Federal Court of Australia

Aquisite Pty Ltd v Moss (No 2) [2023] FCA 727

ORDERS

THE COURT ORDERS AND DECLARES THAT:

1.    Between 2 March 2016 and 31 May 2017, the first defendant was a director of Amici Food Manufacturer Pty Ltd (in liq) (ACN 611 078 865) within the meaning of the definition of director at s 9 of the Corporations Act 2001 (Cth).

2.    There be judgment for the plaintiff against the first defendant in the sum of $618,465.87.

3.    Pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), in addition to the amount specified in (2) the first defendant must pay pre-judgment interest in the amount of $183,277.70.

4.    There be judgment for the plaintiff against the third defendant in the sum of $13,922.

5.    Pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), in addition to the amount specified in (4) the third defendant must pay pre-judgment interest in the sum of $2,411.08.

6.    The first defendant is to pay the plaintiff’s costs of the proceeding against him on a party and party basis to 30 November 2020 and thereafter on an indemnity basis.

7.    The third defendant is to pay the plaintiff’s costs of the proceeding against her on a party and party basis to 30 November 2020 and thereafter on an indemnity basis.

8.    The plaintiff is to pay the costs of the second and fourth defendants on a party and party basis.

9.    All costs are to be assessed and determined by a Registrar of this Court on a lump sum basis pursuant to r 40.02 (b) of the Federal Court Rules 2011 (Cth).

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MCELWAINE J:

1    For reasons published on 5 May 2023, I dismissed the proceeding against the second and fourth defendants (PRM Investments Pty Ltd and Orthosurgical Pty Ltd) and I adjourned for further consideration the making of orders to give effect to my reasons on the plaintiff’s claims against the first and third defendants (Paul Ronald Moss and Sarah Elizabeth Moss): Aquisite Pty Ltd v Moss [2023] FCA 410. As to Mr Moss, I found for the plaintiff upon a claim of director liability for insolvent trading on the basis that he was at all material times a director in fact of Amici Food Manufacturer Pty Ltd (Amici), despite the absence of a formal appointment. I dismissed other claims made against him. As to Ms Moss, I found for the plaintiff upon a claim that she received weekly payments from Amici that were uncommercial within the meaning of s 588FB of the Corporations Act 2001 (Cth).

2    I have now received and considered competing submissions on the issues of the declaration to be made, quantification of loss, interest and costs, which I resolve in that order.

3    The plaintiff established an entitlement to declaratory relief (and there is no discretionary reason to refuse it) that between 2 March 2016 and 31 May 2017, Mr Moss was a director of Amici within the meaning of the definition of director at s 9 of the Corporations Act.

4    The plaintiff’s principal claim for insolvent trading against Mr Moss is for $618,465.87 which is the total quantification of admitted debts incurred when Amici was insolvent between those dates. The plaintiff seeks an award of interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) (FCA Act) in the sum of $183,277.70 calculated on the principal amount from 31 May 2017 to 5 May 2023. The plaintiff is the assignee of various causes of action from the liquidator of Amici who was appointed on 31 May 2017. An award of pre-judgment interest may be made in favour of a liquidator who succeeds on an insolvent trading claim: Smith v Bone (No 2) (2015) 233 FCR 568; [2015] FCA 389, Gleeson J. Whether the award is made from the date of appointment of the liquidator of Amici has been described “as a matter of convenience”: Powell & Duncan (Noelex Yachts Aust) v Fryer (2001) 37 ACSR 589; [2001] SASC 59 at [115] (Olsson J with Duggan and Williams JJ concurring), citing Re Mike Electric (Aust) Pty Ltd (in liq) (1983) 71 FLR 117, Rath J. An award of interest is obligatory pursuant to s 51A of the FCA Act unless “good cause is shown to the contrary”. No submission has been made on behalf of Mr Moss as to any of the orders or consequential relief that is claimed against him.

5    The amount calculated for pre-judgement interest is at rates conformably with the expectations in the Practice Note: Interest on judgements (GPN-INT), being 4% above the RBA official cash rate.

6    A significant component of the insolvent trading claim relates to an amount of $159,817.12 being a debt owed by Amici to the Australian Taxation Office (ATO). In BCI Finances Pty Ltd (in liq) v Binetter (No 5) [2017] FCA 1524, Gleeson J considered a submission to the effect that a debt owed by a company in liquidation to the ATO does not attract an award of pre-judgment interest because the debt does not include a liability to pay interest and in that circumstance an applicant has not been kept out of a monetary entitlement. In rejecting that argument, her Honour accepted that it is an obligation of a liquidator to pay interest on admitted debts pursuant to s 563B of the Corporations Act.

7    The Deed of Assignment between the liquidator of Amici and the plaintiff requires that any “Resolution Sum” as recovered by the plaintiff be paid, after deducting certain costs, as to 50% to the liquidator. There is no clause that provides for interest. An interesting question that may have arisen in this case is whether Mr Moss may have shown good cause against the interest claim on the ATO debt in that circumstance. However, as no submissions are made for him, this issue does not arise. I allow the plaintiff’s interest claim as calculated.

8    A claim for interest is also made against Ms Moss on a similar basis upon the claim against her as beneficiary of an uncommercial transaction within the meaning of s 588FB of the Corporations Act in the amount of $13,922. The calculated interest is $2,411.08. I allow the claim for the same reasons.

9    A claim is also made by the plaintiff for post-judgment interest, which reflects a misunderstanding on its part. No separate order is necessary to engage s 52 of the FCA Act.

10    I deal next with the costs of the proceeding. The only submission that is made for the defendants is one on behalf of the second and fourth to the effect that each should have their costs of the proceeding set-off against the plaintiff’s costs claimed against Mr and Ms Moss, even though an indemnity costs claim is made based on a Calderbank settlement offer that was made on 17 November 2020. How that set-off would operate in that circumstance and in favour of separate parties was not explained. In that offer, addressed to each defendant, the plaintiff stated that it would accept in full and final settlement, inclusive of costs, the following amounts, subject to execution of a settlement deed on unremarkable terms:

i.    $375,000 from the first defendant, payable within 30 days;

ii.    $75,000 from the second defendant, payable within 30 days;

iii.    $10,000 from the third defendant payable within 30 days;

iv.    $75,000 from the fourth defendant, payable within 30 days;

11    The offer was capable of acceptance by any defendant individually and it was open for acceptance until 4 pm on 13 November 2020. No response to it was received from the defendants. In consequence, the plaintiff claims costs on a party and party basis against Mr and Ms Moss to 30 November 2020 and thereafter on an indemnity basis. The plaintiff seeks its costs of the entire proceeding even though it failed in its claims against the second and fourth defendants. In its submission, it was substantially successful and the claims on which it failed were not separate and distinct. The second and fourth defendants join issue with that submission.

12    The somewhat trite starting point is that costs are discretionary and there are no immutable rules, though there are general principles that inform the exercise of the discretion. One is that costs ordinarily follow the event and generally speaking a dissection of issues is to be eschewed: Kimber v Clark in his capacity as trustee of the property of Kimber (No 2) [2023] FCAFC 88 at [4], Bromwich, Cheeseman and McEvoy JJ. There is no question that the plaintiff should have its costs against Mr and Ms Moss as they follow the event and no matter has been raised to displace that outcome. Whilst I acknowledge that failure by the plaintiff on some aspects of its claims is not of itself a reason to discount or to separate the award of costs, the reality is that the plaintiff was wholly unsuccessful in its distinct claims against the second and fourth defendants, each of which failed because the plaintiff did not give sufficient attention to the evidence that it was required to adduce in order to discharge its burden of proof as explained in my primary reasons at [208]-[235] for the second defendant and [242]-[247] for the joint claim against the second and fourth defendants. Indeed, a component of the claim against the fourth defendant was abandoned due to a lack of evidence in the course of closing submissions.

13    The plaintiff’s failure on these separate claims understood in that context in my view justifies an apportionment of the plaintiff’s costs claim, limited to the costs of the proceeding against Mr and Ms Moss and a separate order that it must pay the costs of the second and fourth defendants. It will be a matter for a Registrar of this Court to apportion those costs.

14    As between Mr and Ms Moss, the plaintiff’s claims almost entirely focused on the conduct of Mr Moss. In comparison the scope of the claims and time spent in pursuing recovery against Ms Moss was very limited. There is no reason why she must bear the entire burden of a joint costs order. The order must be conditioned accordingly.

15    The next question is whether the plaintiff has established an entitlement to an indemnity costs order from 30 November 2020. The failure by the defendants to respond to the Calderbank offer does not of itself justify an order for indemnity costs. If the offer was unreasonably not accepted having regard to the circumstances known when the offer was made, then it may be appropriate to make an indemnity costs order: Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [5]-[9], Nicholas, Yates and Beach JJ.

16    In this case the following matters are relevant. The plaintiff’s claims as pleaded in total exceeded $926,000, of which by reason of the general breach of fiduciary duty and insolvent trading claims, all of that sum was sought from Mr Moss and a fraction of it was sought from Ms Moss in the amount of $13,992. There was considerable overlap of aspects of the claims where the individual components against Mr Moss were also sought from the second and fourth defendants. On any view, Mr Moss faced the prospect of significant personal claims where his only identified defence was his denial that he was a director in fact. The compromise offered that he pay $375,000 inclusive of costs was a significant discount on the plaintiff’s claims. The discount offered to Ms Moss was, in comparison, very modest.

17    When the offer was made, the proceeding was well advanced and the defendants had the benefit of the plaintiff’s documents together with a transcript of the public examination of Mr Moss which centrally focused on the de-facto director issue. Acting reasonably, Mr Moss ought have realised at the time that he was at significant risk of losing, particularly where his defence and outline witness statement were not illuminating as to how he intended to answer the plaintiff’s claims. This is not, I emphasise, some sort of reverse onus. Rather, this is a matter that ought to have weighed on his mind at the time. The same applies to Ms Moss who acting reasonably ought to have appreciated that she could not explain what work she performed for the benefit of Amici in consideration of her weekly payments.

18    I will assume, as no submission is put to the contrary, that Ms Mastos as a competent solicitor explained these risks to each of the defendants when the offer was communicated and advised upon, together with the possible consequences of not accepting, indeed of not responding to the offer and that a deliberate tactical decision was made not to respond. That decision was objectively unreasonable, particularly having regard to the detailed content of the offer and the assessment of the risks faced by the defendants expressed therein.

19    There was ample time to consider the offer – from 17 November 2020 until 4 pm on 30 November 2020. No request for an extension of time to allow for mature consideration was made.

20    The offer was expressed in clear terms, was reasoned, warned that an application would be made for indemnity costs in the event of non-acceptance and was open to be separately accepted by one or more of the defendants.

21    Finally, no submission is made by Ms Mastos against the indemnity costs application.

22    In my view these factors justify the exercise of my further discretion to make an indemnity costs order in favour of the plaintiff from 1 December 2020.

23    I am also of the view that, to avoid further costs and in the overall interests of efficiency, it is appropriate that the quantum of costs for each party be assessed on a lump sum basis.

24    I declare and order as follows:

Associate:

Dated:    30 June 2023

SCHEDULE OF PARTIES