Parlby and Anor v Blair and Others

Judgment 1This application concerns the costs of proceedings which were dismissed by consent by Brereton J on 5 November 2012. 2By way of background, the Plaintiff, Mr George Parlby ("Mr Parlby") and the First Defendant, Mr Richard Blair ("Mr Blair") are directors of the Second Plaintiff, Oakstreak Pty Limited ("Oakstreak"), which is the trustee of the Rozelle/Balmain Storage Trust ("Trust"). 3Another entity, RAB Finance Pty Limited, which is associated with Mr Blair, brought proceedings against Mr Parlby in the District Court of New South Wales. By letter dated 24 February 2012, in connection with those proceedings, Mr Parlby's solicitors requested copies of financial and other documents relating to Oakstreak in its own right and as trustee for the Trust. Some but not all of those documents were provided by Mr Blair's solicitor in March 2012. 4On 18 May 2012, Mr Parlby's solicitors sent a "without prejudice save as to costs" letter raising a range of questions in relation to the Trust and requesting copies of other documents. A further request was made on 13 June 2012 and not acceded to by Mr Blair. 5By Summons filed on 14 June 2012, Mr Parlby and Oakstreak sought certain orders in relation to the affairs of the Trust. The commencement of the proceedings by Oakstreak was authorised by Mr Parlby after, on 28 May 2012, he had purportedly convened a meeting of the directors of Oakstreak without notice to Mr Blair and passed a resolution removing Mr Blair as a director. On 25 June 2012, Mr Blair filed a motion ("First Motion") seeking various orders including an order that the Summons be dismissed. On 6 July 2012, Mr Parlby filed a motion ("Second Motion") seeking leave under s 237 of the Corporations Act 2001 (Cth) to bring proceedings in the name of Oakstreak in terms of the Summons and against Mr Blair "as to breaches of director's duties pursuant to [the Corporations Act] and at common law". 6In July 2012, Mr Blair's solicitors made an offer for access to documents, although disputes then arose in respect of the access arrangements including a claim by the accountants who held some of the documents for payment of the costs of inspection. 7Orders by consent were made on 17 August 2012 dismissing the proceedings so far as they had been commenced by Oakstreak, as distinct from Mr Parlby, and dismissing paragraphs 1-3, 6-8 and 9 of the Summons, and Rein J ordered that Mr Parlby pay the Defendants' costs on an indemnity basis. In the course of submissions on that date, Mr Parlby confirmed an observation by Rein J that he claimed to be entitled to make a claim for the documents pending any application that might be brought in relation to s 237 of the Corporations Act or fresh proceedings because, with that material, he would be better able to articulate his case or not, as the case may be, for an application under s 237 (T13-14). The Second Motion was stood over on 17 August 2012 allowing Mr Parlby an opportunity to consider Oakstreak's records, if they were provided to him, and Rein J directed that any Statement or Points of Claim be served on the Defendants by 5 September 2012. The claims that remained, after 17 August 2012, were an order for the making of inquiries including delivery up of specified documents; an order that Mr Blair and other defendants deliver to Oakstreak all its books and records; and claims for costs. 8In late August and early September 2012, Mr Parlby was provided with access to documents including financial documents for the 2008 year and working papers for other years. On 4 September 2012, Mr Parlby served Points of Claim that pleaded duties owed by Mr Blair to Oakstreak, including statutory duties under the Corporations Act and general law duties, and pleaded that Mr Blair had breached those duties and thereby caused Oakstreak to breach its duties to the Trust by, inter alia, causing contradictory entries to be made in financial records of Oakstreak; causing false or erroneous entries to be made in financial records maintained by Oakstreak; causing entries of "unexplained or improper character and/or otherwise without apparent justification" to be entered in those financial records "which have the tendency to obscure the true effect of any related transaction or transactions"; "failing to cause any entitlement associated with the related transaction or transactions to be off-set as against the secured loan owed to that entity"; and failing to respond to Mr Parlby's queries concerning entries on Oakstreak's books of account. The Points of Claim also contended that Mr Parlby had breached duties owed to Oakstreak in causing it to deal with Mountainview Retreat Retirement Village Pty Limited, as trustee of another trust, or alternatively had caused Oakstreak to breach its duties to the Trust in causing it to deal with that entity. Plainly, the Points of Claim advanced allegations of inappropriate conduct against Mr Blair. 9The Court subsequently ordered the Defendants to file and serve their affidavits in respect of the Second Motion by 5 October 2012. On 17 October 2012, Mr Blair served an affidavit of Mr Ross Chapman, a chartered accountant, which addressed several of the issues raised by Mr Parlby. Mr Parlby contends that Mr Chapman's affidavit answered the issues first raised by him in his solicitors' letter dated 18 May 2012 to which the relief for the making of inquiries and the delivery of documents was directed. 10By letter dated 2 November 2012 from Parlby's solicitors to Mr Blair's solicitors, they which stated that: "As discussed, given that the relief sought in the Summons has been satisfied that leave under section 237 of the Corporations Act 2001 is no longer required, we propose that the appropriate orders are for the dismissal of both the Summons and the Motion and that each party pay their own costs." That letter is not probative, of course, of any proposition that the relief sought in the Summons had in fact been satisfied or that Mr Parlby discontinued the proceedings by reason of that matter. As noted above, the proceedings were then dismissed by the orders made by Brereton J by consent on 5 November 2012. 11Section 98 of the Civil Procedure Act 2005 (NSW) provides for orders for costs. Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") r 42.1 provides that, generally, costs will follow the event, and UCPR r 42.20 specifically provides that: "If the Court makes an order for dismissal of proceedings, either generally, or in relation to a particular cause of action, or in relation to the whole, or part, of any claim, then, unless the Court orders otherwise, the plaintiff must pay the defendant's costs of the proceedings to the extent to which they have been dismissed." 12In Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497, McColl JA (with whom Beazley JA agreed) observed that the "default order" in UCPR r 42.20 does not establish a presumption that costs will be ordered against the Plaintiff upon the dismissal of the proceedings, and other relevant considerations included those identified in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624-625. Santow JA agreed with that observation and also noted that the onus is on a discontinuing party to justify such an order by reference to the normal costs outcome in such an event. An order contrary to the default position in UCPR 42.20 will therefore involve an exercise of discretion to depart from that position contemplated by the rule, where "some sound positive ground or good reason for departing from the ordinary course" is established: Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [10], [54]; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [54] per Hodgson JA. The fact that parties were justified or acted reasonably in commencing or defending the proceedings may but will not necessarily support a departure from the provision of the UCPR: Australiawide Airlines at [64]. 13In McNamara v Bao San & Ors [2010] NSWSC 809 at [12], Hallen AsJ (as his Honour then was) observed, in a summary of the relevant principles that I gratefully adopt: "The following principles may be regarded as relevant in determining who is to bear the burden of costs in a case where the proceedings are dismissed before a final hearing: (a) Costs discretions are truly discretionary: see Oshlack v Richmond River Council (1998) 193 CLR 72 at 84 and there are no absolute rules; (b) The purpose of a costs order is to compensate, or indemnify, the person in whose favour it is made, not to punish the person against whom it is made: Ohn v Walton (1995) 36 NSWR 77 at 79 per Gleeson CJ; (c) Rule 42.20 of the UCPR does not give rise to a presumption that costs will be ordered against the Plaintiff: Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497; Foukkare v Angreb Pty Ltd [2006] NSWCA 35] at [65]; Pentroth Pty Ltd v Kirschild Pty Ltd (2006) 96 SASR 129; Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [53]; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32. However, the rule does create a starting point by requiring "... the plaintiff must pay the defendant's costs of the proceedings ..." unless that outcome is displaced by a discretionary decision ("unless the court otherwise orders"); (d) Generally, there must be some proper justification, sound positive ground, or a good reason, for departing from the ordinary position: Fordyce v Fordham at [2] per Santow JA; Australiawide at [54] per Bryson JA; circumstances in which it has been held appropriate to depart from the ordinary position include where the proceedings have been rendered unnecessary by circumstances beyond the plaintiff's control; where the plaintiff achieved practical success in the proceedings, or where costs have been significantly increased by the unreasonable conduct of the defendant. (e) The Plaintiff should be the moving party on an application for an alternative costs order: Bitannia at [70] per Basten JA. If facts are to be relied upon to found the court making a different order, the Plaintiff will bear the onus of proving the relevant facts; ... (g) It may be necessary to analyse the whole of the proceedings to determine the appropriate costs order: Fordyce at [67] per McColl JA. A relevant consideration is whether the Plaintiff acted reasonably in commencing the proceedings and whether the defendant acted reasonably in defending them: Australian Securities Commission v Aust-Home Investments Ltd at 201 (cited with approval in Foukkare); all the relevant circumstances, and not just the fact of dismissal, should be considered; (h) It is also important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event, or settlement, so removes, or modifies, the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the court's discretion otherwise than by an award of costs by the successful party. It is the latter type of case that usually creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs: One.Tel Ltd v DCT (2000) 101 FCR 548 at 553; cited with approval in Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 per Davies AJA (with whom Mason P and Meagher JA agreed) at [5]; (i) The distinction between the two categories referred to above is often helpful in exercising the costs discretion, notwithstanding that neither category can be precisely defined, the boundary between them is unclear and other factors may be relevant: Bitannia per Basten JA at [79]-[81]; Perre v New South Wales [2009] NSWLEC 51 at [49]; (j) The rule requires the court to make such order as it thinks just in the particular circumstances of the case." 14First, Mr Parlby submits that a departure from the usual order is justified because, first, it acted reasonably in commencing the proceedings. I cannot accept that submission, since the proceedings were commenced by Parlby in the name of Oakstreak without a proper corporate decision or leave under s 237 of the Corporations Act and this resulted in Rein J's decision to dismiss the bulk of the Summons on 17 August 2012 and an order for indemnity costs against Mr Parlby. However, I consider that this is a neutral factor so far as costs after 17 August are concerned since, as Mr Parlby contends, he should not be penalised twice for the matters giving rise to the order for indemnity costs against him. 15Second, Mr Parlby submits that a departure from the usual order is justified because he enjoyed practical success in relation to the claim for the making of inquiries and delivery up of documents. Mr Parlby submits, and I accept, that the Court may determine not to make an order for costs against a discontinuing party which has achieved practical success in relation to the relief claimed: Cummins v Australian Jockey Club Ltd [2009] NSWSC 254. I accept that Mr Parlby achieved at least something of what he sought, in obtaining access to documents and answers the concerns that he had raised. Nonetheless, the substance of Mr Parlby's claim was that there existed certain irregularities in respect of the financial affairs of Oakstreak and that has not been established as a matter of fact. I do not think that it can be said that a party has achieved "practical success" where it advances allegations of irregularity against another party and evidence filed by the other party ultimately indicates that those allegations were not well founded. 16Third, Mr Parlby submits that a departure from the usual order is justified because his costs have been significantly increased by Mr Blair's unreasonable conduct. Unreasonable conduct on the part of the defendant, which has caused unnecessary costs to be incurred, may be relevant to whether a discontinuing plaintiff should be ordered to pay the costs of the proceedings: Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin above at 624; Bitannia Pty Ltd v Parkline Constructions Pty Ltd above at [76]. In this case, it seems to me that Mr Blair's failure promptly to respond to the inquiries made by Mr Parlby, who was at all times a director of Oakstreak, by providing information that he held or had the ability to procure the Company's accountants to provide, and which was ultimately provided in Mr Chapman's affidavit, was unreasonable and caused unnecessary costs to be incurred. It seems to me that there is a substantial prospect that these proceedings would not have been necessary had Mr Blair taken a more constructive approach to addressing the matters raised by Mr Parlby. 17Mr Blair submits that Mr Parlby "has never been denied access to the records of Oakstreak". This submission requires substantial qualifications, since, Mr Parlby was not provided with the requested information and, between 10 July 2012 and 17 August 2012, was not permitted such access by the accountants to Oakstreak unless a significant amount was paid by way of costs, which Oakstreak would not pay. Mr Blair also submits that there is no evidence that Mr Parlby took any steps as a director of Oakstreak (for example, calling a directors meeting) to deal with any apparent inconsistencies in Oakstreak's records, the issue of the location of Oakstreak's records or the requirement for Oakstreak to pay for access to its records. While that proposition is correct, the history to which I have referred provides little comfort that such a meeting would have been of any utility, and throughout the period there was nothing to prevent Mr Blair acting to permit the other director of the Company access to its corporate records, when he requested it, without such a meeting. 18Fourth, Mr Parlby submits that a departure from the usual order is also justified because he took steps to have the proceedings dismissed shortly after the delivery of documents and the service of Mr Chapman's affidavit. While I accept that the proceedings were dismissed shortly after that occurred, that seems to me that this is a matter which reduces the parties' exposure to the continued cost of the proceedings, rather than mitigating any exposure of Mr Parlby to the cost of the proceedings prior to their dismissal. 19Mr Blair relies on the ambit of the orders sought in the Summons and the Second Motion to resist a departure from the usual order; I do not consider that these matters have significant relevance, since they were already addressed by the orders made by Rein J, and the real question is the matters that remained in the proceedings after 17 August 2012. With greater force, Mr Blair points to the fact that Mr Parlby served his Points of Claim on 17 August 2012 after inspecting Oakstreak's records (but, I interpolate, before the service of Mr Chapman's affidavit) asserting a claim against the Defendants. 20Mr Parlby does not seek an order vacating or varying previous costs orders made in the proceedings, including the order for indemnity costs made by Rein J against him. However, he submits that the appropriate order is for Mr Blair to pay his costs of the balance of the proceedings on the ordinary basis. I am not satisfied that the factors to which I have referred above support such an order. I am, however, satisfied that those factors, and particularly the facts that access to documents was ultimately provided to Mr Parlby; that a substantive response to the issues he raised was ultimately provided by Mr Chapman's affidavit, and that Mr Blair could readily have caused that information to be provided and that explanation to be provided at an earlier point, warrants a departure from the default position under UCPR r 42.20 to the extent that there should be no further order as to the costs of the proceedings, beyond the orders already made Rein J. It is common ground that an order should also be made that a stay of the order for indemnity costs made in favour of the Defendants on 17 August 2012 by Rein J should be dissolved. 21I therefore make the following order: 1 The stay of the order for indemnity costs made in favour of the Defendants on 17 August 2012 by Rein J be dissolved. There be no other order as to the costs of the proceedings.