Wallace v McMillan Investment Holdings Pty Ltd

Court of Appeal (NSW)|2024-05-01|Before: Leeming JA, White JA, Chen J

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

JUDGMENT

THE COURT: Mr Christopher Wallace, who was the third defendant in proceedings commenced in the Common Law Division in 2018, seeks leave to appeal from one aspect of orders made by the primary judge concerning costs. This Court heard argument on 1 May 2024, and reserved its decision in light of the fact that at the hearing the applicant supplied two additional folders comprising 655 pages which had not hitherto been supplied in support of this application. That is by way of explanation rather than criticism. Until very recently, Mr Wallace's application for leave was to be heard concurrently with an application made by Mr John Mangos and Ms Natalie Mangos, the first and second defendants in the same proceedings, which raised similar issues. However, their application for leave to appeal was resolved approximately a week before the hearing.

Background

The background is complex and will not be summarised in full in these reasons, because (a) it is unnecessary to do so and (b) it is fully summarised in the lengthy reasons of 198 paragraphs of the primary judge: McMillian Investment Holdings Pty Ltd v Mangos (No 3) [2023] NSWSC 1327.
McMillan Investment Holdings Pty Ltd (McMillan) brought proceedings against Mr and Ms Mangos and Mr Wallace on numerous causes of action. In relation to the proceedings against Mr Wallace, McMillan sued first for an alleged breach of guarantee and indemnity given by Mr Wallace as security for advances made to two companies of which he was a director, and secondly for a debt owed by him to Westpac of which McMillan had taken an assignment.
The debt owed to Westpac was secured by an unregistered mortgage to Westpac. McMillan also sued Westpac claiming that although it had also assigned its security, it released its security and thereby allowed Mr Wallace to obtain an unencumbered title to the secured property, which he later sold.
Although Mr Wallace's defence to the claim as then formulated was not before us, we were told that it included a defence based on his cross-claim (the amended second cross-claim) which alleged misconduct on the part of McMillan and its directors (Mr and Mrs McMillan). Mr Mangos was also a cross-defendant to the amended second cross-claim.
There were numerous other cross-claims between the parties, which extended to claims against Westpac and the solicitors who had once acted for the defendants. The other cross-claims included a fifth cross-claim brought by Mr Wallace against the solicitors, and the third cross-claim brought by McMillan against all other parties including Mr Wallace.
The proceedings commenced in 2018. Mr Wallace was initially represented by the same firm which appeared for Mr and Ms Mangos. In around March 2019, that firm ceased to act for him and thereafter a separate firm, Nelson McKinnon Lawyers, acted for him until around October 2021. Thereafter, Mr Wallace was unrepresented until around October 2023 when his counsel Ms Young appeared directly briefed. Later, after the orders from which this application is brought had been made, Nelson McKinnon once again appeared to act for him. In short, there is a period of some two years when Mr Wallace was unrepresented. Both his amended second cross-claim and his fifth cross-claim were filed by him as an unrepresented litigant. So too was his defence to the fourth further amended statement of claim. There are defences that were filed on his behalf when Nelson McKinnon represented him, including the defence to the third cross-claim dated 13 November 2019, which is a document of four substantive pages containing bare admissions, non-admissions, denials or (and most frequently) statements that he does not plead as no allegations are made against him. The materials before us do not reveal whether his defences to the third amended statement of claim (or earlier versions of that pleading) or his second cross-claim (before its amendment) were filed when he had legal representation.
Most of the issues raised in the proceedings did not go to trial. They were compromised in two stages, as follows.
First, a settlement was reached between McMillan and the solicitors on around 14 July 2023 which, speaking generally, involved the payment to McMillan of $900,000 and the McMillan parties seeking leave to discontinue most of the claims against Mr and Ms Mangos and Mr Wallace. Mr Wallace was not involved in that settlement. Consequently, on 24 August 2023, orders were made dismissing much but not all of the McMillan proceedings against Mr Wallace and the entirety of the third cross-claim. Costs were reserved. A fourth further amended statement of claim was filed which reflected the narrowing of the dispute following the settlement. The matter was listed for hearing for 10 days commencing Monday 16 October 2023.
Secondly, on Friday 13 October 2023 most but not all of the outstanding issues were settled. The settlement involved the dismissal of most of the claims made against Mr Wallace and the dismissal of his cross-claims. A number of issues were left unresolved (see orders 18(a)-(m), 21 and 22). Those issues for the most part concerned costs, but one concerned whether Mr Wallace had a defence to the "Westpac debt claim", which appears to have been the claim assigned to McMillan. This was preserved by order 18(a) and 22, and its quantum was agreed.
The primary judge heard argument on the outstanding issues over two days on 18 and 20 October 2023. By judgment delivered, promptly, on 6 November 2023, the primary judge entered judgment in favour of McMillan against Mr Wallace in the sum of $157,231.25 and ordered that he pay the plaintiff's costs of the "Westpac debt claim". The primary judge also made the following order: (3) In relation to costs: (a) Make no order as to costs of the proceedings such that each party is to bear their own costs of the proceedings.
The hearing in this Court proceeded on the basis that order 3 did not displace the specific order that Mr Wallace pay McMillan's costs of the Westpac debt claim.

The limited nature of Mr Wallace's application for leave to appeal

By his application for leave to appeal, Mr Wallace makes no challenge to either the judgment entered against him, or the costs order adverse to him, in relation to the Westpac debt claim. His application for leave is confined to order 3(a). In fact, it is even more confined. In his draft notice of appeal and written submissions in support of leave, Mr Wallace confirmed that in this Court he sought only to challenge the decision of the primary judge not to make a costs order in his favour in respect of the parts of the statement of claim that were dismissed by the orders made on 24 August 2023, and the costs of the third cross-claim. That position was confirmed orally and candidly by Ms Young. That is to say, contrary to the position advanced before the primary judge, Mr Wallace does not maintain an entitlement to the costs of proceedings dismissed by the orders made by 18 October 2023 (the balance of the statement of claim and the second and the fifth cross-claims).
Another way of putting this is that Mr Wallace seeks only to challenge the failure by the primary judge to make an order in his favour in relation to the dismissal of part of the statement of claim and the third cross-claim, but he does not seek to challenge the decision favourable to him that the dismissal of his own cross-claims not be accompanied by a consequential order that he pay the cross-defendants' costs of those cross-claims.
Pausing there, one matter which falls from what has already been said is that it is far from clear that the costs involved are substantial. Those costs are Mr Wallace's costs in proceedings which occupied some five years in the Common Law Division, but (a) for some two of those years, Mr Wallace was unrepresented, (b) the costs do not include the costs of his cross-claims or of some aspects of his defence to the McMillan statement of claim, and (c) the costs do not include the Westpac debt claim costs which he accepts he has to pay.

The reasons of the primary judge

Rule 42.20(1) of the Uniform Civil Procedure Rules 2005 (NSW) provides: If the court makes an order for the dismissal of proceedings, either generally or in relation to a particular cause of action or in relation to the whole or part of any claim, then, unless the court orders otherwise, the plaintiff must pay the defendant's costs of the proceedings to the extent to which they have been dismissed.
The primary judge regarded the settlement between McMillan and the solicitors as an achievement of "extra-curial success" or alternatively a "supervening event", which made it reasonable for McMillan to take the course it did. His Honour thereby regarded it as a proper basis to depart from the default position in r 42.20. His Honour also relied upon Hyder Consulting (Victoria) Pty Ltd v CGU Insurance Ltd [2003] VSC 223. In that decision, Mandie J said at [15]: In this case the counterclaim has been rendered futile not by settlement of the counterclaim itself between the particular parties now before the Court, but has rather been rendered futile by other events namely, the settlement of the tunnel cases and of the claim by Hyder against Heath in this proceeding.
The primary judge said at [154]: That is essentially the position that was argued by the McMillan parties. As in that case, so too here, I consider the supervening event - being the August 2023 settlement removing the subject matter of the dispute - to be "some sound positive ground or good reason for departing from the ordinary course" provided by r 42.20(1) (Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [54]), as the McMillan parties argued. I am satisfied that the proper exercise of the costs discretion, to that point, is to make no order as to costs of the proceedings. (I deal later with the position beyond then, but - to signpost - my holding is the same).
His Honour's approach reflected what was said by Bryson JA in Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [53]-[54]: Rule 42.20(1) would be overstated if described as creating a presumption about the disposition of costs. It goes no further than to state the first point of consideration; there is no presumption which must be outweighed; what the rule says is what the order for costs is to be unless there is a discretionary decision to order otherwise. At the discretionary stage the matters to be considered are little altered: cf Fordyce v Fordham [2006] NSWCA 274 at [87] (McColl JA): [87] Once it is recognised, however, that the costs discretion conferred by UCPR 42.19 and 42.20 is unconfined, the matters referred to in the Lai Qin line of authority are plainly pertinent, although, again, not necessarily determinative. Although in the law before r.42.20 was made the Court would have approached the question of costs where proceedings had been discontinued or dismissed with the consent of the moving party with an initial disposition towards ordering that costs follow the event, as provided by r.42.1 and earlier by Pt.52A r.11, the decision was discretionary and the outcome of exercise of that discretion was not closely controlled by judicial authority. The provisions of r.42.20, which appear to operate to the exclusion of r.42.1 in the case with which r.42.20(1) deals, enhance the initial disposition towards ordering the plaintiff to pay the defendant's costs; but there is no close control over the discretion of the Court to order otherwise. As is generally the case with discretionary powers, the power must be exercised in good faith for a purpose relevant to the purpose for which power to make orders for costs is conferred, and there must be some sound positive ground or good reason for departing from the ordinary course.

Mr Wallace's submissions

In support of a grant of leave, Ms Young, who had appeared pro bono for Mr Wallace before the primary judge, identified what were said to be various errors in the reasons of the primary judge.
In particular, Mr Wallace maintained that the primary judge had erred in identifying the settlement between McMillan and the solicitors as a "supervening event", saying that McMillan must have agreed to that settlement knowing that the issues involving Mr Wallace (and Mr and Ms Mangos) would be left unresolved. He said that Hyder Consulting was distinguishable, because Mr Wallace had not participated in the earlier settlement, and thus there was no sound basis to "otherwise order" so as to deprive him of the default position under the rules that he obtain his costs of claims made against him which were dismissed.
Ms Young acknowledged that those errors were errors (if they were errors) in the application of principle rather than in the formulation of principle. The acknowledgement was both candid and proper. It was accepted that his Honour invoked the correct rule, UCPR r 42.20, and that Mr Wallace would be entitled to his costs unless the Court otherwise ordered.
Mr Wallace also said that the decision gave rise to an important question of general application, insofar as it encouraged a plaintiff to sue multiple defendants and compromise its claims against some of them, without bearing an adverse costs order in relation to the others.

Consideration

It is not suggested that the primary judge formulated any incorrect principle in exercising what was concededly a broad discretion his Honour had as to costs. We are unpersuaded that there is any question of general public importance. In relatively unusual circumstances, in complicated litigation with many cross-claims and one party who was unrepresented, a partial settlement was reached which was relied upon by the primary judge to depart from the ordinary order as to costs when parts of the plaintiff's claims against the unrepresented party were dismissed. It was open to the primary judge to form the view that there was a basis to order that there be no order as to costs, especially bearing in mind that that approach produced the favourable result to Mr Wallace that there be no order as to costs of his own cross-claims.
We are far from persuaded that anything like an error going beyond the merely arguable has been established in the exercise of discretion by the primary judge. There are two additional reasons which support that conclusion.
The first involves the different stance now sought to be taken in this Court, whereby Mr Wallace seeks only to challenge an aspect of the order as to costs, implicitly accepting the benefit he has obtained in not bearing an adverse costs order in respect of his own cross-claims which have been dismissed. The primary judge was not asked to exercise a discretion on this more limited basis. That makes it harder, to say the least, to establish an injustice going beyond the merely arguable.
The second is that it has not been established that a significant amount of costs is involved. Especially in an application for leave to appeal the entire subject matter of which is costs, it is important that the costs of the application not overwhelm the amount in issue, bearing in mind that the amount in issue itself is only an issue of costs. McMillan pointed to what this Court said in Gibson v Drumm [2016] NSWCA 206 at [20] on this point: Another consideration in determining whether to grant leave is the sum in issue in the proposed appeal: Dunn v Ross Lamb Motors (1978) 1 NSWLR 26. Although there is no minimum amount specified in the rules of court below which leave will not be granted, the Court has refused leave in matters because of the small amount involved, such as where it was considered the grant of leave was not warranted having regard to the appropriate allocation of court resources and the disproportionate costs to the parties: see Wilson v Tetley [2003] NSWCA 124; Zelden Sewell Henamast Pty Ltd [2011] NSWCA 56; Jaycar Pty Ltd v Lombardo. Accordingly, whilst the mere fact that a small amount is in issue will not necessarily disentitle a person to a grant of leave, having regard to the case management principles enshrined in the Civil Procedure Act, it will nonetheless be a relevant factor and in an appropriate case may be decisive.
It would have been open, if the costs were substantial, for brief evidence from Mr Wallace's solicitor to be given to establish that. That might be because of the costs incurred when Mr Wallace was represented, more than two years ago, or it might be because there were costs of preparing expert evidence that Mr Wallace bore when he acted for himself. But all that was relied on was the pleadings, and they were either prepared when Mr Wallace was unrepresented, or were, so far as they were reproduced before this Court, relatively straightforward.
Of course, in the present case, the more nuanced challenge now sought to be made by Mr Wallace means that it is not enough merely to show the costs incurred by him during the litigation, but he must establish that those costs were not caught up within the Westpac debt aspect of the proceedings, on which he failed with an adverse costs order, and also they are not costs connected with the dismissal of the balance of the statement of claim, and the outstanding cross-claims, made on 18 October 2023. It is very easy to see that the determination of the costs which are the subject of this application for leave to appeal is itself a difficult and perhaps quite contestable matter, having regard to the approach that is now taken, which acknowledges that Mr Wallace must pay the costs of the Westpac debt claim and only seeks to interfere with the primary judge's order to the extent that it relates to part of the costs of the statement of claim and the costs of the third cross-claim. But the short point is that it has not been established that the costs at stake in this application for leave to appeal from part of an order to make no order as to costs are substantial. Further, no evidence was adduced in an attempt to show that the costs were substantial, despite this having been squarely flagged in the respondents' written submissions filed on 6 March 2024. Insofar as inferences can be drawn from the pleadings and the other matters relied upon in support of the grant of leave, the costs and disbursements which would be recoverable are not shown to have been significant. That is a powerful factor telling against the grant of leave.
For those reasons leave should be refused. It was accepted that in that event costs would follow the event.
There is one final matter. McMillan by an amended notice of motion filed on 26 February 2024 and amended on 18 March 2024 sought orders for security for costs in the sum of $335,000. That motion was not ready to proceed when the application for leave to appeal was heard. But it is inconceivable that the costs of responding to an application for leave to appeal, or responding to an appeal on costs, which on no view could occupy more than a day, would be anything like $335,000. Mr Lockhart SC, who in fairness it should be said had had no role in propounding that motion, had nothing to say against the prima facie gross excess of that amount. As was pointed out during the hearing, Leeming JA said in Hung v Aquamore Credit Equity Pty Ltd [2022] NSWCA 123 (where there was an estimate of some $434,000 for a one or two day hearing) at [26]: If contrary to what I have already decided this were a case for security for costs, I would, in the exercise of my discretion, order none. That is because, irrespective of the reason such a wildly exaggerated estimate was deposed to, it is quite wrong for such estimates to be propounded in this Court. The respondents seek a discretionary order, but rely on an obviously untenable evidentiary basis for an essential element of the order they seek. As much was pointed out to them in advance of the hearing. No attempt was made to attend to the self-evident deficiencies in the evidence. A less unrealistic amount of security might be $50,000 or $70,000, as was pointed out in the appellants' submissions, but why should even that amount be ordered when the moving party has so grossly inflated its estimate of its own costs?
The notice of motion should never have been filed in the form that it was. No part of the costs which Mr Wallace must pay should include the costs of that motion. Hence the orders of this Court are that both the summons seeking leave and the notice of motion are dismissed, in each case with costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 May 2024

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