On 23 May 2018, I handed down my reasons for judgment in this matter: see Krupace Holdings Pty Limited v China Hotel Investments Pty Limited & Ors [2018] NSWSC 862. The parties have been unable to agree on the costs consequences of the reasons for judgment, and I have received written and oral submissions from Mr Hochroth (for the Plaintiff) and Mr Scruby SC (for the Second to Eighth Defendants). These reasons should be read together with the reasons handed down on 23 May 2018, and I will use the same terminology.
In the earlier reasons, I held that the July Notice was invalid on one of the grounds advanced by the Plaintiff. In coming to that conclusion, I also accepted the Plaintiff's contention that an amendment purportedly made to the Shareholders Deed was invalid. However, I found against the Plaintiff on its claim that the Directors had breached their fiduciary duties to the company, or any duty owed to the Plaintiff, or breached statutory requirements.
The Plaintiff contends that it should be awarded the costs of the hearing or, alternatively, that there should be no order as to costs to reflect the fact that the Plaintiff succeeded on the July Notice point and the Defendants succeeded on the fiduciary duty claims.
The Defendants contend that the great bulk of the case, both in hearing time, documents and evidence, was taken up on the fiduciary claims. Mr Scruby claimed, by reference to various indicia, that approximately 90% of time of the case was spent on the fiduciary issues, and 10% on the July Notice point (including the amendment point). Mr Hochroth agreed that the great bulk of time was spent on the fiduciary issues, and I think that Mr Scruby's assessment is realistic.
Mr Scruby then submits that, to allow the Plaintiff 10% for the July Notice issue (including the amendment point) and 90% for the fiduciary issues yields an outcome that 80% of the Defendants' costs should be paid by the Plaintiff. Although Mr Hochroth challenges the appropriateness of an order for costs in favour of the Defendants, he did not challenge the maths.
Mr Hochroth drew attention to the New South Wales Court of Appeal decision in Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 at [6]-[7] and [11]-[12], and Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145, particularly at [15]-[16] and [19] per Hodgson JA (with whom McClelland CJ at CL agreed), and at [38]-[39] per Basten JA.
Two principles come out of these decisions relevant to this matter. First, that the Court may order costs against a party that has been successful in respect of an issue that was clearly dominant or severable: see Griffith (supra) at [15]. Secondly, "event" generally means the result of the claim or counter claim, "and may be understood as referring to the practical result of a particular claim": see Ryde (supra) at [6].
There is a passage from Hodgson JA's decision in Griffith (see [16]) which cites a paragraph from Turkmani v Visvalingam (No 2) [2009] NSWCA 279 (see [9]), which in turn cites the applicable principles espoused in the joint judgment of Beazley JA, Tobias JA and McColl JA in James v Surf Road Nominees (No 2) [2005] NSWCA 296 at [31]-[33]:
"[31] Costs orders in the Supreme Court are governed by the provisions of s 76 of the Supreme Court Act 1997 and the Supreme Court Rules. Section 76 provides, relevantly that subject to the Act and the Rules, costs shall be in the discretion of the Court: s 76(1)(A). Part 52A r 11 acts as a limited proscription of the Court's discretion conferred by s 76. Part 52A r 11 provides that, subject to Pt 52A, the Court shall order that costs follow the event "except where it appears to the Court that some other order should be made as to the whole or any part of the costs".
[32] The effect of Pt 52A r 11 is that an unsuccessful party may be ordered to pay the entirety of the costs of the successful party, even though the successful party did not succeed on all issues. However, as is specified by the rule itself, the Court is entitled to make a different order. That may occur where there are multiple issues involved. This was the subject of comment in Waters v P C Henderson (Aust) Pty Ltd (unreported CA(NSW) Kirby P, Mahoney and Priestley JJA, 6 July 1994) where Mahoney JA said:
Where the proceedings involve multiple issues the application of the rule that costs follow the event may involve hardship where a party succeeds on some issues and yet fails on others. Particularly is this so where, for example, a defendant succeeds on issues that occupied the bulk of the time taken by the proceedings. Nevertheless, unless a particular issue or group of issues is clearly dominant or separable, it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed.
[33] Similarly, Toohey J made the following observations in Hughes v Western Australian Cricket Association (1986) ATPR 40-748:
1. Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order.
2. Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed.
3. A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the party's costs of them. In this sense, "issue" does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law. (references omitted)"
In Griffith (at [19]), his Honour Hodgson JA referred to what he had said in Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121], namely, that underlying all of these authorities is "the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs" (with whom Mason P, in Gretton, agreed, and with whom McClellan CJ at CL, in Griffith, agreed).
Hodgson JA did indicate that a defendant might be given more leeway in relation to matter raised on which they have failed because they have been forced to defend proceedings which the Court has wholly rejected.
Mr Hochroth contended that the leeway given to the Defendants should be applied to the Plaintiff because it was in reality a defendant in relation to the July Notice. Mr Scruby was prepared to concede that that was so, but submitted that that does not mean it was a defendant for the purposes of advancing a $3.5 million claim against the Second to Eighth Defendants. As I have said, Mr Scruby accepts that the Plaintiff should have all of its costs for the July Notice (and amendment) case.
Mr Hochroth then submitted that one of the Plaintiff's points was that the July Notice was issued in bad faith, and he pointed to matters that had been said by him before Robb J on 24 August 2017, particularly at pages 5 - 6, and 10 - 13 of the transcript of 24 August 2017 (although see T23.39-24.14 as to how Mr Giles dealt with that issue at the hearing before me). The bad faith asserted was that it was an attempt by the Defendants to force the Plaintiff to abandon the fiduciary case (if it accepted the July Notice). Mr Hochroth did concede that the Plaintiff did not need to run the whole fiduciary case as an answer to the July Notice, but he said the Plaintiff would run the risk of being "Anshuned" if it did not run its whole case on that point: see Anshun v Port of Melbourne Authority Pty Ltd (1981) 147 CLR 589; [1981] HCA 45.
Mr Scruby contended that there were really two "events" for the purposes of costs in this matter, namely, the Plaintiff's success on the July Notice point (again, including its success on the amendment point), and its failure on the claimed breach of directors' duties. He submitted that the Defendants should have all of the costs on the claim which they successfully defended, and the Plaintiff should have all of the costs on the July Notice issue on which the Plaintiff was successful.
The Plaintiff chose to run a case of breach of directors' duties, as it was entitled to do, but its decision to do so has led to considerable expense for the Defendants in defending that case. The possibility that it might be "Anshuned" from bringing that claim in the future does not have any bearing on the merits of that claim or affect the result that was obtained consequent upon Krupace's decision to run it. I agree with Mr Scruby's analysis of "events", and I agree that the fiduciary claims should be treated as a dominant and severable part of the case, and having embarked on that expansive case on which it has wholly failed, it is appropriate, in my view, and it is a fair result, that the Plaintiff pay the costs of the Defendants on the breach of fiduciary claim.
I do not think it is appropriate to order that each party pay its own costs for the same reason. I think that the assessment of 90% to 10% is an appropriate broad brush division of the case as to the fiduciary issues versus the July Notice issue (see Ryde (supra) at [6] on the acceptability of a broad brush approach), and hence on the matters on which the Plaintiff failed, and on the matter on which it was successful, and I therefore order that the Plaintiff pay 80% of the Defendants' costs of the hearing.
[2]
Amendments
18 December 2018 - Amendment to case name.
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Decision last updated: 18 December 2018