Aurora Funds Management Limited v Bond Street Custodians Limited & Ors

Supreme Court of NSW|2019-03-11|Before: Henry J, Mr J

Solicitors: Keypoint Law (Plaintiff) HWL Ebsworth (First and Third Defendants) Clifford Chance (Second Defendant) Clayton Utz (Fourth Defendant) File Number(s): 2018/286314

Judgment

This judgment concerns what costs orders should be made in circumstances where the plaintiff consents to its claims against the defendants being dismissed.
In these proceedings, the plaintiff, Aurora Funds Management Ltd (Aurora), seeks a declaration that the votes cast by the first defendant, Bond Street Custodians Limited (Bond Street), the second defendant, HSBC Custody Nominees (Australia) Ltd (HSBC) and the third defendant, National Nominees Limited (National Nominees) at a general meeting held on 16 April 2018 of the shareholders of the fourth defendant, 8IP Emerging Companies Limited (8IP), be disallowed. It also seeks a declaration that Aurora's resolutions for the appointment of certain directors, which were voted upon at the meeting, be carried.

Background

8IP is an asset manager focussed on managing equity portfolios for retail and institutional investors.
Aurora is a shareholder in 8IP, as responsible entity of the Aurora Dividend Income Trust.
Bond Street, HSBC and National Nominees are brokerage companies who act as custodians, holding shares (on behalf of others) in 8IP. In these reasons, I refer to Bond Street, HSBC and National Nominees collectively as the custodian defendants.
By notice dated 16 March 2018, Aurora called a general meeting of 8IP pursuant to s 249F of the Corporations Act 2001 (Cth) (Corporations Act) to be held on 16 April 2018 (General Meeting). Aurora proposed six resolutions: three calling for the removal of the directors of 8IP and three calling for the election of directors nominated by Aurora.
Due to difficulties concerning Aurora's proxy form attached to the notice of General Meeting, it was subsequently agreed that Aurora would withdraw the three resolutions calling for the removal of the directors of 8IP. As a result, the General Meeting was convened to vote on the three resolutions proposed by Aurora calling for certain individuals to be appointed as directors of 8IP.
Boardroom Pty Ltd (Boardroom) was the nominated share registry for 8IP, including for the purposes of the General Meeting.
The custodian defendants cast votes at the General Meeting by means of proxies. They each submitted proxy forms and accompanying powers of attorney at least 48 hours before the General Meeting. Unlike the proxy forms and powers of attorney for Bond Street and HSBC (which were sent directly to Boardroom), the proxy form and power of attorney for National Nominees was sent to Registry Direct, who provided it to Boardroom.
Aurora's three resolutions were defeated at the General Meeting. On 16 April 2018 Aurora released an ASX announcement setting out the results. Based on the votes cast, including the proxy votes cast by the custodian defendants, Aurora's resolutions were defeated 67% - 33% (approximately).
A total of 27,317,535 votes were cast at the General Meeting, with the total number cast by the custodian defendants being 8,699,519, comprising: 1. 1,556,973 votes cast by HSBC; 2. 2,304,150 votes cast by Bond Street; and 3. 4,838,396 votes cast by National Nominees.
On 5 June 2018, a solicitor from Atanaskovic Hartnell, the then solicitors for Aurora, inspected records made available by 8IP at the premises of Boardroom. A verbal report of that inspection was provided to a representative of Aurora stating that the powers of attorney relied upon had not been produced to 8IP or, if they had been produced, it was not clear that either the original or certified copy of the original of the relevant power of attorney had been produced to 8IP.
On 6 June 2018, Atanaskovic Hartnell wrote to the solicitors for 8IP (Clayton Utz), raising concerns with the proxy votes of the custodian defendants asserting that they should be rejected as they were contrary to relevant sections of the Corporations Act, 8IP's constitution and the instructions concerning execution of the form of proxy circulated by both 8IP and Aurora. On this basis, it was said that the resolutions put forward by Aurora should have passed the meeting. Aurora offered to resolve the matter without recourse to legal proceedings if 8IP agreed to hold a meeting of directors at which the individuals nominated by Aurora would be appointed as additional directors.
On 13 June 2018, 8IP's solicitors responded querying the utility of any legal proceedings in circumstances where the proxies of the custodian defendants were valid and, even if they were not, any irregularities of the type identified could be cured by s 1322 of the Corporations Act. It also contended that, if Aurora was successful in ruling out the custodian defendants' proxies, there would be no change to the result of the meeting as the against votes would still retain a clear majority. This was because the proxy votes cast by the custodian defendants was as follows: 1. National Nominees being 4,838,396; 2. HSBC Custody being 1,556,973; and 3. Bond Street being 750,000 votes.
Pausing there, the reference to the 750,000 proxy votes cast by Bond Street was incorrect. Bond Street had cast 2,304,150 votes.

These proceedings

Rather than engage in further correspondence with 8IP or make enquiries with the custodian defendants, on 18 September 2018, Aurora commenced these proceedings alleging that the proxy votes cast by the custodian defendants should not have been counted as their powers of attorney (pursuant to which the proxies were executed) had not met the preconditions required by the General Meeting and, as a result, the three resolutions sought by Aurora should have been passed.
What followed then was an exchange of correspondence between the defendants' solicitors and Aurora's solicitor, now Keypoint Law, in relation to the proceedings, and the filing of motions and evidence which has led to the hearing. As each of the parties relies on the correspondence in one way or another in support of their position on costs, it is necessary to set out some of that correspondence in detail.
On 15 October 2018, the solicitors for HSBC (Clifford Chance), and the solicitors for 8IP, wrote to Aurora's solicitors raising concerns with the statement of claim.
The letter from HSBC's solicitors asserted that HSBC's proxy forms had been validly executed pursuant to the power of attorney held by Boardroom and, to the extent there was any procedural irregularity, it was remediable pursuant to s 1322 of the Corporations Act. HSBC invited Aurora to discontinue the proceedings and advised that, if it was done so by 19 October 2018, it would agree that there be no order as to costs.
The letter from 8IP's solicitors identified material facts omitted from the statement of claim and asserted it was otherwise defective in a number of respects, including that no facts were pleaded about the number of votes held by each of the custodian defendants or the total number voted in favour or against the resolutions absent the votes of the custodian defendants. They advised that, unless the statement of claim was amended to comply with these issues, 8IP would move the Court for orders seeking to strike out the proceedings together with a claim for indemnity costs.
Aurora filed an amended statement of claim on 5 November 2018 seeking the same relief with material facts said to support the claims, which amended pleading included: 1. the voting procedures adopted at the General Meeting and for the proxy forms to be accepted; 2. the number of votes cast for and against the resolutions; 3. the number of votes alleged to be cast at the meeting by each of the custodian defendants as follows; 1. HSBC 1,550,000 votes; 2. Bond Street 4,006,176 votes; and 3. National Nominees 4,838,396 votes; 1. the allegation that the proxies held by each of the custodian defendants failed to comply with the requirements of the notice of General Meeting, in that they were purportedly signed pursuant to powers of attorney that either had not been produced to the registry or the document produced was not the original or certified copy and, therefore, were invalid.
Pausing there, the number of votes attributed to Bond Street in the amended statement of claim of 4,006,176 was incorrect. As set out in paragraph 15 above, the correct number was 2,304,150. This was a critical mistake, as it meant that Aurora's claim was bound to fail because if all the custodian defendants' proxies were invalid (including Bond Street's votes of 2,304,150), the three resolutions Aurora proposed would not have passed.
The solicitors for 8IP and HSBC sent letters on 8 November and 9 November 2018 respectively, asserting that the claims made in the amended statement of claim were misconceived. 8IP's solicitors also said that the pleading remained defective in relation to the number of votes cast by Bond Street and National Nominees, and that the proxy forms and standing powers of attorney lodged by each of the custodian defendants were valid on the basis that Boardroom had received an original or certified copy for each of the custodian defendants. Both parties invited Aurora to discontinue the proceedings by 21 November 2018, failing which their clients would move the Court for orders seeking to have the amended statement of claim struck out pursuant to r 14.28 of the UCPR. They also stated that their clients would seek indemnity costs.
On 20 November 2018, Aurora's solicitors responded asking the defendants to provide evidence to support their propositions regarding how the votes were cast and documents evidencing the matters raised by 8IP's solicitor regarding the validity of the proxy forms against the powers of attorney provided for each of the defendants.
On 27 November 2018, Aurora's solicitors sent a further letter in which it stated that the allegations in the amended statement of claim regarding the invalidity of the proxy votes by the custodian defendants and number of votes cast were based on documents inspected by a lawyer from Atanaskovic Hartnell on 5 June 2018. They also requested that 8IP and HSBC provide documents to evidence the assertions regarding the validity of the proxy forms to allow Aurora to properly assess the offers to discontinue the proceedings.
By letter dated 28 November 2018, 8IP's solicitors provided documents to Aurora supporting the validity of the HSBC proxy forms, including an email from Boardroom relating to the proxy and power of attorney lodged by HSBC and documents which identified that Boardroom had in its possession, prior to receiving the HSBC proxy for 1,556,973 votes against each the resolutions, a certified power of attorney dated 20 January 2017. They stated that Aurora's case must fail because, even assuming the votes of National Nominees and Bond Street were invalid (which was not accepted), based on HSBC's valid votes the total number cast against the resolutions was greater than the affirmative votes cast for them. In view of this, 8IP's solicitors invited Aurora to agree to discontinue the proceedings by 29 November 2018, failing which an application would be made for summary dismissal and an application for indemnity costs.
On 29 November 2018, the solicitors for Bond Street and National Nominees wrote to Aurora's solicitors confirming they supported the view that the claims advanced in the amended statement of claim were futile and doomed to failure, and that their clients would support the foreshadowed application for summary dismissal if Aurora failed to discontinue the proceedings that day. On 29 November 2018, HSBC's solicitors sent Aurora a similar letter, which also confirmed that they would rely on the letter and previous correspondence in support of an application for costs, including on an indemnity basis.
Aurora did not accept the offers 8IP and the custodian defendants made to discontinue the proceedings. On 30 November 2018, 8IP and HSBC filed notices of motion of seeking to have the proceedings dismissed. HSBC filed and served an affidavit sworn by Angela Pearsall dated 30 November 2018, which included evidence in support of the validity of HSBC's proxy votes.
On 20 December 2018, Aurora's solicitors offered to discontinue the action, as it was "now of mainly historical interest", on a no admissions basis, provided each party paid their own costs and the terms of the settlement remained confidential. The letter maintained that Aurora "had a real and properly based concern" about the admission of votes at the General Meeting, raising two concerns with the proxy lodged by HSBC. The first of those concerns, being that Boardroom only received a scanned copy of a certified copy of the HSBC power of attorney, was not correct and appears to have been based on a misunderstanding of the information and documents provided by 8IP's solicitors and as referred to in the affidavit of Angela Pearsall. The second concern raised, relating to the category of persons who had signed the relevant proxy, was not an issue raised by the pleadings or in any previous correspondence.
On 21 December and 22 December 2018, the solicitors for 8IP and HSBC rejected Aurora's offer. Both responses rejected the two concerns raised in Aurora's letter and noted that Aurora had refused an offer to discontinue the proceedings in October 2018 on the basis that each party pay their own costs. They also stated that 8IP and HSBC would agree to enter into consent orders or settle on the basis that Aurora discontinue the proceedings and pay their costs on an indemnity basis.
On 22 January 2019, the solicitors for Bond Street sent Aurora's solicitor documents supporting the validity of the Bond Street proxies. This letter also confirmed, for the first time in writing to Aurora, the correct number of proxy votes cast by Bond Street, being 2,304,150. They offered to consent to a dismissal of the proceedings with an order that Aurora pay each of the defendants' costs on an indemnity basis.
Aurora did not accept this offer and instead proceeded to file and serve an affidavit of Victor Fred Siciliano on 5 February 2019 in response to the notices of motion, which affidavit refers to the visual inspection of documents carried out by the solicitor of Atanaskovic Hartnell on 5 June 2018.
On 20 February 2019, 8IP filed and served an affidavit of Martin Jones, the General Manager of Corporate Governance at Boardroom which included details in support of the validity of the proxy forms and power of attorneys for HSBC (consistent with the information 8IP provided on 28 November 2018 and the documents exhibited to Angela Pearsall's affidavit), Bond Street and National Nominees. It also confirmed that Boardroom received proxy forms from Bond Street for the General Meeting, totalling 2,304,150 votes.
On 27 February 2019, in an open letter, Aurora's solicitors offered to discontinue the proceedings on the basis that each party bear their own costs. This was said to be on the basis of the review of the affidavit material relied upon by the defendants and an assertion that, for the first time on 20 February 2019, through the affidavit of Mr Jones, it was revealed to Aurora that, "despite previous representations from 8IP, that 8IP's's registry did in fact hold original copies of the HSBC and Bond Street powers of attorney (notwithstanding the above deficiencies with HSBC's proxy) and that Bond Street voted only 2.3M of their 4,006,176 shares held pursuant to that power of attorney. Accordingly it was not possible for Aurora to determine this information prior to 20 February 2019".
That assertion is incorrect. Aurora had been on notice of the validity of HSBC's proxy forms from no later than 28 November 2018 due to the documents provided by 8IP's solicitors, and was aware of the number of Bond Street votes from 22 January 2019 as a result of the letter from Bond Street's solicitors.
On 1 March 2019, 8IP's solicitors rejected Aurora's offer. It invited Aurora to consent to summary dismissal of the proceedings and to agree that the hearing on 11 March be limited to the only remaining issue in dispute, namely orders as to costs. On 4 March 2019, HSBC's solicitor sent a similar letter to Aurora, noting that HSBC would rely on the letter, including in support of its application for indemnity costs.
On 5 March 2019, Aurora's lawyers informed the Court and the parties that it consented to judgment in the matter but that it wished to make submissions about what costs should be paid, by whom and on what basis.
On 6 March 2019, 8IP's lawyers requested Aurora to indicate whether it intended to challenge the usual order as to costs and the application for indemnity costs and if so, on what basis. 8IP also suggested that it may be appropriate for the Court to deal with the issue of costs on the papers.
Aurora did not respond to that email and the matter proceeded to be heard before me on 11 March 2019.

Submissions

Prior to the hearing, written submissions were received by each of the parties in relation to costs.
Aurora's initial outline of submissions proposed that it pay the costs of the defendants on one of three alternative bases, each of which included payment on an ordinary basis but differing in respect of the date from which costs should be paid. Aurora withdrew that proposal at the hearing and proposed that each party bear their own cost of the proceedings or, alternatively, that Aurora should pay the defendants' costs on an ordinary basis from either 22 January or 20 February 2019. The defendants did not object to that amendment, but did not accept the amended proposal.
Aurora submits that each party should bear their own costs because there has been no hearing on the merits. This is a case, Aurora submits, in which it has not surrendered, but where it has recognised the futility of the proceedings. Further, Aurora submits that it acted reasonably in circumstances where it had, as early as 20 December 2018, offered to discontinue on the basis of each party paying their own costs, and then, on 27 February 2019, promptly made the same offer after receiving the affidavit of Martin Jones. Aurora relies on the recent decisions of Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84 and Freelancer International Pty Ltd v Matthew O'Kane [2019] NSWSC 159 in support of that submission.
Aurora also submits that indemnity costs should not be awarded to the defendants as there is nothing irregular or unreasonable in the way the proceedings were commenced as they were started in good faith, and based upon advice from solicitors who had undertaken a visual inspection of documents at 8IP's premises.
Aurora submits that it attempted to ascertain the bases of the defences from an early stage. Aurora relies upon correspondence from its solicitors on 20 and 27 November 2018 in which it asked for documents and evidence so that it could consider the offers to discontinue. Aurora also points to correspondence from the defendants' solicitors which initially focused on defects in Aurora's pleadings and which did not raise summary dismissal pursuant to r 13.4 of the UCPR until 28 November 2018.
Aurora accepts that certain matters upon which it relied later proved to be incorrect. Aurora nevertheless submits that it was not in a position to definitively verify the validity of the HSBC proxies and the number of proxy votes cast by Bond Street until 20 February 2019 when the affidavit of Martin Jones was served.
In view of this, Aurora says there has been no delinquency or form of misconduct that would warrant an indemnity costs order.
The defendants seek an order that their costs of the proceedings be paid on an indemnity basis. They submit such an order is warranted as Aurora's conduct in commencing and maintaining the proceedings has not been reasonable, based as it was on an equivocal verbal report recounting a documentary inspection, and its consent to a dismissal of the proceedings represents a capitulation in recognition of a hopeless case.
8IP, Bond Street, and National Nominees also propose alternative costs orders if the Court is not minded to award indemnity costs for the entirety of the proceedings.
For 8IP, the alternatives proposed are for Aurora to pay costs on an ordinary basis from the start of the proceedings and then on an indemnity basis from one of 28 November 2018, 21 December 2018 or 22 January 2019. 8IP submits that, if the Court is not minded to order any indemnity costs of the proceedings, the costs of the hearing should be on an indemnity basis.
For Bond Street and National Nominees, the alternative basis is for costs to be paid by Aurora on an ordinary basis until 21 January 2019, and then on an indemnity basis from 22 January 2019.
While there were differing submissions and alternative costs proposals put forward by each of the defendants, the hearing proceeded on the basis that they adopted the submissions and proposals of each other. In view of that position, it is appropriate that any costs orders made should apply in the same way to each of the defendants, rather than make different costs orders for different parties. I have therefore approached the consideration of the matter in that way.

Should Aurora pay the costs of the proceedings?

The starting point is UCPR r 42.20, which provides that where proceedings are dismissed (as in this case) the usual order is for a plaintiff to pays the costs of the defendant unless it appears to the Court that some other order should be made.
Where there is a dismissal under r 42.20 and no hearing on the merits, other considerations can apply, including whether the parties acted reasonably in commencing and defending the proceedings and whether the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile: Freelancer International Pty Ltd v Matthew O'Kane [2019] NSWSC 159 at [70]; Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84 at [30]; Re Minister for Immigration and Ethnic Affairs (Cth); Ex Parte Lai Qin (1997) 186 CLR 622 at [624] - [625]; Fordyce v Fordham and another (2006) 67 NSWLR 497; [2006] NSWCA 274.
While it is not appropriate to embark on a hearing of the merits or review of large swathes of evidence to determine whether a party has acted reasonably or not, some consideration can be had to material put before the Court and to facts not in dispute. As Basten JA said in Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84, at [8]-[9]: "Secondly, although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon. Thirdly, if contrary to the views set out above, it was appropriate to investigate whether the applicants or the respondent had been unreasonable, either in their conduct prior to the proceedings, or in their conduct of the proceedings, the approach adopted was untenable…. Further, once it is clear that there is a real dispute as to a significant fact in issue in the proceedings, it is inappropriate to determine that matter, other than in making an interlocutory ruling, by accepting one party's case without permitting the other party an opportunity to challenge the opposing party's witnesses."
There is also a distinction between cases in which a party effectively surrenders or capitulates to the other, and the opposing party has, in seeking costs, effectively obtained the relief sought in the proceedings, as opposed to a case where there is some supervening event, settlement or factual matter in dispute which results in the proper exercise of the Court's discretion being to make no order as to the costs of the proceedings: One TEL Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270; Shellharbour City Council v Minister for Local Government [2017] NSWCA 256; Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84.
The award of costs is a matter within the Court's discretion: Civil Procedure Act 2005 (NSW) s 98. That discretion is broad and must be exercised consistently with the overriding mandate provided for in respect of the conduct of litigation of this Court: Civil Procedure Act ss 56 to 60.
Based on the material before the Court and the above principles, I do not accept Aurora's submission that each party should pay their own costs of the proceedings and consider that a costs order in favour of the defendants is warranted. This is for the following reasons.
The proper characterisation of Aurora's conduct in consenting to a dismissal of the proceedings and judgment in this matter is, in my view, a capitulation and an abandonment of its case.
This conclusion is not based on a review of extensive affidavit evidence and determining issues in dispute. To the contrary, it is based on facts not in dispute.
Aurora accepted that it incorrectly pleaded the number of votes cast by Bond Street. It also accepted that the correct number of votes cast by Bond Street means that its pleaded case cannot succeed.
There is also the issue of the validity of the HSBC votes. The details included with 8IP's solicitor's letter dated 27 November 2018 and in the affidavit of Angela Pearsall sworn 30 November 2018 (which details were confirmed by the affidavit of Martin Jones sworn 20 February 2019), provide a complete defence to the pleaded allegation made in the amended statement of claim that the HSBC votes were not valid. As set out in the letter from Aurora's solicitors dated 27 February 2019, Aurora accepted that Boardroom did in fact hold original or certified copies of the HSBC and Bond Street powers of attorney. This is another basis on which Aurora's case could not succeed.
The situation in this case is, therefore, to be contrasted with the position in Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84, where substantive issues in dispute remained between the parties which may have meant the outcome of the case would have been different notwithstanding the making of an order which permanently restrained the defendant from using any confidential information. In that case, the defendant did not acknowledge that it possessed, used or intended to use any confidential information as defined.
It is also to be contrasted to the situation in Freelancer International Pty Ltd v Matthew O'Kane [2019] NSWSC 159. There the Court ordered the defendant to pay costs even though the plaintiff had discontinued the proceedings having regard to the unreasonableness of the defendant's conduct
This is also not a case where some subsequent event led to the future prosecution of the case being futile, such as in Re Minister for Immigration and Ethnic Affairs (Cth); Ex Parte Lai Qin (1997) 186 CLR 622, where the decision of the Minister made after the commencement of proceedings meant there was no need for the case to continue.
Here, there has been no supervening event, such as a decision made after the commencement of proceedings to correct irregularities with votes, which rendered the proceedings futile.
Aurora accepted that the proceedings should be dismissed upon becoming aware of the correct facts regarding the validity of the HSBC proxy votes and the number of Bond Street votes cast. Those facts have not changed.
They are also facts which could, and should, have been ascertained by Aurora prior to the commencement of the proceedings if proper enquiries were made, such as enquiries to Boardroom, Bond Street or HSBC. It is accepted by Aurora that it did not raise the alleged irregularities or make enquiries about the number of the custodian defendants' proxy votes with the custodian defendants prior to commencing the proceedings on 18 September 2018. Aurora also conceded, rightly in my view, that notice should have been provided to all the defendants, in the usual way, and not simply to 8IP prior to the proceedings being commenced.
Further, and as submitted by the defendants, the facts regarding the number of votes cast by Bond Street and the validity of the HSBC proxy could have been ascertained without the need for these proceedings if Aurora had utilised other procedures available to it. Those procedures included commencing preliminary discovery proceedings in this Court under r 5.3 of the UCPR.
For whatever reason, Aurora chose not to make those enquiries or utilise those other procedures in order to ascertain the correctness of the facts which were fundamental to its pleaded case. It is not reasonable for Aurora to avoid the usual costs order that follows from the dismissal of proceedings when appropriate pre-litigation enquiries or the utilisation of alternative procedures could have confirmed the correct facts and thereby avoided these proceedings altogether.
There are other aspects of Aurora's conduct that support a finding that it has not acted reasonably in relation to these proceedings. These, and the above aspects, are also relevant to the issue of whether an indemnity costs order should be made in this case.
The first of these is the way in which these proceedings were commenced.
Aurora accepted that the proceedings came about following a verbal report detailing the inspection of records held by 8IP. That inspection identified not that the custodian defendants' proxies were invalid, but that it was unclear whether 8IP had received the original or a certified copy of the original power of attorney for the custodian defendants. The results of that inspection were at best equivocal, and as it turned out, inaccurate.
At the hearing, Aurora also accepted that the allegation in the amended statement of claim as to the number of votes cast by the custodian defendants was not based on the visual inspection of documents by their lawyer on 5 June 2018. It appears that Aurora pleaded the number 4,006,176 assuming that Bond Street cast votes for all 77 of its separate holdings when, in fact, it did not. An inspection of the Bond Street proxy forms should have revealed that 2,304,150 votes were cast. Aurora could have identified this had it had made enquiries with Bond Street or Boardroom regarding the number of proxy votes cast prior to commencing proceedings.
The verbal report of the inspection may have provided a proper basis for further enquiry. However, there is a real question as to whether it was sufficient to provide a reasonable factual foundation for the allegations in the statement of claim and the amended statement of claim, consistent with the requirement to ensure that proceedings facilitate the just resolution of the real issues in dispute: Civil Procedure Act s 56.
There is also force to the submission made by HSBC that the proceedings should have been commenced in the Corporations List of this Court, which would have required a supporting affidavit stating the facts in support of its claim: Supreme Court (Corporations) Rules r 2.4.
The second aspect relates to Aurora's continuation of the proceedings until 5 March 2019 despite being on notice of the factual deficiencies with its claims regarding the validity of the HSBC proxies and number of votes cast by Bond Street.
The defendants repeatedly raised these deficiencies with Aurora's solicitors, starting from 13 June 2018 (before proceedings were commenced), when 8IP's solicitors noted that the outcome of the meeting would not have changed even if all of the custodian defendants' proxies were invalid. Accepting that the number of proxy votes referred to in that letter was incorrect in respect of Bond Street, the issues regarding the number of votes cast and the validity of the proxies were squarely raised.
Aurora was also on notice about the deficiencies with the allegations in respect of the HSBC proxies soon after the proceedings were commenced, including via a letter from HSBC's solicitors on 15 October 2018, confirming that HSBC had sent its proxy to Boardroom and that it was validly executed pursuant to the power of attorney held by Boardroom.
On 27 and 30 November 2018, and in response to Aurora's written request, Aurora was then provided with documentary evidence by 8IP's solicitors and an affidavit filed on behalf of HSBC supporting the validity of HSBC's proxies and defence of the claim.
This, however, only led to Aurora making an offer on 20 December 2018 to discontinue the proceedings with no orders as to costs.
The deficiency regarding the number of Bond Street votes was confirmed by a letter from the solicitors from Bond Street dated 22 January 2019.
Third, it was unreasonable for Aurora to have adopted the position, which it seems to have done, that the defendants had to provide incontrovertible evidence of their defence and demonstrate the deficiencies in Aurora's case before offering to discontinue the proceedings with no orders as to costs. I accept 8IP's submission at the hearing, that it is "turning things on its head" for Aurora to commence the proceedings by way of an oral report without its own documentary evidence, but to then expect the defendants to provide the factual information it should have identified for itself and be able to discontinue without any adverse costs order.
Fourth, while accepting that an abandonment of an unwinnable point or claim by itself may not warrant an indemnity costs order (Ghougassian v Fairfax Community Newspapers Pty Ltd [2015] NSWCA 307), Aurora continued its action where it and its advisors should have known that there were no prospects of success: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and Others (1988) 81 ALR 397 at [400] - [401].
From 28 November 2018, when the HSBC proxy documents were provided, and certainly by no later than 22 January 2019 when the number of Bond Street votes were confirmed, Aurora and its advisors should have known that they had no prospects of success on the pleaded case. Aurora delayed in consenting to a dismissal of the proceedings after this occurred, causing the defendants to incur further costs.
Fifth, while the defendants did not make any offers of compromise under the UCPR, the defendants offered to discontinue on the basis of no order as to costs as early as 15 October 2018. Further offers inviting Aurora to discontinue the proceedings were made by 8IP on 28 November 2018 and by the custodian defendants on 29 November 2018.
In the context where documentary evidence relating to the validity of the HSBC proxies was provided with 8IP's letter dated 28 November 2018 and costs had already been incurred by the defendants, the offers made on 28 and 29 November 2018 represented a compromise which could have been accepted. Aurora has also been on notice that it was on risk of an indemnity costs order being sought against it if it continued with its case since that time.

Should the Court make an indemnity costs order?

The Court has the power to order indemnity costs in appropriate cases: Civil Procedure Act s 98; UCPR r 42.5.
A party seeking an indemnity costs order typically must show some special or unusual feature, such as conduct that is unreasonable or delinquent: In the matter of Australasian Barrister Chambers Pty Ltd (in liquidation) [2017] NSWSC 695; Oshlack v Richmond River Council (1998) 193 CLR 72; Ingot Capital Investments Pty Ltd and Others v Macquarie Equity Capital Markets Ltd (No. 7) (2008) 65 ACSR 324; [2008] NSWSC 199. The conduct must be connected to the litigation itself, in the way the litigation is conducted, as opposed to the facts giving rise to the litigation: Mead v Watson as liquidator for Hypec Electronics (2005) 23 ACLC 718; [2005] NSWCA 133 at [8]-[9].
An order for indemnity costs is not made to punish an unsuccessful plaintiff for persisting with a case that fails, but to compensate a successful defendant for costs incurred, when the Court takes the view that it was unreasonable for the plaintiff to have subjected that party to the expenditure of costs: Hamod v State of New South Wales (2002) 188 ALR 659; [2002] FCA 424 at [20].
Many of the aspects regarding the way in which Aurora has conducted this case, as referred to above, could be considered to be a special and unusual circumstance justifying an indemnity costs order in this matter.
HSBC also submitted that an indemnity costs order should be made as the commencement of the proceedings were an abuse of process, lacking as they did the material factual basis needed to support the claim and because the pleading was hopeless in law.
While there is force to that submission, in the absence of a hearing on the merits of the dismissal application, I am not prepared to find that the commencement of the proceedings itself amounted to an abuse of process which justifies an award of an indemnity costs from the start of these proceedings.
To my mind, it is the combination of the aspects referred to above with the decision by Aurora to continue with the proceedings after receiving documents supporting the validity of the HSBC proxies on 28 November 2018 that justifies an indemnity costs order in this case. From that date, Aurora was clearly on notice that the factual foundation of the assertions in respect of the HSBC proxies was flawed and the pleaded case against the defendants could not succeed. It was, therefore, unreasonable for Aurora to have subjected the defendants to further costs from that time, in particular, the costs associated with the notices of motion seeking a dismissal of the proceedings.
Accordingly, I have concluded that it is appropriate to order that Aurora pay the defendants' costs on an indemnity basis from 29 November 2018.

Orders

For the above reasons, I make the following orders: 1. By the consent, the proceedings are dismissed pursuant to rule 13.4 of the Uniform Civil Procedure Rules 2005 (NSW). 2. The plaintiff to pay the defendants' costs of the proceedings: 1. from 18 September 2018 to 28 November 2018 inclusive on ordinary basis; 2. from 29 November 2018 on an indemnity basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 March 2019

Uniform Civil Procedure Rules 2005(NSW)rr 5.3, 13.4, 14.28, 42.5, 42.20

Civil Procedure Act 2005(NSW)ss 56, 57, 58, 59, 60, 98, s 98.

Corporations Act 2001(Cth)ss 247, 249F, 1322

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (9 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (16)

Cited By (1)