The circumstances of the present case
10 With respect to the submissions of the So interests to the contrary, it is not determinative one way or the other whether an application for leave under s 237 is final or interlocutory. Even if the decision on that topic in McEvoy v Caplan (2010) 78 ACSR 167 is correct, the interlocutory nature of the application, if it is properly so described, does not necessarily make it more likely that the costs will be reserved. I add that the respondents' written submissions criticised Brereton J's decision in Re Jimmy's Recipe as being founded upon an assumption, contended to be incorrect, that the application for leave was final. It is pellucid that his Honour did not proceed upon any such assumption. Rather, he expressly identified that such an application was "in principle" one for final relief or "in substance" not interlocutory, and these are entirely correct observations.
11 In this context, it is somewhat irrelevant whether the relief under s 237 is sought by the filing of an originating application or, as occurred in this case, the filing of an interlocutory application. The nature of the application remains the same.
12 It is not irrelevant to note that, in most instances, courts make orders finally disposing of the question of the costs of the application and that is so regardless of whether it is ordered that the costs of the successful applicant be paid absolutely or that they be their costs in the cause. Rarely is the costs issue is not dealt with finally.
13 It is, perhaps, not surprising that dispositive cost orders are usually made given that the application is substantial in that, if it is successful, it results in the conferral of rights on the applicant to bring proceedings on behalf of a corporation. Even though there is no determination of the antecedent legal rights and obligations between parties, but instead the creation of new rights, it does not follow that the application lacks import. So much is apparent from the manner in which the orders sought by the Clancy interests in this matter were so energetically opposed.
14 It was submitted for the So interests that the point made in Re Jimmy's Recipe, that the judge hearing the application for leave may not be the same judge who hears the trial of the derivative proceeding, is inapplicable in the Federal Court where the docket system is in place. Whilst it is true that in the vast majority of cases the docket judge will hear and determine all interlocutory matters and the trial, that is not always so and the possibility exists that the judge who ultimately hears the substantive matter will have no knowledge of the circumstances of a prior interlocutory application. For this reason, this also is not a factor with any decisive effect on the question of costs.
15 The respondents submitted that this Court should follow the principle referred to in Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 where, thirteen years prior to Re Jimmy's Recipe, Brereton J had said:
[59] The proceedings for leave are final, not interlocutory in nature. Here, the plaintiff/respondent, far from conceding that a grant of leave was almost inevitable, and notwithstanding the (correct) concession that there was a serious question to be tried, firmly opposed the grant of leave. The defendant/applicant has substantially succeeded, the only point on which it has not having occupied practically no time. Yet it may turn out that the proposed derivative action fails. In my opinion, therefore, having regard to the various considerations mentioned by Young J in Devereaux, the costs of the motion should be the Cross-claimants' costs in the proceedings on HME's cross-claim.
16 Leaving aside the first sentence, the So interests relied upon the point that, as the applicants may not be successful in the derivative proceedings, no order for costs should be made in their favour. Yet, in that case, an order for costs was made in favour of the applicant for leave. The form of order was that the applicant have its "costs in the proceeding", such that they were only recoverable if the derivative action was successful.
17 The fact that the applicant for leave may not be successful in the derivative action has certainly swayed the exercise of discretion in a number of cases. The underlying rationale is essentially that, if the derivative action is unsuccessful, then the application for leave should not have been made and the applicant should not recover the costs of it. However, it may be that this nexus between the application for leave and the substantive derivative action should not carry such significant weight. The application for leave is a separate and distinct proceeding to the derivative action itself. The issue to be determined, namely whether the grant of leave is in the best interests of the company, is decidedly different to those that will be litigated if leave is granted. Putting to one side the question of the prospects of success, the central considerations on an application for leave do not go to or concern the merits of the action. Moreover, the parties to the application know that success or failure in it will most likely depend upon those separate and distinct considerations and the application is fought on that basis. It is not infrequently the case that the application turns on the applicant's ability to satisfy the Court that it is able to provide adequate security for the costs of the action. In these circumstances, the application for leave is readily regarded as being self-contained and the matters relevant to the Court's exercise of discretion in relation to it are not the subject of controversy in any following proceedings. Those matters will not be elucidated by additional evidence in the hearing of the derivative action.
18 The basis for the proposition that the applicant's entitlement to the costs of the application for leave should be dependent upon its success in the derivative action has not clearly been stated, other than by the implied suggestion that some form of deity-like prescience should be exercised by the applicant. Whilst the applicant for leave will not succeed without establishing some prospects of success in the proposed action, the application is necessarily made at an early stage when it is usually the case that not all of the evidence is known. It may well be that, on the information known at the time of the application, the prospects of success appear substantial with the result that the application must be considered very reasonably made. However, those prospects may diminish as additional information comes to light in the course of the interlocutory steps in the derivative action and may disappear altogether by the time of trial. Conversely, the prospects may appear only reasonable at the time of the application, but are enhanced as the interlocutory stages of the derivative action occur. There may be many and varied changes in the litigious landscape as the litigation proceeds, some potentially foreseeable and others not. Nevertheless, the question on the application under s 237 is whether, at the time of the application and on the evidence then available, the applicant has prospects of succeeding on the proposed claim. A respondent to the application is aware of that and assesses its prospects of opposing the application accordingly.
19 Further, if the application for leave fails, the unsuccessful applicant will be liable to bear an adverse costs order, and that is so regardless of whether the application failed as a result of a lack of prospects in the derivative action or on some other ground. In those circumstances, the likelihood of success in the derivative proceedings is irrelevant to the question of costs. It might similarly be thought that the success or otherwise of the derivative proceedings should not significantly influence the question of costs should the application for leave be successful. Although there is obviously not precise symmetry between the positions of the applicant and respondent to leave applications under s 237 of the Corporations Act in this respect, neither should there be a greater risk asymmetry between them in relation to the application generally.
20 It would, with respect, place too high a price on the making of an application for leave for it to be usual that, even if the applicant is successful despite strenuous opposition, no effective costs order would be made in its favour. Certainly, there is force in the caution expressed in some authorities that to adopt such a rule would effectively afford a respondent a "free kick", in that it may contest the application without any expectation that it will be liable to an adverse costs order immediately upon its determination. It would also present an opportunity for the respondent to any such application to generate substantial costs in the course of their failed opposition, and only be called upon to pay the costs, if at all, when the derivative action concludes, which may be years into the future.
21 It was submitted that an award of costs in favour of the applicants in this case would effectively be an award in respect of the work required for the substantive derivative proceedings, because material filed in the main proceedings (which include an oppression claim) was relied upon on the application. This submission appears to have been derived from, or is at least reminiscent of, the observations of McEvoy J in Kidd v Kwek [19], although his Honour plainly approached that matter as a factor which was specific to the circumstances of the case. In the circumstances of the present dispute, the point is also relevant. As was submitted on the respondents' behalf, the applicants did rely upon a large number of affidavits which had been filed in the main proceedings prior to the making of the application for leave. It was also submitted that the applicants were required to make two attempts at preparing a sustainable statement of claim for the derivative action, and those documents were relied upon in the leave application but will also be used in the main proceeding.
22 There is undoubtedly a risk that, in making an order as to the costs of the application for leave, the applicants will recover some costs related to work that is for, or useful for, the purposes of the main proceeding, which now includes the derivative action. Whilst that may not be a significant factor in many cases, it is in the present case, where a substantial amount of evidence relied upon in the leave application was filed in the main proceedings and will, in all likelihood, be used in those proceedings. However, that is not a reason not to make an order for costs in favour of the successful applicants. Rather, it means that some moulding of the order must occur in order to exclude costs incurred by the applicants which will inure to their benefit in the main proceedings.
23 Similarly, the respondents submitted that, if an order for costs was made, whether it be now or following the determination of the derivative action, some allowance should be made for the applicants' costs incurred in the preparation of their own material on the leave application. This submission was apparently also sourced from, or addressed in, the decision in Kidd v Kwek, where it was observed at paragraph [18]:
[18] Insofar as the applicant seeks to have his costs of this application on an indemnity basis, I take the view that it was necessary for the applicant, if he wanted to have leave to bring the derivative claims, to make the application that he made. Further, I consider that it was necessary for evidence to be advanced to enable the Court to have the requisite level of satisfaction for the purposes of s 237(2) of the Act. In these circumstances, and having regard in particular to the first Kidd affidavit which was filed on 18 June 2021, the appropriate costs order is that the first, second and third respondents pay the applicant's costs of this application on and from 15 July 2022, that being the date on which the first tranche of affidavit material in opposition to the application for derivative leave was filed by the respondents.
24 The point made here is that, as the applicants needed to make the application for leave in any event, then even if it had not been opposed they would have incurred a certain amount of costs and, for that reason, no order should be made. However, again, this may be relevant to the structure of the costs order, but it is not relevant to the question of whether it should be made. If the application had not been opposed, there may have been good reason to make the applicants' costs their costs in the derivative proceedings. However, it was opposed, and strenuously so, with the consequence that a large amount of work was required to be performed to meet a variety of assertions. In this context, it is not irrelevant that, in the course of the antecedent steps to the hearing of the leave application, the respondents filed an application seeking to stay the main proceedings pending the determination of other proceedings between similar parties in the Supreme Court of Queensland. Although they evinced an intention to pursue that application, they subsequently abandoned it, at first in part and then completely. Thereafter, they filed written submissions asserting that the applicants had failed to establish a serious question to be tried and had led insufficient evidence in support of the leave application. Subsequently, additional material was filed to meet those criticisms, although the respondents maintained the submission that the claims in the intended derivative proceedings were unrealistic. Nevertheless, on the morning of the application, they abandoned the assertion that no serious question had been raised. They were right to do so and, in the reasons for the decision on the application, it was observed that the strength of the case sought to be advanced in the derivative action was greater than merely raising a serious question.
25 The manner in which the respondents opposed the application for leave substantially increased the applicants' costs, such that the costs of an unopposed application would have been minimal against the costs actually incurred. Moreover, it would be difficult, given the respondents' conduct, to identify what the costs of an unopposed application would have been in the circumstances of this case. Attempting to ascertain those costs and exclude them from any taxation is more than likely to cause delay and even greater costs to be incurred. The decision to avoid such a process is in no way intended to punish the respondents for the manner in which they contested the application, but merely reflects the substantially greater costs that were generated as a result.