Grace v Grace

Judgment (ex tempore) 1HIS HONOUR: The first of the several outstanding matters in these proceedings with which this judgment is concerned is the question of costs. The plaintiff proposes an order to the effect that first and second defendants pay 85% of his costs of the proceedings. The defendants propose orders that they pay the plaintiff's costs on the ordinary basis with respect to the administration case and the cross-claim; that the plaintiff pay their costs on the ordinary basis with respect to the oppression case; and that they pay the plaintiff's costs on the ordinary basis until 10 September 2009, and thereafter the plaintiff pay their costs on the indemnity basis, with respect to the Nevilda Investment Superannuation Fund (NISF) case. 2At the outset the plaintiff sought to assert his rights as a shareholder in respect of the Nevilda companies and as a beneficiary of the estate of his late father, primarily on the footing that he was entitled to, and had wrongly been deprived of, shares which would carry directly or indirectly control of those companies, and that a significant asset of the estate, namely the Birrell Street property, had been wrongly removed from the estate and transferred to Dr Grace, when it would otherwise have fallen into residue to which he was entitled. Alternatively, he sought relief on the footing that as a minority shareholder in the Nevilda companies he was being oppressed. 3The defendants cross-claimed, essentially to restore their position in respect of the shareholdings in the Nevilda companies and the Birrell Street property, if it were found that the transactions by which the, had originally become entitled to those shares and that property were voidable. 4The plaintiff subsequently, by amendment, added a claim for an account against the defendants in their capacity as trustees of the NISF. 5Viewed as a whole, the plaintiff succeeded in the proceedings. He established that he had been wrongly deprived of the Nevilda shares and the Birrell Street property. That having been established, he was entitled to have the property restored to the estate, and the shares transferred to him. The defendants' cross-claim failed. In those circumstances the substantive relief that the plaintiff sought was granted, and the claim for relief for oppression was rendered superfluous. 6The plaintiff on the merits failed in his oppression suit and in substance, on his NISF claim, in respect of which he received no more than had been conceded by the defendants at the outset, namely, an account on the common basis. 7Essentially, the controversy with respect to costs concerns the impact on the question of costs of the plaintiff's failure on two issues that were significant in the proceedings, namely, the oppression claim and the NISF claim. 8Defendants' counsel have helpfully collected in their submissions many of the relevant authorities and in particular Hexiva Pty Ltd v Lederer [2006] NSWSC 1259 in which I sought to summarise the position as follows (at [9]): Although the starting point is that the plaintiffs, having been successful, are entitled to their costs, and that it is for the defendants to establish a basis for departing from that rule, a successful plaintiff who has failed on certain issues may be deprived of costs on those issues, or even ordered to pay the defendant's costs on them [Hughes v Western Australia Cricket Assn Inc (1986) ATPR 40-748, 48,136]. This course, while open, is one on which the court embarks with hesitancy [Mobile Innovations Ltd v Vodaphone Pacific Ltd [2003] NSWSC 423, [4]; Cretazzo v Lombardi (1975) 13 SASR 4 at 16; Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261; Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 28 ALR 201; Walters v PC Henderson (Aust) Pty Ltd (NSWCA, 6 July 1994 unreported); NRMA Ltd v Morgan (No 3) [1999] NSWSC 768]. From these cases emerge consistent themes that justice may not be served if parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case; but that it may be appropriate to award costs of a separate issue where a clearly definable and severable issue, on which the otherwise successful party failed, has occupied a significant part of the trial [Waterman v Gerling Australia Insurance Co Pty Ltd [2005] NSWSC 1111, [10]]. 9It is also relevant to refer to observations of Hodgson JA in Griffith v Australian Broadcasting Corporation [2011] NSWCA 145 (at [19]) to the effect that, in the case of successful plaintiffs, it may be seen more readily than in the case of successful defendants, that the successful party should be liable for the costs of unsuccessful severable claims or issues, even if it were reasonable to include those claims or issues; and likewise in Macquarie International Health Clinic Pty Ltd v Sydney South-West Area Health Service (No 2) [2011] NSWCA 171, that it is less often the case that defendants would be ordered to pay the costs of severable issues unsuccessfully raised by an otherwise successful plaintiff. 10The cases to which I referred in Hexiva v Lederer indicate that there is a distinction recognised between depriving a successful plaintiff of costs of an issue in which it is unsuccessful, and ordering a successful plaintiff to pay the defendant's costs of an issue on which the plaintiff is unsuccessful, but they do not illuminate any guiding principle as to which of the courses ought to be adopted in any particular circumstance. Moreover, the principle that recognises that the costs of separate issues may be dealt with separately is generally described in terms of a separate issue "where a clearly definable and severable issue" is concerned. 11In this case, the oppression claim and the NISF claim are not entirely distinguished and severable. That is because, although the plaintiff failed to obtain any relief on those claims, the factual dispute that underpinned them contributed in no small way to the overall outcome, because it influenced the assessment of credit in a case in which credit was necessarily of great significance. Moreover, on those issues on which the defendants succeeded, the costs were increased by what I have found to be an essentially false case, propounded by the defendants. On the other hand, the plaintiff resolutely pursued his NISF case, when there never was a proper basis for claiming an account on a wilful default basis. 12Considered overall, it can be said that the defendants are substantially responsible for the litigation, but they are not responsible for the whole of the extent of the costs that have been incurred in pursuing it. 13In principle, it seems to me that to the extent that costs incurred in respect of the oppression case and the NISF case contributed to the credit findings adverse to the defendants, the plaintiff must be entitled to those costs. That is, because in a case that turns on credit, a party is entitled fully to explore the credit of its opponents, and to seek out and obtain material relevant to credit, cross-examine the opposing party and be in a position to confront the opposing party with documents and to tender them in reply if necessary. On the other hand, it is difficult to see why beyond that, the defendants should be responsible for the costs of claims against them which did not succeed. It follows, in my mind, that in principle the plaintiff should be deprived of his costs relating exclusively to the oppression and/or NISF claims for which purpose matters that went to credit overall do not relate exclusively to the oppression or NISF claims. 14So far as the NISF claim is concerned, it seems to me that the argument that the plaintiff was unreasonable in pursuing it, is countered by the argument that the defendants substantially increased the costs associated with it by mounting a false defence. 15Accordingly, in principle, the outcome on costs is that the defendants should pay the plaintiff's costs of the proceedings other than those that relate exclusively to the oppression and/or NISF claims, for which purpose matters relating to credit do not relate exclusively to the oppression and/or NISF claims. 16The next question is whether the apportionment of costs to issues must be left to an assessor to work out, or whether it is possible to make an, albeit broad-brush, apportionment. As I have said on many occasions, it is undesirable in the extreme, and unhelpful to assessors, to leave to them the function of deciding whether a particular legal service related to one or more issues or not. The requirement to do so necessarily protracts and makes even more difficult the assessment process. Assessors have repeatedly made clear that their task is made much easier if the Court does not require them to allocate and apportion items of work between issues. 17On the other hand, I acknowledge that there are limitations associated with the Court's ability to itself apportion costs in this way. It is a rough and approximate process, as opposed to the much more precise result that would be obtained from an itemised assessment process. It is necessarily imperfect, based on the judge's impression of the relevant matters and time and effort spent on various issues in the case. In that respect, it is necessary to bear in mind that a judge will not know what has gone on "behind the scenes", while that would become more apparent to an assessor. 18It is fair to say that in the present case those considerations are complicated still further by the length, complexity and range of issues in the case; by the quantum of the costs in issue, which the Court is informed may well be in the order of $8 million or more; and by the absence of evidence from a costs consultant or even a solicitor giving some approximation of the time and effort allocated to the various issues. 19Those matters have troubled me considerably but so has the undesirability of leaving this to a costs assessor. On that basis, and where the plaintiff presses for the Court to make an apportionment which the defendants oppose and submit that it should be left to the assessor, I have ultimately come to the view that I can conservatively and comfortably be satisfied of a figure below which I can be confident, applying the in-principle conclusions to which I have referred, the plaintiff's entitlement would not fall. In doing so, I have made all allowances and resolved all doubts in favour of the defendants. I bear in mind that, on the principles to which I have referred, the plaintiff would be entitled to all of his costs of the administration claim and the cross-claim, and a significant portion of his costs of the other two claims (because of their connection with the credit issue), I have also borne in mind the plaintiffs' overall success. Taking these factors into account, I do not think that the plaintiff could conceivably recover less than 62.5 per cent of his overall costs of the proceedings, and I propose to make an order to that effect. 20I turn then to the next issue, which is the defendants' application for an inquiry as to damages pursuant to the plaintiff's undertaking as to damages given in connection with the appointment of a provisional liquidator at an early stage in the proceedings. 21The principles again have been extracted in the helpful written submissions of both parties, in particular by reference to the judgment of Campbell JA in Evans & Associates v European Bank Limited [2009] NSWCA 67, to the effect that (1) where a plaintiff has an underlying right that it seeks to establish in proceedings; and (2) that underlying right is at risk of being damaged or destroyed before the Court can determine the proceedings on a final basis; then (3) the Court makes an interlocutory order for the protection of that underlying right during the period prior to final determination; but (4) requires an undertaking as to damages, to lessen the extent to which the making of that interlocutory order may produce harm if it turns out that the plaintiff does not have the underlying right claimed in the litigation. Both parties accept that those principles are relevant. 22In the proceedings for appointment of a provisional liquidator (Grace v Grace [2007] NSWSC 6) I explained that although it was necessary, as a pre-condition of the appointment of a provisional liquidator, that winding up proceedings had been validly instituted, where a winding up order was sought under (Cth) Corporations Act 2001, s 233, or on the just and equitable ground, it was sufficient that there was a reasonable prospect that some form of relief under s 233 would ultimately be granted, even if that relief did not include a winding up order - so long as the assets were in some degree of jeopardy (at [31]). Reference was made to the observations of Young J (as his Honour then was) in Alessi v The Original Australian Art Co Pty Ltd (1989) 7 ACLC 595 that in appropriate extraordinary circumstances the Court could appoint a provisional liquidator notwithstanding that it was unlikely that the company would finally be wound up. 23In this case, although the plaintiff sought a winding up order at the outset, it was announced that this was not his preferred result, but a last resort; whereas the defendants did not oppose the winding up of Nevilda Holdings and Nevilda Investments. 24At [38], I found that there was a serious question to be tried that Mr Grace was beneficially entitled to the shares that he claimed, and that if he ultimately succeeded he would be entitled to all the shares in Nevilda Holdings and would control its board, and as a result would gain effective control of Nevilda Investments also. I then turned to various matters which, if established at the final hearing, could found a case of oppression. Ultimately I rejected most, but not all, of those matters. I concluded (at [61]) as follows: [61] Accordingly, on the application for appointment of a provisional liquidator, the significant matters are: · There is a seriously arguable case that Ms Grace and Dr Grace misappropriated Mr Grace's interest in his father's estate, including control of Holdings and through it Investments, and as a result have exercised control when they ought not have been in a position to do so; · There is a significant risk that company resources will be inappropriately expended in the defence of the interests of the majority. Though this may be capable of remedy by taking into account, in any buy-out order, the compensation which the majority ought to provide to the company, that is a less perfect remedy than prevention. Given the consent to the winding up of Holdings and Investments, there is no apparent reason why those companies should incur legal costs of defending the winding up application; · There is not otherwise a significant risk that the assets of any of the Grace Companies will be jeopardised pending the final hearing, particularly if interlocutory injunctive relief is granted; · Although the relationship between the directors has broken down, it has not yet produced a state of affairs which paralyses management so as to require appointment of a provisional liquidator. However, there are indications that Ms Grace and Dr Grace have since April 2006 tended to minimise Mr Grace's role in management and access to information of the Grace Companies, and have sometimes been disingenuous in their dealings with Mr Grace and his lawyers. There is a significant risk that Mr Grace's role will continue to be minimised. This is more significant in respect of Holdings and Investments than in respect of Sharander, because there is a seriously arguable case that Mr Grace is entitled to control of Holdings and Investments, whereas Ms Grace and Dr Grace prima facie are and will remain entitled to control Sharander and manage its affairs. 25I then summarised the position, thus: [63] In my opinion, therefore, the strength of Mr Grace's case that he is entitled to control Holdings and Investments, the consent of the defendants to those companies being wound up, the probability that they will either pass to Mr Grace's control or be wound up, the inappropriateness of Ms Grace and Dr Grace retaining control in those circumstance, the risk that (if they do retain control) company resources may be used to fund the majority's defence (notwithstanding the consent to these two companies being wound up), the minimal detriment involved in the appointment of a provisional liquidator where Mr Grace seeks it and Ms Grace and Dr Grace consent to a winding up order, and the insignificance of the interference with management involved in appointing a provisional liquidator in those circumstances, justify the appointment of a provisional liquidator to Holdings and Investments. However, the improbability of a winding up order ultimately being made in respect of Sharander, the prima facie entitlement of Ms Grace and Dr Grace to retain its control, the serious interference with their rights and management of Sharander that would be involved in appointment of a provisional liquidator, and the absence of jeopardy to the assets (other than through expenditure of resources on the defence of the majority, which can be taken into account in valuing any buy-out order) tell against appointing a provisional liquidator to Sharander. 26On an application such as the present for an inquiry as to damages, one looks at the position with the benefit of hindsight. One compares the position as it was with the position as it should have been. 27It can now be said that the oppression ground was not substantiated at trial, and one considers whether the interlocutory regime has detrimentally interfered with the rights of persons which it can now be said ought not on that basis have been subject to such interference. 28While it is true that it can retrospectively be said that the oppression claim was not substantiated, it can also retrospectively be said that what was then but a seriously arguable case that the plaintiff was entitled to control of the companies, has been substantiated. 29It is true that the position is not that the companies should have been in liquidation, but it can now be said that the position at the time when the liquidator was appointed should have been that the plaintiff was in control of the Nevilda companies. It is entirely artificial to focus only on the oppression case in that respect, and not to look at the overall position as it should then have been. 30Essentially, it can now be said that it was the plaintiff who was really left out of his rights at the time when the provisional liquidator was appointed. Rather than having the affairs of the company managed by the provisional liquidator, he ought to have been entitled to control and management at that time. 31In my view, in principle the basis for an inquiry into damages under the undertaking has not been established; but even if, technically, the grounds for such an inquiry were established, for the reasons I have given, as a matter of discretion I would decline to order one. 32It does not, however, follow that, as the plaintiff seeks, the defendants should be required to indemnify the companies in respect of the remuneration and costs of the provisional liquidator. For present purposes, I proceed on the basis, as Mr Williams SC submitted, that there is power to make such an order; but, ultimately, I have concluded that it would be inappropriate to do so. Essentially, while the provisional liquidator was no doubt more expensive than anyone would have hoped, the provisional liquidator was rendering services to the companies, and not to either of the parties. The provisional liquidator was discharging functions which otherwise would have had to be discharged by management. To that extent, the provisional liquidator relieved management of the burden of performing those functions. While it may be that management would have performed them at significantly less cost than a provisional liquidator, it does not, in my mind, follow that the costs of having a provisional liquidator discharge those duties are costs that should be borne only by one of the parties. The duties were performed for the benefit of the companies as a whole, including both shareholding interests. I am unpersuaded that liability for the remuneration of the provisional liquidator should be sheeted to only one of the beneficial interests, and not the other. 33The next issue is the plaintiff's application for an extension of time to apply to examine the defendants in respect of their account of the NISF, and to serve falsifications and objections in respect of it. 34The defendants served an affidavit stating their account of the NISF in December 2012. The account given by the defendants shows funds received and disbursed, but does not show funds appropriated to members' accounts with the NISF but not yet disbursed to members. That account was given in the context that, at trial, the defendants had maintained that the totality of their members' accounts in NISF had been rolled over to a new superannuation fund. 35Time to apply to examine and to file objections and falsifications would otherwise have expired some time in January 2013. By letter of 8 January 2013, the plaintiff's solicitor sought an extension of twenty-one days for that purpose. On 9 January 2013, the defendants' solicitors responded, consenting to an extension to 25 January 2013. 36Between 21 December 2012 and 15 January 2013, correspondence took place between the solicitors which suggested that the defendants maintained that they were still members of the NISF, and in which the plaintiff's solicitors sought an explanation of that assertion. Shortly after 25 January 2013, the date on which the consent extension expired, the defendants' solicitors on 31 January 2013 wrote to the plaintiff's solicitors asserting, in effect, that the defendants had amounts standing to their credit in the NISF as at 30 June 2007 and proposing a number of courses, including that they be paid those amounts out of the fund and that they would then resign from it. 37Accordingly, it seems that the defendants now maintain that balances stand to their credit in the NISF. This raises an issue that was not previously apparent on the account that was given. 38In any event, it seems to me that there is no prejudice from granting to the defendants the extension sought, particularly in the context where extensions sought by the defendants in respect of other accounting processes are being acceded to by consent. I will, therefore, grant the extension sought. 39The final matter requiring resolution is an application by the plaintiff for an order that the second defendant pay the plaintiff the net proceeds from the Birrell Street property for the period 23 August 2012 to 13 December 2012, and a consequential order in respect of the conditions of the continuation of the stay granted on 13 December 2012. 40The stay was granted on 13 December 2012, in the following terms: 2. Upon the Second Defendant by her counsel giving to the Court the usual undertaking as to damages and further undertaking to the Court that she will not alienate, encumber, or otherwise adversely deal with 272 Birrell Street Bondi 2026 ("the Birrell Street property") except as authorised under this order, order that the operation of orders 36, 37 and 39 of 9 November 2012 be stayed until the hearing of Appeal No EA154 of 2012 in the Full Court of the Family Court of Australia (or further order of this Court or of that Court) upon the following terms: a. The Second Defendant is to appoint a licensed real estate agent nominated by the Plaintiff as manager of the Birrell Street property ("the Agent"), to receive all rents and any other income derived from the Birrell Street property; b. The Second Defendant is to instruct the Agent to bank all such receipts into the Agent's trust account and to apply the moneys so received: i. in payment of the outgoings and expenses reasonably required in the ordinary course of business for the maintenance and upkeep of the Birrell Street property, not including mortgage repayments; ii. in payment of the balance to the Plaintiff. c. The Second Defendant is to request the Agent to provide a written recommendation to the Plaintiff and the Second Defendant in relation to the granting of any new occupancy rights or the determination of any existing occupancy rights in respect of the Birrell Street property. d. The Second Defendant may grant or terminate any occupancy right in respect of the Birrell Street property in accordance with the Agent's recommendation upon the expiry of a period of 7 days after receipt, subject to any contrary direction of the Plaintiff before the expiry of that period. 41It will be apparent from that paragraph of the order that it was prospective, and not retrospective, in its terms. It required, as a condition of the stay, that the second defendant appoint a licensed real estate agent to receive rents and instruct the agent to deal with such receipts in a certain way, including payment of any balance to the plaintiff. On the proper construction of the condition, that was a reference to the balance of money received by the agent who was to be appointed pursuant to the condition. It could not reasonably be construed as relating to rents already received prior to the appointment of the agent and prior to 13 December 2012. 42It would not be appropriate retrospectively to effectively vary the conditions of the stay by requiring a payment in respect of the period to which those conditions did not originally relate. I will, therefore, not make the orders in respect of rent of Birrell Street sought by the plaintiff. 43Accordingly, I make the following orders: (1)Order that First and Second Defendant pay 62.5% of the Plaintiffs costs of the proceedings, including of the cross claim, as assessed. (2)Direct that the time by which the Second Defendant is to comply with Order 51 (a) to (c) of the Orders made on 9 November 2012 be extended from 31 January to 11 April 2013. (3)Direct that the time by which the Second Defendant is to comply with Order 53 of the Orders made on 9 November 2012 be extended from 9 November 2012 to 11 April 2013. (4)Order that the time by which the Plaintiff is to comply with Order 51 (d) and (e) of the Orders made on 9 November (relating to the accounting the cumulative preference shares the third defendant, for the trust shares and of the Birrell street property) and Order 52 (e) and (f) of the Orders made on 9 November 2012 (relating to the accounting for the Nevilda Superannuation Trust), be extended to the date which is 30 days after the date on which the second defendant has complied with Order 51 (a) to (c) of the Orders made on 9 November 2012. (5)Order that the first and second defendants' application for an inquiry arising out of the plaintiffs undertaking as to damages be dismissed. (6)Order that each of Orders 51 (d) and 51 (e) of Orders made on 9 November 2012 be varied by substitution of the words "Brereton J" for the words "Associate Judge of the Equity Division" (7)Order that costs of today be costs in the proceedings. (8)Adjourn the proceedings to 23 April 2013 at 9:30 am for directions and any application by or in respect of, the provisional liquidator. (9)Direct that notice of any application to be made on 23 April 2013 be served on all other parties no later than 16 April 2013.