COSTS - Party/Party - Exception to general rule that costs follow the event - apportionment - whether issues on which successful party was unsuccessful were clearly dominant or separable
Source
Original judgment source is linked above.
Catchwords
COSTS - Party/Party - Exception to general rule that costs follow the event - apportionment - whether issues on which successful party was unsuccessful were clearly dominant or separable
Judgment (4 paragraphs)
[1]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[2]
Judgment
BATHURST CJ: These proceedings concerned an appeal from a judge in the Equity Division in which his Honour made a declaration that the first respondent, TX Australia Pty Ltd (TXA) was required to register the transfer of shares held in it by Network Ten Pty Ltd (Ten) to the second and third respondents, Nine Network Australia Pty Ltd (Nine) and Seven Network (Operations) Ltd (Seven) in equal proportions. The transfer was for nominal consideration.
The case concerned certain pre-emptive rights provisions in a Shareholders Agreement between TXA, Ten, Nine and Seven (the Shareholders Agreement). The transfer of shares was said to be required by the Shareholders Agreement as a consequence of the appointment of a receiver and manager to Ten, whilst the "nil" or nominal consideration payable by Nine and Seven for Ten's shares was said to arise from a determination made by TXA's auditor pursuant to the Shareholders Agreement.
In Network Ten Pty Ltd v TX Australia Pty Ltd [2018] NSWCA 312, the appeal was allowed and the proceedings brought by TXA dismissed. The basis on which the appeal was allowed was that the auditor did not in fact determine the price payable as required by the Shareholders Agreement.
The parties have been unable to agree on the appropriate order for costs both in this Court and in the Court below. To understand the parties' submissions it is necessary to refer briefly to the position taken by Ten both in the Court below and in this Court.
In the Court below Ten raised four matters in opposition to the making of the declaration. First, it submitted the pre-emptive provisions in cl 10.2 of the Shareholders Agreement were not triggered. Second, it submitted that contrary to the determination by the auditor the expression "price" in the relevant provision of the Shareholders Agreement, did not mean the "market value" of the shares but a "fair and reasonable price" and the auditor's determination thus was not in accordance with the Shareholders Agreement. Third, the auditor did not in fact "determine" the price and fourth, the pre-emptive provisions were void for uncertainty. The primary judge determined each issue unfavourably to Ten.
On appeal Ten only relied on the second and third matters. It was successful in its contention that the auditor did not determine a price. The Court went on to hold that had the auditor determined the price by reference to market value, such a determination would have been in accordance with the Shareholders Agreement.
Ten has sought the following costs orders:
1. Nine and Seven pay Ten's costs of the appeal and the proceedings below; and
2. Nine and Seven pay the costs of TXA of the appeal and the proceedings below on an indemnity basis.
TXA did not seek any costs order.
Nine sought an order that each party pay their own costs of both the trial and the appeal, or in the alternative, that Ten should be awarded 50% of its costs of the appeal but not of the proceedings in the Court below and that TXA, Nine and Seven should each bear one-third of each of these costs.
Nine also submitted that there was no basis that Nine and Seven should be required to indemnify TXA for its costs.
Seven also submitted that each party ought to bear its own costs, or alternatively, that any entitlement of Ten to its costs of the appeal and in the proceedings in the below should both be capped at 50%. Seven submitted that any liability for Ten's costs should be borne equally between all respondents. It also submitted that it should not be required to indemnify TXA for its costs.
[3]
Consideration
Section 98 of the Civil Procedure Act 2005 (NSW) makes it clear that subject to the rules of court, costs are in the discretion of the court. Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) provides that "if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs". In that context, "the event" means the result of the proceedings: Baker v Towle [2008] NSWCA 73 at [11].
One circumstance where the discretion may be exercised differently is where the successful party has been unsuccessful on discrete issues raised by it in the proceedings. However, generally speaking, an apportionment to take account of that fact will only be made when the issues on which the successful party was unsuccessful were clearly dominant or separable: Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 at [64]; Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266 at [10]-[14].
The submissions of the respondents on the appeal were based on the proposition that the four issues raised in the Court below and for that matter the two issues raised on appeal were separable and costs should be apportioned to take account of that factor. It was not contended that Ten acted unreasonably or improperly in raising the unsuccessful issues.
Two of the issues raised by Ten, the question of whether the circumstances which occurred triggered the pre-emptive rights and whether the pre-emptive rights provision was void for uncertainty, were matters entirely separate from a consideration of the auditor's valuation. In those circumstances, it is appropriate in making any order for costs in favour of Ten to take account of the fact that it was unsuccessful on those issues.
The position is different in the case of the other two issues. Both concerned the question of whether the auditor's determination was in accordance with the Shareholders Agreement. Although it may be correct, as submitted by Nine, that the two issues could be categorised as "the determination issue" and "the method issue" in circumstances where both issues concerned whether the report was in accordance with the Shareholders Agreement, it does not seem to me that either was dominant or that they were separable in the sense described in the authorities.
Taking these factors into account in my opinion, Ten should receive the costs of the appeal and 50% of the costs of the proceedings below.
There remains the question of who should be liable to pay those costs and whether Seven and Nine should indemnify TXA in respect of the costs which it incurred.
In my opinion, Nine and Seven should bear the liability for the costs orders. Although TXA took principal carriage of the proceedings, the dispute in reality raised the question between the three shareholders of whether Ten was required to transfer its shares to Nine and Seven and if so, at what price. The issue could have been determined between Ten, Seven and Nine with TXA simply submitting to any order of the Court. It does not seem to me in these circumstances that Ten should be indirectly burdened in its capacity as shareholder of TXA by requiring TXA to pay a portion of Ten's costs of the proceedings.
However, I do not consider it appropriate to order that Nine and Seven indemnify TXA for its costs. The case is quite different from derivative proceedings under the Corporations Act 2001 (Cth) where in making an order under s 237 that a person be permitted to bring proceedings in the name of the company, a condition commonly imposed is that the successful party indemnify the company in respect of any liability for costs of the proceedings brought in its name.
In the present case TXA was a necessary party to the proceedings and, of course, the party which was required to register any transfer of shares made pursuant to the Shareholders Agreement. Further, no criticism was taken either in this Court or in the Court below of it taking an active role in the proceedings and incurring costs in doing so. In these circumstances in my view, it is not appropriate to make any order for an indemnity.
In the result I would make the following orders:
1. Order that the second and third respondents pay the appellant's costs of the appeal and 50% of the appellant's costs in the Court below.
MEAGHER JA: I agree with Bathurst CJ.
GLEESON JA: I agree with Bathurst CJ.
[4]
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Decision last updated: 22 March 2019