FEDERAL COURT OF AUSTRALIA

Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited (No 2) [2017] FCAFC 116

ORDERS

THE COURT ORDERS THAT:

1.    The Applicant pay the costs of the First and Second Respondents of and incidental to the application for leave to appeal, doing so on an indemnity basis.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    On 20 June 2017 the Court dismissed an application by the applicant, Melbourne City Investments Pty Ltd (MCI), for leave to appeal against interlocutory orders of a judge of this Court concerning class member registration and opt out in a shareholder class action: Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited [2017] FCAFC 98 (the substantive judgment). The first and second respondents, Treasury Wine Estates Limited (TWE) and Mr Brian Jones respectively, now apply for an order that they be awarded indemnity costs of and incidental to MCI’s application for leave.

2    For the reasons we explain, we consider an order for indemnity costs is appropriate in the circumstances of the present case.

The relevant principles

3    The Court has a broad power to award costs in proceedings, including indemnity costs, under s 43 of the Federal Court of Australia Act 1976 (Cth) (the Act). In exercising the discretion to award costs, s 37N(4) of the Act requires the Court to take account of any failure by a party to comply with the overarching purpose of the civil procedure provisions, to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible: see s 37M(1).

4    Usually the Court will award costs to the successful party on a party/party basis, but where the circumstances of the case warrant a departure from the usual course the Court may order indemnity costs. The principles relevant to an award of indemnity costs are well-established. There can be no exhaustive list of the circumstances that may warrant the exercise of the discretion.

5    In broad terms an order for indemnity costs requires that some special or unusual feature arises: Cirillo v Consolidated Press Property Ltd (formerly known as Citicorp Australia Ltd) (No 2) [2007] FCA 179 at [3] (Finn J). Indemnity costs are not punitive but are designed for “compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs”: Hamod v New South Wales (2002) 188 ALR 659 at 665 (Gray J, with whom Carr and Goldberg JJ agreed). Such circumstances may include where allegations are made “which ought never to have been made”, where the case is “unduly prolonged by groundless contentions” (Ragata Developments Pty Ltd v Westpac Banking Corporation [1993] FCA 115 at [15], [17] (Davies J)), and where “the applicant, properly advised, should have known that he had no chance of success” (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 (Woodward J)) or “persists in what should on proper consideration be seen to be a hopeless case” (J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) (1993) 46 IR 301 at 303 (French J)).

Consideration

6    As we described in the substantive judgment, the application for leave to appeal was made against the backdrop that MCI had brought two shareholder class actions against TWE. On 22 December 2014 the Court of Appeal of the Supreme Court of Victoria dismissed the First MCI class action as an abuse of process. MCI then commenced the Second MCI class action against TWE in the Supreme Court, making identical allegations. That proceeding was transferred to this Court. On 5 July 2016 the primary judge held that the Second MCI class action was an abuse of process and made orders to permanently stay the proceeding. MCI then applied to the primary judge to set aside the finding of abuse of process and to lift the permanent stay.

7    The opt out and class registration orders to which the application for leave to appeal relates were made on 23 March and 5 April 2017 in a shareholder class action brought by Mr Jones against TWE (the Jones class action). The Jones class action makes essentially the same allegations as the MCI class actions. MCI brought the application for leave to appeal in its capacity as a class member in the Jones class action.

8    MCI argues that it was not unreasonable for MCI to bring the application for leave to appeal because:

(a)    on 5 April 2017 the primary judge dismissed MCI’s application to send a supplementary opt out notice to class members in the Jones class action, which was before his Honour refused to lift the permanent stay of the Second MCI class action on 1 May 2017. MCI contends that, while it may have been within his Honour’s knowledge that he intended to refuse to reopen the finding of abuse of process, MCI could not have known that;

(b)    the opt out notice ordered by the primary judge informed class members that if they wished to challenge the opt out and class member registration orders they could do so by writing to the solicitors for Mr Jones. MCI argues that it would be contrary to the interests of justice and to the policy underpinning Part IVA of the Act for the Court to sanction MCI (by awarding indemnity costs against it) for having taken up the Court’s own invitation to challenge the opt out orders; and

(c)    the subject matter of the application for leave to appeal – whether the opt out orders of the primary judge were liable to have the effect of misleading class members – warranted serious consideration by the Full Court which gave detailed reasons.

9    In our view there is no merit in MCI’s opposition to the application for indemnity costs.

10    First, Order 15 of the opt out and class member registration orders made on 23 March 2017 expressly provides that, in the event the class action is not settled, any class member who did not opt out or register remains a class member for the purposes of any subsequent judgment. It is clear enough from its written submissions that MCI misunderstood that fact and there was no proper foundation for its contention in this regard. The respondents’ costs of addressing MCI’s argument in that regard were wasted.

11    Second, up until the hearing of the application MCI persisted in the erroneous submission that the primary judge had no power to make class closure orders in the terms or at the stage in the proceeding that he did. That submission was contrary to the well-established practice of the Court. MCI abandoned the submission at the hearing, without notice to the other parties. The respondents’ costs of addressing that submission were wasted.

12    Third, MCI’s contention that the opt out notice conveyed a misleading impression by stating that the Jones class action was a “preferable vehicle” for class members’ claims was without merit. As we said in the substantive judgment (at [81]-[82]), as at the date the opt out orders were made the Second MCI class action was the subject of a permanent stay and, in contrast to the Jones class action, it had not achieved any substantive progress towards trial. The Jones class action was plainly a preferable vehicle. MCI’s contention in this regard was hopeless.

13    Fourth, while it is correct that MCI filed the application for leave to appeal one week before the primary judge refused to lift the permanent stay on 1 May 2017, that does not excuse MCI’s conduct in continuing to press the unmeritorious application after that date. The respondents did not file appearances to the application until 3 May 2017 and we infer that the great bulk of the respondents’ legal costs were incurred after that date. By 2 May 2017, properly advised, MCI should have been aware that its application was hopeless.

14    Fifth, contrary to MCI’s contention, the award of indemnity costs we propose to make does not sanction MCI for challenging the opt out orders. In fact, MCI did challenge the opt out and class member registration orders in an interlocutory application dated 3 April 2017. The primary judge refused that application on 5 April 2017 and ordered MCI to pay party/party costs in respect to it. The proposed award of indemnity costs relates to MCI’s conduct in bringing a hopeless application for leave to appeal the primary judge’s decision. The fact that the opt out notice notified class members of their right to challenge the relevant orders does not provide any proper basis for shielding MCI from the costs consequences of a groundless application for leave to appeal.

15    Sixth, MCI’s remaining argument in the application for leave to appeal was that the opt out notice conveyed the false impression that class members who neither opted out nor registered would not be entitled to share in the fruits of any subsequent judgment. As we said in the substantive judgment (at [93]) that argument was new (it not having been raised before the primary judge) and it had little substance. If any class members were misled, the only difference between the misleading impression conveyed by the opt out notice and the true position was to the benefit of class members. It did not constitute a proper basis for MCI’s application.

16    Seventh, the application was made against the background:

(a)    that MCI was required to establish that substantial injustice would result if leave to appeal was refused. It had a heavy burden in seeking leave to appeal in relation to an exercise of discretion on a matter of practice and procedure. It failed to establish any injustice, let alone substantial injustice; and

(b)    of a series of unsuccessful interlocutory applications by MCI in this and related proceedings it has brought against TWE, and following decisions that both the First and Second MCI class actions were an abuse of process. This heightens the unreasonableness of MCI’s conduct in pursuing an unmeritorious application for leave to appeal.

17    In all the circumstances a departure from the usual position in relation to costs is warranted. We have ordered MCI to pay the respondents’ costs of and incidental to the application for leave to appeal on an indemnity basis.

Associate:

Dated:    9 August 2017