Kevin Hughes Investments Pty Ltd v Ebert Unit Developments Pty Ltd
[2020] VSC 167
•8 April 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2019 05370
| KEVIN HUGHES INVESTMENTS PTY LTD ACN 115 518 299 | Plaintiff |
| v | |
| EBERT UNIT DEVELOPMENTS PTY LTD ACN 121 394 367 (ATF FOR THE EBERT UNIT TRUST AND IN ITS OWN CAPACITY) | Defendant |
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JUDGE: | Connock J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers. |
DATE OF JUDGMENT: | 8 April 2020 |
CASE MAY BE CITED AS: | Kevin Hughes Investments Pty Ltd v Ebert Unit Developments Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2020] VSC 167 |
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COSTS – General principles – Exercise of discretion – Relief granted by consent – No adjudication on the merits – Defendant effectively surrendered or capitulated – Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; Yue’e Zhao v Suzhou Haishun Investment Management Co Ltd [2020] VSCA 34, applied – Alleged breaches of the Civil Procedure Act 2010 (Vic) not established – No occasion for costs order pursuant to s 29 of the Civil Procedure Act 2010 (Vic) – General observation regarding the need for a proper basis when alleging a breach of the overarching or other obligations imposed upon parties or practitioners under the Civil Procedure Act 2010 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Barber | Moray & Agnew Lawyers |
| For the Defendant | Dr M Wolff | Aqua Law |
HIS HONOUR:
INTRODUCTION AND SUMMARY
The issue for determination is what order should be made in relation to the costs of the proceeding. The plaintiff, a unitholder in the Ebert Unit Trust (Trust), says the defendant, which is the trustee of the Trust, should pay its costs of the proceeding on a standard basis.[1] The defendant says that there should be no order as to costs.[2] It was common ground that the defendant is entitled to its reasonable costs of copying and producing to the plaintiff certain documents relating to the Trust.[3]
[1]Having abandoned its claim that costs should be paid on an indemnity basis: reply submissions at [1].
[2]Not pressing in its submissions the contention in the defendant’s solicitors’ earlier correspondence that the plaintiff should pay the defendant’s costs of the proceeding.
[3]Referred to in more detail later in these reasons.
The plaintiff relied upon two affidavits of its director, Mr Kevin Hughes, the first sworn on 25 November 2019 and the second on 20 February 2020. The defendant relied on the affidavit of its solicitor, Mr Timothy Horne, sworn 19 February 2020 and on Mr Hughes’ first affidavit. The plaintiff filed written submissions dated 20 February 2020 and reply submissions dated 20 March 2020. The defendant relied on its undated written submission provided to the Court on 13 March 2020.[4] At the request of the parties the issue has been determined on the papers.[5]
[4]Subsequently filed on 30 March 2020.
[5]As was ordered at the instigation of the parties on 21 February 2020 after concerns had been raised by the Court regarding proportionality, time, cost and expense in connection with the costs issues, and the Court had directed the parties to confer with a view to resolving the issue by agreement. As will be apparent, no resolution was reached.
For the reasons that follow the defendant should pay the plaintiff’s costs of and incidental to the proceeding, to be taxed on a standard basis if not agreed, but excluding the plaintiff’s costs of and incidental to its claim for indemnity costs, which was not pressed.
BRIEF BACKGROUND
The relief sought by the plaintiff in the proceeding was of narrow compass and comprised an order[6] requiring production by the defendant to the plaintiff of 12 focused categories of documents relating to the Trust, with a particular emphasis on documents relating to a residential development and subdivision being carried out by the defendant as trustee of the Trust (Trust Documents).
[6]Pursuant to rule 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Rules), the Court’s equitable jurisdiction, and/or the inherent jurisdiction of the Court.
Orders addressing the substance of the claim were made by consent on the papers on 16 December 2020 (Consent Orders), being the day the defendant filed its appearance, which was the day before the first directions hearing was to be held on 17 December 2019. In substance and effect, the Consent Orders granted the plaintiff the entirety of the substantive relief sought and required the defendant to produce and provide copies of the Trust Documents to the plaintiff by 13 January 2020.
The defendant produced and provided to the plaintiff copies of such of the Trust Documents that were in its possession (Produced Documents)[7] and informed the defendant which of the Trust Documents were not in its possession.
[7]Some of the documents had been provided prior to the Consent Orders being made. A dispute also arose between the parties regarding the adequacy of the production, but that was not an issue raised for consideration or pursued in this proceeding.
Because the Consent Orders addressed and granted the substantive relief sought in the proceeding, at the directions hearing on 21 February 2020 an order was sought by the parties and made by the Court otherwise dismissing the proceeding. The question of costs was reserved.[8]
[8]The defendant’s solicitor was not in a position to address the written submissions of the plaintiff’s counsel regarding costs and indemnity costs at the directions hearing, having received them only the day before.
SUBMISSIONS
The plaintiff placed emphasis on the factual history and relied upon what it contended was the right of a unitholder to obtain documents from the defendant trustee, the history of what were said to be unsuccessful requests for the documents, and the related communications and events between the parties referred to in the affidavits of Mr Hughes.[9]
[9]To which I have had regard, together with those referred to in the affidavit of Mr Horne, but which need not be set out here.
Among other things the plaintiff emphasised: that following unsuccessful requests for the documents a copy of the draft originating motion was provided to the defendant in October 2019; that although some documents were provided in mid-November 2019, these did not fully address the requests; that Mr Hughes attended a unitholders’ meeting on 28 November 2019, where it was said that documents would be provided to him but were not; that the originating motion was issued on 26 November 2019 but not immediately served pending a unitholders’ meeting two days later; and that on 16 December 2019 the defendant consented to orders granting the substantive relief sought which resulted in the Consent Orders being made on the papers that day.
The plaintiff submitted that the defendant had been dilatory in agreeing to provide and providing the Trust Documents and that the documents that were produced should have been produced well before the proceeding was commenced. The plaintiff further submitted that the defendant also ought to have informed the plaintiff before that time that a number of the documents that were sought no longer existed, which, so it was said, did not occur until after the Consent Orders were made, in the course of providing the Produced Documents.
Although much was emphasised regarding these and related factual matters, what lay at the heart of the plaintiff’s submission was its contention that it had succeeded in obtaining the substantive relief sought in the proceeding and therefore the general rule should apply, and the costs of the proceeding should follow the event. In so doing, the plaintiff also properly acknowledged the defendant’s entitlement to its reasonable costs of providing inspection and copying of the Produced Documents.[10]
[10]Reply submissions, [18]–[19].
The defendant opposed the making of any order as to the costs of the proceeding, whether on a standard basis or at all.[11] It, too, sought to rely upon much of the factual background regarding the history of the requests, events and communications referred to by Mr Horne and Mr Hughes, again to which I have had regard but will not set out in detail here.[12]
[11]Defendant’s submissions, [1].
[12]See defendant’s submissions, [2]–[3].
Whilst stating that the ‘… general presumption is that the successful plaintiff should be entitled to its costs from the unsuccessful party (based on the principle that costs ”follow the event”) …’, the defendant contended that the Court could make any order it considered appropriate to further the overarching purpose.[13] In this context the defendant submitted that it was ‘… appropriate that the Court depart from the general rule …’ that costs follow the event.[14] In support of this contention, and briefly, it submitted that:[15]
[13]Referring to the Civil Procedure Act 2010 and ss 7 and 65C of that Act.
[14]Defendant’s submission, [6].
[15]See defendant’s submissions, [6]–[24].
(a) the subject matter of the proceeding had little connection with Victoria and ‘… As such, it is highly likely that the [d]efendant — if it had chosen to defend the matter — would have objected to the jurisdiction of this court … [and] it is at least arguable (if not indeed likely) that the [d]efendant would have been successful in such an application’;
(b) the fact that the proceeding was commenced in an inappropriate venue is a factor the Court may consider on the question of whether to award costs irrespective of the eventual outcome;
(c) the plaintiff had failed to comply with its obligations under ss 7, 19, 20, 22, 24 and other provisions of the Civil Procedure Act 2010 (Vic) (CP Act) by reason of:[16] filing the proceeding before the general meeting of 28 November 2019, thereby indicating a determination to commence the proceedings irrespective of any outcome of that meeting; failing to specify which documents were still required after the general meeting on 28 November 2019 before serving the proceedings; not taking steps to seek to resolve the matter by means of appropriate dispute resolution; filing the proceedings in an inappropriate jurisdiction, being Victoria rather than New South Wales; claiming costs of $23,000 in its correspondence of 12 February 2020; and violating the principle of proportionality because there was no need to commence the proceeding in circumstances where the defendant had already provided some documents, a general meeting of unitholders in the Trust had occurred, and the plaintiff thereafter had not informed the defendant that it required further documents in addition to the documents it had received before and at the general meeting;
(d) by reason of the breaches of the CP Act by the plaintiff, and having regard to the terms of ss 8, 28, and 29 of the CP Act, the Court should refuse to make a costs order in favour of the plaintiff; and
(e) there was no basis for granting indemnity costs.
[16]See defendant’s submissions, [12]–[24].
The defendant also submitted that the defendant should be awarded its reasonable costs of providing inspection and copying of the Produced Documents.
THE COSTS DISCRETION
Principles relevant to the exercise of the Court’s discretion in relation to costs have been addressed in many cases and are well known, aspects of which I recently addressed in Weatherbeeta Limited v Hammersmith Nominees (No 2).[17] In the present case there was no material dispute regarding any relevant matters of principle, and having regard to the particular costs issues that fall to be determined in this case it is convenient and sufficient to refer briefly to the following.
[17][2019] VSC 713, [52]–[59].
It is well settled that a guiding principle by which the Court’s discretion as to costs is to be exercised is that the successful party is generally entitled to costs, which was a point recently emphasised by the High Court in Northern Territory v Sangare (Sangare)[18] as follows:
[24] It is well established that the power to award costs is a discretionary power, but that it is a power that must be exercised judicially, by reference only to considerations relevant to its exercise and upon facts connected with or leading up to the litigation.[19] While the width of the discretion ‘cannot be narrowed by a legal rule devised by the court to control its exercise’,[20] the formulation of principles according to which the discretion should be exercised does not ‘constitute a fetter upon the discretion not intended by the legislature’.[21] Rather, the formulation of principles to guide the exercise of the discretion avoids arbitrariness and serves the need for consistency that is an essential aspect of the exercise of judicial power.[22]
[25] A guiding principle by reference to which the discretion is to be exercised – indeed, ‘one of the most, if not the most, important’ principle – is that the successful party is generally entitled to his or her costs by way of indemnity against the expense of litigation that should not, in justice, have been visited upon that party.[23] The application of that principle may be modified or displaced where there is conduct on the part of the successful party in relation to the conduct of the litigation that would justify a different outcome. For example, a successful defendant may be refused its costs on the ground that its conduct induced the plaintiff to believe that he or she had a good cause of action.[24] But in the present case, there was nothing of this kind in the conduct of the appellant in relation to the litigation that might have weighed against the exercise of the discretion in its favour.[25] There was no suggestion of any conduct on the part of the appellant, whether by unreasonable delay or a want of the cooperation required of litigants to ensure the ‘just resolution of the real issues in civil proceedings with minimum delay and expense’,[26] that might have been taken into account to justify refusing the appellant an order for its costs.
[18](2019 265 CLR 164, 172-173 [24]–[25] (Kiefel CJ, Bell, Gageler, Keane and Nettle JJ) (footnotes in original).
[19]Donald Campbell & Co v Pollak [1927] AC 732, 811–812; Latoudis v Casey (1990) 170 CLR 534, 539–540, 557, 561–562, 569; Oshlack v Richmond River Council (1998) 193 CLR 72, 96 [65], 120–121 [134].
[20]Norbis v Norbis (1986) 161 CLR 513, 537. See also at 533.
[21]Latoudis v Casey (1990) 170 CLR 534, 541–542, see also 558–559; Oshlack v Richmond River Council (1998) 193 CLR 72, 96 [65], 121 [134].
[22]Norbis v Norbis (1986) 161 CLR 513, 519; Latoudis v Casey (1990) 170 CLR 534, 541– 542, see also 558; Oshlack v Richmond River Council (1998) 193 CLR 72, 96 [65], 121 [134].
[23]Smeaton Hanscomb & Co Ltd v Sassoon I Setty, Son & Co [No 2] [1953] 1 WLR 1481, 1484; [1953] 2 All ER 1588, 1590. See also Harold v Smith (1860) 5 H & N 381, 385 [157 ER 1229, 1231]; Oshlack v Richmond River Council (1998) 193 CLR 72, 96‑97 [66]–[67], see also 86 [35], 120–121 [134].
[24]See, eg, Bostock v Ramsey Urban District Council [1900] 2 QB 616, 622, 625 and 627; Ritter v Godfrey [1920] 2 KB 47, 53, 60 and 66; Scottish Gympie Gold Mines Ltd v Carroll [1902] St R Qd 311, 315–316; Stewart v Moore [1921] St R Qd 182, 190; Redden v Chapman (1949) 50 SR (NSW) 24, 25.
[25]Anglo‑Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873, 874; Oshlack v Richmond River Council (1998) 193 CLR 72, 97–98 [69].
[26]Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, 210 [90]. See Supreme Court Rules, r 1.10.
In Chen v Chan (No 2),[27] the Court of Appeal observed as follows:
[27][2009] VSCA 233, [10] (Maxwell P, Redlich JA and Forrest AJA) (footnotes in original). Although the Court was addressing the costs of an appeal, as others have noted, such observations apply generally to costs questions arising at trial. See also Nom De Plume Nominees Pty Ltd v Fingal Developments Pty Ltd [2016] VSCA 233, [13] (Tate and McLeish JJA and Ginnane AJA) (Nom De Plume). See also Keys Consulting Pty Ltd v CAT Enterprises Pty Ltd [2019] VSCA 169, where Maxwell P, Niall JA and Macaulay AJA, cited with apparent approval the observations of Tate and McLeish JJA and Ginnane AJA in Nom De Plume regarding a court taking a pragmatic approach in relation to costs where there is a multiplicity of issues and mixed success enjoyed by the parties.
Relevant principles
[10] The contentions of the parties raise a number of questions relevant to costs orders on appeal. The principles relevant to these questions can be summarised as follows:
(1)The general rule is that costs should follow the event. Absent disqualifying conduct, the successful party should recover its costs even where it has not succeeded on all heads of claim.[28]
(2)The Rules of Court[29] permit significant flexibility in determining questions of costs. In particular, the court is entitled to examine the realities of the case and will attempt to do ‘substantial justice’ as between the parties on matters of costs.[30]
(3)Where there is a multiplicity of issues and mixed success has been enjoyed by the parties,[31] a court may take a pragmatic approach in framing the order for costs, taking into consideration the success (or lack of success) of the parties on an issues basis. Generally, if such an order is made, it is reflected in the successful party being awarded a proportion of its costs but not the full amount.[32]
(4)A court may, when fixing costs in a claim where there has been mixed success, take into account complications which it considers will arise in the taxation of costs, as part of its consideration of the overall interests of justice.
(5)Where a court determines to make an order apportioning costs, then it does so primarily as ‘a matter of impression and evaluation,’[33] rather than with arithmetical precision, having considered the importance of the matters upon which the parties have been successful or unsuccessful, the time occupied and the ambit of the submissions made, as well as any other relevant matter.
(6)Where a number of parties have had the same representation, there is a ‘rule of thumb’[34] as to the apportionment of costs, namely that, where some of those parties have been successful and others have not, each successful party is only entitled to his or her proportion of the costs incurred on behalf of all, plus the costs, if any, incurred exclusively on his or her behalf. The primary issue for determination in such a case is that of fairness as between the parties, having regard to the manner in which the trial, or appeal, has been conducted.
(7)Usually, an order for costs will be made on a party/party basis.[35] But an order for costs on a solicitor/client or indemnity basis may be made where special or unusual circumstances have been demonstrated,[36] for example, by establishing misconduct in the proceeding, that the proceeding was brought for an ulterior purpose, or that it was patently unreasonable to institute, or maintain, the proceeding. Special circumstances may also include the making of an allegation of fraud which is not proved.[37]
[28]Ritter v Godfrey [1920] 2 KB 47; Oshlack v Richmond River Council (1998) 193 CLR 72, 97–8 (McHugh J); 124 (Kirby J).
[29]Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 63.04 at first instance and r 64.24 on appeal.
[30]Spotless Group Limited v Premier Building and Consulting Pty Ltd and Northern Suburban Properties Pty Ltd (Spotless) [2008] VSCA 115, [14].
[31]McFadzean v Construction Mining and Energy Union (2007) 20 VR 250 (McFadzean) [157]–[158].
[32]Spotless [15]; Hughes v Western Australian Cricket Association Inc (1986) 8 ATPR 40–748, 48, 136; Pricom Pty Ltd v Sgarioto (Unreported, Supreme Court of Victoria, Eames J, 24 April 1995), McFadzean [2007] VSCA 289, [152].
[33]Major Engineering Pty Ltd v Helios Electroheat Pty Ltd (No 2) [2006] VSCA 114, [5].
[34]Currabubula Holdings Pty Ltd and Paola Holdings Pty Ltd v State Bank of New South Wales [2000] NSWSC 232, [90]. For a comprehensive analysis of the development of the ‘rule of thumb’, see [91]–[104]. See also Ellingsen v Det Skandinaviske Compani [1919] 2 KB 567, 569.
[35]PCRZ Investments Pty Ltd v National Golf Holdings Ltd [2002] VSCA 24, [34].
[36]Spencer v Dowling [1997] 2 VR 127; Bass Coast Shire Council v King [1997] 2 VR 5, 29.
[37]Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 10 FCR 177. See also Re Talk Finance and Insurance Services Ltd [1994] 1 Qd R 558 and Niml Ltd v Man Financial Australia Ltd (No. 2) [2004] VSC 510.
In Diakou v Rouse,[38] the Court of Appeal observed that:
[48] Section 24(1) of the Supreme Court Act 1986 confers on the Supreme Court a wide discretion in deciding questions of costs.[39] However, that discretion must be exercised judicially, by reference only to considerations relevant to its exercise and upon facts connected with or leading up to the litigation.[40] There are well-established principles that provide guidance for the exercise of the discretion and avoid it being exercised in an arbitrary or inconsistent manner.[41]
[49] One such well-established principle is that costs usually follow the event, that is, that the unsuccessful party is usually ordered to pay the successful party’s costs. Recently, in Northern Territory v Sangare, the High Court said the following about that principle:
…[42]
[50] Consistent with this principle, where the outcome of the proceeding is such that it cannot be said that one party has been successful and the other has been unsuccessful, it may be appropriate that there be no order as to costs.[43] That is also the case in a proceeding where its subject matter or the relief sought are such that neither party can be said to have succeeded.[44] However, the conduct of one of the parties in relation to the litigation may be such as to warrant an order for costs being made against that party.
[38][2019] VSCA 199, [48]–[50] (Kyrou, McLeish and Emerton JJA) (footnotes in original).
[39]See also Civil Procedure Act 2010 (Vic) s 65C(1).
[40]Sangare [2019] HCA 25 [24].
[41]Sangare [2019] HCA 25 [24].
[42]The passage omitted from the extract is the quote from Sangare set out above.
[43]See, eg, National Australia Bank Ltd v Horne [2011] VSCA 414 [3]; Apostolidis v Kalenik (No 2) (2011) 35 VR 563, 612 [59]–[60]; Amalgamated Engineering Union v The Metal Trades Employers’ Association (1935) 53 CLR 658, 664; Chiarella v Accident Compensation Commission [1992] 2 VR 103, 108.
[44]See, eg, Board of Examiners v XY (2006) 25 VAR 193, 201–3 [17]–[22], 208–9 [37]–[38]. Although the respondent in that case succeeded in overturning the decision of the Board of Examiners that she was not a fit and proper person to be admitted to legal practice, the Court held that the nature of the proceeding was such that no order as to costs should have been made.
As was recently observed by the Court of Appeal in Yue’e Zhao v Suzhou Haishun Investment Management Co Ltd,[45] where there has been no adjudication on the merits of a claim some additional considerations arise:
[45][2020] VSCA 34, [9]–[12] (Tate, McLeish, and Hargrave JJA) (‘Zhao’) (footnotes and emphasis in original).
[9]The parties agree that the general rule to be applied in circumstances such as the present is that stated by McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin[46] in the following terms:
[46](1997) 186 CLR 622; [1997] HCA 6 (‘Lai Qin’).
…It will be necessary to return in a little more detail to the facts of the case, but it is first necessary to state the principles which govern an application for costs when a party elects not to pursue an action because he or she has achieved the relief sought in the action either by settlement or by extra-curial means.
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action….
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in The South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant’s taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.[47]
[47]Ibid 624–5 (citations omitted) (emphasis added).
[10]In Nichols v NFS Agribusiness Pty Ltd,[48] the New South Wales Court of Appeal applied the principles stated in Lai Qin, as explained in later cases,[49] and allowed an appeal against a trial judge’s decision to award costs.[50] In the course of reviewing the authorities following Lai Qin, Payne JA (Basten and Meagher JJA agreeing) accepted that, absent any consideration of the merits of the proceeding, costs may be ordered where there is a capitulation by one party — in the sense that it ‘effectively surrenders to the other’.[51] In his Honour’s view, this approach is consistent with the judgment of McHugh J in Lai Qin.[52] Payne JA referred to the dissenting judgment of Sackville AJA in Muhibbah Engineering (M) BHD v Trust Co Ltd,[53] and to the reference by Sackville AJA in that decision to the following statement by Burchett J in ONE.TEL Ltd v Deputy Commissioner of Taxation:
[48](2018) 97 NSWLR 681; [2018] NSWCA 84 (‘Nichols’).
[49]Ibid 686–90 [25]–[38].
[50]Ibid 686–92 [23]–[54].
[51]Ibid 687–90 [29]–[38].
[52]Ibid 689–90 [37]–[38].
[53][2009] NSWCA 205 (‘Muhibbah Engineering’).
It is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court’s discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs.[54]
[54](2000) 101 FCR 548, 553 [6]; [2000] FCA 270, [6] (emphasis added), referred to with approval by the Full Federal Court in Chapman v Luminis Pty Ltd [2003] FCAFC 162, [7].
[11]In Nichols, Payne JA considered that, in Muhibbah Engineering:
Sackville AJA was explaining that when in Lai Qin McHugh J described a case where the party seeking costs “in effect, has succeeded in obtaining the relief sought in the proceedings”, his Honour was referring to a case where one party, after litigating for some time, effectively surrenders to the other.[55]
[12]In fact, the quoted words which Payne JA attributes to McHugh J in Lai Qin do not appear in McHugh J’s judgment. They are a quote from Sackville AJA’s judgment in Muhibbah Engineering.[56] However, the principles stated by McHugh J in Lai Qin were, in his words, intended to ‘govern an application for costs when a party elects not to pursue an action because he or she has achieved the relief sought in the action either by settlement or by extra-curial means’.[57] We accept as a general principle that where a party litigates for some time and then acts so as to effectively surrender or capitulate to the other, that will usually be a strong ground to award costs against the party who has surrendered or capitulated. But each case will depend on its own facts.
[55]Nichols (2018) 97 NSWLR 681, 690 [38]; [2018] NSWCA 84, [38].
[56]Muhibbah Engineering [2009] NSWCA 205, [52].
[57]Lai Qin (1997) 186 CLR 622, 624; [1997] HCA 6.
It was not in dispute that s 28 of the CP Act expressly permits the Court to take into account any contravention of the overarching obligations when exercising its discretion as to costs, and that the orders that may be made under s 29 of the CP Act include an order that a person who has contravened the overarching obligations pay some or all of the legal or other costs and expenses of any person arising from the contravention.
DISPOSITION
Having regard to the above, in the circumstances of this case it is in my view clear that the defendant should pay the plaintiff’s costs of and incidental to the proceeding, to be taxed on a standard basis if not agreed, but excluding the plaintiff’s costs of and incidental to its abandoned claim for indemnity costs. I elaborate below.
It is apparent from the written submissions that both parties properly recognised that the plaintiff had been successful in obtaining the substantive relief that it sought in the originating motion. However, that relief was obtained as a result of the parties reaching an agreed position the day before the first directions hearing, with the Consent Orders being made on the papers reflecting that agreed position. There having been no adjudication or determination by the Court of the merits of the plaintiff’s claim, additional matters of the character referred to by the Court of Appeal in Zhao are relevant.
Although each of the parties sought to make submissions concerning aspects of their respective contentions regarding the merits or otherwise of the plaintiff’s claim, including submissions regarding the operation of the trust deed, substantive rights, and other matters, on a costs application of the kind before the Court it is neither appropriate, nor possible, to hear and determine such substantive matters. To employ the words of McHugh in Lai Qin,[58] the Court cannot try a hypothetical action between the parties when addressing the question of costs. This position is also consistent with the obligations imposed on the Court by ss 8 and 9 of the CP Act.[59]
[58]See paragraph 19 above.
[59]Noting also that, understandably, it was not here contended by the defendant that s 18 of the CP Act had been breached because the plaintiff’s claim was frivolous, vexatious, an abuse of process, or without a proper basis.
To some extent, and by way of example, the force of McHugh J’s observation in Lai Qin is well underscored in the present case when regard is had to what the defendant has described as an ‘objection’ to ‘jurisdiction’ that was ‘highly likely’ the defendant would have taken ‘… if it had chosen to defend the matter …’ and which it considered ‘at least arguable (if not indeed likely) …’ to succeed. The fact is that the defendant did not defend the claim, and even if it had, the basis upon which it may have ultimately done so is not and cannot be known.[60] As I have said, Consent Orders were made granting the plaintiff the substantive relief sought.
[60]Which is not to ignore the exchange of views in the exchange of correspondence between the parties and their respective legal advisers.
As the Court of Appeal observed in Zhao, it is accepted that, ‘… absent any consideration of the merits of the proceeding, costs may be ordered where, effectively, there is a capitulation or one party surrenders to the other.’[61] A review of the history of this matter as reflected in the affidavits reveals that this is what occurred in the present case. Although the plaintiff had not been able to secure all that which it had sought in the considerable correspondence and exchanges between the parties in advance of the proceeding being filed and served, the day before the first directions hearing the defendant agreed to orders granting the plaintiff all of the substantive relief sought. In the circumstances of the present case, that amounted to an effective capitulation or surrender, warranting a costs order to be made in favour of the plaintiff. This is also supported by part of the defendant’s submissions, in which it acknowledged that it had chosen not to defend the matter.[62]
[61]Zhao, [10].
[62]Defendant’s submission [10].
When viewed against the history of the communications and exchanges in advance of the filing and service of proceedings, the point is further reinforced, noting in this context that the plaintiff had informed the defendant on a number of occasions that proceedings would be commenced and had also provided a copy of the originating motion to the defendant in draft well before it was filed and served. The fact that the defendant maintained its position that it was not bound to provide access to the documents sought does not aid the defendant in this context.
These observations are not intended to suggest that the defendant acted inappropriately by effectively capitulating or surrendering. However, and as I have found, in the present circumstances, so doing does have adverse costs consequences for the defendant.[63]
[63]But noting also that substantial additional costs would have been incurred by the parties had the matter proceeded through its interlocutory stages to trial.
It will be apparent from the above that I do not accept the defendant’s submissions that there should be no order as to the costs of the proceeding.
Putting to one side the substantive matters that may have arisen at trial and which are inappropriate to determine on this application, at the heart of the defendant’s submission is the contention that the plaintiff acted unreasonably and precipitously by proceeding in the way that it did having regard to the chronology of communications and events as revealed by the affidavit evidence and the timing of the filing and service of the originating motion in the proceeding. In substance it is from the platform of this contention that the defendant submits that the plaintiff has breached the overarching obligations and fallen foul of various provisions of the CP Act in the manner alleged in its submissions.
Having reviewed the evidence regarding the history of the communications and events, it does not in my view demonstrate or establish that the plaintiff acted unreasonably or precipitously, or that it breached the overarching obligations or other provisions of the CP Act as alleged by the defendant.
Although it is not necessary to set out all of the detail of the communications, exchanges, and events, the evidence demonstrated, among other things, the following:
(a) The plaintiff is a unitholder who invested a material sum of money in purchasing its units in the Trust and who has expressed what appears to be genuine concern regarding the absence of information relating to the Trust and a substantial project being undertaken by the defendant as trustee.
(b) From at least March 2019 requests were made by the plaintiff for specified and limited documents relating to the Trust.
(c) Considerable correspondence was exchanged thereafter in which differences of view were expressed by those involved as to the plaintiff’s entitlement to documents or information and what had been or would be provided. The evidence also revealed instances where written enquiries from the plaintiff’s lawyers were not responded to, or there was delay in responding.
(d) A letter was sent to the defendant on 18 October 2019 by the plaintiff’s solicitors in which they made further complaint about the absence of a response to a letter of request dated 1 July 2019, again requested documents, and enclosed a draft originating motion stating that the proceeding would be filed and served if a satisfactory response was not received by 31 October 2019.
(e) The defendant’s lawyers responded on that last day, 31 October 2019, with a short letter asserting that the documents had been provided, but also noting that ‘in any event’ a meeting would be held of all unitholders on 28 November 2019 at which ‘All of the information requested by [the plaintiff] will be provided to all [Trust] unit holders at the same time’, and stating that it was therefore not necessary to make an application to the Court, and reserving the right to raise the letter on the question of costs.
(f) The plaintiff’s lawyers responded on 8 November 2019, again expressing concern about the absence of documents and the absence of reasons as to why the requested documents could not be provided immediately and a further request was made seeking that they be provided by 14 November 2019 in advance of the meeting.
(g) On 13 November 2019 some documents were provided, which were expressed to be documents that had previously been provided by Mr Richard Hughes to Mr Kevin Hughes in June 2019. It was again stated that any application should not be filed and the letter would be produced on the question of costs if it was. The documents did not include many of the documents sought in the proceeding and it was not suggested in the letter that the defendant did not have a number of the documents requested.
(h) Although the proceeding was filed on 26 November 2019, it was not served at that time. The plaintiff’s director, Mr Hughes, attended the meeting on 28 November 2019. The documents that the plaintiff had been seeking were not provided to Mr Hughes at the meeting and he said that, ‘due to the ongoing failure to provide documentation, he subsequently instructed …’ his solicitors to serve the application on the defendant, which occurred.
(i) As mentioned, on 16 December 2019, the day before the date of the first directions hearing, the defendant filed an appearance and the Consent Orders were made on the papers granting the substantive relief sought by the plaintiff in the originating motion. Those orders required the defendant to produce to the plaintiff’s solicitors copies of all of the documents and categories of documents specified in the originating motion by 13 January 2020.
(j) By letter dated 16 January 2020 the defendant provided copy documents to the plaintiff. These included a number of copy documents that were provided to the plaintiff for the first time but which had been the subject of the earlier correspondence and the originating motion.
(k) On 20 and 30 January 2020 the plaintiff raised concerns regarding the adequacy of the documents provided and concerns regarding what appeared to the plaintiff to be incomplete responses. The defendant responded on 5 February 2020 stating that the documents provided comprised all the documents in the possession of the defendant comprising or falling within the documents and classes of documents the subject of the originating process.[64] Mr Hughes deposed that at no point prior to the commencement of the proceedings was the plaintiff informed by the defendant or its lawyers that various of the documents sought were no longer in their possession or did not exist.
[64]And as recorded in the terms of the Consent Order.
(l) Thereafter the lawyers for the parties exchanged correspondence regarding costs, with each party seeking costs from the other, and the plaintiff contending that its costs should be paid on an indemnity basis.
(m) The question of costs was to be dealt with at the directions hearing on 21 February 2020, but the directions hearing was adjourned as a result of the defendant’s solicitor not being in a position to address the submissions received from the plaintiff the preceding day. Directions were made requiring conferral between the parties, with a timetable for submissions being directed if resolution could not be achieved.
(n) As is apparent, the plaintiff did not press its claim for indemnity costs and the defendant did not pursue its claim for costs of the proceeding.[65]
[65]Although it maintained its entitlement to reasonable costs and expenses of copying and making the Produced Documents available for inspection.
Not only does the evidence fail to establish the alleged unreasonable or contravening conduct by the plaintiff, the evidence demonstrates that the plaintiff acted reasonably, and consistently with its obligations under the CP Act, in the way that it approached the lead up to and commencement of these proceedings.
This conclusion might also be seen to be at least inferentially supported by the agreement reached between the parties in mid-December 2019 regarding the Consent Orders and the subsequent production of documents by the defendant to the plaintiff pursuant to those orders. But whether or not that is the case, it is in my view clear that the defendant’s submission that the plaintiff ought not to have a costs order made in its favour by reason of the plaintiff’s conduct in relation to the lead up to and commencement of the proceeding must be rejected. In this context, I make the following additional brief observations.
First, the plaintiff is a unitholder and has a legitimate interest in the Trust, its affairs, and the conduct of the defendant in its capacity as trustee of the Trust.
Secondly, the Trust Documents to which access was sought were limited and relatively focussed.
Thirdly, numerous written requests for access to the Trust Documents were made over an extended period and the documents and classes of documents to which access was sought remained limited and substantively consistent.
Fourthly, the plaintiff informed the defendant a number of times in writing that if a satisfactory response was not received proceedings would be commenced. As the chronology of the communications and events reveals, the proceeding was not commenced hastily or precipitously. A written request for access to documents was made by the plaintiff’s solicitor as early as 27 March 2019. A more detailed request was made on 31 May 2019 and reference to proceedings being commenced was made at that time, including seeking costs if that became necessary. Further requests and references to proceedings being commenced were made in later correspondence, including in July and October 2019, with the draft originating motion being provided to the defendant under cover of a letter dated 31 October 2019.
Fifthly, although the originating process was filed on 26 November 2019, it was not served prior to the unitholders’ meeting on 28 November 2019. The documents sought were not provided to Mr Hughes at that meeting despite the statements made in the defendant’s solicitors letters of 31 October 2019 that ‘All of the information requested by your client will be provided to all EUT unitholders at this reunion at the same time’, and the statement in their letter of 13 November 2019 that ‘… all [Trust] unit holders will have the opportunity to access all of the [Trust] documents and information together.’
In this regard I do not accept that there is any relevant force in the contention that the plaintiff ought to have made a further request after the meeting of 28 November 2019 specifying which documents it still required after the unitholders’ meeting.[66] The position of the parties has to be viewed in context, including that by that time it was clear from numerous written requests which documents the plaintiff sought access to and the defendant itself knew which documents had been provided to date. The plaintiff had held off serving the proceeding prior to the meeting. As Mr Hughes said, ‘Due to the ongoing failure to provide documentation, I subsequently instructed [the plaintiff’s solicitors] to serve the Application on the [d]efendant’.[67] The suggestion that the plaintiff’s approach in this regard involved a breach of ss 20 and 22 of the CP Act is without merit.
[66]See defendant’s submission, [12].
[67]Second affidavit of Mr Hughes at [11].
Sixthly, there is similarly little relevant force in the contention that a different costs result should follow given that, so it was submitted, the originating motion was filed in Victoria and not New South Wales and was therefore ‘… an inappropriate venue’.[68] No cross-vesting application was made by the defendant and no application was made in relation to any question of jurisdiction — and the position is strongly contested by the plaintiff in any event. The issue of forum was not agitated before the Court and even on the defendant’s submissions there was speculation as to what might have occurred even if the defendant ‘had chosen to defend the matter’ — which it did not.
[68]See defendant’s submission, [7]–[11].
In any event, even if it were to be assumed for the purpose of argument that Victoria was an ‘inappropriate’ forum, this would be one of the matters to be weighed in the balance but would not in my view alter the outcome given the weight of the matters referred to above, including the defendant’s effective surrender and capitulation.
As an aside, given the plaintiff’s connection with Victoria it might also be reasonably inferred that some additional costs would have been incurred by the plaintiff if the proceeding had been commenced in New South Wales. In light of the conclusion I have reached on the question of costs, and to the extent that the plaintiff’s recoverable costs are less than they otherwise might have been if the proceeding was commenced in New South Wales, as things have transpired it may be that the defendant has benefited in a limited way from Victoria being the chosen forum.
Seventhly, insofar as the defendant pressed the contention that the plaintiff breached ss 20 or 22 of the CP Act because the proceeding was filed (but not served) shortly before the meeting on 28 November 2019, or there was ‘no evidence that the plaintiff proposed to resolve the matter by means of appropriate dispute resolution’, I reject those submissions. The history of the correspondence reveals numerous attempts by the plaintiff over an extended period to seek to resolve the matter without the need to commence or pursue proceedings and, as I have observed, demonstrated a reasonable approach on the part of the plaintiff. I also refer to my observations in paragraph 39 above regarding the 28 November 2019 meeting. I note also that on the day the defendant filed an appearance (16 December 2019) the plaintiff reached agreement with the defendant in relation to the disposition of the substantive dispute, which resulted in the Consent Orders being made.
Eighthly, I do not accept that it has been established that the plaintiff has ‘violated’ the ‘principle of proportionality’ or breached s 24 of the CP Act by reason of its conduct in connection with the lead up to and commencement of the proceedings. I refer in this regard to the observations made in paragraphs 21 and following above and my observations regarding the reasonableness of the plaintiff’s approach.
Further, I do not accept the submission that the reference to the total estimated costs of $23,000 in paragraph 12 of the plaintiff’s solicitor’s letter of 12 February 2020 provides a basis for concluding on this application that the plaintiff did not use reasonable endeavours to ensure that the legal and other costs incurred were reasonable and proportionate having regard to the complexity of the issues in dispute and the amount in dispute.
The plaintiff’s investment in the units in the Trust was substantial, and the evidence disclosed that the amounts involved in the development activities of the Trust by the trustee were also very substantial. Each materially exceeded the costs sum referred to. The material financial importance of the matter to the plaintiff was evident from the affidavits of Mr Hughes and the correspondence passing between the parties.
Further, the letter relied upon formed part of an exchange of correspondence between the parties in which each was expressing a view that the other should pay its costs of the proceeding. Having obtained the Consent Orders and received the Produced Documents, the plaintiff was making an offer to discontinue the proceeding if the defendant ‘… pays the sum of $16,000 as a contribution towards our client’s costs of bringing the Proceeding (which we estimate to date total approximately $23,000)’.[69] On its face this amount appears to be an estimate of the plaintiff’s then total costs. However, the existence of this ‘estimate’ does not provide a sound basis for establishing the asserted unreasonableness or absence of proportionality by the plaintiff. There are many matters not known that would fall to be considered by the Court before any such conclusion could be reached, including, for example: specifically what work was involved, by whom, when and over what period; what the breakdown of costs was and the extent to which it related to solicitors’ costs, counsels’ costs, fees, or other disbursements or expenses; what rates the relevant work was carried out at; and so on.
[69]Letter of 12 February 2020, [12].
In the end it is sufficient to say that the asserted breach has not been established on the evidence because it has not been established on the evidence before the Court that the plaintiff has failed to use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the civil proceeding are reasonable and proportionate to the complexity or importance of the issues in dispute and the amount in dispute.[70]
[70]See s 24 of the CP Act.
With respect to the costs ultimately to be paid by the defendant, the amount will be determined by the Costs Court by taxing the relevant costs on a standard basis in the unfortunate event that the parties are unable to reach agreement. As to the prospect of agreement, I will again direct that the parties confer with a view to resolving the question of quantum as I remain concerned about the extent of the costs being incurred and resources being utilised in connection with the costs issues given the amounts involved.
As is apparent from the above, and contrary to the submissions of the defendant, I do not accept that the evidence establishes that by all or any of its conduct the plaintiff has contravened the overarching obligations or any of ss 7, 19, 20, 22 or 24 of the CP Act in connection with this proceeding. Having regard to the circumstances of the present case, no occasion arises for the making of an order pursuant to ss 28 or 29 of the CP Act that there be no order as to the costs of the proceeding.
It is appropriate to conclude on this topic by making a general observation. Careful consideration should be given by all parties and practitioners before they too readily engage in allegations against other parties or practitioners of failing to comply with the overarching and other obligations imposed by the CP Act. Contemporary experience suggests that allegations of this character are too readily and frequently made in correspondence and submissions, perhaps at times without parties and practitioners giving sufficient consideration as to whether there is a proper basis for so doing, and what might follow if there is not.
Finally, and as I have said, the plaintiff did not press its claim for indemnity costs, and the defendant did not press its previously foreshadowed application for costs. The costs order to be made in favour of the plaintiff will exclude its costs insofar as they relate to its indemnity costs application.
CONCLUSION AND PROPOSED ORDERS
The defendant should pay the plaintiff’s costs of and incidental to the proceeding, to be taxed on a standard basis if not agreed, but excluding its costs of and incidental to its claim for indemnity costs. As mentioned, it was common ground that the plaintiff should pay the defendant’s reasonable costs of copying and making documents available for inspection by the plaintiff.
Subject to addressing the final form of the orders with the parties, it is proposed that orders be made to the following effect:
(a) The defendant pay the plaintiff’s costs of and incidental to the proceeding, to be taxed on a standard basis if not agreed, but excluding its costs of and incidental to its claim for indemnity costs.
(b) The plaintiff pay the defendant’s reasonable costs of copying and making the documents referred to in the Schedule to this order available for inspection by the plaintiff.[71]
[71]The Schedule is to be prepared by the parties setting out the details of the documents.
(c) Within 14 days of the date of these reasons the solicitors for the parties shall confer in an attempt to agree the quantum of the costs referred to in the above orders.
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