Federal Court of Australia
Tuscan Capital Partners Pty Ltd v Trading Australia Pty Ltd (in liq), in the matter of Trading Australia Pty Ltd (in liq) (Proof of Debt)  FCA 1061
NSD 1294 of 2019
Date of judgment:
Burke v LFOT Pty Ltd  HCA 17; 209 CLR 282
Friend v Brooker  HCA 21; 239 CLR 129
HIH Claims Support Ltd v Insurance Australia Ltd  HCA 31; 244 CLR 72
New South Wales
National Practice Area:
Commercial and Corporations
Corporations and Corporate Insolvency
Number of paragraphs:
Counsel for the Defendant and Respondent on the Interlocutory Process:
Mr A Smith
Solicitor for the Defendant and Respondent on the Interlocutory Process:
Counsel for the Applicant on the Interlocutory Process:
Mr A Butt
Solicitor for the Applicant on the Interlocutory Process:
Nelson McKinnon Lawyers
Applicant on the Interlocutory Process
DANNY TONY VRKIC IN HIS CAPACITY AS LIQUIDATOR OF TRADING AUSTRALIA PTY LTD
Respondent on the Interlocutory Process
DATE OF ORDER:
3 September 2021
THE COURT ORDERS THAT:
1. Pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations), Sch 2 to the Corporations Act 2001 (Cth), the decision of Danny Tony Vrkic in his capacity as liquidator of Trading Australia Pty Ltd (in liq) to admit the proof of debt dated 24 November 2020 submitted by Fishbank Development Corporation Pty Ltd for the sum of $56,289.43 plus interest of $9,742.31 be reversed and the proof of debt be rejected.
2. The liquidator pay the Applicant’s costs of the interlocutory application.
1 This is an interlocutory application for review of a decision of a liquidator admitting a proof of debt. The proof of debt was lodged by Fishbank Development Corporation Pty Limited (‘FDC’) in the amount of $56,289.43 plus interest of $9,742.31. FDC’s proof of debt is premised on a claim for contribution against Trading Australia Pty Ltd (in liq) (‘TA’), the Defendant in the main proceeding. That claim arises from the alleged fact that FDC and TA jointly retained a firm of solicitors, Madison Marcus Law Firm (‘Madison Marcus’), who then performed work pursuant to that retainer. In due course, Madison Marcus issued a bill for its work in the amount of $112,578.85 which FDC eventually paid (as it happens on or about the 21st day after the presentation of a statutory demand by Madison Marcus). It is said that FDC is entitled to contribution from TA for half of that bill. The review Applicant is Mr Galati who is a director of TA and, it is not disputed, has a financial interest in TA’s external administration. Consequently he has standing to bring this review application: s 90-20(1)(a) of the Insolvency Practice Schedule (Corporations), being Sch 2 to the Corporations Act 2001 (Cth).
2 The liquidator’s decision will be reviewed and the proof of debt will be rejected. This is because I accept Mr Galati’s submission that the evidence shows that TA did not have a retainer with Madison Marcus.
3 The retainer of Madison Marcus took place against a backdrop of extensive efforts by Mr Galati and the principal behind FDC, Mr Robert Deans, to redevelop the Sydney Fish Markets. Those efforts were unsuccessful and Mr Deans and Mr Galati have since fallen out. That fall out has included a complicated suit involving both gentlemen and their companies, FDC and TA, in the Equity Division of the Supreme Court of New South Wales. So far as it concerns TA, the proceeding has been permanently stayed because of the winding up order made in relation to TA. The balance of the suit was heard by the Chief Judge in Equity between 30 November 2020 and 15 December 2020 and judgment was delivered on 1 September 2021.
4 On the review application both sides sought to delve in considerable detail into the underlying dispute embodied in the Supreme Court proceeding and to refer to affidavit evidence filed in it by both Mr Deans and Mr Galati. The complexity of that proceeding and the dispute it reflects makes it difficult, indeed, impossible to be confident about judging the assertions both sides made on the review application about where the retainer of Madison Marcus fits into that bigger picture. Further, it is apparent that Mr Galati and Mr Deans bear each other a degree of antipathy. Both were cross-examined before Ward CJ in Eq but neither before me. I think it would be unsafe to rely upon either’s affidavit evidence.
5 At a procedural level this means I do not accept that any of the material concerning the wider dispute assists Mr Galati or the liquidator. The remaining material was collated in the form of a joint tender bundle, received as Exhibit 1 on the review application, which consisted principally of:
(a) documents generated at the time the alleged retainer was formed; and
(b) documents created by and submitted to the solicitors subsequent to the alleged retainer.
6 In my view, this material established that TA did not retain Madison Marcus.
7 For completeness, I note that the material before the Court on the review application also included:
(a) two affidavits of Mr Di Bello, solicitor for Mr Galati, affirmed 30 July 2021; and
(b) two affidavits of Mr Vrkic, the liquidator of TA and Respondent on the review application, sworn 7 July 2021 and 9 August 2021.
8 I have had regard to these affidavits and the documents exhibited to them which formed part of the joint tender bundle referred to in  above.
The Formation of the Alleged Retainer
9 On 15 December 2014, Mr Robert Tomlinson, a partner of Madison Marcus, sent an email to Mr Deans with a copy to Mr Galati (and others). It was in these terms:
Please find Costs Disclosure and Costs Agreement for signing and return this evening.
I formally disclose this firm has acted for the Dahua Group in other transactions. There may accordingly be a perceived conflict of interest in that regard. I understand FDC and Trading Australia Pty Ltd wish to instruct Madison Marcus notwithstanding this disclosure. I also confirm, I am advised Dahua have no objection to Madison Marcus acting for FDC and Trading Australia Pty Ltd in this transaction.
I look forward to receiving your further instructions.
10 It will be noted that the email names TA as one of the parties and that it sought for the retainer to be signed and returned ‘this evening’. It was sent at 5.33 pm. Attached to the email were two documents, one entitled ‘Costs Agreement – General Terms of Engagement’ and one entitled ‘Costs Disclosure – Commercial & Banking and Finance’. At the head of the Costs Agreement the client was named as FDC and TA. Clauses 1 and 2 of the proposed agreement provided:
1. The Offer
This document together with the attached Costs Disclosure is an offer to enter into a Costs Agreement with you for the provision of legal services pursuant to the Legal Profession Act (2004) (‘the Act’).
This document must be read in conjunction with the attached Costs Disclosure.
2. Acceptance Of Offer
If you accept the Costs Disclosure and Costs Agreement you will be regarded as contractually having entered into this Agreement with us. This means you will be bound by the terms and conditions set out in this document, and the Costs Disclosure, including being billed in accordance with it. Acceptance may be by any one of the following ways:
• signing and returning a copy of this document;
• giving us instructions or continuing to instruct us after receiving this document; or
• oral acceptance.
Upon acceptance you agree to pay for our services on these terms.
Failure to accept our offer within seven (7) days of receipt of this document can result in the immediate withdrawal of our offer to act on your behalf.
11 It will be seen that cl 1 characterised the Costs Agreement as an offer and expressly included in the offer the provisions of the Costs Disclosure. Clause 2 provided that the offer could be accepted by signing it (which clearly Mr Tomlinson contemplated) or by giving instructions. In this first offer the fee estimate in the Costs Disclosure was $150,000-$200,000 plus GST and disbursements. It stipulated that costs, expenses and disbursements incurred on the client’s behalf were to be paid: cl 3.
12 It is not in dispute that TA did not sign and return the costs agreement. As it happens, FDC did not sign and return the costs agreement either. Instead, on 18 December 2014, sometime shortly before 12.57 pm, Mr Deans spoke with a solicitor in Madison Marcus’s office and negotiated changes to its terms. These changes were that: there would be a fixed fee of $150,000 plus GST plus disbursements; these costs would not become payable for six months if the transaction did not proceed; and, payment of the costs was to be personally guaranteed by Mr Deans. It will be noted that the fixed fee which was agreed ($150,000 plus GST and disbursements) was less than the estimate which had appeared in the earlier document ($150,000-$200,000 plus GST and disbursements). Mr Tomlinson amended the offer document accordingly, specifically including Mr Deans as a personal guarantor. Mr Tomlinson then sent this document to Mr Deans by an email sent at 12.57 pm on 18 December 2014. The same email was copied to Mr Galati at a TA email address but Mr Tomlinson did not suggest that Mr Galati should be a personal guarantor and did not amend the Costs Agreement to make Mr Galati a guarantor.
13 The sending of this email plainly revoked the offer which had been made by Madison Marcus on 15 December. After the sending of the second offer the first offer no longer remained open for acceptance by anyone.
14 At 2.43 pm on 19 December 2014 Mr Deans returned the signed document to Madison Marcus by email but he did not copy this to TA. In fact, Mr Deans made further changes in handwriting to the Costs Disclosure. Specifically these were:
(a) amending the name of a company, Felans Fisheries Pty Ltd (‘Felans Fisheries’), referred to in cl 2; and
(b) stipulating in cl 3 that payment was to occur within 14 days after the signing of the transaction documents upon which Madison Marcus was to advise or, if that transaction did not proceed, within 6 months from the date of formation of the retainer, with costs in that eventuality to be reduced to $100,000 plus disbursements and GST.
15 It is not in dispute that Madison Marcus then proceeded on the basis that this was the document that governed their retainer. In particular, it is clear that the fixed fee arrangement was for $150,000 (or $100,000 if the transaction did not proceed) not the estimate of $150,000-$200,000 which had been included in the offer of 15 December 2014. The invoice referred to at  above also reflected that the retainer thus revised was the one entered into, for it stipulated the amount for professional fees as ‘$273,854.00, reduced to $100,000.00 in accordance with the fixed fee’.
16 The liquidator in this Court accepted that the evidence could not sustain the conclusion that TA had received the version of the Costs Agreement that FDC and Mr Deans had executed, ie the one accompanied by the Costs Disclosure marked up by Mr Deans in the way I have described. He submitted nevertheless that TA should be taken to have accepted the offer made by Madison Marcus in the email sent on 18 December 2014. The offer was said to have been accepted by Mr Galati’s alleged conduct in giving instructions to Madison Marcus.
17 It is clear that the first offer of 15 December 2014 did not remain open for acceptance by 18 December 2014. As I have explained, it was revoked by the making of the second offer on 18 December 2014. That second offer, in turn, was revoked by Mr Deans’ handwritten amendments to the Costs Disclosure, which he then signed and returned to Madison Marcus on 19 December 2014. In my view, this amounted to a counter-offer which Madison Marcus then accepted, thereby forming the retainer.
18 The liquidator did not submit that the documents signed by Mr Deans and returned to Mr Tomlinson had ever been accepted by TA. Indeed, the evidence could not support a finding that Mr Galati or TA had even seen the documents incorporating Mr Deans’ handwritten amendments. In that circumstance, it is simply impossible to accept that a contract was ever formed between TA and Madison Marcus even assuming that the offers of 15 and 18 December 2014 were in fact made to TA.
19 Counsel for the liquidator submitted that, save in one minor respect, the amendments which Mr Deans made to the Costs Disclosure simply reflected the contents of the email referred to at  above, under cover of which Madison Marcus sent the offer of 18 December 2014. The minor respect was that the email did not contemplate the change to cl 2 regarding the name of Felans Fisheries. Because Mr Galati was copied on the email, so the argument ran, and because the handwritten changes did not materially depart from it, Mr Galati and TA should be taken to have had notice of the revised terms and to have proceeded to give instructions in acceptance of the proposed retainer incorporating them. However, this argument ignored the fact described above that Mr Deans’ handwritten amendments included the introduction of an entirely new term: namely, that the fixed fee would be reduced to $100,000 payable within six months in the event that the transaction did not proceed. There is no sound basis for a finding that Mr Galati or TA ever saw or accepted the terms of the retainer thus revised.
20 In any event, I do not accept that TA ever gave instructions to Madison Marcus. The liquidator submitted that the presence of Mr Galati at conferences with Madison Marcus proved that he had given instructions. The evidence relied upon in this respect was:
21 First, time entries by solicitors at Madison Marcus which were appended to the invoice referred to at  above. The liquidator referred to an entry on 30 December 2014 which was accompanied by this narrative:
Conference Client with Bhavani and Dominic (with Robert Tomlinson and Bechara Shamieh) in relation to amendments to the Relationship Deed and advice on several aspects.
22 It is not in dispute that ‘Dominic’ was a reference to Mr Galati. ‘Bhavani’ was a reference to Ms Bhavani Ma who, the evidence suggested, was assisting or providing consulting services to FDC and Mr Deans in connection with the proposed redevelopment. The liquidator also referred to a time entry on 5 January 2015 which was accompanied by this narrative:
Conference Client with Bhavani Ma, Robert Deans, Mark Fraser, Dominic, Bechara Shamieh, Robert Tomlinson and Carmelo S (and the Tax Advisors, Nick Parras and Gary) in relation to the Relationship and Sale Deed, structure for FDC, and capital gains tax issues.
23 Secondly, an email from Ms Ma dated 2 January 2015 to various recipients including Mr Shamieh at Madison Marcus, Mr Galati, Mr Deans and two gentlemen the email described as ‘tax experts’: Gary Lissa and Nick Parras. The liquidator relied upon the last substantive paragraph of the email which was in these terms:
I have cced Gary & Nick on this emails they will also be attending the conference on Monday as our tax experts together with Dominic, Robert, Mark & myself and Bechara & the MM team.
24 I do not accept that this evidence is sufficient to draw the inference that Mr Galati gave instructions.
25 The conclusion therefore is that TA did not retain Madison Marcus. This conclusion is consistent with subsequent events. The correspondence between the parties is striking in its failure to treat TA as a client. For example:
26 On 4 January 2015, Mr Shamieh of Madison Marcus sent an email to Mr Deans, copied to various recipients including Ms Ma and Mr Galati. The email is composed in the second person singular and is clearly addressed to Mr Deans alone. It contains various references to Mr Deans engaging and instructing Madison Marcus and contains no similar references in respect of the recipients carbon copied including Mr Galati. The relevant passages include:
As the introducer of Dahua via Madison Marcus Advisory Pty Ltd (as disclosed prior to you engaging our firm) I am in constant contact with their key personnel…
I should point out upon reflection my colleagues and I are surprised that the fabric of the deed exclusivity is sought to be put aside without proper consultation with our firm who you have engaged to act for you.
I am currently(now) finalising our latest version which will incorporate the concerns that Bhavani noted and take up necessary amendments as per Mark’s latest version and your updated instructions which were conveyed by Bhavani.
If this does not meet your expectation please advise me immediately and I will stop work until such time as we have had opportunity to discuss this in person.
27 I note that ‘Dahua’ was a reference to Dahua Group Fish Market Project Pty Ltd who, at the time, was a potential investor in the proposed redevelopment project. On 9 January 2015, Mr Tomlinson of Madison Marcus sent an email to Ms Ma, copied to various recipients including Mr Deans and Mr Galati. As with the previous example, the grammar of the email demonstrates that it is addressed to Ms Ma alone. Recalling that Ms Ma was assisting Mr Deans and FDC in a consulting capacity at the relevant time, one notes this paragraph of the email:
We note the Bidvest Site Development Agreement is your document and have included this in our email to Dahua. We also note that upon your instructions (but against our advice) the definition of Insolvency Event and the reference to that event in Clause 23 (Default) have been deleted from the document issued.
28 On 7 January 2015, Mr Mark Robertson QC provided advice in conference regarding the taxation consequences of various aspects of the transaction. Madison Marcus forwarded Mr Robertson’s invoice to Ms Ma for her attention and payment and included a note on its internal copy of the invoice which read: ‘already invoiced to FDC – send reminder to pay’. The invoice itself referred only to FDC and not to Mr Galati or TA. Counsel for Mr Galati submitted, and I accept, that these documents support an inference that Madison Marcus did not regard these costs as due by Mr Galati or TA and, by extension, did not regard Mr Galati or TA as its client.
29 On 16 January 2015, Mr Shamieh forwarded a letter from lawyers representing Dahua to Mr Deans. The letter sought an extension to an exclusivity agreement entered into between Dahua, FDC and TA. Mr Shamieh’s email, addressed to Mr Deans and copied to various recipients including Mr Galati, was in these terms:
Can I please have your instructions to the attached letter.
30 Eventually, the lawyers at Madison Marcus completed their work in drafting the transaction documentation. Mr Tomlinson sent an email to Mr Deans, copying Mr Shamieh and Ms Ma (notably, not copying Mr Galati) which observed that the drafting phase of the work had completed and attached a pre-bill. It was relevantly in these terms:
I refer to your email below, which was received during my absence from the office on annual leave.
I have now had the benefit of discussing the matter with Bechara. As I understand it, Mark Fraser is now handling all matters relating to this transaction on behalf of FDC. Accordingly, our involvement as solicitors in drafting the transaction documents is now complete.
I attach amended pre-bill for $100,000 which has been adjusted downwards on the footing that the transaction with Dahua does not proceed and look forward to prompt payment.
Of course, if the transaction with Dahua revives, we reserve our position.
31 As the text suggests, this was a reply to an email from Mr Deans, sent on 28 January 2015 to Mr Tomlinson and Mr Shamieh and copied to Ms Ma and Mr Galati, which expressed concern about an earlier version of the pre-bill. It is not entirely clear but the text and context strongly suggest that Mr Deans’ criticism of the pre-bill inhered in the fact that it quoted an amount in excess of $100,000, which Mr Deans considered to be inconsistent with cl 3 of the Costs Disclosure as marked up by him on 19 December 2014. Mr Deans’ email was in these terms:
Hi Robert [i.e. Mr Tomlinson of Madison Marcus]
I am surprised to receive your letter as it seems to contradict the cost agreement agreed with Bechara and myself on 19 December, signed by myself and sent to Bechara (see email & attachment below).
Please review the documentation with a view to withdrawing this invoice.
32 In those circumstances, it is clear that TA did not retain Madison Marcus and, further, that Madison Marcus did not think that it had done so. When the time came for Madison Marcus’ bill to be paid FDC was resistant. Ultimately it only paid when presented with a statutory demand. At no time did anyone suggest that TA should be asked for the money which is striking if, as is now suggested, it was the client. Further, even after FDC paid the bill in October 2015 it is striking that it did not request or demand (whether directly or indirectly) any payment from TA until 2020, some five years later.
33 For completeness, I note that Counsel for the liquidator pointed to a few documents said to support the contrary finding. These related to Madison Marcus’ engagement and contain references to TA which could be read as suggesting that Madison Marcus regarded TA as a client alongside FDC. I have reviewed these documents along with the balance of the joint tender bundle. They are the exception rather than the rule. In my view, taken as a whole, the material before the Court does not support a finding that TA or Mr Galati was a client of Madison Marcus.
Conclusion and Orders
34 I conclude therefore that TA was never liable for Madison Marcus’s fees and the proof of debt must be rejected. For completeness, even if the first (or alternatively second) offer had remained open for acceptance (which it did not) and even if it had been accepted by TA giving instructions (which it was not), this would have brought into existence a different contract to the one which FDC entered into on 19 December 2014. The question of whether, in those circumstances, an equity of contribution would have arisen in favour of FDC in respect of Madison Marcus’ invoice is a complex one.
35 A claim for contribution depends on the existence of ‘co-ordinate liabilities’ meaning liabilities owed to the same person that are of the same nature and extent: Friend v Brooker  HCA 21; 239 CLR 129 at  per French CJ, Gummow, Hayne and Bell JJ; Burke v LFOT Pty Ltd  HCA 17; 209 CLR 282 (‘Burke’) at  per Gaudron ACJ and Hayne J,  per McHugh J; HIH Claims Support Ltd v Insurance Australia Ltd  HCA 31; 244 CLR 72 at ,  per Gummow ACJ, Hayne, Crennan and Kiefel JJ. Partly because the categories of co-ordinate liabilities sufficient to ground a claim are not closed (Burke at ), cases are decided on bases which are heavily fact-dependant: cf Burke and BP Petroleum Ltd v Esso Petroleum Co Ltd  SLT 345.
36 Had two retainers come into existence, aspects of each retainer and the broader circumstances would pull in opposite directions on the question of contribution. On the one hand, the substantial overlap between the work to be performed under the two retainers (in short, drafting the transaction documents) and the related possibility that Madison Marcus could not ethically have charged both clients the full amount would militate in favour of a conclusion that TA ought to give contribution. On the other hand, there is a real question whether the liabilities would have been ‘of the same extent’ due to the fact that FDC’s retainer rested (and was invoiced) on a fixed basis of $100,000 while TA’s retainer would have rested either on a fee estimate of $150,000-$200,000 (if it had accepted the 15 December offer) or a fixed basis of $150,000 (if it had accepted the 18 December offer). These are by no means the only considerations which would bear upon the issue of contribution. As it has fallen out, that issue did not arise.
37 Finally, whilst I have rejected the position of the liquidator, I accept that his position was a reasonable one and that his defence of the review application was appropriate.
38 The orders will be:
(1) Pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations), Sch 2 to the Corporations Act 2001 (Cth), the decision of Danny Tony Vrkic in his capacity as liquidator of Trading Australia Pty Ltd (in liq) to admit the proof of debt dated 24 November 2020 submitted by Fishbank Development Corporation Pty Ltd for the sum of $56,289.43 plus interest of $9,742.31 be reversed and the proof of debt be rejected.
(2) The liquidator pay the Applicant’s costs of the interlocutory application.