Cosmetic Laser Clinic Pty Ltd v Pirintji;; In the matter of Health and Beauty International Limited in Liquidation

1. [1]

   HER HONOUR: By further amended notice of motion filed 21 August 2015, the defendant seeks orders in accordance with paragraphs (1), (2), and (2A) as follows:

2. [2]

   The plaintiffs in these current proceedings are Cosmetic Laser Clinic Pty Limited and Barodo Investments Pty Limited. Mr Sirtes SC appeared with Mr Arnott for the plaintiffs. The defendant is Steven Michael Pirintji who was the plaintiffs’ former solicitor (“the solicitor”). Mr Silver of counsel appeared for the solicitor. The plaintiffs relied upon the affidavit of Timothy John Crumpton sworn 25 March 2015. The defendant relied upon the affidavit of Malcolm John Cameron affirmed 5 December 2014. For convenience and ease of understanding, I shall refer to these proceedings as “the solicitor’s proceedings”, the plaintiffs as the singular “Cosmetic Laser Clinic” except where it is necessary to refer to both plaintiffs and the defendant as “the solicitor”.

3. [3]

   In equity proceedings 2012/364667 the plaintiffs are Trajan John Kukulovksi, Health and Beauty International Limited (in liq) (“Hair & Beauty International”) and Lasersmooth Pty Limited (in liq) (“Lasersmooth”). Mr Freeman of counsel appeared for the plaintiffs. The defendants are Dr Mark Kohout, Dr Piera Kohout and Body Technology Pty Limited. The cross defendant is 180 Corporate Pty Limited. There was no appearance for 180 Corporate Pty Limited. Mr Mitchell, a solicitor, appeared for the defendants. The plaintiffs in these proceedings relied upon two affidavits of Raymond Roser affirmed 24 April 2015 and 12 November 2015. For convenience I shall refer to these proceedings as “the liquidator’s proceedings”.

4. [4]

   The solicitor for the defendants in the liquidator’s proceedings was instructed to consent to the order sought in paragraph (1) of the motion. The other parties opposed the orders sought. Counsel for the solicitor seeks order (1) of the motion, but his fallback position is to seek order (2A) of the motion, a separate determination on liability, if this Court does not make order (1). Hence, I shall firstly deal with the application for the solicitor’s proceedings to be heard together with the liquidator’s proceedings; and then the fallback position, if necessary.

Brief overview

1. [5]

   Cosmetic Laser Clinic ran a cosmetic laser business (“the Avana business”) at various sites in New South Wales. Mr Moini was the sole director and shareholder of these companies.

2. [6]

   Cosmetic Laser Clinic sold the Avana business to Hair and Beauty International. On 29 September 2008, the sale was completed. Pursuant to the sale agreement (Avana sale agreement) Hair and Beauty International was to pay Cosmetic Laser Clinic $750,000 on completion and $1.375,000 12 months later (“the deferred component”) and an amount for goodwill. On completion, Cosmetic Laser Clinic would give Hair and Beauty International possession of the Avana business and cause legal title to it to pass to Hair and Beauty International. As security for the purchase price, Hair and Beauty International would grant an charge and execute all documents necessary to register the charge with ASIC; and if Hair and Beauty International was in default of its payment obligations, Cosmetic Laser Clinic could purchase the Avana business back for $1.

3. [7]

   It is common ground that the solicitor did not obtain an effective charge from Hair and Beauty International.

4. [8]

   About a year later, Hair and Beauty International still owned the assets of a related company, Lasersmooth, used the assets (largely in the form of laser machines and fit out) and became the trading entity.

5. [9]

   On 19 November 2009 Hair and Beauty International sold its assets to Body Technology for $561,000. On the same day, Lasersmooth sold its assets to Body Technology for $592,000. The business that was sold to Body Technology was largely the business that was the subject matter of the sale of the Avana business.

6. [10]

   On 27 November 2009, Hair and Beauty International was placed into voluntary liquidation. Hair and Beauty International has failed to pay the deferred component to Cosmetic Laser Clinic.

The solicitor’s proceedings

1. [11]

   In the solicitor’s proceedings, Cosmetic Laser Clinic’s claims against the solicitor are, relevantly, for his negligence in failing to take those steps to register the charge and otherwise advise Cosmetic Laser Clinic in relation to securing the payment of the deferred component. Another issue in dispute is the value of the Avana business. Cosmetic Laser Clinic has served a report by Mr Potter accountant dated 4 October 2013, which provides an opinion on the value of the Avana business. The methodology adopted by Mr Potter is the depreciated replacement cost methodology.

2. [12]

   At the same time as prosecuting of the solicitor’s proceedings, Mr Moini, the sole director and shareholder of each Cosmetic Laser Clinic and Barodo Investments, is funding the liquidator in their action against Dr Mark Kohout and Dr Piera Kohout (who are husband and wife), and the directors of Hair and Beauty International, alleging, among other things, that Hair and Beauty International’s assets and Lasersmooth’s assets were sold at below a reasonable market value to Body Technology.

3. [13]

   The liquidator has also alleged that aim of the directors of Hair and Beauty International in selling the Avana business to Body Technology was to prevent the plaintiffs from being able to enforce any judgment against Hair and Beauty International to recover the deferred component, and to ensure that Hair and Beauty International and Lasersmooth has no assets in the event that any action to recover the deferred component is successful.

The liquidator’s proceedings

1. [14]

   On 27 November 2009, Mr Kukulovski was appointed liquidator of Hair and Beauty International and Lasersmooth.

2. [15]

   The brief facts are as follows:

3. [16]

   The causes of action set out in the liquidator’s FASC are:

4. [17]

   The liquidators of Hair and Beauty International are seeking to recover damages and/or compensation from the directors of Hair and Beauty International. The most substantial head of loss is calculated by reference to the difference in effect between the actual value of Avana business disposed of, and the price paid by Body Technology. The liquidators have also engaged Mr Potter, who has provided an opinion on the value of the Avana business. Mr Potter uses the same methodology as he used in the report in the solicitor’s proceedings, but provides valuations at different dates to the solicitor’s proceedings.

5. [18]

   Alternatively, in the liquidator’s proceedings the liquidators rely on breaches of statutory and general law duties owed by the Kohouts. The Kohouts have denied any wrongdoing, and have raised defences including the breach of the Avana sale by Cosmetic Laser Clinic and Barodo Investments. The value of the Avana business is in issue in both the liquidator proceedings and the solicitor’s negligence proceedings.

6. [19]

   The Kohouts have issued an amended cross claim against 180 Corporate Pty Limited. 180 Corporate Pty Limited is alleged to have advised the Kohouts to sell the Avana business and to put Hair and Beauty International into liquidation. The Kohouts essentially seek an indemnity from 180 Corporate Pty Limited. On 30 March 2015, 180 Corporate Pty Limited advised the liquidator’s solicitor that it wished to join its former employee, Jan Onley. However, that cross claim has not been filed. On 16 November 2015 (the Monday after this motion was heard), the following timetable was made granting leave to the cross defendants/cross claimants to rely on two affidavits, the cross defendant to serve all its affidavits on which it intends to rely on or before 29 January 2015.

Hearing dates and legal costs in both matters

1. [20]

   It is estimated that all parties’ evidence in the liquidator’s proceedings will be completed by April 2016, at which time the liquidator will be seeking a hearing date. It has an estimated hearing time of 10 days, and if both proceedings are heard together, the liquidator estimates 4 week of hearing time. The liquidator’s solicitor Mr Roser (Aff. 21/4/2015 [23]) provides an estimate of the costs of an additional 10 day hearing, excluding preparation and additional disbursements such as transcript, being not less than $107,400 plus GST. These costs are comprised of counsel’s costs $4,500 per day x 10 days = $45,000; Mr Roser’s firms costs for attending $550 per hour x 10 days = $44,000; and the liquidator to attend proceedings $560 per hour x 5 days = $18,400. I accept that with some overlap of the damages issue relating to the first transaction, the estimate may be reduced but not any significant extent.

2. [21]

   The solicitor’s proceedings are ready to take a date for trial. If liability is heard in the solicitor’s proceedings separately from quantum, the parties estimate court hearing time of five days. If both liability and quantum were listed for hearing, the parties estimate the hearing time to take 10 days. If this matter were to be listed for trial today, it would be allocated a hearing date in April 2016 regardless of whether it were to take 5 or 10 days. Hence, it is likely that the solicitor’s negligence proceedings will be heard before the liquidator’s proceedings are ready for trial.

The relevant law

1. [22]

   UCPR 28.5 reads:

2. [23]

   Sections 56, 57 and 60 of the Civil Procedure Act 2005 (NSW) are also relevant. They relevantly provide:

3. [24]

   Austin J examined UCPR 28.5 in some detail in Ghose v CX Reinsurance Company Ltd [2007] NSWSC 367. His Honour made two relevant observations at [29] and [31]:

4. [25]

   It should be noted that the solicitor is not seeking consolidation as such, but rather that these two sets of proceedings be heard at the same time.

5. [26]

   On this topic, senior counsel for the plaintiff in the solicitor’s proceedings, referred to Haddad v Nationwide New Pty Ltd; Cheikhor v Nationalwide News Pty Limited [2014] NSWSC 775 at [15] and [24].

6. [27]

   All parties agree that the liability issues in the solicitor’s proceedings and liability issues in the liquidator’s proceedings do not overlap and that there is an overlap in the damages claims. What is in issue is whether commonality of the issues raised in the damages claims are substantial or small.

The solicitor’s submissions

1. [28]

   The solicitor submitted that there are compelling reasons why orders should be made pursuant to UCPR 28.5. Most important is that an award in the liquidator’s proceedings must be taken into account in the calculation of any loss established by Cosmetic Laser Clinic in the solicitor’s proceedings.

2. [29]

   Further, counsel for the solicitor submitted that it would be just and reasonable that these proceedings and the liquidator’s proceedings be consolidated or heard together for the following reasons:

Cosmetic Laser Clinic’s submissions

1. [30]

   Counsel for Cosmetic Laser Clinic submitted that the solicitor must persuade the Court of two matters. First, that UCPR 28.5 is enlivened; and secondly, that the Court should exercise its discretion in favour of a joinder.

2. [31]

   Cosmetic Laser Clinic says that these proceedings are very different to the liquidator’s proceedings; and while the liquidator’s proceedings are related to these proceedings, they are like distant cousins. They involve different parties, different issues and concern distinct events that occurred at different time periods.

3. [32]

   Cosmetic Laser Clinic accepts that the solicitor cannot double recover and to the extent that it does, it is required to account to the solicitor. Cosmetic Laser Clinic is prepared to give an undertaking or any other suitable effective means of dealing with double recovery without creating substantial additional costs and time burdens through the joinder of two otherwise disparate proceedings.

4. [33]

   Cosmetic Laser Clinic commenced these proceedings in 2011 and says that it is ready to be allocated a date for hearing. Counsel for Cosmetic Laser Clinic says that the merger of these proceedings and the liquidator’s, or them being heard concurrently, will further delay the proceedings, especially as the defendants in the liquidator’s proceedings have cross claimed against another party (180 Corporate Pty Limited), which will delay the timely administration of justice pursuant to s 56 of the Civil Procedure Act.

The liquidator’s submissions

1. [34]

   The Liquidator opposes orders 1 and 2 in the notice of motion on the basis that:

No commonality

1. [35]

   In the solicitor’s proceedings, Cosmetic Laser Clinic’s claim that the solicitor breached his retainer in failing to give them certain advice in relation a contract for the sale of the business (“the first transaction”). Exchange and settlement of the original sale contract occurred on 29 September 2008.

2. [36]

   Neither the original sale contract nor the circumstances of entry into it, form any part of the equity proceedings. The only commonality (if it be that) is that substantially the same business was the subject of the Hair and Beauty International’s contract and Lasersmooth’s contract some 14 months later. Each proceeding involves different parties, contracts, breaches and valuation dates (and damages).

Do the terms of the proposed amended defence raise issues of commonality?

1. [37]

   The proposed amendments to the defence do not raise matters which require an order for joinder of proceedings. This proposition is self-evident having regard to the matters pleaded in the proposed amended defence:

2. [38]

   The reduction of damages claim is pleaded at paragraphs 48-58 of the proposed amended defence. Paragraph 58 is in the following terms:

3. [39]

   Cosmetic Laser Clinic will only recover any damages from the liquidator if the following three steps occur. They are:

4. [40]

   It follows that even if the Court were to make an order that the proceedings be heard together, the amount of any reduction in damages would not be known until steps (2) and (3) were completed. Thus, any joinder would be of no utility to determining damages.

Conclusion

1. [41]

   It is my view that a threshold issue has been met because part of the damages in both proceedings arise out of the same transaction, namely, the contract between the Cosmetic Laser Clinic and Hair and Beauty International dated 29 September 2008 (the first transaction). However, the liquidator’s claim involves other latter transactions such as a sale of the business and assets by Hair and Beauty International to Lasersmooth, the sale of assets to Body Technology, a personal guarantee given by Dr Mark Kohout and the indemnity sought by the Kohouts from 180 Corporate Pty Limited.

2. [42]

   It is not clear whether the liquidator will recover damages in relation to the first transaction. As previously stated, that depends on the liquidator being successful in all of the following three steps, firstly, the liquidator is successful in the equity division proceedings; secondly, the liquidator is able to enforce any judgment; and finally the amount of dividend is determined by the liquidator once steps (1) and (2) are completed and his costs and expenses are finalised, there may be no funds left to distribute to Cosmetic Laser Clinic. However, the damages that have arisen to Cosmetic Laser Clinic wil be assessed if the proceedings were heard together. If funds are recovered by Cosmetic Laser Clinic and if it was successful in its claim for damages against the solicitor, Cosmetic Laser Clinic will proffer an undertaking to reimburse the solicitor for the sum paid by the liquidator.

3. [43]

   The solicitor’s proceedings are ready to take a hearing date. These proceedings may be listed for hearing in April 2016, regardless of whether they are listed for liability only or for both liability and quantum. This hearing most likely will take place before the liquidator’s proceedings are ready for trial.

4. [44]

   I accept that there will be an overlap of the same witnesses in both damages claims, such as the director of Cosmetic Laser Clinic, Mr Moini and the expert accountant, Mr Potter. Mr Potter has used the same valuation methodology in both damages claims and calculated the valuation of the Avana business in both proceedings. There is also the possibility that the same two lay witnesses, Mr Shane Steinwell and Mr Farzad Hendi who have provided affidavits in relation to the Cosmetic Laser Clinic’s business structure and the manufacture and cost of laser aid, will be called to give evidence at both trials. That being so, I accept that it is possible that different credit findings may arise in relation to these witnesses in the different proceedings. I also accept that having two separate proceedings gives rise to two separate appeals. A more important consideration is that only a small part of the factual matrix overlaps.

5. [45]

   If both matters are heard together, there will be more hearing time required and more legal costs incurred. There will be a longer set of proceedings that will necessitate all parties being required to be present when they have no interest in the evidence being given on particular issues.

6. [46]

   While the threshold issue has been met, after taking these discretionary matters into account, it is my view that these two proceedings should not be heard together because the parties will incur more legal costs on the larger set of proceedings and this is not in the interest of justice where there is in reality a relatively small amount of commonality in the damages claim

Determination of separate question

1. [47]

   UCPR 28.2 reads:

2. [48]

   There are a number of authorities on this topic which include Tepko Pty Limited v Water Board [2001] HCA 19; (2001) 206 CLR 1; Perre v Apand Pty Limited [1999] HCA 36; (1999) 198 CLR 180 at [436]; State of New South Wales v Lepore [2003] HCA 4; (2003) 212 CLR 511 at [187]; Dunstan v Simmie & Co Pty Ltd [1978] VR 669 at 671.30; and per Rolfe J in ABB Engineering Construction Pty Limited v Freight Rail Corp [1999] NSWSC 1037. In Idoport Pty Limited v National Bank Ltd [2000] NSWSC 1215, Einstein J at [7]-[8] helpfully provides a compendium of cases upon this topic which I need not reproduce here.

3. [49]

   In Tepko, Kirby and Callinan JJ cautioned against the severing of issues by the court. Their Honours stated:

4. [50]

   As previously stated in the solicitor’s proceedings, the same hearing date can be allocated regardless of whether liability only is listed for hearing (5 days) or both liability and quantum are heard together. It is my view that factual matrix will involve both liability and quantum. Mr Moini will be required to give evidence in relation to both liability and quantum. Overall, in my view, there is no bright line between the issues of liability and quantum. I do not think that a separate determination of liability will result in saving of court time and parties’ legal costs. I decline to order that liability and quantum be determined separately.

Conclusion

1. [51]

   The result is that the solicitor’s further amended notice of motion dated 21 August 2015 is dismissed.