Primary Agricultural Group Pty Ltd v Cowley

The claims against Mr Jemmett and his argument

1. The claims brought by the plaintiffs concern three different acquisitions of rural assets. The two which are relevant to the present application may be referred to as the Inglewood and the Welltree transactions. The basic allegation is that Mr Jemmett breached his director's duties by failing to exercise reasonable care and diligence in relation to those transactions. By the amendments which gave rise to the FASOC, the plaintiffs abandoned their claims against Mr Jemmett in relation to the Inglewood and Welltree transactions. The third claim, referred to as the Labelle transaction, continues against Mr Jemmett.
2. The claim in relation to the Inglewood transaction (the "Inglewood Claim") concerns Mr Jemmett's role as a director of Primary Agricultural Group Pty Ltd (formerly R.M. Williams Holdings Ltd) ("Holdings") and its wholly owned subsidiary, to which the parties referred as the "Organics Subsidiary".
3. On 26 May 2009 Mr Jemmett became a director of Holdings and the Organics Subsidiary. What is significant for present purposes is that the day before, 25 May 2009, circular directors' resolutions were passed approving entry by Holdings and the Organics Subisidary into the Inglewood transaction. I refer to these later as the exculpatory resolutions, because they demonstrate Mr Jemmett had no role in the decision to enter into the transaction. On 29 May 2009 Holdings and the Organics Subsidiary entered into the Inglewood transaction.
4. The claim in relation to the Welltree transaction (the "Welltree Claim") concerns Mr Jemmett's role as a director of Holdings and its wholly owned subsidiary, to which the parties referred to as the "Beef Subsidiary". That claim turned on a provision in cl 33 of the purchase agreement that completion of the purchase was: "Subject to and conditioned upon the purchaser obtaining finance for the completion of the agreement by COB 2 June 2009".
5. Mr Jemmett's submissions essentially were twofold.
6. First, it was submitted on his behalf that had proper consideration been given to the claims, they would never have been brought and subsequent costs would have been avoided. In relation to the Inglewood transaction, this meant that, primarily, the resolutions of 25 May 2009 would have been found and their significance appreciated. In relation to the Welltree transaction, this meant that it should have been appreciated that, contrary to the position pleaded by the plaintiffs, finance had in fact been obtained by 2 June 2009 within the meaning of cl 33 of the purchase agreement.
7. Second, it was submitted for Mr Jemmett that these costs questions are substantial and discrete and that there was no reason why Mr Jemmett should wait for the conclusion of the proceedings to recover them.

Consideration - indemnity costs

1. The relevant legal principles were not in dispute: see, for example, Palace Films Pty Ltd v Fairfax Media Publications Pty Limited [2010] NSWSC 962 at [21] (McCallum J); Joseph Lahoud & Anor v Victor Lahoud & Ors [2006] NSWSC 126 at [38] (Campbell J); Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; [1993] FCA 801 at [4] (Sheppard J); J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2) (1993) 46 IR 301; [1993] FCA 70 (French J); and, Ragata Developments Pty Ltd v Westpac Banking Corporation (1993) 217 ALR 175; [1993] FCA 72 (Davies J).
2. The Court has concluded that in relation to the abandonment of the Inglewood claim against Mr Jemmett, the exculpatory resolutions were readily discoverable and should have been discovered with reasonable care and proper consideration. That conclusion has been reached taking into account that in many cases some allowance should generally be extended to liquidators and receivers as strangers to the affairs of the company they administer and on whose behalf they frequently bring proceedings.
3. While the abandonment of a claim does not of itself warrant indemnity costs, the plaintiffs' failure to identify those resolutions when, on the evidence, they were reasonably discoverable means a claim was made which, had the resolutions been found, it should have been apparent did not have any chance of success. The most striking piece of evidence on which the Court relies is the fact that a solicitor acting for Mr Jemmett was able to locate the resolutions during a three hour review of documents in the possession of and indexed by the plaintiffs. Accordingly, Mr Jemmett is entitled to his costs thrown away in relation to the Inglewood claim on the indemnity basis.
4. The same result does not follow in relation to the abandonment of the Welltree claim. The issue of whether or not finance had been obtained by close of business on 2 June 2009 was apparently resolved by Mr Jemmett's drawing to attention in his defence five matters including three documents, two of which were clearly known to the plaintiffs because they were pleaded in the amended statement of claim.
5. That being said, whether or not what was relied upon by Mr Jemmett as constituting the obtaining of finance for the purposes of cl 33 was not legally or factually straightforward. For example, there was a factual complication in relation to the third document to which he drew attention, being a National Australia Bank offer of finance dated 26 May 2009, but expressed to be open for acceptance until 29 May 2009. The evidence discloses that the plaintiffs did not have a signed copy of that document. It appears that a subsequent offer of finance from the National Australia Bank was accepted, but nine days after the finance was to have been obtained in accordance with the terms of cl 33. It follows that whether the finance had been obtained for the purposes of cl 33 was open to argument.
6. In those circumstances, it seems to me that there was no relevant delinquency in the pleading and then abandonment of the Welltree claim against Mr Jemmet.
7. To reflect these conclusions, applying a broad brush, the just order is that the plaintiffs should pay 50% of Mr Jemmet's costs thrown away by reason of the amendments on the indemnity basis and the balance on the ordinary basis pursuant to his existing entitlement under Order 5 set out in paragraph [3] above.

Consideration - payable forthwith

1. Turning to the question of whether Mr Jemmet's costs thrown away (whether on the ordinary or on the indemnity basis) should be assessed and payable forthwith, there was again no dispute about the relevant legal principles: see Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432 per Barrett J (as his Honour then was): "10 It becomes necessary now to consider the factors which have caused courts to depart from the normal rule in Part 52A rule 9(1) that costs are payable at the conclusion of the proceedings. A convenient and useful starting point is the following passage in the judgment of Priestley JA in Horrobin v Australia & New Zealand Banking Group Ltd (unreported, NSWCA, 6 June 1997): "None of the cases is on all fours with the present one; indeed, a reading of them emphasises the need for cases to be considered by reference to their own particular facts. Nevertheless, those relied on by counsel for H and S show there is a tendency for costs orders to be made payable forthwith and without waiting for the conclusion of further proceedings when the proceedings in respect of which the costs orders have been made are regarded as sufficiently self-contained and detached or detachable from proceedings yet to be heard, whether between the same or associated parties, as to make it seem just for an actual payment to be made in the meantime." 11 This identifies the first recognisable category of case, namely, where the application or aspect in respect of which the particular costs order is made before conclusion of the proceedings represents the determination of a separately identifiable matter or may be viewed as the completion of a discrete aspect. Examples of this may be found in Charlie Brown Pty Ltd v Green (unreported, NSWSC, McLelland CJ in Eq, 3 July 1995) and Bagley v Pinebelt Pty Ltd [2000] NSWSC 830. 12 A second factor which may incline the court to order that costs be payable forthwith is some unreasonable conduct on the part of the party against whom costs have been ordered. That was a factor taken into account by Simpson J in Gattellari v Meagher [1999] NSWSC 1279, although, in the end, her Honour did not think that the particular conduct warranted such an order. 13 A third factor is, as it was put by Giles J in Doran Constructions Pty Ltd v University of Newcastle (unreported, NSWSC, 16 December 1994), that "there is much to come in the proceedings" and "one can see a fairly long time before the proceedings are disposed of". In Horrobin (above), the decision of Priestley JA to order that costs be payable forthwith was influenced to some extent by the fact that the controversy between the parties would run for at least a further year. In Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (unreported, FCA, 18 August 1995), Lindgren J said that it may be appropriate for greater use to be made of the analogous provision in the Federal Court Rules, "particularly in cases such as this one where the final determination of the proceedings is so far away"."
2. It is to be noted that those factors are not necessarily cumulative.
3. Looking at the Inglewood Claim in the light of those principles, the issues raised by its abandonment are separately identifiable and are a discrete part of the proceedings. The plaintiffs contended that the allegations relevant to the entry into the Inglewood transaction remained relevant as "central planks" of the continuing Labelle transaction. Whether they are background or central is not readily apparent from the pleading. That is not said critically because the claims are complex. However, I do not accept the plaintiffs' submission that the overlap is so obvious as to stand in the way of an order for costs being assessed and paid forthwith. That argument can be developed further, if necessary, in submissions to a cost assessor.
4. The plaintiff's conduct to which I have referred in paragraph [15] above constitutes unreasonable conduct for the purposes of this area of discourse.
5. Finally, it is clear that these proceedings have a long way to go before any final cost orders are made. The Court is unable to identify any good reason why Mr Jemmett should have to wait until that conclusion to have his costs thrown away by reason of the amendment determined.
6. Although Mr Jemmett has not succeeded in his application for indemnity costs in relation to the Welltree Claim, the observations I have made in relation to the Inglewood Claim in paragraph [22] above apply equally to the Welltree Claim. Given that I am satisfied that the costs in relation to the Inglewood Claim should be assessed and paid forthwith, general efficiency and the overriding purpose of the just, quick and cheap disposition of this issue also support the making of a similar order in relation to costs thrown away by reason of the abandonment of the Welltree Claim.

Orders

1. The orders of the Court are: 1. The plaintiffs are to pay 50% of the second defendant's costs thrown away by reason of the amendments which gave rise to the further amended statement of claim on the indemnity basis and 50% of those costs on the ordinary basis. 2. The second defendant's costs thrown away payable by reason of the amendments which gave rise to the further amended statement of claim are to be assessed and payable forthwith.
2. I will hear the parties as to the costs of Mr Jemmett's present application.

Amendments 14 February 2017 - Numbering of final two paragraphs amended 15 February 2017 - Correct initial of counsel cover sheet DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 February 2017