CIP Group Pty Ltd v So (No 2)

Case [2023] FCA 321

FEDERAL COURT OF AUSTRALIA

CIP Group Pty Ltd v So (No 2) [2023] FCA 321

File number: QUD 93 of 2022
Judgment of: DERRINGTON J
Date of judgment: 12 April 2023
Catchwords: COSTS – costs of successful application for leave to bring derivative claim pursuant to s 237 of the Corporations Act 2001 (Cth) – whether successful applicants should recover an order for costs against respondents who vigorously opposed the application – whether applicants should only be entitled to their costs in the cause
Legislation:

Corporations Act 2001 (Cth)

Federal Court of Australia Act 1976 (Cth)
Cases cited:

Cassegrain v Gerard Cassegrain and Co Pty Ltd [2008] NSWSC 1159

CIP Group Pty Ltd v So [2022] FCA 1490

Hislop v Paltar Petroleum Ltd(No 3) [2017] FCA 1253

In the matter of Bakers Extra Pty Ltd [2017] NSWSC 1257

In the matter of Carbon Copies Composites Pty Ltd [2022] NSWSC 1762

In the matter of Jimmy’s Recipe Pty Ltd [2018] NSWSC 1331

In the matter of Karinya Haulage Pty Ltd [2017] NSWSC 888

In the matter of Ulan Stone Pty Ltd [2020] NSWSC 937

Kidd v Kwek [2022] FCA 1298

Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859

McEvoy v Caplan (2010) 78 ACSR 167

Re Imperium Projects Pty Ltd [2015] NSWSC 123

Redenbach v Legal Practice Management Group Pty Ltd (2018) 125 ACSR 513
Division: General Division
Registry: Queensland
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 28
Date of last submission/s: 23 February 2023 (Applicants)
Date of hearing: Determined on the papers
Counsel for the Applicants: Mr AG Psaltis
Solicitor for the Applicants: Bartley Cohen
Counsel for the First, Fourteenth, Fifteenth and Sixteenth Respondents: Mr S Couper KC with Mr W LeMass
Solicitor for the First, Fourteenth, Fifteenth, Sixteenth and Seventeenth Respondents: Colin Biggers & Paisley Lawyers

ORDERS

QUD 93 of 2022
BETWEEN:

CIP GROUP PTY LTD ACN 610 483 577

First Applicant

CIP 1 PTY LTD ACN 611 408 710

Second Applicant

PYRMONT PORTFOLIO PTY LTD ACN 608 496 617

Third Applicant
AND:

SHAN NGAI SO

First Respondent

GGPG PTY LTD ACN 609 675 505 (RECEIVER AND MANAGER APPOINTED)

Second Respondent

PARK RIDGE 94 PTY LTD ACN 616 893 924 (RECEIVER AND MANAGER APPOINTED) (and others named in the Schedule)

Third Respondent

ORDER MADE BY:

DERRINGTON J

DATE OF ORDER:

12 APRIL 2023

THE COURT ORDERS THAT:

1.The first and seventeenth respondents pay the applicants’ costs of the application for leave pursuant to ss 236 and 237 of the Corporations Act 2001 (Cth), such costs not to include:

(a)the costs of drafting any statement of claim; or

(b)the costs of preparing any affidavits which are used or are reasonably likely to be used in the trial of this proceeding.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

  1. By a decision handed down on 16 December 2022, CIP Group Pty Ltd v So

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Details
AGLC
CIP Group Pty Ltd v So (No 2) [2023] FCA 321
Case
[2023] FCA 321
Decision Date

CaseChat Overview and Summary

The case CIP Group Pty Ltd v So (No 2) was heard in the Federal Court of Australia, where CIP Group sought costs incurred during their successful application for leave to bring a derivative claim against So and others. The respondents, So and others, had vigorously opposed the application, which the Court found had substantially increased the costs incurred by CIP Group. The central issue before the Court was whether the successful applicants should recover costs from the respondents who had vigorously opposed the application, or if the applicants should only be entitled to their costs in the cause.

The Court found that the vigorous opposition by the respondents significantly increased the costs incurred by CIP Group, to the extent that the costs of an unopposed application would have been minimal compared to those actually incurred. The Court determined that it would be difficult to ascertain the costs of an unopposed application in the given circumstances, and attempting to do so would likely cause further delay and additional costs. The Court's decision was not intended to punish the respondents for their conduct but was a reflection of the substantially higher costs generated by the opposition. The Court concluded that the applicants were entitled to an order for costs based on the usual principle that costs follow the event.

In its conclusion, the Court emphasised that the respondents were entitled to oppose the application as they saw fit, but since the application was successful, the applicants were entitled to their costs of the application. The Court found that the opposition was extensive and had significantly increased the costs incurred. The Court also noted that the applicants may recover costs for work that is more appropriately directed toward the main proceedings if those proceedings are successful. To avoid double recovery, the Court ruled that the respondents should pay the applicants’ costs of the application, excluding the cost of preparing affidavits likely to be used in the main proceedings and the cost of preparing the statement of claim or its drafts.

The final order made by the Court required the respondents to pay the applicants’ costs of the application for leave under ss 236 and 237 of the Corporations Act 2001, excluding the costs of drafting any statement of claim and the costs of preparing any affidavits used or reasonably likely to be used in the trial of the proceeding.

Orders

Orders of the court

1. The first and seventeenth respondents pay the applicants’ costs of the application for leave pursuant to ss 236 and 237 of the Corporations Act 2001 (Cth), such costs not to include:

(a) the costs of drafting any statement of claim; or

(b) the costs of preparing any affidavits which are used or are reasonably likely to be used in the trial of this proceeding.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

The manner in which the respondents opposed the application for leave substantially increased the applicants’ costs, such that the costs of an unopposed application would have been minimal against the costs actually incurred. Moreover, it would be difficult, given the respondents’ conduct, to identify what the costs of an unopposed application would have been in the circumstances of this case. Attempting to ascertain those costs and exclude them from any taxation is more than likely to cause delay and even greater costs to be incurred. The decision to avoid such a process is in no way intended to punish the respondents for the manner in which they contested the application, but merely reflects the substantially greater costs that were generated as a result.Conclusion The So interests vigorously opposed the application for leave under s 237 of the Corporations Act, as they were entitled to do. However, the application having been successful, the applicants are, at least in the first instance, entitled to an order based on the usual principle that costs follow the event. For the reasons which have been expressed above, there is no reason to deny them their costs of the application merely because separate proceedings derivative upon their success in the application are to be pursued and the outcome of those proceedings is uncertain. Here, the opposition to leave was extensive and substantially increased the costs that might otherwise have been incurred. That opposition was brought against a case which, on the available evidence, displayed substantial prospects of success. At a high level of abstraction, it can be observed that the So interests must have known that what was sought to be pursued had, prima facie, at least some merit to it. It can be accepted that the making of an order that the So interests pay the applicants’ costs of the application may have the result that the applicants recover costs for work that is more appropriately understood as having been directed toward the main proceedings and, if those proceedings are successful, they will be entitled to recover again the costs of that same work. To avoid this double recovery, it is desirable that they do not recover the costs of work that is directly connected with the main proceedings. On the other hand, a broad brush approach is required to distinguish the allowable costs from the costs properly to be excluded, lest additional costs be incurred in disputing what ought to fall within or outside of the proposed orders. An order should be made requiring the respondents to pay the applicants’ costs of the application for leave under s 237 of the Corporations Act, but such costs are not to include the cost of preparing affidavits that are likely to be used in the main proceedings or the cost of the preparation of the statement of claim, or drafts thereof, that incorporates the claims that the applicants have been given leave to bring.

Ratio Decidendi

Legal Principle Established

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