Boz One Pty Ltd v McLellan
[2015] VSCA 145
•12 June 2015
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2014 0082
| BOZ ONE PTY LTD and WALLABAH PTY LTD | First Appellant Second Appellant |
| v | |
| ANDREW JAMES MCLELLAN, CRAIG DAVID CROSBIE, INVESTEC BANK (AUSTRALIA) LIMITED and GADENS LAWYERS | First Respondent Second Respondent Third Respondent Fourth Respondent |
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| JUDGES: | WHELAN, SANTAMARIA and KYROU JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | Written submissions |
| DATE OF JUDGMENT: | 12 June 2015 |
| MEDIUM NEUTRAL CITATION: | [2015] VSCA 145 |
| JUDGMENT APPEALED FROM: | Boz One Pty Ltd v McLellan [2014] VSC 208 (Digby J) |
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COSTS – Appeal dismissed – Contingent appeal and contingent cross-appeal not determined as they were contingent on the appeal succeeding – Fourth respondent added to appeal upon application of first and second respondents – First and second respondents ordered to pay fourth respondent’s costs of appeal – Appellants ordered to pay first and second respondent’s costs and to indemnify them for their costs liability to the fourth respondent – Third respondent ordered to pay first and second respondents’ costs of third respondent’s contingent appeal – Appellants ordered to pay third respondent’s costs of its contingent appeal and to indemnify it for its costs liability to the first and second respondents.
SECURITY FOR COSTS – Release of funds held as security for costs prior to taxation of costs based on evidence that the amount of the taxed costs is likely to exceed the amount of the security.
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| APPEARANCES: |
| No appearances. The Court considered the written submissions filed by the parties. |
WHELAN JA
SANTAMARIA JA
KYROU JA:
Introduction and summary
On 23 April 2015, we published our reasons for our decision that the appeal should be dismissed and that it was not necessary for us to consider the contingent appeal or the contingent cross-appeal.[1] We did not pronounce any order on that day. Rather, we directed the parties to file submissions on the appropriate form of the order to be made to give effect to our reasons and on any outstanding issues such as costs and the release of funds held as security for costs. We informed the parties that, upon receipt of their submissions, we would make an order on the papers and publish separate reasons for that order.
[1]Boz One Pty Ltd v McLellan [2015] VSCA 68 (‘Principal Judgment’).
Having had the benefit of detailed submissions from the parties — including submissions in reply from some of them — we propose to make the following order (‘proposed order’):
1. The appeal is dismissed.
2.The first and second respondents pay the fourth respondent’s costs of the appeal, including any reserved costs.
3.The third respondent pay the first and second respondents' costs of the third respondent's contingent appeal, including any reserved costs.
4.The appellants pay:
(a)to the first and second respondents their costs of the appeal, including any reserved costs;
(b)to the first and second respondents all costs payable by them pursuant to paragraph 2 of this order;
(c) to the third respondent its costs of its contingent appeal, including the third respondent’s application for an extension of time ordered to be costs in the appeal by the Court of Appeal on 28 November 2014 and any reserved costs; and
(d) to the third respondent all costs payable by it pursuant to paragraph 3 of this order.
5. The amount of $40,000 held in Court in account number 77752 as security for the first and second respondents' costs of the appeal be paid into the trust account of the solicitors for the first and second respondents and thereafter disbursed to the first and second respondents.
6. The amount of $155,000 held in Court in account number 75398 as security for costs in favour of the first and second respondents (in their capacity as the first and second defendants in Supreme Court of Victoria proceeding S CI 2009 10160, being the proceeding below) be paid into the trust account of the solicitors for the first and second respondents and thereafter disbursed to the first and second respondents.
7.The amount of $155,000 held in Court in account number 75398 as security for costs in favour of the third respondent (in its capacity as the third defendant in Supreme Court of Victoria proceeding S CI 2009 10160, being the proceeding below) be paid into the trust account of the solicitors for the third respondent and thereafter disbursed to the third respondent.
These are our reasons for making the proposed order. The reasons use the abbreviations and definitions that appear in the Principal Judgment and should be read in conjunction with the Principal Judgment.
Background
The appellants[2] commenced proceedings against the Receivers[3] and Investec[4] on 12 November 2009 alleging that, in realising the Sold Assets, the Receivers, and alternatively, Investec, breached their duty under s 420A(1) of the Corporations Act 2001 (Cth) to take all reasonable care to sell those assets for not less than their market value (‘statutory duty’). The Receivers and Investec filed notices of contribution or indemnity against each other, each alleging against the other an entitlement to be indemnified under Deeds of Indemnity executed by the Receivers and Investec in connection with the receiverships of the appellants (‘Deeds of Indemnity’). The Receivers and Investec also issued separate third party notices against Gadens,[5] in which they claimed contribution, indemnity or damages from Gadens by reason of its alleged negligence and breach of retainer (‘third party proceedings’).
[2]Boz One Pty Ltd and Wallabah Pty Ltd.
[3]Mr McLellan and Mr Crosbie, the first and second respondents.
[4]Investec Bank (Australia) Ltd which is now known as BOQ Specialist Bank Ltd, the third respondent.
[5]Gadens Lawyers, the fourth respondent.
As a result of an order made by Zammit AsJ on 22 December 2011 and an order made by Daly AsJ on 28 February 2013, the appellants paid into Court amounts totalling $155,000 as security for the Receivers’ costs of the trial and further amounts totalling $155,000 as security for Investec’s costs of the trial.
On 9 May 2014, Digby J published reasons for his decision to dismiss the appellants’ claim against the Receivers and Investec.[6] He held that it was not necessary for him to determine the third party proceedings or the contribution claims between the parties.[7]
[6]Boz One Pty Ltd v McLellan [2014] VSC 208 (‘Substantive Reasons Below’).
[7]Substantive Reasons Below [785]–[786].
On 20 June 2014, after hearing further submissions from the parties, Digby J published reasons for his decision on costs.[8] In those reasons, he concluded that the funds held in Court as security for the trial costs of the Receivers and Investec should not be released to them because their costs had not been assessed by the Costs Court.[9]
[8]Boz One Pty Ltd v McLellan (Unreported, Supreme Court of Victoria, Digby J, 20 June 2014) (‘Costs Reasons Below’).
[9]Costs Reasons Below [28], [32].
On 26 June 2014, Digby J made the following order (‘Digby J’s order’):
The [Appellants’] claim
1. The [Appellants’] claims against the [Receivers and Investec] are dismissed.
2. The [Appellants] pay the [Receivers’] costs of the proceeding, including any reserved costs and:
(a) the [Receivers’] costs of their third party proceedings against [Gadens]; and .
(b) all costs payable by the [Receivers] to [Gadens] pursuant to paragraph 6 below.
3. The [Appellants] pay [Investec’s] costs of the proceeding, including any reserved costs and:
(a) [Investec’s] costs of its proceeding by Notice of Contribution against the [Receivers];
(b) [Investec’s] costs of its third party proceedings against [Gadens];
(c) all costs payable by [Investec] to the [Receivers] pursuant to paragraph 5 below;
(d) all costs payable by [Investec] to [Gadens] pursuant to paragraph 7 below.
The proceedings by Notice of Contribution
4. [Investec] is liable to indemnify the [Receivers] for their costs of the proceeding in an amount to be assessed up to an amount of, and not exceeding, $250,000.00, in default of agreement.
5. [Investec] pay:
(a) pursuant to the indemnity in order 4, the [Receivers’] costs of their proceeding by Notice of Contribution against [Investec]; and
(b) independently of the indemnity in order 4, the [Receivers’] costs of [Investec’s] proceeding by Notice of Contribution against the [Receivers].
The Third Party proceedings
6. The [Receivers] pay [Gadens’] costs of the [Receivers’] third party proceeding against it, including any reserved costs.
7. [Investec] pay [Gadens’] costs of [Investec’s] third party proceeding against it, including any reserved costs.
The appellants filed their notice of appeal on 17 July 2014 by which they named the Receivers and Investec as respondents and appealed against paragraphs 1, 2 and 3 of Digby J’s order (‘principal appeal’).
On 26 August 2014, the Receivers and Investec separately sought security for their costs of the principal appeal. The appellants discontinued their appeal against Investec on 9 September 2014. On the discontinuance, Investec became entitled to its costs of the principal appeal to that point. Pursuant to a consent order dated 16 September 2014, Investec’s summons seeking security was dismissed and a costs order was made in its favour.
On 12 September 2014, Hansen JA ordered that the appellants give security for the Receivers’ costs of the principal appeal in the sum of $40,000. That sum was subsequently paid by the appellants into Court.
By summons filed on 3 November 2014, Investec sought an extension of time in which to file a notice of contingent appeal from Digby J’s order that it indemnify, and pay costs to, the Receivers under the Deeds of Indemnity (‘extension of time application’). The need for this contingent appeal was said to arise from the fact that, under the Deeds of Indemnity, the question of whether Investec or the Receivers were entitled to an indemnity turned on whether the Receivers had breached their statutory duty. Digby J’s dismissal of the appellants’ claims on the basis that no such breach had been established had resulted in Investec being ordered to indemnify the Receivers under the Deeds of Indemnity for up to $250,000 in respect of their costs of the trial. However, Investec contended that, if the appellants succeeded on the principal appeal in establishing that the Receivers breached their statutory duty, the effect of the Deeds of Indemnity was that Investec would not be obliged to indemnify the Receivers and, instead, the Receivers would be obliged to indemnify Investec in respect of lnvestec's costs of the trial.
By amended summons filed on 24 November 2014, the Receivers sought leave to join Gadens as a respondent to the principal appeal or, alternatively, an extension of time within which to cross-appeal (‘joinder application’). The joinder of Gadens as a respondent was said to be necessary so that it could be bound by orders to be sought by the Receivers in relation to their third party proceeding, such orders being consequential upon the success of the principal appeal.
This Court[10] heard oral argument on both the extension of time application and the joinder application on 28 November 2014 (‘Interlocutory Hearing’).
[10]Nettle JA and Santamaria JA.
At the Interlocutory Hearing, Investec initially sought an extension of time to file a contingent appeal without being joined as a respondent to the principal appeal. However, following questioning from the Court, Investec conceded that, for its proposed contingent appeal to be effective, it would have to be joined as a respondent to the principal appeal so as to take the benefit of any finding on that appeal that the Receivers had breached their statutory duty.
The appellants expressed concern about Investec being joined as a respondent to the principal appeal because of the prospect that it might agitate for security for costs[11] but did not otherwise object to its joinder. The appellants did not oppose Investec’s proposed contingent appeal.
[11]This concern was largely allayed by counsel for Investec, who stated that he could not envisage circumstances in which Investec would be entitled to seek security for costs.
In responding to an application by the appellants for costs of the extension of time application, Nettle JA said the following:
[Investec] was in until you let them out, for which you’d be praised, no doubt, but they then had to do something, didn’t they, to make sure their position was covered?[12]
[12]Transcript of Proceedings, Boz One Pty Ltd v McLellan (Victorian Court of Appeal, SAPCI 2014 0082, Nettle JA and Santamaria JA, 28 November 2014) 18.
The appellants opposed the Receivers’ joinder application but Gadens did not resist the application.
The following discussion took place between Nettle JA and counsel for the Receivers (Mr Dalton) and counsel for the appellants (Mr Clough):
Nettle JA:[W]hen [Gadens] were third parties in the action below, they were a party to the proceeding and thus bound by any determination in the principal proceeding. Unless you join them — they are joined now as a respondent to the appeal — they will not be bound vis-à-vis you by the outcome of the principal appeal, so I see why you want to join them.
Mr Dalton: That’s so.
Nettle JA:Alright. Thank you. Mr Clough (indistinct) have to be right. If you win, then [the Receivers are] prejudiced in the sense you’ve had success against [them] and [they want] to claim over against Gadens on the basis of that success against [them]. [They] can’t do that unless Gadens is bound by your win, as it were, against [the Receivers] and [Gadens] can’t be bound by your win against [the Receivers] unless [Gadens] are [a] party to the appeal in which you gain that win.
Mr Clough: Yes.
Nettle JA: So I think [Gadens] do have to be respondents to your appeal.[13]
[13]Transcript of Proceedings, Boz One Pty Ltd v McLellan (Victorian Court of Appeal, SAPCI 2014 0082, Nettle JA and Santamaria JA, 28 November 2014) 10–11.
In response to a submission from Mr Clough that the best mechanism for Gadens to be involved as a party was as a respondent to a cross-appeal by the Receivers, Nettle JA stated:
[Gadens] would certainly be brought in, as it were, to the festival by reason of a cross-appeal, but they wouldn’t be brought, I think, into the appeal and thus be bound by the outcome in the appeal.
…
It is a separate proceeding, unlike a third party proceeding below, which makes them party to the totality.[14]
[14]Transcript of Proceedings, Boz One Pty Ltd v McLellan (Victorian Court of Appeal, SAPCI 2014 0082, Nettle JA and Santamaria JA, 28 November 2014) 11.
On 28 November 2014, this Court ordered that:
(a) Investec and Gadens be joined as respondents to the principal appeal;
(b) the time by which Investec and the Receivers could bring contingent appeals be extended; and
(c) the costs of the extension of time application and the joinder application be ‘costs in the appeal’.
On 1 December 2014, Investec filed a notice of contingent appeal which would be enlivened if the appellants succeeded on the principal appeal in establishing that the Receivers breached their statutory duty. If that contingency arose, Investec alleged the following:
(d) Pursuant cl 1.5 of the Deeds of Indemnity — which relevantly stated that the indemnity provided by Investec to the Receivers did not apply in respect of any claim arising out of the negligence, breach of duty, or breach of any statute by the Receivers — Investec would not be obliged to indemnify the Receivers. Accordingly, it was alleged that paras 4 and 5(a) of Digby J’s order ought to be set aside and orders made in lieu that the Receivers’ contribution claim be dismissed and that the Receivers pay Investec’s costs of that claim.
(e) Pursuant to cl 4 of the Deeds of Indemnity — which relevantly stated that the Receivers agreed to indemnify Investec against any liability incurred in respect of a claim arising out of the negligence or breach of any statute by the Receivers — the Receivers would be obliged to indemnify Investec for its costs of the proceeding. Accordingly, it was alleged that para 5(b) of Digby J’s order ought to be set aside and orders made in lieu for indemnity and that the Receivers pay Investec’s costs of its contribution claim.
Also on 1 December 2014, the Receivers filed a notice of contingent cross-appeal which would be enlivened if the appellants succeeded on the principal appeal. If that contingency arose, the Receivers claimed that orders should be made setting aside para 6 of Digby J’s order and remitting the Receivers’ third party proceeding against Gadens to his Honour.
As discussed at [1] above, our decision to dismiss the principal appeal rendered it unnecessary for us to consider the contingent appeal or the contingent cross-appeal.
Should orders be made dismissing the contingent appeals?
No party submitted that the Court should make orders dismissing the contingent appeal or the contingent cross-appeal.
The contingent appeal and the contingent cross-appeal were both contingent upon the success of the principal appeal. As the principal appeal has not been successful, the contingency did not eventuate and thus the contingent appeal and the contingent cross-appeal were not enlivened and were not considered by this Court. In these circumstances, the preferable course is for this Court not to make orders dismissing the contingent appeal or the contingent cross-appeal.[15]
[15]Allman v Daly [No 2] [1959] VR 614, 624–5 (‘Allman’).
Parties’ submissions on costs
Submissions on costs of the principal appeal
It was common ground that the appellants should pay the Receivers’ costs of the principal appeal. As Investec did not seek its costs of the principal appeal, the sole dispute in respect of the costs of the principal appeal concerned who should pay Gadens’ costs.
Gadens contended that the Receivers should bear Gadens’ costs of the principal appeal. If this Court declined to make an order to that effect, Gadens contended that its costs should be borne by the appellants.
Gadens argued that the Receivers should bear Gadens’ costs of the principal appeal in the light of the following considerations:
(f) The usual rule was that, where a third party claim was dismissed because the plaintiff’s claim against the defendant failed, the defendant would be liable for the third party's costs.[16] Although the description of the parties was different on the principal appeal, the substance of their roles remained such that this rule could apply by analogy to their situation.
(g) The Receivers were solely responsible for Gadens being a party to the principal appeal. They applied to join Gadens and caused it to incur costs.
(h) The Receivers were not required to join Gadens to the principal appeal so as to ensure that the appeal was properly constituted. The only factor impelling Gadens' joinder was the Receivers' self-interest in ensuring that, if the principal appeal succeeded, their case against Gadens could be remitted to the trial judge. Gadens conceded that a remittal order would not have been possible if Gadens had not been a party to the principal appeal so as to be bound by the outcome of that appeal.[17]
[16]Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd (2010) 31 VR 46, 54 [28] (‘Kheirs’).
[17]Furnell v Great Western Railway Co (1876) 1 QBD 636, 642.
Gadens accepted that the usual rule was that costs follow the event.[18] However, it submitted that the relevant ‘event’ was the Receivers' failure to obtain the relief that they sought against Gadens. This was said to be because, as the principal appeal failed, no occasion arose for the Receivers to have their third party proceeding remitted to the trial judge.
[18]Nikolaou v Papasavas, Phillips & Co (1989) 166 CLR 394, 408 (‘Nikolaou’).
The Receivers relied on the principle that costs ordinarily follow the event and it is incumbent on a party seeking a different costs order to satisfy the Court that there are good reasons for doing so.[19] The Receivers argued that the relevant ‘event’ was the dismissal of the principal appeal. Accordingly, the Receivers contended that the usual rule would result in an order that the appellants pay the costs of all respondents, including those of Gadens. The Receivers submitted that there was no good reason for the Court to depart from the usual rule by ordering them to pay Gadens’ costs. In support of this submission, the Receivers relied on the following contentions:
[19]Nikolaou (1989) 166 CLR 394, 407.
(i) Gadens was always a proper respondent to the principal appeal because, if that appeal succeeded, the Receivers’ third party proceeding would need to be determined and thus Gadens would be exposed to potential liability to the Receivers.[20] The Receivers’ joinder application was necessary to ensure that the appeal was properly constituted.
(j) The principle upon which Gadens relied relating to orders for costs at trial in a third party proceeding did not apply to an appeal. This was because an appeal represented a separate ‘event’ from a third party proceeding.
(k) The fact that the appellants did not seek relief against Gadens in the principal appeal did not support an order that the Receivers pay Gadens' costs. This was because the appellants had appealed from Digby J’s order which directly benefited Gadens and Gadens therefore incurred costs to uphold the order and maintain the benefit. Accordingly, it was the appellants and not the Receivers who caused Gadens to incur its costs.
[20]In support of this contention, the Receivers relied on the statement of Clauson LJ in Re Stuart; Johnson v Williams [1940] 4 All ER 80, 81 that it was 'the duty of the appellant to bring before the court upon the appeal everyone who will be affected by the appeal’.
According to the appellants’ submission, it was their understanding that the Receivers did not seek further orders against them with respect to Gadens’ costs. However, as has been seen, that understanding was incorrect.
Submissions on costs of Investec’s contingent appeal
Investec and the Receivers each submitted that Investec should pay the Receivers’ costs of Investec’s contingent appeal, including any reserved costs.
Investec and the appellants were in dispute as to whether the appellants should pay Investec’s costs of its contingent appeal and its costs liability to the Receivers for that appeal.
Investec argued that that the appellants should be ordered to pay Investec’s costs of its contingent appeal because that appeal was ‘reflexive’[21] of the appellants’ claims against the Receivers and was expressly contingent on the appellants making good their claim that the Receivers breached their statutory duty. Thus, had the appellants not appealed, Investec would not have filed its contingent appeal. Equally, as the principal appeal did not alter Digby J’s findings as to whether the Receivers breached their statutory duty, the correctness of the indemnity orders was not called into question and the contingent appeal fell away. Further, so it was said, Investec’s pursuit of the contingent appeal was reasonable, if not inevitable, in the light of the fact that Investec would otherwise have been compelled to indemnify the Receivers by Digby J’s orders, which were made on a basis which may have been unwound on the principal appeal. In support of this proposition, Investec cited Nettle JA’s remarks set out at [17] above. Investec submitted that its situation was analogous to that of a successful defendant who was entitled to its costs of prosecuting its third party proceeding from an unsuccessful plaintiff,[22] and accordingly it was entitled to an order that its costs of the contingent appeal be paid by the appellants.
[21]GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 201 ALR 55, 66 [56] (‘GEC’).
[22]Investec relied on Thompson Land Ltd (in liq) v Lendlease Shopping Centre Development Pty Ltd [2000] VSC 140, [38], [39] (‘Thompson’).
Investec also submitted that the appellants should pay, by way of a Bullock order,[23] those costs payable by Investec to the Receivers in respect of the contingent appeal. Investec relied on the reasons of Finn J in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd,[24] who stated that the ultimate question of who should pay costs for a third party proceeding was whether, in the circumstances, the costs of the successful third party ‘ought fairly to be borne’ by the unsuccessful plaintiff.[25] In reliance on GEC[26] and Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd,[27] Investec submitted that the following factors were relevant in answering that question:
[23]See Bullock v London General Omnibus Company [1907] 1 KB 264; State of Victoria v Horvath [No 2] [2003] VSCA 24, [7].
[24](2003) 201 ALR 55.
[25]GEC (2003) 201 ALR 55, 69 [72].
[26](2003) 201 ALR 55, 69–70 [73]–[75].
[27](2010) 31 VR 46, 54–5 [28].
(l) whether it was reasonable or appropriate for the defendant to make the third party claim, or whether the third party claim raised ‘private issues’ and the third party was not necessarily joined because of the plaintiff's claim;
(m) whether the plaintiff’s claim was the catalyst for the third party claim, or had made it ‘inevitable’;
(n) the relationship of the nature of the original claim to that of the cross-claim being brought; and
(o) whether the joinder was reasonably foreseeable by the plaintiff and the responsibility of the plaintiff, defendant and third party, respectively, for the time taken up in the hearing of the third party proceeding.
Investec further submitted that the fact that the appellants were not parties to the contingent appeal was no obstacle to the making of a Bullock order because the principal appeal and contingent appeal both arose out of a single proceeding to which both the appellants and Investec were parties and the costs sought were in respect of a closely related contingent appeal heard at the same time as the principal appeal.[28] Investec also contended that the principal appeal had ‘caused’ it to file its contingent appeal.[29]
[28]Kheirs (2010) 31 VR 46, 79 [149].
[29]Symphony Group plc v Hodgson [1994] QB 179, 192.
Investec also sought, for the avoidance of doubt, an order that the appellants pay Investec’s costs of its extension of time application.[30]
[30]See [12] and [21] above.
The appellants contended that they should not be ordered to pay Investec’s costs of its contingent appeal and its costs liability to the Receivers for that appeal. This was said to be because the appellants had withdrawn all grounds of appeal concerning Investec prior to Investec later obtaining leave to be joined in the principal appeal for its own purposes.
Submissions on costs of the Receivers’ contingent cross-appeal
No party sought an order that its costs of the Receivers’ contingent cross-appeal be paid by any other party.
Decision on costs
Although s 24(1) of the Supreme Court Act 1986 confers on this Court a wide discretion in deciding questions of costs, that discretion must be exercised judicially and in accordance with established principles. A well-established principle is that costs usually follow the event, that is, that the unsuccessful party is usually ordered to pay the successful party’s costs. However, there can be departures from that principle where the justice of a particular case requires this. Where there are multiple parties, some of whom are successful and some of whom are unsuccessful, the Court is required to fashion a costs order that fairly reflects the measure of success achieved by each party and all the other circumstances that bear upon the justice of the case.
Generally speaking, the principles that apply to costs as between a plaintiff and a defendant also apply as between a defendant and a third party and as between a third party and a fourth party.[31] As a third party proceeding is treated as a separate ‘event’ from the principal proceeding, the usual rule that costs follow the event means that a defendant whose third party proceeding is unsuccessful is usually required to pay the third party’s costs.[32] Where the success of a defendant’s third party claim is contingent on the success of the plaintiff’s claim against the defendant and the plaintiff’s claim fails, the third party can be treated as being successful vis-à-vis the defendant even if there is no formal adjudication of the third party claim.[33] However, depending on the circumstance of the case, including the conduct of the plaintiff and the degree of connection between the principal proceeding and the third party proceeding, a plaintiff may be ordered to pay a third party’s costs directly by means of a Sanderson order[34] or indirectly by means of a Bullock order.[35]
[31]Kheirs (2010) 31 VR 46, 51 [16].
[32]Kheirs (2010) 31 VR 46, 51 [16], 54–5 [28].
[33]Allman [1959] VR 614, 624–5; Thompson [2000] VSC 140, [38].
[34]Sanderson v Blyth Theatre Co [1903] 2 KB 533.
[35]Kheirs (2010) 31 VR 46, 54–5 [28]. The summary of Investec’s submission at [36] above refers to factors that can be taken into account in deciding whether a plaintiff should be liable for a third party’s costs.
The outcome of the three appeal proceedings — the principal appeal, the contingent appeal and the contingent cross-appeal — mirrors the outcome of the proceedings below, that is, the principal proceeding, the notices of contribution and the third party proceedings. Having found that the Receivers did not breach their statutory duty, the trial judge dismissed the principal proceeding and found it unnecessary to determine the notices of contribution and the third party proceedings. Having similarly found an absence of a breach of statutory duty on the part of the Receivers, we concluded that the principal appeal should be dismissed and that it was unnecessary for us to determine the contingent appeal or the contingent cross-appeal.
In these circumstances, we are of the opinion that the costs orders we make should broadly mirror those in Digby J’s order.[36] In the circumstances of this case, the fact that a cross-appeal is not equivalent to a third party proceeding is not a sufficient reason for adopting a different approach on the question of costs, as it would be fair to the parties to apply by analogy the principles that are pertinent to a third party proceeding. The orders we make will not mirror those in Digby J’s order concerning Investec’s costs of the primary proceeding below. This is because before us Investec did not seek its costs of the principal appeal but only sought costs orders relating to its contingent appeal. Further, the Receivers did not seek their costs of their contingent cross-appeal but only sought costs orders relating to the principal appeal and Investec’s contingent appeal.
[36]Digby J’s order is set out at [8] above.
We will make orders which address the applications made. Whether there is significance in the terms of the orders sought is a matter for the Costs Court. As already indicated, both Investec and the Receivers submitted that Investec should be ordered to pay the Receivers’ costs of Investec’s contingent appeal.
We will now explain paras 1 to 4 of the proposed order set out at [2] above.
Paragraphs 1, 3 and 4(a) of the proposed order are agreed between the respective parties to those orders.
Paragraphs 2 and 4(b) of the proposed order deal with Gadens’ costs of the principal appeal. We agree with Gadens’ submission that Gadens is in a similar position to a third party whose claim against it by a defendant has failed because the claim by the plaintiff against the defendant — upon which the third party claim was dependent — has failed. Gadens was joined as a respondent to the principal appeal at the instigation of the Receivers because the Receivers wished to be in a position to seek an order remitting their third party proceeding to the trial judge in the event that the principal appeal was successful. As the principal appeal failed, the Receivers could not seek this relief. Thus, in substance, the Receivers are an unsuccessful party vis-à-vis Gadens. In these circumstances, the usual rule that costs follow the event should be applied so that the Receivers are liable for Gadens’ costs of the principal appeal in accordance with para 2 of the proposed order.
However, we are of the opinion that the appellants should indemnify the Receivers for their liability to pay Gadens’ costs of the principal appeal by way of a Bullock order. This is because the principal appeal made it necessary for the Receivers to seek to join Gadens as a respondent to that appeal so as to preserve the Receivers’ rights pursuant to their third party proceeding, for the reasons explained by Nettle JA at the Interlocutory Hearing.[37] As the issues in the principal appeal and in the Receivers’ third party proceeding were interrelated, it was reasonable and appropriate for the Receivers to seek to join Gadens. Some of the grounds of appeal in the principal appeal implicitly called into question the adequacy of the advice that Gadens had provided to the Receivers[38] and some time was taken at the hearing of that appeal in examining that advice. Accordingly, the Receivers’ liability for Gadens’ costs ought fairly to be borne by the appellants in accordance with para 4(b) of the proposed order.
[37]See [19] above.
[38]See Principal Judgment [178], [293], [305], [328].
Paragraph 4(c) of the proposed order deals with Investec’s costs of its contingent appeal. As discussed at [12] above, the contingent appeal was instituted for the purpose of preserving Investec’s entitlement to seek indemnity for its costs from the Receivers under the Deeds of Indemnity in the event that the appellants succeeded on the principal appeal in establishing that the Receivers breached their statutory duty. In order to fully preserve its rights, it was necessary for Investec to become a respondent to the principal appeal as well as instituting the contingent appeal. These steps were a necessary and almost inevitable consequence of the commencement of the principal appeal. As such, the appellants should pay Investec’s costs of the contingent appeal. We agree with Investec’s submission, as summarised at [37] above, that the fact that the appellants were not parties to the contingent appeal was no obstacle to the making of orders against them in respect of costs incurred by parties to the contingent appeal. Likewise, it is immaterial that the appellants initially included Investec as a respondent to the principal appeal but subsequently discontinued that appeal as against Investec.[39] In any event, Investec has not sought its costs of the principal appeal but only its costs of the contingent appeal. For these reasons, para 4(c) of the proposed order is appropriate.
[39]See [9]–[10] above.
Paragraph 4(d) of the proposed order deals with Investec’s liability to pay the Receivers’ costs pursuant to para 3 of that order. In our opinion, for the reasons set out at [50] above, that liability ought fairly to be borne by the appellants. Accordingly, they will be required to indemnify Investec for its liability to pay the Receivers’ costs of the contingent appeal.
Should funds held as security for costs be released?
The appellants and the Receivers agreed that the amounts of $40,000 and $155,000 paid into the Court as security for the Receivers’ costs of the principal appeal and trial, respectively, should be released to the Receivers. Accordingly, paras 5 and 6 of the proposed order are made by consent.
The appellants and Investec were in dispute as to whether the amount of $155,000 paid into the Court as security for Investec’s costs of the trial should be released to Investec. The appellants contended that it would be premature for this security to be released prior to the costs being taxed as there was no evidence before the Court as to the quantum of Investec’s costs.
The appellants’ submission was prepared prior to their receipt of an affidavit of Matthew Lees, Investec’s solicitor, sworn on 7 May 2015. In that affidavit, Mr Lees estimated that Investec’s taxed costs, on a standard or party and party basis, would be approximately 50 to 70 per cent of Investec’s total costs of $593,536, and that approximately 10 to 15 per cent of those total costs related to Investec’s third party claim against Gadens and its contribution claim against the Receivers. Mr Lees estimated that, if 15 per cent were deducted from the total costs and then a further 50 per cent were deducted, Investec’s taxed costs on a standard or party and party basis would be $252,252. Mr Lees also estimated that, if the amount of $14,000 — which was paid by the appellants to Investec as costs of its application for security for costs of the trial — were deducted, Investec would be entitled to recover from the appellants costs totalling $238,252.99. This compared to the amount of $155,000 that was paid into Court as security for Investec’s costs of the trial.
On the basis of Mr Lees’ affidavit, Investec submitted that it was clear that its costs were likely to exceed the amount of security, and accordingly, orders should be made to release that security.
We agree. We are satisfied that it is very likely that, upon taxation, Investec will recover an amount exceeding $155,000. Accordingly, it is appropriate that para 7 of the proposed order be made requiring that the amount of $155,000 held as security for Investec’s costs of the trial be released for the benefit of Investec.[40]
[40]Levy v Bablis [No 2] [2013] NSWCA 100, [7].
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