Solicitors:
Deutsch Miller (Applicants)
Arnold Bloch Leibler (Respondents)
File Number(s): 2017/194171
[2]
Judgment
By my judgment delivered on 27 April 2018 ([2018] NSWSC 527) ("Judgment"), I granted leave, on a final basis, for the continuance of derivative proceedings brought by the Applicants, Mr Keith Redenbach and Mr Campbell Ray, in the name of Legal Practice Management Group Pty Ltd, nSynergy Pty Ltd and nSynergy International Pty Ltd ("Respondent Companies"). That application was opposed by the Respondent Companies, which are presently under the control of Mr Karl Redenbach and Mr Peter Nguyen-Brown.
I observed, in paragraph 101 of the Judgment that:
"I should also note that the question of the costs of this application remains to be determined. Section 98(1) of the Civil Procedure Act provides that costs are in the discretion of the Court and r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) provides that, subject to Part 42, if the Court makes any order as to costs, the Court is to order that the 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 those costs. Section 242 of the Corporations Act also deals specifically with orders for costs in respect of an application for leave under s 237 of the Corporations Act, and provides that the Court may at any time make orders it considers appropriate about the costs of, inter alia, the person who applied for or was granted leave, the company or any other party to the proceedings or application, and that an order under that section may require indemnification for costs. One possibility is that the costs of the application, or some part of them, should be the Applicants' costs in the cause of the substantive proceedings: Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 1159 at [19]; Re Imperium Projects Pty Limited [2015] NSWSC 123. Dr Higgins has also foreshadowed an issue as to the extent to which costs should be allowed, given the Applicants' changed approach to whether they would personally give an indemnity, in the course of the second day of the hearing. I will determine the question of costs on written submissions, if the parties are unable to reach agreement as to that question."
I directed the parties to bring in agreed Short Minutes of Order to give effect to the Judgment and, in the event of any disagreement between them, their respective draft orders and short submissions as to differences between them. The parties agreed as to the substantive orders necessary to give effect to the Judgment, and I noted several matters and made several orders in Chambers on 15 May 2018. The parties did not, however, reach agreement as to costs and each made submissions in that regard.
It is common ground between the parties that, pursuant to s 242 of the Corporations Act 2001 (Cth), the Court may make an order that it considers appropriate about the costs of specified persons in relation to proceedings to be brought under s 237 of the Corporations Act, or an application for leave under that section, and that s 98 of the Civil Procedure Act 2005 (NSW) provides that costs are in the discretion of the Court, and that discretion is to be exercised in accordance with the principles set out in Part 42 of the Uniform Civil Procedure Rules 2005 (NSW). Generally, 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, in accordance with r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW). 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] HCA 11; (1998) 193 CLR 72 at [134]. In Commonwealth of Australia v Gretton [2008] NSWCA 117, Hodgson JA (with whom Mason P agreed) observed at [121] 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].
The Applicants submit that an order should be made that the Respondent Companies pay 90% of their costs of the application for leave to bring derivative proceedings, as agreed or as assessed, with such an order to be stayed until final determination of the substantive proceedings or until further order. The Applicants submit that the relevant "event" for the purpose of assessing costs is the grant of leave in favour of the Applicants to bring the proposed proceedings over the Respondent Companies' opposition. The Applicants recognise that, as I had noted in paragraph 101 of the Judgment (which I quoted above), their costs of the application or part of them may be treated as their costs in the cause of the substantive proceedings, consistent with the approach adopted in Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 1159 at [19] and in Re Imperium Projects Pty Ltd [2015] NSWSC 123. They noted that, in the former decision, Sackville AJA had given effect to that approach by ordering that the company pay the plaintiff's costs of the leave application, but staying that order until the conclusion of the statutory derivative proceedings or until further order of the Court. The Applicants' proposed orders adopt that form.
The Applicants accept that, in some circumstances, it may be appropriate to depart from the usual order that costs follow the event, in order to reflect the otherwise successful party's failure in relation to a particular issue, if that issue was dominant or severable or took up a significant part of the trial, either by way of evidence or argument. The Applicants accept that a "small deduction" may be appropriate, by reason that they had offered personal indemnities for the Respondent Companies' costs of the proceedings at a relatively late stage in the application.
The Respondent Companies submit that an order should be made that the Applicants pay their costs of the application on an ordinary basis up to the date on which the Applicants offered personal undertakings to indemnify the Respondent Companies for the costs of the derivative proceedings (26 March 2018) and that costs after that date should be the Applicants' costs in the cause. Alternatively, the Respondent Companies sought an order that the Applicants' costs of the application be discounted by 50% and those discounted costs be the Applicants' costs in the cause.
The Respondent Companies accept that it is for them, as the losing party in the application, to establish a basis for departure from the usual approach that costs follow the event. They submit that one example of conduct where that usual approach may not be applied is where a late amendment substantially alters the case to be met, without which a party would have failed: Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137. They submit that the Applicants' offer of a personal indemnity, first made by Mr Keith Redenbach on the second day of the hearing, "substantially" altered the case that the Respondent Companies had to meet within that principle. They also refer to my observation at paragraphs 91-92 of the Judgment that:
"The position significantly shifted in the course of the hearing, when Mr Keith Redenbach offered a personal indemnity in respect of the costs of the proceedings. By supplementary submissions made, by leave, on 26 March 2018, the Applicants confirmed that each of Mr Keith Redenbach and Mr Ray now offer to indemnify the Respondent Companies against all costs, charges and expenses of and incidental to bringing and continuing the derivative proceedings for which leave is sought. Once such an indemnity was offered, then the deed of indemnity from AmTrust becomes a support for the personal indemnity, rather than the only basis of that indemnity. The Applicants also offered an undertaking regarding the costs of enforcement and registration of any judgment against AmTrust, in respect of the indemnity provided by AmTrust. The Applicants' offer of such an indemnity in their personal capacity supports a conclusion that the proceedings are in the Company's best interests, although there are gaps in the evidence as to the economic benefit of the proceedings and the likely costs of the proceedings.
In supplementary submissions, by leave, the Respondent Companies accepted that the offer of personal indemnities by Mr Keith Redenbach and Mr Ray, in respect of the Respondent Companies' costs of the proceedings, and the offer of an undertaking regarding certain costs of enforcement of the indemnity offered by AmTrust, addressed several of the concerns previously raised by the Respondent Companies as to good faith and as to whether the proceedings are in the Respondent Companies' best interests. The Respondent Companies fairly accepted that neither those offers nor the undertakings as to the costs of enforcement are so worthless as to be deprived of weight in the Court's discretionary consideration, although they point to a submission made by the Applicants that the involvement of the litigation funders indicates that the Applicants need assistance in respect of the costs of the proposed litigation. It does not seem to me that that proposition goes far enough to establish that the personal indemnity offered by Mr Keith Redenbach and Mr Ray does not support a conclusion that the proceedings are in the Respondent Companies' best interests. The Respondents Companies also submit that the lateness of the offer of a personal indemnity by Mr Keith Redenbach and Mr Ray, part way through the second day of the hearing in the case of Mr Keith Redenbach and after the oral hearing in the case of Mr Ray, will be relevant to costs. I will hear the parties as to costs after the delivery of judgment."
The Respondent Companies submit that the offer of personal indemnities substantially altered the case they had to meet and that the Court can be satisfied that the Applicants would have failed without the personal indemnities. The Applicants correctly note that I had addressed, in several areas of the Judgment, matters where the offer of personal indemnities had strengthened the Applicants' position, and had the result that it was not necessary to address other issues that might have caused potential difficulties for their application. It is plain that the matters to which I had referred might well have been significant obstacles to their success, to be weighed in the balance in the evaluation of the factors specified in s 237 of the Corporations Act. However, it was not necessary to find, and I had not found, that the Applicants would have failed but for offer of personal indemnities.
The Applicants respond that they had not previously refused to provide (although I interpolate, they had not offered) personal indemnities, where they relied on indemnity arrangements with an insurer and recognised that they would be liable to personal costs orders to the extent that they were plaintiffs in oppression proceedings, which would be brought in conjunction with the proposed derivative proceedings. They point out that a personal offer to provide an indemnity was made by Mr Keith Redenbach, on the second day of the hearing, and that Mr Ray shortly thereafter made such an offer. They also point out, and I accept, that the absence of a personal indemnity was one of several, or many, objections raised by the Respondent Companies to the grant of leave to bring the derivative proceedings, and that evidence and argument as to that matter occupied a small part of the evidence and submissions at the hearing. The Respondent Companies' other objections to the grant of leave, which were the subject of detailed written submissions and significant hearing time, were not successful, including claims that the Applicants were not acting in good faith and that the proposed proceedings were not in the Respondent Companies' best interests; that redress was available to the Respondent Companies by other means; that the Applicants were not suitable parties to bring the proceedings; that there were various difficulties with the third party funding and indemnity arrangements proposed by the Applicants; and that a serious question to be tried was not established. The length of that list, which is not exhaustive, illustrates the extent of the other issues canvassed in the proceedings.
It seems to me that the large part of the Applicants' case, including as to the nature of the claims proposed to be brought; the existence of a serious question to be tried and several issues relevant to whether the proceedings were in the Respondent Companies' best interests, and the Respondent Companies' opposition to the grant of leave by reference to those matters, was not affected by the issue of the personal indemnities. Rather, those personal indemnities significantly improved the Applicants' position, in respect of a narrow, but important, aspect of the claim.
The Respondent Companies also submit that the giving of personal indemnities was material to the resolution of the application, and that leave was granted on the condition that the personal indemnities be given. There is no doubt that that matter was material to the outcome, in the sense that a range of other issues would have to have been addressed more fully if the personal indemnities had not been given, and there was a real prospect that the Applicants would then have failed in the grant of leave. However, that matter is of lesser significance, where the offer of the indemnities did not significantly alter the scope of the application (as distinct from the Applicants' prospects of success in it) or alter the Respondent Companies' approach of continued opposition to the application on a range of bases.
The Respondent Companies submit that the Court cannot be satisfied that they would have continued to "vigorously resist" the application if the personal indemnities had been given earlier. The Applicants respond, with substantial force, that there is no basis to conclude that the Respondent Companies would have taken a different approach had the personal indemnities been offered earlier. The Respondent Companies continued to oppose the application, on a range of grounds, after the personal indemnities had been offered, initially by Mr Keith Redenbach and then by Mr Ray. They did not, as they could have, withdraw that opposition after both of those indemnities had been offered. In those circumstances, it seems to me that the probability is that the Respondent Companies would have continued to resist the application, and to do so vigorously and on the numerous other grounds on which they in fact resisted the application, even if the personal indemnities had been offered earlier.
For these reasons, I am satisfied that the first form of order proposed by the Respondent Companies should not be made, and the Applicants should have their costs of the leave application on the terms noted below, including for the period prior to the offer of the personal indemnities.
Alternatively, the Respondent Companies submit that there should be a reduction in the costs awarded to the Applicants, on the premise that they "would have failed but for the indemnities". As I noted above, the Applicants accept that proposition but the parties differ as to the extent of that reduction. The Respondent Companies submit that they incurred wasted costs in addressing a number of matters which became less significant after the offer of the personal indemnities, including issues as to the scope of the litigation funding agreement and insurance indemnity. They also submit that those "wasted costs" are the result of their preparing to meet an application that was brought on one basis, with that position significantly shifting during the hearing. I do not accept that submission, where it is likely that those criticisms would have been put in any event, and they were not abandoned after the offer of personal indemnities was made.
The Applicants responded, and I accept, that it would be unjust, or at least disproportionate, if they were deprived of their costs of the application up until the time the personal indemnities were offered, where the majority of submissions and hearing time before that point were directed to other issues, including much of the first hearing day being directed to the merit of the proposed derivative claims, which needed to be addressed where the Respondent Companies did not concede that a serious question to be tried had been raised. As I noted above, the Applicants accept that there should be a small deduction from their costs to take account of the late provision of personal indemnities and submit that that deduction should be no more than 10%, as reflected in their proposed orders. It seems to me that that deduction is a reasonable estimate of the costs referable to that issue. It does not seem to me that the Respondents' submission that the Applicants' costs of the application should be discounted by 50% could be accepted, given the range of other issues raised by the Respondent Companies in opposition to the application, as to which the Applicants had succeeded.
For these reasons, I make the order for costs in the form proposed by the Applicants, as follows:
The Respondents pay 90% of the costs of Keith Redenbach and Campbell Ray on their application for leave to bring derivative proceedings, as agreed or as assessed, such order to be stayed until final determination of the substantive proceedings, or until further order.
[3]
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Decision last updated: 07 June 2018