These reasons for judgment, which concern the costs of these proceedings, should be read together with the principal judgment: In the matter of Meglo-Yowrie Flat Units Pty Ltd [2023] NSWSC 1634.
The parties to these proceedings, and the roles that each party played in the proceedings, are described in the principal judgment at [1]-[15].
I have received and considered two rounds of written submissions in relation to costs from each of:
1. Ms Blumentals (the plaintiff);
2. Ms Newstead (the third defendant); and
3. Mr Hendy (the fourth defendant).
Ms Pope (the second defendant) and Ms Jewell (the fifth defendant) filed submitting appearances and have not made any submissions in relation to costs.
The company (the first defendant) filed a defence to the statement of claim in these proceedings, denying that Ms Blumentals was entitled to an order for the registration of a transfer of shares in the company to her from Ms Pope, and denying Ms Blumentals' allegation that the company's affairs had been conducted, and were continuing to be conducted, in a manner that was oppressive. The company also filed a cross-summons seeking orders requiring Ms Blumentals to remove certain works carried out in her unit, seeking declaratory and injunctive relief concerning any future works, and seeking certain other declaratory relief.
However, the company has not been represented in the proceedings since 27 September 2023, when its solicitors were granted leave to file a notice of ceasing to act after the company failed to resolve to fund its legal representation in the proceedings going forward. The company therefore did not appear at the final hearing, and did not prosecute its cross-summons which was dismissed without a hearing on the merits. The company has made no submissions in relation to costs.
Ms Newstead and Mr Hendy actively defended the proceedings, including defending Ms Blumentals' claims for relief on the grounds of oppression, which they denied.
I note that the written submissions on behalf of Ms Newstead state that she seeks an oral hearing in relation to costs. I do not consider that procedural fairness requires that the parties be afforded an oral hearing in addition to the opportunity that they have been afforded to make written submissions in relation to costs.
Ms Blumentals seeks an order that Ms Newstead and Mr Hendy pay her costs of the proceedings, on the basis that her oppression claim was upheld and she succeeded in her claim for an order pursuant to s 233 of the Corporations Act 2001 (Cth) requiring the company to register the transfer of shares from Ms Pope to Ms Blumentals.
The costs of the proceedings in respect of which Ms Blumentals seeks an order in her favour against Ms Newstead and Mr Hendy include the costs of the cross-summons that the company filed against Ms Blumentals, but did not prosecute. Ms Blumentals also seeks an order that Ms Newstead and Mr Hendy pay the company's costs of the cross-summons. It was submitted on behalf of Ms Blumentals that those orders are appropriate because Ms Newstead and Mr Hendy were the directors of the company who caused it to commence the cross-summons against Ms Blumentals.
Each of Ms Newstead and Mr Hendy submit that Ms Blumentals should pay their costs or, alternatively, that there should be no order as to costs as between them and Ms Blumentals. They contend that those orders are appropriate, and that Ms Blumentals should not have a costs order made in her favour for three reasons.
First, each of Ms Newstead and Mr Hendy characterise the outcome of the proceedings as a "mixed result" in which Ms Blumentals failed to establish many of the factual matters that she asserted, and failed to obtain any relief against Ms Newstead or Mr Hendy personally. On that basis, they submitted that costs should follow the "event", and that Ms Blumentals should therefore be ordered to pay their costs of the proceedings. In support of that submission, counsel for Ms Newstead submitted that the "event" is not confined to the determination of the proceedings as a whole, or of particular causes of action, and nor is it limited to the outcome of pleaded issues. It was submitted that the "event" can extend to any disputed question of fact or law. Counsel for Mr Hendy emphasised that Ms Blumentals had pursued Mr Hendy for alleged breaches of fiduciary duties and contraventions of ss 181 and 182 of the Corporations Act, and had alleged that Mr Hendy had breached his duties so as to cause harm to her and to benefit himself and Ms Newstead. Both Ms Newstead and Mr Hendy point to the relatively narrow basis on which Ms Blumentals succeeded in obtaining relief. It was submitted on behalf of Mr Hendy that Ms Blumentals need not have sued him at all in order to obtain the order under s 233 of the Corporations Act requiring the company to register the transfer of shares.
Second, it was submitted on behalf of Ms Newstead that time was taken during the trial with an application by Ms Blumentals for leave to amend her pleadings, which was granted to the extent that claims for relief were withdrawn, but which was otherwise unsuccessful. Mr Hendy's submissions also referred to applications by Ms Blumentals for leave to amend prior to the commencement of the final hearing.
Third, it was submitted on behalf of Mr Hendy that Ms Blumentals had conducted the proceedings in a way that unnecessarily sought to traverse almost the entirety of her dealings with Ms Newstead and Mr Hendy for the whole of the six-year period during which she had been a member of the company.
Each of Ms Newstead and Mr Hendy also purported to make submissions on behalf of the company in relation to costs. Neither Ms Newstead nor Mr Hendy has been granted leave to represent the company in these proceedings. Their submissions appear to be predicated on the assumption or contention that the company is the only defendant against whom any costs order should be made in respect of Ms Blumentals' oppression claim, and that the costs as between Ms Blumentals and each of Ms Newstead and Mr Hendy should be determined solely on the basis that no relief was awarded against Ms Newstead and Mr Hendy personally. Their submissions in relation to the costs of the cross-summons that the company ultimately did not prosecute, and Ms Blumentals' submissions in reply, raise disputes about Ms Blumentals' role in causing the company to fail to fund the costs of appearing at the hearing in order to prosecute the cross-summons, and whether it was oppressive to Ms Blumentals for company funds to have been expended on litigating the claims against her in the cross-summons up to 27 September 2023 when the company's solicitors were given leave to file their notice of ceasing to act. Acknowledging that this was not a matter determined in the principal judgment, counsel for Ms Blumentals submitted that the Court should determine that oppression allegation for the purpose of exercising the costs discretion.
After considering all of the parties' submissions, I have determined for the following reasons that the appropriate exercise of the costs discretion under s 98 of the Civil Procedure Act 2005 (NSW) in all the circumstances of this case is that the company should be ordered to pay Ms Blumentals' costs of the cross-summons, and the costs of the proceedings should otherwise follow the event of the order requiring the company to register the disputed share transfer so that Ms Blumentals' costs will be paid by Ms Newstead and Mr Hendy, who were the only two defendants who actively opposed the relief sought by Ms Blumentals.
As Ms Blumentals submitted, the oppression claim that was determined in the principal judgment was essentially a dispute between the shareholders. Ms Newstead and Mr Hendy were proper contradictors to that claim. It was therefore entirely appropriate for Ms Blumentals to include them as defendants to the proceeding.
Indeed it was necessary for Ms Newstead and Mr Hendy to be defendants to the proceedings because Ms Blumentals also sought relief against them personally.
Until approximately one week before the final hearing, Ms Blumentals' claims for relief included: (1) a claim for a declaration that Ms Newstead and Mr Hendy breached, or caused the company to breach, the Articles of Association by not registering the transfer of shares from Ms Pope to Ms Blumentals; (2) a claim for a declaration that Ms Newstead and Mr Hendy breached their fiduciary duties owed to the company by exercising their powers under the Articles of Association to refuse to register that share transfer otherwise than in good faith, and for an improper purpose; and (3) an order that Ms Newstead and Mr Hendy pay equitable compensation to Ms Blumentals in respect of alleged breaches of fiduciary duties allegedly owed to Ms Blumentals.
Claims (2) and (3) were abandoned in an application for leave to amend that was determined on 25 September 2023. The order made on that date requiring Ms Blumentals to pay the costs thrown away by reason of those amendments will apply to any costs that Ms Newstead and Mr Hendy incurred in respect of their defence of those claims against them personally up to and including 25 September 2023. Ms Blumentals was also ordered to pay the defendants costs thrown away by reason of an earlier round of amendments in July 2023. None of the costs orders to be made now will interfere with those earlier costs orders. Ms Blumentals' further application for leave to amend that was made during the final hearing occupied less than one hour on the second day of the hearing. That application did not materially contribute to the length or the costs of the proceedings.
Ms Blumentals did not abandon claim (1), being the claim for declaratory relief against Ms Newstead and Mr Hendy personally. To the extent that Ms Blumentals' allegations of breach of fiduciary duties owed to the company remained in issue, those allegations formed part of the oppression claim and were no longer separate causes of action. Each of Ms Newstead and Mr Hendy chose to defend the claims against them personally for declarations that they caused the company to breach the Articles, and also chose to defend oppression claim. In doing so, they exposed themselves to the risk of costs orders, including in relation to the oppression claim.
In her affidavits that were read at the final hearing, Ms Blumentals mounted a vigorous personal attack on each of Ms Newstead and Mr Hendy and their conduct in interacting with Ms Blumentals and members of her family during the six year period prior the final hearing in which the Blumentals family, Ms Newstead and Mr Hendy have occupied the four units in the company title building owned by the company. In their affidavits that were read at the final hearing, each of Ms Newstead and Mr Hendy responded in detail, and with equal vigour. Nobody blinked until the final hearing when counsel for the three parties brokered an agreement that they would not press disputed factual matters such as whether or not one party had deliberately parked their car too close to the car of another party, whether or not one party had stared at another party out of the window of their unit, and whether or not one party had flung animal faeces into the courtyard of the unit occupied by another party. Based on the volume and content of the affidavits, considerable time was expended, and considerable costs were incurred, by all parties in preparing evidence about matters of this nature. Ms Blumentals bears responsibility for initiating that approach to the proceedings. Ms Newstead and Mr Hendy bear responsibility for responding in kind, rather than confining their evidence to the matters that were relevant to the pleaded case and taking appropriate objections to Ms Blumentals' affidavits on the grounds of relevance. The parties' shared responsibility for the unsatisfactory manner in which the proceedings were conducted means that it is a neutral factor in the exercise of the costs discretion.
Once all of the irrelevant matters were stripped away from each party's case, there was a substantial overlap between the factual issues relevant to the claim for declaratory relief against Ms Newstead and Mr Hendy, and the factual issues relevant to the oppression claim. The submissions made by the parties during the course of the hearing were directed primarily to the oppression claim, and the question of the appropriate relief in the event that the Court found that the conduct of the company's affairs was oppressive. The inclusion of the claims for declaratory relief against Ms Newstead and Mr Hendy did not add to the scope of the factual issues canvassed in the evidence and submissions in any perceptible way. Nor did it prolong the hearing.
As counsel for Ms Blumentals submitted, the company's refusal to register the disputed share transfer was the main issue in contest. Ms Blumentals succeeded in relation to that issue, over the strenuous opposition of Ms Newstead and Mr Hendy. That is the "event" which costs are to follow in accordance with r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW), unless it appears to the Court that some other order should be made as to the whole or any part of the costs. Contrary to the submissions made on behalf of Ms Newstead and Mr Hendy, this is not a case in which any particular factual or legal issues were clearly dominant or separable from the others. Applying the principles summarised by the Court of Appeal in Ostin Constructions Pty Ltd (t/as Lars Fischer Construction) v Ostin (No 2) [2021] NSWCA 98 at [11]-16], I do not consider that this is a case in which it is appropriate to attempt to differentiate between individual factual and legal issues on which Ms Blumentals succeeded, and issues in respect of which she failed, in fashioning the terms of a costs order.
The company's cross-summons was dismissed without a hearing on the merits. Rule 42.20 of the Uniform Civil Procedure Rules provides that, if an order is made for dismissal of a cause of action then, unless the court orders otherwise, the plaintiff (or, in this instance, the cross-claimant) must pay the costs of the defendant (or, in this instance, the cross-defendant). Applying the well-known principles that were conveniently summarised by Ward CJ in Eq (as the President of the Court of Appeal then was) in Furnish & Finish Pty Ltd v Hollands [2020] NSWSC 1593 at [28]-[37], I decline the parties' invitation to turn the costs determination into satellite litigation about whether there were reasonable grounds for the company to pursue the cross-summons up until it ceased to be legally represented, or whether the pursuit of the cross-summons was oppressive, and whether Ms Blumentals improperly used her power as a director of the company to preclude the company from resolving in favour of putting its solicitor in funds to appear at the final hearing in order to prosecute the cross-summons. The material before the Court in relation to the question of costs does not disclose any reason to depart from rule 42.20 in this case.
I record for completeness, and to avoid any doubt, that the parties' submissions touched on their financial capacity to meet a costs order. I do not consider that to be relevant to the exercise of the costs discretion in these proceedings, and I have not taken the question of financial capacity into account. The parties' financial capacity was not the subject of any evidence, in any event.
The orders of the Court are:
1. Order that, subject to order 3 below, the plaintiff's costs of the proceedings (excluding the costs that are the subject of order 2 below) are to be paid by the third and fourth defendants on the ordinary basis, as agreed or assessed.
2. Order that, subject to order 3 below, the first defendant is to pay the plaintiff's costs of the first defendant's cross-summons on the ordinary basis as agreed or assessed.
3. Order that orders 1 and 2 above do not apply to any component of the costs of these proceedings that are the subject of a previous costs order.
4. For the avoidance of doubt, note that no order as to costs is made against, or in favour of, the second and fifth defendants who entered submitting appearances.
5. Direct that the exhibits and documents marked for identification be returned to the parties.
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Decision last updated: 23 April 2024