Newtimber (Operations) Pty Ltd v Tarong Energy Corporation Limited

REASONS FOR JUDGMENT 1 By a notice of motion filed 23 December 2010 the respondent, Tarong Energy Corporation Pty Ltd (Tarong) sought orders that: 1. Pursuant to Order 28 rule 2 of the Federal Court Rules, s.56 of the Federal Court of Australia Act 1976 (Cth) and s.1335 of the Corporations Act 2001 (Cth) the applicant provide security for the respondent's costs of the proceedings in the amount of $262,971.00 by way of cash deposit or bank guarantee in a form that is satisfactory to the Registrar within 28 days; 2. The proceeding be stayed pending the applicant's compliance with paragraph 1 above; 3. The applicant pay the respondent's costs of and incidental to this motion as assessed or as agreed. 4. … 2 On 17 February 2011, the Court ordered that: 1. The applicant provide security for the respondent's costs of the proceeding in an amount of $30,000.00 in a form that is satisfactory to the Registrar of the Court within 30 days. 2. In the event of the applicant failing to provide security in accordance with Order 1 within 30 days the proceeding be stayed. 3. The parties have liberty to apply on three days notice. 4. The costs of and incidental to the notice of motion filed on 23 December 2010 are reserved. 5. The parties shall file written submissions on the question of costs within 14 days indicating whether the party seeks to be heard orally in relation to the disposition of the costs of and incidental to a notice of motion and failing any request for an oral hearing, the costs of the notice of motion shall be determined on the papers. 3 These reasons deal with the disposition of the reserved costs of Tarong's notice of motion. Neither party requested an oral hearing and the question of the costs of the motion is to be determined on the papers. 4 One of the factors which was influential in the determination of the motion was the offer of an undertaking by Mr Peter Hanmer to pay Tarong's costs of the proceeding should an order for costs ultimately be made in Tarong's favour against the applicant in the proceeding, Newtimber (Operations) Pty Ltd ("NOPL"). At [20] of the principal judgment (Newtimber (Operations) Pty Ltd v Tarong Energy Corporation Limited [2011] FCA 123) the Court noted that Mr Hanmer is a director of NOPL and Newtimber Limited ("NL") the parent of NOPL; Mr Hanmer holds all of the issued shares in the company called Bralville Pty Ltd; Bralville is a substantial shareholder in NL in its capacity as a trustee of the relevant trusts; Mr Hanmer is Chairman of NL; and, on the material, nothing was known of the trusts. 5 After considering the authorities and all of the relevant considerations informing the exercise of the discretion, the Court made these observations at [34] of the principal judgment: Plainly enough, the offer by Mr Hanmer is a significant consideration in determining whether any order for security ought to be made. One of the factors upon which the satisfaction of the statutory purpose is made out, identified by the Full Court in Harpur v Ariadne, is the notion that the individual has put his or her own assets in a hazardous position. If the individual has brought his or her own assets already into play "for whatever he [or she] is worth", the statutory purpose is satisfied. In Togito Pty Ltd v Pioneer Investments (Aust) Pty Ltd & Anor [2009] QSC 68, de Jersey CJ observed, as a matter of principle, at [2] that "[W]hen a plaintiff company would likely be unable to meet an adverse costs order, then absent any other discretionary consideration (and none is pressed here), the alternative proposal must be reasonably secure, if an order is to be avoided" [emphasis added]. 6 After noting that Mr Hanmer had elected to adopt the vehicle of a corporate trustee of relevant trusts to manage his legal and financial affairs the Court noted, without expressing any criticism of that election, these matters at [38]: That is not to express any criticism of Mr Hanmer in selecting that method of organising his financial or legal affairs or the vehicle in which assets might be held. However, it does recognise that on the facts of the present case, although Mr Hanmer has in the sense used by Connolly J in Harpur v Ariadne, come out from behind the skirts of the company, he has not necessarily, in a real, substantive or operative sense, brought all of "his own assets into play" and is not necessarily already at risk "for whatever he is worth", as relevant assets which might otherwise be available, are held (as to shares) by a corporate trustee upon the relevant trusts and other assets might similarly be so held. 7 At [49] the Court observed: Since Mr Hanmer's assets are not fully exposed to the risk of such a costs order because some assets which might otherwise have been held by Mr Hanmer are held or owned by a trustee of a discretionary trust in which Mr Hanmer seems to be (I infer) one of the beneficiaries within a field of beneficiaries, Tarong ought to be given a measure of protection by making a limited order for security which provides some mitigation of the risks, but, more importantly, demonstrates, if satisfied, a commitment by Mr Hanmer to the prosecution of the proceedings. 8 And at [51] the Court observed: In the face of the undertaking, qualified by the circumstances concerning the underlying principle reflected in the Ariadne decision, and the reality that Mr Hanmer adopts the vehicle of a corporate trustee of trusts for the holding of assets, it is appropriate to make a very limited order for further security directed to demonstrating Mr Hanmer's commitment in the governance of NOPL to the proper prosecution of the litigation and the contended causes of action which, NOPL contends, has caused it the reliance loss it asserts in respect of what seems to be NOPL's only business undertaking. 9 In the result, an order for security for costs in the amount of $30,000 was made. 10 Tarong contends that it ought to now have an order for the costs of and incidental to the notice of motion on a party and party basis to be agreed or taxed or in the alternative an order that the costs of and incidental to the motion be its costs in the cause. Tarong contends that NOPL engaged in capricious and unreasonable responses to legitimate and repeated requests of it to provide security for costs. 11 Tarong also contends that the combined effect of s 37M and s 37N of the Federal Court of Australia Act 1976 is that the parties must conduct themselves in a manner consistent with the overarching purpose, namely, the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible and that in the circumstances of this interlocutory application, NOPL has failed to conduct itself in that way. Further, Tarong contends that by reason of s 37N(4) the judge is required to take into account in the exercise of the discretion as to costs, any failure of a party to act in accordance with the overarching purpose. 12 The failure to act consistently with the overarching purpose is said to be made out because NOPL failed to respond to six letters seeking agreement in relation to the provision of security for costs prior to Tarong filing its motion; NOPL failed to respond to three further letters seeking elaboration of NOPL's offer to provide personal guarantees; NOPL delayed in conveying to Tarong the terms of Mr Hanmer's proposed undertaking; the terms of Mr Hanmer's undertaking was conveyed by letter seven weeks after the motion was filed and only five days before the motion was to be heard; NOPL refused to provide "sensible particulars" of Mr Hanmer's undertaking; and, NOPL failed to lead evidence explaining why Mr Hanmer's undertaking could not have been given earlier and failed to lead evidence of Mr Hanmer's financial affairs. 13 Tarong contends that as a result of these actions it was forced to incur substantial and unnecessary costs in bringing the application for security. Tarong also says that the initial response of NOPL that it was premature to award security for costs was shown to be wrong and the "11th hour" offer of personal security by Mr Hanmer was ultimately found to be inadequate. Tarong also contends that the fact that the motion was heard on the same day that the matter was listed for directions ignores the fact that considerable expense was incurred in bringing on the motion on that day, and had adequate arrangements been made for the provision of security, the costs of the motion might have been avoided. 14 NOPL contends that the costs of and incidental to the notice of motion ought to be reserved on the footing that, in the circumstances, neither party could be said to have been entirely successful on the hearing of the motion; consistently with the decision of Buchanan J in Walker v Body Logic Resources [2008] FCA 1086, it is not appropriate to make a separate order for costs until the determination of the merits in the principal proceeding; and, the notice of motion was scheduled for a day on which the matter was listed for directions and thus Tarong and NOPL would necessarily have been appearing before the Court in any event. 15 In O'Keeffe Nominees Pty Ltd v BP Australia Ltd and Another (No. 2) (1995) 55 FCR 591, Spender J made these observations at 598 and 599 in relation to the question of costs incurred on many interlocutory applications: The primary concern that an order for costs reflect the justice of the situation is the reason that on many interlocutory questions the costs are reserved. In most cases, when an order for costs of the principal proceedings is made, no specific reference is made to costs which are reserved and they are, by the order for costs which is made, picked up in favour of the party that has been successful in the litigation. This circumstance reinforces the not uncommon position that in respect of the payment of costs of an interlocutory application, it is not necessarily just that the costs of an interlocutory application should follow the result of that interlocutory application but rather should be determined by the result of the principal litigation of which the interlocutory application forms but a part. For the same reason, costs orders on interlocutory applications are sometimes made whereby the costs of the application are the costs of the applicant in the principal proceedings or of a respondent in the principal proceedings, so that the benefit of that costs order is dependent on the outcome of the principal litigation. 16 In Scherer v Counting Instruments Ltd (1986) 2 All ER 529, the Court of Appeal said this at 536 in relation to costs on interlocutory applications: When these principles fall to be applied to an interlocutory step in an action, the circumstances may be such that it is not then possible to see on which side justice requires that the decision who should bear the costs of that step should ultimately fall. This may depend on how the issues in the action are eventually decided. Consequently, costs in interlocutory matters are often made costs in the cause or reserved. 17 The observations of Buchanan J in Walker v Body Logic Resources are consistent with the observations of Spender J in O'Keeffe and the English Court of Appeal in Scherer. His Honour made this observation at [19]: The claim for a separate costs order regardless of the final outcome of the proceedings raises the odd prospect that if the order for security for costs ultimately serves no real purpose (because the applicant succeeds) the respondents should nevertheless now have their costs of obtaining such an order. In my view the matter should be assessed, if necessary, in the light of the result of the proceedings as a whole. 18 As to the question of whether NOPL acted capriciously or unreasonably the position seems to be this. 19 It appears from the affidavit material relied upon by Tarong that Tarong's claim in their written submissions that NOPL failed to respond to six letters seeking agreement concerning the provision of security for costs prior to the filing of the notice of motion is a little overstated. In his affidavit sworn in support of the application, Mr Bloemendal notes that NOPL appeared to have sent a letter to Tarong dated 19 August 2010 in response to either Tarong's first letter or Tarong's first two letters seeking agreement on the provision of security for costs. Mr Bloemendal deposes that Clayton Utz, the solicitors for Tarong, did not receive a copy of that letter until it was later forwarded to Clayton Utz on 16 November 2010 at its request. 20 By the letter dated 19 August 2010 the solicitors for NOPL expressed the view that they believed an application for security would be premature given that the particulars had not been delivered; the defence had not been filed; and disclosure had not occurred. The probable belief of NOPL's solicitors that they had already answered Tarong's solicitors concerning the provision of security by their letter dated 19 August 2010 goes some way to explain the absence of an express reply to further letters from Tarong's solicitors between September and November 2010. 21 Whilst the failure to reply might seem objectively unresponsive, NOPL's solicitor's failure to respond to these letters needs to be seen in the context of the earlier letter. It seems from Mr Bloemendal's affidavit that the solicitors for NOPL made reference to the letter dated 19 August 2010 in later correspondence, presumably by way of answer to Tarong's solicitors further enquires. 22 On 16 November 2010 (the same day that the solicitors for NOPL forwarded a copy of their letter dated 19 August 2010), NOPL also wrote to Tarong and said: "In relation to the Security for Costs Application, we are in the process of seeking instructions from our clients as to whether they will provide personal guarantee(s)". Before filing Tarong's notice of motion on the 23 December 2010, the solicitors for Tarong wrote to the solicitors for NOPL three times (all in the eight days between 16 November and 23 November 2010) enquiring whether NOPL's solicitors had received instructions concerning the provision of personal guarantees. Mr Bloemendal deposed that the solicitors for NOPL had failed to respond to any of the three letters. 23 Notwithstanding that these letters were written in a short period of time, NOPL's failure to respond at all is a relevant factor in assessing whether Tarong's costs incurred on the motion might have been avoided. On 11 February 2011, NOPL's solicitors wrote to Tarong's solicitors on the issue of the provision of personal guarantees. By that letter, NOPL's solicitors conveyed the following offer for security: "In satisfaction of the Respondent's prayer for security for costs, Mr Peter Hanmer, director of the applicant company, hereby indemnifies such costs to the limit of $267,971". NOPL's solicitors contended that the costs of and incidental to the application be costs in the cause. 24 On 14 February 2011, the solicitors for Tarong wrote to the solicitors for NOPL stating that Mr Hanmer's offer had been given at the 11th hour following numerous requests from Tarong requesting NOPL to indicate its position on the security issue and had been made in absence of any material, filed in Court, that would indicate NOPL's or Mr Hanmer's ability to satisfy an adverse cost order. The letter also expressed doubts as to whether Mr Hanmer's undertaking was of any real value given the uncertainty regarding his financial position. The solicitors for NOPL responded by letter dated 15 February 2011 informing Tarong that the offer was an attempt to commercially resolve the issue; Mr Hanmer no longer lived in Thailand; a change of address form would be filed with ASIC; and, the offer of Mr Hanmer's personal guarantee as previously put, remained on foot. 25 In response to the letter of 14 February 2011, the solicitors for Tarong sent an email to the solicitors for NOPL on 15 February 2011 attaching a consent order in terms acceptable to Tarong. The consent order was largely similar to the orders sought in Tarong's notice of motion. The point of difference was the elaboration of the obligations of NOPL's solicitors in relation to the prospective security; a proposed order that both sides be given liberty to apply on 48 hours written notice; an order that the proceeding be stayed if security was not provided within 14 days; and, an order that NOPL pay Tarong's costs of and incidental to the application on a party and party basis. 26 It is difficult to conclude that Tarong sought to compromise on the issue of security for costs once NOPL proffered Mr Hanmer's undertaking. However, their attitude might be understood by reference to the timing of the offer of Mr Hanmer's undertaking, seven weeks after the motion was filed and only five days before the hearing of the motion. By waiting this long, NOPL effectively ensured that Tarong would have incurred, in all likelihood, significant costs in preparing for the hearing of the motion. As Tarong observes, no explanation was proffered by NOPL at the hearing of the long delay in providing the undertaking. 27 When viewed in isolation, NOPL's slow response on the security for cost issue does support Tarong's proposition that NOPL should face an order for immediate payment of Tarong's costs of and incidental to the motion. However, the dominant overall consideration is where justice lies on the ultimate merits of the principal proceeding. 28 On the question of success on the application itself, the position is this. 29 Tarong sought an extensive security for costs order together with an order that the matter be stayed until NOPL satisfied that order. The Court made a limited order for security having regard to Mr Hanmer's undertaking, but nevertheless took into account the consideration that Mr Hanmer's exposure to the full wind of the costs of the proceeding might be constrained by his election to adopt a discretionary trust structure for the financial management of his assets. On the other hand, NOPL took the position that no security was necessary having regard to Mr Hanmer's undertaking. Thus, neither party established their contended position on the hearing of the motion. 30 Whilst it is true that NOPL might have acted more promptly in proffering the undertaking of Mr Hanmer and in giving content to that undertaking, I am not satisfied that NOPL's conduct can properly be characterised as capricious. 31 The circumstances of this case are distinguishable from the conduct of the applicant in Moussa v Commonwealth Bank of Australia [2011] FCA 67. The applicant in Moussa had continually sought adjournments at different stages of the proceeding; failed to attend some hearings; failed to pay previous costs orders; and was pursuing an appeal that Tracey J regarded as having little prospect of success. Similarly, the conduct of the applicant in Burgess v Centrelink & Ors (2007) 159 FCR 500 is distinguishable from this case. In Burgess, the applicant's appeal from the decision of Federal Magistrate Wilson was thought to have a very limited chance of success; the applicant had previously failed to satisfy costs orders; and the applicant had enjoyed numerous opportunities to ventilate the merits of his contentions. 32 It is true to say that some aspects of NOPL's conduct caused Tarong to incur costs which might have been avoided. However, the dominant consideration is the question of where the merits ultimately lie in the proceedings overall. The appropriate order, in the exercise of the discretion in the circumstances of this case, is that the costs of and incidental to the notice of motion ought to be Tarong's costs in the cause. 33 Therefore, if NOPL are successful in establishing a right to relief in the primary proceeding, NOPL will not be responsible for the costs incurred by Tarong in pursuing the application. NOPL will not receive its costs of the motion in that event. If Tarong demonstrates that it has the merits in the principal proceeding, it will have, by the proposed order, its costs of and incidental to the notice of motion as part of its costs in the cause overall. I certify that the preceding thirtythree (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.