New South Wales Court of Appeal CITATION: G R VAUGHAN (HOLDINGS) PTY LTD & ANOR V VOGT & ANOR [2006] NSWCA 263 HEARING DATE(S): 14/09/2006 JUDGMENT DATE: 22 September 2006 JUDGMENT OF: Hodgson JA at 1; Santow JA at 2; Bryson JA at 3 DECISION: see para [29]; Summons for leave to appeal dismissed with costs CATCHWORDS: COSTS - successful party pays unsuccessful party's costs - son of testatrix defeated claims for provision out of notional estate by a widower and adult daughter by proving transaction for value between testatrix and himself for transfer of half her shares in family company and alteration of articles to deprive remaining shares of rights on her death - transaction kept secret, false returns to Corporate Affairs and Transfer of Shares not stamped or registered - son's evidence produced at last minute and Transfer stamped only on Day 4 of the hearing - son succeeded but Trial Judge awarded part costs to widower against son - leave to appeal refused. Civil Procedure Act 2005 (NSW) s.98 LEGISLATION CITED: Family Provision Act 1982 (NSW) Stamp Duties Act 1920 (NSW) s.29 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No. 3) (1998) 30 ACSR 20 Knight v Clifton [1971] Ch 700 Oshlack v Richmond River Council (1998) 193 CLR 72 CASES CITED: Ottway v Jones [1955] 1 WLR 706 Ritter v Godfrey [1920] 2 KB 47 Tekmat Investments Pty Ltd v Ward (1988) 81 ALR 278 Verna Trading Pty Ltd v New India Assurance Co. Ltd [1991] 1 VR 129 First Claimant: G R Vaughan (Holdings) Pty Limited (ACN 000 240 264) PARTIES: Second Claimant: Colin Raymond Vaughan First Opponent: Russell Keith Vogt Second Opponent: Peter Victor Duncan FILE NUMBER(S): CA 40956/2005 COUNSEL: Claimants' counsel: M. Ashhurst Opponents' counsel: No Appearance SOLICITORS: Claimants' solicitor: Turner Freeman, Sydney Opponents' solicitor: No Appearance LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): ED 3062/03 & ED 3530/04 LOWER COURT JUDICIAL OFFICER: Macready AsJ LOWER COURT DATE OF DECISION: 21/09/05 LOWER COURT MEDIUM NEUTRAL CITATION: [2005] NSWSC 670 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40956/2005 HODGSON JA SANTOW JA BRYSON JA FRIDAY 22 SEPTEMBER 2006 G R VAUGHAN (HOLDINGS) P/L & COLIN RAYMOND VAUGHAN v RUSSELL KEITH VOGT & ANOR Judgment 1 HODGSON JA: I agree with Bryson JA. 2 SANTOW JA: I agree with Bryson JA. 3 BRYSON JA: The claimants seek leave to appeal against costs orders made by Macready AsJ on 15 November 2005 in litigation among persons interested in the estate of the late Patricia June Vaughan, who died on 25 December 2002 aged 74 years. By her last will she left all her assets to the first opponent Mr Russell Keith Vogt, whom she married in February 2002 after a long domestic relationship. Mr Peter Victor Duncan the second opponent is the executor of her will, but has no beneficial interest in her estate. The claim for leave to appeal against the order in favour of Mr Duncan has been discontinued. 4 Apart from shares in G R Vaughan (Holdings) Pty Ltd the first claimant, the testatrix's assets were of small value, said to be about $10,000. Under agreements and arrangements between the second claimant Mr Colin Vaughan and the testatrix (his mother) the first of which took place in 1990, the testatrix agreed to transfer half her shares in the Company to Mr Colin Vaughan and to bring about a change in the Articles of Association so as to make her remaining shares valueless upon her death. In return Mr Colin Vaughan agreed to give up his practice of architecture and assist her with her investment projects. Later, about 16 August 1994, she signed a form of transfer to Mr Colin Vaughan of approximately half her shares in the Company. The Transfer was not stamped, and it was not recorded in the Company's Share Register; the Share Register had been lost, and the Company did not at that time maintain a share register. By agreement between them, the transactions were kept secret, and annual returns filed by the Company contained statements which were untrue on the facts as Mr Colin Vaughan has established they were and as the Trial Judge has found them. The annual returns said that the testatrix was the beneficial owner of all her shares: whereas on the facts as found he was the beneficial owner of half of them. On 2 April 1997 a resolution of shareholders, consisting only of the testatrix, Mr Colin Vaughan being a director and present at the meeting, altered the rights attached to her shares so that they lost all but nominal value on her death. 5 The Company owned the residence and commercial premises where for many years the testatrix and Mr Vogt lived and conducted a Laundromat business. After the testatrix died Mr Colin Vaughan told Mr Vogt that Mr Vogt should give up possession of the commercial premises and residence which he still occupied. Mr Vogt disputed this and did not comply. 6 In proceedings commenced in 2003 Ms Diane Vaughan, the testatrix's daughter, claimed provision under the Family Provision Act 1982 (NSW). On 22 June 2004 Mr Colin Vaughan produced a copy of the Share Transfer for the information of Mr Duncan and of others interested in the estate; this was the first they knew of the Transfer, and of any effect it produced on the beneficial ownership of one half of the testatrix's shares. The first opponent Mr Vogt commenced his proceedings in the Equity Division, also on 22 June 2004; he claimed further provision under the Family Provision Act out of notional estate of the testatrix and asked that assets including her shares in the Company be designated as notional estate. 7 In Mr Vogt's Summons the executor Mr Duncan was the first defendant and the claimants were the second and third defendants. Mr Duncan brought a cross-claim against Mr Colin Vaughan in Ms Diane Vaughan's proceedings with the object of establishing that the shares were estate assets; in effect he attacked the supposed validity of any arrangements under which Mr Colin Vaughan became beneficial owner of shares. Mr Vogt had an interest in establishing that Mr Vaughan was not the beneficial owner of the shares, although that would mean that he would lose his claim for provision: he would not need an order for provision in that event, because he would be entitled to the estate assets including the shares. 8 Mr Colin Vaughan succeeded in establishing before Macready AsJ that the Transfer was given for valuable consideration and was effective to make him the beneficial owner of the shares with which it dealt. To establish this he had to pass several difficulties, not only the difficulty of showing that his account of the events was true, but also the difficulties that the Transfer was incomplete in an important respect as it did not nominate the jurisdiction in which the Company was incorporated, that he had given an inaccurate statement of its date, that it was not stamped, that it showed only nominal consideration, not valuable consideration, that it was not registered, and that in the state it was in it could not be registered. It did not clearly support a claim that Mr Colin Vaughan owned any shares: the indication on its face was that it did not create a beneficial interest, as the consideration was nominal. Mr Colin Vaughan overcame all these difficulties, in the case of the absence of a duty stamp by having the document stamped on the fourth day of the hearing. Until that happened he was not in a position to obtain a judicial decision relying on the Transfer because of the provisions of s.29 of the Stamp Duties Act 1920 (NSW): which is to the effect that the document was not to be pleaded or given in evidence or admitted to be good, useful or available in law or in equity for any purpose whatever. Once the document was stamped the difficulties created by s.29 were overcome, with retrospective effect. Mr Colin Vaughan succeeded in showing that the value of the shares which he did not own became nominal on her death; and also that he had become beneficial owner too early for his shares to be designated as notional estate. The transaction which deprived the remaining shares of real value, which took effect only on her death, was effected for valuable consideration. As a result there was no notional estate out of which provision could be ordered and claims under the Family Provision Act failed. 9 Although Mr Colin Vaughan and the Company succeeded, the Trial Judge ordered that the claimants pay Mr Duncan's costs of the cross-claim, and also ordered that Mr Colin Vaughan pay part of Mr Vogt's costs of his claim, that is the part of the claim of Mr Vogt which related to the claim to notional estate and the claim against Mr Colin Vaughan. It is against the order that Mr Colin Vaughan pay part of Mr Vogt's costs that leave for appeal is sought; the order about Mr Duncan's costs is no longer challenged, so the Company no longer seeks leave to appeal. The amount of costs in issue is not clearly shown; the only information available is the Trial Judge's reference in the principal judgment to the costs of Mr Vogt as amounting to $55,000 for a three-day trial. Not the whole of those costs were ordered; on the other hand the trial lasted longer than three days. 10 Mr Vogt did not appear at the hearing of this application. On 13 September 2006 he sent to the Registrar of the Court of Appeal a message saying that he will not be legally represented in the appeal, that he is at present in Canada caring for his elderly mother, that his financial position precludes his being able to retain legal representation and that he contends that Macready AsJ made a correct decision. 11 In his judgment dealing with costs of 15 November 2005 Macready AsJ referred to a number of relevant circumstances before stating the result of his discretionary consideration. In summary the matters referred to are these. The litigation had been made quite complex. First this was so because of the underlying issues about what were the estate assets but it was also made complex by the conduct of Mr Colin Vaughan in bringing forward his evidence. He made his claim that he was entitled to the shares shortly after the death of the testatrix but then gave the wrong date as the date of the Transfer in the letter by which he stated his claim. He produced copies of the Transfer for others to see on 22 June 2004, but did not produce the original until the hearing and it was then unstamped, and it was admitted in evidence only on the fourth day of the hearing after being stamped. He made his case known by affidavits which were not served until 22 June 2005, for a trial which was to commence on 5 July 2005. His previous communications had given some inkling of the existence of the Transfer but what he said were the surrounding circumstances, which were vital if he was to succeed, consisted of conversations which he did not make known until these affidavits became available. This caused difficulty for the conduct of the hearing, which had to be expanded beyond what was first contemplated; it made it difficult to isolate the issue of the ownership of shares and deal with it separately from the Family Provision claims. The evidence available to other parties was the annual returns which they could see by inspecting documents filed under corporations legislation, and these contained false statements, pursuant to an agreement between Mr Colin Vaughan and the testatrix to lodge false returns and not disclose the true situation, in particular not disclose it to Mr Vogt. When Mr Vaughan's case became known from the contents of his affidavits, it differed from indications as to what might possibly be his case which had been before Mr Duncan earlier. 12 The Trial Judge said to the effect that the secret agreement between Mr Vaughan and the testatrix to hide the true situation and file company returns hiding the true situation stood out very obviously as a wrongful act in the course of the transaction. The Trial Judge said that the problem was compounded by the way the proceedings were continued without Mr Vaughan serving his affidavits. His Honour was not prepared to accept fully the claim that some inability prevented Mr Vaughan from acting effectually. In his Honour's judgment Mr Duncan was quite right to bring the cross-claim to determine the question of ownership of the shares, and in the state of incomplete information and conflicting information available to the executor, the executor could take no other course. 13 The Trial Judge concluded that Mr Colin Vaughan should not have his costs against the executor but the executor should have his costs against Mr Vaughan, not limited to part of the proceedings. With respect to Mr Vogt's costs the Trial Judge said that the same principle should apply, and ordered Mr Colin Vaughan to pay part of the costs of Mr Vogt, as I earlier stated. 14 In support of the proposed appeal it was contended that the Trial Judge was in error in applying the same principle to both costs orders; it was said that, unlike the cross-claim brought by Mr Duncan, the proceedings brought by Mr Vogt assumed that the Transfer took place, but claimed that the lack of sufficient consideration and other alleged defects caused it to be ineffective. It was said that it cannot be claimed that the secret agreement was in any way responsible for Mr Vogt having assumed or acted as if there was no transfer. In my view there are no prospects of success in this contention; without the secret agreement, the Transfer, which was expressed to be for $1 which was not the true consideration, and which was materially incomplete, did not show that Mr Colin Vaughan had any relevant interest. 15 There were further contentions to the effect that the Trial Judge had not appropriately addressed the circumstance that what was under consideration went further than whether the claimants, who had succeeded, should recover their costs, and went so far as to be an application that the successful party pay the costs of an unsuccessful party. In my view the reasons given by the Trial Judge show clearly that he fully understood that the order which he made had this effect, and saw the unusual nature of that order and the need for a strong basis for an exercise of discretion to make such an order. Not only do I see no signs of any misunderstanding; in my opinion there was a very strong basis supporting the discretionary decisions which the Trial Judge reached. Mr Colin Vaughan participated with the testatrix in long-continued deceptive behaviour involving the production of a series of false documents, and fully achieved the deception and concealment which was the object of this course of conduct. Mr Colin Vaughan's behaviour brought about the controversy, and made it difficult for others concerned to accept his case; and made matters worse by the way in which he conducted the proceedings and brought forward his case of fact only at a very late stage. 16 Counsel pointed out, correctly, that Ritter v Godfrey [1920] 2 KB 47, to which the Trial Judge referred, related to circumstances in which a successful defendant was refused an order for payment of his costs, and did not relate to or involve consideration of the circumstances in which the successful party may be ordered to pay the costs of an unsuccessful opponent. The Trial Judge referred to Ritter v Godfrey as an example illustrating the breadth to the discretion to award costs conferred by s.98 of the Civil Procedure Act 2005 (NSW). In Ritter v Godfrey consideration by Atkin LJ of the case law to that time was extensive. I respectfully say that the judgments appear to assume a degree of appellate control by ascertainable principles over the exercise of a discretionary power to order costs which may not appropriately recognise the nature of a discretionary power and the limits on appellate intervention. The Trial Judge also referred to Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No. 3) (1998) 30 ACSR 20 as a further example. That case also was not a case in which a successful party was ordered to pay an unsuccessful party's costs. The decision and reasoning of a Young J. is deeply enmeshed in the facts of that case; and the discretionary nature of the power was appropriately acknowledged. 17 Discretions as to costs are not correctly seen as confined by rules which have been stated by appellate courts or established by practice. The limitations of appellate intervention in discretionary decisions as to costs, as in other discretionary decisions, were clearly recognised in Oshlack v Richmond River Council (1998) 193 CLR 72 – see Gaudron and Gummow JJ at 81-89 and particularly at 88[40] "There is no absolute rule with respect to the exercise of the power conferred by a provision such as s 69 … that, in the absence of disentitling conduct, a successful party is to be compensated by the unsuccessful party. Nor is there any rule that there is no jurisdiction to order a successful party to bear the costs of the unsuccessful party. (Knight v Clifton [1971] Ch 700 at 710, 713-714, 716, 724-725; Tekmat Investments Pty Ltd v Ward (1988) 81 ALR 278 at 280)" 18 Their Honours' reference to there being no absolute rule can be understood with the assistance of Knight v Clifton, which their Honours noted in a footnote. Knight v Clifton was also referred to in Verna Trading Pty Ltd v New India Assurance Co. Ltd [1991] 1 VR 129, to which the claimants' counsel referred; at 155 Kaye J. made the following citation from Knight v Clifton: Russell LJ in Knight v Clifton , at p. 713, foreshadowed that only in the most exceptional cases could an order be properly made compelling the successful party to pay the costs of the proceeding. Sachs LJ, at p. 718, warning of the impossibility as well as undesirability of attempting to define what constitutes a strong or exceptional case, added: ". . . but to my mind it can include occasional rare cases in which the conduct of the defendant has brought about the proceeding or in which his conduct causes its continuance or in which he escapes the normal consequences of his blameworthy conduct by reason of some unexpected matter which he knew but which the plaintiff could not know. After giving every weight both to the fact that the defendant has succeeded after being brought to court by a plaintiff who has not secured any relief and to the settled practice of the courts in ordinary cases, it may yet be that in justice the former should bear the costs." 19 In my view the position was well stated by Evershed MR in Ottway v Jones [1955] 1 WLR 706 at 711:- I should like to say (what is indeed obvious) that, where a plaintiff in the end fails, it must be a very unusual thing to order the successful defendant to pay the costs; and it would only be in exceptional cases that a judge would think it right to make such an order. Still, this is a matter of discretion; and, unless it is shown here that the judge erred upon some matter of principle, we should not, according to the well-established rules applicable to such matters, vary the discretion of the judge or seek to substitute a discretion of our own. 20 It would be an error to think that it has been established, as a matter of law, that an order that a successful party to pay costs of an unsuccessful party cannot be made unless it has first been found in terms or to the effect that it is a most exceptional case, or a strong or exceptional case. Judicial references to general rules for the award of costs should not be understood as endeavours to alter the discretionary character of such decisions. 21 It was contended to the effect that the Trial Judge was in error in treating the claim of Mr Vogt for an order for costs against Mr Colin Vaughan and the Company as falling to be decided under the same principle as that under which he had earlier decided that Mr Duncan the executor should recover costs from Mr Vaughan. The Trial Judge referred at pp4-5 of his Honour's reasons to considerations which were special to the position of the executor as a person not having an interest in the proceedings except as executor, who took nothing under the estate and made no claim, but had a duty as an executor to bring a cross-claim to determine what was the ownership of the shares: and that could not be determined unless he took some active steps, and would not be resolved in any way but by conducting the proceedings to hearing and obtaining a decision. The Trial Judge also said (p5) "In the circumstances it seems to me that certainly Colin Vaughan should not have his costs against the executor but the executor in my view should have his costs against Mr Colin Vaughan because of the way the matter was conducted. There seems little point in restricting it to the fourth day of the hearing. By then everyone was committed to a hearing which had to proceed despite the late service of all of Mr Colin Vaughan's affidavits to avoid the costs of an adjournment." In my opinion the reference to the way the matter was conducted, and the reference to circumstances which the Trial Judge had in view in that connection, were well applicable to consideration of the claim of Mr Vogt for an order for costs, and were considerations of great importance. 22 The Trial Judge's reference when concluding in favour of Mr Vogt to the same principle on which the order in favour of Mr Duncan had been made was an unhappy expression of a kind not infrequently encountered when ex tempore reasons are subjected to very close scrutiny. It is overwhelmingly obvious that the considerations relevant to Mr Duncan's position as executor did not apply to Mr Vogt's claim for costs, and when the Trial Judge said "the same principle" he cannot have intended to refer back to that part of his reasons: he can only have intended to refer to the considerations he had more recently set out. The way the matter was conducted was the matter last under the Trial Judge's consideration before pronouncing the order in favour of Mr Duncan, and this was a discretionary consideration of high importance when his Honour addressed the question of an order in favour of Mr Vogt. I will spell out my reasons for saying this. 23 The conduct of Mr Colin Vaughan, during the testatrix's lifetime, after her death and before any litigation was commenced, and while the litigation was pending, was extremely unsatisfactory in a number of respects which were important for the controversy and the manner in which it was resolved. The transaction in which half of the shares came into the beneficial ownership of Mr Colin Vaughan, and the other half of her shares were reduced to no more than nominal value at her death, was kept secret during her lifetime by Mr Colin Vaughan; no doubt, as the Trial Judge found, in accordance with the testatrix's own wishes. Secrecy went to the extent of lodging a series of untrue annual returns which stated that she continued to be the beneficial owner; this continued over many years, and was dishonourable behaviour and contrary to the public interest, which requires truthful Corporate Affairs returns. Ms Diane Vaughan commenced her proceedings claiming provision out of the estate or notional estate of the testatrix in 2003, it would seem by or before July 2003. When Mr Vogt commenced his proceedings on 22 June 2004, estate affairs had been the subject of a claim for maintenance out of notional estate for about one year; but the basis of Mr Colin Vaughan's claim to be the beneficial owner of half the testatrix's shares had not emerged. 24 Mr Colin Vaughan challenged Mr Vogt's continued possession of the house and commercial property which he and the testatrix had long occupied; the owner of the house and commercial property was the Company, not Mr Vaughan himself, and his challenge to Mr Vogt's occupancy, if it was to be made good in any meaningful way, depended on establishing his own beneficial ownership of half the testatrix's shares, and the lack of value of the other half. Otherwise the shares were owned by the executor and Mr Vogt was entitled to them, and ejecting Mr Vogt in exercise of power as a director of the Company would have no long-time effect. Mr Vogt commenced his proceedings on 22 June 2004, and by that time Mr Colin Vaughan had done nothing to establish his claim to be the owner of the shares, or to make the basis of it known in a clear way; the only thing that could be known from inspection of the transfer, when he produced it for the executor to see, was that the transfer was uncompleted, unstamped, unregistered and expressed to be for nominal consideration only; on the face of the document and without evidence from Mr Colin Vaughan of the circumstances in which it existed, it indicated that he did not have beneficial ownership of the shares. 25 Mr Vogt's proceedings when commenced claimed provision out of the estate or notional estate of the testatrix. It was not his true interest to obtain provision, but to establish that the shares were estate assets; the claim for an order for provision was a poor alternative, but when he issued his Summons time for him to do so, which began when the testatrix died on 25 December 2002, was about to run out. Mr Colin Vaughan had given incomplete and uncertain expression to his claim to be the beneficial owner of the shares, but he had done nothing to advance his claim apart from raising discord; he did not sue for an order to establish his claim, and he has never done so. Then, notwithstanding the practice in summary proceedings in the Equity Division and directions limiting time for filing affidavits, he did not produce his affidavit material until a short time before the hearing. If Mr Colin Vaughan had revealed what his case was in due time, other parties would have had an opportunity to reconsider their positions. If parties are confronted with far-ranging affidavits at the last minute, reconsideration is very difficult. 26 Misconduct of this kind in proceedings on Summons is distressingly frequent, so frequent as to bring those who engage in it under the suspicion that they are deliberately seeking forensic advantage by revealing their evidence at the latest achievable time. I am amazed that litigants do not understand and avoid the forensic disadvantage of behaving in a way which gives this appearance. However they very frequently do give that appearance. In proceedings on Summons affidavits are the means by which parties come to know what the issues of fact are: hence the attention the Court gives to directions for filing affidavits. Measures which the Court carefully takes to ensure procedural justice and a fair basis for hearings tend to be defeated by conduct of this kind. 27 Overall the way in which the matter was conducted by Mr Colin Vaughan, to which the Trial Judge referred, is, in the circumstances, an extremely powerful consideration supporting the exercise of discretion which the Trial Judge made. If on appeal it were established that there had been some miscarriage of the discretion, it appears to me to be overwhelmingly likely that the same result would be reached on reconsideration by the Court of Appeal. If the correct position in law is, contrary to my opinion, that it must first be found that this is a most exceptional case if there is to be such an order as the Trial Judge made, I would think that there should be a finding in those terms. 28 Counsel made observations contrasting the position of Ms Diane Vaughan, and the Trial Judge's decision relating to costs between her and the executor, with the decision with respect to Mr Vogt's costs. I do not think that there is any real assistance there. Mr Vogt's position was altogether different as his prima facie entitlement to the shares under the will, and also his occupation of the house and commercial property, were under challenge by Mr Colin Vaughan. Counsel contended that the Trial Judge was in error in not analysing the differences between the positions of the two plaintiffs; I did not regard this as indicating any significant error. 29 In my opinion the proposed appeal has no reasonable prospects of success and leave to appeal should be refused for that reason. The Court of Appeal should order: Summons for leave to appeal dismissed with costs. ********** 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.