Reed Constructions Australia Pty Ltd v DM Fabrications Pty Ltd

JURISDICTION : Equity Division Corporations List

CATCHWORDS : PROCEDURE - costs - no matter of principle

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 447A, 553C

CASES CITED : Petar v Macedonian Orthodox Community Church St Petka Inc (No 2) [2007] NSWCA 142 Reed Constructions Australia Pty Ltd v DM Fabrications Pty Ltd [2007] NSWSC 1190

Reed Constructions Australia Pty Limited - Plaintiff PARTIES : DM Fabrications Pty Limited - First Defendant Nicholas Craig Malanos and Ian James Purchas - Second Defendants

COUNSEL : Mr B A Coles QC/Mr B Debuse - Plaintiff Mr M A Ashhurst SC - Defendants

SOLICITORS : Home Wilkinson Lowry - Plaintiff PMF Legal - Defendants

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4497/07 REED CONSTRUCTIONS AUSTRALIA PTY LIMITED v DM FABRICATIONS PTY LIMITED & 2 ORS

1 I am dealing with the question of costs consequent upon my judgment of 23 October 2007: see [2007] NSWSC 1190. I there dealt with two interlocutory processes. One was an interlocutory process by which DM (the first defendant) sought rectification of the deed of company arrangement to which it is subject. The other was an interlocutory process by which Reed (the plaintiff) sought injunctive relief to preserve the status quo pending determination of its claim to have the deed of company arrangement terminated or avoided. Both applications were granted. 2 In relation to the first interlocutory process, Reed says that its costs should be paid by the defendants (DM and the deed administrators), whereas the defendants say that there should be no order as to costs. The contention of Reed is, in essence, that it was Reed that drew to the defendants' attention the error in the deed of company arrangement requiring rectification; that Reed suggested the manner of rectification via s 447A that the court adopted; and that Reed - made (inappropriately, in its view) a cross-defendant by DM - was not an appropriate contradictor and did not seek that role. 3 DM's position is that Reed, while maintaining that rectification was needed, took advantage of the error in the deed. Reed claimed that it was unable to lodge its proof of debt because the deed, in its unrectified form, did not extend to debts arising after 13 April 2006. No other creditor took that point. 4 I accept DM's submissions on this matter. Reed, it seems to me, was an active participant in the rectification aspect, even though it did not oppose rectification. I do not think that its costs should be paid by DM. There should be no order as to costs. 5 In relation to the second interlocutory process which resulted in the grant of an interlocutory injunction at the suit of Reed, it is the contention of Reed that the defendants (DM and the deed administrators) should be ordered to pay Reed's costs. The defendants' position is that the costs of the interlocutory process should be costs in the cause or plaintiff's costs in the cause. 6 The ordinary expectation is that, where an interlocutory injunction is granted, the costs are costs in the cause or plaintiff's costs in the cause. The basis for and history of that expectation were explained at some length by Beazley JA, Giles JA and Hodgson JA in their joint judgment in Petar v Macedonian Orthodox Community Church St Petka Inc (No 2) [2007] NSWCA 142. It is pertinent to set out a lengthy extract from the judgment: "16 The general rule as to costs is that costs follow the event unless it appears to the court that some other order ought to be made as to the whole or part of the costs: see r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (the UCPR ). Rule 42.7 deals with interlocutory applications. It provides that unless the court otherwise orders: 'The costs of any application or other step in any proceedings … are to be paid and otherwise dealt with in the same way as the general costs of the proceedings.' 17 The Association contends that in the case of an application for an interlocutory injunction, the Court will exercise its discretion and order that costs be 'costs in the cause'. The Association described this as the 'usual rule' as to costs on such an application.

18 An order that the costs be 'costs in the cause' or 'costs in the proceedings' (the terms are interchangeable) means that the costs of the interlocutory proceedings correspond with the final order for costs in the action. Thus if, in the final proceedings, the plaintiff is successful and an order for costs of the final hearing is made in the plaintiff's favour, the plaintiff gets the costs of the interlocutory proceedings as part of the costs of the action against the defendant, regardless of who was successful on the interlocutory application: see J T Stratford Ltd v Lindley [1969] 1 WLR 1547 at 1553 per Lord Denning MR.

19 In Stratford v Lindley , Lord Denning observed that the House of Lords had made an order on an interlocutory application that costs be ' costs in the cause '. His Lordship observed that the case was ' finely balanced ' and that, on final hearing, a slight turn in the evidence might have made all the difference to the outcome. He considered (at 1554) that in those circumstances, the House ' thought it right to make the costs of the interlocutory proceedings depend on who won or lost in the main action '. In that case, however, the matter settled prior to trial, and the question for the Court of Appeal's consideration was what order should be made in respect of the interlocutory application when the matter had not proceeded to finality. That matter is not in issue here. However, his Lordship's remarks indicate a circumstance in which it is appropriate to make an order of the kind which is sought by the Association in respect of the costs at first instance.

20 In Boscolo v TCN Channel Nine Pty Limited (No 2) (New South Wales Supreme Court, Eq Div, 28 April 1994, unreported) Young J (as his Honour then was) dealt with costs in relation to an application for an interlocutory injunction. The application had been commenced ex parte but during the course of the ex parte hearing, legal representatives for the defendants arrived at Court and sought to be heard. His Honour permitted that course so that the matter became a contested application for an interlocutory injunction. In respect of costs, his Honour said: 'Although costs are always in the discretion of the court, the usual rule that is applied in the exercise of the court's discretion is that if a person succeeds in getting an interlocutory injunction costs should be costs in the cause …' 21 His Honour did not explain the basis of the rule. That is not of itself unexpected, as practices grow up within particular jurisdictions which routinely deal with a particular type of application. The rationale for making an order that costs be costs in the cause is that, at the stage of granting an interlocutory injunction, the court is not in a position to adjudicate on the ultimate outcome of the proceedings. Rather, provided there is a reasonable case to be tried, the Court's focus in deciding whether to grant the application for interlocutory relief is on other considerations and, in particular, on determining whether, on the balance of convenience, an injunction ought to be granted. Accordingly, if a plaintiff who applies for an interlocutory injunction is not ultimately successful in the proceedings, that plaintiff should not receive the costs of the application for an injunction which, when the matter is considered in overview cannot be sustained. However, as already explained, each case must depend upon its own facts.

22 Metropolitan Petar submits that the ' usual practice ' referred to in Boscolo and upon which the first respondents rely does not represent the entirety of the jurisprudence in this area, and that in accordance with both principle and practice of the courts at first instance the order that ought to be made is that the costs of the hearing of the Notice of Motion at first instance should be their costs in the cause. An order that costs be a party's costs in the cause or the proceedings, for example, a plaintiff's costs in the proceedings, means that if that party succeeds on the final hearing, then that party is awarded the costs of the interlocutory proceedings: Stratford v Lindley at 1153, but if that party loses on the final hearing, it will not be liable to pay the costs of the other party on the interlocutory hearing.

23 In Devereaux Holdings Pty Limited v Pelsart Resources NL (No 2) (Supreme Court of New South Wales Eq Div, 24 July 1985, unreported), an earlier decision of Young J, his Honour was concerned with the question as to the costs order that should be made when an interlocutory injunction is granted but the proceedings are dismissed on final hearing. His Honour observed (at 2) that there were not any definitive rules governing that circumstance, but that the following seemed to be ' what commonly happens '. Relevantly for present purposes, his Honour stated: '(a) If the material before the Judge on the interlocutory hearing discloses that there is an arguable or prima facie case and it is more or less conceded in argument that such is the case so that an interlocutory injunction is granted, then costs of the interlocutory injunction are costs in the cause, though sometimes they may be made plaintiff's costs in the cause; (b) If in the situation set out in (a), the defendant does not concede the inevitability of an interlocutory injunction being granted, then the proper order is that the plaintiff's costs be his costs in the cause, or even that the defendant pay the plaintiff's costs in any event …' (Emphasis added)

24 Young J, in determining what costs order should be made in the matter before him, stated: '… I think it follows from what I have said above that the defendant being successful in the action, it should not have to pay any of the plaintiff's costs. This is because unless there was some extraordinary factor, the appropriate order on the interlocutory motion would have been either that the costs would have been costs in the cause, or alternatively, plaintiff's costs in the cause.'

25 In Ausino International Pty Limited v Apex Sports Pty Limited [2006] NSWSC 1119 Campbell J (as his Honour then was) stated: '[55] … the present proceedings before me are brought on the basis that they are an interlocutory process. The usual order which is made as to costs concerning interlocutory processes, is that if the plaintiff is the applicant, and succeeds, then the costs of the interlocutory process become the plaintiff's costs in the cause , while, if the plaintiff is the applicant, and loses, the usual order is that the plaintiff pay the defendant's costs of that application.

[56] The rationale for that arises from the way that interlocutory proceedings are intended to advance the final hearing. If a plaintiff has a victory on the way to a final hearing, whether that victory is ultimately one which is fruitful will depend upon whether the plaintiff succeeds in the final hearing. However, if the plaintiff brings an interlocutory application and loses, then that interlocutory hearing is one which will, irretrievably, have cost the defendant money, and the justice of the situation is that the defendant should be indemnified for those costs, regardless of the outcome of the proceedings.' (Emphasis added)

26 It is unclear from the decision in Ausino International whether there has been some mutation in the ' usual order ' over the last decade, or whether in Ausino International Campbell J's comments were reflecting the matters to which Young J adverted in Deveraux Holdings . This in itself may reflect a trend of greater contestability of issues once a dispute engages the court process. However, it seems to me there is force in Young J's analysis of the circumstances which justify the making of one order rather than another on an interlocutory application. It should be noted that Campbell J consistently applied that rule in the Equity Division of the Supreme Court: see Russ Australia v Benny [2006] NSWSC 1118; Glen Eight v Home Building [2005] NSWSC 907; see also the decisions of Hamilton J: Scholten v Mobilesoft Pty Ltd [1999] NSWSC 234; Ingersoll-Rand (Aust) Ltd v Industrial Rollformers Pty Ltd [2000] NSWSC 178.

27 Applications for interlocutory injunctions are commonplace. If there is nothing to distinguish an application from the typical case that comes before the court, then the underlying jurisprudence relating to the exercise of the discretion may warrant the making of what is referred to in the legal vernacular as the ' usual order ', whether that be costs in the cause or the plaintiff's costs in the cause. The making of such an order does not displace the exercise of the court's discretion. Rather, it is a shorthand form of giving effect to the principles that govern the court's discretion in circumstances where there are no countervailing or different circumstances to warrant the exercise of the discretion in a different manner." 7 In contending that the general expectation in circumstances of this kind should be displaced and that DM and the deed administrators should pay its costs of the application for an interlocutory injunction, Reed submits that the present case is distinguishable from the typical case. 8 The matters to which Reed points have to do with actions in relation to adjudication under the Building and Construction Industry Security of Payment Act 1999 and the obtaining of a District Court judgment as a consequence of such adjudication, plus attempts to enforce the judgment by garnishment of bank accounts. These and related steps, Reed says, made it necessary for Reed to make several approaches to this court, particularly as DM had rejected Reed's offer to pay the adjudicated sum into court. 9 The parties put forward opposing views about recognition and appreciation of the matter upon which the interlocutory application ultimately turned, that is, set-off under s 553C of the Corporations Act. DM's position is that Reed did not, at any time before the hearing of the application, articulate the contention that the administrator had not brought to creditors' attention the potentially adverse impact of s 553C on the creation and quantum of the deed fund. There is force in this. There is reference to s 553C in pre-trial correspondence, but only in relation to set-off as between DM and Reed and the fixing of any quantum for which Reed could prove under the deed of company arrangement. The wider impact of s 553C on the viability of the deed, as presented to and understood by creditors, is not canvassed. 10 There is also the point, not insignificant in my view, that any discussion about s 553C and its impact was speculative while the deed remained in its unrectified form. If debts and claims recognised by the deed were confined to those related to circumstances existing at 13 April 2006, the body or creditors would be very small - possibly non-existent. And pending the hearing and determination of the application for an order correcting the deed, its operation and effect were uncertain 11 Reed says that DM and the deed administrators should have accepted at the start a regime of payment into court, thereby avoiding the need for the interlocutory injunction hearing. My view is that things were by no means as clearcut as that. 12 I am not persuaded that the defendants' conduct has been such as to warrant a view that Reed, which succeeded in obtaining interlocutory relief, should have an order for the costs of the interlocutory application. There is, I think, some force in the submission that the basis for Reed's application was not fully articulated until the hearing. The aspect involving the interlocutory injunction should be regarded as merely a part of the substantive proceeding yet to be determined. 13 The outcome on costs is as follows: 1. In relation to the interlocutory process of DM Fabrications Pty Ltd filed on 25 September 2007 and the cross-claim, I make no order as to costs to the intent that each party should bear its or his own costs. 2. In relation to the application of Reed Constructions Australia Pty Limited for an interlocutory injunction determined by me on 23 October 2007, I order that the costs thereof (including the costs of 12 and 17 September 2007 and 3, 5, 19 and 23 October 2007) be costs in the cause. **********

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