FEDERAL COURT OF AUSTRALIA B J McAdam Pty Limited v Jax Tyres Pty Limited (No 6) [2014] FCA 384 Citation: B J McAdam Pty Limited v Jax Tyres Pty Limited (No 6) [2014] FCA 384 Parties: B J MCADAM PTY LIMITED ACN 000 288 639, ANTHONY BRUCE MCADAM AND MARCUS DOMINIC MCADAM AS EXECUTORS OF THE ESTATE OF BRUCE JAMES MCADAM, MERIM HOLDINGS PTY LTD ACN 112 224 807 and SHIRLEY MARLENE MCADAM v JAX TYRES PTY LIMITED ACN 000 955 840, JAX FRANCHISING SYSTEMS PTY LIMITED ACN 060 109 891, JAX TYRES INVESTMENTS PTY LIMITED ACN 112 266 832, IAN FREDERICK HURRELL, VAKOFA PTY LIMITED ACN 003 318 625, CHYLOS PTY LIMITED ACN 001 402 562, VALNOCK PTY LIMITED ACN 010 596 077, JAX TYRES FINANCE PTY LIMITED ACN 112 213 895, JEFFREY DAVID BOARD, VALEDON HOLDINGS PTY LIMITED ACN 060 605 305 and GRAYEN HOLDINGS PTY LIMITED ACN 060 624 017 File number: NSD 402 of 2010 Judge: PERRAM J Date of judgment: 17 April 2014 Catchwords: PRACTICE AND PROCEDURE – application for order that plaintiffs pay respondent's costs of obtaining judicial advice in Supreme Court of New South Wales pursuant to Trustee Act 1925 (NSW) s 63 – whether Court has power to award costs incurred by a party in proceedings in another Court COSTS – application for order that plaintiffs pay respondent's costs of obtaining judicial advice in Supreme Court of New South Wales pursuant to Trustee Act 1925 (NSW) s 63 – whether Court has power to award costs incurred by a party in proceedings in another Court Legislation: Corporations Act 2001 (Cth) s 237 Trustee Act 1925 (NSW) s 63 Cases cited: B J McAdam Pty Limited v Jax Tyres Pty Limited (No 4) [2013] FCA 643 Jax Franchising Systems Pty Ltd as Trustee for the JF Unit Trust [2012] NSWSC 1115 Date of last submissions: 28 March 2014 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 10 Solicitor for the Plaintiffs: Garland Hawthorn Brahe Solicitors Solicitor for the Second Defendant: Stevens Vuaran Lawyers IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 402 of 2010 BETWEEN: B J MCADAM PTY LIMITED ACN 000 288 639 First Plaintiff ANTHONY BRUCE MCADAM AND MARCUS DOMINIC MCADAM AS EXECUTORS OF THE ESTATE OF BRUCE JAMES MCADAM Second Plaintiff MERIM HOLDINGS PTY LTD ACN 112 224 807 Third Plaintiff SHIRLEY MARLENE MCADAM Fourth Plaintiff AND: JAX TYRES PTY LIMITED ACN 000 955 840 First Defendant JAX FRANCHISING SYSTEMS PTY LIMITED ACN 060 109 891 Second Defendant JAX TYRES INVESTMENTS PTY LIMITED ACN 112 266 832 Third Defendant IAN FREDERICK HURRELL Fourth Defendant VAKOFA PTY LIMITED ACN 003 318 625 Fifth Defendant CHYLOS PTY LIMITED ACN 001 402 562 Ninth Defendant VALNOCK PTY LIMITED ACN 010 596 077 Tenth Defendant JAX TYRES FINANCE PTY LIMITED ACN 112 213 895 Eleventh Defendant JEFFREY DAVID BOARD Twelfth Defendant VALEDON HOLDINGS PTY LIMITED ACN 060 605 305 Thirteenth Defendant GRAYEN HOLDINGS PTY LIMITED ACN 060 624 017 Fourteenth Defendant JUDGE: PERRAM J DATE OF ORDER: 17 APRIL 2014 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The Second Defendant's application be dismissed. 2. The Second Defendant pay the Plaintiffs' costs of resisting that application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 402 of 2010 BETWEEN: B J MCADAM PTY LIMITED ACN 000 288 639 First Plaintiff ANTHONY BRUCE MCADAM AND MARCUS DOMINIC MCADAM AS EXECUTORS OF THE ESTATE OF BRUCE JAMES MCADAM Second Plaintiff MERIM HOLDINGS PTY LTD ACN 112 224 807 Third Plaintiff SHIRLEY MARLENE MCADAM Fourth Plaintiff AND: JAX TYRES PTY LIMITED ACN 000 955 840 First Defendant JAX FRANCHISING SYSTEMS PTY LIMITED ACN 060 109 891 Second Defendant JAX TYRES INVESTMENTS PTY LIMITED ACN 112 266 832 Third Defendant IAN FREDERICK HURRELL Fourth Defendant VAKOFA PTY LIMITED ACN 003 318 625 Fifth Defendant CHYLOS PTY LIMITED ACN 001 402 562 Ninth Defendant VALNOCK PTY LIMITED ACN 010 596 077 Tenth Defendant JAX TYRES FINANCE PTY LIMITED ACN 112 213 895 Eleventh Defendant JEFFREY DAVID BOARD Twelfth Defendant VALEDON HOLDINGS PTY LIMITED ACN 060 605 305 Thirteenth Defendant GRAYEN HOLDINGS PTY LIMITED ACN 060 624 017 Fourteenth Defendant JUDGE: PERRAM J DATE: 17 APRIL 2014 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The Second Defendant, Jax Franchising Systems Pty Limited ('JFS'), is the trustee of the JFS Unit Trust in which capacity it is sued by the Plaintiffs. It sought judicial advice pursuant to s 63 of the Trustee Act 1925 (NSW) from the Supreme Court of New South Wales as to the propriety of its defending the Plaintiffs' claims. As at 21 May 2012, when an amended summons seeking the advice was filed, the claims brought by the Plaintiffs against JFS were: (a) a claim that JFS had knowingly participated in breaches of trust by Jax Quickfit Franchising Systems Pty Ltd ('JQFS') and/or was a knowing recipient of trust property held by JQFS; (b) a claim that JFS was knowingly involved in misleading and deceptive conduct by JQFS and Mr Hurrell with respect to the entry by JQFS into the 2008 Joint Venture Agreement; (c) a claim that JFS was knowingly involved in misleading and deceptive conduct by Mr Hurrell in connexion with the approval by JQFS of the 2009 accounts; (d) a claim in contract (and otherwise) whereby the Plaintiffs claimed an entitlement to appoint a director to the board of JFS; and (e) a claim of oppression such that JFS should be wound up. 2 Claims (a)-(c) are no longer pressed by the Plaintiffs in this Court as they have either been disallowed or dropped. 3 On 28 May 2012 JFS received advice from the Supreme Court of New South Wales that it would be justified in: (a) defending the Plaintiffs' proceedings; (b) cross-claiming to seek a declaration that JFS was a proper party to the 2008 Joint Venture Agreement; (c) bringing an application for security for costs; (d) resisting, by a procedural argument, the Plaintiffs' application for leave under s 237 of the Corporations Act 2001 (Cth); (e) resisting the oppression and misleading and deceptive conduct claims or seeking summarily to dismiss them; (f) resisting an interlocutory application brought by the Plaintiffs seeking orders that they, or some of them, be permitted to bring derivative claims; and (g) paying itself out of the trust assets for the purpose of taking those steps. 4 See Jax Franchising Systems Pty Ltd as Trustee for the JF Unit Trust [2012] NSWSC 1115 per Davies J. 5 JFS now argues that it was put to the unnecessary expense of obtaining this judicial advice with respect to claims (a)-(c) above at [1] since those claims are no longer pursued. Now that those claims have been dropped it says that it is only fair that the Plaintiffs should pay that expense. 6 The question of the Court's power to order that the costs incurred by a party in proceedings in another Court be borne by one of the parties before it was not debated before me. In B J McAdam Pty Limited v Jax Tyres Pty Limited (No 4) [2013] FCA 643 I assumed that such a power existed. In that case I ordered the present Plaintiffs to pay the costs that JQFS had incurred in obtaining judicial advice as a trustee from the Supreme Court of New South Wales. 7 There is no doubt that a party may recover, in an appropriate case, a disbursement reasonably incurred as part of its party-party costs. An order that a party pay another party's judicial advice costs is properly to be seen as a pre-taxation determination that a particular disbursement was reasonably incurred. Accordingly, the power exists. 8 Despite the power existing I do not think it should be exercised in this case. Whilst it is true that many of the claims in respect of which the judicial advice was sought have become otiose, some still remain on foot. Although I accept that it might be possible to apportion the costs of the judicial advice proceedings between claims which have already expired and those which remain I do not consider that I should do so now for three reasons: (a) the process by which one might determine the relevant proportion is not clear at this stage; (b) if the remaining claims against JFS by the Plaintiffs succeed then there may be the potential for set-offs against prior costs orders which the current orders sought would pre-empt; and (c) if JFS succeeds on the remaining grounds presumably it will renew the present application with respect to them. 9 What these considerations suggest is that the present application is premature. In B J McAdam (No 4) I made the order sought, but by then JQFS had bowed out of the proceedings entirely and its role in this litigation was at an end. The same cannot presently be said of JFS. 10 In those circumstances, I dismiss the application of JFS for costs. JFS must pay the Plaintiffs' costs of resisting the application. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram. Associate: Dated: 17 April 2014