COSTS - Plaintiffs applies for its costs after dismissal by consent - Where application brought under reg. 5.6.53 of the Corporations Regulations 2001 (Cth) for decision in respect of proofs of debt - Where plaintiffs had previously participated in procedure established by this Court for admission of proofs of debt - Plaintiffs sought to depart from this procedure by relying on reg. 5.6.53 - Whether reasonable to commence proceedings under Regulations where decision imminent - Whether r 42.20(1) of the UCPR displaced by any discretionary considerations - Relationship between r 42.20(1) and Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 considered - Australiawide Airlines Ltd trading as Regional Express v Aspirion Pty Limited
[2019] NSWSC 1202
Supreme Court of NSW|2019-09-09|Before: Rees J, Black J, Brereton J
[2016] NSWSC 482
In the matter of HIH Insurance Limited (in liquidation) (2018) 133 ACSR 338
[2018] NSWSC 1886
Re Minister for Immigration and Ethnic Affairs
Ex parte Lai Qin (1997) 186 CLR 622
Source
Original judgment source is linked above.
Catchwords
[2016] NSWSC 482
In the matter of HIH Insurance Limited (in liquidation) (2018) 133 ACSR 338[2018] NSWSC 1886
Re Minister for Immigration and Ethnic AffairsEx parte Lai Qin (1997) 186 CLR 622
Judgment (3 paragraphs)
[1]
Solicitors:
Thomas Booler & Co Lawyers (Plaintiffs)
Ashurst Australia (Defendants)
File Number(s): 2019/150664
[2]
Judgment
HER HONOUR: These proceedings commenced on 14 May 2019, in which 308 plaintiffs sought orders under regulation 5.6.53 of the Corporations Regulations 2001 (Cth) that proofs of debt submitted by them to the defendants, the liquidators of HIH Insurance Limited (in liquidation), be admitted. On 15 July 2019, Black J made orders dismissing the proceedings by consent and listed the matter for argument today in respect of costs.
The defendants submitted that the appropriate order is that provided by Uniform Civil Procedure Rules 2005 (NSW), rule 42.20(1):
If the court makes an order for the dismissal of proceedings, either generally or in relation to a particular cause of action or in relation to the whole or part of any claim, then, unless the court orders otherwise, the plaintiff must pay the defendant's costs of the proceedings to the extent to which they have been dismissed.
The defendants say that this costs order is appropriate because these proceedings were wholly unnecessary, in circumstances where there was already a regime in place by which the plaintiffs' proofs of debt would be determined - arising from various judgments and orders of Brereton J made in proceedings in which the plaintiffs participated - which was being implemented by the liquidators to the plaintiffs' knowledge. The plaintiffs chose to commence these proceedings anyway, causing unnecessary costs to be incurred by the defendants.
The plaintiffs submit that the ordinary costs order should not follow and, further, the defendants should be ordered to pay the costs of these proceedings in respect of 240 plaintiffs because it is said that the defendants "capitulated" in these proceedings. It was accepted that the remaining 68 plaintiffs should pay the defendants' costs. The plaintiffs relied on Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624-5; [1996] HCA 6, where McHugh J stated (footnotes omitted):
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 extracurial 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. …
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. …
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. …
The plaintiffs also relied on a summary of Lai Qin by Gleeson JA in Vanguard Financial Planners Pty Limited v Ale [2017] NSWSC 196 at [4] and [21].
[3]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 11 September 2019
Parties
Applicant/Plaintiff:
COSTS - Plaintiffs applies for its costs after dismissal by consent - Where application brought under reg. 5.6.53 of the Corporations Regulations 2001 (Cth) for decision in respect of proofs of debt - Where plaintiffs had previously participated in procedure established by this Court for admission of proofs of debt - Plaintiffs sought to depart from this procedure by relying on reg. 5.6.53 - Whether reasonable to commence proceedings under Regulations where decision imminent - Whether r 42.20(1) of the UCPR displaced by any discretionary considerations - Relationship between r 42.20(1) and Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 considered - Australiawide Airlines Ltd trading as Regional Express
In Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274, McColl JA, with whom Beazley JA (as her Excellency then was) agreed, held that, notwithstanding the terms of rule 42.20, the costs discretion was unconfined and the matters referred to in Lai Qin remained pertinent although not determinative: at [87]. However, the position is now as stated by the Court of Appeal in Australiawide Airlines Ltd trading as Regional Express v Aspirion Pty Limited [2006] NSWCA 365 per Bryson JA at [48]:
This passage from Lai Qin is not readily applicable to decision under r.42.20(1). UCPR r.42.20 is not entirely consistent with McHugh J.'s observation that the proper exercise of the costs discretion will usually mean that the Court will make no order as to costs. Justice McHugh's observations were directed to the discretionary power in O71 r39 of the High Court Rules (Cth), set out in Lai Qin at 623, which was discretionary overall, whereas in contrast r.42.20(1) creates a starting point by requiring "... the plaintiff must pay the defendant's costs of the proceedings ..." unless that outcome is displaced by a discretionary decision. It should in my opinion no longer be said that if the moving party, or if both parties have acted reasonably in commencing and defending proceedings the proper exercise of the costs discretion will usually mean that the Court will make no order as to the costs of the proceedings; observance of the starting point under r.42.20 will make this outcome less usual than it earlier was.
McColl JA agreed with his Honour, and Basten JA, in joining in the Court's orders, reached a similar conclusion at [64].
Australiawide Airlines v Aspirion makes plain that the Court should observe the usual costs consequence in the event of dismissal described in UCPR rule 42.20(1) as the starting point for the Court's exercise of its discretion in respect of costs, and only make a different costs order if that starting point is displaced by a discretionary decision. With the legal framework thus clarified, it is necessary to consider whether the plaintiffs (or at least 240 of them) have established a factual basis upon which the Court ought to depart from the usual order that the plaintiffs pay the defendants' costs of these proceedings.
These proceedings arose against the backdrop of a series of judgments and orders of Brereton J in proceedings concerning appeals by shareholders of HIH under the former section 1321 of the Corporations Act 2001 (Cth) in respect of the rejection of their proofs of debt. The shareholders had submitted proofs of debt in respect of damages for misleading and deceptive conduct sustained when the shareholders bought HIH shares following publication of a prospectus and various financial results, which incorporated the financial results of FAI Insurance and Casualty & General. The liquidators admitted that these publications were misleading and deceptive and caused the price of HIH shares to be inflated when the plaintiffs bought their shares.
In February, March and July 2015, Brereton J heard the appeals, brought by, essentially, four groups or classes of shareholders. Thomas Booler & Co were the solicitors for three of the shareholder groups or classes, and are also the solicitors for the plaintiffs in these proceedings. In April 2016, Brereton J gave judgment in In the matter of HIH Insurance Limited (in liquidation) (2016) 113 ACSR 318; [2016] NSWSC 482 determining that the financial material was misleading and deceptive, that FAI and C&G had accessorial liability for the misleading and deceptive conduct, determined how the damages of each of the plaintiffs should be calculated depending upon when a plaintiff purchased their shares (ranging from 6.25% to 13% of the price paid). His Honour also determined that the shareholders were entitled to claim damages on the basis of "indirect causation" such that direct reliance need not be established, although the plaintiffs still had to establish, by evidence or inference, that the contravening conduct inflated the market: at [123].
In January, April and October 2017, the plaintiffs' solicitors Thomas Booler & Co submitted a series of proofs of debt to the defendant liquidators, each referring to the judgment of Brereton J as follows:
These claims are lodged on behalf of those Shareholders who acquired shares in HIH during the contravening periods set out in the judgment of his Honour Justice Brereton In the Matter of HIH Insurance Limited (In Liquidation & Others NSWSC 482 (20 April 2016) and who are entitled to compensation against the abovementioned companies.
It was reasonably apparent from these letters that the plaintiffs were proposing to have their proofs of debt determined in accordance with the methodology determined by Brereton J in the 2016 judgment as modified in a second judgment in March 2017, In the matter of HIH Insurance Limited (in liquidation) [2017] NSWSC 380.
On 28 April 2017, the liquidators admitted the bulk of the shareholders' proofs of debt and calculated their claims in accordance with the methodology determined by Brereton J, but rejected other proofs of debt. On 15 November 2017, the defendants filed interlocutory processes seeking directions as to how to treat the claims of shareholders whose proofs had been rejected. The liquidators identified 23,933 such shareholders, whose potential claims totalled some $18 million. The interlocutory processes were heard by Brereton J on 4 December 2017 and the plaintiffs appeared as interveners, represented by Thomas Booler & Co and counsel Mr McDonald.
His Honour gave judgment in respect of the liquidators' request for directions on 7 December 2018 in In the matter of HIH Insurance Limited (in liquidation) (2018) 133 ACSR 338; [2018] NSWSC 1886. His Honour noted, at [10], that the liquidators took the view that they should not ignore the potential claims of the shareholders notwithstanding that their claims had not been proved or had in some cases been dismissed. His Honour noted that the shareholders whose proofs of debt had been rejected were represented by Thomas Booler & Co on the instructions of a litigation funder Bookarelli Pty Limited, and the question for the liquidators was:
1. whether the claims of the shareholders should be admitted in the liquidation,
2. whether, having regard to the terms of the schemes of arrangement for FAI and C&G, the claims should not be admitted absent any extension of time under section 1322 of the Corporations Act 2001 (Cth),
3. how to deal with the potential claims of corporate shareholders who have been deregistered, and
4. whether the liquidators would be justified in not requiring potential claimants to formerly prove their claims but rather notifying them of their prima facie entitlement and distributing dividends accordingly in the absence of objections.
His Honour considered a proposed means of notifying shareholders, ASIC and the public of how the liquidators proposed to deal with shareholder claims including by sending a circular to shareholders and publishing notices in national newspapers inviting shareholders to make a claim. His Honour heard further argument and made orders on 14 December 2018 in In the matter of HIH Insurance Limited (in liquidation) [2018] NSWSC 1969. On that occasion, Mr McDonald made submissions in respect of a potential claim by some of the shareholders represented by Thomas Booler & Co:
McDONALD: The issue is that the circular addresses the schemes, and doesn't make it clear that, to the extent that anyone has a claim, in particular shareholders, potentially on any other basis, that such claims remain open.
HIS HONOUR: What do you mean, any other basis.
McDONALD: If a shareholder would have a reliance claim.
HIS HONOUR: There is no intention to - why would they need a reliance claim, if they are getting a claim on if their claim has been acknowledged anyway.
McDONALD: If there claim is being acknowledged on the indirect basis.
HIS HONOUR: Which what [sic] the liquidator is doing is writing to everyone who could possibly have such a claim and saying, we propose to admit the claim that we think you have.
McDONALD: Yes. I don't think the proposed circular I think imposes or causes any difficulties. I will take that no further.
In any event, on 14 December 2018 his Honour made orders prescribing a detailed process by which any remaining proofs of debt by shareholders would be dealt with by the liquidators, including sending circulars to shareholders, placing advertisements in newspapers, receiving proofs of debt and determining the proofs by 15 June 2019.
On 13 March 2019, the plaintiffs' solicitor sent a letter to the defendants suggesting that they were entitled to have their claims admitted under regulation 5.6.53, that is, within 28 days, on a "reliance" basis and paid forthwith, that is, on another basis than that envisaged by the methodology determined by Brereton J in 2016, modified in 2017 or the subsequent process approved by his Honour in 2018. This was a significant departure by the plaintiffs. On 22 March 2019, the defendants' solicitors sent a lengthy response describing the process which they were in the course of implementing, being that determined by Brereton J in December 2018, and noted that under that process the shareholders' claims would be determined on 15 June 2019. The defendants continued to implement that process: on 2 April 2019, the liquidators sent a circular to shareholders, including to the plaintiffs; on 16 April 2019, the liquidators placed notices in various national newspapers.
On 14 May 2019, the plaintiffs commenced these proceedings seeking to have their proofs of debt admitted under regulation 5.6.53. On 15 May 2019, the plaintiffs sent notices of objection to the defendants advising that, contrary to the "indirect causation" basis found by Brereton J in 2016, the shareholders wanted their damages assessed on the basis of direct reliance. This was somewhat at odds with Mr McDonald's apparent abandonment of this idea before Brereton J on 14 December 2018, when final orders were made after submissions and argument to give effect to the procedure of eliciting, considering and admitting any remaining shareholder claims. Shortly thereafter, the plaintiffs served the originating process filed in these proceedings.
On 24 May 2019, the defendants' solicitors sent a lengthy letter to the plaintiffs advising that the originating process was misconceived and defective in a number of respects and should be dismissed. The defendants invited the plaintiffs to consent to dismissal of the originating process at the first return date, in which case the defendants were prepared to bear their own costs of the proceedings. Amongst the reasons identified by the defendants as to why the proceedings were misconceived: regulation 5.6.53(2) of the Corporations Regulations was not applicable in this case; some of the plaintiffs had not lodged a proof of debt at all; some of the plaintiffs had been deregistered; and, Thomas Booler & Co did not appear to have authority to commence proceedings on behalf of some of the plaintiffs.
On 14 June 2019, the defendants made decisions on the proofs of debt submitted by the plaintiffs and notified the plaintiffs of the liquidators' decision. Also on 14 June 2019, further plaintiffs submitted further proofs of debt and, on 28 June 2019, the defendants made decisions on the further proofs of debt and notified those plaintiffs of their decision. On 28 June 2019, the 260 plaintiffs whose proofs of debt were rejected by the liquidators commenced a second set of proceedings appealing against the liquidators' determination. As already mentioned, on 15 July 2019 Black J dismissed these proceedings by consent subject to the question of costs.
What is apparent from reviewing the history of the matter is that it is not accurate to suggest that the defendants "capitulated" in consenting to the dismissal of these proceedings. That is a mischaracterisation of what occurred. Rather, the plaintiffs commenced these proceedings in circumstances where there was already a judicially-approved procedure in place, the formation of which had involved the plaintiffs who were on notice of it and availed themselves of it for some three years. Earlier this year, the plaintiffs, for the first time, sought to depart from that procedure and embark upon a different one, presumably because the plaintiffs thought that might bring more pressure to bear on the defendants to admit their claims more quickly or on a more generous basis than that which had been determined by Brereton J.
In circumstances where there was such a procedure on foot under which the defendants were not envisaged to make a decision on the plaintiffs' proofs of debt until 15 June 2019, it was, to use the defendants' words, "wholly unnecessary" for the plaintiffs to commence these proceedings at all. This was promptly pointed out to them by the defendants in a clear and reasoned letter in which the plaintiffs were given an opportunity to withdraw these proceedings without any cost consequence at the first return date. The plaintiffs did not wisely avail themselves of that opportunity. On 15 July 2019, the proceedings were dismissed because, by that date, the liquidator had decided on the proofs of debt - as it had been envisaged since December 2018 that the defendants would - on 15 June 2019.
It seems to me in the circumstances that it cannot be said that the plaintiffs' case falls within the circumstances described by McHugh J in Lai Qin. I am not able to conclude that the liquidators have acted so unreasonably in these proceedings that the plaintiffs, or 240 of the plaintiffs, should have their costs of the action: if anything, I would have reached the reverse view. Nor do I feel confident that the plaintiffs were almost certain to have succeeded if the matter had been fully tried: if anything, I would have reached the reverse view. Nor does it appear to me that the plaintiffs acted reasonably in commencing the proceedings and continued to act reasonably until further prosecution of these proceedings became futile by reason of the liquidators' determination of the shareholders' proofs of debt on 15 June 2019. That is not what happened at all. Therefore, I do not consider that this is a circumstance where the principle in Lai Qin should be applied, even if it were the applicable principle.
In any event, the position in New South Wales under rule 42.20 is different from Lai Qin, as described in Australiawide Airlines v Aspirion at [48]: "Rule 42.20 is the starting point for the court's exercise of its discretion unless the outcome provided by that rule is displaced by a discretionary decision." I am not satisfied on the evidence before me that the costs order provided by rule 42.20 has been displaced by any circumstances which would warrant the defendants not having their costs or, moreover, paying part or all of any of the plaintiffs' costs. In those circumstances, I make the following order:
1. Order the plaintiffs to pay the defendants' costs of the proceedings, including the costs of today.