MacKenzie v Ibrahim

1. [1]

   The plaintiff/cross-defendants move orally for orders for costs against the defendants/cross-claimants in these proceedings. The plaintiff/cross-defendants were from time to time called in these proceedings "the MacKenzie parties" and will be so described in these reasons. They seek orders that:

2. [2]

   If they are successful the MacKenzie parties also seek their costs of the present argument concerning costs. The defendants/cross-claimants contest both claims for costs. The defendants/cross-claimants were called in these proceedings "the Ibrahim parties" and will be so described in this judgment.

3. [3]

   These proceedings were heard before me late in 2014. The parties applied for a series of amendments to the pleadings and advanced supplementary submissions after the trial and through the first half of 2015. After these steps the Court reserved judgment on 1 August 2015.

4. [4]

   The Court was told on or about 18 September 2015 that the proceedings were likely to settle. The MacKenzie parties’ application for costs relates to a period of five months after judgment was reserved: the period from 18 September 2015 up to 23 February 2016. On 23 February the parties by agreement dismissed the claims and the cross-claims but they reserved their rights to argue about costs in the September 2015 to February 2016 period. The proceedings continued in a reduced form. Their continuation has now become the subject of the present costs contest.

5. [5]

   Notwithstanding that no substantive relief has been given in respect of the conduct of the parties in this five month period, provided there was some relief claimed in the proceedings during the period, the Court has well accepted jurisdiction to make an order for costs. This arises from the decision of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 (“Lai Qin”) at 264 – 265, McHugh J said:

6. [6]

   The MacKenzie parties put their claim for costs for this period on two grounds: (1) the unreasonable conduct of the Ibrahim parties during the period; and (2) a Calderbank letter they served on 28 September 2015.

7. [7]

   Despite early indications that the Ibrahim parties may seek to claim the costs of the whole of the proceedings from the MacKenzie parties, what remains on the Ibrahim side is only a claim for their costs of this costs argument, if they were to be successful.

8. [8]

   Some further background is required in a high level summary of issues in what was a complex case. The MacKenzie parties commenced the action seeking to recover a sum of about $6.25 million from the Ibrahim parties in respect of their joint venture in a property development known as “Tatton Park” in the Southern Highlands of this State.

9. [9]

   The National Australia Bank (NAB) had advanced the $6.25 million sum and other monies as a loan to Tatton Park St Henri Pty Ltd, the trustee company responsible for the Tatton Park property development.

10. [10]

    Partly as a result of the onset of the global financial crisis the sales of the completed development stalled and the joint venture defaulted to the NAB, which in turn called up its guarantees from the MacKenzie parties and the Ibrahim parties. The MacKenzie parties paid out the NAB, which assigned to the MacKenzie parties all its right, title and interest in the guarantees that had been provided by the Ibrahim parties to the NAB. The MacKenzie parties then gave notice to the Ibrahim parties calling up payment on those guarantees. The Ibrahim parties declined to pay, denying liability for reasons that became the subject of contest in the proceedings. Whether or not there was liability to pay remains unresolved, because the parties settled the proceedings.

11. [11]

    The Ibrahim parties, lodged a cross-claim against Mr MacKenzie and his wife, and against the corporate trustee, Tatton Park, on the basis that tthe MacKenzie parties had mismanaged the joint venture and because the MacKenzie parties had allegedly breached the Tatton Park joint venture agreement.

12. [12]

    Due to changes in real estate market conditions in Australia, at about the time the Court reserved judgment, sales in the Tatton Park development suddenly surged. The evidence suggests that in excess of $12 million in sales of the joint venture properties was effected in a short period of time during late 2014 and up to mid-2015.

13. [13]

    Those sales present a contrasting picture to the one of many unsold lots described at the hearing in 2014. These sales meant finally that there was sufficient money available to meet the external obligations of the joint venture. The need for the continuation of the contest between the parties dissolved. The parties were ultimately able to mutually dismiss the claim and the cross-claim in February 2016.

14. [14]

    When the main hearing finished in 2014, the Court was informed that sales at Tatton Park were starting to pick up. For that reason the Court made orders for the continuing disclosure of sales information between the parties. The Court’s intent was to keep both parties informed about what was happening in relation to these sales, to reduce later accounting arguments.

15. [15]

    The Court made orders to this effect on 10 December 2014 for the MacKenzie parties from time to time: to provide evidence of further sales of townhouses and villas; to supply up-to-date management accounts to 21 January 2015; and to inform the Ibrahim parties of any amended quantum of the claim that resulted from sales. It was obviously necessary for the Ibrahim parties and the Court to understand how the quantum of the claim would be amended as a result of continuing sales.

16. [16]

    On 31 August 2015 the Court also directed the MacKenzie parties to notify the Ibrahim parties of all further sales that had taken place and ordered that the parties agree upon a statement of facts concerning such sales within a limited period. The Court's intent from these further orders should have been evident to both parties: the parties should co-operate in supplying information to one another about the continuing sales with a view to reducing future accounting contests.

17. [17]

    The Ibrahim parties’ cross-claim in prayer for relief 6A had sought an account on their behalf against the MacKenzie parties in respect of the administration of the trust. But on 30 November 2014 during the hearing, Mr Fernon on behalf of the Ibrahim parties indicated to the Court that this prayer for relief was no longer being pressed.

18. [18]

    In this costs argument, Mr Oliver points to this statement to found his contention that the Ibrahim parties were no longer seeking an account and cannot now be entitled to the costs associated with such relief. He submits there was no formal claim by the Ibrahim parties for an account or for information from the trust and that there was therefore no basis for the MacKenzie parties to be required to do anything after the Court was told on 18 September 2015 that the proceedings were going to be resolved by the dismissal of the claim and the cross-claim.

19. [19]

    I do not agree with this submission. There were orders in place from the Court after 18 September 2015 for the continued supply of information, so that the joint venture accounts could be completed. The Court’s orders on 31 August 2015 served the objective that the parties understand what sales had occurred, and to assist them in endeavouring to agree upon the quantum of the claim.

20. [20]

    To the extent that Mr Fernon had indicated on 30 November 2014 during the hearing that he was abandoning the claim for an account, the Court's own subsequent orders considerably abrogated that position. Given the changed framework of the issues between the parties the Court’s orders meant that the MacKenzie parties were to continue to supply information to the Ibrahim parties through September 2015 to February 2016, so that the Ibrahim parties could have a final accounting of the Tatton Park joint venture.

21. [21]

    I therefore decline to uphold the MacKenzie parties' first argument that there was no basis for any of the costs now claimed to be incurred.

22. [22]

    But the matter is more complicated than this. So the Court must go through a more detailed chronology. The chronology is by no means complete. The Court is endeavouring this afternoon after hearing the argument of counsel, to give an oral judgment in these proceedings. This case should be resolved today. This was a large development, undertaken over many years and through the global financial crisis. There have been in recent years $12 million in sales. All we are left with now is an argument about $55,000 in costs incurred for five months between September 2015 and February 2016. The case should not go on any longer.

23. [23]

    In these five months the Ibrahim parties as beneficiaries were seeking information about the trust administration and recent sales from the MacKenzie parties. The Ibrahim parties say that they were not given proper information. The MacKenzie parties say that the Ibrahim parties were given everything during this period. The Ibrahim parties complained that they did not get the material in a form which they could really understand. The MacKenzie parties ultimately gave a very refined set of documents to the Ibrahim parties. Once the accountants had conferred about these refined documents the problem went away.

24. [24]

    The relevant law is set out in Lai Qin. It requires the Court either: (1) to determine that one or other party would definitely have been successful in a contest about whether or not there was an entitlement to all of the documents which were sought during this period, or if that cannot be done (which in my view, was the case here) the Court can decide on the alternative Lai Qin basis; (2) whether or not one or other party behaved so unreasonably in the circumstances that that party should pay the costs of the other party incurred during the period. In that context the Court has to analyse the relevant history.

25. [25]

    The chronology starts in June 2013, when Mr Dowling, who was then the solicitor for the MacKenzie parties, provided O'Neill McDonald, the solicitors for the Ibrahim parties, with copies of amended accounts of the trustee for the Tatton Park joint venture’s 2010, 2011, 2012 financial years and interim draft accounts for the 2013 financial year.

26. [26]

    The letter sent on that occasion made clear to the solicitors for the Ibrahim parties that Mr Duff, the accountant for the trust, was available for personal interview or telephone conference or by email, to explain the preparation and presentation of the accounts being provided. It is evident from the documentary history in this matter that offers were made on many occasions by the MacKenzie parties to the Ibrahim parties to approach Mr Duff for interview or explanation of the accounts of the trust or to inspect any original or primary documents in his possession concerning the trust’s accounting. For example, such offers were made again before the hearing of the proceedings started, on 27 March 2014 and 15 May 2014. The offers were made again on other occasions that need not be detailed - except one more to which I will come. But it is sufficiently clear from this material that the Ibrahim parties should have regarded this as an open offer for their own accountant, Mr Mandelson, to go and speak to Mr Duff, the accountant for the trust.

27. [27]

    What I saw of and heard from Mr Mandelson in the witness box indicates that he and Mr Duff seem to be thoroughly professional accountants. Their correspondence indicates that they both well understood their professional business. They ought to have been able to sort disagreements out with the co-operation and direction of the lawyers involved, when armed with what they wanted to see. Regrettably that did not occur.

28. [28]

    The proceedings started in November 2014. As I indicated earlier, prayer 6A of the cross-claim was abandoned, but only ultimately with the limited effect already described.

29. [29]

    On 27 July 2015 in an email from the solicitors for the Ibrahim parties to Mr Duff, O'Neill McDonald indicated that they were aware of the "standing authority to speak with you [Mr Duff] from Mr Dowling and now Ms Campbell about this matter". That email was a correct interpretation, in my view, of the previous correspondence. There was a standing authority for that engagement to occur in relation to all the accounts. One of the mysteries of this case is why that offer was not taken up in a timely and thorough way.

30. [30]

    Mr O'Neill had queries about the payment of monies from the trust which must be regarded as genuine; they were concerns shared by Mr Mandelson. The queries related for example to why trust money was being paid to Mr MacKenzie's superannuation fund. This required some investigation in order to bring the parties issues about the joint venture in the proceedings to finality.

31. [31]

    The Court reserved judgment on 1 August 2015. Then 18 September 2015 was the critical date when the parties informed the Court that it was probable that because of the sales that had occurred the trust’s indebtedness would be fully discharged and there may not need to be a judgment.

32. [32]

    About that day, indeed on 17 September 2015 at 6.26pm, Mr McDonald sent an email to Ms Campbell (who was acting for the MacKenzie parties) which said:

33. [33]

    It was evident from this email that Mr McDonald wanted Mr Mandelson to review the trust records. Ms Campbell replied about 10 days later on 28 September 2015, in which she said:

34. [34]

    Ms Campbell gave an explanation about the state of the accounts. Then she reiterated that the trustee of the Tatton Park trust had instructed Mr Duff to make available for inspection by 18 October 2015 all of the documents that had been sought in the email. One of the mysteries of this case is why that was not immediately taken up. It was not until November 2015 that an inspection ultimately occurred.

35. [35]

    The Ibrahim parties say that the accounts were incomplete. But in my view, addressing this issue in a timely fashion would have meant that the inspection would take place well before the matter came back to Court. The first inspection did not take place until 18 November 2015. The matter came back to Court on 19 November. There was another inspection on 26 November.

36. [36]

    The next relevant event occurred on 10 November 2015. Mr McDonald notified Ms Campbell that day that he wanted access to a list of identified financial records:

37. [37]

    The Ibrahim parties inspected documents that Mr Duff held on 18 November 2015 and then again on 26 November 2015 after the Court's hearing on 19 November. On 18 November 2015 Mr Mandelson gave a list of what he said was missing after his inspection that day in an email:

38. [38]

    He complained that he did not have the 2012 or 2013 financial records. He complained that he did not have records other than for the period from 24 December 2014 to 23 June 2015. But what emerged in cross-examination is that Mr McDonald had already been forwarded these financial records. No doubt the Ibrahim parties were well aware through Mr McDonald of these earlier financial records having been supplied to them. And the Ibrahim parties had bank statements for periods in 2013.

39. [39]

    It was quite evident from his cross-examination that before he went to see Mr Duff, Mr Mandelson: had not seen these documents that were with Mr McDonald; had not been given them; and was not told by Mr McDonald that they were in the possession of the solicitors for the Ibrahim parties. One can understand his puzzlement in the absence of these documents. The solution to what appeared to be missing partly lay in Mr Ibrahim's own camp.

40. [40]

    Civil Procedure Act, s 56(3) requires the parties to assist the Court to facilitate the just, quick and cheap resolution of the real issues in dispute in the proceedings. Given that duty the Ibrahim parties here should have ascertained what they had in their own records, got it organised, communicated internally about what they have and what they really needed from the other side before they started making demands against the other side that they do not have the material. This does not seem to have happened on the Ibrahim side. For reasons I will explain, I do not think the MacKenzie side is without fault as well.

41. [41]

    On 18 November Mr Mandelson attended at Mr Duff's office. But Mr Duff was not there. Someone should have arranged for Mr Duff to be there. If this visit had all been organised earlier that probably would have happened.

42. [42]

    The proceedings were then mentioned before me on 19 November. The parties formally confirmed that day to the Court that all prayers for relief in both proceedings were now futile, because of the sales that had taken place. The only remaining issue to be argued one side said, was to be the question of an account. I was informed then that the question of whether prayer 6A was being pursued was a matter in issue.

43. [43]

    What occurred that day was enough to revive the effect of prayer 6A of the cross-claim. But whatever had been communicated to the Court before this date about the possible discontinuance of the proceedings, there is no doubt that there would have had to have been an appearance by the parties that day on 19 November to hand up final terms of settlement. The terms of settlement were ultimately handed up on 23 February.

44. [44]

    For that reason it seems to me that the MacKenzie parties cannot make any claim for recovery of costs before that date. They would have been fully involved, in my view, in preparing for that hearing for the purposes of handing up terms of settlement. In my view, any claim for costs must be limited to a period commencing on 20 November 2015.

45. [45]

    After this appearance before me, further arrangements were made that Mr Mandelson and Mr Ibrahim together attend Mr Duff's offices on 26 November. There they were given unsupervised open shelf access to all the trust records.

46. [46]

    This inspection took place on 26 November. But this did not seem to be satisfactory either. On 29 December Mr Mandelson emailed Mr McDonald identifying further documents he wished to inspect. These are set out in part of the 29 December letter from Mr Mandelson to Mr Ibrahim:

47. [47]

    This document is puzzling. It is a highly generalised request for further information, giving only examples of things that are said to be missing an inspection.

48. [48]

    The matter came before the Court again on 11 December 2015. Then the MacKenzie parties did produce to Court a small number of documents that had not been provided previously and some items of correspondence. These were not significant in number. But that day an affidavit of Mr McDonald was read, attaching an email from Mr Mandelson to Mr Ibrahim of 2 December and from Mr Ibrahim to Mr McDonald of the same date, which contained more general complaints about the lack of information being provided.

49. [49]

    This resulted in a further meeting taking place on 29 January 2016 at Mr Duff's offices attended by Mr Mandelson, Mr Duff, Ms Campbell, Mr McDonald and counsel for the Ibrahim parties, Mr Fernon. On that occasion Mr Duff had prepared an extract from all the other documents that he previously supplied, in the form of an indexed tabbed folder of documents.

50. [50]

    Mr Duff says in an affidavit on which he was not cross-examined that the material that was supplied on 29 January 2016 was all available previously. Mr Mandelson explained in his cross-examination that he was not in a position to contest this statement by Mr Duff. I would modify that general statement by inferring that the limited material supplied by Mr Oliver in Court on 11 December probably was added to the material that had been made available on 26 November. But Mr Mandelson says that the material was also, in his words, in a “haphazard” form on 26 November and was difficult to follow and included duplicate material or draft copies of tax returns and accounts and BAS statements. Mr Mandelson says that he found it difficult to ascertain what the final documents were on this occasion.

51. [51]

    It is possible to accept both Mr Duff and Mr Mandelson on this issue. I accept Mr Duff's evidence: the material made available on 29 January 2016 was all available on 26 November 2015 with the small exception indicated. But I also accept Mr Mandelson’s evidence that it was not easy for him to access the material on 26 November. But this is where timely attention by the Ibrahim parties and their lawyers to looking at the material early and seeking to engage with Mr Duff one-to-one to find out what the final documents were, was appropriate and would have made a difference.

52. [52]

    There seems to be an unfortunate “hands-off” attitude in this case. The Ibrahim parties just simply ask for lists of documents from the other side and expect the MacKenzie parties, to do all the work, notwithstanding that some of the documents have been supplied on previous occasions. That is an unsatisfactory way of conducting legal practice in litigation and should not be rewarded.

53. [53]

    Co-operation and efficiency in litigation often requires parties to roll up their sleeves and do things together, so that all the parties can be saved costs and the proceedings can be brought to an end sooner rather than later. It requires effort and initiative on both sides. It seems to me it was lacking in this case, particularly on the Ibrahim parties’ side.

54. [54]

    I now come to the parties’ costs submissions.

55. [55]

    As indicated, I am not persuaded by Mr Oliver's first argument that there is no basis for a claim for costs, as there was no extant claim for relief in cross-claim prayer 6A, or anywhere else, to ground the Ibrahim parties’ claims for documents. Mr Fernon was quite entitled to continue to move on prayer 6A. Indeed that is what I think was really happening in the period in question, when one looks at the history.

56. [56]

    I also dismiss Mr Oliver's claim on the Calderbank letter of 28 September. It contained offers to buy out shares in the trust which were not part of any relief sought in the proceedings and may have been contentious. This made it quite reasonable, in my view, in this case, for the offer to be rejected: Skalkos v Assaf (No. 2) [2002] NSWCA 236 and Commonwealth v Gretton [2008] NSWCA 117 at [110].

57. [57]

    So what is left is Mr Oliver's argument the Ibrahim parties’ conduct was unreasonable within Lai Qin.

58. [58]

    In my view, there was unreasonable conduct on the Ibrahim parties' side in their conduct of this claim such that there should now be an order for costs against them for the period. But I see no basis for there to be an order for indemnity costs. Furthermore, I do not think that the whole of those costs should be to the account of the Ibrahim parties, because some responsibility for the costs that the MacKenzie parties have incurred lies with them, not the Ibrahim parties.

59. [59]

    The short reasons are these. Much of this emerges from what I have already said in the course of the chronology. The Ibrahim parties did not take up in a timely way offers to engage directly with the accountant, Mr Duff, to ascertain what was missing from the documents already provided, or to indicate in clear terms what Mr Mandelson ultimately said: that the material was organised in a “haphazard” fashion and to explain exactly what was missing. It seems to me that two intelligent accountants sitting down together at an early stage for a few hours, encouraged by their lawyers, would have allowed all these problems to emerge and to be quickly resolved.

60. [60]

    The first point in MacKenzie parties' favour is that they had made an open offer for a long time for that to occur, which was not taken up on the other side. Instead the response seems to have been to lob litigious grenades into the other side's trenches, rather than getting on with arranging the accountants to meet early.

61. [61]

    The second point is that Mr McDonald did not spend enough energy analysing what documents he had been given, and then giving what he did have to Mr Mandelson, before Mr Mandelson sallied forth to see Mr Duff. That was unacceptable and led to confusion on Mr Mandelson's part. Mr Mandelson's own correspondence shows that he was misled by what Mr McDonald did: he did not know what documents Mr McDonald already had.

62. [62]

    The third point is that I accept Mr Duff's evidence that what was there for inspection on 29 January 2016 had been there for inspection on 26 November 2015. There is no doubt, when one looks at the index which was provided on 29 January with the single volume of documents, that everything was extracted and was easy to follow. But there is not the slightest suggestion that what was in that document was not within the original documents on 26 November. In my view, the Ibrahims' failure to make reasonable efforts to get to grips with the material earlier is why it took Mr MacKenzie's side some time to come up with that refined list. The lack of analysis by the Ibrahim parties forced the MacKenzie parties finally to create the refined list so the case could move past this issue.

63. [63]

    In my view, the MacKenzie parties are not without responsibility for their costs in this period. This really depends upon my acceptance of Mr Mandelson's oral evidence. In my view, the MacKenzie parties could have organised the documents better earlier, could have refined things better, spontaneously on their side, in preparation for inspection, which would have made the job on the Ibrahim parties’ side easier. The MacKenzie parties seem to have regarded the demands on the other side as unreasonable and therefore did not want to be particularly helpful too quickly. This was somewhat unreasonable too. Whereas on the Ibrahim side there was a desire to transfer the expenditure of energy to the MacKenzie parties. The costs of this hearing will be allocated accordingly.

64. [64]

    For these reasons the Court will allow the MacKenzie parties 50 per cent of their costs incurred in the period in question.

Conclusions and Orders

1. [65]

   Accordingly, the Court makes the following orders and directions:

   1. (1)

      Order that the defendants/cross claimants (“the Ibrahim parties”) pay 50 per cent of the plaintiff/cross defendants’ (“the MacKenzie parties”) costs of the proceedings from 20 November 2015 to 23 February 2016.

   2. (2)

      Order the Ibrahim parties to pay 50 per cent of the MacKenzie parties’ costs incurred on and in relation to the present costs hearing.

   3. (3)

      That exhibits and subpoenaed material may be returned forthwith; any exhibits returned must be retained intact by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined.