Kytham Pty Ltd & Ors v Excellence in Marketing Pty Ltd & Ors
[2008] VSC 555
•2 December 2008
IN THE SUPREME COURT OF VICTORIA
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
PRACTICE COURT
No. 8163 of 2008
| KYTHAM PTY LTD (ACN 105 449 698) and others | Plaintiffs |
| - and - | |
| EXCELLENCE IN MARKETING PTY LTD (ACN 087 507 695) and others | Defendants |
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JUDGE: | HOLLINGWORTH J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14 November 2008, 2 December 2008 | |
DATE OF JUDGMENT: | 2 December 2008 | |
CASE MAY BE CITED AS: | Kytham Pty Ltd & Ors v Excellence in Marketing Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2008] VSC 555 | |
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PRACTICE AND PROCEDURE – Costs – Proceeding settled prior to adjudication – Each party sought costs of proceeding – Whether any party acted unreasonably – Whether court able to determine merits – Each party ordered to bear own costs.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M Flynn | Oakley Thompson & Co |
| For the Defendants | Mr S Tatarka | Tisher Liner & Co |
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HER HONOUR:
Introduction
The plaintiffs are unitholders in a trust called the Excellence in Marketing Unit Trust (“EIM Trust”).
The first defendant was, until recently, the trustee of the EIM Trust. The second defendant was, until recently, the trustee for the Life Success Pacific Rim Unit Trust (“LSPR Trust”). The third and fourth defendants are alleged to be unitholders of the EIM Trust. The fifth defendant is a director of the first to third defendants.
This proceeding was commenced by a writ filed on 1 September 2008. The principal relief sought by the plaintiffs was the removal of the first and second defendants as trustees of the EIM and LSPR Trusts, the handing over of trust records and property, the taking of accounts and the appointment of new trustees.
The defendants filed notices of appearance on 12 September 2008. The first to third and fifth defendants are jointly represented. The fourth defendant indicated that it intended to play no active role in the proceeding and would abide by the court's orders. When I refer in these reasons to “the defendants”, I am referring to the first to third and fifth defendants.
On 7 October 2008, before the time for filing a defence, the defendants' solicitors wrote and, amongst other things, offered to resign and to agree to the appointment of independent trustees to the two trusts. They offered to do so without any admission as to wrongdoing.
Instead of responding to that letter, on 9 October 2008 the plaintiffs issued a summons, seeking the substantive relief set out in the writ. It was not clear from the summons itself under what rule it had been issued, but it subsequently became apparent that it was intended to be an application for summary judgment under order 22.[1]
[1]Such an application should have been made returnable before a master, not a judge.
The summons was returnable in the Practice Court on 24 October 2008. The plaintiffs filed three affidavits in support of their application on 9 and 13 October 2008. The defendants filed one affidavit in opposition on 22 October 2008.
There is nothing in the material before me to suggest there was any particular urgency, or otherwise explaining why it was thought necessary to issue the summons so soon after the issuing of the proceeding and prior to the filing of defences.
The hearing on 24 October 2008 was adjourned by consent on the papers to 14 November 2008.
On 12 November 2008, counsel for the defendants informed the court that the matter had largely resolved, save for some concerns raised by the defendants as to the identity of the proposed alternative trustees. After acceptable alternative trustees had been established, the defendants subsequently agreed to their appointment.
When the matter came before me in the Practice Court on 14 November 2008, I made orders by consent which disposed of the substantive matters sought in the plaintiffs’ summons. On that occasion I was not required to, and did not, express any opinion or come to any conclusions as to the strengths or weaknesses of any party’s case. I simply made orders by consent.
Unfortunately, the parties had not reached agreement as to the costs of the proceeding and wished to argue about that matter. Each side sought an order that the other side pay its costs. As it appeared to me that the parties had not come to court on the 14th prepared to argue costs based on the authorities which have considered the situation where there has been no adjudication on the merits, I adjourned the matter until today, to allow them to consider their respective positions. I said that if, after considering the relevant authorities, the parties still wished to proceed with their applications for costs, they would need to do so by reference to the principles in those authorities.
Relevant principles
The court has a very wide discretion in relation to costs. It is a discretion which must be exercised judicially, that is to say, by taking into account all relevant matters and making a decision which is fair and just to the parties. The courts have laid down certain principles to guide them in the exercise of that discretion in cases such as this, where there has been no adjudication on the merits. But they are merely guidelines and do not fetter the court's discretion.
Where a proceeding has resolved without an adjudication on the merits, it is often difficult for a court to reach any conclusion as to how the matter would have proceeded.[2] The general principles were conveniently summarised by Hill J in Australian Securities Commission v Aust Home Investments Ltd[3] and have been cited with approval[4]:
(1)Where neither party desires to proceed with litigation the court should be ready to facilitate the conclusion of the proceedings by making a cost order.
(2)It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial. This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.
(3)In determining the question of costs it would be appropriate, however, for the court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them.
(4)In a particular case it might be appropriate for the court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation.
(5)Where the proceedings terminate after interlocutory relief has been granted, the court may taken into account the fact that interlocutory relief has been granted [case references omitted].
[2]Re Minister for Immigration and Ethnic Affairs ex parte Lai Qin (1997) 186 CLR 622 at 624 per McHugh J.
[3](1993) 44 FCR 194 at 201.
[4]Including: Ringwood Plus Pty Ltd v Commissioner for State Revenue [2004] VSC 494; Lion Nathan Australia Pty Ltd v Coopers Brewery Limited (No 3) [2006] FCA 1023; MPA Motors v Schmidt [2008] VSC 237; Gagarimbu v BHP [2002] VSC 525.
In this case there has been no interlocutory relief granted by the court, rather, settlement was reached almost immediately after the proceeding had been commenced. Accordingly, the principle in paragraph (5) in Hill J's decision is not relevant here. However, the parties did seek to address me in relation to the principles discussed in paragraphs (2), (3) and (4) of his Honour’s decision, which deal with questions of the merits and the reasonableness of the parties' conduct.
Merits
The plaintiffs say that their affidavits clearly establish certain breaches of trust, and that the fifth defendant’s own affidavit contains admissions of breach. The plaintiffs say this is one of those rare cases where a court can make a determination of the merits at this early stage of the proceeding.
Whilst it is true that the plaintiffs’ affidavits do raise some serious questions to be answered, particularly in relation to unsecured loans to Trading Edge Pty Ltd and the possible improper dealing with company assets, the fact of the matter is that they do no more than raise questions to be answered. The fifth defendant’s affidavit does not explain each and every matter raised by the plaintiffs’ affidavits, but it does generally deny any breach. The lack of detail may (as the plaintiffs assert) reflect the fact that the defendants have no adequate response, or it may (as the defendants assert) simply reflect the fact that the defendants were prepared to agree to the appointment of independent trustees and did not want to spend further money arguing.
Given the timing of the application and the settlement discussions, I cannot be satisfied that the fifth defendant’s affidavit was the only evidence that the defendants would have wished to put before me, had the summons proceeded as a contested matter, or that it contained the only explanation that could be offered by them. Shortly after the proceeding was commenced, the parties started to negotiate in relation to the appointment of new trustees. The matter was ultimately resolved by agreement. Had they not reached agreement, the resolution of the allegations against the defendants may well have required assessments of credit.
The mere fact that the parties settled the proceeding cannot be construed as an acknowledgement of wrongdoing by the defendants, as there are a number of possible explanations for their decision to retire as trustees and appoint new trustees.
It follows that I am not in a position to reach any conclusion as to whether in fact there were breaches, or whether it is more likely than not that the plaintiffs would have succeeded in the proceeding.
My decision as to costs does not decide once and for all whether in fact the defendants have breached their duties or are liable to the unitholders. My determination is simply as to whether I can be satisfied on the material before me that there clearly were no merits in any defence which the defendants might have filed, so that the plaintiffs must have succeeded.
Reasonableness
Each side accuses the other side of having acted unreasonably.
The plaintiffs submit that the defendants’ conduct prior to the commencement of the proceedings was "outrageous." In particular, they say that the proceeding was necessitated by the defendants' refusal to consent to the plaintiffs exercising a power in clause 4.1.3 of the respective trust deeds to remove the trustee.
By a resolution dated 17 February 2008, what the plaintiffs believed to be more than 75 per cent of the unitholders of the EIM Trust voted to remove the first defendant as trustee of the EIM Trust and to appoint the first plaintiff as trustee in its place. As the EIM Trust owns all the units in the LSPR Trust, after purportedly being appointed as trustee of the EIM Trust, on 20 February 2008 the first plaintiff purported to pass a similar resolution with respect to the removal of the trustee of the LSPR Trust.
On 21 February 2008, when Mr Ward attended the business premises of the first and second defendants to inform them that they had been removed as trustees and to obtain the trust business records, he was refused access and the police were called. Further contact between the parties remained tense and uncooperative.
During February 2008, the plaintiffs made further, unsuccessful, attempts to obtain the trust documents, including through correspondence from their solicitors. The defendants said that new units in the EIM Trust had been issued and therefore the plaintiffs did not have 75% of the unit-holding, so their purported appointment of the first plaintiff as new trustee was not valid.
It is not possible for me to make any findings as to who holds what units in the EIM Trust, but nor is it necessary to do so given the way in which the case was argued by the plaintiffs. The plaintiffs urge me to conclude that by withholding the details of the additional unitholders, when asked to provide a list of unitholders, and then resisting the removal of the defendant trustees once it became apparent that all the plaintiff unitholders wanted them removed, the defendants acted unreasonably.
The plaintiffs urge me to conclude that there was no point trying to pass another resolution, after the existence of the additional unitholders was revealed, because of the undoubted hostility between the plaintiffs and defendants. They invite me to infer that the defendants would not have co-operated in any event.
On the other hand, the defendants say that based on what happened once the proceeding was commenced, I ought to infer that had there been a request for another meeting, or for their removal, they would have gone willingly.
On the material before me, to draw either inference would be to engage in speculation. It is true that the defendants offered to resign once the proceeding had been commenced, but they had resisted earlier attempts to remove them; it may be that, until the issue of a writ, they were not prepared to make any relevant decision. But the plaintiffs have not explained why they did not issue a letter of demand before they commenced this proceeding, or why they waited so long to issue the proceeding, if they have in fact been concerned about the management of the trusts since February of this year.
Once the proceeding was issued, the defendants did offer by their letter of 7 October to consent to orders appointing an independent trustee. They were not, however, prepared to agree to the appointment of the first plaintiff or any other unitholder as trustee, because they said that the issues raised as to the administration of the trusts ought be assessed by an independent trustee.
As I have already said, rather than responding to that letter, the plaintiffs went ahead and issued the summons and the supporting affidavits. Ultimately, the defendants’ proposal was not adopted, because neither side was willing to fund an independent trustee. Rather the defendants eventually acceded to the plaintiffs’ proposal set out in a letter from its solicitors for the appointment as trustee of JWIMCO Pty Ltd, a newly-formed company connected with the plaintiffs.
I did, at one stage, consider whether to distinguish between the costs of the proceeding and the costs of the summons, having regard to questions of reasonableness. In general terms, the plaintiffs did not act unreasonably in issuing the proceeding, but did act rather precipitously in issuing the summons without first exploring the possibilities raised by the letter of 7 October. On the other hand, the defendants’ conduct earlier this year had a number of unreasonable elements to it, which no doubt influenced the plaintiffs’ decision to commence the proceeding.
To divide up the costs between the proceeding and the application would be likely to lead to the expenditure of further costs through the taxation process.
Given the broad discretion which I have, and in the light of the foregoing findings, I have concluded that the fairest thing is to let the costs land where they fall. That is to say, each party is to bear its own costs of the proceeding.
If the plaintiffs are ultimately successful in establishing breaches by the defendant trustees of any of their duties, there is no reason in principle why the costs of their removal, including the costs of this proceeding, might not be recoverable in other proceedings.
Costs of the application for costs
As counsel for the plaintiffs addressed first on 14 November 2008, it was he who initially sought the adjournment until today. But, I am not persuaded, notwithstanding his submission to the contrary, that the defendants’ counsel was in fact ready to argue on the proper authorities on that occasion. The conclusion I formed on the 14th was that neither side was fully prepared to argue the question of costs on the proper authorities.
Late last week, the plaintiffs made a Calderbank offer to settle on the basis that each party bear its own costs of the proceeding. The defendants did not accept that offer.
However, that offer came very late, after substantial costs of preparing for today would already have been incurred. The offer was also the latest in a series of offers and counter-offers between the parties, in which the parties appear to have been genuinely attempting to resolve the matter without coming back to court. Undoubtedly, additional costs were incurred in that process. In the circumstances, I have concluded once again that the fairest thing is to let the costs of the application for costs lie where they fall.
I make orders in those terms.
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