Akierman Holdings Pty Limited v Akerman

Supreme Court of NSW|2021-02-19|Before: Parker J

Background

The s 237 proceedings were begun by Ms Dar as plaintiff in July 2014. Mr Akerman was named as the defendant. The Company itself was not made a party to the proceedings.
Ms Dar's principal application was for leave under s 237 to bring claims in the name of the Company against Mr Akerman to recover: 1. the Company's one-quarter share of an investment property at 9 Miller Street, Bondi, and income derived therefrom (see J1 [7]-[10]); 2. the Company's one-quarter share of another investment property at numbers 5 and 7 Miller Street, Bondi, and income derived therefrom (see J1 [7]-[10]); 3. a payment of $180,000 (plus $16,200 by way of superannuation) paid purportedly by way of director's fees in the financial year ended 30 June 2013 (see J1 [13]); 4. payments totalling $85,000 for legal fees billed by Mr Akerman's firm to the Company for work purportedly done on the company's behalf and for the retainer of counsel (see J1 [13]).
These claims were set out in a draft statement of claim which formed the basis of the leave granted by Black J. The grounds for the claims were that the relevant transfers and payments constituted breaches by Mr Akerman of his statutory and fiduciary duties as a director of the Company. In her originating summons, Ms Dar also sought orders under Corporations Act, s 247A for access to documents of the Company to assist with the claims.
In support of her application, affidavits were filed from Ms Dar setting out in detail the factual basis of the proposed claims. The application was opposed by Mr Akerman who filed affidavits of his own rebutting Ms Dar's allegations.
Shortly before the hearing of the application was to take place, counsel for Mr Akerman withdrew his active opposition to the making of the orders. Some of the documents sought by Ms Dar were also provided to her.
Despite Mr Akerman's change of position, it was still necessary for Ms Dar to establish the statutory preconditions for making the order. Black J was satisfied that there was a prima facie case and that it was in the Company's interest for the claims to be pursued on its behalf. In reaching this conclusion, his Honour noted an undertaking offered on behalf of Ms Dar to indemnify the Company against any adverse costs order.

Determination of quantum and formulation of final orders

Following my second decision, the way in which the Company's entitlement should be quantified was largely common ground between the parties. The Company was entitled to a one-quarter share of the income from 9 Miller Street from the date it was appropriated by Mr Akerman (1 March 2006: see J1 [102]) down to the date of judgment; plus the amount of the director's fees and legal fees paid in 2013 and 2014; plus the value of a one-quarter share of 9 Miller Street as at the date of judgment. From this was to be deducted the share of the $2.2 million payment made by Mr Akerman to the Company in April 2013 attributable to 9 Miller Street (determined by me to be $1,707,893: see J2 [157]), plus a further $500,000 paid by Mr Akerman to the Company in December 2020. These debits and credits were to be treated as a running account which would carry interest at statutory rates (J2 [205], [222]).
Because the share of 9 Miller Street was not to be brought to account until the date of judgment, the making of the payment in April 2013 had the result that the balance on the running account thereafter favoured Mr Akerman, so the interest overall represented a credit in his favour. Counsel for the parties had specifically agreed that the same interest rate should apply whether the balance of the running account was in credit or in debit (see J2 [209]).
The Company had presented evidence at the hearing which preceded my first judgment concerning the value of 9 Miller Street. There had been some cross-examination on this from counsel then appearing for Mr Akerman, but no expert evidence had been led in response. But by the time I came to deliver my second judgment, I considered that, having regard to the potential for alteration in property values, especially in the light of the COVID-19 emergency, Mr Akerman should be entitled, if he chose, to lead evidence as to the current value of 9 Miller Street (see J2 [150]).
In the end, there was a further updated report from the Company's expert, together with expert valuation and engineering evidence from Mr Akerman (the engineering evidence related to a contention made on Mr Akerman's behalf that structural work needed to be undertaken on the building and the cost of this had to be deducted from any valuation). The Company contended that the value of the property was $13.6 million; the contention for Mr Akerman was that it was worth $10.5 million.
The valuation and related issues constituted the principal area of dispute between the parties but after the hearing had proceeded for several hours on 29 January, the parties agreed a value for 9 Miller Street as at the date of judgment as $13.2 million, resulting in a value for the Company's one-quarter share of $3.3 million. At the parties' request, I then adjourned the proceedings to allow the remaining matters of calculation to be undertaken, and if possible, agreed.
The Company's one-quarter share of the income from 9 Miller Street was agreed at $878,560. The figure for director's fees and legal fees was $226,200. The parties also agreed on the dates at which the various components of the account should be debited or credited to the running account. The amount of the judgment could therefore be calculated, subject to the interest calculation issue which I describe in more detail below.
The parties agreed that judgment in favour of the Company on its three successful claims in the collective sum determined upon resolution of the interest issue. The Company's claim against Mr Akerman was to be otherwise dismissed, to reflect the failure of the claim with respect to 5 and 7 Miller Street. On the cross-claim, a form of order for the rectification of the Company's share register was agreed, with the cross-claim to be otherwise dismissed.
The interest calculation issue arose in the following way. As already indicated, for the period between 1 March 2006 up to Mr Akerman's payment in April 2013, the running account was in debit. The interest which accrued over that period, calculated at statutory rates, was approximately $78,000. Thereafter the running account was in credit. Counsel for Mr Akerman, in their calculations, applied the whole of Mr Akerman's payment to the running account and at the end set off the $78,000 against the interest accruing in favour of Mr Akerman on the running account balance after the date of the payment.
The approach of counsel for the Company was to apply the $78,000 against Mr Akerman's payment in April 2013. This reduced the credit in his favour on the running account, and thus the interest in his favour after that date. The effect of which was to increase the judgment against Mr Akerman, by about $35,000.
Counsel for the Company submitted generally that bringing the $78,000 to account was consistent with the running account basis on which the interest was to be calculated. Counsel for Mr Akerman disagreed, contending that the Company's approach involved in effect a form of compounding which was impermissible under s 100(3)(a) of the Civil Procedure Act 2005 (NSW) ("CPA").
I was not taken to any authority on the issue and therefore had to deal with it as a matter of principle. I thought Mr Akerman's approach was to be preferred because I thought it was more consistent with a simple interest calculation. In my view there was no logical imperative which requires the accrued interest to be brought to account on 14 April 2013 just because the running account balance changed from a debit to a credit on that date. That would indeed have been a form of compounding, albeit involving only a single rest.

Costs of Company's proceedings

The initial contention by counsel for the Company was that Mr Akerman should pay the whole of the Company's costs of the proceedings, including those of the cross-claim. Counsel submitted that the Company had been substantially successful in the proceedings. The outcome of the proceedings should be treated as a single event, and costs should follow that event under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR").
The course of the argument resulted in some modification to this contention. Counsel recognised two qualifications.
First, counsel accepted that the costs thrown away by reason of the amendment of the Company's claim in November 2018 should be borne by the Company (although not to the extent claimed by counsel for Mr Akerman; see [52(4)] below).
Secondly, counsel accepted that the cross-claim should be treated as a separate event for costs purposes. Counsel contended that the Company should pay Mr Akerman's costs of the cross-claim, taken as a whole. Alternatively, if the "event" for the purposes of the cross-claim was to be subdivided according to the three different claims made, the Company should pay Mr Akerman's costs of cross-claim (3) (rectification) and Mr Akerman should pay the Company's costs of cross-claims (1) and (2) (relief against liability and curing of invalidities). No costs order should be made against Ms Dar.
In response, counsel for Mr Akerman acknowledged that the Company had succeeded on three of its four claims, albeit on the basis of lack of authority, a ground which had been raised late. However, counsel identified the following five points as bearing on the incidence of costs: 1. The Company failed on its claim with respect to numbers 5 and 7 Miller Street. 2. Because the Company succeeded on its claim of lack of authority, it became unnecessary to deal with the claims for breach of fiduciary duty, and those claims (and the related cross-claims for relief from liability) were not addressed by the Court. 3. Nor did the Court ultimately have to make any determination on the expert valuation issues which arose after the delivery of my second judgment. Counsel characterised this as a separate "event" which had been left undetermined as a result of the agreement reached between the parties at the hearing on 29 January. 4. The conduct of the case on the Company's behalf caused the incurring of unnecessary costs. Examples given by counsel were the issue raised as to the authenticity of Mr Akerman's file notes (see J1 [39]-[55]) and the evidence presented from Ms Dar which, on some points, was not accepted by the Court (J1 [196], [212]). Counsel also submitted that the costs thrown away by reason of the amendment would be extensive, and would include the costs, or most of the costs, of the hearings in November and December 2018. 5. One of the clauses in the Company's Articles of Association gives a director a right of indemnity in the event of successful defence of proceedings. Counsel for Mr Akerman contended that this article was, at least in part, engaged and gave Mr Akerman a right to a costs order in his favour on an indemnity basis for part of the costs of the proceedings.
Counsel for Mr Akerman did not invite me to make specific orders for costs in Mr Akerman's favour with respect to these matters. Instead, counsel submitted that the combined effect of them should be dealt with in the broad. Counsel's primary submission was that there should be no order as to the costs of the proceedings. Alternatively, counsel invited me to make an order that the Company receive only a percentage (which counsel said should not exceed forty per cent) of its overall costs of the proceedings.
Before addressing the specifics of these submissions, I will refer to the principles which apply to the award of costs in a case where the plaintiff succeeds on some aspects of the case and the defendant succeeds on other aspects. The topic was recently addressed by White JA in Oikos Constructions Pty Ltd v Ostin (No 2) [2021] NSWCA 98, to which my attention was drawn by counsel.
The authorities in this area were all decided under a rule of court prescribing, as UCPR, r 42.1 prescribes, that, as a general rule, costs shall follow the event unless the Court orders to the contrary. In Reid Hewitt & Co v Joseph [1918] AC 717 Lord Finlay LC, who gave the leading judgment in the House of Lords, reviewed the previous practice and course of decision and concluded (at 733): … the authorities are all one way. They all decide that the words "the costs shall follow the event" mean that the costs are to be distributed according to the results of the several issues, while the party who is successful on the whole gets the general costs.
Later, in Medway Oil & Storage Co Ltd v Continental Contractors Ltd [1929] AC 88, the House of Lords considered the application of the rule that costs follow the event in cases where there was an action and a cross-action, with the plaintiff succeeding on one and the defendant succeeding on the other. That decision was analysed and explained by Dixon J in Smith v Madden (1946) 73 CLR 129.
In Southern Oil Refining Pty Ltd v Hydrodec Australia Pty Ltd (No 2) [2021] NSWSC 336 I considered these decisions and deduced the following points. First, the action and the cross-action were treated as separate events, with separate orders made in favour of the successful party on the action and the cross-action. Second, the costs common to both the action and the cross-action followed the order for costs in the action. The effect was that, in Medway Oil where the defendant succeeded in defeating the plaintiff's action but failed on its cross-action against the plaintiff, the costs order in favour of the defendant covered all of the costs of the action (whether or not the issues to which they related also arose in the cross-action) and the costs order in favour of the plaintiff covered only the costs solely referable to the cross-action.
In Dimos v Willetts (2000) 2 VR 170 the Victorian Court of Appeal took an analogous approach in a case where a plaintiff sued two defendants, succeeding against one and failing against the other. The costs order in favour of the plaintiff against the unsuccessful defendant covered all of the costs common to the actions against both defendants. The only costs excluded were the costs solely referable to the action against the successful defendant.
As Ormiston JA pointed out at [44], the inclusion of actions against two separate defendants in the same proceedings is a product of the modern rules of joinder. Those rules equally permit the inclusion of separate actions against the same defendant in the one proceedings. Where this is done there seems no reason why the two separate actions against the one defendant should not be treated as giving rise to two separate events for the purposes of determining the incidence of costs. This was the approach I adopted in Southern Oil.
It will be recalled that in Reid Hewitt Lord Finlay spoke of the rule that in general costs follow the event as meaning that a party was usually entitled to the costs of the "several issues" on which that party succeeded. That interpretation of the rule was seen to reflect the pre-judicature practice at common law, under which the costs of each specific issue of fact or law were individually assessed in accordance with the parties' success or failure on that issue: see Reid Hewitt at 723.
As White JA pointed out in Oikos, there has been a reaction against the award of costs on an issue-by-issue basis. In Australia it is usual to associate that reaction with the dicta of Jacobs J in the South Australian Full Court in Cretazzo v Lombardi (1975) 13 SASR 4.
Cretazzo v Lombardi was a personal injury case in which the plaintiff had made an inflated claim for damages by exaggerating the effect of his injuries. The inflated aspects of the claim were rejected. Nevertheless the plaintiff succeeded in obtaining a verdict for more than the amount offered by the defendant. A costs order was made in his favour, but the order was tailored so as to exclude the costs referable to the unsuccessful aspects of the damages claim.
Jacobs J did not disagree with the costs order which was made. But he added (at 16): … I would wish to sound a note of cautious disapproval of applications, which are being made with increasing frequency, to apportion costs according only to the success or failure of one party or the other on the various issues of fact or law, which arise in the course of a trial.
His Honour went on to explain the reasons for his comment: [T]rials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues.
These dicta were taken up in other Australian courts. In particular, the subsequent decision of Fisher J in Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213 has been cited for the proposition that the court's discretion to "apportion" costs based on the outcome of specific issues in the proceedings is one to be exercised "only in the most exceptional circumstances".
This approach, however, has its detractors. Counsel for Mr Akerman relied heavily on the observations of Finkelstein & Gordon JJ in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 at [3]-[5]: … For many years the traditional rule has been that the winner (once the winner is properly identified) is entitled to recover his costs of the trial. It sometimes happens that there is a departure from the traditional rule and the costs order takes account of the success of the parties on particular issues. But to date the award of costs on an issue by issue basis has only been accepted in limited cases and then only when the circumstances are exceptional. This approach is, if we may be permitted to say so, quite unfair. Its effect is that a winner is entitled to all of his costs even if he raises a plethora of issues on which he is unsuccessful. The unfairness of the traditional rule has been recognised in England where, following Lord Woolf's interim report, Access to Justice (June, 1995) [at para 25.22], the Civil Procedure Rules were modified to require the judge to have regard to the circumstance (if it occurs) that the unsuccessful party has succeeded on some issues: see r 44.3(4)(b). In Western Australia, the Supreme Court Rules provide that costs should follow the event of each pleaded cause of action: see r 66(2)(a). This is narrower than the English approach but certainly more reasonable than adherence to the traditional rule. We do not believe there is any need to wait for a change in the Federal Court Rules to adopt an issue by issue approach here. Costs are in the court's discretion. Fairness should dictate how that discretion is to be exercised. So, if an issue by issue approach will produce a result that is fairer than the traditional rule, it should be applied. It is not suggested that such an approach requires a precise arithmetical apportionment of the costs as between the winner and loser of discrete issues. No doubt the assessment will often be rough and ready. But it will have the virtues of both fairness and reasonableness, which are often lacking in the application of the traditional rule.
In this State the following statement of Mahoney JA in Waters v PC Henderson (Australia) Pty Ltd [1994] NSWCA 338 (in fact a quote from the then current edition of A V Ritchie, Ritchie's Supreme Court Procedure New South Wales (4th ed, 1984, Butterworths): see [79] below) is frequently cited: Where the proceedings involve multiple issues the application of the rule that costs follow the event may involve hardship where a party succeeds on some issues and yet fails on others. Particularly is this so where, for example, a defendant succeeds on issues that occupied the bulk of the time taken by the proceedings. Nevertheless unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed.
This statement of principle appears to reflect the "traditional rule" criticised by Finkelstein & Gordon JJ in Bowen Investments. Despite that criticism, the Court of Appeal has continued to cite Mahoney JA's statement of principle with approval: see for example James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [32]; Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38].
If it were just a matter of applying the doctrine of precedent, the approach advocated by Finkelstein & Gordon JJ in Bowen Investments would not be open to me. But I do not think it is as simple as that.
In the first place, the dicta of Jacobs J in Cretazzo v Lombardi, from which the "traditional rule" originated, were concerned with issues arising in the course of determining a single action by a plaintiff against a defendant, namely an action for damages for personal injury suffered in a car accident. It was in this context that his Honour suggested that parties should not be deterred from raising alternative points in support of their positions even if those points ultimately prove unsuccessful.
This consideration is of particular importance for a defendant who may defeat the plaintiff's action despite having raised alternative defences which did not succeed or did not have to be decided. In such circumstances the appeal of the "traditional rule" is at its strongest: see Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 at [19] (Hodgson JA), [39] (Basten JA).
The same reasoning may apply to a plaintiff who succeeds in an action despite having raised alternative grounds for the claim which were not made out or did not have to be decided: see the discussion by White J (as his Honour then was) in HP Mercantile Pty Ltd v Dierickx (No 2) [2012] NSWSC 1430 at [20]. But it does not apply where the plaintiff brings two separate actions and succeeds on only one of them. It is one thing to encourage a plaintiff to put forward all reasonably available contentions in support of an action; it is quite another to encourage the plaintiff to bring further and additional claims for relief.
Furthermore, the "traditional rule" may not have been as extreme in its operation as Finkelstein & Gordon JJ suggested in Bowen Investments. In the first place it is worth mentioning that what Fisher J said in Trade Practices Commission v Nicholas Investments may have been interpreted more widely in later cases than was actually warranted.
His Honour's reference to "most exceptional circumstances" is at page 220 of the report. The plaintiff was contending that, although unsuccessful overall, it should receive at least a partial costs order in its favour because the defendant had raised unsuccessful points which had unduly protracted the proceedings. It was this particular contention his Honour was addressing when he said that such an award should only be made in the most exceptional circumstances. The plaintiff's application was refused. But his Honour went on to award the defendant only one third of its costs because of its failure on the points in question, despite expressly finding that those points had been properly raised: see at 222.
Thus the case supports the proposition that "apportionment", in the sense of applying the rule that costs follow the event on an issue-by-issue basis, should not occur unless the circumstances are "most exceptional". It does not support the wider proposition that a party which has been successful overall is entitled to all of its costs unless the circumstances are "most exceptional". In fact the outcome in the case was contrary to that proposition.
Furthermore, as early as 1993, the Full Federal Court had watered down the proposition that the "apportionment" of costs should only take place in the most exceptional circumstances. In Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1993] FCA 259, the Court (Gummow, French & Hill JJ) said (at [28]) that the "presumption that a successful party is entitled to all its costs" might properly be qualified to reflect "the demands of the community for greater efficiency in the conduct of litigation".
Their Honours continued (at [29]): Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion for the trial judge. Mathematical precision is illusory and the exercise of the discretion will often depend upon matters of impression and evaluation. His Honour's determination that in this case there should be no order as to costs was explicitly based upon his rough assessment of the time occupied at trial by the various issues in dispute. No reason for overturning the exercise of that discretion has been demonstrated and the Court is satisfied that the appeal fails on this ground also.
Their Honours' reference to discretion is particularly important. In this area the only "rule" which is binding on the court is that costs are to follow the event, but this "rule" is expressly only a starting point and the court has a broad discretion to depart from it.
I think the Court of Appeal authorities about the "traditional rule" acknowledge this. As noted, Mahoney JA's statement of principle was itself quoted from the then current edition of Ritchie's Supreme Court Procedure. All his Honour actually said was that he had considered some of the authorities and they "appear[ed] generally to support the principle" which was stated in the passage he quoted. Although, as I have said, the Court of Appeal has continued to quote the statement of principle with approval, the Court has also accepted that its application depends upon the circumstances. Thus in Oikos, White JA quoted a passage containing the statement of principle at [14] but went on at [16] to quote what Finkelstein & Gordon JJ said in Bowen Investments at [5] about adopting an issue-by-issue approach to the award of costs if that is fairer.
In Interchase Corporation Ltd v Grosvenor Hill (Queensland) Pty Ltd (No 3) [2003] 1 Qd R 26 at [83], McPherson JA reaffirmed the continued application of what Lord Finlay said in Reid Hewitt about the rule that costs follow the event being applied distributively, according to the "issues" in the proceedings. That passage in his Honour's judgment was applied by the Court of Appeal in Wollongong Coal Ltd v Gujarat NRE India Pty Ltd (No 2) [2019] NSWCA 173 at [20].
It might be thought that there is a tension between the Reid Hewitt approach, on the one hand, and the "traditional rule" as reflected in Waters v PC Henderson, on the other. Indeed, after reaffirming the formulation from Reid Hewitt, McPherson JA's judgment in Interchase continued at [84]: It is not by this intended to suggest that there has been a reversion to a regime under which costs of separate issues must now be determined. The practice of doing so was responsible for so much litigation in England that the rule was eventually altered to place costs within the general discretion of the court or judge: see Judicature Act 1925, s 50(1).
His Honour did not explain why placing a discretion in the hands of the court would necessarily prevent disputation about the costs of individual issues. But he clearly did not intend a full restoration of the old common law practice and a complete repudiation of the "traditional rule" which had developed in the meantime.
In trying to resolve the tension, it is I think important to recognise that the "traditional rule" is only a rule of practice. It can only operate to the extent that it is consistent with the terms of the Rules, and in particular the general rule that costs follow the event. Consistently with this, the "traditional rule" does not seem to have affected the general practice of treating an action and a cross-action as separate events for the purposes of the rule: see for example Barescape Pty Ltd v Bacchus Holdings Pty Ltd (No 12) [2012] NSWSC 1591 at [6]-[7].
It should also be recognised that the contexts in which the authorities speak of awarding costs based on the outcome of "issues" vary. As I have already pointed out, in Cretazzo v Lombardi the plaintiff was claiming particular heads of damage as part of a single claim for damages for personal injury. In other cases, the circumstances involved separate claims for relief: see for example Jones v Curling (1884) LR 13 QBD 262, referred to in Reid Hewitt at [1918] AC 729-731, an ejectment case involving a claim to six separate parcels of land, which succeeded for some and failed for others.
In these circumstances, I think a degree of reconciliation can be achieved by treating the general rule that costs follow the event (operating distributively) as referring to the outcome of the claim or claims for relief; and the "traditional rule" as referring to specific issues arising on factual or legal elements of the plaintiff's cause of action or of the defendant's defence. The "traditional rule" thus operates within the confines of, and consistently with, the general rule that costs follow the event. Of course this is all subject to the Court's overall discretion to depart from either "rule" if the circumstances of the case justify it.
In my view such an approach is consistent with that taken by the Court of Appeal in Wollongong Coal. In that case the separate "issues" by reference to which the Court applied the rule that costs follow the event distributively were questions of liability on two separate actions which were litigated together: one a claim for debt worth $8 million and the other a claim for indemnity worth $15 million.
With these principles in mind I turn to the contentions raised by counsel for the parties.

Claim concerning Company's shares of numbers 5 and 7 Miller Street

The Company's claim for compensation with respect to numbers 5 and 7 Miller Street, based on the claimed value of the property as at the date of the initial trial, was $890,000. This was not as large as the claim for 9 Miller Street (then valued at $2.7 million), but it was substantial in its own right.
The Company's claim with respect to numbers 5 and 7 arose out of the same general background as the claim with respect to number 9. But the two claims were each based on discrete events and gave rise to their own separate, albeit similar, issues of fact and law.
In my view, the Company's claim concerning numbers 5 and 7 Miller Street should be regarded as a separate event, on which it failed and Mr Akerman succeeded. It may be that because of the overlap with the claims on which the Company succeeded, the costs solely referable to the claim concerning numbers 5 and 7 are relatively limited; but the starting point is that the Company should bear any such costs.

Alleged breach of director's duties

It is true that the Company's claims of breach by Mr Akerman of his director's duties involved causes of action which were separate from the successful claims of lack of authority. But the relief (rescission or monetary compensation in lieu of rescission) was the same. The amendments made when the allegations of lack of authority were introduced resulted in little or no variation to the orders sought by the Company. In the end, the two types of claim operated as alternative bases for seeking the same relief. This is shown by the fact that I did not find in Mr Akerman's favour on the breach of duty questions (except on numbers 5 and 7 where he succeeded overall); those questions simply did not need to be decided.
In my view the breach of duty claims did not give rise to a discrete event or events for the purposes of the rule that costs follow the event. The true "event" for the purpose of the rule was the recovery of compensation (in the case of the claims on which the Company succeeded). The breach of duty claims were subordinate elements of those claims. As such, they attract the "traditional rule" instead.
I think it is unlikely that the breach of director's duties issues would have added in a substantial way to the amount of evidence which was before the Court, or to the length of submissions. But whether that is so or not, I consider that those issues were not "clearly dominant or separable" in the context of the Company's claims. There should be no reduction in the costs award in favour of the Company on account of those issues.

Quantum of judgment

Similar considerations apply to the issues associated with quantifying the judgment, and in particular the valuation of 9 Miller Street. It is true that the parties eventually agreed to a compromise figure but Mr Akerman was not wholly successful. In the end the compensation awarded against him for the capital value of the Company's share of 9 Miller Street was $3.3 million, which was appreciably higher than the value for which he contended (see [41] above)
Had Mr Akerman wished to protect himself for the costs of the quantum hearing he could readily have made an offer of compromise. I assume none was made, or if it was, it was not bettered. Quantification of the Company's entitlements was a necessary and integral part of its successful claims. In my view there is insufficient justification to treat it as some sort of separate issue.

Alleged inefficiency in conduct of proceedings and extent of costs thrown away by amendment

I do not propose to go into the points raised by counsel for Mr Akerman. In order to do justice to them I would need to consider the course of events in much more detail than has so far been necessary (or that was canvassed in the evidence and the submissions). In view of my conclusions about the appropriate form of order below, it will be open to Mr Akerman to raise these points so that they can be dealt with in the course of the assessment.

Cross-claim

As already noted, counsel for the Company accepts that Mr Akerman is entitled to the costs of his cross-claim. These will of course be limited to costs solely referable to the claims made by way of cross-action, as it was the Company's claim which was the dominant claim in the proceedings. Also Mr Akerman succeeded only on his claim for rectification (claim (3) under the cross-claim); the costs referable to his claims to be relieved of the consequences of any breach (claims (1) and (2) under the cross-claim), on which Mr Akerman failed, and which involved discrete prayers for relief, will be excluded.
There is however a question whether costs should be awarded against the Company (as counsel for the Company sought) and not against Ms Dar.
The cross-claim was defended in the name of the Company, but that was plainly on the instructions of Ms Dar. Presumably it was assumed that she was entitled to act on the Company's behalf as a result of the s 237 order which had been made in her favour. No application was made for any further leave under s 237, or for directions under s 241 (see below at [147]) in aid of the existing grant of leave.
No doubt the order under s 237 authorising Ms Dar to bring the claims identified in the draft statement of claim must have carried with it the power to take reasonable ancillary steps to prosecute those claims. A person in whose favour a s 237 order is made would not be expected to go back to the court for an order before being able to pursue or resist interlocutory applications concerning procedural matters such as discovery or amendment (at least if the amendments did not alter the substance of the claims which had been the subject of the prior leave).
In MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 461, proceedings were brought by an individual in the name of the plaintiff company pursuant to a previous s 237 order. The defendant filed a cross-claim back against the company and the question was whether the s 237 order permitted the individual to defend the cross-claim in the company's name.
Barker J held that it did. His Honour observed that the cross-claim (the nature of which was not described in the judgment) repeated the defence and raised no separate issues for decision. He characterised the cross-claim as being purely defensive. In these circumstances, it would have been "artificial and disruptive" to take any other view (see at [35]).
It may be that similar reasoning could have justified Mr Dar's defence of the claims for relief from the consequences of any breaches alleged against Mr Akerman, if the cross-claim had consisted of those prayers for relief alone. But the claim for rectification was not of that character. It was quite discrete, both legally and factually.
It seems to me with the benefit of hindsight that defending the cross-claim (if the defence was to include opposition to the claim for rectification) should have been the subject of an application for directions or perhaps a further order under s 237. It is far from clear that it was necessarily in the Company's interests to defend that particular claim.
Ms Dar was in her own individual capacity a cross-defendant to the cross-claim, and properly so, in the light of the rectification claim. In these circumstances, I regard the defence of the rectification claim as having been conducted not only on Ms Dar's instructions but also for her benefit. In my view, having failed in her opposition to the claim, Ms Dar, and not the Company, should pay Mr Akerman's costs of the claim.

Indemnity under Company constitution

The relevant provision in the Company's constitution is article 113 of the Company's Articles of Association: Every director, managing director, agent, auditor, secretary, and other officer for the time being of the company shall be indemnified out of the assets of the company against any liability incurred by him in defending any proceedings, whether civil or criminal, in which judgment is given in his favour or in which he is acquitted or in connection with any application under the Act in which relief is granted to him by the Court in respect of any negligence default breach of duty or breach of trust.
Counsel for Mr Akerman submitted that, no finding having been made against him on the grounds of breach of fiduciary duty, he had successfully defended the Company's claim on those grounds and should have his costs, on an indemnity basis, of doing so. For their part, counsel for the Company submitted that there had been no "proceedings" in which judgment had been given in Mr Akerman's favour (other than the cross-claim which was not relevant) and there had been no "judgment" in his favour on the breach of duty issue; rather, the issue had not been decided.
I have already explained why I consider that the allegations of breach of fiduciary duty should not be seen as a separate claims in their own right. Rather they were alternative bases for supporting the claims for compensation made by the Company. I therefore reject the submission made by counsel for Mr Akerman so far as it concerned the costs of defending those allegations.
There has however been a judgment in Mr Akerman's favour, so far as the Company's claim for numbers 5 and 7 Miller Street is concerned. I was not referred to any authority on whether a provision such as article 113 operates "distributively", so as to give a director who has failed overall a right to indemnity costs for the claims which the director has successfully defended. In the absence of any real argument on the point I am inclined to think that a "judgment in favour" of the director means a judgment on all claims. The costs entitlement in Mr Akerman's favour with respect to numbers 5 and 7 is therefore on the ordinary basis only.
I should note that counsel for the Company raised a preliminary objection to the claim under article 113 being entertained at all. Counsel submitted that any such entitlement was based on substantive rights. It should therefore have been pleaded and run at trial.
This submission gives rise to interesting theoretical questions. On the one hand, a claim for indemnity by a director under a company constitution is undoubtedly a claim of a contractual nature which is based on rights existing independently of the proceedings to which the claim relates. Where the company is incorporated in a different jurisdiction, it may even be governed by different law (the proper law of a company's constitution, considered as a contract between the company and its members and officers, is presumably the law of the place of incorporation; see also, for foreign companies, the Foreign Corporations (Application of Laws) Act 1989 (Cth), s 7(3)). On the other hand, it has been accepted that the court may exercise its power to award costs by making an award on an indemnity basis if the successful party has a contractual entitlement to costs, so that the award will conform to the successful party's contractual entitlements: see Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45 at [9].
The court's power to award costs derives from statute and there is no necessary conflict between the exercise of that discretionary power and the existence of contractual rights to recover costs. But the possibility of conflict may arise where the measure of costs awarded differs from the contractual entitlement, particularly where the contractual entitlement arises under the law of, or may be enforceable in, some other jurisdiction. On the view I have taken, I do not need to say anything more about this in the present case.

Overall costs apportionment

I have concluded that the Company is entitled to its costs of the proceedings excluding: 1. costs thrown away by reason of the amendment of the Company's statement of claim in November 2018; 2. costs of the Company's claim with respect to numbers 5 and 7 Miller Street; 3. costs of the cross-claim (other than the costs of claims (1) and (2) under the cross-claim).
Correspondingly, Mr Akerman is entitled as against the Company to his costs of (1) and (2), and, as against Ms Dar, to his costs of (3).
As already mentioned, the submission by counsel for Mr Akerman was that rather than make orders reflecting these entitlements, I should make an overall apportionment of the costs between the Company and Mr Akerman, either ordering that there be no order as to costs, or making an order in favour of the Company for a percentage of its costs (which, according to counsel, should not exceed forty per cent (see [53] above)).
The issues which arise can best be illustrated by considering how the assessment would proceed if I were to make a general costs order in favour of the Company and a specific costs order back in favour of Mr Akerman for the costs to which he is prima facie entitled, for example the costs of the Company's unsuccessful claim with respect to numbers 5 and 7 Miller Street.
Such an assessment would require the Company's costs to be reviewed so as to exclude any costs solely referable to the unsuccessful claim. This would first involve identifying items of specific cost which were referable to that claim (such as a valuation report for numbers 5 and 7). Any items of cost which were common to all of the Company's claims, and were of such a nature that their quantum was not affected by the inclusion of the unsuccessful one, such as a filing fee or the cost of a directions hearing, would not be affected.
So much is relatively straightforward. But it is also necessary to deal with what Dixon J referred to in Smith v Madden as "mixed" costs. These are items of cost which relate to more than one claim, but differ from common costs in that the charge would have been lower if the unsuccessful claim had not been made. The categories of potentially mixed cost in these proceedings would appear to be: 1. preparation of pleadings and particulars; 2. preparation of affidavit evidence; 3. obtaining of documents by means of discovery and subpoena; and 4. the conduct of the hearing.
In essence, the task is to decide for each item of cost what the quantum would have been had the unsuccessful claim not been made, and to deduct that additional component (if any). Of course this cannot be pressed too far. Mathematical precision is not practicable and small margins can be disregarded as immaterial.
The mirror exercise would also have to be done for Mr Akerman's costs. In his case, the focus would be on identifying items of specific cost, and the increased component of mixed cost items, attributable to the unsuccessful claim against him.
Counsel for Mr Akerman submitted that in making the overall apportionment sought instead, the Court would be expected to use a "broad brush" and would not have to descend into a detailed item-by-item evaluation. Even so, there would have to be some proper basis for the figure fixed by the Court. It would have to be, and to be seen to have been, an approximation, however rough, of the parties' true entitlements.
In my view the greatest difficulty is with the items of mixed cost. The Court simply does not possess the information required to assess how much, if at all, the inclusion of the unsuccessful claim increased those costs. Of the four categories of mixed cost I have identified, the only one of which the Court has any direct experience is the conduct of the hearing, and even for that the Court has no idea what went into preparation for the hearing and other associated tasks.
In an appeal, the length of time spent on issues in the course of the hearing might be a reasonably accurate measure of the time spent on those tasks outside court. But the same is not necessarily so for proceedings which result in a trial involving disputed issues of fact. For instance, the inclusion of a claim may make no substantial difference to the production of documents but result in the hearing being lengthened by, say, twenty per cent. In these circumstances, I think that any percentage figure the Court might fix would be no more than a guess.
A relevant factor in the present case is that the process of assessment requires an item-by-item analysis of the Company's costs for the purpose of determining whether they are allowable. The approach suggested would still require the assessor to undertake this task, only to have the resulting figure then reduced by some arbitrary overall percentage determined by the Court.
Of course to require assessment of differential costs orders may make the process more complicated. It is a matter of balancing that against obtaining a fairer result in the end. In the exercise of my judgment I think that a more granular approach is better in the present case. I am influenced in particular by the considerations that the costs overall are likely to be substantial, and that the proceedings have involved a long and complex procedural history which I have not so far had to consider.
For these reasons, I will make orders reflecting the parties' entitlements as set out above, leaving it to the assessment process (or agreement between the parties if that is possible) to determine the ultimate quantum.

Costs of s 237 application

Counsel for the Company acknowledged a procedural difficulty with the form of the order made by Black J in October 2015. That order related to the costs of the s 237 application, in which Ms Dar was the plaintiff. The order provided that Ms Dar's costs of the proceedings should be costs in the Company's proceedings, but Ms Dar was not, so far as the record was concerned, the plaintiff in the Company proceedings; the Company was.
Counsel submitted that the intention behind the order was plainly to provide for Ms Dar to receive an order in her favour for the costs of the s 237 proceedings if the Company succeeded in the Company proceedings. Counsel invited me however to make the outcome clear by making a formal order that Mr Akerman pay Ms Dar's costs of the s 237 proceedings. Counsel put forward two avenues by which, it was submitted, that could be done.
First, counsel submitted that I could make an order in the Company proceedings that Mr Akerman pay Ms Dar's costs of the s 237 proceedings. Counsel contended that this was possible under the Court's general power to award costs in CPA, s 98.
Counsel's alternative avenue of approach was through the s 237 proceedings. Counsel proposed that the Court make a formal ruling (in effect a declaration) that, as a matter of construction of Black J's order, it meant that in the events which had happened, Ms Dar was entitled to her costs of the s 237 proceedings against Mr Akerman. Alternatively, counsel asked me to vary Black J's order and replace it with an order expressly requiring Mr Akerman pay Ms Dar's costs of the s 237 proceedings.
For their part, counsel for Mr Akerman also submitted that the order made by Black J was not in satisfactory form and should be varied. Their contention was that no order should be made in Ms Dar's favour for the costs of the s 237 proceedings. Alternatively, she should receive only a share of the costs of those proceedings, corresponding to the share of the costs order which she was to receive in the Company proceedings. Counsel also drew attention to Ms Dar's undertaking and submitted that she should be ordered to indemnify the Company against the costs orders in favour of Mr Akerman in the Company proceedings.

Order in Company proceedings

CPA, s 98 relevantly provides: (1) Subject to rules of court and to this or any other Act - (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. … (4) … at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to - (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount. … (6) In this section, costs include - (a) the costs of the administration of any estate or trust, and (b) in the case of an appeal to the court, the costs of the proceedings giving rise to the appeal, and (c) in the case of proceedings transferred or removed into the court, the costs of the proceedings before they were transferred or removed.
Subsection (1) is in wide terms. Still I think it is questionable whether the power would extend, in the Company proceedings, to make the orders sought by counsel in favour of Ms Dar.
First, from its context the reference to "costs" in s 98 is arguably to the costs of the proceedings in which the order is made. Subsection (6) is consistent with this view. It includes various categories of costs which fall outside the costs of the proceedings in which the order is made. If subsection (1) extended beyond the costs of those proceedings, then subsection (6) would apparently be unnecessary.
Second, both subsections (2) and (4) speak of costs of a "party" to proceedings. Arguably s 98 is confined to the award of costs in favour of a party. On this view the provision would permit an award in favour of a party against a non-party, but not an award in favour of a non-party.
If either of these views were adopted it would not be open to the Court in the Company proceedings to make an order for payment of Ms Dar's costs of the s 237 proceedings. Ms Dar was not a party to the Company proceedings. Furthermore, as discussed in more detail below, the s 237 proceedings are conceptually quite distinct from the Company proceedings.
These points were not addressed, or at least not fully addressed, in the parties' submissions. On the view I have formed I do not need to make a final decision on them.

Further order in s 237 proceedings

I propose to deal first with whether I have power to vary Black J's order. That order was entered in October 2015. This brings into play the rule against re-opening proceedings. The rule was stated by Barwick CJ in Bailey v Marinoff (1971) 125 CLR 529 at 530 in terms which were approved by the High Court as a whole in DJL v Central Authority (2000) 201 CLR 226 at [38]. In Bailey v Marinoff Barwick CJ said: Once an order disposing of a proceeding has been perfected by being drawn up as the record of a court, that proceeding apart from any specific and relevant statutory provision is at an end in that court and is in its substance … beyond recall by that court.
This rule is not confined to an order giving effect to a judgment following the trial of an action. In Bailey v Marinoff it was applied to a self-executing order which provided for the dismissal of an appeal. In Woods v Sheriff of Queensland [1895] QLJ 163, speaking for the Queensland Full Court, Griffith CJ said (at 164): when a judgment or order is pronounced or made after hearing both sides, it is a general rule that the court which pronounced the judgment or made the order cannot reverse or vary it. [T]his rule … in my opinion applies equally to all judgments and orders, whether final or interlocutory, and whether pronounced by the Full Court or by a single judge, and whether he is sitting in court or in chambers …[T]he general rule applies to all decisions of this Court by whomsoever the jurisdiction is exercised, unless where some statutory provision exists to the contrary, or where the alleged error in the judgment or order is not that of the court or judge, but is made by the officers of the court in formulating the decision.
But his Honour distinguished the operation of this general rule from the court's power to grant relief against the continued operation of an order "if after it is made new facts come into existence or are discovered which render its enforcement unjust". He said (at 165): An application for a new order which has the effect of suspending in whole or in part the operation of a previous order starts with the assumption that that order was rightly made. There is therefore no question of reversing or varying or rehearing the original decision or order. …If it should turn out that the application is based upon the assumption that the order, the operation of which it is desired to modify, was wrongly made, it must fail. The only question is whether the party applying is entitled under the altered circumstances to be relieved from the operation of the order.
The rule against re-opening, like any judge-made rule of law, only operates to the extent that it is not displaced by statute or by the provisions of the Rules. Reopening is dealt with in UCPR, Parts 35 and 36. Relevantly for present purposes, the Court has two powers to set aside an order which has been entered. Under r 36.16(3) the Court has a general power to vary or set aside any order except insofar as it "determines any claim for relief, or determines any question (whether a fact of law or both) arising on any claim for relief". The Court also has a general power to set aside any order at all if a notice of motion for that relief is filed within 14 days of the order being entered: r 36.16(3A).
Counsel for the Company advanced four arguments in support of the contention that it was open to me to set aside the costs order made by Black J. Counsel's primary argument was that the order was inherently capable of variation. Counsel submitted that an order that the costs of proceedings be costs in some later proceedings was necessarily "contingent" on the making of costs orders in those later proceedings. It followed, counsel submitted, that the Court always had power, when making costs orders in the later proceedings, to make some other order as to the costs of the earlier proceedings.
Counsel then advanced three alternative submissions. Counsel's second submission was that the Court had power to make an order by way of working out the previous order (see Boateng v Dharamdas [2019] NSWCA 233 at [56]). Third, counsel submitted that the slip rule (acknowledged by Griffith CJ as an exception: see [139] above) was wide enough to permit me to make the order sought in the present case. The slip rule was said to extend to any case in which an amendment was necessary to prevent injustice. Fourth and finally, counsel submitted that I had power to extend the fourteen day time limit imposed by UCPR, r 36.16(3A).
I have some doubts about whether these alternative arguments have any substance. It is convenient to deal instead with the primary argument, that the order was inherently capable of variation.
The argument raises for consideration the nature of proceedings in which a s 237 order is made, and the relationship between those proceedings and the proceedings which are later conducted on behalf of the company under the authority of the order. I will therefore begin with the relevant provisions of the Corporations Act.
Under s 237 the court has power to make two types of order. The court may authorise the applicant to bring proceedings on behalf of the company in question, or it may authorise the applicant to intervene in proceedings to which the company is party for the purpose of taking responsibility for the conduct of the proceedings in whole or part: s 236(1). If an order of the former type is made, the proceedings so authorised must be brought in the name of the company: s 236(2). There is no equivalent requirement where leave to intervene is given.
If an order is made, s 241 gives the court wide powers to make orders "in relation to" the proceedings brought or intervened in. These include directions about the conduct of those proceedings (s 241(1)(a)); orders directing the company or officers of the company, to do, or refrain from doing, "any act" (s 241(1)(b)); and orders appointing an independent person to investigate and report back to the court on the affairs of the company, the background to the proceedings, or the costs incurred by the parties to the litigation (s 241(1)(c)). The proceedings also cannot be discontinued or settled without the court's approval: s 240.
Costs are dealt with by s 242. Again it should be noted that the court's powers extend to making orders as to the costs of the parties to the company's proceedings. Section 242 provides: The Court may at any time make any orders it considers appropriate about the costs of the following persons in relation to proceedings brought or intervened in with leave under section 237 or an application for leave under that section: (a) the person who applied for or was granted leave; (b) the company; (c) any other party to the proceedings or application. An order under this section may require indemnification for costs.
The Act does not in terms deal with how proceedings in which a s 237 order is sought are to be constituted. Nor, apart from s 236(2), does it make any express provision as to the constitution of the proceedings the subject of the order.
There have been cases of leave being sought by way of interlocutory application, with the substantive claim by the company then being determined in the same proceedings. But what happened here was that originating proceedings were brought for a s 237 order, and, once the order was made, the proceedings so authorised were brought by way of a separate action in the company's name. That practice seems to be a well-accepted one. It was expressly endorsed by Barrett AJA in Huang v Wang (see [153] below) at [85].
Although in the present case the company's proceedings have been brought in the same court which made the s 237 order, once it is accepted that the company's proceedings may be brought in separate proceedings, then there is no reason why that must happen. Depending on the nature of the company's claim, another court might have jurisdiction. Indeed that jurisdiction might even be exclusive. Nor would the other court necessarily be a court possessing Corporations Act jurisdiction.
What this points up is that proceedings for an order under s 237 are conceptually and (it seems) jurisdictionally quite distinct from the ensuing proceedings which may be brought on behalf of the company. Nor is the Corporations Act jurisdiction necessarily spent when a s 237 order is made. There remains a continuing power to make directions under s 241, and to approve settlement under s 240, as well as to make orders about costs under s 242.
In McEvoy v Caplan [2010] NSWCA 115 the Court of Appeal held that, for the purposes of appeal, a s 237 order is interlocutory, not final. The decision was seen to follow from the fact that the refusal of relief does not prevent a fresh application being made at a later stage: see at [4]. But in Huang v Wang [2016] NSWCA 164, Barrett AJA in his concurring judgment pointed out that in McEvoy the application was made by way of motion in existing proceedings. His Honour suggested (at [85]-[86]) that where the application is to have the company bring proceedings against an unrelated third party, and this is opposed by those who control the company, the resulting controversy is solely a dispute between the applicant and the company on a matter of "internal governance and domestic concern", resulting in a decision which is a final one.
Counsel for Mr Akerman relied in the present case on an analogy with an order made in an interlocutory application that costs be "costs in the cause". Counsel submitted that such an order creates no immediate entitlement to costs. All it does is to provide for the costs of the application in question to be determined in the same way as the general costs of the proceedings. As such, in counsel's submission, it can be varied when the award of the general costs comes to be considered at the end of the proceedings.
At first sight the idea seems attractive that, where a "costs in the company's proceedings" order is made on the s 237 application, the court hearing the company's proceedings should be able to adjust the costs of that application in the light of the outcome of the company's proceedings. As in this case, there may be an element of mixed success in the result. It would be rather inconvenient if the court were confined to deciding, as a matter of interpretation, whether the party who had received the benefit of the order on the application had succeeded or not in the main event.
In Dubbo Refrigerating & Co v Rutherford (1898) 14 WN (NSW) 180, an order was made in the course of proceedings for evidence to be taken on commission from a witness in New Zealand. The evidence was taken and it was ordered that the costs would be costs in the cause. The plaintiff eventually succeeded, and was thus entitled to the general costs of the proceedings. In taxing the costs, however, the Prothonotary gave the costs of the commission to the defendant, on the ground that the evidence taken on commission related to a factual issue on which the defendant had succeeded (at the time, the Court was applying the old common law practice that costs of particular issues followed the result of the particular issue).
The Full Court rejected the plaintiff's appeal against the Prothonotary's decision on this point. Darley CJ stated (at 182): "Costs in the cause" merely means costs not now disposed of; after the trial they have to be disposed of with the costs of the trial, which are themselves costs in the cause, according to certain settled principles of law which the Prothonotary has followed.
Whether a "costs in the cause" order would be interpreted in the same way today given the changes in the law and practice around the assessment of costs may be a matter for debate. But in any event the analogy with a "costs in the cause" order made on an interlocutory application is not exact in the present case. The order here provided that the costs of the s 237 proceedings should follow the event of proceedings which were separate both in form and substance.
Although neither party addressed this, another, arguably closer, analogy is with an order made after a successful appeal that the costs of the earlier proceedings (or of the appeal) be costs in the re-trial. Such a situation was considered in Knudsen v Kara Kar Holdings Pty Ltd (No 2) (2000) 52 NSWLR 254 where there had been a trial of proceedings before Young J, who found for the plaintiffs, followed by a successful appeal by the defendants. Austin J conducted the second trial and again found for the plaintiffs. His Honour concluded that the plaintiffs, as the successful parties, should have the costs of the re-hearing. The defendants, however, resisted orders that they pay the costs of the earlier proceedings.
The first question concerned the costs of the appeal. The Court of Appeal had ordered that the costs of the appeal were to be costs in the re-hearing. Austin J considered that this meant that the plaintiffs, who had succeeded at the re-hearing, were entitled to the costs of the appeal. His Honour treated this conclusion as flowing from the terms of the Court of Appeal's order: he considered he had no remaining discretion to exercise (at [33]-[35]).
The second question concerned the costs of the first trial which had been the subject of a costs order in favour of the plaintiffs by Young J. The Court of Appeal had not made any express order about the costs of the first hearing. Austin J considered that he had a discretion as to how the costs should be awarded (although he ultimately made an award in favour of the plaintiffs). The significant point for present purposes is that his Honour saw the question as turning on whether Young J's costs order had implicitly been set aside by the Court of Appeal. Austin J found that it had; but it is clear that he would not have considered himself free to depart from Young J's order otherwise (see at [47]).
The same approach was taken in Wojcic v Incorporated Nominal Defendant (No 2) [1968] VR 533, a case on which Austin J relied. In that case, after referring to the court's wide power over costs, Gowans J said: Of course, there may be other orders binding the trial judge which he cannot overrule. As an example, in this case the Full Court might have dealt with the question of costs. If so, the Court ultimately dealing with the costs of the action would be barred from making any order contrary to that of the Full Court, just as it would be in relation to any order made by a judge or a master of this Court in interlocutory proceedings in the action.
In this passage his Honour appears to have assumed that an interlocutory costs order once made cannot thereafter be disturbed. Although his Honour did not say so, presumably this was based on the rule against re-opening stated in Woods v Sheriff of Queensland and Bailey v Marinoff.
Of course, the rule in its judge-made form no longer applies directly, and has been replaced by UCPR, r 36.16(3) (see at [141] above). The question is whether the earlier costs order dealt with a "claim for relief". But the better view, based on Court of Appeal authority, appears to be that a costs order is indeed a "claim for relief" for relevant purposes. The result is that once the Court has made a decision on the incidence of costs between parties, that order is final on that issue, although it does not prevent the court from exercising some other costs power such as making an order against a third party: see Short v Crawley (No 45) [2013] NSWSC 1541 at [21] and the discussion in Tjiong v Tjiong (No 2) [2018] NSWSC 1981 at [107]-[119].
In the present case, there seems no escape from the fact that I am being asked to reconsider, and indeed set aside, Black J's costs order. That order was made after argument (or at least after the opportunity for argument) at the end of the case. His Honour would certainly have had power under s 242 of the Corporations Act to defer the question of costs until the outcome of the Company proceedings was known. The Court would also have had power to make further or supplementary orders, for instance in relation to indemnity. But the actual incidence of costs was debated before Black J and decided.
In the end, however, I do not think that I need to reach a final decision on the application of UCPR, r 36.16(3). Both parties contend that the terms of the order are unsatisfactory and both ask me to vary it, albeit that they disagree on what the terms of the variation should be. In these circumstances I think the Court's power to set aside an order by consent (UCPR, r 36.15(2)) is engaged. In effect both parties are asking me to set aside the order and re-exercise the discretion and I think I can do that.
This conclusion makes it unnecessary to consider whether I could, or should, make a declaration about the effect of the order Black J did make, given the events which have occurred. I turn now to the parties' rival contentions as to the form of the order which should now be made.
Counsel for Mr Akerman first contended that the costs order in the s 237 proceedings should be made to "benefit the Company", not Ms Dar. Counsel pointed out that it was the Company which had litigated the Company proceedings. Alternatively, counsel argued that Ms Dar should be deprived of costs because the Company had not relevantly succeeded on the claim for breach of director's duties. Counsel went so far as to say that the belated reliance on Mr Akerman's lack of authority showed that the proceedings had been unnecessary. Counsel submitted that Ms Dar could have achieved her objective by suing in her own name (as a shareholder of the Company) for breach of the statutory contract between the shareholders, the office-bearers and the Company.
I do not accept these submissions. In the first place I think it is unrealistic to characterise Ms Dar as having no interest in the proceedings by the Company. It is true that the proceedings were brought in the name of the Company. But the Act I think contemplates that, as happened in this case, it will be the applicant who will instruct the solicitors and in the first instance incur the liability for the costs of mounting the proceedings: see s 241(1)(d)(iii).
The idea that a "costs in the company's claim" order could be appropriate in s 237 proceedings can be traced back to the judgment of Sackville AJA in Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 1159 at [19]. Clearly Black J was following that earlier decision when he made the order he did. This was before Barrett AJA made his remarks in Huang v Wang about the true parties to a s 237 dispute being only the applicant and the company. On Barrett AJA's view, the only order which would have been available inter partes would have been an order that the Company pay Ms Dar's costs, although it would of course have been possible under s 242 to make an order that Mr Akerman indemnify the Company against that liability, or pay Ms Dar's costs directly, if the claim against him ultimately succeeded.
In these circumstances I think it would clearly be wrong now to make an order in the s 237 proceedings in favour of the Company. As the Company did not itself incur the costs of the application, it would be unable to recover anything under such an order. Ms Dar, who did incur the costs, would be unable to recover them either. An order in this form would be self-defeating and quite contrary to what Black J evidently intended.
I have already rejected the submission that Mr Akerman was in some way successful because the allegations of breach of director's duties were not found proved against him. Nor do I accept that subsequent events have demonstrated that the proceedings were unnecessary. Even if under the statutory contract Ms Dar could have raised the issue of Mr Akerman's lack of authority, she could only have sued for damages suffered by her. It would not have been open to her to obtain rescission of the contract on behalf of the Company or to obtain compensation for the loss suffered by the Company as was ultimately achieved.
In the end I agree with the submission from counsel for the Company that Black J clearly intended for Ms Dar to receive costs in her favour if the Company's action succeeded. It has done so to a substantial degree, albeit not completely. It is true that at the hearing Mr Akerman did not in the end oppose the grant of s 237 relief, but this was an argument which could have been put to Black J and I am not prepared to go back over the issue now.
Although in the Company proceedings I have deprived the Company of some of its costs because it failed on one of the events in the proceedings, the s 237 proceedings are different. I consider that the event in those proceedings was the granting of leave (followed by substantial success in the resulting proceedings on behalf of the Company). Ms Dar's undertaking means that she will need to indemnify the Company against the orders made in favour of Mr Akerman in the Company proceedings. But there is no reason to discount the costs of the s 237 proceedings themselves.
For these reasons I will set aside the order made by Black J and in its place order that Mr Akerman pay Ms Dar's costs of the s 237 proceedings.
Finally, I note that the s 237 procedure derives, via an exception to the rule in Foss v Harbottle (1843) 2 Hare 461, from procedures in trust and estate law which permitted, in some circumstances, for a beneficiary to bring a claim on behalf of a trust or estate when the trustee or executor was refusing to do so: see Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (1988) 17 FCR 344 at 348-349, per Gummow J. It might have been argued that, as the proceedings have ultimately benefited the Company, the Company should bear the residual costs of mounting them, or at least the residual costs of mounting the successful claims. But this was not sought and I can pass it by.

Orders

The orders made on 19 February on the Company's claim against Mr Akerman in the Company proceedings were: 1. Judgment for the plaintiff on its claims with respect to: 1. the plaintiff's share of 9 Miller Street Bondi; 2. director's fees and superannuation payments totalling $226,200; and 3. legal fee payments totalling $84,573.50, in the sum (including pre-judgment interest) of $1,989,458. 1. Order that the plaintiff's claim be otherwise dismissed.
The orders made in the Company proceedings on the cross-claim by Mr Akerman were: 1. Order nunc pro tunc that the plaintiff's register of members be rectified so as to record: 1. the transfer on 10 December 2004 of five ordinary shares, 4000 class A preference shares and 50,000 class B preference shares from the estate of Mrs Jana Akierman to the defendant and four ordinary shares, 4000 class A preference shares and 50,000 class B preference shares to Ms Gillian Dar; and 2. the transfer on 10 February 2005 of one ordinary share from Mrs Emilia Marr to the estate of Mrs Jana Akierman and then to Ms Gillian Dar. 1. Order that the cross-claim be otherwise dismissed.
The orders I now make in the Company proceedings (2015/323943) are: 1. Order that the costs thrown away by reason of the amendment of the statement of claim on 13 November 2018 be paid by the plaintiff; 2. Order that the costs solely referable to the plaintiff's claim with respect to numbers 5 and 7 Miller Street be paid by the plaintiff; 3. Order that the costs solely referable to the cross-claim, apart from such of those costs as are solely referrable to prayers for relief (1) and (2) in the cross-claim, be paid by the third cross-defendant; 4. Order that the plaintiff's costs of the proceedings otherwise be paid by the defendant.
The orders I now make in the s 237 proceedings (2014/212441) are: 1. Order that order 3 made by Black J on 7 October 2015 be set aside. 2. Order that the defendant pay the plaintiff's costs of the proceedings.

Amendments 27 August 2021 - Orders amended at [179] under the Slip Rule. 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: 27 August 2021

td v Ostin (No 2) [2021] NSWCA 98 Re Dawson [1966] 2 NSWR 211 Reid Hewitt & Co v Joseph [1918] AC 717 Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (1988) 17 FCR 344 Short v Crawley (No 45) [2013] NSWSC 1541 Smith v Madden (1946) 73 CLR 129 Southern Oil Refining Pty Ltd v Hydrodec Australia Pty Ltd (No 2) [2021] NSWSC 336 Tjiong v Tjiong (No 2) [2018] NSWSC 1981 Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213 Waters v PC Henderson (Australia) Pty Ltd [1994] NSWCA 338 Wojcic v Incorporated Nominal Defendant (No 2) [1968] VR 533 Wollongong Coal Ltd v Gujarat NRE India Pty Ltd (No 2) [2019] NSWCA 173 Woods v Sheriff of Queensland [1895] QLJ 163 Texts Cited: Ritchie, A V, Ritchie's Supreme Court Procedure New South Wales (4th ed, 1984, Butterworths) Category: Costs Parties: 2015/323943 Akierman Holdings Pty Limited (Plaintiff) Steven Akerman (Defendant)

Judgment

This is my third judgment in matter number 2015/323943. In my first judgment, delivered in October 2019, I set out my conclusions on the merits of the plaintiff's claims against the defendant: Akierman Holdings Pty Ltd v Akerman [2019] NSWSC 1486. I directed the parties to confer as to the further steps required to make final orders.
This process gave rise to some issues of principle as to the nature of the relief to which the plaintiff was entitled. Following a further hearing, I resolved those issues in a judgment delivered in July 2020: Akierman Holdings Pty Ltd v Akerman (No 2) [2020] NSWSC 970. I directed the parties to confer on the further steps required to determine the quantum of the plaintiff's entitlements.
Eventually, following further hearings in January and February this year, the parties agreed on all aspects of the quantum calculation except for one relatively minor issue concerning interest. Having received the parties' submissions on that issue, I made final orders in the proceedings on 19 February, on the basis that I would give reasons for my decision on the interest issue in due course.
As well as providing me with submissions on the quantum issues, the parties provided me with submissions on the costs of the proceedings. At the parties' request, I gave them an opportunity to lodge a final set of submissions following the entry of judgment. I received submissions from the plaintiff and the defendant on 24 and 29 March. The parties later agreed to afford the defendant an opportunity to make a further supplementary submission, with the plaintiff to have an opportunity to reply, but on 22 April the Court was informed that no further submission would be lodged.
In this judgment I now give my reasons for the final form of the orders made, in which I explain my decision on the interest issue. I also give reasons for the orders I now make on the question of costs.
These proceedings were brought in the name of the plaintiff company by one of its shareholders pursuant to leave granted in earlier proceedings by Black J under s 237 of the Corporations Act 2001 (Cth): In the matter of Akierman Holdings Pty Ltd [2015] NSWSC 1395. In the course of the debate about the costs of the proceedings before me, a question emerged about the costs of those earlier proceedings. Black J had ordered that the costs of those proceedings be costs in the substantive proceedings which came before me. There was a debate between the parties as to the effect of this order, and whether it could, and should, be discharged or varied. In this judgment I also deal with that debate.
This judgment assumes familiarity with my two earlier judgments in matter 2015/323943, which I refer to as "J1" and "J2". Abbreviations used in those judgments are also used in this judgment.

At a glance

Court

Decision date

Before

Source

Judgment (15 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (30)

Cited By (14)