Resource Equities v Carr Resource Equities v Garrett [2010] NSWSC 44 (4 February 2010)

Last Updated: 12 March 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Resource Equities v Carr Resource Equities v Garrett [2010] NSWSC 44
This decision has been amended. Please see the end of the judgment for a list of the amendments.

JURISDICTION:
Equity Division
Commercial List

FILE NUMBER(S):
50214/07
50205/07

HEARING DATE(S):
4 February 2010


EX TEMPORE DATE:
4 February 2010

PARTIES:
50214/07 Resource Equities Limited (subject to deed of company Agreement) (Plaintiff)
John Hilton Garrett (First Defendant)
Louise Mary Garrett (Second Defendant)
Richard John Thomas (Third Defendant)
Leon Phillip Carr (Fourth Defendant)
Nigel Charles Purves (Fifth Defendant)
50205/07 Resource Equities Limited (Subject to deed of company arrangement) (Plaintiff)
Leon Phillip Carr (First Defendant)
Nigel Charles Purves (Second Defendant)
Richard John Thomas (Third Defendant)
John Hilton Garrett (Fourth Defendant)

JUDGMENT OF:
McDougall J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
J Muir (Second cross-defendant)
V R Gray (2&3D) (50214/07) and (1 to 4D)(50205/07)
N Furlan (first cross-defendant)



SOLICITORS:
Lavan Legal (Plaintiff)
NRG Legal (Mr Carr & Mr Purves)



CATCHWORDS:
COSTS - indemnity costs - whether "relevant delinquency" in conduct of proceedings - where some of claims were manifestly unsustainable - where cross-claimants knowingly fabricated evidence - where pleading of cross-claim extremely unsatisfactory - where unsatisfactory response to request for particulars - orders made - no question of principle.

LEGISLATION CITED:


CATEGORY:
Procedural and other rulings

CASES CITED:
Degmam Pty Ltd (In Liq) v Wright (No. 2) [1983] 2 NSWLR 354
FAI General Insurance Co Ltd v Burns [1996] NSWSC 350
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) FCA 202; (1988) 81 ALR 397
Ingot Capital Investments and Others v Macquarie Equity Capital Markets and Others (No 7) [2008]
NSWSC 199
Lahoud v Lahoud [2006] NSWSC 126
Oshlack v Richmond River Council [1998] HCA 11; (1987) 193 CLR 72

TEXTS CITED:


DECISION:
Judgment and other orders in accordance with the short minutes of order.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST


McDOUGALL J

4 February 2010 (ex tempore – revised 4 February 2010)

50214/07 RESOURCE EQUITIES LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 067 748 109) v

JOHN HILTON GARRETT & ORS

50205/07 RESOURCE EQUITIES LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 067 748 109) v

LEON PHILLIP CARR & ORS

JUDGMENT

1 HIS HONOUR: I gave judgment in these proceedings on 15 December 2009 and stood the matter over until today so that, the parties having had an opportunity to consider my reasons, orders could be made to give effect to those reasons.

2 The parties are agreed on most of the orders to be made (I should say, in each set of proceedings). The only disputed orders relate to the costs incurred by the cross-defendant, Mr Thomas, in defending the first cross-claim in each of the proceedings. The cross-claimants, Messrs Carr and Purves, accept that they must pay costs. However, Mr Thomas claims those costs on the indemnity basis. That is in dispute. In addition, Mr Thomas seeks interest on costs. Although that was not agreed, Mr Gray of counsel, for Mr Carr and Mr Purves, properly accepts that there was nothing he could say against the making of such an order. The basis on which interest should be assessed is not spelt out. It should be payable in the manner dealt with by Campbell J in Lahoud v Lahoud [2006] NSWSC 126, to which I refer in my costs judgment in the Ingot proceedings, namely, Ingot Capital Investments and Others v Macquarie Equity Capital Markets and Others (No 7) [2008] NSWSC 199.

3 The application for indemnity costs was advanced on three different bases, not all of which were relevant to all elements of the claims. To understand what follows, I note that there were some six separate heads of a claim advanced in the two proceedings. I referred to them in my earlier reasons as excessive payments to directors, Garrett loans, the Fox Technology transaction, the distribution of proceeds of the sale of Asia Iron shares, litigation expenses and costs of administrations.

4 It is apparent from my findings that Mr Thomas had nothing whatsoever to do with some of those claims. That comment relates to the distribution of the proceeds of the sale of the Asia Iron shares, litigation expenses, some of the overpayments to directors (made in December 2004 after Mr Thomas had been excluded from the management of the plaintiff) and the costs of the administrations. The submission in respect of those claims is that, given that Mr Thomas was not involved in any way in the relevant decisions, those aspects of the cross-claim had no reasonable prospect of success (see Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) FCA 202; (1988) 81 ALR 397; see also Ingot (No 7) at [24] to [27]).

5 Mr Gray again properly accepts that there was nothing he could say in relation to those aspects of the claim. It is clear on the findings of fact that I made that Mr Thomas had nothing to do with the relevant decisions. Messrs Carr and Purves must have understood that, if they had turned their minds to the question. However, Mr Gray said, there were matters that could be put in relation to other aspects of the case. He noted that Mr Thomas had been heavily involved in the Fox transaction, in which payments were made on an ongoing basis. He submitted, correctly, that Mr Thomas had been a supporter of the Fox transaction: to the extent that he caused his own interests to make further investments in the plaintiff in an attempt to reap the benefit of it. However, the application for indemnity costs is put on the basis that a key aspect of the cross claim was the evidence to the effect that Mr Thomas had performed a valuation of Fox Technology. That evidence, I found, was fabricated. In those circumstances, Mr Furlan of counsel, for Mr Thomas, relied on what was said in Degmam Pty Ltd (In Liq) v Wright (No. 2) [1983] 2 NSWLR 354 at 358. In that case, Holland J said that a special order for costs was justified against the defendant because she had made false and deliberately concocted allegations of fact in an attempt, among other things, to shift blame and liability to the other parties in the proceedings.

6 Although I accept that Mr Thomas was a supporter of the Fox transaction, and although I accept that it was a transaction involving ongoing payments (most, if not all, of which were made when Mr Thomas was a director), it remains the fact, in my view, that the key to the claim for contribution was the falsely concocted allegations of valuation. Mr Carr, in particular, sought to suggest that the valuation was central to his position to support the Fox transaction, and Mr Purves sought to ride on Mr Carr's coattails in that respect.

7 In my view, the making of a knowingly false allegation as the central plank of a claim for contribution, in an attempt to shift responsibility, may justify an order for indemnity costs. Further, in my view, it should do so in this case. That is because considerable time was taken up in examining the circumstances relating to the claim for contribution, an essential element of which was, as I have now said twice, fabricated.

8 The third basis on which the costs are sought on an indemnity basis is the entirely unsatisfactory nature of the "pleading" of the cross-claim as it was finally put forward. That is said to represent a failure to adhere to proper procedure, sufficient to justify an order for indemnity costs on the basis explained by Mahoney P in FAI General Insurance Co Ltd v Burns [1996] NSWSC 350. I referred on a number of occasions in my reasons to the extremely unsatisfactory way in which the cross claim had been pleaded. That commences under the sub-heading "deficiencies of the cross claim" at [342], and continues through to [362]. In the latter paragraph, I said that there was considerable force in Mr Thomas' admission that the cross-claim statement did not allege any comprehensible claim for contribution against him. However, against the view that others might be more perceptive or more benevolent, I proceeded to deal with the facts in any event.

9 Another relevant matter of history is that Mr Thomas made an application to dismiss or strike-out the cross-claim. The application for summary dismissal was put on the basis that no cause of action for contribution was shown. I agreed with that. Because I agreed with it, I did not consider the alternative claim for strike-out based on alleged deficiencies in the pleading. The Court of Appeal disagreed with my view, and effectively reinstated the cross-claim. Because of the time that it took their Honours to reach their conclusion, and because it was important for the proceedings to be set down for hearing, the application to strike out was not pursued. Although there was some dispute as to what happened, it is clear that the major interlocutory proceeding that took place after the Court of Appeal handed down its decision and before the hearing before me commenced, related to the alleged valuation performed by Mr Thomas. In those circumstances, given the need to set this by then ancient claim down as quickly as possible, and the fact that Mr Thomas had become self-represented, I do not think that any criticism should be made of him for failing to pursue the strike-out application. It might be noted that at no stage did Mr Thomas abandon his stance that the cross-claim was defectively pleaded.

10 I do not propose to go into chapter and verse of the deficiencies, because to do so would do little more than repeat what I said in the paragraphs of my earlier reasons to which I have referred. However, I will note that in many cases the cross-claim simply repeated (often inappropriately) paragraphs of the claim against Mr Carr and Mr Purves, and relied on those as against Mr Thomas. In many cases, the paragraphs repeated made no reference to Mr Thomas and just did not show why he might be liable to contribute. In some other cases, reference, though fleeting, was made; and again, no basis for contribution could be discerned from such references. In a few cases, the repeated paragraphs might have shown some basis for a claim if otherwise sufficient material facts had been alleged.

11 Detailed particulars were sought. In substance, the response was to attach requests for particulars that the solicitors for Mr Carr and Mr Purves had made of the solicitors to the plaintiff, and to tell Mr Thomas' solicitors that if further particulars were required then they should contact the plaintiff's solicitors direct and copy the request and response to the solicitor for Mr Carr and Mr Purves. That is hardly an appropriate approach to take to the requirement under the Practice Note to articulate properly, and with adequate particulars, the material facts alleged in support of the claim.

12 Mr Gray submitted, correctly, that an order for indemnity costs was an exceptional order because there was a presumption under the rules against it. He submitted, further, that there was need for specific evidence to show why the ordinary order was inadequate. This latter submission, I think, does not accurately state the position. As Gaudron and Gummow JJ said in Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 89, an indemnity costs order may be justified where the party against whom it is sought has demonstrated some "relevant delinquency" in its conduct of the proceedings.

13 In my view, although none of the matters relied upon extends, overall, to the cross-claim as an entirety, when one takes them into consideration together, there is clearly demonstrated sufficient relevant delinquency in the conduct of the proceedings, to justify the making of an order of indemnity costs. The approach to pleading and the approach to the making of a proper response to a legitimate request for particulars, is almost sufficient of itself to demonstrate this. The casual approach to the pleaded case is confirmed, in my view, by the fact that claims for contribution were made in respect of the aspects of the overall claims where Mr Carr and Mr Purves must have known, if they turned their minds to it, that Mr Thomas had had nothing to do with the underlying events. Although I accept that the fabrication of evidence in relation to the valuation does not extend to the whole of the claim, it should not be forgotten that I was deeply unimpressed by Mr Carr and Mr Purves as witnesses. I found (see at [54]) that Mr Carr engaged in egregiously wrong behaviour, and fabricated falsehoods in an attempt to disguise it, and accordingly I concluded that his evidence was entirely unacceptable. Mr Purves did not fare much better, although I noted in his favour "that he did not engage in the barrage of evasive and non-responsive answers that marked Mr Carr's evidence", and I found that he, too, was a party to the fabrication of evidence on a vital part of the claim (see at [56]).

14 In all the circumstances, I am more than satisfied that it is proper to characterise the conduct of Messrs Carr and Purves, in relation to the cross-claim, as exhibiting relevant delinquency.

15 It follows that I will make the orders sought. However, in the event that the parties are unable to agree on the interest formula, I will reserve liberty to apply. I should make it crystal clear that I do not expect any application to be made. In 50205/07, I make the orders in accordance with paragraphs 1 to 7 of the short minutes of order initialled by me and dated today's date. In proceedings 50214/07, I make orders in accordance with paragraphs 1 to 6 of the short minutes of order, initialled by me and dated today's date. I note that the ticks appearing against some, but not all, of the paragraphs of each set of the minutes are my annotations to what was agreed, and are not to be taken as derogating from the orders I have just made. I direct that all exhibits other than AJ1 be retained pending any other appeal.

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AMENDMENTS:


11/03/2010 - (1998) - Paragraph(s) 12


LAST UPDATED:
11 March 2010