BBHF Pty Ltd v Sleeping Duck Pty Ltd
[2024] VSC 532
•2 September 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2021 04359
| BBHF PTY LTD | Plaintiff |
| v | |
| SLEEPING DUCK PTY LTD & ORS (according to the Schedule) | Defendants |
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JUDGE: | Delany J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF RULING: | 2 September 2024 |
CASE MAY BE CITED AS: | BBHF Pty Ltd v Sleeping Duck Pty Ltd & Ors |
MEDIUM NEUTRAL CITATION: | [2024] VSC 532 |
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PRACTICE AND PROCEDURE – Costs – Calderbank offers by second and third defendants – Unreasonable refusal to accept offers – Order for payment of second and third defendants’ costs accordingly – Fourth defendant who did not make the Calderbank offers not entitled to rely on them – Fourth defendant’s costs to be paid on standard basis.
PRACTICE AND PROCEDURE – Gross sum costs order – Application for uplift refused.
PRACTICE AND PROCEDURE – Order dismissing proceeding effective at the date of publication of trial reasons stating the proceeding dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Corrs Chambers Westgarth | |
| For the Second and Third Defendants | James W S Peters with Nicholas C M Walter | Clayton Utz |
| For the Fourth Defendant | G Mukherji | Strongman & Crouch |
TABLE OF CONTENTS
A.. 16 August 2022 valuation............................................................................................................ 4
B.. The Calderbank Offers............................................................................................................... 9
B1.... The First Offer: 22 August 2022......................................................................................... 9
B2.... The Second Offer: 17 October 2023................................................................................. 10
C.. Was the rejection of the offers unreasonable?: The Principles......................................... 12
C1.... The First Offer: the Companies’ submissions................................................................ 14
C2.... The First Offer: BBHF’s submissions.............................................................................. 16
C3.... The Second Offer: the Companies’ submissions........................................................... 17
C4.... The Second Offer: BBHF’s submissions......................................................................... 18
D.. The Calderbank Offers: Consideration................................................................................. 18
D1.... The First Offer.................................................................................................................... 18
D1.1... Stage of proceedings............................................................................................. 19
D1.2... Extent of compromise........................................................................................... 21
D1.3... The requirement for a deed of settlement.......................................................... 23
D2.... The Second Offer............................................................................................................... 24
E... Mr Bandopadhayay’s costs....................................................................................................... 25
E1.... BBHF’s submissions.......................................................................................................... 25
E2.... Mr Bandopadhayay’s submissions................................................................................. 27
E3.... Mr Bandopadhayay’s costs: Consideration................................................................... 29
F... The claims for gross sum costs and uplift............................................................................. 33
F1.... Companies’ submissions.................................................................................................. 33
F1.1.... Principles................................................................................................................ 33
F1.2.... Evidence.................................................................................................................. 35
F1.3.... Submissions............................................................................................................ 36
F2.... BBHF’s submissions.......................................................................................................... 37
F3.... Companies’ reply submissions........................................................................................ 38
F4.... Mr Bandopadhayay: Evidence and submissions.......................................................... 39
F5.... Consideration: Gross sum costs and uplift.................................................................... 39
G.. Dismissal..................................................................................................................................... 41
G1.... Submissions........................................................................................................................ 41
G2.... Consideration..................................................................................................................... 45
H.. Final orders.................................................................................................................................. 46
HIS HONOUR:
These reasons relate to costs and the effective date of dismissal of the proceeding.
BBHF Pty Ltd (‘BBHF’) instituted the proceeding on 19 November 2021 claiming the conduct of the first defendant’s (‘Sleeping Duck’) affairs was oppressive to, unfairly prejudicial to and/or unfairly discriminatory to BBHF within the meaning of section 232 of the Corporations Act 2001 (Cth) (‘Corporations Act’). Further, or in the alternative, that Sleeping Duck and the second and third defendants, Energon Shield and S2 Ulysses Pty Ltd (‘Companies’) breached the terms of the Call Option Deed entered into on around 14 April 2021 (‘Call Option Deed’).
BBHF sought orders restoring BBHF to the position it was in before Sleeping Duck granted share options to the fourth defendant, Mr Bandopadhayay. It sought orders that Sleeping Duck issue or transfer to BBHF such number of shares as necessary to make BBHF the holder of 10% of all the issued shares in Sleeping Duck; together with sufficient options such that BBHF would hold options to acquire a further 10% of all of the issued shares in Sleeping Duck. In addition, BBHF sought orders that Sleeping Duck or the Companies purchase its shares and options at their ‘fair value’ as at October 2021, alternatively 19 November 2021, or such other date as the Court considers just pursuant to s 233 of the Corporations Act. Separately BBHF sought damages against the Companies. No specific relief was sought against Mr Bandopadhayay.
After the proceeding was issued orders were made for pleadings, for document disclosure pursuant to s 26 of the Civil Procedure Act 2010 (Vic) (‘CPA’) and for a mediation to take place by 29 April 2022. The mediation was not successful.
On 12 May 2022, orders were made for discovery and for an independent valuer to express an opinion as to the value of the shares of Sleeping Duck (’12 May Order’). The valuation orders provided the parties with an opportunity to provide documents to the valuer, for the valuer to require information and documents, and for the parties to make submissions. The valuer, Mr Meredith, reported on 16 August 2022.
The 12 May Order made provision for BBHF to file and serve its witness statements by 12 August 2022, for the defendants to do so by 2 September 2022, for the filing of expert evidence and for other pretrial steps, to be completed by December 2022. Included in the 12 May Order was an order requiring BBHF to file a document specifying the relief sought by it against each defendant.
On 22 August 2022, before BBHF served its evidence, which took place later than required by the 12 May Order, the Companies made a Calderbank offer[1] to BBHF. The offer was to settle the proceeding on a basis that involved buying out BBHF’s shares and options (‘First Offer’). BBHF did not accept the First Offer.
[1]Calderbank v Calderbank [1976] Fam 93; [1975] 3 WLR 586.
The trial of the proceeding began on 16 October 2023. It concluded on 30 November 2023. On day two of the trial, 17 October 2023, BBHF made another Calderbank offer (‘Second Offer’). BBHF did not accept the Second Offer.
BBHF was wholly unsuccessful in the proceeding. On 14 June 2024, I published my reasons for judgment dismissing the proceeding.[2] I did not make formal orders dismissing the proceeding at that time. The trial reasons foreshadowed an order that BBHF pay the Companies’ and Mr Bandopadhayay’s costs of and incidental to the proceeding on a standard basis.[3] I invited any party who contended for a different costs order to provide a proposed form of order and outline of submissions to my Chambers by 28 June 2024.
[2]BBHF Pty Ltd v Sleeping Duck Pty Ltd & Ors [2024] VSC 320 (‘trial reasons’).
[3]BBHF Pty Ltd v Sleeping Duck Pty Ltd & Ors [2024] VSC 320 [939].
Each of BBHF, the Companies and Mr Bandopadhayay contend for a different form of costs order than foreshadowed.
BBHF accepts it should pay the costs of the Companies but submits that as between it and Mr Bandopadhayay there should be no order as to costs. It should not be required to pay two sets of costs. Mr Bandopadhayay should not have been an active participant in the proceeding.
The Companies contend for an order that their costs of and incidental to the proceeding be paid by BBHF on a standard basis up to 21 August 2022 and thereafter on an indemnity basis. Alternatively, that their costs be paid by BBHF on a standard basis up to 16 October 2023 and thereafter on an indemnity basis. The dates from which the Companies seek indemnity costs in the alternative reflect the dates of the First and Second Offers.
The Companies further submit that pursuant to r 63.07(2)(c) of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’) a gross sum costs order should be made. They seek an order that their costs be fixed in a specific sum to be determined and that pursuant to r 63.34(3) of the Rules, the Court should allow an increase of 10% of the charges permitted on a taxation of costs.
BBHF opposes the gross sum costs order sought by the Companies.
Mr Bandopadhayay contends for an order that BBHF pay his costs of the proceeding:
(a) on an indemnity basis from the date the proceeding was filed; alternatively
(b) on a standard basis up to the date of the First Offer, 21 August 2022, and thereafter on an indemnity basis; alternatively
(c) on a standard basis up to the date of the Second Offer, 16 October 2023, and thereafter on an indemnity basis.
The parties filed written submissions on 28 June 2024, supplementary submissions on 12 July 2024 and reply submissions on 23 July 2024 and 1 August 2024 in relation to the disputed costs issues.
The Companies filed an affidavit of their solicitor Mr Pasas dated 28 June 2024 exhibiting the correspondence relied on containing the First and Second Offers and an affidavit of their solicitor Mr Chami dated 1 August 2024. In addition, the Companies relied on two reports from a costs consultant, Mr Grisenti dated 10 July and 29 July 2024, in support of their application for a gross sum costs order.
In support of a gross sum costs order, Mr Bandopadhayay filed an affidavit of his solicitor Mr Bailey dated 1 August 2024.
On 14 August 2024, the solicitors for the Companies wrote to my Chambers with a request that I consider making formal orders for the dismissal of the proceeding and that pursuant to r 59.02(1) of the Rules, the dismissal order is taken to have effect on and from 14 June 2024.
On the same day, BBHF, who it appears from shortly prior to 12 August 2024 has retained a second firm of solicitors to act on its behalf, wrote to my Chambers stating that BBHF ‘objects in the strongest terms to [the] proposed order’ that the dismissal order is deemed to have taken effect from 14 June 2024 without it being afforded an opportunity to be heard. The correspondence indicates that the second firm of solicitors have been instructed to advise BBHF concerning a possible appeal.
On 23 August 2024, the Companies and BBHF, through its solicitors on the record, provided submissions in relation to whether the dismissal order should be expressed to take effect on 14 June 2024 or on a date that coincides with the date of the order.
A 16 August 2022 valuation
Mr Meredith valued Sleeping Duck at $45,320,000 as at the date of his report, 16 August 2022. His report later formed part of the evidence in the proceeding.
Although BBHF submitted Mr Meredith should also value Sleeping Duck as at 8 October 2021 and 19 November 2021, the 12 May Order did not direct him to do so and Mr Meredith did not express his opinion as to the value of Sleeping Duck as at October/November 2021.
Mr Meredith provided a summary of his valuation opinion as at 16 August 2022:
In my view, the market value of the shares of Sleeping Duck is $45.32M as shown in Table 1. My opinion is based on:
(c)applying the Capitalisation of Future Maintainable Earnings method, adopting:
(i)future maintainable earnings of $5,222,486, as explained in section 4
(ii) an EBITDA multiple of 6.5x, as explained in section 5
(d)the adjustments between enterprise and equity value explained in section 6.
Table 1: Market value of the shares of Sleeping Duck
Basis Amount Future maintaining earnings section 4 5,222,486 EBITDA multiple section 5 6.5x Enterprise value section 6 33,946,161 Surplus assets section 6 45,318,289 Equity value (rounded) section 6 45,320,000
Mr Meredith considered BBHF’s submission that historic proposals to acquire interests in Sleeping Duck, including at various times during the COVID-19 pandemic when the actual earnings of the Business were high and the earnings outlook was very optimistic were relevant to his assessment of value in August 2022:
3.6.1The Plaintiff submitted that previous valuations Sleeping Duck are relevant to my opinion of the value of shares in Sleeping Duck at the current valuation date.
3.6.2 In my view, the proposals set out by the Plaintiffs:
(a) are non-binding and indicative offers, as none of them are accompanied by a board approved agreed term sheet.
(b)do not assist me in the current valuation, for the reasons discussed further in the table below.
Plaintiff’s Description
Valuation Meredith Response RSM Australia prepared a valuation for the shares of the Company as at 1 July 2019, ostensibly for the purposes of an employee share scheme (ESS). RSM Australia opined in that valuation that the market value of the shares was $51.6m
Equity value of $51.6m at 1 July 2019 Based on DCF using FY20 and FY21 Forecasts
The valuation date for this valuation is more than 3 years from the current valuation date.
Further, the forecasts relied on for DCF show EBITDA was forecast to be $10m in FY20, $20.1 in FY21. The terminal value is based on the "forecast cash flow … for FY21".
Whereas actual EBITDA was $12.1m in FY20 $29.2m in FY21, and $13.6 in FY22.
RSM Australia prepared a further valuation for the shares of the Company as at 31 August 2020, ostensibly for the purposes of the ESS. RSM Australia opined in that valuation that the market value of the shares was $462.3m
Equity value of $462.3m at 31 August 2019 Based on DCF using FY21-FY23 forecasts and net cash of $21m
The valuation date for this valuation is almost 3 years from the current valuation date.
The forecasts relied on for the DCF show EBITDA was forecast to be $42.5m in FY21, $73.7m in FY22 and $125.1m in FY23.
However actual EBITDA in FY21 was $29.2 and in FY22 was $13.6.
On 8 September 2020, VCF Capital provided to the Company a summary of potential investors and valuation ranges discussed by potential investors.
Among the indicative valuations received was a valuation range of 335m - $394m from Canaccord Genuity and a valuation range of $306m – 367m from Morgans
Canaccord Genuity: benchmarked EV/gross profit compared to a basket of stocks including ASX listed ecommerce (TPW, KGN, RBL) but also international mattress players (Tempur, Sealy, Sleep Number, Casper) which have dramatically different metrics Morgans: Methodology based on EV/Rev 2.5x to 3.0x, equating to P/E 10x to 12x
Canaccord Genuity: In my view, the methodology applied by Canaccord Genuity as explained in the ‘Broker Feedback’ document is not an appropriate methodology.
Morgans: This valuation implicitly assumes revenue of $102m to $147m whereas revenue for FY21 was $93.8 and FY22 was $77.5.
In or around December 2020, representatives of Temple and Webster entered into discussions with Goldman Sachs concerning a potential investment in the Company on the basis that the Company was valued at between $375,000,000 and $400,000,000
No further details on basis of valuation
I am unable to respond further to this proposal as there are insufficient details on what the valuation was based on.
On 7 May 2021, TA Associates made an offer to acquire 30% of secondary issued capital of the Company in exchange for $120,000,000 on the basis that $100,000,000 was to be paid upfront and the remaining $20,000,000 to be structured as deferred payments
Pre-money enterprise value of $400m. This implies a valuation of 11.7x EV/FY Jun’21F EBITDA and 15.4x EV/Mar’21 Quarter Run-Rate EBITDA.
Contingent on assumption FY21 net revenue is $93m and EBITDA is $34m. Assumes ‘good visibility to achieve’ in FY22 net revenue of $134m and EBITDA of $54m.
The valuation assumes FY21 net revenue is $93m and EBITDA is $34m and FY22 net revenue of $134m and EBITDA of $54m. However actual FY21 net revenue was $93.8 and EBITDA was $29.2 and FY22 net revenue was $77.5 and EBITDA was $13.6
On 9 February 2021, Adairs made a final bid in which the Company was valued at A$340m
Unclear what $340m valuation was based on. Previous discussions with Adairs showed a proposal for implied EV of $320m on a cash free basis assumed FY21 net revenue of $117.6m and EBIT of $43.2m.
The valuation assumes FY21 net revenue is $93m and EBITDA is $34m. However, actual FY21 net revenue was $93.8 and EBITDA was $29.2.
Concerning the performance of the Business in the period February 2022 to June 2022:
(a)In assessing the financial performance of the Company over the preceding three year period for the purposes of a current valuation, the plaintiff acknowledges that the financial performance of the Company has deteriorated over the second half of 2021 and into 2022. … In part, that deterioration may be understood in the context of a ‘normalisation’ of market conditions for ecommerce following the easing of lockdowns on the Eastern seaboard of Australia, particularly in the State of Victoria. That does not mean that market conditions for e-commerce in Australia have in any way returned to pre-pandemic conditions at all.
(b)The e-commerce sector enjoyed a significant boom during the period characterised by COVID-19 lockdowns. The reason why is not hard to discern: consumers, largely locked in their homes and unable to shop at traditional brick-and-mortar stores, turned to e-commerce purveyors such as Sleeping Duck. … That boom has now ended. … The e-commerce sector currently operates in a challenging macroeconomic environment leading to sluggish growth and sharp declines in share values. Online shopping has slowed considerably in a post-lockdown world … leading to weaker-than-expected earnings across the ecommerce sector. … Furthermore, e-commerce companies must contend with surging inflation … and the resulting interest rate hikes imposed by central banks.
Mr Meredith reported:
4.3.2My estimate of future maintainable earnings is based on the period February 2022 to June 2022. In my view, this period is representative of the future financial performance of the Sleeping Duck business as:
(a)this period was after the Christmas and New Year sales period and there were no significant lockdowns in this period in Australia
(b)these are the most recent months of financial performance which have been provided
(c)based on the historical trading income compared to COVID lockdowns (as set out in Figure 2) and the observations from the RBA on householding spending during the COVID pandemic, in my view, the Sleeping Duck business experienced an increase in sales as a result of the various COVID lockdowns in calendar years 2020 and 2021 (paragraph 4.3.5 to 4.3.9).
Mr Meredith referred to submissions by BBHF about how it contended he should approach his valuation task:
The Plaintiff submitted “that it would be appropriate for [me] to assess maintainable earnings based on historical performance over the past three years in this instance.” as “an assessment undertaken on the basis of historical performance generally involves an analysis over the preceding three year period.”
However, in my view, the financial performance of Sleeping Duck in the years 2019 to 2021 is not reflective of the future performance of Sleeping Duck going forward. As submitted by the Plaintiff, there has been a deterioration in the financial performance of Sleeping Duck from calendar year 2021 to calendar year 2022 in part due to “a ‘normalisation’ of market conditions for e-commerce”.
Mr Meredith discussed the financial performance of Sleeping Duck and COVID-19 lockdowns in Australia, including as follows:
Figure 2 above illustrating the trading income and periods of lockdown shows:
(a)increasing trading income from $3,643,929 in February 2020 (prior to the national wide lockdown) to $6,939,671 in May 2020 toward the end of the national wide lockdown
(b)a further increase in trading income to $9,047,442 in July 2020 at the start of the Victoria 2020 lockdown
(c)a declining trend in trading income between December 2020 ($8,336,360) to May 2021 ($6,486,608), during which there were either no lockdowns, or lockdowns of shorter periods in individual states and territories
(d)another increase in revenue during the extended lockdowns in Victoria, ACT and NSW during June 2021 (trading income of $8,257,496) to October 2021 (trading income of $6,954,615).
Appendix F to Mr Meredith’s report titled ‘Valuation Principles’ included a discussion of ‘why and how does control affect value?’. That discussion included the following:
F.2.19The mathematical relationship between a control premium and a discount for lack of market ability:
(a)is:
(b) means (by way of example):
(i)a control premium of 25% corresponds with a discount for lack of control of 20%
(ii)a control premium of 331/3% corresponds with a discount for lack of control of 25%.
F.2.20Prices paid in listed company takeovers can provide an indication of control premium by comparing the price with the pre-bid share price, subject to the caution that the takeover premia are likely to include a component of special value in addition to the control premium.
F.2.22Other empirical studies have identified control premia in international markets. One such study analysed control premia for 20 countries based on data from 1998 to 2015 and found median control premia mostly ranging from around 20% to 30%, as shown in Table 21.
…
The same appendix included a discussion titled ‘why and how does marketability affect value?’. Part of that discussion included:
F.2.25Respondents to the KPMG Australian Valuation Practices Survey 2017 indicated the following discounts for lack of marketability corresponding to shareholding size:
Table 22: Discounts for lack of marketability
% interest Median discount 100% 0% 75% to 99% 3.8% 51% to 74% 10% 50% 15% 25% to 49% 20% 1% to 24% 30%
While Mr Meredith discussed premiums for control and discounts for lack of marketability his report did not separately value BBHF’s minority shareholding in Sleeping Duck. The 12 May 2022 Order did not require that he do so.
B The Calderbank Offers
B1 The First Offer: 22 August 2022
On 22 August 2022, the Companies offered to settle the proceeding on the basis that the Companies pay BBHF $4,275,471.70, expressed to be ‘the implied value of [BBHF’s] current shareholding [in Sleeping Duck] without applying any discounts for its minority interest’. The terms of the First Offer included:
(a) the proceeding be dismissed with no order as to costs;
(b) all shares held by BBHF in Sleeping Duck be acquired;
(c) the Call Option Deed be terminated in full, meaning that all rights and obligations under the Call Option Deed be terminated irrespective of whether or not they had accrued at the time of settlement;
(d) mutual releases; and
(e) a deed of settlement including confidentiality obligations, non-disparagement obligations and a non-compete obligation to be imposed on Dr Shiffman.
The First Offer was open for acceptance for 21 days from 22 August 2022.
The value of the First Offer was expressed to be based on the valuation by Mr Meredith.
At the time of the First Offer, BBHF held 9.43% of the equity of the Company. The First Offer referred to ‘minority interest discounts’ identified in Mr Meredith’s report, specifically a ‘discount for lack of control’ (of approximately 23.1%) and a ‘discount for lack of marketability’ (of approximately 30%). The First Offer stated that based on Mr Meredith’s valuation, BBHF’s minority shareholding had a market value at that time of $2,301,486.
The First Offer asserted that the options over 10,000 shares held by BBHF pursuant to the Call Option Deed had no value due to their exercise being expressly conditioned on the ‘Conditions of exercise’ identified in clause 2.4 of the Call Option Deed. The First Offer asserted both that the conditions of exercise ‘have not been satisfied, and are unlikely to be cumulatively satisfied in the immediate or foreseeable future’. The First Offer noted that BBHF’s shareholding would decline to 9.09% upon Mr Bandopadhayay’s exercise of his third set of options.
B2 The Second Offer: 17 October 2023
On 17 October 2023, the Companies offered to settle the proceeding on the basis that the Companies pay BBHF $4,109,736.13, expressed to be ‘the implied value of [BBHF’s] current shareholding [in Sleeping Duck] without applying any discounts for its minority interest’. The terms included:
(a) the proceeding be dismissed with no order as to costs;
(b) all shares held by BBHF in Sleeping Duck be cancelled, bought back by Sleeping Duck or acquired by and transferred to the Companies;
(c) the Call Option Deed be terminated in full, meaning that all rights and obligations under the Call Option Deed be terminated irrespective of whether or not they had accrued at the time of settlement;
(d) mutual releases; and
(e) a deed of settlement include confidentiality obligations and non-disparagement obligations.
The Second Offer was made during trial. It was sent at 6:27 pm on 17 October 2023 (day 2 of trial) and was left open for acceptance until 2:00 pm on 18 October 2023 (day 3 of trial).
The amount of the Second Offer was expressed to by reference to agreement between the expert witnesses, including BBHF’s expert, Mr Stone that:
(a) the value of Sleeping Duck as at 30 June 2023 is $43.6 million;
(b) BBHF’s 9.43%, on a pro-rata basis, is worth $4.1 million; and
(c) BBHF’s share, on a minority basis, is worth $2.6 million.
As with the First Offer, the Second Offer asserted the options over 10,000 shares held by BBHF pursuant to the Call Option Deed had no value due to their exercise being expressly conditioned on the ‘Conditions of exercise’ identified in clause 2.4 of the Call Option Deed, which the Second Offer asserted ‘have not been satisfied, and are unlikely to be cumulatively satisfied in the immediate or foreseeable future’. As with the First Offer, the Second Offer noted that BBHF’s shareholding would decline to 9.09% upon Mr Bandopadhayay’s exercise of his third set of options.
C Was the rejection of the offers unreasonable?: The Principles
In Hazeldene’s Chicken Farm v Victorian Workcover Authority (No 2), the Court of Appeal held the rejection of a Calderbank offer is a matter to which the court should have regard when considering whether to order indemnity costs.[4] The critical question is whether the rejection of the offer was unreasonable in the circumstances.[5]
[4]Hazeldene’s Chicken Farm v Victorian Workcover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 [20] (‘Hazeldene’).
[5]Hazeldene’s Chicken Farm v Victorian Workcover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 [23]-[24].
In Secretary to the Department of Transport v Provan’s Timber Pty Ltd (No 2), the Court of Appeal said:[6]
The Calderbank offer made reference to Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (Hazeldene) which affirmed that where the refusal of a Calderbank offer is, in all of the circumstances, ‘unreasonable’, this will constitute proper grounds for an indemnity costs order. While there is no need to show that the rejection of a Calderbank offer was ‘highly’ or ‘grossly’ unreasonable, it is not presumed that a refusal is unreasonable simply because the offered sum is higher than the ultimate award. Instead, the onus rests on the offeror to show that the offeree acted unreasonably. This is ultimately a matter of judgment and impression, and must be assessed at the time the offer is made, without the advantages of hindsight.
[6]Secretary to the Department of Transport v Provan's Timber Pty Ltd (No 2) [2020] VSCA 258 [25] (citations omitted).
In Hazeldene, the Court of Appeal made the following observations in relation to factors relevant to assessing whether the rejection of a Calderbank offer was unreasonable:[7]
[7]Hazeldene’s Chicken Farm v Victorian Workcover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 [25].
The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:
(a) the stage of the proceeding at 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;
(f)whether the offer foreshadowed an application for an indemnity costs in the event of the offeree’s rejecting it.
Consistent with a submission made on behalf of BBHF, it is not unreasonable for a losing party to reject an offer that does not involve a genuine compromise, but is an invitation to capitulate.[8]
[8]Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 398 [13].
In Hazeldene the Court of Appeal discussed the objectives underpinning the power to award indemnity costs in the case of the unreasonable rejection of an offer of compromise:[9]
(1)To encourage the saving of private costs and the avoidance of the inherent risks, delays and uncertainties of litigation by promoting early offers of compromise by defendants which amount to a realistic assessment of the plaintiff’s real claim which can be placed before its opponent without risk that its “bottom line” will be revealed to the court;
(2)To save the public costs which are necessarily incurred in litigation which events demonstrate to have been unnecessary, having regard to an earlier (and, as found, reasonable) offer of compromise made by a plaintiff to a defendant; and
(3)To indemnify the plaintiff who has made the offer of compromise, later found to have been reasonable, against the costs thereafter incurred. This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances that party should ordinarily bear the costs of litigation.
[9]Hazeldene’s Chicken Farm v Victorian Workcover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 [21] (citations omitted).
Recently in Selak v National Tiles Co Pty Ltd & Ors (No 5),[10] reference was made to the observations of Byrne J in Foster v Galea (No 2)[11] concerning offers to settle and risk:
There is, too, the countervailing policy that plaintiffs should not be discouraged from bringing arguable claims to the court. But I am not at all confident that this is a consideration which touches the present question. In this case, the plaintiff has brought an arguable claim and there is no court process which will prevent him from doing so or which will stop him from pursuing it. The policy which is pre-eminent, in these circumstances is that of providing an incentive for a party to address the offer in a serious way so that the court is not obliged to determine a case which reasonable parties ought to have resolved by settlement. This policy is equally applicable to the case where there is some uncertainty or risk as to liability as it is to the case where there is uncertainty or risk attending the quantification of the claim. In each case the plaintiff is encouraged by the court to accept an offer discounted to reflect these risks and uncertainty.[12]
C1 The First Offer: the Companies’ submissions
[10]Selak v National Tiles Co Pty Ltd & Ors (No 5) [2024] VSC 504.
[11]Foster v Galea (No 2) [2008] VSC 331.
[12]Foster v Galea (No 2) [2008] VSC 331 [12].
The Companies submit that it was unreasonable for BBHF to reject the First Offer when what was offered was what BBHF (or Dr Shiffman) sought and claimed they had been prevented from achieving: an exit from Sleeping Duck.
Concerning the factors set out in Hazeldene:
(a) Regarding timing, when the First Offer was made, the proceeding was well advanced and BBHF was well able to assess its prospects of success. Comprehensive pleadings had closed, critical documents had been provided, discovery had been completed, including of key documents referred to in the trial reasons. The First Offer was made after the receipt of Mr Meredith’s report. The parties had earlier attended a court ordered mediation.
(b) The time allowed to consider the offer, 21 days, was generous.
(c) The First Offer represented a substantial compromise.
(i) The offer to purchase BBHF’s shares for $4,275,471.70 was a material premium to their discounted value of $2,301,486 as at August 2022. The amount of the First Offer is likely to have exceeded the value of BBHF’s shares and options. By not discounting the share price, the offer was similar to the remedy BBHF might have achieved had it succeeded in the litigation. The Companies were offering to bear their own costs.
(ii) The observations of Button J in Re Skytraders Pty Ltd (No 2) are germane:[13]
[13]Re Skytraders Pty Ltd (No 2) [2022] VSC 523 [58] (Button J) (‘Skytraders’).
while the quantum offered was below [the Plaintiff’s] best case, the offer was for a certain sum … The sum was also substantially above its worst case on quantum … The sum offered constituted a reasonable compromise … particularly once the value of the costs component of the offer was taken into account.
(iii) In Skytraders, the offer was pitched at the midpoint between two expert assessments of value.[14] In this case, the court appointed expert had determined the value of Sleeping Duck as at August 2022.
[14]Re Skytraders Pty Ltd (No 2) [2022] VSC 523.
(iv) While BBHF sought a historical buy-out price, such a claim was always a weak one and ought not bear heavily on assessing whether BBHF acted reasonably in rejecting the First Offer.
(v) It is not correct that the First Offer sought that BBHF capitulate. It was a genuine compromise. BBHF’s ‘worst case’ was for the proceeding to be dismissed with costs, as in fact occurred. That outcome has the effect of BBHF remaining a minority shareholder (owning shares with an estimated value of approximately $2.3 million on a minority basis and $4.2 million on a non-discounted basis, according to Mr Meredith’s report), and incurring a considerable costs liability to the Companies. By contrast, the First Offer provided BBHF with an exit (a commercial result which it expressly sought) on the basis of payment of $4,275,471.70 (together with the cancellation of BBHF’s options, in respect of which there was never expert valuation evidence and the associated conditions of exercise were not satisfied and unlikely to be satisfied in the foreseeable future given BBHF’s refusal to negotiate a shareholders’ agreement and the absence of any exit proposal).
(d) The defence set out in comprehensive detail the reasons the Companies were confident they would succeed in the proceeding. The letter containing the First Offer noted that discovered documents would not enable BBHF to establish oppression. In light of these factors, BBHF ought to have known that it was not likely to succeed.
(e) There is no ambiguity in the First Offer. It is commonplace for a binding contract to be created on the basis that formal documentation is to follow.
(f) The First Offer was expressed to be ‘made pursuant to the principles in Calderbank v Calderbank’, thereby foreshadowing an application for indemnity costs if not accepted.
C2 The First Offer: BBHF’s submissions
BBHF submits that the First Offer was made at a time when:
(a) the parties had not filed lay evidence, a particularly striking factor in the context of an oppression proceeding;
(b) the parties had not filed any expert evidence on valuation as at the dates identified by BBHF as appropriate dates for the fair value of its shareholding to be assessed; and
(c) the sufficiency of discovery was an ongoing issue between the parties.
The First Offer did not represent a compromise by the Companies, but rather, a capitulation for BBHF. There has been no finding as to the appropriate date upon which a buy-out order might have been made had oppression been found. The First Offer involved BBHF surrendering its rights in the proceeding to an adjustment of its shareholding for value being assessed on the dates it contended for, reflecting a significantly higher value than as at August 2022, and it involved BBHF surrendering its entitlement to its options to 10,000 shares and its legal costs.
Unlike the issues considered in Skytraders, the First Offer represented an outcome below BBHF’s worst case at that time. It also did not involve any contribution to BBHF’s costs, a factor which in Skytraders the Court found to be of particular significance.[15]
[15]Re Skytraders Pty Ltd (No 2) [2022] VSC 523.
The First Offer involved no value being provided in respect of BBHF’s options over 10,000 shares. The first tranche of those options was already ‘in the money’ (leaving aside the conditions attached to its exercise). The First Offer involved BBHF simply abandoning those valuable rights.
There is an issue regarding clarity of expression. The First Offer was expressed to be conditional on the ‘parties’ entering into a deed of settlement. That condition raised as many questions as to what it meant than it might have answered. The First Offer also included a reference to including a non-compete obligation to be imposed on Dr Shiffman of an undefined nature and for an unspecified term.
C3 The Second Offer: the Companies’ submissions
For substantially the same reasons as apply in the case of the First Offer the Companies submit it was unreasonable for BBHF to have rejected the Second Offer.
By the time of the Second Offer, the lay and expert evidence was in, further documents had been obtained on subpoena and the trial was underway. BBHF was in a very good position to assess its prospects, and those prospects were modest.
The Second Offer to settle for $4,109,736.13 and for each party to bear its own costs was a substantial compromise.
While holding the Second Offer open for approximately 24 hours was a relatively short interval, given the stage of the proceeding, the fact that BBHF was represented by experienced counsel and solicitors, and that Dr Shiffman was an experienced businessperson means that BBHF would have been able properly to consider the Second Offer and decide whether to accept it. In addition, the Second Offer was made in circumstances where Dr Shiffman had made open offers in the preceding week, so had presumably already turned his mind to the basis upon which he would settle.
C4 The Second Offer: BBHF’s submissions
BBHF submits it was not provided with a reasonable time to adequately consider the Second Offer. It was open for less than 20 hours and made on the eve of evidence in the trial. The timing was plainly calculated to place pressure on BBHF.
The Second Offer did not represent a compromise, it represented a capitulation for BBHF. The principal relief pressed by BBHF at trial was a buy-out order requiring the Companies to acquire BBHF’s shares at a fair market price as at October or November 2021. On the evidence of the Companies’ expert, Mr Potter, BBHF’s shares would have been worth between $11,485,740 and $11,881,800 in October 2021 and between $9,250,830 and $9,552,590 in November 2021. The Second Offer was less than half those amounts.
The Second Offer involved no value being provided in respect of BBHF’s options over 10,000 shares. The first tranche of those options was ‘in the money’ (leaving aside the conditions attached to its exercise) at the time of the Second Offer. The Second Offer involved BBHF simply abandoning its valuable rights.
Separately, the Second Offer did not involve any contribution to BBHF’s costs.
Regarding clarity of expression, the Second Offer again made no statement that it was a joint offer or made with the approval of Mr Bandopadhayay.
D The Calderbank Offers: Consideration
D1 The First Offer
In determining whether the rejection of the First Offer by BBHF was unreasonable it is necessary to assess the position at the time the offer was made without the advantages of hindsight. Amongst other things, that involves an assessment of the stage at which the proceedings had reached when the offer was made, the extent of compromise represented by the offer and the clarity of expression of the offer. Each of these matters are relied on by BBHF in support of its submission that the rejection of the First Offer was not unreasonable.
D1.1 Stage of proceedings
I consider BBHF was in a very good position to assess its risks and prospects of success in the litigation at the time the First Offer was made. Although neither party had filed their evidence, detailed pleadings had been completed and the issues that separated the parties had been clearly defined. There had been the provision of critical documents in accordance with the CPA. In addition there had been at least partial discovery of documents. The 12 May Order required BBHF to file its witness statements by 12 August 2022. Although the witness statements had not been filed I proceed on the basis that substantial work would have been undertaken to prepare BBHF’s evidence by the time the First Offer was received.
Separately, the parties had previously participated in a court ordered mediation. Although what occurred in that mediation is and remains confidential, it is reasonable to proceed on the basis that the mediation provided an opportunity for the exchange of information and views between the parties and their legal advisers about BBHF’s prospects of success, its risks and the potential outcomes that might follow from the litigation.
The parties to the proceeding were represented by competent and experienced legal practitioners. As I found in the trial reasons, the individual who stands behind BBHF, Dr Shiffman, is a highly intelligent and articulate person. BBHF through its director Dr Shiffman and those advising it are persons with sophisticated business skills used to dealing with and assessing risk.
At the time the First Offer was made BBHF and Dr Shiffman knew or should have known there was at least a significant risk that BBHF may fail to establish oppression. BBHF did not need to see the lay evidence to be relied on by the Companies and Mr Bandopadhayay to know that was the case.
While the parties had not filed expert evidence on valuation by the time the First Offer was made, there had been an exchange of views and submissions in relation to valuation pursuant to the 12 May Order. The relief sought by BBHF included in the alternative to a buy-out based on the value of Sleeping Duck as at October/November 2021 a buy-out ‘at such other date as the Court considers just’. A valuation dated that coincides with or is in proximity to the trial date is not uncommonly adopted when buy-out orders are made in oppression cases. In this case the valuation as at August 2022 was provided in the context of pre-trial orders that anticipated the proceeding would be ready for trial by December 2022.
There is no evidence that at the time of the First Offer, BBHF had available to it expert evidence of the value of Sleeping Duck as at October/November 2021. Aspects of Mr Meredith’s approach would likely have informed a consideration by BBHF at the time the First Offer was received of some of the issues that would require consideration when valuing as at the October/November 2021 dates for which BBHF contended.
Mr Meredith rejected BBHF’s submission that historic proposals to acquire an interest in BBHF referenced in paragraph 3.6.2 of his report were relevant to his assessment of value as at August 2022. Figure 2 in his report traced Sleeping Duck’s trading income from 2019 to June 2022, including as at October/November 2021. The report highlighted the relationship between trading income and periods of lockdown. It noted BBHF’s acceptance that deterioration in the financial performance from calendar years 2021 to 2022 was in part due to ‘a normalisation of market conditions for e-commerce’.
Mr Meredith adopted $5,222,486 for future maintainable earnings (‘FME’) as at August 2022. When determining FME Mr Meredith focussed on the February to June 2022 earnings, the most recently available earnings as representative of the future financial performance of the Business. Mr Meredith adopted an EBITDA multiple of 6.5.
In the 21 day period the First Offer was open for acceptance, BBHF had time to make its own assessment of value as at October/November 2021 informed by Mr Meredith’s valuation approach. It had the opportunity, should it wish to do so, to obtain its own advice about the value of Sleeping Duck as at the October/November 2021 dates, the valuation dates for which it contended as its primary case. It had available to it financial information relating to Sleeping Duck relevant to an assessment of value at those dates, both information contained in Mr Meredith’s report and financial information earlier provided pursuant to s 26 of the CPA and discovered documents. The 30 September 2021 and 31 October 2021 budgets provided to the expert valuers,[16] if not by that time in the possession of BBHF, could have been requested.
[16]BBHF Pty Ltd v Sleeping Duck Pty Ltd & Ors [2024] VSC 320 [429].
The report prepared by Mr Meredith included in appendix F his independent view of percentage adjustments that might be made to the market value of Sleeping Duck by reason of the fact that BBHF’s interest is a minority interest. Those independent views were available to BBHF for it to consider in relation to levels of value both as at October/November 2021 or at such other date or dates it might have anticipated that the Court would at trial consider to be ‘just’.
I do not regard the absence of expert evidence about the value of Sleeping Duck as at October/November 2021 to be an impediment to an informed assessment by BBHF, its advisers and its director Dr Shiffman of the merits of the First Offer.
D1.2 Extent of compromise
I do not agree with BBHF’s submission that the First Offer represented an outcome below its worst case at that time. Its worst case scenario at that time was that it might proceed to trial, that it might not make out its oppression case, that it might lose on liability and as a result, not obtain a buy-out order at all. That is, as ultimately occurred following the trial.
BBHF’s best case scenario at the time was that it would make out its case for oppression, that the Court would restore its percentage interest in shares and options to 10% in each case, and that a buy-out order would be made based on October/November 2021 levels of value.
If BBHF was successful in his best case scenario but if instead of the value for buy-out purposes being fixed as at October/November 2021 levels of value it was fixed at or proximate to the date of trial, the value arrived at by Mr Meredith was an independent indication of the level of value upon which any buy-out order would likely be based. There was a significant risk a buy-out order, if made, would take into account the minority nature of BBHF’s interest in Sleeping Duck and would be discounted for the factors discussed by Mr Meredith in Appendix F to his report. There was also a risk that even if it was otherwise successful in obtaining the relief contended for, that BBHF would not succeed in obtaining orders that entitled to it a 10% interest in shares plus a 10% interest in options.
As Button J observed in Skytraders, while the quantum of the offer may have been below BBHF’s best case (there is no evidence about the level of value BBHF assessed as its best case at the time), the offer was for a sum certain and it was substantially above BBHF’s worst case on both liability and quantum. [17]
[17]Re Skytraders Pty Ltd (No 2) [2022] VSC 523 [58] (Button J) (‘Skytraders’).
The First Offer was a substantial one. The case for BBHF was contested on all issues. BBHF was at risk on several bases. It needed to prove oppression and it needed to jump a number of other hurdles, including as to the valuation date and, if that was as at or close to the date of trial, no discounts. Otherwise BBHF would not ‘beat’ the First Offer.
Contrary to BBHF’s submissions, the First Offer did not represent a capitulation. It proceeded on the assumption that oppression would be made out and that the remedy for that oppression would be a buy-out order. It proceeded on the assumption that the date for the assessment of value for the purposes of buy-out would be proximate to the trial date but it made no reduction for the fact of BBHF’s minority interest.
BBHF submits the First Offer involved no value being attributed to its options over 10,000 shares and that the first tranche of those options was ‘in the money’. Two things may be said about the options. First, there was no evidence adduced at trial concerning the value of the options. Second, as BBHF’s submissions correctly state, the first tranche of the options was ‘in the money’ (leaving aside the conditions attached to its exercise). However the conditions cannot be left aside. As recorded in the trial reasons, it was ‘common ground that at the date of trial neither of the conditions for the exercise of options in the Call Option Deed has been satisfied.’[18] If the options had value, the absence of a discount in the amount of the First Offer on account of BBHF’s minority interest worked as somewhat of a counter to that value, whatever it might have been.
[18]BBHF Pty Ltd v Sleeping Duck Pty Ltd & Ors [2024] VSC 320 [558].
By reference to its quantum, the rejection of the First Offer by BBHF was unreasonable. The amount of the offer was substantial. It did not include costs, but it did not require the Companies costs to be paid. The First Offer represented a genuine compromise, pitched at a level that took into account that BBHF might succeed, but that it might fail. It provided a certain outcome in circumstances where BBHF’s case was attended by significant risk on liability and uncertainty about whether a buy-out order would be made, and, if so at what date and with what allowance on account of BBHF’s minority interest.
D1.3 The requirement for a deed of settlement
The fact the First Offer provided for payment within 28 days of a deed of settlement being executed is not a reason to find BBHF’s failure to accept the offer was reasonable.
It is not unusual that a party making an offer to settle proceedings will require as a condition of that offer the entry into a deed of settlement by the persons and parties involved. The First Offer outlined the terms of the settlement deed. I accept that the inclusion of a term described as a ‘non-compete obligation’ imposed on Dr Shiffman of an unspecified nature and for an unspecified term created an element of uncertainty. However, the recipient of the First Offer, its advisers and Dr Shiffman would know that no court would uphold an unreasonable restraint clause, should an unreasonable non-compete clause be included in a deed of settlement later proffered for execution.
If the issue of concern to BBHF upon receipt of the First Offer was the requirement for a non-compete clause in the deed of settlement, that was not a reason to reject the offer. It was a reason to go back to the Companies and to seek clarification or the provision of a draft deed of settlement for consideration. The First Offer was open for acceptance for a 21 day period. There was plenty of time and opportunity to request the provision of a draft deed for consideration. On the evidence, BBHF made no such request.
I do not regard the requirement for a deed of settlement and the absence of any specific proposals concerning non-competition on the part of Dr Shiffman to be factors that make the otherwise unreasonable rejection of the First Offer by BBHF a reasonable rejection.
The rejection by BBHF of the First Offer on 22 August 2022 was unreasonable. BBHF wanted to be bought out. That was the relief it was seeking in the proceeding. If the First Offer had been accepted BBHF would have been bought out at a substantial price.
I will order that the Companies’ costs, including reserved costs, be paid by BBHF on a standard basis until 22 August 2022 and thereafter on an indemnity basis.
D2 The Second Offer
While it is not necessary to determine the matter, should I be wrong about the unreasonable rejection of the First Offer, I regard the failure by BBHF to accept the Second Offer as unreasonable.
The time for acceptance was relatively tight, 20 hours, but all parties were in full trial mode and BBHF had itself recently been making offers. The time for acceptance was reasonable.
The Second Offer represented a substantial compromise. While it is true the amount of the Second Offer was less than half the level of value of BBHF’s interest in Sleeping Duck assessed as a percentage of the value of Sleeping Duck as at October/November 2021, to view the amount of the offer in that way, looking at the relationship between expert evidence as at those dates and the amount of the offer in isolation is to ignore the realities of the case. It is unrealistic. BBHF faced significant risks, not the least on liability. It faced the risk that if it succeeded on liability the Court might choose to proceed by reference to the agreed value of Sleeping Duck as at 30 June 2023 — $43.6 million. The Court might discount the value of BBHF’s shares because of the minority nature of BBHF’s interest. The Second Offer represented a certain outcome, an exit in return for a substantial payment. It avoided the risk of a loss on liability and very substantial adverse costs orders.
The same issues of the options not separately being attributed value and of the offer not including costs as were raised by BBHF concerning the First Offer are raised by it concerning the Second Offer. These issues need to be looked at globally as part of an assessment of the offer. The same considerations apply concerning these issues as discussed concerning the First Offer.
BBHF’s rejection of the Second Offer was unreasonable. Were it not for the unreasonable rejection by BBHF of the First Offer, I would have ordered that the Companies’ costs, including reserved costs, be paid by BBHF on a standard basis until 17 October 2023 and thereafter on an indemnity basis.
E Mr Bandopadhayay’s costs
E1 BBHF’s submissions
BBHF submits the fair and just outcome would be for no order as to costs to be made between BBHF and Mr Bandopadhayay.
BBHF submits there was no conflict between the interests of Mr Bandopadhayay and the Companies, but rather, they were directly aligned. The Court should not allow two sets of costs for defendants between whom no conflict of interest could arise in the presentation of their cases.
In Linke v Linke,[19] Keogh J referred to the earlier decision in Statham v Shepherd & Anor (No 2):[20]
[19]Linke v Linke [2018] VSC 815.
[20]Statham v Shepherd & Anor (No 2) (1974) FLR 244.
In Statham v Shepherd & Anor (No 2), Woodward J identified a circumstance in which a successful litigant might not be entitled to costs:
In general, two sets of costs will not be allowed to defendants between whom no conflict of interest could arise in the presentation of their cases.
His Honour outlined three provisos to this position:
In the first place, if a conflict of interest appears possible but unlikely, the defendant should make any necessary enquiries from the plaintiff as to the way in which his case is to be put if this would resolve the possibility of conflict between the defendants.
Secondly, there could be circumstances in which, although the defendants were united in their opposition to the plaintiff, their relationship to each other might be such that they would be acting reasonably in remaining at arms length during the general course of litigation.
Thirdly, even if defendants are acting reasonably in maintaining separate representation for some time or for some purposes, they may still be deprived of part of their costs if they act unreasonably by duplicating costs on any particular matter or at any particular time.[21]
[21]Linke v Linke [2018] VSC 815 [14].
BBHF submits that Mr Bandopadhayay was joined as a necessary party to the proceeding as he held more than 5% of the issued capital in Sleeping Duck and the outcome of the proceeding may have affected his interests. It does not follow that because a particular allegation was not pressed in the way Mr Bandopadhayay expected at trial that he should never have been joined from the beginning.
BBHF submits that from the outset it proposed that Mr Bandopadhayay be excused from participating in the proceeding and said it would consent to the making of such an order. It did so promptly, openly and with regard to the overarching obligations under the CPA. Mr Bandopadhayay rejected that course due to a misapprehension that claims were made against him directly, which misapprehension was corrected.
There was certainly no need for Mr Bandopadhayay to have sought to actively involve himself in the conduct of the proceeding after 6 May 2022. The other defendants against whom relief was sought were represented and successfully defended the claim. Mr Bandopadhayay’s involvement was unnecessary and disproportionate to the risk faced by him directly in the proceeding.
BBHF submits that Mr Bandopadhayay has failed to substantiate his claim for indemnity costs based on his contention that BBHF commenced or continued a claim in circumstances where it should have known that it had no chance of success. No such contention is made by the Companies. There is no inferential basis available to Mr Bandopadhayay to sustain that contention.
Mr Bandopadhayay seeks to rely upon the First Offer and the Second Offer on the basis they were, in effect, offers made by him. The First Offer makes no statement that it was a joint offer or made with the approval of Mr Bandopadhayay. He has not provided any evidence to explain his role in making the First Offer. The same applies to the Second Offer. The First and Second Offers are not relevant to costs issues concerning Mr Bandopadhayay.
E2 Mr Bandopadhayay’s submissions
Mr Bandopadhayay submits BBHF’s conduct necessitated his active participation in the proceeding. That is the case where the aspects of the proceeding in relation to which he was required to engage were hopeless and should reasonably have been seen to be hopeless from the outset. He submits it only became clear in closing submissions that no relief was sought against him. Had BBHF stated from the outset that no relief was sought against him, his participation and involvement in the proceedings would have been at a wholly different and reduced level. BBHF’s failure to properly declare its position unnecessarily increased costs for Mr Bandopadhayay. On that basis the discretion should be exercised to award Mr Bandopadhayay his costs on an indemnity basis for the entirety of the proceeding.
The principles governing the award of indemnity costs are well established. In Macedon Ranges Shire Council v Thompson, Redlich JA and Beach AJA stated:[22]
Costs may be ordered whenever it appears that an action has been commenced in circumstances where the applicant properly advised should have known it had no chance of success. When a litigant presses on where on proper consideration their case should have been seen to be hopeless, the discretion to make a special costs order may be enlivened. … The Court must measure the litigant’s conduct against the facts then known or which ought to have been known, the inquiries that the litigant ought reasonably to have made and the legal advice which the litigant ought reasonably to have obtained.
[22]Macedon Ranges Shire Council v Thompson [2009] VSCA 209; (2009) 170 LGERA 41 [15] (citations omitted) (‘Macedon Ranges’).
Prior to the commencement of the proceeding, BBHF threatened Mr Bandopadhayay with court action to seek cancellation of his shares. In correspondence he sought to ascertain what relief was sought against him and to what extent he needed to remain actively involved. BBHF’s responses failed to clarify the relief sought and the allegations to be made which would require his active participation.
By 21 May 2022, BBHF no longer sought to cancel Mr Bandopadhayay’s shares but sought an order requiring him to enter into a shareholders’ agreement. By the time of the trial, BBHF’s written opening submissions demonstrated the relief sought insofar as it related to Mr Bandopadhayay was limited, though the position was further complicated by the fact that BBHF pressed a number of allegations that necessitated Mr Bandopadhayay’s involvement. No evidence was led as to Mr Bandopadhayay’s role in relation to some of those allegations. It was only in closing that it became clear that no relief was sought against Mr Bandopadhayay.
In the alternative, Mr Bandopadhayay submits that his costs should be paid on a standard basis until the date of the First Offer, and thereafter paid on an indemnity basis. In the next alternative, Mr Bandopadhayay submits his costs should be paid on a standard basis until the date of the Second Offer, and thereafter on an indemnity basis. Each of the First and Second Offers were made on the basis that Mr Bandopadhayay would agree to settlement of all issues between the parties on the terms proposed.
Both Offers contemplated settlement between the parties on all issues and provided for releases from all the defendants. Despite the First and Second Offers not having been made directly by him, each Offer was made on the basis Mr Bandopadhayay would also agree to settlement on the terms proposed. In effect, each Offer also was an offer of settlement made by Mr Bandopadhayay. He joins with the submissions of the Companies in contending that BBHF’s rejection of the First Offer and Second Offer was unreasonable.
Mr Bandopadhayay also joins with the Companies in submitting that his costs be fixed in a specific sum to be determined and that the Court allow an increase of 10% of the charges permitted on a taxation of costs.
E3 Mr Bandopadhayay’s costs: Consideration
Two questions are fundamental to BBHF’s contention that Mr Bandopadhayay and it should each pay their own costs:
(a) whether it was appropriate that Mr Bandopadhayay be separately represented; and
(b) whether Mr Bandopadhayay should have incurred the costs of representation following correspondence from BBHF’s solicitors that BBHF would consent to the making of an order that he be excused from participating in the proceeding.
From the time the proceeding was instituted until the trial itself the relief sought by BBHF was broadly expressed. The prayer for relief sought ‘such orders as the Court considers appropriate pursuant to s 233 of the Corporations Act. It did not distinguish between the defendants so far as that relief is concerned.
Correspondence passed between the parties in the six months or so after the proceeding was instituted concerning Mr Bandopadhayay‘s role in the litigation and whether he should be an active participant:
(a) On 27 January 2022, BBHF’s solicitors wrote to the solicitors for the Companies and the Founders asserting that they required an undertaking to the Court that ‘your clients and Sleeping Duck… will not issue any further shares or pay dividends to Mr Bandopadhayay until further order’ – the request, if acted on by the Founders, would have been commercially detrimental to Mr Bandopadhayay and would have put his interests and those of the Founders who controlled the Companies in active conflict.
(b) On 22 February 2022, the solicitors for Mr Bandopadhayay requested the provision of documents referred to in BBHF’s statement of claim in order to prepare his defence. On 24 February 2022 BBHF’s solicitors responded:
… the statement of claim filed does not seek any relief against your client.
Although ultimately a matter of your client, it is unclear to our client why your client would not seek to be excused from filing a defence or taking further steps in the proceeding…
Nonetheless… we will provide you with the documents…
Further, and in view of the active position taken by your client, we call on your client to produce critical documents…
(c) In response on 4 March 2022 the solicitors for Mr Bandopadhayay referred to the breadth of the orders sought pursuant to s 233 of the Corporations Act and to earlier correspondence referring to the prospect of the Court cancelling Mr Bandopadhayay‘s shares. They noted that it was unclear how Mr Bandopadhayay being ‘excused’ from filing a defence or taking further steps in the proceeding would operate in the absence of a release and indemnity in his favour or agreement to orders that the proceeding against him be dismissed with no right of reinstatement.
(d) Engaging further with the question of Mr Bandopadhayay’s involvement in the proceeding, on 4 March 2022 BBHF’s solicitors asserted that no relief was sought against Mr Bandopadhayay and that he could be excused from participation on the basis that:
he will be bound by and will abide by any order of the Court made in proceeding; and he will be at liberty to appear at any hearing or file any pleading if he determines that it is in his interests to do so.
(e) In further correspondence dated 11 March 2022 the solicitors for Mr Bandopadhayay repeated their assertion that the relief sought by BBHF includes relief against Mr Bandopadhayay.
Although BBHF invited Mr Bandopadhayay not to be an active participant in the proceeding, no practical basis on which that could occur with his interests being adequately protected was identified by BBHF.
When BBHF filed a document on 21 May 2022 pursuant to the 12 May Order setting out the relief for which it contended against each defendant the relief sought included orders seeking specific relief against Mr Bandopadhayay:
Further, or in the alternative, an order that each of the defendants take all necessary steps:
a. to enter into the shareholders agreement… and
b. to effect a “partial sell down”…
What the correspondence and the 21 May 2022 document demonstrates is that Mr Bandopadhayay was justified in filing a defence and taking an active part in the proceeding. The 21 May 2022 document expressly foreshadowed orders requiring him to take active steps to enter into a shareholders’ agreement and to effect or join in a partial sell down of shares.
From 21 May 2022 until the trial and continuing throughout the trial, the relief sought by BBHF was and remained broadly expressed. At all times it was sufficiently broadly expressed to involve relief which would directly adversely affect Mr Bandopadhayay’s interests.
It is also the case that Mr Bandopadhayay’s interests did not coincide with those of the Founders and the Companies.
Mr Bandopadhayay was justified in incurring the costs of separate representation. His interests and those of the Companies were not aligned and active conflicts may well have emerged. By way of example, the interests of Mr Bandopadhayay as a minority shareholder may well have been different to those of the Companies concerning the terms of a shareholders’ agreement.
The role and involvement of Mr Bandopadhayay in relation to the ESOP and the exercise by him of his options were critical elements in BBHF’s claim to be entitled to relief. Concerning the allegations that the Founders acted in concert with Mr Bandopadhayay in April and September 2021 to enable him to exercise the options, making him a shareholder unbeknownst to Dr Shiffman, it could not be assumed that the interests of the Companies and those of Mr Bandopadhayay would remain coincident at trial.
It was not until closing submissions that it became clear BBHF was no longer seeking any relief against Mr Bandopadhayay.
In those circumstances I approach the disputed costs questions between BBHF and Mr Bandopadhayay on the basis that Mr Bandopadhayay was properly an active participant in the proceeding and that it was appropriate that he was separately represented throughout.
While that is the case, I do not consider there is a proper basis for an indemnity costs order in favour of Mr Bandopadhayay. Applying the statement by the Court of Appeal in Macedon Ranges given the factual complexity of the issues in dispute that spanned a long period of time I am not persuaded that the circumstances are such that BBHF, properly advised, should have known it had no chance of success.
While BBHF’s failure to deal with Mr Bandopadhayay’s role and involvement in the litigation until closing submissions meant that he was justified in incurring the cost of separate representation until the end of the trial, I do not accept the submission that the failure to do so provides a proper basis to order indemnity costs in his favour for the entirety of the proceeding. The consequence of BBHF’s failure to deal with Mr Bandopadhayay’s involvement in the litigation was that he was required to participate in the proceeding which he successfully defended, but no more.
I am also not persuaded that either the First or Second Offer are relevant to disputed costs issues as between BBHF and Mr Bandopadhayay. Neither Offer was expressed to be made on his behalf. He was separately represented. There is no evidence that his solicitors sent correspondence in which there was an assertion that their client joined in either of those Offers. To take advantage of a Calderbank offer a party must make or at least join in the offer. There is no evidence that occurred so far as Mr Bandopadhayay is concerned.
Mr Bandopadhayay was not a willing participant in the litigation. He incurred legal costs defending the proceeding. He was justified in doing so. I will order that Mr Bandopadhayay’s costs of and incidental to the proceeding, including reserved costs, be paid by BBHF on a standard basis.
F The claims for gross sum costs and uplift
The Companies and Mr Bandopadhayay contend for an order that their costs be fixed in a specific sum to be determined and for an increase of 10% of the charges permitted on a taxation of costs.
F1 Companies’ submissions
F1.1 Principles
Pursuant to r 63.07(2)(c) of the Rules, the Court may make an order that a party is entitled to a ‘gross sum specified in the order instead of taxed costs’. Pursuant to s 65C of the CPA, in furtherance of the overarching purpose, the Court may ‘award a party costs in a specified sum or amount’.
The object of r 63.07(2)(c) was summarised by Croft J in Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3):[23]
[23]Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) [2012] VSC 399 [84] (citations omitted).
The clear object of rule 63.07 of the Rules is, in my view, similar to the object of the corresponding Federal Court rule, as discussed by Sackville J in Seven Network Limited v News Limited, as follows:
(i)The purpose of the subrule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation.
(ii)An order that costs be assessed as a gross sum does not envisage that any process similar to that involved in taxation should take place. On the contrary, the Court applies a much broader brush than would be used on a taxation of costs pursuant to O 62.
(iii)The Court should be confident that the approach taken to the estimate of costs is logical, fair and reasonable. The Court should be astute to avoid both overestimating the recoverable costs and underestimating the appropriate amount, for example by applying an arbitrary discount to the amounts claimed.
(iv)Although the power to assess a gross sum for costs involves the exercise of a discretion, it is necessary to bear in mind fundamental principles applicable to an assessment of costs on a party and party basis. These include the principles contained in O 62 r 19 (embodying the ‘necessary or proper’ test) and those stated in Stanley v Phillips (1966) 115 CLR 470, at 478, per Barwick CJ (on a party and party taxation the emphasis is upon obtaining adequate representation to enable justice to be done, not upon the propriety of steps taken to ensure maximum success in the cause).
(v)Although the methodology permitted by O 62 r 4(2)(c) initially involves a broader approach than on a normal taxation, the provisions of O 62 and Sch 2 provide assistance in fixing an appropriate gross sum.
In Pegela Pty Ltd v National Mutual, Wood AsJ recited Croft J’s statement above and further held:[24]
… A number of further propositions about the power to order gross sum costs are discernible from the cases.
Complex cases are especially suitable for the application of the rule. … The purpose of this rule is to achieve exactly the objectives mentioned by the judge, namely the avoidance of expense, delay and aggravation involved in a protracted litigation arising out of taxation. This would be achieved especially in complex cases. The order, therefore, does not envisage that any process similar to that involved in ‘taxation’ should take place. …
There may be occasions on which the judge will make a discount on the figures produced to him, although there is no statutory obligation to do this and care should be taken not to cause injustice to the party entitled to costs. …
Where the liability for costs may be expected to be large and a taxation complex and expensive, the financial position of the party liable is a matter relevant to be taken into account in exercising the discretion. …
[24]Pegela Pty Ltd v National Mutual [2013] VSC 137 [5] (Wood AsJ) (citations omitted) (‘Pegela’).
In Harrison v Schipp, Giles JA observed that:[25]
Of its nature, specification of a gross sum is not the result of a process of taxation or assessment of costs. As was said in Beach Petroleum NL v Johnson (at 124), the gross sum “can only be fixed broadly having regard to the information before the Court”; in Hadid v Lenfest Communications Inc (at [35]) it was said that the evidence enabled fixing a gross sum “only if I apply a much broader brush than would be applied on taxation, but that … is what the rule contemplates”. The approach taken to estimate costs must be logical, fair and reasonable (Beach Petroleum NL v Johnson (at 123); Hadid v Lenfest Communications Inc (at [27])). The power should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available (Wentworth v Wentworth (Court of Appeal, 21 February 1996, unreported) per Clarke JA).
F1.2 Evidence
[25]Harrison v Schipp [2002] NSWCA 213; (2002) 54 NSWLR 738, 743 [22] (Giles JA).
In his 10 July 2024 expert report Mr Grisenti of Blackstone Legal Costing concludes that a gross sum assessment is the just, quick, cheap and efficient manner in which to deal with the costs dispute in this case. He notes his instructions that the Companies’ costs are $2,926,610.61, the Court Book comprised 11,582 pages, the closing submissions 222 pages, there were more than 3,750 line items in the bills issued by the Companies’ solicitors, Clayton Utz, and there were more than 7,500 emails sent in respect of the proceeding.
It is Mr Grisenti’s opinion that:
(a) gross sum assessment could be completed by the end of 2024, whereas a full taxation would take until the end of 2025;
(b) a taxation could require 30 to 40 days of the Costs Court’s time, given advice on multiple occasions by Registrars of the Costs Court that they will be able to tax between 100 and 200 items which have been objected to per day;
(c) a gross sum assessment will cost the parties approximately $80,000 to $100,000 each; whereas a full taxation will cost the Companies approximately $360,000 and BBHF $255,000.
Mr Grisenti prepared a supplementary report dated 29 July 2024. Mr Grisenti clarified the purpose of his expert evidence was to provide an opinion as to whether it was fair and reasonable for the costs to be assessed on a gross sum basis, not to assess the reasonable quantum of those costs.
In his supplementary report, Mr Grisenti reported that the number of objections made is ordinarily between 65–80% of the bill. He set out reasons in support of his conclusion that the likely number of items in this case would be 6,500. On those bases as well as having regard to the material with which he was briefed and his experience in legal costing, he reached an estimate of 30 to 40 days for any taxation.
F1.3 Submissions
The Companies submit the observations of Wood AsJ in Pegela favour the making of a gross sum costs order for the following reasons:
(a) a taxation of costs would be protracted and expensive;
(b) the amount of the Companies’ costs appears to be logical, fair and reasonable;
(c) this was a complex case and, as such, is ‘especially suitable’ for the making of a gross sum costs order; and
(d) BBHF has provided no evidence of its current financial position. The mere risk of a non-recovery of costs militates in favour of the less expensive and more timely gross sum approach.
The Companies submit that, in line with my observations in Aura Energy Pty Ltd v ASEAN Deep Value Fund (No 2),[26] a gross sum costs order should be made as the burden of the taxation as against a gross sum assessment was/is very substantial and here, as in Aura, as the trial judge, I am in as good, or a better, position than the Costs Court to assess costs.
[26]Aura Energy Pty Ltd v ASEAN Deep Value Fund (No 2) [2020] VSC 732 (Delany J) (‘Aura’).
Pursuant to r 63.34(3) of the Rules, the Court may ‘on special grounds arising out of the nature and importance or the difficulty or urgency of the case, allow an increase not exceeding 30% of the legal practitioner’s charges allowed on the taxation of costs’.
The Companies submit that in this proceeding, the matter was highly fact intensive, vigorously contested and required specialised knowledge, including as to accounting and valuation. They submit that a 10% uplift is appropriate.
F2 BBHF’s submissions
BBHF opposes the making of a gross sum costs order. It opposes the 10% uplift on costs contended for against it.
By reference to Mr Grisenti’s 10 July 2024 report, BBHF submits the Court has no evidence as to the quantum or nature of the Companies’ costs save for a bare statement in written submissions and references in Mr Grisenti’s report. (Mr Grisenti’s supplementary report and an answering affidavit by Mr Chami were filed after BBHF’s submissions.)
Sleeping Duck, the first defendant, was unrepresented in the proceeding. Given it was clear from ongoing issues regarding discovery that the Companies were discovering documents of Sleeping Duck but the precise nature of what occurred and any costs arrangement was unexplained, it would be unfair and unjust for the costs of the Companies to be resolved without proper examination. That examination can most appropriately occur as part of a standard taxation process.
BBHF submits Mr Grisenti’s 10 July 2024 report ought not to be given any weight. The report suffers from significant defects:
(a) Mr Grisenti was not asked to comment on the issues identified above concerning the role of Sleeping Duck;
(b) it does not provide a basis for the estimate of the number of objections any taxation process would likely involve; and
(c) his view on delay and inefficiencies was formed without having reviewed invoices, bills or a costs agreement.
BBHF submits there can be no suggestion it does not have the capacity to meet any costs liability. Its shareholding in Sleeping Duck is worth at least $4 million.
F3 Companies’ reply submissions
In reply, the Companies submit Sleeping Duck filed a submitting appearance at the outset of the proceeding. It did not have legal representation in respect of the proceeding. The case law indicates that this is the appropriate approach.
Regarding discovery, the Companies referred to an affidavit of Mr Chami dated 1 August 2024 and submit the Founders had practical access to Sleeping Duck’s documents. The Founders (on behalf of the Companies) incurred the full expense of conducting discovery. BBHF knew at all times that the Founders had adopted this course.
In relation to quantum, the Companies’ submissions refer to Mr Grisenti’s supplementary report in which Mr Grisenti:
(a) observes he was given instructions as to the quantum of the Founders’ legal expenses, a disaggregation as between professional fees, counsels’ fees, expert fees and other disbursements, as well as the number of hours charged as professional fees and the number of line items, and the Court Book and trial reasons;
(b) expresses a view (based on detailed reasoning) as to the likely number of objections which would be made as part of a taxation, based on his expert experience; and
(c) expresses the view that having the information described at (a) above was sufficient for him to form an expert opinion on whether it is reasonable for the matter to proceed to assessment on a gross sum basis.
The Companies submit that BBHF has put on no expert evidence as to costs. They refer to Cargill Australia Ltd v Viterra Malt Pty Ltd (No 32) where Elliott J held that cogent expert evidence should be accepted in the absence of contradictory expert evidence.[27]
[27]Cargill Australia Ltd v Viterra Malt Pty Ltd (No 32) [2022] VSC 299 [305]-[310].
Finally, the Companies submit that BBHF elides two separate issues: whether there should be a gross sum order, and the amount of that order. The making of an order that costs be assessed on a gross sum basis will not remove BBHF’s ability to make submissions about the suitable amount of any such order.
F4 Mr Bandopadhayay: Evidence and submissions
Mr Bandopadhayay’s reply submissions as to costs adopt the Companies’ submissions both as to the appropriateness of a lump sum costs order and as to the 10% uplift.
Mr Bailey has given evidence that Mr Bandopadhayay’s costs to 1 August 2024 are $812,473.19 including solicitors costs of $476,793.72 and $305,592.50 in counsel fees.
F5 Consideration: Gross sum costs and uplift
In ACN 074 971 109 (as trustee for the Argo Unit Trust) & Anor v National Mutual Life Association of Australasia Limited, Wood AsJ, a very experienced judge in the field of legal costs, said:[28]
Complex cases are especially suitable for the application of the rule [63.07(2)(c), particularly cases where it is the taxation that would be complex].
[28]ACN 074 971 109 (as trustee for the Argo Unit Trust) & Anor v National Mutual Life Association of Australasia Limited [2013] VSC 137 [8].
This case is such a case. The litigation was factually complex. The evidence establishes that taxation would be complex, time consuming and costly.
The evidence is that the Companies’ costs are $2,926,610.61. Mr Bandopadhayay’s costs are $812,473.19. That is not to say the costs of those parties should be determined in those amounts on a gross sum basis. The assessment of costs on a gross sum basis will need to occur in a manner consistent with my orders, in the case of Mr Bandopadhayay’s costs, on a standard basis, in the case of the Companies, on a standard basis until and on an indemnity basis after 22 August 2022. However the quantum of the costs and the likely number of objections if there was to be a taxation are factors that clearly favour gross sum costs orders.
Applying the observations of Croft J in Sunland, having regard to Mr Grisenti’s evidence and my knowledge of the proceeding, I consider that a determination of costs that, if not resolved by agreement, provides for a gross sum is logical, fair and reasonable.
To make such an order in respect of both the Companies and Mr Bandopadhayay’s costs would, as Wood AsJ described the objectives of r 63.07(2)(c) in Pegela, avoid expense, delay and aggravation. The expense of taxation would be in the hundreds of thousands of dollars. If not resolved, the Costs Court could be expected to spend multiples of tens of days taxing the costs. To permit that to occur when there is an efficient and cost effective alternative would be inconsistent with the overarching purpose which I am required to give effect to pursuant to s 8 of the CPA.
The case was initiated approximately three years ago. In accordance with the CPA it is important to approach the remaining issue, the quantification of costs, in a way that is efficient, timely and cost effective. It is important costs issues do not take on a life of their own in this litigation.
I do not regard the financial position of BBHF as a relevant consideration, but for the reasons discussed, a gross sum costs order is appropriate, both in relation to the costs of the Companies and in relation to Mr Bandopadhayay’s costs.
I accept that as the trial judge, I am in a good position to determine whether a gross sum costs order is appropriate and I have done so. The Companies submit that as the trial judge I am in as good, or a better, position than the Costs Court to assess costs. I do not agree. I am not a legal costs specialist. The Costs Court has the specialist skills and knowledge required to determine the amount of the gross sum costs, differentiating in the case of the Companies between standard costs and indemnity costs before and after 22 August 2022 and in the case of Mr Bandopadhayay, determining costs on a gross sum basis on a standard basis.
Many costs disputes that come before the Costs Court are resolved by mediation. That being the case I propose to order the quantification of costs payable in accordance with my reasons should in the first instance be mediated by the Costs Court. If no agreement is able to be reached then the costs of the Companies and of Mr Bandopadhayay are to be assessed by a Judicial Registrar of the Costs Court as a gross sum, instead of taxed costs.
I will not make an order for a 10% uplift pursuant to r 63.34(3) of the Rules as is sought by both the Companies and by Mr Bandopadhayay. While the dispute was very fact intensive and involved expert accounting and valuation evidence, I do not consider there are features of the case that warrant an uplift when it comes to standard or party/party costs. In the case of the Companies’ costs to be paid on an indemnity basis, I will order that in determining those costs the Costs Court may have regard to the fee agreement or agreements in place from time to time between the Companies and their legal advisers.
G Dismissal
G1 Submissions
The Companies seek formal orders as follows:
1. The proceeding be dismissed.
2. Pursuant to Rule 59.02(1) of the Supreme Court (General Civil Procedure) Rules 2015, Order 1 is taken to have effect on and from 14 June 2024.
Rule 59.02(1) provides:
A judgment given or an order made by the Court shall bear the date of and shall take effect on and from the day it is given or made, unless the Court otherwise orders.
Rule 1.13 provides:
“judgment given” means a judgment given by the Court at the trial of a proceeding or on the hearing of an application in a proceeding.
The Companies submit that paragraph 2 as proposed simply gives effect to the trial reasons. 14 June 2024 is the date the proceeding was dismissed, the date judgment was ‘given or made’ even though no final order was entered or authenticated on that day. They submit paragraph 2 simply operates to formalise that which has already occurred.
The date the dismissal order is effective is potentially an important one. In Moller v Roy, Barwick CJ said:[29]
It is fundamental to our jurisprudence that an appeal is brought against an order and not against the reasons which support the order.
[29]Moller v Roy [1975] HCA 31; (1975) 132 CLR 622, 627 (Barwick CJ). See also 639 (Mason J); R v Ireland [1970] HCA 21;(1970) 126 CLR 321.
The Companies point to the following statements in the trial reasons in support of paragraph 2 for which they contend:
(a) in a section entitled ‘overview’:
(i) ‘...I have found that none of the pleaded acts of oppression relied on by BBHF has been made out. For that reason, the oppression claim in the proceeding is dismissed’;[30]
(ii) ‘In addition to its oppression claims, BBHF separately alleges breaches of the 14 April 2021 Call Option Deed. For the reasons discussed in section E12.4, the separate allegation of breach of the April 2021 Call Option Deed is not made out. That aspect of BBHF’s claim is also dismissed’;[31]
(b)in a section entitled ‘was there oppression?’, ‘[t]he allegations relied on by BBHF in its pleaded case and advanced in its closing submissions not being made out, the proceeding is dismissed. That being the case, no issue concerning relief arises for determination’;[32] and
(c)in a section entitled ‘disposition’, ‘I will order that the proceeding be dismissed’ (but in light of the foregoing statements ought be understood as meaning that the proceeding was dismissed on and from 14 June 2014 and not at some future date).
[30]BBHF Pty Ltd v Sleeping Duck Pty Ltd & Ors [2024] VSC 320 [57].
[31]BBHF Pty Ltd v Sleeping Duck Pty Ltd & Ors [2024] VSC 320 [59].
[32]BBHF Pty Ltd v Sleeping Duck Pty Ltd & Ors [2024] VSC 320 [905]-[906].
The Companies submit this was not a case where the trial reasons requested the parties provide orders in respect of the dismissal, it being the case the proceeding had already been dismissed. This is not a case where it was intended there be future steps taken before the dismissal order is effective. The finality of the dismissal is said to be contrasted with the position concerning costs where the trial reasons expressly stated that if a party contended for a different costs order than that foreshadowed, then costs would be dealt with at a later time.
The Companies rely on the following statement from Dalton v State of South Australia cited with approval by the Court of Appeal in Samios v DPP:[33]
Leaving aside Rules of Court which may affect the situation, the general position is as stated by Lord Westbury LC when referring to the then Chancery practice in Ex parte Hookey; In the matter of The Risca Coal and Iron Co: [(1862) 4 De GF & J 456 at 458–9]
An order of the Court of Chancery, however long a time may elapse in the ministerial duty of drawing up that order and committing it to paper, is made to bear date on the date on the day when it is pronounced by the court. That date appears in the document in which the order is recorded, and the principle, therefore, involves of necessity this consequence, that the order must be accepted for all purposes as having been made on the day on which it is dated … The principle which makes the order, whenever drawn up and entered, to bear date on the day when it is pronounced by the court, I hold to be one in perfect conformity with the whole theory of judicial procedure. The theory of judicial procedure is that the cogent and binding effect of the order begins immediately from the time when the order is pronounced by the lips of the judge, and if that could be done physically which legally is supposed to be done if it were possible, every order would be completed on the spot, written out by the judicial officer and in curia before the court rises, and delivered to the parties. That is the unquestionable theory of judicial procedure, and in conformity with that theory that is the time when the order is “made”, for the two words must be considered as equivalent and capable of being substituted the one from the other. The mere defining of the words of the court by writing and reducing them into a form in which they can be evidence is a ministerial operation in which, according to the true theory, succeeds the delivery of the order by the judge, and must be in point of fact nothing in the world more than the physical embodiment on the spot by the court of the words which the judge has used.
Of particular importance is the observation that, unless otherwise stated, the order takes effect from the time it is announced. This statement was followed by Napier CJ in Driver v Driver [[1950] SASR 8 at 10] and the Full Court in Ljoljic v Sherlock. [(1989) 152 LSJS 484].
[33]Dalton v State of South Australia [2010] SASC 45; (2010) 106 SASR 279 [39]-[40] (Duggan J, Doyle CJ and Nyland J agreeing) (‘Dalton’) as cited in Samios v DPP [2022] VSCA 108, fn 20 (Priest, T Forrest and Macaulay JJA).
As Lander, Gilmour and Gordon JJ said in Management 3 Group Pty Ltd (in liq) v Lenny’s Commercial Kitchens Pty Ltd (No 2):[34]
It is important to distinguish, as a matter or parlance, between the giving of judgment, on the one hand, and the entry or authentication of judgment, on the other: see Holtby v Hodgson (1889) 24 QBD 103 at 107. … Even if this Court’s 12 December 2011 judgment was capable of being entered, that judgment did not order the second respondent to pay the appellants any sum of money upon which interest could be calculated. While we stated … that “we would allow the appeal and enter a judgment for M3G in the amount claimed”, the orders contemplated that the appellants would bring forward a short minute of orders to reflect that decision and that it would be those further orders which actually effected the judgment. That has not yet occurred.
[34]Management 3 Group Pty Ltd (in liq) v Lenny’s Commercial Kitchens Pty Ltd (No 2) [2012] FCAFC 92; (2012) 203 FCR 283 [20].
The Companies acknowledge there are statements in the authorities which distinguish between on one hand, the giving of judgment/ making of an order and, on the other hand, stating the reasons for the judgment. In Trippe Investments Pty Ltd v Henderson Investments Pty Ltd:[35]
[the] learned judge, having delivered his reasons for judgment and having stood the proceedings over for minutes to be brought in [including as to the exact form of declarations sought] and for argument on costs, it cannot be said that judgment was given or pronounced until those matters were finalised.
[35]Trippe Investments Pty Ltd v Henderson Investments Pty Ltd (1990) 101 FLR 261, 265 (Nader ACJ and Angel J) (‘Trippe’).
The Companies submit this is not a case like Trippe where the final form of declaration was yet to be determined. By reference to the passages quoted from the trial reasons, the proceeding was dismissed on and from 14 June 2024 and not at some future date. This is not one of those cases where it was intended that there be future steps taken before the dismissal order is effective.
BBHF submits that although the power of courts to make nunc pro tunc orders is well established, the power is a broad power, capable of adaptation to suit the circumstances of a particular case in order to overcome procedural irregularities and difficulties. It submits an order should not be made nunc pro tunc where to do so would interfere with a substantive right.
BBHF submits the Companies have not identified any procedural irregularity or difficulty in support of the nunc pro tunc order sought. For that reason alone, the power should not be exercised.
G2 Consideration
In this case, as submitted on behalf of the Companies, the trial reasons published by email ‘pronounce’ that the proceeding was dismissed. While the formal order recording that to be the position was not entered or authenticated on that day nothing more remained to be done. Consistent with the statement of the South Australian Court of Appeal in Dalton and the authority referred to by Doyle CJ, ‘of particular importance is the observation that unless otherwise stated, the order takes effect from the time it is announced’.[36] The order dismissing the proceeding was announced in the trial reasons. The only issues or questions not pronounced and not finally disposed of were costs questions.
[36]Dalton v State of South Australia [2010] SASC 45; (2010) 106 SASR 279 [40].
While it would have been preferable for the Court to authenticate an order dismissing the proceeding on or shortly after 14 June 2024 had such an authenticated order issued, it would have issued with effect from 14 June 2024. As it happened, there were delays in the provision of submissions relating to costs and no dismissal order was authenticated in the meantime. However, that does not detract from the fact that dismissal was pronounced on 14 June 2024.
To the extent it is necessary to do so, and I do not consider that to be the case because of the clear dismissal of the claims on 14 June 2024, I nevertheless consider this an appropriate case to make an order dismissing the proceeding effective 14 June 2024 nunc pro tunc.
I am conscious that the effect of such an order would be to require BBHF to apply for an extension of time to initiate any appeal. However, there may or may not be an appeal. If there is an appeal and an application for leave to appeal out of time, whether or not time should be extended can be dealt with at that time.
H Final orders
I will today arrange for the entry and authentication of the following orders, including orders to give effect to these reasons:
(1)Pursuant to r 59.02(1) of the Supreme Court (General Civil Procedure) Rules 2015, the proceeding is dismissed on and from 14 June 2024.
(2)The plaintiff pay the second and third defendants’ costs of and incidental to the proceeding including reserved costs on a standard basis up to 22 August 2022 and thereafter on an indemnity basis.
(3)The plaintiff pay the fourth defendant’s costs of and incidental to the proceeding including reserved costs on a standard basis.
(4)The costs payable by the plaintiff pursuant to this Order are to be mediated by the Costs Court, such mediation to be preceded by a directions hearing before Judicial Registrar Conidi of the Costs Court on a date to be fixed.
(5)Failing resolution of the costs dispute, the costs of the second and third defendants and the costs of the fourth defendant payable by the plaintiff in accordance with these orders are to be assessed by a Judicial Registrar in the Costs Court as a gross sum, instead of taxed costs.
(6)In determining the costs to be paid pursuant to this Order the Costs Court may have regard to the fee agreement or agreements in place from time to time between the second and third defendants and their legal advisers.
(7)The costs to be paid pursuant to this Order are referred to a Judicial Registrar for assessment as a gross sum pursuant to rule 84.03(1) of the Supreme Court (General Civil Procedure) Rules 2015.
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SCHEDULE OF PARTIES
BETWEEN:
BBHF PTY LTD
Plaintiff
– and –
SLEEPING DUCK PTY LTD
First Defendant
ENERGON SHIELD PTY LTD
Second Defendant
S2 ULYSSES PTY LTD
Third Defendant
PRATEEK BANDOPADHAYAY
Fourth Defendant
0
10
0