In the matter of Aurora Funds Management Limited (No 2)

[2019] NSWSC 1190

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Aurora Funds Management Limited (No 2) [2019] NSWSC 1190

Hearing dates:

On the papers

Date of orders:

10 September 2019

Decision date:

10 September 2019

Jurisdiction:

Equity - Corporations List

Before:

Rees J

Decision:

1.   Vacate Order 5 made on 30 May 2019.
2.   Order the first defendant to pay 65% of the plaintiff’s costs of the proceedings on a party and party basis.

Catchwords:

COSTS — Where plaintiff sought declarations that defendant not validly appointed as responsible entity of managed fund — Plaintiff obtained relief sought — whether defendant’s offer to remain neutral in proceedings should preclude costs order against it —whether defendant ‘forced’ to litigate — Use of submitting appearance save as to costs — Defendant sought apportionment of costs — Where several issues put by plaintiff unsuccessful — Large proportion of evidence, hearing and judgment referable to unsuccessful issues — Appropriate to depart from usual rule — Plaintiff awarded 65% of their costs.

Legislation Cited:

Australian Consumer Law, s 237
Corporations Act 2001 (Cth), Ch 6, s 1322
Uniform Civil Procedure Rules 2005 (NSW), r 6.11

Cases Cited:

Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304
Cretazzo v Lombardi (1975) 13 SASR 4
In the matter of Aurora Funds Management Limited [2019] NSWSC 630
Kisimul Holdings Pty Ltd v Clear Position Pty Ltd (No 2) (2014) 86 NSWLR 645; [2014] NSWCA 317
Mobis Parts Australia Pty Ltd v Excel Insurance Co SE (No 2) [2019] NSWCA 19
Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11
Sydney City Council v Geftlick (No 2) [2006] NSWCA 374
Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) (2012) 86 ACSR 119; [2011] NSWCA 256
Turkmani v Visvalingam (No 2) [2009] NSWCA 279
Westralia Property Management Limited v Davison [2006] WASCA 203
Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306

Category:

Costs

Parties:

Aurora Funds Management Limited ACN 092 626 885 (Plaintiff)

  Primary Securities Limited ACN 089 812 635 (First Defendant)
Australian Securities and Investments Commission (Second Defendant)

Representation:

Counsel:
B Katekar and M Bersten (Plaintiff)
AG Martin (First Defendant)

 

Solicitors:
Dentons Australia Limited (Plaintiff)
Norton Smith & Co (First Defendant)

  ASIC filed a submitting appearance.

File Number(s):

2019/33073

Judgment

1. HER HONOUR:   On 30 May 2019, I gave judgment in this matter, declaring a meeting invalid at which it had been resolved to replace the plaintiff (Aurora) as responsible entity of a managed investment scheme (ABW) with the first defendant (Primary): In the matter of Aurora Funds Management Limited [2019] NSWSC 630 (Aurora No 1). Aurora had contended that the meeting was invalid on four bases:

1. there was insufficient notice given of the meeting;

2. the meeting was held at an unreasonable time and place;

3. the notice of meeting failed to disclose the members who called it; and

4. the notice and supporting explanatory memorandum were misleading.

Aurora succeeded on the first and third bases (Aurora No 1 at [158]). The fourth basis was also relied upon, in the alternative, for an order under section 1322(2) of the Corporations Act 2001 (Cth), although I held that the section did not apply in the circumstances: Aurora No 1 at [167].

2. In Aurora No 1, I ordered Primary to pay Aurora’s costs of the proceedings. Primary now seeks that the costs order be set aside and, instead, an order be made that:

1. Aurora is not entitled to its costs after 8 February 2019, or

2. Aurora is only entitled to its costs in respect of the bases on which it did succeed, or

3. Primary be only liable for 50% of Aurora’s costs.

Aurora opposed any change to the costs order made.

Facts

3. The parties point to the following matters. When Aurora received the Notice of Meeting and supporting Extraordinary Memorandum, it communicated with Primary and made announcements to the Australian Securities Exchange (ASX) that the meeting was invalid as inter alia the notice requirements of the Corporations Act did not appear to have been complied with and the Notice of Meeting did not disclose the identity of the members calling it. Aurora suggested to Primary that it commence proceedings seeking orders as to the validity of the meeting before lodging any resolutions with the Australian Securities and Investments Commission (ASIC). This was to no avail and the meeting went ahead on 15 January 2019. After the meeting, Primary advised Aurora and ASIC of the result and Aurora maintained its position, both directly to Primary and in announcements to the ASX, that the meeting was invalid. Aurora again invited Primary to commence legal proceedings to clarify the position. On 21 January 2019, ASX suspended quotation of ABW pending clarification of whether the appointment of Primary was valid. On 31 January 2019, Aurora commenced proceedings seeking declarations that the resolutions were invalid and for rectification of ASIC’s register.

4. On 1 February 2019, Aurora issued a Notice to Produce to Primary calling for documents recording the authority on which Primary issued the Notice of Meeting and the minutes of the meeting. In a cover letter, Aurora noted that a recent article in the Australian Financial Review had indicated that only 650 members of ABW had been contacted within the required 21-day notice period and 95 additional members had been contacted a week later. Aurora sought further documents and information as to when and how the Notice of Meeting was dispatched and to whom, in particular, whether the notice was sent to the directors of Aurora and the auditors of ABW. Aurora also sought the record of attendance at the meeting, any transcripts or records of the proceedings, voting papers on any poll conducted at the meeting and any rulings by the chairman on the validity of votes at the meeting.

5. On 8 February 2019, Aurora sent Primary a proposed Statement of Claim which included relief in the form of a costs order against Primary. On 10 February 2019, Primary answered the Notice to Produce and, in respect of the proposed Statement of Claim, noted:

We note that your client has sought costs against our client. As you would appreciate, our client has been appointed as the responsible entity by the members of the scheme. Our client has no direct pecuniary interest in the ABW fund and is not a member of the fund. … Please clarify your client's position as to seeking costs against our client if our client adopts a neutral position in the proceedings.

Primary’s description of its passive role in its appointment was not entirely accurate in light of my findings in Aurora No 1.

6. Aurora responded, “Our client is seeking costs against your client.” On 11 February 2019, Primary wrote:

Your letter makes it clear that your client will be seeking costs against our client, regardless of the position taken by our client. In those circumstances, our client has no option but to contest these proceedings … [I]t falls on our client, as the responsible entity chosen at a meeting of members who overwhelmingly supported its appointment, to contest these proceedings on behalf of the members and in the interests of the fund.

Primary also objected to providing the further information and documents sought by Aurora in relation to when, how and to whom it had given notice of the meeting.

7. Aurora rejoined firmly and Primary argued again on 15 February 2019:

… your client has adopted the position that regardless of our client adopting a neutral position in these proceedings (on the basis that our client has simply accepted an appointment offered to it by the members), your client will be seeking a costs order against our client. For that reason alone, our client is compelled to defend these proceedings to protect its own interests. …

… our client’s opposition in the proceedings is directed at defending your client’s claim that it is liable, on some undisclosed basis, for the costs of the proceedings where your client seeks declarations in those proceedings that a meeting was invalid. To that extent, and to the extent that the validity of that meeting is said to be an integer in the process of the reasoning upon which your client will seek to hold our client liable for the costs of these proceedings, our client may, but not necessarily will, have to traverse the matters raised by your client that are said to render the meeting invalid.

8. On 18 February 2019, Aurora sent a letter without prejudice save as to costs offering to resolve the proceedings on the basis of an agreed statement of facts, a consent declaration that Aurora remained the responsible entity of ABW, entry into a Deed of Settlement and Release which included Primary paying Aurora $30,000 on account of costs, and a term that Primary agree not to be appointed responsible entity of any registered managed investment scheme of which Aurora was then responsible entity. The conditions of the proposed settlement were onerous indeed and Aurora has not achieved such a result in these proceedings. Primary rejected the offer but said it remained open to any sensible settlement proposal. Primary filed its Defence, in which it admitted that it had served notice of the meeting no earlier than 20 December 2018 and, after receipt of the current register of ABW members on 28 December 2018, served the notice on further members to whom the notice had not already been sent.

9. On 25 February 2019, Aurora sent a further letter without prejudice save as to costs making an offer of settlement which was not materially different to its first offer and, on 26 February 2019, sent a letter requesting particulars of Primary’s defence, which was detailed, not envisaged by any directions made by the Court, would be unusual in the Corporations List, and went unanswered.

10. On 4 March 2019, Aurora filed its evidence comprising six affidavits. The main affidavit was that of John Patton and was chiefly directed to his concerns that the members who appeared to stand behind Primary were in breach of Chapter 6 of the Corporations Act and as to why the Explanatory Memorandum was misleading. The remaining affidavits, all short, addressed when the witness received the Notice of Meeting. On 18 March 2019, Primary filed its evidence, which dealt with when and how it had distributed the notice, and to whom. This was a week before the hearing on 26 March 2019.

‘No costs’

11. Primary submitted that Aurora should not have a costs order in its favour from the date when Primary offered to remain ‘neutral’ in the proceedings, that is, not actively participate or contradict as long as Aurora confirmed it would not seek its costs from Primary. Primary submitted that it was thereby forced to defend its position to avoid Aurora seeking its costs where Primary had not participated. Primary relied on Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [69], where McHugh J, with whom Brennan CJ agreed, referred to the “traditional exception” that misconduct by a successful party in litigation might deprive that party of the usual order for costs in its favour, including where that party:

… prosecutes the matter solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party had already offered in settlement of the dispute.

It was submitted that Aurora engaged in conduct calculated to occasion unnecessary expense by forcing Primary to litigate or, alternatively, Aurora only achieved the same outcome it would have if Primary had not participated.

12. I do not think, with respect, it should have been submitted that Aurora engaged in conduct calculated to occasion unnecessary expense nor that the reason Aurora may not have engaged with Primary’s offer to remain ‘neutral’ was “to ensure Aurora had a litigant against whom it could recover costs”. There was no evidence to support such submissions, which were serious in nature. Primary had, by calling a meeting in the manner described in Aurora No 1, ‘caught a tiger by the tail’. It was naive of Primary to think it could avoid exposure to a costs order in litigation which may ensue, particularly in the somewhat unclear manner in which Primary tried to eliminate this exposure.

13. Nor was Primary “obliged to protect its position by litigating”. Rule 6.11(1) of the Uniform Civil Procedure Rules 2005 (NSW) provides:

A defendant who intends to take no active part in proceedings may include in the defendant’s notice of appearance a statement to the effect that the defendant submits to the making of all orders sought and the giving or entry of judgment in respect of all claims made, to which may be added the words “save as to costs”.

14. Filing a submitting appearance save as to costs would not have guaranteed that no order for costs would be made against Primary. As the Court of Appeal (Beazley P, Barrett and Gleeson JJA) made plain in Kisimul Holdings Pty Ltd v Clear Position Pty Ltd (No 2) (2014) 86 NSWLR 645; [2014] NSWCA 317, whether a costs order should be made against a submitting party depends on appraisal of the circumstances of the case, including the context in which the submitting appearance was filed: at [14]. The court may still make an order for costs against the submitting party, at [19]:

In the circumstances of this case, the filing of a submitting appearance by a party occupying a true adversarial position in a commercial dispute and concerned with nothing but its own economic welfare cannot be allowed to operate as some form of insulation from the costs consequences of requiring the appellant’s claim to proceed to curial determination rather than cooperating in a consensual resolution of it.

However, if Primary had filed a submitting appearance save as to costs, the hearing would certainly have been shorter and Primary would likely have been in a stronger position to oppose such a costs order than it now is.

15. Nor is it correct to say that Aurora has obtained relief which Primary already offered in settlement of the dispute. Primary did not offer to consent to the declaratory relief sought by Aurora and ultimately obtained, nor did it squarely agree to file a submitting appearance if Aurora agreed not to seek costs against it. I am not minded to make an order on the first basis proposed by Primary.

‘Some costs’

16. In the alternative, Primary pointed to a number of aspects of Aurora’s claim which did not succeed, including its alternative claim for relief under section 237 of the Australian Consumer Law, Aurora’s denial that its directors and auditors were sent the Notice of Meeting, and its basis for suggesting that the meeting was invalid by reason of not being convened at a reasonable time or place. Primary conceded, fairly, that these issues had not occupied substantial periods of time and Primary already had the benefit of an order for the costs thrown away by Aurora’s amendment to add a claim for relief under section 237 of the Australian Consumer Law. Given how little these issues occupied the pleadings, evidence, hearing and submissions, I would not be minded to apportion Aurora’s costs on the basis of these issues.

17. Of more significance, however, Primary submitted that Aurora’s principal complaint as to the misleading quality of the Explanatory Memorandum, which occupied 8 of the 18 pages of the Statement of Claim, failed, not due to any exercise of discretion but because the Court of Appeal of the Supreme Court of Western Australia in Westralia Property Management Limited v Davison [2006] WASCA 203 had already confirmed some years ago that a member does not owe fiduciary duties of disclosure to other members when issuing an explanatory memorandum.

18. To this, I think, should be added Aurora’s fixation on the arrangements which the members who stood behind Primary were said to have reached in breach of the takeover provisions in Chapter 6 of the Corporations Act. It was these two topics which occupied the bulk of Aurora’s statement of claim and reply, Mr Patton’s affidavits, Aurora’s oral submissions and detailed final submissions and a substantial portion of the judgment. Aurora failed in respect of the misleading nature of the Explanatory Memorandum by reason of Westralia and also the content of the document (Aurora No 1 at [157]). Further, Aurora’s focus on Chapter 6 was of little assistance to the court in determining the issues in the Originating Process: Aurora No 1 at [113], [167].

19. Aurora submitted that this was not an occasion for a costs apportionment, relying on the judgment of Macfarlan JA (Bathurst CJ and Beazley JA agreeing) in Dungowan Manly Pty Ltd v McLaughlin (2012) 90 ACSR 62; [2012] NSWCA 180 at [120]:

… A plaintiff who succeeds in proving the core of his or her case will rarely be denied full recovery of costs even if many of the guises in which the case is clothed are unsuccessful. … that will ordinarily occur where there are clearly separable issues upon which the plaintiff failed. …

Aurora submitted that the outcome had not been “mixed”: no part of Aurora’s claim failed; it was only that the Court was unpersuaded by some of the guises in which Aurora clothed its argument.

20. Recently, in Mobis Parts Australia Pty Ltd v Excel Insurance Co SE (No 2) [2019] NSWCA 19, the Court (comprising Beazley P, Meagher and Leeming JJA) noted at [5]:

… more recent authority favours the award of the costs of proceedings to the party successful overall without any differentiation as to issues, at least “unless a particular issue or group of issues is clearly dominant or separable”: Waters v PC Henderson(Australia) Pty Ltd [1994] NSWCA 338; (1994) 254 ALR 328 at 330-331 (Mahoney JA); Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 at [63]-[64] (Campbell JA). And the costs arising from such issues have more readily been apportioned where the party successful overall is the plaintiff: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171 at [22] (Hodgson JA, Allsop P and Macfarlan JA agreeing).

Aurora submitted that it should not be denied a portion of its costs on an issue if its failure on that issue did not change the overall outcome, relying on Mobis at [7] and [8]. I am not sure that the Court of Appeal, in those paragraphs, was stating a principle but rather recording the materiality of the issues on which the successful party failed in that particular case, and I do not think this detracts from the general principle stated by the Court.

21. Aurora also adopted the remarks of Jacobs J, who joined in the orders of Bray CJ and Zelling J, in Cretazzo v Lombardi (1975) 13 SASR 4 at 12:

The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. … I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues.

His Honour did not rule out apportionment, but indicated that it should not be expected in every case. I think that modern case management principles — which encourage parties to focus on the real issues in dispute in order to ensure that proceedings are just, quick and cheap — may also have a role to play.

22. Aurora submitted that the circumstances are not so exceptional as to justify any departure from the usual rule that costs follow the event. None of the arguments on which Aurora did not succeed were dominant or unreasonably advanced. The arguments as to the misleading nature of the Explanatory Memorandum were not clearly severable but were also relevant to Aurora’s claim that it led to substantial injustice under section 1322 “on which the Court found in Aurora’s favour on the Chapter 6 argument”. With respect, the Court did not so find: Aurora No 1 at [113], [167]. Rather, I found that, while there was sufficient factual material to find that Mr Staermose, his clients and other members acted together in a concerted manner to remove the responsible entity, it was neither necessary nor appropriate for me to decide Aurora’s contentions in respect of Chapter 6 in order to decide whether there substantial injustice for the purposes of section 1322. While relevant to the question of misleading and deceptive conduct, Aurora was not successful on this issue in any case.

22. As the Court (Beazley, Ipp and Tobias JJA) noted in Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 at [24]:

It may be appropriate to order that a successful party be deprived of costs or a portion of the costs if the matters upon which that party is unsuccessful took up a significant part of the trial, either by way of evidence or argument.

If the successful party loses on a separate issue which has increased the time taken in hearing the matter, then a special order for costs may be appropriate which deprives the successful party of the costs of that issue: Sydney City Council v Geftlick (No 2) [2006] NSWCA 374 at [27]; Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38]; Turkmani v Visvalingam (No 2) [2009] NSWCA 279 at [15].

24. It seems to me that, although Aurora obtained the declaratory relief it sought, it did not do so on the basis of the dominant issues which it pursued: Aurora’s focus on Chapter 6 and the misleading Explanatory Memorandum comprised a significant part of the trial in terms of evidence and argument. The length of hearing would have been less if those issues had not been pursued by Aurora with such fervour, in the face of authority which stood clearly in its path, and, in respect of the Chapter 6 issues, where the relevant parties for the Court to determine any issues in respect of Chapter 6 were not joined and no Chapter 6 issues were pleaded. Given the dominance of these issues, I am minded to vary the costs order which I made in Aurora No 1.

25. Both parties agreed that, if I was so minded, then the method was that described in Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) (2012) 86 ACSR 119; [2011] NSWCA 256 per Campbell JA (with whom Macfarlan and Young JJA agreed) at [84]:

… where there is a mixed outcome in proceedings the question of apportionment of costs between issues on which the party who has overall been successful has succeeded, and those on which that party has failed, is very much a matter of discretion, and mathematical precision is illusory … .

26. I invited Aurora to identify an appropriate apportionment and, as I understand the affidavit of Aurora’s solicitor, the work done on the misleading nature of the Explanatory Memorandum was directed to both the Westralia argument and also whether there was substantial injustice for the purposes of section 1322 of the Corporations Act. As I understand Ms Wright’s apportionment — and I confess that I do not think I have understood it fully — some 5% to 7.5% was spent on these matters.

27. Such an apportionment does not accord with my impression. Evidence as to these matters dominated the proceedings. If the matter had been confined to whether sufficient notice had been given of the meeting, whether the meeting was held at an unreasonable time and place, and whether the notice of meeting was valid given that it failed to disclose the members who called it, then the hearing would, I think, have been shorter, as would have closing submissions and my judgment. I am, however, mindful that the position did not become clear in respect of the issues on which Aurora did succeed until shortly before the trial. Weighing all of these factors, I make the following orders, in which I have already made allowance for Primary’s costs of its Interlocutory Process filed on 7 June 2019:

1. Vacate Order 5 made on 30 May 2019.

2. Order the first defendant to pay 65% of the plaintiff’s costs of the proceedings on a party and party basis.

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Decision last updated: 10 September 2019