New South Wales Supreme Court CITATION : Westfield QLD No. 1 Pty Limited & Anor v Lend Lease Real Estate Investments Limited & Ors [2008] NSWSC 610 HEARING DATE(S) : 21/05/08, 22/05/08 JUDGMENT DATE : 18 June 2008 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : The plaintiffs are to pay the first defendant's cost of the proceedings. The plaintiffs are to pay the third and fourth defendants costs of the proceedings on an indemnity basis. CATCHWORDS : Costs - Proper characterisations of proceedings - Principle dealing with rights of trustee to be indemnified out of trust assets in respect of court proceedings LEGISLATION CITED : Civil Procedure Act 2005 (NSW) Uniform Procedure Rules 2005 (NSW) CATEGORY : Procedural and other rulings CASES CITED : Buckton, Re [1907] 2 Ch 406 National Trustees Executors and Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268 Westfield QLD No. 1 Pty Limited (First Plaintiff) Westfield QLD No. 2 Pty Limited (Second Plaintiff) Lend Lease Real Estate Investments Limited (First Defendant) PARTIES : Cairns Central Limited (Second Defendant) Perpetual Limited (Third Defendant) Perpetual Trustees Victoria Limited (Fourth Defendant) FILE NUMBER(S) : SC 50103/07 Mr I Jackman SC, Mr T Marskell (Plaintiffs) COUNSEL : Mr T Bathurst QC, Mr H Insall SC, Mr D Thomas (First Defendant) Mr M Cessario (solicitor) (Third and Fourth Defendants) Speed & Stracey Lawyers Pty Limited (Plaintiffs) SOLICITORS : Freehills (First Defendant) Corrs Chambers Westgarth (Third and Fourth Defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Wednesday 18 June 2008 50103/07 Westfield QLD No. 1 Pty Ltd & Anor v Lend Lease Real Estate Investments Limited & Ors JUDGMENT Costs 1 Following the delivery of the reserved judgment on 29 May 2008 the parties have addressed on costs. 2 As before there is no measure of agreement as to the principled approach to costs in the circumstances of this litigation and of the reserved judgment. 3 The principled approach to the situation at hand is to accept that the reality of the litigation was adversarial conducted between commercial entities in respect of which the plaintiffs failed in their attempts to obtain the relief sought when the Court rejected each of the jurisdictional basis invoked by the plaintiffs. 4 As the first defendant has contended the proceedings are fairly characterised as a case where the plaintiffs, as commercial entities, attempted inappropriately, to invoke the jurisdiction of the court regarding the administration of trusts, in order to achieve a commercial outcome, namely the winding up of the trusts. Hence as the plaintiffs have failed, the usual rule should apply: in short the plaintiffs require to pay the first defendant's costs of the proceedings. 5 It is necessary to particularly, although shortly, deal with the plaintiffs submissions which were to the effect that: i. the present litigation involved a dispute in the administration of a trust, when no one was to blame; ii. therefore the costs ought be paid out of the assets of the trusts. 6 As the first defendant has contended, the plaintiff's proposition attempts to elide the concept of legitimate administration proceedings and the present proceedings, where the administration of the trust was simply the factual context of the plaintiff's claim. 7 The plaintiffs sought to invoke the administration jurisdiction as a mechanism to circumvent the terms of the trusts, and to achieve the winding up of the trusts. The approach of the Court in determining the proceedings was to reject this attempt to invoke the administration jurisdiction 8 The plaintiffs have also endeavoured to rely upon a number of authorities dealing with orders for costs in proceedings brought for the benefit of the trust estate by a trustee [or by beneficiaries, where they are effectively acting in place of the trustee]. These authorities are not relevant to the present proceedings, which are not administration proceedings. 9 As the first defendant has submitted, the fact that the plaintiffs sought inappropriately to found their claim on the administration power, does not convert the proceedings from adversarial proceedings into proceedings for the benefit of the trust. 10 The proceedings do not fall within what Kekewich J in Re Buckton [1907] 2 Ch 406 at 414 to 415, described "as the third class of cases, in respect of which costs are not to be paid out of the trust fund, being adverse litigation against the trust" (emphasis added): "In this class the application is made by a beneficiary who makes a claim adverse to other beneficiaries and really takes advantage of the convenient procedure by originating summons to get a question determined which, but for this procedure, would be the subject of an action commenced by writ, and would strictly fall within the description of litigation . It is often difficult to discriminate between cases of the second and third classes, but when once convinced that I am determining rights between adverse litigants I apply the rule which ought, I think, to be rigidly enforced in adverse litigation, and order the unsuccessful party to pay the costs " (emphasis added). 11 If the present proceedings can be seen as proceedings involving the administration of trust, then they clearly fall within the third class of case, and the rule that the unsuccessful party must pay the costs is to be rigidly enforced. 12 As a matter of legal principle, plaintiffs are routinely and properly "penalised" in costs where they commence and prosecute proceedings in circumstances such as the present [ie where there is no jurisdiction to grant the relief sought and where, in any event, the relief is inappropriate on discretionary grounds]. 13 Insofar as the plaintiffs submissions have contended that any order for costs which is to be made in favour of the first defendant should exclude the costs incurred by the first defendant in pleading and seeking to prove its allegation of a lack of clean hands against the plaintiffs, that submission is rejected. 14 In this regard I accept that the clean hands point was a legal characterisation of the same matters relied upon in relation to the discretion argument. As the first defendant continued to press the discretionary argument, and as all of the evidence and discovery relevant to clean hands was also relevant to that argument, the abandonment of the clean hands argument is not of special significance on the question of costs. The third and fourth defendants' costs 15 In relation to the third and fourth defendant's costs, UCPR rule 42.25(1) will apply, so that the third and fourth defendants will be entitled to be paid their costs in the proceedings, in so far as they are not paid by any other person, out of the trust fund. 16 The third and fourth defendants will therefore obtain a complete indemnity in respect of their costs of the proceedings. 17 The plaintiffs (as the parties who caused those costs to be incurred) should be responsible for paying those indemnity costs. The alternative is that at least part of those costs will be paid out of the trust fund, to the detriment of the first defendant as 50% unitholder. 18 There is no question of the Court's power to make an order for indemnity costs against the plaintiffs, costs being in the discretion of the Court: Civil Procedure Act 2005, section 98(1)(a). 19 As to the exercise of that discretion, the relevant principle was stated by the High Court in National Trustees Executors and Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268 at 279, where, after referring to the right of the trustee to be indemnified out of the trust assets in respect of his or her costs of proceedings, the Court said: "At the same time the indemnity must be given effect to in such a way as to make the burden fall upon the beneficiaries equitably having regard to the circumstances under which the costs, charges and expenses were incurred. Here they were incurred as a result of the action of nine out of the thirty-seven beneficiaries so that the shares of these beneficiaries should be exhausted before any part of the burden is placed on the shares of the twenty-eight." 20 Consistently with this approach, the appropriate orders could be: i. the third and fourth defendant's costs be paid by the plaintiffs on an "ordinary basis"; and ii. so far as the third and fourth defendant's costs are not recovered from the plaintiffs, they may be retained by the third and fourth defendants out of distributions otherwise payable to the first plaintiff from the CMS General Trust (similar to the order made in National Trustees ). 21 However, in circumstances as here, in which there is no question of the plaintiffs' ability to meet an indemnity costs order, the more appropriate order is for the plaintiffs to pay the third and fourth defendants' costs on an indemnity basis, avoiding the need for costs to be recovered out of the trust fund. Resultant orders 22 The orders of the Court are: 1 The proceedings are dismissed; 2 The plaintiffs are to pay the first defendant's cost of the proceedings; 3 The plaintiffs are to pay the third and fourth defendants costs of the proceedings on an indemnity basis. ***************** 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.