Supreme Court New South Wales Medium Neutral Citation: RIL Aviation HL 7740 and HL 7741 Pty Ltd v Alliance & Leicester plc & Ors (Costs) [2011] NSWSC 34 Hearing dates: 15 December 2010 Decision date: 11 February 2011 Jurisdiction: Equity Division Before: Bergin CJ in Eq Decision: Each party is to pay its own costs of the proceedings Catchwords: COSTS - Whether the defendants' success on "main" or "central" issue in the proceedings entitles them to costs of the of the proceedings including costs in respect of the other issue on which they were unsuccessful - applicable principles - application for costs orders against third parties - whether having regard to all the circumstances of the case each party should pay its own costs Legislation Cited: Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005 Cases Cited: Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 Cretazzo v Lombardi (1975) 13 SASR 4 Elite Protective Personnel Pty v Salmon (No 2) [2007] NSWCA 373 James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 Jeffery & Katauskas Pty Ltd v SST Consulting Pty Limited [2009] HCA 43; (2009) 239 CLR 75 Knight v FP Special Assets Limited [1992] HCA 28; (1992) 174 CLR 178 Mobile Innovations Limited v Vodafone Pacific Limited [2003] NSWSC 423 Oshlack v Richmond River Council (1998) 193 CLR 72 Ottway v Jones [1955] 1 WLR 706 RIL Aviation HL 7740 and HL 7741 Pty Ltd v Alliance & Leicester plc & Ors [2010] NSWSC 1235 Rolfe v Sunstate Credit Union Ltd (unreported, Federal Court of Australia, 23 October 1997, BC9705436) Turkmani v Visvalingam (No 2) [2009] NSWCA 279 Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd (No 2) [2010] NSWSC 1317 Water v PC Henderson (Aust) Pty Ltd [1994] NSWCA 338; (1994) 254 ALR 328 Category: Consequential orders Parties: RIL Aviation HL 7740 and HL 7741 Pty Limited (Plaintiff) Alliance & Leicester plc (First Defendant) Allco JS Pty Limited (Second Defendant) Ladbroke Management Pty Limited (Third Defendant) Representation: Counsel: DR Pritchard SC / J Emmett (Plaintiff) AJ Bannon SC / RM Foreman (Defendants) Solicitors: DibbsBarker (Plaintiff) Watson Mangioni Lawyers Pty Ltd (Defendants) File Number(s): 2010/143563 Judgment 1This judgment relates to competing applications in relation to costs of the proceedings, the subject of the judgment delivered on 29 October 2010: RIL Aviation HL 7740 and HL 7741 Pty Ltd v Alliance & Leicester plc & Ors [2010] NSWSC 1235 (the Judgment). On 15 December 2010 I made orders in accordance with the Judgment save as to costs. The Judgment should be read with these reasons and the same terminology will be adopted in these reasons as was adopted in the Judgment. 2The main issue in the proceedings was whether RILA was obliged to pay Ladbroke the monthly fee that was payable to the previous manager (the Fee Issue). RILA claimed that it was not so obliged but was held to be liable to make the payments. The other issue was whether the defendants were entitled to rely on the Notices of Default (the Default Notice Issue). The defendants were held to be not so entitled. 3By Notice of Motion filed in Court on 15 December 2010 the defendants seek an order that RILA and two non-parties, KV Aviation Holdings Pty Limited (KVA) and David Lloyd Veal (Mr Veal), jointly and severally pay the costs of the defendants/cross-claimants on an ordinary basis.The defendants also seek an order that RILA pay the costs of the first and second defendants on an indemnity basis. 4The defendants submitted that the central or main issue in the proceedings was resolved in their favour and costs should follow the event in accordance with usual principles: Uniform Civil Procedure Rules (UCPR) 42.1; Oshlack v Richmond River Council (1998) 193 CLR 72 at [67]. The defendants submitted that the "event" in question in the proceedings is the defendants' success in relation to the Fee Issue. 5The defendants sought to characterise the Default Notice Issue as a "secondary" issue for determination in reliance upon the following passage of the Judgment: [135] It is not unreasonable for the defendants to have relied upon RILA's conduct in failing to disclose the name of the account and writing a letter that on any reasonable view would suggest that it was the RILA account into which the money was to be paid, to suggest that RILA intended to deal with the Secured Property. It seems to me that RILA's conduct in this regard was most unsatisfactory. Unfortunately Mr Lennox gave advice that RILA did not have to disclose the name of the account to A&L. 6The defendants submitted that once their suspicions were triggered (not unreasonably) by RILA's conduct, they were obliged to issue a Notice of Default. 7The Judgment describes the way the evidence developed during the trial [85]. It was the evidence of Mr Lennox, the solicitor for the directors of the plaintiff, that was decisive in relation to whether there had been an attempt to deal with the Secured Property. This evidence was not available until late in the trial and was certainly not material that had been provided to the defendants prior to that time. However, the plaintiff established that the defendants were not entitled to rely on the Notices of Default. 8The defendants submitted that where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which the party was successful and those on which it failed. In support of these submissions the defendant relied upon the following passage of Elite Protective Personnel Pty v Salmon (No 2) [2007] NSWCA 373: [6] Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which the appellant was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported). 9However in that case the Court of Appeal also said: [8] Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: State of New South Wales v Stanley [2007] NSWCA 330 (at [18]) per Hislop J (with whom Beazley JA and Tobias JJA agreed). 10The defendants also relied upon Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 in which the Court of Appeal referred to Elite Protective Personnel as having reviewed the principles governing "the making of an order as to costs so as to reflect the time taken in dealing with a particular issue in which the successful party in the proceedings or on the appeal did not succeed": at [38]. In summarising those principles in Bostik the Court referred to the following at [38]: · If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick & Ors (No 2) [2006] NSWCA 374 at [27] ... · A separable issue can relate to "any disputed question of fact or law" before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 2 96 at [34]. 11The defendants also relied upon Turkmani v Visvalingam (No 2) [2009] NSWCA 279 in which the Court of Appeal again referred to James v Surf Road Nominees and on this occasion cited the following passage of that judgment (at [9]): [33] Similarly, Toohey J made the following observations in Hughes v Western Australian Cricket Association (1986) ATPR 40-748: 1. Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. 2. Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed. 3. A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the party's costs of them. In this sense, "issue" does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law. (references omitted) 12The defendants also relied upon a further four judgments: Cretazzo v Lombardi (1975) 13 SASR 4, a case in which Jacobs J dampened any encouragement of unsuccessful litigants' expectations that they would receive a costs award in their favour on issues upon which they were successful (at 16); Water v PC Henderson (Aust) Pty Ltd [1994] NSWCA 338 (1994) 254 ALR 328, the judgment of the Court of Appeal already referred to above in paragraph [6] of Elite Protective Personnel ; Mobile Innovations Limited v Vodafone Pacific Limited [2003] NSWSC 423, a judgment of Einstein J in which his Honour summarised these principles and cases as relied upon by counsel in that case (at [4]); and Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd (No 2) [2010] NSWSC 1317, a judgment of Slattery J in which his Honour succinctly summarised some of these cases and principles with the additional reference to Ottway v Jones [1955] 1 WLR 706, at 708, in support of the principle that an order that a successful party pay the costs of an unsuccessful party is generally regarded as requiring particular justification. Ottway v Jones was a case in which an application was made by the plaintiff to recover possession from the defendant of a dwelling house on the ground that the defendant had been guilty of a "nuisance or annoyance" to adjoining occupiers within the meaning of that expression in the Rent and Mortgage Interest Restrictions (Amendment) Act, 1933 (UK). The plaintiff established that the defendant's conduct amounted to a serious "nuisance or annoyance" but by reason of other matters, not any fault of the plaintiff, the trial judge refused to make an order for possession. However the defendant was ordered to pay the plaintiff's costs. The appeal to the Court of Appeal by the defendant was dismissed. 13In the passage of that case cited by Slattery J and relied upon by the defendants in this case, Evershed MR said at 708-709 and 711: But although the terms of the rule on the face of them appear to put no limit upon the way in which a judge exercises his discretion as to costs, there is, I think, no doubt that, in what I will call (and I will later define what I mean by the phrase) the ordinary case, where there is a decision to the effect that a defendant has been wholly successful, it is not a proper judicial exercise of the discretion to order such a defendant to pay the plaintiff's costs. That the judge may deprive the successful defendant of the costs which prima facie he would expect to recover is another matter. But decisions to which our attention has been drawn by Mr. Vowden for the defendant (of which the last one cited, Foster v Great Western Railway Co., [(1882) 8 Q.B.D. 515] in this court, is an example) do, I think, undoubtedly establish as a general proposition, in what I have called the "ordinary" case, that it is not a good exercise of judicial discretion to order a successful defendant to pay the plaintiff's costs; so that such an order would be one upon which an appeal in this court would be entertained. Nevertheless, since the matter of costs is so much a matter of discretion it is equally true to say that the Court of Appeal will entertain appeals on matters of costs with great caution. 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. 14In defining the "ordinary case" Evershed MR said at 711: In an ordinary action the plaintiff seeks to establish some matter of right, the existence of which depends upon his proving the necessary facts, and then invoking whatever is the appropriate provision of the law. But it is a matter of right: if the facts are proved, the right is established. 15His Lordship observed, at 711, that once the plaintiff had established "his right", by showing that he was in a position to invoke the jurisdiction, the court had to decide whether to give the remedy as claimed or otherwise. Although there was a two step process in that particular case, Ottway v Jones was not a case in which there were any separate issues as there were in this case. In this very important regard this case is distinguishable. 16In this case the central issue was one of construction of a complex suite of commercial agreements. If RILA had been successful on the Fee Issue it would not have been necessary to determine the Default Notice Issue because it was accepted that the defendants would not have been entitled to rely upon the Notices of Default if RILA was not obliged to pay Ladbroke the Management Fee. 17The defendants submitted that the Notices of Default arose out of and were intertwined with the position RILA adopted in relation to the Fee Issue. It was submitted that RILA refused to depart from that position in the face of detailed reasoning provided by the defendants as early as 4 February 2010. The defendants submitted that if RILA had not initiated the dispute in relation to Ladbroke's entitlement to receive Management Fees pursuant to the Financing Deed, then the circumstances giving rise to the issue of the Notices of Default would not have occurred. It was submitted that it was RILA pressing for payment of the Management Fees to it that gave rise to what the defendants incorrectly but "reasonably" believed was a negative pledge event of default. 18A&L and AllcoJS, as Facility Agents, were obliged pursuant to the Financing Deed to notify the Security Trustee of "an Event of Default or Potential Event of Default promptly" after they "actually" became aware of it: cl 3.2(c). The Notice of Default was issued to the Security Trustee with a copy to RILA. The defendants submitted that the finding as to the reasonableness of the defendants' conduct is reinforced by the fact that A&L and AllcoJS had a contractual obligation to notify potential events of default. 19There was a potential that the event, being RILA's direction to pay, was an event of default. That potentiality was no longer present when the legal advice and the communications between Mr Veal, Mr Kinghorn and Mr Lennox were exposed in the evidence. RILA submitted that notwithstanding that evidence the defendants pressed on with their case and required the Court to determine whether the Notice of Default was able to be relied upon. RILA submitted that in this case there should be no order as to costs because each party has had success in respect of the two issues for decision. It was submitted it is inappropriate to describe the result in the defendant's favour on the Fee Issue as the "event" that costs should follow. Rather RILA submitted that there are two events in this case, the event in relation to the success on the Fee Issue and the event in relation to the success on the Default Notice Issue. 20Having regard to the conclusion I have reached below, there is no need to consider the question of whether a non-party should be ordered to pay the defendants' costs. However I will refer to some of the claims the defendants made in this regard. 21Section 98(1) of the Civil Procedure Act 2005 gives the Court the power to award costs against non-parties to the proceedings. Although that section provides that it is subject to rules of the Court, UCPR 42.3, which dealt with non-party orders and was the subject of consideration by the High Court in Jeffery & Katauskas Pty Ltd v SST Consulting Pty Limited [2009] HCA 43; (2009) 239 CLR 75 at [1], was repealed on 7 May 2010, prior to the commencement of these proceedings. 22In Knight v FP Special Assets Limited [1992] HCA 28; (1992) 174 CLR 178 at 192-193 Mason CJ and Deane J said: Obviously, the prima facie general principle is that an order for costs is only made against a party to the litigation. As our discussion of the earlier authorities indicates, there are, however, a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs, support an order for costs against a non-party. Thus, for example, there are several long-established categories of case in which equity recognized that it may be appropriate for such an order to be made; [see the discussion in Oasis Hotel Ltd v Zurich Insurance Co (1981) 124 DLR (3d) 455 at 458 - 459.] For our part, we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made. 23RILA, as a special purpose vehicle, gave special purpose undertakings recorded in clause 14.1(i) of the Financing Deed which included that it would not have any assets other than those under or derived from the RILA Transaction Documents and its share capital. The defendants submitted that the diagram in paragraph 9 of the Judgment shows that all the cash flows receivable by RILA are allocated to the transaction participants. The whole of the amount payable to RILA on each Payment Date under clause 2.1(c) of the RILA Intercreditor Deed must be applied in satisfaction of RILA's monthly payment obligations to the Asset Financier under the Asset Loan Agreement and to the Manager. There are no residual funds. 24RILA's balance sheet as at 30 June 2009 recorded that RILA had current assets of $302 and negative net assets of $3,599,695. The 30 June 2010 accounts for RILA are not yet available. The defendants submitted that RILA has no means and no ability to meet a costs order and it is effectively the "man of straw" referred to by Mason CJ and Deane J in Knight . 25The defendants relied upon the following paragraph of Mr Veal's affidavit of 8 June 2010 that was relied upon in the litigation: 1. I am a director of RILA ("the Company") and am duly authorized to make this affidavit on its behalf. 2. I am a director of KV Aviation Holdings Pty Limited (ACN 054 680 376) ("KV Aviation") and am duly authorized to make this affidavit on its behalf. KV Aviation owns all the ordinary shares in the Company. 3. Save where otherwise indicated I make this affidavit from facts within my own knowledge, information and belief and in relation to the application for injunctive relief and declaratory orders issued by the Company and KV Aviation. 26It was submitted that by reason of its undertaking in clause 14.1(i)(ii) of the Financing Deed, RILA was precluded from incurring liabilities including any legal costs in respect of the litigation. 27When an interlocutory injunction was sought in 2010 KVA gave the usual undertaking as to damages. In Rolfe v Sunstate Credit Union Ltd (unreported, Federal Court of Australia, 23 October 1997, BC 9705436) three members of a credit union (Sunstate) sought to restrain its amalgamation with a building society on the basis that material that had been circulated to members of Sunstate was misleading or deceptive in contravention of section 52 of the Trade Practices Act 1974. Kiefel J said: The applicants are members of Sunstate and bring these proceedings with the aid of Credit Union Services Corporation Ltd ("CUSCAL"). No issue is taken with respect to the maintenance of the proceedings for the purposes of the relief sought, although costs are sought against CUSCAL as a third party, and it gives an undertaking with respect to damages. 28The applicants were unsuccessful and costs were awarded against CUSCAL. Although Kiefel J did not expressly detail the basis on which that costs order was made, it is clear that the proceedings were brought with CUSCAL's "aid" and CUSCAL had provided an undertaking as to damages. It would appear that those two matters were sufficient for the Court to order that CUSCAL pay the respondent's costs. 29The defendants submitted that both Mr Veal and KVA had a direct interest in the outcome of the proceedings. In this regard the defendants relied upon Mr Veal's affidavit of 8 June 2010 to submit that Mr Veal was seeking to justify why interlocutory relief should be granted by reference to the interests of both RILA and KVA, on whose behalf he had sworn the affidavit. Those paragraphs include the following: [102] ... KV Aviation, in its capacity as ordinary shareholder of the Company, has obtained approval for the subordinated loan and is in an advance state of negotiation for another loan, these combined loans being intended to pay out the Asset Loan Agreement and the LC Loan Agreement. If the Notice is valid, the exercise of the Company's pre-payment rights and benefits will be severely hampered, if not entirely prevented. The benefits which would be hampered, if not entirely prevented, would include: a. removal of the restrictive covenants contained in the Financing Deed, thereby enabling the exploration of further commercial opportunities; b. the prospect of obtaining finance on more attractive terms than currently provided; c. the ability to avoid the dispute with the current manager with respect to future management fees, particularly in circumstances where the management fees being claimed are significantly higher than those payable in the market; and d. the Company would also lose the ability to redeem the preference shares held in the Company. [103] If the Notice is valid, it will affect the reputation of the Company's ordinary shareholder, KV Aviation, which is the ordinary shareholder of 167 companies and would compromise the ability of KV Aviation to raise finance, undertake its business properly. 30It was submitted by the defendants that by its own admission KVA had what it regarded as an important interest in the proceedings in terms of its ability to raise finance and undertake its business properly. Had I not reached the conclusion referred to below, I would have been persuaded on the evidence that RILA was the equivalent of a "man of straw" and that KVA had played an active role and had an interest in the litigation. I would not have been so persuaded in relation to Mr Veal. It is not necessary to decide whether I would have taken the next step and exercised my discretion in the defendants' favour against KVA. It is also unnecessary to consider the defendants' application for indemnity costs. 31I agree with the defendants' submission that the "central" or "main" issue in the proceedings was the construction of the agreements for the purpose of determining the Fee Issue. That issue was central because it was the claim in relation to the Fee Issue that set the parties on the course of disputation that led to the Default Notices and to the litigation. The Default Notice Issue came after (or was considered after) the Fee Issue because the Fee Issue had to be decided before the Default Notice Issue could be determined. In that sense it was a "secondary" issue. However I am satisfied that the Default Notice Issue was a most important issue in the litigation. I am satisfied that it is reasonable to describe the outcome of the litigation as involving two "events". The plaintiff and the defendants have had what I regard as an equal measure of success in the litigation. I am satisfied that the fairest outcome in all the circumstances is that each party pay its own costs. 32Each party is to pay its own costs of the litigation and of the costs application. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 11 February 2011