New South Wales Supreme Court CITATION : Pierotti & Fanani Pty Ltd v Mentha & Ors [1] & [2], Tuscany Management Pty Ltd v Mentha & Anor [3] [2005] NSWSC 685 HEARING DATE(S) : 8 July, 2005 JUDGMENT DATE : 8 July 2005 JURISDICTION : Equity Division JUDGMENT OF : Palmer J DECISION : Order each party to pay its own costs of the proceedings. CATCHWORDS : COSTS - COMPROMISED PROCEEDINGS - The Defendants found a means of resolving the parties' problems after litigation had commenced - proceedings dismissed by consent - who should pay the costs. [1], [2] Pierotti & Fanani Pty Ltd - Plaintiff [3] Tuscany Management Pty Ltd - Plaintiff PARTIES : [1] Perosin & Sergi Pty Ltd (subject to Deed of Co. Arrangement) - Second Defendant [1], [2], [3] Mark Francis Xavier Mentha & Mark Anthony Korda - First Defendants FILE NUMBER(S) : SC [1] 5104/03; [2] 6106/04; [3] 6752/04 J.T. Johnson - Plaintiffs COUNSEL : J.R. Dixon - First Defendant Mackenzie & Vardanega - Plaintiffs SOLICITORS : Gadens - First Defendant LOWER COURT JURISDICTION : 5104/03 Pierotti & Fanani Pty Ltd v Mentha and Ors 6106/04 Pierotti & Fanani Pty Ltd v Mentha and Anor 6752/04 Tuscany Management Pty Ltd v Mentha & Anor JUDGMENT – Ex tempore 8 July, 2005 1 There are three proceedings before the Court. They all arise out of the same circumstances, namely the administration of a company called Perosin & Sergi Pty Ltd ("Perosin & Sergi"). That company was part of a much larger group of companies called the Stockford Group. 2 The Plaintiffs claimed to be creditors of Perosin & Sergi for damages for breach of a contractual duty of care. Perosin & Sergi had carried on practice, apparently, as accountants. 3 On 23 February 2003, voluntary administrators were appointed to Perosin & Sergi. 4 On 26 May 2003 a Deed of Company Arrangement was entered into for Perosin & Sergi. That Deed of Company Arrangement was part of a Deed of Company Arrangement for the whole of the Stockford Group. 5 On 30 September 2003, the Plaintiff commenced proceedings 5104 of 2003 against the administrators and Perosin & Sergi in which the Plaintiff sought, in effect, declarations that the Deed of Company Arrangement had not been validly entered into. Alternatively, the Plaintiff sought admission of a proof of debt in the administration under the Deed. 6 There were other proceedings commenced by the Plaintiff, viz proceedings 6106 of 2004. Proceedings were also commenced by a related company of the Plaintiff, so I gather, Tuscany Management Pty Ltd, viz proceedings 6752 of 2004. 7 It was determined at a relatively early stage that there should be argued as a preliminary question whether or not the Deed of Company Arrangement was validly entered into. A date for the trial was set. The parties prepared their cases but, for reasons I need not go into, that date was vacated. 8 What has happened is that on 26 April 2005, the administrators invoked the provisions of Clause 18.2 of the Deed of Company Arrangement by procuring a resolution of creditors to determine that the Deed should terminate insofar as it affected Perosin & Sergi. Consequently, there was now no longer any point to determining the validity of the Deed of Company Arrangement insofar as it affected Perosin & Sergi, nor was there any point in seeking admission to proof in the administration of that company of the Plaintiffs' alleged debts. Accordingly, the three proceedings were dismissed by consent on 28 April 2005. Costs were reserved and it is the costs of those proceedings which have now been debated before me. 9 The Plaintiffs seek an order that the Plaintiffs' costs of the proceedings be paid by the Defendants. The Defendants seek an order that the costs of the proceedings be paid by the Plaintiffs. The Plaintiffs say that there was merit in their case on the question of the validity of the Deed of Company Arrangement and that, but for the event that occurred on 26 April 2005, they probably would have succeeded. At the least, they say, they were justified in bringing the proceedings because there was a question to be tried as to the validity of the Deed of Company Arrangement. 10 The Defendants say that the Plaintiffs were unreasonable in pursuing their claim for determination of the preliminary point. They say that it was really purposeless for the Plaintiffs to have done that when they could have really availed themselves of various other opportunities to resolve the problem without recourse to litigation. 11 In this respect the administrators point to a letter of 8 April 2004 to the Plaintiffs in which reference is made to "alternatives to the expensive route of a two day preliminary point application". However, there is no evidence that the administrators in April 2004 or at any earlier time expressly suggested to the Plaintiffs that a solution to the problem was to remove Perosin & Sergi from the operation of the Deed of Company Arrangement by recourse to the machinery in Clause 18.2. 12 It seems to me that this is a case in which, unfortunately, a solution to the difficulties faced by the parties has been found later rather than sooner. No doubt each party at the time considered that it was reasonably protecting its own interests. The Plaintiff was entitled to pursue its own commercial interests in either being admitted to proof under the Deed of Company Arrangement, or availing itself of an alternative remedy as it saw fit, that is, having the Deed set aside on the ground of invalidity. I think that Mr Dixon of Counsel, who appears for the administrators, concedes that the Plaintiffs had at least an arguable case that the Deed was invalid. 13 Very briefly, the Plaintiffs' case was that the original reports of the administrators to creditors disclosed no creditors at all for Perosin & Sergi so that it would have followed that there was nobody who could pass the appropriate creditors' resolution approving the entry by that company into the Deed of Company Arrangement. 14 As I have said, the Plaintiff now says that the administrators, in effect, were unreasonable in not exercising the machinery in Clause 18.2 of the Deed earlier so as to bring about the situation which has resulted in the proceedings becoming otiose. 15 On the other hand, one must observe that when, in April 2005, the Defendants proposed the resolution for termination of the Deed, the Plaintiffs attended the creditors' meeting and voted against the resolution so that it must be inferred that if that solution to the problem had been proffered earlier, it would have been rejected by the Plaintiff then as well. 16 However, the reality is that the solution which has resulted in the termination of all proceedings was a solution which was solely within the capacity of the Defendants to bring about; they could bring about that solution regardless of the wishes of the Plaintiff because the Defendants really did not require the vote of the Plaintiff in favour of the proposal to have the resolution passed. 17 In the event, what has happened is that a commercial solution to the parties' difficulty has been found but it has been found much later than was desirable in order to avoid the costs of the litigation which have been incurred. It seems to me in those circumstances each party should bear its own costs respectively of the litigation. I cannot attribute to either side such unreasonable conduct as to warrant the visitation of a costs order on that party. Neither can I find, nor would it be appropriate to find, that one side or the other must inevitably have succeeded or failed in the litigation had it actually come to trial. 18 In those circumstances, in the exercise of discretion I consider that the appropriate order is, as I have said, that each party should bear its own costs respectively of the proceedings. – oOo – DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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