Redman v JGS Investment Holdings Pty Ltd & Ors Redman v Arraj & Anor

Judgment Proceedings 246076/2012 ("Arraj proceedings") 1By notice of motion filed in these proceedings, the Plaintiff, Mr Glenn Redman, sought an order under Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") r 6.24 for the joinder of JGS Investment Holdings Pty Limited ("JGS") as a party to those proceedings. Prior to filing that motion, Mr Redman had identified the basis for his view that JGS was a necessary party to the proceedings by correspondence from his solicitors. The First and Second Defendants to the proceedings, Mr and Mrs Arraj, neither consented to nor opposed the motion. Their sons, two directors of JGS ("majority directors"), opposed the motion although they were not party to the Arraj proceedings but to associated proceedings to which I will refer below. I delivered judgement on 5 November 2012 and held that JGS should be joined as party to the Arraj proceedings because it was party to the relevant transaction and the orders for avoidance of the transactions that were sought, and consequential orders, would have an effect on its legal rights. 2Mr Redman submits that the majority directors were the real opposing parties to the joinder application in the Arraj proceedings and that costs should follow the event in respect of the motion. The majority directors opposed that order on the basis that they were not parties to the Arraj proceedings and no application has been made to join them for the purpose of seeking a costs order against them or otherwise, and they contended that the opposition to the motion was by JGS and that no conduct on their part had been established that would entitle the Court to order that they as directors of JGS should be liable for the costs of a motion brought against JGS; and that there were no additional costs incurred by Mr Redman in respect of that motion, since the motion was heard together with the motion filed in the oppression proceedings, and on other grounds. The majority directors contend that the costs of the motion should be reserved. 3Section 98(1) of the Civil Procedure Act 2005 (NSW) relevantly provides that: "Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court; and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis." Rule 42.1 of the UCPR in turn provides that, where the Court makes an order as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. 4The majority directors are correct that they were not party to the motion, but they sought to be and were heard in opposition to the motion. That application was not made in any formal way, where they were already being heard in opposition to the other motion that was also before me. However, r 2.13(1) of the Supreme Court (Corporations) Rules 1999 (NSW) permits the Court to grant leave to a person who is, or claims to be, an officer of a corporation or an interested person to be heard in a proceeding without being a party; a broad approach is taken to allowing persons with such an interest to be heard under that rule; and a grant of leave to appear under that rule can be implied from the circumstances in which an interested person is heard on an application: Chalmers v Redwood Anti-Ageing Pty Ltd [2007] NSWSC 1186; (2007) 215 FLR 8 and see the cases cited in Austin and Black's Annotations to the Corporations Act at [CR 2.13]. The circumstances in which costs may be ordered against a person under that rule seem to me are broadly consistent with the circumstances in which a costs order will be made against a non-party to proceedings: Grocon Constructors Pty Ltd v Kimberley Securities Ltd [2009] NSWSC 691 at [6]. 5The majority directors' contention that the opposition to the motion was by JGS, not by them, does not seem to me to reflect the reality of the conduct of the motion before me. There was no suggestion that JGS had taken any formal corporate step to authorise opposition to the motion. Any costs order would not be made against the majority directors as merely the "directors of JGS", but rather in their capacity as unsuccessful opponents to the relief sought in the motion. 6However, even if the opposition by the majority directors were treated as analogous to the situation where a director appears in proceedings to represent a corporation's interests, the Court would have power to make an order for costs against them in an appropriate case. I should briefly refer to several relevant authorities, although the parties did not address them in submissions. The question whether the court should make a costs order against a director who carries on proceedings on behalf of a company is determined by reference to the factors identified by the High Court in Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178, including whether the non-party has played an active part in the conduct of the litigation and has an interest in its subject matter; see also Yates v Boland [2000] FCA 1895. In FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 at [210] Basten JA (with whom Beazley and Giles JJA agreed) noted that the exceptions to the general rule that an order for costs is only made against a party to the litigation should not be allowed to expand so as to undermine the rule itself, and noted relevant factors including that the unsuccessful party was the moving party and whether the conduct of the litigation was unreasonable. In May v Christodoulou [2011] NSWCA 75, Sackville AJA observed at [102]-[103] that a relevant question was whether the non-party or director had engaged in conduct that was so inappropriate that a costs order should be made against him, and Handley AJA (in the minority) regarded the fact that a director's involvement had prolonged the proceedings to be relevant to the exercise of the discretion. 7In my view, the majority directors should be ordered to pay the costs of the joinder motion in the Arraj proceedings. They actively sought to be heard and were heard in opposition to the orders sought in that motion and the motion would otherwise not have been opposed. The need for substantive argument as to that matter arose only because they opposed that order and they were ultimately unsuccessful in their opposition to that order. I consider that the circumstances of non-parties to the proceedings seeking to be heard in opposition to a joinder of a necessary or proper party to the proceedings, where the parties to the proceedings did not oppose that joinder, are sufficient to warrant an order for costs against the majority directors in that regard. 8If the opponent to the motion had been Mr and Mrs Arraj or JGS, such an order might well have been made in terms that Mr Redman's costs of the motion be his costs in the cause. However, I do not consider an order should be in that form where the result of the motion was a discrete issue so far as the majority directors were concerned. The majority directors also contend that, if the Court was minded to make an order for costs, those costs should only extend to the time of argument and not to the preparation of or filing of the motion and evidence. I do not consider that I should make an order in that form. In the ordinary course, the costs referable to a motion include the costs of its preparation, and which costs are properly recoverable within that category is a matter for agreement between the parties or for assessment. 9Mr and Mrs Arraj point out that they neither consented to nor objected to the orders sought by JGS and contended that they had pointed out that JGS had not been joined to the summons when it was first filed. They contended Mr Redman should be ordered to pay the costs of the motion. I do not accept that submission, since the motion involved a contested hearing, not by reason of any conduct of Mr Redman, but by reason of the opposition to it by the majority directors, against whom Mr and Mrs Arraj do not seek an order for costs. Mr and Mrs Arraj otherwise repeat several matters put by the majority directors in their submissions, which I have addressed above. Proceedings 32969/2012 ("Oppression proceedings") 10By a second notice of motion filed in these proceedings, Mr Redman sought orders that these proceedings, the Arraj proceedings and a third set of proceedings ("ZEL proceedings") be tried at the same time or one immediately after the other, the evidence in one to be the evidence in the other. The other party to the ZEL proceedings, ZEL Management Pty Limited ("ZEL") supported that course so far as the ZEL proceedings and the Arraj proceedings were concerned, and took no position as to the Oppression proceedings in which it had no interest. The majority directors and Mr and Mrs Arraj initially opposed any order that the proceedings be heard together or heard sequentially. 11The parties refined their positions in the course of oral submissions and a degree of consensus emerged that there would be utility in determining the ZEL proceedings and the Arraj proceedings prior to the Oppression proceedings, although the majority directors contended that Mr Redman should be put to an election between pursuing the Arraj proceedings and the Oppression proceedings. I held that an order should be made under UCPR r 6.24 that the ZEL proceedings and the Arraj proceeding should be heard together, with evidence in one to the evidence in the other, and that it would be preferable that the Oppression proceedings be heard shortly after the delivery of judgment in the ZEL proceedings and the Arraj proceedings. 12Mr Redman seeks an order that the majority directors pay the costs of the motion in the Oppression proceedings. Mr Redman contends that the majority directors and JGS had no good grounds to oppose the orders that he sought. Mr Redman submits that he was required to bring the motion in the face of that opposition, although acknowledging that I reached the determination above rather than giving relief in the form he had sought. The majority directors contend that such an order should not be made because the orders sought by Mr Redman, that all three proceedings be heard together or sequentially, were not made, and that the proper order is that there be no order for costs of the motion in the Oppression proceedings or alternatively they should be reserved. Mr and Mrs Arraj make the same submissions as the majority directors in respect of the Oppression proceedings. 13I do not think it can be said that one party was successful and the other unsuccessful in the motion, where the orders made alternately reflected the shift in the parties' position toward a consensus in the course of the hearing. The costs of the motion in the Oppression proceedings should be costs in the cause. 14ZEL Management submits that it was a proper party to the motion, supported the motion and it was reasonable for it to be represented on the motion, and that it should have its costs of the motion. As I noted above, the motion was ultimately not successful in obtaining the orders sought, but each party modified their respective positions in the course of submissions. The order I have made above, namely that the costs of the motion should be costs in the cause, should also extend to ZEL Management's costs of the motion. Orders 15Accordingly, I make the following orders in proceedings 246076/2012, the first four of which reflect the orders agreed by the parties to give effect to my judgement and the fifth of which reflects my findings as to costs above: