Moreton Resources Ltd (in liq) & Ors v First Samuel Ltd & Ors
[2020] QSC 381
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- Moreton Resources Ltd (in liq) & Ors v First Samuel Ltd & Ors[2020] QSC 381
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Moreton Resources Ltd (in liq) & Ors v First Samuel Ltd & Ors[2020] QSC 381
Moreton Resources Ltd (in liq) & Ors v First Samuel Ltd & Ors[2020] QSC 381
SUPREME COURT OF QUEENSLAND
CITATION: | Moreton Resources Ltd (in liq) & Ors v First Samuel Ltd & Ors [2020] QSC 381 |
PARTIES: | MORETON RESOURCES LIMITED (IN LIQUIDATION) ACN 060 111 784 (first applicant) and MRV METALS PTY LTD (IN LIQUIDATION) (RECEIVERS APPOINTED) ACN 610 100 402 (second applicant) and GRANT DENE SPARKS AND DAVID MICHAEL ORR IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF MORETON RESOURCES LIMITED (IN LIQUIDATION) ACN 060 111 784 AND MRV METALS PTY LTD (IN LIQUIDATION) (RECEIVERS APPOINTED) ACN 610 100 402 (third applicants) v FIRST SAMUEL LIMITED ACN 086 243 567 IN ITS OWN RIGHT AND IN ITS CAPACITY AS SECURITY TRUSTEE OF THE MORETON SECURITY TRUST (first respondent) and PHILIP ANTHONY FEITELSON (second respondent) and A & J CONSULTANCY PTY LTD ACN 002 962 503 (third respondent) and ZINC OXIDE (AUST) PTY LTD ACN 009 744 692 (fourth respondent) and DARRYL EDWARD KIRK AND MATTHEW LESLIE JOINER IN THEIR CAPACITY AS RECEIVERS OF MRV METALS PTY LTD (IN LIQUIDATION) (RECEIVERS APPOINTED) ACN 610 100 402 (fifth respondents) |
FILE NO/S: | 10147/20 |
DIVISION: | Trial |
PROCEEDING: | Originating Application |
ORIGINATING COURT: | Supreme Court at Brisbane |
DELIVERED ON: | 16 December 2020 |
DELIVERED AT: | Brisbane |
HEARING DATES: | On the papers |
JUDGE: | Flanagan J |
ORDER: |
|
COUNSEL: | K E Downes QC with A J Schriiffer for the applicants G R Coveney for the first respondent G A Thompson QC SG with A G Psaltis for the second, third and fifth respondents |
SOLICITORS: | Norton Rose Fulbright for the applicants HWL Ebsworth for the first respondent Colin Biggers & Paisley for the second, third and fifth respondents |
- [1]On 13 November 2020, the Court ordered that the applicants’ amended originating application filed 21 October 2020 be dismissed and that the Court would hear the parties as to costs.
- [2]The parties have filed written submissions in relation to costs.
- [3]The parties accept that the applicants should pay the respondents’ costs of the originating application and the amended originating application. There will be an order to this effect. There are two further issues as to costs raised by the applicants and the first respondent.
The third applicants’ costs of complying with a subpoena issued on behalf of the second, third and fifth respondents
- [4]On 12 October 2020, the second, third and fifth respondents caused a subpoena to be issued to the third applicants. The subpoena sought the following categories of documents for production:
“1. All documents relating to the marketing campaign for the sale of the assets of MRV Metals Pty Ltd (including all the shares in MRV Metals Pty Ltd) (the MRV assets) undertaken by you, in your capacities as both joint and several voluntary administrators and joint and several liquidators of MRV Metals Pty Ltd;
2. All documents exchanged between you (and by representatives on your behalf) with representatives of Jadar Resources Limited and Jadar Silver Pty Ltd (collectively Jadar) in respect of the sale of the MRV Assets from:
a. the commencement of the administration (being 10 June 2020) up to and including 30 July 2020; and
b. 31 July 2020 to date;
- (3)All documents relating to or recording your consideration of offers to purchase the MRV assets, including by Jadar and the second respondent; and
- (4)Any valuation of the MRV assets.”
- [5]On 15 October 2020, the solicitors for the applicants wrote to the solicitors for the second, third and fifth respondents stating that the subpoena was liable to be set aside in that the categories of documents sought to be produced were too wide and therefore oppressive. The subpoena required the applicants to conduct extensive searches of an excessively large number of documents. The letter invited the second, third and fifth respondents to identify the specific categories of documents required to be produced.[1]
- [6]On 16 October 2020, the solicitors for the second, third and fifth respondents rejected the assertion that the subpoena was liable to be set aside. The letter also rejected the contention that the second, third and fifth respondents should be responsible for the third applicants’ costs of complying with the subpoena when costs of compliance are only payable if the Court so orders (referring to rr 417 and 418 of the UCPR). The letter further stated that the third applicants were litigants to the proceedings and the issues to which the subpoena related were squarely raised in the proceedings.[2]
- [7]No application was brought by the third applicants to have the subpoena set aside. A number of folders of documents were produced to the Court by the third applicants in compliance with the subpoena. A small number of the documents produced were the subject of cross-examination by Mr Thompson QC of Mr Sparks and tendered in evidence.[3]
- [8]Rule 417(1) of the UCPR provides:
“The court may order the party on whose behalf a subpoena was issued to pay the amount of any reasonable loss or expense incurred by the person to whom the subpoena is directed in complying with the subpoena.”
- [9]The power to make such an order is discretionary. The third applicants seek the costs of complying with the subpoena and identify that there are no disclosure obligations in proceedings commenced by way of originating application. They submit that, consistently with the second, third and fifth respondents’ implied undertaking pursuant to r 5 of the UCPR, and having regard to the breadth of the category of documents sought by the subpoena, the parties could have negotiated what documents were required. From the volume of documents that were produced to the Court, the third applicants emphasise that only two documents were actually tendered in evidence.
- [10]As observed above, the third applicants did not bring any application to have the subpoena set aside. It was a subpoena directed to a party to the litigation. I accept the second, third and fifth respondents’ submission that, as a party to the litigation, the third applicants’ costs ought to be dealt with like any other inter partes costs. According to the second, third and fifth respondents, the appropriate outcome is that the applicants bear their own costs of complying with the subpoena.
- [11]The second, third and fifth respondents acknowledge that the language of r 417 is broad enough to enable a party to a proceeding to recover its costs of complying with a subpoena.[4] They refer to r 418(6) which provides that if a party who is ordered to pay losses and expenses under r 418(2) obtains an order for the costs of the proceeding, the Court may:
- (a)allow the losses and expenses to be included in the costs recoverable by the party; or
- (b)make another order it considers appropriate.
- (a)
- [12]They submit that r 418(6) contemplates that the ultimate burden of the costs for compliance with a subpoena ought to be borne by the unsuccessful party to the proceedings, even if it was not the issuer.
- [13]
“… If that party succeeds in the litigation ordinarily the other party ought be ordered to pay its costs which will include the cost to it of having necessary subpoenas answered. If it loses the litigation then that party will have to bear its own costs including those which it incurs by reason of its having issued such a subpoena. That is as it should be in the last decade of the twentieth century (and after).”
- [14]The second, third and fifth respondents submit:
“… that the rationale described by Bainton J and which expressly factors into the Court’s discretion under subr 418(6) ought equally (and perhaps more compellingly) apply to a subpoena issued by a party to another party to the proceeding. Such an approach is appropriate having regard to the broad discretion in r 417 and the overriding principle when considering an award of costs inter partes, viz. that a successful party is to be compensated by an unsuccessful party for its costs …”[6]
- [15]While the second, third and fifth respondents only relied on a small number of the documents produced, those documents were directly relevant to the disposition of the proceedings.[7]
- [16]I therefore refuse to make the order sought by the third applicants under r 417(1) of the UCPR.
The first respondent’s costs
- [17]The first respondent, as the Security Trustee, accepts that the applicants should pay the respondents’ costs of the amended originating application. The first respondent, however, seeks the following additional order:
“The second and third respondents pay to the first respondent the amount of any difference between its costs recovered under paragraph 1 of these orders, and its costs of and incidental to the originating application, and the amended originating application, on the indemnity basis, in an amount to be agreed or otherwise fixed by assessment.”
- [18]The second and third respondents oppose the making of this order. Rule 700 of the UCPR provides:
“(1) This rule applies to a party who sues or is sued as trustee.
- (2)Unless the court orders otherwise, the party is entitled to have costs of the proceeding, that are not paid by someone else, paid out of the fund held by the trustee.”
- [19]The first respondent submits that trustees will ordinarily be entitled to an indemnity out of the trust assets against all proper costs, charges and expenses incidental to the execution of the trust, including legal costs.[8] Further, a separate right of indemnity against the beneficiaries is a recognised equitable right. The first respondent further submits that the indemnity in cl 7.2(a) of the Security Trust Deed is additional to any existing equitable right of indemnity available to it.[9]
- [20]There are, in my view, a number of difficulties in the order sought by the first respondent. First, it was not until after the hearing of the amended originating application that the first respondent gave notice to the second and third respondents that it would be relying on cl 7.2(a) of the Security Trust Deed to seek the proposed order. As observed by Jackson J in Clarence Property Corporation Limited v Sentinel Robina Office Pty Ltd:[10]
“… First, a claim or application for an order for costs to be assessed on the indemnity basis under a contractual provision should be pleaded or notified because it may otherwise catch the opposite party by surprise. Second, it is relevant to the exercise of the discretion that it is likely that the burden of costs assessed on the indemnity basis will be substantially more. Third, a purpose of the requirement to plead or notify the claim for an order that costs be assessed on the indemnity basis is to enable an opposite party to make informed decisions about the steps they might take in the litigation.”
- [21]The first respondent seeks to distinguish the observations of Jackson J on the basis that the principles of pleading and proof which pertain to a party suing under a commercial contract do not apply to an equitable right to indemnity (or its equivalent under the Security Trust Deed) for a trustee joined as a necessary party to proceedings.[11] I do not accept this submission. The observations of Jackson J are, in my view, of more general application. Jackson J contemplated the need for notification where a party, in the position of the first respondent here, seeks a costs order on the indemnity basis. As correctly identified by the second and third respondents, any question of the first respondent’s right to an indemnity under cl 7.2(a) was not raised as an issue in the proceedings.
- [22]The second difficulty is that the issue of whether the Security Trustee’s costs have been “properly incurred” for the purposes of cl 7.2(a) has not been agitated before the Court. Clause 7.3 of the Security Trust Deed provides that the only exception to the indemnity in cl 7.2(a) is whether loss for which indemnity is sought results from the first respondent’s “fraud, gross negligence or wilful default”. The second and third respondents submit that there is at least some suggestion that the first respondent’s conduct in taking the position it has in respect of the proceeding amounts to a breach of trust:
“There is at least some suggestion to that effect in the evidence. By its email to the third applicants dated 21 August 2020, the first respondent expressed itself in a way which suggested it was allowing its own interests under the Administration Funding Deed to prevail over its duties to the beneficiaries of the Security Trust, by expressing an intention to use its alleged priority position under the statutory lien created by the Administration Funding Deed to discharge the Debenture Security created by the Secured Debenture Deed and held by it on trust for the beneficiaries pursuant to the Security Trust Deed …”[12]
- [23]The first respondent submits, by reference to cl 4.5 of the Security Trust Deed, that it was entitled to deal in different capacities. While this may be accepted, cl 4.5 does not permit conduct which may amount to a breach of trust. These matters having not been agitated in the proceeding, the Court is simply not in a position to decide whether the first respondent is entitled to enforce its right of indemnity pursuant to cl 7.2(a).
- [24]Thirdly, the first respondent initially submitted that the costs order it sought was not pursuant to the Security Trust Deed, but was an order from the Court which “corresponds with its contractual entitlements” under the Security Trust Deed.[13] The first respondent relies on Lee v Australia and New Zealand Banking Group Ltd[14] where McMurdo J (as his Honour then was) stated:
“But the respondent is not seeking to recover its costs as a liquidated debt owing under these instruments: rather it is seeking to have the Court, in the exercise of its discretion as to costs, make an order which corresponds with what it says is its contractual entitlement. As its argument appears to accept, the existence of this contractual entitlement does not require an order for the payment of its costs and upon the indemnity basis. In such cases, it remains a discretionary judgment for the Court, although the discretion should ordinarily be exercised in a way which corresponds with the mortgagee’s contractual entitlement. The question then is whether the discretion should be exercised other than according to the respondent’s contractual right.”
- [25]As is apparent from the above passage, any question of a contractual indemnity to costs merely forms part of the Court’s discretionary costs jurisdiction.[15] Where the party the subject of the indemnity has enjoyed success, it is not always appropriate to engage the indemnity.[16] As correctly submitted by the second and third respondents, the present case does not involve an application for costs by a successful party (entitled to a contractual indemnity for its costs) against an unsuccessful party where the question for the Court would be whether, as between those parties, it is appropriate to award costs on the standard basis or on the indemnity basis by reason of the contractual indemnity.[17] I accept the second and third respondents’ submission that there is no basis to justify, in the Court’s discretion, a successful respondent (that is, the second and third respondents) effectively being required to top up the costs of another respondent.[18]
Disposition
- The applicants pay the respondents’ costs of and incidental to the originating application and the amended originating application.
- The third applicants bear their own costs of complying with the subpoena issued on 12 October 2020.
Footnotes
[1]Affidavit of John Edmund Poulsen filed 19 October 2020, Exhibit JEP-59.
[2]Affidavit of John Edmund Poulsen filed 19 October 2020, Exhibit JEP-60.
[3]Moreton Resources Ltd (in liq) & Ors v First Samuel Ltd & Ors [2020] QSC 339, [45]‑[47].
[4]This is to be contrasted with r 418(1)(a) which is limited to costs of complying with a subpoena if the person is not a party to the proceeding.
[5](1996) 39 NSWLR 267, 290.
[6]Second, Third and Fifth Respondents’ Submissions on Costs, para 8.
[7]Moreton Resources Ltd (in liq) & Ors v First Samuel Ltd & Ors [2020] QSC 339, [26], [45]-[47] and [140].
[8]Submissions in Reply of the First Respondent as to Costs, para 6.
[9]Submissions in Reply of the First Respondent as to Costs, para 9.
[10][2019] QSC 13, [12].
[11]Submissions in Reply of the First Respondent as to Costs, para 10.
[12]Second, Third and Fifth Respondents’ Submissions on Costs, para 17(b); Moreton Resources Ltd (in liq) & Ors v First Samuel Ltd & Ors [2020] QSC 339, [63].
[13]Submissions of the First Respondent as to Costs, para 22.
[14][2013] QCA 284.
[15]Second, Third and Fifth Respondents’ Submissions on Costs, para 18.
[16]Lee v Australia and New Zealand Banking Group Ltd [2013] QCA 284, [11].
[17]Second, Third and Fifth Respondents’ Submissions on Costs, para 19.
[18]Second, Third and Fifth Respondents’ Submissions on Costs, para 19.