Morris v Hanley

2650/97 JANINE MORRIS v JACK NORMAN HANLEY & ORS JUDGMENT 1 HIS HONOUR: In these proceedings the plaintiff brought claims against 11 defendants for breach of fiduciary duty, conspiracy and negligence. She was completely unsuccessful. There was judgment for the defendants generally: Morris v Hanley [2003] NSWSC 42 ("my judgment"). This would normally result in her being ordered to pay the defendants' costs of the proceedings. But she claims a special order for costs, either to the effect that there be no order as to costs or alternatively that the defendants be ordered to pay her costs of the proceedings. She has prepared a schedule of particulars of the matters that she relies on in support of this argument and also written submissions in support of it. 2 She correctly identified the relevant principles on which this discretion is exercised as those set out in Ritter v Godfrey [1920] 2 KB 47 where Atkin LJ said at 60: "In the case of a wholly successful defendant, in my opinion the Judge must give the defendant his costs unless there is evidence that the defendant (1) brought about the litigation, or (2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation or expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains."

His Lordship at 61 said of the third category of exceptions that it: "... extends to cases where the facts complained of, though they do not give the plaintiff a cause of action, disclose a wrong to the public." 3 These principles were adopted as applicable in New South Wales by Long Innes J in Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371 at 377. A useful analysis of their application in a modern context is contained in the judgment of Palmer J in Zelino v Budai [2001] NSWSC 501. 4 The numerous particulars may essentially be reduced to four groups. The first group alleges misleading conduct or other misconduct on the part of the defendants. In respect of the particulars which I shall shortly specify, I do not find that the plaintiff's allegations as made are established. The evidence on which the finding is sought is appended to each particular. I do not propose to deal with each in detail. Generally, the evidence simply does not support the allegation of misconduct alleged. In addition, in many cases what the plaintiff is asking for is a reversal of a finding that I made at the trial, which I am not prepared in any event to make. I should add only that there are two beliefs which bedevil the plaintiff's thinking and lead to the making of many of these allegations. The first is that anyone who disagrees with her version of facts or affairs is wrong. The second is that if someone disagrees with her version of facts or affairs and is consequently wrong, then that is the result of deliberate falsehood rather than it possibly being a mistake or the result of a different view taken of the same situation. In relation to particulars 14, 15 and 16, the non observance of the articles is generally established (see [5] below), but does not lead to the conclusions contended for. I find that the plaintiff's allegations in particulars 2 - 26, 39 - 54, both inclusive, and 56 are not established. 5 The second group of allegations are contained in particulars 1, 27 and 28. They are to the general effect that the company was not conducted in accordance with the articles and could be said to be conducted in breach of the articles. It should be said at once that it is clear that this allegation is substantially established: see, eg, my judgment at [81] and [82]. As to part of the relevant period, it was admitted in the defendants' written submissions. However, there are a number of problems that stand in the way of this finding being translated into a special costs order in the plaintiff's favour. First of all, the defendants have all instructed the same solicitors and counsel and have, so far as I am aware, incurred only one set of costs. It is certainly not established whether and to what extent costs were incurred in relation to (or indeed met by) any defendant other than the 11th defendant. Secondly, the relevant facts found concerning individual defendants vary considerably. One or two knew of the existence of the relevant articles from the start. Others learned at varying later times, some as late as the time at which the company resolved to terminate the WEC loan and reamend its articles. This presents a difficulty in either depriving the defendants generally of a costs order to which they are prima facie entitled and even more so in the course of ordering costs against them. But there is a greater difficulty than those in the plaintiff's path. Whilst it is true that disobedience of the articles, however it may be characterised legally, was central to the subject matter of the proceedings, the question is whether it was sufficiently central to justify a special costs order or whether it can justly be said to have led the plaintiff to bring proceedings which were unsuccessful. In order for the plaintiff to succeed in the proceedings, not only did she have to establish non compliance with the articles, which she did, but she had to establish that the defendants or some of them were guilty of a breach of fiduciary duty or of a conspiracy or of negligence. In all of these propositions she signally failed. In my view, the defendants by not complying with the articles cannot fairly be said to have led the plaintiff into commencing proceedings where, in addition to that breach, she had to establish other vital matters in order to succeed and she failed to establish those other vital matters. The undoubted non compliance with the articles will not therefore lead to a special order in the plaintiff's favour. 6 The third group of allegations refer to illegal conduct on the defendants' part. These are gathered in particulars 29 - 38. Some of the allegations were undoubtedly established at the trial. Each of the defendants undoubtedly engaged in a conspiracy to defraud the revenue and/or made false returns to the Commissioner of Taxation. This related to cash payments supplementing the wages of the personal defendants and the provision to them of benefits which were not included in their income tax returns and in respect of which the books of the company were falsified as to the payments made. These transactions, however, played only a very small part in the proceedings. They played no part in the case pleaded by the plaintiff to establish the breaches of duty or torts on which she relied. They were put to the personal defendants on their credit. Those defendants did not compound their sins by denying the allegations. They all squarely admitted their fault. The use of that material in the proceedings, in addition to going to credit, was that, insofar, as it occurred during the period before the plaintiff became a shareholder, it helped to found a case that the plaintiff had suffered some damage, sufficient to justify an inquiry as to damages. There have been complaints since the delivery of my judgment that I did not regard those transgressions as serious or sufficiently serious. That arose from a misunderstanding of my finding that I should not reject the whole or substantially the whole of the personal defendants' evidence because of these transgressions. I did regard and I do regard the transgressions as serious matters, but did not regard them as totally destroying the credit of the relevant witnesses. Equally, I do not regard it as sufficiently connected with or central to the subject matter of the litigation as to find that it should sound in costs to the detriment of the defendants. I should add that, once the plaintiff received benefits in the same way as the personal defendants, she did not return as income in her income tax returns the cash payments and other benefits she received. Cases such as Zelino v Budai supra, where the defence concerned was wholly based on unworthy conduct, are quite different. 7 The fourth category of particular is the allegation that the first to tenth defendants have participated in a fraud on the company by having it pay all the defendants' legal costs: particular 55. Two things may be said about this. As I have said, it is not established on the evidence before me that the 11th defendant has in fact paid all the costs of the defendants' case or what portion (if any) has been paid by any of the other defendants. But even if they have not paid any part, as I have already observed, there is only one set of costs. It was certainly proper for the company to incur costs in defending the proceedings on its own behalf; it is not clear whether and to what extent those costs were increased by having the same solicitors and counsel defend the proceedings on behalf of the personal defendants. In these circumstances this consideration should not lead to the making of a special costs order. 8 There are therefore no grounds established upon which the ordinary course as to costs should be departed from in the plaintiff's favour. The situation remains that the wholly unsuccessful plaintiff should pay the costs of the defendants of the proceedings generally. 9 The defendants, however, claim costs on the indemnity basis in respect of some specific occasions. Bearing in mind the comparatively small amount of those costs, particularly against the large amount of costs generally, I think the complication of a special regime for a small amount of costs makes it undesirable to make this order, even if otherwise justified. 10 I order that the plaintiff pay the defendants' costs of the proceedings. This order is not intended to displace earlier special orders as to costs, which remain in force.

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