BETWEEN : TRAFALGAR WEST INVESTMENTS PTY LTD AS TRUSTEE FOR THE TRAFALGAR WEST INVESTMENTS TRUST

Civil practice and procedure - Interim injunction - Costs - Indemnity costs - Personal costs - Lifting of scale limits sufficient - Turns on own facts

1 KENNETH MARTIN J: The defendants seek an order that the corporate plaintiff, Trafalgar West Investments Pty Ltd (Trafalgar), and a related non-party, Trafalgar director Mr Patrick Jebb, pay the defendants' costs of an application made in April 2013 for an interim injunction by Trafalgar (2013 Injunction Application), to be assessed on an indemnity basis (Costs Application). The Injunction Application was ultimately not pressed. The Costs Application was heard in my CMC List on 6 February 2014, with the decision reserved.

2 For some general background to this litigation, I refer to my reasons in Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [2011] WASC 171. In short compass, Trafalgar's action seeks relief by reason of acts of alleged statutory oppression, pursuant to pt 2F.1 of the Corporations Act 2001 (Cth).

3 On 24 April 2013, through correspondence sent to my Associate, Trafalgar made an urgent application to restrain Mr Kingsley Craig Flugge and Ms Margaret Flugge (who are the second and third defendants respectively) from dealing with any payment received from the company Gnangara Holdings Pty Ltd (Gnangara) in respect of 59 Sydney Road, and over which Gnangara held a call option.

4 Pursuant to prayer G(g) of what was a compendious statement of claim filed 22 July 2011, Trafalgar pursued a declaration that the Sydney Road land was held on trust for the present first defendant, Superior Lawns Australia Pty Ltd (Superior Lawns). I note that this specific prayer is now omitted from Trafalgar's substituted statement of claim, as filed 7 February 2014, although causes of action allegedly arising from various asserted dealings with the Sydney Road property are pressed.

5 In support of the 2013 Injunction Application, Trafalgar filed a number of documents, including, most notably, an affidavit sworn by Mr Jebb of 24 April 2013, plus a memorandum of conferral (or more correctly, as to an overall lack of conferral).

6 In quick response the defendants then filed, inter alia, affidavits of Nicola Emma Randall affirmed 26 April 2013 and 1 May 2013.

7 A series of events which the affidavits together sketch presents as follows:

(a) On 19 April 2013, Mr James Marzec, who was a solicitor acting for Gnangara, sent Mr Jebb an email advising him:

Under the terms and conditions of the Call Option Agreement, [Gnangara] must exercise its Notice of Exercise by 28 April 2013.

It is [Gnangara's] intention to submit this Notice of Exercise to the Grantors by next week.

[Gnangara] will then be required to deposit a cheque to [the] Grantors 60 days after the exercise of the option.

This email is found as attachment NER 1 to Ms Randall's 26 April 2013 affidavit.

(b) On 24 April 2013, Mr Marzec, in a telephone call to Mr Jebb, spoke words to the effect:

The Call Option Agreement was amended to extend the time for exercise of Option 2, which required the payment of $500,000.00, to 29 April 2013 (Monday);

Gnangara intend to exercise Option 2 and will provide Mr and Mrs Flugge with a cheque for $500,000 on Friday, 26 April 2013; and

Gnangara intended to settle on the sale of the property for the balance of the $18.6M owing within 60 days [of] paying the Option Fee at (b) above.

I refer to pars 4 - 5 of Mr Jebb's 24 April 2013 affidavit. At par 6, Mr Jebb further deposes he spoke to Mr Marzec on the same day, reading aloud to him the three statements quoted above, and that Mr Marzec confirmed the statements were correct.

It can immediately be seen that the two courses of action apparently contemplated as between 19 and 24 April 2013 were different in a crucial respect, namely, the payment on 26 April 2013 of $500,000 to Mr and Mrs Flugge. It was the event of the anticipated payment of $500,000 on 26 April 2013 which grounded the asserted urgency of the Injunction Application.

(c) The Injunction Application was urgently listed for hearing on 26 April 2013 during the lunch hour, at 1.15 pm. However, it soon emerged at the hearing the perceived basis for the proposed interim injunction had been erroneous. No money had changed hands, or was required to change hands, on 26 April 2013. Rather there was simply a straightforward notice of the exercise of the option with the payment of purchase price to follow within 60 days: see attachments NER 4 - 6 to Ms Randall's 1 May 2013 affidavit.

The misapprehension, it seems, was only brought to the attention of (pro bono) counsel acting for Trafalgar at, or immediately before, the 1.15 pm 26 April 2013 hearing. Once appreciated it was accepted on all sides that the Injunction Application was not urgent (ts 99 - 100). The application was duly adjourned to a date to be fixed. The Injunction Application, although not formally abandoned at that time, subsequently sustained a death of quiescence.

(d) Nine months or so later in my 9.15 am Commercial and Managed Cases (CMC) List, on 6 February 2014, Trafalgar agreed to certain dispositive orders, proposed by the defendants. Trafalgar was prepared to accept the Injunction Application then be formally dismissed, and that it pay the defendants' taxed costs of the Injunction Application on the usual partyandparty basis. However, the defendants pressed for indemnity costs orders. Accordingly, I made orders dismissing the Injunction Application but reserved on the defendants' further Costs Application, which sought:

The Plaintiff and Mr Jebb jointly and severally pay the Defendants' costs of the Abandoned Application, including the reserved costs of the special appointment on 26 April 2013:

On an indemnity basis, except in so far as they are of an unreasonable amount or have been unreasonably incurred, so that the Defendants be completely indemnified by the Plaintiff and Mr Jebb for their costs of the Abandoned Application, to be taxed if not agreed.

8 It is not in dispute that Mr Jebb is the sole shareholder and director of Trafalgar. He is not a party to the action. In the past applications for Mr Jebb to be added or substituted as plaintiff were successfully resisted: Trafalgar West Investments Pty Ltd v Superior Lawns Australia Pty Ltd [No 2] [2012] WASC 169.

9 Therefore, it can be seen that the Costs Application raises two questions, first, the defendants' claims seeking indemnity costs, and second, the costs orders against Mr Jebb personally as a non-party.

10 The Court of Appeal noted in Saraceni v Jones [2012] WASCA 59 (S) [7] that the principles applicable to indemnity costs were summarised in Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S). I drew the case to the parties' attention on 6 February 2014. It is unnecessary to repeat all principles there canvassed. For present purposes the following observations at [10], items 7 - 10, present as relevant:

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: see Colgate-Palmolive Company v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, 233 (Sheppard J), referred to by Pullin J in Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S); (2003) 28 WAR 95 [9].

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: see Flotilla [20] - [24].

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: Flotilla [11]. In Unioil International Pty Ltd v Deloitte Touche Tohmatsu (No 2) (1997) 18 WAR 190 (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.'

Nonetheless, an indemnity costs order will constitute an appropriate sanction marking the disapproval of improper or unreasonable conduct: see Brookvista Pty Ltd v Meloni [2009] WASCA 180 [32], Flotilla [25]. 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.'

11 As regards circumstances which might support any assessment of the Injunction Application as 'improper or unreasonable conduct', the emphasis of the defendants' submissions shifted ground somewhat. At first, the Costs Application seemed to be predicated on an assertion that the Injunction Application could not 'stand for argument' and 'the utter misconception on the part of the plaintiff would warrant indemnity costs'.

12 However, the unfortunate reality is that sometimes urgent applications are brought on erroneous factual bases. In and of itself, that circumstance would not ground an indemnity costs order. Rather, the touchstone of 'improper or unreasonable' focuses attention towards what a party knew, or ought reasonably to have known, in the circumstances.

13 At least as at 19 April 2013, Mr Jebb seems to have intended to raise the foreshadowed Sydney Road transaction at a special appointment that was listed for 30 April 2013: see attachment NER 1 to Ms Randall's 26 April 2013 affidavit. That seems to have remained the position even at 23 April, as revealed in a letter by the defendants' solicitors, attached as PGJ 1 to Mr Jebb's 24 April 2013 affidavit. A notion that money was to change hands on 26 April 2013 seems only to have emerged on 24 April 2013, and then on the basis of what Mr Jebb was told by Mr Marzec, ultimately prompting the urgent Injunction Application. So much, I interpolate, seemed to be accepted by counsel for the defendants on 26 April 2013, by reference to Mr Jebb's 24 April 2013 affidavit (ts 97). At that hearing, the true facts having by then become known, the Injunction Application was (properly) not pressed, at least as regards the urgent interim relief.

14 As counsel for Trafalgar submitted, Mr Jebb not having been required for cross-examination, there is no obvious evidentiary basis to impugn that conclusion.

15 Perhaps for this reason, in reply counsel for the defendants sought to shift emphasis to the issue of an asserted failure to confer. It was now argued that had Mr Jebb not gone off 'half-cocked', the Injunction Application and consequent costs would have been avoided.

16 In that regard, an email from Mr Jebb to the Court of 24 April 2013 warning of the Injunction Application said only that the defendants had been 'alerted to the prospect of such an application'. This was, I infer, a reference to the email of the same day from Mr Jebb to Mr Bennett, attached as PGJ 2 to Mr Jebb's 24 April 2013 affidavit, advising as to what he had been told by Mr Marzec that morning and that Trafalgar 'reserve[d] [its] right to seek an urgent interim injunction'.

17 Scant through the '[non]-conferral' (as counsel for the defendant termed it) was, it is nevertheless difficult to see what this adds to the fact Trafalgar, by Mr Jebb, was then labouring under a factual misconception, at least in the circumstances of this case. At 2.30 pm on 24 April 2013 Mr Jebb confirmed what Mr Marzec had told him earlier that day. The Injunction Application was filed near the close of business that day. The following day was, of course, Anzac Day, a public holiday.

18 Ms Randall's 26 April 2013 affidavit was forwarded to the Court by way of emailed correspondence (copied to counsel for Trafalgar) at about 1.00 pm that day. All correspondence sent by both parties to that time appears to have been made in full expectation of a contested hearing. Only at the 1.15 pm hearing itself does it seem that counsel for Trafalgar was shown the underlying transaction documents which confirmed the true position, later attached to Ms Randall's 1 May 2013 affidavit.

19 Different solicitors can be seen to have been conducting the Sydney Road transaction for the defendants. That may explain what looks to be a delay in these documents coming into the possession of the defendants' litigation solicitors. On the materials before me, it is impossible to know precisely when or how these documents were brought into existence, executed, and then subsequently reached the possession of the solicitors with whom it is argued Trafalgar ought to have conferred. At all events, it seems that the transaction documents were not in the hands of those solicitors sufficiently early for them to be annexed to Ms Randall's 26 April 2013 affidavit at about 1.00 pm that day.

20 It was correctly submitted the defendants did not encourage Mr Jebb's misapprehension. But that does not really engage against the question to be addressed as regards indemnity costs: it is not the absence of fault on the defendant's part that is at issue. Rather, it is a presence of some fault on the part of Trafalgar with which I am primarily concerned.

21 Counsel for the defendant submitted '[i]t's the absence of conferral that ... is the basis that visits the consequence of an ill-considered application'. But in the end the notion that conferral may have disabused Trafalgar of its underlying misconception before its Injunction Application was filed presents as essentially a matter for speculation.

22 None of this excludes the obvious fact, as counsel for the defendant submitted, that though 'utterly misconceived' the Injunction Application sought relief which the defendants were obliged at the time to treat seriously - notwithstanding the application ultimately became redundant. To this extent, there presents a prima facie basis for a taxing officer to assess the defendants' party and party costs above the scale limits usually applicable for such an application. As pointed out in Swansdale, if lifting scale limits is sufficient redress, an indemnity costs order would not be appropriate. That is my assessment in present circumstances.

23 This aspect of the Costs Application was not, on my assessment, pressed strongly at the 6 February 2014 hearing, the emphasis rather being more upon the indemnity order. In my view, that was appropriate. As pro bono counsel for Trafalgar pointed out, he was not appearing for Mr Jebb. Indeed, he expressly declined to make submissions regarding the orders as sought against Mr Jebb. To that extent, Mr Jebb was not really heard on the Costs Application.

24 It seemed to be tangentially argued that Mr Jebb, as effective moving hand for and controlling mind of Trafalgar, more or less directed and occasioned the actions of Trafalgar - about which the defendants complained. But this alone would not lead me to order costs personally against Mr Jebb - any more than it would lead me to order indemnity costs against Trafalgar.

25 The defendants' application for indemnity and non-party costs having been dismissed, I allow both parties seven days to confer and then to formulate and submit orders giving effect to these reasons.