Confluent Services Pty Ltd v Whispir Limited

[2014] VCC 79

IN THE COUNTY COURT OF VICTORIA Revised
(Not) Restricted

AT MELBOURNE

COMMERCIAL LIST
GENERAL DIVISION

Case No. CI-13-06347

CONFLUENT SERVICES PTY LTD	Plaintiff
v.
WHISPIR LIMITED	Defendant

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	12 February 2014
DATE OF JUDGMENT:	12 February 2014 (revised 13 February 2014)
CASE MAY BE CITED AS:	Confluent Services Pty Ltd v. Whispir Limited
MEDIUM NEUTRAL CITATION:	[2014] VCC 79

REASONS FOR JUDGMENT

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Catchwords:              Practice and procedure – Security for costs application – Dispute as to the quantum of security to be provided.

Corporations – Statement of claim seeking a declaration that the defendant had breached s.257D of the Corporations Act 2001 (Cth) – Whether justiciable in the County Court.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr B. Murphy	Slater & Gordon
For the Defendant	Mr A. Nash	HWL Ebsworth

HIS HONOUR:

1The defendant seeks an order for security for its costs of the proceeding. The plaintiff is a corporation and, although not conceded, there was no serious contest that the plaintiff has insufficient assets to pay the costs of the defendant, if ordered to do so.

2The principal argument relates to the amount of security the plaintiff should provide. The defendant, by letter dated 28 January 2014 sought the sum of $33,825.68 as “the party/party costs likely to be incurred by the defendant in this proceeding from the commencement of the proceeding (not including this application) up to but not including a one to two day trial of the proceeding”. The plaintiff by letter dated 6 February 2014 offered to provide a bank guarantee in the sum of $17,500 as security for the defendant’s costs, up to and including a one day trial. The security was sought either by payment into Court or the provision of a bank guarantee.

3The defendant’s estimate of its costs was made by a senior solicitor who has “practiced exclusively as a solicitor in the area of commercial litigation for 19 years”, apparently in all jurisdictions. The solicitor estimated the costs that would be charged to the defendant, and then those costs “were reduced by 33% to reflect a party/party cost calculation”.

4The application first came before the Court on 31 January 2014. The application was adjourned so that the defendant could file its defence and the plaintiff could file any affidavit material in opposition to the application for security. The trial of the proceeding was fixed as an expedited matter on 24 March 2014 and both parties have indicated that they are now working towards that date.

5The proceeding arises out of an agreement between the parties for the plaintiff to invest in the defendant in consideration of the issue of shares in the defendant. The principal issue in the proceeding relates to a clause of the agreement granting a put option for the plaintiff to put back a percentage of its shareholding to the defendant. The agreement provided that this arrangement would be “subject to shareholder approval in accordance with the Corporations Act”.

6Subsequently, the defendant offered the plaintiff a right to exercise the put option on certain terms. The offer was the subject of a “conditional agreement” by the plaintiff. The plaintiff and defendant, had by this stage expressed different interpretations of how the put option should operate and specifically whether “the quantum of shares to be put back…is referrable to a percentage of its shareholding in the defendant and not the total shares on issue”. The defendant called a meeting of shareholders to consider the matter. The shareholders resolved, at the meeting, not to approve the put option.

7The plaintiff alleged in its statement of claim that the notice of meeting sent to shareholders, as required by s 257D of the Corporations Act, contained irrelevant and inappropriate material, including an expression of opinion by the defendant’s board of directors that the “share buy back is not…in the best interests of its shareholders”.

8As a consequence, the plaintiff seeks declarations:

a.supporting its interpretation of the agreement as to the effect of the put option;

b.that the defendant has, in the manner it sought shareholder approval, breached both the agreement and s.257D of the Corporations Act.

In addition the plaintiff seeks specific performance of the agreement and other relief.

9From the defence filed, it is apparent that the critical issue for the trial is the differing interpretations by the parties of the relevant clause of the agreement, and from the defendant’s perspective, whether the “proper construction” is that “the number of shares to be bought back” by the defendant from the plaintiff pursuant to the put option “is the number produced by calculating the relevant percentage…of the total share capital of” the defendant.

10The defendant says that the notice of meeting to shareholders “complied with section 257D of the Corporations Act” and included “all information known to it that was material to the decision of how to vote on the resolution”.

11The issues in dispute are therefore relatively contained and it is likely that the matter can be determined at a trial lasting 1 to 2 days.

12The defence was signed by both senior and junior counsel. In the letter dated 28 January 2014, the defendant’s solicitors anticipated that counsel charging at the rate of $4,500 per day would be engaged, presumably an experienced junior counsel. In the solicitors’ estimate of the costs, the amount of $9,000 was included for counsel’s preparation for trial and a much smaller sum for assisting with the pleadings and discovery.

13In an affidavit sworn 11 February 2014, the solicitor who prepared the original estimate states that the defendant has briefed two counsel; senior counsel at $5,500 per day and junior counsel at $2,750 per day. This decision is justified on the basis that, “the defendant is a publicly listed entity” and the “nature of the claim…has serious consequences with respect to the share structure of the defendant and the rights of shareholders of the defendant”. The solicitor anticipates that senior counsel will be engaged for two and a half days at a cost of $13,750 and junior counsel for three days at a cost of $8,250.

14I stood the application down until 2.15pm today so that I could consider my decision. In the meantime, I asked counsel to investigate whether the County Court had the power to make the declaration the plaintiff sought, that the defendant’s conduct in relation to the material included with the notice of meeting to shareholders constituted a breach of s.257D of the Corporations Act.

15Following the receipt of further submissions from Counsel, it is noted as follows:

a.s.1337E of the Corporations Act confers jurisdiction on State lower courts “with respect to civil matters (other than superior court matters) arising under the Corporations legislation”, subject to the relevant court’s general jurisdictional limits so far as they relate to the amounts or value of property with which the Court may deal;

b.the definition of “Court” in the Act provides in ss.(2) that, “Except where there is a clear expression of a contrary intention (for example, by use of the expression “the Court”), proceedings in relation to a matter under this Act may [subject to a further exception which is not relevant] be brought in any Court”.

c.Chapter 2J and particularly Division 2 of that Chapter which includes s.257D does not contain a provision which indicates a contrary intention to this Court exercising jurisdiction;

d.although the plaintiff seeks specific performance of the agreement it is possible that the grant of this relief may involve injunctive orders. By s.1324 of the Corporations Act, this Court does not have that power. Counsel agreed that this matter may need to be discussed further, if the plaintiff were successful and whilst formulating final orders.

16It is likely, in my view, that the whole of the plaintiff’s claim will be justiciable in this Court, subject to the prohibition on the grant of injunctive relief. However, I do not consider that this will significantly affect the extent of the necessary interlocutory steps or the length of the trial. At present, the defence does not seek to challenge the jurisdiction of the Court to make the declaration.

17The plaintiff justifies its offer of $17,500 security on the basis of telephone advice from a senior costs consultant that “the recoverable costs on an initial assessment for a one day trial, would range between $8,000 and $12,000 for professional costs and around $6,000 for the fees of counsel”.

18In determining the quantum of the security the plaintiff should provide, I have taken into account the following matters:

a.I should made an order for security for the defendant’s costs up to and including the first day of trial;

b.I should, at this stage, allow counsel’s fees at $4,500 per day, rather than the cost of two counsel. I should allow one day for the trial and 1.5 days for the costs of involvement by counsel in the interlocutory stages and preparation for the trial, a total of $11,250;

c.I consider that the estimate for the solicitor’s costs by the plaintiff is too low ($10,000 mid range), and by the defendant is too high ($31,000). I am not satisfied that some items of work included in the defendant’s estimate (eg., expert reports or witness statements) will be necessary, or that the 33% deduction from the estimate of the solicitor’s costs would be sufficient to calculate party/party costs;

d.I propose to allow $20,000 for the solicitor’s costs together with disbursements of $2,000.

19       Accordingly, I will make the following orders:

1.By 4pm on 19 February 2014, the plaintiff must provide security for the defendant’s costs of the proceeding up to and including the first day of trial in the total sum of $33,250. The security is to be provided by payment to the Registrar of the Court or by the provision of a bank guarantee in terms agreed by both parties prior to the date upon which security must be provided.

2.If security is not provided as required by paragraph 1, the proceeding shall be stayed.

3.The trial date of 24 March 2014 is confirmed.

4.The setting down fee must be paid by the plaintiff by 24 February 2014.  If the plaintiff defaults, the defendant may pay the fee within 21 days.  If the fee is not paid the trial date will be vacated.

5.By 4pm on 28 February 2014, each party must make any request for the provision of any document which is directly relevant to the issues in dispute in the proceeding.

6.Upon receipt of such request, the other party must reply promptly and no later than 11 March 2014.

7.The parties must complete the mediation of the dispute by 14 March 2014.

8.All other interlocutory processes will be conducted in accordance with the Rules of Court.

9.Any application to vacate the trial date must be made to the Commercial List Duty Judge at least 30 days before the trial date.

10.Court books must be prepared by the parties, (either jointly or separately) and filed with the Court at the commencement of the hearing.

11.The parties must notify the Court if the action settles.

12.Reserve liberty to the parties to apply to the Commercial List Duty Judge for further directions upon giving reasonable notice to all other parties.

13.The costs of the defendant’s summons filed 30 January 2014, including the costs of the hearings on 31 January and 12 February 2014, shall be costs in the cause.

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Certificate

I certify that these 5 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 12 February 2014 and revised on 13 February 2014.

Dated:      13 February 2014

Philippa Gilkes 

Associate to His Honour Judge Anderson