Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 1159 | Case summary

NO. 6064/2007 DENIS CASSEGRAIN Plaintiff GERARD CASSEGRAIN & CO PTY LIMITED First Defendant FELICITY CASSEGRAIN Second Defendant JUDGMENT 1 Sackville A-J: I delivered judgment in this matter on 23 September 2008 ("principal judgment"). I made orders granting leave to the plaintiff pursuant to s 237 of the Corporations Act 2001 (Cth) ('Corporations Act') to bring proceedings on behalf of the first defendant ("the Company") in the form of a Draft Statement of Claim included in the Tender Bundle. I directed the parties to file written submissions as to costs. The parties have now done so. 2 This judgment should be read in conjunction with the principal judgment. 3 Section 242 of the Corporations Act provides as follows: "The Court may at any time make any orders it considers appropriate about the costs of the following persons in relation to proceedings brought or intervened in with leave under section 237 or an application for leave under that section: (a) the person who applied for or was granted leave; (b) the company; (c) any other party to the proceedings or application. An order under this section may require indemnification for costs." 4 It should be noted that the defendants to the application for leave were the Company and Felicity Cassegrain ("Felicity"). Claude Cassegrain ("Claude"), although intended to be a defendant in the statutory derivative action, was not a party to the leave application. He was therefore not a person referred to in s 242 of the Corporations Act, unless and until he became a party to the statutory derivation action against the Company. In fact he apparently became a defendant to the derivative action commenced pursuant to the orders referred to at [5] of the principal judgment. 5 Other provisions are relevant to the costs question. Section 98(1) of the Civil Procedure Act 2005 (NSW) ("Civil Procedure Act") provides as follows: "Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis." 6 Rule 42.1 of the Uniform Civil Procedure Rules 2005 ("UCPR") provides that, subject to Pt 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 the costs." 7 Section 98(1) of the Civil Procedure Act gives the court power to order a non-party to the proceedings to pay costs: Knight v FP Special Assets Ltd (1992) 174 CLR 178. However, this is subject to UCPR r 42.3, which limits the power of the court to make costs orders against non-parties to the circumstances identified in r 42.3 itself. Rule 42.3(1)(c) allows the court to make an order against a non-party who abuses a process of the court. 8 It appears to be common ground that the orders made by me on 23 September 2008 are final orders, even though they include a grant of leave to the plaintiff to commence the derivative proceedings. On this basis, the plaintiff submits that costs should follow the event in accordance with r 42.1. He argues that the application for leave succeeded: "in the face of sustained opposition from the [Company] at the behest of Claude and Felicity Cassegrain and Felicity Cassegrain in her own right." The plaintiff also contends that the Company had received advice that was tainted by the personal interests of Felicity and Claude Cassegrain. 9 The plaintiff further submits that Felicity should be ordered to pay costs on an indemnity basis because the leave application was conducted in a manner that unduly prolonged the proceedings. The plaintiff invites me to take into account what is said to have been a breach by Felicity of her duty under s 56(3) of the Civil Procedure Act to assist the court to "further the overriding purpose [of facilitating the just, quick and cheap resolution of the real issues]". 10 In this context, the plaintiff seems to suggest that Felicity was not truly a necessary party to the leave application or, at least, should have limited her role to putting arguments in her capacity "as a member of the [Company]", rather than in her capacity as a potential defendant in the statutory derivative proceedings. 11 Not content with all of these submissions, the plaintiff contends that Claude should be ordered to pay the plaintiff's costs on an indemnity basis and, in any event, that Claude (and possibly Felicity) should be ordered to pay the Company's costs of the leave application. 12 In my opinion, there is no basis for an award of costs on an indemnity basis against the Company, Felicity or Claude. Neither the plaintiff nor the defendants presented their respective cases in the leave application in a manner calculated to eliminate extraneous or peripheral issues. For example, the plaintiff ultimately offered to indemnify the Company against its costs in the derivative proceedings, but the offer was not made until after the hearing of the leave application had commenced. In the meantime, the defendants had filed written submissions making much of the absence of any such offer and doubtless incurred expense in doing so. 13 I do not think that the conduct of the proceedings by the defendants, either together or individually, involved a breach of any duty imposed by s 56(3) of the Civil Procedure Act. The defendants raised a number of serious arguments that warranted (and, it is hoped, received) careful consideration in the principal judgment. 14 There is an additional difficulty in making any costs order against Claude. The defendant's legal representatives say that they do not have instructions from him and thus cannot respond on his behalf to any costs submission. They also point to good reasons why it is appropriate that he should be separately represented. 15 In any event, I do not have evidence as to the precise role, if any, played by Claude in resisting the plaintiff's application for leave to commence the derivative proceedings in the name of the Company. It is hardly likely that Claude was unaware of the leave application. Nonetheless, the plaintiff has not provided any evidentiary basis for the suggestion that Claude used the proceedings to mount a "surrogate" defence for his [own] benefit. Nor has the plaintiff explained how I can make a costs order against Claude, as a non-party to the leave application, without affording him an appropriate opportunity to be heard. 16 I do not think it is appropriate to make an order simply requiring the Company to pay the plaintiff's costs of the leave application. Claude controls the Company, but does not own all the shares. A costs order against the Company would impose a burden on the minority shareholders, including the plaintiff himself. It is presumably for this reason that the plaintiff did not seek any such order. 17 Nor do I think that Felicity should be ordered to pay the plaintiff's costs of the leave application. Little time was spent on her particular position as a potential defendant in the statutory derivative proceedings. Her role as a potential defendant in those proceedings is secondary to that of Claude, being based on an allegation that she received a transfer of the dairy farm through Claude's fraud (see the principal judgment at [109]-[111]). Felicity is a member of the Company, but she is not a director. 18 In determining the appropriate costs order, it is necessary to bear in mind that the parties to the derivative proceedings are not identical to the parties to the application for leave to bring the proceedings. However, the Company and Felicity are (or will be) parties to both sets of proceedings. Moreover, s 242 of the Corporations Act gives the Judge hearing the derivative proceedings power to make orders with respect to the costs of the leave application. 19 One approach is simply to leave the question of costs to the Judge hearing the derivative proceedings. On balance, I think it preferable for me to deal with the question myself since I have heard the leave application. In my view, the appropriate course is to make costs orders analogous to those commonly made in interlocutory proceedings, whereby the costs of the party succeeding on an interlocutory application are designated as that party's costs in the proceedings. If that party ultimately succeeds in the action and obtains an order that the opponent pay the costs of the proceedings, the final order will cover the costs of the interlocutory proceedings. If, however, the party does not ultimately succeed in the proceedings, it will effectively be required to bear its own costs of the interlocutory proceedings, but will not be required to pay the opponent's costs of the interlocutory proceedings. 20 Following this approach, I propose to order the Company to pay the plaintiff's costs of the leave application, but to stay the order until the conclusion of the statutory derivative proceedings or until further order of a Judge of the Court. This will allow the Judge hearing the derivative action, should the Company succeed against Claude or Felicity (or both), to fashion a costs order that ensures that neither Felicity nor Claude receives any benefit from costs order made against the Company in these proceedings. In this connection, as I have noted, s 242 of the Corporations Act gives the Court hearing the derivative proceedings wide powers in relation to costs. If the Company fails in the derivative proceedings, it will be open to the Judge to fashion costs orders (including a continuation of the stay order) ensuring that the plaintiff bears his own costs of the leave application. Needless to say, I am not intending to confine the discretion of the Judge who hears the derivative proceedings. 21 The parties have agreed that interim restraining orders against Felicity be continued pending the final determination of the derivative proceedings. I propose to make an order giving effect to that agreement. 22 The plaintiff sought an order directing Claude not to permit the Company to pay any of the costs incurred by it in defending the leave applications. I do not think it appropriate to make such an order, even assuming I have power to do so without affording the solicitors acting for the Company the opportunity to be heard (bearing in mind that they might be adversely affected by the order). The costs paid by the Company in defending the application can also be taken into account by the Judge hearing the derivative proceedings, should he or she consider it appropriate to do so. 23 The orders I intend to make are as follows:

Cassegrain v Gerard Cassegrain & Co Pty Ltd

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (12 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (1)

Cited By (10)