Nicholls v Michael Wilson & Partners Ltd (No 2)

[2013] NSWCA 141

Court of Appeal

New South Wales

Case Title:

Nicholls v Michael Wilson & Partners Ltd (No 2)

Medium Neutral Citation:

[2013] NSWCA 141

Hearing Date(s):

12 April 2013

Decision Date:

31 May 2013

Before:

Meagher JA at [1]
Barrett JA at [2]
Sackville AJA at [3]

Decision:

1. The Appellants pay the Respondent's costs of the Court of Appeal proceedings No 2009/298561 incurred prior to 1 December 2011.

2. No order as to the costs of Court of Appeal proceedings No 2009/298561 incurred after 1 December 2011, with the intent that the parties bear their or its own costs.

3. Orders 30-32 made by Einstein J on 11 December 2009 in relation to the costs of the trial not be disturbed.

4. The Freezing Order made on 9 October 2006 as against the First and Second Appellants and subsequently varied by orders dated 20 October 2006, 27 October 2006, 20 November 2006 and 28 May 2008 (the First Freezing Order) be further varied such that the amount in Order 6(a) be amended from "AUD$36,409,753" to "AUD$7,000,000".

5. The Freezing Order made on 28 May 2008 as against PJT Corporate Services Pty Ltd, PJT International Pty Ltd and Temujin Holdings Limited (the Second Freezing Order) be varied such that the Relevant Amount in Order 4(a) be amended from "AUD$32,251,128" to "AUD$7,000,000".

6. The First Freezing Order (as varied by Order 4 above) and the Second Freezing Order (as varied by Order 5 above) be continued until further order.

7. The application by PJT Corporate Services Pty Ltd, PJT International Pty Ltd and Temujin Holdings Limited (Non-Parties) to discharge the Second Freezing Order be remitted to the Equity Division for hearing and determination.

8. The Non-Parties pay MWP's costs of the hearing on 12 April 2013, insofar as the costs are referable to the Non-Parties' application to discharge the Second Freezing Order.

9. The Second Appellant's application that his claim for damages in connection with the First Freezing Order be remitted to the Equity Division for hearing and determination be dismissed.

10. The Respondent be released forthwith from the obligation to provide security for the Appellants' costs of the proceedings pursuant to:

(a) Order 1 of the orders of 9 February 2007;
(b) Order 1 of the orders of 7 December 2007; and
(c) Orders 13(a) and 13(b) of the orders made on 28 May 2008,

and further be released forthwith from the obligation to provide security as to the undertaking as to damages pursuant to:

(d) Order 11 of the orders made on 28 May 2008; and
(e) Order 2 of the orders made as to 30 November 2010.

11. The Appellants return to Clayton Utz within seven days all original bank guarantees provided in relation to the security for the Appellants' costs and the security as to the undertaking as to damages, as referred to in Order 10 above.

12. The Appellants reimburse the Respondent for all bank fees and charges incurred by the Respondent as a result of providing and maintaining the bank guarantees referred to in Order 10 above.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:

COSTS - whether costs order should reflect partial success of defendants - whether costs entitlement of successful party should be capped

COSTS - security for costs - release of security

REMEDIES - freezing orders - variation of orders - whether claim for damages should be remitted for determination

Legislation Cited:

Civil Procedure Act 2005
Legal Profession Act 2004
Uniform Civil Procedure Rules 2005

Cases Cited:

Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [1981] HCA 75; 146 CLR 249
Calderbank v Calderbank [1975] 3 All ER 333
Colburt v Beard [1992] 2 Qd R 67
Coshott v Principal Strategic Options Pty Ltd [2004] FCAFC 50
Delta Electricity v Blue Mountains Conservation Society Inc [2010] NSWCA 263; 176 LGERA 424
Michael Wilson & Partners Ltd v Nicholls [2011] HCA 48; 244 CLR 427
Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383
Sherborne Estate (No 2): Vanvalen v Neaves [2005] NSWSC 1003; 65 NSWLR 268
Yukong Line Ltd v Rendsburg Investments Corporation [2001] 2 Lloyd's Rep 113
Waters v PC Henderson (Aust) Pty Ltd [1994] NSWCA 338; 254 ALR 328

Category:

Costs

Parties:

Robert Colin Nicholls (First Appellant/First Cross-Respondent)
David Ross Slater (Second Appellant/Second Cross-Respondent)
Temujin Services Limited (Third Appellant/Third Cross-Respondent)
Temujin International Limited in its own capacity and as trustee of the Temujin Trading Trust (Fourth Appellant/Fourth Cross-Respondent)
Temujin International FZE (Fifth Appellant/Fifth Cross-Respondent)
Michael Wilson & Partners Limited (Respondent/Cross-Appellant)

Representation

- Counsel:

Counsel:
G O Blake SC, G W McGrath SC and S A Adair (Appellants/Cross-Respondents)
D F C Thomas (Respondent/Cross-Appellant)

- Solicitors:

Solicitors:
Henry Davis York (Appellants/Cross-Respondents)
Clayton Utz (Respondent/Cross-Appellant)

File Number(s):

CA 2009/298561

Decision Under Appeal

- Court / Tribunal:

Supreme Court

- Before:

Einstein J

- Date of Decision: 

11 December 2009

- Citation:

Michael Wilson & Partners Ltd v Nicholls [2009] NSWSC 1377

- Court File Number(s):

SC 2006/50151

JUDGMENT

1. MEAGHER JA: I agree with Sackville AJA.

2. BARRETT JA: I agree with Sackville AJA.

3. SACKVILLE AJA: On 28 November 2012, the Court delivered judgment in this appeal and cross-appeal: Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383 ("Principal Judgment"). The course of the litigation is explained in the Principal Judgment at [5]-[33]. The outcome of the appeal and cross-appeal is summarised at [335]-[340]. This judgment should be read with the Principal Judgment.

4. The parties were directed to file agreed short minutes of order, including orders dealing with interest, costs and any other outstanding issues. In the absence of agreement, the parties were directed to file their own draft short minutes and written submissions. Although substantive orders were made, there was disagreement on ancillary orders. The appellants' submissions relating to the ancillary orders were due on 26 December 2012, but were not filed until 1 February 2013. MWP's submissions were filed on 11 February 2013. Because the submissions raised a number of issues, a hearing was held on 12 April 2013.

Issues

1. There is no dispute that the appellants should pay MWP's costs of the Court of Appeal proceedings (No 2009/298561), insofar as those costs were incurred prior to delivery of the High Court's judgment on 1 December 2011: Michael Wilson & Partners Ltd v Nicholls [2011] HCA 48; 244 CLR 427.

2. The parties identified four matters that remain in dispute:

   (i) the costs of the proceedings before the primary Judge and of the remitted appeal and cross-appeal;

   (ii) whether freezing orders currently in force against Mr Nicholls and Mr Slater and against certain non-party entities associated with them should continue and, if so, on what terms;

   (iii) Mr Slater's application that his claim for damages sustained in consequence of the freezing order made against him be referred to the Equity Division of the Supreme Court for assessment; and

   (iv) MWP's application for orders releasing bank securities it has provided as security for the appellants' costs and in support of undertakings given by it in relation to the freezing orders.

Submissions on Costs

1. The primary Judge ordered the appellants to pay MWP's costs of the proceedings, including reserved costs and indemnity costs in relation to a particular interlocutory motion.

2. The appellants submit that:

   (i) They should be ordered to pay no more than 50 per cent of MWP's costs of the trial.

   (ii) In any event, any costs orders made against them should be limited by an order made pursuant to s 98(4)(c) of the Civil Procedure Act 2005 ("CP Act") to a sum no greater than 50 per cent of the amount recovered by MWP in the proceedings (including interest). Since the amount recovered by MWP, inclusive of interest, is approximately AUD2.1 million (using exchange rates at the date of the orders made by the primary Judge), the order should cap the costs payable by the appellants at about AUD1.05 million.

   (iii) MWP should be ordered to pay 50 per cent of the appellants' costs of the appeal and cross-appeal remitted to this Court by the High Court or, alternatively, this Court should make no order as to the costs of the remitted appeal and cross-appeal, with the intent that each party should bear his or its own costs of the remitted appeal and cross-appeal.

3. MWP submits that:

   (i) The appellants should pay 80 per cent of MWP's costs of the remitted appeal and cross-appeal, insofar as those costs were incurred after delivery of the High Court's judgment on 1 December 2011.

   (ii) The primary Judge's order that the appellants pay MWP's costs of the proceedings at first instance should not be disturbed.

   (iii) No order should be made pursuant to s 98(4)(c) of the CP Act limiting MWP's entitlement to costs.

Reasoning on Costs

Costs of the Trial

1. The appellants contend that they should be ordered to pay only 50 per cent of MWP's costs of the trial essentially because MWP obtained an order for equitable compensation equivalent to only a fraction of the claim it advanced in closing submissions at the trial. (Depending on the date on which the AUD equivalent of MWP's ambit claim is calculated, MWP sought between AUD59 million and AUD74 million in equitable compensation).

2. The appellants submissions overlook the fact that they chose to dispute a very large number of matters at the trial. Some of these matters went to liability and some related to the nature and extent of the relief claimed by MWP. As MWP's submissions to this Court point out, MWP succeeded on virtually all of the disputed issues at the trial, other than the quantum of equitable compensation. Moreover, the appellants could have protected themselves against what they contend were MWP's extravagant claims by making an offer of compromise under the Uniform Civil Procedure Rules 2005 ("UCPR"), r 20.26, or by making a Calderbank offer (Calderbank v Calderbank [1975] 3 All ER 333). They apparently chose to do neither.

3. Taking into account the orders made by this Court on the appeal, MWP succeeded in its claim at trial, but was awarded a substantially lower amount of equitable compensation than it sought. In these circumstances, the general rule is stated by UCPR, r 42.1:

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

4. The identification of the relevant "event", in a case where numerous issues have been litigated, has been the subject of some discussion: see Colburt v Beard [1992] 2 Qd R 67. Regardless of that question, it is certainly open to a court to mould a costs order to take account of the partial success of the party against whom orders have been made at trial. But for that course to be adopted, it is ordinarily incumbent on the party against whom orders have been made to identify particular issues or groups of issues on which it succeeded at the trial: see Waters v PC Henderson (Aust) Pty Ltd [1994] NSWCA 338; 254 ALR 328.

5. In substance, the appellants rely simply on MWP's failure to make out its apparently extravagant claim for a very large award of equitable compensation. However, they have not attempted, either by evidence or in submissions, to identify specific issues on which they succeeded or to establish the extent to which the costs of the trial were increased by MWP's pursuit of issues on which it failed. This being so, the appellants have not shown any basis for disturbing his Honour's orders as to the costs of the proceedings at first instance.

Costs of the Appeal

1. The appellants support their submission that MWP should pay 50 per cent of the appellants' costs of the remitted appeal and cross-appeal principally on the ground that they were successful in reducing the primary Judge's award of equitable compensation from approximately AUD7 million (using current conversion rates) to approximately AUD1.1 million (exclusive of interest). The appellants point out that an important issue on the appeal was the admissibility of Mr Schilling's report. Once they succeeded in establishing that the report was inadmissible, so they argue, much of MWP's case on equitable compensation fell away.

2. Mr Blake SC, who appeared with Mr McGrath SC and Mr Adair for the appellants, recognised that MWP had enjoyed some success on the cross-appeal in that the award of equitable compensation in respect of three projects was increased from nil to approximately AUD98,000. He also recognised that the appellants had challenged the findings on liability in the remitted appeal and had abandoned their challenge only at the hearing itself. Mr Blake accepted that the abandoned challenge involved "some wastage of effort and expense", but submitted that the proposed costs order adequately took account of the costs wasted by the appellants' belated decision.

3. As Mr Thomas, who appeared for MWP, pointed out in argument, the appellants' grounds of appeal and written submissions on the remitted appeal sought to impugn the primary Judge's findings and conclusions on liability and causation, as well as on the quantum of equitable compensation. Even after the High Court disposed of a number of the appellants' grounds of appeal, 16 remained live. Among other documentation, the appellants provided for the appeal a schedule of 105 pages challenging findings of fact made by the primary Judge. MWP came to the hearing of the remitted appeal prepared to meet the appellants' challenges. It learned that the appellants did not intend to press most of their contentions only after the hearing of the remitted appeal had commenced.

4. In substance, each of the appellants and MWP enjoyed significant success on the remitted appeal (including the remitted cross-appeal). In these circumstances, the parties should bear their own costs of the remitted appeal and cross-appeal. Accordingly, no order should be made as to the costs of the remitted appeal or of the cross-appeal.

A Cap on Costs?

1. Section 98(3) of the CP Act provides that an order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings. Section 98(4) provides as follows:

   In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to:

   (a) costs up to, or from, a specified stage of the proceedings, or

   (b) a specified proportion of the assessed costs, or

   (c) a specified gross sum instead of assessed costs, or

   (d) such proportion of the assessed costs as does not exceed a specified amount.

2. For the reasons I have given, the appellants should be ordered to pay MWP's costs of the trial and of the appeal proceedings prior to delivery of the High Court's judgment. However, the appellants submit that an order should be made pursuant to s 98(4)(c) of the CP Act limiting the amount of costs MWP should be entitled to receive. As I have explained, the appellants contend that MWP's recoverable costs should be capped at 50 per cent of the award of equitable compensation, inclusive of interest, made in favour of MWP.

3. The appellants contend that s 98(4)(c) of the CP Act can be used to cap the costs entitlement of the successful party in litigation (in this case, MWP). As Palmer J observed in Sherborne Estate (No 2): Vanvalen v Neaves [2005] NSWSC 1003; 65 NSWLR 268, at [42], it is conceivable that the power conferred by s 98(4)(c) could be used for this purpose. However, his Honour went on to say that:

   such a capping order would be very rare: the Court's decision would have to be an informed one, that is, founded on a consideration of the costs actually incurred, the circumstances at the time at which they were incurred, whether they were reasonable in those circumstances, and what would have been a reasonable amount to have incurred.

   Palmer J pointed out (at [50]) that s 364 of the Legal Profession Act 2004 permits a costs assessor to take into account any disproportionality between costs and outcome in assessing the costs that should be allowed to the successful party.

4. It is not necessary to decide whether, as Palmer J suggested, an order capping the costs of a successful party will be made only very rarely. At the least, the party seeking to cap the successful party's costs must lay an evidentiary foundation for the application. Ordinarily, the evidence would need to address the kinds of issues identified by Palmer J in Sherborne (No 2). In this case, the appellants have not adduced any such evidence. They are content to rely on evidence indicating that MWP has incurred at least $6.6 million in costs. They say that the disproportionality between costs of this magnitude and the amount of equitable compensation ultimately awarded to MWP justifies a capping order under s 98(4)(c) of the CP Act.

5. The material before this Court is insufficient to determine whether the costs incurred by the parties, and by MWP in particular, were disproportionate to the issues truly in dispute. Nor does the evidence enable the Court to make a determination as to whether MWP incurred unreasonable costs in pursuing the case at trial. Even if the costs can be regarded as disproportionate to the issues in dispute, the evidence is silent as to the reasons for the disproportionality.

6. If the appellants had concerns about the excessive costs of the litigation, they had mechanisms available to bring those concerns to the attention of the Court and to seek appropriate orders. For example, the appellants could have applied before or at the trial for an order specifying the maximum costs that could be recovered by MWP: UCPR, r 42.4(1); Delta Electricity v Blue Mountains Conservation Society Inc [2010] NSWCA 263; 176 LGERA 424. No such application was made.

7. The appellants' failure to apply for an order under r 42.4(1) does not necessarily preclude them from applying at the conclusion of the litigation for an order capping MWP's costs. However, the absence of satisfactory evidence supporting this application is a fatal barrier to its success.

Freezing Orders

1. MWP has a freezing order in place against Mr Nicholls and Mr Slater, protecting assets up to a value of AUD36,409,753 ("First Freezing Order"). MWP also has a freezing order in place against three non-parties, namely Temujin Holdings Ltd, PJT Corporate Services Pty Ltd and PJT International Pty Ltd ("Non-Parties"), protecting assets up to a value of approximately AUD32.25 million ("Second Freezing Order"). The freezing orders have been continued until further order.

2. Mr Nicholls and Mr Slater do not dispute that the First Freezing Order should remain in place. However, they submit that the value of the assets protected by the Order should be reduced to an amount broadly equivalent to MWP's entitlement to equitable compensation (including interest) and costs. Mr Blake puts that figure at about AUD6.5 million. MWP agrees that the value of assets protected by the First Freezing Order should be reduced. Mr Thomas submits that a figure of AUD7 million would be appropriate and his written submissions explain the choice of that figure.

1. The amount of AUD7 million seems to me to correspond broadly to the value of MWP's entitlement to equitable compensation (including interest) and costs from the appellants, including Mr Nicholls and Mr Slater. Accordingly, the First Freezing Order should remain in place until further order, but the value of assets subject to the Order should be decreased from AUD36,409,753 to AUD7 million. MWP does not dispute that if the value of assets subject to the First Freezing Order is reduced to AUD7 million, a similar reduction should apply to the Second Freezing Order.

2. The Non-Parties filed a notice of motion shortly before the hearing in this Court seeking discharge of the Second Freezing Order. Mr Blake, who appeared on behalf of the Non-Parties, acknowledged that he was not ready to proceed and sought an order remitting the application to the Equity Division of the Supreme Court. The Court made that order at the hearing, but also ordered the Non-Parties to pay the costs of the hearing, insofar as they related to their motion.

Mr Slater's Application

1. Mr Slater contends that the First Freezing Order has caused him loss by preventing him from selling his shares in Roxi Petroleum plc at a price substantially higher than the price at which they subsequently traded. Mr Blake submits that Mr Slater's claim for damages should be remitted to the Equity Division for determination. MWP opposes this course.

2. Mr Blake conceded in argument that there was no evidence before the Court to support Mr Slater's claim that he had suffered any loss. He also conceded that none of the other parties to the freezing orders had any claim for damages.

3. In Yukong Line Ltd v Rendsburg Investments Corporation [2001] 2 Lloyd's Rep 113, Potter LJ (with whom Thorpe and Hale LJJ agreed) said (at [33]) that upon discharge of a Mareva injunction, the Court has a discretion whether or not to enforce an undertaking in damages. If the Court exercises its discretion in favour of enforcement, it may order an inquiry as to damages. His Lordship continued (at [34] - [35]):

   34. The question whether the undertaking should be enforced is a separate question from the question whether the injunction should be discharged. The order for an inquiry as to damages is discretionary, such discretion being exercised in accordance with equitable principles, taking into account all the circumstances of the case, but bearing in mind that, since the injunction should not have been obtained, prima facie the plaintiff ought to bear the loss. ...

   35. So far as evidence of loss is concerned, upon an application for an inquiry, the applicant must adduce some credible evidence that he has suffered loss as the result of the making of the order. The Court will not order an inquiry if it appears to be pointless to do so because the intended claim for damage is plainly unsustainable. That may be because it is clear that the order is no more than the factual context for loss which would have been suffered regardless of the granting of the order, or it may equally be clear that the damage is too remote. However, at the stage of exercising its discretion whether to order an inquiry, the Court does not ordinarily hear protracted argument on whether the suggested loss will be recoverable. If the defendant shows that he has suffered loss which was prima facie or arguably caused by the order, then the evidential burden of any contention that the relevant loss would have been suffered regardless of the making of the order in practice passes to the defendant and an inquiry will be ordered.

4. This analysis is consistent with the approach taken by the High Court to the enforcement of undertakings as to damages in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [1981] HCA 75; 146 CLR 249. In that case, Stephen J stated (at 320) that it is for the claimant seeking damages pursuant to an undertaking to establish by evidence a prima facie case that both that the grant of the injunction (in the present case, the freezing order) was a cause of the damage and that but for the injunction the claimant would not have suffered that damage: see also at 313 per Gibbs J; Coshott v Principal Strategic Options Pty Ltd [2004] FCAFC 50, at [18], per curiam.

5. In the absence of evidence of any loss sustained by Mr Slater in consequence of the First Freezing Order, there is no basis for remitting his claim for damages to the Equity Division of the Supreme Court. His application to remit the claim must be dismissed.

Release of Security

1. MWP has provided security for the appellants' costs amounting to the sum of AUD940,000. It has also provided security in support of its undertakings as to damages in relation to the First and Second Freezing Orders, amounting to AUD1.25 million.

2. As a result of the costs orders proposed in this judgment, MWP has no liability in costs to the appellants. An order should therefore be made for the release of the security provided by MWP for the appellants' costs.

3. Since Mr Slater's claim for damages pursuant to MWP's undertaking has failed and since no other claim for damages has been foreshadowed, an order should also be made for the release of the security provided by MWP in support of its undertakings as to damages.

Orders

1. I propose the following orders:

   1. The Appellants pay the Respondent's costs of the Court of Appeal proceedings No 2009/298561 incurred prior to 1 December 2011.

   2. No order as to the costs of Court of Appeal proceedings No 2009/298561 incurred after 1 December 2011, with the intent that the parties bear their or its own costs.

   3. Orders 30-32 made by Einstein J on 11 December 2009 in relation to the costs of the trial not be disturbed.

   4. The Freezing Order made on 9 October 2006 as against the First and Second Appellants and subsequently varied by orders dated 20 October 2006, 27 October 2006, 20 November 2006 and 28 May 2008 (the First Freezing Order) be further varied such that the amount in Order 6(a) be amended from "AUD$36,409,753" to "AUD$7,000,000".

   5. The Freezing Order made on 28 May 2008 as against PJT Corporate Services Pty Ltd, PJT International Pty Ltd and Temujin Holdings Limited (the Second Freezing Order) be varied such that the Relevant Amount in Order 4(a) be amended from "AUD$32,251,128" to "AUD$7,000,000".

   6. The First Freezing Order (as varied by Order 4 above) and the Second Freezing Order (as varied by Order 5 above) be continued until further order.

   7. The application by PJT Corporate Services Pty Ltd, PJT International Pty Ltd and Temujin Holdings Limited (Non-Parties) to discharge the Second Freezing Order be remitted to the Equity Division for hearing and determination.

   8. The Non-Parties pay MWP's costs of the hearing on 12 April 2013, insofar as the costs are referable to the Non-Parties' application to discharge the Second Freezing Order.

   9. The Second Appellant's application that his claim for damages in connection with the First Freezing Order be remitted to the Equity Division for hearing and determination be dismissed.

   10. The Respondent be released forthwith from the obligation to provide security for the Appellants' costs of the proceedings pursuant to:

   (a) Order 1 of the orders of 9 February 2007;
   (b) Order 1 of the orders of 7 December 2007; and
   (c) Orders 13(a) and 13(b) of the orders made on 28 May 2008,

   and further be released forthwith from the obligation to provide security as to the undertaking as to damages pursuant to:

   (d) Order 11 of the orders made on 28 May 2008; and
   (e) Order 2 of the orders made as to 30 November 2010.

   11. The Appellants return to Clayton Utz within seven days all original bank guarantees provided in relation to the security for the Appellants' costs and the security as to the undertaking as to damages, as referred to in Order 10 above.

   12. The Appellants reimburse the Respondent for all bank fees and charges incurred by the Respondent as a result of providing and maintaining the bank guarantees referred to in Order 10 above.

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