Flinders Diamonds Limited v Tiger International Resources Inc and Ors (No 2) No. Scciv-02-1281

FLINDERS DIAMONDS LIMITED
v
TIGER INTERNATIONAL RESOURCES INC and ORS (No 2)
[2003] SASC 182
Civil

WILLIAMS J.
Costs and Consequential Orders
On 29 May 2003 I published reasons for my decision. A summary of my decision is set out in Part 12 of those reasons. I then indicated that I would hear the parties further as to consequential orders.
The plaintiff has submitted draft minutes of order for my consideration and on 6 June 2003 I heard argument upon the orders proposed in the plaintiff’s draft.
At the hearing on 6 June 2003 Mr Hoffmann continued to appear for the plaintiff and Ms Francas for Australian Securities and Investments Commission (which at my direction was invited to be heard). Mr Scerri appeared for the defendants Anthony Campbell, Campbell Corporation Pty Ltd and Balance Tax Pty Ltd.
Mr Scerri sought an adjournment to allow senior counsel to be briefed on behalf of all defendants. However, it was clear from an affidavit submitted by Mr Scerri that the arrangements for the retention of counsel were incomplete; the defendants are not in agreement as to the basis on which counsel should be retained. I refused the application for an adjournment.
The plaintiff has always sought an order for the vesting of the defendants’ shares in ASIC for the purposes of sale. No argument has been put forward as to any other more limited order which would meet the circumstances of the case. I consider that the appropriate order is to treat ASIC in effect, as a receiver of the shares for the purposes of sale. The order as to vesting for sale is justified formally by the terms of s 1325A(1) of the Corporations Act 2001 (Cth) (which authorises orders - including a remedial order - which the Court considers “appropriate”); the definition of “remedial order” in s 9 contemplates the vesting of property in ASIC and also contemplates an order disposing of property. These provisions should be read together with the Australian Securities and Investment Commission Act 2001 (Cth) itself, and in particular s 142 which authorises ASIC to deal with property in terms of any trust. Clearly a vesting order will create a trust.
In my opinion, the orders that have been proposed by the plaintiff as to vesting and as to disposal of the shares are appropriate.
At the request of ASIC the order directing sale will fix a time frame within which sale should be effected. I consider that the Court should take responsibility for fixing such a period rather than leaving the time frame for sale entirely at large. I have decided that a period of six months should be provided in the order or “such further time as the court may allow”. If any party or ASIC identifies particular prejudice arising out of this time frame of six months then an application may be made to vary the orders as regards time. A substantial change in market conditions may be one factor which might justify an application.
The draft order proposes an injunction which until further order prevents the defendants from taking up or dealing with their share options in the plaintiff; the draft order also has the effect of keeping the defendants out of the market for Flinders’ shares generally for the time being. I have reservations about making an order which entirely excludes the defendants from the market but I consider that such an order should operate at least until ASIC has sold the shares which are now to be vested in it. If during the period of the injunction the defendants wish to exercise any rights with respect to the share options or to trade them, it should not be difficult to formulate a proposal which will protect the defendants and the market.
During the course of argument I suggested by way of example that a reputable, independent nominee in South Australia might be appointed by a particular defendant and approved by the Court to transact business on his or its behalf during the period of the injunction but subject to undertakings being given in order to maintain independent control in the nominee. Alternatively, I suggested that the Court might be invited to appoint a receiver to exercise rights over the share options in the short term. I am satisfied that my order will maintain flexibility and interfere with the rights of the defendants only to the extent that their past conduct justifies. The injunction is necessarily made quia timet - because it is feared (based on the defendants’ past conduct) that they in the future may disobey the fundamental requirements of the Corporations Act.
The order provides for notice being given by ASIC to the parties when it has disposed of the shares so that an application may then be made to discharge the injunction which should not be permanent nor punitive.
The plaintiff seeks to recover its costs from the proceeds of sale by ASIC. I am not prepared to make such an order which may have the effect of giving the plaintiff a priority as a creditor. However, I am prepared to direct the retention of the proceeds of sale by ASIC pending further order to accommodate the final accounting. The plaintiff will have an opportunity to tax its costs and then to seek access to funds.
The plaintiff seeks costs upon an indemnity basis. Such an order will only be made in an exceptional case. It is contended that the defence was so unmeritorious and lacking in credibility that it should not have been pursued (cf Sheahan and Le Poidevin Pty ltd (In Liq) v Northern Australian Land & Agency Co Ltd and Ors, unreported Supreme Court of South Australia judgment No 4260 of 4 November 1993 per Perry J). I am not prepared to base an order only upon the unmeritorious nature of the defence - although it is apparent from my earlier judgment that when the facts are assembled (as was done by Mr Whitington QC at trial) that the defendants were always struggling to put forward a credible response. On 17 December 2002 the defendants were served with a copy of the plaintiff’s final written submissions. The full impact of the plaintiff’s case should have been clear to the defendants at this point (if not earlier).
On 23 December 2002 I reserved my judgment after the defendants had chosen not to be present personally in court but afforded the opportunity to present written argument. Thereafter Mr Barry became active in seeking to re-open the evidence and all defendants joined in applying to adduce supplementary argument. In the exercise of my discretion as to costs I will award the plaintiff its taxed party and party costs up to and inclusive of 23 December 2002; thereafter I award the plaintiff its costs to be taxed upon a solicitor and client basis. (I note that an order in such a form was made by Woodward J in Re Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and Ors 81 ALR 397 at 401.)
This order may require some supervision by the court and there will be liberty for the parties and ASIC to apply. I regard the proposed order as a final order; however, in case any aspect of this decision be regarded as interlocutory, I now give leave to appeal to the Full Court insofar as there is not an appeal as of right.
An application for extension of time to appeal against my judgment has been foreshadowed by Mr Barry; indeed it has been made informally by letter dated 3 June 2003. I am not prepared to entertain such an application. During the trial I have allowed Mr Campbell and Mr Barry as defendants in person to make various applications and give their responses by letter from Western Australia and California. This manner of proceeding in absentia is an embarrassment - particularly when the defendants choose to make their application as requests for assistance (sometimes by email addressed to members of the court staff). My judgment will be entered as at 12 June 2003 and the defendants should expect to comply with the Rules of Court from that point onwards.
The formal order will be as follows:
A.Declare that:
1.Each of the defendants is in breach of s 606 of the Corporations Act (“the Act”).
2.Each of the defendants is in breach of s 671B of the Act.
3.Each of the first, second and third defendants is in breach of s 672B of the Act.
4.The general meeting of the plaintiff, requested by the second defendant, originally to be held on 15 October 2002 and since adjourned (“the General Meeting”) is to be held for an improper purpose.
B.Order that:
1.The General Meeting requisitioned by the second defendant and convened by the plaintiff on 5 September 2002 pursuant to that requisition not be held.
2.The 17,269,292 shares in the plaintiff registered in the name of the first defendant vest in the Australian Securities & Investments Commission (“ASIC”).
3.The 4,000,000 shares in the plaintiff registered in the name of the second defendant vest in ASIC.
4.The 1,000,000 shares in the plaintiff registered in the name of the third defendant vest in ASIC.
5.The 154,000 shares in the plaintiff registered in the name of the fourth defendant vest in ASIC.
6.The shares in the plaintiff vested in the ASIC by operation of orders 2 to 5 above be disposed of by ASIC within 6 months of the making of this order (or such further time as the Court may allow) for the best price reasonably attainable.
7.The proceeds from the disposal of the shares referred to in order 6 net of the cost and expenses of disposal and of ASIC in making the disposal be held by ASIC in an interest bearing account and upon notice by ASIC to the parties until further order of this Court.
8.The defendants pay the plaintiff’s costs to be taxed or agreed:
(a) on a party and party basis with respect to costs incurred on or before 23 December 2002; and
(b) on solicitor and client basis with respect to costs incurred after 23 December 2002.
9.Each of the defendants be and is hereby restrained until further order from acquiring securities or any interest in securities in the plaintiff or from transferring, exercising or otherwise dealing with the options in the plaintiff registered in the names of each of the defendants.
10.Liberty to all parties and to ASIC to apply on short notice.
C.Leave is hereby granted to appeal to the Full Court.

[2003] SASC 182

12 June 2003