In my judgment delivered on 29 August 2018 ([2018] NSWSC 1315) ("Primary Judgment"), I determined an application brought by Dr Najjarine for an order for winding up ICB Medical Distributors Pty Ltd ("ICB Medical") and several other companies within the ICB group of companies (together, "ICB Companies"). I also determined Mr Kielt's Cross-Claim, by which he sought an order that he buy out Dr Najjarine's shares in ICB Medical. I held that a winding up order should not be made. I also observed that, where a winding up order was not made, several factors supported an order that Mr Kielt should buy Dr Najjarine's shares, rather than the reverse, where I had found oppressive conduct by both Mr Kielt and Dr Najjarine. I held that orders should be made, as Mr Kielt proposed, that he purchase Dr Najjarine's shares in the ICB Companies at the date of judgment, with the price to be calculated on a basis that made adjustments for several transactions that I had addressed in the Primary Judgment.
I had indicated, in the Primary Judgment (at [226]) a tentative view as to the costs of the proceedings as follows:
"I had, in the course of the hearing, drawn the parties' attention on several occasions to the fact that the conduct of the hearing, by both of them, might raise the possibility that no order as to costs would be made in favour of a successful party. In the result, Dr Najjarine has not achieved the result he sought, and Mr Kielt has only succeeded in achieving a much less favourable buy-out order than he originally sought by reason of a last minute change of position. It seems to me that the proper course will be to make no order as to the costs of the proceedings and leave each party to bear his own costs. I will, however, allow the parties a brief opportunity to be heard in that respect."
By a further judgment delivered on 14 September 2018 ([2018] NSWSC 1415) I made minor corrections to the Primary Judgment under the slip rule, and orders as to the valuation process. In that judgment, I observed (at [24]) that:
"Both Dr Najjarine and Mr Kielt made submissions as to costs. Dr Najjarine submits that an order should be made that Mr Kielt pay 40% of his costs of the proceedings to date, on the basis that a significant amount of hearing time was taken up on accounting issues as to which findings were made in Dr Najjarine's favour, although (I interpolate) he had not obtained the relief he had sought and Mr Kielt had succeeded in his Cross-Claim against him. Mr Kielt supported the preliminary view expressed in the [Primary] Judgment. It seems to me that an order as to costs should be deferred until the Court has determined the valuation stage of the proceedings, since the parties' conduct of that aspect of the proceedings and the outcome of that aspect of the proceedings may well be relevant to the question of the costs to be awarded in respect of the earlier part of the proceedings. In those circumstances, it is neither necessary or appropriate that I should address the parties' further submissions as to costs at this point. I do note, in fairness, that the parties may be well advised to have regard to the prospect that there will be no order as to costs of the earlier part of the proceedings, or the whole of the proceedings, in reaching decisions as to the extent to which they incur further costs in respect of the remaining aspects of the proceedings."
By a third judgment delivered on 16 January 2019 ([2019] NSWSC 5), I made orders for the Defendant, Mr Kielt, to purchase all shares held by the Plaintiff, Dr Najjarine, in the ICB Companies on a specified basis. As foreshadowed in the Primary Judgment, I then allowed the parties a further opportunity to make submissions as to costs.
[3]
The applicable principles
The applicable principles as to an order for costs are well-established. Section 98 of the Civil Procedure Act 2005 (NSW) confers a discretionary power to determine costs on the Court and requires that that discretion be exercised judicially. Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) in turn provides that:
"Subject to this Part, 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."
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 [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].
Ms Whittaker and Mr Birch, who appear for Mr Kielt, also refer to the summary of the applicable principles by McColl JA in Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266 at [7]-[14] as follows:
"Section 98 of the Civil Procedure Act 2005 (NSW) confers a wide discretion on the court with respect to costs. The "general rule" is that court costs follow the event unless the court makes "some other order" pursuant to the discretion conferred by Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.1.
As Beazley JA explained in Baker v Towle [[2008] NSWCA 73; (2008) 39 Fam LR 323 at [11] (Mathews AJA agreeing)], in most litigation, UCPR r 42.1 "operates in a straightforward way, 'the event' being readily identifiable as a judgment for the plaintiff or the defendant on the claim. In that sense, 'the event' to which the rule refers is the result of the proceedings, so that the party who succeeds on the claim before the court is awarded costs, unless the court, pursuant to the discretion conferred by r 42.1, makes 'some other order'".
Underlying both the general rule that costs follow the event, and 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.
Where there are multiple issues in a case the court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. This recognises the proposition that justice may not be served if parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case.
However there is a tension between that proposition and the proposition that, "[i]f parties come to realise that they will not necessarily recover the whole of their costs, even though they have unsuccessfully raised a discrete issue, they are likely better to consider whether the raising of that issue is a justifiable course to take."
Further, even where there are multiple issues, unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between the particular issues on which it was successful and those on which it failed.
However, a court can mould a costs order to take account of the partial success of the party against whom orders have been made at trial insofar as that party identifies particular issues or groups of issues on which it succeeded at the trial. This requires consideration of whether there were "clearly discrete issues for determination" or, rather, whether "all issues are inseparable, or at least sufficiently linked, with respect to the overall disposition of a particular matter". A separable issue can relate to "any disputed question of fact or law" before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter.
Where there is a mixed outcome in proceedings, the question of apportionment of costs between issues on which the party who has overall been successful, and those on which that party has failed, is very much a matter of discretion, and mathematical precision is illusory." [footnotes omitted]
[4]
Proceedings up to the Primary Judgment
Dr Najjarine submits that the Court should order that Mr Kielt pay 40% of his costs of the proceedings up to the Primary Judgment. In support of that order, Dr Najjarine submits that he was successful in the proceedings up to the Primary Judgment in relation to all of the issues he raised concerning improper recording of certain amounts in favour of Mr Kielt, his children and his private company, and he submits, correctly, that the Court found that Mr Kielt's conduct in relation to the recording of those amounts constituted oppression. Dr Najjarine acknowledges that he was unsuccessful in respect of several other issues that he had raised, and that Mr Kielt was successful in respect of allegations made against Dr Najjarine by Cross-Claim, and that I found that Dr Najjarine's conduct in relation to those matters also constituted oppression. Dr Najjarine notes that Mr Kielt was also unsuccessful in respect of other issues raised.
Dr Najjarine submits that both parties succeeded in establishing oppression, and the form of relief ordered by the Court, a purchase of Dr Najjarine's shares was "as much an order (an alternative order) in [Dr Najjarine's] favour on [Dr Najjarine's] claim as it is in [Mr Kielt's] favour for relief in respect of his Cross-Claim". While that submission is partly correct, the primary relief sought by Dr Najjarine was a winding up order and not a buy-out of his shares. Dr Najjarine also points out that, as I had observed in the Primary Judgment, the only reason I did not make a winding up order was that, on the last day of the hearing, Mr Kielt conceded that a buy-out order could be made on a basis that adjusted for amounts improperly recorded in favour of Mr Kielt, his children and his private company. While that concession was made late, it was always possible that it would be made or that the Court might adopt that approach, even if that concession had not been made.
On the other hand, Mr Kielt contends that there should be no order as to the costs up to the point of the Primary Judgment, consistent with the preliminary view that I expressed in the Primary Judgment. Mr Kielt submits that each party's conduct was found to be oppressive, although Mr Kielt succeeded in obtaining the relief he sought, by reason of a position which he accepts he only advanced on the final day of the hearing.
In submissions in reply, Mr Kielt responds that an order should not be made that he pay 40% of Dr Najjarine's costs of the proceedings until the Principal Judgment, where his position that a buy-out order should be made prevailed and Dr Najjarine did not obtain an order that the Company be wound up. He points out that Dr Najjarine had sought an order that Dr Najjarine purchase Mr Kielt's shares, rather than an order for Mr Kielt's purchase of Dr Najjarine's shares, and (as I had noted in Primary Judgment) had made no submissions of substance in support of such the former order. Mr Kielt also submits that a successful party would only be ordered to pay its opponent's costs in exceptional circumstances, and that such exceptional circumstances do not exist in this case, and points to several of the findings in the Primary Judgment that were adverse to Dr Najjarine's conduct. Mr Kielt points out, and I accept, that his conduct of the proceedings did not lengthen those proceedings. I should add that, given the primary relief sought by Dr Najjarine was a winding up order, the proceedings would likely have continued for the same period, irrespective of whether Mr Kielt had made the concession as to the form of a buy-out order at an earlier point in the hearing. Mr Kielt also points out, with some force, that the substantial length of the hearing reflected, in significant part, a lengthy cross-examination by Mr Carnovale of witnesses called by Mr Kielt, including cross-examination on matters as to which Dr Najjarine was unsuccessful.
It seems to me that, up to the point of the Primary Judgment, each of Dr Najjarine and Mr Kielt succeeded in establishing oppression by the other; each failed in significant parts of their affirmative cases, and failed in significant parts of their defence of the claims made by the other; and Dr Najjarine was not successful in obtaining the primary relief for which he contended. In these circumstances, it seems to me that the proper order is that there be no order as to the costs of the proceeding prior to the Primary Judgment, other than costs orders previously made. As Mr Kielt points out, two costs had already been made in his favour, on 21 February 2018 and 9 March 2018. Those earlier orders are not affected by this judgment.
[5]
Proceedings after the Primary Judgment
In respect of the proceedings after the Primary Judgment, Dr Najjarine notes that a lower value was attributed to the ICB Companies by an expert accountant retained by Mr Kielt in his first report of 16 October 2018, and a somewhat higher value by a supplementary report of 4 December 2018, which took account of several matters raised by Dr Najjarine in submissions. Dr Najjarine notes that on the second and last day of the further hearing as to orders and valuation, an alternative approach was agreed between the parties which adjusted for taxation matters, if Dr Najjarine was not successful in his primary claim for a winding up order. Dr Najjarine acknowledges that he was not successful in that primary claim, but points out that he obtained a greater price than the price set out in the first expert report on which Mr Kielt relied. Dr Najjarine submits that there should be no order as to the costs incurred after the Primary Judgment. There is force in that proposition, where Dr Najjarine did not obtain the winding up order which he sought, but the submissions which he made had the result of bringing about a significantly higher purchase price for the shares than that for Mr Kielt originally contended.
On the other hand, Mr Kielt submits that Dr Narrajine should pay Mr Kielt's costs of the valuation hearing on 6 and 7 December 2018, resulting in the findings expressed in the third judgment. Mr Kielt submits, and I accept, that the reasons for denying a successful party the full costs of the principal hearing may have no bearing on the costs incurred in a subsequent valuation hearing: Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256 at [42].
Mr Kielt submits that Dr Najjarine should pay his costs of the valuation hearing, because Dr Najjarine's primary contention that the ICB Companies be wound up failed. As Mr Kielt points out, I did not accept Dr Najjarine's primary position at the valuation hearing that a valuation was not possible and that a winding up order should be made. Mr Kielt submits, with some force, that at least some time in cross-examination at that hearing was directed to exploring the issue of the reliability of the valuation. Mr Kielt also submits that Dr Najjarine did not advance any alternative valuation to that proposed by Mr Kielt. While that is correct, in part, Dr Najjarine did identify adjustments that were required to the valuation propounded by Mr Kielt which, when accepted by Mr Kielt, and when taxation matters were addressed by a compromise between the parties, significantly increased the amount to be paid for Dr Najjarine's shares.
Mr Kielt submits that Dr Najjarine's conduct of the valuation process justifies a costs order against him, and identifies six reasons for that approach. These are directed, inter alia, to Dr Najjarine's submission that the Court should make a winding up order, returning to a matter that had been addressed in the Primary Judgment; the approach taken by Dr Najjarine in respect of the service of documents on which he relied in cross-examination, rather than Dr Najjarine leading expert evidence; Dr Najjarine's approach to adjustments to ICB Medical's management accounts; the approach adopted in cross-examination of the expert witness called by Mr Kielt; the service of a subpoena upon Mr Kielt, which was not pressed; and an offer made by Mr Kielt to purchase Dr Najjarine's shares on the basis of the valuation reached by the expert evidence led in his case. I have had regard to each of these matters. It does not seem to me that these matters support a conclusion that Mr Kielt was successful in supporting the view which he propounded, where Dr Najjarine raised significant issues as to the valuation approach, which were only addressed shortly before the valuation hearing, by the service of a supplementary expert's report, and issues as to tax, which were compromised between the parties on the second day of the hearing, allowing orders for the purchase of Dr Najjarine's shares on a basis which did not need adjustment for the future taxation position of the companies.
I should note, for completeness, that Mr Kielt also referred to an offer made to purchase Dr Najjarine's shares. That offer was made shortly before the valuation hearing, after the service of Mr Kielt's supplementary valuation report which had identified a higher value for those shares, and was significantly lower than the price ultimately determined, when tax issues were adjusted as agreed between the parties. It does not assist Mr Kielt.
In submissions in reply, Dr Najjarine emphasises the extent to which the purchase price for his shares was increased in the course of the valuation hearing, between the original expert valuation on which Mr Kielt relied and the supplementary valuation presented shortly before the hearing, and by the further adjustment for tax agreed at the end of the valuation hearing. Dr Najjarine also responded to various criticisms made of his conduct of the valuation hearing.
In submissions in reply, Mr Kielt submits that Dr Najjarine's submission that there should be no order as to the costs incurred after the Primary Judgment is unsustainable where the Court rejected Dr Najjarine's principal position in the valuation hearing, that the ICB Companies should be wound up, and given Dr Najjarine's conduct of the valuation proceedings. I do not accept that submission, for the reasons noted below.
It seems to me that each party had a degree of success in the valuation hearing, with Mr Kielt obtaining the buy-out orders for which he contended and Dr Najjarine opposed, and Dr Najjarine obtaining a significant increase in the consideration payable to buy out his shares. There should also be no order as to the costs of that hearing.
[6]
Orders
In these circumstances, it seems to me that the proper result is that which I foreshadowed in the Primary Judgment, that there be no order as to the costs of the proceedings, other than costs orders previously made. I so order.
[7]
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Decision last updated: 24 March 2019