Duncan as Liquidator of WDR Iron Ore Pty Ltd (In Liquidation) v SMA Industries Pty Ltd (No 2) - [2020] SASC 127

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
DUNCAN AS LIQUIDATOR OF WDR IRON ORE PTY LTD (IN LIQUIDATION) v SMA INDUSTRIES PTY LTD (No 2)
[2020] SASC 127
Decision of The Honourable Justice Blue
7 July 2020
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS
Applications for costs.
On 26 May 2020 it was held that the first applicant is entitled to judgment against the respondent for $996,274.39 plus interest and the claim by the second applicant should be dismissed.
The applicants seek an order that the respondent pay their costs of action on a party/party basis up to 23 May 2018 and thereafter on an indemnity basis by reason of a formal offer filed by the first applicant on 9 May 2018.
The respondent seeks an order that the second applicant pay its costs of action on a party/party basis.
Held:
1. There is no reason to exercise the residual discretion not to order that the costs payable by the respondent to the first applicant be on an indemnity basis (at [20]).
2. The costs order(s) should reflect the fact that the second applicant’s claim was unsuccessful (at [32]).
3. The mixed success of the first and second applicants should be reflected in a single overall order that the respondent pay an appropriate proportion of the costs of both applicants (at [37]).
4. The costs in respect of interlocutory applications made on 28 August, 6 September and 14 September 2018 should be reflected in a single overall order (at [41]).
5. Order that the respondent pay 90% of the applicants’ costs of action (excluding costs in relation to insolvency) in respect of the period up to and including 23 May 2018 on a party/party basis and thereafter on an indemnity basis (at [46]).
Supreme Court Civil Rules 2006 (SA) r 188F, referred to.

DUNCAN AS LIQUIDATOR OF WDR IRON ORE PTY LTD (IN LIQUIDATION) v SMA INDUSTRIES PTY LTD (No 2)
[2020] SASC 127
Civil
BLUE J:

On 26 May 2020 I delivered reasons for judgment in which I concluded that the first applicant Stephen Duncan as liquidator of WDR Iron Ore Pty Ltd (In Liquidation) (WDRIO) is entitled to judgment against the respondent SMA Industries Pty Ltd (SMA) for $996,274.39 plus interest and the claim by the second applicant Mr Duncan as liquidator of Western Desert Resources Ltd (WDR) should be dismissed.[1]
[1] Duncan as Liquidator of WDR Iron Ore Pty Ltd (In Liquidation) v SMA Industries Pty Ltd [2020] SASC 88.
I subsequently ordered that judgment be entered in favour of Mr Duncan as liquidator of WDRIO for $996,274.39 plus interest fixed at $189,839.92.
Mr Duncan as liquidator of WDRIO and WDR seeks an order that SMA pay the applicants’ costs of action. He seeks that the costs be on an indemnity basis on and after 24 May 2018 because he, as liquidator of WDRIO, bettered a formal offer filed on 9 May 2018.
SMA does not resist an order that it pay the costs of action of Mr Duncan as liquidator of WDRIO but contends that it should be on a party/party basis only. It seeks an order that Mr Duncan as liquidator of WDR pay its costs of his action on a party/party basis.
There are four issues:
1Should costs awarded in favour of Mr Duncan as liquidator of WDRIO be on an indemnity or party/party basis insofar as those costs were incurred on and after 24 May 2018?
2Should the costs order or orders reflect the fact that, although Mr Duncan as liquidator of WDRIO was successful, his claim as liquidator of WDR was unsuccessful?
3If so, should an order be made that Mr Duncan as liquidator of WDR pay the costs of action of SMA insofar as they relate to that claim; or alternatively should an order be made that SMA pay a proportion of the costs of Mr Duncan as liquidator of WDRIO and WDR?
4What order for costs should be made in respect of interlocutory applications made on 28 August, 6 September and 14 September 2018?
Costs scale between first applicant and respondent
The first issue is whether costs awarded in favour of Mr Duncan as liquidator of WDRIO should be on an indemnity or party/party basis insofar as those costs were incurred on and after 24 May 2018.
On 9 May 2018 Mr Duncan as liquidator of WDRIO filed and served a formal offer to accept judgment for $446,274.39 plus interest and costs.
Subrules 188F(1) to (3) of the Supreme Court Civil Rules 2006 (SA) (the Former Rules) [2] relevantly provided:
[2]    The costs in this proceeding are governed by the Former Rules because the offer was made and the trial was completed during the operation of those Rules. In any event, the provisions of rule 132.10 of the Uniform Civil Rules 2020 (SA) are materially the same.
188F—Costs where complying offer not accepted
(1)     In this Part
complying offer means a formal offer that—
(a)     complies with rule 187;
(b)     involves a genuine compromise;
(c)contains a term either that the defendant on the relevant claim is to pay the costs of the plaintiff on the relevant claim on a party and party basis or that the parties will submit to any order the Court may make in the exercise of its discretion;
…
(e)was filed at least 21 clear calendar days before the commencement of the trial of the claim to which it relates or such later date as may be specified by the Court on application for an extension of time made before the formal offer is made.
…
(2)     The provisions of this rule are subject to the overriding discretion of the Court.
(3)When a complying offer is made by a plaintiff and not accepted by a defendant and the plaintiff obtains judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer—
(a)the costs incurred in respect of the claim up to 14 days after service of the formal offer are unaffected by the making of the formal offer;
(b)the plaintiff is entitled to an order against the defendant for the plaintiff's costs of action in respect of the claim to which the complying offer relates thereafter on an indemnity basis.
SMA accepts that the offer made on 9 May 2018 was a complying offer within the meaning of subrule 188F(1); Mr Duncan as liquidator of WDRIO obtained judgment for a greater amount than the amount of the offer; and, subject to the exercise of the overriding discretion under subrule (2), Mr Duncan as liquidator of WDRIO is entitled under subrule (3) to an order for indemnity costs in respect of the period from 24 May 2018 onwards.
SMA contends that the overriding discretion should be exercised so as not to order indemnity costs because there was a reasonable basis for it to reject the offer. It contends that there was great uncertainty as to whether WDRIO or WDR was the debtor of SMA, whether WDRIO was the agent of WDR and whether the circumstances comprised a “Blacklaw & Shadforth tripartite arrangement”.
It is not sufficient to justify the exercise of the overriding discretion under subrule 188F(2) merely to establish that the unsuccessful party had a reasonable basis to reject the offer. It is necessary to consider all relevant circumstances, one of which will be the reasonableness of the offer from the perspective of both parties.
This action was instituted by Mr Duncan as liquidator of WDRIO in September 2017. SMA filed its original defence in November 2017. SMA admitted that it was a creditor of WDRIO, although it pleaded that the payments that it received were made by WDR.
On 28 August 2018 Mr Duncan as liquidator of WDRIO filed an interlocutory application seeking permission to amend his statement of claim to plead in the alternative that the payments were made by WDR to SMA pursuant to a tripartite transaction to which SMA, WDRIO and WDR were parties. Such a tripartite transaction was called by the parties a “Blacklaw & Shadforth tripartite arrangement”.[3] On 31 August 2018 Mr Duncan was granted permission to make that amendment.
[3] Named after Emanuel (No 14) Pty Ltd (in liquidation); Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281.
On 6 September 2018 SMA filed an interlocutory application seeking permission to amend its defence to withdraw its admission that it was a creditor of WDRIO and to substitute a denial with a pleading that it was instead a creditor of WDR. That application was heard on 14 September 2018. SMA relied on an affidavit sworn by its solicitor Adam Khan and he was cross-examined on his affidavits. The effect of Mr Khan’s evidence was that, when he drafted the original defence, he considered that it was likely that SMA was a creditor of WDRIO but, as a result of information recently received by him, he considered that it was likely that SMA was a creditor of WDR instead.
At the hearing on 14 September 2018, Mr Duncan as liquidator of WDR applied to be joined as a second applicant in the action making a claim, in the alternative to his claim as liquidator of WDRIO, for recovery of the monies paid to SMA as unfair preferences. SMA opposed the joinder on the ground that Mr Duncan as liquidator of WDR was out of time to bring such a claim.
On 14 September 2018 SMA was granted permission to amend its defence to plead that it was a creditor of WDR and not WDRIO. Mr Duncan as liquidator of WDR was joined as a second applicant on the basis that the joinder take effect only on that date so as to preserve any time limitation defence that SMA might have.
At trial, it was common ground that the payments in question were made by WDR and it was also common ground that they were made pursuant to a tripartite transaction to which WDRIO, WDR and SMA were parties.
I do not accept that there was great uncertainty in May 2018, when the formal offer was filed and not accepted, as to whether the circumstances comprised a “Blacklaw & Shadforth tripartite arrangement”. SMA did not at trial contest the existence of such an arrangement. Although such an arrangement was not pleaded in May 2018, there was no basis for SMA to consider that it would not and could not be advanced at trial or that it would not succeed.
I do not accept that there was great uncertainty in May 2018, when the formal offer was filed and not accepted, as to whether WDRIO or WDR was the debtor of SMA or WDRIO was the agent of WDR. As at May 2018 SMA accepted that WDRIO had been its debtor and had admitted that fact since it filed its defence in November 2017. Although objectively assessed it may have been arguable that WDRIO was the agent of WDR, such an argument was not strong for the reasons given in my primary reasons for judgment.
There is no reason why subrule 188F(3) should not apply. Mr Duncan as liquidator of WDRIO is entitled to recover from SMA his costs of action on and after 24 May 2018 on an indemnity basis.
Costs differentiation between first and second applicant’s claims
The second issue is whether the costs order or orders should reflect the fact that, although Mr Duncan as liquidator of WDRIO was successful, his claim as liquidator of WDR was unsuccessful.
SMA seeks an order that Mr Duncan as liquidator of WDR pay its costs of action insofar as it defended the claim by Mr Duncan as liquidator of WDR. SMA contends that these costs should follow the event on the basis that the claim by Mr Duncan as liquidator of WDR failed.
Mr Duncan contends that the claim should be characterised as a single claim by Mr Duncan in two alternative capacities and only a single order should be made for the costs of action. I reject that contention. For the reasons given in my principal reasons for judgment, there were two applicants in this action and there were separate claims by Mr Duncan as liquidator of WDRIO and by Mr Duncan as liquidator of WDR, albeit the second claim was made in the alternative to the first claim.
The position may have been different if Mr Duncan had brought both alternative claims at the outset (within the three year time limitation) to avoid an argument by SMA as to which company was its creditor. Assuming that the issue as to the insolvency of the two companies was essentially the same issue, this would have occasioned very little additional costs compared to the costs that would have been incurred if Mr Duncan had only brought the claim as liquidator of WDRIO.
However, the position is quite different because Mr Duncan only brought the claim as liquidator of WDR after the expiration of the three year time limitation. SMA did not file its defence until after the expiration of that time limitation and hence it cannot be said that its conduct in initially admitting that it was a creditor of WDRIO caused the claim by Mr Duncan as liquidator of WDR to be brought outside the three year time limitation period. Because Mr Duncan brought the claim after the expiration of that period, an issue arose as to whether that claim was time-barred. The issue was resolved against Mr Duncan as liquidator of WDR. That issue was ultimately the only incremental issue addressed at trial in addition to the issues that arose in any event as between SMA and Mr Duncan as liquidator of WDRIO. A second issue as to the insolvency of WDR was ultimately resolved after the commencement of the trial.
Mr Duncan contends that his application as liquidator of WDR to be joined as a second applicant was consequential on SMA’s belated application to amend its defence to deny that it was a creditor of WDRIO and that the situation is analogous to that in which a Bullock order is justified. I reject that contention. There is no analogy. The costs incurred by both parties in relation to the claim by Mr Duncan as liquidator of WDR were the result of Mr Duncan’s decision to pursue a claim that was time-barred.
Mr Duncan contends that the presumptive effect of subrule 188F(3) operates in respect of the “costs of action” and should be applied to the costs of action as between both applicants on the one hand and the respondent on the other hand. I reject that contention. Subrule 188F(3) applies to the “costs of action” as between a successful applicant and an unsuccessful respondent; this does not encompass the costs of an unsuccessful co-applicant against a successful respondent.
Mr Duncan contends that, if SMA had accepted the formal offer made by Mr Duncan as liquidator of WDRIO, the costs of the alternative claim would have been avoided and it follows that SMA should bear the costs of the alternative claim. I accept the premise, but not the conclusion, of this contention.
I accept that there is a unifying theme in relation to many factors that courts take into account in exercising the costs discretion that the court is seeking to ascertain which party caused or contributed to the incurring of the costs in question.[4] However, this concept of causation does not involve a simplistic application of a “but for” test, nor even the common sense causation test applied in March v E & MH Stramare Pty Ltd.[5] Typically there will be multiple causes that might be characterised as material causes of the incurring of the costs of (or in) an action. In exercising the discretion as to costs, it is necessary to make an evaluative judgment as to the role of the concurrent (or competing) causes in the incurring of the costs in question.
[4] Koonara Management Pty Ltd (Receivers and Managers Appointed) v Fabriano Pty Ltd [2019] SASC 99 at [51]; Bell v Deputy Coroner of South Australia (No 2) [2020] SASC 77 at [24].
[5] (1991) 171 CLR 506.
In the present case, the direct and real cause of the incurring of the costs of the claim by Mr Duncan as liquidator of WDR was his decision to bring the claim when it was time-barred. The mere fact that SMA did not in May 2018 accept the offer made by Mr Duncan as liquidator of WDRIO is too remote to result in an exercise of discretion other than that costs should follow the event.
Mr Duncan contends that the costs incurred in connection with his claim as liquidator of WDR are relatively small compared to the costs of the entire action and do not justify a differential costs order. I reject that contention given my assessment of that proportion below.
The costs order or orders should reflect the fact that the claim by Mr Duncan as liquidator of WDR was unsuccessful.
Structure of costs order or orders
The third issue is, if the costs order or orders should reflect the fact that the claim by Mr Duncan as liquidator of WDR was unsuccessful, how should such an order or orders be structured; that is whether:
·an order should be made that Mr Duncan as liquidator of WDR pay the costs of action of SMA insofar as they relate to that claim; or
·an order should be made that SMA pay a proportion of the combined costs of Mr Duncan as liquidator of WDRIO and WDR.
It is common ground that, if the costs order should reflect the fact that Mr Duncan as liquidator of WDR was unsuccessful, this should be reflected in a single order that SMA pay a proportion of the combined costs of Mr Duncan as liquidator of WDRIO and WDR.
I accept that it is appropriate to proceed in accordance with the submissions by the parties. The applicants were represented by the same solicitors and counsel. If there were to be separate taxations, difficult questions would arise as to whether a given item of work was undertaken in respect of the first applicant’s claim or the second applicant’s claim or both. The taxations would be complex, protracted and expensive.
For the reasons given in my principal reasons for judgment in this matter[6] and in Duncan as Liquidator of WDR Iron Ore Pty Ltd (In Liquidation) v Downer EDI Works Pty Ltd,[7] the affairs of WDRIO and WDR were closely interwoven and in practice were conducted internally by the Western Desert group without differentiation between the separate legal entities.
[6] Duncan as Liquidator of WDR Iron Ore Pty Ltd (In Liquidation) v SMA Industries Pty Ltd [2020] SASC 88.
[7] [2020] SASC 89.
Taking into account the above matters, together with the extent to which Mr Duncan will recover his legal costs; the limited extent to which he will not in accordance with my assessment below; and the increased time and cost that would otherwise be incurred on separate taxations, I accept Mr Duncan’s submission that making a single costs order would not operate to the disadvantage of the creditors of WDRIO and it is appropriate to make such an order.
Costs of interlocutory applications
On 31 August 2018 I granted permission to Mr Duncan as liquidator of WDRIO to amend his statement of claim to plead a “Blacklaw & Shadforth tripartite arrangement”. It is common ground that, in accordance with subrule 263(2) of the Former Rules, SMA should notionally recover its costs of the application to amend and of the amendment as against Mr Duncan as liquidator of WDRIO.
On 14 September 2018 I granted permission to SMA to amend its defence to plead that it was a creditor of WDR and not WDRIO. It is common ground that, in accordance with subrule 263(2) of the Former Rules, Mr Duncan as liquidator of WDRIO should notionally recover from SMA his costs of the application for permission to amend and of the amendment.
On 14 September 2018 I ordered that Mr Duncan as liquidator of WDR be joined as the second applicant in the action. It is common ground that, if the costs order or orders should reflect the fact that the claim by Mr Duncan as liquidator of WDR was unsuccessful, SMA should notionally recover its costs of the joinder application as against Mr Duncan as liquidator of WDR.
It is common ground that, if a single costs order is to be made, each of these notional costs should be taken into account in determining an appropriate single costs order.
Appropriate single costs order
I take into account the fact that Mr Duncan is entitled to notionally recover all of his costs (initially on a party/party basis and, from 24 May 2018, on an indemnity basis) up to the stage when he applied as liquidator of WDR to be joined as a second applicant in the action.

I take into account that an order was made on 21 May 2018 relating to the costs incurred in relation to the insolvency issue, which continues to apply. A substantial component of the costs incurred in the action up to that stage would have related to the insolvency issue.
I take into account the fact that, after Mr Duncan as liquidator of WDR was joined as a second applicant in the action, the substantial majority of costs would have related to issues other than those associated with joinder of that claim.
Wielding a broad axe, the appropriate order is that the applicants recover from the respondent 90 per cent of their costs of action.
Conclusion
I order that, except in respect of the costs in relation to insolvency, which are to be governed by the order made on 21 May 2018, the respondent SMA Industries Pty Ltd is to pay 90 per cent of the applicants’ costs of the action as against SMA Industries Pty Ltd, including any reserved costs:
(a)in respect of the period up to and including 23 May 2018, on a party/party basis; and
(b) thereafter on an indemnity basis.