FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Marco (costs) [2020] FCA 835

ORDERS

THE COURT ORDERS THAT:

1.    The costs of the plaintiff’s interlocutory application filed on 12 December 2019 and ruled on in Australian Securities and Investments Commission v Marco (No 3) [2020] FCA 719 be reserved.

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

REASONS FOR JUDGMENT

MCKERRACHER J:

1    In Australian Securities and Investments Commission v Marco (No 3) [2020] FCA 719, I made orders for the appointment of interim receivers, largely in accordance with relief sought by the plaintiff (ASIC). Despite ASIC’s success on the application, the defendants have applied for a substantial portion of their costs to be paid due to their success on certain matters.

2    For reasons which follow, I consider that that defendants are not entitled to costs as it is clear that ASIC succeeded in the substantive application and on the main arguments. Nonetheless, I will accede to the contention for ASIC that the better order in the circumstances is for costs to be reserved.

The defendants’ arguments

3    As the defendants note, ASIC’s application for the appointment of receivers was filed on 12 December 2019, accompanied by the affidavits of:

(a)    Ms Lim sworn on 12 December 2019 comprising of 1179 pages;

(b)    Mr Nguyen sworn on 12 December 2019 comprising of 17 pages;

(c)    Mr Iriks sworn on 12 December 2019 of 953 pages;

(d)    Ms Giubilato sworn on 12 December 2019 of 207 pages; and.

(e)    Mr Gomm sworn on 12 December 2019 of 42 pages containing exhibits of 507 computer files.

4    As the defendants also note, the application lodged on 12 December 2019 sought orders, inter alia, that:

(a)    the receivers report as to any suspected contravention of the Corporations Act 2001 (Cth) by Mr Chris Marco, (Proposed Order 5 (e)), AMS Holdings (WA) Pty Ltd (ACN 164 700 485) or AMS Holdings (WA) Pty Ltd (ACN 164 700 485) as Trustee for AMS Holdings Trust ((Proposed Order 11(e) or any contravention by the directors of AMS or AMS Trust (Proposed Order 11 (f));

(b)    an order that the receivers’ reasonable costs and expenses be payable from the Individual Property and the Corporate Property (Proposed Orders 7 and 13).

5    Orders were made programming the matter to a two day hearing on 16 and 17 March 2020.

6    Further affidavits were filed on behalf of ASIC in support of the application namely:

(a)    Ms Lim sworn on 11 February 2020 comprising of 108 pages;

(b)    Ms Lim sworn on 28 February 2020 comprising of 178 pages and Mr Gomm sworn on 28 February 2020 of 4 pages (although neither of these affidavits were subsequently relied upon); and

(c)    Ms Lim sworn on 11 March 2020 comprising of 13 pages.

7    On 28 February 2020, ASIC filed submissions in support of the orders sought in the application.

8    On 9 March 2020, the defendants filed submissions in opposition to the relief sought by ASIC and which addressed, inter alia, the following:

(a)    that the appointment of a receiver to provide a report as to any possible contraventions of the Corporations Act at the cost of the defendants and to the prejudice of the defendants’ creditors was not necessary or desirable;

(b)    the appointment of a receiver would be unfairly prejudicial to the defendants’ creditors as ASIC’s proposed orders provided for the costs of the receivers to be paid from the defendants’ frozen assets;

(c)    that there was evidence that ASIC was still pursuing its criminal investigation with respect to the defendants and possible contraventions of the Corporations Act and the Criminal Code Act Compilation Act 1913 (WA).

9    On 12 March 2020, ASIC filed reply submissions amending its position by stating that ASIC would defer making any application as to costs of the receivers at that stage and not press for an order that the receivers report to the Court on any suspected contravention of the Corporations Act. The defendants were not served with an amended minute of proposed orders at that time. The amended minute was produced at the hearing.

10    The parties attended a mediation on Friday, 13 March 2020, however the matter was unable to be resolved.

11    At the hearing on 16 March 2020, ASIC’s counsel also stated that ASIC sought to rely on certain paragraphs in affidavits sworn by Mr Marco in December 2018 (the Marco December 2018 affidavit) and February 2020 (the Marco 2020 affidavit) and to tender certain documents subpoenaed from Westpac Banking Corporation. The defendants’ counsel advised the Court that they opposed reliance upon that evidence. Programming orders were then made for written submissions to be filed by the parties to address the issue of reliance by ASIC on this evidence.

12    Submissions were filed by ASIC on 20 March 2020 setting out the grounds upon which ASIC sought to tender the evidence in the two Marco affidavits and the Westpac documents.

13    The defendants provided responsive submissions on 27 March 2020 in which they opposed the admission of the Westpac documents on the basis of relevance, the whole of the Marco 2020 affidavit as it had not been read into evidence or relied upon by the defendants and the paragraphs in the Marco 2018 affidavit that ASIC sought to rely upon.

Outcome

14    Orders were made in terms of the amended orders sought by ASIC at the hearing on 16 March 2020.

15    However, the defendants note that in Marco (No 3) I said (at [160]):

Shortly stated, the defendants’ original opposition based upon the costs of the receiver necessarily falling on the creditors and on the inappropriateness in this case of a report being prepared for the Court as to possible contraventions were sound reasons to question the appropriateness of the relief sought. As will be seen, ASIC has adjusted its relief to accommodate those objections, such that the defendants’ arguments carry less weight.

16    Further as the defendants note, ASIC was not successful in relying upon the Marco 2020 affidavit (at [24]-[34]), all but one paragraph in the Marco 2018 affidavit (at [26]) and the Westpac documents were ultimately not referred to, but it was noted that they did not appear to be particularly relevant (at [35]). The one paragraph referred to in the Marco 2018 affidavit was an admission of a matter which was already in ASIC’s evidence independently.

Costs Incurred

17    The defendants assert, and I accept, that their solicitors and counsel, were required to review and consider voluminous and extensive material filed by ASIC on an ongoing basis from 13 December 2019 to 20 March 2020. In this period ASIC filed five affidavits totalling 318 pages. These were in addition to the 2398 pages and 507 exhibited computer files from the affidavits of 12 December 2019.

18    The defendants fairly stress that although ASIC was successful in its application to amend its proceedings and to have receivers appointed to the defendants’ assets, it was only successful in its application after it had received the defendants’ written submissions and amended the orders it was seeking at the hearing on 16 March 2020 and was largely unsuccessful with respect to the evidentiary arguments that were the subject of its 20 March 2020 submissions.

19    The defendants argue that if the original application had not sought to have the costs of the receivers paid out of the defendants’ assets, and the receivers provide a report on possible breaches of the Corporations Act, a substantial proportion of the defendants’ costs in this matter would not have been incurred and the matter may have been able to be resolved between the parties, without the significant costs of preparing for a full day mediation, a two-day hearing and the filing of two separate sets of written submissions.

20    The defendants somewhat ambitiously submit that in light of the above matters ASIC should pay 70% of the defendants’ taxed costs incurred in opposing ASIC’s application. The defendants do not seek their costs of preparing the 2020 Marco affidavit.

21    The defendants oppose any order that the defendants pay ASIC’s costs of the interlocutory application and that those costs be taxed and reimbursed out of the property of the defendants. The defendants’ assets are limited and such an order would prejudice the defendants’ creditors.

Quantum

22    The defendants’ solicitors have estimated their costs with respect to the application by ASIC, excluding the cost of the preparation of the 2020 Marco affidavit, to be approximately $130,000 (including GST) at scale rates and $95,553.47 (including GST) in counsel fees. The defendants’ solicitors estimate the total fees at scale would therefore be approximately $225,600.

23    The defendants seek an order that ASIC pay the defendants 70% of their costs of the application to be taxed, if not agreed, other than the costs of the 2020 Marco affidavit, alternatively a fixed sum of $150,000 (being taxed costs of $60,000 plus counsel fees).

24    ASIC opposes this application but contends that the appropriate order in the present circumstances is that the costs of the application be reserved until a later date when the practical effect of the orders made becomes known.

CONSIDERATION

25    A successful party is ordinarily entitled to an award of costs in his or her favour: Hart v Commissioner of Taxation (No 2) [2019] FCAFC 191 per Kenny, Kerr and Moshinsky JJ (at [5]) and see also r 40.04 of the Federal Court Rules 2011 (Cth). As noted in Oshlack v Richmond River Council (1998) 193 CLR 72 by McHugh J (at [67]), that principle is grounded in reasons of fairness and policy and reflects the primary purpose of an award of costs, which is to indemnify (not necessarily fully) the successful party. Oshlack was a suggested public interest claim warranting departure from the usual rule; but the discussion in relation to costs is otherwise generally applicable.

26    The onus is usually on an unsuccessful party, if it seeks to dissuade the Court from making the usual order as to costs: Waterman v Gerling Australia Insurance Co Pty Ltd (No 2) [2005] NSWSC 1111 per Brereton J (at [10]).

27    Additionally, as McHugh J observed in Oshlack (at [70]):

Apart from anomalous examples in the equity jurisdiction, there are very few, if any, exceptions to the usual order as to costs outside the area of disentitling conduct. The Court may award costs in favour of a defendant where the plaintiff has obtained only nominal damages. However, this practice can be justified on the basis that, in reality, the successful party lost the litigation and the unsuccessful party won. For present purposes it is not necessary to attempt to list any further exceptions to the principle of the usual order as to costs. The question at issue in this appeal concerns only the suggested public interest nature of the litigation. This factor may often be alternatively expressed in terms of the plaintiff's motives in commencing the litigation being grounded in the public interest rather than self-interest. Does this factor, however expressed, constitute or provide partial support for a further exception to the principle of the usual order as to costs? In my view, both authority (in the form of Latoudis) and principle compel the conclusion that the public interest nature of the litigation is irrelevant to the exercise of the costs discretion.

(Emphasis added, citations omitted.)

Also to be noted are the remarks of Ipp AJA, with whom Foster AJA agreed, in Arian v Nguyen [2001] NSWCA 5 (at [37]):

37    The making of an order that a successful party pay his or her opponent's costs requires strong justification (Ottway v Jones [1955] 1 WLR 706 at 708, 714, Scherer v Counting Instruments Limited [1986] 1 WLR 615 at 618) and exceptional circumstances must exist before a party will not only be deprived entirely of costs but also required to pay part of the opponent's costs (Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201; Robinson v Australian Association of Social Workers Limited [2000] SASC 239). Where a party raises issues or makes allegations improperly or unreasonably, this may constitute misconduct such that the court may not only deprive it of its costs but order it to pay the whole or a part of the unsuccessful party's costs: Trade Practices Commission v Nicholas Enterprises Pty Ltd at 208 per Fisher J, Re Elgindata Limited (No 2) [1993] 1 All ER 232 at 237 per Nourse LJ; Ashby v Marshall, (unreported, SC(SA), 28 November 1991); Popovic v Murray (unreported SC(Tas), 15 March 1991).

28    More recently, and specifically on the question of apportioning costs, in Neptune Hospitality Pty Ltd v Ozmen Entertainment Pty Ltd (costs) [2020] FCAFC 74 (at [6]-[9]) the Full Court (McKerracher, Markovic and Anastassiou JJ) said:

6    A realistic view of the appeal is that it failed. It is not accurate, in our view, to describe Neptune as having succeeded on a third of the issues. In reality and in terms of practical outcomes, the respondents succeeded in resisting the appeal. In our reasoning in Neptune No 1 (at [175]), we described Neptune’s success on the appeal as being minor. We concluded that the primary judge was correct in the orders that were made at first instance and that those orders should not be disturbed. We accept Kanki’s submission that, contrary to Neptune’s contention, the Court should not ‘cast undue analysis upon whether a successful party has been unsuccessful on “particular issues” in the context of its predominant success in the controversy overall’: N.V. Sumatra Tobacco Trading Company v British American Tobacco Services Limited [2011] FCA 1295 per Greenwood J (at [17]). Generally speaking, a court will only deprive the successful party of the usual order for costs to follow the event when an issue was dominant or separable: Monie v Commonwealth (No 2) [2008] NSWCA 15 per Mason P, Beazley and Campbell JJA (at [63]-[66]).

7    We would also take into account, as contended by Kanki, those observations of the Full Court in The State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174 where Emmett, Kenny and Middleton JJ (at [8]), said:

We do not consider that the outcome of the issue as to whether the impugned provisions burdened transactions in trade and commerce between Victoria and the Northern Territory justifies departure from the ordinary position. The outcome of this issue did not relevantly qualify the success of either appellant on its appeal. Both appellants were ultimately wholly successful. The mere fact that a court does not accept all of a successful party’s arguments does not make it appropriate to deal with costs on an issue by issue basis. It cannot be supposed that the issue in question was unreasonably raised at trial or on appeal. There is nothing else disclosed in the circumstances of the case that would support the proposition that the court should depart from the usual order as to costs: compare Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) (2011) 288 ALR 385 at 402–403 [99]–[100] (Campbell JA, with whom Macfarlan and Young JJA agreed).

8    This approach has been pursued more recently in PKT Technologies Pty Ltd (formerly known as Fairlight.au Pty Ltd) v Peter Vogel Instruments Pty Ltd (No 2) [2020] FCAFC 46 per Besanko, Banks-Smith and Stewart JJ.

9    Although Neptune raised and argued 22 grounds of appeal asserting that the primary judge erred by arriving at the various findings he did, the seven grounds on which Neptune succeeded comprised two discrete issues. Grounds 3 and 4 were simply a small subset of the ‘financial information’ grounds of appeal and grounds 5 to 9 were all directed to the ‘catering agreement’ grounds. These grounds occupied a very small part of the overall argument in support of the appeal, both orally and in written form. Certainly, they could not be described as constituting clearly dominant or separate claims. Little time was spent on them and the success on them did not affect the outcome of the appeal.

(Emphasis added).

29    The defendants argued that the relief should not be granted if the costs of the appointment of receivers were to be borne by the creditors and also if the interim appointment afforded a mechanism of investigating possible criminal activity. This they say, resulted in ASIC amending its claim to relief and omitting reliance upon such matters. I accept that those arguments, as I perceive the situation, caused ASIC to drop those parts of its application. The arguments in my view had some merit. I do not accept however, the defendants’ contention that this amendment to the relief sought by ASIC is cause for any costs adjustment so as to require ASIC to pay costs to the defendant. It is entirely appropriate for a party to amend the relief it seeks so as to confine the issues before the Court. This is particularly so in this instance where, as will be made clear below, there is no basis for the defendants’ claim that this matter could have been resolved between the parties if ASIC’s amended relief had been sought initially.

30    The defendants also succeeded on the argument as to whether or not the Marco 2020 affidavit could not be relied upon by ASIC in any regard. These matters on which the defendants succeeded were of some significance, but as the matter was resolved on the papers, it cannot be said that a great deal of hearing time was incurred in relation to arguments concerning those matters. I accept, certainly, that research and presentation of written submissions aided in the determination of those confined aspects of the arguments in favour of the defendants.

31    But on proper application of the principles just examined, at best these factors might warrant a small reduction in the proportion of party and party costs payable to ASIC.

32    I accept ASIC’s submission that there is no basis whatever for any order that costs be paid to the defendants. The defendants were wholly unsuccessful in their opposition to the basic orders sought by ASIC. They have raised no suggestion, beyond a mere assertion as to the possibility that they would have consented to the appointment of interim receivers but for the two factors referred to above (at [29]). There was no disentitling conduct on the part of ASIC which would justify an order that ASIC pay the defendants’ costs.

33    ASIC contends that the defendants’ submissions on costs proceed on the basis of a selective account of the procedural history of the interlocutory process. In particular ASIC asserts that :

(a)    the procedural chronology ought to include reference to Mr Marco’s extensive Marco 2020 affidavit of some 35 pages, and in excess of 373 pages of annexures, which necessitated the reply evidence referred to at [6(b)] above;

(b)    the chronology also fails to acknowledge that when the defendants’ responsive submissions were filed on 9 March 2020, some seven days prior to the hearing, the defendants simply abandoned their reliance upon the Marco 2020 affidavit and, as a result, fundamentally changed the basis upon which they resisted the application;

(c)    the summary of the basis of the defendants’ ultimate opposition also ought to include reference to:

(i)    the defendants’ contention that leave to amend the originating application should be refused; and

(ii)    the defendants’ primary arguments against the appointment of the interim receivers that such an appointment was not necessary because of the existence of the asset preservation orders, ASIC’s investigative powers and, importantly, because ‘[t]here [was] no evidence before the court to justify the court taking the ‘extraordinary’ or ‘drastic’ step of appointing receivers’.

34    There is some merit in these observations. At the very least they add relevant background to the costs issue. I accept the contention for ASIC that in circumstances where the defendants put ASIC to proof on the necessity and desirability of the appointment of interim receivers at all stages of the application, recast their opposition to the application a week prior to the hearing and were ultimately unsuccessful, it is difficult to understand how it could be contended that ASIC’s conduct of the application exhibited exceptional circumstance or disentitling conduct.

35    As noted, the defendants did not consent to the orders that ASIC sought as a result of its position on the costs of the interim receivers. Instead, they submitted that there was no evidence before the Court to justify the Court taking the step of appointing interim receivers.

36    In their written submissions filed following the hearing, the defendants continued to resist the contentions advanced by ASIC in support of the appointment of interim receivers. It cannot be contended that the application would not have been opposed had ASIC not sought an order that the interim receivers’ costs be paid from the assets of the defendants in its original interlocutory process.

CONCLUSION

37    If I were to award costs, I would do so at this point largely in favour of ASIC but with some minor adjustment to reflect the matters on which the defendants enjoyed success. But there is much to be said in the present circumstances for reserving the question of costs so as to enable review of the matters, including conclusions contained in the interim receivers’ report and the final outcome of the substantive proceedings. Accordingly, I will order that costs of the amended application be reserved.

Associate:

Dated:    12 June 2020