Arc Energy Limited, In the matter of Arc Energy Limited [No 2]
[2008] FCA 1412
•16 September 2008
FEDERAL COURT OF AUSTRALIA
Arc Energy Limited, In the matter of Arc Energy Limited [No 2]
[2008] FCA 1412COSTS – Intervener in application for approval of scheme of arrangement – appropriate for Intervener to bring Court’s attention to litigation instituted by it against plaintiff – relevant to whether scheme ought be approved – Intervener then pressed for adjournment and further meeting of members purportedly to protect interests of proxy voters who had not been informed directly by the plaintiff of litigation brought against it by the Intervener – adjournment sought for ulterior purpose.
Held: Intervener pay plaintiff’s costs associated with application for adjournment.
Corporations Act 2001 (Cth) ss 413, 1335(2)
Federal Court of Australia Act 1976 (Cth) s 43
Federal Court (Corporations) Rules 2000 (Cth) Rule 2.13Cirillo v Consolidated Press Property Ltd (No 2) [2007] FCA 179 cited
In the matter of Arc Energy Limited [2008] FCA 1396 referred to
Latoudis v Casey (1990) 170 CLR 534 cited
Quatro Ltd v Argo Investments Ltd and Others (1999) 32 ACSR 480 cited
Re Ampol Ltd (1989) 14 ACLR 772 cited
Re Arrowfield Group Ltd (1995) 17 ACSR 649 cited
Re Castlereagh Securities Ltd [1973] 1 NSWLR 624 cited
Re Crusader (1995) 120 FLR 219 cited
Re Matine Ltd (1998) 28 ACSR 492 citedARC ENERGY LIMITED and BURU ENERGY LTD
WAD 130 OF 2008
GILMOUR J
16 SEPTEMBER 2008
PERTH
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAD 130 OF 2008
IN THE MATTER OF ARC ENERGY LIMITED
BETWEEN:
ARC ENERGY LIMITED
PlaintiffAND:
BURU ENERGY LTD
DefendantOIL BASINS LIMITED
Intervener
JUDGE:
GILMOUR J
DATE OF ORDER:
16 SEPTEMBER 2008
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
1.The Intervener pay the costs of the plaintiff associated with the application by the Intervener for orders under paragraph 5 of its interlocutory process dated 7 August 2008.
2.Otherwise there be no order as to costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAD 130 OF 2008
IN THE MATTER OF ARC ENERGY LIMITED
BETWEEN:
ARC ENERGY LIMITED and
PlaintiffAND:
BURU ENERGY LTD
DefendantOIL BASINS LIMITED
IntervenerJUDGE:
GILMOUR J
DATE:
16 SEPTEMBER 2008
PLACE:
PERTH
REASONS FOR JUDGMENT
These reasons concern the issue of costs following my judgment on the merits in this matter: In the matter of Arc Energy Limited [2008] FCA 1396 (“Arc Energy”). The reasons in that judgment give relevant context and background to these reasons. I heard oral submissions as to costs after judgment was delivered but gave Arc Energy Ltd (“Arc”) and Buru Energy Ltd leave to put in further written submissions directed to the case of Re Crusader Limited (1996) 1 Qd R 117 cited by Oil Basins. Arc submits that Oil Basins Limited (“Oil Basins”) ought pay the Plaintiff’s costs of responding to the application filed by Oil Basins during the afternoon of Thursday, 7 August 2008, which occupied much of the hearing on the afternoon of Friday, 8 August 2008. It also opposes Oil Basins’ application for a costs order in its favour.
On 7 August 2008, Oil Basins filed an interlocutory application for orders including the following:
2. Oil Basins Limited have leave to intervene in these proceedings.
3. An order pursuant to s 413(1)(c) and (g) of the Corporations Act that:
3.1Oil Basins Limited have the right to commence to continue proceedings against Buru Limited in respect of all causes of action which Oil Basins Limited has, or which it may, bur for the scheme, have had, against Arc Energy Ltd:
3.2 Buru Limited be restricted in its defence of any such proceedings to those defences which could have been raised by Arc Energy ignoring the operation of the scheme.
4.Nothing in the previous order is intended to affect the liability of Oil Basins Limited from proceeding or continuing proceedings against Arc Energy Ltd.
5.Alternatively, the plaintiff’s application for the approval by this Honourable Court pursuant to s 414 of the Corporations Act of the proposed scheme be adjourned until:
5.1The plaintiff provides a supplementary statement (supplementary statement) to its members in relation to the effect of litigation titled Oil Basins Limited v Arc Energy Limited, issued out of the Supreme Court of Western Australia, bearing action number 1947 of 2008 on the scheme.
5.2The plaintiff convenes a further meeting of its members (Meeting) for the purposes of considering, and, if thought fit, agreeing to the scheme between the plaintiff and its members.
Regrettably, in the urgency of hearing, the formal requirements of O6 r 17 were not the subject of submissions and were not attended to by the Court. On the face of the application however, the interest of the Intervener was to obtain orders under s 413 of the Corporations Act 2002 (Cth) (“the Act”) failing which the adjournment and other orders were sought. Leave was granted at a time when that was the relief sought.
It was only later in the hearing, after such leave had been granted that the Court was advised by senior counsel for Arc that Oil Basins was, contrary to the terms of the application, actually seeking the adjournment and related orders in addition to the orders under s 413 of the Act.
Rule 2.13 of the Federal Court (Corporations) Rules 2000 (Cth), permits the Court to grant leave to, amongst others, a creditor or interested person, to be heard in proceedings without becoming a party. Rule 2.13 was not relied upon by Oil Basins, although arguably it was the preferable course. Rather it applied to intervene in the proceedings. Nonetheless, Rule 2.13 applies generally to proceedings under the Corporations Act 2001 (Cth) in the Federal Court. Where the attendance of the person has resulted in additional costs for any party, the Court is empowered, by virtue of the rule, to direct that the person pay those costs, and may also order that the person not be heard further until the costs are paid or secured: rule 2.13(2). The rule ensures that, whilst persons may be allowed to appear before this Court in proceedings under the Corporations Act 2001 (Cth), there remains a discretion in appropriate circumstances to award costs against them.
The Court’s power to award costs is discretionary and is unfettered, except that it must be exercised judicially: s 43 of the Federal Court of Australia Act 1976 (Cth); s 1335(2) of the Corporations Act 2001 (Cth). The Court’s discretion to order costs pursuant to the power in s 43 is at large, and that section provides a broad and ample power which ought not be read down otherwise than in accordance with accepted principle: Cirillo v Consolidated Press Property Ltd (No 2) [2007] FCA 179 at [3] per Finn J. The purpose of an order for costs is to compensate the successful party, not to punish the unsuccessful one: Latoudis v Casey (1990) 170 CLR 534 at 543 per Mason CJ.
Oil Basins submits, correctly, that generally the costs of objectors should be paid by the Company (Plaintiff): Re Crusader (1995) 120 FLR 219; and Re Matine Ltd (1998) 28 ACSR 492; Re Arrowfield Group Ltd (1995) 17 ACSR 649; Re Castlereagh Securities Ltd [1973] 1 NSWLR 624; Re Ampol Ltd (1989) 14 ACLR 772, which were cited with approval by Hansen J in his decision to award the objectors their costs in Quatro Ltd v Argo Investments Ltd and Others (1999) 32 ACSR 480.
In my opinion, however, Oil Basins is not, properly characterised, an objector. It was not given leave in order to oppose the approval of the scheme. Rather, it was granted leave to intervene primarily in order to seek relief under s 413 of the Act. Even in respect to the application for an adjournment and related orders, I do not consider that Oil Basins is an objector. It is not a shareholder in Arc. Such orders would have served no obvious legitimate interest of Oil Basins.
Oil Basins submits that the following factors are relevant to the exercise by the Court of its discretion as to costs:
6.1The Plaintiff did not allow OBL, by its solicitors, to attend the meeting of the Plaintiff’s shareholders on 5 August 2008 (Meeting) and ask questions about the Oil Basins Litigation, nor did the Plaintiff allow OBL’s solicitors to attend the meeting to observe, despite:
6.1.1OBL’s solicitors giving an undertaking that they would not ask any questions;
6.1.2allowing other observers to enter the Meeting; and
6.1.3providing no cogent reasons as to why OBL’s solicitors could not attend the Meeting as observers.
6.2OBL was successful in part of its application, and would be entitled to at least an award of costs in its favour.
6.3The court was already scheduled to hear the Plaintiff’s application on 8 August 2008, and the Plaintiff was already required to attend (and bear the costs of this attendance) at the hearing.
6.4OBL’s intervention in the Plaintiff’s application was limited. It did not cause the hearing to be delayed, rescheduled or otherwise.
6.5It was proper for OBL to draw to the Court’s attention, for its consideration, the question whether shareholders had been adequately informed of the potential impact of the Supreme Court litigation. That the Court held, following deliberation, that there was no substance to that submission ought not, of itself, disentitle OBL to its costs.
6.6Buru Energy Limited was a necessary party to the application and appeared solely as a consequence of OBL’s application. The orders against Buru Energy Limited have an important consequence to OBL’s rights against Buru Energy Limited (that the importance of those rights may be disputed does not diminish the reasonableness of OBL’s conduct in seeking to protect its position).
6.7There is no evidence before the Court (or at all) to suggest that OBL have frequently tried to intervene in the Plaintiff’s application, nor is there any evidence to suggest that OBL have engaged in a pattern of obstruction for an improper purpose.
6.8OBL’s need for protective orders arose solely out of the spin-off of assets in accordance with the Scheme of Arrangement proposed by the Plaintiff.
Arc submits that in the present case, the following factors support the exercise of the Court’s discretion to award costs against the Intervener:
(a)Prior to filing the interlocutory application, neither Oil Basins nor its solicitors raised with Arc, or its solicitors, the issues which were the subject of the application. The issues concerning s 413 of the Corporations Act 2001 (Cth) did not need to be the subject of an application - Arc accepted that orders pursuant to s 413 should be made and would have proposed those orders had Oil Basins sought them in correspondence. It did not. Indeed, Arc’s solicitors corrected the errors in the formulation of the s 413 orders as expressed in Oil Basins’ interlocutory application.
(b)The interlocutory process filed on behalf of Oil Basins indicates that the adjournment application, which proposed a supplementary statement be issued and a fresh scheme meeting be held, was an “alternative”. Oil Basins changed its position in this regard on Friday, 8 August, by seeking orders 3, 4 and 5 at the hearing.
(c)The affidavit filed in support of the interlocutory application was deficient and unhelpful. It was sworn by Kim Warren McGrath, who is the chairman of Oil Basins, and a director of that company. Mr McGrath had access to legal advice before swearing the affidavit. Mr McGrath’s affidavit contained obviously objectionable material (paragraphs 8 and 9), and included a misleading heading (above paragraph 11). It offered no real assistance to the Court, and failed to annex the 6 December 2006 ASX announcement, which was highly relevant (and which Arc produced - see annexure “DDK13” to the Fifth Kirk Affidavit).
(d)Counsel for Oil Basins, during the hearing on 8 August 2008, was unable to explain the reason for Oil Basins’ delay in commencing proceedings in the Supreme Court of Western Australia against Arc. The delay is in excess of 18 months (taken from the date of the ASX announcement on 6 December 2006). The litigation was filed, without warning, on 1 August 2008, only 4 days before the scheme meeting and 7 days before the Court hearing. The apparent explanation offered by Mr McGrath in his affidavit (see paragraphs 11 and following), under the misleading heading “Discovery of plaintiff’s breach of confidentiality agreement”, lacks credibility in the circumstances.
(e)Counsel for Oil Basins, during the hearing on 8 August 2008, was unable to explain to the Court the “interest” which Oil Basins had in raising issues concerning the disclosure to members, and in seeking an adjournment of the scheme. The Court has inferred that Oil Basins’ was acting to obtain some commercial advantage.
(f)In addition, it is relevant to consider the seriousness of the order which was sought by Oil Basins (order 5). That order was pressed by Counsel for Oil Basins at the hearing on 8 August. Order 5 proposed an adjournment of the hearing, the preparation and distribution to shareholders of a supplementary statement, and the convening of a further scheme meeting of members, which would then have resulted in a further Court hearing before this Court. All of this would have involved considerable time and expense, and a delay to the scheme process. This must be seen in the context of a scheme which:
(i)was intended to establish an Australian mid-tier oil and gas company with an expected market capitalisation of greater than $2 billion;
(ii)would establish a newly listed company (Buru Energy Limited);
(iii)an independent expert had determined was in the best interests of, and fair and reasonable to, ARC shareholders; and
(iv)the ARC shareholders had overwhelmingly voted in favour of.
In this context, it is of considerable concern, and relevant to the exercise of the Court’s discretion on the question of costs, that Oil Basins would be prepared to apply to this Court for such a serious order based on only the flimsiest of affidavit material.
I accept the submissions made by Arc. The question of what was the real purpose of Oil Basins in pressing for an adjournment is a primary consideration. During the substantive hearing I asked counsel for Oil Basins what interest it had in seeking an adjournment on behalf of proxy voters in Arc, none of whom he represented. The following exchange took place:
HIS HONOUR: As a matter of interest, what is the interest of the shareholders of Arc got to do with your client?
MR BRUCE: Well, yes, that is – I was wondering when your Honour might ask me that.
HIS HONOUR: Well, I’ve asked it, I’ve asked the question.
MR BRUCE: It is, your Honour, that we simply say that it is a matter for the court. We are here principally to seek the relief that we’ve sought, and that has been agreed to, but we say that that has a material impact which is disputed.
HIS HONOUR: Well, it has absolutely no impact at all upon the first set of orders that were sought.
MR BRUCE: No, no.
HIS HONOUR: It only has impact on the alternative relief you seek.
MR BRUCE: That is correct.
HIS HONOUR: It wasn’t a flippant question. I would like to know what interest it is of your client as to the concern of the proxies filed by shareholders of Arc?
MR BRUCE: It is simply, your Honour, that it is the duty of the court to be satisfied in all the circumstances.
HIS HONOUR: But why are you telling me what the duty of the court is? Why are you telling me that there should ‑ ‑ ‑
MR BRUCE: Sorry, your Honour.
HIS HONOUR: Why are you telling the court that there should be an adjournment? Why do you want an adjournment?
MR BRUCE: Because we consider, your Honour, that that – well, I should perhaps just sit down, appoint – and say, your Honour, that we have – it’s a matter for the court and we thought that it was our duty to bring those matters to the court’s attention.
HIS HONOUR: You’ve brought it to the attention of the court but you’re pressing for the adjournment. I’m asking you why you want the adjournment. That goes beyond informing the court as to its duty.
MR BRUCE: Yes, I accept that.
HIS HONOUR: Why do you want the adjournment?
MR BRUCE: To ensure that the Buru shareholders know what they’re getting themselves in for, is one answer, sir.
If the purpose of Oil Basins had been merely to inform the Court as to the position of the proxy voters in light of the litigation launched by Oil Basins then that was achieved by reading the affidavit of Mr David Charles Griffiths sworn 7 August 2008. The purpose behind the application for the adjournment however was not explained. It was the hearing of that application which consumed much of the Court time on Friday 8 August 2008.
Furthermore, the litigation was instituted so close to the members meeting as to ensure, objectively speaking, that Arc would not be able to advise the proxy voters of it or of the companies response to it prior to the meeting. The long delay in commencing the litigation was unexplained. The claims made in the litigation are deficient of supporting material and obvious legal merit: Arc Energy at [9]. As I said in Arc Energy at [10]:
I invited counsel for Oil Basins to explain why the adjournment was being pressed, when obviously Oil Basins has no personal standing to protect the interests of Arc shareholders. Its interests would have been served by the making of the orders sought under s 413(1)(c) of the Act. I was not given any answer which I found to be satisfactory. Oil Basins’ conduct in bringing such a belated application upon a paucity of fact and without a satisfactory explanation leads me to conclude that its real reasons are for some commercial gain or advantage, by putting a roadblock in front of the progress of the scheme. It should not be allowed to succeed in that course unless of course there is, objectively viewed, a proper basis for granting the orders sought.
It was appropriate for Oil Basins to bring the matter of the litigation and the situation of the proxy voters to the attention of the Court. I am satisfied however that the application for an adjournment with associated orders was made for an ulterior purpose: Arc Energy at [10]. It unnecessarily added to the costs of the hearing. Even if Oil Basins may be considered to be an objector this finding is an exceptional circumstance warranting a costs order against it: Re Crusader at 231-232; Re Matine Ltd at 494.
Oil Basins should pay Arc’s costs in relation to the application for an adjournment. Oil Basins will not be liable for the costs of the entire hearing on 8 August 2008. It will not be liable for that part of the hearing taken up with the explanation made by senior counsel for Arc as to the background to the litigation instituted by Oil Basins and submissions made as to the interests of the proxy voters. This would have been necessitated in any event once the matter of the litigation had been brought to the attention of the Court. Oil Basins was successful in obtaining orders under s 413 of the Corporations Act. This reflected Oil Basin’s legitimate interest. However, I will not order costs in favour of Oil Basins in relation to obtaining those orders. Arc consented to these at the hearing and would have done so before the hearing if Oil Basins or its solicitors had sought Arc’s consent.
I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour. Associate:
Dated: 16 September 2008
Counsel for the Plaintiff: Mr C L Zelestis QC with Mr M G Lundberg Counsel for the Intervener: Mr M P Bruce with Mr J Abberton Counsel for Australian Worldwide Exploration Ltd: Mr M Corboy SC with Mr C Belyea
Date of Hearing: Heard on the papers Date of Judgment: 16 September 2008
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