FEDERAL COURT OF AUSTRALIA

Ultra Management (Sports) Pty Ltd (No 2) v Zibara [2020] FCA 402

ORDERS

THE COURT ORDERS THAT:

1.    Subject to Orders 2 and 3 of these orders, the respondents pay the costs of the applicant of and incidental to the proceeding.

2.    The costs, the subject of Order 1, as to the days of the hearing of the trial of the action are to be paid by the respondents on an indemnity basis.

3.    The costs, the subject of Order 1, are to exclude the costs of and incidental to the claim by the applicant against Mr Zibara of a breach or breaches of a Deed signed by Mr Zibara as pleaded by the applicant in its statement of claim in the proceeding.

4.    Pursuant to s 23 and s 37P of the Federal Court of Australia Act 1976 (Cth), rule 1.32 and rule 1.36 of the Federal Court Rules 2011, these orders and the reasons for judgment in support of these orders are made and published from Chambers.

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

REASONS FOR JUDGMENT

GREENWOOD J:

1    These proceedings are concerned with the disposition of the costs of the principal proceeding reserved by Order 3 of the orders of made on 24 January 2020 for later determination on the papers having regard to written submissions filed by the parties. These reasons ought to be read together with the reasons for judgment in the principal proceeding published on 24 January 2020: Ultra Management (Sports) Pty Ltd v Zibara [2020] FCA 31.

2    However, the following things should be noted in these reasons about the principal proceeding, as matters of emphasis, relevant to the question of costs.

3    The essential question in issue in the principal proceeding was whether the first and second respondents, Mr Zibara and Mr Angeli, who were employees of the applicant, UMS, in the relevant period, engaged in conduct constituting a breach of the duties of good faith and fidelity and a breach of the duty to avoid a conflict of interest and duty, owed to UMS. Each respondent was found to have breached these duties owed to UMS.

4    The conduct the subject of the proceeding was said to find legal expression in a number of ways, each grounding a claim for remedial relief. Apart from the question of whether the conduct of Mr Zibara and Mr Angeli engaged a breach of the fiduciary duties they owed to the applicant, UMS also contended that the pleaded conduct engaged a contravention of s 182 and s 183 of the Corporations Act 2001 (Cth) (the “Act”) with the result that UMS sought a declaration to that effect pursuant to s 1317E of the Act. UMS also sought an order for the payment of compensation, said to exceed the sum of $750,000, under s 1317H(2) of the Act in reliance upon the contended contraventions of ss 182 and 183 of the Act. UMS also sought an injunction pursuant to s 1324 of the Act in particular terms to restrain the contravening conduct. UMS sought, at its election, either equitable damages from Mr Zibara and Mr Angeli for breaches of their fiduciary obligations to UMS, or an order that they account to UMS for the benefit they derived from breaching their fiduciary obligations owed to UMS.

5    Apart from these matters, UMS asserted a contractual claim based upon breaches of the provisions of a Deed signed by Mr Zibara.

6    As events transpired, UMS made an election to seek an order for an account of the benefit obtained by Mr Zibara and Mr Angeli arising out of breaches of their fiduciary obligations owed to UMS.

7    The election to seek that remedy was the expression of the applicant’s remedial entitlement to equitable compensation for the breaches of fiduciary duty by the respondents.

8    UMS contended that it had maintained its claims under ss 182 and 183 of the Act on the footing that, consistent with a decision of the New South Wales Court of Appeal (Gunasegaram v Blue Visions Management Pty Ltd; Blue Visions Management Pty Ltd v Chidiac [2018] NSWCA 179; (2018) 129 ACSR 265, Basten JA at [14], [20], [43] and [44]), the subject matter of the breach of fiduciary duty claims also found expression as contraventions of ss 182 and 183 of the Act. In other words, the matters the subject of the claims based on ss 182 and 183 were another form of legal expression of contravening conduct based on the content of the conduct relied upon as the expression of the breach of fiduciary duty.

9    However, it is true that the claim for compensation under s 1317H of the Act was not pressed. The claim for an injunction under s 1324 of the Act was not pressed. The claim for a declaration was not pressed and the claim based upon breaches by Mr Zibara of provisions of the Deed was not pressed.

10    The remedial solution to the essential question in issue concerning the conduct of Mr Zibara and Mr Angeli complained of by UMS was ultimately an order that Mr Zibara and Mr Angeli account to UMS for all benefits they obtained by reason of their conduct in contravention of the fiduciary duties they owed to UMS.

11    As to the content of that conduct, the whole of the reasons for judgment in the principal proceeding need to be considered. However, the conclusionary matters at [185] to [187] concerning Mr Zibara should be noted:

185    On 13 March 2018, Mr Zibara made the remark to Mr Massey the subject of the observations I have already made at [67]-[73] of these reasons.

186    Having regard to all of these matters, I am willing to draw an inference that from about July 2017 Mr Zibara had in mind the possibility that he might leave UMS; that the possibility of such an event arose because of the opportunity available to him to readily retain his relationship with a player should he leave UMS if such a player could call on clause 6(e) in a contract with UMS; and that the possibility that he might leave UMS (provided players with whom he had a relationship were able to do so in reliance on a contract containing clause 6(e)) was a real or significant possibility.

187    I am satisfied that from July 2017 Mr Zibara found himself in a position where his personal interest in putting players in a position where they could quickly leave UMS and follow him should he leave UMS, by causing new UMS contracts to be entered into containing clause 6(e), came into conflict with his duty of loyalty to UMS. I am satisfied that Mr Zibara preferred his personal interest in respect of the 16 players described at [174] of these reasons to that of the duty of loyalty he owed to UMS. Those contracts include the new UMS contracts with Volkan Er, Phoenix Crossland and Lance Bagon which were subsequently terminated in reliance upon clause 6(e) by the players leading to contracts being entered into between those players and Genesis. As to Illy Tohi and Ben Tohi, Mr Zibara sought to bring into existence a new UMS contract with them. In doing so, he was preferring his self-interest to that of his duty of loyalty to UMS. In the case of Mosese Pope, the expression of preferring his personal interest to that of his duty of loyalty to UMS is to be found in causing Pope to be released from his UMS contract on 27 October 2017. He also preferred his personal interest to that of his duty of loyalty to UMS in causing Ben Tohi to be released from his UMS contract on 7 December 2017. When all of these events occurred as I have just described, both Mr Zibara and Mr Angeli were persons who owed a duty of loyalty to UMS which is described as a duty of absolute and disinterested loyalty to UMS imposed by proscriptive obligations in which equity regards the conduct in question as unconscionable thus attracting equitable remedies. I am satisfied that when Mr Zibara engaged in the conduct, he did so with full knowledge that in bringing the new contracts into existence, he was undermining the existing contractual arrangement between the players and UMS.

12    As to matters of principle, the observations at [188] to [190] should be noted:

188    In Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd [2018] HCA 43; (2018) 360 ALR 1 (“Foresters”), Gageler J described the equitable principles, in this way:

[67]    The fiduciary duty that an employee has to an employer within the scope of the relationship of employment, no less than the fiduciary duty that any other person in a fiduciary position has to any other person to whom the fiduciary duty is owed within the scope of the venture or undertaking in respect of which the person in the fiduciary position has undertaken or assumed a responsibility to act in the exclusive interests of that other person, is a duty of “absolute and disinterested loyalty”. That duty of loyalty is imposed in equity by means of two overlapping “proscriptive obligations”. Each proscriptive obligation, or “theme,” is “descriptive of circumstances in which equity will regard conduct of a particular kind as unconscionable and consequently attracting equitable remedies”.

[68]    “The first”, often referred to as the “conflict rule”, “is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest”. The unconscionability which attracts equitable remedies in circumstances where the conflict rule alone is invoked lies not so much in receipt by the fiduciary of the benefit or gain (over which the fiduciary need not have control) as in retention by the fiduciary of the benefit or gain which in conscience ought to be disgorged to the principal.

[69]    “The second”, often referred to as the “profit rule”, “is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of [the] fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing [the fiduciary’s] position for [the fiduciary’s] personal advantage.” The unconscionability which attracts equitable remedies in such circumstances lies in pursuit by the fiduciary of self-interest, or, more precisely, in pursuit of an interest other than the exclusive interest of the principal.

[70]    Consistently with the objective of imposing each obligation, in neither case does the benefit or gain to the fiduciary need to be at the expense of the principal, though it may be. And in neither case does the fiduciary need to act dishonestly or fraudulently, or otherwise than in good faith, though again the fiduciary may do so. Where a fiduciary does act dishonestly and fraudulently, however, the dishonest and fraudulent character of the breach of fiduciary duty is not without consequence for the intensity of the equitable remedies available against the defaulting fiduciary. More important for present purposes is that the dishonest and fraudulent character of the conduct of the fiduciary gives rise to the potential for similar remedies to be available in equity against another person who might knowingly participate in the fiduciary’s breach.

[71]    Knowing participation by a non-fiduciary in a dishonest and fraudulent breach of fiduciary duty is conduct which is regarded in equity as itself unconscionable and as attracting equitable remedies against the knowing participant of the same kind as those available against the errant fiduciary. Knowing participation in a dishonest and fraudulent breach of fiduciary duty includes knowingly assisting the fiduciary in the execution of a “dishonest and fraudulent design” on the part of the fiduciary to engage in the conduct that is in breach of fiduciary duty. The requisite element of dishonesty and fraud on the part of the fiduciary is met where the conduct which constitutes the breach transgresses ordinary standards of honest behaviour. Correspondingly, the requisite element of knowledge on the part of the participant is met where the participant has knowledge of circumstances which would indicate the fact of the dishonesty on the part of the fiduciary to an honest and reasonable person.

[citations omitted]

189    These principles discussed by Gageler J in Foresters address matters of general principle about the nature of the duty of an employee within the scope of the relationship of employment which are directly applicable to the circumstances of Mr Zibara’s employment and that of Mr Angeli. Gageler J also discusses the duty implications relevant to the circumstances before the Court in Foresters where the contention was that Foresters, in taking up a proposal put to it by two employees, Mr Woff and Mr Corby, of the claimants (the claimants being Lifeplan Australia Friendly Society Ltd (“Lifeplan”) and its wholly owned subsidiary, Funeral Plan Management Pty Ltd (“FPM”), knowingly took advantage of Messrs Woff and Corby’s dishonest and fraudulent design which involved breaches of fiduciary duty, in order to enhance its business by appropriating the business connections of Lifeplan and FPM. The further question addressed by Gageler J was the question of the basis upon which knowing participation by a non fiduciary in a dishonest and fraudulent breach of fiduciary duty gives rise to unconscionability and the equitable remedies attracted by such conduct. In this case both Mr Zibara and Mr Angeli owed fiduciary obligations to UMS. The vehicle they created for the purpose of deriving the gain or benefit arising out of the breaches of fiduciary duty was wholly owned by them. In equity, Genesis is regarded as Mr Zibara and Mr Angeli.

190    In Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544, the Court (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ) observed at 557 that a fiduciary must account for a profit or benefit if it was obtained either when there was a conflict or possible conflict between his or her fiduciary duty and his or her personal interest or when the profit or benefit was obtained by reason of his or her fiduciary position or by reason of his or her taking advantage of opportunity or knowledge derived from his or her fiduciary position. The Court went on to make this observation at 557-558:

The stringent rule that a fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves “at a level higher than that trodden by the crowd”. The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage.

[citations omitted]

13    These principles have evolved in our jurisprudence so as to recognise the “proscriptive” burden of a duty of “absolute disinterested loyalty” in the relevant circumstances, as the expression of unconscionable conduct, attracting equitable remedies. As the Court observed in Warman International Ltd v Dwyer (1995) 182 CLR 544 (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ) at 557 (“Warman”), the “stringent rule” that a fiduciary cannot profit from his or her trust serves the purpose of compelling the fiduciary to account for (and disgorge) the benefit derived and to ensure that fiduciaries conduct themselves “at a level higher than that trodden by the crowd”.

14    It is perfectly clear from the quoted observations of Gageler J in Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 360 ALR 1 at [67] to [71] (“Foresters”) and the observations of the Court in Warman that these principles are intended to be beneficial in the sense that equity stands ready to intervene with appropriately framed remedies, shaped according to the circumstances of the case, to ensure that those to whom the duty is owed are protected, and that those who breach the duty, irrespective of whether the gain is at the expense of the principal (although it may be), are deprived of the benefit by the remedy of an account.

15    In this case, there can be no doubt, in the light of the findings, that UMS was needlessly put to the cost of vindicating its contentions and demonstrating that Mr Zibara and Mr Angeli had engaged in the contravening conduct. They elected to have their day in Court. They gave no evidence in the proceeding. They put on a pleading that in material respects took the position of saying “does not admit”. In other respects, they pleaded denials. They elected not to put on an affirmative case. They could have taken each allegation of contravening conduct pleaded against them and put on an affirmative factual contention in answer. They put the appellant to proof on each and every conduct allegation made against them. They offered no evidence in contradiction to the claims or the evidence put on by the applicant.

16    The tactical position adopted by Mr Zibara and Mr Angeli was twofold. First, they contended that there were no conduct breaches as alleged against them and that, on the evidence put on by the applicant, none were established, notwithstanding that at trial they gave no evidence in contradiction or answer to the evidence put on by the applicant. Second, they contended that once the NRL gave notice of the introduction of the rule change (as discussed in the principal proceeding), every new contract entered into after the start date of the “break clause”, was required to contain the new clause. Whilst that was true, the introduction of the new break clause did not require, and nor was it the NRL’s position, that all existing contracts were required to be brought to an end prematurely and replaced with new contracts incorporating the new break clause. The discharge of existing contracts and their replacement with a new contract incorporating the break clause usefully provided Mr Zibara and Mr Angeli with an opportunity to enable players to leave their relationship with UMS (expressed in terms of the former contracts) and join with Mr Zibara and Mr Angeli in their new venture in the provision of services to rugby league players, however that venture might express itself in time.

17    It is difficult to see how Mr Zibara and Mr Angeli could resist the claims of UMS and the evidence put on by the applicant, without giving evidence in contradiction in the principal proceeding. It is also clear that the contention of the respondents, as to the break clause, was misconceived if it was thought to provide an answer to the conduct allegations of breaches of the fiduciary duties owed by them to UMS.

18    Not surprisingly, UMS seeks an order that Mr Zibara and Mr Angeli pay its costs of and incidental to the principal proceeding. UMS has been vindicated in its claims and it was compelled to prosecute the principal proceeding to trial and judgment in order to do so. It ought not to have been put to the expense of proving its case. However, UMS contends that there are “special circumstances” which warrant an exercise of the discretion under s 43(2) of the Federal Court of Australia Act 1976 (Cth) (the “FCA Act”) to depart from an order that Mr Zibara and Mr Angeli pay the costs on a party-and-party basis. UMS says that because Mr Zibara and Mr Angeli maintained an “utterly untenable” defence to the fiduciary duty claims and because they conducted the trial by seeking to amend their defence during the course of the hearing and then abandoned the proposed amended defence, electing not to call any evidence at all (and other matters relating to the conduct of the hearing), UMS ought to have its costs of the hearing against the respondents on an indemnity basis.

19    As to these matters in relation to the conduct of the trial by the respondents, the observations in the principal judgment at [14] should be noted:

[14]    Third, the conduct of the proceeding at trial engaged these circumstances. The amended defence filed by the respondents simply pleaded in response to some of the significant contentions made against the respondents, limited factual assertions but otherwise the respondents “do not admit the allegations therein”: see, for example, para 20 of the statement of claim; para 20 of the amended defence. The factual case sought to be made by the respondents at trial, however, engaged an affirmative case. The applicant objected that the affirmative case was not pleaded and contended that it ought to have been pleaded. That contention was correct for two reasons. First, the affirmative case would give rise to the need or likely give rise to the need to examine documents relevant to the affirmative case. Second, once presented with a further amended pleading crystallising the affirmative case together with the relevant documents, instructions would need to be taken about it and aspects of it tested. As events transpired, the respondents sought leave to file and rely upon a further amended defence. They conceded that documents relevant to the amendments would need to be produced. The applicant took the position that it would not oppose leave if the documents could be produced immediately (especially because, obviously enough, the proceeding was in the course of trial). The trial was stood down on Friday 4 October 2019 for a number of hours to enable the question of the production of the relevant documents to be investigated. Production of the documents proved to be difficult and discussion took place about the possibility of producing the documents on either Saturday 5 October or Sunday 6 October 2019. However, producing the documents on either day would have put the applicant in a difficult position of trying to seek responses from any relevant person (such as a player or a player’s family members) over a week-end and or the public holiday on Monday 7 October 2019. The trial resumed on Tuesday 8 October 2019. At the outset, the respondents did not press their application for leave to further amend the defence. The respondents tendered the emails earlier described and then closed their case.

20    Our system of adversarial litigation has, historically, been founded upon particular procedures. Typically, an applicant must file a statement of its claim framed so as to give rise to remedial entitlements arising out of causes of action supported by a pleading of the material facts directed to the integers of the causes of action relied upon. Typically, a respondent would file a defence that addresses the material factual assertions. A respondent might admit or deny the material facts or plead that the matters asserted are not within the knowledge of the respondent, or the respondent might simply elect not to admit particular factual allegations (leaving aside any challenges to the pleading). In the modern world of framing issues whether by pleadings or other devices such as contentions documents, however, respondents are called upon to plead affirmatively so that the issues in controversy might be properly identified. There is nothing to be gained by ships passing in the night. Typically, an applicant will file a reply. These documents frame the controversy between the parties and determine the scope of disclosure of documents directly relevant to the issues in controversy. Typically, parties put on affidavit material constituting the evidence probative of the questions in issue. The filing and serving of affidavit material, especially by the applicant, has the effect of giving a respondent (having had fair notice of the issues raised by the proceeding arising out of the pleadings), all of the evidence relied upon by an applicant to make good its case. Oral evidence, of course (apart from cross-examination) is often given in a proceeding, especially large scale proceedings, and often oral evidence in a party’s case will be given in relation to matters where questions of credit arise. Although a respondent is, in one sense, simply entitled to require an applicant to “prove its case”, a number of important factors evident in contemporary litigation need to be kept firmly in mind in such a case.

21    First, the cost of litigation and thus the cost of access to justice has become a very expensive exercise indeed.

22    Second, parties to litigation at various points along the continuum of the proceeding will become more and more familiar with the content of the case and this is especially true once the parties have the benefit of reading the affidavit evidence and understanding the scope and content of the evidence to be given in support of a claim or a defence to a claim. Thus, parties need to constantly keep under review their general attitude to the controversy so as to determine their likelihood of success. The likelihood of success of a party in litigation will, of course, be informed by assessments of whether a party’s evidence on contested matters is likely to be accepted or not (if they adduce any evidence). Assessments of that kind have to be made in the context of the documents, as consistency (or not) between the documents and the oral evidence of parties is likely to be very telling. In any event, the general principle is that parties must keep under review their assessments of the likelihood of success or not in proceedings.

23    Third, party-and-party costs fall a very long way short of the actual costs a party is put to in securing orders in vindication of a case, or in successfully resisting a claim for particular orders.

24    Fourth, the Parliament has intervened in order to address some of these concerns by adopting a statutory formulation of the “overarching purpose” of the civil practice and procedure provisions governing the conduct of litigation in most courts and certainly in superior courts including the Federal Court of Australia. The overarching purpose of the deployment of the civil practice and procedure provisions governing the conduct of litigation is to facilitate the “just resolution” of disputes according to law, and “as quickly, inexpensively and efficiently as possible”: s 37M of the FCA Act. Moreover, the parties to a civil proceeding must conduct the proceeding in a way consistent with the overarching purpose: s 37N.

25    Fifth, courts, in order to address these problems, have kept evolving a number of mechanisms to be deployed in seeking to narrow the issues and serve the overarching purpose contained in the relevant Acts governing civil practice and procedure.

26    In this case, in the conduct of their defence to the claims made against them of breaches of fiduciary duty owed to UMS, Mr Zibara and Mr Angeli well knew and understood, throughout the entire proceedings, the precise content of their conduct. Some aspects illustrative of that matter are the observations contained at [67] to [72] of the principal judgment in the following terms (although the reasons for judgment need to be read in their entirety):

67    On 13 March 2018, the same day as Noel Er’s first email to Mr Ayoub, Mr Massey had a telephone conversation with Mr Zibara. Mr Massey made the call to Mr Zibara to discuss with him an “email received from [S]am [Ayoub] in regards to him [Zibara] inducing players to go with him [and] also Pats involvement in this”: Mr Massey’s diary note of 13 March 2018, Exhibit 5 at p 78. Mr Massey’s diary note notes that Mr Zibara “refutes it”. Mr Massey’s diary note also records that he discussed with Mr Zibara “his entering into new [UMS] agreements for players who still had a long time to run on old agreements and why he put them on new ones with the 6(e) clause”. Mr Massey’s diary note notes the following comment and response from Mr Zibara at the end of his diary note of the conversation:

He made a brief comment “what was I meant to do leave with nothing”.

68    Mr Massey gave evidence that consequent upon a complaint by Mr Ayoub about Mr Zibara’s conduct, Mr Massey undertook an investigation “with respect to Mr Zibara and Mr Angeli” (T, p 119, lns 34-40) and in the course of that investigation, Mr Massey spoke to Mr Zibara. Mr Massey confirmed that his diary note of 13 March 2018 is a note of that conversation. Mr Massey gave evidence that at the conclusion of the conversation he made a record of Mr Zibara’s response reflected in the quote at [67] of these reasons.

69    As I have already indicated, I accept Mr Massey’s evidence. The remark made by Mr Zibara is a frank admission of the considerations which influenced him to bring into existence the contracts that discharged the earlier UMS contracts and replaced them with the new UMS contracts with the particular players so that should he leave UMS he would not be in a position of leaving “with nothing”. He would, in fact, have put himself in a position where he would be able to leave UMS “with something”, that is, the crystallised opportunity for any one of those players under the new UMS contracts containing the new clause 6(e) to bring their contract with UMS (and in substance with Mr Ayoub) to an end on seven days’ notice and then go to wherever Mr Zibara (and presumably, Mr Angeli) might be.

70    As it turned out, that would be the company Mr Zibara and Mr Angeli brought into existence on 14 February 2018, Genesis Talent Management Pty Ltd.

71    The answer given by Mr Zibara to Mr Massey on 13 March 2018 was an answer to a particularly relevant inquiry which Mr Zibara ultimately was not required to have to answer in the witness box. Mr Massey’s question was: “why did you enter into new agreements [for UMS] with players who still had a long time to run on the old agreements and why did you put them into new contracts with clause 6(e)”. Mr Zibara’s answer was: “what was I meant to do leave with nothing”.

72    Plainly enough, Mr Zibara was saying that he did not mean to leave UMS with nothing and since that response was in relation to the very question of why new contracts were put in place with clause 6(e), Mr Zibara was saying that he did not mean to leave UMS with nothing when new contracts could be put in place with clause 6(e) which would result in the possibility of Mr Zibara leaving UMS “with something”, namely, the opportunity to enable a player to terminate his contract with UMS and go wherever Mr Zibara might be performing the role of a Player Agent.

27    However, the matters at [20] to [25] of these reasons are contextual. In relation to matters of principle concerning the exercise of the discretion under s 43(2), I rely upon these considerations.

28    Section 43(2) of the Act reflects a conferral of a broad unconfined discretion to determine whether an order awarding costs of and incidental to a proceeding ought to be made and, if so, the content and burden of the order. Although the discretion to award costs is unconfined or “absolute and unfettered” (Latoudis v Casey (1990) 170 CLR 534, Dawson J at 557), the discretion must be exercised judicially, that is, according to relevant considerations and taking into account the contextual features and facts of the litigation.

29    Although the discretion is unconfined, absolute and unfettered, the public interest in quelling controversies is secured by recognising that the discretion ought to be exercised according to settled principle. However, settled principle guides the exercise of the discretion and recognises that the discretion as to costs has escaped “arterial hardening” (Oshlack v Richmond River Council (1998) 193 CLR 72, Gaudron and Gummow JJ at [38] (“Oshlack”)) and has avoided elevating “guiding principles” into narrow legal rules “controlling” the exercise of the discretion: Norbis v Norbis (1986) 161 CLR 513 at 537 per Brennan J; Wilson and Dawson JJ at 533. As their Honours Gaudron and Gummow JJ observe in Oshlack, there is nothing surprising or remarkable about the absence of hard arterial propositions in construing the scope of the discretion as the discretion must take account of the “myriad circumstances presenting themselves in the institution and conduct of litigation, and to the varied nature of litigation” within the scope of the jurisdiction being exercised.

30    In Oshlack, there was a division of opinion about aspects of the principles to be applied in the exercise of the discretion. It is fair to say that McHugh J took a different view about aspects of the principles including, in the particular case, the application of the principles to the facts to that adopted by Gaudron and Gummow JJ. Brennan CJ agreed with McHugh J. Kirby J took a different view about aspects of the principles, especially the extent to which the character of the litigation as “public interest litigation” ought to weigh in the balance in the exercise of the discretion. McHugh J thought that that factor was irrelevant.

31    In Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52 (“Foots”), Gleeson CJ, Gummow, Hayne and Crennan JJ at [25]-[34] established some important unifying principles guiding the exercise of the discretion as to costs. Their Honours observed at [25] that the award of costs is “discretionary but generally that discretion is exercised in favour of the successful party” [emphasis added].

32    That being said, there is, of course, no automatic or absolute rules atrophying the true underlining scope of the discretion which remains “absolute and unfettered”. In reflecting upon the discretionary nature of the award of costs, Gleeson CJ, Gummow, Hayne and Crennan JJ observe at [34] in Foots that the discretion historically was not inflexibly constrained by the rule of awarding costs of the suit to the successful party but that the Court would, in exercising the discretion to award costs, take into consideration the circumstances of a particular case before it or the situation or conduct of the parties.

33    The primary purpose of an order for costs is restitutionary in nature (within the limits of the body of costs recoverable according to the Rules of Court, party-and-party or otherwise).

34    The purpose of the exercise of the discretion is governed by fairness in the sense that if the litigation had not been brought or defended by the unsuccessful party, the successful party would not have been put to the expense incurred in asserting or defending its position.

35    The discretion as to an award of costs (or not) is not exercised for the purpose of punishing a party.

36    In part, the burden of the generally applicable principle that the discretion as to costs is exercised in favour of the successful party, injects a degree of discipline into the conduct of parties or as McHugh J observed in Oshlack at [68], the principle injects into litigation a “sober realisation” of the potential financial expense involved.

37    His Honour also observed that large scale disregard of the principle would “inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice”. As to these matters of principle expressed by McHugh J, see the observations of Heydon J at [55] in Jeffrey & Katauskas Pty Limited v SST Consulting Pty Ltd (2009) 239 CLR 75; see also Kzar v Kargarian [2011] FCAFC 136; (2011) 197 FCR 113 at [3]-[9].

38    It may also be appropriate to make an order for costs on particular issues. However, as a general proposition, a court should not deprive a party of costs simply because the party has failed on a particular issue. If, however, the party has failed on a quite separate and distinct issue from those issues on which the party has succeeded and where an apportionment of costs can readily be made, it may be appropriate to frame an order as to costs which takes into account that circumstance: CGM Investments Pty Ltd v Chelliah (No 3) [2003] FCA 405, Finkelstein J at [5], citing Baulderstone Hornibrook Pty Ltd v Qantas Airways Ltd [2003] FCA 325 at [4]; Hughes v Western Australian Cricket Association (Inc) [1986] ATPR 48,134; Inn Leisure Industries Pty Ltd v DF McCloy Pty Ltd (No 2) (1991) 28 FCR 172. Sometimes that is done by reducing the scope of the award by a particular percentage to take account of the circumstances of the case, or to exclude costs associated with a particular issue, or both: The Dempsey Group Pty Ltd v Spotlight Pty Ltd (No 3) [2019] FCA 519. Every case turns on its own particular circumstances.

39    As to the question of indemnity costs, the authorities recognise that there needs to be some special or unusual feature about the case in order to justify a court departing from an order that costs be paid on a party-and-party basis. Those special or unusual circumstances might comprehend a party making allegations knowing them to be false, or engaging in misconduct in the conduct of the case which causes a loss of time or effort on the part of other parties responding to the conduct. If the proceedings have been persisted in, in circumstances of wilful disregard of known facts, or in circumstances where allegations have been made which ought never to have been made, or where the case has been prolonged by groundless contentions, the court may well consider departing from the usual practice of ordering costs on a party-and-party basis. It may do so, not because it seeks to use costs as a mechanism for punishing the relevant party, but simply with a view to providing a greater degree of restitution to the innocent party affected by the conduct: Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 232-234 (propositions 1-6); Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 400 and 401 (“Fountain”). In Fountain, Woodward J at 401 observed, apart from the other considerations his Honour notes as already mentioned, this observation: “I believe that it is appropriate to consider awarding ‘solicitor and client’ or ‘indemnity’ costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success”. See also Di Carlo v Dubois & Ors [2002] QCA 225 at [36]-[38].

40    The applicant refers to a range of circumstances which are said to justify the making of an order for indemnity costs in relation to the hearing. In summary, the applicant says that the respondents proposed particular amendments during the course of the trial and then abandoned that position. It says that a “genuine steps” statement was filed on 27 December 2018 referring to correspondence in May 2018. In a letter dated 21 May 2018, the applicant set out the basis for the claims of breaches of fiduciary duty, well before the litigation was commenced. The respondents took the position that they would vigorously defend any proceeding. A statement of claim was filed on 27 December 2018. The respondents filed their last amended defence on 5 September 2019 containing many non-admissions of matters central to any defence of the claims of breach of fiduciary duty. The applicant says that affidavits which were filed by the respondents established relationships which gave rise to the relevant fiduciary duties but also deposed to steps which were the subject of non-admissions in the pleadings. The applicant says that para 20 of the defence is revealing because it asserts a construction of the NRL’s directive (the break clause directive) which is incorrect, as a matter of construction, and inconsistent with the affidavits of the respondents (which were not ultimately relied upon or read). The applicant says that the affidavits demonstrate that the respondents were engaged in the conduct of revising player contracts to insert the break clause thereby benefiting and advancing their own interests to the detriment of the applicant. The applicant also says that the proposed amended defence, advanced on the third day of the trial, sought to change the previous defence in ways which altered the character of the construction of the break clause; made admissions concerning the player, Crossland, to the effect that the contract was changed in October 2017 by Mr Zibara; and raised other contentions about the intention of Mr Zibara and Mr Angeli. Those amendments were later abandoned. The applicant says that Mr Ayoub was subjected to rigorous cross-examination about matters which were not the subject of evidence by either respondent and were not matters relevant to any issue in controversy on the pleadings.

41    The primary submission of the respondents is that the Court should defer its determination on the issue of costs until the quantum of the account to which the applicant is entitled has been ascertained. The respondents say that it would be “unrealistic” to make a costs order without knowing what the “practical outcome of the case has been in terms of relief awarded to the Applicant”. The respondents emphasise the consideration that the declaration was not pressed; that the claim for compensation under the Act was abandoned; that the claim for an injunction was not pressed; and that the claim based upon breaches of the Deed by Mr Zibara was abandoned in the final address.

42    The respondents also say that it was not until the final address, on the last day of the hearing, that UMS pressed its claim for an account based upon the breaches of fiduciary duty by Mr Zibara and Mr Angeli in the period of their employment.

43    The respondents say that, at this stage, the relief UMS obtained as to an account remains an “unquantified claim” and the foundation for the claim is four management contracts with the players, Crossland, Er, Bagon and Pope, made by Genesis with those players, as described in the reasons in support of the primary judgment. The respondents say that the precise terms on which that account will be ordered have yet to be determined by the Court. The respondents say that the determination of the question of costs must require the Court to be appraised of the quantum of the “money judgment” which follows from the Court’s consideration of the taking of the account.

44    The respondents also mention these other factors.

45    They say that shortly before the trial, UMS served a lengthy expert’s report to support its damages claim, which was still alive. In the end, the report was not tendered as the damages claim was abandoned in favour of the claim for an account. They also say that the terms of any relevant Calderbank offers by the parties will obviously be germane at least to an issue regarding indemnity costs of the hearing which have been claimed by UMS.

46    Two things should be noted about these matters. First, an applicant is entitled to make its election as to damages or alternatively an account from the respondents of the benefit they derived from breaching the fiduciary duties owed to UMS, at the last moment. Second, the parties have now advised the Court that there are, in fact no Calderbank offers which are relevant to the questions the Court now has to decide.

47    The ultimate submission made by the respondents is that, if an order for costs is to now be made, the following orders ought to be made. First, the respondents ought to be ordered to pay one quarter of the applicant’s costs to date on the ordinary basis. Second, that such costs ought not to include the costs of and incidental to the damages claim formulated by the applicant but withdrawn, by election, on the fifth day of the trial on 8 October 2019. Third, further consideration of any further costs be reserved until the conclusion of the proceedings by a final judgment in favour of UMS.

48    In relation to the final order for an account, a case management hearing was conducted and, in relation to that matter, both Mr Zibara and Mr Angeli filed affidavits as to the scope of the engagement by their company, Genesis, with the four rugby league players to which they refer. It is not necessary to examine those affidavits in any detail. However, in relation to Phoenix Crossland, Mr Zibara deposes to the total revenue received by Mr Crossland by way of playing fees from his Club in respect of the 2019 season, as a result of which Genesis received a management payment of $4,500. Genesis has rendered another invoice to Mr Crossland in advance of the 2020 playing season of $4,500 and of that sum, an amount of $1,175 has been received. There are also monthly payments made under those arrangements. Mr Zibara says that Genesis has received no remuneration from Mr Er, nor any remuneration from Mr Bagon and to date, it has received no remuneration from Mr Pope. It has received $5,625 by way of management fees from Mr Crossland for the 2019 and 2020 playing seasons. Mr Angeli has sworn an affidavit about these matters in which he says that he has read Mr Zibara’s affidavit. He says that it is true and correct to the best of his knowledge and belief, having checked “financial information and documents relating to the business of Genesis”.

49    I do not accept the submissions of the respondents as to the principal matter.

50    An order for costs ought to now be made as the applicant has been vindicated in its proceedings and has achieved an order for primary relief that Mr Zibara and Mr Angeli account to UMS for the benefit they have received, through Genesis or otherwise (which can only be determined upon a proper taking of the account), arising out of the breaches of the fiduciary duties they owed to UMS. Ultimately, there will be a quantification of the benefit but it is clear that it amounts to at least $5,625. The order UMS obtained is an important protective beneficial order arising out of the unmeritorious and unconscionable conduct of Mr Zibara and Mr Angeli as found. The quantification of the remedy will, it seems, result in no less than $5,625. This may be a small sum but it is a benefit they have obtained. The seriousness of the conduct of Mr Zibara and Mr Angeli is not measured by whether the benefit they obtained by reason of the breaches turns out to be $10 or $100 or $1,000 or $5,625 or something more than that. The seriousness of the conduct is measured by the character of the conduct itself. The exercise of the discretion as to costs has very particular regard to the character of that conduct and the steps the applicant was forced to take to vindicate its claim. UMS has been put to very considerable expense in establishing a right to the relief it obtained in circumstances where the claims were resisted throughout. There is no good reason why UMS ought to be held out of an order for costs of the principal proceeding. Moreover, having regard to the matters mentioned at [11]-[17], [19], [26] and [40] of these reasons, and having regard to the principles governing the exercise of the discretion under s 43(2) as discussed, I am satisfied that UMS ought to have an order for indemnity costs of the days of the hearing.

51    However, I accept that there is what seems to be an entirely discrete question concerning the allegations made against Mr Zibara in relation to breaches of the Deed. Those matters were abandoned. The costs orders to be made by the Court are to exclude costs in relation to that discrete claim.

Associate:

Dated:    25 March 2020