Plaintiff v Defendant

1 In this matter I delivered reasons for judgment on 1 July 2005. I did not make orders on that occasion and said that I would hear the parties on the orders to be made to give effect to my reasons and on the question of costs. On the question of costs I indicated I would permit both parties, if so advised, to call further evidence on one issue. These reasons assume knowledge of my reasons delivered on 1 July 2005. Defined expressions in those reasons bear the same meanings in these reasons.

The issue of costs

2 The plaintiff was successful in the proceeding. Whilst costs are in my discretion under s 24(1) of the Supreme Court Act 1986, the starting point for a consideration of the question of costs is the settled practice of the Court that the unsuccessful party should bear the costs on a party/party basis of the successful party. In this proceeding the plaintiff was the successful party.

3 There are circumstances in which the Court's discretion might properly be exercised so as to deprive a successful party of its costs, or even so as to require a successful party to bear the costs of an unsuccessful party. The factors which might lead to a departure from the settled practice include the following:

1. Conduct by the successful party which has brought about the litigation. Such conduct might include conduct inducing a belief that the opposite party had a good claim or had a valid defence.

2. Conduct by the successful party which has resulted in unnecessary litigation or expense.

3. Wrongful conduct by the successful party in the course of the matters with which the proceeding is concerned.

Generally, considerations which might not be sufficient to justify a refusal of costs to a successful defendant could be sufficient to justify a refusal of costs to a successful plaintiff. This is because the plaintiff instigates the litigation.

4 The principles to which I have referred have been drawn from the judgment of Kaye J in Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] VicRp 12; [1991] 1 VR 129, and from the judgment of Lord Sterndale in Ritter v Godfrey [1920] 2 KB 47, upon which Kaye J substantially relied.

Conduct by Youssef occasioning unnecessary litigation or expense

5 In my reasons for judgment, I referred to matters relied upon by the University in the context of the priority dispute between Mr Youssef and the University, one of which was an alleged failure by Mr Youssef to alert the University to his claim to the relevant shares during the course of the University's proceeding which was eventually the subject of the judgment of Nettle J. I indicated in my earlier reasons that Mr Youssef's evidence before me was that there had been no such failure for which he was responsible, as he had raised the matter with Mr Cameron Harvey, the partner responsible for the matter at Deacons, the firm acting on behalf of IP3 Systems in that proceeding, and with Mr Peter Collinson of counsel, who appeared for IP3 Systems in the interlocutory stages of that proceeding and who appeared with Ms Rofe as counsel for all of the defendants at the trial. Mr Youssef's evidence before me was that he was raising it every second week, if not every week. It was upon this issue that I indicated further evidence could be led.

6 Further evidence was led on behalf of the plaintiff. That evidence was an affidavit of Mr Cameron Harvey affirmed on 4 August 2005, an affidavit of Dr Feaver sworn on 6 September 2005, an affidavit of Mr Youssef sworn on 6 September 2005, and an affidavit of Mr Peter Collinson sworn on 14 September 2005.[1] The conclusions which I draw from that material on the relevant issue are the following:

1. Mr Youssef did raise his interest in the shares with Mr Harvey prior to the matter being raised before Nettle J on 27 February 2004. His interest in the shares had been raised with Mr Harvey by 14 October 2003. A document held by Mr Harvey at that time specifically refers to it.

2. Mr Harvey was focused on his role as solicitor for IP3 Systems, and was concerned not to act as an advisor to Mr Youssef in his personal capacity. He recommended he obtain his own legal advice.

7 As I indicated in my earlier reasons, Mr Youssef's conduct in this respect must be considered in the light of the fact that he was not a party to the earlier proceeding and he did not have his own legal advisors. He did raise his interest with the solicitor for IP3 Systems during the course of the earlier proceeding. It may have been desirable for him to have engaged his own lawyers, but he was not obliged to do so. In these circumstances I do not think that these matters relevantly bear upon the costs discretion.

8 Counsel for the plaintiff on this application submitted that in any event the joinder of Mr Youssef to the earlier proceeding may have incurred greater costs than those that were incurred in this proceeding. I think that is correct.

Conduct by Mr Youssef inducing the litigation

9 In my reasons for judgment I found that the relevant parties, being Mr Youssef and the three co-founders, reached an agreement in late 2002 but decided not to transfer the shares which were the subject of that agreement because they were concerned that to do so might expose them to taxation liabilities. Not only did they defer transfer of the shares, but they created a confusing and misleading documentary record of their arrangement. In this respect I refer to the unexecuted draft "Share Transfer Agreement" documents, and to the undated declarations of trust with the side letter of 28 February 2003. The unexecuted draft "Share Transfer Agreement" documents misrepresented the agreement made between the relevant parties both as to its nature (the arrangement being characterised as involving "options"), and its timing (reference being made to "April 2002"). One version of the "Share Transfer Agreement," and the undated declarations of trust, were annexed to Nettle J's judgment.

10 On the costs issue the University relied upon an affidavit of Mr Jeremy Paul Slattery sworn on 3 August 2005 which produced correspondence between the parties after Nettle J delivered his reasons for judgment and before this proceeding was instituted. The conclusions which I draw from that material are the following:

1. Mr Youssef implicitly, but clearly, relied upon the misleading "Share Transfer Agreement" in explaining his position to the University. In this respect I refer to exhibits "JPS1" to "JPS7". A suggestion he made that relevant negotiations for the share transfer began in April 2002 is not consistent with the evidence in the trial before me.

2. Mr Carton, the solicitor who drew up the declarations of trust, wrote to the University ("JPS8") purporting to clarify the position, but his letter persisted with the misconception that the draft "Share Transfer Agreement" did constitute an "early written version" of what had been agreed, when that was not so.

3. The University's resistance to the demands made by Mr Youssef that it transfer the 1.4 million shares to him was founded on two bases ("JPS7" and "JPS10"). The first was the confusion created by the documentary record. It should be noted in this respect that the University was then unaware of the backdated documents of September/October 2003. If it had been aware of those documents, the confusion would have been even greater. The second basis for resistance was a view it took as to the University's priority. On this issue, I have found against it.

4. The University's solicitors asked a series of pertinent questions in relation to the alleged agreement prior to the institution of this proceeding ("JPS10"). The response ("JPS11") which they received from Mr Youssef's solicitors, Cetrola Legal, was the first substantially accurate account of events which the University was given. That account was coupled with assertions about exemplary damages and personal liability of the University's solicitors which, in the circumstances, appear to me to have been unwarranted. The account given was inconsistent with the prior accounts that had been given on behalf of Mr Youssef, as the University's solicitors pointed out in their letter in response ("JPS12").

11 On the one hand, the University did take a view as to priority which I have found to be incorrect. This was one of the grounds upon which it refused to accede to Mr Youssef's demands that the shares be transferred to him.

12 On the other hand, the University was also motivated to defend the claim by the confusing and misleading documentary record produced by Mr Youssef and the co-founders and by the inconsistent and at times inaccurate explanations for that record which were given by Mr Youssef or on his behalf. This is a factor which militates in favour of a departure from the settled practice.

Wrongful conduct in the course of the transaction

13 In my reasons for judgment I found that in September/October 2003 Mr Youssef backdated certain documents. Whilst these documents were not the very documents upon which his claim was based, this conduct was wrongful conduct and it occurred in the course of the transactions which were the subject of the proceeding.

14 This particular conduct was not motivated by the taxation concerns which had earlier led to a deferral of the transfer of the shares and the creation of the confusing documentary record. There were suggestions in the evidence of Dr Feaver and Professor Wilson that the backdating was done in order to disguise an attempted, or contemplated, contravention of the interlocutory injunctions in the University's proceeding. It is unnecessary for me to reach a finding on Mr Youssef's specific motivation for the backdating. As I indicated in my earlier reasons, Mr Youssef must have done it to deceive someone. In the circumstances that conclusion is sufficient. I was unable to accept the evidence Mr Youssef gave on this issue.

15 This matter is also a factor which militates in favour of a departure from the settled practice.

Calderbank offer

16 On 10 May 2005, a letter containing a "Calderbank" offer was sent to the University by the solicitors for Mr Youssef, proposing that the University transfer the relevant shares to Mr Youssef and pay his costs on a party/party basis to that date. The plaintiff submits that he has been successful to the same degree as his Calderbank offer. I do not take this offer into account in considering costs for the following reasons:

1. There is little, if any, element of compromise in the offer made. In the particular circumstances I do not consider that the University's rejection of that offer was unreasonable.[2] The documentary record was such that until the oral evidence of Mr Youssef, Dr Feaver, and Professor Wilson had been heard, it was impossible to assess what the agreement they had made was or what was the true explanation for the documentary record which they had created. In those circumstances, to reject an offer which, in my view, contained little, if any, element of compromise was not unreasonable.

2. There is circularity in the suggestion that the plaintiff has been successful to the same degree as his Calderbank offer. That conclusion depends upon the costs order, which is the very matter I am considering.

Conclusion

17 The plaintiff has been substantially successful.

18 The University resisted the claims on two grounds. First, on the ground that it was entitled to priority. On this ground it has failed. Second, on the ground that the agreement asserted by Mr Youssef was not made. Whilst the University has failed on this ground, its position was one reached in large measure as a result of conduct by Mr Youssef and the co-founders which led it, and induced it, to take up that position.

19 I have found that Mr Youssef backdated relevant documents in September/October 2003.

20 I do not consider it to be appropriate that the successful plaintiff should be ordered to pay the defendant's costs, or should be entirely deprived of a costs order in his favour. I do consider, however, that the costs order in his favour should be discounted so as to reflect his role in the creation of the misleading documentary record and his wrongful conduct in backdating documents. In all the circumstances, I consider that it is appropriate that the defendant be ordered to pay 50 per cent of the plaintiff's costs of the proceeding.

Orders

21 I make the following orders:

1. The Court declares that the plaintiff is the equitable owner of 1.4 million of the shares in the capital of IP3 Systems Limited transferred to the defendant pursuant to the Orders of Nettle J made 3 March 2004, ranking in priority ahead of the defendant.

2. The defendant shall forthwith execute all such documents and do all acts and things as may be necessary or desirable to transfer to the plaintiff the 1.4 million shares referred to in Order 1 hereof.

3. The defendant is to pay 50 per cent of the plaintiff's party/party costs of this proceeding.

[1] The hearing on costs proceeded on the basis that an Outline of Evidence dated 4 August 2005 represented Mr Collinson's evidence. I indicated that he should swear an affidavit confirming that Outline. He subsequently swore an affidavit containing the material in the Outline and also additional material. The parties made written submissions on whether the additional material could be relied upon. I ruled that as the costs hearing had been conducted on the basis that Mr Collinson's relevant evidence was as set out in the Outline, I would not allow reliance on the additional material.

[2] See Aljade and Malaysian Kuwaiti Investment Co SDN BHD (MKIC) v Oversea-Chinese Banking Corp Ltd (OCBC) [2004] VSC 351, especially [75]-[96].