Australian Securities & Investments Commission v Kyriackou

REASONS FOR JUDGMENT 1 The Australian Securities and Investments Commission ("ASIC") commenced an action alleging that six related companies (the "Australvic group") and Michael Kyriackou (an ex-director of several of the companies) were operating a managed investment scheme which was required to be, but was not, registered under Pt 5C.1 of the Corporations Act 2001 (Cth). It also alleged that the Australvic group of companies were trading while insolvent, had failed to keep proper books and records and that Mr Kyriackou had improperly diverted the companies' funds for his own use. Orders were sought for: (a) the winding up of the scheme; (b) the removal and replacement of the liquidator of the second defendant; and (c) the winding up of the third to seventh defendants. 2 ASIC now seeks to discontinue the action for three reasons. First, part of the relief sought by ASIC is no longer necessary. Since the commencement of the action the fifth and sixth defendants have been deregistered and the liquidation of the third defendant is imminent. Second, ASIC is of the opinion that the fourth and seventh defendants pose no risk to the public interest given the cessation (as has occurred) of the alleged scheme. Third, ASIC does not wish to incur the disproportionate costs that would be involved in a trial dealing with only the fourth and seventh defendants. 3 Order 22 of the Federal Court Rules requires ASIC to obtain leave to discontinue the action. That course will not be opposed. What is in issue is whether ASIC must pay Mr Kyriackou's costs of the proceeding to date. 4 For this purpose, Mr Kyriackou served ASIC with a notice to produce which, in substance, calls for the production of all ASIC files brought into existence since the investigation into the Australvic group commenced. The notice to produce also seeks production of ASIC's files in relation to a number of individuals who are not parties to this suit. The reason these documents are sought is for Mr Kyriackou to establish his central proposition on costs; namely that from the outset of this action ASIC's case against the defendants was bound to fail. If the documents support that contention they will no doubt be tendered in support of his costs argument. Mr Levine, who appeared for Mr Kyriackou, indicated that Mr Kyriackou would seek costs on an indemnity basis. 5 In effect what Mr Kyriackou is attempting to achieve, if he finds the evidence to support his contention, is to have a trial of the action solely for the purpose of achieving a favourable costs order. The question I must resolve is whether Mr Kyriackou is entitled to take that course. ASIC contends that he is not and has applied to have the notice to produce set aside. 6 I think that the cases are against Mr Kyriackou. It is now well established that a court can determine costs without the need for a trial. Indeed, the view that has been taken is that if a case has settled or has otherwise come to an end there should be no trial for the sole purpose of deciding who should bear the costs. 7 In Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622, 624 McHugh J said: In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. 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. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In support of this passage McHugh J cited the decision of Hill J in Australian Securities Commission v Aust‑Home Investments Limited (1993) 44 FCR 194. In that case Hill J considered the circumstances in which a court could make a costs order without a trial. After referring to several English and Australian cases he stated (at 201) the following propositions: (1) Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order. (2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial. This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue. (citations omitted) 8 In Chapman v Luminis Pty Ltd [2003] FCAFC 162, [7] the Full Court said: [W]here a proceeding terminates before there has been a hearing, the Court should not resolve the issue of costs by engaging in something in the nature of a hypothetical trial: Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201. 9 More recently in Champagne View Pty Ltd v Shearwater Resort Management Pty Ltd [2000] VSC 214, Gillard J considered making a costs order in an action which was discontinued before trial. He said (at [49]) that it may be possible to adduce evidence on the question of costs. However he went on to say that "the evidence must be confined and not venture into areas of disputed fact". See also Ziegler v Piva (No 3) [2005] VSC 331, [20] and [21]. 10 It is a very sensible rule that where an action has been settled or is to be discontinued that costs should be determined without a trial. Not only is the trial hypothetical, in the sense that there is no longer a controversy about the substantive issues raised in the litigation, it would be extraordinarily wasteful, both of the court's time and the parties' resources, to require a trial solely confined to costs. Unless there was direct authority requiring me to impose a trial, I would not do so. I can find no such authority. 11 I will make an order that ASIC is not required to comply with the notice to produce. It should have its costs of the application. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.