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[2016] FCA 1440
Federal Court of Australia
2016-12-01
Markovic J
Original judgment source is linked above.
MARKOVIC J: 1 On 29 March 2016 the plaintiff, Bideena Pty Ltd (Bideena), commenced a proceeding by the filing of an originating process against Growth Super Fund Pty Ltd (Growth) as first defendant, ARF Investments Pty Ltd (Investments) as second defendant, Agricultural and Rural Finance Pty Ltd (ARF) as third defendant, Anastasia Patakas (Ms Patakas) as fourth defendant, Evangelos Patakas trading as Evangelos Patakas & Associates Solicitors (Mr Patakas) as fifth defendant and Goeke Investment Finance Pty Ltd (Goeke) as sixth defendant. 2 Bideena is the trustee of the Bideena Pty Ltd Superannuation Fund (the Bideena Super Fund). It has two shareholders, Jennifer Ann Bevan and Christopher John Bevan. Mr and Mrs Bevan are the only current members of the Bideena Super Fund. As to the defendants: (1) Mr Patakas is the sole director and shareholder of Growth; (2) Investments is the holding company of ARF. Ms Patakas is the sole director of Investments which has two issued shares, one held by Growth and the other held by Bideena; (3) ARF is a wholly owned subsidiary of Investments. Ms Patakas is the sole director of ARF; (4) Ms Patakas is the younger sister of Mr Patakas; and (5) Goeke has loaned moneys to ARF. 3 This proceeding arises out of the acquisition of ARF by Investments and, in particular, an alleged failure by ARF to take steps to recover loans made by it and to enforce costs orders made in its favour in proceedings to which it was a party. The pleadings have been in a state of flux but Bideena's application is made under ss 180-183, 232, 233, 236, 237, 461, 1323 and 1324 of the Corporations Act 2001 (Cth) (the Corporations Act) and ss 21 and 23 of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act). In its amended originating process Bideena seeks a range of declarations and orders against the defendants. It is not presently necessary that I set out the nature of those orders and declarations or that I set out the claim as currently pleaded. 4 On 14 and 20 April 2016 the defendants filed applications for security for costs seeking orders, that pursuant to r 19.01 of the Federal Court Rules 2011 (Cth) (the Rules) or s 1335(1) of the Corporations Act, Bideena provide security for the costs of the defendants. There are three such applications: one made by Growth and Mr Patakas, one made by Investments, ARF and Ms Patakas and one made by Goeke. 5 The only issue to be determined on the applications for security for costs is the question of the costs of those applications, the applications themselves having been resolved by way of the giving of undertakings by Bideena and Mr and Mrs Bevan. The defendants seek an order that Bideena pay their costs of the applications for security and Growth, Mr Patakas and Goeke seek further orders that those costs be paid on an indemnity basis from 28 June 2016 and that they be assessable forthwith. Bideena seeks an order that the costs of the security for costs applications be costs in the cause or alternatively the defendants' costs in the cause.
history of the applcations for security for costs 6 The applications for security for costs were opposed by Bideena. Their history is of some relevance to the question of costs. 7 The applications were before the Court on six occasions: (1) on 21 April 2016 at which time there was argument about a threshold issue raised by the defendants. Namely, whether Bideena was required to obtain judicial advice in connection with the bringing of the proceeding. The Court was not required to determine that issue as on that occasion, among other things, Bideena undertook to apply to the Supreme Court of New South Wales for judicial advice from that Court pursuant to s 63 of the Trustee Act 1925 (NSW) as to the appropriateness of the continued prosecution of the proceeding against each of the defendants as trustee for the Bideena Super Fund; (2) on 9 June 2016 at which time Bideena, having obtained judicial advice, informed the Court that it wished to seek an order that the question of liability on the security for costs applications be separately determined. The defendants opposed that course. Among others, the Court ordered that Bideena file any interlocutory process seeking that the defendants' applications for security for costs proceed by way of separate questions by 12.00 pm on 14 June 2016, that the defendants were to notify their attitude to the issue of separate questions by 16 June 2016 and, if they opposed the application for separate questions, that the defendants were to file and serve submissions in relation to that issue by 20 June 2016; (3) on 23 June 2016 Bideena's interlocutory process seeking that the applications for security for costs proceed by way of separate questions was before the Court. At that time Bideena submitted that it wished to obtain an indication from the Court on the question of liability on the security for costs applications and that it did not really have a view as to whether that should be done by way of its interlocutory process or otherwise. Bideena's interlocutory process was not determined. Among others, the Court ordered Bideena and the defendants to file and serve any further evidence and submissions in relation to the applications for security for costs and stood the applications for security for costs over to 29 July 2016 for an indication from the Court in relation to the issue of liability for security for costs; (4) on 29 July 2016 the Court was not in a position to give the indication foreshadowed by the orders of 23 June 2016 because of the volume of material that had been filed by the parties. After making rulings on objections to evidence filed in relation to the applications for security for costs, those applications were stood over to 12 August 2016 for an indication from the Court in relation to the issue of liability for security for costs; (5) on 12 August 2016 the Court indicated to the parties that the applications for security for costs would need to be listed for hearing in relation to quantum. Among others, orders were made for the defendants to file and serve any further evidence going to the issue of quantum of security and for the defendants and Bideena to file and serve their submissions on the issue of quantum of security. The applications for security for costs were set down for hearing on the question of quantum of security on 28 October 2016; (6) on 28 October 2016 Bideena and Mr and Mrs Bevan gave undertakings to the Court and the defendants that meant that the hearing on the issue of quantum of security did not need to proceed and that the applications for security for costs did not have to be finally determined. The only outstanding issue was the question of costs of the applications for security for costs on which the parties made submissions at that time. 8 Another relevant aspect of the applications for security for costs is the interaction between the parties on the issue of undertakings. Initially the issue of undertakings was raised on 21 April 2016 in the course of submissions. Thereafter on 22 June 2016 the solicitors for Growth and Mr Patakas sent a letter to the solicitors for Bideena referring to the undertakings given by Bideena and Mr and Mrs Bevan, setting out why in the view of those solicitors the undertakings were inadequate and asking whether Bideena, its directors and the members of the Bideena Super Fund would be prepared to provide undertakings in the form set out in the letter to address the concerns expressed. 9 On 24 June 2016 the solicitors for Bideena informed the solicitors for Growth and Mr Patakas that the undertakings sought in their letter dated 22 June 2016 would not be given. 10 On 28 June 2016 the solicitors for Growth and Mr Patakas wrote to the solicitors for Bideena and, among other things, said: We note your refusal to provide the undertakings sought in our letter of 22 June 2016. We enclose a revised set of undertakings which have been agreed upon by all defendants in this matter in an effort to limit the issues. The acceptance of the enclosed undertakings would resolve the security for costs applications brought by all defendants. 11 On 29 June 2016 the solicitors for Bideena informed the solicitors for Growth and Mr Patakas that "[t]he further undertakings sought by your clients are unnecessary. Our client's current undertakings are maintained, notwithstanding that they are not necessary either, however our client will not provide any further undertakings".
legal principles 12 Section 43 of the Federal Court Act confers a broad discretion on the Court to award costs. The power conferred by s 43 is a broad power not to be read down otherwise than by judicial principle conformable with the amplitude of the power: DSE (Holdings) Pty Limited v InterTAN Inc [2004] FCA 1251 at [14] (per Allsop J as his Honour then was). 13 Section 43(3)(g) of the Federal Court Act gives the Court power to order that costs be awarded on an indemnity basis. Such an order may be made where there is some special or unusual feature in the case justifying the exercise of the Court's discretion in that way. In Colgate‑Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 232‑234, Sheppard J distilled the principles concerning when a Court might depart from what his Honour described as the settled practice of ordering costs on a party and party basis. His Honour noted that the Court would not usually depart from making an order on the usual basis unless the circumstances of the case warranted it and also noted that the category of cases in which such an order might be made was not closed. After setting out some of the circumstances in which such an order had been made, Sheppard J said "[t]he question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis". 14 If an order for costs is made in an interlocutory application the party in whose favour that order is made must not tax those costs until the proceeding in which the order is made is concluded: r 40.13 of the Rules. A party seeking a forthwith costs order needs to obtain an order pursuant to r 1.35 of the Rules which permits the Court to make an order which is inconsistent with the Rules in which event the order will prevail. In Stone v Melrose Cranes & Rigging Pty Ltd, in the matter of Cardinal Project Services Pty Ltd (in liq) [2016] FCA 1113 at [55], I noted the following: In McKellar v Container Terminal Management Services Limited [1999] FCA 1639 Weinberg J, in considering an application for an order for costs payable forthwith under the former O 62 r 3, summarised the authorities in relation to the rule as it then stood. The principles taken from those authorities and the circumstances in which such an order might be made were that: (1) the discretion should be exercised in favour of a party who establishes that the demands of justice require a departure from the general practice and that it might be appropriate to use the rule where the final determination of the proceeding was far away: at [15] citing Life Airbag Company of Australia Pty Ltd v Life Airbag Company (New Zealand) Ltd (unreported, 22 May 1998) per Branson J; (2) where there had been a long delay in close of pleadings by the pursuit of an ill-considered and perhaps unnecessary claim: at [16] citing Harris v Cigna Insurance Australia Ltd (1995) ATPR [41,445] per Kiefel J; (3) where the effect of an interlocutory application might be to remove a cause of action from the dispute between the parties: at [18] citing from Mitanis v Pioneer Concrete (Vic) Pty Ltd & Ors (1988) ATPR [41,623] per Goldberg J; (4) where an applicant had failed to file an amended statement of claim, despite a respondent's suggestion that it do so and where the filing only occurred after a successful strike out application: at [19] citing Vasyli v AOL International Pty Limited & Anor (unreported, 2 September 1996) per Lehane J; and (5) where there had been an omission to plead certain matters in the absence of which the matter could not proceed: at [20] citing Batten v CTMS Ltd [1999] FCA 1576 per Kiefel J.
consideration 15 The appropriate costs order to be made, having regard to the circumstances of this case, is that Bideena pay the defendants' costs of the applications for security for costs. My reasons for reaching this conclusion follow. 16 The usual rule is that costs follow the event. While the applications for security for costs were not ultimately determined by the Court but were resolved through the proffering of undertakings, the effect of those undertakings was to provide a form of security. Bideena describes the undertakings as a compromise provided, as is not uncommon, at a late stage of the applications. But the provision of the undertakings must be viewed in the context of the applications for security as a whole. 17 The undertakings were given in circumstances where, relatively early in the life of the applications for security, the defendants had pointed out their concerns with the undertakings given by Bideena and Mr and Mrs Bevan in their affidavits sworn 20 April 2016 and in Mr Bevan's affidavit sworn 8 June 2016 and where, as at 28 June 2016 the defendants had provided a comprehensive set of undertakings which they indicated would, if provided, resolve the applications for security for costs. It is also notable that on 23 June 2016, prior to the despatch of the 28 June letter, when the applications for security were before the Court senior counsel for Growth and Mr Patakas informed the Court that his clients were "open to sensible negotiation" on the undertakings and then took some time to explain the issues with the undertakings that had so far been given by Bideena and Mr and Mrs Bevan. They were, in summary, that: the undertakings given by Mr and Mrs Bevan were only given until the final determination of the proceeding meaning that they would expire upon delivery of judgment and would not provide protection during the period of any taxation process should the defendants succeed; the undertakings would need to be extended so that new members could not be brought into the Bideena Super Fund and payments could not be made to non-members in the event of the death of any member; and there was no express undertaking by Bideena or the individuals that they would make or facilitate any claim for indemnity. 18 It is also relevant to note that as early as 21 April 2016, Goeke had made submissions relying on the line of authority concerning the principle in Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) ATPR 40-584 (Laundry Coin-Wash). Relevantly those submissions raised an issue about corporate trustees and the concern of courts that, when faced with a security for costs application, it would be necessary to provide an undertaking to address the problems associated with enforcement against a corporate trustee. In particular, Goeke relied on the following passage in Laundry Coin-Wash at 46,729 where Smithers J said: With respect to the indemnity, unless the applicant itself co-operated, or the applicant company were wound up, benefit could not be obtained by the respondents thereunder. No direct process of execution would be available for the purpose of obtaining that benefit. Further, the extent to which the indemnity would in any event be productive would depend upon the state of the finances of the trust and the possibility of some defence cannot be ignored. Where the only tangible assets of an applicant company are held in trust for another entity and its solvency depends on its right as trustee to indemnity against that entity it is necessary for the Court to have in mind the difficulties which a successful respondent would face in attempting to execute in respect of an order for costs. Indeed, unless some step is taken to alleviate those difficulties it is reasonable and just to treat the applicant company as if it were without assets to meet such a liability. 19 Subject to the value of the assets in the Bideena Super Fund that will be preserved and remain available to satisfy all costs orders, the undertakings that were ultimately offered and accepted were substantially in the form of and to the effect of those which had been suggested by the defendants on 28 June 2016 and addressed the issues raised by senior counsel for Growth and Bideena on 23 June 2016. Had Bideena taken a different stance to the undertakings that were suggested to it on 28 June 2016 the applications for security could well have been resolved at an earlier time and without the need for additional steps being taken in their preparation and for additional appearances before the Court. 20 Bideena submitted that the cause of the delay and protracted period over which the applications for security ran did not lie at its feet. It made the following further submission in support of that contention: (1) counsel for Growth and Mr Patakas had put to the Court that Bideena's position was such that, without judicial advice, it simply was not in a position to resist security for costs. It was submitted that Bideena then took the responsible and reasonable course of applying to the Supreme Court of New South Wales for judicial advice; (2) the question of whether Bideena held shares in Investments beneficially or as trustee for the Bideena Super Fund was a live issue first raised in an affidavit sworn by Mr Judd, the solicitor for Growth and Mr Patakas, on 14 April 2016. On 21 April 2016 when the applications for security were before the Court senior counsel for Growth and Mr Patakas informed the Court that was one of the issues, that "there's been a lot of debate about that", that they had had an "avalanche of material in response" but they were not proposing to agitate that issue because there was a much more "fundamental problem with the right of indemnity"; (3) at one stage an issue arose that security was justified by a possible change of trustee as set out by Mr Biady, the solicitor for Investments, ARF and Ms Patakas, in his affidavit sworn 19 April 2016. This ground subsequently disappeared; and (4) all of these matters had to be addressed but ultimately they ceased to form part of the debate such that it would be inequitable for Bideena to pay all of the defendants' costs, let alone on an indemnity basis or forthwith. 21 Bideena submitted that the resolution of the security for costs applications by the undertakings was not a resolution of those applications in favour of the defendants but a resolution by way of compromise. It relied on the judgment in Ren Nominees Pty Ltd v MS Cognosis Pty Limited (No 1) [2013] FCA 916 (Ren Nominees) at [10] where Perram J said: It is important to be careful that this inquiry does not have the consequence of elevating the costs debate between the parties into a mini-trial of the underlying merits of the action. The need to avoid that outcome requires more than passing attention be paid to the high threshold involved. Nevertheless, if victory was almost certainly at hand, even given the vicissitudes of litigation, then a costs order will be justified. 22 The basis for the applications for security for costs did undergo some change. However, the issue of undertakings was raised early in the applications. The defendants' position on the acceptability of undertakings and their form did not change. Bideena refused to provide further undertakings until late October 2016. In its submissions it took the position that undertakings were not necessary or required. Further, in the face of the submission made on 23 June 2016 and the letter dated 28 June 2016 Bideena elected to continue to defend the applications for security and to continue to meet the arguments put by the defendants. While it was entitled to proceed in that way, it did so in the knowledge that the defendants had informed it that a modification to the undertakings that had been provided by Bideena through its evidence would resolve the matter. 23 When the undertakings were given by Bideena they were not offered as part of a settlement but accompanied its closing submissions which urged the Court to determine the applications "on the basis indicated below". That basis included the following submission: Even if it be accepted for present purposes that the principle to be applied is (as the Defendants submit) that stated by Smithers J in Laundry Coin-Wash Nominees Pty Limited v Dunlop Olympic Limited, namely that "Unless some step is taken to alleviate those difficulties, it is reasonable and just to treat the plaintiff company as if it were without assets to meet such a liability", such difficulties may be met by the giving of appropriate undertakings. (citations omitted) 24 The "appropriate undertakings" referred to by Bideena were those attached to the submissions. They were offered by Bideena and Mr and Mrs Bevan, were acceptable to the defendants and they resolved the security for costs applications. 25 Further, the applications proceeded on the basis that the Court would give an indication of the position on liability. That is, the matter would only proceed to a hearing on quantum if it was necessary to do so and it would only be necessary to do so if the Court's view on liability favoured the defendants. On 12 August 2016 when the Court made orders for the application to be listed for hearing on the issue of quantum it was implicit, if not explicit, that the indication was that the defendants had met the liability threshold. The applications had proceeded to that stage before the undertakings that were ultimately accepted were offered. 26 While, in my opinion, the defendants are entitled to their costs of the applications for security, I do not think this is a proper case in which to make an order that those costs be payable on an indemnity basis or that they be payable forthwith. This is not a case where the circumstances are such as to justify a departure from making an order for costs on the ordinary basis. There was no misconduct, the applications were not defended for ulterior motive, nor were there groundless contentions made by Bideena or prolongation of the case by its conduct. Further, there is no justification for an order that costs be payable forthwith. There was neither lengthy delay in the close of pleadings nor failure to file amended pleadings occasioned by the applications for security for costs. As Bideena submitted any issues arising in relation to the pleadings are quite separate from these applications. The demands of justice do not require a departure from the general practice.
conclusion 27 In light of the views I have expressed above I will make orders that: (1) Bideena pay Growth's and Mr Patakas' costs of their interlocutory application filed on 14 April 2016; (2) Bideena pay Investments', ARF's and Ms Patakas' costs of their interlocutory application filed on 20 April 2016; and (3) Bideena pay Goeke's costs of its interlocutory application filed on 20 April 2016. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.
SCHEDULE OF PARTIES NSD 425 of 2016 Defendants Fourth Defendant: ANASTASIA PATAKAS Fifth Defendant: EVANGELOS PATAKAS TRADING AS EVANGELOS PATAKAS & ASSOCIATES SOLICITORS Sixth Defendant: GOEKE INVESTMENT FINANCE PTY LTD ACN 165 354 718
Bideena Pty Ltd
Growth Super Fund Pty Ltd