PRACTICE AND PROCEDURE - costs - separate question - costs order in favour of plaintiffs by decision by Court of Appeal - whether those costs should be payable forthwith
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PRACTICE AND PROCEDURE - costs - separate question - costs order in favour of plaintiffs by decision by Court of Appeal - whether those costs should be payable forthwith
The first plaintiff, Ms Melissa Alexander, was a partner of the accounting firm BDO Kendalls. Ms Alexander held her interest in that firm through units owned by the second plaintiff, MAA (ODB) Nominees Pty Ltd, in the BDO Trust.
On 1 May 2012, the business of BDO was sold to the tenth defendant, the accounting firm Grant Thornton.
Many partners of BDO, but not Ms Alexander, became partners of Grant Thornton.
Ms Alexander and MAA commenced these proceedings in June 2013 against nine former partners of BDO (the first to ninth defendants: "the BDO Defendants") and against Grant Thornton itself.
The current pleading is a further amended statement of claim filed on 13 January 2014 in which Ms Alexander and MAA make claims against the BDO Defendants for knowingly inducing a breach of contract (the relevant Unitholders Deed), knowingly assisting in a breach of trust and otherwise breaching various "equitable and common law duties". Ms Alexander and MAA make separate claims against Grant Thornton for "unjust enrichment", account, constructive trust and knowing inducement of a breach of the Unitholders Deed.
Alexander v Burne [2016] NSWSC 1479 | Case summary | Zoe
By a notice of motion filed on 23 June 2016 Ms Alexander and MAA seek:
1. an order that costs ordered in their favour by the Court of Appeal on 2 December 2015, in the circumstances I describe below, be payable forthwith; and
2. there be disclosure of certain documents before the service of the plaintiffs' evidence notwithstanding the provisions of Practice Note SC Eq 11.
A necessary, but not sufficient, element of Ms Alexander's and MAA's claim, is that a resolution to approve the merger of the BDO business with Grant Thornton was not approved by a "special majority" vote of unit holders at a meeting held on 27 April 2012.
On 5 March 2015, Young AJA ordered that the question of whether the sale had been so authorised be determined separately, as an affirmative answer to that question would have been fatal to Ms Alexander's and MAA's claim.
On 1 April 2015, Young AJA answered that question in the affirmative and dismissed the proceedings: Alexander v Burne [2015] NSWSC 345.
Ms Alexander and MAA appealed and on 2 December 2015, the Court of Appeal came to the opposite conclusion, that no resolution had been passed on 27 April 2012, and remitted the proceedings to this division for further hearing: Alexander v Burne [2015] NSWCA 377.
The Court of Appeal ordered that the defendants pay Ms Alexander's and MAA's costs of the separate question (both before Young AJA and in the Court of Appeal).
The matter was listed before the Registrar on 9 March 2016. On that occasion the Registrar, by consent, ordered that Ms Alexander and MAA serve their evidence in chief by 4 May 2016. On 30 March 2016 that date was extended to 25 May 2016. On 7 June 2016 that date was extended to 2 August 2016. Nonetheless, Ms Alexander and MAA have not yet served any evidence. Apart from the filing of the notice of motion with which I am dealing, there is no explanation for the delay in adducing evidence.
[3]
First issue - should I order that the costs order by the Court of Appeal on 2 December 2015 be payable forthwith?
Mr Golledge, who appeared for Ms Alexander and MAA, accepted that, in the ordinary course, interlocutory costs are not payable until the conclusion of proceedings.
Mr Thomas, who appeared with Mr Jayasuriya for the BDO Defendants, pointed out that the fundamental question is whether the demands of justice require that there be a departure from the ordinary course (for example, Pavlovic v Universal Music Australia Pty Ltd (No 2) [2016] NSWCA 31 at [16]-[18]).
Mr Golledge submitted that there were a number of reasons why that usual course should not be followed.
First, Mr Golledge submitted, the costs related to "the determination of a separately identifiable matter" involving "the completion of a discrete aspect" of the proceedings, being a factor identified by Barrett J (as his Honour then was) in Fiduciary Limited v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; NSWSC 432 at [11]-[13] favouring the making of an order that interlocutory costs be paid before the conclusion of proceedings.
The fact that the costs in question relate to the determination of a separate question is certainly a factor relevant to the proper exercise of my discretion in this matter. Indeed, in Ajkay v Hickey & Co Pty Ltd [2011] NSWSC 822, Pembroke J went as far as to say that "as a matter of policy" orders for costs of separate questions should be made at the time of the separate hearing, unless there are compelling reasons to the contrary (at [21]). I would myself not go so far: the question is what the demands of justice require in the particular circumstances of each case (see also Campbell J in Solarus Projects v Vero Insurance (No 9) [2015] NSWSC 503). But the factor is certainly relevant.
In this case, although determination of the separate question adversely to Ms Alexander and MAA would have been fatal to their claim, determination of the question favourably to Ms Alexander and MAA (as has now happened) is but one of a number of "interconnected threshold steps" (to adopt Mr Thomas's language) that they will have to establish if they are to succeed at trial. For Ms Alexander and MAA a favourable answer to the separate question is but one step along the way.
The significance of the Court of Appeal's determination will be dependent upon resolution of other questions yet to be debated. As Mr Thomas submitted, the Court of Appeal has expressed no opinion as to the consequences of its determination of the separate question; for example as to whether it follows that there has been a breach of contract, a breach of trust or that the sale of BDO's business is void or voidable.
And, as Mr Atkin submitted on behalf of Grant Thornton, all of the claims made by Ms Alexander and MAA against Grant Thornton are dependent upon them making good their pleaded contention that Grant Thornton had actual or constructive knowledge that there was no effective resolution. Grant Thornton expressly denies such knowledge. This will be the primary factual controversy between Ms Alexander and MAA and Grant Thornton.
For those reasons, I see the facts in this case as being quite different than those that were before Sackar J in Universal Music Australia Pty Limited v Pavlovic [2015] NSWSC 791 and before the Court of Appeal in the same matter (Pavlovic v Universal Music Australia Pty Ltd [2015] NSWCA 313 and Pavlovic v Universal Music Australia Pty Ltd (No 2) [2016] NSWCA 31).
In Pavlovic, the claims by Universal Music were for:
1. declarations (and other relief) that there was a binding agreement between Universal Music and Mr Pavlovic concerning the dissolution of a joint venture between them; and
2. other relief relating to a distribution agreement between Universal Music and Mr Pavlovic that did not depend on whether there was any such agreement (see Sackar J's judgment at [2]).
Sackar J determined, as a separate question, that there was such a binding agreement. His Honour made consequential orders for the execution and delivery of documents in the transfer of shares but did not make any order finally determining the proceedings.
In upholding the appeal against the orders of Sackar J, the Court of Appeal remitted the matter to the Equity Division for the determination of the remaining issues on the summons, being the issues concerning the distribution agreement.
There is a further distinction between this case and Pavlovic and that is that in Pavlovic one matter that the Court of Appeal held to be relevant to the question of whether or not an order should be made that the costs of the separate question be paid forthwith was that:
"Until such time as the costs ordered by this Court are paid, the appellants will not have the use of those monies in circumstances where the appellants' solicitors have been paid their costs of that part of the proceedings subject of the costs order." [At [21]]
Before me, there is no evidence that Ms Alexander or MAA have paid their solicitors the costs of the separate question. Nor is there any evidence before me that Ms Alexander or MAA would suffer any financial hardship, or any diminution of their capacity to continue to fund these proceedings, absent an order that the costs of the separate question be paid forthwith. There is no evidence before me as to Ms Alexander's financial position. Indeed, Ms Alexander has not sworn any affidavit in support of this application. The only evidence read in support of the application is that of the solicitor having carriage of the matter, Mr Louis Ryckmans, who says nothing on this question.
Further, Ms Alexander's and MAA's application for an order that the costs be payable forthwith was made more than six months after the Court of Appeal's decision. There is no explanation for the delay.
Mr Golledge also referred to the "delay likely to take place between the incurring of the costs (in 2015) and the conclusion of these proceedings" and referred to Barrett J's observations in Fiduciary at [13] that such a factor is also relevant to the exercise of discretion in a case like this.
This matter is in the general list and there was debate before me as to whether it is likely to come on for hearing. Mr Thomas submitted that the matter should be ready for hearing in the second quarter of 2017. Mr Golledge submitted this was unlikely. But if that be true, the primary reason is the dilatory manner in which Ms Alexander and MAA have prosecuted these proceedings. As I have mentioned, they were commenced in June 2013 (over three years ago) and the current pleading was filed in January 2014 (over two years ago). And, since determination of the separate question, Ms Alexander and MAA have failed to serve any evidence, notwithstanding three orders of the Registrar requiring them to do so.
Finally, Mr Golledge referred to what he described as being the "apparent disparity between the financial position of the plaintiff and the collective financial resources available to the defendants". But there is no evidence before me as to the financial position of Ms Alexander and MAA. The BDO Defendants are individuals, at least one of whom is now retired. There is no evidence as to their financial position. Assuming that the tenth defendant, Grant Thornton, is in a financially strong position, the significance of that fact cannot be assessed in the absence of any evidence as to the plaintiffs' financial position.
In all the circumstances, I am not persuaded that the interests of justice require an order that the costs order by the Court of Appeal be payable forthwith.
[4]
Second issue - disclosure before evidence
Ms Alexander and MAA seek an order that, notwithstanding the fact that no evidence has yet been served, and notwithstanding the provisions of Practice Note SC Eq 11, the defendants disclose "all reports and advices received by the Defendants from McGrath Nicol in 2012 in respect of the solvency of the BDO Business".
The McGrath Nicol material is said to be relevant to Ms Alexander's and MAA's damages claim.
According to the further amended statement of claim, such damages are claimed on two bases.
First, Ms Alexander claims that as a result of the purported sale of the BDO business to Grant Thornton, BDO was no longer willing or able to meet its obligations to St George Bank and that, as a consequence, that bank's successor in title, Westpac Banking Corporation, obtained judgment against Ms Alexander in February 2013 for some $666,000.
Second, MAA claims that it has suffered damage because it has lost its "interest in the BDO Trusts, and the income that would have been derived therefrom".
In answer to these claims, the BDO Defendants plead that at the relevant time the "BDO Trustee and BDO Business were in severe financial difficulty" and provide as one particular of that contention that:
"The corporate advisory and recovery firm McGrath Nicol had been appointed to advise the BDO business from on or about 31 January 2012."
In that regard, Mr Golledge submitted that:
"The task of an appointed expert asked to opine on the financial position of the business and the value of the business assets, both being matters relevant to the pleaded case, will be made simpler, easier and thus cheaper if that person can be briefed with contemporaneous records of the business."
and,
"…if disclosure of this limited category is not made now it will be inevitable that the plaintiffs' damages evidence, including that from any expert, will have to be substantially revisited once disclosure is obtained after the exchange of evidence. That, in turn, will likely lead to a further round of evidence from the defendants and thus additional costs."
I do not consider that these matters amount to "exceptional circumstances" for the purposes of the Practice Note.
The first point is that the McGrath Nicol documents could have no relevance to Ms Alexander's damages claim (which relates to the judgment Westpac has obtained against her: see [35] above).
Second, Ms Alexander and MAA are not seeking access to "contemporaneous records of the business" of BDO but only the reports and advices received by the business from McGrath Nicol.
Third, there is no evidence that Ms Alexander or MAA have yet briefed an expert, let alone any evidence from any such expert that he or she would need access to the McGrath Nicol material before preparing a report (a circumstance which may be contrasted with that with which I dealt with in RSA (Moorvale Station) Pty Ltd v VDM CCE Pty Ltd [2013] NSWSC 534).
In any event, and assuming that any expert retained by Ms Alexander and MAA did need the McGrath Nicol material before preparing his or her report, it appears highly probable that expert would, in any event, need to prepare a second report once access was obtained to all documents properly the subject of disclosure by the defendants after exchange of evidence (including the "contemporaneous records of the [BDO] business" to which Mr Golledge referred).
It will be for the BDO Defendants to make good, in their evidence, the proposition that the BDO business was in "severe financial difficulty" at the relevant time.
In the meantime, it is for Ms Alexander and MAA to adduce such evidence as they can to establish that they have suffered the loss that is the subject of the allegations in the further amended statement of claim.
For those reasons, I do not propose to order disclosure of the McGrath Nicol material.
[5]
Conclusion
For those reasons, the plaintiffs' notice of motion of 23 June 2016 should be dismissed with costs.
I will invite submissions from the parties as to the directions that should now be made to progress the proceedings.
[6]
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Decision last updated: 19 October 2016