Primary Agricultural Group Pty Ltd v Cowley

This judgment determines an application by the second defendant, Mr Christopher Jemmett, that his costs thrown away by reason of amendments to the plaintiffs’ claim against him be paid by the plaintiffs on the indemnity basis and that those costs be payable forthwith.

These proceedings are a complex claim brought by the three plaintiff companies, all now in receivership, against six of their former directors including Mr Jemmett. The seventh defendant is an insurance company which issued a directors and officers liability policy which the plaintiffs submit responds in the circumstances alleged in these proceedings.

On 8 September 2016 orders were made by consent which included:

Pursuant to the process set out in the just quoted Order 6, Mr Jemmett has applied for orders that his costs thrown away by reason of the filing of the further amended statement of claim (the “FASOC”) be paid by the plaintiffs on the indemnity basis and forthwith. At the hearing before me, Mr Jemmett was represented by Mr I. Pike of Senior Counsel leading Mr R.D. Glasson of Counsel. The plaintiffs, represented by Mr A. Leopold of Senior Counsel leading Mr B. Koch of Counsel, opposed Mr Jemmett’s application.

For the reasons which follow, Mr Jemmett’s application succeeds in substantial part. Without any disrespect to the careful and extensive arguments on both sides, the central points to the argument are clear and the Court can deal with the application in relatively short compass.

The claims brought by the plaintiffs concern three different acquisitions of rural assets. The two which are relevant to the present application may be referred to as the Inglewood and the Welltree transactions. The basic allegation is that Mr Jemmett breached his director's duties by failing to exercise reasonable care and diligence in relation to those transactions. By the amendments which gave rise to the FASOC, the plaintiffs abandoned their claims against Mr Jemmett in relation to the Inglewood and Welltree transactions. The third claim, referred to as the Labelle transaction, continues against Mr Jemmett.

The claim in relation to the Inglewood transaction (the “Inglewood Claim”) concerns Mr Jemmett's role as a director of Primary Agricultural Group Pty Ltd (formerly R.M. Williams Holdings Ltd) (“Holdings”) and its wholly owned subsidiary, to which the parties referred as the “Organics Subsidiary”.

On 26 May 2009 Mr Jemmett became a director of Holdings and the Organics Subsidiary. What is significant for present purposes is that the day before, 25 May 2009, circular directors’ resolutions were passed approving entry by Holdings and the Organics Subisidary into the Inglewood transaction. I refer to these later as the exculpatory resolutions, because they demonstrate Mr Jemmett had no role in the decision to enter into the transaction. On 29 May 2009 Holdings and the Organics Subsidiary entered into the Inglewood transaction.

The claim in relation to the Welltree transaction (the “Welltree Claim”) concerns Mr Jemmett's role as a director of Holdings and its wholly owned subsidiary, to which the parties referred to as the “Beef Subsidiary”. That claim turned on a provision in cl 33 of the purchase agreement that completion of the purchase was:

Mr Jemmett's submissions essentially were twofold.

First, it was submitted on his behalf that had proper consideration been given to the claims, they would never have been brought and subsequent costs would have been avoided. In relation to the Inglewood transaction, this meant that, primarily, the resolutions of 25 May 2009 would have been found and their significance appreciated. In relation to the Welltree transaction, this meant that it should have been appreciated that, contrary to the position pleaded by the plaintiffs, finance had in fact been obtained by 2 June 2009 within the meaning of cl 33 of the purchase agreement.

Second, it was submitted for Mr Jemmett that these costs questions are substantial and discrete and that there was no reason why Mr Jemmett should wait for the conclusion of the proceedings to recover them.

The relevant legal principles were not in dispute: see, for example, Palace Films Pty Ltd v Fairfax Media Publications Pty Limited [2010] NSWSC 962 at [21] (McCallum J); Joseph Lahoud & Anor v Victor Lahoud & Ors [2006] NSWSC 126 at [38] (Campbell J); Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; [1993] FCA 801 at [4] (Sheppard J); J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2) (1993) 46 IR 301; [1993] FCA 70 (French J); and, Ragata Developments Pty Ltd v Westpac Banking Corporation (1993) 217 ALR 175; [1993] FCA 72 (Davies J).

The Court has concluded that in relation to the abandonment of the Inglewood claim against Mr Jemmett, the exculpatory resolutions were readily discoverable and should have been discovered with reasonable care and proper consideration. That conclusion has been reached taking into account that in many cases some allowance should generally be extended to liquidators and receivers as strangers to the affairs of the company they administer and on whose behalf they frequently bring proceedings.

While the abandonment of a claim does not of itself warrant indemnity costs, the plaintiffs' failure to identify those resolutions when, on the evidence, they were reasonably discoverable means a claim was made which, had the resolutions been found, it should have been apparent did not have any chance of success. The most striking piece of evidence on which the Court relies is the fact that a solicitor acting for Mr Jemmett was able to locate the resolutions during a three hour review of documents in the possession of and indexed by the plaintiffs. Accordingly, Mr Jemmett is entitled to his costs thrown away in relation to the Inglewood claim on the indemnity basis.

The same result does not follow in relation to the abandonment of the Welltree claim. The issue of whether or not finance had been obtained by close of business on 2 June 2009 was apparently resolved by Mr Jemmett's drawing to attention in his defence five matters including three documents, two of which were clearly known to the plaintiffs because they were pleaded in the amended statement of claim.

That being said, whether or not what was relied upon by Mr Jemmett as constituting the obtaining of finance for the purposes of cl 33 was not legally or factually straightforward. For example, there was a factual complication in relation to the third document to which he drew attention, being a National Australia Bank offer of finance dated 26 May 2009, but expressed to be open for acceptance until 29 May 2009. The evidence discloses that the plaintiffs did not have a signed copy of that document. It appears that a subsequent offer of finance from the National Australia Bank was accepted, but nine days after the finance was to have been obtained in accordance with the terms of cl 33. It follows that whether the finance had been obtained for the purposes of cl 33 was open to argument.

In those circumstances, it seems to me that there was no relevant delinquency in the pleading and then abandonment of the Welltree claim against Mr Jemmet.

To reflect these conclusions, applying a broad brush, the just order is that the plaintiffs should pay 50% of Mr Jemmet’s costs thrown away by reason of the amendments on the indemnity basis and the balance on the ordinary basis pursuant to his existing entitlement under Order 5 set out in paragraph [3] above.

Turning to the question of whether Mr Jemmet’s costs thrown away (whether on the ordinary or on the indemnity basis) should be assessed and payable forthwith, there was again no dispute about the relevant legal principles: see Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432 per Barrett J (as his Honour then was):

It is to be noted that those factors are not necessarily cumulative.

Looking at the Inglewood Claim in the light of those principles, the issues raised by its abandonment are separately identifiable and are a discrete part of the proceedings. The plaintiffs contended that the allegations relevant to the entry into the Inglewood transaction remained relevant as “central planks” of the continuing Labelle transaction. Whether they are background or central is not readily apparent from the pleading. That is not said critically because the claims are complex. However, I do not accept the plaintiffs’ submission that the overlap is so obvious as to stand in the way of an order for costs being assessed and paid forthwith. That argument can be developed further, if necessary, in submissions to a cost assessor.

The plaintiff’s conduct to which I have referred in paragraph [15] above constitutes unreasonable conduct for the purposes of this area of discourse.

Finally, it is clear that these proceedings have a long way to go before any final cost orders are made. The Court is unable to identify any good reason why Mr Jemmett should have to wait until that conclusion to have his costs thrown away by reason of the amendment determined.

Although Mr Jemmett has not succeeded in his application for indemnity costs in relation to the Welltree Claim, the observations I have made in relation to the Inglewood Claim in paragraph [22] above apply equally to the Welltree Claim. Given that I am satisfied that the costs in relation to the Inglewood Claim should be assessed and paid forthwith, general efficiency and the overriding purpose of the just, quick and cheap disposition of this issue also support the making of a similar order in relation to costs thrown away by reason of the abandonment of the Welltree Claim.

The orders of the Court are:

I will hear the parties as to the costs of Mr Jemmett’s present application.