Armstrong Strategic Management and Marketing Pty Ltd v Expense Reduction Analysts Group Pty Ltd

EX TEMPORE Judgment (Revised) 1The general background to this matter is set out in the judgment I gave on 1 May 2013 in relation to an application then made by the defendants that the plaintiffs provide security for costs: Armstrong Strategic Management Pty Limited v Expense Reduction Analysts Group Pty Limited [2013] NSWSC 457. 2Since publication of those reasons, the High Court of Australia on 6 November 2013 allowed the defendants' appeal from the decision of the Court of Appeal referred to at [12] of my 1 May 2013 judgment: Expense Reduction Analysts Group Pty Limited v Armstrong Strategic Management Pty Limited [2013] HCA 46; 250 CLR 203. 3The High Court ordered that the plaintiffs pay the defendants' costs in the High Court and in this Court. 4The current state of play in the proceedings is that five weeks has been provisionally set aside for the hearing in the weeks commencing 3 November, 10 November, 24 November, 2 December and 8 December 2014. 5Save for an expert's report, to be served within two weeks, the defendants' evidence is complete; the plaintiffs' evidence in reply is due by 26 September 2014. 6The matter now before me is the defendants' notice of motion of 11 August 2014 seeking an order that these proceedings be stayed until payment by the plaintiffs of the costs the subject of the High Court's order. 7The costs in the High Court are now the subject of a Certificate of Taxation issued by the High Court on 14 July 2014 in the sum $188,105.78. The costs in this Court are the subject of Certificates of Determination issued on 30 July 2014 and filed today in the total sum of $175,946.46. 8There appears to be no doubt that the costs of the High Court application are payable. Any application to stay the order in respect of those costs would have to be made to the High Court; no such application has been made. 9In my opinion, however, the costs of the proceedings in this Court are not payable by reason of Uniform Civil Procedure Rules 2005 r 42.7, which is in the following terms: "(1) Unless the court orders otherwise, the costs of any application or other step in any proceedings, including: (a) costs that are reserved, and (b) costs in respect of any such application or step in respect of which no order as to costs is made, are to be paid and otherwise dealt with in the same way as the general costs of the proceedings. (2) Unless the court orders otherwise, costs referred to in subrule (1) do not become payable until the conclusion of the proceedings." 10The High Court Rules 2004 do not appear to make any provision for the consequences of the High Court making an order in respect of costs in the lower courts. It seems, in that event, that the assessment of such costs and questions associated with their recoverability are to be dealt with in accordance with the rules and procedures in the lower court in question. 11In those circumstances, my opinion is that on its proper construction, UCPR r 42.7 applies to the "costs...of any application or step" in this Court whether or not the final order as to those costs was made in this Court. Thus, the rule has the effect that notwithstanding that, in this case, the final costs order was made by the High Court, so far as those costs concern proceedings in this Court, the costs are not payable prior to the conclusion of these proceedings, unless the Court otherwise orders. 12There may appear to be tension between UCPR r 42.7 on the one hand and the combined effect of r 36.4, r 36.10 and r 36.11 on the other, especially in light of s 368 of the Legal Profession Act 2004. The combined effect of the latter provisions is that a costs order "takes effect" on the date the relevant certificate is filed and is taken to be a judgment of the Court for the amount of the unpaid costs. However, in my opinion that tension is more apparent than real; the certificate "takes effect" in that manner but, nonetheless, is "not payable" unless and until the Court "orders otherwise" under UCPR r 42.7. Thus, the editors of Ritchie's Uniform Civil Procedure NSW, vol 1 at [42.7.20] observe that UCPR r 42.7 "postpones the enforceability of costs of interlocutory proceedings until the conclusion of the proceedings". Were it otherwise, the effect of UCPR r 42.7 could be avoided by the simple and expedient filing of the assessor's certificate. The authors of the rules could not have intended this. 13The defendants do not seek that I "order otherwise" under r 42.7. In those circumstances my opinion is that the $175,946.46 is not currently payable. 14So far as it concerns the $188,105.78, the plaintiffs have, through their solicitors, made very clear that they do not propose to meet that costs orders in response to services of the Certificate of Determination issued by the High Court and of the Certificates of Taxation issued by this Court. 15Thus, on 15 July 2014, the plaintiffs' solicitor wrote to the defendants' solicitors: "In the circumstances, if your clients take enforcement action on the Certificate, including, (but not limited to) for example, a bankruptcy notice or creditor's statutory demands, we are instructed to place your firm and your clients on notice that application will [be] made seeking orders setting aside such notices on the grounds that our clients have offsetting claims which greatly exceed the Certificate." 16Mr Alstergren QC, who appeared with Mr Briggs for the plaintiffs, submitted that were the proceedings to be stayed until the $188,105.78 is payable, the proceedings will be stultified. 17The question of the plaintiffs' ability to meet the costs order was considered by Hammerschlag J as recently as 11 July 2014. The matter for consideration before his Honour then was whether the plaintiffs should have a stay of a judgment of $120,000 entered against it, by consent, in respect of the costs of the application that I dealt with in my reasons of 1 May 2013. Before his Honour it was contended that, absent a stay, proceedings will be stultified. Mr Armstrong was cross-examined on an affidavit he swore in support of the stay application. 18At the conclusion of that cross-examination, Hammerschlag J said (at p 43, lines 25 - 48): "HIS HONOUR: ...my current thinking of all of this is that I can place absolutely no credence on any of the financial information that Mr Armstrong has produced and what I am going to do is to give you an opportunity to produce an audited statement of assets and liabilities of Mr Armstrong... [A]t the moment, I am not satisfied that I can rely on any of this material and on the current state of this material, my preliminary view of this is that I would not be satisfied that there will be a stultification because I have been presented with accounts, just to take the most recent example of the balance sheet as at 30 June 2014, which on their face are false. I don't know whether there has been any deliberate obfuscation or deliberate errors or whatever. I simply don't have a view. But at the moment, if you want to persuade me that there is stultification, you are going to have to provide me with an audited statement of assets and liabilities and I propose...to give [the plaintiffs] that opportunity." 19His Honour did grant a stay of the $120,000 judgment until 15 August 2014 to enable Mr Armstrong to produce an audited statement of the kind to which his Honour referred. Mr Armstrong did not do that. Instead, he borrowed, he says, the $120,000 due under the judgment from his brother-in-law. That sum was paid to the defendants' solicitors on 7 August 2014. 20In my opinion, absent an audited statement from Mr Armstrong of the kind described by Hammerschlag J, I do not consider it to be appropriate for me to embark on any further consideration of the plaintiffs' contentions concerning stultification. Ultimately, Mr Alstergren did not submit, with any enthusiasm, that I should. 21Looking at the matter generally, Mr Alstergren drew attention to authorities that suggest that a "special case" is required to justify a stay of proceedings where the costs of interlocutory proceedings have not been paid: Morton v Palmer (1882) 9 QBD 89; Re Wickham (1887) 35 Ch D 272; Graham v Sutton, Carden & Co [1897] 2 Ch 367. 22Assuming that is a correct statement of the approach I should adopt, I am satisfied that this is a "special case" which justifies the stay that the defendants seek. 23The costs with which I am concerned were incurred because of a decision taken by the plaintiffs' then solicitors, which I must assume was a decision taken on instructions, concerning the inadvertent disclosure of privileged documents by the solicitors then acting for the defendants. It is that decision which led to the proceedings before Bergin CJ in Eq, the Court of Appeal and ultimately the High Court. The defendants' position was, in the end, vindicated by the High Court. 24The alleged fact that, now, the defendants themselves are seeking to deploy documents previously the subject of their claim for privilege is, in my opinion, beside the point. 25Those circumstances, when considered with the plaintiffs' avowed refusal to meet the costs orders, and Mr Armstrong's failure to address the concerns expressed so strongly by Hammerschlag J on 11 July 2014 lead me to conclude that this is a "special case" and that I should stay these proceedings until such time the plaintiffs either pay $188,105.78 or obtain a stay of the High Court's costs order. 26Mr Alstergren sought an adjournment of this application in order to adduce evidence of the kind to which Hammerschlag J referred. I am not prepared to accede to that application. If and when Mr Armstrong sees fit to adduce such evidence, the plaintiffs can seek to remove the stay I propose to order. That application will be dealt with on its merits. 27At the moment, I will not interfere with the provisional dates allocated for the hearing. 28I make these orders: (1)Note the undertaking given to the Court by Dominic Stephen Calabria dated 14 August 2014, initialled by me, dated today and placed with the papers. (2)Order that these proceeds be stayed until such time as the plaintiffs pay to the defendants $188,105.78 in satisfaction of the Certificate of Determination of the High Court of Australia issued on 14 August 2014 or until the plaintiffs obtain a stay of the order of the High Court of Australia of 6 November 2013 giving rise to that Certificate. (3)Order that the plaintiffs pay the defendants' costs of the notice of motion of 11 August 2014. (4)Stand the matter over to 12 September 2014 before the Commercial List Judge to determine whether the provisional fixture should be vacated or confirmed.