Clark v Lester - [2018] SASC 107

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
CLARK & ORS v LESTER & ORS
[2018] SASC 107
Judgment of The Honourable Justice Hinton
26 July 2018
PROCEDURE - COSTS - GENERAL RULE - COSTS FOLLOW THE EVENT
Application by the sixth defendant, Ms Nakic, for a costs order to be made upon the dismissal of the action against her in a lump sum solely against the first plaintiff, Mr Clark.
The plaintiffs conceded that costs follow the event and that an award of costs should be made in Ms Nakic’s favour. However the plaintiffs argued that a costs order should not be made against the first plaintiff solely, nor made in a lump sum.
The first plaintiff is the sole director and sole shareholder of each of the second, third and fourth plaintiffs. Ms Nakic argued that the first plaintiff should be solely responsible for the payment of costs as he had conducted the litigation for his own benefit and had twice informed the Court that he would personally pay any award of costs made in her favour. She detailed the solicitor/client costs she had incurred and proposed that that amount be discounted by 30% to reflect costs incurred on a party/party basis. The plaintiffs made a number of objections to costs Ms Nakic included in the lump sum sought.
Held, granting the application in part:
1. The first, second, third and fourth plaintiffs are to pay the costs of the sixth defendant on the basis that each is jointly and severally liable for those costs, such costs to be taxed if not agreed.
Supreme Court Civil Rules 2006 rr 194(6), 264(5)(c); Supreme Court Act 1935 (SA) s 40(1), referred to.
Lyons v Legalese Pty Ltd (No 2) [2017] SASC 2; Kopilovic & Others v Gatley & [2005] WASC 62; Paciocco and Another v Australia and New Zealand Banking Group Ltd [No 2] (2017) 253 FCR 403, applied.

CLARK & ORS v LESTER & ORS
[2018] SASC 107
Civil
HINTON J
Introduction

This is an application by the sixth defendant seeking an order for costs against the first plaintiff. It arises as follows; in mid-2013 the first plaintiff, Mr Clark, and the first defendant, Mr Lester, agreed to go into the olive oil production business. Mr Clark was to provide the knowledge necessary to the operation of olive groves and the commercial production of olive oil, whilst Mr Lester was to finance the operation. The plan was to be effected by a partnership between corporate bodies and trusts controlled by Mr Clark and Mr Lester. The business was to operate in two States, South Australia and Queensland. For the purposes of the operation of the business in South Australia Mr Clark caused Bevo Agricultural Investments Pty Ltd (BAI), the second plaintiff, to be incorporated for the purpose of entering into a partnership (the Lameroo Station Partnership) with Lameroo Station Pty Ltd (LSPL), a company incorporated by Mr Lester. In Queensland the partnership was conducted between Bevo Agricultural Investments (Qld) Pty Ltd (BAIQ) and Pinnaroo Station Pty Ltd, the third and fourth plaintiffs, as incorporated by Mr Clark, and Lameroo Station (Qld) Pty Ltd (LS Qld) and MacLachlan Lester Pastoral Group Pty Ltd (MLPG), the second and third defendants, incorporated by Mr Lester (the Queensland Partnership). Each of the partnerships acquired land with established yet out of condition olive groves and relevant equipment in the respective States in which they operated. In time the Queensland Partnership granted a licence to the Lameroo Station Partnership to operate the olive groves situated in Queensland.
Difficulties in the partnership relationships arose in 2014 resulting in the second defendant executing a notice of termination in relation to the Lameroo Station Partnership on 22 October 2014. On the same date the third and fourth defendants did the same in relation to the Queensland Partnership. In December 2014 proceedings were instituted in this Court seeking amongst other things declarations as to the termination of the partnerships and the appointment of receivers and managers with power to sell the assets of the Lameroo Station Partnership.
In May 2015 the current proceedings were instituted.
The sixth defendant in the current proceedings is Ms Marie Ellen Nakic. In the Statement of Claim it is pleaded that at the relevant time she was the personal partner of Mr Lester and the trustee of the M & M Old Trust. In her capacity as trustee Ms Nakic is also sued as the seventh defendant. The Statement of Claim asserts that Ms Nakic assisted LS Qld, MLPG and LSPL in breaching fiduciary duties owed to BAI. The Statement of Claim states:
50. On 22 October 2014, Ms Nakic by email:
50.1the Lameroo Station Partnership Notice on behalf of Mr Lester and LSLP to BAI; and
50.2the Queensland Partnership Notice on behalf of Mr Lester and LS Qld and ML Pastoral Group to BAI Qld and Pinnaroo Station.
In so conducting herself it is asserted that Ms Nakic knowingly engaged in conduct that assisted LS Qld and MLPG to breach the fiduciary duties each owed to BAI Qld and Pinnaroo Station for which the former claimed damages.
The Statement of Claim continues:
51.   Ms Nakic as trustee asserts that she entered into a conditional contract with Lameroo Station Partnership on 5 December 2014, evidenced by a document in the form of a Lameroo Station Partnership invoice bearing the date 7 December 2014 (“the 7 December 2014 Invoice”), for the sale to her of 100,000 litres of olive oil, of which 80,000 litres is to be extra virgin olive oil and 20,000 is to be Queensland olive oil which was transported under the instruction of Mr Lester to Bovalina Olive Oil Group located in Penfield South Australia. (“the Purported Nakic Contract”)
52.   As at December 2014, Ms Nakic as trustee was not in the business of trading olive oil.
53.   On 10 December 2014, the sum of $10,000 was received by Lameroo Station Partnership purportedly on account of the deposit payable under the Purported Nakic Contract.
54.   In early December 2014, Lameroo Station Partnership had in stock, stored under appropriate conditions, about 80,000 litres of olive oil produced in its South Australian operations in the 2014 season which was extra virgin grade olive oil.
55.   In early December 2014, Lameroo Station Partnership had in stock, stored at premises known as Bovalina, about 20,000 litres of olive oil produced in its Queensland operations which was not extra virgin grade olive oil.
56.   In December 2014, bulk extra virgin olive oil was valued between $4 and $5 per litre.
(emphasis added)
The plaintiffs contend that if the Purported Nakic Contract was entered into the first defendant and Ms Nakic in both capacities in which she is sued caused the LSPL to enter into a contract in breach of fiduciary duties owed to BAI. Consequently BAI claimed and sought declarations to the effect that the Purported Nakic Contract was a sham or alternately was entered into in breach of the fiduciary duty owed by LSPL and that Ms Nakic knowingly engaged in conduct that had assisted the breach by LSPL. Further BAI sought damages from Ms Nakic in her personal capacity and in her capacity as trustee.
By an interlocutory application dated 19 June 2015 Ms Nakic sought an order that the second, third and fourth plaintiffs provide security for costs in the sum of $8,000 and that the matter be stayed until such time as each of the second, third and fourth plaintiffs provided any such security ordered.
On 10 March 2017 a Master of this Court ordered:
5.    In respect of the claim against the sixth defendant in the statement of claim:
5.1      paragraphs 90, 91, 87.1 to 87.3 inclusive, 101 and 102 be struck out.
5.2The references to Ms Nakic be struck out from paragraphs [74], [108] and [112].
6.    Within 30 days, the second, third and fourth plaintiffs provide security for the costs of the sixth defendant in the amount of $8,000 by payment into Court.
7.    The action against the sixth defendant is stayed until security is provided.
In his reasons the Master recorded that there was no need to name Ms Nakic as the sixth and seventh defendants – “A party may make claims against a defendant in different capacities”. Ms Nakic should be removed from the proceedings as the seventh defendant, the Master said. The Master then observed that the claim made in paragraph 50 of the Statement of Claim was inadequately pleaded. As a claim based on dishonesty it was necessary to plead as much; i.e. to plead that Ms Nakic had acted dishonestly, or with knowledge of the dishonest and fraudulent purposes of the third and fourth defendants. The Master then turned to the claim pleaded in paragraphs [51]-[56] and observed:
Events have overtaken that aspect of the pleading. The receivers ignored the contract and sold the subject olive oil to third parties. Nakic renounced any claim against the receiver for not performing the contract. In the circumstances, it is difficult to see what, if any, loss or damage suffered was suffered by the partnership.
Nakic accepts that the agreement is not binding on the partnership. She also accepts that the receivers were bound by the contract. It is not a matter that needs to be litigated. … It is not clear from the pleading that any loss has been suffered by the South Australia partnership by reason of the so-called sham contract. The relevant paragraphs can be struck out.
The Master considered the claims against Ms Nakic to be quite minor and expressed difficulty in seeing what damage, if any, Ms Nakic’s alleged conduct had caused. He added that the second, third and fourth plaintiffs being corporations that had no capacity to pay costs, it was appropriate to order that they provide security for costs.
At no time did any of the second, third or fourth plaintiffs comply with the order made by the Master on 6 March 2017.
On 12 October 2017, in view of non-compliance on the part of the second, third and fourth plaintiffs with the Master’s order of 6 March 2017, I ordered that the action instituted by the plaintiffs against Ms Nakic be dismissed. Such order was arguably unnecessary. By force of rule 194(6) of the Supreme Court Civil Rules 2006 (SCCR) the proceedings were dismissed for want of prosecution.
The sixth defendant now seeks an order for costs of the action against the first, second, third and fourth plaintiffs to be agreed or failing agreement to be adjudicated (FDN 84). I grant the sixth defendant’s application. My reasons follow.
Submissions
Despite the content of the interlocutory application (FDN 84) Ms Nakic made submissions seeking an order that the first plaintiff pay her costs in an amount fixed by the Court and reflecting an award made on a party/party basis.
Ms Nakic has been represented by Whitehead Crowther, a firm of solicitors located in Queensland, at all material times. In an affidavit sworn in support of Ms Nakic’s application the costs she has incurred are detailed (solicitor’s fees, $9,621.50; barrister’s fees, $6,558.75; agent’s fees, $2,161.50). In addition a further $1,650.00 plus GST is sought being the subsequent costs incurred in preparing and filing written submissions in support of the application for costs and in response to the plaintiffs’ written submissions.
Ms Nakic accepts that the solicitor/client costs detailed above do not reflect costs incurred on a party/party basis and should be discounted. Initially it was said that the solicitor costs should be discounted to the tune of 20% to cater for this, but after receiving the plaintiff’s written submissions on the question of costs it was accepted that the rate of discount be increased to 30%.
Not only does Ms Nakic submit that a costs order in a lump sum be made by the Court, but that such order be made against the first plaintiff solely. In this latter regard she contends that such course is appropriate as the first plaintiff has conducted the litigation ostensibly for his own benefit and has twice informed the Court that he would personally pay any award of costs made in favour of Ms Nakic against the second, third and fourth plaintiffs. As at the time of the making of the application the third and fourth plaintiffs had been deregistered. I am told the position has now been regularised.
The first plaintiff is the sole director and sole shareholder of each of the second, third and fourth plaintiffs.
More generally Ms Nakic contends that costs should follow the event. She has been engaged in these proceedings since 2015 and has retained solicitors and counsel throughout. The claims against her are, she contends, unsustainable and, in any event, have not been prosecuted against her since the making of the Master’s order on 6 March 2017 with the result that she has, in effect, been totally successful.
Since the plaintiffs first instituted these proceedings they have had reason to change solicitors. At the time of Ms Nakic’s application for costs being made the plaintiffs were not represented. Subsequently they have obtained fresh solicitors and counsel. They were afforded time in which to respond in writing to Ms Nakic’s application.
In written submissions filed on behalf of the plaintiffs it is conceded, in effect, that it is appropriate to award costs in favour of Ms Nakic. It is contended, however, that it would be inappropriate for any order to be made against the plaintiff alone, as opposed to against all four plaintiffs on the basis that they are joint and severally liable for the payment of the order, and, that it would be inappropriate to make an order in a fixed amount. In the latter regard it is contended that it is arguable that some of the costs incurred by Ms Nakic have been occasioned by the poor advice the plaintiffs’ previous solicitors provided and that such costs should not be visited upon the plaintiffs. For example, it was unnecessary to institute proceedings against Ms Nakic in the two capacities and any consequential duplication of costs should not be visited upon the plaintiffs who, it may be expected, merely accepted advice. A second example was the claim pleaded in paragraph 50 of the Statement of Claim. That claim, criticised by the Master and struck out, was not altered or substituted in the Second Amended Statement of Claim suggesting an acceptance that it was misconceived. The plaintiffs refer to a third example being the pleading in relation to the contract for the sale of olive oil which events overtook.
As to the amount of any order it was submitted:
16.Quantum. By reference to the Nakic affidavit sworn 14 November 2017, FDN 96 and specifically exhibit MEN 1 it can be seen:
a.     that there are charges on 6 and 7 July 2015 for obtaining documents from the other defendants and for downloading SA Court documents, which would not be recoverable;
b.     the items on page 2 of the account are also capable of challenge. Tim Clark had not filed 4 affidavits as stated in the account, only 2;
c.     there are numerous references to exchange of information and correspondence with solicitors at Mellor Olson [sic] and a Suzanne Dale, yet Ms Nakic had solicitors in Queensland and an agent in South Australia, the firm Johnson Withers;
d.     there appears to be duplication and a lot of correspondence between the other defendants solicitors that may not all be recoverable. This is especially prevalent in the items from 2 November 2015 to 13 March 2017;
e.     Suzanna Dale, referred to by her full name or SD or S Dale, is throughout the Queensland Solicitors bills. She is not a solicitor, is not a party and had no status in the proceeding, yet a significant amount of costs are generated reporting or apparently checking or taking instructions from her, this would be irrecoverable; and
f.     there are many other queries about the accounts in MEN 3 and possible queries regarding MEN 2. It is submitted they are not necessary to raise in detail now, but they relate to duplication and the defendant solicitors reporting to each other as well as their clients and so on. We make the submission that a cost order in a specific amount is inappropriate due to the matters raised and that if the costs cannot be agreed, then in addition to the point concerning potential solicitors liability, due to issues of quantum, the appropriate course is adjudication.
In such circumstances any order for costs should be adjudicated if not agreed.
As to the making of an order burdening the first plaintiff with liability for costs occasioned by the second, third and fourth plaintiffs, it was submitted, firstly, that without the benefit of advice the first plaintiff should not be held to his assurance that he would pay such costs. Secondly, if such order was contemplated, the first plaintiff has not had and should have had the benefit of notice of the same.
In reply Ms Nakic conceded the force of the points made in paragraph 16 of the plaintiffs’ written submissions reproduced above, but contended that nonetheless an order in a fixed amount should be made, such order including the entire sum claimed for counsel and the agents used in South Australia but only 70% of that claimed in respect of the costs incurred by Whitehead Crowther. The discount of 30% on Whitehead Crowther’s costs, I infer, is considered to be a reduction in an amount equal to an award on a party/party basis and likely to exclude any amount irrecoverable (which it is said neither counsel’s nor the agent’s fees are). A lump sum, it is submitted, is the preferable order as it reduces the incursion of further expense and delay. As for the submission that it is arguable that a portion of the costs incurred by Ms Nakic might be sheeted home to the plaintiffs’ former solicitors due to their incompetence or negligence, it was submitted that the first plaintiff appears to have sanctioned the pleadings and all steps taken in the litigation by those solicitors. If the plaintiffs have a complaint against their former solicitors, that complaint can be assessed as between those solicitors and the plaintiffs in the assessment of the solicitor’s costs payable by the plaintiffs without including Ms Nakic.
Lastly, it is contended that the first plaintiff was on notice as to the application since 15 November 2017 when the interlocutory application (FDN 84) was filed and served.
Consideration
There is no dispute that an order for costs should be made in favour of Ms Nakic. Two questions arise, however; first, should the order be made in terms rendering the first plaintiff liable for the costs occasioned Ms Nakic by the second, third and fourth plaintiffs? Second, should an order be made in a lump sum?
Section 40(1) of the Supreme Court Act 1935 (SA) (SCA) provides the Court with a broad power to award costs. The breadth of the power is to be preserved so as to maximise the ability to do justice in every case.[1] Putting to one side procedural niceties such as notice, rule 264(5)(c) makes plain that this Court may make an order in a lump sum.
[1] Lyons v Legalese Pty Ltd (No 2) [2017] SASC 2 at [5]–[8] and the authorities there cited.
I understood counsel for the plaintiffs to concede that it would be appropriate for the Court to make an order for costs in favour of Ms Nakic for which the first, second, third and fourth plaintiffs would be jointly and severally liable. In circumstances where the plaintiffs have been represented by the same solicitors and counsel, or by Mr Clark himself, without any differentiation in interests between them such order seems appropriate.[2] This being so, the debate over the appropriateness of making an order against the first plaintiff alone becomes sterile. An order which has the effect that the plaintiffs are joint and severally liable for the costs of Ms Nakic achieves the same purpose.
[2] Kopilovic & Others v Gatley & Others [2005] WASC 62.

The expedience and cost savings that attach to making an order in a specified sum make such outcome attractive. In the absence of any application that a non-party costs order be made against the plaintiffs’ former solicitors, any responsibility the plaintiffs’ former solicitors might bear for costs incurred by Ms Nakic falls to be resolved between the plaintiffs and their solicitors. It does not then of itself provide reason not to make the order sought.
In Paciocco and Another v Australia and New Zealand Banking Group Ltd [No 2] the Full Court of the Federal Court provided some assistance as to when the power possessed by that court to make a lump sum costs order should be exercised.[3]
We emphasise that in making a lump sum award of costs, the Court in undertaking the task of assessing costs is not precluded from undertaking a close inquiry of costs relating to a particular issue or category of costs, should the Court consider it appropriate to do so: see e.g. Hudson v Sigalla (No 2) [2017] FCA 339 at [30] (‘Sigalla’). The Court is able to adopt its own procedures in inquiring into costs, is able to be flexible in how it conducts that inquiry, including by the obtaining of suitable assistance whether by referee’s report or other reporting, and is able to acquire the level of detail needed to make a determination that is fair, logical and reasonable.
… In all cases it is a matter for the Court to exercise the discretion given to the Court by the Federal Court Act and the Rules as appropriate: see Sigalla at [18]-[19].
There is no particular characteristic that a case must possess for it to be suitable for the making of a lump sum costs order. Particular circumstances that may make a lump sum order especially appropriate include where in a large and complex commercial matter it would save the time, trouble, expense and aggravation of a taxation; where a taxation would require the parties to consume additional time and incur additional expenditure prolonging already protracted litigation; and generally to avoid an ongoing, counter-productive dispute as to costs, in the interests of achieving finality.
[3] (2017) 253 FCR 403 at [18]-[20] (The Court).
As mentioned Ms Nakic concedes that the plaintiffs’ submissions on the issue of quantum have some force. Her response is to agree to the discounting of the costs incurred by Whitehead Crowther, exclusive of counsel and agents fees, by 30%. Such discount is intended to result in an outcome equivalent to an order made on a party/party basis exclusive of the non-recoverables to which the plaintiffs referred. Ms Nakic’s cure is superficially attractive. The problem, however, is that I understand the plaintiffs’ submissions to be in the nature of examples of contestable issues arising from the Whitehead Crowther fee records provided and not an exhaustive list of charges for which it is arguable the plaintiffs should not be responsible. In the circumstances, the plaintiffs’ submission is that they should have the opportunity to properly contest the question of costs before a Master of this Court if they cannot be agreed. There is a procedural fairness aspect to this submission in that whilst the plaintiffs have been heard, they have not had the opportunity to make full submissions in the normal forum and according to the normal procedure. Rather the broad approach promoted by Ms Nakic, if adopted, would shut them out of such process. Certainly Ms Nakic’s approach may result in no materially different outcome, but it cannot be known. For Ms Nakic’s part the implicit submission is that the Court can have confidence that the 30% discount adequately provides for a costs order on the proper basis and for all items that should be disallowed.
The passage taken from Paciocco and quoted above must be understood in the context of the Federal Court Rules and the Practice Direction dealing with lump-sum costs orders. Whilst the power possessed by this Court would allow for a similar approach, it would be a significant departure from the ordinary approach of this Court. In any event, the Federal Court Rules and the related Practice Direction ensure that the parties are given a fair opportunity to make submissions on the appropriateness of utilising the lump-sum order. It is also contemplated that a substantial hearing take place on the question of quantum. Here that same opportunity has not been provided. In such circumstances an order in a specified amount should only be made where the justice of making an award and the amount of the award are virtually unarguable. In that connection, regrettably, I do not share Ms Nakic’s confidence on the question of quantum to the extent that I am prepared to deny the plaintiffs the opportunity to participate in a dispute as to their costs liability in accordance with the normal practice and procedure.
Conclusion
For these reasons I order that the first, second, third and fourth plaintiffs pay the costs of the sixth defendant on the basis that each is jointly and severally liable for those costs, such costs to be taxed if not agreed.