CATCHWORDS

COSTS - terms of settlement - no final determination - no trial on the merits - whether applicant reasonable in bringing proceedings - whether respondents reasonable in defending proceedings

Australian Securities Commission v Aust-Home Investments Limited [1993] 44 FCR 194

Hacienda Apartments Pty Ltd v Vago & Ors (Young J Supreme Court of NSW, Equity Division, unreported 19 May 1988)

INPRINT LTD (ACN 010 728 971) v K&D MEDIA PTY LTD (ADMINISTRATOR APPOINTED) & ANOR NG 3484/95

EINFELD J

SYDNEY

22 DECEMBER 1995

IN THE FEDERAL COURT OF AUSTRALIA    )

NEW SOUTH WALES DISTRICT REGISTRY    )    No. NG 3484 of 1995

GENERAL DIVISION                    )

                     Between:        INPRINT LTD

                                     (ACN 010-728-971)

                                               Applicant

                         And:        K & D MEDIA PTY LTD (Administrator Appointed)

                                               First Respondent

                         And:        VANDA RUSSELL GOULD

                                               Second Respondent

                       REASONS FOR JUDGMENT

EINFELD J                    SYDNEY              22 DECEMBER 1995

The applicant commenced proceedings on 5 September 1995 for the removal of the administrator of the first respondent and the appointment of an alternate administrator.  Mr Gould, the then current administrator, is the second respondent.  The Australian Securities Commission (ASC) appeared as amicus curiae.  Additionally, the application called for declaratory relief and damages against the second respondent, and also sought orders that certain creditors be prohibited from voting on the removal of Mr Gould, and on the composition of the creditors' committee, including that certain creditors be appointed to that committee.  Time for service was abridged and the application was made returnable on 7 September.

At the first return date the respondents sought time to resolve the matter between the parties or to file their evidence.  Expedition was granted, a short timetable was set, and a date for final hearing was set down for 26 and 27 September.  The second respondent filed an affidavit on 11 September 1995 and one was filed by the ASC on 13 September 1995.  Correspondence between the parties ensued and on 20 September 1995 terms of settlement were handed up.  Mr Gould tendered his resignation, which according to the correspondence had first been offered on 11 September 1995, less than a week after the commencement of the proceedings.  In fact, it appears that other than the issue of costs which is the subject of this judgment, the substantive issues between the parties were resolved as early as 12 September 1995 even though formal consent orders were not finalised until 19 September 1995.

The applicant submitted that the settlement between the parties was their victory.  They said that they have substantially achieved the orders sought in their application and that in accordance with 'usual practice', costs should follow the event: Ritter v Godfrey [1920] 2 KB 47 at 52, 57.  Additionally, they submitted that costs should be awarded against Mr Gould personally and not be a cost of the administration.  The respondents challenged this so-called victory of the applicant and said that it is they who have had the victory.  If the 'normal rule' is that costs follow the event, then it should follow that because the proceedings were dismissed, the respondents should receive an order for costs.  Moreover, they submitted that costs should be awarded on an indemnity basis.

The respondents relied on the decision of Hacienda Apartments Pty Ltd v Vago & Ors (Young J, Supreme Court of New South Wales, Equity Division, unreported 19 May 1988).  In that case there was a live dispute between the parties over declaratory relief at the commencement of the proceedings, but the usefulness of granting the declarations sought was lost before the trial.  Justice Young stated at page 5:

     The normal rule is that if proceedings are dismissed, even because there is no utility in granting a declaration, the successful defendant is entitled to his costs of the proceedings.  Normally under the authorities the successful defendant is entitled to costs, unless his conduct has been such as to make that order unjust.

However, in that case the 'normal rule' was not applied.  The proceedings had, in his Honour's words, limped on for two and a half years after its commencement.  The declarations sought in the first place were meritorious, and had the plaintiffs sought costs as soon as practicable after the time had passed for their usefulness, notwithstanding that the declarations would not then have been made, costs would have been awarded to them.  However, this was not the end of the story.  Justice Young said at page 6:

     The conduct of the defendants was such that on the evidence it would appear that they rode high-handedly over the plaintiffs' rights.  In due course the defendants obtained the necessary proprietary rights to enable them to do that legally, but in December 1985 they did not act in accordance with the companies law.  That brought about the litigation, but the plaintiffs have to show that not only did that bring about the litigation, but that that attitude continued after 28 August up until the present day, so that that
justified the defendants not getting their costs, even though they had been successful in the suit on the ground of inutility of making a declaration.

Because the plaintiffs opted to pursue their claim for declarations, costs after the crucial date were therefore not awarded.  His Honour also addressed the question of whether or not the defendants should get their costs after that date.  However, because the defendants did not seek an early resolution and actively pursued their defence, treating all issues as live, their conduct affected relations between the parties such that the plaintiffs pursued their claim long after the commercial realities would have advised was wise.  In the final result, costs were awarded to the plaintiffs up to 28 August but after that date there was no order as to costs.

These days I am not at all sure that there is such a thing as a 'normal rule' or 'usual practice'.  The power to award costs is entirely discretionary provided the discretion is exercised judicially, i.e. having regard to the circumstances of the case.  Notwithstanding the applicant's strenuous submission that their case was uncontroverted,  the merits of this case have not been tried.  Justice Hill in Australian Securities Commission v Aust-Home Investments Ltd [1993] 44 FCR 194 summarised the issues that may be considered in awarding costs in an interlocutory proceeding when there has been no hearing for final relief and therefore no trial on the merits.  Of particular import is (at 201)

    
..... whether the Applicant acted reasonably in commencing the proceedings and whether the Respondent acted reasonably in defending them...

     In a particular case it might be appropriate for the Court in its discretion to consider the conduct of the Respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation...

The applicant submitted that but for the actions of Mr Gould prior to the commencement of the proceedings, no proceedings would have been necessary.  It was submitted that irregularly and contrary to the Corporations Law, Mr Gould adjourned a meeting of creditors which, inter alia, would have passed a resolution to remove him as administrator.  It was further submitted that contrary to the Corporations Law, Mr Gould failed to investigate the company's business and other affairs as soon as practicable to determine what was in its best interests.  In short, the applicant submitted that the removal of the administrator was sought because he failed to act in accordance with the Corporations Law and not merely because some creditor did not like him.  Mr Gould rejected this allegation.

The various affidavits filed on both sides revealed several factual disputes.  However, what does not appear to be in dispute is that the creditors' meeting on 23 August 1995 was adjourned and the resolution to remove Mr Gould was not put to the meeting although Mr Gould was aware that some of the creditors wished his removal.  The relevance and significance of these matters are in dispute, and there is significant dispute about the steps required to be taken by the administrator, the steps in fact taken, whether or not those taken were adequate, and whether an appropriate defence could be mounted in respect of some steps not yet taken.

It is clear that the applicant did not consider Mr Gould was progressing the matter sufficiently or according to law.  It was therefore prima facie entitled to seek his removal and it was not unreasonable to commence legal proceedings to this end.  On the other hand, Mr Gould was not merely sitting idle, and the mere fact that he was aware that some creditors were baying for his removal does not mean that he had immediately to resign as administrator.

The applicant highlighted that Mr Gould could have offered to resign earlier thus saving the applicant considerable time and expense.  In my view this is not an appropriate argument.  Mr Gould was entitled to defend a claim against him, to take a reasonable time to consider his position, or at least to wait until the case against him had taken shape.  The terms of settlement were on a 'without admission of liability' basis, and liability cannot be imputed so as to found a submission that it was unreasonable to defend the matter.  In my opinion the respondents acted reasonably in initially defending the proceedings, the reasonableness of both parties being further evidenced by the timely settlement of the proceedings.

Without delving into the merits of the claim, it is impossible to determine who is entitled to costs.  The matter would have
involved complex factual and credit issues that cannot be determined without all the available evidence being filed and cross examination on the evidence taken.  In light of the fact that all parties acted reasonably and the proceedings were concluded, except for the issue of costs, approximately two weeks after the presentation of the application, I am of the view that no order for costs should be made.  Consequently it is not necessary for me to consider the applicant's application that costs be awarded against the second respondent personally nor the respondents' application for costs on an indemnity basis.

For the applicant                    Mr D Studdy instructed by Barker Gosling Solicitors

For the respondents            Mr J Ireland QC instructed by Blessington Judd

Date of hearing                20 September 1995

Written submissions            13 October 1995

completed

Date of judgment                     22 December 1995