Gun Capital Management Pty Ltd v Solamind Pty Ltd (No 2)

[2013] FCA 749

FEDERAL COURT OF AUSTRALIA

Gun Capital Management Pty Ltd v Solamind Pty Ltd (No 2) [2013] FCA 749

Citation:

Gun Capital Management Pty Ltd v Solamind Pty Ltd (No 2) [2013] FCA 749

Parties:

GUN CAPITAL MANAGEMENT PTY LTD (ACN 092 221 546) v SOLAMIND PTY LTD (ACN 082 203 772), SOLAGRAN LTD (ACN 002 592 396) and VAGIF SOULTANOVICH SOULTANOV

SOLAMIND PTY LTD (ACN 082 203 772), SOLAGRAN LTD (ACN 002 592 396) and VAGIF SOULTANOVICH SOULTANOV v GUN CAPITAL MANAGEMENT PTY LTD (ACN 092 221 546), ELIAS (LEO) KHOURI and MINING INVESTMENTS LTD

File number:

WAD 223 of 2010

Judge:

NORTH J

Date of judgment:

1 July 2013

Date of hearing:

1 July 2013

Place:

Melbourne

Division:

GENERAL DIVISION

Category:

No Catchwords

Number of paragraphs:

14

Counsel for the Applicant:

Mr A J Weinstock

Solicitor for the Applicant:

Lavan Legal

Counsel for the Respondents:

Mr J Tomlinson

Solicitor for the Respondents:

Marsh & Maher Lawyers

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 223 of 2010

BETWEEN:

GUN CAPITAL MANAGEMENT PTY LTD (ACN 092 221 546)
Applicant

AND:

SOLAMIND PTY LTD (ACN 082 203 772)
First Respondent

SOLAGRAN LTD (ACN 002 592 396)
Second Respondent

VAGIF SOULTANOVICH SOULTANOV
Third Respondent

AND BETWEEN:

SOLAMIND PTY LTD (ACN 082 203 772)
First Cross-Claimant

SOLAGRAN LTD (ACN 002 592 396)
Second Cross-Claimant

VAGIF SOULTANOVICH SOULTANOV
Third Cross-Claimant

AND:

GUN CAPITAL MANAGEMENT PTY LTD (ACN 092 221 546)
First Cross-Respondent

ELIAS (LEO) KHOURI
Second Cross-Respondent

MINING INVESTMENTS LTD
Third Cross-Respondent

JUDGE:	NORTH J
DATE OF ORDER:	1 JULY 2013
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.The applicant pay the respondents’ costs of the application on a party-and-party basis.

2.The cross-claimants pay the cross-respondents’ costs of the cross-claim on a party-and-party basis to 2 July 2012.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 223 of 2010

BETWEEN:

GUN CAPITAL MANAGEMENT PTY LTD (ACN 092 221 546)
Applicant

AND:

SOLAMIND PTY LTD (ACN 082 203 772)
First Respondent

SOLAGRAN LTD (ACN 002 592 396)
Second Respondent

VAGIF SOULTANOVICH SOULTANOV
Third Respondent

AND BETWEEN:

SOLAMIND PTY LTD (ACN 082 203 772)
First Cross-Claimant

SOLAGRAN LTD (ACN 002 592 396)
Second Cross-Claimant

VAGIF SOULTANOVICH SOULTANOV
Third Cross-Claimant

AND:

GUN CAPITAL MANAGEMENT PTY LTD (ACN 092 221 546)
First Cross-Respondent

ELIAS (LEO) KHOURI
Second Cross-Respondent

MINING INVESTMENTS LTD
Third Cross-Respondent

JUDGE:	NORTH J
DATE:	1 JULY 2013
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1. Judgment in this matter was delivered on 21 June 2013: Gun Capital Management Pty Ltd v Solamind Pty Ltd [2013] FCA 620. The Court made orders dismissing the application and the cross-claim and the question of costs was reserved.

2. There is a dispute between the parties concerning the respondents’ costs of the application and the cross-respondents’ costs of the cross-claim. 

3. In relation to the application, the respondents who succeeded argued that they should have their costs on a party-party basis up to and including 4 June 2012 and on an indemnity basis thereafter.  The applicant accepted that the respondents should have their costs but argued that the costs should be on the ordinary party-party basis. 

4. The respondents sent a Calderbank offer to the applicant which expired on 4 June 2012.  In that offer the respondents proposed that the application and cross-claim be dismissed with no order as to costs.  The Calderbank letter carefully explained the basis upon which the offer was made.  The applicant and cross-respondents rejected the offer.

5. In determining whether an order for indemnity costs should be made in relation to the application, the question is whether it was unreasonable for the applicant and cross-respondents to refuse the Calderbank offer: Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435 at [23].

6. The respondents contended that it was unreasonable for the applicant to have refused the Calderbank offer because credit was a determinative factor in the case and in the end the Court rejected the evidence of the main witnesses for the applicant as unreliable.  Mr Khouri was the sole director and shareholder of the applicant and a central player in the events with which the application was concerned.  Much of his evidence was found by the Court to be a construct to suit the applicant’s case.

7. But, importantly, there was no finding as to whether the construct was deliberate or not.  Whilst this left open the possibility that Mr Khouri had lied to the Court, it did not conclude that he had done so.  Had the Court found that the applicant’s case was based on deliberate dishonest evidence, it is likely that the refusal of the offer would be found to have been unreasonable.

8. However, the rejection of the offer by the applicant was no more than the ordinary conduct of a litigant in a case which turned on the credit of witnesses on both sides.  Where a case is decided on the credit of a witness called by the party refusing the offer, the rejection of the offer is not unreasonable, unless, for instance, the witness is found to have been deliberately dishonest.  The purpose of the law concerning Calderbank offers is not to disadvantage litigants who make decisions in the course of litigation which are at the time apparently to their advantage and which form the ordinary reasonable assessment of the likelihood of success or risk of failure.  Rather it is to prevent unreasonable conduct which results in the rejection of offers reasonably made.  Consequently, the respondents should receive their costs of the application on the ordinary party-party basis. 

9. The second area of dispute concerned the cross-respondents’ costs of the cross-claim.  The cross-claim was abandoned at trial.  The cross-respondents contended that they should receive their costs of the cross-claim on an indemnity basis from 1 March 2012.  This is the date when shares in Solagran were suspended from trading.   When the cross-claim was abandoned at trial the reason given was that the loss pleaded in the cross-claim could not be ascertained from that date because the shares were suspended.

10. Alternatively, the cross-respondents submitted that that they should receive their costs of the cross-claim on an indemnity basis from 11:00 am on 5 June 2012 following an offer of compromise made by them.  The offer of compromise proposed that the cross-claim be dismissed with no order as to costs and that the respondents pay the applicant a specified sum plus costs in relation to the application.

11. The trial commenced on 2 July 2012, shortly after the date on which Solagran shares were suspended from trading.  The cross-respondents should have their costs of the cross-claim on a party-party basis up to the commencement of the trial. 

12. Given the brief period between 1 March on the one hand, or 5 June on the other hand, and 2 July 2012, the cross-respondents should not have costs on an indemnity basis for either of these periods. 

13. Further, the offer of compromise provides no reason for an award of costs on an indemnity basis because the offer was a package which would have required them to compensate the applicant in relation to the application which has been dismissed. 

14. No costs should be attributed to the cross-claim in the course of the trial.  There were no costs which were incurred in the course of the trial which related exclusively to the conduct of the cross-claim.  The cross-claim was at all times a mere skeleton. 

I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice North.

Associate:

Dated:       31 July 2013