New South Wales Supreme Court CITATION : John Anthony Jeans v John Richard Bruce & Ors [2004] NSWSC 758 HEARING DATE(S) : 13/08/04 JUDGMENT DATE : 13 August 2004 JURISDICTION: Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Declarations and orders made - see paragraph 45 CATCHWORDS : Orders appropriate - Costs - Indemnity Costs Disorderly Houses Act 1943 (NSW) LEGISLATION CITED : Gaming Machines Act 1992 (SA) Supreme Court Act 1970 (NSW) The Federal Court of Australia Act Australian Federation of Consumers Organisations Incorporated v Tobacco Institute of Australia Limited (1991) ATPR 52,738 Australian Guarantee Corporation Ltd v De Jager [1984] VR 483 Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 10 FCR 177, 71 ALR 287 Bunnings Forest Products Pty Limited v Bullen (1994) 126 ALR 660 Cretazzo v Lombardi 1975 13 SASR 4 Degmam Pty Ltd (In Liquidation) v Wright (No. 2) [1983] 2 NSWLR 354 CASES CITED : Donald Campbell and Co Ltd v Pollak [1927] AC 732 Long v Minister for Immigration and Multicultural and Indigenous Affairs (2002) FCA 774 Oshlack v Richmond River Council (1998) 193 CLR 72 Packer v Meagher [1984] 3 NSWLR 486 Sibuse Pty Limited v Shaw [No 2] (1988) 13 NSWLR 125 Smith Re; Ex parte Rundle (No. 2) (1991) 6 WAR 299 The Roosters Club Inc v The Northern Tavern Pty Limited & Anor [No 2] (2003) SASC 143 John Anthony Jeans (Plaintiff) PARTIES : John Richard Bruce (First Defendant) Harpley Nominees Pty Limited (Second Defendant) Advance Publicity Pty Limited (Third Defendant) FILE NUMBER(S) : SC 50104/03 Mr J Ireland QC (Plaintiff) COUNSEL : Mr W Hodgekiss (First Defendant) Mr B Rayment QC, Mr D Kell (Second Defendant) Moloney Lawyers (Plaintiff) SOLICITORS : Gary Cassim & Associates (First Defendant) Efron & Associates (Second and Third Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Friday 13 August 2004 ex tempore Revised 19 August 2004 50104/03 John Anthony Jeans v John Richard Bruce & Ors JUDGMENT in relation to orders and costs 1 A reserved judgment was delivered in these proceedings on 19 July 2004. Submissions have been taken from the parties in relation to the appropriate orders to be made and in relation to costs. Orders 2 There are a number of complexities relating to the proper orders to be made. They arise at two levels: · The first concerns questions as to whether or not particular declarations should be made at the suit of the plaintiff in the proceedings or should only be made on the cross-claim brought by the first defendant against the second and third defendants. · The second concerns the circumstance referred to in the judgment (at paragraph 24) that Mr Jeans has filed an application for special leave to the High Court of Australia which has not yet been heard. A central proposition put by the second and third defendants has been that for this reason it is inappropriate for final orders to be made which may ultimately be found to be inconsistent with the legal position held to apply following the conclusion of that litigation in the High Court and any remittal of proceedings to the Federal Court and any appeal therefrom. 3 During the hearing of the proceedings the court had indicated that it was disposed not to make final orders that could later be regarded as inconsistent with the position as subsequently adjudged following the High Court proceedings. [See transcript pages 32.21-37; 33.25-30]. At that time the court raised the possibility of staying any declaratory orders that could be made, including any orders declaring the rights to contribution, pending the High Court proceedings. [See transcript 32.25-33]. 4 The issues which have presently been the subject of submissions to the court have extended to cover whether or not the court has power to stay a declaration, in any event. Orders to now be made 5 At the commencement of this second tranche of the hearing on the matters outstanding following the delivery of the reserved judgment in the proceedings on 19 July 2004, Mr Rayment QC, appearing as leading counsel for the second and third defendants, submitted that it was inappropriate for the court to proceed today to deal with the matters which have been left outstanding [and particularly inappropriate to make orders in the matter of the cross-claim]. This was because, as he understood it, his client was either negotiating with [or seeking to negotiate with] the first defendant, Mr Bruce. The submission was that pending that negotiation it was not appropriate for the court to presently proceed. Mr Hodgekiss, after some examination of the position, made plain that his client did not join with Mr Rayment's clients in seeking any adjournment of any parameter of the giving of reasons for judgment on the matters remaining to be dealt with including in their entirety with the costs and other orders. 6 As it is clearly the case that Mr Jeans seeks for the court to complete the proceedings at first instance by giving reasons and my making orders, it is entirely appropriate for those reasons to be given and for orders to be made where only one party has sought an adjournment. That is more particularly so because from time to time in the course of what he has put to the court Mr Rayment has alluded to possibilities of there being some form of arguable, as I have understood it, variation of the status quo depending upon the hoped for outcome of prospective negotiations. 7 The proceedings are sufficiently complex and have taken sufficient time as far as the parties and the court are both concerned for it to be appropriate to now complete the exercise, the reserved judgment having been delivered back on 19 July. Power to stay proceedings consequent upon the making of declaratory orders 8 In my view, the authorities clearly establish that the court has power to stay proceedings that are consequent upon the making of a declaratory order. 9 It is convenient to briefly review the authorities and, to a certain extent, I adopt in this regard portion of the submissions put by the second and third defendants. 10 Support for the proposition that there is no power to stay a declaratory order (that declares existing rights) can be found in the decision of Carr J in Bunnings Forest Products Pty Limited v Bullen (1994) 126 ALR 660. Bunnings Forest involved an application for a stay, pending appeal, of a declaratory order to the effect that a deed of arrangement executed by a debtor and nominated trustee was void. Carr J reasoned (at 664) that, while there might be power to stay subsequent proceedings that are consequent upon a declaration once made, there is no power to stay a declaratory order itself once made. This is because a declaratory order is intended to state the legal rights or obligations of the parties, and once the declaration is made, the legal rights or obligations are so stated. 11 This is not to deny the potentially powerful force and effect of a declaratory order, even when that "merely" declares existing rights. While in formal terms declaratory of the existing state of lawful rights, such a declaration may have the consequence of declaring rights contrary to prior understandings of them by one or more of the parties involved, and may also require adjustment to a change of status: see Long v Minister for Immigration and Multicultural and Indigenous Affairs (2002) FCA 774 at 20, per Nicholson J. [Note also the following commentary in Young Declaratory Orders, Second Edition, Butterworths (1984) at paragraph 2408: "The effect of a declaratory order is almost universally that the court merely authoritatively indicates that a certain interpretation has always been the true interpretation of an Act or document, or alternatively, that an administrative decision, et cetera, has always been void. The effect of the court's order is not to create rights but merely to indicate what they have always been... Because of this, if an appeal is lodged against an declaratory order, conceptually there can be no stay of proceedings. Thus, if it is held that the decision of a licensing authority is void and accordingly the licences issued are null and void, there is no procedure whereby the court can validate those licences pending the hearing of an appeal."] 12 In The Roosters Club Inc v The Northern Tavern Pty Limited & Anor [No 2] (2003) SASC 143, [Doyle CJ, Niland and Bleby JJ], the Full Court of the Supreme Court of South Australia considered whether it had power to stay, pending an application for further appeal to the High Court, a declaratory order made by the trial judge to the effect that the grant of a gaming licence to the appellant (defendant) was void (as having been made in contravention of the Gaming Machines Act 1992 (SA). The court reasoned that there was no power to stay the declaration and that, if there were such power, the application should be refused, in any event. 13 In The Roosters Club Inc, Bleby J made reference to a small number of cases where courts have contemplated the possibility of ordering a stay of a declaratory order. Bleby J distinguished these cases as involving circumstances where the declaration involved in fact created rights rather than merely declared existing rights. For example, in Sibuse Pty Limited v Shaw [No 2] (1988) 13 NSWLR 125 the declaration the subject of an application for a stay (which was refused on discretionary grounds) was effectively prospective - the effect of the declaration under the Disorderly Houses Act 1943 (NSW) was to change, prospectively, the status of the premises at issue with serious consequences for the occupier and invitees. 14 As earlier indicated, while the court has no power to stay a declaration that declares existing rights, it has power to stay proceedings that are consequent upon the making of such a declaratory order (see Bunnings Forest above at 664). Equally, the court has power to defer or refrain from making a declaration for a particular time or to await the outcome of related events (consider Bunnings Forest at 663 - Carr J referring to the position of a sequestration order and stating: "I think that the correct position is that the making of a sequestration order may be stayed or suspended but that once the order has been made section 37(2) of the Act governs the situation." [Emphasis in original] [See also The Roosters Club Inc above at [19] referring to the possibility of the court suspending or postponing its order coming into effect.] Returning to the question of the appropriate declarations or orders to be made 15 In my view, the proper course to be taken is to make a number of declarations and orders and wherever those declarations may be affected if Mr Jeans becomes entitled to reopen the Federal Court proceedings, to stay subsequent proceedings consequent upon the making of the declarations and to grant a stay of the orders to be made. In each instance the purpose of the stay orders is solely against the contingency that the High Court may accede to the application for special leave to appeal from the decisions of the Federal Court, in which event the stay orders must abide the further outcome in those proceedings. 16 I turn then to the specific terms of the alternate short minutes of order propounded by the respective parties. I shall adopt the proposed short minutes of order put forward by the plaintiff for definitional purposes. 17 Paragraph 1 of the plaintiff's proposed short minutes of order sets out the terms of a declaration to which, in my view, the plaintiff is entitled, consistently with the reasons for judgment. That declaration will be made in due course. There is no need for any order staying proceedings consequent upon the making of that declaration. [In those circumstances, it is unnecessary to make a declaration in the form put forward by the second and third defendants in paragraph 1 of their proposed short minutes of order, which would have restricted the entitlement to this declaratory relief to the cross-claim brought by the first defendant against the second and third defendants.] 18 Paragraph 2 of the plaintiff's proposed short minutes of order sets out the terms of a declaration to which [subject to deletion of the words "pursuant to" and the substitution in their place of the words "upon the proper construction of"] in my view the plaintiff is entitled, consistently with the reasons for judgment. That declaration will be made in due course. There is no need for any order staying proceedings consequent upon the making of that declaration. 19 Paragraph 3 of the plaintiff's proposed short minutes of orders seeks a declaration which is appropriate to be made. An order will be made staying until further order proceedings consequent upon the making of that declaration. 20 Paragraph 4 of the plaintiff's proposed short minutes of order seeks a form of declaration which is to be made in slightly varied form: subparagraph (c) will read: (c) any liability of the first defendant to make contribution for any payments made by any co-guarantor of the debts due to the Commonwealth Bank of Australia by Deangrove Pty Limited. 21 An order will be made staying until further order proceedings consequent upon the making of the declaration in so far only as subparagraph (c) is concerned. 22 Paragraph 5 of the plaintiff's proposed short minutes of order seeks an order by way of a reference to the Master. That order will be made. There is no reason for any order staying that order. Liberty to apply 23 Paragraph 6 of the plaintiff's proposed short minutes of order seeks that liberty be reserved to the plaintiff and to the first defendant to apply for such further or other orders as may in the future be necessary to give effect to the determination set out in the declaration - subparagraph 4(c). There is no reason why this form of liberty should not be granted, and the final form of orders to be made should include such a grant. 24 Paragraph 4 of the short minutes of order proposed by the second and third defendants also seeks a grant of liberty to apply. It is appropriate to also tailor a grant of liberty to apply to the circumstance that the proceedings presently before the High Court have not concluded. However, the appropriate form of liberty to apply to be granted in this regard is as follows: "Grant liberty to all parties to apply on seven days' notice in respect of any application for the Court to make further orders consequent upon the Court's reasons for judgment delivered on 19 July 2004, to the intent that such liberty be exercisable in the event that the High Court having granted special leave to appeal has fully determined any appeal such that the proceedings between Mr Jeans and the Commonwealth Bank are concluded or, if applicable, any further proceedings, including remitted proceedings before the Federal Court and any appeal therefrom, have been fully determined such that the proceedings between Mr Jeans and the Commonwealth Bank are concluded." Extension of time for appeal 25 The second and third defendants have submitted that it is appropriate to extend the time for the second and third defendants to institute any appeal from orders to be made today. The proposition is that such an order should be made extending that period up until a point in time when the proceedings before the High Court and any consequential further proceedings before the Federal Court have been determined. In my view, the proper exercise of the court's discretion is to refuse to grant any such extension of time for appeal. Had it been appropriate for any such approach to be taken to the proceedings the subject of this Court's judgment of 19 July 2004, those proceedings should not have been commenced nor heard. Reasons were given from time to time rejecting the submissions of the second and third defendants, which had been that it was inappropriate for the proceedings to be heard by this Court in an environment in which there was a pendent application for leave to appeal to the High Court. Costs The principles which apply in relation to a claim for indemnity costs 26 The plaintiff seeks an order that the second and third defendants pay his costs on an indemnity basis. It is necessary to review the principles upon which indemnity costs orders are made. 27 Section 76(1)(a) and (b) of the Supreme Court Act provides that, subject to the Act and the Rules and subject to any other Act, costs shall be in the discretion of the Court, which has full power to determine by whom and to what extent costs are to be paid. 28 Paragraph 52, rule 28A identifies which costs are allowed on a taxation on an indemnity basis. The rules otherwise provide for payment of costs on an indemnity basis. 29 Part 52A rule 37 provides: "Where, in any proceedings, costs are payable to a person by or under the rules or any order of the court on an indemnity basis: (a) if that person is a party to the proceedings in the capacity of trustee, legal representative of a deceased estate or other fiduciary and the costs are payable out of property held or controlled by that person in that capacity — all costs incurred by that person shall be allowed except to the extent that it appears that they were incurred in breach of that person's duty in that capacity, and (b) otherwise all costs incurred by that person shall be allowed except to the extent that it appears that they are of an unreasonable amount or have been unreasonably incurred." 30 There is no doubt but that the court has jurisdiction to make an order for costs on an indemnity basis in appropriate circumstances. 31 In Oshlack v Richmond River Council (1998) 193 CLR 72 Gaudron and Gummow JJ said at page 89: "[I]n 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; eg Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 10 FCR 177 at 178; 71 ALR 287 at 288. See also Packer v Meagher [1984] 3 NSWLR 486 at 500; Australian Guarantee Corporation Ltd v De Jager [1984] VR 483 at 502, or on an indemnity basis; eg Degmam Pty Ltd (In Liquidation) v Wright (No. 2) [ 1983] 2 NSWLR 354. See also Re Smith; Ex parte Rundle (No. 2) ( 1991) 6 WAR 299 at 301. The result is more fully or adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part." 32 The recognition by Gaudron and Gummow JJ of the principle expressed in Degmam is to be noted. In Degmam, Holland J at 358 said: "The next order therefore is whether there is a case made out for a special order. I think that there is. I do not wish to repeat what I had to say, in my reasons for judgment, about the merits of the defences and causes of action put forward by the defendant or the manner in which she conducted herself in the course of the litigation and in the witness box. It is sufficient to say that the allegations of fact she made as the basis of her defences and causes of action were, in my opinion, false and deliberately concocted by her in an attempt to deny the plaintiff its rights and to shift all blame and legal liability to the plaintiff from herself to the second cross-defendant. As well as that, she so conducted herself in the proceedings, by multiplying allegation upon allegation, and by prevaricating in the witness box, as grossly to prolong the litigation, thereby to cause the other parties to incur liability for solicitor and client costs far beyond what they could reasonably have expected to incur in litigation of genuine issues. The discretion which the court has as to costs is, as has been said many times, to be exercised judicially, that is to say upon proper grounds and the court will not lightly depart from standard practice in the awarding of costs . . . " 33 In the other decision cited by Gaudron and Gummow JJ, namely, Re Smith; Ex parte Rundle, Malcolm CJ, which whom Pidgeon and Rowland JJ agreed, said: "The jurisdiction of the Court to make an order for costs on an indemnity basis in appropriate circumstances is not the subject of substantial debate between the parties. There are cases in which orders have been made for the payment of costs to be taxed on an indemnity basis. Generally speaking, the principles upon which such orders have been made are those which may be found in Donald Campbell and Co Ltd v Pollak [1927] AC 732 and in Cretazzo v Lombardi (1975) 13 SASR 4 at 11 in the judgment of Bray CJ with whom other members of the Full Court agreed. 34 The Chief Justice said: "Order 65, Rule 1, provides generally that all costs shall be in the discretion of the Court or Judge, subject to a proviso irrelevant for the present purpose. Time and again, attempts have been made to fetter that general discretion by the imposition of judge made rules. Time and again those fetters have been released by appellate courts. I think the guiding principle still stands, as it left the House of Lords in the famous case of Donald Campbell & Co Ltd v Pollak [1927] AC 732, that the general discretion is absolute and unfettered except that it must be exercised judiciously, not arbitrarily or capriciously and that it cannot be exercised on grounds unconnected with the litigation." 35 Malcolm CJ further referred to the relevant authorities as having been recently collected by Morling J in Australian Federation of Consumers Organisations Incorporated v Tobacco Institute of Australia Limited (1991) ATPR 52,738 at 52,740 – 52,741. In Australian Federation of Consumer Organisations, Morling J, inter alia, referred to a decision by Woodward J in Australian Transport Insurance v Graeme Phillips Road Transport Insurances (1986) 71 ALR 287, where Woodward J had said that: "The general power given by Section 43 of [ The Federal Court of Australia Act ] to award costs, authorised the making of an order for costs on a solicitor and client basis in an appropriate case where there is some special or unusual feature in the case to justify the exercise of the discretion". 36 In Re Smith; Ex parte Rundle (No. 2) Malcolm CJ also said: "There are other cases in which orders have been made for the payment of costs of a solicitor and client or indemnity basis. Those orders are normally made in circumstances where the conduct of a party against whom such an order has been made in connection with the litigation has been deserving of criticism ." 37 The discretion which the Court has as to costs is to be exercised judicially, that is to say upon proper grounds and the Court will not lightly depart from standard practice in the awarding of costs. 38 In this case the special or unusual circumstances which dictate a careful consideration to whether or not indemnity costs should be awarded against the second and third defendants concern the litigated issue concerning the alleged forgery and the matter referred to in the judgment as the conspiracy theory. In my view, the gravity of the allegations made by the second and third defendants in this regard when weighed against the lack of reliable evidence put forward to prove such allegations constitutes conduct which is, indeed, so deserving of criticism as to warrant an indemnity costs order at least in so far as that portion of the plaintiff's costs involved in litigating this issue are concerned. 39 It is strictly unnecessary to repeat any section of the reserved judgment which was delivered. Paragraphs 237 to 240 are of particular relevance, the conspiracy theory being altogether too far fetched, the shortcomings in the second and third defendants' case being considerable and paragraph 241 using the words "fanciful in the extreme", to describe the parameters of the case put by the second and third defendants. The second sentence of paragraph 243 reads: "The fact is that the conspiracy theory [even to the extent that it prays in aid the failure of Mr Jeans to give evidence himself] is simply too far fetched to be accepted as reliable when weighed against the actual evidence presently before the court." 40 The case was so far from being of substance and raised such serious but unfounded allegations as to warrant an indemnity costs order, at least in so far as the plaintiff's costs of litigating the issue are concerned. Doing the best that I can in the circumstances to assess the extent to which the hearing was concerned with these particular issues, it seems to me that a proper estimate in that regard is that 50 per cent of the hearing time was concerned with those issues. 41 For those reasons, the appropriate costs orders as between the plaintiff and the second and third defendants will be as follows: · order that the second and third defendants pay 50 per cent of the plaintiff's costs of the proceedings on an indemnity basis; · order that the second and third defendants pay 50 per cent of the plaintiff's costs of the proceedings on a party-party basis. 42 The first defendant put forward a number of arguments in adopting the positions taken by the second and third defendants in relation to which all defendants were unsuccessful. However, in part, the first defendant did support the plaintiff's case. In my view, it is inappropriate to make any order that the first defendant pay any part of the plaintiff's costs of the proceedings nor that the plaintiff pay any part of the first defendant's costs. 43 The second and third defendants accept that the first defendant is entitled to an order that they pay the costs of his cross-claim against them on a party-party basis. However, as it seems to me, the first defendant is also entitled to an order for indemnity costs for the same reasons as given above. The conspiracy forgery theory was also put against the first defendant. The appropriate order which should be made is as follows: · the second and third defendants pay 50 per cent of the first defendant's costs of the cross-claim against them on an indemnity basis. · the second and third defendants pay 50 per cent of the first defendant's costs of the cross-claim against them on a party-party basis 44 There is no occasion for considering the making of a Sanderson or Bullock order of any type. Orders 45 I make the following orders: 1. Declare that a valid and binding agreement was made between the plaintiff, the first, second and third defendants in terms of the document entitled "Heads of agreement" dated 9 August 1999 and executed by those parties in or about September 1999. 2. Declare that upon the proper construction of clause 6.8 of the Heads of Agreement, the second and third defendants are obliged to indemnify the first defendant from and against all liability incurred by the first defendant in respect of his guarantee dated 3 June 1998 given to the Commonwealth Bank of Australia for the debts of Deangrove Pty Limited. 3. Declare that the plaintiff and the first defendant are co-guarantors of the liability of Deangrove Pty Limited to the Commonwealth Bank of Australia. Order staying until further order proceedings consequent upon the making of declaration 3. 4. Declare that the indemnity provided under clause 6.8 of the Heads of Agreement extends to: (a) all moneys paid by the first defendant to the Commonwealth Bank of Australia pursuant to the judgment obtained by the Commonwealth Bank of Australia against the first defendant in proceedings N1142 of 2000 in the Federal Court of Australia entered on 3 April 2003; (b) all legal costs incurred by the first defendant in those Federal Court proceedings; (c) any liability of the first defendant to make contribution for any payments made by any co-guarantor of the debts due to the Commonwealth Bank of Australia by Deangrove Pty Limited. Order staying until further order proceedings consequent upon the making of declaration 4(c). 5. Order that it be referred to the Master to inquire into and to certify such sum as may be presently due to be paid by the second and third defendants to the first defendant pursuant to the declaration in subparagraphs 4(a) and 4(b) above and order that the second and third defendants within 14 days pay to the first defendant the sum so certified. 6. Grant liberty to the plaintiff and to the first defendant to apply for such further or other orders as may in the future be necessary to give effect to the determination the subject of the declaration in sub-paragraph 4(c). 7. Grant liberty to all parties to apply on seven days' notice in respect of any application for the Court to make further orders consequent upon the Court's reasons for judgment delivered on 19 July 2004, to the intent that such liberty be exercisable in the event that the High Court having granted special leave to appeal has fully determined any appeal such that the proceedings between Mr Jeans and the Commonwealth Bank of Australia are concluded or, if applicable, any further proceedings, including remitted proceedings before the Federal Court and any appeal therefrom, have been fully determined such that the proceedings between Mr Jeans and the Commonwealth Bank of Australia are concluded. 8. Order that the second and third defendants pay 50 per cent of the plaintiff's costs of the proceedings on an indemnity basis. 9. Order that the second and third defendants pay 50 per cent of the plaintiff's costs of the proceedings on a party-party basis. 10. Order that the second and third defendants pay 50 per cent of the first defendant's costs of the cross-claim on an indemnity basis. 11. Order that the second and third defendants pay 50 per cent of the first defendant's costs of the cross-claim on a party-party basis. I certify that paragraphs 1 - 45 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 13 August 2004 ex tempore and revised 19 August 2004 ___________________ Susan Piggott Associate 19 August 2004 Last Modified: 09/02/2004 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.