal proceedings were complex and have been stated in the judgment of Black J. It is sufficient to note that the corporate parties entered into a partnership for the purpose of operating a restaurant and function centre in the Newcastle area called the Bacchus Restaurant.

It is significant for the present dispute to note that, at [2], Black J recorded that it was the corporate parties who were members of the partnership, and Mr Ventura and Mr Higgins were guarantors under the relevant partnership deed. In that sense, it was the corporate parties who were the principal protagonists in the proceedings.

The circumstance that lead to the primary dispute was Mr Ventura's involvement in the establishment and operation of a function centre called “Longworth House”, at a place that was in relatively close proximity to the Bacchus Restaurant. Longworth House was operated by a partnership that included the third defendant to the proceedings, which was the trustee of a trust that was associated with Mr Ventura and Barescape.

Longworth House operated to some extent in competition with the Bacchus Restaurant, and Mr Ventura's activities gave rise to complicated disputes concerning whether he and Barescape had breached the relevant partnership deed, and whether breaches of fiduciary duty had occurred. Bacchus, which held the majority interest in the partnership, summarily dismissed Mr Ventura as the general manager of the business. Under the partnership deed, for reasons that do not now require any detailed consideration, the partnership was terminated and Bacchus became obliged to acquire Barescape's interest in the partnership at a discounted value. A primary issue in the claim made by the present respondents was the quantification of the price that Bacchus was required to pay.

The primary issue on the cross claim filed by Bacchus was whether the present respondents were liable to Bacchus to pay compensation for breaches of fiduciary duty.

Black J summarised his findings at [283]. In short, he found that Bacchus was required to buy out Barescape's interest in the partnership at a value of $160,818, adjusted for a discount of 40% of goodwill. His Honour also found that Barescape's interest as shareholder in the third defendant and as a beneficiary of the trust of which the third defendant was trustee and Mr Ventura's involvement with Longworth House were breaches of fiduciary duty owed to Bacchus. Bacchus was entitled to recover equitable compensation and damages on a basis set out by his Honour.

The significance of this outline of the findings made by Black J is: (1) the circumstances in which Barescape became entitled to be paid for its share in the partnership were intimately connected with Bacchus' entitlement to a remedy for breach of fiduciary duty, because it was the breaches that lead to the termination which ended the partnership and triggered the obligation to pay Barescape for its share in the partnership; and (2) Black J hardly mentioned Mr Higgins during his judgment, except in his capacity as a principle of and witness for Bacchus. In so far as Black J ultimately entered judgment against Mr Higgins, it was to bind him as a guarantor of Bacchus' obligations.

It is also of some significance that the obligation of Bacchus and Mr Higgins to buy out Barescape’s interest in the partnership did not flow from any wrongdoing on their part. The essence of the dispute on the statement of claim filed by Mr Ventura and Barescape was a difference of opinion as to how the amount that was required to be paid by Bacchus under the partnership deed was to be quantified. Mr Ventura and Barescape were, on the other hand, found to have engaged in breaches of fiduciary duty owed to Bacchus.

Black J gave a further judgment in Barescape Pty Limited as trustee for The V's Family Trust & Anor v Bacchus Holdings Pty Ltd as trustee for The Bacchus Holdings Trust & Anor (No 10) [2012] NSWSC 1275.

One of the issues raised before Black J was a claim by the present applicants that their obligation to pay Barescape the discounted value of its interest in the partnership should be set-off against the amount of the judgment for Bacchus against Barescape and Mr Ventura, and whether there should be a further set-off of the amount payable by Bacchus to Barescape against the cost orders in the proceedings in favour of Bacchus: see [13].

Black J found, at [16], that there was no set-off in respect of the independent claim of Barescape against Mr Higgins under clause 20 of the partnership deed, which contained Mr Higgins' guarantee: see [16]-[17].

On the issue of whether Bacchus' obligation to pay the discounted value of Barescape’s interest in the partnership to Barescape should be set-off against Barescape’s and Mr Ventura’s obligations under the costs orders against them in the proceedings, Black J, at [18], referred to the judgment of White J (as his Honour then was) in Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd [2006] NSWSC 560; (2006) 58 ACSR 22 at [68]-[70]. As White J's observations are relevant to the determination of the present dispute, it will be convenient to set out [18]-[19] of Black J's judgment here:

Black J reached the following conclusion at [20]:

The fact that Black J declined to make orders for set-off as between the primary judgment in favour of Barescape for the discounted value of its interest in the partnership against costs orders made in favour of Bacchus does not necessarily mean that the Court should not grant the stay sought by the applicants on the present notice of motion, as the issues that arise in relation to the granting of stays in the context of costs orders for and against the parties to the proceedings raise different considerations. The present respondents did not make any submission to the contrary.

Black J delivered a separate judgment on the issue of costs on 19 November 2012, in Barescape Pty Limited as trustee for the V’s Family Trust & Anor v Bacchus Holdings Pty Limited as trustee for the Bacchus Holdings Trust & Anor (No 12) [2012] NSWSC 1591. His Honour made the following costs orders at [47]:

Black J made separate orders on the claim and the cross claim because those claims raised “essentially different issues” and the parties succeeded in the claims that they made: see [6]. His Honour reduced Bacchus’ costs of its cross claim by 20% because of his view that it had attempted to prove its loss “in a manner that was unduly complex and unduly time-consuming for the amount of the claim”: see [38]. Black J made order 3 because the applicants on the present motion had failed in their attempt to tender an expert report: see [44].

In my view, Black J’s decision that the statement of claim and the cross claim raised different issues for the purpose of determining whether separate costs orders should follow the event in respect of each claim does not exclude a finding by this Court that the two claims arose out of substantially the same circumstances, for the purposes of determining whether a stay of execution should be granted on the costs judgment.

It appears that, as the applicants put it in their written submissions, the "parties spent almost 3 years skirmishing in relation to costs of certain interlocutory applications", before the respondents commenced the formal assessment process in relation to the costs order made by Black J in their favour on the statement of claim. The rights and wrongs of that delay are beyond the Court's ken, and it is simply to be noted that both parties, for reasons of their own, delayed in the pursuit of the costs orders in their favour.

It is not necessary or appropriate for the Court to analyse in detail the process whereby the respondents obtained a certificate for the costs that Black J ordered the applicants to pay them. The respondents claimed an amount of $1,955,885.31 in their application dated 30 March 2016. Eventually, costs were assessed in their favour in the amount of $538,311.43 by assessment issued on 29 November 2016. That is a reduction of $1,417,573.88.

However, the applicants gave evidence that, when the costs assessor issued the certificate of determination of costs on 29 November 2016, he determined that the respondents were liable for the costs of the assessment in the amount of $12,962.59, and that the applicants were liable for $5555.55. The applicants paid their portion of the costs on 8 March 2017. The respondents did not pay their share until on or about 18 October 2017, when the certificate of determination was released. The respondents then registered the certificate of costs on 19 October 2017, and a judgment in their favour was issued by the District Court on 23 January 2018.

This history of the assessment process demonstrates considerable dilatoriness on the part of the respondents, whereby a period of almost one year slipped by as a result of the respondents not paying to the costs assessor his costs of $12,962.59.

The applicants say that they did not become aware of the cost judgment against them until January 2018, when Mr Ventura served on Mr Higgins a bankruptcy notice attaching the costs judgment.

That bankruptcy notice was dismissed by consent on the basis that it was defective in form. The Court was advised that the respondents have indicated expressly that they intend to serve a further bankruptcy notice in the correct form on Mr Higgins if the execution of the costs judgment is not stayed.

That is the practical issue at the heart of the present application. The respondents obtained a judgment on their statement of claim against Mr Higgins as well as Bacchus, as Mr Higgins was a guarantor of Bacchus' obligations under the partnership deed. Consequently, the respondents obtained an order for costs against Mr Higgins as well as against Bacchus. They now have the costs judgment against both applicants. Mr Higgins does not have an order for costs against the respondents. Accordingly, Mr Higgins does not personally have any entitlement that he can claim to set-off against the judgment against him. The practical effect may be that the respondents may be able to obtain a sequestration order against Mr Higgins, notwithstanding that they have not yet paid the costs that they have been ordered to pay to Bacchus, unless Mr Higgins pays the amount of the costs judgment to them.

That is the practical reason why the applicants have sought the stay of the costs judgment under the notice of motion that is presently before the Court.

The applicants acknowledged that Bacchus did not commence the assessment process in respect of the costs order in its favour until August 2017, although that was after considerable preparatory work had been done. The explanation that they gave for that circumstance was that the resources available to them were limited, the firm of solicitors that acts for the applicants is a small firm, and considerable time and effort was required for them to address the assessment of the costs that were to be paid to the respondents. In that process the applicants enjoyed considerable success, in that they achieved a reduction of $1,417,573.88 as mentioned above.

The applicants’ solicitor gave considerable evidence of the work necessary for the applicants to prepare their own application for the assessment of the costs ordered in favour of Bacchus. He said that the application comprised of a narrative (21 pages), the itemised bill (337 pages) and supporting material (3 volumes), consisting in total of 4 volumes of approximately 3000 pages. He said that the applicants were then required to respond to a considerable number of objections raised by the respondents and that the amended application comprised 5 volumes.

The applicants say that the amount claimed in respect of the costs order in favour of Bacchus outstrips the costs judgment in favour of the respondents by almost $1 million, being a claim for $1,571,184.60. The applicants concede that it is likely that the amount that is ultimately ordered to be paid as costs to Bacchus may well be substantially less than the amount of costs that has been claimed, but they say nonetheless, there are good prospects that the amount will exceed the $538,311.43 that they have been ordered to pay to the respondents.

It is important for the determination of the present dispute that the applicants have taken two steps in aid of their application for a stay of the costs judgment by way of protecting the position of the respondents.

First, the applicants have made an open offer to pay the full amount due under the costs judgment to the respondents, subject to adequate security being given over that sum to protect the applicants' position once the costs order in favour of Bacchus is quantified. The respondents have not responded to that offer. This, the applicants say, reinforces their fear that they may not be able to recover any amount paid under the costs judgment if, following the assessment of Bacchus' costs claim, a balance is payable in its favour.

Secondly, the applicants have caused the whole of the sum due under the costs judgment to be paid into a trust account held by their solicitors. They offer that, as a condition to the continuation of the stay, that sum will remain in the trust account pending quantification of the costs order in favour of Bacchus, and/or further order of the Court. They also proffer the usual undertaking as to damages, and accept that it should be a condition of the continuation of the stay that Bacchus prosecute its assessment of costs with all reasonable diligence.

As I have noted above, the applicants base their claim for a stay of execution of the costs judgment on s 135 of the Civil Procedure Act and the Court's inherent jurisdiction. They do not claim that Bacchus is entitled to an equitable set-off in respect of the costs orders in the strict sense. They recognised that Mr Higgins has no right of set-off.

The applicants rely upon the following statement of principle by the Court of Appeal in Wentworth v Wentworth [1996] NSWCA 553 (BC9600213 at 2-4):

The applicants also rely upon the observations by Barrett J (as his Honour then was) in Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 1106, where at [46], his Honour set out the observations by White J (as his Honour then was) in Australian Beverage Distributors Pty Ltd the Evans & Tate Premium Wines Pty Ltd [68]-[70] that I have set out above in the extract from Black J's judgment.

Finally, the applicants relied upon [49] of Barrett J’s judgment:

His Honour then at [50] extracted part of the judgment of the Court of Appeal that I have set out above.

See also O'Neill v Williams [2007] NSWSC 51 (Brereton J) at [15]; Australian Receivables Ltd V Tekitu Pty Ltd (Subject to Deed of Company Arrangement) (Deed Administrators Appointed) [2011] NSWSC 1425 (Ward J, as her Honour then was) at [97]; and Anthony Simon Bell v Rittal Pty Ltd [2013] NSWSC 398 (Hidden J) at [10]-[14].

The applicants submit that these principles are available to Mr Higgins even though he does not personally have a costs order against the respondents. That is so, they say, for two reasons. The first is that Bacchus does have a costs order against the respondents, and if those costs were paid by the respondents to Bacchus, it could use that money to reduce the amount that both Bacchus and Mr Higgins are required to pay to the respondents under the cost judgment. Mr Higgins as well as Bacchus would be pro tanto discharged as regards the amount payable under the costs judgment.

Secondly, Mr Higgins submits that the real protagonists in the primary proceedings were the respondents on the one hand and Bacchus on the other. Mr Ventura was a protagonist because it was his conduct that was the primary source of breaches of fiduciary duty. Mr Higgins was only ever a party as the guarantor of Bacchus' obligation under the partnership deed to pay the discounted value of Barescape's interest in the partnership.

As a matter of principle, I accept the applicants' submission. If, as the Court of Appeal has established in Wentworth v Wentworth: "The court's general control of its own processes must permit it both to prevent possible unfairness in the working out of payment of costs orders and in doing so balance as well as it can the possibilities in a case such as the present", then the mere fact that in this case no costs order was made in favour of Mr Higgins personally does not prevent the Court from ensuring that overall the conflicting costs orders operate fairly.

The only real questions in my view are, first, whether the delay on the part of Bacchus in formally commencing the assessment process for the costs order in its favour should disentitle both applicants to a stay of the costs judgment. Secondly, are there grounds for the Court to find that there would be unfairness if the respondents were able to force Mr Higgins to pay the amount of the costs judgment to them in order to avoid bankruptcy, so that the risk might arise that, when the amount of the costs payable by the respondents to Bacchus is finally determined, Bacchus will be unable to recover any balance payable to it?

As to the first of these matters, it appears that all parties have been dilatory in pursuing the assessment of the costs orders in their favour. The Court is not in a practical position to be able to determine reliably whether or not Bacchus was justified in concentrating on responding to the assessment of the costs payable to the respondents, before it formally commenced the process of the assessment of the costs payable to it. I think the applicants fairly acknowledged that, in hindsight Bacchus could have proceeded more expeditiously, which is no doubt true.

However, I am satisfied that the Court should be realistic and have some sympathy for parties to litigation who have to address what may be the enormous task of responding to an assessment process for costs where the amount involved is well into seven figures. A very great deal is at stake, and the issues that are involved in an assessment on a line by line basis may be as complex as any that must be addressed in ordinary litigation.

The respondents submitted that there is no evidence that they will not be able to repay any balance that may be found to be payable, after the completion of the assessment process in respect of the costs that they have been ordered to pay to Bacchus. That is true, in the sense that the evidence tendered by the applicants does not enable the Court to make a judgment on that issue. The respondents submit that the applicants should draw some comfort from the fact that Mr Ventura conducts a successful practice as a solicitor.

On the other hand, it is true that the respondents have not responded to the applicants' offer to pay the amount of the costs judgment to them, provided satisfactory security is offered to protect the applicants.

Having considered all of these issues I have come to the conclusion that it will be appropriate to grant a stay of the cost judgment on the following terms:

In respect of the costs of the notice of motion, the applicants have submitted that the Court should order the respondents to pay those costs. On the one hand, the applicants have substantially succeeded on their notice of motion. On the other hand, it was not unreasonable for the respondents to contest the granting of the relief sought. There is substance in the respondents' argument that Bacchus ought not to have delayed the commencement of the assessment process in relation to the costs order made in its favour. I have decided the matter on balance, and I take the view that the granting of the stay of judgment is in the circumstances an indulgence to the applicants.

I have decided that the fair order in respect of costs is that all parties should bear their own costs of the notice of motion, with the consequence that the Court will not make any order as to costs.

I said above that I would return to the issue of the transfer of the applicants' notice of motion from the District Court to this Court.

In a carefully reasoned judgment, Gibson DCA considered whether the District Court had jurisdiction to deal with the application for the stay of judgment that was before her in the following terms. First, she set out s 135 of the Civil Procedure Act at [15], and then said:

It therefore appears that, because the present applicants went further than to rely upon s 135 of the Civil Procedure Act, and also relied upon the "inherent jurisdiction", Gibson DCJ felt that the District Court was unable to proceed upon that basis. Also, her Honour felt that the District Court did not have jurisdiction because of the "equitable nature" of the relief claimed.

The ultimate result of this logic would be to require every application for a stay of judgment under s 135 of the Civil Procedure Act, where the cost certificate had been filed in the District Court, and accordingly a judgment issued by that Court, to be transferred into the Supreme Court to be dealt with, wherever the parties raised the Court’s “inherent jurisdiction”, or raised an argument based upon the availability of an “equitable set-off”.

The correctness of the decision by Gibson DCJ to transfer the application to the Supreme Court is not a matter that is now before this Court, and I am not called upon to decide that question. However, I would respectfully suggest that when the issue arises again it would be preferable for the Court that decides the issue to resist any application by the parties based upon a submission that it was necessary for the Court to transfer the application to the Supreme Court, because the Court lacked jurisdiction to decide the question. In my submission, s 135 of the Civil Procedure Act was intended to give the District Court all necessary powers to stay its own judgments. It is nothing to the point whether or not the District Court also has the power described by White J (as his Honour then was) in Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd as “the control a court exercises over its own proceedings”, because the power in s 135 is ample. Whatever the power of control is, it does not involve the exercise of equitable jurisdiction. Misplaced reliance by parties to the application on “equitable set-off” does not require the District Court automatically to transfer applications under s 135 of the Civil Procedure Act to the Supreme Court.