Federal Court of Australia

Harvard Nominees Pty Ltd v Tiller (No 5) [2022] FCA 1510

ORDERS

THE COURT ORDERS THAT:

1.    The first respondent and the second respondent must pay the applicant's costs of the proceeding (excluding the costs in respect of this judgment), to be assessed if not agreed.

2.    The applicant must pay to the third respondent 10% of the Respondents' Costs, being the respondents' costs of the proceeding, excluding the costs in respect of this judgment, to be assessed if not agreed.

3.    The applicant must pay to the fourth respondent 25% of the Respondents' Costs.

4.    The applicant must pay the third and fourth respondents' costs in respect of this judgment (including the hearing of 20 June 2022), to be assessed if not agreed.

5.    Liberty to apply in relation to paragraph 4 on or before 10 January 2023.

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

REASONS FOR JUDGMENT

JACKSON J:

1    These reasons concern the costs of proceedings in the original jurisdiction of this Court that have been resolved by a combination of the reasons given and orders made in the following judgments:

(a)    Harvard Nominees Pty Ltd v Tiller (No 2) [2020] FCA 604 (Trial Judgment);

(b)    Harvard Nominees Pty Ltd v Tiller [2020] FCAFC 229; (2020) 282 FCR 530 (First Appeal Judgment);

(c)    Harvard Nominees Pty Ltd v Tiller (No 4) [2022] FCA 105 (Remitter Judgment); and

(d)    Harvard Nominees Pty Ltd v Nicoletti [2022] FCAFC 179 (Second Appeal Judgment).

2    It will also be necessary to refer to the judgment given in relation to the costs of the proceeding up to and including the Trial Judgment that was published as Harvard Nominees Pty Ltd v Tiller (No 3) [2020] FCA 1054 (First Costs Judgment).

3    The delivery of this judgment has been deferred pending the outcome of an appeal from the Remitter Judgment. That was done at the suggestion of the applicant, Harvard Nominees Pty Ltd, made at a hearing in relation to the costs issues held on 20 June 2022. The two respondents who appeared at the hearing, Giovanni Nicoletti and Damian Bryce, did not oppose it. On 8 November 2022, that appeal was dismissed in the Second Appeal Judgment.

The history of the proceeding in brief

4    The present reasons will assume familiarity with each of the judgments just mentioned. Nevertheless, it is helpful to recap the course of the proceedings at a high level. (In this judgment, defined terms will be used as in my previous judgments.)

5    Harvard brought the proceeding against five respondents based on allegations of misleading or deceptive conduct in breach of s 18 of the Australian Consumer Law (ACL). Those allegations were, however, made only against the first four respondents; the fifth respondent, Felicity Tiller, appears to have been joined only because she had been a party to leases and related agreements which might have been affected by the relief that Harvard sought.

6    In the Trial Judgment, Harvard succeeded in establishing misleading or deceptive conduct against the first two respondents, Simon Tiller and Dimension Agriculture Pty Ltd. That conduct occurred in conversations between Mr Tiller and a director of Harvard that took place on 31 January 2019. Harvard also established that the first three respondents (Mr Tiller, Dimension and Mr Nicoletti) engaged in misleading or deceptive conduct by failing to disclose deeds dated 15 February 2019 between Mr Tiller and Dimension. But Harvard did not obtain any relief because I found that it had not established that these two instances (or courses) of misleading or deceptive conduct had caused it to suffer loss and damage. In the First Costs Judgment, costs orders in consequence of the dismissal of the claim were made.

7    Then, in the First Appeal Judgment, the Full Court held that the first instance of misleading or deceptive conduct, concerning the representations of 31 January 2019, did cause loss or damage to Harvard that sounded in s 236 and s 237 of the ACL. Mr Tiller and Dimension were thus liable in respect of that conduct. The orders made in the Trial Judgment and the First Costs Judgment were set aside and the matter was remitted to me.

8    The main issue on that remitter was whether, as a result of the First Appeal Judgment, Mr Nicoletti should also have been held liable in respect of non-disclosure of the 15 February Deeds. That issue was also the subject of the second appeal to the Full Court. Following the Second Appeal Judgment, the outcome was that only Mr Tiller and Dimension were liable in respect of the January Conduct, and no party was liable in respect of non-disclosure of the 15 February Deeds.

9    The orders made in and following the Remitter Judgment and undisturbed by the Second Appeal Judgment were, broadly, to rescind leases with Mr Tiller and Dimension that had been made as a result of their misleading or deceptive conduct, and for Mr Tiller and Dimension jointly to pay damages of $2,079,000 (including GST) and pre-judgment interest of $190,413.49. All claims against Mr Nicoletti and Mr Bryce have been dismissed.

10    Two other developments that have come to the Court's attention since the Remitter Judgment should be mentioned. The first is that the law firm that acted for all five respondents up until the time of the Remitter Judgment subsequently ceased to act for Mr Tiller, and later ceased to act for Dimension as well (not, apparently, Mrs Tiller, but as she took no part in the proceeding it is not necessary to mention her again and I will proceed as if there were only four respondents to this claim).

11    The second development is that Dimension went into voluntary liquidation on 21 March 2022 (after the Remitter Judgment and the subsequent making of an order fixing the amount of damages and interest). The solicitor for Mr Nicoletti has deposed to the effect that Mr Nicoletti, the sole director and shareholder of Dimension, resolved that Dimension was insolvent, and for the appointment of the liquidator. Mr Nicoletti did so because Dimension did not have the funds to pay the judgment sum entered against it as a result of the Remitter Judgment. At the hearing on 20 June 2022, orders were made giving Harvard leave under s 500(2) of the Corporations Act 2001 (Cth) to proceed against Dimension in relation to its costs.

The costs orders the parties seek and the issues that arise

12    Against that background, I will now describe the orders the parties seek as to costs and the issues that arise. Harvard's first written submissions said that the Court should order the costs of the proceeding on an indemnity basis against Mr Tiller and Dimension. This was on the basis of two Calderbank offers, although at the hearing of the costs issues Harvard abandoned that in respect of one of those offers. It is also based on Mr Tiller's and Dimension's conduct of the proceeding.

13    Harvard submits that there should be no order for costs in respect of Mr Nicoletti, that is, that Harvard should not be ordered to pay his costs even though its claim against him was dismissed. Harvard's first written submissions were silent as to the costs of Mr Bryce. They said that the costs should be assessed by a registrar if not agreed.

14    The unrepresented respondents, Mr Tiller and Dimension, have made no submissions about costs (my Chambers communicated with Mr Tiller specifically about this but there was no response). Mr Nicoletti and Mr Bryce, who remain jointly represented by the same law firm and counsel, submit that a 'rule of thumb' should be applied, so as to award 25% of the costs of the proceeding in favour of Mr Bryce. That rule of thumb, which will be elaborated below, is based on the fact that he was one of four respondents, where the applicant has been successful against some of them, but wholly unsuccessful against him.

15    For reasons that will be described shortly, Mr Nicoletti submits that by way of modification of that rule of thumb, an order in his favour for 10% of the costs of the proceeding should be made. That is, he will get less than what would otherwise have been his 25% share under the rule of thumb. So the submission is, in the end, that Harvard should be required to pay 35% of the costs of the proceeding to Mr Nicoletti and Mr Bryce ('together'), to be assessed if not agreed.

16    In written submissions in reply, Harvard submits that no order for costs should be made against it in favour of Mr Bryce, alternatively that the order should be for 10% of the costs only. It also seeks a Sanderson order against Mr Tiller and Dimension, that is, an order to the effect that they, and not Harvard, must pay the costs of the successful respondents. But at the hearing of the costs issues, Harvard's counsel effectively abandoned that as against Mr Tiller and Mr Bryce. Now Harvard seeks an order requiring Mr Nicoletti to pursue Dimension only, and not Harvard (or Mr Tiller), for any costs ordered in his favour.

17    The issues that arise from these submissions are as follows:

(1)    What costs order should be made against Mr Tiller and Dimension? There is no question that they should be ordered to pay Harvard's costs, at least on a party-party basis. They engaged in misleading or deceptive conduct that was ultimately found to have caused loss or damage, and in substance the orders Harvard sought against them were ultimately made. But should the costs ordered against them be indemnity costs?

(2)    What order should be made in relation to Mr Nicoletti's costs of the proceeding? On the parties' respective submissions, the two possibilities are that no order is made in his favour against Harvard, or it is ordered that Harvard pay him 10% of the costs of the proceeding.

(3)    What order should be made in respect of Mr Bryce's costs of the proceeding? On the submissions, the possibilities are: no order; or an order that Harvard pay him 10% of the costs of the proceeding; or an order that Harvard pay him 25% of those costs of the proceeding.

(4)    Should any costs orders against Harvard in favour of Mr Nicoletti and Mr Bryce be combined into one order in their favour jointly?

(5)    If any costs order in favour of Mr Nicoletti is made, should a Sanderson order be made with the effect that Mr Nicoletti has to pursue Dimension (a company in liquidation) for the costs for which Harvard would otherwise be liable?

18    It is not clear from Mr Nicoletti's and Mr Bryce's submissions whether they agree with Harvard that the amount of any costs should be assessed by a registrar, rather than on a lump sum basis. But since they did submit that was the appropriate mode of assessment before the First Costs Judgment, I will proceed on the basis that they do agree with Harvard on that point at least. I will be content to order that costs be assessed by a registrar.

19    I will now turn to resolve each of the issues, describing the parties' submissions in more detail as necessary along the way. For reasons that will become apparent, it will be convenient to deal with the second, third and fourth issues together.

What costs order should be made against Mr Tiller and Dimension?

20    This section deals with the question of whether there should be orders for indemnity costs. The question of a Sanderson order will be considered separately later.

The Calderbank offer

21    The offer of compromise on which Harvard relies to seek indemnity costs was sent on 21 June 2019. That was about two months after the proceeding was commenced and a little under six months before the trial. The offer was made to all of the respondents. It was to the effect that if the respondents agreed to vacate the Farms that were the underlying subject matter of the proceeding by 31 January 2020, and to pay damages of $450,000, then Harvard would settle the matter on terms that it would not press for costs. The letter pointed out that the damages were a large discount on Harvard's claim for damages, at that stage based on one year's rent for the Farms, of about $1,000,000. The offer was expressed to be open for 14 days and also expressed to be made on the basis that if not accepted, it would be relied on to seek indemnity costs.

22    According to the affidavit of Harvard's solicitor to which the letter was annexed, the offer was not accepted. In its written submissions, Harvard said more specifically that there was no response to the offer. Mr Nicoletti and Mr Bryce did not contest this in their submissions so I will proceed on the basis that this is what happened.

23    Where a party seeks indemnity costs on the basis of a Calderbank offer, a key question is whether the conduct of party who did not accept the offer was unreasonable or imprudent in light of the circumstances existing at the time the offer was not accepted: see Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 at [20], [23]; Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [6]. Harvard submits that the offer in the letter of 21 June 2019 was reasonable, and that the respondents' conduct in failing to accept it was unreasonable. Harvard says that by the time of the offer, the pleadings were essentially closed so the issues were distilled in a form where the parties knew the cases they were going to meet. The respondents knew they were at serious risk of losing the case, so the offer reasonably reflected their litigation risk. As to damages, the offer amounted to about 40% of Harvard's claim at the time and about 20% of the ultimate amount awarded (that having reflected an additional year of lost rent).

24    I accept each of those submissions, but there is a crucial qualification. The qualification is that it is necessary to consider the conduct of each respondent individually in assessing whether it was reasonable not to accept the offer. An offer to multiple defendants that is not capable of acceptance by each party individually can impose considerable difficulty, if not impossibility on defendants: Wieland v Texxcon Pty Ltd [2014] VSCA 199 at [132] (Nettle, Hansen and Beach JJA). There is authority for the proposition that an offer of that kind affords no basis for the making of an order for indemnity costs: Archer v Archer (No 2) [2000] NSWCA 315 at [8]. On the other hand, there is authority in the Full Court of this Court to the effect that it can be reasonable to make an offer conditional on all respondents accepting it because, for example, 'a respondent who wished to accept the offer could serve on the other respondents a Calderbank letter setting out a reasonable basis for contribution and stating that it wishes to accept the applicants' proposal': Amadio Pty Ltd v Henderson (1998) 81 FCR 149 at 265.

25    In my view the true position is that the fact that an offer is not capable of acceptance by each respondent independently of the others is not a conclusive factor against the offer's effectiveness as a ground for indemnity costs, but it is a significant one: WSA Online Limited v Arms (No 2) [2006] FCAFC 108 at [18] (Nicholson, Mansfield and Bennett JJ). If it is not open to one respondent to accept an offer unless another does, it may not be appropriate to make an order for indemnity costs against that first respondent, at least where the respondents are not related parties: see Rafferty v Time 2000 West Pty Limited (No 5) [2010] FCA 873 at [21], [33] (Besanko J).

26    In the present case, the offer did not expressly differentiate between the different positions of the different respondents. It simply referred to the 'clients' of Lawton Gillon, who at that stage represented all five respondents. Since Mr Nicoletti and Mr Bryce were not tenants of the Farms, the offer can perhaps be read down to exclude them insofar as it required delivery of vacant possession; it says that Harvard offered to settle the matter 'by your clients agreeing to vacate the Farms' and then focussed on obligations that would ensue to remove plant, equipment and livestock. But other references in the letter show that the term 'your clients' encompassed at least Mr Nicoletti and Mr Bryce (for example, 'your clients conspired to conceal the involvement of Mr Nicoletti in the Farms'). So in relation to damages, at least, the outcome if the offer had been accepted would have been that all the respondents were jointly liable. The offer cannot be read to mean that, if only Mr Tiller and Dimension had communicated acceptance of it, a binding compromise would have formed, even where Mr Nicoletti and Mr Bryce did not. And any lack of clarity in that regard would be a reason not to order indemnity costs on the basis of it: see WSA Online at [16].

27    Harvard seeks to distinguish Rafferty and other cases mentioned above on the basis that vacation of the Farms was the 'principal requirement' in the offer. Harvard urges focus on what it submits was the substance of the situation at the time of the offer of 21 June 2019. By that time, Harvard says, Mr Tiller had no involvement with the Farms and no money, so the party that had to make the decision was really just Dimension and the person who controlled it, Mr Nicoletti. Harvard appears to submit that the offer should be assessed as though it was in substance an offer to accept vacation of the Farms to Mr Nicoletti, which he could have accepted by way of his company, Dimension. Harvard also submits that to the extent that the positions and interests of the respondents differed, it was incumbent on their solicitors to advise them to seek independent legal advice on the offer. There is no evidence that Mr Nicoletti instructed his lawyers that Dimension was happy to vacate the farms and pay damages but he was not.

28    I do not accept those submissions. I am prepared to assume that vacation of the Farms was the 'principal requirement' of the offers, and that Mr Nicoletti and Dimension were one and the same. It remains the case that the component of the offer for vacation of the Farms could not be accepted independently of the component concerning damages. It follows that even if Mr Tiller and Dimension had communicated acceptance of the offer, no binding compromise would have resulted. For them to have done so would therefore have been ineffective and pointless. It is not unreasonable to decide not to perform an act of that kind.

29    It does not advance Harvard's position to say that the offer was in substance Mr Nicoletti's to accept or reject. Looked at in that way, it was reasonable for him to reject it, as it would have made him personally liable for damages.

30    Nor does it advance the position to say that it was incumbent on each respondent to assess their position independently, and that it would have been in the interests of some of them to compromise the litigation on the substantive terms offered. It may have been open to Mr Nicoletti to say that he would procure Mr Tiller and Dimension to accept the offer, as long as he and Mr Bryce were not personally liable for damages. Mr Tiller could have exerted pressure for an outcome of that kind by making his own Calderbank offers to the other respondents, as is suggested in Amadio v Henderson. But for that to come about, there would have needed to be counter offers and negotiations, and there is no way of knowing whether Harvard would have accepted a counter offer of that kind. An order for indemnity costs cannot be founded on the basis of hypothetical counter offers that could have been made, and which may or may not have been accepted.

31    Another reason to refuse indemnity costs appears from Re Employ (No 96) Pty Ltd (in liq) [2013] NSWSC 456 at [21], where Black J said:

In my view, a judgment against DVT Services alone, albeit in a higher amount than the offer of compromise, cannot be said to be no less favourable to the Plaintiffs than the offer made in the offer of compromise, so far as that offer would have permitted the Plaintiffs to enter judgment against all three Defendants in the specified amount and avoid any risk that the assets of DVT Services may be insufficient to meet the judgment against it. Accordingly, the basis for an order for costs on an indemnity basis in favour of the Plaintiffs against DVT Services has not been established.

DVT Services was the unsuccessful respondent in that claim, where the two other defendants were successful. Similarly here, although Harvard has obtained judgment against Mr Tiller and Dimension in a higher amount than the offer of compromise, taken as a whole, acceptance of the offer of compromise may have been more favourable to Harvard than the judgment, as it would have ameliorated the risk that Mr Tiller and Dimension were unable to pay the judgment sum.

32    It is not appropriate to order indemnity costs on the basis of the letter of 21 June 2019.

Indemnity costs based on the respondents' conduct

33    In so far as Harvard relies on the respondents' conduct generally as a basis for indemnity costs against Mr Tiller and Dimension, it refers to matters it raised before the First Costs Judgment in support of a submission that the costs to which Mr Tiller, Dimension and Mr Nicoletti would otherwise be entitled as successful parties (at that point in time) should be reduced by up to 100%. I canvassed those matters in the First Costs Judgment at [10]-[17], and I did not accept them as a basis for reducing the award of costs against Harvard that was under contemplation at that point.

34    In its current submissions, Harvard repeats its claims relating to the respondents' conduct that were made before the First Costs Judgment. Harvard submits in summary that the respondents through their lawyers falsely asserted that Mr Tiller continued to have a role in the Farms and that Mr Nicoletti was not, in truth, the controlling mind of Dimension. At the same time, they concealed from Harvard and from the Court the existence of the 15 February Deeds which falsified those claims. Then, when those deeds were revealed in discovery, they elected to attempt to rescind them rather than concede the position. This is said to have put Harvard to additional cost and the Court to a great deal of time in finding the facts when an honest litigant would have conceded the position.

35    While this summary puts Harvard's position in stronger terms than the submissions filed before the First Costs Judgment, it does not change the substance of those submissions. I see no reason to depart from the position reached in the First Costs Judgment, which was that the respondents' conduct of the defence did not go so far beyond the bounds of what was appropriate as to warrant a reduction in Harvard's costs liability. The same may be said of the present application for indemnity costs. Ordinarily an order for costs on that basis is appropriate:

only where the unsuccessful party has been involved in some unreasonable conduct in relation to the proceedings, such as where the institution or continuation of the proceeding was plainly unreasonable or the proceeding was issued or maintained for an ulterior or collateral purpose.

Civil Properties Pty Ltd v Miluc Pty Ltd [2011] WASCA 195 at [82]-[85] (Newnes JA, Murphy JA and Hall J agreeing, citations omitted).

36    For reasons already given in this judgment and the First Costs Judgment, I do not consider that it was unreasonable for Mr Tiller and Dimension to contest Harvard's allegations, and so will not make an order for indemnity costs. In relation to the manner in which Harvard now puts it, I see no basis to say that the respondents concealed the 15 February Deeds from the Court; rather, they did not disclose them until discovery, as was their right. The attempt to rescind the deeds, misguided as it was, took up little of the trial: see Trial Judgment at [635]-[639]. It is also doubtful that the attempt concerned the conduct of the proceedings which, as the above quote indicates, is generally what bears on costs. Further, to say that an honest defendant would have disclosed the true position is merely to say that Mr Tiller and Dimension should have capitulated at the outset. For reasons given here and in the First Costs Judgment, I do not accept that. Mr Tiller and Dimension were entitled to defend the allegations, even though the defence failed in part.

The costs order to be made against Mr Tiller and Dimension

37    In the result, there will be no order that Mr Tiller and Dimension pay Harvard's costs of the proceeding on an indemnity basis, from which it follows that the costs payable by them as unsuccessful respondents will be assessed on the usual party-party basis.

What orders should be made in relation to Mr Nicoletti's and Mr Bryce's costs of the proceeding?

The 'rule of thumb' and a reduction in Mr Nicoletti's entitlement to costs

38    I will now consider the second, third and fourth issues described above. They will be considered together because Mr Nicoletti and Mr Bryce relied on what they say is a rule of thumb concerning jointly represented parties, where some of them are successful and some are not, and it is not possible to separate their submissions in that regard. Indeed, Mr Nicoletti and Mr Bryce appear to submit that the outcome should be a costs order in their favour jointly.

39    This rule of thumb is said to be explained in Currabubula & Paola v State Bank of New South Wales [2000] NSWSC 232. It is that each successful party is only entitled to its proportion of the costs incurred by jointly represented parties, plus the costs, if any, incurred exclusively on its behalf.

40    In terms of how that rule should be applied in the present matter, Mr Nicoletti and Mr Bryce rely on the following matters:

(1)    Any costs orders should recognise that Mr Nicoletti has been successful in the claims against him, albeit that it was established that he engaged in misleading or deceptive conduct in respect of the failure to disclose the 15 February Deeds.

(2)    The costs orders should also recognise that Mr Bryce has been wholly successful in his defence of the proceeding, so that there is no basis on which he should be deprived of any part of his costs now.

(3)    In the Trial Judgment there was an unchallenged and undisturbed finding that there was no evidence that either Mr Nicoletti or Mr Bryce were knowingly concerned in the misleading conduct that took place on 31 January 2019.

(4)    Although the issues that related solely to the claims against Mr Nicoletti and Mr Bryce may not have increased the length and complexity and costs of the proceeding by much, Harvard's unsuccessful attempt on remitter to establish that Mr Nicoletti was liable did take up a significant proportion of the remitter hearing.

(5)    In any event, the claims against Mr Nicoletti and Mr Bryce were qualitatively significant to them and to Harvard, because of the possible financial consequences and because of the seriousness of the allegations of dishonesty against the respondents. It is asserted that Harvard failed completely in those allegations. It is submitted that this is relevant by analogy to the principle that a successful party can be deprived of its costs if it makes allegations of fraud on which it fails: see Thorne v Doug Wade Consultants Pty Ltd [1985] VR 433 at 500.

41    In the end, then, Mr Bryce submits that as he was wholly successful, both in terms of the findings made and the ultimate result, he should be awarded 25% of the costs. This is on the basis that Mrs Tiller's position as a respondent may be disregarded, so Mr Bryce as one out of four respondents attracts an attribution of one quarter of the costs.

42    Mr Nicoletti acknowledges that his position is different, because he was found to have engaged in misleading or deceptive conduct. But that was found not to have caused loss or damage, Harvard failed to reverse that on remitter and Harvard failed to establish that Mr Nicoletti was relevantly involved in the misleading or deceptive conduct of 31 January 2019. Taking all that into account, he submits, it would be fair and just to order that Mr Nicoletti is entitled to receive 10% of the costs of the proceeding, as compared to the 25% that would follow from an unadjusted application of the rule of thumb.

Harvard's position on Mr Nicoletti's and Mr Bryce's costs

43    Harvard's response to the above submissions is that Mr Nicoletti's success in the proceeding 'should properly be viewed through the prism of the overall scheme of concealment in which Mr Nicoletti was the creator and central player', and that that scheme ultimately resulted in Harvard succeeding in obtaining relief against Mr Tiller and Dimension. Harvard says that it succeeded in all of the allegations of misleading or deceptive conduct against Mr Nicoletti, other than his knowledge of the telephone calls of 31 January 2019. But, it asserts, the telephone calls were part of Mr Nicoletti's overall deceptive purpose of concealing his involvement in the Farms. It also points to Mr Nicoletti's part in the respondents' conduct generally, as summarised at [34] above. It submits further that it was found in the Trial Judgment that Mr Nicoletti was the controlling mind of Dimension, 'who instructed the solicitors on the facts, and as to the steps they took in correspondence disputing his concealment, and in the manner in which the case was conducted, including particularly the above strategic approach', that is, the approach summarised at [34] above.

44    Harvard thus submits that Mr Nicoletti's conduct in this matter makes it appropriate not to award any costs in his favour. It relies on Wyzenbeek v Australasian Marine Imports Pty Ltd (No 3) [2019] FCA 439 in that regard. While it acknowledges, of course, that the application against Mr Nicoletti was dismissed, it says that this was 'primarily because of the construction of the reasons given, and the orders made, by the Full Court in the [First] Appeal Judgment'. It describes Mr Nicoletti's conduct in this matter as a 'serious challenge to the administration of justice'.

45    In relation to Mr Bryce, Harvard submits that its case against him was that he was the means by which Mr Nicoletti engaged in the misleading conduct in January in setting up Dimension 'by steps calculated to conceal' Mr Nicoletti's involvement in Dimension, as well as conduct in not disclosing the 15 February Deeds. Harvard submits that Mr Bryce's defence did not take on a separate character to Mr Nicoletti's defence. It says that the only issue was 'his personal knowledge of the fraudulent purpose, so as to attract personal liability'. It submits that given the manner in which Mr Bryce presented his case, it would be inappropriate to regard him as having any entitlement to costs separate to that of Mr Nicoletti and the two should be considered as a single party for the purpose of costs. Harvard relies on Re Employ at [39] in that regard. It says this is consistent with the approach taken in the First Costs Judgment of treating the jointly represented respondents as an indivisible whole as far as their costs were concerned. Harvard submits that in that joint context, Mr Bryce should not be entitled to any order in relation to costs.

Consideration

46    I do not accept Harvard's submissions and I consider that it is appropriate to apply the rule of thumb in the proportions submitted by Mr Nicoletti and Mr Bryce, namely 10% and 25% respectively. That is essentially for the reasons given in their submissions (other than that summarised at [40(5)], as it is not correct to say that Harvard failed completely in its allegations against Mr Nicoletti or that it failed to establish its allegations akin to fraud).

47    While each case depends on its own circumstances, it is instructive that in the passage from Re Employ on which Harvard relies (at [39]) Black J said he would 'adopt a broad brush approach, starting with the application of the rule of thumb to a costs order … but making several adjustments to secure justice between the parties'. That is the appropriate approach here.

48    But unlike the position in Re Employ, I do not consider that Mr Nicoletti and Mr Bryce should be treated as if they are one party for the purposes of making costs orders. In Re Employ, the defendants who were treated as one were both sued in their capacity as partners in a partnership. Here, the capacities in which Mr Nicoletti and Mr Bryce were sued were quite different. In the broad brush terms suitable to an apportionment of costs, it can be said that Mr Nicoletti was involved as a principal in relevant misleading or deceptive conduct, but Mr Bryce solely performed certain administrative functions on Mr Nicoletti's instructions. There was no basis disclosed in the evidence to think that Mr Bryce engaged in any misleading conduct himself or, for that matter, knew that Mr Nicoletti or anyone else proposed to engage in any conduct of that kind. There were issues specific to Mr Bryce that were quite different to those in respect of Mr Nicoletti. But at the same time Mr Bryce was forced to take part in the broader defence against Harvard's claims. It will do justice between the parties to award Mr Bryce 25% of the costs of defending the proceeding, unless some adjustment to that is warranted by Mr Bryce's conduct of the proceeding (considered below). He was wholly successful in defending the claims made against him and in the absence of evidence to the contrary the Court should proceed on the assumption that as one in four respondents (excluding Mrs Tiller), one quarter of the respondents' costs will fairly compensate him.

49    It is true that in the First Costs Judgment I said (at [30]) that the joint representation of the respondents entitled the Court to treat the costs as indivisible for the purpose of applying a discount reflecting Harvard's partial success on some issues. But that was at a time when all respondents had been successful in the result, before the altered result after the First Appeal Judgment and the Remitter Judgment required differentiation between them and potentially engaged the rule of thumb.

50    As Mr Nicoletti's submissions acknowledge, his position is quite different to Mr Bryce's because he was found to have engaged in misleading or deceptive conduct, albeit that he was not liable for that conduct because Harvard failed to establish its pleaded case that loss or damage ensued. Essentially, this is the same question that was addressed in the First Costs Judgment: to what extent should Mr Nicoletti's ordinary entitlement to costs as a successful respondent be reduced to reflect Harvard's success against him on certain important issues? The principles and various considerations that inform the Court's answer to that question were canvassed in the First Costs Judgment and need not be canvassed again. Taking the impressionistic approach required by the authorities, I consider that reducing Mr Nicoletti's entitlement to costs by three fifths, from 25% of total costs to 10%, suitably reflects Harvard's partial success against him on the mix of issues between the parties, including the substantial amount of time spent on remitter in relation to the subject of Mr Nicoletti's liability.

51    I do not accept that there is any basis for going further than that and depriving Mr Nicoletti of all of his costs. Wyzenbeek, on which Harvard relies, contains a comprehensive summary, with respect, of the principles that can lead to departure from the usual rule that costs follow the event, where an applicant is unsuccessful against a respondent: see Wyzenbeek at [27]-[38] (Derrington J). That summary reveals that the focus is on the successful respondent's conduct of the proceeding, and in particular on whether they unnecessarily prolonged the proceeding by taking points that were doomed to fail.

52    As already considered in the First Costs Judgment, I do not see any basis to deprive Mr Nicoletti or Mr Bryce of all of their costs here. They chose to contest contestable allegations of misleading conduct. Mr Bryce was wholly successful in that regard and to the extent that Mr Nicoletti was found to have behaved in a deceptive way, that is reflected in the reduction in his costs entitlement to 10%. The focus must be on the successful respondents' conduct of the proceeding. But Harvard's submissions focus instead on the prior conduct that was the subject of its substantive claim for relief against them. That claim has been finally resolved, and there is no basis to seek to enlist the same matters to try to recover some compensation by way of costs.

53    In general, and with an immaterial exception I identified in the First Costs Judgment at [17], the respondents conducted the proceeding efficiently and therefore consistently with the overarching purpose of the civil practice and procedure provisions enshrined in s 37M and s 37N of the Federal Court of Australia Act 1976 (Cth) (cf Wyzenbeek at [27]-[28], [31]). The hindsight perspective that Mr Nicoletti failed in establishing all of his defences should not deprive him of at least part of the costs attendant on his ultimate success. There is even less basis to deprive Mr Bryce.

54    As for the submissions about the administration of justice and the construction of the First Appeal Judgment, they were made before the Second Appeal Judgment, which did not vindicate Harvard's position in that regard.

55    That leaves the question of whether the order should be 35% of the costs in favour of Mr Nicoletti and Mr Bryce together, as they submit. The basis of the decision I have reached as to the costs of Mr Nicoletti and Mr Bryce is that their respective positions in the litigation were different, and that Mr Nicoletti failed on some issues, while Mr Bryce did not. In light of that, it would not be appropriate to make an order which entitles Mr Nicoletti to Mr Bryce's proportion of the costs, as well as his own. It may be that there are arrangements between Mr Nicoletti and Mr Bryce which mean that one may nevertheless have to pay to the other some or all of his share of costs recovered from Harvard. But there is no evidence of any such arrangement and it is not a matter to which the Court can have regard in making costs orders.

56    The orders will be for Mr Nicoletti to be entitled to 10% of costs assessed against Harvard and for Mr Bryce to be entitled to 25%. The orders will not displace the indemnity principle, which prevents a party from receiving more than his liability to his own solicitor: see Frigger v Trenfield (No 12) [2022] FCA 900 at [7]-[9], [26]. So if it turns out on the assessment of costs that that Mr Bryce, for example, had no such liability, he will not be entitled to any costs, and Mr Nicoletti (assuming he was liable for costs) will be entitled to 10% of the costs assessed: see Morris v Riverwild Management Pty Ltd [2011] VSCA 283; (2011) 38 VR 103 at [44]-[45].

Should a Sanderson order be made in respect of Mr Nicoletti's entitlement to costs?

57    Although there will be a costs order in favour of Mr Nicoletti, Harvard submits that it should have the effect that Harvard will not be liable to pay Mr Nicoletti any costs, and instead he must pursue Dimension for those costs. That is commonly known as a Sanderson order (named after Sanderson v Blyth Theatre Co [1903] 2 KB 533), being 'an order making the unsuccessful defendants directly liable for the costs of the successful defendants': Australian Securities and Investments Commission v One Tech Media Ltd (No 6) [2020] FCA 842 at [50] (Davies J). As noted above, Harvard no longer presses its written submissions that the Sanderson order should also be made against Mr Tiller, or that it should be made in respect of Mr Bryce's costs.

Principles applicable to Bullock and Sanderson orders

58    A Sanderson order can be classed as a kind of Bullock order, the latter category encompassing also an order for the unsuccessful respondent to indemnify the applicant against the costs of the successful respondent: see the discussion by Williams J in Johnson's Tyne Foundry Pty Ltd v Shire of Maffra (1948) 77 CLR 544 at 572. The decision whether or not to make an order of that kind is discretionary: Johnson's Tyne Foundry at 572; Gould v Vaggelas (1985) 157 CLR 215 at 230 (Gibbs CJ). It is appropriate to consider, first, whether there should be an order that the unsuccessful respondent be liable in respect of the costs of the successful respondent and, then, whether that liability should be in the form of an indemnity to the applicant or a direct liability to the successful respondent in place of the applicant's liability: see Rafferty at [27].

59    In order to obtain any order of that kind the applicant must show that it was reasonable to join the successful respondent. The causes of action against the different respondents need not be the same, but ordinarily it must be shown that they were substantially connected or dependent on each other: Lackersteen v Jones (No 2) [1988] NTSC 72; (1998) 38 NTLR 101 at [24] (Asche CJ); Popovic v ACN 098 054 678 Pty Ltd (Costs Ruling) [2012] VSC 612 at [13] (Kaye J). But in addition, the circumstances must be such that it is reasonable for the unsuccessful respondent to pay two sets of costs (one to the applicant, the other to the successful respondent): Johnson's Tyne Foundry at 572-573; Popovic at [13]. This will be reasonable when the conduct of the unsuccessful defendant has been such as to make it fair to impose some liability on it for the costs of the successful defendant: Gould v Vaggelas at 230 applying Blackburn CJ in Steppke v National Capital Development Commission (1978) 21 ACTR 23 at 30-31.

60    Conduct having that effect has been described as conduct on the part of an unsuccessful respondent that has contributed to the applicant's proceedings against another successful respondent: Tresize v National Australia Bank Ltd [1999] FCA 28 at [11] (French J). Examples of such conduct include:

(a)    where the unsuccessful defendant alleged that an agent did not have authority to contract on its behalf, and so led the plaintiff to sue the agent as well, the claim against the agent being dismissed (Johnson's Tyne Foundry, see in particular Dixon J at 566);

(b)    where an unsuccessful defendant in a deceit case alleged that the successful plaintiff relied, not on the unsuccessful defendant's conduct, but on that of another person, the claim against that other person being dismissed (Gould v Vaggelas at 231 (Gibbs CJ));

(c)    where the unsuccessful respondent suggested to the applicant that he pursue the successful respondent (Darshn v Avant Insurance Limited (No 3) [2021] FCA 1035 at [31] (Moshinsky J)).

61    These are not closed categories, however. The fundamental question is whether it is fair between the applicant and the unsuccessful respondent that the unsuccessful respondent should bear responsibility for the costs of the successful respondent: Popovic at [13]. In Lackersteen at [24], Asche CJ said that the Court must balance two policy considerations:

the first, that an unnecessary multiplicity of actions should not be forced on litigants, so that a plaintiff who acts reasonably in joining two or more defendants should not be penalised or lose the fruits of his victory in costs on the basis that he should have either elected or taken separate actions; the second, that an unsuccessful defendant should not have to pay more than one set of costs merely because he is unsuccessful.

Also, in deciding whether to make a Sanderson order, it can be appropriate to consider whether the marginal financial position of the unsuccessful respondent will unduly prejudice the successful respondent's ability to recover its costs: see Tresize at [15].

Harvard's submissions in support of a Sanderson order

62    Harvard submits that a Sanderson order is appropriate here because of the following matters:

(1)    It was reasonable and proper for Harvard to sue the successful respondents, relevantly, Mr Nicoletti, given there was reasonable uncertainty as to the liability of each of the respondents. In particular, the misleading or deceptive conduct of January 2019 concealed Dimension's role as a corporate vehicle for Mr Nicoletti, and it was reasonable for Harvard to have considered that Mr Nicoletti was involved in that conduct.

(2)    The successful causes of action against Dimension and the unsuccessful causes of action against Mr Nicoletti were connected and interdependent.

(3)    Dimension engaged in conduct that warrants the exercise of the discretion to make a Sanderson order. Harvard gives by way of example a number of acts or omissions of the respondents set out in the Trial Judgment, by which they deceived Harvard as to Mr Nicoletti's position as the true controller of the Farms.

63    Harvard's counsel expanded on this at the costs hearing. He submitted that Mr Nicoletti controlled Dimension, and he used Dimension to shield himself from the consequences of his misleading conduct, and he 'engineered' that state of affairs, including Dimension's liquidation, which has effectively deprived Harvard of the benefit of any costs order against Dimension. So, it was said, it is not unfair for Mr Nicoletti to have to seek payment of his costs from Dimension. It is also fair because Mr Nicoletti refused to procure Dimension to vacate the Farms and forced Harvard to accept lower rent for two years.

No Sanderson order will be made

64    The first two propositions in Harvard's submissions as summarised above are correct; it was reasonable for it to have sued Mr Nicoletti, and the causes of action against him were connected with the causes of action against Dimension. But I do not consider that Harvard has established the third essential condition for the making of a Bullock or Sanderson order, namely that the conduct of the unsuccessful respondent makes it fair for it to bear the successful respondent's costs. While as I have said there are no closed categories of such conduct, where an order of that kind is made the unsuccessful respondent has usually done something in the course of the proceeding or leading up to it that reasonably leads the applicant to sue the successful respondent. There is nothing of that kind here; Mr Nicoletti was a person who, along with Dimension, engaged in a course of misleading or deceptive conduct (or was potentially involved in Dimension's conduct). It was always going to be reasonable for Harvard to sue him, and nothing Dimension did contributed to that decision. Fundamentally, then, the Court must proceed on the basis that Harvard decided to take the risk that it would fail against Mr Nicoletti, and that it made that decision uninfluenced by anything Dimension did.

65    Nor do the other matters on which Harvard relies make it fair for Dimension to bear Mr Nicoletti's costs. Harvard claims that Mr Nicoletti 'engineered' the situation in which Harvard is forced to recover costs (and damages) from a company in liquidation. The point underlying that submission appears to be that if Mr Nicoletti caused Dimension to be unable to pay Harvard's costs, he and not Harvard should bear the risk that the costs are thus unrecoverable.

66    I doubt that is a proper foundation for a Sanderson order; the authorities show that the focus needs to be on the conduct of the unsuccessful respondent, not the conduct of the successful one. But in any event, the evidence about the liquidation summarised at the outset of this judgment does not establish that any difficulty Harvard will experience in recovery of damages and costs from Dimension is the intended result of any scheme on Mr Nicoletti's part. It establishes nothing more than that in this proceeding, Dimension became liable for a judgment debt of over $2 million which it could not pay, so Mr Nicoletti placed it into liquidation. Any difficulty in recovery just follows from the fundamental fact that Dimension is a limited liability company, and it happens that Harvard succeeded against it, but failed against the natural person standing behind it, Mr Nicoletti. Also, there is no evidence that Mr Nicoletti has done anything to reduce Dimension's assets or increase Dimension's liabilities. Harvard simply takes Dimension as it finds it. It is not the liquidation as such that has caused any difficulty in recovery; the difficulty will follow from insufficiency of Dimension's net assets.

67    I also do not accept the relevance of Harvard's submission that it is fair to impose the risk of non-recovery of costs on Mr Nicoletti because he refused to procure Dimension to vacate the Farms or, focussing on Dimension's conduct, that it is fair to make it assume the costs liability because it refused to vacate. That merely repeats the complaints that were encompassed in Harvard's causes of action against Dimension and Mr Nicoletti, and which have been resolved by judgment in the proceeding in favour of Harvard against Dimension but not against Mr Nicoletti. It is not a proper basis for a Sanderson order.

Costs of the costs application

68    Harvard has not succeeded in relation to any of the substantive points it took in relation to costs. It should pay Mr Nicoletti's and Mr Bryce's costs of the costs issues, to be assessed if not agreed. However, in case there is some circumstance of which I am not aware which makes that order inappropriate, there will be liberty to apply.

Associate:

Dated:    15 December 2022