Hu v PS Securities Pty Ltd as trustee of the Joseph Family Trust
[2011] NSWSC 362
•03 May 2011
Supreme Court
New South Wales
Medium Neutral Citation: Hu v PS Securities Pty Ltd as trustee of the Joseph Family Trust & anor [2011] NSWSC 362 Decision date: 03 May 2011 Before: Ward J Decision: Costs orders made in favour of second defendant only
Catchwords: COSTS - applications by each of the parties as to costs of applications for leave to bring derivative proceedings and to strike out plaintiff's statement of claim - application by second defendant for indemnity costs assessable and payable forthwith - HELD - plaintiff to pay second defendant's costs of on party/party basis of day's hearing only - costs to be assessed and payable forthwith - no other order as to costs Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Australian Federation of Consumer Organisations Inc v Tobacco Institute (Aust) Limited (1991) 100 ALR 568
Bostik Australia Pty Limited v Liddiard (No 2) [2009] NSWCA 304
Bowen Investments Pty Limited v TAB Corp Holdings Limited (No 2) [2008] FCAFC 107
Cantle v Douglas [1921] St R Qd 253
Dodds Family Investments Pty Limited v Lane Industries Pty Limited (1993) 26 IPR 261
Fexuto v Bosnjak Holdings Pty Limited (No 3) (1998) 30 ACSR 20
Fountain Selected Meats (Sales) Pty Limited v International Produce Merchants Pty Limited (1988) 81 ALR 397
Hughes v Western Australian Cricket Association (1986) ATPR 40-748
James v Surf Road Nominees (No 2) [2005] NSWCA 296
Mitropolous v Greek Orthodox Church and Community of Marrickville & District Ltd (1993) 10 ACSR 134
Oshlack v Richmond River Council (1998) 193 CLR 72
Owners Strata Plan No 64970 v Austruc Constructions Ltd (in liq) (No 5) [2010] NSWSC 568
Pacific General Securities Limited v Soliman & Sons Pty Limited [2006] NSWSC 724
Ritter v Godfrey [1920] 2 KB 47
Roache v News Group Newspapers [1998] EMLR 161
Timms v Clift [1998] 2 Qd R 100Category: Costs Parties: Helena Hu (Plaintiff)
PS Securities Pty Ltd as Trustee of the Joseph Family Trust (First Defendant)
Alphena Pty Ltd (in liq) (Second Defendant)Representation: Counsel:
M W Young with S O'Brien (Plaintiff)
H Stowe (First Defendant)
M Condon (Second Defendant)
Solicitors:
Dixon Holmes du Pont Lawyers (Plaintiff)
Mooney & Kennedy (First Defendant)
Sage Solicitors (Second Defendant)
File Number(s): 10/425147
Judgment
HER HONOUR: On 14 April this year I published my reasons for judgment following the hearing of an application brought by Interlocutory Process filed on 14 January 2011 and amended on 28 February 2011 by the plaintiff, Ms Helena Hu, seeking various orders in relation to a claim sought to be brought against the first defendant (PS Securities). I also determined an application brought by Notice of Motion filed by PS Securities on 4 February 2011 (but which I wrongly referred to in my earlier reasons as dated 4 December 2010) for an order to strike out Ms Hu's Statement of Claim in these proceedings.
I granted leave pursuant to s 500(2) of the Corporations Act 2001 (Cth) for Ms Hu to bring these proceedings against the second defendant (Alphena), which is in liquidation, but I dismissed Ms Hu's application for leave to bring these proceedings against PS Securities in the name or on behalf of Alphena (on the basis that the liquidators of Alphena (who were represented at the hearing before me by Mr Condon of Counsel) had by then commenced separate proceedings against PS Securities (seeking to enforce, as trustee, a right of indemnification out of trust assets for debts incurred by Alphena, including the debt claimed by Ms Hu).
I stayed these proceedings pending the determination (or earlier resolution by agreement duly approved by the Court and/or with the consent of Ms Hu) of the liquidators' separate proceedings against PS Securities but noted that this stay was not to preclude Ms Hu from making a later application to discharge the stay in the event that she were to form the view that the liquidators were not properly and diligently prosecuting the proceedings or not complying with the undertakings that they had proffered to the Court on the application before me.
I indicated in the judgment that I would hear Counsel at a convenient time as to costs. In the event, brief written submissions were served by the respective parties on the question of costs and, having considered those submissions, I have determined the costs applications in chambers. I now make those costs orders for the final disposition of the applications before me and publish my reasons for so doing.
The background to the applications that I determined in April is set out in my earlier judgments of 2 March 2011 (on Ms Hu's successful application for freezing orders) and 14 April 2011.
Each of the parties takes a different position in relation to the appropriate costs orders now to be made. For Ms Hu, it is submitted that there should be no order as to the costs of the respective processes, with the intent that each party should bear its own costs. For PS Securities, it is submitted that Ms Hu ought to pay its costs of and incidental to her Interlocutory Process and that the costs of its Notice of Motion should be reserved. For Alphena, it is submitted that Ms Hu should pay its costs assessed on an indemnity basis and payable forthwith.
- Ms Hu's submissions
Mr MW Young of Counsel, for Ms Hu, submits that no order as to costs is appropriate in circumstances where each party has achieved a measure of success (citing Cantle v Douglas [1921] St R Qd 253 at [255] per Shand J). He notes that Ms Hu succeeded in obtaining leave pursuant to s 500(2) of the Corporations Act to bring these proceedings against Alphena and that, although leave was not granted for her to bring proceedings on behalf of Alphena against PS Securities, a regime was put in place where these proceedings will be listed together with the liquidators' proceedings and where she will be at liberty to apply again for leave if the liquidators' proceedings are not properly prosecuted. Further, he notes that PS Securities' strike out application (the only matter pursued on its Notice of Motion when the matter was before me) was unsuccessful.
Mr Young submits that, to the extent that Ms Hu was unsuccessful on her Interlocutory Process. that was due to events which occurred only after her Interlocutory Process was filed (namely, the commencement by the liquidators of their separate proceedings on 7 March 2011, the various undertakings given by the liquidators in relation to their prosecution of those proceedings, and the clarification as to the liquidators' position with respect to the freezing order that I had earlier made). Thus, it is submitted that Ms Hu was justified in filing her Interlocutory Process and in maintaining it at least up to the morning of the date fixed for the hearing of the Interlocutory Process (when the undertakings and the position of the liquidator in relation to the freezing order were clarified).
Further factors said to support the conclusion that there be no order as to costs of the Interlocutory Process are the liquidators' 'lack of alacrity' in bringing the proceedings against PS Securities (to which I had referred at [45] of my reasons); the statement by the liquidators in their report to creditors of 12 August 2010 that the investigations were complete (on the basis of which I had observed (at [60]) that Ms Hu might not unreasonably have thought that the liquidators intended to do nothing further to pursue a claim based on the Alphena's right of indemnification as trustee); that it was not unreasonable for Ms Hu to have wished to have the conduct through her own legal advisers of proceedings which appeared to be the only means of procuring the payment of a not insubstantial debt owing by Alphena (in circumstances where the conduct of Alphena or its director, Mr Joseph, had already been the subject of unfavourable judicial comment in the District Court proceedings that gave rise to her judgment debt) at [74]); and that the basis on which the grant of leave was refused was the liquidators' willingness and ability to prosecute the claims (but for which leave would have been granted to Ms Hu to continue the proceedings - [79]).
It is submitted that, to the extent that the conduct of the liquidators had led Ms Hu reasonably to believe that they intended to do nothing, and that this played a significant role in leading her to commence these proceedings (and to file the Interlocutory Process), that conduct constitutes a ground for refusing at least Alphena's costs (citing Ritter v Godfrey [1920] 2 KB 47 at [53] per Lord Sterndale MR and Mitropolous v Greek Orthodox Church and Community of Marrickville & District Ltd (1993) 10 ACSR 134 at [139] per McClelland J).
- PS Securities' submissions
Counsel for PS Securities, Mr Stowe, supports his client's claim for costs on the basis that, as to Ms Hu's Interlocutory Process, she substantially failed.
As to the application for leave pursuant to s 500(2), a distinction is drawn between the order that had been sought (to commence and maintain the proceedings) and the order as made (to bring the proceedings). It is submitted that at most, the order granted in favour of Ms Hu on this part of the application was to allow her the benefit of the filing fee by not striking out the claim. Nevertheless, in circumstances where Ms Hu had sought to maintain the proceedings against Alphena in effect only as a nominal defendant in circumstances where the substantive proceedings she wished to bring were the proceedings against PS Securities in Alphena's name or on behalf of Alphena (and for that reason Alphena was a proper party to be joined and leave was necessary as it was in liquidation), I do not consider that the distinction between the order as sought and that granted is a matter on which I should place any weight when determining where costs should fall.
As to the application for leave to bring these proceedings against Alphena, on which Mr Stowe correctly observes that the majority of the hearing time was spent, Ms Hu was unsuccessful. (Mr Stowe submits that the continuation of the freezing order is not a relevant factor to be taken into account in this regard because Ms Hu did not seek an order in relation thereto on this application. While I accept that no order was sought on the later occasion in relation to the freezing order, its subsistence and the protection it afforded to Ms Hu were matters taken into account by me in declining to strike out Ms Hu's proceedings and it was thus of relevance in that context.)
Mr Stowe submits that Ms Hu was on notice that proceedings had been issued by the liquidators against PS Securities (which occurred on 7 March 2011) from the time Mr Barnden's affidavit of 11 March 2011 was served on her (since Mr Barnden deposed to having caused his solicitors to issue legal proceedings against PS Securities for indemnification of Alphena's debts from the assets of the Joseph Family Trust and that such proceedings had been issued and served on PS Securities). It is submitted that Ms Hu should have taken those actions as an indication of the liquidators' ability and willingness to enforce the company's right of indemnification against PS Securities (and not pursued her application).
I accept that, from the service of Mr Barnden's affidavit, it might be thought that the prospects of Ms Hu obtaining the relief she sought were diminished. However, it seems to me that there is some force to the proposition (which seems to me to be the thrust of the submission by Mr Young in this regard) that without the bringing of Ms Hu's applications for interlocutory relief (in terms of the freezing order) and then for leave to bring a derivative suit, there is no assurance that the liquidators would have taken such steps (or would have done so in the circumstances where they have now given serious undertakings as to the conduct of those proceedings), given the delay in commencing proceedings up to that point. Furthermore, it does not seem to me that Ms Hu should be criticised for not immediately discontinuing her application on receipt of the liquidator's affidavit, since it would not have been unreasonable for her to have sought legal advice and to have taken into consideration in that context the ability of the liquidators to prosecute those proceedings having regard to the seemingly parlous financial state of Alphena.
Therefore, the suggestion that costs were unnecessarily incurred by Ms Hu in pursuing her application in relation to the derivative proceedings seems to me, at most, to be more properly confined to her decision to proceed with the contested application on 25 March 2011 (ie, the costs of the hearing itself).
As to discretionary factors, Mr Stowe points out that the submission made for PS Securities (that it was inappropriate for leave to be granted where it might lead to PS Securities being exposed to multiple proceedings in relation to the same facts) was accepted, as were the submissions made by Mr Condon on Alphena's behalf (going to matters supporting the conclusion that leave should not be granted to Ms Hu to bring a derivative action in the name of Alphena) that no undertakings had been provided as to how Ms Hu would conduct the litigation or approach possible settlement, and that Ms Hu owed no common law or statutory duties to the company or its creditors or members and was not bound to take into account the interest of those persons.
I have noted those matters. I also note that, in one sense, what PS Securities was contending for was the identity of the party which should be the one with the conduct of the proceedings against it (the incongruity of which had been remarked upon by Mr Young during the hearing).
As to PS Securities' Notice of Motion (which had not in fact been listed for hearing on 25 March 2011 but which was dealt with on that occasion as a matter of convenience), Mr Stowe noted that the strike out application was made on the basis that if the Court refused to grant leave for the derivative action, then there was no reasonable cause of action and the proceedings should be dismissed. (Instead, I ordered that the proceedings be stayed until the determination or earlier resolution by agreement of the proceedings commenced by the liquidator of Alphena.) However, Mr Stowe submits that the strike out application has not failed per se; rather the proceedings have been left on foot on the basis of a contingency (the subsequent unwillingness or failure of the liquidator to pursue the proceedings), which may or may not occur and where the risk of such a situation arising is beyond the control of PS Securities.
It is thus submitted by Mr Stowe that it is inappropriate to order costs on the motion until the determination or resolution of the proceedings commenced by the liquidator against PS Securities, on the basis that it is only then that it will be apparent whether there was a need to protect Ms Hu's position by disallowing the strike-out application.
- Alphena's submissions
Mr Condon submits that Ms Hu failed in her application and that costs should, as in the ordinary course, follow the event (relying on Rule 42.1). Further, it is submitted that indemnity costs are justified because Ms Hu alleged serious misconduct against the liquidators, which allegation was rejected, and that leave should now be given to assess the costs, as the motion involved the determination of a discrete application.
Mr Condon submits that where the liquidators were attempting to vindicate the concern recognised in the Corporations Act that liquidations be managed by properly qualified, independent professional persons (and where the company's assets are, by definition, limited) then the liquidators should not lightly be denied restorative justice in terms of costs.
It is submitted that, to the extent that I had expressed concern as to the liquidators' position as at 12 August 2010 (paragraph [60] of the principal judgment), the position was qualitatively different by the time of the hearing of Ms Hu's motion, since by then the liquidators had commenced their own proceedings against PS Securities (and had lodged a caveat to secure the claimed proprietary interest of Alphena as trustee).
Mr Condon places weight on the fact that Ms Hu (though formally eschewing a claim of collusion) had nevertheless, through her Counsel, raised concerns as to improper conduct against the liquidators (in essence, submitting that the liquidators were favouring the interests of Messrs Joseph and Lombardo over those of Ms Hu - an allegation that, Mr Condon submits, would amount to a breach of duty on the part of the liquidators and therefore should not have been made lightly).
It is submitted that there was no basis for the suggestion that the liquidators would not pursue the proceedings instituted by them with vigour, when the proceedings had in fact by then been commenced and a caveat lodged; when the correspondence from late August to late October 2010 did not indicate that Ms Hu herself wished proceedings (as opposed to investigations) to be initiated at that stage; and when, even as late as October 2010, Ms Hu's offer of funding was conditional upon the retainer of her then legal representatives. Reference is also made to the finding (at [59]) that over the period in which there were communications as to the position of the Alphena as trustee, Mr Barnden was not improperly taking the position that the matter had to be investigated before the liquidators would be in a position to obtain advice as to the matter and take further steps.
Further, it is submitted that, to the extent that the reasons for any delay in the liquidators initiating proceedings were irrelevant to the question whether they would now properly act to pursue a claim in the interests of Alphena and its creditors, so also the allegation of misconduct against the liquidators was irrelevant and should not have been advanced.
These matters are said to justify an order for indemnity costs (reliance being placed on Fountain Selected Meats (Sales) Pty Limited v International Produce Merchants Pty Limited (1988) 81 ALR 397 at [400] -[401] per Woodward J). Mr Condon submits that a party in the position of the liquidators should not be left to meet part of its costs in litigation where it attempted to uphold the public policy reasons referred to at [41] of my reasons for judgment (referring to Australian Federation of Consumer Organisations Inc v Tobacco Institute (Aust) Limited (1991) 100 ALR 568).
Finally, Mr Condon submits that it is significant that Ms Hu agreed to fund Alphena in relation to its costs of the litigation against PS Securities and that, while it is accepted that that offer did not relate to the costs of this motion, it would be a curious outcome if Alphena were to be disadvantaged as to costs by resisting a claim brought by Ms Hu to determine who should bring the very claim the subject of that costs undertaking.
As to the application for leave to assess costs forthwith, Mr Condon relies upon the principles set out in Fiduciary Limited v Morningstar Research Pty Limited (2002) 55 NSWLR 1 and submits that the determination of the motion represented the resolution of a discrete aspect of the case, unrelated to the issues of substance to be litigated between the parties, and, as such, the work undertaken in relation to the motion will carry no practical benefit in the litigation to be undertaken in the future. He submits that the final determination of the issues in the litigation will not occur at any time soon and that there is no reason for the process of assessment to be delayed; a fortiori where the company is in liquidation. Mr Condon submits that, to the extent that the court has regard to the reasonableness of a party's conduct, the matters relied upon for the application for indemnity costs are applicable on this aspect of the application for costs.
Conclusion
As noted in my April reasons for judgment, I was not satisfied that the liquidators' conduct had been such as to warrant a departure from the ordinary position (based on sound policy reasons) that the liquidators should have the conduct of proceedings to enforce the company's claim for indemnification in respect of debts incurred by it as trustee. That was sufficient to dispose of the claims for leave whether brought under the statutory provision or in the Court's inherent or equitable jurisdiction. However, that position did not arise until after Ms Hu had filed her application and it seems to me it cannot be said that she was not justified in so doing. But for the liquidators (on one view belated) steps to recover the debt in question (and others) out of what are alleged to be trust assets, Ms Hu's application would have succeeded before me.
There is a broad discretion in relation to the award of costs (as recognised in Oshlack v Richmond River Council (1998) 193 CLR 72) but the general rule is that costs follow the event and that there should not lightly be a departure from that rule, as emphasised by McHugh J at [67] - [68]:
The expression the "usual order as to costs" embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.
As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instill in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice.
That general rule requires the court to determine what in fact is the relevant 'event' ( Owners Strata Plan No 64970 v Austruc Constructions Ltd (in liq) (No 5) [2010] NSWSC 568, per Bergin CJ in Eq).
There are, however, cases in which, in the exercise of the court's broad discretion in relation to costs, an apportionment of the costs as between various issues in the case or an order other than that which would generally follow the overall outcome of the proceedings will be made, or where a party may not recover the whole of the costs that might otherwise be ordered as following the 'event', having regard to the fact that the exercise of the court's discretion as to costs ultimately requires an assessment of what is fair in all the circumstances ( Bowen Investments Pty Limited v TAB Corp Holdings Limited (No 2) [2008] FCAFC 107 where Finkelstein and Gordon JJ said (at [5]) that if an issue by issue approach would produce a result that is fairer than the traditional rule, it should be applied.
While there were separate applications before me, it does not seem to me that this is a case where the argument was so clearly divided into clearly defined and separate issues as to make it appropriate to award costs of a separate issue (the strike out application in effect being an adjunct to the main question which was as to whether leave should be granted for Ms Hu to prosecute a claim in the name of Alphena against PS Securities).
I note that Toohey J in Hughes v Western Australian Cricket Association (1986) ATPR 40-748 said that:
It seems to me that the only basis on which it would be appropriate to depart from the general rule that costs follow the event, by reason of the circumstance that the appellant lost what might be regarded as the dominant issue, is that the judgment is made that, had that issue been excluded then, although the dominant issue was not clearly separable, the costs incurred on the appeal would be likely to have been substantially less, perhaps because there was less at stake.
In the present case, the question seems to me to be one of characterising what, in essence, was the appropriate 'event'. I note that the English Court of Appeal in Roache v News Group Newspapers [1998] EMLR 161 at [168] - [169] (as cited by the Queensland Court of Appeal in Timms v Clift [1998] 2 Qd R 100) posed the question as to who is to be seen as the successful party "in the event" as being a question as to "[w]ho, as a matter of substance and reality, had won? Has the plaintiff won anything of value or anything he could not have won without fighting the action through to a finish? Has the defendant substantially denied the plaintiff the prize which the plaintiff fought the action to win?"
Here, I am mindful of the fact that this was very much a mixed outcome for Ms Hu. Her primary objective, it seems to me, was to ensure that proceedings were commenced expeditiously against PS Securities (and to that end, her lawyers had gone to some lengths to seek to persuade the liquidators to bring that action). That objective has been achieved (the liquidators now having been galvanised into action in that regard). True it is that Ms Hu was pressing to be allowed to conduct those proceedings herself and on that aspect of the matter she was unsuccessful.
There has been recognition in the authorities (albeit usually in cases where there are multiple issues on which the overall successful party has mixed success) that the exercise of the discretion as to costs may be carried out on a relatively broad brush basis or as a matter of impression on the part of the judge who heard the matter ( Fexuto v Bosnjak Holdings Pty Limited (No 3) (1998) 30 ACSR 20) and that mathematical precision is illusory ( Dodds Family Investments Pty Limited v Lane Industries Pty Limited (1993) 26 IPR 261, cited by the Court of Appeal in James v Surf Road Nominees (No 2) [2005] NSWCA 296 and in Bostik Australia Pty Limited v Liddiard (No 2) [2009] NSWCA 304) (at [272]).
Taking the above into account, it seems to me that Ms Hu was not acting unreasonably in forming the view that it was necessary to take action herself to seek to enforce Alphena's right of indemnification as trustee, but that once the liquidators did take such action (and the relevant undertakings were proffered by them) then it became unnecessary for Ms Hu to pursue her application. The status of the freezing order in those circumstances remained, however, a matter of concern and was not dealt with until the course of the applications.
The fair outcome in those circumstances, in my view, is that while Ms Hu should bear the liquidators' costs of the day's hearing before me on 25 March 2011, she should not bear the costs of the application up to that point and those costs should be left to be recouped out of the assets of the company on the winding up in the ordinary course. That does not, in my view, deny the liquidators' restorative justice in terms of their costs - it simply means that Ms Hu (the major creditor of this stage of the company) is not directly responsible for the delays of the liquidators that led to the necessity for the proceedings to be commenced in the first place. Otherwise, I consider that there should be no order as to the costs of the proceedings. In particular, I consider that while PS Securities had a legitimate basis on which to resist the prospect of multiple suits, it seems also to have been its desire to leave the conduct of any proceedings in the hands of the liquidators and that was an argument that could have been left to the liquidators to run. I think it appropriate that PS Securities bear its own costs of the Interlocutory Process and its Notice of Motion.
As to the submission that Ms Hu should pay the liquidators' costs on an indemnity basis, although there was cross-examination as to the liquidators' conduct, and it was submitted that I should infer that the liquidators were favouring the interests of the Joseph family, I do not think this is a case falling squarely within the principles in Fountain. I note that at this stage Ms Hu is the major creditor of the company and, hence, the payment out of the company's assets at the conclusion of the winding up of any shortfall between the costs now ordered to be paid and the costs incurred by the liquidators (assuming that there is a recovery against PS Securities) will indirectly be borne by Ms Hu. Therefore, I will not order the liquidators' costs be paid on an indemnity basis.
In circumstances where the liquidators have made arrangements to conduct the proceedings on a speculative costs basis vis a vis their legal representatives (and there are presently limited, if any, assets in the company other than the chose in action now being pursued against PS Securities) and this is a discrete application, I think it appropriate to order that the liquidators' costs of the 25 March 2011 hearing be assessed and payable forthwith.
Orders
Accordingly, I make the following orders:
1. Ms Hu is to pay the liquidators' costs of the day's hearing on 25 March 2011 on a party/party basis, such costs to be assessed and payable forthwith.
2. There be no other order as to the costs either of the plaintiff's Interlocutory Process filed 14 January 2011 and amended 28 February 2011 or the first defendant's application to strike out the Statement of Claim by Notice of Motion filed 4 February 2011.
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Decision last updated: 03 May 2011
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