Supreme Court New South Wales Medium Neutral Citation: Stewart v Spicer Thoroughbreds Pty Ltd [2022] NSWSC 637 Hearing dates: 26 and 27 April 2022 Decision date: 20 May 2022 Jurisdiction: Equity - Commercial List Before: Black J Decision: There be no order as to costs of the proceedings. Catchwords: COSTS — Party/Party — General rule that costs follow the event — Application of the rule and discretion — where plaintiff succeeded on several intervening issues but ultimately did not obtain the relief sought — where defendants succeeded on a narrow issue raised in submissions — whether order for costs should be made against either party Legislation Cited: Civil Procedure Act 2005 (NSW), s 98 Uniform Civil Procedure Rules 2005 (NSW), r 42.1 Cases Cited: - Arian v Nguyen [2001] NSWCA 5 - Australian Receivables Ltd v Tekitu Pty Ltd [2011] NSWSC 1425 - Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 - Commonwealth of Australia v Gretton [2008] NSWCA 117 - Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 - Jones v Trad (No 3) [2013] NSWCA 463 - Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171 - Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 2) [2019] NSWCA 19 - Oikos Constructions Pty Ltd t/as Lars Fischer Construction v Ostin & Anor (No 2) [2021] NSWCA 98 - Re Cooperbrown Pty Ltd [2019] NSWSC 1521 - Re SecureNet Technologies Pty Ltd [2022] NSWSC 231 - Real Estate Property Management Pty Ltd v WaterCorp Investments Pty Ltd [2018] NSWCA 194 - Roluke Pty Ltd v Lamaro Consultants Pty Ltd [2007] NSWSC 671 Category: Costs Parties: John Stewart (Plaintiff) Spicer Thoroughbreds Pty Ltd (First Defendant) Brad John Spicer (Second Defendant) Representation: Counsel: D Klineberg (Plaintiff) D Levi (Defendants) Solicitors: Hall and Wilcox (Plaintiff) A G Hartnell (Defendants) File Number(s): 2021/24091 Judgment Background 1. By Amended Summons filed on 15 April 2022, the Plaintiff, Mr John Stewart sought relief against the First Defendant, Spicer Thoroughbreds Pty Ltd ("Spicer Thoroughbreds") and the Second Defendant, Mr Brad Spicer. The relief sought included declarations that Spicer Thoroughbreds contravened s 601ED(5) of the Corporations Act 2001 (Cth) ("Act") by operating three thoroughbred racing horse investment schemes, which Mr Stewart contended were required to be registered under s 601ED(1) of the Act but were not registered. He also sought, but did not obtain, declarations that the three contracts by which he acquired an interest in each of the horses were void. He also sought, and did not obtain, a further declaration as to a contravention of s 911A of the Act, although it was not apparent that declaration would have any consequences in respect of the relief he seeks. He also sought, and did not obtain, an order that the Defendants pay him a specified amount, or alternatively pay him a lesser amount and damages. 2. By my judgment delivered on 9 May 2022 ([2022] NSWSC 558), I found that Mr Stewart had established several aspects of his claim, that went to the characterisation of arrangements between him and Spicer Thoroughbreds Pty Ltd as managed investment schemes. I found, however, that the Court should extend the time for Spicer Thoroughbreds to bring an application under s 601MB(6) of the Act to set aside a notice of rescission of the relevant contracts given by Mr Stewart. I also held, in paragraph 50 of the judgment, that: "I am also satisfied, for the purposes of s 601MB(6) of the Act, that it would not be just and equitable for Mr Stewart to rescind the contracts to acquire an interest in the three horses and his notice of rescission should be set aside. I reach that conclusion because there is here no evidence that Spicer Thoroughbreds, for example, improperly handled monies of owners of the horses, where it only received the proceeds of sale of the interests in the horses; or that decisions in respect of the horses were not in fact made by the trainer and by the majority of owners as appropriate, although Mr Stewart's views in respect of the proposed sale of Lucky For All [one of the horses] did not prevail; and the gelding of two of the horses and the injury and retirement of the third are risks that obviously attach to the ownership of an interests in a racehorse, and had no connection with the fact that the form in which his ownership interest was held constituted, on my findings, an unregistered managed investment scheme. Mr Klineberg [who appeared for Mr Stewart] submitted that Mr Steward was deprived of the benefit of a product disclosure statement, but he leads no evidence that he would have behaved differently had that document disclosed the relevant risks. It seems to me that those risks would have been apparent to Mr Stewart as an experienced participant in the racing industry, and he suffered no disadvantage on that basis." 1. I indicated that, for those reasons, the proceedings should be dismissed. I directed the parties to bring in agreed orders, including as to costs, within seven days, or, if there was no agreement between them, their respective submissions as to the form of orders and costs. The parties have now reached agreement as to three declarations and an order that should be made, and I will make those declarations where they accurately record the effect of my judgment. Had there been a contest as to that matter, I would likely not have made the first two declarations to which the parties have agreed, where they go to matters that were sufficiently addressed by my judgment and do not give rise to any substantive relief. 2. I now turn to the question of costs, which was in dispute between the parties. Mr Stewart, although he failed in obtaining the relief he sought in the proceedings, seeks an order that Spicer Thoroughbreds pay his costs of the proceedings as agreed or as assessed. The Defendants seek an order that Mr Stewart should pay their costs of the proceedings as agreed or assessed, while acknowledging that order 5 of the orders made by the Court on 24 September 2021 provided that the costs of Mr Stewart's motion for discovery be his costs in the cause. Mr Stewart's position 1. Mr Klineberg, who appears for Mr Stewart, draws attention to several matters that Mr Stewart successfully established in the proceedings, although I note that those did not avail him where he was not successful in obtaining the relief that he sought on the merits. He submits, by reference to paragraph 32 of my judgment, that the Defendants did not dispute that Spicer Thoroughbreds was in the business promoting managed investment schemes, including the scheme in issue. That submission overstates the finding in that paragraph, where I observed only that: "I did not understand the Defendants to contest the fact that, once it is found (as I have found) that the arrangements relating to the three horses were managed investments schemes, that indicates sufficient system and continuity to establish that Spicer Thoroughbreds was in the business of promoting managed investment schemes." Obviously, the Defendants did contest the fact that they were conducting such a business, where they denied the relevant arrangements constituted managed investment schemes, although I found against them in that respect in my judgment. 1. Mr Klineberg also submits that Mr Stewart sought discovery in October 2021 on the basis that it went to establishing that s 601ED(1)(b) of the Act was satisfied. It seems to me that that does not advance Mr Stewart's position, where that matter was properly denied by the Defendants, where they denied that the relevant arrangements had the character which Mr Stewart attributed to them. Mr Stewart submits that discovery was sought more generally as to matters which were determined in his favour. Again, it seems to me that that does not assist him, where the determinations of intervening matters did not bring about the relief he sought in the proceedings. 2. Mr Klineberg fairly recognises that the Court has a broad discretion in relation to the making of orders, including full power to determine by whom, to whom and to what extent costs are to be paid, under s 98 of the Civil Procedure Act 2005 (NSW). He also fairly accepts that r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") in turn recognises the general rule that costs follow the event. He recognises that, ordinarily, the "event" is a judgment for the plaintiff or the defendant on a claim, although he submits that the event could be characterised in more than one way, depending on the nature of the litigation. In Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121], Hodgson JA (with whom Mason P agreed) observed that: "… underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs." 1. That observation was cited, with apparent approval, by the Court of Appeal in Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [98] . 2. Mr Klineberg also submits that there are circumstances in which, in the exercise of the Court's discretion, a successful party may be deprived of part of its costs or ordered to pay costs of discrete issues, referring to the observations of the Court of Appeal in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38]. He also refers to Oikos Constructions Pty Ltd t/as Lars Fischer Construction v Ostin & Anor (No 2) [2021] NSWCA 98 at [15]-[16] as authority that a successful party may be denied its costs, or required to pay costs in respect of its failure on particular issues, although it did not act unreasonably in raising or defending the issues on which it failed, where that produces a result that is fairer than giving the successful party all of his or her costs. He submits, uncontroversially, that the exercise of the Court's discretion requires an assessment of what is fair in all the circumstances: Australian Receivables Ltd v Tekitu Pty Ltd [2011] NSWSC 1425 at [60]. 3. I should also recognise that, in Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 2) [2019] NSWCA 19 at [5], the Court of Appeal in turn noted that: "There is no issue as to the relevant principles. The discretion under Civil Procedure Act 2005 (NSW), s 98 is ordinarily exercised by requiring that "costs follow the event": Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1. This default position was historically understood to mean (so as to preserve the practice, where any issue was tried with a jury, that those costs followed the outcome of that event) "that the costs of the several issues went to the party who succeeded on them respectively, while the general costs went to him who on the whole succeeded on the action" … But more recent authority favours the award of the costs of proceedings to the party successful overall without any differentiation as to issues, at least "unless a particular issue or group of issues is clearly dominant or separable" … And the costs arising from such issues have more readily been apportioned where the party successful overall is the plaintiff ..." [citations omitted] 1. I also note the observation of Nicholas J in Roluke Pty Ltd v Lamaro Consultants Pty Ltd [2007] NSWSC 671 that the Court should not adopt a "scoreboard approach" to costs. I summarised the applicable principles in Re Cooperbrown Pty Ltd [2019] NSWSC 1521 at [7]ff and there referred, inter alia, to the fact that apportionment of the costs is not the norm and that, unless a particular issue or group of issues is clearly dominant or separable, it would ordinarily be appropriate to award the successful party its costs without attempting to differentiate between issues on which it was successful and those on which it was not: Jones v Trad (No 3) [2013] NSWCA 463 at [18]; Real Estate Property Management Pty Ltd v WaterCorp Investments Pty Ltd [2018] NSWCA 194 at [31]; and see my review of the case law in Re SecureNet Technologies Pty Ltd [2022] NSWSC 231 at [4]-[5]. I also accept that, in some cases, a successful party may recover all of its costs without deduction for issues on which it failed. However, I do not accept that Mr Stewart can fairly be characterised as having had success in the proceedings, given their result. 2. Mr Klineberg in turn submits that a proper exercise of the Court's discretion, in this case, requires that Spicer Thoroughbreds pay Mr Stewart's costs of the proceedings. He submits that, first, that follows because this is not a case where there is an "event" in favour of the Defendants for the purposes of UCPR r 42.1. He submits that it is too "simplistic" to characterise Mr Stewart's failure in obtaining the relief he sought as an "event" in favour of the Defendants. I do not agree. It seems to me that that characterisation, while simple, is also correct. Second, Mr Klineberg submits that the matters in respect of which Mr Stewart succeeded were matters in respect of which the parties incurred the bulk of the costs of the proceedings. It seems to me that that is likely to be the case, but it also does not assist Mr Stewart where he did not succeed in obtaining the relief he sought. 3. Third, Mr Klineberg submits that Spicer Thoroughbred's success in setting aside his notice of rescission arose from an issue raised in submissions. I give weight to that matter, while also recognising, as I noted in the judgment, that Mr Stewart had fairly accepted that there was no prejudice to him from that matter first being raised in submissions, so far as it allowed a determination of the proceedings on their merits. Fourth, Mr Stewart submits that it was only after the exercise of the Court's discretion, I interpolate, conferred on it by the statutory regime on which Mr Stewart relied, that that notice was set aside with the consequence that he was not entitled to the monetary relief he claimed. Fifth, he submits that the issue as to setting aside that notice did not materially increase the parties' costs, and I accept that submission. 4. Mr Stewart alternatively submits, if the Court is not minded to order that Spicer Thoroughbreds pay all of his costs, then it would be appropriate that Spicer Thoroughbreds to pay a substantial proportion of his costs, in the order of 90%. Again that submission does not seem to me fairly to reflect the outcome of the proceedings. Mr Stewart also submits that there should be no order as to costs in relation to Mr Spicer, where I found it unnecessary to decide whether he was involved in Spicer Thoroughbreds' contravention of the Act. The Defendants' position 1. Ms Levi, who appears for the Defendants, responds that it is only in an exceptional case that a successful party would be deprived of its costs and also ordered to pay its opponent's costs: Arian v Nguyen [2001] NSWCA 5. Ms Levi submits, and I accept, that there are no exceptional circumstances in this case that would lead to a result that the Defendants should be ordered to pay Mr Stewart's costs, notwithstanding that Mr Stewart had failed in obtaining the relief that he had sought. I will, however, find below that there are circumstances that lead to the result that the Defendants should not be allowed their costs of the proceedings, where they have failed on several substantial issues in the proceedings, as to which a substantial part of the costs of the proceedings will have been incurred, and have succeeded in respect of a narrow issue which I accept was raised for the first time in submissions. 2. Ms Levi in turn refers to Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171 as authority that "where a plaintiff's case fails, it may sometimes be appropriate to order the plaintiff to pay the costs of issues unsuccessfully raised by the defendant, even if those issues are severable, so long as the defendant acted reasonably in raising those issues." Ms Levy submits, and I accept, that the Defendants here acted reasonably in raising the issues on which they were unsuccessful; but that proposition does not address the qualification in the Court of Appeal's observations, that it may "sometimes" be appropriate to take that course. Ms Levi also submits that this is not a case where there is a good reason to make a partial costs order notwithstanding the overall result. I accept that submission, but do not reach the result that she seeks from it. She submits that the ultimate form of relief sought by Mr Stewart was rescission of the agreements, and he was wholly unsuccessful in obtaining that relief. While that is the case, it does not follow from that that he should be ordered to pay the whole of the Defendants' costs, or substantially the whole of the Defendants' costs, in respect of issues as to which Mr Stewart was successful and the Defendants failed. Determination and orders 1. I have addressed the parties' submissions and the applicable principles above. I am not persuaded that Mr Stewart can properly be characterised as a successful party so as to support an order for costs in his favour, where his success in several intervening issues was not reflected in his obtaining the relief that he sought. I am also not persuaded that the Defendants can be characterised as successful parties, with an expectation of costs in their favour, where they failed in respect of several of the substantive issues in the proceedings, occupying a large part of the time at the hearing, but succeeded in respect of the narrow but critical issue as to the effect of the notice of rescission, which they appear to have raised for the first time in submissions. To the extent that any costs might otherwise be ordered in their favour, they should be limited to the costs of that issue, and there would be no utility in making such an order where those costs would be minimal. 2. Here, the order that will best promote the fair allocation of costs, having regard to what the Court considers to be the responsibility of each party for the incurring of the costs, is that there be no order as to the costs of the proceedings. Order 5 of the orders made by the Court on 24 September 2021 will have no effect, where Mr Stewart's has not otherwise succeeded in the result of the proceedings, as distinct from several intervening issues. 3. Accordingly, I make the following orders: 1. Declare that each of the three thoroughbred racing horse investment schemes relating to "Lucky For All", "Le Baol" and "Panama Papers" ("Schemes") were managed investment schemes within the meaning of section 9 of the Corporations Act 2001 (Cth) ("Act"). 2 Declare that the First Defendant contravened section 601ED(5) of the Act by operating the Schemes, which were required to be registered pursuant to section 601ED(1) of the Act, but which were not so registered. 3 Order, pursuant to section 601MB(5) of the Act, extending until 26 April 2022 the time within which the First Defendant may apply under section 601MB(4) of the Act for an order declaring the notice issued by the Plaintiff pursuant to section 601MB(1) of the Act on 6 October 2020 ("Notice") to have had no effect. 4 Declare, pursuant to section 601MB(6) of the Act, that the Notice has no effect. 5. There be no order as to the costs of the proceedings. 6. The Amended Summons filed on 15 April 2022 otherwise be dismissed. ********** 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: 24 May 2022