Austrim Nylex Limited v Kroll (No 3)
[2002] VSC 290
•25 July 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 4908 of 2001
| AUSTRIM NYLEX LIMITED (ACN 009 375 553) | Plaintiff |
| v | |
| IRENE JULIANA KROLL and OTHERS | Defendant |
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JUDGE: | WARREN J. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 19 July 2002 | |
DATE OF JUDGMENT: | 25 July 2002 | |
CASE MAY BE CITED AS: | Austrim Nylex Limited v Kroll & Ors (No. 3) | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 290 | |
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CORPORATIONS – Compulsory acquisition – Minority interests
CORPORATIONS ACT 2001 - s.644F(4)
COSTS – Costs of minority shareholders – Whether party acted “improperly, vexatiously or otherwise unreasonably”.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J. Santamaria Q.C. with Mr J. Moore | Clayton Utz |
| For the Eighth and Ninth Defendants | Mr N. Cotman S.C. | Frenkel Partners as agents for Stephen Blanks and Associates |
HER HONOUR:
The plaintiff sought Court approval of the proposed compulsory acquisition of the remaining minority interests in National Consolidated Limited (“NCL”) pursuant to ss.664(3) and 664F(1) of the Corporations Act 2001. The seventh, eighth and ninth defendants, as remaining minority shareholders, opposed the granting of the approval.
On 24 May 2002 I published reasons for judgment finding that the compulsory acquisition ought be approved.[1] Final orders were made on 31 May 2002 pursuant to s.664F of the Corporations Act that the acquisition be approved. The remaining matter to be determined is the defendants’ costs of the proceedings.
[1]See Austrim Nylex Limited v Kroll & Ors (No. 2) (2002) VSC 193
Section 664F(4) of the Corporations Act provides:
“664F(4) The 90% holder must bear the costs that a person incurs on legal proceedings in relation to the application unless the Court is satisfied that the person acted improperly, vexatiously or otherwise unreasonably. The 90% holder must bear their own costs.”
The plaintiff submits that the seventh, eighth and ninth defendants (hereafter referred to collectively as “the defendants”) acted “improperly, vexatiously or otherwise unreasonably” as recited in sub-s.(4) of s.664F and, therefore, are not entitled to all their costs.
It is necessary to set out some background matters that occurred both before and at trial.
The subject compulsory acquisition notices were issued on 15 January 2001. The proceeding seeking court approval was issued on 15 March 2001. The eighth and ninth defendants filed a summons seeking orders that the proceeding be stayed pending the hearing and determination of appeals in two proceedings to the Court of Appeal of Queensland[2] which were said to raise similar or identical issues to the present proceeding. The application by the eighth and ninth defendants was dismissed and reasons delivered.[3] It is not necessary to re-state the reasons with respect to the stay application save to observe that all arguments on behalf of the eighth and ninth defendants were rejected entirely.
[2]Pauls Limited v Dwyer (2001) 19 ACLC 959; Pauls Limited v Elkington (2001) QCA 414
[3]See Austrim Nylex Limited v Kroll & Ors (2001) VSC 168
Following the disposition of the application to stay the proceeding the matter was fixed for trial. At that stage the defendants knew already the principal evidence to be relied upon by the plaintiff, in particular, the affidavit of Kershaw filed on 15 March 2001, that affidavit having been filed and served when the proceeding was commenced. After the proceeding was fixed for trial I made orders and directions on 18 May 2001 for the discovery of documents by parties and the exchange of affidavits. Extensions of time became necessary such that the defendants were not required to file any affidavits in opposition until 28 September 2001 and the plaintiff was ordered to file any affidavits in reply by 19 October 2001. Further, the plaintiff was ordered to file and serve an outline of submissions by 24 October 2001 and the defendants to do likewise by 7 November 2001.[4]
[4]The orders and directions were made on 17 August 2001
Ultimately, the eighth and ninth defendants filed an affidavit of their expert Lonergan sworn on 28 September 2001. Affidavits were filed also by Catto and by Elkington both sworn on 27 September 2001. Subsequently the plaintiff filed the further expert affidavits of Lom and Selak. The parties also filed extensive written submissions. In particular, in the written submissions the parties devoted much time and energy to constitutional issues raised by the defendants as to the validity of the relevant sections in the Corporations Act.
The trial commenced on 28 November 2001.
Subject to observations I make later in these reasons the defendants could not be criticised for the way in which they conducted themselves at trial. Their arguments were presented concisely and cross‑examination was succinct. Part of the submissions of the defendants included an attack on the plaintiff based upon lack of material disclosure by the plaintiff. These submissions did not occupy very much court time but in the event were rejected in the reasons for judgment.
As events transpired another proceeding concerned with compulsory acquisition of minority shareholdings was fixed for trial shortly before the present proceeding, namely, Capricorn Diamonds Investments Pty Ltd v Catto and Ors.[5] The Capricorn proceeding was heard between 19 and 26 November 2001 and judgment was delivered on 10 April 2002. The Capricorn proceeding was very similar to the present proceeding, indeed, I referred extensively to my reasons in Capricorn in the judgment in this proceeding.
[5](2002) VSC 105
In this proceeding Dr Elkington sought his costs of attending hearings in the nature of fares and accommodation. He did not claim any costs with respect to the preparation of his affidavit or written submissions. Dr Elkington did not appear on the argument upon costs but was content to rely upon a written submission. The other defendants claimed all their costs on a solicitor‑client basis. Those defendants were represented on the argument as to costs by Mr N. Cotman SC.
The plaintiff submitted that the defendants were entitled to the costs of the proceeding on a party-party basis except for any costs incurred personally by Dr Elkington, the costs of and incidental to the preparation of the affidavits of Dr Elkington and Catto, the costs of and incidental to the stay application determined on 18 May 2001 and the costs incurred by the defendants after 14 October 2001. If costs after 14 October 2001 were allowed the plaintiff submitted that the defendants should not be allowed their costs associated with the constitutional issues they had raised or the allegation of material non-disclosure.
The plaintiff urged that no cost allowance should be made for the affidavits of Elkington and Catto because in my primary reasons for judgment I observed:[6]
“The defendants also led the lay evidence of Catto and Elkington as to the impact of the acquisition and the prices paid for preference shares in other companies obtained through a commercially negotiated bargain. I regard this latter evidence as having little or no relevance to the assessment of fair value for the purposes of s.667C. So far as the overall evidence was concerned, it was the expert evidence as to valuation that was significant.”
[6](2002) VSC 193, para 47
The plaintiff urged that the defendants not receive the costs of the stay application because the application failed.
The plaintiff urged, also, that once the expert evidence of Lonergan was known, the affidavit having been filed on 28 September 2001, allowing for a reasonable period of about 14 days to consider the proposed evidence the defendant and their solicitors ought have appreciated that the evidence of Lonergan was incorrect and misconceived. In my reasons for judgment[7] I rejected the evidence of Lonergan primarily on the basis that the expert evidence involved a fallacious construction of the relevant provisions of the Corporations Act. I rejected that evidence on the grounds that it was contrary to the provisions of the Corporations Act, was misconceived and contrary to accepted methodology. Lonergan also gave expert evidence for the majority of shareholders in Capricorn. I rejected his evidence on a similar if not identical basis to the rejection in the present proceeding. It is to be observed that the approach of Lonergan was wholly rejected in earlier authority in Pauls Limited v Dwyer (2001) 19 ACLC 959 at first instance before Douglas J. The judgment of Douglas J was upheld by the Queensland Court of Appeal.[8] I also rejected the evidence of Lonergan and preferred the expert evidence led on behalf of the plaintiff, namely, Lom and Selak. I observed that Lonergan imposed his own interpretation on the requirements of the Corporations Act. I rejected his approach.[9] Lonergan significantly did not approach value on a pro rata basis. I was critical of that approach in both this proceeding and in Capricorn. In the Capricorn proceeding Lonergan provided expert evidence on behalf of the defendants, that is, the minority shareholders, essentially based upon the same approach as in the present proceeding. In both Capricorn and the present proceeding I also rejected the valuation of Lonergan as being contrary to usual valuation methodology.
[7](2002) VSC 193
[8]Pauls Limited v Elkington (2001) QCA 414
[9]At para 58
I turn then to consider the entitlement of the defendants to their costs.
It is necessary to consider the constitutional arguments of the defendants. The present proceeding commenced prior to the enactment of the Corporations Act (Cth) which contained a “grandfather” clause, s.1384. Essentially, the section provided that a proceeding commenced before 15 July 2001 (and therefore subject to the previous statutory regime) continued as a proceeding subject to the new statutory provisions. The defendants conceded that s.1384 applied to the proceeding but challenged the constitutional validity of the section. Such argument had been rejected previously in other jurisdictions: see, for example, Pauls Limited v Elkington[10]. Ultimately, I rejected the defendants’ argument.[11] In this proceeding the defendants also argued that s.667C required the taking into account of factors to produce a fair price and thereby just terms. They argued, also, that insofar as s.667C excluded special benefits from valuation it is invalid. This was a further part of a constitutional argument made by the defendants. The same point was rejected by me in Capricorn. I rejected the argument in this case also.[12] Here the defendants also challenged the effect of s.1350 of the Corporations Act. I rejected the argument in Capricorn and also here.[13] Ultimately, the constitutional argument of the defendants in the present case failed.
[10](2001) QCA 414
[11]See Austrim Nylex (No. 2) at paras 37-38
[12]Austrim Nylex (No. 2) para 40-41
[13]Austrim Nylex (No. 2) para 42-44
At trial in this case the eighth and ninth defendants principally relied upon the evidence of their expert, Wayne Lonergan.
Here the plaintiff said that once the report of Lonergan was produced in late September to the defendants and considered they ought have known in light of Paul’s case and other authority that the Lonergan analysis was untenable. The plaintiff said that allowing a reasonable time for digestion and analysis of the expert report of Lonergan, until 14 October 2001, the defendants ought not have pursued their objections and opposition. The plaintiff said, among other matters, that the defendants ought not have their costs from 14 October 2001. They said that in the context of the authorities for the defendants to proceed as they did they acted improperly, vexatiously and unreasonably and ought not be awarded costs thenceforth.
All these submissions do not allow for a significant factor. This proceeding was heard very shortly after Capricorn was heard and whilst judgment in that matter was reserved. Mr J. Santamaria QC who appeared with Mr J. Moore argued for the plaintiff that my judgment in Capricorn did not affect their defendants’ position because the law was known beforehand as a result of the judgments in Pauls Limited v Dwyer, Winpar Holdings Limited v Goldfields[14] and later in Pauls Limited v Elkington. The argument was to the effect that in light of known authority, regardless of the judgment in Capricorn the defendants ought not have pressed on after October 2001. To an extent there is some attraction in that argument. Nevertheless, Capricorn provided an opportunity to consider at length the application of s.664(3) and 664F(1) of the Corporations Act. Indeed, I relied extensively on the judgment in Capricorn in reaching my findings in this matter. On balance, I consider that on this occasion the defendants did not act improperly, vexatiously or otherwise unreasonably in the conduct of their cases given that at the relevant time the judgment in Capricorn had not been delivered. There was also a relevant judgment delivered after this trial in Kelly-Springfield (Aust) Pty Ltd v Green (2002) NSWSC 53. It may have been a different matter if the defendants pressed on after the reasons for judgment in Capricorn were known but that is not the case before me.
[14](2000) 34 ACSR 737
It follows that I consider that the defendants are entitled to their costs of the proceeding subject to the discrete matters I turn to next.
First, there is the question of the stay application. It seems to me that the application was entirely misconceived. So much was borne out by my judgment in this proceeding and also in Capricorn. Even so, putting those matters to one side, in my reasons for dismissing the stay application it was apparent that it was inappropriate to stay the present proceeding pending the outcome of the appeals in the Pauls matters. Section 664F(4) does not indicate the types of costs of minority shareholders encompassed by the section. The entire scheme of the new compulsory acquisition regime as observed in my reasons both in the present proceeding and Capricorn was to eradicate the practice of “greenmailing”. It seems to me that logically the intention of the legislature must have been that minority shareholders would be entitled to costs properly incurred in conducting any objection to a proposed compulsory acquisition. In my view it cannot have been contemplated that minority shareholders would be entitled to pursue interlocutory applications that were misconceived and lacked sufficient evidence to invoke the discretion to stay the subject proceeding. It seems to me, therefore, that on proper analysis the defendants acted otherwise unreasonably in bringing the stay application and accordingly they should not receive their costs of that application.
The next matter to be considered is the attack launched by the defendant as to lack of material disclosure by the plaintiff. I referred to these matters in my reasons for judgment as “procedural matters”.[15] In particular, I observed:[16]
“Ultimately, there was no evidence or insufficient evidence of the matters complained about by the defendants with respect to material disclosure. Importantly there was no evidence that any of the matters relied on by the defendants were material to a minority shareholder’s decision to object. Furthermore, it behoved the defendants to demonstrate knowledge by Austrim Nylex of the information concerned, that it was material to deciding whether to object to the acquisition and that the information was not disclosed in the independent expert’s reports.”
[15]See Austrim Nylex (No. 2) paras 92ff
[16]at para 96
Further, I observed:[17]
“ … Furthermore and quite significantly, no substantial injustice appears to have been caused to any party because the requisite objections were made and the matter proceeded to the court.”
[17]at para 98
It seems to me that the attack brought by the defendants on procedural matters particularly concerned with lack of material disclosure was misconceived. The complaints were rejected. In my view in ventilating these matters at trial and thereby prompting the plaintiff to respond to the complaints the defendants acted otherwise unreasonably and, therefore, are not entitled to any costs associated with those matters.
The next matter to be considered is the entitlement of the defendants to costs associated with the constitutional arguments. Leaving aside, for the moment, the attack on s.1384 of the Corporations Act the defendants largely visited before me the same constitutional challenges as made in Capricorn. The arguments on the constitutional issues in Capricorn were considerable, indeed, the Attorney‑General intervened through the Solicitor‑General for the Commonwealth. There can be no criticism made of the way in which the defendant conducted the constitutional arguments in the present proceeding. The attitude of the Court was not known in the Capricorn judgment at the time the arguments were made in the present proceeding. Furthermore, the attitude of the Supreme Court of New South Wales in Kelly Springfield Australia Pty Ltd v Green[18] was not known. Certainly the position was known with respect to the Queensland authorities. However, on balance it seems to me that it cannot be said that the defendants acted improperly, vexatiously or unreasonably in ventilating the arguments that they did. I consider that they should be allowed the costs of the constitutional arguments. There is the matter of the arguments with respect to the constitutional validity of s.1384. This was not a matter considered in Capricorn. For the plaintiff it was argued that as a matter of comity where national legislation is concerned it is generally accepted that one court will usually follow an earlier judgment on the same legislation in another jurisdiction. As a matter of principle that is so.[19] However, the compulsory acquisition provisions and their constitutional validity have been under intensive consideration in Queensland, New South Wales and Victoria in a relatively condensed period of time. It seems to me on balance there was nothing vexatious, improper or otherwise unreasonable on the part of the defendants in seeking to ventilate s.1384 and attack its validity in this proceeding. In the circumstances therefore, I consider that the defendants are entitled to their costs of the constitutional arguments including that brought with respect to s.1384 of the Corporations Act.
[18](2002) NSWSC 53, para 7
[19]See Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485, 492.
The remaining matter is the question of costs incurred by Dr Elkington personally in attending court. There are two responses to be made. First, Dr Elkington could have allowed his representation to be encompassed with that of the other defendants. Such view was expressed by Douglas J in Pauls with respect, I agree. Dr Elkington elected to represent himself before this Court and any costs he incurred involved unnecessary duplication. In my view in seeking to represent himself, whilst Dr Elkington was entitled to do so, for the purposes of s.664F(4) of the Corporations Act he acted otherwise unreasonably. It follows that I do not consider he should be allowed the costs that he seeks.
In summary, therefore, I am satisfied that it is appropriate that the plaintiff pay the eighth and ninth defendants’ costs of the proceeding except for the following costs:
(1)The costs of and incidental to the preparation of the affidavit of Catto.
(2)The costs of and incidental to the determination of the summons seeking a stay of the proceeding filed.
(3)The costs of and incidental to the submissions by the defendants that the plaintiff’s notice of compulsory acquisition was invalid by reason of the failure of the plaintiff to disclose all material information.
Dr Elkington sought limited costs. I have determined that there is no such entitlement. Hence, it follows that no order for costs will be made with respect to Dr Elkington.
The remaining matter to be considered is the nature of costs to which the eighth and ninth defendants are entitled. The plaintiff urged that the costs to be awarded should be the usual costs namely costs on a party-party basis. For those defendants it was argued that the costs should be on a solicitor and client basis. There is nothing in the legislation to indicate the type of costs contemplated by the legislature to be allowed.
Spencer v Dowling concerned the interpretation of a statutory provision, s.47(2) of the Equal Opportunity Act 1984 (Vic), which empowered a tribunal to award a party “costs reasonably incurred”. Of that statutory provision, Winneke P said at 147:
“Nor, in my view, does the complainant’s contention derive any support from the use of the words ‘costs reasonably incurred’. Those words are apt to describe costs on a party and party basis, as much as they are to describe costs on a solicitor/client basis, because such costs have always been regarded as the costs which are reasonably incurred in the attainment of justice between the parties.
…
There can be no doubt that, in litigation in superior courts, the usual measure of costs awarded is costs on a party/party basis. There is, likewise, no doubt that a Court does have the power to award costs on a higher measure if the circumstances require it. This practice in the superior courts is, in my experience, universal although it is well recognized that there is occurring an ever increasing gap between party/party costs and those actually incurred. In the case of Bass Shire Council v King and others (Supreme Court of Victoria, unreported, 15th August 1994), Nathan, J expressed the practice in what are, in my view, appropriate terms:
‘It is undoubtedly a principle of law that costs follow the event on a party and party basis, but that courts are free to depart from that principle if confronted with circumstances where the conduct of one or other of the parties … would warrant the ordering of costs on an indemnity basis. There must be special circumstances which left the case out of the ordinary.’
…
As I have already said, the mere fact that s.47(2) uses the words ‘costs reasonably incurred’ is quite insufficient to lead me to the conclusion that the Parliament was intending, in the context of the equal opportunity legislation, to introduce a costs practice diametrically opposed to that which has become entrenched in the superior courts of this country.”
Similarly, at 163-165 Callaway JA said:
“In my opinion those words mean ‘properly incurred for the attainment of justice’, not ‘legitimately incurred by a person in his or her own interests’. Costs of the latter kind may be given, if at all, only in special circumstances. Cf King v Phillip Island Shire Council (Nathan, J, unreported, 15th August 1994) at 1.
Despite the apparent contrast between the language of r63.29 and 463.30 of the General Rules of Procedure in Civil Proceedings 1996, the words ‘reasonably incurred’ are not a hallmark of solicitor and client costs …
The expression ‘costs reasonably incurred’ meant costs on a party and party basis …
The purpose of s47 and s138 is to facilitate the attainment of justice, not to privilege successful parties before the Board or the Tribunal over ordinary litigants. That would itself be a kind of discrimination that Parliament is unlikely to have intended. If it were intended, clear words would be needed for reasons of the same kind as those given by Mason, CJ, Brennan, Gaudron and McHugh, JJ in Coco v The Queen (1994) 179 CLR 427 at 437-438”.
In Rosniak v GIO (1997) 41 NSWLR 608 (CA) at 616 Mason P said:
“[T]he Court requires some evidence of unreasonable conduct, albeit that it need not rise as high as vexation. This is because the party and party costs remain the norm, although it is common knowledge that they provide an inadequate indemnity. Any shift to a general or common rule that indemnity costs should be the order of the day is a matter for the legislature or the rule-maker.”
More recently in P.C.R.Z. Investments Pty Ltd v National Golf Holdings Limited & Anor[20] Chernov JA, with whom Callaway and Buchanan JJA agreed, observed[21] that a court may order costs be paid on a solicitor and client basis where it is satisfied that there are “special” or “unusual” aspects of the case which bring it out of the ordinary.
[20](2002) VSCA 24
[21]at para 34
In my view s.664F(4) contemplates costs in the ordinary event. Ordinarily, such costs in proceedings are costs on a party-party basis. There is no command in the legislation to indicate any contemplation by the legislature that the acquiring party should pay other than the usual costs. Furthermore, there is nothing in the legislation to indicate that the usual discretion exercised by the court in proceedings with respect to costs should be supplanted. It seems to me that in the absence of any command by the legislature the question of costs is a matter that remains with the Court. In my view in this proceeding there was no reason why the eighth and ninth defendants should receive their costs other than on a party-party basis. No foundation has been made out to order costs on any other basis.
Orders will be made in accordance with these reasons.
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