Solicitors:
Bartier Perry (Plaintiff)
Benetatos White (Second Defendant)
File Number(s): 2019/306832
[2]
Judgment
GLEESON J: On 8 October 2019, I delivered reasons for making orders by consent that the first defendant, Cartwright Transport Pty Ltd (the company), be wound up on the just and equitable ground and that liquidators be appointed to the company: In the matter of Cartwright Transport Pty Ltd [2019] NSWSC 1367. The plaintiff, Cartwright Holdings Ltd (Cartwright Holdings), then sought an order that the second defendant, Fugace Pty Ltd (Fugace), pay the costs of the interlocutory hearings before Black J on 2 October 2019 and Rees J on 4 October 2019.
The company has two equal shareholders - Cartwright Holdings and Fugace; and two directors - Mr Mark Cartwright and Mr Howard Hansen. The company was a joint venture between Cartwright Holdings and Fugace formed to carry on the business of importation, sale and distribution of heavy vehicle trailers and associated goods manufactured by an English company known as SC Cartwright (Coachbuilders) Limited. Under the terms of the director and shareholder agreement dated 27 July 2017, the parties agreed that Mr Hansen and Fugace would perform the role of general manager of the company, and that all parties would be actively involved in the day-to-day management of the business of the company: cl 6. In my principal reasons, I explained why I was satisfied that there had been an irretrievable breakdown between both the directors and shareholders of the company, and that the affairs of the company were deadlocked.
The procedural background to the proceedings is as follows. On 2 October 2019, Black J made orders ex parte for short service of the originating process and supporting affidavit, which was made returnable on 4 October 2019. The originating process sought interim relief by way of the appointment of provisional liquidators to the Company. On 4 October 2019, Fugace was successful in obtaining an adjournment of the hearing of that interlocutory application, which was stood over to 8 October 2019. Shortly prior to the commencement of the interlocutory hearing on that date, Fugace agreed to the making of final orders, by consent, as indicated above.
The costs order now sought by Cartwright Holdings relates to the application for the appointment of provisional liquidators, which was overtaken by the consent of the parties to the winding up order made on 8 October 2019.
It is well established that where the Court has not determined an application on its merits, it will not ordinarily determine the substance of that application in order to deal with a question of costs: Re Minister for Immigration and Ethnic Affairs (Cth); Ex Parte Lai Qin (1997) 186 CLR 622 at 624-625 (McHugh J); [1997] HCA 6. There are exceptions to that proposition, relevantly, where one party has acted unreasonably or where the Court can be confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter was fully determined.
In Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84, Basten JA observed at [2]-[4] (citations omitted):
[2] Where the parties resolve their differences, except as to the costs already incurred in litigation, they should usually expect that the court will not award costs. That is because the general rule applicable in civil litigation in superior courts is that costs will "follow the event". That rule is frequently paraphrased by reference to its purpose, namely that the successful party should generally recover its costs from the unsuccessful party. But where there has been no trial there is no "event" because, except in unusual cases, it is not possible to say that one party has been successful and the other unsuccessful. The orders made by consent may or may not demonstrate capitulation by the "unsuccessful" party.
[3] In unusual cases, it may be possible to identify success which is manifest on the face of the record. However, to manufacture a dispute in order to resolve that question is to disregard the statutory obligation imposed on the parties, their legal representatives and the court to conduct civil proceedings so as to facilitate the just, quick and cheap resolution of the "real issues in the proceedings." As explained in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd:
"That purpose may require a more robust and proactive approach on the part of the courts. Unduly technical and costly disputes about non-essential issues are clearly to be avoided.
The Court further stated:
"It could hardly be suggested that the pursuit of satellite interlocutory proceedings of the kind here in question in any way fulfils the overriding purpose of the [Civil Procedure Act]. To the contrary, it is the very kind of conduct which should be avoided if those purposes are to be achieved."
[4] Although these remarks were made with respect to an error in the production of a document subject to client legal privilege, they apply equally to satellite proceedings directed only to determining responsibility for costs. (Footnotes omitted)
In this case, Cartwright Holdings says that Fugace acted unreasonably prior to the commencement of proceedings, that its conduct invited the application for the appointment of provisional liquidators to the company and that but for the adjournment granted on 4 October 2019, it is almost certain that Cartwright Holdings would have succeeded had the application for interim relief been determined. The particular pre-litigation conduct of Fugace that was said to be unreasonable was the manner in which it had dealt with the potential roadworthiness or State compliance issues involving trailers supplied by the company to Woolworths.
In support of this contention, Cartwright Holdings pointed to correspondence and emails between its solicitors and the solicitors for Fugace commencing on 2 August 2019 giving notice of the foreshadowed application to wind up Cartwright Transport on the just and equitable ground and for the appointment of a provisional liquidator to manage the day-to-day operations of the business on an interim basis pending the hearing of that application; a further letter to the solicitors of Fugace dated 19 September 2019 requesting information from Mr Hansen and Fugace concerning statements made by Mr Hansen to Woolworths concerning potential roadworthiness or State compliance issues with trailers supplied by the company to Woolworths; and a chain of subsequent emails between Mr Robert Ward of Cartwright Group in the United Kingdom and Mr Hansen seeking clarification and further information with respect to that issue.
A perusal of the chain of emails reveals some brief responses by Mr Hansen to the request for information, including an indication in an email dated 25 September 2019 that he would call Mr Ward early Thursday morning UK time, but it seems that no follow up call was made by Mr Hansen to Mr Ward.
Importantly, the written submissions served by Cartwright Holdings for the interlocutory hearing on 4 October 2019 make plain that the application for the appointment of provisional liquidators was advanced by reference to a variety of conduct, which was said to demonstrate irretrievable breakdown and deadlock between the directors and shareholders of the company. That conduct was not limited to the difficulties which Cartwright Holdings and its related companies in the United Kingdom had experienced in obtaining information from Mr Hansen and Fugace concerning the potential roadworthiness or State compliance issues with respect to trailers supplied to Woolworths.
The costs application invites the Court to engage in a review of the affidavits and exhibits with a view to attempting to assess whether one party has acted unreasonably, or assuming both parties have acted reasonably, whether one party was almost certain to have succeeded if the application for the appointment of provisional liquidators had been determined. Here, the exhibits to the affidavits relied upon by Cartwright Holdings extended over 900 pages.
The remarks of Basten JA in Nichols v NFS Agribusiness Pty Ltd at [8] are apposite in the present case:
" … although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon."
Plainly, it is not appropriate to engage in a hypothetical trial of a hypothetical application with the view to attempting to assess whether that application for the appointment of provisional liquidators is likely to have succeeded had it been determined, and if so, on what basis.
While Mr Hansen could have been more constructive and helpful in his responses to the request for information on a matter of concern to the other director and shareholder, I am not in a position on the materials alone to make a finding that this conduct, insofar as it is attributable to Fugace, was unreasonable.
As to the hearing on 4 October 2019, Fugace says that it sought the adjournment of the hearing of the application for the appointment of provisional liquidators for a short period to enable it to consider the voluminous material served by Cartwright Holdings. I am not persuaded that it was unreasonable of Fugace to do so.
Given that the interlocutory application was overtaken by the parties' consent to the making of a winding up order, the Court should take a robust approach to put an end to satellite litigation and stop the inquiry which the costs application invites the Court to undertake.
The application for costs is refused. The appropriate order is that there be no order for costs of the hearings on 2 and 4 October 2019.
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Decision last updated: 15 October 2019