BounceLED Pty Ltd v Clear Skies Corp Pty Ltd (in liq) (No 2)

1. [1]

   On 22 February 2023, I gave judgment in this matter, allowing an appeal from the Local Court: BounceLED Pty Ltd v Clear Skies Corp Pty Ltd (in liq) [2023] NSWSC 121 (Judgment).

2. [2]

   In the Local Court, the Liquidator of an insolvent company, Clear Skies Corp (the Company) claimed that the plaintiff, BounceLED Pty Ltd (BounceLED), had received payments totalling $66,959.70 from the Company which were unfair preferences. The Magistrate upheld the Liquidator’s claim for all but one of the relevant transactions, finding that BounceLED had received unfair preferences pursuant to s 588FF of the Corporations Act 2001 (Cth), in the total amount of $63,857.70. The Magistrate made orders that BounceLED should pay that amount, plus interests and costs, to the Liquidator.

3. [3]

   BounceLED appealed that decision to this Court on 8 grounds of appeal, which effectively raised three issues set out in the Judgment at [36] and had partial success in relation to the first issue (Grounds 1-4), no success in relation to the second issue (Grounds 5 and 6) and complete success in relation to the third issue (Grounds 7 and 8). As a result of its success on the third issue, being the availability of the good faith defence under s 588FG(2) of the Corporations Act, I set aside the judgment entered and orders made in the Local Court and ordered that the Liquidator’s Statement of Claim in the Local Court be dismissed.

4. [4]

   In relation to costs, I made the following comments at [96]:

5. [5]

   The plaintiff provided written submissions on 1 March 2023. The defendants provided written submissions on 8 March 2023. The plaintiff provided written submissions in reply on 10 March 2023. The plaintiff and defendants indicated by email on 20 March 2023 and 21 March 2023 (respectively) that they were content for the issue of costs to be determined on the papers.

6. [6]

   In relation to proceeding number 2020/354576 in the Local Court (LC Proceedings), the plaintiff’s primary position is that the Liquidator should personally pay the plaintiff’s costs on the ordinary basis up to and including 13 July 2021, and on an indemnity basis on and from 14 July 2021 to the end of the LC Proceedings as a consequence of an offer of compromise (Offer) which it served on the defendants in accordance with r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) on 13 July 2021. The plaintiff seeks costs on an ordinary basis in these proceedings (SC Proceedings). The plaintiff also seeks an order for payment of interest on its costs as agreed or assessed pursuant to ss 101(4) and 101(5) of the Civil Procedure Act 2005 (NSW).

7. [7]

   The defendants’ position is that each party should pay their own costs of the LC Proceedings and that the defendants should pay 50% of the plaintiff’s costs of the SC Proceedings. The defendants ask that the Court grants them an indemnity certificate pursuant to s 6 of the Suitors’ Fund Act 1951 (NSW).

Submissions

1. [8]

   In relation to the LC Proceedings, the plaintiff submitted that it is entitled at a minimum to costs on the ordinary basis, citing the indication made by me in the Judgment at [96] that “as the plaintiff was successful on appeal, the appropriate order is that the defendants pay the plaintiff’s costs of the proceedings in the Local Court: Drive My Car Rentals Pty Ltd v Gabriel (2021) 104 NSWLR 697; [2021] NSWCA 73 at [112]”.

2. [9]

   The plaintiff submitted that it is entitled to indemnity costs from 14 July 2021 onwards as a consequence of making the Offer pursuant to r 42.15A of the UCPR. As stated in the covering letter to the Offer (Cover Letter), the Offer was a “walk-away” offer on terms that the statement of claim filed in the LC Proceedings by the defendants (the plaintiffs in the Local Court) would be dismissed, with no order as to costs, with the intent that each party pay his/its own costs. The Offer was made 12 days before the commencement of the hearing in the Local Court on 26 July 2021, at a time when (as stated in the Cover Letter) the plaintiff’s costs were approximately $40,000 and was open for acceptance for 7 days from the date on which it was made.

3. [10]

   The plaintiff submits that order 3 made in the Judgment dismissing the Statement of Claim is an order “no less favourable” to it than the terms of the Offer for the purposes of r 42.15A of the UCPR and that the Offer was a genuine offer of compromise in circumstances where the Offer was made shortly before the hearing of the LC Proceedings, and the plaintiff had already borne considerable costs in the proceedings. Therefore, pursuant to r 42.15A(2)(b)(i) of the UCPR, the plaintiff seeks its costs of the LC Proceedings on an indemnity basis from 14 July 2021, being the day following the day on which the Offer was made.

4. [11]

   In the alternative, the plaintiff seeks its costs on an indemnity basis pursuant to the principles in Calderbank v Calderbank [1975] 3 All ER 333, as it foreshadowed in the Cover Letter.

5. [12]

   The defendants submitted that each party should pay their own costs of the LC Proceedings. In relation to both the LC and SC Proceedings, the defendants acknowledged that the starting position on costs is that costs follow the event, citing UCPR r 42.1. However, the defendants submitted that the notion of ‘the event’ should be considered on a distributive basis, by consideration of each of the issues, citing Thiess v TCN Channel Nine Pty Ltd (No 5) [1994] 1 Qd R 156 at 208; Howell v Derring [1915] 1 KB 54 at 62. The defendants noted that the general position is that the court will not attempt to make an order for costs on an issue-by-issue basis unless there are severable issues and particular circumstances prompting such an order, citing Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304.

6. [13]

   The defendants relied on two factors that they submitted should cause the Court to depart from the general rule and make a proportional costs order being, first, fairness (citing Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107) and, second, as a sanction against multiple unsuccessful attacks, citing the comments of Finkelstein J in Baulderstone Hornibrook Pty Ltd v Qantas Airways Ltd [2003] FCA 325 in which his Honour stated at [4]:

7. [14]

   The defendants noted that comments of Finkelstein J have been met with approval in this Court: Beckett v State of New South Wales [2015] NSWSC 1500 at [38]; Perochinsky v Kirschner (No 2) [2013] NSWSC 837 at [18] per White J (as his Honour then was).

8. [15]

   The defendants submitted that there were four issues raised by the plaintiff at first instance, on some of which it had limited or no success. The defendants submitted that the issues were severable. Those issues were:

   1. (1)

      whether the relevant payments were made “from” the Company and whether those payments resulted in BounceLED receiving more than it would have done if the payments were set aside;

   2. (2)

      whether the amounts owed to BounceLED were secured pursuant to a retention of title clause;

   3. (3)

      whether BounceLED was insolvent; and

   4. (4)

      whether BounceLED had made out the good faith defence under s 588FG(2) of the Corporations Act.

9. [16]

   On issue 1, the plaintiff was partly successful. On issues 2 and 3, the plaintiff was entirely unsuccessful at first instance and this was not challenged on appeal. On issue 4, the plaintiff was unsuccessful at first instance but was successful on appeal. The defendants submitted that considering costs on a global basis rather than issue-by-issue would amount to “a pecuniary not a compensatory order”. I infer that the reference to “pecuniary” was intended to be to “punitive”.

10. [17]

    In relation to the question of whether costs should be awarded on an indemnity basis, the defendants submitted that the Offer was not an offer of compromise, but a walk away offer. The defendants submitted that the Cover Letter did not raise the issue on which the plaintiff succeeded on appeal, and instead raised issues which were all rejected.

11. [18]

    The defendants therefore submitted that each party should pay their own costs at first instance or, alternatively, that the defendants should pay the plaintiff’s costs relating to the defence under s 588FG(2) of the Corporations Act (being issue 4 on which the plaintiff was unsuccessful at first instance and successful on appeal).

12. [19]

    In response to the defendants’ submissions, the plaintiff submitted first, that the relevant “event” for costs to follow is the plaintiff’s success on appeal citing the decision of Smith v Stake, Re Action Paintball Games Pty Ltd (in liq) (No 3) [2016] FCA 40 involving a s 588FE claim in which the liquidator obtained judgment as to only 36% of the amount of the payments which he challenged under s 588FE but nevertheless was held to be entitled to all of his costs of the proceedings. Gleeson J (as her Honour then was) stated at [25]:

13. [20]

    The plaintiff submitted that similarly in this case the Judgment was in the plaintiff’s favour, dismissing the Liquidator’s claim in full, and that there were otherwise no disentitling circumstances to displace the ordinary rule pursuant to r 40.1 of the UCPR.

14. [21]

    Second, the plaintiff submitted that the defendants’ contention that costs should be apportioned was inappropriate in the circumstances. The plaintiff submitted that the liquidator relied on a single cause of action pursuant to s 588FE(2) of the Corporations Act, so that the issues were “not separate, but rather are requisite elements of the single relief sought by the Liquidator”.

15. [22]

    Further, the plaintiff submitted that in this case there should be no apportionment of costs on the issues in light of the principles in Baulderstone Hornibrook or Bostik because:

    1. (1)

       no particular issue on which the plaintiff was unsuccessful was clearly dominant in either of the proceedings;

    2. (2)

       the relatively short duration of the proceedings (2 days for the LC Proceedings and 1 day for the SC Proceedings) indicates that it cannot be said that any particular issue increased the length of the hearing in either proceeding, or was an unsuccessful issue that took up a significant part of the trial such that the Liquidator was unduly prejudiced by the costs of that issue;

    3. (3)

       no fresh issue was raised on appeal that changed the landscape of the proceedings or the position of the parties; and

    4. (4)

       there is no mixed outcome as the Liquidator’s claim was dismissed in its entirety.

16. [23]

    In relation to the Liquidator’s reliance on Bowen, the plaintiff noted that in that case the plurality declined to accede to the respondent’s submission that the (successful) appellant be ordered to pay a substantial proportion of the respondent’s costs of the trial (it suggested 50 to 80 per cent). Instead, the Court ordered the respondent to pay 70% of the appellant’s trial costs, and also all the appellant’s costs of the appeal, notwithstanding that time had been taken up in the appeal in dealing with some of the appellant’s unsuccessful arguments.

17. [24]

    The plaintiff submitted that, as it was successful in the SC Proceedings, the ordinary principle that costs follow the event should apply. Further, the plaintiff submitted that it is entitled to costs because it was successful on two grounds which were argued in the LC Proceedings, and not new matters raised solely on appeal.

18. [25]

    The defendants submitted that, of the three issues raised on appeal, the plaintiff had mixed success on the first issue, no success on the second and was successful on the third issue. The defendants submitted that their submissions made in relation to the LC Proceedings apply also to the SC Proceedings to the extent that the plaintiff should not “benefit from a scattergun approach to litigation” as the defendants “have been put to expense of defending issues on the appeal which were unsuccessful, and one part of which was effectively hopeless”.

19. [26]

    The plaintiff relied on my indication in the Judgment at [96] that the costs orders should be made against the Liquidator personally, as he was the moving party in the litigation: Silvia v Brodyn Pty Ltd [2007] NSWCA 55; 25 ACLC 385 at [48]-[51]. The plaintiff submitted that the orders should be expressed in a form that makes clear that costs are to be paid personally by the Liquidator, pointing to the formulation of orders by Williams J in In the matter of Pacific Steelfixing Pty Ltd (No 2) [2021] NSWSC 1129.

20. [27]

    The defendants did not make any submissions against the plaintiff’s submission, which I accept.

21. [28]

    The plaintiff also sought interest on its costs from the date on which those costs were paid under ss 101(4) and (5) of the Civil Procedure Act. Sections 101(4) and (5) of the Civil Procedure Act provide as follows:

22. [29]

    The defendants did not make any submissions on the issue of interest. In my opinion, there is no reason why interest on costs should not be payable and accept the plaintiff’s submission that, consistently with the compensatory nature of interest on costs, the interest should accrue from the time those costs were paid by the plaintiff. The plaintiff provided a draft form of orders based on the formula discussed in Leda Pty Ltd v Weerden (No. 2) [2007] NSWCA 283. This is a well-accepted formula for interest on costs (see Lee v YOUth Ok Pty Ltd (No 2) [2022] NSWSC 1691 at [44]) and I will adopt that draft with some minor amendments as I am satisfied that it is appropriate in the present case.

23. [30]

    The defendants submitted that the Court should grant an indemnity certificate to the defendants pursuant to s 6 of the Suitors’ Fund Act 1951 (NSW). The defendants’ submissions on this issue were as follows:

24. [31]

    The plaintiff did not make any submissions on this issue.

Consideration

1. [32]

   The issues between the parties are, first, whether costs should follow the event (as a whole); second, whether the plaintiff should be awarded indemnity costs in respect of the LC Proceedings on account of the Offer made by them on 13 July 2021; and third, whether the Court should grant an indemnity certificate to the defendants under the Suitor’s Fund Act.

2. [33]

   The Court has a wide discretion in making orders as to costs: Civil Procedure Act 2005 (NSW), s 98(1). The discretion must be exercised judicially. The usual order is that costs follow the event: UCPR, r 42.1.

3. [34]

   In Dincel Construction System Pty Ltd v Penrith City Council [2021] NSWCA 133, Payne JA (with whom Gleeson and Brereton JJA agreed) made the following observations on the concept of “costs follow the event” in r 42.1:

4. [35]

   The starting point in the present case is that the plaintiff has had overall success in both the Local Court and in this Court because it made good its defence under s 588FG(2). If the relevant “event” is viewed, as I think it should be, as the claim brought by the Liquidator for recovery of the payments as unfair preferences, then the plaintiff is entitled to all its costs, both in the Local Court and in this Court.

5. [36]

   It is well established that it is ordinarily appropriate in these circumstances for the plaintiff to recover all its costs unless a particular issue on which it was unsuccessful was clearly dominant or separable: see [34] above. It is also well established that the mere fact that the successful party was unsuccessful on a dominant or separable issue does not mean that a different costs order should necessarily be made, as the matter still remains one for discretionary assessment: Hawkesbury District Health Services Ltd v Chaker (No 2) [2011] NSWCA 30 at [14]; Real Estate Property Management Pty Ltd v WaterCorp Investments Pty Ltd [2018] NSWCA 194 at [31].

6. [37]

   In my view, it cannot be said that the plaintiff lost on any issue which was dominant or separable in the relevant sense, with one exception. The exception is the contention raised by the plaintiff that the payments which are described in the Judgment at [22] as “Trust Payments” were not unfair preferences, because they were not payments received from the Company, which was an issue on which the plaintiff bore the onus of proof (Judgment at [56]) and was unsuccessful. However, in my view, the time taken up by this issue was not significant, as indicated by the cursory treatment given to it by the Magistrate, and should not affect the overall assessment as to where the burden of costs should lie. In relation to the other issues on which the plaintiff lost, they were all issues on which the Liquidator bore the onus of proof and, in my view, the plaintiff acted reasonably in seeking to resist the Liquidator’s contentions on those issues, which is a matter relevant to the exercise of the discretion under r 42.1: see Evans Deakin Pty Ltd v Sebel Furniture Ltd [2003] FCA 282 at [7]; GE Dal Pont, Law of Costs (5th ed, 2021, LexisNexis), [8.9].

7. [38]

   Further, as I explain below, my conclusion on the application of r 42.15A of the UCPR also supports the conclusion that the plaintiff is entitled to its entire costs of the LC proceedings (on the ordinary basis until 13 July 2021 and on the indemnity basis thereafter): see [45] below.

8. [39]

   Rule 42.15A of the UCPR provides relevantly:

9. [40]

   The Court retains a discretion to determine whether a special costs order should be made: Mega-top Cargo Pty Ltd v Moneytech Services Pty Ltd [2016] NSWCA 3 at [5].

10. [41]

    There can be no question that the outcome of the SC Proceedings was no less favourable than the Offer. It is not in dispute that the Offer complied with UCPR, r 20.26 except for the two matters raised by the defendants referred to at [17] above.

11. [42]

    It is necessary to have regard to the position reached by the parties in the LC Proceedings as at 13 July 2021, when the Offer was made which was:

12. [43]

    In my opinion, neither of the matters raised by the defendants are reasons for concluding that the non-acceptance of the Offer should not have the consequences provided for in r 42.15A(2)(a) and (b). First, it is clear that a “walk-away” offer can be properly regarded as a compromise when it is made after substantial costs have been incurred by the offeror: Botany Bay City Council v Latham (No 2) [2013] NSWCA 450 at [13]; Taheri v Vitek (No 2) [2014] NSWCA 344 at [12]–[13]. In this case, the plaintiff made the Offer on 13 July 2021, 12 days before the commencement of the LC Proceedings on 26 July 2021. The plaintiff had incurred at that stage costs of approximately $40,000 according to the Cover Letter. While it is not possible to determine if all of those costs would be recoverable, there is no doubt that the preparation of the defence and the affidavit referred to at [42(c)] above would have involved significant costs, particularly when compared to the total amount sought by the Liquidator of $66,959.70.

13. [44]

    Second, the Cover Letter included contentions that “suspicion of insolvency by our client will not be established”; that the impugned payments “were received with propriety and honesty”; and, that there was no evidence of collusion between the parties or that their relationship was other than at arm’s length. In my view these contentions went directly to the claim in the defence that the good faith defence under s 588FG(2) applied. Consequently, I reject the defendants’ submission that the Cover Letter did not raise the issue on which the plaintiff was successful on appeal.

14. [45]

    In my opinion, there is no reason why the Court should make an order otherwise than as stated in r 42.15A(2). Accordingly, the plaintiff is entitled to its costs on an indemnity basis in the LC Proceedings from 14 July 2021 under r 42.15A(2)(b)(i), or, alternatively, in accordance with Calderbank principles. The plaintiff is also entitled to its costs on the ordinary basis prior to that date under r 42.15A(2)(a).

15. [46]

    Section 6 of the Suitors’ Fund Act provides relevantly:

16. [47]

    In the absence of stated criteria for the exercise of the discretion under s 6(1), it should be guided by the purpose of s 6 which is to deal with the potential injustice arising where an unsuccessful litigant suffers the burden of costs, not through any fault of that person but because of some error of law or fact of the court appealed from: Acquilina v Dairy Farmers Co-Operative Milk Co Ltd (1965) 82 WN (Pt 1) (NSW) 531 at 534; Mir Bros Developments Pty Ltd v Atlantic Constructions Pty Ltd (1985) 1 NSWLR 491 at 494, 499; R v Hookham (No 2) (1993) 32 NSWLR 345. In the latter case, Priestley JA (with whom Wood and Sully JJ agreed) said at 346:

17. [48]

    The present case lies somewhere between the two extremes referred to in the last paragraph of this passage. However, what is material in this case, bearing in mind the purpose of s 6, is that while the plaintiff had the onus of proof on the availability of the defence under s 588FG(2), it was incumbent on the defendants, who were the parties seeking the orders which the Magistrate made, to make the Magistrate aware of the relevant principles to be applied, which they did not do: Judgment at [78]; Blake v Calcorp Pty Ltd [2018] NSWSC 1071 at [16]. As a result, I am not satisfied that this is a case where it can properly be said that the error of the Magistrate was not due to any fault of the defendants. Hence, in my view, the defendants have not established that the discretion under s 6(1) should be exercised in their favour.

Conclusion

1. [49]

   Accordingly, I make the following orders:

2. [50]

   (1) The costs of the plaintiff (the defendant in Local Court proceeding 2020/354576 (Proceeding Below)) in the Proceeding Below be paid personally by the first defendant (the first plaintiff in the Proceeding Below) on the ordinary basis up to and including 13 July 2021 and on an indemnity basis thereafter, both as agreed or assessed.

3. [51]

   (2) The costs of the plaintiff in this proceeding be paid personally by the first defendant on the ordinary basis, as agreed or assessed.

4. [52]

   (3) For the purposes of order 4 below:

5. [53]

   (a) X equals the total amount of costs and disbursements which the plaintiff has paid or is liable to pay to the plaintiff’s legal advisors in connection with the Proceeding Below and this proceeding;

6. [54]

   (b) Y equals the total amount of costs and disbursements as agreed or allowed on assessment to the plaintiff in connection with the Proceeding Below and this proceeding; and

7. [55]

   (c) The Allowed Percentage equals ((Y/X) x 100)%.

8. [56]

   (4) The first defendant is to pay the plaintiff interest on costs and disbursements, at the rates prescribed from time to time by operation of r 36.7 of the Uniform Civil Procedure Rules 2005, on the Allowed Percentage of each amount for or on account of costs and disbursements actually paid to the plaintiff’s legal advisors by or on behalf of the plaintiff, from the date of payment of each such amount until such time as the first defendant has paid the costs due to the plaintiff under these orders.