Federal Court of Australia

Ford, in the matter of Fastline Logistics Pty Ltd (in liq) v Lay (costs) [2025] FCA 798

ORDERS

THE COURT ORDERS THAT:

1.    The Plaintiffs are to pay the First, Second, Fourth, Sixth and Ninth Defendants’ costs of the proceeding, to be assessed in default of agreement.

2.    The Plaintiffs are to pay 60 per cent of the Third Defendant’s costs of the proceeding, to be assessed in default of agreement.

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

REASONS FOR JUDGMENT

ANDERSON J:

1.    Introduction

1    The primary proceeding relates to allegations brought by the first plaintiff (Liquidators) that the defendants engaged in illegal phoenix activity twice, involving the transfer of a business between entities controlled by the defendants without the payment of true market value, leaving the insolvent companies behind with substantial debts. The Liquidators alleged that the defendants, by entering into various transactions, or otherwise being involved in various transactions, breached directors’ duties, fiduciary duties, and otherwise contravened provisions of the Corporations Act 2001 (Cth), which entitled the Liquidators to various declarations, equitable compensation and damages.

2    I delivered judgment in respect of this proceeding on 10 April 2025: Ford, in the matter of Fastline Logistics Pty Ltd (in liq) v Lay [2025] FCA 346 (Reasons). The upshot of my findings was that while the Liquidators were successful in bringing a discrete set of unfair preference claims against the third defendant (Tramontana) under s 588FA of the Act, the remainder of the claims brought by the Liquidators failed. Accordingly, on 10 April 2025, I made orders for Tramontana to pay the second plaintiff (Fastline) an amount of $113,000 reflecting the amount of the transactions which constituted unfair preferences, and otherwise dismissed the Liquidators’ further amended originating process.

3    The parties were ordered to file submissions as to costs. The parties have done so, and have confirmed that they are content for the question of costs to be determined on the papers.

4    The Court has a broad discretion to award costs in proceedings. In Crawford v State of Western Australia (No 2) [2025] FCAFC 48, Mortimer CJ, Stewart and O’Bryan JJ said at [6]:

Section 43 of the Federal Court of Australia Act 1976 (Cth) gives the court a broad discretion in awarding costs. The discretion must be exercised judicially, by reference only to considerations relevant to its exercise and upon facts connected with or leading up to the litigation. While not a rigid rule, usually the discretion to award costs is exercised in favour of a successful party. The basis for this “usual order as to costs” is not to penalise a losing party, but compensate a successful party against the costs incurred by reason of the legal proceedings.

(citations omitted.)

2.    The Lay-Chia parties

5    The First, Second, Fourth, Sixth and Ninth Defendants (the Lay-Chia parties) submit that, in the present case, there is no basis to depart from the usual order as to costs insofar as the proceeding concerned claims against them. The Lay-Chia parties submit that they have been wholly successful in defending the claims brought against them, such that there is no principled reason why they ought not to be compensated fully for their costs.

6    The Liquidators submit that it is appropriate for the Court to exercise its discretion to order the Liquidators to pay only 60% of the Lay-Chia parties’ costs, on a party-party basis. Alternatively, the Liquidators submit that the Court should find that all costs associated with the preparation of the Lay-Chia parties’ evidence and any costs associated with witness preparation and the hearing of that evidence at trial should be costs “improperly, unreasonably or negligently incurred” within the meaning of r 40.06 of the Federal Court Rules 2011 (Cth), such that they should be disallowed.

7    The Liquidators submit that there are two bases which support their proposed departure from the usual rule.

8    Firstly, the Liquidators point to the delay of the Lay-Chia parties. The Liquidators note that the first and second defendants were required to file amended defences by 21 October 2022 however, without explanation, the amended defences were not filed until 20 January 2023. The Liquidators submit that this delay meant that orders made on 27 September 2022 referring the matter to mediation needed to be varied by consent and the mediation was then listed for 14 June 2023. On 29 May 2023, the first to sixth and ninth defendants sought an adjournment of the mediation on the basis that the first defendant was overseas, which resulted in the mediation being adjourned to 9 August 2023.

9    Further, the Liquidators note that, by orders made on 27 July 2023, the proceeding was set down for a five-day trial commencing 15 April 2024. On 20 March 2024, the first to sixth and ninth defendants made an application to adjourn the trial date following a “miscommunication between Counsel and the solicitors regarding the date for trial”: affidavit of Melissa Passarelli sworn 20 March 2024. As a result, the trial was vacated and listed for hearing on 22 July 2024.

10    In response to the Liquidators’ submissions, the Lay-Chia parties similarly identify instances where delay was occasioned by the Liquidators. In particular, the Lay-Chia parties note that the second affidavit of Martin Ford which exhibited the Liquidators’ solvency report of Fastline was filed some 47 days late, and that the proceeding was delayed by the Liquidators’ decision to join the ninth defendant against whom the claims failed due to deficiencies in the evidence.

11    The Lay-Chia parties submit, and I accept, that the Liquidators have not sought to identify with any detail or specificity, any costs which were actually wasted as a result of the alleged delays by the defendants, being the late filing of defences, and the adjournment of a mediation. Additionally, in respect of the adjournment of the trial, orders were made for the defendants to pay the Liquidators’ costs thrown away by reason of the vacation of the trial dates.

12    The Lay-Chia parties submit, and I accept, that in light of the above, there is no basis to rely on any delay occasioned by the Lay-Chia parties to reduce the costs to which they would otherwise be entitled as a result of their success at trial.

13    The second matter the Liquidators rely on is the findings made in relation to the evidence of the Lay-Chia parties. At Reasons [72]-[77], I made a number of observations regarding the unsatisfactory nature of the evidence led by the Lay-Chia parties. At trial, the first, second, fifth and sixth defendant each gave evidence in chief by a detailed affidavit. However, during the course of cross-examination, each defendant professed to have little to no recollection of the matters contained in their affidavits, such that I ultimately found each defendant to be unsatisfactory as witnesses and placed no reliance on their evidence, save for admissions which they made.

14    The Liquidators submit that the state of the Lay-Chia parties’ evidence warrants departure from the usual position that costs follow the event. The Liquidators refer to the findings at Reasons [74]-[77] that the affidavits of the defendants were prepared for them without regard to their actual knowledge or recollection. The Liquidators say that cross-examination of the Lay-Chia parties’ witnesses collectively took approximately one day of the trial which went for just over three days. The Liquidators submit that exposing the unsatisfactory and unreliable nature of the evidence took preparation and care, and time in Court, all at significant expense. The Liquidators submit that the costs incurred by the Liquidators in preparing for and conducting cross-examination were entirely wasted, such that a discount should be applied to the costs payable to the Lay-Chia parties.

15    The Lay-Chia parties submit, and I accept, that there is no way for the Court to make an assessment of the costs which were incurred by the Lay-Chia parties in the preparation of their affidavits, for the purpose of considering a reduction in general costs payable, as sought by the Liquidators. Additionally, the Lay-Chia parties submit, and I accept, that the Court will have regard to whether any of the Lay-Chia parties’ costs have been unnecessarily incurred: see Rules, r 40.30. I accept the Lay-Chia parties’ submission that questions surrounding the propriety and reasonableness of the evidence relied upon by the Lay-Chia parties should be determined through a taxation of costs process, rather than through a broad discount applied in the Court’s overall discretion. Whether orders with respect to costs are made as sought by the Liquidators or the Lay-Chia parties, there will need to be a taxation of costs absent agreement.

16    For the reasons given above, I do not consider it appropriate to exercise the discretion as to costs to apply a general discount against the costs of the Lay-Chia parties.

3.    Tramontana

17    The Liquidators submit that Tramontana should pay the Liquidators’ costs of the proceeding against it on a party-party basis. The Liquidators submit that while they only succeeded against Tramontana in respect of the unfair preference claims, given the narrow scope of, and modest time at trial devoted to, the unsuccessful claims of knowing involvement compared to the prominence at trial of the successful unfair preference claims, there is no warrant to approach the costs liability of Tramontana on an apportioned or issues basis. The Liquidators submit that Tramontana should be ordered to pay the Liquidators’ costs of the proceeding, and that if there is to be any reduction, it should be minimal such that Tramontana should be ordered to pay 90% of the Liquidators’ costs on a party-party basis.

18    Tramontana submit that while the Liquidators succeeded on one cause of action concerning two discrete unfair preferences, the Liquidators failed entirely on the more complex, and time-consuming, causes of action brought against Tramontana. Tramontana submit that the appropriate order is that Liquidators pay 60% of Tramontana’s costs.

19    Tramontana submit that the Liquidators’ overwhelming focus at trial was on the more factually complex aspect of their case, being the “double phoenix”. Of the five key events around which the Liquidators based their claim, only one related to the Liquidators’ successful unfair preference claim against Tramontana: see Reasons [3]. Fastline’s entry into the loan agreement dated 1 June 2016, and the transfer of the Non-Target business (as defined at Reasons [16]) from Fastline to the seventh defendant were pleaded as the foundation of multiple causes of action brought against Tramontana in respect of breaches of Tramontana’s fiduciary duties, their duty of care, and knowing involvement in breaches of directors’ duties. The Liquidators failed on each of these claims.

20    Tramontana submit that the case on which the Liquidators ultimately succeeded against Tramontana was entirely severable from the dominant case concerning the double phoenix. Tramontana submit that if the Court regards an apportioning of costs as appropriate having regard to the Liquidators’ limited success against Tramontana, it is not a matter of engaging in a mathematical analysis, rather, the exercise is one of impression and evaluation: Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272 (Gummow, French and Hill JJ). Tramontana submit that it ought be accepted that the allegations regarding the four events that drove all causes of action bar the unfair preference claim must be regarded as having consumed the time and resources of the parties, and the court, to an overwhelming extent.

21    I accept Tramontana’s submission that the allegations regarding each of the key events, with the exception of the unfair preference claim, consumed the large majority of the time and resources of the parties. There were limited factual issues in respect of the unfair preference claims brought against Tramontana, as is evident from Reasons [389]-[400]. The key issues in respect of the unfair preference claims were Tramontana’s arguments that, in respect of the $100,000 commission payment, it was subject to the doctrine of ultimate effect, or alternatively, was a secured debt, and in respect of the $13,000 reduction in the running balance, that it was also subject to the doctrine of ultimate effect. While Tramontana failed on each of these arguments, the issues were primarily ventilated through detailed written submissions. I accept Tramontana’s submissions that the allegations against Tramontana arising in respect of Fastline’s entry into the loan agreement, and the subsequent transfer of the Non-Target business by Fastline consumed a larger majority of time. Those claims were much more complex, in both their factual and legal nature. While the Liquidators submit that the unsuccessful claims of knowing involvement against Tramontana Accountants were narrow in scope, the submission fails to acknowledge that the claims of knowing involvement were naturally dependent on establishing the principal contraventions, which were the subject of the majority of the trial. The submission also fails to acknowledge the substantial claim alleged against Tramontana in respect of breaches of fiduciary duty. Weighing these matters up, a reduction of 40% of Tramontana’s costs is appropriate in all the circumstances.

4.    Disposition

22    The plaintiffs will pay the Lay-Chia parties’ costs of the proceeding. The plaintiffs will also pay 60 per cent of Tramontana’s costs of the proceeding.

Associate:

Dated:    15 July 2025

SCHEDULE OF PARTIES