ROBERT MICHAEL KIRMAN and ROBERT CONRY BRAUER as joint and several administrators of TIGER RESOURCES LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) [2021] WASC 273 (11 August 2021)

4 On the afternoon of 2 August 2021, KHML informed the court that it had accepted an undertaking proffered by the plaintiffs and filed with the court on 20 July 2021 (Undertaking) and did not intend to proceed with the application.

5 At the hearing on 3 August 2021, KHML sought leave to discontinue the application. Only two issues remained between the parties: first, whether any conditions should be imposed on the grant of leave to discontinue the application; and second, the appropriate order as to costs.

6 After hearing from counsel for the parties, I determined that it was appropriate that KHML have leave to discontinue the application but on the condition that KHML undertake that it would not renew the application for a stay of these proceedings.

7 In relation to the question of costs, counsel for KHML contended that the appropriate costs order was that there should be no order as to costs up until 21 or 22 July 2021 and that KHML should pay the other parties' costs after that date on a party‑party basis. The plaintiffs and YYT and Jinji sought their costs of the application on a party‑party basis up to 14 July 2021 and from 15 July 2021 on an indemnity basis.

8 At the conclusion of the hearing, I reserved my decision on the question of costs and granted leave to the plaintiffs and KHML to file short further affidavits in relation to this issue.

9 Having considered the submissions of the parties and the affidavit evidence that has been filed, in my view, the appropriate costs order is that:

(a) there be no order as to the costs of the application up to and including 19 July 2021;

(b) KHML pay the costs of the plaintiffs and the first and third interested parties from 20 July 2021 on a party-party basis to be assessed if not agreed.

11 The plaintiffs in these proceedings are the deed administrators of Tiger Resources Ltd.

12 On 19 February 2021, the plaintiffs executed a deed of company arrangement (DOCA) with YYT. Under the express terms of the DOCA, it must be effectuated by 31 December 2021.[1]

13 On 26 March 2021, KHML commenced COR 53 of 2021 seeking an order pursuant to s 445D of the Corporations Act 2001 (Cth) (Act) to terminate the DOCA. This application was listed for a one day hearing on 11 May 2021.

14 On 23 April 2021, the plaintiffs commenced these proceedings seeking orders pursuant to s 444GA and s 447A of the Act for approval to transfer shares in Tiger Resources Ltd, in accordance with the terms of the DOCA.

15 On 7 May 2021, KHML filed an interlocutory application in COR 53 of 2021 for leave to adduce further evidence and to adjourn the hearing. This application was heard by Master Sanderson at the commencement of the hearing on 11 May 2021. After hearing the application, Master Sanderson dismissed the application and proceeded with the hearing of the originating process. At the conclusion of the hearing on 12 May 2021, Master Sanderson reserved his decision.

16 On 24 May 2021, KHML filed an appeal against the orders dismissing their interlocutory application. This is appeal CACV 38 of 2021.

17 On 25 May 2021, Master Sanderson delivered his reasons for decision in COR 53 of 2021. Orders were made on the same date dismissing the application.

18 From about 26 May 2021, KHML was considering whether to apply to stay these proceedings as is evidenced by correspondence from their solicitors and submissions made at the directions hearing on 27 May 2021.

19 On 15 June 2021, KHML filed an appeal against the orders of 25 May 2021 in COR 53 of 2021. This is appeal CACV 46 of 2021.

20 At this stage, neither of the appeals have been listed for hearing. In correspondence to the Court of Appeal, YYT has foreshadowed an application for expedition of the appeal. However, as at the date of this hearing, no application for expedition has been filed.

21 On 1 July 2021, KHML filed a chamber summons seeking orders for these proceedings to be stayed pending judgment in the appeals. The application came before Justice Strk for directions on 12 July 2021. Directions were made to program this matter to an urgent hearing on 3 August 2021.

22 On 15 July 2021, the solicitors for the plaintiffs wrote to the solicitors for KHML. The letter stated that the plaintiffs were willing to provide written notice of any intention to execute a share transfer form in accordance with any orders made in these proceedings in the form of the undertaking that was enclosed with the letter. The undertaking proffered by the plaintiffs was that the plaintiffs provide not less than 5 business days' prior notice of an intention to sign a share transfer form in accordance with any orders made in COR 69 of 2021 by way of email to KHML's solicitors. The plaintiffs expressed the view that the undertaking would provide KHML with a sufficient opportunity to apply for injunctive relief or any other relief thought appropriate and that the stay application should be withdrawn. The plaintiffs requested a response by 4.00 pm on 19 July 2021 and confirmed that if the application proceeded, the plaintiffs intended to rely on the correspondence on the question of costs.

23 On 20 July 2021, the solicitors for KHML responded to the correspondence and informed them that they could not accept the undertaking for a number of reasons. The letter offered to discontinue the stay application on the basis of an undertaking not to take any steps to implement any orders of the court in these proceedings until after the appeals are dismissed or discontinued. The discontinuance was expressly stated to be without prejudice to any future application KHML decided to commence for a stay or for an injunction to restrain the enforcement of any order of the court.

24 On 20 July 2021, the plaintiffs filed their affidavits in opposition to KHML's application together with the Undertaking. On 22 July 2021, YYT and Jiinji filed their affidavits in opposition to the application.

25 KHML filed submissions in support of its chamber summons on 27 July 2021. The only mention of the Undertaking in the submissions was in the following terms:

It is not clear to KHML how the plaintiffs may intend to submit that this proposed undertaking is relevant to the exercise of the Court's discretion on the stay application. To the extent such submissions are raised, they will be addressed in reply.

26 On 29 July 2021, not having received a response from the plaintiff's solicitors to their letter dated 20 July 2021, the solicitors for KHML offered to accept an amended undertaking on the basis that the period of notice be extended to 10 business days. The letter sought a response by midday on 30 July 2021. The plaintiffs' solicitors did not respond within this timeframe. Following the exchange of further correspondence between the solicitors for the parties, shortly after midday on 2 August 2021, the solicitors for KHML notified the other parties of their acceptance of the Undertaking.

27 On the afternoon of 2 August 2021, KHML informed the court that it accepted the Undertaking, proposed to discontinue its application for a stay and were seeking programming orders in relation to the question of costs. Shortly afterwards, the plaintiffs, as well as YYT and Jinji, informed the court that they opposed orders being made in terms of the minute proposed by KHML.

28 The legal principles that govern this application were not in dispute between the parties.

29 The starting point is s 37 of the Supreme Court Act 1935 (WA), which confers a broad discretion on the court in respect of orders as to costs.

30 Where a proceeding or application has been discontinued, the legal principles governing the exercise of the discretion as to the appropriate costs order can be summarised as follows:

(a) the underlying policy in the Rules of the Supreme Court 1971 (WA) in relation to a discontinuance of an application is that the discontinuing party should be liable for the other party's costs unless the court orders otherwise;[2]

(b) the conduct of the parties and the reasons for discontinuing the case can bear heavily on exercise of the discretion;[3]

(c) in determining whether the costs should be borne by the discontinuing party, the court is not to try a hypothetical action between the parties;[4]

(d) if 'it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings';[5]

(e) however, where the discontinuance 'can be said to be an acknowledgement by an applicant of likely defeat or where no objective circumstance provides reason for the discontinuance, a costs order in favour of the other party will ordinarily be made';[6]

(f) in some cases the court may be able to form the view, with confidence, that although both parties had acted reasonably, one party was almost certain to have succeeded if the matter had been heard;[7]

(g) the reasonableness of the plaintiff's conduct in commencing and discontinuing the proceedings is relevant and must be considered in the context of the policy in (a);[8] and

(h) it is relevant to consider whether there has been a supervening act which has rendered the application futile.[9]

31 The principles which apply to the making of indemnity costs orders are also well known and were summarised by the Court of Appeal in Swansdale Pty Ltd v Whitcrest Pty Ltd as follows:[10]

1. A superior court, in its inherent jurisdiction, may make an indemnity costs order (see also Supreme Court Act 1935 s 37, and Legal Profession Act 2008 s 280).

2. An indemnity costs order departs from the usual costs disposition order, whereby costs are awarded on a party/party basis.

3. The court's discretion as to the making of an indemnity costs order is a discretion that must be exercised judicially. In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd Woodward J said:

Courts in both the United Kingdom and Australia have long accepted that solicitor and client costs can properly be awarded in appropriate cases, where 'there is some special or unusual feature in the case to justify the court exercising its discretion in that way'. (emphasis added)

4. To obtain an indemnity costs order, it is not the case that the successful party needs to show a collateral purpose, or establish some species of fraud against the unsuccessful party. In J‑Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) French J by reference to the observations of Woodward J in Fountain Selected Meats, said:

It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case.

5. Furthermore, in Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (referred to by Ipp J in Unioil International Pty Ltd v Deloitte Touche Tohmatsu (No 2)) French J observed:

The categories in which the discretion may be exercised are not closed.

6. Competing principles need to be balanced in assessing the making of a potential award of indemnity costs. In Quancorp Pty Ltd v MacDonald, Wheeler J observed:

On the one hand, a party should not be discouraged, by the prospect of an unusual costs order, from persisting in an action where its success is not certain. Uncertainty is inherent in many areas of law, and the law changes with changing circumstances. It is inappropriate that a case be too readily characterised as 'hopeless' so as to justify an award of indemnity costs to the successful party. However, where a party has by its conduct unnecessarily increased the cost of litigation, it is appropriate that the party so acting should bear that increased cost. Persisting in a case which can only be characterised as 'hopeless' is an example of the type of conduct which may lead the court to a view that the party whose conduct gave rise to the costs should bear them in full.

7. An indemnity costs order may be appropriate in situations which are shown to involve some element of improper, or at least unreasonable, conduct by a party or the party's legal advisers.

8. A properly crafted special costs order may obviate the need for an indemnity costs order, where components of cost scale items are allowed above the applicable scale ceiling.

9. An indemnity costs order may not be appropriate if the claimed costs would be likely to be recovered under the standard order for party and party costs, or under a special order raising or removing a scale ceiling allowance. In Unioil (No. 2) (193), Ipp J observed:

However, counsel for the plaintiffs was unable to identify any costs so incurred that would not be covered by an order for party and party costs. An order for indemnity costs on this ground is therefore not warranted.

10. Nonetheless, an indemnity costs order will constitute an appropriate sanction marking the disapproval of improper or unreasonable conduct. In Flotilla Pullin J said [26]:

A solicitor should not, in my view, resort to an application for an indemnity costs order merely to secure the recovery which could be achieved by a properly formulated special costs order, unless the unsuccessful party's conduct is genuinely to be impugned by the successful party.

32 In considering what costs order should be made in this case, the issues for determination are:

(a) what is the date on which KHML, properly advised, should have accepted the undertaking proffered by the plaintiffs and sought leave to discontinue the application;

(b) whether the appropriate costs order prior to this date is that there be no order as to costs or whether KHML should bear the other parties' costs;

(c) whether the costs after this date, which KHML accepts that it is liable to pay, should be paid on a party-party basis or as indemnity costs.

33 Importantly, no evidence was adduced as to the reasons for KHML to seek leave to discontinue the application on the afternoon prior to the hearing. There may be a range of reasons why KHML decided to accept the Undertaking it had previously rejected. The absence of any explanation from KHML is relevant to my exercise of discretion.

34 In my view, for the following reasons, I consider that the date on which KHML, properly advised, ought to have accepted the undertaking is 19 July 2021. First, the Undertaking ultimately accepted by KHML is in identical terms to the undertaking proffered in the letter from the plaintiffs' solicitors on 15 July 2021. Second, there needs to be a sufficient time period after the receipt of this letter for advice to be given and instructions sought from KHML. In this case, a response was sent from KHML's solicitors on 19 July 2021 rejecting the undertaking. Third, at that time, KHML could have taken the step it ultimately did of accepting the undertaking and seeking leave to discontinue its application. Fourth, apart from its unsuccessful attempts to negotiate its terms, there is no evidence that there were any material events after 19 July 2021 which impacted the decision to accept the Undertaking.

35 I accept that KHML acted reasonably in filing the chamber summons for a stay and seeking programming orders for the hearing of the chamber summons. I do not consider that, without a substantive hearing on the matter, I am able to conclude that the plaintiffs and YYT and Jinji almost certainly were likely to succeed in opposing the application. For these reasons, I consider that the appropriate order for costs up to and including 19 July 2021 is that there be no order as to costs.

36 However, for the reasons set out at [34], I do not consider that KHML should have continued with the application after this date. On this basis, I accept that KHML should bear the costs after 19 July 2021.

37 I turn then to the question as to whether these costs should be paid on a party‑party basis or an indemnity basis.

38 Senior counsel for YYT and Jinji contended that that KHML's conduct in persisting with its application until the day before the hearing was both 'unexplained and inexplicable'. In doing so, KHML wasted the resources of both the court and the parties and distracted them from preparing for the hearing scheduled for 17 and 18 August 2021. On this basis, it was submitted that the court should order costs on an indemnity basis.

39 Counsel for KHML submitted that the parties had not demonstrated the exceptional circumstances required for an order for indemnity costs to be made. Counsel emphasised that had the hearing of the application proceeded and been unsuccessful, there were no grounds on which it could properly be contended that an order for indemnity costs ought be made. In these circumstances, the court should not impose a more severe costs order on the application being discontinued than would otherwise apply.

40 While I accept that significant work was done by the plaintiffs and YYT and Jinji in relation to the applications, there was no evidence before the court that the costs incurred by the plaintiffs and YYT and Jinji would not be covered by a party‑party costs order or that resources were diverted by the plaintiffs and YYT and Jinji to the defence of this application.

41 For the following reasons, I consider that the appropriate order is that costs after 19 July 2021 be paid on a party-party basis. First, there is no evidence before the court that the conduct of KHML has unnecessarily increased the costs of the other parties. Second, while I consider, given the ultimate acceptance of the Undertaking on 2 August 2021, that KHML should have accepted the undertaking on 19 July 2021, I do not consider that their rejection of the offer on 19 July 2021 was improper or unreasonable which requires appropriate sanction by the court. Third, there is no evidence before the court that the costs sought by the plaintiffs and YYT and Jinji will not be covered by an order for party‑party costs.

42 For these reasons, I consider the order for costs should be:

1. There be no order as to the costs of the chamber summons dated 1 July 2021 up to and including 19 July 2021.

2. KHML pay the plaintiffs' and the first and third interested parties' costs of the chamber summons dated 1 July 2021 as and from 20 July 2021 on a party-party basis to be assessed if not agreed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[1] Affidavit of Amit Gupta filed 27 July 2021 'AG28' cl 9.5.

[2] Kevin Ernest Judge As Liquidator of Citystyle Enterprises Pty Ltd v Trifield Corporation Pty Ltd [2011] WASC 122 [22], [39] (Corboy J).

[3] Clark v Richards [2003] WASC 5 [27], [78] (McLure J).

[4] Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622, 624 (McHugh J).

[5] Ex parte Lai Qin, 625; National Australia Bank Ltd v Joyce [No 2] [2013] WASC 274 [5] (Edelman J).

[6] O'Neill v Mann [2000] FCA 1680 [13] (Finn J).

[9] Kevin Ernest Judge As Liquidator of Citystyle Enterprises Pty Ltd v Trifield Corporation Pty Ltd [39].

[10] Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) [10].