Shearwood (Trustee), in the matter of Allied Resource Partners Pty Ltd v Allied Resource Partners Pty Ltd

legal principles 4 Section 43 of the Federal Court Act confers a broad discretion on the Court to award costs which is "not to be read down otherwise than by judicial principle conformable with the amplitude of the power": DSE (Holdings) Pty Limited v InterTAN Inc (2004) 51 ACSR 555; [2004] FCA 1251 at [14] (per Allsop J, as his Honour then was). Without limiting that discretion, s 43(3) sets out what the Court or a judge may do in relation to costs including but not limited to: making different awards of costs at any stage in the proceeding; ordering the parties to bear costs in specified proportions; and awarding costs in a specified sum. 5 Ordinarily, in the absence of special circumstances justifying a different order, costs follow the event: Aristocrat Technologies Australia Pty Ltd v Global Gaming Supplies (No 2) [2016] FCAFC 76 (Aristocrat) at [10] quoting Ruddock v Vardalis (No 2) (2001) 115 FCR 229 at [11]. Further, "[t]he fundamental purpose of a costs order is to compensate a successful party not punish an unsuccessful party": Aristocrat at [11] citing EMI Songs Australia Pty Ltd v Larrikin Music Publishing Pty Ltd [2011] FCAFC 92 at [9]. 6 In Commissioner of Taxation v AusNet Transmission Group Pty Ltd (No 2) [2015] FCAFC 124 (AusNet) a Full Court of this Court (Kenny, Edmonds and Greenwood JJ) relevantly said at [12]-[14]: 12 We accept that, in an appropriate case, an appellate court may depart from the usual order as to costs. This much is confirmed by the following passage from the judgment of McHugh J in Oshlack v Richmond River Council 193 CLR 72 at [69], where his Honour said: In Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [[1951] 1 All ER 873 at 874], Devlin J formulated the relevant principle as follows: No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct. "Misconduct" in this context means misconduct relating to the litigation [King & Co v Gillard & Co [1905] 2 Ch 7; Donald Campbell & Co Ltd v Pollak [1927] AC 732 at 812], or the circumstances leading up to the litigation [Bostock v Ramsey Urban District Council [1900] 2 QB 616]. Thus the court may properly depart from the usual rule as to costs when the successful party by its lax conduct effectively invites the litigation [Jones v McKie [1964] 1 WLR 960; [1964] 2 All ER 842; Bostock [1900] 2 QB 616 at 622, 625 and 627]; unnecessarily protracts the proceedings [Forbes v Samuel [1913] 3 KB 706]; succeeds on a point not argued before a lower court [Armstrong v Boulton [1990] VR 215 at 223]; prosecutes the matter solely for the purpose of increasing the costs recoverable [Hobbs v Marlowe [1978] AC 16; [1977] 2 All ER 241]; or obtains relief which the unsuccessful party had already offered in settlement of the dispute [Jenkins v Hope [1896] 1 Ch 278]. 13 As Campbell JA (Macfarlan JA and Young JA agreeing) noted in Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256, 288 ALR 385 at [98], although McHugh J's judgment was in dissent, there is nothing in the joint judgment of Gaudron and Gummow JJ or in Kirby J's judgment that indicates that their Honours disagreed with this statement of principle. 14 We also accept that, as Campbell JA said in Tomanovic 288 ALR 385 at [98], the examples to which McHugh J referred are not an exhaustive statement of the circumstances in which a successful party may be deprived of its costs. Further, we emphasise that it falls to the court in each case to determine whether it is in fact appropriate to depart from the usual order as to costs even in a case that may appear, broadly speaking, to fall within the class of cases to which McHugh J referred. As Black CJ and French J said in Ruddock v Vadarlis (No 2) 115 FCR 229 at [16], "[t]he discretion conferred on the Court enables it to respond to the wide variety of circumstances that may arise in relation to the making of costs orders".

Parties' submissions 7 The Shearwood Parties submitted that Allied and the second defendant, Mr Raftopulos, should pay their costs of the proceeding. They further submitted that the ordinary exercise of the discretion to award costs is that costs follow the event and that there is no matter of discretion which would, in this proceeding, leave the Court to exercise its discretion in a different way. 8 In relation to Mr Raftopulos, the Shearwood Parties submitted that he did not file a notice of appearance but that he attended the hearing; and, had he wished to protect himself from costs, it was open to him to file a submitting appearance "except as to costs" which he did not do. The Shearwood Parties submitted that Mr Raftopulos was a necessary party; he was unsuccessful; and there is no reason why costs should not be ordered against him. 9 Allied submitted that the Shearwood Parties ought to be disentitled to the usual order for costs, namely that they follow the event, for the following reasons: (1) first, because without any reasonable excuse or explanation, the Shearwood Parties failed to fully comply with a notice to produce. Allied contended that their failure to do so was a serious breach of their obligations to the Court and noted that the Court found that "Mr Shearwood's explanation of why documents were not produced in answer to the notice to produce was less than satisfactory": Shearwood (No. 1) at [172]; (2) secondly, because the manner in which the Shearwood Parties conducted the litigation was apt to prejudice Allied's ability to appropriately conduct its defence. Allied referred to the procedural history of the proceeding; the various applications made by the Shearwood Parties to amend their claims; and the volume of affidavit material filed by the Shearwood Parties. Allied accepted that it had been compensated by way of costs orders for the interlocutory applications that were heard and determined in its favour and for the abandonment by the Shearwood Parties of the majority of their claims at the commencement of the final hearing. However, Allied contended that the Shearwood Parties' conduct in the proceeding prejudiced its ability to respond to the case ultimately put as it was required to respond not only to the ultimate case but also to a wide range of additional issues subsequently abandoned at trial; and (3) thirdly, because the Shearwood Parties did not avail themselves of the various mechanisms available to resolve the dispute with Allied prior to commencing the proceeding: either by activating the dispute resolution procedure provided for in the Shareholders Agreement; or by seeking to convene a meeting of members of Allied. 10 In the alternative, Allied submitted that, if the Court was disposed to make an order for costs in favour of the Shearwood Parties, it ought to order that those costs be payable as a lump-sum fixed in the amount of $19,500. 11 Allied submitted that it was appropriate that the Court make an order for costs on a lump-sum basis in order to avoid the substantial costs and delay which may otherwise be incurred by the parties if the matter was to proceed to taxation. It further submitted that the issues which were the subject of the final hearing comprised of a very small subset of the total number of matters put in issue by the Shearwood Parties until the first day of the hearing when they were abandoned; that in order to properly identify the costs incurred by the Shearwood Parties in connection with those claims it would be necessary for the parties to engage in a "laborious and complex exercise" of allocating those costs between work related to the claims the subject of Shearwood (No. 1) and the abandoned claims; and that any such allocation conducted by the Shearwood Parties may also be the subject of dispute. Allied set out in its submissions how it arrived at $19,500 as the appropriate amount for a lump-sum costs order in favour of the Shearwood Parties.

consideration 12 In my opinion, the circumstances of this case do not justify a departure from the usual order as to costs. The appropriate order is that costs should follow the event and an order should be made in favour of the Shearwood Parties. While in an appropriate case a court may depart from the usual order as to costs, the circumstances of this case do not justify such a departure. There has been no relevant "misconduct" which would lead to an exercise of my discretion such that an order should be made requiring the parties to bear their own costs of the proceeding. 13 Allied points to three aspects of conduct which it says would disentitle the Shearwood Parties from an order for costs in their favour. I am not satisfied that any of those matters, either on their own or in combination, constitute misconduct for the purpose of exercising the Court's discretion. 14 First, I accept that a failure to respond to a notice to produce is a serious matter. However, although I noted that Mr Shearwood's explanation of why documents were not produced was less than satisfactory, I declined Allied's invitation to make credit findings about aspects of Mr Shearwood's evidence. The issue of the notice to produce and Mr Shearwood's response to it did not impact on and was ultimately not relevant to the orders made by the Court. 15 Secondly, Allied now contends that the way in which the Shearwood Parties conducted the litigation was apt to prejudice its ability to appropriately conduct its defence. No such complaint was made during the course of the hearing nor was evidence of any prejudice tendered. If Allied was concerned that the Shearwood Parties' conduct of the proceeding might prejudice the way it conducted its defence, it was open to bring that matter to the Court's attention and to make an appropriate application - for example, to seek further time, beyond the extensions sought, to complete interlocutory steps or to adjourn the hearing in order to allow it more time to meet the claims. No such applications were made. The parties were seemingly both in agreement that the matter should be dealt with expeditiously. Critically, to the extent that the Shearwood Parties amended their claims for interlocutory and final relief, abandoned parts of their claim and did not read a large volume of affidavit material which had been filed and served, Allied has, as it acknowledges, been compensated by way of costs orders, including an order that some of those costs be paid on an indemnity basis. There is no reason why any further compensation is necessary. 16 Finally, that the Shearwood Parties did not avail themselves of various mechanisms available to them to resolve the dispute prior to commencing this proceeding is not a matter that would cause me to exercise my discretion in favour of making the costs order sought by Allied. It is not relevant "misconduct" in the circumstances of this case. 17 Nor would I accede to Allied's invitation, in the alternative, to make an order for costs in favour of the Shearwood Parties as a lump-sum fixed in the amount of $19,500. While the Court's Costs Practice Note (GPN-COSTS) (Costs PN) provides at [4.1] that the Court's preference is to make a lump-sum costs order "wherever it is practicable and appropriate to do so", it is not, in my opinion, practicable nor appropriate to do so in the current circumstances, at the behest of a party that will be liable to pay the costs and at this stage of the costs process. 18 At [4.2] the Costs PN notes that "[u]tilisation of a lump-sum costs procedure will always be at the discretion of the judge" and "[t]he parties will be given a fair opportunity to present their views as to the appropriateness of utilising a lump-sum cost procedure". The Shearwood Parties have not been given any opportunity to present their views about the appropriateness of utilising a lump-sum cost procedure. The orders made on 6 December 2017 contemplated the parties filing and serving submissions on the question of costs with the Shearwood Parties first providing their submissions followed by Allied. No orders were made for the Shearwood Parties to provide submissions in reply. It would, in my opinion, be irregular, if not inappropriate, for the Court to make a lump-sum costs order in the present circumstances. 19 The final issue to resolve is whether the order for payment of the Shearwood Parties' costs should extend to Mr Raftopulos who was, as the Shearwood Parties submitted, a necessary party. Orders were made on 27 July 2017 that, upon being joined to the proceeding by reason of the filing of the amended originating process, Mr Raftopulos was to be served with the amended originating process, as well as all affidavits and orders made by the Court to date. That occurred. Mr Raftopulos had notice of the proceeding. He did not appear, either personally or by a legal representative; did not participate in the proceeding; and did not file a submitting notice of appearance. The Shearwood Parties contended that Mr Raftopulos "attended the hearing". That may be so but he did not appear and the Court was not on notice of his attendance. 20 In the circumstances, I am not satisfied that Mr Raftopulos has had notice of the Shearwood Parties' application that an order be made that he pay the costs of the proceeding and accordingly, has had an opportunity to respond to that application. That is so despite the fact that the orders made on 6 December 2017 in Shearwood (No. 1) resulted in his removal as a director of Allied. Accordingly, I will not make an order that Mr Raftopulos pay the Shearwood Parties' costs of the proceeding.

conclusion 21 In light of the reasons set out above, I will make an order requiring Allied to pay the Shearwood Parties' costs of the proceeding. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.