Supreme Court New South Wales Medium Neutral Citation: Davis v Certain Lloyd's Underwriters [2022] NSWSC 131 Hearing dates: 16 February 2022 Date of orders: 16 February 2022 Decision date: 17 February 2022 Jurisdiction: Equity - Corporations List Before: Black J Decision: Grant leave to the Plaintiffs to discontinue the proceedings. The Plaintiffs pay the First Defendant's costs of the proceedings as agreed or as assessed, including the costs of and incidental to their Interlocutory Process dated 28 January 2022. Catchwords: COSTS — Where proceedings are discontinued by leave — Where no determination on the merits — Default provision for costs under UCPR r 42.20. Legislation Cited: - Companies Ordinance 1962 (ACT), s 186 - Corporations Act 2001 (Cth), s 175, s 233, s 601AG Cases Cited: - Australian Unity Funds Management Ltd v NorthWest Healthcare Australia RE Ltd [2021] NSWSC 1039 - Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 - Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 - Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274 - McNamara v San [2010] NSWSC 809 - Parlby v Blair [2013] NSWSC 100 - Re Canberra Babington Pty Ltd [2021] NSWSC 552 - Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; (1997) 143 ALR 1; [1997] HCA 6 - Re Myao Travel Pty Ltd [2020] NSWSC 1672 Spatt v Benson [2019] NSWSC 1195 Category: Costs Parties: Paul Maurice Davis and others (Plaintiffs) Certain Lloyd's Underwriters (First Defendant) Representation: Counsel: B Phillips (Plaintiffs) T Alexis QC with B Michael (First Defendant) Solicitors: Results Legal (Plaintiffs) Kennedys Law (First Defendant) File Number(s): 2020/132718 Judgment Background and nature of the application 1. In proceedings 2018/27127 ("2018 Proceedings"), Mr Paul Davis and several other members of the Davis Family ("Davis Descendants") sought relief in relation to the affairs of the First Defendant, Canberra Babington Pty Limited ("Company") and the affairs of the Joseph Babington Davis Settlement Trust ("Trust"). The Davis Descendants are four of the eight grandchildren and the executors of the estate of another grandchild of Joseph Babington Davis ("JBD"). The Company was the First Defendant in the 2018 Proceedings. The Second, Third and Fourth Defendants in the 2018 Proceedings ("Lees Descendants") were the children of the second marriage of JBD to Mabel Beatrice Davis. The Fifth Defendant was a company controlled by the Lees Descendants. The Sixth Defendant in the 2018 Proceedings ("Perpetual") was the current trustee of the Trust and held approximately 14.2% of shares in the Company, after implementation of several rights issues which were challenged in the 2018 Proceedings. 2. The Davis Descendants sought a declaration in the 2018 Proceedings (in their own right and in the name of Perpetual, with leave granted by Emmett AJA in Re Canberra Babington Pty Ltd [2021] NSWSC 552) that allotments of shares in the Company on four occasions, the earliest being in 1962 and the latest in 1997, were "invalid" and an order under s 175 of the Corporations Act 2001 (Cth) ("Act") that the share register of the Company be rectified to reflect the actual number of shares held by each member to the extent that they have been declared to be invalid. They also sought orders in their personal capacity under s 233 of the Act for the Lees Descendants to purchase their and Perpetual's shares in the Company. Pursuant to the leave granted by Emmett AJA, they alternatively brought an oppression claim in the name of Perpetual as trustee of the Trust seeking relief under s 233 of the Act together with, or alternatively under s 186 of the Companies Ordinance 1962 (ACT) and other transitional provisions in the Act. The Davis Descendants also pleaded a claim concerning other aspects of the conduct of the Company's affairs but did not lead evidence or make submissions about that claim at the hearing, after they and the Lees Descendants reached an agreement (referred to as the "Components Agreement") as to how those matters should be addressed if buy-out orders were made. 3. The Davis Descendants also brought proceedings 2020/132718 ("2020 Proceedings") against the former trustees of the Trust, Permanent Trustee Company (Canberra) Limited ("PTCCL") and The Trust Company (UTCCL) Limited as well as PTCCL's insurers ("Underwriters"), although those proceedings were continued to hearing only against the Underwriters. The Descendants claimed relief against the Underwriters under s 601AG of the Act of the amount for which PTCCL was insured for breach of pleaded duties as trustee of the Trust. 4. The 2018 Proceedings and the 2020 Proceedings were heard together, with the evidence in one being the evidence in the other, and I reserved judgment in both proceedings at the conclusion of the hearing on 17 November 2021. On 29 November 2021, the solicitors for the Davis Descendants advised the Court, as a courtesy, that the parties to the 2018 Proceedings had settled in principle, subject to documentation, and expected consent orders in those proceedings to be provided to the Court. On 9 December 2021, the parties to the 2018 Proceedings submitted consent orders, which provided for those proceedings to be dismissed with no order as to costs between the parties. A second order noted that the first order was made "without prejudice to any order that the Court may make" in the 2020 Proceedings that Underwriters pay the Davis Descendants' costs of the 2018 Proceedings. That order was surplusage, since an order made in the 2018 Proceedings, to which the Underwriters were not party, would not expand, contract, preserve or extinguish any claim against them. A third order discharged an undertaking previously given by the Company in the 2018 Proceedings. I made those orders on 10 December 2021 in the 2018 Proceedings. 5. By Interlocutory Process filed on 28 January 2022 in the 2020 Proceedings, the Davis Descendants then sought an order that they have leave to discontinue the whole of the proceedings on terms that there be no order as to costs (with the intention that each party bear their own costs). When that Interlocutory Process was listed for oral submissions on 16 February 2022, Mr Phillips (who appears for the Davis Descendants) confirmed that the Davis Descendants sought leave to discontinue the 2020 Proceedings in any event, and all that remained to be determined was the question of costs of those proceedings. I granted that leave and, after hearing Mr Phillips, made an order that the Davis Descendants pay the Underwriters' costs of the 2020 Proceedings as agreed or as assessed, including the costs of and incidental to the Davis Descendants' Interlocutory Process dated 28 January 2022. These are my reasons for making that costs order. 6. It is important to recognise that the David Descendants' Interlocutory Process was filed in unusual circumstances, where the hearing of both the 2018 Proceedings and the 2020 Proceedings was complete and the Court had prepared its judgments in both proceedings although it had not delivered them. The position here is quite different from the more common case where a discontinuance occurs prior to a hearing or in the course of a hearing which is not complete. Applicable principles 1. I first turn to the principles that ordinarily apply to the determination of the question of costs in respect of discontinuance, then to the affidavit evidence on which the parties relied and their submissions, and I then reach a determination of the Interlocutory Process. Rule 12.1 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") permits a plaintiff to discontinue proceedings as to, relevantly, all claims for relief with the consent of each active party or with the Court's leave. Rule 42.19 of the UCPR deals with the position where proceedings are discontinued in accordance with UCPR r 12.1 and relevantly provides that: "Unless the Court orders otherwise or the notice referred to in rule 12.1(2) otherwise provides, the plaintiff must pay such of the defendant's costs as, at the date on which the notice of discontinuance was filed, have been incurred by the defendant in relation to such claim in respect of which the proceedings have been discontinued." 1. Mr Phillips refers to Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 ("Bitannia") at [53]-[54] (Hodgson JA, Tobias and Basten JJA agreeing) and [70], [74] (Basten JA) and submits that the fact that the Davis Descendants seek leave to discontinue the 2020 Proceedings and UCPR 42.19 do not create any presumption that they should pay the Underwriters' costs, but do require them to show that there is some sound positive ground or good reason for departing from the ordinary course. Mr Alexis (with whom Mr Michael appears) in turn submits that UCPR r 42.19 has the result that the Davis Descendants must pay Underwriters' costs of the proceedings unless the default position is displaced by a discretionary decision and also refers to the formulation of that principle in Bitannia above. 2. In McNamara v San [2010] NSWSC 809 at [12], Hallen AsJ (as his Honour then was) summarised the principles applicable to the similar provision in UCPR r 42.20 as including that: "(c) Rule 42.20 of the UCPR does not give rise to a presumption that costs will be ordered against the Plaintiff: Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497; Foukkare v Angreb Pty Limited [2006] NSWCA 335 at [65]; Pentroth Pty Ltd v Kirschild Pty Ltd (2006) 96 SASR 129; Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [53]; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32. However, the rule does create a starting point by requiring "… the plaintiff must pay the defendant's costs of the proceedings …" unless that outcome is displaced by a discretionary decision ("unless the court otherwise orders"); (d) Generally, there must be some proper justification, sound positive ground, or a good reason, for departing from the ordinary position: Fordyce v Fordham at [2] per Santow JA; Australiawide at [54] per Bryson JA; circumstances in which it has been held appropriate to depart from the ordinary position include where the proceedings have been rendered unnecessary by circumstances beyond the plaintiff's control; where the plaintiff achieved practical success in the proceedings, or where costs have been significantly increased by the unreasonable conduct of the defendant. (e) The Plaintiff should be the moving party on an application for an alternative costs order: Bitannia at [70] per Basten JA. If facts are to be relied upon to found the court making a different order, the Plaintiff will bear the onus of proving the relevant facts; (f) Where the proceedings are dismissed prior to any hearing on the merits, "the Court cannot try a hypothetical action between the parties" to determine the question of costs: Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201; Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624; Metro Chatswood Pty Ltd v CRI Chatswood Pty Ltd [2007] NSWSC 1120 at [35]; (g) It may be necessary to analyse the whole of the proceedings to determine the appropriate costs order: Fordyce at [67] per McColl JA. A relevant consideration is whether the Plaintiff acted reasonably in commencing the proceedings and whether the defendant acted reasonably in defending them: Australian Securities Commission v Aust-Home Investments Ltd at 201 (cited with approval in Foukkare); all the relevant circumstances, and not just the fact of dismissal, should be considered; (h) It is also important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event, or settlement, so removes, or modifies, the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the court's discretion otherwise than by an award of costs by the successful party. It is the latter type of case that usually creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs: One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 at 553; cited with approval in Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 per Davies AJA (with whom Mason P and Meagher JA agreed) at [5]; (i) The distinction between the two categories referred to above is often helpful in exercising the costs discretion, notwithstanding that neither category can be precisely defined, the boundary between them is unclear and other factors may be relevant: Bitannia per Basten JA at [79]–[81]; Perre v State of New South Wales [2009] NSWLEC 51 at [49]; (j) The rule requires the court to make such order as it thinks just in the particular circumstances of the case." 1. That summary was cited with approval by Kunc J in Spatt v Benson [2019] NSWSC 1195 at [64] and I followed it in Parlby v Blair [2013] NSWSC 100 at [11]ff, Re Myao Travel Pty Ltd [2020] NSWSC 1672 at [6]ff and Australian Unity Funds Management Ltd v NorthWest Healthcare Australia RE Ltd [2021] NSWSC 1039, on which I have partly drawn for these observations. Affidavit evidence 1. Turning now to the affidavit evidence, the Davis Descendants relied on the affidavit dated 28 January 2022 of their solicitor, Mr Andrew Young, who annexed a letter from his firm to the Underwriters' solicitors in the first half of 2020. That letter referred to the need for the Davis Descendants' to file the 2020 Proceedings on or before 13 May 2020 to avoid them being barred by virtue of statutory limitation periods and sought commitments from the Underwriters not to raise limitation defences and to be bound by findings and determinations made in the 2018 Proceedings, apparently notwithstanding the fact that the Underwriters were not part party to those proceedings and would not have had an opportunity to be heard in them. By their solicitors' response dated 24 March 2020, and not surprisingly, the Underwriters declined that invitation. By a subsequent letter dated 14 May 2020, after the 2020 Proceedings were commenced, the Davis Descendants proposed that those proceedings be stood over until after judgment had been handed down in the 2018 Proceedings. 2. The Underwriters in turn relied on the affidavit dated 14 February 2022 of their solicitor, Mr James Melvin. Mr Melvin referred to an application that was subsequently brought, in June 2020, by the Defendants in the 2020 Proceedings, including the Underwriters, to have the 2018 Proceedings and the 2020 Proceedings either consolidated or heard together. For the reasons set out in my ex tempore judgment delivered on 6 July 2020, I made orders that those proceedings be heard together, with the evidence in one to be evidence in the other. I there found that, although hearing the two proceedings together could involve additional delay and additional costs, those disadvantages were less than the disadvantages that would arise from parallel proceedings, involving the risk of inconsistent positions being taken at first instance and any appeal in the two proceedings, the risk of inconsistent findings in the two proceedings, and the significant waste of Court time if the proceedings were not heard together. Mr Melvin also referred to a Deed of Settlement dated 9 December 2021 between the Davis Descendants and the other parties to the 2018 Proceedings. The parties' submissions and determination 1. Turning now to the parties' submissions, the Davis Descendants rely on their solicitors' letter dated 11 February 2020 as amounting to an offer to enter into a "standstill" agreement and submit that Underwriters unreasonably refused to enter into that agreement. The Underwriters respond that it was reasonable for them to decline to give an undertaking to be bound by findings in another case involving other parties, in which they would have had no opportunity to be heard. They also submit that the proposal that the 2020 Proceedings be deferred until the 2020 Proceedings were decided was not feasible, for the reasons identified by the Court in its July 2020 judgment. It seems to me that there was no reason to expect that the Underwriters should agree to be bound by the outcome of the 2018 Proceedings where they were not party to them and would not have an opportunity to lead evidence or to be heard in them; and, once the 2020 Proceedings were commenced by the Davis Descendants, then it was preferable that they be heard together with the 2018 Proceedings, as I held in the July 2020 judgment. 2. The Davis Descendants also submit that costs have been wasted as a result of the Underwriters' refusal to enter into a standstill agreement or to stay the 2020 Proceedings pending the outcome of the 2018 Proceedings. I also do not accept that submission, where any waste of costs is at least equally attributable to the fact that the Davis Descendants brought the 2020 Proceedings in parallel to the 2018 Proceedings, and took upon themselves the risk that those proceedings would be unnecessary if they later settled or succeeded in the 2018 Proceedings, and the Underwriters could reasonably then take the position to which I have referred above. 3. The Davis Descendants in turn submit that the reasons that each party should bear their own costs are that they have achieved "success" in the 2018 Proceedings, although I note that there has been no determination in their favour on those proceedings, which were settled on terms that are presumably acceptable to all parties to that settlement. They submit that costs were incurred in relation to the 2020 Proceedings only by reason of Underwriters' refusal to consent to a standstill agreement or to consent to a stay of the 2020 Proceedings, but I consider that Underwriters' position in that respect was a reasonable one for the reasons noted above. 4. The Davis Descendants also refer to the High Court's decision in Re The Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 ("Lai Qin"). The Underwriters respond and I accept that Lai Qin is distinguishable where there is here no element of capitulation by Underwriters, and indeed no settlement as between the Davis Descendants and the Underwriters, and the Davis Descendants have instead settled a different claim against different parties and now abandon their claim against the Underwriters. 5. The Davis Descendants submit that it is not necessary or appropriate to determine the issue of breach in the 2020 Proceedings and submit, if the Court takes a different view, then it would be satisfied that PTCCL breached its duties owed to the Davis Descendants for the reasons set out in the substantive submissions made in the 2020 Proceedings. The Davis Descendants also make a submission as to the scope of the defences put by Underwriters in respect of the 2020 Proceedings. The Underwriters respond that, where the Davis Descendants seek to discontinue these proceedings, it is not open to them to rely on the likely outcome were the Court to determine them, and note that it will be unnecessary for the Court to determine these proceedings where the Davis Descendants have elected to discontinue them. The Underwriters also submit that, had Davis Descendants not discontinued the 2020 Proceedings and the Court determined them, then the Davis Descendants would have failed, at least on the narrow basis that their claim against the Underwriters depended upon a particular outcome of the David Descendants' claim in the 2018 Proceedings, which cannot occur where those proceedings have now been dismissed by reason of the settlement. I agree that it is not necessary to determine these matters, where neither party suggested that the Court should now deliver the substantive judgment that it would have delivered but for the Davis Descendants' discontinuance of the 2020 Proceedings, in order to determine this application. It seems to me that there would be a real injustice in depriving the Underwriters of a judgment on the merits, because the proceedings were discontinued, but then undertaking something short of a merits determination to address this submission. 6. The Davis Descendants also rely on an observation of Basten JA in Bitannia above at [75] that it may be appropriate to depart from the default position under UCPR r 42.19 where the plaintiff obtains "a favourable result in other proceedings, in circumstances where it had not been unreasonable to commence the discontinued proceedings". The Underwriters respond, and I accept, that that observation is not directed to a settlement of other proceedings between other parties, but to a favourable determination of proceedings between the same parties on their merits. I am reinforced in that view by the undesirability of the Court, in applications of this kind, determining whether a settlement of other proceedings involving other parties is "favourable" to one of the parties to them, in the absence of the other parties to that settlement and where all parties' decision whether to enter into it will ordinarily involve both legal and commercial assessments. Where that determination is generally undesirable, it should not be made here even if it could fairly be made here in the absence of hearing the other parties in the 2018 Proceedings as to their views as to the settlement of those proceedings. 7. Finally, the Underwriters submit that the Davis Descendants' settlement in the 2018 Proceedings includes an amount toward their payment of the costs of these proceedings. The Davis Descendants contest that matter. It is not necessary to determine that matter given the result which I have reached on other grounds. 8. In these circumstances, the Davis Descendants have failed to displace the starting position under UCPR r 42.19 and they should be ordered to pay the Underwriters' costs of the 2020 proceedings, including the costs of their Interlocutory Process filed on 28 January 2022 in these proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 February 2022