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[2003] NSWSC 135
Supreme Court of NSW
2003-03-13
Barrett J, Mr J
Original judgment source is linked above.
CITATION : Foyster v Foyster Holdings [2003] NSWSC 135 HEARING DATE(S) : 17/02/03 JUDGMENT DATE : 13 March 2003
JURISDICTION: Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Costs orders
CATCHWORDS : CORPORATIONS - competing s.237 applications to represent defendant company - directors eventually able to deal with defence - both applications dismissed - liability for costs of applications - PROCEDURE - costs - whether gross sum should be awarded - whether indemnity costs should be awarded - whether costs should be payable forthwith LEGISLATION CITED : Corporations Act 2001 (Cth), ss.236, 237, 242 Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1 CASES CITED : Harrison v Schipp (2002) 54 NSWLR 738 Oshlack v Richmond River Council (1997) 193 CLR 72 David Lloyd Foyster - Plaintiff Foyster Holdings Pty Limited (Provisional Liquidator Appointed) - First Defendant Ian Lawrence Struthers - Second Defendant Jacqueline Whyatt Foyster - Third Defendant Tasmanian Titanium Pty Limited - Fourth Defendant PARTIES : Peter William Hopkins - Fifth Defendant Hopkins Professional Services Pty Limited - Sixth Defendant Maxwell William Prentice - Seventh Defendant Repbrook Pty Limited - Eighth Defendant John Leslie Coggan and Michael John Russell - Directors of Fourth Defendant Anne Robinson - Intervener - Former Director of Fourth Defendant FILE NUMBER(S) : SC 2806/02 Mr M B Evans - Plaintiff COUNSEL : Mr M J Cohen - Fourth Defendant, Mr Coggan and Mr Russell Mr S Lusk, Solicitor - Fifth and Sixth Defendants Mr J McEncroe, Solicitor - Mrs Robinson Kings Lawyers - Plaintiff SOLICITORS : Peter W Hopkins - Fourth Defendant, Mr Coggan and Mr Russell Phillips Fox - Fifth and Sixth Defendants John McEncroe & Company - Mrs Robinson
2806/02 - DAVID LLOYD FOYSTER v FOYSTER HOLDINGS PTY LIMITED JUDGMENT ON COSTS 1 I am dealing with an application for costs by Mr Coggan and Mr Russell whose involvement in these proceedings arose from their interlocutory process (styled notice of motion) filed on 27 May 2002. There is also an application for costs by the fourth defendant, Tasmanian Titanium Ltd, which is no longer a party. In order to put the present applications into context, it is necessary to recite some background. 2 By an originating process filed on 21 May 2002, the plaintiff sued eight defendants. On 26 August 2002, the proceedings were summarily dismissed as against the seventh defendant. On 23 September 2002, the plaintiff filed in court, by leave, notice of discontinuance against the first defendant. The fourth defendant has also ceased to be a party. This happened on 25 November 2002 when the plaintiff filed a second amended originating process from which the claims originally asserted against the fourth defendant were omitted, so that those claims were abandoned. 3 The originating process filed on 21 May 2002 had sought, as against the fourth defendant, an order for the appointment of a receiver and an order declaring void or setting aside certain agreements to which the first defendant and the fourth defendant were parties. Those are the claims that were abandoned on 25 November 2002. 4 At the time of commencement of the proceedings and afterwards, the fourth defendant was beset by internal divisions. As a result, its board of directors apparently found itself incapable of making the decisions necessary to cause the claims against the fourth defendant to be taken in hand and defended. Two competing applications for leave to intervene in these proceedings in the interests of the fourth defendant were then initiated under s.237 of the Corporations Act 2001 (Cth) by persons having standing in that respect under s.236. Both applications were filed on 27 May 2002. In one case, the applicants were Mr Coggan and Mr Russell. In the other case, the applicant was Mrs Robinson. On 21 October 2002, however, Mrs Robinson resigned as a director of the fourth defendant. 5 When the second amended originating process was filed on 25 November 2002, omission of the claims against the fourth defendant meant that there was no longer any need for anyone to be allowed to intervene on its behalf. Both s.237 applications were dismissed by Austin J on 25 November 2002, with costs reserved. By that time, Mrs Robinson had, in any event, ceased to be a director of the fourth defendant and her application to intervene on its behalf had ceased to have viability. As a result of her resignation, the divisions within the fourth defendant were sufficiently resolved that the board was able to make decisions about the fourth defendant's position in relation to the litigation. 6 Mr Cohen of counsel, who appeared for Mr Coggan and Mr Russell upon the present costs application, submitted that there should be orders
(a) that the plaintiff pay the fourth defendant's costs of the proceedings; (b) that the plaintiff pay the costs of Mr Coggan and Mr Russell of and incidental to the s.237 application by Mr Coggan and Mr Russell; and (c) that Mrs Robinson pay the costs of Mr Coggan and Mr Russell of and incidental to the s.237 application of Mrs Robinson, with the costs, in each case, being a gross sum pursuant to Part 52A rule 6(2) of the Supreme Court Rules. If a gross sum is not to be awarded in any such case, Mr Coggan and Mr Russell say that costs should be assessed and payable forthwith. In the case of the costs sought against the plaintiff (items (a) and (b) above), they say that costs should be assessed on the indemnity basis. 7 These questions arise in a context where there were, quite clearly, serious differences within the board of directors of the fourth defendant. It was said in the course of submissions that the board was split 50/50 and there were entrenched positions which produced a situation of deadlock. That is, I think, a fair description of the situation. On 23 May 2002, there was a proposal before the board of directors for the appointment of a certain firm of solicitors to represent the fourth defendant in the proceedings. One faction agreed to that but the other did not, indicating a preference for another firm. The board was incapable of making a decision. The two s.237 applications followed but, after Mrs Robinson's resignation from the board on 21 October 2002, the board itself was able to function and resolved matters by determining to appoint solicitors. It was this sequence of events that made continuation of the s.237 applications unnecessary and led to their being dismissed. 8 The fourth defendant, although no longer involved in the proceedings, was originally the object of an interlocutory injunction which was granted on 21 May 2002 and continued on 4 June 2002. The plaintiff's claim for the appointment of a receiver of the fourth defendant was never moved upon. The interlocutory injunction was apparently seen as imposing sufficient stability. 9 Various submissions were made on the costs hearing before me about the nature of and reasons for the ructions within the administration of the fourth defendant which apparently caused the board to be unable to function and prompted each faction to seek to represent it in these proceedings through s.237. I must say that I see those matters as essentially beside the point, so far as the present applications are concerned. 10 The plaintiff's position vis a vis the fourth defendant is that he initiated proceedings against numerous parties, including the fourth defendant, and then, after various interlocutory steps, abandoned his claims against the fourth defendant. I see no basis upon which the plaintiff can resist liability for the fourth defendant's costs of the proceedings. It may be that there was no formal discontinuance in accordance with Part 52A rule 21, but the effect was the same and the consequence that rule envisages - that the discontinuing party should pay the costs occasioned by the discontinued claim - should follow here. No cogent reason for any other outcome is advanced. 11 I turn now to costs associated with the applications under s.237 of the Corporations Act. In doing so, I pause to note what is said on the subject of costs in s.242: "The Court may at any time make any orders it considers appropriate about the costs of the following persons in relation to proceedings brought or intervened in with leave under section 237 or an application for leave under that section: (a) the person who applied for or was granted leave; (b) the company; (c) any other party to the proceedings or application. An order under this section may require indemnification for costs." 12 This section confers jurisdiction to make, in relation to an application for leave under s.237, an order as to the costs of any of the persons in paragraphs (a), (b) and (c). Mr Coggan and Mr Russell are within paragraph (a) so far as their own application for leave under s.237 is concerned. As for Mrs Robinson's s.237 application, there is, I suppose, a question whether Mr Coggan and Mr Russell are within paragraph (c) (they could not be within (a) or (b)) as they may not be, in a strictly formal sense, "parties" to her application, so that there is also a question whether the court is enabled by s.242 to make an order that Mrs Robinson pay their costs of and incidental to that application. I do not consider it necessary to dwell on this question. The section empowers the court to make "any orders it considers appropriate about the costs" of the persons to whom it refers. The court is thus free to approach matters with which the section deals unconfined by statutory prescriptions and by reference to the discretions that apply in the ordinary course in deciding applications for costs. Furthermore, there does not appear to me to be any basis on which the section can be regarded as intended to cover the field in any restrictive way warranting a conclusion that there may be no order as to costs in relation to a s.237 application except as the section allows. No such negative message is, to my mind, either explicit or implicit and I therefore approach the matter on the basis that the court has power, as part of its ordinary jurisdiction in relation to costs, to make the costs orders sought by Mr Coggan and Mr Russell in relation to both their own s.237 application and that of Mrs Robinson. 13 The first application for costs in relation to a s.237 matter is the application of Mr Coggan and Mr Russell for an order that the plaintiff pay their costs of and incidental to their s.237 application. I must say that I find it difficult to see why a plaintiff who chooses to pursue litigation against a corporate defendant which happens to have a deadlocked board of directors should be expected to bear costs occasioned by that dislocation and by the need for statutory processes to be invoked within and in relation to the corporate defendant to enable that defendant to make decisions necessary to defend the proceedings. In the ordinary course, one would expect that a member or officer compelled to resort to s.237 to ensure that a defendant company was represented in proceedings should be protected, as to costs, by the company itself or by parties privy to the circumstances giving rise to the need for the s.237 application. Such a member or officer becomes, after all, the surrogate of the normal corporate decision makers whose decision has not been forthcoming. 14 If Mr Coggan and Mr Russell had been successful in their s.237 application and had thereby been constituted the representatives through whom the fourth defendant defended the litigation initiated by the plaintiff, their costs of achieving the representative status might have been regarded in the same way as the fourth defendant's costs - so that effective discontinuance by the plaintiff against the fourth defendant would have carried with it not only an order against the plaintiff for the fourth defendant's costs of the proceedings but also an order against the plaintiff for the interveners' costs of achieving representative status, that being something that, in such a case, is an element of the fourth defendant's costs. 15 The difference here is that the merits of the claim of Mr Coggan and Mr Russell to intervene under s.237 were never tested. Nor were the merits of Mrs Robinson's claim. I do not consider the court to be in any position to judge which, if either, of those claims would have succeeded, if the need to press them had continued. Mr Coggan and Mr Russell might have been successful in their claim to intervene on behalf of the fourth defendant. Alternatively, Mrs Robinson might have been successful. Alternatively, all might have failed. In the first eventuality, there might have been a basis for regarding the costs of Mr Coggan and Mr Russell of obtaining representative status as an indirect element of costs that should be awarded against the plaintiff by reason of his having discontinued as against the fourth defendant. In the other two eventualities, there would have been no such basis. 16 The important intervening factor in this case, so far as the application of Mr Coggan and Mr Russell is concerned, was the resignation of Mrs Robinson on 21 October 2002. It was that, rather than the plaintiff's subsequent abandonment of its claims against the fourth defendant, that took away the need for Mr Coggan and Mr Russell to continue their attempts to obtain standing to defend on behalf of the fourth defendant. 17 In these circumstances, I do not consider it appropriate to order that the plaintiff pay the costs of Mr Coggan and Mr Russell of their interlocutory process (notice of motion) of 27 May 2002. To the extent that they have any expectation of being protected for those costs, it is an expectation that needs to be addressed by them within the confines of the fourth defendant and its constituency. 18 This leads to a consideration of the claim of Mr Coggan and Mr Russell for an order that Mrs Robinson pay their costs of and incidental to Mrs Robinson's interlocutory process by which she sought leave under s.237 to intervene on behalf of the fourth defendant. 19 Mr Coggan and Mr Russell, on the one hand, and Mrs Robinson, on the other, represented the two factions within the board of directors of the fourth defendant whose disputes or differences led to the board's inability to make a decision enabling the fourth defendant to retain lawyers and defend the proceedings in the ordinary way. That situation continued until 21 October 2002 when Mrs Robinson resigned as a director, thereby removing the impasse. 20 Mrs Robinson's application for leave to intervene under s.237 was effectively abandoned by her when she resigned from the fourth defendant's board. Thereafter, the fourth defendant's directors were able to deal with the matter that had been the source of the competing s.237 applications. Mrs Robinson's resignation may therefore be approached as if it had been a discontinuance by her of her application to intervene, with Mr Coggan and Mr Russell being, as it were, beneficiaries of that discontinuance in that they were freed from the need to oppose her application that was inconsistent with their own and therefore invited opposition by them. 21 On that basis, it should be ordered that Mrs Robinson pay the costs of Mr Coggan and Mr Russell of and incidental to Mrs Robinson's interlocutory process filed on 27 May 2002. 22 I come now to the question whether the costs awarded should be by way of a "gross sum" as referred to in Part 52A rule 6(2) in the Supreme Court Rules. That rule is as follows: " Part 52A, r 6 of the Supreme Court Rules provides: 6 (1) Subject to this Part, where, by or under these rules, or any order of the Court, costs are to be paid to any person, that person shall be entitled to assessed costs. (2) Where the Court orders that costs be paid to any person, the Court may, at any time prior to the costs being referred to the registrar for assessment, further order that, as to the whole or any part(specified in the order) of the costs, instead of assessed costs, that person shall be entitled to - (a) a proportion specified in the order of the assessed costs; (b) the assessed costs from or up to a stage of the proceedings specified in the order; or (c) a gross sum specified in the order instead of the assessed costs." 23 The circumstances in which this rule is appropriately used were described by Giles JA in Harrison v Schipp (2002) 54 NSWLR 738: "The power conferred by Pt 52A, r 6(2) is not confined, and may be exercised whenever the circumstances warrant its exercise. It may appropriately be exercised where the assessment of costs would be protracted and expensive, and in particular if it appears that the party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment ( Leary v Leary [1987] 1 WLR 72; [1987]1 All ER 261; Sparno v Apand Pty Ltd (Federal Court of Australia, von Doussa J, 4 March 1998, unreported); Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119; Hadid v Lenfest Communications Inc [2000] FCA 628). Of its nature, specification of a gross sum is not the result of a process of taxation or assessment of costs. As was said in Beach Petroleum NL v Johnson (at 124), the gross sum "can only be fixed broadly having regard to the information before the Court"; in Hadid v Lenfest Communications Inc (at [35]) it was said that the evidence enabled fixing a gross sum "only if I apply a much broader brush than would be applied on taxation, but that ... is what the rule contemplates". The approach taken to estimate costs must be logical, fair and reasonable ( Beach Petroleum NL v Johnson (at 123); Hadid v LenfestCommunications Inc (at [27])). The power should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available ( Wentworth v Wentworth (Court of Appeal, 21 February 1996, unreported) per Clarke JA)." 24 I do not understand Mr Cohen to have submitted that either of the particular situations referred to by Giles JA exists here, that is, that the ordinary process of assessment would be protracted and expensive (or, at least abnormally so) or that the party against whom the costs order is made (here, in one case, the plaintiff and, in the other, Mrs Robinson) appears unlikely to be able to meet a liability of the order likely to arise from assessment. Nor, as I see it, is there material before me that permits me to come to any such conclusions. I cannot identify circumstances warranting resort to this procedure which, as Mr Cohen recognised, would give rise to a need for further evidence. All things considered, no case has been made for putting the present costs orders outside the mainstream of the costs assessment process. 25 The next question is whether the costs awarded against the plaintiff should be assessed on the indemnity basis. I must say at once that I do not consider this to be an appropriate case for indemnity costs. There was not, as I see it, "relevant delinquency" (Oshlack v Richmond River Council (1997) 193 CLR 72 per Gummow J) by the plaintiff in including the fourth defendant in the proceedings or in pursuing the claims for interlocutory relief and the appointment of a receiver. The apparent deadlock within the board of the fourth defendant provided a sufficient basis for those claims. The case is immediately distinguishable from one in which proceedings are started without reason. 26 The final question, in relation to each costs order, is whether it should be ordered that the costs be assessed and payable forthwith. Given that the s.237 applications have been disposed of in full and represent a completed and discrete aspect of the proceedings to which the fourth defendant is no longer a party and in which Mr Coggan, Mr Russell and Mrs Robinson no longer wish to intervene, such an order is appropriate in each case. Completion of a phase is one of the indicators of the appropriateness of assessment before the end of the proceedings (Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1) and a particularly strong indicator where the person in whose favour the costs order is made has ceased to have any involvement. 27 The orders of the court are as follows:
Last Modified: 03/17/2003 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.
Foyster
Foyster Holdings