FEDERAL COURT OF AUSTRALIA

Deep Investments Pty Ltd v Casey (No 4) [2018] FCA 1123

ORDERS

THE COURT ORDERS THAT:

1.    Each party bear its own costs of the interlocutory applications filed 2 March 2017.

2.    The first to third respondents pay the applicant’s costs of the application filed 26 April 2017 to set aside a notice to produce issued by them to the applicant.

3.    The fourth respondent pay the applicant’s costs of the application filed 26 April 2017 to set aside a notice to produce issued by him to the applicant.

4.    The fifth to seventh respondents pay the applicant’s costs of the application filed 26 April 2017 to set aside a notice to produce issued by them to the applicant.

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

REASONS FOR JUDGMENT

GLEESON J:

1    These reasons address the parties’ various proposed costs orders following the decisions in Deep Investments Pty Ltd v Casey [2018] FCA 603; (2018) 125 ACSR 564, Deep Investments Pty Ltd v Casey (No 2) [2018] FCA 726 and Deep Investments Pty Ltd v Casey (No 1) [2017] FCA 1643 (“Deep Investments (No 1)”).

Legal framework

2    Section 43 of the Federal Court of Australia Act 1976 (Cth) confers a broad discretion on the Court to award costs which is “not to be read down otherwise than by judicial principle conformable with the amplitude of the power”: DSE (Holdings) Pty Ltd v InterTAN Inc [2004] FCA 1251; 51 ACSR 555 at [14] (per Allsop J, as his Honour then was). In the absence of special circumstances, the general rule is that costs follow the event: see, for example, Qantas Airways Ltd v Lustig (No 2) [2015] FCA 782 at [7] and the cases referred to therein.

3    For the purpose of determining costs, the “event” is the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15] (special leave refused: [2015] HCASL 15).

4    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: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (No 2) [2014] NSWCA 425 at [27], citing Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38]. See also Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 at [24].

5    By r 40.04 of the Federal Court Rules 2011 (“Rules”), if no order for costs is made on an interlocutory application or hearing, the costs of the application or hearing:

(a)    if an order is made in favour of any party – follow the event; or

(b)    if no order is made in favour of any party – are taken to be costs in the cause of the successful party to the proceeding.

6    Rule 40.13 provides that, if an order for costs is made on an interlocutory application, the party in whose favour the order is made must not tax those costs until the proceeding in which the order is made is finished. However, the Court may order that the costs of an interlocutory application be taxed immediately. In Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International B.V. (No 5) [2018] FCA 19 at [5]-[11], Perram J set out principles concerning r 40.13. At [11], Perram J expressed the view that it is “only where unreasonable behaviour has the additional consequence of causing the incurring of significant additional expenditure by the opposing party that Rule 40.13 comes into view”. Perram J gave as an example the situation where a party maintains a significant but hopeless case for a substantial period which it subsequently abandons.

7    Indemnity costs are intended to compensate a party fully for costs which normal party/party costs could not be expected to do where it was unreasonable for that party to be subjected to any expenditure of costs, such as where a hopeless proceeding is brought: Cirillo v Consolidated Press Property Ltd (formerly known as Citicorp Australia Limited) (No 2) [2007] FCA 179 at [4], [5].

The “events” in this case

8    In the judgments identified above, I determined three interlocutory applications, each filed on 2 March 2017 essentially seeking summary judgment or alternatively that the statement of claim be struck out. The applications were filed by:

(1)    the first to third respondents (“CBC respondents”);

(2)    the fourth respondent (“Mr Emanuel”); and

(3)    the fifth to seventh respondents (“Raven respondents”),

respectively.

9    The result of the applications was that the statement of claim was substantially, but not entirely, struck out and the applicant (“Deep Investments”) was granted a limited liberty to re-plead its case. The fact that the statement was not struck out in its entirety reflected the possibility that Deep Investments may be able to plead viable causes of action by reference to allegations not struck out, not that it had already done so. On any view, this was a substantial success for the respondents.

10    Thus, I do not accept the submission made on behalf of Deep Investments that the respondents’ success was limited to relatively minor pleading points. A particularly important element of the success of the CBC and Raven respondents was the striking out of the claims based on breach of fiduciary duty in connection with the trading of National Australia Bank Limited (“NAB”), Billabong International Limited (“Billabong”) and Boart Longyear Limited (“Boart Longyear”) shares. Another important element of all of the respondents’ success was the striking out of the claims based on breach of fiduciary duty in connection with the Wilson documents, with leave granted to re-plead.

11    On the other hand, the respondents’ claims for summary dismissal were refused. Consequently, the respondents have sought leave to appeal from my decision.

12    I accept Deep Investments’ submission that the claims for summary dismissal dominated the hearing of the applications. The effect of the strike out of the claims based on breach of fiduciary duty in connection with the trading of NAB, Billabong and Boart Longyear shares, without leave to re-plead, was that the CBC and Raven respondents succeeded in this aspect of their summary dismissal claim, on the basis of an estoppel of the kind identified in Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589 (“Anshun estoppel”). However, otherwise, the Raven respondents failed on their res judicata and issue estoppel arguments, and all respondents failed on their arguments for summary dismissal in relation to the claims based on the Wilson documents.

13    Taking into account the dominance of the unsuccessful summary dismissal claims in the conduct of the applications, in my view, despite the respondents’ success in striking out substantially the whole of the statement of claim, the parties should each bear their own costs of the various applications.

14    In addition, I make the following observations concerning the parties’ submissions.

Deep Investments

15    I do not accept that the respondents’ arguments on summary dismissal were manifestly hopeless and doomed to fail. In my view, the relevant legal principles are not straight forward, at least in their application.

16    Nor do I accept that the respondents’ conduct in prosecuting the applications were oppressive or otherwise open to legitimate criticism. The applications were hard fought, but not inappropriately so having regard to the nature of the dispute and the amounts in issue. While the affidavit evidence was substantial, I do not accept that this fact alone rendered its service oppressive. There was no suggestion that the affidavits contained irrelevant or unnecessary material. The arguments were propounded by well-prepared senior counsel (in the case of the CBC respondents, the Raven respondents and Deep Investments) and experienced (and well-prepared) junior counsel (in the case of Mr Emanuel). Each counsel put his case clearly and comprehensively, but without wasting time or in any way that was inefficient or improper.

17    I also do not accept that “there was no strike/out summary dismissal application without the assertion that Deep Investments knew or ought to have known of the 5 April letter and the FS80 well prior to it being provided to K2 Law in January 2016”. The 5 April letter is the letter dated 5 April 2012 from Wilson HTM to the Australian Securities and Investments Commission (“ASIC”) and the FS80 is a form completed by Wilson for provision to ASIC. An important element of my conclusions was that the statement of claim did not sufficiently identify relevant fiduciary duties in connection with these documents. With this being the case, this central aspect of the statement of claim was destined to be struck out (with liberty to re-plead) regardless of the facts concerning when Deep Investments learned of the documents.

18    Finally, I do not accept at face value the unsupported assertion that more than a third of the hearing was devoted to cross-examining Mr Kumnick to endeavour to prove that Deep Investments knew or should have known of the existence of the Wilson documents earlier. To the extent that it is correct, I do not accept that there was anything oppressive in testing whether Mr Kumnick should have located the documents earlier, including well prior to January 2016 in the light of allegations made by Wilson in Supreme Court of NSW proceeding 2013/379843 (“Supreme Court proceeding”).

19    There was nothing unreasonable in the respondents’ rejection of Deep Investments offer that they withdraw their applications with no order as to costs. Acceptance of that offer would have been counterproductive for the respondents, and the Court, by leaving the statement of claim in a form that did not adequately disclose a cause of action.

20    Having found that Deep Investments is not entitled to a costs order in its favour, there is no need to address the further contention that it is entitled to indemnity costs.

CBC respondents

21    Contrary to the submissions of the CBC respondents, I do not accept that the result of my decisions is that Deep Investments’ claim will inevitably be dismissed. Were that my view, I would have dismissed the proceeding summarily.

22    As I have concluded that each party should bear its own costs, it is not necessary to deal with the contention that the CBC respondents’ costs should be taxed forthwith.

23    However, I note that I do not consider that the form of the statement of claim was so defective as to have warranted, in the interests of justice, an immediate taxation of costs. This is not a case of a deliberate decision to decline to plead a fact found to be a material fact, as in Allstate Life Insurance Co and Ors v Australia and New Zealand Banking Group Limited (No 13) [1995] FCA 1459, where the trial on remaining allegations is not imminent. Although the CBC respondents succeeded on their Anshun estoppel argument in relation to the matters raised in the Supreme Court proceeding, that case was not clear cut where they had not previously been sued by Deep Investments. On the evidence before me, I am not satisfied that Deep Investments has either acted unreasonably or caused the CBC respondents to incur significant additional expenditure.

Deep Investments’ interlocutory application filed 26 April 2017

24    On 12 May 2017, I made orders dispensing with compliance with r 30.28(3) of the Rules in connection with three notices to produce (to the extent necessary) and granted leave to the CBC respondents and Mr Emanuel to issue a notice to produce evidencing the receipt of the 5 April 2012 letter and the FS80 form. My reasons are recorded in Deep Investments (No 1).

25    Deep Investments sought its costs of and incidental to these applications on an indemnity basis and taxed forthwith because:

(1)    it succeeded on an application “it was forced to bring”;

(2)    the notices should never have been served – two out of the three notices were incompetent on their face and all three sought plainly privileged documents such that the respondents’ attempt to defend the application was manifestly hopeless and doomed to fail; and

(3)    the respondents unreasonably rejected an open offer by Deep Investments to withdraw the notices without costs.

26    The Raven respondents accepted that they should pay Deep Investments’ costs of the application directed to them, but not on an indemnity basis or forthwith.

27    The CBC respondents and Mr Emanuel should also pay their costs of Deep Investments’ successful application.

28    I reject Mr Emanuel’s submission that there should be no order as to the costs of the application or, alternatively, that the costs of the application be costs in the cause. As I noted in Deep Investments (No 1), Mr Emanuel was wrong to serve a notice in the form of the notice dated 12 April 2017 and thereby place the onus on Deep Investments to resist the notice. In those circumstances, the fact that Mr Emanuel was granted leave to issue another notice does not justify a departure from the general rule that costs should follow the event.

29    Although the CBC respondents’ notice to produce dated 18 April 2017 was in correct form, I dispensed with compliance with the notice because it sought documents that were prima facie protected by legal professional privilege that was not waived. I do not accept that the subsequent cross-examination of Mr Kumnick provides any vindication of the notice. Again, there is no reason to depart from the general rule that costs should follow the event.

30    I do not accept that the circumstances of the applications warrant orders for payment of costs on an indemnity basis or taxation forthwith. While the notices of the Raven respondents and Mr Emanuel were high-handed in seeking the production of documents otherwise than in accordance with the Rules, I do not consider that this conduct warrants an indemnity costs order in the context of this litigation where Deep Investments is well able to defend its interests. While I concluded, in substance, that the service of the notices to produce was substantially misconceived (by requiring the production of documents protected by legal professional privilege where there was no waiver of the privilege), I do not consider that it was unarguable that Mr Kumnick’s evidence constituted a waiver. I do not accept that the costs of the application, in the context of the litigation, are likely to be so significant as to warrant an order for the payment of costs forthwith.

31    Accordingly, I will make orders that the respondents pay the costs of the interlocutory application filed 26 April 2017 directed to them.

Associate:

Dated:    2 August 2018

SCHEDULE OF PARTIES