KARA KAR HOLDINGS PTY LTD & ORS v KNUDSEN & ANOR

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40894/00 MASON P STEIN JA IPP AJA

Thursday 28 February 2002 KARA KAR HOLDINGS PTY LTD & ORS v KNUDSEN & ANOR (No 2)

JUDGMENT 1 MASON P: The Court delivered its reasons on 28 August 2001 (Kara Kar Holdings Pty Ltd & Ors v Knudsen & Anor [2001] NSWCA 276). 2 I ended my reasons (with which Ipp AJA concurred, in so far as they differed from those of Stein JA) in the following terms:

The appeal should therefore be allowed. The appellants should pay the costs of the Motion to adduce further evidence and to be relieved of their undertakings, being the Motion dismissed on 21 June 2001. The respondents should pay the appellants' costs of the appeal excluding the costs of the lengthy first set of written submissions.

The parties should be directed to file Short Minutes of Order within 7 days. If the parties cannot agree on orders each should file the preferred version together with supporting written submissions within a further 7 days.

3 The parties have been unable to agree on final orders. Written submissions have been exchanged. Neither side challenges the proposed orders relating to the proceedings in the Court of Appeal, being those proposed in pars 29-30 of the earlier judgment. The disagreement concerns the disposal of the proceedings at first instance. 4 The respondent submits that the proceedings should be remitted to Austin J to be determined in accordance with the reasons of the majority in the Court of Appeal. 5 The appellant submits that the following orders should be made with respect to the proceedings in the court below (preserving the numbers in the appellants' draft orders):

2. The orders of Austin J made on 9 and 19 October 2000 be set aside. 3. There be judgment for the defendants on the Statement of Claim filed 28 August 1997. 6. Subject to any existing orders for costs, the respondents to pay the appellants' costs in the Court below, including: (a) the costs of the initial trial before Young J; (b) the costs of the hearing before Master Macready; (c) the costs of the application for leave to appeal and for an extension of time within which to appeal; (d) the costs of the first appeal; and (e) the costs of the re-hearing before Austin J.

6 This Court has the power to give any judgment and make any order which ought to have been given or made or which the nature of the case requires (Supreme Court Act, s75A(10)). It is clearly appropriate that we should strive to bring litigation to an end if this can be done consonant with our reasons. Remitter might be appropriate if there were live issues left to be decided and if their resolution depended upon further evidence or further argument not addressed in the Court of Appeal hearing. That is not the case here. 7 The respondents were the plaintiffs below. The proceedings instituted by them have a tortuous history. Prayers for relief have undergone several formulations, as recorded in this Court's judgment in Kara Kar Holdings Pty Ltd & Ors v Brookton Holdings Pty Ltd & Ors Court of Appeal, unreported, 27 March 1997. The outcome of that appeal was that the matter was remitted for re-hearing in the Equity Division. The costs of that appeal were ordered to be costs in the rehearing. 8 The parties came before Austin J and they agreed to a procedure pursuant to Pt 31 of the Rules. Ten questions were stated and the parties gave undertakings to the Court as to the orders to which they would submit in the event of the questions being answered in particular ways. These are set out by Austin J as follows: 114 The statement of separate questions for determination, and the undertakings as settled by counsel, are as follows: STATEMENT OF SEPARATE QUESTIONS FOR DETERMINATION PURSUANT TO PART 31

On the true construction of the trust instrument, and in the events which have occurred: 1. Was each plaintiff entitled to receive, as a lump sum Withdrawal Benefit, a sum equal to the whole of the amount (calculated in accordance with the findings of Justice Young dated 13 April 1994 and 4 September 1996) standing to the credit of his or her Employer Contribution Account on 1 March 1991 (in each case "the sum")? 2. If "yes" to question 1, is the trustee now obliged to pay the balance of the sum to each plaintiff"? 3. If "no" to question 1, was each plaintiff entitled to a withdrawal Benefit in some lesser amount or proportion of the sum, and if so, what amount or proportion of the sum?

4. If the answer to the first part of question 3 is "yes" is the trustee now obliged to pay to the balance of that amount or proportion to each plaintiff" 5. If the answer to question 1 or question 3 is that either or both plaintiffs were not entitled to any part or proportion of the sum, did the trustee exercise its discretion to pay either of them the whole of the sum pursuant to the proviso to Rule 10.4?

6. If the answer to question 5 is "yes", is the trustee obliged to pay the balance of the sum to each plaintiff"

7. If the answer to question 5 is "no" should the Court:

7.1 direct the trustee to exercise the discretion referred to in the proviso in accordance with law, or

7.2 exercise that discretion in place of the trustee, and if so, in what manner"

8. Is the meaning of rule 10.4 so uncertain (by reason, inter alia, of the incompleteness of Schedule 4) so as to make it ineffective, void or inoperative as a binding provision of the trust instrument? 9. If the answer to question 8 is "yes", is clause 15 operative as the applicable provision of the trust instrument concerning the proper payments, if any, to be considered or made by the trustee in respect of the termination of the plaintiffs' employment and membership of the trust? 10. If the answer to question 9 is "yes", 10.1 is the trustee obliged to pay the balance of the sum to each plaintiff, or

10.2 Should the Court: 10.2.1 direct the trustee to exercise the discretion referred to in Clause 15 in accordance with law, or

10.2.2 exercise that discretion in place of the trustee, and if so, in what manner? 10 AUGUST 1999 UNDERTAKINGS We, Niels Knudsen, Suchindra Knudsen, William Yardy, Jennifer Yardy and Kara Kar Holdings Pty Ltd, by our duly appointed solicitors hereby severally undertake to the Court, subject to the Court's power to relieve any of us from any part of these undertakings, and without prejudice to our rights of appeal, as follows: Defendants undertakings 1. If the question numbered 2 in Annexure A is answered "Yes" the defendants will consent to judgment for the first plaintiff in the sum of $57,099 (being the sum of $66,112 less the sum of $9,013 already received by way of withdrawal benefit) and for the second plaintiff in the sum of $26,741 (being the sum of $30,336 less the sum $3,595 already received by way of withdrawal benefit) together with interest on each judgment at the rates and during such periods as are agreed between the parties, or in default of agreement, as are determined by the Court. 2. If the question numbered 4 in Annexure A is answered "Yes" the first defendant will consent to judgment for the plaintiffs in such sums as are decided by the Court in answer to question 3 (the first and second plaintiffs giving credit for the sums of $9,013 and $3,595 received by them respectively as withdrawal benefits) together with interest on each judgment at the rates and during such periods as are agreed between the parties, or in default of agreement, as are determined by the Court. 3. If the question numbered 6 in Annexure A is answered "Yes" the first defendant will consent to judgment for the first plaintiff in the sum of $57,099 (being the sum of $66,112 less the sum of $9,013 already received by way of withdrawal benefit) and for the second plaintiff in the sum of $26,741 (being the sum of $30,336 less the sum $3,595 already received by way of withdrawal benefit) together with interest on each judgment at the rates and during such periods as are agreed between the parties, or in default of agreement, as is determined by the Court. 4. If the question numbered 7.1 in Annexure A is answered "Yes" the first defendant will thereupon take all necessary and appropriate steps to exercise the discretion referred to in question 7.1 in accordance with law and notify the plaintiffs in writing of its decision within 28 days (or such longer periods as is agreed between the parties or permitted by the Court). 5. If the question numbered 7.2 in Annexure A is answered "Yes" the defendants will within 28 days (or such longer period as is agreed between the parties or permitted by the Court) do all things necessary to comply with and carry into effect the Court's exercise of the trustee's discretion.

6. If the question numbered 10.1 in Annexure A is answered "Yes" the defendants will consent to judgment for the first plaintiff in the sum of $57,099 (being the sum of $66,112 less the sum of $9,013 already received by way of withdrawal benefit) and for the second plaintiff in the sum of $26,741 (being the sum of $30,336 less the sum $3,595 already received by way of withdrawal benefit together with interest on each judgment at the rates and during such periods as are agreed between the parties, or in default of agreement, as is determined by the Court. 7. If the question numbered 10.2 in Annexure A is answered "Yes' the first defendant will thereupon take all necessary and appropriate steps to exercise the discretion referred to in question 10.2.1 in accordance with law and notify the plaintiffs in writing of its decision within 28 days (or such longer period as is agreed between the parties or permitted by the Court). 8. If the question numbered 10.2.1 in Annexure A is answered "Yes" the defendants will within 28 days (or such longer period as is agreed between the parties or permitted by the Court) do all things necessary to comply with and carry into effect the Court's exercise of the trustee's discretion.

Plaintiffs undertakings 9. If the answers to the questions in Annexure A have the consequence that 9.1 the first defendant is not required to pay any sum or consent to judgment in any sum; and

9.2 the first defendant is not required to exercise any discretion according to law; and 9.3 the Court, declines to exercise any discretion of the trustee or alternatively exercises such a discretion against making a payment of any amount or proportion of any sum to either plaintiff; the plaintiffs will consent to judgment in favour of the defendants in the suit.

11 AUGUST 1999 9 In light of his conclusions and pursuant to his understanding of the effect of these undertakings, Austin J made final orders on 19 October 2000. They were to the following effect: 1. Order pursuant to Part 31, rule 1(a) that the following questions be decided separately from any other question in the proceedings: [The 10 questions were set out] 2. The Court answers the questions: Question 1: Yes Question 2: Yes Questions 3, 4, 5, 6 and 7: These questions do not arise. 3. Judgment for the first plaintiff in the sum of $57,099 together with interest in the sum of $54,044.11. 4. Judgment for the second plaintiff in the sum of $26,741 together with interest in the sum of $22,092.76. 5. Order that the defendants pay the plaintiff's costs of the first hearing, the appeal and the proceedings in accordance with the reasons for judgment dated 9 October 2000 and 19 October 2000. 10 His Honour's reasons are to be found in three judgments which had to be located and which it became necessary to examine in detail (Knudsen v Kara Kar [2000] NSWSC 715, Knudsen v Kara Kar (No 2) [2000] NSWSC 943 (delivered 9 October 2000) and Knudsen & Anor v Kara Kar Holdings Pty Ltd & 2 Ors, Ex tempore judgment, revised 25 October 2000. 11 The latter two sets of reasons explain in detail the bases for special costs orders (see esp [2000] NSWSC 943 at [23]-[66]). In summary Austin J proceeded in this manner: (i) the defendants were ordered to pay the plaintiff's costs of the rehearing, essentially because the defendants contested only the question of proper construction of the trust instrument and it was appropriate that costs follow the event ([23]-[25]); (ii) the costs of the first appeal were not addressed by Austin J because the Court of Appeal had ordered that they should be costs in the rehearing. Austin J construed that order as meaning that he had no discretion independent of his discretion a propos the costs of the rehearing itself. He added (at [35]): However, if there were any discretion for me to exercise, I would order that the plaintiffs' costs of the appeal, like their costs of the rehearing, should be paid by the defendants. Young J decided in favour of the plaintiffs in 1996. The defendants were able to forestall the implementation of his Honour's decision because they had raised a point that his Honour had not considered. But the point proved to be one of no substance. It is fair that they should pay the costs of the entire episode that they initiated by their appeal.

(iii) Turning to the costs of the initial hearing, Austin J held that the Court of Appeal's first judgment had the effect of extinguishing all of the orders of Young J, including the order as to costs ([39]). Later, after referring to a passage in this Court's first judgment, he added (at [47]): This passage in the judgment indicates, to my mind, that the intention of the Court was to leave the 'entire matter', including the question of costs of the first hearing, to me for determination. It follows that their Honours intended to extinguish Young J's costs order. The Court of Appeal's reasoning means that either I have a discretion to award the costs of the first hearing to either party, or those costs should abide my decision on the costs of the rehearing. I shall proceed on the basis that I have a discretion in the matter…. For reasons set out at [48]-[53] his Honour ordered the defendants to pay the plaintiff's costs of the initial hearing. It is sufficient for present purposes to observe that those reasons did not turn upon Austin J's conclusions concerning that portion of the proceedings he had heard upon which this Court (by majority) reached a different view in the second appeal.

(iv) At [54]-[66] Austin J addressed arguments as to miscellaneous exceptions re costs orders, qualifying them in particular ways (see at [63] and [66]). 12 In his judgment of 19 October 2000 Austin J effectively adhered to his views as to the orders to be made. He ordered the defendants to pay the costs of that day's hearing because they had wrongly contended that he had misconstrued the undertakings given by them. The point was essentially the one on which the defendants/appellants were upheld in the second appeal. 13 The parties are agreed that the reasons of the majority have the consequence that question 1 ought to have been answered "No" (reversing the trial judge's "Yes"). It follows that question 2 should have been answered "does not arise". 14 The real disagreement relates to the remaining questions. The respondents contend that questions 3-10.2 now arise for consideration and that question 10.1 (at least) may in certain circumstances require to be answered "Yes". There are, they submit, outstanding issues of law and fact. 15 By contrast, the appellants submit that there is nothing that is appropriate to be remitted to Austin J. They state:

Having regard to the Court finding that the respondents were not entitled to any specific amount under the rules of the fund, and to the finding that the appellants exercised their discretion to pay the respondents 10% of its net assets, it is submitted that subject to one possible qualification, the balance of the questions become moot and unnecessary to answer. If, contrary to the foregoing submission, specific answers to the questions are preferred, the Court can itself answer those questions without the need for further hearing and costs in remitting the matter to the trial Judge. In this regard, it is submitted that the answers would be: Questions 1, 3, 5 and 7 - "No" Questions 2, 4, 6, 8, 9 and therefore 10 - "Does not arise". The one possible qualification … is Question 10.2, which relates to the manner in which the trustee exercised its discretion. If the prefatory words make it arise (which the appellants submit they do not), then it is correct that the issue raised by that question has not been answered.

16 The appellants suggest a negative answer to both arms of Question 10.2 on various assumptions: see Appellants' Response to Respondents' Submissions re Short Minutes of Order (17 September 2001) pars 10-13. I agree with those submissions. 17 The questions should have been answered as proposed by the appellants. 18 In the upshot, no miscarriage of the trustee's discretion has been established beyond the initial payment of $115,000. The undertakings set out above (especially Defendants' undertaking No 1) encompass the monetary consequences of rectification of that breach. They also make it unnecessary for this Court to enter formal answers to the preliminary questions, although I have indicated what they should have been in light of this Court's earlier decision. There should be judgment for the defendants on the Statement of Claim filed 28 August 1997. 19 I am unable to apportion blame for the spectacular obduracy evidenced on both sides at every step in the proceedings in the Equity Division and the Court of Appeal. This unfortunate litigation has generated costs far exceeding the amount in issue. The present phase is no different. 20 The parties have exchanged lengthy submissions about costs. They are at issue as to the costs touching the earlier phases in the litigation. Indeed they are at issue as to whether they are properly and fully at issue on the matter. 21 The notice of appeal sought an order that the plaintiffs pay the defendants' costs and their costs in the Court below. The appellants submit that costs should follow the event, this being the principle applied by Austin J on 9 October 2000 when he ordered the then unsuccessful defendants to pay the plaintiffs' costs of all of the earlier proceedings, subject only to two minor groups of exceptions, namely: (i) existing orders in favour of the defendants in two earlier interlocutory matters were left undisturbed; and

(ii) the plaintiffs' entitlement was restricted to 80% of their costs with respect to four specified occasions. 22 The appellants, having now succeeded on appeal, contend that the respondents should pay effectively the whole of their costs. For convenience I repeat par 6 of their draft Short Minutes. 6. Subject to any existing orders for costs, the respondents to pay the appellants' costs in the Court below, including: (a) the costs of the initial trial before Young J; (b) the costs of the hearing before Master Macready; (c) the costs of the application for leave to appeal and for an extension of time within which to appeal; (d) the costs of the first appeal; and (e) the costs of the re-hearing before Austin J. 23 In my view (and subject to one qualification) the appellants are correct in their primary submission that costs should generally follow the event. The qualification is that the costs orders should recognise that the early phase of the litigation brought about the result that the $115,000 payment to Mr Yardy was held to be unauthorised. This breach of trust was found by Young J in 1994 and its impact was quantified by Master Macready in 1996 (see [2000] NSWSC 715 at [2]-[3]). Looking back through the tangled mists of time, basing myself on the limited materials put before us in the recent submissions, and concerned to avoid complex costs assessment, I would make no order as to the costs before Young J and award the plaintiffs the costs of the inquiry before the Master. But once the impact of the $115,000 was thereby sorted out, the contest became one in which the plaintiffs substantially failed in the upshot and they should pay the costs of the balance of the proceedings (including the costs of the first appeal which this Court had earlier made the costs of the rehearing). 24 Accordingly, the following orders should be made: 1. The appeal is allowed. 2. The orders of Austin J made on 9 and 19 October 2000 are set aside. 3. Judgment for the defendants on the Statement of Claim filed 28 August 1997. 4. Appellants are to pay the respondents' costs of the Motion dismissed on 21 June 2001. 5. Respondents are to pay the appellants' costs of the Appeal, excluding the appellants' costs of the first set of written submissions filed on 25 May 2001. 6. Subject to any existing orders for costs: (A) the appellants are to pay the costs of the inquiry before the Master; (B) the respondents are to pay the appellants' costs of and relating to the first appeal to this Court, the rehearing before Austin J and the current appeal (having certificates under the Suitors' Fund Act if qualified) (C) no order as to the costs of the proceedings before Young J. 25 STEIN JA: I agree with Mason P. 26 IPP AJA: I agree with Mason P. *****************

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