Supreme Court New South Wales Medium Neutral Citation: Munstermann v Rayward; Rayward v Munstermann (No 3) [2017] NSWSC 457 Hearing dates: On the papers Decision date: 21 April 2017 Jurisdiction: Equity Before: Stevenson J Decision: Costs to be paid on an indemnity basis Catchwords: COSTS – whether award should be made for indemnity costs – whether defendant defended proceedings and prosecuted cross-claim in circumstances where he should have appreciated there were no prospects of success Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 Munstermann v Rayward; Rayward v Munstermann (No 2) [2017] NSWSC 455 Munstermann v Rayward; Rayward v Munstermann [2017] NSWSC 133 Ragata Developments Pty Ltd v Westpac Banking Corporation (1993) 217 ALR 175 Category: Costs Parties: Marcus Otto Munstermann (Plaintiff/First Cross-Defendant) Mark Lindsay Rayward (First Defendant/Cross-Claimant) Mazmark Industries Pty Limited (Second Defendant/Cross-Claimant) QIA Group Pty Limited (Third Defendant/Third Cross-Defendant) Fuseworx Pty Limited (Fourth Defendant/Second Cross-Defendant) Representation: Counsel: A S McGrath SC (Plaintiff, Fourth Defendant and Cross-Defendants) D K L Raphael (First and Second Defendants and Cross-Claimants) Solicitors: Henry Davis York (Plaintiff, Fourth Defendant and Cross-Defendants) Etienne Lawyers (First and Second Defendants and Cross-Claimants) File Number(s): SC 2015/339876 Judgment 1. This is an oppression suit which, for the reasons set out in my judgment of 24 February 2017 (Munstermann v Rayward; Rayward v Munstermann [2017] NSWSC 133), I determined in favour of the plaintiff, Mr Munstermann. 2. I shall use the same abbreviations in these reasons as in that judgment. 3. Save for the matter of costs, I made final orders on 31 March 2017 for the reasons I gave that day (Munstermann v Rayward; Rayward v Munstermann (No 2) [2017] NSWSC 455). 4. These final reasons deal with Mr Munstermann's application for an order that Mr Rayward pay his costs of the proceedings on an indemnity basis. 5. The parties agree that I should deal with this question on the papers. I have now received submissions from Mr McGrath SC for Mr Munstermann, and Mr Raphael for Mr Rayward. 6. I am satisfied that this is an appropriate case in which to order indemnity costs. 7. Mr Rayward's defence of Mr Munstermann's case, and his prosecution of the cross-claim unravelled in the course of Mr McGrath's cross-examination of him. 8. Mr McGrath's cross-examination was conducted with great skill. However, the collapse of Mr Rayward's case was not only the result of Mr McGrath's advocacy, but also of Mr Rayward's alarmingly ready acceptance, in the course of cross-examination, that he had no sound basis upon which to propound the case that he pleaded. 9. As Mr Raphael said in his submissions on the costs question, Mr Rayward made numerous admissions in the course of cross-examination. Mr Raphael accepted: "He was wrong in several important areas and this was demonstrated and admissions of lack of correctness followed promptly." 1. I see the force in Mr Raphael's submission that: "Recognition of an incorrect statement are a rational man's acknowledgment that he has erred. Such a situation is the proper thing for a witness to admit and not obfuscate his error." 1. I also agree with Mr Raphael's submission that, generally speaking, a successful piece of cross-examination does not necessarily entitle the party with the benefit of it to an order for indemnity costs. 2. However, examination of the detail of what Mr Rayward accepted reveals that there is more at play here. 3. The following analysis comes largely from Mr McGrath's submissions which, again, I adopt with gratitude. 4. Mr McGrath emphasised four matters. 5. The first is that it was a central pillar of the matters put in contest by Mr Rayward (in his defence and in his cross-claim) that Mr Munstermann had denied him access to QIA's information. He repeatedly stated in his evidence that he was "starved" of information. 6. However, in cross-examination, Mr Rayward readily accepted that the assertions he had made in this regard were without foundation. Ultimately, his evidence was that, with a relatively minor exception, at all times he had access to relevant and necessary information, and that the evidence that he had been "starved" of information was wrong "as a whole". 7. Second, although Mr Rayward, in his cross-claim, asserted that he had been oppressed by Mr Munstermann, the claim was essentially abandoned in the course of the hearing. Mr Munstermann was not cross-examined about, and no submissions were advanced in respect of, the particular allegations made in the cross-claim of Mr Munstermann's allegedly oppressive conduct. Ultimately, Mr Raphael did not offer any submission to the effect that Mr Munstermann had breached his duties as a director of QIA or acted in a manner which was oppressive or unfairly prejudicial to the members of QIA or, in particular, Mr Rayward. 8. Indeed, as I recorded at [8] of my judgment of 24 February 2017, Mr Raphael accepted that the provisions of s 232 of the Corporations Act 2001 (Cth) had been enlivened by Mr Rayward's conduct vis-a-vis Mr Munstermann. 9. Third, in respect of both his defence of Mr Munstermann and the prosecution of his cross-claim, Mr Rayward made a number of what Mr McGrath described as "subsidiary allegations" which turned out to be without merit. 10. For example, Mr Rayward denied that Mr Munstermann had been appointed managing director of QIA. That allegation was not put to Mr Munstermann in cross-examination. During Mr McGrath's cross-examination of Mr Rayward, Mr Rayward agreed that he had given false evidence about this matter in his affidavit and accepted that Mr Munstermann had been appointed managing director. 11. There are other examples that are not necessary for me to set forth in these reasons. 12. Finally, Mr Munstermann's case was that Mr Rayward's conduct was oppressive and contrary to the interests of QIA as a whole. On the pleadings, Mr Rayward denied this central allegation. However, at a number of points in his cross-examination, Mr Rayward admitted that he had preferred his own interests to those of QIA and that he had thereby caused damage to both QIA and Mr Munstermann. 13. I accept Mr McGrath's submission that, in this case, an award of indemnity costs is appropriate because: 1. properly advised, Mr Rayward should have known that neither his defence nor his cross-claim had any real chance of success; both failed because of the numerous concessions, very readily made, in cross-examination; 2. Mr Rayward made numerous allegations which, it turned out, were not supported by any evidence; 3. Mr Rayward made numerous allegations which were ultimately not pressed or advanced; and 4. Mr Rayward has caused the undue prolongation of this case by advancing groundless contentions. 1. It is well established that an award for indemnity costs may be appropriate where a party has resisted or prosecuted proceedings in circumstances where that person should have known that there was no real prospect of success (for example, see Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 at [42] (Giles JA, Handley AJA and Whealy J)). 2. Indemnity costs may also be awarded where a party has made allegations which ought never have been made and which have unduly prolonged the proceedings (for example, see Ragata Developments Pty Ltd v Westpac Banking Corporation (1993) 217 ALR 175 at [9] (Davies J)). 3. In my opinion, for the reasons I have explained, this is a case where it is appropriate to order indemnity costs. 4. In those circumstances, it is not necessary for me to consider the various Calderbank offers that Mr Munstermann caused to be served on Mr Rayward. 5. I order that the first and second defendants pay the costs of the plaintiff referred to in order 7 made on 31 March 2017 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. Decision last updated: 21 April 2017