Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd

The applicable principles

1. The applicable principles are well-established and the parties did not, and did not need to, address them by substantive submissions. The Court has a discretion to determine by whom, to whom and to what extent party/party costs are to be paid, and costs would generally follow the event unless it appeared to the Court that some other order should be made as to the whole or any part of the costs, in accordance with r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW). 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].

The parties' submissions as to costs

1. Drama Unit seeks an order for costs in its favour. Conversely, Fearndale submits that it should be awarded its costs of the proceedings and that Mr Cook's costs of the proceedings should be costs in the administration. Alternatively, Fearndale submits that there should be no order as to costs between Drama Unit and Fearndale, but that Mr Cook's costs should be costs in the administration. Mr Golledge points out that Mr Cook does not pursue a claim for costs against Fearndale, where he had contended that he personally was not properly joined as a defendant in the proceedings, and an Amended Summons filed in Court on 29 November 2018 at the commencement of the hearing did not pursue claims against him on the agreed basis that the respective parties would pay their own costs associated with his joinder to the proceedings.
2. Mr Phillips, who appears for Drama Unit, submits that the primary relief it sought was a declaration that the lease in dispute was valid and enforceable, where Fearndale (by its administrators) had initially not acknowledged the validity of the lease, although it had terminated the lease, and subsequently, from 20 July 2018, denied the validity of the lease. Drama Unit submits that Fearndale maintained the denial of the validity of the lease until after Drama Unit had led evidence seeking to establish its validity, and only abandoned its denial of the validity and enforceability of the lease on service of its outline of submissions immediately prior to the hearing. Drama Unit submits that, upon that concession being made, it achieved "substantial success" in the proceedings so as to entitle it to an order for costs.
3. In response to the criticisms of Fearndale's (or, more precisely, Mr Cook's) position as to the validity and enforceability of the lease, Mr Golledge points to the fact that the relevant transactions had taken place prior to Mr Cook's appointment as administrator of Fearndale. He also refers to my observation in the Judgment at [14] that: "... Drama Unit seeks a declaration that the lease (in a particular form, namely, that found at p 189 of exhibit CM1 to Mr McKinnon's affidavit sworn 10 November 2018) is valid and enforceable. I am not persuaded that I should make a declaration in so wide a form, where a voluntary administrator has been appointed to Fearndale and, so far as the evidence goes, is presently investigating its affairs, which could only be described as extremely complex. It is not apparent that all issues that might impact on the validity of the lease or its enforceability have emerged at this point in the voluntary administrator's investigations. I do not consider that, as a matter of discretion, the Court should, in an ongoing voluntary administration, make a declaration that might foreclose, as between Drama Unit and Fearndale, issues that may in future emerge from the voluntary administrator's investigations. It seems to me preferable that I instead determine the specific issues that were raised in these proceedings. That determination will bind Fearndale and Drama Unit without foreclosing the possibility that other issues might arise from further investigations that might ultimately need to be determined."
4. Mr Golledge also points out that much of the relevant correspondence reserved Mr Cook's position, where it appears that a dispute had previously existed between Drama Unit and Fearndale (by its directors) as to the validity of the lease on which Drama Unit relied. Mr Golledge also points to concerns that could reasonably be held by Mr Cook as to the circumstances of the entry into the lease, and submits that it was reasonable for Mr Cook to wait until he did to make the limited concession which he made at the hearing. I broadly accept that submission, although it is not a full answer to a claim for costs by Drama Unit against Fearndale, where any entitlement to costs is compensatory and does not depend upon any finding that Fearndale's (or its administrator's) position was unreasonable.
5. I do not accept Mr Phillip's submission that a finding as to the validity of its lease amounted to substantial success in the proceedings. It seems to me that that question was a first step in Drama Unit establishing a right to possession of the land, which also depended upon the questions of its compliance with the requirements of the lease and whether the lease had been validly terminated. The findings that I reached in the Judgment had the consequence that the administrators could terminate the lease upon reasonable notice, although I found that they had not then given reasonable notice on the relevant facts, and subject to any question of relief against forfeiture which has not yet been determined. The question of Drama Unit's right to possession of the land has also not been determined. I also do not accept Mr Phillips' submission that the purpose of the proceedings was to determine Drama Unit's rights and interests under the lease where, as Mr Golledge points out, those matters were closely connected with the questions whether the lease had been validly terminated and whether Drama Unit was entitled to possession of the land.
6. Mr Phillips also submits that, to the extent it was relevant, Drama Unit was successful in relation to the question whether or not the lease had been validly terminated by Fearndale, by its administrators. It also seems to me that that submission requires a substantial qualification, namely that Drama Unit was successful on one of the numerous bases on which it had contested the termination of the lease, having failed on several of those bases.
7. Mr Phillips also submits that the question whether Drama Unit's success will ultimately be of any "real practical value", to which I referred in expressing a preliminary view as to costs in the Judgment, is not a "valid consideration" in determining whether to make an order for costs, where the Court determined Drama Unit's rights and interests under the lease in its favour. I will assume, without deciding, the correctness of that proposition. Mr Phillips also submits that there is no suggestion that the lease had been subsequently terminated or any fresh default or termination notices issued and it was speculative whether Drama Unit would take possession of the land in the near future. I cannot accept that submission, where its correctness may depend upon the fact of, or the outcome of, proceedings subsequently brought by Fearndale, which were not addressed by the parties' submissions.
8. In support of the submission that Drama Unit should pay Fearndale's costs, or that there should be no order as to costs, Mr Golledge points to Drama Unit's failure to make out its claim that the lease was capable of being registered; its failure to pursue consequential relief pleaded in its Amended Summons; and its abandonment of a rectification claim on the first day of the hearing. Mr Golledge points to the fact that Fearndale (and Mr Cook) were put to additional costs in preparing to meet those claims of relief. Mr Golledge also points out that, of the evidence identified by Drama Unit as relevant to the issue of the enforceability of the lease, an earlier outline of evidence of Mr Spinks was not relied upon and his subsequent affidavit was not read; an affidavit of Mr McKinnon was not relevant, where he was not a director of Drama Unit at the time the lease was executed; and the affidavit of Ms Tabuso also addressed the contest as to which version of the lease was correct. Mr Golledge also contests the submission that the position taken by Fearndale allowed Drama Unit substantial success in the proceedings.
9. Mr Golledge also refers, in opposition to an order for costs, to delay by Drama Unit in asserting its rights, both prior to the administration of Fearndale and prior to the commencement of these proceedings, which were commenced in November 2018, some 18 months after Drama Unit's entry into the lease, several months after notices to remedy breach of the lease and subsequent notices of termination of the lease had been served, and only after the administrator had sought directions in other proceedings which would authorise the sale of the land, so far as it might constitute trust property. There seems to me to be substantial force in the proposition that Drama Unit unreasonably delayed the commencement of the proceedings. However, I do not treat that matter as relevant to the determination of the question of costs, so far as they are intended to compensate a successful plaintiff for costs incurred in the conduct of proceedings, even if the commencement of those proceedings is delayed.
10. Mr Golledge draws attention to cl 5.2 of the lease between Drama Unit and Fearndale, which requires Drama Unit to pay the "Outgoing[s]" in respect of the lease, defined as costs and expenses of Fearndale in respect of certain matters. It is not necessary to determine whether that clause is capable of applying to the costs of these proceedings, given the conclusions that I have reached on other grounds. Mr Golledge also draws attention to cl 18.2(2)(f) of the lease, which requires Drama Unit to pay Fearndale, on demand, its reasonable legal fees and disbursements in connection with any default by Drama Unit in observing or performing the provisions of the lease. As Mr Golledge points out, I had found that Drama Unit was in breach of the lease in several respects, and that those breaches had not been rectified by Drama Unit prior to its commencement of the proceedings. Mr Golledge also points out, and I accept, that those breaches were central to the matters in issue in the proceedings, so far as they were the subject of the notice to remedy the breach issued by Fearndale to Drama Unit and were relied on for the subsequent termination of the lease. Mr Golledge accepts that Fearndale has not yet made a demand that Drama Unit pay those costs. Nonetheless, it seems to me that the costs of these proceedings are plainly "in connection with" Drama Unit's default under the lease, which was the occasion for the proceedings, and Drama Unit's consequential obligation to pay Fearndale's costs, under the terms of the lease, tends strongly against the Court making an order to the contrary effect. Mr Golledge also points to cl 18.3 of the lease which provides that Drama Unit will pay Fearndale's costs of litigation arising from Drama Unit's occupation of the premises. It is not necessary to decide whether that clause is applicable where Drama Unit has not sought to take possession of the land, given the findings that I reach on other grounds.
11. Mr Golledge also points out, and I accept, that Drama Unit had led evidence that it had the requisite authorisation under the Mining Act 1992 (NSW) which was, at best, plainly unsupportable and, at worst, false. That was a significant issue in the proceedings and that matter seems to me also to tend against an order for costs in its favour.
12. In summary, Mr Golledge submits that an order for costs should not be made in favour of Drama Unit where it succeeded on only one ground of opposition to termination of the lease, of the numerous grounds which it pursued; it failed or abandoned several of the claims as to which it had sought relief; and it had delayed the commencement of the proceedings and advanced claims that were factually wrong, in circumstances that, Mr Golledge contends, it was careless or reckless in doing so.

Determination

1. On balance, I am not satisfied that an order for costs should be made in favour of Drama Unit and against Fearndale, where I have not accepted Mr Phillip's submission that the primary purpose of the proceedings was to determine Drama Unit's rights under the lease, as distinct from the position as to the termination of the lease and its right to possession of the land; where Drama Unit put Fearndale to wasted costs as to significant claims that were not pressed or did not succeed; where Drama Unit's success as to the issue of termination of the lease was of a limited nature; and where it had relied on evidence that was plainly unsupportable in respect of a critical issue in the proceedings. I am also not satisfied that Fearndale should be ordered to pay Drama Unit's costs, where Drama Unit was successful in respect of the termination of the lease, as matters then stood. There should be no order as to costs as between Drama Unit and Fearndale.
2. I am satisfied that the costs of Mr Cook's participation in the proceedings were properly incurred by him in the performance of his role as voluntary administrator of Fearndale, and that his costs of the proceedings should be costs in the administration of Fearndale.
3. Accordingly, I make the following orders:
4. There be no order as to costs of the proceedings as between the Plaintiff and the First Defendant.
5. The Second Defendant's costs of the proceedings be costs in the voluntary administration of the First Defendant.

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