IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) No NG 3282 of 1993 ) GENERAL DIVISION ) BETWEEN: GENERAL ADVERTISING COMPANY (AUSTRALIA) PTY LIMITED Applicant - and - ROBERT JEFFRESS First Respondent - and - JAMES WATTS Second Respondent - and - ROBERT JEFFRESS Cross Claimant - and - ROBERT IAN ASHWOOD Cross-Respondent MINUTES OF ORDER CORAM: Branson J PLACE: Adelaide DATE: 16 January 1996 THE COURT ORDERS THAT: 1. The applicant is to pay 50% of the costs of the first respondent on the claim and the cross-claim to be taxed if not agreed. 2. The applicant is to pay the costs of the second respondent to be taxed if not agreed. 3. The applicant is to pay the costs of the cross-respondents to be taxed if not agreed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) No NG 3282 of 1993 ) GENERAL DIVISION ) BETWEEN: GENERAL ADVERTISING COMPANY (AUSTRALIA) PTY LIMITED Applicant - and - ROBERT JEFFRESS First Respondent - and - JAMES WATTS Second Respondent - and - ROBERT JEFFRESS Cross Claimant - and - ROBERT IAN ASHWOOD Cross-Respondent REASONS FOR DECISION CORAM: Branson J PLACE: Adelaide DATE: 16 January 1996 I gave judgment in this matter on 3 November 1995. The application pursuant to s592 of the Corporations Law was dismissed. At that time I indicated that I would hear counsel on the question of costs. All parties agreed that it would be appropriate for written submissions on the questions of costs to be filed and served and this has been done. It is submitted on behalf of the applicant that there should be no order for costs in favour of the respondents against the applicant. This submission is based upon asserted inadequacies in the affidavit evidence filed and served by the respondents. The background to the submission is as follows. The discovered financial records of the business Filmpage Pty Ltd ("Filmpage") included a balance sheet dated January 1992 and two lists, being of aged payables and aged receivables respectively, dated 10 February 1992. Each of these three documents was apparently prepared within Filmpage. The discovered financial records of Filmpage also included financial statements dated 28 February 1992 prepared by the accountants for Filmpage. It was contended in affidavit evidence filed on behalf of the applicant, and at trial on behalf of the applicant, that the financial records prepared within Filmpage demonstrated that the financial statements dated 28 February 1992 were wrong. No affidavit evidence was filed on behalf of the respondents which called in question the accuracy of the balance sheet of January 1992 or the lists of aged payables and aged receivables dated 10 February 1992. However, the second respondent, in answer to questions from counsel for the first respondent, gave oral evidence at trial that the balance sheet of January 1992 was not based on complete and accurate information and that he could not vouch for the accuracy of the lists of aged payables and aged receivables dated 10 February 1992. This latter answer was given over the objection of counsel for the applicant. The applicant did not seek an adjournment following the giving of this evidence on the ground that it had been taken by surprise by such evidence and needed time to consider its position or on any other ground. I expressed my reasons for decision so far as the financial statements dated 28 February 1992 were concerned as follows:- "Whilst I agree with Mr Fagan, counsel for the applicant, that a degree of scepticism must be brought to the evidence of the second respondent concerning the financial affairs of Filmpage, I am not satisfied that the attack on the financial statements of Filmpage as at 28 February 1992 has been made out. No reason has been suggested for Filmpage providing to its accountant other than complete and accurate financial information. It has not been suggested that the accountant had any reason to prepare financial statements which disguised the true financial position of Filmpage. It seems clear enough that the financial statements of Filmpage as at 28 February 1992 were prepared during March 1992 in the ordinary course of Filmpage's business. I am not satisfied that it has been shown that a director or manager of ordinary competence would reasonably have concluded as at the beginning of May 1992 that the financial position of Filmpage was significantly different from that revealed by the financial statements of Filmpage as at 28 February 1992. Such financial statements show a company trading profitably and with an excess of assets over liabilities. In my view, no change in its pattern of trading ought then reasonably to have been expected. Although Filmpage had significant outstanding debts to the applicant and to Zabari at the beginning of May 1992 it has not been shown to be an unreasonable expectation that such debts could be met as they became due from the assets of the company and its likely future profits." The applicant carried the onus of establishing, in effect, that at the relevant times pleaded there were reasonable grounds to expect that Filmpage would not be able to pay all of its debts as and when they became due. The financial statements of Filmpage dated 28 February 1992 were recognised on all sides as having particular significance in that they were the only financial statements of Filmpage prepared by a professional accountant at a time relevant to the issues being litigated. It must have been apparent to the applicant and its advisers that the respondents relied on such financial statements and on their apparent accuracy. The first respondent ceased day-to-day involvement with Filmpage during January 1992. It is not suggested that he had anything to do with the preparation of the balance sheet dated January 1992 or of the lists of aged payables and aged receivables dated 10 February 1992. The mere fact that he had some contact with the second respondent during the course of the preparation of their respective defences is not sufficient to lay him open to criticism for not filing affidavit evidence in explanation of such documents. In my view, frankness on behalf of the second respondent did require disclosure by him in his affidavit evidence of material facts known to him surrounding the preparation of the balance sheet dated January 1992 and the lists of aged payables and aged receivables dated 10 February 1992 which reflected on their reliability. However, in my view, fairness to the second respondent required that he be allowed at trial to explore the issue of the reliability of such documents. The more significant of the answers of the second respondent in this regard, namely that the balance sheet dated January 1992 was not based on accurate or complete information, was given without objection. Nonetheless, I gave such evidence limited weight as the above passage from my reasons discloses. In all of the circumstances I reject the submission that inadequacies in the affidavit evidence of the respondents should lead to there being no order for costs in favour of the respondents against the applicant. In the alternative, it was submitted on behalf of the applicant that any order for costs should reflect its success as against the first respondent on the issue of whether he continued as a director of Filmpage beyond the early months of 1992. A substantial proportion of the affidavit evidence was directed at this issue as was a substantial proportion of the trial time. To avoid the difficulties which attend orders apportioning costs of issues, it was contended on behalf of the applicant that the practical solution would be to order that as between the applicant and the first respondent there should be no order as to costs. On behalf of the first respondent reliance was placed on the principle that, in the ordinary course, costs should follow the event. Reference was also made to the remarks of Burchett J in Australian Conservation Foundation & Ors v Forestry Commission & Ors (1988) 81 ALR 166 at 169 where his Honour said:- "A party against whom an unsustainable claim is prosecuted is not to be forced, at his peril in respect of costs, to abandon every defence he is not sure of maintaining, and oppose to his adversary only the barrier of one hopeful argument: he is entitled to raise his earthworks at every reasonable point along the path of assault. At the same time, if he multiplies issues unreasonably, he may suffer in costs. Ultimately, the question is one of discretion and judgement." Further, reliance was placed on behalf of the first respondent, on a "Calderbank offer" made to the applicant by letter dated 30 May 1995. Section 43(2) of the Federal Court of Australia Act (Cth) provides that an award of costs is "in the discretion of the Court or Judge". Such discretion is "absolute and unfettered" but it must be exercised judicially and cannot be exercised on grounds unconnected with the litigation (Cretazzo v Lombardi (1975) 13 SASR 4; Australian Transport Insurance Pty Ltd & Anor v Graeme Philips Road Transport Insurance Pty Ltd & Anor (1985) 10 FCR 177). The principle reflected in the above remarks of Burchett J is one which is to be taken into account in determining the question of costs in this case, as is the "Calderbank offer" made to the applicant by the first respondent. However, I consider that I am also entitled to take into account the fact that the first respondent, although successful in the final event, was unsuccessful on an issue which was expensive of court time and pre-trial costs. As between the applicant and the first respondent on the claim, the appropriate order as to costs, in my view, is that the applicant is to pay 50% of the costs of the first respondent to be taxed if not agreed. As between the applicant and the second respondent, the appropriate order as to costs in the circumstances is that the applicant pay the costs of the second respondent to be taxed if not agreed. I turn to consider the costs arising out from the cross-claim. The first respondent cross-claimed against the cross-respondent for "contribution towards or a complete indemnity in respect of any debt recovered herein against him by the applicant". No debt, or other amount, was recovered against the first respondent by the applicant. The occasion for consideration of the cross-claim did not strictly arise: it necessarily failed with the application. In view of my findings on the issues raised by the cross-claim, it cannot be said that the cross-claim ought not to have been brought. It was a reasonable response by the first respondent to the application brought against him. Having successfully defended the claim, the first respondent is, in my view, entitled to have his costs of the cross-claim paid by the applicant as part of his costs on the claim - and on the same basis. That is, that the applicant should pay 50% of such costs to be taxed if not agreed. The cross-respondent was not successful at trial on all issues raised by him in his defence to the cross-claim. However, the time spent on such issues was small in comparison with the total time occupied by the trial. Nor did such issues lead to the filing of long or complicated affidavit evidence. The cross-respondent was in the event a successful litigant. Costs ought, in my view, to be awarded in his favour. There is no suggestion that the applicant is impecunious (see Gladstone Park Shopping Centre Pty Ltd & Anor v Wills & Ors (1984) 59 ALR 109 per Davies J at 111). In the circumstances the applicant should pay the costs of the cross-respondent to be taxed if not agreed. In summary my conclusions with respect to costs are as follows:- 1. The applicant is to pay 50% of the costs of the first respondent on the claim and the cross-claim to be taxed if not agreed. 2. The applicant is to pay the costs of the second respondent to be taxed if not agreed. 3. The applicant is to pay the costs of the cross-respondents to be taxed if not agreed. I certify that this and the preceding pages are a true copy of the Reasons for Decision of the Honourable Justice Branson. Associate: Dated: Counsel for the Applicant : Mr D Fagan Solicitors for the Applicant : Dickson Fisher & Macansh Counsel for the First Respondent : Mr J Bartos Solicitors for the First Respondent : Cowley Hearne Second Respondent, Mr James Watts, for himself Counsel for the Cross Claimant : Mr J Bartos Solicitors for the Cross Claimant : Cowley Hearne Counsel for the Cross-Respondent : Mr G Van der flag Solicitors for the Cross-Respondent : McGrath Dicembre & Company Date of receipt of written submissions: 10 November 1995