Plaintiff v Defendant

2 Each party filed and served written submissions in relation to costs. I will not rehearse the facts and will assume familiarity with my reasons for judgment published on 12 September 2012.

3 The plaintiff contends that the circumstances of this proceeding are 'special'[2] and warrant a departure from the ordinary rule that a successful litigant should receive his/her costs on a party and party basis. The plaintiff seeks an order that the defendant pay the plaintiff's costs on an indemnity basis or, alternatively, on a solicitor and client basis.

4 The plaintiff contends that indemnity costs should be ordered for the following reasons:

(a) The Notices were issued for an ulterior or collateral purpose,[3] namely to undermine the plaintiff's ability to recover its grower fees in proceedings that were on foot in the County Court (the "Recovery Proceedings") and in which the defendant had filed a defence.

(b) The defendant failed to particularise the allegations in the Notices, despite a request to do so by the plaintiff, until 25 July 2012, almost five months after the Notices were served.

(c) The defendant resisted requests to file and serve Amended Points of Defence, despite a request by the plaintiff, until 20 July 2012.

(d) The defendant maintained his defence in the proceeding in circumstances where he, if properly advised, should have known that he had no or little chance of success.[4]

(e) The defendant failed to establish any of the allegations set out in the Notices at trial and had no reasonable prospects of doing so. This should have been apparent to the defendant at the time the Notices were served on the plaintiff.

(f) The defendant only conceded that the plaintiff operated a registered managed investment scheme at the second directions hearing in this proceeding, on 20 July 2012, four months after the Notices had been issued and six weeks after the proceeding had been initiated. This matter ought to have been known to the defendant at the time the Notices were issued given the registration information that was readily available to him at the time and correspondence sent to him by the plaintiff prior to commencement of this proceeding. The plaintiff incurred significant costs regarding this issue prior to the concession being made.

(g) The defendant improperly and without a proper basis maintained that he had not received a Product Disclosure Statement ("PDS") until 20 July 2012, before which the plaintiff had been put to the expense of filing material on the issue.

(h) The issuing of the Notices was an abuse of process because the allegations outlined in the Notices were best raised by way of defence in the Recovery Proceedings.

5 The defendant submits that there should be no order as to costs, or alternatively, that the defendant should pay the plaintiff's costs on a party and party basis.

6 The defendant submits that there is nothing exceptional in this proceeding to warrant the departure from the usual rule as to costs. The defendant contends that departure from the ordinary rule as to costs requires the proceeding to be "totally frivolous or thoroughly unjustified."[5] Such cases include cases where there has been an unreasonable offer of compromise, a wilful disregard of known facts or clearly established law or some improper and/or ulterior motive or contempt of court.

7 Central to the defendant's contention is that the proceeding involved a dispute as to the proper construction of the Corporations Act and the factual matrix of what constituted a contravention, as well as the form of a statutory notice under s 601MB. The defendant contends that the case raised several novel points of law on which there were few or no reported decisions. In particular, the defendant contends that the proceeding required the Court to construe the PDS and related documents. These issues, it is contended, were argued and decided on their merits, and it was necessary for the Court to have regard to the following matters:

(b) the form and content of the Notices and degree of particularity required for such notices;

(c) the issue of reliance in establishing a contravention; and

(d) just and equitable grounds for setting aside notices that were otherwise valid.

8 Additionally, the defendant submits that the case involved a constant changing of the calculus of prospects of success and that reasonable minds were likely to differ as to the interpretation of the legislation and the facts constituting the proscribed conduct. As such, it cannot be said that the defendant had no prospect of success or an ulterior motive in issuing the Notices.

9 The defendant also contends that it was not unreasonable for him to issue the Notices to avoid the substantive costs of a protracted defence when an expedient remedy, under s 601MB of the Corporations Act, was expressly provided by the legislature for retail clients.

10 The defendant submits further that the concessions outlined at paragraphs 4(f) and (g) above were made promptly and did not take up significant court time.

11 The defendant accepts that it should pay the costs of an adjournment of the hearing on 29 June 2012 on a party and party basis as the adjournment was caused by the illness of the defendant's counsel.

12 Section 24(1) Supreme Court Act 1986 (Vic) confers a broad discretion on the Court to determine by whom and to what extent costs are to be paid. Further, Rule 63.31 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) provides that unless provided for by the Rules or an Order of the Court, costs will be taxed on a party and party basis. Rule 63.28 provides that a Court can make costs orders on a more generous basis, that is, a solicitor and client basis or an indemnity basis.

13 The case law provides that party and party costs will be awarded unless there are special circumstances which exist that warrant the departure from the ordinary rule.[6] Such special circumstances include instances were a party has engaged in unmeritorious, deliberate or improper conduct such that the Court is required to show its disapproval by ordering solicitor and client or indemnity costs.[7]

14 The matter is not free from difficulty and there is some force in the plaintiff's submissions. However, in my opinion, the circumstances and conduct of this proceeding, although unusual in many respects, are not such as to warrant a departure from the ordinary rule as to costs. The threshold for departing from the ordinary rule in relation to costs is high and I do not propose to depart from it in this case.

15 Although some criticism can be levied at the defendant in relation to a number of matters, including the timing of the Notices and some aspects of the conduct of the proceeding, there was no unreasonable or improper conduct of the kind that warrants an adverse, special costs order being made against the defendant. The defendant was entitled (at some stage) to use the remedial provision set out in s 601MB of the Corporations Act and the plaintiff was entitled to challenge the validity of the Notices. Further, the defendant's conduct during the course of the proceeding was not sufficiently improper or unreasonable so as to attract a special costs order.

16 While the allegations contained in the Notices may have best been dealt with in the Recovery Proceedings, in any event, the allegations had to be argued and decided upon. Whether they were argued in the Recovery Proceedings or in this Court does not detract from the fact that the matters had to be properly ventilated and determined. Further, the plaintiff would have incurred such costs regardless of the forum in which the matters were dealt with.

17 Further, I do not consider that the defendant's allegations had no reasonable prospect of success. The matters in dispute, and in particular whether AIL complied with the PDS disclosure requirements in ss 1013C, 1013D and 1013E of the Corporations Act required careful consideration of the scheme documents, the PDS and the provisions of the legislation and regulations. It cannot be said that the defendant did not have a sufficiently reasonable basis for making the allegations or arguing its case or that the serving of the Notices was plainly unreasonable. Unreasonable conduct must be more than merely maintaining a defence.[8] Again, although ultimately unsuccessful, I am not persuaded that the allegations, taken as a whole, were so unmeritorious as to warrant a special costs order.

18 I propose to make the following declaration and orders.

(1) Declare that the notices dated 5 March 2012 and served on the plaintiff and ABL Nominees Pty Ltd by the defendant are invalid and of no force or effect.

(2) Order that the notices dated 5 March 2012 and served on the plaintiff and ABL Nominees Pty Ltd by the defendant have no force or effect and are set aside.

(3) Leave be granted to the plaintiff pursuant to section 601MB(5) of the Corporations Act 2001 (Cth) to extend the period within which to make an application under section 601MB(4) of the Corporations Act 2001 (Cth) to 11 May 2012.

(4) The defendant pay the plaintiff's costs, including all reserved costs, such costs to be taxed as between party and party in the absence of agreement.

[1] Almonds Investors Limited v Emanouel [2012] VSC 413.

[2] Ugly Tribe Pty Ltd v Sikola [2001] VSC 189.

[3] PCRZ Investments Pty Ltd [2002] VSCA 24; Colgate Palmolive Co and Anor v Cussons Pty Ltd [1993] FCA 536; (1993) 118 ALR 248.

[4] Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; [1988] 81 ALR 397.

[5] Re SCA Properties Pty Ltd (in liquidation) [1999] QSC 180, [70].

[6] PCRZ Investments Pty Ltd v National Golf Holdings Ltd [2002] VSCA 24.

[7] Australian Guarantee Corp Limited v De Jager [1984] VicRp 40; [1984] VR 483, 502; and Marchesi v Vasiliou [2009] VSC 213.

[8] Levick v Commissioner of Taxation [2000] FCA 674.