Aurora Australasia Pty Ltd v Hunt Prosperity Pty Ltd trading as trustee of the Aurora Australasia Investment Fund Unit Trust

Costs

Mr Driver offered an undertaking to indemnify Aurora for its solicitor-client costs incurred in the proceedings on the condition that he be entitled to be reimbursed for those costs to the maximum extent possible from any costs that Aurora recovers in the proceedings. Otherwise, Mr Driver submitted that the trustee should pay the plaintiff's costs of the claim for the removal of the trustee up to 3 July 2024. The cross-claimants should pay Mr Driver's costs of the claim for judgment in respect of the loan sums on the ordinary basis. The cross-claimants should pay one-third of Mr Driver's costs of the proceedings (save for the costs of the claim that the trustee be removed).
Mr Driver submitted that for many months an order was sought for the removal of the trustee; the appropriate course was for the trustee to resign. The trustee was said to have prevaricated for months, only to capitulate close to the final hearing. In the interim, the plaintiff was put to substantial cost of pursuing a claim for relief, for which costs could have been avoided had the trustee accepted at an earlier point that the appropriate course was for it to step aside. In these circumstances, the appropriate order was that the trustee pay the plaintiff's costs of that claim up to the time of the trustee's belated resignation on 3 July 2024.
Mr Driver submitted that Mr Hartley's claim for judgment against Mr Driver in respect of the loan contracts failed. The remainder of the proceedings concerned claims and cross-claims in respect of which the active protagonists were Aurora on the one hand, and Mr Hartley and his company on the other. By and large, Mr Hartley failed save for the assertion of an equitable charge, which occupied a minor part of the case. Overall, Aurora succeeded but due allowance should be made for the claim on which it failed. Overall, Aurora should get one-third of its costs from Mr Hartley.
The trustee sought an order that Aurora pay its costs of the proceedings, save for the costs referable to Aurora's claim for damages caused by its termination as Investment Manager (by reason of the settlement of that issue) and the adverse costs order made when its application for judicial advice was dismissed in Aurora Australasia Pty Ltd v Hunt Prosperity Pty Ltd [2024] NSWSC 680, being from 17 May 2024. Otherwise, the trustee sought an order that its costs be paid out of the Fund Unit Trust: cl 18, Trust Deed.
The trustee submitted that the proceedings were largely between Mr Driver and Mr Hartley. The application to remove the trustee was procedurally defective, where the Court will not allow a trust to be without a trustee: In the matter of Austec Wagga Wagga Pty Ltd (In Liq) [2018] NSWSC 1476 at [28] (Brereton JA); rr 31.15, 55.6(e)-(f), 55.7, Uniform Civil Procedure Rules 2005 (NSW) (UCPR). Mr Driver did not put any evidence of the proposed new trustee before the Court, reflecting the fact that the removal application was secondary to effecting the redemption of Mr Driver's units. By the Amended Statement of Claim, the plaintiffs sought orders that the trustee not be permitted to recover its own costs of the proceedings out of the assets of the trust, together with damages for the alleged unlawful termination of Aurora as Investment Manager. On 4 and 22 March 2024, the trustee respectively applied for, and received, judicial advice under s 63(1) of the Trustee Act, that the Trustee would be "justified in defending the Amended Summons and Amended Cross-Summons and incurring proper legal and other expenses in doing so", although with a caveated notation that the plaintiff and/or cross-claimants "may seek a different order".
The trustee noted that, on 14 May and 4 June 2024, it unsuccessfully sought judicial advice as to whether the trustee would be justified in terminating the trust. In the course of that hearing, the Hartley parties supported removal of the trustee. On 13 June 2024, the trustee advised that it was willing to resign on a without admissions basis and asked for the parties to nominate the proposed replacement. The trustee also asked Mr Driver to clarify the contention that the trustee was not entitled to be indemnified from the trust. On 17 June 2024, Mr Driver confirmed that the contention that the trustee was not entitled to be indemnified from the trust was not pressed. It was not until 2 July 2024 that Mr Driver put forward a replacement trustee. On 3 July 2024, the trustee served notice in accordance with the trust deed that it would retire as trustee in three months' time. At the final hearing, Mr Driver no longer advanced the allegations of breach of trust. In the result, Mr Driver was unsuccessful in his efforts to have the trustee process the redemption request. Other claims were abandoned along the way. Costs should follow the event.
In addition, the trustee sought an order that Mr Hartley pay the trustee's costs of the cross-claim. The allegations against the trustee failed. On 1 July 2024, the trustee invited Mr Hartley to clarify if he was pressing the allegations of breach of trust, in the interests of minimising costs. Mr Hartley advised that he was. Those allegations were the principal matter involving the trustee at the hearing. Where Mr Hartley was unsuccessful, costs should follow the event: UCPR r 42.1.
Mr Hartley submitted that Mr Driver has failed overall in these proceedings and should bear the costs of all parties for both the claim and cross-claim. The Court's power in relation to costs extends to making an order against a non-party where the party to the litigation is a man of straw, the associated non-party had a sufficient interest in the outcome and played an active part the proceedings: Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 192-193 (per Mason CJ and Deane J); FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 at [210] (per Basten JA); Carborundum Abrasives Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757 at 765; Vestris v Cashman (1998) 72 SASR 449 at 457 per Olsson J (see also 467-468 per Lander J); Oz B & S Pty Ltd v Elders IXL Ltd (1993) 117 ALR 128; VMA Companies LLC (t/as Corbis Global) v Ridley Capital Holdings Pty Ltd [2016] NSWSC 1567 at [31]-[32]. Where a party has been ordered to pay costs, a non-party may be ordered to indemnify that party (MG Corrosion Consultants Pty Ltd v Vinciguerra (No 2) (2011) 276 ALR 319 at 325, [23]) or a further costs order may be made against the non-party (Paramount Lawyers Pty Ltd v Haffar (No 2) [2016] NSWSC 906 at [1]-[9]).
Such an order should be made here, where Mr Driver brought these proceedings but in Aurora's name. Aurora is a "man of straw". As the company's sole director, Mr Driver was the instigator of, and responsible for, the actions of Aurora in the litigation. He and the company had common legal representation in the proceedings and he alone could give the instructions on behalf of the company to commence and maintain the proceedings. He was the company's only witness. The litigation commenced by the company was ultimately for his benefit alone, so that he could obtain the money to be paid on Certificate No 3. The company stood to gain nothing, but was at substantial risk. As an unsuccessful party to the cross-claim, Mr Driver should be responsible for any costs orders that would otherwise fall on Aurora in relation to the cross-claim. The defence of the cross-claim was carried on to protect Mr Driver's access to the redemption payment.
Mr Hartley submitted that AMHP was joined as the second defendant in the principal proceedings only as an affected person and no relief was sought against it. Aurora ultimately pursued only its first prayer for relief in respect of the redemption request and was unsuccessful. In the circumstances, AMHP should have its costs of the principal proceedings, as should the trustee, and both paid by Mr Driver. On the cross-claim, the cross-claimants were successful in obtaining injunctive relief against the trustee and a charge in their favour over the units comprised in Certificate No 3. Although they did not obtain judgment against Mr Driver in respect of the time for payment of the debt owed by him to the cross-claimants, the findings of the Court defined and confirmed the debt as a foundation for the charge. The overall outcome of the cross-claim had preserved the cross-claimants' position while they await judgment in the Botanical Water Technologies case. The practical outcome of the cross-claim was a successful one for the cross-claimants and they should have their costs of the cross-claim.
Mr Hartley submitted that the trustee had been successful on the issues relating to the validity of the units issued for the benefit of Mr Driver, but had become subject to the order restraining it from making payment to Mr Driver. Its joinder on the cross-claim was necessitated by the dispute between Mr Driver and the cross-claimants. That dispute has been resolved in substance in favour of the cross-claimants. Mr Driver should bear the costs of the cross-claimants and the trustee of the cross-claim. Aurora was also a necessary party on the cross-claim in that it was the legal owner of the units, but it was otherwise merely the vehicle for Mr Driver and should not be burdened with the costs of the cross-claimants or the trustee. To the extent that Aurora's costs of the cross-claim were separate from those of Mr Driver, Mr Driver should bear its costs. As Mr Driver, for his own ultimate benefit, caused Aurora to bring the principal proceedings that were the source of this dispute, Mr Driver should be responsible for any costs for which Aurora is liable as its own costs.

Consideration

Mr Driver's undertaking addresses the concern expressed in my primary judgment at [154]: "Where Mr Driver commenced these proceedings in Aurora's name, but apparently for his own interests, I would also be assisted by submissions as to whether Mr Driver should indemnify the company for the costs incurred in these proceedings."
As noted at the outset, these proceedings changed significantly from inception to conclusion, and were a little messy. Looking at how the plaintiff fared in its claim, four prayers for relief were advanced. First, Aurora sought an order that the trustee facilitate the payment of the redemption request to Aurora. In its submissions, however, Aurora submitted that the parties agreed at the outset that the units in Certificate No 3 were those of Mr Driver and thus the redemption proceeds were payable to or at his direction.
Where the trustee proposed to pay the redemption request shortly after the proceedings were commenced (see [4]), the real opponent was the second defendant, AMHP. Aurora partially succeeded on prayer one, tempered by failure on its contention that the withdrawal price was $1,696,472.17 (as opposed to the price calculated by the trustee when the units are ultimately redeemed: primary judgment at [148]) and the fact that AMHP and Mr Hartley established an equitable charge over the units: primary judgment at [150]-[152].
Second, Aurora sought an order that the trustee be removed. I agree that one way for the trustee to deal with the discontent of some of its unit holders was to step down. It is also the case, as the trustee submitted, that no substitute trustee was proffered until June 2024. Efforts by the trustee to then step down were not particularly successful, given the opposing positions of Mr Driver and Mr Hartley. By the trial, the trustee had resigned, such that it was not necessary for Aurora to press this prayer for relief. Nor is the outcome of this prayer for relief, had it been agitated at trial, known. Whilst the plaintiff did not agitate its complaints about the trustee with full force at trial, other criticisms were not accepted, for example, as to the appropriateness of the trustee's queries in respect of the redemption request: primary judgment at [75]-[76], [79], [82], [85].
In Re Minister for Immigration and Ethnic Affairs (Cth); Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6, McHugh J stated at 624-625: "When there has been no hearing on the merits … a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits … The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. … Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. … If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings."
More recently in Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681, Payne JA, with whom Meagher JA agreed, observed at [30]: "If both parties to a proceeding which has been settled without a hearing on the merits have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings."
Applying these principles to prayer two, I cannot say with confidence whether an order would have been made that the trustee be removed. Nor do I consider that the trustee's actions in defending the proceedings were unreasonable. I consider the appropriate course is that there should be no order as to the costs of the proceedings in respect of this prayer for relief.
Third, Aurora sought an order for costs against the trustee, together with an order that the trustee not recover its costs of the proceedings out of the assets of the Fund, and replenish the Fund to the extent that it had used those assets to meet its costs. Aurora did not press this prayer for relief insofar as it sought to limit the trustee indemnifying itself from the Fund. Again, I cannot say what the outcome of that portion of the prayer for relief would have been had it been pursued at trial. Nor do I consider that the trustee's actions in defending that contention were unreasonable. The appropriate order is to make no order as to the costs of that portion of prayer three.
Fourth, Aurora sought, but did not ultimately press its claim for damages against the trustee. As noted, the late addition of this prayer led to the vacation of the trial, where the costs thrown away were reserved.
Overall, Aurora had partial success on prayer one, where the trustee did not oppose that relief being granted at the outset and the real opponent was AMHP, for reasons advanced by the cross claim, to which I now turn.
My primary judgment was largely concerned with the cross-claim advanced by AMHP and Mr Hartley against Aurora, the trustee and Mr Driver. I concluded that Aurora was entitled to a performance fee, rejecting Mr Hartley's contention to the contrary. I rejected Mr Hartley's contention that the trustee ought not to have issued units to Aurora in lieu of the performance fee.
Turning to the loan arrangements between Mr Driver and Mr Hartley, I held that the loans were not presently due and payable (rejecting Mr Hartley's contention to the contrary). I declared that Mr Driver was the beneficial owner of units in the Fund described in Certificate No 3 (the Units) and had granted an equitable charge over the Units in favour of the cross-claimants, Adam Hartley and AMHP Pty Ltd. In doing so, I rejected Mr Driver's submissions that there was no charge. As requested by Mr Hartley, I restrained the trustee from processing a redemption request submitted by Mr Driver in respect of the Units, absent the consent of the cross-claimants.
In the result, AMHP and Mr Hartley's claims against the trustee were unsuccessful. The cross-claimants should pay the trustee's costs of the cross-claim. AMHP and Mr Hartley were partially successful against Aurora and Mr Driver. The question is what the costs order, if any, should be made between Aurora and Mr Driver on the one hand and AMHP and Mr Hartley on the other, given the results of the claim and cross-claim overall.
The Court has wide discretionary powers to apportion costs where a case involves multiple issues and a party succeeds on some issues but fails on others. For example, a plaintiff may obtain judgment in their favour but the defendant may have succeeded on issues that occupied the bulk of the time taken by the proceedings. The successful plaintiff may not only be deprived of the costs of those issues but may be ordered as well to pay the defendant's costs in respect of such issues: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [32]-[36] (per Beazley, Tobias and McColl JJA).
As the Court of Appeal observed in Ryde Developments Pty Ltd v Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 at [6]: "Section 98 of the Civil Procedure Act 2005 (NSW) confers on the Court a wide discretion with respect to costs. Under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) the general rule is that the Court is to order that costs follow the event. The 'event' may be characterised in more than one way. Generally the 'event' refers to the result of the claim or counterclaim, as the case may be, and may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Sons Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15] per Ward, Emmett and Gleeson JJA. Where there has been a mixed outcome in the proceedings, and it is appropriate to entertain the process of apportioning costs as between different issues in the proceedings, in general such an exercise will be carried out on a relatively broad brush basis, and largely as a matter of impression and evaluation by the Court: Doppstadt at [19]; James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [36]; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 at 22."
Similarly, apportionment of costs between issues has been described as "very much a matter of discretion, [where] mathematical precision is illusory": Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) (2011) 86 ACSR 119; [2011] NSWCA 256 (per Campbell JA, with whom Macfarlan and Young JJA agreed) at [84].
I do not accept the plaintiff's submission that the issue of the equitable charge was minor in the scheme of things. It was the issue. Mr Driver wanted to get his money out of the Fund and Mr Hartley wanted to stop him. Overall, I consider that an appropriate apportionment of the costs is that AMHP and Mr Hartley should have one-third of their costs. Where no relief was sought against AMHP by the summons, their costs are those of their cross-claim.
As to who should pay those costs, whether it be Aurora or Mr Driver, the costs order should reflect the "the reality of the contest" between "the true protagonists": Sydney Markets Credit Services Co-operative Ltd v Taylor (No 3) [2015] NSWSC 1236 at [32] (Slattery J). Aurora's claim was directed to the trustee but joined AMHP as a party affected by the relief sought. The cross-claim was brought by AMHP and Mr Hartley against Aurora and Mr Driver but mostly focussed on claims against Mr Driver in respect of loans and an equitable charge over the units in Certificate No 3. Mr Driver and Mr Hartley were the "true protagonists" in this particular contest. Whilst Mr Driver's undertaking makes this point moot, in substance, I consider that Mr Driver should pay these costs, where relief was ultimately granted in favour of AMHP and Mr Hartley against him.

At a glance

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Judgment (8 paragraphs)

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Legislation Cited (4)

Cases Cited (22)

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