Great Australian Operations Pty Ltd (Receivers and Managers Appointed) v Washington H. Soul Pattinson and Company Limited

Supreme Court of NSW|2012-11-29|Before: Slattery J

Judgment 1This is my second judgment in these proceedings. It determines an issue of security for costs and an issue of the costs arising out of the Court's principal judgment given on 31 August 2012: Great Australian Operations Pty Limited (Receivers and Managers Appointed) v Washington Soul Pattinson and Company Limited [2012] NSWSC 1134 ("the principal judgment"). 2The principal judgment determined the challenge of the defendant, Washington H. Soul Pattinson and Company Limited ("Soul Pattinson") to the retainer of the solicitors apparently acting for the plaintiff, Great Australian Operations Pty Ltd (Receivers and Managers Appointed) ("Great Australian"). It also determined Soul Pattinson's application for summary dismissal of the proceedings pursuant to Uniform Civil Procedure Rules ("UCPR"), r 13.4, on the basis that the plaintiff's claim did not disclose a reasonable cause of action. 3In September 2012 Soul Pattinson sought leave to appeal against the outcome in the principal judgment. The Court of Appeal has determined that the application for leave to appeal will be heard with any resultant appeal and a call over to fix a date for that hearing will take place in March 2013. The same month Soul Pattinson served a winding up notice on Great Australian, which Great Australian contests. More background to these other proceedings appears below. 4This second judgment should be read with the Court's principal judgment. Events, persons and things are referred to in this judgment in the same way as they are in the principal judgment. 5In the principal judgment both sides were to a degree successful. Soul Pattinson, the applicant on the strikeout motion, was successful to the extent that prayer for relief 4 in the summons for the specific performance of an alleged agreement for the sale of ordinary shares in the company CopperChem Limited ("CopperChem") was struck out. But Great Australian was successful in that the claim for damages in the summons, prayer for relief 5, and the declarations in prayers for relief 1, 2 and 3 were allowed to remain in the summons for later determination. 6As a result of that mixed result the Court directed that the parties put on written submissions in relation to issues in costs. The parties did that and they initially contested two other issues raised in the defendant's amended notice of motion of 26 October 2012: Soul Pattinson's claim that Great Australian provide security for Soul Pattinson's costs of and incidental to these proceedings; and, an order that Mr Stephen Wolfe provide a secured indemnity in favour of Great Australian for the costs of these proceedings. These issues will be dealt with in these reasons in the order: (1) Mr Wolfe's provision of a secured indemnity (an issue which has now resolved); (2) the costs of these proceedings; and (3) security for costs.

Procedural Events since the Principal Judgment 7The proceedings have progressed since they were last before the Court. The Court delivered oral judgment on 31 August 2012 and provided published reasons for the principal judgment on 19 September 2012. On the same day, 19 September 2012, Baker and McKenzie, the solicitors for Soul Pattinson, wrote to M+K Lawyers raising Soul Pattinson's concerns about Great Australian's ability to meet future costs orders in the proceedings and demanded that Great Australian provide security for Soul Pattinson's costs up to the completion of evidence in an amount of $200,000. 8This was not Soul Pattinson's first mention of security for costs. Its counsel had first raised the issue at the initial hearing on 18 July 2012 preceding the principal judgment. In the absence of a response to its 19 September 2012 letter Soul Pattinson sought security for costs, by motion filed on 24 September 2012. Soul Pattinson now seeks, in an amended motion, orders that Great Australian gives security for Soul Pattinson's costs in two tranches: (a) $200,000 within 21 days; and, (b) a further $300,000 within 21 days following the service of Great Australian's evidence in reply in the proceedings, with such security to be paid into Court. 9Soul Pattinson also issued a statutory demand to Great Australian on 24 September 2012. This demand was an order for costs made in Soul Pattinson's favour in the Federal Court of Australia proceedings. On 14 October 2012 Great Australian filed an originating process in this Court seeking the setting aside of the statutory demand of 14 September 2012. Those statutory demand proceedings have now been adjourned to 3 April 2013. 10Soul Pattinson has also sought leave to appeal against the principal judgment. In late September 2012 Soul Pattinson filed a summons for leave to appeal. Great Australian, as respondent to that appeal, filed its response to the application for leave on 2 November 2012. The proceedings in the Court of Appeal are listed for call-over in March this year, with a view to the Court of Appeal allocating a hearing date for the application for leave to appeal. In the course of the hearing on the present motion neither party gave a clear indication to the Court when they expected the matter to be listed for hearing in the Court of Appeal. But there was a general expectation that the matter would be heard in about April or May 2013. 11These were the main events since the principal judgment.

12In the principal judgment I pointed out, as did Justice Sackville in Deangrove Pty Ltd (Receivers and Managers appointed) v Commonwealth Bank of Australia [2001] FCA 173 and; (2001) ACSR 465, at 474, that merely because the directors of Great Australian may be entitled to initiate or maintain proceedings in the name of the company, that does not mean that they can do so using the company's assets; and that their right to do so may be subject to providing the company with a satisfactory indemnity against the costs of the litigation: principal judgment at [133]. The principal judgment invited the parties to deal with this procedural issue, together with the question of security for costs of the litigation. 13The parties have been able to resolve the question of satisfactory indemnities to Great Australian for the cost of the litigation. A series of indemnities in the form of undertakings to the Court have now been provided by Mr Wolfe and persons associated with him. Soul Pattinson has expressed itself satisfied with the resolution of this issue pursuant to these undertakings. 14Several parties associated with Mr Stephen Wolfe gave undertakings to the Court in relation to the meeting of Great Australian's costs of the proceedings. These several undertakings were given in December 2012. These undertakings were from Mr Stephen Wolfe and his father, Mr Peter Wolfe, from two companies they control, Nonox Australia Pty Ltd ("Nonox Australia") and Tennant Trading Pty Ltd ("Tenant Trading"). Also, Macpherson & Kelly Lawyers (Sydney) Pty Ltd, the solicitors for the corporate trading entity behind the solicitors for the plaintiff, provided an undertaking to the Court. Once these undertakings were given in open Court the issue of the funding of Great Australian costs of the proceedings was resolved. 15These undertakings were of various kinds. They may be summarized in general terms. Mr Stephen Wolfe and his father undertook not to use Great Australian assets nor to cause Great Australian to use its assets to fund the proceedings and they undertook not to require Great Australian to repay any moneys advanced to fund the proceedings until Soul Pattinson is paid its secured debt in full and its costs of the proceedings. The two companies controlled by Mr Wolfe's interests, Tennant Trading and Nonox Australia, undertook to the Court not to require Great Australian to repay any monies they had advanced to it, until Soul Pattinson was paid. Finally, Macpherson and Kelly undertook, without prejudice to its rights under its costs agreement with Mr Stephen Wolfe, not to recover amounts from Great Australian under that costs agreement until Soul Pattinson was paid in full. The proffering and acceptance of these undertakings by consent means that the Court does not have to further consider this issue.

(2) Costs of the motion determined in the principal judgment

16Great Australian claims it was successful in repelling Soul Pattinson's motion and should now have its costs of the motion. Soul Pattinson says in response: that Great Australian was at best only partially successful; that part of its summons was struck out; and, that the remaining part of the proceedings, the challenge to Great Australian's retainer to M+K Lawyers, has been stood over for determination at the final hearing of these proceedings: principal judgment at [135] - [141]. Soul Pattinson submits that the appropriate order now is for the costs of the motion to be reserved for determination by the trial judge at hearing, or in the alternative, that they be made costs in the cause. 17There are strongly competing considerations on both sides of this costs issue. Soul Pattinson says that the challenge to the retainer was a significant part of the dismissal motion and remained undetermined and found to be an appropriate matter for determination at final hearing: principal judgment at [136] and [137]. But in my view, the issues argued and determined were a close blend of the summary judgment application and the challenge to retainer. This was not a case where it was convenient for the challenge to retainer to be determined now: principal judgment at [135] and [141]. As the structure of the principal judgment shows, much of the time spent in argument could be equally well accounted for by the pursuit of the summary judgment application. The structure of the judgment and the parties' written and oral submissions reflect this. 18But Great Australian's approach to the subject of the costs of the motion oversimplifies the outcome. Great Australian's submission that "costs should follow the event" obscures the nature of the overall result. Each party in my view had an equal measure of success. Great Australian managed to retain the proceedings with respect to parts of the relief which it sought. Soul Pattinson's basic argument, which occupied most of its submission, and those in reply, did result in the striking out part of the relief that Great Australian sought. 19I do not accept Great Australian's submission that the appropriate result is for costs to be reserved. That only means that there will probably be an argument in the future about costs before another judge. It might be thought in these circumstances that the appropriate result is for each party to bear its own costs. But I do not see why the ultimately successful party should not be able to recover its own costs of that argument. The appropriate order in my view should be that the party successful in the proceedings as a whole should be able to recover the costs of this motion. And the Court will order accordingly. The other aspect of the motion, the question of the challenge to retainer and the costs of that will be determined at final hearing.

20Soul Pattinson claims security for its costs of these proceedings pursuant to Corporations Act (Cth) 2001 s 1335, UCPR r 42.21(1). 21In its amended notice of motion, Soul Pattinson seeks orders that Great Australian give security for Soul Pattinson's costs of and incidental to the proceedings in two tranches: (a) $200,000 within 21 days and (b) a further $300,000 within 21 days following the service of Great Australian's evidence in reply in the proceedings. In my view Soul Pattinson's request for security for its costs is well justified. But the Court has made some adjustments in this section of these reasons to the amount of security requested and the timing at which it is required to be provided. 22The need for an order for security for costs in this case is not in serious doubt. There is credible evidence in this case that there is a real chance that, in events which can fairly be described as reasonably possible, the plaintiff corporation will be unable to pay the costs of the defendant if judgment goes against him. Beach Petroleum NL v Johnson (1992) 7ACSR 203 at 205. 23Here the evidence of need for security is strong. Receivers have been appointed over the Secured Property. Great Australian applied to vacate the hearing date of the motion heard on 18 July because it feared it did not have adequate resources to fund the retaining of lawyers for that hearing. And Great Australian has substantial unpaid liabilities. Namely, the unpaid costs of $272,400 which the Federal Court of Australia has ordered it to pay Soul Pattinson in the Federal Court proceedings, together with a liability for costs to CopperChem in the same proceedings. Moreover, Great Australian did not put on any evidence of its assets or financial position in response to the motion. The Court can infer that such evidence would not have assisted its defence to the motion and can more confidently draw inferences in Soul Pattinson's favour on this aspect of the motion. 24Great Australian resists the making of any order for security. But I have not found its arguments to this effect persuasive. Great Australian refers to the range of considerations that Courts may take into account in applications of this character, as recorded in the decision of the Court of Appeal in Jazabas Pty Ltd and Ors v Haddad and Ors [2007] NSWCA 291. It is not necessary to repeat those considerations here. But they are well established. They are conveniently summarised in Jazabas Pty Ltd and Ors v Haddad and Ors [2007] NSWCA 291 at [74] by reference to the well known judgment of Beazley J (as her Honour then was) in KPK Cable Investments Pty Ltd v Melted Globe Pty Ltd (1995) 56 FCR 189. 25Only a few of those principles were in active contest in this case. Great Australian said that an order for security would stultify the proceedings. It also argued that its current financial position was the result of the wrongful conduct of the Soul Pattinson alleged in the proceedings. If established, both of these could be a basis for the Court not to order security for costs. But Great Australian did not put on evidence of its financial position or sources of funds in answer to the motion. I cannot weigh such matters in Great Australian's favour on the motion without such evidence of its financial circumstances. 26The remaining issues are the quantum and the timing of security. On the question of quantum Mr Christopher, the solicitor acting for Soul Pattinson estimates its total costs of defending the proceedings will be $662,135.80 and consequently submits that an appropriate security amount would be in the vicinity of $500,000, being the lower end of Soul Pattinson's estimated range of costs and assumes a recovery rate of approximately 60%. I accept that logic, with some minor downward adjustments on account of the following factors. Although not excessive, the discovery and inspection costs on the Soul Pattinson side seem to be at the high end for a hearing of this kind. And in the commercial list the hearing should be reduced to below five days, more like the Great Australian estimate of three days. There is an element of past costs in the claim for security but not as large as Great Australian claimed, because future claim for security costs was flagged on 18 July 2012. Moreover, it was difficult to pursue such a claim before the strikeout and retainer issues were resolved. So I will reduce the amount of the security requested by $70,000 to accommodate these factors. 27On the question of timing, I do not think that the full $200,000 should be payable immediately. The bulk of Soul Pattinson's evidence preparation will be after the Court of Appeal proceedings are resolved. So only $80,000 should be provided before that time. Otherwise the timing structure which Soul Pattinson suggests will be adopted.

Conclusions and orders 28The result of the parties' contest therefore is the following. The Court has accepted undertakings from several parties to secure payment of Great Australian's future costs of this litigation. The Court will make a costs order now in relation to the motion decided on 31 August 2012: that the costs of the motion will be the successful party's costs in the cause. And security for the defendant's costs of the litigation will be granted upon the terms set out in the orders that follow. 29Finally, there is an issue about the costs of this motion. It seems to me that Soul Pattinson has been substantially successful on this motion and that the appropriate order is that Great Australian pay Soul Pattinson's costs of this motion. 30The Court's orders therefore are: (1) that the parties' costs of and in relation to the motion argued on 18 July 2012 will be the successful party's costs in the cause; (2) that the plaintiff pay into Court or otherwise secure to the satisfaction of the defendant the following sums within the following periods: (a) $80,000 within 28 days of the date of these orders; (b) a further $100,000 28 days after the determination or other resolution of the defendant's appeal against the Court's refusal to strike out the plaintiff's claim; and (c) a further $250,000 28 days after the plaintiff files its evidence in reply before the final hearing of these proceedings. (3) These proceedings are stayed unless the plaintiff complies with Order 2; and (4) The plaintiff will pay the defendant's costs of this motion.

Amendments 05 March 2013 - corrected paragraph numbering Amended paragraphs: 30 onwards 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: 05 March 2013

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