- Commonwealth of Australia v Gretton

Proceedings 71100 of 2021

This judgment deals with the costs of several proceedings involving overlapping parties. By Originating Process filed on 12 March 2021 in these proceedings, Red Hill MCN Pty Ltd ("Red Hill") and Mr Peter McNamee sought an order for the winding up of Lorebray Pty Ltd ("Company") and alternatively sought an order that a receiver and manager be appointed to the assets held by the Company as trustee for the McNamee Property Trust ("Trust) and an order that the receiver have power to realise those assets for the purpose of satisfying the Company's right of indemnity in respect of the Trust. The proceedings were amended on 19 May 2021 to join the Second Defendant, McMardi Pty Ltd ("McMardi") as the Second Defendant in the proceedings.
The proceedings were heard over several days from 28 September 2021. On the first day of the hearing, it emerged that Red Hill's application for a winding up order of the Company was not properly founded, because no steps had been taken to record either Lorebray or McMardi as shareholders in the Company. Mr Condon, with whom Mr Cooper appeared for Red Hill, now submits that the Company and McMardi had not resisted the winding up order on that basis, and indeed had (wrongly) admitted in their Points of Defence that Red Hill and McMardi were the two shareholders of the Company. That is no answer to the fact that a winding up order could not have been made, because neither Red Hill nor Mr Peter McNamee had standing to seek it, and it emphasises that all parties had failed to take the most basic step to determine whether the winding up application in those proceedings had a proper basis. That difficulty did not arise in respect of the application for the appointment of a receiver, since Mr Peter McNamee was a beneficiary of the Trust. Ultimately, on 5 October 2021, the parties consented to my making orders appointing a receiver to the Trust assets with a power of sale. By submissions filed on 11 November 2021, Red Hill and Mr Peter McNamee sought an order that the Company and McMardi pay their costs of the proceedings. On 23 November 2021, I made further orders dealing with the process for further submissions as to costs in these proceedings on the basis that the parties were content for the question of costs in the proceedings to be determined in Chambers.
I first set out the applicable principles, before turning to the parties' submissions in respect of costs. The Court has power to make an order as to costs under s 98 of the Civil Procedure Act 2005 (NSW) and I bear in mind that 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) 193 CLR 72; (1998) 152 ALR 83; [1998] HCA 11 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]. However, the principle that costs follow the event under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) has no application here, because there has been no determination of these proceedings on their merits.
In Re The Minister for Immigration and Ethic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 ("Lai Qin"), McHugh J in turn observed that: "In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action."
Mr Condon, with whom Mr Cooper appears for Red Hill and Mr Peter McNamee, also referred to a qualification to the approach noted in One.Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548; (2000) 171 ALR 227; [2000] FCA 270 where a party, after litigating for some time, effectively surrenders to the other party, and notes that that qualification was quoted with approval by the Court of Appeal in Nadilo v Eagleton [2021] NSWCA 232 at [9]. In Re HCafe Chatswood Pty Ltd [2018] NSWSC 362 at [7], I also observed, in respect of Lai Qin, that: "While McHugh J there referred to the saving to the parties of avoiding a contest as to costs which canvasses the issues that would have been addressed at a substantive hearing, it seems to me that that principle also reflects matters of public policy. In particular, the community, which funds the Court system, should not be required to bear the costs of extended arguments as to the merits of proceedings that have settled only on the question of costs between the parties. There is also a significant risk of unfairness to the parties, if costs orders are made based on a perception of which party would have succeeded on a trial on the merits, without the unsuccessful party having the opportunity to defend that trial on the merits."
I should also recognise the concern expressed by the Court of Appeal in Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 as to the risk that litigation will "feed on itself", including in respect of claims for costs". That concern was recently emphasised by Leeming JA, sitting in the Corporations List, in Re Sunnyside Bettoni Pty Ltd (No 2) [2020] NSWSC 1886 at [13]ff.
Turning now to the parties' submissions as to costs, Mr Condon fairly recognises that s 98 of the Civil Procedure Act confers a broad discretion as to costs, which is to be exercised judicially and having regard to ss 56-60 of the Civil Procedure Act: Saravinovska v Saravionovski [2020] NSWSC 1232 at [50]. He rightly recognises that the ordinary rule that costs follow the event, in UCPR r 42.1 has no application where a matter is resolved without a final determination on the merits. He also rightly recognises the observation of McHugh J in Lai Qin and the qualifications to that principle which I noted above.
Mr Condon points to the basis on which the appointment of a receiver was sought by Peter McNamee, which, he submits, overlapped with the basis of the application for winding up orders brought by Red Hill on the just and equitable ground. Mr Condon then summarised the manner in which the trial developed, while notionally accepting that this costs application is not a forum for a "mini trial" of the merits of the dispute that has been resolved by the consent orders: Girardi as Trustee for The Superannuation Fund Greengate Investments v Duncum [2021] NSWSC 1138 at [69]. Mr Condon then submits, presuming in Red Hill's favour the outcome of the hearing, that the cross-examination of one of the witnesses for the Company had demonstrated the "disarray" in the Company's affairs and the need for control of those affairs to be placed in a neutral third party, namely the receiver, and the unreasonableness of the Defendants' conduct in defending the proceedings. Mr Condon draws attention to various matters which are said to support that proposition. The difficulty with that approach is that it would require the Court now to determine the merits of the proceedings which it has not determined, where they did not proceed to completion because orders were made by consent that resolved them.
Mr Condon also points to a distinction between there being a "clear winner" of proceedings and a resolution of a dispute by settlement, as distinct from surrender. He submits that it would be a "plain injustice" where a plaintiff was compelled to come to Court to obtain relief to which it was entitled, and which it obtained as a result of a "practical capitulation", for that plaintiff to be required to bear its own costs of doing so. Again, that submission depends on assumptions as to the likely outcome of proceedings that were not completed, still less determined, including as to whether Mr Peter McNamee would have obtained the relief he sought, absent consent to it, where Red Hill was plainly not entitled to that relief that it sought. Mr Condon submits that the Company and McMardi "surrendered" to the relief sought, implicitly by Mr Peter McNamee, and it is therefore appropriate that they be ordered to pay the costs of the proceedings. He submits that, if it were necessary to find that McMardi and the Company acted unreasonably, then that finding should be made. Mr Condon also seeks to treat the Plaintiffs' failure to obtain a winding up order that they sought as irrelevant, on the basis that the appointment of a receiver and manager of the assets of the Trust achieved the "same result", protecting the Company's assets from the asserted "disarray" in the conduct of its affairs.
Mr Scruby, who appears for McMardi, responds that there has been no capitulation or surrender by McMardi in respect of the proceedings, where McMardi was joined because it was (I interpolate, wrongly thought to be) one of the two shareholders in the Company and a necessary party to the proceedings in which a winding up order was sought on the just and equitable ground, and the Plaintiffs' claim for orders winding up the Company were ultimately dismissed by consent. McMardi in turn submits, inverting the proposition for which Red Hill contends, that Red Hill's "capitulation" on the winding up case was a capitulation on the main issue in the case, at least as addressed in written submissions and on the first day of the hearing. Mr Scruby points to the fact that only a small part of Red Hill's opening written submissions were directed to the appointment of a receiver, as distinct from a winding up, although I recognise that the force of that point is reduced where the alternative forms of relief depended on overlapping factual matters.
Mr Scruby in turn characterises the result as a "compromise" and there is force in that submission where it involved Red Hill and Mr Peter McNamee abandoning the claim to a winding up order and obtaining the appointment of a receiver with narrower powers over Trust assets but not assets held by the Company in its own right and McMardi and the Company consenting to that relief. Mr Scruby points out, and I accept, that there are plainly legal, and I would add practical, differences between the winding up of a company and the appointment of a receiver to the assets of a trust, notwithstanding that company is the trustee of that trust. Mr Scruby points to the significance of the fact that the Company remains in control of assets it owns beneficially and assets not held on trust for the Trust, including its right of indemnity and exoneration in respect of the Trust. Mr Scruby also points to other matters which remain within the control of the Company's board, rather than passing under the control of a liquidator, and also observes that, once the receiver has realised the assets of the Trust and paid its expenses, the Company as trustee of the Trust will then deal with the question of how available trust property should be distributed to beneficiaries. Mr Scruby also points to the fact that the powers conferred on the receivers, which (as I noted above) were narrower than those which had been sought by Red Hill (which also did not have standing to seek the appointment of a receiver to Trust assets) and Mr Peter McNamee and the orders were also stayed for a period of time contemplating further discussions between the parties.
Mr Scruby also submits that there is a difficulty with the Plaintiffs' submission that McMardi could have capitulated to the Plaintiffs' contention that a receiver should be appointed, where the primary relief sought by the Plaintiffs was a winding up of the Company. There is also some force in that proposition. Mr Scruby also submits that it is not inevitable that a receiver would have been appointed to the assets of the Trust, because it was arguable that those assets were secure and did not require protection, whatever the criticisms that might be made of the manner in which the Company's affairs were then managed. It is not necessary to determine that submission, beyond noting that it emphasises the significance of the fact that the proceedings were neither completed nor determined on their merits.
Mr Emmett, with whom Mr Jameson appears for the Company, submits that the Court should make no order as to costs for the reasons put by McMardi in its submissions and, if the Court were persuaded that any costs order should be made in favour of any Plaintiff, that costs order should be limited to requiring the Defendants to pay a portion of one Plaintiff's costs, which should not exceed 50% of the total costs. The Company accepts that it took an active role in defending the application and that any adverse costs order should fall on both Defendants.
Mr Emmett submits that it would be necessary to differentiate between issues, if costs orders were to be made, where only the order for the appointment of a receiver had ultimately been made and that receiver was only appointed to the assets of the Trust. He submits that there would be no basis for an adverse costs order in connection with the issues relating to winding up, including the question as to solvency. It is not necessary to address that submission, where I do not find that a costs order should be made in any event. Mr Emmett also submits that any costs order should only be made in favour of Mr Peter McNamee, where only he had standing to seek or sought an order for the appointment of a receiver to the assets of the trust. I would have accepted that submission, had it been necessary to do so, where Red Hill sought relief by way of a winding up order which it had no standing to seek and would have failed in that application, because it was not a shareholder in the Company, had it been determined on its merits. Mr Emmett also submits that, to the extent that the question of solvency formed part of Mr Peter McNamee's case for the appointment of a receiver, he should have no costs in connection with that question, where it was not determined by the Court and the Company has not, by consenting to the appointment of a receiver, conceded any question as to the solvency of the Trust. It is plainly neither appropriate nor possible to determine the question of solvency, where the proceedings were not completed to allow such a determination fairly to be made.
Mr Emmett also points out that there was no surrender by the Company in respect of the application for a winding up of the Company, which was not determined by the Court. As I have noted above, the outcome of that application is plain, so far as Red Hill must have failed in that application, because it did not have standing to seek that relief. I accept that there was no surrender by the Company or McMardi in that regard and, even if there had been, the Court would not have granted the relief sought by Red Hill where it had no standing to seek it. Mr Emmett also addresses the allegations that the Defendants, or the Company, acted unreasonably and the particular question of the alignment of the Defendants' interest in that regard. It is not necessary to decide those questions and it is preferable that I do not do so.
The dispute as to costs in these proceedings was prolonged by Red Hill's and Mr Peter McNamee's submissions in reply, which took issue with the proposition that the appointment of a receiver to the assets of the trust was merely "ancillary" to the appointment of a liquidator, and submitted, with some force, that Red Hill was able to address the position as to the appointment of a receiver more briefly in its opening submissions (as I recognised above) because it incorporated aspects of its submissions in respect of the winding up. Mr Condon and Mr Cooper also submitted that it was impracticable to quarantine the costs of obtaining the receivership relief from the costs of the winding up application. There is force in that submission, but it does not seem to me to support Red Hill's position, so far as Red Hill seeks to obtaining an order for costs of proceedings which it had no standing to bring and which would inevitably have failed had they been pursued to completion. That is, instead, a matter that supports the view that there should be no order as to the costs of the proceedings.
Mr Condon and Mr Cooper also submit that the Defendants commit the error identified by the Court of Appeal in Nadilo v Eagleton above by asserting that, because the Plaintiffs did not obtain all of the relief they sought, they could not be treated as having succeeded for the purposes of an order as to costs. There is no such error, because Red Hill did not, and could not, achieve any of the relief that it sought. Mr Condon and Mr Cooper then submit that the practical benefits of a winding up order and a receivership were, at least in some respects, similar, so far as both orders would "protect" the assets under the Company's control. While the broader outcome of the appointment of a receiver with a power of sale was to bring about the sale of the assets, as distinct from preserving them, it remains that that outcome was very different from that which would result from a winding up of the Company, for the reasons identified by Mr Scruby which I have noted above. Mr Condon and Mr Cooper also address other issues which again depend on the merits of matters which it was not previously necessary for the Court to determine, which it is now not possible to determine where the proceedings were not completed and which it is also not now necessary to determine, given the conclusions I have reached on other grounds.
I am not persuaded that the basis for an order for costs in Red Hill's or Mr McNamee's favour is established in these proceedings. Red Hill's claim for a winding up order would have failed for the reasons noted above. The alternative claim for appointment of a receiver could only have been brought by Mr Peter McNamee and not by Red Hill and was not determined on its merits. I accept that some of the issues that arose in cross-examination appeared, on their face, to be unfavourable to the Company, but I do not consider that the Court could or should now reach the kind of findings which would be necessary to determine the likely result of the proceedings, including any issues as to the exercise of discretion, where the proceedings were neither completed nor determined on their merits. I do not accept Red Hill's proposition that it was "obvious" that the Company's affairs were in disarray, although persons interested in the Company and the Trust, including those aligned with Red Hill and Mr Peter McNamee, often do not act in a cooperative way. It is neither possible nor appropriate for the Court now to reach any determination whether the persons associated with Red Hill and Mr Peter McNamee, or the persons associated with McMardi, are primarily or equally responsible for that lack of cooperation. I also do not accept the proposition that the Company did not have control of its books and records is sufficient to demonstrate the merit of Red Hill's or Mr Peter McNamee's position, where there was a real issue in the proceedings as to whether actions taken by a person in the same interests as Red Hill and Mr Peter McNamee had brought about that result.
For these reasons, it seems to me that the Court should make no order as to the costs of these proceedings.

Proceedings 71064 of 2021

These proceedings were listed before Ward CJ in Eq and concerned the beneficial ownership of shares in Wonga Pastoral Development Company Pty Ltd ("Wonga"), another company associated with the McNamee family. The Plaintiffs, Mr Peter McNamee and others, contended that they were the beneficial owners of those shares and sought declaratory relief in that respect. The Plaintiffs then applied for summary judgment on 3 May 2021, that application was listed for hearing on 4 June 2021 and the Defendants, the Company and Lorebrook Pty Ltd then consented to that declaratory relief. Ward CJ in Eq made those declarations by consent on 4 June 2021 and reserved the question of costs, without prejudice to question of the trustees' right of indemnity as to such costs.
The Plaintiffs now seek an order for the costs of these proceedings against the Defendants and also submit that the Defendants should not be entitled to exercise a trustee's right of indemnity in respect of the costs of the proceedings. They rely on their submissions and an affidavit on which they previously relied in the application before Ward CJ in Eq. They refer to advice received by the Defendants from Senior Counsel, which they contend expressed a "preferred view" that would have permitted the Defendants to transfer the relevant shares to each Plaintiff, but point out that the Defendants did not do so prior to the summary judgment application and their consent to the relief sought in it. Mr Cooper, who appears for the Plaintiffs in this application, again refers to the Court of Appeal's decision in Nadilo v Eagleton above; again recognises that UCPR r 42.1 has no application here where there has been no determination on the merits; and submits that this is a case where the Defendants acted so unreasonably that the Court should order them to pay the Plaintiffs' costs. He relies on the advice provided by Senior Counsel to the Company as to the "better view" that the Plaintiffs were the beneficial owners of the relevant shares and submits that an alternative course of seeking judicial advice was not taken by the Defendants. He acknowledges that additional documents relating to the ownership of the shares were not discovered until mid-April 2021, a matter to which I return below, but submits that the Company did not then consent to relief and the Plaintiffs were "forced" to make the application for summary judgment. He also advances submissions as to the right of indemnity, which it is not necessary to address where I am not satisfied that an order for costs should be made for the reasons noted below.
Mr Emmett and Mr Jameson in turn make submissions on behalf of the Defendants in their capacity as trustees in opposition to the costs order sought against them. They indicate that the Defendants' primary position is that the Court should make no order as to costs and also submit that the question as to the trustee's right to rely on its right of indemnity should not be determined on this application. The Defendants rely on an affidavit of their solicitor, Mr Steven Martin filed on 28 May 2021 in the proceedings before Ward CJ in Eq. The exhibit to that affidavit includes an opinion of Mr Emmett dated 13 March 2020, correspondence relating to access to documents evidencing the trust arrangements in respect of the relevant shares and subsequent correspondence between the parties' solicitors.
Mr Emmett and Mr Jameson recognise that the Defendants settled these proceedings by consenting to orders that provided for declarations in respect of the relevant shares and the transfer of those shares to the several Plaintiffs. They also accept that relief was substantively similar to that which the Plaintiffs had sought in their Summons filed on 12 March 2021, although they note the relief granted by consent expressly reserved the question of the Defendants' rights to indemnity. The Defendants point out that the advice that they had received from Mr Emmett on 13 March 2020, prior to the proceedings being commenced, expressed a "better view" that the relevant shares were held on bare trust for several children of the McNamee family and an unborn child, but note that opinion was expressly qualified by reference to the unavailability of documents, and expressed as tentative and subject to the emergence of other evidence. The Defendants also point out that, since January 2020 and continuing after Mr Emmett's advice was given in March 2020, they sought to obtain documents and other evidence to substantiate the Plaintiffs' claims as to the beneficial ownership of the relevant shares and refer to the correspondence which they have tendered in this application. They point out that the Plaintiffs commenced these proceedings about 12 months after Mr Emmett's advice was given, on 12 March 2021, although no further documents supporting the Plaintiffs' claim had then been provided by the Plaintiffs to the Defendants. It appears that the Defendants' solicitor then attended the offices of Mr John McNamee Senior and located further documents relating to the relevant shares. Mr Martin's evidence is that, after the inspection of those additional documents, the Defendants formed the view that they were in a position to consent to the orders sought by the Plaintiffs and they then did so.
I am not satisfied that an order for costs should be made in favour of the Plaintiffs and against the Defendants in these proceedings. First, it seems to me that the Plaintiffs' submissions overstate Mr Emmett's opinion, which was not a conclusion that the shares were beneficially owned by the Plaintiffs so that they could properly be transferred to the Plaintiffs, but only that that was the "better view" subject to the substantial qualification as to the lack of available evidence. Although the further evidence that was located in April 2021, as a result of the Defendants' further investigations, supported the Plaintiffs' claims, it was possible up to that time that that further evidence would have undermined or refuted those claims. Second, given the limits in the available evidence and the qualifications in Mr Emmett's opinion, it seems to me that the Trustees were justified in taking the view that they should defer transferring the relevant shares to the Plaintiffs until better evidence emerged or the Plaintiffs commenced appropriate proceedings and led sufficient evidence before the Court to establish the basis of their claims. I also accept the Defendants' submission that it was not unreasonable for their independent director, who is a solicitor with no independent knowledge of the relevant matters, to seek to be satisfied as to the factual basis of the Plaintiffs' claims before acceding to them. I also do not accept that Plaintiffs' submission that the Defendants should have sought judicial advice at an earlier point, where that advice may well not have been given in the absence of better evidence and a proper factual basis to support it. In my view, the Defendants were also justified in altering their position to consent to the relief sought by the Plaintiffs, once the Plaintiffs had brought proceedings and the Defendants' further investigations had led to the discovery of additional evidence. There has been no determination on the merits and I am not satisfied that the Defendants' conduct was unreasonable. For these reasons, I also make no order as to costs in these proceedings.
It is not necessary to determine whether the Court could or should have dealt with any question as the Defendants' right of indemnity as to any costs they had been ordered to pay the Plaintiffs, where no such order has been made. If the Plaintiffs seek to have any wider question as to the Defendants' right indemnity for their own costs of the proceedings determined in this application, it is not appropriate to do so in a costs application and absent a sufficient evidentiary basis to determine that wider question. If that question arises, it will be a matter for the Equity General List in which these proceedings were commenced and not a matter that should be dealt with in the Corporations List.

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