Australian Unity Funds Management Limited v NorthWest Healthcare Australia... [2021] NSWSC 1039 | Case summary

The applicable principles as to costs

AUFM seeks an order that NorthWest pay its costs of the proceedings, including its costs of NorthWest's Cross-Summons filed on 11 June 2021, or alternatively that there be no order as to costs between AUFM and NorthWest in respect of the proceedings.
Mr Crutchfield outlined, at some length, the chronology of events as it emerged from Mr Mead's affidavit. Mr Crutchfield also referred to the Court's powers with respect to costs under s 98 of the Civil Procedure Act 2005 (NSW) and noted that s 93(2) of the Trustee Act 1925 (NSW) dealt with the costs of the proceedings brought under that Act and provided that: "The Court may order the costs charges and expenses of and incidental to any application or any order under this act … to be borne and paid in such manner and by such persons as to the Court may seem just."
I bear in mind that a successful party has a "reasonable expectation" of being awarded costs against an unsuccessful party, unless there is good reason for that presumption to be displaced: Oshlack v Richmond River Council (1998) 193 CLR 72; (1998) 152 ALR 83; [1998] HCA 11 at [22], [134]. In Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121], Hodgson JA (with whom Mason P agreed) observed that: "… underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs." That observation was cited, with apparent approval, by the Court of Appeal in Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [98]. Here, however, there has been no determination of the proceedings on their merits.
Mr Crutchfield also referred to UCPR r 42.19 which deals with the position where proceedings are discontinued in accordance with UCPR r 12.1 and relevantly provides that: "Unless the Court orders otherwise or the notice referred to in rule 12.1(2) otherwise provides, the plaintiff must pay such of the defendant's costs as, at the date on which the notice of discontinuance was filed, have been incurred by the defendant in relation to such claim in respect of which the proceedings have been discontinued."
In Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274, McColl JA (with whom Beazley JA agreed) observed that the "default order" in the similar provision in UCPR r 42.20 does not establish a presumption that costs will be ordered against the plaintiff upon the dismissal of the proceedings, and other relevant considerations included those identified in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624-625; (1997) 143 ALR 1; [1997] HCA 6. Santow JA there agreed with that observation and also noted that the onus is on a discontinuing party to justify such an order by reference to the normal costs outcome in such an event. An order contrary to the "default" order will involve an exercise of discretion to depart from that position contemplated by the rule, where "some sound positive ground or good reason for departing from the ordinary course" is established: Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [10], [54]; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [54] per Hodgson JA. The fact that parties were justified or acted reasonably in commencing or defending the proceedings may but will not necessarily support a departure from the provision of the UCPR: Australiawide Airlines at [64].
Ms Wong refers to Metro Hotel Sydney Pty Ltd v Kol Tov Pty Ltd [2010] NSWSC 1195, where proceedings were compromised by the parties after they became otiose, following the sale of a hotel which brought the management agreement that was in issue to an end. Hamilton AJ there noted that the similar provision in UCPR r 42.20 extends, on appellate authority, to dismissals by consent as well as dismissals after a hearing and to that extent intrudes upon the approach laid down in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622. His Honour there held that there should be no order as to costs as between the parties, where the occurrence of that supervening event had led to a compromise of the proceedings and there had been no unreasonable conduct on the part of the defendants. I bear in mind that these proceedings have not been resolved by consent, although the parties here rightly recognised that there was little utility in proceeding to a unitholder meeting where the resolution was bound to fail.
In McNamara v San [2010] NSWSC 809 at [12], Hallen AsJ (as his Honour then was) summarised the principles applicable to the similar provision in UCPR r 42.20 as follows: "The following principles may be regarded as relevant in determining who is to bear the burden of costs in a case where the proceedings are dismissed before a final hearing: (a) Costs discretions are truly discretionary: see Oshlack v Richmond River Council (1998) 193 CLR 72 at 84 and there are no absolute rules; (b) The purpose of a costs order is to compensate, or indemnify, the person in whose favour it is made, not to punish the person against whom it is made: Ohn v Walton (1995) 36 NSWLR 77 at 79 per Gleeson CJ; (c) Rule 42.20 of the UCPR does not give rise to a presumption that costs will be ordered against the Plaintiff: Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497; Foukkare v Angreb Pty Limited [2006] NSWCA 335 at [65]; Pentroth Pty Ltd v Kirschild Pty Ltd (2006) 96 SASR 129; Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [53]; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32. However, the rule does create a starting point by requiring "… the plaintiff must pay the defendant's costs of the proceedings …" unless that outcome is displaced by a discretionary decision ("unless the court otherwise orders"); (d) Generally, there must be some proper justification, sound positive ground, or a good reason, for departing from the ordinary position: Fordyce v Fordham at [2] per Santow JA; Australiawide at [54] per Bryson JA; circumstances in which it has been held appropriate to depart from the ordinary position include where the proceedings have been rendered unnecessary by circumstances beyond the plaintiff's control; where the plaintiff achieved practical success in the proceedings, or where costs have been significantly increased by the unreasonable conduct of the defendant. (e) The Plaintiff should be the moving party on an application for an alternative costs order: Bitannia at [70] per Basten JA. If facts are to be relied upon to found the court making a different order, the Plaintiff will bear the onus of proving the relevant facts; (f) Where the proceedings are dismissed prior to any hearing on the merits, "the Court cannot try a hypothetical action between the parties" to determine the question of costs: Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201; Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624; Metro Chatswood Pty Ltd v CRI Chatswood Pty Ltd [2007] NSWSC 1120 at [35]; (g) It may be necessary to analyse the whole of the proceedings to determine the appropriate costs order: Fordyce at [67] per McColl JA. A relevant consideration is whether the Plaintiff acted reasonably in commencing the proceedings and whether the defendant acted reasonably in defending them: Australian Securities Commission v Aust-Home Investments Ltd at 201 (cited with approval in Foukkare); all the relevant circumstances, and not just the fact of dismissal, should be considered; (h) It is also 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 by the successful party. It is the latter type of case that usually creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs: One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 at 553; cited with approval in Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 per Davies AJA (with whom Mason P and Meagher JA agreed) at [5]; (i) The distinction between the two categories referred to above is often helpful in exercising the costs discretion, notwithstanding that neither category can be precisely defined, the boundary between them is unclear and other factors may be relevant: Bitannia per Basten JA at [79]-[81]; Perre v State of New South Wales [2009] NSWLEC 51 at [49]; (j) The rule requires the court to make such order as it thinks just in the particular circumstances of the case."
That summary was cited with apparent approval by Kunc J in Spatt v Benson [2019] NSWSC 1195 at [64] and I followed it in Parlby v Blair [2013] NSWSC 100 at [11]ff and in Re Myao Travel Pty Ltd [2020] NSWSC 1672 at [6]ff, on which I have partly drawn for these observations as to the case law.

The parties' submissions and determination

Mr Crutchfield submits that there is a sound positive ground or good reason for the Court to exercise its discretion to order that NorthWest pay AUFM's costs of the discontinued proceedings. He submits that NorthWest's unsolicited "trust scheme" necessitated the application for judicial advice and raised novel issues. I accept that NorthWest's proposal, at a factual level, prompted the application for judicial advice and I also accept that that application was properly brought, where NorthWest's proposal raised significant issues as to the legitimacy of a proposal by which one unitholder would acquire all of the units owned by other unitholders, at a specified price, where some unitholders whose units would be acquired would not be excluded from voting on that transaction. Mr Crutchfield also refers to a letter sent by ASIC to NorthWest's solicitors, at a late stage of the proceedings, which raised issues which overlapped with those raised by AUFM. It seems to me that the fact that the corporate regulator raised similar issues also provides some support for the proposition that those matters would properly concern the responsible entity of an unlisted trust so as to warrant an application for judicial advice. However, I am not persuaded that the costs of the proceedings should be ordered against NorthWest merely because its proposal to acquire the units of other unitholders was the factual occasion for the application for judicial advice or raised novel issues that required the responsible entity to seek that judicial advice. The fact that a party takes a commercial action which may require a trustee to seek judicial advice does not seem to me to support a view, generally or in this case, that costs should be ordered against that party.
Mr Crutchfield also submits that AUFM has achieved "substantial practical success" in the proceedings on the basis that its rejection of the NorthWest proposal as "contrary to the interests of unitholders" was "ultimately vindicated by the substantial number of votes cast" by AUHPT unitholders against the NorthWest proposal. I do not accept that submission. AUFM's success in the judicial advice proceeding would be measured by the determination of the issues that needed to be addressed, not by the question whether NorthWest's proposed acquisition of units in AUHPT proceeded or did not proceed, and the votes of those unitholders establish only that they did not consider NorthWest's proposal was sufficiently attractive to vote for it, rather than that it was "contrary to the interests of unitholders". All things being equal, it would likely have been in unitholders' interests to have the opportunity to consider that proposal, notwithstanding that a significant number of them ultimately did not favour it.
For these reasons, I do not accept AUFM's submission that this is an appropriate case for the Court to order that NorthWest pay AUFM's costs of the proceedings. AUFM also seeks an order, for substantially the same reasons, that NorthWest pay AUFM's costs of NorthWest's Cross-Claim, which would also be discontinued on the basis that the proposal was withdrawn. For substantially the same reasons, I am not persuaded that such an order should be made.
Ms Wong in turn refers to the circumstances in which it became apparent that more than 25% of the total value of units on issue in AUHPT had been voted against the proposal, and submits that, from the commencement of the application until 14 July 2021, AUFM actively opposed the proposal and recommended to unitholders that they voted against it. Ms Wong also refers to the question of the appointment of proxy collection agents by each of AUFM and NorthWest, although that issue was not raised in the course of the application and it seems to me that the proposition that it had any impact on when it became apparent that the majority of unitholders would vote against the proposal is speculative at best.
Ms Wong submits, and I have accepted above, that this is not a situation where AUFM has achieved "practical success" in the proceeding because, although the proposal has not gone forward, the issues which were the subject of the proceedings have not been determined on their merits.
Ms Wong also submits that this is not a situation where the proceedings have been rendered unnecessary by circumstances beyond AUFM's control, and points to the fact that AUFM was actively opposing the proposal, at the same time it was seeking judicial advice. While it is apparent that AUFM opposed the proposal, it seems to me the votes of independent unitholders were beyond both parties' control, and it can properly be said that the proceedings were rendered unnecessary by the exercise of independent unitholders' decision whether to vote for or against a proposal. AUFM submits, in reply, and I accept, that the unitholders meeting ultimately did not proceed by reason of NorthWest's conduct in withdrawing its proposal, which is plainly a matter that was outside AUFM's control.
Ms Wong also submits, and I accept, that this is not a case where NorthWest has effectively surrendered in relation to the subject matter of the proceedings, or where AUFM was almost certain to have succeeded in respect of the complex issues as to which judicial advice had been sought, or where it could be said that either party had acted unreasonably in relation to the proceeding.
Ms Wong submits that that the starting point under UCPR r 42.19 is that AUFM would be required to pay NorthWest's costs of the proceedings unless the Court otherwise orders, and she submits there is no sound positive ground or good reason from departing from that starting point. I do not accept that there is no sound reason for departing from that starting point in respect of either AUFM's claim or NorthWest's Cross-Claim, where AUFM appropriately brought the judicial advice application, it has not been determined on its merits and the proceedings are now unnecessary for the reasons noted above. Ms Wong also refers to UCPR r 42.1 which provides that, subject to UCPR Pt 42, if the Court makes an order as to costs, it is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. It seems to me that that provision has no application here where, as will typically be the case where proceedings are mooted by events, there is no "event" by way of a determination on the merits from which costs should follow. I have not neglected the fact that, in an annexure to her submissions, Ms Wong also addressed the substantive issues raised by the judicial advice application. It seems to me that it would plainly not be appropriate for me to express a view as to those issues, which are potentially of considerable significance in respect of unlisted managed investment schemes, where the matter has not gone to a substantive hearing.
In the alternative, Ms Wong submits that, if there are grounds from departing from the starting point under UCPR r 42.19, then the appropriate order is that each party bear their own costs. I accept that submission for the reasons noted below. Ms Wong also submits that, as to the question of the costs of four interlocutory processes in the proceeding, AUFM should pay NorthWest's costs of its application to have the confidentiality restrictions lifted and each party should bear their own costs of the other interlocutory processes. I do not consider it necessary or appropriate to make orders in respect of the costs of particular interlocutory processes, which are best treated as aspects of the conduct of the proceedings generally, to be resolved in the same manner as the costs of the proceedings generally.
It seems to me that there is good reason, in respect of both AUFM's claim and NorthWest's Cross-Claim, to depart from the usual rule that the discontinuing party pay the costs of the discontinuance, and to order that there be no order as to the costs of the discontinuance, with effect that AUFM and NorthWest will each bear their respective costs of the application for judicial advice, subject to their respective rights of indemnity against the funds of which they are trustees. One of the circumstances recognised in the case law in which the starting point that a plaintiff must pay the defendant's costs of the proceedings is displaced is where the proceedings are rendered unnecessary by circumstances beyond the plaintiff's control, and the case law also recognises that the Court should not "try a hypothetical action between the parties" to determine the question of costs and the relevance of whether the parties respectively acted reasonably in commencing and defending the proceedings in all the relevant circumstances. Here, issues of substance were raised by the application and not determined on their merits; the proceedings were ultimately unnecessary because a sufficient number of unitholders voted against NorthWest's proposal such that it could not succeed and NorthWest then sensibly withdrew it; and there is no basis to find that either party did not act reasonably in advancing or addressing the issues raised in the application for judicial advice and in the Cross-Claim.
I note, for completeness, that NorthWest sought to reserve its position as to whether AUFM would be entitled to have its costs paid out of the assets of AUHPT. It does not seem to me that it was entitled to do so. If it sought to contend that AUFM was not entitled to its costs as a trustee pursuant to cl 8.3 of AUHPT's constitution or s 59(4) of the Trustee Act, then now was the time to advance that contention. It has not done so and AUFM's entitlement to rely on the indemnity under the Trust Deed and under the Trustee Act is not limited by the orders for costs that I will make.

Australian Unity Funds Management Limited v NorthWest Healthcare Australia RE Limited

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (8 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (25)

Cited By (11)