Pesec v Consolidated Builders Ltd (No 4)
[2021] ACTSC 188
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Pesec v Consolidated Builders Ltd (No 4) |
Citation: | [2021] ACTSC 188 |
Hearing Date: | 13 August 2021 |
DecisionDate: | 19 August 2021 |
Before: | McWilliam AsJ |
Decision: | The plaintiff is to pay 75% of the defendant’s costs of the proceedings. |
Catchwords: | PRACTICE AND PROCEDURE – COSTS – where unsuccessful plaintiff sought an order that parties each pay their own costs – whether discrete or dominant issue – where no disentitling conduct on the part of the defendant – whether circumstances otherwise justify deviation from usual order that costs follow the event |
Legislation Cited: | Corporations Act 2001 (Cth) ss 237, 211 Court Procedures Rules 2006 (ACT) rr 1705, 1721 |
Cases Cited: | Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 Clarkson Williams Partners Pty Ltd v Vaughan (No 2) [2016] ACTCA 8 Priestley v Priestley (No 2) [2016] NSWSC 1259 |
Parties: | Anthony Pesec ( Plaintiff) Consolidated Builders Limited ( Defendant) |
Representation: | Counsel R Markham ( Plaintiff) M O’Meara SC ( Defendant) |
| Solicitors Adero Law ( Plaintiff) Clayton Utz ( Defendant) | |
File Number: | SC 179 of 2020 |
McWilliam AsJ:
On 13 April 2021, I made orders dismissing an application made by a shareholder, Mr Anthony Pesec (the plaintiff), for leave to bring a derivative action on behalf of the defendant company, Consolidated Builders Ltd (CBL). Reasons were subsequently delivered on 28 May 2021: see Pesec v Consolidated Builders Ltd (No 3) [2021] ACTSC 105 (Pesec (No 3)).
The plaintiff then sought an order that there be no order as to costs. In the alternative, the plaintiff sought that any costs order made in CBL’s favour be limited to the costs incurred in connection with responding to the application in proceeding first filed on 14 May 2020.
The reason the alternative order was sought was a concern that earlier legal costs incurred in relation to an Extraordinary General Meeting held on 18 December 2019 (EGM) were unrelated to the proceedings, and instead related to CBL deliberating whether to bring proceedings in its own name.
The defendant submitted that the plaintiff should pay the defendant’s costs of the proceedings, as there was no reason to depart from the usual approach that costs follow the event.
The parties provided useful written and oral submissions. I have incorporated parts of those submissions and the authorities relied upon by each party in the consideration that follows.
Applicable principles
Costs are in the discretion of the Court: see r 1721(1) of the Court Procedures Rules 2006 (ACT) (the Rules). As costs are compensatory, ordinarily the discretion is exercised to award costs in favour of the successful party; that is, costs follow the event. This has been described as the “the usual order as to costs”: Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 at [67].
What constitutes the “event” has been the subject of considerable judicial discussion. The defendant drew attention to the authority of Priestley v Priestley (No 2) [2016] NSWSC 1259 (Priestley), where White J (as his Honour then was) traced through the history of the discretionary power as to costs from the perspective of the “frame of reference” by which success is to be judged (at [10]).
His Honour stated at [49] (emphasis added):
With some hesitation I think that the picture that emerges from the course of authority is that what is the relevant event for the purposes of the rule is primarily to be determined by reference to the outcome of the litigation and whether or not the plaintiff has obtained judgment in his favour and that that is so even if the defendant has defeated some claims and has succeeded on others, or has succeeded on some issues. I think that emerges from the history of the rule where even though the event was capable of referring to particular issues such that the defendant might be entitled to costs referable to the issues upon which he succeeded, nonetheless, a plaintiff who obtained judgment was entitled to his general costs of the proceedings. I think that also clearly appears from what was decided in Mount Bruce Mining, and although a different formulation was adopted by Gleeson JA in Sze Tu v Lowe, his Honour did not express dissent from what had previously been said.
White J also helpfully collected the leading authorities on when it may be appropriate to make a different costs order. At [39] of the reasons in Priestley, his Honour cited Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 (Bostik), where the Court of Appeal (Beazley, Ipp and Basten JJA) said at [38] (emphasis added):
The principles governing the making of an order as to costs so as to reflect the time taken in dealing with a particular issue in which the successful party in the proceedings or on the appeal did not succeed were reviewed by this court in Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373. Those principles may be summarised as follows:
·Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported).
·In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal.
·If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick (No 2) [2006] NSWCA 374 at [27].
·Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed).
·A separable issue can relate to ‘any disputed question of fact or law’ before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34].
·Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1993] FCA 259; (1993) 26 IPR 261 at 272.
The passages emphasised above are those on which the parties placed particular reliance in their submissions.
White J then went on in Priestley to state at [40] (emphasis added):
The costs order in favour of a successful party can be ameliorated to reflect that party's failure on particular issues even though the successful party did not act unreasonably in raising or defending those issues (Permanent Trustee Australia v FAI General Insurance Co (Supreme Court of New South Wales, Hodgson CJ in EQ, 3 June 1998, unreported); Short v Crawley (No 40) [2008] NSWSC 1302 at [32]; Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1423).
His Honour then dealt with further NSW Court of Appeal authority and what had been said about the “event”, before drawing together the conclusion at [49] of his Honour’s reasons (already set out at [8] above in these reasons). His Honour’s reasoning on when a different order may be appropriate then followed at [50]-[53] (emphasis in original):
50. That having been said, there is considerable force in the observations of Finkelstein and Gordon JJ in Bowen Investments v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 at [5] where their Honours observed that fairness dictates how the discretion as to costs should be exercised, and that if an issue by issue approach produces a result that is fairer than giving the successful party all of his or her costs notwithstanding his or her failure on particular issues, then the issue by issue approach should be adopted.
51. Moreover, the question ultimately is not what is the appropriate starting point, but what should be regarded as a fair and just outcome in ordering costs (McLaughlin v Dungowan Manly Pty Ltd [2010] NSWSC 306 at [22] and [24] per Ward J).
52. I do not dissent from the plaintiff's submissions that factually, that is to say, having regard to the evidence adduced on the first and third of the plaintiff's claims, the issues were interwoven, and in that sense at least, not separable.
53. However, the Court of Appeal has made it clear that special costs orders can be made where an otherwise successful party has failed on a particular issue or group of issues that is clearly dominant. The expression used is issues that are "clearly dominant or separable.”
The authorities cited in Priestley draw from the body of case law in New South Wales. However, the guiding principles above have also been applied here in the Territory. One example is Lewis v Chief Executive, Department of Justice and Community Safety (ACT) and Ors (No 2) [2014] ACTSC 196 (Lewis (No 2)), where Refshauge J expressly referred at [26] to the principles taken from Elite Protective Personnel v Salmon (No 2) [2007] NSWCA 373 at [6], with that case being the source of the principles summarised by the NSW Court of Appeal in Bostik at [38]. That passage was also subsequently applied in Clarkson Williams Partners Pty Ltd v Vaughan (No 2) [2016] ACTCA 8 at [10]. The authorities are thus equally applicable to the manner in which the discretion on costs in the Territory is to be exercised.
Consistent with those principles, r 1705(1) of the Rules expressly states that the Court “may make an order for costs in relation to a particular issue in, or a particular part of, a proceeding”. Rule 1705(2) of the Rules provides that the Court may effectively apportion costs by declaring what percentage of the costs of the proceeding is attributable to the issue, or the part of the proceeding to which the order relates.
Each of the parties in the present case relied upon different parts of Lewis (No 2). At [13], Refshauge J held that the discretion must be exercised judicially and the result should be fair, having regard to the facts and circumstances of a given proceeding. However, his Honour later stated at [26] that it is not appropriate for the Court to comb through the proceedings to separate out issues on which the successful party has not been successful so as to moderate, in some way, the usual order for costs. That is to the same effect as what was set out in Priestley.
The plaintiff sought to extract from Lewis (No 2) at [25] a test of whether an issue in the trial was separately identifiable and whether the issue had been inappropriately or unreasonably raised by a successful party. All that Refshauge J stated in Lewis (No 2) at [25] was (emphasis added, citation omitted):
It may be that, where an issue has been inappropriately or unreasonably raised by the successful party and, in addition, can be identified separately and is distinct in the case a special costs order should be made.
That paragraph of Refshauge J’s reasoning does not support the approach for which the plaintiff contends. To the contrary, while either of those matters may be relevant to the exercise of the Court’s discretion, neither of them are determinative of any particular result. First, an issue may be dominant without being separable: Priestley at [53]. Second, a party who is successful may still be subject to the amelioration of what would otherwise be a favourable costs order so as to reflect that party's failure on particular issues, even though the successful party did not act unreasonably in raising or defending those issues: Priestley at [40].
Should the Court depart from an order that costs follow the event?
Arguments of the parties
The plaintiff argued that each of the five criteria required for a grant of leave pursuant to s 237 of the Corporations Act 2001 (Cth) (Corporations Act) (as to which see Pesec (No 3) at [7]) were separate issues, and further, that he succeeded on two out of the three contested criteria for the grant of leave. Those criteria were: whether there was a serious question to be tried; whether the plaintiff was acting in good faith; and whether the grant of leave was in the best interests of the company. The only criterion on which the plaintiff failed was whether the proceedings were in the best interests of CBL.
In respect of whether there was a serious issue to be tried, the plaintiff submitted that the defendant’s conduct in defending the point was unreasonable. The plaintiff pointed to evidence that certain factual enquiries were not made and further, that before the hearing, CBL failed to produce material that should have been produced to the plaintiff. He argued that CBL did not investigate the material concerns of the plaintiff in any genuine way prior to trial. Further, CBL did not provide information that would have facilitated individual shareholder inquiries into the conduct of CBL. Further still, CBL did not take reasonable steps to allow the plaintiff to nominate a member to join the committee of investigation to properly investigate his concerns and report to the shareholders: see Pesec (No 3) at [20]. CBL also did not undertake an independent valuation of its assets.
The plaintiff contended there was no evidence of substance with respect to the serious question ground. As such, the plaintiff was bound to succeed on the point and the defendant should have conceded the issue.
The plaintiff contended that significant time was devoted to whether there was a serious question to be tried, submitting that 75% of the time at hearing was devoted to that question.
CBL submitted that it was successful on the “event”, in that the plaintiff did not obtain the orders he sought. The Court should not dissect and separate the issues that were the subject of hearing for the purposes of attempting to apportion costs.
Further, there was no unreasonable conduct on the question whether there was a serious question to be tried. CBL submitted that there were multiple issues raised on that point. Some were factual but some were legal, and the question was intertwined with the other issues, including the broader question of whether the litigation was in the best interests of the company: see Pesec (No 3) at [13], [45] and [121].
In any event, CBL submitted that the matters raised by the plaintiff were irrelevant to the resolution of the issue of costs, and merely sought to relitigate matters that were determined in Pesec (No 3) or were never in issue.
Consideration
Notwithstanding the plaintiff did not achieve the orders sought, the plaintiff did establish two out of the three criteria that were contested at hearing. The two issues, or criteria, on which the plaintiff succeeded collectively played a dominant part in the evidence, the written submissions and oral arguments. The reports of the expert accountants and their subsequent cross-examination were primarily directed to the first of the contested issues, namely whether there was a serious question to be tried. The evidence of Ms Hambly and Mr Harris were also each directed to different aspects of that issue. The reasons for judgment in Pesec (No 3) further reflect the substantial arguments required to be considered in respect of those two criteria.
However, I do not accept that the issue of whether there was a serious question to be tried was discrete or separable. As is clear from the reasons in Pesec (No 3) at [13] and [121], the issues on which the plaintiff succeeded were somewhat intertwined with issues on which the plaintiff failed. This was not a case where there were separate causes of action that were determined in favour of different parties.
This was also not a case where there were multiple days of hearing with a day devoted to a particular issue on which CBL failed, or even where there were affidavits that could be characterised as being wholly directed to an issue on which the defendant failed, or that were plainly irrelevant. The evidence of Mr Harris, for example, was relevant both to the question of whether there was a serious issue to be tried, and to an evaluation of what was in the best interests of CBL: see Pesec (No 3) at [81] and [131]-[132].
By way of further example, even part of the expert evidence relevant to one of the issues on which the plaintiff succeeded (whether there was a serious question to be tried) was itself the subject of argument and submissions about a particular evidentiary ruling sought by the plaintiff, on which the plaintiff failed: see Pesec (No 3) at [24]-[34]. Such circumstances also exemplify the problem when one starts to analyse the issues on which a party succeeded on the question of costs, and why the authorities have repeatedly urged a general approach that does not descend into artificial dissection.
The argument that it was unreasonable for CBL to put in issue whether there was a serious issue to be tried should be similarly rejected. Contrary to the plaintiff’s submission about there being no evidence of substance on the point, one of the key arguments put by CBL against the plaintiff was that there was insufficient material to enable the Court to be satisfied that there was a serious question to be tried: see Pesec (No 3) at [77]. I agree that a number of the arguments made by the plaintiff are seeking to relitigate arguments that were relevant to the substantive application, but not to costs.
In any event, I further accept that CBL’s arguments on whether there was a serious question to be tried extended to matters of law; that is, matters that were independent of any factual dispute about the investigations that could have been or should have been conducted. For example, the parties were at odds on the interpretation of what constituted “remuneration” for the purposes of s 211 of the Corporations Act: see Pesec (No 3) at [65]-[69].
Having said that, although the identification of a separate issue was one of the features relied upon by the plaintiff to argue for a costs order to reflect his partial success, the authorities above indicate that a lack of separability and a lack of any unreasonable conduct on the part of CBL is not fatal to the plaintiff’s submission.
I am mindful that this was the one statutory action, which had a number of mandatory elements. By analogy, a case in negligence has elements such as breach of duty of care and causation. A plaintiff who succeeds on breach but not on causation, and therefore fails to establish the tort, would not commonly be relieved of paying the costs pertaining to proof of the breach merely because success was obtained on that element.
However, even with that caution in mind, having heard the case – including dealing with the entirety of the evidence and the parties’ collectively lengthy submissions on the substantive issues – my impression of the entirety of the proceeding has led me to conclude that the fair and just outcome on costs does require some recognition of the issues on which the plaintiff succeeded. In my view, the dominance of those issues across the evidence, argument and hearing time is sufficient to displace the usual order as to costs. The just outcome is to award CBL seventy-five per cent of its costs.
Should any costs order be limited as to time or subject matter?
The plaintiff sought in addition, and in the alternative, an order that limited the costs of the proceedings by reference to the date on which the proceedings were commenced, being 14 May 2020. It was submitted that the order for costs should expressly not include works completed by the defendant with respect to the EGM. One of the concerns leading to that request was a one-page “shareholder update” sent by CBL on 30 April 2021. Part of the document includes the following statement:
Costs incurred by the Company in responding to Mr Pesec’s allegations
The Company has spent in excess of $1.6 million responding to the allegations raised by Mr Pesec.
The Company will continue to defend the allegations raised by Mr Pesec.
The plaintiff is concerned that CBL will seek the entirety of that sum be paid by him if he is ordered to pay the costs of the proceedings.
There are three reasons why such an order is not yet appropriate. First, the evidence relied upon by the plaintiff does not support the concern. The “allegations” referred to in the extract of the correspondence set out above do not state that such sum has been spent on the present litigation. Complaints were made by the plaintiff to CBL. Litigation then followed. A fair reading of CBL’s statement is that collectively, CBL has spent $1.6 million responding to Mr Pesec’s concerns. There was no evidence that $1.6 million was the quantum of CBL’s legal costs for the proceedings. Even if such an inference was drawn from the contents of the shareholder update, it does not go so far as to suggest that such sum would be the quantum sought to be recovered from the plaintiff on a party/party basis.
Second, the lack of evidence as to the quantum of CBL’s costs or what party/party costs may be sought against the plaintiff means that neither the plaintiff nor the Court are able to consider or address whether any claim that might be made is appropriately referable to the proceedings or not. The plaintiff’s concern is at present a hypothetical one. That poses difficulties if the Court were to limit the costs by reference to time, as there may be costs incurred leading up to the litigation that are plainly referable to the proceedings brought by the plaintiff. Similarly, carving out costs by reference to a single event, such as the EGM, may not be sufficient.
Third, and decisively, while there is much force in an argument that legal costs incurred for the EGM should not properly form part of the costs of the proceedings (noting that it occurred a number of months prior to the Originating Claim being filed), I accept CBL’s submission that the issue is really one for assessment.
Accordingly, it is not presently appropriate to further limit the costs order I have foreshadowed by reference to a certain point in time or event.
Orders
The Court orders that the plaintiff is to pay 75% of the defendant’s costs of the proceedings.
| I certify that the preceding forty [40] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Associate Justice McWilliam. Associate: Zoe Saunders Date: 19 August 2021 |
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