In the matter of Gearhouse BSI Pty Ltd (No 2)

[2021] NSWSC 136

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Gearhouse BSI Pty Ltd (No 2) [2021] NSWSC 136

Hearing dates:

On the papers

Date of orders:

24 February 2021

Decision date:

24 February 2021

Jurisdiction:

Equity - Corporations List

Before:

Williams J

Decision:

Order that the second defendant pay the plaintiff’s costs on the ordinary basis of the plaintiff’s application for interim relief and final relief and of the second defendant’s application for interim relief, in an amount agreed or assessed.

Catchwords:

COSTS – costs of successful application for winding up of joint venture company on just and equitable ground – where just and equitable ground established principally due to conduct of defendant shareholder – whether costs of winding up application should be paid out of company’s assets or by defendant shareholder – no other issue of principle

Legislation Cited:

Corporations Act 2001 (Cth), s 466

Uniform Civil Procedure Rules 2005 (NSW), r 42.7

Cases Cited:

In the matter of Gearhouse BSI Pty Ltd [2020] NSWSC 98

Category:

Costs

Parties:

Broadcast Sports International, LLC (Plaintiff)
Gearhouse BSI Pty Ltd (ACN 610 164 102) (First Defendant)
Gravity Media (Australia) Pty Ltd (Second Defendant)

Representation:

Counsel:
Mr L Chapman (Plaintiff)
Mr M Stevens (Solicitor) (First Defendant)
Mr S Golledge SC (Second Defendant)

Solicitors:
Norton Rose Fulbright (Plaintiff)
SRM Lawyers (First Defendant)
Watson Magioni Lawyers Pty Limited (Second Defendant)

File Number(s):

2021/33167

Publication restriction:

N/A

Judgment

1. These reasons for judgment relate to:

1. the costs of the plaintiff’s application for interim relief dismissed by Black J on 5 February 2021;

2. the costs of the plaintiff’s successful application for winding up of the first defendant and associated declaratory relief heard on 11 February 2021; and

3. the second defendant’s unsuccessful application for a stay of the plaintiff’s winding up application that was also heard on 11 February 2021.

2. Familiarity with my reasons for judgment delivered on 17 February 2021 is assumed: In the matter of Gearhouse BSI Pty Ltd [2020] NSWSC 98 (the principal judgment).

3. I refer to the parties using the same abbreviations adopted in the principal judgment. That is, the plaintiff is referred to as BSI, the first defendant (the company now being wound up) is referred to as GBSI and the second defendant is referred to as GMA.

4. As stated in the principal judgment at [243], a successful applicant’s costs of a winding up application are ordinarily paid out of the assets of the company to be wound up. However, in this case, GBSI was a corporate vehicle for a joint venture between BSI and GMA. BSI and GMA each hold 50 per cent of the shares in the company. GBSI was wound up on the just and equitable ground in circumstances where there was a deadlock between BSI and GMA, that deadlock was incapable of being resolved using the dispute resolution procedures in the Shareholders Agreement due to the irreparable breakdown in cooperation and trust between the two shareholders and BSI’s justified loss of confidence in the management of GBSI. Because the deadlock was incapable of being resolved, the practical reality was that the two shareholders would not pass the unanimous resolution required to renew the sole contract pursuant to which GBSI had carried out business and the substratum of GBSI had therefore failed. The main factors that had contributed to that situation were GMA’s unilateral decision to exclude BSI from access to GBSI’s valuable equipment, GMA’s use of that equipment without authority and its refusal to disclose to BSI what it had done with that equipment or even the whereabouts of the equipment until forced to do so during the initial hearing on 5 February 2021: see principal judgment at [177]-[240]. The effect of an order that BSI’s costs of the winding up application be paid out of the assets of GBSI in the winding up would be that BSI would effectively bear 50 per cent of its own costs.

5. In accordance with directions made on 17 February 2021, BSI and GMA have each made written submissions in relation to costs. No written submissions were made by GBSI, and neither BSI nor GMA sought any particular order in relation to GBSI’s costs. GBSI was separately represented at the hearings on 5 February 2021 and 11 February 2021, but did not participate beyond adopting GMA’s position.

6. BSI submitted that the Court should order that its costs of the proceedings be paid by GMA on the ordinary basis, save that the GMA should bear the costs of BSI’s unsuccessful application for interim relief on an indemnity basis.

7. GMA submitted that there should be an order in accordance with s 466 of the Corporations Act 2001 (Cth) that BSI’s costs be paid on the ordinary basis out of the assets of GBSI and that there should be no costs order against or in favour of GMA.

8. Alternatively, GMA submitted that if the Court considered that costs should follow the event, then the costs order in favour of BSI should be limited to the costs of the one day final hearing of the winding up application on 11 February 2021.

9. GMA opposed any order that it pay BSI’s costs of BSI’s unsuccessful application for interim relief on 5 February 2021, whether on the ordinary basis or on an indemnity basis.

10. For reasons that can be stated briefly, the appropriate costs order in my opinion in all the circumstances of this case is that GMA pay BSI’s costs of the applications referred to in [1] above on the ordinary basis.

11. I reject GMA’s submission that BSI’s costs should paid out GBSI’s assets on winding up on the basis that the winding up application was “an ordinary incident of the joint relationship” in circumstances where BSI wanted to end the relationship and GBSI did not. As referred to briefly at [4] above and discussed in more detail in the principal judgment at [177]-[240], GMA’s conduct was the main factor that brought about the circumstances in which it was just and equitable to wind up GBSI. That conduct went beyond a mere desire to continue the joint venture. Amongst other things, GMA caused GBSI’s valuable equipment to be deployed without authority, and deprived BSI of access to and information about the equipment. The whole of BSI’s costs of the winding up application in prayers 3 and 4 of its originating process and its claim for associated declaratory relief in prayer 5 of its originating process should be paid by GMA.

12. Whilst BSI’s application for interim relief was unsuccessful, it was a relatively short hearing that did win BSI an urgent final hearing of its application for an order winding up GBSI on the just and equitable ground. The dismissal of BSI’s interim relief application was based in part on the availability of that final hearing within a very short time frame, in circumstances where Black J formed the preliminary view that there appeared to be a case for the winding up of GBSI. BSI succeeded at that final hearing and there is no reason in my opinion why the reserved costs of the interim relief application should not be dealt with in the same way as the costs of the winding up application consistently with r 42.7 of the Uniform Civil Procedure Rules 2005 (NSW).

13. However, I accept GMA’s submission that it should not be ordered to pay BSI’s costs of the interim relief application on an indemnity basis. As GMA submitted, its conduct on which BSI relies in support of its application for indemnity costs was conduct prior to the commencement of the proceedings and not in the course of the proceedings.

14. For those reasons, I make the following order:

Order that the second defendant pay the plaintiff’s costs of:

1. the plaintiff’s application for interim relief in its originating process filed on 5 February 2021;

2. the plaintiff’s application for final relief in prayers 3 to 5 of its originating process filed on 5 February 2021; and

3. the second defendant’s application for interim relief in prayers 5 and 6 of its interlocutory process filed on 9 February 2021,

in an amount agreed or assessed.

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Decision last updated: 24 February 2021