In the matter of ACN 004 410 833 Limited (formerly Arrium Limited) (subject to a deed of company arrangement)

[2019] NSWSC 1708

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of ACN 004 410 833 Limited (formerly Arrium Limited) (subject to a deed of company arrangement) [2019] NSWSC 1708

Hearing dates:

Submissions as to costs and orders - 29 November 2019

Decision date:

02 December 2019

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Consequential orders and costs orders made.

Catchwords:

CORPORATIONS – winding up – public examination of directors, officers and others – application to set aside examination summonses and orders for production – consequential orders made.

  COSTS – whether costs orders should be made in respect of application to set aside examination summonses and orders for production.

Legislation Cited:

- Civil Procedure Act 2005 (NSW) s 68
- Supreme Court (Corporations) Rules 1999 (NSW) r 2.13
- Uniform Civil Procedure Rules 2005 (NSW) r 42.1

Cases Cited:

- Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266
- Commonwealth of Australia v Gretton [2008] NSWCA 117
- Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34
- Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72

Category:

Costs

Parties:

Interlocutory Process filed 11 June 2019
Michael Thomas Walton (First Plaintiff/First Respondent)
Anthony Bogan (Second Plaintiff/Second Respondent)
ACN 004 410 833 Limited (formerly Arrium Limited) (subject to deed of company arrangement) (Applicant)
KPMG (Interested Party)

  Interlocutory Process filed 8 August 2019
Michael Thomas Walton (First Plaintiff/First Respondent)
Anthony Bogan (Second Plaintiff/Second Respondent)
Colin Galbraith (Applicant)
KPMG (Interested Party)

Representation:

Interlocutory Process filed 11 June 2019
Counsel:
J Shepard (Plaintiffs/Respondents)
A E Smith (Applicant)

 

Solicitors:
Squire Patton Boggs (Plaintiffs/Respondents)
Arnold Bloch Leibler (Applicant)
Ashurst (Interested Party)

 

Interlocutory Process filed 8 August 2019
Counsel:
J Shepard (Plaintiffs/Respondents)

  Solicitors:
Squire Patton Boggs (Plaintiffs/Respondents)
Clyde and Co (Applicant)
Ashurst (Interested Party)

File Number(s):

2019/141004 (002); 2019/141004 (004)

Judgment

1. On 19 November 2019 I delivered judgment ([2019] NSWSC 1606) (“Judgment”) dealing, inter alia, with an application made by ACN 004 410 833 Limited (formerly Arrium Limited) (subject to a deed of company arrangement) (“Arrium”) seeking to set aside a summons for examination and orders for production directed to Mr Galbraith, a former director of Arrium and orders for production to Arrium, KPMG and UBS AG. I directed the parties to bring in agreed short minutes of order to give effect to that Judgment, including as to costs, within 7 days or, if there was no agreement between them, their respective short minutes of order and short submissions as to the differences between them. I subsequently extended the time for submissions to 4pm on Friday 29 November 2019, at the parties’ request.

2. The Plaintiffs and Arrium have together agreed a number of the orders that should be made. I will make the orders in the form that they propose, although they are much more complex than the regime for document production by Arrium contemplated by my Judgment and I would not have made them had the parties not consented to them. The parties should not assume that the fact that order 11 is made, by consent, means that the Court will be prepared to entertain sequential disputes as to costs of production on an ongoing basis, rather than adjourning them to the end of the production or examination process to be resolved at that point. The parties should draw this observation to the attention of any other Judge before whom an application in respect of that order is brought.

Whether Mr Galbraith should pay the Plaintiffs costs of an adjourned hearing on 15 August 2019 before Rees J

3. It appears that three issues remain in dispute. First, the Plaintiffs seek an order that Mr Galbraith pay their costs thrown away as a result of an adjourned hearing on 15 August 2019 before Rees J, as agreed or as assessed. Her Honour made certain orders in respect of the provision of evidence to Mr Galbraith, extended the time in which he could apply under r 11.5 of the Supreme Court (Corporations) Rules 1999 (NSW) to discharge the examination summons issued to him, and ordered that his Interlocutory Process be heard together with the Interlocutory Process filed by Arrium. Her Honour also reserved the question of costs of and incidental to Mr Galbraith’s application to access the confidential material and costs thrown away by reason of the Arrium discharge application not being heard on that date.

4. The Plaintiffs refer to previous correspondence with Mr Galbraith’s legal representatives and to steps taken in respect of service of documents and submissions on Mr Galbraith. They point out that, at the hearing on 15 August 2019 before Rees J, Mr Galbraith applied, for the first time, for access to the confidential affidavit on which the Plaintiffs had relied in support of his examination summons. The Plaintiffs submit that they should have their costs thrown away by reason of the adjourned hearing where the additional time granted to Mr Galbraith to file evidence and submissions was an indulgence to him which necessitated a further hearing date and his application to set aside his examination summons failed. It seems to me that Mr Galbraith’s late application for access to the affidavit in support of the examination and his late indication that he sought to file separate submissions and evidence after reviewing the confidential affidavit were a contributing cause, but not the only cause, for the hearing allocated before Rees J not proceeding.

5. Mr Galbraith responds that, rather than his paying the Plaintiffs’ costs thrown away as a result of the adjourned hearing on 15 August 2019, the Plaintiffs should pay his costs thrown away as a result of that adjourned hearing. His submissions set out a history of correspondence prior to his moving to apply to set aside his examination summons, which included his seeking access to the confidential affidavit in support of the examination summons. The Plaintiffs did not consent to his having access to that affidavit and Rees J made orders permitting his access to that affidavit and other parties’ submissions in respect of Arrium’s discharge application at the hearing on 15 August 2019. The hearing of the discharge application was then adjourned, to allow Mr Galbraith’s legal representatives to be provided with and review that material. Mr Galbraith submits that he is entitled to his costs of the hearing on 15 August 2019, because he was successful in his application for access to the confidential affidavit and submissions and the discharge application could have proceeded on that date had the Plaintiffs previously consented to proposals which would have granted that access.

6. It seems to me that each of the Plaintiffs and Mr Galbraith contributed to the situation where that hearing date was adjourned, where, on the one hand, that would likely not have been necessary had Mr Galbraith moved to set aside the examination summons more promptly, to allow the question of access to the confidential affidavit and submissions to be determined on an earlier date. However, that would likely not have been necessary had the Plaintiffs consented to his having access to those materials at an earlier date, obviating the need for an adjournment when Rees J held that he was entitled to such access. For these reasons, there should be no orders as between the Plaintiffs and Mr Galbraith for the costs of the adjourned hearing on 15 August 2019.

Whether Arrium, Mr Galbraith or the Plaintiffs should pay the costs of the hearing before me

7. Second, several parties seek costs of the hearing before me as against other parties. I will briefly refer to the applicable principles, although these applications raise no novel issues in that regard. The Court has discretion to determine by whom, to whom and to what extent costs are to be paid, and costs will ordinarily follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs, in accordance with r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW). A successful party has a “reasonable expectation” of being awarded costs against an unsuccessful party, unless there is good reason for that presumption to be displaced: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [44], [134]. In Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121], Hodgson JA (with whom Mason P agreed) observed that:

“… underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs.”

8. That observation was cited, with apparent approval, by the Court of Appeal in Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [98]. In Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266 at [9], McColl JA (with whom Macfarlan JA agreed) observed that:

“Underlying both the general rule that costs follow the event, and qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs.” [citations omitted]

9. The Plaintiffs seek an order that Arrium and Mr Galbraith pay their costs of, and incidental to, Mr Galbraith’s and Arrium’s discharge applications, jointly and severally, as agreed or as assessed. The Plaintiffs submit that order should be made because costs ordinarily follow the event, and there is no compelling reason for that general rule to be displaced in this application. They submit that Arrium’s application to discharge the examination summons issued to Mr Galbraith was the material issue that occupied the bulk of oral and written submissions as between the Plaintiffs and Arrium, and that Arrium failed on “this issue of substance” in the proceedings. I do not accept that submission, where it seems to me that the issues of the legitimacy of Mr Galbraith’s examination and the orders for production issued to Arrium were closely linked, and the latter also occupied substantial time in written and oral submissions, and would have occupied greater time at the hearing had the Plaintiffs not abandoned the orders they had previously sought in the course of the hearing.

10. The Plaintiffs submit that they substantially succeeded on the limited disclosure they pressed at and before the hearing and refer to offers of limited disclosure that had been made in earlier correspondence. That submission neglects the fact that those offers were to obtain “interim” disclosure, in advance of the fuller disclosure they sought by the wider orders, and that they did not abandon the wider orders for production that they had obtained until part way through the hearing before me. There is, in my view, a substantive difference between the earlier suggestion of a “stay” on wider orders for production, or the making of narrower “interim” orders, which left Arrium exposed to the wider orders being pressed in the future, and their being abandoned by the Plaintiffs and set aside.

11. Arrium responds that it was granted leave to be heard in the proceedings as an interested person under r 2.13 of the Supreme Court (Corporations) Rules and that the usual rule is that a person granted leave to appear under that rule should neither be awarded costs nor have costs orders made against them. The premise of that submission is not established. Arrium was not heard as an interested person under r 2.13 of the Supreme Court (Corporations) Rules, but applied, as the Applicant in an Interlocutory Process, to set aside orders made against it by the Registrar on 15 May 2019. It was a party to that Interlocutory Process, and conducted itself on that basis at the hearing before me.

12. Second, Arrium advances a number of reasons why it submits that the Plaintiffs should bear their own costs or alternatively should bear a substantial proportion of their own costs. Arrium submits that the issue in dispute had not been the subject of a previous judicial determination and refer to my observation that I had reached my conclusions with “considerable hesitation”; it submits that the conduct of Arrium’s liquidators in commencing the interlocutory application was reasonable; and third, it submits that the Plaintiffs’ success was limited and did not extend to the orders for production and refer to my observation in the Judgment that those orders for production were “extraordinarily broad” in respect of Arrium, and that the Plaintiffs had only conceded that those orders for production should be set aside in the course of the hearing before me. Arrium also submits that aspects of the Plaintiffs’ conduct of the proceedings caused delays and wasted costs. It seems to me that the question of the extent of the Plaintiffs’ success in the proceedings is the most significant of these factors, and I do not consider it necessary to deal with Arrium’s several other submissions in that regard. Arrium’s primary position is that it and the Plaintiffs should pay their own costs of the application and it submits that, if the Court is minded to make an order in the Plaintiffs’ favour, Arrium should not be required to pay more than 50% of the Plaintiffs’ costs for these reasons.

13. I will not make the order sought by the Plaintiffs that Arrium pay their costs of the hearing before me, either generally or in respect of the application to set aside the examination order directed to Mr Galbraith. That application was one of the bases on which Arrium also sought to set aside orders for production directed to it. Arrium had in turn advanced detailed submissions as to why those orders for production should be set aside, which would have succeeded had the Plaintiffs not abandoned those orders, and substituted much narrower categories of documents, in the course of the hearing before me on 31 October 2019. The result of the hearing before me, as between the Plaintiffs and Arrium, could only be described as mixed, where Arrium did not succeed in setting aside Mr Galbraith’s examination but was substantially successful in narrowing the scope of the orders for production that had been issued to it. There should be no order for costs as between Arrium and the Plaintiffs.

14. Mr Galbraith responds to the Plaintiffs’ submission that an order for costs should be made again him, in respect of the hearing before me, that there should be no order as to costs between the Plaintiffs and him in respect of his application to set aside his examination summons. Mr Galbraith submits that he should not be ordered to pay the costs of the application to set aside his examination summons, where his application did not cause the Plaintiffs to incur legal costs that would not have been incurred in any event; no further evidence was relied on by any party in respect of his application to set aside the examination summons, beyond what would have been relied on in respect of Arrium’s application to set aside that summons, at least as an anterior step in its application to set aside the orders for production made against it; and, if anything, his application had reduced the scope of the issues in dispute, since it avoided the need for substantive evidence and submissions as to the issue of standing. He also submits that an order for costs would not be consistent with a wider “compensation principle”, where his application had not caused the Plaintiffs to incur costs, beyond the costs which would already have been incurred in respect of the application brought by Arrium. Mr Galbraith alternatively submits costs should not be ordered in the Plaintiffs’ favour, where, he contends, they had acted unreasonably in previously objecting to his having access to the confidential material in support of the examination summons. It is not apparent why that criticism is relevant to the costs of the hearing before me, as distinct from the costs of the hearing before Rees J.

15. I will also not make the order sought by the Plaintiffs that Mr Galbraith pay the costs of the hearing before me, which would not reflect the reality of the way the proceeding was conducted before me. Arrium had initially moved to set aside the examination order in respect of Mr Galbraith, on the bases set out in the Judgment. As I noted in paragraph 4 of the Judgment, after the Plaintiffs took issue with Arrium’s standing to bring that application, Mr Galbraith joined in the application. He did not advance separate submissions as to that matter and adopted parts of Arrium’s and KPMG’s submissions and did not seek to set aside the order for production issued to him unless the orders for his examination were set aside. Notwithstanding Mr Galbraith was an Applicant to set aside his examination summons, and was not successful, it seems to me that the substantive dispute was between Arrium and the Plaintiffs, and Mr Galbraith’s participation added little to the time spent by the parties in that dispute. All of the relevant issues would still have been raised, and would still have needed to be addressed, had Arrium simply sought to set aside the orders for production addressed to it, and challenged the order for the examination of Mr Galbraith as a prerequisite to the making of the orders for production directed to it. Arrium plainly had standing to bring that application, and to challenge the order for Mr Galbraith’s examination as a step in challenging the orders for production directed to it.

16. In these circumstances, there should be no order as to costs as between the Plaintiffs and Mr Galbraith as to the hearing before me. It is not necessary to deal with Mr Galbraith’s further submission that, if the Plaintiffs are entitled to costs, they should be ordered against Arrium or its liquidators rather than against him, where I have not found that costs should be ordered against him in any event.

17. I note, for completeness, that Mr Galbraith submits that, if the Court declines the Plaintiffs’ application for a costs order against him, then the Plaintiffs should pay his costs of this costs application. I do not propose to make such an order, where the issue was in narrow compass, and Mr Galbraith’s were arguably not consistent with the Court’s leave for “short” submissions by the parties as to these matters.

18. It was common ground that there would be no order as to costs as between the Plaintiffs and KPMG, which had been heard in the application under r 2.13 of the Supreme Court (Corporations) Rules, rather than being a party to the application.

Stay of production by Arrium and examination orders

19. It appears to be common ground that order 4, requiring the production of documents by Arrium, and the examination summons issued to Mr Galbraith, should be stayed, although there is a dispute as to the period of that stay.

20. The Plaintiffs accept that a stay is appropriate where Arrium has foreshadowed an application for leave to appeal against the Judgment. They submit that, having regard to the fact that Arrium has been considering its position as to a proposed appeal since the delivery of the Judgment on 19 November 2019, the limitations period in respect of the commencement of proceedings and the intervening Court recess, that stay should only extend up to and including 11 December 2019, pending Arrium filing such an application.

21. Arrium responds that it intends to file an application for leave to appeal expeditiously, but seeks a stay of three weeks from the date of the orders, on condition that the application for leave to appeal is filed within two weeks. It seeks to have that stay remain operative for a further period, in order to allow Arrium to make an application to the Court of Appeal for a further stay. It points to the fact that, while the Plaintiffs consent to the stay, they seek to have that stay not extend beyond the date of the application for leave to appeal.

19. The period of the stay which the Plaintiffs accept, up to and including 11 December 2019, is nearly a month after the date of delivery of the Judgment and nearly two weeks after the parties’ submissions as to orders and this judgment. I will order that stay for the period of two weeks, because that is common ground between the parties. Had the Plaintiffs not consented to such a stay for that period, I would have ordered a stay only for a much shorter period to allow Arrium sufficient time to approach the Court of Appeal. I note, in that regard, that a date has already been allocated for Mr Galbraith’s examination in December 2019, and it seems to me that Arrium has already had sufficient time to prepare any application for leave to appeal in the period since the Judgment was delivered.

20. It seems to me that the stay granted to Arrium at first instance should not extend beyond 11 December 2019. I will not abridge the time in which Arrium can file an application for leave to appeal to less than that period, but, in practical terms, Arrium will need to bring that application with greater expedition so that it can apply to the Court of Appeal for an extension of that stay before it expires.

Orders

24. Accordingly, I make the following orders, including an additional order that these orders be entered forthwith:

Orders for production

1.   The order for production issued to KPMG dated 15 May 2019 be set aside.

2.   The order for production issued to UBS AG dated 15 May 2019 be set aside.

3.   The order for production issued to ACN 004 410 833 Limited (formerly Arrium Limited) (subject to a deed of company arrangement) (“Arrium”) dated 15 May 2019 be set aside.

4. Within seven (7) days of Arrium receiving the relevant Authorisation in accordance with order 9 or the relevant Draw Down in accordance with order 11 (whichever is first), pursuant to s 68 of the Civil Procedure Act 2005 (NSW), Arrium produce to the plaintiffs, in tranches as agreed, such documents as have been identified as at that time as falling within the following categories:

4.1   the board packs for any Arrium board meetings held between May and December 2014;

4.2   any final modelling (excluding drafts) completed by Arrium, or by any external persons on behalf of Arrium, between May and December 2014 in respect of Arrium’s mining consumable division or the Southern Iron Ore Mine;

4.3   any final underwriting (including any sub-underwriting) agreement, but excluding any drafts, entered into between Arrium and UBS AG (or any other underwriters) in respect of the Capital Raising which occurred in 2014;

4.4   the final Arrium Group cash flow forecasts and liquidity forecast (excluding any drafts) for the period from 1 July 2013 to 30 June 2015.

Production regime

5.   Production in accordance with order 4 is to be made in tranches, as agreed between Arnold Bloch Leibler (“ABL”) and Squire Patton Boggs (“SPB”).

6.   Arrium is not required to take steps to comply with order 4 until such time as the Plaintiffs have first complied with order 7.

7.   The Plaintiffs make payment in the amount of $30,000 into the trust account of ABL being the solicitors for Arrium, being the initial tranche paid on account of the reasonable costs of Arrium in searching for, reviewing and producing documents required to be produced pursuant to these orders (“Arrium’s Reasonable Costs”) (“Trust Monies”).

8.   ABL is to provide an itemised invoice to SPB, being the solicitors for the Plaintiffs, each time it seeks to drawn down on the Trust Monies in payment of Arrium’s Reasonable Costs (“Draw Down”) (“Itemised Invoice”).

9.   Within seven (7) days of its receipt of an Itemised Invoice, SPB is to confirm, in writing to ABL, whether the Plaintiffs authorise the proposed Drawn Down against the Trust Monies, with such authorisation not to be unreasonably withheld (“Authorisation”).  

10.   Upon receipt of the Authorisation, ABL is permitted to Draw Down against the Trust Monies to apply to its fees or disbursements or Arrium’s costs in accordance with the Itemised Invoice.

11.   In the event that the Plaintiffs object to or decline to provide the Authorisation, Arrium may, on two business days’ notice, seek to restore these proceedings for the purposes of seeking appropriate court relief to order a Draw Down against the Trust Monies.

12.   The process outlined pursuant to orders 5 to 11 above will continue to apply to such further Trust Monies as may be paid by or on behalf of SPB and received by ABL, beyond the first $30,000 tranche payment, on account of Arrium’s Reasonable Costs of searching for, reviewing and producing further documents in accordance with these orders.

13.   Arrium is not required to produce any tranche of documents pursuant to these orders in respect of which Arrium’s Reasonable Costs in searching for, reviewing and producing that tranche exceed the Trust Monies held from time to time pursuant to Order 7, provided it gives the Plaintiffs reasonable prior written notice.

14.   ABL is to remit any surplus Trust Monies back to SPB within seven (7) days of receiving SPB’s written confirmation that Arrium:

14.1   has completed the production of documents as required by these orders; or

14.2   is not required to produce any further documents beyond what it may have already produced.

Costs

15.   There be no order as to costs as between the Plaintiffs on the one hand and Arrium, Mr Galbraith and KPMG on the other of and incidental to the adjourned hearing before Rees J on 15 August 2019 and the hearing before Black J on 31 October 2019 and the associated applications.

Court file access application

16.   The Plaintiffs have liberty to restore, before the Corporations List Registrar in the first instance, the relief sought in paragraph 4 of the Plaintiffs’ Originating Process filed 6 May 2019 on not less than seven days’ written notice to Arrium, KPMG and UBS AG.

Stay of orders pending appeal

17.   Order 4 and the examination summons issued to Mr Galbraith on 15 May 2019 be stayed up to and including 4pm on 11 December 2019, on condition that Arrium files any application for leave to appeal within that period. If no application for leave is filed within that period, the stay will automatically lapse.

Other orders

18.   Liberty to apply on two business days’ notice, specifying the relief sought.

19.   These orders be entered forthwith.

**********

Decision last updated: 02 December 2019