Barjeba Pty Ltd v Bogg
[2023] WASC 232
•28 JUNE 2023
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: BARJEBA PTY LTD -v- BOGG [2023] WASC 232
CORAM: HILL J
HEARD: 7 - 9 FEBRUARY 2022, 11 FEBRUARY 2022
DELIVERED : 28 JUNE 2023
FILE NO/S: COR 261 of 2017
BETWEEN: BARJEBA PTY LTD
Plaintiff
AND
KIM BOGG
First Defendant
JOHN PATRICK MCMAHON
Third Defendant
Catchwords:
Corporations - Oppression - Whether plaintiff is shareholder of company - Whether payment of dividends made to director of a shareholder of company - Whether conduct is oppression under s 232 of Corporations Act 2001 (Cth) - Whether plaintiff consented to or acquiesced in conduct
Corporations - Duties of officers of corporation - Whether payment of dividends to director of shareholder of company is a breach of s 181 and s 182 of Corporations Act 2001 (Cth) - Whether conduct of defendants was a breach of statutory duties
Corporations - Rectification of share register - Whether plaintiff or third defendant was a shareholder of company - Turns on own facts
Legislation:
Nil
Result:
Plaintiff's claim for oppression dismissed
First defendant's counter-claim for rectification of the share register dismissed
Declaration sought by first defendant to be made
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr M Robson |
| First Defendant | : | Mr P Mendelow |
| Third Defendant | : | No appearance |
Solicitors:
| Plaintiff | : | Robson Legal |
| First Defendant | : | Arns & Associates |
| Third Defendant | : | In person |
Cases referred to in decision:
Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119; (2008) 66 ACSR 594
Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; (2005) 226 CLR 507
Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd [No 3] (2015) 109 ACSR 369
Australian Securities and Investments Commission v Drake (No 2) [2016] FCA 1552; (2016) 340 ALR 75
Australian Securities and Investments Commission v Flugge and Geary [2016] VSC 779; (2016) 342 ALR 1
Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345
Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373
Australian Securities and Investments Commission v Rich [2009] NSWSC 1229
AVWest Aircraft Pty Ltd as trustee for AVWest Aircraft Trust v Clayton Utz (a firm) (No 2) [2019] WASC 306
Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1
Bernard Elsey Pty Ltd v Federal Commissioner of Taxation [1969] HCA 46; (1969) 121 CLR 119
Bluebottle UK Limited v Deputy Commissioner of Taxation [2007] HCA 54; (2007) 232 CLR 598
Browning v ACN 149 351 413 Pty Ltd (in liq) (formerly known as Enviren Constructions Pty Ltd) [2016] QCA 169
Chase Corporation (Australia) Pty Ltd v North Sydney Brick and Tile Co Ltd (1994) 35 NSWLR 1
Chew v The Queen (1991) 4 WAR 21; 5 ACSR 473
Chew v The Queen [1992] HCA 18; (1992) 173 CLR 626
Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226
Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26; (2016) 260 CLR 1
Dillon and McMahon [2016] FCWAM 151
Doyle v Australian Securities and Investments Commission [2005] HCA 78; (2005) 227 CLR 18
Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd [1999] HCA 15; (1999) 161 ALR 599
Exton v Extons Pty Ltd [2017] VSC 14; (2017) 53 VR 520
Fazio v Fazio [2012] WASCA 72
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672
Flack v Chairperson, National Crime Authority (1997) 80 FCR 137
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603
George 218 Pty Ltd v Bank of Queensland Ltd (No 2) [2016] WASCA 182; (2016) 313 FLR 287
Grant v John Grant and Sons Pty Ltd [1950] HCA 54; (1950) 82 CLR 1
Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307; (2016) 339 ALR 659
Hillam v Ample Source International Ltd (No 2) [2012] FCAFC 73; (2012) 202 FCR 336
Hughes v St Barbara Mines Ltd (No 4) [2010] WASC 160
Hylepin v Doshay Pty Ltd [2021] FCAFC 201; (2021) 288 FCR 104
In the matter of Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547
John J Starr (Real Estate) Pty Ltd v Robert R Andrew Australasia Pty Ltd (1991) 6 ACSR 63
Joint v Stephens [2008] VSCA 210
Jones v Dunkel (1959) 101 CLR 298
Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361
Lake Cumbeline Pty Ltd v Effem Foods Pty Ltd (trading as Uncle Ben's of Australia) (Unreported, FCA, 29 June 1995
LPD Holdings (Aust) Pty Ltd v Phillips [2013] QSC 225; (2013) 281 FLR 227
Macleod v The Queen [2003] HCA 24; (2003) 214 CLR 230
Maddocks v DJE Constructions Pty Ltd [1982] HCA 17; (1982) 148 CLR 104
Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692
Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 247 FLR 140
Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255
Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; 14 ACSR 109
Q (a pseudonym) v E Co (a pseudonym) [2020] NSWCA 220
R v Byrnes [1995] HCA 1; (1995) 183 CLR 501
R v Towey (1996) 132 FLR 434; 21 ACSR 46
Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233
Re JGS Investment Holdings Pty Ltd [2014] NSWSC 1532
Re Ledir Enterprises Pty Ltd [2013] NSWSC 1332; (2013) 96 ACSR 1
Re London School of Electronics Ltd [1986] Ch 211, 222; [1985] 3 WLR 474
RPS v The Queen [2000] HCA 3; (2000) 199 CLR 620
Russell v Lee Holdings Pty Ltd [No 3] [2020] WASC 346
Sidhu v Van Dyke [2014] HCA 19; (2014) 251 CLR 505
Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17; (2011) 278 ALR 291
Taxa Australia Pty Ltd v Wang [2016] NSWSC 1913
The Nominal Defendant v Cordin [2017] NSWCA 6
Thomas v HW Thomas Ltd [1984] 1 NZLR 686
Vanguard Financial Planners Pty Ltd v Ale [2018] NSWSC 314; (2018) 354 ALR 711
Walton Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387
Watson v Foxman (1995) 49 NSWLR 315
Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1
Wilson v Arwon Finance Pty Ltd [2020] WASCA 137
HILL J:
These proceedings concern a claim by the plaintiff, Barjeba Pty Ltd (Barjeba), of oppression in relation to the affairs of Timefocus Pty Ltd (Timefocus). Since about April 2016, the sole director and beneficial shareholder of Barjeba has been Paul McMahon. Prior to this, Paul's father, Mr John McMahon (the third defendant) was the sole director and beneficial shareholder of Barjeba.
Barjeba says that it, and not John McMahon, is a 50% shareholder in Timefocus and contends the actions of Timefocus and its directors, Mrs Kim Bogg and John McMahon, in denying it is a shareholder and paying dividends to John McMahon rather than to Barjeba between 2010 and 2016, have been oppressive to its interests. Barjeba seeks an order that Mrs Bogg and/or John McMahon purchase its shares in Timefocus at a price to be determined taking account of such acts of oppression as are found by the court.
Mrs Bogg denies each of the claims made by Barjeba. She says that at all relevant times, the shareholders of Timefocus were her and John McMahon and that dividends were paid to each of them in equal amounts. Mrs Bogg denies there has been any conduct of Timefocus which is 'unfair' to Barjeba and says that any conduct which occurred was consented to or acquiesced by John McMahon, who at the relevant times was the sole director and beneficial shareholder of Barjeba.
John McMahon, although clearly the central figure in the events that occurred, did not file a defence in these proceedings, take any active part in the proceedings, or appear at trial. No explanation was proffered on his behalf for this.
For the reasons that follow, it is my view that:
(a)there are three issued shares in Timefocus;
(b)the shareholders of Timefocus are Barjeba and Mrs Bogg;
(c)the conduct of Timefocus and its directors in failing to recognise Barjeba as shareholder and paying dividends to John McMahon and not to Barjeba was not oppressive within the meaning of s 232 of the Corporations Act 2001 (Cth); and
(d)Barjeba is precluded and estopped from denying it acquiesced to John McMahon receiving dividends paid by Timefocus between 30 June 2009 and 1 July 2015.
Background Facts
Many of the facts are not in dispute between the parties. Instead, it is the legal consequences of these matters that are in contest.
Timefocus was incorporated on 24 July 1998. On or about 1 September 1998, John McMahon was appointed as a director, secretary and public officer of Timefocus. On the same date, Blair Stevens and Angela Grace were also appointed as directors. The existing share in Timefocus was transferred to Ms Grace and two shares were issued; one to Tradelink Services Pty Ltd (a company associated with Blair Stevens) and the other to Barjeba (a company then associated with John McMahon). Notwithstanding this, the 1998 annual return lodged on behalf of Timefocus recorded the shareholders as Angela Grace, Blair Stephens and John McMahon.
Prior to 2001, Mrs Bogg and John McMahon worked together at Carrier Air Conditioning. When Carrier Air Conditioning decided it would no longer have a retail presence in Western Australia, John McMahon approached Mrs Bogg to ask whether she would go into business with him, to which she agreed.
From May 2001 until June 2017, Mrs Bogg and John McMahon operated a business which supplied air conditioning products and services in Perth. The business operated through Timefocus and traded as Complete Air Systems.
In May 2001, Angela Grace transferred her share in Timefocus to Mrs Bogg and Tradelink Services Pty Ltd transferred its share to Barjeba and Mrs Bogg jointly. On 2 May 2001, Mrs Bogg was appointed a director of Timefocus, and Ms Grace and Mr Stevens resigned as directors.
When Mrs Bogg lodged the 2002 annual return for Timefocus on 12 November 2002, she recorded that Timefocus had two shares on issue, one in her personal name and one in the name of John McMahon, and two directors, herself and John McMahon. From that date until November 2016 (when John McMahon resigned as a director), this is what was reflected in the records of the Australian Securities and Investments Commission (ASIC) in relation to Timefocus.
Between 2008 and 2016, Timefocus entered into a series of Div 7A loan agreements with John McMahon. The funds advanced to John McMahon by Timefocus between 2010 and 2016 total $1,760,000. Between 30 June 2009 and 1 July 2015, Timefocus declared dividends in excess of $1.4 million. 50% of the dividends were deducted from the outstanding balance of John McMahon's loan account. None of the books and records of Timefocus record any dividends as being due and payable to Barjeba.
In about 2015, John McMahon and his de facto wife, Sandra Dillon, split up. Proceedings were commenced in the Family Court by Ms Dillon and orders were made by the court after trial in July 2017. As part of the enforcement of these orders, Timefocus was joined as a party to those proceedings and a number of assets of Timefocus sold. Ultimately, on 22 November 2016, John McMahon resigned as a director of Timefocus.
In March 2016, Paul McMahon replaced his father as a director of Barjeba. Subsequently, the shares in Barjeba were transferred from the beneficial ownership of John McMahon into the name of Paul McMahon and a company associated with him.
Following his appointment as a director of Barjeba, Paul McMahon made enquiries about Barjeba's assets. He formed the belief that Barjeba was or had been a shareholder of Timefocus and investigated the reason Barjeba was not shown as a shareholder in ASIC's records. When Timefocus' accountant confirmed there was no document or record that the share had been transferred from Barjeba to John McMahon, Paul McMahon requested that ASIC's records be corrected. This did not and has not occurred.
Delay in judgment
The hearing of this matter took place in February 2022. It has not been possible to complete the reasons for my decision as quickly as I would have liked.
To ensure my ability to properly assess the parties' cases and the evidence that was given at trial has not been impaired by the delay between the hearing and the publication of these reasons, I have taken the following steps.
First, the primary issues for determination turned on the consideration of the documents that were tendered at trial and not the oral evidence given at trial.
Second, I had the benefit of oral closing submissions from counsel for Barjeba and from Mrs Bogg, as well as written submissions from Mrs Bogg. Counsel for Barjeba made submissions on the evidence given by the witnesses, including as to the findings it contends should be made in respect of them which I have taken into account.
Third, during the course of the trial, I made contemporaneous notes to assist in my assessment of the credibility of the witnesses that were called at trial. I have also re-listened to portions of the evidence given by the witnesses.
Pleadings
During the course of the trial, leave was granted to both the plaintiff and first defendant to amend their pleadings. This summary of the pleadings refers to the pleadings in their final form. The final pleadings are the fourth further amended statement of claim filed 7 February 2022 (statement of claim),[1] the further amended fourth amended defence and counterclaim filed 14 February 2022 (defence and counterclaim)[2] and the second further amended reply and further amended defence to counterclaim filed 25 February 2022 (reply and defence to counterclaim).[3]
Statement of claim
[1] Pursuant to leave granted on 10 February 2022.
[2] Pursuant to leave granted on 11 February 2022.
[3] Pursuant to orders of 11 February 2022.
The statement of claim raises two separate matters which are said to be breaches of duties owed by each of Mrs Bogg and John McMahon to Timefocus as well as oppression. These concern who the shareholders of Timefocus are and allegations around the payment of dividends.
In relation to the shareholders, Barjeba pleads that the registered shareholders of Timefocus are:
(a)Mrs Bogg as to one share (from 2 May 2001);[4]
(b)Mrs Bogg and Barjeba as to one share (from 29 May 2001);[5] and
(c)Barjeba as to one share (from 1 September 1998).[6]
[4] Statement of claim [2.1].
[5] Statement of claim [3].
[6] Statement of claim [10].
Barjeba pleads that Mrs Bogg and John McMahon had actual knowledge that a share in Timefocus was owned jointly by Barjeba and Mrs Bogg. This is said to arise from the contents of the register of members, a directors' meeting held on 29 May 2001, the signing of the relevant transfer form, and the issue of a share certificate signed by John McMahon.[7]
[7] Statement of claim [19] and particulars.
On 28 January 1999, the then accountants of Timefocus lodged the annual return of Timefocus which recorded John McMahon (rather than Barjeba) as the shareholder in Timefocus,[8] which was an error[9] and contrary to the information in the share register of Timefocus.[10] After this date but before 19 March 1999, this error was identified,[11] and sought to be corrected by the accountants by lodging a form 902 with ASIC on 19 March 1999,[12] which was not processed.[13] The lodging of the annual returns with inaccurate information is pleaded to constitute conduct of Timefocus contrary to s 1091(1) of the Corporations Law.[14]
[8] Statement of claim [11].
[9] Statement of claim [12].
[10] Statement of claim [13].
[11] Statement of claim [15].
[12] Statement of claim [16].
[13] Statement of claim [17].
[14] Statement of claim [26].
Barjeba says it has never transferred its interest in either of its shares in Timefocus to John McMahon, nor entered into a stock lending arrangement. Nor has there been any declaration of trust.[15] Barjeba says that Mrs Bogg and John McMahon should have known that the information as to the shareholders of Timefocus in the annual returns submitted to ASIC from 1999 to 2017 was incorrect,[16] that its agent ought to have known the form 902 had not been processed and that ASIC's records were incorrect.[17]
[15] Statement of claim [20] - [24].
[16] Statement of claim [30].
[17] Statement of claim [31].
Barjeba says it provided notice of the error in the ASIC records to Mrs Bogg and Timefocus on about 16 June 2017,[18] but that Mrs Bogg has failed, refused or neglected to correct the register.[19] This is pleaded to be a breach of director's duties by Mrs Bogg (s 180(1) of the Act)[20] and John McMahon.[21] It is also contended that Mrs Bogg improperly used her position to gain an advantage for John McMahon (s 182(1) of the Act),[22] and a similar allegation is pleaded against John McMahon (s 182(1) of the Act).[23]
[18] Statement of claim [44].
[19] Statement of claim [45].
[20] Statement of claim [68].
[21] Statement of claim [81].
[22] Statement of claim [70].
[23] Statement of claim [83].
Between 2008 and 2015, John McMahon entered into div 7A loan agreements with Timefocus,[24] which required him to make minimum repayments as required by the Income Tax Assessment Act 1936 (Cth) (ITAA).[25]
[24] Statement of claim [32].
[25] Statement of claim [33].
Between the financial years ending 30 June 2011 to 30 June 2016, the directors of Timefocus declared dividends totalling $1,400,500.[26] Barjeba says that it and Mrs Bogg were each entitled to 50% of these dividends,[27] but that instead journal entries were made reducing John McMahon's div 7A loans with Timefocus to the value of Barjeba's dividends.[28]
[26] Statement of claim [34].
[27] Statement of claim [35].
[28] Statement of claim [38].
Barjeba says that:
(a)John McMahon has not compensated Barjeba for the value of the benefit he received;[29]
(b)at the time the journal entries were made, each of Mrs Bogg and John McMahon knew, had constructive knowledge, or ought to have known that John McMahon was not a shareholder and should not have received the dividends;[30]
(c)Mrs Bogg and John McMahon have failed, refused or neglected to pay Barjeba its share of the dividends,[31] or to record this in Timefocus' balance sheet, contrary to s 286(1) of the Act;[32]
(d)pursuant to s 254V of the Act, a debt payable by Timefocus arose on the date each of these dividends were declared.[33]
[29] Statement of claim [39].
[30] Statement of claim [40].
[31] Statement of claim [41].
[32] Statement of claim [43].
[33] Statement of claim [42].
The payment of dividends to John McMahon rather than Barjeba is pleaded to be a breach of director's duties owed by John McMahon to Timefocus,[34] and by Mrs Bogg by improperly using her position to gain an advantage for John McMahon (s 182(1) of the Act). There is alternative plea against Mrs Bogg that she was involved in the contravention of directors' duties by John McMahon (s 182(2) of the Act).[35]
[34] Statement of claim [84].
[35] Statement of claim [71].
Barjeba says that it suffered loss from Mrs Bogg's breaches of duty,[36] alternatively from the breaches of duty of both Mrs Bogg and John McMahon,[37] in not receiving dividends of $700,250. No specific relief is sought in relation to this claim.
[36] Statement of claim [87].
[37] Statement of claim [88].
The cumulative effect of these matters is said to be contrary to the interests of the members of Timefocus as a whole (s 232(d) of the Act), alternatively oppressive to, unfairly prejudicial to, or unfairly discriminatory against Barjeba (s 232(e) of the Act).[38] Barjeba seeks orders for Mrs Bogg or John McMahon to purchase Barjeba's shares at a value to be determined taking account of any conduct which is found by the court.
Defence and counterclaim
[38] Statement of claim [86].
Mrs Bogg denies Barjeba has any claim against her. In respect of the specific allegations raised against her, she says that since July 2002, the ASIC records have correctly disclosed that the two shareholders of Timefocus are her and John McMahon, and they each own one issued share. Mrs Bogg says the share register is incorrect in recording that she owns a share jointly with Barjeba,[39] and in not recording the transfer of the share from Barjeba to John McMahon.[40] Mrs Bogg says the register of members, which records Barjeba as owning one share in its own right and jointly owning one share with her, is incorrect.[41]
[39] Defence [2(a)].
[40] Defence [8].
[41] Defence [21].
Mrs Bogg says that at the time Paul McMahon was appointed a director of Barjeba and acquired the shares in Barjeba, he had full knowledge of the matters in [36]. This knowledge is said to arise from the assistance provided by Paul McMahon to his father, including in the management of John McMahon's Family Court proceedings.[42] On this basis, Mrs Bogg says that Barjeba is estopped, by conduct and representation, from denying Mrs Bogg and John McMahon are the sole shareholders in Timefocus.[43]
[42] Defence [38].
[43] Defence [39].
In relation to the allegations concerning the payment of dividends, Mrs Bogg admits that John McMahon had div 7A loan accounts with Timefocus, that dividends were declared by Timefocus, and that 50% of these dividends were deducted from John McMahon's loan account.[44] Mrs Bogg says that even if Barjeba was a shareholder of Timefocus, it was lawful for Timefocus to make loans to John McMahon, as an associate of Barjeba, that John McMahon as a director and shareholder of Barjeba directed the dividends be applied in reduction of his loan account, and that this was lawful by reason of s 109C(1) and s 318 of the ITAA.[45]
[44] Defence [24].
[45] Defence [67A].
Mrs Bogg says Barjeba had no entitlement to any dividends as it was not a shareholder of Timefocus, and that at all times, she has acted reasonably and in reliance on the belief and understanding that John McMahon held one share in Timefocus.[46] In the alternative, Mrs Bogg says that since at least May 2001, Timefocus has conducted its affairs on the basis that John McMahon was the legal and beneficial owner of one of two issued shares in Timefocus, Barjeba knew this (through the knowledge of John McMahon who was the sole director and a 50% shareholder of Barjeba until 8 April 2016),[47] John McMahon represented he was the shareholder in Timefocus not Barjeba,[48] and that Mrs Bogg acted in reliance of the representations of John McMahon to her detriment.[49]
[46] Defence [29].
[47] Defence [32], [34] - [37].
[48] Defence [32(f)(iv), (vi)].
[49] Defence [32(f)(v)], [33].
These allegations are expanded at [40] - [45A] of the defence. These paragraphs rely on oral statements of John McMahon that he owned one of two shares in Timefocus, John McMahon's signatures, in his capacity as chair of directors of Timefocus, on the minutes of meeting which declared the dividends, and John McMahon's instructions to the accountants of Timefocus. On these bases, Mrs Bogg says that she adopted the assumption that she and John McMahon were entitled to receive dividends and that neither John McMahon nor any entity associated with him would dispute this,[50] Barjeba (through its director John McMahon) adopted this assumption,[51] all parties knew or intended they would act on the basis of this assumption,[52] and conducted their relationship on the basis of this assumption.[53] Mrs Bogg says that any departure from this assumption would cause her detriment,[54] and that Barjeba is precluded and estopped from departing from this assumption.[55]
[50] Defence [41].
[51] Defence [42].
[52] Defence [44].
[53] Defence [43].
[54] Defence [45].
[55] Defence [45A].
In addition to these pleas, Mrs Bogg pleads that Barjeba, through its director John McMahon, authorised John McMahon to receive the dividends rather than it.[56] She also contends that Barjeba is guilty of 'prolonged, inordinate and inexecusable delay' in bringing this action and seeking relief,[57] and has waived any entitlement to claim relief.[58]
[56] Defence [45B].
[57] Defence [46].
[58] Defence [47].
In relation to the allegations based on alleged breaches of the Act (including s 79 and s 232), Mrs Bogg says these claims are statute barred.[59] In response to the directors' duties claims, Mrs Bogg says these duties were owed to Timefocus not Barjeba and any loss can only be claimed by Timefocus.[60] Mrs Bogg denies that any of the alleged conduct is oppressive conduct in contravention of s 232 of the Act.
[59] Defence [48], [49].
[60] Defence [68].
In her counterclaim, Mrs Bogg seeks an order for rectification of the register of Timefocus to reflect who she says are the correct shareholders. In the event the court finds Barjeba is a shareholder, Mrs Bogg seeks a declaration that Barjeba is estopped from disputing John McMahon was entitled to receive the dividends.
Reply and defence to counterclaim
In its reply and defence to counterclaim, Barjeba says that any assumptions made by Mrs Bogg are contrary to her actual or constructive knowledge and the actual intention of her and Barjeba to own one share jointly,[61] and that an estoppel cannot operate contrary to a statutory provision.[62] Barjeba denies Mrs Bogg relied on any alleged representation by John McMahon,[63] and says that even if she did, this was not reasonable.[64] If Mrs Bogg suffered any detriment, Barjeba says that this was as a result of her own conduct.[65]
[61] Reply [1].
[62] Reply [2].
[63] Reply [6].
[64] Reply [7].
[65] Reply [11]
Barjeba denies an estoppel can operate against it when it obtained no benefit from the conduct,[66] it did not make any representations, and any representations by John McMahon were contrary to Barjeba's legal rights and without its informed consent, and were made in breach of the third defendant's statutory or fiduciary duties owed to Barjeba.[67]
[66] Reply [13].
[67] Reply [14].
In relation to the payment of dividends, Barjeba says that there was no assignment of the dividends from Barjeba to John McMahon, any assignment needed to be in writing in compliance with s 20 of the Property Law Act 1969 (WA), John McMahon was not authorised by Barjeba to direct that the dividends be paid to him or paid to reduce his loan account, Barjeba did not consent or agree to the payment of its dividends to John McMahon, and that the definition of associate in the ITAA did not create any right for John McMahon to receive the dividends from Timefocus.[68]
[68] Reply [14A].
Barjeba says Paul McMahon only became aware of the issues in 2017,[69] and denies any party has been impacted by any delay in commencing proceedings,[70] or that the claim is statute barred as the Limitation Act 1935 (WA) does not apply to proceedings in this Court when it is exercising federal jurisdiction.[71] Barjeba says that if any cause of action arose more than six years prior to these proceedings being commenced, it was because the right of action was concealed by the fraud of John McMahon.[72]
[69] Reply [15].
[70] Reply [18].
[71] Reply [19].
[72] Reply [20].
In response to the counterclaim, Barjeba denies the share register should be rectified and says Mrs Bogg is not entitled to any relief.[73]
[73] Defence to Counterclaim [1] - [2].
Issues for determination
The issues in this case arise from the discrepancy between the share register of Timefocus and the records of ASIC, and the subsequent payment of dividends to John McMahon and not Barjeba.
From the pleadings, the issues I am required to determine in this action are:
(a)Who are the shareholders of Timefocus?
(b)Who was entitled to the dividend payments? If Barjeba, did it consent or acquiesce to the dividends being paid to John McMahon?
(c)Did Mrs Bogg and John McMahon breach their directors' duties to Timefocus by failing to maintain accurate records with ASIC and in making dividend payments to reduce the loan balance of John McMahon from Timefocus? Is this an allegation that Barjeba is able to make?
(d)Did Barjeba (by its director John McMahon) have knowledge of certain representations Mrs Bogg says were made to her and is Barjeba bound by that conduct?
(e)Is the cumulative effect of any conduct found to have occurred oppressive to the interests of the shareholders of Timefocus as a whole or Barjeba?
(f)What, if any, are the consequences of any delay by Barjeba in taking action in relation to this conduct?
Approach to the evidence
Onus and general comments
Barjeba accepts it bears the onus of proving the claims it brings. It is required to prove its claim on the balance of probabilities.
In this case, the evidence at trial concerned events that had occurred over the past 20 years, many years before this trial took place. In considering the evidence in this case, I have applied the following principles.
Human memory of what was said in a conversation is fallible for a variety of reasons. Ordinarily, this increases over time, particularly where disputes or litigation intervene. This is because the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed.[74]
[74] Watson v Foxman (1995) 49 NSWLR 315, 318 - 319 (McLelland CJ in Eq).
False memories can intrude in a witness' evidence, especially when the person recalling events has tried to assemble recollections logically. In doing so, the person can attempt to have some rational explanation in the person's mind as to what has happened. It is important to keep in mind that memories are both fluid and malleable and are constantly rewritten whenever they are retrieved.[75]
[75] The Nominal Defendant v Cordin [2017] NSWCA 6 [167] (Davies J, Emmett AJA agreeing).
The credibility of a witness and their veracity may be tested by reference to the objective facts which can be proved independently, particularly by reference to documents. Often, in cases which involve events which occurred long before the litigation, the only safe course is to place primary emphasis on the objective factual surrounding material, the inherent commercial probabilities and the contemporaneous documents. This is because the contemporaneous statements and documents are likely to be a more accurate reflection of events than later statements. Documents will often provide more valuable information than the attempted recollection of the facts by witnesses with an interest in the outcome of the litigation. This is particularly the case when the documents are accepted as genuine and were prepared by a person who had no reason to misstate the facts in these documents.[76]
[76] In the matter of Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547 [7] (Black J); Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd [1999] HCA 15; (1999) 161 ALR 599 [15]; Hughes v St Barbara Mines Ltd(No 4) [2010] WASC 160 [157] (Martin J).
Finally, the court must be alive to the reality that words are capable of bearing different and potentially opposed meanings depending on the nuance and emphasis that is given to particular words. A person's appreciation of the significance of these matters must necessarily be considerably diminished if there is a significant delay between the date when the conversation took place and the hearing at which the evidence of that conversation is given.[77]
The witnesses
[77] Lake Cumbeline Pty Ltd v Effem Foods Pty Ltd (trading as Uncle Ben's of Australia) (Unreported, FCA, 29 June 1995, 122 - 123 (Tamberlin J).
Barjeba called one witness at trial, Paul McMahon. Mrs Bogg gave evidence at trial and called one additional witness, Mr Anthony Cassettai, an accountant.
Paul McMahon
Paul McMahon is a project manager and, at the time of trial, was employed as a site manager with John Holland on the Westgate Tunnel project in Victoria. Mr McMahon gave his evidence remotely. He had originally intended to attend Perth to give his evidence in person but due to continued closure of the Western Australian border to the remainder of Australia as a result of the COVID-19 pandemic, this was not possible.
Paul McMahon is one of two children of the third defendant, John McMahon, the other being his sister, Rebecca McQueen. Since about 2015, Paul McMahon has assisted his father in relation to a number of matters. This has included providing his father with accommodation, initially in Perth and then in Gisborne (where they both currently live), as well as financial assistance in relation to the Family Court proceedings (which are addressed in more detail below) and in various applications concerning John McMahon's application for the pension. At present, John McMahon is not living with Paul McMahon but they see each other regularly.[78]
[78] ts 198 - 199.
Neither counsel made any submissions as to the credibility or reliability of Paul McMahon. I infer that this is because Paul McMahon did not have any first hand knowledge of the events that are central to the resolution of these proceedings. His direct involvement in the events commenced only shortly prior to Complete Air Systems ceased to trade. To the extent that it is relevant, I set out below my observations and findings in respect of the evidence Paul McMahon.
The impression I formed of Paul McMahon was that he listened carefully to the questions asked of him and gave answers that were generally responsive. That said, during his cross-examination, when asked questions about the level of assistance he has provided his father - both in relation to the Family Court proceedings (brought by Ms Dillon against John McMahon) and since then - Paul McMahon became defensive and somewhat argumentative. On occasions, his evidence contradicted his earlier evidence.
By way of example, Paul McMahon was asked a number of questions about a unit that was previously owned by John McMahon in North Beach. Paul McMahon accepted he attempted to negotiate a payment to Ms Dillon to prevent the sale of this unit and subsequently contended in the Family Court proceedings that he had a written lease with his father in respect of this unit. He accepted he filed an affidavit in the Family Court proceedings in which he deposed he had a written lease with John McMahon, that this lease should prevent the sale of the property, and produced a written lease to the Family Court. Paul McMahon also accepted that in cross-examination in those proceedings it was put to him that this document could not have been executed in 2015 because the standard form that had been used only came into existence after the date of the purported lease and agreed a finding was made by the family court that the document was entered into with the intention of defeating the existing orders of the court.[79] Paul McMahon initially accepted he did not have a written lease with his father and that he had moved into this unit assist his father,[80] before asserting there was a second written lease agreement that had not been provided to the court by his legal representatives.[81] Apart from noting the contradiction in this evidence, I do not make any factual findings in relation to this evidence as it is not relevant to the issues in these proceedings, but only his credit.
[79] ts 202.
[80] ts 201.
[81] ts 202 - 203.
Another example was in relation to his evidence about the status of his relationship with John McMahon. In answer to a question as to whether he was on good terms with his father, Paul McMahon's evidence was that it was a 'fractured family unit', although he accepted he continues to assist his father with his personal affairs and controls one of his bank accounts.[82] He also accepted he assisted his father in relation to the review of a decision to deny him (John McMahon) the pension, including by making submissions and presenting evidence to the Administrative Appeals Tribunal (AAT), although he maintained this was for his benefit, so that he was not required to financially support his father.[83] Notwithstanding this evidence, he denied he was aware of his father's financial position or whether his father could meet a costs order or any other order in these proceedings.[84] This evidence is inconsistent with statements made by him to ASIC that the failure to correct ASIC's records was denying John McMahon the pension and, as a result, John McMahon was financially dependent on him.[85] Paul McMahon's explanation as to this apparent contradiction was that this is because John McMahon now receives the pension, which gives him access to the services and care that he requires.[86]
[82] ts 235.
[83] ts 239.
[84] ts 238.
[85] Ex 1, Vol 2, Tab 30 (Other documents), TB1057.
[86] ts 242 - 243.
Paul McMahon also denied that he intended to look to Mrs Bogg to recover the full amount of any amount awarded in these proceedings and contended this was a matter for the court. He also denied he was pursuing this claim to recover dividends from Mrs Bogg to support his father. His evidence was that:[87]
I think it's disgusting that a business partner of that many years does not care that her business partner has no ability to provide for himself. And a correction of the register would have enabled the pension, but she couldn't care less.
[87] ts 244.
To the extent that it is relevant, I do not accept this evidence. It is apparent from all of the evidence before the court that John McMahon is impecunious and that Paul McMahon is well aware this is the case. In relation to his statements about Mrs Bogg, I set out my findings in relation to the register and the events that have occurred below. It is sufficient at this stage to record that I do not accept any suggestion that Mrs Bogg has refused to correct the register because she does not care about John McMahon.
It was clear from Paul McMahon's evidence and some of the exhibits tendered at trial (most notably his communications with ASIC and the AAT) that he is frustrated at what he considers to be an unexplicable failure by Mrs Bogg, the accountants, and ASIC to rectify the ASIC records to reflect what he says is the correct position - namely that Barjeba is a shareholder of Timefocus and not John McMahon. In my view, this frustration coloured Paul McMahon's evidence. While I consider Paul McMahon believed he was truthful in the evidence he gave, I consider his evidence has been impacted by his motivation to assist his father and to secure him the aged pension, and his strong views as to who is responsible for what has occurred, which he appears to lay at the feet of Mrs Bogg and not John McMahon.
Ultimately, however, as set out above, much of Paul McMahon's evidence is only of marginal relevance. He was not involved in any of the discussions between Mrs Bogg and John McMahon, nor in any of the decisions that were made. His involvement only commenced when he assisted his father in the Family Court proceedings and after he gained control of Barjeba.
To the extent that Paul McMahon's evidence is relevant, given the matters I have set out above, in assessing the reliability of his evidence, I have considered whether it is supported by any contemporaneous documents or objective evidence.
Kim Bogg
At the time of the trial, Mrs Bogg was 64 years old. She described her occupation as retired and as a carer for her husband.[88]
[88] ts 249.
Mrs Bogg left school shortly before her fifteenth birthday. Since then, Mrs Bogg has worked in a variety of roles across a variety of industries both in Australia and overseas. From about 1992, Mrs Bogg worked as the receptionist at Carrier Air Conditioning before being promoted to a role in head office. In late 1992 or 1993, Mrs Bogg met John McMahon who worked as a sales consultant for Carrier Air Conditioning. In 2001, she and John McMahon established Complete Air Systems where she worked until her retirement in about 2017.
Counsel for Barjeba submitted that Mrs Bogg had a selective memory and that the court should scrutinise her evidence carefully. While I do not accept that Mrs Bogg had a selective memory, I accept there was a distinct contrast in the manner in which Mrs Bogg gave her evidence in chief to her evidence in cross-examination. In evidence in chief, Mrs Bogg appeared to have a good recollection of events and answered the questions asked of her succinctly. However, in cross-examination, Mrs Bogg was often vague, even on matters which were not centrally relevant to the issues in dispute.
The most notable example of this was at the commencement of her cross-examination when Mrs Bogg was asked a number of questions as to the details of when her share in Timefocus was transferred to G & K Bogg Investments. Mrs Bogg was unclear as to whether this entity was a company, when the transfer occurred, whether the registers of Timefocus had been updated, and whether ASIC had been informed of the share transfer.[89] In contrast, Mrs Bogg contended she had a clear recollection of her conversations with John McMahon which led to the establishment of Complete Air Systems, which happened almost 20 years prior to the trial.
[89] ts 288 - 289.
Counsel for Barjeba contended another example was Mrs Bogg's denial she had ever sent Ms McQueen a text message.[90] On being shown a text message she sent Ms McQueen on 18 May 2017, Mrs Bogg accepted she had sent Ms McQueen this message, although she did not recall sending it.[91] While I accept that Mrs Bogg sent this text message, given the text message was sent while Mrs Bogg was recovering from an aneurism, I accept that Mrs Bogg may not recall having received or sent this message.
[90] ts 293.
[91] ts 294; Ex 3.
It was clear from Mrs Bogg's evidence that she is both hurt and puzzled by Paul McMahon's pursuit of this claim and why she has been caught up in this action. It is clear Mrs Bogg believes she supported John McMahon over many years, including during the Family Court proceedings, and that the orders made in the Family Court proceedings had a significant financial impact on Complete Air Systems, and as a consequence her share of this business. She feels these matters have not been recognised by the McMahons. I consider that these views have coloured her evidence. While I accept Mrs Bogg believed she was truthful in the evidence she gave, I consider her evidence has been impacted by time, as well as her views about the unfairness of these proceedings. That said, I make no adverse credit finding against her.
In assessing the reliability of Mrs Bogg's evidence, I have considered whether her evidence is supported by any contemporaneous documents or objective evidence. I set out my specific findings in relation to these matters below.
Anthony Cassettai
Mr Cassettai is a chartered accountant, having obtained a Bachelor of Commerce degree from the University of Western Australia. He became a chartered accountant in 1996 and, at the time of the trial, was a director at Maxim Private Advisory (Maxims). Mr Cassettai joined Maxims in July 2012.
From about 2012, he has been the accountant for Mrs Bogg and her husband, as well as Timefocus. Until approximately March 2017, Mr Cassettai was also the accountant for John McMahon and Barjeba.
Mr Cassettai gave evidence of his involvement in the preparation of the financial statements and accounts of Timefocus. In my view, Mr Cassettai was an honest witness and I accept his evidence in its entirety.
Consequences of third defendant not participating in trial
John McMahon, who was the central figure in the events the subject of these proceedings, did not give evidence at trial nor participate in these proceedings at all. Much was made by counsel for Mrs Bogg in closing submissions of the consequences of this. I accept that copies of the witness outlines of Mrs Bogg and Mr Cassettai were served on Ms McQueen, John McMahon's daughter, and that John McMahon was aware of the evidence that was to be given in relation to these events.[92] Given his response to the notice to admit facts, which was also served on Ms McQueen, I am satisfied that these documents were brought to the attention of John McMahon. No explanation was provided as to why John McMahon did not participate in the proceedings or give evidence.
[92] Ex 5.
Where there is an unexplained failure of a party to give evidence, the rule in Jones v Dunkel[93] applies. The scope and operation of the principle in Jones v Dunkel was explained by Heydon, Crennan and Bell JJ in Kuhl v Zurich Financial Services Australia Ltd in the following terms:[94]
The rule in Jones v Dunkel is that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party's case. That is particularly so where it is the party which is the uncalled witness. The failure to call a witness may also permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn.
[93] Jones v Dunkel (1959) 101 CLR 298.
[94] Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361 [63].
In Australian Securities and Investments Commission v Hellicar, the High Court summarised the application of this principle in the following terms:[95]
Disputed questions of fact must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly have been led. Principles governing the onus and standard of proof must faithfully be applied. And there are cases where demonstration that other evidence could have been, but was not, called may properly be taken to account in determining whether a party has proved its case to the requisite standard. But both the circumstances in which that may be done and the way in which the absence of evidence may be taken to account are confined by known and accepted principles which do not permit the course taken by the Court of Appeal of discounting the cogency of the evidence tendered by ASIC.
Lord Mansfield's dictum in Blatch v Archer that "[i]t is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted" is not to be understood as countenancing any departure from any of these rules. Indeed, in Blatch v Archer itself, Lord Mansfield concluded that the maxim was not engaged for "it would have been very improper to have called" the person whose account of events was not available to the court.
This court's decision in Jones v Dunkel is a particular and vivid example of the principles that govern how the demonstration that other evidence could have been called, but was not, may be used. The essential facts of the case, though well known, should be restated. The personal representative of a driver who had died in a collision with another vehicle brought an action for damages on her own behalf and on behalf of the deceased driver's dependants. The plaintiff's case depended upon demonstration that the other driver's negligence was a cause of the accident. The plaintiff sought to demonstrate negligence by having the tribunal of fact (in that case a jury) infer from facts concerning the road and the two vehicles involved that the collision had occurred when the defendant's vehicle was on the wrong side of the road. One of the defendants, the surviving driver, did not give evidence at the trial. The court divided about whether the inference which the plaintiff sought to have the jury draw about where the collision occurred was an inference that was open on the evidence. But the court held "that any inference favourable to the plaintiff for which there was ground in the evidence might be more confidently drawn when a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness by the defendant and the evidence provides no sufficient explanation of his absence". (citations omitted)
[95] Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345 [165] - [167].
In Fazio v Fazio,[96] Murphy JA referred with approval to the observations of the majority of the High Court in RPS v The Queen:[97]
It is necessary to keep at the forefront of consideration that the mode of reasoning which is described proceeds from the premise that the person who has not given evidence not only could shed light on the subject but also would ordinarily be expected to do so.
...
In a civil trial there will very often be a reasonable expectation that a party would give or call relevant evidence. It will, therefore, be open in such a case to conclude that the failure of a party (or someone in that party's camp) to give evidence leads rationally to an inference that the evidence of that party or witness would not help the party's case and that:
'where an inference is open from facts proved by direct evidence and the question is whether it should be drawn, the circumstance that the defendant disputing it might have proved the contrary had he chosen to give evidence is properly to be taken into account as a circumstance in favour of drawing the inference'. (emphasis in original) (footnotes omitted)
[96] Fazio v Fazio [2012] WASCA 72 [135].
[97] RPS v The Queen [2000] HCA 3; (2000) 199 CLR 620 [25] - [26].
Murphy JA concluded:[98]
The authorities point to the need for the trier of fact to evaluate the whole of the evidence, drawing such inferences of fact as are appropriate from the direct evidence. In the evaluation of the evidence and its sufficiency, the judge should consider whether a party could and would ordinarily be expected to give or call certain evidence on an issue. The failure to call such evidence may (not must) allow the judge to infer that the omitted evidence would not have assisted that party's case on the issue, and to:
• take that matter into account in deciding whether and to what extent to accept other evidence on the issue;
• more confidently or readily draw inferences of fact adverse to that party which might otherwise be open on the issue.
[98] Fazio v Fazio [138].
It is important to set out the limits of the inferences that can be drawn. These were usefully summarised by Vaughan J in AVWest Aircraft Pty Ltd as trustee for AVWest Aircraft Trust v Clayton Utz (a firm) (No 2).[99] As his Honour noted, the rule in Jones v Dunkel:
(a)does not mean that an adverse inference should be drawn that the evidence that has not been called would be positively damaging to that party's case. As was stated by Menzies J in Jones v Dunkel, the absence of a witness cannot be used to make up any deficiency in the evidence;[100] and
(b)does not prevent a favourable inference being drawn in favour of John McMahon if other evidence justifies this inference.[101]
[99] AVWest Aircraft Pty Ltd as trustee for AVWest Aircraft Trust v Clayton Utz (a firm) (No 2) [2019] WASC 306 [145].
[100] Jones v Dunkel, 312.
[101] Flack v Chairperson, National Crime Authority (1997) 80 FCR 137, 148 - 149.
If matters of fact are otherwise established by the evidence, the failure to call a witness does not prevent a finding of fact being made.[102]
[102] Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 247 FLR 140 [634].
There are two consequences which may flow from the unexplained failure to call a witness. First, it may enable the court to draw an inference that the evidence of the witness would not assist the party's case. Second, the court may draw with greater confidence an inference which is unfavourable to that party.[103] However, that inference must be available on the evidence. The relevant witness must be one who may be able to 'cast light on the fact relied on as the ground for the inference'.[104]
[103] Morley v Australian Securities and Investments Commission [634].
[104] AVWest Aircraft Pty Ltd as trustee for AVWest Aircraft Trust v Clayton Utz (a firm) (No 2) [146].
Legal principles
Membership of company
Pursuant to s 231(b) of the Act, a person is a member of a company if they agree to become a member of the company after its registration and their name is entered on the register of members. In the absence of any evidence to the contrary, a register kept under this Chapter is proof of the matters shown in the register under this Chapter (s 176).
In Maddocks v DJE Constructions Pty Ltd, the plurality held that:[105]
The authorities are clear that in the case of a person who subsequently to incorporation applies for shares to be allotted to him, or purchases shares from an existing shareholder, does not become a member of the company until his name is entered in the share register.
[105] Maddocks v DJE Constructions Pty Ltd [1982] HCA 17; (1982) 148 CLR 104 [28].
Section 1305 of the Act makes any book kept by a company under a requirement of the Act admissible and is prima facie evidence of any matter stated or recorded in the book.
In Australian Securities and Investments Commission v Rich, Austin J explained the application of s 1305 of the Act as follows:[106]
Section 1305(1) does not make the company's books conclusive evidence of the matters they contain, in the sense of requiring the tribunal of fact to make a finding in terms of the content of the books in the absence of proof to the contrary by the opposing party. The books are prima facie evidence of the matters stated in them, but the weight of that evidence is to be measured in accordance with the common sense of the tribunal of fact.
In my view it would be open to the tribunal of fact to find that the prima facie evidence constituted by the company's books is outweighed by other evidence (including evidence adduced by the proponent of the books, even if the opponent does not give evidence about them); or by some quality or characteristic of the books themselves, even if there is no other evidence. In particular, if a book has the appearance of a draft or (being electronic) has a file title indicating that it is a draft, that alone may be sufficient (all other things being equal) for the tribunal of fact to reject the book as evidence of the matter stated in it, notwithstanding that the book is prima facie evidence of that matter; a fortiori if, in addition to having the appearance of a draft, the book contains inconsistencies or ambiguities or the matter otherwise demands explanation. (citations omitted)
[106] Australian Securities and Investments Commission v Rich [2009] NSWSC 1229 [397] - [398].
The Act recognises that a share is personal property which is transferable as provided by the constitution of the relevant company (s 1070A(1)).
Where a share certificate is issued by the company, it is required to specify the name of the company and the fact the company is registered under the Act, the class of the shares, and the amount (if any) which is unpaid on the shares (s 1070C(1)). A certificate which is issued in accordance with s 1070C(1) is prima facie evidence of the title of the member to the shares (s 1070C(2)) but does not affect the rights of the shareholder (s 1070C(3)).
At the time the transfers of shares took place, in May 2001, the transfers were governed by the Corporations Law. This legislation contained similar provisions to those under the Act for the transfer of shares. Relevantly, where a shareholder seeks to transfer ownership of a share, the company must only register the transfer if a 'proper instrument of transfer' has been delivered to the company (s 1071B(2), Act; s 1091(1), Corporations Law).
The constitution of Timefocus (Constitution) provides that the company has the power to issue shares (cl 5).[107] Where a member is entered in the register of shareholders, they are entitled to receive a share certificate 'under seal of the company'. Where the share is held jointly, Timefocus is not required to issue more than one certificate (cl 9).[108]
[107] Ex 1, Vol 1, Tab 4 (TB17).
[108] Ex 1, Vol 1, Tab 4 (TB18).
Clauses 28 to 30 of the Constitution govern the transfer of shares.[109] Under the Constitution, a member (subject to rights of pre-emption in cl 28) can transfer their shares by an instrument in writing which 'shall' be executed by or on behalf of both the transferor and the transferee. Until the transfer is registered and the name of the transferee entered into the register of members, the original shareholder or transferor remains the holder of the shares (cl 29). In order to transfer the shares, an 'instrument of transfer' together with the share certificate must be delivered to the registered office of Timefocus together with any other information required by the directors. On receipt of this information, Timefocus is obliged to register the transferee as a shareholder (cl 30).
Dividends
[109] Ex 1, Vol 1, Tab 4 (TB22 - 24).
Where a company has a constitution which provides for the declaration of dividends, the company will incur a debt when the dividend is declared (s 254V(2), Act).
The payment of dividends is addressed in the Constitution.[110]
[110] Ex 1, Vol 1, Tab 4.
Relevantly, Timefocus in a general meeting may declare a dividend if and only if the directors have recommended a dividend (cl 87), interest is not payable on any dividend (cl 89) and all dividends were required to be paid proportionally to the shareholders (cl 91(2)).[111]
[111] Ex 1, Vol 1, Tab 4 (TB36).
These provisions of the Constitution have the effect of a contract between the company and each of the shareholders, the company and its directors and company secretary, and between each of the members (s 140(1), Act).
Oppression
Barjeba's claim is for oppression, pursuant to ss 232 and 233 of the Act.
Section 232 of the Act provides:
232Grounds for Court order
The Court may make an order under section 233 if:
(a) the conduct of a company's affairs; or
(b) an actual or proposed act or omission by or on behalf of a company; or
(c) a resolution, or a proposed resolution, of members or a class of members of a company;
is either:
(d) contrary to the interests of the members as a whole; or
(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
For the purposes of this Part, a person to whom a share in the company
has been transmitted by will or by operation of law is taken to be a
member of the company.Note: For affairs, see section 53.
In this case, Barjeba says the conduct it complains of falls within both s 232(d) and s 232(e) of the Act.
The principles that apply to determine whether conduct falls within s 232 of the Act are well known and can be summarised as follows.
On an application under s 232 of the Act for orders pursuant to s 233 of the Act, the court may make orders where the conduct, act or proposed act or resolution is either contrary to the interests of the members as a whole or 'oppressive to, unfairly prejudicial to, or unfairly discriminatory against' a member or members whether in that capacity or in any other capacity.[112] Sections 232(d) and 232(e) of the Act are separate grounds, although there is some overlap between them.[113]
[112] Corporations Act 2001 (Cth), s 232.
[113] Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd [No 3] (2015) 109 ACSR 369 [82].
As was noted by Young J in John J Starr (Real Estate) Pty Ltd v Robert R Andrew Australasia Pty Ltd:[114]
Oppression is something done against a person's will and in his despite. It is not something done with the acquiescence or consent, and still less is something done with his cooperation.
…
The acts of oppression must result from 'some overbearing act or attitude on the part of the oppressor'. [citations omitted]
[114] John J Starr (Real Estate) Pty Ltd v Robert R Andrew Australasia Pty Ltd (1991) 6 ACSR 63, 66.
The words in s 232(d) 'contrary to the interest of members as a whole' does not require the court to find there has been unfairness. In Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd [No 3], Sackar J summarised the test under this section in the following terms:[115]
The section is of broad compass and 'should not be hedged about by implied limitations'.
This element of s 232 has not been subject to extensive judicial exegesis. It is, however, clear that such conduct will not necessarily involve commercial unfairness. Campbell J, in Turnbull at [32], observed:
An action is capable of being 'contrary to the interests of the members as a whole' in ways other than by being commercially unfair. Being pointlessly wasteful is one example.
The test is objective. It is to be determined by reference to whether the conduct adheres to accepted standards of corporate behaviour or is in accordance with how reasonable directors would act in attending to the affairs of the company. The decision of what is contrary to the interests of the members as a whole directs attention not to the interests of the persons who are, in fact, the members for the time being, but rather on the interests of an individual hypothetical member.
[115] Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd [No 3] [82] - [84].
Conduct which is a breach of directors' duties may amount to oppression under s 232(d) or s 232(e), although this will not necessarily be the case.[116]
[116] Re Ledir Enterprises Pty Ltd [2013] NSWSC 1332; (2013) 96 ACSR 1.
In considering whether there has been a breach of directors' duties, it is relevant to consider whether there is an identity of interest between the directors and shareholders; that is, whether the directors are, in effect, the shareholders. In Australian Securities and Investments Commission v Maxwell, Brereton J, in the context of proceedings brought by ASIC alleging a contravention of the Act in the promotion and conduct of fundraising schemes, expressed the view that:[117]
The constitution of the corporation, and concomitantly the identity of those to whom the duty is owed, is of importance because the duties referred to in ss 180, 181 and 182 are not duties owed in the abstract, but duties owed to the corporation. As Clarke and Sheller JJA observed in Daniels v Anderson, the duties imposed by former s 232 (the predecessor of s 180) reflected the concept of negligence at general law, in that a director owes to the company a duty to take reasonable care in the performance of the office. In Vrisakis v ASC, Ipp J (as his Honour then was) (with the concurrence of Malcolm CJ) held that although the statutory duty of care and diligence would be contravened if a director had not exercised a reasonable degree of care and diligence in the exercise of his powers or the discharge of his duties, even if there was no actual damage, that could only be so if it was reasonably foreseeable that the relevant conduct might harm the interests of the company — which means the corporate entity itself, the shareholders, and, where the financial position of the company is precarious, the creditors of the company — and, moreover, that in determining whether the relevant duty had been breached, the foreseeable risk of harm must be balanced against the potential benefits which could reasonably be expected to accrue to the company from that conduct. As His Honour explained:
Under s 229(2), however, there is no reference to damage suffered by the company, and an offence may notionally be committed under that section without any damage having been sustained. The question is merely whether the defendant director has exercised a reasonable degree of care and diligence in the exercise of his powers in the discharge of his duties. Nevertheless, a criminal offence will not have been committed if an omission to take care did not carry with it a foreseeable risk of harm to the company. No act of commission or omission is capable of constituting a failure to exercise care and diligence under s 229(2) unless at the time thereof it was reasonably foreseeable that harm to the interests of the company might be caused thereby. That is because the duty of a director to exercise a reasonable degree of care and diligence cannot be defined without reference to the nature and extent of the foreseeable risk of harm to the company that would otherwise arise.
Further, the mere fact that a director participates in conduct that carries with it a foreseeable risk of harm to the interests of the company will not necessarily mean that he has failed to exercise a reasonable degree of care and diligence in the discharge of his duties. The management and direction of companies involve taking decisions and embarking upon actions which may promise much, on the one hand, but which are, at the same time, fraught with risk on the other. That is inherent in the life of industry and commerce. The legislature undoubtedly did not intend by s 229(2) to dampen business enterprise and penalise legitimate but unsuccessful entrepreneurial activity. Accordingly, the question whether a director has exercised a reasonable degree of care and diligence can only be answered by balancing the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question.
One consequence of this, of present significance, is that where there is an identity of interest between the directors and the shareholders, so that in effect the directors are the shareholders, the requirement to prevent self-interested dealing, constrain management and strengthen shareholder control — which is fundamental purpose and rationale of these duties — is much less acute. That is a circumstance which can impact considerably on the content of the duties. The significance of a correspondence between the identity of the directors and the shareholders is illustrated by the circumstance that, at general law, a fully informed general meeting can prospectively or retrospectively ratify the actions of directors of the company, though they involve negligence, breach of fiduciary duty or the exercise of the directors' powers for an improper purpose. Where the directors and the shareholders are one and the same, ratification is implicit. Although the shareholders of a company cannot release the directors from their statutory duties imposed by s 180, 181 and 182, their acquiescence in a course of conduct can affect the practical content of those duties, including any question of whether directors acted with a reasonable degree of care and diligence, and whether they made improper use of their position. [citations omitted]
[117] Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373 [102] - [103].
In the context of oppression claims involving small family companies, Sifris J in Exton v Extons Pty Ltd expressed the view that in considering whether there has been oppression:[118]
The Court is required to examine all of the relevant facts and circumstances in order to determine whether the conduct under scrutiny is in the best interests of the company as a whole, apart from its members. In this context breaches of duty (whether statutory or fiduciary) by directors and officers may well be conduct that is not in the best interests of the company as a whole. Whether breaches of duty in a small family company, where there is an overwhelming identity of interest between shareholders and directors, fall within the sections is a related matter. There is authority, as referred to above, to the effect that where there is consent or ratification of such conduct, it may, in context and in the circumstances, not be contrary to the interests of members as a whole or indeed unfair.
[118] Exton v Extons Pty Ltd [2017] VSC 14; (2017) 53 VR 520 [39].
In respect of s 232(e) of the Act, the weight of authority is that 'oppressive to, unfairly prejudicial to, or unfairly discriminatory against' is a composite phrase and that these individual elements are simply different aspects of what is the essential criterion of s 232(e), namely commercial unfairness.[119]
[119] Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, 704 (Young J); Joint v Stephens [2008] VSCA 210 [134]; Hillam v Ample Source International Ltd (No 2) [2012] FCAFC 73; (2012) 202 FCR 336 [4]; Russell v Lee Holdings Pty Ltd [No 3] [2020] WASC 346 [137].
The question as to whether the conduct in question can be characterised as 'oppressive to, unfairly prejudicial to, or unfairly discriminatory' against a member turns on an objective assessment of the relevant facts and circumstances of the particular case.
As Sifris J stated in Exton v Extons Pty Ltd:[120]
From a review of the more relevant authorities, the critical issue is commercial unfairness, judged objectively. It usually results in some harm or prejudice by such conduct that is not reasonably or commercially justifiable. Of course all of the facts and circumstances and context needs to be examined in order to determine whether such conduct alleged is oppressive. Further, upon such examination conduct that may appear unfair may be fully justified. It goes without saying that the authorities referred to below deal with a range of different factual considerations and relationships. Each case must depend on its own facts and circumstances.
[120] Exton v Extons Pty Ltd [48].
Although the test is an objective one, the court should be informed by the context in determining whether a decision is unfair.[121]
[121] Joint v Stephens [134], [136]; Hillam (No 2) [4].
In Re Ledir Enterprises,[122] Black J cited with approval the observations of Richardson J in Thomas v HW Thomas Ltd:[123]
Fairness cannot be assessed in a vacuum or simply from one member's point of view. It will often depend on weighing conflicting interests of different groups in the company. It is a matter of balancing all the interests involved in terms of the policies underlying the companies legislation in general and s 209 in particular; thus to have regard to the principles governing the duties of a director in the conduct of the affairs of a company and the rights and duties of a majority shareholder in relation to the minority; but to recognise that s 209 is a remedial provision designed to allow the Court to intervene where there is a visible departure from the standards of fair dealing; and in the light of the history and structure of the particular company and the reasonable expectations of the members to determine whether the detriment occasioned to the complaining member's interests arising from the acts or conduct of the company in that way is justifiable.
[122] Re Ledir Enterprises [179].
[123] Thomas v HW Thomas Ltd [1984] 1 NZLR 686, 694.
In considering whether the conduct complained of by the plaintiff is oppressive, it is relevant to consider the course of conduct of the parties, including the conduct of the plaintiff. In Re London School of Electronics Ltd, Nourse J explained why the plaintiff's conduct was relevant in the following terms:[124]
The conduct of the petitioner may be material in a number of ways, of which the two most obvious are these. First, it may render the conduct of the other side, even if it is prejudicial, not unfair. Secondly, even if the conduct on the other side is both prejudicial and unfair, the petitioner's conduct may nevertheless affect the relief which the court thinks fit to grant under subsection (3). In my view there is no independent or overriding requirement that it should be just and equitable to grant relief or that the petitioner should come to the court with clean hands. (footnotes omitted) (citations omitted)
[124] Re London School of Electronics Ltd[1986] Ch 211, 222; [1985] 3 WLR 474, 482, cited with approval in Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd (No 3) [102].
In Morgan v 45 Flers Avenue Pty Ltd, Young J noted that whether oppression was established was to be determined by reference to the nature of the business carried on by the company and the nature of the relations between its participants and:[125]
whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair.
[125] Morgan v 45 Flers Avenue Pty Ltd, 704.
The question of commercial unfairness is to be judged having regard to the facts known to the parties at the time of the conduct complained of, and not by reference to what subsequently transpires or facts which subsequently become known.[126]
[126] Chase Corporation (Australia) Pty Ltd v North Sydney Brick and Tile Co Ltd (1994) 35 NSWLR 1, 26; Joint v Stephens [138].
There is authority that a shareholder bringing an oppression claim can bring a claim for breach of general law duty and statutory duties owed to a company, without necessarily seeking a separate order for leave to bring a statutory derivative action under s 237 of the Act. However, this claim can only extend to the loss which the company had suffered and not any loss the shareholder has suffered personally.[127]
[127] Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672; LPD Holdings (Aust) Pty Ltd v Phillips [2013] QSC 225; (2013) 281 FLR 227 [53]; Re JGS Investment Holdings Pty Ltd [2014] NSWSC 1532; Taxa Australia Pty Ltd v Wang [2016] NSWSC 1913 [23].
The predominant view is that s 232 and s 233 of the Act are enlivened if the conduct relied upon is found to have occurred, even if it has ceased by the time of the trial. However, the question as to whether the oppressive conduct is continuing is relevant to whether and the extent to which orders should be made.[128]
Directors' duties
[128] Exton v Extons [34].
Barjeba alleges that each of Mrs Bogg and John McMahon breached their directors duties imposed on them by s 181 and s 182 of the Act.
Section 181 of the Act requires a director or officer of a corporation to exercise their powers and discharge their duties in good faith in the best interests of the corporation and for a proper purpose.
There are differing views as to whether any part of this duty is to be assessed by a subjective standard.[129]
[129] Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233 [421]; Australian Securities and Investments Commission v Drake (No 2) [2016] FCA 1552; (2016) 340 ALR 75 [494]; Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307; (2016) 339 ALR 659 [75]; Australian Securities and Investments Commission v Flugge and Geary [2016] VSC 779; (2016) 342 ALR 1 [1980] and following; Vanguard Financial Planners Pty Ltd v Ale [2018] NSWSC 314; (2018) 354 ALR 711 [133].
In Chew v The Queen, Malcolm CJ summarised the requirements of s 181 of the Act in the following terms:[130]
(a)directors must exercise their powers in the interests of the company, and must not misuse or abuse their power;
(b)directors must avoid conflict between their personal interests and those of the company;
(c)directors must not take advantage of their position to make secret profits; and
(d)directors must not misappropriate the company's assets for themselves.
[130] Chew v The Queen (1991) 4 WAR 21; 5 ACSR 473, 499.
There is also some division in the authorities as to whether it is necessary, in proving a contravention of s 181(1)(a) of the Act, for it to be established that a director engaged deliberately in conduct which he or she knew was not in the company's best interests. In Western Australia, the position was resolved by the Court of Appeal in Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3), where the court unanimously held that the corresponding general law duty to act in good faith in the company's best interests was subjective and would be complied with if directors honestly believed they acted in the company's best interests.[131]
[131]Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1 [923] (Lee AJA), [1988] (Drummond AJA), [2027], [2772], [2795] (Carr AJA).
A contravention of s 181(1)(b) may be established if a director does not exercise his or her powers for the purpose for which they were conferred or exercised them for an improper purpose. The weight of authority is that this question is to be determined objectively.[132] In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3), the majority of the Court of Appeal held that the question as to whether a director acts for an improper purpose, for the purposes of the corresponding general law duty, is determined objectively and involves an assessment by the court of what was reasonable in the circumstances.[133]
[132] Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; 14 ACSR 109, 137 (Ipp J, Malcolm CJ and Seaman J agreeing).
[133] Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [933] (Lee AJA); [1988], [2027], [2073] (Drummond AJA).
Section 182 of the Act prohibits a director, secretary, officer or employee of a corporation from improperly using his or her position to gain an advantage for himself or herself or someone else, or cause detriment to the corporation. What amounts to an 'improper' use of position is determined objectively. Impropriety is established by 'a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case'.[134]
[134] R v Byrnes [1995] HCA 1; (1995) 183 CLR 501, 514 - 515 (Brennan, Deane, Toohey and Gaudron JJ); R v Towey (1996) 132 FLR 434; 21 ACSR 46, 57 (Gleeson CJ, Allen and James JJ agreeing).
In Doyle v Australian Securities and Investments Commission, the High Court stated that the relevant conduct would be improper if it amounted to:[135]
a breach of the standards of conduct that would be expected of a person in [the director's] position by reasonable persons with knowledge of the duties, powers and authority of his position as director, and the circumstances of the case, including the commercial context.
[135] Doyle v Australian Securities and Investments Commission [2005] HCA 78; (2005) 227 CLR 18 [35].
In order to establish a contravention of s 182 of the Act, it is not necessary for the relevant director to gain an advantage for themselves or cause detriment to the company.[136]
[136] Chew v The Queen [1992] HCA 18; (1992) 173 CLR 626, 633 (Mason CJ, Brennan, Gaudron and McHugh JJ).
Although shareholders cannot release directors from the statutory duties imposed by s 182 of the Act, their acquiescence in a course of conduct might affect the practical content of those duties and be relevant to a question of whether there has been impropriety.[137]
Estoppel by convention
[137] Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; (2005) 226 CLR 507 [32] (Gleeson CJ and Heydon JJ).
In Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd, the High Court summarised the requirements of an estoppel by convention in the following terms:[138]
Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying. The existence of an estoppel based on a convention between the parties has often been recognised: … [J]ust as estoppel by representation requires a representation of fact, so too estoppel by convention requires the assumed state of affairs to be an assumed state of fact.
[138] Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226, 244 - 245.
The elements of an estoppel by convention or estoppel at common law can be summarised as follows:[139]
(a)a party (A) has adopted an assumption as to the terms of its legal relationship with another party (B);
(b)party B has adopted the same assumption;
(c)both parties have conducted their relationship on the basis of that mutual assumption;
(d)each party knows or intends that the other will act on that basis; and
(e)departure from the assumption will cause detriment to one of them.
[139] Browning v ACN 149 351 413 Pty Ltd (in liq) (formerly known as Enviren Constructions Pty Ltd) [2016] QCA 169 [42].
There is a question as to whether an assumption of mixed fact and law may, for the purposes of an estoppel by convention, be regarded as an assumption of fact. In Western Australia, the Court of Appeal has accepted an estoppel by convention can arise where the assumption of law or mixed fact and law relates to 'private law rights'.[140]
Estoppel by representation
[140] Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119; (2008) 66 ACSR 594 [26] (Pullin JA), [164] (Buss JA, Steytler JA agreeing); George 218 Pty Ltd v Bank of Queensland Ltd (No 2) [2016] WASCA 182; (2016) 313 FLR 287 [123].
In relation to promissory estoppel or estoppel by representation, a party needs to establish the following six elements:[141]
(a)party A assumed that a particular legal relationship existed or would exist between them and party B from which party B would not be free to withdraw from;
(b)party B induced party A to adopt the assumption;
(c)party A has acted in reliance on the assumption;
(d)party B knew or intended party A to do so;
(e)party A will suffer detriment if the assumption is not fulfilled;
(f)party B has failed to act to avoid that detriment.
[141] Walton Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387, 428 - 429 (Brennan J); see Wilson v Arwon Finance Pty Ltd [2020] WASCA 137 [88] (Quinlan CJ and Vaughan JA).
For the reasons that following, it is my view that:
(a)it is not necessary for the court to make any order in respect of the ASIC register;
(b)the plaintiff's claim should be dismissed;
(c)a declaration should be made in the terms sought by Mrs Bogg;
(d)the plaintiff should pay Mrs Bogg's costs of the claim and counterclaim;
(e)an order for special costs should be made in respect of the defence and counterclaim and the preparation for trial, but not in respect of the application dated 14 December 2020; and
(f)an order for indemnity costs should not be made.
General principles
Costs orders
Under s 37 of the Supreme Court Act 1935 (WA), the court has a wide discretion to award costs. While the discretion is broad, it is not unfettered and must be exercised judicially.[323]
[323] Frigger v Lean [2012] WASCA 66 [53].
The general rule is that costs should follow the event; that is, the successful party should recover their costs from the opposing party. The rationale for this general rule is that where a party has unjustifiably brought another party before the court, that party should be liable to compensate the other in costs.[324]
[324] Gray v Sirtex Medical Ltd formerly known as Paragon Medical Ltd [2009] WASC 126 [62].
It is incumbent on an unsuccessful party to satisfy the court that there are good reasons it should not pay the successful party's costs.[325] As was noted by the Court of Appeal in Strzelecki Holdings Pty Ltd v Jorgensen:[326]
What constitutes 'success' in proceedings is to be determined by the reality of the circumstances involved in the case. The Court may depart from the general rule that costs follow the event and modify a costs order to take into account matters such as any unreasonable conduct of a generally successful party, or to the failure of that party on one or more specific issues. The exercise of the discretion in that way is recognised by a number of rules in the [Rules of the Supreme Court], together with the practice of the Court, and authority. So, for example, if the Court is of the opinion that the conduct of a successful party - either before or after the commencement of the litigation - has resulted in costs being unnecessarily or unreasonably incurred, the Court may deprive that party of costs, either wholly or in part, and it may further order that party to pay the costs of an unsuccessful party, either wholly or in part …
Under O 66 r 1(3) RSC, where a party, though generally successful in an action, has, by the introduction of some issue or issues on which it has failed, increased the costs, the Court may order such party to pay the costs of such issue or issues. It is well-recognised that an order that a successful party recover only a portion of its costs, where it has not been wholly successful, should not be made as a matter of course, for at least two reasons. First, it is often the case that a successful party will not succeed on every issue raised. Secondly, to attempt, in every case, an analysis of which party was successful on which issue would add uncertainty and complexity to the outcome of litigation, and add to the time and cost of costs arguments. Consequently, the power to apportion costs in this way should only be exercised where there are discrete and severable issues on which the generally successful party failed, and which added to the cost of the proceedings in a significant and readily discernible way. Furthermore, while parties should be encouraged to consider carefully what matters they put in issue, justice may not be served if, by too ready a resort to deciding questions of costs according to success on particular issues, parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case.
Where the Court decides, in the exercise of its discretion, to modify the usual costs orders to reflect the limited success of the successful party, that power will be exercised broadly, and as a matter of impression, and without any attempt at mathematical precision (which is likely to prove illusory in any event). That approach reflects the fact that it may be difficult to separate the factual and evidentiary substratum of different issues, the fact that some issues are more important than others, and the fact that some issues are subsidiary to others.
[325] Rules of the Supreme Court1971 (WA) O 66 r 1(1).
[326] Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96; (2019) 54 WAR 388 [50] - [52] (footnotes omitted).
Where a court does not accept all of a successful party's arguments at a trial, this does not, of itself, mean that it is appropriate to deal with costs orders on an issue-by-issue basis.[327] The court's discretion to render an award of costs by undertaking an assessment by reference to the issues that have been won or lost at trial should only be exercised in the clearest of cases.[328] The court's discretion to reduce costs for a successful party is approached as a matter of overall impression, without requiring any higher degree of mathematical precision.[329]
[327] State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174 [8] (Emmett, Kenny & Middleton JJ).
[328] KSG Investments Pty Ltd v Open Markets Group Ltd (No 2) [2021] VSC 359 [8] (Nichols J).
[329] Amaca Pty Ltd v Hannell [2007] WASCA 158 (S) [6]; May v Thomas [2014] WASCA 176 (S) [5].
In assessing the success or failure of the parties on the issues in the proceedings, it is generally accepted that greater latitude is given to a successful defendant than a successful plaintiff. The rationale for this approach was explained by Burchett J in Australian Conservation Foundation Inc v Forestry Commission of Tasmania in the following terms:[330]
A party against whom an unsustainable claim is prosecuted is not to be forced, at his peril in respect of costs, to abandon every defence he is not sure of maintaining, and oppose to his adversary only the barrier of one hopeful argument: he is entitled to raise his earthworks at every reasonable point along the path of assault. At the same time, if he multiplies issues unreasonably, he may suffer in costs. Ultimately, the question is one of discretion and judgment.
[330] Australian Conservation Foundation Inc v Forestry Commission of Tasmania (1988) 81 ALR 166, 169.
Costs are usually awarded on a party‑party basis, although the court has a discretion to order indemnity costs.
Special costs orders
Pursuant to s 141(3) of the Legal Profession Uniform Law Application Act 2022 (WA) (Uniform Law), the court has the power to make special costs orders.
On an application for special costs, the court considers two questions:
(a)Is the maximum amount allowable under the applicable Costs Determination inadequate, in the sense there is a fairly arguable case that, on taxation, costs may properly be allowed in an amount greater than the maximum amount?
(b)Does the inadequacy of the costs allowable under the Costs Determination arise because of the unusual difficulty, complexity, or importance of the matter?
Each of these questions is addressed as a matter of impression, rather than matters of detailed evaluation, precision or science.[331] As Martin CJ noted in Electricity Generation and Retail Corp trading as Synergy v Woodside Energy Ltd, on an application for special costs under the previous legislative regime:[332]
[O]nce an order is made for the taxation of costs, it is not appropriate for the court to usurp the function of the taxing officer. Rather, under s 280(2) of the Act, the function of the court is limited to setting the parameters within which the taxing officer will tax the relevant bill, providing any specific directions which will assist the taxing officer to assess the quantum of the costs to be allowed on taxation. Because the quantum of costs to be allowed is to be determined by taxation, the powers conferred upon the court by s 280(2) of the Act are to be exercised as matters of impression rather than science, taking into account the greater expertise of taxing officers in fixing the amount of costs properly and reasonably allowed.
[331] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76 (S) [12].
[332] Electricity Generation and Retail Corp trading as Synergy v Woodside Energy Ltd [2014] WASC 469 (S) [4].
The effect of s 141(1) of the Uniform Law is to confine the costs recoverable by a successful party to the limits imposed by the relevant Costs Determination then in force. As was noted by the Court of Appeal in Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2], in referring to the identical provision in the previous Act,[333] this provision is 'protective of the party charged and, more generally, serves the due administration of justice by limiting the allowable scope for legal costs'.[334]
[333] Legal Profession Act 2008 (WA) s 280.
[334] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [11].
In considering the first question, it is not sufficient for a party to show it has incurred costs greater than the limit in the Costs Determination. However, the fact that a party has incurred significantly greater costs in each step of the litigation, when viewed in the context of the unusual difficulty, complexity or importance of the matter, may enable the court to conclude there is a fairly arguable case that each of the items identified is inadequate.[335]
[335] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [14].
In considering whether to exercise its discretion to make special costs orders, the court can take into account whether the complexity relied upon to justify the order arose in respect of issues on which the party failed at trial.[336]
[336] Wainwright v Barrick Gold of Australia Ltd [2014] WASCA 15 (S) [20].
Finally, the discretion to be exercised by the court on an application for special costs must be exercised judicially as the interests of justice in each case require. As was noted by Quinlan CJ in Sino Iron Pty Ltd v Mineralogy Pty Ltd, the interests of justice include 'the need to keep the costs of litigation generally within reasonable bounds'.[337]
Indemnity costs
[337] Sino Iron Pty Ltd v Mineralogy Pty Ltd [2022] WASC 151 [20].
Where a properly formulated special costs order is made, there may be little need for an indemnity costs order. However, this does not mean there is no place for indemnity costs orders.[338]
[338] Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S); (2003) 28 WAR 95 [24] - [25] (Pullin J).
As was noted by the Court of Appeal in Rodwell v Hutchinson:[339]
While it will often be the case that the costs recovered under an indemnity costs order would not be significantly different to the costs recovered under a special costs order made under s 215(2) of the Legal Practice Act (or now under s 280 of the Legal Profession Act), the two are not always coterminous. The circumstances which would justify the making of an order for indemnity costs are not necessarily the same as the circumstances which would justify a special order as to costs 'because of the unusual difficulty, complexity or importance of a matter'. The commencement of a simple and straightforward, but manifestly hopeless, claim, or the unreasonable refusal of an offer to compromise an otherwise unexceptional action, are two obvious examples where an indemnity costs order might be appropriate but a special costs order might not.
[339] Rodwell v Hutchinson [2010] WASCA 197 [26].
The principles which govern the court's exercise of discretion to award indemnity costs where a Calderbank offer has been made were set out in the judgment of Buss JA in Ford Motor Company of Australia Ltd v Lo Presti.[340] These principles have been summarised subsequently in the following terms:[341]
[340] Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1.
[341] Eccles v Koolan Iron Ore Pty Ltd [No 3] [2013] WASC 418 (S).
(1)a Calderbank offer will not justify an award of indemnity costs unless its rejection was unreasonable;
(2)all of the relevant facts and circumstances must be considered in determining whether a party's rejection of a Calderbank offer was unreasonable;
(3)the mere fact that the recipient of a Calderbank offer is ultimately worse off than he or she would have been had the offer been accepted, does not mean that its rejection was unreasonable;
(4)whether conduct is reasonable or unreasonable always involves matters of judgment and impression;
(5)it is not possible nor desirable to enumerate exhaustively all circumstances which must be taken into account, in a particular case, in deciding whether the rejection of a Calderbank offer was unreasonable, but, ordinarily, regard should be had to, at least, the following:
(a)the stage of the proceeding in which the offer was received;
(b)the time allowed to the offeree to consider the offer;
(c)the extent of the compromise offered;
(d)the offeree's prospects of success, assessed as at the date of the offer;
(e)the clarity with which the terms of the offer were expressed; and
(f)whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it;
(6)the party who makes a Calderbank offer that is rejected bears the onus of satisfying the court that it should make an award of indemnity costs in his or her favour; and
(7)the standard to be applied in awarding indemnity costs should not be allowed to diminish to the extent that an unsuccessful party will be at risk of an order for costs assessed on an indemnity basis absent some blameworthy conduct on its part ‑ a test of unreasonableness should not be upheld on other than clear grounds.
Disposition
Appropriate orders following trial
The primary issue in relation to the orders that should be made following trial was whether orders should be made to reflect the findings of the court that the ASIC records, in so far as they recorded the number of shares on issue and the names of those shareholders, were inaccurate.
At the hearing, counsel for Mrs Bogg, in response to a query from the court, confirmed that, at that stage, the ASIC records had not been amended. Counsel noted that no relief had been sought at trial by the plaintiff for the rectification of these records and requested an opportunity to seek instructions on the matter. Subsequently, on 15 August 2023, Mrs Bogg filed an undertaking with the court. Mrs Bogg undertook to deliver a copy of the Primary Reasons to ASIC and to lodge the necessary forms with ASIC to effect the change in membership records of ASIC in respect of Timefocus to reflect the Primary Reasons. I am satisfied from the affidavit of Mr Arns filed 6 September 2023 that this has subsequently occurred.
In these circumstances, I am satisfied that it is not necessary for the court to make any orders requiring the amendment of the records of ASIC to reflect the Primary Reasons.
The remaining orders sought by Mrs Bogg, namely that the plaintiff's claim be dismissed and that a declaration be made that the plaintiff is precluded and estopped from denying the third defendant was entitled to receive the relevant dividend payments reflect the Primary Reasons and should be made.
Appropriate costs orders
Counsel for Mrs Bogg submitted she was the successful party at trial as the plaintiff had not obtained any relief in respect of its allegations of oppression, and she had obtained a declaration in relation to the dividend payments broadly in the terms sought. In these circumstances, Mrs Bogg says she was unjustifiably brought before the court by the plaintiff and should be compensated for the costs she has been required to pay to defend these claims.
In this case, as summarised at [48] of the Primary Reasons, six issues required determination at trial. While the plaintiff succeeded in proving that it was the shareholder of Timefocus and not John McMahon, and that it had not delayed in commencing these proceedings, it failed on all remaining issues. Notably, the plaintiff was not successful in establishing any conduct of Mrs Bogg was oppressive. On this basis, I accept the submission of counsel for Mrs Bogg that she was the successful party at trial. This is evident from the order I propose to make following publication of these reasons that the plaintiff's claim be dismissed. Accordingly, Mrs Bogg is prima facie entitled to her costs of the proceedings and it is for the plaintiff to satisfy the court there are good reasons why it should not pay Mrs Bogg's costs. No submissions were received from the plaintiff in relation to costs at all.
In my view, there is nothing in the circumstances of this case that would warrant a departure from the usual costs order that costs should follow the event. I accept that Mrs Bogg was not successful on all of the issues run at trial, most notably the issues as to who were the shareholders of Timefocus and how many shares were on issue. However, for two reasons, I do not consider this should result in any reduction of costs. First, on a claim of oppression, it was necessary for the plaintiff to prove it was a shareholder of Timefocus. Given the inconsistency between the company records and the ASIC records, both of which were prima facie proof of their contents, I do not consider that Mrs Bogg's conduct in disputing that the plaintiff was a shareholder was unreasonable, or that this unreasonably prolonged the length of the trial. Second, in its statement of claim, the plaintiff raised serious allegations against Mrs Bogg, including dishonesty and breaches of directors' duties. Given these allegations, I do not consider that Mrs Bogg's conduct in defending the trial on all grounds, including as to whether the plaintiff was a shareholder, was unreasonable or should cause the court to reduce the costs that she is otherwise entitled to.
The appropriate order is for the plaintiff to pay Mrs Bogg's costs of the claim and the counterclaim, to be assessed if not agreed.
In relation to the application for reserved costs, Mrs Bogg identified four occasions on which costs were reserved:
(a)on 19 April 2018, in relation to Mrs Bogg's application to set aside subpoenas issued by the plaintiff;
(b)on 22 May 2018, in relation to Mrs Bogg's application for security for costs;
(c)on 19 June 2020, consent orders requiring the parties to file affidavits of discovery; and
(d)on 17 September 2021, costs thrown away by reason of the discontinuance of the claim in respect of the Nautilus property.
Where costs have been reserved by the court, the position at general law is that the court has expressed no opinion of how the costs should be borne at all.[342] Costs will often be reserved on an application that effectively proceeds on an ex parte basis because, at that stage, both sides of the story have not been heard.[343]
[342] How v Winterton (Earl) [No 4] (1905) 91 LT 763, 765.
[343] Dal Pont, 'Law of Costs' (5th ed) [14.28].
In relation to the reserved costs in these proceedings, it is my view that, for the following reasons, it is appropriate to order that the plaintiff pay Mrs Bogg's costs for each of these matters.
First, in relation to the matters at [31](a) and (c), I consider that each of these matters was an incidental cost of the proceedings and should be borne by the plaintiff. I do not consider there is any good reason for Mrs Bogg not to receive her costs of these applications.
Second, in relation to the application for security for costs, on the application, orders were made for the plaintiff to provide security for costs. Given the court dismissed the plaintiff's claim, I consider it was appropriate for Mrs Bogg to have brought the application and that she should have her costs of this application.
Third, at trial, the evidence led in relation to the sale of the Nautilus property was that this property was sold to comply with the orders of the Family Court.[344] I accept the evidence of Mr Arns that Mrs Bogg incurred costs in investigating the sale of the property and in retaining an expert to value the property as at the date of sale. Given the serious allegations that were raised by the plaintiff in relation to this property, it is my view that it was both appropriate and necessary for this work to be undertaken. This work was ultimately not necessary because of the plaintiff's decision to withdraw these claims. In my view, there is no good reason in these circumstances for Mrs Bogg not to have her costs thrown away by reason of the plaintiff discontinuing this part of their claim.
[344] Primary reasons [202].
Mrs Bogg also sought orders for an allowance to be made for preparation of closing submissions, costs of transcript, attending on reserved judgment, and obtaining final orders.
Item 22(g) of the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2020 (WA) (2020 Costs Determination) sets out the circumstances in which a party can seek their costs of written closing submissions, namely when they were required for trial, were provided to the court and the opposing party prior to oral addresses, and when the work was undertaken on a day on which the trial was not otherwise sitting. In this case, each of these matters is satisfied. The court did not sit on 10 February 2022 to enable the parties to prepare written submissions.[345] Mrs Bogg provided a copy of her written closing submissions to the court and the plaintiff on 11 February 2022, prior to the commencement of oral addresses. Accordingly, I consider that an allowance should be made for closing submissions, as well as the transcript of the trial.
[345] ts 343 - 346.
I also consider that it is appropriate to make an allowance under item 22(i) of the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2022 (WA) for the work undertaken by Mrs Bogg in attending on reserved judgment and in preparing submissions for the making of final orders.
Should special costs orders be made?
Mrs Bogg sought a lifting of the limits imposed by the relevant Costs Determination for three items, namely:
(a)defence and counterclaim;
(b)application for release from the implied undertaking and for additional security; and
(c)preparation for trial.
In support of the application for special costs orders, Mrs Bogg relied on two affidavits: her affidavit filed 26 July 2023 and an affidavit of her solicitor, Paul Arns, filed 26 July 2023. Mr Arns' affidavit annexed, amongst other things, a draft bill of costs.
The evidence before the court is that Mrs Bogg incurred legal costs in these proceedings (both the claim and counterclaim) of $527,941 (inclusive of disbursements and GST). Of this, counsel fees were $140,082 (inclusive of GST).
Mr Arns' hourly rate is $440 per hour, which is lower than the maximum allowed under each of the relevant Costs Determinations. Mr Mendelow's charge-out rate is $539 per hour (inclusive of GST),[346] which is higher than the maximum allowed for junior counsel in both the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2018 (WA) (of $418 (ex GST)) and 2020 Costs Determination (of $451 (ex GST)).
[346] Or $490 ex GST.
The draft bill of costs has been prepared on the basis of the actual charge-out rate of Mr Arns (which is lower than the maximum in the Costs Determinations) and the maximum amount allowable for junior counsel in the relevant Costs Determinations. That is, the application by Mrs Bogg is to lift the limit for the costs of the particular items in the Costs Determination rather than the hourly rates of the legal practitioners and counsel involved.
Relevantly, the draft bill prepared on behalf of Mrs Bogg set out the following information:
Description
Item in draft bill
Item in Costs Determination
Limit in Costs Determination
Amount claimed
Defence and counterclaim
5, Sch 1
3(b)/3(c)
$4,950.00 x 2 = $9,900.00
(10 hours of SP for each)
$53,119.00
Chambers summons for release from Harman undertaking and further security
24, Sch 2
10(a)
$13,530.00 (assumes 2 days preparation; 1 day hearing)
$28,138.00
Preparation of case
37, Sch 3
17
18
19
$59,400.00 (120 hours of SP)
$180,664.00
The relevant limits for each item in the Costs Determinations is set out in the table above, together with the assumptions that underlie these limits.
The work that was done by Mrs Bogg's solicitors and counsel is set out in the draft bill of costs and the schedules to that draft bill. The schedules summarise the work that was done in relation to each of these matters, and the time spent by each fee earner.
Are the maximum amounts allowable under the Costs Determinations inadequate?
The draft bill of costs seeks an amount of $53,119 for the defence and counterclaim, an amount more than five times the maximum allowed under the Costs Determinations. In total, the amount claimed for the defence comprises 88.4 hours of a senior practitioner's time and 33 hours for counsel, or a total of 121.40 hours.
Mrs Bogg first filed a defence on 6 March 2018. The defence was amended on at least four occasions prior to trial and once during trial. On 15 March 2021, Mrs Bogg added a counterclaim seeking orders pursuant to s 175 of the Corporations Act 2001 (Cth) to rectify the share register. During trial, the counterclaim was amended to include, as a ground of relief sought, a declaration that the plaintiff is estopped from disputing John McMahon was entitled to receive the dividend payments. Ultimately, the defence relied upon by Mrs Bogg at trial was a 17-page document that raised a number of issues.
It is also relevant to note that a number of the amendments made to the defence over the course of the proceedings were necessitated by the significant amendments the plaintiff made to its case over the course of the proceedings, both to add additional claims and to delete others. By way of example, the initial statement of claim pleaded allegations in relation to the sale of 10 Nautilus Crescent, Scarborough (which claims were amended in September 2021, before being deleted in November 2021) and loans said to have been provided by the plaintiff to Timefocus (which were deleted in June 2019). Allegations of dishonesty that were raised against the first defendant were only deleted on the first day of trial.[347]
[347] Fourth further amended statement of claim dated 7 February 2022.
On the evidence before me, I consider there is a basis on which I could form a view that, on a taxation of costs, it is possible the taxing officer might allow an amount greater than $9,900 for the costs of the preparation of the defence and counterclaim. It is not possible to reach any conclusion of what might be an appropriate limit for these costs. In these circumstances, I have concluded it is appropriate to order that the limit imposed by the relevant item in the Costs Determination be removed. It will then be for the taxing officer to consider the reasonableness and the necessity for the work that was undertaken and determine the remuneration that was reasonable.
The draft bill of costs seeks an amount of $28,138 in relation to the application for release from the Harman undertaking and for further security by letter dated 14 December 2020. The amount claimed is for 26 hours for counsel and 37.3 hours of a senior practitioner and includes conferral with the plaintiff and the solicitors for Ms Dillon, John McMahon's ex-partner, both in writing and in conference, drafting two affidavits of Mr Arns (one being an affidavit of service), a minute of orders, submissions, and attendance at the hearing on 12 February 2021. The substantive affidavit of Mr Arns in support of the application essentially annexed five documents - being the correspondence between the relevant parties together with a copy of the affidavit which was the subject of the application. According to the records, the hearing on 12 February 2021 took 15 minutes which included directions programming the matter through to trial.
The 2020 Costs Determination allows a maximum of $13,530 for a chambers application. This is based on 2 days' preparation and a 1‑day hearing, and $528 for the preparation of consent orders. No allowance is made in the item for the preparation of affidavits or submissions.
There is no evidence before the court to explain the nature of the work that was done by each of the practitioners or the difference in the work that was done. While I note an allowance should be made for the drafting of affidavits and submissions, I do not consider there is a basis on the evidence before me on which I could conclude that a taxing officer might allow an amount greater than $13,530 on a taxation of costs. On this basis, I do not consider a special costs order should be made for this application.
Schedule 3 to the draft bill of costs sets out the work that has been done on behalf of Mrs Bogg in preparing this matter for trial. The amount claimed is 32 hours for counsel and 377.8 hours for a senior practitioner. I note that I do not have specific evidence as to the amount of time spent on the tasks set out in the schedule. However, on the basis of the matters set out in schedule 3 to the draft bill of costs, I consider it is fairly arguable that, upon taxation of this item, the taxing officer may allow an amount in excess of the relevant item of the Costs Determination.
It is not possible on the evidence before me to reach any conclusion as to the appropriate limit for the costs of the preparation of the case. In these circumstances, I have concluded it is appropriate to order that the limit imposed by the relevant item in the Costs Determinations be removed. It will then be for the taxing officer to consider the reasonableness and necessity of the work undertaken and make a judgment about the remuneration reasonably required.
Does the inadequacy arise because of the unusual difficulty, complexity, and importance of the matter?
The first defendant relied on each of the grounds in s 141(3) of the Uniform Law. In summary, counsel for Mrs Bogg submitted that the manner in which the plaintiff ran its claim contributed to its unusual difficulty and complexity. In particular, it was noted that the plaintiff amended its claim on numerous occasions, and made allegations of fraud and dishonesty which were subsequently abandoned. To properly respond to the plaintiff's claim, it was necessary for Mrs Bogg to raise and consider relatively complex legal arguments such as estoppel by convention, whether this afforded a defence to a claim arising under or by way of statute, and the impact of the Income Tax Assessments Acts on these matters. Other complexities arose from the failure of John McMahon, a central figure in the proceedings, to participate in the proceedings.
Counsel for Mrs Bogg emphasised that the plaintiff made very serious claims against her including fraud (which was deleted in April 2021) and dishonesty (which was only withdrawn at trial). In the context of Mrs Bogg, who is an individual, I accept this was a very significant claim which would have had very significant implications for her had it succeeded.
I am satisfied in this case that the inadequacy of the items in the Costs Determinations arose because of the unusual difficulty and complexity of the matter. In particular, I consider the numerous amendments made by the plaintiff to its claim (including to plead dishonesty and fraud) raised matters of both factual and legal complexity, contributed to the costs of the defence and preparation for trial exceeding the amount allowed by the relevant Costs Determinations.
While I accept the test of importance is not satisfied simply because a party considers it to be important, in the context of Mrs Bogg, I am satisfied that the plaintiff's claim was of significant importance to her. This is because of the likely impact on her reputation if the claim did succeed, as well as any potential claim for damages. On this basis, I also accept this matter was important to Mrs Bogg.
Should an order for indemnity costs be made?
Mrs Bogg sought an order that the plaintiff pay her costs on an indemnity basis from and including 30 November 2021.
The basis for this application was that an offer of settlement was made by Mrs Bogg on that date. The offer of settlement was contained in a four-page letter from Mrs Bogg's solicitors to the plaintiff's solicitors dated 30 November 2021.[348] In effect, Mrs Bogg offered to settle the proceedings on the basis that both the claim and the counterclaim be dismissed, with the amount paid into court by the plaintiff being paid in equal shares to the plaintiff and Mrs Bogg. That is, the offer from Mrs Bogg was to settle the proceedings on the basis that the plaintiff pay $111,508.50 towards her costs of the proceedings, and that the claim and counterclaim otherwise be dismissed. The letter was expressly stated to be a Calderbank offer and that if it was not accepted, the letter would be relied upon in support of an application for indemnity costs.
[348] Affidavit of Paul Arns filed 26 July 2023 'PA-2'.
Although there is no evidence before the court, I infer from the fact this matter proceeded to trial that this offer was not accepted by the plaintiff.
While the affidavit of Mr Arns annexed a draft bill of costs, there is no evidence before the court as to the costs that were incurred prior to 30 November 2021 and those that were incurred after this date. Similarly, there is no evidence before the court as to what the likely taxed costs of the Mrs Bogg were at 30 November 2021, nor any evidence that any additional information was provided to the plaintiff to enable it to assess the reasonableness of the offer made by Mrs Bogg.
The relevant question is whether the plaintiff's conduct in failing to accept this offer was, in all the circumstances at the relevant time, unreasonable.
Counsel for Mrs Bogg relied on the following matters in support of the contention that the plaintiff's rejection of the offer was unreasonable. First, the offer was made two months prior to trial and was open for 28 days. At that stage, discovery had been given by both parties and relatively detailed witness outlines had been filed by Mrs Bogg. On this basis, Mrs Bogg says that the plaintiff ought to have had the benefit of advice as to its prospects at trial. Second, the terms of the offer were clear and set out in some detail as to why the claim for oppression had no real prospects of success. Third, the offer was a genuine offer of compromise that capped the plaintiff's costs exposure.
While I accept that each of these matters is accurate, for the following reasons, I am not satisfied that the plaintiff's conduct in not accepting this offer was unreasonable or that an order for indemnity costs should be made.
First, the offer from Mrs Bogg did not separately address the question of who the shareholders of Timefocus were or what was proposed in respect of the correction of the ASIC records. The letter addressed this allegation in the context of the claim for oppression but stated, incorrectly in my view, that ASIC had refused an application to amend its records to identify the plaintiff as a shareholder. The letter expressed the view that if there was a 'proper basis' to have amended the records, they expected ASIC would have done this. For the reasons set out in the Primary Reasons, I do not accept this is an accurate reflection of the correspondence from ASIC or the role of ASIC.
At that stage, Mrs Bogg ought to have had the benefit of advice in relation to this issue, particularly after discovery and inspection of the corporate records of Timefocus and ought to have known the court was likely to conclude that the company's registers and not the records of ASIC were correct. On this basis alone, I do not consider that the plaintiff's failure to accept the offer was unreasonable.
Second, the compromise relied upon by Mrs Bogg was an offer to cap recovery of her costs to $111,508.50. No additional information was provided to the plaintiff to enable it to assess the reasonableness of this offer, what Mrs Bogg's likely party-party costs were at that date or the likely costs of the trial. Without this, I do not consider the plaintiff's failure to accept the offer was unreasonable.
Conclusion
For these reasons, I am satisfied that the plaintiff should pay Mrs Bogg's costs of the proceeding on a party-party basis. I am also satisfied there is a fairly arguable case that the items in the relevant Costs Determination for the defence and counterclaim, and the preparation of the case for trial are inadequate and that special costs orders in respect of these items ought be made.
Accordingly, the court will make orders that:
1.The plaintiff's claim be dismissed.
2.There be a declaration that the plaintiff is precluded and estopped from denying that the third defendant was entitled to receive the following dividend payments that had been declared and paid by Timefocus Pty Ltd (ACN 083 573 871):
Date
Shareholder
Dividend Declared
30 June 2009
J McMahon
$55,000
29 June 2011
J McMahon
$70,250
29 June 2012
J McMahon
$125,000
26 June 2013
J McMahon
$180,000
1 July 2014
J McMahon
$125,000
1 July 2015
J McMahon
$140,000
3.The plaintiff pay the first defendant's costs of the claim and the counterclaim, including the reserved costs on 22 May 2018, 19 April 2018, 19 June 2020, and 16 June 2021, to be assessed if not agreed.
4.Pursuant to s 141(3) of the Legal Profession Uniform Law Application Act 2022 (WA), the first defendant's costs of the preparation of the defence and counterclaim, as well as the preparation of case are to be taxed without regard to the limits imposed by the applicable determinations, being:
(a)Legal Profession (Supreme and District Courts) (Contentious Business) Determinations 2018 (WA); and
(b)Legal Profession (Supreme and District Courts) (Contentious Business) Determinations 2020 (WA).
5.There be an allowance for:
(a)the closing submissions field by the first defendant on 11 February 2022 (by reference to item 22(g) of the Legal Profession (Supreme and District Courts) (Contentious Business) Determinations 2022 (WA);
(b) the costs of the transcript of trial.
6.The plaintiff pay the first defendant's costs of attending judgment and obtaining final orders, including the costs of the proceedings by reference to item 22(i) of the Legal Profession (Supreme and District Courts) (Contentious Business) Determinations 2022 (WA).
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
JN
Associate to the Honourable Justice Hill
11 SEPTEMBER 2023
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