Solicitors:
Reuben George Lawyers (first plaintiff / second plaintiff / first respondent / second respondent)
MillerPrince (first defendant / third defendant / first applicant / second applicant)
JHK Legal (second defendant / third respondent)
File Number(s): 2019/301427
[2]
Judgment
This judgment concerns the orders for costs that should be made in respect of two notices of motion that the Court has determined over a number of hearings that have required three separate prior judgments: Infocus Tax and Business Advisory Pty Ltd v Andrews [2020] NSWSC 168; Infocus Tax and Business Advisory Pty Ltd v Andrews (No 2) [2020] NSWSC 1072; and Infocus Tax and Business Advisory Pty Ltd v Andrews (No 3) [2021] NSWSC 481.
Because of the complex history of these proceedings, it will be necessary for the Court to assume knowledge on the part of the reader of the three judgments.
I will use the same terms in these reasons as I have used in my third judgment. That means that the first and second plaintiffs will be called Infocus and Announcer respectively. The first defendant will be called Ben Andrews, the second defendant Kim Andrews and the third defendant VVV.
On 18 October 2019, Ben Andrews and VVV filed a notice of motion seeking an order for security for costs against the plaintiffs. Kim Andrews filed his own notice of motion seeking security for costs on 29 October 2019.
Following the delivery of my third judgment, on 28 July 2021 I made orders that the plaintiffs provide security for all three defendants' costs of the proceedings in the conventional form for substantially the amounts sought by the defendants. The defendants therefore succeeded on their notices of motion.
The defendants submit that the plaintiffs should be ordered to pay their costs of the notices of motion.
The plaintiffs submit that the appropriate order in relation to Ben Andrews' and VVV's costs should either be that the costs of their notice of motion be costs in the cause or that the costs be reserved. They submit that costs in respect of Kim Andrews' notice of motion should be reserved.
The plaintiffs submit that, even though the applications for security for costs succeeded, costs should not follow the event as contemplated by Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.1. That is because an order that an impecunious plaintiff provide security for the defendant's costs assumes that, if the defendant succeeds in defeating the plaintiff's claim and receives an order for costs, the plaintiff may be unable to meet that order. However, if at the end of the proceedings the plaintiff succeeds and is not ordered to pay the defendant's costs, it will become apparent that the assumption was false and the application for security for costs unnecessary. In that event, it will be established that there was no necessity for the security to have been provided.
I consider that the judgment of Buss and Murphy JJA in the Court of Appeal of the Supreme Court of Western Australia in Frigger v Clavey Legal Pty Ltd (No 2) [2015] WASCA 258 correctly states the principles that are applicable to the determination of an order for costs of a successful application for security for costs. There are equivalent rules that apply to costs orders made by this Court. Their Honours said (footnotes omitted):
[41] The respondent sought its costs of the application. The appellants resisted that application. They contended that where the respondent has successfully applied for security, the 'normal' order for costs is that the costs of the application be the respondent's costs in the appeal, and that the 'normal' order should apply.
[42] We ordered that the appellants pay the respondent's costs of the application. These are our reasons.
[43] The costs of and incidental to all proceedings in court are in the discretion of the court: s 37(1) of the Supreme Court Act 1935 (WA). The discretion conferred is wide, but must be exercised judicially. It is not uncommon in an application for security for costs to be reserved, or for costs to be made in the cause.
[44] Nevertheless, in dealing with an application for costs in connection with a successful application for security under the relevant companies legislation, Needham J in Collignon Developments Pty Ltd v Wurth, observed:
While I feel that there is perhaps some reason for saying that under s 363 [of the Companies Act 1961 ] because the assumption has to be made that the defendant will be successful in his defence the costs should be made costs in the proceedings, such a conclusion I think is probably unjustified. If it were correct then in every application under s 363 such an order should have been made, but my experience is that orders are frequently made for costs to be paid by one or other party to such application.
[45] In that case, his Honour considered that the plaintiff should pay the costs of the application on the basis that 'as the first defendant [had] been successful the ordinary consequence should follow'. See also, in this regard, for example, Michael Bickley Pty Ltd v Westinghouse Electric Australasia Ltd; Lawless v Mackendrick [No 3]; Sunlea Enterprises Ltd as trustee for Drummond Cove Unit Trust v Pollock.
[46] Whilst Needham J's observations in Collignon were made with reference to an order for security under the companies legislation, they are equally apposite in the context of an application for security for costs under r 44(1) of the Supreme Court (Court of Appeal) Rules. In this court, there have been cases where costs have followed the event where an application for security has been contested and unsuccessfully resisted. There is also authority in the appellate context in which the costs of the application for security have been ordered to be costs in the appeal, even though the respondent has failed in its application for security.
[47] Accordingly, in our opinion, there is no 'normal' order as suggested by the appellants.
[48] In this case, the factors that we had particular regard to were the fact that the respondent had invited the appellants to provide security without the need for making an application and the appellants' response did not, objectively, engage with the issues; the application was resisted on a number of bases which, objectively, had little or no arguable merit; and, generally speaking, the respondent succeeded on all of the material bases upon which it sought security.
See also G E Dal Pont, Law of Costs (4th ed, 2018, LexisNexis Butterworths) at [28.61].
I propose to order the plaintiffs to pay the defendants' costs of the applications for orders that the plaintiffs provide security for the defendants' costs. For reasons that I will explain shortly, I consider that the present application is exceptional. This is not a case where the plaintiff's financial circumstances are contestable and the entitlement of the defendant to the benefit of security for costs is controversial.
In fact, the plaintiffs declared at the outset that they were financially unable to pay any order for costs that the Court may make against them in these proceedings. This was always a clear case for the making of an order for security for costs. The plaintiffs are part of a group of companies the holding company of which has been called Infocus Wealth on these applications. Ordinarily, the Court would have required Infocus Wealth to provide security for costs on behalf of the plaintiffs, without the need for there to be any contested hearing. Infocus Wealth resisted providing security for costs in the conventional manner in the form of money paid into court or bank guarantee. Infocus Wealth argued at all times that sufficient security for the defendants' costs would be provided if Infocus Wealth executed a personal guarantee in favour of the defendants of the plaintiffs' compliance with any costs order made in favour of the defendants. That was for reasons of Infocus Wealth's commercial convenience, because the provision of conventional security for costs would initially have exacerbated Infocus Wealth's breach of a covenant in a loan agreement with its bank. The plaintiffs, at the behest of Infocus Wealth, continued to resist the Court making conventional security for costs orders in favour of the defendants, including as to the amount of security to be provided. That resistance continued even after the time when the provision of conventional security for costs by Infocus Wealth on behalf of the plaintiffs had ceased putting Infocus Wealth at risk of further breach of covenant.
The plaintiffs ultimately failed in that resistance. The resistance was entirely for the commercial benefit of Infocus Wealth, which is apparently a substantial enterprise, albeit that it was embarrassed for a period because its arrangements with its bank were out of order. As, in practical terms, Infocus Wealth strenuously resisted the provision of conventional security for costs in favour of the defendants, when it was a clear case that the defendants were entitled to security, the proper course for the Court to take is to order that costs follow the event.
That in my view is the proper course, even though the determination of the applications for security for costs was intertwined with the other notice of motion that sought an order under UCPR r 28.2 for the determination of a separate question before the hearing of all other questions in the proceedings.
For reasons that I will consider below, Ben Andrews, who was the sole applicant on the other notice of motion, ultimately ceased to press for the making of the order for the determination of the separate question. I initially deferred deciding whether it was appropriate to make an order for the determination of the separate question until the pleadings were complete. On a short-term basis, I permitted Infocus Wealth to provide security for the defendants' costs by means of a deed of guarantee, pending the Court being able to determine whether the proposed separate question was sufficiently narrow to justify the order sought that it be determined separately. As it has happened, by reason of the manner in which the plaintiffs have conducted the proceedings, it was necessary for the parties to complete two full rounds of pleadings, and furthermore the allegations ultimately made by the plaintiffs relevant to the determination of the separate question were so complex that the Court determined that a separate question was not appropriate, even though Ben Andrews had left the issue to the discretion of the Court. It may be that the costs of the applications for the provision of security for costs were increased by reason that the application proceeded in parallel with the application for an order for the determination of the separate question. However, to the extent that this is so, it has substantially been caused by the conduct of the plaintiffs.
I turn now to consider the costs order that should be made in relation to Ben Andrews' application for an order for the determination of a separate question. The separate question was initially in substance whether Ben Andrews has a complete defence to the plaintiffs' claims against him because of the operation of clause 12 of the share sale agreement made on 1 July 2019, whereby Announcer acquired from VVV the 50% of the share capital in Infocus that VVV had previously held. Clause 12 is set out at [10] of the first judgment. In essence, Ben Andrew's claim is that, by clause 12, the plaintiffs agreed not to sue him (as well as Kim Andrews) and released and forever discharged them from all claims.
As I noted at [38] of my third judgment, at the hearing on 17 March 2021, counsel for Ben Andrews advised the Court that, subject to final confirmation from his clients, they no longer pressed the Court for any order that questions be decided separately and before the balance of the issues in the proceedings. That was because Ben Andrews had come to accept that his attempt to enforce clause 12 of the share sale agreement only had the effect of prolonging the proceedings and increasing its costs. Subsequently, by email from the solicitor for Ben Andrews and VVV to my Associate dated 23 March 2021, they advised that the notice of motion was not pressed, although they left it open to the Court to make an order for separate determination if it thought fit.
I should interpolate that, as explained at [119]-[124] of my third judgment, before the hearing on 17 March 2021, I had decided that it was appropriate to make an order for the determination of at least one question that was not anticipated when Ben Andrews' notice of motion was initially filed, but which had emerged during the course of the proceedings. That question was whether Infocus was a party to the share sale agreement. By their amended pleadings, the plaintiffs introduced a claim that Infocus was not a party to the share sale agreement (which, if true, would have the result that Infocus was not bound by clause 12), but Infocus had introduced a claim against VVV for damages for breach of clause 10.1 of the share sale agreement, which is set out at [35] of my second judgment. However, at the hearing on 17 March 2021, counsel for the plaintiffs advised the Court that they wished to further amend their pleadings so that Announcer, rather than Infocus, would make the claim against VVV for breach of clause 10.1. That further change was evidently made to avoid the obvious problem that Infocus was approbating and reprobating on the issue of whether it was a party to the share sale agreement.
The plaintiffs submit that, in respect of the notice of motion seeking an order for the determination of the separate question, as the notice of motion has been dismissed, cost should follow the event and Ben Andrews should be ordered to pay the plaintiffs' costs.
Ben Andrews submits that the plaintiffs should be ordered to pay his costs of the application for the separate question "in circumstances where that application was ultimately not pressed because of the changing forensic landscape brought about by repeated and belated proposed changes to the Plaintiffs' claim". Alternatively, Ben Andrews submits that either the costs should be costs in the cause, or there should be no order for costs of the application.
In my view, the proper order for costs is that the costs of the application for the separate determination of the question of whether clause 12 of the share sale agreement provided a complete defence to Ben Andrews should be the parties' costs in the cause, limited to the issue of the effectiveness of the defence based upon clause 12. That is, if Ben Andrews succeeds on the defence based upon clause 12, the plaintiffs should be ordered to pay his costs of the application for the determination of the separate question. If that defence fails, Ben Andrews should be ordered to pay the plaintiffs' costs of the application, even if the plaintiffs' claim generally against Ben Andrews fails on other grounds.
I consider that this unusual costs order is appropriate in the present case for the following reasons. As I explained at [40]-[42] of my first judgment, clause 12 consisted in part of a promise by the plaintiffs not to sue Ben and Kim Andrews. They have done so. If clause 12 is enforceable, then these proceedings by the plaintiffs against Ben and Kim Andrews involve a breach of the share sale agreement (which may possibly only be enforceable by VVV). It was entirely reasonable for Ben Andrews to seek an order that the effect of clause 12 be determined in advance of the other issues in the proceedings. Initially, the application for an order for the separate determination of the effectiveness of clause 12 was a straightforward application. As mentioned, I deferred deciding the question until the pleadings were completed. The pleadings were then completed and completed again following the plaintiffs' application for leave to amend. The plaintiffs introduced into their pleadings allegations intended to achieve the result that they could enforce the share sale agreement without being bound by clause 12 contained in it. Those allegations are analysed in my third judgment at [46] where I described the allegations as "so convoluted as to be almost entirely impenetrable".
The entirely reasonable attempt by Ben Andrews to achieve the early and efficient determination of whether clause 12 protected him (and Kim Andrews) was undermined by the course of the pleadings and the complexity of the plaintiffs' attempt to avoid the application of clause 12. The plaintiffs may succeed in that attempt, but it is true that the delay caused by the amendment of the plaintiffs' pleadings and the complications involved in their attempt to avoid the application of clause 12, while remaining entitled to enforce the share sale agreement, has caused Ben Andrews to adopt the pragmatic approach of not pressing his application and leaving the issue to the discretion of the Court.
It would not in those circumstances be just to order Ben Andrews to pay the plaintiffs' costs of the application for the determination of the separate question. If Ben Andrews succeeds at the hearing in establishing a defence based upon clause 12, then the plaintiffs should pay his costs of the application. If he fails, it will then be known that the application for the determination of the separate question was misguided. Ben Andrews should then be obliged to pay the plaintiffs' cost of the application.
As Kim Andrews and VVV were not applicants for the relief sought in Ben Andrews' notice of motion, there should be no order for the costs of the application as between the plaintiffs and those defendants.
For these reasons, the Court makes the following orders:
1. The plaintiffs are ordered to pay the defendants' costs of their notices of motion seeking orders for the provision by the plaintiffs of security for the defendants' costs of the proceedings.
2. The costs of the plaintiffs and the first defendant of the first defendant's notice of motion seeking an order for the determination as a separate question of the effect of clause 12 of the share sale agreement dated 1 July 2019 shall be costs in the cause in respect of the determination of that issue at a final hearing, with the intent that the plaintiffs must pay the first defendant's costs if he succeeds on the issue and the first defendant must pay the plaintiffs' costs if he fails.
3. No order for costs as between the plaintiffs and the second and third defendants in respect of the notice of motion referred to in order (2).
[3]
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Decision last updated: 15 December 2021