Federal Court of Australia

ACN 168 479 614 Pty Ltd (formerly known as Steller Developments Pty Ltd (in liq) (Receivers & Managers appointed) v Smedley, in the matter of ACN 168 479 614 Pty Ltd (No 4) [2025] FCA 690

ORDERS

THE COURT NOTES THAT:

Funding by Atlas

1. On 19 July 2021, the Applicant entered into a Funding Agreement with (amongst others) Atlas Advisors Australia Pty Ltd (ACN 164 576 569) (in its own capacity and as trustee for the QCAX Australian Property Income Fund II) for the funding of this proceeding.

2. On 8 November 2022, a Deed of Novation was entered into substituting Atlas Property Investment Management Pty Ltd (ACN 610 279 582) in its own right and in its capacity as trustee of the QCAX Australian Property Income Fund II (Atlas) for Atlas Advisors, as the funder under the Funding Agreement.

Costs order sought by the third and fourth respondents

3. Upon the making of these orders, the third respondent (Mr Cirelli), the fourth respondent (Mr Vines) and the third cross-respondent (Mr Williams) do not seek any further orders as to their costs of the proceeding or the cross-claim filed 22 February 2022. For the avoidance of doubt, Mr Vines does not seek any costs order against the first respondent (Mr Smedley), Mr Cirelli or Mr Williams in respect of the cross-claim.

THE COURT ORDERS THAT:

Applicant’s claim filed 14 December 2021 (applicant’s claim)

1. The originating application be dismissed.

2. The applicant is to pay the costs incurred in relation to the originating application by Mr Smedley on a party and party basis.

3. Atlas is jointly and severally liable with the applicant for the costs the subject of order 2.

4. The applicant is to pay the costs incurred in relation to the originating application by Mr Cirelli and Mr Vines on a party and party basis, which costs are fixed as follows:

(a) Mr Cirelli’s costs be fixed in the sum of $50,000.00 (including any GST); and

(b) Mr Vines’s costs be fixed in the sum of $160,000.00 (including any GST).

5. In satisfaction of Order 4 but subject to Orders 7 and 8:

(a) the $50,000.00 paid by the applicant into the Litigants’ Fund as security for Mr Cirelli’s costs be released to Mr Cirelli; and

(b) from the $215,000.00 paid by the applicant into the Litigants’ Fund as security for Mr Vines’s costs, the sum of $160,000.00 (plus interest accruing from 5 May 2025 at the rate prescribed under r 39.06 of the Federal Court Rules 2011 (Cth)) be released to Mr Vines and the balance be released to the applicant.

Cross-Claim

6. The cross-claim be dismissed.

Stay of Order 5 pending appeal

7. Pursuant to r 41.11 of the Rules, there be a stay of execution of Order 5(a) and 5(b) for a period of 42 days commencing from the date of these Orders.

8. The parties have leave to apply to the Court on 7 days’ notice, to discharge, vary and/or otherwise extend the stay granted pursuant to Order 7.

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

REASONS FOR JUDGMENT

GOODMAN J:

A.    Introduction

1 On 27 February 2025, I delivered reasons for judgment in ACN 168 479 614 Pty Ltd (formerly known as Steller Developments Pty Ltd) (in liq) (Receivers & Managers appointed) v Smedley, in the matter of ACN 168 479 614 Pty Ltd (No 3) [2025] FCA 132 (Steller (No 3)). The parties were directed to confer as to the form of orders to be made. Following a lengthy period of conferral, agreement was reached on the orders to be made, with the exception of orders concerning the costs position as between the applicant, Steller Developments, and the first respondent, Mr Nicholas Smedley. On 18 June 2025, the Court was informed that the parties consented to this being determined on the papers. These reasons for judgment address that controversy.

2 Mr Smedley relies upon an affidavit of Ms Lily Nguyen, a solicitor in the employ of his solicitors sworn 12 May 2025; and an outline of submissions filed on 14 May 2025. Steller Developments relies upon an outline of submissions filed on 23 May 2025.

3 The issues for determination are whether:

(1) Steller Developments should pay the costs incurred by Mr Smedley on the cross-claim;

(2) Steller Developments should pay Mr Smedley’s costs (including any costs of the cross-claim) on an indemnity basis, rather than a party and party basis; and

(3) Atlas Property Investment Management Pty Ltd, a third party, should be jointly and severally liable for costs payable by Steller Developments to Mr Smedley beyond costs of the principal claim on a party and party basis.

B.    Steller (No 3)

4 Before addressing those issues it is convenient to summarise the claims made and the outcomes reached in Smedley (No 3).

5 The focus of the principal claim in the proceeding was a deed titled “Deed of Guarantee” executed as a deed poll on 7 March 2017 (7 March 2017 Deed) by each of the respondents (Mr Smedley, Mr Simon Pitard, Mr James Cirelli, Mr Thomas Vines and Steller Estate Pty Ltd). Each respondent was described in the 7 March 2017 Deed as a “Guarantor”. Mr Smedley, Mr Cirelli and Mr Vines were the only active respondents.

6 Steller Developments claimed that those described as “Guarantors” were liable to it pursuant to the 7 March 2017 Deed as properly construed, or as rectified. Steller Developments sought an order that the “Guarantors” pay it an amount of $101,914,373.66 plus interest from 1 January 2019.

7 Mr Vines brought a cross-claim against Mr Smedley, Mr Cirelli and Mr Alastair Williams. The essence of the cross-claim was that, by dint of their entry into an agreement titled Retirement Agreement, each of Mr Smedley, Mr Cirelli and Mr Williams agreed to indemnify Mr Vines against, inter alia, any liability under any guarantee provided under the 7 March 2017 Deed.

8 I was not persuaded by either the construction case or the rectification case advanced by Steller Developments and decided that the principal claim should be dismissed. A consequence of that conclusion was that Mr Vines was not liable to Steller Developments under the 7 March 2017 Deed and thus he required no indemnification as sought in the cross-claim. Nevertheless, I addressed the cross-claim and reached the conclusion that if the principal claim had instead been upheld, then I would have upheld the cross-claim.

C.    Costs incurred by Mr Smedley on the cross-claim

9 I turn now to the first issue: whether Steller Developments should pay the costs incurred by Mr Smedley on the cross-claim.

10 Mr Vines does not seek any order for costs against Mr Smedley. Thus, the only costs that Mr Smedley will have become liable for on the cross-claim are his own costs of defending the cross-claim.

11 Procedurally, the order sought is sought by a cross-respondent against an applicant in circumstances where: (1) the applicant’s claim against all respondents was unsuccessful; and (2) one of the respondent’s cross-claim against, relevantly, the cross-respondent was thus rendered otiose, but would have succeeded had it remained utile.

12 The starting point is to acknowledge the breadth of the Court’s discretion with respect to costs, under s 43 of the Federal Court of Australia Act 1976 (Cth).

13 Mr Smedley relied upon the decision of the Court of Appeal of the Supreme Court of Victoria (Maxwell P, Tate JA and Habersberger AJA) in Kheirs Financial Services Pty Limited v Aussie Home Loans Pty Ltd [2010] VSCA 355; (2010) 31 VR 46, in which that Court undertook an extensive review of authorities relevant to the exercise of the costs discretion in circumstances where a respondent had been successful in resisting an applicant’s claim but unsuccessful on a cross-claim it had pursued (referred to by their Honours as a “third-party claim”).

14 After reviewing relevant authorities at 50 to 54 ([15] to [27]), their Honours provided the following summary at 54 [28]:

The following principles can be derived from these authorities:

(1)    The usual rule as to costs applies to proceedings as between defendant and third party, the “event” being the success or failure of the defendant’s claim against the third party.

(2)    Where the third party claim is dismissed because the plaintiff’s claim against the defendant fails, the defendant will ordinarily be liable for the third party’s costs of the third party proceeding.

(3)    The award of costs remains a matter of discretion, however, and there may be circumstances of the case which justify a departure from the usual rule.

(4)    In deciding (in a case of the kind referred to in (2)) whether any departure from the usual rule is warranted, the court will ordinarily need to consider at least the following matters:

* the reasonableness of the defendant’s decision to join the third party;

* whether the joinder of the third party was reasonably foreseeable by the plaintiff, such that the plaintiff might be viewed as having some responsibility for the costs of the third party proceeding. (An order for the plaintiff to pay the defendant’s costs may thus include the defendant’s liability to pay the third party’s costs of the third party proceeding.);

* the responsibility of plaintiff, defendant and third party, respectively, for the time taken up in the hearing of the third party proceeding.

These principles would apply equally to fourth party proceedings.

15 See also GEC Marconi Systems Pty Limited v BHP Information Technology Pty Ltd [2003] FCA 688; (2003) 201 ALR 55 at 69 to 70 ([70] to [75]) (Finn J).

16 Mr Smedley submitted that where an applicant’s principal claim reasonably prompted the bringing of a third party cross-claim, most commonly a Court will order that the successful respondent is entitled to recover from the applicant both the respondent’s own costs and the costs of the successful cross-respondent which the respondent has been ordered to pay, citing the superseded but nevertheless relevant third edition of G E Dal Pont, Law of Costs at [11.36], together with Burke v Gillett [1996] 1 VR 196 at 201 and Mifsud v ICT Pty Ltd (1997) 7 Tas R 148 at 152 to 153.

17 However, the present case involves a different outcome than that which forms the premise of Mr Smedley’s submissions. Mr Smedley was a successful respondent, but he did not bring a cross-claim. Rather, he was a cross-respondent to the cross-claim brought by Mr Vines that would have been decided against Mr Smedley if it had become necessary to decide the cross-claim. Mr Smedley also has not been ordered (qua cross-respondent) to pay costs.

18 Mr Smedley also submitted that Steller Developments was entirely responsible for the costs of the cross-claim in circumstances where:

(1) it was plain that the cross-claim would stand or fall with the principal claim; and

(2) the principal claim was the catalyst for the cross-claim and Mr Vines was, by the cross-claim, seeking to deflect onto the respondents to the cross-claim, any liability that might be imposed upon him in the principal claim.

19 As to (1), I do not accept that it was plain that the cross-claim would stand or fall with the principal claim. Although (as happened) failure on the principal claim rendered the cross-claim inutile, success on the principal claim would not necessarily have produced success on the cross-claim.

20 The cause of action on the cross-claim was based upon the Retirement Agreement and the resolution of the cross-claim required determination of various issues unique to that agreement (see Steller (No 3) at [82] to [89]).

21 As to (2), I accept that the principal claim was the catalyst for the cross-claim. However, as Justice Finn explained in GEC Marconi at 70 ([73] to [74]) causation alone is an insufficient basis upon which to shift the burden of costs onto an applicant.

22 Further, there is no reason to believe that Steller Developments had any knowledge of the Retirement Agreement when it brought the principal claim.

23 For the above reasons, I am not persuaded that Steller Developments should be required to pay Mr Smedley’s costs of the cross-claim.

D.    Application for indemnity costs

24 I turn next to Mr Smedley’s application for an order that Steller Developments pay his costs on an indemnity basis.

25 Steller Developments has indicated that it will submit to an order that it pay Mr Smedley’s costs of the principal claim on a party and party basis, but not on an indemnity basis.

26 The principles concerning orders for the payment of costs on an indemnity basis are well-settled. See, for example, the detailed summary provided by Justice Wigney in Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 5) [2021] FCA 246; (2021) 151 ACSR 26 (ACCC v Colgate-Palmolive) at 28 to 29 ([6] to [12]).

27 Mr Smedley contends that the construction case was brought in wilful disregard of the law. This conclusion was submitted to flow from various findings in Steller (No 3) concerning the construction case and in particular findings that:

(1) it was “far from self-evident” that the “Guarantors” objectively intended the “Issuer” to be “Steller Developments” when a conclusion that was at least equally available was that the reference in cl 2(a) (and recital A) of the 7 March 2017 Deed to the Master Facility Deed was mistaken and that the true intention, consistent with the remainder of the 7 March 2017 Deed (and with the approach taken in the 15 December 2016 Deed) was that those references were intended to be to the “Information Memorandum” as defined (Steller (No 3) at [43]);

(2) the proposition that the expression “Information Memorandum” should be construed as meaning the Master Facility Deed rather than “the information memorandum issued by [SIN] from time to time” was also “far from self-evident” (Steller (No 3) at [50]);

(3) it was “far from obvious” that the phrase “a direction by the requisite majority of Investors as specified in the Note Terms” was used in the 7 March 2017 Deed by dint of an oversight (Steller (No 3) at [55]);

(4) it was “far from self-evident” that the objective intention of the “Guarantors” was that the direction be issued by Atlas as a lone investor, rather than the “requisite majority of Investors as specified in the Note Terms” (Steller (No 3) at [57]); and

(5) to reach a conclusion that the intention of the “Guarantors” was to provide a personal guarantee to Steller Developments with respect to notes issued under the Master Facility Deed would be to engage in impermissible speculation and to travel well beyond the limits of the Court’s powers to resolve errors by construction (Steller (No 3) at [60]).

28 Mr Smedley submitted that it must be the case that a proceeding that asks the Court to travel well beyond the limits of its powers to resolve errors by construction is one commenced or continued in wilful disregard of clearly established law and that by commencing this proceeding, Steller Developments made a request of the Court that could never have been granted.

29 I do not accept these submissions. In the result, and with hindsight, it may be accepted that conclusions were reached which demonstrate that some aspects of the construction case were weak, but mere weakness in a case (particularly when a conclusion of such weakness is affected by hindsight) does not justify an award of indemnity costs: see ACCC v Colgate-Palmolive at 29 ([11] to [12]).

30 Mr Smedley next submitted that the rectification case was brought in wilful disregard of the facts. Mr Smedley submitted that:

(1) the rectification case was swiftly disposed of in Steller (No 3) at [65]:

The submissions made on behalf of Steller Developments do not address any prior common intention of the Guarantors that was not reflected in the 7 March 2017 Deed; and instead rely upon the terms of the 7 March 2017 Deed itself. There is no reason to infer that each of the Guarantors had a subjective intention which differs from the objectively determined construction of the 7 March 2017 Deed set out at [28] to [37] above. On this basis, the 7 March 2017 Deed is a correct record of the Guarantors’ common intention, a proposition directly contrary to the position which must obtain if rectification is to be available. ;

(2) the rectification case was wholly misconceived because the whole purpose of rectification is to correct an instrument which does not reflect the subjective intention of the parties. It is nonsensical to suggest that one might achieve this outcome solely by placing reliance upon the terms of the instrument one seeks to correct;

(3) there was no reason to infer that the “Guarantors” had a particular subjective intention which differed from the objectively determined construction of the 7 March 2017 Deed, because no evidence was called to establish that they did;

(4) it is notable that Steller Developments did not seek to rely upon any documentary evidence in support of its rectification case – especially in circumstances where that evidence would have been in its own possession prior to the commencement of the proceeding – nor did it rely on oral evidence of the parties to the 7 March 2017 Deed. Four individuals were party to that deed; only three of whom gave evidence. Absent evidence from the fourth (Mr Pitard) about his subjective intention, there was no prospect that a rectification claim could succeed. Notwithstanding that obvious fact, Steller Developments took no steps to call evidence from him; and

(5) in those circumstances, Steller Developments should have always known that it would not be able to prove the facts that would support the relief it sought, and it commenced (and continued) the proceeding in wilful disregard of known facts.

31 I do not accept that Steller Developments should pay Mr Smedley’s costs of the rectification case. That case was weak (and considerably weaker than the construction case). It received a commensurate level of attention during the hearing and in the reasons for judgment. Despite the weakness of the rectification case, an order for indemnity costs is not warranted.

32 Notably, despite his contention that various propositions concerning both the construction case and the rectification case were always obvious or ought to have been known to Steller Developments, Mr Smedley did not tender on this application any correspondence sent on his behalf to those representing Steller Developments in which such propositions were advanced.

E.    Atlas

33 Finally, I turn to the position of Atlas.

34 Mr Smedley seeks an order that Atlas be jointly and severally liable with Steller Developments for Mr Smedley’s costs.

35 Atlas, whose interests were represented on this application by the legal representatives of Steller Developments, indicated that it would submit to an order that it be jointly and severally liable with Steller Developments for Mr Smedley’s costs of the principal claim on a party and party basis but it objected to any order that would require it to pay: (1) Mr Smedley’s costs of the cross-claim; or (2) Mr Smedley’s costs of the primary claim on an indemnity basis.

36 For the reasons set out above, I do not propose to order Steller Developments to pay Mr Smedley’s costs of the cross-claim, or to pay his costs on the principal claim otherwise than on a party and party basis. It follows that the order to which Atlas indicated it would submit is sufficient.

F.    Conclusion

37 The orders sought by Mr Smedley should not be made. In addition to the agreed orders provided to the Court by the parties, I will make orders to the effect that Steller Developments pay Mr Smedley’s costs on the principal claim on a party and party basis; and that Atlas be jointly and severally liable with Steller Developments for such costs.

Associate:

Dated:    26 June 2025

SCHEDULE OF PARTIES