Reale v Duncan Reale; Duncan Reale v Cameda Investments

HIS HONOUR : In proceeding No 1190 of 2005 in this court ("the First Proceeding"), Maria Reale sued Duncan Reale Pty Ltd ("Duncan Reale Company"), later joining Tony Duncan as second defendant, for relief of two kinds. First, she sought leave under s 237 of the Corporations Act to bring another proceeding on behalf of and in the name of Duncan Reale Company against Cameda Investments Pty Ltd and Mr Duncan as defendants. Secondly, she sought orders for the transfer to her, as trustee of a trust ("the Second Trust"), of 200,010 shares held by Duncan Reale Company in Cameda Investments. Leave was granted, and Ms Reale caused Duncan Reale to commence the foreshadowed proceeding, No 1518 of 2005, in this court ("the Second Proceeding"), principally seeking orders in reliance on the "statutory oppression remedy" for the addition of an independent director to the board of directors of Cameda Investments.

The remaining issue in the First Proceeding, the transfer of shares, was addressed by orders of the court made on 12 April 2006. The principal relief sought in the Second Proceeding, reconstitution of the board of directors of Cameda Investments, was granted by consent orders made on 13 February 2006. Although those orders were not subsequently implemented, the parties now concede that such relief is no longer necessary. Consequently all matters of substantive orders in the two proceedings have been addressed, and all that remains is the question of costs.

I dealt with the facts relevant to the question of costs in my reasons for judgment published on 3 April 2006 ( Reale v Duncan Reale Pty Ltd [2006] NSWSC 227). Substantially the same evidence is before me now, together with some new affidavit evidence. It is sufficient for me to adopt the factual findings that I made on that occasion, with some supplementary findings that I shall make in the course of considering the submissions of the parties on costs. For ease of reference, I am attaching the relevant paragraphs of my 3 April judgment as an appendix to this judgment. In my judgment of 3 April 2006 I rejected applications by Mr Duncan in each proceeding for orders to transfer the proceedings to the Brisbane Registry of the Family Court of Australia, essentially on the ground that the substantive matters in contention in the two proceedings had been resolved and this court is in a better position than the Family Court to decide the only remaining matter, the question of costs.

The matters for consideration in the submissions of the parties invite and require the court to exercise its discretion with respect to costs, conferred by s 98(1) of the Civil Procedure Act 2005 (NSW). Section 98(1) is expressed to operate "subject to rules of court". Rule 42.1 of the Uniform Civil Procedure Rules 2005 states that "the court is to order that costs 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." Thus, although in the normal case the court orders that a successful party's costs be paid by the unsuccessful party, to the extent that they have been reasonably incurred in the conduct of litigation, there is a discretion to depart from the normal order.

I am required to resolve all matters of costs with respect to the two equity proceedings. That includes the costs of the hearing before Hamilton J, which he reserved, the hearing before me, various directions hearings, and a great deal of correspondence and negotiations about issues affected by events that occurred after the First Proceeding began. As far as I can see from the court's files, no costs orders have yet been made, except for an order making the costs of 12 May 2006 costs in the proceedings.

It is useful, and probably necessary, for the court to carry out the exercise of considering the merits of the parties with respect to the costs of each segment of the case. But that approach could produce a very complex result - say, a costs order for Ms Reale on some applications or issues, and a costs order for Mr Duncan on several other issues. Given the depth of antagonism between the parties, that has become apparent during the hearings before me, it is unlikely that they would agree on an overall figure to reflect such determinations, and so a series of costs orders made segment by segment would lead to a complicated, contested and probably prolonged process of costs assessment. Therefore, in the interests of achieving a just, quick and cheap resolution of the dispute between the parties as to costs, it is incumbent upon me, after I have evaluated the submissions of the parties on a segmented basis, to see whether I can achieve an overall outcome of a more simplified kind. Some pertinent facts

Although there are relatively full findings of fact in my judgment of 3 April 2006, set out in the Appendix to this judgment, it is appropriate to highlight a few matters pertinent to questions of costs.

The First Proceeding was commenced on 24 January 2005. Ms Reale complained, in circumstances she alleged to be urgent, of a deadlock in Duncan Reale Company and Cameda Investments, and contended that Mr Duncan had unilaterally removed Mr Boyd, a person who had been jointly appointed to a management position, putting the business of the operating company (Box Australia) at risk. Mr Duncan was joined as second defendant on 28 January 2005. Ms Reale foreshadowed that if leave was granted the under s 237, she would cause Duncan Reale Company to seek the appointment of an interim receiver or provisional liquidator of Cameda Investments.

Box Australia was placed into voluntary administration by its sole director, Mr Duncan, on 27 January 2005. Mr Duncan commenced a proceeding in the Family Court on 28 January 2005, and made an interlocutory application for injunctive relief against Ms Reale relating to the affairs of the companies, returnable on 9 March 2005. Ms Reale's solicitor was notified of Mr Duncan's intention to commence a proceeding in the Family Court prior to the initiation of the equity proceedings on 24 February.

When the First Proceeding came before Hamilton J as equity duty judge for hearing on 4, 7 and 9 February 2005, Mr Duncan appeared and opposed the making of any of the orders sought by Ms Reale, and he applied to have the proceeding stayed or transferred to the Family Court.

Hamilton J was concerned that the interests of Box Australia's parent, Cameda Investments, needed to be addressed by resolving several issues relating to the voluntary administration, including the question whether Box Australia should continue to trade and the question whether anyone, including Cameda Investments, would furnish it with funds ([2005] NSWSC 174, at [6]). His Honour rejected Mr Duncan's application for the dismissal or stay of the First Proceeding, because in his Honour's view it was necessary to address these matters more urgently, in the context of the administration, than would occur if they were left to be addressed in the Family Court proceeding. His Honour held (at [8]) that by granting leave under s 237, he would open the way for a derivative proceeding to be instituted on behalf of Duncan Reale Company, in which an interim application could be made before the Corporations Judge for the appointment of a receiver or provisional liquidator who could take steps to protect the interests of Cameda Investments.

Relying on his cross-examination of Ms Reale, counsel for Mr Duncan submitted that Ms Reale had given evidence of communications between her and Mr Duncan before the commencement of the hearing before Hamilton J, which would have given her reason to think that Mr Duncan might be open or amenable to a suggestion that he exit Box Australia as a director and that the company be reconstituted with an injection of funds by Ms Reale. He said that no such offer was ever put in correspondence but if it had been, it would have resolved the proceedings. Indeed Ms Reale herself gave affidavit evidence that there was no need for the appointment of a third director once a deed of company arrangement had been approved.

In my view the evidence on which counsel for Mr Duncan relied does not establish that Ms Reale had, prior to the commencement of the hearing before Hamilton J on 4 February 2005, formed a plan for the reconstitution and re-financing of Box Australia in specific enough terms to be the foundation of a proposal capable of acceptance so as to bring the proceedings to an end. Costs in respect of the hearing before Hamilton J, his Honour's granting of leave under s 237, and in respect of the derivative proceeding

To the extent that her application for leave under s 237 was granted, Ms Reale was successful in the hearing before Hamilton J and if that were considered in isolation, then (subject to one qualification) Mr Duncan would be ordered to pay Ms Reale's costs of and incidental to that hearing on the ground that costs should follow the event. The qualification is that Mr Duncan was not joined as a defendant until 28 January 2005, and so the order for costs against him would not apply to any period prior to that date.

The principal relief sought in the derivative proceeding, commenced pursuant to the leave granted by Hamilton J, was an order for the appointment of a third, independent director to Cameda Investments. An order in substantially those terms was made by Barrett J, by consent, on 23 February 2005. Again, if those matters were considered in isolation, Mr Duncan would be ordered to pay the plaintiff's costs of the derivative proceeding (the plaintiff being Duncan Reale Company) on the ground that costs should follow the event.

I was referred to a Calderbank letter ( Calderbank v Calderbank [1975] 3 ER 333) written by Mr Duncan's solicitors on 16 February 2005, offering to settle the derivative proceeding prior to its commencement upon stated terms (in fact, the originating process had already been filed). Counsel for Mr Duncan submitted that the terms on which the Second Proceeding was determined were no more favourable to the plaintiff than the terms of that letter, and therefore the court should award Mr Duncan his costs on and from 16 February 2005 on a party and party basis (citing Leichhardt Municipal Council v Green [2004] NSWCA 341 at [45]-[46]). I think the short answer to that submission is that the terms of the consent orders made by Barrett J on 23 February 2005, which resolved the proceeding in favour of the plaintiff, were clear and substantially more detailed than the terms offered on 16 February 2005. Indeed, Ms Reale's solicitors had written on the same day querying the meaning of some of the terms put forward in the letter of 16 February. In the circumstances, I do not regard myself as being in a position to say that the matter was settled on terms no more favourable to the plaintiff than the terms of the letter of 16 February.

Counsel for Mr Duncan contended that the normal rule that costs follow the event should not be applied with respect to the hearing before Hamilton J and matters associated with it, for two other reasons. The first reason relates only to the hearing before Hamilton J, while the second reason relates both to Hamilton J's decision to grant leave and to the bringing of the derivative proceeding pursuant to that leave. Mr Duncan's first reason: Ms Reale's decision not to press for relief in respect of the transfer of shares at the hearing before Hamilton J

Ms Reale's originating process in the First Proceeding sought relief with respect to two matters, namely leave under s 237 to commence a derivative action and orders for the transfer of shares. She obtained leave under s 237 (though not to the extent that her proposed derivative action would have sought compensation from Mr Duncan) but Hamilton J did not deal with the transfer of shares issue, which was resolved only by orders made on 12 April 2006. Therefore the "event" from which, arguably, costs should follow is the granting of leave under s 237, part only of the First Proceeding.

No indication was given to Mr Duncan, prior to the hearing, that Ms Reale would seek anything less than the full relief sought in the originating process. Indeed, as counsel for Mr Duncan pointed out in submissions for the costs hearing, the transfer of shares was a central issue in pre-hearing correspondence and settlement discussions, and it was obviously an important issue for Mr Duncan because Cameda Investments is the entity which holds substantially all of the joint matrimonial assets of Mr Duncan and Ms Reale. It was not until the hearing before Hamilton J that counsel for Ms Reale announced that his client would not, at that stage, press the claim for relief with respect to the transfer of shares. This meant that Mr Duncan's preparation on the transfer of shares issue, for urgent hearing before Hamilton J, was rendered unnecessary.

Counsel for Mr Duncan submitted at the costs hearing that Ms Reale, by this conduct, had put Mr Duncan to considerable additional expense and inconvenience that proved to be unnecessary, and therefore she should be deprived of the costs of the hearing before Hamilton J or a significant portion of them. He said that in these circumstances, the ordinary rule as to costs, that they follow the event, should not be applied. He contended that the court has a wide enough discretion to deprive a successful party of their costs, or even, in a rare case, to require a successful party to pay the costs of the unsuccessful party (citing Ritter v Godfrey [1920] 2 KB 47 at 60; MLC Insurance Ltd v FAI Traders Insurance Co Ltd (1994) 49 FCR 23 at 26-27, and Russo v Resource Developments International Pty Ltd (No 2) [2003] NSWSC 446 at [14]-[15]). One of the occasions for abandoning the rule that costs should follow the event is where a party, by its misconduct, has contributed unnecessarily to the time and cost of litigation or has unnecessarily taken up the time of the court and other parties ( Russo v Resource Developments at [14] [15]; Colgate-Palmolive Co v Cussens Pty Ltd (1993) 46 FCR 225 at 233).

I agree that the court's discretion under s 98 and rule 42.1 is wide enough to permit it to reverse or qualify the normal rule that costs follow the event. I also agree that Ms Reale's conduct in respect of the transfer of shares issue caused unnecessary costs for Mr Duncan. I realise that it was necessary for Mr Duncan and his legal advisers to consider the transfer of shares issue in any case, but the point is that Ms Reale's conduct caused Mr Duncan to incur unnecessary costs in preparing for a hearing on the matter on an urgent basis. This should lead the court to reduce her costs as the successful party in respect of the hearing before Hamilton J by a substantial portion, reflecting the costs thrown away by the unnecessary preparation of the transfer of shares issue for urgent determination. Mr Duncan's second reason: did Ms Reale achieve real or merely trivial success?

The second matter raised by counsel for Mr Duncan concerned whether Ms Reale really achieved success when she obtained an order granting leave under s 237 to bring a derivative proceeding seeking an order to add an independent director to the board of Cameda Investments, and subsequently, in the derivative proceeding, consent orders for the appointment of an independent director.

Counsel for Mr Duncan submitted that the ordinary rule as to costs should not be applied if the plaintiff's claim is trivial and unmeritorious, even though it is technically successful (citing Schweppes Ltd v O'Connor [1913] St R Qd 289, Howell v Dering [1915] 1 KB 54, Green v Page [1957] Tas SR 66 and Holden v Cronulla Golf Club (unreported, Supreme Court of New South Wales, Young J, 24 June 1986). He contended that the primary relief sought in the derivative proceeding, the appointment of a third, independent director to Cameda Investments, was trivial and unmeritorious, even though that relief was granted by Barrett J's orders of 23 February 2005, consented to by Mr Duncan.

I do not accept this submission. It is evident, from the surrounding correspondence and the fact that Mr Duncan consented to the orders, that at the time when Barrett J made his orders, the proposal to appoint an independent third director nominated by the Institute of Chartered Accountants was a live proposal. Barrett J's orders were regarded by Boland J in the Family Court as substantially resolving the derivative proceeding, and so they did, in my view.

Subsequently the Institute of Chartered Accountants declined to nominate a third director. Counsel for Mr Duncan submitted that any difficulties with the process of appointment ought to be regarded as matters for which Ms Reale, not Mr Duncan, is accountable on any costs determination. But Mr Duncan consented to the orders, and in any event, the subsequent difficulty in carrying out the orders does not derogate from the conclusion that Ms Reale achieved, by means of the consent orders, the substantive relief that she sought.

Apart from the difficulty that arose from the Institute's attitude to nomination of the third director, implementation of the orders appears to have been superseded by events that occurred after the orders were made. The background of those events is that on 31 January 2005, that is prior to the making of the consent orders, the administrators of Box Australia caused that company to cease to trade on the grounds that there were insufficient funds to pay employees and creditors. That was the state of affairs on 23 February. On 4 March 2005 the creditors of Box Australia resolved to request the administrators to remove Mr Duncan as director of Box Australia and to appoint Ms Reale and Silvestro Reale as directors in his place, and at their adjourned meeting on 14 March 2006, the creditors resolved to approve a deed of company arrangement.

As counsel for Mr Duncan pointed out, there is nothing in the evidence to suggest that the equity proceedings caused the creditors to adopt the resolutions that were adopted at their meetings of 4 March and 14 March 2005. But the arrangements adopted by the creditors meant that the circumstances had changed so radically that the implementation of Barrett J's orders had become pointless. That is different from saying that Ms Reale's claim was trivial or unmeritorious in the same sense as, say, the plaintiff's claim in Holden v Cronulla Golf Club (a complaint about the enforcement against the plaintiff of a club rule requiring players to carry a bucket and fill for the repair of divots).

Counsel for Mr Duncan referred to evidence given by Mr Duncan that, prior to the creditors' meeting of 4 March, the parties had agreed that Mr Duncan and Ms Reale would procure Cameda Investments and Box IT (UK) to vote as creditors in favour of an adjournment of the meeting for 9 days (an agreement noted in consent orders made by Campbell J on 3 March 2005). He said that at the meeting on 4 March, without prior notice to Ms Duncan, Ms Reale's proxyholder tabled a motion that a recommendation be made to the administrators to remove Mr Duncan as a director and to appoint Ms Reale and Silvestro Reale to the board. But, whatever other consequences may have arisen from those matters, if true, they do not mean that Ms Reale was unsuccessful in her claim for leave to bring a derivative proceeding and in prosecuting the claim for the appointment of an independent director in the derivative proceeding. Nor is it germane that Cameda Investments and Box IT (UK) abstained from voting on the proposal to approve the deed of company arrangement at the meeting on 14 March.

It might be contended that, in light of the decisions of the creditors, it was unnecessary for Ms Reale to commence proceedings seeking relief by way of orders for the appointment of an independent director. But Mr Duncan did not put Box Australia into voluntary administration until after Ms Reale had initiated the First Proceeding. At the hearing on 4, 7 and 9 February it appeared to Hamilton J to be important for the control of Cameda Investments to be addressed, so that it could make decisions as creditor in the voluntary administration. In summary, the facts do not support a contention that it was unnecessary for Ms Reale to take proceedings when she did.

While, therefore, my conclusion is that Duncan Reale Company as plaintiff in the derivative proceeding has succeeded and accordingly (if this aspect of the case were considered in isolation) should be given costs on the principle that costs should follow the event, it seems to me that the costs do not extend beyond the point of success, which occurred when Barrett J made consent orders on 23 February 2005. Subsequent events did not, in my view, relate to the resolution of the derivative proceeding. Rather, they concerned other matters to do with the voluntary administration of Box Australia and, perhaps, impliedly foreshadowed applications for further relief with respect to the corporate governance of Cameda Investments which never quite materialised. Those are not matters leading to any event of success to which costs should catch. Costs in respect of the transfer of shares issue

In my judgment of 3 April 2006 I described how Mr Duncan made an offer on 13 April 2005 to consent to the orders sought by Ms Reale for the transfer of shares, and I found that his offer was accepted by Ms Reale on 17 March 2006. There is no evidence to explain Ms Reale's delay of nearly a year in responding to Mr Duncan's offer. Those findings suggest that if the resolution of the application for transfer of shares were to be considered in isolation, any costs incurred by Mr Duncan in respect of that matter during the period from 13 April 2005 to 17 March 2006 should be borne by Ms Reale. But it appears that the matter is more complicated than I had thought when I delivered my earlier judgment.

Counsel for Mr Duncan drew my attention to his solicitors' letter of 25 January 2005 (referred to in para [27] of my judgment of 3 April 2006) which, for the first time, conveyed Mr Duncan's offer to consent to the transfer of shares. As I pointed out in my judgment, Mr Duncan's offer was subject to Ms Reale giving an undertaking that she would not exercise her powers as trustee shareholder except in the ordinary course of business. According to Ms Reale's solicitor, such an undertaking was unacceptable to Ms Reale because it would prevent her from using the shareholding to resist oppression by Mr Duncan and from seeking the appointment of a receiver.

The submission by counsel for Mr Duncan at the costs hearing was that an undertaking substantially in the form required by the letter of 25 January was actually given by Ms Reale to the Family Court on 18 February 2005 (referring to Mr Duncan's affidavit of 18 May 2006, Annexure D), and therefore she had no reasonable basis for resisting this condition. He submitted that Ms Reale's unreasonable rejection of the offer, her failure until 17 March 2006 to accept Mr Duncan's subsequent offer made on 13 April (and repeated on 18 November 2005), and her failure to achieve a better outcome than was offered to her on 25 January 2005 when final orders were made, are all matters that the court should take into account in the exercise of its discretion. I agree with these submissions.

Senior counsel for Ms Reale drew attention to the fact that the undertaking to the Family Court was given by her after Hamilton J had made his orders granting leave to her to commence the derivative action. He submitted that the giving of an undertaking at that stage says nothing about the situation as it was prior to Hamilton J's decision. But the point advanced on behalf of Mr Duncan was that there was no inherent reason for Ms Reale not to give such an undertaking, and therefore her refusal to do so was unreasonable, even at the earlier stage. I agree with that point. Senior counsel for Ms Reale also said that the undertaking was given on a temporary basis and was not extended by Boland J when she came to deliver her judgment. I do not regard those matters as material to the point made by counsel for Mr Duncan.

I note, in passing, a conflict of evidence that does not need to be resolved. Mr Duncan's solicitor gave evidence of a telephone conversation he had with Mr Parker, senior counsel for Ms Reale, on 28 January 2005. According to the solicitor, he and Mr Parker reached agreement to a transfer of the shares subject to an exchange of undertakings to ensure that the shareholdings of the parties would be equal and hence neither would have control of Cameda Investments. Ms Reale's solicitor, who was with Mr Parker during the conversation, gave evidence by affidavit and in cross-examination denying that Mr Parker reached any such agreement with Mr Duncan's solicitors. It seems to me unnecessary to decide whether an agreement was reached by the representatives of the parties on 28 January because, as I have said, three days earlier the letter of 25 January had made an offer subject to a condition that Ms Reale had no reasonable basis for resisting. That conclusion is sufficient for the purpose of the court's exercise of discretion with respect to costs.

Counsel for Mr Duncan then submitted that, in light of these discretionary considerations, the court should award Mr Duncan his costs with respect to the issue of transfer of shares on and from 25 January 2005, at least on a party and party basis, even though Ms Reale ultimately secured an order for the transfer of the shares along the lines she had originally sought. He relied upon observations by Santow JA, with which Bryson and Stein JJA agreed, in Leichhardt Municipal Council v Green [2004] NSWCA 341. In that case the Court of Appeal was dealing with a Calderbank offer, rather than a formal offer of compromise under the rules of Court. As Santow J said (at [44]), the rules do not constrain the court's discretion as to costs when dealing with a Calderbank letter. Santow JA expressly contemplated, apparently as a matter of general principle for the exercise of the court's discretion, that if a plaintiff fails to give adequate consideration to a defendant's offer, and is subsequently successful in obtaining relief no better than the terms offered by the defendant, the court may impose a sanction on the plaintiff by depriving the plaintiff of costs and awarding costs in favour of the defendant. According to Santow JA, this is ordinarily done on a party and party basis.

That approach to the exercise of the court's discretion is reflected in the rules of court concerning formal offers of compromise. Those rules are presently found in Part 42 Division 3 of the Uniform Civil Procedure Rules 2005. Mr Duncan's offer in his letter of 25 January 2005, and his later offer with respect to the transfer of shares, were not offers of compromise for the purposes of the rules, because they did not comply with the formalities now found in rule 20.26. Nevertheless the principle underlying the rules is relevant in the present case, and reflects the observations as Santow JA. In particular, rule 42.15 contemplates that if the defendant makes an offer of compromise that is not accepted by the plaintiff, and the plaintiff later obtains an order no more favourable than the terms of the defendant's offer, the normal outcome (unless the court orders otherwise) is that the plaintiff is entitled to an order for costs up to and including the day on which the offer was made, and the defendant is entitled to costs after that day.

In the case of a formal offer of compromise, rule 42.15 provides that the costs order in favour of the defendant be on the indemnity basis, unless the court otherwise orders. Santow JA, dealing with a case where the offer was not on offer of compromise under the rules, said that in the normal case costs are awarded on the party and party basis. Since I am dealing with an offer by Mr Duncan that was not an offer of compromise under the rules, the present case is closer to the one before Santow JA than to the one addressed in rule 42.15. Additionally, I do not regard Ms Reale's response to the offer of 25 January 2005, and her lengthy and unexplained delay in responding to the offer of 13 April 2005, as the kind of conduct that should attract a costs order on an indemnity basis, given that the imposition of a costs order against her on any basis is a substantial sanction against a plaintiff who has achieved the result that she set out to obtain.

After Hamilton J's judgment of 9 February 2005, the transfer of shares was the only issue outstanding in the First Proceeding. Therefore any costs order in respect of a period after that date should apply to the First Proceeding as a whole. The result of these considerations is that, if I were to confine my attention to the facts relating to Mr Duncan's offers and the ultimate resolution of the question of transfer of shares in isolation, I would be inclined to: · order Mr Duncan to pay Ms Reale her party and party costs of preparation and filing of the originating process with respect to the transfer of shares, and associated contemporary correspondence, up to and including 25 January 2005 but not her costs after that time (including her costs of and incidental to the hearing before Hamilton J so far as it related to the transfer of shares), and · order Ms Reale to pay Mr Duncan his party and party costs of the First Proceeding from 26 January to 9 February 2005, with respect to Ms Reale's application for the transfer of shares (including costs of and incidental to the hearing before Hamilton J so far as they related to that issue), and his party and party costs of the First Proceeding generally as from 10 February 2005. Costs of Mr Duncan's application for transfer to the Family Court

In my reasons for judgment published on 3 April 2006 I dismissed Mr Duncan's application for transfer of the equity proceedings to the Family Court, on the ground that the substantive issues in the two equity proceedings had been resolved and the only remaining issue was the question of costs, which was better addressed by the court in which the proceedings were brought. Ms Reale seeks an order that Mr Duncan pay her costs in respect of that application because she was successful in resisting it. Such an order would reflect the court's general approach that costs should follow the event.

However, at the time when Mr Duncan's applications for transfer of the two equity proceedings to the Family Court were filed, the position was that Ms Reale had not, for about 11 months, responded to Mr Duncan's offer that he would agree to the transfer of the shares as long as the net holdings of the parties were equal. This was an important matter for Mr Duncan because, as I have said, substantially all of the joint matrimonial assets are held in Cameda Investments. To the extent that there was still a dispute between the parties as to whether the shares should be transferred and if so, whether the existing constraints upon Ms Reale by virtue of the interim orders in the Family Court would be adequate, there was effectively an issue between husband and wife about questions of matrimonial property of the kind most appropriate to be dealt with in the Family Court. Therefore it was reasonable for Mr Duncan to take steps to have that issue transferred for resolution by the Family Court in the context of the proceeding that was already on foot in that court. In my opinion Ms Reale's failure to respond to Mr Duncan's offer lead to the making of the transfer application. Although she communicated her acceptance of the offer shortly after the transfer applications had been made and before they were heard, it was in my view reasonable for Mr Duncan to proceed to place the issues before the court for determination. In my view, in these circumstances Mr Duncan should not be required to pay Ms Reale's costs of the transfer applications. The corporate complication

The real protagonists in this litigation are Ms Reale and Mr Duncan. Duncan Reale Company and Cameda Investments are entities which they own and control. But they cannot be disregarded because they are the vehicles through which the matrimonial assets are held; further, Duncan Reale Company is a defendant in the First Proceeding and the plaintiff in the Second Proceeding, and Cameda Investments is a defendant in the Second Proceeding.

If an order for costs is made against Mr Duncan or Ms Reale and in favour of Duncan Reale Company or Cameda Investments, half of the economic benefit will go to Ms Reale and the other half will go to Mr Duncan (or, perhaps, the beneficiaries of their respective trusts). Effectively half of the costs will come back to the party paying them.

If an order for costs is made against Duncan Reale Company or Cameda Investments and in favour of Mr Duncan or Ms Reale, the party having the benefit of those costs will be given, in substance, priority access to the matrimonial assets to the extent of those costs. However, as was pointed out in submissions, it may be that the company would have a right of indemnity against one of the parties for recovery of any costs it was ordered to pay.

The question of costs of a derivative proceeding or application for leave is specifically addressed by the Corporations Act, in the following terms: "242 The court may at any time make any orders it considers appropriate about the costs of the following persons in relation to proceedings brought or intervened in with leave under s 237 or an application for leave under that section: (a) the person who applied for or was granted leave; (b) the company; (c) any other party to the proceedings or application. An order under this section may require indemnification for costs."

Section 242 gives the court a very broad discretion to make such order as it considers just and appropriate for the proper and efficacious conduct and resolution of the derivative action in the application for leave to commence it. In the present case, exercising my discretion under that section, it is open to me to make orders for costs in respect of the First and Second Proceedings having the effect of excluding both Duncan Reale Company and Cameda Investments from the contest for costs.

Section 242 gives the court the power to achieve this outcome, although there is a degree of complexity involved in doing so. The section would permit me to achieve the desired outcome in the First Proceeding, where Ms Reale is the plaintiff, Duncan Reale Company is the first defendant and Mr Duncan is the second defendant, by making: · an order that Mr Duncan pay Ms Reale's costs of the proceeding on the condition that there would be no order against the company and no liability of the company for her costs; or · an order that Ms Reale pay Mr Duncan's costs of the proceeding, on the condition that Mr Duncan would be required by the order to indemnify the company in respect of its costs of the proceeding but would be entitled to recover those costs from Ms Reale.

In the Second Proceeding, where Duncan Reale Company is the plaintiff but it is acting through Ms Reale who has the carriage of the action, and the defendants are Cameda Investments and Mr Duncan, I could achieve the desired outcome by making: · an order that Mr Duncan pay Duncan Reale Company's costs of the proceeding on the condition that there would be no order against Cameda Investments and no liability for that company to pay Duncan Reale Company's costs, together with an order that Duncan Reale Company indemnify Ms Reale for her costs of prosecuting the proceeding on behalf of Duncan Reale Company, to the extent that those costs are recoverable by Duncan Reale Company against Mr Duncan; · an order that Duncan Reale Company pay Mr Duncan's costs of the proceeding, on the condition that Mr Duncan would be required by the order to indemnify Cameda Investments in respect of its costs of the proceeding but would be entitled to recover those costs from Duncan Reale Company, together with an order requiring Ms Reale to indemnify Duncan Reale Company in respect of its obligation to pay the costs of Mr Duncan and Cameda Investments.

Those are approaches available to be taken in the event that I make costs orders in favour of either Ms Reale or Mr Duncan and against either Mr Duncan or Ms Reale. If I were to take the view that costs should lie where they fall, as between Ms Reale and Mr Duncan, and that there should be no costs locked up in either of the companies, I could achieve that outcome by ordering: · in the First Proceeding, that there be no order as to costs, with the intention that each non-corporate party bear their own costs, subject to an indemnity by Mr Duncan of Duncan Reale Company for its costs of the proceeding; and · in the Second Proceeding, that there be no order as to costs, with the intention that each non-corporate party bear their own costs, subject to indemnities by Ms Reale of Duncan Reale Company and by Mr Duncan of Cameda Investments for their respective costs of the proceeding.

I have decided that it is appropriate in this case to deal the companies out of the costs equation in this last fashion. I take into account that both Duncan Reale Company and Cameda Investments are (directly and indirectly respectively) wholly owned by Ms Reale and Mr Duncan and repositories of matrimonial assets. They are not separately protagonists but instead, they have been brought into litigation where the true protagonists are the husband and wife, Ms Reale and Mr Duncan. In my view justice requires that the costs orders should reflect the merits of those protagonists and not become complicated by the presence in the proceedings of the corporate entities. If I were to make orders for or against either of the corporate entities I might achieve an outcome that I am not in a position to foresee, because of the existence or absence of indemnities not created by the orders themselves and the presence or absence of access to assets through the particular entity.

Senior counsel for Ms Reale submitted that she should be indemnified by Duncan Reale Company in respect of the costs of the derivative proceeding, by analogy with a trustee who has obtained judicial advice - given that Hamilton J found, when granting leave, that the bringing of the derivative proceeding was in the best interests of Duncan Reale Company. Senior counsel referred to Wallersteiner v Moir (No 2) [1975] 1 QB 373, a decision of the English Court of Appeal concerning a derivative action brought on behalf of a company under the principles of the general law, rather than any statutory regime. There Buckley LJ said that in the normal course in such a proceeding, the company should be ordered to pay the costs of the shareholder who prosecutes the action on its behalf, if the shareholder is acting in good faith and on reasonable grounds (at 403; see also at 392 per Lord Denning MR).

I do not disagree with his Lordship's approach, as applied to a derivative action brought by a minority shareholder to assert the rights of a company which has some breadth of shareholding. But here the company is the parent company in a group which holds the matrimonial assets of Mr Duncan and Ms Reale, who are the true protagonists in the litigation, and it is owned by them. To afford Ms Reale a right indemnity enforceable against the company's assets merely on the ground that she has acted reasonably and in the company's best interests, would be to run the risk of achieving an unjust result as between husband and wife, given that recovery against the company's assets is, substantially, a partial recovery against the other spouse's assets. In my opinion it is preferable, in such circumstances, to make costs orders having effect only as between the spouses.

Observations similar to those of Buckley LJ but directed to the Australian statutory provisions were made by Barrett J in Foyster v Foyster Holdings Pty Ltd (2003) 44 ACSR 705, at [13]. They are distinguishable from the facts of the present case on the same basis. An overall assessment of costs

Approximately speaking, I have reached the following provisional conclusions: (a) Ms Reale has an entitlement to costs against Mr Duncan with respect to the First Proceeding after 28 January 2005, to the extent that she successfully sought leave under s 237, but those costs should be substantially reduced because, by her conduct, she caused Mr Duncan to incur unnecessary preparation costs for the hearing before Hamilton J, in respect of the transfer of shares issue; (b) Duncan Reale Company has an entitlement to costs with respect to the derivative proceeding up to the making of consent orders on 23 February 2005; (c) Mr Duncan has an entitlement to costs with respect to the transfer of shares issue as from 25 January 2005; (d) although she successfully resisted Mr Duncan's applications for the transfer of the equity proceedings to the Family Court, Ms Reale is not entitled to the costs of doing so because, by her failure to respond to the transfer of shares offer, she put Mr Duncan in the position of making the applications, and in the circumstances there should be no order for costs with respect to the applications; (e) I can and should make orders for costs confined to the positions of Mr Duncan and Ms Reale (personally and as prosecutor of the derivative action on behalf on Duncan Reale Company), orders having the effect of "dealing out" the two corporate entities who were joined as parties.

As I have foreshadowed, I am concerned that, in view of the deep hostility of the parties towards one another, complex costs orders will lead to further expensive disputes. From what I can see from the evidence, my view is that if I confine my attention to Ms Reale and Mr Duncan and sidestep the companies in the manner I have indicated, their respective wins and losses on entitlements to costs for the individual components of the case are approximately of equal value. That, of course, is not a precise assessment of the kind that would be made by a costs assessor working item by item through bills of costs, but it is an assessment based on consideration of the evidence in detail, in the light of the court's knowledge and experience of appropriate and probable costs outcomes. Though approximate, I think it is an assessment upon which I should act, with a view to achieving the just quick and cheap resolution of the costs dispute.

I have therefore decided that the correct course is to make no order for costs with respect to the First and Second Proceedings, with the intention that each of Ms Reale and Mr Duncan should bear their own costs of both the proceedings and all applications within them, including costs of the corporate entities that my orders shall, in effect, attribute to them respectively. As far as the First Preceding is concerned, Mr Duncan should bear his own costs and the costs (if there are any separate costs) of his co-defendant Duncan Reale Company and Ms Reale should bear her costs as plaintiff. As far as the Second Proceeding is concerned, Ms Reale should bear the costs of Duncan Reale Company and Mr Duncan should bear the costs of Cameda Investments, his co-defendant (if there are any separate costs). Those outcomes will be achieved by making appropriate indemnity orders under s 242.

I have considered whether I should make any exceptions to the general proposition that the parties bear their own costs. For example, counsel for Mr Duncan submitted that he should have his costs of the appearances on 21 February 2005 before White J (when the proceedings were adjourned due to a defect, he said, in the plaintiff's originating process) and 14 November 2005 (when there was no appearance by the plaintiff). I have decided not to do so. All of the wins and losses on individual occasions during the course of the proceedings (including the two matters I have mentioned) are adequately addressed by taking them into account in the overall assessment that I have made, leading to the conclusion that each party should bear their own costs. Conclusions

My conclusion as to costs requires that I vacate a costs order made on 12 May 2006, to the effect that the costs of that day be costs in the proceedings.

I shall make the following orders: (1) In proceeding No 1190 of 2005: (a) no order as to costs; (b) order under s 242 of the Corporations Act 2001 (Cth) that the second defendant indemnify the first defendant for its costs; with the intention that the plaintiff bears her own costs and the second defendant bears his own costs and the costs of the first defendant; (2) In proceeding No 1518 of 2005: (a) no order as to costs; (b) order under s 242 of the Corporations Act 2001 (Cth) that Maria-Rita Reale, the person who was granted leave under section 237, indemnify the plaintiff for its costs; and (c) order under s 242 of the Corporations Act 2001 (Cth) that the second defendant indemnify the first defendant for its costs; with the intention that Ms Reale bears the costs of the plaintiff and the second defendant bears his own costs and the costs of the first defendant; (3) In orders (1) and (2), “costs” means costs of the proceeding and all applications in the proceeding; (4) In proceedings Nos 1190 2005 and 1518 of 2005, I vacate the order made on 12 May 2006 that the costs of that day be costs in the proceedings.