Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd

[2021] NSWSC 813

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd [2021] NSWSC 813

Hearing dates:

On the papers

Date of orders:

5 July 2021

Decision date:

05 July 2021

Jurisdiction:

Equity

Before:

Robb J

Decision:

The defendants’ application for an order that the plaintiff pay their costs in accordance with the order made on 18 November 2020 on the indemnity basis is dismissed.

Catchwords:

COSTS — Party/Party — Basis of quantification — Where the defendants sought an order for costs on the indemnity basis on the ground that the plaintiff’s conduct in commencing and maintaining the proceedings was not reasonable — Where the Court found that the plaintiff’s conduct had not been shown to be unreasonable — Where the Court dismissed the defendants’ application for costs on the indemnity basis

Legislation Cited:

Competition and Consumer Act 2010 (Cth)

Corporations Act 2001 (Cth)

Mining Act 1992 (NSW)

Uniform Civil Procedure Rules 2005 (NSW)

Category:

Costs

Parties:

Drama Unit Pty Limited (plaintiff)
Fearndale Holdings Pty Limited (first defendant)
Timothy James Cook (second defendant)

Representation:

Counsel:
H Somerville (first and second defendants)
-br-Solicitors:
Dettmann Longworth Lawyers (plaintiff)
William James Law (first and second defendants)

File Number(s):

2019/248382

Judgment

1. On 18 November 2020, the Court made an order that these proceedings be dismissed and that the plaintiff, Drama Unit Pty Ltd (Drama Unit), pay the defendants’ costs of the proceedings. The defendants are Fearndale Holdings Pty Ltd (Fearndale) and Mr Timothy James Cook.

2. I have used the names of the corporate parties that were used in the title to these proceedings in the statement of claim. I understand that, as at 18 November 2020, administrators had been appointed for Drama Unit and Fearndale was in liquidation. A formal order has not been made to change the names of the corporate parties, and I am not sure what the present position is.

3. As well as making an order that Drama Unit pay the defendants’ costs, I gave leave to the parties to serve submissions as to the basis upon which the costs should be payable. The defendants served submissions in which they argued that Drama Unit should be ordered to pay their costs on the indemnity basis. Drama Unit provided a brief response.

4. It will be appropriate to explain briefly the history of these proceedings.

5. The proceedings were commenced by statement of claim filed on 9 August 2019. The dispute concerns a lease of property owned by Fearndale upon which a shale and clay mine had been operated for many years. In short, it was alleged that from 15 November 2012, a new mining lease or other authorisation under the Mining Act 1992 (NSW) was required in order for the operation of the mine on the property to continue. Drama Unit alleged that Fearndale was aware of this requirement, but it falsely held itself out as having a mining lease in place.

6. Specifically, Drama Unit alleged in par 12 that the holding out occurred by reason of Fearndale providing what was described as a purported mining lease to the former lessee for publication on the former lessee’s website. The document was signed by two directors of Fearndale. Drama Unit alleged that Fearndale did not take any steps to have the purported mining lease removed from the former lessee’s website. Drama Unit also alleged in par 15 that, in about March 2016, Fearndale represented that a mining lease was in place.

7. Drama Unit alleged that, as a result of these matters, it understood that the purported mining lease was a valid authorisation under the Mining Act. On the basis of that understanding, Drama Unit alleged that it entered into a lease of the property from Fearndale.

8. Drama Unit alleged that Fearndale denied the validity of the lease and refused to allow Drama Unit to take possession of the property. After a number of hearings in this Court and on appeal to the Court of Appeal, it was established that, if the lease was valid, it had been terminated by Fearndale on the basis of a breach of a covenant by Drama Unit to pay outgoings.

9. Although the allegations in the statement of claim may not be entirely clear, I understand Drama Unit’s claim to be that it eventually discovered that it did not have a valid lease because the requirements of the Mining Act were not in fact satisfied, and it was never authorised to carry out any mining operations on the property. Consequently, Drama Unit had incurred the costs of the litigation pointlessly and had lost the opportunity of carrying out mining operations on the property.

10. The principal relief claimed by Drama Unit against Fearndale was in damages “at general law” and under “sec 236 of the Australian Consumer Law”.

11. The statement of claim alleged that, on 2 May 2018, Mr Cook was appointed as the administrator of Fearndale. It further alleged that, by around May 2018, Mr Cook became aware from the Department of Mines that there was no mining lease in place in relation to the property.

12. An allegation was made in par 39 that Mr Cook owed a duty of care to Drama Unit to disclose the fact that he had been advised that there was no mining lease in place. Further, it was alleged in par 44 that Mr Cooke’s conduct constituted misleading or deceptive conduct within the meaning of s 18 of the Australian Consumer Law (being Sch 2 of the Competition and Consumer Act 2010 (Cth)), by reason of his failure to disclose to Drama Unit the fact that he had been advised that there was no mining lease in place in relation to the property. Drama Unit sought damages against Mr Cook for breach of the alleged duty of care and for misleading or deceptive conduct.

13. On 3 October 2019, the defendants filed a notice of motion in which they sought orders for summary dismissal of the statement of claim under Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 13.4, or alternatively, an order that the statement of claim be struck out under UCPR r 14.28. The defendants also sought an order that Drama Unit provide security for their costs in the sum of $454,954.50, or such other amount as the Court deemed appropriate.

14. Drama Unit responded to this notice of motion by filing its own notice of motion on 11 October 2019, by which it sought leave under s 440D of the Corporations Act 2001 (Cth) to bring and maintain the proceedings against Fearndale in administration. Drama Unit also sought leave to file an amended statement of claim in the terms of an annexure to an affidavit of its solicitor. The evident intent of the application for leave was to cure the complaints made by the defendants concerning deficiencies in the way the statement of claim had been pleaded.

15. The two notices of motion were set down for hearing on 12 March 2020 by me. On that date, the parties were represented by counsel. A substantial hearing took place, that is recorded in 38 pages of transcript, but the hearing was ultimately adjourned part-heard. The order dismissing Drama Unit’s proceedings was ultimately made before the hearing of the notices of motion was concluded.

16. At the beginning of the hearing, the Court was informed that the defendants had given notice to Drama Unit that they wished to file an amended notice of motion. The purpose of the amendment was to add a claim for an order that the proceedings be stayed until Drama Unit had paid the costs of Fearndale under a number of costs orders made against Drama Unit.

17. Drama Unit responded to the application by opposing it on two grounds. First, while Drama Unit acknowledged that one of the costs orders concerned proceedings that were sufficiently closely related to the proceedings constituted by the statement of claim that an order might be warranted that these proceedings be stayed until Drama Unit had paid the costs, Drama Unit wished to be able to prove that the amount of the costs was nominal. That was because Drama Unit had sought leave in the earlier proceedings in this Court to file a cross claim against Fearndale that raised substantially the same issues as in the statement of claim. However, the notice of motion seeking leave was dismissed on its return date because there was no appearance for Drama Unit as its then solicitor had ceased to act for it. Consequently, Drama Unit’s position was that the amount of costs that Fearndale would have incurred was minimal.

18. Secondly, Drama Unit wished to have the opportunity to prove by evidence that the other costs orders against it, the subject of Fearndale’s amended notice of motion, were not in respect of proceedings that were sufficiently closely related to the present proceedings to justify the Court in making an order that these proceedings be stayed pending the payment of those costs orders.

19. As I indicated during the course of the hearing, as the defendants had not given Drama Unit adequate notice of their application to amend their statement of claim, it would not have been procedurally fair for the Court to deal with the application during the course of the hearing on that date.

20. Relevantly to the present costs issue, the late application by the defendants to amend their statement of claim had the consequence that the hearing that took place on 12 March 2020 could not have disposed of all of the applications and it would have been necessary to adjourn the hearing in any event.

21. During the course of the hearing that did take place, it became apparent that what had been described in the statement of claim as the purported mining lease was a document that self-evidently could not have created a valid lease, because it was signed by two directors of Fearndale, but the signature block for the Department of Mines was left blank. Furthermore, if it were valid, it would have given an authority to Fearndale to mine, but such an authority would not be effective to authorise either the former lessee or Drama Unit to conduct mining operations on the property, as the relevant provisions of the Mining Act required that the authority be formally granted to the lessee.

22. In addition, it became apparent that after Mr Cook, as the administrator of Fearndale, had informed Drama Unit that the lease was not valid and that Drama Unit had no authority to conduct mining operations on the property, Drama Unit’s own solicitor at the time made an unfounded assertion that there was a valid lease, and even offered to provide Mr Cook with a copy of the lease.

23. These revelations created the appearance that, instead of the defendants misleading or deceiving Drama Unit by representing that there was a valid mining lease of the property, the most that could have happened was that Drama Unit relied upon a document posted to the former lessee’s website that self-evidently could not have created a mining lease or authority because it was plainly not executed on behalf of the Department of Mines.

24. Furthermore, it became difficult to see how there was any arguable basis for Drama Unit to have a claim against Mr Cook. First, it is difficult to see how a person appointed as an administrator of a company could owe a personal duty of care to persons who had dealt with the company to positively inform those persons of information that became known to the administrator in the course of his or her duties, just because it might turn out that the information was significant to them. It became even more difficult to see how either defendant could have been guilty of misleading or deceptive conduct in circumstances where Drama Unit misunderstood the effect of the document posted on the former lessee’s website, the defendants advised Drama Unit that there was no valid mining lease or authority, and Drama Unit’s solicitor contradicted the defendants by asserting that there was a valid lease.

25. However, the course of the hearing did not give either party an opportunity to address these issues in submissions, and the Court has not given judgment on them.

26. That is because, during the hearing, the Court was informed that Mr Cook would advise the creditors that they should resolve to wind up Fearndale. By that time, it had become clear that the hearing would not complete on the day allotted, both because of the defendants’ application to amend their notice of motion, as discussed above, and the indication given by counsel for Drama Unit that he wished to cross-examine the defendants’ witnesses.

27. Discussion occurred between counsel and the bench about the utility of fixing an adjourned date to complete the hearing of the notices of motion if Fearndale would be placed in liquidation. Even if leave were given to Drama Unit to prosecute its claim against Fearndale in administration, a further application for leave would have to be made if the creditors of Fearndale resolved to place it in liquidation. Furthermore, there was a question about the wisdom of legal costs being incurred in prosecuting the proceedings, if there was any real likelihood, as was suggested to the Court, that the assets of Fearndale were subject to securities in favour of creditors that might exhaust the assets.

28. On the afternoon of the hearing, counsel for Drama Unit suggested that the hearing should be adjourned until after the forthcoming meeting of creditors of Fearndale, so that consideration could be given by the parties to the consequences of Fearndale being placed in liquidation, if that occurred. Counsel for the defendants acquiesced in this course. The Court made an order adjourning the proceedings to a date after the date of the meeting of Fearndale’s creditors.

29. Although the creditors of Fearndale did resolve to put the company into liquidation, that did not lead to any resolution of the present proceedings between the parties. Directions were made for the continuation of the hearing of the notices of motion. It is not necessary to relay the further course of the proceedings in detail. It is sufficient to note that, shortly before the date on which the hearing of the notices of motion was fixed to continue, the directors of Drama Unit resolved to appoint administrators of the company. The hearing was further adjourned to enable the administrators to consider their position. I infer that the administrators decided that they should not cause Drama Unit to continue to prosecute the proceedings, and consequently the orders referred to above in par 1 were made on 18 November 2020.

30. It is in these circumstances that the defendants submit that the Court should make an order that their costs be paid by Drama Unit on the indemnity basis.

31. In essence, the defendants’ submission was that an order for costs on the indemnity basis was warranted as Drama Unit’s conduct in commencing and maintaining the proceedings has not been reasonable and its consent to a dismissal of the proceedings represents a capitulation in recognition of a hopeless case.

32. I do not accept that the Court would be warranted in treating the decision of the administrators of Drama Unit not to further prosecute the proceedings as “a capitulation in recognition of a hopeless case”. Their decision to invite the Court to make an order dismissing the proceedings is objectively a capitulation, but the Court has no evidence that would support any finding as to the reason why the administrators made the decision that they did. There is a substantial likelihood that, having reviewed Drama Unit’s financial circumstances, the administrators decided that Drama Unit did not have the financial resources to prosecute the proceedings, or, having regard to its financial circumstances generally, that the potential benefits from prosecuting the proceedings did not outweigh the negative consequences of doing so. I do not consider that the decision made by the administrators has any significance for the purpose of determining the appropriate basis upon which costs should be payable, other than the fact that the administrators have accepted that the proceedings should be dismissed. I do not accept that the administrators’ decision can be treated as a concession that Drama Unit’s case was hopeless.

33. For the reasons that I have outlined above, it became increasingly apparent during the course of the hearing that there may be substantial flaws in Drama Unit’s case, but the question of whether those flaws were sufficient to justify an order summarily dismissing the claim was not resolved.

34. The defendants submitted that it was unreasonable conduct for Drama Unit to have commenced the present proceedings, because the claim should have been prosecuted by means of a cross claim in the earlier proceedings in this Court. Indeed, at the adjourned hearing, the defendants foreshadowed an argument that the proceedings should be dismissed on the basis of an Anshun estoppel. That issue was not addressed in any substantial way in submissions. It would have raised the question whether a defendant in proceedings who seeks leave to file a cross claim in those proceedings, but whose application is dismissed for want of appearance on the application for leave, without there being any hearing on the merits, should be estopped from commencing a new claim that raises the same issues as the proposed cross claim. That question has not been the subject of submissions and I consider that the answer is not straightforward. It is not a basis for the Court to order costs to be paid on the indemnity basis in this case.

35. Although the submissions made by the parties did not enable me to understand the issues sufficiently, it may be possible that some matters raised by the statement of claim have already been determined in the earlier proceedings in this Court. However, if that is so, it will only be true for relatively peripheral matters in so far as the costs incurred to date by the defendants are concerned.

36. In these circumstances I reject the defendants’ application for an order that Drama Unit pay the costs in accordance with the order made on 18 November 2020 on the indemnity basis. Because of the intervention of the administration of Drama Unit, the defendants have the benefit of an order that Drama Unit pay the whole of their costs of the proceedings. Had that not happened, the defendants may have been at risk of some adverse costs order being made against them because of their late notice of their application to amend their notice of motion referred to above.

37. The Court’s order is:

1. The defendants’ application for an order that the plaintiff pay their costs in accordance with the order made on 18 November 2020 on the indemnity basis is dismissed.

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Amendments

20 July 2021 - correction to court file number

Decision last updated: 20 July 2021