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[2024] FCA 1042
Federal Court of Australia
2024-09-10
Tamberlin JJ, Needham J
Original judgment source is linked above.
The applicant's submissions 21 The applicant submitted, on the costs of the Separate Question, that any costs order should be made against the first and second respondents, being (respectively) the company that received the benefit of the shares, and the director who was the agent of the transfer (Mr Martens). This submission was made on the basis of the impact that a costs order would have on the applicant, who (as a consequence of the finding in Norden no 1 as to the validity of the transfers) will have a 30% interest in each of the fourth and fifth respondents. 22 Secondly, the applicant submitted that the appropriate order was for indemnity costs. It cites Seven Network Ltd v News Ltd [2009] 182 FCR 160; FCAFC 166 at [1102] per Dowsett and Lander JJ on the basis of a letter dated 15 July 2024 from the solicitors for the applicant to the solicitor for the active respondents. That letter noted the deficiencies in the active respondent's case, in particular in [7] which reads (in original terms): At no time has there been an agreement to sell or otherwise transfer our client's shares to your client or any other person. A transcript of the telephone call between our clients and Mr Chislett amply demonstrates this, and the text message provided by your former solicitors simply reinforces there was no agreement. The minutes are not an agreement to transfer shares or a binding document in regard to the shares at all. Indeed, to the extent they mention the shares, they are vague and uncertain and lack legal effect for that reason. Further, there is no consideration, making any purported contract legal ineffective. Finally, the purported transfers are not in accordance with the constitution or the Corporations Act 2001. 23 The letter set out an offer that the active respondents concede the Separate Question, and consent to a declaration that the applicant remained the owner of the disputed shares. Failure to accept the offer within 7 days (given the upcoming hearing of the Separate Question) would result in the applicant relying on that offer as a basis for an application for indemnity costs according to the principles in Calderbank v Calderbank [1975] 3 All ER 333. 24 The applicant relied on the statement of Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248; 28 IPR 561 at FCR 231 to the effect that indemnity costs may be considered if an unsuccessful litigant continued the litigation where, properly advised, they should have known that there was no chance of success. The applicant pointed to a text message exchange between Mr Martens and the third respondent (who was the first respondent's insolvency expert), which refers to "lawyer having issues with the way this was done want to talk it through. Need a share sale agreement signed by him" as evidence that "Mr Martens was aware as early as July 2023, on legal advice, that the backdated minutes did not constitute a transfer of shares away from the applicant". The applicant also points to the terms of the Court's finding in Norden no 1 as to the strength of the active respondent's case and to the credibility of the second respondent in support of the application for indemnity costs. 25 Finally, the applicant seeks, pursuant to FC Rules r 1.32 (that the Court may make any order that the Court considers appropriate in the interests of justice), that any costs order in relation to the Separate Question be taxed immediately. The applicant accepts that it must hurdle the barrier of r 40.13 of the FC Rules in order to succeed (see above at [14]). 26 The applicant submits that r 40.13 does not apply to the hearing of the Separate Question, as it was not an interlocutory application, but rather an interlocutory proceeding (citing Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 4) [2013] FCA 567 at [25] to [28]). However, it was submitted that the justice of the case would in any event dictate an order for immediate taxation, given that the Separate Question was determinative of a discrete and substantive issue, and that the further direction of the proceedings is now ascertained and the issues narrowed.
The respondent's submissions 27 The active respondents, in their submissions dated 20 August 2024, do not cavil with the principle that costs should follow the event, but submit that any order should be made on a party and party basis, and apportioned amongst all active respondents. 28 Additionally, the respondents urge that any costs order be a lump-sum order, and in support of that submission, cite the Costs Practice Note (GPN-COSTS) at par 3.3 which provides: For those costs issues that are unable to be resolved by negotiation and require the involvement of the Court, the Court's preference is to avoid, where possible, the making of costs orders that lead to potentially expensive and lengthy taxation of costs hearings. Rather, the Court will seek to adopt, and will encourage parties to utilise, the appropriate use of sophisticated costs orders and procedures, including lump-sum costs orders, consolidated costs orders, estimate of costs processes and Alternative Dispute Resolution ("ADR"). Taxation of costs hearings should be the exception and be confined to those matters that have genuinely been unable to be otherwise resolved or determined. 29 The respondents submit that the costs should be reserved, and consolidated into any costs orders at the conclusion of the matter. 30 The respondents, too, rely upon Seven Network at [1102] and contend that there is no "special or unusual" aspect to the case which would warrant a departure from the usual rule as to costs. In relation to the applicant's Calderbank offer contained in its letter of 15 July 2024, it is submitted that that letter "does not elevate the question of costs in the event of adverse findings any higher than in any other hearing where the parties have an arguable claim and sufficient supporting evidence to proceed". 31 Further, the respondent argued (but faintly) that any decision on costs should not be made prior to the expiration of the period from which to appeal (or to seek leave to appeal) from the decision in Norden no 1. As Norden no 1 was delivered on 1 August 2024, the point is now moot in any event.
Consideration 32 It is not in dispute that the applicants should have their costs of the Separate Question. Quite fairly, nothing has been said by the respondents against this. 33 The four questions to determine are whether those costs should be payable: (a) by all, or only the first and second respondents; and (b) on the indemnity basis; and/or (c) on a lump-sum basis; and/or (d) forthwith.
Who should pay the costs? 34 The first and second respondents were the parties who would have obtained the benefit of the transfer, had it been declared valid. The fourth and fifth respondents were the companies in which the shares the subject of the disputed transfer were held. Often parties in that position would file a Submitting Notice. No separate submissions were - or could have been - put by those companies. 35 Given the above, and the fact that a costs order against the fourth and fifth respondents would result in the applicant effectively bearing 30% of the burden of that order, I am of the view that any costs order should be borne by the first and second respondents only. The power to make such an order as to costs being borne in specified proportions, or different orders for costs at different stages of the proceedings, is found in sub-s 43(3) of the FC Act. I set out the whole of s 43 which demonstrates the wide discretion which the Court has to award costs (noting that such a discretion must, of course, be exercised judicially): 43 Costs (1) The Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which this or any other Act provides that costs must not be awarded. This is subject to: (a) subsection (1A); and (b) section 570 of the Fair Work Act 2009; and (c) section 18 of the Public Interest Disclosure Act 2013. (1A) In a representative proceeding commenced under Part IVA or a proceeding of a representative character commenced under any other Act that authorises the commencement of a proceeding of that character, the Court or Judge may not award costs against a person on whose behalf the proceeding has been commenced (other than a party to the proceeding who is representing such a person) except as authorised by: (a) in the case of a representative proceeding commenced under Part IVA - section 33Q or 33R; or (b) in the case of a proceeding of a representative character commenced under another Act - any provision in that Act. (2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge. (3) Without limiting the discretion of the Court or a Judge in relation to costs, the Court or Judge may do any of the following: (a) make an award of costs at any stage in a proceeding, whether before, during or after any hearing or trial; (b) make different awards of costs in relation to different parts of the proceeding; (c) order the parties to bear costs in specified proportions; (d) award a party costs in a specified sum; (e) award costs in favour of or against a party whether or not the party is successful in the proceeding; (f) order a party's lawyer to bear costs personally; (g) order that costs awarded against a party are to be assessed on an indemnity basis or otherwise; (h) do any of the following in proceedings in relation to discovery: (i) order the party requesting discovery to pay in advance for some or all of the estimated costs of discovery; (ii) order the party requesting discovery to give security for the payment of the cost of discovery; (iii) make an order specifying the maximum cost that may be recovered for giving discovery or taking inspection. 36 The party that incurred the costs by participation in the litigation, in a practical sense, were the first and second respondents. Accordingly, and bearing in mind that costs are discretionary (see s 43(2) of the FC Act), it is appropriate that the costs be paid by the first and second respondents bearing the burden of the costs of the Separate Question.
Should the costs be on the indemnity, or on the party and party basis? 37 In Cantarella Bros Pty Ltd v Lavazza Australia Pty Ltd (No 4) [2024] FCA 419, Yates J considered whether costs should be assessed on the indemnity basis, either following an unsuccessful party's failure to accept a Calderbank offer, or that party's failure to recognise that its case was bound to fail. In that case the Calderbank offer was complex and included "a number of terms that were not reflected in any relief that [the successful respondent] could possibly obtain in the proceeding" (Cantarella Bros Pty Ltd at [42]). In the proceedings before me, the relief sought in the Calderbank offer did not exactly mirror the question for determination in the Separate Question; I was asked to determine whether the shares in the fourth and fifth respondents had been validly transferred to the first respondent, not whether the applicant "remained the owner" of those shares. That however does not detract from the essential nature of the offer; the applicant was seeking that the question of the efficacy of the share transfers be determined in its favour. 38 In Cantarella Bros Pty Ltd, Yates J considered the use of a contested trade mark and whether it had been abandoned in Australia, and said (at [38]) that that history meant that the applicant should not: … be criticised for persevering with its case against Lavazza for trade mark infringement from 9 July 2021, it being remembered that, apart from the question of its ownership of the ORO word mark for coffee, Cantarella succeeded on all other issues in the case it had brought. Although I think that Cantarella's contention about Molinari's alleged abandonment of its use of the ORO word mark in Australia was misconceived (Cantarella No 3 at [589]), the fact that Cantarella raised that matter does not lead me to a different conclusion. 39 Here, the active respondents were wholly unsuccessful, and perhaps not surprisingly so, given the strength of the applicant's case that the alleged transfer did not comply either with the fourth or fifth respondent's respective constitutions, and was not in accordance with s 1071B of the Corporations Act 2001 (Cth). Added to that is the apparent awareness of this fact, as demonstrated in the text messages of early July 2023 between Mr Martens and the third respondent, and the (quite proper) concession of counsel representing the active respondents that there was no formal instrument of transfer (see paragraphs [99] to [102] of Norden no 1). 40 The Calderbank offer on behalf of the applicant was, in my view, a genuine compromise on its part. While the letter sought a declaration providing the applicant the whole of the relief sought in the Separate Question (or an order analogous with it), it did not seek costs. There was no evidence or submissions from the active respondents to the effect that the offer was unreasonable or that there was a reasonable basis not to accept it. The highest that the active respondents put the position was to say in [16] of their submissions on costs: It is also submitted that the applicant's solicitors' letter dated 15 July 2024, sent to the Respondents' solicitors, in which the Respondents were asked to concede their position on the separate question, does not elevate the question of costs in the event of adverse findings any higher than in any other hearing where the parties have an arguable claim and sufficient supporting evidence to proceed. Otherwise, a party could routinely request the opponent to concede, irrespective of the merits, in an attempt to 'secure' an order for costs on an indemnity basis. 41 This submission is not to the point. An offer was made to finalise the Separate Question, which offer contained an element of compromise. The active respondents did not have - and seemingly appreciated that they did not have - an arguable basis on which to succeed. Accordingly, I am satisfied in the circumstances that it is appropriate to depart from the usual order that costs be awarded to the successful party on the party and party basis, and I will award the applicant their costs of the Separate Question on the indemnity basis.
Should the costs be awarded as a lump sum? 42 As submitted by the active respondents, a lump-sum costs order pursuant to FC Rules r 40.02(b) would be an efficient way to dispose with the issue of costs, and would be consistent with the Costs Practice Note GPN-Costs as well as the overarching purpose in s 37M of the FC Act. I agree with this submission. 43 However, no party has made any submissions as to the proposed quantum of that order. Accordingly, I order pursuant to r 40.02(b) of the FC Rules that the applicant's costs of the Separate Question may be awarded in a lump sum, the amount of which is to be determined by a Registrar.
When should the costs be paid? 44 In Axent , Kenny J said (at [13]): Where a costs order is made on an interlocutory application, the ordinary position, for which r 40.13 provides, is that the party in whose favour the order is made must not tax those costs until the proceeding is finished. This position is not, however, invariable. It is accepted that the Court may order that costs be taxed and paid immediately where the interests of justice require it: regarding r 40.13 of the Rules, see QS Holdings Sarl v Paul's Retail Pty Ltd (No 2) [2011] FCA 1038 at [33]; and, regarding O 62 r 3(2) of the former Rules, see McKellar v Container Terminal Management Services Ltd [1999] FCA 1639 at [41]. It is also the case that the Court may order that costs be assessed on a lump sum basis: see r 40.02(b) of the Rules. 45 At [15], her Honour went on to point to the reasons which underly r 40.13; in particular, that it is designed to avoid multiple taxations and costs orders at successive parts of the hearing. 46 Leaving aside the question as to whether this was an interlocutory application or an interlocutory proceeding, it seems to me that the fact the Separate Question was ordered by Justice Downes to be heard as a preliminary matter, rather than by way of an application by one of the parties, is a factor which militates against the usual rule applying. The matter is one that would have had to have been determined at the final hearing were it not determined by a Separate Question. The impetus for the Separate Question arose from her Honour's discussion with the parties on 28 June 2024. The costs of the Separate Question are discrete and did not extend over a long period, given the recent order and the efficient conduct of the matter by the parties (as noted by me in Norden no 1). 47 The proceedings are currently not listed for hearing. Given that, it appears that the balance of the matter may not be determined for some time - see Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 13) (Full Federal Court, Lockhart, Lindgren and Tamberlin JJ, 17 August 1995, unreported: BC9501951), in which a Full Court of this Court noted that, in the context of complex litigation in which final judgment was likely to be more than a year away, "[i]t would be wrong if the successful parties do not enjoy the fruits of their order for costs for such a long time" (cited at [19] of Axent) - it seems to me that the applicant should have its costs now, rather than awaiting the outcome of the balance of the proceedings.
Costs of this application 48 The applicant having been successful, it should have its costs of this application on the party and party basis. Those costs should be paid by the first and second respondents, but the costs of this application do not fall within the exceptions to the usual rules as above, and so taxation of those costs should await the finalisation of these proceedings. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Needham.
SCHEDULE OF PARTIES QUD 578 of 2023 Defendants Fourth Defendant: AMAZONIA IP HOLDINGS PTY LTD ACN 159 920 877 Fifth Defendant: AMAZONIA GROUP PTY LTD ACN 600 432 997
Norden Holdings Pty Ltd (Trustee)
Martens Investments Pty Ltd
NEEDHAM J: 1 On 1 August 2024, I delivered reasons on a Separate Question which ruled in favour of the position of the applicant: Norden Holdings Pty Ltd (Trustee) v Martens Investments Pty Ltd (Trustee), in the matter of Amazonia IP Holdings Pty Ltd [2024] FCA 845 (Norden no 1). 2 In these reasons, as was the case in Norden no 1, a reference to the active respondents is a reference to the first, second, fourth and fifth respondents. The third respondent, Mr Benjamin Chislett, did not appear on the Separate Question hearing, nor on this application for costs. 3 Relevantly, I said at [104] of Norden no 1: I see no reason why costs of the Separate Question should not follow the event. However, I will, if necessary, hear the parties on that question. If this is to be the case, then my Associate should be advised of that fact by a joint communication from the parties. 4 On 14 August, following delivery of Norden no 1, the applicant's representatives sent the below email to Chambers: Dear Associate, We act for the applicant in the above matter. We have copied the solicitors for the active respondents, and the third respondent personally into this email. We refer to Her Honour's judgment on the Separate Question delivered on 1 August 2024, and specifically Her Honour's indications regarding costs of the Separate Question. We have sought consent from the active respondents' counsel and solicitor repeatedly to send joint correspondence to you, however we have received no response. The active respondents have been given prior notice of the contents of this email. The applicant seeks its costs of the Separate Question, and will seek those on an indemnity basis to be immediately assessed. In contrast, the respondents have indicated that they may appeal the orders on the Separate Question. The applicant proposes that: The applicant file and serve any affidavit material and submissions (submissions limited to five pages maximum) by 19 August 2024 on whether costs should be determined now, and if so, as to what orders should be made; The respondents file and serve any submissions in response by 23 August 2024; The Court thereafter hear the parties on costs by video. Could you please confirm how Her Honour wishes to proceed. 5 At my direction, my Associate sent the below reply on 15 August (emphasis in original): I refer to the below email, which has been brought to Justice Needham's attention. Her Honour is of the view that there would be utility in canvassing the views of all active parties on the manner in which the costs hearing should be conducted. As such, please see attached for Orders made listing the matter for case management hearing at 2:15pm on 20 August 2024. A link to the hearing will be circulated to the parties in due course. The parties are requested to send any contested proposed short minutes of Order, with points of disagreement shown in mark-up, along with their appearance details, by 1:00pm on 19 August 2024. 6 In anticipation of this case management hearing, the applicant (perhaps somewhat in excess of what they were directed to do) filed submissions in relation to the question of costs arising from the Separate Question on 19 August 2024, along with a supporting affidavit. The applicant also sent a number of authorities on which it proposed to rely by email to Chambers on that same day. 7 The active respondents subsequently filed submissions on the costs of the Separate Question on 20 August 2024, shortly before the case management hearing was due to commence.
COSTS OF INTERLOCUTORY APPLICATIONS 13 The Court has the power to grant costs pursuant to s 43(2) of the Federal Court of Australia Act 1976 (FC Act). 14 Rule 40.13 of the Federal Court Rules 2011 (Cth) (FC Rules) reads as follows: 40.13 Taxation of costs awarded on an interlocutory application If an order for costs is made on an interlocutory application, the party in whose favour the order is made must not tax those costs until the proceeding in which the order is made is finished. 15 This rule "enables all costs to be assessed and set-offs made having regard to all orders for costs": Zaghloul v Woodside Energy Ltd (No 9) [2019] FCA 1718 at [20] per Colvin J. 16 The rule also avoids and/or discourages burdensome interlocutory applications, the inconvenience of multiple taxations, costs orders against parties that will eventually be successful in the substantive proceedings, and unfairness: Axent Holdings Pty Ltd v Compusign Australia Pty Ltd (No 3) [2018] FCA 6. 17 However, the Court can order that the costs of an interlocutory application be taxed immediately, utilising the general power in r 1.35 to dispense with compliance of the FC Rules, or r 1.34 to make orders inconsistent with the Rules: Bideena Pty Ltd v Growth Super Fund Pty Ltd [2016] FCA 1440 per Markovic J at [14]. 18 Importantly, an explicit order must be made dispensing with compliance with the rule and permitting a party to present its costs for taxation at an earlier stage: Clipsal Australia Pty Ltd v Clipso Electrical Pty Ltd [2016] FCA 37 at [12] per Perram J. 19 In making such an order, the Court will generally have regard to: (a) whether the conduct was unreasonable, reprehensible, or involved a lack of competence or diligence; (b) the potential for considerable delay until the matter is finalised; (c) if the costs order relates to a separate or discrete issue; and (d) whether security for costs has been provided. See Hastie Group Ltd (in liq) v Multiplex Constructions Pty Ltd (Formerly Brookfield Multiplex Constructions Pty Ltd (No 4) [2022] FCA 1575 at [122] per Middleton J, and Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International B V (No 5) [2018] FCA 19 at [9] per Perram J. 20 More broadly, the below categories can enliven the Court's discretion: (a) The interests of justice: see Watson v Kriticos (Costs Payable Forthwith) [2022] FCA 4 per Perram J; (b) the overarching purpose of the Court and its case management processes (ss 37M and 37N of the FC Act and Tour Squad Pty Ltd v Fifth Amendment Entertainment Inc [2020] FCA 1649 at [13] per Derrington J; (c) effect of delay: see Cytel Pty Ltd v Peoplebank Recruitment Pty Ltd (No 2) [2008] FCA 697 at [13] per Bennett J; and (d) the absence of security for costs: see Tour Squad at [17] to [18].
(1993) 46 FCR 225