Amcor Ltd & Ors v Barnes & Ors

2 As in the Principal Reasons for Judgment, the Amcor entities in both proceedings are collectively referred to as "Amcor" or the "Amcor Parties" with the composition of those entities changing from time to time in accordance with the context.

3 In these reasons the "Defendant parties" comprise Messrs. Hodgson, Barnes, Sangster, Mihelic, Bayley, Holihan and their associated companies, with the composition of those persons changing from time to time in accordance with the context.

4 The joint trial was conducted in two parts: the "Hodgson Quantum Trial" conducted between 30-31 March 2011 (which dealt essentially with the quantum of Hodgson's claims in the Hodgson Proceeding), and the "Liability Trial" conducted between 1 April-1 August 2011 (which dealt essentially with Amcor's counterclaim in the Hodgson Proceeding and its claims in the Barnes Proceeding).

5 Following delivery of the Principal Reasons for Judgment, on 20 March 2012 judgment was entered for the Plaintiff in the Hodgson Proceeding, Mr James Hodgson ("Hodgson"), in the sum of $917,695 (the "Judgment Sum").

6 In the Hodgson Proceeding, in Hodgson v Amcor (No. 9),[2] I then determined that the amount of interest should be calculated by reference to the Judgment Sum for the purposes of s 58 of the Supreme Court Act 1986 (Vic) (the "Supreme Court Act"). I was satisfied on the evidence that the amount of interest to which Hodgson was entitled in the Hodgson Proceeding, calculated from 1 October 2004 to 1 May 2012, was $771,341.32 and is continuing at the rate $263.99 per day thereafter until the Court pronounces judgment on this question. Thereafter interest accrues and is payable on the total Judgment Sum comprising principal and interest, pursuant to s 101 of the Supreme Court Act, without the need for any further order.

7 Costs in the Hodgson Proceeding were dealt with in the reasons of the Court in Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No. 10).[3] This ruling also dealt with the costs of the counterclaim in the Hodgson Proceeding, and the costs of the claims and counterclaims in the Barnes Proceeding, with the exception of Amcor's claims against the First Defendant ("Barnes") and the Second-Fourth Defendants (the "Holihan Parties"), where the Second Defendant is Craig Anthony Holihan ("Holihan").

8 These claims for costs between Amcor and Barnes and the Holihan Parties were not determined because issues relating to the taking of accounts had not concluded.

9 Following argument and the delivery of further reasons on 20 September 2012 in Amcor Ltd v Barnes,[4] the following relevant orders were authenticated on 27 November 2012:

1. The amendments sought by Amcor in its proposed fourth amended statement of claim be refused;
2. There be no order directed to the first defendant [Barnes] and the second to fourth defendants [the Holihan Parties] for relief by way of an account of profits or otherwise;
3. The plaintiffs' claim against the first Defendant and the second to fourth defendants be dismissed.

10 The claims relating to the taking of accounts having concluded, the question of costs in the Barnes Proceeding in relation to Amcor's claims against Barnes and the Holihan Parties are considered in these reasons.

11 In this application, Amcor sought orders against Barnes and the Holihan Parties for the costs of the Barnes Proceeding and sought payment of those costs on an indemnity basis.

12 Barnes, on the other hand, sought costs orders in the following terms:

1. The Plaintiffs pay the costs of the First Defendant (including reserved costs, costs ordered to be "costs in the cause", and the costs of the application for costs) on an indemnity basis, such costs to include, if applicable and where incurred, the costs of transcript and, for the avoidance of doubt, all costs arising from or connected with ... [then follows 4 categories of costs].
2. Pursuant to the undertaking as to damages given by the Plaintiffs, the Plaintiffs pay damages to the First Defendant in an amount equal to all costs and disbursements directly incurred by the First Defendant by reason of the orders made by his Honour Justice Osborn on 11 December 2008 dismissing the application for transfer of the Barnes Proceeding to the Supreme Court of New South Wales, such costs and disbursements to be assessed by the Court in default of agreement. Without limiting the generality of the foregoing orders, the Plaintiffs shall reimburse to the First Defendant all accommodation and travel costs incurred by the First Defendant in appearing on his own behalf at the trial of the Barnes Proceeding and any earlier interlocutory proceedings related thereto.

13 Holihan and the Holihan Parties sought costs orders in the following terms:

The plaintiffs pay the second to fourth defendants' costs of the proceeding, including the costs of the plaintiffs' application to amend the statement of claim (which was the subject of the Court's reasons delivered on 20 September 2012), the costs of the transcript and reserve costs, to be taxed in default of agreement on an indemnity basis.

14 As was said in Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 10):

[t]he outcome in the Principal Reasons for Judgment has given rise to complex cross-currents of considerations to be taken into account in determining the question of costs.[5]

Applications to Enforce the Undertakings as to Damages (11 December 2007 - Osborn J)

15 Holihan and the Holihan Parties have foreshadowed making an application to enforce the undertaking as to damages given by the Amcor parties to Osborn J on 11 December 2007.

16 Barnes sought to make his application to enforce the undertaking as part of his application on the question of costs.

17 I will not determine either of these applications at present, but will grant liberty to Barnes, Holihan and the Holihan Parties to make applications founded on such material as they may be advised.

Costs Rulings in the Hodgson Proceeding [****Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No. 10)]

18 Of relevance to the question of costs in the present application, are the findings and outcome in the earlier costs determination in Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No. 10).[6]

19 The approach taken to costs broadly was that, as the Amcor parties were wholly unsuccessful against them, the ordinary rule as to costs should apply, and the Defendant parties should not be deprived of their costs unless they have been guilty of some sort of misconduct.[7]

20 The authorities analysed in Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No. 10) are to the effect that a wholly successful defendant may be deprived of some or all of his or her costs where he or she has done some wrongful act in the course of the transaction of which the plaintiff complains.[8] Such conduct, depending upon the circumstances, may even result in a successful defendant being visited with the whole or part of the costs of the unsuccessful plaintiff.

21 In Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No. 10) it was found that the relevant defendant parties had engaged in serious misconduct in the course of the transactions complained of by Amcor, such that, in the exercise of the Court's discretion, this was to be reflected in the costs order. [9]

Whether Amcor should pay the Costs of Barnes and the Holihan Parties

22 It was submitted on behalf of Barnes and the Holihan Parties that, upon application of the orthodox approach to costs whereby costs follow the event, because they have succeeded in the Barnes proceeding, as reflected in the fact that no adverse order was made against any of them at the suit of the Amcor parties, they should have the costs of the proceeding.

23 As to the outcome of the litigation for Barnes and the Holihan Parties, the Court found that the two sale agreements in which they had been involved were not uncommercial and were not undertaken on uncommercial terms. The Court also found that the Amcor parties suffered no loss and that there was no basis for the award of equitable compensation. The Court also found that no order for an account of profits should be made against any of them.

24 I accept that the object of the Amcor parties in the Barnes Proceeding was to obtain a substantial pecuniary remedy in its favour. It was submitted, and I accept, that this was not a case in which the object of the action, either in whole or in part, was to establish a legal right, wholly irrespective as to whether any substantial remedy was obtained.[10]

25 However, the Amcor parties did not obtain any pecuniary or other remedy against Barnes or the Holihan Parties.

26 In these circumstances the Amcor parties were said to be the unsuccessful parties with the result that the ordinary rule as to costs should apply.

27 The question then, is whether Barnes and the Holihan Parties should be deprived of their costs, in whole or in part, by reason of some disentitling conduct.

Legal Principles Whereby a Successful Party may be Deprived of Costs

28 In Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No. 10)[11] the principles relating to the circumstances in which a successful party may be deprived of costs were considered and applied.[12] For completeness, they will be re-stated here.

29 The authorities illustrate that a wholly successful defendant may be deprived of some or all of his or her costs where he or she has done some wrongful act in the course of the transaction of which the plaintiff complains. Such conduct, depending upon the circumstances, may even result in a successful defendant being visited with the whole or part of the costs of the unsuccessful plaintiff, as contended for by the Amcor parties in this application.

30 The concept was expanded upon in some detail by Atkin LJ in Ritter v Godfrey ("Ritter")where it was observed:

In the case of a wholly successful defendant, in my opinion the judge must give the defendant his costs unless there is evidence that the defendant (1) brought about the litigation, or (2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains. These principles require further expansion.

By (1) is meant - has so conducted himself as to lead the plaintiff reasonably to believe that he had a good cause of action against the defendant, and so induce him to bring the action ... (2) I think, would include improper conduct in or connected with the litigation calculated to defeat or delay justice. Such conduct would also be included in (3), which, I think, further extends to cases where the facts complained of, though they do not give the plaintiff a cause of action, disclose a wrong to the public: King v Gillard [1905] 2 Ch 11, by which I understand some criminal or quasi criminal misconduct, e.g., a fraud or crime or preparation for a fraud or crime, or possibly some act of serious oppression. Such conduct must, however, be in the course of the transaction complained of.[13]

31 However, the observations of Atkin LJ in Ritter[14] were not accepted without significant qualification by the Full Court of the Supreme Court of Victoria in Verna Trading v New India Assurance Co Ltd ("Verna Trading").[15] Although Kaye J accepted that criticism of Atkin LJ did not constitute rejection that

in an appropriate case any one of the three circumstances described by Atkin LJ in Ritter v Godfrey might not constitute a proper basis for the exercise of discretion adversely to a successful defendant[16]

his Honour concluded that "[n]evertheless, in my opinion, the general discretion of a trial judge as to costs ought not to be fettered by the rules formulated by Atkin LJ".[17]

32 His Honour Kaye J in Verna Trading followed with the observation that:

More compelling circumstances are required for the exercise of discretion as a result of which a successful defendant is not only denied his costs but [is] also compelled to pay the whole or part of the plaintiff's costs of the proceedings. This is for the reason that proceedings are initiated by the plaintiff and the plaintiff fails to gain the relief which he sought.[18]

33 A similar view was expressed by Goldberg J in ACCC v Australian Safeway Stores Pty Ltd (No 3) where his Honour noted in the context of considering the apportionment of costs where a respondent has been successful in the outcome, but unsuccessful on some issues, contrasted with the position where a successful applicant has raised some issues on which it has failed:

I consider that a court should look more benignly on the question of costs of a respondent who has been compelled to come to court and defend itself on a ground not of its own choosing than on an applicant who chooses to raise issues on a ground of its choosing.[19]

34 I will now deal with the relevant conduct of Barnes and the Holihan Parties upon which Amcor principally founded its applications for costs against those parties. Although other additional matters were raised by Amcor to support this conclusion, and I have taken them into account, I will deal only with the principal matters of concern, which are examined below.

35 In the present case, serious and adverse findings were made in the Principal Reasons for Judgment as to the conduct of Barnes in relation to the two sale transactions in his capacity as a serving executive of Amcor.

36 These matters were the subject of pleadings against Barnes contained in the Third Further Amended Statement of Claim, and were part of the case advanced against him by Amcor at trial.

37 It was found in the Principal Reasons for Judgment that:

... [the Defendants, including Barnes] each failed to disclose to their employer during the period of their employment, their ongoing interest in the businesses with which Amcor continued to have direct dealings. They maintained this position of secrecy while Amcor's subsidiaries, through the ongoing supply agreements, continued to have a commercial dealings in relation to the businesses in question.

This conduct, considered objectively, was manifestly incompatible with the employment relationship and was of a serious dimension. [20]

38 The conduct was found to have amounted to breaches of Barnes' fiduciary duties to Amcor arising under the general law from his contract of employment during the following periods:

(a) Service Packaging Business: from the date of entry into the First G5 Deed, namely late 2001 to 28 September 2004; and

(b) ACB Business: from the date of entry into the 26 May 80/20 Shareholders Deed, namely 26 May 2003 to 28 September 2004. [21]

39 Breaches of duty to Amcor under s 183 Corporations Act 2001 (Cth) (the "Corporations Act") were also found against Barnes in his capacity as an employee arising from improper use of information gained the course of his employment.[22]

40 The conduct I have described was deliberate, and was undertaken contrary to the thrust of the legal advice the Defendant parties, which included Barnes, had obtained or to which they had access, namely the Dillman advice provided by the firm Deacons dated 19 December 2000. However, consistently with part of that advice, the transactions were secretly entered into to avoid detection by their employer, Amcor.

41 Indeed, as was found in the Principal Reasons,[23] Mr Dillman was Barnes' solicitor. Barnes said in evidence that "He [Dillman] was basically giving advice to all of us at the time". Barnes said further that Dillman was acting at the time for all of the participants in proposed business arrangement except for Hottes (and except for Holihan who was not then involved).

42 The G5 Deeds which recorded the involvement of the relevant Defendant parties in relation to the first sale transaction, which included Barnes, were maintained as confidential documents. In this context, the Court found:

... the trust structure selected was designed to conceal the identity of the beneficial shareholders and to protect this information from being disclosed to Amcor. The structure was consistent with the proposed scheme outlined in the earlier Dillman Advice and was devised to avoid the consequences alluded to in that advice. [24]

43 A similar regime of confidentiality was employed in the second sale transaction. In this regard, the purposes of the elaborate confidentiality structure were the subject of the following findings by the Court:

... the principal purpose sought to be achieved by the confidentiality provisions of the various agreements and the corporate structure adopted was to conceal the interests of Amcor's managers from their employer. The approach was consistent with the Dillman Advice which had been given by letter of 19 December 2000.

The reason advanced by some of the Defendants that the confidentiality regime was to prevent "peer level scrutiny" and "peer level interference" may have been a factor in its inclusion in the agreements, however, I do not accept this as a full and candid explanation.

I am satisfied that the elaborate confidentiality structure was designed to conceal the ownership of the shares in the ACB Business, which as to 80 per cent of the ownership was divided equally between Hodgson, his wife and his company (Bankson); Barnes (Astra and Brobel); Sangster (Merrymen); Mihelic, his wife and his company (Sampson Solo); and Bayley, his wife and his company (CBB Investments). [25]

44 These findings led the Court in Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 10)[26] to the conclusion that the Defendants before the Court in that application, namely Hodgson, Sangster, Bayley and Mihelic, fell within the third category of cases described by Atkin LJ in Ritter,[27] namely serious misconduct in the class of fraud or preparation for a fraud undertaken in the course of the transactions complained of.

45 I come to a similar conclusion in these reasons in relation to Barnes, based on the findings earlier described.

46 These findings also lead me to the conclusion that Barnes falls within the third category of cases described above by Atkin LJ in Ritter,[28] namely serious misconduct in the class of fraud or preparation for a fraud undertaken in the course of the transactions complained of.

47 However, in spite of a finding made that Barnes may be liable to Amcor for an account of profits, this finding did not ultimately give rise to any relief in favour of Amcor because it was not pleaded against Barnes and was not advanced as part of Amcor's case. For this reason it would not be appropriate to take the finding into account adversely to Barnes on the question of costs.[29] For the purposes of the determination of costs in relation to Barnes, the finding, and any associated finding, will be disregarded.

48 As found in the Principal Reasons for Judgment, Amcor's case against Holihan arising from the sale of the ACB Business differed from its case against the other Defendants.[30]

49 It was found that, although Holihan was employed by Amcor in a managerial role, he was not an officer of Amcor for the purposes of the Corporations Act.[31] Holihan was therefore not subject to the duties in s 181(1) (good faith and proper purpose) and 182(1) of the Act (improper use of position).[32]

50 Further, it was found that given that Amcor was well aware that it was dealing with Holihan at all material times in relation to the negotiation, sale and settlement of the ACB Business, no question of improper use of Holihan's position contrary to s 182 or improper use of any material information contrary to s 183 of the Corporations Act arose.[33]

51 It was also found that Holihan remained an employee of Amcor until he ceased his employment on 31 July 2003 following settlement of the Second Sale Agreement the day before on 30 July 2003. As such, he continued to owe fiduciary duties under the general law as an employee to Amcor until the cessation of his employment.[34]

52 The following further findings of relevance were made in respect of Holihan:

• Holihan was the controlling and/or directing mind and will of the ACB Business purchaser (ACB (Australia) Pty Ltd ACN 104 489 670), the Third Defendant. The same is the case with the ACB Business trading company Achilla (Australian Corrugated Box Co Pty Ltd, formerly Achilla Pty Ltd, ACN 104 489 581) ("Achilla"), the Fourth Defendant. Holihan at all relevant times was the sole director of Achilla;[35]

• The sale of the ACB Business pursuant to the Second Sale Agreement was effected on 30 July 2003 and Holihan remained in the employment of Amcor until this was terminated by mutual agreement on the day following the settlement, on 31 July 2003;[36]

• Holihan therefore owed duties to Amcor arising out of his employment until 31 July 2003 following which those duties ceased;[37]

• However, in proceeding with the transaction subsequently embodied in the Second Sale Agreement, Amcor assumed the risk that it was not engaging with Holihan in his capacity as a present employee with all of the usual attendant duties requiring that the best interests of the corporation would be advanced, but rather in his capacity as a prospective purchaser with his own interests to pursue;[38]

• Amcor did know Holihan was proposing to acquire an interest in the ACB Business;[39]

• At the time of entering into the Second Sale Agreement, Amcor in fact believed that Holihan through his companies alone was acquiring the entire interest in the ACB Business. It was not aware of any other person acquiring any interest in the ACB Business with Holihan;[40]

• It was also found that at the time of entry into the Second Sale Agreement, Holihan did not know the identity of the secret partners who were intending to acquire an interest in the ACB Business. He nevertheless knew that Barnes together with unidentified persons would be acquiring 80 per cent of the ACB Business;[41]

• At all material times leading up to the settlement of the Second Sale Agreement, Holihan was led to believe by his superior Barnes, and in fact believed, that Barnes had secured the consent of Brown, managing director of Amcor Australia, to become involved with and gain an interest in the ACB Business. Holihan acted in this belief and proceeded to enter into the 26 May Holihan/Barnes 80/20 Agreement;[42]

• As to the participation of the other Defendants in the ACB Business, this was not disclosed to Holihan by Barnes until May or June 2004, well after he (Holihan) had ceased his employment with Amcor;[43]

• It was found that Holihan did not breach any fiduciary duty to Amcor arising from his employment prior to 31 July 2003. He did not place himself in a position of conflict between his duty to Amcor and his interest in obtaining the ACB Business. Any such conflict as did arise, came about because of Amcor's decision to sell the ACB Business to Holihan, and Holihan's decision to purchase it from Amcor, and the ensuing negotiations;[44]

• It was also found that Holihan did not know, in the required sense, that the ACB Business was being sold in breach of fiduciary and other duties owed by Hodgson, Barnes and the other former Amcor managers, or was reckless as to their breaches;[45]

• Holihan did not give "knowing assistance" to the Defendants in relation to the initial sale of the ACB Business. Further, given that Holihan was the controlling mind of both Achilla and ACB (Australia) Pty Ltd, it follows that these companies too did not give "knowing assistance" to the Defendants in relation to the sale of the ACB Business. It followed that Amcor's claim against Holihan and his companies under Barnes v Addy[46] failed in relation to the circumstances surrounding the initial sale of the ACB Business;[47]

• A finding was made that Holihan wilfully shut his eyes to the obvious, or wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make, namely whether Hodgson, Barnes, Bayley, Sangster and Mihelic ever had the consent and approval of Amcor to take up an interest in the ACB Business while continuing as employee managers with the company. It followed that Amcor's claim against Holihan and his companies under Barnes v Addy[48] exposed Holihan to potential liability in relation to the circumstances surrounding the ongoing involvement of those parties in the ACB Business after 1 July 2004 until the terminations of their respective employment contracts with Amcor in late September and early October 2004;[49]

• However, this finding did not ultimately give rise to any relief in favour of Amcor against Holihan or his companies, because it was not pleaded and was not advanced as part of Amcor's case, and for this reason it would not be appropriate to take the finding into account adversely to Holihan or the Holihan Parties on the question of costs.[50] For the purposes of the determination of costs in relation to Holihan and the Holihan parties, the finding, and any associated finding, will be disregarded.

53 For these reasons, in exercising the discretion as to costs, I do not find or rely upon any alleged misconduct on the part of Holihan or the Holihan parties in the course of the sale transaction involving the ACB Business.

54 This results in the position of the Holihan Parties being different to that of Barnes and the other Defendant parties in the litigation, a factor which will be reflected in the ultimate order as to costs.

Amcor's Claims for Costs Against Barnes and the Holihan Parties

55 Amcor submitted that, in the case of Barnes and the Holihan Parties, there was deliberate and serious misconduct of quite a different kind which warranted the Court making orders that Barnes and the Holihan Parties be liable for Amcor's costs, regardless of the fact no final relief was eventually granted against them.

56 Amcor contended that Barnes and Holihan were the signatories to the backdated 50:50 agreement which was signed in October 2005, but endorsed to give the false impression it was signed in May 2003.[51] They both gave the instructions to their lawyer, Roe to create such document. Holihan instructed his accountants, Wheeler Grenfell to prepare other backdated documents which he subsequently executed,[52] the effect of which was also to create the wrong impression as to the true owners of the ACB Business. Both Barnes and Holihan were parties to these transactions and documents.[53]

57 In this proceeding, the Court found that the motivation of Holihan and Barnes in backdating documents (or instructing others for this to occur) was to conceal the true ownership of LeoRose and thereby create the wrong impression that from 2003 the shareholding was 50:50 in favour of Barnes and Holihan.[54] Further, the Court specifically found that such conduct was undertaken at a time when the other defendants, which included Barnes, were re-arranging their business interests immediately after the possibility was made clear to all of the parties to the Federal Court proceedings that many of the documents obtained on the Anton Piller raid could be available to the Amcor parties for use in the Hodgson Proceedings.[55] The same documents could also have been potentially used in the Barnes Proceeding.

58 I infer that the backdating of the documents was undertaken with a view to the creation of a confusing documentary record in order to disguise from Amcor, if it should be presented with the documentary record in the course of any proceeding, the true position as to the ownership of the ACB Business at a relevant time.

59 The conduct was therefore designed to hide the true interests in the ACB Business, namely that Barnes' fellow Amcor employees owned a business with which Amcor had a commercial relationship. In this respect, Barnes and Holihan took part in the deception.

60 Further, although it was not a major issue at the trial in terms of the time consumed in dealing with the matter, indeed it occupied a relatively short amount of time in the context of the case overall, nevertheless, the trial was prolongated to some extent in dealing with the issue. It was a factual issue which was agitated at trial in cross-examination of the relevant witnesses. This time would have been unnecessary had Barnes and Holihan not engaged in the backdating exercise.

61 In Youssef v Victoria University of Technology (No 2),[56] Whelan J considered the effect of his earlier findings that the plaintiff had backdated documents in the course of transactions that were the subject of the proceedings. His Honour noted in his decision on costs that whilst "these documents were not the very documents upon which his claim was based, this conduct was wrongful conduct" and must have been done to "deceive someone".[57] His Honour found that the intentional backdating of documents was a factor relevant to departing from the settled practice that an unsuccessful party should bear the successful party's costs on a party/party basis.[58]

62 Accordingly, in my view, the conduct on the part of Barnes and Holihan which I have described, is sufficient to warrant departure from the "settled practice", such that the principles enunciated in Ritter are enlivened.[59] It was conduct that was calculated to defeat or delay the administration of justice by setting up a false trail.

63 In the case of Barnes, this works as an additional factor against his interests on the question of costs, which distinguishes his conduct from that of the other Defendants, namely Hodgson, Sangster, Bayley and Mihelic, by making his conduct all the more serious.

64 In the case of Holihan and the Holihan Parties, the conduct provides a basis for refusing to make an award of full costs in their favour, and making an award of costs which is appropriately discounted.

65 This will be reflected in the costs order to be made which will differ from the costs order made in Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 10).[60]

Whether Amcor Should pay the Costs of the Successful Defendants on an Indemnity Basis

66 I do not accept that this was a case which should never have been brought by Amcor.

67 Consequently, the principles cited by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd ("Colgate-Palmolive") do not apply. [61] In Colgate-Palmolive, the principal question to be decided was whether the successful respondent was entitled to costs on the basis of an indemnity in relation to certain issues which were the subject of the orders made by the Court. Sheppard J distilled the following principles or guidelines out of the authorities to which the Court had been referred:

1. The problem arises in adversary litigation, ie litigation as between parties at arm's length. Different considerations apply where parties may be found to be entitled to the payment of their costs out of a fund or assets being administered by or under the control of a trustee, liquidator, receiver or person in a like position, eg a government agency or statutory authority.
2. The ordinary rule is that, where the Court orders the costs of one party to litigation to be paid by another party, the order is for payment of those costs on the party and party basis. In this Court the provisions of O 62, rr 12 and 19, and the Second Schedule to the Rules will apply to the taxation. In many cases the result will be that the amount recovered by the successful party under the Order will fall short of (in many cases well short of) a complete indemnity.
3. This has been the settled practice for centuries in England. It is a practice which is entrenched in Australia. Either legislation (perhaps in the form of an amendment to rules of Court) or a decision of an intermediate court of appeal or of the High Court would be required to alter it. No doubt any consideration of whether there should be any change in the practice would require the resolution of the competing considerations mentioned by Devlin LJ in Berry v British Transport Commission and Handley JA in Cachia v Hanes on the one hand and by Rogers J in Qantas on the other. The relevant passages from the respective judgments have been earlier referred to.
4. In consequence of the settled practice which exists, the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the Court in departing from the usual course. That has been the view of all judges dealing with applications for payment of costs on the indemnity or some other basis whether here or in England. The tests have been variously put. The Court of Appeal in Andrews v. Barnes said the Court had a general and discretionary power to award costs as between solicitor and client "as and when the justice of the case might so require." Woodward J in Fountain Selected Meats appears to have adopted what was said by Brandon LJ (as he was) in Preston v Preston namely, there should be some special or unusual feature in the case to justify the Court in departing from the ordinary practice. Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said (at 8) in Tetijo, "The categories in which the discretion may be exercised are not closed". Davies J expressed (at p 6) similar views in Ragata.
5. Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson, Maitland Hospital v Fisher (No. 2), Crisp v Keng and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.
6. It remains to say that the existence of particular facts and circumstances capable of warranting the making of an order for payment of costs, for instance, on the indemnity basis, does not mean that judges are necessarily obliged to exercise their discretion to make such an order. The costs are always in the discretion of the trial judge. Provided that discretion is exercised having regard to the applicable principles and the particular circumstances of the instant case its exercise will not be found to have miscarried unless it appears that the order which has been made involves a manifest error or injustice. [62]

68 The principles to be applied in applications for indemnity costs by a successful defendant were referred to and discussed in Victoria in Ugly Tribe Co Pty Ltd v Sikola ("Ugly Tribe").[63] Ugly Tribe arose from an application by a successful first defendant for his costs to be paid by the plaintiff on a full indemnity basis. The application was refused. Harper J, in the course of delivering his reasons, made the following very wise observations as to the often difficult balancing exercise involved in weighing the rights of the parties when it comes to costs. His Honour said:

In general, the costs of and incidental to all matters in the Court is in the discretion of the Court, which has "full power to determine by whom and to what extent the costs are to be paid": Supreme Court Act 1986, s.24(1). At the same time, r.63.28 of the Rules of the Supreme Court provides that costs in a proceeding are, subject to Part 3 of r.63, to be taxed as between party and party, or as between solicitor and client, or on "such other basis as the Court may direct". Party and party costs include "all costs necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed": r.63.29. Solicitor and client costs cover "all costs reasonably incurred and of reasonable amount": r.63.30. Costs shall be taxed as between party and party unless the Rules or an order of the Court provide otherwise: r.63.31.

In seeking costs on an indemnity basis, the first defendant is asking the Court to depart from its usual course: Spencer v Dowling. Special circumstances must be present to justify such a departure: Australian Electoral Commission v Towney (No. 2). These include:

(i) The making of an allegation, known to be false, that the opposite party is guilty of fraud: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397.

(ii) The making of an irrelevant allegation of fraud: Thors v Weekes (1989) 92 ALR 131.

(iii) Conduct which causes loss of time to the Court and to other parties: Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court, French J, 3 May 1991).

(iv) The commencement or continuation of proceedings for an ulterior motive: Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, Davies J, 5 March 1993).

(v) Conduct which amounts to a contempt of court: EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch 59.

(vi) The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law: J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA) Branch (No. 2) [1993] FCA 70; (1993) 46 IR 301.

(vii) The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial: National Australia Bank v Petit-Breuilh (No.2) (unreported, [1990] VSC 395, 18 October 1999).

The categories of special circumstances are not closed: Tetijo Holdings, supra. The cases must not, therefore, be read "in an endeavour to establish a set of inflexible guidelines which should thereafter be determinative of the manner in which the Court's discretion is to be exercised [for this] would be to fetter the Court's discretion": National Australia Bank v Petit-Breuilh, supra.

At the same time, the courts should, I think, be astute to avoid a wilderness of single instances. Even worse would be the creation of different regimes in different courts, especially as between the Federal Court and a State Supreme Court. This would encourage the undesirable practice of forum shopping, as well as the almost equally undesirable spectre of frequent post-trial applications for costs to be awarded on some special basis (i.e. on other than the usual party and party basis).

According to Winneke P in Spencer's case (at 147):

"It is well recognised that there is occurring an ever increasing gap between party/party costs and those actually incurred ... This ... has continued ... notwithstanding expressions of view by individual Judges that it is capable, in today's circumstances, of working injustice: see, for example, per Rogers J (as he then was) in Qantas Airways Ltd v Billingham Corp. The practice is designed to reflect a compromise between the interests of successful and unsuccessful litigants. As Handley JA observed in Cachia v Hanes the practice is also adopted to provide an 'important spur to settlement'. Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 F.C.R. 225 at 233 restated the practice and pointed out:

'This has been the settled practice for centuries in England. It is a practice which is entrenched in Australia. Either legislation ... or a decision of an intermediate court of appeal or of the High Court would be required to alter it'."

The compromise about which Winneke, P. spoke is perhaps justifiable on the basis that potential litigants must not be unnecessarily discouraged from bringing their disputes to the courts. After all success can seldom be guaranteed, if only because - where the facts are in dispute, as they generally are - it is seldom possible to predict with certainty what findings of fact will be made. In these circumstances, an honest plaintiff or defendant might be discouraged from bringing or defending a claim were an adverse result to be followed by an order that the losing party indemnify, or go close to providing an indemnity to, the successful party against the latter's costs.

The position changes where a litigant acts dishonestly in the litigation, or where the rights and privileges of a litigant are flouted or abused. Then, the rationale for refusing to order that the losing party indemnify an opposite party against that party's costs is less compelling. Indeed, costs are more frequently if not invariably awarded on an indemnity or like basis (such as that of solicitor/client) where findings of dishonesty or serious misconduct have been made against the party ordered to pay. [64]

69 Amcor failed to prove its claimed loss and damage, or an entitlement to any relief. This was largely because the Court rejected Amcor's expert evidence in support of its allegations as to the uncommercial terms of the sale contracts for the two businesses, in favour of the expert called by the Defendants. It was also because Amcor failed to prove, in any event, that any of the Defendants had a direct hand in the negotiation of the two contracts, save for one exception in relation to Barnes, which turned out to be of no consequence.

70 In the present case I do not find that Amcor conducted itself in the proceeding in a manner which would justify an order of costs on an indemnity or like basis (such as solicitor/client costs).

71 Nevertheless, the sheer size and scale of the case mounted by Amcor is a factor to be taken into account, [65] and will be reflected in the apportionment of costs considered below.

Apportionment of Costs by Issue - Amcor's Claims as to Sale Agreements being Uncommercial and Claims for Compensation

72 In the Barnes Proceeding, Amcor made claims against Barnes that the First and Second Sale Agreements were uncommercial. It also made claims against Holihan that the Second Sale Agreement was uncommercial.

73 Further, Amcor made claims against both Barnes and the Holihan parties for compensation under various heads.

74 Amcor lost its case against both Barnes and the Holihan Parties on the issue of the alleged uncommercial nature of both agreements, and achieved no orders for compensation or any relief against any of the other Defendants, including Barnes and the Holihan Parties.

75 These issues put the parties to expense. The Amcor parties called forensic accounting experts Mr Stone and the Defendants called Mr Meredith. Their reports were extensive and detailed. After consultation, the experts prepared a joint report which narrowed the issues somewhat. Nevertheless, examination and cross-examination of the experts at the trial on the outstanding issues occupied some time and contributed significantly to the length and complexity of the case advanced by Amcor overall.

76 In Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 10) [66] I made observations in relation to the power of the Court to award costs apportioned in respect of issues or causes of action, which I adopt and apply here.

77 Both Barnes and the Holihan Parties will be granted some relief in relation to the issues of the alleged uncommerciality of the two Sale Agreements and the claims by Amcor for pecuniary relief. Orders will be made in favour of Barnes and the Holihan Parties on terms similar to those made in Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No. 10)[67] in relation to the other Defendants.

Conclusions and Orders as to Costs of Barnes and the Holihan Parties

78 I am satisfied that, by reason of the involvement of Holihan in the backdating of documents and accounting records as earlier described, in spite of the Holihan Parties being successful defendants in the proceedings in the sense that no adverse orders for relief in favour of Amcor were made, in the proper exercise of the discretion of the Court they should be deprived in significant part of the costs to which they would otherwise have been entitled.

79 As to Barnes, he should also be deprived of some of his costs by reason of his involvement in the backdating of documents and accounting records as earlier described. However, he should be deprived of his costs to a larger extent than the Holihan Parties by reason of the following three factors:

(a) by reason of the serious misconduct in the class of fraud or preparation of a fraud perpetrated by Barnes directed at his employer Amcor undertaken in the course of the two sale transactions complained of, whereas Holihan was found not to have been guilty of such misconduct;

(b) by reason of Barnes having been found to have given false advice to Holihan that his (Barnes') involvement in the second sale had the approval of Amcor;[68] and

(c) by reason of the finding that Barnes was the principal instigator of the plan to introduce Hodgson, Sangster, Bayley and Mihelic to become involved as shareholders in the ACB Business.[69]

80 Barnes should be deprived of his costs to a larger extent than the other Defendant Parties by reason of the following additional two factors which applied to him:

(a) by reason of Barnes having been found to have given false advice to Holihan that his (Barnes') involvement in the second sale had the approval of Amcor;[70] and

(b) by reason of the involvement of Barnes in the backdating of documents and accounting records as earlier described.

81 However, in the exercise of the discretion vested in the Court, after taking into account the particular facts and circumstances of the present case, I am satisfied that Barnes and the Holihan Parties should not be deprived of all of their costs.

82 Barnes is entitled to at least some of his costs to reflect the practical success he achieved at the trial in the face of a very elaborate and costly set of allegations pressed in the lengthy trial before me.

83 The Holihan Parties are entitled to an award of costs to reflect the practical success they achieved at the trial, also in the face of the very elaborate and costly set of allegations pressed in the trial, but appropriately discounted to reflect the matters considered earlier.

84 As Barnes and the Holihan Parties did not provide any offers of compromise or informal offers to Amcor which are before the Court, and there is no other good reason for departing from the party/party approach to the costs order, all costs awarded in their favour as described shall be paid on a party/party basis.

85 The Amcor parties will be ordered to pay the following categories of costs of Barnes in the Barnes Proceeding on a party/party basis:

(a) All of his costs arising from or connected with:

(i) the briefing and engagement of all expert witnesses to give evidence and confer on the issue of the alleged uncommercial nature of both agreements in contention and any of the relief claimed by the Amcor parties by way of common law damages, statutory damages, equitable compensation, and an account of profits (together called the "expert evidence issues") and all costs arising from or connected with such briefings or engagements;

(ii) all reports prepared by all expert witnesses on or relating to the expert evidence issues and all costs arising from or connected with such reports;

(iii) all joint conferences conducted between all expert witnesses on the expert evidence issues and all costs arising from or connected with such conferences;

(iv) the calling of all expert witnesses to give evidence and be cross-examined at trial on the expert evidence issues and all costs arising from or connected with such evidence;

(b) Twenty five per cent (25%) of the balance of the costs of Barnes of the Barnes Proceeding;

(c) Twenty five per cent (25%) of all costs of Barnes reserved in the Barnes Proceeding; and

(d) Any costs of Barnes ordered in the Barnes Proceeding as "costs in the cause" shall be paid to the extent of twenty five per cent (25%) by the Amcor parties.

86 The Amcor parties will be ordered to pay the following categories of costs of the Holihan Parties in the Barnes Proceeding on a party/party basis:

(a) All of their costs arising from or connected with:

(i) the briefing and engagement of all expert witnesses to give evidence and confer on the issue of the alleged uncommercial nature of both agreements in contention and any of the relief claimed by the Amcor parties by way of common law damages, statutory damages, equitable compensation, and an account of profits (together called the "expert evidence issues") and all costs arising from or connected with such briefings or engagements;

(ii) all reports prepared by all expert witnesses on or relating to the expert evidence issues and all costs arising from or connected with such reports;

(iii) all joint conferences conducted between all expert witnesses on the expert evidence issues and all costs arising from or connected with such conferences;

(iv) the calling of all expert witnesses to give evidence and be cross-examined at trial on the expert evidence issues and all costs arising from or connected with such evidence;

(b) Seventy five per cent (75%) of the balance of the costs of the Holihan Parties of the Barnes Proceeding;

(c) Seventy five per cent (75%) of all costs of the Holihan Parties reserved in the Barnes Proceeding; and

(d) Any costs of the Holihan Parties ordered in the Barnes Proceeding as "costs in the cause" shall be paid to the extent of seventy five per cent (75%) by the Amcor parties.

87 The intention reflected in these proposed orders is that all costs of Barnes and the Holihan Parties arising from or connected with all expert witnesses engaged on the questions of the alleged uncommerciality of the two agreements and the monetary relief, if any, to which Amcor claimed to be entitled, should be first "carved out" and determined by agreement or upon taxation. Thereafter, the assigned percentages of the balance of their costs of the Barnes proceeding which are relevant to each of them should be paid by the Amcor parties on a party/party basis.

88 I will order that each party should bear their own costs of the applications for costs.

89 I will grant liberty to Barnes and the Holihan Parties to make applications to enforce the undertaking as to damages given by the Amcor parties to Osborn J on 11 December 2007, as they shall be advised.

[1] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94. NOTE: This version was amended pursuant to the 'Slip Rule' by Order made 1 May 2012 and reasons: Hodgson v Amcor (No. 8) [2012] VSC 162.

[2] Hodgson v Amcor (No. 9) [2012] VSC 205.

[3] Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No. 10) [2012] VSC 294.

[4] Amcor Ltd v Barnes [2012] VSC 434.

[5] Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 10) [2012] VSC 294 [9].

[6] Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 10) [2012] VSC 294.

[7] Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 10) [2012] VSC 294 [39].

[8] Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 10) [2012] VSC 294 [40]-[44].

[9] Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 10) [2012] VSC 294 [40]-[44].

[10] See: Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd (1951) 1 All ER 873, 874 (Devlin J).

[11] Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 10) [2012] VSC 294 [40]-[44].

[12] Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 10) [2012] VSC 294.

[13] Ritter v Godfrey [1920] 2 KB 47, 60-61.

[14] Ritter v Godfrey [1920] 2 KB 47.

[15] Verna Trading v New India Assurance Co Ltd [1991] VicRp 12; (1991) 1 VR 129, 154 (Kaye J).

[16] Verna Trading v New India Assurance Co Ltd [1991] VicRp 12; (1991) 1 VR 129, 153.

[17] Verna Trading v New India Assurance Co Ltd [1991] VicRp 12; (1991) 1 VR 129, 154.

[18] Verna Trading v New India Assurance Co Ltd [1991] VicRp 12; (1991) 1 VR 129, 154.

[19] ACCC v Australian Safeway Stores Pty Ltd (No 3) [2002] FCA 1294 [55].

[20] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1389]-[1390].

[21] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1393].

[22] Corporations Act 2001 (Cth) s 183.

[23] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [588].

[24] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [646].

[25] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1018]-[1020].

[26] Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 10) [2012] VSC 294 [53].

[27] Ritter v Godfrey [1920] 2 KB 47.

[28] Ritter v Godfrey [1920] 2 KB 47.

[29] Amcor Ltd v Barnes [2012] VSC 434.

[30] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1403].

[31] Corporations Act 2001 (Cth).

[32] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1400].

[33] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1401].

[34] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1402].

[35] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1419].

[36] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1420].

[37] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1421].

[38] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1428].

[39] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1404].

[40] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1405].

[41] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1406].

[42] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1429].

[43] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1430].

[44] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1433]-[1435].

[45] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1436]-[1439].

[46] Barnes v Addy (1874) LR 9 Ch App 244.

[47] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1440]-[1442].

[48] Barnes v Addy (1874) LR 9 Ch App 244.

[49] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1443] - [1449].

[50] Amcor Ltd v Barnes [2012] VSC 434.

[51] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1118].

[52] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1119]-[1123].

[53] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1096]-[1123].

[54] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1119].

[55] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [1129]-[1133].

[56] Youssef v Victoria University of Technology (No 2) [2005] VSC 385.

[57] Youssef v Victoria University of Technology (No 2) [2005] VSC 385 [14].

[58] Youssef v Victoria University of Technology (No 2) [2005] VSC 385 [15].

[59] Ritter v Godfrey [1920] 2 KB 47, 60-61.

[60] Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 10) [2012] VSC 294.

[61] Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, 233 (citations omitted).

[62] Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, 232-234 (citations omitted).

[63] Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189.

[64] Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189 [6]-[12].

[65] The Proceeding at trial occupied about 32 days.

[66] Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 10) (2012) VSC 294 [84]-[90].

[67] Hodgson v Amcor Ltd; Amcor Ltd v Barnes (No 10) (2012) VSC 294 [84]-[90].

[68] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [976-978].

[69] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [966-974; & 979-990].

[70] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94 [976-978].