Cretazzo v Lombardi

Background and applicable principles

1. On 18 September 2017, I delivered judgment ([2017] NSWSC 1247) ("Judgment") in an application by WIN Corporation Pty Ltd and others seeking a range of orders against the voluntary administrators ("Administrators") of TEN Network Holdings Limited (admins apptd) (recs and mgrs apptd) and other companies within the TEN Group (together, "TEN Defendants") and against CBS International Television Australia Pty Ltd and associated entities ("CBS Defendants"). I summarised the result I reached, and expressed a preliminary view as to costs, in paragraphs [163]-[164] of the Judgment as follows: "In summary, I am not satisfied that the Plaintiffs have established that any deficiencies in the Section 439A Report, as supplemented by the Supplemental Report, are such as to warrant orders requiring that further information be provided to creditors or that the second creditors' meeting be restrained. It will be a matter for creditors at that meeting to determine whether that meeting should be adjourned by reason of, inter alia, any recent commercial developments, or for any other reason. I am not satisfied that CBS should be prevented, in advance, from voting at the meeting, or its vote restricted to a nominal amount. Any challenge to the outcome of that meeting is properly brought after the event. I am also not satisfied that shareholders in Holdings are entitled to be provided further information concerning or to vote at the second creditors' meeting. For these reasons, the Further Amended Originating Process should be dismissed. My preliminary view is that the Plaintiffs should pay the Defendants' costs of the proceedings as agreed or as assessed and, in accordance with the usual position as to a person who seeks to be heard under r 2.13 of the Supreme Court (Corporations) Rules without being joined as a party, there should be no order as to Fox's costs of the proceedings. I will hear any party which seeks further to be heard as to costs."
2. On delivery of the Judgment, I ordered that the Plaintiffs' Further Amended Originating Process be dismissed and, in order to allow the parties an opportunity to be heard as to costs, I ordered that the parties bring in agreed short minutes of order as to costs within 7 days or, if there was no agreement between them, their respective draft short minutes of order as to costs and short submissions as to any differences between them, indicating whether an oral hearing was requested. All parties have indicated that they are content for the issue of costs to be determined on the papers.
3. By way of background, s 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) 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." Rule 42.2 in turn provides that, unless the court orders otherwise or the rules otherwise provide, costs payable are to be assessed on an ordinary basis. The Plaintiffs refer to authority that, admittedly in a rare case, the Court may exercise its discretion to order that a successful party pay an unsuccessful party's costs: Cretazzo v Lombardi (1975) 13 SASR 4 at 11-12. They submit, and I accept, that the Court should "take into account the contextual circumstances of the litigation and the conduct of the parties" in the exercise of its discretion as to costs: Seller v Jones [2014] NSWCA 19 at [55], [97]. The Plaintiffs also submit that the Court may order a successful party pay an unsuccessful party's costs where it has "capitulated" by improving the conduct under challenge: Ku-ring-gai Council v Minister for Planning (No 2) [2008] NSWLEC 276; Hall v Ku-ring-gai Council [2009] NSWSC 370.

The TEN Defendants' and CBS Defendants' submissions

1. The TEN Defendants submit that costs should follow the event, and that the Defendants were successful in both the overall outcome of the litigation and on the distinct issues raised in it. They refer to legal costs that were incurred in litigating issues on which the Plaintiffs failed, which would largely be included in the order for costs that the Plaintiffs accept should be made against them from 12 September 2017. They submit that the Administrators' supplemental report to TEN Group creditors on 11 September 2017 was sent before the commencement of the hearing and that the Plaintiffs had sufficient (although, I interpolate, limited) time to determine whether they would continue to press all of their claims. The TEN Defendants also point to the fact that there was only a limited narrowing of the Plaintiffs' claims by a Further Amended Statement of Claim filed by the Plaintiffs on 14 September 2017, by leave, on the day after the oral hearing had concluded. These matters are also addressed by the costs order which the Plaintiffs accept should be made against them from 12 September 2017.
2. The CBS Defendants submit that there is no reason to depart from the usual rule recognised by r 42.1 of the Uniform Civil Procedure Rules in respect of the Plaintiffs' case against them and that costs should follow the event in accordance with the preliminary view that I expressed in paragraph [164] of the Judgment. The CBS Defendants also submit that the Plaintiffs sought orders that would extinguish or diminish the CBS Defendants' voting rights at the second meeting of creditors; that the CBS Defendants were necessary parties where those orders were sought against them; that the Plaintiffs were wholly unsuccessful against the CBS Defendants; and that nothing about the conduct of the proceedings by the CBS Defendants would disentitle them to their costs. The Plaintiffs did not submit to the contrary, although I will refer below to their submission that an order should be made that the Administrators pay the CBS Defendants' costs by way of a Sanderson order.

The Plaintiffs' submissions as to the TEN Defendants' costs up to and including 11 September 2017

1. The Plaintiffs submit that the appropriate exercise of the Court's discretion as to costs is that the Administrators should pay the costs of the Plaintiffs and the CBS Defendants up to and including 11 September 2017 on an ordinary basis, and there should be no order as to the Ten Group's costs for that period. The Plaintiffs accept that they should pay the Defendants' costs incurred on and from the date the hearing commenced, 12 September 2017, on an ordinary basis. The Plaintiffs submit that, alternatively, they should only pay the Administrators' costs from 12 September 2017.
2. In support of that submission, the Plaintiffs refer to the steps that were taken in the proceedings from their commencement on 6 September 2017 until the service of the supplemental report to the Ten Group's creditors by the Administrators on 11 September 2017, including the service of opening submissions and, I should add, an affidavit of their solicitor on which the Plaintiffs relied. The Plaintiffs submit that their decision to commence the proceedings was "vindicated" by the issue of the supplemental report by the Administrators and that the dismissal of the Further Amended Originating Process on 18 September 2017 occurred only after the Plaintiffs "had already achieved substantial extra-curial success". I pause to note that, to the extent that the Plaintiffs had achieved such success, that had occurred on the issue of the supplemental report on 11 September 2017 and prior to the commencement of the hearing that continued over two days on 12 and 13 September 2017, where they sought further relief as to which they were ultimately unsuccessful.
3. The Plaintiffs also submit that the Administrators' issue of the supplemental report, less than a day before the final hearing, was calculated to remove the factual substrate of the complaint of inadequate disclosure advanced by the Plaintiffs in the proceedings. The Plaintiffs submit, and there appears little doubt from the face of the supplemental report and the opening of Senior Counsel for the Administrators, that further disclosure was made by the Administrators in order to address the issues in the proceedings. The supplemental report made that clear, not least, by a table identifying the issues raised in the Amended Originating Process and where the supplemental report addressed them. The Plaintiffs submit, and I also largely accept, that the Administrators conducted the case in a manner that relied on the supplemental report to address any deficiency in the initial disclosure they had made, although their formal position was that that supplemental report was published "[w]ithout any admission as to the necessity for such disclosures to be made".
4. It does not follow that, because the Administrators had improved their position and their ability to resist the Plaintiffs' claim by the issue of the supplemental report, they could not have succeeded in defending those claims on the initial report as it stood prior to the issue of the supplemental report. For example, a significant aspect of the Plaintiffs' criticism of the Administrators' initial report to creditors related to the fact that it did not provide information as to the terms of an offer previously made by Birketu Pty Ltd and Illyria Nominees Television Pty Ltd in respect of a restructuring of the Ten Group, a matter as to which the Administrators made further disclosure in the supplemental report. However, I held in the Judgment that that offer had lapsed, prior to the issue of the Administrators' initial report. A real question would therefore arise as to whether it was necessary to make disclosure as to that lapsed offer in the initial report, although it would no doubt have been helpful to do so as was done in the supplemental report. That question was not determined at the hearing, since it was moot once the supplemental report was issued. It would not be appropriate to seek to determine that question now in order to address the costs incurred over the relatively short period between the commencement and the hearing of the proceedings.
5. I therefore do not accept the Plaintiffs' submission that the Administrators should pay their costs up to 11 September 2017, where that would require a determination of the merits of a case that has not been determined, in respect of the Plaintiffs' challenge to the initial report to creditors issued by the Administrators, in isolation from the supplemental report issued by the Administrators on 11 September 2017. I also do not accept that the publication of the supplemental report amounted to a capitulation by the Administrators, as distinct from a largely successful attempt to improve their position from whatever it was prior to the publication of that report to a stronger position. Conversely, an order should not be made that the Plaintiffs pay the TEN Defendants' costs up to 11 September 2017, where there has been no determination as to the position had the Administrators' initial report not been supplanted by the supplemental report.
6. I am satisfied that, where the Court has not determined the position in respect of the adequacy of the disclosure made in the initial report, because the supplemental report displaced that position, there should be no order as between the Plaintiffs and the TEN Defendants as to costs up to and including 11 September 2017, with the intent that each of the Plaintiffs and the TEN Defendants should bear their own costs of the proceedings in that period.

The Plaintiffs' submissions as to the CBS Defendants' costs up to and including 11 September 2017

1. I do not accept the Plaintiffs' submission that the Administrators should be required to pay the costs of the CBS Defendants up to and including 11 September 2017. The Plaintiffs submit that the Court has power to order the Administrators to pay the costs of the CBS Defendants by way of a Sanderson order. Such an order can be made against an unsuccessful defendant to pay the costs of a successful defendant as well as the costs of a plaintiff. However, such an order will generally only be made if the Court finds that it was reasonable and proper for the plaintiff to have sued the successful defendant and that there is something in the conduct of the unsuccessful defendant that would justify making the order. The Plaintiffs' submissions do not seek to explain why a Sanderson order, if otherwise available, would be appropriate in respect of the costs of the CBS Defendants.
2. The most obvious difficulty with making the order sought by the Plaintiffs in respect of the CBS Defendants' costs is that the Administrators are successful rather than unsuccessful defendants, since the Plaintiffs failed in their case against them. A second difficulty is that the Plaintiffs' case as against the CBS Defendants concerned the Plaintiffs' unsuccessful application to prevent the CBS Defendants voting, or to limit their voting rights, at the second meeting of creditors. The outcome of that case substantially depended on questions of the proper operation of Pt 5.3A of the Corporations Act 2001 (Cth) and not upon any further disclosure made by the Plaintiffs in the supplemental report. It seems to me that there is nothing in the Administrators' conduct that had any impact on the question whether the CBS Defendants should or should not be entitled to vote at the second meeting of creditors, and no reason that the Administrators rather than the Plaintiffs (which unsuccessfully challenged that entitlement) should be ordered to pay those costs. The Plaintiffs should therefore pay the CBS Defendants' costs of the proceedings, both before and after the issue of the Administrators' supplemental report on 11 September 2017, because their case against the CBS Defendants failed and would have failed irrespective of whether the Administrators had issued their supplemental report.

The Plaintiffs' submission as to costs from 12 September 2017

1. The Plaintiffs fairly accept that they continued the proceedings after the issue of the supplemental report and that they must bear the consequences of that, by an order that they pay the Defendants' costs of the proceedings incurred on and from 12 September 2017.

Costs of Twentieth Century Fox Film Corporation (Australia) Pty Ltd

1. Twentieth Century Fox Film Corporation (Australia) Pty Ltd ("Fox") was heard in the proceedings under r 2.13 of the Supreme Court (Corporations) Rules 1999 (NSW) and the usual position is that a person heard in that capacity will neither be awarded costs nor have an order for costs made against them. Neither the parties, nor Fox, submitted that the Court should depart from that usual position in this case.

Orders

1. Accordingly, I make the following orders:
2. There be no order as to costs, as between the Plaintiffs and the First to Seventeenth Defendants, up to and including 11 September 2017.
3. The Plaintiffs pay the First to Seventeenth Defendants' costs of the proceedings incurred on and from 12 September 2017 on an ordinary basis as agreed or as assessed.
4. The Plaintiffs pay the Eighteenth to Twentieth Defendants' costs of the proceedings on an ordinary basis as agreed or assessed.

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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: 17 April 2018