Camm v Linke Nominees Pty Ltd

1. The applicants pay the costs of Mr Jon Broadley incurred by him in defending their interlocutory application dated 5 December 2012 as amended on 20 December 2012 and 24 January 2013. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

TRACEY J: 1 In Camm v Linke Nominees Pty Ltd (No 4) [2013] FCA 223 I dismissed a number of applications, made by the applicant. I reserved a ruling on costs pending the determination of the principal proceeding. That proceeding was concluded (subject to arguments relating to costs) last year: see Camm v Linke Nominees Pty Ltd (No 5) [2015] FCA 431. These reasons should be read in conjunction with the two earlier judgments to which I have just referred. 2 In the principal proceeding, the trustees of Mr Gary Camm's bankrupt estate sought a declaration that the transfer of real property from Mr Camm to the respondent was void against them and an order that Mr Camm do all things necessary to transfer the property to them. The trustees were trustees of what was referred to as Mr Camm's "second bankrupt estate". The transfer of the property concerned coincided with an earlier bankruptcy of Mr Camm's. His trustee on that occasion was Mr Trevor Schmierer. 3 The trial in the principal proceeding commenced on 8 October 2012 and was adjourned, part heard, on 1 November 2012. Well into the trial, on 29 October 2012, Mr Schmierer gave evidence. Under cross-examination he said that, following an approach from the respondent's solicitor, Mr Jon Broadley, he had, on 23 November 2009, entered into a call option deed. The parties to the deed were Mr Schmierer and Mr Robert Linke, a principal of the respondent. The deed gave to Mr Linke the option to purchase the disputed property from Mr Schmierer. It was open for three years and was due to expire on 23 November 2012. In the event, the option was not exercised and the period of operation of the deed was not extended. 4 Shortly after Mr Schmierer had given evidence the trustees, on 5 December 2012, filed an interlocutory application in which they sought a declaration that the call option had been discoverable by the respondent and orders that Mr Broadley and his firm, Broadley Rees Hogan, and counsel acting for the respondent, Mr Michael Amerena, be restrained from further acting in the proceeding. These applications were listed for hearing on 19 December 2012. At the commencement of the hearing I queried the appropriateness of the orders sought by the trustees. Following brief submissions from counsel for the trustees and a short adjournment, counsel advised the Court that the applications for declarations and orders sought in the original interlocutory application would not be pressed. Leave was granted to the trustees to file an amended interlocutory application. This was done on 20 December 2012. The amended application sought orders that: "1. The Applicants have leave to discontinue the proceeding. 2. The solicitor for the Respondent, or alternatively the Respondents, pay the Applicants' costs of the proceeding on an indemnity basis. 3. Each of the Respondent, the solicitor and the Counsel for the Respondent pay the Applicants' costs of and incidental to this application on the indemnity basis; and 4. Such further or other order as to this Honourable Court seems meet." 5 At the hearing of the application, I granted leave for the trustees to file a further amended interlocutory application dated 24 January 2013. The further amended interlocutory application provided: "1. The Applicants have leave to discontinue the proceeding on terms that the solicitor for the Respondent and the Respondent pay the Applicants' costs of the proceeding on an indemnity basis. 2. The Respondent and the solicitor for the Respondent pay the Applicants' costs of and incidental to this application on an indemnity basis; and 3. Such further or other order as to this Honourable Court seems meet." 6 Mr Broadley resisted the application, in both its original and amended forms, insofar as it sought orders against him. He was represented separately from his client, Linke Nominees Pty Ltd. 7 It was this application, in its further amended form, which I refused and in respect of which I reserved costs. 8 Mr Broadley sought an order that the trustees pay his costs of the application on an indemnity basis or, alternatively, on the usual basis. 9 The applicants, on the other hand, requested that no order should be made as to the costs of their application. This was because of what they contended was Mr Broadley's failure to comply with the overarching purpose of the Court's practices and procedures as identified in s 37M of the Federal Court of Australia Act 1976 (Cth) ("the FCA Act"). 10 The catalyst for the trustees' application was Mr Schmierer's evidence about the call option. Although it had been in place for almost three years at the time at which Mr Schmierer gave evidence, the trustees had not earlier been advised of its existence. Mr Schmierer gave evidence that he had recently had a discussion with Mr Broadley during which possibility of extending the period within which the option might be exercised had been raised by Mr Broadley. At the time the trustees made their original application, on 5 December 2012, they were uncertain as to whether or not Mr Linke had exercised a right to extend the period of operation of the deed and within which he might exercise the option to purchase the first trustee's rights. 11 Mr Schmierer gave evidence at the trial about his understanding of the purpose and effect of the call option. He said that it appeared that the deed had "the ability to defeat [the] proceeding" brought by the applicants. 12 Both Mr Linke and Mr Broadley gave evidence as to the purpose which the call option deed was intended to serve. I summarised that evidence in Camm v Linke Nominees Pty Ltd (No 4) at [30]-[31] as follows: "[30] Linke Nominees relied on the evidence of Mr Robert Linke who had, at relevant times until 23 November 2012, been a director of the company. Mr Linke said that he had entered into the call option deed on the advice of his lawyers for the purposes of protecting Linke Nominees against the prospect of the trustees being able to obtain title to the property at Noosa. He had had no dealings with Mr Schmierer but instructed Mr Broadley to negotiate the deed to protect Linke Nominees' legal position. He considered the deed to be "the most appropriate mechanism to prevent the [trustees] from acquiring [Mr Schmierer's] rights." He had been advised that the option could be exercised to Linke Nominees' advantage if the preliminary point relating to the operation of s 59 of the Act were to be resolved against the company. He had a general understanding that the company's position was that the trustees did not have power under ss 58 or 59 of the Act to pursue the principal application. Any relevant rights were vested in Mr Schmierer as first trustee. If, however, the Court were to take the view that the trustees were entitled to pursue their principal claim under s 59, the deed might assist the trustees taking legal title to the property. He did not understand the legal basis for this position. [31] Mr Broadley said that he had drafted the deed and related agreement on the advice of counsel. He had done so to protect Linke Nominees' interests. He saw it as guarding against the possibility that the trustees were unsuccessful in asserting rights under s 121 of the Act." 13 Under cross-examination Mr Linke gave evidence that the respondent purchased the rights of the first trustee in order to "protect ourselves by closing off all options to any untoward actions that may come in … unexpectedly". Mr Linke described the transaction as "a commercial action". Mr Linke deposed that, after the Court declined to make a preliminary determination regarding the s 59 issue, the respondent was confident in respect of its position on the remaining issues and that this "counted against the cost of exercising the call option…". 14 There were disputes between the parties on a number of matters. There was debate as to the purpose which the call option was intended to serve and as to its legal effect. There was also renewed argument about whether the deed should have been discovered and whether the respondent and Mr Broadley were obliged, in any event, to disclose the existence of the deed in order to satisfy the obligations which fell on them under ss 37M and 37N of the FCA Act. It is not necessary that these disputes be resolved in order to decide upon an appropriate costs order. 15 The trustees made their original application at a time when they were aware of Mr Schmierer's evidence that the call option was, as he understood it, intended to deprive them of the fruits of any victory which they might achieve in the principal proceeding and that discussions had taken place between Mr Schmierer and Mr Linke about extending the period during which Mr Linke could exercise the option. 16 By the time the application had been amended and was argued, however, the trustees were aware that the deed had not been renewed and one of them, Mr Park, accepted that the lapse of the deed had removed all his concerns of any potential adverse impact on the trustees' interests in the proceeding. The trustees, nonetheless, contemplated discontinuing their proceeding. Their precise reason for doing so was not apparent but, whatever it was, it could not have been because of the provisions of the lapsed deed. It was open to the trustees, under the Federal Court Rules 2011 (Cth), to discontinue the proceeding at any time. Subject to any contrary order of the Court, however, they would have been required to pay the respondent's costs, incurred prior to the discontinuance. This they did not wish to do. They made it plain in argument that they would not pursue their application for leave to discontinue unless the Court also ordered that the respondent and/or its legal advisors, pay their costs on an indemnity basis. For the reasons which I gave in Camm v Linke Nominees Pty Ltd (No 4) no such costs order was warranted. 17 Mr Broadley contended that this was an "exceptional case" justifying an indemnity costs order. He directed the Court's attention to serious allegations made by the trustees about his conduct as an officer of the Court, including that he had acted dishonestly and in a manner designed to obstruct and delay. It was alleged that there was no proper basis for the making of these allegations. 18 Mr Broadley submitted that the application was "the manifestation of a strategy deployed in furtherance of the trustees' commercial objectives; namely, to discontinue the proceedings without a judgment on the merits of the principal case". Mr Broadley submitted that, by the time the application was heard, the applicants knew that the call option was no longer effective and could not prejudice the applicants' perceived rights. Mr Broadley contended that he was not a necessary party to the application as there was no suggestion that the respondent could not satisfy an order that it pay the applicants' costs of the proceedings on an indemnity basis. 19 The exercise of the Court's discretion to award costs under s 32 of the Bankruptcy Act 1966 (Cth) will, ordinarily, follow the event: see Re Skase; Ex parte Donnelly (1992) 37 FCR 509 at 522. 20 There is no reason why Mr Broadley should not recover his costs of defending the application. The trustees should pay Mr Broadley's costs incurred in defending the application on the usual basis. 21 The award of costs on an indemnity basis is not warranted in the circumstances. The call option had been devised by Mr Broadley on the advice of counsel as a means (it was thought) of protecting the respondent's interests at the expense of the trustees. Mr Broadley had approached Mr Schmierer and an agreement had been reached pursuant to which Mr Schmierer gave Mr Linke an option to purchase the disputed property from Mr Schmierer. The deed was entered into on 23 November 2009. Its existence was not disclosed to the trustees until 29 October 2012 when Mr Schmierer made reference to it in the course of giving evidence. Even then the trustees were unaware of the precise terms of the deed and they had not had the opportunity of giving consideration to its efficacy and any implications which it might have for them should they be successful in their principal application. Mr Schmierer had certainly expressed the view that the deed would prevent the trustees enjoying the fruits of any success which they might achieve in prosecuting the proceeding. Clearly enough the deed was entered into in an attempt to protect the respondent's ongoing interest in being the registered proprietor of the property. 22 The trustees' immediate reaction was to seek to prevent Mr Broadley and counsel instructed by him from continuing to represent the respondent in the proceeding. On reflection the trustees decided not to pursue this course. Instead they appear to have accepted Mr Schmierer's assessment that it would be pointless for them to press on with the litigation because, even if the Court granted them the orders they sought, the deed would operate to undermine their curial victory. The trustees decided that the appropriate course was to discontinue the proceeding. They did not, however, wish to pay the respondent's costs and hence their amended application sought orders which allowed them to discontinue subject to the condition that the respondent and its legal advisers pay the trustees' costs. At the time the amended application was filed the trustees were unaware of whether the term of the deed had been extended. By the time the application came on for hearing, however, they were aware that the deed no longer operated and could no longer (if it ever had the potential to) have an adverse legal impact on them. By this time most of the costs associated with the trustees' application had already been incurred. 23 Clearly, the condition on which the trustees were prepared to discontinue the proceeding was intended, as Mr Broadley submitted, to further the "commercial" objectives of the trustees in a very general sense. The call option, devised by Mr Broadley, also had a commercial objective: the protection of the respondent's property interests. 24 I have not overlooked the exchange of allegations of misconduct which occurred from time to time during the disposition of the application. Some of these allegations should not have been made. Others may have had some substance. 25 In my view neither these exchanges, nor the other considerations to which I have had regard, warrant a departure, in the interests of justice, from the ordinary practice relating to the awarding of costs: cf Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 232-234 (Sheppard J) and the cases there cited. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tracey.