Black v R and M Traders
[2018] VSC 527
•14 September 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2016 01184
| RENEE SUSAN BLACK | Plaintiff |
| v | |
| R & M TRADERS PTY LTD (ACN 601 602 126) AND OTHERS (according to the schedule) | Defendant |
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JUDGE: | RANDALL AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 20 November 2017 |
DATE OF JUDGMENT: | 14 September 2018 |
CASE MAY BE CITED AS: | Black v R & M Traders & Ors |
MEDIUM NEUTRAL CITATION: | [2018] VSC 527 |
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CORPORATIONS – Corporations Act2001 (Cth), s 233 – Oppression – Relief sought was a wind up – Alternative relief, a buyout – Proceeding compromised save as to costs by agreement to wind up the first defendant – Costs – Costs where no adjudication – Principles – Offer of Compromise – Civil Procedure Act 2010 (Vic), ss 22, 24, 28 and 29 – Conduct of the parties.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Bromley | RB Legal Pty Ltd |
| For the Defendants | Mr J Mason | MST Lawyers |
TABLE OF CONTENTS
The plaintiff’s position...................................................................................................................... 2
The defendants’ position.................................................................................................................. 2
The relevant offers............................................................................................................................. 2
Background......................................................................................................................................... 3
Applicable principles........................................................................................................................ 8
Civil Procedure Act 2010................................................................................................................. 17
Determination................................................................................................................................... 18
HIS HONOUR:
The plaintiff, by her originating process filed 29 August 2016, sought relief relevantly as follows:
A.An order that the first defendant (‘R & M Traders’) be wound up.
B.In the alternative to A, orders that the second and the third defendants (or one them) purchase the shares of the plaintiff in the first defendant, at a price to be determined by the Court.
The grounds relied upon were the oppression grounds under ss 233 and under 461(1)(e), 461(1)(f) and 461(1)(k) of the Corporations Act 2001 (Cth) (‘the Act’).
The plaintiff, Ms Renee Susan Black, is a director and shareholder of R & M Traders. The plaintiff is the owner of 25.5% of the issued shares in R & M Traders.[1]
[1]Affidavit in support of Originating Process sworn 26 August 2016 [1]-[3].
In or around October 2014, R & M Traders commenced operating the Dandenong store branded under the ‘Dimmeys’ name. In September 2015, R & M Traders took over the operations of the Forest Hill Dimmeys store.
The plaintiff alleges that from around September 2015, the second and third defendants began isolating and excluding her from the decision making in the two stores, including denying her access to the financial information of R & M Traders and forcing her to stop working at one of the stores. The plaintiff also contended that she was prevented from using her company owned car.[2] It is of note that allegations were made against the third defendant’s husband, Doug Zappelli. However, during the relevant time, Doug Zappelli had been banned from managing a corporation. At its highest he might have been considered a shadow director of R & M Traders.
[2]Ibid [6]-[9].
The final hearing was scheduled for 20 November 2017. On 16 November 2017, the parties advised the Court that orders by consent would be sought on the first day of the hearing which provided for the winding up of R & M Traders and the appointment of Mr Andrew Yeo as liquidator for the purposes of the winding up. The only issue which remained to be determined was the question of costs.
The order for winding up was made.[3]
[3]Order of the Honourable Associate Justice Randall made 20 November 2017.
The plaintiff seeks her costs on the basis that ordinarily such costs would follow the event. Michael Thomas Evans and Kaylin Zappelli (‘the defendants’) seek their costs on an indemnity basis from 19 December 2016 by virtue of the plaintiff’s unreasonable failure to accept a Calderbank offer or the offers dated 11 August 2017 and 20 October 2017.
The plaintiff’s position
The plaintiff’s position is simply put, that is, the plaintiff has been successful in obtaining a winding up order which was the primary relief sought in the originating process and her points of claim filed on 10 February 2017. In those circumstances, costs ought to follow the event. The plaintiff submitted that although this proceeding was resolved by agreement (except as to costs), the agreement ought to be considered by the Court as a capitulation by the defendants.
The defendants’ position
The defendants seek costs on an indemnity basis by virtue of the plaintiff’s unreasonable decision not to accept various offers put on behalf of the defendants. In particular, the defendants rely upon the plaintiff declining to accept the Calderbank offer of 19 December 2016 or the offers dated 11 August 2017 or 20 October 2017. The defendants also rely upon the Court’s power to sanction breaches of the ‘overarching obligations’ under ss 28 and 29 of the Civil Procedure Act 2010 (Vic).
The relevant offers
The question of costs turns on whether either party has acted unreasonably in this proceeding. I note that determining whether the parties conduct is reasonable or unreasonable will require matters of ‘judgment and impression’ and considering the relevant factors in Hazeldene’s Chicken Farm.[4] As Gleeson CJ once expressed ‘unreasonableness is a protean concept.’[5]
[4]Hazeldene’s Chicken Farm v VictorianWorkCover Authority (No 2) [2005] VSCA 298, 24. (‘Hazeldene’s Chicken Farm’).
[5]Re Minister for Immigration and Multicultural Affairs; ex parte Applicant S20/2002 (2003) 77 ALJR 1165 at 1170 [20].
It is imperative to have regard to the various offers between the parties. This assists to establish whether the parties have breached the overarching obligations in the Civil Procedure Act 2010 to warrant departure from the settled practice that costs lie where they fall.
Background
The following material was put before me on the application for costs:
17 March 2016 – a letter from the plaintiff’s solicitors regarding exclusion of the plaintiff from her involvement in the business operated by the company and the refusal to provide access to all books and records of the company.[6]
[6]Affidavit of Alicia Marie Hill sworn 17 November 2017, exhibit ‘AMH-1’.
29 August 2016 – originating process.
14 September 2016 – letter from the defendants’ solicitors to the plaintiff’s solicitors. That letter:
·expressed a desire for the company not to be wound up;
·expressed some enthusiasm about an improvement in the financial performance of the company;
·reminded the plaintiff that the company continued to trade with the support of Dimmey’s through the supply of stock “for which no immediate payment was received from the company” and tenure at the premises with the support of Dimmey’s;
·disputed the position with respect to the provision of documents; and
·sought the appointment of a valuer and to purchase the plaintiff’s shares at valuation. [7]
[7]Ibid Exhibit ‘AMH-3’.
26 September 2016 – letter from the defendants’ solicitors to the plaintiff’s solicitors effectively re-stating the agreement to appoint a valuer and to purchase the plaintiff’s shares at valuation.[8]
[8]Ibid Exhibit ‘AMH-4’.
29 September 2016 – Order of Gardiner AsJ relevantly requiring the defendants to make the books of R & M Traders available.[9]
[9]Order of the Honourable Associate Justice Gardiner made 29 September 2016.
17, 18 & 19 October 2016 – The parties went back and forth about the inspection of documents.[10]
[10]Affidavit of Alicia Marie Hill sworn 17 November 2017, exhibit ‘AMH-6’ – ‘AMH-8.’
21 October 2016 – extensive inspection. [11]
[11]Ibid Exhibit ‘AMH-9’.
18 & 23 November 2016 – the plaintiff’s solicitors wrote to the defendants’ solicitors regarding further inspection.[12]
[12]Ibid Exhibit ‘AMH-11’ - AMH-12’.
13 December 2016 – offer by the plaintiff’s solicitors to settle for the sum of $80,000.00 in exchange for the transfer of shares together with mutual releases. That offer was open for acceptance until 5pm Thursday, 15 December 2016.[13] The offer was made in accordance with the principles in Calderbank v Calderbank,[14] Cutts v Head[15] and Hazeldene’s Chicken Farm.[16] The plaintiff’s solicitors advised that they would seek indemnity costs in the event that the offer was rejected.
[13]Ibid Exhibit ‘AMH-19’.
[14][1975] 3 All ER 333.
[15][1984] 1 All ER 597.
[16]Hazeldene’s Chicken Farm [2005] VSCA 298.
15 December 2016 – my order which included notation that the defendants undertook to provide further documents, including MYOB records and bank statements and BAS statements.[17]
[17]Order of the Honourable Associate Justice Randall made 15 December 2016.
19 December 2016 – Calderbank offer by the defendants. That offer was open for acceptance until 4 pm on 6 January 2017 and relevantly included:
·Transfer of shares;
·Release of the MOS International Pty Ltd Guarantee;
·To the extent it is permitted by s 199A of the Act, mutual releases; and
·R & M Traders would forgive the loan account owed by the plaintiff recorded in its books in the amount of $83,950.00.[18]
[18]Affidavit of Alicia Marie Hill sworn 17 November 2017, exhibit ‘AMH-20’.
Two matters of are note. Firstly, the guarantee in relation to MOS International Pty Ltd was in respect of the sum of about $600 odd dollars. Secondly, the loan recorded in the company’s books was contested. The plaintiff contended that that amount was advanced to her as wages.
21 December 2016 – the accounting system user name and password were supplied to the plaintiff’s solicitors.[19]
[19]Ibid Exhibit ‘AMH-15’.
23 December 2016 – various financial statements were provided.[20]
[20]Ibid Exhibit ‘AMH-16’.
14 July 2017 – valuation report. The valuation report attributed a value of $0 to the market value and the value of shares in the company.[21]
[21]Ibid Exhibit ‘AMH-17’.
21 July 2017 – minutes of meeting of directors of the company. The plaintiff was an apology:
“Resolved that at this time not to wind up the Company and further resolved to avoid further cost and expense that an administrator not be appointed to the Company. Noted the Company still to attend to various year end tasks including provision of group certificates to employees.”[22]
[22]Affidavit of Michael Thomas Evans sworn 2 November 2017, exhibit ‘MTE-14.’
31 July 2017 – offer by the plaintiff’s solicitors to settle on the following basis:
·the costs incurred with respect to the independent Valuation Report be borne by the defendants;
·the plaintiff resigns as director of the company and transfers her shares to the defendants and/or their nominees ;
·the plaintiff’s income from the company be treated as director’s wages and not as a loan; and
·the proceedings be otherwise dismissed with no order as to costs.
That offer was open for acceptance until 5pm 2 August 2017 and was made pursuant to the principles in Calderbank v Calderbank.[23]
[23]Affidavit of Alicia Marie Hill sworn 17 November 2017, exhibit ‘AMH-21’.
11 August 2017 – defendants’ solicitors to plaintiff’s solicitors. The letter contained an offer in the following terms:
1.The Plaintiff transfer her shares to the Company. A cancellation within seven days of acceptance of this offer by delivery of a signed share cancellation request form in exchange for the payment of $10 by the defendants;
2. Release from the MOS International Guarantee; and
3. The proceeding dismissed with no order as to costs. [24]
[24]Ibid Exhibit ‘AMH-22’.
That offer was open for acceptance until 5 pm on 15 September 2017. I note that the defendants’ solicitors advised that they would seek indemnity costs in the event that the offer was rejected.
20 October 2017 – Letter from the defendants’ solicitors to the plaintiff’s solicitors which rejected the plaintiff’s oral offer of 11 October 2017 and put a counter-offer in the following terms:
1.Parties agree to file with the Court a minute of consent orders seeking orders that:
(a) R & M Traders be wound up;
(b) a liquidator be appointed; and
(c) the proceeding is dismissed with no order as to costs.
2. The parties execute a Deed of Settlement and Release which includes:
…
(b)a unilateral release of claims arising out of or in connection with R & M Traders including the claims which are the subject of the proceeding;
(c)confidentiality;
(d)a non-disparagement term. [25]
[25]Ibid Exhibit ‘AMH-23’.
That offer was open for acceptance until 4 pm on 27 October 2017. The defendants’ solicitors set out that they would seek indemnity costs in the event that the plaintiff rejected the offer.
31 October 2017 – the plaintiff filed and served a formal offer of compromise which included:
1. R & M Traders be wound up.
2. The appointment of a liquidator.
3.The defendants pay the plaintiff’s costs on a standard basis to be assessed in default of agreement between the parties. [26]
[26]Ibid Exhibit ‘AMH-24’.
That offer of compromise was open for acceptance for a period of 14 days.
14 November 2017 – the plaintiff’s solicitors’ letter to the defendants’ solicitors notifying that the costs claim would be fixed in the sum of $40,000.00.[27]
That offer was open for acceptance until 3 pm on 15 November 2017.
15 November 2017 – the defendants’ solicitors’ letter to the plaintiff’s solicitors including a further offer which in effect mirrored the previous offer set out in the correspondence of 20 October 2017 but increased the amount to be paid to the plaintiff to the sum of $5,000.00 inclusive of legal costs and disbursements. That offer was open for acceptance until 9 am on 16 November 2017 and foreshadowed an application for indemnity costs.[28]
15 November 2017 – letter from the plaintiff’s solicitors to the defendants’ solicitors setting out instructions to settle the matter on the basis of the proposed attached orders if accepted by 5pm on 16 November 2017. Those minutes included:
(1) R & M Traders be wound up.
(2) The appointment of a liquidator.
(3)The second and third defendants pay the plaintiff’s costs (including reserved costs) as agreed or in default of agreement seventy five per cent of the amount of costs taxed on a standard basis.
(4)The proceeding is otherwise dismissed. [29]
[27]Ibid Exhibit ‘AMH-25’.
[28]Ibid Exhibit ‘AMH-26’.
[29]Ibid Exhibit ‘AMH-27’.
A corporation proceeding such as this must be initiated by the filing of an originating process in accordance with Form 2A.[30] Form 2A makes provision for the claim by the plaintiff. In this proceeding alternative claims have been sought. The principal claim is an order for the winding up of R & M Traders. The alternative claim is for a buyout. Where this alternative relief is sought, eventually the plaintiff must elect to pursue one remedy rather than the other:
A party is not called upon to elect between inconsistent remedies in litigation until a point is reached when the remedies are pursued to judgment. Then the plaintiff must elect because the judgment to be pronounced will give effect to one right rather than the other.[31]
[30]Supreme Court (Corporations) Rules 2013 r 2.2.
[31]Ciavarella v Balmer (1983) 153 CLR 438, 449 (per Gibbs CJ, Mason, Wilson, Deane & Dawson JJ).
Accordingly, there was no imperative imposed upon the plaintiff to elect to pursue either remedy until judgment. I have taken it that by the plaintiff agreeing with the defendants that R & M Traders ought to be wound up, that of itself, is an election.
Principles relating to oppression and orders were set out by Black J in Boyd v Feeney.[32] Black J summarised the principles applicable to the claim for oppression as referred to by Austin J in Tomanovic v Argyle HQ Pty Ltd[33] and not criticised by the Court of Appeal in that decision.[34]
[32][2017] NSWSC 1595.
[33][2010] NSWSC 152 at [39].
[34][2011] NSWCA 104.
Black J also referred to Munstermann v Rayward.[35] I will not set out all the criteria but note the following:
(8) The discretion under s 233 is wide as to the appropriate remedy…
(9)The nature of the remedy chosen by the Court under s 233 will be dependent upon the conclusions drawn by the Court as to the type of oppression with which the Court is dealing and the Court will choose the remedy which is least intrusive. [emphasis added]
(10)The aim of any order under s 233 must be to put an end to the oppression…
(11)The Court should only look to wind up an otherwise solvent company as a ‘last resort’…[36]
[35][2017] NSWSC 133.
[36]Ibid [22] (per Stevenson J).
Although the cases I have referred to are recent, they do no more than summarise the position adopted by this Court over many years.
Applicable principles
The Court has a broad discretion to award costs under s 24 of the Supreme Court Act 1986 (Vic).
The Court’s discretion as to costs is ‘absolute and unfettered’ but one that is to be ‘exercised judicially, that is to say, not by reference to irrelevant or extraneous considerations, but upon facts connected with or leading up to litigation.’ [37]
[37]Latoudis v Casey (1990) 179 CLR 534, 557 (Dawson J).
Notwithstanding that the Court has a wide discretion to costs, the settled practice is that in the absence of special circumstances a successful litigant should receive his or her costs.[38] In the current circumstances, the lack of adjudication on the merits and the existence of Calderbank offers and the offer of compromise dated 31 October 2017 are relevant factors in determining whether I should depart from the settled practice as to costs.
[38] Innes-Iron & Anor v Forrest (costs) VSC 10, 6.
The leading authority is the judgment of McHugh J in Re Minister for Immigration & Ethnic Affairs; Ex Parte Lai Qin[39] (‘Lai Qin’). That case involved an unsuccessful applicant for a protection visa bringing proceedings for prerogative orders directed to the Minister for Immigration and Ethnic Affairs. The Minister subsequently reviewed the earlier decision to refuse a protection visa and instead decided to grant the applicant a protection visa. Further prosecution of the proceedings was thereby rendered unnecessary. The applicant sought an order that the Minister pay her costs of the proceedings. The basis for the application was not simply that, by the Minister undertaking a review and granting the protection visa, the applicant had achieved practical success, but rather that the Minister acted unreasonably in not informing the applicant prior to her commencing the proceedings that he intended to review her application for a protection visa.
[39](1997) 186 CLR 622, 625 (McHugh J).
McHugh J held in Lai Qin that the Minister‘s conduct was not so unreasonable and did not justify making a costs order against the Minister. McHugh J stated the relevant principles as follows:
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action…
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried… But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.[40]
[40]Ibid 624-625 (citations omitted).
In ONE.TEL Ltd v Deputy Commissioner of Taxation,[41] Burchett J considered the principles identified in Lai Qin. Based on Lai Qin, amongst other relevant authorities, his Honour then drew the distinction between:
…cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs.[42]
[41](2000) 171 ALR 227.
[42]ONE.TEL Ltd v Deputy Commissioner of Taxation (2000) 171 ALR 227, 231–232 (Burchett J).
In Yates Property Corporation Pty Ltd v Boland[43] (‘Yates’), Goldberg J referred to a number of cases where the issues before the Court were either resolved by settlement or became moot for some other reason. In each of the cases referred to, his Honour noted that ‘the court did not consider it necessary to determine the substantive merits of the matter before determining the appropriate order as to costs’.[44]
[43](2000) 179 ALR 664, 667 [4] (Goldberg J).
[44]Ibid.
Goldberg J then made a number of observations about particular authorities:[45]
[45]Ibid 667 [5].
In Australian Securities Commission v Aust‑Home Investments Ltd [(1993) 44 FCR 194], Hill J examined a number of authorities and concluded that they supported the following propositions (at FCR 201 … ):
(1)Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order: Stratford [[1969] 1 WLR 1547] and the SEQEB case [(Unreported, Federal Court of Australia, Pincus J, 10 February 1989)].
(2)It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial: Stratford. This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.
(3)In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them: SEQEB.
(4)In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation: cf Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371.
(5)Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted: cf Re Asiatic Electric Co Pty Ltd [1973] 1 NSWLR 603 at 606, a case which, however, depended upon the specific wording of the statute under consideration.
In Gribbles Pathology Pty Ltd v Health Insurance Commission [(1997) 80 FCR 284] Finkelstein J emphasised that (at 287):
… in the absence of a hearing on the merits it is difficult to see how any order, other than an order that each party bear its own costs, can be made except in special circumstances.
Goldberg J concluded that, based on the relevant authorities, it was open to him to determine the costs issues by reference to the reasonableness of the conduct of the parties.[46] However, he ultimately decided to determine the costs issue by reference to the outcome of the application in respect of which he had formed a concluded considered view.[47]
[46]Ibid 668 [7].
[47]Ibid.
In Main-Road Property Group v Pelligra & Sons (No 2),[48] Bell J accepted the approach adopted in Yates; that costs should be awarded by reference to the likely outcome of the application. His Honour then continued to assess the likely outcome of the application before him. On appeal, Redlich JA and Beach AJA accepted the approach and reasoning adopted by Bell J.[49] Their Honours recited[50] as the relevant principles the following passage from an earlier decision of Redlich J (as he was then):
If a supervening event or compromise so removes or modifies the issues in dispute that it cannot be said that one side has won, the Court should not attempt to assess the merits of the case. This is particularly so where the issues are complex or questions of credit are involved. If it is clear on the undisputed facts that one party would almost certainly have succeeded if the matter had been fully tried, the Court may make an order in favour of that party.
Where it is not clearly discernible that a party would have won and it appears that both parties have acted reasonably in commencing and defending the proceedings until the litigation was compromised or became futile, the Court would usually make no order as to costs. But where the Court concludes that a party has acted unreasonably prior to or during the course of the litigation the making of a costs order against it may be justified.
It is not in doubt that a party may rely upon matters of undisputed fact disclosed by the pleadings, affidavits, discovered documents or interlocutory relief granted in the course of proceedings to establish that the party acted reasonably and would have succeeded had the matter been tried … Such a course is appropriate where the hearing can be of relatively short compass and those matters that are not in dispute readily identified. The boundaries of such an inquiry must be strictly observed to ensure that an inappropriate use of Court resources does not occur.[51]
[48][2009] VSC 174 (6 May 2009) [16]-[17] (Bell J).
[49]A Team Diamond Headquarters Pty Ltd v Main-Road Property Group Pty Ltd (2009) 25 VR 189, 207 [59] (Redlich JA and Beach AJA).
[50]Ibid 198-199 [33].
[51]Jeruth Pty Ltd v Haybale Pty Ltd [2004] VSC 319 (30 August 2004) [4]-[6] (Redlich J).
In Australians for Sustainable Development Inc v Minister for Planning (No 2)[52] (‘Australians for Sustainable Development’), Biscoe J outlined the principle for determining the question of costs where a proceeding has ended without a court adjudicating on the merits:
… where there has been a supervening event that has so altered the subject matter of the dispute, the proper exercise of the discretion would ordinarily be to make no costs order unless:
(a) one of the parties has acted so unreasonably that the other party should obtain the costs of the proceedings; or
(b) even if the parties had acted reasonably, one party was almost certain to have succeeded if the subject matter of the dispute had not changed or been rendered inutile so that that party should obtain the costs of the proceedings.[53]
[52][2011] NSWLEC 70 (20 April 2011) (‘Australians for Sustainable Development’).
[53]Ibid [11] (Biscoe J).
In Australians for Sustainable Development the supervening event was the amendment of a planning policy that altered the subject matter of the dispute after the hearing. The policy was changed by the Minister who was a party to the proceedings and had vigorously defended the applicant's claim. Biscoe J concluded that, but for the Minister's conduct, the applicant would have won the case.[54] His Honour accordingly concluded that, subject to the issue of apportionment with respect to particular issues in the proceedings, a costs order in favour of the applicant was justified.[55]
[54]Ibid [9].
[55]Ibid [12].
In Yong v Velik Trading as SV Law,[56] Manousaridis J made an almost identical observations to the principles outlined in Australians for Sustainable Development:
the following principles apply when determining an application for costs where a court has not determined the merits:
a) The court should not try a hypothetical action between the parties.
b) In some cases, however, the court may be able to conclude that one of the parties acted so unreasonably that the other party should obtain the costs of the action.
c) In other cases the court may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried.
d) Where the proceeding has been terminated in a way that leads to one side being clearly successful, there is then a basis on which the court can exercise its discretion in favour of the successful party.[57]
[56][2017] FCCA 2843 (24 November 2017).
[57]Yong v Velik Trading as SV Law [2017] FCCA 2843 (24 November 2017) [5] (Manousaridis J).
Thus there is authority for the Court to exercise its discretion based on the reasonableness of the conduct of the parties or on the basis of the likely outcome on the merits. However:
Cases provide some guidance on the circumstances which may constitute a basis for the exercise of discretion, but the overriding consideration in each case will be whether there is some circumstance that justifies a costs order in order to do justice between the parties.[58]
[58]Saeco International Group (Australia) Pty Ltd v Giorgio Massimo Ubertini & Anor [2011] VSC 360 [2].
The Court is mindful of the comments of the Court of Appeal that the ‘Court will set its face against any proposition which would require judges disposing of questions of costs to give elaborate reasons’.[59] Rather, the parties should assume that ‘every matter addressed in argument on costs has been considered’.[60]
[59]Luxmore Pty Ltd v Hydedale Pty Ltd (2008) 20 VR 481, 484
[60]Ibid.
McMillan J in Seng Hpa v Walker & Ors considered costs in the context of Calderbank offers. Her Honour said:[61]
[61]Seng Hpa v Walker & Ors [2017] VSC 320 [82]–[83].
In Hazeldene’s Chicken Farm[62] the Court of Appeal reviewed the principles relevant to Calderbank offers. Although the context of that case was an application for indemnity costs, the Court of Appeal endorsed the approach that an unreasonable rejection of a Calderbank offer will be a relevant factor in determining whether to depart from the ordinary rule as to costs.[63] In determining whether the rejection of an offer was unreasonable, regard should be had at least to the following:[64]
[62]Hazeldene’s Chicken Farm [2005] VSCA 298.
[63]Ibid [14].
[64]Ibid [25].
(a) the stage in the proceeding that 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 indemnity costs in the event of the offer.
Although Calderbank offers are drafted with reference to a matter proceeding to trial, the general principles identified in Hazeldene’s Chicken Farm remain relevant in circumstances where the proceeding has not been determined on the merits.[65] At the very least, they help to inform the ‘rubric’ of the reasonableness of the conduct of the parties.[66]
[65]Gunns Limited v Marr (No 4) [2007] VSC 91 (3 April 2007) [50]; Copping Refuse Disposal Site Joint Authority v Southern Beaches Conservation Society Inc (2016) 24 Tas R 166, 170; Stack [2003] NSWCA 302 (16 October 2003) [22]; Transfield Services (Australia) Pty Ltd v Gaha [2012] NSWSC 865 (3 August 2012) [28]; cf Collins v Military Rehabilitation & Compensation Commission [2005] 147 FCR 570, 579.
[66]See Stoneman v Bourne [2016] VSC 726 (2 December 2016) [22].
In Stoneman v Bourne,[67] each party had sought costs following a settlement. The position of each of the parties may be summarised as:
[67][2016] VSC 726.
The plaintiffs seek an order that the defendants pay their costs of the proceeding on an indemnity basis on the following grounds:
(a)For the whole of the proceeding, on the ground that, after litigating the matter for two years, the plaintiffs achieved in substance all they were hoping to achieve at the outset; and
(b)Alternatively, from 28 April 2016, on the ground that the plaintiffs made an offer of compromise on that date which it was imprudent in the circumstances for the defendants to refuse.
The defendants seek an order that the plaintiffs pay their costs of the proceeding on an indemnity basis or alternatively on a standard basis, including their costs of the Magistrates’ Court proceeding. They do so on the following five bases:
(a)The defendants would have succeeded at trial;
(b)The plaintiffs acted unreasonably in bringing the litigation, among other reasons, because there was no factual basis for the plaintiffs’ claim and it was bound to fail;
(c)The plaintiffs’ unreasonable refusal to accept the defendants’ Calderbank offer dated 26 March 2015;
(d)The plaintiffs continued proceedings for an ulterior motive or collateral purpose; and
(e)The plaintiffs breached certain of the overarching obligations of the Civil Procedure Act 2010, including the obligation to ensure that the costs of litigation are proportionate and not excessive.[68]
[68]Ibid [15]–[16].
Emerton J said:
The parties are to be congratulated on settling the proceeding. However, it should have settled much earlier than it did. What was at stake in the litigation was quite disproportionate to the costs being incurred. The Bournes made many serious attempts to settle that were rebuffed. I consider, in particular, that the Bournes’ Calderbank offer, made in on 26 March 2015, was an offer to which the Stonemans responded unreasonably, given the terms on which the litigation was finally settled 18 months later. Apart from the supply, installation and maintenance by the Bournes of an automatic gate, the Calderbank offer included terms that the Bournes would undertake to comply with the terms of the carriageway easement and would remove their caveat and abandon their claim for a prescriptive easement. While there were also terms that the Stonemans would contribute to part payment of the Bournes’ legal costs in the sum of $5,000, and that they would grant a lease of extra land at each end of the carriageway easement to allow a fire truck to come and go, these were matters that could and should have been the subject of a counter offer. Instead, things were allowed to escalate to a fully contested Supreme Court proceeding.
In my opinion, it was unreasonable for the Stonemans to simply refuse the offer of 26 March 2015. Their failure to build on what had been offered and make a reasonable counter offer has resulted in protracted litigation and unnecessary costs.
More generally, I find that the Stonemans acted in a high handed manner in instituting and pressing on with the litigation in the (mistaken) belief that the carriageway easement as registered on the title gave them inviolable rights that they were entitled to enforce regardless of both the history of the use of the roadway and the practical consequences. They used what they believed to be their legal rights as a ‘big stick’ with which to beat the Bournes, notwithstanding that the costs being incurred in the litigation were clearly disproportionate to what was at stake.
It is unnecessary to make findings in relation to the allegations of improper purpose based on the evidence that Grindal told Sharpe that the Stonemans were unlikely to settle because they wanted to teach the Bournes a lesson. The course of the litigation speaks for itself. It is sufficient to have regard to the conduct of the litigation by the Stonemans, which was unreasonable.
In so finding, I have taken into account that they had rights under the easement and as owners of the servient land that were not always observed by the Bournes and their guests. There was also childish behaviour on both sides.
Nonetheless, I have concluded that the default position that costs should lie where they fall has been displaced in large part by the manner in which the Stonemans have conducted the litigation. The Bournes are entitled to at least some of their costs. The question is from when and on what basis?
I do not consider that indemnity costs are called for. This is not a case where it can be said conclusively that the settlement produced a worse result for the Stonemans than one or other of the offers made by the Bournes. Moreover, the Stonemans were entitled to bring a proceeding to protect what they believed to be their rights, particularly following the lodgement of the caveat, which required some kind of legal response from them. However, I have found that their conduct of the litigation was unreasonable in that they pursued remedies that were draconian and, until well into 2016, turned their backs on compromise. Furthermore, they failed do their homework to ascertain what rights they actually had in relation to the railway gate, which was the source of much of disputation between them and the Bournes.
I have carefully considered the nature of the dispute between the parties and the course of the litigation. Having given the matter anxious consideration, I have concluded that the Bournes should have their costs of the proceeding in this court and in the Magistrates’ Court from the date of the refusal of the Calderbank offer made on 26 March 2015, which occurred on 20 April 2015. Otherwise, costs should lie where they fall.[69]
[69]Ibid [78]–[85].
Civil Procedure Act 2010
The following provisions of the Civil Procedure Act 2010 (Vic) are relevant:
22Overarching obligation to use reasonable endeavours to resolve dispute
A person to whom the overarching obligations apply must use reasonable endeavours to resolve a dispute by agreement between the persons in dispute, including, if appropriate, by appropriate dispute resolution, unless—
(a) it is not in the interests of justice to do so; or
(b)the dispute is of such a nature that only judicial determination is appropriate.
Example
A proceeding where a civil penalty is sought may be of such a nature that only judicial determination is appropriate.
…
24Overarching obligation to ensure costs are reasonable and proportionate
A person to whom the overarching obligations apply must use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the civil proceeding are reasonable and proportionate to—
(a) the complexity or importance of the issues in dispute; and
(b) the amount in dispute.
…
28 Court may take contravention of overarching obligations into account
(1)In exercising any power in relation to a civil proceeding, a court may take into account any contravention of the overarching obligations.
(2)Without limiting subsection (1), in exercising its discretion as to costs, a court may take into account any contravention of the overarching obligations.
…
29 Court may make certain orders
(1)If a court is satisfied that, on the balance of probabilities, a person has contravened any overarching obligation, the court may make any order it considers appropriate in the interests of justice including, but not limited to—
(a)an order that the person pay some or all of the legal costs or other costs or expenses of any person arising from the contravention of the overarching obligation;
…
(2) An order under this section may be made—
(a)on the application of—
(i)any party to the civil proceeding; or
(ii)any other person who, in the opinion of the court, has a sufficient interest in the proceeding; or
(b)on the court's own motion.
(3)This section does not limit any other power of a court to make any order, including any order as to costs.
Determination
It must be stressed that although the plaintiff has been successful in her primary relief, there has not been any adjudication on the merits. In particular, the contentions set out in her affidavits have not been tested by cross-examination and are certainly not conceded in any of the defendants’ affidavits. Notwithstanding that, it is inescapable by reference to the orders made by Gardiner AsJ on 29 September 2016 and by myself on 15 December 2016 that at least some of the books and records of R & M Traders had not been provided to the plaintiff. A member who is a director of a company has a right of access to the financial records of that company at all reasonable times.[70] Prima facie the denial of access to the Company’s records excludes the plaintiff from participation in the management of the Company. The relegation of the plaintiff from director to what might be classified as passive investor is oppressive.[71] It is more likely than not that the plaintiff would have succeeded with her relief. Further, the winding up order was resisted by the defendants up until October of 2017. It might be said that after the offer of 20 October 2017 by the defendants’ solicitors, the defendants capitulated in agreeing to the winding up order.
[70]Corporations Act 2001 (Cth) s 290(1).
[71]See Re Back 2 Bay 6 Pty Ltd (1994) 12 ACSR 614.
I also note that the settlement did not involve an element other than the primary relief sought by the plaintiff. That of itself is corroborative of the notion that there was a capitulation by the defendants.
Notwithstanding the comments in the preceding two paragraphs, I must have regard to the criteria set out in the various authorities. That is:
·Did the plaintiff act reasonably in commencing the proceeding;
·Did the defendants act reasonably in defending the proceeding;
·Did the conduct of the parties continue to be reasonable until the litigation was settled;
·Was the proceeding terminated in a way that leads to one side being clearly successful and therefore a basis on which the Court can exercise its discretion in favour of the successful party?
·To what extent the failure to accept Calderbank offers or the offer of compromise ‘inform the “rubric” of the reasonableness of the conduct of the parties.’[72]
·The provisions of the Civil Procedure Act 2010 (Vic) to which I referred to at [37] hereof.
[72]See Seng Hpa v Walker & Ors [2017] VSC 320, [82]–[83].
The plaintiff did not file proceedings until 29 August 2016, many months after the original letter of 17 March 2016 which appears to have been not responded to. It was not until after the service of the proceeding that the defendants were galvanised into action. It is clear that the plaintiff’s conduct in filing and serving the proceeding was reasonable.
The conduct of the defendants’ stance in resisting the proceeding is more difficult to gauge without the benefit of cross-examination of the defendants’ witnesses. However, having said that, it was clear that the defendants by their early offers of 14 September, 26 September and 19 December 2016 sought to discharge their obligation to use reasonable endeavours to resolve the dispute. On the other hand, the plaintiff, apart from rejecting each of the first two offers did not until December 2016 respond with an offer of her own. At first blush, I regarded the failure to make judicious counteroffers or any other response as a prima facie breach of the provisions of the Civil Procedure Act 2010 (Vic) referred to herein. However, that initial view must be tempered by the context of the proceeding as developed to the end of 2016. It was not until there was compliance with the orders made by Gardiner AsJ on 29 September 2016 and compliance with the order made by myself of 15 December 2016, that the plaintiff was furnished with all appropriate documents of R & M Traders. Final compliance did not take place until 23 December 2016.
Logically, consideration of financial material demonstrating the financial position of R & M Traders was necessary to inform the plaintiff of whether it was appropriate to accept the offers made by the defendants and/or to enable the plaintiff to make submissions to any appointed valuer.
In addition to the comments made in the preceding paragraph, the difficulty in assessing whether the failure to accept the three 2016 offers was unreasonable, arises because of the alternative relief claimed by the plaintiff. It cannot be contended that the plaintiff obtained a result on terms not more favourable than the terms of each of the three 2016 offers. There is a parallel with the idiom ‘comparing apples and oranges’. Nor is it appropriate to embark upon an analysis of the net financial benefit or other benefit which might have been obtainable if any of the 2016 offers were accepted as compared to the benefits derived from obtaining the winding up order. They are just different types of relief and do not invite such comparison. Further, as I previously referred to, the plaintiff was not under any obligation to elect to seek particular alternative relief until judgment.
The landscape changed on 14 July 2017 when the valuation report was provided. I have not visited that report or considered the efficacy of the same. However, given the repeated losses and support provided by Dimmeys, the valuation was hardly surprising. Notwithstanding the report, on 21 July 2017 the directors of R & M Traders resolved not to wind up the company as noted in paragraph [13] hereof.
After publication of the valuation, the defendants made a further offer on 11 August 2017 which was rejected. I determine that it was reasonable to reject that offer as, save for the release of the guarantee which was for a minimal amount, the offer provided virtually no benefit to the plaintiff.
The same observation may be made about the defendants’ offer of 20 October 2017. Albeit that it was the first offer that dealt with winding up rather than transfer of shares, it did not address the issue of costs and sought to impose a unilateral release rather than mutual releases which might have given the plaintiff some benefit in relation to the loan account claim. The same observation applies to the defendants’ offer of 15 November 2017 even though there was a minor allocation of costs of the proceeding offered.
The plaintiff made several offers in the form of Calderbank offers and then on 31 October 2017 made a formal offer of compromise in accordance with the rules. The first offer of 13 December 2016 dealt with the transfer of shares and a payment of $80,000. By reason of the matters referred to in relation to the three offers made by the defendants in 2016, I determine that it was not unreasonable to reject that offer.
The second offer expressed in terms of a Calderbank offer was dated 31 July 2017. That offer, albeit agreeing to transfer shares at no consideration, sought to deal with the characterisation of the plaintiff’s loan account in the books of R & M Traders. It was not unreasonable for the defendants to reject that offer.
On 31 October 2017, the plaintiff filed and served a formal offer of compromise. The offer of compromise provided for an outcome which was ‘no worse than that achieved by the plaintiff’, namely the winding up of R & M Traders. In addition, the 31 October 2017 offer of compromise sought to deal with costs as permitted by r 26.02 of ch 1 of the Supreme Court (General Civil Procedure) Rules 2015. The subsequent offer on 14 November 2017 sought to quantify those costs at $40,000. Finally on 15 November 2017, the plaintiff proposed that the plaintiff’s costs be paid as to 75% of the amount of costs taxed on a standard basis.
The offer of compromise was in compliance with r 26 and expressed to be in accordance with rr 27.02 to 27.04. Accordingly, the consequence of the failure to accept the offer of compromise by the defendants is dictated by r 26.08(2)(b). That is:
(2)Where an offer of compromise is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains a judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall be entitled –
…
(b)In the case of any other claim by the plaintiff, to an order against the defendant for the plaintiff’s costs in respect of the claim before 11am on the second business day after the offer was served, taxed on the ordinarily applicable and for the plaintiff’s costs thereafter taxed on an indemnity basis.
The default provision is indemnity costs unless the Court otherwise orders. I see no reason to impose the default provision. I make that determination notwithstanding that it might be said that each of the parties conducted this litigation in disregard to the provisions of the Civil Procedure Act 2010 (Vic) in that there was no primary effort to conduct the proceeding with a view as to costs and to resolve the proceeding at an early stage. However, that observation may be overly critical given the hindsight view that the shares were worthless. It might be said that this proceeding should have been resolved quickly after the publication of the valuation but the observation applies to the conduct of each of the parties from July 2017. Accordingly, I do not regard the provisions of the Civil Procedure Act 2010 (Vic) to dictate a departure from the normal order in the circumstances. Nor do I regard that the failure to accept the offer of compromise dictates the imposition of an indemnity costs order, in the circumstances of this proceeding. In a way, the settlement of the proceeding was an acceptance by each party that there was no commercial utility in prosecuting the proceeding or resisting it. Each of the parties ought to have accepted that the winding up of R & M Traders was almost inevitable once the Court was appraised of its parlous financial position. The defendants had made efforts to settle the proceeding on what may be considered a more commercially beneficial basis for the plaintiff. Parties in the position of the defendant ought to be encouraged to seek to settle proceedings without the added penalty of the imposition of indemnity costs in circumstances where the offer of compromise made by the plaintiff did no more than restate her primary relief and did not offer any discount or other incentive to the defendants to accept the same.
Accordingly, I determine that the defendants should be regarded as having capitulated in their resistance of the relief sought by the plaintiff. The plaintiff should have her costs save for those relating to the valuation.
I depart from the ruling as to costs with respect to the costs of the valuation. In an oppression proceeding, the obtaining of a valuation of shareholding is generally a necessary step in the conduct of the proceeding. Usually, it informs the parties of the basis upon which to proceed with negotiations and to inform the Court as to the value of shares sought to be transferred. In this proceeding, it was of benefit to each of the parties as it informed each of the relief which ought to be pursued. Albeit that a wind up order is usually ‘a last resort’, conversely a Court is reluctant to permit what appears to be an insolvent company to continue to trade. Once the valuation was obtained, each of the parties must have appreciated that a Court would not hesitate to make a winding up order. In those circumstances the cost of the valuation ought to be borne by the plaintiff as to half and by the defendants as to the other half. Any incidental costs in obtaining the valuation ought to be borne by each of the parties.
Accordingly, I make the following orders:
1.The defendants pay the plaintiff’s costs on a standard basis.
2.The costs of the valuation be borne by the plaintiff as to half and the defendants as to half.
3.The plaintiff’s costs of and incidental to obtaining the valuation be excised from the order made in paragraph 1 hereof and be borne by the plaintiff.
SCHEDULE OF PARTIES
| S ECI 2016 01184 | |
| BETWEEN: | |
| RENEE SUSAN BLACK | Plaintiff |
| - v - | |
| R & M TRADERS PTY LTD (ACN 601 602 126) | First Defendant |
| MICHAEL THOMAS EVANS | Second Defendant |
| KAYLIN ZAPPELLI | Third Defendant |