Course v Hannan
[2018] VSC 401
•20 July 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2014 06550
IN THE MATTER OF E BALL GAMES PTY LTD (ACN 104 658 906)
BETWEEN:
| JUDITH CLARE COURSE | Plaintiff |
| v | |
| PETER JOHN HANNAN | First Defendant |
| E BALL GAMES PTY LTD (ACN 104 658 906) | Second Defendant |
| E BALL INTERNATIONAL INC. | Third Defendant |
| KEW CONSULTING PTY LTD (ACN 067 226 555) | Fourth Defendant |
| SPORTSTRACK PTY LTD (ACN 119 816 661) | Fifth Defendant |
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JUDGE: | Connock J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 17 July 2018 |
DATE OF RULING: | 20 July 2018 |
CASE MAY BE CITED AS: | Course v Hannan & Ors |
MEDIUM NEUTRAL CITATION: | [2018] VSC 401 |
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COSTS – Leave to discontinue proceeding – Rule 63.15 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) – No adjudication on merits – Costs starting point on discontinuance – Civil Procedure Act 2010 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C Twidale | - |
| For the First, Third, Fourth and Fifth Defendants | Mr J McKay | Galbally & O’Bryan |
HIS HONOUR:
Introduction
The primary issue for determination by the court is what, if any, orders should be made regarding the parties’ costs of and incidental to this proceeding (Proceeding) in circumstances where the Proceeding was discontinued by the plaintiff prior to the hearing and determination of what is contended to be the vast majority of the substantive claims and issues raised by the plaintiff.
The plaintiff submits that the first, third, fourth and fifth defendants (Hannan Parties) should pay her costs of the Proceeding on a standard basis. The Hannan Parties contend that the plaintiff should pay their costs of the Proceeding on a standard basis, or alternatively that each party should bear their own costs.
No order as to costs is sought by the plaintiff or the Hannan Parties against the second defendant, E Ball Games Pty Ltd (Company). The Company was wound up by orders of Randall AsJ on 14 August 2015 (Winding Up Orders).
The plaintiff relied upon the affidavits of Mr Course sworn 22 February, 10 April, 6 July and 15 July 2018. The Hannan Parties relied upon an affidavit of Mr Di Iorio sworn 22 March 2018 and the affidavits of Mr Hannan sworn 20 February and 13 August 2015. Reference was also made to an affidavit of Mr Course sworn 9 February 2015 and other affidavits filed since the Proceeding was first filed.
For the reasons that follow it has been concluded that:
(a) the Hannan Parties should pay, on a standard basis, the plaintiff’s costs of and incidental to obtaining the production and inspection orders set out in paragraphs 1 and 2 of the order of Randall AsJ made 27 February 2015; and
(b) otherwise, there be no order as to the costs of the Proceeding.
Background
The proceeding arises in connection with disputes between the plaintiff and her husband Mr Course, and the Hannan Parties, in relation to the conduct of the affairs of the Company.
The Company was established by Mr Course and was registered on 8 May 2003. He was a director from its inception until 26 June 2014 and was the Company’s chief executive officer until 8 June 2010. The Company was founded to create a sports simulator as a form of sports-themed entertainment and was initially funded by a small number of investor shareholders. From 31 July 2003 Mr Michael Gale was also a director of the Company representing the interests of the smaller investors.
In 2009 the Company sought further investor funds to assist with working capital for developing the sports simulator. This resulted in a contribution of shareholder funds through the first defendant, Mr Hannan, (Hannan Investment) and the issue of what was said to be 25 per cent of the shares in the Company to the ‘Hannan interests’. Although there is a dispute regarding the nature, extent and enforceability of arrangements entered into at the time in connection with the Hannan Investment, it appears that it was agreed that Mr Course would be replaced as chief executive officer by a Mr Day and that Mr Hannan would become a director, resulting in there being three directors on the board.
It appears that the plaintiff held 62.48 per cent of the shares in the Company prior to the Hannan Investment and 46.86 per cent of the shares after the Hannan Investment.
Thereafter many and various disputes arose regarding the conduct of the affairs of the Company and the relationship between Mr Hannan, and the plaintiff and Mr Course, broke down. The disputes occurred from at least 2011 onwards and included disputes regarding:
(a) management issues;
(b) alleged breaches of a shareholders’ agreement;
(c) alleged breaches of directors’ duties;
(d) Mr Gale’s position on the board;
(e) the issuing of new shares to some of the Hannan Parties or associated interests resulting in them holding more than 50 per cent of the shares in the Company;
(f) alleged related party transactions connected to Mr Hannan or the Hannan Parties;
(g) the ownership, transfer, and alleged inappropriate dealings with the Company’s intellectual property;
(h) alleged breaches of corporate governance requirements;
(i) the formation of the third defendant, E Ball International Inc (EBI) to exploit the Company’s technology overseas;
(j) claims against the Company by Mr Course for consultancy fees and other amounts;
(k) the removal of Mr Course as a director of the Company at the Company’s annual general meeting in June 2014; and
(l) the alleged failure to provide information to Mr Course or the plaintiff regarding the Company’s affairs.
By originating process filed 10 December 2014 (Originating Process) the plaintiff sought:
(a) orders under s 233(1)(i), (j), (c), (b), (e) of the Corporations Act 2001 (Cth) (Act) in connection with what was alleged to be oppressive conduct of the Hannan Parties against the plaintiff of the kind referred to in s 232 of the Act (at paragraphs 1 to 6);
(b) an order pursuant to s 247A(1) of the Act that the plaintiff be granted access to the books and records of the Company (at paragraph 7);
(c) in the alternative, an order pursuant to s 233(1)(a) of the Act that the Company be wound up (at paragraph 8); and
(d) an order that the Hannan Parties pay the plaintiff’s costs of the proceeding and such further or other orders as may be just or necessary (at paragraphs 9 and 10, respectively).
In substance, the Proceeding was commenced as what is frequently termed an ‘oppression proceeding’. This is consistent with the description given in paragraph 5 of the affidavit of the plaintiff’s then solicitor, Mr Weinberger, sworn 8 April 2015, where he deposes to the ‘crux of the plaintiff’s claim’ being that she has been ‘oppressed’ by virtue of the defendants diverting the intellectual property without the Company receiving its fair value, and by the issuing of 884,690 shares in the Company to companies related to Mr Hannan.
Initially, the plaintiff was not seeking an order pursuant to s 461(1)(k) of the Act that the Company be wound up on the basis that it was just and equitable to do so — although it may be noted that paragraph 10 of the Originating Process did seek such further or other orders as may be ‘just or necessary’.
By notice of appearance dated 19 February 2015 the defendants gave notice that they proposed to appear to ‘oppose the application’ and stated that the grounds on which the defendants opposed the application for winding up were that the conduct of the affairs of the Company had not been contrary to the interests of the members as a whole, oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members of the Company, and also on the grounds set out in the affidavit of Mr Hannan sworn 20 February 2015.
The plaintiff and the Hannan Parties each placed considerable emphasis upon the procedural steps and events that followed the commencement of the Proceeding. They are referred to in the affidavits and in the chronologies filed by the parties and include the following:
Date Event 27 February 2015 First return of the plaintiff’s application before Randall AsJ. Orders made on the papers by consent regarding production and inspection of books and records of the Company and referral of the Proceeding to judicial mediation on 22 April 2015. 13 March 2015 Initial inspection of documents by Mr Course. 25 March 2015 Plaintiff serves request for information and documents pursuant to orders of 27 February 2015. 9 April 2015 Plaintiff files affidavit of its solicitor sworn 8 April 2015 regarding alleged non-compliance with inspection orders made 27 February 2015. 17 April 2015 Orders by consent on the papers adjourning directions hearing from 17 April to 24 April 2015 with no order as to costs. 22 April 2015 Judicial mediation, but no resolution. 23 April 2015 Directions hearing for 24 April 2015 adjourned by consent on the papers to 8 May 2015 with costs reserved. 8 May 2015 Directions hearing before Randall AsJ. Consent orders made regarding production of documents by the defendants within 14 days and further directions made regarding points of claim, points of defence, points of reply, further affidavit evidence of the plaintiff, and further affidavit evidence of the defendant. Directions hearing adjourned to 28 August 2015 with costs reserved. 26 June 2015 Defendants serve without prejudice letter save as to costs. 6 August 2015 Plaintiff files summons seeking appointment of a provisional liquidator supported by an affidavit of the plaintiff’s solicitor, Mr Weinberger, sworn 6 August 2015, and an affidavit of Mr Course sworn 12 August 2015, together with written submissions.
The summons also sought an order granting the plaintiff leave to amend the Originating Process so as to include an application for an order winding up the Company pursuant to s 461(1)(f) of the Act and s 461(1)(k) of the Act.
12 August 2015 Hannan Parties email plaintiff’s solicitors opposing the appointment of a provisional liquidator but offering to consent to orders amending the Originating Process so as to seek orders under s 461(1)(f) and (1)(k) of the Act that the Company be wound up by the court and that the costs of the application be costs in the proceeding. 13 August 2015 Hannan Parties file written submissions opposing the appointment of a provisional liquidator and proposing that the Company be wound up or, if not, that the litigation progress to trial in the ordinary manner. 14 August 2015 Hearing of plaintiff’s application to appoint a provisional liquidator by Randall AsJ.
Application ultimately not pressed and the plaintiff sought and obtained leave to amend the Originating Process to seek a winding up of the Company pursuant to s 461(1)(k) of the Act on the basis that it was just and equitable to do so. Orders made:
(a) winding up the Company pursuant to s 461(1)(k) of the Act;
(b) appointing Mr Rambaldi as liquidator;
(c) requiring the liquidator to report to the court, the plaintiff, and the defendants within 90 days or such further time as the court might allow regarding the results of his investigation;
(d) granting the plaintiff leave to proceed with her claim against the Company in the Proceeding;
(e) vacating the directions hearing on 28 August 2015 and listing the matter for further directions on 13 November 2015;
(f) directing that the parties’ costs of and incidental to the application be costs in the winding up of the Company.
It was also noted in other matters that no point was taken by the defendants that the winding up of the Company is an impediment to the Originating Process proceeding.
11 November 2015 Plaintiff requests to have directions hearing adjourned to a date after 12 February 2016. 13 November 2015 The directions hearing for 13 November 2015 is adjourned to 19 February 2016, on what is recorded in the order as the court’s own motion. 17 November 2015 The liquidator files his ‘Report to the Court’ dated 17 November 2015 pursuant to the orders of Randall AsJ made 14 August 2015. 4 February 2016 Plaintiff requests directions hearing for 19 February 2016 be adjourned for a period of three months. 10 February 2016 Plaintiff’s solicitors write to the court and attach a consent order proposing to adjourn the directions hearing to 20 May 2016 with no order as to costs. 11 February 2016 Consent orders made on the papers adjourning the 19 February 2016 directions hearing to 20 May 2016 with no order as to costs. 20 May 2016 Directions hearing for 20 May 2016 adjourned by consent on the papers to 19 August 2016 with no order as to costs. 19 August 2016 Directions hearing for 19 August 2016 adjourned by consent on the papers to 11 November 2016 with no order as to costs. 11 November 2016 Directions hearing for 11 November 2016 adjourned by consent on the papers to 16 December 2016 with no order as to costs. 16 December 2016 Directions hearing before Gardiner AsJ and orders by consent:
(a) regarding the provision of particular documents by the first, third, fourth and fifth defendants;
(b) adjourning the directions hearing to 27 January 2017;
(c) that there be no order as to costs.
27 January 2017 Plaintiff’s solicitor appears at the directions hearing and adjourns it by consent or without opposition to 17 March 2017 with no order as to costs. 17 March 2017 Directions hearing for 17 March 2017 adjourned by consent on the papers to 28 April 2017 with no order as to costs. 24 April 2017 Subpoenas to produce documents issued to four non-parties at the instigation of the plaintiff. 28 April 2017 Directions hearing for 28 April 2017 adjourned by consent to 26 May 2017 on the papers with no order as to costs. 26 May 2017 Directions hearing for 26 May 2017 adjourned by consent to 23 June 2017 on the papers with no order as to costs. 23 June 2017 Directions hearing for 23 June 2017 adjourned by consent to 14 July 2017 on the papers with no order as to costs. 14 July 2017 Directions hearing for 14 July 2017 adjourned by consent to 6 October 2017 on the papers with no order as to costs. 3 October 2017 Nathan Kuperholz, solicitor for the plaintiff, ceases to act for the plaintiff. 6 October 2017 Directions hearing before Randall AsJ and orders made:
(a) requiring the plaintiff to file and serve points of claim by 23 October 2017;
(b) adjourning the directions hearing to 27 October 2017;
(c) reserving costs.
25 October 2017 Plaintiff files statement of claim and serves it on 26 October 2017. 27 October 2017 Directions hearing before Efthim AsJ. The plaintiff appears in person, the Hannan Parties are represented by counsel, and the Company by the liquidator’s solicitor.
The Company sought to be excused from further involvement and it was also noted that the plaintiff was to make an application for further discovery and that trial orders were anticipated.
Orders made:
(a) requiring the Hannan Parties to file a defence by 24 November 2017;
(b) providing for any reply to be filed by 8 December 2017;
(c) adjourning the directions hearing to 15 December 2017;
(d) reserving the costs.
8 December 2017 Plaintiff files application seeking judgment in default of defence. 8 December 2017 Date of Hannan Parties’ defence. 11 December 2017 Hannan Parties file their defence. 15 December 2017 Directions hearing before Sifris J during which the plaintiff (through Mr Course) informs the court that she is not proposing to proceed and is now seeking only costs of the Proceeding. Orders made to facilitate the foreshadowed costs application as follows:
(a) Plaintiff’s affidavit and submissions to be filed and served by 21 February 2018.
(b) Defendant’s affidavit and submissions to be filed and served by 14 March 2018.
(c) Directions hearing adjourned to 16 March 2018.
(d) Costs reserved.
21 February 2018 Date of plaintiff’s first outline of argument for costs application. 22 February 2018 Affidavit of Mr Course sworn 22 February 2018. 15 March 2018 Orders by consent on the papers extending the time for the filing of the defendant’s material for costs application to 22 March 2018, providing for further material by the plaintiff to be filed by 9 April 2018, and adjourning the directions hearing to 13 April 2018 with costs reserved. 22 March 2018 Affidavit of Mr Di Iorio sworn 22 March 2018. 10 April 2018 Date of further affidavit of Mr Course and plaintiff’s ‘reply’ submissions filed. 12 April 2018 Orders by consent on the papers which, amongst other things, vacate the directions hearing date for 13 April 2018 and fix the hearing for determination of the question of costs on 28 June 2018 with an estimate of half a day. 22 June 2018 Hannan Parties file and serve outline of submissions on costs dated 21 June 2018. 4 June 2018 Date for hearing of the costs application adjourned to 17 July 2018 at the court’s own motion. 6 July 2018 Date of further affidavit of Mr Course. 15 July 2018 Date of further affidavit of Mr Course. 17 July 2018 Leave to discontinue granted to the plaintiff and the Proceeding is discontinued. Hearing of application.
Having regard to the submissions made it is necessary to set out some further detail regarding the Winding Up Orders, the hearing on 14 August 2015 before Randall AsJ, and the liquidator’s report.
With respect to the plaintiff’s application to appoint a provisional liquidator and the making of the Winding Up Orders:
(a) The plaintiff’s application was opposed and it was suggested by the Hannan Parties during the hearing (and two days before the hearing in open correspondence) that the Company should be wound up pursuant to s 461(1)(k) of the Act.
(b) At the hearing before Randall AsJ the Hannan Parties submitted that the Company should be wound up on the just and equitable ground, noting that there was no reason not to ‘just skip ahead and give them final relief if we do not object’. They submitted that it was well established that a deadlock of the Company alone was sufficient to found the relief and it would not then be necessary for the court to go through the affairs and seek to allocate blame, whilst also observing that the Hannan Parties strongly denied any wrongdoing.[1]
[1]Transcript 5.
(c) Although the plaintiff’s summons of 6 August 2015 included an application for leave to amend the Originating Process to include an order winding up the Company pursuant to ss 461(1)(f) and 461(1)(k) of the Act,[2] the plaintiff initially resisted the Hannan Parties’ winding up suggestion and pressed for the appointment of a provisional liquidator. As the hearing proceeded the plaintiff reconsidered her position and indicated that she would be satisfied with the suggested winding up order and, consequently, leave was granted to amend the Originating Process to include a winding up order pursuant to s 461(1)(k) of the Act on the grounds that it was just and equitable to do so.
[2]Paragraph 7 of the plaintiff’s summons filed 6 August 2015.
(d) It was emphasised during the hearing that obtaining information regarding the records of the Company was important to the plaintiff because, so it was said, she had no true idea of the position of the Company.[3] The evidence suggests this had been the case for some time, notwithstanding that a letter was sent seeking access to records on 5 October 2011.[4]
[3]Transcript 8.
[4]Exhibit 1.
(e) The Associate Justice, the plaintiff, and the Hannan Parties each recognised that there was scope for the Proceeding to continue and the Winding Up Orders were made on the basis that it was not to be contended by the Hannan Parties that the orders prevented this occurring, which was also noted in the ‘other matters’ section of the order.
(f) Reference was made by the plaintiff to the disputed complaint as to whether documents had been provided by the Hannan Parties as required and the fact that answers had been given in affidavits of the Hannan Parties but that there was a ‘complete inability to test them’ and therefore a liquidator or provisional liquidator was needed to do that.
(g) It was acknowledged by the plaintiff that the liquidator might be the best party to pursue whatever remedies exist on behalf of the Company, but at that stage it was not known if that would be the case, so it was said, the plaintiff would know better once the liquidator reported back. In that context it was suggested that the directions hearing be adjourned until after the liquidator reported back. It was also contemplated by the parties and the court at the time that the reporting back might take longer than the 90 days referred to in the order.
(h) The costs of the plaintiff’s application heard on 14 August 2015 and the application to wind up the Company were expressly addressed. The transcript records that the plaintiff elected not to seek costs of the application from the Hannan Parties. The Hannan Parties initially sought costs of the application from the plaintiff on the basis that a provisional liquidator was not to be appointed but ultimately did not press that application when it became clear that Randall AsJ was minded to order that all parties’ costs of the application be costs in the winding up, as in fact occurred.[5]
[5]Transcript 16 to 19.
(i) Leave was granted to the plaintiff pursuant to s 471B of the Act to continue with the Proceeding against the Company.
(j) Consequently, and as noted in the above chronology, orders were made to the following effect:
(i) the plaintiff has leave to file, and the court accepts as filed, an amended originating process seeking to wind up the Company pursuant to s 461(1)(k) of the Act;
(ii) pursuant to s 461(1)(k) of the Act, the Company be wound up;
(iii) Mr Rambaldi be appointed liquidator;
(iv)within 90 days or such further time as the court might allow the liquidator report to the court and to the plaintiff and to the defendants the results of his investigation;
(v) the liquidator have liberty to apply to extend the date of reporting;
(vi)pursuant to s 471B of the Act the plaintiff have leave to proceed with its claims against the Company in the Proceeding;
(vii) the directions hearing for 28 August 2015 be vacated and the matter be listed for further directions on 13 November 2015;
(viii) the parties’ costs of and incidental to this application are costs in the winding up of the Company.
The liquidator of the Company reported back to the court and the parties by a report dated 17 November 2015 (Liquidator’s Report). Amongst other things, the Liquidator’s Report recorded that its purpose was to set out the results of the investigations into the Company’s affairs as required by the Winding Up Orders; noted that the report had been compiled for the court, the Company, the plaintiff, and the Hannan Parties; set out the outcome of the liquidator’s investigations to date; noted that on 29 October 2015 creditors were invited to provide the liquidator with funding to enable the payment of examination fees and costs and to undertake further investigations or commence litigation against various parties; and stated that on 30 October 2015 Mr Course entered into an indemnity agreement to provide funding to the liquidator which had allowed the liquidator to commence further investigations into voidable transactions, identify breaches of directors’ duties, and consider legal action where appropriate.
With respect to the outcome of the investigations at that time, the liquidator stated, amongst other things, that:
(a) there had been a number of areas that had been the subject of investigation with the purpose being to determine whether or not any money, property or other benefits could be recoverable for the benefit of creditors;
(b) he had not been provided with sufficient evidence to confirm whether a transfer of the Company’s intellectual property had been made to EBI;
(c) the Company had not complied with its obligations to maintain adequate source documents to explain its transactions;
(d) the Company may have traded whilst insolvent from May 2013, if not earlier, and he reserved his right to revise this view if information came to light suggesting an earlier date;
(e) there appeared to be a payment to Mr Hannan within the four-year relation‑back period;
(f) the investigations had not identified any unfair loans;
(g) investigations were continuing and there was a potential uncommercial transaction in relation to the settlement of an outstanding claim with the former CEO of the Company, Mr Day, in connection with a transfer of sports simulators by way of settlement;
(h) there was a potential unreasonable director related transaction in about August 2012 relating to the transfer of 884,690 shares in the Company to Kew Consulting Pty Ltd and Sportstrack Pty Ltd, being companies associated with Mr Hannan, and investigations would continue as to whether there had been adequate consideration provided in exchange for that transfer of shares;
(i) investigations had not identified any Company transactions involving discharge of liabilities of related entities or transactions made with the purpose of defeating creditors; and
(j) investigations had identified potential breaches of fiduciary duties on the part of directors and further investigations were warranted.
As appears to have been contemplated at the hearing when the Winding Up Orders were made, the Proceeding was adjourned on more than one occasion pending the receipt and consideration of the Liquidator’s Report and the completion of the liquidator’s investigations. This ‘rollover’ occurred on a number of occasions by consent after the Liquidator’s Report was provided.
Further, on 25 October 2017 a statement of claim was filed and served and a defence was filed by the Hannan Parties on 11 December 2017. As earlier mentioned, a few days later at the directions hearing before Sifris J on 15 December 2017 the plaintiff indicated for the first time that she did not propose to pursue the Proceeding other than in relation to costs.
Applicable law
Issues of law are not in contention between the parties and it was not in dispute that the discontinuance of the proceeding by the plaintiff engaged rule 63.15 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Rules).
In Dina Constantina Soteriadis v Nillumbik Shire Council, Associate Justice Derham helpfully summarised aspects of the relevant law as follows (footnotes omitted):[6]
[8] The starting point is the court’s general power as to costs. Unless otherwise expressly provided by any Act or by the Rules, the costs of and incidental to all matters in the Supreme Court are in the discretion of the Court, and the Court has full power to determine by whom and to what extent the costs are to be paid: Supreme Court Act 1986 (Vic) s 24(1).
[9] The discretion regarding costs has been described as absolute, unconfined or unfettered, although that discretion must be exercised judicially, that is, not by reference to irrelevant or extraneous considerations, but upon facts connected with or leading up to the litigation: see for example Latoudis v Casey. In the exercise of the discretion, practices or guidelines have been developed: Oshlack v Richmond River Council. These practices or guidelines are not legal rules that confine the exercise of the discretion: Norbis v Norbis; Oshlack v Richmond River Council.
[10] Rule 25.05 of the Rules provides:
Where a proceeding, counterclaim or claim by third party notice is discontinued, or where part of a proceeding, counterclaim or third party notice is withdrawn, liability for costs shall be determined in accordance with Rule 63.15.
[6][2015] VSC 363, [8]–[13]. See also Just Group Limited v Joseph Van Dyk and Ors [2016] VSC 66; AS v Minister for Immigration and Border Protection and Ors [2017] VSC 300, [14]–[26].
[11] Rule 63.15 of the Rules provides:
Discontinuance or withdrawal
Unless the Court otherwise orders, a party who discontinues or withdraws part of a proceeding, counterclaim or claim by third party notice shall pay the costs of the party to whom the discontinuance or withdrawal relates to the time of the discontinuance or withdrawal.
[12] By these rules the wide discretion of the Court as to costs is modified. The modification is that the onus is on the party seeking to discontinue the proceeding (in this case the applicant) to satisfy the Court that the costs should not be paid by her. The principles and factors that the authorities outline on these, and other similar rules in other jurisdictions, have been collected and summarised by Hallen AsJ (as he then was) in Johnson v Clancy. My summary of them is as follows:
(a) The rule does not give rise to a presumption that costs will be ordered against the discontinuing party;
(b) However, the rule does create a starting position for the plaintiff or discontinuing party to pay the defendant’s costs, subject to a contrary order;
(c) The contrary order itself involves a discretionary decision to be exercised judicially. If there is to be a departure from the starting position, it should be done in a particularised, and principled way. The court is required to make such order as it thinks just in the particular circumstances of the case;
(d) The burden is on the party who seeks to persuade the court that a contrary order should be made. If facts are to be relied upon to found the court making a different order, the plaintiff will bear the onus of proving the relevant facts;
(e) All the relevant circumstances, and not just the fact of discontinuance, should be considered. This may include a consideration of the whole of the proceedings. Generally the discretion will be exercised on the basis of the objective circumstances established on the evidence and not involve the subjective considerations of one party;
(f) A relevant consideration is whether the plaintiff acted reasonably in commencing the proceedings and whether the defendant acted reasonably in defending them. It might also be appropriate for the court to consider the conduct of the defendant prior to the commencement of the proceedings where such conduct may have precipitated the litigation;
(g) Generally there must be some proper justification, sound positive ground, or a good reason, for departing from the starting position. The reasons for the discontinuance can bear heavily on the exercise of the discretion as to costs, so for example, it may be appropriate to make a contrary order:
(i) Where the proceedings have been rendered unnecessary by circumstances beyond the plaintiff’s control;
(ii) Where the plaintiff achieved practical success in the proceedings;
(iii) Where costs have been significantly increased by the unreasonable conduct of the defendant;
(h) Where the proceedings are discontinued prior to any hearing on the merits, usually it will be impracticable to assess the eventual prospects of success in the action and the court cannot try a hypothetical action between the parties to determine the question of costs;
(i) There is a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event, or settlement, so removes, or modifies, the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the court’s discretion otherwise than by an award of costs to the successful party. It is the latter type of case that usually creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs; and
(j) Where the proceedings are discontinued after interlocutory relief has been granted, the court may take into account the fact that that interlocutory relief has been granted;
[13] In Re Minister for Immigration and Ethnic Affairs; Ex arte Lai Qin, (one of the many cases cited by Hallen AsJ), McHugh J observed in a different context, that is not one where the starring [sic] position was an order for costs in favour of the defendant:
The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action by which settlement or extra curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action ...
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried ...
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continue to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the costs discretion will usually mean that the court will make no order as to the cost of the proceeding. This approach has been adopted in a large number of cases. [footnotes omitted]
These observations were referred to with approval by Sloss J in Just Group Limited (ACN 096 911 410) v Joseph Van Dyk & Ors, where her Honour also drew attention to the observation of Hill J in Australian Securities Commission v Aust Home Investments Ltd[7] that ‘[w]here neither party desires to proceed with litigation the court should be ready to facilitate the conclusion of the proceedings by making a costs order’, and Hill J’s further observation that:
It would rarely, if ever, be appropriate where there has been no trial on the merits for a court determining how the costs of the proceedings should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial. This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.
[7][2016] VSC 66, [29]–[35].
As Sloss J also observed, in One. Tel Ltd v Commissioner of Taxation,[8] Burchett J, citing Aust-Home Investments and Lai Qin, accepted that where a case terminates before a hearing has taken place ‘the Court should not resolve the issue of costs by engaging in something of the nature of a hypothetical trial.’ He also said that ‘this does not mean that the Court can never make an order for costs’ and emphasised the point also referred to in paragraph [12](i) of the reasons of Derham AsJ referred to above.
[8](2000) 101 FCR 548.
The observations of Forrest J in AS (by her litigation guardian Marie Theresa Arthur) v Minister for Immigration and Border Protection & Ors are also worth repeating:[9]
It is now clear that a court, in exercising its discretion to grant leave to discontinue third party proceedings pursuant to r 25.02(6) of the Rules, must have regard to the provisions of the CPA and in particular, s 7 which states that the overarching purpose of the Act and Rules in civil proceedings is to ‘facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’.
By s 8(1) of the CPA, the court is required to give effect to the overarching purpose in exercising its powers. In doing so, s 9 of the CPA directs the court to further the overarching purpose by having regard to the objects and matters which include the efficient use of judicial and administrative resources and dealing with the proceeding in a manner proportionate to the complexity and importance of the issues and amount in dispute.
Third, the effect of rr 25.05 and 63.15 should not be overstated. In Just Group Ltd v Joseph van Dyk & Ors, Sloss J held that the wide discretion conferred on the Court to order costs must be exercised in conformity with rr 25.05 and 63.15 of the Rules. However, her Honour then observed:
In essence, the cases summarised in Soteriadis and Johnson show that r 63.15 does not give rise to a presumption that costs will be ordered against the discontinuing party. Rather (and paraphrasing what their Honours have said), it creates ‘a starting position’ and the burden is on the party who seeks to persuade the court that a different order should be made to prove the relevant facts. All relevant circumstances, not just the fact of discontinuance, should be considered. If there is to be a departure from the starting position the Court should do so in a particularised and principled way and make such order as it thinks just in the particular circumstances of the case.
[9][2017] VSC 300, [23]–[25].
Consideration
The plaintiff seeks that the Hannan Parties pay the plaintiff’s costs of and associated with the Proceeding on a standard basis. The Hannan Parties seek orders that the plaintiff pay their costs of the Proceeding, or alternatively, that each party bear their own costs.
Plaintiff’s submissions
Although the plaintiff’s affidavit material and written submissions traversed a broad range of matters, the submissions helpfully became more focused and distilled during the course of the hearing. Briefly, and in substance, the plaintiff’s primary submissions were to the following effect:
(a) although the Proceeding has been discontinued by leave, rule 63.15 ought to be considered as a starting point only and in the circumstances of the present case the court should exercise its discretion to ‘order otherwise’, and direct that the Hannan Parties pay the costs of the plaintiff;
(b) the plaintiff was successful in obtaining some of the relief that was sought in the Proceeding, namely an order winding up the Company and an order for inspection, and therefore the plaintiff has enjoyed a considerable measure of success and ought to be entitled to her costs;
(c) further, and in any event, it was reasonable to continue with the Proceeding after the Winding Up Orders were made because the circumstances were in a state of flux, which was supported by the fact that:
(ix) the Winding Up Orders contemplated the Proceeding continuing but being adjourned pending the liquidator’s investigations;
(x) when making the Winding Up Orders the Associate Justice wanted to ensure that they did not affect the ongoing Proceeding and also granted leave to the plaintiff to proceed against the Company pursuant to s 471B of the Act;
(xi) when the liquidator reported back he identified a number of matters that were issues of concern to the plaintiff identified in the Proceeding, including issues relating to assets of the Company, books and records, and the issue of shares to the Hannan Parties; and
(xii) the Liquidator’s Report reveals that investigations were not yet complete and were ongoing;
(d) by making a decision not to continue with the Proceeding, in the light of the Winding Up Orders and the liquidation of the Company, the plaintiff was acting consistently with her obligations under the Civil Procedure Act 2010 (Vic) (CPA);
(e) in any event:
(i) the plaintiff ought to have her costs of and incidental to the hearing on 8 May 2015 because, in effect, the hearing only occurred because it was necessary for the plaintiff to seek an order in relation to documents that had not been produced by the Hannan Parties; and
(ii) the plaintiff ought to have her costs of and associated with the issue of subpoenas because it was only necessary to issue them as a result of the Hannan Parties’ failure to comply with court orders requiring production and inspection of documents and other items;
(f) with respect to the contention by the Hannan Parties that the plaintiff could have and should have discontinued the Proceeding at the time the Winding Up Orders were made, the plaintiff acted reasonably in not so doing given the circumstances, and particularly those relating to the Winding Up Orders and the ongoing investigations of the liquidator; and
(g) the without prejudice offer (save as to costs) made by the Hannan Parties on 26 June 2015 (Settlement Offer)[10] does not alter the position or assist the Hannan Parties and it was reasonable for the plaintiff not to accept it.
[10]Exhibit A.
When attention was drawn to the Winding Up Orders and what had transpired at the 14 August 2014 hearing regarding costs, the plaintiff properly acknowledged that she had elected not to seek costs against the Hannan Parties and that the costs of that application had been dealt with by the Winding Up Orders.
Further, there had initially been some submissions that the court ought to embark on a determination of hotly contested issues associated with alleged arguable dishonesty and misleading conduct of the Hannan Parties and Mr Hannan, and similarly hotly contested allegations regarding the alleged failure to comply with court orders regarding production and inspection. However, as the hearing progressed the plaintiff’s counsel appropriately acknowledged that the court should not and could not embark upon an exercise of that character on an application of the kind before the court. Consequently, this became common ground between the parties.
Hannan Parties’ submissions
The primary substantive position of the Hannan Parties on costs was the opposite to that of the plaintiff. The Hannan Parties’ submissions were also helpfully distilled and refined during the course of the hearing and, briefly and in substance, the Hannan Parties submitted that:
(a) rule 63.15 of the Rules was engaged and the plaintiff ought to pay the Hannan Parties’ costs of and incidental to the Proceeding;
(b) alternatively, the circumstances do not warrant the making of an order that the Hannan Parties pay the plaintiff’s costs and each party should bear their own costs;
(c) the plaintiff has not enjoyed any success or any material success because the Winding Up Orders obtained was not the relief sought in the Originating Process and was relief sought or suggested by the Hannan Parties and resisted by the plaintiff until late in the hearing on 14 August 2015;
(d) the obtaining of orders for inspection and production of documents cannot be characterised as success because the orders were ancillary to the primary oppression claims, amounted to little more than would be obtained on discovery, were agreed to at the first directions hearing, and were sought in circumstances where no timely previous request had been made;
(e) the plaintiff elected to continue with the Proceeding and has now capitulated and abandoned it when she could have and should have done so at the time the Winding Up Orders were made — or at least much earlier than she did;
(f) the court should not and could not on this application determine contested issues of fact regarding allegations of wrongful, misleading, dishonest or other improper conduct, or the alleged failure to comply with previous court orders, and particularly in circumstances where the Proceeding has now been discontinued and there is a self-evident heated dispute about such matters and issues of credit are necessarily involved;
(g) even though the Settlement Offer was addressing the issue of indemnity costs in the context of a trial outcome, it remained a relevant circumstance and supported the Hannan Parties’ primary position and alternative position; and
(h) in the alternative, if costs were not to be ordered in favour of the Hannan Parties, there was no hearing on the merits and it cannot be concluded that the Hannan Parties acted unreasonably in defending the Proceeding and therefore each party ought to bear their own costs.
Like the plaintiff, upon being reminded of the circumstances in which the Winding Up Orders were made, the position that the parties had taken in relation to costs, and the costs order that was made on 14 August 2015, the Hannan Parties also properly acknowledged that that issue had been dealt with by the Associate Justice and confirmed that no order was sought by them in relation to the subject matter of the Winding Up Orders.
Disposition
Recognising the existence of the court’s general power as to costs and the exercise of the judicial discretion that it entails, the plaintiff is correct that in circumstances such as the present rule 63.15 is to be seen as a starting point. As Forrest J observed in AS,[11] its effect should not be overstated.
[11][2017] VSC 300, [23]–[25].
Considering whether to make an order contrary to the starting position involves a discretionary decision and whether or not there is to be a departure from that position requires consideration of the relevant circumstances, not only the fact of discontinuance. Each case depends on its own facts and illustrations in other cases are often of limited assistance.
In the particular — and arguably unusual — circumstances of the present case, I am satisfied that starting point in rule 63.15 ought to be departed from. I elaborate below.
Unlike many cases involving discontinuance by a plaintiff, in this case some of the relief sought in the Proceeding has been obtained and a measure of practical and legal success has been achieved. Although the Hannan Parties are correct to submit that the plaintiff’s submissions exaggerate or mischaracterise the level of success, the Hannan Parties’ submissions understate the position.
As is common in proceedings of the kind in question, the Originating Process sought a range of relief. In this case that has not yet been shown to be an unreasonable step to take and on the evidence before me it was not.
The relief sought included orders for inspection of the books and records of the Company pursuant to s 247A(1) of the Act, a winding up order pursuant to s 233 of the Act, and such further or other orders as may be just or necessary. Further, by its application filed 6 August 2015 the plaintiff sought leave to amend the Originating Process to include an application to wind up the Company pursuant to s 461(1)(k) of the Act on the basis that it was just and equitable to do so (Just and Equitable Ground).
The chronology and background referred to above reveals that although many issues have not yet been heard and determined, the plaintiff did obtain orders for inspection of the books and records of the Company and did obtain a winding up order pursuant to s 461(1)(k) of the Act, which it may be observed sits comfortably within the description in the Originating Process as filed of ‘further or other orders as may be just or necessary’.
That the winding up order obtained was not referred to in the Originating Process at the outset by reference to s 461(1)(k) of the Act does not materially alter the position, legally or practically. Not only did the Originating Process expressly contemplate the making of alternate orders as may be just or necessary, but leave to amend the Originating Process to include a winding up order pursuant to s 461(1)(k) of the Act was sought by the plaintiff by her summons filed 6 August 2015 and granted on 14 August 2015. Further, whether the winding up order was made under s 461 or s 233 of the Act would not relevantly have changed its practical or legal effect on the Company or the practical benefits for the plaintiff.
Similarly, even if it were to be assumed that the application for orders granting access to the books and records of the Company was merely ancillary to the other relief claimed, it does not alter the fact that this form of relief was expressly sought and obtained and therefore reflects a measure of legal and practical success achieved by the plaintiff in the Proceeding.
It should be added that I am not satisfied on the evidence before me that this assumption can safely be made, particularly when regard is had to matters such as the concern expressed in the affidavit material regarding the alleged absence of information available to the plaintiff and Mr Course, the plaintiff’s material interest in the Company, the submissions made during the course of the application before Randall AsJ regarding the alleged information asymmetry, the ongoing disputes between the parties regarding compliance or otherwise with orders requiring production of documents by the Hannan Parties, and the issue of subpoenas to at least four third parties by the plaintiff (Subpoenas).
Further, the fact that similar orders could have been obtained as part of discovery without an application being made pursuant to s 247A(1) of the Act is not to the point. On the contrary, that fact alone arguably serves well to underscore the independent importance to the plaintiff of the s 247A(1) claim and remedy.
That said, the Hannan Parties’ submissions well illustrate why the measure of success claimed to have been achieved through the Proceeding has been overstated.
A review of the Originating Process and the relatively recently filed statement of claim reveals the myriad of hotly disputed issues not yet determined and the various heads of relief that remained to be considered when, the Winding Up Orders were made, as at 15 December 2017 when the matter was before Sifris J, and at the time the Proceeding was formally discontinued less three days ago on 17 July 2018. This observation is reinforced by the plaintiff’s emphasis before Randall AsJ on 14 August 2015 of the importance of being able to continue the Proceeding, including against the Company, notwithstanding the winding up and the express terms of the Winding Up Orders.
Although there are additional circumstances and matters to which I shall now turn, if considered alone, the circumstances referred to above are sufficient to warrant a departure from the starting point of rule 63.15, although they of course do not sufficiently inform the nature and extent of the appropriate departure.
The plaintiff’s submissions appeared to suggest that the Hannan Parties’ notice of appearance reflected an unreasonable opposition to the winding up relief as originally sought and implicitly suggested the existence of a change of position by the Hannan Parties in connection with the making of the Winding Up Orders in August 2015. I do not accept that submission or that it reflects that which was said to be conveyed by the grounds of opposition referred to in the Hannan Parties’ notice of appearance. Not only was the notice of appearance responding to an Originating Process that did not at that stage make reference to s 461(1)(k) of the Act, the grounds of opposition set out in the notice expressly picked up and responded, in terms, to the grounds referred to in s 232 of the Act as reflected by the then terms of the Originating Process.
It may be added that the evidence before me reveals the existence of a genuine and heated dispute between the parties on many issues and on that which might follow should the matter have proceeded to trial. Whilst recognising in this context that the plaintiff and the Hannan Parties are correct in their submissions that the court cannot and should not seek to determine the various contested issues of fact or make findings of a kind that could only properly be made after a full hearing, it is appropriate to observe that on the evidence before me I am satisfied that it was reasonable for the plaintiff to commence the Proceeding and reasonable for the Hannan Parties to defend the claims made against them. So much is demonstrated by the complexities of the factual background, the nature and extent of the allegations, and the competing factual accounts as reflected in the affidavit material filed by the parties to date.
At the risk of stating the obvious, it follows that I do not accept any express or implicit submission of the plaintiff that the Hannan Parties acted unreasonably by defending to date the many remaining live issues in the Proceeding.
Having regard to the authorities and the hotly contested issues that have not yet been determined on their merits, there would be clear force in the Hannan Parties’ alternate submission that each party should bear its own costs of the Proceeding if no practical or legal success had been achieved by the plaintiff. However, the obtaining of relief by the plaintiff and the achievement of a measure of practical and legal success is a feature of the circumstances of this case that requires further consideration in this regard. In particular it raises the issue of whether an order ought to be made in favour of the plaintiff in respect of some of her costs.
Notwithstanding that it has been concluded that the plaintiff achieved a measure of success in respect of the Winding Up Orders and the orders for inspection, there is also some weight in the Hannan Parties’ submissions regarding the circumstances in which such ‘success’ was achieved.
It is accepted that it was reasonable for the Hannan Parties to defend the oppression and other serious allegations and it is not in dispute that from at least 12 August 2015[12] the Hannan Parties sought to persuade the plaintiff and the court that the Company should be wound up on the Just and Equitable Ground. Although that point might have been suggested or pressed by the Hannan Parties considerably earlier, it was a reasonable step to take, particularly given that the issue was pressed by the Hannan Parties over the initial firm opposition of the plaintiff at the hearing on 14 August 2015.
[12]Noting also that the Settlement Offer was made on 26 June 2015, which is discussed further below.
However, on the evidence this suggestion was not put in a clear, simple, and open way prior to the sending of the email to the plaintiff’s solicitor on 12 August 2015, being some days after the plaintiff filed its application seeking the appointment of a provisional liquidator and seeking leave to amend the Originating Process to include the Just and Equitable Ground. In effect, and notwithstanding the more opaque or complex terms of the Settlement Offer made in late June 2015, it appears to have been responsive — either to the plaintiff’s application or the ongoing existence of the Proceeding more generally, or both. And as was submitted before Randall AsJ, the existence of the deadlock was a sufficient basis for the order, from which it follows that it could have been pressed for or sought by the Hannan Parties much earlier and even prior to the commencement of the Proceeding.
Having regard to the chronology of events, the terms of the communication on 12 August 2015 and the circumstances referred to above, I am satisfied that the commencement and existence of the Proceeding and the plaintiff’s application to appoint a provisional liquidator to the Company played a part in the Hannan Parties’ responsive timing and approach regarding its willingness to have the Company wound up by the orders made on 14 August 2015.
The Hannan Parties also sought to rely on the Settlement Offer that was tendered during the hearing. Whilst that offer was framed by reference to seeking indemnity costs at trial if the plaintiff did not achieve a better outcome than one or both of the options referred to in the offer, it did not contemplate circumstances such as the present and, in any event, was sent to the plaintiff only a little over a month before the 6 August 2015 application was filed.
Some further points can be made. First, in the same way that it is not appropriate to speculate about outcomes or carry out hypothetical trials where there has been no determination of the merits of contested issues, it is similarly inappropriate to speculate as to whether a settlement offer may or may not be a better outcome than would have been achieved at trial. Second, if that is correct then the court is relatively bereft of the necessary framework against which to determine the reasonableness or otherwise of a failure to accept a settlement offer. Third, the terms of ‘Option 2’ of the Settlement Offer, which have as an element the Company being wound up, contain numerous other conditions including dismissal of the Proceedings, limited costs orders, the requirement of releases, covenants not to sue, limited share transfers, and the Hannan Parties retaining 40 per cent of the shares in the Company. Fourth, the plaintiff contends that various features of the Settlement Offer were not reasonable, including the absence of agreement to pay costs and the absence of obligations imposed on Mr Hannan personally in relation to Company assets that may have been transferred. The plaintiff also expressed concern regarding possible interests of third parties.
In the end it is sufficient to indicate for present purposes that the court cannot be satisfied on the evidence before it that the plaintiff acted unreasonably by not accepting the Settlement Offer within the 14 days after 26 June 2015. In any event, it may also be observed that the offer period in the Settlement Offer ended only a short time before the simplified, winding up offer was made in the Hannan Parties’ open correspondence on 12 August 2015.
With respect to the plaintiff’s success regarding the obtaining of production and inspection orders by consent at the first directions hearing on 27 February 2015, there is force in the Hannan Parties’ submissions that this issue was effectively dealt with by that point in time — recognising of course that the controversy between the parties as to whether the orders were properly complied with cannot be meaningfully addressed or resolved on the hearing of this costs application.
There is less force in the contention that any entitlement to costs on this aspect ought to be reduced to nil because a timely request for the documents was not received in advance, and that is all that it would have taken. There was no evidence to this effect, but there was evidence that some years earlier on 9 October 2011 a written request had been made for access to the Company’s books and records. Although the circumstances in which this issue arose during the hearing meant the evidence relating to it was less than ideal, having regard to the breakdown of the relationship and the bitter disputes between the parties it is sufficient to say that I cannot be satisfied on the evidence that if a request for production and inspection of the Company’s books and records had been made shortly before the Proceeding was commenced in December 2014, it would have been complied with.
That said, the Hannan Parties are correct that it is evident from the Originating Process and the statement of claim filed as recently as 27 October 2017 that the vast majority of the substantial issues remain hotly contested and in dispute in the Proceeding, and that they are the issues that would absorb the vast majority of the time and costs if the Proceeding had not been discontinued. It is also evident that the obtaining of the inspection order in February 2015 and the Winding Up Orders in August 2015 were relatively confined parts of the Proceeding. However, having regard to the matters referred to above, I am satisfied that it is appropriate to depart from the starting point in rule 63.15 and order that the plaintiff be paid a portion of her costs for the period prior to the Winding Up Orders to reflect the fact that some of the relief sought was obtained through the Proceeding.
Consequently, it is proposed to order that the Hannan Parties pay the plaintiff’s costs of and associated with obtaining the production and inspection orders set out in paragraphs 1 and 2 of the order of Randall AsJ made on 27 February 2015 and that such costs be paid on a standard basis.
It will be immediately apparent that the proposed order does not include any costs in connection with the obtaining of the Winding Up Orders. This is because these costs were dealt with by the Winding Up Orders and the parties’ costs of and incidental to the application were ordered to be costs in the winding up. As mentioned, this was correctly recognised by both the plaintiff and the Hannan Parties and no further application was pressed in respect of these costs.
I do not accept the plaintiff’s submission that the Hannan Parties should pay the plaintiff’s costs of and incidental to the hearing on 8 May 2015, or that they should pay the plaintiff’s costs of and incidental to the issue of the Subpoenas.
As to the 8 May 2015 hearing, the evidence reveals that it was not a wasted day but an adjourned directions hearing where various other orders were made, including orders regarding points of claim, points of defence, points of reply, affidavit evidence of the plaintiff, and affidavit evidence of the defendants. In addition, the orders were made by consent.
With respect to the costs of issuing the Subpoenas, it was initially put that this was necessary because the Hannan Parties had not complied with their obligations to produce documents pursuant to court orders made in the Proceeding some years ago. This was a contested issue between the parties at the time and remains so and it appears to be common ground on the evidence that the plaintiff did not seek to resolve this aspect by making and pressing an appropriate application during the course of the Proceeding. Further, the plaintiff and the Hannan Parties correctly submitted that the court could not and should not seek to resolve this kind of factual dispute, involving allegations of serious wrongdoing and questions of credit, in a costs application of the kind before me.
It follows that I cannot be satisfied on the evidence that improper or wrongful conduct on the part of the Hannan Parties necessitated the issue of the four Subpoenas, or that they would not have been issued in any event. It may also be observed that seeking to resolve a controversy of this kind in the current context would likely have been wholly disproportionate and require consideration of the relevant provisions of the CPA.
This leaves the question of the costs of the Proceeding during the period from the making of the Winding Up Orders until its discontinuance.
A review of the chronology reveals that during this period little happened in the Proceeding and that it was adjourned by consent on many occasions, in most instances on the express basis that there be no order as to costs. This appears to reflect what the Associate Justice and the parties considered would likely occur for a period after the liquidator was appointed and pending receipt of his report and, it seems, the conclusion or further advancement of his investigations. Keeping in mind the obligations of the parties under the CPA, the contemplation of such a course appears reasonable.
The real question is whether a point in time was reached after which it can be concluded that the plaintiff acted so unreasonably by not discontinuing the Proceeding at that point that she should be ordered to pay the Hannan Parties’ costs of the Proceeding from that point on. I have concluded that the answer to that question is no and my key reasons can be briefly stated.
First, and as the parties and the Associate Justice appeared to recognise, it was not only reasonable but sensible (and consistent with the parties’ obligations under the CPA) to see what impact the Liquidator’s Report and his further investigations might have on the practical and substantive considerations relevant to the pursuit of the Proceeding. Second, and as outlined earlier, the liquidator identified a number of aspects of concern to him regarding the past conduct of the Company’s affairs and observed that further investigations were both ongoing and required in relation to a number of matters; third, prior to directions being made on 6 October 2017 requiring points of claim to be prepared, the evidence and submissions reveal that there was very little done in relation to the litigation over the relevant period and that it was largely dormant; fourth, it appears the only material substantive step taken by the Hannan Parties during the relevant period was the preparation of a defence dated 8 December 2017; fifth, the issues having been crystallised somewhat as a result of the exchange of pleadings provided an opportunity for more informed consideration of the position by all parties; sixth, shortly thereafter the plaintiff indicated that she did not propose to pursue the claim and was only seeking costs; seventh, the Hannan Parties had consented to all of the orders that had adjourned the directions hearings on the papers with no orders as to costs; eighth, the decision to discontinue was made and conveyed shortly after consideration of pleadings and no further substantive directions were made; and ninth, in taking the positive step of mutually supporting the discontinuance of the claim notwithstanding the genuine differences between the plaintiff and the Hannan Parties that had not been resolved for either side, each party appears to have acted in line with the relevant obligations under the CPA.
That being so, and recognising that there has been no determination on the merits of any of the substantive and hotly contested issues, there should be no order as to costs in respect of the period after the making of the Winding Up Orders and therefore the appropriate orders are:
(a) the Hannan Parties pay, on a standard basis, the plaintiff’s costs of and incidental to obtaining the production and inspection orders set out in paragraphs 1 and 2 of the order of Randall AsJ made 27 February 2015; and
(b) otherwise, there be no order as to the costs of the Proceeding.
For the avoidance of doubt, these proposed orders are not intended to affect in any way the beneficial costs order made in the Winding Up Orders.
Finally, and subject to hearing any further submissions from the parties, given that neither party has succeeded on their primary position in relation to this application, it is appropriate that each party bear their own costs of this costs application.
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