Agricultural & Rural Finance Pty Ltd v Atkinson

Supreme Court of NSW|2014-11-14|Before: Ball J, Einstein J

Introduction 1On 14 October 2014, I delivered judgment in relation to the issues in these proceedings that had been remitted to this Division by the Court of Appeal for rehearing following a successful appeal by the seven remaining defendants in the matter: see Agricultural & Rural Finance Pty Ltd v Atkinson (No 2) [2014] NSWSC 1397. The appeal was against orders that had been made by Einstein J on 17 June 2010 (Agricultural & Rural Finance Pty Ltd v Atkinson [2010] NSWSC 635) in favour of the plaintiff (ARF) requiring the defendants to repay loans that had been advanced to them by ARF in connection with two agricultural investment scheme established by the second cross-defendant, Oceania Agriculture Ltd. The remaining question concerns the costs of the remitted hearing. In addition, in a costs judgment handed down by the Court of Appeal on 30 November 2012 (Wardle v Agricultural & Rural Finance Pty Ltd [2012] NSWCA 388), the Court of Appeal ordered that, subject to the costs orders already made by the Court, the trial judge who decides the remitted hearing decide the question of how the costs of the first trial should be borne. 2The complicated history of the matter is set out in the judgment I delivered on 14 October 2014. It is not necessary to repeat that history here. This judgment should be read together with that judgment. 3Two issues were remitted by the Court of Appeal for rehearing. One was whether each of the defendants had a defence under the Contracts Review Act 1980 (NSW) to ARF's claim. Einstein J had struck out part of that defence and had resolved what remained of the defence against the defendants. The Court of Appeal found that Einstein J erred in striking out part of the defence and remitted for further hearing the whole defence based on the Act. The second issue concerned estoppel defences raised by Mr Giannuzzi, the 149th defendant, and Mr Wardle, the 95th defendant. Einstein J had struck out those defences. Again, the Court of Appeal concluded that he erred in doing so and remitted those defences for rehearing. 4Mr Wardle had two estoppel defences - one each in respect of the two projects in which he invested. He sought leave to amend his estoppel defence in relation to Project No 2. I refused that leave (see Agricultural & Rural Finance Pty Ltd v Atkinson [2014] NSWSC 948), and subsequently, Mr Wardle abandoned the estoppel defence in respect of that year. Mr Giannuzzi also abandoned his estoppel defence. In the judgment I delivered on 14 October 2014, I concluded that each of the defendants' defences based on the Contracts Review Act and Mr Wardle's remaining estoppel defence must fail. 5The defendants accept that they should pay the second cross-defendant's costs, including the costs of the hearing before me. 6Four issues arise in relation to the costs of the hearing before me and the costs of the earlier trial before Einstein J, so far as ARF and the defendants are concerned. First, the defendants submit that, in this case, the Court should order that each party bear his or her or its own costs generally of the proceedings (including the hearing before me). Second, the defendants seek an order that ARF pay their costs of the motion filed on 12 August 2014 in which they challenged ARF's solicitor's retainer and sought summary judgment. On the other hand, ARF seeks an order that the defendants pay its costs of that motion on an indemnity basis. Third, ARF seeks an order that the defendants pay ARF's costs on an indemnity basis of a motion filed by the plaintiff on 30 June 2014 seeking orders concerning the scope of the remitter. Fourth, ARF seeks an order that the defendants pay its costs on an indemnity basis as from 10 June 2011, which was when Einstein J made final orders following the hearing before him.

Should the parties bear their own costs of the proceedings? 7The defendants accept that, in the normal course of events, costs should follow the event in accordance with Uniform Civil Procedure Rules (2005) (NSW) (UCPR) r 42.1, with the result that they would be liable to pay ARF's costs of the remitted hearing and ARF's costs of the proceedings generally so far as the proceedings concerned them. However, they submit that, in this case, the effect of such an order will result in a double recovery and that, consequently, the Court should order that the parties each bear their own costs. 8It is not easy to follow the defendants' argument. They point to the fact that ARF is now owned indirectly by ARF's legal advisers or entities associated with them and that ARF's solicitor's sister is the sole director of ARF. They suggest that that came about as a mechanism by which the legal advisers were paid fees owing to them. Their submission appears to be that to permit ARF also to recover legal costs which will eventually be paid to ARF's legal advisers will result in a double recovery. That double recovery can only be avoided if the Court makes an order that the parties each bear their own costs of the proceedings. 9In my opinion, this submission confuses the recovery of costs from an unsuccessful party with the arrangements made by legal advisers for the payment of their costs. ARF is a separate legal entity. It is owed debts by the defendants, and as between the defendants and it, it is entitled to recover its legal costs of recovering those debts as well as the debts themselves. The fact that ARF is owned by its legal advisers or their associates cannot affect the position. Similarly, the fact, if it is a fact, that the legal advisers obtained control of ARF in connection with a settlement of a claim for legal fees owed to them is irrelevant. ARF still incurred legal costs in recovering the debts that it was owed, and it is entitled to recover those legal costs. 10To put the point another way, ARF is owed money by the defendants. It unquestionably incurred substantial legal costs in recovering the amount that it is owed. The defendants would receive an undeserved windfall if they were relieved from having to pay those costs simply because ARF is owned by entities associated with the legal advisers who performed the relevant work. A solicitor who is a self-represented litigant is entitled to recover the costs of doing what is truly professional work: Lawrence v MD Nikolaidis & Co [2003] NSWCA 129; (2003) 57 NSWLR 355. The position cannot be different because the legal adviser merely has an interest in the litigant. 11The defendants submit that, because of the relationship between ARF and its legal advisers, ARF and the legal advisers could agree that ARF would pay an excessive amount for the legal services that were provided to it. They do not, however, produce any evidence that that is what actually happened. That possibility is not a reason for denying ARF its costs altogether. The question whether the costs were reasonable is a matter that can be considered on assessment, if necessary. 12There is a theoretic possibility that there will be double recovery of some costs because ARF has already obtained judgment against other defendants. In some cases, those judgments include judgments for costs, and some of the costs that ARF incurred in relation to the proceedings against the remaining defendants were also relevant to the claims against the defendants against whom judgment has already been obtained. Einstein J sought to deal with that possibility by requiring ARF to provide information to the costs assessor concerning the costs it has already recovered. I propose to make the same order.

The costs of the motion filed on 12 August 2014 13On 12 August 2014, the defendants filed a motion challenging the retainer of ARF's solicitors and seeking summary dismissal of the proceedings. The motion was filed following discovery by the defendants' solicitors of evidence suggesting that Mr Anthony Sarks and Mr Richard Sarks had resigned as directors of ARF and had not been replaced. Following somewhat protracted correspondence between the parties, the defendants were satisfied that a new director had been appointed in place of the retiring directors, and the motion was dismissed by consent. At the time of dismissing the motion, I reserved the question of costs. 14In Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624, McHugh J said: In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extracurial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. [Footnotes omitted]. 15When the proceedings are settled, it may also be apparent that the settlement amounts to a capitulation by one party; and in that case, it may also be appropriate to award costs on the basis that, although there has not been a hearing on the merits, one party has effectively succeeded in the proceedings: One.Tel Ltd v Deputy Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548; Ajkay v Hickey & Co Ltd [2011] NSWSC 822. 16McHugh J's comments were directed at a final hearing, but they apply equally to interlocutory applications which raise discrete issues: see Re One.Tel Ltd (in liq) [2011] NSWSC 1027; Crawford v Oswald Park Pty Ltd [2006] NSWSC 1078. 17Applying these principles, there should be no order for costs of the motion in favour of the defendants unless ARF acted so unreasonably in relation to the subject matter of the motion that it should pay the defendants' costs. Similarly, there should be no costs order in favour of ARF unless the defendants acted so unreasonably that they should pay ARF's costs. 18I am not satisfied that ARF acted so unreasonably in relation to the subject matter of the motion that it should be ordered to pay the defendants' costs. ARF was never without a director. Its failure to lodge the appropriate notices with ASIC may have contributed to the defendants' belief that it was without a director. However, it appears that that was an oversight. The oversight was explained to the defendants' solicitor. In my opinion, ARF did not act unreasonably. 19Similarly, I am not satisfied that the defendants acted so unreasonably in bringing the motion that they should pay ARF's costs. There is a question whether the motion would have succeeded even if the factual basis on which it was brought (that is, that ARF had no director) was correct. But it is not for the Court to determine that question now. The factual basis on which the motion was brought was incorrect. However, ARF contributed to the defendants' misunderstanding of the facts. That factual misunderstanding could easily have been corrected by sending the defendants a copy of the minutes of the meeting at which the new director was appointed. That, however, was not done; and at the time the motion was filed, the defendants may still have had some reason to believe that no new director had been appointed. In those circumstances, I think that the appropriate order is that each party bear its, his or her own costs of the motion.

The costs of the motion filed on 30 June 2014 20On 30 June 2014, ARF filed a motion seeking orders to the effect that the issues on the remitter were limited to the issues that were the subject of my judgment delivered on 14 October 2014. It had sought those orders in a context where the issue had been raised by the List Judge, the List Judge had suggested that the matter be raised with the Court of Appeal and the Court of Appeal had said in a judgment delivered on 2 July 2014 that the issue was one for the trial judge: Wardle v Agricultural & Rural Finance Pty Ltd (No 4) [2014] NSWCA 206. In a judgment I delivered on 15 July 2014 (Agricultural and Rural Finance Pty Ltd v Atkinson [2014] NSWSC 948), I made orders to the effect sought by ARF. At that time, I reserved the question of costs. ARF seeks its costs of that motion on an indemnity basis on the ground that it was an abuse of process for the defendants to contend that the remitter was wider than that contended for by ARF. 21I have some difficulty with the notion that it can be an abuse of process for a party simply to resist the making of an order sought by another party. But even assuming that in some circumstances it can, I do not accept that it was an abuse in this case. In my opinion, the scope of the remitter was reasonably clear, but I do not accept that it was so clear that it was an abuse of process to put the contrary position. In my opinion the defendants should pay ARF's costs on the ordinary basis. As will become apparent, it is not necessary to make a specific order in relation to those costs.

Should the defendants pay ARF's costs on an indemnity basis? 22ARF seeks an order that the defendants pay its costs on an indemnity basis from the time when Einstein J made final orders. 23One type of case where it may be appropriate to order that costs be payable on an indemnity basis is where a party against whom the order is made has engaged in some relevant unreasonable action or misconduct in connection with the proceedings: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72; Harrison v Shipp [2001] NSWCA 13. 24ARF submits that this is a case where it is appropriate that the defendants should pay ARF's costs on an indemnity basis because of the way they conducted the case following final orders made by Einstein J. It points to a substantial amount of material to demonstrate that there were obvious factual difficulties with the defences that the defendants wished to raise and that the Court of Appeal proceeded on the basis that the defendants would make some attempt to address those factual difficulties, but they never did. 25I do not accept ARF's submission. 26The Court of Appeal set aside the orders made by Einstein J because it concluded that the defendants were entitled to a trial on the merits of their defences, which they did not have before Einstein J. If, at the time of the appeal, the defendants had no intention of seeking to lead further evidence or to have evidence that had previously been rejected admitted and they failed to inform the Court of Appeal of that fact, that may have been conduct that would justify an indemnity costs order. But there is no evidence that that was the case. The defendants did seek to have admitted before me evidence that was rejected by Einstein J and were partially successful in doing so. Ultimately, they elected not to file any additional evidence. The result was that I concluded that the evidence fell well short of establishing the facts necessary for them to succeed. But I do not think it follows from that that they engaged in any relevant misconduct. All of the factual material on which they ultimately relied was not before the Court of Appeal. Moreover, it cannot be inferred from the fact that they did not file additional evidence that they never had an intention to do so. It may, for example, have become apparent following further investigation that there was no additional evidence that they could obtain which would assist their case. 27In the case of Mr Giannuzzi's estoppel defence, the defence was abandoned because it was apparent that, even if it succeeded, it did not address the fact that Mr Giannuzzi had not punctually paid another amount owing by him with the result that he would still not have been entitled to an indemnity even if his estoppel defence had succeeded. In that sense, it might be said that Mr Giannuzzi's estoppel defence was futile from the start. However, two things may be said about that point. The first is that that was the position at the time of the hearing of the appeal. Second, almost none of the work in the case related exclusively to Mr Giannuzzi's estoppel defence. Mr Giannuzzi abandoned the defence before the hearing before me. In those circumstances, there is little practical utility in seeking to split out costs associated with Mr Giannuzzi's estoppel defence from the other costs in the proceedings. 28As to Mr Wardle's estoppel defence, that defence was abandoned because I refused to allow an amendment sought by Mr Wardle. Without the amendment, it was apparent that the estoppel defence was bound to fail. Mr Wardle rightly abandoned the defence in those circumstances. However, I do not think that the amendment application itself was so hopeless that it should never have been made; and until it was determined, I do not think Mr Wardle acted improperly by seeking to maintain it. Moreover, as in the case of Mr Giannuzzi's estoppel defence, so little time was devoted to the defence that I do not think there would be any merit in seeking to separate the costs associated with that defence from the costs of the hearing before me generally.

Orders 29The orders of the Court are: (1)Subject to orders 2 and 3 below, the following defendants: (a)Geoffrey Nevell Fredericksen - Def No 35/CC No 109 (b)Nicholas Charles Rowe - Def No 75/CC No 85 (c)Maria Francesca Russo - Def No 78 & 189/CC No 75 (d)David James Wardle - Def No 95/CC No 39 (e)Jennifer Dianne Wallace - Def No 124/CC No 73 (f)Franco Giannuzzi - Def No 149/CC No 106 (g)Gavin Winston Long - Def No 172/CC No 128 (the current defendants) jointly and severally pay the plaintiff's/first cross-defendant's costs of and incidental to the proceedings on the summons against the current defendants and on their cross-claims, including the reserved costs of the hearings before Einstein J and all other reserved costs. (2)Each party should pay his, her or its own costs of the current defendants' notice of motion filed on 12 August 2014 challenging the retainer of the plaintiff's solicitor and seeking summary dismissal; (3)The solicitor for the plaintiff serve on the costs assessor who is assessing the costs payable under the abovementioned costs orders and on the current defendants such material and explanations as the costs assessor may require in order to ensure that there is no double recovery of costs by the plaintiff against the current defendants. (4)The current defendants jointly and severally pay the second cross-defendant's costs of and incidental to the proceedings on the current defendants' cross-claims, including the reserved costs of the hearings before Einstein J and all other reserved costs.

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: 21 November 2014

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