In the matter of Gunyahweh Pty Limited (No 2)

[2023] NSWSC 1204

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Gunyahweh Pty Limited (No 2) [2023] NSWSC 1204

Hearing dates:

Written submissions received on 3 October 2023

Date of orders:

9 October 2023

Decision date:

09 October 2023

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

No order as to costs of proceedings, reserve liberty to apply as to rectification of register and correction of records maintained by the Australian Securities and Investments Commission

Catchwords:

COSTS — Party/Party — General rule that costs follow the event — Where both parties led voluminous evidence as to unpleaded allegations of criminality — Where significant part of both parties’ cases put on the basis of false premises — Where costs incurred were grossly disproportionate to the monetary amounts in issue — Where a finding of oppression adverse to the Cross-Defendants could not be remedied due to deficiencies in both parties’ evidence — Whether no order as to costs should be made.

Legislation Cited:

- Civil Procedure Act 2005 (NSW), s 98

- Uniform Civil Procedure Rules 2005 (NSW), r 42.1

Cases Cited:

- Ballam & Ors v Ferro & Anor (No 2) [2022] NSWSC 1358

- Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266

- Commonwealth of Australia v Gretton [2008] NSWCA 117

- Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34

- Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11

- Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40

Category:

Costs

Parties:

Benjamin Smith (Defendant/Cross-Claimant)
Gunyahweh Pty Ltd (Plaintiff/First Cross-Defendant)
Anthony Grumley (Second Cross-Defendant)
Daniel Smith (Third Cross-Defendant)
Suzanne McKenna (Fourth Cross-Defendant)
Elizabeth Austen (Fifth Cross-Defendant)

Representation:

Counsel:
R Alkadamani (Cross-Claimant)
S Epstein SC (First to Fifth Cross-Defendants)

Solicitors:
Wall and Company Lawyers (Cross-Claimant)
PSD Lawyers (First to Fifth Cross Defendants)

File Number(s):

2022/0044427

Judgment

1. By my judgment delivered on 19 September 2023 ([2023] NSWSC 1133) (“Principal Judgment”), I dismissed the Cross-Claim in these proceedings, by which the Cross-Claimant, Mr Benjamin Smith (to whom I will refer, without disrespect, as Benjamin, to avoid confusion with his cousin Daniel Smith) sought certain relief in respect of oppression in respect of Gunyahweh Pty Ltd (“Company”). I dismissed the primary proceedings brought by the Company where no issues in them remained to be determined. I observed (at [164]) that:

“My preliminary view is that there should be no order as to the costs of these proceedings, where the manner in which they have been conducted, by both parties, is such that it would be unjust to impose the burden of costs upon the other party. First, the parties led voluminous affidavit evidence, with much of the Cross-Defendants’ affidavit evidence being directed to unpleaded allegations of criminality and misconduct on Benjamin’s part, and much of Benjamin’s evidence in reply then being directed to equally unpleaded allegations of criminality and violence on the part of the Cross-Defendants and their associates. Second, significant parts of the cases of both parties were put on the basis of false premises as to the status of shares in the Company, including the position as to G class shares, and were directed to false issues including the validity of the capital reduction in respect of Benjamin’s G class shares that no-one now contends existed. Third, on any view, the time spent in the conduct of the case and the costs which will have been incurred in its conduct by both parties will be grossly disproportionate to the monetary amounts that were in issue, so far as it is possible to guess the likely value of Benjamin’s shares in the absence of adequate expert evidence. Fourth, and importantly, the failure of both parties to lead adequate expert evidence which might have permitted a buyout order, or at least permitted the Court to stay a winding up order for a period against the possibility that a buyout might occur on specified terms, has forced a result where Benjamin must either fail in his claim or the Company must be exposed to the risks of a winding up and its shareholders to the collateral consequences of a winding up, in a manner that is not consistent with the just resolution of the real issues in dispute between the parties. I will, however, allow the parties a further opportunity to be heard as to costs, if they seek to be heard in that respect.”

2. I nonetheless ordered the parties to bring in agreed short minutes of order as to costs within 14 days or, if there was no agreement, their respective short minutes of order and submissions as to the differences between them. The parties did not comply with the direction to bring in short minutes of order, but each of them made submissions as to the costs order that they sought. I address those submissions below.

The applicable principles

3. The applicable principles as to an order for costs are well-established. Section 98 of the Civil Procedure Act 2005 (NSW) confers a discretionary power to determine costs on the Court and requires that that discretion be exercised judicially: Ballam & Ors v Ferro & Anor (No 2) [2022] NSWSC 1358 at [54]. Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) in turn provides that:

“Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.”

4. A successful party has a “reasonable expectation” of being awarded costs against an unsuccessful party, unless there is good reason for that presumption to be displaced: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [22], [134]. In Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121], to which Mr Alkadamani, who appears for Benjamin, refers, Hodgson JA (with whom Mason P agreed) observed that:

"… underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs."

That observation was cited, with apparent approval, by the Court of Appeal in Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [98].

5. In Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266 at [7]–[14], McColl JA summarised the applicable principles as follows:

“Section 98 of the Civil Procedure Act 2005 (NSW) confers a wide discretion on the court with respect to costs. The “general rule” is that court costs follow the event unless the court makes “some other order” pursuant to the discretion conferred by Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.1.

As Beazley JA explained in Baker v Towle [(2008) 39 Fam LR 323; [2008] NSWCA 73 at [11] (Mathews AJA agreeing)], in most litigation, UCPR r 42.1 “operates in a straightforward way, ‘the event’ being readily identifiable as a judgment for the plaintiff or the defendant on the claim. In that sense, ‘the event’ to which the rule refers is the result of the proceedings, so that the party who succeeds on the claim before the court is awarded costs, unless the court, pursuant to the discretion conferred by r 42.1, makes ‘some other order’”.

Underlying both the general rule that costs follow the event, and qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs.

Where there are multiple issues in a case the court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. This recognises the proposition that justice may not be served if parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case.

However there is a tension between that proposition and the proposition that, “[i]f parties come to realise that they will not necessarily recover the whole of their costs, even though they have unsuccessfully raised a discrete issue, they are likely better to consider whether the raising of that issue is a justifiable course to take.”

Further, even where there are multiple issues, unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between the particular issues on which it was successful and those on which it failed.

However, a court can mould a costs order to take account of the partial success of the party against whom orders have been made at trial insofar as that party identifies particular issues or groups of issues on which it succeeded at the trial. This requires consideration of whether there were “clearly discrete issues for determination” or, rather, whether “all issues are inseparable, or at least sufficiently linked, with respect to the overall disposition of a particular matter”. A separable issue can relate to “any disputed question of fact or law” before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter.

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, and those on which that party has failed, is very much a matter of discretion, and mathematical precision is illusory.”

[footnotes omitted]

6. In Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 (“Ryde Developments”) at [6], the Court of Appeal in turn noted that:

“Section 98 of the Civil Procedure Act 2005 (NSW) confers on the Court a wide discretion with respect to costs. Under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) the general rule is that the Court is to order that costs follow the event. The “event” may be characterised in more than one way. Generally the “event” refers to the result of the claim or counterclaim, as the case may be, and may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Sons Developments Pty Ltd (No 2) [2014] NSWCA 219 [“Doppstadt Australia”] at [15] per Ward, Emmett and Gleeson JJA.

The parties submissions

7. Benjamin seeks an order that the Company and individual shareholders joined as Cross-Defendants pay 45% of his costs on the ordinary basis.

8. Mr Alkadamani refers to my finding (at [139]) that oppression was established and submits that that is properly characterised as the “event” which determines whether he succeeded for the purpose of the Court’s exercise of its discretion as to costs. I do not accept that submission. As the Court of Appeal observed in Doppstadt Australia, approved in Ryde Developments, the event is determined by reference to the “practical result” of a claim, and Benjamin was not seeking a finding of oppression without relief, but relief that would follow from that finding had he established a basis for such relief.

9. Mr Alkadamani acknowledges that the costs order that he seeks in his favour should be “modified” to take into account the circumstances of the proceedings. He acknowledges that the Court did not make the orders that he sought, but submits that not doing so was “akin to not granting relief for reasons of hardship and was broadly analogous to an indulgence” to the Cross-Defendants. I do not accept that submission. I did not make a buyout order in Benjamin’s favour and against the Cross-Defendants because Benjamin did not establish the basis for such an order, where he did not establish either the value of shares in the Company so as to allow the price of a buyout to be determined or that the Cross-Defendants had the capacity to fund a buyout.

10. Mr Alkadamani also submits that the matters relevant to the making of a winding up order were “finely balanced”. I had observed (at [160]) that I had found the question whether a winding up order should be made in this case to be a difficult one. Even on that basis, it remains that neither a buyout order nor a winding up order was made in Benjamin’s favour and, absent relief, the finding of oppression brought Benjamin no practical benefit. I do not accept Benjamin’s submission that the fact that no remedial order was made “did not reflect a lack of success [for Benjamin] in the sense that informs the Court’s costs discretion” where the findings that I reached were that Benjamin did not establish the basis of the relief that is sought. Benjamin accepts, had costs been ordered in his favour, a further discount to them would be appropriate for costs attributable to the Statement of Claim and not incurred for the purposes of the Cross-Claim and costs incurred by reason of the “false issues” to which I referred in the Principal Judgment, including those referable to the cancellation of “G class” shares which had not in fact been issued. Benjamin also submits, and I broadly accept, that the costs in respect of other claims that he brought that were dismissed were not separable from the costs of the oppression proceedings, but nothing turns upon that where he has not established that an order for the costs of the oppression proceedings should be made in his favour.

11. In his submissions as to costs, Mr Epstein, who appears for the Company and other Cross-Defendants, outlines the history of the proceedings and submits that, by my Principal Judgment, I determined the merits of the Company’s claim for possession against Benjamin in the Company’s favour. I do not accept that submission, where that matter had already been determined by orders made by consent, and without admission, by Lindsay J on 21 February 2023. I noted those orders in my Principal Judgment and that question was no longer in issue in the proceedings before me.

12. Mr Epstein in turn submits that, as the “successful party” in the proceedings, the Company would ordinarily be “entitled” to an order for its costs of the proceedings and this would be an order for all of its costs. I do not accept that submission, where any “entitlement” of a successful party as to costs is qualified by the Court’s wide discretion as to costs, albeit that discretion is to be exercised judicially. Here, relevant matters include the fact that I reached findings of oppression adverse to the Cross-Defendants in the proceedings, but was unable to make orders that would remedy that oppression, by reason of the deficiencies in the evidence led by both parties and not merely Benjamin in respect of the valuation of shares in the Company, and the other matters to which I referred in paragraph 164 of the Principal Judgment.

13. Benjamin in turn submits that the applicable principles as to costs require the Court to follow a “binary approach”, in determining which party was successful and which party was not successful in the event. I also do not accept that submission, which also does not sufficiently recognise either the judicial discretion to which I referred above or the fact that the Court’s power as to costs is to be exercised so as to achieve justice in the relevant circumstances.

14. Mr Epstein also submits that:

“There was here nothing which the company and the Cross-Defendants did which “unfairly, improperly or unnecessarily increased the costs” nor any “most exceptional circumstances” which could justify a reduction in the successful party’s costs, far less giving that party no order as to costs.”

I do not accept that submission, where it seems to me that the Company and other Cross-Defendants significantly contributed to the multiplication of false issues and irrelevant evidence in the conduct of the proceedings, and that the deficiencies in the evidence which they led significantly contributed to the Court’s inability to order relief which would have addressed the oppression that I found to exist.

15. Mr Epstein also seeks to reagitate the findings that I had made in holding that oppression was established, but it is not open to the Cross-Defendants to do so in respect of the question of costs. Mr Epstein emphasises the significance of the issues in the proceedings to the Cross-Defendants so far as a winding up order was sought and Benjamin alternatively sought to have his shares in the Company bought out at a substantial value. I accept that the matters in issue were significant to the Company and the other Cross-Defendants, but it did not follow that they should be defended by pursuing false issues and leading voluminous evidence as to unpleaded conduct of the parties which would not have displaced relief in oppression or avoided a winding up order. The fact that Benjamin may have acted in that manner did not require the Cross-Defendants to likewise do so, still less that they do so to the extent that they in fact did so. Mr Epstein also submits that the Cross-Defendants had limited ability to influence the contents of the expert report on which they rely, and I accept that submission. However, the jurisdiction to award or withhold costs is not punitive in character, but compensatory, and the deficiencies in the expert report on which the Cross-Defendants relied are matters to which I should have regard in exercising the discretion as to costs in order to achieve a just result.

16. Mr Epstein also challenges the observation, in paragraph 164 of my Principal Judgment, that much of the Cross-Defendants’ affidavit evidence was directed to unpleaded allegations of criminality and misconduct on Benjamin’s part by submitting that Benjamin had, in chief, also made allegations of criminality, violence and other misconduct on the part of the individual Cross-Defendants, who responded by denying those allegations and making other (I interpolate, equally unpleaded) allegations against Benjamin, and Benjamin then made further allegations in reply. That proposition is no answer to the fact that the voluminous evidence of these matters, whether led by Benjamin or by the Cross-Defendants, related to unpleaded allegations of criminality and serious wrongdoing and could not properly have supported adverse findings as to those matters, where no party would have had a fair opportunity to know or meet the case which the other party put against it. The proposition that both parties proceeded in that manner is, with respect, not a reason why costs should be ordered in the Cross-Defendants’ favour but a strong reason supporting no order as to the costs of the proceedings.

17. I should, for completeness, observe that I do not propose to address Mr Epstein’s further submissions that elaborate at length on the allegations of criminality made by each party against the other, for the same reasons that I declined to engage with unpleaded allegations of that character in the Principal Judgment. I can also see no proper basis for the Cross-Defendants, in submissions as to costs, advancing lengthy further submissions as to earlier criminal proceedings against Benjamin, or seeking a substantive finding that Benjamin was the “wrongdoer and not a victim” in respect of specified events, now repeating unpleaded allegations in their costs submissions which I had declined to address in the primary proceedings.

18. Mr Alkadamani responds to the Cross-Defendants’ claim for a costs order in their favour by submitting that they were not successful in vindicating their rights in respect of the Cross-Claim, where their conduct was found to be oppressive, and the earlier order for possession made against Benjamin in favour of the Company had been made on a without admissions basis.

19. For these reasons, I am not persuaded by either Benjamin’s submission that the Cross-Defendants should pay a portion of his costs, or by the Cross-Defendants’ submission that Benjamin should be ordered to pay the Company’s costs of the proceedings on the Statement of Claim, on the ordinary basis, without apportionment or reduction and be ordered to pay the Cross-Defendants’ costs on the Cross-Claim on the ordinary basis, without apportionment or reduction. I continue to take the view that the proper order is that which I foreshadowed in paragraph 164 of the Principal Judgment, that there be no order as to the costs of the proceedings, for the reasons noted in that paragraph and above.

Correction of members register and records maintained by the Australian Securities and Investments Commission

20. Mr Alkadamani also submits that the records held by the Australian Securities and Investments Commission (“ASIC”) in respect of the Company as at 21 August 2023 recorded that Mr Grumley and Mr Daniel Smith held three G class shares each and that there were no shareholders of ordinary shares, and submits that consequential orders reflecting the Court’s findings should be made so as to correct the Company’s shareholding records, by the removal of Mr Grumley and Mr Daniel Smith as holders of G class shares and the recording of 36 ordinary shares held by the several persons to whom I referred in the Principal Judgment. He submits that an order should be made that the Company do all things necessary to amend the members register and the records maintained by ASIC to record the correct position, but does not submit the form of order which he seeks. Mr Epstein did not address that matter in submissions, possibly because the Cross-Defendants had no notice that such a submission would be made.

21. This is a matter that the parties ought to be able to resolve between themselves, and they should be prepared for the possibility that an order as to indemnity costs could be made, if it becomes necessary for the Court to relist the matter to address this issue. Nonetheless, I will reserve liberty to Benjamin to apply, if the Company does not correct its members register and cause the correction of the records maintained by ASIC to record the position which the parties accepted as correct at the hearing (as I noted in the Principal Judgment at [99]) and provide evidence to Benjamin that it has done so within 21 days of this judgment.

Orders

22. I therefore make the following additional orders:

1. There be no order as to the costs of the proceedings.

2. Reserve liberty to the Cross-Claimant, Mr Benjamin Smith, to apply if the Company does not correct its members register and cause the correction of the records maintained by the Australian Securities and Investments Commission in the manner noted in paragraph 21 of this judgment and provide evidence to Mr Benjamin Smith that it has done so within 21 days of this judgment.

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Decision last updated: 16 October 2023