MJ Jacometti Pty Ltd v Boomaroo Nurseries and Wholesale Supplies Pty Ltd
[2012] VSC 160
•27 April 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 2617 of 2011
| MJ JACOMETTI PTY LTD (ACN 109 797 426) | Plaintiff |
| v | |
| BOOMAROO NURSERIES & WHOLESALE SUPPLIES PTY LTD (ACN 007 005 861) | Defendant |
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JUDGE: | McMILLAN J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29 March 2012 | |
DATE OF JUDGMENT: | 27 April 2012 | |
CASE MAY BE CITED AS: | MJ Jacometti Pty Ltd v Boomaroo Nurseries & Wholesale Supplies Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 160 | |
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COSTS – Application for costs on an indemnity basis – Court’s discretion to award costs pursuant to s 24 Supreme Court Act 1986 and Order 63 Supreme Court (General Civil Procedure) Rules2005 – Oshlack v Richmond River Council (1998) 193 CLR 72 – Court’s power to award costs on an indemnity basis – Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 – Costs where there is a claim for breach of fiduciary duty – Costs where neither party intends to continue – Australian Securities Commission v Aust-Home Investments Ltd (2001) 44 FCR 194.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr CR Northrop | Harwood Andrews Lawyers |
| For the Defendant | Mr TJP Walker | Fitzpatrick Legal |
HER HONOUR:
Application
The plaintiff seeks orders that the defendant pay its costs of this proceeding on an indemnity basis. The defendant opposes the plaintiff’s application.
On the first day of the trial, the parties reached agreement settling the plaintiff’s substantive claim in the proceeding.
The costs of the plaintiff remain in dispute. The plaintiff rejected the defendant’s offer to pay its party party costs of the proceeding up to and including 21 March 2012, the day before the commencement of the trial, and argued that it was entitled to an order for costs on an indemnity basis.
For the reasons set out, I dismiss the plaintiff’s application for indemnity costs.
Background
The defendant, as trustee of the Boomaroo Nurseries & Wholesale Supplies Unit Trust (“the Unit Trust”), operates a large wholesale vegetable nursery supply business. The business was started by brothers, Michael and Eric Jacometti. Another brother, Theo Jacometti, later joined the business and became a director. The three brothers were the only directors of the defendant until 2007, when Mr John Fillmore, a solicitor, and Mr Kevin Leece, an accountant, were appointed directors. Mr Fillmore also became the Chairman of the defendant.
The current unit holders of the Unit Trust are:
(a) MJ Jacometti Pty Ltd, the plaintiff, as trustee for the M&J Jacometti Family Trust;
(b) Jacometti Brothers Pty Ltd as trustee for the E&L Jacometti Family Trust; and
(c) TM Jacometti Pty Ltd as trustee for the T&M Jacometti Family Trust.
Each unit holder holds four of the twelve units.
In 2011, a dispute arose between the plaintiff and the defendant as to whether the plaintiff had served a transfer notice within the meaning of the Third Schedule of the deed of trust establishing the Unit Trust (“the Unit Trust Deed”). That dispute culminated in May 2011 in the plaintiff issuing these proceedings.
In its statement of claim, the plaintiff sought the following relief:
AA declaration that the plaintiff has not served a transfer notice within the meaning of the Third Schedule of the [U]nit [T]rust Deed.
BAn injunction (both interlocutory and permanent) restraining the defendant from taking any steps or doing any thing in purported performance of the transfer procedure described in the Third Schedule.
CAn order that the defendant reimburse the trust fund for any expenses paid from the trust fund in respect of any steps taken in purported performance of the transfer procedure described in the Third Schedule.
DAn order that the defendant pay the plaintiff’s costs of this proceeding otherwise than from the trust fund.
The statement of claim alleged that the defendant had breached its fiduciary duties to the plaintiff by favouring the interests of the other unit holders over those of the plaintiff and that the defendant had “improperly incurred expenses which have or may have been paid from the funds of the [U]nit [T]rust”. However, no relief was sought by the plaintiff in its statement of claim in relation to the allegation of breach of fiduciary duty.
The defendant filed a defence and an amended defence. In its amended defence, the defendant pleaded that it was absolved from legal liability as:
(a) clause 14(t) of the Unit Trust Deed states that the Trustee has the power to “take such action as the Trustee thinks fit … and to take and act upon the opinion (given in writing) of an attorney at law or Counsel”;
(b) clause 18(b) of the Unit Trust Deed states that “[n]o Trustee shall be responsible for any breach of duty or trust whatsoever unless it shall be proved to have been committed, made or omitted in personal conscious fraudulent bad faith by the Trustee charged to be so liable”; and
(c) s 67 of the Trustee Act 1958 provides the Court with the power to absolve a trustee of a breach of trust in circumstances where the trustee has acted honestly and reasonably.
On 28 June 2011, the plaintiff filed a reply in which, amongst other things, it pleaded that the plaintiff “is not seeking to make the defendant liable for any act done, but is seeking to restrain the defendant from doing acts in the future”[1] and that the plaintiff “is not seeking to make the [defendant] responsible for the breaches but is seeking to prevent breaches”.[2]
[1]Paragraph 14 of the Plaintiff’s Reply dated 28 June 2011.
[2]Paragraph 21 of the Plaintiff’s Reply dated 28 June 2011.
By summons filed on 17 June 2011, the defendant sought an order for summary judgment pursuant to s 63 of the Civil Procedure Act 2010 or r 23.03 or r 23.01 of the Supreme Court (General Civil Procedure) Rules 2005 (“the Rules”). The application was heard before the Honourable Justice Habersberger. Judgment was given by his Honour on 1 December 2011 and the defendant’s application was dismissed.[3]
[3]MJ Jacometti Pty Ltd v Boomaroo Nurseries & Wholesale Supplies Pty Ltd [2011] VSC 612.
The Defendant’s Open Offer
On 21 March 2012, the defendant’s solicitors sent the plaintiff’s solicitors an open letter of offer stating:
The defendant consents to judgment in the following terms:
1. The defendant be restrained from offering to sell any of the units held by the plaintiff in the Boomaroo Nurseries & Wholesale Supplies Unit Trust or to continue with the procedure set out in the Third Schedule of the Trust Deed pursuant to the alleged notice by the plaintiff given on or about 2 March 2011.
2. The defendant pay the plaintiff’s party party costs of the proceeding (including reserved costs) to be taxed in default of agreement up to and including 21 March 2012.
3. The proceeding otherwise be dismissed.
The parties agreed to the terms of paragraph 1 of the 21 March 2012 letter, but the plaintiff rejected the offer for payment of its costs on a party party basis.
Plaintiff’s Application for Indemnity Costs
The plaintiff submitted that it is entitled to an order for indemnity costs against the defendant on two grounds. First, that applying the principles relating to breach of fiduciary duty, the plaintiff should be entitled to indemnity costs and, secondly, and in the alternative, that the Court should exercise its inherent jurisdiction to award indemnity costs to the plaintiff.
Breach of Fiduciary Duty
In its written submissions, the plaintiff submitted that it is entitled to indemnity costs on the basis that there is a rule that where a trustee breaches its fiduciary duties, the trustee will be liable for all costs of the related legal action. In support of this submission, the plaintiff relied on the decision in Thomson v Allen.[4] However, in oral submissions the plaintiff conceded that Thomson v Allen did not stand for such a proposition. Further, the defendant submitted, and the case makes it clear, that the order for costs made in that case was for costs in the ordinary course, that is, on a party party basis. The plaintiff provided no other authority for this submission.
[4][1930] 1 Ch 203.
In relation to the breach of fiduciary duty ground, the plaintiff relied on three “factors” relating to the trustee’s conduct which it alleged constituted a breach of fiduciary duty. The plaintiff also set out a list of special circumstances which it claims justify an order for indemnity costs. The plaintiff made detailed submissions and identified documents it relied upon in support of those factors and special circumstances.
In its submissions, the defendant responded in detail to the factors referred to by the plaintiff with respect to the trustee’s conduct and its submissions as to the special circumstances.
It is clear that had the matter proceeded to trial, most, if not all, the matters referred to in the parties’ submissions would have been in dispute between the parties.
Further, although in its written submissions the plaintiff submitted that the documents discovered by the parties justify a finding that the defendant discriminated against the plaintiff as a unit holder of the Unit Trust, the plaintiff made oral submissions on 29 March 2012 that its application for indemnity costs should not be treated as an adjudication of the merits of the case.
In circumstances where the plaintiff’s claim for substantive relief has been resolved by consent, it is unnecessary for me to make any findings in respect of the merits of the case, including the breach of fiduciary duty claim. In the present circumstances, I am not in a position to determine the various allegations at all, nor am I required to do so for the purposes of this application for costs.
Further, the defendant submitted, and I agree, that the defendant’s consent in relation to the substantive claim meets the position put by the plaintiff, as pleaded in paragraphs 14 and 21 of its reply.[5]
[5]See above, paragraph 11.
For these reasons, the first basis for the plaintiff’s claim for indemnity costs fails.
The Court’s Inherent Jurisdiction to Award Costs
The second ground relied upon by the plaintiff in its application for indemnity costs is the Court’s inherent jurisdiction to award indemnity costs.
The Court’s has a discretionary power with respect to costs pursuant to s 24 of the Supreme Court Act 1986, which states that “the Court has full power to determine by whom and to what extent the costs are to be paid”. Order 63 of the Rules provides that the power and discretion of the Court shall be exercised subject to and in accordance with that Order. The commentary in Civil Procedure: Victoria states:[6]
… the discretion to order costs on [a solicitor client] basis was an unlimited one although it must be exercised judicially and not unreasonably. Essentially, however, the exercise of the discretion to award costs over and above the ordinary is exceptional, being reserved for cases where the losing party has engaged in unmeritorious, or deliberate or high-handed or other improper conduct such as to warrant the court showing its disapproval and at the same time preventing the successful party being left out-of-pocket.
[6]Lexis Nexis Butterworths, Civil Procedure: Victoria, vol 1 (at service 258) [63.02.180] (citations omitted).
The defendant submitted that its offer as to costs reflects the usual outcome where a party has been successful. The offer was intended to provide for an appropriate correspondence between the outcome in final relief and the costs of obtaining it, having regard to the manner in which the litigation was conducted.
In support of its submissions, the defendant referred to Oshlack v Richmond River Council,[7] in which McHugh J said:[8]
Although the statutory discretion is broadly stated, it is not unqualified. It clearly cannot be exercised capriciously. Importantly, the discretion must be exercised judicially in accordance with established principle and factors directly connected with the litigation. In this manner, the law has gradually developed principles to guide the proper exercise of the discretion and, in some cases, to highlight extraneous considerations which, if taken into account, will cause the exercise of the discretion to miscarry. Consistent with the aim of justice, the law could not have developed otherwise. …
By far the most important factor which courts have viewed as guiding the exercise of the costs discretion is the result of the litigation. A successful litigant is generally entitled to an award of costs.
[7](1998) 193 CLR 72.
[8]Ibid, 96 [65]-[66] (citations omitted) (defendant’s emphasis).
In relation to the Court’s power with respect to indemnity costs the defendant referred the Court to the decision of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd & Ors.[9] In that case his Honour set out the principles which guide the proper exercise of the Court’s power to award indemnity costs. His Honour stated that indemnity costs may be appropriate:[10]
…whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the Court will need to consider how it should exercise its unfettered discretion.
[9](1988) 81 ALR 397.
[10]Ibid, 401.
The plaintiff submitted that the Fountain Selected Meats case does not exhaustively state the circumstances in which indemnity costs may be awarded and that there is no rule that a party may only recover indemnity costs where the other party should have known it had no chance of success. This is, of course, correct. The Fountain Selected Meats case sets out guiding principles for the Court to consider when determining applications for indemnity costs, but these are not exhaustive.
The plaintiff also submitted that, properly advised, the defendant should have known that there was no transfer notice. The plaintiff submitted that all of the written material then available demonstrated that Michael Jacometti was simply canvassing his brothers about the possibility of them acquiring his units.
The plaintiff submitted that it was only on the day before trial that a concession was made by the defendant with respect to the transfer notice and that the concession could and should have been made at a much earlier stage, before the parties incurred considerable expense. The plaintiff further submitted that the defendant’s summary judgment application put the plaintiff to unnecessary time, trouble and expense.
In support of its submissions, the plaintiff relied on the cases of Australian Guarantee Corporation Ltd v De Jager,[11] Spencer v Dowling,[12] and Bass Coast Shire Council v King. [13]
[11][1984] VR 483.
[12][1997] 2 VR 127.
[13][1997] 2 VR 5.
Australian Guarantee Corporation Ltd v De Jager concerned a forged mortgage and the question of whether title was indefeasible. In that case, the defendant, Mrs De Jager, sought and was awarded solicitor client costs. Justice Tadgell held that:[14]
[u]pon the facts as I have found them the pursuit of the action was in my opinion a high-handed presumption. In the end, it was conceded for A.G.C. that Mrs De Jager’s signature was a forgery. Having pursued the action with the knowledge [of the forgery] that it had, and failed, A.G.C. allowed itself a luxury. The Court ought do what it can to ensure that Mrs De Jager is not out of pocket over it.
[14][1984] VR 483, 502.
In the case of Spencer v Dowling, Winneke P relevantly stated:[15]
There can be no doubt that, in litigation in superior courts, the usual measure of costs awarded is on a party/party basis. There is, likewise, no doubt that a court does have the power to award costs on a higher measure if the circumstances require it. This practice in the superior courts is, in my experience, universal although it is well recognised that there is occurring an ever increasing gap between party/party costs and those actually incurred. In the case of Bass Shire Council v King (unreported, 15 August 1994), Nathan J expressed at 1 the practice in what are, in my view, appropriate terms:
It is undoubtedly a principle of law that costs follow the event on a party and party basis, but that the courts are free to depart from that principle if confronted with circumstances where the conduct of one or other of the parties … would warrant the order of costs on an indemnity basis. There must be special circumstances which lift the case out of the ordinary.
[15][1997] 2 VR 127, 147.
In Bass Coast Shire Council v King, Winneke P said: [16]
The discretion to award costs on a solicitor and client basis is, thus, an unlimited one although it must be exercised judicially and not unreasonably. The circumstances in which a court might be moved to award costs on the solicitor and client scale should be described as “special” if only to set them apart from the usual basis upon which costs are awarded. …
In this case the learned judge found that the council had resiled from a view of the plaintiffs’ rights to which it had previously adhered and, by doing so, had precipitated the plaintiffs into the needless expense of proving, in the face of opposition from the council, that the strip of land abutting their allotment was a road of which the council had the care and management. In similar vein the learned judge took the view that, by its conduct, Vink had also forced the Kings into litigation by denying them access to the strip. It was not so much the “brokering of an arrangement” by the council which his Honour found was unwarranted, but rather the resiling from a justified stance as to where the legal rights between the parties lay. It seems to me that his Honour was entitled to take the view of the situation which he did and, having done so, to exercise his discretion on the question of costs in the manner in which he did.
[16][1997] 2 VR 5, 29-30. (This is the judgment on the appeal from Nathan J’s decision referred to by Winneke P in Spencer v Dowling.)
The plaintiff submitted that those cases are similar to the present case as, in the present circumstances, the plaintiff had been forced to come to Court in order to have its position vindicated. A position which, it argues, has ultimately been accepted as correct by the defendant.
In response, the defendant submitted that the defendant as trustee is entitled, as any other litigant would be, to withhold an admission regarding the question of whether a valid transfer notice had been served. In any event, the defendant submitted that it has not contended that a transfer notice had been served and did not waste the resources of the Court on this question. For the purposes of its summary judgment application, the defendant asked the Court to assume that the facts pleaded in the statement of claim were correct and argued its case on the basis of the pleaded defences which, if successful, would have absolved it from any liability. This limited the matters in dispute at that hearing.
Finally, the defendant submitted, discovery was only completed by mid-February 2012, which was within a reasonable time bearing in mind that the judgment was delivered in the summary judgment application on 1 December 2011.[17] Following discovery the defendant made Calderbank offers on 15 February and 5 March 2012. A term of both offers was that the defendant be restrained from offering to sell any of the units held by the plaintiff or continuing with the transfer procedure (essentially satisfying the substantive relief sought by the plaintiff). Neither of these settlement offers were acknowledged or responded to by the plaintiff.
[17]See above, paragraph 12.
The defendant submitted that the purpose of the defendant’s 21 March 2012 letter was to avoid the costs and inconvenience of a trial.
The defendant submitted, and I agree, that in accordance with the principles set out by Woodward J, the circumstances of this matter do not disclose:
(a) circumstances where the defendant, properly advised, should have known that it had “no chance of success”;
(b) that the defendant continued its defence of the proceeding “for some ulterior motive”; or
(c) that the defendant continued its defence of the proceeding “because of some wilful disregard of the know facts or the clearly established law”.
In addition, it is clear that the defendant made numerous attempts to settle the proceeding before the commencement of the trial and, in the event that the matter did proceed, the defendant was relying on numerous defences in answer to the claim made by the plaintiff. Although the defendant was not successful in its summary judgment application, Habersberger J did not say that it had no grounds for making the application, but rather that there were insufficient grounds to award summary judgment.
The Court’s Power to Order Costs where Neither Party Intends to Continue
The defendant submitted that where the parties have acted reasonably in commencing and defending the proceeding and their conduct continued to be reasonable until the litigation was settled or its further prosecution became futile, in the absence of a hearing on the merits of the claim the usual and proper exercise of discretion is to order that each party bear its own costs of the proceeding.
In making this submission, the defendant relied on the decision of Hill J in Australian Securities Commission v Aust-Home Investments Ltd[18] and the commentary in Civil Procedure: Victoria, which states:[19]
[18](2001) 44 FCR 194.
[19]Lexis Nexis Butterworths, Civil Procedure: Victoria, vol 1 (at service 258) [63.02.153] (citations omitted).
Where neither party desires to proceed with litigation, the court should be ready to facilitate the conclusion of proceedings by making a costs order. The issue of costs alone may keep the litigation alive, especially where costs are substantial. However, in the absence of a hearing on the merits, except where the probable outcome if a trial had been held is reasonably clear, it would be difficult for the court to make any order other than that each party bear its own costs. That would be a proper exercise of discretion where the parties have acted reasonably in commencing and defending the proceeding and their conduct continued to be reasonable until the litigation was settled or its further prosecution became futile.
In Australian Securities Commission v Aust-Home Investments Ltd, Hill J outlined the following five propositions concerning the exercise of the discretion of the court with respect to costs where the parties do not wish to continue the proceeding:
(1) Where neither party desires to proceed with the 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 the court to endeavour to determine for itself the case on the merits, that is, to in effect determine the outcome of a hypothetical trial.
(3) 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) It might be appropriate for the court to consider the conduct of the defendant prior to the commencement of the proceeding where such conduct may have precipitated the litigation.
(5) Where the proceeding ends after interlocutory relief has been granted, the court may take into account the fact that interlocutory relief has been granted.
In response to the defendant’s submission that a Court will be reluctant to make an order for costs without a hearing on the merits, the plaintiff submitted that it follows that unless all the matters in dispute between parties to litigation are resolved, including the question of costs, there has to be a hearing on the merits. Until such time, there remains a dispute requiring adjudication by the Court.
In my opinion, all the matters set out in the relief sought in the plaintiff’s statement of claim have been resolved by the letter of the defendant’s solicitor on 21 March 2012 and by the agreement of the parties that the remaining issue between the parties is the question of costs. In any event, the parties have requested that I do not make a decision on the merits of the claim.[20]
[20]See above, paragraph 21.
In my view, and in accordance with the principles outlined by Hill J, the appropriate order in the circumstances is an order for costs on a party party basis. I am not persuaded that the defendant acted other than reasonably in defending the plaintiff’s claim and in its conduct leading up to the settlement of the claim. The defendant did not delay the proceedings in any way and, as stated above, made a number of settlement offers in an attempt to avoid the cost and inconvenience of a trial.[21]
[21]See above, paragraph 41.
Proportionality of Costs
Finally, the plaintiff submitted that to make an order on a party party basis would greatly advantage two of the three unit holders of the Unit Trust on the basis that one-third of the costs would, in effect, be paid by the plaintiff as owner of one-third of the units. Conversely, to make an order for indemnity costs would ensure that each unit holder bears an equal share of the whole of the costs of the proceeding.
In response to this submission, the defendant agreed that under clause 19 of the Unit Trust Deed, the defendant as trustee is entitled to be indemnified and that the defendant’s costs and any liability for costs of an adverse party, would, after the relevant accounting treatment, presumably be deductible. The defendant also conceded that this, in turn, would have an impact on the profit that would be available for distribution. However, the defendant submitted that the plaintiff’s submission on this issue was a matter of speculation, as it is not possible to determine at the present moment the impact the costs order will have on the profit of the Unit Trust, nor how it will affect distributions to the unit holders.
In my view, although the plaintiff’s submission on this point is a matter to be taken into account in the exercise of my discretion, it is not of such force in the overall consideration of all of the matters that it warrants an order for indemnity costs. Further, I agree with the defendant’s submissions that this is a matter of speculation and it is not possible for me to determine how any costs order will affect the distributions to the unit holders.
Accordingly, the second basis for the plaintiff’s indemnity costs application is rejected.
Conclusion
For the above reasons, I dismiss the plaintiff’s application for indemnity costs and I will make the orders set out in the defendant’s letter of offer dated 21 March 2012[22] and otherwise dismiss the proceeding.
[22]See above, paragraph 13.
CERTIFICATE
I certify that this and the 12 preceding pages are a true copy of the reasons for Judgment of McMillan J of the Supreme Court of Victoria delivered on 27 April 2012.
DATED this twenty seventh day of April 2012.
Associate
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