New South Wales Supreme Court CITATION : Ingot v Macquarie [2003] NSWSC 1102 revised - 3/12/2003 HEARING DATE(S) : 7 & 8 October and 7 November 2003 JUDGMENT DATE : 28 November 2003 JUDGMENT OF : McDougall J at 1 DECISION : See paras [36] and [37] of judgment CATCHWORDS : COSTS - of application for leave to further amend summons, and, of and thrown away by the amendments - circumstances which give rise to the discretion to order indemnity costs - whether the discretion is enlivened in the present case - significance of delay, and lack of explanation for delay, in seeking amendments Ingot Capital Investments & Ors v Macquarie Equity Capital Markets & Ors [2003] NSW SC 1012 Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225, 233-234 CASES CITED : Oshlack v Richmond River Council (1998) 193 CLR 72, 89 Rosniak v Government Insurance Office (1997) 41 NSWLR 608 Optus Vision Pty Ltd v Commissioner of Taxation [2000] FCA 332 Sydney Markets Ltd v Sydney Flower Market Pty Ltd [2001] FCA 662 Ingot Capital Investments Pty Ltd AOIT Ltd ASC Pty Ltd Australian Opportunities Investment Trust PLC Eastern States Securities Ltd and Ingot Capital Management Pty Ltd v Macquarie Equity Capital Markets Ltd Macquarie Equities Ltd Macquarie Bank Ltd PARTIES : Udayan Daniel Ghose Jonathan Paul Beach Azmin Firoz Daya Craig Deery Michael J Morrisey William Peck Paul Laurence Williams Peter Aroney John Trowbridge Consulting Pty Ltd Patrick Murray and the persons listed in Schedule "B" to the summons Andrew Mutton and the persons in NSW listed in Schedule "A" to the further amended summons and New Cap Reinsurance Corporation Holdings Ltd (in Liq) (Cross Defendant) FILE NUMBER(S) : SC 50169/01 F M Douglas QC/B Katekar (Plaintiffs) A S Bell (Defendants 1-3) P M Wood (Defendant 4) I Pike/N Har (Defendants 5, 7 and 8) A McLennan (Defendant 6) COUNSEL : R Taylor (Defendant 9) W Jacobs (Defendant 10) L F Harris (Defendant 11) S A Goodman (Defendant 12) P J Brereton (Defendant 13) J T Gleeson SC/R A Dick (Defendant 14) Deacons (Plaintiffs) Mallesons Stephen Jaques (Defendants 1-3) Atanaskovic Hartnell (Defendant 4) Colin Biggers & Paisley (Defendants 5, 7 and 8) Sparke Helmore (Defendant 6) SOLICITORS : Gilbert Tobin (Defendant 9) Dibbs Barker Gosling (Defendant 10) M D Nicolaidis (Defendant 11) Minter Ellison (Defendant 12) Blake Dawson Waldron (Defendant 13) Freehills (Defendant 14) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST McDOUGALL J 28 November 2003 50169/01 INGOT CAPITAL INVESTMENTS PTY LTD & ORS v MACQUARIE EQUITY CAPITAL MARKETS LTD & ORS JUDGMENT ON COSTS HIS HONOUR: Introduction 1 On 7 November 2003 I gave judgment on the plaintiffs' application for leave further to amend their summons: Ingot Capital Investments & Ors v Macquarie Equity Capital Markets & Ors [2003] NSW SC 1012. At paragraph 58 of that judgment I indicated the orders that I would make. On 14 November 2001 the parties brought in competing versions of short minutes of order in response to the matters covered by paragraph 58. I made orders that day to resolve the competition. 2 For reasons set out in para [55] of my earlier judgment, I reserved the question of costs so that the parties could, if they wished, put on further submissions once they had had an opportunity to consider my reasons. Those further submissions have now been received. The parties' contentions 3 The defendants sought an order that the plaintiffs pay their costs both of the application for leave to amend and of and thrown away by the amendments, and that in each case those costs be paid on an indemnity basis. 4 Initially, the plaintiffs sought an order that costs – as I understood it, both of the application for leave to amend and of and thrown away by the amendment – be costs in the cause. At the hearing, however, the plaintiffs accepted that they should pay the defendants' costs of and thrown away by the amendments. 5 However, as to the costs of the application for leave to amend, the plaintiffs submit that, although in general they should pay the defendants' costs of that application, there should be specific exceptions: (1) The Macquarie parties should bear the costs of the application for leave in respect of the "good faith" claim (which was considered in paras [38] to [47] of my first judgment), on the basis that the Macquarie parties unsuccessfully opposed the grant of leave in respect of that claim; (2) The costs of the application for leave in respect of "the new ASIC Act claims" (see paras [12] to [27] of my first judgment) should be costs in the cause, because the Macquarie parties, with the support of the other defendants, unsuccessfully opposed the grant of leave in respect of those claims; and (3) The plaintiffs should have the costs of the further hearing on 14 November 2003, because in substance I made orders, over the opposition of the defendants, as contended for by the plaintiffs. Indemnity costs: general principles 6 The general principle, expressed in Pt 52A r 32, is that costs should be payable on a party and party basis unless, relevantly, the Court orders that they be payable on an indemnity basis. It follows, and the parties accepted, that there must be some circumstance sufficient to displace the operation of this general principle if I were to order that any costs payable be payable on an indemnity basis. 7 The circumstances that will give rise to indemnity costs have been considered in a number of cases. Thus, in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225, 233-234, Sheppard J reviewed the authorities and identified a number of circumstances that had from time to time been seen as enlivening the discretion to award indemnity costs. It is in my opinion clear that the examples identified by his Honour were no more than that. I do not think that it follows that indemnity costs must be ordered wherever one or more of those examples occurs. Nor do I think that it is possible to state, except in terms of the utmost generality, the circumstances that will enliven the discretion. 8 In Oshlack v Richmond River Council (1998) 193 CLR 72, 89, Gaudron and Gummow JJ pointed out that "in the particular circumstances of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a 'solicitor and client' basis … or on an indemnity basis". However, their Honours pointed this out in the course of considering the general proposition "that costs orders are not made to punish an unsuccessful party". 9 A similar approach was taken in Rosniak v Government Insurance Office (1997) 41 NSWLR 608. Mason P (with whom on this issue Clarke AJA agreed) noted at 616 that the discretion is not confined to cases involving what might be described as ethical or moral delinquency, but that, nonetheless, "the Court requires some evidence of unreasonable conduct, albeit that it need not rise as high as vexation", if the discretion is to be exercised. His Honour explained that this was "because party and party costs remain the norm, although … they provide an inadequate indemnity" and that "[a]ny shift to a general or common rule that indemnity costs should be the order of the day is a matter for the legislature or the rule-maker". Relevant circumstances 10 The initial position of the plaintiffs, which was advanced through an affidavit sworn by their solicitor, Mr Mitchell Mathas, was that the amendments did not materially alter the case pleaded by the plaintiffs against the various defendants so that, he said, the plaintiffs did not consider that costs would be thrown away as a result of the amendments. Mr Mathas' evidence in that affidavit was that the amendments were prompted by a review of material available to the plaintiffs (including the parties' discovered documents) and were designed to reorganise the summons "into a more efficient and better particularised pleading". 11 The defendants' evidence – in particular, the evidence of Mr Ashley John Black, the solicitor for the Macquarie parties, and Mr Bruce John Ramsay, the solicitor for Phillips Fox, demonstrated to my satisfaction that in fact the proposed amendments made substantial, and substantive, changes to the cases pleaded against their respective clients. It was apparent from their evidence – and in my opinion it is apparent, in any event, from a comparison of 5 FAS with the fourth further amended summons – that 5 FAS in the form propounded at the hearing before me did materially alter the cases pleaded against the defendants. Ultimately Mr Mathas conceded as much in cross-examination. 12 One of the difficulties, in understanding the changes, was that the draft that was propounded at the hearing before me was not marked up in the orthodox way, so as to show changes from the fourth further amended summons. Mr Mathas sought to explain this by saying that the mark ups would have been so extensive (because of the reorganisation of the document as well as the changes to its text) as to be virtually useless. Be that as it may, the task of comparing the document with the fourth further amended summons was rendered extremely difficult by the absence of marking up. Mr Black was able to use a computer programme to create, in effect by a process of reverse engineering, a marked up version of 5 FAS that showed the changes from the fourth further amended summons; but inevitably, there were some gaps in what was disclosed. 13 I should note that the Macquarie parties submitted that Mr Mathas' conduct in not providing a marked up copy of the draft 5 FAS "is only explicable as an attempt to avoid disclosure of the true extent of the amendments which were sought". Although Mr Mathas was cross-examined as to the reason why he did not provide a marked up copy, that proposition was not put to him. I do not accept it. 14 It was put to Mr Mathas in cross-examination that the documents that, he said, prompted the redrafting exercise had been available to his firm or the plaintiffs for a considerable time. Mr Mathas conceded that the great majority of those documents had been so available since November 2001. I should note that the plaintiffs submitted that, notwithstanding the general position that I have just noted, what they called "the central document" in relation to the amendments sought against PwC only came to Mr Mathas' attention "recently". However, in the course of the hearing on 7 October 2003, I was informed without objection that "there is no dispute about the fact that that document was available to the plaintiffs' legal representatives in November 2001, although it did not completely come to Mr Mathas' attention at that time". There was no explanation as to why this "central document" had taken the best part of two years to come to Mr Mathas' attention. 15 It appears that, when the plaintiffs served their expert evidence, a number of the defendants raised with the plaintiffs the point that the evidence went well beyond the existing pleadings. I infer that the principal reason for the plaintiffs' review of their pleadings was to ensure that the factual case that they sought to make out could be run within the confines of their pleadings. Indeed, I think, Mr Mathas said as much in his affidavit, when he said that the amendments followed a number of events and were made "with the benefit of having prepared the Plaintiffs' lay and expert evidence". The plaintiffs' submissions on costs picked up this point. They note that, after the plaintiffs had provided discovery, reviewed the discovery of other parties and compared it to material already available, and prepared and filed and served their own evidence, they "then, appropriately, attended to addressing inconsistencies between the evidence it [sic] had filed and the Summons". 16 Mr Mathas initially sought to maintain the position that, because the amendments did not materially alter the pleaded case, the existing timetable (including a hearing, fixed as long ago as 7 March 2003, for the first week of term in 2004 with an estimate of 3 months) could be maintained. However, the evidence demonstrated to my satisfaction that if the amendments were granted, the amount of work that would be required to be done would make it impossible to maintain that hearing date. The evidence further demonstrated to my satisfaction that it would not be appropriate to do (as was initially suggested) and simply put the commencement back for a period of time. When the hearing before me concluded, upon the basis that a redraft of 5 FAS was to be prepared and that the parties were to have the opportunity to make submissions in respect of it, the inevitable was recognised and, at the request of the defendants, and with no opposition from the plaintiffs, I vacated the hearing date that had been fixed. 17 Taken overall, the evidence discloses no explanation other than that recorded in para [15] above from the plaintiffs as to why the amendments were undertaken, in such a substantial manner and at such a late stage (relatively speaking) in the proceedings. The explanation that was given has been substantially conceded to be inaccurate. In particular, Mr Mathas' concession that the great majority of documents that were relevant to the amendments had been available since November 2001 undermined the suggested explanation that it was the review of discovered documents that had prompted at least some of the amendments. 18 Further, the evidence discloses no satisfactory explanation as to why the amendments that are now sought to be made could not have been made in February 2003, when the fourth further amended summons was filed. To the extent that the revision is as a result of the plaintiffs having filed their lay and expert evidence and received the defendants' comments thereon, that does not seem to me to be something that should be taken to account in the plaintiffs' favour in considering the basis upon which costs should be ordered. 19 I have no difficulty in understanding that, in complex litigation of this kind, plaintiffs will from time to time need to amend; and that, from time to time such amendments may change substantially the case sought to be made. But one would expect that, in the circumstances disclosed by the evidence, the plaintiffs' claims in these proceedings should have been finalised well before 17 October 2003, when the revised version of 5 FAS was produced. 20 One feature of concern, as between the plaintiffs and the Macquarie parties, is that the claim as originally pleaded (and as maintained through successive amendments up until and including the fourth further amended summons) included an assertion that the Macquarie parties had actual knowledge of the alleged falsity of representations made in the prospectus. Those allegations, as Mr Mathas conceded in cross-examination, were serious matters, involving issues of corporate and individual reputation, which would necessarily be taken extremely seriously and thoroughly investigated. Those allegations were dropped in 5 FAS. No explanation has been given as to why they were dropped at such a late stage, relatively speaking, in the proceedings. 21 Another feature of concern, in particular as between the plaintiffs and Phillips Fox, is that in August 2002, and again in June 2003, the plaintiffs expressly stated to Phillips Fox that there would be no negligence claim brought against them in respect of advice said to have been given. In fact, the form of 5 FAS that was debated before me contained such a claim (paras 177 to 197). Once the amendment was notified to Phillips Fox, they pointed out its defects; but the plaintiffs persisted with the proposed amendment at the hearing before me. As I have noted, that claim has now been dropped in its entirety from the current draft of 5 FAS. Phillips Fox ' opposition to the amendment has in substance been justified. 22 There are four other matters that seem to me to be relevant when considering the question of the basis upon which costs should be paid. The first is that, right up until the hearing, the plaintiffs steadfastly maintained the line that the amendments were not material, that no costs would be thrown away, and that the timetable and hearing date could be maintained. It followed, they said, that the costs of the amendments should be costs in the cause. I have no doubt that this attitude engendered in the defendants an equally "hard line" response. It was, I think, in no small part a cause of the force with which the defendants opposed the amendment. 23 The second matter is that the length of the hearing was significantly increased by a number of factors, responsibility for which must be attributed to the plaintiffs. One such matter is the attitude of the plaintiffs referred to in the preceding paragraph. It was necessary for the defendants to undertake substantial work, in particular through Messrs Black and Ramsay, to demonstrate the error in the plaintiffs' position. It was also necessary for the defendants to undertake substantial cross-examination of Mr Mathas, through whom the plaintiffs' position was advanced. As I have noted both in my first judgment and in this judgment, Mr Mathas ultimately conceded that the plaintiffs' stated position was erroneous, and that the position taken by the defendants was in substance correct. This contributed substantially to the length of the hearing. Another matter that contributed substantially to the length of the hearing was the negligence claim against Phillips Fox that was inexplicably introduced (I refer to what I have said in para [21] above) and, as inexplicably, dropped. Although that is a matter of primary concern to Phillips Fox, it has an immediate and obvious impact on the other defendants given that a substantial part of the hearing was devoted to debating the merits of the proposed negligence claim against Phillips Fox. 24 The third matter is that there are numerous cross-claims between the defendants. Most of those cross-claims follow the case that the plaintiff has pleaded against the defendant who is bringing the cross-claim. It is inevitable, and the plaintiffs must have known, that any substantial amendment to their pleadings would of necessity need to work its way through those cross-claims. It must, or should, have been appreciated that this of itself would cause very considerable expense and would take a considerable amount of time. 25 The fourth matter is that I am satisfied, on the evidence in particular of Messrs Black and Ramsay, that the amendments are so substantial that some of the work that the defendants have undertaken, to prepare their cases, will be thrown away completely and that other aspects of that work will need to be revisited. Mr Mathas ultimately conceded this in principle, although with reservations as to the extent of the work thrown away. I am therefore satisfied that the defendants will suffer a significant detriment, in terms of wasted costs, if the amendments are made. Whilst there may be room for legitimate debate as to the extent of the wasted costs – and I have no intention of entering upon an attempt to assess those wasted costs – it is clear on any view, that they will be substantial. Conclusions 26 The only way to avoid that detriment to the defendants is to order that they have at least their costs of and thrown away by the amendments on an indemnity basis. I am satisfied, particularly having regard to the relatively late time at which the amendments were sought and to the absence of any acceptable reason as to why they could not have been made at least six months ago (I interpose, before discovery and inspection of documents had been undertaken), and because of the other factors to which I have referred above, that it is appropriate to order those costs on an indemnity basis. I emphasise that this is done not to punish the plaintiffs but, so far as money can, to alleviate the prejudice to the defendants. 27 The significance of delay and lack of explanation is demonstrated by decisions such as that of Emmett J in Optus Vision Pty Ltd v Commissioner of Taxation [2000] FCA 332 and Hely J in Sydney Markets Ltd v Sydney Flower Market Pty Ltd [2001] FCA 662. 28 In the former case, Emmett J said at [17]: "However, costs will be thrown away by reason of the amendment and the adjournment. In the absence of any satisfactory explanation as to why the question of amendment was not brought on earlier, it seems to me to be appropriate to order the costs thrown away to be borne by the applicant on an indemnity basis. That, of course, is an unusual order but the absence of any satisfactory explanation as to why nothing was done between September and February seems to me to be a justification for making the order that the applicant bear the Commissioner's costs on that basis." 29 In the latter case, Hely J said at [8]: "Whilst I feel obliged to grant the adjournment application, if there were any prejudice to the respondent, then my attitude would be quite different. I think that anything less than an indemnity costs order would occasion prejudice to the respondent through an occurrence which is no fault of the respondent, and which lies entirely at the door of the applicant." 30 In my opinion, each of those statements applies to the present situation, in so far as costs of and thrown away by the amendments are concerned. 31 However, I do not think that the same position applies in respect of the costs of the application for leave to amend. The circumstances that I have referred to in paras [17] to [23] above would favour the award of those costs on an indemnity basis. However, as against that, there is the circumstance that the plaintiffs have in large measure succeeded – although the extent of their success must be qualified having regard to the successful opposition of Phillips Fox to the substantive amendments sought against them. 32 There is no doubt that the Court may make an order that the costs of particular issues follow the event of those particular issues: see, for example, Rosniak at 615 (Mason P). However, in the present case, I do not think that it is appropriate to attempt to separate out the issues on which the plaintiffs on the one hand, or the defendants on the other, "succeeded" and to make some order that the costs of those issues follow their respective events. Indeed, I think, any attempt to apportion and assess costs on this basis would be extraordinarily burdensome. 33 Nor do I think that it is appropriate to make any separate order in respect of the costs of the further hearing on 14 November 2003. The matter was fixed on that day to enable the parties to bring in short minutes of order to reflect the conclusions set out in my judgment given on 7 November 2003. In large measure, the parties agreed on what the orders should be. The substantial dispute between them was whether the documents to be provided by the plaintiffs to the defendants under what became order (4) that I made on that day should be provided in hard copy (as the defendants sought) or as electronic images (as the plaintiffs sought). Although I decided that the documents should be provided as electronic images, I made it clear that this was, in effect, a provisional view and that the question could be re-examined if, upon investigation and analysis, the electronic information provided by the plaintiffs to the defendants proved to be inadequate. I was able to come to that provisional view because of further information that was given to me, from the Bar table, in answer to questions that I raised. I am not satisfied that it was unreasonable of the defendants (who, apparently, had not had the benefit of that information) to insist on hard copies of the documents. 34 More importantly, however, the dispute that arose on 14 November 2003, as to the form in which documents should be provided, was not a dispute that had been the subject of evidence or argument in the earlier hearing. There was therefore no basis upon which it could be said that either the plaintiffs or the defendants were seeking orders that were, in some way, inconsistent with anything that I had hitherto said. It seems to me that the relative success of the plaintiffs on 14 November 2003 is best regarded as part of the totality of circumstances that I should take into account in deciding what is the appropriate order for costs of the application for leave to amend. 35 I think that the most appropriate way to balance the considerations that I have referred to, in so far as they bear on the costs of the application for leave to amend, is to order that the plaintiffs pay the defendants' costs of that application but to decline to order that those costs be paid on an indemnity basis. Orders 36 I therefore make the following orders: (1) I order the plaintiffs to pay the defendants' costs of the plaintiffs' application for leave further to amend their summons; (2) I order the plaintiffs to pay the defendants' costs of and thrown away by that amendment, such costs to include the costs of necessary or consequential amendments to the defendants' cross-claims; and (3) I order that the costs payable by the plaintiffs pursuant to order (2) be paid on an indemnity basis. 37 At least some of the defendants have sought an order that those costs be assessed forthwith. As that matter is covered by paragraph 23 of Practice Note No. 100, and as I do not propose to "otherwise order", there is no need for me to make any order to that effect. ****** Last Modified: 12/04/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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