In the matter of Carbon Copies Composites Pty Ltd

1. [1]

   I delivered my reasons for judgment in this matter on 3 August 2023 ([2023] NSWSC 911) (“Principal Judgment”). I summarised the result as to the relief claimed in the proceedings in paragraphs 241-255 of the Principal Judgment and directed the parties to bring in agreed short minutes of order to give effect to the Principal Judgment, including as to costs, within 14 days, or otherwise their respective short minutes of order and submissions as to the differences between them. The parties have now submitted their proposed orders and submissions, although the Second Defendant, Mr Hutchison, was late in doing so.

Relief and orders

1. [2]

   The first order sought by the Plaintiff relates to a restraint on Mr Hutchison from dealing with the Property (as defined) of Carbon Copies Composites Pty Ltd (“Company”) other than for specified purposes. I dealt with this issue in paragraph 243 of the Principal Judgment as follows:

2. [3]

   The parties have substantially agreed the terms of this order, other than as to the definition of the term “Property” which I address below. I will make this order in the form proposed by Mr Hutchison, which is consistent with the conclusions reached in paragraph 243 of the Principal Judgment.

3. [4]

   There is a disagreement between the parties as to the scope of the property falling within the definition of the term “Property” in the relevant orders. Mr Wellington submits that the term “Property” should include the definition used in the Originating Process and the Amended Statement of Claim, and the items identified in paragraph 242 of the Principal Judgment where those items were not otherwise included in that definition. I there observed that:

4. [5]

   Mr Hutchison also seeks to insert in that definition the words “(subject to Carbon Copies establishing its right to it”). Mr Bell, who appears for Mr Hutchison, submits that the Court qualified the property to which the Company was entitled as being “subject to the Company establishing its right to it”, referring to paragraph 242 of the Principal Judgment. That does not recognise that I then addressed the question whether the Company had established its right to that property in the Principal Judgment, and found that it had done so, as an ownership right of relevant property created after 17 December 2018, and as an irrevocable licence to property created prior to that date. The examples referred to in paragraph 242 of the Principal Judgment are examples of the property in issue.

5. [6]

   Mr Bell also makes submissions as to certain files referred to in the Court Book, and hypothesises that calculations in design files may include engineering formulas taught to aeronautical engineers, but it is too late to make submissions of that character in respect of matters already determined in the Principal Judgment. Mr Bell also seeks to draw a distinction between intellectual property that was “developed for the Aircraft” and intellectual property that may have been “used in the development of the Aircraft”, but that submission is both obscure and drawn too late, where these issues have also been addressed in the Principal Judgment. I will not make this suggested amendment, where it does not reflect the matters that have already been determined in the proceedings. Mr Hutchison also seeks to insert the words “that were developed” in respect of several items of property, in a manner that would leave room for a new dispute as to the question. I will also not make that amendment where any dispute as to that matter should have been raised in the proceedings and has been determined, to the extent it was raised. Mr Hutchison also seeks an exclusion for certain third party software in respect of computer programmes, and I will partly make that amendment, since there is no basis on which the Company would be entitled to a transfer of, for example, general design software that Mr Hutchison owned that it could readily buy for itself.

6. [7]

   The second order sought by Mr Wellington is a declaration as to the ownership of the Property, as defined, and the third relates to the transfer of certain property to the Company. Mr Bulley, who appears for Mr Wellington, submits that the proposed second order gives effect to the declaration sought in paragraph 71 of the Amended Statement of Claim and the conclusions reached in the Principal Judgment at [244] where I observed that:

7. [8]

   The parties have agreed that the declaration that the Property is the Company’s property should operate from 17 December 2018, the date of incorporation of the Company. However, Mr Bell submits that the Court determined that the Company was entitled to an irrevocable licence to use the Property relating to the Aircraft created prior to its incorporation, and not that the Company could transfer the licence. I will delete the words “and transferable” from Mr Wellington’s proposed order where it is not apparent how the findings that I reached either require Mr Hutchison to grant a transferable licence or permit him to impose any restriction on transfer of the licence.

8. [9]

   As I noted above, Mr Wellington also seeks an order that Mr Hutchison execute a deed of transfer in a specified form to transfer any ownership or interest that he may have in the Property of the Company, created after 17 December 2023, to the Company. Mr Bulley submits that this proposed order and the deed of transfer and licence in the form proposed by him gives effect to paragraph 72 of the Amended Statement of Claim and paragraph 244 of the Principal Judgment. He also submits that the deed of transfer and licence is appropriate:

9. [10]

   Mr Bell submits that there is no need to order Mr Hutchison to execute a deed of transfer given the declarations that the Court will make reflecting the findings in the Principal Judgment. I accept that submission. I have found that the Company already owns the Property brought into existence after 17 December 2018, and has an irrevocable licence of the Property brought into existence prior to that date, and no further transfer of property is necessary to give effect to those findings.

10. [11]

    Fourth, Mr Wellington seeks declarations of breach of fiduciary and statutory duties owed by Mr Hutchison to the Company. Mr Bulley rightly acknowledges that I observed, in paragraph 247 of the Principal Judgment that

11. [12]

    Mr Wellington does not seek to establish any basis to reopen the judgment and no basis to do so is apparent. I do not propose to entertain further submissions as to a matter that has been determined by the Principal Judgment.

12. [13]

    Fifth, the parties agree that the parties should be discharged by order from certain undertakings given in the course of the proceedings. Sixth, the parties agree that an amount for security for costs distributed by Mr Wellington as security for an adverse costs order against him, in respect of the derivative action, should be released. Those orders are appropriately made, where the derivative action has succeeded.

Costs

1. [14]

   There is a dispute between the parties as to costs. I should first address the applicable case law. The Court has discretion to determine by whom, to whom and to what extent costs are to be paid, and costs will ordinarily follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs, in accordance with r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”). The onus is on the losing party to establish the basis for a departure from the usual costs rule in UCPR r 42.1: Waterman v Gerling Australia Insurance Co Pty Ltd (No 2) [2005] NSWSC 1111 at [10]. Here, Mr Wellington is the winning party in his derivative claims and the losing party in his misleading and deceptive conduct claims and Mr Hutchison is in the converse position.

2. [15]

   Mr Bell refers to Commonwealth of Australia v Gretton [2008] NSWCA 117, where Hodgson JA (with whom Mason P agreed) observed (at [121]) that:

3. [16]

   Mr Bell also refers to Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [98], where that observation was cited, with apparent approval, by the Court of Appeal, and to my reference to those decisions in Warburton v County Construction (NSW) Pty Ltd (No 3) [2022] NSWSC 1563 at [12]-[13].

4. [17]

   Mr Bulley refers to Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 (“Bostik”) at [38], where the Court of Appeal noted that, in relation to trials, it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party did not succeed took up a significant part of the trial, either by way of evidence or argument. I also addressed the circumstances in which costs could reflect a mixed result of proceedings in Re Metal Storm Ltd (subject to deed of company arrangement) [2014] NSWSC 1170 at [47] as follows:

5. [18]

   In Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 at [6]–[7], the Court of Appeal in turn noted that:

6. [19]

   In Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 2) [2019] NSWCA 19 at [5], the Court of Appeal noted that:

7. [20]

   Mr Wellington seeks an order that Mr Hutchison pay his costs of the proceedings, on an indemnity basis or, alternatively, on a party/party basis up until 21 December 2022, excluding costs incurred up to that date with respect to the relief concerning misleading and deceptive conduct, and on an indemnity basis after that. Mr Bulley points out that Mr Wellington brought the proceedings in two separate capacities, in a representative capacity on behalf of the Company in respect of the Company’s property, as to which he was substantially successful, and his personal claim for misleading and deceptive conduct as to which he was not successful. Mr Bulley submits that the decision in Bostik is authority that the Court generally does not attempt to differentiate between those issues on which a party was successful and those on which it failed unless a particular issue or group of issues is clearly dominant or separable, and that the question of apportionment of costs is a matter of discretion. I should not make the order as to costs sought by Mr Wellington where he has failed in his misleading and deceptive conduct claim and that claim was substantial and separable, so that Mr Wellington should pay Mr Hutchison’s costs of that claim.

8. [21]

   Mr Bell submits that the pleadings for misleading and deceptive conduct comprise the majority of the allegations of the Statement of Claim and the Amended Statement of Claim, but it seems to me that little is to be gained by counting paragraphs of the pleadings, which provide no basis to assess the time spent on particular issues at a hearing. He submits, and I recognise, that Mr Wellington was unsuccessful in the misleading and deceptive conduct claim. He also submits that Mr Wellington was unsuccessful in aspects of the relief which he sought in respect of the derivative claim brought on the Company’s behalf. Little turns on that where Mr Wellington was substantially successful in that claim and, in particular, established the Company’s ownership of Property relating to the Aircraft from its incorporation and its entitlement to an irrevocable licence to that Property that came into existence prior to that date. Mr Bell also submits that Mr Hutchison only formed the view that he was the owner of that Property when the Company sought an assignment of that Property from him. I addressed that matter in the Principal Judgment, but nothing turns on it for the purposes of the costs of the proceedings, which should be determined by reference to the conduct and outcome of the proceedings.

9. [22]

   Mr Hutchison seeks an order that there be no order as to the costs of the proceedings. Mr Bell in turn refers to several matters as to costs, to which I have had regard, and submits that I found that the proceedings had led to a mixed result and then submits that an appropriate order would be for each party to pay their own costs. This approach implicitly sets off the costs of Mr Wellington’s successful derivative claim, which in the ordinary course Mr Hutchison would pay, and Mr Wellington’s unsuccessful claim for misleading and deceptive conduct, which in the ordinary course Mr Wellington would pay. I am not persuaded that such a set-off is appropriate, where there is no reason to assume that those costs are identical or substantially identical in quantum, and it is not necessary to determine whether a set-off would also not be available by reason of any lack of mutuality.

10. [23]

    Where the parties have not agreed the basis for any set-off of costs between the claim brought on the Company’s behalf in the derivative proceedings and the misleading and deceptive conduct claim brought by Mr Wellington in his own right, and neither have established the basis of the respective costs orders for which they contend, the proper order is that Mr Wellington pay Mr Hutchison’s costs of and incidental to the misleading and deceptive conduct claim, as agreed or as assessed, and Mr Hutchison pay Mr Wellington’s (in his capacity as director of the Company) costs of and incidental to the balance of the proceedings, as agreed or as assessed. No doubt, further costs will be incurred in an assessment, including in any attempt to differentiate the costs of the respective parts of the proceedings. That unfortunate result can be avoided by the parties, if they choose to adopt a more constructive approach to resolution of this issue between themselves.

11. [24]

    As I noted above, Mr Wellington also seeks costs on an indemnity basis, invoking the principles of Calderbank v Calderbank [1975] 3 All ER 333. The applicable principles were summarised by Ward J (as the President then was) in Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [9]–[15] and I summarised them in Re Alsafe Security Products Pty Ltd atf Alsafe Trust (in liq) [2016] NSWSC 575 at [8], as follows:

12. [25]

    Mr Wellington relies on two letters forwarded to Mr Hutchison, the first on 23 June 2022, several months before the commencement of the proceedings, and the second on 21 December 2022 after the making of interlocutory orders and service of Mr Wellington’s Statement of Claim and affidavits on which he relied on Mr Hutchison. Mr Wellington there sought to resolve the dispute with Mr Hutchison on the basis that there be a clear acknowledgement on the part of Mr Hutchison that the intellectual property relating to the Aircraft belonged to the Company and that that intellectual property and all related property be returned to the Company. Mr Bell submits that the 23 June letter was sent prior to the commencement of the proceedings, and seeks to contrast it with the position taken by the majority of the board members in a December 2021 board meeting which I addressed in the Principal Judgment. It is not necessary to address that submission in order to determine the question of costs. Mr Bell also submits that it was reasonable for Mr Hutchison to reject the demands made in this letter.

13. [26]

    I cannot conclude that it was unreasonable for Mr Hutchison not to accept the position put in this letter, where the evidence led in the proceedings has established that at least some design drawings had been done prior to the incorporation of the Company and the Company’s right to them is not a right of ownership, but an entitlement to an irrevocable licence to use those drawings. An order for costs on an indemnity basis should not be made for that reason.

14. [27]

    Mr Bell points out that the letter dated 20 December 2022 makes allegations of misleading conduct, which Mr Wellington has failed to establish in these proceedings, and also refers to the nature of the proposal put in that letter. Again, Mr Bell submits that it was reasonable for Mr Hutchison to reject that offer, and that Mr Wellington has not attained a more favourable result at the hearing. I cannot conclude that it was unreasonable for Mr Hutchison not to accept the position in that letter for both those reasons, and it also does not support an order for indemnity costs against Mr Hutchison.

Orders

1. [28]

   I therefore make the following orders: