[2009] NSWCA 113
One.Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548
Source
Original judgment source is linked above.
Catchwords
[2009] NSWCA 113
One.Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548
Judgment (2 paragraphs)
[1]
JUDGMENT
On 28 May 2020, the plaintiffs commenced proceedings against nine defendants. On 18 July 2024, the plaintiffs filed a second further amended statement of claim that struck through all relief and orders previously sought in relation to the eighth and ninth defendants.
The eighth defendant now seeks an order for costs against the plaintiffs. The position regarding the ninth defendant will be discussed later in this judgment.
The eighth defendant seeks costs on the ordinary basis up to and including 15 February 2021 and thereafter costs on an indemnity basis, by reason of a Calderbank letter sent on behalf of the eighth defendant.
The relief claimed against the eighth defendant in the original statement of claim was as follows:
21. An order that the Eighth Defendant be restrained from directly or indirectly using or disclosing the Business Confidential Information described in clause 14.2(d) of the Agreement.
22. An order that the Eighth Defendant deliver to the Plaintiffs all documents and other records of any description in the Eighth Defendant's possession, custody or power containing the Business Confidential Information described in clause 14.2(d) of the Agreement,
23. An order that an inquiry be held as to the loss and damage suffered by the Plaintiffs by reason of the Eighth Defendant's use of the Business Confidential Information as described in clause 14.2(d) of the Agreement and that the Eighth Defendant pay the Plaintiffs the amount of such loss and damage so determined,
24. In the alternative to order 23, an order that an account be taken of profits made by the Eighth Defendant from the use of the Business Confidential Information as described in clause 14.2 of the Agreement and that the Eighth Defendant pay the Plaintiffs the amount of the profits so determined
25. Directions as to the manner in which said profits are to be calculated,
26. Further and in the alternative, an order that the Eighth Defendant compensate the Second Plaintiff pursuant to s.1317H(l) of the Corporations Act for breach of s 183(1) of the Corporations Act.
The full extent of the pleading against the eighth defendant was as follows:
31. Pursuant to an Employment Agreement entered into on 23 February 2016 the Eighth Defendant (Christian Purdue) was employed by Danc Pty Limited as a Properly Sales Associate (Purdue Employment Agreement).
Particulars
The Purdue Employment Agreement was in writing.
32. It was an express term of the Purdue Employment Agreement that Christian Purdue would not, either during the continuance of the Purdue Employment Agreement or after its termination, disclose or use in any mariner other than in the course of his employment and for the purposes of the business conducted by Danc Pty Limited any confidential information or trade secrets relating to Danc Pty Limited business as defined in the Purdue Employment Agreement including the Business Confidential Information as defined in clause 14.2(d) of the Agreement.
33. Christian Purdue terminated his employment in about January 2019 and commenced employment with Boyle Partners trading as Ray White Berkeley Vale.
34. In breach of the Purdue Employment Agreement, Christian Purdue has used the Business Confidential information and Danc Pty Limited has suffered loss and damage,
35. Further, by reason of the matters, facts and circumstances pleaded above, Christian Purdue has breached s.183(1) of the Corporations Act and Danc Pty Limited is entitled to compensation pursuant to s.1317H(1) of the Corporations Act.
36. Further, by reason of Christian Purdue's breach of s.183(1) of the Corporations Act Boyle Partners trading as Ray White Berkeley Vale is also liable to compensate Danc Pty Limited by reason of s.183(2) of the Corporations Act.
On 25 June 2020 the plaintiff filed an amended statement of claim. On 21 July 2020 the plaintiff filed a further amended statement of claim. The relief claimed and the pleading against the eighth defendant were unchanged by anything in the amended statement of claim and the further amended statement of claim.
On 19 January 2021 the solicitors for the eighth defendant forwarded a letter, said to be in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586. The letter summarised the background to the eighth defendant's employment and the termination of his employment with the plaintiffs. The letter also alleged that the pleading was deficient for failing to identify by particulars or otherwise the conduct that the eighth defendant was said to have engaged in.
The letter offered to resolve the matter on the basis that the plaintiff paid the sum of $2,500 within seven days of filing a Notice of Discontinuance in relation to the eighth defendant.
The plaintiffs did not accept the offer.
Between 31 August 2021 and 21 October 2022, the eighth defendant served his evidence in the proceedings.
On 7 February 2023 the solicitors for the eighth defendant made a further Calderbank offer, that the eighth defendant would settle the proceedings on the basis that the plaintiffs discontinued against him and paid the eighth defendant $27,500.00 within 14 days.
The plaintiffs did not respond to that offer.
On 28 February 2024 the solicitors for the eighth defendant forwarded another Calderbank offer to the plaintiffs indicating that the eighth defendant would settle on the basis that the plaintiffs discontinued against him and paid the sum of $30,000.00 in six instalments over approximately six weeks.
The plaintiffs did not accept that offer.
As mentioned earlier, on 18 July 2024, the plaintiffs filed a second further amended statement of claim that contained, in accordance with r 19.5(2)(a) of the Uniform Civil Procedure Rules 2005 (NSW), lines through all of the relief sought and the pleading against the sixth, seventh, eighth and ninth defendants, and the names and addresses of the sixth, seventh, eighth and ninth defendants. No Notice of Discontinuance against those defendants was filed.
When the matter came before me as duty judge on 18 June 2024, I was informed that the proceedings had settled against the sixth and seventh defendants. The following day, on the plaintiffs' application, I vacated the hearing of the proceedings then fixed for 24 June 2024. I also made an order that the plaintiffs were to pay the first, second and eighth defendants' costs thrown away by reason of the vacation of the hearing date. It was noted that those parties would seek a gross sum costs order.
The plaintiffs indicated on that day that they would be seeking to amend the statement of claim.
The plaintiffs thereafter circulated the intended form of the further amended statement of claim. The matter ultimately came back before me on 18 July 2024. The amendments to the statement of claim against the first to fifth defendants were not opposed by those defendants. Since the new form of the statement of claim abandoned the claims against the eighth and ninth defendants, there was no opposition from the solicitor for the eighth defendant to the filing of that statement of claim. Leave was therefore given for the filing of what was the second further amended statement of claim. An order was made that the first, third, fourth and fifth plaintiffs were to pay the first to fifth defendants' costs thrown away by the amendment, and the rights of the eighth and ninth defendants were preserved to make any application in respect of costs by reason of the abandonment of the claims against them.
Rule 42.19 of the UCPR relevantly provides:
42.19 Proceedings discontinued (cf SCR Part 52A, rule 21; DCR Part 39A, rule 24; LCR Part 31A, rule 19)
(1) This rule applies to proceedings that are discontinued by the plaintiff, as referred to in rule 12.1.
(2) Unless the court orders otherwise or the notice referred to in rule 12.1(2) otherwise provides, the plaintiff must pay such of the defendant's costs as, at the date on which the notice of discontinuance was filed, had been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued.
Rule 12.1 relevantly provides:
12.1 Discontinuance of proceedings (cf SCR Part 21, rules 2 and 5; DCR Part 18, rule 1; LCR Part 17, rule 1)
(1) The plaintiff in any proceedings may, by filing a notice of discontinuance, discontinue the proceedings, either as to all claims for relief or as to all claims for relief so far as they concern a particular defendant -
(a) with the consent of each other active party in the proceedings, or
(b) with the leave of the court.
(2) A notice of discontinuance -
(a) must bear a certificate by the plaintiff, or by his or her solicitor, to the effect that the plaintiff does not represent any other person, and
(b) except where it is filed with the leave of the court, must be accompanied by a notice from each party whose consent is required by subrule (1) to the effect that the party consents to the proceedings being discontinued in accordance with the notice of discontinuance.
(3) If any such consent is given on terms, those terms are to be incorporated in the notice of consent.
One of the bases for the plaintiffs seeking to vacate the hearing date was that receivers had been appointed by Macquarie Bank to the second plaintiff, Danc Pty Ltd ("Danc"). Mr S Phillips of Counsel appeared for all of plaintiffs on 18 and 19 June 2024. However, at the directions hearing on 4 July 2024 Mr Phillips announced his appearance only for the first, third, fourth and fifth plaintiffs. On 18 July 2024 Mr Foley, solicitor, appeared for the receivers of Danc Pty Ltd.
At the directions hearing on 4 July 2024 Mr Philips indicated that "the primary party" seeking relief against the eighth and ninth defendants had been Danc Pty Ltd. Since Danc was no longer an active party, that appears to be why the claims against the eighth and ninth defendants were abandoned. The eighth defendant disputes, however, that the claim against him was only on behalf of Danc, asserting that the case the eighth defendant had to meet was put on behalf of all of the plaintiffs.
An examination of the relief sought against the eighth defendant and the pleading against him leaves some doubt about whether it was only the second plaintiff, Danc, that was making the claim against the eighth defendant. Although paragraphs [34]-[36] of the further amended statement of claim plead damage and compensation in respect of Danc, prayers 23 and 24 claim loss and damage suffered "by the plaintiffs" and that the eighth defendant "pay the plaintiffs the amount of the profits so determined". Prayer 22 also seeks an order that the documents containing Business Confidential Information be "deliver[ed] to the Plaintiffs".
At the directions hearing on 4 July 2024 Mr Phillips spoke of having instructions from the first, third, fourth and fifth plaintiffs to delete causes of action against the eighth and ninth defendants, and he said that "the primary party seeking relief against the eighth and ninth defendants is Danc Pty Ltd". He did not say that the only party seeking relief against the eighth and ninth defendants was Danc.
Mr Phillips also said that the third plaintiff was minded to make an application under s 237 of the Corporations Act 2001 (Cth) for leave to conduct the proceedings on behalf of Danc notwithstanding the appointment of the receivers. Mr Phillips said that it was his understanding that the intention was that if the third plaintiff was given leave to appear for Danc, he would abandon the claim against the eighth defendant.
At the directions hearing on 18 July 2024 I gave leave to Mr Foley to appear for the receivers of Danc. Mr Foley said that the receivers were not intending to adopt the proceedings and would not be conducting the proceedings for Danc. Nor did they seek to intervene in the proceedings. Where I hereafter refer to submissions by the plaintiffs, those submissions are made by the first, third, fourth and fifth plaintiffs.
The plaintiffs submitted that a clear indication that the claim against the eighth defendant was made only by Danc is the fact that the second further amended statement of claim abandoned all the claims against the eighth defendant which arose with respect to the Business Confidential Information in cl 14.2 of the Share Sale Agreement ("SSA"). That submission, however, takes no account of the fact that relief had been sought by all the plaintiffs in respect of that claim. That was hardly surprising because it was Kenneth and Kathryn Folley ("the Folleys"), through Tin-Tagel, who were purchasing the shares in Danc and became its directors on completion of the purchase.
On the basis of the relief sought in prayers 22 to 24 of the pleadings up to and including the further amended statement of claim, if the eighth defendant is entitled to costs, the liability to pay those costs is with all of the plaintiffs.
In Furnish & Finish Pty Ltd v Hollands [2020] NSWSC 1593 Ward CJ in Eq (as her Honour then was) said:
[29] On dismissal of the proceedings, the usual order is for the plaintiff to pay the defendant's costs of the proceedings, subject to other specific orders as to costs of particular steps in the proceedings (r 42.20 of the UCPR). Similarly, on discontinuance of the proceedings, again subject to an order otherwise, the plaintiff must pay the costs of the defendant up to the discontinuance (s 42.19 of the UCPR).
[30] Both r 42.19 (which operates where there is a discontinuance) and r 42.20 (which operates where proceedings are dismissed) therefore expressly contemplate that the Court, in the exercise of its discretion, may make an order otherwise than as provided under those rules.
[31] In Chen v Fang [2019] NSWSC 960, when considering r 42.19(2), Darke J said (at [53]-[54]):
53. The effect of this rule is to create a default position concerning costs for discontinued proceedings. However, the rule does not create a presumption; it remains for the discontinuing party to show "some positive ground or good reason for departing from the ordinary course" of awarding costs pursuant to that rule (see Ralph Lauren 57 Pty Limited v Byron Shire Council [2014] NSWCA 107; (2014) 199 LGERA 424 at [21]; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [54]; Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274 at [84]).
54. In some circumstances, a positive ground or good reason may include a supervening event that removes or modifies the subject matter of the dispute (Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 at [5], citing One.Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548 at 552-3; see also Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [50]-[51]). …
[32] One matter for consideration in the exercise of the discretion is the reason the proceedings were discontinued (see Ritchie's Uniform Civil Procedure NSW at [42.19.5]).
Although r 42.19 strictly only operates where a notice of discontinuance has been filed as referred to in r 12.1, the effect of the filing of the second further amended statement of claim is a discontinuance of the proceedings. Counsel for the plaintiffs accepted in submissions that the claims against the eighth and ninth defendants "have, in effect, been discontinued" and accepted that principles applicable to r 42.19 may have some application.
The plaintiffs submitted that the appointment of the receivers to Danc was a supervening event in accordance with what was said in the authorities. In those circumstances, the plaintiffs submitted that the usual order should then be that the parties should bear their own costs of the proceedings unless it is determined that one of the parties has behaved unreasonably.
To aid in a determination of whether there was a supervening event the plaintiffs provided a document headed "Joint summary of factual background" which set out a brief history of the transaction that led to the commencement of the proceedings. That background may be relevantly summarised as follows.
On 17 May 2018 the SSA was entered into under which Wayne Hockey and Susan Hockey ("the Hockeys"), the director and shareholders of Danc agreed to sell their shares in Danc to Tin Tagel. Tin Tagel's obligations under the SSA were guaranteed by (inter alia) the Folleys, and another company associated with the Folleys, Magikk Pty Ltd, was to provide some security to the Hockeys in respect of vendor finance provided by them. When issues later arose from the SSA which led to the present litigation, the five plaintiffs were respectively Tin Tagel, Danc, Kenneth Folley, Kathryn Folley and Magikk.
Prior to the SSA, in February 2000, Mr Hockey as the sole director and secretary of Danc had executed a Deed of Charge by which Danc granted a charge in favour of Macquarie Bank Limited over all of Danc's assets.
The terms of the SSA required the vendors to arrange for the release of all security interests in relation to Danc and provide evidence that all loans to Danc had been satisfied and discharged.
In order to fund the purchase of the shares in Danc, the Folleys entered into a finance agreement with Macquarie. Under that agreement, Macquarie agreed to loan $1,610,000 to Danc and the loan was guaranteed by the plaintiffs other than Danc.
On 6 April 2018 the Folleys received independent legal advice from JemmesonFisher in respect of the Macquarie loan documents. Among other things, that legal advice stated that:
(a) The finance agreement required Danc to grant Macquarie "a registered first ranking security over the assets and undertakings (present and future) of Danc Pty Ltd including all management agreements under which management fees are received during the course of the business.";
(b) In the event of a default under the finance agreement, "any security granted in [Macquarie's] favour is enforceable", and that Macquarie might "take possession of the Property and/or the assets of Danc", or "sell the property and/or the assets of Danc". (the "property" was a reference to the Folleys' residential home in Turramurra over which a mortgage was required to be granted as security for the loan); and
(c) There was a priority deed, which was required as both Macquarie and Mr Hockey would have "a security interest in the current and any future property of Danc".
The legal advice received by the Folleys from JemmesonFisher did not make any reference to the Deed of Charge or any other security held by Macquarie with respect to Danc.
On 11 May 2018, the Hockeys executed and provided to Macquarie an executed "discharge authority", which authorised Macquarie to discharge the General Security Agreement involving Danc.
On 31 May 2018, the Folleys' solicitors wrote to the Hockeys' solicitors noting that the results of a Personal Properties Securities Register (PPSR) search that morning noted that five interests were still registered against Danc. The email went on to say:
I note that per our discussion, the Macquarie Bank interest will be discharged on settlement.
On 1 May 2018 completion of the sale of shares in Danc pursuant to the SSA occurred, and the vendors paid out the Macquarie loan facility.
On 6 June 2018, the Folleys' solicitors wrote to the Hockeys' solicitors regarding a security interest registered against Danc in favour of Macquarie. The email said that their recent PPSR search noted that the security was still registered against Danc. It noted that the security was due to be discharged on settlement. Later the same day the Hockeys' solicitors sent an email to Macquarie to similar effect and asked Macquarie if it would arrange for removal of the security interest and provide them with a Statement of Verification.
Nothing more was said in the "Joint summary of factual background" about what, if anything, Macquarie did, or what the solicitors for either the Folleys or the Hockeys subsequently did in relation to the security interest.
On 11 October 2023, Macquarie issued a Notice of Reservation of Rights to Danc in connection with Danc's default under the finance agreement. On 24 October 2023, Macquarie issued a notice of demand for payment to Danc for an amount of $1,701,834.42 in connection with Danc's default under the finance agreement.
On 5 January 2024, Macquarie issued letters to Tin Tagel, Majikk, and the Folleys, noting that Danc continued to be in default under the finance agreement. On 2 April 2024, Macquarie appointed receivers to Danc under the Charge.
On 5 April 2024, following the appointment of receivers and the challenge by the Folleys to the appointment of the receivers under the Deed of Charge, Macquarie wrote to Mr Folley and Danc saying (inter alia):
We understand that following the appointment of the Receivers, you and James Folley have raised queries in connection with the appointment of the Receivers, including by reference to:
…
A term of the Share Sale Agreement dated 17 May 2018 and entered into between you, Mrs Folley, Tin Tagel Magikk, the Company, Hockey & Eastway, Ashleigh Eastway, David Eastway and Courtney Eastway (Share Sale Agreement) that the Deed of Charge provided by the Customer in favour of the Bank dated 2 February 2000 (Deed of Charge) be released (Second Query).
…
Response to Second Query
The Bank refutes any suggestion that the Deed of Charge is not valid or enforceable for any basis associated with or in connection with the Second Query [being the terms of the share sale agreement in relation to the Deed of Charge]. We say this for at least the following reasons and without limitation:
(a) the Bank was not a party to the Share Sale Agreement and the Share Sale Agreement did not impose any obligations upon the Bank. Put simply, the Bank is not bound by the terms of the Share Sale Agreement;
(b) we are instructed that:
(i) the Bank, the Customer and the Guarantors entered into a Finance Agreement dated 1 June 2018 (incorporating the Common Terms) pursuant to which the Bank agreed to advance $1,610,000 to the Customer via a Fully Drawn Advance (FDA) (Initial Finance Agreement);
(ii) pursuant to clause 5 of the Initial Finance Agreement, and as agreed by the Customer and the Guarantors, the Customers obligations to the Bank were secured by:
A. the Deed of Charge (being the first ranked security interest registered against the Customer);
B. a guarantee and indemnity provided by each of the Guarantors;
C. a registered mortgage granted by Majikk over the property at 75 Bobbin Head Road, Turramurra NSW 2074; and
D. the Priority Deed;
(iii) the Bank, the Customer and the Guarantors subsequently entered into the Finance Agreement pursuant to which the Bank agreed to continue the FDA and advance the Bank Guarantee facility in the amount of $46,068.00 and the Overdraft facility in the amount of $25,000.00 to the Customer; and
(iv) the Finance Agreement continued to be secured by the securities referred to in subparagraph (ii) above and in particular, the Deed of Charge;
(c) the advances made pursuant to the Initial Finance Agreement and the Finance Agreement were made on the basis that, among other securities, the Deed of Charge secured those advances having been property registered and perfected on the PPS Register; and
(d) the Deed of Charge continues to secure the repayment of all Secured Moneys (as that term is defined in the Deed of Charge) owed by the Customer to the Bank.
For the reasons set out above in response to the First Query and the Second Query, there can be no query about the validity of the appointment of the Receivers by the Bank and the Deed of Charge remains valid and enforceable.
I have not been provided with a copy of the Finance Agreement between the Folleys and Macquarie, nor have I been provided with a copy of the document by Macquarie appointing receivers to Danc. However, the letter from Macquarie claims that the obligations of Danc under the finance agreement were secured by the Deed of Charge. If that is so, and the Deed gave a power to Macquarie to appoint receivers in the event of default, then there was no supervening event within the meaning of what was said by Cooper J in Australian Securities Commission v Berona Investments Pty Ltd (1995) 18 ACSR 772 at 774, and approved by Burchett J in One.Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548 at 553 and thereafter by the Court of Appeal in Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack & Ors [2003] NSWCA 302 at [5]. The plaintiffs do not assert that Macquarie did not have the power to appoint receivers under the Deed, only that they did not know about it. They claim that JemmesonFisher did not advise them of that. I do not have evidence to make a determination of the correctness of that assertion.
However, what the plaintiffs were advised by JemmesonFisher was that the finance agreement required Danc to grant "a registered first ranking security over the assets and undertakings…of Danc", and that in the event of default any security was enforceable by Macquarie. Although, ordinarily, where a financier takes a registered first ranking security over the assets and undertakings of a company, the agreement would enable the lender to appoint receivers, I shall assume in favour of the plaintiffs that there was no express power to appoint a receiver under the finance agreement and that the receivers were appointed pursuant to the Deed of Charge given in 2000 by the Hockeys.
Notwithstanding those assumptions, I do not consider that the appointment of the receivers to Danc constituted a supervening event within the meaning of the cases referred to above. The occasion for the appointment of the receivers was the default of Danc under the finance agreement it had entered into with Macquarie. It was not, as had first been suggested by the plaintiffs when they sought to vacate the hearing date, as a result of a default by the first to fifth defendants for which Danc was required to accept a liability itself under the Deed of Charge. There can be no doubt Macquarie had the right to exercise whatever powers it had to enforce its security as a result of Danc's default in 2023.
Further, although the plaintiffs endeavoured to have the security interest represented by the Deed of Charge removed by Macquarie, they did not do so before they settled the SSA. Further, their efforts to do so, on the evidence before me, petered out after settlement of the SSA. In that way, even if they did not realise that the Deed of Charge secured their obligations, they were on notice that the security interest remained with whatever powers it had in relation to Danc.
The appointment of the receivers occurred as a direct result of the default by Danc in 2023. It cannot be regarded as a supervening event that occurred unrelated to any act or omission on the part of Danc.
The plaintiffs do not show a "positive ground or good reason for departing from the ordinary course" of awarding costs pursuant to r 42.19. Accordingly, the plaintiffs should pay the eighth defendant's costs of the proceedings.
I do not, however, consider that costs should be paid by the plaintiffs on an indemnity basis.
In McNamara v Bao San & Ors [2010] NSWSC 809 Hallen AsJ (as his Honour then was) said:
[12] The following principles may be regarded as relevant in determining who is to bear the burden of costs in a case where the proceedings are dismissed before a final hearing:
…
(f) Where the proceedings are dismissed prior to any hearing on the merits, "the Court cannot try a hypothetical action between the parties" to determine the question of costs: Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201; Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624; Metro Chatswood Pty Ltd v CRI Chatswood Pty Ltd [2007] NSWSC 1120 at [35];
(g) It may be necessary to analyse the whole of the proceedings to determine the appropriate costs order: Fordyce at [67] per McColl JA. A relevant consideration is whether the Plaintiff acted reasonably in commencing the proceedings and whether the defendant acted reasonably in defending them: Australian Securities Commission v Aust-Home Investments Ltd at 201 (cited with approval in Foukkare); all the relevant circumstances, and not just the fact of dismissal, should be considered;
(h) It is also important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event, or settlement, so removes, or modifies, the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the court's discretion otherwise than by an award of costs by the successful party. It is the latter type of case that usually creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs: One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 at 553; cited with approval in Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 per Davies AJA (with whom Mason P and Meagher JA agreed) at [5];
(i) The distinction between the two categories referred to above is often helpful in exercising the costs discretion, notwithstanding that neither category can be precisely defined, the boundary between them is unclear and other factors may be relevant: Bitannia per Basten JA at [79]-[81]; Perre v State of New South Wales [2009] NSWLEC 51 at [49];
In In the matter of Sirrah Pty Ltd [2024] NSWSC 953 Black J said at [53]:
Mr Zahra submits that the Interlocutory Process at least as it existed until the commencement of the hearing on 29 July 2024 was "doomed to failure" and that costs should be awarded against Mr Calabretta on an indemnity basis. An order for indemnity costs may be made where the conduct of a matter is unreasonable, not by way of any punishment of the party that conducts proceedings in that way, but in order to compensate the party which is subjected to additional costs by reason of the unreasonable conduct of proceedings. I summarised the applicable principles in Re Gemi 169 Pty Ltd [2024] NSWSC 615 at [44] as follows:
"I recognise that the Court has power to award costs on an indemnity basis under s 98(1)(c) of the Civil Procedure Act 2005 (NSW) and, in order to establish a claim to indemnity costs, a party must ordinarily show conduct of the other party that is unreasonable or delinquent: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) (2008) 65 ACSR 324; [2008] NSWSC 199. An indemnity costs order does not punish an unsuccessful party for bringing a case that failed, but compensates the successful party for incurring costs arising from the other party's unreasonable conduct: Hamod v New South Wales (2002) 188 ALR 659; [2002] FCA 424 at [20]."
In my opinion, the proper enquiry, where costs are sought based on the service of Calderbank letters, is the reasonableness of the parties both in commencing and defending the proceedings and in the response to the Calderbank offers.
At the time the claim against the eighth defendant was pleaded, up to the filing of the further amended statement of claim on 3 July 2020, no receivers had been appointed to Danc. The same position remained as the proceedings progressed until the receivers were appointed on 2 April 2024. There is nothing to suggest that the plaintiffs behaved unreasonably in making and maintaining the claim against the eighth defendant up to that time. In that regard I cannot try a hypothetical action between the parties to determine the question of costs. For the same reason, it cannot be said that it was unreasonable for the plaintiffs to reject the Calderbank offers which were all made prior to the appointment of the receivers.
This is not a case where the claim was determined and the result for the plaintiffs was less favourable than the position they rejected in responding to the Calderbank offers. The claim against the eighth defendant came to an end because of the appointment of the receivers even though, for the reasons I have given, that cannot be regarded as a supervening event for a consideration of the analogous position to that contemplated by r 42.19. The fact that Danc defaulted in its obligations to Macquarie which ultimately led to the appointment of the receivers and the abandonment of the claim against the eighth defendant is not unreasonable behaviour by the plaintiffs related to the refusal to accept the Calderbank offers made to them at an earlier time.
In my opinion, costs, in the first instance, should be payable by the plaintiffs on the ordinary basis.
The eighth defendant seeks that a gross sum costs order should be made in respect of any costs ordered to be payable to the eighth defendant.
The principles for ordering a gross sum costs order are well known and are found in such cases as Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at [21]-[22], Hamod v State of New South Wales [2011] NSWCA 375 at [813]-[820] and Bob v Wombat Securities Pty Ltd and Ors (No 2) [2013] NSWSC 863 at [6]-[8]. I reviewed the authorities in Qasim v Bird & Ors (No 3) [2022] NSWSC 418.
In the present case, the following matters are significant in persuading me that it is appropriate to make a gross sum costs order. First, judgment has been reserved by Walton J who heard the main proceedings. Even if judgment is delivered in the near future, there is likely to be a considerable delay before any costs assessments took place, and at the present time it is unknown in whose favour any costs order will be made. Secondly, the claim against the eighth defendant was a discrete and small part of the overall claim and did not proceed to trial. Thirdly, the total of the costs claimed by the eighth defendant is a modest sum not exceeding $45,000.
I have reviewed the tax invoices sent by the eighth defendant's solicitors to him. An affidavit from the solicitor discloses that her charge out rates up to April 2022 were $500 per hour plus GST and thereafter $650 per hour plus GST. The solicitor was admitted to practice in May 2011 and has been a principal of her practice since July 2022. Her graduate solicitor charge out rate was $160 per hour plus GST to April 2022 and thereafter $200 per hour plus GST.
In my opinion those charge out rates are reasonable.
The total of the costs charged to the eighth defendant, including $15,082.67 for an unsuccessful mediation, is $44,396.61. The affidavit of Lisa Jemmeson annexed various invoices related to a mediation held on 27 February 2024. The parties did not say whether or not this was a court-ordered mediation, but JusticeLink discloses that on 7 November 2023 orders were made by consent that the matter be referred to mediation. The plaintiffs submitted that on no view would such costs be recoverable on assessment even on an indemnity basis.
In Newcastle City Council v Wieland (2009) 74 NSWLR 173; [2009] NSWCA 113, Ipp JA (with whom Beazley P and Hodgson JA agreed) said:
[41] As to matters of policy, … there are compelling policy reasons why costs of mediation should be included in the costs of the proceedings. These are discussed in two cases that I mention below.
[42] In Higgins v Nicol (No 2) (1972) 21 FLR 34, Joske J observed at (57-58):
"I see no reason why [the costs of attempting to arrive at a compromise] should not be regarded as part of the course of the hearing and be allowed for on a party and party taxation just as much and in the same way as the calling and examination of witnesses is part of the course of the hearing and is allowed for on taxation. What is to happen when, as happened in this very case, suggestions for a settlement come from the court itself?"
[43] Mansfield J in Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629 expressed the same notion (at [92]):
"I do not accept the proposition … that costs of negotiations to explore compromise of a claim should never be allowed on a party and party taxation. There is a substantial public interest, as well as private interest, in the resolution of disputes by negotiation or by mediation. It is not a common feature of litigious claims that the parties are required to consider, and often to participate in, pre-trial mediation. The Rules prescribe powers and procedures to that effect. Negotiation and mediation may resolve a dispute entirely. Apart from the benefit to the parties of such resolution, such an outcome saves the costs associated with the trial and releases judicial and court resources to deal with other matters. Negotiation and mediation often also partly resolve a dispute so as to enable the focus of the parties in litigation to be more confined, again with consequential savings of time and expense to the parties and to the benefit of the public. In my view, steps taken by the parties to confine the areas of their dispute will often be able to be categorised as necessary or proper for the attainment of justice. They will often facilitate the presentation of the case so as to enable a just result to be achieved in an expeditious and economic manner. Even if those processes do not in fact result in any consensual outcome, either totally or in relation to certain issues or matters which then do not require proof, it does not follow that the processes themselves were not necessary or proper for the purpose of [whether those costs are allowed on taxation]."
[44] Mansfield J went on to say (at [93]):
"I do not consider that the line drawn by Holroyd J in Mackay v Hamilton [1905] VLR 457 at 460 - 461 between costs: "...incurred by a party for the simple purpose of making a settlement ... [and] costs incurred in fighting or prosecuting the action until from one cause or another it has to stop" is one which should continue to be rigidly given effect to. Indeed, his Honour recognised that costs incurred in seeking to procure a settlement may overlap with costs which would have been necessary for the prosecution of the action, and made allowance for that. But, in my view, in the light of the more modern approach to litigation discussed above, that sharply drawn line no longer exists."
His Honour proceeded to order that the party liable for costs pay the costs involved in negotiating a settlement.
[45] The remarks of Joske J in Higgins v Nicol (No 2) and Mansfield J in Charlick Trading Pty Ltd v Australian National Railways Commission expose the policy considerations that support the notion that the ordinary costs of the proceedings should include the costs of mediation.
[46] In my opinion, the costs of the proceedings in the consent orders are to be construed as including the costs of mediation.
In addition, Hodgson JA said:
[3] In my opinion, if there is an express agreement between the parties as to how the costs of a mediation ordered under Pt 4 of the Civil Procedure Act 2005 (CPA) are to be paid, that will be given effect to under s 28(b) of the CPA unless displaced by an order under s 28(a). There may be cases in which a question of construction would arise as to whether an order as to payment of "the costs of the proceedings" displaces a pre-existing agreement.
[4] That is, there may be cases where, even though the costs of the proceedings will generally include the costs of a court-ordered mediation under Pt 4 of the CPA, a pre-existing agreement so strongly conveys that the costs of the mediation are to be treated entirely separately from other costs of the proceedings as to justify a conclusion that a later consent order (or possibly even a judge-imposed order where the judge knows of the pre-existing agreement) concerning the costs of the proceedings was not intended to include the costs of the mediation. It is not necessary to express a view as to whether or not that was the case in Mead & Anor v Allianz Australia Insurance Ltd [2007] NSWSC 500.
[5] However, in my opinion, if it is intended that an order for the costs of the proceedings is not to extend to the costs of a court-ordered mediation, this should be made clear in the order.
There is no evidence of any agreement that would place the matter outside what was said in Wieland. The costs of the mediation form part of the costs of the proceedings.
The authorities make clear that a broadbrush approach ought to be adopted, and that ordinarily a discount should be given of about 25% to 30%, particularly if an indemnity costs order is not involved.
In all the circumstances I consider that a gross sum costs order should be made of $31,000. This amount includes the costs ordered on 19 June 2024 at [16] above.
The ninth defendant was in the same position procedurally as the eighth defendant. The ninth defendant had also been represented by the same solicitors as the eighth defendant. However, at some stage, those solicitors ceased to act for the ninth defendant. The ninth defendant has been notified of all occasions that the proceedings have been listed before me. There has been no appearance by the ninth defendant at any time, nor has any application been made by her for costs.
Accordingly, I make the following order:
I order the plaintiffs to pay the eighth defendant's costs in the sum of $31,000.
[2]
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Decision last updated: 12 December 2024