Jadwan Pty Ltd v Rae and Partners (No 2)
[2015] TASSC 17
•15 May 2015
[2015] TASSC 17
COURT: SUPREME COURT OF TASMANIA
CITATION: Jadwan Pty Ltd v Rae & Partners (No 2) [2015] TASSC 17
PARTIES: JADWAN PTY LTD (ACN 006 203 112)
v
RAE & PARTNERS (a firm)
WILSON DOWD (a firm)
TOOMEY MANNING & CO (a firm)JANET KAY HOGAN as Executor of the Estate of the Late John Michael Hogan
WORSLEY DARCEY & ASSOCIATES (a firm)
FILE NO: 35/2003
DELIVERED ON: 15 May 2015
DELIVERED AT: Hobart
HEARING DATE: 11 May 2015
JUDGMENT OF: Holt AsJ
CATCHWORDS:
Procedure – Costs – Interlocutory proceedings – Costs in the cause – Rule of court that costs in the cause of the party in whose favour application determined – Power to otherwise order – Costs of defendants' successful applications for security for costs.
Supreme Court Civil Procedure Act 1932 (Tas), s12.
Supreme Court Rules 2000 (Tas), r65.
Gunns Ltd v Alishah (No 3) (2009) 19 Tas R 401 followed.
Jazabas Pty Ltd v Haddad (2006) NSWSC 880 and Adult Guardian v B (2002) 170 FLR 220 considered.
Aust Dig Procedure [602]
REPRESENTATION:
Counsel:
Plaintiff: S Matters
1st, 2nd & 3rd defendants: G Tremayne
4th & 5th defendants: C Gunson
Solicitors:
Plaintiff: Fitzgerald & Browne
1st, 2nd & 3rd defendants: Tremayne Faye & Rheinberger
4th defendant: Lander & Rogers
5th defendant: Shaun McElwaine + Associates
Judgment Number: [2015] TASSC 17
Number of paragraphs: 29
Serial No 17/2015
File No 35/2003
JADWAN PTY LTD v RAE & PARTNERS (a firm) and
WILSON DOWD (a firm) and TOOMEY MANING & CO (a firm) and
JANET KAY HOGAN as Executor of the Estate of the Late John Michael Hogan and WORSLEY DARCEY & ASSOCIATES (a firm)
REASONS FOR JUDGMENT Holt AsJ
15 May 2015
On 30 March 2015 I made orders requiring the plaintiff to give security for the costs of the defendants and published reasons. Jadwan Pty Ltd v Rae & Partners [2015] TASSC 11. At the same time I adjourned the hearing of several interlocutory applications which may or may not proceed depending upon whether the security ordered is given.
The matter has since returned for the consideration of questions of costs.
As to the adjourned interlocutory applications, it was agreed that argument as to the costs occasioned by or thrown away as a result of the adjournments should be presented when the applications are determined or some other event occurs which makes it appropriate to finally dispose of the costs of those applications. I do not consider it necessary to make a formal order adjourning those costs questions.
The matter of the costs of the security for costs applications was argued.
The defendants applied for orders giving them the costs of the security applications regardless of the ultimate outcome of the primary proceedings. Counsel for the first, second and third defendants was content that any order made in favour of those defendants be conditioned by the words "in any event". The condition would result in the costs not being recoverable until the conclusion of the primary proceedings, but the costs would be payable at that time regardless of the outcome. Bull Nominees Pty Ltd v McElwee (1997) 7 Tas R 339. The fourth and fifth defendants applied for unconditional costs orders in their favour so that recovery could be pursued without having to await the conclusion of the primary proceedings. The reason for the different position of the first, second and third defendants is that they may have included their anticipated costs of their interlocutory application in the amount of the security sought and granted. The fourth and fifth defendants did not include such anticipated costs in their applications.
Counsel for the plaintiff submitted that I should decline to make any orders as to costs.
If I decline to make costs orders the default position set out in the Supreme Court Rules 2000 (Tas), r65 will apply. Rule 65 is as follows:
"Unless the Court or a judge otherwise orders –
(a) the costs of an opposed application in a proceeding are part of the costs of the cause of the party in whose favour the application is determined; and
(b) the costs of an unopposed application in a proceeding are part of each party's costs of the cause."
The application of the default provision in this case will mean that the defendants will only be able to recover the costs of their successful security for costs applications if they successfully defend the plaintiff's claim in the primary proceedings and, regardless of the outcome of the primary proceedings, the plaintiff will be left to bear its own costs of opposing the security for costs applications. JT Stratford & Son Ltd v Lindley (No 2) [1969] 1 WLR 1547 at 1553. Stratford has been applied in this court. See Bull Nominees (supra) at 341.
The purposes which r65 serves were considered in Gunns Ltd v Alishah (No3) (2009) 19 Tas R 401. There Porter J said at 406[13]:
"As to the rationale of the rule, in Rafferty v Time 2000 West Pty Limited (No 3) [2009] FCA 727; (2009) 257 ALR 503, at 508 [20], Besanko J set out three purposes which it served. His Honour said:
'First, it avoids multiple taxations in a proceeding. Secondly, it avoids the apparent unfairness which may arise where, at an early stage of a proceeding, a party who is ultimately successful is required to pay costs to a party who is ultimately unsuccessful. Finally, it prevents interlocutory proceedings being used as a weapon to exhaust the financial resources of one of the parties.'"
Although the discretion as to costs is unfettered, either by the power conferring statutory provision being the Supreme Court Civil Procedure Act 1932 (Tas) s12, or the rule, the exercise of the discretion is informed by the purposes which the rule serves. It follows that a party seeking a departure needs to establish that, notwithstanding the rationale for the rule, the demands of justice, in the particular case, require a departure.
In support of their applications, counsel for the fourth and fifth defendants referred to two cases in which costs consequent upon a successful application for security for costs were awarded and recoverable without the need to await the outcome of the primary proceedings. The cases referred to were Jazabas Pty Ltd v Haddad (2006) NSWSC 880 and Adult Guardian v B (2002) 170 FLR 220.
In Jazabas Simpson J considered the discretion to order that costs be payable forthwith and said at [12] to [15]:
"12 I was provided with a copy of the decision of Barrett J in Fiduciary Limited v Morningstar Research Pty Limited [2002] NSWSC 432; 55 NSWLR 1, in which Barrett J identified three circumstances which may prompt the exercise of the discretion. One of these is where there has been a determination of a separately identifiable matter, or the completion of a discrete aspect of the matter. The second is unreasonable conduct on the part of the party against whom the costs have been ordered, and the third is that there may be a long way to travel in the proceedings, the implication being that significant costs have been or will be incurred, and the successful defendants will be out of the money expended in successfully prosecuting or defending the relevant interlocutory application(s).
13 It is surprising to me that the question does not appear to have previously arisen in relation to security for costs applications. The very purpose of an order for security for costs is to protect defendants against the prospect of incurring significant costs which, if the defendants are successful, the plaintiffs are likely to be unable to meet.
14 The fact that these costs have actually been incurred, as distinct from being putative costs, suggests a further reason that it would be appropriate to make such an order; that is, the very circumstances that give rise to the order for security for costs also support an order that the costs incurred in pursuing that application should be paid before further costs are incurred.
15 Accordingly, I will make an order of the kind proposed in favour of each of the defendants."
The decision in Jazabas has to be considered in the context of the relevant rules as to costs. The applicable rules are the Uniform Civil Procedure Rules 2005 (NSW), r42.1 and r42.7. The effect of these rules is that the usual position is that the successful party on an interlocutory application will recover the costs of the application regardless of the outcome of the primary proceedings, with the entitlement not enforceable until the conclusion of the primary proceedings. At [14] Simpson J recognised the inconsistency that would arise if a defendant, having the benefit of a security for costs order and the benefit of a fixed entitlement to the costs of the application, was to be kept out of the means of recovering the costs awarded on the application.
The ordinary, or default position, in Tasmania is quite different. The successful party's entitlement to the costs of the application is contingent upon success in the primary proceedings. The entitlement to the costs of an interlocutory application cannot arise unless and until the pre-requisite is satisfied, namely success in the primary proceedings.
In Adult Guardian v B the party who had unsuccessfully opposed an application for security for costs submitted that the costs should be costs in the cause of the primary proceedings, in that case an appeal. If the submission had been upheld the result would have been that if a party recovered costs in the primary proceedings the costs of the interlocutory application would also be recovered by that party, even if that party had been unsuccessful in the interlocutory proceeding. In J T Stratford & Son Ltd v Lindley (No 2) (supra) Lord Denning MR said at 1553: "'Costs in the cause' means that the costs of those interlocutory proceedings are to be awarded according to the final award of costs in the action." Finn, Holden and Dessau JJ in Adult Guardian v B did not expressly deal with the injustice that would result if the unsuccessful party on the interlocutory application was to recover the costs from the successful party, or the injustice that would result if no order for costs was made in the primary proceedings so that the successful party on the interlocutory application would be left to bear his or her own costs of the application. Instead a different justification for rejecting the submission was given. In particular their Honours said at 241 [93]:
"The difficulty with B’s proposal that the costs of the successful security applications should be costs in the appeal, is that if the appeal does not proceed, either because the orders for security are not met or for any other reason, then the opportunity for the successful applicants for the orders for security to recover the costs of those applications will be lost."
This proposition includes no mention of the possibility that the appeal may have been dismissed if not pursued and has not been analysed in any subsequent case. The proposition is not conformable with the default position in Tasmania under r65. In every case there is a possibility that for some reason it will not be litigated to a court determined conclusion and such a possibility could never be enough to justify a departure from the default position. If it was there would be a court ordered departure from the default position in every case and the rule would serve no purpose.
Adult Guardian v B, which was a case under the Family Law Act 1975 (Cth), has not been referred to in cases other than cases under the Act. Pursuant to s117 of the Family Law Act, the default position is that each party is to bear his or her own costs of the proceedings. If the justice of the case required a departure on a particular interlocutory application, no reason would exist to keep the successful party out of the costs until the conclusion of the primary proceedings.
It follows that I do not regard either Jazabas or Adult Guardian v B as supporting a proposition applicable in Tasmania that the nature of a successful application for security for costs is such to be a factor favouring a departure from the default position specified in r65.
Leaving Jazabas and Adult Guardian v B aside, the features relied upon by the fourth and fifth defendants in support of a departure were as follows.
Firstly, pursuit of the applications was time consuming and costly. The hearing of the applications occupied two hearing days followed by the preparation of written submissions.
Secondly, it was submitted that the cost was largely attributable to unreasonable conduct by the plaintiff company. The plaintiff had no assets of its own other than a $2 share capital. It acted in all matters, including the litigation, as a trustee. Although there are ample trust funds to support the litigation it is well established that, nonetheless, for the purposes of an application for security for costs, the plaintiff company is taken to be unable to pay the costs of a defendant if ordered to do so. The plaintiff failed to disclose that it was acting as trustee until the second day of the hearing. Prior to that the plaintiff read into evidence an affidavit from its solicitor to the effect that the plaintiff had ample funds of its own. The solicitor was dependent upon information received from a director of the company in making the assertion which was later shown to be incorrect. If disclosure that the plaintiff company was acting as a trustee and suing in a representative capacity had been made at the outset, as it should have been pursuant to r111, the applications for security for costs would likely have been made much earlier than they were and would likely have proceeded at far less cost to the defendants than they did.
In opposing the defendants' applications for costs, counsel for the plaintiff, firstly, referred to the fact that the defendants were not wholly successful in their applications. The amount sought for security for costs was about $710,000. The amount given was $620,000.
Secondly, counsel for the plaintiff submitted that the amount expended on the applications should be considered in the context that the litigation is expensive. The evidence was that the plaintiff has already spent in excess of $500,000 on the litigation and the combined anticipated costs of the defendants, as reflected in the security for costs orders, were in excess of this.
In exercising the discretion as to costs, I take into account in favour of the defendants that, based upon the materials supplied to me on the hearing of the substantive applications, there is much preparatory work yet to be done on the case generally and the litigation is unlikely to be concluded in the not too distant future. Further, I accept that the plaintiff's conduct has forced the defendants to spend much more time and money on the applications than would have been the case had the plaintiff disclosed that it was suing as trustee and disclosed its financial position earlier than it did. In this regard I consider the conduct of the plaintiff to have been unreasonable.
There are a number of factors favouring the plaintiff which I take into account. The rationale behind r65 supports the default position as to costs. The plaintiff was partially successful, in that the amount of the security ordered was less than the amount of the security which was sought. The litigation has the potential to occasion multiple interlocutory applications, some of which might be determined in favour of the plaintiff. The overall cost of the litigation is high and the cost of pursuing the applications would appear to only be a small proportion of the overall costs likely to be incurred by the defendants in defending the plaintiff's claim. There was no assertion by the defendants that being kept out of their costs until the conclusion of the litigation would cause financial hardship or interfere with their ability to continue to fund the litigation.
In Fiduciary Limited v Morningstar Research Pty Ltd (2002) 55 NSWLR 1 Barrett J identified three circumstances which may prompt the exercise of a discretion to make costs payable forthwith. Those circumstances were set out by Simpson J in Jazabas Pty Ltd v Haddad at [12], quoted earlier in these reasons. Each of the three potentially prompting circumstances exist in this case, namely:
·the applications concerned a separately identifiable matter;
·there has been unreasonable conduct on the part of the unsuccessful party; and
·there is likely to be a considerable lapse of time before the final determination of the proceeding.
I attach more weight to the existence of these three factors than to the factors favouring the r65 default position.
It follows that I am satisfied that the demands of justice require a departure. The defendants should have the orders which they seek. The orders are as follows:
(1)The plaintiff is to pay the taxed costs of the first, second and third defendants of their application for security for costs filed 27 November 2014 in any event.
(2)The plaintiff is to pay the taxed costs of the fourth defendant of the application for security for costs filed 5 November 2014.
(3)The plaintiff is to pay the taxed costs of the fifth defendant of the application for security for costs filed 8 December 2014.
Subject to there being no request for a further hearing, made within the next seven days, additional orders are made as follows:
(4)The plaintiff is to pay the taxed costs of the first, second and third defendants of the costs hearing on 11 May 2015 in any event.
(5)The plaintiff is to pay the taxed costs of the fourth and fifth defendants of the costs hearing on 11 May 2015.
(6)There is a certificate for the attendance of counsel in respect of the security for costs applications and also in respect of the costs hearing on 11 May 2015.
3
2