Australian Funding Partners Limited v Botsman (No 3)
[2018] VSC 507
•6 September 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2018 00076
| AUSTRALIAN FUNDING PARTNERS LIMITED | Plaintiff |
| v | |
| WENDY DIANE BOTSMAN | Defendant |
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JUDGE: | ROBSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 7 June 2018 | |
DATE OF JUDGMENT: | 6 September 2018 | |
CASE MAY BE CITED AS: | Australian Funding Partners Limited v Botsman (No 3) | |
MEDIUM NEUTRAL CITATION: | [2018] VSC 507 | |
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COSTS – Application for indemnity costs – Plaintiff is the litigation funder of a group proceeding – Group proceeding compromised – Plaintiff sought and obtained court approval of compromise – Defendant, a group member, sought leave to appeal the court approval – Plaintiff in this proceeding sought unsuccessfully to enjoin defendant from seeking leave to appeal in the group proceeding – Plaintiff in part motivated in bringing the injunction proceeding to induce defendant to discontinue her application for leave to appeal in the group proceeding – Held improper purpose not the dominant purpose of the plaintiff in bringing the injunction proceedings – Dominant purpose of plaintiff was to vindicate its legal rights – Costs ordered to be paid on the standard basis – Application for costs to be paid on an indemnity basis declined.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S R Horgan QC with Mr C Tran | Arnold Bloch Leibler |
| For the Defendant | Mr C H Withers with Mr C Botsman | No solicitors |
HIS HONOUR:
Introduction
In this proceeding, the defendant, Mrs Botsman, successfully resisted a claim by the plaintiff, Australian Funding Partners Limited (AFPL) that she was in breach of a funding agreement, for a group proceeding, with AFPL seeking leave to appeal to the Court of Appeal against the decision of the Honourable Justice Croft approving a settlement of the group proceeding. The application by AFPL, for an injunction against Mrs Botsman to restrain her from seeking leave to appeal in the group proceeding and for substantial damages, was dismissed by me on 7 June 2018. Mrs Botsman applied for her costs on an indemnity basis. AFPL agreed that it should pay costs on the standard basis but opposed paying costs on an indemnity basis. Leave was given to both parties to file written submissions.
For the following reasons, I find that AFPL should pay Mrs Botsman’s costs on the standard basis.
The relevant facts
Mrs Botsman holds debentures in Banksia Securities Ltd (Banksia). Banksia was a non-bank property lender which carried on business in Kyabram. In October 2012, Banksia collapsed owing approximately $660 million to debenture holders. Trust Company (Nominees) Ltd (Trust Co) was the trustee for the Banksia debenture holders.
In December 2012, a group proceeding was commenced on behalf of the debenture holders in this Court, against the directors of Banksia, Banksia’s auditors, and Trust Co as the trustee for the debenture holders. As mentioned, Mrs Botsman was one of the debenture holders in Banksia. The plaintiff was Mr Bolitho. Originally, Mr Mark Elliott acted as the solicitor for Mr Bolitho. Subsequently, Mr Elliott ceased to act as the solicitor for Mr Bolitho and Portfolio Law was retained as the solicitor for Mr Bolitho.
AFPL was incorporated for the purpose of funding the litigation by Mr Bolitho. AFPL is controlled and run by Mr Elliott, who holds a 76 per cent interest in AFPL. Mr Elliott has, through corporate interests, been involved in funding many group proceedings in this Court and has been the subject of some adverse comments by the Court of Appeal in doing so.[1]
[1]Melbourne City Investments Pty Ltd v Myer Holdings Limited [2017] VSCA 187.
Mrs Botsman, as a group member, on 25 March 2015 entered into a funding agreement with AFPL, whereby AFPL agreed to finance the conduct of the group proceeding by Mr Bolitho on terms that included it sharing in the fruits of any recovery in the group proceeding.
In my judgment in Australian Funding Partners Limited v Botsman,[2] I explain in greater detail the Bolitho group proceeding and another related proceeding by special purpose receivers appointed to Banksia. In summary, in October 2012, Trust Co had appointed special appointed receivers and managers to Banksia. In April 2016, the claims of the special purpose receivers against the directors of Banksia, its auditors, and legal advisors were settled. Bolitho’s claims against the directors and Banksia’s auditors were settled at the same time. Other claims of Bolitho and the special purpose receivers remained outstanding. On 26 August 2016, I approved the partial settlement under the Supreme Court Act1986.
[2][2018] VSC 303.
Bolitho’s claim against Trust Co and its auditors continued until these also were settled, subject to Court approval. On 8 December 2017, Croft J made orders, in anticipation of the hearing, to consider an application by Bolitho for the proposed settlement to be approved by the Court under the Supreme Court Act1986. The orders included making provision for debenture holders to object to the application for approval of the settlement, if they so wished.
On 19 January 2018, Mrs Botsman filed submissions with the Court prepared by her son, Christopher Botsman of counsel, opposing the approval of the proposed settlement and giving grounds for her objection. The submissions were added to and a final version of the submissions were filed with the Court on 24 January 2018.
On 30 January 2018, Croft J approved the settlement between Mr Bolitho and Trust Co and the auditors. On 20 March 2018, Mrs Botsman sought leave to appeal the orders of Croft J approving the settlement. The respondents to Mrs Botsman’s application were Mr Bolitho, Banksia Securities Limited and 15 other respondents, but not including AFPL.
On 29 March 2018, AFPL commenced proceedings against Mrs Botsman, by an originating process with a statement of claim attached, alleging that Mrs Botsman’s application for leave to appeal was in breach of her funding agreement with AFPL. It was alleged, in substance, that in the absence of her appeal, “the settlement sum” of some $5,225,000 for the reimbursement of legal costs and some $12,800,000 for the litigation funder’s commission would have been paid to AFPL on 21 March 2018. AFPL alleged that for each day after 21 March 2018, AFPL was held out of the money, and that at the penalty interest rate pursuant to the Penalty Interest Act 1983 of 10 per cent per annum, the loss to AFPL would be $5,289.04 per day.
As mentioned, AFPL sought against Mrs Botsman an injunction, both interlocutory and permanent, restraining Mrs Botsman from proceeding with or prosecuting the application for leave to appeal, or any appeal, in the proceeding in the Court of Appeal, and also damages for breach of the funding agreement, costs and interest. The application was based solely on the alleged breach by Mrs Botsman of her funding agreement with AFPL. There was no claim by AFPL that Mrs Botsman’s appeal should be restrained because the grounds of the appeal were not arguable.
As mentioned, on 7 June 2018 I dismissed AFPL’s application against Mrs Botsman for an injunction and for damages, and reserved the question of costs. In substance, I found that AFPL had waived any contractual right it may have had to prevent Mrs Botsman from appealing, by agreeing to the Court order entitling group members, such as Mrs Botsman, to object to the approval by the Court of the proposed settlement, and by failing to take issue with Mrs Botsman’s right to object at the hearing for approval of the settlement.
The application for leave to appeal came before the Court of Appeal on 8 June 2018, at which Mrs Botsman, through her counsel, sought leave to appeal against the orders of Croft J approving the proposed settlement. On 19 June 2018, the further hearing of the application for leave to appeal was adjourned to 4 September 2018, and the Court of Appeal ordered that AFPL should be joined as a party to the application for leave to appeal.
Background to the application by AFPL against Mrs Botsman
Mrs Botsman filed her application for leave to appeal on 20 March 2018. The application identified the “applicant or applicant’s lawyer’s name and address” as “Christopher Anthony Botsman, c/- New Chambers, Level 34, 126 Philip Street, Sydney, 2000” with an email address of “[email protected]”.
On Monday 26 March 2018, in an email sent at 1.23pm from Mr Botsman to Mr Zita of Portfolio Law, the solicitors for Mr Bolitho in the group proceeding, Mr Botsman attached by way of service the application for leave to appeal the 30 January 2018 orders of Croft J.
Later that afternoon, on Monday 26 March 2018 Mr Zita replied by email sent at 5.24pm. Mr Zita asked Mr Botsman for an address for service of Mrs Botsman. Mr Zita said that he understood that a barrister to whom the Legal Profession Uniform Conduct (Barristers) Rules 2015 applied may not be the address for service of any document or accept service of any document. Mr Zita informed Mr Botsman that Mr Bolitho expected to shortly file and serve certain applications in respect of Mrs Botsman’s application for leave to appeal. Mr Zita said that a proper address for service upon Ms Botsman was required to ensure that Mrs Botsman’s address for service was properly disclosed on Mr Bolitho’s applications, when they were filed, and to ensure service was effective.[3]
[3]CB, tab 25. 364.
On the next morning, of Tuesday 27 March 2018, Mr Elliott at 8.34am emailed Mrs Botsman at “[email protected]”, saying that he was trying to contact Wendy Diane Botsman of 5A Harrow Avenue, Magill, South Australia.[4] In the email he said, “I have some important information for her urgent consideration. Is this the correct email address?” Mr Elliott’s email address was given as [email protected] and the subject of the email was “Contact.” The email did not refer in any way to AFPL. The email address was that of Mrs Botsman. Mrs Botsman replied to Mr Elliott asking him to “please forward any important information to [email protected].”
[4] CB, tab 26, 367.
In his witness statement,[5] Mr Elliott said that he attempted to communicate with Mrs Botsman, initially in order to check whether his belief that she had signed up to the Banksia class action litigation funding terms was correct and, if so, to enquire into whether she understood the potential legal consequences of applying to appeal the settlement approval of the Court. He said that he wanted to do so to put her on notice of those matters. I infer from this evidence that Mr Elliott was aware that the notice of appeal had been issued and served on Mr Zita of Portfolio Law the day before.
[5]Exhibit P2.
I am also satisfied that at the time Mr Elliott sent the email to Mrs Botsman he knew that Mr Botsman was acting for Mrs Botsman and that Mr Botsman had prepared or procured the preparation of the application for leave to appeal.
After observing Mr Elliott in the witness box for over a day, I am satisfied that Mr Elliott, in seeking to make contact with Mrs Botsman, intended to intimidate Mrs Botsman into dropping her appeal. I am satisfied that Mr Elliott was aggravated that the benefits of his “bargain” were being threatened by the application for leave to appeal. I infer that, as Mr Elliott and his colleagues stood to make millions of dollars from the approved settlement, Mr Elliott did not look favourably on Mrs Botsman standing in his way, or threatening to upset the fruits of his endeavours.
Also on Tuesday 27 March 2018, by an email sent at 12.07pm, Mr Botsman replied to Mr Zita’s email of the day before, and informed Mr Zita that the rules he had referred to also permit barristers to appear for clients on a direct access basis.[6] He confirmed that, for the time being, he was appearing on a direct-access basis and any application should be served on him. Mr Botsman said that he understood from Mrs Botsman that Mr Elliott had certain information he wished to convey to her.
[6]CB 364.
Mr Botsman said that he had previously indicated to Mr N O’Bryan SC (counsel for Mr Bolitho) that he would be happy to discuss the appeal after filing, but that he saw little merit in discussing an appeal that had not been reduced to writing.
Mr Botsman said that the same invitation, that had been made to Mr O’Bryan, applied to Mr Elliott, and that if Mr Elliott had information he wished to convey, he was welcome to raise it with him. Mr Botsman concluded “In those circumstances, there should be no need to communicate with the applicant.”[7]
[7]Ibid.
Mrs Botsman submits that Mr Elliott should be taken to have full knowledge of the communications with Mr Zita as Mr Elliott maintains (as discussed below) that he is the agent of Mr Bolitho with full authority to manage the settlement and appeal proceedings on behalf of Mr Bolitho, and other group members who entered into a funding agreement with AFPL, as he thinks fit.
At 1.00pm on 27 March 2018, Mr Botsman called Mr Zita’s office number. Mr Botsman was told Mr Zita was unavailable, that Mr Zita would return Mr Botsman’s call.[8] Mr Zita did not call Mr Botsman back.
[8]CB 372.
Despite Mr Botsman’s email sent to Mr Zita about an hour and half before indicating correspondence should be sent to Mr Botsman in relation to Mrs Botsman’s application for leave to appeal, on Tuesday 27 March 2018, at 1.20pm, Mr Zita emailed a letter to Mrs Botsman informing her that Portfolio Law acted for Mr Bolitho in respect of her application for leave to appeal.
Mr Zita informed Mrs Botsman that, at law, Mr Botsman was unable to accept service of documents in the proceeding on her behalf, and it was therefore necessary for him to send the letter directly to her. He informed Mrs Botsman that the purpose of the letter was to inform her that Mr Bolitho expected to make an application to the Court for security for costs, to note the prospect of significant additional costs being incurred by her and the 16 other parties to the application for leave to appeal, to seek information from her concerning her assets available to satisfy any adverse costs order made in the application for leave to appeal, and to invite any proposal she may wish to make in relation to giving Mr Bolitho security for his costs of the application for leave to appeal.
Mr Zita informed Mrs Botsman that he expected the respondents’ collective costs on the application for leave to appeal to be in the range of $500,000 to $1 million.
Mr Zita said he would be grateful if Mrs Botsman would provide full and complete information and evidence concerning her personal financial position and her unencumbered assets available to satisfy any adverse costs orders in the proceeding. He said this would include details of her personal bank account balances, shares, any other securities or valuable and fungible assets held by her, any real property which she held and whether that real property was subject to any encumbrances, and if so the financial value of any encumbrances, and prior ranking personal debts or liabilities she may have.
Mr Zita also asked Mrs Botsman for any proposal she may have for giving security for Mr Bolitho’s costs of the application for leave to appeal (in the sum of $160,000), which may obviate the need for Mr Bolitho to apply to the Court for an order for security of costs.
Mrs Botsman submits that there were several misleading statements made in the letter. Mrs Botsman submits that the number of active parties to the appeal was exaggerated by Mr Zita. Mrs Botsman submits that Mr Zita would have known that only a limited number of respondents had taken an active role in the approval proceedings before Croft J.
Mrs Botsman also submits that the claim by Mr Zita was made without Mr Zita knowing the position the special purpose receivers (SPRs) would take in response to the appeal, including as to whether or not the SPRs or Trust Co would seek (a) security for costs or (b) seek their costs against Mrs Botsman in the event the application for leave to appeal was unsuccessful.
The originating process in this proceeding
On Thursday 29 March 2018, AFPL filed the originating process and statement of claim in this proceeding. By email of the same date, at 11.26am, AFPL’s solicitors Arnold Block and Leibler (ABL) sent to Mrs Botsman’s son, Mr Christopher Botsman of counsel, an email that attached the sealed originating process and a covering letter dated 29 March 2018.
In that email, Mr John Mengolian, AFPL’s solicitor, asked Mr Botsman to let ABL know by 12.30pm that day, Thursday, (that is about an hour after the email), whether he held instructions to accept service for the originating process on behalf of his client, failing which ABL would arrange for it to be served personally on Mrs Botsman.[9] Mr Elliott agreed in cross-examination he gave instructions for this letter to be sent.[10] Mr Elliott also agreed that at that time AFPL had “lined up” a process server to serve Mrs Botsman.[11]
[9]CB tab 29, 377.
[10]T 37.
[11]T 182 lines 1-5.
On Thursday 29 March 2018, at 6.30pm in the evening, Coastal Mercantile sought to serve the originating process on Mrs Botsman at her home address.
Mr Botsman replied to ABL by email on Friday 30 March 2018, asking AFPL’s solicitors ABL to direct all correspondence to himself, rather than his mother.
On Tuesday 3 April 2018, Mr Mengolian of ABL sent a letter to Mr Botsman enclosing a copy of the originating process seeking the injunction and statement of claim. Mr Botsman was asked to sign and date the indorsement on the originating process and return a copy to the office of ABL.[12]
[12]Exhibit JM-2 to the affidavit of John Mengolian of 5 April 2018.
Also on 3 April 2018, ABL informed the process servers that Mrs Botsman’s barrister had instructions to accept service on her behalf. The process servers were asked to cease all further attempts at service.[13]
[13]CB tab 30, 406.
Also on 3 April 2018, Mr Botsman responded to ABL submitting that the proceedings were bound to fail and stating, amongst other things, that AFPL had waived any right it may have had to prevent Mrs Botsman from seeking leave to appeal.[14]
[14]Exhibit JM-3 to the affidavit of John Mengolian of 5 April 2018.
Mr Botsman’s letter also implied that the proceedings had been instituted for improper purposes. The letter said:
Your letter suggests that your client “continues to incur losses of about $37,023.23 per week.’ In light of the foregoing that contention is disingenuous at best and raises serious questions about the purpose of underlying your letter and the commencement of the proceedings by your client.
On 26 April 2018, Portfolio Law wrote to Mr Botsman in relation to Mrs Botsman’s application for leave to appeal, and informed Mr Botsman that if the application for leave to appeal failed, or should leave be granted, if the appeal was unsuccessful, Mr Bolitho may seek a non-party costs order against Mr Botsman personally.[15]
[15]CB 453.
Mr Elliott’s evidence
Under cross-examination, Mr Elliott said that he was a director of AFPL with William Carruthers and Simon Tan and there were about 10 shareholders.
Mr Elliott was taken to his witness statement where he denied that the proceedings were commenced for any improper or collateral purpose. He was asked to point to a clause in the funding agreement that gave AFPL the contractual right preventing Mrs Botsman from appealing. He was unable to point to any that expressly stated that Mrs Botsman had no right to appeal the order approving the settlement.
Rather, Mr Elliott said that he regarded the funding agreement as an agency agreement where Mrs Botsman had appointed him to run the litigation on her behalf, and to conduct it as he saw fit, to instruct the lawyers, subject to all caveats and protections that Mrs Botsman had in the agreement, and [Mrs Botsman was] not to deprive him of the benefit of the bargain.[16]
[16]Transcript of hearing 24 May 2018, 36.
Mr Elliott said that clauses 5 and 6 gave him conduct of the proceeding, including the actual authority to settle the proceeding, and in particular clause 16 gave him protection to ensure that he was not deprived of the benefit of the bargain.
Mr Elliott contended that he was entitled to give instructions to Portfolio Law, the solicitors for Mr Bolitho, in certain circumstances by reason of his arrangement as a funder.[17]
[17]T 194 line 3 – T 195 line 11.
Counsel:You know and you've said to his Honour that you're entitled to give instructions to Portfolio Law?
Mr Elliott:In certain circumstances by reason of my arrangement as funder I can give instructions to Portfolio Law.
Counsel:I thought your evidence yesterday was that you're entitled to run the cases as you see fit?
Mr Elliott:On behalf of funded group members they have delegated to me under the agency arrangement.
His Honour: Bolitho, he wasn't funded?
Mr Elliott:Sorry?
His Honour: Mr Bolitho was not funded?
Mr Elliott:Yes, your Honour, but only on behalf of funded members.
….
Mr Elliott:Under the agency arrangement I have authority to give day to day instructions to the lawyers on behalf of funded members, people who signed a funding agreement.
Counsel:And the funded member [the plaintiff] also has authority to give instructions?
Mr Elliott:He's the principal giver of instructions but in the event of certain issues of conflict sometimes my instructions override his and sometimes they don't
Counsel:So your evidence is that in this exchange of communications [referring to Mr Zita’s letter to Mrs Botsman] these are instructions you believe were personally given by Mr Bolitho?
Mr Elliott:[I] don't know who else could instruct Mr Zita if I didn't.
Counsel:No?
Mr Elliott:But then in relation to Mr Zita, he has the conduct on behalf of Mr Bolitho who represents all unfunded members. So there's 16,000 people, 22,000 accounts and Mr Bolitho is representative of everybody, but I have a role in respect of funded members and then pursuant to the indemnity arrangement I've given to Mr Bolitho in relation to costs he incurs with Mr Zita, I can intervene. But that doesn't mean I do, in fact I think I've done it very irregularly and only to the extent of being a consensual input, not to the extent of - I don't believe I've overridden Mr Zita or Mr Bolitho's instructions.
Mr Elliott was shown a letter purportedly from Mrs Botsman replying to Mr Zita’s letter of 26 April 2018.[18] Mr Elliott said he thought the signature was a forgery.
[18]Exhibit D6.
Mr Elliott agreed that he hoped Mr Botsman would communicate to Mrs Botsman the ABL letter of 28 March 2018 which enclosed the originating process and that asserted losses were continuing at $37,023.28 per week. Mr Elliott denied that sending a letter such as this would cause Mrs Botsman distress. I did not believe Mr Elliott’s answer. I am satisfied that he knew that the letter would cause Mrs Botsman distress, as it obviously would have.
Mr Elliott agreed that when he sent Mrs Botsman the email of 27 March 2018 at 8.34am, he did so to check whether she had signed up to the Banksia class action funding terms. He admitted in cross-examination, however, that when he sent the email he had already sighted the agreement with AFPL that Mrs Botsman had signed and which contained her email address. Mr Elliott said that he wanted to confirm that the signature name and email address was one and the same as the debenture holder he emailed.[19]
[19]T 41.
AFPL’s submissions
AFPL contends that Mrs Botsman conflates Mr Bolitho, Portfolio Law and Mr Zita on the one hand, and AFPL on the other. AFPL submits that there is no evidentiary foundation for that conflation. AFPL says that Portfolio Law does not act for AFPL in this proceeding. AFPL says that it was represented by Elliott Legal Pty Ltd at the approval hearing. ABL acts for AFPL in this proceeding.
AFPL submits that, under cross-examination, Mr Elliott denied giving any instructions to Mr Zita about the correspondence which Mrs Botsman complains about. Mr Elliott expressly denied giving Mr Zita instructions to send the letter that demanded she provide Mr Zita details of her personal financial affairs.[20]
[20]T 178 lines 10-12.
Mr Elliott categorically denied that the proceeding against Mrs Botsman had been commenced for any improper or collateral purpose. He said that it had been commenced for the sole purpose of vindicating AFPL’s contractual rights and to recover damages for the loss AFPL had suffered due to Mrs Botsman’s breach of contract. Mr Elliott said that none of the communications between AFPL and Mrs Botsman were intended to put pressure on Mrs Botsman.
During cross-examination of Mr Elliott, he admitted that he was aware that there was an intention for Portfolio Law to send a letter requesting security for costs on the appeal, and he knew that before the letter was sent.[21] It was put to Mr Elliott that he was aware that Mr Zita’s letter was to be sent at or around the time it was sent. Mr Elliott denied this. It was put to Mr Elliott that the letter was something Portfolio Law would have sought his instructions about. Mr Elliott disagreed. I doubt the correctness of Mr Elliott’s answer. Mr Elliott admitted he was aware that Mr Bolitho would seek an order against Mr Botsman for compensation for losses, but denied he gave instructions to Portfolio Law to send the letter to Mr Botsman.[22]
[21]T 187 lines 9-28.
[22]T 187 line 31 – T 188 line 28.
Mr Elliott denied that Mr Zita told him in advance that $160,000 was his estimate of costs and asked Mr Elliott if he agreed with his estimate.[23]
[23]T 179.
I am satisfied that Mr Elliott would have been consulted about the appeal and his instructions sought on how Portfolio Law should respond. I do not believe a solicitor would have sent such a letter as Mr Zita sent to Mrs Botsman without obtaining instructions from his client, which was effectively Mr Elliott.[24]
[24]T 178.
In regard to the behaviour of Mr Zita and Portfolio Law toward Mrs Botsman, AFPL submits that the conduct of a party relevant to the issue of indemnity costs is the party’s conduct as a litigant in the present proceedings, and not their antecedent conduct giving rise to the proceeding.[25] AFPL concedes that previous conduct may help inform an assessment of the conduct of that party during the litigation.[26] Accordingly, AFPL submits that the relevant issue is the conduct of AFPL in the injunction proceedings.
[25]NFM Property Pty Ltd v Citibank Ltd [no 2] (2001) 109 FCR 77 at 92 [56]; Ribbera v Artusa [2018] VSC 233 at [15].
[26]Owners Corporation 630063L v CGU Insurance Ltd [2018] VSC 34 at [7].
Unarguability
Mrs Botsman submits that AFPL’s case was unarguable. Mrs Botsman submits that accordingly, it was an abuse of process to proceed with the injunction application. Mrs Botsman submits that within three business days of its letter, a fatal defect in AFPL’s claim was identified, namely waiver of the breaches relied on by AFPL.
Mrs Botsman submits that, in her defence, she pleaded that the following circumstances, among others, constituted a waiver:
(a) AFPL instructed Mr Bolitho to obtain court approval of a settlement notice that informed group members of their right to object to the settlement (cf. Defence, [21]);
(b) At the Settlement Hearing, neither counsel for the funder nor counsel for the representative plaintiff:
i.Suggested that the Funding Agreement precluded Mrs Botsman from objecting to the settlement (cf. Defence, [22]);
ii.Raised any objections to Mrs Botsman objecting to the settlement or suggested that Mrs Botsman had entered into contractual arrangements that prevented her from so objecting (cf. Defence, [25]);
(c) At no point prior to filing the Leave Application[27] did AFPL advise Mrs Botsman that any Leave Application brought by her would breach the Funding Agreement (cf. Defence, [26]).
[27]As early as 28 February 2018, Mr Botsman indicated to Mr Zita that he held instructions from his mother to seek leave to appeal: cf. CB 250.
Thus, Mrs Botsman submits that she informed AFPL in her initial response to the commencement of proceedings and in her defence to the statement of claim of the precise reasons why the claim was due to fail, including by reason of waiver. Mrs Botsman contends that AFPL maintained, the injunction proceedings notwithstanding, a clear case of waiver being twice pointed out to it.
In response to the suggestion that it had been forewarned of the waiver defence, AFPL says that the Court applied the concept of estoppel rather than waiver in its judgment. AFPL says that estoppel was not put in the defence, nor raised in correspondence. AFPL says that it cannot be said that its claim was bound to fail.
Legal principles
Mrs Botsman relies on two sources of power to award indemnity costs, first, s 24 of the Supreme Court Act1986 and the Court’s inherent power. Mrs Botsman submits that indemnity costs may be awarded where proceedings are:
(a) commenced for an ulterior or collateral purpose; and/or
(b) continued in wilful disregard of known facts, or clearly established law.
The second source relied on by Mrs Botsman is the statutory power that the Court has to order indemnity costs for non-compliance with the overarching obligation.
Relevant principles
Under r 63.28 of the Supreme Court (General Civil Procedure) Rules 2015, costs are to be taxed on a standard basis, an indemnity basis or such other basis as the court may direct. The usual order for costs is that the successful party is entitled to costs to be taxed on the standard basis.[28] Special circumstances must be shown to depart from the general rule that costs are to be taxed on the standard basis.[29]
[28]Oshlack v Richmond River Council (1998) 193 CLR 72, 97 [67].
[29]Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189 (‘Ugly Tribe’); see also Batrouney v Forster (no 2) [2015] VSC 541; and Ribbera v Artusa [2018] VSC 233.
Harper J, in Ugly Tribe, conveniently summarised the relevant principles to be taken into account in considering an application for indemnity costs:[30]
[30]Ugly Tribe, [7]–[8].
In seeking costs on an indemnity basis, the first defendant is asking the Court to depart from its usual course: Spencer v. Dowling[31]. Special circumstances must be present to justify such a departure: Australian Electoral Commission v. Towney (No. 2)[32]. These include:
[31][1997] 2 VR 127 at 147 per Winneke, P and 163 per Callaway, JA.
[32](1994) 54 FCR 383 at 388, per Foster, J.
(i)The making of an allegation, known to be false, that the opposite party is guilty of fraud: Fountain Selected Meats (Sales) Pty. Ltd. v. International Produce Merchants Pty. Ltd;[33]
[33](1988) 81 ALR 397.
(ii)The making of an irrelevant allegation of fraud; Thors v. Weekes;[34]
(iii)Conduct which causes loss of time to the Court and to other parties: Tetijo Holdings Pty. Ltd. v. Keeprite Australia Pty. Ltd;[35]
(iv)The commencement or continuation of proceedings for an ulterior motive: Ragata Developments Pty. Ltd. v. Westpac Banking Corporation.[36]
(v)Conduct which amounts to a contempt of court: EMI Records Ltd. v. Ian Cameron Wallace Ltd.[37]
(vi)The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law: J-Corp. Pty. Ltd. v. Australian Builders Labourers Federation Union of Workers (W.A.) Branch (No. 2).[38]
(vii)The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial: National Australia Bank v. Petit-Breuilh (No. 2).[39]
The categories of special circumstances are not closed: Tetijo Holdings, supra. The cases must not, therefore, be read "in an endeavour to establish a set of inflexible guidelines which should thereafter be determinative of the manner in which the Court's discretion is to be exercised [for this] would be to fetter the Court's discretion": National Australia Bank v. Petit-Breuilh, supra.
[34](1989) 92 ALR 131.
[35]Unreported, Federal Court, French, J, 3 May 1991.
[36]Unreported, Federal Court, Davies, J, 5 March 1993.
[37][1983] Ch 59.
[38](1993) 46 IR 301.
[39][1990] VSC 395, 18.
As mentioned above, Lindgren J held in NFM Property Pty Ltd v Citibank Ltd [no 2]:
The conduct of a party that is relevant to the issue of indemnity costs is the party’s conduct as litigant. But as noted below, the knowledge that a party has, including knowledge of his or her past conduct, may be relevant to assessment of his her conduct as litigant.[40]
[40]NFM Property Pty Ltd v Citibank Ltd [no 2] (2001) 109 FCR 77 at 92 [56], per Lindgren J.
Resolution of issues
I do not accept that the AFPL’s case was hopeless. I agree that the grounds of AFPL’s application were weak. Mr Elliott struggled to point out any clause in the funding agreement that would deny a group member, who had signed a funding agreement, from seeking leave to appeal against the approval of a compromise of the group proceeding, in circumstances where the Court had given leave for group members to object to the approval of the compromise. The defence to the waiver issue was also weak. I do not consider, however, the arguments fell into the category of being hopeless.
The real issue is whether I am satisfied that the injunction proceedings were taken by AFPL for the ulterior purpose of pressuring Mrs Botsman to forgo her application for leave to appeal in the approval proceedings.
Mrs Botsman argued that Mr Elliott’s intentions were made plain by the threatening letter that was sent by Mr Zita warning her that she may have to put up security for costs of between $500,000 and $1 million and that the costs of Mr Bolitho may amount to $160,000.
As mentioned above, Mr Elliott denied giving Mr Zita instructions to send the letter. Mr Elliott did know, however, that the letter would be sent. Mr Elliott made plain in his evidence that he acted on the basis that he had authority to give instructions to Portfolio Law on behalf of Mr Bolitho and other funded parties. I am satisfied that Mr Zita and Mr Elliott were acting in concert in their dealings with Mrs Botsman with the view of deterring her, or preventing her, from proceeding with the application for leave to appeal.
I am satisfied that Mr Elliott brought the injunction proceedings to prevent Mrs Botsman pursuing the application for leave to appeal, in part on legal grounds and in part to add further pressure on her, to that applied by Mr Zita, to deter her from pursuing the appeal. The latter purpose was improper and constituted an improper motive.
In Melbourne City Investments Pty Ltd v Myer Holdings Limited,[41] the Court of Appeal (Osborn, Whelan and Ferguson JJA) considered an appeal from the decision of Sifris J that Melbourne City Investments Pty Ltd had brought a group proceeding against Myer Holdings Limited for the predominant purpose to generate income or revenue for interests associated with Mr Mark Elliott (who controlled Melbourne City Investments Pty Ltd) which was not a legitimate predominant purpose.[42]
[41][2017] VSCA 187 (MCI v Myer).
[42]MCI v Myer, [5].
The Court of Appeal said:[43]
Abuse of process may take many forms. Here, Myer contends that the proceeding should be stayed because it has been brought for a predominant purpose that is improper.[44] Bringing a proceeding to gain a collateral advantage is an improper purpose.[45] The party alleging the abuse bears the heavy onus of establishing an abuse of process.[46] The power to stay a proceeding on such grounds will only be exercised ‘in the most exceptional circumstances’.[47]
[43]MCI v Myer, [7].
[44]Williams v Spautz (1992) 174 CLR 509 (‘Williams v Spautz’), 529 (Mason CJ, Dawson, Toohey, McHugh JJ).
[45]Ibid 526–30 (Mason CJ, Dawson, Toohey, McHugh JJ).
[46]Ibid 529 (Mason CJ, Dawson, Toohey, McHugh JJ).
[47]Ibid.
The Court of Appeal said that the leading authority on abuse of process of the improper purpose kind is Williams v Spautz.[48] Importantly, the High Court held that to stay the proceeding as an abuse of process, the improper purpose should be the predominant purpose. The Court of Appeal held that it was essential to consider the proper purpose of the proceeding and then to ascertain whether the plaintiff’s predominant purpose in bringing the proceeding was to fulfil that proper purpose or to gain some other collateral advantage.
[48](1992) 174 CLR 509, 509f.
In this case, I am not considering an application that the injunction proceeding be stayed as an abuse of process. Rather, I am considering whether or not AFPL should pay costs on an indemnity basis. Nevertheless, I consider that the principles identified in MCI v Myer are relevant to the task I face. In my opinion, the task of identifying the “predominant purpose” is not dissimilar to the test when assessing whether or not the proceedings were commenced for a collateral purpose.
Accordingly, the material question is: what was the proper purpose of the proceeding? In this case the proper purpose would be to vindicate AFPL’s alleged right to restrain Mrs Botsman from seeking leave to appeal. I am satisfied that the predominant purpose of AFPL in bringing the injunction proceedings was to vindicate AFPL’s alleged right to restrain Mrs Botsman from seeking leave to appeal. I am not satisfied that AFPL’s predominant purpose was to pressure Mrs Botsman into withdrawing her application for leave to appeal in the approval proceedings, although I am satisfied it was a factor in AFPL’s decision to bring the injunction proceedings. Accordingly, I am not satisfied that the necessary exceptional circumstances exist to warrant costs to be taxed on an indemnity basis.
Gross sum
I do not consider that this is an appropriate case in which to award costs on a gross basis. There is no basis to conclude that taxation will be a protracted taxation process. Also, I do not think taxation will be a costly or inefficient process.[49]
[49]Wilson v Bauer Media Pty Ltd [2018] VSC 161.
Costs of this application
In view of the matters discussed above, in my discretion, I do not consider that it is appropriate or fair that Mrs Botsman should be ordered to pay the costs of the application.
Accordingly, I will order that the defendant’s costs of and incidental to the application by the plaintiff, including any reserved costs, be paid by the plaintiff and, in the absence of agreement, such costs be taxed on the standard basis.
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