FEDERAL COURT OF AUSTRALIA

Direct Share Purchasing Corporation Pty Ltd v Australian Unity Funds Management Limited [2011] FCA 996

THE COURT ORDERS THAT:

1.    The plaintiff pay the first defendant’s costs of and incidental to the proceeding, including reserved costs on a party/party basis.

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

REASONS FOR JUDGMENT

INTRODUCTION

1    In the present case, it was necessary to determine whether the plaintiff, Direct Share Purchasing Corporation Pty Ltd (“DSPC”), should pay the costs, and if so, to what extent, of the first defendant, Australian Unity Funds Management Limited (“Australian Unity”). DSPC issued this proceeding against Australian Unity but now seeks its dismissal, as DSPC effectively achieved the desired end by another means and the legal controversy had fallen away.

2    DSPC submitted that in exercising its discretion in relation to costs, the court should either make no order as to costs of the proceeding or, alternatively, should order that DSPC pay Australian Unity’s costs only up to February 2011, and thereafter only such costs as Australian Unity would have incurred had it continued in the proceeding on a submitting appearance basis only.

3    Australian Unity submitted that DSPC should pay its costs of the proceeding, as DSPC should not have commenced it in the circumstances, nor maintained it in the light of subsequent developments. Further, Australian Unity submitted that it had a sound basis for defending the proceeding, would almost certainly have been successful and should not be penalised because it did not, at any point, become a submitting defendant.

4    DSPC relied on written submissions dated 4 July 2011.

5    Australian Unity relied on written submissions dated 4 July 2011 and the affidavit of Leonie Pratt, Chief Operating Officer of Australian Unity Investments, sworn 6 June 2011. The facts were not in dispute.

Background

6    Australian Unity is and was the responsible entity of the Australian Unity High Yield Mortgage Trust (“the Trust”) in which the second defendant, Schuurman & Associates Pty Ltd t/a Seaford Panels S/F (“Schuurman”), a company of which Mr and Mrs Schuurman are directors, held 400,000 units.

7    The constitution of the Trust provided for the transfer of units, subject to the constitution and to a number of express provisions, including that the transfer be in a form approved by the responsible entity, be presented for registration accompanied by such evidence as the responsible entity might require, and, if necessary, duly stamped (cl 5.2.1); and that an instrument of transfer must be accompanied by such evidence (if any) as the responsible entity required to prove the transferor’s title or right to transfer the units (cl 5.3).

8    DSPC, by a letter dated 19 November 2010, offered to purchase Schuurman’s units in the Trust. On 29 November 2010, DSPC received a signed acceptance form apparently signed by two officers of Schuurman which gave DSPC a power of attorney to enable it, inter alia, to do what was necessary to cause Australian Unity to register the transfer.

9    On 30 November 2010, DSPC lodged with Australian Unity a transfer form for the units which expressed the consideration for their transfer as $160,000, although the 400,000 units had a withdrawal value of $400,000 as at 30 September 2010.

10    On the same day, Australian Unity also received a copy of a letter dated 30 November 2010 from Schuurman to DSPC, which informed DSPC that Schuurman did not wish to proceed with any sale of its Australian Unity investments.

11    On 7 December 2010, Australian Unity received an email from Schuurman’s financial adviser attaching:

(a)    a letter dated 29 November 2010 from DSPC requesting Schuurman to provide DSPC with a copy of a statement showing Schuurman’s current holding in the Trust and Schuurman’s client/account number; and

(b)    a letter of DSPC’s then solicitors, EC Legal, to Schuurman dated 1 December 2010, stating that DSPC did not accept Schuurman’s withdrawal from the contract to sell the units, reserving its rights in relation to Schuurman’s instruction to Australian Unity not to register the transfer and threatening proceedings against Schuurman if the transfer were not registered.

12    Australian Unity did not approve the registration of the transfer, as it concluded that because Schuurman had instructed it not to register the transaction, had advised DSPC that it did not wish to proceed, and had purported to cancel the transaction, it was necessary to resolve those issues before proceeding.

13    On 8 December 2010, Australian Unity’s solicitors, Norton Gledhill, wrote to EC Legal stating that, as Schuurman had notified Australian Unity that it did not wish to proceed with the sale and had instructed Australian Unity not to register the transfer, Australian Unity would not do so until Schuurman provided further evidence of the validity of the transfer of units to DSPC, the circumstances of the alleged sale of units, and Schuurman’s rights under the Corporations Act 2001 (Cth) (“the Act”).

14    On 13 December 2010, Norton Gledhill requested Schuurman to provide further evidence pursuant to rule 5.2.1(a) of the Trust’s constitution, including a certificate of capacity signed by an Australian legal practitioner (following which Australian Unity would consider proceeding with the registration).

15    On 16 December 2010:

(a)    DSPC lodged with Australian Unity for registration transfer documentation (compliant with the requirements under s 1071B of the Act) it had executed under the power of attorney;

(b)    the solicitors for Schuurman, Willis Simmonds Lawyers, wrote to Norton Gledhill stating that the clause of the acceptance form appointing DSPC as attorney was signed by only one of the directors of Schuurman, Lesley Schuurman, who had “affixed the signature of [the other director] Robert Schuurman”; and

(c)    Piper Alderman (solicitors now acting for DSPC) wrote to Norton Gledhill about registration of the transfer of the units and forwarded a further transfer form for the units, again executed by DSPC as attorney.

16    Australian Unity did not register that transfer and on 22 December 2010, DSPC commenced the present proceeding VID 1117 of 2010 (“registration proceeding”) against Australian Unity pursuant to s 175 and s 1071F of the Act, seeking relief as follows:

(a)    a declaration that by not registering the transfer of the 400,000 units (“Schuurman Units”) to DSPC, Australian Unity had, within the meaning of s 1071F(2) of the Act, refused or failed without just cause to register the transfer of the Schuurman Units;

(b)    an order pursuant to s 1071F(2)(a) of the Act that Australian Unity forthwith register the transfer; and

(c)    an order pursuant to s 175 of the Act that the Register of Members of the Trust be corrected to record DSPC as the holder of the Schuurman Units.

17    On 23 December 2010:

(a)    Australian Unity was informed that Robert Schuurman did not sign the form, but that Lesley Schuurman “signed” for him. Australian Unity decided that Schuurman’s failure properly to execute the acceptance form was a further basis not to register the transfer;

(b)    Piper Alderman provided Schuurman with the originating process and supporting affidavit in the registration proceeding and notified it of the first return date; and

(c)    Norton Gledhill wrote to Piper Alderman about the registration process, but did not state that Australian Unity had decided not to register the transfer of units or the reasons for that decision. The letter indicated that DSPC should resolve “these matters” directly with Schuurman.

18    On 11 February 2011, Schuurman and its director, Robert Schuurman, served appearances in the registration proceeding. At the directions hearing on 15 February 2011, Schuurman and Robert Schuurman were joined as the second and third defendants respectively, pursuant to the order of Finkelstein J. Counsel for the Schuurman defendants stated that they would bring a fresh proceeding denying the validity of Schuurman’s contract with DSPC. The registration proceeding was adjourned to 1 March 2011, so that directions could then be made in both actions.

19    By an application dated 23 February 2011, Schuurman and Robert Schuurman commenced Federal Court Proceeding VID 130 of 2011 (“the Schuurman proceeding”) against DSPC and Australian Unity, supported by the affidavit of Robert Schuurman sworn on 14 February 2011 and sought that it be heard together with the registration proceeding. The affidavit of Robert Schuurman contended that DSPC was not entitled to be registered as owner of the Schuurman Units, as the superannuation trustee had not signed or authorised the sale of the units, resolved to sell them, or granted a power of attorney to DSPC.

20    By a letter dated 24 February 2011, Piper Alderman wrote to Norton Gledhill proposing that the registration proceeding be stood over pending resolution of the dispute between DSPC and Schuurman over the enforceability of the underlying contract in the Schuurman proceeding.

21    At the directions hearing on 1 March 2011, DSPC submitted that the Schuurman proceeding should be determined before any further steps were taken in the registration proceeding, as the validity of the underlying contract was logically anterior to issues arising in the registration proceeding. Australian Unity opposed that course, and sought that the proceedings be heard together because:

(a)    grounds for setting aside the underlying contract were relevant to, and arose in, the registration proceeding;

(b)    although Australian Unity was not a party to the underlying contract, it had standing in the registration proceeding independently to allege that the underlying contract could be vitiated;

(c)    the registration proceeding and the Schuurman proceeding should be heard together in order to avoid re-litigation of the question whether the underlying contract were valid; and

(d)    the resolution of the Schuurman proceeding would not be dispositive of the registration proceeding, as Australian Unity might allege that matters distinct from, or additional to, the validity of the underlying contract constituted a “just cause” for a refusal to register the transfer.

22    On 1 March 2011, Middleton J ordered, inter alia, that the registration proceeding and the Schuurman proceeding be heard together.

23    By a letter to Norton Gledhill dated 9 March 2011, Piper Alderman proposed that the registration proceeding and all issues related to registration be resolved by Australian Unity abiding the outcome of the Schuurman proceeding so that “if the contract is upheld, the transfer will be registered and if the contract is set aside, the transfer will not be registered”.

24    In April 2011, DSPC and the Schuurmans settled the Schuurman proceeding, and the Schuurmans, by a letter dated 11 April 2011, directed Australian Unity to register the transfer of the units to DSPC.

25    On 14 April 2011, Norton Gledhill wrote to Willis Simmonds Lawyers and Piper Alderman, enclosing a new transfer form and requesting that Schuurman and DSPC complete it, together with the other transfer documentation for Australian Unity’s consideration.

26    On 21 April 2011, Australian Unity had not yet registered the transfer of units from Schuurman to DSPC and further directions were made in the registration proceeding.

27    By a letter to Piper Alderman dated 29 April 2011, Norton Gledhill indicated that Australian Unity would register the transfer of units pursuant to the new transfer documentation if DSPC paid its costs of and incidental to the registration proceeding.

28    By letter dated 3 May 2011, DSPC forwarded the new transfer documentation, executed by Schuurman and DSPC, to Australian Unity.

29    On 9 May 2010, Australian Unity advised DSPC and Schuurman that the new transfer documentation would be registered. Registration subsequently took place, and legal title in the units was transferred from Schuurman to DSPC.

The parties’ principal contentions

DSPC’s contentions

30    DSPC submitted that the court should make no order for costs because the registration proceeding was properly brought and maintained, in circumstances where a contract transferring Schuurman’s units to DSPC was apparently in place when DSPC commenced the registration proceeding and nothing restrained Australian Unity from registering the transfer. Only the passing of legal title in the units from Schuurman to DSPC remained to be performed, and Australian Unity had not, at that stage, advised DSPC of the allegations that the transfer was improperly executed or forged, but it refused or failed to register the transfer.

31    Further, DSPC submitted that Australian Unity could have had no defence to the registration proceeding unless the validity of the contract between DSPC and Schuurman were disputed, which would occur only “if and when Schuurman brought proceedings seeking to have the underlying contract set aside”.

32    DSPC therefore submitted that once the Schuurmans were joined as defendants at the first directions hearing in the registration proceeding (and brought their own proceeding shortly thereafter to have the underlying contract set aside), Australian Unity should have become a submitting defendant, taking no further steps in the proceeding, unless it had a basis to refuse to register a transfer of the Schuurman Units to DSPC independently of whether the court affirmed the contract between DSPC and Schuurman in the Schuurman proceeding. In DSPC’s submission, Australian Unity erred in failing to assume the role of a submitting defendant because, as the facts revealed, it was ultimately prepared to transfer the units from Schuurman to DSPC if Schuurman directed it to do so, and thus had no independent basis for taking any steps in the registration proceeding. DSPC submitted that:

The Court should approach the question of costs on the basis that the appropriate course for Australian Unity to have taken, upon the joinder of the Schuurmans to the proceedings, was to enter a submitting appearance [see Re Perpetual Investment Management Limited [2011] NSWSC 133, para. 59].

Australian Unity’s contentions

33    Australian Unity contended that it should have its costs of the registration proceeding because:

(a)    Australian Unity had, at the date of its commencement and at all times thereafter, just cause to refuse or fail to register the transfer, and only in April 2011 did it register a new form of transfer, which was provided together with further documentation it had requested pursuant to its constitutional rights.

(b)    As set out in the affidavit of Leonie Pratt, prior to the commencement of the registration proceeding, Australian Unity knew that Schuurman allegedly failed properly to execute the acceptance of the offer, that DSPC had executed a transfer under a purported power of attorney in the acceptance form, that Schuurman did not wish to proceed with the transfer and that the units had a withdrawal value of about $400,000, which was over twice the amount of $160,000 expressed as consideration in the transfer.

(c)    Further, when DSPC commenced the registration proceeding on 22 December 2010, it also knew all the above, save for the alleged lack of proper execution, of which it learnt, at the latest, by 14 February 2011, when it received Mr Schuurman’s affidavit, which stated:

The Superannuation Trustee did not sign or authorise the signature of the Acceptance form in the second offer document by Lesley Schuurman.

34    Australian Unity submitted that the following additional matters contributed to its “just cause” to refuse to register the transfer:

(a)    Schuurman’s solicitors did not provide the solicitor's certificate which Australian Unity requested on 13 December 2010;

(b)    there was no evidence that execution of the acceptance form was duly authorised by Schuurman;

(c)    there was no evidence that the power of attorney was duly authorised for execution and duly executed by Schuurman, as trustee for the Seaford Panels Superannuation Fund (having regard to the terms of the Trust Deed of the Seaford Panels Superannuation Fund);

(d)    there was no evidence that Schuurman properly performed its duties as trustee of the Seaford Panels Superannuation Fund in executing the power of attorney authorising DSPC to execute documents to purchase the units for an amount substantially less than their true worth; and

(e)    there was nothing to indicate that Leslie Schuurman appeared to understand the consequence of signing the power of attorney.

35    Australian Unity submitted that in the light of the above, prior to the commencement of the registration proceeding, it had just cause to fail or refuse to register the transfer and would have successfully defended DSPC’s allegations. Australian Unity relied in that context on Re Perpetual Investment Management Limited [2011] NSWSC 133 (“Re Perpetual”) in which Perpetual applied for directions as to whether it should register transfers to DSPC of units in certain of its funds. White J held that Perpetual was not required to register transfers until ordered to do so “by a court of competent jurisdiction”, in circumstances where:

(a)    DSPC sought the registration of a transfer in its favour which it had executed as attorney for the unitholder;

(b)    the consideration expressed in the transfer was substantially less than the withdrawal value of the units; and

(c)    the relevant unitholder either stated that it did not wish to proceed with the transfer or did not respond to an enquiry as to whether it wished to proceed.

36    White J observed that (at [64]):

Under the constitutions of each fund a unitholder has a right to transfer his or her units. Where it is clear to Perpetual that a unitholder wishes the transfer to be registered, then Perpetual should act accordingly by registering the transfer. But the circumstances in which DSPC has procured the grant of the powers of attorney to it, that is, by obtaining acceptances of its offers to acquire units at a substantial discount to DSPC's estimate of fair value, do not indicate that the unitholders wish the transfers to be registered. The overwhelming majority of unitholders who have responded to Perpetual's enquiry's have indicated that that is not their wish.

His Honour later observed at [66] and [67] that, in cases to which the Contracts Review Act 1980 (NSW) did not apply, there would be:

a serious question to be tried as to whether or not DSPC took unconscientious advantage of positions of special disadvantage under which offerees who accepted DSPC's offer suffered such that such contracts were liable to be rescinded ab initio in equity. Whilst inadequacy of consideration is not a sufficient ground for avoiding a business transaction on the ground of unconscionability (Wilton v Farnsworth [1948] HCA 20; (1948) 76 CLR 646), it is arguable that what Perpetual has labelled as "opportunistic" offers were designed to exploit persons who suffered from an inability to properly assess the merits of DSPC's offer, even though the particular circumstances of individuals were presumably unknown to DSPC.

The gross disparity in price between the offered price and DSPC's own stated estimate of fair value of the units indicates the potential for such claims.

37    Moreover, Australian Unity submitted that it was entitled to require evidence of the validity of the underlying transaction, as it did in this case.

38    Australian Unity submitted that the question raised by a s 1071F proceeding went beyond, and was distinct from, whether the particular transfer should ultimately be registered, as there might be just cause to refuse or fail to register a transfer even if the transaction underlying it were ultimately upheld. In the registration proceeding, DSPC fundamentally alleged that Australian Unity had behaved improperly and, therefore, Australian Unity could not merely submit to the outcome.

39    Australian Unity contended that when DSPC was notified on 30 November 2010 that Schuurman did not wish to proceed with the transaction underlying the transfer, the reasonable course would have been to bring proceedings against Schuurman to establish the validity of that transaction, because, as White J observed at [69]: “[i]t would have an equitable right to register the transfers if, but only if, the contracts it has entered into are enforceable”. Instead, it issued the registration proceeding under s 1071F which was not an appropriate vehicle for exploring the validity of the underlying transaction. Australian Unity again relied on Re Perpetual (at [59]), where White J observed that:

The real controversy is not between DSPC and Perpetual, but between DSPC and the unitholders who have accepted DSPC's offer and who have not indicated to Perpetual that they wish the transfers to be registered. If DSPC were to institute proceedings to compel registration of the transfer of the units for which it received acceptances of its offers, accepting unitholders would be proper and necessary parties to the proceedings. Perpetual could be expected to make a submitting appearance to the proceedings so constituted. It is inappropriate to express any view as to whether such proceedings would be properly brought under s 1071 F.

(emphasis added).

40    Australian Unity essentially submitted that it was unreasonable for DSPC to allege that it had refused or failed to register the transfer without just cause, where DSPC knew that Schuurman sought to countermand the underlying transaction, which involved gross disparity between the consideration payable and the value of the units, circumstances which were identified in Re Perpetual as sufficient to warrant non-registration of a transfer executed by the transferee as attorney for the transferor. When DSPC subsequently learned of the alleged forgery, it should have discontinued the registration proceeding, which then had no reasonable prospects of success.

41    Australian Unity submitted that although common questions arose in both the registration proceeding and the Schuurman proceeding, as Middleton J’s order that the proceedings be heard together reflected, Australian Unity might have had just cause to refuse to register the transfer at the date of commencement of the registration and thereafter, irrespective of whether the plaintiffs in the Schuurman proceeding were successful.

Relevant Legal Principles

42    Order 22 rule 3 of the Federal Court Rules (“the Rules”) provides that where a party discontinues a proceeding before the directions hearing or the pleadings are closed (which does not require leave), or with consent prior to entry of judgment, the discontinuing party is liable to pay the costs of the other party or parties occasioned by the whole or the relevant part of the proceeding (unless the terms of the consent provided otherwise). A party who discontinues without leave must pay the costs of the other party occasioned by the discontinued claim unless the court otherwise orders: O 62 r 26.

43    The Rules do not, however, make express provision for the payment of costs on discontinuance with leave of the court pursuant to O 22 r 2(1)(d).

44    In the present case, DSPC did not seek to discontinue, but rather sought that the registration proceeding be dismissed. As in the case of discontinuance with leave of the court, the Rules make no express provision for costs in such circumstances, which remain in the discretion of the court pursuant to s 43(2) of the Federal Court of Australia Act 1976 (Cth). Decisions on the award of costs on discontinuance with leave of the court, where there has been no hearing on the merits, provide useful guidance on the approach to costs in the circumstances of the present case.

45    In Smith v Airservices Australia (2005) 146 FCR 37 (“Airservices”), the applicant discontinued proceedings with leave prior to any hearing of the merits of the claim. Stone J recognised at 48 that although the power to award costs in that context was unfettered, as Cooper J stated in Grundy v Lewis (unreported, Cooper J, 28 May 1998):

… there is in the Federal Court Rules an underlying policy that a party who discontinues proceedings is to be held liable for the costs of the other parties, or costs occasioned by that part of the proceedings which is discontinued, unless the court otherwise orders (see for example O 22 r 3, O 62 r 26).

46    Stone J also referred at 49 to Bell v Macquarie Bank Ltd [2000] FCA 1521 (“Bell”), in which Lehane J held that the applicant was prima facie liable to pay the other parties’ costs because of the operation of O 22 r 3 and O 62 r 26, and, stated at [5]:

… the ordinary result of the applicants’ discontinuance would be that they would be required to pay the respondents’ costs of the proceeding. The question is whether the applicants have established that, in the particular circumstances of this case, there is any particular matter which should, as a matter of discretion, displace that ordinary consequence.

47    Stone J acknowledged that Lehane J’s comments were directed at discontinuance without leave, and further stated at 49-50:

In O’Neill v Mann, while acknowledging the existence of such an “underlying policy”, Finn J commented at [13] that so various are,

the reasons for, and circumstances of, discontinuance that that policy cannot safely be said to have hardened into a “usual rule” where leave is granted such as exists where there has been a determination of a claim on its merits.

(emphasis added in original)

I accept the underlying policy as articulated by Cooper J and also respectfully agree with Finn J that the policy has not “hardened into a usual rule”. Nevertheless the underlying policy suggests a starting point for any consideration of the award costs in a case of discontinuance. Where a claim for relief is discontinued the respondent to that claim is thereby deprived of an opportunity to vindicate its position despite, generally, having incurred costs in preparing to do so. Although the reasons for discontinuance may vary considerably, it is likely to be in the interests of justice that in those circumstances the respondent to the claim should have those costs met by the discontinuing party.

There is, however, good reason for the distinction implicitly drawn in O 62, r 26(1) between discontinuance with and without leave. It is appropriate that the position with respect to liability for costs be clear where a party can unilaterally discontinue proceedings even though, as O 62 r 26 provides, the court can otherwise order. Where the leave of the court is required for discontinuance a default position is not necessary as, in determining whether leave is to be granted, the Court has the discretion to impose conditions including as to costs. This still leaves for consideration the principles that should guide the court in the exercise of this discretion where there has been no hearing on the merits of the dispute.

In Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622, McHugh J at 624–5 commented on the difficulties of allocating costs where there has been no hearing on the merits:

Ordinarily, the power [to order costs] is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties … In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation.

…

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried … But such cases are likely to be rare.

(emphasis added and footnotes omitted in original)

48    Stone J observed at 50 that in Airservices, there had been no hearing on the merits and there was nothing to suggest that it was “one of those rare cases to which McHugh J referred in Ex parte Lai Qin where I can have any confidence that either party was ‘almost certain to have succeeded if the matter had been fully tried’”. Her Honour considered that “the issue of costs in a case such as the present must be determined having regard to all of the circumstances of the case, the underlying policy in the rules and the conduct of the parties”.

49    Stone J stated at 50:

Often an application for leave to discontinue proceedings is made because the applicant believes that further prosecution of the proceedings has become futile. This may be because the applicant believes he or she will be unable to substantiate the claim, or because the parties have settled their dispute or because a change in extrinsic circumstances means that the proceedings are no longer a necessary or appropriate means to the desired end. The reason for the futility is a relevant consideration in determining whether costs are to be awarded.

50    Her Honour noted (at 50) that in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 (“Ex parte Lai Qin”), extrinsic circumstances rendered the proceedings futile and McHugh J held that there should be no order as to costs, stating (at 625):

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings…

51    In Mineralogy Pty Ltd v National Native Title Tribunal (unreported, Lee, Tamberlin and Nicholson JJ, 23 December 1998), the Full Court gave leave for an appellant to discontinue an appeal and, save for a day’s hearing, made no order as to costs.

52    The Full Court accepted that McHugh J’s statement in Ex parte Lai Qin was an appropriate test to be applied in the case before them, but stated that “[i]n the end an order for costs on discontinuance of a proceeding is a matter of judgment to be exercised on the particular facts of each case”.

DISCUSSION

53    In the present case, DSPC sought that its proceedings be dismissed. Australian Unity did not, in terms, consent to discontinuance or to dismissal of the proceeding, save on the basis that DSPC paid its costs.

54    No absolute rule governs the determination of an appropriate order as to costs in the present context, which is a discretionary exercise.

55    In my opinion, however, Stone J’s statement in Airservices that the issue of costs upon a discontinuance with leave must be determined having regard to all of the circumstances of the case, the underlying policy in the Rules and the conduct of the case, also applies where, as in the present case, a party seeks that its proceeding be dismissed without a hearing of its claim on the merits.

56    In this case, the lack of a hearing on the merits deprived the court of the factor ordinarily most influential in its award of costs. Nevertheless, having regard to all of the circumstances of the case and the conduct of the parties, it is, in my opinion, appropriate that DSPC pay the costs of Australian Unity.

57    As the authorities discussed by Stone J indicate, the Rules on discontinuance reflect a starting point, rather than a rule, that a respondent deprived of an opportunity to vindicate its position should generally have the costs it incurred in preparing to do so. That “starting point” is relevant to, but not dispositive of, a case where the plaintiff seeks discontinuance of its proceeding without a hearing on the merits. A court cannot try a hypothetical action, and if there is no indication of the outcome and both parties acted reasonably, it may be appropriate to make no order as to costs. On the other hand, as McHugh J indicated in Ex parte Lai Qin, a solid foundation for concluding that one party would have succeeded had the matter proceeded to trial will support an award of costs in that party’s favour. In the absence of such an indication, the reasonableness or otherwise of the parties’ conduct may be a particularly significant consideration.

58    In my opinion, in this case, there are strong indications, if not certainty, of Australian Unity’s probable success had the matter proceeded to trial. Irrespective of whether the allegation of forgery of the acceptance form or other matters potentially capable of vitiating the transfer were ultimately upheld, it is likely that Australian Unity’s undisputed knowledge of those matters and allegations would have constituted (by analogy with White J’s persuasive analysis in Re Perpetual) “just cause” to refuse or fail to register the relevant transfer until it was satisfied that the transaction was not thereby invalidated or otherwise impugned and other evidence it reasonably required pursuant to its constitution had been provided.

59    A further important consideration in this context is whether the parties acted reasonably.

60    Australian Unity, as a responsible entity, acted reasonably in requiring further investigation before registering the transfer in circumstances where it was aware of alleged forgery and of other matters identified by White J as an independent basis sufficient to justify a refusal to register the transfer. In contrast, DSPC, was, while not yet advised of the alleged forgery, clearly aware of the other matters and acted with unreasonable precipitation in commencing the registration proceeding against Australian Unity.

61    Further, while White J in a different context contemplated that a responsible entity might “be expected” to make a submitting appearance in a s 1017 proceeding, his Honour expressly refrained from endorsing the propriety of such a proceeding in the relevant context. It was not, in my view, unreasonable for Australian Unity to decline to adopt the stance of a submitting defendant in this case, where, as Middleton J accepted, the two proceedings would not necessarily totally overlap and should be heard together. At that time, it could not be foreseen what impact the various potential outcomes of the Schuurman proceeding may have had on the registration proceeding.

62    Nor was I persuaded that the ultimate registration of a transfer of the units established that there was, in fact, a complete overlap of the issues in the two proceedings and that Australian Unity would necessarily have executed the transfer the subject of the registration proceeding if Schuurman dropped its opposition. The transfer the subject of the registration proceeding was not registered. Rather, following DSPC’s settlement with the Schuurmans of the Schuurman proceeding, a new transfer was subsequently executed and registered by Australian Unity following compliance with its further requirements.

63    In all the circumstances, in my opinion, DSPC should pay Australian Unity’s costs of and incidental to the proceeding.

Associate:

Dated:    30 August 2011