Maylord Equity Management Pty Ltd as trustee of the Batterham Retirement Fund v Nauer

Supreme Court of NSW|2017-11-22|Before: Slattery J, Bergin CJ

Judgment

This judgment is consequential upon the Court's judgment in Maylord Equity Management Pty Ltd as trustee of the Batterham Retirement Fund v Nauer (No. 2) [2017] NSWSC 1467 ("the first judgment"), given on 6 November 2017. The first judgment should be read together with this judgment. Events, matters and persons are referred to in both judgments in the same way.
In the first judgment the Court decided (at [64]) that this case was appropriate for the making of a Civil Procedure Act 2005, s 98(4)(c) order, as Maylord was an entity of no financial substance and had no plans to pay the existing costs orders, or to put itself in a position to pay those costs orders. The Court decided that any future costs assessment in relation to the costs orders already made against Maylord and Mr Batterham, would be likely to be protracted, disputatious and costly for the defendant. The Court made a specified gross sum costs order instead of assessed costs under Civil Procedure Act, s 98(4)(c) against Maylord and against Mr Batterham, in respect of the costs orders made against each of them respectively.
But neither the plaintiff nor Mr Batterham had a proper opportunity to answer the affidavit evidence put on by the defendant in relation to the quantification of the specified lump sum costs order under Civil Procedure Act, s 94(4)(c). So Maylord and Mr Batterham were given an opportunity to put what they wished in writing against the specified gross sum costs order quantification being sought under s 98(4)(c).
Once Maylord and Mr Batterham were afforded the opportunity of putting their submissions to the Court, argument resumed on 22 November 2017 on the issue of the quantification of the gross sum costs order. This judgment deals with that question.
The part of the Court's orders in the first judgment relevant to this issue was as follows: "1. These proceedings are dismissed pursuant to Uniform Civil Procedure Rules, r 12.7 for want of due dispatch; 2. The plaintiff is ordered to pay the defendant's costs of the whole of the proceedings including this motion, in addition to any existing costs orders in the defendant's favour; 3. The second respondent to the motion, Mr Peter Batterham, is also ordered to pay the applicant's costs of this motion for dismissal, the costs of the mediation held in December 2016, and the $80,000 in costs the subject of the applications before Bergin CJ in Eq and Ward CJ in Eq and he will be jointly and severally liable with the plaintiff for the payment of those costs; 4. The Court makes a gross sum costs order instead of assessed costs under Civil Procedure Act, s 98(4)(c): (a) against Maylord, in respect of the costs orders made in orders (2), and (b) against Mr Batterham in respect of the costs orders made in order (3) above; 5. The Court reserves for further consideration: (a) the quantification of any gross sum costs order made under Civil Procedure Act s 98(4)(c) against Maylord, in respect of the proceedings, and the quantification of any gross sum costs order made under Civil Procedure Act, s 98(4)(c) against Mr Batterham in respect of the present application and the December 2016 mediation, and (b) whether the second respondent to the motion, Mr Peter Batterham, should pay more of the costs which the plaintiff has been ordered to pay the defendant than have already been ordered against him pursuant to order (3)."

Background to the Quantification of the Specified Gross Sum Costs Order

The defendant, Mr Nauer, has advanced evidence to support the quantification of a gross sum cost order. The solicitor for the defendant, Mr Steven John Rush has given evidence through a number of affidavits, as to the total legal costs the defendant has incurred in these proceedings. There have been a number of amendments to his calculations. The final position is adequately represented in Mr Rush's affidavit of 21 November 2017 and a useful summary table handed up in Court, and which is partly reproduced in these reasons.
Mr Rush's evidence deposes to the gross legal costs the defendant has incurred in these proceedings, including disbursements. Mr Rush estimates in an affidavit sworn on 31 July 2017 that on the basis of his experience in practice as a solicitor in New South Wales undertaking commercial litigation for 35 years, that "it is usual for a party to recover in the range of 60 to 75% of their actual costs on assessment on ordinary basis". The Court accepts that evidence as a sound basis for making a fair specified gross sum costs order in this case.
The defendant seeks to add one category of costs to the costs orders that he seeks to have quantified in these proceedings: the costs of the 2014 proceedings before Hammerschlag J. The orders that Hammerschlag J made upon the dismissal of the 2014 proceedings allowed the costs of those proceedings now to be added to those made in these proceedings, by the following mechanism. Hammerschlag J ordered that upon the dismissal of the 2014 proceedings, if Maylord were to commence fresh proceedings within 12 months, that the costs of the 2014 proceedings would become costs in the cause in any subsequent proceedings. The present proceedings are such subsequent proceedings. And so the costs of the 2014 proceedings became costs in the cause in these proceedings. And the defendant is now entitled to those costs in the cause upon the dismissal of the present proceedings.
Now, having added the costs of the 2014 proceedings to the burden of costs to be paid by Maylord in these proceedings, these reasons include the costs so added into the present quantification process. A Court would not readily make an order under Civil Procedure Act, s 98(4)(c) in respect of the costs of proceedings other than those in which the specified gross sum costs order was made. But those costs in the 2014 proceedings have now become part of the costs of these proceedings, so the Court may now proceed to deal with the quantification of the specified gross sum of the defendant's costs, including the defendant's costs of the 2014 proceedings.
The quantification proceedings were adjourned on 6 November 2017 to permit Maylord and Mr Batterham to put such evidence and submissions on as they wished in order to counter the defendant's evidence as to the qualification of its costs. But during the hearing on 22 November, Mr Batterham indicated that he did not wish to advance any further evidence or to challenge the evidence against him and Maylord by cross examination. So the Court proceeded on that basis.

(1) Quantification of the Gross Sum Costs Order against Maylord

In order (2) of the orders made on 6 November, the Court ordered Maylord to pay the defendant's cost of the whole of the proceedings including the motion for dismissal in addition to existing cost orders in the defendant's favour. The defendant has advanced sufficient evidence for a specified gross sum costs order to be made in respect of this costs order.
The Court calculates the specified gross sum costs order according to the break-up of the defendant's costs, as set out in the following table, which the Court accepts as an accurate representation of the underlying evidence. The table brings out what is made clear from Mr Rush's evidence: that the orders made by Bergin CJ in Eq and Ward CJ in Eq were nominal estimates of large amounts of costs actually incurred upon the various applications before those two judges, who gave liberty for larger amounts to be recovered on later assessment.
The application before Bergin CJ in Eq caused the defendant to incur costs between 22 April 2016 and 24 October 2016. The actual costs incurred during this period were instead of $25,000, the sum of $138,396.87.
The application before Ward CJ in Eq caused the defendant to incur costs between 25 October 2016 and 22 May 2017. The actual costs incurred in respect of this period was instead of $55,000, the sum of $107,655.67.
The table also identifies the other discrete categories of costs. The costs of the 2014 proceedings were $84,617.70. And the costs of the current proceedings unrelated to the defendant's applications before Bergin CJ in Eq and Ward CJ in Eq were $90,826.49. In addition to this, the defendant's costs of the present application are $41,831.86.
The Court accepts as reasonable the table's illustration (below) of a discount from actual costs of a figure of 66% to represent the likely assessment of costs on the ordinary basis, which is well within Mr Rush's range of 60 to 75%. The Court will allow 66% of the defendant's costs on this application. Event Costs Order Costs Incurred 66% of Costs Incurred 19/12/14-24/4/15 If fresh proceedings are commenced, costs in the cause of those proceedings (Hammerschlag J) $84,617.70 $55,847.68 The First proceedings 22/4/16-24/10/16 Costs not related to Defendant's application Costs order (Slattery J on 6/11/17) $90,826.49 $59,945.48 22/4/16-24/10/16- costs related to the Defendant's applications $25,000 in respect of the Defendant's applications; without prejudice to the Defendant's applying to have costs assessed in due course (Bergin CJ in Eq) $138,396.87 (approx.) $91,341.93 25/10/16-22/5/17 $55,000 without prejudice to the Plaintiff claiming a higher amount on later assessment (Ward CJ in Eq) $107,655.67 $71,052.74 23/5/17-10/11/17 Costs order (Slattery J on 6/11/17) $41,831.86 $27,609.03 TOTAL $463,328.59 $305,796.87

Accordingly, the Court accepts that the defendant's cost of the proceedings were $463,328.59 and that a specified gross sum costs order should be made under Civil Procedure Act, s 98(4)(c) in respect of the defendant's costs of the proceedings against Maylord in the sum of $305,796.87.

(2) Quantification of the Gross Sum Costs Order against Mr Batterham

This section of these reasons deals with the quantification of the gross sum costs order against Mr Batterham, excluding the costs of the 2014 proceedings. The costs of those proceedings are dealt with separately in the next section of these reasons.
The Court had only made limited costs orders against Mr Batterham personally, as the first judgment makes clear. Orders (3) and (5)(b) limited Mr Batterham's liability for these costs: to the costs of the present motion for dismissal, to the costs of the mediation held in December 2016, and to the $80,000 in costs already the subject of the costs orders following the applications before Bergin CJ in Eq and Ward CJ in Eq.
Based on the earlier table, the amount of costs payable by Mr Batterham may readily be calculated. The recoverable costs (66% of actual costs) of the present motion for dismissal are $27,609.03. The evidence did not sufficiently disclose the separate costs of the mediation held in December 2016, other than for it to be said that those costs are included in the $80,000 in costs which the Court has already accepted may be entered against Mr Batterham as well as Maylord. I see no reason to discount the $80,000 by any figure, as it is clearly a much smaller amount than the actual costs incurred on these applications. Thus, the total costs payable by Mr Batterham excluding the costs dealt with in section (3) below are $107,609.03.

(3) Should Mr Batterham bear more of Maylord's costs liability?

The third issue was whether any further costs should be awarded against Mr Batterham personally. The Court has only made limited costs orders against Mr Batterham personally, as appears from the first judgment. As earlier indicated, orders (3) and (5)(b) made with the first judgment limited Mr Batterham's liability for these costs.
The defendant argued for an expansion of these orders. The defendant argued that some expansion was warranted on the basis of the additional costs orders now made against Maylord in respect of the 2014 proceedings - explained in the background above. The defendant argued that Court's findings in the first judgment (at [15] and [16]) that in the 2014 proceedings Mr Batterham did not inform the Court of his bankruptcy and sought leave to appear as Maylord's director and signed the summons in his supporting capacity as a director, are sufficient to conclude that he should also personally pay the costs of those proceedings, which are now the subject of an additional costs order in these proceedings. The defendant did not argue for any other expansion of the costs orders against Mr Batterham.
There is a sufficient basis for expansion of the costs orders against Mr Batterham to the limited extent now sought. Mr Batterham was plainly the person principally responsible for the act of bringing the 2014 proceedings without proper authority. It is well established that a natural person who brings proceedings in the name of a company without proper authority may become personally liable to pay the other party's costs of those proceedings: see Goodwood Recoveries Ltd v Breen [2006] 2 All ER 553 which adopted Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2005] 4 All ER 195.
Knight v FP Special Assets Ltd (1992) 174 CLR 178 is the leading case on non-party costs orders. Mason CJ and Deane J stated at 192 - 193: For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.
In FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340, in considering certain categories of cases where the Court may exercise its power as a matter of discretion, Basten JA identified a number of non-exhaustive categories which may result in a costs order being made by the Court against a third party. Basten JA stated (at [210]): "What is significant from a survey of the cases in which orders have been made against non-parties is that they tend to satisfy at least some, if not a majority, of the following criteria: (a) the unsuccessful party to the proceedings was the moving party and not the defendant; (b) the source of funds for the litigation was the non-party or its principal; (c) the conduct of the litigation was unreasonable or improper; (d) the non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial, was a substantial interest, and (e) the unsuccessful party was insolvent or could otherwise be described as a person of straw."
JJES Pty Ltd v Sayan (No 2) [2014] NSWSC 975 is a recent case in this Court involving non-party costs orders being made the director of a company which was a party to the proceedings. Campbell J considered the importance of the separate legal identity of corporations as part of the Court's restraint in exercising its power in this regard: See JJES Pty Ltd v Sayan (No 2) [2014] NSWSC 975 at [17], [18], [26] and [28].
It is within such orthodox authority that this additional costs order that has now been made against Maylord, should also be made against Mr Batterham, personally. And the Court will so order.
The quantum of the costs of the 2014 proceedings should now be added to the quantum of the costs that section (2) above had determined Mr Batterham is liable to pay the defendant: namely $107,609.03. Thus, the total costs now ordered against Mr Batterham are to be calculated by adding 66% of the costs of the 2014 proceedings, namely $55,847.68, to $107,609.03. to produce a final judgment against Mr Batterham in the sum of $163,456.71.

Other Procedural Steps

The Court ordered a stay of the operation of Order 1 of the orders made on 6 November 2017 until 13 December 2017. At the hearing on 22 November 2017, that stay was extended until the Court gave this judgment. As this judgment is being given on 19 December 2017, Maylord should be given a reasonable opportunity into the new law term to consider the possibility of lodging an appeal once Mr Batterham has exited his bankruptcy and is in a position to act again as a director of Maylord. It seems reasonable to permit a further period until 15 February 2018 for that to occur. The Court will continue the stay of Order 1 of the orders made on 6 November 2017 until 15 February 2018. Neither party should anticipate that any further extension of the stay would be granted at first instance. If an appeal is commenced it is a matter for Maylord as to whether it wishes to seek to extend the stay by a motion in the Court of Appeal.
Mr Batterham has also filed a motion on 13 December 2017 seeking further orders in the proceedings. The motion is entitled in the Commercial List and should therefore be heard in the Commercial List. The Court will also order that the defendant's motion dated 13 December 2017 be returnable in the Commercial List on Friday, 2 February 2018.

Orders

The Court makes the following orders and directions: 1. Order specified gross sum costs under Civil Procedure Act, s 98(4)(c) in respect of the defendant's costs of the proceedings against the plaintiff, Maylord, in the sum of $305,796.87; 2. Order that the second respondent to the motion, Mr Batterham, pay the defendant's costs of the 2014 proceedings; 3. Order that the second respondent to the motion, Mr Batterham, pay a specified gross sum costs order under Civil Procedure Act, s 98(4)(c) in respect of part of the defendant's costs of the proceedings that have been ordered against Maylord, namely in the sum of $163,456.71; 4. Order that the stay on Order (1) of the orders made on 6 November 2017 shall continue until 15 February 2018 to permit Maylord, if so advised after the conclusion of Mr Batterham's bankruptcy, to commence appeal proceedings against the order; and 5. Order that the plaintiff's motion dated 13 December 2017 be made returnable in the Commercial List on 2 February 2018.

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: 19 December 2017

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