Supreme Court New South Wales Medium Neutral Citation: Hua and Song v Tuckerman & Ors [2016] NSWSC 1431 Hearing dates: 26 September 2016 Decision date: 27 September 2016 Jurisdiction: Equity - Corporations List Before: Black J Decision: The Court orders that the Amended Notice of Motion be dismissed. The First and Second Defendants pay the Plaintiffs' costs of and incidental to the Amended Notice of Motion as agreed or as assessed. Catchwords: CORPORATIONS — Liquidation — Derivative action — where the defendants applied for grant of leave under Court's inherent jurisdiction to represent company and its subsidiaries for purposes of bringing claims against various parties – whether proposed derivative action exhibits such a degree of merit as to be neither vexatious or oppressive – whether liquidator of company opposes commencement of derivative action – whether liquidator and company are financially protected by means of indemnity. PROCEDURE — Costs — Order for costs on indemnity basis – where plaintiffs sought indemnity costs in respect of paragraphs of defendants' notice of motion in which defendants sought to bring claims against third parties with no connection to plaintiffs – where defendants were self-represented litigants – whether indemnity costs ought to be granted. PROCEDURE — Costs — where defendants' amended notice of motion was dismissed – where plaintiffs sought an order for costs forthwith against defendants –whether costs should be payable forthwith in circumstances where delay in final determination of proceedings was in part due to plaintiffs' amendment of their pleadings. Legislation Cited: - Civil Procedure Act 2005 (NSW), ss 98, 236, 237 - Uniform Civil Procedure Rules 2005 (NSW), rr 42.1, 42.5 Cases Cited: - Aliprandi v Griffith Vintners Pty Limited (in liq) (1991) 6 ACSR 250 - Brightwell v RFB Holdings Pty Limited (in liq); [2003] NSWSC 7; (2003) 44 ACSR 186 - Carpenter v Pioneer Park Pty Limited [2008] NSWSC 551; (2008) 71 NSWLR 577 - Hu v PS Securities Pty Ltd (as trustee of the Joseph Family Trust) [2011] NSWSC 303 - Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 64; (2014) 97 ASCR 581 - Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (1988) 6 ACLC 213 - Cadima Express Pty Ltd (in liq) v Deputy Commissioner of Taxation [1999] NSWSC 1143; (1999) 33 ACSR 527 - Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248 - Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 - Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 - Fiduciary Ltd v Morningstar Research Pty Ltd [2002] NSWSC 432; (2002) 55 NSWLR 1 - Brasington v Overton Investments Pty Ltd [2001] FCA 571 - Rafferty v Time 2000 West Pty Ltd (No 3) [2009] FCA 727; (2009) 257 ALR 503 Category: Procedural and other rulings Parties: Xiao Ping Hua (First Plaintiff/First Cross-Defendant) Lu Sheng Song (Second Plaintiff/Second Cross-Defendant) Michael Shane Tuckerman (First Defendant/First Cross-Claimant) Paul James Devine (Second Defendant/Second Cross-Claimant) & Ors Representation: Counsel: I G A Archibald (Plaintiffs) Solicitors: McQui Lawyers (Plaintiff) M S Tuckerman (self-represented) P J Devine (self-represented) File Number(s): 2014/117476 ORAL Judgment (amended 28 september 2016) Application for leave to bring derivative claim and other relief 1. By Amended Notice of Motion filed by leave on 26 September 2016, the Defendants and First and Second Cross-Claimants, Messrs Tuckerman and Devine, sought a number of orders in respect of various aspects of their Defence and Cross-Claim, including, most significantly, several orders that they be granted leave to represent MST Investment Corporation Limited (in liq) ("MST") and various subsidiaries of that entity, some of which were identified, for the purposes of bringing claims against the First and Second Cross-Defendants, Ms Hua and Mr Song, and various other parties. The application for leave to bring derivative proceedings on behalf of MST and subsidiaries against parties other than Ms Hua and Mr Song is not now pressed, in circumstances to which I will refer below. The application for leave to bring derivative proceedings on behalf of MST and several identified subsidiaries against Ms Hua and Mr Song is pressed. 2. Before turning to the Amended Notice of Motion, and the voluminous evidence and submissions that were filed in respect of this application, it is necessary to identify several disturbing features of these proceedings. First, the proceedings have been on foot for over two years, and, so far as it is possible to see, are still at a pleading stage. Second, the proceedings concern a failed development project at Gosford, New South Wales, and the claims brought by the Plaintiffs appear to be for the loss of monies invested in the order of $2 million or more. The claims which Messrs Tuckerman and Devine seek to bring on behalf of MST and its subsidiaries relate to a somewhat larger amount, which was at one point identified as in the order of $4 million or more. No doubt, the amount of $2 million is a substantial amount of money for an individual person. Having said that, it is extraordinary, and regrettable, that these proceedings have generated, in respect of the Further Amended Statement of Claim, a pleading of 153 pages; in respect of Messrs Tuckerman's and Devine's Amended Defence, a pleading of 300 pages; and, in respect of the Amended Statement of Cross-Claim, a pleading of 115 pages. It seems to me that pleadings of this scale are rarely necessary even for the most complex of commercial litigation, and scarcely for proceedings involving lesser complexity and lesser amounts. There is a real concern, in these proceedings, that any sensible prospect of a just, quick and cheap trial of the proceedings will be prejudiced by the weight of the voluminous pleadings that have to date been filed between the parties, and they will exhaust themselves by the costs incurred in dealing with these issues in a way that will frustrate or impede the determination of the merits of the proceedings. 3. With that unfortunate background, I now turn to this application. The application itself was conducted in a manner which is consistent with the parties' approach to pleadings. Messrs Tuckerman and Devine initially relied on their "brief outline of submissions", which comprised some 17 pages, which was supported by a joint affidavit of Messrs Tuckerman and Devine dated 7 September 2016 of 68 pages and 7 lever arch folders of documents. The Plaintiffs in turn responded by a written outline of submissions of 35 pages and supplementary submissions of a further 3 pages, and also relied on an affidavit of their solicitor Ms Qiu, dated 19 September 2016, which was somewhat shorter than the other affidavits relied on in the proceedings. Messrs Tuckerman and Devine in turn responded by submissions, partly in reply, which comprised no less than 72 pages, made up of their submissions in chief, with minor amendments, a lengthy section dealing with case law on derivative proceedings, and what was again described as a "brief outline" of further submissions concerning Ms Qiu's affidavit and in response to the Plaintiffs' submissions, which comprised some 35 pages of further submissions. All of this was once again disproportionate to the nature of an application of this kind. 4. Some aspects of the Amended Notice of Motion may be dealt with briefly, and others will require more detailed analysis. First, by paragraph 1, Messrs Tuckerman and Devine seek leave to correct "typographical and other errors" in their Defence and file an Amended Statement of Defence. The "typographical and other errors" which are sought to be corrected were not identified and a draft Amended Defence was not available. In those circumstances, the Court should not grant such leave, because it would have no ability to determine what are the "typographical and other errors" which are sought to be corrected, and whether they are genuinely typographical in nature, or would amount to a wider and presently unidentified amendment of the pleading. In any event, there is no necessity to grant such leave, because the Plaintiffs have recently filed a Further Amended Statement of Claim, by leave granted by the Registrar on 8 September 2016, and the Defendants are entitled to file a Defence to that Further Amended Statement of Claim as of right. They will have the opportunity to correct any typographical or other errors which existed in earlier versions of their Defence, when filing their Defence to the Further Amended Statement of Claim. 5. Second, Messrs Tuckerman and Devine seek leave to correct "typographical and other errors" to the Amended Statement of Cross-Claim, namely the document of some 115 pages to which I referred before, which was filed on 14 July 2016. Again, the "typographical or other errors" that sought to be corrected are not identified and a draft of the Amended Statement of Cross-Claim that is sought to be filed is not available. Any order for leave to file a further amendment to the Statement of Cross-Claim should only be made after those changes have been identified. Leave should not be granted, in this form, to make unidentified changes to that document, particularly where it is only a short time since that document has been filed. 6. Third, Messrs Tuckerman and Devine seek an order that they be granted leave to further amend their Amended Statement of Defence, where the Plaintiffs have been granted leave to file the Amended Statement of Claim. That order is not necessary because, as I have noted, Messrs Tuckerman and Devine have the ability to file a Defence to the Further Amended Statement of Claim as of right. 7. Fourth, Messrs Tuckerman and Devine seek an order that, where the Plaintiffs have been granted leave to file the Further Amended Statement of Claim, they should be granted leave to further amend the Amended Statement of Cross-Claim. An order should not be made in that form. The usual and proper course in order to amend a cross-claim is to provide a draft of the proposed amendment, so that the Court can determine whether leave should be granted. Given the nature of the existing pleadings in this case, to which I have referred above, there is every reason not to grant leave for an unidentified document, lest the Cross-Claim which is already of excessive length should further grow in size in its further amendment. 8. I now turn to the more substantive issues which arise in this application, primarily the question whether Messrs Tuckerman and Devine should be granted leave to represent MST and several subsidiaries described as RPI, MST View, MST Camperdown, MST Chatswood, MST Architects and PIA for the purpose of cross-claiming against Ms Hua and Mr Song. It is common ground between the parties that each of those entities is in liquidation and have a common liquidator, and I proceed on that basis, although my attention was not drawn to evidence of the position of the relevant subsidiaries. 9. The form of Cross-Claim that is sought to be brought by Messrs Tuckerman and Devine on behalf of MST and its several subsidiaries had again not been prepared, so that the Court was not in a position, as it ordinarily would be in an application of this kind, to assess a pleading of the claims against the criteria to which I will refer below. It seems to me that, given the issues to which I have already referred as to the pleadings of all parties in this case, that would in itself have been a reason to decline the leave which is sought. However, I would not have determined the matter on that basis alone, without allowing Messrs Tuckerman and Devine a short opportunity to bring in the further pleading which they propose. In the event, there would be no utility in allowing such an opportunity, because of the views that I have reached on other grounds. 10. I should now refer to the matters raised by the parties by way of submission and evidence, before turning to the applicable principles, and their application in this case. Messrs Tuckerman and Devine, who are not represented by solicitors in the proceedings, in their submissions outlined the history of the matter, including the procedural history of amendments to date, and identified the background to the claim which is sought to be brought in respect of MST and its several subsidiaries. That claim appears to involve two primary elements, namely that Ms Hua was required to pay an amount of $2 million to another entity ("Gosford") within six weeks after 30 June 2009 for the purposes of investment in the relevant project, and failed to make the whole of that payment in a timely fashion and, second, that Ms Hua, was in a subsequent point, under an obligation to make further payments which were not made. Messrs Tuckerman and Devine submit that those alleged failures had adverse financial consequences for MST and its subsidiaries. In the case of the first obligation, it is suggested that the failure to pay the relevant amount in a timely fashion prevented Gosford obtaining a second mortgage or mezzanine funding, a matter which plainly would have raised factual issues which would have needed to be the subject of evidence. In respect of the second obligation, it is suggested that the failure to advance further funds, which it is contended, that Ms Hua was obliged to advance, brought about the failure of the overall project, and a loss of profits for MST and its various subsidiaries in respect of aspects of the project. 11. As I noted above, Messrs Tuckerman and Devine relied on a joint affidavit dated 7 September 2016 in support of the application. I admitted that affidavit, without objection, for the purposes of this application only. I should nonetheless make clear that this affidavit would have been rejected, likely in its entirety, at any final hearing, because an affidavit should set out the evidence, on oath or affirmation, that an individual witness will give, and the Uniform Civil Procedure Rules 2005 (NSW) do not provide for joint affidavits by which witnesses may pool their evidence as to factual matters. I drew that matter to the attention of Messrs Tuckerman and Devine, in the course of submissions, so that there would be no misunderstanding that the admission of this affidavit on this application suggests that evidence of this character would be admitted at a final hearing. 12. The affidavit is, as I have noted above, lengthy, and the materials that were exhibited to it were voluminous. That affidavit and supporting documents were directed, inter alia, to the allegations of breach of Ms Hua's obligation to pay the suggested amount of $2 million within the specified period, the suggested impact of that failure upon the restructuring of Gosford and its liabilities, and the events which subsequently arose, after MST having been placed in administration, in respect of the project, at which point it is alleged that Ms Hua failed to comply with the further obligation to advance funds to which I referred above. The affidavit also identified the basis of claims against multiple other entities, to which I will refer below, although the application for leave to bring a derivative action was not pressed in respect of claims against those other entities. 13. The Plaintiffs in turn relied on a lengthy outline of submissions, their supplementary submissions, and the affidavit of Ms Qiu dated 19 September 2016 to which I have referred. Relevantly, the Plaintiffs pointed out that MST was not presently a defendant in the proceedings. It had previously been suggested that the Plaintiffs might seek leave to proceed against MST, but that leave was either not granted or possibly was not sought, and the proceedings against MST were ultimately not maintained. In those circumstances, there is a real question as to why, where Ms Hua and Mr Song do not seek relief against MST, any proceedings brought by MST against them would properly be brought in these proceedings, rather than in separate proceedings, leaving any question as to whether the proceedings should be heard together to be determined at a future date. In any event, that question need not be determined, where I have reached the view that leave should not be granted for Messrs Tuckerman and Devine to bring the derivative proceedings in MST's name on other grounds. 14. The Plaintiffs also submit that the proposed Cross-Claims, including the Cross-Claim by MST and its subsidiaries, are likely to significantly extend the duration and increase the costs of the proceedings, and point to Messrs Tuckerman's and Devine's delay of over two years in raising the issue of the proposed Cross-Claims. There was a factual issue as to whether Ms Qiu's evidence as to extra professional work and disbursements which would be occasioned by the proposed Cross-Claim by MST and its subsidiaries should be accepted. Messrs Tuckerman and Devine submitted that all of the issues raised by the proposed cross-claim by MST and its subsidiaries were already in issue in their Cross-Claims brought against Ms Hua and Mr Song personally. I am satisfied, having regard to the way in which this matter developed in submissions, that the proposed Cross-Claim by MST would in fact introduce significant additional issues, which are not raised, or at least are not properly raised, in the present claim by Mr Tuckerman and Mr Devine. The claim by MST and its subsidiaries turns on alleged loss of profits, on the successful completion of the project, whereas aspects of the Plaintiffs' claim and the Cross-Claim turn on a challenge to, for example, the genuineness of the valuation of the project at its commencement. Those raise different issues, notwithstanding that Mr Tuckerman referred to evidence as to the latter and contended that it was relevant to a claim for loss of profits by MST. The issues are different because the accuracy or genuineness of the valuation will be determined at the time it was made, whereas the value of a lost opportunity for the project to be profitable would have to be determined having regard to the time span of the project, on the hypothesis it has been completed over the time that would have been required for the construction of a substantial unit development, and in the particular circumstances that then prevailed in the Gosford property market, shortly after the global financial crisis. That matter could not properly be raised by Messrs Tuckerman and Devine in their Cross-Claim, so far as any loss that is suffered is in fact loss of MST and its subsidiaries and not the loss of Messrs Tuckerman and Devine. 15. It follows that the Plaintiffs, properly advised, would need to lead additional evidence as to the likely profitability of the project, in order to address the proposed Cross-Claim by MST and its subsidiaries, which they do not presently need to lead in their own claim or the Cross-Claim brought by Messrs Tuckerman and Devine. That matter focusses attention on the practical consequences of the grant of leave to bring the proposed Cross-Claim, to which I will refer below. 16. The Plaintiffs also identify matters that are alleged to go to whether the proposed Cross-Claim by MST and its subsidiaries are arguable, to which I will also refer below, and address issues as to the suggested Cross-Claims against other parties, to which it is not necessary to refer where those Cross-Claims are not now pursued. 17. In supplementary submissions, the Plaintiffs went so far as to contend that the Cross-Claims were now brought for a collateral purpose, namely to dissuade the Plaintiffs from the present proceedings and broaden and delay the current proceedings by introducing third parties in respect of the Cross-Claims that are not now pursued. It is not necessary to address that allegation, so far as it is an allegation of subjective wrongful purpose, given the views that I have reached on other grounds. I do note that, but for the abandonment of the Cross-Claims against a range of third parties, to which I will refer below, the application would have had the consequence, if not the subjective purpose, of introducing multiple third parties in a way that would inevitably have delayed the proceedings and significantly increased their length. However, that is not a matter which now needs to be addressed where the claims against third parties are not pursued. 18. As I have noted, Messrs Tuckerman and Devine in turn repeated their submissions in chief, by way of further written submissions in reply, with some amendments, and also provided a detailed analysis of the relevant case law as to the grant of leave for derivative actions, to which I will refer below. They also provided a detailed response to Ms Qiu's affidavit, and the submissions of the Plaintiffs, which addressed several of the issues to which I have referred above, as well as issues relating to prospects of the claims to which I will return. 19. I now turn to the applicable legal principles, which are not controversial. Where each of MST and its subsidiaries are in liquidation, ss 236 and 237 of the Corporations Act 2001 (Cth) which provide for the position where leave is sought to bring a derivative proceeding on behalf of a solvent company, do not apply. It was common ground between the parties that the Court has an inherent jurisdiction to permit proceedings to be taken in the name of a company in liquidation upon the application, relevantly, of a contributory. It was also common ground between the parties that the relevant factors in such an application include whether the proceedings proposed to be pursued have some solid foundation, in that they exhibit such a degree of merit as to be neither vexatious or oppressive and present reasonable prospects of success; the liquidator's attitude to the question whether the proceedings should be pursued; and whether practical considerations support the initiation of the proceedings, with particular reference to financial protection of the liquidator and the company's estate by means of indemnity, and if indicated, security: Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250 at 252; Brightwell v RFB Holdings Pty Ltd (in liq) [2003] NSWSC 7; (2003) 44 ACSR 186 at [45]; Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551; (2008) 71 NSWLR 577 at [34]; Hu v PS Securities Pty Ltd (as trustee of the Joseph Family Trust) [2011] NSWSC 303 at [38]; Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 64; (2014) 97 ASCR 581 at [9]. In particular, the parties emphasised the observations of Barrett J in Carpenter v Pioneer Park Pty Ltd above at [34], which focus upon the merits of the proceedings, the liquidator's attitude and the question whether "practical considerations" support the initiation of the proceedings. It will be convenient, as the parties did, to deal with those several factors in turn. However, as I noted in Re Colorado Products Pty Ltd (in prov liq) above at [9], these factors are not exhaustive, since the grant of leave in the Court's inherent jurisdiction requires the exercise of the Court's discretion to which other matters might also be relevant. 20. It seems to me to be preferable, given the views which I have reached in respect of the issues generally, to deal relatively briefly with the question whether the proceedings sought to be brought by MST and its subsidiaries have some solid foundation, such that they exhibit such a degree of merit as to be neither vexatious or oppressive and to present reasonable prospects of success. It is important, in an application of this kind, that issues are only addressed to the extent that are necessary to determine the relevant application, where they will also arise at a final hearing. In the present case, as I noted above, the first aspect of the claim sought to be brought on behalf of MST by Messrs Tuckerman and Devine depended upon the fact, which is accepted, that Ms Hua did not pay $2 million within six weeks of 30 June 2009, although it is also acknowledged that the balance of the amount was fully paid by February 2010. The Plaintiffs accept that amount was not paid within time, and rely upon their challenge to the joint venture agreement to avoid the alleged breach. It seems to me that the Court should not determine, on an application of this kind, the prospects of an application to set aside the joint venture agreement, on the basis of the various attacks put by the Plaintiffs, at a final hearing. The allegations that that could, or should, occur are not such as to deprive the allegation of breach of the obligation to make payment of a seriously arguable basis. However, there would be significant questions as to whether MST will be able to establish the causative aspects of this claim, which depend upon propositions as to its restructuring which are likely to be controversial at a final hearing. For the purposes of this application, I proceed on the basis that this aspect of the claim is genuinely arguable, and, within the language of the case law, exhibits at least such a degree of merit that it is neither vexatious nor oppressive. 21. The question in respect of the second aspect of the proposed claim for MST seems to me to raise substantially greater difficulty, although again I think it is preferable not to express a final view in that regard. That turns upon a claim based upon two minutes of meetings, one on 3 September 2011 and a second on 18 January 2012. Messrs Tuckerman and Devine will seek to contend, on behalf of MST, that those minutes of meeting gave rise to an obligation on the part of Ms Hua to contribute an additional amount to MST, which, they allege, was contemplated to be $3 million but which they accept was not specified. There seems to me to be several potential difficulties with this claim. The first is that, as Mr Archibald who appears for the Plaintiffs points out, the minutes of the meeting of 18 January 2012 contemplated that additional loans may be made by Ms Hua, and such additional loans were in fact made, but do not specify their amount. The second is that paragraph 2.A of those minutes provide for an option for Ms Hua, or her nominee, that is described as the "right but not the obligation" to subscribe for ordinary class B shares in the Company, up to three million ordinary class B shares. Mr Tuckerman and Mr Devine submit and, I will assume, that the reference to up to three million ordinary shares corresponded to an investment of up to $3 million by way of additional loans or an additional payment to the Company. The difficulty is, however, that it would seem to be a surprising construction of the relevant resolution that Ms Hua had on the one hand an obligation to lend the amount of up to, say, $3 million, but only an option to take up the shares which would reflect that payment. One might ask, rhetorically, why would Ms Hua contract on terms that required her to subscribe the larger amount of money, but preserved a "right" not to receive the shares which were the price for that subscription, as distinct from the right to subscribe a lesser amount in consideration for a lesser allocation of shares? 22. There are, it seems to me, also formidable obstacles so far as causation is concerned in respect of this claim, so far as it will require MST to establish a hypothetical as to the development of a very substantial project which did not in fact proceed. Those obstacles will be made more difficult by the fact that the proceedings are sought to be conducted by Messrs Tuckerman and Devine on behalf of MST, without the benefit of legal assistance, and in circumstances where they apparently have limited funds and are not likely to have access to expert or other evidence which might be required, as a practical matter, to establish such claims. I put aside, for that purpose, Messrs Tuckerman's and Devine's speculation that they might be able to obtain litigation funding for the proceedings if leave were granted to bring a derivative action, to which I will return below. 23. Bearing in mind the nature of this application, it again seems to me to be preferable not to express any final view as to the merits of this claim and to assume, without deciding, that this claim has some solid foundation and is not vexatious or oppressive and has reasonable prospects of success. It will be plain from what I have said above, that that assumption is one which I make with some reservations as to its correctness. 24. In the present case, however, even assuming those matters in favour of Messrs Tuckerman and Devine, it seems to me plain that the factors to which the Court is to have regard require that the leave that is sought, to bring the derivative claim on behalf of MST and its subsidiaries, should not be granted. In particular, in the course of submissions, issues arose as to the second and third aspects of the matters which need to be satisfied in order to grant such leave, namely the attitude of the liquidator to the proceedings and whether practical considerations support the initiation of the proceedings. It is desirable to say something as to the way in which these issues developed, before turning to the legal issues. 25. There was, over a period of time, correspondence between Mr Tuckerman and the liquidator of MST as to the liquidator's attitude to Mr Tuckerman taking an assignment of MST's rights or bringing a claim on behalf of MST. It is important to distinguish the two, because it appears that negotiations commenced in a manner that contemplated the assignment of MST's rights to Mr Tuckerman, such that Mr Tuckerman, or possibly Mr Tuckerman and Mr Devine, would bring the proceedings in the capacity of an assignee. It appears that that arrangement did not reach fruition when a dispute arose, for which Mr Tuckerman blames the liquidator or the liquidator's solicitors, as to the terms of the assignment. Instead, Mr Tuckerman now seeks to proceed, not as an assignee of the relevant rights, but by bringing proceedings in the name of MST. The legal position in respect of the two is significantly different, not least in respect of the risks to which the latter course exposes MST and its creditors. Mr Tuckerman's submissions which point to the liquidator's earlier willingness to discuss an assignment in which Mr Tuckerman would bring the proceedings as an assignee cannot be used to suggest, as Mr Tuckerman does, that the liquidator ought to favour an arrangement by which Mr Tuckerman, in the name of MST, could bring the relevant proceedings. 26. Subsequently, as I have noted, when the assignment arrangements failed, correspondence took place as to whether the liquidator would consent to Mr Tuckerman or Mr Tuckerman and Mr Devine bringing proceedings against Ms Hua and Mr Song and the several other entities as to which they sought to bring proceedings on behalf of MST or MST and its subsidiaries. By letter dated 3 May 2016 the liquidator's solicitors advised that the liquidator had decided not to bring claims against several third parties, to which I refer below, by reason of his limited resources and his preliminary view as to the merit of those claims, after obtaining preliminary legal advice. The liquidator's solicitors also noted, although Mr Tuckerman denies, that the liquidator had not received information about the claims against Ms Hua and Mr Song that would allow him to consider prospects of those claims. The liquidator's solicitors referred to the proposal for an assignment, and noted an email from Mr Tuckerman dated 27 March 2016 that indicated that Mr Tuckerman and Mr Devine were not in a position to indemnify the liquidator or MST in relation to adverse costs orders that may be made in the event that the proposed claims were unsuccessful. The liquidator's solicitors expressed the view that the proposed claims would not be of any benefit to creditors of MST and did not have a solid foundation, sufficient to satisfy the requirements of the test in Carpenter v Pioneer Park Pty Ltd above, and advised that the liquidator did not consent to the proposed application to the Court for leave for any proceedings or Cross-Claim to be brought in the name of MST. 27. Subsequent correspondence followed, including an email dated 9 June 2016 following a meeting between the liquidator and Messrs Tuckerman and Devine, and a further email dated 21 June 2016 from the liquidator's solicitors to Mr Tuckerman. By their email dated 21 June 2016, the liquidator's solicitors noted the liquidator's understanding that Mr Tuckerman did not propose to provide an indemnity to MST for any adverse costs orders that may be made in proceedings, implicitly against MST, and that Mr Tuckerman would seek an order at the time that leave was granted that would preclude MST being liable for adverse costs orders in the proposed proceedings. Such an order was not sought in respect of MST and there is plainly no basis on which an order could properly be made in advance of the proceedings that MST, as Cross-Claimant, not be liable for costs of the proceedings brought against Ms Hua or Mr Song, or other third parties, if those claims were to fail, including, for example, because they were misconceived or the evidence necessary to make them good was not led. I leave aside the question of whether the liquidator's position could be protected, where it is not necessary to determine that question for the purposes of this application. By email dated 23 June 2016, Mr Tuckerman responded, indicating that the liquidator's understanding, as set out in his solicitor's email dated 21 June 2016, that Mr Tuckerman was not prepared to provide an indemnity to MST was correct, and recognising, rightly, that he could seek to protect the liquidator's position in proceedings by MST, but that there may be a costs order against MST if unsuccessful, and possibly against Mr Tuckerman and Mr Devine, in running the matter. 28. By a further email dated 18 July 2016 the liquidator's solicitors confirmed the position which the liquidator had earlier expressed, observed that Mr Tuckerman's email recognised that MST would be exposed to an adverse costs order in the event that the proposed proceedings were unsuccessful and, in those circumstances, the liquidator was not willing to consent to orders granting leave to Mr Tuckerman and Mr Devine to proceed in the name of MST, and invited Mr Tuckerman to let the liquidator's solicitors know if he altered his position in relation to providing an indemnity to MST. No such indemnity was offered, at the time this application commenced, or in any of the evidence led in it. In the course of submissions, after Mr Tuckerman fairly acknowledged the importance of such an indemnity in applications of this kind, he submitted that he and Mr Devine would "consider" providing such an indemnity subject to certain matters, and implicitly once the leave that was sought had been granted. 29. There was also reference at one point, to the possibility that MST, or Messrs Tuckerman and Devine on its behalf, may be able to obtain litigation funding but could only do so when such leave was granted. The difficulty with that course is that, as I will note below, the requirement for indemnity exists to protect the interests of MST and its creditors, and it is the Court's role to assess the position at the time the application is brought, and not to grant leave for such proceedings in anticipation that an indemnity might in future turn up, depending upon the view that a litigation funder may take at some future point. It should also be noted at this point that these proceedings have already been on foot for over two years and MST has been in liquidation for a considerable period and, as yet, no such litigation funder has, so far as the evidence goes, expressed an interest in funding the proceedings. There is no particular reason to think that that matter will change, and certainly no evidence to provide any proper basis for a finding that that will occur. 30. I should also add that the issue of the protection of the interests of MST and its creditors is by no means insignificant where, as Mr Devine noted in submissions in another context, MST has a large number of creditors, including employees for accrued wages and other persons who appear to have made loans to the company. There is no evidence before me as to whether those creditors presently have any hope of a return from a liquidation of MST, but to the extent they may have such a hope of such a return, their interests would be prejudiced if they are required to prove in the liquidation in competition with a claim by Ms Hua and Mr Song for the costs of failed proceedings brought by MST against them. 31. I turn now to the relevant case law. The cases have long recognised the importance of an adequate indemnity to protect the assets of a company in liquidation, where leave to bring a derivative action is sought. In Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (1988) 6 ACLC 213, Bryson J treated the absence of an adequate indemnity in respect of the company's exposure as to costs as the most significant matter relevant to the exercise of his Honour's discretion whether to grant such leave. In Cadima Express Pty Ltd (in liq) v Deputy Commissioner of Taxation [1999] NSWSC 1143; (1999) 33 ACSR 527 at [49], to which I referred to with approval in Re Colorado Products Pty Ltd (in prov liq) above at [14], Austin J noted that: "The Court will wish to be satisfied that the assets of the company in liquidation are not put as risk by the proceedings and that the liquidator is not exposed to personal liability without proper protection, and may also properly have regard to the risks which the litigation poses for the other party, given that the plaintiff is a company in liquidation, the assets of which are to be protected." 1. I will assume, without deciding, that the liquidator's personal position could be protected with the liquidator not personally being party to the relevant claim. It seems to me the position of MST could not be protected without the grant of an adequate indemnity, and very likely the grant of security, by Messrs Tuckerman and Devine, and that the interests of MST's creditors would be placed at risk, to the extent they have any present hope of recovery, by the commencement of the suggested Cross-Claim without such an indemnity. On the evidence as it presently stands, the prospects of Messrs Tuckerman or Devine funding such an indemnity from their own resources is remote, and their suggestions that other persons may be able to contribute to do so, or that a litigation funder may agree to do so, are speculative and need to be qualified by the fact that that has not occurred over the last two years or more, and that the position of Messrs Tuckerman and Devine, in previous correspondence with the liquidator, was that no such indemnity would be granted. 2. In any event, the question for me is to determine the application as it stands, having regard to the position as it now exists. It seems to me that there is no useful purpose, given the views which I have formed and the speculative character of any prospect that indemnity could be given in the future, in seeking to defer that determination. If, at some point, Messrs Tuckerman and Devine are in fact in a position to provide a meaningful indemnity, having regard to the scale of the proceedings which they seek to bring on behalf of MST and its subsidiaries and its likely costs, then it will be a matter for them to determine whether a further application could then be brought, on the basis of evidence as to the indemnity which was then available. For all of these reasons, I am satisfied that the application for leave to bring derivative proceedings on behalf of MST and its various subsidiaries, should be refused, and I will hear the parties in respect of the costs of that application. 3. Messrs Tuckerman and Devine also initially sought leave to represent MST and three other entities, MST View, RPI and PIA, to bring proceedings against Members Equity Bank Limited ("ME") and Industry Funds Management (Nominees 2) Pty Limited ("IFM2") in respect of projects other than the Gosford project. Initially that application had extended not only to claims against those two entities, but also to claims against one or more of their directors and officers who were in office before 4 November 2011, although that aspect of the application was rightly abandoned in the course of the application. That application had fundamental difficulties which included, as Mr Tuckerman recognised in the course of submissions, the apparent lack of connection between the claims in respect of those projects and the claim in respect of the Gosford project, raising the obvious question why Ms Hua and Mr Song should be drawn into a dispute between MST and its subsidiaries and other entities in respect of other projects. It had the further difficulty, so far as the evidence goes, that the application had never been served upon ME or IFM2 to allow them an opportunity to be heard in respect of it, as well as the difficulties arising from MST's status as a company in liquidation and the absence of a meaningful indemnity to protect MST's position to which I referred above. 4. Mr Tuckerman and Mr Devine had also sought leave to represent MST and several other entities, MST Chatswood, MST Camperdown, RPI and PIA, for the purposes of cross-claiming against Australian Unity Limited ("AUL") Australian Unity Funds Management Limited ("AUFML"), and the directors and officers of those entities in office before 4 November 2011, again in respect of another project. This application had the same difficulties as the suggested claim against ME and IFM2 with the additional difficulty that the claim would here extend to the unidentified directors and officers of the relevant entities. Again, in respect of these claims, no draft Cross-Claim was available to identify the content of the claims. Messrs Tuckerman and Devine also initially sought leave to represent MST and MST View for a Cross-Claim against directors and officers of Empowered Financial Service Limited, a deregistered entity, which raised similar issues. 5. In the event, each of those applications was not pursued in this application, although the Plaintiffs, Ms Hua and Mr Song, have foreshadowed that they will seek costs of the fact that they were required to address those applications in affidavit evidence and in written submissions before they were abandoned in the course of oral submissions before me. While I need not rule on those applications in circumstances that they were not pressed, it will be plain from what I have said above that those applications would not have been granted had they been pressed. 6. For these reasons the relief sought in the Amended Notice of Motion should be refused in its entirety and the Amended Notice of Motion should be dismissed. In the ordinary course the costs of the Amended Notice of Motion will follow the event. The position will not change in respect of those parts of the Amended Notice of Motion which were not pressed, since the abandonment of those aspects of the Amended Notice of Motion amounted, in my view, to a substantive surrender by Messrs Tuckerman and Devine in respect of aspects of the application that could not have succeeded. 7. After I have heard the parties as to costs, I will turn to the question of further directions that should be made in these proceedings. I have formed the view, which I foreshadowed to Mr Archibald and Messrs Devine and Tuckerman in the course of submissions, that the history of these proceedings is such that they now require active case management on an ongoing basis to ensure the proceedings are not further delayed. In those circumstances it is likely that these proceedings will continue to be managed by a judge in this list. Costs 1. Following delivery of my judgment in respect of the substance of the Amended Notice of Motion filed on 26 September 2016, Mr Archibald, who appears for the Plaintiffs, indicated that the Plaintiffs seek indemnity costs as to paragraphs 6–8 of the Amended Notice of Motion, in respect of leave to bring proceedings against several third parties, and an order that the costs of the Amended Notice of Motion be paid forthwith. 2. Mr Archibald points to the fact that, as my judgment will have made clear, paragraphs 6–8 of the Amended Notice of Motion were ill-advised, so far as they sought to bring claims against a multitude of third parties, who had no present connection in respect of the proceedings, in respect of projects which are not presently in issue in the proceedings, into the proceedings. Mr Archibald also points to the fact that these proceedings have continued now for some considerable period, and that that will impact the Plaintiffs' position as to recovery of costs, particularly where the pleadings are, notwithstanding over two years have passed, still at the pleading stage. 3. Mr Devine responds that an order for indemnity costs would be excessive, in respect of paragraphs 6–8, where the Defendants accepted that those paragraphs were somewhat remote in respect of the Plaintiffs, and did not expect that they would need to be addressed by the Plaintiffs at the hearing. So far as the claim that costs be paid forthwith, Mr Devine responds that costs are generally paid at the conclusion of the matter. Mr Tuckerman points out that the Plaintiffs have distinguished between paragraph 5 of the Amended Notice of Motion, which had a closer connection with the proceedings, and paragraphs 6–8, but submits that he and Mr Devine had recognised that there was a question whether the proceedings contemplated by paragraphs 6–8 should be brought separately, or in these proceedings, and that the Plaintiffs had not communicated to them the fact that the Plaintiffs' position was that those matters should not be pursued in these proceedings. Mr Tuckerman in turn points out that, so far as the proceedings have continued for a lengthy period, it is at least the Defendants' position that that has resulted from successive amendments to the Statement of Claim made by the Plaintiffs. 4. The question of costs is of course governed by s 98 of the Civil Procedure Act 2005 (NSW) which provides that, subject to the rules of court and the Civil Procedure Act, costs are in the Court's discretion and the Court has full power to determine, by whom, to whom and to what extent costs are to be paid and may order that costs are to be awarded on an ordinary basis or on an indemnity basis. Rule 42.1 of the Uniform Civil Procedure Rules provides for the ordinary principle that costs follow the event, and r 42.5 provides for indemnity costs. 5. The principles in respect of indemnity costs were set out in the decision of Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248 at 256–257, where his Honour identified several categories of case in which an order for indemnity costs can be made, while recognising that they were not exclusive, and the question would always be whether the particular facts and circumstances of the case in question warranted the making of an order for payment of costs other than on a party and party basis. There have been several subsequent decisions dealing with the question, including the useful decision of McDougall J in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 at [24] where his Honour noted that there must usually be some special or unusual feature to justify departure from the ordinary rule, and that delinquency is not necessary for an order for indemnity costs, but is relevant to whether it should be made. The relevant principles have also been considered by the Court of Appeal in Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 at [6] where the Court observed that an order for indemnity costs may be made where conduct in proceedings is plainly unreasonable or involves an element of delinquency. 6. As will be apparent from my observations above it seems to me that the application for leave to pursue Cross-Claims on behalf of MST and its subsidiaries in these proceedings against an extended range of third parties, with no connection with the Plaintiffs, and no connection with the project in issue, in paragraphs 6–8 of the Amended Notice of Motion, was objectively unreasonable. However, it must be recognised that Messrs Tuckerman and Devine are self-represented litigants, and not necessarily possessed of the clearest understanding of the circumstances in which leave to bring a derivative claim should be granted, in these or other proceedings, and they frankly conceded, at least in oral submissions, a degree of uncertainty as to whether there was sufficient connection with these proceedings to warrant a grant of leave to bring representative proceedings in these proceedings. Conversely, it is understandable that the Plaintiffs, when faced with an application that apparently sought leave to bring these other actions as cross-claims in these proceedings, should have felt bound to respond to it, where they were otherwise at risk that the order sought might be granted, and their proceedings might then be submerged beneath multiple other defendants and claims in respect of other matters. It seems to me that the application is one where, in some circumstances, an order for indemnity costs might have been made. 7. However, Mr Tuckerman makes one point which has considerable substance in response to the claim for indemnity costs. It would not have been difficult for the Plaintiffs, in the period since this motion was first filed, in its original form, in June 2016, to send a short letter to Messrs Tuckerman and Devine, pointing to the practical difficulties which would arise from bringing multiple other parties and multiple other projects into these proceedings. Had they done so, Messrs Tuckerman and Devine would have been faced with a choice. They could have persisted with these applications, until they were abandoned in the course of oral submissions, in which case an order for indemnity costs against them would plainly have been justified. Alternatively, they could have abandoned those claims, as Mr Tuckerman now suggests is possible. The difficulty, in the absence of such a letter, is that it cannot now be known what Messrs Tuckerman and Devine would have done, had this suggestion been made. Where parties are self-represented and may not have a full understanding of relevant matters, it seems to me that such a letter should have been sent, at least if the Plaintiffs wished to preserve the ability to seek an order for indemnity costs, and I should not order indemnity costs in the absence of it. That is, I should emphasise, no reason why Messrs Tuckerman and Devine should not pay the costs of those paragraphs of the application on an ordinary basis and they did not contend to the contrary. 8. The Plaintiffs also sought an order for costs forthwith. Such orders are, of course, the exception rather than the rule. There is good reason they are ordinarily not made, namely that, an order for costs paid forthwith may exhaust the financial capacity of a party to proceedings, and frustrate its ability to continue the proceedings. The circumstances in which such an order may be made, as a matter of exception, were recognised by Barrett J in Fiduciary Ltd v Morningstar Research Pty Ltd [2002] NSWSC 432; (2002) 55 NSWLR 1 at [11]ff where his Honour noted that such an order could be made where an interlocutory proceeding involved a separate and completed phase of the proceedings; the defendants' costs of the application, in that case, were increased by the service of voluminous material; and the likely timing of a final hearing, in that case, was in the order of a year after the interlocutory hearing. In Brasington v Overton Investments Pty Ltd [2001] FCA 571 at [13], [14], Emmett J in turn noted the general principle that costs will be resolved when a proceeding is concluded, and the parties' rights had been finally determined, although noting that there may be an exception where an application was misconceived and should never have been brought, and that it was relevant that a final decision would be some way off in a proceeding, because of its length or complexity. In Rafferty v Time 2000 West Pty Ltd (No 3) [2009] FCA 727; (2009) 257 ALR 503, Besanko J in turn pointed to the substantive basis of the usual approach, namely, that it avoids multiple assessments and a possible unfairness where a party who is initially successful in an interlocutory application is ultimately unsuccessful, or vice versa, and prevents interlocutory applications exhausting the financial resources of one of the parties, although also recognising that there may be cause for an order for costs forthwith where there is unreasonableness in the conduct of the unsuccessful party, and a long delay between the interlocutory proceeding and the conclusion of the principal proceeding. 9. It seems to me that at least some of the requirements for an order for costs forthwith are satisfied in this case, so far as there was, objectively, unreasonableness in the conduct of Messrs Tuckerman and Devine, in the sense that, objectively, they ought to have understood on the case law that there was little prospect that an order permitting them to bring derivative proceedings in respect of MST and its subsidiaries would be made, even in respect of the matters in issue in the proceedings, where they could not properly indemnify MST or protect it against an adverse costs order in the proceedings, and ought also to have understood that the other, wider Cross-Claims, were also unlikely to be permitted, for that and the other reasons to which I have referred in my judgment. 10. However, Mr Tuckerman points out that the lack of progress of the proceedings over the two years or more in which they have been on foot seems, at least in part, to reflect successive amendments of the Plaintiffs' Statement of Claim. It seems to me that there is a degree of potential unfairness in ordering costs forthwith, on the basis that it will be a long time before the proceedings are finally determined, where that results, in substantial part, from the Plaintiffs taking steps to amend their claims and consequential delays. That matter weakens the case for an order that costs be paid forthwith, where that may exhaust the apparently limited financial resources of the Defendants, who are already the subject of freezing orders and are representing themselves in the proceedings. 11. On balance, in the particular circumstances, I do not consider that I should order that costs be payable forthwith. That is not to say that I would not make such an order in the future, if, as this case continues, a further application was brought by either party, of a kind that involved the difficulties faced in this application, including voluminous evidence that was apparently disproportionate to the nature of the matters in issue. 12. For these reasons, the only order that I will make in respect of the costs of the application is that the Defendants pay the Plaintiffs' costs of and incidental to the Amended Notice of Motion, as agreed or as assessed. ********** 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 October 2016