Hirst v Jones; Hirst v Jones

2012/25860 DC Legal Pty Ltd (plaintiffs) Herbert Smith Freehills (second and third defendants) File Number(s): 2012/25860; 2012/352440

Judgment 1This judgment concerns the order for costs that the Court should make in one of two related proceedings. 2In proceedings No 25860 of 2012 Mr Stephen Cansdell Hirst and 92 other plaintiffs sued the second defendant, Mr Martin Jones, and the third defendant, Mr Darren Weaver, each in his capacity as trustee of the Compass Resources Creditors' Trust (the "Trust"). I will call those defendants the "Trustees". The first defendant was removed as a party earlier in the proceedings. 3In the second proceedings, No 352440 of 2012, Mr Hirst and 100 other plaintiffs sued Mr Jones and Mr Weaver, as first and second defendants, in their capacities as trustees of the Trust. They also sued Clayton Utz (third defendants), Corporate File Pty Ltd (fourth defendant), Orica Australia Pty Ltd (fifth defendant), and Randazzo Investments Pty Ltd (sixth defendant). 4It will be convenient to refer to the first of these proceedings as the "Shareholder Proceedings", and to the second as the "Restitution Proceedings." 5Relevantly, the third and fifth defendants in the Restitution Proceedings ask the Court to make the following orders against the plaintiffs. The orders sought have been taken from the fifth defendant's written submissions dated 23 October 2013, and accordingly are written in a slightly expanded form, as the statement of the orders that were sought contains some explanatory material for the benefit of the Court. The orders are: "Order that the plaintiffs pay [the relevant defendant's] costs of and incidental to: a. proceedings no. 2012/352440 (Restitution Proceedings), including its costs of and incidental to the first and second defendants' (Trustees) notice of motion filed on 19 July 2013 (Motion), with all such costs to be assessed on an indemnity basis from 6 June 2013 (being the day upon which the agreement between the plaintiffs and the Trustees to settle the Restitution Proceedings became enforceable) or, alternatively, [relevant date] July 2013 (being the date upon which [the relevant defendant] offered to settle the Restitution Proceedings by [relevant] Exhibit ); or, alternatively b. the Motion, such costs to be assessed on the indemnity basis." 6As noted, the fifth defendant delivered written submissions in support of its application for costs. The third defendants did not make separate submissions, and stated that they relied upon the submissions given by the fifth defendant. They asked for the same orders, with a small number of alterations to reflect differences between their position and the position of the fifth defendant. 7On 22 October 2013, when the proceedings were before the Court, and the substantive orders referred to below were made, counsel for the fifth defendant applied for an order that the plaintiffs pay that defendant's costs of what is referred to in the draft orders as the Motion. I gave the fifth defendant leave to deliver written submissions to the Court on that application. It appears that on reflection the fifth defendant realised that the application that it had made did not deal with its costs in relation to the Restitution Proceedings generally. The written submissions that were delivered to the Court on 23 October 2013, which asked for the orders set out above, remedied the omission by first seeking an order for costs generally in the proceedings, and then seeking the costs of the Motion in the alternative. 8The plaintiffs provided written submissions to the Court that dealt with the foreshadowed application by the fifth defendant for an order that the plaintiffs pay its costs of the Motion. Those submissions were not prepared in response to the fifth defendant's submissions. The Court gave the plaintiffs an opportunity to respond to the extended application for costs that was made by the fifth defendant. By email dated 6 November 2013, counsel for the plaintiffs stated to the Court that the plaintiffs' position was that the only matter before the Court was the application for costs of the motion; the plaintiffs had provided their written submissions on that application; and, by implication, the Court should not entertain the fifth defendant's application for the costs of the Restitution Proceedings generally. He also stated that the plaintiffs did not wish to incur further costs, and so would not deliver supplementary written submissions to the Court. They did not wish to make submissions as to whether the third and fifth defendants should be required to make a formal application for the extended costs order. 9On the hearing of the Motion on 22 October 2013 both of the substantive proceedings were before the Court. The third and fifth defendants should not be bound by the fact that their oral requests for a costs order was limited to the costs of the Motion, and they are entitled to make whatever application for costs they believe that they are entitled to make. There is no need for the Court to require the third and fifth defendants to incur the additional costs necessary to file a formal notice of motion. I will deal with the applications for costs that have actually been made by the third and fifth defendants. 10It is necessary to say something briefly about the two proceedings. The Shareholder Proceedings were commenced by statement of claim filed on 25 January 2012. As at 22 October 2013 the current form of the pleading was a further amended statement of claim filed on 27 April 2012. Briefly, by that pleading the plaintiffs challenged decisions by the Trustees to reject, or to fail to process, proofs of debt lodged by the plaintiffs under the terms of the Trust. It was alleged that all of the plaintiffs were shareholders of Compass Resources Limited. On 29 January 2009 the Trustees were appointed as voluntary administrators of that company. The company entered into a deed of company arrangement on 21 May 2009. The deed of company arrangement was varied on a number of occasions. The Trustees were required by the terms of the deed of company arrangement to establish the Trust. The Trust became effective on 15 November 2011, when the deed of company arrangement terminated. 11The plaintiffs claimed to be trust creditors. For that status to be established, the Trustees had to accept the plaintiffs' proofs of debt. The plaintiffs pleaded that the Trustees had wrongly rejected, or failed to adjudicate, on the plaintiffs' proofs of debt. 12It is not necessary to refer in detail to the basis of the plaintiffs' claims. It is sufficient for present purposes to note that the plaintiffs sought relief, the effect of which if given would have been to oblige the Trustees to admit the plaintiffs' proofs of debt. 13The Restitution Proceedings were commenced by a summons filed by the plaintiffs in those proceedings on 12 November 2012. It appears that the reason that the Restitution Proceedings were commenced was that the Trustees had paid out monies of the Trust in purported performance of their obligations to pay out trust creditors. Payments were made to the third to sixth defendants. If those payments were not restored to the Trust, the Trustees would not have enough funds to pay to the plaintiffs their entitlements, even if they succeeded in the Shareholder Proceedings. The plaintiffs sought declarations that they were beneficiaries of the Trust, and that the Trustees had paid money out of the Trust to the third to sixth defendants in breach of trust. The plaintiffs also sought an order that the Trustees be replaced as trustee, and that they account to the Trust for their breach of trust. 14Most relevantly, by order 3 the plaintiffs sought an order against the third to sixth defendants that they repay to the Trustees the monies they had received from them, and by order 4 the plaintiffs sought an interlocutory injunction to prevent the third to sixth defendants from dispersing the money they had received. 15The plaintiffs filed points of claim on 16 November 2012. It is not necessary to set out the allegations made in the points of claim, but it should be noted that they make it clear that the basis of the breach of trust claim that was made against the Trustees was the same as that which was alleged in the Shareholder Proceedings. 16On or about 29 of April 2013 a mediation took place between the plaintiffs in both proceedings and the Trustees. As a result of the mediation, binding heads of agreement were entered into between the parties to the mediation dated 29 April 2013. The heads of agreement became unconditional on 6 June 2013. The heads of agreement was signed by counsel for the plaintiffs and the Trustees. Among other things, the effect of the heads of agreement, if implemented, would have been that the Restitution Proceedings would have been dismissed, and the plaintiffs would have been precluded from commencing any new proceedings against the Trustees or the third to sixth defendants. The third to sixth defendants were not parties to the mediation or the heads of agreement, but they were included in its beneficiaries. 17Clause 3(b) of the heads of agreement provided: "Each party will pay his own costs to date." The third to sixth defendants were not parties to the Shareholder Proceedings, or parties to the heads of agreement. 18The plaintiffs resiled from the heads of agreement and on 19 July 2013 the Trustees, in the Shareholder Proceedings, filed a notice of motion seeking a declaration that the heads of agreement was binding, and an order that the plaintiffs specifically perform and complete the heads of agreement, as well as specific orders dealing with the resolution of each of the Shareholder and the Restitution Proceedings. If the Trustees succeeded on the Motion, the claim by the plaintiffs against the third to sixth defendants would be dismissed. 19An equivalent notice of motion was not filed in the Restitution Proceedings, and the third to sixth defendants were not made parties to the notice of motion. The notice of motion did not contain a statement that the relief sought was intended to bind the third to sixth defendants. However, in the course of the preparation of the Motion for hearing, a Registrar of the Court made an order that the Motion would stand as a notice of motion in both of the proceedings. 20On 15 July 2013 and 16 July 2013 respectively, the fifth and the sixth defendants' solicitors sent to the solicitors for the plaintiffs a Calderbank letter in which each defendant offered to settle the Restitution Proceedings on terms that the proceedings be discontinued with no order as to costs. Each letter warned that, if the offer was not accepted, the relevant defendant would be required to defend the Restitution Proceedings and significant costs would be incurred, that would be sought to be recovered from the plaintiffs. 21When the Motion came on for hearing on 22 October 2013 the plaintiffs, in effect, capitulated. The Court was asked to make orders by consent of the plaintiffs and the Trustees, and did so by means of separate short minutes of order in each of the proceedings. In substance the Court made orders, so far as is relevant, in accordance with the Motion. The short minutes of order in the Shareholder Proceedings did not include any order for costs against the plaintiffs, although order 3 provided that the costs of the Trustees' counsel in respect of the Motion would be payable out of the funds of the Trust. 22The short minutes of order in the Restitution Proceedings dismissed those proceedings, and relevantly precluded the plaintiffs from commencing any new proceedings against the third to sixth defendants. Order 2(b) was that: "Each party will bear their own costs of and in relation to this proceeding up to and including the date of this order." The proper way to interpret this order is that it applied as between the plaintiffs and the Trustees, in conformity with clause 3(b) of the heads of agreement. It did not bind the third to sixth defendants in relation to the application for the costs order that they now seek. 23The third and sixth defendants instructed legal representatives, who appeared for their clients at various stages of the preparation of the Restitution Proceedings for hearing. Those defendants were also represented at various stages of the preparation of the Motion for hearing. Counsel or a solicitor appeared for each of the defendants on the hearing of the Motion. 24In summary, the third and fifth defendants' submissions were: (1)At all times since 6 June 2013 (when the heads of agreement became unconditional) the defendants have had a complete defence to the Restitution Proceedings. (2)The Motion is to be taken as a motion in both sets of proceedings. (3)The defendants sent their respective Calderbank letters to the plaintiffs. (4)"It is beyond doubt that [the defendants were] therefore entitled to be heard in respect of the Motion and/or to have been made a party to it": fifth defendant's submissions par 14. (5)The defendants were served with the Motion and supporting affidavit, with the plaintiffs' evidence, with the Trustees' points of claim, and the plaintiffs' points of defence, and they were represented when the Motion came before the Court. (6)The plaintiffs capitulated without prior notice on 22 October 2013. (7)In relation to the costs of the Restitution Proceedings, costs should follow the event. The defendants relied upon McNamara v San [2010] NSWSC 1195, at [12], in relation to the principles governing the exercise of the Court's discretion to order costs after the dismissal of proceedings. (8)At all times since 6 June 2013 the defendants have had the benefit of the heads of agreement, and as there was no reasonable basis for the plaintiffs to argue that the heads of agreement should be set aside, the defendants should be awarded costs on the indemnity basis from that date. (9)Alternatively, indemnity costs should be awarded from the dates of the respective Calderbank offers. (10)If the defendants are not entitled to their costs of the Restitution Proceedings as a whole, they should be awarded the costs of the Motion on an indemnity basis. 25The plaintiffs' response in relation to the costs of the Motion (they having declined to make submissions in relation to the costs of the Restitution Proceedings as a whole) was to submit: (1)The Court will not normally allow two (or three) sets of costs to defendants with no possible conflicts of interest between them. (2)The third and fifth defendants were not parties to the Motion. (3)Where proceedings have settled, the usual exercise of the Court's discretion is to make no order as to the cost of the proceedings. 26The plaintiffs relied upon the acceptance by the Court of Appeal at [109] in Milillo v Konnecke [2009] NSWCA 109 at (109) of the principles expressed by Woodward J in Statham v Shephard (No 2) (1974) 23 FLR 244. 27Ipp JA , with whom Macfarlan JA and Sackville AJA agreed, said: "[109] In Statham v Shephard (No 2) (1974) 23 FLR 244 Woodward J examined a number of authorities that discussed the factors governing the award of costs to successful defendants between whom there were no conflicts of interest. His Honour extracted the following principles from these authorities (at 246-247): [T]he Court will not normally allow two sets of costs to defendants where there is no possible conflict of interest between them in the presentation of their cases. I would add to this basic proposition three provisoes. In the first place, if a conflict of interest appears possible but unlikely, the defendants should make any necessary enquiries from the plaintiff as to the way in which his case is to be put if this would resolve the possibility of conflict between defendants. (See Re Lyell [1941] VLR 207). Secondly, there could be circumstances in which, although the defendants were united in their opposition to the plaintiff, their relationship to each other might be such that they would be acting reasonably in remaining at arms length during the general course of litigation. Thirdly, even if defendants are acting reasonably in maintaining separate representation for some time or for some purposes, they may still be deprived of part of their costs if they act unreasonably by duplicating costs on any particular matter or at any particular time. [110] Statham v Shephard (No 2) is consistent with the approach of Kirby P in Credit Lyonnais Australia Ltd v Darling (1991) 5 ACSR 703. In the latter case, his Honour was inclined to hold that the successful respondents had virtually identical interests and ought not to have been represented separately at the trial and on the appeal. His Honour proposed no order in this regard, however, as he was of the view that the matter should be returned to the Commercial Division. Kirby P noted, nevertheless, that no point as to the parties' common interests and separate representation had been taken at trial, nor was the point raised before the hearing of the appeal commenced. Kirby P said (at 710) that the proper time to raise such an objection was "in advance of, or at, the hearing." His Honour considered that in the circumstances of that case it was too late for the matter to affect costs orders for past proceedings. [111] Kirby P noted that the Supreme Court Rules, as then constituted, made provision for an objection to the costs of separate representation being taken by an appellant. His Honour observed, however, that the Rules did not "limit the powers of the court to act on its own motion". His Honour referred in this regard to Harbin v Masterman [1896] 1 Ch 351 (at 364) and Richard Brady Franks Ltd v Price [1937] HCA 42 ; (1937) 48 CLR 112 (at 127, 136, 145). [112] The equivalent provisions in the Uniform Civil Procedure Rules 2005 to those to which Kirby P referred in Credit Lyonnais v Darling are rr 51.4(5) and (6). Significantly, r 51.4(7) - unlike the earlier Supreme Court Rules - provides: The failure by a party to give notice under subrule (5) or (6) does not limit the powers of the Court with respect to the costs of the proceedings. Thus, the Uniform Civil Procedure Rules make it clear (as Kirby P, in any event, observed in Credit Lyonnais v Darling) that the court retains the inherent power to act on its motion to make appropriate orders should it decide that costs have been incurred through unnecessary separate representation. [113] In determining whether the principles expressed in Statham v Shephard (No 2) should be applied to Gina's costs, due regard must be had to Kirby P's statement that the proper time to raise an objection to unnecessary representation is in advance of, or at, the hearing." 28The Court of Appeal therefore accepted the statement of principle by Woodward J, although it stated that it is generally required that the point be taken by a party who believes that other parties do not require separate representation either before or at the hearing. If that is not done, then it may be too late to do so at the stage of an appeal. The Court's general discretion as to costs is, however, preserved. The particular principles as considered by Ipp JA are most directly relevant where the issue is raised following an appeal. 29I infer in the present case that the plaintiffs did not take the point until the issue of costs arose in relation to the Motion. As I have noted above, strictly the plaintiffs have not made any submissions concerning the costs of the Restitution Proceedings as a whole. 30I should note a submission that was made on behalf of the fifth defendant at pars to 8 and 26 of its written submissions. That was to the effect that the Trustees have been at all times willing to sue to compel the plaintiffs' performance of the terms of the heads of agreement for the fifth defendant's benefit. That submission is valid. At all times since the motion was filed it has been clear that the Trustees have been acting in the interests of the third and fifth defendants, as well as their own. 31On balance I have come to the conclusion that, at least until the time that the heads of agreement were entered into between the plaintiffs and the Trustees in conjunction with the mediation, the third and fifth defendants were justified in having separate representation from the Trustees. The plaintiffs separately sought orders for restitution against them. To a considerable extent they had interests in common with the Trustees, as if the Trustees successfully defended the Restitution Proceedings, the claim against the third and fifth defendants would be dismissed. However, the relief claimed by the plaintiffs in the Restitution Proceedings was not limited to restitution of the monies paid to the third to sixth defendants. The plaintiffs made a claim that the Trustees were in breach of trust, a claim for an account, and a claim for an order that the Trustees be replaced. Those claims raised reputational issues in regard to the Trustees. I do not suggest that there was any likelihood of improper conduct on behalf of the Trustees, but I can see that they may have had an interest in compromising the Restitution Proceedings, or the Shareholder Proceedings, perhaps in relation to making a payment of money to the plaintiffs, in a way that would be inconsistent with the interests of the third and fifth defendants. It was not so clear that the Trustees would always act in a way that consistently protected the interests of the third and fifth defendants, so that it would be unjustified for those defendants to retain separate legal representation. 32The position falls within the second of the principles set out by Woodward J. 33However, after the mediation when the plaintiffs and the Trustees entered into the heads of agreement, the position changed. From that point the Trustees had the benefit of a binding agreement as to how the two proceedings would be resolved. The Trustees settled the two proceedings in a way that gave the third and fifth defendants a complete victory. When the heads of agreement was implemented, the claims against those defendants in the Restitution Agreement would be dismissed. From that point on, the Trustees and the third and fifth defendants had completely congruent interests. As I have noted above, the third and fifth defendants submitted - rightly - that it was at all times the case after the heads of agreement became unconditional that the Trustees would act to enforce the heads of agreement. They did so, successfully. The Trustees did not join the third and fourth defendants as parties to the Motion. It is irrelevant that that may have been an oversight, and that the Court has ordered that the Motion would stand as a motion in both sets of proceedings. 34I uphold the plaintiffs' submissions in relation to proceedings on the Motion that they should not be ordered to pay the costs of any parties other than the Trustees. There was nothing improper about defendants in the position of the third and fifth defendants deciding for their own reasons to be separately represented - they merely took their own risks on the issue of costs. 35As the heads of agreement pre-dated the third and fifth defendants' Calderbank offers, it follows from the above that the order that the plaintiffs must pay the costs of the third and fifth defendants should be made on the ordinary basis, and not on the basis of an indemnity. 36I make the following orders: (1)Order the plaintiffs to pay the costs of the third defendant and the fifth defendant in Proceedings No 352440 of 2012 up to and including, but not after, 6 June 2013 on the ordinary basis. (2)Order that the plaintiffs are not required to pay the costs of the third defendant and fifth defendant in Proceedings No 352440 of 2012 in relation to the notice of motion filed by the first defendant and the second defendant in Proceedings No 25860 of 2012 on 19 July 2013. 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: 12 February 2014