Hashman v Australian Medico-Legal Group Pty Ltd & anor; Claireleigh Mosman Pty Ltd & anor v Australian Medico-Legal Group Pty Ltd

Supreme Court of NSW|2016-12-21|Before: Brereton J

Solicitors: Mills Oakley (plaintiffs) Clyde & Co (defendants) File Number(s): 2014/170226; 2015/187123

Judgment

This judgment is concerned primarily with the costs of two proceedings, which were heard together with evidence in one being evidence in the other, in which I gave judgment on 7 December 2016. [1] In proceedings 2014/170226 ("the oppression case"), in which Mr Hashman as plaintiff brought a claim for oppression in respect of the conduct of the affairs of the first defendant AMLG, the parties had agreed, without admission, that a compulsory purchase order should be made, and I resolved the only matter in dispute by determining, as the price to be paid by Ms Holland for the acquisition of his shareholding in AMLG, the sum of $29,500. In proceedings 2015/187123 ("the loan case"), in which the first plaintiff Claireleigh had originally sued AMLG in the District Court to recover loans allegedly made by it to AMLG, I gave judgment that AMLG pay Mr Hashman, who was added as second plaintiff at the commencement of the trial, $329,094.66 (inclusive of interest).

Costs

As to costs, the plaintiffs seek orders that: 1. in the loan case, the defendant AMLG pay the plaintiffs' costs, on the ordinary basis until 25 November 2016 and thereafter on the indemnity basis; and 2. in the oppression case, the defendants pay the plaintiff's costs (on the ordinary basis).
The defendants propose that: 1. in the loan case, AMLG pay the second plaintiff Mr Hashman's costs incurred after his joinder on 30 November 2016, and of and incidental to his joinder application (on the ordinary basis), but Claireleigh pay AMLG's costs (on the ordinary basis); and 2. in the oppression case: 1. there should be no order as to costs to the intent that each party bear its own costs, save that Mr Hashman should pay AMLG's costs of the issue relating to Corporations Act, s 254T (which issue Mr Hashman ultimately conceded before trial); but 2. alternatively, if there is to be a costs order, Mr Hashman should pay the defendants' costs.

The oppression case

The defendants submit that the only issue litigated in the oppression case was the value of Mr Hashman's shareholding, and that on that issue there was no winner or loser, as the outcome fell between the competing positions of the parties and their valuers, and was in fact much closer to the defendants' position than to the plaintiffs'. They point out that Mr Hashman did not, in his originating summons of 6 June 2014, initially seek a compulsory purchase order, but other relief based on his standing as a shareholder; that it was Ms Holland who, by her amended cross-claim of 18 December 2014, first propounded a claim for the compulsory purchase of Mr Hashman's shares; and that Mr Hashman then adopted the same position in his statement of claim of 26 May 2015. It is said that Ms Holland succeeded on her cross-claim, at least to the same extent as Mr Hashman succeeded on his claim
The plaintiffs submit that the relevant event is not merely the determination of share price, but Mr Hashman's original application for other relief, in particular to obtain corporate information, which is said to have largely succeeded; whereas Ms Holland's cross-claim was founded on complaints that Mr Hashman's insistence on his rights to corporate information themselves constituted oppression. On the valuation issue, the plaintiffs invoke a Calderbank offer made on 14 November 2016 to resolve that issue at a value of $30,000, in circumstances where I found the value to be $29,500.
In my view, when one has regard to the substance rather than the form of the proceedings, they involved Mr Hashman seeking to enforce his rights as a shareholder - ultimately through a compulsory purchase order against Ms Hashman. It is true that Mr Hashman did not secure so high a price as he propounded. But a plaintiff who has to come to court and litigate to obtain the relief it gains is not disentitled from receiving its costs by the circumstance that it does not obtain the full relief sought. The defendant's remedy to avoid incurring liability for costs is to make an offer which the plaintiff does not better at trial. The defendants here did not do so. In order to obtain the price that he did, the plaintiff had to litigate the matter to judgment.
I do not regard it as sensible to describe Ms Holland as having succeeded on her cross-claim. While it is true that she was the first to seek an order for the purchase of Mr Hashman's shares, as was ultimately made, the notion that she had a viable claim of oppression against him, given their respective positions vis-a-vis the company, is far-fetched; rather, her claim for that relief reflected a realistic appreciation that his continued membership of AMLG would be a continuing disruption and nuisance of which she wished to be rid.
In the absence of a superior offer, Mr Hashman had to litigate to obtain a fair price for his shareholding. The price ultimately fixed by the court exceeded any offer made by the defendants, and Mr Hashman should thus be seen as having substantially succeeded in the oppression suit. On that basis he is prima facie entitled to a costs order.
That prima facie position is somewhat reinforced by his offer of 14 November 2016. While Mr Hashman did not better that offer of $30,000 - the Court found a slightly lower value of $29,500 - the difference was practically de minimis, and would plainly have been exceeded by the additional costs of the contest. Had the offer been accepted, the defendants would have been better off than as a result of further litigating the matter.
The defendants submit that even if the plaintiff is prima facie entitled to costs, their success on certain issues mitigates that entitlement. They point out that they incurred costs on the s 254T issue which was ultimately abandoned by Mr Hashman, and that on the valuation issue their valuer Mr Katehos was overall preferred to Ms Cusack.
While the court will sometimes deprive a successful plaintiff of costs on issues on which it fails, and even order it to pay the defendant's costs of those issues, that approach is exceptional rather than usual, although it is one that I regard as often appropriate when a plaintiff has caused costs to be incurred by the pursuit of issues on which it fails: successful parties should not be compensated for the costs of discrete issues on which they fail which add to the overall costs. However, in this case, the s 254T issue was not a discrete issue but was intertwined with the valuation issue; and the valuation issue was the whole of the case litigated at trial. As is not infrequently the case, the expert evidence of the valuers was progressively refined, and the extent of their disagreement reduced, through the exchange of reports and discourse between them, and then through their cross-examination. The court did not adopt the valuation of either valuer, but was assisted by both in ultimately distilling and resolving the issues between them. In order to obtain the result he did - a result that exceeded what the defendant was prepared to pay - the plaintiff had to adduce expert evidence, and cross-examine the defendants' expert. Without Ms Cusack's evidence - notwithstanding its flaws - the plaintiff would have been left with the similarly flawed evidence of Mr Katehos. I do not consider that it is possible, or if possible appropriate, to segregate discrete issues on which the plaintiff failed such as to deprive him of the associated costs.
It follows that the second defendant should pay the plaintiff's costs of the oppression case.

The loan case

Mr Hashman plainly succeeded in the loan case, and the defendants accept that AMLG must pay his costs from, and of and incidental to, his joinder. The dispute is about the costs incurred prior to his joinder, when Claireleigh was the only plaintiff, and whether Claireleigh should be ordered to pay the defendants' costs, no relief having been granted in its favour.
It will be remembered that, while Mr Hashman was joined belatedly, that was in response to a very belated indication that the defendants would contend that Claireleigh was not the correct plaintiff - an issue which had not previously been raised. [3] Until the eve of the trial the defences being advanced were denials that the loans had been made, contentions that they had been released, and the limitation issue - all of which were as good (if at all) against Mr Hashman as they were against Claireleigh. All the costs incurred by Claireleigh would have been incurred by Mr Hashman had he been joined from the outset. Claireleigh may well have a restitutionary claim against Mr Hashman in respect of the costs it has incurred from which he has benefitted. The involvement of Claireleigh has had practically no impact on the overall costs of the proceedings, and has inflicted no additional costs on the defendants. It would be a triumph of form over substance, and one which completely ignores the reality of the case, to require Claireleigh to pay the defendant's costs, or to exclude the costs incurred before Mr Hashman's joinder from those to which the plaintiffs are entitled.
In connection with their claim for indemnity costs from 26 November 2016, the plaintiffs rely on a Calderbank offer made on 25 November to accept judgment for $250,000 (plus costs), which they bettered by obtaining a judgment for (as will transpire consequent upon the slip rule correction) $326,979.66. As the plaintiffs submit, this was a genuine offer involving a real element of compromise, and it foreshadowed a claim for indemnity costs.
The defendants submit that the only plaintiff at the time the offer was made was Claireleigh, which did not better the offer, but failed. I am unimpressed by this argument, as the intention to join Mr Hashman had already been foreshadowed.
A more telling point, however - albeit not one raised in the defendants' submissions - is that the offer was made on (Friday) 25 November, and expressed to expire at 12pm on (Tuesday) 29 November, when the trial was fixed to commence on (Wednesday) 30 November. A formal offer of compromise under UCPR r 20.26 must, if made less than two months before the date fixed for commencement of the trial, remain open for acceptance for a time that is reasonable in the circumstances. [4] This requirement may not be satisfied by an offer that is made very close to trial and provides only a short time for acceptance, where the practical exigencies of completing final preparation for hearing compete with giving prompt consideration to the offer. [5] What is reasonable also needs to be judged against the background that an offer made more than two months before the date for commencement of the trial must remain open for at least 28 days. [6] In the present case the subject offer allowed only two working days for consideration, at a time when the parties were committed to an imminent trial. The rules relating to offers of compromise and the timeframes that accompany them are intended to strike a balance between the interests of the parties, and to provide certain procedural safeguards - including a reasonable time for consideration - before an offer will have adverse costs consequences. I am unpersuaded that there is anything in the circumstances of this case and this offer such as to justify giving the plaintiff benefits which they might have gained under the rules only by making a timely offer, in circumstances where it is at best doubtful that this offer allowed a reasonable time, in the circumstances, for acceptance. I am therefore not prepared to make an indemnity costs order.
In proceedings 15/187123 ("the loan case") the Court therefore orders that: 1. Pursuant to UCPR r 36.17, the judgment given on 7 December 2016 be corrected by substituting the sum of $326,979.66 for the sum of $329,094.66; 2. The defendant pay the costs of both plaintiffs of the proceedings, including of the second plaintiff's joinder application.
In proceedings 14/170226 ("the oppression case"), the Court therefore orders that: 1. The second defendant pay the plaintiff's costs of the proceedings.

Endnotes

Hashman v Australian Medico-Legal Group Pty Ltd & anor; Claireleigh Mosman Pty Ltd & anor v Australian Medico-Legal Group Pty Ltd [2016] NSWSC 1773.
UCPR r 36.17.
See Hashman v Australian Medico-Legal Group Pty Ltd & anor; Claireleigh Mosman Pty Ltd & anor v Australian Medico-Legal Group Pty Ltd [2016] NSWSC 1773 at [3]-[6].
UCPR r 20.26(5)(b).
Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85 at [18]-[24]; in which an offer made the day before trial, allowing a 22 hour acceptance period, was held not to be a reasonable acceptance period.
UCPR r 20.26(5)(a) 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: 02 May 2017

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