AU Mining Ltd v Caruso

[2017] WASC 356

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   AU MINING LTD -v- CARUSO [2017] WASC 356

CORAM:   LE MIERE J

HEARD:   ON THE PAPERS

DELIVERED          :   8 DECEMBER 2017

FILE NO/S:   COR 207 of 2017

MATTER                :Mineral Commodities Ltd

AU Mining Ltd (Incorporated in the British Virgin Islands)

BETWEEN:   AU MINING LTD

Plaintiff

AND

JOSEPH ANTHONY CARUSO
First Defendant

MARK VICTOR CARUSO
Second Defendant

Catchwords:

Costs - Urgent hearing - Application to restrain defendant directors from being present or voting at directors meeting under s 1324 Corporations Act 2001 (Cth) - Where matter subsequently discontinued by consent - Where there is no hearing on the merits - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 195(1), s 195(2), s 1324
Rules of the Supreme Court 1971 (WA), O 23 r 2(1), O 23 r 2(3), O 36B r 2B(c)(ii)

Result:

No order as to costs

Category:    B

Representation:

Counsel:

Plaintiff:     No appearance

First Defendant              :     No appearance

Second Defendant         :     No appearance

Solicitors:

Plaintiff:     Allens

First Defendant              :     Murcia Pestell Hillard

Second Defendant         :     Murcia Pestell Hillard

Case(s) referred to in judgment(s):

Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Quin (1997) 186 CLR 622

Ritter v Godfrey [1920] 2 KB 47

LE MIERE J: 

Summary

1. The plaintiff company is a shareholder of Mineral Commodities Ltd (the Company), a public company listed on the ASX.  The defendants, Joseph and Mark Caruso, are directors and shareholders of the Company.  The plaintiff applied by originating process for orders pursuant to Corporations Act 2001 (Cth) s 1324 restraining the defendants from being present, or voting, at any meeting of directors of the Company considering acquiring an interest in certain mining tenements (the Tenements) or in Gold Terrace Pty Ltd (Gold Terrace) pending compliance with a subpoena by Gold Terrace. The plaintiff also sought leave pursuant to the Rules of the Supreme Court 1971 (WA) O 36B r 2B(c)(ii) to issue a subpoena to Gold Terrace to produce documents relating to an agreement to provide mining services in respect of the Tenements and documents in relation to the beneficial ownership of shares in Gold Terrace and another company.

2. The plaintiff applied for an urgent interim injunction which was heard on Sunday, 27 August.  Upon undertakings given by the defendants the application was adjourned to 28 August.  On 28 August after the defendants had adduced certain evidence and given certain undertakings the application was adjourned to a date to be fixed.  On 7 September, by consent, it was ordered that the plaintiff have leave to discontinue the proceedings and orders in relation to costs should be determined on the papers.

3. For the reasons which follow the order in relation to costs will be that there be no order as to costs.

The plaintiff's originating process

1. The plaintiff sought the injunction and leave to issue the subpoena on the following basis.  A meeting of directors of the Company was scheduled for 29 August 2017.  At the meeting the board was likely to consider acquiring the Munglinup Project, which is comprised of or based on the Tenements.  The defendants have a material personal interest in the Tenements and/or Gold Terrace.  The material personal interests of the defendants are two‑fold.  First, Mark Caruso had, or had an interest in, a contract to provide mining services in respect of the Tenements.  Secondly, the defendants controlled Gold Terrace.  Corporations Act s 195(1) prohibits a director of a public company who has a material personal interest in a matter that has been considered at a directors' meeting from being present while the matter is being considered at the meeting or voting on the matter. Corporations Act s 1324 provides that where a person is proposing to engage in conduct that would constitute a contravention of the Act, the court may on the application of a person whose interests would be affected by the conduct, grant an injunction restraining the first mentioned person from engaging in the conduct. The plaintiff sought an interim injunction under s 1324(4) pending determination of an application whether the defendants were proposing to engage in conduct that constituted a contravention of s 195(1) of the Act. The defendants sought leave to issue the subpoena to obtain evidence to establish the defendants' interests in Gold Terrace and the mining services contract in respect of the Tenements.

Hearing on 27 August

1. The plaintiff's application for an interim injunction was scheduled to be heard at 11.30 am on Monday, 28 August.  On Sunday, 27 August the plaintiff asked for its application for an interim injunction to be heard urgently that day on the ground that the Company directors' meeting had been rescheduled for the morning of Monday, 28 August.  The plaintiff's application was heard by the duty judge on the evening of Sunday, 27 August.  Upon undertakings by the defendants that until 11.30 am on Monday, 28 August they will neither be present at any directors' meeting while there is any consideration of the Company acquiring an interest in the Tenements or Gold Terrace and would not vote on any resolution relating to the Company acquiring the interest in the Tenements or Gold Terrace, the application was adjourned to 11.30 am on Monday, 28 August with costs reserved.

Hearing on 28 August

1. On the morning of 28 August the defendants produced affidavits sworn by Mark Caruso, Joseph Caruso and two of the other three directors of the Company, Mr Torre and Mr Hastings.  Mark Caruso swore to the following effect.  First, he does not have and has never had any beneficial interest in Gold Terrace.  Secondly, Mark and Joseph Caruso are the shareholders of Zurich Bay Holdings Ltd as trustee for the Mine Site Construction Services Trust (MSCS).  MSCS entered into a contract with Gold Terrace to provide mining services.  Thirdly, that contract was terminated by a deed of termination executed on 17 August.  Fourthly, a number of resolutions would be put to the directors of the Company.  One resolution was that the directors other than Mark and Joseph Caruso are satisfied that the interests of Mark and Joseph Caruso in MSCS, which previously had a contract to provide mining services to Gold Terrace in respect of the Munglinup Project, should not disqualify them from voting or being present.  A further resolution was that the Company finalise negotiations with Gold Terrace.  Mark Caruso said that he would not vote in relation to the first resolution and intended to abstain in relation to the second resolution.  In his affidavit Joseph Caruso swore that he does not have and never has had any interest in Gold Terrace and confirmed the matters sworn by Mark Caruso in relation to the mining services contract between MSCS and Gold Terrace and its termination.  Mr Torre and Mr Hastings swore that two resolutions would be put to the board.  The first was that Mark and Joseph Caruso had an interest in the Term Sheet (which provides for the Company to acquire up to 100% in the Project by way of a farm in to the Project) arising from a personal interest in MSCS and MSCS previously being contracted to provide mining services to Gold Terrace in respect of the project under a mining services agreement which has now been terminated (Resolution 1).  The second resolution was to authorise the finalisation of negotiations with Gold Terrace and to execute a binding Term Sheet (Resolution 2).  Mr Torre and Mr Hastings said that they would each vote in favour of both resolutions.

2. The plaintiff's application came before me at 11.30 am on Monday, 28 August.  Senior counsel for the plaintiff and counsel for the defendants informed the court that the defendants had given the plaintiff undertakings that they would not participate in and not be present at the director's meeting when the other directors considered Resolution 1.  If the directors passed Resolution 1 then the defendants would be entitled to the present and vote when Resolution 2 was considered because Corporations Law s 195(2) provides that the director may be present and vote if directors who do not have a material personal interest in the matter have passed a resolution that identifies the director, the nature and extent of the director's interest in the matter and its relation to the affairs of the company and states that those directors are satisfied that the interests should not disqualify the director from voting or being present. Senior counsel for the plaintiff informed the court that in light of the mining services contract between MSCS and Gold Terrace having been terminated and the undertakings given by the defendants the plaintiff did not seek any further orders. I ordered that the application be adjourned to a date to be fixed.

Action resolved

1. On 7 September 2017 I ordered, by consent, that the plaintiff have leave to discontinue the proceeding and that the plaintiff will file its notice of discontinuance within three business days of orders having been made in relation to the costs of the proceeding.  I ordered that orders in relation to the cost of the proceeding be determined on the papers.

Rules and principles relating to costs

1. Where a plaintiff discontinues without the consent of the defendant, the plaintiff must pay the defendant's costs of the action: RSC O 23 r 2(1). Where the plaintiff discontinues the action with leave of the court, the court may make orders as to costs as may be just: RSC O 23 r 2(3). In this case, the plaintiff, with the consent of the defendants, has been given leave to discontinue the action. The court has a discretion as to the costs of the action. The discretion must be exercised judicially.

2. The general rule is that costs follow the event.  The defendants say that they were successful because the plaintiff has consented to the proceedings being discontinued without obtaining any final relief.  The plaintiff says that the defendants' unreasonable conduct caused the plaintiff to bring the proceeding.  A court may refuse costs to a successful defendant who has, by inducing the plaintiff to believe that he or she had a good cause of action against the defendant, or by some other act or omission, led the plaintiff to bring the action, where aside from the defendants inducing conduct, the action would in all likelihood not have been brought:  Dal Pont, Law of Costs (3rd ed) [8.44] citing Ritter v Godfrey [1920] 2 KB 47 at 53 per Lord Sterndale MR and other authorities.

3. Where proceedings come to an end without a hearing on the merits, a court should not decide costs by engaging in an hypothetical trial.  In Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Quin (1997) 186 CLR 622 at 624 ‑ 625 McHugh J explained:

   The court cannot try a hypothetical action … [i]f it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continue to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings.

4. In an appropriate case a court will make an order for costs even where there has been no hearing on the merits and the moving party no longer wishes to proceed with the action.  The court may order one party to pay the costs of the other where there is a clear winner, or where one party, after litigating for some time, effectively surrenders to the other, or where the court is able to confidently assess the merits.

Merits of the plaintiff's claim

1. The defendants move for an order that the plaintiff pay the defendants' costs of the proceeding, including reserve costs, on an indemnity basis.  The defendants say that the relief sought in the originating process was doomed from the outset to be rejected by the court and the plaintiff, properly advised, should have known that there was no chance of success in relation to such relief.  The defendants advance a number of arguments in support of that position.

2. First, the defendants say that the court had no power under Corporations Act s 1324 to grant the relief sought by the plaintiff and therefore the application was doomed to fail for the following reasons. The only relief claimed was an interim injunction under s 1324(4). Section 1324(4) empowers the court to grant an interim injunction pending determination of an application under s 1324(1), it does not empower the court to grant an interim injunction in the absence of a claim for an injunction under s 1324(1).

3. I do not accept that the plaintiff's application was doomed to fail for that reason. The plaintiff's originating process was arguably deficient in form in that it seeks an interim injunction and does not set out the final relief which the plaintiff seeks under s 1324(1). However, it is plain from the application, the supporting affidavit of Graham Edwards sworn 24 August 2017 and the plaintiff's outline of submissions of 25 August 2017 that the plaintiff sought an injunction to restrain the defendants from contravening s 195(1) by being present at a meeting of directors of the Company while acquiring an interest in the Tenements or Gold Terrace is being considered or voting on that matter when they have a material personal interest in the matter (I will refer to the company acquiring an interest in the Tenements or Gold Terrace as the Matter). The plaintiff commenced the proceeding urgently. The defendants did not, prior to filing the submissions in support of costs orders on 12 October 2017, contend that the court did not have power to grant the relief sought by the plaintiff. If that contention had been raised the plaintiff could have applied for leave to amend its originating process. It is likely that leave would have been granted.

4. Secondly, the defendants say that there was no evidence that the defendants were proposing to engage in conduct in breach of Corporations Act s 195(1). The defendants say that the mines services contract was terminated on 17 August and in any event it was proposed that any transaction between the Company and Gold Terrace would be subject to a condition precedent as to the termination of the mines services contract. Further, the defendants say they did not, through the mine services contract, have a material personal interest in the transaction being considered. Further, the defendants say there was no admissible evidence that Joseph Caruso had any interest in Gold Terrace and the evidence adduced by the plaintiff that Mark Caruso had an interest in Gold Terrace was inadmissible.

5. It is not appropriate to attempt to assess whether the plaintiff would have succeeded in proving that the defendants, or either of them, had a personal interest in the Matter or whether they were proposing to be present at a directors' meeting while the Matter was being considered or vote on the Matter in contravention of s 195(1). The plaintiff adduced evidence that Mark Caruso had told Mr Edwards that he (Mark Caruso) had a life of mine contract associated with the Tenements. The plaintiff adduced evidence that Mark Caruso controlled Gold Terrace. The defendants say that evidence was inadmissible on an interlocutory application because it was hearsay and the deponent did not say that he believed it to be true. That is a technical objection which does not lead to a conclusion that the plaintiff would not have been able to prove that part of its case. The plaintiff also adduced evidence that Mark Caruso had told Mr Edwards that he (Mark Caruso) and Joseph Caruso had not participated in the board's deliberations on the acquisition of the Tenements because of their conflict of interest in considering the acquisition and on another occasion Mark Caruso had confirmed that he had an interest in the Project given that he had a life of mine contract associated with the Project. In his affidavit sworn 28 August Mark Caruso did not deny that on 2 September 2016 he had told Mr Edwards that he (Mark Caruso) had a life of mine contract associated with the Project. He agreed that on 13 October 2016 he said to Mr Edwards that he and Joseph Caruso did not participate in the board's deliberation because of their interest in the mine services contract. The application commenced by originating process did not progress beyond a very early stage. It is inappropriate to attempt to assess what evidence might have been adduced if the matter had proceeded to trial. MSCS terminated its contract with Gold Terrace on 17 August. However, notwithstanding that Mark Caruso had informed Mr Edwards of his interest in the mines services contract, that the plaintiff's solicitors had asked for undertakings in relation to Mark and Joseph Caruso not participating in board deliberations about the Matter and the defendants' solicitors having corresponded with the plaintiff's solicitors about the plaintiff's claim that Mark and Joseph Caruso had, through the mine services contract, a material personal interest in the Matter, the defendants did not inform the plaintiff that the mine services contract had been terminated until 28 August. In those circumstances the plaintiff acted reasonably in commencing the proceedings on the basis that there was evidence that Mark and Joseph Caruso had a material personal interest in the Matter by reason of the mine services contract.

6. Thirdly, the defendants say that the plaintiff's acceptance of the undertakings offered by the defendants on 28 August, which the defendants described as 'limited', is a recognition by the plaintiff that its interim injunction application was doomed to fail.

7. I do not draw that inference.  The plaintiff accepted the defendants' undertakings for two reasons.  First, the defendants had adduced evidence that the mine services contract had been terminated.  Secondly, the defendants undertook not to be present when the other directors considered a resolution in accordance with Corporations Act s 195(2). In those circumstances it was futile to pursue any further injunction.

Defendants' conduct

1. The defendants contend in effect that they were successful in that the plaintiff discontinued the proceeding without obtaining any final relief.  The plaintiff says that the defendants should pay the plaintiff's costs of the proceeding, including the reserved costs, because the defendants' unreasonable conduct caused the plaintiff to bring the proceeding.  That requires a consideration of the defendants' conduct.

2. The defendants' conduct caused the plaintiff to believe that the defendants had a material personal interest in the Matter.  Mark Caruso told Mr Edwards that they had an interest in the mine services contract and that they did not participate in the board's deliberations about the Matter because of their interest in the mine services contract.  A directors' meeting which was expected to consider the Matter was scheduled for 29 August and then rescheduled for 28 August.  Notwithstanding the plaintiff's assertions to the defendants that they had a material personal interest in the Matter and they would contravene Corporations Act s 195(1) if they participated in or voted at a board meeting to consider the Matter and the plaintiff's request for the defendants to give an undertaking that they would not do so, the defendants did not until the morning of 28 August inform the plaintiff that the mine services contract had been terminated and did not inform the plaintiff that they intended not to participate or vote at a board meeting to consider a resolution in accordance with Corporations Act s 195(2). The defendants were under no legal obligation to provide the information to the plaintiff or to give the plaintiff the undertakings it sought. However, by not doing so in the circumstances I have referred to in this paragraph, they brought the litigation upon themselves. Those circumstances are a ground for the court to exercise its discretion not to award the defendants their costs.

1. The circumstances do not justify an order that the defendants pay the plaintiff's costs. The mine services contract had been terminated by the time the plaintiff commenced the proceeding notwithstanding that the defendants did not inform the plaintiff of that until 28 August. The plaintiff's evidence that the defendants controlled Gold Terrace is thin. The defendants maintained that they would not contravene s 195(1) and the Company had asserted that it would observe proper corporate governance.

2. The defendants raised further arguments in support of their application for costs on an indemnity basis.  I have considered each of those arguments but I find it unnecessary to refer to them other than to say they do not persuade me that a costs order should be made in favour of the defendants.  The appropriate exercise of discretion is that each party should bear its or his own costs.