Ian Allan Byrne v A J Byrne Pty Limited (No 2)

[2012] NSWSC 883

Supreme Court

New South Wales

Medium Neutral Citation:	Ian Allan Byrne v A J Byrne Pty Limited (No 2) [2012] NSWSC 883
Hearing dates:	8, 9 and 10 May 2012, 24 July 2012
Decision date:	02 August 2012
Jurisdiction:	Equity Division - Corporations List
Before:	Black J
Decision:	Detailed orders as to costs and other consequential orders made.
Catchwords:	COSTS - Costs and consequential orders - Indemnity costs - Whether order for indemnity costs should be made in circumstances where Plaintiff rejected two offers to acquire his shares made by Defendants - Whether Plaintiff acted unreasonably in pursuing proceedings.
Legislation Cited:	- Corporations Act 2001 (Cth) ss 233, 233(1)(a), 233(1)(d), 461 - Uniform Civil Procedure Rules 2005 (NSW) r 20.22
Cases Cited:	- Byrne v A J Byrne Pty Ltd [2012] NSWSC 667 - Byrne v Byrne [2011] NSWSC 1437 - Calderbank v Calderbank [1975] 3 All ER 333; 3 WLR 586 - Nu Line Construction Group Pty Ltd v Fowler [2012] NSWSC 816
Category:	Consequential orders
Parties:	Ian Allan Byrne (Plaintiff) A.J. Byrne Pty Ltd (1st Defendant) Loka Pastoral Co Pty Ltd (2nd Defendant) Mirridong Pastoral Co Pty Ltd (3rd Defendant) Allan Austin Byrne (4th Defendant) Frances Laura Byrne (5th Defendant) Stuart Austin Byrne (6th Defendant)
Representation:	Counsel: D.P. Robinson SC/S.B. Loughnan (Plaintiff) J. Stoljar SC/T.W. Marskell (Defendants) Solicitors: Commins Hendricks Pty Ltd (Plaintiff) Skinner & Associates (Defendants)
File Number(s):	11/204675

Judgment

1. I delivered judgment in these proceedings on 19 June 2012 ([2012] NSWSC 667) ("Principal Judgment"). I held, in summary, that the Plaintiff, Mr Ian Byrne, had not established that orders should be made under s 233(1)(d) of the Corporations Act 2001 (Cth) requiring the remaining members of A.J. Byrne Pty Limited ("AJBPL") and Loka Pastoral Co Pty Limited ("Loka") to purchase his shares in those companies at a price equal to the market value of those shares as a whole without discount for the fact that his shareholding was a minority shareholding. I also held that Mr Byrne had not established that AJBPL and Loka should be wound up under s 233(1)(a) of the Corporations Act or s 461 of the Corporations Act. Mr Byrne was successful in one aspect of his claim, namely that I held that an allowance for the costs of liquidating relevant assets made by an accountant retained by the parties, Mr Willis, in valuing the shares was incorrect, where the relevant assets were not to be liquidated but instead to be retained. I noted that it would be open to the Defendants to revise the price of their offer to acquire Mr Byrne's shares to correct that error.

1. The matter was listed before me for argument as to the form of orders and as to costs. There were differences between the parties as to the form of the orders that should be made.

1. First, the Defendants contended that an order should be made that the proceedings be dismissed. Mr Byrne contended that the proper order was that there be judgment for the Defendants on paragraphs 14-18 inclusive of the Statement of Claim. Those paragraphs related to the matters which were determined in my judgment, namely the application for orders under s 233 and 461 of the Corporations Act for a buy out of Mr Byrne's shares in the companies or alternatively a winding up and the appointment of a liquidator to the companies. The other paragraphs of the Statement of Claim dealt with an application by Mr Byrne for the dissolution of a separate partnership between him and the Fourth, Fifth and Sixth Defendants known as "A.J. Byrne & Co" and consequential orders. That application was determined by Barrett J, who delivered judgment on 25 November 2011 ([2011] NSWSC 1437) declaring that that partnership was dissolved, ordering that the partnership business be wound up under the Court's direction, declaring the entitlements of the partners on a winding up of that partnership and appointing a receiver and manager of the partnership, and amending an earlier order made for a reference under r 20.22 of the Uniform Civil Procedure Rules 2005 (NSW) by expanding that reference.

1. There was a difference between the parties as to whether any issues arising from the reference and the appointment of the receiver and manager of the partnership business may require determination by the Court. An affidavit dated 23 July 2012 of Mr Byrne's solicitor notes that the receivership of the partnership has not yet been completed; indicates her view that there are outstanding issues to be dealt with in respect of the reference and receivership, including an insurance claim being made by the partnership and proceeds from that claim, and that Mr Byrne remains entitled to a sum of money equivalent to his proper interest in the partnership; and notes that there is also a question presently before the referee as to the amount of an interim distribution to Mr Byrne from the partnership. Mr Byrne also pointed out that there may be a question as to whether the referee's report should be formally adopted by the Court.

1. In these circumstances, I do not consider that it is appropriate to make an order dismissing the proceedings. I consider the preferable course is to make orders that address the specific matters which were heard before me, and adjourn the proceedings for a substantial period so that any remaining issues as to the reference and the appointment of the receivers can be resolved and the proceedings then dismissed.

1. The second question as to the form of orders related to a revised offer made by the Fourth, Fifth and Sixth Defendants to purchase Mr Byrne's shares in AJBPL and Loka on 22 June 2012, which was intended to address the finding in paragraph 74 of the Principal Judgment that a deduction for the costs of asset sales was not properly made in valuing the shares in those companies. That offer has not been accepted by Mr Byrne but presently remains open. The Defendants' formulation of a note of that letter to be made by the Court refers to it being made "in the manner contemplated by paragraph [74] of the Principal Judgment". Mr Byrne accepted that the Court should note that letter together with a further email relating to the manner in which any payment for those shares would be made. The form of the note proposed by Mr Byrne does not contain the further statement as to whether that offer was in the manner contemplated by paragraph [74] of the Principal Judgment. In my view, the note of that offer should take the form for which Mr Byrne contends, since no dispute arose before me and there is no need for a determination by me of whether that offer conforms to paragraph [74] of the Principal Judgment.

1. There remains a question as to the costs of the proceedings. Mr Byrne accepts that he should be ordered to pay the Defendants' costs of and incidental to paragraphs 14-18 inclusive of the Statement of Claim on a party/party basis. The Defendants contend that, apart from the costs of the reference ordered by Barrett J, Mr Byrne should be required to pay the Defendants' costs of and incidental to the proceedings on a party/party basis prior to 6 June 2011 inclusive and pay those costs on an indemnity basis from 7 June 2011. I consider that the orders for costs that I should make, at this stage, should be limited to the matters which were determined in the Principal Judgment, namely the matters addressed in paragraphs 14-18 inclusive of the Statement of Claim. If any unresolved issues as to costs arise out of the earlier judgment of Barrett J, they may be addressed at an appropriate time, in connection with any remaining issues in respect of the reference and the appointment of the receivers.

1. It remains to address the question whether costs should be ordered against Mr Byrne on an indemnity basis. The Defendants point out that, on 7 June 2011, they had offered to purchase Mr Byrne's interest in the partnership and two companies for amounts, relevantly, of $93,296 for his shares in AJBPL and $592,598 in respect of his shares in Loka, in accordance with a valuation delivered by an accountant jointly retained by Mr Byrne and the Defendants to value their respective interests. Mr Byrne points out that the offer made on 7 June 2011 included a condition that Mr Byrne transfer his interest in a property which was not the subject of the proceedings, so the amount payable under that letter is not referable to the interests in the partnership and the companies alone, and that amount is less than the amount that he now expects to receive for his interest in the partnership and the companies. Mr Byrne commenced the proceedings on 23 June 2011 and, shortly thereafter, the Defendants advised him of their contention that the commencement of the proceedings was unreasonable in the circumstances. The Defendants confirmed their willingness to purchase the shares in the two companies by letter dated 10 February 2012.

1. The Defendants contend that the offers made on 7 June 2011 and 10 February 2012 were "akin to offers of compromise" which were unreasonably rejected by Mr Byrne and that Mr Byrne acted unreasonably in commencing and continuing these proceedings where they did not, in the result, cause him to be offered any more for his shares than the amount offered on 7 June 2011 or 10 February 2012.

1. I gratefully adopt Ward J's recent summary of the principles applicable to an award of indemnity costs arising from a Calderbank (Calderbank v Calderbank [1975] 3 All ER 333; 3 WLR 586) offer in Nu Line Construction Group Pty Ltd v Fowler [2012] NSWSC 816 at [9]-[14], where her Honour observed that:

"[9] The rationale for the principles applied in relation to Calderbank offers was outlined in Commonwealth v Gretton [2008] NSWCA 117 by Beazley JA, her Honour noting (at [41]) that the public policy considerations underpinning the making of favourable costs orders where a Calderbank offer has been made (and not accepted) are the encouragement of settlement of disputes as soon as possible and the discouragement of wasteful and unreasonable behaviour by litigants.

[10] The Court of Appeal in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 recently reiterated the public policy objectives of special costs orders in the context of offers of compromise. Basten JA (with whom McColl and Campbell JJA agreed) referred at [6] to the objects underlying the formal offer of compromise procedures under the then court rules that were identified in Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 as including:

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.

[11] The onus is on the party seeking to rely on a Calderbank offer (in this case, the defendants) to satisfy the Court that it should exercise the costs discretion in its favour (Evans Shire Council v Richardson (No 2) [2006] NSWCA 61). An indemnity costs order will not automatically follow from the fact that a genuine offer of compromise more favourable than the final judgment was made nor is there any presumption to that effect (Cat Media Pty Ltd v Allianz Australia Insurance Ltd [2006] NSWSC 790; Rolls Royce Industrial Power (Pacific) Limited v James Hardie & Co Pty Limited [2001] NSWCA 461). What must be considered is the reasonableness of the offeree's rejection or non-acceptance of the offer, having regard to the relevant circumstances at the time that the offer fell to be considered (ie, here, as at September 2006) (citing MGICA (1992) Pty Limited v Kenny & Good Pty Limited [1996] 70 FCR 236 per Lindgren J). The question is whether, in all the circumstances, the failure to accept the offer "warrants departure from the ordinary rule as to costs" (SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 per Giles JA at [37]). ...

[13] Save where there is a special costs order by reference to the procedure provided for under the Rules or in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333; 3 WLR 586, it has been said that a court should depart from the general rule (and award indemnity costs only where the conduct of the party against whom the order is sought is "plainly unreasonable" (Sydney City Council v Geftlick [2006] NSWCA 280; Dunstan v Rickwood (No 2) [2007] NSWCA 266). In Leichhardt Municipal Council v Green [2004] NSWCA 341, Santow JA (at [57]) said that indemnity costs orders should be reserved for the most unreasonable actions by unsuccessful plaintiffs.

[14] In that regard, it remains to be seen whether the exhortation in the above cases as to the category of case in which conduct by an unsuccessful plaintiff would warrant an indemnity costs order is to be reconsidered having regard to the regime now in place in relation to the conduct of litigation in this Court and, in particular, the recognition in s 56(5) of the Civil Procedure Act that non-compliance with the statutory objectives provided for in that legislation may be taken into account in the exercise of a discretion as to costs. ..."

1. I am satisfied that an order for indemnity costs should not be made against Mr Byrne in these proceedings for several reasons. First, Mr Byrne has had some success in them, by reason that he established that Mr Willis' valuation understated the value of the shares in the companies, although that this was not the primary point in his claim. Second, I do not consider that Mr Byrne acted unreasonably in pursuing the proceedings notwithstanding the offer to acquire his shares at a value reflecting a minority discount made by the Defendants on 7 June 2011 or the further offer made on 10 February 2012. I note that:

• The proceedings involved a number of contested factual issues, in particular as to who could properly be said to have initiated Mr Byrne's exclusion from the partnership and it was not self-evident that Mr Byrne would ultimately not be successful or the Defendants would ultimately be successful in respect of those factual issues.

• The question as to the circumstances in which a minority discount was applicable, particularly where it would deliver a less favourable result to a minority shareholder than a winding up of the companies, was also by no means straightforward, as the review of the case law in the Principal Judgment amply demonstrates. I do not think that it could be said that Mr Byrne or his advisers would have acted unreasonably in considering that that case law did not clearly resolve question of the application of a minority discount in a way that was conclusive against them.

• The Defendants did not contend, and I would have not held, that there was anything unreasonable about the manner in which Mr Byrne and his representatives conducted the proceedings.

1. For these reasons, I do not consider that an order for indemnity costs should be made against Mr Byrne in respect of the costs of the proceedings.

1. Accordingly, I make the following orders:

1. Judgment for the Defendants on Prayers 14-18 inclusive of the Statement of Claim.

2. Order that the Plaintiff pay the Defendants' costs of and incidental to Prayers 14-18 inclusive of the Statement of Claim.

3. The Court notes the Plaintiffs' letter dated 22 June 2012 together with Exhibit D to the Affidavit of Susan Ougham sworn 19 July 2012.

4. The proceedings be listed before the Corporations Judge on 3 December 2012.

5. Liberty to the parties to relist the matter on 3 days notice.

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Decision last updated: 10 August 2012