Stanley v Layne Christensen Company [2021] NSWSC 868 | Case summary

Stanley v Layne Christensen Company [2021] NSWSC 868 | Case summary | Zoe

As I indicated in the Principal Reasons, the 2018 Proceedings are concerned with the affairs of the Company and of the Trust. The Davis Descendants seek, primarily, orders for the purchase of shares in the Company held by the Davis Descendants and the Trustee by the Company or alternatively by some or all of the Lees Descendants.
As I indicated in the Principal Reasons, the Lees Descendants contended that the Davis Descendants did not have standing to bring proceedings making the claims that are made about the conduct of the affairs of the Company because they are not members of the Company. While the Davis Descendants did not accept the correctness of that contention, they filed the Amendment Application for more abundant caution. There were several iterations of the proposed amended pleadings and, ultimately, leave was granted to file the Amended Pleadings, being an iteration that had been served at 4.08pm on 4 December 2020. [2]
The Company and the Lees Descendants resisted the Amendment Application. The Davis Descendants assert that the Amendment Application did not involve new claims but, in essence sought leave to sue in the right of the Trustee as the holder of the relevant shares. They proposed at a directions hearing before Black J on 9 November 2020 that the question of leave should be determined in advance of the hearing rather than at the final hearing. They now assert that the effect of a separate hearing has been to increase significantly the costs of the 2018 Proceedings beyond the costs that would have been incurred had the question of amendment been determined at the final hearing. The Davis Descendants assert that, since the resistance to the grant of leave was unsuccessful, the appropriate order is that the Lees Descendants pay the additional costs that were incurred as a result of their unsuccessful resistance. On the other hand, the Davis Descendants contend that the Company should not be ordered to pay costs.
The Davis Descendants accept that part of the costs of the Amendment Application related to the form of the amendments rather than to the question of whether or not leave to sue in the right of the Trustee should be granted. They also accept that costs were incurred as a result of the service of further iterations of the pleadings that addressed concerns that had been raised by all defendants as to the form of the proposed pleadings.
Nevertheless, the Davis Descendants say, almost all of the evidence led on the hearing of the Amendment Application was relevant only to the question of whether leave to sue in the right of the Trustee should be granted and not as to any dispute as to the form of the amendments. Most of the oral and written submissions made on behalf of the Company and the Lees Descendants were addressed to the question of whether leave to sue in the right of the Trustee should be granted rather than to the form of the proposed Amended Pleadings. On the other hand, the Davis Descendants assert, almost all of their oral and written submissions were directed to the merits of the proposed claims and thus only to the question of whether leave to sue in right of the Trustee should be granted. Therefore, they say, the dispute about the form of the proposed amended pleadings increased the costs of the Amendment Application only slightly.
The Davis Descendants assert that an order that the Lees Descendants pay three quarters of their costs would recognise those matters. Alternatively, they suggest an order that the Lees Descendants pay the Davis Descendants' costs of the Amendment Application other than the costs of preparing the Amended Pleadings. A second alternative is that the costs of the Interlocutory Process be the Davis Descendants' costs in the 2018 Proceedings.
The Davis Descendants assert that the conduct of the defence of the 2018 Proceedings is unusual in that the Company has participated actively and actively resisted the Amendment Application. They say that it is even more unusual that the second to fourth defendants, being the only directors of the Company, have instructed separate legal representation on behalf of the Company to resist the Amendment Application. In order to determine whether a Company whose shareholders are in dispute should participate and incur expenditure in the litigation of the dispute depends upon where the interests of the Company as a whole lie. Often, the Court would be sceptical about the substantive participation of the Company in circumstances where it is controlled by one faction in the dispute. [3]
While the Company may well have had some interest in the outcome of the 2018 Proceedings generally, that is distinct from the interests of its directors who happen to be shareholders. The Davis Descendants contend that the Company had no such interest in the outcome of the Amendment Application. They contend that the costs incurred by the Company in actively resisting the Amendment Application had nothing to do with the advancement or protection of the interests of the Company, as distinct from the interests of the Lees Descendants. The Davis Descendants assert that, by instructing the Company to incur costs in resisting the Amendment Application, the second to fourth defendants, as directors of the Company, acted in breach of their duties as directors and such conduct constituted further oppressive conduct in relation to the affairs of the Company for the purposes of the Corporations Act. The Davis Descendants assert that they have objected from the beginning of the 2018 Proceedings to the use of funds of the Company in resisting their claim, with the effect that the Company has taken one side of what is characterised by them as "fundamentally a dispute between shareholders".
However, whether or not there has been a breach of duty by directors of the Company is not a question that should be taken into account in the exercise of discretion as to the costs of the Amendment Application. That is a substantive matter that may be dealt with by means of a further amendment of the Amended Pleadings or in separate proceedings. That is a question that must be determined as a substantive issue either in the 2018 Proceedings or, possibly, in other proceedings.
The Company draws attention to the history of the pleadings. The originating process was filed on 25 January 2018. In a letter of 25 February 2018 from the solicitors acting for the Davis Descendants, the Davis Descendants declined to plead their claim when asked to do so by the Company. However, a statement of claim was filed on 26 March 2018. An amended statement of claim was filed on 3 May 2019. On 6 July 2020, Black J dismissed an application by the Davis Descendants to file a further amended statement of claim. A second application to file a further amended statement of claim in a different form was dismissed by Rees J on 9 September 2020. The Amendment Application was the third application to file amended pleadings. As I have indicated, there were several iterations of that proposed amendment.
The Company contends that, contrary to the contentions of the Davis Descendants, the Amended Pleadings entailed the adding of a completely new cause of action that raised significant new issues, such as the right of the Trustee to take action that might have been available to its predecessors. Questions of waiver, estoppel and laches are also raised. Further, the Company claims that it is entitled to take an active part in the 2018 Proceedings on several grounds. First, the Davis Descendants have maintained relief in the form of an order that the Company be wound up. While the letter of 25 February 2018 referred to above expressly eschewed any challenge to the share issues or to "the Company's actions or constitutional matters", the amended pleadings now challenge the actions of the Company in issuing shares. Further, the Company asserts, none of the Lees Descendants was involved in the decisions to issue shares. In those circumstances, the Company contends, it is the appropriate contradictor in respect of the claims concerning the issues of shares.
The Lees Descendants rely upon three propositions in support of their contentions as to the appropriate orders for costs. They also dispute the contention advanced on behalf of the Davis Descendants that the question of amendment should have been left to the trial judge. That is to say, the Court and all of the defendants are entitled to know, well before the commencement of the hearing, precisely the case that the Davis Descendants are bringing. It would have been inefficient and unsatisfactory for the question of the amendments to be dealt with at the beginning of a hearing.
The Lees Descendants contend that, if the Court had determined the issue raised by the Amendment Application on the basis of the original form of the pleadings the application would have failed. That is apparent from the decision by the Davis Descendants to serve further iterations of the pleadings following the commencement of the hearing of the Amendment Application. The Davis Descendants amended their pleadings twice before propounding the iteration for which leave was granted.
Thus, the Lees Descendants assert, the Amendment Application ought not to have been filed in support of the proposed pleadings in their original form. The Amended Pleadings, in respect of which a grant of leave was made, are materially different from those originally propounded and the amendments from the original form were not insubstantial. On that basis, the Lees Descendants say, they were entitled to oppose the application at least until the service of the Amended Pleadings late on 4 December 2020. Accordingly, the Lees Descendants assert, the Davis Descendants should pay their costs up to and including the point in time at which they propounded the version that was accepted.
Secondly, I observed in the Principal Reasons that substantial time and effort had been taken up with the pleading questions that were finally resolved with the third iteration of the Amended Pleadings. [4] It is appropriate, therefore, the Lees Descendants assert, that the costs orders reflect that circumstance. They draw attention to the fact that the Trustee wrote to the Davis Descendants on 25 September 2020, prior to the filing of the Amendment Application, setting out the difficulties that existed with the claims that the Davis Descendants wished to bring and identifying several defences to those claims, indicating that the Trustee would not bring those claims itself. The Lees Descendants assert that the Davis Descendants ought to have recognised those deficiencies in the earlier iterations of the proposed pleadings much earlier than they did.
Thirdly, the Lees Descendants draw attention to their submission of 3 March 2021 that it had always been necessary for the Davis Descendants to seek leave to amend their pleadings and to bring the claims in the right of the Trustee. To that extent, the Davis Descendants sought an indulgence from the Court. As a general rule, where a party is seeking an indulgence, that party will be required to bear the costs of the application for the indulgence, including costs thrown away. It would be unusual for the applicant in such a matter to receive the costs of the application. [5]
The Lees Descendants assert that, in circumstances where the Trustee had declined to bring the claims that were the subject of the proposed amendments in their first iteration, on the ground that the pleading did not disclose triable causes of action, it was not unreasonable for the Lees Descendants to oppose the Amendment Application. For that reason, the Lees Descendants contend that the Davis Descendants should pay their costs of the Amendment Application up to and including 4 December 2020 and that there be no order as to costs as between the Davis Descendants and the Lees Descendants after 4 December 2020.
The Lees Descendants also oppose the suggestion on behalf of the Davis Descendants that they should pay the Company's costs and dispute the contention of the Davis Descendants that the Company had no interest in the Amendment Application. The Company was joined as a defendant in the 2018 Proceedings, quite properly, and responded to the Amendment Application. The Company had an interest in the proper and orderly conduct of the 2018 Proceedings generally and the Amendment Application in particular. The Amendment Application had implications for the scope and the costs of the 2018 Proceedings including the length and timing of the final hearing. The Lees Descendants dispute that there was anything irregular in the Company making its own, albeit limited, submissions in relation to the Amendment Application. Thus, the participation of the Company was limited and only brief submissions were made on behalf of the Company. The Company properly opposed the amendments in their first iterations and took no further active part once the final iteration was served.
The Trustee opposed the Amendment Application in so far as it sought the amendments in the original form. In the light of that opposition and the opposition of the other defendants, the Davis Descendants served the successive further iterations of the proposed pleadings. The Trustee relies upon that circumstance as justifying its opposition to the Amendment Application in so far as it sought leave to file the original iteration. Following service of the final iteration of the Amended Pleadings, the Trustee formed the view that that version was arguable and the Trustee then withdrew its opposition to the grant of leave. The Trustee contends that it should have its costs of the Amendment Application paid by the Davis Descendants.
A question will arise as to the extent to which, if any, the Trustee should be indemnified out of the assets of the Trust in relation to its costs of the proceedings to date. The Lees Descendants contend that, if the Trustee is entitled to any indemnity, there will be a question as to whether that indemnity should be confined to the share of the Trust assets to which the Davis Descendants are beneficially entitled. The Lees Descendants assert that, in the circumstances, the Trustee should bear its own costs in relation to the interlocutory applications, as it opposed the Amendment Application and incurred substantial costs in doing so before abandoning their position as late as 25 February 2021. The Lees Descendants assert that, having regard to its change of position, the Trustee should not be indemnified from the assets of the Trust for its costs of the Amendment Application. Alternatively, they say that any indemnity for the Trustee should be out of the Davis Descendants' share of the assets of the Trust.
The question of indemnification of the Trustee out of the assets of the Trust is not presently before me. The question is whether the Trustee is entitled to its costs of the Amendment Application as against the Davis Descendants. The question of indemnification in respect of those costs and in respect of other costs of the 2018 Proceedings, which is also not before me, is for another day.
In the ordinary course, where an amendment is made, the costs thrown away by the amendment should be borne by the party making the amendment. Where the amendment is opposed and the amendment is allowed, costs would normally follow the event and the amending party would be entitled to the costs of the application. In essence, while there was some to-ing and fro-ing by the Trustee after the final iteration of the Amended Pleadings was served, the pleading questions were resolved by the final iteration of the Amended Pleadings. On the other hand, the Company and the Lees Descendants also opposed the amendments on the basis that there were defences available that would render the amendments futile. As I indicated in the Principal Reasons, I consider that they are questions appropriate for the final hearing rather than have them resolved on an interlocutory basis.
The appropriate course is to require the Davis Descendants to pay the costs thrown away by the amendments. Otherwise, the parties' costs of the Amendment Application should be their respective costs of the 2018 Proceedings.

Stanley v Layne Christensen Company

At a glance

Court

Decision date

Source

Judgment (3 paragraphs)

Parties

Cases Cited (2)