Supreme Court New South Wales Medium Neutral Citation: In the matter of Tresdar Pty Ltd (No 2) [2019] NSWSC 544 Hearing dates: On the papers Decision date: 14 May 2019 Jurisdiction: Equity - Corporations List Before: Rees J Decision: Order, pursuant to section 98(1)(c) of the Civil Procedure Act 2005 (NSW), the first defendant to pay the plaintiff's costs of the proceedings on an indemnity basis. Catchwords: COSTS — Indemnity basis — Where appropriate — Defendant's misleading conduct — Indemnity costs order made. Legislation Cited: Civil Procedure Act 2005 (NSW), ss 94, 98 Cases Cited: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 Berkeley Administration Inc v McClelland [1990] FSR 565 Gate v Sun Alliance Insurance Ltd (1995) 8 ANZ Ins Cas 61-251 In the matter of Indoor Climate Technologies Pty Ltd [2019] NSWSC 356 In the matter of Tresdar Pty Limited, (Supreme Court of NSW, Gleeson JA, 18 June 2018, unrep.) In the matter of Tresdar Pty Ltd [2019] NSWSC 179 Ivory v Telstra Corporation Ltd [2001] QSC 102 Leary v NSW Trustee & Guardian (No 2) [2017] NSWSC 1226 Stemson v AMP General Insurance (NZ) Ltd [2007] 1 NZLR 289; [2006] UKPC 30 Vance v Vance (1981) 128 DLR (3d) 109 Texts Cited: Dal Pont, Law of Costs (4th ed, 2018) Category: Costs Parties: Brendan Leonard Samuels in his own right and in his capacity as trustee of the deceased estate of Fleur Samuels (Plaintiff) John Powell Keefe (First Defendant) Tresdar Pty Limited ACN 003 225 536 (Second Defendant) Representation: Counsel: P.S. Braham SC with M.A. Karam (Plaintiff) L. Rich (First Defendant) Solicitors: Keith Redenbach Legal (Plaintiff) Banki Haddock Fiora (First Defendant) File Number(s): 2017/384519 Judgment 1. HER HONOUR: On 1 March 2019, I gave judgment in this matter in In the matter of Tresdar Pty Ltd [2019] NSWSC 179 in favour of the plaintiff and made the following orders: 1. Declare that the share held by the first defendant in the second defendant, Tresdar Pty Ltd ACN 003 225 536 (Share) is held on trust for the plaintiff. 2. Order the first defendant to execute and deliver up to the solicitors for the plaintiff the Share transfer … (Transfer) in registrable form by no later than 28 days from the date of delivery of judgment. 3. Orders that, pursuant to section 94 of the Civil Procedure Act 2005 (NSW), the Registrar in Equity is authorised, in default of compliance with order 2, and on application of the plaintiff, to execute the Transfer in favour of the plaintiff. 4. Orders the first defendant to pay $171,000 to the plaintiff on account of dividends received by him, together with interest of $43,606.41. 5. Order the first defendant to pay the plaintiff's costs. 1. On 1 April 2019, the plaintiff's solicitor swore an affidavit deposing that Mr Keefe had not signed the Transfer. The plaintiff's solicitor enquired by email, copied to Mr Keefe's solicitor, whether a motion was required to seek an order directing the Registrar to execute the share transfer and, further, advised that the plaintiff wished to seek an order for indemnity costs of the proceedings. 2. On 2 April 2019, the Court made the following orders: (1) ORDER pursuant to section 94(1) of the Civil Procedure Act 2005 (NSW) that the Registrar in Equity is authorised to execute the … Transfer … on behalf of and in the place of Mr Keefe as transferor / seller. (2) NOTE that the plaintiff seeks to vary Order 5 made on 1 March 2019 to seek an indemnity costs order. (3) DIRECT the plaintiff to file and serve any affidavits or submissions (limited to 4 pages) in support of an indemnity costs order by 8 April 2019. (4) DIRECT Mr Keefe to file and serve any affidavits or submissions (limited to 4 pages) in reply by 22 April 2019. Some ten minutes later, Mr Keefe's solicitor filed a Notice of Ceasing to Act, notifying the last known address of Mr Keefe as an address in Roseville, NSW. No email address for Mr Keefe was supplied. 1. On 8 April 2019, the plaintiff served his submissions in support of an order for indemnity costs. The plaintiff's solicitor advised that he had attempted to obtain Mr Keefe's email address from Mr Keefe's former solicitors, but had had no reply. The plaintiff's solicitors proposed to serve the submissions by ordinary post to Mr Keefe's last known address, and that was done by express post but regrettably not until 23 April 2019. Accordingly, on 24 April 2019, the Court made further orders extending time for Mr Keefe to file and serve any affidavits or submissions by 9 May 2019 and directing the plaintiff's solicitors to provide a copy of the orders to Mr Keefe by email at an address which he had used before retaining solicitors, and by express post mailed the same day. No submissions were received in reply from Mr Keefe. Plaintiff's submissions 1. The plaintiff seeks an order that Order 5 be varied to require Mr Keefe to pay the plaintiff's costs on an indemnity basis. The plaintiff submits that such an order is appropriate in light of Mr Keefe's conduct in the course of his unsuccessful defence of the matter. The plaintiff relied on In the matter of Indoor Climate Technologies Pty Ltd [2019] NSWSC 356, where Black J recently summarised the applicable principles relating to the making of indemnity costs orders at [8]: The principles on which an order for indemnity costs may be made are also well established. Section 98(1)(c) of the Civil Procedure Act 2005 (NSW) permits the Court to order costs on an ordinary or indemnity basis. Rule 42.2 of the Uniform Civil Procedure Rules 2005 (NSW) provides that, unless the Court otherwise orders or the rules otherwise provide, costs payable are to be assessed on an ordinary basis. Rule 42.5 of the Uniform Civil Procedure Rules deals with an order for costs on an indemnity basis. Costs are awarded on the ordinary basis unless there are exceptional circumstances: Leichhardt Municipal Council v Green [2004] NSWCA 341. An order for indemnity costs is not made to punish an unsuccessful party for persisting with a case that fails, but to compensate a successful party fully for costs incurred, when the Court takes the view that it was unreasonable for the other party to have subjected the successful party to the expenditure of costs: Hamod v New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 at [20]. Whether an indemnity costs order should be made depends, at least in part, on whether there was a relevant delinquency on the part of the unsuccessful party: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 at [24]; Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 at [6]. That is to be determined by reference to the conduct of the proceedings, not the conduct that is the subject of the substantive dispute. 1. The plaintiff submits that conduct which will ground an order for indemnity costs includes misbehaviour of a serious nature in the course of a proceedings, such as fraud (Gate v Sun Alliance Insurance Ltd (1995) 8 ANZ Ins Cas 61-251 at 75,817-75,818), perjury or contempt (Berkeley Administration Inc v McClelland [1990] FSR 565 at 568-569; Ivory v Telstra Corporation Ltd [2001] QSC 102) and dishonest conduct (Vance v Vance (1981) 128 DLR (3d) 109 at 122). As noted in Dal Pont, Law of Costs (4th ed, 2018) at [16.71], "… where the fabrication of evidence, or other misleading conduct, has a direct correlation with unnecessarily exposing the successful party to the incurrence of costs, an indemnity costs order is appropriate", citing Barrett Property Group Ltd v Metricon Homes Pty Ltd (No 2) [2007] FCA 1823 at [16] per Gilmour J; Sande v Medsara Pty Ltd (No 2) [2004] NSWSC 262 at [8]; Stemson v AMP General Insurance (NZ) Ltd [2007] 1 NZLR 289; [2006] UKPC 30 at [28]; Leary v NSW Trustee & Guardian (No 2) [2017] NSWSC 1226. 2. The plaintiff submitted that Barrett Property Group Ltd v Metricon Homes Pty Ltd (No 2) has many similarities to the present case. There, Gilmour J relevantly noted when making an order for indemnity costs in favour of the applicants: [14] These illustrate a determined effort on the part of the respondents and their witnesses to establish a defence on one of the central issues in the case which they knew to be false. It was left to the forensic efforts of the applicants' solicitors and counsel and some belated and limited concessions made by Popple and Bugeja during their oral evidence, which led to these attempts to mislead the Court being exposed. [15] The result of this was that very significant costs have been incurred by the applicants both in preparation for and the conduct of the trial which ought never to have been required. Had this not been done then only those issues legitimately before the Court involving both questions of fact and law would have been tried. [16] The question then is whether the respondents' conduct in relation to its defence on the issues of derivation and copying constitutes a sufficient reason to take this case, in that respect, out of the ordinary, so far as concerns the exercise of my discretion on the question of costs. I am persuaded that it does. This is not a case where merely arguments 'attended by uncertainty' were before the Court as in Hamod. It is not a case involving witnesses who gave evidence believing it to be true but as to which they were mistaken. It is not a case where judgment depended essentially upon the inherent probabilities of one version of events against another but not involving questions of credit. It is not even a case, such as Walker, where one witness gave fabricated evidence as to part of a case. This matter involved a concerted effort on the part of four key witnesses to present a false defence which has led to the applicants incurring very considerable costs over a long period in meeting and overcoming that defence. … 1. In addition, the plaintiff submitted that an order that costs be paid on an indemnity basis may be made if a party has persevered with a hopeless or futile case: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [4]. 2. Applying these principles to the present case, the plaintiff submitted that his central allegation of fraud against Mr Keefe was made out. Further, the Court found that Mr Keefe lied in his affidavit and oral evidence and, consequently, advanced a defence and cross-claim based on a false premise. The critical findings are said to be those in the principal judgment at [153] and [157]: [153] … Whilst it is not necessary to find fraud before granting the relief sought, I am comfortably satisfied that Mr Keefe's actions were fraudulent. Having now examined the records closely, I consider that Mr Keefe lied in his evidence, both in his affidavit and orally, in a manner that was calculated, brazen and apparently unstoppable. … [157] … Mr Keefe has significantly abused a position of trust. To the extent that Brendan Samuels acquiesced in the payment of dividends to Mr Keefe, it was because Mr Keefe lied to Brendan Samuels and, at the time, Brendan Samuels trusted him as had his parents before him. … 1. The plaintiff submits that the dishonest premises on which Mr Keefe's case was unsuccessfully defended and the established falsities of the evidence given by Mr Keefe in his verified pleadings, affidavit and oral evidence all resulted in wasted Court time and the incursion by the plaintiff of significant and unnecessary additional legal costs. Rather, the case advanced by Mr Keefe was devoid of truth and divorced from the reality. Mr Keefe's false evidence and elaborate explanations advanced in an effort to support that case were said to be symptomatic of his awareness of the hopelessness and futility of his position. 2. It was submitted that, when confronted with his actions prior to the commencement of proceedings, Mr Keefe forced the plaintiff to litigate and in doing so engineered an elaborate and false explanation that required considerable forensic effort on the part of the plaintiff's legal representatives to disprove — at significant cost to the plaintiff. An award of costs on the indemnity basis would convey the Court's disapproval of such conduct. Like Barrett Property Group, it is submitted that this is not a case where the parties came before the Court seeking adjudication of honestly held differences in versions of events. Rather, Mr Keefe maintained a fabricated defence throughout the duration of the proceeding and did so from a position of special advantage where he was the only living witness to many of the events in issue. The Court should discourage such conduct in the course of proceedings by the making of an order for indemnity costs. The plaintiff submits that the Court ought to award him his costs on an indemnity basis for the dual reasons of both the hopelessness of the case run and the lack of candour shown by Mr Keefe in his verified pleadings, his sworn affidavit evidence and under oath at trial. This conduct of Mr Keefe, it was submitted, resulted in the incurring of costs on the part of the plaintiff which would have been avoided had Mr Keefe displayed a higher degree of honesty and realism through the course of his participation in the litigation and amounted to operative delinquency in the course of the proceedings such that an order that the plaintiff's costs be assessed on the indemnity basis is appropriate. Consideration 1. In considering the plaintiff's application, I note the comments of Allsop P in Baulderstone Hornibrook Engineering at [5]: Three things need be borne in mind in a judgment such as this on costs: the desirability of avoiding unnecessary recitation of cases (abounding as they are in this area); the desirability of not restating, in different terms, approaches to the broad discretion that have been well settled; and the desirability of dealing with the arguments without over-elaboration, if this is possible. 1. The principles have been correctly recited by the plaintiff in his submissions and I will not repeat them. Whilst I am not tempted by the invitation to order indemnity costs in order to convey disapproval of Mr Keefe's conduct nor discourage such conduct in other proceedings, it seems to me that the following matters are relevant to the exercise of the Court's discretion in this case as to whether to depart from the usual costs order. 2. First, as detailed in the principal judgment, this was a case of serious fraud. An indemnity costs is not directed to further punish a fraudster for persisting in defending an allegation of fraud. But the fact that Mr Keefe's actions were found to be fraudulent forms a prism through which his actions in defending the proceedings may be viewed. To summarise the nature of the fraud, within 24 days of the death of Mr Keefe's client of some 30 years, Paul Samuels, Mr Keefe began to conduct himself as if he was the beneficial shareholder of half of the share capital of Tresdar Pty Ltd. Unlike how he and Paul Samuels had conducted themselves in respect of that company since it had been incorporated 25 years earlier, Mr Keefe began to draw monies from Tresdar and make payments to himself including for school fees. Mr Keefe represented to the beneficiaries of Paul Samuel's estate that he was the beneficial owner of half of Tresdar's share capital, that share being worth some $2.85 million. Mr Keefe swore an affidavit as executor of Paul Samuel's estate annexing an inventory of property which contained this representation. Mr Keefe represented as much to Paul Samuel's widow, Fleur Samuels. Mr Keefe appears to have endeavoured to collect any records held by Paul Samuels' solicitor in respect of Tresdar which might have contradicted his story. Mr Keefe administered Paul Samuel's estate accordingly. Fleur Samuels having passed away, Mr Keefe maintained the lie in circumstances where it was apparent to him that there was no one still alive who could contradict him. The plaintiff in the proceedings was Fleur and Paul Samuels' only child, who was only 15 years old when the shares in Tresdar were allocated, and had not been involved in Paul Samuels' business affairs until after his father had died. 3. Second, having successfully maintained the lie for some five years after Paul Samuels' death, it must have been very plain to Mr Keefe that the lie had been discovered. The plaintiff retained an accountant to investigate the affairs of his father's companies and, in April 2017, a meeting was held at which Mr Keefe was challenged as to his assertion that he was a beneficial shareholder in Tresdar. A further meeting was held with Mr Keefe in May 2017, following which Mr Keefe was directed to cease any transactions in relation to any of the companies including Tresdar. But Mr Keefe maintained his assertion that he was a beneficial shareholder without supplying any information to support the assertion. Mr Keefe's story was not supported by the surviving accounting records and, as Paul Samuels' accountant for some 30 years, Mr Keefe must have appreciated that fact. After four months of pointless correspondence, in December 2017, the plaintiff commenced these proceedings. 4. Third, the procedural history indicates that these proceedings were hard fought even before the trial. Mr Keefe filed a cross-claim, which was discontinued the week before the hearing. Perhaps strangely, Mr Keefe filed an interlocutory process to strike out the plaintiff's claim as not disclosing a reasonable cause of action and, further, opposed leave being granted to the plaintiff filing an amended statement of claim on the ground that the proposed amendments did not sufficiently cure the deficiencies in the pleading. In giving judgment on those applications, Gleeson JA considered (In the matter of Tresdar Pty Limited, 18 June 2018, unrep.): Having been taken to some of the documentary evidence relied upon by Mr Samuels for the contention that Mr Keefe holds one share in Tresdar on trust presently for the estate of Mr Paul Samuels, I am satisfied that the claim is a real claim; there is certainly material upon which Mr Samuels relies by way of alleged admissions by Mr Keefe as to the existence of such a trust. His Honour was satisfied that the plaintiff should be given leave to amend the pleading, noting "Mr Keefe did not suggest that there was any delay in Mr Samuels making the amendment application or that he was otherwise prejudiced if the amendments were granted." The way in which Mr Keefe conducted the litigation seems to me to be likely to have increased the plaintiff's legal costs. 1. Fourth, in July 2018, Mr Keefe filed a verified defence setting out an elaborate set of agreements which he says that he had with Paul Samuels. By and large, I found in the principal judgment that these agreements did not exist. In particular, Mr Keefe asserted that he and Paul Samuels had agreed to go into property investment together through Wybrown Pty Ltd and folded the profits from a property investment by Tresdar. Mr Keefe asserted that he thereby contributed financially to the purchase of Tresdar's property. This was untrue, and inconsistent with the surviving financial records with which Mr Keefe would have been very familiar. Mr Keefe contended that the annual returns which his small firm prepared for Tresdar, recording himself as a non-beneficial shareholder of Tresdar, were incorrect. This was logically unlikely and I found it to be untrue. Mr Keefe pleaded, in his defence, that contemporaneous handwritten file notes prepared by him which made plain that he held his share in Tresdar on trust for Paul Samuels were false and prepared in accordance with Paul Samuels' express instruction to him to lie to Fleur Samuels. This contention was highly unlikely and I found it to be false. Mr Keefe relied upon the original share registry of Tresdar as governing the position, which was an available argument but unlikely to withstand the reality of the nature of his shareholding as evidenced by the surviving documents which the plaintiff, fortunately, found amongst his mother's papers. Having pleaded such a detailed and largely false defence, the plaintiff was put to the cost of dealing with the substantive matters raised in it. 2. Fifth, in August 2018, Mr Keefe filed a detailed affidavit which he had sworn comprising 38 pages and 155 paragraphs together with a compendious exhibit. Mr Keefe purported to give an accurate and detailed description of events since the 1970s. Mr Keefe sought to rely upon irrelevant matters, some apparently to engender sympathy in the eyes of the Court, such as his role with the Australian Army Reserve and matters of personal misfortune within his family. Mr Keefe's affidavit was discursive and contained many distractions rather than squarely addressing the critical events. Mr Keefe's affidavit contained detailed and elaborate fabrications as to the arrangements that he said he reached with a dead man. In setting out in such detail a range of business transactions, both relevant and irrelevant, with Paul Samuels, Mr Keefe put the plaintiff to the time and cost of having to investigate a wide range of matters in order to, hopefully, prove Mr Keefe to be the liar that I found him to be. 3. Indeed, the fact that the trial was completed within a reasonable time at all was due in large part to the plaintiff briefing experienced senior counsel who was able to navigate the numerous pitfalls and irrelevancies in Mr Keefe's defence and affidavit and focus on matters of key importance to the relief sought. Lesser counsel may not have had the courage to approach the matter as bravely, and much more court time would have been taken dealing with a broader range of factual material than was the case. The plaintiff, having had to incur additional counsel fees to meet the challenge posed by Mr Keefe's defence and affidavit has a sound basis, it seems to me, to be indemnified for those fees. 4. Sixth, on the first day of the hearing, the plaintiff tendered a letter to Mr Keefe attaching a share transfer together with a request that it be executed and returned by 4.00 pm that day. Mr Keefe did not reply to the letter. Agreeing to this irresistible course would have saved the plaintiff the legal costs associated with the hearing, which was largely occupied by Mr Keefe's defence. 5. Seventh, Mr Keefe made compendious objections to the affidavits and documentary evidence relied upon by the plaintiff. All documents post-dating the incorporation of Tresdar were objected to on a basis that was legally wrong-footed: see [4]-[9] of the principal judgment. Mr Keefe objected to any evidence of an express trust which was other than Paul Samuels' words, also wrong-footed: see [147]-[149] of the principal judgment. Ultimately, the plaintiff's witnesses were not challenged, or at least not on anything relevant. The plaintiff's accountant, Mr Rose, was cross-examined at length on a document which had only been admitted as an aide-mémoire. The point of this was entirely unclear. 6. Eighth, Mr Keefe maintained the lie throughout his cross-examination, which was necessarily lengthy. One of the mystifying aspects of Mr Keefe's evidence was his insistence that he was a beneficial shareholder of Tresdar in the face of contemporaneous documents which he had prepared which said otherwise. 7. It seems to me overall that Mr Keefe's detailed defence and more detailed affidavits were directed towards misleading the Court as to what had happened. The defence and affidavit, together with Mr Keefe's approach to the proceedings generally, had the result of prolonging the proceedings and the trial unnecessarily, leading to the plaintiff incurring costs. They amounted to a determined effort on the part of Mr Keefe to establish a defence which he knew to be false. I consider Mr Keefe's conduct to amount to relevant delinquency or exceptional circumstances warranting an indemnity costs order. This is not a case involving witnesses who gave evidence believing it to be true but as to which they were mistaken. Mr Keefe was aware of the truth. He was there at the time when the shares in Tresdar Pty Ltd were allocated. There were only two options: Mr Keefe was either a beneficial or a non-beneficial shareholder. There were no shades of grey. 8. In maintaining the lie, first uttered after Paul Samuels' death, that Mr Keefe in fact owned the share beneficially, Mr Keefe has put the plaintiff to the cost of confirming what ASIC's records have recorded — based on annual returned prepared by Mr Keefe — for many years: that Mr Keefe is the non-beneficial shareholder. That has involved 15 months of litigation. Why should the plaintiff, as the beneficiary of his parents' estates, be other than indemnified for his legal costs by Mr Keefe, the former trusted accountant and adviser of his parents for so many years? The plaintiff should be fully compensated for his legal costs. Orders 1. The Court ORDERS: 1. Vacate Order 5 made on 1 March 2019. 2. Order, pursuant to section 98(1)(c) of the Civil Procedure Act 2005 (NSW), the first defendant to pay the plaintiff's 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. Decision last updated: 14 May 2019