Argus Group Pty Ltd v Litigation Lending Services Ltd (No 2) - [2015] SASC 20

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
ARGUS GROUP PTY LTD v LITIGATION LENDING SERVICES LTD (No 2)
[2015] SASC 20
Judgment of The Honourable Justice Gray
19 February 2015
CORPORATIONS - LEGAL CAPACITY AND RELATIONS WITH OUTSIDERS - EXTERNAL LITIGATION PROCEDURE - APPEARANCE IN COURT BY COMPANY AND REPRESENTATION
CORPORATIONS - MEMBERSHIP, RIGHTS AND REMEDIES - MEMBERS' REMEDIES AND INTERNAL DISPUTES - PROCEEDINGS ON BEHALF OF COMPANY BY MEMBER
Application for costs pursuant to section 242 of the Corporations Act 2001 (Cth). At the time of trial, the plaintiffs held a minority interest in the first defendant, Litigation Lending Services Ltd, a litigation funding company. They also commenced proceedings against the second to fourth defendants, who were directors and shareholders in Litigation Lending, and the fifth defendant, JustKapital Litigation Pty Ltd, a litigation funding company. The dispute arose out of JustKapital’s attempt to take control of Litigation Lending. JustKapital, by its cross-action, brought an action against Litigation Lending for, inter alia, breach of contract. The plaintiffs’ claim against the second to fourth defendants was that, inter alia, they engaged in oppressive conduct and breaches of their directors duties by impermissibly dealing with JustKapital. At the outset of the proceedings the plaintiffs had obtained injunctive relief against the defendants. Litigation Lending was unrepresented and the plaintiffs sought and were granted leave to represent Litigation Lending pursuant to section 237 of the Corporations Act. During the plaintiffs’ opening they reached compromises with the defendants on favourable terms. The plaintiffs applied to recover the balance of their costs from Litigation Lending. The application was not opposed.
Whether the proceedings were brought by the plaintiffs in good faith for the benefit of Litigation Lending. Whether it is appropriate for the plaintiffs to recover their costs from Litigation Lending.
Held (granting the application):
1. The plaintiffs were awarded injunctive relief and given leave to represent Litigation Lending on the basis that, inter alia, they had a prima facie case against the second to fifth defendants, there was a serious question to be tried and the proceedings had been brought in good faith for the benefit of Litigation Lending.
2. The compromises entered into with the second to fifth defendants were approved by the Court on the basis that they were in the interests of Litigation Lending. Under the terms of those compromises the plaintiffs obtained substantially all of the relief sought.
3. This was a complex, expedited commercial matter. Voluminous material was before the court. The proceedings were fit for senior counsel and it was also appropriate for the plaintiffs to retain junior counsel. A review of the invoices rendered to the plaintiffs by their lawyers discloses that the fees charged were appropriate.
4. In these circumstances it is appropriate that the plaintiffs be indemnified by Litigation Lending for the balance of their costs and disbursements.
Corporations Act 2001 (Cth) s 237 and s 242, referred to.
Farrow v Registrar Of Building Societies [1991] 2 VR 589; Wood v Links Golf Tasmania Pty Ltd [2010] FCA 570, considered.

ARGUS GROUP PTY LTD v LITIGATION LENDING SERVICES LTD (No 2)
[2015] SASC 20
Civil
GRAY J.

This is an application for costs pursuant to section 242 of the Corporations Act 2001 (Cth).
Background
At the time of trial, the plaintiffs held a minority interest in the first defendant, Litigation Lending Services Ltd, a litigation funding company. The second to fourth defendants were directors and shareholders of the first defendant. The fifth defendant, JustKapital Litigation Pty Ltd, is a litigation funding company which had attempted to take control of Litigation Lending. The plaintiffs commenced proceedings in this Court primarily to prevent JustKapital from taking control of Litigation Lending. The plaintiffs also alleged breaches of fiduciary and directors duties by the second to fourth defendants. JustKapital filed a cross-claim against Litigation Lending alleging, inter alia, breach of contract.
Following a contested hearing before a Judge of this Court, the plaintiffs were granted injunctive relief. The matter proceeded to trial and I granted the plaintiffs leave to represent Litigation Lending pursuant to section 237 of the Corporations Act.[1]
[1] Argus Group Pty Ltd v Litigation Lending Services Ltd [2014] SASC 181.
In the course of the plaintiffs’ opening submissions, the plaintiffs and JustKapital reached a compromise. The terms of the compromise relevantly included the cessation of all proceedings involving JustKapital and the payment by JustKapital of $150,000.00 in respect of the plaintiffs’ costs.
At a later stage during the opening, the plaintiffs reached a compromise with the second to fourth defendants. Under the terms of the compromise, the plaintiffs, in substance, obtained the relief they had sought against the second to fourth defendants and recovered $50,000.00 in respect of their costs.
The plaintiffs sought an order to recover the balance of their costs and disbursements, the sum of $171,757.73, on an indemnity basis from Litigation Lending. The application was not opposed.
The Application
Section 242 of the Corporations Act provides as follows:
Power of the Court to make costs orders
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 section 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.
In Farrow v Registrar of Building Societies, Marks J set out the position of a shareholder seeking to recover costs in respect of a claim brought for the benefit of the company under common law in the following terms:[2]
While I think that [the plaintiffs’] financial status is capable of relevance, it is not correct that an order will not be made unless it appears that the plaintiffs are destitute or otherwise so financially handicapped that the case otherwise could not continue. If the proceeding is bona fide to protect the [company] and the [company] will receive the benefit of success, there is no good reason why the expenses should be met out of the private resources of one or more shareholders. In principle, for the reasons given by Lord Denning in Wallersteiner, no distinction should be made if they fail.
[Emphasis added.]
[2] Farrow v Registrar Of Building Societies [1991] 2 VR 589, 595.
In Wood v Links Gold Tasmania Pty Ltd, Finkelstein J considered Farrow and said:[3]
The purpose of permitting a person to bring an action in the name of the company is to prevent conduct which involves some element of harm. In most cases the wrongdoer will be in control of the company. That will be the reason the company itself is not bringing the action. The purpose of the exceptions outlined in Foss v Harbottle, as well as the purpose of Part 2F.1A, is to increase the likelihood that someone brings a claim which the company ought to have commenced. In those circumstances, I can think of no good reason why the company should not bear the costs. Put another way, the principle adopted by Marks J should continue to apply under the statute.
[3] Wood v Links Golf Tasmania Pty Ltd [2010] FCA 570.
As noted earlier in these reasons, the trial did not run to judgment. However, a Judge of this Court previously granted injunctive relief on the basis that the plaintiffs had a prima facie case. Further, I granted leave for the plaintiffs to represent Litigation Lending on the basis that, inter alia, there was a serious question to be tried and the plaintiffs had brought proceedings in good faith for the benefit of the company. The plaintiffs’ opening and the documentary evidence before the court were compelling. The compromises reached in the action were without admission as to wrongdoing or liability. However, under the terms of the compromises, the plaintiffs were able to obtain from the defendants substantially all of the relief sought. I approved both compromises as being in the interests of Litigation Lending. It is to be noted that junior counsel for the second to fourth defendants described the compromise as a “capitulation” on the part of his clients.
The solicitor with the conduct of the proceedings on behalf of the plaintiffs filed an affidavit in support of the application for costs. The affidavit was not served on the defendants on the basis that it tended to reveal the terms of instructions received and advice given. No application was made by the defendants to inspect the affidavit. The affidavit annexes copies of the retainer agreement entered into between the plaintiffs and their solicitors, Iles Selley, invoices rendered to the plaintiffs by Iles Selley and invoices rendered to Iles Selley by counsel.
The invoices disclose that Iles Selley and counsel charged for this matter on a time cost basis. My review of the invoices suggests that both the hourly rates charged and the time spent on individual tasks were reasonable in the circumstances. It is to be recalled that this was a complex, expedited commercial dispute involving multiple parties. Lengthy interlocutory hearings were required before the matter could proceed to trial. Voluminous affidavit material was before the Court in support of the various interlocutory applications. The trial tender book was also voluminous. These proceedings were fit for senior counsel and it was appropriate for the plaintiffs to retain junior counsel. The matter was appropriately conducted by Iles Selley.
In these circumstances, the plaintiffs are to be indemnified by Litigation Lending for the balance of their costs and disbursements.
Conclusion
I allow the application for costs.