Australian Securities & Investments Commission v Craigside Company Limited

Application for costs by second and third defendant 1 The issue between the parties at this stage is one of costs. 2 I will deal first with the question whether there should be any order in favour of Mr Merity and Mr Nedderman for what is usually referred to as party/party (as opposed to indemnity) costs, recognising that Mr Nedderman has an additional claim for indemnity costs. 3 The focus of the claims of Mr Merity and Mr Nedderman is that whatever might have happened along the way, ultimately, ASIC abandoned all of its claims against each of them. Accordingly, they contend that this is a case falling within the class identified in, amongst other decisions, ONE. TEL Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270 at [6], in particular the observation that: …it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other should bear the costs. 4 ASIC's position is that the matter involves a supervening event which has removed or modified the subject of the dispute. ASIC describes the supervening event as a series of circumstances arising from the history of this matter. In particular, it draws attention to the fact that when the proceedings were commenced Mr Merity and Mr Nedderman were necessary parties to the proceedings as they had an interest or potential interest in the property the subject of the proceedings (some shares). Moreover, and thereafter, Mr Merity and Mr Nedderman actively defended the proceedings by filing points of defence which opposed the relief sought in the originating process. Further, although expressly asked whether they wished to continue to participate in the proceedings, they gave no indication other than that they would be active parties. 5 ASIC acknowledged that when it filed and served a statement of claim on 9 August 2012 which for the first time alleged that Mr Merity and Mr Nedderman had each contravened ss 671B and 672B of the Corporations Act 2001 (Cth) (the Act), it sought no relief against them. Nevertheless, ASIC contended that it was clear from that time that ASIC was alleging contraventions of the statutory scheme by each of Mr Merity and Mr Nedderman. Both filed defences on 12 October 2012, and while they both consented to the relief sought (subject to the making of additional orders) both also put forward a positive case as to ownership of the disputed shares. In addition, ASIC points out that in these defences Mr Merity and Mr Nedderman did not seek any order for costs against ASIC; to the contrary, the defences said that ASIC should be paid its costs of the proceedings from the proceeds of sale. Although it was not until 9 November 2012 that ASIC filed an amended originating process which added claims for the first time seeking relief against Mr Merity and Mr Nedderman, (the relief being declarations of their alleged contraventions of ss 671B and 672B of the Act), these declarations did nothing more than reflect the allegations which had been made in the statement of claim filed on 9 August 2012. 6 The primary supervening event from ASIC's point of view is that after it filed the amended originating process on 9 November 2012, Mr Merity and Mr Nedderman both filed interlocutory applications seeking a dismissal or stay of the proceedings on the basis that the proceedings against them could not be maintained in circumstances where it was apparent that they were also the subject of investigation by ASIC for the purpose of possible criminal prosecutions. 7 On 4 March 2013, I heard the interlocutory applications resulting in my judgment of 11 March 2013. I made orders that the proceedings be stayed, effectively for a period of six months, to enable ASIC to determine its position, but the stay applied only to the claims involving Mr Merity and Mr Nedderman (Australian Securities & Investments Commission in the matter of Northwest Resources Limited v Craigside Company Limited BVI company number 74124 named in the Schedule [2013] FCA 201). ASIC characterises the stay as the primary supervening event which affected the future conduct of the proceedings. 8 When the matter came before me again on 22 October 2013, Mr Merity and Mr Nedderman maintained that the proceedings against them should be dismissed because at that time, despite the stay having been in place for six months or so, ASIC had not given any indication whether it would or would not be referring a prosecution brief to the Commonwealth Director of Public Prosecutions. I listed the matter on 28 November 2013 to determine their future conduct. On that day, ASIC filed a further amended originating process which deleted all allegations against Mr Merity and Mr Nedderman and also deleted the relief that had been sought against them. In other words, ASIC decided to continue the proceedings but without any claims being made or relief sought against Mr Merity or Mr Nedderman. Despite this, ASIC maintained that Mr Merity and Mr Nedderman should remain parties to the proceedings. The question which inevitably arose was why ASIC was maintaining the proceedings against Mr Merity and Mr Nedderman. The transcript of the hearing on that day discloses that it ultimately emerged that ASIC's concern was to ensure that Mr Merity and Mr Nedderman would be bound by whatever orders were made as a result of the final hearing on the basis of a belief that this would preclude them from claiming the proceeds of the sale of the shares in dispute. On this becoming clear, Mr Nedderman offered a form of undertaking (that Mr Merity then also offered) which appeased ASIC's concern. I made orders dismissing the proceedings against Mr Merity and Mr Nedderman. 9 ASIC says that this course of events shows that there were supervening circumstances, that it by no means has surrendered in any way to Mr Merity and Mr Nedderman, and that because there has been no hearing on the merits it is necessary to examine whether (and it should be accepted that) ASIC commenced the proceedings reasonably and maintained them reasonably at all times thereafter. 10 The difficulty with this submission, in my view, is that it simply does not confront the reality of what occurred on 28 November 2013. 11 There is no escaping the fact that on 28 November 2013 ASIC, whatever its motivations, put forward a pleading which sought no relief against Mr Merity or Mr Nedderman and pursuant to which Mr Merity and Mr Nedderman could no longer be said to be proper parties to the proceedings. Although ASIC sought to maintain them as parties, ASIC's concern (when finally discovered) was not a proper basis for maintaining the proceedings against Mr Merity and Mr Nedderman. More to the point for the purposes of current applications for costs, it is apparent from the further amended originating process that ASIC abandoned all of its civil claims against Mr Merity and Mr Nedderman. It follows that this is a case where, after litigating for some time, ASIC effectively surrendered in these proceedings to Mr Merity and Mr Nedderman. It cannot be said that the stay is some form of supervening event. The stay was inherent in ASIC trying to maintain civil proceedings against Mr Merity and Mr Nedderman in circumstances where ASIC was also apparently actively investigating them for the purpose of referral for potential criminal prosecution in respect of the same conduct. ASIC was the one in control of the civil litigation it brought and what form of orders it sought. In these circumstances, ASIC cannot escape the consequence of having effectively abandoned every claim against Mr Merity and Mr Nedderman. 12 It is for this reason that Mr Merity and Mr Nedderman are entitled to an order for costs on the ordinary party/party basis of the proceeding, subject, of course, to whatever other costs orders have already been made.